UBS Group AG
Annual Report 2019
Our external reporting approach
The scope and content of our external reports are
determined by Swiss legal and regulatory requirements,
accounting standards, relevant stock and debt listing rules,
including regulations promulgated by FINMA, the SIX Swiss
Exchange, the US Securities and Exchange Commission and
other regulatory requirements, as well as by our financial
reporting policies.
At the center of our external reporting approach is the
annual report of UBS Group AG, which consists of
disclosures for UBS Group AG and
its consolidated
subsidiaries. We also provide a combined annual report for
UBS Group AG and UBS AG consolidated, which additionally
includes the consolidated financial statements of UBS AG as
well as supplemental disclosures required under SEC
regulations and is the basis for our SEC Form 20-F filing.
Annual reporting
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UBS Group AG
Annual Report 2019
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UBS Annual Reports
The 2019 Annual Reports (UBS Group AG Annual Report 2019 and the
combined UBS Group AG and UBS AG Annual Report 2019) include the
consolidated financial statements of UBS Group AG and UBS AG,
respectively, and provide comprehensive information about our firm,
including our strategy and businesses, financial and operating
performance and other key information. The reports are presented in US
dollars, our presentation currency. The UBS Group AG Annual Report
2019 is translated into German, with the German translation available as
of 13 March 2020 under “Annual reporting” at
www.ubs.com/investors.
The consolidated financial statements of UBS Group AG and UBS AG
have been prepared in accordance with International Financial Reporting
Standards (IFRS). The risk, treasury and capital management sections
include certain audited financial information, which forms part of the
consolidated financial statements. The Annual Reports also include the
statutory financial statements of UBS Group AG, which are the basis for
our Swiss tax return, our appropriation of retained earnings and a
potential distribution of dividends, subject to shareholder approval at the
Annual General Meeting.
We provide our combined Annual Report, the Pillar 3 report, the standalone legal entity reports and the sustainability
report as web disclosures at www.ubs.com/investors.
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31 December 2019 Pillar 3 report
UBS Group and significant regulated subsidiaries and sub-groups
UBS AG
Standalone financial statements and regulatory information
for the year ended 31 December 2019
Sustainability Report 2019
Based on GRI Standards
Pillar 3 report
The Pillar 3 report provides detailed
quantitative and qualitative information
about risk, capital, leverage and
liquidity for the UBS Group and
prudential key figures and regulatory
information for UBS AG standalone,
UBS Switzerland AG standalone,
UBS Europe SE consolidated and
UBS Americas Holding LLC
consolidated.
Standalone legal entity reports
We publish separate standalone legal
entity reports for UBS AG and
UBS Switzerland AG. Selected
financial and regulatory key figures
for these entities as well as for
UBS Europe SE and UBS Americas
Holding LLC are also included in our
annual reports.
Sustainability report
The sustainability report (formerly
called the GRI Document), which will
be available from 5 March 2020,
provides disclosures on
environmental, social and governance
factors for the UBS Group and
includes the disclosures of non-
financial information required by
German law implementing EU
Directive 2014/95 (CSR-Richtlinie-
Umsetzungsgesetz, CSR-RUG).
Our Pillars are the
foundation for
everything we do.
Capital strength
Effi ciency and effectiveness
Risk management
Our Principles are
what we stand for
as a fi rm.
Client focus
Excellence
Sustainable performance
Our Behaviors are
what we stand for
individually.
Integrity
Collaboration
Challenge
Our approach to long-term value creation
As of or for the year ended 31 December 2019
What we put into the equation
Input
What we do
Business activities
Financial capital
• Common equity tier 1 (CET1) capital ratio: 13.7%.
• CET1 leverage ratio: 3.9%.
• Going concern leverage ratio: 5.7%.
• Total loss-absorbing capacity: USD 89.6 billion.
• CET1 capital: USD 35.6 billion.
Relationships and intellectual capital
• Strong brand with over 150 years of experience in banking.
• Presence in all major financial centers worldwide.
• Strong culture and strategy based on our Pillars, Principles and Behaviors.
• We have access to the majority of the world’s billionaires.
• We spent more than 10% of our revenues (around USD 3.5 billion)
on technology in 2019, including amounts spent on regulatory change
programs and innovative solutions for our businesses and clients.
Human capital
• We foster a corporate culture that supports and engages employees.
• Our 69,966 employees (by headcount) work in 50 countries,
are citizens of 136 nations and speak more than 150 languages.
• 39% women and 61% men, with an average of 8 years of service.
• 19% under 30 years old, 60% between 30 and 50, and 21% over
50 years old.
Global Wealth
Management
Personal &
Corporate Banking
Social and natural capital
• Our UBS in society organization focuses our firm on being a force for
driving positive change in society and the environment.
• Our comprehensive environmental and social risk standards govern
client and vendor relationships and are enforced firm-wide.
• We invest in communities: our employees have valuable skills and
knowledge, which they use to make a difference in their communities.
• UBS Optimus Foundation is an award-winning grant-making
foundation that helps our clients use their wealth to drive positive
and sustainable social change for children.
• We regularly contribute to debates about important societal topics
and, in collaboration with other firms and industry bodies, help to set
standards on these topics.
Catalyst: digitalization and innovation
ABCDE
(automation,
un-bundling, cloud,
data, experience)
trends drive the
changes in how
we operate.
Modernizing and
modularizing
technical estates
leveraging
new technologies,
such as public
cloud, microservices
architecture, APIs,
and front-to-back
automation.
The results we deliver
Output
Investors
Our financial results
• Net profit attributable to shareholders: USD 4,304 million.
• Diluted earnings per share: USD 1.14.
• Return on CET1 capital: 12.4% (with a target of 12–15% for 2020–2022).
• Invested assets: USD 3,607 billion.
• Cost / income ratio was 80.5%, compared with 79.9% in 2018.
We are targeting a cost / income ratio of 75–78% in 2020–2022.
Clients
The products and services we offer
• We build and strengthen client relationships through various platforms and offerings,
such as UBS Evidence Lab Innovations, GWM platforms and WM Online portal,
UBS Partner, we.trade, UBS Atrium and Mobile Banking.
• A broad range of well-designed products and services for clients’ personal wealth
and their businesses.
• Effective procedures and processes to handle complaints.
Employees
How we work at UBS
• We are committed to further increasing our diversity, treating our employees fairly
and providing equal opportunities for all.
• We strive to hire, promote and retain more women across the firm, with a
stated aspiration of increasing the representation of women in management roles
to one-third.
• Our in-house UBS University offers customized training and skills development
opportunities.
• We support employees’ career growth; our new Career Navigator online platform
supports the mobility of internal talent.
• Modern cloud-enabled virtual workstations and mobile technologies have
been deployed.
Society and environment
What we deliver on sustainability
• USD 488.5 billion of sustainable investing assets (13.5% of our total invested assets).
USD 3.9 billion of clients’ assets in SDG-related impact investments.
• With a market share of 20.2% among asset and wealth managers offering
sustainable investment solutions, we are a leading provider of such products
in Switzerland.
• USD 52.7 billion of the total deal value in equity or debt capital market services
and USD 34.5 billion in financial advisory services provided by our Investment Bank
to companies that make a positive contribution to climate change mitigation
and adaptation.
• In 2019, we donated USD 45.2 million to local programs. 38% of our employees
volunteered and invested 202,784 hours in community projects.
• UBS Optimus Foundation raised USD 89.5 million in donations.
Asset
Management
Investment
Bank
Co-developing
digital innovation
and ecosystems
through
partnerships,
research and
innovation pipeline
management,
facilitated by
centers of
excellence.
Strengthening our
digital culture and
engineering
approach through
training,
communications,
and adopting new
toolsets and agile
ways of
collaborating.
How our stakeholders benefit
Outcome
The impact we create
Impact
Driving change in the world
needs leadership. As the
largest truly global wealth
manager, we have a
responsibility to take a leading
role in shaping a positive
future – for all of us and
the generations to come.
We are an integral part of the
Swiss economy and broader
society – not only as a leading
universal bank, but also as the
third biggest private employer
and one of the top taxpayers.
We significantly contribute to
the prosperity of the Swiss
economy by providing efficient
financial services, capital
allocation, stability, security
and reliability.
We aim to protect and increase
the value of our clients’ assets.
Understanding our clients’
needs and expectations allows
us to serve their best interests
and to create value for them.
In sustainable and impact
investing, we set standards
across the industry and
constantly challenge ourselves
and our peers to raise the bar.
How our investors benefit
• Attractive capital returns to our shareholders. A dividend of USD 0.73 per share
proposed for the financial year 2019. We aim to increase our ordinary dividend per
share by USD 0.01 per year, and to return excess capital through share repurchases.
• Total payout ratio for 2019 will be 80%, combining the proposed dividend with our
share repurchases of USD 806 million in 2019.
• We aim to balance growth opportunities with cost and capital efficiency in order to
drive attractive risk-adjusted returns and sustainable performance.
How our clients benefit
• Sustaining long-term relationships based on mutual respect, trust and integrity.
Access to outstanding, tailored advice, financial solutions and services from around
the globe delivered by experts our clients can trust; superior investment performance.
• Improved satisfaction through the offering of suitable products and services.
• Services accessible through convenient digital banking portals, which enable our
clients to bank at their convenience, and through our branches and presences
in Switzerland and abroad.
How our employees benefit
• UBS is widely recognized as an employer of choice and a great place
to build a career.
• Levels of employee satisfaction and engagement, as shown in our most recent
employee survey, are above the norm for financial services organizations.
• A diverse and inclusive culture across the firm to drive sustainable growth
and innovation and to build a better place to work for all employees.
• Support for leadership development, as great leaders are the key to growing
our people, client relationships and results.
• Pay for performance, with a strong commitment to pay equity embedded into
our compensation policies and practices.
How society and the environment benefit
• Total reduction of greenhouse gas footprint by 71% from the 2004 baseline year,
targeting a 75% reduction by the end of 2020.
• We further reduced our carbon-related assets to less than 1% of our total banking
products exposure and strengthened our standards in the energy and utilities sectors.
• More than 280,000 direct beneficiaries and 107,388 lives substantially improved as
a result of our community investments.
• UBS Optimus Foundation committed USD 109.5 million to carefully selected
programs.
• The well-being of 3.3 million vulnerable children around the world was improved
with help of the work of UBS Optimus Foundation.
Contents
2 Letter to shareholders
8 Our key figures
10 Our Board of Directors
12 Our Group Executive Board
14 Our evolution
1. Our strategy, business model and environment
3. Risk, treasury and
capital management
18 Our strategy
19 Performance targets and measurement
20 Our businesses
31 Our environment
35 How we create value for our stakeholders
49 Regulation and supervision
54 Regulatory and legal developments
60 Risk factors
2. Financial
and operating performance
72 Critical accounting estimates and judgments
73 Significant accounting and financial reporting changes
75 Group performance
85 Global Wealth Management
88 Personal & Corporate Banking
93 Asset Management
Investment Bank
97
101 Corporate Center
105 Risk management and control
156 Treasury management
175 Capital management
4. Corporate governance and compensation
196 Corporate governance
236 Compensation
5. Financial
statements
283 Consolidated financial statements
475 Standalone financial statements
6. Significant regulated subsidiary and sub-group
information
500 Financial and regulatory key figures for our significant
regulated subsidiaries and sub-groups
Appendix
502 Alternative performance measures
504 Abbreviations frequently used in our financial reports
507
508 Cautionary statement
Information sources
Annual Report 2019
Letter to shareholders
Dear Shareholders,
Building on your positive feedback from the previous years, our
shareholder letter for 2019 again answers a series of questions
that we are regularly asked by different stakeholders of the
bank.
What was the market context in 2019?
Even though equity markets reached all-time highs, sharp
changes in macroeconomic and market conditions affected UBS
and our clients. Interest rate headwinds intensified, with rate
cuts in the US and further moves into negative territory in
Europe. Contrary to more optimistic expectations at the start of
the year, global GDP growth of just 3% was both substantially
lower than had been forecast and the lowest since the 2007–
2009 financial crisis. Faced with slowing global growth and
persistent geopolitical concerns, many clients either de-risked, or
simply stayed on the sidelines. Client activity was also negatively
affected by historically low market volatility. Nevertheless,
recession concerns abated in the US and investor sentiment
improved in the final quarter.
How do you assess the financial performance of the Group
in 2019?
In these mixed conditions we delivered a solid performance in
2019, closing the year with the best fourth quarter since 2010.
Our net profit reached USD 4.3 billion and we delivered a
12.4% return on CET1 capital, competitive with American peers
large European banks. Clients
and well ahead of other
continued to turn to us for high-quality advice and solutions to
help them achieve their goals. We now manage over USD 3.6
trillion of their assets, up nearly a trillion in four years. Our
capital position remains formidable, with a CET1 capital ratio of
13.7%. Our total loss-absorbing capacity increased to nearly
USD 90 billion.
How much of your profits did you return to shareholders
last year?
In 2019, we generated USD 5 billion of capital, bringing the
total to USD 28 billion since 2011. Our proposed dividend of
USD 0.73 per share for 2019 represents an increase of 6%
compared with 2018 and is in addition to the USD 806 million
of shares bought back under our repurchase program, helping
increase our tangible book value per share by 6%. The sum of
our 2019 proposed dividend and share repurchases is USD 3.4
billion, or 80% of our net profits, which is highly attractive
compared to peers.
2
What actions are you taking in the French litigation case?
Management and the Board of Directors are completely focused
on and committed to a resolution of the French cross-border
matter. This is in the best interest of shareholders, and it will
most likely take time to resolve the case. The trial at the Court of
Appeal is scheduled for 2–29 June 2020, and a verdict is
expected later in the year. We are preparing diligently for this
trial. UBS denies any criminal wrongdoing in this case. Our
provision for this matter remains at EUR 450 million (USD 505
million), unchanged from year-end 2018. We have published
responses to questions frequently asked by shareholders, clients,
employees and other stakeholders on this matter, which are
available at www.ubs.com/investors.
What are the key growth opportunities you see going
forward?
We are ideally positioned to take advantage of global mega-
trends. As the largest truly global wealth manager to high net
worth and ultra-high net worth clients, we are well positioned to
benefit from these trends. Our business is based on wealth
creation and helping clients manage their wealth and fulfil their
goals, as well as advising on how they want to pass it on. Our
billionaires report revealed that approximately 723 billionaires
will transfer USD 3.5 trillion to their heirs over the next two
decades. We have a strong presence in the US and Asia – two
leading growth markets – along with the right people, the right
investments in technology, and the capital strength to lead the
wealth management industry. We are also a leading universal
bank in Switzerland and we are determined to extend our lead.
All this is enhanced by an investment bank that is strong in the
areas where we choose to compete, and a successful asset
manager.
We are delivering attractive returns in a responsible and
sustainable way, while strategically investing for growth. Joint
ventures, cross-selling and white-labelling are other growth
opportunities. Examples in 2019 include exciting strategic
partnerships with leading market players – Banco do Brasil in
Brazil and Sumitomo Mitsui Trust in Japan. These are just some
of the opportunities across our businesses that we are focused
on. There are many others that you can read about in the pages
of our annual report.
Sergio P. Ermotti Group Chief Executive Officer
Axel A. Weber Chairman of the Board of Directors
3
Annual Report 2019
Letter to shareholders
What are your priorities for 2020–2022?
We aim to drive higher and superior returns by growing each of
our businesses and leveraging our unique, integrated and
complementary business portfolio and geographic footprint. We
have defined a number of priorities to help us achieve this in
2020–2022.
In Global Wealth Management, we will execute on several
initiatives designed to accelerate our growth and elevate the
quality and value of the service we deliver to our clients.
Our Investment Bank is well positioned to respond to
changing market conditions and client needs and to better
leverage our capabilities, including the technology investments
we have made over the years.
Our Asset Management business will continue to build on its
differentiated client offering for further growth, performance
and scale.
In our Personal & Corporate Banking business in Switzerland,
we will drive profitable growth through digital initiatives,
services and efficiency gains.
Our business divisions are competitive in those fields that
matter most to our clients, but they would not be as successful
on a stand-alone basis. Therefore, a key priority is further
embedding our one-firm approach across the Group. While we
have successfully delivered our integrated business model for the
benefit of many clients and shareholders, we can do more. We
also remain committed to improving efficiency and productivity
in 2020, keeping operating costs flat, while growing revenues
and funding USD 1 billion in investments to meet regulatory
requirements and improve efficiency. Continued investments in
technology, platforms and risk management systems are crucial
for growing our franchise, generating attractive returns in the
future and improving client experience.
What are you doing to make sure UBS remains the most
relevant global wealth manager?
Client needs are constantly evolving, and the pace of change is
faster than ever. What has not and will not change is clients’
need for high-quality advice. This is where UBS excels and what
makes our value proposition durable. We provide customized,
nuanced, and personalized advice that helps our clients meet
their individual financial goals, while improving their lives and
generating impact that matters. Clients are increasingly looking
to partner with a firm that creates value for society as a whole
and helps them invest in areas and ideas that matter most to
them. Our millennial clients are a good example of this. Many
are restructuring their portfolios and using our advisory and
product capabilities to do well financially while also doing good
for the world around us. Technology plays another key part in
this endeavor, helping us to deliver even more for our clients,
empower our client-facing staff, including advisors, and make
our infrastructure more agile and versatile and, as a result,
increase productivity and quality of service.
What is UBS doing to provide sustainable finance
opportunities for clients?
Sustainable finance has long been a firm-wide priority. The Dow
recognized
Jones Sustainability
the most widely
Index,
44
sustainability ranking, recognized UBS as the industry leader for
the fifth year running. This demonstrates our commitment to the
growing demand for sustainable finance services and products
across client segments. A key indicator is the development of
our core sustainable investing assets, which have more than
doubled in just two years, from 5.6% of total invested assets in
2017 to 13.5% in 2019. Our multi-asset sustainable investing
solutions were our fastest-growing mandate offering, reaching
over USD 9 billion in invested assets. We aim to create
sustainable finance products and services firm wide that help
clients channel capital to support the United Nations Sustainable
Development Goals (the SDGs). We also offer advice from
philanthropy experts to assist clients in making a meaningful and
measurable difference for their chosen philanthropic causes.
How are you using technology to help drive value for
clients and shareholders?
We invest in technology to improve our client service and client
experience, as well as to improve the efficiency and scalability of
our businesses. Technology affects every element of our value
chain – from the way we communicate with, serve and advise
our clients to how we manage risks and run our back office. This
is why we invest over 10% of revenues per year in technology,
which was around USD 3.5 billion in 2019. Last year we
decommissioned over 400 legacy applications and deployed
1,100 robots across our organization. In our Swiss Personal &
Corporate Banking business, for example, two-thirds of our
clients interact with us through our digital banking facilities. In
our corporate business, this number is even higher with almost
80% using our digital banking. These clients are more satisfied
and, as a result, do more business with us. Data analytics allows
client advisors to analyze data more efficiently and provide
better, more timely advice. We are also using machine learning
and artificial intelligence-powered engines to automate more
complex tasks and allow for better and faster decision-making.
What kind of capital returns can we expect if you
successfully execute on your strategy and priorities?
We continue to focus on sustainable performance. We hold
ourselves accountable for delivering our targets by executing on
our proven strategy in a disciplined manner, and avoiding
opportunistic measures for the sake of short-term gain. We
invest for the long term and aim to do the right thing for clients
and the long-term health of the business. Over the next three
years, our aim is to deliver at the upper end of our target range
of between 12% and 15% reported return on CET1 capital, as
announced in January 2020. Our goal is to balance revenue
growth with both cost and capital efficiency.
Going forward, we intend to grow our dividend per share by
USD 1 cent per year. This will give us greater capacity to return
more capital through share repurchases. We expect to
repurchase around USD 450 million worth of shares in the first
half of 2020, completing our current CHF 2 billion repurchase
program, and will assess our future repurchase plans in the
second half of 2020.
What is UBS doing to develop the talent and leaders of
tomorrow?
Our success relies on our long-standing commitment to investing
in our employees at every career stage. We are widely
recognized as an employer of choice and a great place to build a
career. We believe the right strategy and a culture of ethical
behavior and accountability drive strong performance. The three
keys to success – our Pillars, Principles and Behaviors – embody
the foundation of our strategy and culture. They define what we
stand for as a firm and as individuals, while also defining the
way we think, work and act at UBS. Our in-house UBS University
updated its curriculum to emphasize future-skills development
and personal growth for all employees, with a new digital skills
syllabus that builds knowledge about topics such as blockchain,
intelligence.
cloud
Furthermore, we revamped our leadership development offering
to ensure our leaders have the skills they need to develop their
businesses and their people, and to lead effectively in the digital
transformation age. Finally, we foster a diverse and inclusive
culture across the firm to drive sustainable growth and
innovation, deliver the best of UBS to clients, and build a better
place to work.
computing,
robotics
artificial
and
What is UBS doing to benefit stakeholders and society at
large?
We believe that by keeping a healthy balance between the
expectations of our most important stakeholder groups – clients,
employees and investors – we are also creating value for society.
Delivering tailored advice, top quality solutions and disciplined
execution, while also addressing strategic opportunities, further
improving the working environment and facilitating economic
development that is sustainable for the planet and humanity –
these actions are at the heart of our strategy. In 2019, we
demonstrated this commitment by becoming a founding
signatory of the United Nations Principles for Responsible
Banking, a comprehensive framework for the integration of
sustainability into banks’ business strategies. Our annual report
contains a dedicated section on how we create value for all our
stakeholders.
What are you doing to support the transition to a low-
carbon economy?
We have been executing on our comprehensive climate strategy
for many years. In 2019, our total core sustainable investments
increased significantly to USD 488 billion from USD 313 billion in
2018, while, as part of this, our climate-related sustainable
investments increased to USD 108 billion. This includes our
recently launched and award-winning Climate Aware strategy,
which reached over USD 3 billion in invested assets. To protect
our own and our clients’ assets from climate-related risks, our
exposure to carbon-related assets on our balance sheet
continues to be low, at 0.8% or USD 1.9 billion as at the end of
2019, down from 1.6% at the end of 2018 and 2.8% at the
end of 2017. Our goal is to be the financial partner of choice for
clients who want to mobilize capital toward climate action and
the Paris Agreement. For the World Economic Forum annual
meeting in 2020, our white paper focused on climate action and
the ways in which investors can mobilize private and institutional
capital toward the orderly transition to a low-carbon economy.
How does UBS play a role and give back in the
communities in which it operates?
We strive to use our skills to help communities grow and thrive.
We recognize that our long-term success depends on the health
and prosperity of the communities in which we operate. Our
firm-wide UBS in society program covers all of the activities and
capabilities related to sustainable finance, including sustainable
investing, philanthropy, environmental, climate and human
rights policies governing client and supplier relationships, our
environmental footprint, human resources, and community
investment. For example, we seek to tackle societal disadvantage
and
through
investments
India
entrepreneurship,
Development Impact Bond. We provide strategic financial
commitments and offer targeted employee volunteering to drive
positive change. Directing these efforts toward skills-based
volunteering, we aim to tackle local social issues in the most
powerful and effective way. In 2019, 38% of our global
workforce volunteered, with 48% of the hours being skills
based.
education
the Quality Education
long-term
such as
in
You have announced that Ralph Hamers will be appointed
Group Chief Executive Officer as of 1 November 2020. Can
you explain your choice?
The Board made the decision to appoint Ralph Hamers as
successor of Group CEO Sergio P. Ermotti following a thorough
and rigorous selection process, reflecting the firm’s commitment
to strong corporate governance. Ralph is a proven leader in
banking and a strong cultural fit for UBS. Under his leadership,
ING Group has implemented a fundamental shift in its operating
model and is now considered one of the best examples of digital
innovation in the banking sector. Ralph is a charismatic executive
with the experience and personality to write UBS’s next chapter.
Thank you for your ongoing support. We look forward to your
feedback and to welcoming you to this year’s Annual General
Meeting on 29 April.
Yours sincerely,
Axel A. Weber
Chairman of the
Board of Directors
Sergio P. Ermotti
Group Chief Executive Officer
5
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on the mission to raise awareness of and support
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Find out more and buy a band
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@togetherbandofficial
Corporate information
UBS Group AG is incorporated and domiciled in Switzerland and operates
under Art. 620ff. of the Swiss Code of Obligations as an Aktiengesellschaft, a
corporation limited by shares. Its registered office is at Bahnhofstrasse 45,
CH-8001 Zurich, Switzerland, telephone +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 Group AG owns 100% of the outstanding shares of UBS AG.
Contacts
Switchboards
For all general inquiries.
www.ubs.com/contact
Zurich +41-44-234 1111
London +44-207-567 8000
New York +1-212-821 3000
Hong Kong +852-2971 8888
Singapore +65-6495 8000
Investor Relations
UBS’s Investor Relations team supports
institutional, professional and retail
investors from our offices in Zurich, London,
New York and Krakow.
UBS Group AG, Investor Relations
P.O. Box, CH-8098 Zurich, Switzerland
www.ubs.com/investors
Zurich +41-44-234 4100
New York +1-212-882 5734
Media Relations
UBS’s Media Relations team supports
global media and journalists from our
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 5858
mediarelations@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
+41-44-235 6652
Shareholder Services
UBS’s Shareholder Services team, a unit
of the Group Company Secretary office, is
responsible for the registration of
UBS Group AG registered shares.
UBS Group AG, Shareholder Services
P.O. Box, CH-8098 Zurich, Switzerland
sh-shareholder-services@ubs.com
+41-44-235 6652
US Transfer Agent
For global registered share-related
inquiries in the US.
Computershare Trust Company NA
P.O. Box 505000
Louisville, KY 40233-5000, USA
Shareholder online inquiries:
www-us.computershare.com/
investor/Contact
Shareholder website:
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 2020 report:
Tuesday, 28 April 2020
Publisher: UBS Group AG, Zurich, Switzerland | www.ubs.com
Annual General Meeting 2020:
Wednesday, 29 April 2020
Language: English / German | SAP-No. 80531E
Publication of the second quarter 2020 report:
Tuesday, 21 July 2020
Publication of the third quarter 2020 report:
Tuesday, 20 October 2020
© UBS 2020. The key symbol and UBS are among the registered and
unregistered trademarks of UBS. All rights reserved.
Printed in Switzerland on chlorine-free paper with mineral oil-reduced inks.
Paper production from socially responsible and ecologically sound forestry
practices
7
Annual Report 2019
Our key figures
As of or for the year ended
31.12.17
31.12.19
31.12.19
31.12.18
28,889
28,889
23,312
23,312
5,577
5,577
4,304
4,304
1.14
1.14
30,213
24,222
5,991
4,516
1.18
29,622
24,272
5,351
969
0.25
7.9
7.9
9.0
9.0
12.4
12.4
11.0
11.0
3.2
3.2
80.5
80.5
78.9
78.9
22.7
22.7
(4.7)
(4.7)
8.6
9.8
13.1
11.8
3.3
79.9
79.5
24.5
366.0
1.8
2.0
3.0
12.6
3.3
81.6
78.2
80.5
(71.1)
USD million, except where indicated
Group results
Group results
Operating income
Operating expenses
Operating profit / (loss) before tax
Net profit / (loss) attributable to shareholders
Diluted earnings per share (USD)1
Profitability and growth2
Profitability and growth2
Return on equity (%)
Return on tangible equity (%)
Return on common equity tier 1 capital (%)
Return on risk-weighted assets, gross (%)
Return on leverage ratio denominator, gross (%)
Cost / income ratio (%)
Adjusted cost / income ratio (%)
Effective tax rate (%)
Net profit growth (%)
Resources
Resources
Total assets
Equity attributable to shareholders
Common equity tier 1 capital3
Risk-weighted assets3
Common equity tier 1 capital ratio (%)3
Going concern capital ratio (%)3
Total loss-absorbing capacity ratio (%)3
Leverage ratio denominator3
Common equity tier 1 leverage ratio (%)3
Going concern leverage ratio (%)3
Total loss-absorbing capacity leverage ratio (%)3
Liquidity coverage ratio (%)4
Other
Other
Invested assets (USD billion)5
3,262
Personnel (full-time equivalents)6
61,253
Market capitalization7
68,477
Total book value per share (USD)7
14.11
Total book value per share (CHF)7
13.75
Tangible book value per share (USD)7
12.34
Tangible book value per share (CHF)7
12.03
1 Refer to “Note 9 Earnings per share (EPS) and shares outstanding” in the “Consolidated financial statements” section of this report for more information. 2 Refer to the “Performance targets and measurement”
1
3 Based on the Swiss systemically relevant bank framework as of 1 January 2020. Refer to the “Capital management” section of this
section of this report for more information about our performance targets.
3
5 Includes invested assets for Global Wealth Management, Asset
report for more information.
5
6 Personnel (full-time equivalents) as of 31 December 2019 has been amended compared with our fourth quarter 2019 report, resulting in a decrease of 61.
Management and Personal & Corporate Banking.
6
7 Refer to “UBS shares” in the “Capital management” section of this report for more information.
7
939,279
52,495
33,516
243,636
13.8
17.6
33.0
909,032
3.69
4.7
8.8
143
958,489
52,928
34,119
263,747
12.9
17.5
31.7
904,598
3.77
5.1
9.3
136
972,183
972,183
54,533
54,533
35,582
35,582
259,208
259,208
13.7
13.7
20.0
20.0
34.6
34.6
911,325
911,325
3.90
3.90
5.7
5.7
9.8
9.8
134
134
4 Refer to the “Balance sheet, liquidity and funding management” section of this report for more information.
4
3,101
66,888
45,907
14.35
14.11
12.55
12.33
3,607
3,607
68,601
68,601
45,661
45,661
15.08
15.08
14.60
14.60
13.29
13.29
12.87
12.87
2
Alternative performance measures
An alternative performance measure (APM) is a financial measure of historical or future financial performance, financial position
or cash flows other than a financial measure defined or specified in the applicable recognized accounting standards or in other
applicable regulations. We report a number of APMs, including adjusted results, in the discussion of the financial and operating
performance of the Group, our business divisions and our Corporate Center. We use APMs to provide a fuller picture of our
operating performance and to reflect management’s view of the fundamental drivers of our business results. A definition of each
APM, the method used to calculate it and the information content are presented in the appendix under “Alternative performance
measures.” Our APMs may qualify as non-GAAP measures as defined by SEC regulations.
8
11
2
44
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” and “UBS Switzerland AG standalone”
UBS Switzerland AG on a standalone basis
“UBS Europe SE consolidated”
UBS Europe SE and its consolidated subsidiaries
“UBS Americas Holding LLC” and
“UBS Americas Holding LLC consolidated”
UBS Americas Holding LLC and its consolidated subsidiaries
In this report, unless the context requires otherwise, references to any gender shall apply to all genders.
9
Our Board of Directors
1. Axel A. Weber
Chairman of the Board of Directors / Chairperson
of the Corporate Culture and Responsibility
Committee / Chairperson of the Governance and
Nominating Committee
2. Robert W. Scully
Member of the Risk Committee
3. Jeanette Wong
Member of the Audit Committee
4. Dieter Wemmer
Member of the Audit Committee / member of the
Compensation Committee
5.
Isabelle Romy
Member of the Audit Committee / member of the
Governance and Nominating Committee
6. David Sidwell
Senior Independent Director / Chairperson of the
Risk Committee / member of the Governance and
Nominating Committee
7. Fred Hu
Member of the Compensation Committee
8. Jeremy Anderson
Chairperson of the Audit Committee / member
of the Corporate Culture and Responsibility
Committee / member of the Governance and
Nominating Committee
9. Julie G. Richardson
Chairperson of the Compensation Committee /
member of the Governance and Nominating
Committee / member of the Risk Committee
10. William C. Dudley
Member of the Corporate Culture and
Responsibility Committee / member of the Risk
Committee
11. Beatrice Weder di Mauro
Member of the Audit Committee / member of the
Corporate Culture and Responsibility Committee
12. Reto Francioni
Member of the Compensation Committee / member
of the Risk Committee
10
2
4
6
3
5
7
8
10
1
9
11
12
The Board of Directors (BoD) of UBS Group AG, under the
leadership of the Chairman, consists of between 6 to 12 members
as per our Articles of Association. The BoD decides on the strategy
of the Group upon recommendation by 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 applicable laws, rules and
regulations. The BoD exercises oversight over UBS Group AG and
its subsidiaries and is responsible for establishing a clear Group
framework
governance
to provide 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 financial statements
for issue and appoints and removes all Group Executive Board
(GEB) members.
11
Our Group Executive Board
UBS Group AG operates 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 is comprised of 13 members and
has executive management responsibility for the steering of the Group and its business. It
assumes overall responsibility for developing and implementing the strategies of the
Group, business divisions and Group functions, as approved by the BoD.
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
12
1. Sergio P. Ermotti
Group Chief Executive Officer
2. Christian Bluhm
Group Chief Risk Officer
3. Markus U. Diethelm
Group General Counsel
4.
Iqbal Khan
Co-President Global Wealth Management
5. Tom Naratil
Co-President Global Wealth Management and
President UBS Americas
6. Edmund Koh
President UBS Asia Pacific
7. Kirt Gardner
Group Chief Financial Officer
8. Suni Harford
President Asset Management
9. Markus Ronner
Group Chief Compliance and Governance Officer
10. Sabine Keller-Busse
Group Chief Operating Officer and
President UBS Europe, Middle East and Africa
11. Robert Karofsky
Co-President Investment Bank
12. Axel P. Lehmann
President Personal & Corporate Banking and
President UBS Switzerland
13. Piero Novelli
Co-President Investment Bank
3
5
4
6
1
2
7
9
8
12
11
10
13
13
Our evolution
Since our origins in the mid-19th century, many financial
institutions have become part of the history of our firm and have
helped to shape its development. 1998 was a major turning
point for the firm, when two of the then three largest banks in
Switzerland, Union Bank of Switzerland and Swiss Bank
Corporation (SBC), merged to form today’s UBS. At the time of
the merger, both banks were already well established and
successful in their own right. Union Bank of Switzerland had
grown organically to become the largest Swiss bank. In contrast,
SBC had grown mainly through a combination of strategic
partnerships and acquisitions, including S.G. Warburg in 1995.
In 2000, we acquired PaineWebber, a US brokerage and asset
management firm whose roots went back to 1879, establishing
us as a significant player in the US. Over the past half century,
we have also built a strong presence in the Asia Pacific region,
where we are the largest wealth manager (measured by invested
assets), a top-tier investment bank and an established player in
asset management.
During the financial crisis of 2008, we incurred significant
losses. In 2011, we initiated a strategic transformation of our
firm toward a business model that focused on our core
businesses of wealth management and personal and corporate
banking in Switzerland. We sought to revert to our roots,
emphasizing a client-centric model that requires less risk-taking
and capital, and have successfully completed this transformation.
Today, we are a global financial services firm, consisting of
the largest truly global wealth manager, a leading personal and
corporate banking business in Switzerland, a global asset
manager and a focused investment bank.
The chart on the next page provides an overview of our
principal legal entities and reflects our legal entity structure.
Refer to www.ubs.com/history for more information
The most recent changes
to our legal entity structure
In 2014, we began adapting our legal entity structure to
improve the resolvability of the Group in response to too big
to fail requirements in Switzerland and recovery and resolution
regulation in other countries in which the Group operates.
We continue to consider further changes to the Group’s
legal structure in response to regulatory requirements and
other external developments. Such changes may include
further consolidation of operating subsidiaries in the EU and
adjustments to the booking entity or location of products
and services.
Refer to the “Risk factors” section of this report for
more information
Refer to the “Regulatory and legal developments”
section of this report for more information
14
2014
2015
Holding company
UBS structure
• UBS Group AG became the holding
company of the Group.
• We transferred our personal and
corporate banking and wealth
management businesses booked in
Switzerland from UBS AG to the newly
established UBS Switzerland AG.
• UBS Business Solutions AG, a direct
subsidiary of UBS Group AG,
was established as the Group’s service
company.
The legal structure of the UBS Group as of 28 February 2020
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2016
2017
2019
UBS structure
UBS Business Solutions
UBS Europe SE
UBS Group Funding
(Switzerland) AG
• UBS Americas Holding LLC was
designated as our intermediate holding
company for our US subsidiaries.
• Wealth management subsidiaries in
various European countries were merged
into UBS Europe SE.
• The majority of Asset Management’s
operating subsidiaries were transferred
to UBS Asset Management AG.
• UBS Group Funding (Switzerland) AG
was established as a wholly owned direct
subsidiary to issue loss-absorbing AT1
capital instruments and TLAC-eligible
senior unsecured debt, guaranteed by
UBS Group AG.
• Shared services functions in Switzerland
and the UK were transferred from
UBS AG to UBS Business Solutions AG.
• We completed the transfer of shared
services functions in the US to our US
service company, UBS Business Solutions
US LLC, a wholly owned subsidiary of
UBS Americas Holding LLC.
• Merger of UBS Limited, our UK-
headquartered subsidiary, into
UBS Europe SE, our Germany-
headquartered European subsidiary.
• We transferred our outstanding
loss-absorbing AT1 capital instruments
and TLAC-eligible senior unsecured
debt from UBS Group Funding
(Switzerland) AG to UBS Group AG
as the issuer.
15
Our strategy,
business model
and environment
Management report
Our strategy, business model and environment
Our strategy
Our strategy
We aim to drive higher and superior returns by growing and
leveraging our unique, integrated and complementary business
portfolio and geographic footprint.
performance and scale. We plan to build on our strengths in
fast-growing areas of the industry, such as sustainable investing,
private markets and alternatives.
UBS is the largest truly global wealth manager and a leading
personal and corporate bank in Switzerland, with focused
investment bank and asset management divisions. We
concentrate on capital-efficient businesses in our targeted
markets, where we have a strong competitive position and an
attractive long-term growth or profitability outlook. We view
capital strength as the foundation of our strategy.
In delivering all of UBS as one firm to our clients, we intend
to: strengthen our leading client franchises and grow share;
position UBS for growth by expanding our services and
capabilities; drive greater efficiencies and scale; and further
intensify collaboration for the benefit of our clients.
Priority IV Personal & Corporate Banking aims to deliver
steady profit growth by enhancing its digital initiatives and
services, while improving efficiency. By expanding our leading
position in digital services in Switzerland, along with broadening
our advisory solutions and product offering, we expect to
increase profits despite the current negative interest rate
environment.
Priority V We want to deliver more as one firm to our clients.
The collaboration between our business divisions is critical to the
success of our strategy and is a source of competitive advantage.
This collaboration also provides further revenue growth potential
and enables us to better meet client needs; for example, in the
ultra high net worth and Global Family Office space.
Driving increasing returns
We manage UBS for the long term, focusing on sustainable
profit growth and responsible resource deployment. We aim to
balance growth opportunities with cost and capital efficiency in
order to drive attractive risk-adjusted returns and sustainable
performance.
For the years 2020–2022, we have seven strategic priorities,
which are outlined below.
Priority I We aim to increase profit before tax in our Global
Wealth Management business by 10–15% and drive higher pre-
tax margins by elevating our leading franchise. We are adjusting
our coverage across the client spectrum to deliver more tailored
services and solutions. We are reorganizing ourselves to be
closer to clients, in order to increase time spent with them,
empowering regions, improving our responsiveness and speed
to market, as well as delivering on all of the firm’s capabilities
through expanded strategic partnerships with the Investment
Bank and Asset Management. Furthermore, we are expanding
our product offering while becoming more efficient, leveraging
scale through partnerships and optimizing processes to increase
productivity.
Priority II In our Investment Bank, we intend to improve
returns by driving profitable growth, by further optimizing
resources and through collaboration. We will maintain our
capital-light business model that is focused on advice and
execution and leverages our digital capabilities. Together with
our other business divisions and through external partnerships,
we aim to deliver market-leading digital, research and banking
capabilities to our clients, while consuming up to one-third of
Group resources.
Priority III In Asset Management, we intend to capitalize on
further growth,
client offering
our differentiated
for
Another area where collaboration between our business
divisions can bring more value to clients is in sustainable finance.
As the largest truly global wealth manager, we have a
responsibility to take a leading role in shaping a positive future,
and our goal is to be the financial provider of choice for clients
who wish to mobilize capital toward the achievement of specific
environmental or social outcomes. We are shaping the
landscape of sustainable finance by using thought leadership,
innovation and partnerships
their
sustainability efforts.
to support clients
in
Refer to “Society” and “Our focus on ESG” in the “How we
create value for our stakeholders” section of this report for
more information about our engagement and leadership in
sustainability matters
Priority VI We aim to drive improvements in firm-wide
efficiency to fund growth and enhance returns. We believe
continued optimization of processes, platforms, our organization
and capital resources will help us to achieve this.
We will continue to invest in technology with the goal of
improving efficiency and effectiveness, driving growth and
better serving our clients.
We also intend to realize the benefits of existing external
partnerships and to explore selected new opportunities.
Priority VII We plan to maintain an attractive capital return
profile through dividends and share repurchases. Our capital
strength and capital-accretive business model allows us to grow
our business while delivering attractive capital returns to our
shareholders.
We aim to increase our ordinary dividend per share by
USD 0.01 each year, and to return excess capital through share
repurchases. We consider business conditions and any
idiosyncratic developments when determining excess capital
available for share repurchases.
18
Performance targets and measurement
Targets and capital guidance
In January 2020, we updated and simplified our performance
target framework. We reduced the number of targets to
concentrate primarily on the Group rather than our business
divisions, underlining our focus on cross-divisional collaboration.
Our targets are underpinned by the latest three-year strategic
plan, which reflects our strategic
initiatives, management
actions, as well as certain economic and market assumptions.
The return and efficiency targets have been revised to reflect
changes
the previously
communicated targets were set in October 2018.
the market outlook
since
in
The table below shows the performance targets and capital
guidance for the 2020–2022 period. Our updated performance
targets are based on reported results. From the first quarter of
2020, we will no longer disclose adjusted results in our financial
reports. We will continue to provide disclosure of restructuring
and litigation expenses as well as other material profit or loss
items that management believes are not representative of
underlying business performance
in our management’s
discussion and analysis.
Performance against targets is taken into account when
determining variable compensation.
Refer to “Performance and compensation at a glance” in the
“Compensation” section of this report for more information
about variable compensation
Refer to “Alternative performance measures” in the appendix
to this report for definitions of and further information about
our performance measures
Targets and capital guidance 2020–2022
(on a reported basis)
Group
returns
Cost
efficiency
12–15% return on CET1 capital (RoCET1)
Positive operating leverage and 75–78% cost / income ratio
Growth
10–15% profit before tax growth in Global Wealth Management
Capital
allocation
Capital
guidance
Up to 1⁄3 of Group RWA and LRD in the Investment Bank
~13% CET1 capital ratio
~3.7% CET1 leverage ratio
19
Our strategy, business model and environment
Our strategy, business model and environment
Our businesses
Our businesses
Working in partnership
Personal & Corporate
We operate through four business divisions – Global Wealth
Banking, Asset
Management,
Management and the Investment Bank. Our global reach and the
breadth of our expertise are major assets that set us apart from
our competitors. We see partnership as key to our growth, both
within and between business divisions. We are at our best when
we combine our strengths to provide our clients with more
comprehensive and better solutions through, for example, the
creation of a unified capital markets group across Global Wealth
Management and the Investment Bank, and a Global Family
Office joint venture.
Combining our strengths makes us a better firm. Initiatives
such as the Group Franchise Awards encourage employees to
look for ways to build bridges between areas and offer the
whole firm to our clients.
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20
Global Wealth Management
We are the largest truly global wealth manager, with USD 2.6
trillion in invested assets. Our goal is to provide tailored advice
and solutions to private clients and family offices.
services
Since the combination of Wealth Management and Wealth
Management Americas in 2018, we have continued to deliver
capture operational
comprehensive
efficiencies, and invest in our business. More than 22,000
Global Wealth Management employees assist our clients with
achieving their goals. Our presence in the ultra high net worth
segment is particularly strong, and we have access to the
majority of the world’s billionaires.
clients,
to
many of whom already have a relationship with UBS. Our
globally diversified footprint allows us to capture growth both in
the largest (the US) and the fastest-growing (Asia Pacific) wealth
markets.
We are focusing on
increasing mandate and
lending
penetration, delivering innovative solutions for our clients (e.g.,
structured solutions, private markets, sustainability and thematic
investing), as well as enhancing our advisors’ productivity by
making operational processes more efficient. Additionally, we
aim to maintain low attrition and to increase our share of clients’
business.
In Japan, we have entered into a comprehensive strategic
wealth management partnership with Sumitomo Mitsui Trust
Holdings, Inc. (SuMi Trust Holdings). The new joint venture will
combine UBS’s wealth management capabilities with SuMi Trust
Holdings’ stature as Japan’s largest independent trust bank. SuMi
Trust Holdings offers a range of services, including banking, real
estate, asset and wealth advisory services, and has strong client
access and brand name awareness in Japan.
Global Wealth Management organizational changes
In January 2020, we announced several initiatives designed to
achieve Global Wealth Management’s growth ambitions and to
elevate the quality and value of the service we deliver to our
clients. First, we have reframed our offering around each client’s
needs to deliver more tailored services and solutions. Second, we
have made it easier for advisors to spend more time with clients
and to better understand their needs and preferences, and we
have taken measures to improve our responsiveness and speed
to market. We created three distinct business units in EMEA –
Europe; Central and Eastern Europe; and the Middle East and
Africa – to better capture the diverse opportunities in these
markets. Finally, we intend to deliver all of the firm’s capabilities
through strategic partnerships with the Investment Bank and
Asset Management.
Our focus
We serve high net worth and ultra high net worth individuals,
families and family offices around the world, as well as affluent
clients in selected markets. Through our organizational changes,
we are making our Global Family Office capabilities, which are
provided to ultra high net worth individuals, available to more
clients, targeting coverage of around 1,500 in total.
While we are already a market leader in the ultra high net
worth segment outside the US,1 we believe that we can also
become the firm of choice for the wealthiest clients in the US,
We are investing in our operating platforms and tools to
support our clients and client advisors, in order to better serve
our clients’ needs and improve our efficiency. As of 31
December 2019, approximately 80% of invested assets booked
outside the Americas were on the Wealth Management Platform
as we continue to consolidate our operating platforms there. In
the US, and in collaboration with our third-party software
provider Broadridge, we are building the Wealth Management
Americas Platform, which we expect to become operational in
2021. The development of our platforms is happening alongside
enhancements to our digital capabilities for the benefit of our
clients and advisors.
Refer to “Clients” in the “How we create value for our
stakeholders” section of this report for more information about
innovation and digitalization
How we operate
We have a global footprint, with a presence in the world’s
largest and fastest-growing markets and are well positioned to
serve clients with global interests and demands. The US is our
largest market, accounting for more than 50% of our invested
assets. We are the largest wealth manager in Asia Pacific and
the second largest in Latin America in terms of invested assets.1
In Switzerland, we hold a leading market position1 and can
deploy the full range of the Group’s products and services across
Personal & Corporate Banking, Asset Management and the
Investment Bank.
Our broad domestic footprint in Europe enables us to provide
locally adapted offerings, and our local offices across Central
Europe, the Middle East and Africa keep us close to our clients.
Through strategic partnerships with the Investment Bank and
Asset Management, we provide clients with broad access to
financing, global capital markets and portfolio solutions.
Refer to “Working in partnership” in this section for examples
of collaboration between the business divisions
11 Statements of market position for Global Wealth Management are UBS’s estimates based on published invested assets and internal estimates.
21
Our strategy, business model and environment
Our strategy, business model and environment
Our businesses
Global
Family Offi ce
serves clients globally across the regions
7
regional
business
United States
and Canada
Switzerland
Europe
Asia Pacifi c
units
Latin America
Middle East
and Africa
Central and
Eastern Europe
As part of our organizational changes, ultra high net worth
client relationships and advisors were integrated into regional
business units to increase speed and proximity to clients. In our
newly established Global Capital Markets team, we combined our
Investment Product Services (IPS) unit and Investment Bank teams
and their respective expertise. The Global Capital Markets team
provides clients with an enhanced offering, faster execution, and
more competitive conditions.
Our main competitors are either large US players that have a
smaller presence outside the US (including Bank of America,
JPMorgan Chase, Morgan Stanley and Wells Fargo) or
geographically diverse firms with a smaller presence in the US
(including BNP Paribas, Credit Suisse, HSBC and Julius Baer). Our
size, geographic presence and diversified client portfolio are
exceptional and would be difficult for other wealth managers to
replicate organically.
What we offer
Our distinctive approach to wealth management is designed to
strengthen engagement with our clients and to help them
pursue what matters most to them.
By operating as a unified business, we aim to offer our clients
the best wealth management solutions, services and expertise
globally. Our experts provide our clients with thought leadership,
investment analysis and formulated investment strategies, as
well as develop and source solutions for them. The Chief
Investment Office (CIO) provides the concise, comprehensive
UBS House View, which identifies and communicates investment
opportunities designed to protect and increase our clients’
wealth over generations. Regional client strategy teams deepen
our understanding of clients’ needs, behaviors and preferences,
enabling us to tailor our offerings to serve them better. Our
product specialists deliver investment solutions, including our
flagship investment mandates, innovative long-term themes and
sustainable investment offerings.
Refer to “Clients” in the “How we create value for our
stakeholders” section of this report for more information about
innovation and digitalization
22
Clients benefit from our comprehensive set of capabilities and
expertise, including wealth planning, investing, philanthropy,
corporate and banking services, as well as family advisory
services. We also offer considerable expertise across structured,
mortgage and securities-based lending.
We work to improve our offerings and respond to changing
client needs. In 2019, we launched a new line of UBS Manage
offerings in Switzerland. In addition, to meet growing demand,
we expanded
the number of exclusive private markets
opportunities for clients. Our sustainable investing solutions
continue to be well received. Currently, invested assets in 100%
sustainable investing solutions and bespoke sustainable investing
solutions have grown to over USD 9 billion. We also broadened
our sustainable investing offering, teaming up with external
partners such as BMO Global Asset Management, Generation
Investment Management and KKR & Co. Inc. to offer clients
innovative
investment
opportunities.
development-related
sustainable
How we serve our clients
We serve our clients through local offices, dedicated advisors
and experienced specialists. We use a mix of digital and non-
digital channels
(including marketing campaigns, events,
advertising, publications and digital-only solutions) to help drive
greater awareness of UBS among prospects and reinforce trust-
based relationships between advisors and clients.
How we are organized
Our business division is organized into regional business units:
the US and Canada; Latin America; Europe; Central and Eastern
Europe;
the Middle East and Africa; Asia Pacific; and
Switzerland. We also have a business unit for our Global Family
Office clients. Central functions for global capabilities supporting
these business units are the CIO, Global Banking, Global Capital
Markets and the Chief Operating Office. We are governed by
the executive, risk, operating, and asset and liability committees.
23
Our strategy, business model and environment
Our strategy, business model and environment
Our businesses
Personal & Corporate Banking
As a leading personal and corporate bank in Switzerland, we
provide comprehensive financial products and services to private,
corporate and institutional clients. We are among the country’s
foremost players in the private and corporate loan market, with
a substantial lending portfolio. Personal & Corporate Banking is
at the core of our universal bank delivery model in Switzerland.
Our focus
We are a leading personal and corporate bank in Switzerland,
providing a superior client experience and combining technology
with a personal touch.
We have established a strong pipeline of growth initiatives
across our business areas. Effective 1 November 2019, we have
set up a new business area, Digital Platforms & Marketplaces, to
rapidly extend our platform offering for mortgages.
We also aim to improve efficiency by streamlining processes
and introducing new digital self-service tools. For example, we
have rolled out an integrated mortgage workflow for extensions,
which significantly reduces the time it takes to set up a contract.
In addition, we have further optimized our contact center setup,
increased automation of repetitive processes, and launched a
pilot for a digital mailroom that reduces processing time by
digitizing incoming physical mail and documents. Technology
plays a key role in our client-centered operating model and we
aim
leadership. Our multi-year
digitalization program enables us to further enhance the client
experience. Thanks to technological solutions, we are able to
offer clients new products and identify new cross-selling
opportunities in a more targeted way.
to expand our digital
Refer to “Clients” in the “How we create value for our
stakeholders” section of this report for more information about
innovation and digitalization
Operationally, we strive for excellence in execution, focusing
on efficiency while improving our service quality and overall
agility. To scale our digital transformation efforts, in 2019 we
opened our second digital factory in Switzerland, which is larger
than our first one. These digital factories are now home to
approximately 1,100 employees across various
functions.
Moreover, we introduced an agile academy and quick-launch
formats to drive innovation and attract key talent.
In the Corporate & Institutional Clients business, our main
competitors are Credit Suisse, the cantonal banks and globally
active foreign banks. We compete in areas covering basic
banking services, cash management, trade and export finance,
asset servicing,
institutional clients,
lending, and cash and securities
corporate finance and
transactions for banks.
investment advice for
In the Swiss Personal Banking business, our competitors are
Credit Suisse, PostFinance, Raiffeisen, the cantonal banks and
other regional and local Swiss banks. In addition to those
traditional players, we also face competition from international
players entering the Swiss market and neobanks. We compete in
areas such as basic banking, mortgages and foreign exchange,
as well as investment mandates and funds.
What we offer
Our personal banking clients have access to a comprehensive,
life cycle-based offering and convenient digital banking. We
deliver a broad range of basic banking products, from payments
to deposits, cards, online and mobile banking, as well as lending
(predominantly mortgages), investments and retirement services.
The overall service range is complemented by our UBS KeyClub
reward program, which provides clients residing in Switzerland
with exclusive and attractive offers, including those from third-
party partners. In close collaboration with Global Wealth
Management, we offer leading private banking and wealth
management services.
Our corporate and institutional clients benefit from our
financing and investment solutions, particularly 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
management services, trade and export finance, as well as
global custody solutions for institutional clients.
We collaborate closely with the Investment Bank to offer
capital market and
foreign exchange products, hedging
strategies and trading capabilities, as well as corporate finance
advice. In cooperation with Asset Management, we also provide
fund and portfolio management solutions.
Refer to “Working in partnership” in this section for examples
of collaboration between the business divisions
How we operate
How we serve our clients
While we operate primarily in our home market of Switzerland,
we also provide capabilities to support the growth of the
international business activities of our Swiss corporate and
institutional clients through our local hubs in Frankfurt, New York,
Hong Kong and Singapore. We are the only Swiss bank providing
local banking capabilities abroad to its corporate clients.
We are the recognized digital leader, with the highest online
and mobile banking penetration in Switzerland, and continue to
invest in a multi-channel distribution model to further enhance
our leading position.
24
We are adapting existing branch formats to suit evolving
client needs by converting some locations to smaller, more agile
branches that serve as digital support hubs and are intended to
ensure a strong local presence along with advice on basic client
needs. We aim to further reshape our physical footprint in an
innovative and client-centric way, particularly by defining future
branch formats with different purposes.
In addition, we continue to provide our expertise to our
clients through our contact center and our digital channels,
offering basic banking services and transactions. Dedicated client
advisors serve personal banking clients who need tailored
solutions.
As part of our sustainability road map, we are substantially
expanding our offerings. Our personal banking and institutional
clients have access to a number of sustainable investment
solutions, and we promote innovative approaches for corporate
banking clients. For example, we issued the first green bond for
a listed company in Switzerland.
For marketing campaigns, we use online media (including
social media and search engine advertising), out-of-home media
(posters and digital billboards) and, very selectively, print, TV,
radio and cinema advertising. In line with our position as a
digital leader in Swiss banking, and because of the channel’s
cost-effectiveness, we follow a digital-first media strategy. More
than 50% of our media spending goes into online channels.
How we are organized
Our business division is organized into Personal Banking,
Corporate & Institutional Clients, and Digital Platforms &
Marketplaces. Geographically, our business, with
its 267
branches, is organized into 10 regions, covering distinct Swiss
economic areas. We are governed by the executive, risk and
operating committees, and operate mainly through UBS
Switzerland AG.
267
branches in
Switzerland
Personal Banking has 267 branches1 in Switzerland,
of which more than 80 are shared with
Global Wealth Management and 60 are shared
with Corporate & Institutional Clients
11 The size of the circles on the map reflects the number of branches in each location.
25
Our strategy, business model and environment
Our strategy, business model and environment
Our businesses
Asset Management
UBS Asset Management is a large-scale and diversified global
asset manager, with USD 903 billion in invested assets. We offer
investment capabilities and styles across all major traditional and
alternative asset classes, as well as advisory support to
institutions, wholesale
intermediaries and Global Wealth
Management clients around the world.
Our focus
Our strategy is focused on capitalizing on the areas where we
have a leading position to drive further profitable growth and
scale.
Sustainable and Impact Investing remains a key area, as
clients increasingly seek solutions that combine their investment
goals with sustainability objectives. We continue the expansion
of our world-class capabilities in areas such as climate-aware
solutions. We do this through: product and service innovation;
dedicated research; integration of environmental, social and
governance factors into our investment processes, leveraging
our proprietary analytics; and active corporate engagement.
In response to the increasing importance of private markets
and alternative investments, we are building on our existing
expertise in these areas, including our hedge fund and real
estate businesses, as well as our
capabilities across
infrastructure, private equity and private debt.
We continue to develop our award-winning1 Indexed and
Alternative Beta business, including exchange-traded funds
(ETFs) in Asia Pacific, Europe and Switzerland. We provide
customization while leveraging our highly scalable platform,
with a particular focus on key areas such as sustainability and
fixed income products. Since 2016, the Alternative Beta business
has seen growth in invested assets of approximately 85%.
Geographically, we are investing in our leading presence and
products in China, both onshore and offshore, one of the
fastest-growing asset management markets in the world,
building on our extensive and long-standing presence in the Asia
Pacific region.
In the rapidly evolving and attractive wholesale segment, we
aim to significantly expand our market share through a
combination of continued client penetration, expansion of our
strategic partnerships with distributors and the build-out of our
client service offerings.
Refer to “Clients” in the “How we create value for our
stakeholders” section of this report for more information about
innovation and digitalization
To drive further growth in our Investment Solutions business,
which provides access to and combines the breadth and depth
of our capabilities across public and private markets, we are
focused on delivering superior multi-asset strategies and white-
label solutions to meet the needs of clients around the world.
to
continue
We also
intensify our
cross-divisional
collaboration, in particular with Global Wealth Management, to
enable our teams to draw on the best ideas, solutions and
capabilities from across the firm to deliver superior investment
performance and experiences for our clients.
Refer to “Working in partnership” in this section for examples
of collaboration between the business divisions
To support our growth, we are focused on disciplined
execution of our operational excellence initiatives. This includes
further automation, simplification, process optimization and
offshoring / nearshoring of selected activities, complemented by
a continued modernization of our platform and development of
our analytics and data capabilities.
In January 2020, we announced a number of changes to the
operational setup of our Platforms businesses intended to deliver
greater scale and breadth of offering for our clients and ensure
the ongoing development of these world-class businesses in a
highly competitive marketplace. The changes
include the
proposed sale of a majority stake (51.2%) in UBS Fondcenter to
Clearstream, Deutsche Börse Group’s post-trade services
provider. The sale is expected to close in the second half of
2020, subject to customary closing conditions. In addition, in
order to fully leverage the expertise and resources within the
wider Group to accelerate the growth of the business, we have
decided to transfer UBS Partner, our highly innovative white-
label technology solution, to the Corporate & Institutional
Clients International business within the Personal & Corporate
Banking business division. UBS Partner will be part of UBS’s “The
Bank for Banks” client offering, and this is an exciting step in
our collaboration efforts across the firm to bring the best of UBS
to our clients.
With these changes, we are making a step change in the
proposition for our clients, who will have seamless access to
expanded platform capabilities, while at the same time enabling
us to sharpen our focus on the execution of our strategic
priorities.
How we operate
We cover the main asset management markets globally, and
have a local presence in four regions: the Americas; Europe, the
Middle East and Africa; Switzerland; and Asia Pacific.
Our main competitors are global firms with wide-ranging
capabilities and distribution channels, such as Amundi,
BlackRock, DWS, Goldman Sachs Asset Management, Invesco,
JPMorgan Asset Management, Morgan Stanley Investment
Management and Schroders, as well as firms with a specific
market or asset class focus.
1 Second largest Europe-based indexed player based on peers’ public reporting (UBS calculation, 3Q19) and ranked fourth largest ETF provider in Europe as of December 2019 (source: ETFGI).
1
26
What we offer
We offer clients a wide range of investment products and
services in different asset classes in the form of segregated,
pooled or advisory mandates, as well as registered investment
funds in various jurisdictions.
Our traditional and alternative capabilities include equities,
fixed income, hedge funds, real estate and private markets, and
indexed and alternative beta strategies (including ETFs), as well
as sustainable and impact investing products and solutions.
Our Investment Solutions business draws on the breadth of
our capabilities to offer: asset allocation and currency investment
strategies across the risk / return spectrum; customized multi-
asset solutions, advisory and fiduciary services; and multi-
manager hedge fund solutions and advisory services.
How we serve our clients
We deliver our investment products and services directly to
institutional clients. High net worth and retail clients are served
through Global Wealth Management, third-party banks and
distributors.
Our teams are based in the key financial markets, bringing
our unique perspectives and global expertise to our clients
around the world. This, in combination with our presence on the
ground, enables our teams to develop long-term relationships
with our clients and a deep understanding of their specific
needs.
How we are organized
Our business division is organized along five areas: Client
Coverage, Investments, Real Estate & Private Markets, Products
and the COO Area. We are based worldwide across four
regions, with nine main hubs: Chicago, Hong Kong, London,
New York, Shanghai, Singapore, Sydney, Tokyo and Zurich.
We are governed by executive,
risk and operating
committees, supplemented by business unit-specific committees.
9
main hubs
covering the full breadth of our
investment insights across the
world to serve our clients
New York
United States
Chicago
United States
Zurich
Switzerland
Tokyo
Japan
Hong Kong (SAR)
China
Sydney
Australia
London
United Kingdom
Singapore
Singapore
Shanghai
China
27
Our strategy, business model and environment Our strategy, business model and environment
Our businesses
Investment Bank
The Investment Bank provides a range of services to institutional,
corporate and wealth management clients to help them raise
capital, grow their businesses, invest for growth and manage
risks. We are focused on our traditional strengths in equities,
foreign exchange, research, advisory services and capital
markets, complemented by a targeted rates and credit platform.
We use our powerful research and technology capabilities to
support our clients as they adapt to the evolving market
structures and changes
technological,
economic and competitive landscapes.
regulatory,
the
in
We aspire to deliver market-leading solutions to clients, using
our intellectual capital and electronic platforms. We also provide
services to Global Wealth Management, Personal & Corporate
Banking and Asset Management, while managing our
balance sheet, costs, risk-weighted assets and leverage ratio
denominator with discipline.
Our capital-light business model allows the Investment Bank
to deliver digital, research and banking capabilities, consuming
up to one-third of Group resources.
Structural changes in the Investment Bank
In January 2020, we realigned our Investment Bank to meet the
evolving needs of our clients and to further focus resources on
opportunities for profitable growth and digital transformation.
Corporate Client Solutions and Investor Client Services were
renamed Global Banking and Global Markets, respectively.
Global Banking moves to two product verticals (Capital Markets
and Advisory), adopting a global coverage model. Global
Markets combines Equities and Foreign Exchange, Rates and
Credit, and introduces three product verticals (Execution &
Platform, Derivatives & Solutions, and Financing) and three
horizontal functions (Risk & Trading, Distribution and Digital
Transformation). The new Global Markets structure is designed
to facilitate the alignment of business processes and operations
and to reduce inefficiencies and duplication. It further permits a
more holistic understanding of our clients’ cross-product needs
and is designed to foster tighter coordination of client coverage
and distribution. This will allow for improved oversight of key
risks and the allocation of resources. Investment Bank Research
and UBS Evidence Lab Innovations continue to be a critical part
of our advisory and content offering.
The changes are effective 1 January and we will provide
restated prior-period information in advance of our first quarter
2020 results.
Our focus
Our key priority is disciplined growth in the capital-light advisory
and execution businesses, while accelerating our digital
transformation. Global Banking has a global coverage model
28
and will utilize its deep global industry expertise to meet the
emerging needs of its clients. In Global Markets, we are focused
on clients’ expectation of excellence in execution, financing and
structured solutions.
Our digital strategy is led by our businesses, which harness
technology to deliver superior and differentiated client service and
content. We established the UBS Investment Bank Innovation Lab
to speed up innovation by facilitating proofs of concept. In Global
Markets, the new Digital Transformation horizontal function
facilitates adoption of best-in-class practices around trade idea
generation,
risk
management. In Investment Bank Research, we continue to build
UBS Evidence Lab Innovations to concentrate on data-driven
outcomes.
liquidity management, pricing
tools and
Our balanced global reach gives us attractive options for
growth across various regions. In the Americas, the largest
investment banking fee pool globally, we are focusing on
increasing our market share in our core Global Banking and
Global Markets businesses.
In Asia Pacific, we see opportunities primarily from expected
market internationalization and growth in China. We are
planning to grow by further strengthening Global Banking, both
onshore and offshore. Partnerships between the Investment
Bank’s businesses and the Group, including the creation of a
unified capital markets group, and, externally, joint ventures
such as that with Banco do Brasil, are a key strategic focus.
These initiatives should lead to growth by delivering global
products to each region, leveraging our global connectivity
across borders and sharing and strengthening our best client
relationships.
Refer to “Working in partnership” in this section for examples
of collaboration between the business divisions
How we operate
Our geographically balanced business has a global reach, with
a presence in more than 30 countries and principal offices in
the major financial hubs.
Competing firms are active in many of our markets, but our
strategy differentiates us, with its focus on leadership in the
selected areas where we have chosen to compete, and a
business model that leverages talent and technology rather than
balance sheet.
Our main competitors are the major global investment banks,
including Morgan Stanley, Credit Suisse and Goldman Sachs, as
well as corporate investment banks, including Bank of America,
Barclays, Citigroup, BNP Paribas, Deutsche Bank and JPMorgan
Chase. We also compete with boutique investment banks and
fintech firms in certain regions and with regard to certain
products.
Through
strategic partnerships with Global Wealth
Management and Asset Management, we provide clients with
broad access to financing, global capital markets and portfolio
solutions.
Refer to “Working in partnership” in this section for examples
of collaboration between the business divisions
What we offer
Through our Global Banking business, we advise our clients on
strategic business opportunities and help them raise capital to
fund their activities.
Our Global Markets business enables our clients to buy, sell
and finance securities on capital markets across the globe and to
manage their risks and liquidity. Furthermore, in Investment
Bank Research, we offer clients key insights on major financial
markets and securities around the globe. Separately, our team of
experts in UBS Evidence Lab Innovations specializes in creating
insightful data sets on diverse topics for companies of all sizes,
spanning more than 30 countries and 50 sectors. We seek to
develop new products and solutions that are consistent with our
capital-efficient business model. These are typically related to
new technologies or changing market standards.
Refer to “Clients” in the “How we create value for our
stakeholders” section of this report for more information about
innovation and digitalization
Since 2005, we have addressed increasing client demand for
sustainable investing by providing thematic and sector research.
We also provide
socially
responsible and impact exchange-traded funds and index-linked
notes. In addition, we offer capital-raising and strategic advisory
services globally to companies that make a positive contribution
to climate change mitigation and adaptation.
investment
solutions
through
How we serve our clients
We interact with our clients digitally and in person. In Global
Banking, we leverage our intellectual capital and relationships
to deliver high-quality solutions for our clients. In Global
Markets, we use our execution capabilities, differentiated
research content, bespoke solutions, client franchise model,
and our global platform to expand coverage across a broad set
of institutional and corporate clients. In Investment Bank
Research, we deliver high-quality differentiated research to our
institutional clients using a wide range of methods, including
UBS Neo, our multi-channel platform.
How we are organized
Our business division is organized into the following three units:
Global Banking, Global Markets, and Investment Bank Research
and UBS Evidence Lab Innovations. We are governed by the
executive, operating, risk, and asset and liability committees. Each
business unit is organized globally by product.
9
fi nancial
hubs
in all major fi nancial centers
New York
United States
Chicago
United States
Zurich
Switzerland
Frankfurt
Germany
Shanghai
China
Singapore
Singapore
London
United Kingdom
Hong Kong (SAR)
China
Tokyo
Japan
29
Our strategy, business model and environment Our strategy, business model and environment
Our businesses
Corporate Center
Our Corporate Center provides services to the Group, with a
focus on effectiveness, risk mitigation and efficiency. Corporate
Center also includes the Non-core and Legacy Portfolio unit.
How we are organized
Corporate Center
The major areas within Corporate Center are Group Chief
Operating Officer (Group Technology, Group Corporate Services,
Group Human Resources and Group Operations), Group
Treasury, Group Finance, Group Legal, Group Risk Control,
Group Communications & Branding, Group Compliance,
Regulatory & Governance, UBS in society, and Non-core and
Legacy Portfolio.
Over recent years, we have progressively aligned our support
functions with our business divisions. We operate the Group
with the vast majority of these functions either fully aligned or
shared among business divisions, where
full
management responsibility. By keeping the activities of the
businesses and support functions close together, we increase
efficiency and create a working environment built on a culture
of accountability and collaboration
they have
The Non-core and Legacy Portfolio, a small residual set of
activities in Group Treasury and certain other function costs
mainly related to deferred tax assets and costs relating to our
legal entity transformation program are retained centrally.
Since our first quarter 2019 report and in compliance with
IFRS 8, Operating Segments, we provide results for total
Corporate Center only and do not separately report Corporate
Center – Services, Group Asset and Liability Management
(Group ALM) and Non-core and Legacy Portfolio. Furthermore,
we have combined Group Treasury operationally with Group
ALM and call this combined function Group Treasury.
Refer to the “Significant accounting and financial reporting
changes” section and “Note 1 Summary of significant
accounting policies” in the “Consolidated financial statements”
section of this report for more information about the changes
in the structure of Corporate Center
Group Treasury
Group Treasury manages the structural risk of our balance
sheet, including interest rate risk, structural foreign exchange
risk and collateral risk, as well as the risks associated with our
liquidity and funding portfolios. Group Treasury serves all
business divisions and its risk management is fully integrated
into the Group’s risk governance framework.
Non-core and Legacy Portfolio
Non-core and Legacy Portfolio manages legacy positions from
businesses exited by the Investment Bank, following a largely
passive wind-down strategy. It is overseen by a committee
chaired by the Group Chief Risk Officer. The portfolio also
includes positions relating to
legal matters arising from
businesses that were transferred to it at the time of its
formation.
Refer to “Note 21 Provisions and contingent liabilities” in the
“Consolidated financial statements” section of this report for
more information about litigation, regulatory and similar
matters
30
Our environment
Current market climate
Global economic developments in 2019
In a year characterized by strong equity markets, ultra-low
volatility and an inflection in interest rates, the pace of the
global economy slowed on a broad basis in 2019. World GDP
grew by 3.1%, which was substantially lower than the 3.7%
growth achieved in 2018 and represents the weakest growth
rate since the financial crisis.
US GDP increased 2.3%, compared with 2.9% in 2018, as
trade tensions between the US and China hindered business
investment and the boost from tax cuts introduced in December
2017 ebbed.
Trade tensions represented an even more serious drag on
growth in the eurozone, which relies more than the US on
global trade, manufacturing output, and business investment.
Growth in the eurozone decreased to 1.2% in 2019, compared
with 1.9% in 2018. Germany’s economy expanded by only
0.6%, after a 1.5% increase in the previous year. Outside the
Eurozone, Swiss growth decreased as well, to 0.8%, compared
with 2.8% in 2018.
China’s government attempted to partially offset the effects
of increasing tariffs on its exports to the US by reducing bank
reserve requirements and providing extra fiscal leeway to local
governments. However, this stimulus was limited by concerns
over high leverage in the economy. GDP growth decreased to
around 6.1%, compared with 6.7% in 2018.
In other leading emerging economies, growth slowed or
stabilized at low levels. The economy of India, which until
recently had been one of the world’s fastest-growing major
nations, expanded by 5%, compared with 6.1% in 2018.
Momentum was weakened by the problems of the shadow-
banking sector, which has been reducing the availability of credit
to consumers. The Mexican economy, meanwhile, was roughly
flat after expanding 2% in 2018, and Brazil’s growth rate
decreased to 1.1% from 1.3%.
Major central banks were able to keep their accommodating
monetary policies in place in 2019, given that low inflation rates
persisted. Eurozone inflation stayed below the European Central
Bank’s (the ECB) target (of at or below 2%), at around 1.2% for
the year. The ECB cut its deposit rate from negative 0.4% to
negative 0.5%. US inflation was close to the target at 1.8%,
permitting three quarter-point rate cuts over the course of the
year to between 1.5% and 1.75%.
Equity markets rallied, with all major indices advancing. The
MSCI All Country World Index gave a total return of 27% in US
dollars. The S&P 500 index in the US returned 31%, while the
technology-heavy Nasdaq Composite gained 37%. China’s CSI
300 was up 41% in local currency terms. Less well-performing
markets included the UK’s FTSE 100 and Hong Kong’s Hang
Seng, which both returned 17% in local currency terms.
It was also a favorable year for investors holding government
bonds. The yield on 10-year US Treasury bonds fell around
80 basis points to 1.9%. The yield on the German Bund of the
same tenor fell 40 basis points to negative 0.2%.
Economic and market outlook for 2020
We expect continued sub-trend growth in the coming year, and
the global economy to continue expanding at about the same
pace as in 2019. Consumer spending has remained robust in
much of the world, especially in the US, where it is supported by
a vibrant job market. The year ended with news of a “Phase 1”
trade deal between the US and China, along with indications
that tensions between the two powers may lessen. Not only did
the agreement withdraw planned tariff increases and reverse
some existing tariffs, it also moved negotiations forward in other
areas of contention, such as intellectual property protection and
US access to China’s financial services market. While this truce
could be fragile and the US–China rivalry is not about to end
anytime soon, the deal appears to reduce the risks to the global
economy and business investment.
The UK left the European Union on 31 January 2020 and has
entered a transition period in which the UK now faces a race to
conclude talks on a trade deal with the EU ahead of the end of
its transition period on 31 December 2020.
The next major political focus for markets will be the US election
in November, which could generate higher volatility and affect key
US sectors, such as technology, energy, finance and health care.
31
Our strategy, business model and environment
Our strategy, business model and environment
Our environment
Against a backdrop of sluggish growth and continued
political risk, we believe central banks will be in no rush to raise
rates. We do not expect the US Federal Reserve to increase rates
in the coming year, barring an unexpected shift in the trajectory
of the economic data. Rates are unlikely to rise again until 2021.
We expect the ECB to cut rates to negative 0.6%, with the Swiss
National Bank maintaining rates at a negative 0.75%.
The outbreak of novel Coronavirus or Covid-19 in China and
its subsequent spread to other countries is likely to increase
investor uncertainty. Although our base economic forecast is
that the outbreak of Covid-19 will be contained and the effect
on full-year economic growth will be relatively limited, the virus
and containment measures are likely to have at least a short-
term adverse effect on economic activity in China and other
affected countries, with a collateral impact on the global
economy. A significant rise
in the number of Covid-19
infections, infections in a wide range of countries and regions,
or a prolongation of the outbreak, could increase the adverse
economic effects.
In terms of investing, stocks in most major markets are
trading above historical averages on a price-to-earnings basis. As
a result, we believe equity market returns are more likely to be
driven by earnings growth than by a further expansion of
multiples. Markets should also be supported by continuing
economic growth in 2020. The risk of a recession remains
relatively low. Uncertainty over the effects of the Covid-19
outbreak has substantially increased the macroeconomic risk to
growth and this increased risk has at least partially been
reflected in recent declines in equity markets.
32
Industry trends
While our
regulatory
industry was heavily affected by
developments over the past decade, technology has clearly
emerged as the main driver of change today and is expected to
further affect the competitive landscape as well as our products
and operations going forward. In parallel, our industry is
materially driven by market and macroeconomic conditions.
Refer to “Current market climate” in this section for information
about global economic growth
Digitalization
Technology is changing the way banks operate and we expect this
to continue, in step with exponential advances in computing
capability, evolving customer needs and digital trends. Investment
in technology is no longer solely considered a means of making
banks more efficient. Today, such investment is the key to keeping
banks flexible and competitive in a digitalized world, and it creates
the opportunity to develop new business models.
By connecting across the financial industry ecosystem through
our innovation labs, digital factories, Future of Finance initiatives,
and project collaborations, we aim to remain at the forefront of
the digital movement to drive client experience as well as
operational excellence. At the heart of our digital journey is the
focus on our clients and their evolving needs. The speed, scale,
security, transparency and precision that new technologies can
offer enable us to create new services and experiences for our
clients.
We also aim to improve operational efficiency by increasing the
range of modernized and modularized applications and
infrastructure in our IT portfolio, as well as by leveraging cloud
technology and a growing number of front-to-back automated
systems and processes. Effective data management and protection
are crucial to us. The generated and curated data from our
applications is protected under our data management framework,
and supports the development of responsible artificial intelligence
for better tailoring our client and employee experience.
Consolidation
In the financial services industry, many regions and businesses are
still highly fragmented. We expect further consolidation, with
ongoing margin pressure, the search for cost efficiencies and
increasing scale advantages resulting from the fixed costs of
technology and regulation being the key drivers. Many banks also
seek increasing exposure and access to regions with attractive
growth profiles, such as Asia and emerging markets, through local
acquisitions or partnerships. Lastly, the increased focus on core
capabilities or geographical
the ongoing
simplification of business models to reduce operational and
compliance risks will result in further disposals of non-core
businesses and assets.
footprints and
New competitors
Our competitive environment is also evolving. In addition to our
traditional competitors in the asset-gathering businesses, new
entrants are targeting selected components of the value chain.
However, we have not yet seen a fundamental unbundling of
the value chain and client relationships, which might ultimately
result in the disintermediation of banks by new competitors.
Over the longer term, we believe the entry into the financial
services industry of large platform companies could pose a
significant competitive threat, given their strong client franchises
and access to client data. Fintech firms are gaining momentum;
however, they have not materially disrupted our asset-gathering
businesses to date. We see a trend in forging partnerships
between new entrants and incumbent banks, with the latter
acquiring technology from fintech firms, thus gaining an edge
over competitors in terms of technology, cost efficiency, and
service quality.
Regulation
The post-2008 regulatory reform agenda has largely been
completed. While some areas, such as funding in resolution,
must still be fully addressed, and the implementation of certain
standards, such as the finalized Basel III capital standard, is
continuing on a national level, the focus is shifting from
regulation to supervision. In parallel, some regulators are
reviewing the efficiency of the new frameworks.
In general, regulatory-driven change continues to consume
substantial resources. In 2020, we expect further consideration
of adjustments to the Swiss too-big-to-fail framework, in
particular focused on additional liquidity requirements for
systemically important banks, and the national implementation
of final Basel III rules. We expect continued work on resolution-
related reforms, including stress testing, and a sustained focus
on conduct and anti-money laundering. Furthermore, we are
experiencing a surge in sustainability-related policy proposals
targeted at various aspects of financial services across the globe.
We also expect regulatory initiatives to address some of the
more recent challenges that could affect financial stability, such
as shadow banking and digital currencies.
Many of these developments are happening in the context of
increased protectionism, posing challenges to the provision of
cross-border financial services. Further restrictions with regard to
market access into the EU in particular would have a significant
effect on Switzerland as a financial center, affecting also UBS.
Variations in how different countries implement rules, and an
increasing national focus, bring a risk of additional regulatory
fragmentation, which in turn may lead to higher costs for us and
new financial stability risks.
33
Our strategy, business model and environment
Our strategy, business model and environment
Our environment
However, we believe the adaptations made to our business
model and our proactive management of regulatory change put
us in a strong position to absorb upcoming changes to the
regulatory environment.
Refer to the “Regulatory and legal developments” section of
this report for more information
conversation with clients about what is most important to them.
We help clients organize their financial life along three key
strategies: Liquidity to help provide cash flow for short-term
expenses; Longevity for long-term needs; and Legacy for needs
that go beyond their own and help improve the lives of others, a
key part of wealth transfer planning.
Wealth creation
Shift into passive strategies
In 2018, global wealth overall grew marginally, given a steep
decline in equity market performance in the fourth quarter. This
trend was partially reversed in 2019, as equity markets rallied.
Today, half of global wealth is concentrated in the Americas,
followed by Asia Pacific (with approximately 30%) and the
remainder in Europe, the Middle East and Africa.1 By segment,2
approximately half of global wealth is with high net worth
individuals, ultra high net worth individuals hold approximately
30% of global wealth, and the remaining approximately 20% is
within the affluent segment. Over the next four years, global
wealth is expected to grow by 5–10% annually.1 Regionally,
wealth creation will likely be driven by Asia Pacific and North
America. The share of the Americas is expected to remain stable
over the next four years at approximately 50% of global wealth,
while the share of Europe, the Middle East and Africa is
expected to further reduce as Asia Pacific grows. In particular,
China’s share of global wealth is expected to grow to around
15% by 2023.
Wealth transfer
Demographic and socioeconomic developments continue to
generate shifts in wealth. By 2030 for example, USD 15.4 trillion
of global wealth is expected to be transferred by individuals with
a net worth of USD 5 million or more, according to a 2019
report by Wealth-X.3 In addition, women now control more
wealth than ever before: UBS’s 2019 report titled “The
billionaire effect – Billionaires insights 2019” found that the
number of female billionaires had grown by 46% in five years,
outpacing the growth of male billionaires. We are responding to
the evolving wealth landscape with a framework that addresses
all aspects of our clients’ financial lives, called UBS Wealth Way.
UBS Wealth Way begins with discovery questions and a
We note a continuing trend of separation between low-cost,
passive strategies and high-alpha active and alternative
strategies. Passive management is beneficial in an environment
with rising stock markets, such as the equity bull markets of the
last decade. At the same time, central banks’ monetary policies
have kept interest rates at historically low levels, which has had
an effect on bond yields and other asset classes. Investors
searching for longer-term higher alpha than passive strategies
can provide have been diversifying their portfolios into real
assets and alternatives and we expect this trend to continue. We
believe the breadth of UBS Asset Management’s investment
expertise allows us to meet client demands across asset classes
and strategies.
Retirement funding
Over recent years, the pension industry has faced two key
challenges: fundamental demographic shifts, such as aging
populations, and lower expected returns due to all-time low
interest rates.
Beyond structural answers to these challenges, such as the
progressive shift from defined benefit to defined contribution
pensions, we believe pension funds are reassessing their asset
allocation approach. Indeed, many pension funds are now
allocating a higher share of their portfolios to alternative
investments, such as private equity, hedge funds, real estate and
infrastructure, in a search for higher-yielding exposures.
We see this development as positive for UBS, as these funds
will likely need further support to define their investment
strategy and target portfolio allocation. In addition, our private
banking and wealth management clients are expected to need
further financial and retirement planning advice, which we are
able to provide holistically through our wealth planning services.
1 Based on BCG Global Wealth Report 2019.
1
2 The BCG Global Wealth Report 2019 defines wealth segmentation as follows: wealth of greater than USD 20 million to be classified as ultra high net worth individuals; USD 1–20 million for high net worth
2
individuals; USD 0.25–1 million for affluent individuals.
3 A Generational Shift: Family Wealth Transfer Report, issued by Wealth-X in 2019.
3
34
How we create value for our stakeholders
Key topics discussed:
Key topics discussed:
what was important to our
what was important to our
stakeholders in 2019
stakeholders in 2019
Investment performance in light of
current interest rate situation
Stakeholder engagement:
Stakeholder engagement:
how did we engage with our
how did we engage with our
stakeholders?
stakeholders?
Individualized client meetings
Holistic goals-based financial
planning
Requests for regular client
feedback, feedback monitoring
and complaints handling
Sustainable finance and investing
possibilities
Data privacy and security
Specialized client events and
conferences including information
on key developments and
opportunities
Offerings for small enterprises in
Personal & Corporate Banking
Client satisfaction surveys
Stakeholder group
Stakeholder group
Stakeholder needs:
Stakeholder needs:
what do our stakeholders expect from us?
what do our stakeholders expect from us?
Clients
Clients
Advice on a broad range of products and
services from trusted experts
The option of personal interaction with our
advisors in combination with digital service
anywhere, anytime (convenient digital
banking)
Value proposition:
Value proposition:
how we create value for our
how we create value for our
stakeholders
stakeholders
Delivering tailored advice and
customized solutions, using our
intellectual capital and digital
capabilities
Building long-term personalized
relationships with our clients
Investors
Investors
Top quality solutions and the highest
standards in terms of asset safety, data and
information security, confidentiality and
privacy
Developing new products and services in
response to clients’ evolving needs in
the digital age
A combination of global reach and local
service resulting in positive investment
outcomes
Competitively priced products and services
Disciplined execution of our strategy
leading to attractive capital returns through
dividends and share repurchases
Providing access to the world’s capital
markets and bespoke financing
Meeting increasing demand from clients
for sustainable investments
Executing our strategy with discipline
and agility as the external environment
evolves, while aiming to deliver cost-
and capital-efficient growth
Comprehensive and clear disclosures on
quantitative and qualitative data necessary
to make an informed investment decision
Providing transparent, timely and
reliable public disclosures
Recognize and proactively address strategic
opportunities and challenges
Employees
Employees
A world-class employer providing an
engaging and supportive workplace culture
Attracting and developing great talent
Skill and career development opportunities
and rewards for performance
An environment that provides a sense of
belonging and of adding value to clients
and to society
Fostering a workplace culture that
supports and engages our employees,
enabling them to develop their careers
and unlock their full potential
Structural growth and return
potential in our businesses
Cost efficiency and ability to
generate positive operating
leverage
Ability to protect or even grow
revenues in a low-for-longer
interest rate environment
The three keys to a strong
corporate culture
Our approach to hiring great
people and supporting their
growth
The importance of diversity and
inclusion
Society
Society
Facilitation of economic development that
is sustainable for the planet and humanity
Promoting significant and lasting
improvements in the well-being of
communities in which we operate
Sustainable finance
Our climate strategy
Maximization of our positive effect and
minimization of any negative effects on
society and the environment
Proactive management of the
environmental and societal impacts of our
business
Taking an active role in the transition of
our economy toward environmentally
and socially sustainable solutions
Our client and corporate
philanthropy efforts
Financial reports, investor and
analyst conference calls, and/or
webcasts, as well as media
updates on our performance or
other disclosures
General shareholder meetings
Investor and analyst meetings
Regular employee surveys
Group Franchise Awards program
Regular “Ask the CEO” events,
along with senior leadership,
regional and functional employee
sessions
Dialogs with regulators and
governments
Partnerships with social
institutions
Community investments
Interaction with NGOs
Participation in forums and round
tables, as well as industry-, sector-
and topic-specific debates
35
Our strategy, business model and environment
Our strategy, business model and environment
How we create value for our stakeholders
Clients
Our clients are the heart of our business. We are committed to
building and sustaining long-term relationships based on mutual
respect, trust and integrity. Understanding our clients’ needs and
expectations enables us to best serve their interests and to
create value for them.
Our clients and what matters most to them
There is no archetypal UBS client. Our clients have varying needs,
but each of them expects outstanding advice and service, a wide
range of choices, and an excellent client experience.
Global Wealth Management is focused on serving the unique
and sophisticated needs of high net worth and ultra high net
worth individuals, families, and family offices around the world,
as well as affluent clients in selected markets. We provide these
clients with access
to outstanding advice, service, and
investment opportunities from around the globe, delivered by
experts they can trust. Using a holistic, goals-based approach to
financial planning, we deliver a personalized wealth
management experience and work side-by-side with clients to
help them realize their ambitions.
Our client-facing advisors and the global teams that support
them are focused on developing long-term client relationships,
which often span generations. Global Wealth Management
clients look to us for our expertise in helping them to plan for,
protect and grow their wealth, as well as helping them make
some of the most important decisions in their lives. From
liquidity events to professional milestones and
significant
personal turning points, we aim to give our clients the
confidence to move forward and achieve their goals. Through
extensive research into our clients’ preferences and goals, as well
as broader analysis of investor sentiment globally, we are
constantly evolving our offerings to meet the shifting priorities
of today’s wealthy clients. This includes investing in digital
capabilities and developing products that help clients fund their
lifestyles and manage their cash flow, as well as offering
guidance on how clients can create a lasting and positive impact
for their communities and the causes about which they care the
most. We have been recognized as the leading global wealth
manager for clients interested in sustainable investing,1 with a
commitment to developing solutions that allow clients to align
their financial goals and their personal values.
Refer to “Our focus on ESG” in this section for examples of how
sustainable finance solutions are used across our business
divisions and for the benefit of our clients
Personal & Corporate Banking serves a total of approximately
2.6 million individuals and 128,000 firms. We provide services to
companies ranging from start-ups to large multi-nationals,
including specialized entities, such as pension funds and
insurers, real estate companies, commodity traders, and
1 Euromoney Private Banking and Wealth Management Survey 2019: Global Results.
1
banks. Personal & Corporate Banking clients look for financial
advice based on their needs at each stage of their individual or
corporate journey. We aim to deliver outstanding advice to them
via our client advisors and also through digital banking. Our
clients demand convenience, 24/7 availability, security and value
for money. We provide clients with access to a broad range of
services and products offered in all relevant areas: basic banking,
investing, financing (including mortgages), retirement planning,
cash management, trade and export finance, global custody,
and company succession, among others.
In Asset Management, we deliver investment products and
services directly to approximately 3,000 clients around the world –
including sovereign institutions, central banks, supranational
corporations, pension funds, insurers and charities – as well as to
its clients, wholesale
Global Wealth Management and
intermediaries and financial institutions. Our clients seek global
insights and a holistic approach to tailoring solutions. By building
long-term, personalized relationships with our clients and
partners, we aim to achieve a deep understanding of their needs
and to earn their trust. We draw on the breadth and depth of our
global investment capabilities – across traditional and alternative,
active and passive categories – and provide seamless access to
world-class platform services to deliver the solutions they need.
We integrate sustainability into our financial analysis enabling us
to help clients meet their sustainability objectives and their
fiduciary duties.
The Investment Bank provides corporate, institutional and
wealth management clients with expert advice, financial
solutions, execution, and access to the world’s capital markets.
Our business model is specifically built around our clients and
their needs. Corporate clients can access advisory services, debt
and equity capital market solutions, and bespoke financing
through our newly
reshaped Global Banking business.
Meanwhile, our Global Markets business is focused on helping
institutional clients engage with local markets around the world,
offering equities and equity-linked products, foreign exchange,
rates and credit.
Refer to “Investment Bank” in the “Our businesses” section of
this report for more information about the structural changes in
the Investment Bank
Our advisory and content offering is underpinned by the
research we provide. The differentiated nature of this research,
combined with UBS Evidence Lab Innovations, which offers
access to insight-ready data sets for thousands of companies,
aims to give clients an informational edge when it comes to
understanding markets. As a new offering for 2019, we have
established the UBS Research Academy, where our fundamental
analytics team provides training for institutional investors on all
aspects of fundamental investing, leveraging the best of the
UBS Research and UBS Evidence Lab Innovations platforms.
36
Our clients place the highest priority on the confidentiality
and security of their data. The protection of our clients’ data is
of the utmost importance to us and we have comprehensive
measures in place designed to ensure that data confidentiality
and integrity are maintained. We are investing in our IT platform
to preserve and improve our IT security standards, while
enabling our clients to have secure access to their data via our
digital channels. The volume, level of sophistication and impact
of cyberattacks constantly increase, and we aim to maintain a
robust and agile cybersecurity and information security program
to manage cyber risk.
Enhancing the client experience through innovation and
digitalization
We strive to streamline and simplify interactions with our clients
through front-to-back digitalization and innovations.
In Global Wealth Management, we develop and deploy
digital tools that preserve and enhance the value of human
relationships. Clients expect the convenience and speed that
technology offers but, simultaneously, consider personal
communication with our advisors to be more important than
ever. Modern technology that our advisors use enables them to
spend more time with clients. And our clients appreciate digital
tools that improve their experience, such as easy ways to view
their portfolios, access to research that is tailored to their needs,
and multiple ways to communicate with their advisors. In 2019,
we introduced a number of new tools to help deliver on those
expectations. For example, our Asset Wizard platform provides
ultra high net worth clients in the US with consolidated and
sophisticated performance and risk analytics for their assets held
at UBS and across multiple banks, portfolios, managers, and
locations. Also, in Asia, we launched the UBS Advisor Messaging
for WhatsApp, allowing for real-time conversations between
clients and advisors, to create a better client experience. And we
continue to make progress by executing our multi-year strategy
to serve clients globally from two platforms: the Wealth
Management Americas Platform in the US and the Wealth
Management Platform outside the US. Our core investment
solutions consist of: UBS Manage, a discretionary mandate
solution where we use our expertise to invest clients’ assets
according to a predefined investment strategy; UBS Advice,
which
investment
recommendations based on an agreed investment strategy to
self-directed accounts; and UBS Transact, a self-directed account
providing clients access to UBS execution capabilities and the
UBS House View. All our solutions draw on our broad range of
instruments across stocks, bonds, currencies,
investment
funds and alternative
structured products,
investments.
portfolio monitoring
investment
adds
and
Personal & Corporate Banking launched several initiatives in
2019. Effective 1 November 2019, we have established a new
business area, Digital Platforms & Marketplaces, which reflects
our commitment to engage in new digital business models. In
addition to the mortgage platform UBS Atrium, which we
launched in 2017 and is directed at corporate and institutional
clients, UBS is set to introduce a mortgage platform for private
clients in the first half of 2020. We launched new tools for our
client advisors aimed at improving the in-branch advisory
experience for clients, so that we are able to suggest the right
products that match the clients‘ needs. Thanks to our new
mortgage workflow, we have been able to reduce contracting
time substantially, from 10–15 days for extensions to 24 hours.
We also further simplified our digital banking platform (for both
mobile and desktop) and added new services, in addition to
expanding
transaction
the number of possible payment
currencies to more than 120. Our clients can now pay in stores
directly with their smartphones and a wide array of wearables
via Mobile Pay and Swatch Pay. Furthermore, we have
introduced the ability to pay parking fees via Twint, which has
more than 1.5 million users in Switzerland. As of October 2019,
our clients can access we.trade, a blockchain-based trade
finance platform, which was the first such platform to be
launched by a Swiss bank. Recognizing changing client needs
and growing demand from start-up companies for a broader
offering, we have launched UBS Start Business, which includes
digital accounting, mentoring for business planning, and many
other services in addition to the banking services UBS offers. The
attractive offering aims to assist young entrepreneurs in every
stage of their business’s journey. Similarly, we bundle our digital
offering for small companies in UBS Digital Business, which
provides the convenience and leading digital solutions that small
companies look for. We have also introduced our vendor leasing
solution, an online tool that allows vendors to provide leasing
proposals directly to their clients (based on online credit
decisions) and to generate contracts. For corporate clients, we
have made available the new UBS Payment Tracking service
(SWIFT global payments innovation).
In Asset Management, we are investing in new tools and
technologies, as well as our alternative data capabilities, to
support our teams’ investment decision-making processes and
enhance client service. In addition, our operational excellence
programs are focused on building a scalable and globally
integrated operating platform to better enable our teams to
deliver the full breadth of our capabilities to clients around the
world.
37
Our strategy, business model and environment
Our strategy, business model and environment
How we create value for our stakeholders
The Investment Bank strives to be the digital investment bank
innovation-led businesses that drive
of the future, with
efficiencies and solutions. We set up the UBS Investment Bank
Innovation Lab to help connect business teams in order to
leverage best practice, build and test proofs of concept safely
and quickly, and inspire a culture of innovation. We see
increasing interest from clients in financial and alternative data
sets that they can incorporate into their models. In response, we
set up UBS Data Solutions to meet those needs through a
centralized robust data processing and distribution platform.
and
streams
client-tailored
We strive to develop new products and solutions that are
consistent with our capital-efficient business model. These are
typically related to new technologies or changing market
standards. Examples include FX spot & STIR tree E-pricing, which
hedging
pricing
provides
optimization, and Technology Enabled Sales, which enables
faster delivery and distribution of tailored content matched to
our clients’ interests. During 2019, we also launched the client
portal of UBS Evidence Lab Innovations as part of the firm’s
strategy to expand our value proposition in the alternative data
space, which relates to innovative ways to capture data critical
for investment decisions. We also set up UBS Neo, our multi-
channel platform, and the One Client service model, which aims
to drive superior client outcomes via collaboration, technology
and data-driven client intelligence.
Engaging with our clients
Communication with our clients enables us to understand their
needs and what matters most to them. We use a variety of
channels to engage with clients,
including regular client
relationship / service meetings where we monitor feedback and
satisfaction, as well as various corporate roadshows and
dedicated events. We also engage with our clients while
supporting cultural and sports events across Switzerland.
We conduct client events on a regular basis and on a wide
array of topics. For example, in Personal & Corporate Banking,
we have financing and retirement planning events, and a
dedicated event for the CFO community. In the Investment
Bank, we host around 350 conferences and educational
seminars globally throughout the year, covering a broad range
of macro, sector, regional and regulatory topics. More than
50,000 clients attended such events in 2019, providing insight
and access to our own opinion leaders, policy makers and
leading industry experts. In Global Wealth Management, we
engage with clients in a range of ways, from personalized
private briefings with subject matter experts, to segment-specific
events, to large-scale gatherings such as UBS Wealth Insights,
our flagship Pan-Asian investment forum series, which attracts
more than 3,000 clients every year. In Asset Management, a
consistent program of engagement takes place throughout the
year. Thematic events, such as the UBS Reserve Management
Seminar and the Sovereign Investment Circle, bring together
institutional investors to debate relevant topics and share best
38
practices. Our experts also produce insightful thought leadership
on markets and assets that is regularly shared with clients, as
well as frequently meeting investors to answer questions, clarify
the investment strategy or discuss issues that can affect markets.
How we measure client satisfaction
We utilize different measures
achievements and the satisfaction of our clients.
to
regularly assess our
is
increasingly
Global Wealth Management
leveraging
technology and analytics software to collect client feedback. In
2019, we began
introducing a digital feedback tool to
supplement more traditional survey methods. The tool allows
Global Wealth Management to survey clients about their
satisfaction with their advisors and UBS, as well as to identify
additional financial needs. Advisors are provided with real-time
access to client feedback, enabling them to address concerns
and to follow up on new topics of interest. The tool was piloted
in selected markets in 2019 and is expected to be rolled out
more broadly throughout 2020.
We conduct an annual client survey in Personal & Corporate
Banking. We have been conducting client surveys in Switzerland
since 2011, consistently covering all private and corporate client
segments annually since 2015. Clients assess their satisfaction
with regard to various topics (e.g., UBS overall, branches, client
advisors, products, services) and indicate further product or
advisory needs. Survey responses are distributed to client
advisors, who subsequently follow up with each respondent
individually. In 2019, we introduced a new machine learning
model which enables us to identify the importance of internal
factors (e.g., advisors, products, prices) and external factors
(e.g., media impact, market development) with regard to overall
satisfaction scores.
In Asset Management, we conduct regular surveys, inviting
institutional and wholesale clients across all our markets to
participate. They are asked about their satisfaction with client
service, products and solutions, as well as other factors relevant
to their investments. The results are analyzed to identify focus
areas to improve client satisfaction.
For the
then collate and
is closely
Investment Bank, client satisfaction
monitored by individual product coverage points. Relationship
managers
feedback holistically,
conducting regular internal review sessions to address specific
areas of feedback. The Investment Bank also closely monitors
external surveys, such as the Global Institutional Investor Survey,
which provides feedback across a range of investment banking
services.
review
We thoroughly evaluate the feedback we receive, including
complaints from clients, and take measures to address key
themes identified. In 2019, clients specifically raised sustainable
finance as a key priority, which provided confirmation that we
are aligned with our clients’ preferences in expanding our
sustainable finance offering.
Our focus on ESG
Our firm is in a powerful position to contribute toward achieving
the 17 United Nations (UN) Sustainable Development Goals (the
SDGs) by integrating sustainability in our mainstream offerings,
through new and innovative financial products with a positive
effect on the environment and society, and by advising our
clients on their philanthropic works. Our goal is to be the
financial provider of choice for clients who wish to mobilize
capital toward the achievement of the SDGs and the orderly
transition to a low-carbon economy. We are shaping the
landscape of sustainable finance by using thought leadership,
innovation and partnerships
their
sustainability efforts.
to support clients
in
Our clients are increasingly interested in sustainable finance,
including sustainable investing (SI), which is especially attractive
if it can reduce risk or improve returns. More than 80% of
wealthy individuals are interested in sustainable investing and
45% already hold sustainable investments.1 With regard to asset
owners across the globe, 78% are integrating environmental,
social and governance (ESG) factors into their investment
process.2 Switzerland, for example, saw an 87% asset growth in
institutional sustainable investments in 2018 (compared with
2017),3 and the early indicators are that this growth continued
throughout 2019.
Our key public commitments to sustainable finance
In 2019, we became a founding signatory of the UN Principles
for Responsible Banking (the Principles). The Principles constitute
a comprehensive framework for the integration of sustainability
across banks. They define accountabilities and require each bank
to set, publish and work toward ambitious targets.
Before signing up to the Principles, UBS had already been
strongly committed both to maximizing positive effects through
our sustainable business activities and to minimizing negative
impacts. While our firm’s growing range of sustainable finance
products and services supports the former, our environmental
and social risk framework helps us to better understand and
respond to potential risks to the environment and human rights.
Our Asset Management business division is among the
signatories of the PRI (the Principles for Responsible Investment).
The PRI organization supports the signatories in incorporating ESG
factors into their investment and ownership decisions. In 2019,
UBS also became one of the inaugural members of the CEO
Alliance on Global Investors for Sustainable Development, which is
committed to scaling up and speeding up efforts to align business
with the SDGs. The Alliance is aimed at harnessing the insights of
private sector leaders on ways to remove impediments and
11 UBS Investor Watch on the Year Ahead, November 2019.
22 UBS Asset Management and Responsible Investor magazine, ESG: Do You or Don’t You?, June 2019.
33 Swiss Sustainable Investment Market Study 2019, June 2019.
introduce solutions
long-term
sustainable development in line with the SDGs.
for scaling
investment
for
Since 2017, we have presented white papers to the World
Economic Forum (the WEF) putting forward recommendations
for ways in which private capital can achieve the SDGs, while
also outlining our own actions and pledges in that regard. For
the WEF annual meeting in 2020, our white paper focused on
climate action and the ways in which investors can mobilize
private and institutional capital toward the orderly transition to a
low-carbon economy. In response, UBS has developed a Climate
Aware framework.
We actively support the development of industry standards. In
2019, we contributed to the writing of and signed the
International Finance Corporation’s Operating Principles for
Impact Management. These Impact Principles provide a standard
for impact investing, in which investors seek to generate positive
impact
returns. We also
contributed to a report by the Sustainable Finance Working
Group of the Institute of International Finance on sustainable
investment terminology.
for society alongside
financial
Refer to the Sustainability Report 2019, available from 5 March
2020 under “Annual reporting” at www.ubs.com/investors, for
our key documents, frameworks and external commitments,
and for our climate disclosure following the recommendations
of the Task Force on Climate-related Financial Disclosures
What is our governance on ESG?
Our governance framework on sustainability supports the
creation of long-term value. Our firm’s sustainability activities,
including sustainable finance, are overseen at the highest level
of our firm and are founded in our Code of Conduct and Ethics.
Refer to the Sustainability Report 2019, available from 5 March
2020 under “Annual reporting” at www.ubs.com/investors, for
the sustainability governance chart
We regularly review whether our governance framework
continues to reflect our ambitions with regard to sustainability.
In 2019, we therefore decided to further sharpen our focus on
sustainable finance and we are now establishing a Sustainable
Finance Steering Committee. It will be comprised of senior
business leaders engaged in our firm’s sustainable finance
efforts, who will work together to ensure that we continue to
drive innovation and develop expertise and thought leadership
regarding sustainable finance. The Chair of the Sustainable
Finance Steering Committee is a member of the UBS in society
Steering Committee.
39
Our strategy, business model and environment
Our strategy, business model and environment
How we create value for our stakeholders
How do we define sustainable finance?
Sustainable finance refers to any form of financial service that
integrates ESG criteria into business or investment decisions. We
provide sustainable finance solutions across all our business
divisions and to all our client groups (as shown in the “Key
achievements in 2019” chart on the next page), with a particular
focus on sustainable investing.
Sustainable investing is an approach that seeks to incorporate
ESG considerations into investment decisions. SI strategies seek
to achieve a positive environmental or social impact and/or align
investments with an investor’s values regarding ESG topics,
while aiming to improve portfolio risk and return characteristics.
In the main, we identify three approaches of sustainable
investing: exclusion (individual companies or entire industries are
Core sustainable investments1
excluded from portfolios if their areas of activity conflict with an
investor’s values); ESG integration (which combines ESG factors
with traditional financial considerations); and impact investing
(which is designed specifically to help generate a positive social
or environmental impact alongside financial returns).
We were among the early movers in developing terminology
to describe our sustainable investing activities and to consistently
report on them. We are, however, conscious of the need to
simplify and standardize the terminology for sustainable finance,
which will help to develop and expand that market. We are
therefore actively involved in the relevant discussions and are
committed to reflecting pertinent changes to terminology in our
reporting.
USD billion, except where indicated
Core SI products and mandates
Core SI products and mandates
Integration – sustainability focus3
Integration – ESG integration4
Impact investing5
Exclusions6
Third-party7
Total core sustainable investments
Total core sustainable investments
UBS total invested assets
UBS total invested assets
GRI2
FS11
FS11
FS11
FS11
FS11
FS11
For the year ended
31.12.18
31.12.19
31.12.19
31.12.17
% change from
31.12.18
46.4
46.4
372.3
372.3
9.1
9.1
52.2
52.2
8.5
8.5
488.5
488.5
3,607.0
3,607.0
20.0
224.5
4.7
50.3
13.4
312.9
3,101.0
12.8
63.2
2.8
93.0
9.8
181.7
3,262.0
132.4
65.9
92.1
3.7
(37.0)
56.1
16.3
3
Core SI proportion of total invested assets (%)
2 FS stands for the performance indicators defined in the Financial Services Sector Supplement of the Global Reporting Initiative reporting
1 All figures are based on information available in January 2020.
1
2
framework. 3 Strategies where sustainability is an explicit part of the investment guidelines, universe, selection, and/or investment process. 4 Strategies that integrate environmental, social, and governance (ESG)
4
factors into fundamental financial analysis to improve risk / return. 5 Strategies where the intention is to generate measurable environmental and social impact alongside financial return. 6 Strategies that exclude
7 SI products from third-party providers applying a strict
companies from portfolios where they are not aligned to an investor’s values. Includes customized screening services (single or multiple exclusion criteria).
7
and diligent asset selection process; the selection criteria have been reviewed for the end of 2019 reporting cycle, following a stricter approach from the provider of sustainability ratings. Excludes third-party
products that went through a systematic GWM onboarding process, now counted under “Integration – sustainability focus.”
FS11
10.1
13.5
13.5
5.6
6
5
What do we offer?
We support clients’ sustainability efforts through thought
leadership, innovation and partnerships, and we strive to
incorporate ESG factors into the products and services we
provide. We support corporate and institutional clients who
want to generate positive environmental and societal impact
using our corporate advisory expertise or by directing capital
through our lending or investment capacity. We assist private
and institutional clients with their desire to invest in accordance
with their own social and environmental objectives, and we are
proactive in discussing these issues with them.
Through our Philanthropy Services platform, we are
partnering with clients to manage their philanthropy and
maximize their impact, by offering expert advice, carefully
selected programs
from UBS Optimus Foundation, and
innovative social financing mechanisms, such as development
impact bonds.
In 2019, we noted strong momentum in our sustainable
finance activities. A key indicator is the development of our core
SI assets, where we managed to more than double penetration,
from 5.6% of total invested assets in 2017 to 13.5% (USD 488
billion) in 2019 (2018: 10.1% or USD 313 billion). Core
sustainable investments are SI products that involve a strict and
diligent asset selection process through either exclusions (of
companies / sectors from portfolios where the companies /
sectors are not aligned to an investor’s values) or positive
selections (such as best-in-class, thematic or ESG integration and
impact investing).
Norms-based screening assets, i.e., assets that fall under the
application of a UBS policy1 and do not otherwise qualify as a
core sustainable investment, amounted to USD 818 billion as of
31 December 2019 (up from USD 797 billion in 2018). Total
sustainable investments, including norms-based screening assets,
accounted for USD 1,306 billion (2018: USD 1,110 billion), or
36.2% (2018: 35.8%), of our total invested assets.
1 The assets in discretionary mandates, in UBS’s actively managed retail and institutional funds, as well as in our firm’s proprietary trading book, are subject to our firm’s policy on the prohibition of investment in and
1
indirect financing of companies involved in the development, production or purchase of anti-personnel mines and cluster munitions.
40
Key achievements
in 2019
Global Wealth Management
We are a leader in sustainable investing (SI),1 with
a global footprint and a network of resources to
deliver a wide range of research, advisory and
product capabilities that continue to grow.
• USD 3.9 billion raised toward commitment to
direct at least USD 5 billion of client assets in
SDG-related impact investments by 2021.
• Launch of the SDG Engagement High Yield
Credit funds.
9.4 USD billion
invested in 100% SI solutions
and bespoke SI solutions.
Personal & Corporate Banking
We have been building sustainable fi nance
offerings for all client segments.
• Retail clients: access to 100% sustainable
investment solutions.
• Corporate clients: USD 200 million raised
in the fi rst green bond for a Swiss-listed energy
and infrastructure company.
• Institutional clients: advice on SI integrated
into strategic dialog with clients.
2 core SI products
were launched for our retail
clients.
Asset Management
We have established an industry-leading SI
platform offering a wide range of SI strategies
across various asset classes, integrating
sustainability and impact into all our mainstream
offerings.
• Invested assets in the categories “impact
investing” and “sustainability focus”
increased 14-fold since beginning of 2016
to USD 38.6 billion.
• ESG integration across all traditional asset
classes, at USD 323.1 billion.
3.1USD billion
Climate Aware strategy, a pio-
neering approach to integrate the
2°C climate change scenario into
an investment solution, at USD 3.1
billion invested assets.
1 Euromoney Private Banking and Wealth Management Survey 2019: Global Results.
Group
We are committed to maximizing positive effects
and to minimizing negative impact that we have
on society and the environment.
• UBS Optimus Foundation: an award-winning
grant-making foundation that helps our clients
use their wealth to drive positive and
sustainable social change for children.
• Environmental and social risk management:
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.
3.3 million children
In 2019, UBS Optimus Foundation
raised USD 89.5 million in
donations, approved USD 109.5
million in grants and helped
improve the well-being
of 3.3 million children
worldwide.
Investment Bank
We are focused on meeting the needs of our
clients with regard to ESG and sustainable
fi nance, and helping reshape business models
and investment opportunities.
• Dedicated thought-leading ESG research team
in its 15th year.
• Introduced the UBS ESG icon in our research
reports in 2019, fl agging ESG content in
32 reports.
• UBS ESG and Sustainability Symposium in
London with over 40 speakers; relevant ESG
content incorporated at key client conferences.
• Sustainability-driven investment solutions:
launch of ESG Global Equity Premia.
25 green and
sustainable bonds
Support for companies driving
positive impact: 25 high-profi le
issuances of green and
sustainable bonds.
41
Our strategy, business model and environment
Our strategy, business model and environment
How we create value for our stakeholders
Investors
We generate long-term value for our investors by executing our
strategy with discipline, striving for cost- and capital-efficient
growth, long-term sustainable value creation, and attractive
shareholder returns.
Investor base
Our investor base is well diversified. A substantial proportion of
our institutional shareholders are based in the US, the UK and
Switzerland.
Refer to the “Corporate governance” section of this report for
more information about disclosed shareholdings
Cost- and capital-efficient revenue growth
We aim to drive higher and superior returns by growing and
leveraging our unique, integrated and complementary business
portfolio and geographic
footprint. Our Global Wealth
Management business is well positioned to take advantage of
two secular trends: wealth transfer and wealth creation, partly
driven by continued economic growth, particularly in Asia,
where China is opening its financial markets. Each of our
businesses has initiatives to achieve revenue growth and improve
operating efficiency.
Refer to “Industry trends” in the “Our environment” section of
this report for more information about wealth creation and
wealth transfer
We aim to balance growth opportunities with cost and capital
efficiency in order to drive attractive risk-adjusted returns and
sustainable performance.
Our primary measurement of performance for the Group is
return on common equity tier 1 capital (CET1), as regulatory
capital is our binding constraint and drives our ability to return
capital to shareholders.
Shareholder returns
We aim to increase our ordinary dividend per share by USD 0.01
each year, and to return excess capital through share
repurchases. We consider business conditions and any
idiosyncratic developments when determining excess capital
available for share repurchases.
Alignment of interests
We aim to align the interests of our employees with those of our
equity and debt investors. This is reflected in our compensation
philosophy and practices.
Refer to “Our compensation philosophy” in the “Compensation”
section of this report for more information
Communications
Our Investor Relations function serves as the primary point of
contact between UBS and all shareholders. Our senior
management and the Investor Relations team regularly interact
with the institutional investors community, financial analysts and
other market participants, such as credit rating agencies. Clear,
transparent and relevant disclosures, together with regular and
direct interactions with existing and prospective shareholders,
form the basis for our communications. The Investor Relations
team also relays the views of and feedback from institutional
investors and other market participants on UBS to our senior
management.
Investor Relations and Corporate Responsibility work together
and interact with those investors focusing on sustainability topics
relevant to UBS and society at large.
Refer to “Corporate governance” and “Information policy” in
the “Corporate governance” section of this report for more
information
Refer to the “Performance targets and measurement” section of
Refer to “Society” in this section for more information about
this report for more information
our sustainability efforts
42
Employees
Our employees drive our success. Our employees work in 50
countries, are citizens of 136 nations and speak more than 150
languages. Their skills, experience and commitment enable us to
deliver innovative solutions for our clients, foster sustainable
business success, protect our reputation and drive the firm
forward. As an employer, we attract, develop and retain a
diverse range of talent and aim to ensure there is a workplace
culture that supports and engages our employees, enabling
them to build their careers and unlock their full potential.
Our workforce at a glance1
68,601
employees (by FTE)2
69,966 employees (by headcount)
136
nationalities
(by citizenship)
150+
languages
spoken
8
years of service
on average
19%
60%
21%
50
countries
Age
age < 30
age 30–50
age > 50
Region
31%
30%
20%
19%
Switzerland
Americas
APAC
EMEA
1 Calculated as of 31 December 2019 on a headcount basis of 69,966 internal employees only. 2 Personnel
(full-time equivalents) as of 31 December 2019 has been amended compared with our fourth quarter 2019
report, resulting in a decrease of 61.
The keys to a strong corporate culture
Our three keys to success remain the foundation of our strategy
and culture. Together, they define what we stand for as a firm
and as individuals, and they drive our business strategy. We set
out on our cultural transformation in 2011, defining and then
embedding our Pillars, Principles and Behaviors into our core
people management processes. We conduct regular employee
surveys to obtain feedback and ensure continuous improvement,
discussing the findings and further actions with our employees.
In 2019, responses indicated that employee engagement,
appreciation for our talent management practices, and pride in
working at UBS were all above the norm for financial services
organizations.
Refer to the foldout pages of this report for more information
about our Pillars, Principles and Behaviors
Engaging and enabling employees, instilling a strong risk
culture and promoting sustainability were culture-building
priorities in 2019. In this respect, our Group Franchise Awards
program provided foundational support. This Group-wide
initiative rewards employees for cross-divisional collaboration
and operational effectiveness improvements.
leaders better adapt
We are convinced that leadership drives culture, and culture
drives performance. Great leaders are the key to developing our
people, client relationships and results. For many years, our
House View on Leadership has outlined what effective
leadership is at UBS, as well as what employees can expect. To
help
to continuous change and
digitalization, we updated our House View in 2019 and
integrated its precepts into all of our core HR processes,
training,
recruitment, performance evaluations,
including
succession planning and promotions. Characteristics such as
innovation, curiosity and agility complement our long-standing
emphasis on inclusivity, sustainable profits, accountability, cross-
firm partnership and putting clients first. It is an evolution of
how we view leadership that creates an extraordinary experience
for our clients and our people.
43
Our strategy, business model and environment
Our strategy, business model and environment
How we create value for our stakeholders
Hiring, developing and retaining talent
considering
We are widely recognized as an employer of choice and a great
place to build a career. Key to our success is our long-standing
commitment to investing in our employees at every career stage.
It starts with recruitment, where our philosophy is to hire for
potential,
and
competencies, learning capabilities and agility, as well as digital
and data savviness. We hired a total of 10,080 external
candidates in 2019. Our junior talent programs hired more than
1,700 graduate and other trainees, interns and apprentices. We
also continued our insourcing and hiring activities in our
Business Solutions Centers in China, India, Poland, Switzerland
and the US as part of our integrated workforce strategy.
individual’s
experience
the
Our in-house UBS University further updated its curriculum in
2019 to emphasize future-skills development and personal
growth for all employees, with a new digital skills curriculum
that builds knowledge about topics such as blockchain, cloud
computing, robotics and artificial intelligence. We also launched
a mobile learning app to enable employees to learn whenever
and wherever they want. We revamped our
leadership
development offering in 2019 to ensure that our leaders have
the skills they need to develop their businesses and their people,
and to lead effectively in the digital transformation age. In 2019,
our permanent employees completed more than 1,100,000
learning activities, including mandatory training on compliance,
business and other topics. This averaged to more than two
training days per employee.
Personnel by region
Full-time equivalents
Americas
of which: USA
Asia Pacific
Europe, Middle East and Africa (excluding Switzerland)
of which: UK
of which: rest of Europe (excluding Switzerland)
of which: Middle East and Africa
Switzerland
Along with line manager effectiveness, having a wide range
of learning and career development opportunities, as well as
tools to facilitate professional growth, are key drivers of
employee engagement.
In this respect, our new Career
Navigator tool, which was launched in June 2019, has been a
game-changer. This online platform enables employees to
explore career paths and search for open roles that match their
interests while allowing our recruiters to find internal talent
more easily. It also identifies skill gaps with regard to new roles
and interests and directly links to learning opportunities to help
fill these gaps.
We are committed to ensuring a workplace where employees
are fairly treated, with equal opportunities for all. We do not
tolerate harassment of any kind. Our global measures include
employee and line manager training, specialist expertise in
handling concerns raised, and a global employee hotline. A
Harassment Guardian provides an independent view of the
firm’s setup, procedures and behaviors to prevent harassment
and sexual misconduct.
We pay for performance, and a strong commitment to pay
equity is embedded into our compensation policies. We conduct
regular internal, as well as independent external, reviews, with
the aim of ensuring that all employees are paid fairly, and we
seek to address any unexplained gaps.
Refer to www.ubs.com/employerawards,
www.ubs.com/careers and the “Compensation” section of this
report for more information
31.12.19
31.12.19
21,036
21,036
20,232
20,232
13,956
13,956
12,918
12,918
5,704
5,704
7,048
7,048
166
166
20,691
20,691
As of
% change from
31.12.18
31.12.17
31.12.18
21,309
20,495
12,119
12,620
5,782
6,670
168
20,840
66,888
20,770
19,944
8,959
11,097
5,274
5,662
161
20,427
61,253
(1)
(1)
15
2
(1)
6
(1)
(1)
3
Total1
Total1
1 The increase in workforce in 2019 and 2018 was mainly due to insourcing initiatives and was more than offset by a decrease in external staff.
1
68,601
68,601
44
The importance of diversity and inclusion
A widely diverse workforce that reflects the experience of our
global clients is important for our long-term success. We
therefore strive to shape a diverse and inclusive culture across
the firm to drive sustainable growth and innovation, deliver the
best of UBS to our clients, and build a better place to work for
all employees.
Our broad view of diversity encompasses a range of aspects,
including gender, ethnicity, LGBTQ, disability, mental health and
inclusive leadership. We remain committed to narrowing our
gender representation gap, especially at the management level,
through a global gender diversity strategy and a wide range of
supporting initiatives to hire, promote and retain more women
at all levels of the organization. We continue to make progress
toward our stated aspiration of increasing the representation of
women in management roles to one-third. In 2019, 25.2% of all
employees in roles at Director level and above were women, up
from 24.7% in 2018.
Our UBS Career Comeback program, which was launched in
2016, continues to help us increase our pipeline of female senior
leaders. Professionals looking to return to corporate jobs after a
career break are hired for permanent roles and supported with
specialized onboarding, coaching and mentoring. In 2019,
Career Comeback expanded beyond its four established hubs
in the US, UK, Switzerland and India to become a global,
year-round program. To date, Career Comeback has helped
142 women and 8 men relaunch their careers.
Refer to www.ubs.com/diversity for additional information
about our priorities and commitments, and the Sustainability
Report 2019, available from 5 March 2020 under “Annual
reporting” at www.ubs.com/investors for our management
practices and detailed employee data, including gender- and
region-specific data
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45
Our strategy, business model and environment
Our strategy, business model and environment
How we create value for our stakeholders
Society
As expressed in the 17 United Nations Sustainable Development
Goals (the SDGs), the world faces enormous societal and
environmental challenges. We recognize that it is important to
understand these challenges, as well as the opportunities arising
from them, to consider their relevance to UBS and to identify
potential actions our firm may need to take.
client and supplier relationships, our environmental footprint,
human resources, and community investment. It is through this
cross-divisional organization that we leverage our expertise across
all of these areas to drive sustainable performance. UBS in society
is committed to making UBS a force for driving positive change in
society and the environment.
As the world’s largest truly global wealth manager, we have a
responsibility to take a leading role in shaping a positive future,
for everyone, including the generations to come.
Code of Conduct and Ethics
In our Code of Conduct and Ethics (the Code), the Board of
Directors and the Group Executive Board set out the principles
and practices that define our ethical standards and the way we
do business. These principles apply to all aspects of our business.
All employees must confirm annually that they have read and
will adhere to the Code and other key policies, supporting a
culture where ethical and responsible behavior is part of our
everyday operations.
In the Code, we make a commitment to integrating financial
and societal performance for the mutual benefit of our clients
and our firm – and that we are constantly looking for better
ways to do business in an environmentally sound and socially
responsible manner.
Refer to the Code of Conduct and Ethics of UBS, available at
www.ubs.com/code, for more information
Engaging with society
We engage with representatives of wider society on a regular
basis and on a wide range of topics. This engagement yields
important information about society’s expectations and concerns
and makes a critical contribution to our understanding and
management of issues with potential (positive and negative)
relevance to our firm – and to society. By actively fostering such
interactions, we are in a position to address expectations and
concerns in an informed and effective manner.
UBS in society
UBS in society is a dedicated organization within the firm,
focused on maximizing our positive effect and minimizing any
negative effects UBS has on society and the environment. It
covers all of the activities and capabilities related to sustainable
finance
philanthropy,
environmental, climate and human rights policies governing
sustainable
investing),
(including
The activities driven by UBS in society are overseen, at the
highest level of our firm, by our Board of Directors’ Corporate
Culture and Responsibility Committee (the CCRC). The Group
CEO supervises the execution of the UBS in society strategy and
annual objectives and informs the Group Executive Board and
CCRC about UBS in society updates as appropriate. Reporting to
the Group CEO, the Head UBS in society is UBS’s senior-level
representative for sustainability issues and, on behalf of the
Group CEO, proposes the UBS in society strategy and annual
objectives to the CCRC for approval.
Refer to “Board of Directors” in the “Corporate governance”
section of this report for more information about the CCRC
Driving change in finance
As a major financial institution, we are conscious that the
activities and decisions of our clients can have a substantial
impact on society. It is for that reason that we strive to
incorporate environmental, social and governance (ESG) impacts
into the products and services we provide to clients and partner
with them to help mobilize capital toward the achievement of
the SDGs and the orderly transition to a low-carbon economy.
We know that ESG topics are increasingly important to our
clients. That is why we have dedicated a separate section in this
report to highlight our commitment to serving the growing
sustainable finance needs and expectations of our clients, and to
the key activities associated with our commitment.
Refer to “Our focus on ESG” in this section for more information
Driving change in philanthropy
We believe our clients can make a meaningful, and measurable,
difference for their chosen causes with advice from our
philanthropy experts and the more than 200 global programs
that have been carefully selected through our UBS Optimus
Foundation. We increase social impact by combining our
expertise with capital and networks. Through our Philanthropy
Services platform, we offer clients unique access to social and
financial innovation and philanthropic advice, as well as tailored
program design, co-funding and co-development opportunities.
Refer to www.ubs.com/optimus for more information
46
Driving change in communities
We recognize that our firm’s long-term success depends on the
health and prosperity of the communities of which we are a
part. We seek to redress disadvantages through long-term
investments in education and entrepreneurship. We provide
targeted employee
strategic
volunteering to drive impact across a number of the SDGs.
Refer to the “Driving change in communities” section in the
financial commitments and
Sustainability Report 2019, available from 5 March 2020 under
“Annual reporting” at www.ubs.com/investors for more
information
Driving change in business
We view the proper, firm-wide management of our firm’s own
environmental footprint and our supply chain as important proof
of how we do business in a sustainable manner for the benefit
of society.
This is equally true of our comprehensive environmental and
social risk management and framework that governs client and
vendor relationships and is applied firm-wide to all activities. We
have set environmental and social risk standards pertaining to
environmental and human rights topics in product development,
investments, financing and supply chain management. We have
identified certain controversial activities that we will not engage
in at all, or only under stringent criteria. As part of this process,
we engage with clients and vendors to better understand their
processes and policies, and to explore how any environmental
and social risks may be mitigated.
We have set ambitious targets relating to our use of energy,
water and paper, as well as to our travel and the amount of
waste we produce, and we aim to increase the awareness of
environmental and social matters among our employees and
foster a long-term sustainable mindset in all our activities. In
2019, the year in which we celebrated 20 years since becoming
the first bank to gain global environmental management system
certification (ISO 14001), we ran major campaigns on key
environmental themes.
Our campaigns demonstrate our strong commitment to
reducing UBS’s environmental footprint and further raising our
employees’ awareness of key environmental challenges. The
“Go drastic. Cut the plastic.” global campaign, which was
launched in July 2019, aims at encouraging behavioral change
to help tackle, reduce and phase out single-use plastic items
across our firm. In October, we held our first Zero Waste Day at
featured numerous
22
sustainability-themed activities. Additionally, at five major offices
across the globe, we hosted events featuring subject matter
experts talking about their life’s work and passion, including
speakers from innovative companies.
the globe, which
sites across
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Reporting to our stakeholders on our sustainability
strategy and activities
Information about all our sustainability efforts and commitments
is provided in the UBS Sustainability Report,1 available under
“Annual reporting” at www.ubs.com/investors. The content of
the Sustainability Report has been prepared in accordance with
the Global Reporting Initiative (GRI) Standards (“comprehensive”
option) and with the German rules implementing the EU
directive on disclosure of non-financial and diversity information
(2014/95/EU). Our reporting on sustainability has been reviewed
on a limited assurance basis by Ernst & Young Ltd against the
GRI Standards. Our Sustainability Report 2019 also includes our
full climate disclosure, which we have been aligning with the
recommendations provided by the Financial Stability Board’s
Task Force on Climate-related Financial Disclosures since their
introduction in 2017.
Refer to the Sustainability Report 2019, available from 5 March
2020 under “Annual reporting” at www.ubs.com/investors, for
full descriptions of our environmental management, our
responsible supply chain management and our environmental
and social risk management and framework
11 The UBS Sustainability Report is available from 5 March 2020, and is not deemed incorporated by reference into the SEC Form 20-F filing.
47
Our strategy, business model and environment
Our strategy, business model and environment
How we create value for our stakeholders
Aims and progress
We work with a long-term focus on providing appropriate returns to all of our stakeholders in a responsible manner. To underline
our commitment, we provide transparent goals and report on progress made against them wherever possible. In 2019, we made
good progress in delivering against the Group’s aims.
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OOuurr pprrooggrreessss
A leader in sustainable finance across all client segments
A leader in sustainable finance across all client segments
2017–2020
2017–2020
– Double the penetration of core SI assets from 5.6% (USD 182 billion) of
total invested assets2
2016–2021
2016–2021
– Direct at least USD 5 billion of client assets into SDG-related impact
investments
A recognized innovator and thought leader in philanthropy
A recognized innovator and thought leader in philanthropy
2017–2020
2017–2020
– Achieve 40% of employees volunteering with 40% of volunteer hours
–
being skills based
Increase donations to UBS Optimus Foundation to
CHF 100 million in 2020
2020–2025
2020–2025
– Support 1 million young people and adults (“beneficiaries”) to learn and
develop skills for employment, decent jobs and entrepreneurship
through our community investment activities
Improve the lives of 5 million children globally by engaging at least
1,000 clients in UBS Optimus Foundation’s collective giving platforms
–
An industry leader in sustainable business practices
An industry leader in sustainable business practices
– Retain favorable positions in key ESG ratings
2017–2022
2017–2022
–
Implement the recommendations of the Task Force on
Climate-related Financial Disclosures (TCFD)
2019–2024
2019–2024
–
Implement the requirements of the
Principles for Responsible Banking (PRB)
An employer of choice
An employer of choice
– Achieved our goal one year early, reaching USD 488.5 billion in core SI
assets representing 13.5% of total invested assets2,3
– USD 3.9 billion of client assets directed into SDG-related impact
investments4
– 38% of global workforce volunteered and 48% of volunteer hours
were skills based5
– UBS Optimus Foundation: USD 89.5 million (CHF 86.9 million) in
donations raised; USD 109.5 million (CHF 106.3 million) in grants
approved
– Progress against these goals will be reported for the financial year 2020
onward
– Maintained leadership position (Dow Jones Sustainability Indices / DJSI)
– AA rating maintained (MSCI ESG Research)
–
Industry leader rank maintained (Sustainalytics)
– A– rating and included in Leadership band (CDP)
– First TCFD reporting introduced for the financial year 2017, continuous
improvements ever since
– Among the founding signatories of the PRB (September 2019)
– Being recognized as one of the world’s most attractive employers in key –
ratings and rankings
Included in Global Universum ranking of Top 50 World’s Most Attractive
Employers
– Peer-leading position in human resources elements of DJSI
– Score above financial services norm in employee engagement and work
environment (based on employee survey results)
– Recognized by Bloomberg Gender-Equality Index
1 Refer to the UBS in society constitutional document (in the Sustainability Report 2019) for more information about all aims. Goals are to be achieved by the end of the target year.
2 Core SI are SI products that
1
2
involve a strict and diligent asset selection process through either exclusions (of companies / sectors from the portfolio where the companies are not aligned to an investor’s values) or positive selections (such as best-
3 The increase in core SI assets was mainly driven by the ESG
in-class, thematic or ESG integration and impact investing). Refer to the “Core sustainable investments” table in “Our focus on ESG” in this section.
3
4 Strategies where the investment has the intention of generating measurable
integration strategy of Asset Management. Refer to the “Core sustainable investments” table in “Our focus on ESG” in this section.
4
environmental and social impact alongside a financial return. 5 Refer to the “Driving change in communities” section in the Sustainability Report 2019.
5
48
Regulation and supervision
As a financial services provider based in Switzerland, UBS is subject
to the consolidated supervision of the Swiss Financial Market
Supervisory Authority (FINMA). Our entities are also regulated and
supervised by the authorities in each of the countries where they
conduct business. Through UBS AG and UBS Switzerland AG,
which are licensed as banks in Switzerland, the Group may
engage in a full range of financial services activities in Switzerland
and abroad, including personal banking, commercial banking,
investment banking and asset management.
As a global systemically important bank (G-SIB), as designated
by the Financial Stability Board, and a systemically relevant bank
(SRB) in Switzerland, we are subject to stricter regulatory
requirements and supervision than most other Swiss banks. The
significant changes to financial regulation after the financial
crisis in 2008 have had a material effect on how we conduct our
business and have required significant investment.
Refer to the “Our evolution” section of this report for more
information
Refer to the “Regulatory and legal developments” and “Risk
factors” sections of this report for more information
Regulation and supervision in Switzerland
Supervision
UBS Group AG and its subsidiaries are subject to consolidated
supervision by FINMA under the Swiss Federal Law on Banks and
Savings Banks (the Swiss Banking Act) and related ordinances,
which impose, among other requirements, minimum standards
for capital, liquidity, risk concentration and internal organization.
FINMA fulfills its statutory supervisory responsibilities through
is
licensing,
responsible for prudential supervision and mandates audit firms to
perform regulatory audits and other supervisory tasks on its
behalf.
supervision and enforcement.
regulation,
It
Capital adequacy and liquidity regulation
As an internationally active Swiss SRB, we are subject to capital
and total loss-absorbing capacity requirements that are based on
both risk-weighted assets and leverage ratio denominator and are
among the most stringent in the world. Furthermore, we are
subject to short-term liquidity coverage ratio rules, and after the
net stable funding ratio will have been brought into force in
Switzerland, which the Swiss Federal Council currently intends will
be by mid-2021, we will be subject to long-term minimum
funding requirements.
Refer to the “Capital management” section of this report for
more information about the Swiss SRB framework and the
Swiss too-big-to-fail requirements
Refer to “Assets and liquidity management” in the “Treasury
management” section of this report for more information about
liquidity coverage ratio requirements
Refer to the “Regulatory and legal developments” section of
this report for more information about the introduction of the
net stable funding ratio
Regulation and supervision outside Switzerland
Regulation and supervision in the US
In the US, UBS is subject to regulation and supervision by the
Board of Governors of the Federal Reserve System (the Federal
Reserve Board) under a number of laws. UBS Group AG and
UBS AG are both subject to the Bank Holding Company Act,
under which the Federal Reserve Board has supervisory authority
over the US operations of both UBS Group AG and UBS AG.
UBS’s US operations are also subject to oversight by the Federal
Reserve Board’s Large
Institution Supervision Coordinating
Committee.
In addition to being a financial holding company under the
Bank Holding Company Act, UBS AG maintains several branches
and representative offices in the US, which are authorized and
supervised by the Office of the Comptroller of the Currency.
UBS AG is registered as a swap dealer with the Commodity
Futures Trading Commission (the CFTC) and we expect that UBS
AG will be required to register as a security-based swap dealer
with the Securities and Exchange Commission (the SEC) by the
registration date of 6 October 2021.
UBS Americas Holding LLC – the intermediate holding
company for our non-UBS AG branch operations in the US, as
required under the Dodd–Frank Act – is subject to requirements
established by the Federal Reserve Board related to risk-based
capital, liquidity, the Comprehensive Capital Analysis and Review
stress testing and capital planning process, and resolution
planning and governance.
49
Our strategy, business model and environment
primarily supervised by the Monetary Authority of Singapore and
the Singapore Exchange.
UBS AG, Hong Kong Branch is primarily supervised by the
Hong Kong Monetary Authority. UBS Securities Hong Kong
Limited, UBS Securities Asia Limited and UBS Asset Management
(Hong Kong) Limited are primarily supervised by the Hong Kong
Securities and Futures Commission. In addition, UBS Securities
Hong Kong Limited is supervised by the Hong Kong Stock
Exchange and the Hong Kong Futures Exchange.
Financial crime prevention
Combating money laundering and terrorist financing has been a
major focus of government policies relating to financial
institutions in recent years. The US Bank Secrecy Act and other
laws and regulations require the maintenance of effective
policies, procedures and controls to detect, prevent and report
money laundering and terrorist financing, and to verify the
identity of our clients. Failure to maintain and implement
adequate programs to prevent money laundering and terrorist
financing could result in significant legal and reputation risk.
In addition, we are subject to laws and regulations, in
jurisdictions in which we operate, prohibiting corrupt or illegal
payments to government officials and others, including the US
Foreign Corrupt Practices Act and the UK Bribery Act. We
maintain policies, procedures and internal controls intended to
comply with those regulations.
Data protection
We are subject to regulations concerning the use and protection
of customer, employee, and other personal and confidential
information. This includes provisions under Swiss law, the EU
General Data Protection Regulation (the GDPR) and laws of
other jurisdictions.
If implemented as proposed, we will become subject to a
revised Swiss data protection law, which seeks to improve data
protection for individuals by enhancing the transparency and
accountability rules for companies processing data, among other
measures. This is intended to ensure the equivalence necessary
for the continued cross-border transmission of data. We expect
the Swiss parliament to pass the revised law in 2020 and expect it
to take effect on 1 January 2021.
Refer to the “Risk factors” section of this report for more
information about regulatory change
Our strategy, business model and environment
Regulation and supervision
UBS Bank USA, a Federal Deposit Insurance Corporation-
licensed and
institution subsidiary,
is
insured depository
regulated by state regulators in Utah.
UBS Financial Services Inc., UBS Securities LLC and several other
US subsidiaries are subject to regulation by a number of different
government agencies and self-regulatory organizations, including
the SEC, the Financial Industry Regulatory Authority, the CFTC, the
Municipal Securities Rulemaking Board and national securities
exchanges, depending on the nature of their business.
Regulation and supervision in the UK
Our regulated operations in the UK are mainly subject to the
authority of the Prudential Regulation Authority (the PRA), which
is part of the Bank of England, and the Financial Conduct
Authority (the FCA). We are also subject to the rules of the
London Stock Exchange and other securities and commodities
exchanges of which UBS AG is a member.
UBS AG and UBS Europe SE have UK-registered branches in
London. UBS AG, London Branch serves as a global booking
center for our Investment Bank. In addition, our regulated
subsidiaries in the UK that provide asset management services
are authorized and regulated mainly by the FCA, with one entity
being also subject to the authority of the PRA.
Regulation and supervision in Germany
Certain parts of the businesses of UBS Limited have been
transferred via cross-border merger to UBS Europe SE, a
Frankfurt-based subsidiary of UBS AG. The remainder of the
businesses not merged into UBS Europe SE were transferred to
UBS AG, London Branch. As a result of the cross-border merger,
UBS Europe SE has become a significant entity and is subject to
the direct supervision of the European Central Bank, in addition
to the continued conduct, consumer protection and anti-money
laundering-related supervision by the German BaFin and the
supervisory support by the German Bundesbank. The entity is
subject to EU and German laws and regulations. UBS Europe SE
in Austria, Denmark, France,
maintains branches
Italy,
Luxembourg,
the Netherlands, Poland, Spain, Sweden,
Switzerland and the UK, and is subject to conduct supervision by
authorities in all those countries.
Regulation and supervision in Singapore and Hong Kong
In Asia Pacific (APAC), we operate from 13 locations and are
therefore subject to the regulation and supervision by local financial
regulators. The APAC regional hubs are Singapore and Hong Kong.
UBS AG, Singapore Branch and UBS Securities Pte. Ltd. are
50
Recovery and resolution
Too-big-to-fail legislation in Switzerland requires each Swiss
systemically relevant bank (SRB) to establish an emergency plan
to avoid impending insolvency while maintaining systemic
functions. In response to these requirements in Switzerland, and
to similar requirements in other jurisdictions, UBS has developed
recovery plans and resolution strategies, as well as plans for
restructuring or winding down businesses if the firm could not
be stabilized by other measures.
In 2013, FINMA stated its preference for a single point of
entry (SPE) strategy for globally active SRBs, such as UBS, with a
bail-in at the group holding company level. UBS has since made
structural, financial and operational changes to facilitate an SPE
strategy and is confident that a resolution of the bank is
operationally executable and legally enforceable. In February
2020, FINMA published its assessment of the recovery and
resolution plans and emergency plans for Swiss SRBs. FINMA
confirmed that our Swiss emergency plan is effective, subject to
a further reduction of its joint and several liabilities. In addition,
FINMA confirmed that UBS has completed important measures
and made considerable progress with respect to its global
resolvability.
UBS’s crisis management framework
There are three key governance bodies within the UBS Group
crisis management framework (see the chart below), which take
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responsibility and action depending on the nature of the stress
incident and the scale of the response needed.
–
For incident, risk and crisis management, the Group Crisis
Management Committee works with incident management
teams who provide monitoring and early warning indicators
to management at a local or regional level, without the need
to activate protocols at the Group level. In the event that any
local response is insufficient, global task forces and crisis
management teams provide decision-making guidance and
coordination, including crisis management plans, protocols
and playbooks, as well as contingency funding plans.
The Group Executive Board (the GEB) and the Board of
Directors (the BoD) of the Group would evaluate and decide
upon the need to activate the Global Recovery Plan (the GRP)
were a stress event to reach a severity that required such
decision making, according to the risk indicators identified in
the GRP.
FINMA has the authority to determine whether the point of
impending insolvency as defined by Swiss law has been
reached and, in such instances, as part of the resolution
strategy, has the power to order the bail-in of creditors to
recapitalize and stabilize the Group, limit payments of
dividends and interest, alter our legal structure, take actions
to reduce business risk, as well as to order a restructuring of
the bank.
–
–
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51
Our strategy, business model and environment
Our strategy, business model and environment
Regulation and supervision
Global Recovery Plan
The Global Recovery Plan (the GRP) provides UBS’s senior
management with a tool to respond to early warning indicators
and identifies measures to restore financial strength should UBS
come under severe capital and/or liquidity stress.
Defined quantitative and qualitative triggers are monitored
daily and are subject to predefined governance and escalation
processes. Fully actionable recovery options are available and
provide a firm basis for the GEB Recovery Task Force for decision
making in recovery. Recovery options have defined execution
owners and playbooks with the following objectives:
– capital preservation, such as reduction of future dividends,
incentive compensation reductions;
– capital raising, such as issuance of mandatory convertible
instruments; and
– raising funding, disposal or wind-down of businesses.
Global Resolution Strategy
The Global Resolution Strategy (the GRS) sets out measures that
can be taken by FINMA to resolve UBS in an orderly manner, in
the event that the recovery process is not successful and the
Group enters into resolution. UBS submits the GRS to FINMA,
which has the ultimate authority and responsibility to execute the
resolution, in cooperation with the Swiss National Bank, the
Federal Department of Finance and other key authorities through
a Crisis Management Group. The SPE bail-in strategy would
involve the write-down of remaining equity, additional tier 1 and
tier 2 instruments of the Group, as well as the bail-in of total
loss-absorbing (TLAC)-eligible senior unsecured bonds at the UBS
Group AG level. At the same time, an internal recapitalization of
the affected subsidiaries would be executed, allowing the
subsidiaries to transmit incurred losses to the parent bank, UBS
AG, and ultimately
to UBS Group AG. Post-resolution
restructuring measures could include the potential wind-down of
businesses and assets, as well as business disposals. Preparatory
work is ongoing. Overall, FINMA confirmed that UBS has already
taken
thus made
important preparatory steps and has
considerable progress with respect to its global resolvability.
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52
Local plans
The UBS US resolution plan sets out the steps which could be
taken to resolve the UBS Americas Holding LLC group in the
event that the US sub-group suffered material financial distress
and the Group was either unable or unwilling to provide
financial support. As required by the US resolution planning
regulations, our US plan contemplates that UBS Americas
Holding LLC will commence a bankruptcy proceeding in the US.
Prior
the plan
LLC would
that UBS Americas Holding
contemplates
downstream financial resources to its subsidiaries to facilitate the
orderly wind-down or disposal of businesses.
to commencement of
the proceeding,
Subsequent to the cross-border merger of UBS Limited into
UBS Europe SE, the enlarged European operating subsidiary is in
the process of developing resolution planning according to
Single Resolution Board requirements. In view of the relatively
small size of UBS Europe SE compared with the overall Group,
emphasis is placed on the GRP and GRS to provide the tools
necessary to recapitalize and restructure the company in the
event of material financial distress.
The Swiss emergency plan demonstrates how UBS’s
systemically important functions and critical operations can
continue in the event that a successful restructuring of the
Group is deemed not to be successful. This is achieved mainly by
maintaining UBS Switzerland AG as a separate legal entity.
FINMA has confirmed that the Swiss emergency plan is effective,
subject to a further reduction of its joint and several liabilities.
Other local recovery and resolution plans exist for various
Group entities and jurisdictions. They illustrate how local
operations benefit from the GRP and the GRS, and also support
the global plans. UBS’s operational continuity planning is
intended to ensure the uninterrupted provision of critical services
even if certain Group entities are discontinued in a crisis.
53
Our strategy, business model and environment
Our strategy, business model and environment
Regulatory and legal developments
Regulatory and legal developments
business location. The federal changes resulting from this tax
reform do not have a significant effect on the tax expenses for
the Group, as increases resulting from the reform are largely
offset by tax rate reductions and other changes at the cantonal
level. The federal reform became effective on 1 January 2020.
The reform measures also provide that for Switzerland-
domiciled companies with shares listed on a stock exchange no
more than 50% of dividends may be, and at least 50% of share
repurchases for redemption must be, paid out of capital
contribution reserves, with the remainder required to be paid
from retained earnings. As a result, at least 50% of all dividends
paid after 1 January 2020, including dividends in respect of the
financial year 2019, will be paid from retained earnings, and will
be subject to a 35% Swiss withholding tax. As of 31 December
2019, UBS held CHF 13 billion in approved capital contribution
reserves for potential future distributions to shareholders, either
in the form of dividends or share repurchases.
Separately, following a change in Swiss tax law as of
1 January 2019 that applies to holding companies of systemically
relevant banks issuing loss-absorbing additional tier 1 or total
loss-absorbing capacity (TLAC)-eligible senior unsecured debt
instruments, UBS will no longer issue such instruments out of
UBS Group Funding (Switzerland) AG and existing instruments
were migrated to UBS Group AG in October 2019.
EU equivalence for Swiss trading venues
In June 2019, the European Commission decided not to extend
its equivalence decision for Swiss trading venues beyond the end
of June 2019, citing a perceived lack of progress toward the
conclusion of an institutional framework agreement between
Switzerland and the EU as the reason for this decision.
In reaction, the Swiss Federal Council activated a contingency
measure to protect the Swiss stock exchange infrastructure,
effective as of 1 July 2019. The Swiss measure introduced a
recognition requirement for foreign trading venues that admit
shares issued by Swiss incorporated companies to trading, with
EU trading venues having their recognition revoked due to the
lack of reciprocity. To comply with this measure, trading in Swiss
shares on EU trading venues ceased and was redirected to Swiss
trading venues as of 1 July 2019, as permitted under EU law in
the absence of eligible EU trading venues.
We prepared for this scenario and, as of 1 July 2019, routed
relevant trade flows in Swiss shares from EU to Swiss trading
venues, with limited adjustment costs for UBS.
Switzerland
Swiss Federal Council adopts new rules on gone concern capital
for G-SIBs
In November 2019, the Swiss Federal Council adopted
amendments to the Capital Adequacy Ordinance, which became
effective 1 January 2020. The revisions introduce gone concern
capital requirements for Switzerland-based intermediate parent
banks of global systemically important banks (G-SIBs) on a
standalone basis. As a consequence, UBS AG will be subject to:
(i) a gone concern capital requirement on its third-party
exposure on a standalone basis; (ii) an additional gone concern
capital buffer requirement equal to 30% of the Group’s gone
requirement on UBS AG’s consolidated
concern capital
exposure; and (iii) a gone concern capital requirement equal to
the nominal value of the gone concern instruments issued by
UBS entities and held by the parent bank. A transitional period
until 2024 will be granted for the buffer requirement.
Based on current estimates, and once the new requirements
have been fully phased in, we expect the UBS Group to be
required to maintain a gone concern leverage ratio of around
75–100 basis points higher than what would be required to
total
meet
loss-absorbing capital Group requirement at the end of the
transition phase will depend on a number of components,
including the subsidiaries’ loss-absorbing capacity at the time.
requirements alone. The actual
the Group
The revisions also reduced the gone concern requirement of
UBS Switzerland AG to 62% of the Group’s gone concern
requirement (before rebate) and increased the minimum gone
concern requirement for the Group (after rebate) from 3% to
ratio denominator), effective
3.75%
1 January 2022.
(based on
leverage
Finally,
instruments available
to meet gone concern
requirements remain eligible until one year before maturity;
however, the current haircut of 50% in the last year of eligibility
is no longer applied under the revised rules.
Refer to the “Capital management” section of this report for
more information about the currently applicable requirements
Swiss corporate tax reform
In May 2019, the Swiss electorate approved corporate tax
reform measures that abolish preferential corporate tax regimes
and introduce a series of tax measures aligned with Organisation
for Economic Co-operation and Development (OECD) standards,
while seeking to maintain Switzerland’s competitiveness as a
54
Swiss National Bank adjustment to the zero interest rate
exemption threshold
In September 2019, the Swiss National Bank
(the SNB)
announced adjustments to the calculation of the amount of
sight deposits at the SNB that are exempt from negative interest
rates. The exemption threshold has been increased from 20 to
25 times each bank’s minimum requirement. In addition, the
threshold will be updated on a monthly basis. These changes
came into effect on 1 November 2019. The SNB communicated
that this decision was taken based on the assumption that the
low interest rate environment around the world will persist for
some time. In its December 2019 monetary policy assessment,
the SNB
its previously announced policy measures
unchanged. UBS maintains significant sight deposits at the SNB.
The adjustments to the exemption threshold calculation benefit
our net interest income.
left
Swiss Federal Council communicated its intention to bring the
NSFR into force by mid-2021
Having delayed the introduction of net stable funding ratio (NSFR)
requirements in Switzerland over the previous two years to align
with developments in the EU and the US, the Swiss Federal
Council communicated its intention in November 2019 to adopt
the associated ordinance amendments in early summer 2020, and
bring them into force by mid-2021. The Federal Department of
Finance was mandated to finalize the regulatory texts jointly with
relevant stakeholders, including affected banks, in the coming
months. If implemented as originally proposed in the 2017
consultation, the introduction of the NSFR could result in a
significant increase in long-term funding requirements on a legal
entity level.
Automatic exchange of information
In September 2019, as a consequence of the automatic
exchange of information (AEI) introduced in Switzerland as of
1 January 2017, the Swiss Federal Tax Administration exchanged
information on financial accounts with 75 countries. With 63 of
these countries, the exchange was reciprocal. In the case of 12
countries, Switzerland received information, but did not provide
any, either because those countries do not yet meet the
international requirements on confidentiality and data security
(Belize, Bulgaria, Costa Rica, Curaçao, Cyprus, Montserrat,
Romania and Saint Vincent and the Grenadines) or because they
chose not to receive data (Bermuda, the British Virgin Islands,
the Cayman Islands, and the Turks and Caicos Islands). The
Federal Tax Administration sent information on around 3.1
million financial accounts to the partner states and received
information on around 2.4 million from them. Subject to the
exchange are identification, account and financial information,
including name, address, state of residence and tax identification
number, as well as information concerning the reporting
financial institution, account balance, income payments and
gross proceeds. UBS is committed to full compliance with its AEI
obligations.
Tightened self-regulation for income-producing real estate
the Swiss Bankers
In August 2019, FINMA approved
Association’s revised self-regulation on mortgage lending for
income-producing real estate. The revisions
increase the
minimum equity required for new and increased mortgages on
these properties, from 10% to 25% of the market value at
origination, and require mortgages to amortize to two-thirds of
the market value at origination within 10 years (previously 15
years). UBS Switzerland AG is subject to the revised self-
regulation that came into effect on 1 January 2020. We expect
the overall effect on UBS to be limited.
Europe
Update on the UK’s withdrawal from the EU
Based on recent developments, the UK and EU are expected to
negotiate the terms of their future relationship during a
transition period intended to end 31 December 2020, including
the granting of equivalence determinations for the UK under
existing EU financial services legislation.
UBS implemented contingency plans through the combined
UK business transfer and cross-border merger of UBS Limited
into UBS Europe SE (UBS ESE) in March 2019.
The European Commission has confirmed an extension of the
temporary equivalence for UK central counterparties (CCPs) until
31 January 2021. Should the UK exit the transition period
without the necessary equivalence determination in place, UBS
ESE’s exposures to UK CCPs would need to be migrated to an
EU CCP ahead of the 31 January 2021 deadline. In the absence
of an agreement on the future EU–UK relationship or
equivalence determinations covering relevant financial services,
however, the industry would face a number of market structure
issues that await resolution between the UK and EU in 2020,
such as the operation of the derivatives and share trading
obligations under the EU’s Markets in Financial Instruments
Directive II (MiFID II).
UK operational resilience requirements
In December 2019, the UK regulators (the Bank of England, the
Prudential Regulation Authority (the PRA) and the Financial
Conduct Authority) issued a consultation on their operational
resilience expectations
financial market
infrastructures (FMIs). To complement this, the PRA is also
consulting on outsourcing and third-party risk management
requirements.
for banks and
The proposals will require firms and FMIs to identify their key
business services and set impact tolerances (i.e., the maximum
level of disruption that would be tolerated) for each one. Firms
will also be required to test their ability to deliver important
business services within impact tolerances in severe but plausible
scenarios.
UBS is in the process of adapting its existing operational
resilience framework to the new methodology set out in the
consultations. Impact tolerances will be clearly defined and
scenarios will be designed and implemented to test our controls
and maintain operations within those impact tolerances.
55
Our strategy, business model and environment
Our strategy, business model and environment
Regulatory and legal developments
International
Developments on anti-money laundering
There has been increasing focus on anti-money laundering
(AML), including on international collaboration, supervisory
information sharing, and on divergences in the criteria and
methodologies of the Financial Action Task Force (FATF).
Authorities also recognized the
increased role played by
technology in facilitating AML compliance, but also in opening
new doors for malicious activities. In this context, the FATF
consulted on “Draft Guidance on Digital Identity”, which aims
to clarify how digital identity systems can be used for customer
due diligence. The FATF also updated its standards that require
crypto-exchanges to identify their customers and make that
information available to law enforcement authorities. Separately,
the Basel Committee on Banking Supervision (BCBS) consulted
on the introduction of guidelines on interaction and cooperation
between prudential and AML and counter-terrorist financing
supervision. In the EU, there has been focus on strengthening
the implementation of the EU AML rules, including via a
strengthened role of the European Banking Authority (EBA) in
rulemaking and supervision, and discussions are ongoing on a
possible creation of an EU AML Agency.
a
using
approach,
risk-based
In Switzerland, the Federal Council adopted a dispatch on
amending the Anti-Money Laundering Act (the AMLA) on
26 June 2019. According to the proposal, advisors, such as
lawyers and other professionals, will be subject to the AMLA.
financial
Additionally,
intermediaries will be required to verify certain information
regarding beneficial ownership and will also be required to
periodically review client profiles to assess whether they are up-
to-date. In the US, various amendments and guidance regarding
US AML laws were introduced, including on issues such as
beneficial ownership, information sharing, privacy protections,
risk management, and examination priorities. In APAC, the FATF
and the Asia/Pacific Group on Money Laundering (the APG)
carried out an evaluation of Japan and adopted six mutual
evaluation reports which will drive AML policy development in
the region for the years to come.
Developments on data protection
There has been an increased focus on data protection regulation
and in particular on how technology is changing the context and
international coordination of data policies, in the absence of a
single global data protection regulatory body. This included
considerations for clarity regarding the ability of banks to use big
data analytics, addressing privacy and security concerns aimed at
giving individuals more control over how their data is collected
and used, and smooth transfers of data across borders. In the
EU, the focus was on ongoing implementation of the General
56
Data Protection Regulation (the GDPR) and addressing the
inconsistencies between the GDPR and other EU legislation.
Additionally, the EBA outlined key challenges in the roll out of
big data and advanced analytics. EU–UK data transfers require
use of EU-approved standard contractual clauses in the absence
of UK and EU adequacy decisions. UBS completed a review in
2019 intended to ensure that EU-approved standard contractual
clauses are included in all relevant contracts. In Switzerland,
parliamentary debate on
revision and
the
modernization of the Federal Data Protection Act took place
throughout 2019 and will continue in 2020. Linked to the
revision is the Swiss Federal Council’s adoption of a dispatch to
approve the Council of Europe data protection convention. The
European Commission is expected to publish an adequacy
decision on the level of Swiss data protection compared to the
EU GDPR in the first quarter of 2020. In the US, California has
become the first state to adopt its own comprehensive
regulatory framework, the California Consumer Privacy Act.
fundamental
Regulatory approaches to stablecoins
Stablecoins in general and the Libra project specifically continue
to receive significant regulatory attention.
At the international level, a G7 report identified stablecoins as
one of nine significant risks, giving rise to money laundering and
tax compliance risks. The Financial Stability Board (the FSB)
announced a review of the existing supervisory and regulatory
approaches in addressing financial stability and systemic risks of
stablecoins, and is expected to issue a consultation in April
2020. The International Organization of Securities Commissions
examined how securities
legislation may apply to global
stablecoins and recommended a case-by-case approach.
In the EU, the European Commission and the Council of the
EU stated that no global stablecoin initiative should operate in
the EU until the legal, regulatory and oversight challenges and
risks have been adequately identified and addressed.
In the US, Congress introduced a bill to classify stablecoins
as securities and to regulate stablecoins under the Securities
Act of 1933.
In Switzerland, FINMA outlined its treatment of stablecoins
under Swiss supervisory law, stating that it would consider
“substance over form” and apply a principle-based and
technology-neutral approach. In addition, FINMA responded to a
request from the Libra Association, providing an initial indication
of the application of Swiss regulation, and highlighting the need
for international regulatory coordination.
In the UK, the Bank of England recommended the UK
Treasury consider adjusting the UK regulatory framework for
payments to take into account innovations, such as stablecoins,
by applying a risk-based approach and standards equivalent to
those applied to traditional payment chains.
FSB efforts on new and emerging vulnerabilities in the financial
system and resolvability of systemically important financial
institutions (banks and CCPs)
As part of its priorities for 2020, the FSB communicated that it will
reinforce its forward-looking monitoring of developments to
identify, assess and address new and emerging vulnerabilities in
the financial system. Focus topics include developments and
financial stability considerations around fintech, regulatory issues
from global stablecoins, cross-border payment systems, interest
rate benchmark reforms, implications of the extended low interest
environment, leveraged loans and collateralized loan obligations,
as well as financial stability implications of climate change. The
FSB also pointed to remaining gaps in making resolution strategies
and plans operational with respect to banks and central
counterparties (CCPs). Regarding banks, the FSB plans to address
challenges related to finding the appropriate balance between
group-internal distribution of total loss-absorbing capacity (TLAC)
and non-pre-positioned resources and ensuring access to
temporary liquidity as needed by firms going through resolution.
Concerning CCPs, the FSB seeks to further strengthen their
resilience and resolvability by continuing its work on financial
resources and tools to support orderly resolution, with a related
consultation expected for the second quarter of 2020.
Basel III implementation across jurisdictions
In Switzerland, the technical work on implementation of the Basel
III rules finalized in 2017 started in the second half of 2019, led by
the Swiss Federal Department of Finance and FINMA. However,
none of the proposals have been made public so far.
The European Commission (the EC) consulted on the EU’s
approach to the implementation of the remaining elements of
Basel III (including the market risk framework, the standardized
approach to credit risk, operational risk and the output floor). The
EC is expected to publish legislative proposals by June 2020. UBS’s
EU entities, principally UBS Europe SE, will be in scope of the EU
requirements. US regulators have not yet proposed rules regarding
the implementation of the remaining elements of Basel III.
Regulators in jurisdictions relevant to UBS are committed to
meeting the BCBS implementation timeline for final Basel III rules
as of 1 January 2022. However, we expect the effective dates to
be later due to transition periods.
Regulatory developments related to sustainable finance
In the EU, political agreement has been reached on key elements
of the EC’s Sustainable Finance Action Plan issued in March
2018, including: (i) a sustainable finance taxonomy determining
certain
whether an economic activity
contributes
to
for banks
requirements
environmental objectives and does no harm to others; (ii)
that offer portfolio
disclosure
management services to provide transparency on the promotion
of environmental or social characteristics and of sustainable
investments
types of
benchmarks aiming to reduce the carbon footprint of a standard
investment portfolio or specifically contribute to attaining the
two degrees Celsius reduction target set out in the Paris
Agreement of 2015.
reports; and
in periodic
two
(iii)
The EC also published draft rules that amend delegated acts
under MiFID II and the Insurance Distribution Directive aiming at
obliging investment firms and insurance distributors to include
environmental, social and governance
(ESG) factors and
preferences in the advice that investment firms offer to their
clients.
In Switzerland, the Federal Council created a working group
headed by the State Secretariat for International Finance (the SIF)
tasked with reviewing regulatory developments in the area of
sustainable finance, such as the impact of the EC action plan on
Switzerland. A report is expected for spring 2020 containing the
results of this review and proposals for Switzerland’s regulatory
approach to sustainable finance. The effect on UBS will depend
on the recommendations made in this report.
Separately, 2019 saw a number of developments related to
management of financial risks. In April 2019, the UK Prudential
Regulation Authority
(the PRA) published a supervisory
statement on enhancing banks’ and insurers’ approaches to
managing the financial risk from climate change.
The Bank of England (the BoE) has published a discussion
paper setting out its proposed framework for the 2021 biennial
exploratory scenario (BES) exercise. The objective of the BES is to
test the resilience of the largest banks and insurers to the
physical and transition risks associated with different possible
climate scenarios, and the financial system’s exposure more
broadly to climate-related risk. The BES is the part of the BoE’s
stress testing framework used to explore less well-understood
risks that are not neatly linked to the financial cycle.
In Switzerland, parliament adopted a new draft for the
revision of the CO2 Act to implement the reduction goals of the
Paris Agreement until 2030. The draft contains a new provision
mandating the SNB and FINMA to assess climate-related
financial risks in the financial sector.
In Hong Kong, the Hong Kong Monetary Authority has
developed the Common Assessment Framework on Green and
Sustainable Banking for authorized institutions to conduct self-
assessments of their readiness and preparedness in managing
climate- and environment-related risks.
57
Our strategy, business model and environment
Our strategy, business model and environment
Regulatory and legal developments
Developments related to the transition away from IBORs
Liquidity and activity in alternative reference rates (ARRs)
continue to develop in markets around the world, with work
issues associated with
progressing
transitioning away from
(IBORs).
Regulatory authorities continue to focus on transitioning to
ARRs by the end of 2021.
interbank offered rates
resolve certain
to
In June 2019, the SNB introduced the SNB policy rate, which
replaces the previously used target range for the three-month
CHF LIBOR. The SNB policy rate signals the interest rate level
for secured short-term money market rates, with a focus on
the Swiss Average Rate Overnight (SARON). The introduction
of the SNB policy rate is also intended to foster an early
transition to SARON.
The Financial Conduct Authority and Bank of England
encourage switches from LIBOR to the Sterling Overnight Index
Average (SONIA) for sterling interest rate swaps from the first
quarter of 2020. In addition, banks need to target a stopping
point with regard to the issuance of cash products linked to
sterling LIBOR by the end of the third quarter of 2020 and a
significant reduction of the number of existing contracts in
circulation that reference the rate.
The European Central Bank published the euro short-term
rate (€STR), the ARR for EUR markets, for the first time in
October 2019.
Liquidity in the US Secured Overnight Financing Rate (SOFR)
is still developing and is concentrated among a few issuers,
primarily government-sponsored enterprises. SOFR averages
are expected to be published beginning in the first half of
2020. The US Commodity Futures Trading Commission (CFTC)
has issued no-action letters that provide relief and ensure that
market participants are not penalized as they transition from
LIBOR to ARRs.
We have a substantial number of contracts linked to IBORs.
ARRs do not currently provide a term structure, which will
require a change in the contractual terms of products currently
indexed on terms other than overnight. We have established a
cross-divisional, cross-regional governance structure and change
program to address the scale and complexity of the transition.
USA
that
tailor how certain capital and
Tailoring of regulation for foreign banks in the US
On 10 October 2019, the Federal Reserve Board adopted two
liquidity
proposals
requirements and enhanced prudential standards apply to
foreign banking organizations
(FBOs) with significant US
operations. Under the final rules, FBOs and their US intermediate
holding companies (IHCs) will be assigned to categories based
on their size measured in total assets as well as on scores
relating to four other risk-based indicators: non-bank assets, a
weighted measure of short-term wholesale funding, off-balance
sheet exposure and cross-jurisdictional activity.
Each of UBS Americas Holdings LLC (our IHC) and our
combined US operations, which include our IHC and US
58
branches of UBS AG, are “Category III” firms under the final
rule. In this category, among other things, UBS Americas
Holding LLC will continue to be: (i) required to submit its capital
plan annually; (ii) subject to limitations on distributions through
the Comprehensive Capital Analysis and Review (CCAR) process;
(iii) subject to annual supervisory stress testing; and (iv) subject
to the supplementary leverage ratio. It will also become subject
to the newly applicable liquidity coverage ratio requirements and
the proposed net stable funding ratio requirements. “Category
III firms” are now required to conduct company-run stress tests
once every two years, rather than annually, and to submit US
resolution plans once every three years.
On 9 July 2019, US regulators adopted rules intended to
simplify compliance with certain capital requirements for certain
categories of organizations, including Category III organizations
such as UBS Americas Holding LLC.
Volcker Rule revisions
US regulators have adopted amendments (2019 Final Rule) to
their regulations implementing the Volcker Rule prohibitions on
proprietary trading and limitations on covered fund activities.
The amendments became effective 1 January 2020, with
compliance voluntary from that date and mandatory from
1 January 2021.
Among other changes, the 2019 Final Rule tailors compliance
program obligations for trading activities in tiers based on the
level of US trading assets and liabilities and relaxes certain
conditions for exemptions to the Volcker Rule restrictions to
apply to activities engaged in by foreign banking entities outside
the United States. We expect UBS will fall within the
“Significant” category, which will require UBS to maintain its
compliance program but should eliminate certain reporting
requirements.
On 30 January 2020, US regulators proposed further
amendments to their Volcker Rule regulations. The proposed
amendments would permit banking entities to engage in
additional activities with covered funds compared with the
existing regulations.
Final BEAT tax regulations issued
In December 2019, the US Treasury Department and the Internal
Revenue Service issued final regulations regarding the base
erosion and anti-abuse tax (BEAT). BEAT was introduced as part
of the Tax Cuts and Jobs Act of 2017 with the intended purpose
of preventing US corporations from unduly reducing their US
taxable income through payments to related foreign parties.
While generally retaining most features of the proposed
regulations issued in December 2018, including those that were
considered helpful to foreign banks operating through branches
and subsidiaries in the US (such as UBS), the final regulations
contain a number of meaningful clarifications and changes. We
continue to expect to have nil to limited exposure to BEAT for
the foreseeable future, primarily because payments that our US
branches and subsidiaries make to related parties outside the US
are expected to remain below the applicable BEAT thresholds.
US Regulation Best Interest
The SEC has adopted rules and interpretations intended to
enhance customer protection of retail investors. The effective
date of these new provisions will be 30 June 2020. The new
rules are intended to align the legal requirements and mandated
disclosures for broker-dealers and investment advisers with
reasonable investor expectations, while preserving access, in
terms of choice and cost, to a variety of investment services and
products.
Regulation Best Interest elevates the standard of care for
broker-dealers from the current “suitability” requirement to a
newly defined “best interest” standard, which applies to any
securities transaction or investment strategy involving securities
offered to a retail customer and makes clear that a broker-dealer
may not put its financial interests ahead of the interests of a
retail customer when making recommendations. The regulation
also creates new disclosure requirements and additional
compliance program requirements. Implementation of these
changes will require operational and supervisory changes for
UBS’s US broker-dealers.
US Securities and Exchange Commission adopts US security-
based swaps regulations
In 2019, the SEC adopted a number of rules and rule
amendments for security-based swap dealers (SBSDs), including:
(i) capital, margin and segregation requirements; (ii) record-
keeping, reporting and notification requirements; and (iii) the
application of risk mitigation techniques to uncleared portfolios
of security-based swaps. In December 2019, the SEC also
adopted rules and interpretations (effective 6 April 2020)
intended to expand and improve the framework for regulating
cross-border security-based swaps. The December 2019 rules
address registration requirements for foreign SBSDs, including
guidance on the process for obtaining substituted compliance
for non-US SBSDs. We expect that UBS AG will be required to
register as an SBSD. The date for security-based swap entities to
register with the SEC, and to comply with other securities-based
(including margin, capital, segregation,
swaps regulations
record-keeping
conduct
requirements), is 6 October 2021.
and business
reporting,
and
APAC
China further opening up its financial sector
In July 2019, China’s Office of the Financial Stability and
Development Committee and the State Administration of
Foreign Exchange announced measures designed to accelerate
the opening up of the financial sector to foreign financial
institutions and investors. Measures include: the removal of
foreign ownership limits on securities, fund management and
futures companies one year earlier, in 2020; encouraging
overseas financial institutions to establish and invest in asset and
wealth management entities and currency brokers, and
participate in the bond market; and eliminating requirements
and quotas for qualified foreign investors to invest in China.
The accelerated removal of the ownership caps for securities
companies means that UBS AG is expected to be permitted to
increase its stake in UBS Securities China from the current level
of 51% to 100% from 1 December 2020. UBS Asset
Management will be permitted to apply for a fully owned
securities investment fund management company from 1 April
2020.
59
Our strategy, business model and environment
Our strategy, business model and environment
Risk factors
Risk factors
Certain risks, including those described below, may affect our
ability to execute our strategy or our business activities, financial
condition, results of operations and prospects. We are inherently
exposed to multiple risks, many of which may become apparent
only with the benefit of hindsight. As a result, risks that we do
not consider to be material or of which we are not currently
aware could also adversely affect us. Within each category, the
risks that we consider to be most material are presented first.
Market and macroeconomic risks
Performance in the financial services industry is affected by
market conditions and the macroeconomic climate
Our businesses are materially affected by market and
macroeconomic conditions. Adverse changes in interest rates,
credit spreads, securities prices, market volatility and liquidity,
foreign exchange rates, commodity prices, and other market
fluctuations, as well as changes in investor sentiment, can affect
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, global trade disruption, changes in monetary or fiscal
policy, changes in trade policies, natural disasters, pandemics,
civil unrest, acts of violence, war or
terrorism. Such
developments can have unpredictable and destabilizing effects
and, because
financial markets are global and highly
interconnected, even local and regional events can have
widespread effects well beyond the countries in which they
occur. For example, the outbreak of the Covid-19 virus in China,
its spread to other nations as well as quarantine and other
efforts to contain the outbreak appear to have had an adverse
economic effect on economic activity in China as well as on
industries such as travel and tourism. The future effects of the
outbreak of Covid-19 are unclear at this time. A significant rise
in the number of Covid-19 infections, infections in a wide range
of countries and regions, or a prolongation of the outbreak
could significantly adversely affect economic growth, affect
specific industries or countries or affect our employees and
business operations
in affected countries. Any of these
developments may adversely affect our business or financial
results.
If individual countries impose restrictions on cross-border
payments, trade, or other exchange or capital controls, or
change their currency (for example, if one or more countries
should leave the eurozone), we could suffer losses from
enforced default by counterparties, be unable to access our own
assets, or be unable to effectively manage our risks.
Should the market experience significant volatility, a decrease
in business and client activity and market volumes could result,
which would adversely affect our ability to generate transaction
fees, commissions and margins, particularly in Global Wealth
Management and the Investment Bank, as we experienced in
60
invested assets
the fourth quarter of 2018. A market downturn would likely
reduce the volume and valuation of assets that we manage on
behalf of clients, which would reduce recurring fee income that
is charged based on
in Global Wealth
Management and Asset Management and performance-based
fees in Asset Management. Such a downturn could also cause a
decline in the value of assets that we own and account for as
investments or trading positions. In addition, reduced market
liquidity or volatility may limit trading opportunities and may
therefore reduce transaction-based income and may also impede
our ability to manage risks.
We could be materially affected if a crisis develops, regionally
or globally, as a result of disruptions in markets due to
macroeconomic or political developments, or as a result of the
failure of a major market participant. Over time, our strategic
plans have become more heavily dependent on our ability to
generate growth and revenue in emerging markets, including
China, causing us to be more exposed to the risks associated
with such markets.
Global Wealth Management derives revenues from all the
principal regions, but has a greater concentration in Asia than
many peers and a substantial presence in the US, unlike many
European peers. The Investment Bank’s business is more heavily
weighted to Europe and Asia than our peers, while its derivatives
business is more heavily weighted to structured products for
wealth management clients, in particular with European and
Asian underlyings. Our performance may therefore be more
affected by political, economic and market developments in
these regions and businesses, including the effects of the Covid-
19 outbreak, than some other financial service providers.
Low and negative interest rates in Switzerland and the eurozone
could continue to negatively affect our net interest income
The continuing low or negative interest rate environment may
further erode interest margins and adversely affect the net
interest income generated by the Personal & Corporate Banking
and Global Wealth Management businesses. The Swiss National
Bank permits Swiss banks to make deposits up to a threshold at
zero interest and has recently increased this threshold. Any
reduction in or limitation on the use of this exemption from the
otherwise applicable negative interest rates could exacerbate the
effect of negative interest rates in Switzerland on our business.
Low and negative interest rates may also affect customer
behavior and hence our overall balance sheet structure.
Mitigating actions that we have taken, or may take in the future,
such as the introduction of selective deposit fees or minimum
lending rates, have resulted and may further result in the loss of
customer deposits (a key source of funding for us), net new
money outflows and a declining market share in our Swiss
lending business.
Our shareholders’ equity and capital are also affected by
changes in interest rates. In particular, the calculation of our
Swiss pension plan’s net defined benefit assets and liabilities is
sensitive to the applied discount rate and to fluctuations in the
value of pension plan assets. Any further reduction in interest
rates may lower the discount rates and result in pension plan
deficits as a result of the long duration of corresponding
liabilities. This could lead to a corresponding reduction in our
equity and common equity tier 1 (CET1) capital.
Our credit risk exposure to clients, trading counterparties and
other financial institutions would increase under adverse
economic conditions
Credit risk is an integral part of many of our activities, including
lending, underwriting and derivatives activities. Adverse
economic or market conditions may lead to impairments and
defaults on these credit exposures. Losses may be exacerbated
by declines in the value of collateral securing loans and other
exposures. In our prime brokerage, securities finance and
Lombard lending businesses, we extend substantial amounts of
credit against securities collateral, the value or liquidity of which
may decline rapidly. Our Swiss mortgage and corporate lending
portfolios are a large part of our overall lending. We are
therefore exposed to the risk of adverse economic developments
in Switzerland, including the strength of the Swiss franc and its
effect on Swiss exports, prevailing negative interest rates by the
Swiss National Bank, economic conditions within the eurozone
or the EU, and the evolution of agreements between
Switzerland and the EU or European Economic Area, which
represent Switzerland’s largest export market. In addition, under
the IFRS 9 expected credit loss (ECL) regime, credit loss expenses
may increase rapidly at the onset of an economic downturn as a
result of higher levels of credit impairments (stage 3), as well as
higher ECL from stages 1 and 2, only gradually diminishing once
the economic outlook improves. Substantial increases in ECL
could exceed expected loss for regulatory capital purposes and
adversely affect our CET1 capital and regulatory capital ratios.
Our plans to ensure uninterrupted business dealings as the UK
withdraws from the EU may not be effective
Our plans to ensure uninterrupted business dealings as the UK
withdraws from the EU may not be effective if the UK and the EU
do not reach a deal by the end of the transition period, scheduled
to end on 31 December, 2020, resulting in disruptions across the
financial sector.
To prepare our business for the UK withdrawal from the EU,
we completed a merger of UBS Limited, our UK-based
subsidiary, into UBS Europe SE, our Germany-headquartered
European subsidiary, which is under the direct supervision of the
European Central Bank. All clients and counterparties of UBS
Limited who would not be able to be serviced by UBS AG,
London Branch following the exit of the UK from the EU have
been transferred to UBS Europe SE.
Regulators in both the UK and Europe have taken measures
to minimize business disruption in the financial sector in the
event of a no-deal scenario, including the UK implementation of
a temporary permissions regime so that firms currently using an
EU passport for business into the UK can continue operating
within the scope of their existing permissions, as well as the
recognition by EU authorities of three UK-authorized central
counterparties. Nevertheless, significant risk of a disorderly exit
of the UK from the EU remains and, should this risk materialize,
it could cause significant disruption across the financial industry
and, under extreme conditions, contribute to a weakening of
the global economy.
Currency fluctuation
We are subject to currency fluctuation risks. Although our
change from the Swiss franc to the US dollar as our functional
and presentation currency in 2018 reduces our exposure to
currency fluctuation risks with respect to the Swiss franc, a
substantial portion of our assets and liabilities are denominated
in currencies other than the US dollar. Additionally, in order to
hedge our CET1 capital ratio, our CET1 capital must have
foreign currency exposure, which leads to currency sensitivity. As
a consequence, it is not possible to simultaneously fully hedge
both the amount of capital and the capital ratio. Accordingly,
changes in foreign exchange rates may continue to adversely
affect our profits, balance sheet and capital leverage and
liquidity coverage ratios.
Regulatory and legal risks
Material legal and regulatory risks arise in the conduct of our
business
As a global financial services firm operating in more than 50
countries, we are subject to many different legal, tax and
regulatory regimes, including extensive regulatory oversight, and
are exposed to significant liability risk. We are subject to a large
number of claims, disputes, legal proceedings and government
investigations, and we expect that our ongoing business activities
will continue to give rise to such matters 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 non-
financial consequences these matters may have when resolved.
We may be subject to adverse preliminary determinations or
court decisions that may negatively affect public perception and
our reputation, result in prudential actions from regulators, and
cause us to record additional provisions for the matter even when
we believe we have substantial defenses and expect to ultimately
achieve a more favorable outcome. This risk is illustrated by the
award of aggregate penalties and damages of EUR 4.5 billion by
the court of first instance in France, which we have appealed and
will be retried in the Court of Appeal in June 2020.
Resolution of regulatory proceedings may require us to obtain
waivers of regulatory disqualifications to maintain certain
operations; may entitle regulatory authorities to limit, suspend or
terminate licenses and regulatory authorizations; and may permit
financial market utilities to limit, suspend or terminate our
participation in them. Failure to obtain such waivers, or any
limitation, suspension or termination of licenses, authorizations or
participations, could have material adverse consequences for us.
61
Our strategy, business model and environment
Our strategy, business model and environment
Risk factors
interest rates starkly
Our settlements with governmental authorities in connection
with foreign exchange, London Interbank Offered Rates (LIBOR)
and other benchmark
illustrate the
significantly increased level of financial and reputational risk now
associated with regulatory matters in major jurisdictions. In
connection with investigations related to LIBOR and other
benchmark rates and to foreign exchange and precious metals,
very large fines and disgorgement amounts were assessed
against us, and we were required to enter guilty pleas despite
our full cooperation with the authorities in the investigations,
and despite our receipt of conditional leniency or conditional
immunity from anti-trust authorities in a number of jurisdictions,
including the US and Switzerland.
Ever since our material losses arising from the 2007–2009
financial crisis, we have been subject to a very high level of
regulatory scrutiny and to certain regulatory measures that
constrain our strategic flexibility. While we believe we have
remediated the deficiencies that led to those losses, as well as to
the unauthorized trading incident announced in September
2011, the effects on our reputation, as well as on relationships
with regulatory authorities of the LIBOR-related settlements of
2012 and settlements with some regulators of matters related to
our foreign exchange and precious metals business, as well as
the extensive efforts required to implement new regulatory
expectations, have resulted in continued scrutiny.
We are in active dialog with regulators concerning the actions
we are taking to improve our operational risk management, risk
control, anti-money laundering, data management and other
frameworks, and otherwise
supervisory
expectations, 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.
to meet
seek
Substantial changes in regulation may adversely affect our
businesses and our ability to execute our strategic plans
We are subject to significant new regulatory requirements,
including recovery and resolution planning, changes in capital
and prudential standards, as well as new and revised market
standards and fiduciary duties. Notwithstanding attempts by
regulators to align their efforts, the measures adopted or
proposed for banking regulation differ significantly across the
major jurisdictions, making it increasingly difficult to manage a
global institution. In addition, Swiss regulatory changes with
regard to such matters as capital and liquidity have often
proceeded more quickly than those in other major jurisdictions,
and Switzerland’s requirements for major international banks are
among the strictest of the major financial centers. This could put
Swiss banks, such as UBS, at a disadvantage when competing
with peer financial institutions subject to more lenient regulation
or with unregulated non-bank competitors.
Our implementation of additional regulatory requirements
and changes in supervisory standards, as well as our compliance
laws and regulations, continue to receive
with existing
heightened scrutiny from supervisors. If we do not meet
supervisory expectations in relation to these or other matters, or
if additional supervisory or regulatory issues arise, we would
62
likely be subject to further regulatory scrutiny as well as
measures that might further constrain our strategic flexibility.
into subsidiaries to
Resolvability and resolution and recovery planning: We have
moved significant operations
improve
resolvability and meet other regulatory requirements, and this
has resulted in substantial implementation costs, increased our
capital and funding costs and reduced operational flexibility. For
example, we have transferred all of our US subsidiaries under a
US intermediate holding company to meet US regulatory
the
requirements, and have
operations of Personal & Corporate Banking and Global Wealth
Management booked in Switzerland to UBS Switzerland AG to
improve resolvability.
transferred substantially all
These changes, particularly the transfer of operations to
subsidiaries, require significant time and resources to implement,
and create operational, capital, liquidity, funding and tax
inefficiencies. In addition, they may increase our aggregate
credit exposure to counterparties as they transact with multiple
entities within the Group. Furthermore, our operations in
subsidiaries are subject to local capital, liquidity, stable funding,
capital planning and stress
requirements. These
requirements have resulted in increased capital and liquidity
requirements in affected subsidiaries, which limit our operational
flexibility and negatively affect our ability to benefit from
synergies between business units and to distribute earnings to
the Group.
testing
Under the Swiss too-big-to-fail (TBTF) framework, we are
required to put in place viable emergency plans to preserve the
operation of systemically important functions in the event of a
failure. Moreover, under this framework and similar regulations
in the US, the UK, the EU and other jurisdictions in which we
operate, we are required to prepare credible recovery and
resolution plans detailing the measures that would be taken to
recover in a significant adverse event or in the event of winding
down the Group or the operations in a host country through
resolution or insolvency proceedings. If a recovery or resolution
plan that we produce is determined by the relevant authority to
be inadequate or not credible, relevant regulation may permit
the authority to place limitations on the scope or size of our
business in that jurisdiction, or 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.
FINMA is expected to make a formal determination of whether
the emergency plans of Swiss systemically relevant banks are
“credible” in early 2020. As a result of this review, FINMA may
require us to amend the plan or put other measures in place.
Capital and prudential standards: As an internationally active
Swiss systemically relevant bank (an SRB), we are subject to
capital and total loss-absorbing capacity (TLAC) requirements
that are among the most stringent in the world. Moreover,
many of our subsidiaries must comply with minimum capital,
liquidity and similar requirements and, as a result, UBS Group
AG and UBS AG have contributed a significant portion of their
capital and provide substantial liquidity to these subsidiaries.
These funds are available to meet funding and collateral needs
in the relevant entities, but are generally not readily available for
use by the Group as a whole.
We expect our risk-weighted assets (RWA) to further increase
as the effective date for capital standards promulgated by the
Basel Committee on Banking Supervision (the BCBS) draws
nearer, although the effective date of the proposals is likely to
be later than 2022 contemplated by the BCBS standard. In
addition, the Board of Governors of the Federal Reserve System
adopted two proposals last year regarding certain capital and
liquidity requirements and enhanced prudential standards
applicable
(FBOs) with
foreign banking organizations
significant US operations. Under the proposal, it is expected that
UBS Americas Holding LLC would continue to be subject to
annual assessments of
the
Comprehensive Capital Analysis and Review (CCAR) process, a
supplementary leverage ratio, newly applicable liquidity coverage
ratio
ratio
requirements.
requirements and new net
capital plan
through
funding
stable
its
to
These additional increases in capital and liquidity standards
could significantly curtail our ability to pursue strategic
opportunities and to distribute risk.
Market regulation and fiduciary standards: Our wealth and
asset management businesses operate in an environment of
increasing regulatory scrutiny and changing standards with
respect to fiduciary and other standards of care and the focus on
mitigating or eliminating conflicts of
interest between a
manager or advisor and the client, which require effective
implementation across the global systems and processes of
investment managers and other
industry participants. For
example, the SEC has adopted a new Regulation Best Interest
that is intended to enhance and clarify the duties of brokers and
investment advisers to retail customers. Regulation Best Interest
will apply to a large portion of Global Wealth Management’s
business in the US, and we will likely be required to materially
change business processes, policies and the terms on which we
interact with these clients in order to comply with these rules.
costs
incurred
substantial
Previously, we have
in
implementing a compliance and monitoring framework in
connection the with the Volcker Rule under the Dodd–Frank Act
and have modified our business activities both inside and outside
the US to conform to the Volcker Rule’s activity limitations. In
2019, US regulators have adopted amendments (the 2019 Final
Rule) to their regulations implementing the Volcker Rule
prohibitions on proprietary trading and limitations on covered
fund activities. The amendments were effective as of 1 January
2020 and compliance is mandatory from 1 January 2021. We
may incur additional costs in the short term to implement the
changes to the operation of our Volcker compliance program,
required by the 2019 Final Rule. However, these changes may
reduce the long-term burden on our operations. We may also
become subject to other similar regulations substantively limiting
the types of activities in which we may engage or the way we
conduct our operations.
Some of the regulations applicable to UBS AG as a registered
swap dealer with the Commodity Futures Trading Commission
(CFTC) in the US, and certain regulations that will be applicable
when UBS AG registers as a security-based swap dealer with the
US Securities and Exchange Commission (the SEC), apply to UBS
AG globally, including those relating to swap data reporting,
record-keeping, compliance and supervision. As a result, in some
cases, US rules duplicate or may conflict with legal requirements
applicable to us elsewhere, including in Switzerland, and may
place us at a competitive disadvantage to firms that are not
required to register in the US with the SEC or CFTC.
In many instances, we provide services on a cross-border
basis, and 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 Switzerland.
In addition, a number of
jurisdictions are increasingly regulating cross-border activities
based on determinations of equivalence of home country
regulation, substituted compliance or similar principles of
comity. A negative determination with respect to Swiss
equivalence could limit our access to the market in those
jurisdictions and may negatively influence our ability to act as a
global firm. For example, the EU declined to extend the
equivalence determination for Swiss exchanges, which lapsed as
of 30 June 2019. Reciprocally, the regulations that Switzerland
issued by Swiss
adopted to prohibit trading of shares
incorporated companies on EU venues came into effect on 1 July
2019.
investment and fiscal amnesty programs,
UBS experienced cross-border outflows over a number of
years as a result of heightened focus by fiscal authorities on
in
cross-border
anticipation of the implementation in Switzerland of the global
automatic exchange of tax information, and as a result of the
measures UBS has implemented in response to these changes.
Further changes in local tax laws or regulations and their
cross-border
implementation of
enforcement,
tax
information exchange
tax amnesty or
regimes, national
enforcement programs or similar actions may affect our clients’
ability or willingness to do business with us and could result in
additional cross-border outflows.
the
Our stated capital returns objective is based, in part, on capital
ratios that are subject to regulatory change and may fluctuate
significantly
We plan to operate with a CET1 capital ratio of around 13%
and a CET1 leverage ratio of around 3.7%. Our ability to
maintain these ratios is subject to numerous risks, including the
financial results of our businesses, the effect of changes to
capital standards, methodologies and interpretations that may
adversely affect the calculation of our CET1 ratios, the
imposition of risk add-ons or capital buffers, and the application
of additional capital, liquidity and similar requirements to
subsidiaries. The results of our businesses may be adversely
affected by events arising from other factors described herein. In
some cases, such as litigation and regulatory risk and operational
risk events, losses may be sudden and large. These risks could
reduce the amount of capital available for return to shareholders
and hinder our ability to achieve our capital returns target of a
progressive cash dividend coupled with a share repurchase
program.
63
Our strategy, business model and environment
Our strategy, business model and environment
Risk factors
Capital strength is a key component of our business model.
Capital strength enables us to grow our businesses, and absorb
increases in regulatory and capital requirements. It reassures our
clients and stakeholders, forms the basis for our capital return
policy and contributes to our credit ratings. Our capital ratios are
driven primarily by RWA, the leverage ratio denominator and
eligible capital, all of which may fluctuate based on a number of
factors, some of which are outside our control.
Our eligible capital may be reduced by losses recognized
within net profit or other comprehensive income. Eligible capital
may also be reduced for other reasons, including acquisitions
which change the level of goodwill, changes in temporary
differences related to deferred tax assets included in capital,
adverse currency movements affecting the value of equity,
prudential adjustments that may be required due to the
valuation uncertainty associated with certain types of positions,
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.
in
the economic environment or
RWA are driven by our business activities, by changes in the risk
profile of our exposures, by changes in our foreign currency
exposures and foreign exchange rates, and by regulation. For
instance, substantial market volatility, a widening of credit
spreads, adverse currency movements, increased counterparty risk,
deterioration
increased
operational risk could result in an increase in RWA. We have
significantly reduced our market risk and credit risk RWA in recent
years. However, increases in operational risk RWA, particularly
those arising from litigation, regulatory and similar matters, and
regulatory changes in the calculation of RWA, and regulatory add-
ons to RWA, have offset a substantial portion of this reduction.
Changes in the calculation of RWA, the imposition of additional
supplemental RWA charges or multipliers applied to certain
exposures and other methodology changes, as well as the
implementation of the capital standards promulgated by the Basel
Committee on Banking Supervision, which will take effect in
2022, could substantially increase our RWA.
The leverage ratio is a balance sheet-driven measure and
therefore
limits balance sheet-intensive activities, such as
lending, more than activities that are less balance sheet
intensive, and it may constrain our business even if we satisfy
other risk-based capital requirements. Our
leverage ratio
denominator is driven by, among other things, the level of client
activity, including deposits and loans, foreign exchange rates,
interest rates and other market factors. Many of these factors
are wholly or partly outside of our control.
The effect of taxes on our financial results is significantly
influenced by tax law changes and reassessments of our
deferred tax assets
Our effective tax rate is highly sensitive to our performance, our
expectation of future profitability and statutory tax rates. Based
on prior years’ tax losses, we have recognized deferred tax assets
(DTAs) reflecting the probable recoverable level based on future
taxable profit as informed by our business plans. If our
64
performance is expected to produce diminished taxable profit in
future years, particularly in the US, we may be required to write
down all or a portion of the currently recognized DTAs through
the income statement in excess of anticipated amortization. This
would have the effect of increasing our effective tax rate in the
year in which any write-downs are taken. Conversely, if we
expect the performance of entities
in which we have
unrecognized tax losses to improve, particularly in the US or the
UK, we could potentially recognize additional DTAs. The effect
of doing so would be to reduce our effective tax rate in years in
which additional DTAs are recognized and to increase our
effective tax rate in future years. Our effective tax rate is also
sensitive to any future reductions in statutory tax rates,
particularly in the US, which would cause the expected future
tax benefit from items such as tax loss carry-forwards in the
affected locations to diminish in value. This, in turn, would cause
a write-down of the associated DTAs. For example, the
reduction in the US federal corporate tax rate to 21% from 35%
introduced by the US Tax Cuts and Jobs Act (TCJA) resulted in a
USD 2.9 billion net write-down in the Group’s DTAs in the
fourth quarter of 2017.
We generally revalue our DTAs in the fourth quarter of the
financial year based on a reassessment of future profitability
taking into account our updated business plans. We consider the
performance of our businesses and the accuracy of historical
forecasts, tax rates and other factors
in evaluating the
recoverability of our DTAs, including the remaining tax loss
carry-forward period and our assessment of expected future
taxable profits over the
life of DTAs. Estimating future
profitability is inherently subjective and is particularly sensitive to
future economic, market and other conditions, which are
difficult to predict.
Our results in past years have demonstrated that changes in
the recognition of DTAs can have a very significant effect on our
reported results. Any future change in the manner in which UBS
rate,
remeasures DTAs could affect UBS’s effective
particularly in the year in which the change is made.
tax
Our full-year effective tax rate could change if aggregate tax
expenses in respect of profits from branches and subsidiaries
without loss coverage differ from what is expected, or if
branches and subsidiaries generate tax losses that we cannot
benefit from through the income statement. In particular, losses
at entities or branches that cannot offset for tax purposes
taxable profits in other group entities, and which do not result in
additional DTA recognition, may increase our effective tax rate.
In addition, tax laws or the tax authorities in countries where we
have undertaken legal structure changes may prevent the
transfer of tax losses incurred in one legal entity to newly
organized or reorganized subsidiaries or affiliates or may impose
limitations on the utilization of tax losses that 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 may be required to be
written down through the income statement.
Changes in tax law may materially affect our effective tax
rate, and, in some cases, may substantially affect the profitability
of certain activities. In addition, statutory and regulatory
changes, as well as changes to the way in which courts and tax
authorities interpret tax laws, including assertions that we are
required to pay taxes in a jurisdiction as a result of activities
connected
jurisdiction constituting a permanent
establishment or similar theory, and changes in our assessment
of uncertain tax positions, could cause the amount of taxes we
ultimately pay to materially differ from the amount accrued.
that
to
Discontinuance of, or changes to, benchmark rates may require
adjustments to our agreements with clients and other market
participants, as well as to our systems and processes
Since April 2013, the UK Financial Conduct Authority (the FCA)
has regulated LIBOR, and regulators in other jurisdictions have
increased oversight of other interbank offered rates (IBORs) and
similar benchmark rates. Efforts to transition from IBORs to
several
alternative benchmark
jurisdictions. The FCA announced in July 2017 that it will not
continue beyond 2021 to regulate LIBOR or take other actions to
sustain LIBOR, and urged users to plan the transition to
alternative reference rates. As a result, there can be no
guarantee that LIBOR will be determined after 2021 on the same
basis as at present, if at all.
rates are underway
in
Liquidity and activity in alternative reference rates (ARRs)
continue to develop in markets globally, with work progressing
to resolve certain issues associated with transitioning away from
IBORs. Regulatory authorities continue to focus on transitioning
to ARRs by the end of 2021. The Alternative Reference Rates
Committee is considering potential legislative solutions that
would mitigate legal risks related to legacy contracts in the event
of IBOR discontinuation. In addition, in October 2019, the US
Treasury Department and Internal Revenue Service published
proposed regulations providing tax relief related to issues that
may arise as a result of the modification of debt, derivative, and
other financial contracts from LIBOR-based language to ARRs.
The European Central Bank published the euro short-term rate,
the risk-free rate for euro markets, for the first time on
2 October 2019, reflecting trading activity on 1 October 2019.
The Bank of England Working Group on Sterling Risk-Free
Reference Rates continues to be supportive of the development
of a term (Sterling Overnight Index Average) reference rate.
We have a substantial number of contracts linked to IBORs.
ARRs do not currently provide a term structure, which will
require a change in the contractual terms of products currently
indexed on terms other than overnight. In some cases, contracts
may contain provisions intended to provide a fallback interest
rate in the event of a brief unavailability of the relevant IBOR.
These provisions may not be effective or may produce arbitrary
results in the event of a permanent cessation of the relevant
IBOR. In addition, numerous of our internal systems, limits and
processes make use of IBORs as reference rates. Transition to
replacement reference rates will require significant investment
and effort.
If UBS experiences financial difficulties, FINMA has the power to
open restructuring or liquidation proceedings or impose
protective measures in relation to UBS Group AG, UBS AG or
UBS Switzerland AG, and such proceedings or measures may
have a material adverse effect on UBS’s shareholders and
creditors
Under the Swiss Banking Act, FINMA is able to exercise broad
statutory powers with respect to Swiss banks and Swiss parent
companies of financial groups, such as UBS Group AG, UBS AG
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 fulfills capital
adequacy requirements. Such powers include ordering protective
measures, instituting restructuring proceedings (and exercising
any Swiss resolution powers in connection therewith), and
instituting liquidation proceedings, all of which may have a
material adverse effect on shareholders and creditors or may
prevent UBS Group AG, UBS AG or UBS Switzerland AG from
paying dividends or making payments on debt obligations.
UBS would have limited ability to challenge any such
protective measures, and creditors and shareholders would have
no right under Swiss law or in Swiss courts to reject them, seek
their suspension, or challenge their
including
measures that require or result in the deferment of payments.
imposition,
If restructuring proceedings are opened with respect to UBS
Group AG, UBS AG or UBS Switzerland AG, the resolution
powers that FINMA may exercise include the power to: (i)
transfer all or some of the assets, debt and other liabilities, and
contracts of the entity subject to proceedings to another entity;
(ii) stay for a maximum of two business days (a) the termination
of, or the exercise of rights to terminate, netting rights, (b) rights
to enforce or dispose of certain types of collateral or (c) rights to
transfer claims, liabilities or certain collateral, under contracts to
which the entity subject to proceedings is a party; and/or (iii)
partially or fully write down the equity capital and, 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. Shareholders and creditors would have no right to
reject, or to seek the suspension of, any restructuring plan
pursuant to which such resolution powers are exercised. They
would have only limited rights to challenge any decision to
exercise resolution powers or to have that decision reviewed by
a judicial or administrative process or otherwise.
65
Our strategy, business model and environment
Our strategy, business model and environment
Risk factors
to
the
restructuring proceedings,
Upon full or partial write-down of the equity and debt of the
relevant
entity subject
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 proceedings into equity, the securities received by
the investors may be worth significantly less than the original
debt and may have a significantly different risk profile, and such
conversion would also dilute the ownership of existing
shareholders. In addition, creditors receiving equity would be
effectively subordinated to all creditors of the restructured entity
in the event of a subsequent winding up, liquidation or
dissolution of the restructured entity, which would increase the
risk that investors would lose all or some of their investment.
Changes to IFRS or interpretations thereof may cause future
reported results and financial position to differ from current
expectations, or historical results to differ from those previously
reported due to the adoption of accounting standards on a
retrospective basis. Such changes may also affect our regulatory
capital and ratios. For example, we adopted IFRS 9 effective
1 January 2018, which required us to change the accounting
treatment of financial instruments measured at amortized cost
and certain other positions, to record loans from inception net
of expected credit loss (ECL) allowances and provisions instead
of recording credit losses on an incurred loss basis. This may
result
loss
allowances in the future and greater volatility in the income
statement as ECL changes in response to developments in the
credit cycle and composition of our loan portfolio. The effect
may be more pronounced
in a deteriorating economic
environment.
in recognized credit
in a significant
increase
FINMA has significant discretion in the exercise of its powers
in connection with restructuring proceedings. Furthermore,
certain categories of debt obligations, such as certain types of
deposits, are subject to preferential treatment. As a result,
holders of obligations of an entity subject to a Swiss
restructuring proceeding may have their obligations written
down or converted into equity even though obligations ranking
on par with or junior to such obligations are not written down
or converted.
Our financial results may be negatively affected by changes to
assumptions and valuations, as well as changes to accounting
standards
We prepare our consolidated financial statements in accordance
with International Financial Reporting Standards (IFRS). The
application of these accounting standards requires the use of
judgment based on estimates and assumptions that may involve
significant uncertainty at the time they are made. This is the
case, for example, with respect to the measurement of fair value
of financial instruments, the recognition of deferred tax assets,
the assessment of the impairment of goodwill, expected credit
losses and estimation of provisions for contingencies, including
litigation, regulatory and similar matters. Such judgments,
including the underlying estimates and assumptions, which
encompass historical experience, expectations of the future and
other factors, are regularly evaluated to determine their
continuing relevance based on current conditions. Using
different assumptions could cause the reported results to differ.
Changes in assumptions, or failure to make the changes
necessary to reflect evolving market conditions, may have a
significant effect on the financial statements in the periods when
changes occur. Estimates of provisions for contingencies may be
subject to a wide range of potential outcomes and significant
uncertainty. For example, the broad range of potential outcomes
in UBS AG’s proceeding in France increases the uncertainty
associated with assessing the appropriate provision. If the
estimates and assumptions in future periods deviate from the
current outlook, UBS AG’s financial results may also be
negatively affected.
Strategy, management and operations risks
We may not be successful in the ongoing execution of our
strategic plans
We have transformed UBS to focus on our Global Wealth
Management business and our universal bank in Switzerland,
complemented by Asset Management and a significantly smaller
and more capital-efficient
Investment Bank; we have
substantially reduced the risk-weighted assets and leverage ratio
denominator usage in Corporate Center; and made significant
cost reductions. Risk remains that going forward we may not
succeed in executing our strategy or achieving our performance
targets, or may be delayed in doing so. Macroeconomic
conditions, geopolitical uncertainty, changes to regulatory
requirements and the continuing costs of meeting these
requirements have prompted us to adapt our targets and
ambitions in the past and we may need to do so again in the
future.
To achieve our strategic plans, we expect to continue to make
significant expenditures on technology and infrastructure to
improve client experience, improve and further enable digital
offerings and increase efficiency. Our investments in new
technology may not fully achieve our objectives or improve our
ability to attract and retain customers. In addition, we will likely
face competition in providing digitally enabled offerings from
both existing competitors and new financial service providers in
various portions of the value chain. For example, technological
advances and the growth of e-commerce have made it possible
for e-commerce firms and other companies to offer products
and services that were traditionally offered only by banks. These
advances have also allowed financial institutions and other
companies
financial solutions,
including electronic securities trading, payments processing and
online automated algorithmic-based investment advice at a low
cost to their customers. We may have to lower our prices, or risk
losing customers as a result. Our ability to develop and
implement competitive digitally enabled offerings and processes
will be an important factor in our ability to compete.
to provide digitally based
66
As part of our strategy, we seek to improve our operating
efficiency, in part by controlling our costs. We may not be able
to
identify feasible cost reduction opportunities that are
consistent with our business goals and cost reductions may be
realized later or may be smaller than we anticipate. Higher
temporary and permanent regulatory costs and higher business
demand than anticipated have partly offset cost reductions and
delayed the achievement of our past cost reduction targets, and
we could continue to be challenged in the execution of our
ongoing efforts to improve operating efficiency.
Changes in our workforce as a result of outsourcing,
nearshoring, offshoring, insourcing or staff reductions may
introduce new operational risks that, if not effectively addressed,
could affect our ability to achieve cost and other benefits from
such changes, or could result in operational losses.
As we implement effectiveness and efficiency programs, we
may also experience unintended consequences, such as the
unintended loss or degradation of capabilities that we need in
order to maintain our competitive position, achieve our targeted
returns or meet existing or new regulatory requirements and
expectations.
third parties,
Operational risks affect our business
Our businesses depend on our ability to process a large number
of transactions, many of which are complex, across multiple and
diverse markets
in different currencies, to comply with
requirements of many different legal and regulatory regimes to
which 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
including clearing systems, exchanges,
information processors and central counterparties. Any failure of
our 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, cyberattacks, breaches of
information security, inadequate or ineffective access controls
and failure of security and physical protection – are appropriately
controlled. If our internal controls fail or prove ineffective in
identifying and
risks, we could suffer
operational failures that might result in material losses, such as
the substantial loss we incurred from the unauthorized trading
incident announced in September 2011.
remedying
these
We use automation as part of our efforts to improve
efficiency, reduce the risk of error and improve our client
experience. We intend to expand the use of robotic processing,
machine learning and artificial intelligence to further these goals.
Use of these tools presents their own risks, including the need
for effective design and testing; the quality of the data used for
development and operation of machine learning and artificial
intelligence tools may adversely affect their functioning and
result in errors and other operational risks.
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 information or systems, disrupt
service or destroy data. These attacks may be attempted through
the introduction of viruses or malware, phishing and other forms
of social engineering, distributed denial of service attacks and
other means. These attempts may occur directly, or using
equipment or security passwords of our employees, third-party
service providers or other users. In addition to external attacks,
we have experienced loss of client data from failure by
employees and others to follow internal policies and procedures
and from misappropriation of our data by employees and others.
We may not be able to anticipate, detect or recognize threats to
our systems or data and our preventative measures may not be
effective to prevent an attack or a security breach. In the event
of a security breach, notwithstanding our preventative measures,
we may not immediately detect a particular breach or attack.
Once a particular attack is detected, time may be required to
investigate and assess the nature and extent of the attack. A
successful breach or circumvention of security of our systems or
data could have significant negative consequences for us,
including disruption of our operations, misappropriation of
confidential
information concerning us or our customers,
damage to our systems, financial losses for us or our customers,
violations of data privacy and similar laws, litigation exposure
and damage to our reputation.
information
transfer personal
We are subject to complex and frequently changing laws and
regulations governing the protection of client and personal data,
such as the EU General Data Protection Regulation. Ensuring
that we comply with applicable laws and regulations when we
collect, use and
requires
substantial resources and may affect the ways in which we
conduct our business. In the event that we fail to comply with
applicable laws, we may be exposed to regulatory fines and
penalties and other sanctions. We may also incur such penalties
if our vendors or other service providers or clients or
counterparties fail to comply with these laws or to maintain
appropriate controls over protected data. In addition, any loss or
exposure of client or other data may adversely damage our
reputation and adversely affect our business.
67
Our strategy, business model and environment
Our strategy, business model and environment
Risk factors
such
to comply with
A major focus of US and other countries’ governmental
policies relating to financial institutions in recent years has been
on fighting money laundering and terrorist financing. We are
required to maintain effective policies, procedures and controls
to detect, prevent and report money laundering and terrorist
financing, and to verify the identity of our clients under the laws
of many of the countries in which we operate. 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 policies, procedures and internal controls that are
designed
regulations.
Notwithstanding this, US regulators have found deficiencies in
the design and operation of anti-money laundering programs in
our US operations. We have undertaken a significant program to
address these regulatory findings with the objective of fully
meeting regulatory expectations for our programs. Failure to
maintain and implement 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 enforcement action and from damage to our
reputation. Frequent changes
imposed and
increasingly complex sanctions imposed on countries, entities
and individuals increase our cost of monitoring and complying
with sanctions requirements and increase the risk that we will
not identify in a timely manner previously permissible client
activity that is subject to a sanction.
in sanctions
laws and
As a result of new and changed regulatory requirements and
the changes we have made in our legal structure, the volume,
frequency and complexity of our regulatory and other reporting
has significantly increased. Regulators have also significantly
increased expectations regarding our internal reporting and data
aggregation, as well as management reporting. We have incurred
and continue to incur significant costs to implement infrastructure
to meet these requirements. Failure to meet external reporting
requirements accurately and in a timely manner or failure to meet
regulatory expectations of internal reporting, data aggregation
and management reporting could result in enforcement action or
other adverse consequences for us.
Certain types of operational control weaknesses and failures
could also adversely affect our ability to prepare and publish
accurate and timely financial reports.
In addition, despite the contingency plans that 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 operate. This may include a
disruption due to natural disasters, pandemics, civil unrest, war
or
communications,
transportation or other services that we use or that are used by
third parties with whom we conduct business.
electrical,
terrorism
involve
and
68
We may not be successful in implementing changes in our
wealth management businesses to meet changing market,
regulatory and other conditions
In recent years, inflows from lower-margin segments and
markets have been replacing outflows from higher-margin
segments and markets, in particular for cross-border clients. This
dynamic, combined with changes in client product preferences
as a result of which low-margin products account for a larger
share of our revenues than in the past, has put downward
pressure on Global Wealth Management’s margins.
As the discussion above indicates, we are exposed to possible
outflows of client assets in our asset-gathering businesses and to
changes affecting
the profitability of Global Wealth
Management, in particular. Initiatives that we may implement to
overcome the effects of changes in the business environment on
our profitability, balance sheet and capital positions may not
succeed in counteracting those effects and may cause net new
money outflows and reductions in client deposits, as happened
with our balance sheet and capital optimization program in
2015. There is no assurance that we will be successful in our
efforts to offset the adverse effect of these or similar trends and
developments.
We may be unable to identify or capture revenue or competitive
opportunities, or retain and attract qualified employees
The financial services industry is characterized by intense
competition, continuous innovation, restrictive, detailed, and
sometimes fragmented regulation and ongoing consolidation.
We face competition 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
to continue and
these
competition to increase. Our competitive strength and market
position could be eroded if we are unable to identify market
trends and developments, do not respond to such trends and
developments by devising and implementing adequate business
strategies, do not adequately develop or update our technology
including our digital channels and tools, or are unable to attract
or retain the qualified people needed.
trends
The amount and structure of our employee compensation is
affected not only by our business results, but also by competitive
factors and regulatory considerations.
In recent years, in response to the demands of various
stakeholders, including regulatory authorities and shareholders,
and in order to better align the interests of our staff with other
stakeholders, we have increased average deferral periods for
stock awards, expanded forfeiture provisions and, to a more
limited extent, introduced clawback provisions for certain
awards
to business performance. We have also
introduced individual caps on the proportion of fixed to variable
pay for the Group Executive Board (GEB) members, as well as
certain other employees.
linked
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. The loss of key staff and the inability to attract
qualified replacements could seriously compromise our ability to
execute our strategy and to successfully improve our operating
and control environment, and could affect our business
performance. Swiss law requires that shareholders approve the
compensation of the Board of Directors (the BoD) and the GEB
each year. If our shareholders fail to approve the compensation for
the GEB or the BoD, this could have an adverse effect on our
ability to retain experienced directors and our senior management.
We depend on our risk management and control processes to
avoid or limit potential losses in our businesses
Controlled risk-taking is a major part of the business of a
financial services firm. Some losses from risk-taking activities are
inevitable, but to be successful over time, we must balance the
risks we take against the returns generated. Therefore we must
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.
–
As seen during the financial crisis of 2007–2009, we have not
always been able to prevent serious losses arising from extreme
or sudden market events that are not anticipated by our risk
measures and systems. Our risk measures, concentration
controls and the dimensions in which we aggregated risk to
identify correlated exposures proved inadequate in a historically
severe deterioration in financial markets. As a result, we
recorded substantial losses on fixed income trading positions,
particularly in 2008 and 2009. We have substantially revised and
strengthened our risk management and control framework and
increased the capital that we hold relative to the risks that we
take. Nonetheless, 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
inadequate,
negative
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
securities we hold are severely affected by events and we
suffer 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
default.
We have exposures related to real estate in various countries,
including a substantial Swiss mortgage portfolio. Although we
believe
is prudently managed, we could
nevertheless be exposed to losses if a substantial deterioration in
to be untimely,
trends, proves
this portfolio
–
–
–
the Swiss real estate market were to occur. We also hold legacy
risk positions, primarily in Corporate Center, that, in many cases,
are illiquid and may again deteriorate in value.
We also manage risk on behalf of our clients. The
performance of assets we hold for our clients may be adversely
affected by the same factors mentioned above. 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 management, or withdrawal of
mandates.
Investment positions, such as equity investments made as part
of strategic initiatives and seed investments made at the
inception of funds that 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. Deteriorations in the fair value of these
positions would have a negative effect on our earnings.
in
restrictions
financing agreements and
As UBS Group AG is a holding company, its operating results,
financial condition and ability to pay dividends and other
distributions and/or to pay its obligations in the future depend
on funding, dividends and other distributions received directly or
indirectly from its subsidiaries, which may be subject to
restrictions
UBS Group AG’s ability to pay dividends and other distributions
and to pay its obligations in the future will depend on the level
of funding, dividends and other distributions, if any, received
from UBS AG and other subsidiaries. The ability of such
subsidiaries to make loans or distributions, directly or indirectly,
to UBS Group AG may be restricted as a result of several factors,
the
including
requirements of applicable law and regulatory, fiscal or other
restrictions. In particular, UBS Group AG’s direct and indirect
subsidiaries, including UBS AG, UBS Switzerland AG, UBS
Americas Holding LLC and UBS Europe SE, are subject to laws
and regulations that restrict dividend payments, authorize
regulatory bodies to block or reduce the flow of funds from
those subsidiaries to UBS Group AG, or could affect their ability
to repay any loans made to, or other investments in, such
subsidiary by UBS Group AG or another member of the Group.
For example, the US Comprehensive Capital Analysis and Review
process requires that our US intermediate holding company
demonstrate that it can continue to meet minimum capital
standards over a hypothetical nine-quarter severely adverse
economic scenario. If it fails to meet the quantitative capital
requirements, or
the Federal Reserve Board’s qualitative
assessment of the capital planning process is adverse, our US
intermediate holding company would be prohibited from paying
dividends or making distributions. Restrictions and regulatory
actions of this kind could impede access to funds that UBS
Group AG may need to meet its obligations or to pay dividends
to shareholders. In addition, UBS Group AG’s right to participate
in a distribution of assets upon a subsidiary’s liquidation or
reorganization is subject to all prior claims of the subsidiary’s
creditors.
69
Our strategy, business model and environment
Our strategy, business model and environment
Risk factors
Our capital instruments may contractually prevent UBS Group
AG from proposing the distribution of dividends to shareholders,
other than in the form of shares, if we do not pay interest on
these instruments.
unsecured funding sources, including retail and wholesale
deposits and the regular issuance of money market securities. A
change in the availability of short-term funding could occur
quickly.
Furthermore, UBS Group AG may guarantee some of the
payment obligations of certain of the Group’s subsidiaries from
time to time. These guarantees may require UBS Group AG to
provide substantial funds or assets to subsidiaries or their
creditors or counterparties at a time when UBS Group AG is in
need of liquidity to fund its own obligations.
The credit ratings of UBS Group AG or its subsidiaries used
for funding purposes could be lower than the ratings of the
Group’s operating subsidiaries, which may adversely affect the
market value of the securities and other obligations of UBS
Group AG or those subsidiaries on a standalone basis.
Our reputation is critical to our success
Our reputation is critical to the success of our strategic plans,
business and prospects. Reputational damage is difficult to
reverse, and improvements tend to be slow and difficult to
measure. Our reputation has been adversely affected by our
losses during the financial crisis, investigations into our cross-
border private banking services, criminal resolutions of LIBOR-
related and foreign exchange matters, as well as other matters.
We believe that reputational damage as a result of these events
was an important factor in our loss of clients and client assets
across our asset-gathering businesses. New events that cause
reputational damage could have a material adverse effect on our
results of operation and financial condition, as well as our ability
to achieve our strategic goals and financial targets.
Liquidity and funding risk
Liquidity and funding management are critical to UBS’s ongoing
performance
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. Our funding sources have generally been stable, but
could change in the future because of, among other things,
general market disruptions or widening credit spreads, which
could also influence the cost of funding. A substantial part of
our liquidity and funding requirements are met using short-term
Moreover, 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, the regulatory requirements
to maintain minimum TLAC at UBS’s holding company and at
subsidiaries, as well as the power of resolution authorities to bail
in TLAC and other debt obligations, and uncertainty as to how
such powers will be exercised, will increase our cost of funding
and could potentially increase the total amount of funding
required, in the absence of other changes in our business.
In addition, as experienced
Reductions in our credit ratings may adversely affect the
market value of the securities and other obligations and increase
our funding costs, in particular with regard to funding from
wholesale unsecured sources, and could affect the availability of
certain kinds of funding.
in
connection with Moody’s downgrade of UBS AG’s long-term
debt rating in June 2012, rating downgrades can require us to
post additional collateral or make additional cash payments
under trading agreements. Our credit ratings, together with our
capital strength and reputation, also contribute to maintaining
client and counterparty confidence, and it is possible that rating
changes could influence the performance of some of our
businesses.
liquidity and
The requirement to maintain a liquidity coverage ratio of
high-quality liquid assets to estimated stressed short-term net
cash outflows, and other similar
funding
requirements, oblige us to maintain high levels of overall
liquidity, limit our ability to optimize interest income and
expense, make certain lines of business less attractive and
reduce our overall ability to generate profits. The liquidity
coverage ratio and net stable funding ratio requirements 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. The relevant calculations make assumptions about
the relative likelihood and amount of outflows of funding and
available sources of additional funding in market-wide and firm-
specific stress situations. There can be no assurance that in an
actual stress situation our funding outflows would not exceed
the assumed amounts.
70
Financial and
operating
performance
Management report
Changes related to Item 303 of Regulation S-K
In our Annual Report 2019 and related 20-F filing, we exclude the discussion of the financial years 2018 compared with 2017
in our Management’s Discussion and Analysis section pursuant to changes related to Item 303 of Regulation S-K, as we have
included such discussion already in a prior filing, which can be found under:
www.sec.gov/Archives/edgar/data/1114446/000161052019000031/ar1820f.htm
Financial and operating performance
Critical accounting estimates and judgments
Critical accounting estimates and judgments
We believe that the judgments, estimates and assumptions
we have made are appropriate under the circumstances and that
our financial statements fairly present, in all material respects,
the financial position of UBS as of 31 December 2019 and the
results of our operations and cash flows for 2019, including
comparative information, in accordance with IFRS.
Refer to “Note 1a Significant accounting policies” in the
“Consolidated financial statements” section of this report for
more information
Refer to the “Risk factors” section of this report for more
information
In preparing our financial statements in accordance with
International Financial Reporting Standards (IFRS), as issued by
the International Accounting Standards Board (IASB), we apply
judgment and make estimates and assumptions that may involve
significant uncertainty at the time they are made. We regularly
reassess those estimates and assumptions, which encompass
historical experience, expectations of the future and other
pertinent factors, to determine their continuing relevance based
on current conditions, and we update them as necessary.
Changes in estimates and assumptions may have a significant
effect on the financial statements. Furthermore, actual results
may differ significantly from our estimates, which could result in
significant losses to the Group, beyond what we anticipated or
provided for.
Key areas involving a high degree of judgment and areas
where estimates and assumptions are significant to the
consolidated financial statements include:
– fair value measurement
– expected credit loss measurement
– assessment of the business model and certain contractual
features when classifying financial instruments
– pension and other post-employment benefit plans
– income taxes
– goodwill
– provisions and contingent liabilities
– consolidation of structured entities
– determination of the functional currency and assessing the
earliest date from which it is practical to perform a
restatement following a change in presentation currency for
the year ended 31 December 2018
72
Significant accounting and financial reporting
changes
Significant accounting and financial reporting changes in
2019
IFRS 16, Leases
We have adopted IFRS 16, Leases, effective 1 January 2019,
fundamentally changing how we account for operating leases
when acting as a lessee. Upon adoption, assets and liabilities
increased by USD 3.5 billion, with a corresponding increase in
risk-weighted assets (RWA) and leverage ratio denominator
(LRD).
In the income statement, the adoption of the new standard
has resulted in increases in Interest expense and Depreciation
and impairment of property, equipment and software, which
have been partly offset by a decrease
in General and
administrative expenses. The full-year effect of the application of
IFRS 16 was a net decrease in profit before tax of approximately
USD 60 million, reflecting reductions of approximately USD 120
million and USD 60 million in operating income and expenses,
respectively.
As permitted by IFRS 16, we have elected not to restate prior-
period information.
Refer to “Note 1 Summary of significant accounting policies” in
the “Consolidated financial statements” section of this report
for more information about the adoption of IFRS 16
Presentation of dividend income and expense from financial
instruments measured at fair value through profit or loss
Effective 1 January 2019, we refined the presentation of
dividend income and expense, reclassifying dividends from
financial instruments measured at fair value through profit or
loss from Net interest income to Other net income from financial
instruments measured at fair value through profit or loss (prior
to 1 January 2019: Other net income from fair value changes on
financial instruments), in order to align the presentation of
dividends with other associated fair value changes. There is no
effect on Total operating income or Net profit / (loss). The
change reduces the significant volatility in Net interest income
that previously arose.
Prior periods have been restated for this presentation change.
For the financial year 2018, this resulted in a decrease of
USD 976 million in Net interest income and a corresponding
increase
instruments
measured at fair value through profit or loss.
income from financial
in Other net
Refer to “Note 1 Summary of significant accounting policies” in
the “Consolidated financial statements” section of this report
for more information
Changes in Corporate Center cost and resource allocation to
business divisions
In order to further align Group and divisional performance, we
have adjusted our methodology for the allocation of Corporate
Center funding costs and expenses to the business divisions. At
the same time, we updated our funds transfer pricing
framework to better reflect the sources and usage of funding.
All of these changes became effective as of 1 January 2019.
Prior periods have been restated.
Together, for the full year 2018, these changes reduced the
business divisions’ operating results and thereby increased their
adjusted cost / income ratios approximately 1–2 percentage
points, while Corporate Center’s 2018 operating loss before tax
decreased by USD 0.7 billion.
In Corporate Center, we retain funding costs for deferred tax
assets, costs relating to our legal entity transformation program
and other costs not attributable to, or representative of the
performance of, the business divisions.
Alongside the updates to cost allocations and to our funds
transfer pricing framework, we increased the allocation of
balance sheet resources from Corporate Center to the business
divisions. For 2018, the restatement resulted in USD 26 billion of
additional RWA and USD 93 billion of additional LRD allocated
from Corporate Center to the business divisions.
The additional USD 3.5 billion RWA and LRD that resulted
from the adoption of IFRS 16, Leases, have both been fully
allocated to the business divisions.
Refer to “Note 2a Segment reporting” in the “Consolidated
financial statements” section of this report for more
information
73
Financial and operating performance
Financial and operating performance
Significant accounting and financial reporting changes
Changes in equity attribution
in resource allocation from
The aforementioned changes
Corporate Center to the business divisions are reflected in the
equity attribution to the business divisions. Furthermore, we
have updated our equity attribution framework, revising the
capital ratio for RWA from 11% to 12.5% to better align with
Group capital levels, and incrementally allocating to business
divisions USD 2 billion of attributed equity that is related to
certain common equity tier 1 (CET1) deduction items previously
held centrally. In aggregate, we allocated USD 7 billion of
additional attributed equity to the business divisions. The
remaining attributed equity retained
in Corporate Center
primarily relates to deferred tax assets, dividend accruals and the
Non-core and Legacy Portfolio.
Prior periods have been restated. For the full year 2018, the
combined effect from the changes in equity attribution and the
aforementioned changes in cost and resource allocation to the
business divisions led to a 3–7 percentage point reduction in
their respective return on attributed equity.
Refer to “Equity attribution and return on attributed equity” in
the “Capital management” section of this report for more
information about our equity attribution framework
Changes in Corporate Center segment reporting
Effective 1 January 2019, and in compliance with IFRS 8,
Operating Segments, we provide results for total Corporate
Center only and do not separately report Corporate Center –
Services, Group Asset and Liability Management (Group ALM)
and Non-core and Legacy Portfolio. Furthermore, we have
operationally combined our Group Treasury activities with Group
ALM and call this combined function Group Treasury. Prior-
period information has been restated.
Refer to “Note 1 Summary of significant accounting policies”
revised on 31 October 2019), as well as amendments to existing
disclosures in accordance with the Basel Committee on Banking
Supervision “Technical Amendment – Pillar 3 disclosure
requirements – regulatory treatment of accounting provisions”
issued in August 2018.
Refer to the 31 December 2019 Pillar 3 report, available under
“Pillar 3 disclosures” at www.ubs.com/investors, for more
information about the changes to Pillar 3 disclosure
requirements
Significant accounting and financial reporting changes in
2020
Adoption of hedge accounting requirements of IFRS 9, Financial
instruments
Effective 1 January 2020, we have adopted the hedge
accounting requirements of IFRS 9, Financial instruments, for
most of our existing hedge accounting programs, including fair
value hedges for interest rate risk related to debt instruments,
cash flow hedges of forecast transactions and hedges of net
investments in foreign operations. As permitted by IFRS 9, we
continue to account for our fair value hedges of portfolio
interest rate risk related to loans under IAS 39, Financial
Instruments: Recognition and Measurement.
these
The adoption of
requirements will have no
consequential financial effect on our financial statements.
However, the adoption will allow us to designate more effective
hedge accounting relationships going forward, including fair
value hedges of foreign currency risk using cross-currency
swaps, and to reduce income statement volatility caused by
foreign currency basis spreads.
Refer to “Note 1c International Financial Reporting Standards
and Interpretations to be adopted in 2020 and later and other
and “Note 2a Segment reporting” in the “Consolidated financial
changes” in the “Consolidated financial statements” section of
statements” section of this report for more information
this report for more information
Amendments to IAS 39, IFRS 9 and IFRS 7 (Interest Rate
Benchmark Reform)
In September 2019, the IASB issued Interest Rate Benchmark
Reform, Amendments to IFRS 9, IAS 39 and IFRS 7, enabling
hedge accounting to continue during the period of uncertainty
before existing interest rate benchmarks are replaced with
alternative
the
transitional provisions, we early adopted the revisions in 2019.
rates. As permitted by
risk-free
interest
Refer to “Note 1 Summary of significant accounting policies” in
the “Consolidated financial statements” section of this report
for more information
Changes to Pillar 3 disclosure requirements
During 2019, we introduced several new tables and/or narratives
in accordance with the FINMA Pillar 3 disclosure requirements
last
(FINMA Circular 2016/1 “Disclosure – banks,” as
74
Streamlining of business division expense reporting
Over recent years, we have been progressively aligning our
support functions, such as Technology, Operations and Real
Estate, with the business divisions. In order to reflect this
alignment, we will streamline our reporting beginning with our
first quarter 2020 report. We will no longer provide the
individual operating expense lines but will disclose costs at a
total operating expense level for our divisions. We will continue
to disclose the full details on operating expenses at the Group
level, and explain the drivers of changes in divisional operating
expenses
in our management’s discussion and analysis.
Revenues and costs related to a small residual set of activities
that are not directly attributable to or representative of the
performance of the business divisions will be renamed as Group
items. These changes will have no impact on Business Division or
Group operating income, operating expenses and profit before
tax.
Group performance
Income statement
USD million
Net interest income
Other net income from financial instruments measured at fair value through profit or loss
Credit loss (expense) / recovery
Fee and commission income
Fee and commission expense
Net fee and commission income
Other income
Total operating income
of which: net interest income and other net income from financial instruments measured at fair value
through profit or loss
Personnel expenses
General and administrative expenses
Depreciation and impairment of property, equipment and software
Amortization and impairment of goodwill and intangible assets
Total operating expenses
Operating profit / (loss) before tax
Tax expense / (benefit)
Net profit / (loss)
Net profit / (loss) attributable to non-controlling interests
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Comprehensive income
Total comprehensive income
Total comprehensive income attributable to non-controlling interests
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For the year ended
% change from
3311..1122..1199
31.12.18
31.12.17
31.12.18
44,,550011
66,,884422
((7788))
1199,,111100
((11,,669966))
1177,,441133
221122
2288,,888899
1111,,334433
1166,,008844
55,,228888
11,,776655
117755
2233,,331122
55,,557777
11,,226677
44,,331100
66
44,,330044
55,,009911
22
55,,008899
5,048
6,960
(118)
19,598
(1,703)
17,895
428
30,213
12,008
16,132
6,797
1,228
65
24,222
5,991
1,468
4,522
7
4,516
4,231
5
4,225
6,070
5,637
(131)
19,362
(1,840)
17,522
524
29,622
11,707
16,199
6,949
1,053
71
24,272
5,351
4,305
1,046
77
969
2,113
326
1,787
(11)
(2)
(34)
(2)
0
(3)
(51)
(4)
(6)
0
(22)
44
169
(4)
(7)
(14)
(5)
(13)
(5)
20
(69)
20
75
Financial and operating performance
Financial and operating performance
Group performance
Performance of our business divisions and Corporate Center – reported and adjusted1
USD million
Operating income as reported
of which: net foreign currency translations losses 3
of which: net losses from properties held for sale
Operating income (adjusted)
Operating expenses as reported
of which: personnel-related restructuring expenses 4
of which: non-personnel-related restructuring expenses 4
of which: restructuring expenses allocated from Corporate Center 4
of which: impairment of goodwill
Operating expenses (adjusted)
of which: net expenses for litigation, regulatory and similar matters 5
Operating profit / (loss) before tax as reported
Operating profit / (loss) before tax as reported
Operating profit / (loss) before tax (adjusted)
Operating profit / (loss) before tax (adjusted)
USD million
Operating income as reported
of which: gains related to investments in associates
of which: gains on sale of real estate
of which: gains on sale of subsidiaries and businesses
of which: remeasurement loss related to UBS Securities China
For the year ended 31.12.19
For the year ended 31.12.19
Global Wealth
Global Wealth
Management
Management
16,353
16,353
Personal &
Asset
Asset
Personal &
Manage-
Corporate
Corporate Manage-
ment
Banking
ment
Banking
1,938
3,715
1,938
3,715
Investment
Investment
Bank
Bank
7,269
7,269
Corporate
Corporate
Center2
Center
(385)
(385)
(35)
(35)
(29)
(29)
UBS
UBS
28,889
28,889
(35)
(35)
(29)
(29)
16,353
16,353
3,715
3,715
1,938
1,938
7,269
7,269
(321)
(321)
28,953
28,953
12,955
12,955
2,274
2,274
1,406
1,406
6,485
6,485
0
0
0
0
69
69
0
0
0
0
17
17
6
6
7
7
20
20
12,887
12,887
2,257
2,257
1,373
1,373
135
135
0
0
0
0
3,397
3,397
3,466
3,466
1,441
1,441
1,458
1,458
532
532
565
565
84
84
7
7
77
77
110
110
6,208
6,208
53
53
784
784
1,061
1,061
For the year ended 31.12.18
192
192
113
113
68
68
(183)
(183)
23,312
23,312
203
203
81
81
0
0
110
110
194
194
22,918
22,918
(23)
(23)
165
165
(577)
(577)
(515)
(515)
5,577
5,577
6,035
6,035
Global Wealth
Management
16,785
Personal &
Asset
Corporate Manage-
ment
1,852
Banking
4,161
Investment
Bank
8,041
Corporate
Center2
(626)
101
359
31
25
UBS
30,213
460
31
25
(270)
(270)
Operating income (adjusted)
16,684
3,802
1,852
8,041
(413)
29,966
Operating expenses as reported
of which: personnel-related restructuring expenses 4
of which: non-personnel-related restructuring expenses 4
of which: restructuring expenses allocated from Corporate Center 4
of which: gain related to changes to the Swiss pension plan 6
Operating expenses (adjusted)
of which: net expenses for litigation, regulatory and similar matters 5
Operating profit / (loss) before tax as reported
Operating profit / (loss) before tax as reported
Operating profit / (loss) before tax (adjusted)
Operating profit / (loss) before tax (adjusted)
13,531
34
2,365
4
1,426
23
16
209
(66)
0
43
(38)
10
33
(10)
6,554
16
11
166
(5)
13,338
2,355
1,370
6,367
619
41
0
(64)
3,254
3,254
3,346
3,346
1,796
1,796
1,447
1,447
426
426
482
482
1,486
1,486
1,674
1,674
346
208
238
(450)
(122)
472
62
(971)
(971)
(885)
(885)
24,222
286
275
0
(241)
23,903
657
5,991
5,991
6,063
6,063
76
Performance of our business divisions and Corporate Center – reported and adjusted (continued)1
USD million
Operating income as reported
of which: gains on sale of subsidiaries and businesses
of which: gains on sale of financial assets at fair value through OCI 7
of which: net foreign currency translation losses
Operating income (adjusted)
Operating expenses as reported
of which: personnel-related restructuring expenses 4
of which: non-personnel-related restructuring expenses 4
of which: restructuring expenses allocated from Corporate Center 4
of which: expenses from modification of terms for certain DCCP awards 8
Operating expenses (adjusted)
of which: net expenses for litigation, regulatory and similar matters 5
OOppeerraattiinngg pprrooffiitt // ((lloossss)) bbeeffoorree ttaaxx aass rreeppoorrtteedd
OOppeerraattiinngg pprrooffiitt // ((lloossss)) bbeeffoorree ttaaxx ((aaddjjuusstteedd))
For the year ended 31.12.17
Global Wealth
Management
16,136
Personal &
Corporate
Banking
3,839
Asset
Manage-
ment
2,077
153
Investment
Bank
7,650
Corporate
Center2
(80)
137
16,136
3,839
1,924
7,513
12,917
39
75
474
2,364
7
0
98
1,514
17
22
63
6,563
39
18
310
26
12,329
2,259
1,412
6,171
174
2
(4)
(42)
33,,221199
33,,880077
11,,447755
11,,558800
556633
551122
11,,008877
11,,334422
(16)
(63)
913
443
532
(945)
883
304
((999933))
((994466))
UBS
29,622
153
137
(16)
29,349
24,272
545
647
0
26
23,054
434
55,,335511
66,,229955
11 Prior-year comparative figures in this table have been restated for the changes in Corporate Center cost and resource allocation to the business divisions and the changes in the equity attribution framework
effective 1 January 2019. Refer to “Note 1 Summary of significant accounting policies” in the “Consolidated financial statements” section of this report for more information about the changes to the Corporate
Center cost and resource allocation to business divisions and to the “Significant accounting and financial reporting changes” section of this report for more information about the changes in the equity attribution
framework. Comparatives may additionally differ as a result of adjustments following organizational changes, restatements due to the retrospective adoption of new accounting standards or changes in accounting
22 Corporate Center operating expenses presented in this table are after service allocations to business divisions. 33 Related to the disposal or closure of foreign
policies, and events after the reporting period.
operations. 44 Reflects restructuring expenses related to legacy cost programs as well as expenses for new restructuring initiatives. 55 Reflects the net increase in / (release of) provisions for litigation, regulatory
and similar matters recognized in the income statement. Refer to “Note 21 Provisions and contingent liabilities” in the “Consolidated financial statements” section of this report for more information. Also includes
recoveries from third parties of USD 11 million, USD 29 million and USD 55 million for the years ended 31 December 2019, 31 December 2018 and 31 December 2017, respectively. 66 Changes to the pension fund
of UBS in Switzerland in 2018 resulted in a reduction in the pension obligation recognized by UBS. As a consequence, a pre-tax gain of USD 241 million was recognized in the income statement in 2018, with no
77 Includes gains on the
overall effect on total equity. Refer to “Note 29 Pension and other post-employment benefit plans” in the “Consolidated financial statements” section of this report for more information.
sale of our investment in the London Clearing House and on the sale of our investment in IHS Markit in the Investment Bank in 2017. 88 Relates to the removal of the service period requirement for DCCP awards
granted for the performance years 2012 and 2013.
77
Financial and operating performance
Financial and operating performance
Group performance
2019 compared with 2018
Results
recorded net profit attributable
We
to shareholders of
USD 4,304 million in 2019, which included a net tax expense of
USD 1,267 million.
to
shareholders was USD 4,516 million, which included a net tax
expense of USD 1,468 million.
In 2018, net profit attributable
Profit before tax decreased by USD 414 million, or 7%, to
USD 5,577 million, reflecting lower operating income, partly
offset by a decrease in operating expenses. Operating income
decreased by USD 1,324 million, or 4%, to USD 28,889
million, reflecting a USD 665 million decrease in net interest
income and other net income from financial instruments
measured at fair value through profit or loss, a USD 482
million decrease in net fee and commission income and
USD 216 million lower other income. Operating expenses
decreased by USD 910 million, or 4%, to USD 23,312 million.
This was mainly driven by USD 1,509 million lower general and
administrative expenses, largely reflecting USD 533 million
lower occupancy expenses and a decrease of USD 492 million
in expenses related to litigation, regulatory and similar matters.
This was partly offset by USD 537 million higher depreciation
and impairment of property, equipment and software, as well
as USD 110 million higher amortization and impairment of
goodwill and intangible assets.
In addition to reporting our results in accordance with
International Financial Reporting Standards (IFRS), we report
adjusted results, which 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 US Securities and Exchange
Commission (SEC) regulations. These adjustments include
restructuring expenses related to our CHF 2.1 billion cost
reduction program completed at the end of 2017 (referred to
as our “legacy cost programs” in this report), as well as
expenses relating to new restructuring initiatives. For the full
year 2019, we incurred a runoff of restructuring expenses
associated with our legacy cost programs of USD 205 million,
which are now expected to be nil for 2020 and future years. In
addition, in connection with the planned structural changes in
the
incurred USD 79 million of
restructuring expenses in the fourth quarter of 2019. We
incur restructuring expenses of approximately
expect to
USD 200 million in 2020 related to additional cost actions
across the Group, with the majority of this expense being
incurred in the first half of the year.
Investment Bank, we
In
January 2020, we updated and
simplified our
performance target framework, with our updated performance
targets based on reported results. From the first quarter of
2020, we will no longer disclose adjusted results; however, we
will continue to provide disclosure of restructuring and
litigation expenses as well as other material profit or loss items
that management believes are not representative of underlying
business performance.
For the purpose of determining adjusted results for 2019,
we excluded net restructuring expenses of USD 284 million, a
USD 110 million loss related to an impairment of goodwill, net
foreign currency translation losses of USD 35 million and a loss
of USD 29 million related to the remeasurement of properties
that were reclassified as properties held for sale. For 2018, we
excluded a gain of USD 460 million related to investments in
associates, gains of USD 31 million on sale of real estate, gains
of USD 25 million on sale of subsidiaries and businesses, a
remeasurement loss of USD 270 million related to the increase
of our shareholding in UBS Securities China, a gain of USD 241
million related to changes to the Swiss pension plan, and net
restructuring expenses of USD 561 million.
On this adjusted basis, profit before tax decreased slightly to
USD 6,035 million.
Net interest income and other net income from financial instruments measured at fair value through profit or loss
For the year ended
31.12.18
31.12.19
31.12.19
31.12.17
% change from
31.12.18
Personal & Corporate Banking
of which: net interest income
of which: transaction-based income from foreign exchange and other intermediary activity 1
USD million
Net interest income from financial instruments measured at amortized cost and fair value through other
comprehensive income
Net interest income from financial instruments measured at fair value through profit or loss
Other net income from financial instruments measured at fair value through profit or loss
Total
Total
Global Wealth Management
(6)
(24)
(2)
(6)
(3)
(4)
2
(1)
(3)
10
(63)
(12)
(32)
(6)
(15)
Corporate Center
1 Mainly includes spread-related income in connection with client-driven transactions, foreign currency translation effects and income and expenses from precious metals, which are included in the income statement
1
line Other net income from financial instruments measured at fair value through profit or loss. The amounts reported on this line are one component of Transaction-based income in the management discussion and
2 Investment Bank information is
analysis of Global Wealth Management and Personal & Corporate Banking in the “Global Wealth Management” and “Personal & Corporate Banking” sections of this report.
2
provided at the business line level rather than by financial statement reporting line in order to reflect the underlying business activities, which is consistent with the structure of the management discussion and
analysis in the “Investment Bank” section of this report.
of which: net interest income
of which: transaction-based income from foreign exchange and other intermediary activity 1
3,710
1,338
6,960
12,008
5,049
4,101
948
2,451
2,049
402
(35)
4,756
1,051
3,705
(214)
5,018
1,052
5,637
11,707
4,941
3,880
1,062
2,420
2,044
376
(34)
4,272
1,076
3,196
107
3,490
3,490
1,011
1,011
6,842
6,842
11,343
11,343
4,913
4,913
3,947
3,947
966
966
2,436
2,436
1,992
1,992
443
443
(13)
(13)
4,189
4,189
716
716
3,473
3,473
(182)
(182)
Corporate Client Solutions
Investor Client Services
Asset Management
Investment Bank2
78
Operating income
Total operating income decreased by USD 1,324 million, or 4%,
to USD 28,889 million. On an adjusted basis, total operating
income decreased by USD 1,013 million, or 3%,
to
USD 28,953 million.
Net interest income and other net income from financial
instruments measured at fair value through profit or loss
Total combined net interest income and other net income from
financial instruments measured at fair value through profit or
loss decreased by USD 665 million to USD 11,343 million. This
was mainly driven by lower net income in the Investment Bank
and Global Wealth Management.
Global Wealth Management
In Global Wealth Management, net interest income decreased
by USD 154 million to USD 3,947 million, mainly reflecting lower
income from lending and deposits, due to margin compression
and moves into lower-margin products. These effects were
partly offset by higher investment-of-equity income.
Transaction-based income from foreign exchange and other
intermediary activity increased by USD 18 million to USD 966
million, mainly due to higher revenues from foreign exchange
transactions, driven by higher levels of client activity.
Personal & Corporate Banking
In Personal & Corporate Banking, net interest income decreased
by USD 57 million to USD 1,992 million, mainly reflecting higher
funding costs for long-term debt that contributes to total loss-
absorbing capacity and lower banking book interest income.
This was partly offset by higher deposit revenues.
Transaction-based income from foreign exchange and other
intermediary activity increased by USD 41 million to USD 443
million, mainly due to higher net
income from foreign
exchange transactions.
Investment Bank
In the Investment Bank, net interest income and other net
income from financial instruments measured at fair value
through profit or
loss decreased by USD 567 million to
USD 4,189 million. This was driven by a USD 335 million
decrease in Corporate Client Solutions, mainly reflecting a
decrease in leveraged finance revenues and as 2018 included
higher gains from transactions across our Equity Capital Markets
and Risk Management portfolio. In addition, USD 198 million
Credit loss (expense) / recovery
USD million
Global Wealth Management
Personal & Corporate Banking
Investment Bank
Corporate Center
TToottaall
lower income in our Equities business was driven by lower prime
brokerage client balances and margin compression, as well as
lower client activity levels across all Equities product lines.
revenues
ineffectiveness,
Corporate Center
In Corporate Center, net interest income and other net income
from financial instruments measured at fair value through profit
or loss increased by USD 32 million. This reflected USD 421
million higher net treasury income, driven by income from hedge
accounting
accounting
asymmetries, as well as higher net interest income. This was
partly offset by USD 252 million lower income in Retained
Services, driven by USD 122 million of additional interest
expense related to lease liabilities recognized as a result of the
application of IFRS 16, Leases, which was adopted in the first
quarter of 2019, and approximately USD 130 million higher
asset funding costs, mainly driven by increased interest rates. In
addition, income in Non-Core and Legacy Portfolio decreased by
USD 137 million, mainly as 2018 included higher valuation gains
on auction rate securities.
from
Refer to “Note 3 Net interest income and other net income from
financial instruments measured at fair value through profit or
loss” in the “Consolidated financial statements” section of this
report for more information
Credit loss expense / recovery
Total net credit loss expenses were USD 78 million in 2019,
compared with USD 118 million, reflecting net credit loss
expenses of USD 100 million related to credit-impaired (stage 3)
positions, mainly in Personal & Corporate Banking and to a
lesser extent in the Investment Bank and Global Wealth
Management. This was partly offset by USD 22 million of net
releases in expected credit loss expense allowances from stage 1
and 2 positions.
Refer to “Note 1 Summary of significant accounting policies” in
the “Consolidated financial statements” section of this report
for more information about IFRS 9
Refer to “Note 10 Financial assets at amortized cost and other
positions in scope of expected credit loss measurement” and
“Note 23 Expected credit loss measurement” in the
“Consolidated financial statements” section of this report for
more information about credit loss expense / recovery
Refer to the “Risk factors” section of this report for more
information
For the year ended
31.12.18
(15)
(56)
(38)
(8)
(118)
3311..1122..1199
((2200))
((2211))
((3300))
((77))
((7788))
31.12.17
(8)
(20)
(92)
(11)
(131)
% change from
31.12.18
32
(63)
(22)
(12)
(34)
79
Financial and operating performance
Financial and operating performance
Group performance
Net fee and commission income
Net fee and commission income was USD 17,413 million
compared with USD 17,895 million.
Net brokerage fees decreased by USD 267 million, mainly in
the Investment Bank and in Global Wealth Management, largely
due to lower levels of client activity across the first half of 2019.
Investment fund fees and fees for portfolio management and
related services decreased by USD 196 million, driven by Global
Wealth Management, largely reflecting lower average invested
assets in the first quarter of 2019, as well as margin compression
and shifts into lower-margin products. These effects were partly
offset by an increase of USD 82 million in Asset Management,
reflecting the effect of higher average invested assets, as well as
an increase in performance fees, reflecting strong investment
performance in a constructive market environment.
Underwriting fees decreased by USD 70 million, mainly in our
Corporate Client Solutions business in the Investment Bank,
driven by lower revenues from public offerings.
Refer to “Note 4 Net fee and commission income” in the
“Consolidated financial statements” section of this report for
more information
to
the
remeasurement of properties
Other income
Other income was USD 212 million compared with USD 428
million on a reported basis. 2019 included net foreign currency
translation losses of USD 35 million and a loss of USD 29 million
related
that were
reclassified as properties held for sale. The previous year
included a valuation gain of USD 460 million on our equity
ownership in SIX related to the sale of SIX Payment Services to
Worldline, a remeasurement loss of USD 270 million related to
the increase of our shareholding in UBS Securities China, gains
on sale of real estate of USD 31 million and gains on sale of
subsidiaries of USD 25 million. Excluding these items, adjusted
other income increased by USD 94 million, mainly driven by
gains resulting from the settlement of a litigation claim, gains
related to legacy securities positions, and income related to a
claim on a defaulted counterparty position.
Operating expenses
Total operating expenses decreased by USD 910 million, or 4%,
to USD 23,312 million. On an adjusted basis, total operating
expenses decreased by USD 985 million, or 4%, to USD 22,918
million.
Personnel expenses
Personnel expenses decreased by USD 48 million to USD 16,084
million on a reported basis, primarily reflecting lower variable
compensation, lower expenses for contractors, and lower other
personnel expenses. This was largely offset by higher expenses
for pension and other post-employment benefit plans, as 2018
included a gain of USD 241 million related to changes to the
Swiss pension plan, and higher salary costs. On an adjusted
basis, personnel expenses decreased by USD 206 million to
USD 15,881 million, primarily driven by the aforementioned
decrease in variable compensation.
Expenses for salaries
increased by USD 70 million to
USD 6,518 million, primarily driven by continued insourcing of
certain activities from third-party vendors to our Business
Solutions Centers, as well as increased staffing to address
regulatory requirements. These increases were partly offset by
lower salary expenses in Global Wealth Management. On an
adjusted basis, expenses for salaries increased by USD 170
million
the
aforementioned insourcing effects.
to USD 6,443 million, mainly
reflecting
Expenses for total variable compensation decreased by
USD 237 million, and adjusted expenses for total variable
compensation decreased by USD 261 million, mainly reflecting a
decrease in expenses for current year awards.
Financial advisor compensation was broadly stable at
USD 4,043 million.
Other personnel expenses decreased by USD 99 million and
adjusted other personnel expenses decreased by USD 103
insurance and
million, primarily due
recruitment costs.
lower medical
to
Refer to the “Compensation” section of this report for more
Refer to “Note 5 Other income” in the “Consolidated financial
information
statements” section of this report for more information
Refer to “Note 6 Personnel expenses,” “Note 29 Pension and
Refer to “Note 32 Changes in organization and acquisitions and
disposals of subsidiaries and businesses” in the “Consolidated
other post-employment benefit plans” and “Note 30 Employee
benefits: variable compensation” in the “Consolidated financial
financial statements” section of this report for more
statements” section of this report for more information
information about the increase of stake in and consolidation of
UBS Securities China
General and administrative expenses
General and administrative expenses decreased by USD 1,509
million to USD 5,288 million. This was driven by USD 492 million
lower expenses related to litigation, regulatory and similar
matters, as the prior year included an increase in provisions that
largely
to our cross-border wealth management
businesses, as well as USD 269 million lower expenses related to
the outsourcing of IT and other services and USD 133 million
lower professional fees.
related
80
Operating expenses
USD million
Operating expenses as reported
Personnel expenses
General and administrative expenses
Depreciation and impairment of property, equipment and software
Amortization and impairment of goodwill and intangible assets
TToottaall ooppeerraattiinngg eexxppeennsseess aass rreeppoorrtteedd
Adjusting items
Personnel expenses
of which: restructuring expenses 1
of which: gain related to changes to the Swiss pension plan 2
of which: expenses from modification of terms for certain DCCP awards 3
General and administrative expenses1
Depreciation and impairment of property, equipment and software1
Amortization and impairment of goodwill and intangible assets
of which: impairment of goodwill
TToottaall aaddjjuussttiinngg iitteemmss
For the year ended
31.12.18
3311..1122..1199
31.12.17
% change from
31.12.18
0
(22)
44
169
(4)
1166,,008844
55,,228888
11,,776655
117755
2233,,331122
220033
220033
7722
1100
111100
111100
339944
16,132
6,797
1,228
65
24,222
45
286
(241)
225
50
0
0
319
16,199
6,949
1,053
71
24,272
570
545
26
640
7
0
0
1,217
Operating expenses (adjusted)
Personnel expenses
General and administrative expenses
of which: net expenses for litigation, regulatory and similar matters
of which: other general and administrative expenses
of which: salaries
of which: total variable compensation
of which: relating to current year 4
of which: relating to prior years 5
of which: financial advisor compensation 6
of which: other personnel expenses 7
(1)
3
(8)
(11)
4
0
(4)
(21)
(75)
(15)
49
Depreciation and impairment of property, equipment and software
Amortization and impairment of goodwill and intangible assets
0
TToottaall ooppeerraattiinngg eexxppeennsseess ((aaddjjuusstteedd))
(4)
11 Reflects restructuring expenses related to legacy cost programs as well as expenses for new restructuring initiatives. 22 Refer to “Note 29 Pension and other post-employment benefit plans” in the “Consolidated
financial statements” section of this report for more information. 33 Relates to the removal of the service period requirement for DCCP awards granted for the performance years 2012 and 2013. 44 Includes
expenses relating to performance awards and other variable compensation for the respective performance year. 55 Consists of amortization of prior years’ awards relating to performance awards and other variable
66 Financial advisor compensation consists of formulaic compensation based directly on compensable revenues generated by financial advisors and supplemental compensation calculated on the
compensation.
basis of financial advisor productivity, firm tenure, new assets and other variables. It also includes expenses related to compensation commitments with financial advisors entered into at the time of recruitment that
77 Consists of expenses related to contractors, social security, pension and other post-employment benefit plans and other personnel expenses. Refer to “Note 6 Personnel
are subject to vesting requirements.
expenses” in the “Consolidated financial statements” section of this report for more information.
15,628
5,801
3,242
2,538
704
4,064
2,521
6,309
434
5,875
1,046
71
23,054
16,087
6,273
3,167
2,576
592
4,054
2,593
6,572
657
5,916
1,178
65
23,903
1155,,888811
66,,444433
22,,990066
22,,228888
661188
44,,004433
22,,449900
55,,221166
116655
55,,005511
11,,775555
6655
2222,,991188
Occupancy expenses decreased by USD 533 million, primarily
following the adoption of IFRS 16, Leases, as of 1 January 2019.
This decrease was more than offset by an increase of USD 484
million in depreciation expenses for leased properties and an
increase of USD 122 million in interest expense relating to lease
liabilities, both also as a direct result of the adoption of IFRS 16.
The full year effect of the application of IFRS 16 in 2019 was a
net decrease in profit before tax of approximately USD 60
million, reflecting reductions of approximately USD 120 million
income and expenses,
and USD 60 million
respectively.
in operating
Net expenses for the UK and German bank levies were
USD 41 million in 2019 and included a USD 31 million credit
related to prior years. In 2018, net expenses for the UK and
German bank levies were USD 58 million and included a USD 45
million credit related to prior years.
On an adjusted basis, general and administrative expenses
decreased by USD 1,356 million to USD 5,216 million, largely
due to the aforementioned decreases in expenses related to
litigation, regulatory and similar matters, costs for outsourcing of
IT and other services and professional fees.
We believe that the industry continues to operate in an
environment in which expenses associated with litigation,
regulatory and similar matters will remain elevated for the
foreseeable future and we continue to be exposed to a number
of significant claims and regulatory matters. The outcome of
many of these matters, the timing of a resolution, and the
potential effects of resolutions on our future business, financial
results or financial condition are extremely difficult to predict.
Refer to “Note 7 General and administrative expenses” and
“Note 21 Provisions and contingent liabilities” in the
“Consolidated financial statements” section of this report for
more information
Depreciation, amortization and impairment
Depreciation and impairment of property, equipment and
software increased by USD 537 million to USD 1,765 million on
a reported basis, and by USD 577 million to USD 1,755 million
on an adjusted basis, mainly driven by the aforementioned
USD 484 million higher depreciation expenses resulting from the
application of IFRS 16.
81
Financial and operating performance
Financial and operating performance
Group performance
Amortization and impairment of goodwill and intangible
assets increased by USD 110 million to USD 175 million on a
reported basis, as a result of a USD 110 million impairment of
goodwill in the Investment Bank in the fourth quarter of 2019.
Excluding this item, these expenses were broadly unchanged.
Refer to “Note 15 Property, equipment and software” and
“Note 16 Goodwill and intangible assets” in the “Consolidated
financial statements” section of this report for more
information
Tax
We recognized an income tax expense of USD 1,267 million in
2019, representing an effective tax rate of 22.7%, compared
with USD 1,468 million for 2018.
This included net Swiss tax expenses of USD 630 million and
net non-Swiss tax expenses of USD 637 million.
The Swiss tax expenses included current tax expenses of
USD 365 million related to taxable profits earned by Swiss
subsidiaries. In addition, they included deferred tax expenses of
USD 265 million, which primarily reflect the amortization of
deferred tax assets (DTAs) previously recognized in relation to
deductible temporary differences.
The non-Swiss tax expenses included current tax expenses of
USD 426 million related to taxable profits earned by non-Swiss
subsidiaries and branches. In addition, they included deferred tax
expenses of USD 211 million. These included expenses of
USD 471 million that primarily reflected the amortization of
DTAs previously recognized in relation to tax losses carried
forward and deductible temporary differences, including the
amortization of US tax loss DTAs at the level of UBS Americas
Inc. These were partly offset by a benefit of USD 260 million in
respect of additional DTA recognition that resulted from the
contribution of real estate assets by UBS AG to UBS Americas
Inc. in the year. The additional DTA recognition related to the
elections that were made in the fourth quarter of 2018 to
capitalize certain historic real estate costs.
For 2020, we expect a full-year tax rate of approximately
25%, excluding any potential effects from the reassessment of
deferred tax assets.
Refer to “Note 8 Income taxes” in the “Consolidated financial
statements” section of this report for more information
Refer to the “Risk factors” section of this report for more
information
82
Total comprehensive income attributable to shareholders
In 2019, total comprehensive income attributable to shareholders
was USD 5,089 million, reflecting net profit of USD 4,304 million
and other comprehensive income (OCI), net of tax, of USD 785
million.
OCI related to cash flow hedges was positive USD 1,143
million, mainly reflecting an increase in net unrealized gains on
US dollar hedging derivatives resulting from decreases in the
relevant long-term US dollar interest rates. In 2018, OCI related
to cash flow hedges was negative USD 269 million.
OCI associated with financial assets measured at fair value
through OCI was positive USD 117 million, compared with negative
USD 45 million, primarily reflecting net unrealized gains following
decreases in the relevant US dollar long-term interest rates in 2019.
Foreign currency translation OCI was positive USD 104 million
in 2019. This was mainly due to the strengthening of the Swiss
franc and the pound sterling against the US dollar as well as the
reclassification of net losses totaling USD 38 million to the
income statement. These effects were partly offset by the
weakening of the euro. In 2018, OCI related to foreign currency
translation was negative USD 541 million.
OCI related to own credit on financial liabilities designated at fair
value was negative USD 392 million, compared with positive
USD 509 million, primarily due to tightening credit spreads in 2019.
Defined benefit plan OCI, net of tax, was negative USD 186
million compared with positive USD 56 million. Total pre-tax OCI
related to UK defined benefit plans was negative USD 78 million,
reflecting OCI losses of USD 361 million from the remeasurement of
the defined benefit obligation (DBO), mainly driven by a loss of
USD 552 million due to a decrease in the applicable discount rate,
partly offset by a gain of USD 132 million due to a decrease in the
expected rate of pension increase. This was partly offset by an OCI
gain of USD 284 million due to a positive return on plan assets.
Total pre-tax OCI related to the Swiss defined benefit plan was
negative USD 22 million. This reflected losses of USD 1,728 million
from the DBO remeasurement and of USD 353 million from an
increase in the effect of the IFRS asset ceiling, almost entirely offset
by a gain of USD 2,059 million due to a positive return on plan
assets. The DBO remeasurement loss of USD 1,728 million was
driven by a loss of USD 1,887 million due to a decrease in the
applicable discount rate and an experience loss of USD 284 million,
reflecting the effects of differences between the previous actuarial
assumptions and what actually occurred. These losses were partly
offset by gains of USD 243 million resulting from a decrease in the
expected rate of interest credit on retirement savings and of
USD 199 million due to other changes in actuarial assumptions.
Refer to “Statement of comprehensive income” in the
“Consolidated financial statements” section of this report for
more information
Refer to “Note 29 Pension and other post-employment benefit
plans” in the “Consolidated financial statements” section of this
report for more information about defined benefit plans
including a description of an enhancement to the asset ceiling
calculation methodology effective in the first quarter of 2020
Sensitivity to interest rate movements
As of 31 December 2019, we estimate that a parallel shift in
yield curves by +100 basis points could lead to a combined
increase in annual net interest income of approximately USD 0.6
billion in Global Wealth Management and Personal & Corporate
Banking. A parallel shift in yield curves by minus 100 basis points
could lead to a combined reduction in annual net interest
income of approximately USD 0.6 billion.
These estimates are based on a hypothetical scenario of an
immediate change in interest rates, equal across all currencies
and relative to implied forward rates applied to our banking
book. These estimates further assume no change to balance
sheet size and structure, constant foreign exchange rates and no
specific management action.
Key figures
Below we provide an overview of selected key figures of the
Group. For further information about key figures related to
capital management, refer to the “Capital management”
section of this report.
Adjusted cost / income ratio
The adjusted cost / income ratio was 78.9%, compared with
79.5%, reflecting a reduction in adjusted operating expenses,
offset by a decrease in adjusted operating income.
Common equity tier 1 capital
Common equity tier 1 (CET1) capital increased by USD 1.5 billion
to USD 35.6 billion, mainly driven by operating profit before tax
of USD 5.6 billion, partly offset by accruals for capital returns to
shareholders of USD 2.6 billion, a USD 0.8 billion effect from our
share repurchase program and current tax expenses of USD 0.8
billion.
Return on CET1 capital
Our return on CET1 capital (RoCET1) was 12.4%, compared
with 13.1%, driven by a USD 0.2 billion decrease in net profit
attributable to shareholders and a USD 0.4 billion increase in the
average CET1 capital.
Risk-weighted assets
Risk-weighted assets (RWA) decreased by USD 4.5 billion to
USD 259.2 billion, reflecting decreases from asset size and other
movements of USD 8.0 billion and regulatory add-ons of
USD 0.7 billion, partly offset by methodology and policy change
of USD 2.0 billion, model updates of USD 1.2 billion and
currency effects of USD 0.9 billion.
Common equity tier 1 capital ratio
Our CET1 capital ratio increased 0.8 percentage points to
13.7%, reflecting the USD 1.5 billion increase in CET1 capital
and a USD 4.5 billion decrease in RWA.
Leverage ratio denominator
The leverage ratio denominator (LRD) increased by USD 7 billion
to USD 911 billion. The increase was driven by currency effects
of USD 5 billion and policy changes of USD 4 billion, partly offset
in asset size and other movements of
by a decrease
USD 2 billion.
Common equity tier 1 leverage ratio
Our CET1 leverage ratio increased from 3.77% to 3.90% as of
31 December 2019, reflecting the aforementioned increase in
CET1 capital, partly offset by a USD 7 billion increase in the LRD.
Going concern leverage ratio
Our going concern leverage ratio increased from 5.1% to 5.7%,
reflecting a USD 5.6 billion increase in our going concern capital,
partly offset by the aforementioned increase in the LRD.
Personnel
We employed 68,601 personnel (full-time equivalents) as of
31 December 2019. The net increase of 1,713 compared with
31 December 2018 was largely driven by a 2,583 increase in
Corporate Center, mainly as a result of the ongoing insourcing
of certain activities from third-party vendors to our Business
Solutions Centers, resulting in a decrease of approximately
2,200 outsourced staff. This was partly offset by a 944 decrease
in Global Wealth Management, reflecting the effect of cost
management initiatives and a review of advisor portfolios.
Net new money and invested assets
Management’s discussion and analysis on net new money and
invested assets is provided in the “Global Wealth Management”
and “Asset Management” sections of this report.
Seasonal characteristics
Our revenues may show seasonal patterns, notably in the
Investment Bank and Global Wealth Management. These
business divisions typically show the highest client activity levels
in the first quarter, with lower levels throughout the rest of the
year, especially during the summer months and end-of-year
holiday season.
Net new money can be affected by annual tax payments,
which are concentrated in the second quarter in the US.
83
Financial and operating performance
Financial and operating performance
Group performance
Return on equity
USD million, except where indicated
Net profit
Net profit / (loss) attributable to shareholders
Equity
Equity attributable to shareholders
Less: goodwill and intangible assets
Tangible equity attributable to shareholders
Less: other CET1 deductions
Common equity tier 1 capital
Return on equity
Return on equity (%)
Return on tangible equity (%)
Return on common equity tier 1 capital (%)
Net new money1
USD billion
Global Wealth Management
Global Wealth Management
Asset Management2
Asset Management2
of which: excluding money market flows
of which: money market flows
As of or for the year ended
31.12.19
31.12.19
31.12.18
31.12.17
4,304
4,304
4,516
969
54,533
54,533
6,469
6,469
48,064
48,064
12,482
12,482
35,582
35,582
7.9
7.9
9.0
9.0
12.4
12.4
52,928
6,647
46,281
12,162
34,119
8.6
9.8
13.1
52,495
6,563
45,932
12,416
33,516
1.8
2.0
3.0
For the year ended
31.12.19
31.12.19
31.12.18
31.12.17
31.6
31.6
17.8
17.8
12.6
12.6
5.2
5.2
24.7
32.2
24.7
7.5
44.8
59.5
48.3
11.2
1 Net new money excludes interest and dividend income.
1
information restated. The adjustments have no effect on total net new money.
2 Effective 1 January 2019, certain assets have been reclassified between asset classes to better reflect their underlying nature, with prior-period
2
Invested assets
USD billion
Global Wealth Management
Global Wealth Management
Asset Management1
Asset Management1
of which: excluding money market funds
of which: money market funds
As of
% change from
31.12.19
31.12.19
31.12.18
31.12.17
31.12.18
2,635
2,635
2,260
2,403
903
903
801
801
102
102
781
686
95
796
708
88
17
16
17
6
1 Effective 1 January 2019, certain assets have been reclassified between asset classes to better reflect their underlying nature, with prior-period information restated. The adjustments have no effect on total
1
invested assets.
84
Global Wealth Management
Global Wealth Management1
USD million, except where indicated
Results
Net interest income
Recurring net fee income2
Transaction-based income3
Other income
Income
Credit loss (expense) / recovery
TToottaall ooppeerraattiinngg iinnccoommee
Personnel expenses
Salaries and other personnel costs
Financial advisor variable compensation4,5
Compensation commitments with recruited financial advisors4,6
General and administrative expenses
Services (to) / from Corporate Center and other business divisions
of which: services from Corporate Center
Depreciation and impairment of property, equipment and software
Amortization and impairment of goodwill and intangible assets
TToottaall ooppeerraattiinngg eexxppeennsseess
BBuussiinneessss ddiivviissiioonn ooppeerraattiinngg pprrooffiitt // ((lloossss)) bbeeffoorree ttaaxx
Adjusted results
TToottaall ooppeerraattiinngg iinnccoommee aass rreeppoorrtteedd
of which: gain related to investments in associates
TToottaall ooppeerraattiinngg iinnccoommee ((aaddjjuusstteedd))
TToottaall ooppeerraattiinngg eexxppeennsseess aass rreeppoorrtteedd
of which: personnel-related restructuring expenses 7
of which: non-personnel-related restructuring expenses 7
of which: restructuring expenses allocated from Corporate Center 7,8
of which: gain related to changes to the Swiss pension plan
TToottaall ooppeerraattiinngg eexxppeennsseess ((aaddjjuusstteedd))
BBuussiinneessss ddiivviissiioonn ooppeerraattiinngg pprrooffiitt // ((lloossss)) bbeeffoorree ttaaxx aass rreeppoorrtteedd
BBuussiinneessss ddiivviissiioonn ooppeerraattiinngg pprrooffiitt // ((lloossss)) bbeeffoorree ttaaxx ((aaddjjuusstteedd))
Performance measures
Pre-tax profit growth (%)
Cost / income ratio (%)
Net new money growth (%)
Adjusted performance measures
Pre-tax profit growth (%)
Cost / income ratio (%)
As of or for the year ended
3311..1122..1199
31.12.18
% change from
31.12.18
33,,994477
99,,225588
33,,005599
111100
1166,,337733
((2200))
1166,,335533
77,,662211
33,,557788
33,,550011
554422
11,,221177
44,,005566
33,,992222
55
5566
1122,,995555
33,,339977
1166,,335533
1166,,335533
1122,,995555
00
00
6699
1122,,888877
33,,339977
33,,446666
44..44
7799..11
11..44
33..66
7788..77
4,101
9,577
2,971
151
16,800
(15)
16,785
7,683
3,628
3,470
584
1,724
4,070
3,936
4
50
13,531
3,254
16,785
101
16,684
13,531
34
16
209
(66)
13,338
3,254
3,346
1.1
80.5
1.0
(12.1)
79.9
(4)
(3)
3
(27)
(3)
32
(3)
(1)
(1)
1
(7)
(29)
0
0
22
13
(4)
4
(3)
(2)
(4)
(3)
4
4
85
Financial and operating performance
Financial and operating performance
Global Wealth Management
Global Wealth Management (continued)1
USD million, except where indicated
As of or for the year ended
31.12.19
31.12.19
31.12.18
% change from
31.12.18
2
(3)
5
(1)
(1)
Additional information
Recurring income9
Recurring income as a percentage of income (%)
Average attributed equity (USD billion)10
Return on attributed equity (%)10
Risk-weighted assets (USD billion)10
Leverage ratio denominator (USD billion)10
Goodwill and intangible assets (USD billion)
Net new money (USD billion)
Invested assets (USD billion)
17
Net margin on invested assets (bps)11
1
Gross margin on invested assets (bps)
(5)
Client assets (USD billion)
15
Loans, gross (USD billion)12
3
Customer deposits (USD billion)12,13
6
Recruitment loans to financial advisors4
(11)
Other loans to financial advisors4
(17)
Personnel (full-time equivalents)14
(4)
Advisors (full-time equivalents)
(6)
1 Prior-year comparative figures in this table have been restated for the changes in Corporate Center cost and resource allocation to the business divisions and the changes in the equity attribution framework
1
effective 1 January 2019. Refer to “Note 1 Basis of accounting” in the “Consolidated financial statements” section of our first quarter 2019 report for more information about the changes to the Corporate Center
cost and resource allocation to business divisions and to the “Recent developments” section of our first quarter 2019 report for more information about the changes in the equity attribution framework.
Comparatives may additionally differ as a result of adjustments following organizational changes, restatements due to the retrospective adoption of new accounting standards or changes in accounting policies, and
2 Recurring net fee income consists of fees for services provided on an ongoing basis, such as portfolio management fees, asset-based investment fund fees, custody fees and
events after the reporting period.
2
3 Transaction-based income consists of the non-recurring portion of net fee and commission income, mainly composed of brokerage and transaction-
account-keeping fees, which are generated on client assets.
3
4 Relates to
based investment fund fees, as well as credit card fees and fees for payment transactions, together with Other net income from financial instruments measured at fair value through profit or loss.
4
5 Financial advisor variable compensation consists of formulaic compensation based directly on compensable
licensed professionals with the ability to provide investment advice to clients in the Americas.
5
revenues generated by financial advisors and supplemental compensation calculated on the basis of financial advisor productivity, firm tenure, new assets and other variables. 6 Compensation commitments with
7 Reflects restructuring
recruited financial advisors represent expenses related to compensation commitments granted to financial advisors at the time of recruitment that are subject to vesting requirements.
7
9 Recurring income consists of net
expenses related to legacy cost programs as well as expenses for new restructuring initiatives.
9
interest income and recurring net fee income. 10 Refer to the “Capital management” section of this report for more information. 11 Calculated as operating profit before tax (annualized as applicable) divided by
10
average invested assets. 12 Loans and Customer deposits in this table include customer brokerage receivables and payables, respectively, which, with the adoption of IFRS 9, effective 1 January 2018, have been
13 Customer deposits in Global Wealth Management have been restated as of 31 December 2018 to reflect a reclassification of balances from
reclassified to a separate reporting line on the balance sheet.
13
Corporate Center, with no impact on customer deposits reported for the Group. This has resulted in an increase in customer deposits reported for Global Wealth Management of USD 6.3 billion as of 31 December
2018. 14 Personnel (full-time equivalents) as of 31 December 2019 has been amended compared with our fourth quarter 2019 report, resulting in a decrease of 6.
13,205
13,205
80.6
80.6
16.6
16.6
20.5
20.5
78.1
78.1
312.7
312.7
5.1
5.1
31.6
31.6
2,635
2,635
14
14
66
66
2,909
2,909
179.3
179.3
296.1
296.1
2,053
2,053
824
824
22,674
22,674
10,077
10,077
13,678
81.4
16.3
20.0
74.3
315.8
5.2
24.7
2,260
14
70
2,519
174.7
278.1
2,296
994
23,618
10,677
8 Prior periods may include allocations (to) / from other business divisions.
8
12
14
11
6
Regional breakdown of performance measures
As of or for the year ended 31.12.19
USD billion, except where indicated
Net new money
Net new money growth (%)
Invested assets
Loans, gross
Advisors (full-time equivalents)
EMEA
(excluding
Switzerland)
10.5
10.5
2.1
2.1
552
552
37.1
37.1
1,660
1,660
Americas
(17.4)
(17.4)
(1.4)
(1.4)
1,403
1,403
62.52
62.52
6,549
6,549
1 Excluding minor functions with 101 advisors, USD 3 billion of invested assets, USD 0.6 billion of loans and USD 0.4 billion of net new money outflows in 2019.
1
which with the adoption of IFRS 9, effective 1 January 2018, have been reclassified to a separate reporting line on the balance sheet.
globally managed unit.
Asia Pacific
31.4
31.4
Switzerland
7.5
7.5
Total of of which: ultra high
regions1 net worth (UHNW)
45.5
32.0
32.0
8.8
8.8
450
450
43.1
43.1
3.7
3.7
228
228
36.0
36.0
1.4
1.4
2,633
2,633
178.7
178.7
4.0
1,371
1,041
1,041
1,042 3
2 Loans include customer brokerage receivables,
2
3 Represents advisors who exclusively serve ultra high net worth clients in a
3
9,976
9,976
727
727
86
2019 compared with 2018
Results
Profit before tax increased by USD 143 million, or 4%, to
USD 3,397 million. Excluding a USD 101 million valuation gain
on our equity ownership in SIX related to the sale of SIX
Payment Services to Worldline in 2018, a prior-year credit of
USD 66 million related to our Swiss pension plan and
restructuring expenses, adjusted profit before tax increased by
USD 120 million, or 4%, to USD 3,466 million, reflecting lower
operating expenses, partly offset by lower operating income.
Operating income included a USD 75 million fee received
from Personal & Corporate Banking for the shift of USD 6 billion
of business volume from Global Wealth Management to
Personal & Corporate Banking, as a result of a detailed client
segmentation review.
Operating income
Total operating income decreased by USD 432 million, or 3%, to
USD 16,353 million. Excluding the aforementioned valuation
gain on our equity ownership in SIX, adjusted total operating
income decreased by USD 331 million, or 2%, mainly driven by
lower recurring net fee income and net interest income, partly
offset by higher transaction-based income and other income.
Net
interest
income decreased by USD 154 million to
USD 3,947 million, mainly as a result of lower deposit and loan
margins, partly offset by higher investment-of-equity income.
Recurring net fee income decreased by USD 319 million to
USD 9,258 million, reflecting margin compression and moves
into lower-margin products, partly offset by an increase in
mandate penetration.
Transaction-based income increased by USD 88 million to
USD 3,059 million, predominantly due to the aforementioned
fee received from Personal & Corporate Banking.
Refer to the “Group performance” section of our third quarter
2019 report for more information about the realignment of our
client coverage between Global Wealth Management and
Personal & Corporate Banking
Other income decreased by USD 41 million to USD 110
million. Excluding the aforementioned valuation gain on our
equity ownership in SIX, adjusted other income increased by
USD 60 million, primarily due to a gain related to the
repositioning of the liquidity portfolio in the Americas and gains
related to legacy securities positions.
Refer to the “Recent developments” section of our fourth
quarter 2018 report for more information about the Worldline
acquisition of SIX Payment Services
Operating expenses
Total operating expenses decreased by USD 576 million, or 4%,
to USD 12,955 million and adjusted operating expenses
decreased by USD 451 million, or 3%, to USD 12,887 million.
Personnel expenses decreased by USD 62 million
to
USD 7,621 million. Excluding the aforementioned credit related
to changes to our Swiss pension plan and restructuring
expenses, adjusted personnel expenses decreased by USD 93
million, mainly due to lower variable compensation and lower
staffing levels.
General and administrative expenses decreased by USD 507
million to USD 1,217 million. Excluding restructuring expenses,
adjusted general and administrative expenses decreased by
USD 492 million, predominantly driven by lower expenses for
provisions for litigation, regulatory and similar matters.
Net expenses for services to/from Corporate Center and other
business divisions decreased by USD 14 million to USD 4,056
million. Excluding restructuring expenses, adjusted net expenses
for services increased by USD 126 million to USD 3,988 million,
mainly due to higher expenses for regulatory projects and IT
development costs.
Pre-tax profit growth
Pre-tax profit growth in 2019 was 4.4% compared with 1.1%.
On an adjusted basis, pre-tax profit growth was positive 3.6%,
compared with negative 12.1%, and was below our target
range of 10–15% over the cycle.
Cost / income ratio
The cost / income ratio decreased to 79.1% from 80.5%. On an
adjusted basis, the ratio decreased to 78.7% from 79.9% and
was above our 2019 target of around 75%.
Net new money
Net new money inflows were USD 31.6 billion, compared with
inflows of USD 24.7 billion, reflecting an annualized net new
money growth rate of 1.4%, compared with 1.0%, and was
below our 2019 target range of 2–4%.
Invested assets
Invested assets increased by USD 375 billion to USD 2,635
billion, mainly driven by positive market performance of
USD 336 billion, net new money inflows of USD 32 billion and
positive currency effects of USD 6 billion. Mandate penetration
increased to 34.3% from 33.6%.
Personnel
Global Wealth Management employed 22,674 personnel (full-
time equivalents) as of 31 December 2019, a decrease of 944
compared with 23,618 personnel as of 31 December 2018. The
number of advisors decreased by 600 to 10,077. These
decreases reflect the effect of cost management initiatives and a
review of advisor portfolios.
87
Financial and operating performance
Financial and operating performance
Personal & Corporate Banking
Personal & Corporate Banking
Personal & Corporate Banking – in Swiss francs1
CHF million, except where indicated
Results
Net interest income
Recurring net fee income2
Transaction-based income3
Other income
Income
Credit loss (expense) / recovery
Total operating income
Total operating income
Personnel expenses
General and administrative expenses
Services (to) / from Corporate Center and other business divisions
of which: services from Corporate Center
Depreciation and impairment of property, equipment and software
Amortization and impairment of goodwill and intangible assets
Total operating expenses
Total operating expenses
Business division operating profit / (loss) before tax
Business division operating profit / (loss) before tax
Adjusted results
Total operating income as reported
Total operating income as reported
of which: gains related to investments in associates
Total operating income (adjusted)
Total operating income (adjusted)
Total operating expenses as reported
Total operating expenses as reported
of which: personnel-related restructuring expenses 4
of which: non-personnel-related restructuring expenses 4
of which: restructuring expenses allocated from Corporate Center 4,5
of which: gain related to changes to the Swiss pension plan
Total operating expenses (adjusted)
Total operating expenses (adjusted)
Business division operating profit / (loss) before tax as reported
Business division operating profit / (loss) before tax as reported
Business division operating profit / (loss) before tax (adjusted)
Business division operating profit / (loss) before tax (adjusted)
Performance measures
Pre-tax profit growth (%)
Cost / income ratio (%)
Net interest margin (bps)
Adjusted performance measures
Pre-tax profit growth (%)
Cost / income ratio (%)
88
As of or for the year ended
31.12.19
31.12.19
31.12.18
% change from
31.12.18
(1)
1
(4)
(86)
(10)
(60)
(9)
8
(20)
(5)
(4)
(6)
(2)
(19)
(9)
(1)
(2)
(3)
(19)
3
1,980
1,980
634
634
1,041
1,041
60
60
3,714
3,714
(22)
(22)
3,692
3,692
850
850
222
222
1,173
1,173
1,286
1,286
13
13
0
0
2,259
2,259
1,433
1,433
3,692
3,692
3,692
3,692
2,259
2,259
0
0
0
0
17
17
2,242
2,242
1,433
1,433
1,450
1,450
(18.6)
(18.6)
60.8
60.8
150
150
2.6
2.6
60.4
60.4
2,003
625
1,082
419
4,128
(55)
4,074
786
279
1,234
1,336
14
0
2,313
1,760
4,074
359
3,715
2,313
4
0
42
(35)
2,302
1,760
1,413
21.6
56.0
153
(8.8)
61.1
Personal & Corporate Banking – in Swiss francs (continued)1
CHF million, except where indicated
Additional information
Average attributed equity (CHF billion)6
Return on attributed equity (%)6
Risk-weighted assets (CHF billion)6
Leverage ratio denominator (CHF billion)6
Business volume for personal banking (CHF billion)
Net new business volume for personal banking (CHF billion)
Net new business volume growth for personal banking (%)7
Goodwill and intangible assets (CHF billion)
Client assets (CHF billion)8
Loans, gross (CHF billion)
Customer deposits (CHF billion)
As of or for the year ended
3311..1122..1199
31.12.18
% change from
31.12.18
88..44
1177..11
6655..00
221177..11
116688
77..33
44..77
00..00
668855
113322..22
115500..55
7.8
22.5
62.8
210.2
156
6.6
4.2
0.0
638
131.0
141.7
8
3
3
8
0
7
1
6
Secured loan portfolio as a percentage of total loan portfolio, gross (%)
Impaired loan portfolio as a percentage of total loan portfolio, gross (%)9
(1)
Personnel (full-time equivalents)
11 Prior-year comparative figures in this table have been restated for the changes in Corporate Center cost and resource allocation to the business divisions and the changes in the equity attribution framework
effective 1 January 2019. Refer to “Note 1 Basis of accounting” in the “Consolidated financial statements” section of our first quarter 2019 report for more information about the changes to the Corporate Center
cost and resource allocation to business divisions and to the “Recent developments” section of our first quarter 2019 report for more information about the changes in the equity attribution framework.
Comparatives may additionally differ as a result of adjustments following organizational changes, restatements due to the retrospective adoption of new accounting standards or changes in accounting policies, and
22 Recurring net fee income consists of fees for services provided on an ongoing basis, such as portfolio management fees, asset-based investment fund fees, custody fees and
events after the reporting period.
account-keeping fees, which are generated on client assets. 33 Transaction-based income comprises the non-recurring portion of net fee and commission income, mainly consisting of brokerage and transaction-
44 Reflects
based investment fund fees, as well as credit card fees and fees for payment transactions, together with Other net income from financial instruments measured at fair value through profit or loss.
restructuring expenses related to legacy cost programs. 55 Prior periods may include allocations (to) / from other business divisions.
66 Refer to the “Capital management” section of this report for more
information. 77 Calculated as net new business volume for the period (annualized as applicable) divided by business volume at the beginning of the period. 88 Client assets are comprised of invested assets and
other assets held purely for transactional purposes or custody only. We do not measure net new money for Personal & Corporate Banking. 99 Refer to the “Risk management and control” section of this report for
more information about (credit-)impaired exposures.
11..11
55,,114488
1.3
5,183
9922..66
92.0
89
Financial and operating performance
Financial and operating performance
Personal & Corporate Banking
2019 compared with 2018
Results
Profit before tax decreased by CHF 327 million, or 19%, to
CHF 1,433 million. Adjusted profit before tax increased by
CHF 37 million, or 3%, to CHF 1,450 million, reflecting lower
operating expenses and lower operating income. This excluded a
prior-year CHF 359 million valuation gain on our equity
ownership in SIX related to the sale of SIX Payment Services to
Worldline, a credit related to changes to our Swiss plan in 2018
and restructuring expenses.
Operating income included a CHF 73 million fee paid to
Global Wealth Management for the shift of CHF 6 billion of
business volume from Global Wealth Management to Personal &
Corporate Banking, as a result of a detailed client segmentation
review.
Operating income
Total operating income decreased by CHF 382 million, or 9%, to
CHF 3,692 million. Excluding the aforementioned valuation gain
on our equity ownership in SIX, adjusted operating income
lower
decreased by CHF 23 million, mainly
transaction-based income and lower net interest income, partly
offset by lower credit loss expenses and higher recurring net fee
income.
Net
income decreased by CHF 23 million to
CHF 1,980 million, mainly due to higher funding costs for long-
term debt that contributes to total loss-absorbing capacity and
lower banking book interest income. This was partly offset by
higher deposit revenues.
reflecting
interest
Recurring net fee income increased by CHF 9 million to
CHF 634 million, mainly reflecting higher fees from bundled
products.
Transaction-based income decreased by CHF 41 million to
CHF 1,041 million, mainly reflecting the aforementioned fee
paid to Global Wealth Management, partly offset by higher
revenues from credit card and foreign exchange transactions.
Refer to the “Group performance” section of our third quarter
2019 report for more information about the realignment of our
client coverage between Global Wealth Management and
Personal & Corporate Banking
Other income decreased by CHF 359 million to CHF 60
million. Excluding the aforementioned valuation gain on our
equity ownership in SIX, adjusted other income remained stable.
Refer to the “Recent developments” section of our fourth
quarter 2018 report for more information about the Worldline
acquisition of SIX Payment Services
We recorded a net credit loss expense of CHF 22 million
compared with CHF 55 million. This reflects stage 1 and 2 net
credit recoveries of CHF 23 million compared with CHF 0 million
for 2018, primarily attributable to a minor improvement in loan
book quality following continued positive developments of
90
selected economic input data, as well as stage 3 net credit loss
expenses of CHF 44 million compared with CHF 55 million.
Refer to “Credit risk” in the “Risk management and control” section
of this report for more information about expected credit losses
Operating expenses
Operating expenses decreased by CHF 54 million to CHF 2,259
million. Excluding a credit of CHF 35 million related to changes
to our Swiss pension plan in 2018 and restructuring expenses,
adjusted total operating expenses decreased by CHF 60 million
to CHF 2,242 million, mainly reflecting CHF 40 million lower
expenses for provisions for litigation, regulatory and similar
matters and CHF 36 million lower net expenses services to/from
Corporate Center and other business divisions.
Personnel expenses increased by CHF 64 million to CHF 850
million. Excluding the aforementioned credit related to changes to
our Swiss pension plan in 2018, adjusted personnel expenses
increased by CHF 33 million, mainly reflecting higher variable
compensation.
General and administrative expenses decreased by CHF 57
million to CHF 222 million, primarily reflecting CHF 40 million
lower expenses for provisions for litigation, regulatory and similar
matters.
Net expenses for services to/from Corporate Center and other
business divisions decreased by CHF 61 million to CHF 1,173
million. Adjusted net expenses for services decreased by CHF 36
million to CHF 1,156 million, mainly reflecting lower expenses for
regulatory projects and real estate.
Pre-tax profit growth
Pre-tax profit growth in 2019 was negative 18.6% compared
with positive 21.6%, mainly due to the aforementioned
valuation gain on our equity ownership in SIX in 2018. On an
adjusted basis, pre-tax profit growth was positive 2.6%,
compared with negative 8.8%, and was slightly below our
target range of 3–5% over the cycle.
Cost / income ratio
The cost / income ratio increased to 60.8% from 56.0%, mainly
due to the aforementioned valuation gain on our equity
ownership in SIX in 2018. On an adjusted basis, the ratio
decreased to 60.4%, compared with 61.1%, and was slightly
above our 2019 target of around 59%.
Net interest margin
The net interest margin was 150 basis points compared with
153 basis points on both a reported and adjusted basis, as net
interest income decreased and average loan volume increased.
Personnel
Personal & Corporate Banking employed 5,148 personnel
(full-time equivalents) as of 31 December 2019, a decrease of
35 compared with 5,183 personnel as of 31 December 2018.
Personal & Corporate Banking – in US dollars1
USD million, except where indicated
Results
Net interest income
Recurring net fee income2
Transaction-based income3
Other income
Income
Credit loss (expense) / recovery
TToottaall ooppeerraattiinngg iinnccoommee
Personnel expenses
General and administrative expenses
Services (to) / from Corporate Center and other business divisions
of which: services from Corporate Center
Depreciation and impairment of property, equipment and software
Amortization and impairment of goodwill and intangible assets
TToottaall ooppeerraattiinngg eexxppeennsseess
BBuussiinneessss ddiivviissiioonn ooppeerraattiinngg pprrooffiitt // ((lloossss)) bbeeffoorree ttaaxx
Adjusted results
TToottaall ooppeerraattiinngg iinnccoommee aass rreeppoorrtteedd
of which: gains related to investments in associates
TToottaall ooppeerraattiinngg iinnccoommee ((aaddjjuusstteedd))
TToottaall ooppeerraattiinngg eexxppeennsseess aass rreeppoorrtteedd
of which: personnel-related restructuring expenses 4
of which: non-personnel-related restructuring expenses 4
of which: restructuring expenses allocated from Corporate Center 4,5
of which: gain related to changes to the Swiss pension plan
TToottaall ooppeerraattiinngg eexxppeennsseess ((aaddjjuusstteedd))
BBuussiinneessss ddiivviissiioonn ooppeerraattiinngg pprrooffiitt // ((lloossss)) bbeeffoorree ttaaxx aass rreeppoorrtteedd
BBuussiinneessss ddiivviissiioonn ooppeerraattiinngg pprrooffiitt // ((lloossss)) bbeeffoorree ttaaxx ((aaddjjuusstteedd))
Performance measures
Pre-tax profit growth (%)
Cost / income ratio (%)
Net interest margin (bps)
Adjusted performance measures
Pre-tax profit growth (%)
Cost / income ratio (%)
As of or for the year ended
3311..1122..1199
31.12.18
% change from
31.12.18
11,,999922
663388
11,,004455
6600
33,,773366
((2211))
33,,771155
885566
222244
11,,118811
11,,229944
1133
00
22,,227744
11,,444411
33,,771155
33,,771155
22,,227744
00
00
1177
22,,225577
11,,444411
11,,445588
((1199..77))
6600..99
114499
00..88
6600..44
2,049
640
1,108
420
4,217
(56)
4,161
803
285
1,263
1,367
14
0
2,365
1,796
4,161
359
3,802
2,365
4
0
43
(38)
2,355
1,796
1,447
21.8
56.1
153
(8.4)
61.0
(3)
0
(6)
(86)
(11)
(63)
(11)
7
(21)
(7)
(5)
(7)
(4)
(20)
(11)
(2)
(4)
(4)
(20)
1
91
Financial and operating performance
Financial and operating performance
Personal & Corporate Banking
Personal & Corporate Banking – in US dollars (continued)1
USD million, except where indicated
Additional information
Average attributed equity (USD billion)6
Return on attributed equity (%)6
Risk-weighted assets (USD billion)6
Leverage ratio denominator (USD billion)6
Business volume for personal banking (USD billion)
Net new business volume for personal banking (USD billion)
Net new business volume growth for personal banking (%)7
Goodwill and intangible assets (USD billion)
Client assets (USD billion)8
Loans, gross (USD billion)
Customer deposits (USD billion)
As of or for the year ended
31.12.19
31.12.19
31.12.18
% change from
31.12.18
8.4
8.4
17.1
17.1
67.1
67.1
224.2
224.2
174
174
7.3
7.3
4.6
4.6
0.0
0.0
708
708
136.6
136.6
155.5
155.5
8.0
22.5
63.9
213.7
158
6.7
4.2
0.0
648
133.3
144.1
5
5
5
10
2
9
2
8
Secured loan portfolio as a percentage of total loan portfolio, gross (%)
Impaired loan portfolio as a percentage of total loan portfolio, gross (%)9
(1)
Personnel (full-time equivalents)
1 Prior-year comparative figures in this table have been restated for the changes in Corporate Center cost and resource allocation to the business divisions and the changes in the equity attribution framework
1
effective 1 January 2019. Refer to “Note 1 Basis of accounting” in the “Consolidated financial statements” section of our first quarter 2019 report for more information about the changes to the Corporate Center
cost and resource allocation to business divisions and to the “Recent developments” section of our first quarter 2019 report for more information about the changes in the equity attribution framework.
Comparatives may additionally differ as a result of adjustments following organizational changes, restatements due to the retrospective adoption of new accounting standards or changes in accounting policies, and
2 Recurring net fee income consists of fees for services provided on an ongoing basis, such as portfolio management fees, asset-based investment fund fees, custody fees and
events after the reporting period.
2
3 Transaction-based income comprises the non-recurring portion of net fee and commission income, mainly consisting of brokerage and transaction-
account-keeping fees, which are generated on client assets.
3
4 Reflects
based investment fund fees, as well as credit card fees and fees for payment transactions, together with Other net income from financial instruments measured at fair value through profit or loss.
4
6 Refer to the “Capital management” section of this report for more
5 Prior periods may include allocations (to) / from other business divisions.
restructuring expenses related to legacy cost programs.
5
6
information.
8 Client assets are comprised of invested assets and
8
other assets held purely for transactional purposes or custody only. We do not measure net new money for Personal & Corporate Banking. 9 Refer to the “Risk management and control” section of this report for
more information about (credit-)impaired exposures.
7 Calculated as net new business volume for the period (annualized as applicable) divided by business volume at the beginning of the period.
7
1.1
1.1
5,148
5,148
1.3
5,183
92.0
92.6
92.6
9
92
Asset Management
Asset Management1
USD million, except where indicated
Results
Net management fees2
Performance fees
TToottaall ooppeerraattiinngg iinnccoommee
Personnel expenses
General and administrative expenses
Services (to) / from Corporate Center and other business divisions
of which: services from Corporate Center
Depreciation and impairment of property, equipment and software
Amortization and impairment of goodwill and intangible assets
TToottaall ooppeerraattiinngg eexxppeennsseess
BBuussiinneessss ddiivviissiioonn ooppeerraattiinngg pprrooffiitt // ((lloossss)) bbeeffoorree ttaaxx
Adjusted results
TToottaall ooppeerraattiinngg iinnccoommee aass rreeppoorrtteedd
TToottaall ooppeerraattiinngg iinnccoommee ((aaddjjuusstteedd))
TToottaall ooppeerraattiinngg eexxppeennsseess aass rreeppoorrtteedd
of which: personnel-related restructuring expenses 3
of which: non-personnel-related restructuring expenses 3
of which: restructuring expenses allocated from Corporate Center 3
of which: gain related to changes to the Swiss pension plan
TToottaall ooppeerraattiinngg eexxppeennsseess ((aaddjjuusstteedd))
BBuussiinneessss ddiivviissiioonn ooppeerraattiinngg pprrooffiitt // ((lloossss)) bbeeffoorree ttaaxx aass rreeppoorrtteedd
BBuussiinneessss ddiivviissiioonn ooppeerraattiinngg pprrooffiitt // ((lloossss)) bbeeffoorree ttaaxx ((aaddjjuusstteedd))
Performance measures
Pre-tax profit growth (%)
Cost / income ratio (%)
Net new money growth excluding money market flows (%)4
Adjusted performance measures
Pre-tax profit growth (%)5
Cost / income ratio (%)
Information by business line / asset class
NNeett nneeww mmoonneeyy ((UUSSDD bbiilllliioonn))44
Equities
Fixed Income
of which: money market
Multi-asset & Solutions
Hedge Fund Businesses
Real Estate & Private Markets
TToottaall nneett nneeww mmoonneeyy
of which: net new money excluding money markets
As of or for the year ended
3311..1122..1199
31.12.18
% change from
31.12.18
11,,777788
116600
11,,993388
772222
119977
448866
553311
11
00
11,,440066
553322
11,,993388
11,,993388
11,,440066
66
77
2200
11,,337733
553322
556655
2244..99
7722..66
11..88
1177..11
7700..88
2233..88
((99..22))
55..22
55..11
((33..22))
11..33
1177..88
1122..66
1,772
80
1,852
703
202
518
563
2
1
1,426
426
1,852
1,852
1,426
23
10
33
(10)
1,370
426
482
(24.3)
77.0
3.5
(0.8)
74.0
8.8
8.3
7.5
13.6
0.3
1.1
32.2
24.7
0
100
5
3
(3)
(6)
(6)
(53)
(1)
25
5
5
(1)
0
25
17
93
Financial and operating performance
Financial and operating performance
Asset Management
Asset Management (continued)1
USD million, except where indicated
Invested assets (USD billion)4
Invested assets (USD billion)4
Equities
Fixed Income
of which: money market
Multi-asset & Solutions
Hedge Fund Businesses
Real Estate & Private Markets
Total invested assets
Total invested assets
of which: passive strategies
Information by region
Invested assets (USD billion)
Invested assets (USD billion)
Americas
Asia Pacific
Europe, Middle East and Africa (excluding Switzerland)
Switzerland
Total invested assets
Total invested assets
Information by channel
Invested assets (USD billion)
Invested assets (USD billion)
Third-party institutional
Third-party wholesale
UBS’s wealth management businesses
Total invested assets
Total invested assets
As of or for the year ended
31.12.19
31.12.19
31.12.18
% change from
31.12.18
367
367
253
253
102
102
155
155
42
42
86
86
903
903
374
374
206
206
155
155
236
236
306
306
903
903
552
552
98
98
253
253
903
903
272
253
95
132
42
82
781
298
192
141
189
259
781
484
78
219
781
35
0
6
17
(1)
5
16
26
7
11
25
18
16
14
25
15
16
Additional information
Average attributed equity (USD billion)6
Return on attributed equity (%)6
Risk-weighted assets (USD billion)6
6
Leverage ratio denominator (USD billion)6
(2)
Goodwill and intangible assets (USD billion)
0
Net margin on invested assets (bps)7
22
Gross margin on invested assets (bps)
2
(1)
Personnel (full-time equivalents)
1 Prior-year comparative figures in this table have been restated for the changes in Corporate Center cost and resource allocation to the business divisions and the changes in the equity attribution framework
1
effective 1 January 2019. Refer to “Note 1 Basis of accounting” in the “Consolidated financial statements” section of our first quarter 2019 report for more information about the changes to the Corporate Center
cost and resource allocation to business divisions and to the “Recent developments” section of our first quarter 2019 report for more information about the changes in the equity attribution framework.
Comparatives may additionally differ as a result of adjustments following organizational changes, restatements due to the retrospective adoption of new accounting standards or changes in accounting policies, and
events after the reporting period. 2 Net management fees include transaction fees, fund administration revenues (including net interest and trading income from lending activities and foreign exchange hedging as
3 Reflects restructuring expenses related to legacy cost
part of the fund services offering), gains or losses from seed money and co-investments, funding costs, and other items that are not performance fees.
3
4 Effective 1 January 2019, certain assets have been reclassified between asset classes to better reflect their underlying nature, with prior-period
programs as well as expenses for new restructuring initiatives.
4
6 Refer to the “Capital management” section of this report for
information restated. The adjustments have no effect on total net new money and total invested assets.
6
more information. 7 Calculated as operating profit before tax (annualized as applicable) divided by average invested assets.
1.8
23.5
4.3
5.0
1.4
5
23
2,301
1.8
1.8
29.7
29.7
4.6
4.6
5.0
5.0
1.4
1.4
6
6
23
23
2,284
2,284
5 Excluding the effect of business exits.
5
(1)
2
7
94
2019 compared with 2018
Results
Profit before tax increased by USD 106 million, or 25%, to
USD 532 million. Excluding a credit of USD 10 million related to
changes to our Swiss pension plan in the first quarter of 2018
and restructuring expenses, adjusted profit before tax increased
by USD 83 million, or 17%, to USD 565 million, reflecting higher
operating income and stable operating expenses.
Operating income
Total operating income increased by USD 86 million, or 5%, to
USD 1,938 million.
Net management fees
increased by USD 6 million to
USD 1,778 million, reflecting the effect of higher average
invested assets, partly offset by continued pressure on margins.
Performance fees increased by USD 80 million to USD 160
million, mainly driven by increases in performance fees in
Equities and in Hedge Fund Businesses, reflecting strong
investment performance in a constructive market environment.
Operating expenses
Total operating expenses decreased by USD 20 million, or 1%,
to USD 1,406 million, while adjusted total operating expenses
were broadly stable at USD 1,373 million.
Personnel expenses increased by USD 19 million to USD 722
million. Excluding the aforementioned credit related to
changes to our Swiss pension plan in the first quarter of 2018
and personnel-related
restructuring expenses, adjusted
personnel expenses increased by USD 26 million to USD 716
million, driven by higher expenses for variable compensation.
General and administrative expenses decreased by USD 5
million to USD 197 million. Adjusted general and administrative
expenses were broadly stable at USD 190 million.
Net expenses for services to/from Corporate Center and other
business divisions decreased by USD 32 million to USD 486
million. Adjusted net expenses for services from Corporate Center
and other business divisions decreased by USD 19 million to
USD 466 million, primarily driven by a shift of market data service
charges from Group Operations to Asset Management, which
were partly offset by higher expenses from Group Technology.
Pre-tax profit growth
On a reported basis, 2019 pre-tax profit growth was positive
24.9% compared with negative 24.3%. On an adjusted basis,
pre-tax profit growth was positive 17.1% compared with
negative 0.8% and was above our target of around 10% over
the cycle.
Cost / income ratio
The cost / income ratio was 72.6% compared with 77.0%. On
an adjusted basis, the ratio was 70.8% compared with 74.0%,
which is below our 2019 target of around 72%.
Net new money
Net new money was USD 17.8 billion, compared with inflows of
USD 32.2 billion. Excluding money market flows, net new
money was USD 12.6 billion compared with inflows of USD 24.7
billion, primarily driven by our third-party wholesale and UBS’s
wealth management businesses channels. The net new money
growth rate, excluding money market flows, was positive 1.8%,
compared with positive 3.5%, and was below our 2019 target
range of 3–5%. Net inflows were mainly driven by Europe and
Switzerland.
Invested assets
Invested assets increased to USD 903 billion from USD 781
billion, mainly due to positive market performance of USD 101
billion, net new money inflows of USD 18 billion, and positive
foreign currency translation effects of USD 3 billion.
Personnel
Asset Management employed 2,284 personnel
(full-time
equivalents) as of 31 December 2019, a decrease of 17
compared with 2,301 personnel as of 31 December 2018.
95
Financial and operating performance
Financial and operating performance
Asset Management
Investment performance
2019 saw most risk assets perform strongly. The US Federal
Reserve dramatically reversed its policy guidance in early 2019,
triggering a significant rally from depressed valuations and
supporting markets into the year-end.
In 2019, 79% of our active traditional funds outperformed
their benchmark and 69% outperformed peer medians. Long-
term performance remains strong despite a challenging 2018,
with 85% outperforming
their benchmark and 82%
outperforming peer medians over five years.
Investment performance as of 31 December 2019
Active funds versus benchmark
Percentage of fund assets exceeding benchmark
Equities1
Fixed income1
Multi-asset1
Total traditional investments
Total traditional investments
Active funds versus peers
Percentage of fund assets ranking in first or second quartile / exceeding peer index
Equities1
Fixed income1
Multi-asset1
Total traditional investments
Total traditional investments
Passive funds tracking accuracy
Annualized
1 year
3 years
5 years
82
98
17
79
79
79
51
69
69
69
87
100
48
86
86
92
58
75
77
77
89
100
33
85
85
92
77
72
82
82
Percentage of passive fund assets within applicable tracking tolerance
All asset classes2
1 Percentage of active fund assets above benchmark (gross of fees) / peer median. Based on the universe of Europe-domiciled active wholesale funds available to UBS’s wealth management businesses and other
1
wholesale intermediaries as of 31 December 2019. Source of comparison versus peers: Thomson Reuters LIM (Lipper Investment Management). Source of comparison versus benchmark: UBS. Universe represents
approximately 64% of all active traditional fund assets (Equities, Fixed Income excluding money market, and Multi-asset), 24% of all actively managed traditional assets including segregated accounts (Equities,
Fixed Income excluding money market, and Multi-asset) and 17% of all actively managed assets including segregated accounts (Equities, Fixed Income excluding money market, Multi-asset, Hedge Fund Businesses,
and Real Estate & Private Markets) as of 31 December 2019. 2 Percentage of passive fund assets within applicable tracking tolerance on a gross of fees basis. Tracking accuracy information represents a universe
of Europe-domiciled institutional and wholesale funds representing approximately 40% of our total passive invested assets as of 31 December 2019. Source: UBS.
93
93
94
2
96
Investment Bank
Investment Bank1
USD million, except where indicated
Results
CCoorrppoorraattee CClliieenntt SSoolluuttiioonnss
Advisory
Equity Capital Markets
Debt Capital Markets
Financing Solutions
Risk Management
IInnvveessttoorr CClliieenntt SSeerrvviicceess
Equities
Foreign Exchange, Rates and Credit
Income
Credit loss (expense) / recovery
TToottaall ooppeerraattiinngg iinnccoommee
Personnel expenses
General and administrative expenses
Services (to) / from Corporate Center and other business divisions
of which: services from Corporate Center
Depreciation and impairment of property, equipment and software
Amortization and impairment of goodwill and intangible assets
TToottaall ooppeerraattiinngg eexxppeennsseess
BBuussiinneessss ddiivviissiioonn ooppeerraattiinngg pprrooffiitt // ((lloossss)) bbeeffoorree ttaaxx
Adjusted results
TToottaall ooppeerraattiinngg iinnccoommee aass rreeppoorrtteedd
TToottaall ooppeerraattiinngg iinnccoommee ((aaddjjuusstteedd))
TToottaall ooppeerraattiinngg eexxppeennsseess aass rreeppoorrtteedd
of which: personnel-related restructuring expenses 2
of which: non-personnel-related restructuring expenses 2
of which: restructuring expenses allocated from Corporate Center 2
of which: gain related to changes to the Swiss pension plan
of which: impairment of goodwill
TToottaall ooppeerraattiinngg eexxppeennsseess ((aaddjjuusstteedd))
BBuussiinneessss ddiivviissiioonn ooppeerraattiinngg pprrooffiitt // ((lloossss)) bbeeffoorree ttaaxx aass rreeppoorrtteedd
BBuussiinneessss ddiivviissiioonn ooppeerraattiinngg pprrooffiitt // ((lloossss)) bbeeffoorree ttaaxx ((aaddjjuusstteedd))
As of or for the year ended
3311..1122..1199
31.12.18
% change from
31.12.18
22,,226677
770077
663311
665522
227700
77
55,,003322
33,,445533
11,,557799
77,,229999
((3300))
77,,226699
22,,774488
668888
22,,992266
22,,998800
88
111155
66,,448855
778844
77,,226699
77,,226699
66,,448855
8844
77
7777
111100
66,,220088
778844
11,,006611
2,621
717
785
769
278
72
5,458
3,850
1,609
8,079
(38)
8,041
2,941
651
2,942
2,995
8
12
6,554
1,486
8,041
8,041
6,554
16
11
166
(5)
6,367
1,486
1,674
(13)
(1)
(20)
(15)
(3)
(90)
(8)
(10)
(2)
(10)
(22)
(10)
(7)
6
(1)
(1)
(9)
833
(1)
(47)
(10)
(10)
(1)
(3)
(47)
(37)
97
Financial and operating performance
Financial and operating performance
Investment Bank
Investment Bank (continued)1
USD million, except where indicated
Performance measures
Return on attributed equity (%)3
Cost / income ratio (%)
Adjusted performance measures
Return on attributed equity (%)3
Cost / income ratio (%)
As of or for the year ended
31.12.19
31.12.19
31.12.18
% change from
31.12.18
6.4
6.4
88.9
88.9
8.6
8.6
85.1
85.1
11.5
81.1
12.9
78.8
Additional information
Pre-tax profit growth (%)
Adjusted pre-tax profit growth (%)
Average attributed equity (USD billion)3
Risk-weighted assets (USD billion)3
Return on risk-weighted assets, gross (%)
Leverage ratio denominator (USD billion)3
Return on leverage ratio denominator, gross (%)
Goodwill and intangible assets (USD billion)
Compensation ratio (%)
Average VaR (1-day, 95% confidence, 5 years of historical data)
Impaired loan portfolio as a percentage of total loan portfolio, gross (%)4,5
Personnel (full-time equivalents)6
2
1 Prior-year comparative figures in this table have been restated for the changes in Corporate Center cost and resource allocation to the business divisions and the changes in the equity attribution framework
1
effective 1 January 2019. Refer to “Note 1 Basis of accounting” in the “Consolidated financial statements” section of our first quarter 2019 report for more information about the changes to the Corporate Center
cost and resource allocation to business divisions and to the “Recent developments” section of our first quarter 2019 report for more information about the changes in the equity attribution framework.
Comparatives may additionally differ as a result of adjustments following organizational changes, restatements due to the retrospective adoption of new accounting standards or changes in accounting policies, and
4 Refer to the “Risk
3 Refer to the “Capital management” section of this report for more information.
events after the reporting period.
4
3
management and control” section of this report for more information about (credit-)impaired loan exposures.
5 Impaired loan portfolio as a percentage of total loan portfolio, gross, as of 31 December 2018 has
5
been restated, resulting in a decrease of 0.1%. 6 Personnel (full-time equivalents) as of 31 December 2019 has been amended compared with our fourth quarter 2019 report, resulting in a decrease of 1.
(47.3)
(47.3)
(36.6)
(36.6)
12.3
12.3
81.1
81.1
8.2
8.2
293.2
293.2
2.5
2.5
0.0
0.0
37.7
37.7
9
9
0.7
0.7
5,331
5,331
36.7
24.7
13.0
93.2
9.0
283.4
2.6
0.1
36.4
11
1.4
5,205
2 Reflects restructuring expenses related to legacy cost programs.
2
(5)
(13)
(16)
(96)
3
6
98
2019 compared with 2018
Results
Profit before tax decreased by USD 702 million, or 47%, to
USD 784 million. Excluding restructuring expenses and a
goodwill charge, adjusted profit before tax decreased by
USD 613 million, or 37%, to USD 1,061 million. This was driven
by lower operating income, partly offset by lower operating
expenses.
Operating income
Total operating income decreased by USD 772 million, or 10%,
to USD 7,269 million. The prior year included net income of
around USD 100 million, consisting mainly of previously deferred
day-1 profits that were subsequently recognized as a result of
enhanced observability and revised valuations in the funding
curve used to value UBS interest rate-linked notes, and USD 53
million of revenues from Group Treasury for the rebalancing of
the Group’s currency exposures in connection with the change
of functional and presentation currencies. Excluding these items,
total operating income decreased 8%. Net credit loss expense
was USD 30 million compared with USD 38 million.
Operating income by business unit
Corporate Client Solutions
Corporate Client Solutions revenues decreased by USD 354
million, or 13%, to USD 2,267 million, as a result of lower
revenues across all income lines.
Advisory revenues decreased by USD 10 million, or 1%, to
USD 707 million, reflecting lower revenues from merger and
acquisition transactions, while the global fee pool decreased
10%. Lower revenues from public transactions were partly offset
by higher revenues from private transactions.
Equity Capital Markets revenues decreased 20% to USD 631
million from a stronger prior year of USD 785 million, largely
driven by lower revenues from private transactions. Revenues
from public offerings were also lower, against a decrease in the
global fee pool of 5%.
Debt Capital Markets revenues decreased 15% to USD 652
million from USD 769 million, mainly reflecting lower leveraged
finance revenues, against a global fee pool decrease of 14%.
Financing Solutions revenues decreased 3% to USD 270
million from USD 278 million, reflecting lower levels of client
activity.
Risk Management revenues decreased 90% to USD 7 million
from USD 72 million, mainly due to lower gains on a smaller
portfolio of loans that were largely exited in 2018, and due to
lower gains on a restructured debt position.
Investor Client Services
Investor Client Services revenues decreased by USD 426 million,
or 8%, to USD 5,032 million, reflecting lower revenues in both
Equities and Foreign Exchange, Rates and Credit.
Equities
Equities revenues decreased by USD 397 million, or 10%, to
USD 3,453 million, with lower revenues across all product lines.
Cash
revenues decreased
to USD 1,169 million
from
USD 1,258 million, mainly reflecting lower market volumes.
Derivatives revenues decreased to USD 851 million from
USD 1,041 million, reflecting a strong prior year and lower client
activity levels.
Financing Services revenues decreased to USD 1,452 million
from USD 1,610 million, primarily driven by prime brokerage.
Foreign Exchange, Rates and Credit
Foreign Exchange, Rates and Credit revenues decreased 2% to
USD 1,579 million from USD 1,609 million, primarily due to the
second quarter of 2018 including net income of around
USD 100 million, consisting mainly of the aforementioned
previously deferred day-1 profits. The comparison of Foreign
Exchange, Rates and Credit revenues was also affected by the
fourth quarter of 2018, including USD 53 million of the
aforementioned revenues from Group Treasury. Excluding these
items, Foreign Exchange, Rates and Credit revenues increased
9%, reflecting an increase in Rates and Credit revenues, mainly
due to higher client activity levels in a more constructive trading
environment, partly offset by a decrease in Foreign exchange
revenues, reflecting lower levels of volatility and client activity
levels.
Operating expenses
Total operating expenses decreased by USD 69 million, or 1%,
to USD 6,485 million, and adjusted operating expenses
decreased by USD 159 million, or 3%, to USD 6,208 million.
Personnel expenses decreased to USD 2,748 million from
USD 2,941 million, and adjusted personnel expenses decreased
to USD 2,664 million from USD 2,930 million, mainly reflecting
lower variable compensation expenses.
General and administrative expenses increased to USD 688
million from USD 651 million, and on an adjusted basis
increased to USD 682 million from USD 640 million, mostly due
to the prior year including a USD 64 million net release of
provisions for litigation, regulatory and similar matters.
Net expenses for services to/from Corporate Center and other
business divisions decreased
from
USD 2,942 million. Excluding restructuring expenses, adjusted
net expenses increased to USD 2,849 million from USD 2,776
million, mainly due to higher expenses for IT development and
amortization of software and compliance costs.
to USD 2,926 million
99
Financial and operating performance
Risk-weighted assets
Risk-weighted assets (RWA) decreased by USD 12 billion to
USD 81 billion as of 31 December 2019, driven by lower market
risk RWA, reflecting lower average regulatory and stressed
value-at-risk levels.
Refer to the “Capital management” section of this report for
more information
Leverage ratio denominator
The leverage ratio denominator (LRD) increased by USD 10
billion to USD 293 billion as of 31 December 2019, due to an
increase
reflecting market
appreciation, partly offset by lower derivative and securities
financing transaction exposures.
trading portfolio assets,
in
Refer to the “Capital management” section of this report for
more information
Personnel
The Investment Bank employed 5,331 personnel (full-time
equivalents) as of 31 December 2019, an increase of 126
compared with 5,205 personnel as of 31 December 2018,
primarily as a result of the consolidation of the Documentation
Unit and Client Hub into the Investment Bank.
Financial and operating performance
Investment Bank
Amortization and impairment of goodwill and intangible assets
increased by USD 103 million to USD 115 million. Excluding a
USD 110 million goodwill charge, amortization and impairment of
goodwill and intangibles assets on an adjusted basis decreased by
USD 7 million to USD 6 million. As we continue to realign our
Investment Bank and execute on a number of strategic initiatives
to drive profitable growth, IAS 36, Impairment of Assets, requires
us to give consideration to the range of possible forecast cash
flows and uncertainties in macroeconomic factors that currently
exist when determining the recoverability of goodwill. With this
write-down, goodwill in the Investment Bank is now nil.
Cost / income ratio
The cost / income ratio increased to 88.9% from 81.1%. On an
adjusted basis, the cost / income ratio increased to 85.1% from
78.8%, and was above our 2019 target range of around 78%.
Return on attributed equity
Return on attributed equity for 2019 was 6.4%, and 8.6% on
an adjusted basis, below our target of around 15% over the
cycle.
Refer to “Equity attribution and return on attributed equity” in
the “Capital management” section of this report for more
information
100
Corporate Center
Corporate Center1,2
USD million, except where indicated
Results
OOppeerraattiinngg pprrooffiitt // ((lloossss)) bbeeffoorree ttaaxx
of which: Group Treasury
of which: Non-core and Legacy Portfolio
of which: Retained Services
Adjusted results
TToottaall ooppeerraattiinngg iinnccoommee aass rreeppoorrtteedd
of which: gains on sale of real estate
of which: gain / (loss) on sale of subsidiaries and businesses
of which: remeasurement loss related to UBS Securities China
of which: net foreign currency translation gains / (losses)
of which: net gains / (losses) from properties held for sale
TToottaall ooppeerraattiinngg iinnccoommee ((aaddjjuusstteedd))
TToottaall ooppeerraattiinngg eexxppeennsseess aass rreeppoorrtteedd
of which: gain related to changes to the Swiss pension plan
of which: net restructuring (credits) / expenses
TToottaall ooppeerraattiinngg eexxppeennsseess ((aaddjjuusstteedd))
OOppeerraattiinngg pprrooffiitt // ((lloossss)) bbeeffoorree ttaaxx aass rreeppoorrtteedd
OOppeerraattiinngg pprrooffiitt // ((lloossss)) bbeeffoorree ttaaxx ((aaddjjuusstteedd))
As of or for the year ended
3311..1122..1199
31.12.18
% change from
31.12.18
((557777))
((6699))
((8844))
((442244))
((338855))
((3355))
((2299))
((332211))
119922
((22))
119944
((557777))
((551155))
(971)
(445)
(128)
(398)
(626)
31
25
(270)
(413)
346
(122)
(4)
472
(971)
(885)
(41)
(84)
(35)
7
(38)
(22)
(44)
(49)
(59)
(41)
(42)
Additional information
Average attributed equity (USD billion)3
Risk-weighted assets (USD billion)3
Leverage ratio denominator (USD billion)3
(12)
Personnel (full-time equivalents)4
8
11 Prior-year comparative figures in this table have been restated for the changes in Corporate Center cost and resource allocation to the business divisions and the changes in the equity attribution framework
effective 1 January 2019. Refer to “Note 1 Basis of accounting” in the “Consolidated financial statements” section of our first quarter 2019 report for more information about the changes to the Corporate Center
cost and resource allocation to business divisions and to the “Recent developments” section of our first quarter 2019 report for more information about the changes in the equity attribution framework.
Comparatives may additionally differ as a result of adjustments following organizational changes, restatements due to the retrospective adoption of new accounting standards or changes in accounting policies, and
events after the reporting period. 22 The presentation of reported results in this table has been amended to focus on operating profit / (loss), providing a breakdown into Group Treasury, Non-core and Legacy
Portfolio, and Retained Services. 33 Refer to the “Capital management” section of this report for more information. 44 Personnel (full-time equivalents) as of 31 December 2019 has been amended compared with
our fourth quarter 2019 report, resulting in a decrease of 54.
7766..22
3333,,116644
86.5
30,581
2288..33
13.3
28.1
1155..11
13
1
101
Financial and operating performance
Financial and operating performance
Corporate Center
2019 compared with 2018
Results
Corporate Center recorded a loss before tax of USD 577 million,
compared with a loss of USD 971 million in the prior year. The
adjusted loss before tax was USD 515 million compared with a
loss of USD 885 million, excluding the remeasurement loss
related to the increase of our shareholding in UBS Securities
China in 2018, a prior-year credit related to changes to our
Swiss pension plan and other adjusting items.
Group
Treasury
Group Treasury
The Group Treasury result was a loss of USD 69 million,
compared with a loss of USD 445 million. The adjusted loss
before tax was USD 33 million, compared with a loss of
USD 443 million, excluding net foreign currency translation
losses in 2019 and restructuring expenses.
income
accounting
asymmetries that were positive USD 103 million, compared with
negative USD 77 million. Revenues relating to centralized Group
Treasury risk management services were negative USD 168
million, compared with negative revenues of USD 320 million.
Revenues related to hedge accounting ineffectiveness were
positive USD 118 million, compared with positive USD 25
million. Adjusted operating expenses increased to USD 93
million, compared with USD 81 million.
included
from
Non-core and Legacy Portfolio
The Non-core and Legacy Portfolio result was a loss of USD 84
million, compared with a loss of USD 128 million. The improved
result was mainly due to lower operating expenses driven by the
release of litigation provisions and decreased net expenses for
services from business divisions and other Corporate Center
units. Net operating income decreased, mainly due to 2018
including higher valuation gains on auction rate securities. This
was partly offset by a gain related to the settlement of a
litigation claim and income related to a claim on a defaulted
counterparty position.
Retained Services
The Retained Services result was a loss of USD 424 million,
compared with a loss of USD 398 million. 2019 included losses
from the remeasurement of properties reclassified as properties
held for sale, while 2018 included gains on sale of real estate, a
gain on the sale of subsidiaries and businesses and the
remeasurement loss related to the increase of our shareholding
in UBS Securities China. Excluding the aforementioned adjusting
items and restructuring expenses, the adjusted result was
negative USD 400 million, compared with negative USD 317
million, mainly due to higher funding costs related to deferred
tax assets, reflecting higher interest rates.
Personnel
As of 31 December 2019, Corporate Center employed 33,164
personnel (full-time equivalents), a net increase of 2,583
compared with 31 December 2018. The increase was mainly
driven by the ongoing insourcing of certain activities from third-
party vendors to our Business Solutions Centers, resulting in a
decrease of approximately 2,200 outsourced staff.
102
Risk, treasury
and capital
management
Management report
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), Presentation of Financial Statements, form
part of the financial statements included in the “Consolidated financial statements” section of this report and audited by the
independent registered public accounting firm Ernst & Young Ltd, Basel. This information is marked as “Audited” within this
section of the report. The risk profile of UBS AG consolidated does not differ materially from that of UBS Group AG
consolidated. Audited information provided in the “Risk management and control” and “Treasury management” sections
applies to both UBS Group AG consolidated and UBS AG consolidated.
Signposts
The Audited | signpost that is displayed at the beginning of a section, table or chart indicates that those items have been audited. A triangle symbol – –
indicates the end of the audited section, table or chart.
Table of contents
107
105
111
109
108
105
Risk management and control
Overview of risks arising from our business activities
Risk categories
Top and emerging risks
Risk governance
Risk appetite framework
Internal risk reporting
Risk measurement
Credit risk
119
138 Market risk
Country risk
Operational risk
115
116
153
148
156
156
170
173
174
175
175
177
180
185
188
190
192
Treasury management
Balance sheet, liquidity and funding management
Off-balance sheet
Currency management
Cash flows
Capital management
Capital management objectives, planning and activities
Swiss SRB total loss-absorbing capacity framework
Total loss-absorbing capacity
Risk-weighted assets
Leverage ratio denominator
Equity attribution and return on attributed equity
UBS shares
104
Risk management and control
Overview of risks arising from our business activities
The scale of our business activities is dependent on the capital
we have available to cover the risks in our businesses, the size of
our on- and off-balance sheet assets through their contribution
to our capital, leverage and liquidity ratios, and our risk appetite.
Our overall credit risk profile remained broadly unchanged
in 2019 and we continued to manage market risks at generally
low levels.
business divisions and Corporate Center. This illustrates how the
activities in our business divisions and Corporate Center are
captured in the risk measures mentioned above the table, and it
illustrates their financial performance in the context of these
measures.
Refer to the “Capital management” section of this report for
more information about RWA, LRD and our equity attribution
Operational resilience, conduct and prevention of financial
framework
crime remain key focus topics.
risk-weighted assets
The “Risk measures and performance” table on the next page
shows
ratio
denominator (the LRD) and risk-based capital (RBC), as well as
attributed tangible equity, total assets and operating profit
before tax on both a reported and adjusted basis for our
leverage
(RWA),
the
Refer to “Statistical measures” in this section for more
information about RBC
Refer to the “Performance of our business divisions and
Corporate Center – reported and adjusted” table in the “Group
performance” section of this report for more information
105
Risk, treasury and capital management
Risk, treasury and capital management
Risk management and control
Key risks, risk measures and performance by business division and Corporate Center
Business divisions and Corporate
Business divisions and Corporate
Center
Center
Global Wealth
Global Wealth
Management
Management
Personal & Corporate
Personal & Corporate
Banking
Banking
Asset Management
Asset Management
Investment Bank
Investment Bank
Corporate Center
Corporate Center
Key risks arising from business
Key risks arising from business
activities
activities
Small amounts of credit
and market risk
Credit risk from lending
Credit risk
against securities collateral
and mortgages, and a
small amount of derivatives
trading activity
Credit risk from retail
Credit risk
business, mortgages,
secured and unsecured
corporate lending, and a
small amount of derivatives
trading activity
Market risk from municipal
Market risk
securities and taxable
fixed-income securities
Minimal contribution to
market risk
market risk
Credit and market risk
Credit
market risk
arising from management
of the Group’s balance
sheet, capital, profit or loss
and liquidity portfolios
Credit risk from lending
Credit risk
(take and hold as well as
temporary loan
underwriting activities),
derivatives trading and
securities financing
Market risk from primary
Market risk
underwriting activities and
secondary trading
Operational risk, which includes compliance and conduct risks, is an inevitable consequence of being in business, as losses can result from inadequate or failed internal processes,
Operational risk
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.
Risk measures and performance
USD billion, as of or for the year ended
Risk-weighted assets1
of which: credit and counterparty credit risk
of which: market risk
of which: operational risk
Leverage ratio denominator1
Risk-based capital2
Average attributed tangible equity3
Total assets
Operating profit / (loss) before tax (as reported)
Operating profit / (loss) before tax (adjusted)4
Global Wealth
Global Wealth
Management
Management
78.1
78.1
35.0
35.0
0.8
0.8
35.9
35.9
312.7
312.7
6.6
6.6
11.5
11.5
309.8
309.8
3.4
3.4
3.5
3.5
31.12.19
31.12.19
Personal &
Personal &
Corporate
Corporate
Asset
Asset
Banking Management
Banking Management
4.6
4.6
1.8
1.8
0.0
0.0
2.0
2.0
5.0
5.0
0.4
0.4
0.4
0.4
34.6
34.6
0.5
0.5
0.6
0.6
67.1
67.1
57.3
57.3
0.0
0.0
7.7
7.7
224.2
224.2
4.9
4.9
8.4
8.4
209.4
209.4
1.4
1.4
1.5
1.5
31.12.18
Investment
Investment
Bank
Bank
81.1
81.1
50.6
50.6
4.6
4.6
22.5
22.5
293.2
293.2
7.0
7.0
12.2
12.2
315.9
315.9
0.8
0.8
1.1
1.1
Corporate
Corporate
Center
Center
28.3
28.3
8.3
8.3
1.1
1.1
9.4
9.4
76.2
76.2
16.1
16.1
15.1
15.1
102.6
102.6
(0.6)
(0.6)
(0.5)
(0.5)
Group
Group
259.2
259.2
153.0
153.0
6.6
6.6
77.5
77.5
911.3
911.3
35.0
35.0
47.6
47.6
972.2
972.2
5.6
5.6
6.0
6.0
Personal &
Corporate
USD billion, as of or for the year ended
Risk-weighted assets1
Group
263.7
147.9
of which: credit and counterparty credit risk
20.0
of which: market risk
77.6
of which: operational risk
Leverage ratio denominator1
904.6
Risk-based capital2
33.3
Average attributed tangible equity3
45.9
958.4
Total assets
6.0
Operating profit / (loss) before tax (as reported)
Operating profit / (loss) before tax (adjusted)4
6.1
1 Refer to the “Capital management” section of this report for more information. 2 Refer to “Statistical measures” in this section for more information on risk-based capital. 3 Average attributed tangible equity
1
of the business divisions and Corporate Center as of 31 December 2018 has been restated for the changes in equity attribution in the first quarter of 2019. Refer to the “Significant accounting and financial
4 Refer to the “Performance of our business divisions and Corporate Center – reported and adjusted” table in the “Group performance” section of
reporting changes” section in this report for more information.
4
this report for more information.
Asset
Banking Management
4.3
1.8
0.0
2.0
5.0
0.4
0.4
28.1
0.4
0.5
Global Wealth
Management
74.3
32.5
1.3
36.0
315.8
5.0
11.2
313.7
3.3
3.3
Investment
Bank
93.2
51.3
16.8
22.5
283.4
6.6
12.9
302.1
1.5
1.7
Corporate
Center
28.1
7.7
1.9
9.4
86.5
16.7
13.3
113.7
(1.0)
(0.9)
63.9
54.7
0.0
7.7
213.7
4.5
8.0
200.7
1.8
1.4
2
3
106
Risk categories
We categorize the risk exposures of our business divisions and Corporate Center as outlined in the table below.
Risk definitions
Risk
managed by
Independent
oversight by
Captured
in our risk
appetite
framework
Primary risks: the risks that our businesses may take to generate a return
Audited | Credit risk: the risk of loss resulting from the failure of a client or counterparty to meet its contractual obligations toward
UBS. This includes settlement risk and loan underwriting risk.
Business
management
Risk Control
Settlement risk: the risk of loss resulting from transactions that involve exchange of value (e.g., security versus cash) where we
must 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 that are intended for further
distribution.
Audited | Market risk (traded and non-traded): the risk of loss resulting from adverse movements in market variables. Market
variables include observable variables, such as interest rates, foreign exchange rates, equity prices, credit spreads and commodity
(including precious metal) prices, and variables that may be unobservable or only indirectly observable, such as volatilities and
correlations. 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 to which we are
exposed through tradable securities or derivatives referencing the issuer.
Investment risk: issuer risk associated with positions held as financial investments.
Business
management and
Group Treasury
Risk Control
Country risk: the risk of losses resulting from country-specific events. It includes transfer risk, whereby a country’s authorities prevent or
restrict the payment of an obligation, as well as systemic risk events arising from country-specific political or macroeconomic developments.
Business
management
Risk Control
Consequential risks: the risks to which our businesses are exposed as a consequence of being in business
Audited | Liquidity risk: the risk that the bank will not be able to efficiently meet both expected and unexpected current and forecast
cash flows and collateral needs without affecting either daily operations or the financial condition of the firm.
Audited | Funding risk: the risk that the bank will be unable, on an ongoing basis, to borrow funds in the market on an unsecured
(or even secured) basis at an acceptable price to fund actual or proposed commitments; i.e., the risk that UBS s funding capacity is not
sufficient to support the firm s current business and desired strategy.
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 the US dollar.
’
’
Group Treasury
Risk Control
Group Treasury
Risk Control
Operational risk: the risk resulting from inadequate or failed internal processes, people and systems, or from external causes
(deliberate, accidental or natural) that have an impact (either financial or non-financial) on UBS, its clients or the markets in which it
operates. Events may be direct financial losses or indirect in the form of revenue forgone as a result of business suspension. They may
also result in damage to our reputation and to our franchise that has longer-term financial consequences.
Business
management
Group Compliance,
Regulatory & Gov-
ernance (GCRG)
Legal
Legal risk: the financial or reputational implications resulting from the risk of: (i) being held liable for a breach of applicable laws,
rules or regulations; (ii) being held liable for a breach of contractual or other legal obligations; (iii) an inability or failure to enforce
or protect contractual rights or non-contractual rights sufficiently to protect UBS’s interests, including the risk of being party to
a claim in respect of any of the above (and the risk of loss of attorney-client privilege in the context of any such claim); (iv) a failure
to adequately develop, supervise and resource legal teams or adequately supervise external legal counsel advising on business
legal risk and other matters; and (v) a failure to adequately manage any potential, threatened and commenced litigation and legal
proceedings, including civil, criminal, arbitration and regulatory proceedings, and/or litigation risk or any dispute or investigation
that may lead to litigation or threat of any litigation.
Conduct risk: 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 risk incurred by the firm by not adhering to the applicable laws, rules and regulations, and our own internal
standards.
Financial crime risk: the risk that UBS fails to detect criminal activities, including internal and external theft and fraud, money
laundering, bribery and corruption, fails to comply with sanctions and embargoes, or fails to report or respond to requests from
relevant authorities related to these matters.
Cybersecurity and information security risk: the risk of a material impact from an external or internal attack on our
information systems with the purpose of data theft, fraud or denial of service. Cyberattacks are manifestations of a cyber threat
into an act of aggression or criminal activity causing financial, regulatory or reputational harm or loss.
Pension risk: the risk of a negative impact on our capital 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 risk that UBS supports clients, or sources from suppliers, who cause or con tribute to severe envi-
ronmental damage or human rights infringements. Environmental and social risks can also arise if UBS’s operational activities and its
employees (or contractors working on behalf of UBS) fail to operate within relevant environmental and human rights regulations. Environ-
mental and social risks (including human rights and climate-related risks) may result in adverse financial and reputation impacts for UBS.
Refer to the “Management of environmental and social risks” section of the Sustainability Report 2019
Model risk: the risk of adverse consequences via financial loss or non-financial impact (e.g., poor business and/or strategic decision-
making, or damage to the firm’s reputation) resulting from decisions based on incorrect or misused model outputs and reports. Model
risk may result from a number of sources: inputs, methodology, implementation or use.
GCRG
GCRG
GCRG
GCRG
Risk Control
and Finance
Risk Control
Business
management and
Group Technology
Human
Resources
Business
management
Model owner
Risk Control
Business risks: the risks arising from the commercial, strategic and economic environment in which our businesses operate
Business risk: 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 damage to our reputation from the point of view of our stakeholders, such as clients, shareholders,
staff and the general public.
All businesses and
functions
All control
functions
107
Risk, treasury and capital management
proceedings and government investigations, as noted in
“Regulatory and legal risks” in the “Risk factors” section of
this report. Information about litigation, regulatory and
similar matters we consider significant is disclosed in “Note
21 Provisions and contingent liabilities” in the “Consolidated
financial statements” section of this report.
– One of the most critical risks facing the broader industry is
the inability to keep pace with evolving cyber threats, such as
data theft and data leakage, disruption of service and cyber
fraud, all of which have the potential to significantly affect
our business. Additionally, as a result of the operational
complexity of all our businesses, we are continually exposed
to operational resilience scenarios such as process error, failed
execution, system failures and fraud.
including money
– Financial crime,
– Conduct risks are inherent in our businesses. Achieving fair
outcomes for our clients, upholding market integrity and
cultivating the highest standards of employee conduct are of
critical importance to the firm. Management of conduct risks
is an integral part of our operational risk framework.
laundering,
terrorist
financing, sanctions violation, fraud, bribery and corruption,
presents significant risk. Heightened regulatory expectations
and attention require investment in people and systems,
while emerging technologies and changing geopolitical risks
further increase the complexity of identifying and preventing
financial crime. Refer to “Operational risk” in this section and
“Strategy, management and operations risks” in the “Risk
factors” section of this report for more information.
Risk, treasury and capital management
Risk management and control
Top and emerging risks
The top and emerging risks disclosed below reflect those that
we currently think have the potential to materialize within one
year and which could significantly affect the Group. Investors
should also carefully consider all information set out in the “Risk
factors” section of this report, where we discuss these and other
material risks that we consider could have an effect on our
ability to execute our strategy and may affect our business
activities, financial condition, results of operations and business
prospects.
– We are exposed to a number of macroeconomic issues as
well as general market conditions. As noted in “Market and
macroeconomic risks” in the “Risk factors” section of this
report, these external pressures may have a significant
adverse effect on our business activities and related financial
results, primarily through reduced margins and revenues,
asset
valuation adjustments.
Accordingly, these macroeconomic factors are considered in
the development of stress testing scenarios for our ongoing
risk management activities.
impairments and other
– The outbreak of Covid-19 in China and its subsequent spread
to other countries is likely to have at least a short-term adverse
effect on economic activity in China and other affected
countries, with a collateral impact on the global economy. A
significant rise in the number of Covid-19 infections, infections
in a wide range of countries and regions, or a prolongation of
the outbreak, could increase the adverse economic effects.
These adverse effects may materialize through adverse market
performance, increased credit risk or negative effects on
operational resilience.
– We are exposed to substantial changes in the regulation of
our businesses that could have a material adverse effect on
our business, as discussed in the “Regulatory and legal
developments” section of this report and in “Regulatory and
legal risks” in the “Risk factors” section of this report.
– As a global financial services firm we are subject to many
different legal, tax and regulatory regimes and extensive
regulatory oversight. We are exposed to significant liability
risk and we are subject to various claims, disputes, legal
108
Risk governance
Our risk governance framework operates along three lines of
defense.
risks, including setting risk appetite and protecting against non-
compliance with applicable laws and regulations.
Our first line of defense, business management, owns its risk
exposures and is required to maintain effective processes and
systems to manage its risks, including robust and comprehensive
internal controls and documented procedures. Business
management has appropriate supervisory controls and review
processes in place, which are designed to identify control
weaknesses and inadequate processes.
Our second line of defense is formed by the control functions,
which are separate from the business and report directly to the
Group CEO. Control functions provide independent oversight of
Our third line of defense, Group Internal Audit, reports to the
Audit Committee of the Board of Directors. This function
evaluates
risk
including the
management and the control environment,
assessment of how the first and second lines of defense meet
their objectives.
the overall effectiveness of governance,
The key roles and responsibilities for risk management and
control are illustrated in the following chart and described on
the following pages.
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109
Risk, treasury and capital management
Risk, treasury and capital management
Risk management and control
Audited | The Board of Directors (the BoD) is responsible for
approving the risk management and control framework of the
Group, including the overall risk appetite of the Group and
business divisions. The BoD is supported by the BoD Risk
Committee, which monitors and oversees the Group’s risk
profile and the implementation of the risk framework as
approved by the BoD, and approves the Group’s risk appetite
methodology. 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 stakeholder concerns and
expectations pertaining to UBS’s societal contribution and
corporate culture. The Audit Committee supports the BoD in
fulfilling its oversight duty relating to financial reporting and
internal controls over financial reporting, the effectiveness of the
external and internal audit functions, and the effectiveness of
whistleblowing procedures.
The Group Executive Board (the GEB) has overall responsibility
for establishing and implementing risk management and control
in the Group. It manages the risk profile of the Group as a
whole.
The Group Chief Executive Officer (the Group CEO) has
responsibility and accountability for the management and
performance of the Group, has risk authority over transactions,
positions and exposures, and allocates risk limits approved by the
BoD within the business divisions and Corporate Center.
The business division Presidents are responsible for the
success, risks, results and value of their business division. This
includes controlling and administering the dedicated financial
resources and risk appetite of the business division.
The regional Presidents facilitate the implementation of UBS’s
strategy in their region, and have the mandate to inform the
GEB of any activities and issues that may give rise to actual or
potentially material regulatory or reputational concerns.
The Group Chief Risk Officer (the Group CRO) is responsible
for the development of the Group’s risk management and
control framework (including risk principles and risk appetite) for
credit, market, country,
funding, model, and
environmental and social risks. This includes risk measurement
and aggregation, portfolio controls and risk reporting. The
Group CRO is responsible for setting risk limits and approving
credit and market risk transactions and exposures. Risk Control is
also the central function for model risk management and control
for all models used in the firm. The risk control process is
liquidity,
110
supported by a framework of policies and authorities. The
business division CROs are responsible for the implementation
and enforcement of
risk management and control
framework within their business division. The regional Chief Risk
Officers provide independent oversight of risks within their
region.
the
The Group Chief Compliance and Governance Officer is
responsible for ensuring that all operational risks, including
compliance and conduct risks, as well as cyber and information
security risks, are identified, owned and managed according to
the firm’s risk appetite, supported by an effective control
framework.
the Group’s
The Group Chief Financial Officer (the Group CFO) is
responsible for transparency in and assessing the financial
performance of the Group and the business divisions, and for
managing
financial accounting, controlling,
forecasting, planning and reporting processes in line with
regulatory and financial reporting requirements, corporate
governance standards and global best practice to maintain high
quality and
include
managing UBS’s tax affairs, as well as treasury and capital
management, including funding and liquidity risk and UBS’s
regulatory capital ratios.
timeliness. Additional
responsibilities
The Group General Counsel (the Group GC) is responsible for
managing the Group’s legal affairs and ensuring effective and
timely assessment of legal matters impacting the Group or its
businesses, and for the management and reporting of all litigation
matters.
(GIA)
Group
Internal Audit
independently assesses the
effectiveness of processes to define strategy and risk appetite, as
well as overall adherence to the approved strategy and the
effectiveness of governance processes and of risk management
at Group, business division and regional levels, including
compliance with legal and regulatory requirements, as well as
with internal policies, constitutional documents and contracts.
The Head GIA reports to the Chairman of the BoD and, in
addition, GIA has a functional reporting line to the BoD Audit
Committee.
Some of the above roles and responsibilities are replicated for
certain significant legal entities of the Group. The legal entity
risk officers are responsible for independent oversight and
control of primary and consequential risks for certain significant
legal entities of the Group as part of the legal entity control
framework, which complements the Group’s risk management
and control framework.
Risk appetite framework
We have a defined Group level risk appetite, covering all financial and non-financial risk types, via a complementary set of qualitative
and quantitative risk appetite statements. This is reviewed and recalibrated annually and presented to the BoD for approval.
Our risk appetite is defined at the aggregate Group 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 risk appetite statements defined at a firm-wide
level and is embedded throughout our business divisions and
legal entities by means of Group, business division and legal
entity policies, limits and authorities. UBS is the largest truly
global wealth manager and a leading personal and corporate
bank in Switzerland, with focused investment bank and asset
management divisions. We are subject
to consolidated
supervision by FINMA and related ordinances, which impose,
among other requirements, minimum standards for capital,
liquidity, risk concentration and internal organization. Our risk
appetite is reviewed and recalibrated annually with an aim to
ensure that risk-taking at every level of the organization is in line
with our strategic priorities, our capital and liquidity plans, our
pillars, principles and behaviors, as well as minimum regulatory
requirements. The risk appetite statements are a critical
foundation for maintaining a robust risk culture throughout our
organization. The “Risk appetite framework” chart below shows
the key elements of the framework. These elements are
described in more detail in this section.
Qualitative statements aim to ensure that we maintain the
desired risk culture. Quantitative risk appetite objectives are
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designed to enhance the Group’s resilience against the effect of
potential severe adverse economic or geopolitical events. These
risk appetite objectives cover the Group’s minimum capital and
leverage ratios, its solvency, earnings, 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
appetite objectives, which are established for each of our
operational risk categories, such as market conduct, theft, fraud,
data confidentiality and technology risks. A standardized
financial firm-wide operational risk appetite has been established
at the Group and business division level. Operational risk events
that exceed predetermined risk tolerances, expressed as
percentages of the Group’s operating income, must be escalated
as per the firm-wide escalation framework to the respective
business division President or higher, as appropriate.
The quantitative risk appetite objectives are supported by a
comprehensive suite of risk limits set at a portfolio level. These
may apply across the Group, within a business division or
business, at legal entity level, or to an asset class. These
additional quantitative controls are typically bottom-up and are
designed to monitor specific portfolios and to identify potential
risk concentrations.
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Risk reports containing aggregated measures of risk across
products and businesses provide insight into the amounts, types,
and sensitivities of the various risks in our portfolios and are
intended to ensure compliance with defined limits. Risk officers,
senior management and the BoD use this information to
understand our risk profile and the performance of the portfolios.
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. Therefore, portfolio limits and associated
approval authorities are subject to periodic reviews and changes,
particularly in the context of our annual business planning process.
is governed by a single
overarching policy and conforms to the Financial Stability Board’s
Principles for an Effective Risk Appetite Framework published in
2013.
Our risk appetite framework
111
Risk, treasury and capital management
Risk, treasury and capital management
Risk management and control
Risk principles and risk culture
We focus on maintaining a strong risk culture, which is a
prerequisite for success in today’s highly complex operating
environment and a source of sustainable competitive advantage.
By placing prudent and disciplined risk-taking 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
companies to work for in the world.
Our risk appetite framework combines all the important
elements of our risk culture, expressed in our Pillars, Principles
and Behaviors, our risk management and control principles, our
Code of Conduct and Ethics, and our Total Reward Principles.
Together, these aim to align the decisions we make with the
Group’s strategy, principles and risk appetite. They help provide
a solid foundation for promoting risk awareness, leading to
Risk management and control principles
appropriate risk-taking and the establishment of robust risk
management and control processes. These principles are
supported by a range of initiatives covering employees at all
levels. This includes the UBS House View on Leadership, which is
a set of explicit expectations for leaders that establishes
consistent leadership standards across UBS. These initiatives also
include our principles of good supervision, which establish clear
expectations of managers and employees with respect to
supervisory responsibilities, specifically: to take responsibility; to
know and organize their business; to know their employees and
what they do; to create a good risk culture; and to respond to
and resolve issues.
Refer to the foldout pages of this report for more information
about our Pillars, Principles and Behaviors
Refer to the Code of Conduct and Ethics of UBS at
www.ubs.com/code for more information
Protection of
Protection of
financial strength
financial strength
Protection of reputation
Protection of reputation
Protecting UBS’s financial strength
by controlling our risk exposure
and avoiding potential risk
concentrations at individual
exposure levels, at specific
portfolio levels and at an
aggregate firm-wide level across
all risk types
Protecting our reputation through
a sound risk culture characterized
by a holistic and integrated view
of risk, performance and reward,
and through full compliance with
our standards and principles,
particularly our Code of Conduct
and Ethics
Business management
Business management
accountability
accountability
Maintaining management
accountability, whereby business
management, as opposed to Risk
Control, owns all risks assumed
throughout the Group and is
responsible for the continuous and
active management of all risk
exposures to provide for balanced
risk and return
Independent controls
Independent controls
Risk disclosure
Risk disclosure
Independent control functions that
monitor the effectiveness of the
businesses’ risk management and
oversee risk-taking activities
Disclosure of risks to senior
management, the BoD, investors,
regulators, credit rating agencies
and other stakeholders with an
appropriate level of
comprehensiveness and
transparency
To support an environment where our employees are
comfortable in raising concerns, we have whistleblowing policies
and procedures in place. These offer multiple channels through
which individuals may, either openly or anonymously, escalate
suspected breaches of laws, regulations, rules and other legal
requirements, our Code of Conduct and Ethics, policies, or
relevant professional standards. Our program is designed to
ensure that whistleblowing concerns are investigated and that
appropriate and consistent action is taken. We are committed to
ensuring that appropriate training for and communication to
staff and legal entity representatives are made available on an
ongoing basis,
including with regard to new regulatory
requirements.
We also have mandatory training programs covering a range
of compliance and risk-related topics, including anti-money
laundering and operational risk. In addition, specialized training
is provided for employees depending on their specific roles and
responsibilities, such as credit risk and market risk training for
those working in trading areas. Failure to satisfactorily complete
mandatory training sessions within the given deadline has
consequences, including disciplinary action. Our operational risk
framework, incorporating the conduct risk framework, aims to
identify and manage financial, regulatory, and reputational risks,
together with risks to clients and to markets.
Additionally, we want to be the financial provider of choice
for clients wishing to direct capital toward investments that
support the Sustainable Development Goals and the transition to
a low-carbon economy. Our comprehensive environmental and
social risk framework governs client and supplier relationships,
applies firm-wide to all activities, meets the highest industry
standards and is integrated in management practices and
control principles. We also seek to protect our assets from
climate change risks by limiting our risk appetite for carbon-
related assets.
Quantitative risk appetite objectives
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, funding and
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 are approved by the BoD. The comparison
of risk exposure with risk capacity is a key consideration in
management decisions on potential adjustments to the business
strategy and the risk profile of the Group.
112
Through the annual business planning process, we review the
business strategy of the firm, assess the risk profile as a result of
our operations and activities, and stress-test our risk profile. We
make use of both scenario-based stress tests and statistical risk
measurement techniques to assess the effect of a severe stress
event at a firm-wide level. These complementary frameworks
capture exposures to all material primary and consequential
risks, as well as business risks across our business divisions and
Corporate Center.
Refer to “Risk measurement” in this section for more
information about our stress testing and statistical frameworks
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(cid:53)(cid:86)(cid:84)(cid:71)(cid:85)(cid:85)(cid:2)(cid:79)(cid:71)(cid:67)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85)
(cid:69)(cid:81)(cid:79)(cid:68)(cid:75)(cid:80)(cid:71)(cid:70)(cid:2)(cid:85)(cid:86)(cid:84)(cid:71)(cid:85)(cid:85)(cid:2)(cid:86)(cid:71)(cid:85)(cid:86)(cid:2)
(cid:37)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)
(cid:47)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)
(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: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: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: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: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: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: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:84)(cid:71)(cid:85)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(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: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:86)(cid:74)(cid:67)(cid:86)(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:16)
(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)
113
Risk, treasury and capital management
Risk, treasury and capital management
Risk management and control
Our risk capacity is underpinned by our performance targets
and capital guidance as per our latest three-year strategic plan.
When determining our risk capacity in case of a severe stress
event, we adjust projected earnings from the strategic plan for
business risk to reflect lower expected earnings and lower
expenses, such as the reversal of variable compensation accruals.
We also adjust our capital to take into account the effect of
stress on deferred tax assets, pension plan assets and liabilities,
and accruals for capital returns to shareholders.
The chart on the previous page provides an overview of our
quantitative risk appetite objectives during 2019. For 2020, we
have adjusted the one-year firm-wide minimum post-stress CET1
capital and leverage ratio objectives from 10% and 2.5% to 9%
and 2.7%, respectively. The new objectives account for the
various ongoing enhancements to stress measures, many of
which lead to higher results for the same amount of underlying
risk. We have also introduced three-year minimum post-stress
capital and leverage ratio objectives of 7.5% and 2.2%,
respectively, to better align with regulatory scenarios.
Risk appetite objectives define the aggregate risk exposure
acceptable at the firm-wide level, given our risk capacity. The
maximum acceptable
is supported by a
risk exposure
comprehensive suite of risk limits, triggers and targets, which are
cascaded to businesses and portfolios. These limits, triggers and
targets are intended to ensure that our risks in aggregate remain
under the maximum acceptable level of risk exposure.
Risk appetite statements at the business division level are
derived from the firm-wide risk appetite. They may also comprise
objectives specific to the division, related to the specific activities
and risks in that division. Risk appetite statements are also set
for certain legal entities. These must be consistent with the firm-
wide risk appetite framework and approved in accordance with
the legal entity’s and the Group’s regulations. Differences may
exist that reflect the specific nature, size, complexity and
regulations applicable to the relevant legal entity.
Risk appetite following adoption of IFRS 9
The introduction of the expected credit loss (ECL) framework
under IFRS 9 in 2018 fundamentally changed how credit risk
arising from loans, loan commitments, guarantees and certain
revocable facilities is accounted for. The ECL framework may
result in greater volatility in credit loss expense as ECL changes in
response to developments in the credit cycle and composition of
our loan portfolio. The effect may be more pronounced in a
deteriorating economic environment.
The effect that the requirement for accelerated recognition of
credit losses has on our risk exposure in stressed conditions has
been accounted for in our estimations. We expect to gain more
insights into the behavior of ECLs once IFRS 9 has been in place
for a longer period and under changing economic conditions,
and may adjust our risk exposure further in the future.
Based on the current information and the effect that the IFRS
9 ECL framework has on our solvency objectives, we have not
changed either our risk appetite and management practices or
our strategy toward pricing and structuring of transactions
following the adoption of IFRS 9.
Refer to “Note 1 Summary of significant accounting policies” in
the “Consolidated financial statements” section of this report
for more information about our accounting policy for
allowances and provisions for ECL
Refer to “Note 23 Expected credit loss measurement” in the
“Consolidated financial statements” section of this report for
more information about ECL measurement
Refer to “Credit risk” in this section for more information about
the ECL methodology under IFRS 9
114
Internal risk reporting
Comprehensive and transparent reporting of risks is central to
the control and oversight responsibilities set out in our risk
governance framework and is a requirement of our risk
management and control principles. Accordingly, risks are
reported at a frequency and to a level of detail commensurate
with the extent and variability of the risk and the needs of the
various governance bodies, regulators and risk authority holders.
On a monthly basis, the Group Risk Report provides a detailed
qualitative and quantitative overview of developments in primary
and consequential risks for the business divisions and Corporate
Center, along with aggregate views of risks at the firm-wide
level, including the status of our risk appetite objectives and
results of firm-wide stress testing. The Group Risk Report is
distributed internally to the BoD Risk Committee and the GEB,
and to senior members of Risk Control, Group Internal Audit,
Finance, and Legal. Additionally, an extract of the Group Risk
Report is provided to the BoD. Risk reports are also produced for
our significant Group entities (entities that are subject to
enhanced standards of corporate governance).
Granular divisional risk reports are provided to the respective
business division Chief Risk Officers and the business division
Presidents. This monthly reporting is supplemented with a suite
of daily or weekly reports at various levels of granularity,
covering market and credit risks for the business divisions and
Corporate Center to enable risk officers and senior management
to monitor and control the Group’s risk profile.
Our
internal risk reporting, which covers primary and
consequential risks, is supported by risk data and measurement
systems that are also used for external disclosure and regulatory
reporting. Dedicated units within Risk Control assume
responsibility for measurement, analysis and reporting of risk and
for overseeing the quality and integrity of risk-related data. Our
risk data and measurement systems are subject to periodic review
by Group Internal Audit following a risk-based audit approach.
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Risk, treasury and capital management
Risk, treasury and capital management
Risk management and control
Risk measurement
Audited | We apply a variety of methodologies and measurements
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
preapproval of specific transactions and the application of
specific restrictions. Models to quantify risk are generally
developed by dedicated units within control functions and are
subject to independent validation.
Models must be approved and are regularly reviewed in
accordance with regulatory requirements as well as internal
policies to test whether they perform as expected, produce
results comparable with actual events and values, and reflect
best-in-practice approaches and recent academic developments.
Our reviews assess whether models are performing satisfactorily,
whether additional analysis is required and whether models
need to be recalibrated or redeveloped. Results and conclusions
are presented to the relevant governance body and, as required,
to regulators.
The ongoing process of assessing model quality and
performance in the production environment comprises two
components: model validation, in which Model Risk Management
& Control (MRMC) independently assesses a model’s fitness for
purpose; and model confirmation, 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 MRMC.
Refer to “Credit risk,” “Market risk” and “Operational risk” in
this section for more information about model confirmation
procedures
Stress testing
We perform stress testing to estimate 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 the
firm-wide, business division, legal entity and portfolio levels.
Stress test results are regularly reported to the BoD, the BoD Risk
Committee and the GEB. As described in “Risk appetite
framework” above, stress testing, along with statistical loss
measures, plays a central role in our risk appetite and business
planning processes.
116
Our stress testing framework incorporates three pillars: (i)
combined stress tests; (ii) a comprehensive range of portfolio-
and risk type-specific stress tests; and (iii) reverse stress testing.
Our combined stress test (CST) framework is scenario-based
and aims to quantify overall firm-wide losses that could result
from a number of potential global systemic events. The
framework captures all material primary and consequential risks,
as well as business risks, as indicated in “Risk categories” above.
Scenarios are forward-looking and encompass macroeconomic
and geopolitical stress events calibrated to different levels of
severity. We implement each scenario through the expected
evolution of market indicators and economic variables under
that scenario. We then assess the resulting effect on our
primary, consequential and business risks to estimate the overall
loss and capital implications were the scenario to occur. At least
once a year, the BoD Risk Committee approves the most
relevant scenario, known as the binding scenario, to be used as
the main scenario for regular CST reporting and for monitoring
risk exposure against our minimum capital, earnings and
leverage ratio objectives in our risk appetite framework. Results
are reported to the BoD Risk Committee, the BoD, the GEB and
FINMA on a monthly basis.
We provide detailed stress loss analyses to FINMA and the
regulators of our legal entities in accordance with their
requirements. For example, in addition to CST, we perform Loss
Potential Analysis (LPA) as prescribed by FINMA, Comprehensive
Capital Analysis and Review (CCAR) for Americas Holding LLC as
prescribed by the US Federal Reserve Board, and Comprehensive
Assessment Stress Test for UBS Europe SE as prescribed by the
European Central Bank.
in
The Enterprise-wide Stress Committee (the ESC) is responsible
for ensuring the consistency and adequacy of the assumptions
and scenarios used for our firm-wide stress measures. As part of
these responsibilities, the ESC seeks to ensure that the suite of
stress scenarios adequately reflects current and potential
the macroeconomic and geopolitical
developments
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 representatives of Risk
Control. In executing its responsibilities, the ESC considers input
from the Think Tank, which is a panel of senior representatives
from the business divisions, Risk Control and economic research,
and which meets quarterly to review the current and possible
future market environment in order to identify potential stress
scenarios that 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
variables. These include gross domestic product (GDP), equity
prices, interest rates, foreign exchange rates, commodity prices,
property prices and unemployment. We use assumed changes in
these macroeconomic and market variables in each scenario 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, which leads to changes in
the credit risk parameters for probability of default, loss given
default and exposure at default, and results in higher predicted
credit losses within the stress scenario. We also capture the
business risk resulting from lower fee, interest and trading
income net of 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 or loss,
other comprehensive income, RWA, LRD and, ultimately, our
capital and
in
macroeconomic variables are updated periodically to account for
changes in the current and possible future market environment.
Through 2019, the binding scenario for CST was the internal
Severe Eurozone Crisis scenario. This scenario is characterized by
a crisis in the eurozone; a lack of confidence in the trajectory of
several peripheral European economies leading to a sudden
spike in their bond yields, eventually resulting in their loss of
market access. As Greece leaves the eurozone, emergency
measures,
including capital controls, bailouts and debt
restructurings, are required. In the ensuing global slowdown and
market turbulence, China suffers a hard landing, which further
weighs on global growth. Central banks in major developed
economies with policy room cut rates back to zero in an attempt
to stimulate growth and restore market confidence; however,
this fails to avert a severe global recession.
ratios. The assumed changes
leverage
The CST risk exposure was broadly stable over the year with
most of the month-on-month variability arising primarily from
changes in volumes of temporary loan underwriting exposure in
the Investment Bank.
As part of the CST framework, we routinely monitored four
additional stress scenarios throughout 2019.
–
The Failure of a Major Financial Institution scenario represents
renewed financial market turmoil reflecting the failure of a
major global financial institution, leading to prolonged
financial deleveraging and dramatically plunging activity
around the globe.
The US Monetary Crisis scenario represents a loss of
confidence in the US, which leads to international portfolio
repositioning out of US dollar-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.
The Global Depression scenario represents a severe and
prolonged eurozone crisis
in which several peripheral
countries default and exit the eurozone, and advanced
economies are pulled into a prolonged period of economic
stagnation.
–
–
–
The Global Interest Rate Steepening scenario represents a
sudden shift in market sentiment, causing a disorderly sell-off
in long-dated bonds and a rapid steepening of the yield
curve, exacerbated by a lack of liquidity in financial markets.
This in turn triggers a sovereign crisis in Japan and a global
recession.
We have updated the binding stress scenario in our CST
framework for 2020 and renamed it Global Crisis scenario. The
scenario maintains a eurozone crisis at its core, but has greater
focus on risks threatening the global economy, such as
protectionism. In addition, central banks in the eurozone,
Switzerland and Japan are assumed to push policy rates further
into negative territory to provide more monetary stimulus. A
China hard landing remains a feature of the scenario.
Portfolio-specific stress tests are measures that are tailored to
the risks of specific portfolios. Our portfolio stress loss measures
are derived from data on past events, but also include forward-
looking elements. For example, we derive the expected market
movements within our liquidity-adjusted stress metric using a
combination of historical market behavior, based on an analysis
of historical events, and forward-looking analysis, including
consideration of defined scenarios that are not modeled on any
historical events. 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
(e.g., a specified loss amount, reputational damage, a liquidity
shortfall or a breach of regulatory capital ratios) and works
backward to identify the economic or financial scenarios that
could result in such an outcome. As such, reverse stress testing is
intended to complement scenario-based stress tests by assuming
“what if” outcomes that could extend beyond the range
normally considered, and
thereby potentially challenge
assumptions regarding severity and plausibility.
Additionally, we routinely analyze the effect of increases or
decreases in interest rates and changes in the structure of yield
curves.
testing
Moreover, Group Treasury performs stress
to
determine the optimum asset and liability structure that allows
us to maintain an appropriately balanced liquidity and funding
position under various scenarios. These scenarios differ from
those outlined above, because they are focused on specific
situations that could generate liquidity and funding stress, as
opposed to the scenarios used in the CST framework, which
focus on the effect on profit or loss and capital.
Refer to “Credit risk” and “Market risk” in this section for more
information about stress loss measures
Refer to the “Treasury management” section of this report for
more information about stress testing
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
117
Risk, treasury and capital management
Risk, treasury and capital management
Risk management and control
Statistical measures
In addition to our scenario-based CST measures, we employ a
statistical stress framework that allows us to calculate and
aggregate risks using statistical techniques to derive stress events
at chosen confidence levels.
We use this framework to derive a distribution of potential
earnings based on historically observed market changes in
combination 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 forecast 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 framework.
We extend the EaR measure by incorporating the effects of
gains and losses recognized through other comprehensive
income, to derive a distribution of potential effects of stress
events on CET1 capital. From this distribution, we derive our
capital-at-risk (CaR) buffer measure at a 95% confidence 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.
We also use the CaR solvency measure as the basis for
deriving the contributions of business divisions and Corporate
Center to risk-based capital (RBC), which is a 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 creditors.
Refer to the “Capital management” section of this report for
more information about the equity attribution framework
Portfolio and position limits
The firm-wide stress and statistical metrics are complemented by
more granular portfolio and position limits, triggers and targets.
The combination of these measures provides a comprehensive
control framework that 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 businesses.
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, loan underwriting limits, economic
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-
foreign exchange
for-sale portfolios, and
movements on capital and capital ratios.
the effect of
Portfolio measures are supplemented with position-level
controls. Risk measures for position controls are based on
market risk sensitivities and counterparty-level credit risk
include sensitivities to
exposures. Market risk sensitivities
118
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 on a daily basis. Counterparty measures capture the
individual
current and potential
counterparty,
legally
enforceable netting agreements.
into account collateral and
future exposure
to an
taking
Refer to “Credit risk” in this section for more information about
counterparty limits
Risk concentrations
Audited | 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
significant 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 the correlations of those factors. Also
important in our assessment is the liquidity of the markets where
the positions are traded, as well as the availability and
effectiveness of hedges or other potential risk-mitigating factors.
The value of a hedging instrument may not always move in line
with the position being hedged, and this mismatch is referred to
as basis risk. In addition, operational risk concentrations may
result from a single issue that is large on its own (i.e., has the
potential to produce a single high-impact loss or a number of
losses that, aggregated together, are high-impact) or related
issues that may link together to create a high impact.
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,
positions 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 about the compositions of our portfolios
Refer to the “Risk factors” section of this report for more
information
Credit risk
Key developments
Audited | Overview of measurement, monitoring and
management techniques
from
risk arising
transactions with
individual
Credit
counterparties
is measured based on 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, the Group
Chief Risk Officer and divisional Chief Risk Officers based on
risk exposure amounts, internal credit rating and potential loss.
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 that
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 to establish portfolio limits at
these levels.
Credit risk concentrations can arise if clients are engaged in
similar activities, are located in the same geographical region or
have comparable economic characteristics; for example, if their
ability to meet contractual obligations would be similarly
affected by changes in economic, political or other conditions.
To avoid credit risk concentrations, we establish limits and/or
operational controls that constrain risk concentrations at the
portfolio and sub-portfolio levels with regard to sector
exposure, country risk and specific product exposures.
Total net credit loss expenses were USD 78 million in 2019,
reflecting net credit loss expenses of USD 100 million related to
credit-impaired
in Personal &
(stage 3) positions, mainly
Corporate Banking and to a lesser extent in the Investment Bank
and Global Wealth Management, partly offset by USD 22 million
of net releases in expected credit loss (ECL) expense allowances
and provisions from stage 1 and 2 positions.
Refer to “Note 1 Summary of significant accounting policies,”
“Note 10 Financial assets at amortized cost and other positions
in scope of expected credit loss measurement” and “Note 23
Expected credit loss measurement” in the “Consolidated financial
statements” section of this report for more information about
IFRS 9 and ECLs
Our Swiss lending portfolios, which account for approximately
half of our loan exposure, continued to perform well. We aim to
manage our Swiss lending portfolios prudently and remain
watchful for signs of deterioration in the Swiss economy that
could affect our counterparties.
–
–
–
Within the Investment Bank, our leveraged loan underwriting
–
business’s overall ability to distribute risk remained sound.
Audited | Main sources of credit risk
–
–
–
–
–
residential properties and
A substantial portion of our lending exposure arises from our
Swiss domestic business, which offers mortgage loans,
secured mainly by
income-
producing real estate, as well as corporate loans, and
therefore depends on the performance of the Swiss economy.
Within the Investment Bank, our credit exposure arises mainly
from lending, derivatives trading and securities financing.
Derivatives trading and securities financing are predominantly
investment grade. Loan underwriting activity can be lower
rated and gives rise to concentrated exposure of a temporary
nature.
Our wealth management businesses predominantly conduct
securities-based (Lombard) lending and mortgage lending.
Credit risk within Non-core and Legacy Portfolio in Corporate
Center relates to derivative transactions, predominantly
carried out on a cash-collateralized basis, and securitized
positions.
119
Risk, treasury and capital management
Risk, treasury and capital management
Risk management and control
Credit risk profile of the Group
The exposures detailed in this section are based on our internal
management view of credit risk, which differs in certain respects
from the ECL measurement requirements of IFRS.
loans, guarantees and
Internally, we categorize credit risk exposures into two broad
categories: banking products and traded products. Banking
products comprise drawn
loan
commitments, amounts due from banks, balances at central
banks and other financial assets at amortized cost. Traded
products comprise over-the-counter derivatives, exchange-
traded derivatives and
transactions,
securities
comprised of securities borrowing and lending, as well as
repurchase and reverse repurchase agreements.
financing
Banking products
The breakdowns of our banking products exposures in the
“Banking and traded products exposure in our business divisions
and Corporate Center” table below and on the next page are
shown gross before allowances and provisions for expected
credit losses and related single-name credit hedges. The effect of
portfolio hedges, such as index credit default swaps, is not
reflected. Guarantees and loan commitments are shown on a
notional basis, without applying credit conversion factors. The
gross exposure for banking products of USD 515 billion
corresponds to the ECL gross exposure of USD 670 billion,
cash
cash,
securities
receivables
collateral
including other financial assets measured at amortized cost, but
financing
from
excluding
transactions,
receivables on derivative
instruments, financial assets at fair value through other
(FVOCI),
comprehensive
committed
revocable
loans, unconditionally
prolongation of existing
committed credit lines, and forward starting reverse repurchase
and securities borrowing agreements.
irrevocable
income
The table reflects the total exposures (stages 1–3) in scope
of ECL requirements, allowances and provisions by ECL stages
and separately credit-impaired exposures, gross (stage 3). Total
gross banking products exposure was USD 515 billion as of 31
December 2019, compared with USD 518 billion at the end of
the prior year.
Refer to “Note 1 Summary of significant accounting policies” in
the “Consolidated financial statements” section of this report
for more information about our accounting policy for
allowances and provisions for ECLs
Refer to “Note 10 Financial assets at amortized cost and other
positions in scope of expected credit loss measurement” and
“Note 23 Expected credit loss measurement” in the
“Consolidated financial statements” section of this report for
more information about ECL measurement requirements under
IFRS
Refer to “Note 17a Other financial assets measured at
amortized cost” in the “Consolidated financial statements”
section of this report for more details
Banking and traded products exposure in our business divisions and Corporate Center
USD million
Banking products1,2
Banking products1,2
Gross exposure
of which: loans and advances to customers (on-balance sheet)
of which: guarantees and loan commitments (off-balance sheet)
Traded products2,3
Traded products2,3
Gross exposure
of which: over-the-counter derivatives
of which: securities financing transactions
of which: exchange-traded derivatives
Other credit lines, gross4
Other credit lines, gross4
Total credit-impaired exposure, gross (stage 3)1
Total allowances and provisions for expected credit losses (stages 1 to 3)
of which: stage 1
of which: stage 2
of which: stage 3 (allowances and provisions for credit-impaired exposures)
Global Wealth
Global Wealth
Management
Management
Personal &
Personal &
Corporate
Corporate
Banking
Banking
Asset
Asset
Management
Management
Investment
Investment
Bank
Bank
Corporate
Corporate
Center
Center
31.12.19
31.12.19
239,032
239,032
174,510
174,510
5,578
5,578
194,395
194,395
136,572
136,572
23,142
23,142
2,914
2,914
1
1
0
0
48,170
48,170
10,585
10,585
16,009
16,009
30,570
30,570
5,882
5,882
960
960
8,830
8,830
6,571
6,571
0
0
2,259
2,259
10,735
10,735
902
902
209
209
59
59
34
34
116
116
841
841
804
804
0
0
36
36
20,986
20,986
1,694
1,694
696
696
81
81
122
122
493
493
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
38,233
38,233
9,832
9,832
20,821
20,821
7,580
7,580
3,227
3,227
91
91
87
87
38
38
3
3
46
46
144
144
427
427
37
37
3
3
0
0
34
34
Group
Group
515,081
515,081
327,550
327,550
45,689
45,689
47,904
47,904
17,207
17,207
20,821
20,821
9,876
9,876
35,092
35,092
3,113
3,113
1,029
1,029
181
181
160
160
688
688
120
Banking and traded products exposure in our business divisions and Corporate Center (continued)
USD million
BBaannkkiinngg pprroodduuccttss11
Gross exposure
of which: loans and advances to customers (on-balance sheet)
of which: guarantees and loan commitments (off-balance sheet)
TTrraaddeedd pprroodduuccttss22,,33
Gross exposure
of which: over-the-counter derivatives
of which: securities financing transactions
of which: exchange-traded derivatives
OOtthheerr ccrreeddiitt lliinneess,, ggrroossss44
Global Wealth
Management
239,835
170,413
6,111
10,606
5,960
153
4,494
10,345
Personal &
Corporate
Banking
186,802
133,253
20,609
873
762
0
111
22,994
31.12.185
Asset
Management
Investment
Bank
Corporate
Center
2,751
7
0
59,980
9,090
22,290
28,357
8,362
348
0
0
0
0
0
30,771
9,441
16,004
5,325
3,202
94
Group
517,725
321,125
49,358
42,250
16,163
16,157
9,930
36,634
Total credit-impaired exposure, gross (stage 3)1
Total allowances and provisions for expected credit losses (stages 1 to 3)
of which: stage 1
of which: stage 2
of which: stage 3 (allowances and provisions for credit-impaired exposures)
3,154
1,054
176
183
695
11 ECL gross exposure including other financial assets at amortized cost, but excluding cash, receivables from securities financing transactions, cash collateral receivables on derivative instruments, financial assets at
22 Internal
FVOCI, irrevocable committed prolongation of existing loans and unconditionally revocable committed credit lines and forward starting reverse repurchase and securities borrowing agreements.
management view of credit risk, which differs in certain respects from IFRS. 33 As counterparty risk for traded products is managed at counterparty level, no further split between exposures in the Investment Bank
and Corporate Center is provided. 44 Unconditionally revocable committed credit lines. 55 The comparative figures have been restated for the changes in Corporate Center resource allocation to the business
divisions. Refer to the “Significant accounting and financial reporting changes” section of this report for more information.
1,974
697
78
146
474
625
223
62
34
127
415
26
3
0
23
140
108
34
3
71
0
0
0
0
0
Global Wealth Management
Gross banking products exposure within Global Wealth
Management decreased slightly to USD 239 billion from
USD 240 billion.
The portfolio of mortgage loans secured by properties in
EMEA and Asia Pacific decreased to USD 6.4 billion from
USD 6.5 billion. The overall quality of this portfolio remained
high during the year.
(Lombard
Our Global Wealth Management loan portfolio is mainly
secured by securities
loans) and by residential
property. Most of the Lombard loans were of high quality, with
96% rated as investment grade based on our internal ratings,
and they are typically short term in nature, with an average
duration of three to six months. Moreover, Lombard loans can
be canceled immediately, if the collateral quality deteriorates or
margin calls are not met.
In Global Wealth Management Region Americas the portfolio
of loans secured by residential property consists primarily of
residential mortgage loans offered in the US. Gross exposure
increased to USD 17.2 billion from USD 14.3 billion. The overall
quality of this portfolio remained high, with an average loan-to-
value (LTV) ratio of 59.1%, compared with 58.7% (the
comparative figure has been restated) as of 31 December 2018,
and we have experienced negligible credit losses since the
inception of the mortgage program in 2009. The five largest
geographic concentrations in the portfolio were in California
(27%), New York (14%), Florida (10%), Texas (5%) and New
Jersey (4%).
Global Wealth Management and Personal & Corporate Banking loans and advances to customers, gross
USD million
Secured by residential property
Secured by commercial / industrial property
Secured by cash
Secured by securities
Secured by guarantees and other collateral
Unsecured loans and advances to customers
TToottaall llooaannss aanndd aaddvvaanncceess ttoo ccuussttoommeerrss,, ggrroossss
AAlllloowwaanncceess
TToottaall llooaannss aanndd aaddvvaanncceess ttoo ccuussttoommeerrss,, nneett ooff aalllloowwaanncceess
Global Wealth Management
Personal & Corporate Banking
3311..1122..1199
5544,,338833
22,,661199
1166,,885522
8888,,668844
1100,,559911
11,,338811
117744,,551100
((9933))
117744,,441177
31.12.18
51,251
2,233
15,529
90,946
9,469
986
170,413
(102)
170,312
3311..1122..1199
110000,,664455
1177,,113311
11,,556699
11,,776666
55,,335511
1100,,111111
113366,,557722
((559955))
113355,,997788
31.12.18
96,841
16,887
1,467
1,647
5,754
10,657
133,253
(594)
132,659
121
Risk, treasury and capital management
Risk, treasury and capital management
Risk management and control
Personal & Corporate Banking
Gross banking products exposure (excluding exposure re-
allocated from Group Treasury) within Personal & Corporate
Banking increased to USD 163 billion (CHF 158 billion) from
USD 157 billion
(CHF 155 billion), partly driven by the
appreciation of the Swiss franc. Net banking products exposure
was USD 162 billion (CHF 157 billion), compared with USD 157
billion (CHF 154 billion), of which approximately 63% was
classified as investment grade, similar to 2018. Around 50% of
the exposure is categorized in the lowest loss given default
(LGD) bucket of 0–25%, similar to 2018. The size of Personal &
Corporate Banking’s gross loan portfolio increased by USD 3
billion (CHF 1 billion) to USD 137 billion (CHF 132 billion). As
of 31 December 2019, 93% of this portfolio was secured by
collateral, mainly residential and commercial property. Of the
total unsecured amount, 79% related to cash flow-based
lending to corporate counterparties and 5% related to lending
to public authorities. Based on our internal ratings, 46% of the
unsecured loan portfolio was rated as investment grade,
compared with 47% in 2018.
Credit loss expense for banking products remained low in
2019.
Our Swiss corporate banking products portfolio, which was
USD 26 billion (CHF 26 billion) compared with USD 27 billion
(CHF 27 billion) in 2018, consists of loans, guarantees and loan
commitments to multi-national and domestic counterparties.
The small and medium-sized enterprises portfolio, in particular,
is well diversified across industries. However, such companies are
reliant on the domestic economy and the economies to which
they export, in particular the EU and the US. In addition, the
development of the EUR / CHF exchange rate is an important
risk factor for Swiss corporate clients.
The delinquency ratio was 0.5% for the corporate portfolio,
compared with 0.3% at the end of 2018.
Refer to “Credit risk models” in this section for more
information about loss given default, rating grades and rating
agency mappings
(CHF 129 billion) of
Swiss mortgage loan portfolio
Our Swiss mortgage loan portfolio secured by residential and
commercial real estate in Switzerland continues to be our largest
loan portfolio. These mortgage loans, totaling USD 146 billion
(CHF 141 billion), mainly originate from Personal & Corporate
Banking, but also from Global Wealth Management Region
Switzerland. USD 133 billion
those
mortgage loans related to residential properties that the
borrower was either occupying or renting out, with full recourse
to the borrower. Of this USD 133 billion (CHF 129 billion),
USD 97 billion (CHF 94 billion) is related to properties occupied
by the borrower, with an average LTV ratio of 54%, compared
with 56% as of 31 December 2018. The average LTV for newly
originated loans for this portion was 65%, compared with 66%
in 2018. The remaining USD 36 billion (CHF 35 billion) of the
Swiss residential mortgage loan portfolio relates to properties
rented out by the borrower and the average LTV of that
portfolio was 54%, compared with 55% as of 31 December
2018. The average LTV for newly originated Swiss residential
mortgage loans for properties rented out by the borrower was
58%, compared with 57% in 2018.
As illustrated in the “Swiss mortgages: distribution of net
exposure at default (EAD) across exposure segments and loan-
to-value (LTV) buckets” table on the next page, more than 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 98% would remain covered by the real estate collateral
even if the value assigned to that collateral were to decrease by
30%. In this table, the amount of each mortgage loan is
allocated across the LTV buckets to indicate the portion at risk at
the various value levels shown. For example, a loan of 75 with
an LTV ratio of 75% (i.e., a collateral value of 100) would result
in allocations of 30 in the less-than-30% LTV bucket, 20 in the
31–50% bucket, 10 in the 51–60% bucket, 10 in the 61–70%
bucket and 5 in the 71–80% bucket.
Personal & Corporate Banking: distribution of banking products exposure across internal UBS ratings and loss given
default (LGD) buckets1
USD million, except where indicated
31.12.18
Internal UBS rating2
Investment grade
Sub-investment grade
of which: 6−9
of which: 10−13
Defaulted / Credit-impaired
31.12.19
31.12.19
LGD buckets
LGD buckets
Exposure
Exposure
102,491
102,491
58,597
58,597
0–25%
0–25%
58,331
58,331
23,937
23,937
51–75%
26–50%
26–50% 51–75%
8,314
34,250
34,250
8,314
76–100%
76–100%
1,597
1,597
21,368
21,368
11,287
11,287
53,811
53,811
21,715
21,715
19,783 10,502
19,783
10,502
4,786
4,786
1,694
1,694
2,222
2,222
33
33
1,585
1,585
1,409
1,409
785
785
252
252
2,005
2,005
1,812
1,812
193
193
0
0
3,602
3,602
Weighted
Weighted
average
average
LGD (%)
LGD (%)
27
27
34
34
34
34
32
32
40
40
29
29
Weighted
average
LGD (%)3
27
35
34
35
37
30
Exposure3
97,854
57,350
53,130
4,220
1,974
157,178
Total exposure before deduction of allowances and provisions
162,782
162,782
82,302
82,302
57,026
57,026
19,852
19,852
Less: allowances and provisions
Net banking products exposure1
Net banking products exposure1
1 Excluding balances at central banks and Group Treasury reallocations. 2 The ratings of the major credit rating agencies, and their mapping to our internal rating scale, are shown in the “Internal UBS rating scale
1
and mapping of external ratings” table in this section. 3 Exposure and weighted average LGD have been restated.
3
156,515
162,121
162,121
(663)
(660)
(660)
2
122
Personal & Corporate Banking: unsecured loans by industry sector
Construction
Financial institutions
Hotels and restaurants
Manufacturing
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services
Other
EExxppoossuurree,, ggrroossss
3311..1122..1199
UUSSDD mmiilllliioonn
113355
11,,887733
8811
11,,553366
11,,660099
449977
223366
11,,998811
11,,885500
331133
%%
11..33
1188..55
00..88
1155..22
1155..99
44..99
22..33
1199..66
1188..33
33..11
31.12.18
USD million
133
2,139
79
1,632
1,489
709
170
2,274
1,774
257
%
1.2
20.1
0.7
15.3
14.0
6.7
1.6
21.3
16.6
2.4
1100,,111111
110000..00
10,657
100.0
Swiss mortgages: distribution of net exposure at default (EAD) across exposure segments and loan-to-value (LTV)
buckets
3311..1122..1199
LLTTVV bbuucckkeettss
≤≤3300%%
3311 5500%%
–
–
5511 6600%%
–
–
6611 7700%%
–
–
7711 8800%%
–
–
8811 110000%%
–
–
>>110000%%
TToottaall
USD billion, except where indicated
Exposure segment
Residential mortgages
Income-producing real estate
Corporates
Other segments
MMoorrttggaaggee ccoovveerreedd eexxppoossuurree
-
-
Net EAD
as a % of row total
Net EAD
as a % of row total
Net EAD
as a % of row total
Net EAD
as a % of row total
Net EAD
as a % of total
Mortgage-covered exposure 31.12.18
Net EAD
as a % of total
7766..00
6600
1122..00
6644
66..11
6644
00..55
6666
9944..66
6600
89.9
60
3344..55
1100..00
2277
44..77
2255
22..33
2244
00..22
2200
4411..77
2277
40.6
27
88
11..11
66
00..66
66
00..00
66
1111..88
88
11.6
8
55..22
44
00..66
33
00..33
33
00..00
44
66..11
44
6.1
4
11..77
11
00..22
11
00..11
22
00..00
22
22..11
11
2.3
2
00..22
00
00..00
00
00..11
11
00..00
22
00..44
00
0.4
0
31.12.18
Total
123.4
17.9
9.0
0.7
00..11
112277..77
00
00..00
00
00..00
00
00..00
00
110000
1188..77
110000
99..66
110000
00..77
110000
00..11
115566..77
151.0
00
110000
0.0
151.0
0
100
Asset Management
Gross banking products exposure within Asset Management
was USD 2.9 billion as of 31 December 2019, compared with
USD 2.8 billion as of 31 December 2018. Banking products
relate primarily to balances at central banks and to a lesser
extent to cash at banks held by individual Asset Management
legal entities, liquid assets and receivables.
Investment Bank
The Investment Bank’s lending activities are largely associated
with corporate and non-bank financial institutions. The business
is broadly diversified across industry sectors, but concentrated in
North America.
The gross banking products exposure including balances at
reallocations as of
central banks and Group Treasury
31 December 2019 was USD 48 billion, compared with USD 60
billion as of 31 December 2018. Gross banking products
exposure excluding balances at central banks and Group
Treasury reallocations decreased to USD 32 billion from USD 40
billion, mostly driven by reductions in guarantees and loan
commitments. Based on our internal ratings, 54% of this gross
banking products exposure was classified as investment grade.
The vast majority of the gross banking products exposure had an
estimated LGD below 50%.
Our loan underwriting business’s overall ability to distribute
risk remained sound. Total temporary
loan underwriting
exposure ended 2019 at USD 4.8 billion, USD 2.5 billion higher
than the prior year. Loan underwriting exposures are classified as
held for trading, with fair values reflecting market conditions at
the end of 2019.
Refer to “Credit risk models” in this section for more
information about loss given default, rating grades and rating
agency mappings
123
Risk, treasury and capital management
Risk, treasury and capital management
Risk management and control
Investment Bank: distribution of banking products exposure across internal UBS ratings and loss given default (LGD)
buckets1
USD million, except where indicated
31.12.18
31.12.19
31.12.19
LGD buckets
LGD buckets
Internal UBS rating2
Investment grade
Sub-investment grade
of which: 6−9
of which: 10−13
Defaulted / Credit-impaired
Exposure
Exposure
17,541
17,541
0–25%
0–25%
4,485
4,485
26–50%
26–50%
9,853
9,853
51–75%
51–75%
2,111
2,111
76–100%
76–100%
1,091
1,091
14,598
14,598
10,746
10,746
3,852
3,852
91
91
4,796
4,796
3,421
3,421
1,376
1,376
26
26
4,272
4,272
2,141
2,141
2,132
2,132
25
25
5,465
5,465
5,121
5,121
344
344
27
27
64
64
64
64
0
0
13
13
Weighted
Weighted
average
average
LGD (%)
LGD (%)
40
40
18
18
14
14
30
30
40
40
Weighted
average
LGD (%)
39
15
11
29
36
Exposure
24,239
15,490
12,169
3,321
140
Banking products exposure1
Banking products exposure1
30
9,307
9,307
1 Excluding balances at central banks and Group Treasury reallocations. 2 The ratings of the major credit rating agencies, and their mapping to our internal rating scale, are shown in the “Internal UBS rating scale
1
and mapping of external ratings” table in this section.
39,869
32,229
32,229
14,150
14,150
7,604
7,604
1,168
1,168
30
30
2
Investment Bank: banking products exposure by geographical region1
Asia Pacific
Latin America
Middle East and Africa
North America
Switzerland
Rest of Europe
Exposure1
Exposure1
1 Excluding balances at central banks and Group Treasury reallocations.
1
Investment Bank: banking products exposure by industry sector1
Banks
Chemicals
Electricity, gas, water supply
Financial institutions, excluding banks
Manufacturing
Mining
Public authorities
Real estate and construction
Retail and wholesale
Technology and communications
Transport and storage
Other
31.12.19
31.12.19
USD million
USD million
5,080
5,080
844
844
467
467
16,553
16,553
779
779
8,505
8,505
32,229
32,229
31.12.19
31.12.19
USD million
USD million
5,375
5,375
766
766
534
534
12,944
12,944
1,705
1,705
1,699
1,699
872
872
1,291
1,291
1,842
1,842
2,302
2,302
458
458
2,441
2,441
%
%
15.8
15.8
2.6
2.6
1.5
1.5
51.4
51.4
2.4
2.4
26.4
26.4
100.0
100.0
%
%
16.7
16.7
2.4
2.4
1.7
1.7
40.2
40.2
5.3
5.3
5.3
5.3
2.7
2.7
4.0
4.0
5.7
5.7
7.1
7.1
1.4
1.4
7.6
7.6
31.12.18
USD million
6,123
1,170
471
18,865
2,588
10,652
39,869
31.12.18
USD million
6,779
711
1,765
14,488
2,342
1,759
706
1,553
2,488
2,372
719
4,188
Exposure1
Exposure1
1 Excluding balances at central banks and Group Treasury reallocations.
1
32,229
32,229
100.0
100.0
39,869
%
15.4
2.9
1.2
47.3
6.5
26.7
100.0
%
17.0
1.8
4.4
36.3
5.9
4.4
1.8
3.9
6.2
5.9
1.8
10.5
100.0
124
Corporate Center
Gross banking products exposure within Corporate Center,
which arises primarily in connection with treasury activities,
increased by USD 2 billion to USD 31 billion.
Refer to “Balance sheet assets” in the “Treasury management”
scope of bilateral derivatives activity subject to margining. In
addition, they will result in greater amounts of initial margin
received
trading
counterparties than had been required in the past. These changes
should result in lower close-out risk over time.
to, certain bilateral
from, and posted
section of this report for more information
Refer to the “Corporate Center” section under “Financial and
operating performance” of this report for more information
Refer to “Note 11 Derivative instruments” in the “Consolidated
financial statements” section of this report for more information
about our over-the-counter derivatives settled through central
Traded products
Audited | Counterparty credit risk arising from traded products,
which include over-the-counter (OTC) derivatives, exchange-
traded derivatives (ETD) exposures and securities financing
transactions (SFTs) originating in the Investment Bank, Non-core
and Legacy Portfolio and Group Treasury is generally managed
on a close-out basis. This takes into account the possible effect
of market movements on the exposure and any associated
collateral over the time it would take to close out our positions.
In the Investment Bank, limits are applied to the potential future
exposure per counterparty, with the size of the limit driven by
the view of the creditworthiness of the counterparty as
determined by Credit Risk Control. Limit frameworks are also
applied to control overall exposure to specific classes or
categories of collateral on a portfolio level. Such portfolio limits
are monitored and reported to senior management.
Trading in OTC derivatives is conducted through central
counterparties (CCPs) where practicable. Where CCPs are not
used, we have clearly defined policies and processes for trading on
a bilateral basis. Trading is typically conducted under bilateral
International Swaps and Derivatives Association (ISDA) or similar
master netting agreements, which generally allow for the close-
out and netting of transactions in the event of default subject to
applicable law. For most major market participant counterparties,
we employ two-way collateral agreements under which either
party can be required to provide collateral in the form of cash or
marketable securities when the exposure exceeds specified levels.
This collateral typically consists of well-rated government debt or
other collateral permitted by applicable regulations. For certain
counterparties, an initial margin is taken to cover some or all of
the calculated close-out exposure. This is in addition to the
variation margin taken to settle changes in the market value of
transactions. Regulations governing the margining of uncleared
OTC derivatives continue to evolve. These generally expand the
counterparties
Refer to “Note 25 Offsetting financial assets and financial
liabilities” in the “Consolidated financial statements” section of
this report for more information about the effect of netting and
collateral arrangements on our derivative exposures
Credit risk arising from traded products, after the effects of
master netting agreements but excluding credit valuation
adjustments and hedges, increased by USD 6 billion to USD 48
billion as of 31 December 2019. OTC derivatives accounted for
USD 17 billion, exposures from SFTs were USD 21 billion, and
ETD exposures amounted to USD 10 billion. OTC derivatives
exposures 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 gross traded products exposures were
within the Investment Bank, Non-core and Legacy Portfolio, and
Group Treasury, totaling USD 38 billion, compared with USD 31
billion as of 31 December 2018. As counterparty risk for traded
products is managed at the counterparty level, no further split is
provided between exposures in the Investment Bank and those
in Non-core and Legacy Portfolio and Group Treasury. The
traded products exposure
includes OTC derivatives gross
exposures of USD 10 billion in the Investment Bank and Non-
core and Legacy Portfolio, an increase of USD 0.4 billion from
the prior year. During 2019, SFT exposures increased by USD 5
billion to USD 21 billion, mainly due to increases in trading
relationships and in posted collateral. ETD exposures increased
by USD 2 billion to USD 8 billion. The tables on the next page
provide more information about the OTC derivatives, SFT and
ETD exposures of the Investment Bank, Non-core and Legacy
Portfolio and Group Treasury.
125
Risk, treasury and capital management
Risk, treasury and capital management
Risk management and control
Investment Bank, Non-core and Legacy Portfolio and Group Treasury: traded products exposure
USD million
OTC derivatives
OTC derivatives
ETD
ETD
SFTs
SFTs
31.12.19
31.12.19
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
Net exposure after credit valuation adjustments, allowances and hedges
9,830
9,830
(38)
(38)
(242)
(242)
9,550
9,550
20,821
20,821
7,580
7,580
20,821
20,821
7,580
7,580
Total
Total
38,232
38,232
(38)
(38)
(242)
(242)
37,952
37,952
Total
Total
31.12.18
30,769
(136)
(288)
30,346
Investment Bank, Non-core and Legacy Portfolio and Group Treasury: distribution of net OTC derivatives and SFT
exposure across internal UBS ratings and loss given default (LGD) buckets
USD million, except where indicated
31.12.18
31.12.19
31.12.19
LGD buckets
LGD buckets
Exposure
Exposure
76–100%
0–25% 26–50% 51–75% 76–100%
0–25%
26–50%
51–75%
Weighted
Weighted
average
average
LGD (%)
LGD (%)
Weighted
average
LGD (%)
Exposure
Internal UBS rating1
Net OTC derivatives exposure
Net OTC derivatives exposure
Investment grade
Sub-investment grade
of which: 6−9
of which: 10−12
of which: 13 and defaulted
9,247
9,247
189
189
7,488
7,488
1,379
1,379
304
304
176
176
112
112
16
16
32
32
18
18
0
0
14
14
55
55
52
52
4
4
0
0
182
182
75
75
107
107
0
0
191
191
34
34
31
31
1
1
2
2
47
47
56
56
57
57
58
58
19
19
8,737
280
242
19
19
Total net OTC derivatives exposure, after credit valuation adjustments
Total net OTC derivatives exposure, after credit valuation adjustments
and hedges
and hedges
9,550
9,550
221
221
7,543
7,543
1,561
1,561
225
225
47
47
9,016
Net SFT exposure
Net SFT exposure
Investment grade
20,524
20,524
1
1
18,397
18,397
1,737
1,737
388
388
40
40
15,668
Sub-investment grade
Total net SFT exposure
Total net SFT exposure
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 this section.
1
174
174
18,571
18,571
297
297
20,821
20,821
34
34
1,772
1,772
90
90
478
478
336
16,004
62
62
40
40
0
0
1
1
Investment Bank, Non-core and Legacy Portfolio and Group Treasury: net OTC derivatives and SFT exposure
by geographical region
Asia Pacific
Latin America
Middle East and Africa
North America
Switzerland
Rest of Europe
Exposure
Exposure
Net OTC derivatives
Net OTC derivatives
Net SFT exposure
Net SFT exposure
31.12.19
31.12.19
31.12.18
31.12.19
31.12.19
31.12.18
USD million
USD million
1,383
1,383
97
97
123
123
2,421
2,421
1,022
1,022
4,503
4,503
9,550
9,550
%
%
14.5
14.5
1.0
1.0
1.3
1.3
25.3
25.3
10.7
10.7
47.2
47.2
100.0
100.0
USD million
1,309
104
109
2,621
276
4,597
9,016
%
14.5
1.2
1.2
29.1
3.1
51.0
100.0
USD million
USD million
5,055
5,055
4
4
900
900
4,714
4,714
852
852
9,297
9,297
20,821
20,821
%
%
24.3
24.3
0.0
0.0
4.3
4.3
22.6
22.6
4.1
4.1
44.7
44.7
100.0
100.0
USD million
3,408
62
549
3,014
1,375
7,597
16,004
Investment Bank, Non-core and Legacy Portfolio and Group Treasury: net OTC derivatives and SFT exposure
by industry sector
Net OTC derivatives
Net OTC derivatives
Net SFT exposure
Net SFT exposure
31.12.19
31.12.19
31.12.18
31.12.19
31.12.19
31.12.18
USD million
USD million
4,608
4,608
4
4
99
99
3,188
3,188
67
67
9
9
1,019
1,019
17
17
383
383
156
156
9,550
9,550
%
%
48.3
48.3
0.0
0.0
1.0
1.0
33.4
33.4
0.7
0.7
0.1
0.1
10.7
10.7
0.2
0.2
4.0
4.0
1.6
1.6
100.0
100.0
USD million
3,813
5
87
3,425
89
12
1,198
10
284
92
9,016
%
42.3
0.1
1.0
38.0
1.0
0.1
13.3
0.1
3.1
1.0
100.0
USD million
USD million
3,713
3,713
0
0
0
0
15,593
15,593
0
0
0
0
1,514
1,514
0
0
0
0
0
0
20,821
20,821
%
%
17.8
17.8
0.0
0.0
0.0
0.0
74.9
74.9
0.0
0.0
0.0
0.0
7.3
7.3
0.0
0.0
0.0
0.0
0.0
0.0
100.0
100.0
USD million
3,495
0
0
11,404
0
0
1,102
0
0
3
16,004
Banks
Chemicals
Electricity, gas, water supply
Financial institutions, excluding banks
Manufacturing
Mining
Public authorities
Retail and wholesale
Transport, storage and communication
Other
Exposure
Exposure
126
46
54
56
45
37
47
41
63
41
%
21.3
0.4
3.4
18.8
8.6
47.5
100.0
%
21.8
0.0
0.0
71.3
0.0
0.0
6.9
0.0
0.0
0.0
100.0
Credit risk mitigation
Audited | We actively manage the credit risk in our portfolios by
taking collateral against exposures and by utilizing credit
hedging.
Lending secured by real estate
Audited | We use a scoring model as part of a standardized front-
to-back process to support credit decisions for the origination or
modification of Swiss mortgage loans. The two key factors
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
payments, 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 estimated using a predefined framework, which
takes into account the potential for significant increases in
interest rates during the lifetime of the loan. The interest rate is
set at 5% per annum.
For residential 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 other properties, the maximum LTV
allowed within the standard approval process ranges from 30%
to 80%, depending on the type of property, the age of the
property and the amount of 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 valuation.
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 regression model (a 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 validation and benchmarking against two other external
vendors. On a quarterly 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
action taken where considered necessary.
For income-producing real estate, the capitalization model is
used to determine the property valuation by discounting
estimated 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 certain other standardized input parameters (e.g.,
property condition). 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 our internally developed models.
127
Risk, treasury and capital management
Risk, treasury and capital management
Risk management and control
Audited | We similarly apply underwriting guidelines for our
Global Wealth Management Region Americas mortgage loan
portfolio, taking into account affordability of the loans and
sufficiency of collateral. The maximum LTV within the standard
approval process for any type of mortgage
is 80%. A
stratification of LTVs exists for the various mortgage types, such
as residential mortgage or investment property, based on
associated risk factors, such as property types, loan size and loan
purpose. Maximum LTVs go as low as 45%. Additionally, other
credit risk metrics are applied, based upon property and
borrower characteristics, such as debt-to-income ratios, FICO
credit scores and required client reserves.
A risk limit framework is applied to the Global Wealth
Management Region Americas mortgage loan portfolio. Limits
have been established to govern exposures within LTV
categories, geographic concentrations, portfolio growth and
high-risk mortgage segments, such as interest-only loans. These
limits are monitored by a specialized credit risk monitoring team
and reported to senior management. Supplementing this limit
framework is a real estate lending policy and procedures
framework, established to govern the real estate lending
activities. Quality assurance and quality control programs are in
place to monitor compliance with mortgage underwriting and
documentation requirements.
Refer to “Swiss mortgage loan portfolio” in this section for
more information about LTV in our Swiss mortgage portfolio
Refer to “Global Wealth Management” in this section for more
information about LTV in our Global Wealth Management
Region Americas mortgage portfolio
Lombard lending
Audited | Lombard loans are secured by pledges of marketable
securities, guarantees and other forms of collateral. Eligible
financial securities primarily include transferable securities (such
as bonds and equities) that 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. To a lesser degree, less
liquid collateral is also financed.
We apply discounts
(haircuts) to reflect the pledged
collateral’s risk and to derive the lending value. Haircuts for
marketable securities are calculated to cover the possible change
in the market value over a given close-out period and confidence
level. The haircut applied will vary, depending on the view of the
collateral quality. Less liquid or more volatile collateral will
typically attract larger haircuts. For less liquid instruments, such
as structured products, some bonds and products with long
redemption periods, the assumed close-out period may be much
longer than that for highly liquid instruments, or an assessment
is made as to the expected recovery on the asset in the event of
the counterparty’s default, resulting in a larger haircut. For cash,
life insurance policies, guarantees and letters of credit, haircuts
are determined on a product- or client-specific basis.
We also consider concentration and correlation risks across
collateral posted at a counterparty level, as well as at a divisional
level across counterparties. Additionally, we 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
collateral, margin call and close-out
levels are adjusted
accordingly.
Exposures and collateral values are monitored on a daily basis
with the intention of ensuring that the credit exposure continues
to be within the established risk tolerance. 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 agreed lending value of the collateral. If the extent of the
shortfall increases and exceeds a further trigger level, or the
shortfall is not corrected within the required period, then a
close-out is initiated, through which collateral is liquidated, open
derivative positions are closed and guarantees are called.
We also conduct stress testing of collateralized exposures to
simulate market events that reduce the value of the collateral,
increase the exposure of traded products, or both. For certain
classes of counterparties, limits on such calculated stress
exposures are applied and controlled at a counterparty level. In
limits applied across certain
addition, there are portfolio
businesses or collateral types.
Refer to “Stress loss” in this section for more information about
our stress testing
128
Credit hedging
Audited | We utilize single-name credit default swaps (CDSs), credit
index CDSs, bespoke protection and other instruments to
actively manage credit risk in the Investment Bank and Non-core
and Legacy Portfolio. This is aimed at reducing concentrations of
risk from specific counterparties, sectors or portfolios and, in the
case of counterparty credit risk, the profit or loss effect arising
from changes in credit valuation adjustments (CVA).
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
usually apply certain credit risk mitigants, such as proxy hedges
(credit protection on a correlated but different name) or credit
index CDSs, to reduce counterparty exposures. Buying credit
protection also creates credit exposure with regard to the
protection provider. We monitor and limit our exposures to
credit protection providers and we also monitor the effectiveness
of credit hedges as part of our overall credit exposures to the
relevant counterparties. Trading with such counterparties is
typically collateralized. 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 deemed necessary.
Refer to “Note 11 Derivative instruments” in the “Consolidated
financial statements” section of this report for more
information
Mitigation of settlement risk
To mitigate settlement risk, we reduce our actual settlement
volumes
the use of multi-lateral and bilateral
agreements with counterparties, including payment netting.
through
The most significant source of our settlement risk is foreign
exchange transactions. We are a member of Continuous Linked
Settlement (CLS), an industry utility that provides a multi-lateral
framework to settle transactions on a delivery-versus-payment
basis, thereby significantly reducing foreign exchange-related
settlement risk relative to the volume of business. However, the
mitigation of settlement risk through CLS 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.
Credit risk models
Basel III – A-IRB credit risk models
| We have developed tools and models in order to
Audited
estimate future credit losses that may be implicit in our current
portfolio.
Exposures to individual counterparties are measured on the
basis of three generally accepted parameters: probability of
default (PD); exposure at default (EAD); and loss given default
(LGD). 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 ratings-based (A-IRB) approach of the
Basel III framework governing international convergence of
capital measurement and standards. We also use models to
derive the portfolio credit risk measures of expected loss,
statistical loss and stress loss.
The “Key features of our main credit risk models” table on
the next page shows the number and key features of the models
that we use to derive PD, LGD and EAD for our main portfolios
and asset classes, and is followed by more detailed explanations
of these models and parameters.
Refer to the 31 December 2019 Pillar 3 report, available under
“Pillar 3 disclosures” at www.ubs.com/investors, for more
information about the regulatory capital calculation under the
advanced internal ratings-based approach
129
Risk, treasury and capital management
Risk, treasury and capital management
Risk management and control
Key features of our main credit risk models
Asset class
Asset class
Central governments and
central banks
Model
Model
approach
approach
Score card
Probability of
Probability of
default
default
Portfolio in scope
Portfolio in scope
Sovereigns and central banks
Owner-occupied mortgages in
Switzerland and the US
Income-producing real estate
mortgages
Retail: residential
mortgages
Retail: residential
mortgages,
Corporates: specialized
lending
Number of
Number of
main models Main drivers
main models Main drivers
Number of
Number of
years loss
years loss
data1
data1
1 Political, institutional and economic indicators
>10
Behavioral data, affordability relative to income,
property type, loan-to-value. Separate models for
Score card
2 mortgages in Switzerland and the US
Loan-to-value, debt service coverage, financial data
(for large corporates only), behavioral data; Weights
of risk drivers differ between corporate and private
Score card
1 clients
Loan-to-value, historical asset returns, behavioral
Lombard lending
Retail: other
Merton type
1 data
Small and medium-sized
enterprises
Corporates: other lending Score card
1 segment
Financial data including balance sheet ratios and
profit and loss, behavioral data. Weights of risk
drivers differ depending on the corporate client sub-
Banks
Commodity traders
Banks and securities
dealers
Corporates: specialized
lending
Aircraft financing
Corporates: other lending
Large corporates
Corporates: other lending
Loss given default
Loss given default
Other portfolios
Owner-occupied mortgages in
Switzerland and the US
Corporates: other
lending,
Public-sector entities and
multilateral development
banks
Retail: residential
mortgages
Retail: residential
Income-producing real estate mortgages, Corporates:
mortgages
specialized lending
Lombard lending
Retail: other
Score card
Rating
template
Rating
template
Score card /
market data
Score card /
pooled rating
approach /
rating
template
Statistical
model
Statistical
model
Statistical
model,
simulation
Statistical
Financial data including balance sheet ratios and
profit and loss. Separate models for banks –
developed markets, banks – emerging markets,
4 broker-dealers and investment banks, private banks
Financial data including balance sheet ratios and
1 profit and loss, as well as non-financial criteria
1 Financial structure of the transaction
Financial data including balance sheet ratios and
profit and loss, and market data. Separate models for
corporates with publicly traded and highly liquid
stocks (Market Intelligence Tool), private corporates,
leveraged corporates and corporates in construction
4 and real estate business
Financial data and/or historical portfolio performance
for pooled ratings. Separate models for hedge funds,
managed funds, insurance companies, commercial
real estate loans, mortgage originators, public sector
entities and multilateral development
9 banks/supranationals
Loan-to-value, time since last valuation. Separate
2 models for mortgages in Switzerland and the US
Loan-to-value, time since last valuation, property
1 type, location indicator
1 Historical observed loss rates
Separate models for mortgage and non-mortgage
LGDs. Mortgage models: loan-to-value, time since
last valuation, property type, location indicator. Non-
Small and medium-sized
enterprises
Investment Bank – all
counterparties
Corporates: other lending model
2 mortgage models: historical observed loss rates
11–17
Counterparty and facility specific, including industry
segment, collateral, seniority, legal environment and
bankruptcy procedures. Specific model for sovereign
LGDs based on econometric modelling of past default
events using GDP per capita, government debt, and
other quantitative and qualitative factors such as the
share of multilateral debt service, the size of the
Statistical
Across the asset classes model
2 banking sector and institutional quality
Exposure at default Banking products
Exposure at default
Across the asset classes
Traded products
Across the asset classes
Statistical
model
Statistical
model
Separate models based on exposure type (committed
credit lines, revocable credit lines, contingent
3 products)
Product-specific market drivers, e.g., interest rates.
Separate models for OTC derivatives, ETDs and SFTs
that generate the simulation of risk factors used for
2 the credit exposure measure
1 For sovereign and Investment Bank PD models, the length of internal portfolio history is shown in Number of years loss data.
130
25
25
13
25
12
21
13
12
12
11
11
11
5–10
>10
n/a
Audited |
Internal UBS rating scale and mapping of external ratings
IInntteerrnnaall UUBBSS rraattiinngg
00 aanndd 11
22
33
44
55
66
77
88
99
1100
1111
1122
1133
CCoouunntteerrppaarrttyy iiss iinn ddeeffaauulltt
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
Fitch mapping
AAA
AA+ to AA–
A+ to A–
BBB+ to BBB
BBB–
BB+
BB
BB–
B+
B
B–
CCC
CC to C
D
Probability of default
Probability of default (PD) is an estimate of the likelihood of a
counterparty defaulting on its contractual obligations over the
next 12 months. PD ratings are used for credit risk measurement
and are an important input for determining credit risk approval
authorities. For the calculation of risk-weighted assets (RWA), a 3-
basis-point PD floor is applied to Banks, Corporates and Retail
exposures as required under the Basel III framework. Additionally,
for Swiss owner-occupied mortgages we apply an 8-basis-point
PD floor and for Lombard loans a 4-basis-point PD floor.
PD is assessed using rating tools tailored to the various
categories of counterparties. Statistically 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 counterparties. For low-default
portfolios, where available, we take into account relevant
external default data in the rating tool development. For
Lombard
loans, Merton-type historical return-based 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
is designed to ensure a consistent
(masterscale), which
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
probabilities. Counterparties migrate between rating classes as
our assessment of their PD changes.
The ratings of the major credit rating agencies, and their
mapping to our masterscale and internal PD bands, are shown in
the “Internal UBS rating scale and mapping of external ratings”
table above. The mapping is based on the long-term average of
one-year default rates available from the rating agencies. For
each external rating category, the average default rate is
compared with our internal PD bands to derive a mapping to our
internal rating scale. Our internal rating of a counterparty may
therefore diverge from one or more of the 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’ average in any given period.
We periodically assess the long-term average default rates of
credit rating agencies’ grades, and we adjust their mapping to
our masterscale as necessary to reflect any material changes.
Exposure at default
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 counterparty and
the possible future development of that exposure.
The EAD of an on-balance sheet loan is its notional amount.
For off-balance sheet commitments that are not drawn, credit
conversion factors (CCFs) are applied in order to obtain an
expected on-balance sheet amount. Such CCFs are based on
historical observations. To comply with regulatory guidance, we
floor individual observed CCF values at zero in the CCF model; i.e.,
we assume that the drawn EAD will be no less than the drawn
amount one year prior to default.
For traded products, we derive 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 movements over the potential time it
would take to close out our positions. For ETDs, 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 aggregating exposures to different
counterparties for portfolio risk measurement purposes, we use
the expected exposure to each counterparty at a given time period
(usually one year) generated by the same model.
131
Risk, treasury and capital management
Risk, treasury and capital management
Risk management and control
the
factors driving
We assess our exposures where there is a material correlation
the
between
counterparty and those driving the potential future value of our
traded products exposure (wrong-way risk), and we have
established specific controls to mitigate such risks.
the credit quality of
Loss given default
Loss given default (LGD) is the magnitude of the likely loss if
there is a default. Our LGD estimates, which consider downturn
conditions, include loss of principal, interest and other amounts
(such as workout costs, including the cost of carrying an
impaired position during the workout process) less recovered
amounts. We determine LGD based on the likely recovery rate of
claims against defaulted counterparties, which depends on the
type of counterparty and any credit mitigation by way of
collateral or guarantees. Our estimates are supported by our
internal loss data and external information, where available.
Where we hold collateral, such as marketable securities or a
mortgage on a property, loan-to-value ratios are typically a key
parameter in determining LGD. For low-default portfolios, where
available, we take into account relevant external default data in
the rating tool development. In the RWA calculation, the
regulatory LGD floor of 10% is applied for exposures secured by
residential properties. Additionally, we apply a 30% LGD floor
for Lombard loans in Global Wealth Management outside
Region Americas and a 25% LGD floor for Lombard loans in
Global Wealth Management Region Americas. All other LGDs
are subject to a 5% floor.
Expected loss
Credit losses are an inherent cost of doing business and 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. The
expected loss for a given credit facility is a product of the three
components described above, i.e., PD, EAD and LGD. We
aggregate the expected loss for individual counterparties to
derive our expected portfolio credit losses.
Expected loss (EL) for regulatory and internal risk control
purposes is a statistical measure used to estimate the average
annual costs we expect to experience from positions that
become impaired. Expected loss is the basis for quantifying
credit risk in all our portfolios. We use a statistical modeling
approach to estimate the loss profile of each of our credit
portfolios over a one-year period to a specified level of
confidence. The mean value of this loss distribution is the
expected loss. The EL provides an indication of the level of risk in
our portfolio and it may change over time. Some parameters
have to be estimated on a conservative basis in order to meet
the regulatory requirements for banks applying the internal
ratings-based approach to determine RWA.
132
IFRS 9 – ECL credit risk models
The IFRS 9 expected credit loss (ECL) concept differs from our
standard credit risk models in some important aspects. The
following ECL definitions are generally derivations from our
standard credit risk models.
Refer to “Note 1 Summary of significant accounting policies” in
the “Consolidated financial statements” section of this report
for more information about our accounting policy for
allowances and provisions for ECL
Probability of default
PD represents the likelihood of a default over a specified time
period. A 12-month PD represents the likelihood of default
determined for the next 12 months and a lifetime PD represents
the probability of default over the remaining lifetime of the
instrument. The lifetime PD calculation is based on a series of
12-month point-in-time PDs that are derived from through-the-
cycle PDs and scenario forecasts. This modeling is region-,
industry- and client segment-specific and considers both
macroeconomic scenario-dependencies and client-idiosyncratic
information. To derive the cumulative lifetime PD per scenario,
the series of 12-month point-in-time PDs are transformed into
marginal point-in-time PDs, taking into account any assumed
default events from prior periods.
Exposure at default
EAD represents an estimate of the exposure to credit risk at the
time of a potential default occurring during the life of a financial
instrument. It represents the cash flows outstanding at the time
of default, considering expected repayments, interest payments
and accruals, discounted at the effective interest rate. Future
drawdowns on facilities are considered through a CCF that is
reflective of historical drawdown and default patterns and the
characteristics of the respective portfolios. ECL-specific CCFs
have been modeled to capture client segment- and product-
standard-specific
specific patterns after
limitations, i.e., conservatism, and focus on a 12-month period
prior to default.
removing Basel
Loss given default
LGD represents an estimate of the loss at the time of a potential
default occurring during the life of a financial instrument. The
determination of the LGD takes into account expected future
cash flows from collateral and other credit enhancements, or
expected payouts from bankruptcy proceedings for unsecured
claims and, where applicable, time to realization of collateral
and the seniority of claims. LGD is commonly expressed as a
percentage of the relevant EAD.
Expected credit loss
Expected credit losses (ECLs) represent the difference between
contractual cash flows and those UBS expects to receive,
discounted at the EIR. For loan commitments and other credit
facilities in scope of ECL requirements, expected cash shortfalls
are determined by considering expected future drawdowns.
Rather than focusing on an average through-the-cycle expected
annual loss, its purpose is to estimate the amount of losses
inherent in a portfolio based on current conditions and future
outlook (a point-in-time measure), whereby such forecast has to
include all information that is available without undue cost and
effort, and address multiple scenarios where there is a perceived
non-linearity between changes in economic conditions and their
effect on credit losses. From a credit risk modeling perspective,
ECL parameters are generally a derivation of the factors assessed
for regulatory Basel III EL.
Comparison of Basel III EL and IFRS 9 ECL
Depending on the application, there are a number of key
differences in the estimation process and the result thereof.
Most notably, regulatory Basel III EL parameters are through-the-
cycle / downturn estimates, which might include a margin of
conservatism, while IFRS 9 ECL parameters are typically point-in-
time, reflecting current economic conditions and future outlook.
The main differences are summarized in the table below.
The estimation of expected (credit) loss is not a forecast of
the annual charge to Credit loss expense resulting from loans
and off-balance sheet exposures that become impaired. Basel III
EL is not particularly sensitive to prevailing economic conditions
with its through-the-cycle / downturn view. ECL, in contrast, is
grounded in point-in-time economic conditions, but measured
as an average of different scenarios, and for time periods that
are dependent on the maturity profile of the book at reporting
date and the particular stage classification required by IFRS 9. It
does not, therefore, cover a point-in-time credit loss expense
expectation measured over a quarter or a calendar year.
Further key aspects of credit risk models
Stress loss
We complement our statistical modeling approach with
scenario-based stress loss measures. Stress tests are run on a
regular basis to monitor the potential effect of extreme, but
nevertheless 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.
In the table below, we illustrate the main differences between the two expected loss measures:
BBaasseell IIIIII EELL ((aaddvvaanncceedd iinntteerrnnaall rraattiinnggss--bbaasseedd aapppprrooaacchh))
IIFFRRSS 99 EECCLL
SSccooppee
The Basel III advanced internal ratings-based (A-IRB) approach applies to
most credit risk exposures. It includes transactions measured at amortized
cost, at fair value through profit or loss and at fair value through OCI,
including loan commitments and financial guarantees.
The IFRS 9 expected credit loss (ECL) 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 or loss.
1122--mmoonntthh vveerrssuuss lliiffeettiimmee
eexxppeecctteedd lloossss
The Basel III A-IRB approach takes into account expected losses resulting
from expected default events occurring within the next 12 months.
EExxppoossuurree aatt ddeeffaauulltt
((EEAADD))
PPrroobbaabbiilliittyy ooff ddeeffaauulltt
((PPDD))
EAD is the amount we expect a counterparty to owe us at the 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, irrespective of the actual maturity of a
particular transaction. The credit conversion factor includes downturn
adjustments.
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
movements in the underlying economy.
LLoossss ggiivveenn ddeeffaauulltt
((LLGGDD))
LGD includes prudential adjustments, such as downturn LGD assumptions
and floors. Similar to PD, LGD is determined on a TTC basis.
UUssee ooff sscceennaarriiooss
N/A
In the absence of a significant increase in credit risk (SICR), a maximum
12-month ECL is recognized to reflect lifetime cash shortfalls that will
result if a default event occurs in the 12 months after the reporting date
(or a shorter period if the expected lifetime is less). Once an SICR event
has occurred, a lifetime ECL is recognized considering expected default
events over the life of the transaction.
EAD is generally calculated on the basis of the cash flows that are
expected to be outstanding at the individual points in time during the life
of the transaction, 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 life of the transaction
without including downturn assumptions. In both cases, the time period is
capped at 12 months, unless an SICR has occurred.
PD estimates will be determined on a point-in-time (PIT) basis, based on
current conditions and incorporating forecasts for future economic
conditions at the reporting date.
LGD should reflect the losses that are reasonably expected and prudential
adjustments should therefore not be applied. Similar to PD, LGD is
determined on the basis of a PIT approach.
Multiple forward-looking scenarios have to be taken into account to
determine a probability-weighted ECL.
133
Risk, treasury and capital management
Risk, treasury and capital management
Risk management and control
Stress scenarios and methodologies are tailored to the nature
of the portfolios, ranging from regionally focused to global
systemic events, and varying in time horizon. For example, for
our loan 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 collateral and exposure positions, taking into consideration
their liquidity 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
about our stress testing framework
Credit risk model confirmation
Our approach to model confirmation involves both quantitative
methods, including monitoring compositional changes in the
portfolios and the results of backtesting, and qualitative
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
regular analyses of the evolution of portfolios to identify such
changes in the structure and credit quality of portfolios. This
includes analyses of changes in key attributes, changes in
portfolio concentration measures, as well as changes in RWA.
Refer to “Risk measurement” in this section for more
information about our approach to model confirmation
procedures
Backtesting
We monitor the performance of our models by backtesting and
benchmarking them, whereby model outcomes are compared
with actual results, based on our internal experience and
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
predicted future exposure distributions at different forecast
horizons with the realized values.
For PD, we use statistical modeling to derive a predicted
distribution 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 conservatism.
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 fails, there is evidence that our predicted LGD is too low.
In such cases, and where these differences are outside
expectations, models are recalibrated.
Main credit models backtesting by regulatory asset class
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
2019 in %
Probability of default3
Probability of default3
Central governments and central banks
Banks and securities dealers
Public-sector entities, multilateral development banks
Corporates: specialized lending
Corporates: other lending
Retail: residential mortgages
Retail: other
Loss given default
Loss given default
Central governments and central banks
Banks and securities dealers
Public-sector entities, multilateral development banks
Corporates: specialized lending
Corporates: other lending
Retail: residential mortgages
Retail: other
Credit conversion factors
Credit conversion factors
Corporates
>104
>10
>10
>10
>10
>20
>10
>10
>10
>10
>10
>10
>20
>10
0.00
0.03
0.15
0.32
0.25
0.21
0.00
7.40
26.40
0.80
29.20
0.00
0.00
0.00
0.15
0.21
0.12
0.00
0.00
8.00
0.20
17.90
0.00
0.21
0.53
0.60
0.29
0.28
0.01
34.60
28.00
1.70
65.30
0.17
0.19
0.64
1.21
0.46
0.56
0.30
51.00
27.50
48.70
23.20
37.70
20.70
27.40
>10
15.80
6.90
44.30
40.20
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
1 Average of all observations over the last five years.
1
2
observations occurred during that year. 3 Average PD estimation is based on all rated clients in the portfolio. 4 Sovereign PD model is calibrated to UBS masterscale, length of time series shows span of internal
history for this portfolio.
3
4
134
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
for defaulted
historical utilization of
such
is
counterparties.
observed, the relevant CCFs are redefined.
If any statistically significant deviation
facilities
The “Main credit models backtesting by regulatory asset
class” 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
As part of our continuous efforts to enhance models to reflect
market developments and newly available data, we updated
several models in the course of 2019.
In Personal & Corporate Banking and Global Wealth
Management, we completed the phasing-in of RWA increases
related to PD and LGD changes of the revised models for Swiss
residential mortgages that were implemented in 2017. With
regard to the EAD, the CCF for zero-balance securities-backed
lending and margin loans in Global Wealth Management was
changed from 5% to 15%.
Within the Investment Bank, selected portfolios with lower
materiality levels and exposures rated by expert judgment were
moved to the Standardized Approach for the RWA calculation.
Where required, changes to models and model parameters
were approved by the Swiss Financial Market Supervisory
Authority (FINMA) prior to implementation.
Refer to “Risk-weighted assets” in the “Capital management”
section of this report for more information about the effect of
the changes to models and model parameters on credit risk
RWA
Future credit risk-related regulatory capital developments
In December 2017, the Basel Committee on Banking Supervision
announced the finalization of the Basel III framework, which we
currently expect FINMA to introduce into national law later than
the originally communicated effective date of 1 January 2022.
The updated framework has made a number of revisions to the
internal ratings-based (IRB) approaches, namely: (i) removing the
possibility of using the advanced IRB (A-IRB) approach for certain
asset classes (including large and medium-sized corporate
clients, banks and other financial institutions); (ii) placing floors
on certain model inputs under the IRB approach, such as for PD
and LGD; and (iii) introducing various requirements to reduce
RWA variability (for example, for LGD).
The published framework has a number of requirements that
are subject to national discretion. In addition, revisions to the
credit valuation adjustment (CVA) framework were published,
including the removal of the advanced CVA (A-CVA) approach.
UBS maintains a close dialog with FINMA to discuss in more
detail the implementation objectives and to prepare for a
smooth transition of the capital regime for credit risk.
Refer to “Capital management objectives, planning and
activities” in the “Capital management” section of this report
for more information about the development of RWA
Refer to “Risk measurement” in this section for more
information about our approach to model confirmation
procedures
Refer to the “Regulatory and legal developments” and “Risk
factors” sections of this report for more information
Credit policies for distressed assets
The “Exposure categorization” chart on the next page illustrates
how we categorize banking products and securities financing
transactions as non-performing, defaulted, credit-impaired and
purchased or originated credit-impaired.
Non-performing
Audited | In line with the regulatory definition, we report a claim as
non-performing when: (i) it is more than 90 days past due; (ii) it
is subject to restructuring proceedings, where preferential
conditions concerning interest rates, subordination, tenor, etc.
have been granted in order to avoid default of the counterparty
(forbearance); or (iii) the counterparty is subject to bankruptcy /
enforced liquidation proceedings in any form, even if there is
sufficient collateral to cover the due payment or there is other
evidence that payment obligations will not be fully met without
recourse to collateral.
135
Risk, treasury and capital management
Risk, treasury and capital management
Risk management and control
Default and credit-impaired
UBS applies a single definition of default for classifying assets
and determining the PD of its obligors for risk modeling
purposes. The definition of default is based on quantitative and
qualitative criteria. A counterparty is classified as defaulted at
the latest when material payments of interest, principal or fees
are overdue for more than 90 days, or more than 180 days for
certain exposures in relation to loans to private and commercial
clients in Personal & Corporate Banking, and to private clients of
Global Wealth Management Region Switzerland. UBS does not
consider the general 90-day presumption for default recognition
appropriate for those latter portfolios based on an analysis of
the cure rates, which demonstrated that strict application of the
90-day criterion would not accurately reflect the inherent credit
risk. Counterparties are also classified as defaulted when:
bankruptcy, insolvency proceedings or enforced liquidation have
commenced; obligations have been restructured on preferential
terms (forbearance); or there is other evidence that payment
obligations will not be fully met without recourse to collateral.
(cid:39)(cid:90)(cid:82)(cid:81)(cid:85)(cid:87)(cid:84)(cid:71)(cid:2)(cid:69)(cid:67)(cid:86)(cid:71)(cid:73)(cid:81)(cid:84)(cid:75)(cid:92)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)
The latter may be the case even if, to date, all contractual
payments have been made when due. If one claim against a
counterparty is defaulted on, generally all claims against the
counterparty are treated as defaulted.
if
An
instrument
is classified as credit-impaired
the
counterparty is classified as defaulted, and/or the instrument is
identified as purchased or originated credit-impaired (POCI). An
instrument is POCI if it has been purchased at a deep discount to
its carrying amount following a risk event of the issuer or
originated with a defaulted counterparty. Once a financial asset
is classified as defaulted / credit-impaired (except POCI), it is
reported as a stage 3 instrument and remains as such unless all
past due amounts have been rectified, additional payments have
been made on time, the position is not classified as credit-
restructured, and there is general evidence of credit recovery. A
three-month probation period is applied before a transfer back
to stages 1 or 2 can be triggered. However, most instruments
remain in stage 3 for a longer period.
(cid:50)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:75)(cid:80)(cid:73)
(cid:48)(cid:81)(cid:80)(cid:15)(cid:82)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:75)(cid:80)(cid:73)(cid:19)
(cid:53)(cid:86)(cid:67)(cid:73)(cid:71)(cid:2)(cid:19)
(cid:53)(cid:86)(cid:67)(cid:73)(cid:71)(cid:2)(cid:20)(cid:2)(cid:10)(cid:85)(cid:75)(cid:73)(cid:80)(cid:75)(cid:386)(cid:69)(cid:67)(cid:80)(cid:86)(cid:2)(cid:75)(cid:80)(cid:69)(cid:84)(cid:71)(cid:67)(cid:85)(cid:71)(cid:2)(cid:75)(cid:80)(cid:2)(cid:69)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:11)
(cid:53)(cid:86)(cid:67)(cid:73)(cid:71)(cid:2)(cid:21)(cid:2)(cid:10)(cid:69)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:15)(cid:75)(cid:79)(cid:82)(cid:67)(cid:75)(cid:84)(cid:71)(cid:70)(cid:19) (cid:2)
(cid:37)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:2)(cid:71)(cid:90)(cid:82)(cid:81)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85)(cid:2)(cid:89)(cid:75)(cid:86)(cid:74)(cid:2)(cid:80)(cid:81)(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:75)(cid:80)(cid:69)(cid:84)(cid:71)(cid:67)(cid:85)(cid:71)(cid:2)
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136
Forbearance (credit restructuring)
Audited | Under imminent payment default or where default has
already occurred, we may grant concessions to borrowers in
financial difficulties that we would otherwise not consider in the
normal course of our business, such as offering preferential
interest rates, extending maturity, modifying the schedule of
repayments, debt / equity swap, subordination, etc. When a
forbearance measure takes place, each case is considered
individually and the exposure is generally classified as defaulted.
Forbearance classification will remain until the loan is collected
or written off, non-preferential conditions are granted that
supersede the preferential conditions or until the counterparty
has recovered and the preferential conditions no longer exceed
our risk tolerance.
Contractual adjustments when there is no evidence of
imminent payment default, or where changes to terms and
conditions are within our usual risk tolerance, are not considered
to be forborne.
Loss history statistics
An instrument is classified as credit-impaired if the counterparty
has defaulted. This also includes credit-impaired exposures for
which no loss has occurred or for which no allowance has been
recognized
(e.g., because they are expected to be fully
recoverable through the collateral held).
The “Loss history statistics” table below provides a five-year
history of our credit loss experience for loans and advances to
banks and customers, and ratios of those credit losses relative to
our credit-impaired and non-performing loans and advances to
banks and customers. For the years 2015 to 2017, the amounts
are based on IAS 37 and IAS 39; for 2018 and 2019, the
amounts are based on IFRS 9.
Credit-impaired loans and advances to banks and customers
were USD 2.3 billion as of 31 December 2019, unchanged
compared with 31 December 2018.
The majority of the credit-impaired exposure relates to loans
and advances in our Swiss domestic business. The ratio of credit-
impaired loans and advances to banks and customers to total
loans and advances to banks and customers was 0.7%,
unchanged compared with 31 December 2018.
Refer “Note 10 Financial assets at amortized cost and other
positions in scope of expected credit loss measurement” and
“Note 23 Expected credit loss measurement” in the
“Consolidated financial statements” section of this report for
more information about ECL measurement
Refer to “Note 17a Other financial assets measured at
amortized cost” in the “Consolidated financial statements”
section of this report for more details
Loss history statistics
USD million, except where indicated
Loans and advances to banks and customers (gross)
Credit-impaired loans and advances to banks and customers
Non-performing loans and advances to banks and customers
ECL allowances and provisions for credit losses1,2
of which: allowances for loans and advances to banks and customers 1
Write-offs3
of which: write-offs for loans and advances to banks and customers
3311..1122..1199
IIFFRRSS 99
334400,,000033
22,,330099
22,,446666
11,,002299
777700
114422
112222
((7788))
31.12.18
IFRS 9
338,000
2,300
2,419
1,054
780
210
192
(118)
31.12.17
IAS 37, IAS 39
342,604
1,104
2,149
712
678
101
101
(131)
31.12.16
IAS 37, IAS 39
314,485
958
2,357
642
589
121
121
(38)
31.12.15
IAS 37, IAS 39
324,059
1,224
1,627
726
691
116
116
(118)
Credit loss (expense) / recovery4
RRaattiiooss
Credit-impaired loans and advances to banks and customers as a percentage of loans and advances to banks
and customers (gross)
Non-performing loans and advances to banks and customers as a percentage of loans and advances to banks
and customers (gross)
ECL allowances for loans and advances to banks and customers as a percentage of loans and advances to
banks and customers (gross)
Net write-offs as a percentage of average loans and advances to banks and customers (gross) outstanding
during the period
0.0
11 Includes collective loan loss allowances (until 31 December 2017). Until 31 December 2017 did not include allowances for other receivables (31 December 2017: USD 19 million; 31 December 2016: USD 0
33 Includes net write-offs for loan
million; 31 December 2015: USD 0 million).
commitments and securities financing transactions. 44 Includes credit loss (expense) / recovery for other financial assets at amortized cost, guarantees, loan commitments, and securities financing transactions.
22 Includes provisions for ECL of guarantees and loan commitments and allowances for securities financing transactions.
00..22
00..77
00..77
0.7
0.3
0.3
0.7
0.6
0.7
0.2
00..00
0.2
0.2
0.1
0.0
0.0
0.4
0.5
0.2
137
Risk, treasury and capital management
Risk, treasury and capital management
Risk management and control
Market risk
Key developments
Market risk remained at low levels as a result of our continued
focus on managing tail risks. Average management VaR (1-day,
95% confidence level) decreased to USD 11 million from USD 12
million in the prior year, mainly driven by the Investment Bank’s
Equities business. The number of negative backtesting
exceptions within a 250-business-day window decreased from 2
to 0 by the end of the year. The FINMA VaR multiplier for
market risk RWA remained unchanged at 3 as of 31 December
2019.
Audited | Main sources of market risk
Market risks arise from both our trading and non-trading
business activities.
– Trading market risks arise mainly in connection with primary
debt and equity underwriting, securities and derivatives trading
for market-making and client facilitation within our Investment
Bank, as well as the remaining positions within Non-core and
Legacy Portfolio in Corporate Center and our municipal
securities trading business within Global Wealth Management.
– Non-trading market risks arise predominantly in the form of
interest rate and foreign exchange risks in connection with
personal banking and lending in our wealth management
businesses, our personal and corporate banking business in
Switzerland and the Investment Bank’s lending business, in
addition to treasury activities.
– Group Treasury assumes market risks in the process of
managing interest rate risk, structural foreign exchange risk
and the liquidity and funding profile (including high-quality
liquid assets) 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.
Audited | Overview of measurement, monitoring and
management techniques
– Market risk limits are set for the Group, the business divisions,
Group Treasury and Non-core and Legacy Portfolio at
granular levels within the various business lines, reflecting the
nature and magnitude of the market risks.
– Management VaR measures exposures under the market risk
framework. This includes trading market risks and parts of
non-trading market risks. Non-trading market risks not
included in VaR are also covered in the risks controlled by
Market & Treasury Risk Control as set out further below.
– Our primary portfolio measures of market risk are liquidity-
adjusted stress (LAS) loss and VaR. Both are common to all
our business divisions and subject to limits that are approved
by the Board of Directors (the BoD).
138
– These measures are complemented by concentration and
granular limits for general and specific market risk factors.
Our trading businesses are subject to multiple market risk
limits. These limits take into account the extent of market
liquidity and volatility, available operational capacity,
valuation uncertainty and, for our single-name exposures, the
credit quality of issuers.
– Trading market risks are managed on an integrated basis at a
portfolio level. As risk factor sensitivities change due to new
transactions, transaction expiries or changes in market levels,
risk factors are dynamically rehedged to remain within limits.
Accordingly, in the trading portfolio, we do not generally
seek to distinguish between specific positions and associated
hedges.
– Issuer risk is controlled by limits applied at the business
division
jump-to-zero measures, which
estimate our maximum default exposure (the loss in the case
of a default event assuming zero recovery).
level based on
– Non-trading foreign exchange risks are managed under
market risk limits, with the exception of Group Treasury
management of consolidated capital activity.
Our Market & Treasury Risk Control function applies a holistic
risk framework, which sets the appetite for treasury-related risk-
taking activities across the Group. A key element of the
framework is an overarching economic value sensitivity limit, set
by the BoD. This limit is linked to the level of Basel III common
equity tier 1 (CET1) capital, and takes into account risks arising
from interest rates, foreign exchange and credit spreads. In
addition, the sensitivity of net interest income to changes in
interest rates is monitored against targets set by the Group Chief
Executive Officer, in order to analyze the outlook and volatility of
net interest income based on market-expected interest rates.
Limits are also set by the BoD to balance the effect of foreign
exchange movements on our CET1 capital and CET1 capital
ratio. Non-trading interest rate and foreign 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
controls, including preapproval of new investments by business
management and Risk Control and regular monitoring and
reporting. They are also included in our Group-wide statistical
and stress testing metrics, which flow into our risk appetite
framework.
Refer to “Currency management” in the “Treasury
management” section of this report for more information about
Group Treasury’s management of foreign exchange risks
Refer to the “Capital management” section of this report for
more information about the sensitivity of our CET1 capital and
CET1 capital ratio to currency movements
Market risk stress loss
In addition to VaR, which is discussed below, we measure and
manage our market risks 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 with the intention of ensuring that any
losses resulting from an extreme yet plausible event do not
exceed our risk appetite.
Liquidity-adjusted stress
Our primary measure of stress loss for Group-wide market risk is
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 holding periods, as
explained below. Shocks are then applied to positions 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
positions in each major risk factor in a stressed environment,
assuming maximum utilization of the relevant position limits. We
also apply minimum holding 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
combination of historical market behavior, based on an analysis
of historical events, and forward-looking analysis that includes
consideration of defined scenarios that have not occurred
historically.
LAS-based limits are applied at a number of levels: Group,
business division, Group Treasury and Non-core and Legacy
Portfolio; business area; and sub-portfolio. In addition, LAS
forms the core market risk component of our combined stress
test framework and is therefore integral 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
about our stress testing framework
Value-at-risk
VaR definition
Audited | VaR is a statistical measure of market risk, representing
the market risk losses that could potentially 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. The profit or loss
distribution from which VaR is derived is generated by our
internally developed VaR model. The VaR model simulates
returns over the holding period of those risk factors to which our
trading positions are sensitive, and subsequently quantifies the
profit or loss effect of these risk factor returns on the trading
positions. Risk factor returns associated with the risk factor
classes of general
interest rates, foreign exchange and
commodities are based on a pure historical simulation approach,
taking into account a five-year look-back window. Risk factor
returns for selected issuer-based risk factors, such as equity price
and credit spreads, are decomposed into systematic and
residual,
issuer-specific components using a factor model
approach. Systematic returns are based on historical simulation,
and residual returns are based on a Monte Carlo simulation. The
VaR model profit or loss distribution is derived from the sum of
the systematic and residual returns in such a way that we
consistently capture systematic and residual risk. Correlations
among risk factors are implicitly captured via the historical
simulation approach. In modeling the risk factor returns, we
consider the stationarity properties of the historical time series of
risk factor changes. Depending on the stationarity properties of
the risk factors within a given risk factor class, we choose to
model the risk factor returns using absolute returns or
logarithmic returns. The risk factor return distributions are
updated on a fortnightly basis.
Although our VaR model does not have full revaluation
capability, we source full revaluation grids and sensitivities from
our front-office systems, enabling us to capture material non-
linear profit or loss effects.
We use a single VaR model for both internal management
purposes and determining market risk risk-weighted assets
(RWA), although we consider different confidence levels and
time horizons. For internal management purposes, we establish
risk limits and measure exposures using VaR at the 95%
confidence level with a one-day holding period, aligned to the
way we consider the risks associated with our trading activities.
The regulatory measure of market risk used to underpin the
market risk capital requirement under Basel III requires a
measure equivalent to a 99% confidence level using a 10-day
holding period. In the calculation of a 10-day holding period
VaR, we employ 10-day risk factor returns, whereby all
observations are equally weighted.
Additionally,
the population of
the portfolio within
management and regulatory VaR is slightly different. The
population within regulatory VaR meets 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.
139
Risk, treasury and capital management
Risk, treasury and capital management
Risk management and control
We also use stressed VaR (SVaR) for the calculation of market risk Management VaR for the period
RWA. SVaR adopts broadly the same methodology as regulatory The tables below show minimum, maximum, average and
VaR and is calculated using the same population, holding period period-end management VaR by business division and Corporate
(10-day) and confidence level (99%). However, unlike regulatory Center, and by general market risk type. We continued to
VaR, the historical data set for SVaR is not limited to five years, but manage management VaR at low levels with average VaR
instead spans the time period from 1 January 2007 to the present. decreasing to USD 11 million from USD 12 million in the prior
In deriving SVaR, we search for the largest 10-day holding period
VaR for the current Group portfolio across all one-year look-back
windows that fall into the interval from 1 January 2007 to the
present. SVaR is computed weekly.
year.
Refer to the 31 December 2019 Pillar 3 report, available under
“Pillar 3 disclosures” at www.ubs.com/investors, for more
information about the regulatory capital calculation under the
advanced internal ratings-based approach
Audited |
Management value-at-risk (1-day, 95% confidence, 5 years of historical data) of our business divisions and Corporate
Center by general market risk type1
For the year ended 31.12.19
For the year ended 31.12.19
USD million
Total management VaR, Group
Total management VaR, Group
Global Wealth Management
Personal & Corporate Banking
Asset Management
Investment Bank
Corporate Center
Diversification effect2,3
USD million
Min.
Min.
6
6
0
0
0
0
0
0
4
4
4
4
Min.
Max.
Max.
Average
Average
18
18
1
1
0
0
0
0
17
17
8
8
31.12.19
31.12.19
9
9
1
1
0
0
0
0
7
7
5
5
(4)
(4)
11
11
1
1
0
0
0
0
9
9
5
5
(5)
(5)
Equity
Equity
2
2
14
14
6
6
5
5
0
0
0
0
0
0
6
6
1
1
(1)
(1)
Interest
Interest
rates
rates
6
6
12
12
9
9
8
8
Credit
Credit
spreads
spreads
3
3
8
8
5
5
5
5
Average (per business division and risk type)
Average(perbusinessdivisionandrisktype)
Foreign
Foreign
exchange
exchange
2
2
8
8
3
3
3
3
Commodities
Commodities
1
1
6
6
2
2
3
3
1
1
0
0
0
0
7
7
5
5
(4)
(4)
1
1
0
0
0
0
4
4
2
2
(2)
(2)
0
0
0
0
0
0
3
3
1
1
(1)
(1)
0
0
0
0
0
0
2
2
0
0
0
0
For the year ended 31.12.18
Max.
Average
31.12.18
12
Equity
3
22
8
5
Interest
rates
5
11
8
7
Credit
spreads
5
9
7
5
Average (per business division and risk type)
Foreign
exchange
1
13
3
6
Commodities
1
4
2
2
5
26
12
Total management VaR, Group
Total management VaR, Group
0
Global Wealth Management
0
Personal & Corporate Banking
0
Asset Management
2
Investment Bank
0
Corporate Center
Diversification effect2,3
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
1
line or risk type, being driven by the extreme loss tail of the corresponding distribution of simulated profits and losses for that business line or risk type, may well be driven by different days in the historical time
series, rendering invalid the simple summation of figures to arrive at the aggregate total. 2 Difference between the sum of the standalone VaR for the business divisions and Corporate Center and the VaR for the
Group as a whole. 3 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.
0
0
0
3
1
(1)
2
0
0
6
2
(3)
0
0
0
8
1
(1)
1
0
0
6
4
(4)
1
0
0
10
6
(5)
1
0
0
11
5
(5)
2
0
0
25
7
0
0
0
4
4
3
2
140
VaR limitations
Audited | Actual realized market risk losses may differ from those
implied by our VaR for a variety of reasons.
– The VaR measure is calibrated to a specified level of
confidence and may not indicate potential losses beyond this
confidence level.
– The one-day time horizon used for VaR for
internal
management 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 effect of
changes in risk factors on the values of positions and
portfolios. This may happen because the number of risk
factors included in the VaR model is necessarily limited.
– The effect of extreme market movements is subject to
estimation errors, which may result from non-linear risk
sensitivities, as well as the potential for actual volatility and
correlation levels 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, following 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.
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 absence of
the five-year window provides a longer history of potential
loss events. Therefore, although the significant period of stress
during the financial crisis of 2007–2009 is no longer contained
in the historical five-year period used for management and
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 recognize that no single measure may encompass the
entirety of risks associated with a position or portfolio.
Consequently, we employ a suite of various metrics with both
overlapping and complementary characteristics in order to create
a holistic framework that seeks to ensure material completeness
of risk identification and measurement. As a statistical aggregate
risk measure, VaR supplements our liquidity-adjusted stress and
comprehensive stress testing frameworks.
We also have a framework to identify and quantify potential
risks that are not fully captured by our VaR model. We refer to
these risks as risks-not-in-VaR. This framework is used to
underpin these potential risks with regulatory capital, calculated
as a multiple of regulatory VaR and stressed VaR.
Backtesting of VaR
VaR backtesting is a performance measurement process in which
the 1-day VaR prediction is compared with the realized 1-day
profit or loss (P&L). We compute backtesting VaR using a 99%
confidence level and one-day holding period for the population
included within regulatory VaR. Since 99% VaR at UBS is
defined as a risk measure that operates on the lower tail of the
P&L distribution, 99% backtesting VaR is a negative number.
Backtesting revenues exclude non-trading revenues, such as
valuation reserves, fees and commissions and revenues from
intraday trading, to provide for a like-for-like comparison. A
backtesting exception occurs when backtesting revenues are
lower than the previous day’s backtesting VaR.
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141
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Statistically, given the confidence level of 99%, two or three
backtesting exceptions per year can be expected. More than
four exceptions could indicate that the VaR model is not
performing 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 backtesting revenues, with results being
reported to senior business management, the Group Chief Risk
Officer and the Group Chief Market & Treasury Risk Officer.
Backtesting exceptions are also reported to internal and external
auditors and to the relevant regulators.
The “Group: development of regulatory backtesting revenues
and actual trading revenues against backtesting VaR” chart on
the previous page shows the 12-month development of
backtesting VaR against the Group’s backtesting revenues and
actual trading revenues for 2019. The chart shows both the
99% and the 1% backtesting VaR. 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.
VaR model developments in 2019
Audited | We did not make any material changes to the VaR model
in 2019.
Future market risk-related regulatory capital developments
In January 2019, the Basel Committee on Banking Supervision
published the final rules on the minimum capital requirements
for market risk (the Fundamental Review of the Trading Book).
As per the Swiss timelines for adopting Basel III, the new accord
is expected to enter into force on 1 January 2023 at the earliest.
Key elements of the revised market risk framework include:
(i) changes to the internal model-based approach, including
changes to the model approval and performance measurement
process; (ii) changes to the standardized approach with the aim
of it being a credible fallback method for an internal model-
based approach; and (iii) a revised boundary between trading
book and banking book. UBS maintains a close dialog with
FINMA to discuss the implementation objectives in more detail
and to provide a smooth transition of the capital regime for
market risk.
Refer to “Capital management objectives, planning and
activities” in the “Capital management” section of this report
in addition
to
for more information about the development of RWA
Refer to “Risk measurement” in this section for more
information about our approach to model confirmation
procedures
Refer to the “Regulatory and legal developments” and “Risk
factors” sections of this report for more information
The actual
trading
backtesting revenues, intraday revenues.
revenues
include,
The number of negative backtesting exceptions within a
250-business-day window decreased from 2 to 0 by the end of
the year. The FINMA VaR multiplier for market risk RWA
remained unchanged at 3 as of 31 December 2019.
VaR model confirmation
In addition to backtesting performed for regulatory purposes as
described above, we also conduct extended backtesting for our
internal model confirmation purposes. This includes observing
model performance across the entire P&L distribution, not just
the tails, and at multiple levels within the business division and
Corporate Center hierarchies.
Refer to “Risk measurement” in this section for more
information about our approach to model confirmation
procedures
142
Interest rate risk in the banking book
–
Changes to our interest rate risk in the banking book disclosure
Based on the 2016 standards of the Basel Committee on Banking
Supervision, FINMA published the revised Circular “2019/2
Interest Rate Risk – Banks,” which sets out minimum standards for
the measurement, management, monitoring and control of
interest rate risks in the banking book (IRRBB). This circular came
into effect in January 2019, with the first enhanced Pillar 3
disclosure provided in our 30 June 2019 Pillar 3 report.
We have aligned the IRRBB disclosure in our financial reports
to the new Pillar 3 requirements. In particular, the economic
value of equity (EVE) sensitivity is assessed under six regulatory
rate-shock scenarios defined by FINMA in the circular, which are
currency-specific and not subject to flooring.
Sources of interest rate risk in the banking book
Audited | IRRBB arises from balance sheet positions such as Loans
and advances to banks, Loans and advances to customers,
Financial assets at fair value not held for trading, Financial assets
measured at amortized cost, Customer deposits, Debt issued
measured at amortized cost, and derivatives, including those
used for cash flow hedge accounting purposes. These positions
may affect other comprehensive income (OCI) or the income
statement, depending on their accounting treatment.
Our largest banking book interest rate exposures arise from
customer deposits and lending products in Global Wealth
Management and Personal & Corporate Banking. The inherent
interest rate risks are generally transferred from Global Wealth
Management and Personal & Corporate Banking to Group
Treasury, to manage them centrally within Corporate Center.
This allows for the netting of interest rate risks across different
sources, while
the originating businesses with
commercial margin and volume management. The residual
interest rate risk is mainly hedged with interest rate swaps, to
the vast majority of which we apply hedge accounting. Short-
term exposures and high-quality liquid assets classified as
Financial assets at fair value not held for trading are hedged with
derivatives accounted for on a mark-to-market basis. Long-term
fixed-rate debt issued is hedged with interest rate swaps
designated in fair value hedge accounting relationships.
leaving
Risk management and governance
IRRBB is measured using a number of metrics, the most relevant
of which are the following:
–
Interest rate sensitivities to parallel shifts in yield curves,
calculated as changes in the present value of future cash
flows irrespective of accounting treatment. These are also the
key risk factors for statistical and stress-based measures, such
as value-at-risk and stress scenarios (including EVE sensitivity),
and are measured and reported with a daily frequency. EVE
sensitivity is the exposure arising from the most adverse
regulatory
rate scenario after netting across
currencies. In addition to the regulatory measure, we apply an
internal EVE sensitivity metric that includes equity, goodwill,
real estate and additional tier 1 (AT1) capital instruments.
interest
Net interest income (NII) sensitivity assesses the change in NII
over a set time horizon compared with the baseline NII, which
we internally calculate by assuming that interest rates in all
currencies develop according to their market-implied forward
rates and under the assumption of constant business volumes
and no specific management actions. The internal NII
sensitivity, which includes the contribution from cash held at
central banks, unlike the Pillar 3 disclosure requirements, is
measured and reported on a monthly basis.
We actively manage IRRBB, with the objective of reducing the
volatility of NII, while keeping the EVE sensitivity within set internal
risk limits.
EVE and NII sensitivity are monitored against limits and triggers,
both at consolidated and at significant legal entity levels. We also
assess the sensitivity of EVE and NII under stressed market
conditions by applying a suite of parallel and non-parallel interest
rate scenarios, as well as specific economic scenarios.
The
Interest Rate Risk
in the Banking Book Strategy
Committee, which is a sub-committee of the Group Asset and
Liability Committee (ALCO), and, where relevant, ALCOs at a
legal entity level, perform independent oversight over the
management of IRRBB. IRRBB is also subject to Group Internal
Audit and model governance.
Refer to “Group Internal Audit” in the “Corporate governance”
section of this report and to “Risk measurement” in this section
for more information
Key modeling assumptions
The cash flows from customer deposits and lending products
used in the calculation of EVE sensitivity exclude commercial
margins and other spread components, are aggregated for each
business day and are discounted using risk-free rates. Our
external issuances are discounted using UBS’s senior debt curve,
and capital instruments are modeled to the first call date. NII
sensitivity is calculated over a one-year time horizon, assuming
constant balance sheet structure and volumes, and considers the
flooring effect of embedded interest rate options.
The average repricing maturity of non-maturing deposits and
loans is determined via replication portfolio strategies that are
designed to protect product margin. Optimal replicating
portfolios are determined at a granular currency- and product-
specific level by simulating and applying a real-world market rate
model to historically calibrated client rate and volume models.
We use an econometric prepayment model to forecast
prepayment rates on US mortgage loans in UBS Bank USA, as
well as agency mortgage-backed securities (MBSs) held in
various
liquidity portfolios of UBS Americas Holding LLC
consolidated. These prepayment rates are used to forecast both
mortgage loan and MBS balances under various macroeconomic
scenarios. The prepayment model is used for a variety of
purposes, including risk management and regulatory stress
testing. Mortgages in Switzerland and fixed-term deposits
generally do not carry similar optionality, due to prepayment and
early redemption penalties.
143
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
The “Accounting and capital effect of changes in interest rates”
table below illustrates the effects on shareholders’ equity and
CET1 capital of gains and losses resulting from changes in
in the main banking book positions. For
interest rates
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 OCI. Typically, increases in
interest rates would lead to an immediate reduction in the
value of our long-term assets held at fair value, but we would
expect such reduction to be offset over time through higher NII
on our core banking products.
For assets and liabilities measured 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.
In addition to the differing accounting treatments, our
banking book positions have different sensitivities to different
points on yield curves. For example, our portfolios of debt
Accounting and capital effect of changes in interest rates1
securities, whether measured at amortized cost or at fair value,
and interest rate swaps, whether designated as cash flow
hedges or transacted as economic hedges, are, on the whole,
more sensitive to changes in longer-duration interest rates,
whereas our deposits and a significant portion of our loans
contributing to NII 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 initial steepening,
followed by a flattening over time.
By virtue of the accounting treatment and yield curve
sensitivities outlined above, in a rising rate scenario, we would
expect to recognize an initial decrease in shareholders’ equity as
a result of fair value losses recognized in OCI. This would be
compensated over time by increased NII as increases in interest
rates affect the shorter end of the yield curve in particular. The
effect on CET1 capital would be less pronounced, as gains and
losses on interest rate swaps designated as cash flow hedges are
not recognized for regulatory capital purposes. Fair value losses
on instruments designated at fair value are expected to be offset
by economic hedges.
Recognition
Recognition
Shareholders’ equity
Shareholders’ equity
CET1 capital
CET1 capital
Loans and deposits at amortized cost2,3
Other financial assets and liabilities measured at amortized cost2
Debt issued measured at amortized cost2,3
Receivables and payables from securities financing transactions2
Timing
Timing
Gradual
Gradual
Gradual
Gradual
Income statement / OCI
Income statement / OCI
Income statement
Income statement
Income statement
Income statement
Financial assets at fair value not held for trading
Immediate
Income statement
Financial assets at fair value through other comprehensive income
Derivatives designated as cash flow hedges
Derivatives transacted as economic hedges
Immediate
Immediate
OCI
OCI4
Immediate
Income statement
Gains
Losses
Gains
Losses
1 Refer to the “Reconciliation of IFRS equity to Swiss SRB common equity tier 1 capital” table in the “Capital management” section of this report for more information on the differences between shareholders’
1
3 For hedge accounted items, a fair value
equity and CET1 capital.
3
adjustment is applied in line with the treatment of the hedging derivatives. 4 Excluding hedge ineffectiveness that is recognized in the income statement in accordance with IFRS.
2 For fixed-rate financial instruments, changes in interest rates affect the income statement when these instruments roll over and reprice.
2
4
Net interest income sensitivity
At the end of 2019, the net interest income sensitivity of Global
Wealth Management and Personal & Corporate Banking was
assessed under the following scenarios:
– Negative Interest Rates: Yield curves drop 100 basis points in
– Rates Bear Steepener: Yield curves across all currencies
undergo a sharp increase for long tenors, with a lower
increase at the short end of the curve: +70 basis points for
tenors up to 3 months, +100 basis points for the 3-year tenor
and +130 basis points for +10-year tenors.
parallel with no zero-floor applied and therefore can become – Rates Bear Flattener: Yield curves across all currencies
negative, or more negative.
undergo a sharp increase for short tenors, with a lower
increase at the long end of the curve: +130 basis points for
tenors up to 3 months, +100 basis points for the 3-year tenor
and +70 basis points for +10-year tenors.
– Rates Bull Flattener: Yield curves across all currencies undergo
a sharp decrease for long tenors, with a lower decrease at the
short end of the curve: –70 basis points for tenors up to 3
months, –100 basis points for the 3-year tenor and –130 – Parallel +100 basis points: All yield curves rise 100 basis
basis points for +10-year tenors.
points in parallel.
– Rates Bull Steepener: Yield curves across all currencies – Constant Rates: All rates stay at current levels.
undergo a sharp decrease for short tenors, with a lower
decrease at the long end of the curve: –130 basis points for
tenors up to 3 months, –100 basis points for the 3-year tenor
and –70 basis points for +10-year tenors.
144
With
the exception of
the Constant Rates scenario,
immediately after the shock, interest rates evolve according to
market-implied forward rates of that scenario.
The results are compared with a baseline NII, which is
calculated assuming that interest rates in all currencies develop
according to their market-implied forward rates and under the
assumption of constant business volumes and no specific
management actions. Over a one-year horizon, the most adverse
scenario is the Rates Bull Steepener, resulting in a deterioration
in Baseline NII of approximately 9%, while the most beneficial
scenario is the Rates Bear Flattener, which would lead to an
improvement in Baseline NII of approximately 10%. In addition
to the above scenario analysis, we also monitor the sensitivity of
NII to immediate parallel shocks of –200 and +200 basis points
against the defined thresholds, under the assumption of a
constant balance sheet volume and structure.
As of 31 December 2019, the baseline NII would have been
approximately 16% lower under a parallel shock of –200 basis
points, whereas under a parallel +200-basis-point shock, the
baseline NII would have been approximately 23% higher.
To shelter the level of our NII from the persistently low and
negative interest rate environment in Swiss francs in particular,
we rely on the self-funding of our lending businesses through
our deposit base in Global Wealth Management and Personal &
Corporate Banking, along with appropriate additional
adjustments to our interest rate-linked product pricing. The loss
of such equilibrium on the balance sheet, for example, due to
unattractive pricing relative to our peers for either our
mortgages or deposits, could lead to a decrease in our NII in a
persistently low and negative interest rate environment. As we
assume constant business volumes, these risks do not appear in
the aforementioned interest rate scenarios.
low and negative
Moreover, should the
interest rate
environment persist or worsen, this could lead to additional
pressure on our NII and we could face additional costs for
holding our Swiss franc high-quality liquid asset portfolio. A
reduction of the Swiss National Bank’s deposit exemption
threshold for banks would also reduce our NII as we might not
be able to offset the higher costs for our cash holdings, for
example, by passing on some of the costs to our depositors.
Should euro interest rates also decline significantly further into
negative territory, this could likewise increase our liquidity costs
and put our NII generated from euro-denominated loans and
deposits under pressure. Depending on the overall economic
and market environment, sustained and significant negative
rates could also lead to our Global Wealth Management and
Personal & Corporate Banking 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 our NII accordingly.
The NII impact of a net decrease in deposits would depend on
various factors including the currency, its interest rate level, as
well as the balance sheet situation, as this could be offset by a
reduction in negative-yielding liquidity portfolios or require
alternative funding. In the latter case, the cost would also
significantly depend on the term and nature of the replacement
funding, whether such funding is raised in the wholesale
markets or from swapping with available funding denominated
in another currency. On the other hand, imbalances leading to
an excess deposit position could require additional investments
at negative yields, which we might not be able to compensate
for sufficiently through our excess deposit balance charging
mechanisms.
Economic value sensitivity
Audited |. Interest rate risk in the banking book is subject to a
regulatory threshold of 15% of tier 1 capital to identify outlier
banks. The exposure is calculated as the theoretical change in
the present value of the banking book under the most adverse
of the six FINMA interest rate scenarios.
As of 31 December 2019, the interest rate sensitivity of our
banking book to a +1-basis-point parallel shift in yield curves
was negative USD 25.1 million. The reported interest rate
sensitivity excludes the AT1 capital instruments, as per FINMA
Pillar 3 disclosure requirements, and our equity, goodwill and
real estate with a modeled sensitivity of approximately USD 4
million per basis point in Swiss francs and USD 15 million per
basis point in US dollars.
The most adverse of the six FINMA interest rate scenarios
with regard to EVE was the “Parallel up” scenario, resulting in a
change of the economic value of equity of negative USD 5.0
billion, representing a pro forma reduction of 9.6% of tier 1
capital, which is well below the regulatory outlier test of 15% of
tier 1 capital. The immediate effect of the “Parallel up” scenario
on tier 1 capital as of 31 December 2019 would be a reduction
of 1.3%, or USD 0.7 billion, arising from the part of our banking
book that is measured at fair value through profit or loss and
from the financial assets measured at fair value through other
comprehensive income. This scenario would, however, have had
a positive effect on net interest income.
Refer to “Note 14 Financial assets measured at fair value
through other comprehensive income” in the “Consolidated
financial statements” section of this report for more
information
Refer to the “Group performance” section of this report for
more information about sensitivity to interest rate movements
145
Risk, treasury and capital management
Risk, treasury and capital management
Risk management and control
Audited |
Interest rate risk – banking book
USD million
CHF
EUR
GBP
USD
Other
Total effect on economic value of equity as per Pillar 3 requirement as of
Total effect on economic value of equity as per Pillar 3 requirement as of
31.12.19
31.12.19
Additional tier 1 (AT1) capital instruments
Total including AT1 capital instruments as of 31.12.19
Total including AT1 capital instruments as of 31.12.19
+1 bp
+1 bp
Parallel up1 Parallel down1 Steepener2
Parallel up1 Parallel down1
Steepener2
Flattener3 Short-term up4 Short-term down5
Flattener3 Short-term up4 Short-term down5
(3.3)
(3.3)
(0.4)
(0.4)
0.1
0.1
(463.1)
(463.1)
(73.6)
(73.6)
8.9
8.9
519.6
519.6
79.3
79.3
(23.0)
(23.0)
(235.7)
(235.7)
143.9
143.9
(5.3)
(5.3)
(6.7)
(6.7)
(7.3)
(7.3)
6.4
6.4
(44.7)
(44.7)
(28.0)
(28.0)
11.5
11.5
(20.8)
(20.8)
(4,317.5)
(4,317.5)
3,570.0
3,570.0
(566.9)
(566.9)
(450.5)
(450.5)
(2,019.7)
(2,019.7)
(0.8)
(0.8)
(157.9)
(157.9)
169.9
169.9
(1.4)
(1.4)
(29.8)
(29.8)
(85.0)
(85.0)
(25.1)
(25.1)
5.0
5.0
(20.1)
(20.1)
(5,003.2)
(5,003.2)
954.3
954.3
(4,048.9)
(4,048.9)
4,315.9
4,315.9
(1,024.6)
(1,024.6)
3,291.2
3,291.2
(816.1)
(816.1)
(42.2)
(42.2)
(858.3)
(858.3)
(337.2)
(337.2)
253.5
253.5
(83.7)
(83.7)
(2,166.0)
(2,166.0)
610.8
610.8
(1,555.2)
(1,555.2)
47.6
47.6
29.5
29.5
(11.0)
(11.0)
2,132.4
2,132.4
93.5
93.5
2,292.0
2,292.0
(638.5)
(638.5)
1,653.5
1,653.5
3 Short-term rates
3
1 Rates across all tenors move by ±150 bps for Swiss franc, ±200 bps for euro and US dollar and ±250 bps for pound sterling.
1
increase and long-term rates decrease. 4 Short-term rates increase more than long-term rates. 5 Short-term rates decrease more than long-term rates.
4
5
2 Short-term rates decrease and long-term rates increase.
2
Other market risk exposures
Own credit
We are exposed to changes in UBS’s own credit that are
reflected in the valuation of financial liabilities designated at fair
value when 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.
Refer to “Note 24 Fair value measurement” in the “Consolidated
financial statements” section of this report for more
information about own credit
Structural foreign exchange risk
Upon consolidation, assets and
in foreign
operations are translated into US dollars at the closing foreign
exchange rate on the balance sheet date. Value changes (in US
dollars) of non-US dollar assets or liabilities due to foreign
exchange movements are recognized in OCI and therefore affect
shareholders’ equity and CET1 capital.
liabilities held
Group Treasury employs strategies to manage this foreign
currency exposure, including matched funding of assets and
liabilities and net investment hedging.
Refer to the “Treasury management” section of this report for
more information about our exposure to and management of
structural foreign exchange risk
Refer to “Note 11 Derivative instruments” in the “Consolidated
financial statements” section of this report for more
information about our hedges of net investments in foreign
operations
Equity investments
Audited | Under International Financial Reporting Standards (IFRS)
effective on 31 December 2019, equity investments not in the
trading book may be classified as Financial assets at fair value
not held for trading or Investments 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 held to support our business
activities. We may also make investments in funds that we
manage in order to fund or seed them at inception or to
demonstrate that our interests align 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.
146
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 lock-up agreements. For these reasons,
we generally do not control these exposures by using the market
risk measures applied to trading activities. However, such equity
investments are subject to a different range of controls,
including preapproval of new
investments by business
management and Risk Control, portfolio and concentration
to senior
limits, and
management. They are also included in our Group-wide
statistical and stress testing metrics, which flow into our risk
appetite framework.
regular monitoring and
reporting
As of 31 December 2019, we held equity investments totaling
USD 2.4 billion, of which USD 1.3 billion was classified as
Financial assets at fair value not held for trading and USD 1.1
billion as Investments in associates. This was broadly unchanged
from the prior year.
Refer to “Note 24 Fair value measurement” and “Note 31
Interests in subsidiaries and other entities” in the “Consolidated
financial statements” section of this report for more
information
Refer to “Note 1 Summary of significant accounting policies” in
the “Consolidated financial statements” section of this report
for more information about the classification of financial
instruments
Debt investments
Audited | Debt investments classified as Financial assets measured
at fair value through OCI as of 31 December 2019 were
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
classified as Financial assets measured at fair value through OCI
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 assets measured at
fair value through OCI had a fair value of USD 6.3 billion as of
31 December 2019 compared with USD 6.7 billion as of
31 December 2018.
Refer to “Note 24 Fair value measurement” in the “Consolidated
financial statements” section of this report for more
information
Refer to “Economic value sensitivity” in this section for more
information
Refer to “Note 1 Summary of significant accounting policies” in
the “Consolidated financial statements” section of this report
for more information about the classification of financial
instruments
Pension risk
We provide a number of pension plans for past and current
employees, some of which are classified as defined benefit
pension 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, i.e., the
defined benefit obligation.
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 from a fall in the
value of a plan’s assets or in the investment returns, an increase
in defined benefit obligations, or a combination of the above.
Important risk factors affecting the fair value of the plan
assets are, among other things, equity market returns, interest
rates, bond yields and real estate prices. Important risk factors
affecting the present value of the expected future benefit
payments include high-grade bond yields, interest rates, inflation
rates and life expectancy.
Pension risk is included in our Group-wide statistical and
stress testing metrics, which flow into our risk appetite
framework. The potential effects are thus captured in the
calculation of our post-stress CET1 capital ratio.
Refer to “Note 1 Summary of significant accounting policies”
and “Note 29 Pension and other post-employment benefit
plans” in the “Consolidated financial statements” section of this
report for more information about defined benefit plans
UBS own share exposure
Group Treasury holds UBS Group AG shares to hedge future
share delivery obligations related to employee share-based
compensation and participation plans.
the
Investment Bank holds a limited number of UBS Group AG
shares, primarily in its capacity as a market-maker with regard to
UBS Group AG shares and related derivatives and to hedge
certain issued structured debt instruments.
In addition,
We began a share repurchase program in March 2018. We
may repurchase up to an aggregate of CHF 2 billion of UBS
Group AG shares until March 2021 under the repurchase
program in accordance with Swiss regulations. During 2019, we
have acquired shares for an aggregate consideration of CHF 800
million (USD 806 million). The total consideration for shares
repurchased in 2018 and 2019 amounted to CHF 1,550 million
(USD 1,567 million). Consistent with our capital returns policy,
we intend to establish an additional share repurchase program
when we have completed the current program. Shares acquired
through the share repurchase program are purchased for the
purpose of capital reduction. Until the shareholders of UBS
Group AG approve cancelation of such shares, shares acquired
in the repurchase program will be held in Group Treasury.
Refer to “UBS shares” in the “Capital management” section of
this report for more information
147
Risk, treasury and capital management
Risk, treasury and capital management
Risk management and control
Country risk
Country risk framework
Country risk includes all country-specific events that occur within
a sovereign jurisdiction and may lead to an impairment of UBS’s
exposures. Country risk may 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
following 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, on the
other hand, through events that may affect the standing of a
country, such as adverse shocks affecting political stability or the
legal framework. We maintain a well-
institutional and
established risk control framework, through which we assess the
risk profile of all countries where we have exposure.
We attribute a sovereign rating to each foreign country,
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 under “Probability of default” in this section. Based on
this internal analysis, we also define the probability of a transfer
event occurring, and we establish rules as to how the aspects of
“other” country risk should be incorporated into the analysis of
the counterparty rating of entities that are domiciled in the
respective country.
Our risk exposure to foreign countries considers the credit
ratings assigned to those countries. A country risk ceiling (i.e.,
maximum aggregate exposure) applies to our exposures to
counterparties 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 risk ceiling, even if our exposure to a
counterparty is otherwise acceptable.
For internal measurement and control of country risk, we also
consider the financial effect of market disruptions arising prior
to, during and after 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 effect of a severe country
or sovereign crisis. This involves the developing of plausible
stress scenarios for combined stress testing and the identification
148
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 transactions
involved and their economic
importance to the affected
countries.
Our exposures to market risks are also subject to regular
stress tests that cover major global scenarios, which are also
used for combined stress testing, whereby we apply market
shock factors to equity indices, interest rates and currency rates
in all relevant countries and consider the potential liquidity of
the instruments.
Country risk exposure
Country risk exposure measure
The presentation of country risk follows our internal risk view,
whereby the basis for measurement of exposures depends on
the product category into which we have classified our
exposures. In addition to the classification of exposures into
banking products and traded products, as defined in “Credit risk
profile of the Group” in this section, within trading inventory we
classify issuer risk on securities such as bonds and equities, as
well as the risk relating to the underlying reference assets for
derivative positions. This
linked to credit
protection that we buy or sell, loan or security underwriting
commitments pending distribution and single-stock margin loans
for syndication.
includes those
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 in the following tables. As a
result, we 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
collateral 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 hedge exposures.
Country risk exposure allocation
In general, exposures are shown against the country of
domicile 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 issuer.
This is the case with, for example, legal entities incorporated
in financial offshore centers, which have their main assets and
revenue 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 banks that are located in a country
other than the legal entity’s domicile. 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
associated with the positive replacement value (PRV) 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 reference asset (presented within
trading inventory). This approach allows us to capture both the
counterparty and, where applicable, 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
referencing debt of an issuer domiciled in country Y has a PRV of
20, we record (i) the fair value of the CDS (20) against country X
(within traded products) and (ii) the hedge benefit (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 reference
asset, floored at zero per issuer. In the case of protection sold,
this would be reflected as a risk exposure of 80 in addition to
any exposure arising from securities held and issued by the same
entity as the reference asset. In the case of derivatives
referencing a basket of assets, the issuer risk against each
reference entity is calculated as the expected change in fair value
of the derivative given an instantaneous fall in value to zero of
the corresponding reference asset (or assets) issued by that
entity. Exposures are then aggregated by country across issuers,
although floored at zero per issuer.
Exposures to selected eurozone countries
Our exposure to peripheral European countries remains limited,
but we nevertheless remain watchful regarding the potential
broader implications of adverse developments in the eurozone.
As noted under “Stress testing” in this section, a eurozone
crisis remains a core part of the new binding Global Crisis
scenario for combined stress test purposes, making it central to
the regular monitoring of risk exposure against the minimum
capital, earnings and leverage ratio objectives in our risk
appetite framework.
The “Exposures to eurozone countries rated lower than AAA /
Aaa by at least one major rating agency” table on the next page
provides an overview of our exposures to such rated countries as
of 31 December 2019.
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 certain eurozone countries.
As of 31 December 2019, and not taking into account the risk-
reducing effect of master netting agreements, we had
purchased USD 6 billion gross notional of single-name CDS
protection on issuers domiciled in Greece, Italy, Ireland,
Portugal and Spain (GIIPS) and had sold USD 7 billion gross
notional of single-name CDS protection for these same
countries. On a net basis, taking into account the risk-reducing
effect of master netting agreements, this equates to USD 1
billion notional purchased and USD 2 billion notional sold. All
investment grade
gross protection purchased was from
counterparties (based on our internal ratings) and on a
collateralized basis. The vast majority of this was from financial
institutions domiciled outside
the eurozone. The gross
protection purchased from counterparties domiciled in a GIIPS
country was USD 50 million, with no protection purchased
from counterparties domiciled in the same country as the
reference entity.
149
Risk, treasury and capital management
Risk, treasury and capital management
Risk management and control
Exposures to eurozone countries rated lower than AAA / Aaa by at least one major rating agency
USD million
Total
Total
Banking products
(loans, guarantees, loan commitments)
Exposure
before
hedges
125
125
0
Net of
hedges1
124
124
0
of which:
unfunded
84
84
Net of
hedges1
3,148
3,148
183
0
438
2,527
609
609
3
3
88
88
405
405
342
39
7
7
342
39
7
7
64
60
382
382
64
61
382
382
7
0
490
490
7
0
494
494
188
306
12
12
414
195
965
965
112
414
195
965
965
112
3,183
3,183
216
0
438
2,529
609
609
39
814
3,353
3,353
1,355
0
845
1,152
8
8
0
39
814
3,473
3,473
1,472
0
847
1,154
16
16
0
31.12.19
Austria
Austria
Sovereign, agencies and central bank
Local governments
Banks
Other2
Belgium
Belgium
Sovereign, agencies and central bank
Local governments
Banks
Other2
Finland
Finland
Sovereign, agencies and central bank
Local governments
Banks
Other2
France
France
Sovereign, agencies and central bank
Local governments
Banks
Other2
Greece
Greece
Sovereign, agencies and central bank
Local governments
Banks
Other2
Ireland3
Ireland3
Sovereign, agencies and central bank
Local governments
Banks
Other2
Italy
Italy
Sovereign, agencies and central bank
Local governments
Banks
Other2
Portugal
Portugal
Sovereign, agencies and central bank
Local governments
Banks
Other2
Spain
Spain
Sovereign, agencies and central bank
Local governments
Banks
Other2
Other4
Other4
Total
Total
1 Before deduction of IFRS 9 ECL allowances and provisions.
1
4 Represents aggregate exposures to Andorra, Cyprus, Estonia, Latvia, Lithuania, Malta, Monaco, Montenegro, San Marino, Slovakia and Slovenia.
4
33
50
358
700
9
9
72
72
2,451
11,310
2,451
11,310
2 Includes corporates, insurance companies and funds.
2
58
826
1,240
1,240
25
53
422
739
94
94
47
58
826
1,139
1,139
11
52
422
654
94
94
47
50
671
56
56
11,001
11,001
33
387
26
26
2,594
2,594
18
29
745
745
24
18
29
774
774
24
9
17
420
420
9
17
391
391
186
305
4
4
394
286
26
26
394
371
26
26
43
205
765
765
43
295
680
680
5
3
884
884
13
3
884
884
12
0
338
338
4
0
338
338
360
360
625
625
26
26
51
51
4
4
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)
Exposure
before hedges
446
446
216
Net of
hedges
412
412
183
Net long
per issuer
2,612
2,612
28
201
182
182
69
112
614
614
16
599
951
951
402
100
449
58
58
9
49
150
150
18
53
20
59
59
59
47
3
9
17
17
28
201
182
182
69
112
614
614
16
599
834
834
285
100
449
58
58
9
49
135
135
4
52
20
59
59
59
47
3
9
17
17
0
346
2,266
46
46
3
43
344
344
112
17
215
2,029
2,029
1,070
0
560
399
4
4
0
1
3
488
488
6
482
324
324
7
8
309
9
9
6
3
337
337
24
3
14
299
28
28
6,221
6,221
3 The majority of the Ireland exposure relates to funds and foreign bank subsidiaries.
3
4
14
18
18
2,495
2,495
4
14
18
18
2,328
2,328
1,649
1,649
150
Exposure from single-name credit default swaps referencing Greece, Italy, Ireland, Portugal or Spain (GIIPS)
Net position
(after application of counterparty master netting
agreements)
PPrrootteeccttiioonn ssoolldd
PPrrootteeccttiioonn bboouugghhtt
of which: counterparty
domiciled in GIIPS
country
of which: counterparty
domicile is the same as the
reference entity domicile
USD million
31.12.19
Greece
Italy
Ireland
Portugal
Spain
TToottaall
Notional
33
55,,558855
114422
111166
446622
66,,331100
RV
00
((2277))
((77))
((22))
((1111))
((4488))
Notional
00
00
00
00
5500
5500
RV
00
00
00
00
00
00
Notional
00
00
00
00
00
00
RV
00
00
00
00
00
00
Notional
((88))
RV
11
((66,,009944))
((2222))
((2277))
((114466))
((558866))
((66,,886622))
33
22
1177
11
Buy
notional
00
779911
112211
6622
117733
Sell
notional
((55))
((11,,330000))
((66))
((9911))
((229977))
11,,114477
((11,,669999))
PRV
11
2233
00
11
1100
3355
NRV
00
((7722))
((55))
((11))
((44))
((8822))
Holding CDSs for credit default protection does not
necessarily protect the buyer of protection against losses, as the
contracts will only pay out under certain scenarios. The
effectiveness of our CDS protection as a hedge of default risk is
influenced by a 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 committees (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 market 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 2019
compared with 31 December 2018. Based on the sovereign
rating categories, as of 31 December 2019, 79% of our
emerging market country exposure was rated investment grade,
compared with 84% as of 31 December 2018.
Our direct net exposure to China was USD 4.7 billion, a
decrease of USD 1.6 billion compared with the prior year, mainly
in the trading book. Trading inventory, which is measured at fair
value, continues to account for the majority of our exposure to
China.
Emerging markets net exposure¹ by internal UBS country rating category
USD million
Investment grade
Sub-investment grade
TToottaall
3311..1122..1199
31.12.18
1133,,669933
33,,772211
1177,,441144
15,763
3,039
18,803
11 Net of credit hedges (for banking products and for traded products); net long per issuer (for trading inventory). Before deduction of IFRS 9 ECL allowances and provisions.
151
Risk, treasury and capital management
Risk, treasury and capital management
Risk management and control
Emerging market net exposures by major geographical region and product type
USD million
Emerging America
Emerging America
Brazil
Mexico
Colombia
Argentina
Chile
Other
Emerging Asia
Emerging Asia
China
Hong Kong
South Korea
India
Thailand
Other
Emerging Europe
Emerging Europe
Russia
Turkey
Azerbaijan
Ukraine
Bulgaria
Other
Middle East and Africa
Middle East and Africa
South Africa
United Arab Emirates
Saudi Arabia
Kuwait
Israel
Other
Total
Total
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
31.12.19
31.12.19
31.12.18
31.12.19
31.12.19
31.12.18
31.12.19
31.12.19
31.12.18
31.12.19
31.12.19
31.12.18
1,512
1,512
1,262
1,262
121
121
45
45
22
22
20
20
42
42
11,627
11,627
4,717
4,717
2,850
2,850
1,118
1,118
895
895
616
616
1,431
1,431
1,382
1,382
547
547
398
398
186
186
76
76
47
47
128
128
2,893
2,893
668
668
624
624
556
556
277
277
190
190
578
578
1,505
1,137
174
30
27
28
108
13,890
6,302
2,920
1,282
909
1,176
1,301
1,189
400
434
145
53
76
82
613
613
498
498
22
22
28
28
17
17
9
9
39
39
3,306
3,306
1,140
1,140
1,000
1,000
60
60
492
492
62
62
552
552
820
573
102
22
10
13
101
4,307
1,060
1,377
523
553
147
647
1,076
1,076
1,015
380
380
359
359
184
184
66
66
44
44
42
42
270
413
139
50
76
67
2,219
1,316
1,316
1,245
362
572
275
379
113
519
176
176
404
404
147
147
56
56
37
37
497
497
6,311
6,311
73
418
166
71
42
476
7,387
17,414
17,414
18,803
368
368
288
288
56
56
14
14
0
0
8
8
1
1
262
183
56
7
0
11
5
2,235
2,235
1,693
456
456
823
823
403
403
125
125
26
26
402
402
138
138
93
93
4
4
0
0
0
0
0
0
40
40
1,027
1,027
129
129
215
215
401
401
222
222
51
51
9
9
473
442
391
144
25
218
125
111
4
1
0
0
10
659
60
142
108
308
5
34
3,767
3,767
2,739
531
531
476
476
43
43
3
3
5
5
2
2
2
2
6,086
6,086
3,121
3,121
1,027
1,027
655
655
277
277
528
528
478
478
169
169
74
74
34
34
2
2
10
10
4
4
46
46
550
550
363
363
5
5
7
7
0
0
102
102
72
72
7,335
7,335
422
381
16
1
17
4
3
7,890
4,769
1,101
368
212
1,005
435
49
19
16
5
3
0
6
315
229
11
0
0
66
9
8,676
1 Before deduction of IFRS 9 ECL allowances and provisions.
1
152
Operational risk
Key developments
The key risk themes for UBS and the financial industry overall
continue to be operational resilience, conduct and financial
crime.
risk management
Operational resilience remains a key focus for the firm. Our
regulators have recently released consultation papers and set up
working groups focused on the topic and the industry is
preparing for new regulations over the coming years. We
continually enhance our ability to maintain effective day-to-day
business activities through the anticipation of, preparation for
and response to changes in business conditions, disruption and
stress scenarios. Cybersecurity, technology, data protection,
third-party
continuity
management are critical elements of operational resilience. Our
cybersecurity objectives are set
international
standards and our data protection and privacy standards are
designed to align with applicable regulations and standards. We
continue to invest in preemptive and detective measures to
defend UBS against evolving and highly
sophisticated
cyberattacks. We focus on: (i) increasing readiness to identify
and respond to cyber threats and data loss; (ii) employee training
and behaviors; and (iii) application and infrastructure security
(including vulnerability management).
and business
line with
in
Global policies and improved risk-based frameworks for third-
party risk management have been developed and are being
rolled out to all regions and business divisions. UBS has not been
affected by any significant business continuity or operational
resilience event in 2019. Where local events have occurred, our
business continuity procedures have allowed us to ensure the
safety of staff and to continue our operations with minimal
disruption.
Achieving fair outcomes for our clients, upholding market
integrity and cultivating the highest standards of employee
conduct are of critical importance to the firm. Management of
conduct risks is an integral part of our operational risk
framework. We continue to focus on effectively embedding the
framework across our activities, enhancing
conduct
risk
management
information and maintaining momentum on
fostering a strong culture. Conduct-related management
information is reviewed at the business and regional governance
level, providing metrics on employee conduct, clients and
markets. Employee conduct is a central consideration in the
annual compensation process. Our incentive schemes distinguish
clearly between quantitative performance and conduct-related
behaviors, so that achievement against financial targets is not
the only determinant of our employees’ performance
assessment. Furthermore, we continue to pursue behavioral
initiatives, such as the “Principles of Good Supervision,” and
provide mandatory compliance and risk training.
Suitability risk, product selection, cross-divisional service
offerings, quality of advice and price transparency also remain
areas of heightened focus for UBS and for the industry as a
whole, as low interest rates and major legislative change
programs, such as Fidleg in Switzerland, Regulation Best Interest
in the US, and the Markets in Financial Instruments Directive II
(MiFID II) in the EU, continue to significantly impact the industry
control processes on a
to
and
geographically aligned basis. We
regularly monitor our
suitability, product and conflicts of interest control frameworks
to assess whether they are reasonably designed to facilitate our
adherence to applicable laws and regulatory expectations.
require adjustments
laundering,
Financial crime
terrorist
(including money
financing, sanctions violations, fraud, bribery and corruption)
continues to present a major risk, as technological innovation
and geopolitical developments increase the complexity of doing
business and heightened regulatory attention persists. An
effective financial crime prevention program remains essential
for the firm. Money laundering and financial fraud techniques
are becoming
increasingly sophisticated, while geopolitical
volatility makes the sanctions landscape more complex. New
risks are emerging, such as virtual currencies and related
activities or investments.
The Office of the Comptroller of the Currency issued a Cease
and Desist Order against the firm in May 2018 relating to this
risk category. As a response, the firm initiated a comprehensive
program for the purpose of ensuring sustainable remediation of
US-relevant Bank Secrecy Act / anti-money laundering (AML)
issues across all US legal entities. UBS has implemented
significant improvement measures in 2019 and expects to
continue implementing these measures in 2020.
We have also been focusing on strategic enhancements in the
areas of AML, know your client (KYC) and sanctions on a global
scale to cope with the evolving risk profile and regulatory
expectations. This includes our significant investments in our
detection capabilities and core systems as part of our financial
crime prevention program. We are exploring new technologies
to combat financial crime, and implementing more sophisticated
rule-based monitoring by applying self-learning systems to
identify potentially suspicious transactions. Furthermore, we
continue
in AML public–private
partnerships with public-sector stakeholders, including law
enforcement, to improve information sharing and better detect
financial crimes.
to actively participate
Cross-border risk remains an area of regulatory attention for
global financial institutions, with a strong focus on fiscal
transparency. There is evolving risk related to permanent
establishment (PE) as a result of changes to the global economy
and political pressure under which tax authorities are becoming
increasingly demanding in asserting PEs, including retrospective
application of current and future potential law concepts. The
firm is actively assessing if and what further measures are
required to respond to this recent focus area for authorities.
153
Risk, treasury and capital management
discharge of this responsibility by confirming the end-to-end
completeness and effectiveness of the control environment and
the operational risk management within their Group function.
Collectively, divisional Presidents, Group function heads and
accountable
in charge of
legal entity executives are
implementing the operational risk framework.
(C&ORC)
Compliance & Operational Risk Control
is
responsible for providing an independent and objective view of
the adequacy of operational risk management across the Group,
and for ensuring that operational risks are understood, owned
and managed in accordance with the firm’s risk appetite.
C&ORC sits within the Group Compliance, Regulatory &
Governance (GCRG) function, reporting to the Group Chief
Compliance and Governance Officer, who is a member of the
Group Executive Board. C&ORC is an integrated function
covering both operational risk as well as compliance and
conduct topics. The operational risk framework forms the
common basis for managing and assessing operational risk;
however, there are additional C&ORC activities that are intended
to ensure the firm is able to demonstrate compliance with
applicable laws, rules and regulations.
In 2019, we further improved our operational risk framework,
remediating control
for sustainably
enhancing processes
deficiencies, risk management processes for UBS entities, and
senior management reporting tools to better embed the
framework as a key tool used by the businesses to manage their
risks day to day.
All functions within the firm are required to assess the design
and operating effectiveness of their internal controls periodically.
The output of these assessments forms the basis for the
assessment and testing of internal controls over financial
reporting as required by the Sarbanes-Oxley Act, Section 404
(SOX 404).
Key control deficiencies identified during the internal control
and risk assessment processes must be reported
in the
operational risk inventory, and sustainable remediation must be
defined and executed. These control deficiencies are assigned to
owners at senior management level and the remediation
progress
in the respective manager’s annual
performance measurement and management objectives. To
assist with prioritizing the most material control deficiencies and
measuring aggregated risk exposure, irrespective of origin, a
common rating methodology is applied across all three lines of
defense, as well as by external audit.
is reflected
Risk, treasury and capital management
Risk management and control
During 2018 and 2019, the firm performed a systematic
review of risk themes and initiated programs to drive sustainable
remediation, which have contributed to a reduction in the
overall portfolio of operational risk issues and the number of
new deficiencies being discovered. This trend indicates a more
holistic approach to identification of operational risk issues,
accountability for ownership, and focus on resolution of the
underlying root causes.
Operational risk framework
Operational risk is an inherent part of the firm’s business. Losses
can result from inadequate or failed internal processes, people
and systems, or from external causes. The operational risk
definition incorporates both conduct and compliance risks. UBS
defines a Group-wide framework that supports identifying,
managing, assessing and mitigating operational risks to achieve
an agreed balance between risk and return.
The operational risk framework establishes requirements for
managing and controlling operational risks at UBS. It is built on
the following pillars:
– classifying
risk
taxonomy, which defines the universe of material operational
risks that can arise as a consequence of the firm’s business
activities and external factors;
the operational
inherent
through
risks
– assessing the design and operating effectiveness of controls
through the control assessment process;
– proactively and sustainably remediating identified control
deficiencies;
– defining operational risk appetite (including a financial
operational risk appetite statement at Group and business
division level for operational risk events) through quantitative
metrics and thresholds and qualitative measures, and
assessing risk exposure against appetite; and
– assessing inherent and residual risk through risk assessment
processes, and assessing whether additional remediation
plans are required to address identified deficiencies.
Divisional Presidents and accountable legal entity executives
are responsible for the effectiveness of operational risk
management and for the robustness of the front-to-back control
environment within their respective areas. Group function heads
are accountable for supporting the divisional Presidents and
accountable legal entity executives of our legal entities in the
154
Advanced measurement approach model
AMA model calibration and review
The operational risk framework detailed above underpins the
calculation of regulatory capital for operational risk, which
enables us to quantify operational risk and to define effective
risk mitigating management incentives as part of the related
operational risk capital allocation approach to the business
divisions.
A key assumption when calibrating the data-driven frequency
and severity distributions is that historical losses form a
reasonable proxy for future events. In line with regulatory
expectations, the AMA methodology utilizes both historical
internal losses and external losses suffered by the broader
industry for the model calibration.
We measure Group operational risk exposure and calculate
operational risk regulatory capital by using the advanced
measurement approach (AMA) in accordance with FINMA
requirements.
An entity-specific AMA model has been applied for UBS
Switzerland AG, while for other regulated entities the basic
for
indicators or standardized approaches are adopted
regulatory capital in agreement with local regulators. In addition,
the methodology of the Group AMA is leveraged for entity-
specific Internal Capital Adequacy Assessment Processes.
Currently, the model includes 15 AMA units of measure
(UoM), which are aligned with our operational risk taxonomy as
closely as possible. For each of the model’s UoM, frequency and
severity distributions are calibrated. The modeled distribution
functions for both frequency and severity are then used to
generate the annual loss distribution. The resulting 99.9%
quantile of the overall annual operational risk loss distribution
across all UoM determines the required regulatory capital.
Currently, we do not reflect mitigation through insurance or any
other risk transfer mechanism in our AMA model.
in business
Initial model outputs driven by loss history are reviewed and
adjusted to reflect fast-changing external developments such as
new regulations, geopolitical change, volatile market and
economic conditions, as well as internal factors including
changes
framework
enhancements. The resulting baseline data-driven frequency and
severity distributions are reviewed by subject matter experts and
where necessary adjusted based on a review of qualitative
information about the business environment and internal control
factors as well as expert judgment with the aim of forecasting
losses.
strategy and
control
To maintain risk sensitivity, our model is reviewed regularly
and is recalibrated at least annually. Any changes to regulatory
capital as a result of a recalibration or methodology changes are
presented to FINMA for approval prior to their utilization for
disclosure purposes.
AMA model governance
The Group and entity-specific AMA models are subject to an
independent validation performed by Model Risk Management
& Control (MRMC) in line with the Group’s model risk
management framework.
Refer to “Capital management objectives, planning and
activities” in the “Capital management” section of this report
for more information about the development of risk-weighted
assets
Refer to “Risk measurement” in this section for more
information about our approach to model confirmation
procedures
Refer to the “Regulatory and legal developments” and “Risk
factors” sections of this report for more information
155
Risk, treasury and capital management
Risk, treasury and capital management
Treasury management
Treasury management
Balance sheet, liquidity and funding management
measures to be invoked, Group Treasury is responsible for
coordinating liquidity generation with representatives of the
relevant business areas. Group Treasury reports on the Group’s
overall liquidity and funding position, including funding status
and concentration risks, at least monthly, to the Group ALCO
and the Risk Committee of the BoD.
Audited | Liquidity and funding limits, triggers and targets are
set at Group and, where appropriate, at legal entity and
business division levels, and are reviewed and reconfirmed at
least once a year by the BoD, the Group ALCO, the Group
Chief Financial Officer, the Group Treasurer and the business
divisions, taking into consideration current and projected
business strategy and risk tolerance. The principles underlying
our limit and target framework are designed to maximize and
sustain the value of our business franchise and maintain an
appropriate balance
liability structure.
Structural limits, triggers and targets focus on the structure
and composition of the balance sheet, while supplementary
limits, triggers and targets are designed to drive the utilization,
diversification and allocation of
resources. To
complement and support this framework, Group Treasury
monitors the markets for early warning indicators reflecting the
current liquidity situation. These liquidity status indicators are
used at Group level to assess both the overall global and
regional situations for potential threats. Market & Treasury Risk
Control provides independent oversight over liquidity and
funding risks.
in the asset and
funding
Refer to the “Corporate governance” section of this report for
more information
Refer to the “Risk management and control” section of this
report for more information
Strategy, objectives and governance
We manage the structural risk of our balance sheet, including
interest rate risk (e.g., investment of equity, banking book
exposures from Global Wealth Management and Personal &
Corporate Banking), structural foreign exchange risk and
collateral risk, as well as the risks associated with our liquidity
and funding portfolios.
Audited | Our management of the balance sheet, liquidity and
funding positions serves the overall objective of optimizing the
value of our franchise across a broad range of market conditions
while considering current and future regulatory constraints. We
employ a number of measures to monitor these 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 liquidity coverage ratio and the
net stable funding ratio. Our liquidity and funding strategy is
proposed by Group Treasury, approved by the Group Asset and
Liability Committee (the Group ALCO), which is a committee of
the Group Executive Board, and is overseen by the Risk
Committee of the Board of Directors (the BoD).
This section provides more detailed
information about
regulatory requirements, our governance structure, our balance
sheet, liquidity and funding management (including our sources
of liquidity and funding), and our contingency planning and
stress testing. The balances disclosed in this section represent
year-end positions, unless indicated otherwise. Intra-period
balances fluctuate in the ordinary course of business and may
differ from year-end positions.
Group Treasury monitors and oversees the implementation
and execution of our liquidity and funding strategy and is
responsible for adherence to policies, limits, triggers and targets.
This enables close control of both our cash and collateral,
including our high-quality liquid assets, and centralizes the
Group’s general access to wholesale cash markets in Group
Treasury. In addition, should a crisis require contingency funding
156
Assets and liquidity management
Audited | Our liquidity risk management aims to maintain a sound
liquidity position to meet all our liabilities when due and to
provide adequate time and financial flexibility to respond to a
firm-specific liquidity crisis in a generally stressed market
environment, without incurring unacceptable losses or risking
sustained damage to our businesses.
Our liquid assets are managed using limits, triggers and
targets to maintain an appropriate level of diversification (issuer,
tenor and other risk characteristics)
in response to any
anticipated or unanticipated volatility in funding availability or
requirements caused by adverse market, operational or other
firm-specific events. The liquid asset portfolio size is managed to
operate within the risk appetite of the Board of Directors and
relevant Group and subsidiary liquidity requirements.
Assets
% change from
31.12.18
USD billion
(1)
Cash and balances at central banks
Lending1
1
Securities financing transactions at amortized cost
(12)
Trading portfolio2
22
Derivatives and cash collateral receivables on derivative instruments
(3)
Brokerage receivables
7
Other financial assets measured at amortized cost and fair value3
(5)
Non-financial assets and financial assets for unit-linked investment contracts
17
TToottaall aasssseettss
1
11 Consists of loans and advances to banks and customers. 22 Consists of financial assets at fair value held for trading. 33 Consists of financial assets at fair value not held for trading, financial assets measured at
fair value through other comprehensive income and other financial assets measured at amortized cost, but excludes financial assets for unit-linked investment contracts.
31.12.18
108.4
337.2
95.3
104.4
149.8
16.8
90.5
56.1
958.5
3311..1122..1199
110077..11
333399..22
8844..22
112277..55
114455..11
1188..00
8855..66
6655..44
997722..22
As of
Balance sheet assets
Group
As of 31 December 2019, balance sheet assets totaled USD 972
billion, an increase of USD 14 billion from 31 December 2018,
driven mainly by increases in trading portfolio assets as well as in
non-financial assets and
for unit-linked
investment contracts. These effects were partly offset by
decreases in securities financing transactions at amortized cost,
in other financial assets measured at amortized cost and fair
value, as well as in derivatives and cash collateral receivables on
derivative instruments.
financial assets
Total assets excluding derivatives and cash collateral
receivables on derivative instruments increased by USD 18 billion
to USD 827 billion as of 31 December 2019. Excluding currency
effects, total assets excluding derivatives and cash collateral
receivables on derivative instruments increased by USD 13
billion.
Trading portfolio assets increased by USD 23 billion, mainly in
our Equities business in the Investment Bank, largely reflecting
market-driven movements and increased hedging requirements
resulting from client activity.
Non-financial assets and financial assets for unit-linked
investment contracts increased by USD 9 billion, mainly driven by
an increase of USD 6 billion in assets held to hedge unit-linked
investment contracts in Asset Management, with a related
increase in the associated liabilities, reflecting mainly market-
driven movements and net new money inflows. In addition, the
adoption of IFRS 16 resulted in a USD 3 billion increase following
the recognition of right-of-use assets as of 1 January 2019.
securities
transactions at
amortized cost decreased by USD 11 billion, driven by increased
funding consumption by the business divisions and lower
collateral sourcing requirements.
Receivables
financing
from
Other financial assets at amortized cost and fair value
decreased by USD 5 billion, mainly as a result of movements
within our high-quality liquid assets (HQLA) portfolio from debt
securities to cash and balances at central banks.
Derivatives and cash collateral receivables on derivative
instruments decreased by USD 5 billion, mainly driven by lower
client activity levels in Global Wealth Management and in our
Equities business in the Investment Bank. This was partly offset
by an increase in our Foreign Exchange, Rates and Credit
business in the Investment Bank, mainly reflecting market-driven
movements.
Refer to the “Consolidated financial statements” section of this
report for more information
157
Risk, treasury and capital management
Asset Management
Asset Management total assets increased by USD 6 billion to
USD 35 billion, reflecting an increase in financial assets for unit-
linked
investment contracts mainly due to market-driven
movements and net new money inflows, with an increase in the
corresponding liabilities.
Corporate Center
Corporate Center total assets decreased by USD 11 billion to
USD 103 billion, primarily reflecting a reduction in Group
Treasury to fund the redemption of short-term borrowings.
High-quality liquid assets
High-quality liquid assets (HQLA) are low-risk unencumbered
assets under the control of Group Treasury that are easily and
immediately convertible into cash at little or no loss of value, in
order to meet liquidity needs. Our HQLA predominantly consist
of assets that qualify as Level 1 in the liquidity coverage ratio
(LCR) framework, including cash, central bank reserves and
government bonds. Group HQLA are held by UBS AG and its
subsidiaries, and may include amounts that are available to meet
funding and collateral needs in certain jurisdictions, but are not
readily available for use by the Group as a whole. These
local
limitations are
regulatory
requirements,
large exposure
requirements. Funds that are effectively restricted are excluded
from the calculation of Group HQLA to the extent they exceed
the outflow assumptions for the subsidiary that holds the
relevant HQLA. On this basis, USD 28 billion of assets were
excluded from our daily average Group HQLA for the fourth
quarter of 2019. Amounts held in excess of local liquidity
requirements that are not subject to other restrictions are
generally available for transfer within the Group.
the
result of
local LCR and
typically
including
The total weighted liquidity value of HQLA decreased by
USD 7 billion to USD 166 billion.
Risk, treasury and capital management
Treasury management
Changes in Corporate Center cost and resource allocation to
business divisions
Effective 1 January 2019, UBS has increased the allocation of
balance sheet resources from Corporate Center to the business
divisions. Prior-period information has been restated. As of
31 December 2018, the restatement resulted in an increase of
total assets in Global Wealth Management of USD 114 billion, in
Personal & Corporate Banking of USD 62 billion, in Asset
Management of USD 4 billion and in the Investment Bank of
USD 44 billion, with a corresponding decrease of assets in
Corporate Center of USD 223 billion.
These changes had no effect on the reported results or
financial position of the Group.
Refer to “Note 2 Segment reporting” in the “Consolidated
financial statements” section of this report for more
information
Investment Bank
Investment Bank total assets increased by USD 14 billion to
USD 316 billion, driven by a USD 23 billion increase in trading
portfolio assets, largely reflecting market-driven movements and
increased hedging requirements resulting from client activity.
This increase was partly offset by an USD 8 billion decrease in
HQLA requirements.
Global Wealth Management
Global Wealth Management total assets decreased by USD 4
billion to USD 310 billion, mainly reflecting a USD 7 billion
decrease in HQLA requirements. This was partly offset by an
increase of USD 3 billion in lending assets, as a result of higher
mortgage and Lombard loans.
Personal & Corporate Banking
Personal & Corporate Banking total assets increased by USD 9
billion to USD 209 billion, mainly driven by a USD 5 billion
increase in HQLA requirements, as well as an increase of USD 3
billion in lending assets, reflecting currency effects and increases
in mortgage loans.
158
Liquidity coverage ratio
The LCR measures the short-term resilience of a bank’s liquidity
profile by comparing whether sufficient HQLA are available to
survive expected net cash outflows from a significant liquidity
stress scenario, as defined by the relevant regulator.
The Basel Committee on Banking Supervision standards
require an LCR of at least 100%. UBS is required to maintain a
minimum total Group LCR of 110% as communicated by the
Swiss Financial Market Supervisory Authority (FINMA), as well as
a Swiss franc LCR of 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, FINMA may
allow banks to use their HQLA and let their LCR temporarily fall
below the minimum threshold. We monitor the LCR in all
in order to manage any currency
significant currencies
mismatches between HQLA and the net expected cash outflows
in times of stress.
Our daily average LCR for the fourth quarter of 2019 was
134%, compared with 136% in the fourth quarter of 2018,
remaining above the 110% Group LCR minimum communicated
by FINMA.
The decrease in the LCR mainly reflected reduced HQLA,
primarily driven by higher funding consumption by the business
divisions and reductions in issued debt that were partly offset by
higher deposit balances and a reduction in assets subject to
transfer restrictions in the European entities. In addition, net
cash outflows decreased, mainly driven by a net reduction of
securities financing transactions, partly offset by higher outflows
caused by increased customer deposits.
Refer to the 31 December 2019 Pillar 3 report, available under
“Pillar 3 disclosures” at www.ubs.com/investors, for more
information about the LCR
Refer to the “Significant regulated subsidiary and sub-group
information” section of this report for more information about
the LCR of UBS AG and UBS Switzerland AG
Liquidity coverage ratio
USD billion, except where indicated
High-quality liquid assets2
Cash balances3
Securities (on- and off-balance sheet)
TToottaall hhiigghh qquuaalliittyy lliiqquuiidd aasssseettss44
--
Cash outflows5
Retail deposits and deposits from small business customers
Unsecured wholesale funding
Secured wholesale funding
Other cash outflows
TToottaall ccaasshh oouuttfflloowwss
Cash inflows5
Secured lending
Inflows from fully performing exposures
Other cash inflows
TToottaall ccaasshh iinnfflloowwss
Liquidity coverage ratio
High-quality liquid assets
AAvveerraaggee 44QQ11991
Average 4Q181
110000
6666
116666
2288
110066
7744
4400
224488
8811
2299
1133
112233
116666
96
78
173
26
102
76
42
246
79
29
10
119
173
Net cash outflows
127
136
LLiiqquuiiddiittyy ccoovveerraaggee rraattiioo ((%%))
11 Calculated based on an average of 64 data points in the fourth quarter of 2019 and 64 data points in the fourth quarter of 2018. 22 Calculated after the application of haircuts. 33 Includes cash and balances at
central banks and other eligible balances as prescribed by FINMA. 44 Calculated in accordance with FINMA requirements. 55 Calculated after the application of inflow and outflow rates.
112244
113344
159
Risk, treasury and capital management
Risk, treasury and capital management
Treasury management
Asset encumbrance
The table on the next page provides a breakdown of on- and
off-balance
sheet assets between encumbered assets,
unencumbered assets and assets that cannot be pledged as
collateral.
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, financial assets for unit-
linked investment contracts, assets held in certain jurisdictions to
comply with explicit minimum
local asset maintenance
requirements and assets held in consolidated bankruptcy remote
entities, such as certain investment funds and other structured
entities.
Refer to “Note 26 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
considered available to secure funding or to meet collateral
needs. These mainly include collateral trading assets, derivative
financial assets, cash collateral
receivables on derivative
instruments, deferred tax assets, goodwill and intangible assets
and other assets.
All other assets are presented as Unencumbered. Assets that
are considered to be readily available to secure funding on a
Group and/or legal entity level are shown separately and consist
of cash and securities readily realizable in the normal course of
business. These include our HQLA and unencumbered positions
in our trading portfolio. Unencumbered assets that are
considered to be available to secure funding on a legal entity
level may be subject to restrictions that limit the total amount of
assets that is available to the Group as a whole. Other
unencumbered assets, which are not considered readily available
to secure funding on a Group and/or legal entity level, primarily
consist of loans and amounts due from banks.
160
Asset encumbrance as of 31 December 2019
-
-
USD million
OOnn bbaallaannccee sshheeeett aasssseettss
Cash and balances at central banks
Loans and advances to banks
Receivables from securities financing transactions
of which: cash collateral on securities borrowed
of which: reverse repurchase agreements
Cash collateral receivables on derivative instruments
Loans and advances to customers
of which: mortgage loans
Other financial assets measured at amortized cost
TToottaall ffiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt
FFiinnaanncciiaall aasssseettss aatt ffaaiirr vvaalluuee hheelldd ffoorr ttrraaddiinngg
of which: trading assets – treasury bills / bonds
of which: trading assets – mortgage-backed securities
of which: trading assets – other asset-backed securities
of which: trading assets – other bonds
of which: trading assets – investment fund units
of which: trading assets – equity instruments
of which: loans
DDeerriivvaattiivvee ffiinnaanncciiaall iinnssttrruummeennttss
BBrrookkeerraaggee rreecceeiivvaabblleess
of which: customer brokerage
of which: prime brokerage
FFiinnaanncciiaall aasssseettss aatt ffaaiirr vvaalluuee nnoott hheelldd ffoorr ttrraaddiinngg
TToottaall ffiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt ffaaiirr vvaalluuee tthhrroouugghh pprrooffiitt oorr lloossss
FFiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt ffaaiirr vvaalluuee tthhrroouugghh ootthheerr ccoommpprreehheennssiivvee iinnccoommee
Investments in associates
Property, equipment and software
Goodwill and intangible assets
Deferred tax assets
Other non-financial assets
TToottaall nnoonn ffiinnaanncciiaall aasssseettss
TToottaall oonn bbaallaannccee sshheeeett
-
-
-
-
-
-
USD million
OOffff bbaallaannccee sshheeeett aasssseettss
FFaaiirr vvaalluuee ooff sseeccuurriittiieess aacccceepptteedd aass ccoollllaatteerraall
of which: money market paper as collateral
of which: other debt instruments as collateral
of which: equity instruments as collateral
of which: investment fund units as collateral
of which: other
TToottaall oonn aanndd ooffff bbaallaannccee sshheeeett aasssseettss aass ooff 3311 DDeecceemmbbeerr 22001199
--
--
of which: high-quality liquid assets
11 Includes USD 41,285 million of assets pledged as collateral that may be sold or repledged by counterparties.
Encumbered
Assets
otherwise
restricted and
not available
to secure
funding
Assets
pledged
as collateral
Unencumbered
Cash and
securities
available to
secure funding
on a Group
and/or legal
entity level
Other
realizable
assets
107,068
3,131
9,316
18,399
18,399
1,212
1199,,661111
5566,,44115511
2,700
2
1,947
2,671
49,096
2,986
620
377
77,,111144
224422
4
42
96
100
12,863
111199,,993311
6688,,888866
8,760
365
145
5,925
6,100
47,590
118888
5566,,660044
2299,,667766
2299,,991177
117766
3344,,440011
110033,,228866
66,,116699
303,306
159,749
1,444
331144,,006666
11,,997711
1,971
1133,,008822
1155,,005533
1,051
12,804
2
22
3377,,221100
4,597
44,,559977
223333,,998844
1133,,885555
334422,,997744
Assets that
cannot be
pledged as
collateral
Total Group
assets (IFRS)
107,068
12,447
84,245
9,507
74,738
23,289
326,786
178,149
22,980
557766,,881155
112277,,551144
11,464
365
147
7,914
8,867
96,786
1,971
112211,,884411
1188,,000077
4,877
13,131
8833,,994444
335511,,330077
66,,334455
1,051
12,804
6,469
9,537
7,856
3377,,771177
997722,,118833
84,245
9,507
74,738
20,303
4,460
7,085
111166,,009922
112211,,884411
1188,,000077
4,877
13,131
66,,559988
114466,,444466
6,469
9,537
3,256
1199,,226622
228811,,880011
7766,,221155
Encumbered
Assets
otherwise
restricted and
not available
to secure
funding
77,,000033
248
5,914
833
8
Assets
pledged
as collateral
335500,,447777
6,857
198,540
140,312
4,750
18
442266,,669911
4444,,221133
Unencumbered
Cash and
securities
available to
secure funding
on a Group
and/or legal
entity level
Other
realizable
assets
Assets that
cannot be
pledged as
collateral
Total Group
assets (IFRS)
111122,,004400
3,502
86,138
21,685
716
334466,,002244
178,641
66,,220066
6,206
447755,,772266
10,606
290,591
162,830
5,474
6,224
334499,,118800
228811,,880011
161
Risk, treasury and capital management
Risk, treasury and capital management
Treasury management
Asset encumbrance as of 31 December 2018
USD million
On-balance sheet assets
On-balance sheet assets
Cash and balances at central banks
Loans and advances to banks
Receivables from securities financing transactions
of which: cash collateral on securities borrowed
of which: reverse repurchase agreements
Cash collateral receivables on derivative instruments
Loans and advances to customers
of which: mortgage loans
Other financial assets measured at amortized cost
Total financial assets measured at amortized cost
Total financial assets measured at amortized cost
Financial assets at fair value held for trading
Financial assets at fair value held for trading
of which: trading assets – treasury bills / bonds
of which: trading assets – mortgage-backed securities
of which: trading assets – other asset-backed securities
of which: trading assets – other bonds
of which: trading assets – investment fund units
of which: trading assets – equity instruments
of which: loans
Derivative financial instruments
Derivative financial instruments
Brokerage receivables
Brokerage receivables
of which: customer brokerage
of which: prime brokerage
Financial assets at fair value not held for trading
Financial assets at fair value not held for trading
Total financial assets measured at fair value through profit or loss
Total financial assets measured at fair value through profit or loss
Financial assets measured at fair value through other comprehensive income
Financial assets measured at fair value through other comprehensive income
Investments in associates
Property, equipment and software
Goodwill and intangible assets
Deferred tax assets
Other non-financial assets
Total non-financial assets
Total non-financial assets
Total on-balance sheet
Total on-balance sheet
USD million
Off-balance sheet assets
Off-balance sheet assets
Fair value of securities accepted as collateral
Fair value of securities accepted as collateral
of which: money market paper as collateral
of which: other debt instruments as collateral
of which: equity instruments as collateral
of which: investment fund units as collateral
of which: other
Assets
otherwise
restricted and
not available
to secure
funding
14,954
14,954
390
11,204
3,356
4
Assets
pledged
as collateral
356,745
356,745
10,110
211,156
130,853
4,621
5
Total on- and off-balance sheet assets as of 31 December 2018
Total on- and off-balance sheet assets as of 31 December 2018
418,841
418,841
51,712
51,712
of which: high-quality liquid assets
1 Includes USD 32,121 million of assets pledged as collateral that may be sold or repledged by counterparties.
1
162
Encumbered
Assets
otherwise
restricted and
not available
to secure
funding
Assets
pledged
as collateral
Unencumbered
Cash and
securities
available to
secure funding
on a Group
and/or legal
entity level
Other
realizable
assets
108,370
5,140
11,703
18,804
18,804
18,804
18,804
43,2921
43,2921
4,776
1,660
3,541
33,315
3,205
935
197
9,477
9,477
3,589
3,589
187
898
2,504
13,446
121,816
121,816
53,924
53,924
6,385
258
134
4,921
5,277
36,949
43,292
43,292
23,514
23,514
27,104
27,104
171
171
39,186
39,186
93,110
93,110
6,495
6,495
294,307
151,301
1,091
307,101
307,101
3,566
3,566
3,566
9,826
9,826
13,392
13,392
1,099
9,348
6
6
6
36,758
36,758
4,298
4,298
4,298
225,719
225,719
10,447
10,447
330,940
330,940
62,096
62,096
Encumbered
Assets that
cannot be
pledged as
collateral
Total Group
assets (IFRS)
25
95,349
13,061
82,288
20,397
6,306
7,828
129,905
129,905
126,210
126,210
16,840
16,840
4,384
12,457
10,163
10,163
153,213
153,213
6,647
10,105
3,106
19,858
19,858
302,976
302,976
108,370
16,868
95,349
13,061
82,288
23,602
320,352
170,105
22,563
587,104
587,104
104,370
104,370
11,161
258
134
6,768
9,716
72,768
3,566
126,210
126,210
16,840
16,840
4,384
12,457
82,690
82,690
330,110
330,110
6,667
6,667
1,099
9,348
6,647
10,105
7,410
34,608
34,608
958,489
958,489
Unencumbered
Cash and
securities
available to
secure funding
on a Group
and/or legal
entity level
Other
realizable
assets
Assets that
cannot be
pledged as
collateral
Total Group
assets (IFRS)
109,310
109,310
3,922
87,788
16,598
1,003
335,029
335,029
184,361
2,678
2,678
2,678
483,688
483,688
14,421
310,148
150,807
5,628
2,683
333,618
333,618
302,976
302,976
Assets available to secure funding on a Group and/or legal entity level by currency
USD million
Swiss franc
US dollar
Euro
Other
TToottaall
Stress testing
Audited | We perform stress testing to determine the optimal asset
and liability structure that allows us to maintain an appropriately
balanced liquidity and funding position under various scenarios.
Liquidity crisis scenario analysis and contingency funding
planning support the liquidity management process and aim to
ensure 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 market conditions, including
considering the possible effect on our access to markets from
stress events affecting all parts of our business. These models
and their assumptions are reviewed regularly to incorporate the
latest business and market developments. We continuously
refine the assumptions used to 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 about stress
testing
Stressed scenario
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 typically not firm-specific. In
addition to the loss of the 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 in our long-term credit rating, and a corresponding
downgrade in our short-term rating.
We use a cash capital model that incorporates the stress
scenario and measures the amount of long-term funding
available to fund illiquid assets. The illiquid portion of an asset is
the difference between the carrying amount of the asset 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 funding with a
remaining time to maturity of at least one year, shareholders’
3311..1122..1199
7799,,881199
114466,,660011
3322,,880011
8866,,880033
334466,,002244
31.12.18
79,595
131,838
36,874
86,720
335,029
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.
Combined scenario
The combined scenario represents an extreme stress event that
combines a firm-specific crisis with market disruption. This
scenario assumes: (i) substantial outflows on otherwise stable
client deposits, mainly due on demand; (ii) inability to renew or
replace maturing unsecured wholesale funding; (iii) unusually
large drawdowns on loan commitments; (iv) reduced capacity to
generate liquidity from trading assets; (v) liquidity outflows
corresponding to a three-notch downgrade in our long-term
credit rating, and a corresponding downgrade in our short-term
rating;
to unwind
triggering contractual obligations
derivative positions or to deliver additional collateral; and
(vii) additional
adverse
movements in the market values of derivatives. The combined
scenario is run daily to project potential cash outflows under it
and is assessed as part of ongoing risk management activities.
requirements due
collateral
(vi)
to
Contingency Funding Plan
Audited | Our Group Contingency Funding Plan is an integral part
of our global crisis management framework, which covers
various types of crisis events. This Contingency Funding Plan
contains an assessment of contingent funding sources in a
stressed environment, liquidity status indicators and metrics, and
contingency procedures. Our funding diversification and global
scope help protect our liquidity position in the event of a crisis.
We regularly assess and test all material known and expected
cash flows, as well as the level and availability of high-grade
collateral that could be used to raise additional funding if
required. Our contingent funding sources include our HQLA
portfolios, available and unutilized liquidity facilities at several
major central banks, contingent reductions of liquid trading
portfolio assets and other available management actions.
163
Risk, treasury and capital management
Risk, treasury and capital management
Treasury management
Liabilities and funding management
Audited | Group Treasury regularly monitors our funding status,
including concentration risks, aiming to ensure that we
maintain a well-balanced and diversified liability structure.
Our funding risk management aims for the optimal asset and
liability structure to finance our businesses reliably and cost-
efficiently, and our funding activities are planned by
analyzing the overall liquidity and funding profile of our
balance sheet, taking into account the amount of stable
funding that would be needed to support ongoing business
activities through periods of difficult market conditions.
The funding strategy of UBS Group AG is set annually in the
Funding Plan and is reviewed on a quarterly basis under its
Funding Management Policy governance framework. The
Funding Plan is developed by Group Treasury and approved by
the Group ALCO. In the execution of the Funding Plan, Group
Treasury considers factors such as currency, market and tenor
diversification. For specific product types, the operational
execution of funding transactions defined in the Funding Plan is
delegated to the business divisions (e.g., structured notes to the
Investment Bank). Nevertheless, Group Treasury retains overall
responsibility and oversight over all product types.
Group Treasury proposes, sets and oversees limits, triggers
and targets for funding generation including concentration
limits, weighted average maturity floors and volume. Funding
diversification is monitored continuously, with a focus on
product type, single-counterparty exposure (as a percentage of
the total), maturity profile, as well as the overall contribution of
a particular funding source to the liability mix.
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, provides a broad range of investment opportunities and
reduces liquidity risk.
Global Wealth Management and Personal & Corporate
Banking provide significant, cost-efficient and reliable sources of
funding. These include core deposits and Swiss covered bonds,
which use (as a pledge) a portion of our portfolio of Swiss
residential mortgages as collateral to generate
long-term
funding. In addition, we have several short-, medium- and long-
term funding programs under which we issue senior unsecured
debt and structured notes, as well as short-term debt. These
programs enable institutional and private investors who are
active in the markets of Europe, the US and Asia Pacific to
customize their investments in UBS’s debt. Collectively, these
broad product offerings and funding sources, together with the
global scope of our business activities, support our funding
stability.
Balance sheet liabilities
Total liabilities increased by USD 12 billion to USD 917 billion as
of 31 December 2019, driven mainly by increases in customer
deposits, in non-financial liabilities and in financial liabilities
164
related to unit-linked investment contracts, as well as in long-
term debt issued. These effects were partly offset by decreases
in short-term borrowings and in securities financing transactions
at amortized cost. Total liabilities excluding derivatives and cash
collateral payables on derivative
increased by
USD 14 billion to USD 765 billion as of 31 December 2019.
Excluding currency effects, total liabilities excluding derivatives
and cash collateral payables on derivative instruments increased
by USD 12 billion.
instruments
Customer deposits increased by USD 28 billion, mainly in
Switzerland and Asia Pacific. As of 31 December 2019, our ratio
of customer deposits to outstanding loan balances was 137%
(31 December 2018: 131%).
Non-financial liabilities and financial liabilities related to unit-
linked investment contracts increased by USD 6 billion, driven by
an
investment contracts, with a
in unit-linked
corresponding increase in associated assets.
increase
Long-term debt issued increased by USD 5 billion. This was
the result of a USD 10 billion increase in debt issued designated
at fair value, mainly reflecting market-driven movements, partly
offset by a USD 5 billion decrease in long-term debt held at
amortized cost. The aforementioned decrease was primarily as a
result of the maturing and early redemption of USD 9.7 billion
equivalent of senior unsecured debt and the maturing of
USD 1.1
The
aforementioned instances of maturities were partly offset by the
issuance of USD 3.8 billion equivalent of US dollar-, Swiss franc-,
Australian dollar- and Singapore dollar-denominated high-
trigger loss-absorbing additional tier 1 (AT1) capital instruments
and the issuance of USD 1.9 billion equivalent of Swiss franc-
and US dollar-denominated senior unsecured debt
that
contributes to our total loss-absorbing capacity (TLAC).
equivalent
covered
bonds.
billion
of
During the financial year 2020, USD 1.8 billion equivalent of
TLAC-eligible benchmark instruments will mature and USD 1.3
billion equivalent of AT1 capital was called in February 2020.
UBS is already compliant with its 2020 going and gone concern
capital
rationally and
opportunistically with respect to refinancing of any callable
capital
incremental
issuances.
instruments as well as any potential
requirements and expects
to act
Short-term borrowings decreased by USD 22 billion, mainly
reflecting net maturities of commercial papers and certificates of
deposit.
Derivatives and cash collateral payables on derivative
instruments decreased by USD 2 billion, in line with the
aforementioned increase in derivative assets and cash collateral
receivables.
Refer to the document titled “UBS Group AG consolidated
capital instruments and TLAC-eligible senior unsecured debt,”
available under “Bondholder information” at
www.ubs.com/investors, for more information
Refer to the “Consolidated financial statements” section of this
report for more information
Liabilities and equity
As of
% change from
31.12.19
31.12.19
31.12.18
USD billion
Short-term borrowings1
28.4
(43)
28.4
Securities financing transactions at amortized cost
7.8
(24)
7.8
Customer deposits
448.3
448.3
7
Long-term debt issued2
155.5
155.5
3
Trading portfolio3
30.6
30.6
6
152.3
Derivatives and cash collateral payables on derivative instruments
152.3
(2)
37.2
Brokerage payables
37.2
(3)
Other financial liabilities measured at amortized cost and fair value4
17.5
17.5
(7)
39.9
Non-financial liabilities and financial liabilities related to unit-linked investment contracts
39.9
17
917.5
Total liabilities
917.5
1
Total liabilities
0.3
Share capital
0.3
0
18.1
Share premium
18.1
(13)
(3.3)
Treasury shares
(3.3)
26
34.2
Retained earnings
34.2
12
Other comprehensive income5
5.3
5.3
35
54.5
Total equity attributable to shareholders
54.5
3
Total equity attributable to shareholders
0.2
0.2
(1)
Equity attributable to non-controlling interests
54.7
54.7
3
Total equity
Total equity
1
972.2
972.2
Total liabilities and equity
Total liabilities and equity
2 Consists of long-term debt issued measured at amortized cost and debt issued designated at fair value. The
1 Consists of short-term debt issued measured at amortized cost and amounts due to banks.
1
2
classification of debt issued into short-term and long-term does not consider any early redemption features. Long-term debt issued also includes debt with a remaining time to maturity of less than one year.
3 Consists of financial liabilities at fair value held for trading. 4 Consists of financial liabilities at fair value not held for trading, financial liabilities measured at fair value through other comprehensive income and
3
other financial liabilities measured at amortized cost, but excludes financial liabilities related to unit-linked investment contracts. 5 Excludes defined benefit plans and own credit that are recorded directly in
Retained earnings.
31.12.18
50.0
10.3
419.8
150.3
28.9
154.6
38.4
18.8
34.2
905.4
0.3
20.8
(2.6)
30.4
3.9
52.9
0.2
53.1
958.5
5
4
Asset funding
USD billion, except where indicated
As of 31.12.19
120
Cash and balances at central banks
Loans and advances to banks
84
Securities fnancing transactions
128
Trading portfolio
18
327
Brokerage receivables
Loans and advances to customers
175
Other (including net derivative assets)
Short-term borrowings
Securities fnancing transactions
Trading portfolio
Brokerage payables
Demand deposits
USD 76 billion
collateral
surplus
Retail savings/deposits
Time deposits
Fiduciary deposits
137% coverage
USD 121 billion surplus
s
t
i
s
o
p
e
d
r
e
m
o
t
s
u
C
¹
d
e
u
s
s
i
t
b
e
d
m
r
e
t
-
g
n
o
L
Debt issued designated at fair value
67
156
Debt issued measured at amortized cost
28
8
31
37
176
448
169
62
41
89
89
55
165
1 Long-term debt issued also includes debt with a remaining time to maturity of less than one year.
Assets
Liabilities and equity
Other
Total equity
Risk, treasury and capital management
Risk, treasury and capital management
Treasury management
Liabilities by product and currency
Short-term borrowings
of which: due to banks
of which: short-term debt issued1
Securities financing transactions
Customer deposits
of which: demand deposits
of which: retail savings / deposits
of which: time deposits
of which: fiduciary deposits
Long-term debt issued2
of which: senior unsecured debt
of which: covered bonds
of which: subordinated debt
of which: debt issued through the
Swiss central mortgage institutions
of which: other long-term debt
of which: debt issued measured at
fair value
Trading portfolio
Derivatives and cash collateral
payables on derivative instruments
Brokerage payables
Other financial liabilities measured at
amortized cost and fair value3
Non-financial liabilities and financial
liabilities related to unit-linked
investment contracts
Total liabilities
Total liabilities
USD billion
USD billion
All currencies
All currencies
31.12.19 31.12.18
31.12.19
50.0
28.4
28.4
11.0
6.6
6.6
21.8
39.0
21.8
7.8
10.3
7.8
448.3
419.8
448.3
176.0
176.0 181.9
168.6
168.6 165.8
62.3
53.6
62.3
41.4
18.6
41.4
150.3
155.5
155.5
63.0
55.7
55.7
2.6
3.9
2.6
21.8
17.7
21.8
USD
USD
31.12.19 31.12.18
31.12.19
3.1
1.6
1.6
0.4
0.2
0.2
2.7
1.4
1.4
0.9
0.8
0.8
17.0
15.8
17.0
4.5
4.4
4.4
6.0
6.0
6.0
3.8
4.8
4.8
1.5
1.7
1.7
9.5
10.0
10.0
3.7
3.5
3.5
0.0
0.0
0.0
1.5
1.8
1.8
CHF
CHF
31.12.19 31.12.18
31.12.19
0.3
0.3
0.3
0.3
0.3
0.3
0.0
0.0
0.0
0.0
0.0
0.0
21.4
20.0
21.4
7.6
7.6
7.6
11.7
11.8
11.8
0.6
0.3
0.3
0.1
1.8
1.8
1.4
1.6
1.6
0.1
0.1
0.1
0.0
0.0
0.0
0.0
0.0
0.0
As a percentage of total liabilities
As a percentage of total liabilities
EUR
EUR
31.12.19 31.12.18
31.12.19
1.3
0.6
0.6
0.2
0.1
0.1
1.1
0.5
0.5
0.0
0.0
0.0
5.8
6.2
5.8
5.2
4.4
4.4
0.6
0.5
0.5
0.1
0.0
0.0
0.3
0.8
0.8
4.0
3.4
3.4
2.4
1.9
1.9
0.4
0.3
0.3
0.4
0.4
0.4
Other
Other
31.12.19 31.12.18
31.12.19
0.8
0.7
0.7
0.3
0.2
0.2
0.5
0.5
0.5
0.2
0.0
0.0
4.6
4.4
4.6
2.8
2.7
2.7
0.0
0.0
0.0
1.4
1.7
1.7
0.2
0.2
0.2
1.7
1.9
1.9
0.6
0.5
0.5
0.0
0.0
0.0
0.1
0.2
0.2
8.6
8.6
0.0
0.0
8.6
0.1
66.8
66.8
30.6
30.6
57.0
28.9
0.0
0.0
0.0
0.0
4.8
4.8
1.1
1.1
0.0
0.0
4.2
1.5
152.3
152.3
37.2
37.2
154.6
38.4
13.7
13.7
3.0
3.0
14.2
2.9
17.5
17.5
18.8
1.2
1.2
1.3
0.9
0.9
0.0
0.0
0.5
0.5
0.1
0.1
0.2
0.2
0.1
0.1
0.2
0.2
0.9
0.0
0.4
0.1
0.2
0.1
0.2
0.0
0.0
0.0
0.0
0.8
0.8
0.5
0.5
1.8
1.8
0.3
0.3
0.2
0.2
0.0
0.0
0.7
0.4
1.0
0.3
0.5
0.0
0.0
0.0
0.0
1.2
1.2
1.7
1.7
0.9
0.9
0.6
0.6
0.3
0.3
0.0
0.0
0.9
1.2
1.7
0.9
0.2
All currencies
All currencies
31.12.19 31.12.18
31.12.19
5.5
3.1
3.1
1.2
0.7
0.7
4.3
2.4
2.4
1.1
0.8
0.8
48.9
46.4
48.9
20.1
19.2
19.2
18.3
18.4
18.4
5.9
6.8
6.8
2.0
4.5
4.5
16.6
16.9
16.9
6.9
6.1
6.1
0.4
0.3
0.3
1.9
2.4
2.4
0.9
0.9
0.0
0.0
7.3
7.3
3.3
3.3
0.9
0.0
6.2
3.2
16.6
16.6
4.1
4.1
17.1
4.2
1.9
1.9
2.0
39.9
39.9
917.5
917.5
34.2
905.4
0.6
0.6
49.0
49.0
0.6
49.9
0.2
0.2
24.1
24.1
0.2
22.5
0.1
0.1
12.7
12.7
0.2
13.9
3.4
3.4
14.2
14.2
2.7
13.7
4.4
4.4
100.0
100.0
3.7
100.0
2 Consists of long-term debt issued measured at amortized
1 Short-term debt issued is comprised of certificates of deposit, commercial paper, acceptances and promissory notes, and other money market paper.
1
2
cost and debt issued designated at fair value. The classification of debt issued into short-term and long-term does not consider any early redemption features. Long-term debt issued also includes debt with a
3 Consists of financial liabilities at fair value not held for trading, financial liabilities measured at fair value through other comprehensive income and other
remaining time to maturity of less than one year.
3
financial liabilities measured at amortized cost, but excludes financial liabilities related to unit-linked investment contracts.
166
funding,
short-term wholesale
Net stable funding ratio
The net stable funding ratio (NSFR) framework is intended to
limit overreliance on
to
encourage a better assessment of funding risk across all on- and
off-balance sheet items and to promote funding stability. The
NSFR has two components: available stable funding (ASF) and
required stable funding (RSF). ASF is the portion of capital and
liabilities expected to be available over the period of one year.
RSF is a measure of the stable funding requirement of an asset
based on its maturity, encumbrance and other characteristics, as
well as the potential for contingent calls on funding liquidity
from off-balance sheet exposures. The Basel Committee on
Banking Supervision (BCBS) NSFR regulatory framework requires
a ratio of at least 100% from 2018.
is
in
completed
Switzerland,
We report our estimated pro forma NSFR based on current
guidance from FINMA and will adjust our NSFR reporting
according to the final implementation of the BCBS NSFR
disclosure standards in Switzerland. The calculation of our pro
forma NSFR includes interpretation and estimates of the effect
of the NSFR rules. It will continue to be refined when NSFR rule-
making
regulatory
interpretations evolve and as new models and associated
systems are enhanced. After delaying the introduction of the
NSFR framework in Switzerland for the past two years in order
to align with developments in the EU and the US, the Swiss
Federal Council has decided to adopt the associated ordinance
amendments in early summer 2020, and to bring them into
force by mid-2021. The Federal Department of Finance has
been mandated to finalize the necessary regulatory texts jointly
with relevant stakeholders, including those from industry, in the
upcoming months.
as
As of 31 December 2019, our estimated pro forma NSFR was
111%, an increase of 1 percentage point compared with
31 December 2018. This mainly reflected a USD 19 billion
increase in available stable funding, mainly driven by an increase
in deposits. This effect was largely offset by a USD 16 billion
increase in required stable funding, mainly due to an increase in
trading assets and calculation refinements.
Pro forma net stable funding ratio
USD billion, except where indicated
Available stable funding
Required stable funding
PPrroo ffoorrmmaa nneett ssttaabbllee ffuunnddiinngg rraattiioo ((%%))
Internal funding and funds transfer pricing
We utilize an integrated liquidity and funding framework to
govern the liquidity management of all our branches and
subsidiaries, and our major sources of liquidity are channeled
through entities that are fully consolidated. Group Treasury
meets internal demands for funding by channeling funds from
entities generating surplus cash to those in need of financing,
except in those circumstances where transfer restrictions exist.
Funding costs and benefits are allocated to our business
divisions according to our liquidity and funding risk management
framework. Our internal funds transfer pricing system, which is
governed by Group Treasury, is designed to provide the proper
liability structure to support the assets and planned activities of
each business division. The funds transfer pricing mechanisms
aim 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 surplus 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
funding, and is, for major subsidiaries, entity-specific. We
regularly review our internal funds transfer pricing mechanisms
and make enhancements where appropriate to help better
accomplish our liquidity and funding management objectives.
Credit ratings
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
businesses and the 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, stability 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.
In evaluating our liquidity and funding requirements, we
consider the potential effect of a reduction in UBS’s long-term
credit ratings and a corresponding reduction in short-term
ratings.
3311..1122..1199
31.12.18
448888
444422
111111
469
426
110
167
Risk, treasury and capital management
Risk, treasury and capital management
Treasury management
If our credit ratings were to be downgraded, rating trigger
clauses could result in an immediate cash settlement or the need
to deliver additional collateral to counterparties from contractual
obligations related to over-the-counter (OTC) derivative positions
and other obligations. Based on our credit ratings as of
31 December 2019, USD 0.0 billion, USD 0.5 billion and USD 0.9
billion would have been
for such contractual
obligations in the event of a one-notch, two-notch and three-
notch reduction in long-term credit ratings, respectively. Of
these, the portion related to additional collateral is USD 0.0
billion, USD 0.3 billion and USD 0.6 billion, respectively.
required
There was one main rating action on UBS Group AG’s and
UBS AG’s solicited credit ratings in 2019. On 21 November
2019, Rating and Investment Information (R&I) upgraded UBS
Group AG’s issuer rating to A+ from A, while revising its outlook
from positive to stable.
Refer to “Liquidity and funding management are critical to
UBS’s ongoing performance” in the “Risk factors” section of this
report for more information
Equity
Equity attributable to shareholders increased by USD 1,605
million to USD 54,533 million as of 31 December 2019.
Total comprehensive income attributable to shareholders was
positive USD 5,089 million, reflecting net profit of USD 4,304
million and positive other comprehensive income (OCI) of
USD 785 million. OCI consisted of positive cash flow hedge OCI
of USD 1,143 million, positive OCI related to financial assets
measured at fair value through OCI of USD 117 million and
positive foreign currency translation OCI of USD 104 million,
partly offset by negative OCI related to own credit of USD 392
million and negative defined benefit plan OCI of USD 186
million.
Share premium decreased by USD 2,779 million, mainly due
to the dividend distribution of USD 2,544 million to shareholders
out of the capital contribution reserve of UBS Group AG and a
reduction of USD 886 million from the delivery of treasury shares
under share-based compensation plans, partly offset by an
increase of USD 619 million due to the amortization of deferred
equity compensation awards in the income statement.
Net treasury share activity decreased equity attributable to
shareholders by USD 695 million, mainly as a result of share
repurchases of USD 806 million in 2019 under our share
repurchase program, partly offset by the net disposal of treasury
shares related to employee share-based compensation awards.
The effect of adopting IFRIC 23, Uncertainty over Income Tax
Treatments, decreased equity attributable to shareholders by
USD 11 million.
Equity attributable to non-controlling interests decreased by
USD 2 million to USD 174 million.
Refer to the “Group performance” and “Consolidated financial
statements” sections of this report for more information
Refer to “UBS shares” in the “Capital management” section of
this report for more information about the share repurchase
program
Refer to “Note 1b Changes in accounting policies, comparability
and other adjustments” in the “Consolidated financial
statements” section of this report for more information about
the adoption of IFRIC 23
Maturity analysis of assets and liabilities
The tables on the following pages provide an analysis of on- and
off-balance sheet assets and liabilities by residual contractual
maturity as of 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 includes the effect of
callable features. The presentation of liabilities at carrying
amount in this table differs from “Note 27 Maturity analysis of
financial liabilities” in the “Consolidated financial statements”
section of this report, where these liabilities are presented on an
undiscounted basis, as required by
International Financial
Reporting Standards.
Derivative financial instruments and financial assets and
liabilities at fair value held for trading are assigned to the column
Due within 1 month, noting that the respective contractual
maturities may extend over significantly longer periods.
Assets held to hedge unit-linked
investment contracts
(presented within Financial assets at fair value not held for
trading) are assigned to the column Due within 1 month,
consistent with the maturity assigned to the related amounts
due under unit-linked investment contracts (presented within
Other financial liabilities designated at fair value).
Other financial assets and liabilities with no contractual
maturity, such as equity securities, are included in the Perpetual /
Not applicable time bucket. Undated or perpetual instruments
are classified based on the contractual notice period that the
counterparty 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 are generally included in the Perpetual / Not applicable
time bucket.
Loan commitments are classified on the basis of the earliest
date they can be drawn down.
168
Due
within
1 month
Due
between
1 and 3
months
Due
between
3 and 6
months
Due
between
6 and 9
months
Due
between
9 and 12
months
Due
between
1 and 2
years
Due
between
2 and 5
years
Due over
5 years
Perpetual /
Not
applicable
Maturity analysis of assets and liabilities
USD billion
Assets
Cash and balances at central banks
Loans and advances to banks
Receivables from securities financing transactions
Cash collateral receivables on derivative instruments
Loans and advances to customers
Other financial assets measured at amortized cost
TToottaall ffiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt
Financial assets at fair value held for trading
of which: assets pledged as collateral that may be sold or
repledged by counterparties
Derivative financial instruments
Brokerage receivables
Financial assets at fair value not held for trading
TToottaall ffiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt ffaaiirr vvaalluuee tthhrroouugghh
pprrooffiitt oorr lloossss
FFiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt ffaaiirr vvaalluuee tthhrroouugghh ootthheerr
ccoommpprreehheennssiivvee iinnccoommee
Investments in associates
Property, equipment and software
Goodwill and intangible assets
Deferred tax assets
Other non-financial assets
TToottaall aasssseettss aass ooff 3311 DDeecceemmbbeerr 22001199
TToottaall aasssseettss aass ooff 3311 DDeecceemmbbeerr 22001188
Liabilities
Amounts due to banks
Payables from securities financing transactions
Cash collateral payables on derivative instruments
Customer deposits
Debt issued measured at amortized cost
Other financial liabilities measured at amortized cost
TToottaall ffiinnaanncciiaall lliiaabbiilliittiieess mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt
Financial liabilities at fair value held for trading
Derivative financial instruments
Brokerage payables designated at fair value
Debt issued designated at fair value
Other financial liabilities designated at fair value
TToottaall ffiinnaanncciiaall lliiaabbiilliittiieess mmeeaassuurreedd aatt ffaaiirr vvaalluuee tthhrroouugghh
pprrooffiitt oorr lloossss
Provisions
Other non-financial liabilities
TToottaall lliiaabbiilliittiieess aass ooff 3311 DDeecceemmbbeerr 22001199
TToottaall lliiaabbiilliittiieess aass ooff 3311 DDeecceemmbbeerr 22001188
GGuuaarraanntteeeess,, ccoommmmiittmmeennttss aanndd ffoorrwwaarrdd ssttaarrttiinngg ttrraannssaaccttiioonnss
Loan commitments
Guarantees
Reverse repurchase agreements
Securities borrowing agreements
TToottaall aass ooff 3311 DDeecceemmbbeerr 22001199
TToottaall aass ooff 3311 DDeecceemmbbeerr 22001188
107.0
11.2
57.2
23.3
118.9
5.1
322.6
127.5
41.3
121.8
18.0
36.6
303.9
0.2
6.6
663333..44
626.5
5.3
7.4
31.4
422.9
4.3
5.8
477.2
30.6
120.9
37.2
20.4
34.1
243.2
3.0
3.7
772277..11
699.7
33.1
19.1
21.9
7744..11
63.0
0.6
16.8
36.7
0.6
54.8
4.8
4.8
0.1
0.2
4.3
14.0
0.4
18.9
5.2
5.2
0.3
0.2
4.0
8.3
0.7
13.2
2.8
2.8
0.2
0.1
1.0
9.1
0.6
10.7
0.0
0.8
27.1
1.9
29.7
0.2
0.2
60.6
5.9
66.8
0.1
0.0
52.0
7.8
60.0
4.7
4.7
0.3
15.2
11.4
15.2
11.4
0.4
0.2
1.9
1.9
4.7
5599..88
63.0
2244..44
24.2
1166..22
17.0
1155..77
18.9
4455..33
37.4
1.3
7799..66
80.6
0.0
6666..66
62.2
0.3
0.1
16.0
4.4
0.1
21.0
17.3
0.4
17.7
2.6
4411..22
41.4
0.5
00..55
0.3
0.1
0.3
4.3
13.8
0.1
18.6
3.9
0.2
4.1
0.2
0.0
0.9
8.6
0.1
9.9
4.1
0.2
4.4
0.1
0.3
0.2
0.0
1.8
6.5
0.1
8.6
2.1
0.0
2.1
1.1
9.9
0.5
11.7
10.2
0.0
10.3
1.2
28.4
1.2
30.9
2.0
0.4
2.3
0.0
20.3
1.8
22.1
6.7
0.6
7.3
2222..77
28.6
1144..33
17.6
1100..77
11.7
2222..00
23.6
3333..33
37.7
2299..44
32.7
0.2
0.0
00..22
0.2
0.1
0.0
0.0
0.0
00..11
0.1
00..00
0.2
00..00
0.0
00..00
0.0
00..00
0.0
Total
107.1
12.4
84.2
23.3
326.8
23.0
576.8
127.5
41.3
121.8
18.0
83.9
1.3
1.3
351.3
0.0
1.1
12.8
6.5
9.5
3311..22
28.6
14.3
14.3
2.5
1166..88
12.5
6.3
1.1
12.8
6.5
9.5
7.9
997722..22
958.5
6.6
7.8
31.4
448.3
110.5
9.7
614.3
30.6
120.9
37.2
66.8
35.9
291.5
3.0
8.8
991177..55
905.4
33.9
19.1
21.9
7744..99
63.6
169
Risk, treasury and capital management
Risk, treasury and capital management
Treasury management
Off-balance sheet
Off-balance sheet arrangements
In the normal course of business, we enter into transactions
where, in accordance with International Financial Reporting
Standards, the maximum contractual exposure may not be
recognized in whole or in part on our balance sheet. These
transactions include derivative instruments, guarantees and
similar arrangements, as well as some purchased and retained
interests in non-consolidated structured entities, which are
transacted for a number of reasons, including hedging and
market-making activities, to meet specific needs of our clients or
to offer investment opportunities to clients through entities that
are not controlled by us.
When we incur an obligation or become entitled to an asset
through these arrangements, we recognize them 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 1, 3a
and 3d, and “Note 31 Interests in subsidiaries and other
entities” in the “Consolidated financial statements” section of
this report for more information
Off-balance sheet
The following paragraphs provide more information about
several distinct off-balance sheet arrangements. Additional off-
balance sheet information is primarily provided in Notes 10, 11,
21, 23, 24i, 26, 31 and 34 in the “Consolidated financial
statements” section of this report, as well as in the 31 December
report under “Pillar 3 disclosures” at
2019 Pillar 3
www.ubs.com/investors.
Off-balance sheet development in 2019
Forward starting reverse repurchase agreements increased by
USD 13 billion, mainly reflecting higher client activity levels
related to forward starting transactions in the repo market.
Forward starting repurchase agreements were stable at USD 8
billion and guarantees were also stable at USD 16 billion. Loan
commitments decreased by USD 1 billion, primarily reflecting a
decrease in our Corporate Client Solutions business in the
Investment Bank, resulting from commitments that were
funded, canceled or syndicated during the year. Committed
unconditionally revocable credit lines decreased by USD 2 billion.
% change from
31.12.18
USD billion
Total guarantees1
(3)
Loan commitments1
(3)
Forward starting reverse repurchase agreements1
143
Forward starting repurchase agreements1
(2)
Committed unconditionally revocable credit lines2
(4)
1 These lines are aligned with the scope disclosed in “Note 34 Guarantees, commitments and forward starting transactions” in the “Consolidated financial statements” section of this report. Total guarantees and
1
2 Refer to “Note 10 Financial assets at amortized cost and other positions in scope of expected credit loss measurement” in the “Consolidated financial
Loan commitments are shown net of sub-participations.
2
statements” section of this report for more information.
31.12.18
17.0
34.1
9.0
8.3
36.6
31.12.19
31.12.19
16.5
16.5
33.1
33.1
21.9
21.9
8.1
8.1
35.1
35.1
As of
170
Risk disclosures, including our involvement with off-balance
sheet vehicles
Refer to the “Risk management and control” 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 2019, 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
guarantees, commitments to extend credit, standby and other
letters of credit to support our clients, commitments to enter
into forward starting transactions, note issuance facilities and
revolving 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 or expected credit losses is required.
Guarantees represent irrevocable assurances that, subject to
the satisfaction of certain conditions, we will make payments in
the event that our clients fail to fulfill their obligations to third
parties. As of 31 December 2019, the net exposure (gross values
less sub-participations) from guarantees and similar instruments
was USD 16.5 billion compared with USD 17.0 billion as of
31 December 2018. Fee income from issuing guarantees was
not significant to total revenues in 2019 and 2018.
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. The committed
unconditionally revocable credit lines are generally open-ended.
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 2019, we recognized net credit loss
recoveries of USD 6 million related to loan commitments,
guarantees and other credit facilities in scope of expected credit
loss measurement compared with net credit loss expenses of
USD 12 million in 2018. Provisions recognized for guarantees
loan commitments were USD 114 million as of
and
31 December 2019 and USD 116 million as of 31 December
2018.
Refer to “Note 10 Financial assets at amortized cost and other
positions in scope of expected credit loss measurement” and
“Note 23 Expected credit loss measurement” in the “Consolidated
financial statements” section of this report for more information
about provisions for loan commitments and guarantees
into partial
For certain obligations, we enter
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.
Clearing house and exchange memberships
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 otherwise exposed to additional financial obligations.
While the membership rules vary, obligations generally would
arise only if the exchange or clearing house had exhausted its
resources. We consider the probability of a material loss due to
such obligations to be remote.
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. FINMA estimates our share in the deposit insurance
system to be CHF 0.9 billion.
As a member of the Deposit Protection Fund of the
Association of German Banks (the Fund), we are required to
provide an indemnity to the Fund related to its coverage of
above
certain non-institutional deposits
EUR 100,000 and below EUR 235 million per depositor until
31 December 2019, from 1 January 2020 above EUR 100,000
and below EUR 176 million) in the event that UBS Europe SE
becomes unable to meet its obligations.
amounts
(for
The
aforementioned deposit
requirements
represent a contingent payment obligation and expose us to
additional risk. As of 31 December 2019, we considered the
probability of a material loss from our obligations to be remote.
insurance
171
Risk, treasury and capital management
Risk, treasury and capital management
Treasury management
Contractual obligations
USD million
Long-term debt obligations
Lease obligations
Purchase obligations
Total as of 31 December 2019
Total as of 31 December 2019
Contractual obligations
The table above summarizes payments due by period under
contractual obligations as of 31 December 2019.
All contractual obligations included in this table, with the
exception of purchase obligations (i.e., those in which we are
committed to purchasing goods and services), and lease
commitments included within Lease obligations, are recognized
as liabilities on our balance sheet. Amounts in the table above
are presented on an undiscounted basis.
Long-term debt obligations as of 31 December 2019 were
USD 169 billion. They consisted of debt issued designated at fair
value (USD 68 billion) and long-term debt issued measured at
amortized cost (USD 101 billion) and represent estimated future
interest and principal payments on an undiscounted basis.
Refer to “Note 27 Maturity analysis of financial liabilities” in the
“Consolidated financial statements” section of this report for
more information
More than half of total long-term debt obligations had a
fixed-rate of interest. Amounts due on interest rate swaps used
to hedge interest rate risk inherent in floating-rate debt issued,
and designated in fair value hedge accounting relationships, are
not included in the table above. The notional amount of these
interest rate swaps was USD 65 billion as of 31 December 2019.
Payment due by period
Within 1 year
1–3 years
3–5 years
Over 5 years
66,652
658
1,069
68,379
68,379
37,534
1,107
780
39,421
39,421
21,519
898
301
22,717
22,717
43,622
2,073
111
45,806
45,806
Total
169,327
4,736
2,260
176,323
176,323
Debt issued designated at fair value mainly consists of structured
notes and is 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 instruments as
interest rate risk inherent in respective liabilities is generally risk-
managed on a portfolio level.
Within purchase obligations, obligations to employees under
mandatory notice periods are excluded (i.e., the periods in which
we must pay contractually agreed salaries to employees leaving
the firm).
Our liabilities recognized on the balance sheet as Amounts
due to banks, Payables from securities financing transactions,
Cash collateral payables on derivative instruments, Customer
deposits, Other financial liabilities measured at amortized cost,
Financial liabilities at fair value held for trading, Derivative
financial instruments, Brokerage payables designated at fair
value, Other financial
liabilities designated at fair value,
Provisions and Other non-financial liabilities are excluded from
the table above.
Refer to the respective Notes, including “Note 28 Hedge
accounting,” in the “Consolidated financial statements” section
of this report for more information
172
Currency management
Strategy, objectives and governance
Group Treasury focuses on three principal areas of currency risk
management: (i) currency-matched funding and investment of
non-US dollar assets and liabilities; (ii) sell-down of non-US dollar
profits and losses; and (iii) selective hedging of anticipated non-
US dollar profits and losses to further mitigate the effect of
structural imbalances in the balance sheet. Non-trading foreign
exchange risks arising from transactions denominated in a
currency other than the reporting entity’s functional currency are
managed under market risk limits. Activities performed by Group
Treasury include the management of the structural currency
composition at the consolidated Group level.
Currency-matched funding and investment of non-US dollar
assets and liabilities
For monetary balance sheet items and other investments, 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
translation of non-US dollar assets and liabilities.
Net investment hedge accounting is applied to non-US dollar
core investments to balance the effect of foreign exchange
movements on both common equity tier 1 (CET1) capital and
the CET1 capital ratio.
Hedging of anticipated non-US dollar profits and losses
The Group ALCO may at any time instruct Group Treasury to
execute hedges to protect anticipated future profits 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 about our active management of sensitivity
to currency movements and its effect on our key ratios
Dividend distribution
Following the change in functional currency of UBS Group AG to
the US dollar, effective from 1 October 2018, dividends were
accrued in US dollars over the course of 2019 to align the
dividend declaration currency to the functional currency. As a
result, starting with the dividend for the financial year 2019, UBS
Group AG will declare dividends in US dollars going forward.
Shareholders whose
SIX
(ISIN: CH0244767585) will receive dividends in Swiss francs,
based on a published exchange rate calculated up to five
decimal places, on the day prior to the ex-dividend date.
Shareholders holding shares through DTC (ISIN: CH0244767585;
CUSIP: H42097107) will be paid dividends in US dollars.
through
shares
held
are
Refer to “Note 1a Significant accounting policies” and “Note 11
Derivative instruments” in the “Consolidated financial
Refer to the “Standalone financial statements” section of this
report for more information about the proposed dividend
statements” section of this report for more information
distribution of UBS Group AG
Sell-down of non-US dollar reported profits and losses
Income statement items of foreign subsidiaries and branches of
UBS AG with a functional currency other than the US dollar are
translated into US dollars at average rates. To reduce earnings
volatility on the translation of previously recognized earnings in
foreign currencies, Group Treasury centralizes the profits and
losses arising in UBS AG and its branches and sells or buys the
profit or loss for US dollars. Our foreign subsidiaries follow a
similar monthly sell-down process into their own functional
currencies. Retained earnings in foreign subsidiaries with a
functional currency other than the US dollar are integrated and
managed as part of our net investment hedge accounting
program.
173
Risk, treasury and capital management
Risk, treasury and capital management
Treasury management
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 when evaluating our liquidity position than the
liquidity, funding and capital management frameworks and
measures described elsewhere in the “Risk, treasury and capital
management” section of this report.
Cash and cash equivalents
As of 31 December 2019, cash and cash equivalents totaled
USD 119.9 billion, a decrease of USD 6.2 billion
from
31 December 2018, driven by net cash outflows from financing
and investing activities, partly offset by net cash inflows from
operating activities.
Operating activities
Net cash inflows from operating activities were USD 19.7 billion
in 2019. Net operating cash flow, before changes in operating
assets and liabilities and income taxes paid, was an inflow of
USD 14.3 billion. Changes in operating assets and liabilities
resulted in net cash inflows of USD 5.4 billion, mainly driven by a
USD 23.2 billion net inflow related to customer deposits and an
USD 8.7 billion inflow from securities financing transactions.
These inflows were partly offset by a net outflow from financial
assets and liabilities at fair value held for trading and derivative
financial instruments of USD 18.8 billion and net outflows from
loans and advances to banks of USD 4.3 billion and from lending
balances to customers of USD 3.1 billion.
In 2018, net cash inflows from operating activities were
USD 28.9 billion. Net operating cash flow, before changes in
operating assets and liabilities and income taxes paid, was an
outflow of USD 0.2 billion. Changes in operating assets and
liabilities resulted in net cash inflows of USD 29.1 billion, mainly
driven by an USD 11.4 billion net inflow related to brokerage
receivables and payables, an USD 11.1 billion net inflow from
financial assets at fair value not held for trading and other
financial assets and liabilities, an USD 11.1 billion inflow from
financial assets and liabilities at fair value held for trading and
derivative financial instruments, and a USD 9.1 billion inflow
from customer deposits. These inflows were partly offset by a
net outflow from securities financing transactions of USD 11.2
billion and a net outflow from lending balances to customers of
USD 5.2 billion.
Investing activities
Investing activities resulted in a net cash outflow of USD 1.6
billion in 2019, primarily related to net cash outflows of USD 3.4
billion from the purchase of financial assets measured at fair
value through other comprehensive income and a USD 1.6
billion outflow from the purchase of property, equipment and
software. These outflows were partly offset by a net inflow from
the disposal and redemption of financial assets measured at fair
value through other comprehensive income of USD 3.9 billion.
In 2018, investing activities resulted in a net cash outflow of
USD 6.1 billion, primarily related to net cash outflows of
USD 3.8 billion from the purchase and redemption of debt
securities measured at amortized cost.
Financing activities
Financing activities resulted in a net cash outflow of USD 25.6
billion in 2019, mainly due to the net repayment of USD 17.1
billion of short-term debt and the net repayment of USD 3.8
billion of long-term debt, which includes debt issued designated at
fair value. In addition, a dividend distribution to shareholders of
USD 2.5 billion and net cash used to acquire treasury shares of
USD 1.6 billion contributed to the net cash outflow.
In 2018, financing activities resulted in a net cash inflow of
USD 0.2 billion, mainly due to the net issuance of USD 16.3
billion of long-term debt, which includes debt issued designated
at fair value, partly offset by the net repayment of USD 12.2
billion of short-term debt, a dividend distribution to shareholders
of USD 2.4 billion and net cash used to acquire treasury shares
of USD 1.4 billion.
Refer to “Primary financial statements” in the “Consolidated
financial statements” section of this report for more
information about cash flows
Statement of cash flows (condensed)
USD 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
Net increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at the end of the year
Cash and cash equivalents at the end of the year
174
For the year ended
31.12.19
31.12.19
19,705
19,705
(1,558)
(1,558)
(25,614)
(25,614)
1,261
1,261
(6,207)
(6,207)
31.12.18
28,913
(6,132)
190
(1,726)
21,245
119,873
119,873
126,079
Capital management
Capital management objectives, planning and activities
Capital management objectives
Audited | An adequate level of total loss-absorbing capacity (TLAC)
in accordance with both our internal assessment and regulatory
requirements is a prerequisite for conducting our business
activities. We are therefore committed to maintaining a strong
TLAC position and sound TLAC ratios at all times, in order to
meet regulatory capital requirements and our target capital
ratios, and to support the growth of our businesses.
increases
We expect to meet known future
in TLAC
requirements mainly through a combination of retaining
earnings and issuing high-trigger loss-absorbing additional tier 1
(AT1) capital instruments, including Deferred Contingent Capital
Plan (DCCP) employee compensation awards, as well as issuing
senior unsecured debt that contributes to our TLAC.
As of 31 December 2019, our common equity tier 1 (CET1)
capital ratio and our CET1 leverage ratio were 13.7% and 3.9%,
respectively, each of which is above our capital guidance and
above the requirements for Swiss systemically relevant banks
(SRBs) as well as the Basel Committee on Banking Supervision
(BCBS) requirements. We believe that our capital strength is a
source of confidence for our stakeholders, contributes to our
strong credit ratings and is one of the foundations of our
success.
The BCBS announced the finalization of the Basel III
framework in December 2017 and published the final rules on
(the
the minimum capital requirements for market risk
Fundamental Review of the Trading Book) in January 2019. We
currently expect the Swiss Financial Market Supervisory Authority
(FINMA) to implement these regulations later than the originally
communicated effective date of 1 January 2022. We will
monitor implementation and assess the effect on UBS once the
final national law is available. In the absence of the final national
law, we continue to make progress on our internal assessment
of
to
infrastructure design and operational governance
anticipate the upcoming adoption of these rules. We have
previously provided guidance on the approximate impact of
Basel III finalization on RWA. As the implementation has now
been extended by at least a year, the day-1 impact could be
lower than we originally believed, but there is still too much
uncertainty for an update to be provided.
Refer to the “Our strategy” and “Performance targets and
measurement” sections of this report for more information
about our capital and resource guidelines 2020–2022
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 about the risks related to our
capital ratios
Capital planning and activities
Audited | We manage our balance sheet, RWA, the leverage ratio
denominator (the LRD) and TLAC ratio levels within our internal
limits and targets and on the basis of our regulatory TLAC
requirements. Our strategic focus is to achieve an optimal
attribution and use of financial resources between our business
divisions and Corporate Center, as well as between our legal
entities, while remaining within the limits defined for the Group
and allocated to the business divisions by the Board of Directors
(the BoD). These resource allocations, in turn, affect business
plans and earnings projections, which are reflected in our capital
plans.
The annual strategic planning process includes a capital-
planning component that is key in defining medium- and longer-
term capital targets. It is based on an attribution of Group RWA
and LRD internal limits to the business divisions.
175
Risk, treasury and capital management
Risk, treasury and capital management
Capital management
Limits and targets are established at both the Group and
business division levels, and are submitted to the BoD for
approval at least annually. In the target-setting process, we take
into account
future TLAC
the current and potential
requirements, our aggregate risk exposure in terms of capital-at-
risk, the assessment by rating agencies, comparisons with peers
and the effect of expected accounting policy changes.
Monitoring is based on these internal limits and targets and
provides indications if changes are required. Any breach of the
limits in place triggers the imposition of a series of required
remediating actions.
Group Treasury plans for, and monitors, consolidated TLAC
information on an ongoing basis, also considering developments
in capital regulations.
In addition, capital planning and
monitoring are performed at the legal entity level for our
significant subsidiaries and sub-groups that are subject to
prudential supervision and must meet capital and other
supervisory requirements.
Refer to “Capital and capital ratios of our significant regulated
subsidiaries” in this section for more information
Audited | In 2019, we continued to focus on meeting the Swiss
SRB capital requirements applicable as of 1 January 2020, based
on the Capital Adequacy Ordinance effective until 31 December
2019. Therefore we executed a series of transactions, including:
the issuances of USD 2.5 billion, USD 0.5 billion, USD 0.5
billion and USD 0.3 billion equivalent of high-trigger loss-
absorbing AT1 capital instruments denominated in US dollars,
Australian dollars, Singapore dollars and Swiss francs,
respectively;
the issuances of USD 1.6 billion, USD 0.4 billion and USD 0.1
billion equivalent of TLAC-eligible senior unsecured debt
denominated in US dollars, Swiss francs and Australian dollars,
respectively; and
the call of USD 0.2 billion equivalent of low-trigger loss-
absorbing tier 2 capital instruments.
As of 31 December 2019, these transactions had an effect on
our TLAC ratio, which amounted to 34.6% of our RWA and
9.8% of our LRD compared with the respective minimum
requirements of 24.3%, excluding countercyclical buffer
requirements, and 8.6%, which are applicable as of 1 January
2020. These minimum requirements include the currently
applicable rebates.
Refer to the “Swiss SRB going and gone concern requirements –
time series” table in this section for more information
176
Swiss SRB total loss-absorbing capacity framework
The disclosures in this section are provided for UBS Group AG on
a consolidated basis and focus on key developments during the
reporting period and information in accordance with the Basel III
framework, as applicable to Swiss systemically relevant banks
(SRBs).
Additional regulatory disclosures for UBS Group AG on a
consolidated basis are provided in our 31 December 2019
Pillar 3 report. The Pillar 3 report further includes information
relating to our significant regulated subsidiaries and sub-groups
(UBS AG standalone, UBS Switzerland AG standalone, UBS
Europe SE consolidated and UBS Americas Holding LLC
consolidated) as of 31 December 2019 and is available under
“Pillar 3 disclosures” at www.ubs.com/investors.
Capital and other regulatory
information for UBS AG
consolidated in accordance with the Basel III framework, as
applicable to Swiss SRBs, is provided in the combined UBS Group
AG and UBS AG Annual Report 2019 available under “Annual
reporting” at www.ubs.com/investors.
Capital and other instruments contributing to our total
loss-absorbing capacity
In addition to CET1 capital, the following instruments contribute
to our loss-absorbing capacity:
–
–
–
–
loss-absorbing AT1 capital instruments (high- and low-trigger);
loss-absorbing tier 2 capital instruments (high- and low-trigger);
non-Basel III-compliant tier 2 capital instruments; and
TLAC-eligible senior unsecured debt instruments.
Under the Swiss SRB rules applicable as of 1 January 2020,
going concern capital includes CET1 and high-trigger loss-
absorbing AT1 capital instruments. Under the transitional rules
for the Swiss SRB framework, outstanding low-trigger loss-
absorbing AT1 capital instruments are available to meet the
going concern capital requirements until their first call date,
even if the first call date is after 31 December 2019. As of their
first call date, these instruments are eligible to meet the gone
concern requirements.
Regulatory framework
The Basel III framework came into effect in Switzerland on
1 January 2013 and is embedded in the Swiss Capital Adequacy
Ordinance (the CAO). The CAO also includes the too-big-to-fail
provisions applicable to Swiss SRBs, which became effective on
1 July 2016 subject to phasing in until 1 January 2020.
Under the Swiss SRB framework, going and gone concern
requirements represent the total loss-absorbing capacity (TLAC)
requirement of the Group. TLAC encompasses regulatory
capital, such as common equity tier 1 (CET1), loss-absorbing
additional tier 1 (AT1) and tier 2 capital instruments, as well as
liabilities that can be written down or converted into equity in
case of resolution or for the purpose of restructuring measures.
low-trigger
Outstanding high- and
loss-absorbing tier 2
capital instruments are available to meet the going concern
capital requirements until the earlier of (i) their maturity or first
call date or (ii) 31 December 2019, and to meet gone concern
requirements thereafter. Outstanding low-trigger loss-absorbing
tier 2 capital instruments are subject to amortization starting five
years prior to their maturity, with the amortized portion
qualifying as gone concern loss-absorbing capacity.
Non-Basel III-compliant tier 2 capital instruments and TLAC-
eligible senior unsecured debt instruments are eligible to meet
gone concern requirements.
Refer to “Bondholder information,” available at
www.ubs.com/investors, for more information about the
eligibility of capital and senior unsecured debt instruments and
about key features and terms and conditions of capital
instruments
Refer to the “Regulatory and legal developments” section of
this report for information about changes to the gone concern
capital requirements
177
Risk, treasury and capital management
Risk, treasury and capital management
Capital management
Total loss-absorbing capacity and leverage ratio requirements
Going concern capital requirements
Following the Swiss SRB requirements being fully implemented
by 1 January 2020, total going concern minimum requirements
for all Swiss SRBs are a capital ratio requirement of 12.86% of
RWA and a leverage ratio requirement of 4.5%. In addition to
these minimum requirements, an add-on reflecting the degree
of systemic importance is applied based on market share and the
leverage ratio denominator (the LRD). The add-on for UBS is
expected to be 1.08% of RWA and 0.375% of our LRD. Finally,
the Swiss Federal Council has activated a countercyclical buffer
requirement of 2% of RWA for mortgage loans on residential
property in Switzerland, applicable since 30 June 2014, and we
countercyclical buffer
are
requirements implemented in other Basel Committee member
jurisdictions, which result in an additional buffer requirement of
0.31%. The total going concern capital requirements applicable
starting as of 1 January 2020 are 14.25% of RWA (including
countercyclical buffer requirements) and 4.875% of the LRD.
Furthermore, of the total going concern capital requirement of
14.25% of RWA, at least 9.95% must be met with CET1 capital,
while a maximum of 4.3% can be met with high-trigger loss-
absorbing AT1 capital instruments. Similarly, of the total going
concern leverage ratio requirement of 4.875%, 3.375% must be
met with CET1 capital, while a maximum of 1.5% can be met
with high-trigger loss-absorbing AT1 capital instruments.
to apply additional
required
The applicable market share add-on requirements as of
31 December 2018 were 0.72% for RWA and 0.25% for LRD
purposes. These add-ons were reduced to 0.36% of RWA and
0.125% of LRD from November 2019, reflecting a reduction in
UBS’s market share in the Swiss credit business to less than
17%. The applicable LRD add-on requirements remained
unchanged at 0.72% for RWA and 0.25% for LRD purposes, as
our Group LRD remained within the same range.
Gone concern loss-absorbing capacity requirements
As an internationally active Swiss SRB, UBS is also subject to
gone concern loss-absorbing capacity requirements. The gone
concern requirements also include add-ons for market share and
the LRD, and may be met with senior unsecured debt that is
TLAC eligible.
tier 2
Under the Swiss SRB framework, banks are eligible for a
rebate on the gone concern requirement if they take actions
that facilitate recovery and resolvability beyond the minimum
requirements to ensure the integrity of systemically important
functions in the case of an impending insolvency. In addition, in
the event that CET1 capital, low-trigger loss-absorbing AT1 or
certain low-trigger tier 2 capital instruments are used to meet
the gone concern requirements, such requirements may be
reduced by up to 2.86 percentage points for the RWA-based
requirement and up to 1 percentage point for the LRD-based
requirement. The combined reduction applied for resolvability
measures and the aforementioned gone concern requirement
reduction for the use of low-trigger loss-absorbing AT1 and low-
trigger
exceed
5.34 percentage points for the RWA-based requirement of
13.94% and 1.875 percentage points for the LRD-based
requirement of 4.875%. The amount of the rebate for improved
resolvability is assessed annually by FINMA, and was phased in
until 1 January 2020. Based on actions we completed up to
December 2018 to improve resolvability, FINMA granted a
rebate on the gone concern requirement of 42.5% of the
aforementioned maximum rebate in the third quarter of 2019,
which resulted in a reduction of 2.27 percentage points for the
RWA-based requirement and 0.80 percentage points for the
LRD-based requirement. UBS also qualifies for an additional
rebate for the use of low-trigger tier 2 capital instruments to
fulfill gone concern requirements, allowing a further reduction
of 1.33 percentage points for the RWA-based requirement and
0.38 percentage points for the LRD-based requirements.
instruments may not
capital
In this report, we refer to the RWA-based gone concern
requirements as gone
capacity
concern
requirements, and the RWA-based gone concern ratio is referred
to as the gone concern loss-absorbing capacity ratio.
loss-absorbing
Swiss SRB going and gone concern requirements – time series
Risk-weighted assets (%)
Risk-weighted assets (%)
Requirements
Requirements
Leverage ratio (%)
Leverage ratio (%)
Requirements
Requirements
31.12.19
31.12.19
1.1.20
1.1.20
31.12.19
31.12.19
1.1.20
1.1.20
Going concern
Going concern
Minimum capital
Buffer capital1
Total going concern
Total going concern
of which: common equity tier 1 capital 1
of which: maximum additional tier 1 capital
Gone concern
Gone concern
Base requirement including applicable add-ons and reductions
of which: rebate granted (equivalent to 42.5% of maximum rebate)
of which: reduction for usage of low-trigger tier 2 capital instruments
8.00
5.71
13.71
13.71
9.81
3.90
11.33
(1.82)
Total gone concern
Total gone concern
Total loss-absorbing capacity
Total loss-absorbing capacity
1 Going concern buffer capital requirements as of 31 December 2019 include applicable add-ons based on market share and LRD as well as a countercyclical buffer requirement of 0.31%.
1
9.51
9.51
23.23
23.23
3.27
3.27
7.77
7.77
8.00
6.25
14.25
14.25
9.95
4.30
13.94
(2.27)
(1.33)
10.34
10.34
24.59
24.59
3.00
1.50
4.50
4.50
3.20
1.30
3.91
(0.64)
3.00
1.88
4.88
4.88
3.38
1.50
4.88
(0.80)
(0.38)
3.70
3.70
8.58
8.58
178
Swiss SRB going and gone concern requirements and information
AAss ooff 3311..1122..1199
USD million, except where indicated
RReeqquuiirreedd ggooiinngg ccoonncceerrnn ccaappiittaall
TToottaall ggooiinngg ccoonncceerrnn ccaappiittaall
CCoommmmoonn eeqquuiittyy ttiieerr 11 ccaappiittaall
of which: minimum capital
of which: buffer capital
of which: countercyclical buffer
MMaaxxiimmuumm aaddddiittiioonnaall ttiieerr 11 ccaappiittaall
of which: additional tier 1 capital
of which: additional tier 1 buffer capital
EElliiggiibbllee ggooiinngg ccoonncceerrnn ccaappiittaall
TToottaall ggooiinngg ccoonncceerrnn ccaappiittaall
Common equity tier 1 capital
TToottaall lloossss aabbssoorrbbiinngg aaddddiittiioonnaall ttiieerr 11 ccaappiittaall22
-
-
of which: high-trigger loss-absorbing additional tier 1 capital
of which: low-trigger loss-absorbing additional tier 1 capital
of which: low-trigger loss-absorbing tier 2 capital
RReeqquuiirreedd ggoonnee ccoonncceerrnn ccaappiittaall
TToottaall ggoonnee ccoonncceerrnn lloossss aabbssoorrbbiinngg ccaappaacciittyy
-
-
of which: base requirement
of which: additional requirement for market share and LRD 3
of which: applicable reduction on requirements
of which: rebate granted (equivalent to 42.5% of maximum
rebate)
of which: reduction for usage of low-trigger tier 2 capital
instruments
EElliiggiibbllee ggoonnee ccoonncceerrnn ccaappiittaall
TToottaall ggoonnee ccoonncceerrnn lloossss--aabbssoorrbbiinngg ccaappaacciittyy
TToottaall ttiieerr 22 ccaappiittaall
of which: low-trigger loss-absorbing tier 2 capital
of which: non-Basel III-compliant tier 2 capital
TTLLAACC eelliiggiibbllee sseenniioorr uunnsseeccuurreedd ddeebbtt
-
-
SSwwiissss SSRRBB,, iinncclluuddiinngg ttrraannssiittiioonnaall aarrrraannggeemmeennttss
SSwwiissss SSRRBB aass ooff 11..11..2200
RRWWAA
iinn %%
LLRRDD
iinn %%
RRWWAA
iinn %%
LLRRDD
iinn %%
1133..7711
99..8811
4.90
4.60
0.31
33..9900
3.10
0.80
2222..0011
13.73
88..2288
5.36
0.93
1.99
3355,,554433
2255,,443344
12,701
11,924
810
1100,,110099
8,035
2,074
5577,,005566
35,582
2211,,447744
13,892
2,414
5,168
99..5511
10.52
0.81
(1.82)
2244,,666622
27,269
2,100
(4,706)
44..5500
33..2200
1.70
1.50
11..3300
1.30
66..2266
3.90
22..3366
1.52
0.26
0.57
33..2277
3.63
0.28
(0.64)
4411,,001100
2299,,116622
15,493
13,670
1111,,884477
11,847
5577,,005566
35,582
2211,,447744
13,892
2,414
5,168
2299,,778899
33,036
2,563
(5,810)
1144..225511
99..9955
4.50
5.14
0.31
44..3300
3.50
0.80
2200..0022
13.73
66..2299
5.36
0.93
3366,,994433
2255,,779977
11,664
13,323
810
1111,,114466
9,072
2,074
5511,,888888
35,582
1166,,330066
13,892
2,414
44..888811
33..3388
1.50
1.88
11..5500
1.50
55..6699
3.90
11..7799
1.52
0.26
4444,,442277
3300,,775577
13,670
17,087
1133,,667700
13,670
5511,,888888
35,582
1166,,330066
13,892
2,414
1100..3344
12.86
1.08
(3.60)
2266,,880055
33,334
2,799
(9,329)
33..7700
4.50
0.38
(1.17)
3333,,771199
41,010
3,417
(10,708)
(1.82)
(4,706)
(0.64)
(5,810)
(2.27)
(5,883)
(0.80)
(7,262)
(1.33)
(3,446)
(0.38)
(3,446)
1122..5577
00..8877
0.67
0.21
1111..7700
3322,,558855
22,,226633
1,724
540
3300,,332222
33..5588
00..2255
0.19
0.06
33..3333
3322,,558855
22,,226633
1,724
540
3300,,332222
1144..5566
22..8877
2.66
0.21
1111..7700
3377,,775533
77,,443311
6,892
540
3300,,332222
44..1144
00..8822
0.76
0.06
33..3333
3377,,775533
77,,443311
6,892
540
3300,,332222
-
-
TToottaall lloossss aabbssoorrbbiinngg ccaappaacciittyy
-
RReeqquuiirreedd ttoottaall lloossss aabbssoorrbbiinngg ccaappaacciittyy
7788,,114466
6600,,220055
-
-
EElliiggiibbllee ttoottaall lloossss aabbssoorrbbiinngg ccaappaacciittyy
8899,,664411
8899,,664411
-
11 Includes applicable add-ons of 1.08% for RWA and 0.375% for LRD. 22 Includes outstanding low-trigger loss-absorbing additional tier 1 and tier 2 capital instruments, which are available under the transitional
rules of the Swiss SRB framework to meet the going concern requirements until their first call date, even if the first call date is after 31 December 2019, limited to 31 December 2019 for tier 2 instruments.
Thereafter, these instruments are eligible to meet the gone concern requirements. Outstanding low-trigger loss-absorbing tier 2 capital instruments are subject to amortization starting five years prior to their
maturity, with the amortized portion qualifying as gone concern loss-absorbing capacity. Instruments available to meet gone concern requirements are eligible until one year before maturity, with a haircut of 50%
applied in the last year of eligibility, as reflected in this table. Under the revised Capital Adequacy Ordinance issued in November 2019, effective 1 January 2020, the 50% haircut is no longer applied; refer to the
33 A lower add-on requirement for market share was applied in the fourth quarter of 2019, of which 0.27% was applied for RWA
“Regulatory and legal developments” section of this report for more information.
and 0.09% for LRD under the transitional rules, 0.36% was applied for RWA and 0.125% for LRD under the final rules as of 1 January 2020.
7700,,779999
8899,,664411
6633,,774488
8899,,664411
2244..5599
3344..5588
2233..2233
3344..5588
88..5588
99..8844
77..7777
99..8844
179
Risk, treasury and capital management
Risk, treasury and capital management
Capital management
Total loss-absorbing capacity
Swiss SRB going and gone concern information
USD million, except where indicated
Eligible going concern capital
Eligible going concern capital
Total going concern capital
Total going concern capital
Total tier 1 capital
Total tier 1 capital
Common equity tier 1 capital
Total loss-absorbing additional tier 1 capital
Total loss-absorbing additional tier 1 capital
of which: high-trigger loss-absorbing additional tier 1 capital
of which: low-trigger loss-absorbing additional tier 1 capital
Total tier 2 capital
Total tier 2 capital
of which: low-trigger loss-absorbing tier 2 capital1
Eligible gone concern capital2
Eligible gone concern capital2
Total gone concern loss-absorbing capacity
Total gone concern loss-absorbing capacity
Total tier 2 capital
Total tier 2 capital
of which: low-trigger loss-absorbing tier 2 capital1
of which: non-Basel III-compliant tier 2 capital3
TLAC-eligible senior unsecured debt
TLAC-eligible senior unsecured debt
Total loss-absorbing capacity
Total loss-absorbing capacity
Total loss-absorbing capacity
Total loss-absorbing capacity
Risk-weighted assets / leverage ratio denominator
Risk-weighted assets / leverage ratio denominator
Risk-weighted assets
Leverage ratio denominator
Capital and loss-absorbing capacity ratios (%)
Capital and loss-absorbing capacity ratios (%)
Going concern capital ratio
of which: common equity tier 1 capital ratio
Gone concern loss-absorbing capacity ratio
Total loss-absorbing capacity ratio
Total loss-absorbing capacity ratio
Swiss SRB, including transitional
Swiss SRB, including transitional
arrangements
arrangements
Swiss SRB as of 1.1.20
Swiss SRB as of 1.1.20
31.12.19
31.12.19
31.12.18
31.12.19
31.12.19
31.12.18
57,056
57,056
51,888
51,888
35,582
35,582
16,306
16,306
13,892
13,892
2,414
2,414
5,168
5,168
5,168
5,168
32,585
32,585
2,263
2,263
1,724
1,724
540
540
30,322
30,322
52,287
46,279
34,119
12,160
9,790
2,369
6,008
6,008
31,452
1,464
771
693
29,988
51,888
51,888
51,888
51,888
35,582
35,582
16,306
16,306
13,892
13,892
2,414
2,414
37,753
37,753
7,431
7,431
6,892
6,892
540
540
30,322
30,322
46,279
46,279
34,119
12,160
9,790
2,369
37,460
7,471
6,779
693
29,988
89,641
89,641
83,738
89,641
89,641
83,738
259,208
259,208
911,325
911,325
263,747
904,598
259,208
259,208
911,325
911,325
263,747
904,598
22.0
22.0
13.7
13.7
12.6
12.6
34.6
34.6
19.8
12.9
11.9
31.7
20.0
20.0
13.7
13.7
14.6
14.6
34.6
34.6
17.5
12.9
14.2
31.7
Leverage ratios (%)
Leverage ratios (%)
Going concern leverage ratio
of which: common equity tier 1 leverage ratio
5.1
3.77
4.1
Gone concern leverage ratio
Total loss-absorbing capacity leverage ratio
9.3
Total loss-absorbing capacity leverage ratio
1 Under the transitional rules of the Swiss SRB framework, outstanding low-trigger loss-absorbing tier 2 capital instruments are subject to amortization starting five years prior to their maturity, with the amortized
1
portion qualifying as gone concern loss-absorbing capacity. 2 Instruments available to meet gone concern requirements are eligible until one year before maturity, with a haircut of 50% applied in the last year of
eligibility, as reflected in this table. Under the revised Capital Adequacy Ordinance issued in November 2019, effective 1 January 2020, the 50% haircut is no longer applied; refer to the “Regulatory and legal
developments” section of this report for more information. 3 Non-Basel III-compliant tier 2 capital instruments qualify as gone concern instruments.
5.8
3.77
3.5
9.3
6.3
6.3
3.90
3.90
3.6
3.6
9.8
9.8
5.7
5.7
3.90
3.90
4.1
4.1
9.8
9.8
3
2
180
Audited |
Reconciliation of IFRS equity to Swiss SRB common equity tier 1 capital
USD million
TToottaall IIFFRRSS eeqquuiittyy
Equity attributable to non-controlling interests
Defined benefit plans, net of tax
Deferred tax assets recognized for tax loss carry-forwards
Deferred tax assets on temporary differences, excess over threshold
Goodwill, net of tax1
Intangible assets, net of tax
Compensation-related components (not recognized in net profit)
Expected losses on advanced internal ratings-based portfolio less provisions
Unrealized (gains) / losses from cash flow hedges, net of tax
Own credit related to (gains) / losses on financial liabilities measured at fair value that existed at the balance sheet date, net of tax
Prudential valuation adjustments
Accruals for proposed dividends to shareholders
Other
TToottaall ccoommmmoonn eeqquuiittyy ttiieerr 11 ccaappiittaall
3311..1122..1199
5544,,770077
((117744))
((99))
((66,,112211))
((222211))
((66,,117788))
((119955))
((11,,771177))
((449955))
((11,,226600))
4488
((110044))
((22,,662288))
((7722))
3355,,558822
31.12.18
53,103
(176)
0
(6,107)
(586)
(6,514)
(251)
(1,652)
(368)
(109)
(397)
(120)
(2,648)
(56)
34,119
11 Includes goodwill related to significant investments in financial institutions of USD 178 million as of 31 December 2019 (31 December 2018: USD 176 million) presented on the balance sheet line Investments in
associates.
Total loss-absorbing capacity and movement under Swiss
SRB rules applicable as of 1 January 2020
Going concern capital and movement
Audited | Our CET1 capital mainly consists of: share capital; share
premium, which primarily consists of additional paid-in capital
related to shares issued; and retained earnings. A detailed
reconciliation of IFRS equity to CET1 capital is provided in the
“Reconciliation of IFRS equity to Swiss SRB common equity tier 1
capital” table.
Our CET1 capital increased by USD 1.5 billion to USD 35.6
billion as of 31 December 2019, mainly as a result of operating
profit before tax and foreign currency translation effects, partly
offset by accruals for capital returns to shareholders, our share
repurchase program, current
in
compensation-related regulatory capital accruals and defined
benefit plans.
tax expenses, changes
Refer to “UBS shares” in this section for more information
about the share repurchase program
Our loss-absorbing additional tier 1 (AT1) capital increased by
USD 4.1 billion to USD 16.3 billion as of 31 December 2019,
primarily due to four issuances of USD 3.8 billion equivalent of
AT1 capital instruments denominated in US dollars, Australian
dollars, Singapore dollars and Swiss francs, as well as currency
effects.
Gone concern loss-absorbing capacity and movement
Audited | Our total gone concern loss-absorbing capacity included
USD 30.3 billion of TLAC-eligible senior unsecured debt, and
increased by USD 0.3 billion to USD 37.8 billion as of
31 December 2019. The increase was due to a USD 2.1 billion
issuance of TLAC-eligible senior unsecured debt and hedge
effects of USD 0.8 billion, partly offset by a USD 2.3 billion
decrease in the eligibility of two TLAC-eligible senior unsecured
bonds due to the shortening of the residual tenor and the call of
a low-trigger tier 2 capital instrument, as well as currency effects
of USD 0.2 billion.
Loss-absorbing capacity and leverage ratios
Our CET1 capital ratio increased 0.8 percentage points to
13.7%, reflecting the USD 1.5 billion increase in CET1 capital
and a USD 4.5 billion decrease in risk-weighted assets (RWA).
Our CET1 leverage ratio increased from 3.77% to 3.90% as
of 31 December 2019, reflecting the aforementioned increase in
CET1 capital, partly offset by a USD 7 billion increase in LRD.
Our gone concern loss-absorbing capacity ratio increased
0.4 percentage points
the
aforementioned decrease in RWA. Our gone concern leverage
ratio remained stable at 4.1%.
to 14.6%, mainly driven by
181
Risk, treasury and capital management
Risk, treasury and capital management
Capital management
Swiss SRB total loss-absorbing capacity movement
USD million
Going concern capital
Common equity tier 1 capital as of 31.12.18
Common equity tier 1 capital as of 31.12.18
Operating profit before tax
Current tax (expense) / benefit
Foreign currency translation effects
Compensation- and own shares-related capital components (including share premium)
Defined benefit plans
Share repurchase program1
Accruals for proposed dividends to shareholders
Other
Common equity tier 1 capital as of 31.12.19
Common equity tier 1 capital as of 31.12.19
Loss-absorbing additional tier 1 capital as of 31.12.18
Loss-absorbing additional tier 1 capital as of 31.12.18
Issuance of high-trigger loss-absorbing additional tier 1 capital
Foreign currency translation and other effects
Loss-absorbing additional tier 1 capital as of 31.12.19
Loss-absorbing additional tier 1 capital as of 31.12.19
Tier 2 capital as of 31.12.18
Tier 2 capital as of 31.12.18
Amortization due to shortening of residual tenor
Foreign currency translation and other effects
Tier 2 capital as of 31.12.19
Tier 2 capital as of 31.12.19
Total going concern capital as of 31.12.18
Total going concern capital as of 31.12.18
Total going concern capital as of 31.12.19
Total going concern capital as of 31.12.19
Gone concern loss-absorbing capacity
Tier 2 capital as of 31.12.18
Tier 2 capital as of 31.12.18
Amortized portion, which qualifies as gone concern loss-absorbing capacity
Call of a low-trigger loss-absorbing tier 2 capital instrument
Foreign currency translation and other effects
Tier 2 capital as of 31.12.19
Tier 2 capital as of 31.12.19
TLAC-eligible senior unsecured debt as of 31.12.18
TLAC-eligible senior unsecured debt as of 31.12.18
Issuance of TLAC-eligible senior unsecured debt instruments
Decrease in eligibility due to shortening of residual tenor
Foreign currency translation and other effects
TLAC-eligible senior unsecured debt as of 31.12.19
TLAC-eligible senior unsecured debt as of 31.12.19
Total gone concern loss-absorbing capacity as of 31.12.18
Total gone concern loss-absorbing capacity as of 31.12.18
Total gone concern loss-absorbing capacity as of 31.12.19
Total gone concern loss-absorbing capacity as of 31.12.19
Total loss-absorbing capacity
Total loss-absorbing capacity as of 31.12.18
Total loss-absorbing capacity as of 31.12.18
Total loss-absorbing capacity as of 31.12.19
Total loss-absorbing capacity as of 31.12.19
1 Refer to “UBS shares” in this section for more information about the publicly announced share repurchase program.
1
Swiss SRB, including
Swiss SRB, including
transitional arrangements
transitional arrangements
Swiss SRB as of 1.1.20
Swiss SRB as of 1.1.20
34,119
34,119
5,577
(791)
105
(216)
(195)
(806)
(2,628)
416
35,582
35,582
12,160
12,160
3,815
331
16,306
16,306
6,008
6,008
(953)
113
5,168
5,168
52,287
52,287
57,056
57,056
1,464
1,464
953
(160)
7
2,263
2,263
29,988
29,988
2,078
(2,330)
585
30,322
30,322
31,452
31,452
32,585
32,585
83,738
83,738
89,641
89,641
34,119
34,119
5,577
(791)
105
(216)
(195)
(806)
(2,628)
416
35,582
35,582
12,160
12,160
3,815
331
16,306
16,306
46,279
46,279
51,888
51,888
7,471
7,471
(160)
120
7,431
7,431
29,988
29,988
2,078
(2,330)
585
30,322
30,322
37,460
37,460
37,753
37,753
83,738
83,738
89,641
89,641
182
Additional information
Active management of sensitivity to currency movements
Group Treasury is mandated to minimize adverse effects from
changes in currency rates on our CET1 capital and CET1 capital
ratio. A significant portion of our capital and RWA are
denominated in Swiss francs, euros, pounds sterling and other
currencies. In order to hedge the CET1 capital ratio, CET1 capital
needs to have foreign currency exposure, leading to currency
sensitivity of CET1 capital. As a consequence, it is not possible to
simultaneously fully hedge the capital and the capital ratio. As
the proportion of RWA denominated in non-USD currencies
outweighs
these currencies, a significant
appreciation of the US dollar against these currencies could
benefit our capital ratios, while a significant depreciation of the
US dollar against these currencies could adversely affect our
capital ratios. The Group Asset and Liability Committee (the
ALCO), a committee of the Group Executive Board, can adjust
the currency mix in capital, within limits set by the Board of
Directors, to balance the effect of foreign exchange movements
on the 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 US
dollar against other currencies.
the capital
in
Sensitivity to currency movements
Risk-weighted assets
We estimate that a 10% depreciation of the US dollar against
other currencies would have increased our RWA by USD 11
billion and our CET1 capital by USD 1.1 billion as of
31 December 2019 (31 December 2018: USD 11 billion and
USD 1.2 billion, respectively) and decreased our CET1 capital
ratio 14 basis points (31 December 2018: 9 basis points).
Conversely, we estimate that a 10% appreciation of the US
dollar against other currencies would have decreased our RWA
by USD 10 billion and our CET1 capital by USD 1.0 billion
(31 December 2018: USD 10 billion and USD 1.1 billion,
respectively) and increased our CET1 capital ratio 14 basis
points (31 December 2018: 9 basis points).
Leverage ratio denominator
is also sensitive to foreign exchange
leverage ratio
Our
movements as a result of the currency mix of our capital and
LRD. When adjusting the currency mix in capital, potential
effects on the going concern leverage ratio are taken into
account and the sensitivity of the going concern leverage ratio
to an appreciation or depreciation of 10% in the value of the US
dollar against other currencies is actively monitored.
We estimate that a 10% depreciation of the US dollar against
other currencies would have increased our LRD by USD 57 billion
(31 December 2018: USD 57 billion) and decreased our Swiss
SRB going concern leverage ratio 18 basis points (31 December
2018: 15 basis points). Conversely, we estimate that a 10%
appreciation of the US dollar against other currencies would
have decreased our LRD by USD 51 billion (31 December 2018:
USD 51 billion) and increased our Swiss SRB going concern
leverage ratio 18 basis points (31 December 2018: 16 basis
points).
The aforementioned sensitivities do not consider foreign
currency translation effects related to defined benefit plans
other than those related to the currency translation of the net
equity of foreign operations.
Estimated effect on capital from litigation, regulatory and similar
matters subject to provisions and contingent liabilities
We have estimated the loss in capital that we could incur as a
result of the risks associated with the matters described in “Note
21 Provisions and contingent liabilities” in the “Consolidated
financial statements” section of this report. We have employed
for this purpose the advanced measurement approach (AMA)
methodology that we use when determining the capital
requirements associated with operational risks, based on a
level over a 12-month horizon. The
99.9% confidence
methodology
industry
into consideration UBS and
takes
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 standalone basis, we estimate the loss in capital that we
could incur over a 12-month period as a result of our risks
associated with
at
USD 4.3 billion as of 31 December 2019, a reduction of USD 0.2
billion from 31 December 2018. This estimate is not related to
and does not take into account any provisions recognized for
any of these matters and does not constitute a subjective
assessment of our actual exposure in any of these matters.
Refer to “Operational risk” in the “Risk management and
control” section of this report for more information
these operational
categories
risk
Refer to “Note 21 Provisions and contingent liabilities” in the
“Consolidated financial statements” section of this report for
more information
183
Risk, treasury and capital management
Risk, treasury and capital management
Capital management
Capital and capital ratios of our significant regulated subsidiaries
UBS Group AG is a holding company and conducts substantially
all operations through UBS AG and subsidiaries thereof. UBS
Group AG and UBS AG have contributed a significant portion of
their respective capital and provide substantial liquidity to
subsidiaries. Many of these subsidiaries are subject to regulations
requiring compliance with minimum capital, liquidity and similar
requirements. Regulatory capital components and capital ratios
of our significant regulated subsidiaries determined under the
regulatory framework of each subsidiary’s home jurisdiction are
provided in the “Financial and regulatory key figures for our
significant regulated subsidiaries and sub-groups” section of this
report. Supervisory authorities generally have discretion to
impose higher requirements or to otherwise limit the activities of
subsidiaries. Supervisory authorities also may require entities to
measure capital and leverage ratios on a stressed basis and may
limit the ability of the entity to engage in new activities or take
capital actions based on the results of those tests.
Joint liability of UBS AG and UBS Switzerland AG
In June 2015, upon the transfer of the Personal & Corporate
Banking and Global Wealth Management businesses booked in
Switzerland from UBS AG to UBS Switzerland AG, UBS AG and
UBS Switzerland AG assumed joint liability for obligations
transferred to UBS Switzerland AG and existing at UBS AG,
respectively. Under certain circumstances, the Swiss Banking Act
and FINMA’s Banking Insolvency Ordinance authorize FINMA to
modify, extinguish or convert to common equity liabilities of a
bank in connection with a resolution or insolvency of such bank.
The joint liability amounts have declined as obligations
matured, terminated or were novated following the transfer
date. As of 31 December 2019, the liability of UBS Switzerland
AG amounted to CHF 16.8 billion (the US dollar equivalent of
17.4 billion). We expect further reductions in 2020 in addition to
the contractual redemptions due to an ongoing actively
managed reduction program. The respective liability of UBS AG
has been substantially extinguished.
Refer to the 31 December 2019 Pillar 3 report, available under
“Pillar 3 disclosures” at www.ubs.com/investors, for more
capital and other regulatory information about our significant
regulated subsidiaries and sub-groups
184
Risk-weighted assets
RWA development in 2019
As of 31 December 2019, RWA decreased by USD 4.5 billion to
USD 259.2 billion, mainly driven by a USD 13.4 billion decrease
in market risk, partly offset by a USD 5.1 billion increase in credit
and counterparty credit risk and a USD 3.8 billion increase in
non-counterparty-related risk.
The total RWA decrease was primarily driven by an USD 8.0
billion decrease from asset size and other movements and a
USD 0.7 billion decrease in regulatory add-ons primarily related
to market risk. This decrease was partly offset by increases from
methodology and policy changes of USD 2.0 billion, model
updates of USD 1.2 billion and currency effects of USD 0.9
billion.
Refer to the 31 December 2019 Pillar 3 report, available under
“Pillar 3 disclosures” at www.ubs.com/investors, for more
information about RWA movements and definitions of RWA
movement key drivers
Movement in risk-weighted assets by key driver
USD billion
Credit and counterparty credit risk2
Non-counterparty-related risk
Market risk
Operational risk
TToottaall
RWA as of
31.12.18
147.9
18.3
20.0
77.6
226633..77
Currency
effects
0.8
Methodology
and policy
changes
(1.5)
Model
updates /
changes
2.8
Regulatory
add-ons
0.6
Asset size
and Other1
2.4
RRWWAA aass ooff
3311..1122..1199
115533..00
0.1
0.0
0.0
00..99
3.5
0.0
0.0
22..00
0.0
(1.6)
0.0
11..22
0.0
(1.3)
0.0
((00..77))
0.2
(10.6)
0.0
((88..00))
2222..11
66..66
7777..55
225599..22
11 Includes the Pillar 3 categories “Asset size,” “Credit quality of counterparties,” “Acquisitions and disposals” and “Other.” Refer to the 31 December 2019 Pillar 3 report under “Pillar 3 disclosures” at
www.ubs.com/investors for more information. 22 Includes settlement risk, credit valuation adjustments, equity exposures in the banking book and securitization exposures in the banking book.
Credit and counterparty credit risk
Credit and counterparty credit risk RWA increased by USD 5.1
billion to USD 153.0 billion as of 31 December 2019. This
increase was primarily driven by increases from model updates
of USD 2.8 billion, asset size and other movements of USD 2.4
billion, currency effects of USD 0.8 billion and regulatory add-
ons of USD 0.6 billion, partly offset by decreases from
methodology and policy changes of USD 1.5 billion.
Movement in credit and counterparty credit risk RWA by key driver1
USD billion
TToottaall ccrreeddiitt aanndd ccoouunntteerrppaarrttyy ccrreeddiitt rriisskk RRWWAA aass ooff 3311..1122..1188
Asset size
Asset quality
Model updates
Methodology and policy changes
Regulatory add-ons
Acquisitions and disposals
Foreign exchange movements
Other
TToottaall mmoovveemmeenntt
TToottaall ccrreeddiitt aanndd ccoouunntteerrppaarrttyy ccrreeddiitt rriisskk RRWWAA aass ooff 3311..1122..1199
Global
Wealth
Management
3322..55
Personal &
Corporate
Banking
5544..77
Asset
Management
11..88
Investment
Bank
5511..33
Corporate
Center
77..77
0.6
0.7
1.1
0.0
0.0
0.0
0.2
0.0
22..55
3355..00
2.0
(1.1)
1.6
0.0
0.0
0.0
0.6
(0.4)
22..77
5577..33
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
00..11
11..88
1.5
(0.5)
0.1
(1.8)
0.1
0.0
0.0
(0.1)
((00..77))
5500..66
0.1
(0.3)
0.0
0.3
0.5
(0.1)
0.1
0.0
00..66
88..33
GGrroouupp
114477..99
44..22
((11..22))
22..88
((11..55))
00..66
((00..11))
00..88
((00..55))
55..11
115533..00
11 Refer to the 31 December 2019 Pillar 3 report under “Pillar 3 disclosures” at www.ubs.com/investors for the definitions of credit and counterparty credit risk RWA movement categories.
185
Risk, treasury and capital management
Risk, treasury and capital management
Capital management
loss given default
Model updates
The increase in credit and counterparty credit risk RWA from
model updates of USD 2.8 billion was driven by the continued
phasing-in of RWA increases related to probability of default
(PD) and
the
from
residential
implementation of
mortgages, which resulted in an RWA increase of USD 1.6 billion
in Personal & Corporate Banking and of USD 0.4 billion in Global
Wealth Management.
In addition, changes of the credit
conversion factor for zero-balance securities-backed lending and
margin loans exposures increased RWA in Global Wealth
Management by USD 0.8 billion.
(LGD) changes
for Swiss
revised models
In the first quarter of 2020, we expect further regulatory-
driven increases in credit risk RWA of around USD 2.0 billion to
USD 3.0 billion, predominantly relating to the implementation of
the standardized approach for counterparty credit risk (SA-CCR).
Refer to “Credit risk models” in the “Risk management and
control” section of this report for more information about
model updates
Regulatory add-ons
A regulatory add-on of USD 0.6 billion was agreed with FINMA
for certain portfolios awaiting the development of a formalized
rating tool, resulting in an RWA increase of USD 0.5 billion in
Corporate Center, and USD 0.1 billion in the Investment Bank.
Methodology changes
The decrease from methodology and policy changes of USD 1.5
billion was predominantly driven by the exclusion of certain
collar financing transactions from credit risk RWA in the
Investment Bank, due to their non-credit bearing nature.
Refer to the “Risk management and control” section of this
report and the 31 December 2019 Pillar 3 report, available
Non-counterparty credit risk
Non-counterparty credit risk RWA increased by USD 3.8 billion
to USD 22.1 billion as of 31 December 2019, primarily driven by
an increase of USD 3.5 billion from the adoption of IFRS 16,
Leases.
Market risk
Market risk RWA decreased by USD 13.4 billion to USD 6.6
billion as of 31 December 2019, mainly driven by a USD 10.6
billion decrease in asset size and other movements, a reduction
of USD 1.6 billion related to the ongoing parameter update of
the VaR model and USD 1.3 billion lower regulatory add-ons
reflecting updates from the monthly risks-not-in-VaR (RniV)
assessment.
A USD 10.6 billion decrease in other movements was
primarily driven by lower average VaR and stressed VaR levels
observed in the Investment Bank’s Equities business, resulting
from decreased market volatility and continued management of
tail risks.
Refer to the “Risk management and control” section of this
report and the 31 December 2019 Pillar 3 report, available
under “Pillar 3 disclosures” at www.ubs.com/investors for more
information about market risk developments
Operational risk
Operational risk RWA remained largely unchanged at USD 77.5
billion as of 31 December 2019. An increase in the first quarter
of 2019 driven by an update to model inputs related to the
verdict in the French cross-border matter, was completely offset
by the effect of the annual recalibration of the advanced
measurement approach (AMA) model used for the calculation of
operational risk capital in the fourth quarter of 2019.
Refer to “Advanced measurement approach model” in the “Risk
under “Pillar 3 disclosures” at www.ubs.com/investors, for
management and control” section of this report for more
more information about credit and counterparty credit risk
information about the AMA model
developments
186
Risk-weighted assets by business division and Corporate Center
USD billion
Credit and counterparty credit risk1
Non-counterparty-related risk2
Market risk
Operational risk
TToottaall
Credit and counterparty credit risk1
Non-counterparty-related risk2
Market risk
Operational risk
TToottaall
Credit and counterparty credit risk1
Non-counterparty-related risk2
Market risk
Operational risk
TToottaall
GGlloobbaall WWeeaalltthh
MMaannaaggeemmeenntt
PPeerrssoonnaall &&
CCoorrppoorraattee
BBaannkkiinngg
AAsssseett
--
MMaannaaggee
mmeenntt
3311..1122..1199
IInnvveessttmmeenntt
BBaannkk
CCoorrppoorraattee
CCeenntteerr
TToottaall
RRWWAA
35.0
6.4
0.8
35.9
7788..11
32.5
4.5
1.3
36.0
7744..33
2.5
1.8
(0.5)
0.0
33..99
57.3
2.1
0.0
7.7
6677..11
54.7
1.5
0.0
7.7
6633..99
2.7
0.6
0.0
0.0
33..33
1.8
0.8
0.0
2.0
44..66
31.12.18
1.8
0.6
0.0
2.0
44..33
50.6
3.4
4.6
22.5
8811..11
51.3
2.5
16.8
22.5
9933..22
31.12.19 vs 31.12.18
0.1
0.2
0.0
0.0
00..22
(0.7)
0.8
(12.2)
0.0
((1122..11))
8.3
9.5
1.1
9.4
2288..33
7.7
9.2
1.9
9.4
2288..11
0.6
0.3
(0.7)
0.0
00..22
153.0
22.1
6.6
77.5
225599..22
147.9
18.3
20.0
77.6
226633..77
5.1
3.8
(13.4)
0.0
((44..55))
11 Includes settlement risk, credit valuation adjustments, equity exposures in the banking book and securitization exposures in the banking book. 22 Non-counterparty-related risk includes deferred tax assets
recognized for temporary differences (31 December 2019: USD 9.0 billion; 31 December 2018: USD 8.8 billion), property, equipment and software (31 December 2019: USD 12.8 billion; 31 December 2018:
USD 9.3 billion) and other items (31 December 2019: USD 0.4 billion; 31 December 2018: USD 0.2 billion).
187
Risk, treasury and capital management
Risk, treasury and capital management
Capital management
Leverage ratio denominator
The leverage ratio denominator (LRD) increased by USD 7 billion to USD 911 billion as of 31 December 2019, primarily driven by
increases from currency effects of USD 5 billion and policy changes of USD 4 billion, partly offset by a decrease of USD 2 billion from
asset size and other movements.
Movement in leverage ratio denominator by key driver
USD billion
On-balance sheet exposures (excluding derivative exposures and SFTs)1
Derivative exposures
Securities financing transactions
Off-balance sheet items
Deduction items
LRD as of
LRD as of
31.12.18
31.12.18
663.1
95.4
130.9
29.0
(13.8)
Currency
effects
4.4
Policy changes
3.5
Asset size and
other
19.3
0.1
0.3
0.1
0.0
(6.5)
(13.8)
(1.2)
0.6
LRD as of
LRD as of
31.12.19
31.12.19
690.3
690.3
89.0
89.0
117.5
117.5
27.9
27.9
(13.3)
(13.3)
911.3
Total
911.3
Total
1 Excludes positive replacement values, cash collateral receivables on derivative instruments, cash collateral on securities borrowed, reverse repurchase agreements, margin loans and prime brokerage receivables
1
related to securities financing transactions, which are presented separately under Derivative exposures and Securities financing transactions in this table.
904.6
904.6
(1.6)
(1.6)
4.8
4.8
3.5
3.5
The LRD movements described below exclude currency effects.
On-balance sheet exposures (excluding derivative exposures
and securities financing transactions (SFTs)) increased by USD 23
billion, primarily driven by higher trading portfolio assets in the
Investment Bank’s Equities business as a result of market-driven
movements and increased hedging activities against client
positions and notes sold, as well as an increase of USD 3.5
billion from the adoption of IFRS 16, Leases.
Derivative exposures decreased by USD 7 billion, reflecting
lower client activity levels in Global Wealth Management and
the Investment Bank’s Equities business, as well as a reduction in
the derivatives portfolio in Corporate Center.
SFTs decreased by USD 14 billion as a result of increased
funding consumption by the business divisions, lower collateral
sourcing requirements, and client-driven decreases in other
financial assets at fair value not held for trading.
Refer to “Balance sheet, liquidity and funding management” in
the “Treasury management” section of this report for more
information about balance sheet movements
188
Leverage ratio denominator by business division and Corporate Center
USD billion
-
-
Total IFRS assets
Difference in scope of consolidation1
Less: derivative exposures and SFTs2
OOnn bbaallaannccee sshheeeett eexxppoossuurreess
Derivative exposures
Securities financing transactions
Off-balance sheet items
Items deducted from Swiss SRB tier 1 capital
TToottaall
-
-
Total IFRS assets
Difference in scope of consolidation1
Less: derivative exposures and SFTs2
OOnn bbaallaannccee sshheeeett eexxppoossuurreess
Derivative exposures
Securities financing transactions
Off-balance sheet items
Items deducted from Swiss SRB tier 1 capital
TToottaall
GGlloobbaall WWeeaalltthh
MMaannaaggeemmeenntt
PPeerrssoonnaall &&
CCoorrppoorraattee
BBaannkkiinngg
AAsssseett
MMaannaaggeemmeenntt
IInnvveessttmmeenntt
BBaannkk
CCoorrppoorraattee
CCeenntteerr
3311..1122..1199
309.8
(0.1)
(34.9)
227744..77
6.4
32.1
4.7
(5.2)
331122..77
313.7
(0.2)
(41.6)
227722..00
8.6
35.5
5.0
(5.3)
331155..88
209.4
0.0
(20.6)
118888..88
1.4
19.6
14.8
(0.4)
222244..22
200.7
0.0
(18.9)
118811..88
1.2
18.1
13.0
(0.3)
221133..77
34.6
(28.2)
(0.9)
55..55
0.0
0.9
0.0
(1.4)
55..00
31.12.18
28.1
(21.7)
(1.0)
55..44
0.0
1.0
0.0
(1.4)
55..00
315.9
0.0
(141.9)
117733..99
73.2
38.9
7.3
(0.2)
229933..22
302.1
(0.4)
(148.1)
115533..66
75.2
44.3
10.6
(0.2)
228833..44
31.12.19 vs 31.12.18
102.6
0.1
(55.3)
4477..44
8.0
26.0
1.0
(6.2)
7766..22
113.7
0.0
(63.4)
5500..33
10.3
32.0
0.5
(6.7)
8866..55
TToottaall
972.2
(28.3)
(253.6)
669900..33
89.0
117.5
27.9
(13.3)
991111..33
958.4
(22.3)
(273.0)
666633..11
95.4
130.9
29.0
(13.8)
990044..66
-
-
13.8
Total IFRS assets
Difference in scope of consolidation1
(6.0)
Less: derivative exposures and SFTs2
19.4
2277..22
OOnn bbaallaannccee sshheeeett eexxppoossuurreess
(6.4)
Derivative exposures
(13.5)
Securities financing transactions
(1.1)
Off-balance sheet items
Items deducted from Swiss SRB tier 1 capital
0.5
TToottaall
66..77
11 Represents the difference between the IFRS and the regulatory scope of consolidation, which is the applicable scope for the LRD calculation. 22 Consists of derivative financial instruments, cash collateral
receivables on derivative instruments, receivables from securities financing transactions, and margin loans as well as prime brokerage receivables and financial assets at fair value not held for trading, both related to
securities financing transactions, in accordance with the regulatory scope of consolidation, which are presented separately under Derivative exposures and Securities financing transactions.
(11.1)
0.0
8.0
((33..00))
(2.4)
(6.0)
0.5
0.5
((1100..33))
13.7
0.4
6.2
2200..44
(2.0)
(5.4)
(3.2)
0.1
99..77
8.7
0.0
(1.6)
77..11
0.2
1.4
1.9
(0.1)
1100..55
(4.0)
0.0
6.6
22..77
(2.2)
(3.4)
(0.3)
0.1
((33..22))
6.4
(6.5)
0.1
00..00
0.0
(0.1)
0.0
0.0
((00..11))
189
Risk, treasury and capital management
Risk, treasury and capital management
Capital management
Equity attribution and return on attributed equity
We have updated our equity attribution framework as of
1 January 2019. Specifically, we have revised the capital ratio for
risk-weighted assets (RWA) from 11% to 12.5% to better align
with actual group capital levels and incrementally allocated to
business divisions USD 2 billion of attributed equity that is
related to certain common equity tier 1 (CET1) deduction items,
previously held centrally.
In aggregate we allocated USD 7 billion of additional
attributed equity to the business divisions. Prior periods have
been restated to reflect this change.
Refer to the “Significant accounting and financial reporting
changes” section of this report for more information about the
changes to our equity attribution framework
Under our equity attribution framework, tangible equity is
attributed based on a weighting of 50% each for average RWA
and average leverage ratio denominator (LRD), which both
include resource allocations from Corporate Center to the
business divisions. Average RWA and LRD are converted to their
CET1 capital equivalents based on capital ratios of 12.5% and
3.75%, respectively. If the attributed tangible equity calculated
under the weighted-driver approach is less than the CET1 capital
equivalent of risk-based capital (RBC) for any business division,
the CET1 capital equivalent of RBC is used as a floor for that
business division.
Furthermore, we allocate to business divisions attributed
equity that is related to certain CET1 deduction items, such as
compensation-related components and the expected losses on
advanced internal ratings-based portfolio less general provisions.
In addition to tangible equity, we allocate equity to our
businesses to support goodwill and intangible assets.
We attribute all remaining Basel III capital deduction items to
Corporate Center Group items. These deduction items include
deferred tax assets (DTAs) recognized for tax loss carry-forwards
and DTAs on temporary differences in excess of the threshold,
which together constitute the largest component of Corporate
Center Group items, dividend accruals and unrealized gains from
cash flow hedges.
Average equity attributed to business divisions and Corporate
Center increased by USD 1.8 billion to USD 54.2 billion in 2019,
primarily due to an increase in attributed equity for Corporate
Center, mainly reflecting higher unrealized gains from cash flow
hedges and the recognition of the Swiss pension plan surplus on
the balance sheet at the end of the third quarter of 2019,
resulting in higher equity attributable to shareholders. The Swiss
pension plan surplus was subsequently derecognized in the
fourth quarter of 2019.
Refer to “Balance sheet, liquidity and funding management” in
the “Treasury management” section of this report for more
information about movements in equity attributable to
shareholders
190
Average attributed equity
USD billion
Global Wealth Management
Personal & Corporate Banking
Asset Management
Investment Bank
Corporate Center
31.12.17
15.4
7.5
1.8
12.0
17.2
10.1
3.0
0.0
4.1
AAvveerraaggee eeqquuiittyy aattttrriibbuutteedd ttoo bbuussiinneessss ddiivviissiioonnss aanndd CCoorrppoorraattee CCeenntteerr
53.9
11 Includes average attributed equity related to the Basel III capital deduction items for deferred tax assets (deferred tax assets recognized for tax loss carry-forwards and deferred tax assets on temporary differences,
excess over threshold) as well as retained RWA and LRD related to deferred tax assets. 22 Excludes average attributed equity related to retained RWA and LRD related to deferred tax assets.
of which: deferred tax assets1
of which: related to retained RWA and LRD2
of which: defined benefit plans
of which: dividend accruals and others
3311..1122..1199
1166..66
88..44
11..88
1122..33
1155..11
77..11
22..88
00..55
44..66
5544..22
For the year ended
31.12.18
16.3
8.0
1.8
13.0
13.3
7.1
3.0
0.0
3.2
52.4
Return on attributed equity1
In %
RReeppoorrtteedd
Global Wealth Management
Personal & Corporate Banking
Asset Management
Investment Bank
AAddjjuusstteedd
Global Wealth Management
Personal & Corporate Banking
Asset Management
Investment Bank
11 Return on attributed equity for Corporate Center is not shown, as it is not meaningful.
For the year ended
3311..1122..1199
31.12.18
31.12.17
2200..55
1177..11
2299..77
66..44
2200..99
1177..33
3311..55
88..66
20.0
22.5
23.5
11.5
20.5
18.1
26.6
12.9
20.9
19.5
30.8
9.1
24.7
20.9
28.0
11.2
191
Risk, treasury and capital management
Risk, treasury and capital management
Capital management
UBS shares
UBS Group AG shares
Audited | As of 31 December 2019, IFRS equity attributable to
shareholders amounted to USD 54,533 million, represented by
3,859,055,395 shares
increased by
issued. Shares
3,420,646 shares in 2019, reflecting the issuance of shares out of
conditional share capital upon exercise of employee share options.
issued
Each share has a par value of CHF 0.10, carries one vote if
entered into the share register as having the right to vote, and
also entitles the holder to a proportionate share of distributed
dividends. All shares are fully paid up. As the articles of
association of UBS Group AG indicate, there are no other classes
of shares and no preferential rights for shareholders.
Refer to the “Corporate governance” section of this report for
more information about UBS shares
UBS Group share information
Shares issued
Treasury shares
of which: related to share repurchase program
Shares outstanding
Basic earnings per share (USD)1
Diluted earnings per share (USD)1
Basic earnings per share (CHF)2
Diluted earnings per share (CHF)2
Equity attributable to shareholders (USD million)
Less: goodwill and intangible assets (USD million)
Tangible equity attributable to shareholders (USD million)
Total book value per share (USD)
Tangible book value per share (USD)
Share price (USD)3
Market capitalization (USD million)
As of or for the year ended
31.12.19
31.12.19
31.12.18
3,859,055,395
3,859,055,395
3,855,634,749
243,021,296
243,021,296
117,706,540
117,706,540
166,467,802
48,318,800
3,616,034,099
3,616,034,099
3,689,166,947
1.17
1.17
1.14
1.14
1.17
1.17
1.14
1.14
54,533
54,533
6,469
6,469
48,064
48,064
15.08
15.08
13.29
13.29
12.63
12.63
45,661
45,661
1.21
1.18
1.18
1.14
52,928
6,647
46,281
14.35
12.55
12.44
45,907
% change from
31.12.18
0
46
144
(2)
(3)
(3)
(1)
0
3
(3)
4
5
6
2
(1)
1 Refer to “Note 9 Earnings per share (EPS) and shares outstanding” in the “Consolidated financial statements” section of this report for more information.
1
are calculated based on a translation of net profit / (loss) under our US dollar presentation currency.
spot rate.
2 Basic and diluted earnings per share in Swiss francs
2
3 Represents the share price as listed on the SIX Swiss Exchange, translated to US dollars using the respective
3
192
Share delivery obligations related to employee share-based
totaled 156 million shares as of
compensation awards
31 December 2019 (31 December 2018: 146 million). Share
delivery obligations are calculated on the basis of undistributed
notional share awards, options and stock appreciation rights,
taking applicable performance conditions into account. Treasury
shares held are delivered to employees at exercise or vesting.
However, share delivery obligations related to certain options
and stock appreciation rights can also be satisfied by shares
issued out of conditional capital. As of 31 December 2019, the
number of UBS Group AG shares that could have been issued
out of conditional capital for this purpose was 122 million
(31 December 2018: 125 million).
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.
Holding of UBS Group AG shares
Group Treasury holds UBS Group AG shares to hedge future
share delivery obligations related to employee share-based
compensation awards and also holds shares purchased under
the share repurchase program, which will be canceled by
means of a capital reduction to be proposed at future annual
general meetings. In addition, the Investment Bank holds a
limited number of UBS Group AG shares, primarily in its
capacity as a market-maker with regard to UBS Group AG
shares and related derivatives and to hedge certain issued
structured debt instruments. As of 31 December 2019, we
held a total of 243,021,296 treasury shares (31 December
2018: 166,467,802), or 6.3% (31 December 2018: 4.3%) of
issued. Treasury shares acquired under our share
shares
repurchase program totaled 117.7 million as of 31 December
2019 (31 December 2018: 48.3 million) for a total consideration
of CHF 1,550 million (USD 1,567 million). The remaining shares
were primarily held to hedge our share delivery obligations
related to employee share-based compensation awards and
totaled 125.2 million
shares as of 31 December 2019
(31 December 2018: 117.9 million).
Treasury share purchases
Month of purchase3
January 2019
February 2019
March 2019
April 2019
May 2019
June 2019
July 2019
August 2019
September 2019
October 2019
November 2019
December 2019
Share repurchase program1
Other treasury shares purchased2
Number of shares
Average price in CHF
Remaining volume of
share repurchase
program in CHF million
1,250
4,000,000
11,570,700
8,545,700
6,000,000
22,253,000
14,000,000
3,018,340
13.72
12.54
11.70
11.30
10.43
11.73
11.85
1,250
1,250
1,195
1,050
950
882
650
650
486
450
4504
Number of shares
Average price in USD
25,000,000
7,200,000
21,800,000
12.19
11.64
11.72
11 UBS has an active share repurchase program to buy back up to CHF 2 billion of its own shares over the three-year period starting from March 2018. The share repurchase information in this table is disclosed in
Swiss francs as the share buybacks are transacted in Swiss francs on a separate trading line on the SIX Swiss Exchange. 22 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. UBS’s pension and other post-employment benefit funds purchased 966,902 UBS Group AG shares during the year and held
15,701,125 UBS Group AG shares as of 31 December 2019. 33 Based on the transaction date of the respective treasury share purchases.
44 The remaining volume of the share repurchase program as of
31 December 2019 was USD 465 million. This was calculated based on the remaining volume of CHF 450 million as of 31 December 2019 and the respective currency translation rate as of this date.
Trading volumes
1,000 shares
SIX Swiss Exchange total
SIX Swiss Exchange daily average
New York Stock Exchange total
New York Stock Exchange daily average
Source: Reuters
For the year ended
3311..1122..1199
31.12.18
31.12.17
44,,116611,,555555
3,277,995
3,084,804
1166,,771133
220033,,996677
880099
13,165
166,728
664
12,290
146,902
585
193
Risk, treasury and capital management
Risk, treasury and capital management
Capital management
Listing of UBS Group AG shares
UBS Group AG shares are listed on the SIX Swiss Exchange (SIX).
They are also listed on the New York Stock Exchange (the NYSE)
as global registered shares. As such, they can be traded and
transferred across applicable borders, without the need for
conversion, with identical shares traded on different stock
exchanges in different currencies.
During 2019, the average daily trading volume of UBS Group
AG shares was 16.7 million shares on SIX and 0.8 million shares
on the NYSE. SIX is expected to remain the main venue for
determining the movement in our share price, because of the
high volume traded on this exchange.
During the hours in which both SIX and the NYSE are
simultaneously open for trading (generally 3:30 p.m. to 5:30
p.m. Central 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 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.
Ticker symbols UBS Group AG
Security identification codes
Trading exchange
Trading exchange
SIX Swiss Exchange
New York Stock Exchange
SIX/NYSE
SIX/NYSE
Bloomberg
Bloomberg
UBSG
UBS
UBSG SW
UBS UN
Reuters
Reuters
UBSG.S
UBS.N
ISIN
Valoren
CUSIP
CH0244767585
CH0244767585
24 476 758
24 476 758
CINS H42097 10 7
CINS H42097 10 7
194
Corporate
governance and
compensation
Management report
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.
Corporate governance and compensation
Corporate governance
Corporate governance
UBS Group AG is subject to, and complies with, all relevant
Swiss legal and regulatory requirements regarding corporate
governance, including the SIX Swiss Exchange’s Directive on
Information Relating to Corporate Governance, as well as the
standards 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 (the NYSE), UBS Group AG complies
with all relevant corporate governance standards applicable to
foreign private issuers.
The Organization Regulations of UBS Group AG, adopted by
the Board of Directors (the BoD) based on article 716b of the
Swiss Code of Obligations and articles 25 and 27 of the Articles
of Association of UBS Group AG, constitute our primary
corporate governance guidelines.
To the extent practicable, the governance structures of UBS
Group AG and UBS AG are aligned. UBS AG complies with all
relevant Swiss
legal and regulatory corporate governance
requirements. As a foreign private issuer with debt securities
listed on the NYSE, UBS AG also complies with the relevant
NYSE corporate governance standards. The discussion in this
section refers to both UBS Group AG and UBS AG, unless
specifically noted otherwise or unless the information discussed
is relevant only to companies with listed shares and therefore
only applicable to UBS Group AG. This is in line with US
Securities and Exchange Commission regulations and NYSE
listing standards.
Refer to the Articles of Association of UBS Group AG and of
UBS AG, and to the Organization Regulations of UBS Group AG,
available at www.ubs.com/governance and www.ubs.com/
ubs-ag-governance, for more information
The SIX Swiss Exchange’s Directive on Information Relating to
Corporate Governance is available at
www.six-exchange-regulation.com/en/home/regulation/
issuer.html, the Swiss Code of Best Practice for Corporate
Governance is available at
www.economiesuisse.ch/en/publications/
swiss-code-best-practice-corporate-governance and the NYSE
rules are available at www.nyse.com/publicdocs/nyse/
listing/NYSE_Corporate_Governance_Guide.pdf
196
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
that have to be followed by domestic companies. These
differences are discussed in the following paragraphs.
Responsibility of the Audit Committee with regard to
independent auditors
Our Audit Committee is responsible for the compensation,
retention and oversight of the independent auditors. It assesses
the performance and qualification of the external auditors and
submits its proposal for appointment, reappointment or removal
of the independent auditors to the full BoD. As required by the
Swiss Code of Obligations, the BoD then submits its proposal to
the shareholders for their vote at the Annual General Meeting
(the AGM). Under NYSE standards, the Audit Committee is also
responsible for the appointment of the independent auditors.
Discussion of risk assessment and risk management policies by
the Risk Committee
In accordance with the respective Organization Regulations of
UBS Group AG and UBS AG, the Risk Committee, instead of the
Audit Committee, oversees our risk principles and risk capacity
on behalf of the BoD. 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 (the Chairman) and the Audit
Committee share the supervisory responsibility and authority
with respect to the internal audit function. Under NYSE
standards, only the Audit Committee supervises the internal
audit function.
Responsibility of the Compensation Committee for performance
evaluations of senior management of UBS Group AG
In line with Swiss law, our 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 (the GEB) and the aggregate amount of
variable compensation for the GEB. The shareholders elect the
members of the Compensation Committee at the AGM. Under
NYSE standards, it is the responsibility of the Compensation
Committee to evaluate senior management performance and to
determine and approve, as a committee or together with the
other independent directors, the compensation thereof.
Proxy statement reports of the Audit Committee and the
Compensation Committee
NYSE listing standards would require the aforementioned
committees to submit their reports directly to shareholders.
However, under Swiss law, all our reports addressed to
the aforementioned
shareholders,
committees, are provided to and approved by the BoD, which
has ultimate responsibility to the shareholders.
including
those
from
Shareholders’ votes on equity compensation plans
While the NYSE standards would require shareholder approval
for the establishment of and material revisions to all equity
compensation plans, Swiss law authorizes the BoD to approve
compensation plans. Shareholder approval is only mandatory if
equity-based compensation plans require an increase in capital.
No shareholder approval is required if shares for such plans are
purchased in the market.
Refer to “Board of Directors” in this section for more
information about the Board of Directors’ committees
Refer to “Share capital structure” in this section for more
information about UBS Group AG’s capital
197
Corporate governance and compensation
Corporate governance and compensation
Corporate governance
Group structure and shareholders
Operational Group structure
Significant shareholders
General rules
Under the Swiss Federal Act on Financial Market Infrastructures
and Market Conduct in Securities and Derivatives Trading of
19 June 2015 (the FMIA), anyone directly or indirectly, or acting
in concert with third parties, 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 Swiss
Exchange (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. Nominee
cannot
autonomously decide how voting rights are exercised are not
required to notify the company and the SIX if they reach, exceed
or fall below the threshold percentages.
companies
that
Pursuant to the Swiss Code of Obligations, we disclose in
“Note 24 Significant shareholders” to the UBS Group AG
standalone financial statements the identity of any shareholder
with a holding of more than 5% of the total share capital of
UBS Group AG.
As of 31 December 2019, the operational structure of the Group
is comprised of the Global Wealth Management, Personal &
Corporate Banking, Asset Management and Investment Bank
business divisions, as well as Corporate Center.
Refer to the “Our businesses” section on page 20 of this report
for more information about our business divisions and
Corporate Center
Refer to “Financial and operating performance” on page 71 and
to “Note 2 Segment reporting” in the “Consolidated financial
statements” section on page 347 of this report for more
information
Refer to the “Our evolution” section on page 14 of this report
for more information
Listed and non-listed companies belonging to the Group
The Group includes a number of consolidated entities, of which
only UBS Group AG shares are listed.
UBS Group AG’s registered office is at Bahnhofstrasse 45,
CH-8001 Zurich, Switzerland. UBS Group AG shares are listed on
the SIX Swiss Exchange (ISIN: CH0244767585) and on the NYSE
(CUSIP: H42097107).
Refer to “UBS shares” in the “Capital management” section on
page 192 of this report for information about UBS Group AG’s
market capitalization and shares held by Group entities
Refer to “Note 31 Interests in subsidiaries and other entities” in
the “Consolidated financial statements” section on page 458 of
this report for more information about the significant
subsidiaries of the Group
198
Shareholders subject to FMIA disclosure notifications
According to the mandatory FMIA disclosure notifications filed
with UBS Group AG and the SIX, as of 31 December 2019, the
following entities held more than 3% of the total share capital
of UBS Group AG: Artisan Partners Limited Partnership,
Milwaukee, disclosed a holding of 3.02% of the total share
capital of UBS Group AG on 20 September 2019; Norges Bank,
Oslo, disclosed a holding of 3.01% on 24 July 2019; Dodge &
Cox, San Francisco, disclosed a holding of 3.03% on
30 November 2018; BlackRock Inc., New York, disclosed a
holding of 4.99% on 28 August 2018; and MFS Investment
Management, Boston, disclosed a holding of 3.05% on
10 February 2016. As registration in the UBS share register is
optional, shareholders crossing the aforementioned thresholds
requiring SIX notification under FMIA, do not necessarily appear
in the below table.
The above disclosures have not been
subsequently
superseded, and no new disclosures of significant shareholdings
have been made since 31 December 2019.
In accordance with the FMIA, the aforementioned holdings
are calculated in relation to the total share capital of UBS Group
AG reflected in its Articles of Association at the time of the
respective disclosure notification.
Information on disclosures under the FMIA is available at
www.six-exchange-regulation.com/en/home/publications/
significant-shareholders.html.
Shareholders registered in the UBS share register with 3% or
more of the share capital of UBS Group AG
As a supplement to the mandatory disclosure requirements
according to the SIX Swiss Exchange Corporate Governance
Directive, we disclose in the table below the shareholders (acting
in their own name or in their capacity as nominees for other
investors or beneficial owners), who were registered in the UBS
share register with 3% or more of the total share capital of UBS
Group AG as of 31 December 2019.
Refer to “Shareholders’ participation rights” on page 205 of this
section for more information about “Voting rights, restrictions
and representation”
Cross-shareholdings
UBS Group AG has no cross-shareholdings where reciprocal
ownership would be in excess 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 capital
% of share capital
Chase Nominees Ltd., London1
DTC (Cede & Co.), New York1,2
3311..1122..1199
31.12.18
31.12.17
1100..9944
77..5577
12.08
7.23
11.16
6.64
Nortrust Nominees Ltd., London1
11 Nominee companies and securities clearing organization cannot autonomously decide how voting rights are exercised and are therefore not obligated to notify UBS and the SIX if they reach, exceed or fall below
the threshold percentages according to the FMIA disclosure notification. Consequently, they do not appear in the above section “Shareholders subject to FMIA disclosure notifications.” 22 DTC (Cede & Co.), New
York, “The Depository Trust Company,” is a US securities clearing organization.
4.11
4.14
44..9900
199
Corporate governance and compensation
Corporate governance and compensation
Corporate governance
Share capital structure
Ordinary share capital
At year-end 2019, UBS Group AG had 3,859,055,395 issued
shares with a par value of CHF 0.10 each, leading to a share
capital of CHF 385,905,539.50.
Under Swiss company law, shareholders must approve in a
general meeting of shareholders an ordinary share capital
increase or the creation of conditional or authorized share
capital. In 2019, our shareholders were not asked to approve an
ordinary share capital increase or the creation of conditional or
authorized share capital.
Share capital increased during the year by 3,420,646 shares,
as shares were issued out of existing conditional capital due to
the exercise of employee options.
Issued share capital of UBS Group AG
As of 31 December 2018
As of 31 December 2018
Issue of shares out of conditional capital due to employee options exercised in 2019
As of 31 December 2019
As of 31 December 2019
Share capital in CHF
Share capital in CHF
Number of shares
Number of shares
Par value in CHF
385,563,475
385,563,475
342,065
385,905,540
385,905,540
3,855,634,749
3,855,634,749
3,420,646
3,859,055,395
3,859,055,395
0.10
0.10
0.10
0.10
0.10
Distribution of UBS shares
As of 31 December 2019
As of 31 December 2019
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
5,000,001–38,590,553 (1%)
1–2%
2–3%
3–4%
4–5%
Over 5%
Total registered
Unregistered3
Total
Total
Shareholders registered
Shareholders registered
Shares registered
Shares registered
Number
% of shares issued
Number
23,723
112,996
75,672
7,953
617
86
26
1
0
0
1
21
%
10.7
51.1
34.2
3.6
0.3
0.0
0.0
0.0
0.0
0.0
0.0
0.0
1,326,318
54,147,606
222,934,423
190,968,118
180,530,257
192,076,612
333,943,353
62,176,439
0
0
189,027,452
714,426,618
221,077
100.0
2,141,557,1962
221,077
221,077
100.0
100.0
3,859,055,395
3,859,055,395
1,717,498,199
0.0
1.4
5.8
4.9
4.7
5.0
8.7
1.6
0.0
0.0
4.9
18.5
55.5
44.5
100.0
100.0
1 On 31 December 2019, Chase Nominees Ltd., London, entered as a fiduciary / nominee, was registered with 10.94% of all UBS shares issued. However, according to the provisions of UBS Group AG, voting rights
1
of fiduciaries / 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 7.57% of all UBS shares issued and is
3 Shares not entered in the UBS share register as of
not subject to this 5% voting limit as a securities clearing organization.
3
31 December 2019.
2 Of the total shares registered, 374,219,777 shares did not carry voting rights.
2
200
Conditional share capital
–
At year-end 2019, the following conditional share capital was
available to UBS Group AG’s BoD:
–
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, to be issued through the voluntary or
mandatory exercise of conversion rights and/or warrants
granted in connection with the issuance of bonds or similar
financial instruments on national or international capital
markets. This conditional capital allowance was approved
at the Extraordinary General Meeting
(EGM) held on
26 November 2014, originally approved at the AGM of UBS
AG on 14 April 2010. The BoD has not made use of such
allowance.
represented by
A maximum of CHF 12,170,583.00
121,705,830 fully paid registered shares with a par value of
CHF 0.10 each, to be issued upon exercise of employee
options
the
management and of the BoD of UBS Group AG and its
subsidiaries. This conditional capital allowance was approved
by the shareholders at the same EGM in 2014.
Refer to article 4a of the Articles of Association of UBS Group
to employees and members of
issued
AG for more information about the terms and conditions of the
issue of shares out of existing conditional capital. The Articles
of Association are available at www.ubs.com/governance
Conditional capital of UBS Group AG
AAss ooff 3311 DDeecceemmbbeerr 22001199
Employee equity participation plans
Conversion rights / warrants granted in connection with bonds
TToottaall
MMaaxxiimmuumm nnuummbbeerr ooff sshhaarreess ttoo
bbee iissssuueedd
121,705,830
Year approved by Extraor-
dinary General Meeting
2014
380,000,000
550011,,770055,,883300
2014
%% ooff sshhaarreess iissssuueedd
3.15
9.85
1133..0000
Authorized share capital
Ownership
UBS Group AG had no authorized capital available to issue on
31 December 2019.
Changes in capital
In accordance with International Financial Reporting Standards,
Group equity attributable to shareholders was USD 54.5 billion
as of 31 December 2019 (2018: USD 52.9 billion; and 2017:
USD 52.5 billion). UBS Group AG shareholders’ equity was
represented by 3,859,055,395 issued shares as of 31 December
2019 (2018: 3,855,634,749 shares; and 2017: 3,853,096,603
shares).
Refer to “Statement of changes in equity” in the “Consolidated
financial statements” section on page 304 of this report for
more information about changes in shareholders’ equity over
the last three years
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 shareholders registered in the UBS share
register and cannot be assumed to be representative of UBS Group
AG’s entire investor base or the actual beneficial ownership. Only
shareholders registered in the share register as “shareholders with
voting rights” are entitled to exercise voting rights.
Refer to “Shareholders’ participation rights” in this section for
more information
As of 31 December 2019, 1,767,337,419 UBS Group AG
shares were registered in the share register and carried voting rights,
374,219,777 shares were registered in the share register without
voting rights, and 1,717,498,199 shares were not registered in the
UBS share register. All shares were fully paid up and eligible for
dividends. There are no preferential rights for shareholders, and no
other classes of shares have been issued by UBS Group AG.
201
Corporate governance and compensation
Corporate governance and compensation
Corporate governance
Shareholders, legal entities and nominees: type and geographical distribution
As of 31 December 2019
As of 31 December 2019
Individual shareholders
Legal entities
Nominees, fiduciaries
Total registered shares
Unregistered shares
Total
Total
Americas
Americas
of which: USA
Asia Pacific
Asia Pacific
Europe, Middle East and Africa
Europe, Middle East and Africa
of which: Germany
of which: UK
of which: rest of Europe
of which: Middle East and Africa
Switzerland
Switzerland
Total registered shares
Unregistered shares
Total
Total
Shareholders registered
Shareholders registered
Number
216,339
4,537
201
%
97.9
2.0
0.1
221,077
221,077
100.0
100.0
Individual shareholders
Individual shareholders
Legal entities
Legal entities
Nominees
Nominees
Total
Total
Number
1,959
1,959
1,406
5,195
5,195
12,548
12,548
4,036
4,652
3,560
300
196,637
196,637
%
0.9
0.9
0.6
2.3
2.3
5.7
5.7
1.8
2.1
1.6
0.1
88.9
88.9
Number
118
118
60
111
111
230
230
29
8
189
4
4,078
4,078
%
0.1
0.1
0.0
0.1
0.1
0.1
0.1
0.0
0.0
0.1
0.0
1.8
1.8
Number
93
93
87
18
18
55
55
4
6
44
1
35
35
%
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
Number
2,170
2,170
1,553
5,324
5,324
12,833
12,833
4,069
4,666
3,793
305
200,750
200,750
%
1.0
1.0
0.7
2.4
2.4
5.8
5.8
1.8
2.1
1.7
0.1
90.8
90.8
216,339
216,339
97.9
97.9
4,537
4,537
2.0
2.0
201
201
0.1
0.1
221,077
221,077
100.0
100.0
portion of the granted EOP award if an employee commits certain
harmful acts, and
in most cases trigger forfeiture where
employment has been terminated. To encourage our employees to
develop and manage the business in a way that delivers sustainable
returns, EOP awards granted to certain senior employees will only
vest if both Group and business division performance conditions are
met.
As of 31 December 2019, UBS employees held an estimated
6% of UBS shares outstanding (including approximately 4% in
from our
unvested/blocked actual and notional
compensation programs). These figures are based on known
shareholding information from employee participation plans,
personal holdings with UBS and selected individual retirement
plans. At the end of 2019, an estimated 31% of all employees
held UBS shares through the firm’s employee share participation
plans.
shares
Refer to the “Compensation” section on page 236 of this report
for more information
Shares and participation certificates
UBS Group AG has a single class of shares, which are registered
shares in the form of uncertificated securities (in the sense of the
Swiss Code of Obligations) and intermediary-held securities (in
the sense of the Swiss Federal Act on Intermediated Securities).
Each registered share has a par value of CHF 0.10 and carries
set out under
one vote
“Transferability, voting rights and nominee registration” on the
following page.
restrictions
subject
the
to
We have no participation certificates outstanding.
At year-end 2019, UBS owned 243,021,296 UBS Group AG
registered shares, which corresponded to 6.30% of the total share
capital of UBS Group AG. At the same time, we had acquisition and
disposal positions relating to 270,270,154 and 177,652,614 voting
rights of UBS Group AG, corresponding to 7.01% and 4.61% of
the total voting rights of UBS Group AG, respectively. Of the
disposal positions, 4.03% consisted of voting rights on shares
deliverable
in respect of employee awards. The calculation
methodology for the acquisition and disposal positions is based on
the Swiss Financial Market Supervisory Authority Ordinance on
Financial Market Infrastructure, which sets forth that all future
potential share delivery obligations, irrespective of the contingent
nature of the delivery, must be taken into account.
Employee share ownership
Employee share ownership is encouraged and made possible in a
variety of ways. One example is our Equity Plus Plan. This is a
voluntary plan that provides eligible employees with the opportunity
to purchase UBS Group AG shares at market value and receive, at
no additional cost, one notional UBS Group AG share for every
three shares purchased. If the shares purchased are held for three
years and the employee remains in employment, the notional shares
vest. Another example is the Equity Ownership Plan (EOP). This is a
mandatory deferral plan for all employees excluding GEB members,
Group Managing Directors (GMDs) and Group or Divisional Vice
Chair role holders, with total compensation greater than USD /
CHF 300,000. These employees receive 60% of their deferred
performance award under the EOP in notional shares (variations
apply for Asset Management). The plan includes provisions that
allow the firm to reduce or fully forfeit the unvested deferred
202
SShhaarreess rreeggiisstteerreedd
Number
491,586,703
510,091,779
1,139,878,714
2,141,557,196
1,717,498,199
33,,885599,,005555,,339955
IInnddiivviidduuaall sshhaarreehhoollddeerrss
LLeeggaall eennttiittiieess
NNoommiinneeeess
TToottaall
Number of shares
22,,889933,,996622
1,473,734
2244,,777755,,005544
4488,,119900,,669977
13,583,401
23,463,495
9,829,854
1,313,947
441155,,772266,,999900
491,586,703
0
449911,,558866,,770033
%
00..11
0.0
00..66
11..22
0.4
0.6
0.3
0.0
1100..88
12.7
1122..77
Number of shares
3322,,776688,,883377
12,917,654
1177,,664400,,550099
2255,,333388,,552255
435,407
698,369
24,002,859
201,890
443344,,334433,,990088
510,091,779
0
551100,,009911,,777799
%
00..88
0.3
00..55
00..77
0.0
0.0
0.6
0.0
1111..33
13.2
1133..22
Number of shares
339955,,667733,,776600
395,320,657
1111,,112266,,551155
770077,,661122,,116633
15,106,719
661,504,543
30,950,329
50,572
2255,,446666,,227766
1,139,878,714
0
11,,113399,,887788,,771144
%
1100..33
10.2
00..33
1188..33
0.4
17.1
0.8
0.0
00..77
29.5
2299..55
Number of shares
443311,,333366,,555599
409,712,045
5533,,554422,,007788
778811,,114411,,338855
29,125,527
685,666,407
64,783,042
1,566,409
887755,,553377,,117744
2,141,557,196
1,717,498,199
33,,885599,,005555,,339955
%
12.7
13.2
29.5
55.5
44.5
110000..00
%
1111..22
10.6
11..44
2200..22
0.8
17.8
1.7
0.0
2222..77
55.5
44.5
110000..00
Our shares are listed on the NYSE as global registered shares.
As such, they can be traded and transferred across applicable
borders, without the need for conversion, with identical shares
traded on different stock exchanges in different currencies.
Refer to “UBS shares” in the “Capital management” section on
page 192 of this report for more information
Distributions to shareholders
Provided that the proposed dividend distribution out of
retained earnings and out of the capital contribution reserve will
be approved at the 2020 AGM, the payment of USD 0.73 per
share will be made on 7 May 2020 to holders of shares on the
record date 6 May 2020. The shares will be traded ex-dividend
as of 5 May 2020 and, accordingly, the last day on which the
shares may be traded with entitlement to receive the dividend
will be 4 May 2020.
The decision to pay a dividend and the amount of any dividend
depend on a variety of factors, including our profits, cash flow
generation and capital ratios.
At the 2020 AGM, the BoD
intends to propose to
shareholders for approval a dividend of USD 0.73 per share for
the financial year 2019. Shareholders whose shares are held
through SIX SIS AG will receive dividends in Swiss francs, based
on a public exchange rate on the day prior to the ex-dividend
date. Shareholders holding shares through The Depository Trust
Company in New York and Computershare will be paid
dividends in US dollars.
As newly required under Swiss tax law, 50% of the dividend
will be paid out of retained earnings and the balance will be
paid out of capital contribution reserves. Dividends paid out of
capital contribution reserves are not subject to Swiss withholding
tax. The portion of the dividend paid out of retained earnings
will be subject to a 35% Swiss withholding tax. For US federal
income tax purposes, we expect that the dividend will be paid
out of current or accumulated earnings and profits.
In March 2018, UBS initiated a share repurchase program of
up to CHF 2 billion over a three-year period. The UBS shares
repurchased under the program will be canceled by means of a
capital reduction, to be proposed at future annual general
meetings. Under the program, UBS repurchased shares totaling
In 2019, we
USD 1.567 billion during 2018 and 2019.
purchased a total of USD 0.8 billion of shares under our share
repurchase program. For the first half of 2020, we expect to
repurchase an additional USD 0.45 billion of shares. We will
in the second half of 2020
assess further repurchases
idiosyncratic
any
considering business
developments.
conditions
and
Refer to “UBS shares” in the “Capital management” section on
page 192 of this report for more information about the share
repurchase program
203
Corporate governance and compensation
Corporate governance and compensation
Corporate governance
Transferability, voting rights and nominee registration
Convertible bonds and options
We do not apply any restrictions or
limitations on the
transferability 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,
beneficial 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, which applied as of
31 December 2019 to The Depository Trust Company in New
York.
Refer to “Shareholders’ participation rights” in this section for
more information
As of 31 December 2019, there were no contingent capital
securities or convertible bonds outstanding requiring the
issuance of new shares.
Refer to the “Capital management” section on page 175 of this
report for more information about our outstanding capital
instruments
As of 31 December 2019, there were no employee options
and stock appreciation rights outstanding. The last remaining
option awards and stock appreciation rights expired during
2019. Option-based compensation plans are sourced by issuing
new shares out of conditional capital. As of 31 December 2019,
121,705,830 unissued UBS Group AG shares in conditional
share capital were available for the issuance of new shares for
this purpose.
Refer to “Conditional share capital” in this section for more
information
Refer to “Note 30 Employee benefits: variable compensation” in
the “Consolidated financial statements” section on page 450 of
this report for more information about outstanding options and
stock appreciation rights
204
Shareholders’ participation rights
We are committed to shareholder participation in our decision-
making process. During 2019, we continued to enhance the
online voting platform to offer our registered shareholders a
more convenient log-in and online voting process. Registered
shareholders are sent personal invitations to the general
meetings of shareholders. Together with the invitation materials,
they receive a personal one-time password and a QR code to
easily login to our online voting platform, where they can enter
their voting instructions or order an admission card for the
general meeting. For the 2019 general meeting, we introduced
various technological measures to be more environmentally
friendly.
Shareholders who choose not to receive the comprehensive
invitation materials are informed of the upcoming general
meeting by a short letter containing a personal one-time
password and a QR code for online voting as well as a reference
to www.ubs.com/agm, where all information for the upcoming
general meeting is available.
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 may issue instructions to
support, reject or abstain for each individual item on the
meeting agenda, either by giving
to an
independent proxy in accordance with article 14 of the Articles
of Association (the AoA) or by appointing another registered
shareholder of
their behalf.
Alternatively, registered shareholders may issue their voting
instructions to the independent proxy electronically through
our online voting platform. Nominee companies normally
submit the proxy material to the beneficial owners and forward
the collected votes to the independent proxy.
to vote on
their choice
instructions
Refer to the article 14 of the Articles of Association of UBS
Group AG for more information about the issuing of
instructions to independent voting right representatives. The
Articles of Association are available at
www.ubs.com/governance
Relations with shareholders
Statutory quorums
We regularly inform all our shareholders about our activities and
performance, as well as other developments.
Refer to “Information policy” in this section for more
information
The Annual General Meeting of shareholders (the AGM)
offers shareholders the opportunity to raise any questions to the
Board of Directors (the BoD) and the Group Executive Board, 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 fiduciaries, which 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.
Shareholders can exercise their voting rights conferred by the
shares only if they are registered in our share register with voting
rights. To register, shareholders must confirm that they have
acquired UBS Group AG shares in their own name and for their
own account. Nominee companies and fiduciaries are required
to sign an agreement confirming their willingness to disclose,
upon our request, individual beneficial owners holding more
than 0.3% of all issued UBS Group AG shares.
Motions, including those regarding the election and re-election
of BoD members and the election 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 the given general 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 restrictions or exclusions of
shareholders’ preemptive rights.
The AoA also require a two-thirds majority of votes
represented for approval of any change to their provisions
regarding the number of BoD members, any decision to remove
one-quarter or more of the BoD members, and any modification
to the provision establishing this qualified quorum.
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.
Shareholders 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.
205
Corporate governance and compensation
Corporate governance and compensation
Corporate governance
Convocation of general meetings of shareholders
Registrations in the share register
The AGM must be held within six months of the close of the
financial year (31 December) and normally takes place after the
publication of the first quarter results. In 2020, the AGM will
take place on 29 April.
Extraordinary General Meetings (EGMs) may be convened
whenever the BoD or the auditors consider it necessary.
Shareholders individually or jointly representing at least 10% of
the share capital may at any time, including during an AGM,
require, by way of a written statement, that an EGM be
convened to address a specific issue they put forward.
A personal invitation including a detailed agenda is made
available to every registered shareholder at least 20 days ahead
of the scheduled general meeting. The agenda items are also
published in the Swiss Official Gazette of Commerce, as well as
at www.ubs.com/agm.
Placing of items on the agenda
Pursuant to our AoA, shareholders
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 general meeting of
shareholders.
individually or
At the end of January, the invitation to submit such proposals
is published in the Swiss Official Gazette of Commerce and 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. Such requests must be
submitted to the BoD 50 days prior to the general meeting of
shareholders, including a statement from the depository bank
confirming the number of shares held by the requesting
shareholder(s) and that these shares are blocked from sale until
the end of the general meeting of shareholders. The BoD
formulates opinions on the proposals, which are published
together with the motions.
Around 220,000 shareholders are directly registered in the UBS
share register and some 145,000 US shareholders are registered
via nominee companies.
The share register of UBS Group AG is an internal, non-public
register subject to statutory confidentiality, secrecy, privacy and
data protection regulations, which are imposed on UBS Group
AG to protect shareholders registered therein. In general, third
parties and shareholders have no inspection rights with regard
to data related to other shareholders. Disclosure of such data is
permitted only in specific and limited instances. In line with the
Swiss Federal Act on Data Protection, the disclosure of personal
data as defined thereunder is only allowed with the consent of
the registered shareholder and in cases where there is an
overriding private or public interest or if explicitly provided for by
Swiss law. The law contains specific reporting duties, such as in
relation to significant shareholders (refer to the “Significant
shareholders” section of this report for more information).
Disclosure may also be required or requested by a court of a
competent jurisdiction, by any regulatory body that regulates the
conduct of UBS Group AG or by other statutory provisions.
The general rules for entry into our Swiss share register with
voting rights as described in article 5 of our AoA also apply
before general meetings of shareholders. The same rules apply
to 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 shareholder, our
share register generally closes two business days prior to a
general meeting of shareholders. Our independent proxy agent
processes voting instructions from shareholders as long as
technically possible, generally also until two business days before
a general meeting of shareholders. Such technical closure of our
share register only facilitates the determination of the actual
voting rights of every shareholder that
issued a voting
instruction. Irrespective of the technical closure, shares that are
registered in our share register are never immobilized and are
freely tradable at any time, irrespective of any issued voting
instructions.
206
Board of Directors
The Board of Directors (the BoD) of UBS Group AG, under the
leadership of the Chairman of the BoD (the Chairman), consists
of between 6 and 12 members as per our Articles of Association
(the AoA).
Additionally, ADB Altorfer Duss & Beilstein AG was elected as
independent proxy agent. Following their election, the BoD
appointed David Sidwell as Vice Chairman and Senior
Independent Director of UBS Group AG.
The BoD decides on the strategy of the Group upon
recommendation by the Group Chief Executive Officer (the
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 applicable laws, rules
and regulations. The BoD exercises oversight over UBS Group
AG and its subsidiaries and is responsible for establishing a clear
Group governance framework to provide 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. It also approves all financial
statements for issue and appoints and removes all Group
Executive Board (GEB) members.
The BoD of UBS AG, under the leadership of the Chairman,
decides on the strategy of UBS AG upon recommendation by
the President of the Executive Board and exercises the ultimate
supervision on management. Its ultimate responsibility for the
success of UBS AG is exercised subject to the parameters set by
the Group.
Members of the Board of Directors
At the AGM on 2 May 2019, David Sidwell, Jeremy Anderson,
Reto Francioni, Fred Hu, Julie G. Richardson, Isabelle Romy,
Robert W. Scully, Beatrice Weder di Mauro and Dieter Wemmer
were re-elected as members of the BoD. Michel Demaré and
Ann F. Godbehere did not stand for re-election, as they both
retired after serving for the BoD since 2009 and reaching their
10-year term limit; the biographies of Mr. Demaré and Ms.
Godbehere can be found on pages 227 and 228 of the UBS
Group AG Annual Report 2018 available under “Annual
reporting” at www.ubs.com/investors. William C. Dudley and
Jeanette Wong were elected for their first term. At the same
time, Axel A. Weber was re-elected Chairman of the BoD, and
Julie G. Richardson, Dieter Wemmer, Reto Francioni and Fred Hu
were elected as members of the Compensation Committee.
On 10 January 2020, the BoD announced that Nathalie
Rachou and Mark Hughes would be nominated for election to
the UBS Group AG and UBS AG BoD at the forthcoming annual
general meetings. Nathalie Rachou is a senior advisor at Rouvier
Associés and Mark Hughes was Group Chief Risk Officer of
Royal Bank of Canada until 2018. David Sidwell and Isabelle
Romy will not stand for re-election, after completing terms of
office on the BoD of twelve and eight years, respectively.
Article 31 of our AoA limits the number of mandates that
members of the BoD may hold outside the UBS Group to four
board memberships in listed companies and five additional
mandates in non-listed companies. Mandates in companies that
are controlled by us or that 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. On 31 December 2019, no
member of the BoD reached the thresholds described in article
31 of our AoA.
The following biographies provide information on the BoD
members and the Group Company Secretary. In addition to
information on mandates, the biographies include information
on memberships or other activities or functions, as required by
the SIX Swiss Exchange Corporate Governance Directive.
No member of the BoD currently carries out or has carried out
over the past three years operational management tasks within
the Group; all members of the BoD are therefore non-executive
members.
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. The Senior Independent Director function relates only to
UBS Group AG.
In 2019, UBS AG’s BoD had three permanent committees: the
Audit Committee, the Compensation Committee and the Risk
Committee.
In addition to the aforementioned permanent
committees, UBS Group AG also had the Corporate Culture and
Responsibility Committee, as well as the Governance and
Nominating Committee.
207
Corporate governance and compensation
Corporate governance and compensation
Corporate governance
Axel A. Weber
Chairman, non-executive member of the Board
Year of initial election
UBS: 2012 (UBS Group AG: 2014, UBS AG: 2012)
Year of birth | Nationality
1957 | German
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 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
Chairperson of the Corporate Culture and Responsibility Committee in
2013. Mr. Weber was President of the German Bundesbank between
2004 and 2011, during which time he also served as a member of the
Governing Council of the European Central Bank, as a member of the
Board of Directors of the Bank for International Settlements, as 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. From 2002 to 2004, Mr.
Weber served as a member of the German Council of Economic Experts.
His academic career encompasses professorships
international
economics, monetary economics and economic theory at the universities
of Cologne, Frankfurt am Main, Bonn and Chicago. Mr. Weber holds a
master’s degree in economics from the University of Constance and a
PhD in economics from the University of Siegen, where he also received
his habilitation. He holds honorary doctorates from the universities of
Duisburg-Essen and Constance.
in
Other activities and functions
– Member of the Board of the Swiss Bankers Association
– Member of the Board of Trustees of Avenir Suisse
– Member of the Board of the Swiss Finance Council
– Chairman of the Board of the Institute of International Finance
– Member of the European Financial Services Round Table
– Member of the European Banking Group
– Member of the International Advisory Councils of the China Banking
and Insurance Regulatory Commission and China Securities Regulatory
Commission
– Member of the International Advisory Panel, Monetary Authority of
Singapore
– Member of the Group of Thirty, Washington, DC
– Chairman of the Board of Trustees of DIW Berlin
– Member of the Advisory Board of the Department of Economics,
University of Zurich
– Member of the Trilateral Commission
Key competencies
– Finance, audit, accounting
– Risk management
– Regulatory authority, central bank
– ESG (environment, social and governance)
Leadership experience
– CEO, Chairman
208
David Sidwell
Vice Chairman, Senior Independent Director,
non-executive member of the Board
Year of initial election
UBS: 2008 (UBS Group AG: 2014, UBS AG: 2008)
Year of birth | Nationality
1953 | American (US) and British
Jeremy Anderson
Non-executive member of the Board
Year of initial election
UBS: 2018
Year of birth | Nationality
1958 | British
Professional history and education
David Sidwell was elected to the BoD of UBS AG at the 2008 AGM and
of UBS Group AG in 2014. He is Vice Chairman and Senior Independent
Director. He has chaired the Risk Committee since 2008 and has been a
member of the Governance and Nominating Committee since 2011. Mr.
Sidwell was Executive Vice President and CFO of Morgan Stanley
between 2004 and 2007. Before joining Morgan Stanley, he worked for
JPMorgan Chase & Co., where, in his 20 years of service, he held a
number of different positions, including controller and, from 2000 to
2004, CFO of the Investment Bank. Prior to this, he was with Price
Waterhouse in both London and New York. Mr. Sidwell graduated from
Cambridge University and qualified as a chartered accountant with the
Institute of Chartered Accountants in England and Wales.
Other activities and functions
–
–
–
–
Senior advisor at Oliver Wyman, New York
Member of the Board of Chubb Limited
Member of the Board of GAVI Alliance
Member of the Board of Village Care, New York
Key competencies
–
Banking (wealth management, asset management, personal and
corporate banking; insurance)
Investment banking, capital markets
Finance, audit, accounting
Risk management
–
–
–
Leadership experience
–
Executive board leadership
Professional history and education
Jeremy Anderson was elected to the BoD of UBS AG and UBS Group AG
at the 2018 AGM. He has chaired the Audit Committee and has been a
member of the Corporate Culture and Responsibility Committee since
2018. Since 2019, he has been a member of the Governance and
Nominating Committee. He was Chairman of Global Financial Services at
KPMG International from 2010 to 2017. He has spent over 30 years
working with the banking and insurance industry in an advisory capacity,
covering a broad range of topics, including strategy, audit and risk
management, technology-enabled transformation, mergers and bank
restructuring. Mr. Anderson was the founding sponsor of KPMG’s
Global Fintech Network in 2014 and is a regular participant at FinTech
events across Europe, the US and Asia. He joined KPMG International in
2004 and was Head of Financial Services KPMG Europe from 2006 to
2011 as well as Head of Clients and Markets KPMG Europe from 2008
to 2011. From 2004 to 2008 he was in charge of its UK Financial
Services Practice. Prior to that, he served as a member of the Group
Management Board of Atos Origin and as Head of its UK operations
after Atos acquired KPMG Consulting UK in 2002. In this capacity he
managed Atos’ consulting, systems integration and IT outsourcing
services in the UK. Mr. Anderson joined KPMG’s UK consulting business
in 1985 and led the firm as CEO from 2000 to 2002, having previously
been a partner in its financial services business. He started his career as a
in 1980.
software developer with Triad Computing Systems
Mr. Anderson holds a bachelor’s degree in economics from University
College London.
Other activities and functions
–
–
–
–
Member of the Board of Prudential plc
Trustee of the UK’s Productivity Leadership Group
Trustee of Kingham Hill Trust
Trustee of St. Helen’s Bishopsgate
Key competencies
–
Banking (wealth management, asset management, personal and
corporate banking; insurance)
Finance, audit, accounting
Risk management
Technology, cybersecurity
–
–
–
Leadership experience
–
Executive board leadership
209
Corporate governance and compensation
Corporate governance and compensation
Corporate governance
William C. Dudley
Reto Francioni
Non-executive member of the Board
Non-executive member of the Board
Year of initial election
UBS: 2019
Year of birth | Nationality
1953 | American (US)
Year of initial election
UBS: 2013 (UBS Group AG: 2014, UBS AG: 2013)
Year of birth | Nationality
1955 | Swiss
Professional history and education
William C. Dudley was elected to the BoD of UBS AG and UBS Group AG
at the 2019 AGM. He has been a member of the Corporate Culture and
Responsibility Committee and of the Risk Committee since 2019.
Currently, Mr. Dudley is a Senior Research Scholar at the Griswold
Center for Economic Policy Studies at Princeton University. He became
CEO of the Federal Reserve Bank of New York (the NY Fed) in 2009 and
held that position until 2018. During this time, his focus areas included
cultural behavior and social and governance topics in the financial world.
As CEO, he served as the vice chairman and a permanent member of the
Federal Open Market Committee. Previously, Mr. Dudley served as
Executive Vice President of the Markets Group at the NY Fed and Head
of the Markets Group from 2007 to 2009. Prior to his time with the NY
Fed, Mr. Dudley joined Goldman Sachs in 1986 and held several senior
management positions. He was a Partner and Managing Director and for
a decade the Chief US Economist. In 2012, Mr. Dudley was appointed
chairman of the Committee on the Global Financial System of the Bank
for International Settlements (BIS). Prior to that, he served as chairman of
the former Committee on Payment and Settlement Systems of the BIS
from 2009 to 2012. He was a member of the Board of Directors of the
BIS from 2009 to 2018. He holds a bachelor’s degree from New College
of Florida and received his doctorate in economics from the University of
California, Berkeley in 1982.
Other activities and functions
– Member of the Group of Thirty
– Member of the Council on Foreign Relations
– Member of the Bretton Woods Committee’s Advisory Council
Professional history and education
Reto Francioni was elected to the BoD of UBS AG at the 2013 AGM and
of UBS Group AG in 2014. He has been a member of the Risk
Committee since 2015 and of the Compensation Committee since 2019.
He was CEO of Deutsche Börse AG from 2005 to 2015. Since 2006, he
has been a professor of Financial Market Research at the University of
Basel. From 2002 to 2005, Mr. Francioni was Chairman of the
Supervisory Board and President of the SWX Group, Zurich, placing him
at the heart of digitalization within the industry. 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. There he drove a fundamental
transformation to shape it as a world leader in technology. From 1992 to
1993, he served in the corporate finance division of Hoffmann-La Roche,
Basel. Prior to this, he was on the Executive Board of Association
Tripartite Bourses for several years. From 1985 to 1988, he worked for
Credit Suisse, holding positions
legal
departments. He started his professional career in 1981 in the commerce
division of Union Bank of Switzerland. Mr. Francioni completed his law
degree at the University of Zurich in 1981 and earned his PhD from that
same university in 1987.
in the equity sales and
Other activities and functions
– Member of the Board of Coca-Cola HBC AG (Senior Independent
Non-Executive Director, chair of the nomination committee)
– Chairman of the Board of Swiss International Air Lines AG
– Member of the Board of MedTech Innovation Partners AG
– Executive Director and member of myTAMAR GmbH
Key competencies
– Investment banking, capital markets
– Risk management
– Regulatory authority central bank
– ESG (environment, social and governance)
Leadership experience
– CEO, Chairman
Key competencies
– Investment banking, capital markets
– Risk management
– Human resources management, including compensation
– Technology, cybersecurity
Leadership experience
– CEO, Chairman
210
Fred Hu
Julie G. Richardson
Non-executive member of the Board
Non-executive member of the Board
Year of initial election
UBS: 2018
Year of birth | Nationality
1963 | Chinese
Year of initial election
UBS: 2017
Year of birth | Nationality
1963 | American (US)
in the areas of mobile
Professional history and education
Fred Hu was elected to the BoD of UBS AG and UBS Group AG at the
2018 AGM. He has been a member of the Compensation Committee
since 2019. Mr. Hu has been chairman of Primavera Capital Group, a
China-based global investment firm, since 2010. Through his numerous
investments in leading technology companies over the years, he has
obtained profound knowledge
internet,
digitalization and cybersecurity. Prior to founding Primavera, Mr. Hu held
various senior positions at Goldman Sachs from 1997 to 2010, where he
was instrumental in building the firm’s franchise in the region. He was a
Partner and chairman of Greater China from 2008 to 2010 and a Partner
and Co-Head of Investment Banking China from 2004 to 2008. Before
that, he held the position of Goldman Sachs’ Chief Economist. From
1991 to 1996, he served as an economist at the International Monetary
Fund in Washington, DC, and after that was Co-Director of the National
Center for Economic Research and a professor at Tsinghua University.
Mr. Hu holds a master’s in engineering science from Tsinghua University,
and a master’s and a PhD in economics from Harvard University.
Other activities and functions
–
Non-executive Chairman of the Board of Yum China Holdings
(chair of the nomination and governance committee)
Member of the Board of ICBC
Member of the Board of Hong Kong Exchanges and Clearing Ltd.
Member of the Board of China Asset Management
Member of the Board of Minsheng Financial Leasing Co.
Trustee of the China Medical Board
Governor of the Chinese International School in Hong Kong
Co-Chairman of the Nature Conservancy Asia Pacific Council
Director and member of the Executive Committee of China Venture
Capital and Private Equity Association Ltd.
Member of the Global Advisory Board of the Council on Foreign
Relations
–
–
–
–
–
–
–
–
–
Key competencies
–
–
–
–
Investment banking, capital markets
Risk management
Technology, cybersecurity
Regulatory authority, central bank
Leadership experience
–
CEO, Chairman
investments
Professional history and education
Julie G. Richardson was elected to the BoD of UBS AG and UBS Group
AG at the 2017 AGM. She has been a member of the Compensation
Committee since 2018 and its Chairperson since 2019. She also has
been a member of the Risk Committee since 2017 and of the
Governance and Nominating Committee since 2019. From 2003 to
2012, Ms. Richardson was a Partner and Head of the New York Office of
Providence Equity Partners, a global private equity firm specializing in
in media, communications, education and
equity
information companies. She acted as a senior advisor to the partnership
until 2014. From 1998 to 2003, Ms. Richardson served as Vice Chairman
of the Investment Banking division of JPMorgan Chase & Co. and Head
of its Global Telecommunications, Media and Technology group.
Throughout her career, she has spent significant time with both
incumbent and new technology companies, including being a board
member of a digital knowledge management company since 2015. After
graduating, she started with Merrill Lynch in 1986, where she worked
until 1998, in her last position as Managing Director Media and
Communications Investment Banking. Ms. Richardson graduated from
the University of Wisconsin-Madison with a bachelor’s degree in business
administration.
Other activities and functions
–
–
Member of the Board of Yext (chair of the audit committee)
Member of the Board of Vereit, Inc. (chair of the compensation
committee)
Member of the Board of Datadog (chair of the audit committee)
Member of the Board of The Hartford Financial Services Group, Inc
(resignation effective 1 April 2020)
–
–
Key competencies
–
–
–
–
Investment banking, capital markets
Risk management
Human resources management, including compensation
Technology, cybersecurity
211
Corporate governance and compensation
Corporate governance and compensation
Corporate governance
Isabelle Romy
Robert W. Scully
Non-executive member of the Board
Non-executive member of the Board
Year of initial election
UBS: 2012 (UBS Group AG: 2014, UBS AG: 2012)
Year of birth | Nationality
1965 | Swiss
Year of initial election
UBS: 2016
Year of birth | Nationality
1950 | American (US)
Professional history and education
Isabelle Romy was elected to the BoD of UBS AG at the 2012 AGM and
of UBS Group AG in 2014. She has been a member of the Audit
Committee and of the Governance and Nominating Committee since
2012. Ms. Romy is a partner at Froriep Legal AG, a large Swiss business
law firm. From 1995 to 2012, she worked for another major Swiss law
firm based in Zurich, where she was a partner from 2003 to 2012. Her
legal practice includes litigation and arbitration in cross-border cases. Ms.
Romy has been a professor at the University of Fribourg and at the
Federal Institute of Technology in Lausanne (EPFL) since 1996. Between
2003 and 2008, she served as a deputy judge at the Swiss Federal
Supreme Court. From 1999 to 2006, she was a member of the Ethics
Commission at the EPFL. Ms. Romy earned her doctorate in law (Dr. iur.)
at the University of Lausanne in 1990 and has been a qualified attorney-
at-law admitted to the bar since 1991. From 1992 to 1994, she was a
visiting scholar at Boalt Hall School of Law, University of California,
Berkeley, and completed her professorial thesis at the University of
Fribourg in 1996.
Professional history and education
Robert W. Scully was elected to the BoD of UBS AG and UBS Group AG
at the 2016 AGM. He has been a member of the Risk Committee since
2016. Mr. Scully served as a member of the Office of the Chairman of
Morgan Stanley from 2007 to 2009 and was its Co-President responsible
for Asset Management, Discover Credit Cards from 2006 to 2007. Prior
to assuming the position of Co-President, he was Chairman of Global
Capital Markets from 2004 to 2006, Vice Chairman of Investment
Banking from 1999 to 2006, and Managing Director from 1996 to
2009. Mr. Scully was Managing Director at Lehman Brothers from 1993
to 1996, having worked for Scully Brothers Foss & Wight from 1989 to
1993 as Managing Director and for Salomon Brothers in Investment
Banking and Capital Markets from 1980 to 1989, where he became a
Managing Director in 1984. He began his career in the banking industry
with Chase Manhattan Bank in 1972 and then worked as an investment
banker for Blyth Eastman Dillon & Co. from 1977 to 1980. Mr. Scully
graduated from Princeton University in 1972 with a bachelor’s degree in
psychology and holds an MBA from Harvard University.
Other activities and functions
– Member of the Board of Froriep Legal AG
– Chair of the Board of Central Real Estate Holding AG
– Chair of the Board of Central Real Estate Basel AG
– Vice Chairman of the Sanction Commission of the SIX Swiss Exchange
– Member of the Fundraising Committee of the Swiss National
Committee for UNICEF
– Member of the Supervisory Board of the CAS program Financial
Regulation of the University of Bern and University of Geneva
Key competencies
– Finance, audit, accounting
– Legal, compliance
– Regulatory authority, central bank
– ESG (environment, social and governance)
Other activities and functions
– Member of the Board of Chubb Limited (chair of the audit committee)
– Member of the Board of Zoetis, Inc.
– Member of the Board of KKR & Co. Inc.
– Member of the Board of Teach For All
Key competencies
– Banking (wealth management, asset management, personal and
corporate banking; insurance)
– Investment banking, capital markets
– Finance, audit, accounting
– Risk management
Leadership experience
– Executive board leadership
212
Beatrice Weder di Mauro
Dieter Wemmer
Non-executive member of the Board
Non-executive member of the Board
Year of initial election
UBS: 2012 (UBS Group AG: 2014, UBS AG: 2012)
Year of birth | Nationality
1965 | Swiss and Italian
Year of initial election
UBS: 2016
Year of birth | Nationality
1957 | Swiss and German
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 2014. She has been a member of the
Audit Committee since 2012 and became a member of the Corporate
Culture and Responsibility Committee in 2017. She was a member of the
Risk Committee from 2013 to 2017. Since 2019, Ms. Weder di Mauro
has been a professor of international economics at the Graduate
Institute Geneva (IHEID) and since 2018 has been President of the Centre
for Economic Policy Research in London. Since 2016, she has been a
research professor and distinguished fellow at the Emerging Markets
Institute at INSEAD in Singapore. From 2001 to 2018, she held the Chair
of International Macroeconomics at the Johannes Gutenberg University
of Mainz and was a member of the German Council of Economic Experts
from 2004 to 2012. She held visiting positions at the International
Monetary Fund (IMF) in Washington, DC, at the National Bureau of
Economic Research in Cambridge, MA, and at the United Nations
University in Tokyo. Prior to that, she worked as an economist at the IMF
and the World Bank in Washington, DC. She received a PhD and a
habilitation in economics from the University of Basel. Since 2005,
Ms. Weder di Mauro has served as an independent director on the
boards of globally
finance,
leading companies
pharmaceuticals, technology and insurance.
in development
Other activities and functions
–
–
–
Member of the Supervisory Board of Robert Bosch GmbH
Member of the Board of Bombardier Inc.
Member of the Foundation Board of the International Center for
Monetary and Banking Studies (ICMB)
Key competencies
–
–
–
–
Finance, audit, accounting
Risk management
Regulatory authority, central bank
ESG (environment, social and governance)
Professional history and education
Dieter Wemmer was elected to the BoD of UBS AG and UBS Group AG
at the 2016 AGM. He has been a member of the Compensation
Committee since 2018 and of the Audit Committee since 2019.
Mr. Wemmer was Chief Financial Officer (CFO) of Allianz SE from 2013
to 2017. He joined Allianz SE in 2012 as a member of the Board of
Management, responsible for the insurance business in France, Benelux,
Italy, Greece and Turkey and for the “Global Property & Casualty”
Center of Competence. He was CFO of Zurich Insurance Group from
2007 to 2011. From 2010 to 2011, he was Zurich’s Regional Chairman
of Europe. Prior to that, Mr. Wemmer was CEO of the Europe General
Insurance business and member of Zurich’s Group Executive Committee
from 2004 to 2007. He held various other management positions in the
Zurich Group, such as Chief Operating Officer of the Europe General
Insurance business from 2003 to 2004, Head of Mergers and
Acquisitions from 1999 to 2003 and Head of Financial Controlling from
1997 to 1999. Mr. Wemmer began his career in the insurance industry
within the Zurich Group in 1986 in Cologne, after graduating from the
University of Cologne with a master’s degree and acquiring his doctorate
in mathematics in 1985.
Other activities and functions
–
Member of the Board of Ørsted A/S (chair of the audit and risk
committee)
Member of the Berlin Center of Corporate Governance
–
Key competencies
–
Banking (wealth management, asset management, personal and
corporate banking; insurance)
Investment banking, capital markets
Finance, audit, accounting
Risk management
–
–
–
Leadership experience
–
Executive board leadership
213
Corporate governance and compensation
Corporate governance and compensation
Corporate governance
Jeanette Wong
Non-executive member of the Board
Year of initial election
UBS: 2019
Year of birth | Nationality
1960 | Singaporean
Professional history and education
Jeanette Wong was elected to the BoD of UBS AG and UBS Group AG at
the 2019 AGM. She has been a member of the Audit Committee since
2019. Ms. Wong was Group Executive responsible for the Institutional
Banking business at the Singapore-based DBS Group from 2008 to
March 2019, encompassing Corporate Banking, Global Transaction
Services, Strategic Advisory and Mergers & Acquisitions. Previously, she
served as Chief Financial Officer of the DBS Group between 2003 and
2008. Ms. Wong has spent more than 30 years working in different
senior management roles within the financial industry in Singapore. She
started her career in 1982 with positions at Banque Paribas and
Citibank, before helping to build up JP Morgan’s Asia and emerging
markets business over a sixteen-year career with the firm. She holds an
MBA from the University of Chicago and a bachelor’s in business
administration from the National University of Singapore.
Other activities and functions
– Member of the Board of Essilor International / EssilorLuxottica
– Member of the Board of Jurong Town Corporation
– Member of the Board of PSA International
– Member of the Board of FFMC Holdings Pte. Ltd. and of Fullerton
Fund Management Company Ltd.
– Member of the Management Advisory Board of NUS Business School
– Member of the Global Advisory Board, Asia, University of Chicago
Booth School of Business
– Member of the Securities Industry Council
Key competencies
– Banking (wealth management, asset management, personal and
corporate banking; insurance)
– Investment banking, capital markets
– Finance, audit, accounting
– ESG (environment, social and governance)
Leadership experience
– Executive board leadership
214
Markus Baumann
Group Company Secretary
Year of birth | Nationality
1963 | Swiss
Professional history and education
Markus Baumann was appointed Group Company
Secretary of UBS Group AG and Company Secretary
of UBS AG by the BoD in 2017. He has been with
UBS for 40 years and has held a broad range of
leadership roles across the Group in Switzerland, the
US and Japan, including Chief of Staff to the
Chairman of the BoD since 2015 and Chief
Operating Officer of Group Internal Audit from 2006
to 2015. Before this, he worked as Chief Operating
Officer EMEA for UBS Asset Management. Earlier in
his career, Mr. Baumann worked in Japan for four
years as Corporate Planning Officer and assistant to
the CEO. He joined UBS in 1979 as a banking
apprentice, covering the full range of universal
banking activities. Mr. Baumann holds an MBA from
INSEAD Fontainebleau and a Swiss Federal Diploma
as a Business Analyst.
Elections and terms of office
Shareholders annually elect each member of
the BoD
individually, as well as the Chairman and the members of the
Compensation Committee, based on proposals from the BoD.
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. In exceptional circumstances, the BoD may extend this
limit.
Refer to “Skills, expertise and training of the Board of
Directors” in this section for more information
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 the
respective committee Chairpersons. At the same meeting, the
BoD appoints a Group Company Secretary, who acts as secretary
to the BoD and its committees.
According to the Articles of Association and the Organization
Regulations, the BoD meets as often as business requires, but it
must meet at least six times a year. During 2019, a total of 23
BoD meetings and calls were held, 15 of which were attended
by GEB members. Average participation in the BoD meetings
and calls was 98%. In addition to the BoD meetings attended by
GEB members, the Group CEO attended some of the meetings
of the BoD without GEB participation. The average duration of
the meetings and calls was 145 minutes. In 2019, the frequency
and length of the combined meetings were the same for UBS
Group AG and UBS AG. Additionally, eight ad hoc calls were
held, two of which were without GEB members. Furthermore, a
two-day crisis management and simulation exercise was held.
At every BoD meeting, each committee Chairperson provides
the BoD with an update on current activities of his or her
committee as well as important committee issues.
In response to the growing importance of legal entity
governance, standalone meetings of the UBS AG BoD were held.
In 2019, four UBS AG meetings were held with members of the
Executive Board in attendance. Standalone meetings are held on
a regular basis to discuss and agree on legal entity governance
and other topics related to UBS AG. Furthermore, we enhanced
the coordination and exchange of information between UBS
Group AG and its significant group entities. Joint meetings
between the Group BoD and the boards of directors of all
significant group entities have been introduced. In addition, a
two-day annual workshop attended by all independent members
of the boards of the Group and significant group entities was
held, for the third time, to strengthen entity governance.
215
Corporate governance and compensation
Corporate governance and compensation
Corporate governance
Performance assessment
An external assessment of the effectiveness of the BoD was
started at the end of 2018 and concluded in May 2019. This
external review was commissioned in line with the regular
schedule of performing an independent external assessment
every third year. In each year when there is no independent
external assessment, a thorough self-assessment is completed at
the level of the BoD, while the committees perform self-
assessments every year. All BoD members, the Group CEO,
selected members of the GEB, the Head Group Internal Audit
and lead audit partner were interviewed as part of the external
review. The external appraisers also attended BoD meetings and
selected committee meetings as observers and reviewed
governance-related documentation.
The results of the in-depth external assessment concluded
that the BoD and its committees were operating effectively, in
line with best practice and best in class in comparison with
leading European peers. The final report did not raise any
material issues, but did make a number of recommendations for
consideration by the BoD. These led to minor adjustments in the
BoD agenda and served as a source for the definition of the
BoD’s priorities for 2019/2020. Areas of particular focus for the
BoD were strategy, growth and value creation, as well as
succession planning. Furthermore, a particular focus remained
on the oversight of the regulatory, risk and legal issues as well as
on digital transformation. Environment, social and governance
topics, in particular sustainability and the continued emphasis on
cultural values were other key priorities.
BoD Committees
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,
published at www.ubs.com/governance. The committees meet
as often as their business requires, but at least four times a year
each for the Audit Committee, the Risk Committee and the
Compensation Committee, and twice a year each for the
Corporate Culture and Responsibility Committee and the
Governance and Nominating Committee. Topics of common
interest or affecting more than one committee are discussed at
joint committee meetings. The Audit Committee and the Risk
Committee hold at least four joint meetings a year.
During 2019, a total of ten joint committee meetings were
held for UBS Group AG (nine joint committee meetings were
held for UBS AG). The Risk Committee held one meeting with
the Compensation Committee, one with the Corporate Culture
and Responsibility Committee, and eight with the Audit
Committee.
Board of Directors
Members in 2019
Axel A. Weber, Chairman
Michel Demaré¹
David Sidwell
Jeremy Anderson
William C. Dudley²
Reto Francioni
Ann F. Godbehere¹
Fred Hu
Julie G. Richardson
Isabelle Romy
Robert W. Scully
Beatrice Weder di Mauro
Dieter Wemmer
Jeanette Wong²
Meeting attendance Meeting and call
without GEB3
attendance with GEB4 Key responsibilities include:
8/8
2/2
8/8
8/8
6/6
8/8
2/2
7/8
8/8
8/8
8/8
8/8
8/8
6/6
100%
15/15
100%
5/5
100%
15/15
100%
15/15
100%
8/10
80%
The Board has ultimate responsibility for the success of the Group and for
delivering sustainable shareholder value within a framework of prudent and
effective controls. It decides on the Group’s strategy and the necessary financial
and human resources upon recommendation of the Group CEO and sets
the Group’s values and standards to ensure that its obligations to shareholders
and other stakeholders are met.
Refer to the Organization Regulations of UBS Group AG,
15/15
100%
available at www.ubs.com/governance, for more information
5/5
100%
100%
100%
100%
100%
100%
100%
88%
13/15
87%
100%
100%
100%
100%
100%
100%
15/15
100%
15/15
100%
15/15
100%
15/15
100%
15/15
100%
10/10
100%
1 Michel Demaré and Ann F. Godbehere did not stand for re-election at the 2019 AGM; indicated are their attended and total meetings up to the 2019 AGM. 2 William C. Dudley and Jeanette Wong were elected to the
Board at the 2019 AGM; indicated are their attended and total meetings after their election. 3 Additionally, two ad hoc calls took place in 2019. 4 Additionally, six ad hoc calls took place in 2019.
216
Audit Committee
five BoD members
The Audit Committee consisted of
throughout 2019, all of whom were determined by the BoD to
be fully independent. As a group, members of the Audit
Committee must have the necessary qualifications and skills to
perform all of their duties and together must possess financial
literacy and experience in banking and risk management.
The Audit Committee itself does not perform audits but
oversees the work of the external auditors, Ernst & Young Ltd,
who in turn are responsible for auditing UBS Group AG’s and
UBS AG’s annual financial statements and for reviewing the
quarterly financial statements.
In particular, the Audit Committee monitors the integrity of
the financial statements of UBS Group AG and UBS AG and any
announcements related to financial performance, and reviews
significant financial reporting judgments contained in them,
before recommending their approval to the BoD or proposing
any adjustments the Audit Committee considers appropriate.
the
expertise,
qualifications,
The Audit Committee oversees the relationship with and
assesses
effectiveness,
independence and performance of the external auditors and
their lead audit partner, and supports the BoD in reaching a
decision in relation to the appointment, reappointment or
dismissal of the external auditors and to the rotation of the lead
audit partner. The BoD then submits these proposals to the
shareholders for approval at the AGM.
meetings and eight calls with a participation rate of 98%. The
average duration of each of the meetings and calls was
approximately 150 minutes. In 2019, for both UBS Group AG
and UBS AG, the frequency and length of meetings were the
same. All of the meetings and calls of the Audit Committee
were attended by the Group Chief Financial Officer as well as
the Group Controller and Chief Accounting Officer. In 2019, the
Chairperson and the committee met on a regular basis with core
supervisory authorities.
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 (the NYSE) listing standards on
corporate governance and Rule 10A-3 under the US Securities
Exchange Act set more stringent independence requirements for
members of audit committees than for the other members of
the BoD. Throughout 2019, all members of the Audit
Committee, in addition to satisfying our independence criteria,
satisfied these requirements, in that they did not receive, directly
or indirectly, any consulting, advisory or compensatory fees from
any member of the Group other than in their capacity as a BoD
member, did not hold, directly or indirectly, UBS Group AG
shares in excess of 5% of the outstanding capital, and did not
serve on the audit committees of more than two other public
companies.
During 2019, the Audit Committee held eight committee
Audit Committee
Members in 2019
Meeting and
call attendance
Key responsibilities include:
Jeremy Anderson (Chairperson)
16/16
Michel Demaré¹
Ann F. Godbehere¹
Isabelle Romy
100% The function of the Audit Committee is to support the Board in fulfilling its oversight duty relating to
financial reporting and internal controls over financial reporting, the effectiveness of the external and
internal audit functions, and the effectiveness of whistleblowing procedures.
100%
100%
8/8
8/8
16/16
100%
Management is responsible for the preparation, presentation and integrity of the financial statements,
while the external auditors are responsible for auditing financial statements. The Audit Committee’s
responsibility is one of oversight and review.
Beatrice Weder di Mauro
14/16
88%
Dieter Wemmer²
Jeanette Wong²
8/8
8/8
100%
100%
Refer to the Organization Regulations of UBS Group AG,
available at www.ubs.com/governance, for more information
1 Michel Demaré and Ann F. Godbehere did not stand for re-election at the 2019 AGM; indicated are their attended and total meetings up to the 2019 AGM. 2 Following the 2019 AGM, Dieter Wemmer and Jeanette
Wong became members of this committee; indicated are their attended and total meetings after their election.
217
Corporate governance and compensation
Corporate governance and compensation
Corporate governance
Compensation Committee
The Compensation Committee consisted of four independent
BoD members throughout 2019 as indicated in the table below.
In addition to the key responsibilities indicated in the same table,
the Compensation Committee
the compensation
disclosures included in this report.
reviews
During 2019,
the Compensation Committee held six
meetings and two calls with a participation rate of 97%. The
average duration of each of the meetings and calls was
approximately 135 minutes. All meetings were held in the
presence of the Chairman and most were attended by the
Group CEO and external advisors. In 2019, the Chairperson met
on a regular basis with core supervisory authorities.
Refer to “Board of Directors compensation” in the
“Compensation” section on page 267 of this report for more
information about the Compensation Committee’s decision-
making procedures
Corporate Culture and Responsibility Committee
Throughout 2019, the Corporate Culture and Responsibility
Committee consisted of the Chairperson and three independent
BoD members as listed in the table below. The Group CEO and
the Head UBS in society are permanent guests of the Corporate
Culture and Responsibility Committee, while senior regional
representatives (chairmen or Presidents) attended one of the
meetings as guests. During 2019, six meetings were held, with
an average participation rate of 96%. The average duration of
each of the meetings was approximately 100 minutes.
Compensation Committee
Members in 2019
Ann F. Godbehere (Chairperson)¹
Julie G. Richardson (Chairperson)
Michel Demaré¹
Reto Francioni²
Fred Hu²
Dieter Wemmer
Meeting and
call attendance
Key responsibilities include:
2/2
8/8
2/2
6/6
5/6
8/8
100%
100%
100%
100%
83%
100%
The Compensation Committee is responsible for:
(i) supporting the Board in its duties to set guidelines on compensation and benefits;
(ii) approving the total compensation for the Chairman and the non-independent Board 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
per formance targets for the other GEB members;
(iv) reviewing, in consultation with the Chairman, the performance of the Group CEO in meeting agreed
targets, as well as informing the Board of the individual performance assessments of the GEB members;
(v) proposing, together with the Chairman, total individual compensation for the independent Board
members and Group CEO for approval by the Board; and
(vi) proposing to the Board for approval, upon recommendation from the Group CEO, the total individual
compensation for GEB members.
Refer to the Organization Regulations of UBS Group AG,
available at www.ubs.com/governance, for more information
1 Michel Demaré and Ann F. Godbehere did not stand for re-election at the 2019 AGM; indicated are their attended and total meetings up to the 2019 AGM. 2 Reto Francioni and Fred Hu were elected to this commit-
tee at the 2019 AGM; indicated are their attended and total meetings after their election.
Corporate Culture and Responsibility Committee
Members in 2019
Axel A. Weber (Chairperson)
Jeremy Anderson
William C. Dudley¹
Reto Francioni²
Beatrice Weder di Mauro
Meeting
attendance
Key responsibilities include:
6/6
100%
6/6
3/4
100%
75%
2/2
100%
6/6
100%
The Corporate Culture and Responsibility Committee supports the Board in its duties to safeguard and
advance the Group’s reputation for responsible and sustainable conduct. Its function is forward-looking in
that it monitors and reviews societal trends and transformational developments and assesses their
potential relevance for the Group.
In undertaking this assessment, it reviews stakeholder concerns and expectations pertaining to the societal
performance of UBS and to the development of its corporate culture. The Corporate Culture and Responsi bility
Committee’s function also encompasses the monitoring of the current state and implementation of
the programs and initiatives within the Group pertaining to corporate culture and corporate responsibility.
Refer to the Organization Regulations of UBS Group AG,
available at www.ubs.com/governance, for more information
1 Following the 2019 AGM, William C. Dudley became a member of this committee; indicated are his attended and total meetings after his election. 2 After the 2019 AGM, Reto Francioni was no longer member of this
committee, instead he was elected member of the Compensation Committee; indicated are his attended and total meetings up to the 2019 AGM.
218
Governance and Nominating Committee
In 2019, the Governance and Nominating Committee consisted
of the Chairperson and three independent members as listed in
the table below; after the AGM, there were four independent
members. During 2019, nine meetings were held with a
participation rate of 100%. The average duration of each of the
meetings was approximately 130 minutes and, additionally,
three ad hoc calls took place. The Group CEO attended all
meetings.
Risk Committee
In 2019, the Risk Committee comprised five independent BoD
members as listed in the table below. During 2019, the Risk
Committee held nine committee meetings and six calls with a
participation rate of 100%. The average duration of each of the
meetings and calls was approximately 190 minutes. In 2019, the
frequency and length of the meetings were the same for both
UBS Group AG and UBS AG. Usually, the Group CEO, the Group
CFO, the Group Chief Risk Officer and the Group General
Counsel attended the meetings and calls.
In 2019, the
Chairperson and the committee met on a regular basis with core
supervisory authorities.
Ad hoc committees
The Special Committee and the Strategy Committee are two ad
hoc committees that have a standing composition and that hold
meetings as and when required.
The Special Committee is composed of four BoD members
and its primary purpose is to oversee activities related to key
litigation and investigation matters, review management’s
respective proposals and submit recommendations for decision
to the BoD. For 2019, the key focus was the French cross-
border matter, following the first court verdict in February
2019. Jeremy Anderson chaired the Special Committee, with
Julie G. Richardson, David Sidwell and Axel A. Weber as
additional members. The Group CEO was a permanent guest.
During 2019, a half-day workshop, two meetings and three
calls were held. The frequency and length of the meetings
were the same for both UBS Group AG and UBS AG.
The Strategy Committee is composed of four BoD members
and its primary purpose is to support management and the
BoD with regard to the assessment of strategic considerations,
as well as to assist the planning of the annual strategy
meetings for the BoD and the GEB. The committee submits
recommendations for decision to the BoD. Axel A. Weber
chaired the Strategy Committee, with Fred Hu, Robert
W. Scully and Dieter Wemmer as additional members. The
Group CEO, the Group CFO and the Head of Strategy were
permanent guests. During 2019, two meetings and six calls
were held. The frequency and length of the meetings were the
same for both UBS Group AG and UBS AG.
Governance and Nominating Committee
Members in 2019
Axel A. Weber (Chairperson)
Jeremy Anderson¹
Michel Demaré²
Julie G. Richardson¹
Isabelle Romy
David Sidwell
Meeting
attendance
Key responsibilities include:
The function of the Governance and Nominating Committee is to support the Board in fulfilling its duty to
establish best practices in corporate governance across the Group, including conducting a Board assessment,
establishing and maintaining a process for appointing new Board and GEB members as well as for the
annual performance assessment of the Board.
Refer to the Organization Regulations of UBS Group AG,
available at www.ubs.com/governance, for more information
9/9
6/6
3/3
6/6
9/9
9/9
100%
100%
100%
100%
100%
100%
1 Following the 2019 AGM, Jeremy Anderson and Julie G. Richardson became members of this committee; indicated are their attended and total meetings after their election. 2 Michel Demaré did not stand for
re-election at the 2019 AGM; indicated are his attended and total meetings up to the 2019 AGM.
Risk Committee
Members in 2019
Meeting and
call attendance
Key responsibilities include:
David Sidwell (Chairperson)
15/15
100% The function of the Risk Committee is to oversee and support the Board in fulfilling its duty to set and
William C. Dudley¹
11/11
100%
supervise an appropriate risk management and control framework in the areas of:
(i) risk management and control, including credit, market and treasury risks as well as legal, compliance
Reto Francioni
Julie G. Richardson
Robert W. Scully
Dieter Wemmer ²
15/15
100%
and operational risks, including conduct risks; and
15/15
100%
15/15
100%
4/4
100%
(ii) balance sheet, treasury and capital management, including funding, liquidity and equity attribution.
The Risk Committee considers the potential effects of the aforementioned risks on the Group’s reputation.
Refer to the Organization Regulations of UBS Group AG,
available at www.ubs.com/governance, for more information
1 Following the 2019 AGM, William C. Dudley became a member of this committee; indicated are his attended and total meetings after his election. 2 After the 2019 AGM, Dieter Wemmer was no longer a member of
this committee, instead he became a member of the Audit Committee; indicated are his attended and total meetings up to the 2019 AGM.
219
Corporate governance and compensation
Corporate governance and compensation
Corporate governance
Roles and responsibilities of the Chairman of the Board of
Directors
independent BoD members and acts as a point of contact for
shareholders and stakeholders seeking discussions with an
independent BoD member.
Axel A. Weber serves as a full-time Chairman of the BoD, in line
with his employment contract.
communication with
The Chairman coordinates tasks within the BoD, calls BoD
meetings and sets their agendas. He presides over all general
meetings of shareholders and works with the committee
Chairpersons to coordinate the work of all BoD committees.
Together with the Group CEO, the Chairman is responsible for
effective
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 Pillars,
Principles and Behaviors.
Refer to “Employees” in the “How we create value for our
stakeholders” section on page 43 and to the foldout pages of
this report for more information about our Pillars, Principles
and Behaviors
In 2019, the Chairman met on a regular basis with core
supervisory authorities in all major regions where UBS is active.
Meetings with important supervisory authorities in other regions
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
Independent Director. If the BoD appoints more than one Vice
Chairman, one of them must be independent. Both the Vice
Chairman and the Senior Independent Director support the
Chairman with regard to his responsibilities and authorities and
provide him with advice. In conjunction with the Chairman and the
Governance and Nominating Committee, they facilitate good
Group-wide corporate governance, as well as balanced leadership
and control within the Group, the Board and the committees.
David Sidwell has been appointed as Vice Chairman and Senior
Independent Director. The Vice Chairman is required to lead and
has led meetings of the BoD in the temporary absence of the
Chairman. Together with the Governance and Nominating
Committee, he is tasked with the ongoing monitoring and the
annual evaluation of the Chairman. Furthermore, he represents
UBS on behalf of the Chairman in meetings with internal or
external stakeholders. The Senior Independent Director enables and
supports communication and the flow of information among the
independent BoD members. At least twice a year, he organizes and
leads a meeting of the independent BoD members without the
participation of the Chairman. In 2019, two independent BoD
meetings were held for UBS Group AG and UBS AG, with an
average participation rate of 77% and an average duration of
approximately 160 minutes. The Senior Independent Director also
relays to the Chairman any issues or concerns raised by the
Important business connections of independent members of
the Board of Directors
As a global financial services provider and a major Swiss bank, we
enter into business relationships with many large companies,
including some in which our BoD members assume management
or
independent board responsibilities. The Governance and
Nominating 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
independent judgment.
Our Organization Regulations require three-quarters of the UBS
Group AG BoD members and one-third of those at UBS AG to be
independent. For this purpose, independence is determined in
the FINMA Circular 2017/1 “Corporate
accordance with
governance – banks” and the NYSE rules.
In 2019, our BoD met the standards of the Organization
Regulations for the percentage of directors that are considered
independent under the criteria described above. Since our
Chairman is employed full-time by UBS Group AG, he is not
considered independent. No other BoD member has a significant
business connection to UBS or any of its subsidiaries.
All relationships and transactions with UBS Group AG’s
independent 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 35 Related parties” in the “Consolidated financial
statements” section on page 467 of this report for more
information
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
Regulations. The BoD decides on the strategy of the Group upon
recommendations by the Group CEO and exercises ultimate
supervision over management, whereas the GEB, headed by the
Group CEO, has executive management responsibility. The
functions of Chairman of the BoD and Group CEO are assigned
to two different people, leading to 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
governed by the Articles of Association and the Organization
Regulations.
220
Skills, expertise and training of the Board of Directors
The BoD is composed of members with a broad spectrum of
skills, educational backgrounds, experience and expertise from a
range of sectors that reflect the nature and scope of the firm’s
business. With a view to recruiting needs, the Governance and
Nominating Committee uses a competencies and experience
matrix as a tool to identify any gaps in the competencies
considered most relevant to the BoD, taking into consideration
risk profile, strategy and
the
geographic reach.
firm’s business exposure,
We asked our BoD members to rate their four key
competencies from the following nine categories and to rate
one of the two categories indicating the experience in a held
senior position:
Key competencies
–
banking (wealth management, asset management, personal
and corporate banking; insurance)
investment banking, capital markets
finance, audit, accounting
risk management
human resources management, including compensation
legal, compliance
technology, cybersecurity
regulatory authority, central bank
environment, social and governance (ESG)
–
–
–
–
–
–
–
–
Leadership experience
–
–
experience as chief executive officer or chairman
executive board leadership experience (e.g., as chief financial
officer, chief risk officer or chief operating officer of a listed
company)
The Governance and Nominating Committee reviews these
categories and ratings annually to confirm that the BoD
continues to possess the most relevant experience and
competencies to perform BoD duties.
For 2019, competencies in all 11 categories were represented
in our BoD. Particularly strong levels of experience and expertise
existed in these areas:
financial services
–
finance, audit, accounting
–
risk management
–
Furthermore, nine of the 12 BoD members have held or
currently hold chairman, CEO or other executive board-level
leadership positions.
Moreover, education remained an important priority for our
BoD members. In addition to a comprehensive induction
program for new BoD members, continuous training and topical
deep dives are part of the BoD agenda.
Refer to “Risk governance” in the “Risk management and
control” section on page 109 of this report for information
about our risk governance framework
Terms of office
Geographic diversity1
Gender
Competencies and experience2
Key competences
0
2
4
6
8
10
4 <3 years
3 3 6 years
4 7 9 years
1 >9 years
–
–
33% Switzerland
17% Europe
33% USA / Canada
17% Asia
67% male
33% female
Banking3
Investment banking, capital markets
Finance, audit, accounting
Risk management
HR management, incl. compensation
Legal, compliance
Technology, cybersecurity
Regulatory authority, central bank
ESG4
Leadership experience
0
2
4
6
8
10
Chief executive officer or chairman
Executive board5
1 In the case of dual-nationals, the domicile applies.
ment, personal and corporate banking; insurance. 4 Environmental, social and governance.
2 The bars represent the main strengths of the BoD, up to a maximum of four key competencies and one leadership experience.
3 Wealth management, asset manage-
5 For example a chief financial officer, chief risk officer or chief operating officer of a listed company.
221
Corporate governance and compensation
Corporate governance and compensation
Corporate governance
Succession planning
Succession planning is one of the key responsibilities of both the
BoD and the GEB. Across all divisions and regions, an inclusive
talent development and succession planning process is in place
that is intended to foster the personal development and Group-
wide mobility of our employees. While the recruiting process for
BoD and GEB members takes into account a broad spectrum of
factors, such as skills, backgrounds, experience and expertise,
our approach with regard to diversity considerations does not
constitute a diversity policy within the meaning of the EU
Directive on Non-Financial Reporting and Swiss law does not
require UBS to maintain such a policy.
The succession plans for the GEB and the management layer
below are managed under the lead of the Group CEO. The BoD
reviews and approves the succession plans of the GEB.
For the BoD, the Chairman leads a systematic succession
planning process as illustrated in the chart below.
Board of Directors’ succession planning process
Strategy / environment
Information and control instruments with regard to the
Group Executive Board
The BoD is kept informed of the activities of the GEB in
various ways,
including regular meetings between the
Chairman, the Group CEO and GEB members. The Group
CEO and other GEB members also participate in BoD
meetings to update its members on all significant issues.
Furthermore, the BoD receives comprehensive reports on a
regular basis, covering financial, capital, funding, liquidity,
regulatory, compliance and legal developments, as well as
performance against plan and forecasts for the remainder of
the year. For important developments, BoD members are also
updated by the GEB in between meetings. In addition, the
Chairman receives the meeting material and minutes of the
GEB meetings.
BoD members may request from other BoD or GEB members
any information about matters concerning the Group that they
require in order to fulfill their duties. When these requests are
raised outside of BoD meetings, such requests must be routed
through the Group Company Secretary and addressed to the
Chairman.
The BoD
is supported
in discharging
its governance
responsibilities by Group Internal Audit (GIA), which assesses the
reliability of financial and operational information and the
effectiveness of processes for compliance with legal, regulatory
and statutory requirements.
The Head GIA reports directly to the Chairman. In addition,
GIA has a functional reporting line to the Audit Committee in
accordance with
in our
Organization Regulations. The Audit Committee monitors and
assesses the effectiveness, independence and performance of
the Head GIA and GIA, approves GIA’s audit plan and objectives
for the year and monitors GIA’s discharge of these objectives.
its responsibilities as set forth
The committee is also in regular contact with the Head GIA.
GIA issues quarterly reports that provide: a broad overview of
significant audit results and key issues; control themes and
trends based on
individual audit results; continuous risk
assessment; and assurance results. The reports are provided to
the Chairman of the BoD, the members of the Audit and the
Risk Committees, the GEB and other stakeholders. Furthermore,
GIA issues an annual activity report providing an assessment of
its activities, processes, audit plan and resourcing requirements
and other important developments affecting GIA. The activity
report is provided to the Chairman of the BoD and to the Audit
Committee, and is an element for their assessment of GIA’s
effectiveness.
Refer to “Group Internal Audit” in this section for more
information
Refer to “Internal risk reporting” in the “Risk management and
control” section on page 115 of this report for information
about reporting to the BoD
Onboarding
Existing board
composition
AGM
election
Search
Selection
tenure of
Our strategy and the business environment constitute the
main drivers in our succession planning process for new BoD
members, as they define the key competencies required on the
BoD. Taking diversity and
the existing BoD
composition into account, the Governance and Nominating
Committee defines the recruiting profile for the search. Both
external and internal sources contribute to identifying suitable
candidates. The Chairman and the members of the Governance
and Nominating Committee meet with potential candidates and,
with the support of the full BoD, nominations are submitted to
the AGM for approval. New BoD members follow an in-depth
onboarding process that is designed to enable them to integrate
efficiently and become effective in their new role. As a result of
this succession planning process, the composition of the BoD is
in line with the demanding requirements of a leading global
financial services firm.
222
Group Executive Board
The Board of Directors (the BoD) delegates the management of
the business to the Group Executive Board (the GEB).
Responsibilities, authorities and organizational principles
of the Group Executive Board
The GEB, under the leadership of the Group CEO, is comprised
of 13 members. It has executive management responsibility for
the steering of the Group and its business and assumes overall
responsibility for developing and implementing the strategies of
the Group, business divisions and Group functions as approved
by the BoD. The GEB is also the risk council of the Group, with
overall responsibility for establishing and supervising the
implementation of risk management and control principles, as
well as for managing the risk profile of the Group, as
determined by the BoD and the Risk Committee.
At UBS AG management of the business is also delegated,
and its Executive Board, under the leadership of its President,
has executive management responsibility for UBS AG and its
business. All members of the GEB are also members of UBS AG’s
Executive Board, with the exception of Axel P. Lehmann, as
President UBS Switzerland AG.
In 2019, the GEB held 29 meetings for UBS Group AG and
for UBS AG. Of these, five were strategy workshops and seven
were supplementary meetings dedicated to risk remediation
oversight. In addition, four standalone Executive Board meetings
were held for UBS AG.
Refer to the Organization Regulations of UBS Group AG,
available at www.ubs.com/governance, for more information
about the authorities of the Group Executive Board
Members of the Group Executive Board
On 29 August 2019, we announced that Suni Harford and Iqbal
Khan were to join the GEB. Suni Harford, former internal Head
Investments in Asset Management, was to succeed Ulrich Körner
as President Asset Management. Iqbal Khan, formerly an
executive board member at Credit Suisse, was to succeed Martin
Blessing as Co-President Global Wealth Management, alongside
Tom Naratil. Martin Blessing and Ulrich Körner stepped down
from the GEB. The biographies of Martin Blessing and Ulrich
Körner can be found on pages 240 and 242 of the UBS Group
AG Annual Report 2018 at www.ubs.com/annualreport. Group
Chief Operating Officer Sabine Keller-Busse was given the
additional role of President UBS Europe, Middle East and Africa.
These changes were effective as per 1 October 2019.
On 19 February 2020, the Board of Directors appointed Ralph
Hamers as the new Group CEO, succeeding Sergio P. Ermotti
effective 1 November 2020. Mr. Hamers will join UBS as a
member of the Group Executive Board on 1 September 2020.
The biographies on the following pages provide information
about the GEB members in office as at 31 December 2019. In
addition to information on mandates, the biographies include
memberships and other activities or functions, as required by the
SIX Swiss Exchange Corporate Governance Directive.
In line with Swiss law, article 36 of UBS Group AG’s Articles
of Association limits the number of mandates that GEB members
may hold outside the UBS Group to one board membership in a
listed company and five additional mandates in non-listed
companies. Mandates in companies that are controlled by UBS
or that control UBS are not subject to this limitation. In addition,
GEB members may not hold more than 10 mandates at a time at
the request of the company and eight mandates in associations,
charitable organizations, foundations, trusts and employee
welfare foundations. On 31 December 2019, no member of the
GEB reached the aforementioned thresholds.
Responsibilities and authorities of the Group Asset and
Liability Committee
in
line with
the Group’s strategy,
The Group Asset and Liability Committee (the 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
regulatory
liabilities
commitments and the interests of shareholders and other
stakeholders. The Group ALCO proposes the framework for
capital management, capital allocation, funding and liquidity
risk, and proposes limits and targets for the Group to the BoD
for approval. It oversees the balance sheet management of the
Group,
its business divisions and Corporate Center. The
Organization Regulations additionally specify which powers of
the GEB are delegated to the Group ALCO. In 2019, the Group
ALCO held 10 meetings for UBS Group AG. At the same time,
10 meetings were held by the Asset and Liability Committee of
UBS AG, a committee responsible for managing UBS AG’s
assets and liabilities in line with the UBS AG and Group
strategy and regulatory requirements.
Management contracts
We have not entered into management contracts with any
companies or natural persons that do not belong to the Group.
223
Corporate governance and compensation
Corporate governance and compensation
Corporate governance
224
Sergio P. Ermotti
Group Chief Executive Officer
Year of initial appointment
UBS: 2011 (UBS Group AG: 2014, UBS AG: 2011)
Year of birth | Nationality
1960 | Swiss
Professional history and education
Sergio P. Ermotti has been Group Chief Executive Officer of UBS Group
AG since 2014, having held the same position at UBS AG since 2011.
Mr. Ermotti became a member of the GEB in 2011 and was Chairman
and CEO of UBS Group Europe, Middle East and Africa before taking
over as Group CEO. From 2007 to 2010, he was Group Deputy Chief
Executive Officer at UniCredit, and was responsible for the strategic
business areas of Corporate and Investment Banking, and Private
Banking. He joined UniCredit in 2005 as Head of the Markets &
Investment Banking Division. His career began at Merrill Lynch in 1987,
where he held various positions within equity derivatives and capital
markets until 2003. In his last two years there, he served as Co-Head of
Global Equity Markets and as a member of the Executive Management
Committee for Global Markets & Investment Banking. Mr. Ermotti is a
Swiss-certified banking expert and is a graduate of the Advanced
Management Program at Oxford University.
Other activities and functions
– Member of the Board of UBS Switzerland AG
– Chairman of the Board of UBS Optimus Foundation
– Chairman of the Fondazione Ermotti, Lugano
– Member of the Board of the Swiss-American Chamber of Commerce
– Member of the Board of the Global Apprenticeship Network
– Member of the Institut International d’Etudes Bancaires
– Member of the Saïd Business School Global Leadership Council,
University of Oxford
Christian Bluhm
Group Chief Risk Officer
Year of initial appointment
UBS: 2016
Year of birth | Nationality
1969 | German
Markus U. Diethelm
Group General Counsel
Year of initial appointment
UBS: 2008 (UBS Group AG: 2014, UBS AG: 2008)
Year of birth | Nationality
1957 | Swiss
responsible
Professional history and education
Christian Bluhm became a member of the GEB and was appointed
Group Chief Risk Officer of UBS Group AG and UBS AG in 2016. He
joined UBS from FMS Wertmanagement, where he had been Chief Risk
& Financial Officer since 2010 and Spokesman of the Executive Board
from 2012 to 2015. From 2004 to 2009, he worked for Credit Suisse,
where he was Managing Director
for Credit Risk
Management in Switzerland and Private Banking worldwide. Mr. Bluhm
was Head of Credit Portfolio Management until 2008 and then Head of
Credit Risk Management Analytics & Instruments after the financial crisis
in 2008. From 2001 to 2004, he worked for Hypovereinsbank in Munich
in Group Credit Portfolio Management, heading a team that specialized
in Structured Finance Analytics. Before starting his banking career with
Deutsche Bank in Credit Risk Management in 1999, he worked as a
postdoctoral fellow at Cornell University and as a scientific assistant at
the University of Greifswald. Mr. Bluhm holds a degree in mathematics
and informatics from the University of Erlangen-Nuremberg and received
his PhD in mathematics from the same university in 1996.
Professional history and education
Markus U. Diethelm has been Group General Counsel of UBS Group AG
since 2014, having held the same position at UBS AG since 2008, when
he became a member of the GEB. He was a member of the Executive
Board of UBS Business Solutions AG from 2015 to 2016. From 1998 to
2008, he served as Group Chief Legal Officer at Swiss Re, and he was
appointed to that company’s Group Executive Board in 2007. Prior to
that, he was with Los Angeles-based law firm Gibson, Dunn & Crutcher
and focused on corporate matters, securities transactions, litigation and
regulatory investigations while working out of the firm’s Brussels and
Paris offices. From 1989 to 1992, he practiced at Shearman & Sterling in
New York, specializing in mergers and acquisitions. In 1988, he worked
at Paul, Weiss, Rifkind, Wharton & Garrison in New York. After starting
his career in 1983 with Bär & Karrer, he served as a law clerk at Uster
District Court in Switzerland from 1984 to 1985. Mr. Diethelm holds a
law degree from the University of Zurich and a master’s degree and a
PhD from Stanford Law School. He is a qualified attorney-at-law
admitted to the bar in Zurich, Geneva and in New York State.
Other activities and functions
–
–
Member of the Board of UBS Switzerland AG
Chairman of the Foundation Board – International Financial Risk
Institute
Other activities and functions
–
Chairman of the Swiss-American Chamber of Commerce’s legal
committee
Chairman 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 Supervisory Board of the Fonds de Dotation LUMA /
Arles
–
–
–
225
Corporate governance and compensation
Corporate governance and compensation
Corporate governance
Kirt Gardner
Suni Harford
Group Chief Financial Officer
President Asset Management
Year of initial appointment
UBS: 2016
Year of birth | Nationality
1959 | American (US)
Year of initial appointment
UBS: 2019
Year of birth | Nationality
1962 | American (US)
Professional history and education
Kirt Gardner became a member of the GEB and was appointed Group
Chief Financial Officer of UBS Group AG and UBS AG in 2016. He was
CFO Wealth Management from 2013 to 2015. Prior to that, he held a
number 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 Strategy for the Corporate and Institutional
Division from 2006 to 2010 and Head of Global Strategy and Cost
Management for the Consumer Bank from 2004 to 2006. Prior to that,
Mr. Gardner held the position of Global Head of Financial Services
Strategy for BearingPoint, for which he worked in Asia and New York for
four years. From 1994 to 2000, he was Managing Director at Barents
Group, working in the US, Asia, Latin America and Europe. Mr. Gardner
holds a bachelor’s degree in economics from Williams College, a
master’s degree from the University of Pennsylvania and an MBA in
finance from Wharton School.
Other activities and functions
– Member of the Board of UBS Business Solutions AG
Professional history and education
Suni Harford became a member of the GEB and was appointed President
Asset Management of UBS Group AG and UBS AG in October 2019. She
has been with UBS since 2017 and joined as Group Managing Director
and Head Investments in the Asset Management business division.
Before joining UBS, Ms. Harford worked for almost 25 years at Citigroup
Inc. in various senior management positions: she was Regional Head of
Markets for North America from 2008 to 2017, with responsibility for
income,
sales, trading, origination and research across all fixed
currencies, commodities, equities and municipal businesses. She was also
a member of Citi’s Pension Plan Investment Committee and a Director
on the Board of Citibank Canada. From 2004 to 2008, Ms. Harford was
Global Head of Fixed Income Research and, from 1995 to 2004, Co-
Head Debt Capital Markets, Origination, Financial Institutions Group. She
started her career as an investment banker at Merrill Lynch & Co in
1988. Ms. Harford holds an MBA from Tuck School of Business at
Dartmouth and a bachelor’s degree in physics and mathematics from
Denison University, Ohio.
Other activities and functions
– Chairman of the Board of Directors of UBS Asset Management AG
– Member of the Leadership Council of the Bob Woodruff Foundation
– Member of the Board of UBS Optimus Foundation
226
Robert Karofsky
Co-President Investment Bank
Year of initial appointment
UBS: 2018
Year of birth | Nationality
1967 | American (US)
Professional history and education
Robert Karofsky is Co-President Investment Bank at UBS Group AG and
UBS AG and became a member of the GEB in October 2018. He joined
UBS in 2014 as Global Head Equities and has been President UBS
Securities LLC since 2015. From 2011 to 2014, he was Global Head of
Equity Trading at AllianceBernstein. He began his career at Morgan
Stanley in 1994 and joined Deutsche Bank as Head of North American
Equities in 2005, later taking over as Co-Head of Global Equities from
2008 to 2010. Mr. Karofsky holds a bachelor’s degree in economics
from Hobart and William Smith Colleges and an MBA in finance and
statistics from the University of Chicago’s Booth School of Business.
Other activities and functions
–
–
Member of the Board of UBS Securities LLC
Trustee of the UBS Americas Inc. Political Action Committee
Sabine Keller-Busse
Group Chief Operating Officer and
President UBS Europe, Middle East and Africa
Year of initial appointment
UBS: 2016
Year of birth | Nationality
1965 | Swiss and German
Professional history and education
Sabine Keller-Busse was appointed Group Chief Operating Officer of
UBS Group AG and UBS AG as well as President of the Executive Board
of UBS Business Solutions AG in 2018. In addition, she was appointed
President UBS Europe, Middle East and Africa in October 2019. She was
Group Head Human Resources from 2014 to 2017. Ms. Keller-Busse
became a member of the GEB in 2016. Having joined UBS in 2010, she
served as Chief Operating Officer UBS Switzerland until 2014. Prior to
that, she led Credit Suisse’s Private Clients Region Zurich division for two
years. From 1995 to 2008, she worked for McKinsey & Company, where
she was a Partner from 2002. Ms. Keller-Busse holds a PhD and a
master’s degree, both in business administration, from the University of
St. Gallen.
Other activities and functions
–
–
–
Member of the Supervisory Board of UBS Europe SE
Member of the Board of UBS Business Solutions AG
Vice-Chairman of the Board of Directors of SIX Group (Chairman of
the nomination & compensation committee)
Member of the Foundation Board of the UBS Pension Fund
Member of the Board of the University Hospital Zurich Foundation
–
–
227
Corporate governance and compensation
Corporate governance and compensation
Corporate governance
Iqbal Khan
Edmund Koh
Co-President Global Wealth Management
President UBS Asia Pacific
Year of initial appointment
UBS: 2019
Year of birth | Nationality
1976 | Swiss
Year of initial appointment
UBS: 2019
Year of birth | Nationality
1960 | Singaporean
Professional history and education
Iqbal Khan became a member of the GEB and was appointed Co-
President Global Wealth Management of UBS Group AG and UBS AG in
October 2019. Mr. Khan joined UBS from Credit Suisse, where he was
CEO International Wealth Management from 2015 to 2019 and CFO
Private Banking & Wealth Management from 2013 to 2015. Prior to
that, he worked for Ernst & Young (EY), Switzerland, which he joined in
2001. At EY he was Managing Partner Assurance and Advisory Services –
Financial Services, as well as being a member of the Swiss management
committee from 2011 to 2013. Before that, from 2009 to 2011, he held
the position of Industry Lead Partner Banking and Capital Markets,
Switzerland and EMEA Private Banking. Mr. Khan holds an Advanced
Master of International Business Law degree (LLM) from the University of
Zurich. In addition, he is a Certified International Investment Analyst, a
Swiss Certified Public Accountant and a Swiss Certified Trustee.
Professional history and education
Edmund Koh became a member of the GEB and was appointed
President UBS Asia Pacific at UBS Group AG and UBS AG in January
2019. He was Head Wealth Management Asia Pacific from 2016 to
2018 and Country Head Singapore from 2012 to 2018. Mr. Koh has
more than 30 years’ experience in senior roles in financial services. He
joined UBS in 2012 as Head Wealth Management South East Asia and
Asia Pacific Hub and Country Head Singapore from Taiwan-based Ta
Chong Bank, where he served as President and Director from 2008 to
2011. From 2001 to 2008, Mr. Koh was Managing Director and
Regional Head Consumer Banking of DBS Bank in Singapore. In 2001,
he became CEO of Alverdine Pte Ltd and two years earlier he held the
same position for Prudential Assurance, both companies based in
Singapore. Mr. Koh holds a bachelor of science degree in psychology
from the University of Toronto.
Other activities and functions
– Member of the Board of Room to Read Switzerland
Other activities and functions
– Member of the Wealth Management Institute at Nanyang
Technological University, Singapore
– Member of the Singapore Ministry of Finance’s Committee on the
Future Economy Sub-Committee
– Member of the Financial Centre Advisory Panel
– Member of the Board of Next50 Limited
– Trustee of the Cultural Matching Fund
– Member of the Board of Medico Suites (S) Pte Ltd
– Member of the Board of Medico Republic (S) Pte Ltd
– Council member of the Asian Bureau of Finance and Economic
Research
228
Axel P. Lehmann
Tom Naratil
President Personal & Corporate Banking and President UBS Switzerland
Co-President Global Wealth Management and President UBS Americas
Year of initial appointment
UBS: 2016 (UBS Group AG: 2016, UBS AG: 2016-2017)
Year of initial appointment
UBS: 2011 (UBS Group AG: 2014, UBS AG: 2011)
Year of birth | Nationality
1959 | Swiss
Year of birth | Nationality
1961 | American (US)
Professional history and education
Axel P. Lehmann was appointed President Personal & Corporate Banking
at UBS Group AG and President UBS Switzerland in 2018, in addition to
taking over as President of the Executive Board of UBS Switzerland AG.
He became a member of the GEB and was appointed Group Chief
Operating Officer of UBS Group AG and UBS AG in 2016. He was a
member of the BoD of UBS AG from 2009 to 2015 and of UBS Group
AG from 2014 to 2015. Mr. Lehmann became a member of the group
executive committee of Zurich Insurance Group in 2002, holding various
management positions, including CEO for the European and North
America businesses. From 2008 to 2015, he was Chief Risk Officer with
additional responsibilities for Group IT, Regional Chairman for Europe,
Middle East and Africa as well 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 Management Board since 2000 with responsibility for
group-wide business development functions. In 1996, he joined Zurich
as a member of the Executive Committee Switzerland, and previously, he
was Head of Corporate Planning and Controlling at SwissLife, Vice
President of the Institute of Insurance Economics and a visiting professor
at Bocconi University in Milan. Mr. Lehmann holds a PhD and a master’s
degree in business administration and economics from the University of
St. Gallen. He is also a graduate of the Advanced Management Program
of the Wharton School.
Other activities and functions
–
Co-Chair of the Global Future Council on Financial and Monetary
Systems of WEF
Adjunct professor and Chairman of the Board of the Institute of
Insurance Economics at the University of St. Gallen
Member of the HSG Advisory Board of the University of St. Gallen
Vice Chairman of the Swiss Finance Institute Foundation Board
Member of the IMD Foundation Board, Lausanne
Member of the Board and Board Committee, Zurich Chamber of
Commerce
Member of the Swiss-American Chamber of Commerce Chapter
Doing Business in USA
–
–
–
–
–
–
Professional history and education
Tom Naratil became Co-President Global Wealth Management at UBS
Group AG and UBS AG as well as CEO of UBS Americas Holding LLC in
2018. He was appointed President UBS Americas at UBS Group AG and
UBS AG in 2016 and served as President Wealth Management Americas
from 2016 to 2018. He became a member of the GEB in 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.
Mr. Naratil was President of the Executive Board of UBS Business
Solutions AG from 2015 to March 2016. He served as CFO and Chief
Risk Officer of Wealth Management Americas from 2009 until his
appointment as Group CFO in 2011. Before 2009, he held various senior
management positions within UBS, including heading the Auction Rate
Securities Solutions Group during the financial crisis in 2008. Mr. Naratil
was named Global Head of Marketing, Segment & Client Development
in 2007, Global Head of Market Strategy & Development in 2005, and
Director of Banking and Transactional Solutions, Wealth Management
USA, in 2002. During this time, he was a member of the Group
Managing Board. He joined Paine Webber Incorporated in 1983 and
after the merger with UBS became Director of the Investment Products
Group. Mr. Naratil holds an MBA in economics from New York University
and a bachelor’s degree in history from Yale University.
Other activities and functions
–
–
–
Member of the Board of UBS Americas Holding LLC
Member of the Board of the American Swiss Foundation
Member of the Board of Consultors for the College of Nursing at
Villanova University
229
Corporate governance and compensation
Corporate governance and compensation
Corporate governance
Piero Novelli
Markus Ronner
Co-President Investment Bank
Group Chief Compliance and Governance Officer
Year of initial appointment
UBS: 2018
Year of birth | Nationality
1965 | Italian
Year of initial appointment
UBS: 2018
Year of birth | Nationality
1965 | Swiss
Professional history and education
Piero Novelli is Co-President Investment Bank at UBS Group AG and UBS
AG and became a member of the GEB in October 2018. He was
appointed Co-Executive Chairman Global Investment Banking, Corporate
Client Solutions in 2017 and in 2016 became sole Global Head Advisory
Services including Global Mergers and Acquisitions (M&A). Mr. Novelli
rejoined UBS in 2013 as Chairman Global M&A and Group Managing
Director. From 2011 to 2012, he was Global Co-Head of M&A at
Nomura, having worked as Global Head M&A at UBS between 2004 and
2009. Before that he worked for Merrill Lynch and held the position of
Head of European M&A and Head of European Industrials. Mr. Novelli
holds a master‘s degree in management from the MIT Sloan School of
Management and a master’s degree in mechanical engineering from
Università degli Studi di Roma.
Professional history and education
Markus Ronner is Group Chief Compliance and Governance Officer at
UBS Group AG and UBS AG and became a member of the GEB in
November 2018. In this role, he is responsible at the Group level for
compliance and operational risk control, governmental and regulatory
affairs as well as investigations and governance matters. He became
Head Group Regulatory and Governance in 2012. During his 38 years
with UBS, Mr. Ronner has held various positions across the bank,
including: Group-wide program manager “too big to fail” (2011–2013);
Chief Operating Officer (COO) Wealth Management & Swiss Bank
(2010–2011); Head Products and Services of Wealth Management &
Swiss Bank (2009–2010); COO Asset Management (2007–2009); and
Head Group Internal Audit (2001–2007). Mr. Ronner joined the firm as
an apprentice in 1981 and holds a Swiss Banking Diploma.
Other activities and functions
None
Other activities and functions
None
230
Change of control and defense measures
Our Articles of Association do not provide any measures for
delaying, deferring or preventing a change of control.
Clauses on change of control
Duty to make an offer
Pursuant to the Swiss Financial Market Infrastructure Act, an
investor who has acquired more than 331⁄3% of all voting
rights of a company listed in Switzerland (whether directly,
indirectly or in concert with third parties), whether such
rights are exercisable 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.
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 employment benefits and may be eligible to be
considered for a discretionary performance award based on their
contribution during their tenure.
In case of a change of control, we may, at our discretion,
accelerate the vesting of and/or relax applicable forfeiture
provisions of employees’ awards.
Refer to the “Compensation” section of this report on page 236
for more information
231
Corporate governance and compensation
Corporate governance and compensation
Corporate governance
Auditors
Audit is an integral part of corporate governance. While
safeguarding their independence, the external auditors closely
coordinate their work with Group Internal Audit. The Audit
Committee and, ultimately, the Board of Directors (BoD)
supervise the effectiveness of audit work.
Refer to “Board of Directors” in this section for more
information about the Audit Committee
based on interviews with senior management as well as survey
feedback from stakeholders across the Group. Assessment
criteria
include quality of service delivery, quality and
competence of the audit team, value added as part of the audit,
insightfulness and the overall relationship with EY. Based on its
own analysis and the assessment results, the Audit Committee
concluded that EY’s audit has been effective.
External independent auditors
The Annual General Meeting (the AGM) in 2019 re-elected Ernst
& Young Ltd (EY) as auditors for the Group for a one-year term
of office. EY assumes virtually all auditing functions according to
laws, regulatory requests and the Articles of Association. The EY
lead partner in charge of the Group financial audit since 2015
has been Marie-Laure Delarue. Due to a five-year rotation
requirement, she will be succeeded in 2020 by Bob Jacob. Since
2016, Ira S. Fitlin has been the co-signing partner for the
financial statement audit, with an incumbency limit of seven
years. Patrick Schwaller has been the Lead Auditor to the Swiss
Financial Market Supervisory Authority (FINMA) since 2015, with
an incumbency limited to six years because of prior audit service
to the Group in another role. Daniel Martin has been the co-
signing partner for the FINMA audit since 2019, with an
incumbency limit of seven years.
During 2019, the Audit Committee held eight meetings and
three calls with the external auditors. The Audit Committee
assesses the performance, effectiveness and independence of
the external auditors on an annual basis. The assessment is
Fees paid to external independent auditors
Special auditors for potential capital increases
At the AGM on 3 May 2018, BDO AG was reappointed as
special auditors for a three-year term of office. Special auditors
provide audit opinions in connection with potential capital
increases independently from other auditors.
Fees paid to external independent auditors
The fees (including expenses) paid to EY are set forth in the table
below. In addition, EY received USD 30.2 million in 2019
(USD 30.3 million in 2018) 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
regulatory audits,
attestation services and the review of documents to be filed with
regulatory bodies. The additional services classified as audit in
2019 included several engagements for which EY was mandated
at the request of FINMA.
include statutory and
UBS Group AG and its subsidiaries (including UBS AG) paid the following fees (including expenses) to its external independent
auditors.
USD 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 audit1
Total audit1
Non-audit
Audit-related fees
of which: assurance and attestation services
of which: control and performance reports
of which: consultation concerning financial accounting and reporting standards
Tax fees
31.12.19
31.12.19
31.12.18
52,448
52,448
12,808
12,808
65,255
65,255
8,722
8,722
4,155
4,155
4,314
4,314
253
253
1,966
1,966
54,716
16,595
71,310
8,711
5,390
3,261
60
1,212
All other fees
Total non-audit1
Total non-audit1
1 Total audit and non-audit fees amounted to USD 78,234 thousand for UBS Group AG consolidated as of 31 December 2019 (31 December 2018: USD 81,770 thousand), of which USD 51,926 thousand related to
1
UBS AG consolidated (31 December 2018: USD 56,493 thousand).
10,459
12,978
12,978
2,291
2,291
536
232
Audit-related work comprises assurance and related services
that are traditionally performed by the auditor, such as
attestation services related to financial reporting, internal control
reviews and performance standard
reviews, as well as
consultation concerning financial accounting and reporting
standards.
Tax work involves services performed by professional staff in
includes tax compliance and tax
EY’s tax division and
consultation with respect to our own affairs.
“Other” services are permitted services, which
include
technical IT security control reviews and assessments.
Preapproval procedures
To ensure EY’s independence, all services provided by EY have to
be preapproved by the Audit Committee. A preapproval may be
granted either for a specific mandate or in the form of a blanket
preapproval authorizing a limited and well-defined type and
amount of services.
The Audit Committee has delegated preapproval authority to
its Chairperson. The Group Chief Financial Officer and the
Group Controller and Chief Accounting Officer submit all
proposals for services by EY to the Chairperson of the Audit
Committee for approval, unless there is an agreed preapproval
in place. At each quarterly meeting, the Audit Committee is
informed of the approvals granted by its Chairperson and of
services authorized under blanket preapprovals.
Group Internal Audit
Group Internal Audit (GIA) performs the internal auditing
function for the Group, and in 2019 operated with an average
headcount of 539 full-time equivalent employees. It is an
independent and objective function that supports the Group in
achieving its strategic, operational, financial and compliance
objectives, and
its governance
responsibilities.
in discharging
the BoD
To support the achievement of UBS’s objectives, GIA
independently, objectively and systematically assesses the:
(i)
(ii)
soundness of the Group’s risk and control culture;
reliability and
financial and operational
information, including whether activities are properly,
accurately and completely recorded, and the quality of
underlying data and models; and
integrity of
(iii) design, operating effectiveness and sustainability of:
–
–
–
–
–
–
including whether
processes to define strategy and risk appetite, as well as
the overall adherence to the approved strategy;
governance processes;
risk management,
appropriately identified and managed;
internal controls,
commensurate with the risks taken;
remediation activities; and
processes
requirements,
internal policies, and
constitutional documents and contracts.
regulatory
the Group's
specifically whether
to comply with
legal and
risks are
they are
Audit reports that include significant issues are provided to
the Group CEO, relevant GEB members and other responsible
management. The Chairman, the Audit Committee and the Risk
Committee of the BoD are also regularly informed of such
issues.
In addition, GIA reviews whether issues with moderate to
significant impact have been successfully remediated. This
responsibility applies to issues identified by all sources: business
management (first line of defense), control functions (second
line of defense), GIA (third line of defense), external auditors and
regulators. GIA also cooperates closely with risk control
functions and
legal advisors on
investigations into major control issues.
internal and external
To maximize GIA’s independence from management, the
Head GIA reports to the Chairman of the BoD and to the Audit
Committee, which assesses annually whether GIA has sufficient
resources to perform its function, as well as its independence
and performance. In the Audit Committee’s assessment, GIA is
sufficiently resourced to fulfill its mandate and complete its
auditing objectives. GIA’s role, position, responsibilities and
accountability are set out in our Organization Regulations and
the Charter
Internal Audit, published at
www.ubs.com/governance. The latter also applies to UBS AG’s
internal audit function. GIA has unrestricted access to all
accounts, books, records, systems, property and personnel, and
must be provided with all information and data that it needs to
fulfill its auditing responsibilities. GIA also conducts special
audits at the request of the Audit Committee, or other BoD
members, committees or the Group CEO in consultation with
the Audit Committee.
for Group
GIA enhances the efficiency of its work through coordination
and close cooperation with the external auditors.
233
Corporate governance and compensation
Corporate governance and compensation
Corporate governance
Information policy
We provide regular information to our shareholders and to the
financial community.
Financial disclosure principles
Financial reports for UBS Group AG are expected to be
published on the following dates:
First quarter 2020
Second quarter 2020
Third quarter 2020
28 April 2020
21 July 2020
20 October 2020
The Annual General Meetings of shareholders of UBS
Group AG will take place on the following dates:
2020
2021
29 April 2020
28 April 2021
We fully support transparency, and consistent and informative
disclosure. We aim to communicate our strategy and results in a
manner that allows stakeholders to gain a good understanding
of how our Group works, what our growth prospects are, and
the risks that 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
reporting periods;
– simplicity that allows readers to gain a good understanding of
Refer to the corporate calendar at www.ubs.com/investors for
the performance of our businesses;
– relevance by focusing not only on what is required by
regulation or statute but also on what is relevant to our
stakeholders; and
– best practice that leads to improved standards.
Consistent with our financial reporting and disclosure
principles, we continue to benchmark disclosures in our financial
reports against recommendations issued by the Financial Stability
Board’s Enhanced Disclosure Task Force in 2012. We regard the
improvement of our disclosures as an ongoing commitment.
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 appropriate, investor meetings are hosted
by senior management and are attended by members of our
Investor Relations team. We use various technologies, such as
webcasting, audio links and cross-location videoconferencing, to
widen our audience and maintain contact with shareholders
globally.
We make our publications available to all shareholders
simultaneously to provide them with equal access to our
financial information.
Shareholders can download all our financial publications at
www.ubs.com/investors. Shareholders may opt to receive a
printed copy of our annual report or our annual review, which
reflects on specific initiatives and achievements of the Group
and provides an overview of the Group’s activities during the
year, as well as key financial information.
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 on page 507 of this
report for more information
Refer to “Corporate information” and “Contacts” in the
introductory part of this report for more information
234
Financial reporting policies
We report our Group’s results for each financial quarter,
including a breakdown of results by business division and
disclosures or key developments relating to risk management
and control, capital, liquidity and funding management. Each
quarter, we publish quarterly financial reports for UBS Group
AG, on the same day as the earnings releases.
The consolidated financial statements of UBS Group AG and
UBS AG 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 on page 311 of
this report for more information about the basis of accounting
We are committed to maintaining the transparency of our
reported results and to allowing analysts and investors to make
meaningful comparisons with prior periods. If there is a major
reorganization of our business divisions or if changes to
accounting standards or interpretations lead to a material
change in the Group’s reported results, our results are restated
for previous periods as required by applicable accounting
standards. These restatements 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
information, including certain financial reports, with the US
Securities and Exchange Commission (the 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
management, including the Group CEO, the Group CFO and the
Group Controller and Chief Accounting Officer, of the
effectiveness 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 the
Group CFO concluded that our disclosure controls and
procedures were effective as of 31 December 2019. 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 on
page 300 of this report for more information
235
Corporate governance and compensation
Compensation
Julie G. Richardson
Chair of the
Compensation Committee
of the Board of Directors
Dear Shareholders,
The Board of Directors and I wish to thank you for your
support once again at last year’s Annual General Meeting
(AGM) and for sharing your views on our compensation
practices over the past year.
Throughout 2019, the BoD Compensation Committee continued
to oversee compensation and ensure that reward reflects
the
performance, appropriate
alignment of employee interests with those of our shareholders.
As the new Chair of the Compensation Committee, I am pleased
to present our Compensation Report for 2019.
risk-taking and
supports
Shareholder engagement
including
Over the course of 2019, we continued proactively engaging
with shareholders and considered the feedback we received at
the 2019 AGM. While shareholders value the consistency of our
long delivery of our deferred
approach
compensation over five years, the feedback also highlighted
opportunities to further evolve our approach. Our revised
compensation framework supports us in achieving our ambitions
for the Group and greater alignment with shareholders’
interests.
the
We conducted a holistic review of all elements of our
compensation framework for our employees, most senior
leaders including the Group Executive Board (the GEB), the
Chairman and independent Board members. We heard feedback
requesting stronger alignment and we have taken that feedback
seriously. While we have maintained the most important
elements of our compensation framework, our review has led to
some significant changes, as summarized in the table below and
further detailed throughout this report.
Key changes to our compensation framework and related disclosures
–
–
–
–
–
–
–
–
–
Effective for the performance year 2019, we replaced the Equity Ownership Plan (the EOP) with the new equity-based Long-Term Incentive Plan (the LTIP)
new equity-based Long-Term Incentive Plan (the LTIP)
for our most senior leaders (i.e., Group Executive Board (GEB) members, Group Managing Directors (GMDs) and Group or Divisional Vice Chair role
holders). This supports the alignment of compensation with the execution of our strategy, financial performance and long-term growth.
The LTIP features an absolute and a relative performance condition based on reported return on CET1 capital (RoCET1) and relative total shareholder
reported return on CET1 capital (RoCET1) and relative total shareholder
return (rTSR) metrics, creating a strong sensitivity of realized compensation to UBS’s financial performance and share price, and supports alignment with
return (rTSR) metrics
shareholders.
Achieving the maximum payout under the LTIP requires both a three-year average RoCET1 of 18% and, over a three-year period, for our TSR to
outperform the peer index by 25 percentage points.
The use of reported RoCET1 as a performance metric supports the focus on ensuring the cost of litigation matters has a direct impact on the
compensation awarded and realized by our most senior leaders.
For the Group CEO and certain other GEB members, the vesting of a portion (30%) of the 2019 LTIP award is, in addition to RoCET1 and rTSR
performance conditions, directly linked to the final resolution of the French cross-border matter. This portion is entirely at risk and subject to forfeiture
based on the final cost associated with the resolution of the matter. The same vesting condition also applies to a portion of the Chairman’s 2019 share
award.
directly linked to the final resolution of the French cross-border matter
a portion (30%) of the 2019 LTIP
This is consistent with our approach to align the interests of management with those of shareholders to resolve this matter in the best interests of all
shareholders, even though the underlying issue is a legacy matter.
align the interests of management with those of shareholders
Reflecting our holistic review, we have made a number of adjustments that also contribute toward our cost reduction efforts; starting with the current
period from the 2019 AGM to the 2020 AGM, the Chairman’s fixed compensation was reduced by 14%.
the Chairman’s fixed compensation was reduced by 14%
In the same spirit, and effective from the 2020 AGM onward, the BoD will reduce fees for all its members and eliminate the share price discount.
.
BoD will reduce fees for all its members
The adjustments in Board fees reflect our commitment to sustainable results while maintaining competitive fee levels aligned with the demands on our
Board members.
commitment to sustainable results while maintaining competitive fee levels
– We have enhanced the transparency of the major elements of the performance assessment for the Group CEO.
enhanced the transparency
–
The disclosure brings further clarity on the overall achievement, weighting and the scale of the assessment.
further clarity on the overall achievement, weighting and the scale of the assessment
Introduction of the
Introduction of the
Long-Term Incentive
Long-Term Incentive
Plan
Plan
Additional vesting
Additional vesting
condition in connection
condition in connection
with the resolution of
with the resolution of
the French cross-border
the French cross-border
matter
matter
Rebalancing of fees for
Rebalancing of fees for
members of the Board
members of the Board
of Directors
of Directors
Enhanced disclosure for
Enhanced disclosure for
CEO performance
CEO performance
assessment
assessment
Cornerstones of our compensation framework
Consistent approach to
Consistent approach to
key elements has been
key elements has been
maintained
maintained
–
–
–
–
–
Strong alignment between compensation and rriisskk aaddjjuusstteedd ffiinnaanncciiaall ppeerrffoorrmmaannccee
-
-
Consideration of bbeehhaavviioorrss aanndd ccoonndduucctt in performance assessment and compensation
High mandatory deferral rates into UUBBSS sshhaarreess and UBS ccoonnttiinnggeenntt ccaappiittaall
LLoonngg ddeeffeerrrraall ppeerriiooddss over five years
FFoorrffeeiittuurree aanndd ccllaawwbbaacckk provisions
236
Advisory vote
2019 financial highlights and performance award pool
2019 compensation philosophy and framework
In 2019, we delivered solid financial results in mixed market
conditions, demonstrating the strength of our business model.
Reported profit before tax was USD 5.6 billion, a decrease of
7% compared with 2018, while adjusted profit before tax
decreased slightly to USD 6.0 billion. We maintained our
strong capital position with a common equity tier 1 (CET1)
capital ratio of 13.7% and a CET1 leverage ratio of 3.9% at
year-end, both above our capital guidance. Reported return on
CET1 capital was 12.4%. For 2019, the BoD intends to
propose a dividend of USD 0.73 per share and we repurchased
USD 806 million (CHF 800 million) of UBS shares over the
course of the year.
In 2019, interest rate headwinds intensified, global growth
slowed and geopolitical concerns persisted, impacting the overall
Group results and, consequently, the Group performance award
pool. In determining the final pool and consistent with prior
years, we have considered a range of factors. These include risk-
adjusted profit, returns and capital strength, as well as relative
performance, progress on ESG, regulatory and litigation matters,
including the impact of the French cross-border matter on the
firm and the resulting share price development. The year-on-year
development of the performance award pool reflected a
reduction beyond that implied by underlying performance.
Based on these considerations, the performance award pool for
the Group decreased 14% to USD 2.7 billion (compared with
USD 3.1 billion in the prior year). This decrease demonstrates our
disciplined approach in managing compensation over business
cycles and alignment to shareholder interests, and we believe
without significantly impacting our competitive pay position.
The GEB performance award pool, which includes the Group
CEO performance award and is part of the Group pool, was
CHF 70.3 million, a reduction of 14% on a per capita basis and
4% overall. As a percentage of adjusted Group profit before tax,
the GEB performance award pool was 1.2%, well below the cap
of 2.5%. The overall pool also reflects the changes in the
composition of the GEB, including new GEB members and the
elevation of certain roles to the GEB that were previously not
included, and therefore the adjustments do not reflect a
meaningful change in the total cost to shareholders. These
changes were made to optimize our governance structure and
execute on our strategic priorities.
Our compensation philosophy and framework support the
alignment of employee interests with those of our shareholders
and clients. The consistency of our approach reinforces our
culture of sustainable performance, while also supporting our
growth ambitions, sound governance, accountability and
appropriate risk-taking. The recognition of behaviors and culture
is an important element of our framework. To reinforce the
behaviors framework established by the BoD and the GEB, we
reward not only what was achieved, but also how those results
were achieved. We reward doing the right thing, collaborating
across the bank and speaking up to identify opportunities and
risks. We penalize instances of behavior that do not reflect our
values.
Variable compensation is earned over the performance year and
many employees have a significant portion of their annual
performance award deferred. We believe UBS has one of the
most rigorous deferral regimes in the industry, with a deferral
period of up to five years, or longer for certain regulated
employees. This long deferral period, in conjunction with our
(DCCP) awards, has been a
deferred contingent capital
cornerstone of our compensation framework to support
sustainability. Since 2012, our most senior leaders have received
50% of their performance award in equity, linking a significant
portion of compensation to the UBS share price. We have
enhanced this feature by adding a connection to rTSR in the
new LTIP.
Litigation and regulatory matters, and their resolution and
remediation, are taken into consideration in the compensation
decision-making process. Share price movements affect all
employees receiving deferred equity-based awards. With
respect to the performance conditions on LTIP awards,
provisions for legal, regulatory and similar matters will directly
affect the reported RoCET1 metric and thus also the final
vesting amount. This metric accounts for 50% of the final
payout under the 2019 LTIP. The use of reported RoCET1 as a
performance metric supports the focus on ensuring the cost of
litigation matters has a direct effect on the compensation
awarded to and realized by our most senior leaders, including
the GEB.
237
Advisory voteCorporate governance and compensation
For 2019, to further enhance alignment with shareholders on
the French cross-border matter, we have also introduced a new
additional vesting condition for the Chairman, the Group CEO
and certain other GEB members, which links a portion of their
2019 equity compensation to the final resolution of the French
cross-border matter. This underlines their accountability for the
successful resolution of the matter in the best interest of
shareholders even though the underlying issue is a legacy
matter.
Board fees and Chairman compensation
In our review of the remuneration framework for independent
Board members, we concluded that our fundamental approach
remains appropriate. However, effective from the 2020 AGM
onward, a number of adjustments will be made to reduce the
level of the Board’s compensation while still maintaining
competitive fee levels.
The Chairman’s fixed compensation has been reduced by
CHF 0.8 million, or 14%, to CHF 4.9 million. This change is
already effective for the current period from the 2019 AGM to
the 2020 AGM. As noted above, a portion of the Chairman’s
2019 share award remains entirely at risk due to a new vesting
condition linked to the final resolution of the French cross-
border matter. This further demonstrates the Chairman’s
alignment with
this matter and his
accountability to resolve this matter in the best interest of
shareholders.
shareholders on
In the same spirit, the BoD will reduce their base fee and
eliminate their share price discount, resulting in a total fee
reduction of approximately 14% (depending on committee
memberships) and a 10% reduction in our proposed maximum
amount of compensation for the BoD.
Environmental, Social and Governance (ESG)
We are fully committed to ESG topics and reflect them in our
compensation processes. ESG-related objectives have been
in our Pillars and Principles since they were
embedded
established in 2011. Our contribution to supporting the planet,
our workforce, our clients and society are important to our
success. ESG matters are considered in the performance and
compensation determination process in different aspects as
described later in this report.
UBS continued to make progress in 2019 toward meeting its
ambitions to be a leader in sustainable finance, in philanthropy
and in sustainable business practices, as well as being an
employer of choice. We were recognized as the industry leader,
for the fifth time in a row, in the Dow Jones Sustainability
Indices (the DJSI), the most widely recognized sustainability
ranking, and received other valuable recognition from MSCI,
Sustainalytics and CDP.
238
Gender-related aspects in compensation
UBS remains committed to hiring, retaining and promoting more
women at all levels across the firm. With two female GEB
members and four female independent Board members, we
have a leading position with regard to this topic.
The Compensation Committee systematically reviews any gender
pay gap for equivalent roles across the workforce. Our policies
and practices are impartial and support equal pay, and we are
committed to ensuring that all employees are paid fairly.
Pay equity is embedded into our compensation policies and
practices and we conduct regular reviews to ensure that all
employees are paid fairly. In 2019, an independent third party
conducted an analysis across the globe that shows that the
unexplained salary differential between female and male
employees is less than 1% at UBS. We continue to review the
root causes and address any issue that cannot be explained by
business factors such as experience, role / job, responsibility,
performance or location.
Overall, we continue to make progress toward our aspiration of
increasing the ratio of women in management roles to one-
third, but progress takes time and we are committed to
accelerating our efforts to progress women at all ranks.
Compensation Committee membership
In 2019, Dieter Wemmer and I welcomed Reto Francioni back to
the committee and Fred Hu to the committee for the first time.
2020 Annual General Meeting
At the 2020 AGM on 29 April, we will seek your support on the
following compensation-related items:
–
the maximum aggregate amount of compensation for the
BoD for the period from the 2020 AGM to the 2021 AGM;
the maximum aggregate amount of fixed compensation for
the GEB for 2021;
the aggregate amount of variable compensation for the GEB
for 2019; and
shareholder endorsement
Compensation Report.
in an advisory vote for this
–
–
–
On behalf of the Compensation Committee and the BoD, I
would like to thank you again for your feedback. The changes
made have enhanced our compensation framework in the
interests of shareholders, and we respectfully ask for your
continued support at the upcoming AGM.
Julie G. Richardson
Chair of the Compensation Committee of the Board of Directors
Advisory vote
Performance and compensation at a glance
Financial achievements and strategic highlights1
–
–
results
financial
We delivered solid
in mixed market
conditions, reflecting the strength of our business model.
Profit before tax decreased 7% to USD 5.6 billion, as a 4%
decrease in operating income was not fully offset by lower
operating expenses. Adjusted profit before tax decreased
slightly to USD 6.0 billion, as reduced adjusted operating
expenses nearly offset lower adjusted operating income.
Net profit attributable to shareholders decreased 5% to
USD 4.3 billion. Return on common equity tier 1 (CET1)
capital was 12.4%. Our reported cost / income ratio
increased 62 basis points
reflecting cost
management measures that partly offset lower revenues,
while our adjusted cost / income ratio saw a 51 basis point
to 80.5%,
–
–
improvement to 78.9%, reflecting 4% lower expenses and
3% lower revenues.
Our capital position remained strong, with a CET1 capital
ratio of 13.7% and a CET1 leverage ratio of 3.9%, both
above our capital guidance of around 13% and 3.7%,
respectively. We increased our total loss-absorbing capacity
by USD 5.9 billion to USD 89.6 billion.
For the financial year 2019, the Board of Directors intends to
propose a dividend of USD 0.73 per share, an increase
compared with 2018. During 2019, we repurchased USD 806
million (CHF 800 million) of UBS shares and our tangible book
value per share increased 6% to USD 13.29.
Refer to the “Financial and operating performance” section of
this report for further details about our Group and business
division performance
Adjusted Group profit before tax1
Return on CET1 capital
Adjusted cost / income ratio1
USD billion
in %
in %
(0.5%)
(76 bps)
(51 bps) improvement
6.1
2018
6.0
2019
13.1
2018
12.4
2019
79.5
2018
78.9
2019
11 Adjusted results are alternative performance measures (APMs) and non-GAAP financial measures. Refer to “Group Performance” in the “Financial and operating performance” section of this report for further
information and a reconciliation of adjusted results to reported results.
Performance award pool year-on-year development
Group performance award pool
Group CEO performance award
Per capita GEB performance award pool
CHF billion
CHF million
CHF million
(14%)
(14%)
(14%)
3.1
2018
2.7
2019
11.3
2018
9.7
2019
6.3
2018
5.4
2019
–
–
–
The Group performance award pool for 2019 decreased 14%
compared with the previous year. This significant decrease,
which is a greater reduction than the change in underlying
performance, demonstrates our disciplined approach
in
managing compensation over business cycles and alignment
to shareholder interests, and we believe without significantly
impacting our competitive pay position. It also considers the
impact of the French cross-border matter on the firm and the
resulting share price development.
The Group CEO performance award for 2019 was CHF 9.7
million, a decrease of 14% compared with 2018. The award is
comprised of 20% in cash (CHF 1.9 million) with the remaining
80% (CHF 7.8 million) deferred over three to five years.
The GEB performance award pool, which includes the Group
is part of the Group
CEO performance award and
performance award pool, was CHF 70.3 million, a decrease of
14% on a per capita basis and 4% overall. The overall pool
also reflects the changes in the composition of the GEB,
including new GEB members and the elevation of certain
roles to the GEB that were previously not included, and
therefore the adjustments do not reflect a meaningful change
in the total cost to shareholders. These changes were made
to optimize our governance structure and execute on our
strategic priorities.
The new Long-Term Incentive Plan introduced for 2019
performance awards increases the GEB’s exposure to the
links
future performance of
compensation to relative total shareholder return.
In addition, CHF 7.3 million of the GEB performance award
pool is entirely at risk, contingent upon the final resolution of
the French cross-border matter.
the Group and directly
–
–
239
Advisory voteCorporate governance and compensation
Corporate governance and compensation
Compensation
Shareholder engagement and say on pay
The feedback we seek from our shareholders on compensation-
related matters is very important to us, as we are committed to
maintaining a strong
interests of our
employees and those of our shareholders.
link between the
At the 2019 AGM, we committed to conducting a holistic
review of all elements of the compensation framework for our
employees, our most senior leaders including the Group
Executive Board (the GEB), the Chairman and independent
Board members. We heard feedback requesting stronger
alignment with shareholder interests, which we implemented
while maintaining the most
important elements of our
compensation framework.
Below we provide responses to the questions we most
frequently receive from stakeholders.
Responses to frequent questions
What has changed in the compensation framework for
your most senior leaders?
The most important elements of our compensation framework
remain unchanged. In particular, performance awards continue
to be based on the employee’s annual performance assessment
and we are maintaining
long-term nature of our
the
compensation framework through mandatory deferrals into
equity and contingent capital instruments. For GEB members,
shares are delivered in equal installments in years 3, 4 and 5
after the grant year, and contingent capital awards continue to
vest in year 5.
However, we have modified the delivery of the deferred
equity portion for our most senior leaders (i.e., GEB members,
GMDs and Group or Divisional Vice Chair role holders) with the
new Long-Term Incentive Plan (the LTIP) replacing the Equity
Ownership Plan (the EOP) to enhance focus on delivering on our
return targets and increasing alignment with shareholders.
How are share price developments reflected in
compensation?
Beyond the factors described elsewhere in this report, we
consider rTSR as well as valuation relative to other banks.
Our mandatory share-based deferral plans create a direct link
with shareholder returns and therefore many employees are
directly impacted by the share price. In addition, the new LTIP
features rTSR as a performance condition, which further
supports
realized employee pay with
shareholder returns.
the alignment of
While we are disappointed with our share price performance,
we believe the share price movement in 2019 was significantly
impacted by the outcome of the French cross-border matter and
does not reflect the significant progress made during the year
and our absolute financial performance. We continue to expect
that the value of our business and the quality of our earnings
will ultimately be positively reflected in our share price.
The LTIP
performance
features absolute and
relative performance
conditions based on reported return on CET1 capital (RoCET1)
and relative total shareholder return (rTSR) metrics, creating a
strong sensitivity of realized compensation to UBS’s financial
performance and share price. The final number of vesting shares
is based on the achievements against these two equally-
weighted
three-year
performance period. Achieving the maximum payout under the
LTIP requires both a three-year average RoCET1 of 18% and,
over a three-year period, for our TSR to outperform the peer
index by 25 percentage points. The RoCET1 performance level
required for a maximum payout is substantially above our stated
long-term target, and we believe this further strengthens the
alignment with our strategy and supports delivering sustainable,
profitable growth to drive higher returns, creating long-term
value for our shareholders.
conditions
after
a
At the same time, the linear vesting between minimum
threshold and performance required for maximum payout does
not encourage excessive risk-taking, which might be the case
with a non-linear payout geared toward high performance
levels. This approach balances the importance of sustainable
performance with our ambitions to deliver higher returns and
outperform our peers.
240
How is ESG considered in the compensation process?
ESG is considered in the compensation determination process in
different stages through the objective setting, performance
award pool funding, performance assessment and compensation
decision.
In the performance award pool funding, ESG is reflected
through the assessment of regulatory compliance, as well as
legal, compliance, reputational and operational risks. In addition,
ESG-related objectives have been embedded in our Pillars and
Principles since they were established in 2011. Achievements
versus ESG-related goals are taken into account in the qualitative
performance assessment and affect the final compensation
decision for each individual. ESG-related goals are reflected in
governance and risk management, talent management and
diversity, client satisfaction, and corporate
responsibility,
including goals for reducing our carbon footprint and corporate
waste, and progressing our philanthropic efforts. Therefore, ESG
is taken in consideration when the Compensation Committee
applies its discretion to reflect not only what results were
achieved, but also how they were achieved.
Advisory vote
How is litigation considered in the compensation process?
Litigation and regulatory matters, and their resolution and
remediation, are taken into consideration throughout the
compensation decision-making process. The Compensation
Committee distinguishes between current matters, where the
underlying issues are within the responsibility of management,
and legacy matters, where management is accountable for
resolving them but not responsible for the underlying issue.
Current matters have a direct impact on the performance
award pool, individual performance assessments and resulting
compensation decisions, as well as the payout of deferred
awards.
and
For legacy matters, the Compensation Committee seeks to
incentivize management to resolve these matters in the best
interest of shareholders and we hold management accountable
for the effective and efficient resolution thereof. Therefore the
performance
reflects
compensation
management’s responsibility for achieving a resolution without
take
creating an
inappropriate risks on such matters. The use of reported RoCET1
supports the focus on ensuring the cost of litigation matters has
a direct impact on the compensation awarded and realized by
our most senior leaders including the GEB.
inappropriately settle or
assessment
incentive
to
How is the French cross-border matter reflected in the
2019 compensation of the GEB?
For the 2019 compensation decisions for the GEB, the
Compensation Committee has considered the outcome of the
French cross-border decision,
reflecting alignment with
shareholders on this matter. Additionally, the final outcome of
the matter will impact the payout of the 2019 LTIP award
through the RoCET1 metric.
For GEB members active
in March 2017, when the
investigating judges issued the trial order, as an added measure
the 2019 LTIP award will further be subject to the following
considerations impacting their 2019 compensation.
–
Up to an additional CHF 7.9 million, or 30% of the 2019 LTIP
awards at grant for relevant GEB members as well as the
Chairman’s unvested share award, are at risk and directly
linked to the final resolution of the French matter. The
portion at risk is subject to forfeiture based on the final cost
associated with the resolution of the matter.
A new malus clause allows the Compensation Committee to
assess any new information that becomes available in the
future and to retrospectively reduce the 2019 LTIP award by
up to the full amount if such new information would have
impacted our compensation decision in 2019.
–
reviews
regularly
Why has UBS adjusted Board fees and compensation for
the Chairman?
The Compensation Committee
the
remuneration framework for independent Board members to
confirm it remains competitive and appropriately reflects their
work on the Board of UBS. In this review, the Compensation
Committee considered the feedback from shareholders and
other stakeholders. In our 2019 review, we concluded that our
fundamental approach
independent Board member
compensation remains appropriate. However, effective from the
2020 AGM onward, a number of adjustments have been made
to reduce the level of the Board compensation while still
maintaining competitive fee levels.
for
We will reduce the fixed base fee by CHF 25,000 (i.e.,
approximately 8%) for each board member and will also reduce
the additional fees for the Risk and Compensation Committee
Chair roles. Furthermore, we will reduce the additional fee for
the Senior Independent Director and Vice Chairman roles to
CHF 150,000, a reduction of CHF 100,000. In case these two
roles are allocated to one Board member, the fee will only be
paid once. Moreover,
independent Board members must
continue to use a minimum of 50% of their fees to purchase
UBS shares, which are blocked for four years, and we will
eliminate the 15% discount for these purchases.
The Chairman’s fixed compensation has been reduced by
CHF 0.8 million, starting with the current period from the 2019
AGM to the 2020 AGM. In addition, to further demonstrate the
Chairman’s alignment with shareholder interests, a portion of up
to CHF 0.6 million of the share award is subject to the same new
vesting condition linked to the resolution of the French cross-
border matter that has been introduced for the Group CEO and
certain other GEB members.
How does the Compensation Committee use its discretion
to determine the performance award pool?
The performance award pool funding begins with a direct link to
risk-adjusted profit. The Compensation Committee, based on a
proposal from the Group CEO, then applies discretionary
adjustments that reflect a range of factors, such as capital
returns to investors, risk profile, strategic initiatives, and labor
market position and trends. Consequently, the performance
award pool balances consideration of financial performance with
a range of qualitative factors, including discretion to consider
the quality of earnings and year-on-year performance, as well as
progress with regard to delivering on our ambitions.
these
Reflecting
the Compensation
considerations,
Committee applied a negative discretionary adjustment for 2019
on the overall Group performance award pool and the GEB
performance award pool, including the Group CEO performance
award. Over the past seven years, the Compensation Committee
applied discretionary adjustments to the performance award
pool of between –6% and +2%, resulting in downward
adjustments in all but one year.
241
Advisory voteCorporate governance and compensation
Corporate governance and compensation
Compensation
Say-on-pay votes at the AGM
Audited |
Approved fixed compensation
In line with the Swiss Ordinance against Excessive Compensation
in Listed Stock Corporations, we seek binding shareholder
approval for the aggregate compensation awarded for the GEB
and for the BoD. The BoD believes that prospective approval for
the fixed remuneration for the BoD and the GEB provides the
firm and its governing bodies with the certainty necessary to
operate effectively. Furthermore, retrospective approval for the
GEB’s variable compensation awards aligns total compensation
for the GEB to performance and contribution, and to
developments in the marketplace and across peers.
The combination of the binding votes on compensation and
the advisory vote on the compensation framework reflects our
commitment to our shareholders having their say on pay.
Refer to “Provisions of the Articles of Association related to
compensation” in the “Supplemental information” section of
this report for more information
At the 2018 AGM, shareholders approved a maximum
aggregate fixed compensation amount of CHF 31.5 million for
the members of the GEB for the performance year 2019. This
includes base salaries, role-based allowances in response to
Capital Requirements Directive
standard
contribution to retirement benefit plans, other benefits and a
buffer.
IV, estimated
As a result of the changes in the GEB in 2019, the aggregate
fixed compensation paid in 2019 to current and former GEB
members exceeded the approved amount for 2019. As
authorized by article 46 para. 5 of the Articles of Association, an
amount of CHF 8.4 million was used to pay the amount of the
fixed compensation of the new GEB members that exceeded the
approved amount. This additional amount was used to fund the
new appointments to the GEB: Iqbal Khan, as Co-President
Global Wealth Management, was awarded CHF 8.2 million
(including replacement awards), Suni Harford, as President Asset
Management, was awarded CHF 0.1 million, and Edmund Koh,
as President UBS Asia Pacific, was awarded CHF 0.1 million.
Refer to “2019 total compensation for the GEB members” in the
“Compensation for the Group CEO and the other GEB members”
section of this report
Refer to “Replacement awards for new GEB members and
forfeitures of former GEB members” in the “Compensation
philosophy and framework” section of this report
Say on pay – compensation-related votes at the 2019 AGM
--
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--
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BBiinnddiinngg vvoottee oonn GGEEBB vvaarriiaabbllee ccoommppeennssaattiioonn
Shareholders approved CHF 73,300,000 for the financial year 20181, 2, 3
BBiinnddiinngg vvoottee oonn GGEEBB ffiixxeedd ccoommppeennssaattiioonn
Shareholders approved CHF 33,000,000 for the financial year 20201, 2, 3
BBiinnddiinngg vvoottee oonn BBooDD ccoommppeennssaattiioonn
Shareholders approved CHF 14,500,000 for the period from the 2019 AGM to the 2020 AGM1, 2, 4
”
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81.4%
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11 Local currencies are converted into Swiss francs at the exchange rates stated in “Note 37 Currency translation rates” in the “Consolidated financial statements” section of this report. 22 Excludes the portion related
33 Thirteen GEB members were in office on 31 December 2019 including three new GEB members, one appointed on 1 January 2019 and two on
to the legally required employer’s social security contributions.
1 October 2019; three GEB members stepped down, one on 31 December 2018 and two on 30 September 2019. Thirteen GEB members were in office on 31 December 2018 including two new GEB members
appointed on 1 October 2018 and one on 1 November 2018; two GEB members stepped down on 31 December 2017 and 30 September 2018, respectively. 44 Twelve BoD members were in office on 31 December
2019.
Shareholders approved the UBS Group AG Compensation Report 2018 in an advisory vote
79.4 %
242
Advisory vote
Compensation-related proposals for 2020
valuation methodology.
At the 2020 AGM, we will ask our shareholders to vote on the
variable compensation for the GEB for 2019, the fixed
compensation for the GEB for 2021 and the compensation for
the BoD from the 2020 AGM to the 2021 AGM. The variable
compensation for the GEB for 2019 includes the total amount of
Long-Term Incentive Plan (LTIP) awards granted to GEB members
at fair value, which is based on the methodology used to
determine the expense to the organization under IFRS 2
standards. The value was independently calculated to support
the robustness of the approach, which uses a well-established
In addition, we will also ask our shareholders for an advisory
vote on our Compensation Report, which describes our
compensation framework, governance and policy. Both the
advisory vote on our compensation policy and the binding votes
on compensation reflect our commitment to transparent say on
pay for our shareholders.
The table below outlines our compensation proposals,
including supporting rationales, that we intend to submit to the
2020 AGM for binding votes (in line with the Swiss Ordinance
against Excessive Compensation in Listed Stock Corporations
and our Articles of Association).
Compensation-related proposals for binding votes at the 2020 AGM
Item
Item
Proposal
Proposal
Rationale
Rationale
GEB variable
GEB variable
compensation
compensation
The Board of Directors proposes an aggregate amount of
variable compensation of CHF 70,250,000 for the members
of the GEB for the financial year 2019.
GEB fixed
GEB fixed
compensation
compensation
The Board of Directors proposes a maximum aggregate
amount of fixed compensation of CHF 33,000,000 for the
members of the GEB for the financial year 2021.
BoD compensation
BoD compensation
The Board of Directors proposes a maximum aggregate
amount of compensation of CHF 13,000,000 for the
members of the Board of Directors for the period from the
2020 AGM to the 2021 AGM.
The proposed amount reflects the overall solid financial results in mixed market conditions,
continued strong capital position and increased capital distributions to shareholders. Further,
the BoD also considered other factors including the impact of the French cross-border matter
on the firm and the resulting share price development. The proposed amount is a substantial
reduction of 14% on a per capita basis compared to the previous year, and is equivalent to the
14% decrease in the overall Group performance award pool. The pool also reflects the
changes in the composition of the GEB, including new GEB members and the elevation of
certain roles to the GEB that were previously not included, and therefore the adjustments do
not reflect a meaningful change in the total cost to shareholders. These changes were made to
optimize our governance structure and execute on our strategic priorities.
The proposed amount is unchanged from the previous year, reflecting stable base salaries for
the Group CEO and other GEB members since 2011. As noted above, it further reflects the
changes in the composition of the GEB, including new GEB members and the elevation of
certain roles to the GEB that were previously not included, and therefore the adjustments do
not reflect a meaningful change in the total cost to shareholders. These changes were made to
optimize our governance structure and execute on our strategic priorities. The proposed
amount hence reduces the reserve amount while still providing the necessary flexibility in light
of evolving EU regulations, Brexit and competitive considerations for a potential additional
role-based allowance.
The proposed amount is a decrease of 10%, or CHF 1,500,000, compared with the previous
year. The amount includes the Chairman’s compensation, which decreased by 14% effective
from the 2019 AGM, as well as the reduced fees for independent Board members, which will
be adjusted effective from the 2020 AGM. This includes a reduction of the fixed base fees for
all independent Board members and other fee reductions. The adjustments in Board fees
reflect our commitment to sustainable results while maintaining competitive fee levels aligned
with the demands on our Board members.
243
Advisory voteCorporate governance and compensation
Corporate governance and compensation
Compensation
Compensation philosophy and framework
Our compensation philosophy
Total Reward Principles
Our compensation philosophy is to align the interests of our
employees with those of our investors and clients, building on
our three keys to success: our Pillars, Principles and Behaviors.
Our Total Reward Principles establish a framework that balances
sustainable performance as well as supporting growth ambitions
and prudent risk-taking with a focus on conduct and sound risk
management practices.
Our compensation structure is aligned with our strategic
priorities. It aligns the interests of our employees with those of
our stakeholders and encourages our employees to focus on our
clients, create sustainable value, deliver on our growth ambitions
and achieve the highest standards of performance. Moreover,
we reward behaviors that help build and protect the firm’s
reputation, specifically integrity, collaboration and challenge. We
strive for client focus, excellence and sustainable performance in
everything we do. Compensation for each employee is based on
individual, team, business division and Group performance,
within the context of the markets in which we operate.
Total Reward Principles
Our Total Reward Principles apply to all employees globally. They may vary in certain locations according to local legal requirements
and regulations. The table below provides a summary of our Total Reward Principles.
Attract and retain a diverse, talented workforce
Attract and retain a diverse, talented workforce
We provide employees with pay that is fair, reflecting equal treatment of employees, appropriately balanced between
fixed and variable elements, competitive in the market and delivered over an appropriate period.
Foster effective individual performance management and
Foster effective individual performance management and
communication
communication
Thorough evaluation of individual performance and adherence to our Behaviors, combined with effective
communication, aims to ensure there is a direct connection between achievement of business objectives and
compensation across the firm.
Align reward with sustainable performance as well as support
Align reward with sustainable performance as well as support
growth ambitions
growth ambitions
We embrace a culture of inclusiveness and collaboration within the firm. Our approach to compensation fosters
engagement among employees, and serves to align their long-term interests with those of clients and stakeholders.
Support appropriate and controlled risk-taking
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 stakeholders expect from us.
Our commitment to pay fairness
Pay fairness principles are embedded into our compensation
policies and practices and we conduct regular reviews with the
aim of ensuring that we appropriately evaluate and reward
employees.
From a pay equity perspective, if we uncover any gaps that
cannot be explained by business factors, such as experience,
role / job, responsibility, performance or location, we explore the
root causes of those gaps and address them. In 2019, an
independent third party conducted a pay analysis across the
globe which showed less than 1% of unexplained differential in
salaries between female and male employees across the firm.
Pay equity is not the same as the gender pay gap, which
looks at the average pay for all women versus all men. Our
gender pay gap reflects a representation gap brought about by
having unequal numbers of men and women at each level at
UBS, with a greater proportion of men in more senior, higher-
paying roles. The gender representation gap is being addressed
through our global gender strategy to hire more, promote more
and retain more women at all levels of the organization.
Addressing gender representation is a priority we share with
many other organizations, both within financial services and
other sectors. To share best practices, learn from peers and
receive feedback, we are actively involved with initiatives such as
the Bloomberg Gender-Equality Index.
244
Advisory vote
Our Total Reward approach
At UBS, we apply a holistic approach to compensation. Our Total
Reward approach consists of fixed compensation (base salary
and role-based allowances, if applicable), performance awards
as well as pension contributions and benefits.
For
total
compensation
employees whose
exceeds
USD / CHF 300,000, performance awards are delivered in a
combination of cash and a deferral into contingent capital
awards (the DCCP) and equity awards (the LTIP and the EOP).
For our most senior
i.e., GEB members, Group
Managing Directors (GMDs) and Group or Divisional Vice Chair
role holders, the equity awards are delivered under the LTIP. All
other employees eligible for deferred equity awards receive
these awards under our EOP.
leaders,
Our Total Reward approach
is structured to support
sustainable results and growth ambitions. A substantial portion
of our performance award is deferred and vests over a period of
five years, or longer for certain regulated employees. This
deferral approach supports alignment of employee and investor
interests, our capital base and the creation of sustainable
shareholder value.
Total Reward
Total compensation
Performance award
Deferred Contingent Capital Plan
Deferred equity-based awards:
• Long-Term Incentive Plan
(GEB, GMDs, Group or Divisional
Vice Chair role holders)
• Equity Ownership Plan
(all other employees, as applicable)
Base salary /
fixed
compensation
Cash
Note: illustrative, not drawn to scale
Pension
and
benefits
m
r
e
t
-
r
e
g
n
o
L
-
r
e
t
r
o
h
S
m
r
e
t
245
Advisory voteCorporate governance and compensation
Corporate governance and compensation
Compensation
Performance award pool funding
Our compensation philosophy focuses on balancing performance
with appropriate risk-taking and retaining talented employees. To
achieve this, as performance increases we reduce our overall
performance award funding percentage. In years of strong
performance, this prevents excessive compensation, resulting in an
increased proportion of profit before performance award being
available for distribution to shareholders or growing the Group’s
capital. In years where performance declines, the performance
award pool will generally decrease; however, the funding
percentage may increase.
and
business
performance,
Our performance award pool funding framework is based on
Group
including
division
achievement against a set of performance targets. We also
consider performance relative to industry peers, general market
competitiveness and progress against our strategic objectives,
including returns, capital growth, as well as risk-weighted assets
and cost efficiency. We look at the firm’s risk profile and culture,
the extent to which operational risks and audit issues have been
identified and resolved, and the success of risk reduction
initiatives. Corporate Center funding is linked to overall Group
performance and reflects headcount, workforce location and
demographics. For each functional area, quantitative and
qualitative
assessments
management and financial achievements.
evaluate
service
quality,
risk
Before making its final recommendation to the BoD, the
Compensation Committee considers the CEO’s proposals and
can apply a positive or negative discretionary adjustment to the
performance award pool, including recommending a zero
award. The Compensation Committee decision balances
consideration of financial performance with a range of
qualitative factors and takes into account the quality of earnings,
progress against our ambitions, impact of risk management,
litigation, regulatory costs, the effect of changes in financial
accounting
and market
capital
competitiveness, as well as relative total shareholder return.
standards,
returns
reflecting
As described above,
the aforementioned
considerations, over the past seven years, the Compensation
Committee based on the Group CEO proposal applied
discretionary adjustments to the performance award pool of
between –6% and +2%, resulting in downward adjustments in
all but one year.
Refer to “Group performance” in the “Financial and operating
performance” section of this report for more information about
adjusted results
Performance award pool funding process – illustrative overview
Financial
performance
Risk
adjustment
1
Adjusted
business
division
financial
performance
2
Risk-adjusted
business
division
performance
award pool
Quantitative and qualitative adjustments
3
Business
division
measures
Qualitative,
risk and
regulatory
assessment
Relative
performance
versus peers
Market
position
and trends
Consultation of
Group CEO with
the business
division Presidents
Compensation
Committee / BoD
governance and
decision
4
5
Recommended
business
division
performance
award pools
Final
Group
performance
award pool
1
2
3
4
5
Adjusted business division
financial performance
The starting point for the funding process is the adjusted business division financial performance, which excludes items that are not
reflective of the underlying business performance.
Risk-adjusted business
division performance
award pool
Predetermined business division-specific funding rates are applied to risk-adjusted performance, incorporating market,
credit, liquidity and operational (including conduct) risk.
Business division measures Each division is assessed based on specific measures (e.g., net new money growth rate, return on attributed equity).
Qualitative, risk and
regulatory assessment
Qualitative assessment (e.g., quality of earnings, ESG factors), assessment of regulatory compliance and risk assessment
(such as legal, compliance, reputational and operational risk) support alignment to our Total Reward Principles.
Relative performance
versus peers
Market position
and trends
Performance is assessed relative to our peers, including financial performance, returns and relative total shareholder return.
Market intelligence, based on external advisors, helps assess the competitiveness of our pay levels and compensation structure.
It also provides a prospective view of market trends in terms of absolute compensation levels, compensation framework and
industry practice.
Recommended business
division performance
award pools
The business division performance award pool determination process, based on quantitative and qualitative assessments,
results in a recommendation from the Group CEO (after consultation with the GEB) to the Compensation Committee
for consideration.
Final Group performance
award pool
The Compensation Committee considers the recommendation in the context of the factors outlined above and verifies it is in line
with our strategy and our Total Reward Principles to create sustainable shareholder value and support our growth ambitions.
The Committee may alter the recommendations of the Group CEO (upward or downward, including recommending a zero award)
before making its fi nal recommendation to the BoD.
246
Advisory vote
Environmental, Social and Governance (ESG) at UBS
industry
UBS made very good progress in 2019 toward enhancing its
position as a leader in sustainable finance, and toward meeting
its ambitions to be a recognized innovator and thought leader in
in sustainable business
philanthropy, an
practices, and an employer of choice. We are pleased that our
efforts and accomplishments continue to be recognized. We
were recognized as the industry leader, for the fifth time in a
row, in the Dow Jones Sustainability Indices (the DJSI), the most
widely recognized sustainability ranking, and received other
valuable recognition from MSCI, Sustainalytics and CDP.
leader
UBS continues to maintain an industry-leading position in
developing sustainable finance products and services: we are a
leader in sustainable investing,1 with a global footprint and a
network of resources to deliver a wide range of research,
advisory and product capabilities that continue to grow. An
important part of our sustainable activities encompasses
engagement in client philanthropy: for example through UBS
Optimus Foundation we drive impactful philanthropy that
delivers breakthrough solutions to pressing social needs.
We are widely recognized as an employer of choice and
received various top-employer honors in 2019. Our diverse
11 Euromoney Private Banking and Wealth Management Survey 2019: Global Results.
workforce and inclusive culture are critical to our long-term
success. We are committed to further increasing our diversity
and to ensuring equal opportunities for all employees. We
continue to make progress toward our stated aspiration to
increase the representation of women in management roles to
one-third. In addition to our global gender diversity ambitions,
every year we sponsor numerous activities to promote greater
diversity and inclusiveness.
We measure our culture-building progress through regular
employee surveys. We have an ongoing focus on inclusive
leadership and, in 2019, our in-house UBS University further
updated its curriculum to emphasize future-skills development
and personal growth for all employees. The table below
summarizes our key achievements and the following section
the compensation
explains how we consider ESG
determination process.
in
Refer to “Our focus on ESG,” “Employees” and “Society” in the
“How we create value for our stakeholders” section of this
report for more information
Refer to www.ubs.com/gri for more information about
ESG-related topics
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Achieved our goal one year early, reaching USD 488.5 billion in core SI assets, representing 13.5% of total invested assets
USD 3.9 billion of client assets directed into Sustainable Development Goals (SDG)-related impact investments
38% of global workforce volunteered and 48% of volunteer hours were skills based
280,858 beneficiaries as a result of our community investments
UBS Optimus Foundation: USD 89.5 million in donations raised; USD 109.5 million in grants approved
Well-being of 3.3 million children globally improved with help of the work of UBS Optimus Foundation
Industry leadership position maintained (Dow Jones Sustainability Indices / DJSI)
AA rating maintained (MSCI ESG Research)
Industry leader rank maintained (Sustainalytics)
A-rating and included in Leadership band (CDP)
First TCFD reporting introduced for financial year 2017, continuous improvements ever since
Among the founding signatories of the Principles for Responsible Banking (September 2019)
Included in Global Universum ranking of Top 50 World’s Most Attractive Employers
Peer-leading position in human resources elements of DJSI
Score above financial services norm in employee engagement and work environment (based on employee survey results)
Included in the Bloomberg Gender-Equality Index
ESG in the compensation determination process
ESG is considered in the compensation determination process in
different phases through objective setting, performance award
pool funding, performance assessment and compensation
decision.
At the beginning of the year, objectives relative to Group,
business divisions, Pillars, Principles and Behaviors are set. ESG-
related objectives have been embedded in our Pillars and
Principles since they were established in 2011. This long-term
focus on ESG topics is reflected in the achievements outlined
above. To maintain the focus on these important ESG topics, our
Group CEO and other GEB members have specific ESG-aligned
talent management and diversity,
goals under Pillars and Principles, including governance and risk
management,
client
satisfaction and corporate responsibility. These include goals for
reducing our carbon footprint and corporate waste, and
progressing our philanthropic efforts.
In the performance award pool funding, ESG is reflected
through the assessment of risks, such as legal, compliance,
reputational and operational risks. Therefore ESG is taken into
consideration when the Compensation Committee assesses not
only what results were achieved, but also how they were
achieved. The achievements versus the ESG-related goals are
reflected in the qualitative performance assessment and affect
the final compensation decision.
247
Advisory voteCorporate governance and compensation
Corporate governance and compensation
Compensation
Compensation framework for GEB members
The chart below illustrates the compensation elements, pay mix and key features for GEB members.
2019 compensation framework for GEB members (illustrative example)
With regard to annual performance awards, 20% is paid in the form of cash and 80% will be deferred over a period of five years,1
with 50% of the annual performance awards granted under the LTIP and 30% under the DCCP.
GEB¹
DCCP
30%
LTIP
50%
three-year
performance
period
~17%
~17%
Key features
30%
~17%
–
–
–
–
–
–
–
–
–
–
–
Notional additional tier 1 (AT1) instruments
30% of the performance award is granted under the DCCP
Award vests in year 5 after grant year, subject to write-down if a trigger or viability event occurs
Award is subject to 20% forfeiture for each financial year if UBS does not achieve a reported Group profit
before tax, adjusted for disclosed items generally not representative of underlying business performance
Notional interest payments (granted where applicable regulations permit) will be made annually,
subject to review and confirmation by the firm
Award is subject to continued employment and harmful acts provisions
Notional shares
50% of the performance award is granted under the LTIP
Award vests in equal installments in years 3, 4 and 5 after grant year, depending on the achievement
of RoCET1 and rTSR measured over a three-year performance period2
Dividend equivalents (granted where applicable regulations permit) are subject to the same terms as
the underlying LTIP award
Award is subject to continued employment and harmful acts provisions
–
20% of the performance award is paid out in cash3
Cash
20%
20%
Base
salary4
2019
2020
grant
year
year 1 year 2 year 3 year 4 year 5
11 Senior Management Functions Holders (SMFs) have extended deferral periods, with the deferred performance awards vesting no faster than pro rata between years 3 and 7. SMFs and Material Risk Takers (MRTs)
22 Due to regulatory requirements, LTIP awards granted to UK MRTs and SMFs will be subject to an additional non-financial conduct-related
have an additional 12-month blocking period on their awards post vest.
33 SMFs and MRTs receive 50% in the form of immediately vested shares which are blocked for 12 months. 44 May include role-based
metric with a downward adjustment of up to 100% of the entire award.
allowances in line with market practice and regulatory requirements.
Pay for performance safeguards for GEB members
Cap on total GEB performance award pool (2.5% of adjusted profit before tax)
Caps on individual performance awards (for the Group CEO capped at five times the fixed compensation and at seven times for
the other GEB members)
Cap of 20% of performance award in cash
80% of performance awards are at risk of forfeiture
Long-term deferral over five years (or longer for certain regulated GEB members)
Alignment with shareholders (through the LTIP) and bondholders (through the DCCP)
Final payout of equity-based LTIP award (50% of performance award) subject to absolute and relative performance conditions
(three-year performance period)
For certain GEB members, a portion of their 2019 compensation is additionally at risk and directly linked to the final resolution of
the French cross-border matter
No severance terms
Six-month notice period
Share ownership requirements
No hedging strategies allowed
–
–
–
–
–
–
–
–
–
–
–
–
Performance award caps
Delivery and deferral
Contract terms
Other safeguards
248
Advisory vote
GEB share ownership requirements
To align the interests of GEB members with those of our
shareholders and to demonstrate commitment to the firm, we
require the Group CEO and the other GEB members to hold a
substantial number of UBS shares. GEB members must build up
their minimum shareholding within five years from their
appointment and retain it throughout their tenure. The total
number of UBS shares held by a GEB member consists of any
vested or unvested shares and any privately held shares. GEB
members may not sell any UBS shares before they reach the
minimum ownership thresholds mentioned below. At the end of
2019, GEB members met their share ownership requirements,
except for those appointed within the last four years, who need
to build up and meet the required share ownership level within
five years from appointment.
Our GEB member holdings represent approximately USD 169
million in shareholder value. This ownership level demonstrates
their commitment
to our strategy and alignment with
shareholders.
Share ownership requirements
Group CEO
min. 1,000,000 shares
Other GEB members
min. 500,000 shares
Must be built up within five years from their appointment and retained throughout
their tenure.
Caps on the GEB performance award pool
Benchmarking for the Group CEO and other GEB members
The size of the GEB performance award pool may not exceed
2.5% of the adjusted Group profit before tax. This limits the
overall GEB compensation based on the firm’s profitability.
For 2019, the Group’s adjusted profit before tax was USD 6.0
billion and the total GEB performance award pool was USD 70.7
million. The GEB performance award pool as a percentage of
adjusted Group profit before tax was 1.2%, which is well below
the cap of 2.5%.
In line with the individual compensation caps on the
proportion of fixed pay to variable pay for all GEB members
(introduced in 2013), the Group CEO’s granted performance
award is capped at five times his fixed compensation. Granted
performance awards of other GEB members are capped at seven
times their fixed compensation (or two times for GEB members
who are also Material Risk Takers
(MRTs)). For 2019,
performance awards granted to GEB members and the Group
CEO were, on average, 2.5 times their fixed compensation
(excluding one-time
replacement awards, benefits and
contributions to retirement benefit plans).
the
reviews
respective
When recommending performance awards for the Group CEO
and the other GEB members, as one dimension to consider, the
total
Compensation Committee
compensation for each role against a financial industry peer
group. The peer group is selected based on comparability of
their size, business mix, geographic presence and the extent to
which they compete with us for talent. The Compensation
Committee considers our peers’ strategies, practices and pay
levels, as well as their regulatory environment; it also periodically
refers to other firms’ pay levels or practices, including both
financial and non-financial sector peers as applicable. The total
compensation for a GEB member’s specific role considers the
compensation paid by our peers for a comparable role and
performance within the context of our organizational profile.
The Compensation Committee periodically reviews and approves
the peer group for executive compensation.
The table below presents the composition of our peer group
for 2019, which has been reviewed and approved by the
Compensation Committee for the performance year 2019.
GEB employment contracts and severance terms
Bank of America
Goldman Sachs
The employment contracts of the GEB members do not include
severance terms or supplementary pension plan contributions.
All employment contracts for GEB members are subject to a
notice period of six months. A GEB member leaving the firm
before the end of a performance year may be considered for a
performance award during that performance year included in
the GEB performance award pool approved by shareholders.
Such awards are subject to approval by the BoD, which may
decide not to grant any awards, and ultimately by the
shareholders at the AGM.
Barclays
BlackRock
BNP Paribas
Citigroup
Credit Suisse
HSBC
JPMorgan Chase
Julius Baer
Morgan Stanley
Standard Chartered
Deutsche Bank
State Street
249
Advisory voteCorporate governance and compensation
Corporate governance and compensation
Compensation
How the French cross-border litigation matter affects our
compensation decisions for 2019
In February 2019, the Paris Court of First Instance imposed fines
of EUR 3.7 billion on UBS, and awarded the French state civil
damages of EUR 800 million. This judgment was issued in
connection with a litigation matter related to cross-border
business activities with French residents between 2004 and
2011/2012. UBS has appealed the decision of the Court of First
Instance, and it will still take time for this matter to be finally
concluded.
The BoD and the GEB continue to focus on progressing and
resolving the French matter. Both of them are accountable for a
resolution of this
interest of
shareholders.
legacy matter
in the best
When determining the 2019 performance award pool, the
impact of the French matter on the firm was taken into
consideration. Additionally, this was also considered in individual
performance assessments and compensation decisions as
applicable.
Refer to “Note 21 Provisions and contingent liabilities” in the
“Consolidated financial statements” section of this report for
more information about litigation, regulatory and similar
matters
Existing principles and approach for considering litigation
in the performance and compensation process
Litigation and regulatory matters, and their remediation and
resolution, are taken into consideration in the compensation
decision-making process. The Compensation Committee
distinguishes between current matters, where the underlying
issues are within the responsibility of management, and legacy
matters, where management is accountable for resolving them
but not responsible for the underlying issues.
Current matters have a direct impact on the performance
award pool,
resulting
the performance assessment and
compensation decision, as well as the payout of deferred
awards. For legacy matters, current management is incentivized
to effectively and efficiently resolve these matters in the best
interest of the shareholders. In this regard, it is important to
distinguish between legacy matters, and financial and operating
performance for the year. At the same time, we are mindful of
the potential costs of such matters, the prudent management
thereof, and the effect on our share price. Therefore the
reflect
compensation
performance
management’s impact on achieving an effective resolution
without creating an incentive to inappropriately settle or take
risks with regard to such matters.
assessment
and
250
Enhancements to our approach
For 2019, the Compensation Committee has taken additional
measures to demonstrate the accountability of management and
their alignment with shareholders regarding the outcome of the
French cross-border matter.
to
respect
Share price movements affect all employees with deferred
the performance
equity-based awards. With
conditions on the LTIP awards, provisions for legal, regulatory
and similar matters will directly impact the reported RoCET1
metric and thus also the final vesting amount subject to this
performance condition. This metric accounts for 50% of the
final payout under the 2019 LTIP. The use of reported RoCET1
supports the focus on ensuring the cost of litigation matters has
a direct impact on the compensation realized by our senior
leaders including the GEB.
For GEB members active
in March 2017, when the
investigating judges issued the trial order, as an added measure,
the 2019 LTIP awards will be subject to the following
considerations impacting their 2019 compensation.
– Up to an additional CHF 7.9 million or 30% of the 2019 LTIP
awards at grant for relevant GEB members as well as the
Chairman’s unvested share award are at risk and directly
linked to the final resolution of the French matter. The
portion at risk is subject to forfeiture based on the final cost
associated with the resolution of the matter. If the French
matter is unresolved at the time the 2019 award is expected
to vest, 30% of the LTIP shares will continue to be at risk,
contingent upon the final resolution of this matter.
– Finally, a new malus clause has been introduced, which
provides the Compensation Committee with the opportunity
to assess any new information that becomes available in the
future. If the Compensation Committee determines that the
new information would have impacted its 2019 performance
award decisions had the information been known at the time,
it can retrospectively reduce the 2019 LTIP grant by up to the
full amount.
Impact of litigation matters on the Long-Term
Incentive Plan
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LTIP
performance
metric
Reported RoCET1 directly
impacted by litigation cost
Fact-based
adjustment
Up to CHF 7.3 million of the
2019 LTIP award at grant
is directly linked to the final
resolution of the French
matter
Malus
adjustment
2019 LTIP award
may be reduced
based on new
information that
would have
impacted the
compensation
for 2019
Advisory vote
Compensation framework for employees other than GEB members
Employees other than GEB members that receive performance
awards with total compensation exceeding USD / CHF 300,000
are subject to a mandatory deferral framework, under which a
significant portion of the performance award is deferred over a
period of five years, or longer for certain regulated employees.
The deferred amount increases at higher marginal rates in line
with the value of the performance award. The effective deferral
rate therefore depends on the amount of the performance
award and the amount of total compensation.
The deferred compensation is delivered through three plans,
which are described in detail later in this section: the DCCP
(notional additional tier 1 capital instruments), the LTIP and the
EOP (notional shares).
For Group Managing Directors (GMDs), 50% of the deferred
performance award is granted under the LTIP and 50% under
the DCCP. The LTIP award vests in year 3 after the grant year,
while the DCCP award vests in year 5 after the grant year, the
same as for GEB members. For below-GMD employees, 60% of
the deferred performance award is granted under the EOP and
40% under the DCCP. The EOP award vests
in equal
installments in years 2 and 3 after the grant year, while the
DCCP award vests in year 5 after the grant year.
Asset Management (AM) GMDs and employees in investment
areas have a different deferral and plan mix to align their
compensation more closely with industry standards. Therefore
AM GMDs receive 50% of their deferred performance awards in
notional funds under the AM EOP, 25% under the LTIP and
25% under the DCCP. AM employees below GMD in investment
areas continue to receive 75% of their deferred performance
awards in notional funds under the AM EOP and 25% under the
DCCP, while AM employees below GMD in non-investment
areas continue to receive 50% of their deferral under the AM
EOP plus 25% under the EOP and 25% under the DCCP.
requirements
Certain regulated employees, such as Senior Management
Functions (SMFs) and Material Risk Takers (MRTs), are subject to
(e.g., an additional non-financial
additional
conduct-related performance metric under the LTIP, more
stringent deferral requirements, additional blocking periods). In
addition, SMFs and MRTs receive 50% of their cash portion in
the form of immediately vested shares which are blocked for 6
to 12 months.
Benchmarking for employees other than GEB members
We generally consider market practice in our pay decisions and
framework. Our market review reflects a number of factors,
including the comparability of the business division, location,
scope and the diversity of our businesses. For certain businesses
or roles, we may take into account practices at other major
international banks, other large Swiss private banks, private
equity firms, hedge funds and non-financial firms. Furthermore,
we also benchmark employee compensation internally for
comparable roles within and across business divisions and
locations.
Employee share purchase program
The Equity Plus Plan is our employee share purchase program. It
allows employees below the rank of Managing Director to
voluntarily defer up to 30% of their base salary and/or up to
35% of their performance award (up to USD / CHF 20,000
annually) for the purchase of UBS shares. Eligible employees may
buy UBS shares at market price and receive one additional share
for every three shares purchased through the program. The
additional shares vest after a maximum of three years, provided
the employee remains employed with the firm and has retained
the purchased shares throughout the holding period.
Considering available records on employee shareholdings
including unvested deferred compensation, as of 31 December
2019, employees held at least USD 2.5 billion of UBS shares (of
approximately USD 1.8 billion were unvested),
which
representing approximately 6% of our total shares issued. Our
senior leaders (GEB members and GMDs) held approximately
USD 410 million of UBS shares (of which approximately USD 272
million were unvested).
Refer to “Note 30 Employee benefits: variable compensation” in
the “Consolidated financial statements” section of this report
for more information
Compensation for US financial advisors in Global Wealth
Management
In line with market practice for US wealth management
businesses, the compensation for US financial advisors in Global
Wealth Management is comprised of production payout and
deferred compensation awards. Production payout, paid
monthly, is primarily based on compensable revenue. Financial
advisors may also qualify for deferred compensation awards,
which generally vest over a six-year period. The awards are
based on strategic performance measures, including production,
length of service with the firm and net new business. Production
payout rates and deferred compensation awards may be
reduced for, among other things, errors, negligence or
carelessness, or a failure to comply with the firm’s rules,
standards, practices, policies and/or applicable
laws and
regulations.
251
Advisory voteCorporate governance and compensation
Corporate governance and compensation
Compensation
Compensation elements for all employees
Overall, we look across all elements of pay when making our
decisions on total compensation. We regularly review our
principles and compensation framework to remain competitive
and aligned with stakeholders. For 2019, we enhanced our
framework by introducing the LTIP, the details of which are
outlined in this section. We will continue to review our approach
to salaries and performance awards
light of market
developments, our performance and our commitment to deliver
sustainable returns to our shareholders.
in
At the AGM, shareholders are asked to approve the
maximum aggregate amount of fixed compensation for the
members of the GEB for the following financial year. The
amount requested includes a reserve to consider potential future
changes in GEB composition or role changes, and potential
additional role-based allowances.
Refer to the “Supplemental information” section of this report
for more information about MRTs and SMFs
Refer to the “Shareholder engagement and say on pay” section
of this report for more information about the shareholders’
Base salary and role-based allowance
vote on GEB compensation
Employees’ fixed compensation (e.g., base salary) reflects their
level of skill, role and experience, as well as local market
practice. Base salaries are usually paid monthly or fortnightly in
line with local market practice. We offer our employees
competitive base salaries that reflect their location, function and
role. Salary increases generally consider promotions, skill set,
performance and overall responsibility.
Each GEB member receives a fixed base salary, which is
reviewed annually by the Compensation Committee. The Group
CEO’s annual base salary for 2019 was CHF 2.5 million and has
remained unchanged since his appointment in 2011. The other
GEB members each received a base salary of CHF 1.5 million (or
local currency equivalent), also unchanged since 2011.
In addition to a base salary and as part of fixed
compensation, some employees may receive a role-based
allowance. This allowance represents a shift in the compensation
mix between fixed and variable compensation and not an
increase in total compensation. It reflects the market value of a
specific role and is fixed, non-forfeitable compensation. Unlike
salary, a role-based allowance is paid only as long as the
employee is in a specific role. Similar to previous years, 2019
role-based allowances consisted of a cash portion and, where
applicable, a blocked UBS share award.
Two GEB members are considered Material Risk Takers
(MRTs), including one UK Senior Management Function (SMF),
for UK / EU entities due to their impact on those entities
regardless of personal domicile. In addition to base salary, role-
based allowances are part of their fixed compensation.
Pensions and benefits
We offer certain benefits for all employees, such as health
insurance and
retirement benefits. These benefits vary
depending on the employee’s location and are intended to be
competitive in each of the markets in which we operate. Pension
contributions and pension plans also vary across locations and
countries in accordance with local requirements and market
practice. However, pension plan rules in any one location are
generally the same for all employees, including management.
For GEB members, pension contributions and benefits are in
line with local practices for other employees. No enhanced or
supplementary pension contributions exist for the GEB.
Performance award
Most of our employees are eligible for an annual performance
award. The level of the award, where applicable, generally
depends on the firm’s overall performance, the employee’s
individual performance, and
business division, team and
behavior, reflecting their overall contribution to the firm’s
results. They are awarded
local
in
employment conditions and at the discretion of the firm.
line with applicable
In addition to the firm’s Pillars and Principles, Behaviors
related to integrity, collaboration and challenge are part of the
performance management approach. Therefore, when assessing
performance, we take into account not only what was achieved,
but also how those results were achieved.
252
Advisory vote
Our deferred compensation plans
To reinforce our emphasis on sustainable performance, risk
management and focus on achieving our growth ambitions, we
deliver part of our annual variable compensation through a
deferral. We believe our approach with a single incentive
decision and a deferral is simple, transparent, and is best suited
to implementing our compensation philosophy and delivering
interests of our
sustainable performance. This aligns the
links
shareholders
employees
compensation to longer-term sustainable performance.
appropriately
and
and
Deferred compensation is delivered through a combination of
equity-based plans and a contingent capital plan. The equity-
based plans are: (i) the Long-Term Incentive Plan (the LTIP),
which is for the most senior leaders of our organization, i.e.,
GEB members, GMDs and Group or Divisional Vice Chair role
holders, and supports delivering profitable growth to drive
higher returns and create long-term value for our shareholders;
and (ii) the Equity Ownership Plan (the EOP), which is for all
other employees, and which primarily aligns employees’ interests
with those of our shareholders. The Deferred Contingent Capital
Plan (the DCCP) aligns employees’ interests with those of debt
holders. We believe our deferral regime has one of the longest
vesting periods in the industry. The average deferral period is 4.4
years for GEB members, 4 years for GMDs and 3.5 years for
employees below GEB / GMD level.
To further promote sustainable performance, our deferred
compensation components include malus conditions. These
enable the firm to forfeit unvested deferred awards under
certain circumstances, pursuant to performance and harmful
acts provisions.
Deferred awards granted to our most senior employees and
to Highly Paid Employees (employees with a total compensation
exceeding USD / CHF 2.5 million), Key Risk Takers (KRTs) and
other selected employees are subject to performance conditions.
Refer to “Note 30 Employee benefits: variable compensation” in
the “Consolidated financial statements” section of this report
for more information
Refer to the “Supplemental information” section of this report
for more information about MRTs and SMFs
Refer to “Vesting of outstanding awards granted in prior years
subject to performance conditions” in the “Supplemental
information” section of this report for more information
253
Advisory voteCorporate governance and compensation
Corporate governance and compensation
Compensation
Long-Term Incentive Plan
The rTSR performance metric over the three-year period
The Long-Term Incentive Plan (the LTIP) is a mandatory deferral
plan for senior leaders of the Group (i.e., GEB members, GMDs
and Group or Divisional Vice Chair role holders). For the
performance year 2019, we granted LTIP awards to 119
employees at a fair value of 62.25% of maximum, which is
based on the methodology used to determine the expense to
the organization under IFRS 2 standards. The value was
independently calculated to support the robustness of the
approach, which uses a well-established valuation methodology.
The performance metrics of the equity-based LTIP awards are
average reported return on CET1 capital (RoCET1) and relative
total shareholder return (rTSR) over a three-year performance
period starting in the year of grant. Performance outcomes and
actual payout levels will be disclosed at the end of the
performance period.
further aligns the interests of employees with shareholders:
–
selected because
they are
reflect companies with a
the metric compares the TSR of UBS with the TSR of an index
consisting of Global Systemically Important Banks (G-SIBs) as
determined by the Financial Stability Board;
the G-SIBs have been
independently defined and
comparable risk profile and impact on the global economy;
the index, which includes publicly traded G-SIBs, is equal
weighted, calculated in Swiss francs, and maintained by an
independent index provider to increase transparency and
ensure independence of the TSR calculation; and
the payout interval of ±25 percentage points versus the index
performance demonstrates our ambition to deliver attractive
relative returns to our shareholders. The linear payout and the
threshold level set below index performance further support
sustainability of results and prudent risk-taking.
–
–
–
PPeerrffoorrmmaannccee mmeettrriicc
WWeeiigghhtt
TThhrreesshhoolldd
MMaaxxiimmuumm
GGlloobbaall SSyysstteemmiiccaallllyy IImmppoorrttaanntt BBaannkkss ((GG SSIIBBss)) lliisstteedd ccoommppaanniieess ppeeeerr ggrroouupp11
-
-
RoCET1
rTSR vs G-SIBs Index
Payout level
50%
50%
6%
–25 pps
33%
18%
+25 pps
100%
Note: Linear payout between threshold and maximum performance. SMFs and UK MRTs
are subject to an additional non-financial metric based on a conduct assessment.
The three-year average reported RoCET1 performance metric
reflects our strategic return ambitions:
–
the required RoCET1 performance for a maximum payout is set
at 18%, which represents a stretch objective relative to our
communicated ambitions;
the required performance threshold of 6% for the minimum
payout supports our focus on delivering sustainable results and
appropriate risk-taking;
this approach significantly increases the level of RoCET1
performance required to achieve a payout that is equal to the
award value relative to our legacy approach under the EOP;
and
the linear payout design between the threshold and the
maximum level reflects our focus on sustainable performance
while also supporting our growth ambitions. This design does
not encourage excessive risk-taking, as might be the case
with a non-linear payout geared toward high performance
levels.
–
–
–
Agricultural Bank of China
Goldman Sachs
Santander
Bank of America
Groupe Crédit Agricole
Société Générale
Bank of China
HSBC
Standard Chartered
Bank of New York Mellon
ING Bank
State Street
Barclays
BNP Paribas
ICBC
Sumitomo Mitsui FG
JPMorgan Chase
Toronto-Dominion
China Construction Bank
Mitsubishi UFJ FG
UniCredit
Citigroup
Credit Suisse
Mizuho FG
Wells Fargo
Morgan Stanley
Deutsche Bank
Royal Bank of Canada
11 As of November 2019.
The LTIP award reflects the
long-term focus of our
compensation framework. The final number of shares as
determined at the end of the three-year performance period will
vest in three equal installments in each of the three years
following the performance period for GEB members, and cliff-
vest in the first year following the performance period for GMDs
and Group or Divisional Vice Chair role holders.
LTIP payout illustration
–
The final number of notional shares
vesting will vary based on the achievement
versus the performance metrics.
–
Vesting levels are a percentage of the
maximum opportunity of the LTIP and
cannot exceed 100%.
Average reported RoCET1
Below threshold
(<6%)
Threshold (6%) up to
maximum (18%)
Maximum and above
(≥18%)
Maximum and above
(+25 pps)
Full vest
–
Full forfeiture for performance below the
predefined threshold levels.
rTSR
Threshold (–25 pps) up to
maximum ( +25 pps)
Partial vest
Below threshold
(–25 pps)
Full forfeiture
254
Advisory vote
Equity Ownership Plan
The Equity Ownership Plan (the EOP) is a mandatory deferral
plan for all employees with total compensation greater than
USD / CHF 300,000, other than GEB members, GMDs and
Group or Divisional Vice Chair role holders. For the performance
year 2019, we granted EOP awards to 3,558 employees.
The plan includes provisions that allow the firm to reduce or
fully forfeit the unvested deferred portion of a granted EOP
award if an employee commits certain harmful acts, and in most
cases trigger forfeiture where employment has been terminated.
The award vests in equal installments in years 2 and 3 after
grant year. For Key Risk Takers (KRTs) (including Highly Paid
Employees) and Senior Management Functions (SMFs), the EOP
awards granted will only vest if both Group and business division
performance conditions are met. The Group performance
condition is based on the average reported return on CET1
capital (RoCET1) over the applicable performance period. The
future
Compensation Committee
performance thresholds at levels to demonstrate that the long-
term quality of the past year’s performance is sustainable. Once
set, the thresholds remain in place for that particular award year.
The Compensation Committee also determines whether the
performance conditions have been met.
the minimum
sets
The Group performance condition is based on the average
reported RoCET1. If the outcome is equal to or above the
threshold, the award will vest in full, or if it is between 0% and
the threshold, it will vest on a linear basis at 0–100%. In both
cases, vesting is contingent on the relevant business division
performance condition also being met. If the outcome is 0% or
negative, the installment will be fully forfeited regardless of any
business division performance.
Similarly, business division performance is measured on the
basis of their average return on attributed equity (RoAE)
adjusted for disclosed items generally not representative of
underlying business performance. For Corporate Center
employees, it is measured on the basis of the average operating
businesses’ RoAE adjusted for disclosed items generally not
representative of underlying business performance.
If the
threshold is met, the award will vest in line with the Group
performance achievement. If the outcome is 0% or below, the
respective awards are fully forfeited. If it is between 0% and the
respective threshold, the awards are subject to forfeiture of up
to 40%. Finally, the Compensation Committee retains discretion
to adjust the award if the performance metric does not reflect a
fair measure of performance.
is
One of our key objectives
to deliver sustainable
performance, and therefore we link the EOP award vesting with
minimum performance thresholds over a multi-year time
horizon. Our EOP awards have no upward leverage, and this
approach promotes sustainable performance by establishing a
minimum level of performance, below which awards are subject
to full or partial forfeiture.
Refer to “Vesting of outstanding awards granted in prior years
subject to performance conditions” in the “Supplemental
information” section of this report for more information
255
Advisory voteCorporate governance and compensation
Corporate governance and compensation
Compensation
Deferred Contingent Capital Plan
The Deferred Contingent Capital Plan (the DCCP) is a mandatory
deferral plan for all employees with total compensation greater
than USD / CHF 300,000. For the performance year 2019, we
granted DCCP awards to 3,654 employees.
Employees are awarded notional additional tier 1 (AT1)
capital instruments, which, at the discretion of the firm, can be
settled as either a cash payment or a perpetual, marketable AT1
capital instrument. Prior to granting, employees can elect to
have their DCCP awards denominated in either Swiss francs or
US dollars.
DCCP awards vest in full after five years and up to seven
years for SMFs, unless there is a trigger event. Awards are
forfeited if a viability event occurs, i.e., if FINMA notifies the firm
in writing 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.
Additionally, they are written down for GEB members if the
Group’s common equity tier 1 (CET1) capital ratio falls below
10% and for all other employees if it falls below 7%.
As an additional performance condition, GEB members forfeit
20% of their award for each loss-making year during the vesting
period. This means that 100% of the award is subject to risk of
forfeiture. Like the EOP, the DCCP also has provisions that allow
the firm to apply malus conditions on some, or all, of the
unvested deferred portion of a granted award if an employee
commits certain harmful acts, or, in most cases, trigger forfeiture
where employment has been terminated.
Under the DCCP, employees who are not MRTs may receive
discretionary annual notional interest payments. The notional
interest rate for grants in 2020 was 1.50% for awards
denominated
for awards
denominated in US dollars. These interest rates are based on the
current market rates for similar AT1 capital instruments. Notional
interest will be paid out annually, subject to review and
confirmation by the Compensation Committee.
francs and 3.90%
in Swiss
Over the last five years, USD 2.0 billion of DCCP awards were
issued, contributing to the Group’s total loss-absorbing capacity
(TLAC). Therefore, DCCP awards not only support competitive
pay, but also provide a loss absorption buffer that protects the
firm’s capital position. The following table illustrates the
contribution of the DCCP to our AT1 and tier 2 capital as well as
to our TLAC ratio.
Refer to the “Supplemental information” section of this report
for more information about performance award- and
personnel-related expenses
Refer to the “Supplemental information” section of this report
for more information about longer vesting and clawback
periods for MRTs and SMFs
Contribution of the Deferred Contingent Capital Plan to our loss-absorbing capacity1
USD million, except where indicated
DDeeffeerrrreedd CCoonnttiinnggeenntt CCaappiittaall PPllaann ((DDCCCCPP))
3311..1122..1199
11,,996622
11,,996622
31.12.18
31.12.17
2,005
2,005
2,160
1714
of which: high-trigger loss-absorbing additional tier 1 capital
of which: high-trigger loss-absorbing tier 2 capital2
447
0.9
DCCP contribution to the total loss-absorbing capacity ratio (%)
11 Refer to “Bondholder information” at www.ubs.com/investors for more information about the capital instruments of UBS Group AG and UBS AG both on a consolidated and a standalone basis. 22 Relates to
DCCP awards granted for the performance year 2013 – based on Swiss SRB framework including transitional arrangements (phase-in) as of 31 December 2017. As of 31 December 2019 these DCCP awards no
longer met the grandfathering treatment under Swiss TBTF capital requirements.
00..88
0.8
256
Advisory vote
Other variable compensation components
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,
where continued employment is required to avoid forfeiture;
retention payments made to key employees to induce them
to stay, particularly during critical periods for the firm, such as
a sale or wind-down of business;
on a limited basis, guarantees may be required to attract
individuals with certain skills and experience – these awards
are fixed incentives subject to our standard deferral rules and
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
previous employers, but have foregone by joining the firm –
these awards are generally structured with the same level of
deferral as for employees at a similar level at UBS; and
in exceptional cases, candidates may be offered a sign-on
award to increase the chances of them accepting our offer.
–
–
–
–
These other variable compensation components are subject to
a comprehensive governance process. Authorization and
responsibility may go up to the Compensation Committee,
depending on the amount or type of such payments.
No severance payments are made to members of the GEB.
Below-GEB level employees who are made redundant may
receive severance payments. Our severance terms comply with
the applicable local laws (legally obligated severance). In certain
locations, we may provide severance packages that are
negotiated with our local social partners and may go beyond the
applicable minimum legal requirements (standard severance).
Such payments are governed by location-specific severance
policies. 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 circumstances.
257
Advisory voteCorporate governance and compensation
Corporate governance and compensation
Compensation
Replacement awards for new GEB members and
forfeitures of former GEB members
Our compensation framework and plans include provisions
whereby the firm generally reduces or fully forfeits an
employee’s unvested or deferred awards where employment has
been terminated and in particular where they join another
financial
restrictive
covenants, such as solicitation of clients or employees, in line
with industry practice.
services organization and/or
violate
Conversely, also consistent with industry practice to support
talent acquisition, in particular at senior levels, we may offer
certain other compensation components such as replacement
payments to offset compensation being forfeited as a result of
joining UBS. In making such replacement awards, we aim to
match the terms and conditions of the awards granted by an
employee’s previous employer that are forfeited upon the
employee joining UBS.
In 2019, Iqbal Khan joined UBS and was appointed to the
GEB on 1 October 2019 as Co-President Global Wealth
Management. He received awards as replacements for deferred
compensation awarded by his previous employer that was
forfeited as a result of him joining UBS. Mr. Khan’s replacement
payment consists of deferred EOP share awards representing
712,342 UBS shares (denominated in Swiss francs) with a grant
date total fair market value of USD 8.1 million. The award vests
in various installments between 2020 and 2024. All of these
awards are subject to the firm’s harmful acts provisions. This
one-time replacement award to Mr. Khan is more than offset by
the total 2019 forfeitures of USD 16.2 million by former GEB
members, as shown in the table below. The total 2019
forfeitures of USD 173 million of previously awarded deferred
total sign-on payments,
the 2019
compensation offset
replacement payments and guarantees of USD 114 million.
Sign-on payments, replacement payments, guarantees and severance payments
USD million, except where indicated
TToottaall ssiiggnn oonn ppaayymmeennttss11
--
of which: Key Risk Takers2
TToottaall rreeppllaacceemmeenntt ppaayymmeennttss33
of which: Key Risk Takers2
TToottaall gguuaarraanntteeeess33
of which: Key Risk Takers2
TToottaall sseevveerraannccee ppaayymmeennttss11,,44
of which: Key Risk Takers2
TToottaall 22001199
ooff wwhhiicchh:: eexxppeennsseess
rreeccooggnniizzeedd iinn 2200119955
of which: expenses
to be recognized in
2020 and later5
TToottaall 22001188
NNuummbbeerr ooff bbeenneeffiicciiaarriieess
3311
99
5577
2222
2277
66
114444
1188
55
66
11
1144
22
11664466
13
5
51
21
12
3
0
30
7
72
19
48
12
165
22001199
664444
66
117788
1122
3322
33
11,,44444477
2018
178
6
299
11
54
5
1,5247
18
11 GEB members are not eligible for sign-on or severance payments. 22 Expenses for Key Risk Takers are full-year amounts for individuals in office on 31 December 2019. Key Risk Takers as defined by UBS,
including all employees with a total compensation exceeding USD / CHF 2.5 million (Highly Paid Employees). 33 For 2019, includes a replacement payment to one GEB member. No GEB member received a
guarantee for 2019, and no GEB member received replacement payments or guarantees for 2018. 44 Includes legally obligated and standard severance payments as well as payments in lieu of notice. 55 Expenses
before post-vesting transfer restrictions. 66 Represents expense recognized in 2019 associated with payments made in 2019 as well as provisions for expected payments in 2020. 77 Relates only to payments
expensed in the year.
1188
4
33
0
33
Forfeitures1
USD million, except where indicated
TToottaall ffoorrffeeiittuurreess
of which: former GEB members
TToottaall 22001199
Total 2018
Population affected
117733
1166
179
0
22001199
665533
11
2018
661
0
of which: Key Risk Takers2
8
11 Forfeitures are calculated as units forfeited during the year, valued at the share price on 31 December 2019 (USD 12.58) for 2019. The 2018 data is valued using the share price on 31 December 2018
(USD 12.38). For the notional funds awarded to Asset Management employees under the EOP, this represents the forfeiture credits recognized in 2019 and 2018. For the DCCP, the fair value at grant of the
forfeited awards during the year is reflected. 22 Key Risk Takers as defined by UBS, including all employees with a total compensation exceeding USD / CHF 2.5 million (Highly Paid Employees) and excluding former
GEB members who have forfeited awards in 2019 or 2018.
30
66
66
258
Advisory vote
Compensation governance
Board of Directors and Compensation Committee
the compensation strategy proposed by
The Board of Directors (the BoD) is ultimately responsible for
approving
the
Compensation Committee, which determines compensation-
related matters in line with the principles set forth in the Articles
of Association.
As determined in the Articles of Association and the firm’s
Organization Regulations,
the Compensation Committee
supports the BoD in its duties to set guidelines on compensation
and benefits, to approve certain compensation and to scrutinize
executive compensation. It is responsible for the governance and
oversight of our compensation process and practices, including
considering the alignment between pay and performance and
that our compensation system does not encourage inappropriate
risk-taking. Our Compensation Committee consists of four
independent BoD members, who are elected annually by
shareholders at the Annual General Meeting (the AGM).
Among other responsibilities, the Compensation Committee,
on behalf of the BoD, annually:
–
–
reviews our Total Reward Principles;
reviews and approves the design of the compensation
framework;
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
and performance assessments and proposes base salaries and
annual performance awards for the other Group Executive
Board (GEB) members to the BoD, which approves the total
compensation of each GEB member;
together with the Chairman of the BoD, establishes
performance targets, evaluates performance and proposes
the compensation 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;
together with the BoD, proposes the maximum aggregate
amounts of compensation for the BoD and for the GEB, to be
submitted for approval by shareholders at the AGM;
–
–
–
–
–
–
–
–
/ fee frameworks for external
approves remuneration
supervisory board members of Significant Group Entities and
periodically reviews remuneration / fee frameworks for
external supervisory board members of Significant Regional
Entities; and
reviews the compensation report and approves any material
public disclosures on compensation matters.
The Compensation Committee meets at least four times a
year. In 2019, the Compensation Committee held six meetings
and two conference calls, with a participation rate of 97%. The
Chairman of the BoD attended all meetings and calls, and the
Group CEO all but one meeting. The Chairman of the BoD and
the Group CEO were not present during discussions related to
their own compensation or performance evaluations. The Chair
of the Compensation Committee may also
invite other
executives to join the meeting in an advisory capacity. No
individual whose compensation is reviewed is allowed to attend
meetings during which specific decisions are made about that
same individual’s compensation. Such decisions are subject to
approval of the Compensation Committee and the BoD.
After the meetings, the Chair of the Compensation
Committee reports to the BoD on the activities of the
Compensation 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 sent to all members of the BoD.
On 31 December 2019, the members of the Compensation
Committee were Julie G. Richardson, who chairs the committee,
Reto Francioni, Fred Hu and Dieter Wemmer.
External advisors
The Compensation Committee may retain external advisors to
support it in fulfilling its duties. In 2019, HCM International Ltd.
provided independent advice on compensation matters. HCM
International Ltd. holds no other mandates with UBS. The
compensation consulting firm Willis Towers Watson provided
the Compensation Committee with data regarding market
trends and pay levels, including in relation to GEB and BoD
compensation. Various subsidiaries of Willis Towers Watson
provide similar data to Human Resources
in relation to
compensation for employees below the BoD and GEB level.
Willis Towers Watson holds no other compensation-related
mandates with UBS.
259
Advisory voteCorporate governance and compensation
Corporate governance and compensation
Compensation
The Risk Committee’s role in compensation
The Risk Committee, a committee of the BoD, works closely with
the Compensation Committee to reinforce that our approach to
compensation reflects proper risk management and control. The
risk
Risk Committee
sets appropriate
supervises and
management and risk control principles and receives regular
briefings on how risk is factored into the compensation process.
in
It also monitors Group Risk Control’s
compensation and
the
compensation process.
risk-related aspects of
involvement
reviews
Refer to www.ubs.com/governance for more information
Compensation Committee 2019 / 2020 key activities and timeline
The table below provides an overview of the Compensation Committee’s key activities from the 2019 AGM to the 2020 AGM.
SSttrraatteeggyy,, ppoolliiccyy aanndd ggoovveerrnnaannccee
Total Reward Principles
Three-year strategic plan on variable compensation
Compensation disclosure and stakeholder communication matters
AGM reward-related items
Compensation Committee governance
AAnnnnuuaall ccoommppeennssaattiioonn rreevviieeww
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
CCoommppeennssaattiioonn ffrraammeewwoorrkk
Compensation framework and deferred compensation matters
RRiisskk aanndd rreegguullaattoorryy
Risk management in the compensation approach and joint meeting with
BoD Risk Committee
Regulatory activities impacting employees and engagement with regulators
11 The Compensation Committee held two meetings in December 2019.
Compensation governance
July
Sept
Oct
Nov
Dec¹
Jan
Feb
The table below provides an overview of compensation governance by specific role.
RReecciippiieennttss
CCoommppeennssaattiioonn rreeccoommmmeennddaattiioonnss pprrooppoosseedd bbyy
AApppprroovveedd bbyy
CChhaaiirrmmaann ooff tthhee BBooDD
Chairperson of the Compensation Committee
Compensation Committee1
IInnddeeppeennddeenntt BBooDD mmeemmbbeerrss
((rreemmuunneerraattiioonn ssyysstteemm aanndd ffeeeess))
Compensation Committee and Chairman of the BoD
GGrroouupp CCEEOO
Compensation Committee and Chairman of the BoD
OOtthheerr GGEEBB mmeemmbbeerrss
Compensation Committee and Group CEO
BoD1
BoD1
BoD1
KKeeyy RRiisskk TTaakkeerrss ((KKRRTTss)) //
((sseenniioorr)) eemmppllooyyeeeess
Respective GEB member together with functional management
team
Individual compensation for KRTs and senior employees: Group CEO
Performance award pool for all employees: BoD
11 Aggregate compensation for the GEB and aggregate remuneration for the BoD are subject to shareholder approval.
260
Advisory vote
Compensation for the Group CEO and the
other GEB members
Performance assessment
Annual performance awards for the Group CEO and the other
Group Executive Board (GEB) members are based on the GEB
compensation determination process as outlined below and, in
aggregate, subject to shareholder approval at the AGM.
We assess the GEB members’ performance against a number
of financial targets and goals related to Pillars, Principles and
Behaviors. The financial measures for the Group CEO are based
on overall Group performance. For the other GEB members,
such measures are based on both Group performance and the
performance of the relevant business division and/or region;
the
those who
performance of the Group and the function they oversee.
functions are assessed on
lead Group
The weighting between Group, business division, regional
and functional measures varies depending on a GEB member’s
role. A significant weight is given to Group measures for all GEB
members. The achievements relative to goals related to Pillars
and Principles are additional factors for assessing the overall
quality and sustainability of the financial results. We have
adjusted the metric and goal weightings and enhanced the
transparency of the respective disclosure. New for 2019, the
financial measures account for 70% of the assessment while
Pillars and Principles account for 15% and Behaviors account for
the remaining 15%.
Overview of the GEB compensation determination process
The compensation for the Group CEO and the other GEB members is governed by a rigorous process under Compensation
Committee and BoD oversight. The chart below shows how compensation for all GEB members is determined.
The Compensation Committee is involved at all stages of the performance and total compensation decision-making process for the Group CEO
and the other GEB members, for review and approval by the BoD.
Objective setting
Performance assessment
Delivery and deferral
Financial results are assessed quantitatively.
Achievements relative to goals related to Pillars
and Principles (including ESG-related goals) and
Behaviors are assessed qualitatively, based on a
five-point scale.
When determining actual pay levels, the
Compensation Committee factors in:
• financial performance
• performance assessment
• relative performance versus peers
• compensation market value and trends
• other parameters deemed relevant
Financial targets are based on Group, business
division, regional and/or functional performance
measures (depending on the role of the GEB
member).
Financial targets and goals related to Pillars,
Principles (including ESG-related goals) and
Behaviors reflect the strategic priorities
determined by the Chairman and the BoD.
Financial targets weight: 70%
Pillars and Principles weight: 15%
Behaviors weight: 15%
s
s
e
c
o
r
p
i
g
n
k
a
m
-
n
o
i
s
i
c
e
D
e
h
t
f
o
e
o
R
l
e
e
t
t
i
m
m
o
C
n
o
i
t
a
s
n
e
p
m
o
C
• Together with the BoD Chairman establishes the
objectives for the Group CEO.
• Together with the Group CEO reviews objectives
• Together with the BoD Chairman evaluates the
performance of the Group CEO and determines
the overall assessment.
for the other GEB members.
• Together with the Group CEO reviews the
performance assessment for the other
GEB members.
Final compensation decisions for GEB members
consider the Group CEO’s recommendation
(the Group CEO makes no recommendation on
his own awards).
Proposes to the BoD:
• together with the BoD Chairman, the total
individual compensation for the Group CEO; and
• together with the Group CEO, the total individual
compensation for the other GEB members.
The final decision on the aggregrate amount is
subject to shareholder approval.
261
Advisory voteCorporate governance and compensation
Corporate governance and compensation
Compensation
The performance assessment
is the starting point for
determining a GEB member’s annual performance award.
Financial measures are assessed quantitatively based on full-year
financial results versus predetermined targets and plan figures.
The outcome for each financial measure is expressed as an
achievement. Pillars, Principles and Behaviors are assessed
qualitatively based on the five-point scale outlined below, which
requires a “significantly exceeded expectations” goal rating to
provide a 100% achievement score. The total of all weighted
achievement scores across financial measures and qualitative
goals cannot exceed 100%.
Overview of the performance assessment measures
The Compensation Committee can still exercise its judgment
with respect to the performance achieved relative to the prior
year, the strategic plan and competitors, and considers the
Group CEO’s recommendation. The Compensation Committee’s
recommendations are then reviewed and subject to approval by
the BoD.
The Compensation Committee, and then the full BoD, follows
a similar process in setting the compensation for the Group
CEO, except that the recommendation is from the Chairman of
the BoD.
The table below presents the measures for the 2019 performance assessment of the Group CEO and GEB members.
Group measures
Group measures
A range of financial measures including adjusted Group profit before tax, adjusted Group cost / income ratio, reported return on
CET1 capital, CET1 ratios.
Business division, regional and/or functional
Business division, regional and/or functional
measures (if applicable)1
measures (if applicable)1
Business division and/or regional measures vary but may include: net new money growth rate, adjusted divisional / regional profit
before tax, adjusted cost / income ratio, net new business volume growth rate, net interest margin, adjusted RoAE, Basel III RWA
and LRD expectations.
Specific functional measures for Corporate Center GEB members.
Pillars
Pillars
Capital strength
Establishes and maintains capital. Generates efficiencies and deploys our capital more efficiently and effectively.
Efficiency and effectiveness
Contributes to the development and execution of our strategy and success across all business lines, functions and regions.
Considers market conditions, relative performance and other factors.
Risk management
Reinforces risk management through an effective control framework. Captures the degree to which risks are self-identified and
focuses on the individual’s success to comply with all the various regulatory frameworks. Helps shape the firm’s relationship with
regulators through ongoing dialog.
Principles
Principles
Client focus
Excellence
Sustainable performance
Increases client satisfaction and maintains 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.
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.
Brand and Reputation – protects the Group’s reputation and reinforces full compliance with our standards and principles.
Culture and Growth – takes a personal role in making Principles and Behaviors front and center of the business requirements,
including a focus on sustainable growth. 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 reinforcing our collective
behaviors.
BBeehhaavviioorrss
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 mistakes and experiences.
11 Both regional and functional measures may include qualitative measures.
Qualitative performance assessment scale
The table below presents the five-point scale used for the qualitative assessment of the performance against goals related to Pillars,
Principles and Behaviors.
BBeellooww eexxppeeccttaattiioonnss
MMeett mmoosstt eexxppeeccttaattiioonnss
MMeett eexxppeeccttaattiioonnss
EExxcceeeeddeedd eexxppeeccttaattiioonnss
SSiiggnniiff.. eexxcceeeeddeedd eexxppeeccttaattiioonnss
Performance failed to meet the
standard expected, immediate
improvement required
Reasonable performance, but not
consistently up to the standard
expected, some improvement
required
Performance consistently met
standard expected, may have
exceeded a few goals
Performance exceeded most
expectations on a regular basis
Consistently achieved truly
exceptional results
Achievement score: 0–30%
Achievement score: 40%
Achievement score: 60%
Achievement score: 80%
Achievement score: 100%
262
Advisory vote
2019 compensation for the Group Chief Executive Officer
The performance award for the Group CEO, Sergio P. Ermotti, is
based on the achievement of financial performance targets and
qualitative goal achievements relative to Pillars, Principles and
Behaviors, as described earlier in this section. These targets and
goals were set to reflect the strategic priorities determined by
judge the quality and
the Chairman and the BoD. To
sustainability of
the Compensation
Committee considers in the qualitative goal assessment a range
of additional factors including relative performance and market
conditions, as well as ESG-related aspects, such as client
satisfaction, employee satisfaction, talent management, diversity
and inclusion, sustainable business practice, sustainable finance,
and philanthropy.
financial
results,
the
the presentation
The table below illustrates the assessment criteria used to
evaluate the achievements of Mr. Ermotti as Group CEO for
2019. We enhanced
these
disclosures by outlining the annual target, the results, the
achievement and the weighted assessment. With respect to the
non-financial targets, we have also aligned 100% with
“significantly exceeded expectations.” As a result, a “met
expectations” results in 60% versus 100% for “significantly
exceeded expectations.”
regarding
Refer to the “Compensation philosophy and framework”
section of this report for more information
Performance assessment for the Group CEO
The BoD recognized Mr. Ermotti’s successful leadership in preparing and positioning the Group for the future while
effectively navigating it through another challenging year marked by geopolitical and macro uncertainty as well as difficult
external conditions including sustained negative interest rates and significant efforts to mitigate the impact of the French cross-
border matter on the firm.
Weight
Performance
measures
2019
Annual
target
2019
Results
Achieve-
ment
Weighted
assess-
ment
2019 Commentary
30%
Return on CET1
capital
15%
12.4%
83%
25%
20%
Adjusted Group
profit before tax
USD 6.9
billion
USD 6.0
billion
88%
18%
Financial
perfor-
mance
10%
Adjusted cost /
income ratio
77%
78.9%
81%2
8%2
10%
Capital management
CET1 capital ratio
CET1 leverage ratio
Post-stress CET1
capital ratio
13.0%
3.7%
Above
target
13.7%
3.9%
Achieved
100%
100%
100%
10%
–
The Group achieved a reported
return on CET1 capital of 12.4%
(versus 13.1% in 2018).
–
The Group achieved an adjusted1
profit before tax of USD 6 billion,
in line with 2018 results.
–
Despite additional regulatory cost pressure,
costs were effectively managed down but
did not completely offset revenue
shortfalls, resulting in a cost / income
ratio of 78.9% (versus 79.5% in 2018).
–
The capital position was successfully
managed, allowing for increased
capital distributions / buybacks to
shareholders while maintaining a
strong CET1 capital ratio of 13.7%
and a CET1 leverage ratio of 3.9%.
11 Refer to “Group performance” in the “Financial and operating performance” section of this report for more information on adjusted results.
between actual and target affects the score by 10%.
22 For the assessment of the cost / income ratio, each 1% difference
263
Advisory voteCorporate governance and compensation
Corporate governance and compensation
Compensation
Performance assessment for the Group CEO (continued)
-
Perfor
mance
measures
Achieve-
ment
Weighted
assess-
ment
Weight
2019 Commentary
–
Under Mr. Ermotti’s leadership, capital distribution targets were deliv-
ered upon while maintaining the firm’s balance sheet strength. While
progress was achieved on a number of growth and synergy initia-
tives across divisions, functions and regions, the Group did not
fully deliver on growth and return targets, in particular in the
Global Wealth Management and Investment Bank divisions.
Mr. Ermotti further increased the focus on positioning UBS for the
future through various efforts including entering into strategic partner-
ships and executed on the defined technology strategy.
Mr. Ermotti continued his dedication to and personal engagement
with clients and ensured further progress was made throughout the
firm in enhancing client centricity, providing high-quality, state-of-
the-art products and services, leveraging new technologies and
strengthening the digital offering.
Mr. Ermotti led the organization in its continued focus on ESG topics,
demonstrated by the Group’s recognition as industry leader in the
Dow Jones Sustainability Indices for the fifth consecutive year,
confirming the progress made toward achieving the ambitions in sus-
tainable finance, philanthropy, sustainable business practices
and being an employer of choice.
Mr. Ermotti further enhanced the focus on improvements in the Group’s
risk profile and progressed initiatives to meet regulatory require-
ments.
In 2019, Mr. Ermotti integrated new GEB members into his leadership
team and made changes through internal promotion as well as attracting
external talent. He also continued to drive talent development, succes-
sion planning and internal mobility throughout the organization.
–
–
–
–
–
–
–
Mr. Ermotti set a clear and consistent tone from the top and
role-modeled the UBS behaviors. He continued to encourage
constructive challenge, displaying his strong commitment for continuous
improvement, and drove the organization toward stronger collaboration
in the interest of clients.
He remained the most important ambassador to the Group’s culture
and behavior program and continued to personally champion the
behavior principles across the organization.
15%
Pillars and
Principles
Met
expecta-
tions
(60%)
9%
Quali-
tative
goals
15%
Behaviors
Exceeded
expecta-
tions
(80%)
12%
Total weighted assessment
(maximum 100%)
81%
in 2019 and
In addition to Mr. Ermotti’s achievements
underlying performance, the BoD also considered other factors,
including the impact of the French cross-border matter on the
firm and the resulting share price development.
The BoD approved the proposal by the Compensation
Committee to grant Mr. Ermotti a performance award of
CHF 9.7 million (down 14% from CHF 11.3 million in 2018),
resulting in a total compensation for the year of CHF 12.2
million (excluding benefits and contributions to his retirement
benefit plan).
The performance award is subject to shareholder approval as
part of the aggregate GEB 2019 variable compensation and will
be delivered 20% (CHF 1.9 million) in cash and the remaining
80%
(CHF 7.8 million) subject to deferral and forfeiture
provisions, as well as meeting performance conditions over five
years.
Furthermore, CHF 1.5 million of the 2019 LTIP award for
Mr. Ermotti is entirely at risk and subject to forfeiture based on
the final cost associated with the resolution of the French cross-
border matter, as noted in other sections of this report.
264
Advisory vote
2019 total compensation for the GEB members
The GEB performance awards are subject to approval by the BoD
based on the assessment of financial targets, as well as goals
related to Pillars, Principles and Behaviors and, in aggregate,
subject to shareholder approval. The aggregate performance
award pool for the GEB was CHF 70.3 million (USD 70.7 million)
for 2019, a decrease of 14% compared with the prior year on a
per capita basis. This decrease is in line with the decrease in the
overall performance award pool of the firm. Group profit before
tax decreased 7% to USD 5.6 billion while adjusted profit before
tax decreased slightly to USD 6.0 billion.
The Compensation Committee has confirmed that performance
conditions for all GEB members’ awards due to vest in March 2020
have been satisfied, and thus the awards will vest in full.
At the 2020 AGM, shareholders will vote on the aggregate
2019 total variable compensation for the GEB in Swiss francs.
Therefore, the tables below provide the awarded compensation
for the Group CEO and the GEB members in Swiss francs and,
for reference, the total amounts in US dollars for comparability
with financial performance. The individual variable performance
awards for each GEB member will only be confirmed upon
shareholder approval at the AGM.
Refer to “Provisions of the Articles of Association related to
compensation” in the “Supplemental Information” section of
this report for more information
Audited |
Total compensation for GEB members1
Group CEO Sergio P. Ermotti (highest paid)
CHF, except where indicated
USD (for reference)2
FFoorr tthhee
yyeeaarr
22001199
Base salary
2,500,000
Contribution
to retirement
benefit
plans3
244,353
Benefits4
65,048
TToottaall ffiixxeedd
--
ccoommppeennssaa
ttiioonn
22,,880099,,440011
Cash5
1,940,000
Performance
award
under LTIP6/
EOP7
4,850,000
Performance
award
under
DCCP8
2,910,000
TToottaall
vvaarriiaabbllee
--
ccoommppeennssaa
ttiioonn
99,,770000,,000000
TToottaall ffiixxeedd
-
aanndd vvaarrii
-
--
aabbllee ccoomm
ppeennssaattiioonn99
1122,,550099,,440011
Total fixed
compensa-
tion
2,826,303
Total
variable
compensa-
tion
9,758,356
Total fixed
and vari-
able com-
pensation9
12,584,659
22001188
2,500,000
261,181
62,813
22,,882233,,999944
2,000,000
5,910,000
3,390,000
1111,,330000,,000000
1144,,112233,,999944
Aggregate of all GEB members10,11,12,13
CHF, except where indicated
FFoorr tthhee
yyeeaarr
22001199
Base
salary14
28,169,646
Contribution
to retirement
benefit
plans3
2,333,935
Benefits4
1,350,439
TToottaall ffiixxeedd
--
ccoommppeennssaa
ttiioonn
Performance
award
under
DCCP8
3311,,885544,,002200 14,050,000 35,125,000 21,075,000
Performance
award
under LTIP6/
EOP7
Cash5
USD (for reference)2
TToottaall
vvaarriiaabbllee
--
ccoommppeennssaa
ttiioonn
7700,,225500,,000000
TToottaall ffiixxeedd
-
aanndd vvaarrii
-
--
aabbllee ccoomm
ppeennssaattiioonn99
110022,,110044,,002200
Total fixed
compensa-
tion
32,045,656
Total
variable
compensa-
tion
Total fixed
and vari-
able com-
pensation9
70,672,629 102,718,285
22001188
22,948,016
2,540,085
2,042,509
2277,,553300,,661100 14,269,889 37,040,111 21,990,000
7733,,330000,,000000
110000,,883300,,661100
11 Local currencies have been translated into Swiss francs at the relevant year-end closing exchange rates, or at the performance award currency exchange rate. 22 Swiss franc amounts have been translated into US
dollars for reference at the 2019 performance award currency exchange rate of CHF / USD 1.006. 33 Includes the portion related to the employer’s contribution to the statutory pension scheme. 44 All benefits are
valued at market price. 55 For GEB members who are also MRTs or SMFs, the cash portion includes blocked shares. 66 LTIP awards for performance year 2019 were awarded at a value of 62.25% of maximum
which reflects our best estimate of the fair value of the award. The maximum number of shares is determined by dividing the awarded amount by the fair value of the award at the date of grant, divided by CHF
77 For EOP awards for the performance year 2018, the number of shares
12.919 or USD 13.141, the average closing price of UBS shares over the last ten trading days leading up to and including the grant date.
was determined by dividing the amount by CHF 12.622 or USD 12.610, the average closing price of UBS shares over the last ten trading days leading up to and including the grant date. 88 The amounts reflect the
amount of the notional additional tier 1 (AT1) capital instrument excluding future notional interest. For DCCP awards for the performance year 2019, the notional interest rate is set at 3.90% for awards
denominated in US dollars and 1.50% for awards denominated in Swiss francs. For DCCP awards for the performance year 2018, the notional interest rate is set at 6.85% for awards denominated in US dollars and
99 Excludes the portion related to the legally required employer’s social security contributions for 2019 and 2018, which are estimated at grant at CHF 4,969,844
3.40% for awards denominated in Swiss francs.
and CHF 5,175,418, respectively, of which CHF 797,938 and CHF 886,455, respectively, for the highest-paid GEB member. The legally required employees’ social security contributions are included in the amounts
shown in the table above, as appropriate. 1100 Thirteen GEB members were in office on 31 December 2019 including three new GEB members, one appointed on 1 January 2019 and two on 1 October 2019; three
GEB members stepped down, one on 31 December 2018 and two on 30 September 2019. Thirteen GEB members were in office on 31 December 2018 including two new GEB members appointed on 1 October
2018 and one on 1 November 2018; two GEB members stepped down on 31 December 2017 and 30 September 2018. 1111 2019 includes compensation for three months paid under the employment contract
during the notice period for one GEB member who stepped down on 30 September 2018 as well as compensation for two GEB members who stepped down on 30 September 2019 for nine months in office as GEB
members plus for three months paid under the employment contract during the notice period. 2018 includes compensation for six months paid under the employment contract during the notice period for one GEB
member who stepped down on 31 December 2017, as well as compensation for one GEB member who stepped down on 30 September 2018 for nine months in office as a GEB member plus for three months paid
under the employment contract during the notice period. 1122 2019 includes compensation for one newly appointed GEB member for 12 months in office as a GEB member and for two newly appointed GEB
members for three months in office as GEB members. 2018 includes compensation for two newly appointed GEB members for three months in office as GEB members, and for one newly appointed GEB member for
two months in office as a GEB member. 1133 For 2019, Iqbal Khan received a one-time replacement award of CHF 8,053,022. This replacement award is not included in the above table; including this, the 2019 total
aggregate compensation of all GEB members is CHF 110,157,042. 1144 Includes role-based allowances in line with market practice in response to regulatory requirements.
265
Advisory voteCorporate governance and compensation
Corporate governance and compensation
Compensation
Total realized compensation for Sergio P. Ermotti
To further illustrate the effect of our lengthy deferral approach
realized
in place since 2012, we disclose
compensation of Sergio P. Ermotti, including a multi-year
comparison with his total awarded compensation.
the annual
The realized compensation reflects the total amount paid out
in the year. It includes the base salary, cash performance award
payments, and all deferred performance awards vested in the
year. As such, realized pay is the natural culmination of awards
granted and approved by shareholders in previous years.
The table below provides information on the total awarded
and realized compensation paid out to Sergio P. Ermotti since his
appointment (excluding 2011 salary earned).
Total realized compensation vs awarded compensation for Sergio P. Ermotti¹
CHF
FFoorr tthhee yyeeaarr
22001199
22001188
22001177
22001166
22001155
22001144
22001133
22001122
11 Appointed on 24 September 2011 as Group CEO ad interim and confirmed on 15 November 2011.
(discontinued in 2012). 33 Cash Balance Plan installments. For 2012, due to applicable UK FSA regulations, deferred cash includes blocked shares.
installments paid out under the EOP, Senior Executive Equity Ownership Plan (SEEOP, discontinued in 2012) and Performance Equity Plan (PEP, discontinued in 2012).
benefit plans and benefits. Includes social security contributions paid by Sergio P. Ermotti but excludes the portion related to the legally required social security contributions paid by UBS.
AAwwaarrddeedd
Total awarded
fixed and variable
compensation6
12,200,000
13,800,000
13,900,000
13,400,000
14,000,000
10,900,000
10,400,000
8,600,000
22 Paid out based on previous performance year. For 2012 this includes Cash Balance Plan installments
44 Excludes dividend / interest payments. 55 Includes all
66 Excludes contributions to retirement
RReeaalliizzeedd
TToottaall rreeaalliizzeedd
ffiixxeedd aanndd vvaarriiaabbllee
ccoommppeennssaattiioonn66
1111,,440033,,774411
11,926,563
6,451,043
5,167,128
3,518,440
4,410,658
3,273,245
3,606,400
Performance
award under
equity plans4,5
4,533,741
4,986,563
2,951,043
1,667,128
1,018,440
537,217
423,623
0
Performance
award under
DCCP4
2,370,000
2,440,000
0
0
0
0
0
0
Deferred cash
award3,4
0
0
0
0
0
373,441
349,622
553,200
Cash award2
2,000,000
2,000,000
1,000,000
1,000,000
0
1,000,000
0
553,2003
Base salary
2,500,000
2,500,000
2,500,000
2,500,000
2,500,000
2,500,000
2,500,000
2,500,000
The chart below further illustrates the effect of our deferral
approach over time. The bars for realized pay show which
components (base salary, cash, equity plans, DCCP) deliver the
realized compensation in the year indicated and for which year
the respective component was initially awarded.
The bars for awarded compensation show the split between
fixed compensation (base salary) and variable compensation
(cash component and deferred awards) and highlight that a
significant portion of the variable compensation is deferred.
CHF million1
14.0
13.4
13.9
13.8
10.4
10.9
Deferred
Deferred
8.6
Deferred
3.6
2011
Base
salary
2012
3.3
2011
2011
2013
Cash
Base
salary
Base
salary
4.4
2011
2013
2011
2014
3.5
2011
2015
Cash
Base
salary
Deferred
Deferred
Deferred
Deferred
5.2
2012
2011
2015
Cash
Cash
6.5
2013
2012
2011
2016
11.9
2012
2014
2013
2012
12.2
11.4
2013
Deferred
2015
2014
2013
Cash
2017
Cash
2018
Base
salary
2016
Base
salary
2017
Base
salary
2018
Base
salary
2019
Awarded Realized
Awarded
Realized
Awarded
Realized
Awarded
Realized
Awarded
Realized
Awarded
Realized
Awarded
Realized
Awarded
Realized
2012
2013
2014
2015
2016
2017
2018
2019
Base salary
Cash2
Equity plans3 vesting from previous years
DCCP vesting from previous years
11 Excludes contributions to retirement benefit plans and benefits. Includes social security contributions paid by Sergio P. Ermotti but excludes the portion related to the legally required social security contributions paid
by UBS. 22 Paid out based on previous performance year. 2012, 2013 and 2014 include Cash Balance Plan installments.
33 Includes all installments paid out under respective EOP, SEEOP and PEP plans, excludes
dividend payments.
266
Advisory vote
Board of Directors compensation
Chairman of the BoD
Under the leadership of the Chairman, Axel A. Weber, the Board
of Directors (the BoD) determines, among other things, the
strategy for the Group based on recommendations by the Group
CEO, exercises ultimate supervision over management and
appoints all GEB members.
communication with
The Chairman presides over all general meetings of
shareholders and the BoD, and works with the committee
chairpersons to coordinate the work of all BoD committees.
Together with the Group CEO, the Chairman is responsible for
effective
shareholders and other
stakeholders, including clients, 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, as well as continuing to strengthen and
promote our culture through the three keys to success – our
Pillars, Principles and Behaviors.
The Chairman’s total compensation for the period from AGM
to AGM is contractually fixed without any variable component.
For the current period from the 2019 AGM to the 2020 AGM
and in line with the reduction of the fees for independent Board
members effective from the 2020 AGM, as explained later in this
section, his total compensation has been reduced by 14% from
CHF 5.7 million to CHF 4.9 million, excluding benefits and
pension fund contributions. The Chairman’s total compensation
for the current period consisted of a cash payment of CHF 3.5
million and a share component of CHF 1.4 million consisting of
108,367 UBS shares at CHF 12.919 per share.
Accordingly, his total reward, including benefits and pension
fund contributions for his service as Chairman for the current
period, was CHF 5,235,143.
Refer to “Board of Directors” in the “Corporate governance”
section of this report for more information about the
responsibilities of the Chairman
The share component aligns the Chairman’s pay with the
Group’s long-term performance. While the size of the share
award continues to be contractually fixed, the vesting of a
portion of the share award for the current period is linked to the
final resolution of the French cross-border matter. This portion is
entirely at risk and subject to forfeiture based on the final cost
associated with the resolution of the matter. If the French cross-
border matter is unresolved at the time the 2019 award is
expected to vest, this portion continues to be at risk, contingent
upon the final resolution of this matter. This vesting condition is
identical with the new vesting condition introduced for the
Group CEO and certain other GEB members on a portion of
their 2019 LTIP award. This further demonstrates the Chairman’s
alignment with shareholders on this matter. The remaining share
award is fully vested but blocked for four years.
Contractually fixed total compensation of the Chairman
Unvested share
award
CHF 0.6 million
• Up to CHF 0.6 million: final vesting amount is linked
to final resolution of the French cross-border matter
• Entire portion is fully at risk and subject to
forfeiture based on the final cost associated with
the resolution of the matter
Blocked share award
CHF 0.8 million
• Fully vested but blocked for 4 years
Cash payment
CHF 3.5 million
The Chairman’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 employees. The Chair of the Compensation Committee
proposes and the Compensation Committee approves the
Chairman’s compensation annually for the upcoming AGM to
AGM period, taking into consideration fee or compensation
levels for comparable roles based on our core financial industry
peers as well as other relevant leading Swiss companies as
included in the Swiss Market Index.
Audited |
Compensation details and additional information for non-independent BoD members
CHF, except where indicated
Name, function1
Axel A. Weber, Chairman
FFoorr tthhee ppeerriioodd
AAGGMM ttoo AAGGMM22
22001199//22002200
Base salary
3,500,000
Annual share
award3
1,400,000
22001188//22001199
3,500,000
2,200,000
Contributions
to retirement
benefit plans5
244,353
255,572
Benefits4
90,790
69,230
TToottaall66
55,,223355,,114433
66,,002244,,880022
USD
(for reference)
Total6,7
5,266,638
11 Axel A. Weber was the only non-independent member in office on 31 December 2019 and 31 December 2018. 22 The change in reporting period from “financial year” to “AGM to AGM” results in a different
total compensation for the period from the 2018 AGM to the 2019 AGM than previously reported for “financial year 2018”, which was CHF 6,033,422. The difference in the total compensation is due to varying
benefits and contributions to retirement benefit plans. 33 These shares are blocked for four years. 44 Benefits are all valued at market price. For the period from the 2019 AGM to the 2020 AGM, benefits amount
is an estimate. 55 Includes the portion related to UBS’s contribution to the statutory pension scheme. For the period from the 2019 AGM to the 2020 AGM, contribution to retirement benefit plans amount is an
66 Excludes the portion related to the legally required social security contributions paid by UBS, which for the period from the 2019 AGM to the 2020 AGM is estimated at grant at CHF 323,677 and for
estimate.
the period from the 2018 AGM to the 2019 AGM at CHF 369,772. The legally required social security contributions paid by the non-independent BoD members are included in the amounts shown in this table, as
appropriate. 77 Swiss franc amounts have been translated into US dollars for reference at the 2019 performance award currency exchange rate of CHF / USD 1.006.
267
Advisory voteCorporate governance and compensation
Corporate governance and compensation
Compensation
Independent BoD members
All BoD members except the Chairman are deemed independent
directors and receive a fixed base fee and additional committee
fees for their services on the firm’s various board committees as
outlined in the below table. For the current period from the
2019 AGM to the 2020 AGM the remuneration framework
remains unchanged.
In the current period, the roles of Senior Independent Director
and Vice Chairman are both held by one Board member, hence
the additional payment for both roles is only paid once.
Independent BoD members must use a minimum of 50% of
their fees to purchase UBS shares, which are blocked for four
years. They may elect to use up to 100% of their fees to
purchase blocked UBS shares. In all cases, the number of shares
is calculated at a discount of 15% on the average closing price
of the 10 trading days leading up to and including the grant
date. Independent BoD members do not receive performance
awards, severance payments or benefits.
At each AGM, shareholders are invited to approve the
aggregate amount of BoD remuneration in Swiss francs,
including compensation of the Chairman, which applies until the
next AGM. The tables on the following page provide details on
the compensation for the independent BoD members in Swiss
francs, and, for reference, the total amounts in US dollars.
The remuneration framework for independent BoD members
is subject to an annual review based on a proposal submitted by
the Chairman of the BoD to the Compensation Committee,
which in turn submits a recommendation to the BoD for
approval.
Remuneration framework for independent BoD members
In our 2019 review of all elements of our compensation
framework we also reflected on our BoD remuneration
framework. We concluded that our overall approach for
independent Board member compensation remains appropriate.
However, a number of adjustments have been made to simplify
and rebalance the fee structure while maintaining it at a
competitive level. These changes led to a total fee reduction of
approximately 14% (depending on allocation of committee
membership). The below summarizes the adjustments which
become effective for the period from the 2020 AGM to the
2021 AGM.
–
The fixed base fees, which had been broadly flat since 1998,
have been reduced from CHF 325,000 to CHF 300,000.
While the additional committee fees reflect the work required
on these committees, the fees for the Chairs of the Risk and
the Compensation Committees have been reduced by
CHF 50,000 and CHF 100,000, respectively.
We have substantially reduced the additional payment for the
Senior Independent Director and Vice Chairman roles to
CHF 150,000, a reduction of CHF 100,000. In case both roles
are allocated to one Board member, the fee will only be paid
once.
Independent BoD members must still use a minimum of 50%
of their fees to purchase UBS shares, which are blocked for
four years, and they may continue to elect to use up to 100%
of their fees to purchase blocked UBS shares. We have,
however, eliminated the 15% discount at which independent
Board members were previously entitled to purchase these
shares.
–
–
–
CHF
Fixed base fee
Additional fees
2019 AGM
to 2020 AGM1
325,000
2020 AGM
to 2021 AGM2
300,000
Pay mix
Delivery
Senior Independent Director / Vice Chairman
250,000
150,000
Blocked
shares
At least
50%
Additional committee fees
Chair
Member
Chair Member
Audit Committee
Compensation Committee
300,000 200,000
300,000 200,000
300,000 100,000
200,000 100,000
Governance and Nominating Committee
Corporate Culture and Responsibility Committee
100,000
50,000
100,000
50,000
Cash
Risk Committee
400,000 200,000
350,000 200,000
AGM-
to-AGM
period
Up to
50%
grant
year
year 1
year 2
year 3
year 4
1 UBS shares (at least 50% of fees) are granted with a price discount of 15% and are blocked for four years. 2 The share price discount of 15% will be eliminated effective from the 2020 AGM onwards; the
requirement to use at least 50% of the fees to purchase UBS shares blocked for four years remains unchanged.
268
Advisory vote
Audited |
Total payments to BoD members
CHF, except where indicated
Aggregate of all BoD members
FFoorr tthhee ppeerriioodd AAGGMM ttoo AAGGMM11
TToottaall22
USD (for reference)
Total2,3
22001199//22002200
1122,,551100,,114433
12,585,405
22001188//22001199
1133,,444499,,880022
11 The change in reporting period from “financial year” to “AGM to AGM” for the Chairman results in a different total compensation for the period from the 2018 AGM to the 2019 AGM than previously reported
for “financial year 2018”, which was CHF 13,458,422. The difference in the total compensation is due to varying benefits and contributions to retirement benefit plans for the Chairman. 22 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 the period from the 2019 AGM to the 2020 AGM is estimated at
grant at CHF 662,357 and for the period from the 2018 AGM to the 2019 AGM at CHF 831,552. 33 Swiss franc amounts have been translated into US dollars for reference at the 2019 performance award currency
exchange rate of CHF / USD 1.006.
Audited |
Remuneration details and additional information for independent BoD members
CHF, except where indicated
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
t
i
d
u
A
n
o
i
t
a
s
n
e
p
m
o
C
e
e
t
t
i
m
m
o
C
M
M
M
M
M
M
M
M
C
C
M
M
M
M
M
M
M
M
C
M
C
M
M
M
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
e
e
t
t
i
m
m
o
C
k
s
i
R
C
C
M
M
M
M
M
M
M
M
Name, function1
Michel Demaré,
former Vice Chairman
David Sidwell,
Vice Chairman and Senior
Independent Director
Jeremy Anderson,
member
William C. Dudley,
member
Reto Francioni,
member
Ann F. Godbehere,
former member
Fred Hu,
member
Julie G. Richardson,
member
Isabelle Romy,
member
Robert W. Scully,
member
Beatrice Weder di Mauro,
member
Dieter Wemmer,
member
Jeanette Wong,
member
Additional
payments2
–
250,000
250,000
250,000
FFoorr tthhee ppeerriioodd
AAGGMM ttoo AAGGMM
22001199//22002200
22001188//22001199
22001199//22002200
22001188//22001199
22001199//22002200
22001188//22001199
22001199//22002200
22001188//22001199
22001199//22002200
22001188//22001199
22001199//22002200
22001188//22001199
22001199//22002200
22001188//22001199
22001199//22002200
22001188//22001199
22001199//22002200
22001188//22001199
22001199//22002200
22001188//22001199
22001199//22002200
22001188//22001199
22001199//22002200
22001188//22001199
22001199//22002200
22001188//22001199
Base fee
–
325,000
325,000
325,000
325,000
325,000
325,000
–
325,000
325,000
–
325,000
325,000
325,000
325,000
325,000
325,000
325,000
325,000
325,000
325,000
325,000
325,000
325,000
325,000
–
Committee
fee(s)
–
400,000
500,000
500,000
450,000
350,000
250,000
–
300,000
250,000
–
500,000
100,000
–
600,000
300,000
300,000
300,000
200,000
200,000
250,000
250,000
300,000
300,000
200,000
–
TToottaall 22001199//22002200
Total 2019/2020 in USD
(for reference)7
TToottaall 22001188//22001199
Legend: C = Chairperson of the respective Committee, M Member of the respective Committee
=
Share
percentage4
–
100
50
Number of
shares5,6
–
86,010
48,948
50
50
50
50
–
50
50
–
50
100
50
50
50
50
50
50
50
50
50
50
50
100
–
50,097
35,288
31,456
26,181
–
28,458
26,796
–
38,447
27,283
15,145
42,118
29,126
28,458
29,126
23,904
24,466
26,181
26,796
28,458
29,126
33,722
–
TToottaall33
–
–
997755,,000000
11,,007755,,000000
11,,007755,,000000
777755,,000000
667755,,000000
557755,,000000
–
–
662255,,000000
557755,,000000
–
–
882255,,000000
442255,,000000
332255,,000000
992255,,000000
662255,,000000
662255,,000000
662255,,000000
552255,,000000
552255,,000000
557755,,000000
557755,,000000
662255,,000000
662255,,000000
552255,,000000
–
–
77,,227755,,000000
7,318,766
77,,442255,,000000
11 Eleven independent BoD members were in office on 31 December 2019. At the 2019 AGM, William C. Dudley and Jeanette Wong were newly elected and Michel Demaré and Ann F. Godbehere did not stand for
re-election. Eleven independent BoD members were in office on 31 December 2018. 22 These payments are associated with the Vice Chairman and/or the Senior Independent Director function. 33 Excludes UBS’s
portion related to the legally required social security contributions, which for the period from the 2019 AGM to the 2020 AGM is estimated at grant at CHF 338,680 and which for the period from the 2018 AGM to
the 2019 AGM was estimated at grant at CHF 461,780. The legally required social security contributions paid by the independent BoD members are included in the amounts shown in this table, as appropriate.
44 Fees are paid 50% in cash and 50% in blocked UBS shares. However, independent BoD members may elect to have 100% of their remuneration paid in blocked UBS shares. 55 For 2019, UBS shares, valued at
CHF 12.919 (average closing price of UBS shares over the last 10 trading days leading up to and including the grant date), were granted with a price discount of 15%. These shares are blocked for four years. For
2018, UBS shares, valued at CHF 12.622 (average closing price of UBS shares at the SIX Swiss Exchange over the last 10 trading days leading up to and including the grant date), were granted with a price discount
of 15%. These shares are blocked for four years. 66 Number of shares is reduced in case of the 100% election to deduct legally required contributions. All remuneration payments are, where applicable, subject to
social security contributions and/or withholding tax. 77 Swiss franc amounts have been translated into US dollars for reference at the 2019 performance award currency exchange rate of CHF / USD 1.006.
269
Advisory voteCorporate governance and compensation
Corporate governance and compensation
Compensation
Supplemental information
Fixed and variable compensation for GEB members
Fixed and variable compensation for GEB members1,2,3
CHF million, except where indicated
AAmmoouunntt
%%
AAmmoouunntt
TToottaall ffoorr 22001199
NNoott ddeeffeerrrreedd
TToottaall ccoommppeennssaattiioonn
Amount5
Number of beneficiaries
FFiixxeedd ccoommppeennssaattiioonn55,,66
Cash-based
Equity-based
VVaarriiaabbllee ccoommppeennssaattiioonn
9988
1166
2288
2244
44
7700
110000
2299
2255
44
7711
4422
2288
2244
44
1144
%%
4433
110000
2200
DDeeffeerrrreedd44
AAmmoouunntt
5566
00
00
00
5566
Total for 2018
Amount
96
15
23
21
2
73
%%
5577
00
8800
00
1144
1144
1144
3366
2211
3355
2211
Cash7
Long-Term Incentive Plan (LTIP) / Equity Ownership
Plan (EOP)8
Deferred Contingent Capital Plan (DCCP)8
11 The figures relate to all GEB members in office during 2019. Thirteen GEB members were in office on 31 December 2019 including three new GEB members, one appointed on 1 January 2019 and two on
1 October 2019; three GEB members stepped down, one on 31 December 2018 and two on 30 September 2019. Thirteen GEB members were in office on 31 December 2018 including two new GEB members
appointed on 1 October 2018 and one on 1 November 2018; two GEB members stepped down on 31 December 2017 and 30 September 2018.
22 2019 includes compensation for three months paid under the
employment contract during the notice period for one GEB member who stepped down on 30 September 2018 as well as compensation for two GEB members who stepped down on 30 September 2019 for nine
months in office as GEB member plus for three months paid under the employment contract during the notice period. 2018 includes compensation for six months paid under the employment contract during the
notice period to one GEB member who stepped down on 31 December 2017, as well as compensation for one GEB member who stepped down on 30 September 2018 for nine months in office as a GEB member
plus for three months paid under the employment contract during the notice period. 33 2019 includes compensation for one newly appointed GEB member for 12 months in office as a GEB member and for two
newly appointed GEB members for three months in office as GEB members. 2018 includes compensation for two newly appointed GEB members for three months in office as GEB members, and for one newly
appointed GEB member for two months in office as a GEB member. 44 Based on the specific plan vesting and reflecting the total award value at grant, which may differ from the accounting expenses. 55 Excludes
benefits and employer’s contributions to retirement benefit plans. Includes social security contributions paid by GEB members but excludes the portion related to the legally required social security contributions paid
by UBS. For 2019, Iqbal Khan received a one-time replacement award of CHF 8 million. This replacement payment is not included in the above table; including this, the 2019 total compensation of GEB members is
CHF 106 million. 66 Includes base salary and role-based allowances, rounded to the nearest million. 77 Includes allocation of vested but blocked shares, in line with the remuneration section of the UK Prudential
Regulation Authority Rulebook. 88 For the GEB members who are also MRTs (or SMFs), the awards starting with performance year 2017 are no longer permitted to include dividend and interest payments.
Accordingly, the amounts reflect for the LTIP / EOP the fair value of the non-dividend-bearing awards and for the DCCP the fair value of the granted non-interest-bearing awards.
37
22
3355
2211
00
00
14
270
Advisory vote
Regulated staff
Key Risk Takers
Key Risk Takers (KRTs) are defined as those employees who, by
the nature of their roles, 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 globally is part of our risk
control framework and an important element in ensuring we
incentivize only appropriate risk-taking. For 2019, in addition to
GEB members, 661 employees were classified as KRTs
throughout the UBS Group globally, including all GMDs and all
employees with a total compensation exceeding USD / CHF 2.5
million (Highly Paid Employees) who may not have been
identified as KRTs during the performance year.
functions.
the control
In line with regulatory requirements, the performance of
employees identified as KRTs during the performance year is
evaluated by
In addition, KRTs’
performance awards are subject to a mandatory deferral rate of
at least 50%, regardless of whether the deferral threshold has
been met. A KRT’s deferred compensation award will only vest if
the relevant Group and/or business division performance
conditions are met. Consistent with all other employees, the
deferred portion of a KRT’s compensation is also subject to
forfeiture or reduction if the KRT commits harmful acts.
Fixed and variable compensation for Key Risk Takers1
USD million, except where indicated
AAmmoouunntt
%%
AAmmoouunntt
TToottaall ffoorr 22001199
NNoott ddeeffeerrrreedd
TToottaall ccoommppeennssaattiioonn
Amount
Number of beneficiaries
FFiixxeedd ccoommppeennssaattiioonn33,,44
Cash-based
Equity-based
VVaarriiaabbllee ccoommppeennssaattiioonn
11,,005566
110000
666611
338888
338833
66
666677
3377
3366
11
6633
667700
338888
338833
66
228822
%%
6644
110000
4422
DDeeffeerrrreedd22
AAmmoouunntt
338855
00
00
00
338855
Total for 2018
Amount
1,250
675
417
395
22
833
%%
3366
00
5588
228822
Cash5
Long-Term Incentive Plan (LTIP) / Equity Ownership
Plan (EOP) 6
Deferred Contingent Capital Plan (DCCP)6
11 Includes employees with a total compensation exceeding USD / CHF 2.5 million (Highly Paid Employees), excluding GEB members who were in office during the performance year 2019, except the new GEB
member appointed during 2019, who is included for compensation received in their role as a KRT prior to being appointed to the GEB. 22 Based on the specific plan vesting and reflecting the total value at grant,
which may differ from the accounting expenses. 33 Excludes benefits and employer's contributions to retirement benefits plan. Includes social security contributions paid by KRTs but excludes the portion related to
the legally required social security contributions paid by UBS. 44 Includes base salary and role-based allowances. 55 Includes allocation of vested but blocked shares, in line with regulatory requirements where
applicable. 66 Starting with performance year 2017, KRTs who are also MRTs are no longer permitted to receive dividend and interest payments. Accordingly, the amounts for the EOP/LTIP reflect the fair value of
the non-dividend-bearing awards and for the DCCP the fair value of the granted non-interest-bearing awards.
305
186
223300
115555
223300
115555
2222
1155
341
00
00
228822
2277
00
271
Advisory voteCorporate governance and compensation
Corporate governance and compensation
Compensation
Material Risk Takers
UK Senior Managers and Certification Regime
The Senior Managers and Certification Regime (the SMCR) of
the UK Prudential Regulation Authority and Financial Conduct
Authority requires that individuals with specified responsibilities,
performing certain significant functions and/or those in certain
other identified categories be designated as Senior Management
Functions (SMFs).
SMFs are subject to specific compensation requirements,
including longer deferral, blocking and clawback periods. The
deferral period for SMFs is seven years, with the deferred
performance awards vesting no faster than pro rata from years 3
to 7. Additionally, these awards are subject to a 12-month
blocking period post vesting. The clawback policy for SMFs
permits clawback for up to 10 years from the date of
performance award grants (applicable if an individual is subject
to an investigation at the end of the initial UK seven-year
clawback period). All SMFs are also identified as MRTs and as
such subject to the same prohibitions on dividend and interest
payments.
Control functions and Group Internal Audit
Our control functions must be independent in order to monitor
risk effectively. Therefore their compensation is determined
separately from the revenue producers that they oversee,
supervise or monitor. Their performance award pool is based not
on the performance of these businesses, but on the performance
of the Group as a whole. In addition, we consider other factors,
such as how effectively the function has performed, and our
market position. Decisions on individual compensation for the
senior managers of the control functions are made by the function
heads and approved by the Group CEO. Decisions on individual
compensation for the members of Group Internal Audit (GIA) are
made by the Head GIA and approved by the Chairman of the
BoD. Upon proposal by the Chairman, total compensation for the
Head GIA is approved by the Compensation Committee in
consultation with the Audit Committee.
the
requirements,
For relevant EU-regulated entities, we identify individuals who
are deemed to be Material Risk Takers (MRTs) based on local
regulatory
respective EU Commission
Delegated Regulation and the EU Capital Requirements Directive
of 2013 (CRD IV). This group consists of senior management,
risk takers, selected staff in control or support functions and
certain employees whose total compensation
is above a
specified threshold. For 2019, UBS identified 755 MRTs across its
EU entities.
Variable compensation awarded to MRTs is subject to specific
requirements from local regulators, such as a maximum variable
to fixed compensation ratio, which is set at 100% unless
approved to be increased to 200% by the shareholders of the
respective legal entity. UBS has obtained approval as appropriate
through relevant shareholder votes to increase the variable to
fixed compensation ratio to 200%. Other applicable regulatory
requirements for this population include a minimum deferral
rate of 40–60% on performance awards and the delivery of at
least 50% of any upfront performance award in UBS shares that
vest immediately but are blocked for 12 months.
Any notional shares granted to MRTs under the LTIP, EOP and
notional DCCP awards for their performance in 2019 are subject
to a six- or 12-month blocking period post vesting and do not
pay out dividends or interest during the deferral period.
Performance awards granted to MRTs are also subject to
clawback provisions which allow the firm to claim repayment of
both the immediate and the vested deferred element of any
performance award if an individual is found to have contributed
substantially to significant financial losses for the Group or
corporate structure in scope, a material downward restatement
of disclosed results, or engaged in misconduct and/or failed to
take expected actions that contributed to significant reputational
harm.
Due to UK regulatory requirements, LTIP awards granted to
UK MRTs and SMFs will be subject to an additional non-financial
conduct-related metric.
272
Advisory vote
2019 performance award pool and expenses
Performance awards granted for the 2019 performance year
The “Variable compensation” table below shows the amount of
variable compensation awarded
the
the number of
performance year 2019,
together with
to employees
for
beneficiaries for each type of award granted. 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.
Variable compensation1
USD million, except where indicated
Non-deferred cash
Deferred compensation awards
of which: Equity Ownership Plan
of which: Deferred Contingent Capital Plan
of which: Long-Term Incentive Plan
of which: Asset Management EOP
Expenses recognized
in the IFRS income
statement
22001199
2018
11,,889944
2,089
229999
112222
111133
3399
2255
373
217
131
0
25
TToottaall vvaarriiaabbllee ccoommppeennssaattiioonn ppeerrffoorrmmaannccee aawwaarrdd ppooooll
––
22,,119933
2,461
Variable compensation – other2
115599
162
Expenses deferred to
future periods4
22001199
2018
00
442299
220055
117733
2255
2266
442299
111177
0
585
325
238
0
22
585
180
Adjustments4
22001199
2018
Total
22001199
2018
Number of beneficiaries
2018
22001199
00
5511
3355 55
00
1166 55
00
5511
0
71
71 5
0
0
0
11,,889944
2,089
5544,,117799
51,809
777799
336622
228866
8800
5511
1,029
613
369
0
47
33,,557722
33,,222288
33,,555522
111199
330077
3,967
3,768
3,934
0
284
71
22,,667733
3,118
5544,,221100
51,819
((5500))66
(96)6
222266
246
33,,226655
3,266
Financial advisor (FA) variable compensation3
TToottaall vvaarriiaabbllee ccoommppeennssaattiioonn iinncclluuddiinngg FFAA vvaarriiaabbllee
ccoommppeennssaattiioonn
(25)
55,,661177
11 Expenses under “Variable compensation – other” and “Financial advisor variable compensation” are not part of UBS’s performance award pool.
22 Comprised of replacement payments, forfeiture credits,
severance payments, retention plan payments and interest expense related to the Deferred Contingent Capital Plan. 33 Financial advisor compensation consists of formulaic compensation based directly on
compensable revenues generated by financial advisors and supplemental compensation calculated based on financial advisor productivity, firm tenure, new assets and other variables. It also includes expenses
related to compensation commitments with financial advisors entered into at the time of recruitment that are subject to vesting requirements. 44 Estimates as of 31 December 2019 and 2018. Actual amounts to be
66 Included in expenses deferred to future
expensed in future periods may vary, e.g., due to forfeiture of awards.
periods is an amount of USD 50 million (2018: USD 96 million) in interest expense related to the Deferred Contingent Capital Plan. As the amount recognized as performance award represents the present value of
the award at the date it is granted to the employee, this amount is excluded.
55 Represents estimated post-vesting transfer restriction and permanent forfeiture discounts.
3,750
5,889
1,250
7,114
6,850
66,,771111
11,,009933
33,,881133
66,,554499
484
554488
0
22
00
2019 performance award pool and expenses
The performance award pool, which includes performance-
based variable awards for 2019, was USD 2.7 billion, reflecting a
decrease of 14% compared with 2018.
Performance award expenses for 2019 decreased 8% to
USD 2.8 billion, reflecting the reduction of the performance
award pool for 2019. The “Performance award pool and
expenses” table below compares the performance award pool
with performance award expenses.
Performance award pool and expenses
USD million, except where indicated
Performance award pool1
of which: expenses deferred to future periods and accounting adjustments 2,3
Performance award expenses accrued in the performance year
22001199
22,,667733
448800
22,,119933
2018
3,118
657
2,461
% change
(14)
(27)
(11)
Performance award expenses related to prior performance years
TToottaall ppeerrffoorrmmaannccee aawwaarrdd eexxppeennsseess rreeccooggnniizzeedd ffoorr tthhee yyeeaarr44
11 Excluding employer-paid taxes and social security. 22 Estimate as of the end of the performance year. Actual amounts expensed in future periods may vary, e.g., due to forfeiture of awards. 33 Accounting
44 Refer to “Note 30 Employee benefits: variable compensation” in the “Consolidated financial statements”
adjustments represent estimated post-vesting transfer restriction and permanent forfeiture discounts.
section of this report for more information.
2,995
22,,775555
534
(8)
556622
5
273
Advisory voteCorporate governance and compensation
Corporate governance and compensation
Compensation
GEB and KRTs deferred compensation
The “GEB and KRTs deferred compensation” table below 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
GEB and KRTs deferred compensation1,2,3
on the closing share price on 31 December 2019. For notional
funds, it is determined using the latest available market price for
the underlying funds at year-end 2019, and for deferred cash
plans, it is determined based on the outstanding amount of cash
owed to award recipients.
USD million, except where indicated
GGEEBB
Deferred Contingent Capital Plan
Equity Ownership Plan (including notional
funds)
Long-Term Incentive Plan
KKRRTTss
Deferred Contingent Capital Plan
Equity Ownership Plan (including notional
funds)
Long-Term Incentive Plan
RReellaattiinngg ttoo aawwaarrddss
ffoorr 2200119944
Relating to
awards for prior
years5
of which: exposed to
ex-post explicit and /
or implicit adjustments
Total
Total deferred
compensation
year-end 2018
Total amount of
deferred compensation
paid out in 20196
2211
00
3355
115555
118822
4488
99
129
0
834
698
0
120
129
35
989
880
48
100%
100%
100%
100%
100%
100%
119
145
0
1,051
979
0
11
25
0
133
274
0
444422
TToottaall GGEEBB aanndd KKRRTTss
442
11 Based on the specific plan vesting and reflecting the economic value of the outstanding awards, which may differ from the accounting expenses. Year-to-year reconciliations would also need to consider the
impacts of additional items including off-cycle awards, FX movements, population changes, and dividend equivalent reinvestments. 22 Refer to “Note 30 Employee benefits: variable compensation” in the
“Consolidated financial statements” section of the Annual Report 2019 for more information. 33 Starting with performance year 2017, GEB members and KRTs who are also MRTs are no longer permitted to
receive dividend and interest payments. Accordingly, the amounts for the EOP/LTIP reflect the fair value of the non-dividend-bearing awards and for the DCCP the fair value of the granted non-interest-bearing
awards. 44 Where applicable, amounts are translated into US dollars at the performance award currency exchange rate. For GEB members who were appointed to the GEB during 2019, awards have been pro-rated
between KRT and GEB entries accordingly. 55 Takes into account the ex-post implicit adjustments, given the share price movements since grant. For GEB members who were appointed to the GEB part way through
2019, awards have been fully reflected in the GEB entries. Where applicable, amounts are translated from award currency into US dollars using FX rates as at 31 December 2019. 66 Valued at distribution price and
FX rate for all awards distributed in 2019. For GEB members who were appointed to the GEB during 2019, value of the awards paid out according to their role at the time of distribution.
1,760
2,202
2,294
The “GEB and KRTs ex-post explicit and implicit adjustments to
deferred compensation” table below shows the value of actual
ex-post explicit and implicit adjustments to outstanding deferred
compensation in the financial year 2019 for GEB members and
KRTs.
Ex-post adjustments occur after an award has been granted.
Explicit adjustments occur when we adjust compensation by
forfeiting deferred awards. Implicit adjustments are unrelated to
any action taken by the firm and occur as a result of price
movements that affect the value of an award.
The total value of ex-post explicit adjustments made to UBS
share awards in 2019, based on the approximately 7.0 million
shares forfeited during 2019, is a reduction of USD 88.4 million.
GEB and KRTs ex-post explicit and implicit adjustments to deferred compensation
USD million
GGEEBB
Deferred Contingent Capital Plan
Equity Ownership Plan (including notional funds, if applicable)
KKRRTTss
Deferred Contingent Capital Plan
Equity Ownership Plan (including notional funds)
--
EExx ppoosstt eexxpplliicciitt aaddjjuussttmmeennttss
ttoo uunnvveesstteedd aawwaarrddss11
3311..1122..1199
31.12.18
--
EExx ppoosstt iimmpplliicciitt aaddjjuussttmmeennttss
ttoo uunnvveesstteedd aawwaarrddss22
3311..1122..1199
31.12.18
00
00
((33))
((33))
0
0
(17)
(13)
00
((1111))
00
((4444))
0
(28)
0
(166)
TToottaall GGEEBB aanndd KKRRTTss
(194)
11 Ex-post explicit adjustments are calculated as units forfeited during the year, valued at the share price on 31 December 2019 (USD 12.58) for 2019. The 2018 data is valued using the share price on 31 December
2018 (USD 12.38). For the notional funds awarded to Asset Management employees under the EOP, this represents the forfeiture credits recognized in 2019 and 2018. For the DCCP, the fair value at grant of the
forfeited awards during the year is reflected. For GEB members who were appointed to the GEB during 2019, awards have been fully reflected in the GEB entries. 22 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 2019
and 2018. For GEB members who were appointed to the GEB during 2019, awards have been fully reflected in the GEB entries.
(30)
((5555))
((66))
274
Advisory vote
Total personnel expenses for 2019
We employed 68,601 personnel (full-time equivalents) as of
31 December 2019. The net increase of 1,713 compared with
31 December 2018 was largely driven by a 2,583 FTE increase in
Corporate Center, mainly as a result of the ongoing insourcing
of certain activities from third-party vendors to our Business
Solutions Centers, resulting in a decrease of approximately
2,200 outsourced staff. This was partly offset by a 944 FTE
decrease in Global Wealth Management, reflecting the effect of
cost management initiatives and a review of advisor portfolios.
The “Personnel expenses” table below shows our total
personnel expenses for 2019. It includes salaries, pension
expenses, social security contributions, variable compensation
and other personnel costs. Variable compensation includes cash
performance awards paid in 2020 for the 2019 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 context of the
compensation framework at the date of grant.
reflects
The performance award pool
the value of
Personnel expenses
USD million
SSaallaarriieess11
Non-deferred cash
Deferred compensation awards
of which: Equity Ownership Plan
of which: Deferred Contingent Capital Plan
of which: Long-Term Incentive Plan
of which: Asset Management EOP
of which: Other performance awards
TToottaall vvaarriiaabbllee ccoommppeennssaattiioonn ppeerrffoorrmmaannccee aawwaarrddss22
–
–
of which: guarantees for new hires
Replacement payments3
Forfeiture credits
Severance payments4
Retention plan and other payments
Deferred Contingent Capital Plan: interest expense
TToottaall vvaarriiaabbllee ccoommppeennssaattiioonn ootthheerr22
–
–
CCoonnttrraaccttoorrss
SSoocciiaall sseeccuurriittyy
PPeennssiioonn aanndd ootthheerr ppoosstt eemmppllooyymmeenntt bbeenneeffiitt ppllaannss55
-
-
FFiinnaanncciiaall aaddvviissoorr vvaarriiaabbllee ccoommppeennssaattiioonn22,,66
OOtthheerr ppeerrssoonnnneell eexxppeennsseess
TToottaall ppeerrssoonnnneell eexxppeennsseess
performance awards granted relating to the 2019 performance
year, including awards that are paid out immediately and those
that are deferred. To determine our variable compensation
expenses, the following adjustments are required in order to
reconcile the performance award pool to the expenses
recognized in the Group’s financial statements prepared in
accordance with International Financial Reporting Standards
(IFRS):
–
reduction
future periods
(amortization of unvested awards granted in 2020 for the
performance year 2019) and accounting adjustments; and
addition for the 2019 amortization of unvested deferred
awards granted in prior years.
for expenses deferred
to
–
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 expenses in both 2018
and 2019.
Refer to “Note 6 Personnel expenses” and “Note 30 Employee
benefits: variable compensation” in the “Consolidated financial
statements” section of this report for more information
Expenses recognized in the IFRS income statement
RReellaatteedd ttoo tthhee
ppeerrffoorrmmaannccee yyeeaarr 22001199
66,,551188
RReellaatteedd ttoo pprriioorr
ppeerrffoorrmmaannccee yyeeaarrss
00
TToottaall eexxppeennsseess
rreeccooggnniizzeedd iinn
22001199
Total expenses
recognized in
2018
66,,551188
11,,886688
888877
442222
337755
3399
5511
00
6,448
2,057
938
526
357
0
53
2
Total expenses
recognized in
2017
6,154
2,062
1,088
583
444
0
57
4
22,,775555
2,995
3,151
2299
5566
((8866))
112255
5566
9944
224466
338811
779999
778877
43
72
(136)
123
66
119
243
489
791
457
36
72
(107)
113
63
111
252
460
814
723
4,064
581
16,199
777788
2277
11,,447700
44,,004433
555555
1166,,008844
4,054
654
16,132
((2266))
558888
330000
226622
00
2266
00
556622
1144
5511
((8866))
00
2288
9944
8888
00
1155
00
11,,889944
229999
112222
111133
3399
2255
00
22,,119933
1155
55
00
112255
2288
00
115599
338811
778833
778877
33,,226655
552288
1144,,661144
22 Refer to “Note 30 Employee benefits: variable compensation” in the “Consolidated financial statements” section of this report for more information. 33 Payments made to
11 Includes role-based allowances.
44 Includes legally obligated and standard severance payments. 55 Refer to “Note 29 Pension and other post-employment benefit
compensate employees for deferred awards forfeited as a result of joining UBS.
66 Consists of formulaic compensation based directly on compensable revenues generated by financial advisors and
plans” in the “Consolidated financial statements” section of this report for more information.
supplemental compensation calculated based on financial advisor productivity, firm tenure, new assets and other variables. It also includes expenses related to compensation commitments with financial advisors
entered into at the time of recruitment that are subject to vesting requirements.
275
Advisory voteCorporate governance and compensation
Corporate governance and compensation
Compensation
Vesting of outstanding awards granted in prior years subject to performance conditions
The tables below show the extent to which the performance conditions for awards granted in prior years have been met and the
percentage of the awards that vest in 2020.
Equity Ownership Plan (EOP) 2014 / 2015, EOP 2015 / 2016,
Equity Ownership Plan (EOP) 2014 / 2015, EOP 2015 / 2016,
EOP 2016 / 2017 and EOP 2017 / 2018
EOP 2016 / 2017 and EOP 2017 / 2018
Performance conditions
Performance conditions
Performance achieved
Performance achieved
Adjusted return on tangible equity1 and divisional return on
attributed equity
The Group and divisional performance conditions have been satisfied. For EOP
2014 / 2015, the third and final installment for the Group Executive Board (GEB)
members vests in full. For EOP 2015 / 2016, the second installment for the GEB
members vests in full. For EOP 2016 / 2017, the first installment for the GEB
members and the second installment for all other employees covered under the
plan vest in full. For EOP 2017 / 2018, the first installment for all other employees
covered under the plan vests in full.
% of installment vesting
% of installment vesting
100%
1 The assessment for vesting purposes excludes the effect of deferred tax assets (DTAs). Furthermore, DTAs, when positive, have never had an impact on the performance award vesting.
1
Deferred Contingent Capital Plan (DCCP) 2014 / 2015
Deferred Contingent Capital Plan (DCCP) 2014 / 2015
Performance conditions
Performance conditions
Performance achieved
Performance achieved
% of installment vesting
% of installment vesting
Common equity tier 1 (CET1) capital ratio, viability event and,
additionally for GEB, Group adjusted profit before tax
The performance conditions have been satisfied. DCCP 2014 / 2015 vests in full.
100%
Discontinued deferred compensation plans
As of 31 December 2019, there were no discontinued compensation plans with outstanding balances. The firm has not granted any
options since 2009.
Refer to “Note 30 Employee benefits: variable compensation” in the “Consolidated financial statements” section of this report for more
information
276
Advisory vote
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
Loans granted to GEB members
Loans granted to BoD members
Compensation paid to former BoD and GEB members
PPaaggee
227788
227788
227799
227799
228800
228800
228800
277
Advisory voteCorporate governance and compensation
Corporate governance and compensation
Compensation
Audited |
Share and option ownership / entitlements of GEB members1
Name, function
Sergio P. Ermotti, Group Chief Executive Officer
Martin Blessing, former Co-President Global Wealth Management
Christian Bluhm, Group Chief Risk Officer
Markus U. Diethelm, Group General Counsel
Kirt Gardner, Group Chief Financial Officer
Suni Harford, President Asset Management
Robert Karofsky, Co-President Investment Bank
Sabine Keller-Busse, Group Chief Operating Officer and President UBS EMEA
Iqbal Khan, Co-President Global Wealth Management
Edmund Koh, President Asia Pacific
Ulrich Körner, former President Asset Management and President UBS EMEA
Axel P. Lehmann, President Personal & Corporate Banking and President UBS Switzerland
Tom Naratil, Co-President Global Wealth Management and President UBS Americas
Piero Novelli, Co-President Investment Bank
Markus Ronner, Group Chief Compliance and Governance Officer
TToottaall
oonn
3311 DDeecceemmbbeerr
22001199
Number of
unvested
shares / at risk2
1,862,480
Number of
vested shares
2,150,003
TToottaall nnuummbbeerr ooff
sshhaarreess
44,,001122,,448833
Potentially
conferred
voting
rights in %
0.227
22001188
22001199
22001188
22001199
22001188
22001199
22001188
22001199
22001188
22001199
22001188
22001199
22001188
22001199
22001188
22001199
22001188
22001199
22001188
22001199
22001188
22001199
22001188
22001199
22001188
22001199
22001188
22001199
22001188
22001199
1,715,430
–
1,757,766
–
256,356
440,953
259,745
698,402
614,222
532,643
343,120
63,211
–
577,606
500,902
423,778
259,762
712,342
–
380,340
–
–
910,951
522,202
307,090
1,307,554
1,132,938
599,156
471,049
214,850
161,152
0
0
0
458,426
317,516
129,807
107,472
0
–
492,476
254,119
315,922
263,362
0
–
183,104
–
–
95,597
277,978
277,978
609,477
484,075
429,652
256,367
68,097
173
33,,447733,,119966
–
–
225566,,335566
444400,,995533
225599,,774455
11,,115566,,882288
993311,,773388
666622,,445500
445500,,559922
6633,,221111
–
–
11,,007700,,008822
775555,,002211
773399,,770000
552233,,112244
771122,,334422
–
–
556633,,444444
–
–
–
–
11,,000066,,554488
880000,,118800
558855,,006688
11,,991177,,003311
11,,661177,,001133
11,,002288,,880088
772277,,441166
228822,,994477
116611,,332255
8,335,517
5,114,942
1133,,445500,,445599
0.191
–
0.014
0.025
0.014
0.065
0.051
0.037
0.025
0.004
–
0.061
0.042
0.042
0.029
0.040
–
0.032
–
–
0.055
0.045
0.032
0.108
0.089
0.058
0.040
0.016
0.009
0.761
0.591
11 Includes all vested and unvested shares of GEB members, including those held by related parties. No options were held in 2019 and 2018 by any GEB member or any of its related parties. Refer to “Note 30
Employee benefits: variable compensation” in the “Consolidated financial statements” section of the Annual Report 2019 for more information. 22 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 “Compensation philosophy and framework” section of this report for more
information about the plans.
3,814,425
1100,,774477,,114422
6,932,717
22001188
Audited |
Total of all vested and unvested shares of GEB members1,2
SShhaarreess oonn 3311 DDeecceemmbbeerr 22001199
1133,,445500,,445599
5,114,942
1,798,389
1,811,721
2,199,926
1,517,110
1,008,371
TToottaall of which: vested
of which: vesting
2020
2021
2022
2023
2024
SShhaarreess oonn 3311 DDeecceemmbbeerr 22001188
1100,,774477,,114422
3,814,425
1,745,323
1,761,048
1,738,595
1,146,636
541,112
11 Includes shares held by related parties.
terms of the plans. Refer to the “Compensation philosophy and framework” section of this report for more information.
22 Includes shares granted under variable compensation plans with forfeiture provisions. The actual number of shares vesting in the future will be calculated under the
2019
2020
2021
2022
2023
278
Advisory vote
Audited |
Number of shares of BoD members1
Name, function
Axel A. Weber, Chairman
Michel Demaré, former Vice Chairman2
David Sidwell, Vice Chairman and Senior Independent Director
Jeremy Anderson, member
William C. Dudley, member2
Reto Francioni, member
Ann F. Godbehere, former member2
Fred Hu, member
Julie G. Richardson, member
Isabelle Romy, member
Robert W. Scully, member
Beatrice Weder di Mauro, member
Dieter Wemmer, member
Jeanette Wong, member2
TToottaall
oonn 3311 DDeecceemmbbeerr
22001199
NNuummbbeerr ooff sshhaarreess hheelldd
993388,,662277
Voting rights in %
0.053
22001188
22001199
22001188
22001199
22001188
22001199
22001188
22001199
22001188
22001199
22001188
22001199
22001188
22001199
22001188
22001199
22001188
22001199
22001188
22001199
22001188
22001199
22001188
22001199
22001188
22001199
22001188
22001199
776644,,332299
–
–
332222,,555588
116677,,559955
118899,,880055
3311,,445566
00
00
–
–
112255,,662288
9988,,883322
–
–
225599,,222255
1155,,114455
00
4466,,228833
1177,,115577
114433,,992288
111144,,880022
7711,,554400
4477,,007744
117722,,339977
114455,,660011
6600,,228855
3311,,115599
00
–
–
11,,777722,,888844
0.042
–
0.018
0.009
0.010
0.002
0.000
0.000
–
0.007
0.005
–
0.014
0.001
0.000
0.003
0.001
0.008
0.006
0.004
0.003
0.010
0.008
0.003
0.002
0.000
–
0.100
0.109
11 Includes blocked and unblocked shares held by BoD members, including those held by related parties. No options were granted in 2019 and 2018. 22 At the 2019 AGM, William C. Dudley and Jeanette Wong
were newly elected and Michel Demaré and Ann F. Godbehere did not stand for re-election.
11,,999900,,554422
22001188
Audited |
Total of all blocked and unblocked shares of BoD members1
TToottaall
of which:
unblocked
of which: blocked until
2020
2021
2022
2023
SShhaarreess oonn 3311 DDeecceemmbbeerr 22001199
11,,777722,,888844
502,095
264,889
299,357
270,111
436,432
SShhaarreess oonn 3311 DDeecceemmbbeerr 22001188
11 Includes shares held by related parties.
11,,999900,,554422
636,397
323,051
335,587
366,570
328,937
2019
2020
2021
2022
279
Advisory voteCorporate governance and compensation
Corporate governance and compensation
Compensation
Audited |
Loans granted to GEB members1
In line with article 38 of the Articles of Association of UBS Group
AG, Group Executive Board (GEB) members may be granted
loans. Such loans are made in the ordinary course of business on
substantially the same terms as those granted to other
employees, including interest rates and collateral, and neither
involve more than the normal risk of collectability nor contain
any other unfavorable features for the firm. The total amount of
such loans must not exceed CHF 20 million per GEB member.
CHF, except where indicated2
Name, function
Axel P. Lehmann, President Personal & Corporate Banking and President UBS Switzerland (highest loan in 2019)
Ulrich Körner, former President Asset Management and President UBS EMEA (highest loan in 2018)
Aggregate of all GEB members4
oonn 3311 DDeecceemmbbeerr
22001199
22001188
22001199
22001188
USD
(for reference)
Loans3
9,440,889
LLooaannss33
99,,114400,,000000
88,,224400,,000000
3300,,770000,,335544
31,711,010
3333,,220044,,000000
11 No loans have been granted to related parties of the GEB members at conditions not customary in the market. 22 Swiss franc and US dollar amounts disclosed represent local currency amounts translated at the
relevant year-end closing exchange rate. 33 All loans granted are secured loans. 44 No unused uncommitted credit facilities in 2019. Excludes unused uncommitted credit facilities of CHF 2,949,690 in 2018 that
had been granted to one GEB member.
Audited |
Loans granted to BoD members1
In line with article 33 of the Articles of Association of UBS Group
AG, loans to independent Board of Directors (BoD) members are
made in the ordinary course of business at general market
conditions. The Chairman, as a non-independent member, may
be granted loans in the ordinary course of business on
substantially the same terms as those granted to employees,
including interest rates and collateral, neither involving more
than the normal risk of collectability nor containing any other
unfavorable features for the firm. The total amount of such
loans must not exceed CHF 20 million per BoD member.
CHF, except where indicated2
Aggregate of all BoD members
oonn 3311 DDeecceemmbbeerr
22001199
22001188
LLooaannss33,,44
889900,,443399
660000,,000000
USD
(for reference)
Loans3,4
919,752
11 No loans have been granted to related parties of the BoD members at conditions not customary in the market. 22 Swiss franc and US dollar amounts disclosed represent local currency amounts translated at the
relevant year-end closing exchange rate. 33 All loans granted are secured loans. 44 CHF 600,000 for Reto Francioni and CHF 290,439 for Dieter Wemmer in 2019 and CHF 600,000 for Reto Francioni in 2018.
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
FFoorr tthhee yyeeaarr
Compensation
Benefits
22001199
22001188
22001199
22001188
22001199
22001188
0
0
0
0
0
0
0
0
51,912
45,556
51,912
45,556
USD
(for reference)
Total
0
53,621
53,621
TToottaall
00
00
5511,,991122
4455,,555566
5511,,991122
4455,,555566
11 Compensation or remuneration that is related to the former members’ activity on the BoD or GEB or that is not at market conditions. 22 Swiss franc and US dollar amounts disclosed represent local currency
amounts translated at the relevant year-end closing exchange rate. 33 Includes a payment in 2019 and 2018 to one former GEB member.
280
Advisory vote
Provisions of the Articles of Association related to compensation
Under the say-on-pay provisions in
Switzerland, shareholders of companies
listed in Switzerland have significant
influence over board and management
compensation. At UBS, this is achieved by
means of an annual binding say-on-pay
vote in accordance with the following
provisions of the Articles of Association
related to compensation.
Say on pay
In line with article 43 of the Articles of
Association of UBS Group AG, the
General Meeting shall approve the
proposals of the Board of Directors in
relation to:
a) the maximum aggregate amount of
compensation of the Board of Directors
for the period until the next Annual
General Meeting;
b) the maximum aggregate amount of
fixed compensation of the Group
Executive Board for the following financial
year; and
c) the aggregate amount of variable
compensation of the Group Executive
Board for the preceding financial year.
The Board of Directors may submit for
approval by the General Meeting
deviating or additional proposals relating
to the same or different periods. In the
event the General Meeting does not
approve a proposal from the Board of
Directors, the Board of Directors shall
determine, taking into account all
relevant factors, the respective (maximum)
aggregate amount or (maximum) partial
amounts and submit the amount(s) so
determined for approval by the General
Meeting. UBS Group AG or companies
controlled by it may pay or grant
compensation prior to approval by the
General Meeting, subject to subsequent
approval.
Principles of compensation
In line with articles 45 and 46 of the
Articles of Association of UBS Group AG,
compensation of the members of the
Board of Directors shall comprise a base
remuneration and may comprise other
compensation elements and benefits.
Compensation of the members of the
Board of Directors is intended to
recognize the responsibility and
governance nature of their role, to attract
and retain qualified individuals and to
ensure alignment with shareholders’
interests.
Compensation of the members of the
Group Executive Board shall comprise
fixed and variable compensation
elements. Fixed compensation shall
comprise the base salary and may
comprise other compensation elements
and benefits. Variable compensation
elements shall be governed by financial
and non-financial performance measures
that take into account the performance of
UBS Group AG and/or parts thereof,
targets in relation to the market, other
companies or comparable benchmarks,
short- and long-term strategic objectives
and/or individual targets. The Board of
Directors or, where delegated to it, the
Compensation Committee determines the
respective performance measures, the
overall and individual performance
targets, and their achievements. The
Board of Directors or, where delegated to
it, the Compensation Committee aims to
ensure alignment with sustainable
performance and appropriate risk-taking
through adequate deferrals, forfeiture
conditions, caps on compensation,
harmful acts provisions and similar means
with regard to parts of or all of the
compensation. Parts of variable
compensation shall be subject to a multi-
year vesting period.
Additional amount for GEB members
appointed after the vote on the
aggregate amount of compensation by
the AGM
In line with article 46 of the Articles of
Association of UBS Group AG, if the
maximum aggregate amount of
compensation already approved by the
General Meeting is not sufficient to also
cover the compensation of a person who
becomes a member of or is being
promoted within the Group Executive
Board after the General Meeting has
approved the compensation, UBS Group
AG or companies controlled by it shall be
authorized to pay or grant each such
Group Executive Board member a
supplementary amount during the
compensation period(s) already approved.
The aggregate pool for such
supplementary amounts per
compensation period shall not exceed
40% of the average of total annual
compensation paid or granted to the
Group Executive Board during the
previous three years.
Refer to www.ubs.com/governance for
more information
281
Advisory voteCorporate governance and compensation
Corporate governance and compensation
Compensation
Ernst & Young Ltd
Aeschengraben 9
P.O. Box
CH-4002 Basel
Phone
Fax
www.ey.com/ch
+41 58 286 86 86
+41 58 286 86 00
To the General Meeting of
UBS Group AG, Zurich
Basel, 27 February 2020
Report of the statutory auditor on the compensation report
We have audited the compensation report dated 27 February 2020 of UBS Group AG for the year ended 31
December 2019. The audit was limited to the information according to articles 14 16 of the Ordinance against
Excessive Compensation in Stock Exchange Listed Companies (Ordinance) contained in the following tables
labeled “audited” of the compensation report: Approved fixed compensation, Total compensation for GEB
members, Compensation details and additional information for non-independent BoD members, Total
payments to BoD members, Remuneration details and additional information for independent BoD members,
Loans granted to GEB members, Loans granted to BoD members and Compensation paid to former BoD and
GEB members.
–
Board of Directors’ responsibility
The Board of Directors is responsible for the preparation and overall fair presentation of the compensation
report in accordance with Swiss law and the Ordinance. The Board of Directors is also responsible for
designing the compensation system and defining individual compensation packages.
Auditor’s responsibility
Our responsibility is to express an opinion on the compensation report. We conducted our audit in accordance
with Swiss Auditing Standards. Those standards require that we comply with ethical requirements and plan
and perform the audit to obtain reasonable assurance about whether the compensation report complies with
Swiss law and articles 14
16 of the Ordinance.
–
An audit involves performing procedures to obtain audit evidence on the disclosures made in the compensation
report with regard to compensation, loans and credits in accordance with articles 14 – 16 of the Ordinance.
The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material
misstatements in the compensation report, whether due to fraud or error. This audit also includes evaluating
the reasonableness of the methods applied to value components of compensation, as well as assessing the
overall presentation of the compensation report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Opinion
In our opinion, the compensation report for the year ended 31 December 2019 of UBS Group AG complies
with Swiss law and articles 14 16 of the Ordinance.
–
Ernst & Young Ltd
Marie-Laure Delarue
Licensed audit expert
(Auditor in charge)
Bruno Patusi
Licensed audit expert
282
Advisory vote
Consolidated
financial
statements
284
Table of contents
286 Management’s report on internal control over financial
reporting
287 Report of the independent registered public accounting
firm on internal control over financial reporting
289 Report of the independent registered public accounting
firm on the consolidated financial statements
294 Statutory auditor’s report on the audit of the
consolidated financial statements
300 UBS Group AG consolidated financial statements
Income statement
300 Primary financial statements
300
301 Statement of comprehensive income
303 Balance sheet
304 Statement of changes in equity
309 Statement of cash flows
311 Notes to the UBS Group AG consolidated financial
statements
311 1
347 2
Summary of significant accounting policies
Segment reporting
352
Income statement notes
352 3
353 4
353 5
354 6
354 7
355 8
359 9
Net interest income and other net income from
financial instruments measured at fair value through
profit or loss
Net fee and commission income
Other income
Personnel expenses
General and administrative expenses
Income taxes
Earnings per share (EPS) and shares outstanding
365
371
371
372
372
373
376
376
377
378
380
389
404
424
426
429
430
436
450
458
464
466
466
467
469
470
471
360 Balance sheet notes
360
10
Financial assets at amortized cost and other
positions in scope of expected credit loss
measurement
Derivative instruments
Financial assets and liabilities at fair value held for
trading
Financial assets at fair value not held for trading
Financial assets measured at fair value through
other comprehensive income
Property, equipment and software
15
16 Goodwill and intangible assets
17 Other assets
18
Amounts due to banks and customer deposits
Debt issued designated at fair value
Debt issued measured at amortized cost
Provisions and contingent liabilities
21
22 Other liabilities
11
12
13
14
19
20
390 Additional information
390
23
Expected credit loss measurement
Fair value measurement
24
25 Offsetting financial assets and financial liabilities
Restricted and transferred financial assets
26
27 Maturity analysis of financial liabilities
28
Hedge accounting
Pension and other post-employment benefit plans
Employee benefits: variable compensation
Interests in subsidiaries and other entities
Changes in organization and acquisitions and
disposals of subsidiaries and businesses
Finance lease receivables
33
34 Guarantees, commitments and forward starting
29
30
31
32
35
36
transactions
Related parties
Invested assets and net new money
Currency translation rates
37
38 Main differences between IFRS and Swiss GAAP
285
Financial statements
Management’s assessment of internal control over financial
reporting as of 31 December 2019
UBS management has assessed the effectiveness of UBS’s
internal control over financial reporting as of 31 December 2019
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
2019, UBS’s internal control over financial reporting was
effective.
The effectiveness of UBS’s internal control over financial
reporting as of 31 December 2019 has been audited by Ernst &
Young Ltd, UBS’s independent registered public accounting firm,
as stated in their report appearing on pages 287 to 288, which
expresses an unqualified opinion on the effectiveness of UBS’s
internal control over financial reporting as of 31 December 2019.
Reports of the statutory auditor / independent registered
public accounting firm
The accompanying reports of the independent registered public
accounting firm on the consolidated financial statements (refer
to pages 289 to 293) and internal control over financial
reporting (refer to pages 287 to 288) of UBS Group AG are
included in our filing on 28 February 2020 with the Securities
and Exchange Commission on Form 20-F pursuant to US
reporting obligations.
The accompanying statutory auditor’s report on the audit of
the consolidated financial statements (refer to pages 294 to 299)
of UBS Group AG, in addition to the aforementioned reports, is
included in our Annual Report 2019 available on our website
and filed on 28 February 2020 with all other relevant non-US
exchanges.
Management’s report on internal control over financial
reporting
Management’s responsibility for internal control over financial
reporting
The Board of Directors and management of UBS Group AG
(UBS) are responsible for establishing and maintaining adequate
internal control over financial reporting. UBS’s internal control
over financial reporting is designed to provide reasonable
assurance regarding the preparation and fair presentation of
published financial statements in accordance with International
Financial Reporting Standards
the
International Accounting Standards Board (IASB).
issued by
(IFRS), as
UBS’s internal control over financial reporting includes those
policies and procedures that:
pertain to the maintenance of records that, in reasonable
transactions and
fairly
reflect
detail, accurately and
dispositions of assets;
provide reasonable assurance that transactions are recorded
as necessary to permit preparation and fair presentation of
financial statements, and that receipts and expenditures of
the company 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
financial reporting may not prevent or detect misstatements.
Also, projections 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.
286
Ernst & Young Ltd
Aeschengraben 9
P.O. Box
4002 Basel
Phone: +41 58 286 86 86
Fax: +41 58 286 86 00
www.ey.com/ch
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of UBS Group AG
Opinion on Internal Control over Financial Reporting
We have audited UBS Group AG and subsidiaries’ internal control over financial reporting as of
31 December 2019, based on criteria established in Internal Control—Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO
criteria). In our opinion, UBS Group AG and subsidiaries (“the Company”) maintained, in all material
respects, effective internal control over financial reporting as of 31 December 2019, based on the COSO
criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States) (PCAOB), the consolidated balance sheets of the Company as of 31 December
2019 and 2018, the related consolidated income statements, statements of comprehensive income,
statements of changes in equity and statements of cash flows for each of the three years in the period
ended 31 December 2019, and the related notes and our report dated 27 February 2020 expressed an
unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting included
in the accompanying Management’s Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based
on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether effective internal control
over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) 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.
287
Financial statements
2
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections 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.
Ernst & Young Ltd
Basel, 27 February 2020
288
Ernst & Young Ltd
Aeschengraben 9
P.O. Box
4002 Basel
Phone: +41 58 286 86 86
Fax: +41 58 286 86 00
www.ey.com/ch
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of UBS Group AG
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of UBS Group AG and subsidiaries (“the
Company”) as of 31 December 2019 and 2018, the related consolidated income statements, statements of
comprehensive income, statements of changes in equity and statements of cash flows for each of the three
years in the period ended 31 December 2019, and the related notes (collectively referred to as the
“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of the Company at 31 December 2019 and 2018, and the results of
its operations and its cash flows for each of the three years in the period ended 31 December 2019, in
conformity with the International Financial Reporting Standards as issued by the International Accounting
Standards Board.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the Company’s internal control over financial reporting as of 31 December 2019,
based on criteria established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated 27 February
2020 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s Board of Directors. Our responsibility is
to express an opinion on the Company’s financial statements based on our audits. We are a public accounting
firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free
of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial
statements that were communicated or required to be communicated to the audit committee and that: (1)
relate to accounts or disclosures that are material to the financial statements and (2) involved our especially
challenging, subjective or complex judgments. The communication of critical audit matters does not alter in
any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by
communicating the critical audit matters below, providing separate opinions on the critical audit matters or on
the accounts or disclosures to which they relate.
289
Financial statements
2
Valuation of complex or illiquid instruments at fair value in accordance with IFRS 9 and IFRS 13
Description of
the Matter
At 31 December 2019, as explained in notes 1-3f and note 24 to the consolidated financial
statements, the Company held financial instruments that did not trade in active markets.
These instruments are reported within the following accounts: financial assets and
liabilities at fair value held for trading, derivative financial instruments, financial assets and
liabilities at fair value not held for trading, and debt issued designated at fair value. In
determining the fair value of these financial instruments, the Company used valuation
techniques, modelling assumptions, and estimates of unobservable market inputs which
required complex and significant judgment.
Auditing management’s judgments and assumptions used in the estimation of the fair
value of complex or illiquid instruments was complex due to the highly judgmental nature
of valuation techniques, modelling assumptions and significant unobservable inputs.
Judgmental valuation techniques were comprised of discounted cash flow and earnings-
based valuation techniques. Judgmental modelling assumptions result from a range of
different models or model calibrations used by market participants. Judgmental valuation
inputs include volatility, correlation, credit spreads and bond price equivalent inputs to
the valuation of certain financial instruments where there is a limited degree of
observability, and where there is judgmental extrapolation or interpolation and calibration
of curves using limited data points, as well as judgmental use of proxy data points.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effective-
ness of the controls over management’s financial instruments valuation processes,
including controls over market data inputs into valuation models, model governance, and
valuation adjustments.
We tested the valuation techniques, models and methodologies, and the inputs used in
those models, as outlined above, by performing an independent revaluation of certain
complex or illiquid financial assets and liabilities with the support of a specialist, using
independent models and inputs, and comparing inputs to available market data among
other procedures.
In addition, we evaluated the methodology and inputs used by management in
determining funding and credit fair value adjustments on uncollateralized derivatives and
fair value option liabilities.
We also assessed management’s disclosures regarding fair value measurement (within
notes 1-3f and 24 to the consolidated financial statements).
Recognition of deferred tax assets
Description of
the Matter
At 31 December 2019, the Company’s Deferred Tax Assets (“DTA”) were USD 9,537
million (see Note 8 to the Company’s consolidated financial statements). DTAs are
recognized to the extent it is probable that taxable profits will be available, against which,
the deductible temporary differences or the carryforward of unused tax losses within the
loss carryforward period can be utilized. There is significant judgment exercised when
estimating the future taxable income that is not based on the reversal of taxable temporary
differences. Management’s estimate of future taxable profits is based on the legal entity
strategic plans and is sensitive to the assumptions made in estimating future taxable
290
3
income. Additionally, management supports a portion of the net DTA position with tax
planning strategies.
Auditing management’s assessment of the realizability of the Company’s DTAs was
complex due to the highly judgmental nature of estimating future taxable profits over the
life of the underlying tax loss carryforwards. Estimating future profitability is inherently
subjective and is sensitive to future economic, market and other conditions, which are
difficult to predict. Specifically, some of the more subjective macro-economic assump-
tions used included gross domestic product, equity market performance, and interest
rates. Additionally, auditing tax planning strategies requires specific tax knowledge and
understanding of the applicable tax laws, which are complex and require judgment in the
interpretation of such laws and the related application.
How We
Addressed the
Matter in Our
Audit
We evaluated the design and tested the operational effectiveness of management’s
controls over DTA valuation, which included the assumptions used in developing the legal
entity strategic plans, tax planning strategies and estimating future taxable income.
We assessed the completeness and accuracy of the data used for the estimations of
future taxable income. This included recalculating the outputs of the models applied to the
recognition process for DTAs.
We involved specialists to assist in assessing the key economic assumptions embedded
in the legal entity strategic plans. We compared key inputs used to forecast future taxable
income to externally available historical and prospective data and assumptions; and
assessed the sensitivity of the outcomes using reasonably possible changes in
assumptions.
In addition, we assessed the appropriateness and impact of management’s tax planning
strategies by evaluating whether these strategies were reasonable, available, feasible,
and prudent. This evaluation was based on applicable tax laws and an assessment of
management’s interpretations of such tax laws, our understanding of the Company’s
business and industry, and the Company’s ability to implement the strategies.
We also assessed management’s disclosure regarding recognized and unrecognized
DTAs (within note 8 to the consolidated financial statements).
Legal Provisions & Contingent Liabilities
Description of
the Matter
At 31 December 2019, the Company’s provisions for litigation, regulatory and similar
matters (legal provisions) were USD 2,475 million. As explained in note 21 to the
consolidated financial statements, the Company operates in a legal and regulatory
environment that is exposed to significant litigation and similar risks arising from disputes
and regulatory proceedings. Such matters are subject to many uncertainties and the
outcomes may be difficult to predict. These uncertainties inherently affect the amount and
timing of potential outflows with respect to the legal provisions which have been
established and contingent liabilities.
291
Financial statements
4
Auditing management’s assessment of legal provisions and contingent liabilities was
complex and judgmental due to the significant estimation required to evaluate
management’s estimate of the probability that an outflow of resources will be required for
existing legal matters. In particular, these legal provisions are based on management’s
estimation of the likelihood of the occurrence of certain scenarios and related impact on
the Company’s financial position.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operational effective-
ness of management’s controls over the legal provision and contingencies process. Our
procedures included testing of management’s review of the accuracy of the inputs to the
estimation of the likelihood of the occurrence of certain scenarios and related impact on
the Company’s financial position.
We assessed the methodologies on which the provision amounts were based with the
involvement of specialists, recalculated the provisions, and tested the underlying
information. We read the legal analyses of the matters supporting the judgmental aspects
impacted by legal interpretations. We obtained correspondence directly from external
legal counsel to assess the information provided by management and performed inquiries
with external counsel as deemed necessary.
We also assessed management’s disclosure regarding legal provisions and contingent
liabilities (within note 21 to the consolidated financial statements).
Expected Credit Losses
Description of
the Matter
At 31 December 2019, the Company’s allowances and provisions for expected credit
losses (“ECL”) was USD 1,029 million. As explained in note 1-3g, note 10 and note 23 to
the consolidated financial statements, ECL is recognized for financial assets measured at
amortized cost, financial assets measured at Fair Value Through Other Comprehensive
Income, fee and lease receivables, financial guarantees and loan commitments. ECL are
also recognized on the undrawn portion of revolving revocable credit lines, which include
the Company’s credit card limits and master credit facilities. The allowance for ECL
consists of exposures that are in default which are individually evaluated for impairment
(stage 3), as well as losses inherent in the loan portfolio that are not specifically identified
(stage 1 and stage 2). Management’s estimates for ECL represent the difference between
contractual cash flows and those the Company expects to receive, discounted at the
effective interest rate. The method used to calculate ECL is based on a combination of
the following principal factors: probability of default (“PD”), loss given default (“LGD”) and
exposure at default (“EAD”).
Auditing management’s estimate of the allowances and provisions for ECL was complex
due to the highly judgmental nature of forward-looking economic scenarios, their
probability weightings and the credit risk models used to estimate stage 1 and stage 2
ECL.
292
How We
Addressed the
Matter in Our
Audit
5
Auditing the measurement of individual ECL for stage 3 was complex due to the high
degree of judgment involved in management’s process for estimating ECL based on LGD
assumptions. These LGD assumptions take into account expected future cash flows from
collateral and other credit enhancements or expected payouts from bankruptcy
proceedings for unsecured claims and, where applicable, time to realization of collateral
and the seniority of claims.
We obtained an understanding, evaluated the design and tested the operational
effectiveness of management’s controls over the ECL estimate, including management’s
choice of, and the probability weighting assigned to, the forward-looking economic
scenarios used in measuring ECL. We evaluated management’s methodologies and
governance controls for developing and monitoring the economic scenarios used and the
probability weightings assigned to them. Supported by specialists, we assessed the key
macroeconomic variables used in the forward-looking scenarios, such as gross domestic
product, unemployment rate, interest rates and house price indexes.
We obtained an understanding, evaluated the design and tested the operating
effectiveness of controls, over credit risk models used in the ECL estimate, including
controls over the completeness and accuracy of input data for those models, the
calculation logic of the models, and the model’s output data used in the overall ECL
calculation. With the support of specialists, we performed an evaluation of management’s
models and tested the model outcomes by inspecting model documentation and
reperforming model calculations among other procedures.
For the measurement of stage 3, we obtained an understanding, evaluated the design
and tested the operating effectiveness of controls over the Company’s process, including
an evaluation of the assumptions used by management regarding the future cash flows
from the debtors’ continuing operations and/or the liquidation of collateral. Additionally,
we tested collateral valuation, cash flow assumptions and exit strategies, by performing
inquiries of management, inspecting underlying documents, such as loan contracts,
financial statements, covenants, budgets and business plans, and by re-performing
discounted cash flow calculations among other procedures.
We also assessed management’s disclosure regarding financial assets at amortized cost
and other positions in scope of expected credit loss measurement (note 1-3g, note 10
and note 23 to the consolidated financial statements).
Ernst & Young Ltd
We have served as the Company’s auditor since 1998.
Basel, 27 February 2020
293
Financial statements
Ernst & Young Ltd
Aeschengraben 9
P.O. Box
CH-4002 Basel
Phone:
Fax:
www.ey.com/ch
+41 58 286 86 86
+41 58 286 86 00
To the General Meeting of
UBS Group AG, Zurich
Basel, 27 February 2020
Statutory auditor’s report on the audit of the consolidated financial statements
Opinion
We have audited the consolidated financial statements of UBS Group AG and its subsidiaries (the Group),
which comprise the consolidated balance sheets as of 31 December 2019 and 31 December 2018, and the
consolidated income statements, consolidated statements of comprehensive income, consolidated
statements of changes in equity and consolidated statements of cash flows for each of the three years in
the period ended 31 December 2019, and notes to the consolidated financial statements, including a
summary of significant accounting policies in note 1.
In our opinion, the accompanying consolidated financial statements give a true and fair view of the
consolidated financial position of the Group as at 31 December 2019 and 31 December 2018, and the
consolidated financial performance and its consolidated cash flows for each of the three years in the period
ended 31 December 2019 in accordance with International Financial Reporting Standards (IFRS) and
comply with Swiss law.
Basis for opinion
We conducted our audit in accordance with Swiss law, International Standards on Auditing (ISAs) and Swiss
Auditing Standards. Our responsibilities under those provisions and standards are further described in the
Auditor’s responsibilities for the audit of the consolidated financial statements section of our report.
We are independent of the Group in accordance with the provisions of Swiss law and the requirements of
the Swiss audit profession, as well as the IESBA Code of Ethics for Professional Accountants, and we have
fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements of the current period. These matters were addressed in the
context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters. For each matter below, our description of how
our audit addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the
consolidated financial statements section of our report, including in relation to these matters. Accordingly,
our audit included the performance of procedures designed to respond to our assessment of the risks of
material misstatement of the consolidated financial statements. The results of our audit procedures,
including the procedures performed to address the matters below, provide the basis for our audit opinion on
the accompanying consolidated financial statements.
294
2
Valuation of complex or illiquid instruments at fair value in accordance with IFRS 9 and IFRS 13
Area of focus
At 31 December 2019, as explained in notes 1-3f and note 24 to the consolidated
financial statements, the Group held financial instruments that did not trade in active
markets. These instruments are reported within the following accounts: financial assets
and liabilities at fair value held for trading, derivative financial instruments, financial
assets and liabilities at fair value not held for trading, and debt issued designated at fair
value. In determining the fair value of these financial instruments, the Group used
valuation techniques, modelling assumptions, and estimates of unobservable market
inputs which required complex and significant judgment.
Auditing management’s judgments and assumptions used in the estimation of the fair
value of complex or illiquid instruments was complex due to the highly judgmental nature
of valuation techniques, modelling assumptions and significant unobservable inputs.
Judgmental valuation techniques were comprised of discounted cash flow and
earnings-based valuation techniques. Judgmental modelling assumptions result from a
range of different models or model calibrations used by market participants. Judgmental
valuation inputs include volatility, correlation, credit spreads and bond price equivalent
inputs to the valuation of certain financial instruments where there is a limited degree of
observability, and where there is judgmental extrapolation or interpolation and calibra-
tion of curves using limited data points, as well as judgmental use of proxy data points.
Our audit
response
We obtained an understanding, evaluated the design and tested the operating effective-
ness of the controls over management’s financial instruments valuation processes,
including controls over market data inputs into valuation models, model governance, and
valuation adjustments.
We tested the valuation techniques, models and methodologies, and the inputs used in
those models, as outlined above, by performing an independent revaluation of certain
complex or illiquid financial assets and liabilities with the support of a specialist, using
independent models and inputs, and comparing inputs to available market data among
other procedures.
In addition, we evaluated the methodology and inputs used by management in
determining funding and credit fair value adjustments on uncollateralized derivatives and
fair value option liabilities.
We also assessed management’s disclosures regarding fair value measurement (within
notes 1-3f and 24 to the consolidated financial statements).
Recognition of deferred tax assets
Area of focus
At 31 December 2019, the Group’s Deferred Tax Assets (“DTA”) were USD 9,537 million
(see Note 8 to the Group’s consolidated financial statements). DTAs are recognized to
the extent it is probable that taxable profits will be available, against which, the deductible
temporary differences or the carryforward of unused tax losses within the loss carryfor-
ward period can be utilized. There is significant judgment exercised when estimating the
future taxable income that is not based on the reversal of taxable temporary differences.
Management’s estimate of future taxable profits is based on the legal entity strategic
plans and is sensitive to the assumptions made in estimating future taxable income.
Additionally, management supports a portion of the net DTA position with tax planning
strategies.
295
Financial statements
3
Auditing management’s assessment of the realizability of the Group’s DTAs was complex
due to the highly judgmental nature of estimating future taxable profits over the life of the
underlying tax loss carryforwards. Estimating future profitability is inherently subjective
and is sensitive to future economic, market and other conditions, which are difficult to
predict. Specifically, some of the more subjective macro-economic assumptions used
included gross domestic product, equity market performance, and interest rates.
Additionally, auditing tax planning strategies requires specific tax knowledge and
understanding of the applicable tax laws, which are complex and require judgment in the
interpretation of such laws and the related application.
Our audit
response
We evaluated the design and tested the operational effectiveness of management’s
controls over DTA valuation, which included the assumptions used in developing the legal
entity strategic plans, tax planning strategies and estimating future taxable income.
We assessed the completeness and accuracy of the data used for the estimations of
future taxable income. This included recalculating the outputs of the models applied to
the recognition process for DTAs.
We involved specialists to assist in assessing the key economic assumptions embedded
in the legal entity strategic plans. We compared key inputs used to forecast future taxable
income to externally available historical and prospective data and assumptions; and
assessed the sensitivity of the outcomes using reasonably possible changes in
assumptions.
In addition, we assessed the appropriateness and impact of management’s tax planning
strategies by evaluating whether these strategies were reasonable, available, feasible,
and prudent. This evaluation was based on applicable tax laws and an assessment of
management’s interpretations of such tax laws, our understanding of the Group’s
business and industry, and the Group’s ability to implement the strategies.
We also assessed management’s disclosure regarding recognized and unrecognized
DTAs (within note 8 to the consolidated financial statements).
Legal Provisions & Contingent Liabilities
Area of focus
At 31 December 2019, the Group’s provisions for litigation, regulatory and similar matters
(legal provisions) were USD 2,475 million. As explained in note 21 to the consolidated
financial statements, the Group operates in a legal and regulatory environment that is
exposed to significant litigation and similar risks arising from disputes and regulatory
proceedings. Such matters are subject to many uncertainties and the outcomes may be
difficult to predict. These uncertainties inherently affect the amount and timing of potential
outflows with respect to the legal provisions which have been established and contingent
liabilities.
Auditing management’s assessment of legal provisions and contingent liabilities was
complex and judgmental due to the significant estimation required to evaluate
management’s estimate of the probability that an outflow of resources will be required for
existing legal matters. In particular, these legal provisions are based on management’s
estimation of the likelihood of the occurrence of certain scenarios and related impact on
the Group’s financial position.
296
4
Our audit
response
We obtained an understanding, evaluated the design and tested the operational
effectiveness of management’s controls over the legal provision and contingencies
process. Our procedures included testing of management’s review of the accuracy of
the inputs to the estimation of the likelihood of the occurrence of certain scenarios
and related impact on the Group’s financial position.
We assessed the methodologies on which the provision amounts were based with
the involvement of specialists, recalculated the provisions, and tested the underlying
information. We read the legal analyses of the matters supporting the judgmental
aspects impacted by legal interpretations. We obtained correspondence directly from
external legal counsel to assess the information provided by management and
performed inquiries with external counsel as deemed necessary.
We also assessed management’s disclosure regarding legal provisions and
contingent liabilities (within note 21 to the consolidated financial statements).
Expected Credit Losses
Area of focus
Our audit
response
At 31 December 2019, the Group’s allowances and provisions for expected credit losses
(“ECL”) was USD 1,029 million. As explained in note 1-3g, note 10 and note 23 to the
consolidated financial statements, ECL is recognized for financial assets measured at
amortized cost, financial assets measured at Fair Value Through Other Comprehensive
Income, fee and lease receivables, financial guarantees and loan commitments. ECL
are also recognized on the undrawn portion of revolving revocable credit lines, which
include the Group’s credit card limits and master credit facilities. The allowances and
provisions for ECL consists of exposures that are in default which are individually
evaluated for impairment (stage 3), as well as losses inherent in the loan portfolio that
are not specifically identified (stage 1 and stage 2). Management’s estimates for ECL
represent the difference between contractual cash flows and those the Group expects
to receive, discounted at the effective interest rate. The method used to calculate ECL
is based on a combination of the following principal factors: probability of default (“PD”),
loss given default (“LGD”) and exposure at default (“EAD”).
Auditing management’s estimate of the allowances and provisions for ECL was complex
due to the highly judgmental nature of forward-looking economic scenarios, their prob-
ability weightings and the credit risk models used to estimate stage 1 and stage 2 ECL.
Auditing the measurement of individual ECL for stage 3 was complex due to the high
degree of judgment involved in management’s process for estimating ECL based on
LGD assumptions. These LGD assumptions take into account expected future cash
flows from collateral and other credit enhancements or expected payouts from
bankruptcy proceedings for unsecured claims and, where applicable, time to realization
of collateral and the seniority of claims.
We obtained an understanding, evaluated the design and tested the operational effec-
tiveness of management’s controls over the ECL estimate, including management’s
choice of, and the probability weighting assigned to, the forward-looking economic
scenarios used in measuring ECL. We evaluated management’s methodologies and
governance controls for developing and monitoring the economic scenarios used and
the probability weightings assigned to them. Supported by specialists, we assessed the
key macroeconomic variables used in the forward-looking scenarios, such as gross
domestic product, unemployment rate, interest rates and house price indexes.
297
Financial statements
5
We obtained an understanding, evaluated the design and tested the operating
effectiveness of controls, over credit risk models used in the ECL estimate, including
controls over the completeness and accuracy of input data for those models, the
calculation logic of the models, and the model’s output data used in the overall ECL
calculation. With the support of specialists, we performed an evaluation of manage-
ment’s models and tested the model outcomes by inspecting model documentation and
reperforming model calculations among other procedures.
For the measurement of stage 3, we obtained an understanding, evaluated the design
and tested the operating effectiveness of controls over the Group’s process, including
an evaluation of the assumptions used by management regarding the future cash flows
from the debtors’ continuing operations and/or the liquidation of collateral. Additionally,
we tested collateral valuation, cash flow assumptions and exit strategies, by performing
inquiries of management, inspecting underlying documents, such as loan contracts,
financial statements, covenants, budgets and business plans, and by re-performing
discounted cash flow calculations among other procedures.
We also assessed management’s disclosure regarding financial assets at amortized
cost and other positions in scope of expected credit loss measurement (note 1-3g, note
10 and note 23 to the consolidated financial statements).
IT access and change management controls relevant to financial reporting
Area of focus
The Group is highly dependent on its IT systems for business processes and financial
reporting. The Group continues to invest in its IT systems to meet client needs and
business requirements including the effectiveness of its logical access and change
management IT controls.
Auditing management’s IT controls relevant to access and change management was
complex as the Group is a multi-location organization and has a significant number of IT
systems and applications relevant to financial reporting.
Our audit
response
In assessing the reliability of electronic data processing, we included IT auditors as part
of our audit team. Our audit procedures focused on the IT infrastructure and applications
relevant to financial reporting included obtaining an understanding and evaluating the
design and testing of the operating effectiveness of key IT access management, change
management, IT operations, and IT automated controls.
Our audit procedures related to logical access included tests of user access manage-
ment, privileged user access, periodic access right recertifications, and user authentica-
tion controls. Our audit procedures related to IT change management included tests of
management’s program change test approach, approval of change requests, as well as
segregation of duties.
Other information in the annual report
The Board of Directors is responsible for the other information in the annual report. The other information
comprises all information included in the annual report, but does not include the consolidated financial
statements, the stand-alone financial statements of UBS Group AG, the compensation report (pages
278-279), disclosures denoted with an “audited” signpost, and our auditor’s reports thereon.
298
6
Our opinions on the consolidated financial statements, the standalone financial statements of UBS Group
AG and the compensation report do not cover the other information in the annual report and we do not
express any form of assurance conclusion thereon other than the disclosures denoted with an audited
“signpost”.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other
information in the annual report and, in doing so, consider whether the other information is materially
inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise
appears to be materially misstated. If, based on the work we have performed, we conclude that there is a
material misstatement of this other information, we are required to report that fact. We have nothing to report
in this regard.
Responsibility of the Board of Directors for the consolidated financial statements
The Board of Directors is responsible for the preparation of the consolidated financial statements that give
a true and fair view in accordance with IFRS and the provisions of Swiss law, and for such internal control
as the Board of Directors determines is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the Board of Directors is responsible for assessing the
Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern
and using the going concern basis of accounting unless the Board of Directors either intends to liquidate
the Group or to cease operations, or has no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report
that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an
audit conducted in accordance with Swiss law, ISAs and Swiss Auditing Standards will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these consolidated financial statements.
A further description of our responsibilities for the audit of the consolidated financial statements is located
at the website of EXPERTsuisse: http://www.expertsuisse.ch/en/audit-report-for-public-companies. This
description forms part of our auditor’s report.
Report on other legal and regulatory requirements
In accordance with article 728a para. 1 item 3 CO and the Swiss Auditing Standard 890, we confirm that an
internal control system exists, which has been designed for the preparation of consolidated financial
statements according to the instructions of the Board of Directors.
We recommend that the consolidated financial statements submitted to you be approved.
Ernst & Young Ltd
Marie-Laure Delarue
Licensed audit expert
(Auditor in charge)
Ira S. Fitlin
Certified Public Accountant (U.S.)
299
Financial statements
Consolidated financial statements
UBS Group AG consolidated financial
statements
Primary financial statements
Audited |
Income statement
USD million
Interest income from financial instruments measured at amortized cost and fair value through
other comprehensive income
Interest expense from financial instruments measured at amortized cost
Interest income from financial instruments measured at fair value through profit or loss
Interest expense from financial instruments measured at fair value through profit or loss
Net interest income
Other net income from financial instruments measured at fair value through profit or loss
Credit loss (expense) / recovery
Fee and commission income
Fee and commission expense
Net fee and commission income
Other income
Total operating income
Personnel expenses
General and administrative expenses
Depreciation and impairment of property, equipment and software
Amortization and impairment of goodwill and intangible assets
Total operating expenses
Operating profit / (loss) before tax
Tax expense / (benefit)
Net profit / (loss)
Net profit / (loss) attributable to non-controlling interests
Net profit / (loss) attributable to shareholders
Net profit / (loss) attributable to shareholders
Earnings per share (USD)
Basic
Diluted
Note
31.12.19
31.12.19
31.12.18
31.12.17
For the year ended
3
3
3
3
3
3
23
4
4
4
5
6
7
15
16
8
9
9
10,684
10,684
(7,194)
(7,194)
4,714
4,714
(3,703)
(3,703)
4,501
4,501
6,842
6,842
(78)
(78)
19,110
19,110
(1,696)
(1,696)
17,413
17,413
212
212
28,889
28,889
16,084
16,084
5,288
5,288
1,765
1,765
175
175
23,312
23,312
5,577
5,577
1,267
1,267
4,310
4,310
6
6
4,304
4,304
10,100
(6,391)
4,660
(3,322)
5,048
6,960
(118)
19,598
(1,703)
17,895
428
30,213
16,132
6,797
1,228
65
24,222
5,991
1,468
4,522
7
4,516
10,422
(5,404)
2,281
(1,228)
6,070
5,637
(131)
19,362
(1,840)
17,522
524
29,622
16,199
6,949
1,053
71
24,272
5,351
4,305
1,046
77
969
1.17
1.17
1.14
1.14
1.21
1.18
0.26
0.25
300
Statement of comprehensive income
USD million
Comprehensive income attributable to shareholders
NNeett pprrooffiitt // ((lloossss))
OOtthheerr ccoommpprreehheennssiivvee iinnccoommee tthhaatt mmaayy bbee rreeccllaassssiiffiieedd ttoo tthhee iinnccoommee ssttaatteemmeenntt
FFoorreeiiggnn ccuurrrreennccyy ttrraannssllaattiioonn
Foreign currency translation movements related to net assets of foreign operations, before tax
Effective portion of changes in fair value of hedging instruments designated as net investment hedges, before tax
Foreign currency translation differences on foreign operations reclassified to the income statement
Effective portion of changes in fair value of hedging instruments designated as net investment hedges reclassified to
the income statement
Income tax relating to foreign currency translations, including the effect of net investment hedges
Subtotal foreign currency translation, net of tax
FFiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt ffaaiirr vvaalluuee tthhrroouugghh ootthheerr ccoommpprreehheennssiivvee iinnccoommee
Net unrealized gains / (losses), 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)
Subtotal financial assets measured at fair value through other comprehensive income, net of tax
CCaasshh ffllooww hheeddggeess ooff iinntteerreesstt rraattee rriisskk
Effective portion of changes in fair value of derivative instruments designated as cash flow hedges, before tax
Net (gains) / losses reclassified to the income statement from equity
Income tax relating to cash flow hedges
Subtotal cash flow hedges, net of tax
TToottaall ootthheerr ccoommpprreehheennssiivvee iinnccoommee tthhaatt mmaayy bbee rreeccllaassssiiffiieedd ttoo tthhee iinnccoommee ssttaatteemmeenntt,, nneett ooff ttaaxx
OOtthheerr ccoommpprreehheennssiivvee iinnccoommee tthhaatt wwiillll nnoott bbee rreeccllaassssiiffiieedd ttoo tthhee iinnccoommee ssttaatteemmeenntt
DDeeffiinneedd bbeenneeffiitt ppllaannss
Gains / (losses) on defined benefit plans, before tax
Income tax relating to defined benefit plans
Subtotal defined benefit plans, net of tax
OOwwnn ccrreeddiitt oonn ffiinnaanncciiaall lliiaabbiilliittiieess ddeessiiggnnaatteedd aatt ffaaiirr vvaalluuee
Gains / (losses) from own credit on financial liabilities designated at fair value, before tax
Income tax relating to own credit on financial liabilities designated at fair value
Subtotal own credit on financial liabilities designated at fair value, net of tax
TToottaall ootthheerr ccoommpprreehheennssiivvee iinnccoommee tthhaatt wwiillll nnoott bbee rreeccllaassssiiffiieedd ttoo tthhee iinnccoommee ssttaatteemmeenntt,, nneett ooff ttaaxx
TToottaall ootthheerr ccoommpprreehheennssiivvee iinnccoommee
TToottaall ccoommpprreehheennssiivvee iinnccoommee aattttrriibbuuttaabbllee ttoo sshhaarreehhoollddeerrss
Table continues on the next page.
For the year ended
3311..1122..1199
31.12.18
31.12.17
44,,330044
4,516
969
220000
((113344))
5522
((1144))
00
110044
118899
00
((3333))
22
((4411))
111177
11,,557711
((117755))
((225533))
11,,114433
11,,336633
((114466))
((4411))
((118866))
((440000))
88
((339922))
((557788))
(725)
181
3
2
(2)
1,595
(55)
32
(6)
(2)
(541)
1,564
(56)
0
0
0
12
(45)
(42)
(294)
67
(269)
(855)
(220)
276
56
517
(8)
509
565
96
15
(209)
14
(6)
(91)
45
(843)
163
(635)
838
286
11
296
(315)
(2)
(317)
(20)
778855
55,,008899
(290)
4,225
818
1,787
301
Financial statements
Consolidated financial statements
Statement of comprehensive income (continued)
Table continued from previous page.
USD million
Comprehensive income attributable to non-controlling interests
Net profit / (loss)
Net profit / (loss)
Other comprehensive income that will not be reclassified to the income statement
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 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 attributable to non-controlling interests
Total comprehensive income
Net profit / (loss)
Net profit / (loss)
Other comprehensive income
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
Total comprehensive income
For the year ended
31.12.19
31.12.19
31.12.18
31.12.17
6
6
(4)
(4)
0
0
(4)
(4)
(4)
(4)
2
2
7
(1)
0
(1)
(1)
5
4,310
4,310
781
781
1,363
1,363
(582)
(582)
5,091
5,091
4,522
(292)
(855)
563
4,231
77
250
0
250
250
326
1,046
1,068
838
229
2,113
302
Balance sheet
USD million
Assets
Cash and balances at central banks
Loans and advances to banks
Receivables from securities financing transactions
Cash collateral receivables on derivative instruments
Loans and advances to customers
Other financial assets measured at amortized cost
TToottaall ffiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt
Financial assets at fair value held for trading
of which: assets pledged as collateral that may be sold or repledged by counterparties
Derivative financial instruments
Brokerage receivables
Financial assets at fair value not held for trading
TToottaall ffiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt ffaaiirr vvaalluuee tthhrroouugghh pprrooffiitt oorr lloossss
FFiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt ffaaiirr vvaalluuee tthhrroouugghh ootthheerr ccoommpprreehheennssiivvee iinnccoommee
Investments in associates
Property, equipment and software
Goodwill and intangible assets
Deferred tax assets
Other non-financial assets
TToottaall aasssseettss
Liabilities
Amounts due to banks
Payables from securities financing transactions
Cash collateral payables on derivative instruments
Customer deposits
Debt issued measured at amortized cost
Other financial liabilities measured at amortized cost
TToottaall ffiinnaanncciiaall lliiaabbiilliittiieess mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt
Financial liabilities at fair value held for trading
Derivative financial instruments
Brokerage payables designated at fair value
Debt issued designated at fair value
Other financial liabilities designated at fair value
TToottaall ffiinnaanncciiaall lliiaabbiilliittiieess mmeeaassuurreedd aatt ffaaiirr vvaalluuee tthhrroouugghh pprrooffiitt oorr lloossss
Provisions
Other non-financial liabilities
TToottaall lliiaabbiilliittiieess
Equity
Share capital
Share premium
Treasury shares
Retained earnings
Other comprehensive income recognized directly in equity, net of tax
EEqquuiittyy aattttrriibbuuttaabbllee ttoo sshhaarreehhoollddeerrss
Equity attributable to non-controlling interests
TToottaall eeqquuiittyy
TToottaall lliiaabbiilliittiieess aanndd eeqquuiittyy
Note
3311..1122..1199
31.12.18
10
10, 25
10, 25
10
10, 17a
12, 24
11, 24, 25
24
13, 24
14, 24
31b
15
16
8
17b
18
25
25
18
20
22a
12, 24
11, 24, 25
24
19, 24
22b, 24
21a
22c
110077,,006688
1122,,444477
8844,,224455
2233,,228899
332266,,778866
2222,,998800
557766,,881155
112277,,551144
4411,,228855
112211,,884411
1188,,000077
8833,,994444
335511,,330077
66,,334455
11,,005511
1122,,880044
66,,446699
99,,553377
77,,885566
997722,,118833
66,,557700
77,,777788
3311,,441155
444488,,228844
111100,,449977
99,,771122
661144,,225566
3300,,559911
112200,,888800
3377,,223333
6666,,880099
3355,,994400
229911,,445522
22,,997744
88,,779944
991177,,447766
333388
1188,,006644
((33,,332266))
3344,,115544
55,,330033
5544,,553333
117744
5544,,770077
997722,,118833
108,370
16,868
95,349
23,602
320,352
22,563
587,104
104,370
32,121
126,210
16,840
82,690
330,110
6,667
1,099
9,348
6,647
10,105
7,410
958,489
10,962
10,296
28,906
419,838
132,271
6,885
609,158
28,943
125,723
38,420
57,031
33,594
283,711
3,494
9,022
905,386
338
20,843
(2,631)
30,448
3,930
52,928
176
53,103
958,489
303
Financial statements
Consolidated financial statements
Statement of changes in equity
USD million
Balance as of 1 January 2017
Balance as of 1 January 2017
Issuance of share capital
Acquisition of treasury shares
Delivery of treasury shares under share-based compensation plans
Other disposal of treasury shares
Premium on shares issued and warrants exercised
Share-based compensation expensed in the income statement
Tax (expense) / benefit
Dividends
Preferred notes
Translation effects recognized directly in retained earnings
New consolidations / (deconsolidations) and other increases / (decreases)
Total comprehensive income for the year
of which: net profit / (loss)
of which: other comprehensive income (OCI) that may be reclassified to the income statement, net of tax
of which: OCI that will not be reclassified to the income statement, net of tax – defined benefit plans
of which: OCI that will not be reclassified to the income statement, net of tax – own credit
of which: OCI that will not be reclassified to the income statement, net of tax – foreign currency translation
Balance as of 31 December 2017
Balance as of 31 December 2017
Effect of adoption of IFRS 9
Effect of adoption of IFRS 15
Balance as of 1 January 2018 after the adoption of IFRS 9 and IFRS 15
Balance as of 1 January 2018 after the adoption of IFRS 9 and IFRS 15
Issuance of share capital
Acquisition of treasury shares
Delivery of treasury shares under share-based compensation plans
Other disposal of treasury shares
Premium on shares issued and warrants exercised
Share-based compensation expensed in the income statement
Tax (expense) / benefit
Dividends
Translation effects recognized directly in retained earnings
New consolidations / (deconsolidations) and other increases / (decreases)
Total comprehensive income for the year
of which: net profit / (loss)
of which: other comprehensive income (OCI) that may be reclassified to the income statement, net of tax
of which: OCI that will not be reclassified to the income statement, net of tax – defined benefit plans
of which: OCI that will not be reclassified to the income statement, net of tax – own credit
of which: OCI that will not be reclassified to the income statement, net of tax – foreign currency translation
Share
capital
338
338
Share
premium Treasury shares
(2,362)
(2,362)
25,958
25,958
Retained
earnings
25,029
25,029
(908)3
994
663
(879)
1
19
735
21
(2,259)2
1
(46)
949
969
296
(317)
338
338
23,598
23,598
(2,210)
(2,210)
25,932
25,932
(518)
(25)
338
338
0
23,598
23,598
(2,210)
(2,210)
25,389
25,389
(1,608)3
1,137
503
(1,009)
22
676
4
(2,440)2
(7)
(21)
5,080
4,516
56
509
Balance as of 31 December 2018
Balance as of 31 December 2018
338
338
20,843
20,843
(2,631)
(2,631)
30,448
30,448
304
Other comprehensive
income recognized
directly in equity,
net of tax1
33,,995533
of which:
foreign currency
translation
22,,990011
of which:
financial assets at
fair value through
other comprehensive
income
9966
of which:
cash flow
hedges
995555
Total equity
attributable to
shareholders
5522,,991166
Non-controlling
interests
667700
Total equity
5533,,558866
46
838
838
44,,883388
(74)
44,,776644
21
(855)
(855)
1,564
1,564
44,,446666
44,,446666
(541)
(541)
7
(91)
(91)
1133
(74)
((6611))
3
(45)
(45)
39
(635)
(635)
336600
336600
18
(269)
(269)
33,,993300
33,,992244
((110033))
110099
0
(908)
115
67
19
735
21
(2,259)
0
0
1
1,787
969
838
296
(317)
0
5522,,449955
(591)
(25)
5511,,887799
0
(1,608)
128
50
22
676
4
(2,440)
0
(7)
4,225
4,516
(855)
56
509
0
5522,,992288
(77)
(878)
17
326
77
250
5599
5599
(10)
122
5
7
(1)
117766
0
(908)
115
67
19
735
21
(2,337)
(878)
0
18
2,113
1,046
838
296
(317)
250
5522,,555544
(591)
(25)
5511,,993388
0
(1,608)
128
50
22
676
4
(2,450)
0
115
4,231
4,522
(855)
56
509
(1)
5533,,110033
305
Financial statements
Consolidated financial statements
Statement of changes in equity (continued)
USD million
Balance as of 31 December 2018
Balance as of 31 December 2018
Effect of adoption of IFRIC 23
Balance as of 1 January 2019 after the adoption of IFRIC 23
Balance as of 1 January 2019 after the adoption of IFRIC 23
Issuance of share capital
Acquisition of treasury shares
Delivery of treasury shares under share-based compensation plans
Other disposal of treasury shares
Premium on shares issued and warrants exercised
Share-based compensation expensed in the income statement
Tax (expense) / benefit
Dividends
Translation effects recognized directly in retained earnings
New consolidations / (deconsolidations) and other increases / (decreases)
Total comprehensive income for the year
of which: net profit / (loss)
of which: other comprehensive income (OCI) that may be reclassified to the income statement, net of tax
of which: OCI that will not be reclassified to the income statement, net of tax – defined benefit plans
of which: OCI that will not be reclassified to the income statement, net of tax – own credit
of which: OCI that will not be reclassified to the income statement, net of tax – foreign currency translation
Share
capital
338
338
338
338
0
0
Share
premium Treasury shares
(2,631)
(2,631)
20,843
20,843
Retained
earnings
30,448
30,448
(11)
20,843
20,843
(2,631)
(2,631)
30,437
30,437
(1,771)3
(1,771)3
983
983
943
943
(886)
(886)
(2)
(2)
29
29
619
619
11
11
(2,544)2
(2,544)2
(6)
(6)
(9)
(9)
3,726
3,726
4,304
4,304
(186)
(186)
(392)
(392)
Balance as of 31 December 2019
Balance as of 31 December 2019
338
338
18,064
18,064
(3,326)
(3,326)
34,154
34,154
1 Excludes defined benefit plans and own credit that are recorded directly in Retained earnings.
1
bearing share out of the capital contribution reserve.
derivatives, and to hedge certain issued structured debt instruments. These acquisitions and disposals are reported based on the sum of the net monthly movements.
2 Reflects the payment of an ordinary cash dividend of CHF 0.70 (2018: CHF 0.65; 2017: CHF 0.60) per dividend-
2
3 Includes treasury shares acquired and disposed of by the Investment Bank in its capacity as a market-maker with regard to UBS shares and related
3
306
Other comprehensive
income recognized
directly in equity,
net of tax1
33,,993300
of which:
foreign currency
translation
33,,992244
of which:
financial assets at
fair value through
other comprehensive
income
((110033))
of which:
cash flow
hedges
110099
Total equity
attributable to
shareholders
5522,,992288
Non-controlling
interests
117766
33,,993300
33,,992244
((110033))
110099
99
11,,336633
11,,336633
00
111177
111177
99
11,,114433
11,,114433
110044
110044
55,,330033
44,,002288
1144
11,,226600
(11)
5522,,991177
00
((11,,777711))
9977
9922
2299
661199
1111
((22,,554444))
00
((66))
55,,008899
44,,330044
11,,336633
((118866))
((339922))
00
5544,,553333
117766
((88))
55
22
66
((44))
117744
Total equity
5533,,110033
(11)
5533,,009922
00
((11,,777711))
9977
9922
2299
661199
1111
((22,,555522))
00
((11))
55,,009911
44,,331100
11,,336633
((118866))
((339922))
((44))
5544,,770077
307
Financial statements
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
Balance at the end of the year
Treasury shares
Balance at the beginning of the year
Acquisitions
Disposals
Balance at the end of the year
Balance at the end of the year
2019
2019
2018
3,855,634,749
3,855,634,749
3,420,646
3,420,646
3,859,055,395
3,859,055,395
3,853,096,603
2,538,146
3,855,634,749
166,467,802
166,467,802
146,876,692
146,876,692
(70,323,198)
(70,323,198)
243,021,296
243,021,296
132,301,550
103,979,927
(69,813,675)
166,467,802
Conditional share capital
Authorized share capital
As of 31 December 2019, a maximum of CHF 12,170,583,
represented by 121,705,830 fully paid registered shares with a
par value of CHF 0.10 each, was available to be issued to fund
UBS’s employee share option programs.
Additional conditional capital up
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, was
available as of 31 December 2019 for conversion rights and
warrants granted in connection with the issuance of bonds or
similar financial instruments.
UBS Group AG had no authorized capital available to issue on
31 December 2019.
Share repurchase program
UBS has an active share repurchase program to buy back up to
CHF 2 billion of its own shares over the three-year period
starting from March 2018. Under this program, UBS purchased
69 million shares totaling USD 806 million in 2019 (2018:
48 million shares totaling USD 762 million).
308
Statement of cash flows
USD million
Cash flow from / (used in) operating activities
Net profit / (loss)
NNoonn ccaasshh iitteemmss iinncclluuddeedd iinn nneett pprrooffiitt aanndd ootthheerr aaddjjuussttmmeennttss::
--
Depreciation and impairment of property, equipment and software
Impairment of goodwill
Amortization and impairment of intangible assets
Credit loss expense / (recovery)
Share of net profits of associates / joint ventures and impairment of associates
Deferred tax expense / (benefit)
Net loss / (gain) from investing activities
Net loss / (gain) from financing activities
Other net adjustments
NNeett cchhaannggee iinn ooppeerraattiinngg aasssseettss aanndd lliiaabbiilliittiieess::
Loans and advances to banks / amounts due to banks
Securities financing transactions
Cash collateral on derivative instruments
Loans and advances to customers
Customer deposits
Financial assets and liabilities at fair value held for trading and derivative financial instruments
Brokerage receivables and payables
Financial assets at fair value not held for trading, other financial assets and liabilities
Provisions, other non-financial assets and liabilities
Income taxes paid, net of refunds
NNeett ccaasshh ffllooww ffrroomm // ((uusseedd iinn)) ooppeerraattiinngg aaccttiivviittiieess
Cash flow from / (used in) investing activities
Purchase of subsidiaries, associates and intangible assets
Disposal of subsidiaries, associates and intangible assets1
Purchase of property, equipment and software
Disposal of property, equipment and software
Purchase of financial assets measured at fair value through other comprehensive income
Disposal and redemption of financial assets measured at fair value through other comprehensive income
Net (purchase) / redemption of debt securities measured at amortized cost
Net (purchase) / redemption of financial assets held to maturity
NNeett ccaasshh ffllooww ffrroomm // ((uusseedd iinn)) iinnvveessttiinngg aaccttiivviittiieess
Table continues on the next page.
For the year ended
31.12.18
3311..1122..1199
31.12.17
44,,331100
4,522
1,046
1,228
1,053
11,,776655
111100
6655
7788
((4455))
447777
222200
66,,449933
885544
((44,,333366))
88,,667788
22,,883399
((33,,112288))
2233,,221177
((1188,,882299))
((22,,334477))
3333
5555
((880044))
1199,,770055
((2266))
111144
((11,,558844))
1111
((33,,442244))
33,,991133
((556622))
0
65
118
(528)
425
(46)
(4,828)
(1,179)
3,504
(11,230)
(1,447)
(5,213)
9,138
11,107
11,432
11,115
1,682
(951)
28,913
(287)
137
(1,688)
114
(1,999)
1,361
(3,770)
((11,,555588))
(6,132)
0
71
131
(69)
3,414
(198)
2,109
(855)
(3,234)
(111)
(2,454)
(14,471)
(12,962)
(23,544)
(1,978)
996
(1,044)
(52,099)
(106)
339
(1,627)
47
(8,626)
15,250
(91)
5,186
309
Financial statements
Consolidated financial statements
Statement of cash flows (continued)
Table continued from previous page.
USD million
Cash flow from / (used in) financing activities
Net short-term debt issued / (repaid)
Net movements in treasury shares and own equity derivative activity
Distributions paid on UBS shares
Repayment of lease liabilities2
Issuance of long-term debt, including debt issued designated at fair value
Repayment of long-term debt, including debt issued designated at fair value
Net changes in non-controlling interests and preferred notes
Net cash flow from / (used in) financing activities
Net cash flow from / (used in) financing activities
Total cash flow
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the beginning of the year
Net cash flow from / (used in) operating, investing and financing activities
Effects of exchange rate differences on cash and cash equivalents
Cash and cash equivalents at the end of the year3
Cash and cash equivalents at the end of the year3
of which: cash and balances at central banks 4
of which: loans and advances to banks
of which: money market paper 5
For the year ended
31.12.18
31.12.19
31.12.19
31.12.17
(17,149)
(17,149)
(1,559)
(1,559)
(2,544)
(2,544)
(518)
(518)
65,047
65,047
(68,883)
(68,883)
(8)
(8)
(25,614)
(25,614)
126,079
126,079
(7,467)
(7,467)
1,261
1,261
119,873
119,873
106,957
106,957
11,386
11,386
1,530
1,530
(12,245)
(1,431)
(2,440)
60,682
(44,344)
(31)
190
104,834
22,971
(1,726)
126,079
108,268
15,678
2,133
24,500
(730)
(2,259)
51,450
(45,187)
(787)
26,988
119,014
(19,925)
5,745
104,834
89,968
12,773
2,093
Additional information
Net cash flow from / (used in) operating activities includes:
Interest received in cash6
Interest paid in cash6
Dividends on equity investments, investment funds and associates received in cash7
1,828
1 Includes dividends received from associates. 2 Upon adoption of IFRS 16 on 1 January 2019, cash payments for the principal portion of the lease liability previously classified within operating activities have been
1
reclassified to financing activities. 3 USD 3,192 million, USD 5,245 million and USD 2,497 million of cash and cash equivalents (mainly reflected in Loans and advances to banks) were restricted as of 31 December
2019, 31 December 2018 and 31 December 2017, respectively. Refer to “Note 26 Restricted and transferred financial assets” in the “Consolidated financial statements” section of the Annual Report 2019 for more
5 Money market paper is included in the balance sheet under Financial assets at fair value held for trading
information.
5
(31 December 2019: USD 235 million; 31 December 2018: USD 366 million; 31 December 2017: USD 135 million), Financial assets measured at fair value through other comprehensive income (31 December 2019:
USD 24 million; 31 December 2018: USD 8 million; 31 December 2017: USD 17 million), Financial assets at fair value not held for trading (31 December 2019: USD 920 million; 31 December 2018: USD 1,556
million; 31 December 2017: USD 1,941 million) and Other financial assets measured at amortized cost (31 December 2019: USD 351 million; 31 December 2018: USD 204 million; 31 December 2017: USD 0
million).
6 Interest received and paid in cash was restated to represent the total of interest on financial instruments measured at amortized cost / fair value through other comprehensive income (31 December
6
2018: USD 9,997 million interest received and USD 6,382 million interest paid and 31 December 2017: USD 10,455 million interest received and USD 5,425 million interest paid) and interest on financial
instruments measured at fair value through profit or loss (31 December 2018: USD 4,648 million interest received and USD 2,823 million interest paid and 31 December 2017: USD 2,254 million interest received
and USD 1,264 million interest paid). 7 Includes dividends received from associates reported within Net cash flow from / (used in) investing activities.
4 Includes only balances with an original maturity of three months or less.
4
12,708
14,645
10,769
10,769
15,315
15,315
6,689
2,322
9,206
3,145
3,145
2
3
7
Changes in liabilities arising from financing activities
USD million
Balance as of 1 January 2018
Balance as of 1 January 2018
Cash flows
Non-cash changes
of which: foreign currency translation
of which: fair value changes
of which: other
Balance as of 31 December 2018
Balance as of 31 December 2018
Cash flows
Non-cash changes
of which: foreign currency translation
of which: fair value changes
of which: other
Debt issued
measured at
amortized
cost
143,160
(7,402)
(3,488)
(3,155)
(332)
132,271
(22,704)
930
(476)
of which:
short-term
52,270
(12,245)
(1,000)
(1,000)
0
39,025
(17,149)
(39)
(39)
of which: designated at fair
long-term
value
90,890
4,843
(2,487)
(2,155)
(332) 1
93,246
(5,555)
969
(438)
Over-the-
Debt issued counter (OTC)
debt
instruments2
4,428
(1,838)
(140)
(59)
(82)
0
2,450
(425)
(3)
(6)
3
0
2,022
2,022
50,782
13,332
(7,083)
309
(7,392)
0
57,031
2,144
7,634
212
7,421
0
66,809
66,809
Total
198,371
4,092
(10,711)
(2,905)
(7,475)
(332)
191,752
(20,985)
8,560
(270)
7,424
1,406
179,327
179,327
Balance as of 31 December 2019
Balance as of 31 December 2019
1 Includes the effect of fair value hedges on long-term debt. Refer to Note 1a item 3j and Note 20 for more information. 2 Included in balance sheet line Other financial liabilities designated at fair value.
1
2
1,406
110,497
110,497
0
21,837
21,837
1,406 1
88,660
88,660
310
Notes to the UBS Group AG consolidated financial statements
Note 1 Summary of significant accounting policies
The following table provides an overview of information included in this Note.
312
312
312
312
313
314
315
315
315
322
322
323
323
324
330
331
331
332
333
333
333
333
334
a) Significant accounting policies
Basis of accounting
1) Consolidation
a. Consolidation principles
b. Structured entities
2) Segment reporting
3) Financial instruments
a. Recognition
b. Classification, measurement and presentation
c.
d. Derecognition
e. Securities borrowing / lending and repurchase /
Interest income and expense
reverse repurchase transactions
f. Fair value of financial instruments
g. Allowances and provisions for expected
credit losses
h. Restructured and modified financial assets
i. Offsetting
j. Hedge accounting
k. Embedded derivatives in financial liabilities
l. Financial liabilities
m. Own credit
n. Loan commitments
o. Financial guarantee contracts
p. Other net income from financial instruments
measured at fair value through profit or loss
334
336
336
336
337
338
338
339
339
340
341
4) Fee and commission income and expenses
5) Cash and cash equivalents
6) Share-based and other deferred compensation plans
7) Pension and other post-employment benefit plans
8) Income taxes
9) Investments in associates
10) Property, equipment and software
11) Goodwill and intangible assets
12) Provisions and contingent liabilities
13) Foreign currency translation
14) Equity, treasury shares and contracts
on UBS Group AG shares
342
15) Leasing
343
b) Changes in accounting policies, comparability
and other adjustments
346
c) International Financial Reporting Standards and
Interpretations to be adopted in 2020 and later
and other changes
Accounting policies applicable to prior periods
The accounting policies described in Note 1a have been applied consistently in 2019, 2018 and 2017 unless otherwise stated in Note 1b. Exceptions
include IFRS 9, Financial Instruments (effective from 1 January 2018), IFRS 15, Revenue from Contracts with Customers (effective from 1 January 2018),
and IFRS 16, Leases (effective from 1 January 2019).
Within Note 1a, policies applied in 2018 and 2017, or only in 2017 that differ from those applied to the financial year ended 31 December 2019 are
identified with a Comparative policy | signpost. A triangle symbol – – indicates the end of these comparative policy sections.
311
Financial statements
Consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
a) Significant accounting policies
This Note describes the significant accounting policies applied in
the preparation of the consolidated financial statements (the
Financial Statements) of UBS Group AG and its subsidiaries (UBS
or the Group). On 27 February 2020, the Financial Statements
were authorized for issue by the Board of Directors.
Basis of accounting
The Financial Statements have been prepared in accordance with
International Financial Reporting Standards (IFRS), as issued by
the International Accounting Standards Board (IASB), and are
presented in US dollars (USD), which is also the functional
currency of: UBS Group AG; UBS AG’s Head Office; UBS AG,
London Branch; and UBS’s US-based operations.
Disclosures provided in the “Risk, treasury and capital
management” section of this report that are marked as audited
form an integral part of the Financial Statements. These
disclosures relate to requirements under IFRS 7, Financial
Instruments: Disclosures, and IAS 1, Presentation of Financial
Statements, and are not repeated in this section.
in Note 1b. Exceptions
The accounting policies described in this Note have been
applied consistently in 2019, 2018 and 2017 unless otherwise
IFRS 9, Financial
stated
Instruments (effective from 1 January 2018), IFRS 15, Revenue
from Contracts with Customers (effective from 1 January 2018),
and IFRS 16, Leases (effective from 1 January 2019). Within this
Note, policies applied in 2018 and 2017 or only in 2017 that
differ from those applied to the financial year ended 31
December 2019 are identified as “Comparative policy.”
include
Critical accounting estimates and judgments
Critical accounting estimates and judgments
Preparation of these Financial Statements under IFRS requires management
to apply judgment and make estimates and assumptions that affect
reported amounts of assets, liabilities, income and expenses and disclosure
of contingent assets and liabilities, and may involve significant uncertainty at
the time they are made. Such estimates and assumptions are based on the
best available information. UBS regularly reassesses the estimates and
assumptions, which encompass historical experience, expectations of the
future and other pertinent factors, to determine their continuing relevance
based on current conditions, updating them as necessary. Changes in those
estimates and assumptions may have a significant effect on the Financial
Statements. Furthermore, actual results may differ significantly from UBS’s
estimates, which could result in significant losses to the Group, beyond
what was anticipated or provided for.
The following areas contain estimation uncertainty or require critical
judgment and have a significant effect on the amounts recognized in the
Financial Statements:
fair value measurement (refer to item 3f in this Note and to Note 24);
–
– expected credit loss measurement (refer to item 3g in this Note and to
Note 23);
– assessment of the business model and certain contractual features
when classifying financial instruments (refer to item 3b in this Note);
– pension and other post-employment benefit plans (refer to item 7 in
this Note and to Note 29);
income taxes (refer to item 8 in this Note and to Note 8);
–
– goodwill (refer to item 11 in this Note and to Note 16);
– provisions and contingent liabilities (refer to item 12 in this Note and
to Note 21);
– consolidation of structured entities (refer to item 1 in this Note and to
Note 31); and
– determination of the functional currency and assessing the earliest
date from which it is practical to perform a restatement following a
change in presentational currency for the year ended 31 December
2018 (refer to item 13 in this Note).
1) Consolidation
a. Consolidation principles
The Financial Statements comprise the financial statements of
the parent company (UBS Group AG) and its subsidiaries,
presented as a single economic entity, whereby intercompany
transactions and balances have been eliminated. UBS
consolidates all entities that it controls, including controlled
structured entities (SEs), which is the case when it has: (i) power
over the relevant activities of the entity; (ii) exposure to an
entity‘s variable returns; and (iii) the ability to use its power to
affect its own returns.
Where an entity is governed by voting rights, control is
generally indicated by a direct shareholding of more than one-
half of the voting rights.
312
Note 1 Summary of significant accounting policies (continued)
the entity,
rights held
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 exposes it to variability, UBS considers whether it
has power over the relevant activities of 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, i.e., 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
through contractual
arrangements (such as call rights, put rights or liquidation rights)
as well as potential decision-making rights are all considered 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 by
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 that of other
investors. If, after reviewing 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
when control is obtained and are deconsolidated from the date
when control ceases. Control, or the lack thereof, is reassessed if
facts and circumstances indicate that there is a change to one or
more of the elements required to establish that control is
present.
Refer to Note 31 for more information
b. Structured entities
UBS 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. 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,
as well as 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 classes of SEs with which UBS is involved include the
following:
– Securitization structured entities are established to issue
securities to investors that are backed by assets held by the SE
and whereby (i) significant credit risk associated with the
securitized 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
predominantly for clients to invest in specific assets or risk
exposures through purchasing notes issued by the SE,
predominantly on a fixed-term basis. The SE may source
assets via a transfer from UBS or through an external market
transaction. In some cases, UBS may enter into derivatives
with the SE to either align the cash flows of the entity with
the investor’s intended investment objective or to introduce
other desired risk exposures. In certain cases, UBS may have
interests in a third-party-sponsored SE to hedge specific risks
or participate in asset-backed financing.
– Investment
fund structured entities have a collective
investment objective, are managed by an
investment
manager and are either passively managed, so 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.
When UBS does not consolidate an SE, but has an interest in
an SE or has sponsored an SE, disclosures are provided on the
nature of these interests and sponsorship activities.
Critical accounting estimates and judgments
Critical accounting estimates and judgments
Each individual entity is assessed for consolidation in line with the
aforementioned consolidation principles. The assessment of control can
be complex and requires the use of significant judgment. As the nature
and extent of UBS’s involvement are unique to each entity, there is no
uniform consolidation outcome by entity. Certain entities within a class
may be consolidated while others may not. When carrying out the
consolidation assessment, judgment is exercised considering all the
relevant facts and circumstances, including the nature and activities of the
investee, as well as the substance of voting and similar rights.
Refer to Note 31 for more information
313
Financial statements
Consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
is presented in these Financial Statements alongside Personal &
Corporate Banking, Asset Management, the Investment Bank
and Corporate Center. Following the change in the composition
of UBS’s operating segments and corresponding reportable
segments, previously reported segment information has been
restated. This change had no material effect on the former
segments, including recognized goodwill.
Refer to item 11 in this Note and Note 16 for more information
UBS’s
internal
Effective from 2019, UBS has operationally combined Group
Treasury activities with Group Asset and Liability Management
(Group ALM) and calls this combined unit Group Treasury. In
addition, UBS provides results for total Corporate Center only
and does not separately report Corporate Center – Services,
Group Treasury and Non-core and Legacy Portfolio due to the
substantial reduction in the size and resource consumption of
these units. Prior-period information has been restated.
policies, which
accounting
include
management accounting policies and service level agreements,
determine the revenues and expenses directly attributable to
each reportable segment. Transactions between the reportable
segments are carried out at internally agreed rates and are
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. Total intersegment revenues
for the Group are immaterial, as the majority of the revenues are
allocated across the segments by means of revenue-sharing
agreements. Interest income earned from managing UBS’s
consolidated equity is allocated to the reportable segments
based on average attributed tangible equity and currency
composition. Assets and liabilities of the reportable segments are
funded through and invested with Corporate Center, and the
net interest margin is reflected in the results of each reportable
segment.
2) Segment reporting
UBS’s businesses are organized globally into four business
divisions: Global Wealth Management, Personal & Corporate
Banking, Asset Management and the Investment Bank. All four
business divisions are supported by Corporate Center and qualify
as reportable segments for the purpose of segment reporting.
Together with Corporate Center, the four business divisions
reflect the management structure of the Group. Financial
information about the four business divisions and Corporate
Center is presented separately in internal management reports
to the Group Executive Board, which is considered the “chief
operating decision maker” pursuant to IFRS 8, Operating
Segments.
Prior to 2018, UBS‘s businesses were organized globally into
five business divisions: Wealth Management, Wealth
Management Americas, Personal & Corporate Banking, Asset
Management and the Investment Bank, all of which were
supported by Corporate Center. The five business divisions
qualified as reportable segments for the purpose of segment
reporting and, together with Corporate Center, reflected the
management structure of the Group. Corporate Center – Non-
core and Legacy Portfolio was managed and reported as a
separate reportable unit within Corporate Center. Financial
information about the five business divisions and Corporate
Center was presented separately in internal management reports
to the Group Executive Board.
Effective from 2018, UBS combined its Wealth Management
and Wealth Management Americas business divisions into a
single Global Wealth Management business division. Global
Wealth Management is managed on an integrated basis, with a
single set of performance targets and an integrated operating
plan and management structure. Consistent with this, the
operating results of Global Wealth Management are presented
and assessed on an integrated basis in internal management
reports to the Group Executive Board. Consequently, from 2018,
Global Wealth Management qualifies as an operating and
reportable segment for the purposes of segment reporting and
314
Note 1 Summary of significant accounting policies (continued)
Segment assets are based on a third-party view and do not
include intercompany balances. This view is in line with internal
reporting to the Group Executive Board. Certain assets managed
centrally by Corporate Center may be allocated to other
segments on a basis different
the
corresponding costs or revenues are allocated. For example,
certain assets are reported on the balance sheet of Corporate
Center, notwithstanding that the costs or revenues associated
with these assets may be entirely or partly allocated to the
operating segments. Similarly, certain assets are reported in the
business divisions, whereas the corresponding costs or revenues
are entirely or partly allocated to Corporate Center.
that on which
to
Non-current assets disclosed for segment reporting purposes
represent assets that are expected to be recovered more than 12
months after the reporting date, excluding financial instruments,
deferred tax assets and post-employment benefits.
Refer to Notes 1b and 2 for more information
3) Financial instruments
–
Policy applicable from 1 January 20181
On initial recognition, financial assets are classified as measured
at amortized cost, FVOCI or fair value through profit or loss
(FVTPL).
A debt instrument is measured at amortized cost if it meets
both of the following conditions:
–
–
it is held within a business model that has an objective to
hold financial assets to collect contractual cash flows; and
the contractual terms of the financial asset result in cash
flows that are solely payments of principal and interest (SPPI)
on the principal amount outstanding.
A debt instrument is measured at FVOCI if it meets both of
the following conditions:
–
it is held within a business model whose objective is achieved
by both collecting contractual cash flows and selling financial
assets; and
the contractual terms of the financial asset result in cash
flows that are SPPI on the principal amount outstanding.
a. Recognition
UBS recognizes financial instruments when it becomes a party to
the contractual provisions of the instrument. UBS applies
settlement date accounting to all regular way purchases and
sales of non-derivative financial instruments.
In transactions in which UBS acts as a transferee, to the
extent that the transfer of a financial asset does not qualify for
derecognition by the transferor, UBS does not recognize the
transferred instrument as its asset.
UBS also acts in a fiduciary capacity, which results in the
holding or placing of assets on behalf of individuals, trusts,
retirement benefit plans and other institutions. Unless these
items meet the definition of an asset and the recognition criteria
are satisfied, such assets are not recognized on UBS’s balance
sheet. Consequently, the related income is excluded from these
Financial Statements.
Client cash balances associated with derivatives clearing and
execution services are not recognized on the balance sheet if,
through contractual agreement, regulation or practice, the
Group neither obtains benefits from nor controls the client cash
balances.
b. Classification, measurement and presentation
All financial instruments are on initial recognition measured at
fair value. In the case of financial instruments subsequently
measured at amortized cost or fair value through other
comprehensive income (FVOCI), the initial fair value is adjusted
for directly attributable transaction costs.
11 The accounting policy in this section applies from 1 January 2018, the effective date of IFRS 9.
All other financial assets are measured at FVTPL and consist of
held for trading assets, assets mandatorily measured on a fair
value basis and derivatives, except to the extent that they are
designated in a hedging relationship, in which case the IAS 39
hedge accounting requirements continue to apply.
Business model assessment
UBS determines the nature of the business model, for example if
the objective is to hold the financial asset and collect the
contractual cash flows, by considering the way in which the
financial assets are managed to achieve a particular business
objective as determined by management.
Financial assets that are held for trading or managed on a fair
value basis are measured at FVTPL insofar as the associated
business model is neither to hold the financial assets to collect
contractual cash flows nor to hold to collect contractual cash
flows and sell.
The Group originates loans to hold to maturity and to sell or
sub-participate to other parties, resulting in a transfer of
substantially all the risks and rewards, and derecognition of the
loan or portions of it. The Group considers the activities of
lending to hold and lending to sell or sub-participate as two
separate business models, with financial assets within the former
considered to be within a business model that has an objective
of holding assets to collect contractual cash flows, and those
within the latter included in a trading portfolio. In certain cases,
it may not be possible on origination to identify whether loans
or portions of loans will be sold or sub-participated and certain
loans may be managed on a fair value basis through, for
instance, using credit derivatives. These financial assets are
mandatorily measured at FVTPL.
315
Financial statements
Consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
Critical accounting estimates and judgments
Critical accounting estimates and judgments
UBS exercises judgment in determining the appropriate level at which to
assess its business models. In general, the assessment is performed at the
product level, e.g., retail and commercial mortgages. In other cases, the
assessment is carried out at a more granular level, e.g., loan portfolios by
region, and, if required, further disaggregation is performed by business
strategy. A detailed assessment is carried out considering how the
financial assets are evaluated and reported to UBS’s key management, the
risks that affect the performance of the business and the way that
management is compensated. In addition, UBS exercises judgment in
determining the effect of sales of financial instruments on the business
model assessment. In particular, an assessment is made on whether and
the extent to which sales are consistent with the objective of the business
model.
Contractual cash flow characteristics
In assessing whether the contractual cash flows are SPPI, the
Group considers whether the contractual terms of the financial
asset contain a term that could change the timing or amount of
contractual cash flows arising over the life of the instrument,
which could affect whether the instrument is considered to meet
the SPPI criterion.
For example, the Group holds portfolios of private mortgage
contracts and corporate loans in Personal & Corporate Banking
that commonly contain clauses that provide for two-way
compensation
if prepayment occurs. The amount of
compensation paid by or to UBS reflects the effect of changes in
market interest rates. The Group has determined that the
inclusion of the change in market interest rates in the
compensation amount is reasonable for the early termination of
the contract, and therefore results in contractual cash flows that
are SPPI.
Critical accounting estimates and judgments
Critical accounting estimates and judgments
UBS applies judgment when considering whether certain contractual
features, such as interest rate reset frequency or non-recourse features,
significantly affect future cash flows and whether compensation paid or
received on early termination of lending arrangements results in cash
flows that are not SPPI. A thorough analysis of all relevant facts and
circumstances is assessed before concluding whether contractual cash
flows of the financial
instrument are consistent with payments
representing principal and interest.
After initial recognition, UBS classifies, measures and presents
its financial assets and liabilities in accordance with IFRS 9, as
described in the table on the following pages.
316
Note 1 Summary of significant accounting policies (continued)
Classification, measurement and presentation of financial assets from 1 January 2018
Financial assets
Financial assets
classification
classification
Measured at amortized cost
Measured at amortized cost
Significant items included
Significant items included
Measurement and presentation
Measurement and presentation
This classification includes:
– cash and balances at central banks;
– loans and advances to banks;
– cash collateral receivables on securities borrowed;
– receivables on reverse repurchase agreements;
– cash collateral receivables on derivative instruments;
– residential and commercial mortgages;
– corporate loans;
– secured loans, including Lombard loans, and unsecured loans;
– loans to financial advisors; and
– debt securities held as high-quality liquid assets (HQLA).
Measured at
Measured at
FVOCI
FVOCI
Debt
instruments
measured at
FVOCI
This classification primarily includes debt securities and certain asset-
backed securities held as HQLA.
Measured at amortized cost using the effective interest rate (EIR) method
less allowances for expected credit losses (ECL) (refer to items 3c and 3g in
this Note for more information).
The following items are recognized in the income statement:
– interest income, which is accounted for in accordance with item 3c in
this Note;
– ECL and reversals; and
– foreign exchange translation gains and losses.
Upfront fees and direct costs relating to loan origination, refinancing or
restructuring as well as to loan commitments – when it is probable that
UBS will enter into a specific lending relationship – are deferred and
amortized over the life of the loan using the EIR method.
When the financial asset at amortized cost is derecognized, the gain or
loss is recognized in the income statement.
Amounts arising from exchange-traded derivatives (ETD) and certain over-
the-counter (OTC) derivatives cleared through central clearing
counterparties that are either considered to be daily settled or in substance
net settled on a daily basis (refer to items 3d and 3i in this Note) are
presented within Cash collateral receivables on derivative instruments.
Measured at fair value with unrealized gains and losses reported in
Other comprehensive income, net of applicable income taxes, until such
investments are derecognized (when sold, collected or otherwise
disposed). Upon derecognition, any accumulated balances in Other
comprehensive income are reclassified to the income statement and
reported within Other income.
The following items are recognized in the income statement:
–
interest income, which is accounted for in accordance with item 3c in
this Note;
ECL and reversals; and
foreign exchange translation gains and losses.
–
–
The amounts recognized in the income statement are determined on the
same basis as for financial assets measured at amortized cost.
317
Financial statements
Consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
Classification, measurement and presentation of financial assets from 1 January 2018 (continued)
Financial assets
Financial assets
classification
classification
Significant items included
Significant items included
Measurement and presentation
Measurement and presentation
Measured at
Measured at
FVTPL
FVTPL
Held for
trading
Financial assets held for trading include:
– all derivatives with a positive replacement value, except those that
Measured at fair value with changes recognized in profit or loss.
are designated and effective hedging instruments; and
– other financial assets acquired principally for the purpose of selling
or repurchasing in the near term, or that are 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. Included in this category are debt instruments
(including those in the form of securities, money market paper,
and traded corporate and bank loans) and equity instruments.
Changes in fair value, initial transaction costs, dividends and gains and
losses realized on disposal or redemption are recognized in Other net
income from financial instruments measured at fair value through profit or
loss, except interest income on instruments other than derivatives (refer to
item 3c in this Note and Note 1b for more information), interest on
derivatives designated as hedging instruments in certain types of hedge
accounting relationships and forward points on certain short- and long-
duration foreign exchange contracts, which are reported in Net interest
income.
Derivative assets (including derivatives that are designated and effective
hedging instruments) are generally presented as Derivative financial
instruments, except those exchange-traded and OTC-cleared derivatives
that are considered to be settled on a daily basis or in substance net
settled on a daily basis, which are presented within Cash collateral
receivables on derivative instruments.
The presentation of fair value changes on derivatives that are designated
and effective hedging instruments depends on the type of hedge
relationship (refer to item 3j in this Note for more information).
Financial assets held for trading (other than derivatives) are presented as
Financial assets at fair value held for trading.
Other financial assets mandatorily measured at fair value through profit or
loss are presented as Financial assets at fair value not held for trading,
except for brokerage receivables, which are presented as a separate line
item on the Group’s balance sheet.
Mandatorily
measured at
FVTPL – Other
A financial asset is mandatorily measured at FVTPL if:
– it is not held in a business model whose objective is to hold assets
to collect contractual cash flows or to hold them to collect
contractual cash flows and sell; and/or
– the contractual terms give rise to cash flows that are not SPPI;
and/or
– it is not held for trading.
The following financial assets are mandatorily measured at FVTPL:
– certain structured loans, certain commercial loans, receivables
under reverse repurchase and cash collateral on securities
borrowing agreements that are managed on a fair value basis;
– loans managed on a fair value basis and hedged with credit
derivatives;
– certain debt securities held as HQLA and managed on a fair value
basis;
– certain investment fund holdings and assets held to hedge delivery
obligations related to cash-settled employee compensation plans –
these assets represent holdings in investment funds, whereby the
contractual cash flows do not meet the SPPI criterion because the
entry and exit price is based on the fair value of the fund’s assets;
– brokerage receivables, for which contractual cash flows do not
meet the SPPI criterion because the aggregate balance is
accounted for as a single unit of account, with interest being
calculated on the individual components;
– auction rate securities, for which contractual cash flows do not
meet the SPPI criterion because interest may be reset at rates that
contain leverage;
– equity instruments; and
– assets held under unit-linked investment contracts.
318
Note 1 Summary of significant accounting policies (continued)
Classification, measurement and presentation of financial liabilities
Financial liabilities
Financial liabilities
classification
classification
Measured at amortized cost
Measured at amortized cost
Significant items included
Significant items included
Measurement and presentation
Measurement and presentation
This classification includes:
– demand and time deposits;
– retail savings / deposits;
– amounts payable under repurchase agreements;
– cash collateral on securities lent;
– non-structured fixed-rate bonds;
– subordinated debt;
– certificates of deposit and covered bonds; and
– cash collateral payables on derivative instruments.
Measured at amortized cost using the EIR method.
Upfront fees and direct costs relating to the issuance or origination of the
liability are deferred and amortized over the life of the liability using the
EIR method.
When the financial liability at amortized cost is derecognized, the gain or
loss is recognized in the income statement.
Amortized cost liabilities are presented on the balance sheet primarily as
Amounts due to banks, Customer deposits, Payables from securities
financing transactions and Debt issued measured at amortized cost.
Amounts arising from ETD and certain OTC derivatives cleared through
central clearing counterparties that are either considered to be daily settled
or in substance net settled on a daily basis (refer to items 3d and 3i in this
Note for more information) are presented within Cash collateral payables
on derivative instruments.
Measured at fair
Measured at fair
value through
value through
profit or loss
profit or loss
Held for
trading
Financial liabilities held for trading include:
– all derivatives with a negative replacement value (including certain
loan commitments), except those that are designated and effective
hedging instruments; and
Measurement of financial liabilities classified at FVTPL follows the same
principles as for financial assets classified at FVTPL, except that the
amount of change in the fair value of the financial liability that is
attributable to changes in UBS’s own credit risk is presented in OCI.
– obligations to deliver financial instruments, such as debt and
equity instruments, that UBS has sold to third parties, but does not
own (short positions).
Designated at
FVTPL
UBS designates at FVTPL the following financial liabilities:
– issued hybrid debt instruments that primarily include equity-linked,
credit-linked and rates-linked bonds or notes;
– issued debt instruments managed on a fair value basis;
– certain payables under repurchase agreements and cash collateral
on securities lending agreements that are managed in conjunction
with associated reverse repurchase agreements and cash collateral
on securities borrowed (from 1 January 2018);
– amounts due under unit-linked investment contracts whose cash
flows are linked to financial assets measured at FVTPL and
eliminate an accounting mismatch (from 1 January 2018); and
– brokerage payables, which arise in conjunction with brokerage
receivables and are measured at FVTPL to achieve measurement
consistency (from 1 January 2018).
Financial liabilities measured at FVTPL are presented as Financial liabilities
at fair value held for trading and Other financial liabilities designated at
fair value, respectively, except for brokerage payables and debt issued,
which are presented separately on the Group’s balance sheet.
Derivative liabilities (including derivatives that are designated and effective
hedging instruments) are generally presented as Derivative financial
instruments, except those exchange-traded and OTC-cleared derivatives
that are considered to be settled on a daily basis or in substance net
settled on a daily basis, which are presented within Cash collateral
payables on derivative instruments.
Bifurcated embedded derivatives are measured at fair value, but are
presented on the same balance sheet line as the host contract measured at
amortized cost.
Derivatives that are designated and effective hedging instruments are also
measured at fair value. The presentation of fair value changes differs
depending on the type of hedge relationship (refer to item 3j in this Note
for more information).
319
Financial statements
Consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
substantially retained by IFRS 9 and are detailed in the
Comparative policy | Policy applicable prior to 1 January 2018
Prior to 1 January 2018, on initial recognition, UBS classified, “Classification, measurement and presentation of financial
measured and presented its financial assets and liabilities in
instruments from 1 January 2018” table. The following table
accordance with IAS 39, Financial Instruments: Recognition and
sets out details of classification, measurement and presentation
Measurement. Classification, measurement and presentation of financial assets prior to 1 January 2018.
requirements
in respect of financial
liabilities have been
Classification, measurement and presentation of financial assets prior to 1 January 2018
Financial assets
Financial assets
classification
classification
Held for trading
Held for trading
Significant items included
Significant items included
Measurement and presentation1
Measurement and presentation1
Financial assets held for trading include:
– all derivatives with a positive replacement value, except those that are
designated and effective hedging instruments; and
– any other financial asset acquired principally for the purpose of selling
or repurchasing in the near term, or 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. Included
in this category are debt instruments (including those in the form of
securities, money market paper and traded corporate and bank loans),
equity instruments, and assets held under unit-linked investment
contracts.
Measured at fair value with changes recognized in profit or loss.
Changes in fair value, initial transaction costs and gains and losses realized
on disposal or redemption are recognized in Other net income from
financial instruments measured at fair value through profit or loss (prior to
1 January 2019: Other net income from fair value changes on financial
instruments), except interest and dividend income on instruments other
than derivatives (refer to item 3c in this Note), interest on derivatives
designated as hedging instruments in certain types of hedge accounting
relationships and forward points on certain short duration foreign exchange
contracts, which are reported in Net interest income.
Designated at fair value
Designated at fair value
through profit or loss
through profit or loss
A financial asset may be designated at fair value through profit or loss only
upon initial recognition and this designation is irrevocable.
Derivative assets are generally presented as Derivative financial
instruments.
Bifurcated embedded derivatives are measured at fair value, but presented on
the same balance sheet line as the host contract measured at amortized cost.
The presentation of fair value changes on derivatives that are designated
and effective hedging instruments differs depending on the type of hedge
relationship (refer to item 3j in this Note for more information).
Financial assets held for trading (other than derivatives) are presented as
Financial assets at fair value held for trading.
Financial assets designated at fair value through profit or loss are
presented as Financial assets at fair value not held for trading.
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 managed 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 designated at fair value through profit or loss the following financial
assets:
– certain structured loans, reverse repurchase and securities borrowing
agreements that are managed on a fair value basis;
– loans that are hedged predominantly with credit derivatives – these
instruments are designated at fair value to eliminate an accounting
mismatch;
– certain debt securities held as high-quality liquid assets (HQLA) and
managed by Corporate Center – Group Treasury on a fair value basis;
and
– assets held to hedge delivery obligations related to cash-settled
employee compensation plans – these assets are designated at fair
value in order to eliminate an accounting mismatch that would
otherwise arise as a result of the liability being measured on a
fair value basis.
1 Presentation categories in this table reflect retrospective amendments to UBS Group balance sheet presentation carried out upon transition to IFRS 9 to facilitate comparability.
1
320
Note 1 Summary of significant accounting policies (continued)
Classification, measurement and presentation of financial assets prior to 1 January 2018 (continued)
SSiiggnniiffiiccaanntt iitteemmss iinncclluuddeedd
MMeeaassuurreemmeenntt aanndd pprreesseennttaattiioonn
FFiinnaanncciiaall aasssseettss
ccllaassssiiffiiccaattiioonn
Loans and receivables
Loans and receivables
(amortized cost)
(amortized cost)
Non-derivative financial assets with fixed or determinable payments that
are not quoted in an active market and are not assets for which the Group
may not recover substantially all of its initial net investment for reasons
other than credit deterioration. This classification includes:
– cash and balances with central banks;
– cash collateral receivables on derivative instruments;
– residential and commercial mortgages;
– secured loans, including reverse repurchase agreements, receivables
under stock borrowing and Lombard loans, and unsecured loans;
Measured at amortized cost using the effective interest rate method less
allowances for credit losses (refer to items 3c and 3g in this Note).
Upfront fees and direct costs relating to loan origination, refinancing or
restructuring as well as to loan commitments are deferred and amortized
over the life of the loan using the effective interest rate method.
Loans and receivables are presented on the balance sheet primarily as Cash
and balances with central banks, Loans and advances to banks, Loans and
– certain securities held within Corporate Center – Non-core and Legacy advances to customers, Receivables from securities financing transactions
Portfolio; and
– trade and lease receivables.
and Cash collateral receivables on derivative instruments.
Amounts arising from exchange-traded derivatives (ETD) and certain over-
the-counter (OTC) derivatives cleared through central clearing
counterparties that are either considered to be daily settled or qualify for
offsetting (refer to items 3d and 3i in this Note) are presented within Cash
collateral receivables on derivative instruments.
Available for sale
Available for sale
Financial assets classified as available for sale are non-derivative financial Measured at fair value with unrealized gains and losses reported in Other
assets that are not classified as held for trading, designated at fair value
through profit or loss, or loans and receivables. This classification mainly
includes debt securities held as HQLA and managed by Corporate Center –
Group Treasury, certain asset-backed securities managed by Corporate
Center – Group Treasury, investment fund holdings and strategic and
commercial equity investments.
comprehensive income, net of applicable income taxes, until such
investments are sold, collected or otherwise disposed of, or until any such
investment is determined to be impaired (refer to item 3g in this Note).
Upon disposal, any accumulated balances in Other comprehensive income
are reclassified to the income statement and reported within Other income.
Held to maturity
Held to maturity
Non-derivative financial assets with fixed or determinable payments and
fixed maturities for which UBS has the positive intention and ability to hold
to maturity.
This classification mainly includes debt securities held as HQLA and
managed by Corporate Center – Group Treasury.
Interest and dividend income are recognized in the income statement in
accordance with item 3c in this Note. Refer to item 13 in this Note for
information about the treatment of foreign exchange translation gains and
losses.
Measured at amortized cost using the effective interest rate method less
allowances for credit losses (refer to items 3c and 3g in this Note).
321
Financial statements
Consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
c. Interest income and expense
Interest income and expense are recognized in the income
statement applying the effective interest rate (EIR) method.
When calculating the EIR for financial instruments (other than
credit-impaired financial instruments), UBS estimates future cash
flows considering all contractual terms of the instrument, but
not expected credit losses.
In determining interest income and expense, the EIR is applied
to the gross carrying amount of the financial asset (unless the
asset is credit-impaired) or the amortized cost of a financial
liability (prior to 1 January 2018: the amortized cost of a
financial asset or financial liability). However, when a financial
asset becomes credit-impaired after initial recognition, interest
income is determined by applying the EIR to the amortized cost
of the instrument, which represents the gross carrying amount
adjusted for any credit loss allowance. Furthermore, for financial
assets that were credit-impaired on initial recognition, interest is
determined by applying a credit-adjusted EIR to the amortized
cost of the instrument.
Upfront fees, including loan commitment fees where a loan is
expected to be issued, and direct costs are included within the
initial measurement of a financial instrument measured at
amortized cost or FVOCI (prior to 1 January 2018: the financial
asset classified as available for sale). Such fees and costs are
therefore recognized over the expected life of the instrument as
part of its EIR.
Fees related to loan commitments where no loan is expected
to be issued, as well as 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, are included in
Net fee and commission income.
Refer to item 4 in this Note for more information
Presentation of interest in the income statement
Effective from 1 January 2018, interest income or expense on
financial instruments measured at amortized cost and financial
assets measured at FVOCI (prior to 1 January 2018: financial
assets classified as available for sale) are presented separately
within Interest income from financial instruments measured at
amortized cost and fair value through other comprehensive
income and
instruments
measured at amortized cost.
Interest expense
financial
from
UBS also presents interest income and expense on financial
instruments (excluding derivatives) measured at FVTPL including
forward points on certain short- and long-duration foreign
exchange contracts separately in Interest income (or Interest
expense) from financial instruments measured at fair value
through profit or loss. Furthermore, interest income and expense
on derivatives designated as hedging instruments in effective
hedge relationships are presented consistently with the interest
income and expense of the respective hedged item.
Interest income on financial assets, excluding derivatives, is
included in interest income when positive and in Interest
expense when negative, because negative interest income
arising on a financial asset does not meet the definition of
revenue. Similarly,
liabilities,
excluding derivatives, is included in interest expense, except
when interest rates are negative, in which case it is included in
interest income.
interest expense on financial
Refer to item 3j in this Note and Note 3 for more information
d. Derecognition
Financial assets
UBS derecognizes a financial asset, or a portion of a financial
asset, from its balance sheet when the contractual rights to cash
flows from the asset have expired, or have been transferred,
usually by sale, thus exposing the purchaser to either
substantially all the risks and rewards of the asset or a significant
part of the risks and rewards combined with a practical ability to
sell or pledge the asset.
A financial asset is considered to have been transferred when
UBS: (i) transfers the contractual rights to receive the cash flows
of the financial asset; or (ii) 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
transferred if the counterparty has received the contractual right
to the cash flows of the pledged assets, as may be evidenced,
for example, 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, UBS
does not consider this to be a transfer for the purposes of
derecognition.
322
Note 1 Summary of significant accounting policies (continued)
In transactions where substantially all of the risks and rewards
of ownership of a financial asset are neither retained nor
transferred, UBS derecognizes the financial asset if control over
the asset is surrendered, and 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 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 following the transfer.
Certain over-the-counter (OTC) derivative contracts and most
exchange-traded futures and option contracts cleared through
central clearing counterparties and exchanges are considered to
be settled on a daily basis through the daily margining process,
as the payment or receipt of the variation margin represents
legal or economic settlement of a derivative contract, which
results in derecognition of the associated positive and negative
replacement values.
Refer to item 3h of this Note and Note 25 for more information
Financial liabilities
UBS derecognizes a financial liability from its balance sheet
when it is extinguished; i.e., when the obligation specified in the
contract is discharged, canceled or expires. 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 results in 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.
e. Securities borrowing / lending and repurchase / reverse
repurchase transactions
/ reverse
Securities borrowing
/
repurchase transactions are generally 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.
lending and repurchase
These transactions are treated as collateralized financing
transactions where the securities transferred / received are not
derecognized or recognized on the balance sheet. Securities
transferred / received with the right to resell or repledge are
disclosed separately.
In reverse repurchase and securities borrowing agreements,
the cash delivered
is derecognized and a corresponding
receivable, including accrued interest, is recorded in the balance
sheet line Receivables from securities financing transactions,
representing UBS’s right to receive the cash. Similarly, in
repurchase and securities lending agreements, the cash received
is recognized and a corresponding obligation, including accrued
interest, is recorded in Payables from securities financing
transactions. Additionally, the sale of securities that is settled by
delivering securities received in reverse repurchase or securities
borrowing transactions triggers the recognition of a trading
liability.
Repurchase and reverse repurchase transactions with the
same counterparty, maturity, currency and central securities
depository are generally presented net, subject to meeting the
offsetting requirements described in item 3i of this Note.
Refer to Notes 26 and 25 for more information
f. Fair value of financial instruments
UBS accounts for a significant portion of its assets and liabilities
at fair value. Fair value is the price on the measurement date
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 in the most advantageous
market in the absence of a principal market.
All
financial
fair value are
instruments measured at
categorized into one of three fair value hierarchy levels. Level 1
financial instruments are those for which fair values can be
derived from quoted prices in active markets. Level 2 financial
instruments are those for which fair values must be derived
using valuation techniques for which all significant inputs are, or
are based on, observable market data. Level 3 financial
instruments are those for which fair values can only be derived
on the basis of valuation techniques for which significant inputs
are not based on observable market data.
323
Financial statements
Consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
Recognition of expected credit losses
ECL represent the difference between contractual cash flows
and those UBS expects to receive, discounted at the EIR. For loan
commitments and other credit facilities in scope of ECL,
expected cash shortfalls are determined by considering expected
future drawdowns.
ECL are recognized on the following basis:
from
– Maximum 12-month ECL are
recognized
initial
recognition, reflecting the portion of lifetime cash shortfalls
that would result if a default occurs in the 12 months after
the reporting date, weighted by the risk of a default
occurring. Instruments in this category are referred to as
instruments in stage 1. For instruments with a remaining
maturity of less than 12 months, ECL are determined for this
shorter period.
– Lifetime ECL are recognized if a significant increase in credit
risk (SICR) is observed subsequent to the instrument’s initial
recognition, reflecting lifetime cash shortfalls that would
result from all possible default events over the expected life of
a financial instrument, weighted by the risk of a default
occurring. Instruments in this category are referred to as
instruments in stage 2. Where an SICR is no longer observed,
the instrument will move back to stage 1.
– Lifetime ECL are always recognized for credit-impaired
financial instruments, referred to as instruments in stage 3.
The IFRS 9 determination of whether an instrument is credit-
impaired is based on the occurrence of one or more loss
events, with lifetime ECL generally derived by estimating
expected cash flows based on a chosen recovery strategy.
Credit-impaired exposures may include positions for which no
loss has occurred or no allowance has been recognized, for
example, because they are expected to be fully recoverable
through the collateral held.
– Changes in lifetime ECL since initial recognition are also
recognized for assets that are purchased or originated credit-
impaired (POCI). POCI financial assets are initially recognized
at fair value, with interest income subsequently being
recognized based on a credit-adjusted EIR. POCI financial
instruments
recognized
following a substantial restructuring and remain a separate
category until derecognition.
that are newly
include
those
UBS does not apply the low-credit-risk practical expedient
that allows a lifetime ECL for lease or fee receivables to be
recognized irrespective of whether a significant increase in credit
risk has occurred. Instead, UBS has incorporated lease and fee
receivables into the standard ECL calculation.
Critical accounting estimates and judgments
Critical accounting estimates and judgments
The use of valuation techniques, modeling assumptions and estimates of
unobservable market inputs in the fair valuation of financial instruments
requires significant judgment and could affect the amount of gain or loss
recorded for a particular position. Valuation techniques that rely more
heavily on unobservable inputs inherently require a higher level of
judgment than those entirely based on observable inputs.
Valuation techniques, including models, that are used to determine
fair values are periodically reviewed and validated by qualified personnel,
independent of those who created them. Models are calibrated with the
objective of ensuring that outputs reflect observable market data, to the
extent possible. Also, UBS prioritizes 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 available.
UBS‘s governance framework over fair value measurement
is
described in Note 24b.
The level of subjectivity and the degree of management judgment
involved
in the development of estimates and the selection of
assumptions are more significant for instruments valued using specialized
and sophisticated models and where some or all of the parameter inputs
are less observable (Level 3 instruments) and may require adjustment to
reflect factors that market participants would consider in estimating fair
value, such as close-out costs, credit exposure, model-driven valuation
uncertainty, funding costs and benefits, trading restrictions and other
factors, which are presented in Note 24d. The Group provides a sensitivity
analysis of the estimated effects arising from changing significant
unobservable inputs in Level 3 financial instruments to reasonably possible
alternative assumptions within Note 24g.
Refer to Note 24 for more information
g. Allowances and provisions for expected credit losses
lease receivables, financial guarantees and
Policy applicable from 1 January 20181
Expected credit losses (ECL) are recognized for financial assets
measured at amortized cost, financial assets measured at FVOCI,
fee and
loan
commitments. ECL are also recognized on the undrawn portion
of revolving revocable credit lines, which include UBS’s credit
card limits and master credit facilities, which are customary in
the Swiss market for corporate and commercial clients. UBS
refers to both as “other credit lines,” with clients allowed to
draw down on-demand balances (with the Swiss master credit
facilities also allowing for term products) and which can be
terminated by UBS at any time. Though these other credit lines
are revocable, UBS is exposed to credit risk because the client
has the ability to draw down funds before UBS can take credit
risk mitigation actions.
1 The accounting policy in this section applies from 1 January 2018, the effective date of IFRS 9.
1
324
Note 1 Summary of significant accounting policies (continued)
A write-off is made when all or part of a financial asset is
deemed uncollectible or forgiven. Write-offs reduce the principal
amount of a claim and are charged against previously
established allowances for credit losses. Recoveries, in part or in
full, of amounts previously written off are generally credited to
Credit loss (expense) / recovery. Write-offs and partial write-offs
represent derecognition / partial derecognition events.
ECL are recognized in profit or loss with a corresponding ECL
allowance reported as a decrease in the carrying amount of
financial assets measured at amortized cost on the balance
sheet. For financial assets measured at fair value through OCI,
the carrying amount is not reduced, but an accumulated amount
is recognized in OCI. For off-balance sheet financial instruments
and other credit lines, provisions for ECL are reported in
Provisions. ECL are recognized within the income statement in
Credit loss (expense) / recovery.
Default and credit impairment
UBS applies a single definition of default for classifying assets
and determining the probability of default of its obligors for risk
modeling purposes. The definition of default is based on
quantitative and qualitative criteria. A counterparty is classified
as defaulted at the latest when material payments of interest,
principal or fees are overdue for more than 90 days, or more
than 180 days for certain exposures in relation to loans to
private and commercial clients in Personal & Corporate Banking,
and to private clients of Global Wealth Management Region
Switzerland. UBS does not consider the general 90-day
presumption for default recognition appropriate for these latter
portfolios based on an analysis of the cure rates, which
demonstrated that strict application of the 90-day criterion
would not accurately
risk.
Counterparties are also classified as defaulted when bankruptcy,
have
insolvency
commenced; obligations have been restructured on preferential
terms (forbearance); or there is other evidence that payment
obligations will not be fully met without recourse to collateral.
The latter may be the case even if, to date, all contractual
payments have been made when due. If a counterparty is
defaulted, generally all claims against the counterparty are
treated as defaulted.
inherent credit
proceedings
liquidation
enforced
reflect
the
or
if
An
instrument
is classified as credit-impaired
the
counterparty is defaulted, and/or the instrument is identified as
POCI. An instrument is POCI if it has been purchased at a deep
discount to its carrying amount following a risk event of the
issuer or originated with a defaulted counterparty. Once a
financial asset is classified as defaulted / credit-impaired (except
when it is POCI), it is reported as a stage 3 instrument and
remains as such unless all past due amounts have been rectified,
additional payments have been made on time, the position is
not classified as credit-restructured, and there is general
evidence of credit recovery. A three-month probation period is
applied before a transfer back to stages 1 or 2 can be triggered.
However, most instruments remain in stage 3 for a longer
period.
Measurement of expected credit losses
IFRS 9 ECL reflect an unbiased, probability-weighted estimate
based on either loss expectations resulting from default events
over a maximum 12-month period from the reporting date or
over the remaining life of a financial instrument. The method
used to calculate individual probability-weighted unbiased ECL is
based on a combination of the following principal factors:
probability of default (PD), loss given default (LGD) and exposure
at default (EAD). Parameters are generally determined on an
individual financial asset level. Based on the materiality of the
portfolio, for credit card exposures and personal account
overdrafts in Switzerland, and certain loans to financial advisors
of Global Wealth Management Region Americas, a portfolio
approach is applied that derives an average PD and LGD for the
entire portfolio. PDs and LGDs used in the ECL calculation are
point in time (PIT)-based for key portfolios and consider both
current conditions and expected cyclical changes. For each
instrument or group of instruments, parameter time series are
generated consisting of the instruments’ PD, LGD and EAD
profiles considering the respective period of exposure to credit
risk. For material portfolios, PD and LGD are determined for four
different scenarios, whereas EAD projections are treated as
scenario independent.
For the purpose of determining the ECL-relevant parameters,
UBS leverages its Pillar 1 internal ratings-based (IRB) models that
are also used in determining expected loss (EL) and risk-
weighted assets under the Basel III framework and Pillar 2 stress
loss models. Adjustments have been made to these models and
new IFRS 9-related models have been developed that consider
the complexity, structure and risk profile of relevant portfolios
and take account of the fact that PDs and LGDs used in the ECL
calculation are PIT-based, as opposed to the corresponding
Basel III through-the-cycle (TTC) parameters. All models that are
relevant for measuring expected credit losses have been subject
to the existing model validation and oversight processes. The
assignment of internal counterparty rating grades and the
determination of default probabilities for the purposes of Basel
III are not affected by the IFRS 9 ECL calculation.
Probability of default (PD): The PD represents the likelihood of
a default over a specified time period. A 12-month PD
represents the likelihood of default determined for the next 12
months and a lifetime PD represents the probability of default
over the remaining lifetime of the instrument. The lifetime PD
calculation is based on a series of 12-month PIT PDs that are
derived from TTC PDs and scenario forecasts. This modeling is
region-, industry- and client segment-specific and considers both
macroeconomic scenario-dependencies and client-idiosyncratic
information. To derive the cumulative lifetime PD per scenario,
the series of 12-month PIT PDs are transformed into marginal PIT
PDs, taking any assumed default events from prior periods into
account.
325
Financial statements
Consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
Loss given default (LGD): The LGD represents an estimate of
the loss at the time of a potential default occurring during the life
of a financial instrument. The determination of the LGD takes into
account expected future cash flows from collateral and other
credit enhancements, or expected payouts from bankruptcy
proceedings for unsecured claims and, where applicable, time to
realization of collateral and the seniority of claims. The LGD is
commonly expressed as a percentage of the EAD.
repayments,
Exposure at default (EAD): The EAD represents an estimate of
the exposure to credit risk at the time of a potential default
occurring during the life of a financial instrument. It represents
the cash flows outstanding at the time of default, considering
expected
interest payments and accruals,
discounted at the EIR. Future drawdowns on facilities are
considered through a credit conversion factor (CCF) that is
reflective of historical drawdown and default patterns and the
characteristics of the respective portfolios. ECL-specific CCFs
have been modeled to capture client segment- and product-
specific patterns after removing Basel
III standard-specific
elements, i.e., conservatism and focus on a 12-month period
prior to default.
Estimation of expected credit losses
Number of scenarios and estimation of scenario weights
The determination of the probability-weighted ECL requires
evaluating a range of diverse and relevant future economic
conditions, especially with a view to modeling the non-linear
effect of assumptions about macroeconomic factors on the
estimate.
To accommodate this requirement, UBS uses four different
economic scenarios in the ECL calculation: an upside, a baseline,
a mild downside and a severe downside scenario. Each scenario
is represented by a specific scenario narrative, which is relevant
considering the exposure of key portfolios to economic risks,
and for which a set of consistent macroeconomic variables is
determined. Those variables range from above-trend economic
growth to severe recession. The baseline scenario is aligned to
the economic and market assumptions used for UBS business
planning purposes. An econometric model is used to provide an
input into the scenario weight assessment process giving a first
indication of the probability that the GDP forecast used for each
scenario would materialize, if historically observed deviations of
GDP growth from trend growth were representative. As such
historical analyses of GDP development do not include an
assessment of the underlying economic or political causes,
management positions the model output into the context of
current conditions and future expectations and applies material
judgment in determining the final scenario weights. The
determined weights constitute the probabilities that the
respective set of macroeconomic conditions will occur and not
that
related
macroeconomic variables will materialize.
the chosen particular narratives with
the
Macroeconomic and other factors
The range of macroeconomic, market and other factors that is
modeled as part of the scenario determination is wide, and
historical information is used to support the identification of the
key factors. As the forecast horizon increases, the availability of
information decreases and
increases. For cycle-
sensitive PD and LGD determination purposes, UBS projects the
relevant economic factors for a period of three years before
reverting, over a specified period, to a cycle-neutral PD and LGD
for longer-term projections.
judgment
Factors relevant for the ECL calculation vary by type of
exposure and are determined during the credit cycle index
model development process in close alignment with expert
judgment. Certain variables may only be relevant for specific
types of exposures, such as house price indices for mortgage
loans, while other variables have key relevance in the ECL
calculation for all exposures. Regional and client segment
characteristics are generally taken into account, with specific
focus on Switzerland and the US considering UBS’s key ECL-
relevant portfolios.
For UBS, the following forward-looking macroeconomic
variables represent the most relevant factors in the ECL
calculation:
– GDP growth rates, given their significant effect on borrowers’
performance;
– house price indices, given their significant effect on mortgage
collateral valuations;
– unemployment rates, given their significant effect on private
clients’ ability to meet contractual obligations;
– interest
rates, given
their
significant effect on
the
counterparties’ abilities to service debt;
– consumer price indices, given their overall relevance for
companies’ performance, private clients’ purchasing power
and economic stability; and
– equity indices, given that they are an important factor in our
corporate rating tools.
The forward-looking macroeconomic assumptions used in the
ECL calculation are developed by UBS economists, risk
methodology personnel and credit risk officers. Assumptions and
scenarios are validated and approved through a Scenario
Committee and an Operating Committee, which also aim to
information
ensure a consistent use of
throughout UBS, including in the business planning process. ECL
inputs are tested and reassessed for appropriateness at least
once a quarter and appropriate adjustments are made when
needed.
forward-looking
Scenario generation, review process and governance
All aspects of the scenario selection, including the specific
narratives, their weight for the ECL estimation, and the key
macroeconomic and other factors, are subject to a formal
governance and approval process.
326
Note 1 Summary of significant accounting policies (continued)
A team of economists, who are part of Group Risk Control,
provide the basic analysis taking into account information
obtained through established risk identification and assessment
processes, which involve a broad range of experts, in particular,
risk specialists and other in-house economists. Material risks with
a high likelihood of materializing are then factored into the
scenario
selection process. Once narratives have been
developed, key macroeconomic factors that are consistent with
the severity of the case and interdependencies are determined.
The scenarios, their weight and the key macroeconomic and
other factors are subject to a critical assessment by members of
the Scenario Committee, where senior credit officers from the
divisions and representatives from Group Risk Control are
represented. Important aspects for the review are the extent to
which the selected scenarios reflect the vulnerabilities of the
relevant portfolios; whether their transformation into PIT PD and
LGD values is in line with credit risk officers’ expectations; and
whether there may be pockets of exposures, where particular
credit risk concerns may not be capable of being addressed
systematically and require an expert-based overlay for stage
allocation and ECL allowance. This also ensures a consistent use
of forward-looking
information throughout UBS and an
alignment with the business planning process.
The Operating Committee is jointly chaired by the Group
Controller and Chief Accounting Officer, and the Risk Chief
Operating Officer and Group Chief Risk Model Officer, and is
comprised of the divisional Chief Risk Officers and divisional
Chief Financial Officers as well as senior Corporate Center Risk
the proposals
and Finance
submitted by the Scenario Committee and approve the final
selection of scenarios and factors and any expert-based overlays
as they may be required to cover temporary issues, either related
to specific risk elements in a portfolio, or due to identified
technical deficiencies pending remediation (model updates, data
quality, etc.).
representatives. They
review
The Group Model Governance Board, as the highest authority
under UBS’s model governance framework, ratifies the decisions
by the Operating Committee.
ECL measurement period
The period for which lifetime ECL are determined is based on
the maximum contractual period that UBS is exposed to credit
risk, taking into account contractual extension, termination and
prepayment options. For irrevocable loan commitments and
financial guarantee contracts,
the measurement period
represents the maximum contractual period for which UBS has
an obligation to extend credit.
Additionally, some financial instruments include both an on-
demand loan and a revocable undrawn commitment, where the
contractual cancelation right does not limit UBS’s exposure to
credit risk to the contractual notice period, as the client has the
ability to draw down funds before UBS can take risk-mitigating
actions. In such cases, UBS is required to estimate the period
over which it is exposed to credit risk. This applies to UBS’s credit
card limits, which do not have a defined contractual maturity
date, are callable on demand and where the drawn and
undrawn components are managed as one unit. The exposure
arising from UBS’s credit card limits is not significant and is
managed at a portfolio level, with credit actions triggered when
balances are past due. An ECL measurement period of seven
years is applied for credit card limits, capped at 12 months for
stage 1 balances, as a proxy for the period that UBS is exposed
to credit risk.
Customary master credit agreements in the Swiss corporate
market also include on-demand loans and revocable undrawn
commitments. For smaller commercial facilities, a risk-based
monitoring (RbM) approach is in place that highlights negative
trends as risk events, at an individual facility level, based on a
combination of continuously updated risk indicators. The risk
events trigger additional credit reviews by a risk officer, allowing
for informed credit decisions to be taken. Larger corporate
facilities are not subject to RbM, but are reviewed at least
annually through a formal credit review. UBS has assessed these
credit risk management practices and considers both the RbM
approach and formal credit review as substantive credit reviews
resulting in a re-origination of the facility. Following this, a 12-
month measurement period from the reporting date is used for
both types of facilities as an appropriate proxy of the period over
which UBS is exposed to credit risk, with 12 months also used as
a
look-back period for assessing SICR, always from the
respective reporting date.
Significant increase in credit risk
Financial instruments subject to ECL are monitored on an
ongoing basis. To determine whether the recognition of a
maximum 12-month ECL continues to be appropriate, an
assessment is made as to whether an SICR has occurred since
initial recognition of the financial instrument. The assessment
criteria include both quantitative and qualitative factors. UBS
does not make use of the expedient that no particular SICR
test is required for instruments that have low credit risk at
reporting date.
Primarily, UBS assesses changes in an instrument’s risk of
default on a quantitative basis by comparing the annualized
forward-looking and scenario-weighted
lifetime PD of an
instrument determined at two different dates:
–
–
at the reporting date; and
at inception of the instrument.
In both cases, the respective PDs are determined for the
residual lifetime of the instrument, i.e., the period between the
reporting date and maturity. If, based on UBS’s quantitative
modeling, an increase exceeds a set threshold, an SICR is
deemed to have occurred and the instrument is transferred to
stage 2 with lifetime ECL being recognized.
327
Financial statements
Consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
Additionally, based on
individual counterparty-specific
indicators, external market indicators of credit risk or general
economic conditions, counterparties may be moved to a watch
list, which is used as a secondary qualitative indicator for an SICR
and hence for a transfer to stage 2. Exception management is
individual and collective
further applied, allowing
for
adjustments on exposures sharing
risk
the same credit
characteristics to take account of specific situations that are not
otherwise fully reflected. Instruments for which an SICR since
initial recognition is determined based on criteria other than
changed default probabilities or watch list items remain in
stage 2 for at least six months post resolution of the stage 2
trigger event.
In general, the overall SICR determination process does not
apply to Lombard loans, securities financing transactions and
certain other asset-based lending transactions, because of the
risk management practices adopted, including daily monitoring
processes with strict margining requirements that often require
the delivery of collateral within a number of days. If margin calls
are not satisfied, a position is closed out and classified as a
stage 3 position. In exceptional cases, an individual adjustment
and a transfer into stage 2 may be made to take account of
specific facts.
credit
Credit risk officers are responsible for ensuring that the stage
allocation of instruments reflects the identification of an SICR,
which for accounting purposes is in some aspects different from
internal credit risk management processes for loans with
increased
risk, mainly because ECL accounting
requirements are instrument-specific, such that a borrower can
have multiple exposures allocated to different stages, and that
maturing loans in stage 2 will migrate to stage 1 upon renewal
irrespective of the actual credit risk at that time. Under a risk-
based approach, a holistic counterparty credit assessment and
the absolute level of risk at any given date will determine what
risk mitigating actions may be warranted.
Refer to the “Risk management and control” section of this
report for more information
initially
instruments with
The threshold applied varies depending on the original credit
quality of the borrower. For instruments with lower default
probabilities at inception due to good credit quality of the
counterparty, the SICR threshold is set at a higher level than for
instruments with higher default probabilities at inception. This
implies that for
lower default
probabilities, a relatively higher deterioration in credit quality is
needed to trigger an SICR than for those instruments with
originally higher PDs. The SICR assessment based on PD changes
is made at an individual financial asset level. A high-level
overview of the SICR trigger, which is a multiple of the
annualized remaining lifetime PIT PD expressed in rating
downgrades that entail the same multiple of PD values, together
with the corresponding ratings at origination of an instrument, is
provided in the “SICR thresholds” table below. This simplified
view is aligned to internal ratings as disclosed in “Internal UBS
rating scale and mapping of external ratings” presented in
“Credit risk” in the “Risk management and control” section of
this report. The actual SICR thresholds applied are defined on a
more granular level interpolating between the values shown in
the table below.
SICR thresholds
IInntteerrnnaall rraattiinngg aatt oorriiggiinnaattiioonn ooff tthhee iinnssttrruummeenntt
RRaattiinngg ddoowwnnggrraaddeess // SSIICCRR ttrriiggggeerr
0–3
4–8
9–13
3
2
1
Refer to the “Risk management and control” section of this
report for more details about the bank’s internal grading
system
Irrespective of the SICR assessment based on default
probabilities, credit risk is generally deemed to have significantly
increased for an instrument if the contractual payments are
more than 30 days past due. For certain less material portfolios,
specifically the Swiss credit card portfolio and the loans to
financial advisors of Global Wealth Management Region
Americas, the 30-day past due criterion is used as the primary
indicator of an SICR. Where instruments are transferred to stage
2 due to the 30-day past due criterion, a minimum period of six
months is applied before a transfer back to stage 1 can be
triggered. For instruments in Personal & Corporate Banking and
Global Wealth Management Region Switzerland that are
between 90 and 180 days past due but have not been
reclassified to stage 3, a one-year period is applied before a
transfer back to stage 1 can be triggered.
328
Note 1 Summary of significant accounting policies (continued)
Comparative policy | Policy applicable prior to 1 January 2018
A claim is impaired and an allowance or provision for credit
losses is recognized when objective evidence demonstrates that
a loss event has occurred after the initial recognition and that
the loss event has an effect on the future cash flows that can be
reliably estimated (incurred loss approach). UBS considers a claim
to be impaired if it will be unable to collect all amounts due
thereon based on the original contractual terms as a result of
credit deterioration of the issuer or counterparty. A claim can be
a
loan or receivable measured at amortized cost, or a
commitment, such as a letter of credit, a guarantee or a similar
instrument.
An allowance for credit losses is reported as a decrease in the
carrying amount of a financial asset. For an off-balance sheet
item, such as a commitment, a provision for credit losses is
reported in Provisions. Changes to allowances and provisions for
credit losses are recognized in Credit loss (expense) / recovery.
Critical accounting estimates and judgments
Critical accounting estimates and judgments
Allowances and provisions for credit losses are evaluated at both a
counterparty-specific level and collectively. Judgment is used in making
assumptions about the timing and amount of impairment losses.
Counterparty-specific allowances and provisions
Loans are evaluated individually for impairment if objective
evidence indicates that a loan may be impaired. Individual credit
exposures are evaluated on the basis of 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 impairment loss for a
loan is the excess of the carrying amount of the financial asset
over
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 recoverable amount is the
current effective interest rate. Upon impairment, interest income
is accrued by applying the original effective interest rate to the
impaired carrying amount of the loan.
the estimated
Critical accounting estimates and judgments
Critical accounting estimates and judgments
The calculation of ECL requires management to apply significant
judgment and make estimates and assumptions that involve significant
uncertainty at the time they are made. Changes to these estimates and
assumptions can result in significant changes to the timing and amount of
ECL to be recognized.
Determination of a significant increase in credit risk
IFRS 9 does not include a definition of what constitutes an SICR. UBS’s
assessment of whether an SICR has occurred since initial recognition is
based on reasonable and supportable forward-looking information, both
qualitative and quantitative, and
includes significant management
judgment. More stringent criteria could significantly increase the number
of instruments migrating to stage 2. An IFRS 9 Operating Committee has
been established to review and challenge the SICR approach and any
potential changes and determinations made in the quarter.
Scenarios, scenario weights and macroeconomic factors
ECL reflect an unbiased and probability-weighted amount, which UBS
determines by evaluating a range of possible outcomes. Management
selects forward-looking scenarios and judges the suitability of respective
weights to be applied. Each of the scenarios is based on management’s
in the form of
assumptions around future economic conditions
macroeconomic, market and other factors. Changes in the scenarios and
weights, the corresponding set of macroeconomic variables and the
assumptions made around those variables for the forecast horizon would
have a significant effect on the ECL. An IFRS 9 Scenario Committee, in
addition to the Operating Committee, has been established to derive,
review and challenge the selection and weights.
ECL measurement period
Lifetime ECL are generally determined based upon the contractual
maturity of the transaction, which significantly affects ECL. The ECL
calculation is therefore sensitive to any extension of contractual maturities
triggered by business decisions, consumer behaviors and an increased
number of stage 2 positions. In addition, for credit card limits and Swiss
callable master credit facilities, judgment is required as UBS must
determine the period over which it is exposed to credit risk. A seven-year
period has been applied for credit card limits, capped at 12 months for
stage 1 positions, and a 12-month period has been applied for master
credit facilities.
Modeling and management adjustments
A number of complex models have been developed or modified to
calculate ECL, with additional management adjustments required. Internal
counterparty rating changes, new or revised models and changes to data
may significantly affect ECL. The models are governed by UBS’s model
validation controls, which aim to ensure independent verification, and are
approved by the Group Model Governance Board (the GMGB). The
management adjustments are approved by the IFRS 9 Operating
Committee and endorsed by the GMGB.
The Group provides a sensitivity analysis of the effect of scenario
selection, scenario weights and SICR trigger points on ECL measurement
within Note 23g.
329
Financial statements
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 impairment is reversed only when the credit
quality has improved to such an extent that there is reasonable
assurance of timely collection of principal and interest in
accordance with
the
instrument, or the equivalent value thereof. A write-off is made
when all or part of a financial asset is deemed uncollectible or
forgiven. Write-offs reduce the principal amount of a claim and
are charged against previously established allowances for credit
losses. Recoveries, in part or in full, of amounts previously
written off are credited to Credit loss (expense) / recovery.
the original contractual
terms of
Collective allowances and provisions
Collective allowances and provisions are calculated for portfolios
with similar credit risk characteristics, taking into account
historical
loss experience and current conditions. The
methodology and assumptions used are reviewed regularly to
reduce any differences between estimated and actual loss
experience. For all of its portfolios, UBS also assesses whether
there have been any unforeseen developments that might result
in impairments that are not immediately observable at a
counterparty level. To determine whether an event-driven
collective allowance for credit losses is required, UBS considers
global economic drivers to assess the most vulnerable countries
and industries. 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 impairment on a collective
basis and is assessed separately as counterparty-specific.
Impairment of financial assets classified as available for sale
At each balance sheet date, UBS assesses whether indicators of
impairment are present. Available-for-sale debt instruments are
impaired when there is objective evidence, using the same
criteria described on the previous page, that, as a result of one
or more events that occurred after the initial recognition of the
asset, the estimated future cash flows have decreased.
Objective evidence that there has been an impairment of an
available-for-sale equity instrument is a significant or prolonged
decline in the fair value of the asset. UBS uses a rebuttable
presumption that such instruments are impaired where there has
been a decline in fair value of more than 20% below its original
cost or fair value has been below original cost for more than six
months.
330
To the extent a financial asset classified as available for sale is
determined to be
impaired, the related cumulative net
unrealized loss previously recognized in Other comprehensive
income 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 statement only if
there is additional objective evidence of impairment. After the
recognition of an impairment on a financial asset classified as
available for sale, increases in the fair value of equity instruments
are reported
income. For debt
instruments, such increases in the fair value, up to amortized
cost in the transaction 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.
in Other comprehensive
h. Restructured and modified financial assets
When payment default is expected or where default has already
occurred, UBS may grant concessions to borrowers in financial
difficulties that it would otherwise not consider in the normal
course of its business, such as preferential interest rates,
extension of maturity, modifying the schedule of repayments,
debt / equity swap, subordination, etc. When a concession or
forbearance measure is granted, each case is considered
individually and the exposure is generally classified as being in
default. Forbearance classification will remain until the loan is
collected or written off, non-preferential conditions are granted
the
that supersede
counterparty has recovered and the preferential conditions no
longer exceed our risk tolerance.
the preferential conditions or until
Contractual adjustments when there is no evidence of
imminent payment default, or where changes to terms and
conditions are within UBS’s usual risk tolerance, are not
considered to be
in forbearance. Modifications represent
contractual amendments that result in an alteration of future
contractual cash flows and that can occur within UBS’s normal
risk tolerance or as part of a credit restructuring where a
counterparty is in financial difficulties.
A restructuring or modification of a financial asset could lead
to a substantial change in the terms and conditions, resulting in
the original financial asset being derecognized and a new
financial asset being recognized. Where the modification does
not result in a derecognition, any difference between the
modified contractual cash flows discounted at the original EIR
and the existing gross carrying amount of a financial asset is
recognized in profit or loss as a modification gain or loss.
Furthermore, the subsequent SICR assessment is made by
comparing the risk of default at the reporting date based on the
modified contractual terms of the financial asset with the risk of
default at initial recognition based on the original, unmodified
contractual terms of the financial asset.
Note 1 Summary of significant accounting policies (continued)
i. Offsetting
UBS nets financial assets and liabilities on its balance sheet if (i) 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 UBS and all
of the counterparties, and (ii) intends either to settle on a net
basis or to realize the asset and settle the liability simultaneously.
Netted positions include, for example, certain derivatives and
repurchase and reverse repurchase transactions with various
counterparties, exchanges and clearing houses.
to
the
realize
they may be
the asset and settle
In assessing whether UBS intends to either settle on a net
liability
basis, or
simultaneously, emphasis is placed on the effectiveness of
operational settlement mechanics in eliminating substantially all
credit and liquidity exposure between the counterparties. This
condition precludes offsetting on the balance sheet for
substantial amounts of UBS’s financial assets and liabilities, even
though
to enforceable netting
subject
arrangements. For OTC derivative contracts, balance sheet
offsetting is generally only permitted in circumstances in which a
market settlement mechanism exists via an exchange or central
clearing
that effectively accomplishes net
settlement through a daily exchange of collateral via a cash
margining process. For repurchase arrangements and securities
transactions, balance sheet offsetting may be
financing
permitted only to the extent that the settlement mechanism
eliminates, or results in insignificant, credit and liquidity risk, and
processes the receivables and payables in a single settlement
process or cycle.
counterparty
Refer to Note 25 for more information
j. Hedge accounting
The Group uses derivative and non-derivative instruments to
manage exposures to interest rate and foreign currency risks,
including exposures arising from forecast transactions. The
Group continues to apply hedge accounting requirements as set
out in IAS 39. Qualifying instruments may be designated as
hedging instruments in: (i) hedges of the change in fair value of
recognized assets or liabilities (fair value hedges); (ii) hedges of
the variability in future cash flows attributable to a recognized
asset or liability or highly probable forecast transactions (cash
flow hedges); or (iii) hedges of a net investment in a foreign
operation (net investment hedges).
At the time a financial instrument is designated in a hedge
relationship, UBS 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, UBS
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–
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. UBS discontinues
hedge accounting when: (i) it determines that a hedging
instrument is not, or has ceased to be, highly effective as a
hedge; (ii) the derivative expires or is sold, terminated or
exercised; (iii) the hedged item matures, is sold or repaid; or (iv)
forecast transactions are no longer deemed highly probable. The
Group may also discontinue hedge accounting voluntarily.
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 Other net
income from financial instruments measured at fair value
through profit or loss (prior to 1 January 2018: Net trading
income).
Interest from derivatives designated as hedging instruments in
effective fair value hedge relationships is presented within Interest
income from loans and deposits and Interest expense on debt
issued, within Net interest income. Interest from derivatives
designated as hedging instruments in effective cash flow hedge
relationships that is reclassified from other comprehensive income
when the hedged transaction affects profit or loss is presented
within Interest income from derivative instruments designated as
cash flow hedges.
Refer to Note 3 for more information
331
Financial statements
Consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
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
recognized in Equity associated with the entity is reclassified to
Other income.
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 Other net income
from financial instruments measured at fair value through profit
or loss (prior to 1 January 2018: Net trading income), except for
the forward points on certain short- and long-duration foreign
exchange contracts, which are reported in Net interest income.
Refer to Note 11 for more information
k. Embedded derivatives in financial liabilities
Derivatives may be embedded in other financial instruments
(host contracts). For example, they could be represented by the
conversion feature embedded in a convertible bond. Such hybrid
instruments arise predominantly from the issuance of certain
structured debt instruments. An embedded derivative in a
financial liability 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 measured at fair value with changes in fair value
reported
the economic
characteristics and risks of the embedded derivative are not
closely related to the economic characteristics and risks of the
host contract; and (iii) the terms of the embedded derivative
would meet the definition of a standalone derivative, were they
contained in a separate contract.
statement;
income
the
(ii)
in
Typically, UBS applies the fair value option to hybrid
instruments (refer to item 3b in this Note for more information),
in which case bifurcation of an embedded derivative component
is not required.
item.
If the hedge accounting relationship
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
attributable 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 as an adjustment to the carrying amount of
is
the hedged
terminated for reasons other than the derecognition of the hedged
item, the adjustment to the carrying amount is amortized to the
income statement over the remaining term to maturity of the
hedged item using the effective interest rate method. For a
portfolio hedge of interest rate risk, the equivalent change in fair
value is reflected within Other financial assets measured at
amortized cost or Other financial liabilities measured at amortized
cost. If the portfolio hedge relationship is terminated for reasons
other than the derecognition of the hedged item, the amount
included in Other financial assets measured at amortized cost or
Other financial liabilities measured at amortized cost is amortized
to the income statement over the remaining term to maturity of
the hedged items using the straight-line method.
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 forecast 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 forecast
transactions occur and affect profit or loss. If the forecast
transactions are no longer expected to occur, the deferred gains or
losses are reclassified immediately to the income statement.
Hedges of net investments in foreign operations
Hedges of net investments in foreign operations are accounted for
similarly to cash flow hedges. Gains or losses on the hedging
instrument relating to the effective portion of the hedge are
recognized directly in Equity (and presented in the statement of
332
Note 1 Summary of significant accounting policies (continued)
l. Financial liabilities
Debt issued measured at amortized cost includes contingent
capital instruments that contain contractual provisions under
which the principal amounts would be written down upon either
a specified CET1 ratio breach or a determination by FINMA that
a viability event has occurred. Such contractual provisions are
not derivatives as the underlying is deemed to be a non-financial
variable specific to a party to the contract. Where there is a legal
bail-in 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
resolution authority granted to FINMA under Swiss law), such a
mechanism does not form part of the contractual terms and,
therefore, does not affect the amortized cost accounting
treatment applied to these instruments. If the debt were to be
written down or converted into equity in a future period, the
financial liability would be partially or fully derecognized, with
the difference between the carrying amount of the debt written
down or converted 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
activity, fair value hedge accounting is applied to fixed-rate debt
instruments measured at amortized cost, their carrying amount
is adjusted for changes in fair value related to the hedged
exposure. Refer to item 3j for more information about hedge
accounting.
Debt issued and subsequently repurchased in relation to
market-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 amount) is
recorded in Other income. A subsequent sale of own bonds in
the market is treated as a reissuance of debt.
UBS uses the fair value option to designate certain issued
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 (refer to item 3b in this Note for more
information).
m. Own credit
Changes in the fair value of financial liabilities designated at fair
value through profit or loss related to own credit are recognized
income directly within Retained
in Other comprehensive
earnings and will not be reclassified to the income statement in
future periods.
n. Loan commitments
Policy applicable from 1 January 20181
Loan commitments are arrangements under which clients can
borrow stipulated amounts under defined terms and conditions.
11 The accounting policy in this section applies from 1 January 2018, the effective date of IFRS 9.
Loan commitments that can be canceled at any time by UBS
at its discretion are neither recognized on the balance sheet nor
included in off-balance sheet disclosures.
Loan commitments that cannot be canceled by UBS once the
commitments have been communicated to the beneficiary or
that are revocable only because of automatic cancelation upon
deterioration in a borrower’s creditworthiness are considered
irrevocable and are classified as: (i) derivative loan commitments
measured at fair value through profit or
loan
commitments designated at fair value through profit or loss; or
(iii) other loan commitments.
loss;
(ii)
The Group recognizes ECL on non-cancelable other loan
commitments and those that can be canceled at any time if UBS
is exposed to credit risk (refer to item 3g in this Note).
Corresponding ECL are presented within Provisions on the
Group’s balance sheet. ECL relating to these other loan
commitments are recorded in the income statement in Credit
loss (expense) / recovery.
When a client draws on a commitment, the resulting loan is
presented within Financial assets at fair value held for trading, or
within Financial assets at fair value not held for trading when the
associated loan commitments are measured at fair value through
profit or loss, and within Loans and advances to customers when
the associated loan commitment is not measured at fair value
through profit or loss.
through profit or
loss, consistent with
Comparative policy | Policy applicable prior to 1 January 2018
When a client draws on a commitment, the resulting loan is
classified as a: (i) trading asset, consistent with the associated
derivative loan commitment; (ii) financial asset designated at fair
value
loan
commitment designated at fair value through profit or loss; or as
a (iii) loan when the associated loan commitment is accounted
for as other loan commitments which are not measured at fair
value through profit or loss. Consistent with item 3g above,
claims under other loan commitments are impaired and an
allowance or provision for credit losses is recognized when
objective evidence demonstrates that a loss event has occurred
after the initial recognition and that the loss event has an effect
on the future cash flows that can be reliably estimated (incurred
loss approach).
the
o. Financial guarantee contracts
Policy applicable from 1 January 20181
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 instrument. UBS issues such financial guarantees to banks,
financial institutions and other parties on behalf of clients to
secure loans, overdrafts and other banking facilities.
333
Financial statements
Consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
Performance obligations satisfied over time
Fees earned from services that are provided over a certain period
of time are recognized on a pro rata basis over the service
period, provided the fees are not contingent on successfully
meeting specified performance criteria that are beyond the
control of UBS (see measurement below).
Costs to fulfill services over time are recorded in the income
statement immediately, because such services are considered to
be a series of services that are substantially the same from day to
day and have the same pattern of transfer. The costs to fulfill
neither generate nor enhance the resources of UBS that will be
used to satisfy future performance obligations and cannot be
distinguished between those that relate to satisfied and
unsatisfied performance obligations. Therefore, these costs do
not qualify to be recognized as an asset. Where costs incurred
relate to contracts that include variable consideration that is
constrained by factors beyond UBS’s control (e.g., successful
mergers and acquisitions (M&A) activity), or where UBS has a
history of not recovering such costs on similar transactions, such
costs are expensed immediately as incurred.
Performance obligations satisfied at a point in time
Fees earned from providing transaction-type services are
recognized when the service has been completed, provided such
fees are not subject to refund or another contingency beyond
the control of UBS.
Incremental costs to fulfill services provided at a point in time
are typically incurred and recorded at the same time as the
performance obligation is satisfied and revenue is earned, and
are therefore not recognized as an asset, e.g., brokerage. Where
recovery of costs to fulfill relates to an uncompleted point-in-
time service for which the satisfaction of the performance
obligation in the contract is dependent upon factors beyond the
control of UBS, such as underwriting a successful securities
issuance, or where UBS has a history of not recovering such
costs through reimbursement on similar transactions, the costs
are expensed immediately as incurred.
Certain issued financial guarantees that are managed on a
fair value basis are designated at fair value through profit or loss.
Financial guarantees that are not managed on a fair value basis
are initially recognized in the financial statements at fair value
and are subsequently measured at the higher of:
– the amount of ECL (refer to item 3g in this Note); and
– the amount initially recognized less the cumulative amount of
income recognized as of the reporting date.
ECL resulting from guarantees is recorded in the income
statement in Credit loss (expense) / recovery.
Comparative policy | Policy applicable prior to 1 January 2018
Financial guarantees that are not managed on a fair value basis
are initially recognized in the financial statements at fair value
and are subsequently measured at the higher of the amount
initially recognized less cumulative amortization and, to the
extent a payment under the guarantee has become probable,
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.
p. Other net income from financial instruments measured at fair
value through profit or loss
The line item Other net income from financial instruments
measured at fair value through profit or loss includes fair value
gains and losses on financial instruments at fair value through
profit or loss other than interest income and expense on non-
derivatives (refer to item 3c in this Note). In addition, effective
1 January 2019, the line item includes dividends (prior to 1
January 2019, dividends were included within Net interest
income), intermediation income arising from certain client-driven
Global Wealth Management and Personal & Corporate Banking
financial transactions, foreign currency translation effects and
income and expenses from exposures to precious metals.
4) Fee and commission income and expenses
Policy applicable from 1 January 20181
UBS earns fee income from a diverse range of services it provides
to its clients. Fee income can be divided into two broad
categories: fees earned from services that are provided over a
certain period of time, such as asset or portfolio management,
custody services and certain advisory services; and fees earned
from point-in-time services, such as underwriting fees and
brokerage fees (e.g., securities and derivative execution and
clearing).
Refer to Note 4 for more information, including the
disaggregation of revenues
1 The accounting policy in this section applies from 1 January 2018, the effective date of IFRS 15.
1
334
Note 1 Summary of significant accounting policies (continued)
recognizes
revenue when
Measurement
Fee and commission income is measured based on consideration
specified in a legally enforceable contract with a customer,
excluding amounts such as taxes collected on behalf of third
parties. Consideration can include both fixed and variable
amounts. Variable consideration includes refunds, discounts,
performance bonuses and other amounts that are contingent on
the occurrence or non-occurrence of a future event. Variable
consideration that is contingent on an uncertain event can only
be recognized to the extent that it is highly probable that a
significant reversal in the amount of cumulative revenue for a
contract will not occur. This is referred to as the variable
consideration constraint. UBS does not consider the highly
probable criterion to be met where the contingency on which
income is dependent is beyond the control of UBS. In such
the
circumstances, UBS only
contingency has been resolved or an uncertain event has
occurred. Examples include asset management performance-
linked fees, which are only payable if the returns of a fund
exceed a benchmark and are only recognized after the
performance period has elapsed. Similarly, M&A advisory fees
that are dependent on a successful client transaction are not
recognized until the transaction on which the fees are
dependent has been executed. Asset management
fees
(excluding performance-based fees) received on a periodic basis,
typically quarterly, that are determined based on a fixed
percentage of net asset value that has not been established at
the reporting date, are estimated and accrued ratably over the
period to the next invoice date, except during periods in which
market volatility indicates there is a risk of significant reversal.
Research revenues earned by the Investment Bank under
commission-sharing or research payment account agreements
are not recognized until the client has provided a definitive
allocation of amounts between research providers, as prior to
this UBS generally does not have an enforceable right to a
specified amount of consideration.
to
received
is allocated
Consideration
the separately
identifiable performance obligations in a contract. Owing to the
nature of UBS’s business, contracts that include multiple
performance obligations are typically those that are considered
to include a series of similar performance obligations fulfilled
over time with the same pattern of transfer to the client, e.g.,
asset management. As a consequence, UBS is not required to
apply significant judgment in allocating the consideration
received across the various performance obligations. UBS has
taken the practical expedient to not disclose information about
the allocation of the transaction price to remaining performance
obligations in contracts. This is because contracts are typically
less than one year in duration. Where contracts have a longer
duration, they are either subject to the variable consideration
constraint, with fees calculated on future net asset value, which
cannot be included within the transaction price for the contract,
or result in revenue being recognized ratably using the output
method corresponding directly to the value of the services
completed to date and to which UBS would be entitled to
loan
invoice upon
commitments.
the contract, e.g.,
termination of
Presentation of fee and commission income and expense
Fee and commission income and expense are presented gross on
the face of the income statement when UBS is considered to be
principal in the contractual relationship with its customer and any
suppliers used to fulfill such contracts. This occurs where UBS has
control over such services and its relationship with suppliers prior
to provision of the service to the client. UBS only considers itself to
be an agent in relation to services provided by third parties, e.g.,
third-party execution costs for exchange-traded derivatives and
fees payable to third-party research providers, where the client
controls both the choice of supplier and the scope of the services
to be provided. Furthermore, in order to be considered an agent
UBS should generally not take responsibility for the quality of the
service, transform or integrate the services into a UBS product. In
such circumstances, UBS is essentially acting as a payment agent
for its client. When UBS is acting as an agent, any costs incurred
are directly offset against the associated income.
Presentation of expenses in the income statement
UBS presents expenses primarily in line with their nature in the
income statement, differentiating between expenses that are
directly attributable to the satisfaction of specific performance
obligations associated with the generation of revenues, which
are presented within Total operating income, and those that are
related to personnel, general and administrative expenses, which
are presented within Total operating expenses.
Contract assets, contract liabilities and capitalized expenses
UBS has applied the practical expedient of allowing for costs
incurred to obtain a contract to be expensed as incurred where
the amortization period for any asset recognized would be less
than 12 months.
Where UBS provides services to clients, consideration is due
immediately upon satisfaction of a point-in-time service or at the
end of a prespecified period for a service performed over time;
e.g., certain asset management fees are collected monthly or
quarterly, through deduction from a client account, deduction
invoicing. Where
from fund assets or through separate
receivables are recorded, they are presented within Other
financial assets measured at amortized cost.
Contract liabilities relate to prepayments received from
customers where UBS is yet to satisfy its performance obligation.
Contract assets are recorded when an entity’s right to
consideration in exchange for services transferred is conditional
on something other than the passage of time, e.g., the entity’s
future performance.
UBS has not recognized any material contract assets, contract
liabilities or capitalized expenses during the period and has
therefore not provided a contract balances reconciliation.
335
Financial statements
Consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
Share-based compensation expense is measured by reference
to the fair value of the equity instruments on the date of grant,
taking into account the terms and conditions inherent in the
award, including, where relevant, dividend rights, transfer
restrictions in effect beyond the vesting date, market conditions,
and non-vesting conditions. For equity-settled awards, the fair
value is not remeasured unless the terms of the award are
modified such that there is an incremental increase in value. No
adjustments are made for modification that results in a decrease
in value. 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. For
cash-settled awards, fair value is re-measured at each reporting
date such that the cumulative expense recognized equals the
cash distributed.
Refer to Note 30 for more information
Other compensation plans
UBS has established deferred compensation plans that are
settled in cash or financial instruments other than UBS equity,
the amount of which may be fixed or may vary based on the
achievement of specified performance conditions or the value of
specified underlying assets. Compensation expense is recognized
over the period that the employee provides services to become
entitled to the award. Where the service period is shortened, for
example in the case of employees affected by restructuring
programs or mutually agreed termination provisions, recognition
of expense is accelerated to the termination date. Where no
future service is required, such as for employees who are eligible
for retirement or who have met certain age and length-of-
service criteria, the services are presumed to have been received
and compensation expense is recognized immediately on, or
prior to, the date of grant. The amount recognized is based on
the present value of the amount expected to be paid under the
plan and is remeasured at each reporting date, so that the
cumulative expense recognized equals the cash or the fair value
of respective financial instruments distributed.
Refer to Note 30 for more information
7) Pension and other post-employment benefit plans
UBS sponsors various 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.
Refer to Note 29 for more information
Comparative policy | Policy applicable prior to 1 January 2018
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, as
of the reporting date, the performance benchmark has been
met and when collectibility is reasonably assured.
Fees earned from providing transaction-type services are
recognized when the service has been completed and the fee is
fixed or determinable, i.e., not subject to refund or adjustment.
Fee income generated from providing a service that does not
result in the recognition of a financial instrument is presented
within Net fee and commission income. Fees generated from the
acquisition, issue or disposal of a financial instrument are
presented in the income statement in line with the balance sheet
classification of that financial instrument.
Refer to Note 4 for more information
5) Cash and cash equivalents
For the purpose 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 at central and other banks.
6) Share-based and other deferred compensation plans
specified
Share-based compensation plans
UBS has established share-based compensation plans that are
settled in UBS‘s equity instruments or an amount that is based
on the value of such instruments. These awards are generally
subject to vesting conditions that require employees to complete
a specified period of service and, for performance shares, to
Share-based
satisfy
compensation expense is recognized, on a per-tranche basis,
over the service period based on an estimate of the number of
instruments expected to vest and is adjusted to reflect actual
outcomes of service or performance conditions. Where the
vesting period is shortened, for example in the case of
employees affected by restructuring programs or mutually
agreed termination provisions, the expense is recognized on an
accelerated basis to the termination date.
performance
conditions.
the share-based compensation expense
Where no future service is required, such as for employees
who are eligible for retirement or who have met certain age and
length-of-service criteria, the services are presumed to have been
received and
is
recognized immediately on, or prior to, the date of grant. Such
awards may remain forfeitable. For equity-settled awards,
forfeiture events resulting from a breach of a non-vesting
condition (i.e., one that does not relate to a service or
performance condition) do not result in an adjustment to the
share-based compensation expense.
336
Note 1 Summary of significant accounting policies (continued)
Defined benefit plans
UBS offers defined benefit plans, such as pension and medical
insurance benefit plans. Defined benefit plans specify an amount
of benefit that an employee will receive, which usually depends
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, with changes resulting from remeasurements
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 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 contributions to the plan. UBS applies the
projected unit credit method to determine the present value of
its defined benefit obligations, the related current service cost
and, where applicable, past service cost. The projected unit
credit method sees each period of service as giving rise to an
additional unit of benefit entitlement and measures each unit
separately to build up the final obligation. These amounts, which
take into account the specific features of each plan, including
risk sharing between employee and employer, are calculated
periodically by independent qualified actuaries.
Critical accounting estimates and judgments
Critical accounting estimates and judgments
The net defined benefit liability or asset at the balance sheet date and the
related personnel expense depend on the expected future benefits to be
provided, determined using a number of economic and demographic
assumptions. A range of assumptions could be applied, and different
assumptions could significantly alter the defined benefit liability or asset
and pension expense recognized. The most significant assumptions
include life expectancy, the discount rate, expected salary increases,
pension increases and, in addition for the Swiss plan and one of the US
defined benefit pension plans, interest credits on retirement savings
account balances. Life expectancy is determined by reference to published
mortality tables. The discount rate is determined by reference to the rates
of return on high-quality fixed-income investments of appropriate
currency and term at the measurement date. The assumption for salary
increases reflects the long-term expectations for salary growth and takes
into account historical salary development by age groups, expected
inflation and expected supply and demand in the labor market. A
sensitivity analysis for reasonable possible movements in each significant
assumption for UBS‘s post-employment obligations is provided within
Note 29.
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
rendered services in exchange for such contributions. This is
generally in the year of contribution. Prepaid contributions are
recognized as an asset to the extent that a cash refund or a
reduction in future payments is available.
8) Income taxes
UBS is subject to the income tax laws of Switzerland and those
of the non-Swiss jurisdictions in which UBS has business
operations.
The Group’s provision for income taxes is composed of
current and deferred taxes. Current income taxes represent taxes
to be paid or refunded for the current period or previous
periods.
Deferred taxes are recognized for temporary differences
between the carrying amounts and tax bases of assets and
liabilities that will result in taxable or deductible amounts in
future periods and are measured using the applicable tax rates
and laws that have been enacted or substantively enacted by the
end of the reporting period and which will be in effect when
such differences are expected to reverse.
in future years; and
Deferred tax assets arise from a variety of sources, the most
significant being: (i) tax losses that can be carried forward to be
used against profits
(ii) temporary
differences that will result in deductions against profits in future
years. Deferred tax assets are recognized only to the extent that
it is probable that sufficient taxable profits will be available
against which these differences can be used. When an entity or
tax group has a history of recent losses, deferred tax assets are
only recognized to the extent there are sufficient taxable
temporary differences or there is convincing other evidence that
sufficient taxable profit will be available against which the
unused tax losses can be utilized.
liabilities are
tax
temporary
differences between the carrying amounts of assets and
liabilities in the balance sheet that reflect the expectation that
certain items will give rise to taxable income in future periods.
recognized
Deferred
for
Deferred and current tax assets and liabilities are offset when:
(i) they arise in the same tax reporting group; (ii) they relate to
the same tax authority; (iii) the legal right to offset exists; and (iv)
they are intended to be settled net or realized simultaneously.
337
Financial statements
Consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
9) Investments in associates
Interests in entities where UBS has significant influence over the
financial and operating policies of the entity, but does not have
control, are classified as investments in associates and accounted
for under the equity method of accounting. Typically, UBS has
significant influence when it holds or has the ability to hold
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 the Group’s share of the investee’s
comprehensive income and any impairment losses.
The net investment in an associate is impaired if there is
objective evidence of a loss event and the carrying amount of
the investment in the associate exceeds its recoverable amount.
Refer to Note 31 for more information
10) Property, equipment and software
for
for
indication
Property, equipment and software includes own-used properties,
leasehold improvements, information technology hardware,
externally purchased and internally generated software, as well
as communication and other similar equipment. Property,
equipment and software is measured at cost less accumulated
depreciation and impairment losses and is reviewed at each
reporting date
impairment. Software
development costs are capitalized only when the costs can be
measured reliably and it is probable that future economic
benefits will arise. Depreciation of property, equipment and
software begins when they are available for use (i.e., when they
are in the location and condition necessary for them to be
capable of operating in the manner intended by management).
Depreciation is calculated on a straight-line basis over an asset‘s
estimated useful life. The estimated useful economic lives of
UBS‘s property, equipment and software are:
– properties, excluding land: ≤ 67 years
– IT hardware and communication equipment: ≤ 7 years
– other machines and equipment: ≤ 10 years
– software: ≤ 10 years
– leased properties and leasehold improvements: the shorter of
the lease term or the economic life of asset (typically ≤ 20
years).
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 (for which such amounts would affect the amount of
goodwill arising from the acquisition); (ii) for gains and losses on
the sale of treasury shares (for which the tax effects are
recognized directly in Equity); (iii) for unrealized gains or losses
on financial instruments that are classified at FVOCI (prior to
1 January 2018: financial assets classified as available for sale);
(iv) for changes in fair value of derivative instruments designated
as cash flow hedges; (v) for remeasurements of defined benefit
plans; or (vi) for certain foreign currency translations of foreign
operations. Amounts relating to points (iii) through (vi) are
recognized in Other comprehensive income within Equity.
UBS reflects the potential effect of uncertain tax positions for
which acceptance by the relevant tax authority is not considered
probable by adjusting current or deferred taxes, as applicable,
using either the most likely amount or expected value methods,
depending on which method is deemed a better predictor of the
basis on which and extent to which the uncertainty will be
resolved.
Critical accounting estimates and judgments
Critical accounting estimates and judgments
Tax laws are complex, and judgment and interpretations about the
application of such laws are required when accounting for income taxes.
UBS considers the performance of its businesses and the accuracy of
historical forecasts and other factors in evaluating the recoverability of its
deferred tax assets, including the remaining tax loss carry-forward period,
and its assessment of expected future taxable profits in the forecast
period used for recognizing deferred tax assets. Estimating future
profitability is inherently subjective and is particularly sensitive to future
economic, market and other conditions, which are difficult to predict.
is
The
level of deferred tax asset recognition
influenced by
management’s assessment of UBS’s future profitability based on relevant
business plan forecasts. Existing assessments are reviewed and, if
necessary, revised to reflect changed circumstances. This review is
conducted annually, generally in the fourth quarter of each year, but
adjustments may be made at other times, if required. In a situation where
recent losses have been incurred, convincing other evidence that there
will be sufficient future profitability is required.
If profit forecast assumptions in future periods deviate from the
current outlook, the value of UBS’s deferred tax assets may be affected.
Any increase or decrease in the carrying amount of deferred tax assets
would primarily be recognized through the income statement but would
not affect cash flows.
In addition, judgment is required to assess the expected value of
uncertain tax positions that are incorporated into the estimate of income
and deferred tax and the assessment of the related probabilities, including
in relation to the interpretation of tax laws, the resolution of any income
tax-related appeals or litigation and the assessment of the related
probabilities.
Refer to Note 8 for more information
338
Note 1 Summary of significant accounting policies (continued)
Property, equipment and software are generally tested for
impairment at the appropriate cash-generating unit (CGU) level,
alongside goodwill and intangible assets as described in item 11
of this Note. An impairment charge is however only recognized
for such assets if both the asset’s fair value less costs of disposal
and value in use (if determinable) is below its carrying amount.
The fair value of such an asset, other than property which has a
market price, is generally determined using a replacement cost
approach that reflects the amount that would be currently
required by a market participant to replace the service capacity
of the asset. If such assets are no longer used, they are tested
individually for impairment.
Refer to Note 15 for more information
Intangible assets are comprised of separately identifiable
intangible items arising from business combinations and certain
purchased trademarks and similar items. Intangible assets are
recognized 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 finite useful life are amortized using the
straight-line method over their estimated useful life, generally
not exceeding 20 years. In rare cases, intangible assets can have
an indefinite useful life, in which case they are not amortized. At
each reporting 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 recognized if the
carrying amount exceeds the recoverable amount.
11) 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 the acquisition. Goodwill is not
amortized, but at the end of each reporting period or when
indicators of impairment exist, UBS assesses whether there is any
indication that goodwill is impaired. If such indicators exist, UBS is
required to test the goodwill for impairment. Irrespective of
whether there is any indication of impairment, UBS tests goodwill
for impairment annually.
Following the integration in 2018 of the Wealth Management
and Wealth Management Americas business divisions into the
single reportable segment Global Wealth Management, UBS
continued to separately monitor the goodwill previously allocated
to the two former business divisions. As a consequence, for the
purpose of goodwill impairment testing, the former Wealth
Management and Wealth Management Americas business
divisions are considered to be two separate cash-generating units
referred to in Note 16 as Global Wealth Management Americas
and Global Wealth Management ex Americas. The remaining
goodwill balances are tested at the level of Asset Management
and the Investment Bank, with each segment considered a
separate cash-generating unit.
The impairment test is performed for each cash-generating unit
to which goodwill is allocated by comparing the recoverable
amount, based on its value-in-use, to the carrying amount of the
respective cash-generating unit. An
is
recognized in the income statement if the carrying amount
exceeds the recoverable amount.
impairment charge
If the estimated earnings and other assumptions in future
periods deviate from the current outlook, the value of UBS‘s
goodwill may become impaired in the future, giving rise to
losses in the income statement. Recognition of any impairment
of goodwill would reduce net profit and equity, but would not
affect cash flows.
Critical accounting estimates and judgments
Critical accounting estimates and judgments
UBS‘s methodology for goodwill impairment testing is based on a model
that is most sensitive to the following key assumptions: (i) forecasts of
earnings available to shareholders in years one to three; (ii) changes in the
discount rates; and (iii) changes in the long-term growth rate.
The key assumptions are linked to external market information, where
applicable. Earnings available to shareholders are estimated on the basis
of 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 quantitative and qualitative
inputs from both internal and external analysts, the view of management
and regional differences in risk-free rates, at the level of individual cash-
generating units. Long-term growth rates are determined in a consistent
manner based on nominal or real GDP growth rate forecasts, considering
different regions worldwide as incorporated in the business plan
approved by the BoD.
The key assumptions used to determine the recoverable amounts of
each cash-generating unit are tested for sensitivity by applying reasonably
possible changes to those assumptions. Refer to Note 16 for details about
how the reasonably possible changes may affect the results of UBS‘s
model for goodwill impairment testing.
Refer to Notes 2 and 16 for more information
12) Provisions and contingent liabilities
Provisions are liabilities of uncertain timing or amount, and are
generally recognized in accordance with IAS 37, Provisions,
Contingent Liabilities and Contingent Assets, when: (i) UBS has a
present obligation as a result of a past event; (ii) it is probable
that an outflow of resources will be required to settle the
obligation; and (iii) a reliable estimate of the amount of the
obligation can be made.
The Group recognizes IAS 37 provisions for litigation,
regulatory and similar matters when,
in the opinion of
management after seeking legal advice, the requirements for
recognition have been met. A provision may also 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.
339
Financial statements
Consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
IAS 37 provisions are measured considering the best estimate
of the consideration 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.
Provisions that are similar in nature are aggregated to form a
class, while the remaining provisions, including those of less
significant amounts, are disclosed under Other provisions.
Provisions are presented separately on the balance sheet and,
when they are no longer considered uncertain in timing or
lines
amount, are reclassified to their respective
depending on their nature.
liability
When all conditions required to recognize a provision are not
met, 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. Such disclosures are
not made if it is not practicable to do so.
The majority of UBS’s provisions relate to litigation, regulatory
and similar matters, restructuring, and employee benefits.
Restructuring provisions are generally
recognized as a
consequence of management agreeing to materially change the
scope of the business or the manner in which it is conducted,
including changes in the management structure. Provisions for
employee benefits relate mainly to service anniversaries and
sabbatical
in accordance with
measurement principles set out in item 7 of this Note. In
addition, UBS presents expected credit loss allowances within
Provisions if they relate to a loan commitment, financial
guarantee contract or a revolving revocable credit line.
leave, and are recognized
Critical accounting estimates and judgments
Critical accounting estimates and judgments
Recognition of provisions often involves significant judgment in assessing
the existence of an obligation that results from past events and in
estimating the probability, timing and amount of any outflows of
resources. This is particularly the case for litigation, regulatory and similar
matters, which, due to 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 that have not yet
been initiated or are at early stages of adjudication, or as to which alleged
damages have not been quantified by the claimants. Determining
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.
is sensitive to the
assumptions used and there could be a wide range of possible outcomes
for any particular matter.
The amount of any provision recognized
Statistical or other quantitative analytical tools are generally of limited
use in determining whether to establish or determine the amount of
provisions in the case of litigation, regulatory or similar matters.
Furthermore, information currently available to management may be
incomplete or inaccurate, increasing the risk of erroneous assumptions
with regard to the future development of such matters. Management
regularly reviews all the available information regarding such matters,
including legal advice, which is a significant consideration, to assess
whether the recognition criteria for provisions have been satisfied and to
determine the timing and amount of any potential outflows.
Refer to Note 21 for more information
13) Foreign currency translation
Transactions denominated in a foreign currency are translated
into the functional currency of the reporting entity at the spot
exchange rate on the date of the transaction. At the balance
sheet date, all monetary assets, including those at FVOCI (prior
to 1 January 2018: monetary financial assets classified as
available for sale), and monetary liabilities denominated in
foreign currency are translated into the functional currency using
the closing exchange rate. Translation differences (which for
monetary financial assets at FVOCI are determined as if they
were financial assets measured at amortized cost) are reported
in Other net income from financial instruments measured at fair
value through profit or loss (prior to 1 January 2018: Net trading
income).
Non-monetary items measured at historical cost are translated
at the exchange rate on the date of the transaction. Prior to
1 January 2018, foreign currency translation differences on non-
monetary financial assets classified as available for sale were
recorded directly in Equity until the asset was derecognized.
340
Note 1 Summary of significant accounting policies (continued)
Upon consolidation, assets and liabilities of foreign operations
(which from 1 October 2018 also include UBS’s Switzerland-based
operations with Swiss franc functional currency) are translated into
US dollars, UBS’s presentation currency, at the closing exchange
rate on the balance sheet date, and income and expense items
and other comprehensive income are translated at the average
rate for the period. The resulting foreign currency translation
differences attributable to shareholders are recognized in Foreign
currency translation within Equity, which forms part of Total
equity attributable to shareholders, whereas the foreign currency
translation differences attributable to non-controlling interests are
included within Equity attributable to non-controlling interests.
Share capital issued, share premium and treasury shares held are
translated at the historic average rate, whereby the difference
between the historic average rate and the spot rate realized upon
repayment of share capital or disposal of treasury shares is
reported as Share premium. Cumulative amounts recognized in
OCI in respect of cash flow hedges and financial assets measured
at FVOCI (prior to 1 January 2018: financial assets classified as
available for sale) are translated at the closing exchange rate as of
the balance sheet dates, with any translation effects adjusted
through Retained earnings.
When a foreign operation is disposed or partially disposed of
and UBS no longer controls the foreign operation, the cumulative
amount of foreign currency translation differences within Total
equity attributable to shareholders and Equity attributable to non-
controlling interests related to that foreign operation is reclassified
to the income statement as part of the gain or loss on disposal.
Similarly, if an investment in an associate becomes an investment
in a subsidiary, the cumulative amount of foreign currency
translation differences is reclassified to profit or loss. When UBS
disposes of a portion of its interest in a subsidiary that includes a
foreign operation but retains control, the related portion of the
cumulative currency translation balance is reclassified to Equity
attributable to non-controlling interests.
Refer to Note 37 for more information
Critical accounting estimates and judgments
Critical accounting estimates and judgments
The determination of an entity’s functional currency and the trigger for a
judgment and
change requires management to apply significant
assumptions. IAS 21, The Effects of Changes in Foreign Exchange Rates,
requires management to consider the underlying transactions, events and
conditions that are relevant to the entity when determining the
appropriate functional currency and any changes. UBS’s conclusion, in the
fourth quarter of 2018, that the functional currency of UBS Group AG,
UBS AG’s Head Office in Switzerland and UBS AG, London Branch had
changed from the Swiss franc to the US dollar was based on a detailed
assessment of the primary currencies affecting and influencing the
economics of each entity, considering revenue-generating
income
streams, expenses, funding and risk management activities.
In addition, determining the earliest date from which it is practicable
to perform a restatement following a voluntary change in presentational
currency also requires management to apply significant judgment and
make estimates and assumptions. UBS’s decision in 2018 to change the
presentation currency of UBS Group AG’s consolidated financial
statements from the Swiss franc to the US dollar was made in line with
IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors,
by assessing the earliest date from which it was practicable to perform a
restatement, taking into consideration whether sufficiently reliable data
was available for earlier periods and whether any assumptions on
management intent or significant estimates of amounts were required.
UBS carried out a detailed and extensive data analysis before concluding
that 1 January 2004 represented the earliest date available, with the
consequence that foreign currency translation gains and losses prior to
2004 were disregarded, and foreign currency translation effects were first
calculated from 1 January 2004 onward.
14) Equity, treasury shares and contracts on UBS Group AG
shares
Non-controlling interests
Net profit is split into Net profit attributable to shareholders and
Net profit attributable to non-controlling interests (including net
profit attributable to preferred noteholders, if any). Similarly,
Equity is split into Equity attributable to shareholders and Equity
(including equity
interests
attributable
attributable to preferred noteholders, if any).
to non-controlling
Non-controlling interests subject to option arrangements, e.g.,
written puts, are generally deemed to be acquired by UBS. As a
result, the amounts allocated to non-controlling interests are
reduced accordingly and a liability equivalent to each option’s
exercise price is recognized, with any difference between these
two amounts recorded in Share premium.
UBS Group AG shares held (treasury shares)
UBS Group AG shares held by the Group, including those
purchased as part of market-making activities, are presented in
Equity as Treasury shares at their acquisition cost and are
deducted from Equity until they are canceled 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.
341
Financial statements
Consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
expected rental payments or costs of termination are included
within the lease payments used to generate the lease liability.
UBS does not typically enter into leases with purchase options or
residual value guarantees.
Where UBS acts as a lessor or sub-lessor under a finance lease,
a receivable is recognized in Other financial assets measured at
amortized cost at an amount equal to the present value of the
aggregate of the lease payments plus any unguaranteed 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 as repayments of the outstanding receivable.
Interest income reflects a constant periodic rate of return on UBS’s
net investment using the interest rate implicit in the lease (or, for
sub-leases, the rate for the head 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.
Where UBS acts as a lessor or sub-lessor in an operating lease,
UBS recognizes the operating lease income on a straight-line basis
over the lease term.
receivables are determined
Lease receivables are subject to impairment requirements as
set out in item 3g of this Note. Expected credit losses (ECL) on
lease
the general
impairment model within IFRS 9, Financial Instruments, without
utilizing
simplified approach of always measuring
impairment at the amount of lifetime ECL.
following
the
Comparative policy | Policy applicable prior to 1 January 2019
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 operating leases.
Lease contracts classified as operating leases where UBS is the lessee
include non-cancelable 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.
Refer to Note 15 and 33 for more information
Net cash settlement contracts
Contracts on UBS Group AG shares that require net cash
settlement, or provide the counterparty or UBS with a settlement
option that includes a choice of settling net in cash, are classified
as held for trading derivatives, with changes in fair value
reported in the income statement as Other net income from
financial instruments measured at fair value through profit or
loss.
15) Leasing
Policy applicable from 1 January 20191
UBS predominantly enters into lease contracts, or contracts that
include lease components, as a lessee of real estate, including
offices, retail branches and sales offices, with a small number of IT
hardware leases. UBS identifies non-lease components of a
contract and accounts
lease
components.
separately
them
from
for
When UBS is a lessee in a lease arrangement, UBS recognizes a
lease liability and corresponding right-of-use (RoU) asset at the
commencement of the lease term when UBS acquires control of
the physical use of the asset. Lease liabilities are presented within
Other financial liabilities measured at amortized cost and RoU
assets within Property, equipment and software. The lease liability
is measured based on the present value of the lease payments
over the lease term, discounted using UBS’s unsecured borrowing
rate, given that the rate implicit in a lease is generally not
observable to the lessee. Interest expense on the lease liability is
presented within Interest expense from financial instruments
measured at amortized cost. The RoU asset is recorded at an
amount equal to the lease liability but is adjusted for rent
prepayments, initial direct costs, any costs to refurbish the leased
asset and/or
is
depreciated over the shorter of the lease term or the useful life
of the underlying asset, with the depreciation presented within
Depreciation and impairment of property, equipment and
software.
incentives received. The RoU asset
lease
Lease payments generally include fixed payments and variable
payments that depend on an index (such as an inflation index).
When a lease contains an extension or termination option that
the Group considers reasonably certain to be exercised, the
1 The accounting policy in this section applies from 1 January 2019, the effective date of IFRS 16.
1
342
Note 1 Summary of significant accounting policies (continued)
b) Changes in accounting policies, comparability and other adjustments
New or amended accounting standards
–
interest
risk-free
Amendments to IAS 39, IFRS 9 and IFRS 7 (Interest Rate
Benchmark Reform)
In September 2019, the IASB issued Interest Rate Benchmark
Reform Amendments to IFRS 9, IAS 39 and IFRS 7, enabling
hedge accounting to continue during the period of uncertainty
before existing interest rate benchmarks are replaced with
alternative
rates. The amendments are
mandatorily effective from 1 January 2020, with early adoption
permitted, and apply to hedge relationships that exist at the
beginning of the reporting period or are designated thereafter,
and to the gains or losses that exist in OCI on adoption. As
permitted by the transitional provisions, UBS early adopted the
revisions in 2019. Adopting these amendments allows UBS to
maintain its existing hedge accounting relationships and to
assume that the current benchmark rates will continue to exist,
such that the hedge relationships are considered highly effective
on a retrospective and prospective basis, with no consequential
impact on the financial statements. Further, the amendments
bring in additional disclosure requirements on the effects arising
from the change in interest rate benchmarks, which are
presented in Note 28.
IFRS 16, Leases
Effective from 1 January 2019, UBS adopted IFRS 16, Leases,
which replaced IAS 17, Leases, and sets out the principles for the
recognition, measurement, presentation and disclosure of leases.
IFRS 16 introduces a single lessee accounting model and
fundamentally changes how UBS accounts for operating leases
when acting as a lessee, with a requirement to record a right-of-
use (RoU) asset and lease liability on the balance sheet. UBS is a
lessee in a number of leases, primarily of real estate, including
offices, retail branches and sales offices, with a smaller number
of IT hardware leases. As permitted by the transitional provisions
of IFRS 16, UBS elected to apply the modified retrospective
approach and has not restated comparative figures. Overall,
adoption of IFRS 16 resulted in a USD 3.5 billion increase in both
total assets and total liabilities in UBS’s consolidated financial
statements. The newly recognized right-of-use assets and
finance lease receivables were fully allocated to the business
divisions. There was no effect on equity.
Refer to the tables below and on the following page, and
Note 2 for more information
UBS applied the following practical expedients that are
permitted on transition to IFRS 16 where UBS is a lessee in a
lease previously classified as an operating lease:
–
–
to not reassess whether or not a contract contained a lease;
to rely on previous assessments of whether such contracts
were considered onerous;
to rely on previous sale-and-leaseback assessments;
to adjust lease terms with the benefit of hindsight with
respect to whether extension or termination options are
reasonably certain of being exercised;
to discount lease liabilities using the Group’s incremental
borrowing rate in each currency as of 1 January 2019;
to initially measure the RoU asset at an amount equal to the
lease liability for leases previously classified as operating
leases, adjusted for existing lease balances, such as rent
prepayments, rent accruals, lease incentives and onerous
lease provisions, but excluding initial direct costs; and
to not apply IFRS 16 to leases the remaining term of which
will end within 12 months from the transition date.
–
–
–
–
–
The measurement of leases previously classified as finance
leases where UBS acts as a lessee has not changed on transition
to IFRS 16. Similarly, UBS has made no adjustments where UBS
acts as a lessor, in either a finance or operating lease, of physical
assets it owns. Where UBS acts as an intermediate lessor, i.e.,
where UBS enters into a head lease and sub-leases the asset to a
third party, the sub-lease has been classified as either a finance
or operating lease based primarily on whether the sub-lease
term consumes the majority of the remaining useful life of the
RoU asset arising from the head lease as of the transition date.
The following table reconciles the obligations in respect of
operating leases as of 31 December 2018 to the opening lease
liabilities recognized on 1 January 2019.
Reconciliation between operating lease commitments disclosed under IAS 17 and lease liabilities recognized under IFRS 16
USD million
TToottaall uunnddiissccoouunntteedd ooppeerraattiinngg lleeaassee ccoommmmiittmmeennttss aass ooff 3311 DDeecceemmbbeerr 22001188
Leases with a remaining term of less than one year as of 1 January 2019
Excluded service components
Reassessment of lease term for extension or termination options
TToottaall uunnddiissccoouunntteedd lleeaassee ppaayymmeennttss
Discounted at a weighted average incremental borrowing rate of 3.07%
IIFFRRSS 1166 ttrraannssiittiioonn aaddjjuussttmmeenntt
Finance lease liabilities as of 31 December 2018
CCaarrrryyiinngg aammoouunntt ooff ttoottaall lleeaassee lliiaabbiilliittiieess aass ooff 11 JJaannuuaarryy 22001199
44,,668888
((1188))
((229966))
440033
44,,777777
((774444))
44,,003333
2244
44,,005577
343
Financial statements
Consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
The following table provides details about the determination of RoU assets on transition.
Determination of RoU assets on transition
USD million
Recognition of gross RoU assets upon adoption of IFRS 16 (IFRS 16 transition adjustment)
Recognition of gross RoU assets upon adoption of IFRS 16 (IFRS 16 transition adjustment)
Offset by liabilities recognized as of 31 December 2018
of which: other non-financial liabilities (lease incentives)
of which: other financial liabilities measured at amortized cost (rent accruals)
of which: provisions (onerous lease provisions)
Increase in total assets resulting from the adoption of IFRS 16 on 1 January 20191
Increase in total assets resulting from the adoption of IFRS 16 on 1 January 20191
Reclassification of assets recognized as of 31 December 2018 as an addition to RoU assets
of which: other financial assets measured at amortized cost (finance lease assets recognized under IAS 17 as of 31 December 2018)
of which: other non-financial assets (prepaid rent)
Reclassification of finance lease receivables from sub-leases to other financial assets measured at amortized cost resulting in a reduction of RoU assets
Carrying amount
Carrying amount
4,033
4,033
(521)
(521)
(204)
(204)
(185)
(185)
(132)
(132)
3,512
3,512
43
43
24
24
19
19
(176)
(176)
3,378
3,378
Upon adoption of IFRIC 23 on 1 January 2019, UBS
recognized a net tax expense of USD 11 million in retained
earnings.
Amendments to IAS 19, Employee Benefits
Effective from 1 January 2019, UBS adopted amendments to IAS
19, Employee Benefits, which address the accounting when a
plan amendment, curtailment or settlement occurs during the
reporting period. The amendments require entities to use the
updated actuarial assumption to determine current service cost
and net interest for the remainder of the annual reporting
period after such an event. The amendments also clarify how the
accounting requirements for a plan amendment, curtailment or
settlement affect
requirements. The
amendments are effective prospectively for plan amendments,
curtailments or settlements that occur on or after 1 January
2019. Adoption on 1 January 2019 had no effect on the
Group’s financial statements.
the asset
ceiling
from 1
Annual Improvements to IFRS Standards 2015–2017 Cycle
Effective
January 2019, UBS adopted Annual
Improvements to IFRS Standards 2015–2017 Cycle, which
resulted in amendments to IFRS 3, Business Combinations,
IFRS 11, Joint Arrangements, IAS 12, Income Taxes, and IAS 23,
Borrowing Costs. Adoption of these amendments on 1 January
2019 had no material effect on the Group’s financial
statements.
Total RoU assets as of 1 January 2019 presented within Property, equipment and software
Total RoU assets as of 1 January 2019 presented within Property, equipment and software
1 Total liabilities increased by the same amount upon adoption of IFRS 16.
1
Lease liabilities are presented within Other financial liabilities
measured at amortized cost and RoU assets within Property,
equipment and software. Finance lease receivables are included
within Other financial assets measured at amortized cost. Due to
the practical expedients taken on transition, there was no effect
on equity. The weighted average lease term on 1 January 2019
was approximately nine years.
The 2019 depreciation expense for RoU assets, which is
presented within Depreciation and impairment of property,
equipment and software, was USD 487 million. The 2019
interest expense on lease liabilities, which is presented within
instruments measured at
Interest expense from financial
amortized cost, was USD 122 million. Occupancy expenses,
which are presented within General and administrative
expenses, decreased by USD 533 million between 2018 and
2019, which primarily reflected the adoption of IFRS 16. The full
year effect of the application of IFRS 16 was a net decrease in
profit before tax of approximately USD 60 million.
IFRIC 23, Uncertainty over Income Tax Treatments
Effective from 1 January 2019, UBS adopted IFRIC Interpretation
23, Uncertainty over Income Tax Treatments (IFRIC 23), which
addresses how uncertain tax positions should be accounted for
under IFRS. IFRIC 23 requires that, where acceptance of the tax
treatment by the relevant tax authority is considered probable, it
should be assumed as an accounting recognition matter that
treatment of the item will ultimately be accepted. Therefore no
tax provision would be required in such cases. However, if
acceptance of the tax treatment is not considered probable, the
entity is required to reflect that uncertainty using an expected
value (i.e., a probability-weighted approach) or the single most
likely amount.
344
Note 1 Summary of significant accounting policies (continued)
Other changes to presentation or segment reporting
Presentation of dividend income and expense from financial
instruments measured at fair value through profit or loss
Effective from 1 January 2019, UBS refined the presentation of
dividend income and expense. This resulted in a reclassification
of dividends from Interest income (expense) from financial
instruments measured at fair value through profit or loss into
Other net income from financial instruments measured at fair
value through profit or loss (prior to 1 January 2019: Other net
income from fair value changes on financial instruments). The
change aligns the presentation of dividends with related fair
value changes from equity instruments and economic hedges,
removing volatility that has historically arisen within both Net
interest income and Other net income from financial instruments
measured at fair value through profit or loss. There is no effect
on Total operating income or Net profit / (loss). Prior periods
have been restated for this presentational change and the effect
on the respective reporting lines is outlined in the table below.
Changes to the presentation of dividend income and expense from financial instruments measured at fair value through profit or loss
For the year ended
31.12.18
(2,308)
1,331
((997766))
997766
USD million
Interest income from financial instruments measured at fair value through profit or loss
Interest expense from financial instruments measured at fair value through profit or loss
NNeett iinntteerreesstt iinnccoommee
OOtthheerr nneett iinnccoommee ffrroomm ffiinnaanncciiaall iinnssttrruummeennttss mmeeaassuurreedd aatt ffaaiirr vvaalluuee tthhrroouugghh pprrooffiitt oorr lloossss
31.12.17
(1,762)
1,190
((557722))
557722
Changes to Corporate Center
As of 1 January 2019, UBS has operationally combined Group
Treasury activities with Group ALM and calls this combined unit
Group Treasury.
In order to further align Group and divisional performance,
UBS adjusted the methodology for the allocation of Group
Treasury and Corporate Center – Services funding costs and
expenses to the business divisions. At the same time, UBS
updated its funds transfer pricing framework to better reflect
the sources and usage of funding. All of these changes became
effective as of 1 January 2019 and prior-period segment
information has been restated. Together, these changes
decreased the operating results of the business divisions and
thereby increased their adjusted cost / income ratios 1–2
percentage points, with an offsetting effect of USD 0.7 billion in
Corporate Center’s operating profit / (loss) before tax. Corporate
Center has retained funding costs for deferred tax assets, costs
relating to UBS’s legal entity transformation program and other
costs not attributable to, or representative of the performance
of, the business divisions.
Alongside the update to allocations and UBS’s funds transfer
pricing framework, the Group has increased the allocation of
balance sheet resources from Corporate Center to the business
divisions, resulting in USD 223 billion of assets allocated from
Corporate Center to the business divisions in restated 2018
numbers, predominantly from high-quality liquid assets and
certain other assets centrally managed on behalf of the business
divisions.
Further, due to the aforementioned changes to UBS’s
methodology for allocating funding costs and expenses and a
substantial reduction in the size and resource consumption of
the various Corporate Center units, UBS provides results for total
Corporate Center only and does not separately report Corporate
Center – Services, Group Treasury and Non-core and Legacy
Portfolio, in compliance with IFRS 8, Operating Segments. Prior-
period information has been restated.
Refer to Note 2 for more information
345
Financial statements
Consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
c) International Financial Reporting Standards and Interpretations to be adopted in 2020 and later and other changes
Adoption of hedge accounting requirements of IFRS 9, Financial
Instruments
Effective 1 January 2020, UBS will adopt the hedge accounting
requirements of IFRS 9, Financial Instruments for most of its
existing hedge accounting programs, including fair value hedges
of interest rate risk related to debt instruments, cash flow
hedges of forecast transactions and hedges of net investments
in foreign operations. As permitted by IFRS 9, UBS will continue
to account for its fair value hedges of portfolio interest rate risk
related to loans under IAS 39, Financial Instruments: Recognition
and Measurement.
Conceptual Framework
In March 2018, the IASB issued a revised version of its
Conceptual Framework for Financial Reporting (the Framework).
The Framework sets out the fundamental concepts of financial
reporting and will be used by the IASB in developing IFRS
standards. Preparers use the Framework as a point of reference
to develop accounting policies in rare instances where a
particular business transaction is not covered by existing IFRS
standards.
The adoption of the Framework by UBS on 1 January 2020
will have no effect on the Group’s financial statements.
Amendments to IFRS 3, Business Combinations
In October 2018, the IASB issued Definition of a Business
(Amendments to IFRS 3). The amendments clarify the definition
of a business, with the objective of assisting in the determination
of whether a transaction should be accounted for as a business
combination or an asset acquisition. The amendments apply to
transactions with an acquisition date on or after 1 January 2020.
The adoption of these amendments on 1 January 2020 will have
no effect on the Group’s financial statements.
IFRS 17, Insurance Contracts
In May 2017, the IASB issued IFRS 17, Insurance Contracts,
which sets out the accounting requirements for contractual
rights and obligations that arise from insurance contracts issued
and reinsurance contracts held. IFRS 17 is effective from
1 January 2021; however, as part of the targeted amendments
to IFRS 17, the IASB is considering delaying the mandatory
implementation date by one year. UBS is assessing the standard,
but does not expect it to have a material effect on the Group’s
financial statements.
items,
including
IFRS 9’s hedge accounting model further aligns accounting
with risk management practices, amends hedge effectiveness
requirements and prohibits voluntary de-designations. IFRS 9
permits certain additional hedged
layer
components, net positions, or aggregated exposures, such as a
combination of a non-derivative and derivative,
to be
designated. IFRS 9 also introduces the concept of “cost of
hedging,” under which the time value of options, the forward
element of a forward contract or foreign currency basis spreads
in a cross-currency swap can be deferred in other comprehensive
income and, depending on the nature of the hedged
transaction, released to the income statement either when the
hedged item impacts the income statement or over the term of
the hedged item.
these
The adoption of
requirements will have no
consequential financial impact on UBS’s financial statements.
However, the adoption will allow UBS to designate more
effective hedge accounting
forward,
including fair value hedges of foreign currency risk using cross-
currency swaps, and reduce income statement volatility caused
by foreign currency basis spreads.
relationships going
346
Note 2a Segment reporting
The operational structure of the Group as of 31 December 2019
was comprised of Corporate Center and four business divisions:
Global Wealth Management, Personal & Corporate Banking,
Asset Management and the Investment Bank.
Refer to “Segment reporting” in Note 1a for more information
Global Wealth Management
Global Wealth Management provides investment advice and
solutions to private clients, in particular in the ultra high net
worth and high net worth segments. Clients benefit from Global
Wealth Management’s comprehensive set of capabilities,
including wealth planning, investing, lending, asset protection,
philanthropy, corporate and banking services, as well as family
office services in collaboration with the Investment Bank and
Asset Management. Global Wealth Management has a global
footprint, with the US representing its largest market. Clients are
served through local offices and dedicated advisors. The ultra
high net worth business is managed globally across the regions.
Personal & Corporate Banking
Personal & Corporate Banking provides comprehensive financial
products and services to private, corporate and institutional
clients and operates in Switzerland in the private and corporate
loan market. Personal & Corporate Banking is central to UBS’s
universal bank model in Switzerland and it works with Global
Wealth Management,
Investment Bank and Asset
Management to help clients receive the best products and
solutions for their specific financial needs. While Personal &
Corporate Banking operates primarily in its home market of
Switzerland, it also provides capabilities to support the growth
of the international business activities of UBS’s corporate and
institutional clients through local hubs in Frankfurt, New York,
Hong Kong and Singapore. The business is divided into Personal
Banking and Corporate & Institutional Clients (CIC).
the
Asset Management
Asset Management is a large-scale and diversified global asset
manager. It offers investment capabilities and styles across all
major traditional and alternative asset classes, as well as advisory
support to institutions, wholesale intermediaries and Global
Wealth Management clients around
the world. Asset
Management offers clients a wide range of investment products
and services in different asset classes in the form of segregated,
pooled or advisory mandates, as well as registered investment
funds
It covers the main asset
management markets globally, and has a local presence in 22
markets, grouped in four regions: the Americas; Europe, Middle
East and Africa; Switzerland; and Asia Pacific.
jurisdictions.
in various
Investment Bank
The Investment Bank provides a range of services to institutional,
corporate and wealth management clients to help them raise
capital, grow their businesses, invest and manage risks. It is
focused on its traditional strengths in advisory services, capital
markets, equities and foreign exchange, complemented by a
targeted rates and credit platform. The Investment Bank uses its
research and technology capabilities to support its clients as they
adapt to the evolving market structures and changes in the
regulatory, technological, economic and competitive landscapes.
The Investment Bank delivers solutions to clients, using its
intellectual capital and electronic platforms. It also provides
services to Global Wealth Management, Personal & Corporate
Banking and Asset Management. It has a global reach, with a
presence in more than 30 countries and principal offices in the
major financial hubs.
Corporate Center
Corporate Center consists of the Group Chief Operating Officer
area (Group Technology, Group Corporate Services, Group
Human Resources and Group Operations), Group Treasury,
Group Finance, Group Legal, Group Risk Control, Group
Communications & Branding, Group Compliance, Regulatory &
Governance, UBS in society, and Non-core and Legacy Portfolio
(NCL). Over recent years, UBS has progressively aligned its
support functions with the business divisions. The majority of
these functions are either fully aligned or shared among business
divisions, where they have full management responsibility.
Group Treasury manages the structural risk of UBS’s balance
sheet, including interest rate risk, structural foreign exchange
risk and collateral risk, as well as the risks associated with the
Group’s liquidity and funding portfolios. Group Treasury serves
all business divisions through two main risk management areas,
and its risk management is fully integrated into the Group’s risk
governance framework.
NCL manages legacy positions from businesses exited by the
Investment Bank. It is overseen by a committee chaired by the
Group Chief Risk Officer. The portfolio also includes positions
relating to legal matters arising from businesses that were
transferred to it at the time of its formation.
Beginning with the first quarter 2019 and in compliance with
IFRS 8, Operating Segments, UBS provides results for total
Corporate Center only and does not separately report Corporate
Center – Services, Group Treasury and NCL.
347
Financial statements
Consolidated financial statements
Note 2a Segment reporting (continued)
Changes in Corporate Center cost and resource allocation to
business divisions
In order to further align Group and divisional performance, UBS
has adjusted its methodology for the allocation of Corporate
Center funding costs and expenses to the business divisions. At
the same time, it has updated its funds transfer pricing
framework to better reflect the sources and usage of funding.
Additionally, UBS has increased the allocation of balance sheet
resources from Corporate Center to the business divisions. Prior
periods have been restated and the effect on the respective
reporting lines is outlined in the table below.
These changes had no effect on the reported results or
financial position of the Group.
Upon adoption of IFRS 16, Leases, on 1 January 2019, UBS
additionally allocated approximately USD 3.5 billion of newly
recognized right-of-use assets and finance lease receivables to
the business divisions.
Refer to Note 1b for more information
Effects of changes in Corporate Center cost and resource allocation to business divisions on prior-period information
USD million increase / (reduction)
For the year ended 31 December 2018
For the year ended 31 December 2018
Operating profit / (loss) before tax
Total assets
For the year ended 31 December 2017
For the year ended 31 December 2017
Operating profit / (loss) before tax
Total assets
Segment reporting
USD million
For the year ended 31 December 20191
Net interest income2
Non-interest income2
Income
Credit loss (expense) / recovery
Total operating income
Personnel expenses
General and administrative expenses
Services (to) / from Corporate Center and other business divisions
of which: services from Corporate Center
Depreciation and impairment of property, equipment and software
Amortization and impairment of goodwill and intangible assets3
Total operating expenses
Operating profit / (loss) before tax
Operating profit / (loss) before tax
Tax expense / (benefit)
Net profit / (loss)
Net profit / (loss)
Additional information
Additional information
Total assets
Global Wealth
Management
Personal &
Corporate
Banking
Asset
Management
Investment
Bank
Corporate
Center
(374)
113,702
(351)
102,641
(116)
61,894
(133)
58,196
(25)
3,769
(24)
3,329
(163)
677
43,562
(222,927)
(180)
689
41,628
(205,795)
Global Wealth
Management
Personal &
Corporate
Banking
Asset
Management
Investment
Bank
Corporate
Center
3,947
12,426
16,373
(20)
16,353
7,621
1,217
4,056
3,922
5
56
12,955
3,397
3,397
1,992
1,744
3,736
(21)
3,715
856
224
1,181
1,294
13
0
2,274
1,441
1,441
(25)
1,962
1,938
0
1,938
722
197
486
531
1
0
1,406
532
532
(669)
7,968
7,299
(30)
7,269
2,748
688
2,926
2,980
8
115
6,485
784
784
(744)
367
(378)
(7)
(385)
4,137
2,962
(8,648)
(8,727)
1,738
4
192
(577)
(577)
UBS
0
0
0
0
UBS
4,501
24,467
28,967
(78)
28,889
16,084
5,288
0
0
1,765
175
23,312
5,577
5,577
1,267
4,310
4,310
309,766
209,405
34,565
315,855
102,592
972,183
Additions to non-current assets4
1 Comparative figures in this table have been restated for the changes in Corporate Center cost and resource allocation to the business divisions and the changes in the equity attribution framework. Refer to further
1
2 Effective 1 January 2019, UBS refined the presentation of dividend income and expense, reclassifying dividends from financial instruments measured at fair value through
discussion in this note and in Note 1b.
2
profit or loss from Net interest income to Non-interest income. Prior-period information was restated accordingly, with virtually all of the effect on the Group arising from the Investment Bank. Refer to Note 1b for
4 Upon adoption of IFRS 16 on 1 January 2019, UBS additionally allocated approximately USD 3.5 billion of newly recognized assets to the business
more information.
4
divisions, of which USD 3.4 billion related to non-current assets. Refer to Note 1b for more information.
3 Refer to Note 16 for more information.
3
5,297
5,217
68
10
1
0
348
Note 2a Segment reporting (continued)
USD million
For the year ended 31 December 20181
Net interest income2
Non-interest income2
Income
Credit loss (expense) / recovery
Total operating income
Personnel expenses
General and administrative expenses
Services (to) / from Corporate Center and other business divisions
of which: services from Corporate Center
Depreciation and impairment of property, equipment and software
Amortization and impairment of goodwill and intangible assets3
Total operating expenses
OOppeerraattiinngg pprrooffiitt // ((lloossss)) bbeeffoorree ttaaxx
Tax expense / (benefit)
NNeett pprrooffiitt // ((lloossss))
AAddddiittiioonnaall iinnffoorrmmaattiioonn
Total assets
Additions to non-current assets
Global Wealth
Management
Personal &
Corporate
Banking
Asset
Management
Investment
Bank
Corporate
Center
UBS
4,101
12,700
16,800
(15)
16,785
7,683
1,724
4,070
3,936
4
50
13,531
33,,225544
2,049
2,168
4,217
(56)
4,161
803
285
1,263
1,367
14
0
2,365
11,,779966
(29)
1,881
1,852
0
1,852
703
202
518
563
2
1
1,426
442266
(459)
8,538
8,079
(38)
8,041
2,941
651
2,942
2,995
8
12
6,554
11,,448866
(613)
(4)
(617)
(8)
(626)
4,002
3,935
(8,793)
(8,861)
1,199
2
346
((997711))
5,048
25,283
30,330
(118)
30,213
16,132
6,797
0
0
1,228
65
24,222
55,,999911
1,468
44,,552222
313,737
200,703
28,140
302,253
196
23
1
89
113,656
1,666
958,489
1,975
11 Comparative figures in this table have been restated for the changes in Corporate Center cost and resource allocation to the business divisions and the changes in the equity attribution framework. Refer to further
22 Effective 1 January 2019, UBS refined the presentation of dividend income and expense, reclassifying dividends from financial instruments measured at fair value through
discussion in this note and in Note 1b.
profit or loss from Net interest income to Non-interest income. Prior-period information was restated accordingly, with virtually all of the effect on the Group arising from the Investment Bank. Refer to Note 1b for
more information. 33 Refer to Note 16 for more information.
349
Financial statements
Consolidated financial statements
Note 2a Segment reporting (continued)
USD million
For the year ended 31 December 20171
Net interest income2
Non-interest income2
Income3
Credit loss (expense) / recovery
Total operating income
Personnel expenses
General and administrative expenses
Services (to) / from Corporate Center and other business divisions
of which: services from Corporate Center
Depreciation and impairment of property, equipment and software
Amortization and impairment of goodwill and intangible assets4
Total operating expenses
Operating profit / (loss) before tax
Operating profit / (loss) before tax
Tax expense / (benefit)
Net profit / (loss)
Net profit / (loss)
Additional information
Additional information
Total assets
Additions to non-current assets
Global Wealth
Management
Personal &
Corporate
Banking
Asset
Management
Investment
Bank
Corporate
Center
UBS
3,880
12,265
16,144
(8)
16,136
7,674
1,263
3,926
3,803
4
49
12,917
3,219
3,219
2,044
1,814
3,859
(20)
3,839
852
296
1,203
1,321
13
0
2,364
1,475
1,475
(23)
2,100
2,077
0
2,077
731
235
543
582
1
3
1,514
563
563
234
7,508
7,742
(92)
7,650
3,006
675
2,860
2,894
10
12
6,563
1,087
1,087
(64)
(4)
(68)
(11)
(80)
3,935
4,479
(8,532)
(8,601)
1,024
7
913
(993)
(993)
6,070
23,683
29,754
(131)
29,622
16,199
6,949
0
0
1,053
71
24,272
5,351
5,351
4,305
1,046
1,046
297,631
197,258
17,968
311,359
120
15
1
3
115,064
1,607
939,279
1,746
1 Comparative figures in this table have been restated for the changes in Corporate Center cost and resource allocation to the business divisions and the changes in the equity attribution framework. Refer to further
1
2 Effective 1 January 2019, UBS refined the presentation of dividend income and expense, reclassifying dividends from financial instruments measured at fair value through
discussion in this note and in Note 1b.
2
profit or loss from Net interest income to Non-interest income. Prior-period information was restated accordingly, with virtually all of the effect on the Group arising from the Investment Bank. Refer to Note 1b for
3 Includes impairments of financial assets classified at fair value through other comprehensive income (prior to 2018 classified as financial assets available for sale) for the year ended 31
more information.
3
December 2017 of USD 15 million, of which USD 12 million was recorded in Asset Management. 4 Refer to Note 16 for more information.
4
350
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
performance is 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 attribution is consistent with the
mandate of the regional Presidents. Certain revenues, such as
those related to Non-core and Legacy Portfolio in Corporate
Center, 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.
For the year ended 31 December 2019
Americas
of which: USA
Asia Pacific
Europe, Middle East and Africa (excluding Switzerland)
Switzerland
Global
TToottaall
For the year ended 31 December 20181
Americas
of which: USA
Asia Pacific
Europe, Middle East and Africa (excluding Switzerland)
Switzerland
Global
TToottaall
For the year ended 31 December 20171
Americas
of which: USA
Asia Pacific
Europe, Middle East and Africa (excluding Switzerland)
Switzerland
Global
TToottaall
TToottaall ooppeerraattiinngg iinnccoommee
TToottaall nnoonn ccuurrrreenntt aasssseettss
--
UUSSDD bbiilllliioonn
SShhaarree %%
UUSSDD bbiilllliioonn
SShhaarree %%
1122..00
1100..99
44..77
55..88
66..77
((00..44))
2288..99
4422
3388
1166
2200
2233
((11))
110000
88..99
88..55
11..44
33..00
77..11
00..00
2200..33
4444
4422
77
1155
3355
00
110000
Total operating income
Total non-current assets
USD billion
Share %
USD billion
Share %
12.6
11.5
4.9
6.2
7.2
(0.7)
3300..22
42
38
16
21
24
(2)
110000
7.4
7.0
0.9
2.0
6.8
0.0
1177..11
43
41
5
12
40
0
110000
Total operating income
Total non-current assets
USD billion
Share %
USD billion
Share %
12.0
11.2
4.8
6.1
6.9
(0.2)
2299..66
41
38
16
21
23
(1)
110000
7.4
6.9
0.8
2.0
6.5
0.0
1166..77
44
41
5
12
40
0
110000
11 Comparative figures in this table have been restated for the changes in Corporate Center cost and resource allocation to the business divisions and the changes in the equity attribution framework. Refer to further
discussion in this note and in Note 1b.
351
Financial statements
Consolidated financial statements
Income statement notes
Note 3 Net interest income and other net income from financial instruments measured at fair value through profit or loss
For the year ended
USD million
Net interest income from financial instruments measured at amortized cost and fair value through other comprehensive income
Net interest income from financial instruments measured at fair value through profit or loss
Other net income from financial instruments measured at fair value through profit or loss
Total
Total
Global Wealth Management
of which: net interest income
of which: transaction-based income from foreign exchange and other intermediary activity 1
Personal & Corporate Banking
of which: net interest income
of which: transaction-based income from foreign exchange and other intermediary activity 1
Asset Management
Investment Bank
Corporate Client Solutions
Investor Client Services
Corporate Center
Net interest income2,3
Net interest income from financial instruments measured at amortized cost and fair value through other comprehensive income
Net interest income from financial instruments measured at amortized cost and fair value through other comprehensive income
Interest income from loans and deposits4
Interest income from securities financing transactions5
Interest income from other financial instruments measured at amortized cost
Interest income from debt instruments measured at fair value through other comprehensive income
Interest income from derivative instruments designated as cash flow hedges
Total interest income from financial instruments measured at amortized cost and fair value through other comprehensive income
Total interest income from financial instruments measured at amortized cost and fair value through other comprehensive income
Interest expense on loans and deposits6
Interest expense on securities financing transactions7
Interest expense on debt issued
Interest expense on lease liabilities8
Total interest expense from financial instruments measured at amortized cost
Total interest expense from financial instruments measured at amortized cost
Total net interest income from financial instruments measured at amortized cost and fair value through other comprehensive income
Total net interest income from financial instruments measured at amortized cost and fair value through other comprehensive income
Net interest income from financial instruments measured at fair value through profit or loss
Net interest income from financial instruments measured at fair value through profit or loss
Net interest income from financial instruments at fair value held for trading
Net interest income from brokerage balances
Interest income from financial instruments at fair value not held for trading
Other interest income
Interest expense on financial instruments designated at fair value
Total net interest income from financial instruments measured at fair value through profit or loss
Total net interest income from financial instruments measured at fair value through profit or loss
Total net interest income
Total net interest income
31.12.19
31.12.19
3,490
3,490
1,011
1,011
6,842
6,842
11,343
11,343
4,913
4,913
3,947
3,947
966
966
2,436
2,436
1,992
1,992
443
443
(13)
(13)
4,189
4,189
716
716
3,473
3,473
(182)
(182)
8,008
8,008
2,005
2,005
364
364
120
120
188
188
10,684
10,684
2,634
2,634
1,152
1,152
3,285
3,285
122
122
7,194
7,194
3,490
3,490
1,214
1,214
339
339
2,274
2,274
185
185
(3,000)
(3,000)
1,011
1,011
4,501
4,501
31.12.18
3,710
1,338
6,960
12,008
5,049
4,101
948
2,451
2,049
402
(35)
4,756
1,051
3,705
(214)
7,801
1,567
266
142
324
10,100
1,980
1,130
3,281
6,391
3,710
1,105
575
1,757
215
(2,314)
1,338
5,048
31.12.17
5,018
1,052
5,637
11,707
4,941
3,880
1,062
2,420
2,044
376
(34)
4,272
1,076
3,196
107
7,752
1,573
99
152
846
10,422
1,404
1,473
2,528
5,404
5,018
1,374
0
(322)
1,052
6,070
of which: net gains / (losses) from financial liabilities designated at fair value 9
Other net income from financial instruments measured at fair value through profit or loss
Investment Bank Corporate Client Solutions
Investment Bank Investor Client Services
Other business divisions and Corporate Center
Other net income from financial instruments measured at fair value through profit or loss
Other net income from financial instruments measured at fair value through profit or loss
633
3,405
1,599
5,637
(3,979)
1 Mainly includes spread-related income in connection with client-driven transactions, foreign currency translation effects and income and expenses from precious metals, which are included in the income statement
1
line Other net income from financial instruments measured at fair value through profit or loss. 2 Effective 1 January 2018, UBS adopted IFRS 9, Financial Instruments, which resulted in a prospective change in the
classification of certain financial instruments. Refer to “Note 1c Changes in accounting policies and comparability and transition effects from the adoption of IFRS 9 Financial Instruments” in the “Consolidated
3 Effective 1 January 2019, UBS refined the presentation of dividend income and expense, reclassifying dividends from Interest
financial statements” section of the Annual Report 2018 for more information.
3
income (expense) from financial instruments measured at fair value through profit or loss to Other net income from financial instruments measured at fair value through profit or loss. Prior-year comparative
information was restated accordingly. Refer to Note 1b for more information.
4 Consists of interest income from cash and balances at central banks, loans and advances to banks and customers, cash collateral
4
receivables on derivative instruments, and negative interest on amounts due to banks and customer deposits. 5 Includes interest income on receivables from securities financing transactions and negative interest,
6 Consists of interest expense on amounts due to banks, cash collateral payables on derivative instruments, customer deposits, and negative
including fees, on payables from securities financing transactions.
6
7 Includes interest expense on payables from securities financing transactions and negative interest, including fees, on receivables
interest on cash and balances at central banks, loans and advances to banks.
7
9 Excludes fair value changes of hedges
8 Relates to lease liabilities recognized upon adoption of IFRS 16 on 1 January 2019. Refer to Note 1b for more information.
from securities financing transactions.
9
8
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 Other net income from financial instruments measured at fair value through profit or loss. 2019 included a net loss of USD 1,830 million (2018: net gain of USD 2,152 million) related to financial liabilities
related to unit-linked investment contracts, which are designated at fair value through profit or loss. This was offset by a net gain of USD 1,830 million (2018: net loss of USD 2,134 million) related to financial
assets for unit-linked investment contracts that are mandatorily measured at fair value through profit or loss not held for trading.
229
229
4,630
4,630
1,984
1,984
6,842
6,842
(8,748)
(8,748)
552
4,663
1,744
6,960
9,382
2
5
352
Note 4 Net fee and commission income1
USD million
FFeeee aanndd ccoommmmiissssiioonn iinnccoommee
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 related services
Other
TToottaall ffeeee aanndd ccoommmmiissssiioonn iinnccoommee11
of which: recurring
of which: transaction-based
of which: performance-based
FFeeee aanndd ccoommmmiissssiioonn eexxppeennssee
Brokerage fees paid
Distribution fees paid
Other
TToottaall ffeeee aanndd ccoommmmiissssiioonn eexxppeennssee
NNeett ffeeee aanndd ccoommmmiissssiioonn iinnccoommee
of which: net brokerage fees
For the year ended
3311..1122..1199
31.12.18
31.12.17
774411
336600
338822
777744
33,,224488
44,,885588
77,,665566
11,,883322
1199,,111100
1122,,554444
66,,440022
116633
331100
559900
779977
11,,669966
1177,,441133
22,,993388
811
431
380
768
3,521
4,954
7,756
1,786
19,598
12,911
6,594
93
316
580
807
1,703
17,895
3,205
1,003
573
429
698
3,820
4,322
7,666
1,854
19,362
673
514
653
1,840
17,522
3,147
11 For the year ended 31 December 2019, reflects third-party fee and commission income of USD 11,694 million for Global Wealth Management, USD 3,355 million for the Investment Bank, USD 2,659 million for
Asset Management, USD 1,307 million for Personal & Corporate Banking and USD 94 million for Corporate Center (for the year ended 31 December 2018: USD 12,059 million for Global Wealth Management,
USD 3,525 million for the Investment Bank, USD 2,579 million for Asset Management, USD 1,338 million for Personal & Corporate Banking and USD 97 million for Corporate Center).
Note 5 Other income
USD million
AAssssoocciiaatteess,, jjooiinntt vveennttuurreess aanndd ssuubbssiiddiiaarriieess
Net gains / (losses) from acquisitions and disposals of subsidiaries1
Net gains / (losses) from disposals of investments in associates
Share of net profits of associates and joint ventures
Impairments related to associates
TToottaall
Net gains / (losses) from disposals of financial assets measured at fair value through other comprehensive income
Impairment of financial assets measured at fair value through other comprehensive income
Net gains / (losses) from disposals of financial assets measured at amortized cost
Income from properties6
Net gains / (losses) from properties held for sale
Other
TToottaall ootthheerr iinnccoommee
For the year ended
3311..1122..1199
31.12.18
31.12.17
((3366))
44
4466
((11))
1133
3311
00
00
2277
((1199))
116600
221122
(290)2,3
464
5295
0
284
0
0
0
24
40
80
428
32
0
76
(7)
101
195
(15)
14
24
0
204
524
11 Includes foreign exchange gains / (losses) reclassified from other comprehensive income related to the disposal or closure of foreign operations.
22 Includes a remeasurement loss of USD 270 million related to
UBS Securities China. Refer to Note 32 for more information. 33 Includes a USD 25 million gain on sale of subsidiaries and a USD 31 million pre-tax gain on sale of real estate related to the Widder Hotel. Refer to
Note 32 for more information. 44 Reflects a net foreign currency translation gain related to UBS Securities China. Refer to Note 32 for more information. 55 Includes a USD 460 million valuation gain on our equity
ownership in SIX related to the sale of SIX Payment Services to Worldline. 66 Includes rent received from third parties.
353
Financial statements
Consolidated financial statements
Note 6 Personnel expenses
USD million
Salaries1
Variable compensation – performance awards2
of which: guarantees for new hires
Variable compensation – other2
of which: replacement payments 3
of which: forfeiture credits
of which: severance payments 4
of which: retention plan and other payments
of which: Deferred Contingent Capital Plan – interest expense
Financial advisor compensation2,5
Contractors
Social security
Pension and other post-employment benefit plans
Other personnel expenses
Total personnel expenses
Total personnel expenses
For the year ended
31.12.19
31.12.19
31.12.18
31.12.17
6,518
6,518
2,755
2,755
29
29
246
246
56
56
(86)
(86)
125
125
56
56
94
94
6,448
2,995
43
243
72
(136)
123
66
119
6,154
3,151
36
252
72
(107)
113
63
111
4,043
4,043
4,054
4,064
381
381
799
799
787
787
555
555
489
791
4576
654
460
814
723
581
16,084
16,084
16,132
16,199
2 Refer to Note 30 for more information.
2
3 Replacement payments are payments made to compensate employees for deferred awards forfeited as a result of joining UBS.
1 Includes role-based allowances.
3
1
5 Financial advisor compensation consists of grid-based compensation based directly on compensable revenues generated by financial advisors and
4 Includes legally obligated and standard severance payments.
4
5
supplemental compensation calculated on the basis of financial advisor productivity, firm tenure, assets and other variables. It also includes expenses related to compensation commitments with financial advisors
6 Changes to the pension fund of UBS in Switzerland in 2018 resulted in a reduction in the pension obligation recognized by UBS.
entered into at the time of recruitment that are subject to vesting requirements.
6
As a consequence, a pre-tax gain of USD 241 million was recognized in the income statement in 2018, with no overall effect on total equity. Refer to Note 29 for more information.
Note 7 General and administrative expenses
USD million
Occupancy1
Rent and maintenance of IT and other equipment
Communication and market data services
Administration
of which: UK and German bank levies 2
Marketing and public relations
Travel and entertainment
Professional fees
Outsourcing of IT and other services
Litigation, regulatory and similar matters3
Other
Total general and administrative expenses
Total general and administrative expenses
For the year ended
31.12.19
31.12.19
31.12.18
31.12.17
381
381
718
718
627
627
551
551
41
41
317
317
378
378
882
882
1,158
1,158
165
165
111
111
5,288
5,288
914
654
638
590
58
366
425
1,015
1,427
657
110
6,797
908
570
622
612
20
419
425
1,227
1,597
434
135
6,949
2 The UK bank levy expenses of USD 30 million (USD 40
1 Occupancy expenses decreased following the application of IFRS 16, which was adopted on 1 January 2019. Refer to Note 1b for more information.
1
2
million for 2018 and USD 17 million for 2017) included a credit of USD 31 million (USD 45 million and USD 85 million, respectively) related to prior years.
3 Reflects the net increase in provisions for litigation,
3
regulatory and similar matters recognized in the income statement. Refer to Note 21 for more information. Also includes recoveries from third parties of USD 11 million, USD 29 million and USD 55 million for the
years ended 31 December 2019, 31 December 2018 and 31 December 2017, respectively.
354
Note 8 Income taxes
USD million
Tax expense / (benefit)
SSwwiissss
Current
Deferred
TToottaall SSwwiissss
-
-
NNoonn SSwwiissss
Current
Deferred
TToottaall nnoonn SSwwiissss
TToottaall iinnccoommee ttaaxx eexxppeennssee // ((bbeenneeffiitt)) rreeccooggnniizzeedd iinn tthhee iinnccoommee ssttaatteemmeenntt
-
-
For the year ended
31.12.18
3311..1122..1199
31.12.17
336655
226655
663300
442266
221111
663377
11,,226677
469
2,377
22,,884466
575
(1,953)
((11,,337788))
11,,446688
455
107
556622
435
3,308
33,,774433
44,,330055
Income tax recognized in the income statement
Income tax expenses of USD 1,267 million were recognized for
the Group in 2019, representing an effective tax rate of 22.7%.
This included net Swiss tax expenses of USD 630 million and net
non-Swiss tax expenses of USD 637 million.
The Swiss tax expenses included current tax expenses of
USD 365 million related to taxable profits earned by Swiss
subsidiaries. In addition, they included deferred tax expenses of
USD 265 million, which primarily reflect the amortization of
deferred tax assets (DTAs) previously recognized in relation to
deductible temporary differences.
The non-Swiss tax expenses included current tax expenses of
USD 426 million related to taxable profits earned by non-Swiss
subsidiaries and branches. In addition, they included deferred tax
expenses of USD 211 million. These included expenses of
USD 471 million that primarily reflected the amortization of
DTAs previously recognized in relation to tax losses carried
forward and deductible temporary differences, including the
amortization of US tax loss DTAs at the level of UBS Americas
Inc. These were partly offset by a benefit of USD 260 million in
respect of additional DTA recognition that resulted from the
contribution of real estate assets by UBS AG to UBS Americas
Inc. in the year. The additional DTA recognition related to the
elections that were made in the fourth quarter of 2018 to
capitalize certain historic real estate costs.
USD million
Operating profit / (loss) before tax
of which: Swiss
of which: non-Swiss
Income taxes at Swiss tax rate of 20.5% for 2019 and 21% for 2018 and 2017
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 recognition
Adjustments to deferred tax balances arising from changes in tax rates
Other items
IInnccoommee ttaaxx eexxppeennssee // ((bbeenneeffiitt))
For the year ended
31.12.18
5,991
1,843
4,148
1,258
3311..1122..1199
55,,557777
22,,557711
33,,000066
11,,114433
8822
113311
((226655))
((335511))
773322
((55))
((66))
((229944))
((99))
110077
11,,226677
55
223
(25)
(430)
905
114
26
(795)
0
137
1,468
31.12.17
5,351
2,093
3,258
1,124
217
173
(368)
(309)
606
(13)
4
(165)
2,897
139
4,305
355
Financial statements
Consolidated financial statements
Note 8 Income taxes (continued)
The components of operating profit before tax, and the
differences 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.
Non-Swiss tax rates differing from Swiss tax rate
To the extent that Group profits or losses arise outside
Switzerland, the applicable local tax rate may differ from the
Swiss tax rate. This item reflects, for such profits, an adjustment
from the tax expense that would arise at the Swiss tax rate to
the tax expense that would arise at the applicable local tax rate.
Similarly, it reflects, for such losses, an adjustment from the tax
benefit that would arise at the Swiss tax rate to the tax benefit
that would arise at the applicable local tax rate.
Tax effects of losses not recognized
This item relates to tax losses of entities arising in the year that
are not recognized as DTAs. 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 that are offset by
tax losses of previous years for which no DTAs were previously
recorded. Consequently, no current tax or deferred tax expense
arises in relation to those taxable profits. Therefore, the tax
expense calculated by applying the local tax rate on those profits
is reversed.
Non-taxable and lower taxed income
This item relates to tax deductions for the year in respect of
permanent differences. These include deductions in respect of
profits that are either not taxable or are taxable at a lower rate
of tax than the local tax rate. They also include deductions made
for tax purposes, which are not reflected in the accounts.
356
Non-deductible expenses and additional taxable income
This item relates to additional taxable income for the year in
respect of permanent differences. These include income that is
recognized for tax purposes by an entity, but is not included in
its profit that is reported in the financial statements. In addition,
they include expenses for the year that are non-deductible. For
example, the costs of entertaining clients are not deductible in
certain locations.
Adjustments related to prior years – current tax
This item relates to adjustments to current tax expense for prior
years, e.g., if the tax payable for a year is agreed with the tax
authorities in an amount that differs from the amount previously
reflected in the financial statements.
Adjustments related to prior years – deferred tax
This item relates to adjustments to deferred tax positions
recognized in prior years, e.g., 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
recognized as DTAs in the accounts.
Change in deferred tax recognition
This item relates to changes in DTAs, including those previously
recognized resulting from reassessments of expected future
taxable profits. It also includes changes in temporary differences
in the year, for which deferred tax is not recognized.
Adjustments to deferred tax balances arising from changes in tax
rates
This item relates to remeasurements of DTAs 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 DTAs
recognized or, alternatively, changing the tax cost of additional
taxable
temporary differences and
taxable
therefore the deferred tax liability.
income
from
Other items
Other items include other differences between profits or losses
at the local tax rate and the actual local tax expense or benefit,
including movements in provisions for uncertain positions in
relation to the current year and other items.
Note 8 Income taxes (continued)
Income tax recognized directly in equity
Deferred tax assets and liabilities
Certain tax expenses and benefits were recognized directly in
equity during the year. These included the following items:
–
a net tax expense of USD 326 million recognized in other
comprehensive income (OCI) (2018: net benefit of USD 345
million), which included a tax expense of USD 253 million
related to cash flow hedges (2018: benefit of USD 67
million), a tax expense of USD 41 million related to financial
assets recognized at fair value through OCI (2018: benefit of
USD 12 million), a tax expense of zero related to foreign
currency translation gains and losses (2018: expense of USD 2
million), a tax expense of USD 41 million related to defined
benefit pension plans (2018: benefit of USD 276 million) and
a tax benefit of USD 8 million related to own credit (2018:
expense of USD 8 million);
a net tax benefit of USD 11 million recognized in share
premium (2018: benefit of USD 4 million).
–
The Group has gross DTAs, valuation allowances and recognized
DTAs related to tax
loss carry-forwards and deductible
temporary differences and also deferred tax liabilities in respect
of taxable temporary differences as shown in the table below.
The valuation allowances reflect DTAs that 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.
Of the recognized DTAs as of 31 December 2019, USD 9.3
billion related to the US and USD 0.2 billion related to other
locations (as of 31 December 2018, USD 9.5 billion related to
the US and USD 0.6 billion related to other locations).
The recognition of DTAs is supported by forecasts of taxable
profits for the entities concerned. In addition, tax planning
opportunities are available that would result in additional future
taxable income and these would be utilized, if necessary.
As of 31 December 2019, the Group has recognized DTAs of
USD 75 million (31 December 2018: USD 53 million) in respect
of entities that incurred losses in either the current or preceding
year.
USD million
Deferred tax assets1
Tax loss carry-forwards
Temporary differences
of which: related to real estate costs capitalized for US tax
purposes
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
TToottaall ddeeffeerrrreedd ttaaxx aasssseettss
Deferred tax liabilities
Goodwill and intangible assets
Cash flow hedges
Other
TToottaall ddeeffeerrrreedd ttaaxx lliiaabbiilliittiieess
11 Less deferred tax liabilities as applicable.
3311..1122..1199
VVaalluuaattiioonn
aalllloowwaannccee
((88,,886611))
((661133))
00
((117799))
((55))
00
((442299))
((99,,447744))
GGrroossss
1144,,882266
44,,118866
22,,221199
11,,008800
9999
66
778822
1199,,001111
RReeccooggnniizzeedd
55,,996655
33,,557722
22,,221199
990011
9933
66
335533
99,,553377
2299
115566
112266
331111
31.12.18
Valuation
allowance
(8,989)
(565)
(25)
(192)
(50)
0
(298)
(9,554)
Gross
15,088
4,571
2,159
1,150
390
202
670
19,659
Recognized
6,099
4,006
2,134
959
339
202
372
10,105
26
0
62
88
357
Financial statements
Consolidated financial statements
Note 8 Income taxes (continued)
Unrecognized tax loss carry-forwards
USD million
Within 1 year
From 2 to 5 years
From 6 to 10 years
From 11 to 20 years
No expiry
Total
Total
As of 31 December 2019, USD 17.8 billion of the unrecognized
tax losses carried forward related to the US, USD 14.9 billion
related to the UK and USD 5.0 billion related to other locations
(as of 31 December 2018, USD 20.0 billion related to the US,
USD 14.2 billion related to the UK and USD 4.2 billion related to
other locations).
losses
federal
incurred prior
In general, US
to
tax
31 December 2017 can be carried forward for 20 years, and US
federal tax losses incurred after 31 December 2017 and UK tax
losses can be carried forward indefinitely. The amounts of US tax
loss carry-forwards that are included in the above table are
based on their amount for federal tax purposes rather than for
state and local tax purposes.
31.12.19
31.12.19
13
13
609
609
14,712
14,712
4,030
4,030
18,364
18,364
37,728
37,728
31.12.18
0
464
16,297
4,457
17,210
38,428
in
recognized
liabilities are
respect of
tax
Deferred
investments
in subsidiaries, branches and associates and
interests in joint arrangements, except to the extent that the
Group can control the timing of the reversal of the associated
taxable temporary difference and it is probable that it will not
reverse in the foreseeable future. However, as of 31 December
2019, this exception was not considered to apply to any taxable
temporary differences.
358
Note 9 Earnings per share (EPS) and shares outstanding
Basic earnings (USD million)
Net profit / (loss) attributable to shareholders
Diluted earnings (USD million)
Net profit / (loss) attributable to shareholders
Less: (profit) / loss on own equity derivative contracts
Net profit / (loss) attributable to shareholders for diluted EPS
Weighted average shares outstanding
Weighted average shares outstanding for basic EPS1
As of or for the year ended
3311..1122..1199
31.12.18
31.12.17
44,,330044
4,516
969
44,,330044
00
44,,330044
4,516
(2)
4,514
969
0
969
33,,666633,,227788,,223388
3,730,297,877
3,716,174,261
Effect of dilutive potential shares resulting from notional shares, in-the-money options and warrants outstanding
110033,,888811,,660000
111,271,269
120,540,272
Weighted average shares outstanding for diluted EPS
33,,776677,,115599,,883388
3,841,569,146
3,836,714,533
Earnings per share (USD)
Basic
Diluted
Shares outstanding
Shares issued
Treasury shares
Shares outstanding
11..1177
11..1144
1.21
1.18
0.26
0.25
33,,885599,,005555,,339955
3,855,634,749
3,853,096,603
224433,,002211,,229966
166,467,802
132,301,550
33,,661166,,003344,,009999
3,689,166,947
3,720,795,053
11 The weighted average shares outstanding for basic EPS are calculated by taking the number of shares at the beginning of the period, adjusted by the number of shares acquired or issued during the period,
multiplied by a time-weighted factor for the period outstanding. As a result, balances are affected by the timing of acquisitions and issuances during the period.
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
3311..1122..1199
31.12.18
31.12.17
Potentially dilutive instruments
Employee share-based compensation awards1
Other equity derivative contracts
TToottaall
11 The last remaining option awards and stock appreciation rights expired during 2019.
2211,,663322,,887799
2211,,663322,,887799
3,605,198
11,912,450
15,517,648
24,124,341
9,122,496
33,246,837
359
Financial statements
Consolidated financial statements
Balance sheet notes
Note 10 Financial assets at amortized cost and other positions in scope of expected credit loss measurement
The tables on the following pages provide information about on the same or similar rating methods applied. The key
financial instruments and certain other credit lines that are
subject to expected credit loss (ECL) requirements. UBS has
established ECL disclosure segments or “ECL segments” to
disaggregate portfolios based on shared risk characteristics and
Refer to Note 23 for more information about expected credit
segments are presented in the table below.
loss measurement
Segment
Segment description
Description of credit risk sensitivity
Business division /
Corporate Center
Private clients with
mortgages
Lending to private clients secured by
owner-occupied real estate and personal
account overdrafts of those clients
Sensitive to the interest rate environment,
employment status and influence from
regional effects (e.g., property values)
– Personal & Corporate Banking
– Global Wealth Management
Real estate financing
Rental or income-producing real estate
financing to private and corporate clients
secured by real estate
Sensitive to GDP development, the
interest rate environment and regional
effects (e.g., property values)
– Personal & Corporate Banking
– Global Wealth Management
– Investment Bank
Large corporate clients
Lending to large corporate and
multinational clients
SME clients
Lending to small and medium-sized
corporate clients
– Personal & Corporate Banking
– Investment Bank
– Personal & Corporate Banking
Sensitive to GDP development,
seasonality, business cycles and collateral
values (diverse collateral including real
estate and other collateral types)
Sensitive to GDP development, the
interest rate environment and, to some
extent, seasonality, business cycles and
collateral values (diverse collateral
including real estate and other collateral
types)
Lombard
Credit cards
Loans secured by pledges of marketable
securities, guarantees and other forms of
collateral
Sensitive to the market (e.g., changes in
collateral as well as in invested assets)
– Global Wealth Management
Credit card solutions in Switzerland and the
US
Sensitive to the interest rate
environment and employment status
– Personal & Corporate Banking
– Global Wealth Management
Commodity trade finance
Working capital financing of commodity
traders, generally extended on a self-
liquidating transactional basis
– Personal & Corporate Banking
Sensitive primarily to the strength of
individual transaction structures and
collateral values (price volatility of
commodities) as the primary source for
debt service is directly linked to the
shipments financed
Financial intermediaries
and hedge funds
Lending to financial institutions and
pension funds, including exposures to
broker-dealers and clearing houses
Sensitive to GDP development, the
interest rate environment, regulatory
changes and political risk
– Personal & Corporate Banking
– Investment Bank
– Corporate Center
Refer to Note 23g for more details regarding sensitivity
360
Note 10 Financial assets at amortized cost and other positions in scope of expected credit loss measurement (continued)
For amortized cost instruments, the net carrying amount
represents the maximum exposure to credit risk, taking into
losses. Financial assets
account the allowance for credit
measured at fair value through other comprehensive income
(FVOCI) are also subject to ECL; however, unlike for amortized
cost instruments, the allowance does not reduce the carrying
amount of these financial assets. Rather, the carrying amount of
financial assets measured at FVOCI represents the maximum
exposure to credit risk.
No purchased credit-impaired financial assets have been
recognized in the period. Originated credit-impaired financial
assets were not material and are not presented in the table
below and on the following page.
In addition to on-balance sheet financial assets, certain off-
balance sheet financial instruments and other credit lines are
also subject to ECL. The maximum exposure to credit risk for off-
balance sheet financial instruments is calculated based on the
maximum contractual amounts.
USD million
3311..1122..1199
FFiinnaanncciiaall iinnssttrruummeennttss mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt
Cash and balances at central banks
Loans and advances to banks
Receivables from securities financing transactions
Cash collateral receivables on derivative instruments
Loans and advances to customers
of which: Private clients with mortgages
of which: Real estate financing
of which: Large corporate clients
of which: SME clients
of which: Lombard
of which: Credit cards
of which: Commodity trade finance
Other financial assets measured at amortized cost
of which: Loans to financial advisors
TToottaall ffiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt
FFiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt ffaaiirr vvaalluuee tthhrroouugghh ootthheerr ccoommpprreehheennssiivvee iinnccoommee
TToottaall oonn bbaallaannccee sshheeeett ffiinnaanncciiaall aasssseettss iinn ssccooppee ooff EECCLL rreeqquuiirreemmeennttss
-
-
-
-
OOffff bbaallaannccee sshheeeett ((iinn ssccooppee ooff EECCLL))
Guarantees
of which: Large corporate clients
of which: SME clients
of which: Financial intermediaries and hedge funds
of which: Lombard
of which: Commodity trade finance
Irrevocable loan commitments
of which: Large corporate clients
Forward starting reverse repurchase and securities borrowing agreements
Committed unconditionally revocable credit lines
of which: Real estate financing
of which: Large corporate clients
of which: SME clients
of which: Lombard
of which: Credit cards
of which: Commodity trade finance
CCaarrrryyiinngg aammoouunntt11
SSttaaggee 11
TToottaall
107,068
107,068
12,367
12,447
84,245
84,245
23,289
23,289
326,786
309,499
132,646 124,063
38,481 32,932
9,184
9,703
11,786
9,817
112,893 112,796
1,314
2,826
21,953
2,341
555588,,442200
66,,334455
556644,,776655
1,661
2,844
22,980
2,877
557766,,881155
66,,334455
558833,,115599
17,757
18,142
3,461
3,687
1,055
1,180
7,950
7,966
622
622
2,320
2,334
27,547
27,078
18,735 18,349
1,657
33,848
4,934
4,188
4,589
7,975
7,535
344
3,285
8833,,662266
1,657
35,092
5,242
4,274
4,787
7,976
7,890
344
3,289
8855,,772288
SSttaaggee 22
0
80
0
0
15,538
7,624
5,532
424
1,449
0
325
8
451
334
1166,,006699
00
1166,,006699
SSttaaggee 22
304
203
67
16
0
13
419
359
0
1,197
307
69
171
0
355
0
0
11,,992200
TToottaall eexxppoossuurree
SSttaaggee 11
TToottaall
SSttaaggee 33
0
0
0
0
1,749
959
17
94
521
98
22
10
576
202
22,,332266
00
22,,332266
SSttaaggee 33
82
24
58
0
0
0
50
27
0
46
0
17
27
1
0
0
4
118822
TToottaall
0
(6)
(2)
0
(764)
(110)
(43)
(117)
(303)
(22)
(35)
(81)
(143)
(109)
((991155))
00
((991155))
TToottaall
(42)
(10)
(24)
(5)
(1)
(1)
(35)
(27)
0
(34)
(16)
(1)
(9)
0
(6)
0
(3)
((111144))
((11,,002299))
EECCLL aalllloowwaanncceess
SSttaaggee 11
0
(4)
(2)
0
(82)
(15)
(5)
(15)
(17)
(4)
(8)
(5)
(35)
(29)
((112244))
00
((112244))
SSttaaggee 22
0
(1)
0
0
(123)
(55)
(34)
(4)
(15)
0
(14)
0
(13)
(11)
((113377))
00
((113377))
EECCLL pprroovviissiioonnss
SSttaaggee 11
(8)
(1)
0
(4)
0
(1)
(30)
(24)
0
(17)
(3)
(1)
(8)
0
(4)
0
(3)
((5588))
((118811))
SSttaaggee 22
(1)
0
0
0
0
0
(5)
(3)
0
(17)
(13)
0
(1)
0
(2)
0
0
((2233))
((116600))
SSttaaggee 33
0
(1)
0
0
(559)
(41)
(4)
(98)
(271)
(18)
(13)
(77)
(95)
(70)
((665555))
00
((665555))
SSttaaggee 33
(33)
(9)
(23)
0
(1)
0
0
0
0
0
0
0
0
0
0
0
0
((3333))
((668888))
361
-
-
Irrevocable committed prolongation of existing loans
TToottaall ooffff bbaallaannccee sshheeeett ffiinnaanncciiaall iinnssttrruummeennttss aanndd ootthheerr ccrreeddiitt lliinneess
TToottaall aalllloowwaanncceess aanndd pprroovviissiioonnss
11 The carrying amount of financial assets measured at amortized cost represents the total gross exposure net of the respective ECL allowances.
Financial statements
Consolidated financial statements
Note 10 Financial assets at amortized cost and other positions in scope of expected credit loss measurement (continued)
USD million
31.12.18
Financial instruments measured at amortized cost
Financial instruments measured at amortized cost
Cash and balances at central banks
Loans and advances to banks
Receivables from securities financing transactions
Cash collateral receivables on derivative instruments
Loans and advances to customers
of which: Private clients with mortgages
of which: Real estate financing
of which: Large corporate clients
of which: SME clients
of which: Lombard
of which: Credit cards
of which: Commodity trade finance
Other financial assets measured at amortized cost
of which: Loans to financial advisors
Total financial assets measured at amortized cost
Total financial assets measured at amortized cost
Financial assets measured at fair value through other comprehensive income
Financial assets measured at fair value through other comprehensive income
Total on-balance sheet financial assets in scope of ECL requirements
Total on-balance sheet financial assets in scope of ECL requirements
Off-balance sheet (in scope of ECL)
Off-balance sheet (in scope of ECL)
Guarantees
of which: Large corporate clients
of which: SME clients
of which: Financial intermediaries and hedge funds
of which: Lombard
of which: Commodity trade finance
Irrevocable loan commitments
of which: Large corporate clients
Forward starting reverse repurchase and securities borrowing agreements
Committed unconditionally revocable credit lines
of which: Real estate financing
of which: Large corporate clients
of which: SME clients
of which: Lombard
of which: Credit cards
of which: Commodity trade finance
Carrying amount1
Stage 1
Total
108,370
108,370
16,666
16,868
95,349
95,349
23,602
23,602
320,352
298,248
126,335 115,679
36,474 28,578
11,390 10,845
8,029
9,924
111,722 111,707
1,216
2,798
21,862
3,104
564,096
564,096
6,667
6,667
570,763
570,763
1,529
3,260
22,563
3,291
587,104
587,104
6,667
6,667
593,770
593,770
17,321
18,146
3,599
3,862
1,057
1,298
7,125
7,193
834
834
1,851
2,097
31,212
30,590
22,019 21,492
937
35,121
2,150
4,152
4,163
7,402
7,035
3,209
2,861
86,830
86,830
937
36,634
2,562
4,260
4,505
7,402
7,343
3,467
3,339
90,268
90,268
Stage 2
0
202
0
0
20,357
9,859
7,858
457
1,263
0
297
445
223
62
20,782
20,782
0
0
20,782
20,782
Stage 2
611
136
164
67
0
236
568
519
0
1,420
401
91
285
0
309
254
456
3,055
3,055
Total exposure
Stage 1
Total
Stage 3
0
0
0
0
1,748
796
38
88
632
14
16
16
478
125
2,226
2,226
0
0
2,226
2,226
Stage 3
215
127
77
0
0
11
53
7
0
93
11
17
57
0
0
4
22
383
383
Total
0
(7)
(2)
0
(772)
(138)
(59)
(95)
(281)
(21)
(30)
(86)
(155)
(113)
(937)
(937)
0
0
(937)
(937)
Total
(43)
(8)
(26)
(4)
0
(1)
(37)
(31)
0
(36)
(17)
(2)
(7)
0
(6)
(2)
(1)
(116)
(116)
(1,054)
(1,054)
ECL allow
Stage 1
0
(4)
(2)
0
(69)
(16)
(3)
(9)
(13)
(4)
(6)
(5)
(43)
(34)
(117)
(117)
0
0
(117)
(117)
ances
Stage 2
0
(1)
0
0
(155)
(83)
(40)
(4)
(12)
0
(13)
(3)
(4)
(2)
(159)
(159)
0
0
(159)
(159)
ECL provisions
Stage 1
(7)
(1)
0
(3)
0
(1)
(32)
(26)
0
(19)
(4)
(1)
(6)
(1)
(4)
(2)
(1)
(59)
(59)
(176)
(176)
Stage 2
(2)
(1)
0
0
0
0
(5)
(4)
0
(16)
(12)
0
(1)
0
(2)
0
0
(23)
(23)
(183)
(183)
Stage 3
0
(3)
0
0
(549)
(39)
(16)
(82)
(256)
(17)
(11)
(78)
(109)
(77)
(660)
(660)
0
0
(660)
(660)
Stage 3
(34)
(6)
(25)
0
0
0
0
0
0
0
0
0
0
0
0
0
0
(34)
(34)
(695)
(695)
Irrevocable committed prolongation of existing loans
Total off-balance sheet financial instruments and other credit lines
Total off-balance sheet financial instruments and other credit lines
Total allowances and provisions
Total allowances and provisions
1 The carrying amount of financial assets measured at amortized cost represents the total gross exposure net of the respective ECL allowances.
1
362
Note 10 Financial assets at amortized cost and other positions in scope of expected credit loss measurement (continued)
Coverage ratios are calculated by taking ECL allowances and
provisions divided by the gross carrying amount of the
exposures. These ratios have remained broadly unchanged in
2019 and are influenced by the following key factors:
–
significant asset balances are held with central banks as part
of the requirement to hold high-quality liquid assets;
Lombard loans are secured with marketable securities in
portfolios which are in general highly diversified with strict
lending policies that are intended to ensure that credit risk is
minimal under most circumstances;
mortgage loans to private clients and real estate financing are
controlled by conservative eligibility criteria, including low
loan-to-value ratios and strong debt service capabilities. The
risk of rising interest rates has been taken into account in the
scenario selection process;
the amount of unsecured retail lending (including credit
cards) in Switzerland is insignificant;
contractual maturities in the loan portfolio, which are a factor
in the calculation of ECLs, are generally short, with a large
–
–
–
–
–
part of the loan portfolio having contractual maturities of 12
month or less;
for example, the carrying amount of Swiss residential
mortgage loans would continue to be fully covered or 98%
covered by real estate collateral, even if the value of that
collateral decreased by 20% or 30%, respectively.
Certain assets reported in stage 2 within the Private clients
with mortgages and Real estate financing segments did not have
a comparable rating on origination upon which to base the
assessment of whether a significant increase in credit risk (SICR)
IFRS 9 transition
has occurred.
requirements, a lifetime ECL has been recognized for these
assets. In the medium term and based on the current economic
outlook, UBS expects the proportion of these stage 2 assets to
reduce to some extent.
In accordance with the
3311..1122..1199
FFiinnaanncciiaall iinnssttrruummeennttss mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt
Loans and advances to customers
of which: Private clients with mortgages
of which: Real estate financing
of which: Large corporate clients
of which: SME clients
of which: Lombard
of which: Credit cards
of which: Commodity trade finance
Other financial assets measured at amortized cost
of which: Loans to financial advisors
TToottaall ffiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt
FFiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt ffaaiirr vvaalluuee tthhrroouugghh ootthheerr ccoommpprreehheennssiivvee iinnccoommee
TToottaall oonn bbaallaannccee sshheeeett ffiinnaanncciiaall aasssseettss iinn ssccooppee ooff EECCLL rreeqquuiirreemmeennttss
-
-
-
-
OOffff bbaallaannccee sshheeeett ((iinn ssccooppee ooff EECCLL))
Guarantees
Irrevocable loan commitments
Forward starting reverse repurchase and securities borrowing agreements
Committed unconditionally revocable credit lines
Irrevocable committed prolongation of existing loans
TToottaall ooffff bbaallaannccee sshheeeett ffiinnaanncciiaall iinnssttrruummeennttss aanndd ootthheerr ccrreeddiitt lliinneess
TToottaall aalllloowwaanncceess aanndd pprroovviissiioonnss
-
-
GGrroossss ccaarrrryyiinngg aammoouunntt ((UUSSDD mmiilllliioonn))
SSttaaggee 11
TToottaall
327,550
309,581
132,756 124,077
38,524 32,937
9,199
9,819
12,089
9,834
112,915 112,799
1,322
2,831
21,988
2,370
555588,,554444
66,,334455
556644,,888888
SSttaaggee 22
15,661
7,679
5,567
429
1,464
0
339
8
463
344
1166,,220066
00
1166,,220066
1,696
2,925
23,123
2,987
557777,,773300
66,,334455
558844,,007755
SSttaaggee 33
2,308
1,000
21
192
791
116
35
87
672
272
22,,998811
00
22,,998811
GGrroossss eexxppoossuurree ((UUSSDD mmiilllliioonn))
TToottaall
18,142
27,547
1,657
35,092
3,289
8855,,772288
SSttaaggee 11
17,757
27,078
1,657
33,848
3,285
8833,,662266
SSttaaggee 22
304
419
0
1,197
0
11,,992200
SSttaaggee 33
82
50
0
46
4
118822
EECCLL ccoovveerraaggee ((bbppss))
SSttaaggee 11
3
1
2
16
18
0
60
17
16
122
22
00
22
SSttaaggee 22
79
72
62
100
104
0
404
3
274
305
8844
00
8844
EECCLL ccoovveerraaggee ((bbppss))
SSttaaggee 11
4
11
0
5
8
77
99
SSttaaggee 22
30
120
0
143
0
112200
220044
TToottaall
23
8
11
119
251
2
205
278
62
366
1166
00
1166
TToottaall
23
13
0
10
8
1133
2299
SSttaaggee 33
2,420
406
1,765
5,088
3,420
1,566
3,718
8,844
1,420
2,570
22,,119988
00
22,,119988
SSttaaggee 33
4,032
0
0
0
0
11,,882222
44,,002200
363
Financial statements
Consolidated financial statements
Note 10 Financial assets at amortized cost and other positions in scope of expected credit loss measurement (continued)
As explained in Note 1a, the assessment of an SICR considers
rating analyses and economic outlook.
a number of qualitative and quantitative factors to determine if Additionally, UBS considers counterparties that have moved to a
a stage transfer between stage 1 and stage 2 is required. The
credit watch list and those with payments that are 30 days past
primary assessment considers changes in probability of default due.
(PD) based on
USD million
Financial instruments measured at amortized cost
Financial instruments measured at amortized cost
Mortgages, business loans and related off-balance sheet commitments in the region
Switzerland
of which: Private clients with mortgages
of which: Real estate financing
of which: Large corporate clients
of which: SME clients
of which: Lombard
of which: Leasing
of which: Credit cards
of which: Other
ECL allowances / provisions
ECL allowances / provisions
Total
Total
Stage 1
Stage 1
Stage 2
Stage 2
of which:
of which: of which: ≥30 days
PD layer watch list past due
Stage 3
Stage 3
723
90
59
57
310
3
42
33
130
89
11
8
6
25
2
6
9
23
137
53
47
4
9
0
12
11
2
93
40
36
0
6
0
11
0
2
6
0
0
4
2
0
0
0
0
38
13
11
0
1
0
1
11
0
497
27
4
47
276
1
24
12
106
364
Note 11 Derivative instruments
Derivatives: overview
A derivative is a financial instrument for which the value is
derived from 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
instruments. A derivative commonly requires little or no initial
net investment by either counterparty to the trade.
The majority of derivative contracts are negotiated with
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
Association (ISDA) master agreement between UBS and its
counterparties. Terms are negotiated directly with counterparties
and the contracts have industry standard settlement mechanisms
prescribed by ISDA. Beginning in 2016, regulators in various
jurisdictions began a phased introduction of rules requiring the
payment and collection of initial and variation margin on certain
OTC derivative contracts, which may have a bearing on their
price and other relevant terms. Under the final rules of the Basel
Committee on Banking Supervision (BCBS) and the Board of the
International Organization of Securities Commissions (IOSCO)
promulgated in July 2019, the final phase-in of margin
requirements for non-centrally cleared derivatives will be
completed on 1 September 2021.
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
regulated 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’s derivative contracts
are subject to IFRS netting provisions. Derivative instruments are
measured at fair value and generally classified on the balance
sheet as Derivative financial instruments within Assets when
having positive replacement values and Derivative financial
instruments within Liabilities when having negative replacement
values. However, ETD that are economically settled on a daily
basis and OTC derivatives that are either legally settled or 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 Other net income from
financial instruments measured at fair value through profit or
loss, except for interest on derivatives designated as hedging
instruments in effective hedge accounting relationships and
forward points on certain short- and long-duration foreign
exchange contracts, which are recorded in Net interest income.
Refer to Note 1a items 3j and 3k for more information
Refer to Note 25 for more information about derivative
financial assets and liabilities after consideration of netting
potential allowed under enforceable netting arrangements
The Group uses various derivative instruments for both
trading and hedging purposes. Derivative product types as well
as valuation principles and techniques applied by the Group are
described 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 “Derivative instruments” table within this Note.
Bifurcated embedded derivatives are presented on the same
balance sheet line as the host contract. In cases where UBS
applies the fair value option to hybrid instruments, bifurcation of
an embedded derivative component is not required and as such
this component
in the “Derivative
instruments” table.
is also not
included
Refer to Notes 19 and 24 for more information
365
Financial statements
Consolidated financial statements
Note 11 Derivative instruments (continued)
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
managed 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 portions of “Market risk” in the “Risk
management and control” section of this report.
Derivative instruments are also 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 derivative financial assets shown on the
balance sheet can be an important component of the Group’s
credit exposure, the positive replacement values related to a
respective counterparty are rarely an adequate reflection of the
Group’s credit exposure in its derivatives 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, exposure may be
mitigated by entering into master netting agreements 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 additional
factors.
Refer to Note 25 for more information about derivative
financial assets and liabilities after consideration of netting
potential allowed under enforceable netting arrangements
366
Note 11 Derivative instruments (continued)
Derivative instruments¹,²
USD billion
IInntteerreesstt rraattee ccoonnttrraaccttss
Over-the-counter (OTC) contracts
Forward contracts
Swaps
Options
Exchange-traded contracts
Futures
Options
Agency transactions5
TToottaall
CCrreeddiitt ddeerriivvaattiivvee ccoonnttrraaccttss
Over-the-counter (OTC) contracts
Credit default swaps
Total return swaps
Options and warrants
TToottaall
FFoorreeiiggnn eexxcchhaannggee ccoonnttrraaccttss
Over-the-counter (OTC) contracts
Forward contracts
Interest and currency swaps
Options
Exchange-traded contracts
Futures
Options
Agency transactions5
TToottaall
EEqquuiittyy // iinnddeexx ccoonnttrraaccttss
Over-the-counter (OTC) contracts
Forward contracts
Swaps
Options
Exchange-traded contracts
Futures
Options
Agency transactions5
TToottaall
Table continues on the next page.
NNoottiioonnaall
vvaalluueess
rreellaatteedd ttoo
ddeerriivvaattiivvee
ffiinnaanncciiaall
aasssseettss33
3311..1122..1199
DDeerriivvaattiivvee
ffiinnaanncciiaall
lliiaabbiilliittiieess
NNoottiioonnaall
vvaalluueess
rreellaatteedd ttoo
ddeerriivvaattiivvee
ffiinnaanncciiaall
lliiaabbiilliittiieess33
DDeerriivvaattiivvee
ffiinnaanncciiaall
aasssseettss
Notional
values
related to
derivative
financial
assets3
31.12.18
Derivative
financial
liabilities
Notional
values
related to
derivative
financial
liabilities3
OOtthheerr
nnoottiioonnaall
vvaalluueess33,, 44
Derivative
financial
assets
Other
notional
values3, 4
2,873.9
7,189.1
3.1
441.8
550.0
516.1
199.7
26.3
22..88
445544..77
446644..88
8844..44
00..00
3344..33
88..11
00..00
00..11
4422..66
11,,000066..66
6655..00
22..00
33..33
7700..22
993355..33
11,,557733..22
666600..99
44..00
11..77
00..33
00..00
22..00
2222..44
2222..88
77..33
00..00
00..00
00..33
2266..22
1100..00
00..00
00..11
3366..66
22..22
00..88
00..00
33..00
2233..44
2233..88
66..88
00..00
00..00
55..11
440022..99
448866..11
6666..66
33,,113366..88
88,,008866..00
554466..99
222299..55
1.4
459.8
562.2
27.7
0.0
29.5
7.6
0.0
0.0
0.1
23.5
9.0
0.0
0.1
996600..77
1111,,999999..22
37.1
1,051.1
32.7
1,021.3
10,778.8
6666..00
33..33
00..66
6699..99
996666..66
11,,441188..55
660044..99
33..88
1.7
0.2
0.0
1.9
20.3
24.8
8.3
0.0
0.0
11..22
68.8
3.0
2.7
74.5
2.1
0.6
0.0
2.7
73.2
3.7
1.4
78.3
708.7
1,299.7
613.8
20.9
24.6
7.8
731.2
1,203.5
577.4
3.6
0.0
0.1
5.3
0.4
5522..55
33,,117733..44
5544..00
22,,999933..88
11..22
53.5
2,625.7
53.4
2,517.3
0.4
00..00
44..00
55..00
77..22
66..66
2222..88
00..00
8811..33
8888..66
225500..44
442200..33
00..00
55..55
66..88
77..88
55..44
2255..55
00..00
9966..33
114444..11
229944..11
8844..99
3377..22
553344..55
112222..11
0.0
4.7
5.5
10.1
11.2
31.4
0.0
78.5
97.6
232.8
408.9
0.0
5.6
7.2
9.0
13.3
35.0
0.0
86.3
139.6
262.8
71.7
34.1
488.8
105.9
367
Financial statements
Consolidated financial statements
Note 11 Derivative instruments (continued)
Derivative instruments (continued)¹,²
Table continued from the previous page.
USD billion
Commodity contracts
Commodity contracts
Over-the-counter (OTC) contracts
Forward contracts
Swaps
Options
Exchange-traded contracts
Futures
Forward contracts
Options
Agency transactions5
Derivative
Derivative
financial
financial
assets
assets
0.1
0.1
0.4
0.4
1.0
1.0
0.0
0.0
0.1
0.1
0.3
0.3
1.8
1.8
Notional
Notional
values
values
related to
related to
derivative
derivative
financial
financial
assets3
assets3
31.12.19
31.12.19
Derivative
Derivative
financial
financial
liabilities
liabilities
Notional
Notional
values
values
related to
related to
derivative
derivative
financial
financial
liabilities3
liabilities3
Notional
values
related to
derivative
financial
assets3
31.12.18
Derivative
financial
liabilities
Notional
values
related to
derivative
financial
liabilities3
Other
notional
values3, 4
Other Derivative
Other
notional
financial
notional
values3, 4
values3, 4
assets
4.2
4.2
13.8
13.8
27.4
27.4
5.9
5.9
4.8
4.8
0.2
0.2
0.6
0.6
0.4
0.4
0.0
0.0
0.1
0.1
0.5
0.5
1.7
1.7
5.7
5.7
15.1
15.1
23.6
23.6
4.9
4.9
10.7
10.7
12.0
12.0
0.6
0.6
3.2
15.2
18.6
6.6
2.9
0.1
0.7
0.4
0.0
0.1
0.4
1.8
0.1
0.4
0.3
0.0
0.0
0.7
1.5
3.4
9.9
16.1
5.4
3.7
8.5
0.1
6.9
6.9
0.1
0.1
0.1
0.1
0.1
0.1
12.6
12.6
16.6
16.6
15.4
15.4
46.4
60.0
60.0
56.1
56.1
Total
Total
Unsettled purchases of non-derivative
Unsettled purchases of non-derivative
financial instruments6
financial instruments6
Unsettled sales of non-derivative
Unsettled sales of non-derivative
financial instruments6
financial instruments6
Total derivative instruments, based on
Total derivative instruments, based on
IFRS netting7
IFRS netting7
10,893.6
1 Derivative financial liabilities as of 31 December 2019 include USD 17 million related to derivative loan commitments (31 December 2018: USD 17 million). No notional amounts related to these commitments are
1
2 Includes certain forward starting repurchase and reverse repurchase agreements that are classified as measured at fair value
included in this table, but they are disclosed in Note 34 under Loan commitments.
2
through profit or loss and are recognized within derivative instruments. The fair value of these derivative instruments was not material as of 31 December 2019 or 31 December 2018. No notional amounts related
to these instruments are included in this table, but they are disclosed in Note 34 under Forward starting transactions. 3 In cases where derivative financial instruments are presented on a net basis on the balance
3
4 Other notional values relate to derivatives that are cleared through either a central
sheet, the respective notional values of the netted derivative financial instruments are still presented on a gross basis.
4
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
5 Notional values of exchange-traded agency transactions and OTC-cleared transactions entered into on behalf of
collateral payables on derivative instruments and was not material for all periods presented.
5
6 Changes in the fair value of purchased and sold non-derivative financial instruments between trade date and settlement date are
clients are not disclosed as they have a significantly different risk profile.
6
7 Financial assets and liabilities are presented net on the balance sheet if UBS has the unconditional and legally enforceable right to offset the recognized amounts,
recognized as derivative financial instruments.
7
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. Refer to Note 25 for more information on netting arrangements.
12,135.1
12,135.1
4,758.6
4,758.6
4,635.4
4,635.4
4,238.6
4,163.4
120.9
120.9
121.8
121.8
126.2
125.7
13.2
38.5
17.0
15.1
6.0
8.6
0.2
0.1
0.1
0.4
0.1
0.2
9.7
9.7
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 that 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.
On a notional value basis, approximately 54% of OTC interest
rate contracts held as of 31 December 2019 (31 December
2018: 56%) mature within one year, 28% (31 December 2018:
28%) within one to five years and 18% (31 December 2018:
16%) after five years. Notional values of interest rate contracts
cleared with a clearing house that qualify for IFRS balance sheet
netting or are legally settled on a daily basis are presented under
Other notional values and are categorized into maturity buckets
on the basis of contractual maturities of the cleared underlying
derivative contracts.
Derivatives transacted for sales and trading purposes
Most of the Group’s derivative transactions relate to sales and
trading activities. Sales activities include the structuring and
marketing of derivative products to customers to enable them to
take, transfer, modify or reduce current or expected risks.
Trading activities 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
credit default swaps (CDS) and related products, with respect to
a large number of issuers’ securities. The primary objectives of
these activities are ongoing hedging of trading book exposures
and market-making, primarily on behalf of clients.
368
Note 11 Derivative instruments (continued)
Market-making activity, which is undertaken within the
Investment Bank, consists of buying and selling single-name
CDS, index CDS, loan CDS and related referenced cash
instruments to facilitate client trading activity. UBS also actively
utilizes CDS to economically hedge specific counterparty credit
risks in its accrual and traded loan portfolios (including off-
balance sheet loan commitments) 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 that are designated at fair value
through profit or loss.
The tables below provide more information about credit
protection bought and sold, including replacement and notional
value information 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, approximately 27% of credit protection bought and
sold as of 31 December 2019 matures within one year (31
December 2018: 14%), approximately 63% within one to five
years (31 December 2018: 74%) and approximately 10% after
five years (31 December 2018: 12%).
Credit derivatives by type of instrument
USD 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
TToottaall 3311 DDeecceemmbbeerr 22001199
of which: credit derivatives related to economic hedges
of which: credit derivatives related to market-making
USD 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
TToottaall 3311 DDeecceemmbbeerr 22001188
of which: credit derivatives related to economic hedges
of which: credit derivatives related to market-making
DDeerriivvaattiivvee
ffiinnaanncciiaall
aasssseettss
00..33
PPrrootteeccttiioonn bboouugghhtt
DDeerriivvaattiivvee
ffiinnaanncciiaall
lliiaabbiilliittiieess
00..77
NNoottiioonnaall vvaalluueess
3377..55
DDeerriivvaattiivvee
ffiinnaanncciiaall
aasssseettss
00..88
PPrrootteeccttiioonn ssoolldd
DDeerriivvaattiivvee
ffiinnaanncciiaall
lliiaabbiilliittiieess
00..77
NNoottiioonnaall vvaalluueess
3388..66
00..11
00..00
00..22
00..00
00..77
00..66
00..11
00..88
00..00
00..66
00..00
22..11
11..77
00..44
2299..33
00..44
33..77
33..88
7744..66
5566..11
1188..66
00..55
00..00
00..11
00..00
11..33
00..99
00..55
00..11
00..00
00..22
00..00
00..99
00..88
00..11
2244..99
00..33
11..66
00..11
6655..44
4455..77
1199..77
Derivative
financial
assets
0.6
Protection bought
Derivative
financial
liabilities
0.6
Notional values
43.3
Derivative
financial
assets
0.5
Protection sold
Derivative
financial
liabilities
1.0
Notional values
44.9
0.3
0.0
0.2
0.0
1.1
0.9
0.2
0.3
0.0
0.7
0.0
1.6
1.3
0.4
29.1
0.1
4.7
4.1
81.3
59.2
22.1
0.3
0.0
0.0
0.0
0.8
0.5
0.3
0.2
0.0
0.0
0.0
1.2
1.1
0.2
24.4
0.1
2.0
0.1
71.4
48.9
22.6
369
Financial statements
Consolidated financial statements
Note 11 Derivative instruments (continued)
Credit derivatives by counterparty
USD billion
Broker-dealers
Banks
Central clearing counterparties
Other
Total 31 December 2019
Total 31 December 2019
USD billion
Broker-dealers
Banks
Central clearing counterparties
Other
Total 31 December 2018
Total 31 December 2018
Derivative
Derivative
financial
financial
assets
assets
0.1
0.1
Protection bought
Protection bought
Derivative
Derivative
financial
financial
liabilities
liabilities
0.2
0.2
0.2
0.2
0.1
0.1
0.3
0.3
0.7
0.7
0.4
0.4
0.9
0.9
0.7
0.7
2.1
2.1
Derivative
financial
assets
0.2
Protection bought
Derivative
financial
liabilities
0.1
0.4
0.2
0.3
1.1
0.4
0.4
0.7
1.6
Notional values
Notional values
10.5
10.5
23.6
23.6
34.7
34.7
5.8
5.8
74.6
74.6
Notional values
13.0
29.2
31.9
7.2
81.3
Derivative
Derivative
financial
financial
assets
assets
0.2
0.2
Protection sold
Protection sold
Derivative
Derivative
financial
financial
liabilities
liabilities
0.1
0.1
0.4
0.4
0.7
0.7
0.1
0.1
1.3
1.3
0.3
0.3
0.2
0.2
0.3
0.3
0.9
0.9
Derivative
financial
assets
0.1
Protection sold
Derivative
financial
liabilities
0.2
0.3
0.4
0.0
0.8
0.5
0.3
0.3
1.2
Notional values
Notional values
99..44
2211..55
3311..66
22..99
6655..44
Notional values
11.5
25.6
30.8
3.5
71.4
UBS’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 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
parties at the time of the transaction. However, nearly all
transactions are traded with reference to credit events that are
applicable under certain market conventions based on the type
of reference entity to which the transaction relates. Applicable
credit events according
include
bankruptcy, failure to pay, restructuring, obligation acceleration
and repudiation / moratorium.
to market conventions
Contingent collateral features of derivative liabilities
Certain derivative instruments contain contingent collateral or
termination features triggered upon a downgrade of the
published credit ratings of the Group in the normal course of
business. Based on UBS’s credit ratings as of 31 December 2019,
USD 0.0 billion, USD 0.3 billion and USD 0.8 billion would have
been required for contractual obligations related to OTC
derivatives 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 UBS’s short-term ratings.
370
Note 12 Financial assets and liabilities at fair value held for trading
USD million
FFiinnaanncciiaall aasssseettss aatt ffaaiirr vvaalluuee hheelldd ffoorr ttrraaddiinngg11
Equity instruments
Government bills / bonds
Investment fund units
Corporate and municipal bonds
Loans
Asset-backed securities
TToottaall ffiinnaanncciiaall aasssseettss aatt ffaaiirr vvaalluuee hheelldd ffoorr ttrraaddiinngg
FFiinnaanncciiaall lliiaabbiilliittiieess aatt ffaaiirr vvaalluuee hheelldd ffoorr ttrraaddiinngg11
Equity instruments
Corporate and municipal bonds
Government bills / bonds
Investment fund units
Other
TToottaall ffiinnaanncciiaall lliiaabbiilliittiieess aatt ffaaiirr vvaalluuee hheelldd ffoorr ttrraaddiinngg
11 Refer to Note 24c for more information on product type and fair value hierarchy categorization.
Note 13 Financial assets at fair value not held for trading
USD million
FFiinnaanncciiaall aasssseettss aatt ffaaiirr vvaalluuee nnoott hheelldd ffoorr ttrraaddiinngg11
Financial assets for unit-linked investment contracts
Corporate and municipal bonds
Government bills / bonds
Loans
Securities financing transactions
Auction rate securities
Investment fund units
Equity instruments
Other
TToottaall ffiinnaanncciiaall aasssseettss aatt ffaaiirr vvaalluuee nnoott hheelldd ffoorr ttrraaddiinngg
11 Refer to Note 24c for more information on product type and fair value hierarchy categorization.
3311..1122..1199
31.12.18
9966,,778877
1111,,446644
88,,886677
77,,991144
11,,997711
551122
72,768
11,161
9,716
6,768
3,566
392
112277,,551144
104,370
2222,,773344
33,,666611
33,,446666
669988
3322
21,886
3,530
2,839
689
0
3300,,559911
28,943
3311..1122..1199
31.12.18
2277,,668866
1199,,338855
1155,,779900
1111,,443388
66,,229944
11,,553366
774400
555599
551155
8833,,994444
21,446
17,236
22,493
8,132
9,937
1,664
710
702
369
82,690
371
Financial statements
Consolidated financial statements
Note 14 Financial assets measured at fair value through other comprehensive income
USD million
Financial assets measured at fair value through other comprehensive income1
Financial assets measured at fair value through other comprehensive income1
Debt instruments
Debt instruments
Government and government agencies
of which: USA
Banks
Corporates and other
Total financial assets measured at fair value through other comprehensive income
Total financial assets measured at fair value through other comprehensive income
Unrealized gains – before tax
Unrealized (losses) – before tax
Net unrealized gains / (losses) – before tax
Net unrealized gains / (losses) – before tax
31.12.19
31.12.19
31.12.18
6,162
6,162
5,814
5,814
178
178
4
4
6,345
6,345
41
41
(25)
(25)
16
16
6,463
6,101
149
54
6,667
4
(146)
(143)
(104)
15
Net unrealized gains / (losses) – after tax
15
Net unrealized gains / (losses) – after tax
1 Refer to Note 24c for more information on product type and fair value hierarchy categorization. Refer also to Note 10 and Note 23 for more information on expected credit loss measurement.
1
Note 15 Property, equipment and software
At historical cost less accumulated depreciation
USD million
Historical cost
Historical cost
Balance at the end of the previous year
Adjustment from adoption of IFRS 16
Balance at the beginning of the year
Additions
Disposals / write-offs1
Reclassifications
Foreign currency translation
Balance at the end of the year
Accumulated depreciation
Accumulated depreciation
Balance at the end of the previous year
Adjustment from adoption of IFRS 16
Balance at the beginning of the year
Depreciation
Impairment2
Disposals / write-offs1
Reclassifications
Foreign currency translation
Balance at the end of the year
Owned
properties
Leased
properties5
Leasehold IT hardware and
communication
improve-
equipment
ments
Internally
generated Purchased
software
software
Other
machines
and
equipment
7,679
(20)
7,659
15
(15)
(130)
122
7,650
4,500
(1)
4,499
161
1
(15)
(256)
75
4,466
3,407
3,407
345
(22)
0
14
3,745
29
29
487
2
(2)
0
4
519
3,122
3,122
21
(314)
164
10
3,004
1,873
1,873
194
1
(312)
2
9
1,768
1,568
(32)
1,535
178
(170)
0
16
1,559
1,077
(28)
1,049
165
0
(169)
0
9
1,053
5,173
469
5,173
73
(28)
943
15
6,176
469
30
(20)
2
4
485
2,291
316
2,291
603
30
(28)
0
9
2,906
316
56
3
(20)
0
3
358
799
0
799
23
(68)
41
4
799
561
0
561
62
0
(68)
0
3
559
Projects in
progress
2019
2019
2018
1,157
1,157
1,246
0
(1,418)
28
1,014
19,966
19,966
3,354
3,354
23,321
23,321
1,931
1,931
(636)
(636)
(398)4
(398)4
213
213
24,431
24,431
19,522
19,522
1,702
(849)
(195)
(213)
19,966
10,619
10,619
10,465
0
0
0
0
0
0
0
10,619
10,619
1,728
1,728
37
37
(614)
(614)
(254)4
(254)4
112
112
11,628
11,628
10,465
1,153
75
(840)
(124)
(111)
10,619
3,179
Net book value
Net book value
Net book value at the end of the previous
year
Net book value at the beginning of the
2,882
year
9,057
3,270
Net book value at the end of the year
9,348
3,270
Net book value at the end of the year
2 Impairment charges recorded in 2019 generally relate to assets that are no longer used for which the recoverable amount based on a fair value approach was
1 Includes write-offs of fully depreciated assets.
2
1
4 Reflects
determined to be zero.
4
5 Represents right-of-use assets recognized by UBS as lessee. Includes immaterial leased IT equipment. The total cash outflow for leases during the year was USD 641
reclassifications to Properties held for sale.
5
million. Interest expense on lease liabilities is included within Interest expense from financial instruments measured at amortized cost and Lease liabilities are included within Other financial liabilities measured at
amortized cost. Refer to Notes 3 and 22a, respectively. Also refer to Note 1 for more information about the nature of UBS’s leasing activities.
3 Consists of USD 787 million related to Internally generated software, USD 126 million related to Owned properties and USD 100 million related to Leasehold improvements.
3
1,157
1,0143
1,0143
12,702
12,702
12,804
12,804
1,249
1,236
1,236
3,378
3,226
3,226
3,160
3,184
3,184
486
506
506
153
126
126
238
241
241
1,157
9,057
1,249
2,882
9,348
9,348
491
153
238
0
372
Note 16 Goodwill and intangible assets
Introduction
Methodology for goodwill impairment testing
UBS performs an impairment test on its goodwill assets on an
annual basis or when indicators of impairment exist.
UBS considers Asset Management and the Investment Bank,
as they are reported in Note 2a, as separate cash-generating
units, as that is the level at which the performance of
investments (and the related goodwill) is reviewed and assessed
by management. The goodwill for Global Wealth Management
is separately monitored, and therefore separately considered for
impairment, at the level of the two former business divisions
Wealth Management and Wealth Management Americas. These
business divisions were integrated in 2018 and are referred to in
this Note as Global Wealth Management Americas and Global
Wealth Management ex Americas.
The impairment test is performed for each cash-generating
unit to which goodwill is allocated by comparing the recoverable
amount, based on its value-in-use, with the carrying amount of
the respective cash-generating unit. An impairment charge is
recognized if the carrying amount exceeds the recoverable
amount.
As of 31 December 2019, total goodwill recognized on the
balance sheet was USD 6.3 billion, of which USD 3.7 billion was
carried by the Global Wealth Management Americas cash-
generating unit, USD 1.2 billion was carried by the Global
Wealth Management ex Americas cash-generating unit and
USD 1.4 billion was carried by Asset Management. Based on the
impairment
testing methodology described below, UBS
concluded that the goodwill balances as of 31 December 2019
allocated to these cash-generating units are not impaired.
Impairment of the Investment Bank goodwill
UBS is continuing to realign its Investment Bank and execute on
a number of strategic initiatives to drive profitable growth. As a
consequence, IAS 36, Impairment of Assets, requires UBS to give
consideration to the range of possible forecast cash flows and
uncertainties in macroeconomic factors that currently exist when
determining the recoverability of goodwill in the Investment
Bank. Following this, UBS estimated a recoverable amount for
the Investment Bank cash-generating unit of USD 11.7 billion.
As this was lower than the carrying amount of the Investment
Bank cash-generating unit of USD 12.1 billion (actual attributed
equity as of 31 December 2019), UBS wrote down the goodwill
previously recognized by the Investment Bank (USD 110 million)
and recognized that charge in the income statement within
Amortization and impairment of goodwill and intangible assets.
UBS also reviewed intangible assets, property, equipment and
software assets, allocated to the Investment Bank. Overall, UBS
confirmed that no further impairment charges were required,
with the fair value of such assets (generally determined using a
cost replacement approach) being equal to or higher than their
respective carrying amounts.
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 cash-generating unit
is the sum of the discounted earnings attributable to
shareholders from the first three forecast years and the terminal
value, adjusted for the effect of the capital assumed to be
needed over the next three years and to support growth beyond
this period. 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, as
well as the implied perpetual capital growth.
The carrying amount for each cash-generating unit
is
determined by reference to the Group’s equity attribution
framework. Within this framework, which is described in the
“Capital management” section of this report, UBS attributes
equity to the businesses on the basis of their risk-weighted
assets and leverage ratio denominator, their goodwill and
intangible assets as well as equity directly associated with activity
that Corporate Center – Group Treasury manages centrally on
behalf of the business divisions. 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 cash-generating unit requires to
conduct its business and is currently considered a reasonable
approximation of the carrying amount of the cash-generating
units. 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 unit.
Refer to the “Capital management” section of this report for
more information about the equity attribution framework
Assumptions
linked to external market
Valuation parameters used within the Group’s impairment test
model are
information, where
applicable. The model used to determine the recoverable
amount is most sensitive 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. The
applied long-term growth rate is based on long-term economic
growth rates for different regions worldwide. Earnings available
to shareholders are estimated on the basis of forecast results,
which are part of the business plan approved by the Board of
Directors.
The discount rates are determined by applying a capital asset
pricing model-based approach, as well as considering
quantitative and qualitative inputs from both internal and
external analysts and the view of management.
373
Financial statements
Consolidated financial statements
Note 16 Goodwill and intangible assets (continued)
In addition, they take into account regional differences in risk-
free rates, at the level of individual cash-generating units.
Consistently, long-term growth rates are determined based on
nominal or real GDP growth rate forecasts, depending on the
region.
Key assumptions used to determine the recoverable amounts
of each cash-generating unit are tested for sensitivity by
applying a reasonably possible change to those assumptions.
Forecast earnings available to shareholders were changed by
20%, the discount rates were changed by 1.5 percentage
points and the long-term growth rates were changed by 0.75
percentage points. Under all scenarios, reasonably possible
changes in key assumptions did not result in an impairment of
goodwill or intangible balances reported by Global Wealth
Management Americas, Global Wealth Management ex
Americas and Asset Management.
If the estimated earnings and other assumptions in future
periods deviate from the current outlook, the value of goodwill
attributable to Global Wealth Management Americas, Global
Wealth Management ex Americas and Asset Management 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 affect cash
flows and, as goodwill is required to be deducted from capital
under the Basel III capital framework, no effect would be
expected on the Group’s capital ratios.
Discount and growth rates
In %
Global Wealth Management Americas
Global Wealth Management ex Americas
Asset Management
Investment Bank
Discount rates
Growth rates
31.12.19
31.12.19
9.5
9.5
8.5
8.5
9.0
9.0
11.0
11.0
31.12.18
9.5
8.5
9.0
11.0
31.12.19
31.12.19
4.2
4.2
3.4
3.4
3.0
3.0
4.0
4.0
31.12.18
3.2
3.0
2.7
3.5
Goodwill
Intangible assets
Customer
relationships,
contractual
rights and other
760
Infrastructure1
Total
Total
2019
2019
2018
6,392
0
(1)
0
(9)
6,382
USD million
Historical cost
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
Accumulated amortization and impairment
1,325
Balance at the beginning of the year
Amortization
62
Impairment2
4
Disposals
(1)
Write-offs
(7)
Foreign currency translation
(12)
1,371
Balance at the end of the year
Net book value at the end of the year
6,647
Net book value at the end of the year
2 Impairment charges recorded in 2019 and 2018 relate to assets for which the
1 Consists of the branch network intangible asset recognized in connection with the acquisition of PaineWebber Group, Inc.
1
2
recoverable amount was determined considering their value-in-use (recoverable amount of the impaired intangible assets in 2018 was USD 18 million, recoverable amount for the Investment Bank cash-generating
unit in 2019 was USD 11.7 billion).
1,371
65
0
(8)
(75)
(2)
1,351
197
1,371
1,371
65
65
110
110
(8)
(8)
(75)
(75)
(2)
(2)
1,461
1,461
6,469
6,469
7,888
270
(45)
(7)
(88)
8,018
1,625
11
(10)
(75)
(3)
1,548
679
27
0
(8)
(75)
(2)
621
167
8,018
8,018
11
11
(11)
(11)
(75)
(75)
(12)
(12)
7,930
7,930
865
11
(10)
(75)
(3)
788
110
6,272
730
30
691
38
760
110
374
Note 16 Goodwill and intangible assets (continued)
The table below presents goodwill and intangible assets by cash-generating unit for the year ended 31 December 2019.
USD million
GGooooddwwiillll
Balance at the beginning of the year
Additions
Disposals
Impairment
Foreign currency translation
BBaallaannccee aatt tthhee eenndd ooff tthhee yyeeaarr
IInnttaannggiibbllee aasssseettss
Balance at the beginning of the year
Additions / transfers
Disposals
Amortization
Impairment
Foreign currency translation
BBaallaannccee aatt tthhee eenndd ooff tthhee yyeeaarr
Global Wealth
Management
Americas
Global Wealth
Management
ex Americas
Asset
Management
Investment
Bank
Corporate Center
Total
3,721
1,206
1,354
112
(1)
(6)
11,,119988
104
(2)
(12)
0
1
9922
(2)
33,,771199
138
1
(45)
(1)
9922
1
11,,335544
0
0
00
(110)
(2)
00
11
0
0
(5)
0
0
55
0
0
00
1
10
(4)
0
77
6,392
0
(1)
(110)
(9)
66,,227722
254
11
(2)
(65)
0
(1)
119977
The table below presents estimated aggregated amortization expenses for intangible assets.
USD million
EEssttiimmaatteedd,, aaggggrreeggaatteedd aammoorrttiizzaattiioonn eexxppeennsseess ffoorr::
2020
2021
2022
2023
2024
Thereafter
Not amortized due to indefinite useful life
TToottaall
Intangible assets
53
22
18
17
13
70
2
197
375
Financial statements
Consolidated financial statements
Note 17 Other assets
a) Other financial assets measured at amortized cost
USD million
Debt securities
of which: government bills / bonds
Loans to financial advisors1
Fee- and commission-related receivables
Finance lease receivables2
Settlement and clearing accounts
Accrued interest income
Other
Total other financial assets measured at amortized cost
Total other financial assets measured at amortized cost
31.12.19
31.12.19
14,141
14,141
8,492
8,492
2,877
2,877
1,521
1,521
1,444
1,444
587
587
742
742
1,669
1,669
22,980
22,980
31.12.18
13,562
8,778
3,291
1,643
1,091
1,050
694
1,233
22,563
1 Related to financial advisors in the US and Canada. 2 Upon adoption of IFRS 16 on 1 January 2019, Finance lease receivables increased by USD 176 million. Refer to Note 1 for more information.
1
2
31.12.19
31.12.19
31.12.18
4,597
4,597
1,293
1,293
927
927
493
493
199
199
346
346
4,298
1,312
990
334
82
395
7,856
7,856
7,410
31.12.19
31.12.19
6,570
6,570
448,284
448,284
176,010
176,010
168,581
168,581
62,315
62,315
41,378
41,378
454,854
454,854
31.12.18
10,962
419,838
181,869
165,790
53,624
18,556
430,801
b) Other non-financial assets
USD million
Precious metals and other physical commodities
Bail deposit1
Prepaid expenses
VAT and other tax receivables
Properties and other non-current assets held for sale
Other
Total other non-financial assets
Total other non-financial assets
1 Refer to item 1 in Note 21b for more information.
1
Note 18 Amounts due to banks and customer deposits
USD million
Amounts due to banks
Customer deposits
of which: demand deposits
of which: retail savings / deposits
of which: time deposits
of which: fiduciary deposits
Total amounts due to banks and customer deposits
Total amounts due to banks and customer deposits
376
Note 19 Debt issued designated at fair value
USD million
IIssssuueedd ddeebbtt iinnssttrruummeennttss
Equity-linked1
Rates-linked
Credit-linked
Fixed-rate
Commodity-linked
Other
of which: debt that contributes to total loss-absorbing capacity
TToottaall ddeebbtt iissssuueedd ddeessiiggnnaatteedd aatt ffaaiirr vvaalluuee
of which: issued by UBS AG with original maturity greater than one year 2
3311..1122..1199
31.12.18
4411,,772222
1166,,331188
11,,991166
44,,663366
11,,556677
664499
221177
6666,,880099
5511,,003311
34,392
12,073
3,282
5,099
1,785
401
0
57,031
40,289
of which: life-to-date own credit (gain) / loss
11 Includes investment fund unit-linked instruments issued.
balance as of 31 December 2019 was unsecured (31 December 2018: more than 99% of the balance was unsecured).
(270)
22 Issued by the legal entity UBS AG. Based on original contractual maturity without considering any early redemption features. More than 99% of the
9922
As of 31 December 2019 and 31 December 2018, the
contractual redemption amount at maturity of debt issued
designated at fair value through profit or loss was not materially
different from the carrying amount.
The table below shows the residual contractual maturity of
the carrying amount of debt issued 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 payments related
to debt issued designated at fair value have not been included in
the table below as a majority of the debt instruments issued are
structured products, and therefore the future interest payments
are highly dependent upon the embedded derivative and
prevailing market conditions at the point in time that each
interest payment is made.
Refer to Note 27 for maturity information on an undiscounted
cash flow basis
Contractual maturity of carrying amount
USD million
UUBBSS GGrroouupp AAGG11
Non-subordinated debt
Fixed-rate
UUBBSS AAGG22
Non-subordinated debt
Fixed-rate
Floating-rate
Subtotal
OOtthheerr ssuubbssiiddiiaarriieess33
Non-subordinated debt
Fixed-rate
Floating-rate
Subtotal
TToottaall
2020
2021
2022
2023
2024
2025–2029
Thereafter
TToottaall
3311..1122..1199
Total
31.12.18
0
0
0
0
0
0
217
221177
0
3,648
21,547
25,195
1,778
10,748
12,526
755
3,435
4,190
288
2,608
2,897
334
3,290
3,624
48
102
150
92
43
134
6
197
203
0
27
27
0
0
0
386
8,109
8,495
345
0
345
3,178
5,562
8,740
1100,,336688
5555,,229999
6655,,666688
11,807
43,562
55,370
29
35
64
552200
440044
992244
1,230
431
1,662
25,345
12,661
4,394
2,924
3,624
8,840
9,021
6666,,880099
57,031
11 Comprises instruments issued by the legal entity UBS Group AG. 22 Comprises instruments issued by the legal entity UBS AG. 33 Comprises instruments issued by subsidiaries of UBS AG.
377
Financial statements
Consolidated financial statements
Note 20 Debt issued measured at amortized cost
USD million
Certificates of deposit
Commercial paper
Other short-term debt
Short-term debt1
Short-term debt1
Senior unsecured debt that contributes to total loss-absorbing capacity (TLAC)
Senior unsecured debt other than TLAC
of which: issued by UBS AG with original maturity greater than one year2
Covered bonds
Subordinated debt
of which: high-trigger loss-absorbing additional tier 1 capital instruments
of which: low-trigger loss-absorbing additional tier 1 capital instruments
of which: low-trigger loss-absorbing tier 2 capital instruments
of which: non-Basel III-compliant tier 2 capital instruments
Debt issued through the Swiss central mortgage institutions
Other long-term debt
of which: issued by UBS AG with original maturity greater than one year2
Long-term debt3
Long-term debt3
31.12.19
31.12.19
31.12.18
5,190
5,190
14,413
14,413
2,235
2,235
21,837
21,837
30,105
30,105
25,569
25,569
22,349
22,349
2,633
2,633
21,775
21,775
11,931
11,931
2,414
2,414
6,892
6,892
540
540
8,574
8,574
4
4
0
0
7,980
27,514
3,531
39,025
29,988
33,018
32,133
3,947
17,665
7,785
2,369
6,808
703
8,569
58
52
88,660
88,660
93,246
Total debt issued measured at amortized cost4
Total debt issued measured at amortized cost4
1 Debt with an original contractual maturity of less than one year. 2 Issued by the legal entity UBS AG. Based on original contractual maturity without considering any early redemption features. As of 31 December
1
3 Debt with an original maturity greater than or equal to one year. The classification of debt issued into
2019, 100% of the balance was unsecured (31 December 2018: 100% of the balance was unsecured).
3
short-term and long-term does not consider any early redemption features. 4 Net of bifurcated embedded derivatives, the fair value of which was not material for the periods presented.
132,271
110,497
110,497
4
2
The Group uses interest rate and foreign exchange derivatives to
to-date adjustment to the carrying amount of debt issued was
manage the risks inherent in certain debt instruments held at an increase of USD 1,099 million as of 31 December 2019 and a
amortized cost. In certain cases, the Group applies hedge decrease of USD 298 million as of 31 December 2018, reflecting
accounting for interest rate risk as discussed in Note 1a item 3j
and Note 28. As a result of applying hedge accounting, the life-
changes in fair value due to interest rate movements.
378
Note 20 Debt issued measured 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
the subordinated debt
instruments outstanding as of 31 December 2019 pay a fixed
rate of interest.
issuing entity. All of
The table below shows the residual contractual maturity of
the carrying amount of debt issued, split between fixed-rate and
floating-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 27 for maturity information on an undiscounted
cash flow basis
Contractual maturity of carrying amount
USD million
UUBBSS GGrroouupp AAGG11
Non-subordinated debt
Fixed-rate
Floating-rate
Subordinated debt
Fixed-rate
Subtotal
UUBBSS AAGG22
Non-subordinated debt
Fixed-rate
Floating-rate
Subordinated debt
Fixed-rate
Subtotal
OOtthheerr ssuubbssiiddiiaarriieess33
Non-subordinated debt
Fixed-rate
Floating-rate
Subordinated debt
Fixed-rate
Subtotal
TToottaall
2020
2021
2022
2023
2024
2025–2029
Thereafter
TToottaall
3311..1122..1199
Total
31.12.18
1,442
299
1,943
1,001
3,720
2,462
4,008
2,249
0
0
0
0
3,890
10,832
0
0
0
0
1,741
2,944
6,182
6,257
3,890
10,832
24,334
10,819
3,978
1,932
0
0
35,153
5,910
2,618
0
2,007
4,626
1,621
368
0
1,989
0
0
0
0
2,597
2,597
2,827
2,827
1,471
0
14,344
15,815
1,145
0
0
1,145
2277,,33006644
66,,00112244
1144,,33444444
4477,,666622
3333,,669966
1133,,111199
77,,443311
5544,,224477
758
1,029
851
951
1,013
3,327
660
88,,558888
0
0
0
0
0
0
0
0
0
0
0
0
758
37,651
1,029
9,883
851
11,659
951
9,197
1,013
7,500
3,327
16,987
0
0
00
00
660
88,,558888
0
0
0
0
40,108
35,035
7,511
82,654
33,5294
5,9334
10,1544
49,616
17,620
111100,,449977
132,271
11 Comprises debt issued by the legal entity UBS Group AG.
of UBS AG. 44 TLAC and additional tier 1 capital instruments were originally issued by UBS Group Funding (Switzerland) AG, the issuer was replaced by UBS Group AG in 2019.
22 Comprises debt issued by the legal entity UBS AG.
33 Comprises debt issued by other direct subsidiaries of UBS Group AG and by subsidiaries
379
Financial statements
Consolidated financial statements
Note 21 Provisions and contingent liabilities
a) Provisions
The table below presents an overview of total provisions.
USD million
Provisions other than provisions for expected credit losses
Provisions for expected credit losses
Total provisions
Total provisions
31.12.19
31.12.19
2,861
2,861
114
114
2,974
2,974
31.12.18
3,377
116
3,494
The following table presents additional information for provisions other than provisions for expected credit losses.
Litigation,
regulatory and
similar
Real estate
Total 2018
USD million
Balance at the end of the previous year
3,180
131
Balance at the end of the previous year
Adjustment from adoption of IFRS 161
0
(29)
3,180
102
Balance at the beginning of the year
Balance at the beginning of the year
0
Additions from acquired companies
2
4
Increase in provisions recognized in the income statement
1,155
0
Release of provisions recognized in the income statement
(311)
(7)
Provisions used in conformity with designated purpose
(628)
1
Capitalized reinstatement costs
1
1
Foreign currency translation / unwind of discount
(21)
1005
1005
Balance at the end of the year
3,377
Balance at the end of the year
3 Comprises provisions for losses resulting from legal, liability and
1 Refer to Note 1 for more information.
1
3
4 Primarily consists of personnel-related restructuring provisions of USD 40 million as of 31 December 2019 (31 December 2018: USD 50 million) and provisions for onerous contracts of USD 61
compliance risks.
4
5 Consists of reinstatement costs for leasehold improvements of USD 89 million as of 31 December 2019 (31 December 2018: USD 89
million as of 31 December 2019 (31 December 2018: USD 170 million).
5
million) and provisions for onerous contracts of USD 11 million as of 31 December 2019 (31 December 2018: USD 42 million). 6 Includes provisions for sabbatical and anniversary awards.
matters3 Restructuring
2,827
0
2,827
0
258
(81)
(518)
0
(12)
2,475
2,475
Total 2019
Total 2019
3,377
(132)
3,245
0
0
404
404
(123)
(123)
(659)
(659)
1
1
(8)
(8)
2,861
2,861
Other
78
0
78
0
16
(12)
(18)
0
1
66
66
224
(103)
121
0
105
(22)
(99)
0
1
1064
1064
2 Comprises provisions for losses resulting from security risks and transaction processing risks.
2
6
Operational
risks2
46
0
46
0
15
0
(16)
0
(1)
44
44
Employee
benefits6
70
0
70
0
6
(7)
0
0
1
70
70
Restructuring provisions primarily relate to onerous contracts
and severance payments. Onerous contracts for property are
recognized when UBS is committed to pay for non-lease
components, such as utilities, when a property is vacated or not
fully recovered from sub-tenants. Severance-related provisions
are used within a short time period, usually within six months, associated with the other classes of provisions.
but potential changes in amount may be triggered when natural
Information about provisions and contingent liabilities in
respect of litigation, regulatory and similar matters, as a class, is
included in Note 21b. There are no material contingent liabilities
staff attrition reduces the number of people affected by a
restructuring event and therefore the estimated costs.
380
Note 21 Provisions and contingent liabilities (continued)
b) Litigation, regulatory and similar matters
The Group operates in a legal and regulatory environment that
exposes it to significant litigation and similar risks arising from
disputes and regulatory proceedings. As a result, UBS (which for
purposes of this Note may refer to UBS Group AG and/or one or
more of its subsidiaries, as applicable) is involved in various
disputes and legal proceedings, including litigation, arbitration,
and regulatory and criminal investigations.
reputational
Such matters are subject to many uncertainties, and the
outcome and the timing of resolution are often difficult to
predict, particularly in the earlier stages of a case. There are also
situations where the Group may enter into a settlement
agreement. This may occur in order to avoid the expense,
management distraction or
implications of
continuing to contest liability, even for those matters for which
the Group believes it should be exonerated. The uncertainties
inherent in all such matters affect the amount and timing of any
potential outflows for both matters with respect to which
provisions have been established and other contingent liabilities.
The Group makes provisions for such matters brought against it
when, in the opinion of management after seeking legal advice,
it is more likely than not that the Group has a present legal or
constructive obligation as a result of past events, it is probable
that an outflow of resources will be required, and the amount
can be reliably estimated. Where these factors are otherwise
satisfied, a provision may be established for claims that have not
yet been asserted against the Group, but are nevertheless
expected to be, based on the Group’s experience with similar
asserted claims. If any of those conditions is not met, such
matters result in contingent liabilities. If the amount of an
obligation cannot be reliably estimated, a liability exists that is
not recognized even if an outflow of resources is probable.
Accordingly, no provision is established even if the potential
outflow of resources with respect to such matters could be
significant. Developments relating to a matter that occur after
the relevant reporting period, but prior to the issuance of
financial statements, which affect management’s assessment of
the provision for such matter (because, for example, the
developments provide evidence of conditions that existed at the
end of the reporting period), are adjusting events after the
reporting period under IAS 10 and must be recognized in the
financial statements for the reporting period.
Specific litigation, regulatory and other matters are described
below, including all such matters that management considers to
be material and others that management believes to be of
significance due to potential financial, reputational and other
effects. The amount of damages claimed, the size of a
transaction or other information is provided where available and
appropriate in order to assist users in considering the magnitude
of potential exposures.
381
Financial statements
Consolidated financial statements
Note 21 Provisions and contingent liabilities (continued)
to confidentiality obligations
In the case of certain matters below, we state that we have
established a provision, and for the other matters, we make no
such statement. When we make this statement and we expect
disclosure of the amount of a provision to prejudice seriously our
position with other parties in the matter because it would reveal
what UBS believes to be the probable and reliably estimable
outflow, we do not disclose that amount. In some cases we are
that preclude such
subject
disclosure. With respect to the matters for which we do not
state whether we have established a provision, either (a) we
have not established a provision, in which case the matter is
treated as a contingent liability under the applicable accounting
standard; or (b) we have established a provision but expect
disclosure of that fact to prejudice seriously our position with
other parties in the matter because it would reveal the fact that
UBS believes an outflow of resources to be probable and reliably
estimable.
With respect to certain litigation, regulatory and similar
matters for which we have established provisions, we are able to
estimate the expected timing of outflows. However, the
aggregate amount of the expected outflows for those matters
for which we are able to estimate expected timing is immaterial
relative to our current and expected levels of liquidity over the
relevant time periods.
The aggregate amount provisioned for litigation, regulatory
and similar matters as a class is disclosed in the “Provisions”
table in Note 21a above. It is not practicable to provide an
aggregate estimate of liability for our litigation, regulatory and
similar matters as a class of contingent liabilities. Doing so would
require us to provide speculative legal assessments as to claims
and proceedings that involve unique fact patterns or novel legal
theories, that have not yet been initiated or are at early stages of
adjudication, or as to which alleged damages have not been
quantified by the claimants. Although 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 substantially 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 described in item 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
Interbank
others, the British Bankers’ Association London
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 pleaded
guilty to one count of wire fraud for conduct in the LIBOR
matter, paid a fine and was subject to probation, which ended
in early January 2020.
limit, suspend or
A guilty plea to, or conviction of, a crime could have material
consequences for UBS. Resolution of regulatory proceedings
may require us to obtain waivers of regulatory disqualifications
to maintain certain operations, may entitle regulatory authorities
to
regulatory
terminate
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.
licenses and
The risk of loss associated with litigation, regulatory and
similar matters is a component of operational risk for purposes
of determining 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 in Corporate Center1
USD million
Balance at the beginning of the year
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
Foreign currency translation / unwind of discount
Balance at the end of the year
Balance at the end of the year
Global
Wealth
Manage-
ment
1,003
188
(49)
(350)
(10)
782
782
Personal &
Corporate
Banking
117
1
Asset
Manage-
ment
0
0
Investment
Bank
269
60
Corporate
Center
1,438
10
Total 2019
Total 2019
2,827
2,827
258
258
Total 2018
2,508
905
0
(4)
(1)
113
113
0
0
0
0
0
(6)
(66)
(2)
255
255
(27)
(97)
0
(81)
(81)
(518)
(518)
(12)
(12)
(220)
(350)
(16)
1,325
1,325
2,475
2,475
2,827
1 Provisions, if any, for the matters described in this Note are recorded in Global Wealth Management (items 3, item 4 and item 7) and Corporate Center (item 2). Provisions, if any, for the matters described in
1
items 1 and 6 of this disclosure are allocated between Global Wealth Management and Personal & Corporate Banking, and provisions, if any, for the matters described in this disclosure in item 5 are allocated
between the Investment Bank and Corporate Center.
382
Note 21 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 the 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. UBS has received disclosure
orders from the Swiss Federal Tax Administration (FTA) to
international
transfer
administrative assistance in tax matters. The requests concern a
number of UBS account numbers pertaining to current and
former clients and are based on data from 2006 and 2008. UBS
the
has
administrative assistance proceedings and their procedural
rights, including the right to appeal. The requests are based on
data received from the German authorities, who seized certain
data related to UBS clients booked in Switzerland during their
investigations and have apparently shared this data with other
European countries. UBS expects additional countries to file
similar requests.
information based on requests for
inform affected clients about
taken steps
to
The Swiss Federal Administrative Court ruled in 2016 that, in
the administrative assistance proceedings related to a French
bulk request, UBS has the right to appeal all final FTA client data
disclosure orders. On 30 July 2018,
the Swiss Federal
Administrative Court granted UBS’s appeal by holding the
French administrative assistance request inadmissible. The FTA
filed a final appeal with the Swiss Federal Supreme Court. On
26 July 2019, the Supreme Court reversed the decision of the
Federal Administrative Court. In December 2019, the court
released its written decision. The decision requires the FTA to
obtain confirmation from the French authorities that transmitted
data will be used only for the purposes stated in their request
before transmitting any data. The stated purpose of the original
request was to obtain information relating to taxes owed by
account holders. Accordingly, any information transferred to the
French authorities must not be passed to criminal authorities or
used in connection with the ongoing case against UBS discussed
in this item.
Since 2013, UBS (France) S.A., UBS AG and certain former
employees have been under investigation in France for alleged
complicity in unlawful solicitation of clients on French territory,
regarding the laundering of proceeds of tax fraud, and banking
and financial solicitation by unauthorized persons. In connection
with this investigation, the investigating judges ordered UBS AG
to provide bail (“caution”) of EUR 1.1 billion and UBS (France)
S.A. to post bail of EUR 40 million, which was reduced on
appeal to EUR 10 million.
A trial in the court of first instance took place from
8 October 2018 until 15 November 2018. On 20 February 2019,
the court announced a verdict finding UBS AG guilty of unlawful
solicitation of clients on French territory and aggravated
laundering of the proceeds of tax fraud, and UBS (France) S.A.
guilty of aiding and abetting unlawful solicitation and laundering
the proceeds of tax fraud. The court imposed fines aggregating
EUR 3.7 billion on UBS AG and UBS (France) S.A. and awarded
EUR 800 million of civil damages to the French state. UBS has
appealed the decision. Under French law, the judgment is
suspended while the appeal is pending. The trial in the Court of
Appeal is scheduled for June 2020. The Court of Appeal will
retry the case de novo as to both the law and the facts, and the
fines and penalties can be greater than or less than those
imposed by the court of first instance. A subsequent appeal to
the Cour de Cassation, France’s highest court, is possible with
respect to questions of law.
UBS believes that based on both the law and the facts the
judgment of the court of first instance should be reversed. UBS
believes it followed its obligations under Swiss and French law as
well as the European Savings Tax Directive. Even assuming
liability, which it contests, UBS believes the penalties and
damage amounts awarded greatly exceed the amounts that
could be supported by the law and the facts. In particular, UBS
believes the court incorrectly based the penalty on the total
regularized assets rather than on any unpaid taxes on those
assets for which a fraud has been characterized and further
incorrectly awarded damages based on costs that were not
proven by the civil party. Notwithstanding that UBS believes it
should be acquitted, our balance sheet at 31 December 2019
reflected provisions with respect to this matter in an amount of
EUR 450 million (USD 505 million at 31 December 2019). The
wide range of possible outcomes in this case contributes to a
high degree of estimation uncertainty. The provision reflected on
our balance sheet at 31 December 2019 reflects our best
estimate of possible financial
is
reasonably possible that actual penalties and civil damages could
exceed the provision amount.
implications, although
it
In 2016, UBS was notified by the Belgian investigating judge
that it is under formal investigation (“inculpé”) regarding the
laundering of proceeds of tax fraud, of banking and financial
solicitation by unauthorized persons, and of serious tax fraud. In
2018, tax authorities and a prosecutor’s office in Italy asserted
that UBS is potentially liable for taxes and penalties as a result of
its activities in Italy from 2012 to 2017. In June 2019, UBS
entered into a settlement agreement with the Italian tax
authorities under which it paid EUR 101 million to resolve the
claims asserted by the authority related to UBS AG’s potential
permanent establishment in Italy. In October 2019, the Judge of
Preliminary Investigations of the Milan Court approved an
agreement with the Milan prosecutor under Article 63 of Italian
Administrative Law 231 under which UBS AG, UBS Switzerland
AG and UBS Monaco have paid an aggregate of EUR 10.3
million to resolve claims premised on the alleged inadequacy of
historical internal controls. No admission of wrongdoing was
required in connection with this resolution.
383
Financial statements
Consolidated financial statements
Note 21 Provisions and contingent liabilities (continued)
Our balance sheet at 31 December 2019 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 provision that we have recognized.
2. Claims related to sales of residential mortgage-backed
securities and mortgages
From 2002 through 2007, prior to the crisis in the US residential
loan market, UBS was a substantial issuer and underwriter of US
residential mortgage-backed securities
(RMBS) and was a
purchaser and seller of US residential mortgages. A subsidiary of
UBS, UBS Real Estate Securities Inc. (UBS RESI), acquired pools of
residential 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
original principal balance.
UBS was not a significant originator of US residential loans. A
branch 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.
to
related
Lawsuits
contractual
representations and
warranties concerning mortgages and RMBS: When UBS acted
as an RMBS sponsor or mortgage seller, it generally made
certain representations relating to the characteristics of the
underlying loans. In the event of a material breach of these
representations, UBS was in certain circumstances contractually
obligated to repurchase the loans to which the representations
related or to indemnify certain parties against losses. In 2012,
certain RMBS trusts filed an action in the US District Court for
the Southern District of New York seeking to enforce UBS RESI’s
obligation to repurchase loans in the collateral pools for three
RMBS securitizations issued and underwritten by UBS with an
original principal balance of approximately USD 2 billion. In
July 2018, UBS and the trustee entered into an agreement under
which UBS will pay USD 850 million to resolve this matter. A
significant portion of this amount will be borne by other parties
that indemnified UBS. In January 2020, the settlement was
approved by the court. Proceedings to determine how the
settlement funds will be distributed to RMBS holders are
384
ongoing. After giving effect to this settlement, UBS considers
claims relating to substantially all loan repurchase demands to
be resolved and believes that new demands to repurchase US
residential mortgage loans are time-barred under a decision
rendered by the New York Court of Appeals.
Mortgage-related regulatory matters: Since 2014, the US
Attorney’s Office for the Eastern District of New York has sought
information from UBS pursuant to the Financial Institutions
Reform, Recovery and Enforcement Act of 1989 (FIRREA),
related to UBS’s RMBS business from 2005 through 2007. On
8 November 2018, the DOJ filed a civil complaint in the District
Court for the Eastern District of New York. The complaint seeks
unspecified civil monetary penalties under FIRREA related to
UBS’s issuance, underwriting and sale of 40 RMBS transactions
in 2006 and 2007. UBS moved to dismiss the civil complaint on
6 February 2019. On 10 December 2019, the district court
denied UBS’s motion to dismiss.
Our balance sheet at 31 December 2019 reflected a provision
with respect to matters described in this item 2 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 this matter 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.
3. Madoff
In relation to the Bernard L. Madoff Investment Securities LLC
(BMIS) investment fraud, UBS AG, UBS (Luxembourg) S.A. (now
UBS Europe SE, Luxembourg branch) and certain other UBS
subsidiaries have been subject to inquiries by a number of
regulators, including the Swiss Financial Market Supervisory
(FINMA) and the Luxembourg Commission de
Authority
Surveillance du Secteur Financier. Those inquiries concerned two
third-party
law,
established under
substantially all assets of which were with BMIS, as well as
certain funds established in offshore jurisdictions with either
direct or indirect exposure to BMIS. These funds faced severe
losses, and the Luxembourg funds are in liquidation. The
documentation establishing both funds identifies UBS entities in
various roles, including custodian, administrator, manager,
distributor and promoter, and indicates that UBS employees
serve as board members.
Luxembourg
funds
In 2009 and 2010, the liquidators of the two Luxembourg
funds filed claims against UBS entities, non-UBS entities and
certain individuals, including current and former UBS employees,
seeking amounts totaling approximately EUR 2.1 billion, which
includes amounts that the funds may be held liable to pay the
trustee for the liquidation of BMIS (BMIS Trustee).
Note 21 Provisions and contingent liabilities (continued)
A large number of alleged beneficiaries have filed claims
against UBS entities (and non-UBS entities) for purported losses
relating to the Madoff fraud. The majority of these cases have
been filed in Luxembourg, where decisions that the claims in
eight test cases were inadmissible have been affirmed by the
Luxembourg Court of Appeal, and the Luxembourg Supreme
Court has dismissed a further appeal in one of the test cases.
In the US, the BMIS Trustee filed claims against UBS entities,
among others, in relation to the two Luxembourg funds and one
of the offshore funds. The total amount claimed against all
defendants in these actions was not less than USD 2 billion. In
2014, the US Supreme Court rejected the BMIS Trustee’s motion
for leave to appeal decisions dismissing all claims except those
for the recovery of approximately USD 125 million of payments
alleged to be fraudulent conveyances and preference payments.
In 2016, the bankruptcy court dismissed these claims against the
UBS entities. In February 2019, the Court of Appeals reversed
the dismissal of the BMIS Trustee’s remaining claims. In August
2019, the defendants, including UBS, filed a petition to the US
Supreme Court requesting that it review the Court of Appeals’
decision. The bankruptcy proceedings have been stayed pending
a decision with respect to the defendants’ petition.
4. Puerto Rico
Declines since 2013 in the market prices of Puerto Rico
municipal bonds and of closed-end funds (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 3.4 billion, of which claims with
aggregate claimed damages of USD 2.4 billion have been
resolved through settlements, arbitration or withdrawal of the
claim. The claims have been 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 derivative action was filed in 2014 against
various UBS entities and current and certain former directors of
the funds, alleging hundreds of millions of US dollars in losses in
the funds. In 2015, defendants’ motion to dismiss was denied
and a request for permission to appeal that ruling was denied by
the Puerto Rico Supreme Court. In 2014, a federal class action
complaint also was filed against various UBS entities, certain
members of UBS PR senior management and the co-manager of
certain of the funds, seeking damages for investor losses in the
funds during the period from May 2008 through May 2014.
Following denial of the plaintiffs’ motion for class certification,
the case was dismissed in October 2018.
In 2014 and 2015, UBS entered into settlements with the
Office of the Commissioner of Financial Institutions for the
Commonwealth of Puerto Rico, the US Securities and Exchange
Commission
Industry Regulatory
Authority in relation to their examinations of UBS’s operations.
(SEC) and the Financial
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, which was named in connection with its underwriting and
consulting services. Plaintiffs alleged that defendants violated
their purported fiduciary duties and contractual obligations in
connection with the issuance and underwriting of USD 3 billion
of bonds by the System in 2008 and sought damages of over
USD 800 million. In 2016, the court granted the System’s
request to join the action as a plaintiff, but ordered that
plaintiffs must file an amended complaint. In 2017, the court
denied defendants’ motion to dismiss the amended complaint.
Beginning in 2015, and continuing through 2017, certain
agencies and public corporations of the Commonwealth of
Puerto Rico (Commonwealth) defaulted on certain interest
payments on Puerto Rico bonds. In 2016, US federal legislation
created an oversight board with power to oversee Puerto Rico’s
finances and to restructure its debt. The oversight board has
imposed a stay on the exercise of certain creditors’ rights. In
2017, the oversight board placed certain of the bonds into a
bankruptcy-like proceeding under the supervision of a Federal
District Judge. These events, further defaults or any further
legislative action to create a legal means of restructuring
Commonwealth obligations or to impose additional oversight on
the Commonwealth’s finances, or any restructuring of the
Commonwealth’s obligations, may increase the number of
claims against UBS concerning Puerto Rico securities, as well as
potential damages sought.
In May 2019, the oversight board filed complaints in Puerto
Rico federal district court bringing claims against financial, legal
and accounting firms that had participated in Puerto Rico
municipal bond offerings, including UBS, seeking a return of
underwriting and swap fees paid in connection with those
offerings. UBS estimates that it received approximately USD 125
million in fees in the relevant offerings.
In August 2019 and February 2020, three US insurance
companies that insured issues of Puerto Rico municipal bonds
sued UBS and seven other underwriters of Puerto Rico municipal
bonds. The two actions seek recovery of an aggregate of USD
955 million in damages from the defendants. The plaintiffs in
these cases claim
reasonably
investigate financial statements in the offering materials for the
insured Puerto Rico bonds issued between 2002 and 2007,
which plaintiffs argue they relied upon in agreeing to insure the
bonds notwithstanding that they had no contractual relationship
with the underwriters.
that defendants
failed
to
385
Financial statements
Consolidated financial statements
Note 21 Provisions and contingent liabilities (continued)
Our balance sheet at 31 December 2019 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
provisions that we have recognized.
5. Foreign exchange, LIBOR and benchmark rates, and other
trading practices
Foreign exchange-related regulatory matters: Beginning in 2013,
numerous authorities commenced investigations concerning
possible manipulation of foreign exchange markets and precious
metals prices. In 2014 and 2015, UBS reached settlements with
the UK Financial Conduct Authority
(FCA) and the US
Commodity Futures Trading Commission (CFTC) in connection
with their foreign exchange investigations, FINMA issued an
order concluding its formal proceedings relating to UBS’s foreign
exchange and precious metals businesses, and the Board of
Governors of the Federal Reserve System (Federal Reserve Board)
and the Connecticut Department of Banking issued a Cease and
Desist Order and assessed monetary penalties against UBS AG.
In 2015, the DOJ’s Criminal Division terminated the 2012
non-prosecution agreement with UBS AG related to UBS’s
submissions of benchmark interest rates, and UBS AG pleaded
guilty to one count of wire fraud, paid a fine and was subject to
probation, which ended in early January 2020. In 2019 the
European Commission announced two decisions with respect to
foreign exchange trading. UBS was granted immunity by the
European Commission in these matters and therefore was not
fined. UBS has ongoing obligations to cooperate with these
authorities and to undertake certain remediation measures. UBS
has also been granted conditional immunity by the Antitrust
Division of the DOJ and by authorities in other jurisdictions in
connection with potential competition law violations relating to
foreign exchange and precious metals businesses. Investigations
relating to foreign exchange matters by certain authorities
remain ongoing notwithstanding these resolutions.
Foreign exchange-related civil litigation: Putative class actions
have been filed since 2013 in US federal courts and in other
jurisdictions against UBS and other banks on behalf of putative
classes of persons who engaged in foreign currency transactions
with any of the defendant banks. UBS has resolved US federal
court class actions relating to foreign currency transactions with
the defendant banks and persons who transacted in foreign
exchange futures contracts and options on such futures under a
386
settlement agreement that provides for UBS to pay an aggregate
of USD 141 million and provide cooperation to the settlement
classes. Certain class members have excluded themselves from
that settlement and have filed individual actions in US and
English courts against UBS and other banks, alleging violations
of US and European competition laws and unjust enrichment.
In 2015, a putative class action was filed in federal court
against UBS and numerous other banks on behalf of persons
and businesses in the US who directly purchased foreign
currency from the defendants and alleged co-conspirators for
their own end use. In March 2017, the court granted UBS’s (and
the other banks’) motions to dismiss the complaint. The plaintiffs
filed an amended complaint in August 2017. In March 2018, the
court denied the defendants’ motions to dismiss the amended
complaint.
In 2017, two putative class actions were filed in federal court
in New York against UBS and numerous other banks on behalf
of persons and entities who had indirectly purchased foreign
exchange instruments from a defendant or co-conspirator in the
US, and a consolidated complaint was filed in June 2017. In
March 2018, the court dismissed the consolidated complaint. In
October 2018, the court granted plaintiffs’ motion seeking leave
to file an amended complaint. In January 2020, UBS and 11
other banks agreed in principle with the plaintiffs to settle the
class action for a total of USD 10 million. The settlement is
subject to final documentation and court approval.
LIBOR and other benchmark-related regulatory matters:
Numerous government agencies, including the SEC, the CFTC,
the DOJ, the FCA, the UK Serious Fraud Office, the Monetary
Authority of Singapore, the Hong Kong Monetary Authority,
FINMA, various state attorneys general in the US and competition
authorities in various jurisdictions, have conducted investigations
regarding potential improper attempts by UBS, among others, to
manipulate LIBOR and other benchmark rates at certain times.
UBS reached settlements or otherwise concluded investigations
relating to benchmark interest rates with the investigating
authorities. UBS has ongoing obligations to cooperate with the
authorities with whom we have reached resolutions and to
undertake certain
to
benchmark interest rate submissions. UBS has been granted
conditional leniency or conditional immunity from authorities in
certain jurisdictions, including the Antitrust Division of the DOJ
and the Swiss Competition Commission (WEKO), in connection
with potential antitrust or competition law violations related to
certain rates. However, UBS has not reached a final settlement
with WEKO, as the Secretariat of WEKO has asserted that UBS
does not qualify for full immunity.
remediation measures with
respect
Note 21 Provisions and contingent liabilities (continued)
LIBOR and other benchmark-related civil litigation: A number
of putative class actions and other actions are pending in the
federal courts in New York against UBS and numerous other
banks on behalf of parties who transacted in certain interest rate
benchmark-based derivatives. Also pending in the US and in
other jurisdictions are a number of other actions asserting losses
related to various products whose interest rates were linked to
rate
LIBOR and other benchmarks,
mortgages, preferred and debt securities, bonds pledged as
collateral, loans, depository accounts, investments and other
interest-bearing
allege
manipulation, through various means, of certain benchmark
interest rates, including USD LIBOR, Euroyen TIBOR, Yen LIBOR,
EURIBOR, CHF LIBOR, GBP LIBOR, SGD SIBOR and SOR and
Australian BBSW, and seek unspecified compensatory and other
damages under varying legal theories.
including adjustable
instruments.
complaints
The
USD LIBOR class and individual actions in the US: In 2013 and
2015, the district court in the USD LIBOR actions dismissed, in
whole or in part, certain plaintiffs’ antitrust claims, federal
racketeering claims, CEA claims, and state common law claims.
Although the Second Circuit vacated the district court’s
judgment dismissing antitrust claims, the district court again
dismissed antitrust claims against UBS in 2016. Certain plaintiffs
have appealed that decision to the Second Circuit. Separately, in
2018, the Second Circuit reversed in part the district court’s
2015 decision dismissing certain individual plaintiffs’ claims and
certain of these actions are now proceeding. UBS entered into
an agreement in 2016 with representatives of a class of
bondholders to settle their USD LIBOR class action. The
agreement has received preliminary court approval and remains
subject to final approval. In 2018, the district court denied
plaintiffs’ motions for class certification in the USD class actions
for claims pending against UBS, and plaintiffs sought permission
to appeal that ruling to the Second Circuit. In July 2018, the
Second Circuit denied the petition to appeal of the class of
USD lenders and in November 2018 denied the petition of the
USD exchange class. In December 2019, UBS entered into an
agreement with representatives of the class of USD lenders to
settle their USD LIBOR class action. The agreement has received
preliminary court approval and remains subject to final approval.
In January 2019, a putative class action was filed in the District
Court for the Southern District of New York against UBS and
numerous other banks on behalf of US residents who, since
1 February 2014, directly transacted with a defendant bank in
USD LIBOR instruments. The complaint asserts antitrust claims.
The defendants moved to dismiss the complaint in August 2019.
Other benchmark class actions in the US: In 2014, the court
in one of the Euroyen TIBOR lawsuits dismissed certain of the
plaintiffs’ claims, including a federal antitrust claim, for lack of
standing. In 2015, this court dismissed the plaintiffs’ federal
racketeering claims on the same basis and affirmed its previous
dismissal of the plaintiffs’ antitrust claims against UBS. In 2017,
this court also dismissed the other Yen LIBOR / Euroyen TIBOR
action in its entirety on standing grounds, as did the court in the
CHF LIBOR action. Also in 2017, the court in the EURIBOR
lawsuit dismissed the case as to UBS and certain other foreign
defendants for lack of personal jurisdiction. Plaintiffs in the other
Yen LIBOR, Euroyen TIBOR and the EURIBOR actions have
appealed the dismissals. In October 2018, the court in the SIBOR
/ SOR action dismissed all but one of plaintiffs’ claims against
UBS. Plaintiffs in the CHF LIBOR and SIBOR / SOR actions filed
amended complaints following the dismissals, and the courts
granted renewed motions to dismiss in July 2019 (SIBOR / SOR)
and in September 2019 (CHF LIBOR). Plaintiffs in both actions
have appealed. In November 2018, the court in the BBSW
lawsuit dismissed the case as to UBS and certain other foreign
defendants for lack of personal jurisdiction. Following that
dismissal, plaintiffs in the BBSW action filed an amended
complaint in April 2019, which UBS and other defendants
named in the amended complaint have moved to dismiss. In
February 2020, the court in the BBSW action granted in part and
denied in part defendants’ motions to dismiss the amended
complaint. The court dismissed the GBP LIBOR action in August
2019, and plaintiffs appealed the dismissal in September 2019.
Government bonds: Putative class actions have been filed since
2015 in US federal courts against UBS and other banks on behalf
of persons who participated in markets for US Treasury securities
since 2007. A consolidated complaint was filed in 2017 in the US
District Court for the Southern District of New York alleging that
the banks colluded with respect to, and manipulated prices of, US
Treasury securities sold at auction and in the secondary market
and asserting claims under the antitrust laws and for unjust
enrichment. Defendants’ motions to dismiss the consolidated
complaint are pending. Similar class actions have been filed
concerning European government bonds and other government
bonds.
UBS and
reportedly other banks are
to
information from various
investigations and requests for
authorities regarding government bond trading practices. As a
result of its review to date, UBS has taken appropriate action.
responding
Government sponsored entities (GSE) bonds: Starting in
February 2019, class action complaints were filed in the US District
Court for the Southern District of New York against UBS and
other banks on behalf of plaintiffs who traded GSE bonds. A
consolidated complaint was filed alleging collusion in GSE bond
trading between 1 January 2009 and 1 January 2016. In
December 2019, UBS and eleven other defendants agreed to
settle the class action for a total of USD 250 million. The
settlement is subject to court approval.
387
Financial statements
Consolidated financial statements
Note 21 Provisions and contingent liabilities (continued)
With respect to additional matters and jurisdictions not
encompassed by the settlements and orders referred to above,
our balance sheet at 31 December 2019 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
information and
certainty based on currently available
accordingly may ultimately prove to be substantially greater (or
may be less) than the provision that we have recognized.
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
distributing third-party and intra-group investment funds and
structured products must be disclosed and surrendered to clients
who have entered into a discretionary mandate agreement with
the firm, absent a valid waiver.
FINMA has issued a supervisory note to all Swiss banks in
response to the Supreme Court decision. UBS has met the
FINMA requirements and has notified all potentially affected
clients.
The Supreme Court decision has resulted, and 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 other things, the existence
of a discretionary mandate and whether or not the client
documentation contained a valid waiver with respect to
distribution fees.
Our balance sheet at 31 December 2019 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 provision that we
have recognized.
7. Securities transaction pricing and disclosure
UBS identified and reported to the relevant authorities instances
in which some Global Wealth Management clients booked in
Hong Kong and Singapore may have been charged
inappropriate spreads on debt securities transactions between
2008 and 2015. In November 2019, UBS AG entered into a
settlement with the Hong Kong Securities and Futures
Commission (SFC) under which it was reprimanded and fined
HKD 400 million (USD 51 million) and a settlement with the
Monetary Authority of Singapore (MAS) under which it was
fined SGD 11 million (USD 8.3 million). In addition, UBS has
commenced reimbursing affected customers an aggregate
amount equivalent to USD 47 million, including interest.
Our balance sheet at 31 December 2019 reflected a provision
with respect to the matter described in this item 7 in an amount
that UBS believes to be appropriate under the applicable
accounting standard.
388
Note 22 Other liabilities
a) Other financial liabilities measured at amortized cost
USD million
Other accrued expenses
Accrued interest expenses
Settlement and clearing accounts
Lease liabilities1
Other
TToottaall ootthheerr ffiinnaanncciiaall lliiaabbiilliittiieess mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt
11 Relates to the adoption of IFRS 16 on 1 January 2019. Refer to Note 1 for more information.
b) Other financial liabilities designated at fair value
USD million
Financial liabilities related to unit-linked investment contracts
Securities financing transactions
Over-the-counter debt instruments
of which: life-to-date own credit (gain) / loss
Other
3311..1122..1199
31.12.18
11,,992288
11,,556622
11,,337799
33,,994433
990000
99,,771122
2,192
1,544
1,486
1,663
6,885
3311..1122..1199
2288,,114455
55,,774422
22,,002222
((44))
3311
31.12.18
21,679
9,461
2,450
(51)
5
TToottaall ootthheerr ffiinnaanncciiaall lliiaabbiilliittiieess ddeessiiggnnaatteedd aatt ffaaiirr vvaalluuee11
11 As of 31 December 2019 and 31 December 2018, the contractual redemption amount at maturity of other financial liabilities designated at fair value through profit or loss was not materially different from the
carrying amount.
33,594
3355,,994400
c) Other non-financial liabilities
USD million
Compensation-related liabilities
of which: Deferred Contingent Capital Plan
of which: financial advisor compensation plans
of which: other compensation plans
of which: net defined benefit pension and post-employment liabilities
of which: other compensation-related liabilities 1
Current and deferred tax liabilities
VAT and other tax payables
Deferred income
Other
TToottaall ootthheerr nnoonn ffiinnaanncciiaall lliiaabbiilliittiieess
--
11 Includes liabilities for payroll taxes and untaken vacation.
3311..1122..1199
31.12.18
66,,881122
11,,885555
11,,446633
22,,331100
663333
555522
11,,116633
447755
114411
220022
7,278
1,983
1,458
2,480
775
581
1,002
431
215
98
88,,779944
9,022
389
Financial statements
Consolidated financial statements
Additional information
Note 23 Expected credit loss measurement
a) Expected credit losses in the period
Total net credit loss expenses were USD 78 million in 2019,
reflecting net credit loss expenses of USD 100 million related to
credit-impaired (stage 3) positions, partly offset by USD 22
million of net releases in expected credit loss expense allowances
from stage 1 and 2 positions.
In the Investment Bank, increased stage 1 and 2 ECL
allowances and provisions recognized over the year primarily
related to loans and credit facilities originated during 2019 and
to changes in credit quality of existing assets, partly offset by a
change in the applied credit risk models. In Personal & Corporate
Banking and Global Wealth Management, ECL allowances and
provisions slightly decreased over the year, primarily attributable
to a minor improvement in book quality following continued
positive developments of selected economic input data.
Stage 3 net losses of USD 100 million were recognized across
a number of defaulted positions, mainly in Personal & Corporate
Banking (USD 44 million) and, to a lesser extent, in the
Investment Bank
(USD 26 million) and Global Wealth
Management (USD 23 million).
390
Note 23 Expected credit loss measurement (continued)
b) Changes to ECL models, scenarios, scenario weights and key inputs
Refer to Note 1a for information about the principles governing
ECL models, scenarios, scenario weights and key inputs applied.
In addition to the quarterly updates of market and behavioral
data, which are relevant input factors to the credit rating
methodology and the estimation of the probability of default
(PD) and the loss given default (LGD), one significant change
was applied to the models used to calculate ECLs for large
corporate clients in the Investment Bank. During 2019, the data
set was refreshed and aligned with the process applied to
regulatory stress testing in the US, which resulted in a net
release in expected credit loss expense allowances and provisions
from stage 1 and 2 positions of USD 20 million. For portfolios
where internal default data is insufficient for modeling purposes,
UBS relies on external data providers.
three hypothetical
Four scenarios and the related macroeconomic factors were
reviewed in the fourth quarter of 2019 in light of the economic
and political conditions prevailing at year-end. The selection of
the
essentially
unchanged, although the narrative of the severe downside
scenario was updated to include additional risks. The key aspects
of the narrative for the scenarios are summarized below.
–
remained
scenarios
The baseline scenario assumes continued growth in all key
markets, albeit at a slower rate than in 2019. As a
consequence, unemployment rates are not expected to fall
noticeably, except in the US. Interest rates remain at low
levels in line with the central bank policies pursued in the
eurozone, Switzerland and in the US.
The upside scenario assumes continued accommodative
central bank policies in developed economies and a gradual
decline of geopolitical and economic uncertainty. Underlying
macroeconomic conditions improve, and asset values increase
substantially.
The mild downside scenario is based on a monetary policy
tightening assumption, implemented by major central banks
to deflate a potential asset price bubble, thus causing a mild
recession.
The narrative for the severe downside scenario, which during
2019 focused primarily on developments in the eurozone, has
been broadened to cover a severe recessionary phase
affecting all major economies. A wide-ranging slowdown is
mainly caused by global trade tensions and debt sustainability
concerns in Europe. Trade and business confidence are
affected, being particularly felt in the key export markets for
Swiss industry.
–
–
–
31 December 2019 are summarized in the table on the
following page.
The determination of scenario weights is subject to the
process and governance outlined in Note 1a item 3g. An
econometric model is used to provide input into the scenario
weight assessment process. The model output gives a first
estimate of the probability that the GDP assumptions used for
each scenario materialize, according to the historically observed
deviations of GDP growth from trend growth. Since the
probability estimates produced by the model do not include an
assessment of the underlying economic or political causes,
management positions the model output into the context of
current conditions and
future expectations, and applies
judgment in determining the final scenario weights. The reviews
during 2019 reflected the increasing probability of a weakening
economy in key markets, after a long spell of substantial
expansion, and the uncertainties about the influence that several
political developments with unforeseeable outcomes may have
on future growth. At year-end 2019, management reflected
these developments by giving more weight to the severe
downside scenario compared with 31 December 2018.
Non-linearity of credit losses in relation to macroeconomic
factors is usually most pronounced in portfolios that are most
sensitive to interest rates, especially in the areas of mortgage
loans to private clients and real estate financing. The mild
downside scenario therefore reflects a significant rise in interest
rates as a key component and is also particularly relevant for
credit risk management purposes.
As noted above, scenario weights are a reflection of risks
identified during management’s assessment of economic and
geopolitical risks and not a specific expectation that a particular
narrative with its defined macroeconomic factors (e.g., interest
rates) will materialize. Other scenarios for a mild downside with
less focus on interest rates would, however, not have been
representative of the potential asymmetry of loan losses in a
downturn. A more severe recession can be triggered by political
factors that cannot be modeled based on observed history; given
this consideration, the weight assigned to the severe downside
case was also based on management’s assessment of the
geopolitical risks that might affect all of our key markets and
portfolios.
EECCLL sscceennaarriioo
AAssssiiggnneedd wweeiigghhttss iinn %%
31.12.19
31.12.18
In each quarter the bases to which scenario-specific forecasts
are applied, and the baseline forecast itself, were updated using
the most recently available information (key macroeconomic
data and relevant market indicators). The key forward-looking
macroeconomic variables applied to the four scenarios as of
Upside
Baseline
Mild downside
Severe downside
7.5
42.5
35.0
15.0
10.0
45.0
35.0
10.0
391
Financial statements
Consolidated financial statements
Note 23 Expected credit loss measurement (continued)
Key parameters
Key parameters
Real GDP growth (% change)
Real GDP growth (% change)
United States
Eurozone
Switzerland
Consumer price index (% change)
Consumer price index (% change)
United States
Eurozone
Switzerland
Unemployment rate (change, percentage points)
Unemployment rate (change, percentage points)
United States
Eurozone
Switzerland
Fixed income: 10-year government bonds (change in yields, basis points)
Fixed income: 10-year government bonds (change in yields, basis points)
USD
EUR
CHF
Equity indices (% change)
Equity indices (% change)
S&P 500
EuroStoxx 50
SPI
Swiss real estate (% change)
Swiss real estate (% change)
Single-Family Homes
Other real estate (% change)
Other real estate (% change)
United States (S&P/Case-Shiller)
Eurozone (House Price Index)
One year
One year
Upside
Upside
Severe
Mild
Severe
Mild
Baseline
downside
downside
Baseline downside downside
Three years cumulative
Three years cumulative
Mild
Mild
Severe
Severe
Baseline downside downside
Baseline downside downside
Upside
Upside
4.3
3.6
4.2
3.1
2.1
1.5
(0.9)
(1.4)
(0.3)
61.0
65.0
73.0
14.8
17.0
13.9
4.5
6.2
4.9
1.9
1.0
1.5
1.8
1.3
0.8
(0.4)
(0.1)
0.1
0.2
8.4
9.5
3.5
0.5
1.4
0.1
4.0
1.2
(0.5)
(0.3)
(0.8)
4.9
2.8
1.8
0.3
0.6
0.5
(6.4)
(9.1)
(7.0)
(1.2)
(1.3)
(1.8)
5.7
5.6
2.6
187.5
112.5
187.5
(20.3)
(15.5)
(19.0)
(100.0)
(30.0)
(70.0)
(53.0)
(60.0)
(56.2)
10.9
9.5
10.4
8.6
6.7
5.5
(0.9)
(1.9)
(0.8)
274.1
221.7
283.0
42.7
44.3
42.2
6.4
2.8
4.8
6.2
4.3
2.7
(0.5)
(0.2)
0.3
10.1
28.2
30.0
9.5
4.4
5.3
0.0
0.7
(0.1)
(4.3)
(10.8)
(6.2)
11.1
6.2
4.2
0.7
1.0
1.2
262.5
225.0
262.5
(23.5)
(14.7)
(24.0)
0.4
(1.7)
(1.6)
5.6
7.9
3.6
(75.0)
(20.0)
(35.0)
(42.9)
(52.9)
(46.8)
(7.3)
(15.2)
14.1
2.3
(15.8)
(27.0)
(4.0)
(1.2)
(13.3)
(23.0)
17.7
15.4
16.7
2.2
(11.9)
(6.8)
(23.4)
(33.2)
c) Development of ECL allowances and provisions
The ECL allowances and provisions recognized in the period are
impacted by a variety of factors, such as:
– origination of new instruments during the period;
– effect of passage of time as the ECLs on an instrument for
the remaining lifetime reduces (all other factors remaining the
same);
– movements from a “maximum 12-month ECL” to the
recognition of “lifetime ECLs” (and vice versa) following
transfers between stages 1 and 2;
– movements from stages 1 and 2 to stage 3 (credit-impaired
status) when default has become certain and probability of
default (PD) increases to 100% (or vice versa);
– discount unwind within ECLs as it is measured on a present
– changes in credit risk and/or economic forecasting models or
value basis;
– derecognition of instruments in the period;
– change in individual asset quality of instruments;
– portfolio effect of updating forward-looking scenarios and
the respective weights;
updates to model parameters; and
– foreign exchange translations for assets denominated in
foreign currencies and other movements.
392
Note 23 Expected credit loss measurement (continued)
The following table explains the changes in the ECL allowances and provisions for on- and off-balance sheet financial instruments
and other credit lines in scope of ECL requirements between the beginning and the end of the period due to the factors listed on the
previous page.
of which: Private clients with mortgages
of which: Real estate financing
of which: Large corporate clients
of which: SME clients
USD million
BBaallaannccee aass ooff 3311 DDeecceemmbbeerr 22001188
EECCLL mmoovveemmeennttss dduuee ttoo ssttaaggee ttrraannssffeerr11
NNeett mmoovveemmeenntt ffrroomm nneeww aanndd ddeerreeccooggnniizzeedd ttrraannssaaccttiioonnss22
of which: Private clients with mortgages
of which: Real estate financing
of which: Large corporate clients
of which: SME clients
BBooookk qquuaalliittyy mmoovveemmeennttss
RReemmeeaassuurreemmeennttss dduuee ttoo ssttaaggee ttrraannssffeerrss33
SSttaaggee 33
SSttaaggee 11
((669955))
((117766))
((88))
((9966))
33
((6666))
0
(4)
0
(5)
0
(14)
0
(14)
((9966))
114411
((9977))
111100
(1)
70
0
21
(35)
1
(53)
6
11
3311
(9)
2
1
0
(14)
(10)
17
9
MMooddeell aanndd mmeetthhooddoollooggyy cchhaannggeess55
00
1177
TToottaall EECCLL mmoovveemmeennttss wwiitthh pprrooffiitt oorr lloossss iimmppaacctt66
((110000))
((44))
110088
((11))
OOtthheerr aalllloowwaannccee aanndd pprroovviissiioonn mmoovveemmeennttss
Write-offs / recoveries7
130
0
Reclassifications8
0
0
Foreign exchange movements9
(4)
(1)
(18)
0
Other
BBaallaannccee aass ooff 3311 DDeecceemmbbeerr 22001199
((668888))
((118811))
11 Represents ECL allowances and provisions prior to ECL remeasurement due to stage transfer.
22 Represents the increase and decrease in allowances and provisions resulting from financial instruments (including
guarantees and facilities) that were newly originated, purchased or renewed and from the final derecognition of loans or facilities on their maturity date or earlier. 33 Represents the remeasurement between 12-
month and lifetime ECL due to stage transfers. 44 Represents the change in allowances and provisions related to changes in model inputs or assumptions, including changes in forward-looking macroeconomic
conditions, changes in the exposure profile, PD and LGD changes, and unwinding of the time value. 55 Represents the change in the allowances and provisions related to changes in models and methodologies.
Refer to Note 23b for more information. 66 Includes ECL movements due to stage transfers, ECL movements from new and derecognized transactions, book quality changes and model and methodology changes.
77 Represents the decrease in allowances and provisions resulting from write-offs of the ECL allowance against the gross carrying amount when all or part of a financial asset is deemed uncollectible or forgiven.
88 Represents reclassifications to Other assets measured at amortized cost. 99 Represents the change in allowances and provisions related to movements in foreign exchange rates.
DDeevveellooppmmeenntt ooff EECCLL aalllloowwaanncceess aanndd pprroovviissiioonnss
SSttaaggee 22
((118833))
110033
1100
3
2
8
(2)
((9977))
((113388))
(74)
(16)
(11)
(17)
4411
30
0
0
10
99
2255
((22))
0
0
(2)
0
((116600))
TToottaall
((11,,005544))
00
((5533))
(1)
(3)
(6)
(16)
((5522))
((112255))
(5)
5
(45)
(64)
7733
22
1
(24)
35
2266
((7788))
110055
130
0
(8)
(19)
((11,,002299))
RReemmeeaassuurreemmeennttss wwiitthhoouutt ssttaaggee ttrraannssffeerrss44
of which: Private clients with mortgages
of which: Real estate financing
of which: Large corporate clients
of which: SME clients
393
Financial statements
Consolidated financial statements
Note 23 Expected credit loss measurement (continued)
The following table explains the changes in the ECL allowances and provisions for Loans and advances to customers, Loans to
financial advisors and off-balance sheet financial instruments and other credit lines between the beginning and the end of the
period.
of which: Private clients with mortgages
of which: Real estate financing
of which: Large corporate clients
of which: SME clients
USD million
Balance as of 1 January 2018
Balance as of 1 January 2018
ECL movements due to stage transfer1
ECL movements due to stage transfer1
Net movement from new and derecognized transactions2
Net movement from new and derecognized transactions2
of which: Private clients with mortgages
of which: Real estate financing
of which: Large corporate clients
of which: SME clients
Book quality movements
Book quality movements
Remeasurements due to stage transfers3
Remeasurements due to stage transfers3
Stage 3
Stage 1
(783)
(141)
(783)
(141)
2
2
(97)
(97)
19
19
(44)
(44)
0
(6)
0
(8)
8
(6)
0
(14)
(114)
(114)
112
112
(7)
(7)
95
95
(1)
54
0
24
1
0
0
7
(106)
(106)
17
17
(7)
2
(8)
4
(48)
(2)
(70)
9
Model and methodology changes5
Model and methodology changes5
0
0
(2)
(2)
Subtotal ECL movements with profit or loss impact6
Subtotal ECL movements with profit or loss impact6
(86)
(86)
(30)
(30)
Other allowance and provision movements
216
10
Other allowance and provision movements
216
10
Write-offs / recoveries7
199
1
Reclassifications8
15
7
Foreign exchange movements9
8
0
Other
(6)
2
Balance as of 31 December 2018
Balance as of 31 December 2018
(661)
(661)
(162)
(162)
1 Represents ECL allowances and provisions prior to ECL remeasurement due to stage transfer.
2 Represents the increase and decrease in allowances and provisions resulting from financial instruments (including
1
2
3 Represents the remeasurement between 12-
guarantees and facilities) that were newly originated, purchased or renewed and from the final derecognition of loans or facilities on their maturity date or earlier.
3
4 Represents the change in allowances and provisions related to changes in model inputs or assumptions, including changes in forward-looking macroeconomic
month and lifetime ECL due to stage transfers.
4
5 Represents the change in the allowances and provisions related to changes in models and methodologies.
conditions, changes in the exposure profile, PD and LGD changes, and unwinding of the time value.
5
6 UBS has restated ECL movements with profit or loss (P&L) impact to include ECL movements due to stage transfer. This aligns with a change in approach adopted in 2019 to allow for the total ECL P&L impacts by
6
stage to be disclosed, including ECL movements due to stage transfers, ECL movements from new and derecognized transactions, book quality changes, model and methodology changes and foreign exchange rates.
7 Represents the decrease in allowances and provisions resulting from write-offs of the ECL allowance against the gross carrying amount when all or part of a financial asset is deemed uncollectible or forgiven.
7
8 Represents reclassifications to Other assets measured at amortized cost. 9 Represents the change in allowances and provisions related to movements in foreign exchange rates.
8
Development of ECL allowances and provisions
Stage 2
(193)
(193)
95
95
15
15
4
5
1
4
(87)
(87)
(103)
(103)
(63)
(19)
(3)
(7)
16
16
(3)
12
(6)
6
(11)
(11)
11
11
1
1
0
3
0
(1)
(180)
(180)
Total
(1,117)
(1,117)
0
0
(10)
(10)
(3)
(3)
2
(10)
(89)
(89)
(16)
(16)
(11)
5
(1)
1
(73)
(73)
(9)
8
(56)
(55)
(13)
(13)
(104)
(104)
227
227
200
25
8
(6)
(1,002)
(1,002)
Remeasurements without stage transfers4
Remeasurements without stage transfers4
of which: Private clients with mortgages
of which: Real estate financing
of which: Large corporate clients
of which: SME clients
9
394
Note 23 Expected credit loss measurement (continued)
d) Maximum exposure to credit risk
The tables on the following pages provide the Group’s
maximum exposure to credit risk for financial instruments
subject to ECL requirements and the respective collateral and
other credit enhancements mitigating credit risk for these classes
of financial instruments.
The maximum exposure to credit risk includes the carrying
amounts of financial instruments recognized on the balance
sheet subject to credit risk and the notional amounts for off-
balance sheet arrangements. Where information is available,
collateral is presented at fair value. For other collateral, such as
real estate, a reasonable alternative value is used. Credit
enhancements,
such as credit derivative 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. The “Risk management and control” section of
this report describes management’s view of credit risk and the
related exposures, which can differ in certain respects from the
requirements of IFRS.
Maximum exposure to credit risk
USD billion
FFiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt oonn tthhee
bbaallaannccee sshheeeett
Cash and balances at central banks
Loans and advances to banks2
Receivables from securities financing transactions
Cash collateral receivables on derivative instruments3,4
Loans and advances to customers5
Other financial assets measured at amortized cost
TToottaall ffiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt
FFiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt ffaaiirr vvaalluuee tthhrroouugghh ootthheerr
ccoommpprreehheennssiivvee iinnccoommee ddeebbtt
TToottaall mmaaxxiimmuumm eexxppoossuurree ttoo ccrreeddiitt rriisskk rreefflleecctteedd oonn tthhee
bbaallaannccee sshheeeett iinn ssccooppee ooff EECCLL
Guarantees6
––
Loan commitments6
Forward starting transactions, reverse repurchase and
securities borrowing agreements
Committed unconditionally revocable credit lines
TToottaall mmaaxxiimmuumm eexxppoossuurree ttoo ccrreeddiitt rriisskk nnoott rreefflleecctteedd oonn
tthhee bbaallaannccee sshheeeett,, iinn ssccooppee ooff EECCLL
3311..1122..1199
CCoollllaatteerraall
CCrreeddiitt eennhhaanncceemmeennttss
MMaaxxiimmuumm
eexxppoossuurree ttoo
ccrreeddiitt rriisskk
CCaasshh
ccoollllaatteerraall
rreecceeiivveedd
CCoollllaatteerraalliizzeedd
bbyy sseeccuurriittiieess
SSeeccuurreedd bbyy
rreeaall eessttaattee
OOtthheerr
ccoollllaatteerraall11
NNeettttiinngg
CCrreeddiitt
ddeerriivvaattiivvee
ccoonnttrraaccttss GGuuaarraanntteeeess
EExxppoossuurree ttoo
ccrreeddiitt rriisskk
aafftteerr ccoollllaatteerraall
aanndd ccrreeddiitt
eennhhaanncceemmeennttss
110077..11
1122..44
8844..22
2233..33
332266..88
2233..00
557766..88
66..33
558833..22
1188..11
2277..55
11..77
3355..11
8822..33
00..00
7777..66
110011..44
00..44
117799..44
117799..44
33..00
11..99
11..77
88..33
1144..99
117744..77
00..00
117744..77
117744..77
00..11
11..33
44..99
66..33
1188..44
00..11
1188..66
1188..66
11..00
00..22
00..33
11..55
1144..44
1144..44
00..00
1144..44
00..00
00..22
55..88
1177..11
11..33
2244..33
2244..33
11..77
55..88
33..66
1111..00
00..00
00..22
11..11
11..11
11..11
22..55
00..22
00..00
22..88
110077..11
1122..44
00..88
88..99
1144..00
2211..11
116644..44
66..33
117700..77
99..88
1188..00
00..00
1177..99
4455..77
395
Financial statements
Consolidated financial statements
Note 23 Expected credit loss measurement (continued)
Maximum exposure to credit risk (continued)
31.12.18
Collateral
USD billion
Financial assets measured at amortized cost on the
Financial assets measured at amortized cost on the
balance sheet
balance sheet
Cash and balances at central banks
Loans and advances to banks2
Receivables from securities financing transactions
Cash collateral receivables on derivative instruments3,4
Loans and advances to customers5
Other financial assets measured at amortized cost
Total financial assets measured at amortized cost
Total financial assets measured at amortized cost
Financial assets measured at fair value through other
Financial assets measured at fair value through other
comprehensive income – debt
comprehensive income – debt
Total maximum exposure to credit risk reflected on the
Total maximum exposure to credit risk reflected on the
balance sheet in scope of ECL
balance sheet in scope of ECL
Guarantees6
Maximum
exposure to
credit risk
Cash
collateral Collateralized Secured by
real estate
by securities
received
Other
collateral1
Netting
Credit enhancements
Exposure to
credit risk
after collateral
Credit
derivative
and credit
contracts Guarantees enhancements
108.4
16.9
95.3
23.6
320.4
22.6
587.1
587.1
6.7
6.7
593.8
593.8
18.1
0.1
92.5
104.4
0.4
197.4
197.4
2.5
16.2
1.1
19.9
19.9
167.1
0.0
167.2
167.2
17.0
0.1
17.2
17.2
14.5
0.0
1.2
14.5
14.5
0.0
0.0
1.2
1.2
17.2
17.2
1.3
197.4
197.4
2.5
167.2
167.2
0.1
19.9
19.9
1.2
14.5
14.5
0.0
0.0
1.2
1.2
2.7
108.4
16.8
0.3
9.1
14.3
20.9
169.8
169.8
6.7
6.7
176.5
176.5
10.2
0.4
2.8
31.2
Loan commitments6
Forward starting transactions, reverse repurchase and
securities borrowing agreements
Committed unconditionally revocable credit lines
Total maximum exposure to credit risk not reflected on
Total maximum exposure to credit risk not reflected on
51.0
12.7
the balance sheet, in scope of ECL
51.0
12.7
the balance sheet, in scope of ECL
2 Loans and advances to banks include amounts held with third-party banks on behalf of clients.
1 Includes but is not limited to life insurance contracts, inventory, mortgage loans, gold and other commodities.
2
1
3 Included within Cash collateral receivables on derivative instruments are margin balances due from exchanges or clearing houses.
The credit risk associated with these balances may be borne by those clients.
3
4 The amount shown in the “Netting” column represents the netting potential not recognized
Some of these margin balances reflect amounts transferred on behalf of clients who retain the associated credit risk.
4
on the balance sheet. Refer to Note 25 for more information. 5 Collateral arrangements generally incorporate a range of collateral, including cash, securities, property and other collateral. 6 The amount shown in
the “Guarantees” column largely relates to sub-participations. Refer to Note 34 for more information.
0.0
21.0
0.9
36.6
0.9
6.5
19.8
10.8
10.8
86.8
86.8
0.7
3.4
3.4
5.8
5.8
2.8
2.8
0.2
0.2
0.0
0.0
3.9
1.1
5.7
4.2
1.5
0.2
6
5
396
Note 23 Expected credit loss measurement (continued)
e) Financial assets subject to credit risk by rating category
The table below shows the credit quality and the maximum
exposure to credit risk based on the Group’s internal credit
rating system and year-end stage classification. With the
transition to IFRS 9, the credit risk rating reflects the Group’s
assessment of
individual
counterparties, prior to substitutions. The amounts presented
are gross of impairment allowances.
the probability of default of
Refer to the “Risk management and control” section of this
report for more details regarding the Group’s internal grading
system
Financial assets subject to credit risk by rating category
USD million
3311..1122..1199
Rating category1
FFiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt
CCaasshh aanndd bbaallaanncceess aatt cceennttrraall bbaannkkss
of which: stage 1
LLooaannss aanndd aaddvvaanncceess ttoo bbaannkkss
of which: stage 1
of which: stage 2
of which: stage 3
–
00 11
–
–
22 33
–
–
44 55
–
–
66 88
–
–
99 1133
–
110055,,119955
11,,887733
105,195 1,873
00
0
330099
99,,883322
11,,332266
309 9,832 1,326
0
0
0
0
0
0
00
0
668877
677
10
0
00
0
229988
228
71
0
RReecceeiivvaabblleess ffrroomm sseeccuurriittiieess ffiinnaanncciinngg ttrraannssaaccttiioonnss
2211,,008899
1166,,888899
1144,,336666
2288,,881155
33,,008888
of which: stage 1
21,089 16,889 14,366 28,815 3,088
CCaasshh ccoollllaatteerraall rreecceeiivvaabblleess oonn ddeerriivvaattiivvee iinnssttrruummeennttss
44,,889999
1100,,555533
55,,003333
22,,776655
of which: stage 1
LLooaannss aanndd aaddvvaanncceess ttoo ccuussttoommeerrss
of which: stage 1
of which: stage 2
of which: stage 3
4,899 10,553 5,033 2,765
11,,774444 117744,,998822
5599,,224400
7700,,552288
1188,,774488
22,,330088
332277,,555500
1,744 174,328 56,957 62,435 14,117
655 2,283 8,093 4,631
0
0
0
0
339900
0
77,,115588
OOtthheerr ffiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt
1133,,003311
11,,556600
of which: stage 1
of which: stage 2
of which: stage 3
13,031 1,549
381 6,747
0
0
11
0
9
0
412
0
TToottaall ffiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt
114466,,226677 221155,,669900
8800,,335544 110099,,995522
2222,,448855
22,,998811
557777,,773300
OOnn bbaallaannccee sshheeeett ffiinnaanncciiaall iinnssttrruummeennttss
-
-
FFiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt FFVVOOCCII ddeebbtt iinnssttrruummeennttss
–
–
55,,885544
445500
00
4411
00
00
66,,334455
TToottaall oonn bbaallaannccee sshheeeett ffiinnaanncciiaall iinnssttrruummeennttss
-
-
115522,,112200 221166,,113399
8800,,335544 110099,,999944
2222,,448855
22,,998811
558844,,007755
11 Refer to the “Internal UBS rating scale and mapping of external ratings” table in the “Risk management and control” section of this report for more information on rating categories.
-
-
CCrreeddiitt
iimmppaaiirreedd
((ddeeffaauulltteedd))
TToottaall ggrroossss
ccaarrrryyiinngg
aammoouunntt
EECCLL
aalllloowwaanncceess
00
110077,,006688
0 107,068
11
1122,,445544
0 12,371
0
1
00
81
1
8844,,224466
0 84,246
00
2233,,228899
0 23,289
0 309,581
0 15,661
2,308
667722
2,308
2233,,112233
0 21,988
0
672
463
672
3399
39
0
331122
280
32
0
00
0
((66))
(4)
(1)
(1)
((22))
(2)
00
0
((776644))
(82)
(123)
(559)
((114433))
(35)
(13)
(95)
((991155))
00
((991155))
NNeett ccaarrrryyiinngg
aammoouunntt
((mmaaxxiimmuumm
eexxppoossuurree ttoo
ccrreeddiitt rriisskk))
110077,,006688
107,068
1122,,444477
12,367
80
0
8844,,224455
84,245
2233,,228899
23,289
332266,,778866
309,499
15,538
1,749
2222,,998800
21,953
451
576
557766,,881155
66,,334455
558833,,115599
397
Financial statements
Consolidated financial statements
Note 23 Expected credit loss measurement (continued)
Off-balance sheet positions subject to expected credit loss by rating category
USD million
31.12.19
31.12.19
Rating category1
Off-balance sheet financial instruments
Off-balance sheet financial instruments
Guarantees
Guarantees
of which: stage 1
of which: stage 2
of which: stage 3
Irrevocable loan commitments
Irrevocable loan commitments
of which: stage 1
of which: stage 2
of which: stage 3
Forward starting reverse repurchase and securities borrowing agreements
Forward starting reverse repurchase and securities borrowing agreements
0–1
0–1
2–3
2–3
4–5
4–5
6–8
6–8
9–13
9–13
857
857
4,932
4,932
6,060
6,060
5,450
5,450
857 4,931 6,048 5,218
0
0
1
0
12
0
233
0
761
761
704
57
0
2,548
2,548
10,068
10,068
4,862
4,862
5,859
5,859
4,160
4,160
2,548 10,068 4,862 5,722 3,878
0
0
0
0
0
0
672
672
0
0
50
50
137
0
936
936
282
0
0
0
Total off-balance sheet financial instruments
Total off-balance sheet financial instruments
3,405
3,405
15,672
15,672
10,972
10,972
12,245
12,245
4,922
4,922
Other credit lines
Other credit lines
Committed unconditionally revocable credit lines
Committed unconditionally revocable credit lines
of which: stage 1
of which: stage 2
of which: stage 3
Irrevocable committed prolongation of existing loans
Irrevocable committed prolongation of existing loans
of which: stage 1
of which: stage 2
of which: stage 3
Total other credit lines
Total other credit lines
632
632
12,459
12,459
6,231
6,231
7,169
7,169
8,554
8,554
628 12,422 6,120 6,789 7,889
4
0
25
25
37
0
1,399
1,399
25 1,399
0
0
0
0
111
0
870
870
870
0
0
380
0
633
633
633
0
0
665
0
359
359
359
0
0
657
657
13,858
13,858
7,101
7,101
7,801
7,801
8,913
8,913
Total carrying
Total carrying
amount
amount
(maximum
(maximum
exposure to
exposure to
credit risk) ECL provision
ECL provision
credit risk)
Credit-
Credit-
impaired
impaired
(defaulted)
(defaulted)
82
82
0
0
82
50
50
0
0
50
0
0
132
132
46
46
0
0
46
4
4
0
0
4
50
50
18,142
18,142
17,757
304
82
27,547
27,547
27,078
419
50
1,657
1,657
47,347
47,347
35,092
35,092
33,848
1,197
46
3,289
3,289
3,285
0
4
38,381
38,381
(42)
(42)
(8)
(1)
(33)
(35)
(35)
(30)
(5)
0
0
0
(77)
(77)
(34)
(34)
(17)
(17)
0
(3)
(3)
(3)
0
0
(37)
(37)
1 Refer to the “Internal UBS rating scale and mapping of external ratings” table in the “Risk management and control” section of this report for more information on rating categories.
1
398
Note 23 Expected credit loss measurement (continued)
Financial assets subject to credit risk by rating category
USD million
31.12.18
0–1
2–3
4–5
6–8
9–13
Credit-
impaired
(defaulted)
Total gross
carrying
amount
ECL
allowances
Rating category1
FFiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt
CCaasshh aanndd bbaallaanncceess aatt cceennttrraall bbaannkkss
of which: stage 1
LLooaannss aanndd aaddvvaanncceess ttoo bbaannkkss
of which: stage 1
of which: stage 2
of which: stage 3
110033,,663355
103,635
882299
44,,773355
4,735
1133,,446622
829 13,462
0
0
0
0
00
0
11,,334477
1,347
0
0
00
0
992277
763
164
0
RReecceeiivvaabblleess ffrroomm sseeccuurriittiieess ffiinnaanncciinngg ttrraannssaaccttiioonnss
2299,,006655
2244,,665533
1133,,660022
2266,,886655
of which: stage 1
29,065 24,653 13,602 26,865
CCaasshh ccoollllaatteerraall rreecceeiivvaabblleess oonn ddeerriivvaattiivvee iinnssttrruummeennttss
55,,113366
1100,,004422
of which: stage 1
LLooaannss aanndd aaddvvaanncceess ttoo ccuussttoommeerrss
5,136 10,042
33,,664422
117722,,774422
55,,228822
5,282
5522,,556666
33,,004400
3,040
7733,,886633
00
0
330077
268
39
0
11,,116655
1,165
110011
101
00
110088,,337700
0 108,370
33
1166,,887755
0 16,669
0
3
00
203
3
9955,,335500
0 95,350
00
2233,,660011
0 23,601
1166,,001144
22,,229977
332211,,112244
of which: stage 1
of which: stage 2
of which: stage 3
OOtthheerr ffiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt
of which: stage 1
of which: stage 2
of which: stage 3
3,621 172,002 49,277 62,305 11,111
20
0
1133,,440099
13,409
0
0
740
3,289 11,558
4,903
0
667766
676
0
0
0
331133
313
0
0
0
77,,446600
7,235
225
0
0
227744
272
2
0
0 298,316
0 20,510
2,297
558866
2,297
2222,,771188
0 21,905
0
586
227
586
TToottaall ffiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt
115555,,771166
222266,,331100
7733,,111100
111122,,115555
1177,,886611
22,,888866
558888,,003399
OOnn bbaallaannccee sshheeeett ffiinnaanncciiaall iinnssttrruummeennttss
-
-
FFiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt FFVVOOCCII ddeebbtt iinnssttrruummeennttss
–
–
33,,888899
22,,770022
00
7766
00
00
66,,666677
TToottaall oonn bbaallaannccee sshheeeett ffiinnaanncciiaall iinnssttrruummeennttss
-
-
115599,,660055
222299,,001122
7733,,111100
111122,,223311
1177,,886611
22,,888866
559944,,770066
11 Refer to the “Internal UBS rating scale and mapping of external ratings” table in the “Risk management and control” section of this report for more information on rating categories.
00
0
((77))
(4)
(1)
(3)
((22))
(2)
00
0
((777722))
(69)
(155)
(549)
((115555))
(43)
(4)
(109)
((993377))
00
((993377))
Net carrying
amount
(maximum
exposure to
credit risk)
110088,,337700
108,370
1166,,886688
16,666
202
9955,,334499
95,349
2233,,660022
23,602
332200,,335522
298,248
20,357
1,748
2222,,556633
21,862
223
478
558877,,110044
66,,666677
559933,,777711
399
Financial statements
Consolidated financial statements
Note 23 Expected credit loss measurement (continued)
Off-balance sheet positions subject to expected credit loss by rating category
USD million
31.12.18
0–1
2–3
4–5
6–8
9–13
Total carrying
amount
(maximum
exposure to
credit risk) ECL provision
Credit-
impaired
(defaulted)
Rating category1
Off-balance sheet financial instruments
Off-balance sheet financial instruments
Guarantees
Guarantees
of which: stage 1
of which: stage 2
of which: stage 3
Irrevocable loan commitments
Irrevocable loan commitments
of which: stage 1
of which: stage 2
of which: stage 3
Forward starting reverse repurchase and securities borrowing agreements
Forward starting reverse repurchase and securities borrowing agreements
979
979
6,673
6,673
3,859
3,859
5,415
5,415
1,006
1,006
215
215
978 6,670 3,849 5,012
3
0
10
0
402
0
0
811
195
2,088
2,088
11,667
11,667
6,519
6,519
6,479
6,479
4,404
4,404
2,088 11,667 6,519 6,296 4,019
0
0
25
25
0
0
0
0
510
510
150
150
183
0
251
251
385
0
0
Total off-balance sheet financial instruments
Total off-balance sheet financial instruments
3,092
3,092
18,850
18,850
10,528
10,528
12,145
12,145
5,410
5,410
Other credit lines
Other credit lines
Committed unconditionally revocable credit lines
Committed unconditionally revocable credit lines
of which: stage 1
of which: stage 2
of which: stage 3
Irrevocable committed prolongation of existing loans
Irrevocable committed prolongation of existing loans
of which: stage 1
of which: stage 2
of which: stage 3
Total other credit lines
Total other credit lines
8
0
27
27
776
776
10,899
10,899
5,282
5,282
11,499
11,499
8,084
8,084
768 10,871 5,152 10,727 7,603
28
130
772
1,346
1,346
27 1,315
0
0
31
0
902
902
701
200
889
889
680
209
0
803
803
12,245
12,245
6,171
6,171
12,401
12,401
8,238
8,238
481
0
154
154
137
17
18,147
18,147
17,320
610
215
31,212
31,212
30,590
568
53
936
936
50,295
50,295
36,633
36,633
35,121
1,419
93
3,339
3,339
2,860
457
21
39,972
39,972
(43)
(43)
(7)
(2)
(34)
(37)
(37)
(32)
(5)
0
0
0
(80)
(80)
(35)
(35)
(19)
(16)
(1)
(1)
(1)
0
0
(36)
(36)
0
215
55
55
1
0
53
0
0
270
270
93
93
0
93
21
21
0
0
21
114
114
1 Refer to the “Internal UBS rating scale and mapping of external ratings” table in the “Risk management and control” section of this report for more information on rating categories.
1
400
Note 23 Expected credit loss measurement (continued)
f) Credit-impaired financial instruments at amortized cost
The credit risk in the Group’s portfolio is actively managed by
taking collateral against exposures and by utilizing credit
hedging. Collateral held against credit-impaired loan exposures
(stage 3) mainly consisted of real estate and securities. It is the
Group’s policy to dispose of foreclosed real estate as soon as
practicable. The carrying amount of foreclosed property
recorded in our balance sheet at the end of 2019 and 2018
amounted to USD 86 million and USD 60 million, respectively.
The firm seeks 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. Financial assets
that are credit-impaired and related collateral held in order to
mitigate potential losses are shown in the table below.
USD million
Loans and advances to banks
Loans and advances to customers
of which: Private clients with mortgages
of which: Real estate financing
of which: Large corporate clients
of which: SME clients
of which: Lombard
Other financial assets measured at amortized cost
TToottaall ccrreeddiitt iimmppaaiirreedd ffiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt
-
-
GGrroossss ccaarrrryyiinngg
aammoouunntt
11
22,,330088
11,,000000
2211
119922
779911
111166
667722
22,,99881111
3311..1122..1199
AAlllloowwaannccee ffoorr
eexxppeecctteedd ccrreeddiitt lloosssseess NNeett ccaarrrryyiinngg aammoouunntt
00
11,,774499
995599
1177
9944
552211
9988
557766
22,,332266
((11))
((555599))
((4411))
((44))
((9988))
((227711))
((1188))
((9955))
((665555))11
CCoollllaatteerraall // ccrreeddiitt
eennhhaanncceemmeennttss
00
11,,669988
995599
1133
7777
446611
8899
2222
11,,772200
Guarantees
of which: Large corporate clients
of which: SME clients
1100
88
22
1122
Loan commitments
55
Committed unconditionally revocable credit lines
00
Irrevocable committed prolongation of existing loans
TToottaall ooffff bbaallaannccee sshheeeett ffiinnaanncciiaall iinnssttrruummeennttss aanndd ootthheerr ccrreeddiitt lliinneess
2277
11 Under IFRS 9, adopted on 1 January 2018, an instrument is classified as credit-impaired if the counterparty is defaulted, and/or the instrument is purchased or originated credit-impaired and includes credit-
impaired exposures for which no loss has occurred or no allowance has been recognized (e.g., because they are expected to be fully recoverable through the collateral held).
((3333))
((99))
((2233))
00
00
00
((3333))11
8822
2244
5588
5500
4466
44
11882211
-
-
USD million
Loans and advances to banks
Loans and advances to customers
of which: Private clients with mortgages
of which: Real estate financing
of which: Large corporate clients
of which: SME clients
of which: Lombard
Other financial assets measured at amortized cost
TToottaall ccrreeddiitt iimmppaaiirreedd ffiinnaanncciiaall aasssseettss mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt
-
-
Gross carrying
amount
3
2,297
836
54
170
888
31
586
22,,88886611
31.12.18
Allowance for
expected credit losses Net carrying amount
(3)
(549)
(39)
(16)
(82)
(256)
(17)
(109)
((666600))11
0
1,748
796
38
88
632
14
478
22,,222266
Collateral / credit
enhancements
0
1,654
796
30
79
561
14
12
11,,666666
Guarantees
of which: Large corporate clients
of which: SME clients
84
79
5
8
Loan commitments
9
Committed unconditionally revocable credit lines
0
Irrevocable committed prolongation of existing loans
TToottaall ooffff bbaallaannccee sshheeeett ffiinnaanncciiaall iinnssttrruummeennttss aanndd ootthheerr ccrreeddiitt lliinneess
110022
11 Under IFRS 9, adopted on 1 January 2018, an instrument is classified as credit-impaired if the counterparty is defaulted, and/or the instrument is purchased or originated credit-impaired and includes credit-
impaired exposures for which no loss has occurred or no allowance has been recognized (e.g., because they are expected to be fully recoverable through the collateral held).
215
127
77
53
93
22
33883311
(34)
(6)
(25)
0
0
0
((3344))11
-
-
401
Financial statements
Consolidated financial statements
Note 23 Expected credit loss measurement (continued)
g) Sensitivity information
As outlined in Note 1a, ECL estimates involve significant
uncertainties at the time they are made.
ECL model
The models applied to determine point in time probability of
default (PD) and loss given default (LGD) rely on market and
statistical data, which have been found to correlate well with
historically observed defaults
in sufficiently homogeneous
segments. The risk sensitivities for each of the IFRS 9 reporting
segments to such factors have been summarized in Note 10.
Emerging new systematic risk factors may not be sufficiently
taken into account by existing models and may affect the
responsiveness thereof to a changing environment. This risk is
deemed to be immaterial and is monitored through regular
model review processes. It is deemed to be of less importance
in particular for the large books of mortgage loans, where risk
drivers tend to be stable.
Statistically derived models, which perform well on a
reasonably sized and homogeneous portfolio, may show
weakness in smaller-sized sub-portfolios, for which other or
differently weighted factors may be more relevant criteria.
Where risk experts conclude that the output of a general model
is not in line with what they would have expected for a specific
portfolio segment, and that this would be material for ECL, the
use of overlays would be recommended, based on management
judgment.
ECL estimations for segments where the PD is homogeneous,
but the credit exposure is not, may prove to be inaccurate –
even though all parameters have been accurately predicted – as
the actual amount of loss depends on the exposure of the
position that defaulted. This observation is less relevant for
retail-type portfolios with smaller individual exposures from
mortgage
loans or financing of small and medium-sized
corporate clients (SME), but may become important for the large
corporate client portfolios in the Investment Bank and Personal
& Corporate Banking.
Forward-looking scenarios
Depending on the scenario selection and related macro-
economic assumptions for the risk factors, the components of
the relevant weighted average ECL change. This is particularly
relevant for interest rates, which can take both directions under
a given growth assumption (for example, low growth with high
interest rates in a stagflation scenario, versus low growth and
falling interest rates in a recession). Management will look for
scenario narratives that reflect the key risk drivers of a credit
portfolio.
As forecasting models are complex, due to the combination
of multiple factors, simple what-if analyses involving a change of
individual parameters do not necessarily provide realistic
information on the exposure of segments to changes in the
macroeconomy. Portfolio-specific analyses based on their key
risk factors would also not be meaningful, as potential
compensatory effects in other segments would be ignored. The
table below indicates some sensitivities to ECLs if a key
macroeconomic variable for the forecasting period is amended
across all scenarios with all other factors remaining unchanged.
Potential effect on stage 1 and stage 2 positions from changing key parameters as at 31 December 2019
USD million
Change in key parameters
Change in key parameters
Fixed income: 10-year government bonds (absolute change)
Fixed income: 10-year government bonds (absolute change)
–1.00%
–0.25%
+0.25%
+1.00%
Unemployment rate (absolute change)
Unemployment rate (absolute change)
–1.00%
–0.25%
+0.25%
+1.00%
Real GDP growth (relative change)
Real GDP growth (relative change)
–1.00%
+1.00%
House Price Index (relative change)
House Price Index (relative change)
–5.00%
–1.00%
+1.00%
+5.00%
402
Baseline
Baseline
Upside
Upside
Mild downside
Mild downside
Severe downside Weighted average
Severe downside Weighted average
0.34
0.06
(0.02)
3.34
(6.72)
(2.00)
2.26
8.56
2.50
(2.79)
1.00
0.21
(0.16)
(0.25)
(0.52)
(0.31)
0.47
4.03
(4.79)
(1.45)
1.65
5.93
2.42
(1.47)
0.59
0.13
(0.09)
(0.42)
(25.25)
(7.72)
7.75
36.65
(26.41)
(7.79)
8.74
36.27
2.42
(2.47)
4.67
0.85
(0.90)
(4.66)
(0.21)
(0.11)
0.12
0.11
(54.97)
(16.20)
17.31
73.04
1.01
(1.01)
9.50
1.89
(2.16)
(8.51)
(7.69)
(2.31)
2.18
13.35
(18.02)
(5.43)
5.99
24.36
2.19
(2.37)
3.06
0.56
(0.54)
(2.52)
Note 23 Expected credit loss measurement (continued)
Sensitivities at a Group level can be more meaningfully
assessed in the context of coherent scenarios with consistently
developed macroeconomic factors. The table on the previous
page outlines favorable and unfavorable effects based on
reasonably possible alternative changes to the economic
conditions on ECL for stage 1 and stage 2 positions by disclosing
for each scenario (see item b in this Note) and material portfolio
the corresponding ECL output. The effect of applying scenarios
is not linear across the portfolio, with a significant impact
observed in the mortgage loan books, as the potential effect of
rising interest rates manifests itself in the mild downside
scenario, while high unemployment rates combined with a
marked correction of house prices contribute to high expected
losses in the severe downside scenario.
The forecasting horizon is limited to three years, with a
model-based mean reversion of PD and LGD assumed
thereafter. Changes to these timelines may have an effect on
ECLs: depending on the cycle, a longer or shorter forecasting
horizon will lead to different annualized lifetime PD and
average LGD estimations. This is currently not deemed to be
material for UBS, as a large proportion of loans, including
mortgages in Switzerland, have maturities that are within the
forecasting horizon.
Scenario weights
ECL is sensitive to changing scenario weights, in particular if
narratives and parameters are selected that are not close to the
baseline scenario, highlighting the non-linearity of credit losses.
As shown in the table on the bottom of this page, the ECL for
stage 1 and stage 2 positions would have been USD 234 million
(31 December 2018: USD 237 million) instead of USD 341
million (31 December 2018: USD 359 million) if ECL had been
determined solely on the baseline scenario. The weighted
average ECL therefore amounts to 149% (31 December 2018:
152%) of the baseline value.
Stage allocation and SICR
The determination of what constitutes a significant increase in
credit risk (SICR) is based on management judgment as
explained in Note 1a. Changing the SICR trigger will have a
direct effect on ECLs, as more or fewer positions would be
subject to lifetime ECLs under any scenario.
The relevance of the SICR trigger on overall ECL
is
demonstrated in the table below with the indication that the
ECL for stage 1 and stage 2 positions would have been USD 713
million if all non-impaired positions across the portfolio had
been measured for lifetime ECLs irrespective of their actual SICR
status.
Maturity profile
The maturity profile of the assets is an important driver for
changes in ECL due to transfers to stage 2. The current maturity
profile of most lending books is relatively short; hence a
movement to stage 2 may have a limited effect on ECLs.
A significant portion of our lending to SMEs is documented
under frame credit agreements, which allow for various forms of
utilization but are unconditionally cancelable by UBS at any time.
The relevant maturity for drawings under such agreements with
a fixed maturity is the respective term, or a maximum of 12
months in stage 1. For unused credit lines and all drawings that
have no fixed maturity (e.g., current accounts), UBS generally
applies a 12-month maturity from the reporting date, given the
credit
require either continuous
monitoring of key indicators and behavioral patterns for smaller
positions or an annual formal review for any other limit. The
ECLs for these products is sensitive to shortening or extending
the maturity assumption.
review policies, which
Potential effect on stage 1 and stage 2 positions from changing scenario weights or moving to a ECL lifetime calculation as at 31 December 2019
Scenarios
USD million, except where
indicated
SSeeggmmeennttaattiioonn
Private clients with mortgages
Real estate financing
Large corporate clients
SME clients
Other segments
TToottaall
Actual ECL allowances
and provisions (as per
Note 10)
WWeeiigghhtteedd aavveerraaggee
in % of
baseline
248
169
151
112
127
114499
ECL
7733
5555
4488
5511
111133
334411
Pro forma ECL allowances and provisions, assuming application of 100% weighting
BBaasseelliinnee
Mild downside
Upside
Severe downside
in % of
baseline
100
100
100
100
100
110000
ECL
3322
3355
3322
4455
9900
223344
in % of
baseline
84
81
87
93
87
8877
ECL
27
28
28
42
78
220033
in % of
baseline
336
175
120
121
140
116666
ECL
107
61
39
55
126
338877
in % of
baseline
562
368
329
147
185
227766
ECL
179
128
106
67
166
664466
Pro forma ECL
allowances and
provisions, assuming
all positions being
subject to lifetime ECL
WWeeiigghhtteedd aavveerraaggee
in % of
baseline
646
251
296
205
283
331122
ECL
119911
8822
9955
9933
225522
771133
403
Financial statements
Consolidated financial statements
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) Fair value hierarchy
d) Valuation adjustments
e) Transfers between Level 1 and Level 2
f) Level 3 instruments: valuation techniques and inputs
g) Level 3 instruments: sensitivity to changes in unobservable
input assumptions
h) Level 3 instruments: movements during the period
i) Maximum exposure to credit risk for financial instruments
measured at fair value
j) Financial instruments not measured at fair value
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
transaction 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 uses 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 accordance with IFRS. The fair value
hierarchy is based on the transparency of inputs to the valuation
of an asset or liability as of the measurement. 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
identical 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.
404
Note 24 Fair value measurement (continued)
Fair values are determined using quoted prices in active
markets for identical assets or liabilities, where available. 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 multiplied by the number of units of the
instrument held.
technique,
Where the market for a financial instrument or non-financial
asset or liability is not active, fair value is established using a
valuation
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
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.
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.
In carrying out
willing 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 substantially similar and offsetting risk exposures
on the basis of the net open risks.
For transactions where the valuation technique used to
measure fair value requires significant inputs that are not based
on observable market data, the financial instrument is initially
recognized 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
Fair value estimates 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 a governance framework are in place and are
intended 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 Control evaluate 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
405
Financial statements
Consolidated financial statements
Note 24 Fair value measurement (continued)
c) Fair value hierarchy
The table below provides the fair value hierarchy classification of
financial and non-financial assets and liabilities measured at fair
value. The narrative that follows describes the different product hierarchy.
types, valuation techniques used in measuring their fair value,
including significant valuation inputs and assumptions used, and
the factors determining their classification within the fair value
Determination of fair values from quoted market prices or valuation techniques1
USD million
Financial assets measured at fair value on a recurring basis
Financial assets measured at fair value on a recurring basis
31.12.19
31.12.19
31.12.18
Level 1
Level 1
Level 2
Level 2
Level 3
Level 3
Total
Total
Level 1
Level 2
Level 3
Total
Financial assets at fair value held for trading
113,634
113,634
12,068
12,068
1,812
1,812
127,514
127,514
88,452
13,956
1,962 104,370
of which:
Equity instruments
Government bills / bonds
Investment fund units
Corporate and municipal bonds
Loans
Asset-backed securities
Derivative financial instruments
of which:
Foreign exchange contracts
Interest rate contracts
Equity / index contracts
Credit derivative contracts
Commodity contracts
Brokerage receivables
96,161
96,161
9,630
9,630
7,088
7,088
755
755
0
0
0
0
400
400
1,770
1,770
1,729
1,729
6,617
6,617
1,180
1,180
372
372
226
226 96,787 72,266
96,787
64 11,464
11,464
64
8,867
50
8,867
50
7,914
542
7,914
542
1,971
791
1,971
791
512
140
512
140
455
9,554 1,607
6,074 3,200
558 5,559
0 2,886
248
0
46 72,768
0 11,161
442 9,716
651 6,768
680 3,566
392
144
356
356
120,222
120,222
1,264
1,264
121,841
121,841
753 124,033
1,424 126,210
52,227
240 52,227
240
6
6 42,288
42,288
22,220
7
7 22,220
1,612
0
1,612
0
1,820
0
1,820
0
8 52,474
8
52,474
263
263 42,558
42,558
22,825
597
597 22,825
2,007
394
2,007
394
1,821
0
1,821
0
311 53,148
0 36,658
3 30,905
0 1,444
0 1,768
30 53,489
418 37,076
496 31,404
476 1,920
2 1,769
0
0
18,007
18,007
0
0
18,007
18,007
0
16,840
0
16,840
Financial assets at fair value not held for trading
40,608
40,608
39,373
39,373
3,963
3,963
83,944
83,944
40,204
38,073
4,413
82,690
of which:
Financial assets for unit-linked investment contracts2
Corporate and municipal bonds
Government bills / bonds
Loans
Securities financing transactions
Auction rate securities
Investment fund units
Equity instruments
Other
118
118
27,568
27,568
18,732
653
653 18,732
3,700
12,089
3,700
12,089
10,206
0
0 10,206
6,148
0
6,148
0
0
0
0
0
448
194
448
194
4
103
4
103
16
0
16
0
5
0
0 27,686 21,440
27,686
0
19,385
781 16,455
0 19,385
15,790
0
0 15,790 17,687 4,806
1,231
11,438
1,231 11,438
6,294
147
6,294
147
1,536
1,536
1,536
1,536
740
98
740
98
559
452
559
452
515
499
515
499
0 21,446
0 17,236
0 22,493
0 6,380 1,752 8,132
39 9,937
0 9,899
0 1,664 1,664
0
710
173
702
123
369
0
428
62
38
109
517
331
Financial assets measured at fair value through other comprehensive income on a recurring basis
Financial assets measured at fair value through other comprehensive income on a recurring basis
Financial assets measured at fair value through other comprehensive income
1,906
1,906
4,439
4,439
of which:
Asset-backed securities
Government bills / bonds
Corporate and municipal bonds
Non-financial assets measured at fair value on a recurring basis
Non-financial assets measured at fair value on a recurring basis
Precious metals and other physical commodities
Non-financial assets measured at fair value on a non-recurring basis
Non-financial assets measured at fair value on a non-recurring basis
Other non-financial assets3
0
0
1,859
1,859
47
47
3,955
3,955
16
16
468
468
4,597
4,597
0
0
0
0
0
0
0
0
0
0
0
0
0
0
6,345
6,345
2,319
4,347
0
6,667
3,955
3,955
1,875
1,875
515
515
0 3,931
69
348
2,171
149
0 3,931
0 2,239
497
0
0
0
4,597
4,597
4,298
0
0
4,298
199
199
199
199
0
82
0
82
Total assets measured at fair value
Total assets measured at fair value
161,101
161,101
194,110
194,110
7,237
7,237
362,448
362,448
136,026 197,331
7,800 341,156
406
Note 24 Fair value measurement (continued)
Determination of fair values from quoted market prices or valuation techniques (continued)1
USD million
FFiinnaanncciiaall lliiaabbiilliittiieess mmeeaassuurreedd aatt ffaaiirr vvaalluuee oonn aa rreeccuurrrriinngg bbaassiiss
3311..1122..1199
31.12.18
LLeevveell 11
LLeevveell 22
LLeevveell 33
TToottaall
Level 1
Level 2
Level 3
Total
Financial liabilities at fair value held for trading
2255,,779911
44,,772266
7755
3300,,559911
24,406
4,468
69
28,943
of which:
Equity instruments
Corporate and municipal bonds
Government bills / bonds
Investment fund units
Derivative financial instruments
of which:
Foreign exchange contracts
Interest rate contracts
Equity / index contracts
Credit derivative contracts
Commodity contracts
FFiinnaanncciiaall lliiaabbiilliittiieess ddeessiiggnnaatteedd aatt ffaaiirr vvaalluuee oonn aa rreeccuurrrriinngg bbaassiiss
Brokerage payables designated at fair value
Debt issued designated at fair value
Other financial liabilities designated at fair value
of which:
Financial liabilities related to unit-linked investment contracts
Securities financing transactions
Over-the-counter debt instruments
2222,,552266
4400
22,,882200
440044
114499
33,,660066
664466
229944
5599 2222,,773344
33,,666611
1166
33,,446666
00
669988
00
21,306
537
126 3,377
416
137
2,423
551
42 21,886
27 3,530
0 2,839
689
0
338855
111188,,449988
11,,999966
112200,,888800
580 122,933
2,210 125,723
224488 5533,,770055
77 3366,,443344
33 2244,,117711
00
22,,444488
00
11,,770077
6600 5544,,001133
113300 3366,,557711
11,,229933 2255,,446688
22,,996600
11,,770077
551122
00
86 53,372
322 52,964
7 32,511
226 32,743
1 33,669 1,371 35,041
519 2,722
0 2,203
0 1,487
0 1,487
00
00
00
3377,,223333
00
3377,,223333
5566,,994433
99,,886666
6666,,880099
3355,,111199
882222
3355,,994400
0
0
0
38,420
0
38,420
46,074
10,957
57,031
32,569
1,025
33,594
00 2288,,114455
00
55,,774422
00
11,,223311
00 2288,,114455
55,,774422
00
22,,002222
779911
0 21,679
0 21,679
0 9,461
0 9,461
0 1,427 1,023 2,450
TToottaall lliiaabbiilliittiieess mmeeaassuurreedd aatt ffaaiirr vvaalluuee
14,260 283,711
11 Bifurcated embedded derivatives are presented on the same balance sheet lines as their host contracts and are not included in this table. The fair value of these derivatives was not material for the periods
presented. 22 Fair value hierarchy information for Financial assets for unit-linked investment contracts in the comparative period has been restated, resulting in an increase in Level 1 assets of USD 4,746 million as
33 Other non-financial assets primarily consist of properties and other non-current assets held for sale, which are measured at the lower of
of 31 December 2018, with a corresponding decrease in Level 2 assets.
their net carrying amount or fair value less costs to sell.
24,986 244,465
225522,,551188
229911,,445522
2266,,117766
1122,,775599
407
Financial statements
Consolidated financial statements
Note 24 Fair value measurement (continued)
Valuation techniques
Valuation techniques are used to value positions for which a
market price is not available from active market sources. This
includes certain less liquid debt and equity instruments, certain
exchange-traded derivatives and all derivatives transacted in the
OTC market. UBS uses widely recognized valuation techniques
for determining 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
methodologies.
Discounted value of expected cash flows is a valuation
technique 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 instruments 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 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
observable market data. In such cases, the inputs selected are
based on historical experience and practice for similar or
analogous instruments, derivation of input levels based on
similar products with observable price levels and knowledge of
current market conditions and valuation approaches.
For more complex instruments, fair values may be estimated
using a combination 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 services. UBS also uses internally developed
408
models, which are typically based on valuation methods and
techniques recognized as standard within the industry.
Assumptions and inputs used in valuation techniques include
benchmark interest rate curves, credit and funding spreads used in
estimating discount rates, bond and equity prices, equity index
prices, foreign exchange rates, levels of market volatility and
correlation. Refer to Note 24f for more information. The discount
curves used by the Group incorporate the funding and credit
characteristics of the instruments to which they are applied.
Financial instruments excluding derivatives: product
description, valuation and classification in the fair value
hierarchy
Government bills and bonds
Product description: government bills and bonds include fixed-
rate, floating-rate and inflation-linked bills and bonds issued by
sovereign governments.
Valuation: these instruments are generally valued using prices
obtained directly from the market. 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.
Fair value hierarchy: government bills and bonds are generally
traded in active markets with prices that can be obtained directly
from these markets, resulting in classification as Level 1, while
the remaining positions are classified as Level 2 and Level 3.
Corporate and municipal bonds
Product description: corporate bonds include senior, junior and
subordinated debt issued by corporate entities. Municipal bonds
are
local governments. While most
instruments are standard fixed- or floating-rate securities, some
may have more complex coupon or embedded option features.
issued by state and
Valuation: corporate and municipal bonds are generally
valued using prices obtained directly from the market for the
security, or similar securities, adjusted for seniority, maturity and
liquidity. When prices are not available, instruments are valued
using discounted cash flow valuation techniques incorporating
the credit spread of the issuer or similar issuers. For convertible
bonds where no directly comparable price is available, issuances
may be priced using a convertible bond model.
Fair value hierarchy: corporate and 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 pricing information available and also cannot be
referenced to other securities issued by the same issuer.
Therefore, such instruments are measured based on price levels
for similar issuers adjusted for relative tenor and issuer quality.
Traded loans and loans designated at fair value
Product description: these instruments include fixed-rate loans,
corporate loans, recently originated commercial real estate loans
and contingent lending transactions.
Note 24 Fair value measurement (continued)
Valuation: loans are valued directly using market prices that
reflect recent transactions or quoted dealer prices, where
available. Where no market price data is available, loans are
valued by relative value benchmarking using pricing derived
from debt instruments in comparable entities or different
products in the same entity, or by using a credit default swap
valuation technique, which requires inputs for credit spreads,
credit recovery rates and interest rates. Recently originated
commercial real estate loans are measured using a securitization
approach based on rating agency guidelines. The valuation of
the contingent lending transactions is 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.
Fair value hierarchy: instruments with suitably deep and liquid
pricing information are classified as Level 2, while any positions
requiring the use of valuation techniques, or for which the price
sources have insufficient trading depth, are classified as Level 3.
Investment fund units
Product description: investment fund units are pools of assets,
generally equity instruments and bonds, broken down to
redeemable units.
Valuation:
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 (NAVs), taking into account
any restrictions imposed upon redemption.
investment
Fair value hierarchy: listed units are classified as Level 1,
provided there is sufficient trading activity to justify active-
market classification, while other positions are classified as
Level 2. Positions for which NAVs are not available or that are
not redeemable at the measurement date or shortly thereafter
are classified as Level 3.
Asset-backed securities
include
Product description: asset-backed securities
(RMBS), commercial
residential mortgage-backed securities
mortgage-backed
collateralized debt
(CMBS),
obligations (CDO) and other ABS and are instruments generally
issued through the process of securitization of underlying
interest-bearing assets.
securities
(ABS)
Valuation: for liquid securities, the valuation process will use
trade and price data, updated for movements in market levels
between the time of trading and the time of valuation. Less
liquid instruments are measured using discounted expected cash
flows incorporating price data for instruments or indices with
similar risk profiles. Inputs to discounted expected cash flow
techniques include asset prepayment rates, discount margin or
discount yields and asset default and recovery rates.
Fair value hierarchy: RMBS, CMBS and other ABS are
generally classified as Level 2. However, if significant inputs are
unobservable, or if market or fundamental data is not available,
they are classified as Level 3.
Auction rate securities
Product description: auction rate securities (ARS) are debt or
preferred equity securities that have interest rates that are reset
through a periodic auction and, in the event of a failed auction,
to a maximum rate as defined by each deal’s prospectus. ARS
are generally structured as bonds with long-term maturities (20–
30 years) or preferred shares (issued by closed-end funds).
Valuation: ARS are valued using market prices that reflect
recent transactions after applying an adjustment for trade size or
quoted dealer prices, where available.
Fair value hierarchy: suitably deep and
liquid pricing
information is generally not available for ARS. As a result, these
securities are classified as Level 3.
Equity instruments
Product description: equity instruments include stocks and
shares, private equity positions and units held in hedge funds.
Valuation: listed equity instruments are generally valued using
prices obtained directly from the market. Unlisted equity
holdings, including private equity positions, are initially marked
at their transaction price and are revalued when reliable
evidence of price movement becomes available or when the
position is deemed to be impaired. Fair value for units held in
hedge funds is measured based on their published NAVs, taking
into account any restrictions imposed upon redemption.
readily and
Fair value hierarchy: the majority of equity securities are
actively traded on public stock exchanges where quoted prices
are
in Level 1
classification. Units held in hedge funds are classified as Level 2,
except for positions for which published NAVs are not available
or that are not redeemable at the measurement date or shortly
thereafter, in which case such positions are classified as Level 3.
regularly available,
resulting
Financial assets for unit-linked investment contracts
Product description: unit-linked investment contracts allow
investors to invest in a pool of assets through issued investment
units.
Valuation: the majority of assets are listed on exchanges and
fair values are determined using quoted prices.
Fair value hierarchy: most assets 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.
409
Financial statements
Consolidated financial statements
Note 24 Fair value measurement (continued)
Securities financing transactions
Product description: securities financing transactions include
(reverse) repurchase agreements (securities purchased under
resale agreements and securities sold under
repurchase
agreements) that are managed on a fair value basis.
Valuation: these instruments are valued using discounted
expected cash flow techniques. The discount rate applied is
based on funding curves that are relevant to the collateral
eligibility terms for the contract in question.
Fair value hierarchy: collateral funding curves for these
instruments are generally observable and, as a result, these
positions are classified as Level 2. Where the collateral terms are
non-standard,
considered
unobservable and these positions are classified as Level 3.
curve may be
funding
the
Brokerage receivables and payables
Product description: brokerage receivables and payables include
callable, on-demand balances, including long cash credits, short
cash debits, margin debit balances and short sale proceeds.
Valuation: fair value is determined based on the value of the
underlying balances.
Fair value hierarchy: due to their on-demand nature, these
receivables and payables are designated as Level 2.
Financial liabilities designated at fair value
Product description: debt instruments, primarily comprised of
equity-, rates- and credit-linked issued notes, which are held at
fair value under the fair value option. These instruments are
tailored specifically to the holder’s risk or investment appetite
with structured coupons or payoffs.
Valuation: the risk management and the valuation approaches
for these instruments are closely aligned with 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 below. For example, equity-linked
notes should be referenced to equity / index contracts and credit-
linked notes should be referenced to credit derivative contracts.
Fair value hierarchy: observability is closely aligned with the
equivalent derivatives business and the underlying risk.
Refer to Notes 19 and 22 for information about debt issued
designated at fair value and other financial liabilities
designated at fair value
Refer to Note 24d for more information about own credit
adjustments related to financial liabilities designated at fair
value
Amounts due under unit-linked investment contracts
Product description: the financial liability represents the amounts
due to unit holders.
Valuation: the fair values of investment contract liabilities are
determined by reference to the fair value of the corresponding
assets.
Fair value hierarchy: the liabilities themselves are not actively
traded, but are mainly referenced to instruments that are
actively traded and are therefore classified as Level 2.
410
Derivative instruments: product description, valuation and
classification in the fair value hierarchy
The curves used for discounting expected cash flows in the
valuation of collateralized derivatives reflect the funding terms
associated with the relevant collateral arrangement for the
instrument being valued. These collateral arrangements differ
across counterparties with respect to the eligible currency and
interest terms of the collateral. The majority of collateralized
derivatives are measured 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
discounted using the LIBOR (or equivalent) curve for the currency
of the instrument. As described in Note 24d, the fair value of
uncollateralized and partially collateralized derivatives is then
adjusted by CVA, DVA and FVA as applicable, to reflect an
estimation of the effect of counterparty credit risk, UBS’s own
credit risk and funding costs and benefits.
Interest rate contracts
Product description: interest rate swap contracts include interest
rate swaps, basis swaps, cross-currency swaps, inflation swaps
and interest rate forwards, often referred to as forward rate
agreements (FRA). Interest rate option contracts include caps
and floors, swaptions, swaps with complex payoff profiles and
other more complex interest rate options.
Valuation:
interest rate swap contracts are valued by
estimating future interest cash flows and discounting those cash
flows using a rate that reflects the appropriate funding rate for
the position being measured. The yield curves used to estimate
future index levels and discount rates are generated using
interest rates
market standard yield curve models using
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. Interest rate option 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. When the maturity of
the interest rate swap or option contract exceeds the term for
which standard market quotes are observable for a significant
input parameter, the contracts 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.
Note 24 Fair value measurement (continued)
Fair value hierarchy: the majority of interest rate swaps are
classified as Level 2 as the standard market contracts that form
the inputs for yield curve models are generally traded in active
and observable markets. Options 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
and more exotic products. 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 volatility and correlation inputs are
derived. Exotic options for which appropriate volatility or
correlation input levels cannot be implied from observable
market data are classified as Level 3. Interest rate swap or option
contracts are classified as Level 3 when the term exceeds
standard market-observable quotes.
Credit derivative contracts
Product description: a credit derivative is a financial instrument
that transfers credit risk related to a single underlying entity, a
portfolio of underlying entities or a pool of securitized
referenced assets. Credit derivative products include credit
default swaps (CDSs) on single names, indices and securitized
products, plus first to default swaps and certain total return
swaps.
Valuation: credit derivative contracts are valued using
industry standard models based primarily on market credit
spreads, upfront pricing points and implied recovery rates.
Where a derivative credit spread is not directly available, it may
be derived from the price of the reference cash bond. Asset-
backed credit derivatives are valued using a valuation
technique similar to that of the underlying security with an
adjustment to reflect the funding differences between cash
and synthetic form. Inputs include prepayment rates, default
rates, loss severity, discount margin / rate.
Fair value hierarchy classification: single-entity and portfolio
credit derivative contracts are classified as Level 2 when credit
spreads and recovery rates are determined from actively traded
observable market data. Where the underlying reference
name(s) are not actively traded and the correlation cannot be
directly mapped to actively traded tranche instruments, these
contracts are classified as Level 3. Asset-backed credit derivatives
follow the characteristics of the underlying security and are
therefore distributed across Level 2 and Level 3.
Foreign exchange contracts
Product description: this includes open spot and forward foreign
exchange (FX) contracts and OTC FX option contracts. 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 payoff
characteristics, options on a number of underlying FX rates and
contracts, which have a
FX option
multi-dimensional
dependency on multiple FX pairs.
Valuation: 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. OTC FX option
contracts are valued using market standard option valuation
models. The models used for shorter-dated options (i.e.,
maturities of five years or less) tend to be different than those
used for longer-dated options because the models needed for
longer-dated OTC FX contracts require additional consideration
of interest rate and FX rate interdependency. Inputs to the
option valuation models include spot FX rates, FX forward
points, FX volatilities, interest rate yield curves, interest rate
volatilities and correlations. The
inputs for volatility and
correlation are implied through the calibration of observed prices
for standard option contracts trading within the market. The
valuation for multi-dimensional FX options uses a multi-local
volatility model, which is calibrated to the observed FX volatilities
for all relevant FX pairs.
Fair value hierarchy: the markets for both FX spot and FX
forward pricing points are both actively traded and observable
and therefore such FX contracts are generally classified as
Level 2. A significant proportion of OTC FX option contracts are
classified as Level 2 as inputs are derived mostly from standard
market contracts traded in active and observable markets. OTC
include multi-
FX option contracts classified as Level 3
dimensional FX options and long-dated FX exotic option
contracts where there is no active market from which to derive
volatility or correlation inputs.
Equity / index contracts
Product description: equity / index contracts are equity forward
contracts and equity option contracts. Equity option contracts
include market standard single or basket stock or index call and
put options as well as equity option contracts with more
complex features.
411
Financial statements
Consolidated financial statements
Note 24 Fair value measurement (continued)
Valuation: equity forward contracts have a single stock or
index underlying and are valued using market standard models.
The key inputs to the models are stock prices, estimated
dividend rates and equity funding rates (which are implied from
prices of forward contracts observed in the market). Estimated
cash flows are then discounted using market standard
discounted cash flow models using a rate that reflects the
appropriate funding rate for that portion of the portfolio. When
no market data is available for the instrument maturity, they are
valued by extrapolation of available data, use of historical
dividend data, or use of data for a related equity. Equity option
contracts are valued using market standard models that estimate
the equity forward level as described for equity forward
contracts and incorporate inputs for stock volatility and for
correlation between stocks within a basket. The probability-
weighted expected option payoff generated is then discounted
using market standard discounted cash flow models applying a
rate that reflects the appropriate funding rate for that portion of
the portfolio. When volatility, forward or correlation inputs are
not available, they are valued using extrapolation of available
data, historical dividend, correlation or volatility data, or the
equivalent data for a related equity.
Fair value hierarchy: as inputs are derived mostly from
standard market contracts traded in active and observable
markets, a significant proportion of equity forward contracts are
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 restrictions and other factors. Valuation adjustments are
an important component of fair value for assets and liabilities
that are measured 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.
412
classified as Level 2. Equity option positions for which inputs are
derived from standard market contracts traded in active and
observable markets are also classified as Level 2. Level 3
positions are those for which volatility, forward or correlation
inputs are not observable.
Commodity contracts
Product description: commodity derivative contracts include
forward, swap and option contracts on individual commodities
and on commodity indices.
Valuation: commodity forward and swap contracts are
measured using market standard models that use market
forward levels on standard instruments. Commodity option
contracts are measured using market standard option models
that estimate the commodity forward level as described for
commodity forward and swap contracts, incorporating inputs for
the volatility of the underlying index or commodity. For
commodity options on baskets of commodities or bespoke
commodity indices, the valuation technique also incorporates
inputs for the correlation between different commodities or
commodity indices.
Fair value hierarchy: individual commodity contracts are
typically classified as Level 2 because active forward and volatility
market data is available.
Refer to Note 11 for more information about derivative
instruments
Deferred day-1 profit or loss reserves
For new transactions where the valuation technique used to
measure fair value requires significant inputs that are not based
on observable market data, the financial instrument is initially
recognized at the transaction price. The transaction price may
differ from the fair value obtained using a valuation technique,
where any such difference
initially
recognized in the income statement. These day-1 profit or loss
reflected, where appropriate, as valuation
reserves are
adjustments.
is deferred and not
Deferred day-1 profit or loss is generally released into Other
net income from financial instruments measured at fair value
through profit or loss when pricing of equivalent products or the
underlying parameters become observable or when
the
transaction is closed out.
The table on the next page summarizes the changes in
deferred day-1 profit or loss reserves during the respective
period.
Note 24 Fair value measurement (continued)
Deferred day-1 profit or loss reserves
USD million
RReesseerrvvee bbaallaannccee aatt tthhee bbeeggiinnnniinngg ooff tthhee yyeeaarr
Profit / (loss) deferred on new transactions
(Profit) / loss recognized in the income statement
Foreign currency translation
RReesseerrvvee bbaallaannccee aatt tthhee eenndd ooff tthhee yyeeaarr
Own credit
The valuation of financial liabilities designated at fair value
requires consideration of the own credit component of fair
value. Own credit risk is reflected in the valuation of UBS’s fair
value option liabilities where this component is considered
relevant for valuation purposes by UBS’s counterparties and
other market participants. However, own credit risk is not
reflected in the valuation of UBS’s liabilities that are fully
collateralized or for other obligations for which it is established
market practice not to include an own credit component.
Changes in the fair value of financial liabilities designated at
fair value through profit or loss related to own credit are
recognized in Other comprehensive income directly within
Retained earnings. As the Group does not hedge changes in
own credit arising on financial liabilities designated at fair value,
presenting own credit within Other comprehensive income does
not create or increase an accounting mismatch in the income
statement. The unrealized and any realized own credit
recognized
income will not be
in Other comprehensive
reclassified to the income statement in future periods.
Own credit adjustments on financial liabilities designated at fair value
USD million
RReeccooggnniizzeedd dduurriinngg tthhee yyeeaarr::
Realized gain / (loss)
Unrealized gain / (loss)
TToottaall ggaaiinn // ((lloossss)),, bbeeffoorree ttaaxx
USD million
RReeccooggnniizzeedd oonn tthhee bbaallaannccee sshheeeett aass ooff tthhee eenndd ooff tthhee yyeeaarr::
Unrealized life-to-date gain / (loss)
22001199
225555
117711
((227788))
((22))
114466
2018
338
341
(417)
(6)
255
2017
365
247
(279)
6
338
Own credit is estimated using an Own Credit Adjustment
(OCA) curve, which incorporates observable market data,
including market-observed secondary prices for UBS senior debt,
UBS credit default swap (CDS) spreads and senior debt curves of
peers. The table below summarizes the effects of own credit
adjustments related to financial liabilities designated at fair
value. The change in unrealized own credit 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
redemptions, effects from time decay and changes in interest
and other market rates. Realized own credit is recognized when
an
instrument with an associated unrealized own credit
adjustment is repurchased prior to the contractual maturity date.
Life-to-date amounts reflect the cumulative unrealized change
since initial recognition.
Refer to Note 19 for more information about debt issued
designated at fair value
For the year ended
Included in
Other comprehensive income
3311..1122..1199
31.12.18
31.12.17
88
((440088))
((440000))
(3)
519
517
As of
22
(337)
(315)
3311..1122..1199
31.12.18
31.12.17
((8888))
320
(200)
413
Financial statements
Consolidated financial statements
Note 24 Fair value measurement (continued)
inherent
Credit valuation adjustments
In order to measure the fair value of OTC derivative instruments,
including funded derivative instruments that are classified as
Financial assets at fair value not held for trading, credit valuation
adjustments (CVAs) are necessary to reflect the credit risk of the
counterparty
instruments. This amount
represents the estimated fair value of protection required to
hedge the counterparty credit risk of such instruments. A CVA is
determined 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,
funding spreads and other contractual factors.
in these
Funding valuation adjustments
Funding valuation adjustments (FVAs) reflect the costs and
benefits of funding associated with uncollateralized and partially
collateralized derivative receivables and payables and are
calculated as the valuation effect from moving the discounting
of the uncollateralized derivative cash flows from LIBOR to OCA
including the probability of
using the CVA framework,
counterparty default. 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. A DVA is determined for each
Valuation adjustments on financial instruments
Life-to-date gain / (loss), USD million
Credit valuation adjustments1
Credit valuation adjustments1
Funding valuation adjustments
Funding valuation adjustments
Debit valuation adjustments
Debit valuation adjustments
Other valuation adjustments
Other valuation adjustments
of which: liquidity
of which: model uncertainty
1 Amounts do not include reserves against defaulted counterparties.
e) Transfers between Level 1 and Level 2
counterparty, 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.
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 appropriate, 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
valuations are incorporated into the measurement of fair value
through the use of model reserves. These reserves reflect the
amounts that the Group estimates should be deducted from
valuations produced directly by models
incorporate
uncertainties in the relevant modeling assumptions, in the model
and market inputs used, or in the calibration of the model
output to adjust for known model deficiencies. In arriving at
these estimates, the Group considers a range of market
practices, including how it believes market participants would
assess these uncertainties. Model reserves are reassessed
periodically in light of data from market transactions, consensus
pricing services and other relevant sources.
to
As of
31.12.19
31.12.19
31.12.18
(48)
(48)
(50)
(50)
1
1
(566)
(566)
(300)
(300)
(266)
(266)
(90)
(85)
1
(716)
(388)
(327)
The amounts disclosed in this section reflect transfers between Assets and liabilities transferred from Level 2 to Level 1 during
Level 1 and Level 2 for instruments that were held for the entire 2019 were not material. Assets and liabilities transferred from
reporting period.
Level 1 to Level 2 during 2019 were also not material.
414
Note 24 Fair value measurement (continued)
f) Level 3 instruments: valuation techniques and inputs
The table below presents material Level 3 assets and liabilities
together with the valuation techniques used to measure fair
value, the significant inputs used in a given valuation technique
that are considered unobservable and a range of values for
those unobservable inputs. Several inputs disclosed in prior
periods are not disclosed in the table below because they are
not considered significant to the respective valuation technique
as of 31 December 2019.
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 or an assessment of the reasonableness of the Group’s
estimates and assumptions, but rather the different underlying
characteristics of the relevant assets and liabilities held by the
Group. The ranges will therefore vary from period to period and
parameter to parameter based on characteristics of the
instruments held at each balance sheet date. Furthermore, the
ranges of unobservable inputs may differ across other financial
institutions, reflecting the diversity of the products in each firm’s
inventory.
Valuation techniques and inputs used in the fair value measurement of Level 3 assets and liabilities
FFaaiirr vvaalluuee
AAsssseettss
LLiiaabbiilliittiieess
VVaalluuaattiioonn
tteecchhnniiqquuee((ss))
SSiiggnniiffiiccaanntt
uunnoobbsseerrvvaabbllee
iinnppuutt((ss))11
3311..1122..1199 31.12.18 3311..1122..1199 31.12.18
USD billion
FFiinnaanncciiaall aasssseettss aanndd lliiaabbiilliittiieess aatt ffaaiirr vvaalluuee hheelldd ffoorr ttrraaddiinngg aanndd FFiinnaanncciiaall aasssseettss aatt ffaaiirr vvaalluuee nnoott hheelldd ffoorr ttrraaddiinngg
Corporate and municipal
bonds
Traded loans, loans
designated at fair value,
loan commitments and
guarantees
Relative value to
market comparable
0.7
2.7
0.0
0.0
22..44
00..55
00..00
00..00
Bond price equivalent
RRaannggee ooff iinnppuuttss
3311..1122..1199
31.12.18
llooww
hhiigghh
wweeiigghhtteedd
aavveerraaggee22
low
high
weighted
average2
unit1
00
114433
110011
0
134
89
points
Relative value to
market comparable
Discounted expected
cash flows
Market comparable
and securitization
model
Relative value to
market comparable
Relative value to
market comparable
Relative value to
market comparable
Loan price equivalent
00
110011
9999
0
100
99
Credit spread
222255
553300
301
513
Discount margin
00
Bond price equivalent
7799
1144
9988
22
8888
1
14
2
%
79
99
89
points
Net asset value
Price
Auction rate securities
11..55
1.7
Investment fund units 3
00..11
0.6
00..00
0.0
Equity instruments 3
DDeebbtt iissssuueedd ddeessiiggnnaatteedd aatt
ffaaiirr vvaalluuee44
OOtthheerr ffiinnaanncciiaall lliiaabbiilliittiieess
ddeessiiggnnaatteedd aatt ffaaiirr vvaalluuee44
DDeerriivvaattiivvee ffiinnaanncciiaall iinnssttrruummeennttss
00..77
0.6
00..11
0.0
99..99
11.0
00..88
1.0
Interest rate contracts
00..33
0.4
00..11
0.2 Option model
Credit derivative contracts
00..44
0.5
00..55
0.5
Discounted expected
cash flows
Equity / index contracts
00..66
0.5
11..33
1.4 Option model
Volatility of interest
rates
1155
6633
50
81
Credit spreads
Bond price equivalent
Equity dividend yields
Volatility of equity
stocks, equity and
other indices
Equity-to-FX
correlation
Equity-to-equity
correlation
11
00
00
770000
110000
1144
4
3
0
545
99
12
44
110055
4
93
((4455))
7711
(39)
67
%
11 The ranges of significant unobservable inputs are represented in points, percentages and basis points. Points are a percentage of par (e.g., 100 points would be 100% of par). 22 Weighted averages are provided
for non-derivative financial instruments and were calculated by weighting inputs based on the fair values of the respective instruments. Weighted averages are not provided for inputs related to derivative contracts as
this would not be meaningful. 33 The range of inputs is not disclosed as there is a dispersion of values given the diverse nature of the investments. 44 Valuation techniques, significant unobservable inputs and the
respective input ranges for Debt issued designated at fair value and Other financial liabilities designated at fair value, which are primarily comprised of over-the-counter debt instruments, are the same as the
equivalent derivative or structured financing instruments presented elsewhere in this table.
(50)
((1177))
97
9988
points
basis
points
basis
points
basis
points
points
%
%
%
415
Financial statements
Consolidated financial statements
Note 24 Fair value measurement (continued)
Significant unobservable inputs in Level 3 positions
This section discusses the significant unobservable inputs used in
the valuation of Level 3 instruments and assesses the potential
effect that a change in each unobservable input in isolation may
have on a fair value measurement, including information to
facilitate an understanding of factors that give rise to the input
shown. Relationships between observable and
ranges
unobservable inputs have not been included in the summary
below.
Factors
instruments.
Bond price equivalent
Where market prices are not available for a bond, fair value is
measured by comparison with observable pricing data from
similar
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).
considered when
For corporate and municipal bonds, the range 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 issuances that pay a
coupon
in excess of the market benchmark as of the
measurement date.
For credit derivatives, the bond price range represents the
range of prices used for reference instruments, which are
typically converted to an equivalent yield or credit spread as part
of the valuation process.
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, collateral
quality, maturity and issuer-specific covenants. Fair value may be
measured either by a direct price comparison or by conversion of
an instrument price into a yield. The range represents the range
of prices derived from reference issuances 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.
416
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
derivative products. The income statement effect 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 range 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.
Discount margin (DM)
The DM spread represents the discount 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 DM in isolation would result in a higher / (lower) fair
value.
The high end of the range relates to securities that are priced
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.
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 representative 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 effect of
discounting.
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.
Note 24 Fair value measurement (continued)
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 minimum
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
positions 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.
The volatility of
interest rates 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 significantly different
implied volatilities. The volatility of equity stocks, equity and
other indices reflects the range of underlying stock volatilities.
Correlation
Correlation measures
the
movements of two variables. It is expressed as a percentage
between –100% and +100%, where +100% represents
interrelationship between
the
perfectly correlated variables (meaning a movement of one
variable is associated with a movement of the other variable in
the same direction) and –100% implies that the variables are
inversely correlated (meaning a movement of one variable is
associated with a movement of the other variable in the
opposite direction). The effect of correlation on
the
measurement of fair value depends on the specific terms of the
instruments being valued, reflecting the range of different
payoff features within such instruments.
Equity-to-FX correlation is important for equity options based
on a currency different than the currency of the underlying
stock. Equity-to-equity correlation is particularly important for
complex options that incorporate, in some manner, different
equities in the projected payoff.
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 question.
Dividend yields are generally expressed as an annualized
percentage of the share price with the lowest limit of 0%
representing 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.
417
Financial statements
Consolidated financial statements
Note 24 Fair value measurement (continued)
g) Level 3 instruments: sensitivity to changes in unobservable input assumptions
The table below summarizes those financial assets and liabilities
classified as Level 3 for which a change in one or more of the
unobservable inputs to reflect reasonably possible alternative
assumptions would change fair value significantly, and the
estimated effect thereof.
reasonably possible changes to assumptions used within the fair
value measurement process. The sensitivity ranges are not
always symmetrical around the fair values as the inputs used in
valuations are not always precisely in the middle of the favorable
and unfavorable range.
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 shown below presents an estimation of valuation
uncertainty based on reasonably possible alternative values for
Level 3 inputs at the balance sheet date and does not represent
the estimated effect of stress scenarios. Typically, these financial
assets and liabilities are sensitive to a combination of inputs from
Levels 1–3. Although well-defined interdependencies may exist
between 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. Furthermore, direct interrelationships
between the Level 3 parameters discussed below are not a
significant element of the valuation uncertainty.
Sensitivity data is estimated using a number of techniques,
including the estimation of price dispersion among different
market participants, variation in modeling approaches and
Sensitivity data is determined at a product or parameter level
and then aggregated assuming no diversification benefit. The
calculated sensitivity is applied to both the outright position and
any related Level 3 hedge. The main interdependencies between
sensitivities of different Level 3 products to a single unobservable
input parameter have been included in the basis of netting
exposures within the calculation. Aggregation without allowing
for diversification involves the simple summation of individual
results with the total sensitivity, therefore representing the effect
of all unobservable inputs that, 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
there are
diversification benefits within the portfolios representing these
sensitivity numbers, they are not significant to this analysis.
that, while
31.12.19
31.12.19
31.12.18
Favorable
Favorable
changes
changes
46
46
Unfavorable
Unfavorable
changes
changes
(21)
(21)
Favorable
changes
99
Unfavorable
changes
(44)
11
11
87
87
35
35
140
140
8
8
31
31
12
12
183
183
47
47
600
600
(11)
(11)
(87)
(87)
(40)
(40)
(80)
(80)
(17)
(17)
(35)
(35)
(8)
(8)
(197)
(197)
(51)
(51)
(547)
(547)
17
81
27
155
8
33
10
213
19
661
(11)
(81)
(23)
(94)
(39)
(37)
(5)
(225)
(19)
(578)
Sensitivity of fair value measurements to changes in unobservable input assumptions
USD million
Traded loans, loans designated at fair value, loan commitments and guarantees
Securities financing transactions
Auction rate securities
Asset-backed securities
Equity instruments
Interest rate derivative contracts, net
Credit derivative contracts, net
Foreign exchange derivative contracts, net
Equity / index derivative contracts, net
Other
Total
Total
418
Note 24 Fair value measurement (continued)
h) Level 3 instruments: movements during the period
The table on the following pages presents additional information
about material Level 3 assets and liabilities measured at fair
value on a recurring basis. Level 3 assets and liabilities may be
hedged with instruments classified as Level 1 or Level 2 in the
fair value hierarchy and, as a result, realized and unrealized gains
and losses included in the table may not include the effect of
related hedging activity. Furthermore,
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.
the
Assets and liabilities transferred into or out of Level 3 are
presented as if those assets or liabilities had been transferred at
the beginning of the year.
Upon adoption of IFRS 9 on 1 January 2018, certain financial
assets and liabilities were newly classified at fair value through
profit or loss and were designated as Level 3 in the fair value
hierarchy. Certain assets were also reclassified from Financial
assets measured at fair value through other comprehensive
income to Financial assets at fair value not held for trading.
Assets transferred into and out of Level 3 totaled USD 1.1
billion and USD 1.9 billion, respectively. Transfers into Level 3
mainly consisted of loans, investment fund units and equity /
index contracts, reflecting decreased observability of the
relevant valuation inputs. Transfers out of Level 3 mainly
consisted of loans, reflecting increased observability of the
relevant valuation inputs.
Liabilities transferred into and out of Level 3 totaled USD 1.4
billion and USD 3.4 billion, respectively. Transfers into and out of
Level 3 mainly consisted of debt issued designated at fair value,
to
issued debt
primarily equity-linked
decreased or
increased observability, respectively, of the
embedded derivative inputs.
instruments, due
419
Financial statements
Consolidated financial statements
Note 24 Fair value measurement (continued)
Movements of Level 3 instruments
Total gains / losses
included in
comprehensive income
Balance
Balance
Reclassifi-
Reclassifi-
cations and
cations and
remeasure-
remeasure-
as of ments upon
as of ments upon
31 December adoption of
31 December adoption of
IFRS 9
IFRS 9
2017
2017
of which:
related to
Level 3
instruments
Balance Net gains / held at the
Balance
as of
losses end of the
as of
1 January
included in reporting
1 January
2018
2018
income1
period Purchases
Sales
Issuances Settlements
Transfers
into
Level 3
Foreign
Transfers
out of
currency
Level 3 translation
2.0
2.0
0.4
0.4
2.4
2.4
(0.2)
(0.2)
(0.2)
(0.2)
2.1
2.1
(7.1)
(7.1)
4.2
4.2
0.0
0.0
0.7
0.7
(0.2)
(0.2)
00..00
0.6
0.6
0.5
0.4
1.6
1.6
0.1
0.7
0.6
0.2
0.4
0.6
0.6
0.9
0.4
1.6
1.6
0.1
0.7
0.6
0.2
(0.1)
(0.1)
0.2
(0.3)
0.0
0.0
0.1
(0.1)
0.0
0.0
0.1
(0.1)
0.0
0.0
(0.1)
0.6
0.9
0.4
(0.9)
(5.6)
(0.4)
0.0
4.2
0.0
0.0
0.0
0.0
0.5
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
1.0
(1.5)
(1.5)
0.5
0.5
(0.1)
(0.1)
0.0
0.0
0.1
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
0.8
0.3
0.0
(0.1)
(1.0)
(0.4)
0.0
0.3
0.1
0.0
0.0
0.0
(0.1)
0.0
0.0
0.0
0.0
0.0
0.0
1.5
1.5
3.0
3.0
4.4
4.4
0.0
0.0
0.0
0.0
1.7
1.7
(1.9)
(1.9)
0.0
0.0
0.0
0.0
0.1
0.1
(0.1)
(0.1)
00..11
0.8
0.7
0.6
1.9
0.4
0.1
1.4
1.9
0.4
0.8
(0.2)
0.1
0.1
0.0
(0.2)
0.1
0.1
0.0
1.5
0.0
0.2
0.0
(1.0)
(0.4)
(0.2)
(0.4)
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.1
0.0
0.0
0.0
0.0
0.0
0.0
(0.1)
0.0
0.1
0.0
0.0
0.5
0.5
(0.5)
(0.5)
2.9
2.9
0.0
0.0
2.9
2.9
(0.3)
(0.3)
(0.2)
(0.2)
0.0
0.0
0.0
0.0
1.3
1.3
(1.5)
(1.5)
0.3
0.3
(0.5)
(0.5)
00..00
2.0
0.6
0.3
11.2
11.2
2.0
0.6
0.3
0.0
(0.3)
(0.2)
0.0
0.0
1.2
(1.2)
0.3
(0.5)
0.0
0.0
0.0
0.0
0.1
0.0
0.0
0.0
0.0
0.1
0.0
(0.2)
(0.1)
0.1
0.0
0.0
0.0
0.0
0.0
11.2
11.2
0.5
0.5
0.0
0.0
0.0
0.0
0.0
0.0
5.8
5.8
(4.3)
(4.3)
2.2
2.2
(4.3)
(4.3)
(0.2)
(0.2)
USD billion
Financial assets at fair
Financial assets at fair
value held for trading
value held for trading
of which:
Investment fund units
Corporate and
municipal bonds
Loans
Other
Derivative financial
Derivative financial
instruments – assets
instruments – assets
of which:
Interest rate contracts
Equity / index contracts
Credit derivative
contracts
Other
Financial assets at fair
Financial assets at fair
value not held for trading
value not held for trading
of which:
Loans
Auction rate securities
Equity instruments
Other
Financial assets measured
Financial assets measured
at fair value through other
at fair value through other
comprehensive income
comprehensive income
Derivative financial
Derivative financial
instruments – liabilities
instruments – liabilities
of which:
Equity / index contracts
Credit derivative
contracts
Other
Debt issued designated at
Debt issued designated at
fair value
fair value
Other financial liabilities
Other financial liabilities
0.0
0.0
designated at fair value
designated at fair value
2 Total
1 Net gains / losses included in comprehensive income are comprised of Net interest income, Other net income from financial instruments measured at fair value through profit or loss and Other income.
1
2
Level 3 assets as of 31 December 2019 were USD 7.2 billion (31 December 2018: USD 7.8 billion). Total Level 3 liabilities as of 31 December 2019 were USD 12.8 billion (31 December 2018: USD 14.3 billion).
(2.0)
(2.0)
0.0
0.0
0.0
0.0
2.0
2.0
2.0
2.0
1.1
1.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
420
Note 24 Fair value measurement (continued)
Total gains / losses
included in
comprehensive income
of which:
related to
Level 3
instruments
held at the
end of the
reporting
period
BBaallaannccee
aass ooff
3311 DDeecceemmbbeerr
2200118822
Net gains /
losses
included in
income1
22..00
((00..22))
00..00
0.4
0.0
0.0
0.7
0.7
0.2
0.0
(0.1)
0.0
0.0
0.0
(0.1)
11..44
((00..33))
00..00
0.4
0.5
0.5
0.0
(0.1)
(0.1)
(0.1)
0.0
0.0
0.1
(0.1)
0.0
44..44
00..00
00..00
1.8
1.7
0.5
0.5
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
22..22
00..00
00..00
1.4
0.3
0.2
0.5
0.3
(0.1)
(0.1)
(0.1)
0.0
1111..00
11..11
00..77
11..00
00..22
00..11
Purchases
Sales
Issuances
Settlements
Transfers
into
Level 3
Transfers
out of
Level 3
Foreign
currency
translation
BBaallaannccee
aass ooff
3311 DDeecceemmbbeerr
2200119922
11..22
0.0
0.6
0.2
0.3
00..00
0.0
0.0
0.0
0.0
11..22
0.7
0.0
0.1
0.5
00..00
0.0
0.0
0.0
00..00
00..00
((55..77))
(0.4)
(0.6)
(4.4)
(0.3)
00..00
0.0
0.0
0.0
0.0
((00..88))
(0.2)
(0.1)
(0.2)
(0.2)
00..00
0.0
0.0
0.0
00..00
00..00
44..44
0.0
0.0
4.4
0.0
11..00
0.1
0.6
0.2
0.0
00..00
0.0
0.0
0.0
0.0
00..88
0.6
0.2
0.1
77..22
00..33
00..00
0.0
0.0
0.0
0.0
((00..88))
0.0
(0.5)
(0.2)
0.0
00..00
0.0
0.0
0.0
0.0
((11..00))
(0.9)
(0.1)
0.0
((77..33))
((00..88))
00..66
0.2
0.1
0.1
0.2
00..22
0.0
0.1
0.1
0.0
00..33
0.3
0.0
0.0
0.0
00..33
0.2
0.1
0.0
11..00
00..11
((00..44))
(0.2)
(0.2)
0.0
0.0
((00..33))
(0.2)
(0.1)
(0.1)
0.0
((11..22))
(1.2)
0.0
0.0
0.0
((00..33))
(0.2)
(0.1)
(0.1)
((33..11))
00..00
00..00
0.0
0.0
0.0
0.0
00..00
0.0
0.0
0.0
0.0
00..00
0.0
0.0
0.0
0.0
00..00
0.0
0.0
0.0
00..00
00..00
11..88
0.0
0.5
0.8
0.4
11..33
0.3
0.6
0.4
0.0
44..00
1.2
1.5
0.5
0.7
22..00
1.3
0.5
0.2
99..99
00..88
421
Financial statements
Consolidated financial statements
Note 24 Fair value measurement (continued)
i) Maximum exposure to credit risk for financial instruments measured at fair value
The tables below provide the Group’s maximum exposure to
credit risk for financial instruments measured at fair value and
the
respective collateral and other credit enhancements
mitigating credit risk for these classes of financial instruments.
The maximum exposure to credit risk includes the carrying
amounts of financial instruments recognized on the balance
sheet subject to credit risk and the notional amounts for off-
balance sheet arrangements. Where information is available,
collateral is presented at fair value. For other collateral, such as
real estate, a reasonable alternative value is used. Credit
enhancements,
such as credit derivative 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. The “Risk management and control” section of
this report describes management’s view of credit risk and the
related exposures, which can differ in certain respects from the
requirements of IFRS.
Maximum exposure to credit risk
USD billion
Financial assets measured at fair value on the balance
Financial assets measured at fair value on the balance
sheet
sheet
Financial assets at fair value held for trading – debt
instruments2,3
Derivative financial instruments4
Brokerage receivables
Financial assets at fair value not held for trading –
debt instruments5
Total financial assets measured at fair value
Total financial assets measured at fair value
Guarantees6
Loan commitments6
Forward starting transactions, reverse repurchase and
securities borrowing agreements
Total maximum exposure to credit risk not reflected on
Total maximum exposure to credit risk not reflected on
the balance sheet
the balance sheet
31.12.19
31.12.19
Collateral
Collateral
Maximum
Maximum
exposure to
exposure to
credit risk
credit risk
Cash
Cash
collateral
collateral
received
received
Collateral-
Collateral-
ized by Secured by
Secured by
ized by
real estate
securities
real estate
securities
Other
Other
collateral1
collateral1
Netting
Netting
Credit enhancements
Credit enhancements
Exposure to
Exposure to
credit risk
credit risk
after collateral
Credit
after collateral
Credit
and credit
derivative
derivative
and credit
contracts Guarantees enhancements
contracts Guarantees enhancements
21.9
21.9
121.8
121.8
18.0
18.0
55.0
55.0
216.7
216.7
1.0
1.0
6.3
6.3
20.3
20.3
27.6
27.6
3.3
3.3
17.8
17.8
16.3
16.3
37.4
37.4
20.3
20.3
20.3
20.3
0.1
0.1
0.1
0.1
0.0
0.0
107.4
107.4
107.4
107.4
0.0
0.0
0.1
0.1
0.1
0.1
3.0
3.0
0.0
0.0
0.1
0.1
0.0
0.0
0.3
0.3
0.9
0.9
0.0
0.0
3.0
3.0
0.0
0.0
0.1
0.1
1.2
1.2
21.9
21.9
11.1
11.1
0.2
0.2
38.6
38.6
71.7
71.7
0.7
0.7
2.3
2.3
0.0
0.0
3.0
3.0
Maximum
exposure to
credit risk
Cash
collateral
received
31.12.18
Collateral
Collateral-
ized by Secured by
real estate
Other
collateral1
Credit enhancements
Exposure to
credit risk
after collateral
Credit
derivative
and credit
contracts Guarantees enhancements
Netting
securities
21.9
126.2
16.8
USD billion
Financial assets measured at fair value on the balance
Financial assets measured at fair value on the balance
sheet
sheet
Financial assets at fair value held for trading – debt
instruments2,3
Derivative financial instruments4
Brokerage receivables
Financial assets at fair value not held for trading –
debt instruments5
Total financial assets measured at fair value
Total financial assets measured at fair value
Guarantees6
Loan commitments6
Forward starting transactions, reverse repurchase and
securities borrowing agreements
Total maximum exposure to credit risk not reflected on
Total maximum exposure to credit risk not reflected on
the balance sheet
2.1
8.1
2.1
the balance sheet
8.1
1 Includes but is not limited to life insurance contracts, inventory, mortgage loans, gold and other commodities. 2 These positions are generally managed under the market risk framework. For the purpose of this
2
1
4 The amount shown in the “Netting” column represents the netting potential not recognized on
disclosure, collateral and credit enhancements were not considered.
4
5 Financial assets at fair value not held for trading collateralized by securities consisted of structured loans and reverse repurchase and securities
the balance sheet. Refer to Note 25 for more information.
5
borrowing agreements. 6 The amount shown in the “Guarantees” column largely relates to sub-participations. Refer to Note 34 for more information.
59.8
224.8
224.8
1.6
3.5
3 Does not include investment fund units.
3
43.1
76.6
76.6
1.4
0.7
21.9
11.4
0.3
0.0
0.0
0.2
0.1
16.7
37.3
37.3
4.1
16.5
0.1
0.1
0.1
110.8
110.8
110.8
13.3
13.3
0.0
0.4
0.4
0.0
0.0
0.0
0.0
0.0
0.0
2.4
2.4
0.0
0.0
0.2
0.2
0.0
0.0
0.0
0.0
8.1
2.4
0.0
0.2
8.1
6
422
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 value1
CCaarrrryyiinngg
aammoouunntt
3311..1122..1199
FFaaiirr vvaalluuee
Carrying
amount
31.12.18
Fair value
USD billion
AAsssseettss33
Cash and balances at central banks
Loans and advances to banks
Receivables from securities financing
transactions
Cash collateral receivables on derivative
instruments
Loans and advances to customers
Other financial assets measured at amortized
cost
LLiiaabbiilliittiieess
Amounts due to banks
Payables from securities financing
transactions
Cash collateral payables on derivative
instruments
Customer deposits
TToottaall
110077..11
1122..44
8844..22
2233..33
332266..88
2233..00
66..66
77..88
3311..44
444488..33
CCaarrrryyiinngg
aammoouunntt
aapppprrooxxiimmaatteess
ffaaiirr vvaalluuee22
LLeevveell 11
LLeevveell 22
LLeevveell 33
TToottaall
Total
Carrying
amount
approximates
fair value2
Level 1
Level 2
Level 3
Total
110077..00
1111..88
7744..00
2233..33
115511..66
00..11
00..00
00..00
00..00
00..00
00..00
00..55
00..00
00..22
110077..11
1122..44
108.4
16.9
88..66
11..66
8844..22
95.3
00..00
2255..44
00..00
115522..22
2233..33
332299..11
23.6
320.4
108.3
16.2
85.0
23.6
153.4
0.1
0.0
0.0
0.0
0.0
0.0
0.6
0.0
0.0
108.4
16.9
6.9
3.4
95.4
0.0
18.0
0.0
149.5
23.6
320.9
55..77
88..44
66..44
22..88
2233..22
22.6
5.9
8.4
5.2
2.9
22.4
55..66
00..00
00..99
00..00
77..55
3311..44
443399..11
00..00
00..00
00..00
00..33
00..00
99..33
00..00
00..00
00..00
66..66
77..88
3311..44
444488..44
11.0
10.3
28.9
419.8
8.8
0.0
1.9
0.2
11.0
10.0
28.9
409.5
0.0
0.0
0.0
0.3
0.0
10.3
0.0
10.3
0.0
0.1
28.9
419.9
88..77
111100..55
Debt issued measured at amortized cost
Other financial liabilities measured at
amortized cost4
6.9
11 In line with IFRS 7 Financial Instruments: Disclosures, effective 2019, UBS no longer discloses a fair value hierarchy level for financial instruments where the carrying amount approximates fair value. Prior periods
have been restated for this change. 22 Includes certain financial instruments where the carrying amount is a reasonable approximation of the fair value due to the instruments’ short-term nature (instruments that are
receivable or payable on demand, or with a remaining maturity (excluding the effects of callable features) of three months or less). 33 As of 31 December 2019, USD 0 billion of Loans and advances to banks, USD 1
billion of Receivables from securities financing transactions, USD 140 billion of Loans and advances to customers and USD 16 billion of Other financial assets measured at amortized cost are expected to be recovered
or settled after 12 months. As of 31 December 2018, USD 0 billion of Loans and advances to banks, USD 1 billion of Receivables from securities financing transactions, USD 139 billion of Loans and advances to
customers and USD 15 billion of Other financial assets measured at amortized cost were expected to be recovered or settled after 12 months. 44 Excludes lease liabilities.
135.0
110044..99
130.7
132.3
111133..66
55..77
55..88
2.8
1.4
0.0
00..00
00..00
0.0
00..00
00..00
00..00
6.9
6.8
0.0
0.1
55..77
The fair values included in the table above were calculated for
disclosure purposes only. The 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 assumptions 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
estimates 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
estimate of fair value.
423
Financial statements
Consolidated financial statements
Note 25 Offsetting financial assets and financial liabilities
UBS enters into netting agreements with counterparties to
manage the credit risks associated primarily with repurchase and
reverse repurchase transactions, securities borrowing and
lending, over-the-counter derivatives and exchange-traded
derivatives. These netting agreements and similar arrangements
generally enable the counterparties to set off liabilities against
available assets received in the ordinary course of business
and/or in the event that the counterparties to the transaction are
unable to fulfill their contractual obligations. The right of setoff
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 below provides a summary of financial assets
subject to offsetting, enforceable master netting arrangements
and similar agreements, as well as financial collateral received to
mitigate credit exposures for these financial assets. The gross
financial assets of the Group that are subject to offsetting,
enforceable netting arrangements and similar agreements are
reconciled to the net amounts presented within the associated
balance sheet line, after giving effect to financial liabilities with
the same counterparties that have been offset on the balance
sheet and other financial assets not subject to an enforceable
netting arrangement or similar agreement, as well as other out-
of-scope items. Furthermore, 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
mitigation strategies in addition to netting and collateral
arrangements. Therefore, the net amounts presented in the
tables on this and on the next page do not purport to represent
their actual credit exposure.
Financial assets subject to offsetting, enforceable master netting arrangements and similar agreements
Assets subject to netting arrangements
Assets subject to netting arrangements
Netting recognized on the balance sheet
Netting potential not recognized on
the balance sheet3
Gross assets
Netting with
before netting gross liabilities2
Net assets
Net assets
recognized
recognized
on the
on the
balance
balance
sheet
sheet
Assets after
Assets after
consideration
consideration
of
of
netting
netting
potential
potential
Financial Collateral
received
liabilities
Assets not
Assets not
subject to netting
subject to netting
arrangements4
arrangements4
Assets
Assets
recognized
recognized
on the
on the
balance
balance
sheet
sheet
Total assets
Total assets
Total assets
Total assets
after
after
consideration
consideration
of netting
of netting
potential
potential
Total assets
Total assets
recognized
recognized
on the
on the
balance
balance
sheet
sheet
83.2
120.2
26.4
83.1
83.0
313.0
313.0
88.5
124.3
24.6
85.4
85.3
322.9
322.9
(14.0)
(3.4)
69.2
69.2
116.8
116.8
(1.2)
(89.3)
(68.0)
(21.4)
(4.0)
22.4
22.4
(13.3)
(1.1)
(77.5)
5.6
5.6
0.0
(5.6)
0.0
0.0
6.1
6.1
8.0
8.0
0.0
0.0
(77.5)
(98.9)
(98.9)
5.4
5.4
214.0
214.0
0.0
(103.8)
(103.8)
(5.4)
(96.1)
(96.1)
0.0
0.0
14.1
14.1
(13.0)
(4.3)
75.5
75.5
120.0
120.0
(4.4)
(90.8)
(71.2)
(24.0)
(2.3)
22.3
22.3
(13.5)
(1.0)
(77.5)
7.8
7.8
(1.4)
(6.4)
0.0
0.0
5.2
5.2
7.8
7.8
0.0
0.0
15.0
15.0
5.0
5.0
0.9
0.9
78.3
78.3
0.9
0.9
99.3
99.3
19.8
19.8
6.2
6.2
1.3
1.3
74.9
74.9
15.0
15.0
11.1
11.1
8.9
8.9
78.3
78.3
0.9
0.9
113.4
113.4
19.8
19.8
11.4
11.4
9.1
9.1
74.9
74.9
(77.5)
(97.2)
(97.2)
7.8
7.8
225.7
225.7
(1.4)
(110.0)
(110.0)
(6.4)
(102.6)
(102.6)
0.0
0.0
13.0
13.0
2.1
2.1
102.2
102.2
2.1
2.1
115.2
115.2
84.2
84.2
121.8
121.8
23.3
23.3
83.9
83.9
6.3
6.3
313.3
313.3
95.3
95.3
126.2
126.2
23.6
23.6
82.7
82.7
9.9
9.9
327.9
327.9
As of 31.12.19, USD billion
Receivables from securities financing
transactions
Derivative financial instruments
Cash collateral receivables on
derivative instruments1
Financial assets at fair value not held for
trading
of which: reverse repurchase
agreements
Total assets
Total assets
As of 31.12.18, USD billion
Receivables from securities financing
transactions
Derivative financial instruments
Cash collateral receivables on
derivative instruments1
Financial assets at fair value not held for
trading
of which: reverse repurchase
agreements
Total assets
Total assets
1 The net amount of Cash collateral receivables on derivative instruments recognized on the balance sheet includes certain OTC derivatives that are net settled on a daily basis either legally or in substance under
1
2 The logic of the table results in amounts presented in the “Netting with gross liabilities” column corresponding
IAS 32 principles and exchange-traded derivatives that are economically settled on a daily basis.
2
directly to the amounts presented in the “Netting with gross assets” column in the liabilities table presented on the following page. Netting in this column for reverse repurchase agreements presented within the
lines “Receivables from securities financing transactions” and “Financial assets at fair value not held for trading” taken together corresponds to the amounts presented for repurchase agreements in the “Payables
3 For the purpose of this disclosure, the amounts of
from securities financing transactions” and “Other financial liabilities designated at fair value” lines in the liabilities table presented on the following page.
3
financial instruments and cash collateral presented have been capped 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.
4
424
Note 25 Offsetting financial assets and financial liabilities (continued)
The table below provides a summary of financial liabilities
subject to offsetting, enforceable master netting arrangements
and similar agreements, as well as financial collateral pledged to
mitigate credit exposures for these financial liabilities. The gross
financial liabilities of UBS that are subject to offsetting,
enforceable netting arrangements and similar agreements are
reconciled to the net amounts presented within the associated
balance sheet line, after giving effect to financial assets with the
same counterparties that have been offset on the balance sheet
and other financial liabilities not subject to an enforceable
netting arrangement or similar agreement. Furthermore, 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
LLiiaabbiilliittiieess ssuubbjjeecctt ttoo nneettttiinngg aarrrraannggeemmeennttss
Netting recognized on the balance sheet
NNeett
lliiaabbiilliittiieess
rreeccooggnniizzeedd
oonn tthhee
bbaallaannccee
sshheeeett
Gross
liabilities
before
netting
Netting with
gross assets2
Netting potential not recognized
on the balance sheet3
LLiiaabbiilliittiieess
aafftteerr
ccoonnssiiddeerraattiioonn ooff
nneettttiinngg
ppootteennttiiaall
Financial
assets
Collateral
pledged
LLiiaabbiilliittiieess nnoott
ssuubbjjeecctt
ttoo nneettttiinngg
aarrrraannggeemmeennttss44
LLiiaabbiilliittiieess
rreeccooggnniizzeedd
oonn tthhee
bbaallaannccee
sshheeeett
TToottaall lliiaabbiilliittiieess
TToottaall
lliiaabbiilliittiieess
aafftteerr
ccoonnssiiddeerraattiioonn
ooff nneettttiinngg
ppootteennttiiaall
TToottaall
lliiaabbiilliittiieess
rreeccooggnniizzeedd
oonn tthhee
bbaallaannccee
sshheeeett
19.8
118.1
(14.0)
(3.4)
55..88
111144..88
(0.8)
(89.3)
(5.0)
(16.8)
34.2
(4.0)
3300..11
(16.5)
(1.7)
83.5
83.1
225555..66
(77.6)
(77.6)
((9988..99))
55..99
55..55
115566..66
(0.4)
(0.4)
((110077..00))
(5.6)
(5.2)
((2299..00))
20.6
124.1
(12.4)
(4.3)
88..33
111199..88
(3.6)
(90.8)
(4.7)
(20.9)
29.0
(2.3)
2266..77
(14.2)
(1.2)
86.6
86.1
226600..44
(78.2)
(78.2)
((9977..22))
88..44
77..99
116633..22
(2.1)
(2.1)
((111100..77))
(5.9)
(5.9)
((3322..66))
00..00
88..66
1122..00
00..00
00..00
2200..66
00..00
88..11
1111..33
00..44
00..00
1199..88
22..00
66..11
11..33
3300..00
00..22
3399..44
22..00
55..99
22..22
2255..22
11..66
3355..44
22..00
1144..88
1133..33
3300..00
00..22
6600..00
22..00
1144..00
1133..55
2255..66
11..66
5555..22
77..88
112200..99
3311..44
3355..99
55..77
119966..00
1100..33
112255..77
2288..99
3333..66
99..55
119988..55
As of 31.12.19, USD billion
Payables from securities financing
transactions
Derivative financial instruments
Cash collateral payables on
derivative instruments1
Other financial liabilities designated at
fair value
of which: repurchase agreements
TToottaall lliiaabbiilliittiieess
As of 31.12.18, USD billion
Payables from securities financing
transactions
Derivative financial instruments
Cash collateral payables on
derivative instruments1
Other financial liabilities designated at
fair value
of which: repurchase agreements
TToottaall lliiaabbiilliittiieess
11 The net amount of Cash collateral payables on derivative instruments recognized on the balance sheet includes certain exchange-traded derivatives that are net settled on a daily basis either legally or in substance
under IAS 32 principles and exchange-traded derivatives that are economically settled on a daily basis. 22 The logic of the table results in amounts presented in the “Netting with gross assets” column
corresponding to the amounts presented in the “Netting with gross liabilities” column in the assets table presented on the previous page. Netting in this column for repurchase agreements presented within the lines
“Payables from securities financing transactions” and “Other financial liabilities designated at fair value” taken together corresponds to the amounts presented for reverse repurchase agreements in the
“Receivables from securities financing transactions” and “Financial assets at fair value not held for trading” lines in the assets table presented on the previous page. 33 For the purpose of this disclosure, the
amounts of financial instruments and cash collateral presented have been capped 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. 44 Includes liabilities not subject to enforceable netting arrangements and other out-of-scope items.
425
Financial statements
Consolidated financial statements
Note 26 Restricted and transferred financial assets
This Note provides information about restricted financial assets (Note 26a), transfers of financial assets (Note 26b and 26c) and
financial assets that are received as collateral with the right to resell or repledge these assets (Note 26d).
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
issuance of covered bonds. The Group generally enters into
repurchase and securities lending arrangements under standard
market agreements. For securities lending, the cash received as
collateral may be more or less than the fair value of the
securities loaned, depending on the nature of the transaction.
For repurchase agreements, the fair value of the collateral sold
under an agreement to repurchase is generally in excess of the
cash borrowed. Pledged mortgage loans serve as collateral for
existing liabilities against Swiss central mortgage institutions and
for existing covered bond issuances of USD 11,206 million as of
31 December 2019 (31 December 2018: USD 12,516 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 bankruptcy remote entities, such as certain
investment funds and other structured entities. The carrying
amount of the liabilities associated with these other restricted
financial assets is generally equal to the carrying amount of the
assets, with the exception of assets held to comply with local
asset maintenance requirements, for which the associated
liabilities are greater.
Restricted financial assets
USD million
Financial assets pledged as collateral
Financial assets pledged as collateral
Financial assets at fair value held for trading
of which: assets pledged as collateral that may be sold or repledged by counterparties
Loans and advances to customers1
Financial assets at fair value not held for trading
Debt securities classified as Other financial assets measured at amortized cost
of which: assets pledged as collateral that may be sold or repledged by counterparties
Total financial assets pledged as collateral2
Total financial assets pledged as collateral2
31.12.19
31.12.19
31.12.18
56,415
56,415
41,285
41,285
18,399
18,399
188
188
1,212
1,212
1,212
1,212
76,215
76,215
43,292
32,121
18,804
0
0
0
62,096
Other restricted financial assets
Other restricted financial assets
5,140
Loans and advances to banks
Financial assets at fair value held for trading
3,589
Cash collateral receivables on derivative instruments
3,205
Loans and advances to customers
935
Financial assets at fair value not held for trading
23,514
Financial assets measured at fair value through other comprehensive income
171
Other
203
Total other restricted financial assets
36,758
Total other restricted financial assets
Total financial assets pledged and other restricted financial assets
98,854
Total financial assets pledged and other restricted financial assets
1 All related to mortgage loans that serve as collateral for existing liabilities against Swiss central mortgage institutions and for existing covered bond issuances. Of these pledged mortgage loans, approximately
1
USD 6.3 billion for 31 December 2019 (31 December 2018: approximately USD 3.2 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 2019: USD 0.6 billion; 31 December 2018:
2
USD 0.3 billion).
3,131
3,131
242
242
2,986
2,986
620
620
29,676
29,676
176
176
379
379
37,210
37,210
113,425
113,425
In addition to restrictions on financial assets, UBS Group AG
leverage ratios on a stressed basis, such as the Federal Reserve
and its subsidiaries are, in certain cases, subject to regulatory Board’s Comprehensive Capital Analysis and Review (CCAR)
requirements that affect the transfer of dividends and capital process, which may limit the relevant subsidiaries’ ability to
within the Group, as well as intercompany lending. Supervisory make distributions of capital based on the results of those tests.
authorities also may require entities to measure capital and
426
Note 26 Restricted and transferred financial assets (continued)
Supervisory authorities generally have discretion to impose
higher requirements or to otherwise limit the activities of
subsidiaries.
Non-regulated subsidiaries are generally not subject to such
requirements and transfer restrictions. However, restrictions can
also be the result of different legal, regulatory, contractual,
entity- or country-specific arrangements and/or requirements.
Refer to “Financial and regulatory key figures for our significant
regulated subsidiaries and sub-groups” in the “Significant
regulated subsidiary and sub-group information” section of this
report for financial information about significant regulated
subsidiaries of the Group
b) Transferred financial assets that are not derecognized in their entirety
The table below presents information for financial assets that 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
USD million
3311..1122..1199
31.12.18
Financial assets at fair value held for trading that 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 assets at fair value not held for trading that may be sold or repledged by
counterparties
TToottaall ffiinnaanncciiaall aasssseettss ttrraannssffeerrrreedd
Transactions in which financial assets are transferred, but
continue 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 subject to UBS’s normal credit risk control
processes.
Refer to Note 1a item 3e for more information about
repurchase and securities lending agreements
As of 31 December 2019, approximately 40% of the
transferred financial assets were assets held for trading
transferred in exchange for cash, in which case the associated
recognized liability represents the amount to be repaid to
counterparties.
repurchase
agreements, a haircut between 0% and 15% is generally
applied to the transferred assets, which results in associated
liabilities having a carrying amount below the carrying amount
of the transferred assets. The counterparties to the associated
liabilities presented in the table above have full recourse to UBS.
securities
lending
and
For
CCaarrrryyiinngg aammoouunntt
ooff ttrraannssffeerrrreedd
aasssseettss
4411,,228855
CCaarrrryyiinngg aammoouunntt ooff
aassssoocciiaatteedd lliiaabbiilliittiieess
rreeccooggnniizzeedd
oonn bbaallaannccee sshheeeett
1166,,667711
Carrying amount
of transferred
assets
32,121
Carrying amount of
associated liabilities
recognized
on balance sheet
4,674
1166,,994455
2244,,008822
225588
118888
4411,,447733
1166,,667711
00
00
118877
1166,,885588
4,726
26,234
1,161
0
32,121
4,674
0
0
0
4,674
In securities lending arrangements entered into in exchange
for the receipt of other securities as collateral, neither the
securities received nor the obligation to return them are
recognized on UBS’s balance sheet, as the risks and rewards of
ownership are not transferred to UBS. In cases where such
financial assets received are subsequently sold or repledged in
another transaction, this is not considered to be a transfer of
financial assets.
Other financial asset transfers primarily include securities
transferred to collateralize derivative transactions, for which the
carrying amount 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 there is no direct relationship between the specific
collateral pledged and the associated liability.
Transferred
financial assets
to
derecognition in full, but remain on the balance sheet to the
extent of the Group’s continuing involvement, were not material
as of 31 December 2019 and as of 31 December 2018.
that are not subject
427
Financial statements
Consolidated financial statements
Note 26 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
transfer agreement or from a separate agreement with the
counterparty or a third party entered into in connection with the
transfer.
Purchased and retained interests in securitization vehicles
In cases where UBS has transferred assets into a securitization
vehicle and retained or purchased interests therein, UBS has a
continuing involvement in those transferred assets.
for
fair value held
As of 31 December 2019, the majority of the retained
continuing involvement related to securitization positions held as
financial assets at
trading, primarily
collateralized debt obligations, US commercial mortgage-backed
securities and residential mortgage-backed securities. The fair
value and carrying amount of UBS’s continuing involvement
related to these purchased and retained interests was USD 351
million as of 31 December 2019, and UBS recognized gains of
in 2019 related to these positions. As of
USD 0 million
31 December 2019, life-to-date losses of USD 1,198 million were
recorded related to the positions held as of 31 December 2019.
As of 31 December 2018, the fair value and carrying amount
of UBS’s continuing involvement related to purchased and
retained interests in securitization vehicles was USD 6 million,
and UBS recognized gains of USD 3 million in 2018 related to
these positions. As of 31 December 2018, life-to-date losses of
USD 1,198 million were recorded related to the positions held as
of 31 December 2018.
The maximum exposure to loss related to purchased and
retained interests in securitization structures was USD 8 million
as of 31 December 2019, compared with USD 10 million as of
31 December 2018.
Undiscounted cash outflows of USD 3 million may be payable
to the transferee in future periods as a consequence of holding
the purchased and retained interests. The earliest period in
which payment may be required is less than one month.
d) Off-balance sheet assets received
The table below presents assets received from third parties that can be sold or repledged and 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
USD million
Fair value of assets received that can be sold or repledged
received as collateral under reverse repurchase, securities borrowing and lending arrangements, derivative 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
31.12.19
31.12.19
475,726
475,726
31.12.18
483,688
466,045
466,045
473,302
9,681
9,681
10,385
350,477
350,477
356,745
305,362
305,362
315,402
30,591
30,591
14,524
14,524
28,943
12,400
1 Includes securities received as initial margin from its clients that UBS is required to remit to central counterparties, brokers and deposit banks through its exchange-traded derivative clearing and execution services.
1
2 Does not include off-balance sheet securities (31 December 2019: USD 19.6 billion; 31 December 2018: USD 24.5 billion) placed with central banks related to undrawn credit lines and for payment, clearing and
2
settlement purposes for which there are no associated liabilities or contingent liabilities.
428
Note 27 Maturity analysis of financial liabilities
The contractual maturities for non-derivative and non-trading
financial liabilities as of 31 December 2019 are based on the
earliest 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 2018. Derivative positions
and trading liabilities, predominantly made up of short sale
transactions, are assigned to the column Due within 1 month, as
this provides a conservative reflection of the nature of these
trading activities. The contractual maturities may extend over
significantly longer periods.
Maturity analysis of financial liabilities
USD billion
FFiinnaanncciiaall lliiaabbiilliittiieess rreeccooggnniizzeedd oonn bbaallaannccee sshheeeett11
Amounts due to banks
Payables from securities financing transactions
Cash collateral payables on derivative instruments
Customer deposits
Debt issued measured at amortized cost2
Other financial liabilities measured at amortized cost
of which: lease liabilities
TToottaall ffiinnaanncciiaall lliiaabbiilliittiieess mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt
Financial liabilities at fair value held for trading3,4
Derivative financial instruments3
Brokerage payables designated at fair value
Debt issued designated at fair value5
Other financial liabilities designated at fair value
TToottaall ffiinnaanncciiaall lliiaabbiilliittiieess mmeeaassuurreedd aatt ffaaiirr vvaalluuee tthhrroouugghh pprrooffiitt oorr lloossss
TToottaall
GGuuaarraanntteeeess,, ccoommmmiittmmeennttss aanndd ffoorrwwaarrdd ssttaarrttiinngg ttrraannssaaccttiioonnss66
LLooaann ccoommmmiittmmeennttss77
GGuuaarraanntteeeess77
FFoorrwwaarrdd ssttaarrttiinngg ttrraannssaaccttiioonnss
Reverse repurchase agreements7
Securities borrowing agreements
TToottaall
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
3311..1122..1199
5.4
7.4
31.4
423.0
4.5
4.5
0.1
476.1
30.6
120.9
37.2
21.3
34.0
244.0
772200..11
33.1
19.1
21.9
7744..11
0.3
0.1
16.1
5.3
0.1
0.1
22.0
17.4
0.4
17.8
3399..99
0.5
00..55
0.4
0.3
7.3
30.5
0.5
0.5
38.9
9.5
0.5
9.9
4488..88
0.3
0.0
00..33
0.0
0.0
0.0
36.0
2.0
2.0
38.1
7.6
0.9
8.5
4466..66
0.5
2.5
46.3
2.0
2.0
51.3
12.7
0.4
13.1
6644..55
0.0
00..00
00..00
Total
6.6
7.8
31.4
448.9
122.7
9.0
4.6
626.4
30.6
120.9
37.2
68.5
36.1
293.3
991199..88
33.9
19.1
21.9
0.0
7744..99
429
Financial statements
Consolidated financial statements
Note 27 Maturity analysis of financial liabilities (continued)
USD billion
Financial liabilities recognized on balance sheet1
Financial liabilities recognized on balance sheet1
Amounts due to banks
Payables from securities financing transactions
Cash collateral payables on derivative instruments
Customer deposits
Debt issued measured at amortized cost2
Other financial liabilities measured at amortized cost
Total financial liabilities measured at amortized cost
Total financial liabilities measured at amortized cost
Financial liabilities at fair value held for trading3,4
Derivative financial instruments3
Brokerage payables designated at fair value
Debt issued designated at fair value5
Other financial liabilities designated at fair value
Total financial liabilities measured at fair value through profit or loss
Total financial liabilities measured at fair value through profit or loss
Total
Total
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
31.12.18
7.9
9.5
28.9
395.8
4.6
5.6
452.4
28.9
125.7
38.4
15.7
30.0
238.8
691.2
691.2
1.0
0.6
13.1
6.3
21.0
18.1
0.4
18.5
39.5
39.5
1.6
0.3
7.0
39.9
48.8
10.2
1.1
11.3
60.1
60.1
0.5
4.4
57.6
62.6
7.4
1.2
8.6
71.2
71.2
0.0
0.0
0.0
37.8
37.8
8.0
1.0
9.0
46.8
46.8
Total
11.0
10.4
28.9
420.4
146.2
5.6
622.6
28.9
125.7
38.4
59.4
33.7
286.2
908.8
908.8
34.1
19.8
Guarantees, commitments and forward starting transactions6
Guarantees, commitments and forward starting transactions6
Loan commitments7
Loan commitments7
Guarantees7
Guarantees7
Forward starting transactions
Forward starting transactions
Reverse repurchase agreements7
9.0
9.0
0.0
0.0
Securities borrowing agreements
63.6
62.9
Total
Total
63.6
62.9
1 Except for financial liabilities at fair value held for trading and derivative financial instruments (see footnote 3), the amounts presented generally represent undiscounted cash flows of future interest and principal
1
3 Carrying amount is fair value. Management believes that this best represents the cash
payments.
3
4 Contractual
flows that would have to be paid if these positions had to be settled or closed out. Refer to Note 28 for undiscounted cash flows of derivatives designated in hedge accounting relationships.
4
maturities of financial liabilities at fair value held for trading are: USD 30 billion due within 1 month (2018: USD 28.3 billion), USD 0.6 billion due between 1 month and 1 year (2018: USD 0.6 billion) and USD 0
billion due between 1 and 5 years (2018: USD 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
6 Comprises the maximum irrevocable amount of guarantees, commitments and forward starting
principal payments that are variable are determined by reference to the conditions existing at the reporting date.
6
7 Loan commitments measured at fair value of USD 6.3 billion (2018: USD 3.5 billion), guarantees measured at fair value of USD 1.0 billion (2018: USD 1.6 billion) and forward starting reverse
transactions.
7
repurchase agreements measured at fair value of USD 20.3 billion (2018: USD 8.1 billion) are under the time bucket Due within 1 month.
2 The time bucket Due after 5 years includes perpetual loss-absorbing additional tier 1 capital instruments.
2
34.7
19.8
0.4
0.4
0.3
0.3
0.0
0.0
0.0
0.0
0.0
0.0
0.3
0.3
5
The Group has also executed various hedging strategies
utilizing derivatives for which hedge accounting has not been
applied. These economic hedges 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 in a variety of equity trading strategies to offset
underlying equity and equity volatility exposure. The Group has
also entered into credit default swaps that provide economic
hedges for credit risk exposures (refer to “Credit derivatives” in
Note 11). The Group’s accounting policies for derivatives
designated and accounted for as hedging instruments or
economic hedges that do not qualify for hedge accounting are
described in Note 1a item 3j, where terms used in the following
sections are explained.
Note 28 Hedge accounting
Derivatives transacted for hedging purposes
risks
inherent
The Group enters into derivative transactions for the purpose of
hedging
forecast
in assets,
transactions. 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.
liabilities and
Derivative transactions that qualify and are designated as
hedges for accounting purposes are described under the
corresponding risk category headings in this Note (interest rate
risk hedge accounting and structural foreign exchange risk
hedge accounting). In addition, UBS designates certain non-
derivative financial assets and liabilities as hedging instruments
in structural foreign exchange risk hedge accounting, as
described under the corresponding risk category headings of this
Note.
430
Note 28 Hedge accounting (continued)
Interest rate risk hedge accounting
Fair value hedges: interest rate risk related to debt instruments
The Group issues various long-term, fixed-rate debt instruments
measured at amortized cost, such as senior unsecured debt,
covered bonds and subordinated debt, that are exposed to
changes in fair value due to movements in market interest rates.
Interest rate swaps are used as fair value hedges to protect
against changes in the fair value of the issued debt.
Fair value hedges of interest rate risk related to debt
instruments involve swapping fixed cash flows associated with
the debt issued to floating cash flows by entering into interest
rate swaps that receive fixed and pay floating cash flows. The
variable future cash flows are based on the following benchmark
rates: USD LIBOR, CHF LIBOR, EURIBOR, GBP LIBOR, AUD LIBOR,
JPY LIBOR and SGD LIBOR.
The issued debt and interest rate swaps are designated in a
fair value hedge relationship. The notional of the designated
hedging instrument matches the notional of the hedged item.
Hedging instruments and hedged items
USD million
HHeeddggiinngg iinnssttrruummeennttss:: iinntteerreesstt rraattee sswwaappss
Nominal amount
Carrying amount
Derivative financial assets
Derivative financial liabilities
HHeeddggeedd iitteemmss:: ddeebbtt iissssuueedd mmeeaassuurreedd aatt aammoorrttiizzeedd ccoosstt
Carrying amount
of which: accumulated amount of fair value hedge adjustment
Hedge ineffectiveness
USD million
Changes in fair value of hedging instruments
Changes in fair value of hedged items
The hedged risk is determined as the change in the fair value
of the debt issued arising solely from changes in the designated
benchmark interest rate (e.g., one-month or three-month
LIBOR). Such change is usually the largest component of the
overall change in the fair value of the hedged position in
transaction currency.
Hedge effectiveness is assessed by comparing changes in the
fair value of the debt issued attributable to changes in the
designated benchmark interest rate with the changes in the fair
value of the interest rate swaps.
Hedge ineffectiveness can arise from different curves used for
the discounting of the hedging instruments and the hedged
items, or from mismatches of critical terms between fixed-term
lending products and hedging interest rate swaps.
3311..1122..1199
31.12.18
6655,,225577
63,816
3333
6677,,337799
11,,009999
27
1
63,785
(298)
For the year ended
3311..1122..1199
31.12.18
31.12.17
11,,442277
((11,,440088))
1199
(341)
329
(11)
NNeett ggaaiinnss // ((lloosssseess)) rreellaatteedd ttoo hheeddggee iinneeffffeeccttiivveenneessss rreeccooggnniizzeedd iinn OOtthheerr nneett iinnccoommee ffrroomm ffiinnaanncciiaall iinnssttrruummeennttss
mmeeaassuurreedd aatt ffaaiirr vvaalluuee tthhrroouugghh pprrooffiitt oorr lloossss
Profile of the timing of the nominal amount of the hedging instrument
USD billion
Interest rate swaps
USD billion
Interest rate swaps
3311..1122..1199
DDuuee wwiitthhiinn
11 mmoonntthh
DDuuee bbeettwweeeenn
11 aanndd 33 mmoonntthhss
DDuuee bbeettwweeeenn
33 aanndd 1122 mmoonntthhss
DDuuee bbeettwweeeenn
11 aanndd 55 yyeeaarrss
3
9
40
Due within
1 month
Due between
1 and 3 months
31.12.18
Due between
3 and 12 months
Due between
1 and 5 years
4
43
DDuuee aafftteerr
55 yyeeaarrss
14
Due after
5 years
17
(16)
(4)
(20)
TToottaall
65
Total
64
431
Financial statements
Consolidated financial statements
Note 28 Hedge accounting (continued)
Fair value hedges: portfolio interest rate risk related to loans
The Group has a portfolio of long-term fixed-rate mortgage
loans in CHF that are measured at amortized cost and exposed
to changes in the fair value attributable to movements in market
interest rates. Interest rate swaps that pay a fixed rate of interest
and receive a floating rate of interest are used as fair value
hedges to protect against changes in the fair value of the
originated loans.
is designated. Changes in the portfolio are driven by new loans
originated or existing loans repaid.
The hedged risk is determined as the change in the fair value
of the loans arising solely from changes in the designated
benchmark interest rate (e.g., one-month or three-month
LIBOR). Such change is usually the largest component of the
overall change in the fair value of the hedged position in
transaction currency.
The portfolio of mortgage loans and interest rate swaps are
designated in a fair value hedge relationship. The notional of the
designated hedging instrument matches the notional of the
hedged item.
Hedge effectiveness is assessed by comparing changes in the
fair value of the hedged portfolio of loans attributable to
changes in the designated benchmark interest rate with the
changes in the fair value of the interest rate swaps.
The hedging strategy involves an open portfolio of hedged
items, i.e., mortgage loans. Both the hedged items and the
hedging instruments are adjusted on a monthly basis to reflect
changes in size and the maturity profile of the hedged portfolio.
The existing hedging relationship is discontinued and a new one
Hedge ineffectiveness can arise from different curves used for
the discounting of the hedging instruments and the hedged
items, or from mismatches of critical terms between fixed-term
lending products and hedging interest rate swaps.
31.12.19
31.12.19
31.12.18
4,493
4,493
10,318
14
14
4,494
4,494
117
117
172
172
0
31
10,299
200
89
For the year ended
31.12.18
31.12.17
(22)
16
(6)
(10)
3
(7)
Hedging instruments and hedged items
USD million
Hedging instruments: interest rate swaps
Hedging instruments: interest rate swaps
Nominal amount
Carrying amount
Derivative financial assets
Derivative financial liabilities
Hedged items: loans and advances to customers
Hedged items: loans and advances to customers
Carrying amount
of which: accumulated amount of fair value hedge adjustment on the portfolio that was subject to hedge accounting 1
of which: accumulated amount of fair value hedge adjustment, subject to amortization attributable to the portion of the portfolio that
ceased to be part of hedge accounting 1
1 Amounts presented within Other financial assets measured at amortized cost and Other financial liabilities measured at amortized cost.
1
Hedge ineffectiveness
USD million
Changes in fair value of hedging instruments1
31.12.19
31.12.19
(38)
(38)
Changes in fair value of hedged items1
Net gains / (losses) related to hedge ineffectiveness recognized in Other net income from financial instruments
Net gains / (losses) related to hedge ineffectiveness recognized in Other net income from financial instruments
measured at fair value through profit or loss
measured at fair value through profit or loss
1 For the year ended 31 December 2017, the amounts included offsetting accrued interest, which had no effect on net gains / (losses) related to hedge ineffectiveness.
1
(6)
(6)
32
32
432
Note 28 Hedge accounting (continued)
Cash flow hedges of forecast 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, due to movements in future market rates. The
amounts and timing of future cash flows, representing both
principal and interest flows, are projected on the basis of
contractual terms and other relevant factors, including estimates
of prepayments 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 10 years.
The group of forecast cash flows and interest rate swaps are
designated in cash flow hedge relationships. The notional of the
designated hedging instrument matches the notional of the
hedged item for newly transacted swaps. For swaps that are re-
designated, the ratio of the designation is determined based on
the swap sensitivity.
The hedging strategy involves designation of each interest
rate swap in a separate hedge relationship against a group of
hedged items that share the same risk. The hedged items giving
rise to the hedged cash flows are fungible and could be
substituted for each other over the lifetime of the hedge. Cash
flow forecasts and risk exposures are monitored and adjusted on
an ongoing basis, and consequently hedging instruments are
added or taken out of the program accordingly.
The hedged risk is determined as the variability of future cash
flows arising solely from changes in the designated benchmark
interest rate, i.e., overnight index swap rate / one-month or
is assessed by
three-month LIBOR. Hedge effectiveness
comparing changes in the fair value of the hedged cash flows
attributable to changes in the designated benchmark interest
rate with the changes in the fair value of the interest rate swaps.
Hedge ineffectiveness can arise from differences in the
reference index of the hedging instruments and hedged items,
or from inception of the hedge relationship after the trade date
of the hedging derivative.
Hedging instruments
USD million
HHeeddggiinngg iinnssttrruummeennttss:: iinntteerreesstt rraattee sswwaappss
Nominal amount
Carrying amount
Derivative financial assets
Derivative financial liabilities
Hedge ineffectiveness
USD million
Changes in fair value of hedging instruments1
Changes in fair value of hedged items1
EEffffeeccttiivvee ppoorrttiioonn ooff cchhaannggeess iinn ffaaiirr vvaalluuee ooff hheeddggiinngg iinnssttrruummeennttss rreeccooggnniizzeedd aass OOtthheerr ccoommpprreehheennssiivvee iinnccoommee
IInneeffffeeccttiivveenneessss rreeccooggnniizzeedd aass OOtthheerr nneett iinnccoommee ffrroomm ffiinnaanncciiaall iinnssttrruummeennttss mmeeaassuurreedd aatt ffaaiirr vvaalluuee tthhrroouugghh pprrooffiitt oorr
lloossss
11 This Note addresses the requirement of IFRS 7 effective from 1 January 2018, for which data is provided prospectively.
Other comprehensive income recognized directly in equity related to cash flow hedges
USD million
BBaallaannccee aatt tthhee bbeeggiinnnniinngg ooff tthhee yyeeaarr
Effective portion of changes in fair value of hedging instruments recognized in OCI
Amount reclassified to Net interest income when the hedged item affected profit / (loss), for the year ended
31 December
of which: reclassified to interest income on amortized-cost instruments 1
of which: reclassified to interest income on FVTPL instruments 1
Translation effects recognized directly in retained earnings
Income tax related to cash flow hedges
BBaallaannccee aatt tthhee eenndd ooff tthhee yyeeaarr
of which: related to hedging relationships for which hedge accounting continues to be applied 1,2
of which: related to hedging relationships for which hedge accounting is no longer applied 1,2
11 This Note addresses the requirement of IFRS 7 effective from 1 January 2018, for which data is provided prospectively. 22 Amounts are disclosed on a pre-tax basis.
3311..1122..1199
31.12.18
6699,,444433
70,149
1166
24
1
For the year ended
3311..1122..1199
31.12.18
31.12.17
11,,663399
((11,,557711))
11,,557711
6688
22001199
110099
11,,557711
((117755))
((117755))
00
99
((225533))
11,,226600
11,,559966
((4433))
97
(73)
(42)
25
2018
360
(42)
(294)
(293)
(1)
18
67
109
74
73
45
8
2017
955
45
(843)
39
163
360
433
Financial statements
Consolidated financial statements
Note 28 Hedge accounting (continued)
Structural foreign exchange risk hedge accounting
Hedges of net investments in foreign operations
The Group applies hedge accounting for certain net investments
in foreign operations. For this purpose, foreign exchange (FX)
derivatives, mainly FX forwards and FX swaps, as well as non-
derivative financial assets or liabilities are used and designated as
hedging instruments. The notional of the designated hedging
instrument matches the notional of the hedged item.
Based on UBS’s risk management strategy, the hedges are
adjusted on at least a monthly basis to reflect the changes in the
hedged position.
The hedged risk is determined as the change in the carrying
amount of net assets of foreign operations arising solely from
changes in spot foreign exchange rates. Consequently, the Group
only designates the spot element of the FX forwards as hedging
instruments. Changes in the fair value of the hedging instruments
attributable to changes in forward points and the effect of
discounting are not part of a hedge accounting designation. These
amounts, therefore, do not form part of the effectiveness
assessment and are recognized directly in profit or loss.
Hedging instruments
USD million
Hedging instruments: derivative financial instruments
Hedging instruments: derivative financial instruments
Nominal amount
Carrying amount
Derivative financial assets
Derivative financial liabilities
Hedging instruments: non-derivative foreign currency assets and liabilities
Hedging instruments: non-derivative foreign currency assets and liabilities
Nominal amount
Carrying amount
Receivables from securities financing transactions
Payables from securities financing transactions
Hedge ineffectiveness
USD million
Changes in fair value of hedging instruments
Changes in fair value of hedged items
Effective portion of changes in fair value of hedging instruments recognized in Foreign currency translation OCI
Effective portion of changes in fair value of hedging instruments recognized in Foreign currency translation OCI
Ineffectiveness recognized as Other net income from financial instruments measured at fair value through profit or loss
Ineffectiveness recognized as Other net income from financial instruments measured at fair value through profit or loss
434
The effective portion of gains and losses of these FX swaps,
i.e., the spot element, is transferred directly to OCI to offset
foreign currency translation (FCT) gains and losses on the net
investments in foreign branches and subsidiaries. As such, these
FX swaps hedge the structural FX exposure, resulting in the
accumulation of FCT movements at the level of individual
foreign branches and subsidiaries, which make up the total FCT
OCI of the Group.
When UBS designates as hedging instruments certain non-
derivative foreign currency financial assets and liabilities of
foreign branches or subsidiaries, 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.
is
in
designated
Due to the fact that only the spot element of hedging
instruments
relationships,
ineffectiveness is unlikely unless the hedged net assets fall below
the designated hedged amount. The exceptions are hedges
where the hedging currency is not the same as the currency of
the foreign operation, where the currency basis may cause
ineffectiveness.
hedging
31.12.19
31.12.19
31.12.18
11,992
11,992
11,537
9
9
171
171
217
217
109
109
109
109
56
48
229
115
115
For the year ended
31.12.19
31.12.19
31.12.18
(142)
(142)
134
134
(134)
(134)
(8)
(8)
205
(205)
181
24
Note 28 Hedge accounting (continued)
Foreign currency translation reserve
USD million
FFoorreeiiggnn ccuurrrreennccyy ttrraannssllaattiioonn rreesseerrvvee
of which: effective portion of changes in fair value of hedging instruments related to investment in subsidiaries 1
of which: for which hedge accounting continues to be applied 1
of which: for which hedge accounting is no longer applied 1
EEffffeeccttiivvee ppoorrttiioonn ooff cchhaannggeess iinn ffaaiirr vvaalluuee ooff hheeddggiinngg iinnssttrruummeennttss rreeccllaassssiiffiieedd ttoo OOtthheerr iinnccoommee uuppoonn ddiissppoossaall ooff
iinnvveessttmmeenntt ffoorr tthhee yyeeaarr eennddeedd11
11 This Note addresses the requirement of IFRS 7 effective from 1 January 2018, for which data is provided prospectively.
Undiscounted cash flows
31.12.17
4,466
3311..1122..1199
44,,002288
664433
338866
225577
((1144))
31.12.18
3,924
777
521
255
2
The table below provides undiscounted cash flow information for derivative instruments designated in hedge accounting
relationships.
Derivatives designated in hedge accounting relationships (undiscounted cash flows)
USD billion
IInntteerreesstt rraattee sswwaappss11
FFXX sswwaappss // ffoorrwwaarrddss
Cash inflows
Cash outflows
NNeett ccaasshh fflloowwss
OOnn ddeemmaanndd
DDuuee wwiitthhiinn
11 mmoonntthh
DDuuee bbeettwweeeenn
11 aanndd 33 mmoonntthhss
22001199
DDuuee bbeettwweeeenn
33 aanndd 1122 mmoonntthhss
DDuuee bbeettwweeeenn
11 aanndd 55 yyeeaarrss
DDuuee aafftteerr
55 yyeeaarrss
6
6
00
5
5
00
0
0
00
Due within
1 month
Due between
1 and 3 months
2018
Due between
3 and 12 months
Due between
1 and 5 years
Due after
5 years
On demand
USD billion
IInntteerreesstt rraattee sswwaappss11
FFXX sswwaappss // ffoorrwwaarrddss
Cash inflows
Cash outflows
NNeett ccaasshh fflloowwss
11 Undiscounted cash inflows and cash outflows of interest rate swaps were not material as the majority of interest rate swaps designated in hedge accounting relationships are legally settled on a daily basis.
2
2
0
9
9
0
TToottaall
11
11
00
Total
11
11
0
Interest rate benchmark reform
As of 1 October 2019, the Group early adopted the
amendments to IAS 39 and IFRS 7 related to interest rate
benchmark reform published by the IASB in September 2019.
As all fair value hedges are directly affected by the interest
rate benchmark reform, the relief is applied to all of the
disclosed fair value hedges in this Note.
The significant interest rate benchmarks to which the Group’s
hedging relationships are exposed are stated in the “Interest rate
risk hedge accounting” section of this Note.
The Group established a cross-divisional, cross-regional
governance structure and change program to address the scale
and complexity of the transition to alternative reference rates
(ARRs).
Hedges of net investments in foreign operations are not
affected by the amendments.
UBS also applies the amendments to those cash flow hedge
relationships where the hedged risk is LIBOR. The following table
provides details on the nominal amount and carrying amount of
in those hedging relationships.
the hedging
instruments
Cash flow hedges of forecast transactions referencing LIBOR
USD million
HHeeddggiinngg iinnssttrruummeennttss:: iinntteerreesstt rraattee sswwaappss
Nominal amount
Carrying amount
Derivative financial assets
Derivative financial liabilities
3311..1122..1199
1166,,446622
00
00
435
Financial statements
Consolidated financial statements
Note 29 Pension and other post-employment benefit plans
The table below provides a breakdown of expenses related to pension and other post-employment benefit plans recognized in the
income statement within Personnel expenses.
Income statement – expenses related to pension and other post-employment benefit plans
USD million
Net periodic expenses for defined benefit plans
of which: related to major pension plans 1
of which: Swiss plan 2
of which: UK plan
of which: US and German plans
of which: related to post-employment medical insurance plans 3
of which: related to remaining plans and other expenses 4
Expenses for defined contribution plans5
of which: UK plans
of which: US plan
of which: remaining plans
Total pension and other post-employment benefit plan expenses6
Total pension and other post-employment benefit plan expenses6
1 Refer to Note 29a for more information.
1
changes.
Note 6.
3 Refer to Note 29b for more information.
3
31.12.19
31.12.19
31.12.18
31.12.17
461
461
440
440
417
417
3
3
21
21
2
2
18
18
326
326
82
82
173
173
71
71
787
787
188
186
153
11
22
(11)
13
268
80
127
61
457
481
460
414
15
31
3
17
243
72
110
61
723
2 Changes to the Swiss pension plan in 2018 resulted in a pre-tax gain of USD 241 million related to past service. Refer to Note 29a for more information on these
2
6 Refer to
6
4 Other expenses include differences between actual and estimated performance award accruals.
4
5 Refer to Note 29c for more information.
5
The table below provides a breakdown of amounts recognized in Other comprehensive income for defined benefit plans.
Other comprehensive income – gains / (losses) on defined benefit plans
USD million
Major pension plans1
of which: Swiss plan
of which: UK plan
of which: US and German plans
Post-employment medical insurance plans2
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
Gains / (losses) recognized in other comprehensive income, net of tax3
1 Refer to Note 29a for more information. 2 Refer to Note 29b for more information. 3 Refer to the “Statement of comprehensive income.”
1
2
3
31.12.19
31.12.19
31.12.18
31.12.17
(135)
(135)
(22)
(22)
(78)
(78)
(35)
(35)
(3)
(3)
(8)
(8)
(146)
(146)
(41)
(41)
(186)
(186)
(230)
(352)
130
(8)
7
3
(220)
276
56
253
(79)
304
28
1
31
286
11
296
436
Note 29 Pension and other post-employment benefit plans (continued)
UBS recognizes assets and liabilities with respect to defined
benefit plans within Other non-financial assets and Other non-
financial liabilities.
As of 31 December 2019 and 31 December 2018, the Swiss
pension plan was in a surplus situation. However, a surplus is
only recognized on the balance sheet to the extent that it does
not exceed the estimated future economic benefit. Since the
estimated future economic benefit was zero as of 31 December
2019 and 31 December 2018, no net defined benefit pension
asset was recognized on the balance sheet.
The table below provides a breakdown of the assets and liabilities recognized on the balance sheet within Other non-financial assets and
Other non-financial liabilities related to defined benefit plans.
Balance sheet – net defined benefit pension and post-employment asset
USD million
Major pension plans1
of which: Swiss plan
of which: UK plan
of which: US and German plans
TToottaall nneett ddeeffiinneedd bbeenneeffiitt ppeennssiioonn aanndd ppoosstt eemmppllooyymmeenntt aasssseett22
11 Refer to Note 29a for more information. 22 Refer to Note 17.
-
-
Balance sheet – net defined benefit pension and post-employment liability
USD million
Major pension plans1
of which: Swiss plan
of which: UK plan
of which: US and German plans2
Post-employment medical insurance plans3
Remaining plans
3311..1122..1199
31.12.18
99
00
44
55
99
0
0
0
0
0
3311..1122..1199
31.12.18
552277
00
00
552277
6622
4444
671
0
160
511
62
42
TToottaall nneett ddeeffiinneedd bbeenneeffiitt ppeennssiioonn aanndd ppoosstt eemmppllooyymmeenntt lliiaabbiilliittyy44
11 Refer to Note 29a for more information. 22 Of the total liability recognized as of 31 December 2019, USD 111 million related to US plans and USD 416 million related to German plans (31 December 2018:
USD 137 million and USD 374 million, respectively). 33 Refer to Note 29b for more information. 44 Refer to Note 22.
775
663333
-
-
437
Financial statements
Consolidated financial statements
Note 29 Pension and other post-employment benefit plans (continued)
a) Defined benefit pension plans
UBS has established defined benefit pension plans for its
employees in various jurisdictions in accordance with local
regulations and practices. The major plans are located in
Switzerland, the UK, the US and Germany. The plans’ benefits
include retirement, disability and survivor benefits. The level of
benefits provided depends on the specific plan rules and the
level of employee compensation.
The overall investment policy and strategy for UBS’s defined
benefit pension plans is guided by the objective of achieving an
investment return that, together with contributions, is intended
to ensure that there will be sufficient assets to pay pension
benefits as they fall due, while also mitigating various risks. For
the plans with assets, i.e., funded plans, the investment
strategies are managed under local laws and regulations in each
jurisdiction. The asset allocation
the
governance body with reference to the current and expected
economic and market conditions and in consideration 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 effect on the funded status of the
plans, including potential short-term liquidity requirements.
is determined by
investment
The defined benefit obligations (DBOs) for all of UBS’s
defined benefit pension plans are directly affected by changes in
yields of high-quality corporate bonds quoted in an active
market in the currency of the respective pension plan, as the
applicable discount rate used to determine the DBO 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,
funds and cash, across
geographic regions, to achieve a balance of risk and return.
Under IFRS, volatility arises in each pension plan’s net asset /
liability position because the fair value of the plan’s financial
assets is not fully correlated to movements in the value of the
plan’s DBO. Specific asset-liability matching strategies for each
pension plan are independently determined by the responsible
governance body. The net asset / liability volatility for each plan
is dependent on the specific financial assets chosen by each
plan’s governance body. For certain pension plans, a liability-
driven investment approach is applied to a portion of the plan
assets to reduce potential volatility. UBS’s general principle is to
ensure that the plans are adequately funded on the basis of
actuarial valuations. Local pension regulations are the primary
drivers for determining when contributions are required.
Swiss pension plan
The Swiss pension plan covers employees of UBS AG and
employees of companies having close economic or financial ties
with UBS AG, and exceeds the minimum benefit requirements
under Swiss pension law.
Contributions to the pension plan are paid by both the
employer and the employees. The Swiss pension plan allows
employees to choose the level of contributions paid by them.
Employee contributions are calculated as a percentage of the
contributory salary and are deducted monthly. The percentages
deducted from salary depend on age and choice of contribution
category and vary between 2.5% and 13.5% of contributory
base salary and between 0% and 9% of contributory variable
compensation. Depending on the age of the employee, UBS
pays a contribution that ranges between 6.5% and 27.5% of
contributory base salary and between 2.8% and 9% of
risk
contributory variable compensation. UBS also pays
contributions that are used to finance benefits paid out in the
event of death and disability.
The plan benefits include retirement, disability and survivor
benefits. The pension plan offers to members at the normal
retirement age of 65 a choice between a lifetime pension with
or without full restitution and a partial or full lump sum
payment. Participants can choose to continue employment and
correspondingly remain active members in the pension plan until
the age of 70 at the latest or draw early retirement benefits
starting from the age of 58. Employees have the opportunity to
make additional purchases of benefits to fund early retirement
benefits (Plan 58+).
The pension amount payable is a result of the conversion rate
applied on the accumulated balance of the individual plan
participant’s pension account at the retirement date. The
accumulated 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
contribution promise under Swiss pension law, it is accounted
for as a defined benefit plan under IFRS, primarily because of the
obligation to accrue interest on the pension accounts and the
payment of lifetime pension benefits.
The Swiss pension plan is governed by a Pension Foundation
Board. The responsibilities of this board are defined by Swiss
pension law and by the plan rules. An actuarial valuation under
Swiss pension law is performed regularly. According to Swiss
pension law, a temporary limited underfunding is permitted.
However, should an underfunded situation occur, the Pension
Foundation Board is required to take the necessary measures
such that full funding can be expected to be restored within a
maximum period of 10 years. If a Swiss pension plan were to
become significantly underfunded on a Swiss pension law basis,
additional employer and employee contributions could be
required. In this situation, 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. As of
31 December 2019, the Swiss pension plan had a technical
funding ratio under Swiss pension law of 127.1% (31 December
2018: 124.2%).
438
Note 29 Pension and other post-employment benefit plans (continued)
The investment strategy of the Swiss plan is implemented on the
basis of a multi-level investment and risk management process and
complies with Swiss pension law, including the rules and regulations
relating to diversification of plan assets. These rules, among others,
specify restrictions on 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 with the defined risk budget set out by the
Pension Foundation Board. The risk budget is determined on the
basis of 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 is
in place. The Pension Foundation Board strives for a medium- and
long-term balance between assets and liabilities.
As of 31 December 2019, the Swiss pension plan was in a
surplus situation on an IFRS measurement basis, as the fair value of
plan assets exceeded the DBO by USD 3,724 million (31 December
2018: surplus of USD 3,274 million). However, a surplus is only
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 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 both
31 December 2019 and 31 December 2018, the estimated future
economic benefit was zero and hence no net defined benefit asset
was recognized on the balance sheet. As of 31 December 2019, the
difference between the pension plan surplus and the estimated
i.e., the asset ceiling effect, was
future economic benefit,
USD 3,724 million (31 December 2018: USD 3,274 million).
In the fourth quarter of 2019, UBS established an enhanced
methodology for measuring the estimated future economic benefits
available under the Swiss pension plan, which limits the amount of
any surplus recognized in accordance with IFRS, i.e., the asset ceiling
calculation. Under the revised approach, which will come into effect
in the first quarter of 2020, future service cost is measured
individually for each future year, considering the individually
applicable discount rate. In addition, an enhanced discount curve
methodology will be adopted, utilizing the FINMA-published
ultimate forward rate, which represents the average long-term
historical real rate plus expected inflation over the long-dated
periods where discount rates are unobservable. Application of this
approach is expected to reduce the sensitivity in the quarterly asset
ceiling calculation to short-term interest rates, resulting in lower
variability in the calculation and accordingly the resulting recognition
/ derecognition of the Swiss pension plan surplus in Other
comprehensive income. No changes have been made to the
methodology for measuring the defined benefit obligation.
Changes to the Swiss pension plan
As a result of the effects of continuing low and in some cases
return
rates, diminished
negative
investment
interest
expectations and increasing life expectancy, the pension fund of
UBS in Switzerland and UBS agreed to measures that have taken
effect from the start of 2019 to support the long-term financial
stability of the Swiss pension fund. As a result, the conversion
rate was lowered, the regular retirement age was increased from
64 to 65, employee contributions were increased from a range
of 1% and 13.5% of the contributory base salary to a range of
2.5% and 13.5% of the contributory base salary, and savings
contributions start from age 20 instead of the previous starting
age of 25. Pensions already in payment on 1 January 2019 were
not affected by these measures.
To mitigate the effects of the reduction of the conversion rate
on future pensions, UBS will make a payment to employees’
retirement assets in the Swiss pension fund of up to USD 746
million in three installments in 2020, 2021 and 2022.
In accordance with IFRS, these measures led to a reduction in
the pension obligation recognized by UBS, resulting in a pre-tax
gain of USD 241 million in 2018. In addition, 2018 service costs
were lower by USD 59 million due to the decrease in benefits.
These effects were recognized as a reduction in Personnel
expenses within the income statement across the business
divisions and Corporate Center, with a corresponding effect in
Other comprehensive income, as the Swiss pension plan was in a
surplus situation that could not be recognized due to the IFRS
asset ceiling restriction. If the Swiss pension plan remains in an
asset ceiling position, the three payments in 2020, 2021 and
2022, adjusted for expected forfeitures, are expected to reduce
total equity by USD 641 million, with no effect on the income
statement.
The first installment and the regular employer contributions
expected to be made to the Swiss pension plan in 2020 are
estimated to be USD 234 million and USD 466 million, respectively.
UK pension plan
The UK plan is a career-average revalued earnings scheme, and
benefits increase automatically based on UK price inflation. The
normal retirement age for participants in the UK plan is 60. Since
2000, the UK plan has been closed to new entrants and, since
2013, pension plan participants are no longer accruing benefits for
current or future service. Employees instead participate in the UK
defined contribution plan.
The governance responsibility for the UK plan lies jointly with the
Pension Trustee Board, which is required under local pension laws,
and UBS. The employer contributions to the pension fund reflect
agreed-upon deficit funding contributions, which are determined on
the basis of the most recent actuarial valuation using assumptions
agreed by the Pension Trustee Board and UBS. In the event of
underfunding, UBS and the Pension Trustee Board must agree on a
deficit recovery plan within statutory deadlines. In 2019, UBS made
deficit funding contributions of USD 242 million to the UK plan. In
2018, UBS did not make any deficit funding contributions.
439
Financial statements
Consolidated financial statements
Note 29 Pension and other post-employment benefit plans (continued)
As required under local state pension laws, both plans have
fiduciaries who, together with UBS, are responsible for the
governance of the plans. UBS regularly reviews the contribution
strategy for these plans, considering local statutory funding rules
and the cost of any premiums that must be paid to the Pension
Benefit Guaranty Corporation for having an underfunded plan.
In 2019, the contributions made by UBS were USD 29 million
(2018: USD 42 million).
The plan assets for both plans are invested in a diversified
portfolio of financial assets. Each pension plan’s fiduciaries are
responsible for the investment decisions with respect to the plan
investment
assets. Both US plans apply a
approach to support the volatility management in the net asset /
liability position. Derivative instruments may be employed to
manage volatility.
liability-driven
The employer contributions expected to be made to the US
defined benefit pension plans in 2020 are estimated at USD 9
million.
German pension plans
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 paid directly
by UBS. The normal retirement age for the participants in the
German plans is 65. Within the larger of the two plans, each
participant accrues a percentage of salary in a pension account.
The accumulated account balance of the plan participant is
credited on an annual basis with guaranteed interest at a rate of
5%. In the other plan, amounts are accrued annually based on
employee elections related to variable compensation. For this
plan, the accumulated account balance is credited on an annual
basis with a guaranteed interest rate of 6% for amounts accrued
before 2010, of 4% for amounts accrued from 2010 to 2017
and of 0.9% for amounts accrued after 2017. Both plans are
regulated under German pension
law, under which the
responsibility to pay pension benefits when they are due rests
entirely with UBS. For these plans, a portion of the pension
payments is directly increased in line with price inflation.
The benefits expected to be paid by UBS to the participants of
the German plans in 2020 are estimated at USD 10 million.
Financial information by plan
The tables on the following pages provide an analysis of the
movement in the net asset / liability recognized on the balance
sheet for defined benefit pension plans, as well as an analysis of
amounts recognized in net profit and in Other comprehensive
income.
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 is invested in inflation-indexed bonds that provide
a partial hedge against price inflation. If price inflation increases, the
DBO is likely to increase by more than the 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. The
sensitivity to changes in life expectancy is particularly high in the UK
plan as the pension benefits are indexed to price inflation.
As of 31 December 2019, the UK plan was in a surplus
situation on an IFRS measurement basis as the fair value of plan
assets exceeded the DBO by USD 4 million (31 December 2018:
deficit of USD 160 million).
Total contributions expected to be made to the UK defined
benefit pension plan in 2020 are estimated at USD 13 million,
subject to regular funding reviews during the year.
In addition, UBS and the Pension Trustee Board have entered
into an arrangement whereby a collateral pool was established
to provide security for the pension fund. The value of the
collateral pool as of 31 December 2019 was USD 364 million
and includes corporate bonds and government-related debt
instruments. The Pension Trustee Board and UBS may agree
adjustments
future. The
arrangement provides the Pension Trustee Board dedicated
access to a pool of assets in the event of UBS’s insolvency or not
paying a required deficit funding contribution.
the collateral pool
the
to
in
US pension plans
There are two distinct major defined benefit pension plans in the
US, both with a normal retirement age of 65. Since 1998 and
2001, respectively, the plans have been closed to new entrants,
who instead can participate in defined contribution plans.
One of the major defined benefit pension plans is a
contribution-based plan in which each participant accrues a
percentage of salary in a pension account. The pension account
is credited annually 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. Former employees with vested benefits have
the option to take a lump sum payment or a lifetime annuity
commencing early or at retirement age.
440
Note 29 Pension and other post-employment benefit plans (continued)
Defined benefit pension plans
USD million
Defined benefit obligation at the beginning of the year
Current service cost
Interest expense
Plan participant contributions
Remeasurements
of which: actuarial (gains) / losses due to changes in demographic assumptions
of which: actuarial (gains) / losses due to changes in financial assumptions
of which: experience (gains) / losses 1
Past service cost related to plan amendments
Curtailments
Benefit payments
Foreign currency translation
DDeeffiinneedd bbeenneeffiitt oobblliiggaattiioonn aatt tthhee eenndd ooff tthhee yyeeaarr
of which: amounts owed to active members
of which: amounts owed to deferred members
of which: amounts owed 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
Plan participant contributions
Benefit payments
Administration expenses, taxes and premiums paid
Foreign currency translation
FFaaiirr vvaalluuee ooff ppllaann aasssseettss aatt tthhee eenndd ooff tthhee yyeeaarr
Asset ceiling effect at the beginning of the year
Interest expense on asset ceiling effect
Asset ceiling effect excluding interest expense and foreign currency translation on
asset ceiling effect
Foreign currency translation
AAsssseett cceeiilliinngg eeffffeecctt aatt tthhee eenndd ooff tthhee yyeeaarr
NNeett ddeeffiinneedd bbeenneeffiitt aasssseett // ((lliiaabbiilliittyy))
MMoovveemmeenntt iinn tthhee nneett aasssseett // ((lliiaabbiilliittyy)) rreeccooggnniizzeedd oonn tthhee bbaallaannccee sshheeeett
NNeett aasssseett // ((lliiaabbiilliittyy)) rreeccooggnniizzeedd oonn tthhee bbaallaannccee sshheeeett aatt tthhee bbeeggiinnnniinngg ooff tthhee yyeeaarr
Net periodic expenses recognized in net profit
Gains / (losses) recognized in other comprehensive income
Employer contributions
Foreign currency translation
NNeett aasssseett // ((lliiaabbiilliittyy)) rreeccooggnniizzeedd oonn tthhee bbaallaannccee sshheeeett aatt tthhee eenndd ooff tthhee yyeeaarr
FFuunnddeedd aanndd uunnffuunnddeedd ppllaannss
Defined benefit obligation from funded plans
Defined benefit obligation from unfunded plans
Plan assets
SSuurrpplluuss // ((ddeeffiicciitt))
AAsssseett cceeiilliinngg eeffffeecctt
Swiss plan
UK plan
22001199
2222,,556666
440099
220000
224400
11,,772288
2018
23,419
405
151
218
(242)
00
0
((119966))
(639)
11,,664411
397
228844
(241)
00
(20)
00
(954)
((11,,004466))
(170)
339999
2244,,449966
22,566
1111,,557777 10,452
0
1122,,991188 12,114
26,656
2255,,883399
22,,005599
(523)
177
223333
505
445522
218
224400
(954)
((11,,004466))
((1111))
(11)
(228)
445533
25,839
2288,,221199
3,237
33,,227744
23
3300
335533
6677
33,,772244
00
71
(58)
3,274
0
00
((441177))
((2222))
445522
((1133))
00
0
(153)
(352)
505
0
0
22001199
33,,119922
00
9922
00
336611
2018
3,744
0
93
0
(266)
((2266))
442211
((3344))
00
00
((113355))
114444
33,,665544
116644
(18)
(257)
8
4
0
(202)
(181)
3,192
146
11,,555599 1,434
11,,993311 1,612
3,469
33,,003322
(136)
228844
86
8899
0
224422
00
0
(202)
((113355))
00
0
(185)
114466
3,032
33,,665588
0
00
0
00
00
00
00
44
((116600))
((33))
((7788))
224422
22
44
0
0
0
(160)
(275)
(11)
130
0
(4)
(160)
US and German plans
2018
1,816
7
55
0
(69)
22001199
11,,667799
66
5599
00
118855
33
117799
44
00
00
((110022))
((88))
11,,882200
223355
667755
991111
11,,116688
115500
4477
3388
00
((110022))
((22))
00
11,,229999
00
00
00
00
00
((552211))
((551111))
((2211))
((3355))
3388
88
((552211))
(5)
(69)
5
0
0
(112)
(18)
1,679
226
606
847
1,265
(77)
44
51
0
(112)
(3)
0
1,168
0
0
0
0
0
(511)
(550)
(22)
(8)
51
18
(511)
Total
22001199
2277,,443377
441155
335511
224400
22,,227755
2018
28,978
413
299
218
(577)
(23)
((222200))
(964)
22,,224411
410
225544
(237)
00
(20)
00
(1,268)
((11,,228833))
(369)
553355
2299,,997700
27,437
1111,,997766 10,823
22,,223333 2,040
1155,,776600 14,574
31,390
3300,,003399
(736)
22,,449922
306
336699
556
773322
218
224400
(1,268)
((11,,228833))
(14)
((1133))
(412)
559999
30,039
3333,,117766
3,237
33,,227744
23
3300
335533
6677
33,,772244
((551188))
71
(58)
3,274
(671)
((667711))
((444400))
((113355))
773322
((33))
((551188))
(825)
(186)
(230)
556
14
(671)
2244,,449966
22,566
33,,665544
3,192
00
0
2288,,221199
33,,772244
25,839
3,274
33,,772244
3,274
00
33,,665588
44
00
0
3,032
(160)
0
11,,331199
550011
11,,229999
((552211))
00
1,219
2299,,446699
26,976
460
1,168
(511)
0
550011
3333,,117766
33,,220066
33,,772244
460
30,039
2,603
3,274
NNeett ddeeffiinneedd bbeenneeffiitt aasssseett // ((lliiaabbiilliittyy))
(671)
11 Experience (gains) / losses are a component of actuarial remeasurements of the defined benefit obligation that reflect the effects of differences between the previous actuarial assumptions and what has actually
occurred.
(160)
(511)
((552211))
((551188))
0
00
44
441
Financial statements
Consolidated financial statements
Note 29 Pension and other post-employment benefit plans (continued)
Analysis of amounts recognized in net profit
Analysis of amounts recognized in net profit
USD 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
Past service cost related to plan amendments
Curtailments
Net periodic expenses recognized in net profit
Net periodic expenses recognized in net profit
Swiss plan
31.12.19 31.12.18
31.12.19
405
409
409
UK plan
31.12.19 31.12.18
31.12.19
0
0
0
US and German plans
31.12.19 31.12.18
31.12.19
7
6
6
Total
31.12.19 31.12.18
31.12.19
413
415
415
200
200
(233)
(233)
30
30
11
11
0
0
0
0
417
417
151
(177)
23
11
(241)
(20)
153
92
92
(89)
(89)
0
0
0
0
0
0
0
0
3
3
93
(86)
0
0
4
0
11
59
59
(47)
(47)
0
0
2
2
0
0
0
0
21
21
55
(44)
0
3
0
0
22
351
351
(369)
(369)
30
30
13
13
0
0
0
0
440
440
299
(306)
23
14
(237)
(20)
186
Analysis of amounts recognized in other comprehensive income (OCI)
Analysis of amounts recognized in other comprehensive income (OCI)
USD 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 and foreign currency translation on
asset ceiling effect
Total gains / (losses) recognized in other comprehensive income, before tax
Total gains / (losses) recognized in other comprehensive income, before tax
Swiss plan
31.12.19 31.12.18
31.12.19
242
(1,728)
(1,728)
UK plan
31.12.19 31.12.18
31.12.19
266
(361)
(361)
US and German plans
31.12.19 31.12.18
31.12.19
69
(185)
(185)
Total
31.12.19 31.12.18
31.12.19
577
(2,275)
(2,275)
2,059
2,059
(523)
284
284
(136)
150
150
(77)
2,492
2,492
(736)
(353)
(353)
(22)
(22)
(71)
(352)
0
0
(78)
(78)
0
130
0
0
(35)
(35)
0
(8)
(353)
(353)
(135)
(135)
(71)
(230)
The table below provides information about the duration of the DBO and the timing for expected benefit payments.
Duration of the defined benefit obligation (in years)
Duration of the defined benefit obligation (in years)
Maturity analysis of benefits expected to be paid
Maturity analysis of benefits expected to be paid
USD million
Benefits expected to be paid within 12 months
Benefits expected to be paid between 1 and 3 years
Benefits expected to be paid between 3 and 6 years
Benefits expected to be paid between 6 and 11 years
Benefits expected to be paid between 11 and 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 US and German plans.
1
Swiss plan
UK plan
US and German plans1
31.12.19
31.12.19
31.12.18
31.12.19
31.12.19
31.12.18
31.12.19
31.12.19
31.12.18
14.9
14.9
14.5
20.2
20.2
19.5
10.1
10.1
9.8
1,232
1,232
2,483
2,483
3,670
3,670
5,761
5,761
5,070
5,070
1,153
2,356
3,554
5,643
5,142
93
93
209
209
384
384
748
748
807
807
82
187
345
701
770
15,517
15,517
16,792
3,913
3,913
3,927
121
121
228
228
346
346
548
548
455
455
721
721
108
216
336
566
494
798
442
Note 29 Pension and other post-employment benefit plans (continued)
Actuarial assumptions
The measurement of each pension plan’s DBO considers
different actuarial assumptions. Changes in those assumptions
lead to volatility in the DBO. The following significant actuarial
assumptions are applied:
–
Discount rate: the discount rate is based on the yield of high-
quality corporate bonds quoted in an active market in the
currency of the respective pension plan. Consequently, a
decrease
in the yield of high-quality corporate bonds
increases the DBO. Conversely, an increase in the yield of
high-quality corporate bonds decreases the DBO.
Rate of salary increase: an increase in the salary of plan
participants generally increases the DBO, 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
effect on the DBO. For the US plans, only a small percentage
of the total population continues to accrue benefits for future
service and therefore the effect of a salary increase on the
DBO is minimal.
Rate of pension increase: for the Swiss plan, there is no
automatic indexing of pensions. Any increase would be
decided by the Pension Foundation Board. For the US plans,
there is also no automatic indexing of pensions. For the UK
plan, pensions are automatically indexed to price inflation as
per plan rules and local pension legislation. The German
plans are also automatically indexed and a portion of the
pensions are directly increased by price inflation. An
increase in price inflation in the UK or Germany increases
the respective plan’s DBO.
Rate of interest credit on retirement savings: the Swiss plan
and one of the US plans have retirement saving balances that
are increased annually by an interest credit rate. For each of
these plans, an increase in the interest credit rate increases
the plan’s DBO.
Life expectancy: most of UBS’s defined benefit pension plans
are obligated to provide guaranteed lifetime pension benefits.
The DBO for all plans is calculated using an underlying best
estimate of the life expectancy of plan participants. An
increase in the life expectancy of plan participants increases
the plan’s DBO.
–
–
–
–
The actuarial assumptions used for the pension plans are
based on the economic conditions prevailing in the jurisdiction in
which they are offered.
Refer to Note 1a item 7 for a description of the accounting
policy for defined benefit pension plans
Changes in actuarial assumptions
UBS regularly reviews the actuarial assumptions used
calculating its DBO to determine their continuing relevance.
in
Swiss pension plan
In 2019, a loss of USD 1,728 million was recognized in Other
comprehensive income (OCI) related to the remeasurement of the
DBO. This was primarily due to a market-driven decrease in the
discount rate, which resulted in an OCI loss of USD 1,887 million
and an experience loss of USD 284 million, reflecting the effects of
differences between the previous actuarial assumptions and what
actually occurred. These losses were partly offset by gains of
USD 243 million resulting from a decrease in the expected rate of
interest credit on retirement savings, USD 103 million due to an
update in the disability assumption and USD 94 million due to an
update in the turnover assumption.
In 2018, a net gain of USD 242 million was recognized in OCI
related to the remeasurement of the DBO. This was primarily
due to a market-driven increase in the discount rate, which
resulted in an OCI gain of USD 776 million. This effect was
losses of USD 397 million,
partially offset by experience
reflecting differences between
actuarial
assumptions and what actually occurred, and market-driven
changes to the assumed rate of interest credit on retirement
savings, which resulted in a loss of USD 124 million. Changes in
other assumptions were not significant.
the previous
UK pension plan
In 2019, a loss of USD 361 million was recognized in OCI related
to the remeasurement of the DBO for the UK plan. This was
primarily due to a market-driven decrease in the discount rate,
which resulted in an OCI loss of USD 552 million. This loss was
partially offset by a gain of USD 132 million due to a decrease in
the expected rate of pension increase, experience gains of
USD 34 million which reflect differences between the previous
actuarial assumptions and what actually occurred, and a gain of
USD 21 million due to an update of the mortality improvement
assumption.
In 2018, a net gain of USD 266 million was recognized in OCI
related to the remeasurement of the DBO for the UK plan. This
was primarily due to a market-driven increase in the discount
rate, which resulted in an OCI gain of USD 219 million, as well
as changes in the pension increase assumption, which resulted
in an OCI gain of USD 37 million.
US and German pension plans
In 2019, a loss of USD 185 million was recognized in OCI related
to the remeasurement of the DBO for the US and German plans,
compared with a net gain of USD 69 million in 2018. OCI gains
and losses in both years were primarily driven by market-driven
movements in discount rates.
443
Financial statements
Consolidated financial statements
Note 29 Pension and other post-employment benefit plans (continued)
The tables below show the significant actuarial assumptions used in calculating the DBO at the end of the year.
Significant actuarial assumptions
In %
Discount rate
Rate of salary increase
Rate of pension increase
Rate of interest credit on retirement savings
1 Represents weighted average assumptions across US and German plans.
1
Mortality tables and life expectancies for major plans
Country
Country
Switzerland
UK
USA
Mortality table
Mortality table
BVG 2015 G with CMI 2016 projections
S2PA with CMI 2018 projections1
RP2014 WCHA with MP2019 projection scale2
Germany
Dr. K. Heubeck 2018 G
Country
Country
Switzerland
UK
USA
Mortality table
Mortality table
BVG 2015 G with CMI 2016 projections
S2PA with CMI 2018 projections1
RP2014 WCHA with MP2019 projection scale2
Germany
Dr. K. Heubeck 2018 G
Swiss plan
UK plan
US and German plans1
31.12.19
31.12.19
31.12.18
31.12.19
31.12.19
31.12.18
31.12.19
31.12.19
31.12.18
0.29
0.29
1.50
1.50
0.00
0.00
0.49
0.49
0.92
1.50
0.00
0.92
2.07
2.07
0.00
0.00
2.92
2.92
0.00
0.00
2.90
0.00
3.10
0.00
2.58
2.58
2.37
2.37
1.80
1.80
2.57
2.57
3.69
2.81
1.50
3.70
Life expectancy at age 65 for a male member currently
aged 65
aged 45
31.12.19
31.12.19
31.12.18
31.12.19
31.12.19
31.12.18
21.6
21.6
23.3
23.3
22.8
22.8
20.7
20.7
21.6
23.4
22.8
20.5
23.1
23.1
24.5
24.5
24.3
24.3
23.5
23.5
23.1
24.6
24.3
23.3
Life expectancy at age 65 for a female member currently
aged 65
aged 45
31.12.19
31.12.19
31.12.18
31.12.19
31.12.19
31.12.18
23.6
23.6
25.1
25.1
24.4
24.4
24.2
24.2
23.5
25.2
24.4
24.1
25.1
25.1
26.4
26.4
25.9
25.9
26.4
26.4
25.0
26.5
26.0
26.3
1 In 2018, the mortality table S2PA with CMI 2017 projections was used. 2 In 2018, the mortality table RP2014 WCHA with MP2018 projection scale was used.
2
Sensitivity analysis of significant actuarial assumptions
circumstances may arise, which could result in variations that are
The table below presents a sensitivity analysis for each significant outside the range of alternatives deemed reasonably possible.
actuarial assumption, showing how the DBO would have been Caution should be used in extrapolating the sensitivities below
affected by changes in the relevant actuarial assumption that on the DBO as the sensitivities may not be linear.
were reasonably possible at the balance sheet date. Unforeseen
Sensitivity analysis of significant actuarial assumptions1
Increase / (decrease) in defined benefit obligation
USD million
Discount rate
Discount rate
Increase by 50 basis points
Decrease by 50 basis points
Rate of salary increase
Rate of salary increase
Increase by 50 basis points
Decrease by 50 basis points
Rate of pension increase
Rate of pension increase
Increase by 50 basis points
Decrease by 50 basis points
Rate of interest credit on retirement savings
Rate of interest credit on retirement savings
Increase by 50 basis points
Decrease by 50 basis points
Life expectancy
Life expectancy
Swiss plan
UK plan
31.12.19
31.12.19
31.12.18
31.12.19
31.12.19
31.12.18
US and German plans
31.12.19
31.12.19
31.12.18
(1,505)
(1,505)
1,710
1,710
76
76
(73)
(73)
1,221
1,221
–3
–3
175
175
(102)5
(102)5
(1,327)
1,503
68
(65)
1,090
–3
231
(219)
(346)
(346)
395
395
–2
–2
–2
–2
331
331
(299)
(299)
–4
–4
–4
–4
(292)
333
–2
–2
260
(262)
–4
–4
(86)
(86)
93
93
1
1
(1)
(1)
7
7
(7)
(7)
9
9
(9)
(9)
(77)
84
1
(1)
6
(6)
9
(9)
Increase in longevity by one additional year
51
42
51
2 As the plan is closed for
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
1
3 As the assumed rate of pension increase was 0% as of 31 December 2019 and as of 31 December 2018, a downward change in assumption is
future service, a change in assumption is not applicable.
3
not applicable. 4 As the UK plan does not provide interest credits on retirement savings, a change in assumption is not applicable. 5 As of 31 December 2019, 21% of retirement savings were subject to a legal
minimum rate of 1.00%.
751
122
886
886
154
154
4
5
444
Note 29 Pension and other post-employment benefit plans (continued)
Fair value of plan assets
The tables below provide information about the composition and fair value of plan assets of the Swiss, the UK and the US pension plans.
Composition and fair value of plan assets
Swiss plan
3311..1122..1199
31.12.18
FFaaiirr vvaalluuee
PPllaann aasssseett
aallllooccaattiioonn %%
Fair value
Plan asset
allocation %
USD million
CCaasshh aanndd ccaasshh eeqquuiivvaalleennttss
RReeaall eessttaattee // pprrooppeerrttyy
Domestic
Foreign
IInnvveessttmmeenntt ffuunnddss
Equity
Domestic
Foreign
Bonds1
Domestic, AAA to BBB–
Foreign, AAA to BBB–
Foreign, below BBB–
Real estate
Foreign
Other
OOtthheerr iinnvveessttmmeennttss
TToottaall ffaaiirr vvaalluuee ooff ppllaann aasssseettss
TToottaall ffaaiirr vvaalluuee ooff ppllaann aasssseettss
of which:2
Bank accounts at UBS
UBS debt instruments
UBS shares
Securities lent to UBS3
Property occupied by UBS
Derivative financial instruments, counterparty UBS3
11
1111
11
22
2277
1111
2211
44
00
2200
33
110000
QQuuootteedd
iinn aann aaccttiivvee
mmaarrkkeett
115599
OOtthheerr
00
TToottaall
115599
00
00
33,,005500
116600
33,,005500
116600
770011
00
66,,009911
11,,665533
33,,223388
55,,888800
999999
00
00
00
00
00
11,,660044
33,,995566
553355
119944
770011
77,,774433
33,,223388
55,,888800
999999
00
55,,556600
772299
1199,,220066
99,,001144
2288,,221199
3311..1122..1199
2288,,221199
115599
77
2211
11,,332288
8888
1100
Other
0
Total
137
2,963
2,963
Quoted
in an active
market
137
0
0
628
0
0
5,721
1,515
2,570
6,194
892
0
0
0
0
518
531
11
4,142
18
0
628
7,237
2,570
6,194
892
11
4,659
549
17,190
8,649
25,839
31.12.18
25,839
132
13
25
1,567
88
34
1
11
0
2
28
10
24
3
0
18
2
100
11 The bond credit ratings are primarily based on Standard & Poor’s credit ratings. Ratings AAA to BBB– and below BBB– represent investment grade and non-investment grade ratings, respectively. In cases where
credit ratings from other rating agencies were used, these were converted to the equivalent rating in Standard & Poor’s rating classification. 22 Bank accounts at UBS encompass accounts in the name of the Swiss
pension fund. The other positions disclosed in the table encompass both direct investments in UBS instruments and indirect investments, i.e., those made through funds that the pension fund invests in. 33 Securities
lent to UBS and derivative financial instruments are presented gross of any collateral. Securities lent to UBS were fully covered by collateral as of 31 December 2019 and 31 December 2018. Net of
collateral, derivative financial instruments amounted to USD 6 million as of 31 December 2019 (31 December 2018: USD 10 million).
445
Financial statements
Consolidated financial statements
Note 29 Pension and other post-employment benefit plans (continued)
Composition and fair value of plan assets (continued)
UK plan
USD million
Cash and cash equivalents
Cash and cash equivalents
Bonds1
Bonds1
Domestic, AAA to BBB–
Investment funds
Investment funds
Equity
Domestic
Foreign
Bonds1
Domestic, AAA to BBB–
Domestic, below BBB–
Foreign, AAA to BBB–
Foreign, below BBB–
Real estate
Domestic
Foreign
Insurance contracts
Insurance contracts
Derivatives
Derivatives
Asset-backed securities
Asset-backed securities
Other investments2
Other investments2
Total fair value of plan assets
Total fair value of plan assets
31.12.19
31.12.19
31.12.18
Fair value
Fair value
Plan asset
Plan asset
allocation %
allocation %
Fair value
Plan asset
allocation %
Quoted
Quoted
in an active
in an active
market
market
141
141
Other
Other
0
0
Total
Total
141
141
1,810
1,810
0
0
1,810
1,810
33
33
916
916
610
610
22
22
310
310
108
108
103
103
0
0
0
0
3
3
0
0
(572)
(572)
3,483
3,483
0
0
0
0
117
117
0
0
0
0
0
0
18
18
19
19
7
7
0
0
6
6
7
7
33
33
916
916
727
727
22
22
310
310
108
108
122
122
19
19
7
7
3
3
6
6
(565)
(565)
175
175
3,658
3,658
Quoted
in an active
market
143
Other
0
Total
143
1,604
0
1,604
26
658
587
15
258
51
102
0
0
0
21
(565)
0
0
93
0
0
0
28
0
0
0
2
9
26
658
680
15
258
51
131
0
0
0
22
(556)
2,900
132
3,032
4
4
49
49
1
1
25
25
20
20
1
1
8
8
3
3
3
3
1
1
0
0
0
0
0
0
(15)
(15)
100
100
5
53
1
22
22
0
9
2
4
0
0
0
1
(18)
100
1 The bond credit ratings are primarily based on Standard & Poor’s credit ratings. Ratings AAA to BBB– and below BBB– represent investment grade and non-investment grade ratings, respectively. In cases where
1
credit ratings from other rating agencies were used, these were converted to the equivalent rating in Standard & Poor’s rating classification. 2 Mainly relates to repurchase arrangements on UK treasury bonds.
2
446
Note 29 Pension and other post-employment benefit plans (continued)
Composition and fair value of plan assets (continued)
US plans
3311..1122..1199
31.12.18
FFaaiirr vvaalluuee
PPllaann aasssseett
aallllooccaattiioonn %%
Fair value
Plan asset
allocation %
QQuuootteedd
iinn aann aaccttiivvee
mmaarrkkeett
2277
OOtthheerr
00
TToottaall
2277
Quoted
in an active
market
27
Other
0
Total
27
USD million
CCaasshh aanndd ccaasshh eeqquuiivvaalleennttss
BBoonnddss11
Domestic, AAA to BBB–
Domestic, below BBB–
Foreign, AAA to BBB–
Foreign, below BBB–
IInnvveessttmmeenntt ffuunnddss
Equity
Domestic
Foreign
Bonds1
Domestic, AAA to BBB–
Domestic, below BBB–
Foreign, AAA to BBB–
Foreign, below BBB–
Real estate
Domestic
Other
IInnssuurraannccee ccoonnttrraaccttss
TToottaall ffaaiirr vvaalluuee ooff ppllaann aasssseettss
447755
22
9999
33
220088
116611
117766
2288
1177
33
00
6699
00
11,,226688
00
00
00
00
00
00
00
00
00
00
1133
00
1188
3311
447755
22
9999
33
220088
116611
117766
2288
1177
33
1133
6699
1188
22
3377
00
88
00
1166
1122
1144
22
11
00
11
55
11
462
2
92
3
143
157
104
23
56
6
0
64
0
462
2
92
3
143
157
104
23
56
6
13
64
17
0
0
0
0
0
0
0
0
0
0
13
0
17
29
2
40
0
8
0
12
13
9
2
5
1
1
5
1
11,,229999
110000
1,139
1,168
100
11 The bond credit ratings are primarily based on Standard & Poor’s credit ratings. Ratings AAA to BBB– and below BBB– represent investment grade and non-investment grade ratings, respectively. In cases where
credit ratings from other rating agencies were used, these were converted to the equivalent rating in Standard & Poor’s rating classification.
447
Financial statements
Consolidated financial statements
Note 29 Pension and other post-employment benefit plans (continued)
b) Post-employment medical insurance plans
In the US and the UK, UBS offers post-employment medical
insurance benefits that contribute to the health care coverage of
certain employees and their beneficiaries after retirement. The
UK post-employment medical insurance plan is closed to new
entrants. In the US, retiree medical premiums are subsidized for
eligible participants who retired before 2014. These plans are
not prefunded.
In 2018, UBS announced changes to one of the US post-
employment medical insurance plans that replaced the UBS
retiree medical subsidy with a new subsidy to purchase medical
coverage through a private Medicare exchange. This change
reduced the post-employment benefit obligation by USD 14
million, resulting in a corresponding gain recognized in the
income statement in 2018.
c) Defined contribution plans
As of 31 December 2019, the net liability recognized for post-
employment medical
insurance plans was USD 62 million
(31 December 2018: USD 62 million). An expense of USD 2
million was recognized in the income statement in 2019 (2018:
gain of USD 11 million; 2017: expense of USD 3 million) and a
loss of USD 3 million in Other comprehensive income in 2019
(2018: gain of USD 7 million; 2017: gain of USD 1 million).
The benefits expected to be paid to participants in 2020 are
estimated at USD 5 million.
The measurement of each medical insurance plan’s post-
employment benefit obligation considers different actuarial
assumptions. Reasonably possible
in actuarial
assumptions would not lead to material movements in the net
liability recognized as of 31 December 2019 and as of December
2018.
changes
UBS sponsors a number of defined contribution plans in other contributions from UBS. Employer contributions to defined
locations outside Switzerland. The locations with significant
contribution plans are recognized as an expense, which, for
defined contribution plans are the US and the UK. Certain plans 2019, 2018 and 2017, amounted to USD 326 million, USD 268
allow employees to make contributions and earn matching or million and USD 243 million, respectively.
448
Note 29 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 capacity, UBS is engaged to
execute most of the pension fund’s banking activities. These
activities can include, but are not limited to, trading, securities
lending and borrowing and derivative transactions. The non-
Swiss UBS pension funds do not have a similar banking
relationship with UBS.
Also, UBS leases certain properties that are owned by the
Swiss pension fund. As of 31 December 2019, the minimum
commitment toward the Swiss pension fund under the related
leases was approximately USD 14 million (31 December 2018:
USD 17 million).
Refer to the “Composition and fair value of plan assets” table in
Note 29a for more information about fair value of investments
in UBS instruments held by the Swiss pension fund
The following amounts have been received or paid by UBS
from and to the pension and other post-employment benefit
plans located in Switzerland, the UK and the US in respect of
these banking activities and arrangements.
Related-party disclosure
USD million
RReecceeiivveedd bbyy UUBBSS
Fees
PPaaiidd bbyy UUBBSS
Rent
Dividends, capital repayments and interest
For the year ended
3311..1122..1199
31.12.18
31.12.17
3344
44
1111
35
4
10
36
5
10
The transaction volumes in UBS shares and UBS debt instruments and the balances of UBS shares held as of 31 December were:
Transaction volumes – UBS shares and UBS debt instruments
FFiinnaanncciiaall iinnssttrruummeennttss bboouugghhtt bbyy ppeennssiioonn ffuunnddss
UBS shares (in thousands of shares)
UBS debt instruments (par values, USD million)
FFiinnaanncciiaall iinnssttrruummeennttss ssoolldd bbyy ppeennssiioonn ffuunnddss oorr mmaattuurreedd
UBS shares (in thousands of shares)
UBS debt instruments (par values, USD million)
UBS shares held by pension and other post-employment benefit plans
Number of shares (in thousands of shares)
Fair value (USD million)
For the year ended
3311..1122..1199
31.12.18
996677
22
11,,997777
88
889
13
547
3
3311..1122..1199
1155,,770011
119988
31.12.18
16,712
207
449
Financial statements
Consolidated financial statements
Note 30 Employee benefits: variable compensation
a) Plans offered
The Group has several share-based and other compensation
plans that align the interests of Group Executive Board (GEB)
members and other employees with the interests of investors.
These compensation plans are also designed to meet regulatory
requirements. The most significant compensation plans are
described below.
Refer to Note 1a item 6 for a description of the accounting policy
related to share-based and other deferred compensation plans
Mandatory deferred compensation plans
Equity Ownership Plan (EOP)
The EOP is a mandatory deferred share-based compensation plan
for all employees with total annual compensation greater than
USD / CHF 300,000. Starting with performance year 2019, GEB
members, Group Managing Directors (GMDs) and Vice Chairs
receive Long-Term Incentive Plan (LTIP) awards instead of EOP.
EOP awards granted to GEB members and GMDs in 2019 and
prior years, as well as EOP awards granted to certain other
employees, will only vest if both Group and business division
performance conditions are met. For awards granted in 2019
and 2020, related to the performance years 2018 and 2019,
respectively, the Group performance condition is based on the
average reported return on common equity tier 1 capital
(RoCET1). For awards granted in 2018 and before, the Group
performance condition is based on the average adjusted return
on tangible equity (RoTE) excluding deferred tax assets over the
performance period. Business division performance is measured
on the basis of their average adjusted return on attributed equity
(RoAE). For Corporate Center employees, it is measured on the
basis of the average operating businesses’ adjusted RoAE.
Certain awards, such as replacement awards issued outside
the normal performance year cycle, may take the form of
deferred cash under the EOP plan rules.
Notional shares represent a promise to receive UBS shares at
vesting and do not carry voting rights during the vesting period.
Awards granted generally carry a dividend equivalent that may be
paid in notional shares or cash and that vests on the same terms
and conditions as the awards. However, starting with awards
granted in 2018 for the performance year 2017, European Banking
Authority guidelines do not permit individuals who are deemed to
be Material Risk Takers (MRTs) to receive dividend or interest
payments on
variable
compensation. Where dividend payments are not permitted, the
grant price of the EOP award is adjusted for the expected dividend
yield over the vesting period to reflect the fair value of the non-
dividend-bearing award.
instruments awarded as deferred
450
Awards are settled by delivering UBS shares at vesting, except in
jurisdictions where this is not permitted for legal or tax reasons. EOP
awards generally vest in equal installments after two and three years
following the granting of such awards. Awards granted to GEB
members in 2019 and prior years generally vest after three, four and
five years. The awards are generally forfeitable upon, among other
circumstances, voluntary termination of employment with UBS.
Long-Term Incentive Plan
The LTIP is a mandatory deferred share-based compensation plan
for senior leaders of the Group (i.e., GEB members, GMDs and Vice
Chairs). LTIP awards are granted for the first time in 2020 as part of
the performance award pool for 2019.
(rTSR), which measures UBS's
The final number of notional shares delivered at vesting
depends on two equally weighted performance metrics: average
reported return on CET1 capital (RoCET1) and relative total
shareholder
total
return
index consisting of global
shareholder return against an
systemically important banks as determined by the Financial
Stability Board. These performance metrics are separately valued
as of the date of grant and (re-)assessed over a three-year
performance period starting in the year of grant. For both
metrics there is a threshold level, which would result in a 33%
payout, and a maximum level, which would result in a 100%
payout. Any performance between the threshold and the
maximum level would result in a linear payout between 33%
and 100%.
in each of
The final number of shares as determined at the end of the
three equal
three-year performance period will vest
installments
the
performance period for GEB members, and cliff-vest in the first
year following the performance period for GMDs and Vice
Chairs. The awards are generally forfeitable upon, among other
circumstances, voluntary termination of employment with UBS.
three years
following
the
in
In general, the form of the equity awards (notional shares), the
entitlement to dividend equivalents and the settlement method is
the same as for EOP awards.
Deferred Contingent Capital Plan (DCCP)
The DCCP is a mandatory deferred compensation plan for all
employees with
than
USD / CHF 300,000.
total annual compensation greater
DCCP awards take the form of notional additional tier 1 (AT1)
capital instruments, which, at the discretion of UBS, can be
settled in either a cash payment or a perpetual, marketable AT1
capital instrument. DCCP awards vest in full after five years, and
up to seven years for UK senior management functions, unless
there is a trigger event.
Note 30 Employee benefits: variable compensation (continued)
Awards are forfeited if a viability event occurs, i.e., if FINMA
notifies the firm in writing 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. Additionally, they are also written down if the Group’s
common equity tier 1 capital ratio falls below 10% for GEB
members and below 7% for all other employees. As an
additional performance condition, GEB members forfeit 20% of
their award for each loss-making year during the vesting period.
Interest payments on DCCP awards are paid at the discretion
of UBS. Where interest payments are not permitted, such as for
MRTs, the DCCP award reflects the fair value of the granted
non-interest-bearing award.
The awards are generally forfeitable upon, among other
circumstances, voluntary termination of employment with UBS.
Asset Management EOP
In order to align deferred compensation of certain Asset
Management employees with
the
investment funds they manage, awards are granted to such
employees in the form of cash-settled notional investment
funds. The amount delivered depends on the value of the
underlying investment funds at the time of vesting. The awards
are generally forfeitable upon, among other circumstances,
voluntary termination of employment with UBS.
the performance of
Financial advisor variable compensation
In line with market practice for US wealth management
businesses, the compensation for US financial advisors in Global
Wealth Management is comprised of production payout and
deferred compensation awards. Production payout is primarily
based on compensable revenue and is paid monthly.
Financial advisors may also qualify for deferred compensation
awards, which generally vest over a six-year period. The awards
are based on strategic performance measures,
including
production, length of service with the firm and net new
business. Production payout rates and deferred compensation
awards may be reduced for, among other things, errors,
negligence or carelessness, or a failure to comply with the firm’s
rules, standards, practices and policies or applicable laws and
regulations.
Strategic objective awards
Strategic objective awards are deferred compensation awards
based on strategic performance measures, including production,
length of service with the firm and net new business. These
awards are granted in the form of both deferred share-based
and deferred cash-based awards, with a vesting period of up to
six years.
Other compensation plans
Equity Plus Plan (Equity Plus)
Equity Plus is a voluntary share-based compensation plan that
provides eligible employees with the opportunity to purchase
UBS shares at market value and receive one notional share for
every three shares purchased, up to a maximum annual limit.
Share purchases may be made annually from the performance
award and/or monthly through deductions from salary. If the
shares purchased are held until three years from the start of the
associated plan year and, in general, if the employee remains
employed by UBS, the notional shares vest. Employees are
entitled to receive a dividend equivalent which may be paid in
notional shares and/or cash.
Role-based allowances (RBA)
Certain employees of legal entities regulated in the EU may
receive an RBA in addition to their base salary. This allowance
reflects the market value of a specific role and is fixed, non-
forfeitable compensation. Unlike salary, an RBA is paid only as
long as the employee is in such a role. RBA consist of a cash
portion and, where applicable, a blocked UBS share award. Such
shares will be unblocked in equal installments after two and
three years. The compensation expense is recognized in the year
of grant.
451
Financial statements
Consolidated financial statements
Note 30 Employee benefits: variable compensation (continued)
Discontinued deferred compensation plans
The following plans have been discontinued.
Key Employee Stock Appreciation Rights Plan (KESAP) and Key
Employee Stock Option Plan (KESOP)
Until 2009, certain key and high-potential employees were
granted discretionary share-settled stock appreciation rights
(SARs) or options on UBS shares with a strike price not less than
the market value of a UBS share on the date of grant. SARs gave
employees the right to receive a number of UBS shares equal to
the increase in market price of the UBS share between the grant
date and the exercise date. One option entitled the holder to
acquire one registered UBS share at the option’s strike price.
SARs and options were settled by delivering UBS shares, except
in jurisdictions where this was not permitted for legal reasons.
All unexercised options and stock appreciation rights under
these awards expired in 2019.
PartnerPlus
Through performance year 2016, financial advisor strategic
objective awards were partly granted under the PartnerPlus
deferred cash plan. In addition to such granted awards (UBS
company contributions), participants were allowed to voluntarily
contribute additional amounts otherwise payable as production
payout up to a certain percentage, which vested upon
contribution.
voluntary
contributions were credited with interest in accordance with the
terms of the plan. Rather than being credited with interest, a
participant could elect to have voluntary contributions, along
contributions
Company
and
with vested company contributions, credited with notional
earnings based on the performance of various mutual funds.
Company contributions and interest on both company and
voluntary contributions ratably vest in 20% installments six to 10
years following grant date. Company contributions and interest
on notional earnings on both company and voluntary
contributions are forfeitable under certain circumstances.
GrowthPlus
GrowthPlus is a compensation plan for selected financial
advisors whose revenue production and length of service
exceeded defined thresholds from 2010 to 2017. Awards were
granted in 2010, 2011, 2015 and 2018. The awards are cash-
based and are distributed over seven years, with the exception
of 2018 awards, which are distributed over five years.
Share delivery obligations
Share delivery obligations related to employee share-based
compensation awards were 156 million
shares as of
31 December 2019 (31 December 2018: 146 million shares).
Share delivery obligations are calculated on the basis of
undistributed notional share awards, options and stock
appreciation rights, taking applicable performance conditions
into account.
As of 31 December 2019, UBS held 125 million treasury
shares (31 December 2018: 118 million) that were available to
satisfy share delivery obligations. Treasury shares held are
delivered to employees at exercise or vesting.
452
Note 30 Employee benefits: variable compensation (continued)
b) Effect on the income statement
Effect on the income statement for the financial year and future
periods
The table below provides information about compensation expenses
related to total variable compensation, including financial advisor
variable compensation, that were recognized in the financial year
ended 31 December 2019, as well as expenses that were deferred
and will be recognized in the income statement for 2020 and later.
The majority of expenses deferred to 2020 and later that are related
to the performance year 2019 relates to awards granted in February
2020. The total unamortized compensation expense for unvested
share-based awards granted up to 31 December 2019 will be
recognized in future periods over a weighted average period of 2.4
years.
Variable compensation including financial advisor variable compensation
EExxppeennsseess rreeccooggnniizzeedd iinn 22001199
EExxppeennsseess ddeeffeerrrreedd ttoo 22002200 aanndd llaatteerr11
USD million
Non-deferred cash
Deferred compensation awards
of which: Equity Ownership Plan
of which: Deferred Contingent Capital Plan
of which: Long-Term Incentive Plan
of which: Asset Management EOP
TToottaall vvaarriiaabbllee ccoommppeennssaattiioonn ppeerrffoorrmmaannccee aawwaarrddss
–
–
Replacement payments
Forfeiture credits
Severance payments
Retention plan and other payments
Deferred Contingent Capital Plan: interest expense
TToottaall vvaarriiaabbllee ccoommppeennssaattiioonn ootthheerr
–
–
Financial advisor variable compensation
of which: non-deferred cash
of which: deferred share-based awards
of which: deferred cash-based awards
Compensation commitments with recruited financial advisors2
TToottaall ffiinnaanncciiaall aaddvviissoorr vvaarriiaabbllee ccoommppeennssaattiioonn
TToottaall vvaarriiaabbllee ccoommppeennssaattiioonn iinncclluuddiinngg FFAA vvaarriiaabbllee ccoommppeennssaattiioonn
RReellaatteedd ttoo tthhee
ppeerrffoorrmmaannccee
yyeeaarr 22001199
1,894
RReellaatteedd ttoo pprriioorr
ppeerrffoorrmmaannccee
yyeeaarrss
(26)
299
122
113
39
25
22,,119933
5
0
125
28
0
115599
3,233
3,064
57
112
32
33,,226655
55,,661177
588
300
262
0
26
556622
51
(86)
0
28
94
8888
268
0
48
219
510
777788
11,,442288
RReellaatteedd ttoo tthhee
ppeerrffoorrmmaannccee
yyeeaarr 22001199
0
429
205
173
25
26
442299
44
0
0
23
50
111177
197
0
54
144
350
554488
11,,009933
TToottaall
1,868
887
422
375
39
51
22,,775555
56
(86)
125
56
94
224466
3,501
3,064
106
331
542
44,,004433
77,,00445533
RReellaatteedd ttoo pprriioorr
ppeerrffoorrmmaannccee
yyeeaarrss
0
608
219
365
0
23
660088
30
0
0
29
172
223322
710
0
130
580
1,617
22,,332277
33,,116666
TToottaall
0
1,036
424
538
25
49
11,,003366
75
0
0
52
222
334499
907
0
183
724
1,967
22,,887744
44,,225599
11 Estimate as of 31 December 2019. Actual amounts to be expensed in future periods may vary, e.g., due to forfeiture of awards. 22 Reflects expenses related to compensation commitments with financial advisors
entered into at the time of recruitment that are subject to vesting requirements. Amounts reflected as deferred expenses represent the maximum deferred exposure as of the balance sheet date. 33 Includes
USD 610 million in expenses related to share-based compensation (performance awards: USD 461 million; other variable compensation: USD 43 million; financial advisor compensation: USD 106 million). A further
USD 61 million in expenses related to share-based compensation was recognized within other expense categories included in Note 6 (salaries: USD 10 million, related to role-based allowances; social security:
USD 25 million; other personnel expenses: USD 27 million related to the Equity Plus Plan). Total personnel expense related to share-based equity-settled compensation excluding social security was USD 619 million.
453
Financial statements
Consolidated financial statements
Note 30 Employee benefits: variable compensation (continued)
Variable compensation including financial advisor variable compensation (continued)
Expenses recognized in 2018
Expenses deferred to 2019 and later1
USD million
Non-deferred cash
Deferred compensation awards
of which: Equity Ownership Plan
of which: Deferred Contingent Capital Plan
of which: Asset Management EOP
of which: other performance awards
Total variable compensation – performance awards
Total variable compensation – performance awards
Replacement payments
Forfeiture credits
Severance payments
Retention plan and other payments
Deferred Contingent Capital Plan: interest expense
Total variable compensation – other
Total variable compensation – other
Financial advisor variable compensation
of which: non-deferred cash
of which: deferred share-based awards
of which: deferred cash-based awards
Compensation commitments with recruited financial advisors2
Total financial advisor variable compensation
Total financial advisor variable compensation
Total variable compensation including FA variable compensation
Total variable compensation including FA variable compensation
Related to the Related to prior
performance
years
(32)
performance
year 2018
2,089
373
217
131
25
0
2,461
2,461
7
0
123
33
0
162
162
3,233
3,089
51
93
33
3,266
3,266
5,889
5,889
565
309
226
28
2
534
534
64
(136)
0
33
119
80
80
237
0
44
193
551
789
789
1,403
1,403
Total
2,057
938
526
357
53
2
2,995
2,995
72
(136)
123
66
119
243
243
3,470
3,089
95
286
584
4,054
4,054
7,2923
7,2923
Related to the Related to prior
performance
years
0
performance
year 2018
0
585
325
238
22
0
585
585
60
0
0
24
96
180
180
128
0
52
76
357
484
484
1,250
1,250
653
244
382
26
1
653
653
41
0
0
33
195
269
269
639
0
131
507
1,883
2,522
2,522
3,444
3,444
Total
0
1,238
570
620
48
1
1,238
1,238
102
0
0
57
291
450
450
767
0
183
584
2,240
3,006
3,006
4,694
4,694
2 Reflects expenses related to compensation commitments with financial advisors entered into at the
1 Estimate as of 31 December 2018. Actual amounts expensed may vary, e.g., due to forfeiture of awards.
2
1
3 Includes USD 634 million in
time of recruitment that are subject to vesting requirements. Amounts reflected as deferred expenses represent the maximum deferred exposure as of the balance sheet date.
3
expenses related to share-based compensation (performance awards: USD 526 million; other variable compensation: USD 12 million; financial advisor compensation: USD 95 million). A further USD 49 million in
expenses related to share-based compensation was recognized within other expense categories included in Note 6 (salaries: USD 15 million, related to role-based allowances; social security: USD 8 million; other
personnel expenses: USD 26 million, related to the Equity Plus Plan). Total personnel expense related to share-based equity-settled compensation excluding social security was USD 676 million.
454
Note 30 Employee benefits: variable compensation (continued)
Variable compensation including financial advisor variable compensation (continued)
Expenses recognized in 2017
Expenses deferred to 2018 and later1
USD million
Non-deferred cash
Deferred compensation awards
of which: Equity Ownership Plan
of which: Deferred Contingent Capital Plan
of which: Asset Management EOP
of which: other performance awards
TToottaall vvaarriiaabbllee ccoommppeennssaattiioonn ppeerrffoorrmmaannccee aawwaarrddss
–
–
Replacement payments
Forfeiture credits
Severance payments
Retention plan and other payments
Deferred Contingent Capital Plan: interest expense
TToottaall vvaarriiaabbllee ccoommppeennssaattiioonn ootthheerr
–
–
Financial advisor variable compensation
of which: non-deferred cash
of which: deferred share-based awards
of which: deferred cash-based awards
Compensation commitments with recruited financial advisors2
TToottaall ffiinnaanncciiaall aaddvviissoorr vvaarriiaabbllee ccoommppeennssaattiioonn
TToottaall vvaarriiaabbllee ccoommppeennssaattiioonn iinncclluuddiinngg FFAA vvaarriiaabbllee ccoommppeennssaattiioonn
Related to the
performance
year 2017
2,088
Related to prior
performance
years
(25)
399
239
135
25
0
22,,448877
13
0
113
25
0
115511
3,050
2,891
54
104
31
33,,008800
55,,771188
689
344
310
32
4
666644
59
(107)
0
38
111
110011
260
0
48
212
723
998844
11,,774499
Related to the
performance
year 2017
0
594
329
238
27
0
559944
86
0
0
30
80
119966
156
0
70
86
369
552266
11,,331166
Total
2,062
1,088
583
444
57
4
33,,115511
72
(107)
113
63
111
225522
3,310
2,891
102
316
754
44,,006644
77,,44667733
Related to prior
performance
years
0
697
291
376
27
3
669977
44
0
0
33
222
229988
795
0
121
674
2,058
22,,885533
33,,884488
Total
0
1,291
620
614
54
3
11,,229911
130
0
0
63
301
449944
951
0
191
760
2,428
33,,337799
55,,116644
11 Estimate as of 31 December 2017. Actual amounts expensed may vary, e.g., due to forfeiture of awards. 22 Reflects expenses related to compensation commitments with financial advisors entered into at the
33 Includes USD 711 million in
time of recruitment that are subject to vesting requirements. Amounts reflected as deferred expenses represent the maximum deferred exposure as of the balance sheet date.
expenses related to share-based compensation (performance awards: USD 583 million; other variable compensation: USD 26 million; financial advisor compensation: USD 102 million). A further USD 101 million in
expenses related to share-based compensation was recognized within other expense categories included in Note 6 (salaries: USD 25 million, related to role-based allowances; social security: USD 51 million; other
personnel expenses: USD 25 million, related to the Equity Plus Plan). Total personnel expense related to share-based equity-settled compensation excluding social security was USD 735 million.
455
Financial statements
Consolidated financial statements
Note 30 Employee benefits: variable compensation (continued)
c) Outstanding share-based compensation awards
Share and performance share awards
Movements in outstanding share-based awards under the EOP during 2019 and 2018 are provided in the table below.
Movements in outstanding share-based compensation awards
Outstanding, at the beginning of the year
Awarded during the year
Distributed during the year
Forfeited during the year
Outstanding, at the end of the year
of which: shares vested for accounting purposes
Number of shares
Number of shares
2019
2019
146,845,027
146,845,027
77,641,909
77,641,909
(61,152,200)
(61,152,200)
(7,269,974)
(7,269,974)
156,064,763
156,064,763
79,486,447
79,486,447
Weighted average
Weighted average
grant date fair value
grant date fair value
(USD)
(USD)
16
16
Weighted average
Number of shares grant date fair value
(USD)
15
162,835,713
2018
11
11
13
13
14
14
14
14
58,329,398
(67,696,099)
(6,623,984)
146,845,027
66,850,562
17
15
16
16
The total carrying amount of the liability related to cash-settled share-based awards as of 31 December 2019 and 31 December
2018 was USD 34 million and USD 39 million, respectively.
Option awards
No option awards have been granted since 2009. All remaining options expired in the year 2019. The table below provides
information about movements in outstanding option awards during 2019 and 2018. As these awards are Swiss franc-denominated,
weighted average exercise prices are presented in Swiss francs.
Movements in outstanding option awards
Outstanding, at the beginning of the year
Exercised during the year1
Forfeited during the year
Expired unexercised
Outstanding, at the end of the year
Exercisable, at the end of the year
Number of options
Number of options
2019
2019
6,567,592
6,567,592
Weighted average
Weighted average
exercise price (CHF)
exercise price (CHF)
14
14
(2,818,070)
(2,818,070)
(512)
(512)
(3,749,010)
(3,749,010)
0
0
0
0
10
10
16
16
16
16
n/a
n/a
n/a
n/a
Number of options
2018
32,583,168
(1,813,583)
(19,752)
(24,182,241)
6,567,592
6,567,592
Weighted average
exercise price (CHF)
25
12
23
29
14
14
1 The weighted average share price upon option exercise was CHF 12.69 in 2019 (2018: CHF 16.22), resulting in an intrinsic value of CHF 7 million of options exercised during 2019 (2018: CHF 7 million).
1
456
Note 30 Employee benefits: variable compensation (continued)
SAR awards
No SAR awards have been granted since 2009. All remaining SARs expired in the year 2019. The table below provides information
about movements in outstanding SAR awards during 2019 and 2018. As these awards are Swiss franc-denominated, weighted
average exercise prices are presented in Swiss francs.
Movements in outstanding SAR awards
Outstanding, at the beginning of the year
Exercised during the year1
Forfeited during the year
Expired unexercised
Outstanding, at the end of the year
Exercisable, at the end of the year
NNuummbbeerr ooff SSAARRss
22001199
55,,996655,,776699
((55,,338811,,225599))
00
((558844,,551100))
00
00
WWeeiigghhtteedd aavveerraaggee
eexxeerrcciissee pprriiccee ((CCHHFF))
Number of SARs
2018
1122
1111
00
1166
nn//aa
nn//aa
8,513,415
(2,490,146)
(11,000)
(46,500)
5,965,769
5,965,769
Weighted average
exercise price (CHF)
12
11
13
12
12
12
11 The weighted average share price upon exercise of SARs was CHF 12.71 in 2019 (2018: CHF 16.15), resulting in an intrinsic value of CHF 7 million of SARs exercised during 2019 (2018: CHF 12 million).
d) Valuation
UBS share awards
UBS 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
conditions, where applicable. The fair value of the share awards
subject to post-vesting sale and hedge restrictions is discounted
on the basis of 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 discount for share and performance share awards
granted during 2019 was approximately 22.6% (2018: 18.0%)
of the market price of the UBS share. The grant date fair value
of notional 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.
457
Financial statements
Consolidated financial statements
Note 31 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 or loss before
tax, in accordance with the requirements set by IFRS 12, Swiss
regulations and the rules of the US Securities and Exchange
Commission (SEC).
Individually significant subsidiaries
The two tables below list the Group’s individually significant
subsidiaries as of 31 December 2019. Unless otherwise stated,
the subsidiaries listed below have share capital consisting solely
of ordinary shares that are held entirely by the Group, and the
proportion 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 the principal place of business. UBS AG operates through
a global network of branches and a significant proportion of its
business activity is conducted outside Switzerland in the UK, the
US, Singapore, Hong Kong and other countries. UBS Europe SE
has branches and offices in a number of EU Member States,
including Germany, Italy, Luxembourg, Spain and Austria. Share
capital is provided in the currency of the legally registered office.
Individually significant subsidiaries of UBS Group AG as of 31 December 2019
Company
UBS AG
Registered office
Zurich and Basel, Switzerland
UBS Business Solutions AG1
1 UBS Business Solutions AG holds subsidiaries in Poland, China and India.
1
Zurich, Switzerland
Share capital in million Equity interest accumulated in %
CHF
CHF
385.8
1.0
100.0
100.0
Individually significant subsidiaries of UBS AG as of 31 December 20191
Company
Registered office
UBS Americas Holding LLC
Wilmington, Delaware, USA
UBS Americas Inc.
Wilmington, Delaware, USA
UBS Asset Management AG
Zurich, Switzerland
Primary business
Corporate Center
Corporate Center
Asset Management
UBS Bank USA
UBS Europe SE
Salt Lake City, Utah, USA
Global Wealth Management
Frankfurt, Germany
Global Wealth Management
UBS Financial Services Inc.
Wilmington, Delaware, USA
Global Wealth Management
UBS Securities LLC
UBS Switzerland AG
Wilmington, Delaware, USA
Investment Bank
Zurich, Switzerland
Personal & Corporate Banking
Share capital in million
3,150.02
USD
USD
CHF
USD
EUR
USD
USD
CHF
0.0
43.2
0.0
446.0
0.0
1,283.13
10.0
Equity interest accumulated in %
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
1 Includes direct and indirect subsidiaries of UBS AG. 2 Comprised of common share capital of USD 1,000 and non-voting preferred share capital of USD 3,150,000,000. 3 Comprised of common share capital of
1
USD 100,000 and non-voting preferred share capital of USD 1,283,000,000.
3
2
458
Note 31 Interests in subsidiaries and other entities (continued)
Other subsidiaries
The table below lists other direct and indirect 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 2019
Company
UBS Asset Management (Hong Kong) Limited
Registered office
Hong Kong, Hong Kong
UBS Asset Management (Japan) Ltd
Tokyo, Japan
UBS Asset Management Life Ltd
London, United Kingdom
UBS Asset Management Switzerland AG
Zurich, Switzerland
Primary business
Asset Management
Asset Management
Asset Management
Asset Management
UBS Business Solutions US LLC
Wilmington, Delaware, USA
Corporate Center
UBS Credit Corp.
UBS (France) S.A.
Wilmington, Delaware, USA
Global Wealth Management
Paris, France
Global Wealth Management
UBS Fund Advisor, L.L.C.
Wilmington, Delaware, USA
Global Wealth Management
UBS Fund Management (Luxembourg) S.A.
Luxembourg, Luxembourg
Asset Management
UBS Fund Management (Switzerland) AG
Basel, Switzerland
Asset Management
UBS (Monaco) S.A.
UBS Realty Investors LLC
UBS Securities (Thailand) Ltd
UBS Securities Australia Ltd
UBS Securities Japan Co., Ltd.
UBS Securities Pte. Ltd.
Monte Carlo, Monaco
Global Wealth Management
Boston, Massachusetts, USA
Asset Management
Bangkok, Thailand
Sydney, Australia
Tokyo, Japan
Singapore, Singapore
Investment Bank
Investment Bank
Investment Bank
Investment Bank
11 Includes a nominal amount relating to redeemable preference shares.
Share capital in million
254.0
HKD
Equity interest
accumulated in %
100.0
JPY
GBP
CHF
USD
USD
EUR
USD
EUR
CHF
EUR
USD
THB
AUD
JPY
SGD
2,200.0
15.0
0.5
0.0
0.0
133.0
0.0
13.0
1.0
49.2
9.0
500.0
0.31
32,100.0
420.4
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
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
subsidiaries 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
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 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 2019 and 2018, the Group did not enter into any
contractual obligation that could require the Group to provide
financial 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.
459
Financial statements
Consolidated financial statements
Note 31 Interests in subsidiaries and other entities (continued)
b) Interests in associates and joint ventures
As of 31 December 2019 and 2018, 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.
Investments in associates and joint ventures
USD million
Carrying amount at the beginning of the year
Additions
Disposals1
Reclassifications2
Share of comprehensive income
of which: share of net profit 3
of which: share of other comprehensive income 4
Dividends received
Impairment
Foreign currency translation
Carrying amount at the end of the year
Carrying amount at the end of the year
of which: associates
of which: SIX Group AG, Zurich 5
of which: other associates
of which: joint ventures
2019
2019
1,099
1,099
0
0
0
0
25
25
46
46
(21)
(21)
(83)
(83)
(1)
(1)
11
11
1,051
1,051
1,010
1,010
887
887
123
123
41
41
2018
1,045
3
(431)
(21)
529
529
1
(42)
16
1,099
1,066
952
114
33
1 In December 2018, UBS increased its shareholding in UBS Securities China from 24.99% to 51%, acquiring control of the entity in accordance with IFRS 10, Consolidated Financial Statements. Upon acquisition of
1
3 For 2019, consists of
control, UBS derecognized its former investment in associate. Refer to Note 32 for more information.
3
USD 28 million from associates and USD 18 million from joint ventures. For 2018, consists of USD 511 million from associates, of which USD 460 million reflected a valuation gain on the equity ownership in SIX
4 For 2019, consists of negative USD 22 million from associates and USD 1 million from joint ventures. For 2018,
related to the sale of SIX Payment Services to Worldline, and USD 18 million from joint ventures.
4
the total of USD 1 million is from associates. 5 In 2019, UBS AG’s equity interest amounts to 17.31%. UBS AG is represented on the Board of Directors.
2 Reflects reclassifications to Properties and other non-current assets held for sale.
2
5
460
Note 31 Interests in subsidiaries and other entities (continued)
c) Interests in unconsolidated structured entities
During 2019, 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, that UBS did not consolidate as of
31 December 2019 because it did not control these entities.
The table below presents the Group’s interests in and
maximum exposure to loss from unconsolidated SEs as well as
the total assets held by the SEs in which UBS had an interest as
of year-end, except for investment funds sponsored by third
parties, for which the carrying amount of UBS’s interest as of
year-end has been disclosed.
Interests in unconsolidated structured entities
USD million, except where indicated
Financial assets at fair value held for trading
Derivative financial instruments
Loans and advances to customers
Financial assets at fair value not held for trading
Financial assets measured at fair value through other comprehensive income
Other financial assets measured at amortized cost
TToottaall aasssseettss
Derivative financial instruments
TToottaall lliiaabbiilliittiieess
AAsssseettss hheelldd bbyy tthhee uunnccoonnssoolliiddaatteedd ssttrruuccttuurreedd eennttiittiieess iinn wwhhiicchh UUBBSS hhaadd aann iinntteerreesstt
((UUSSDD bbiilllliioonn))
USD million, except where indicated
Financial assets at fair value held for trading
Derivative financial instruments
Loans and advances to customers
Financial assets at fair value not held for trading
Financial assets measured at fair value through other comprehensive income
Other financial assets measured at amortized cost
TToottaall aasssseettss
Derivative financial instruments
SSeeccuurriittiizzaattiioonn
vveehhiicclleess
446622
99
8811
333355
88888833
2244
22
555555
Securitization
vehicles
420
8
87
312
8263
34
CClliieenntt
vveehhiicclleess
113300
99
8822
33,,995555
116622
44,,111188
222255
222255
3311..1122..1199
IInnvveessttmmeenntt
ffuunnddss
55,,887744
3366
117744
115577
66,,224422
332244
332244
773366
44113377
Client
vehicles
174
35
482
3,931
252
4,212
123
31.12.18
Investment
funds
7,297
1
179
166
7,643
32
TToottaall
66,,446666
5555
117744
224455
33,,995555
335511
1111,,224477
555522
555522
Total
7,890
44
179
302
3,931
337
12,682
158
MMaaxxiimmuumm
eexxppoossuurree ttoo lloossss11
66,,446666
5533
117744
999977
33,,995555
11,,337722
11
Maximum
exposure to loss1
7,890
44
179
1,878
3,931
1,423
3
TToottaall lliiaabbiilliittiieess
AAsssseettss hheelldd bbyy tthhee uunnccoonnssoolliiddaatteedd ssttrruuccttuurreedd eennttiittiieess iinn wwhhiicchh UUBBSS hhaadd aann iinntteerreesstt
3857
((UUSSDD bbiilllliioonn))
22 Represents the carrying amount of loan
11 For the purpose of this disclosure, maximum exposure to loss amounts do not consider the risk-reducing effects of collateral or other credit enhancements.
commitments. The maximum exposure to loss for these instruments is equal to the notional amount.
33 As of 31 December 2019, USD 0.6 billion of the USD 0.9 billion (31 December 2018: USD 0.6 billion of the
USD 0.8 billion) was held in Corporate Center – Non-core and Legacy Portfolio. 44 Comprised of credit default swap liabilities and other swap liabilities. The maximum exposure to loss for credit default swap
liabilities is equal to the sum of the negative carrying amount and the notional amount. For other swap liabilities, no maximum exposure to loss is reported. 55 Represents the principal amount outstanding.
66 Represents the market value of total assets. 77 Represents the net asset value of the investment funds sponsored by UBS and the carrying amount of UBS’s interests in the investment funds not sponsored by UBS.
158
635
696
123
32
3
461
Financial statements
Consolidated financial statements
Note 31 Interests in subsidiaries and other entities (continued)
31 December 2019 Pillar 3 report under “Pillar 3 disclosures”
at www.ubs.com/investors, for the following reasons: (i)
exclusion of synthetic securitizations transacted 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 carrying
amount within the table above compared with net exposure
amount at default for Pillar 3 disclosures); and (iii) different
classification of vehicles viewed as sponsored by the Group
versus sponsored by third parties.
Refer to Note 1a item 1 for more information about the Group’s
accounting policies regarding consolidation and sponsorship of
securitization vehicles and other structured entities
Refer to the 31 December 2019 Pillar 3 report under “Pillar 3
disclosures” at www.ubs.com/investors for more information
Interests in client vehicles
As of 31 December 2019 and 31 December 2018, the Group
retained interests in client vehicles sponsored by UBS 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
agencies.
In addition to the
Interests in investment funds
The Group holds interests in a number of investment funds,
primarily resulting from seed investments or in order to hedge
structured product offerings.
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 on the basis of various market factors
and considers the nature of the fund and 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 with 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. The Group did not
have any material exposure to loss from these interests as of
31 December 2019 or as of 31 December 2018.
The Group retains or purchases interests in unconsolidated
SEs in the form of direct investments, financing, guarantees,
letters of credit, derivatives and through management contracts.
The Group’s maximum exposure to loss is generally equal to
the carrying amount of the Group’s interest in the SE, with the
exception of guarantees, letters of credit and credit derivatives,
for which the contract’s notional amount, adjusted for losses
already incurred, represents the maximum loss that the Group is
exposed to. In addition, the current fair value of derivative swap
instruments with a positive replacement value only, such as total
return swaps, is presented as the maximum exposure to loss.
Risk exposure for these swap instruments could change over
time with market movements.
The maximum exposure to loss disclosed in the table on the
previous page does not reflect the Group’s risk management
activities, including effects from financial instruments that may
be used to economically hedge the risks inherent in the
unconsolidated SE or the risk-reducing effects of collateral or
other credit enhancements.
In 2019 and 2018, the Group did not provide support,
financial or otherwise, to an unconsolidated SE when not
contractually obligated to do so, nor has the Group an intention
to do so in the future.
In 2019 and 2018, income and expenses from interests in
unconsolidated SEs primarily resulted from mark-to-market
movements recognized in Other net income from financial
instruments measured at fair value through profit of loss,
which have generally been hedged with other financial
instruments, as well as fee and commission income received
from UBS-sponsored funds.
interests, both
retained and acquired,
Interests in securitization vehicles
As of 31 December 2019 and 31 December 2018, the Group
in various
held
securitization vehicles, a majority of 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
derivative trading activities. In some cases the Group may be
required to absorb losses from an unconsolidated SE before
other parties because the Group’s interest is subordinated to
others in the ownership structure.
The numbers outlined in the table on the previous page may
differ from the securitization positions presented in the
462
Note 31 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 at
year-end. However, during the respective reporting period the
Group transferred assets, provided 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 entities during the year as
well as corresponding asset information. The table does not
include
incurred from risk
management activities, including income and expenses from
financial instruments used to economically hedge instruments
transacted with the unconsolidated SEs.
income earned and expenses
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 may be collected directly from the investors and have
therefore not been included in the table below.
The Group also recorded other net income from financial
instruments measured at fair value through profit or loss from
mark-to-market movements arising primarily from derivatives,
such as interest rate and currency swaps as well as credit
derivatives, through which the Group purchases 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. Total income reported does not
reflect economic hedges or other mitigating effects from the
Group’s risk management activities.
During 2019, UBS and third parties transferred assets of
USD 1 billion and USD 1 billion, respectively, into sponsored
securitization vehicles created in the year (2018: USD 1 billion
and USD 1 billion, respectively). UBS and third parties also
transferred assets of USD 0 billion and USD 1 billion,
respectively, into sponsored client vehicles created in the year
(2018: USD 2 billion and USD 0 billion, respectively). 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 USD 42
billion (31 December 2018: USD 18 billion).
Sponsored unconsolidated structured entities in which UBS did not have an interest at year-end
USD million, except where indicated
Net interest income
Net fee and commission income
Other net income from financial instruments measured at fair value through profit or loss
TToottaall iinnccoommee
AAsssseett iinnffoorrmmaattiioonn ((UUSSDD bbiilllliioonn))
USD million, except where indicated
Net interest income
Net fee and commission income
Other net income from financial instruments measured at fair value through profit or loss
TToottaall iinnccoommee
AAsssseett iinnffoorrmmaattiioonn ((UUSSDD bbiilllliioonn))
As of or for the year ended
3311..1122..1199
CClliieenntt
vveehhiicclleess
00
1133
((1188))
((55))
1122
IInnvveessttmmeenntt
ffuunnddss
((11))
5500
99
5588
442233
As of or for the year ended
31.12.18
Client
vehicles
(6)
16
8
18
22
Investment
funds
1
39
20
60
183
SSeeccuurriittiizzaattiioonn
vveehhiicclleess
((11))
1199
1199
2211
Securitization
vehicles
0
0
1
21
TToottaall
((22))
6633
1111
7722
Total
(5)
54
29
78
11 Represents the amount of assets transferred to the respective securitization vehicles. 22 Represents the amount of assets transferred to the respective client vehicles. 33 Represents the total net asset value of the
respective investment funds.
463
Financial statements
Consolidated financial statements
Note 32 Changes in organization and acquisitions and disposals of subsidiaries and businesses
Changes in Group structure and organization
UK business transfer and cross-border merger of UBS Limited
into UBS Europe SE
In the fourth quarter of 2018, clients and other counterparties of
UBS Limited who can be serviced by UBS AG, London Branch
were generally migrated
to UBS AG, London Branch.
Transactions affecting the transferred businesses that occurred
on or after the transfer date were recorded in UBS AG, London
Branch.
On 1 March 2019, UBS completed its combined UK business
transfer and cross-border merger of UBS Limited into UBS
Europe SE, its Germany-headquartered European subsidiary.
UBS Asset Management AG
In 2016, UBS transferred the majority of the operating subsidiaries
of Asset Management to UBS Asset Management AG. Effective
1 April 2019, as part of UBS’s efforts to improve the resolvability
of the Group, the portion of the Asset Management business in
Switzerland conducted by UBS AG was transferred from UBS AG
to its indirect subsidiary, UBS Asset Management Switzerland AG.
With this transfer, UBS has completed the transfer of its Swiss
Asset Management business and all Asset Management
subsidiaries outside the US into a separate Asset Management
sub-group structure.
UBS Group Funding (Switzerland) AG
UBS established UBS Group Funding (Switzerland) AG in 2016 as
a wholly owned direct subsidiary of UBS Group AG, to issue loss-
absorbing additional tier 1 (AT1) capital instruments and total
loss-absorbing capacity (TLAC)-eligible senior unsecured debt,
which were guaranteed by UBS Group AG. In line with
regulatory requirements in Switzerland and following a change
in Swiss tax law as of 1 January 2019 that applies to holding
companies of systemically relevant banks issuing loss-absorbing
AT1 or TLAC-eligible senior unsecured debt instruments, UBS
has migrated such existing instruments to UBS Group AG from
UBS Group Funding (Switzerland) AG in October 2019.
UBS Business Solutions AG
In 2015, UBS Business Solutions AG was established as a direct
subsidiary of UBS Group AG to act as the Group service
company and UBS transferred the ownership of the majority of
its existing service subsidiaries outside the US to UBS Business
Solutions AG. In 2017, shared services functions in Switzerland
and the UK were transferred from UBS AG to UBS Business
Solutions AG and UBS also completed the transfer of the shared
services employees in the US to its US service company, UBS
Business Solutions US LLC, a wholly owned subsidiary of UBS
Americas Holding LLC.
Acquisitions
Increase of stake in and consolidation of UBS Securities China
In December 2018, UBS increased its shareholding in UBS
Securities China from 24.99% to 51%, acquiring control of the
entity in accordance with IFRS 10, Consolidated Financial
Statements. Upon acquisition of control, UBS remeasured its
former 24.99% holding at fair value, resulting in a pre-tax loss
of USD 270 million, recognized in Other income. In addition, a
net foreign currency translation gain of USD 46 million was
recognized upon derecognition of the former investment in
associate, also in Other income.
The cost of acquisition of the additional 26.01% stake was
USD 125 million. Upon consolidation, UBS recognized USD 102
million of goodwill and USD 278 million of other net assets. In
addition, a non-controlling interest of USD 136 million has been
recognized.
Sales and disposals of subsidiaries and businesses
In 2019, 2018 and 2017, no significant subsidiaries were
removed from the scope of consolidation as a result of sales or
disposals.
In the third quarter of 2018, UBS completed the sale of
Widder Hotel, resulting in a pre-tax gain on sale of subsidiaries
and businesses of USD 25 million and a pre-tax gain on sale of
real estate of USD 31 million.
In 2017, UBS completed the sale of Asset Management’s
fund administration servicing units
in Luxembourg and
Switzerland to Northern Trust, resulting in a pre-tax gain on sale
of USD 153 million.
464
Note 32 Changes in organization and acquisitions and disposals of subsidiaries and businesses (continued)
Strategic partnership with Sumitomo Mitsui Trust
Holdings
In June 2019, UBS entered into a strategic wealth management
partnership in Japan with Sumitomo Mitsui Trust Holdings, Inc.
(SuMi Trust Holdings). In January 2020, the first phase was
launched, with operations commencing in the newly established
joint venture, UBS SuMi TRUST Wealth Advisory, which is owned
equally by UBS Securities Japan and SuMi Trust Holdings and is
accounted for as an investment in a joint venture by UBS. UBS
and SuMi Trust Holdings have also started offering each other’s
products and services to their respective current clients.
The second phase of the partnership is expected to launch in
2021 with the establishment of a new entity which will be 51%
owned and controlled by UBS, requiring UBS to consolidate this
entity. UBS does not expect a material effect on shareholders’
equity of the Group upon closing.
Strategic partnership with Banco do Brasil
In November 2019, UBS signed a binding agreement with Banco
do Brasil to establish a strategic investment banking partnership
that will provide investment banking services and institutional
securities brokerage in Brazil and selected countries in South
America. The partnership is expected to be established through
a combination of assets from both stakeholders. UBS intends to
contribute its operational investment banking platform in Brazil
and Argentina, as well as its institutional brokerage business in
Brazil. Banco do Brasil intends to contribute the exclusive access
rights to its corporate clients. UBS will hold a controlling interest
of 50.01% in the entity, requiring UBS to consolidate this entity.
Closing of the transaction is subject to regulatory approvals and
is currently expected in the first half of 2020. UBS does not
expect a material effect on shareholders’ equity of the Group
upon closing.
Sale of majority stake in UBS Fondcenter
it may sell
retain a minority
In January 2020, UBS has agreed to sell a majority stake in UBS
Fondcenter to Clearstream, Deutsche Börse Group’s post-trade
services provider. UBS will
(48.8%)
shareholding in the business and will enter into an agreement
its remaining shareholding to
under which
Clearstream at a later date. As part of the transaction, UBS and
Clearstream will enter into long-term commercial cooperation
arrangements for the provision of services to Global Wealth
Management, Asset Management and
the Corporate &
Institutional Clients unit of Personal & Corporate Banking. The
transaction is subject to customary closing conditions and is
expected to close in the second half of 2020. UBS expects to
record a post-tax gain of around USD 600 million upon closing
of the transaction. UBS will deconsolidate UBS Fondcenter and
account for its minority interest as an investment in an associate.
465
Financial statements
Consolidated financial statements
Note 33 Finance lease receivables
UBS acts as a lessor and leases a variety of assets to third parties
under finance leases, such as commercial vehicles, production
lines, medical equipment, construction equipment and aircraft.
At the end of the respective lease term, assets may be sold to
third parties or further leased. Lessees may participate in any
sales proceeds achieved. Lease payments cover the cost of the
assets less their residual value as well as financing costs.
lease payments
As of 31 December 2019, unguaranteed residual values of
USD 246 million (31 December 2018: USD 156 million) had been
accrued and the ECL stage 3 allowance for uncollectible
minimum
receivable was USD 6 million
(31 December 2018: USD 7 million). No contingent rents were
received in 2019. Amounts in the table below are disclosed on a
gross basis. The finance lease receivables in Note 17a of
USD 1,444 million are presented net of expected credit loss
allowances.
Lease receivables
USD million
2020
2021–2024
Thereafter
Total
Total
USD million
2019
2020–2023
Thereafter
Total
Total
Total minimum lease
Total minimum lease
payments
payments
448
874
221
1,544
1,544
31.12.19
31.12.19
Unearned finance
Unearned finance
income
income
31
52
6
89
89
31.12.18
Total minimum lease
payments
Unearned finance
income
359
703
103
1,166
1,166
22
35
2
58
58
Present value
Present value
417
822
215
1,455
1,455
Present value
337
669
102
1,107
1,107
Note 34 Guarantees, commitments and forward starting transactions
The table below shows the maximum irrevocable amount of guarantees, commitments and forward starting transactions.
Gross
Gross
Total gross
Total gross
Sub-participations
Sub-participations
Net
Net
Measured
Measured
at fair value
at fair value
Not measured
Not measured
at fair value
at fair value
986
986
6,308
6,308
20,284
20,284
7,740
7,740
1,639
3,535
8,117
7,926
18,142
18,142
27,547
27,547
1,657
1,657
408
408
18,146
31,212
925
12
400
19,128
19,128
33,856
33,856
21,941
21,941
8,148
8,148
19,785
34,747
9,042
12
8,326
(2,646)
(2,646)
(787)
(787)
16,482
16,482
33,069
33,069
(2,803)
(647)
16,982
34,099
As of 31.12.19, USD million
Total guarantees
Total guarantees
Loan commitments
Loan commitments
Forward starting transactions1
Forward starting transactions1
Reverse repurchase agreements
Repurchase agreements
As of 31.12.18, USD million
Total guarantees
Total guarantees
Loan commitments
Loan commitments
Forward starting transactions1
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.
1
466
Note 35 Related parties
UBS defines related parties as associates (entities that are
significantly influenced by UBS), joint ventures (entities in which
UBS shares control with another party), post-employment
benefit plans for UBS employees, key management personnel,
close family members of key management personnel and entities
that 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 Chairman of the BoD has a specific management employment contract and receives pension benefits upon retirement. Total
remuneration of the Chairman of the Board of Directors and all GEB members is included in the table below.
Remuneration of key management personnel
USD million, except where indicated
Base salaries and other cash payments1
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
TToottaall
3311..1122..1199
31.12.18
31.12.17
3322
1144
2211
33
11
3377
110088
27
15
22
3
2
40
109
25
15
22
3
2
40
106
TToottaall ((CCHHFF mmiilllliioonn))44
11 May include role-based allowances in line with market practice and regulatory requirements. 22 The cash portion may also include blocked shares in line with regulatory requirements.
33 Expenses for shares
granted are calculated at grant date of the respective award and allocated over the vesting period of generally five years. Refer to Note 30 for more information. For GEB members, equity-based compensation for
2019 was entirely comprised of LTIP awards and equity-based compensation for 2018 and 2017 was entirely comprised of EOP awards. For the Chairman of the BoD the equity-based compensation for 2019, 2018
and 2017 was entirely comprised of UBS shares. 44 Swiss franc amounts disclosed represent the respective US dollar amounts translated at the applicable performance award currency exchange rates (2019: USD /
CHF 0.99; 2018: USD / CHF 0.98; 2017: USD / CHF 1.00).
106
107
110077
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 USD 7.3 million (CHF 7.3 million) in 2019, USD 7.6
million (CHF 7.4 million) in 2018 and USD 7.1 million (CHF 7.1
million) in 2017.
b) Equity holdings of key management personnel
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
11 Refer to Note 30 for more information. 22 Excludes shares granted under variable compensation plans with forfeiture provisions.
3311..1122..1199
31.12.18
00
0
66,,888877,,882266
5,954,967
Of the share totals above, no shares were held by close family
members of key management personnel on 31 December 2019
and 95,597 shares were held by close family members of key
management personnel on 31 December 2018. 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 2019 and 31 December 2018. Refer
to Note 30 for more information. As of 31 December 2019, no
member of the BoD or GEB was the beneficial owner of more
than 1% of UBS Group AG’s shares.
467
Financial statements
Consolidated financial statements
Note 35 Related parties (continued)
c) Loans, advances and mortgages to key management personnel
The non-independent members of the BoD and GEB members
are granted loans, fixed advances and mortgages in the ordinary
course of business on substantially the same terms and
conditions that are available to other employees, including
interest rates and collateral, and neither involve more than the
normal risk of collectibility nor contain any other unfavorable
features for the firm. Independent BoD members are granted
loans and mortgages in the ordinary course of business at
general market conditions.
Movements in the loan, advances and mortgage balances are
as follows.
Loans, advances and mortgages to key management personnel1
USD million, except where indicated
Balance at the beginning of the year
Additions
Reductions
Balance at the end of the year2
Balance at the end of the year
2019
2019
2018
34
34
9
9
(11)
(11)
33
33
32
32
42
15
(22)
34
34
Balance at the end of the year (CHF million)2, 3
Balance at the end of the year (CHF million)
1 All loans are secured loans.
1
31 December 2018. 3 Swiss franc amounts disclosed represent the respective US dollar amounts translated at the relevant year-end closing exchange rate.
3
2 No unused uncommitted credit facilities as of 31 December 2019. Excludes unused uncommitted credit facilities for one GEB member of USD 3,000,000 (CHF 2,949,690) as of
2
d) Other related-party transactions with entities controlled by key management personnel
In 2019 and 2018, UBS did not enter into transactions with
entities that are directly or indirectly controlled or jointly
controlled by UBS’s key management personnel or their close
family members and as of 31 December 2019, 31 December
2018 and 31 December 2017, there were no outstanding
balances related to such transactions. Furthermore, in 2019 and
2018, entities controlled by key management personnel did not
sell any goods or provide any services to UBS, and therefore did
not receive any fees from UBS. UBS also did not provide services
to such entities in 2019 and 2018, and therefore also received
no fees.
e) Transactions with associates and joint ventures
Loans to and outstanding receivables from associates and joint ventures
USD million
Carrying amount at the beginning of the year
Additions
Reductions
Foreign currency translation
Carrying amount at the end of the year
of which: unsecured loans
Other transactions with associates and joint ventures
USD million
Payments to associates and joint ventures for goods and services received
Fees received for services provided to associates and joint ventures
Liabilities to associates and joint ventures
Commitments and contingent liabilities to associates and joint ventures
Refer to Note 31 for an overview of investments in associates and joint ventures
468
2019
2019
829
829
145
145
(5)
(5)
13
13
982
982
971
971
2018
565
276
(13)
0
829
818
As of or for the year ended
31.12.19
31.12.19
31.12.18
124
124
1
1
101
101
1,598
1,598
177
4
4
Note 36 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
managed fund assets, managed institutional assets, discretionary
and advisory wealth management portfolios, fiduciary deposits,
time deposits, savings accounts and wealth management
securities or brokerage accounts. 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 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
double 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.
Invested assets and net new money
USD billion
Fund assets managed by UBS
Discretionary assets
Other invested assets
TToottaall iinnvveesstteedd aasssseettss11
of which: double counts
NNeett nneeww mmoonneeyy11
11 Includes double counts.
Development of invested assets
USD billion
Total invested assets at the beginning of the year1
Net new money
Market movements2
Foreign currency translation
Other effects
of which: acquisitions / (divestments)
TToottaall iinnvveesstteedd aasssseettss aatt tthhee eenndd ooff tthhee yyeeaarr11
11 Includes double counts. 22 Includes interest and dividend income.
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.
to/from
inflows and outflows
Net new money is calculated using the direct method, under
invested assets are
which
determined at the client level based on transactions. Interest and
dividend 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 the change in service level
directly results from an externally imposed regulation or from a
strategic decision by UBS to exit a market or specific service
offering, the one-time net effect is reported as Other effects.
The Investment Bank does not track invested assets and net
new money. However, when a client is transferred from the
Investment Bank to another business division, this may produce
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 2019 and 2018.
As of or for the year ended
3311..1122..1199
31.12.18
335588
11,,220099
22,,004400
33,,660077
224488
5511
22001199
33,,110011
5511
444444
66
55
((11))
342
999
1,760
3,101
213
59
2018
3,262
59
(180)
(35)
(5)
7
33,,660077
3,101
469
Financial statements
Consolidated financial statements
Note 37 Currency translation rates
The following table shows the rates of the main currencies used to translate the financial information of UBS’s operations with a
functional currency other than the US dollar into US dollars.
1 CHF
1 EUR
1 GBP
100 JPY
Closing exchange rate
Closing exchange rate
As of
Average rate1
Average rate1
For the year ended
31.12.19
31.12.19
31.12.18
31.12.19
31.12.19
31.12.18
31.12.17
1.03
1.03
1.12
1.12
1.32
1.32
0.92
0.92
1.02
1.15
1.28
0.91
1.01
1.01
1.12
1.12
1.28
1.28
0.92
0.92
1.02
1.18
1.33
0.91
1.02
1.14
1.30
0.89
1 Monthly income statement items of operations with a functional currency other than the US dollar are translated with month-end rates into US dollars. Disclosed average rates for a year represent an average of 12
1
month-end rates, weighted according to the income and expense volumes of all operations of the Group with the same functional currency for each month. Weighted average rates for individual business divisions
may deviate from the weighted average rates for the Group.
470
Note 38 Main differences between IFRS and Swiss GAAP
IFRS
The consolidated financial statements of UBS Group AG are
prepared in accordance with International Financial Reporting
(IFRS). The Swiss Financial Market Supervisory
Standards
Authority (FINMA) requires financial groups that present their
financial statements under
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
immaterial to the Group or that are held temporarily only are
instead are recorded as
exempt from consolidation, but
participations accounted for under the equity method of
accounting or as financial investments measured at the lower of
cost or market value.
2. Classification and measurement of financial assets
Under IFRS, debt instruments are measured at amortized cost,
fair value through other comprehensive income (FVOCI) or fair
value through profit or loss (FVTPL), depending on the nature of
the business model within which the asset is held and the
characteristics of the contractual cash flows of the asset. Equity
instruments are accounted for at FVTPL by UBS.
Under Swiss GAAP, trading assets and derivatives are
measured at FVTPL in line with IFRS. However, non-trading debt
instruments are generally measured at amortized cost, even
when the assets are managed on a fair value basis. In addition,
the measurement of financial assets in the form of securities
depends on the nature of the asset: debt instruments that are
not held to maturity, i.e. instruments which are available for
sale, as well as equity instruments with no permanent holding
intent, are classified as Financial investments and measured at
the lower of (amortized) cost or market value. Market value
adjustments up to the original cost amount and realized gains or
losses upon disposal of the investment are recorded in the
income statement as Other income from ordinary activities.
intent are
Equity
classified as participations in Non-consolidated investments in
subsidiaries and other participations and are measured at cost
less impairment.
instruments with a permanent holding
Impairment losses are recorded in the income statement as
Impairment of investments in non-consolidated subsidiaries and
other participations. Reversals of impairments up to the original
cost amount as well as realized gains or losses upon disposal of
/
the
Extraordinary expenses in the income statement.
recorded as Extraordinary
investment are
income
3. Fair value option applied to financial liabilities
Under IFRS, UBS applies the fair value option to certain financial
liabilities not held for trading. Instruments for which the fair
value option is applied are accounted for at FVTPL. The amount
of change in the fair value that is attributable to changes in
UBS’s own credit is presented in Other comprehensive income
directly within Retained earnings. The fair value option is applied
primarily to issued structured debt instruments, certain non-
structured debt instruments, certain payables under repurchase
lending
agreements and
investment
agreements, amounts due under unit-linked
contracts, and brokerage payables.
collateral on
securities
cash
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, unrealized changes in fair
value attributable to changes in UBS’s own credit are not
recognized, whereas realized own credit is recognized in Net
trading income.
471
Financial statements
Consolidated financial statements
Note 38 Main differences between IFRS and Swiss GAAP (continued)
Under Swiss GAAP, the effective portion of the fair value
change of the derivative instrument designated as a cash flow or
as a fair value hedge is deferred on the balance sheet as Other
assets or Other liabilities. The carrying amount of the hedged
item designated in fair value hedges is not adjusted for fair value
changes attributable to the hedged risk.
6. 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
indefinite 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. In addition, these assets are tested
annually for impairment.
7. 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
financial
the UBS Switzerland AG standalone
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 market in the
respective pension plan country. The discount rate used in
accordance with Swiss GAAP (i.e., the technical interest rate) is
determined by the Pension Foundation Board based on the
expected returns of the Board’s investment strategy.
4. Allowances and provisions for credit losses
Under IFRS, allowances and provisions for credit losses are
estimated based on an expected credit loss model. Expected
credit losses (ECL) are recognized for financial assets measured
at amortized cost, financial assets measured at FVOCI, fee and
lease receivables, financial guarantees, loan commitments and
certain other credit facilities. Maximum 12-month ECL are
recognized from initial recognition of instruments in stage 1.
Lifetime ECL are recognized for instruments in stage 2 if a
significant increase in credit risk is observed subsequent to the
instrument’s initial recognition. Lifetime ECL are also recognized
for credit-impaired
to as
instruments in stage 3. Determination of whether an instrument
is credit-impaired is based on the occurrence of one or more loss
events.
instruments,
financial
referred
Under Swiss GAAP, a claim is impaired and an allowance or
provision for credit losses is recognized when objective evidence
demonstrates that a loss event has occurred after the initial
recognition and that the loss event has an effect on future cash
flows that can be reliably estimated (incurred loss approach).
UBS considers a claim to be impaired if it will be unable to
collect all amounts due on it based on the original contractual
terms as a result of credit deterioration of the issuer or
counterparty. Impairment under the incurred loss approach is in
line with ECL for credit-impaired claims in stage 3 under IFRS. A
claim can be a loan or receivable or other debt instrument held
to maturity measured at amortized cost, a debt instrument
available for sale measured at the lower of amortized cost or
market value, or a commitment, such as a letter of credit, a
guarantee or a similar instrument.
An allowance for credit losses is reported as a decrease in the
carrying amount of a financial asset. For an off-balance sheet
item, such as a commitment, a provision for credit losses is
reported in Provisions. Changes to allowances and provisions for
credit losses are recognized in Credit loss (expense) / recovery.
5. Hedge accounting
Under IFRS, when cash flow 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
fair value hedge accounting is applied, the fair value gains or
losses of the derivative and the hedged item are recognized in
the income statement.
472
Note 38 Main differences between IFRS and Swiss GAAP (continued)
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 non-Swiss defined
benefit plans for which IFRS accounting is elected, changes due
to remeasurements are recognized in the income statement of
UBS AG standalone under Swiss GAAP.
Swiss GAAP requires that employer contributions to the
pension fund are recognized as personnel expenses in the
income statement. Furthermore, 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 which 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 an FER 26 basis).
8. Leasing
Under IFRS, a single lease accounting model applies that requires
UBS to record a right-of-use (RoU) asset and a corresponding
lease liability on the balance sheet when UBS is a lessee in a
lease arrangement. The RoU asset and the lease liability are
recognized when UBS acquires control of the physical use of the
asset. The lease liability is measured based on the present value
of the lease payments over the lease term, discounted using
UBS’s unsecured borrowing rate. The RoU asset is recorded at an
amount equal to the lease liability but is adjusted for rent
prepayments, initial direct costs, any costs to refurbish the leased
asset and/or
is
depreciated over the shorter of the lease term or the useful life
of the underlying asset.
incentives received. The RoU asset
lease
administrative expenses on a straight-line basis over the lease
term, which commences with control of the physical use of the
asset. Lease incentives are treated as a reduction of rental
expense and are recognized on a consistent basis over the lease
term.
9. Netting of replacement values
Under IFRS, replacement values and related cash collateral are
reported on a gross basis unless the restrictive IFRS netting
requirements 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
counterparties; 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
collateral are generally reported on a net basis, provided the
master netting and the related collateral agreements are legally
enforceable in the event of default, bankruptcy or insolvency of
UBS’s counterparties.
10. 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 are presented within interest expense and
interest income, respectively.
Under Swiss GAAP, negative interest on financial assets is
presented within interest income and negative interest on
financial liabilities is presented within interest expense.
11. Extraordinary income and expense
Under Swiss GAAP, 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 operating leases. Whereas finance leases are
recognized on the balance sheet and measured in line with IFRS,
operating lease payments are recognized as General and
Certain non-recurring and non-operating income and expense
items, such as realized gains or losses from the disposal of
participations, fixed and intangible assets, as well as reversals of
impairments of participations and fixed assets, are classified as
extraordinary items under Swiss GAAP. This distinction is not
available under IFRS.
473
Financial statements
Standalone
financial
statements
UBS Group AG standalone financial statements
Table of contents
477 UBS Group AG standalone financial statements
Income statement
477
478 Balance sheet
479 Statement of proposed appropriation of total profit and
dividend distribution out of total profit and capital
contribution reserve
486 12 Accrued income and prepaid expenses
Investments in subsidiaries
487 13
Financial assets
488 14
488 15 Current interest-bearing liabilities
488 16 Accrued expenses and deferred income
488 17
490 18 Compensation-related long-term liabilities
490 19
Long-term interest-bearing liabilities
Share capital
Treasury shares
480 1
481 2
Corporate information
Accounting policies
490 20
491 Additional information
491 21 Guarantees
491 22 Assets pledged to secure own liabilities
491 23 Contingent liabilities
492 24
493 25
495 26
Significant shareholders
Share and option ownership of the members of the
Board of Directors, the Group Executive Board and
other employees
Related parties
496 Report of the statutory auditor on the financial statements
498
Independent auditor’s report related to the issue of new
shares from conditional capital
484
Income statement notes
484 3
484 4
484 5
484 6
485 7
485 8
Dividend income from investments in subsidiaries
Other operating income
Financial income
Personnel expenses
Other operating expenses
Financial expenses
486 Balance sheet notes
486 9
486 10 Marketable securities
486 11 Other short-term receivables
Liquid assets
476
UBS Group AG standalone financial
statements
Audited |
Income statement
Dividend income from investments in subsidiaries
Other operating income
Financial income
OOppeerraattiinngg iinnccoommee
Personnel expenses
Other operating expenses
Amortization of intangible assets
Financial expenses
OOppeerraattiinngg eexxppeennsseess
Profit / (loss) before income taxes
Tax expense / (benefit)
NNeett pprrooffiitt // ((lloossss))
USD million
For the year ended
CHF million
For the year ended
Note
3311..1122..1199
31.12.18
3311..1122..1199
31.12.18
3
4
5
6
7
8
33,,440000
115555
449988
44,,005522
2211
8811
44
662255
773322
33,,332200
00
33,,332200
3,212
157
77
3,446
23
216
4
30
273
3,174
3
3,171
33,,446644
115533
449911
44,,110088
2211
8800
44
661188
772244
33,,338844
00
33,,338844
3,152
155
76
3,383
23
212
4
30
268
3,114
3
3,111
477
Financial statements
USD million
CHF million
Note
31.12.19
31.12.19
31.12.18
31.12.19
31.12.19
31.12.18
9
10
11
12
13
14
15
16
17
18
19
20
1,177
1,177
83
83
2,412
2,412
1,010
1,010
4,682
4,682
41,209
41,209
40,889
40,889
47,113
47,113
8
8
15
15
88,346
88,346
93,028
93,028
51,295
51,295
2,547
2,547
2,102
2,102
4,649
4,649
45,989
45,989
2,938
2,938
48,927
48,927
53,576
53,576
926
83
788
7
1,804
41,209
40,889
1,444
12
8
42,674
44,479
2,938
457
1,465
1,922
224
3,022
3,246
5,168
1,140
1,140
80
80
2,335
2,335
978
978
4,533
4,533
39,896
39,896
39,586
39,586
45,612
45,612
8
8
15
15
85,530
85,530
90,063
90,063
49,660
49,660
2,466
2,466
2,035
2,035
4,501
4,501
44,523
44,523
2,845
2,845
47,368
47,368
51,869
51,869
910
82
775
7
1,774
40,518
40,203
1,420
12
8
41,959
43,733
2,888
450
1,440
1,890
220
2,972
3,192
5,082
987
987
694
955
955
682
393
393
28,352
28,352
28,352
28,352
28,352
28,352
10,682
10,682
(3,297)
(3,297)
1
1
3,320
3,320
39,452
39,452
93,028
93,028
393
30,846
30,846
30,846
7,513
(2,612)
0
3,171
39,310
44,479
386
386
27,730
27,730
27,730
27,730
27,730
27,730
9,937
9,937
(3,244)
(3,244)
1
1
3,384
3,384
38,194
38,194
90,063
90,063
386
30,271
30,271
30,271
7,452
(2,569)
0
3,111
38,651
43,733
UBS Group AG standalone financial statements
Balance sheet
Assets
Liquid assets
Marketable securities
Other short-term receivables
Accrued income and prepaid expenses
Total current assets
Total current assets
Investments in subsidiaries
of which: investment in UBS AG
Financial assets
Other intangible assets
Other non-current assets
Total non-current assets
Total non-current assets
Total assets
Total assets
of which: amounts due from subsidiaries
Liabilities
Current interest-bearing liabilities
Accrued expenses and deferred income
Total short-term liabilities
Total short-term liabilities
Long-term interest-bearing liabilities
Compensation-related long-term liabilities
Total long-term liabilities
Total long-term liabilities
Total liabilities
Total liabilities
of which: amounts due to subsidiaries
Equity
Share capital
General reserves
of which: statutory capital reserve
of which: capital contribution reserve
Voluntary earnings reserve
Treasury shares
Reserve for own shares held by subsidiaries
Net profit / (loss)
Equity attributable to shareholders
Equity attributable to shareholders
Total liabilities and equity
Total liabilities and equity
478
Statement of proposed appropriation of total profit and dividend distribution out of total profit and capital
contribution reserve
The Board of Directors proposes that the Annual General
Meeting of Shareholders (AGM) on 29 April 2020 approve the
total profit and an ordinary dividend
appropriation of
distribution of USD 0.73 (gross) in cash per share of CHF 0.10
par value under the terms set out below:
Net profit for the period
Profit / (loss) carried forward
TToottaall pprrooffiitt aavvaaiillaabbllee ffoorr aapppprroopprriiaattiioonn
AApppprroopprriiaattiioonn ooff ttoottaall pprrooffiitt
Appropriation to voluntary earnings reserve
Dividend distribution: USD 0.73 (gross) per dividend-bearing share, USD 0.365 of which out of total profit1
PPrrooffiitt // ((lloossss)) ccaarrrriieedd ffoorrwwaarrdd
USD million
CHF million
For the year ended
For the year ended
3311..1122..1199
3311..1122..1199
33,,332200
00
33,,332200
((11,,991111))
((11,,440099))
00
33,,338844
00
33,,338844
((22,,002200))
((11,,336644))22
00
11 Dividend-bearing shares are all shares issued except for treasury shares held by UBS Group AG as of the record date. The amount of USD 1,409 million presented is based on the total number of shares issued as of
22 For illustrative purposes, translated at
31 December 2019. If the final total amount of the dividend is higher / lower, the difference will be balanced through the appropriation to the voluntary earnings reserve.
closing exchange rate as of 31 December 2019 (CHF / USD 1.03).
Total statutory capital reserve: capital contribution reserve before proposed distribution1
Dividend distribution: USD 0.73 (gross) per dividend-bearing share, USD 0.365 of which out of capital contribution reserve2
TToottaall ssttaattuuttoorryy ccaappiittaall rreesseerrvvee:: ccaappiittaall ccoonnttrriibbuuttiioonn rreesseerrvvee aafftteerr pprrooppoosseedd ddiissttrriibbuuttiioonn
USD million
CHF million
For the year ended
For the year ended
3311..1122..1199
2288,,335522
((11,,440099))
2266,,994433
3311..1122..1199
2277,,773300
((11,,336644))33
2266,,336666
11 The Swiss Federal Tax Administration’s current position is that, of the CHF 27.7 billion capital contribution reserve available as of 31 December 2019, an amount limited to CHF 13.1 billion is available from which
dividends may be paid without a Swiss withholding tax deduction. 22 Dividend-bearing shares are all shares issued except for treasury shares held by UBS Group AG as of the record date. The amount of USD 1,409
million presented is based on the total number of shares issued as of 31 December 2019. 33 For illustrative purposes, translated at closing exchange rate as of 31 December 2019 (CHF / USD 1.03).
As set out above, half of the ordinary dividend distribution of
USD 0.73 (gross) in cash per share is payable out of total profit
and the other half is payable out of the capital contribution
reserve. The portion of the dividend paid out of total profit will
be subject to a 35% Swiss withholding tax.
The ordinary dividend distribution is declared in USD.
Shareholders whose shares are held through SIX SIS AG (ISIN
CH0244767585) will receive dividends in CHF, based on a
published exchange rate calculated up to five decimal places on
the day prior to the ex-dividend date. Shareholders holding
shares through DTC (ISIN: CH0244767585; CUSIP: H42097107)
or directly registered in the US share register will be paid
dividends in USD. The total amount of the dividend distribution
will be capped at CHF 5,256 million (the Cap). To the extent that
the CHF equivalent of the total dividend distribution would
exceed the Cap on the day of the AGM, based on the exchange
rate determined by the Board of Directors in its reasonable
opinion, the USD per share amount of the dividend will be
reduced on a pro-rata basis so that the total CHF amount does
not exceed the Cap.
Provided that the proposed dividend distribution out of the
total profit and the capital contribution reserve is approved, the
payment of the dividend will be made on 7 May 2020 to holders
of shares on the record date 6 May 2020. The shares will be
traded ex-dividend as of 5 May 2020 and, accordingly, the last
day on which the shares may be traded with entitlement to
receive the dividend will be 4 May 2020.
479
Financial statements
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 article 620 et seq. of
the Swiss Code of Obligations as an Aktiengesellschaft (a
corporation limited by shares).
UBS Group AG is the ultimate holding company of the UBS
Group, the grantor of the majority of UBS’s deferred
compensation plans and the issuer of loss-absorbing capital
notes which qualify as Basel III additional tier 1 (AT1) capital on a
consolidated UBS Group basis and senior unsecured debt which
contributes to the total loss-absorbing capacity (TLAC) of the
Group.
Issuance of AT1 capital and senior debt instruments
In October 2019, loss-absorbing AT1 perpetual capital notes and
senior unsecured debt instruments that had previously been
issued by UBS Group Funding (Switzerland) AG and guaranteed
by UBS Group AG were transferred to UBS Group AG at book
value affecting comparability of presented amounts. The transfer
was carried out by means of an issuer substitution pursuant to
the voluntary substitution provisions provided in the terms and
conditions of the relevant instruments. Following the transfer,
the investors’ seniority of claims against UBS Group AG remains
unchanged. The transfer followed changes in the tax treatment
of too-big-to-fail (TBTF) instruments issued by the holding
companies of Swiss systemically important banks that entered
into force as of 1 January 2019.
The proceeds from the issuances of loss-absorbing AT1
senior unsecured debt
capital notes and TLAC-eligible
instruments are on-lent to UBS AG.
Refer to Notes 15 and 17 for more information about the main
terms and conditions of the loss-absorbing AT1 capital notes
and TLAC-eligible senior unsecured debt instruments issued
Furthermore, UBS Group AG grants Deferred Contingent
Capital Plan (DCCP) awards to UBS Group employees. These
DCCP awards also qualify as Basel III AT1 capital on a
consolidated UBS Group basis.
As of 31 December 2019, UBS Group AG’s distributable items
for the purpose of AT1 capital instruments were USD 39.0 billion
(CHF 37.7 billion)
(31 December 2018: USD 38.8 billion
(CHF 38.2 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.
480
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 Obligations).
The functional currency of UBS Group AG is the US dollar.
The significant accounting and valuation principles applied are
described below.
Presentation currencies
As the primary presentation currency of the standalone financial
statements of UBS Group AG is the US dollar, amounts in Swiss
francs are additionally presented for each component of the
financial statements. UBS Group AG applies the modified closing
rate method for converting US dollar amounts into Swiss francs:
assets and liabilities are translated at the closing rate, equity
positions at historic rates and income and expense items at the
weighted average rate for the period. All resulting currency
translation effects are recognized separately
in Voluntary
earnings reserve, amounting to a negative currency translation
effect of CHF 544 million as of 31 December 2019
(31 December 2018: positive CHF 81 million).
Foreign currency translation
Transactions denominated in foreign currency are translated into
US dollars at the spot exchange rate on the date of the
transaction. 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 US dollars 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
income statement.
exchange rate presented net
in the
in subsidiaries measured at historic cost are
Investments
translated at the spot exchange rate on the date of the
transaction. Currency translation effects from dividends paid in
Swiss francs are recognized in equity. All other currency
translation effects are recognized in the income statement.
The main currency translation rates used by UBS Group AG
are provided in Note 37 of the consolidated financial statements.
Marketable securities
include
securities
investments
in alternative
Marketable
investment vehicles (AIVs) with a short-term holding period. The
holding period is deemed short term if the vesting of the awards
hedged by the AIV is within 12 months after the balance sheet
date. These are equity instruments and are measured at fair
value based on quoted market prices or other observable market
prices as of the balance 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 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
impairment losses.
Financial assets further include loans granted to UBS AG that
substantially mirror the terms of the perpetual AT1 capital notes,
the TLAC-eligible senior unsecured debt instruments issued and
the fixed-term deposits with UBS AG with maturities more than
12 months after the balance sheet date. The loans and deposits
are measured at nominal value.
Refer to Note 14 for more information
Derivative instruments
UBS Group AG uses derivative instruments to manage exposures
to foreign currency risks from investments in foreign subsidiaries.
The derivative instruments are entered into with UBS AG,
mirroring the conditions of the closing transactions UBS AG
enters into with third parties.
Derivative instruments are measured at fair value based on
quoted market prices or other observable market prices as of the
balance sheet date. Unrealized gains and losses are recognized
on the balance sheet as Accrued income and prepaid expenses
and Accrued expenses and deferred income, respectively.
Corresponding gains and losses resulting from fair value changes
are recognized in Financial income and Financial expenses,
respectively.
481
Financial statements
UBS Group AG standalone financial statements
Note 2 Accounting policies (continued)
Investments in subsidiaries
Investments in subsidiaries are equity interests that are held to
carry on the business of UBS Group or for other strategic
purposes. 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 13 for more information
Refer to Note 2 in the “Consolidated financial statements”
section of this report for a description of businesses of the UBS
Group
Long-term interest bearing liabilities
Long-term interest-bearing liabilities include perpetual loss-
absorbing capital notes that qualify as Basel III AT1 capital and
TLAC-eligible senior unsecured debt instruments at Group level.
They are measured at nominal value. Any difference to nominal
value, e.g., premium, discount or external costs that are directly
related to the issue, is deferred as Accrued income and prepaid
expenses or Accrued expenses and deferred income and
amortized to Financial expenses or Financial income over the
maturity of the instrument or until the first call date or optional
redemption date, where applicable.
Refer to Note 17 for more information
Treasury shares
Treasury shares acquired by UBS Group AG are recognized at
acquisition cost and are presented as a deduction from
shareholders’ equity. Upon disposal or settlement of related
share awards, the realized gain or loss is recognized through the
income statement as Financial income and Financial expenses,
respectively. For settlement of related share awards, the realized
gains and losses on treasury shares represent the difference
between the market price of the treasury shares at settlement
and their acquisition cost.
For UBS Group AG shares acquired by a direct or indirect
subsidiary, a Reserve for own shares held by subsidiaries is
generally created in UBS Group AG’s equity. However, where
UBS AG or UBS Switzerland AG acquire UBS Group AG shares
and hold such in their trading portfolios, no Reserve for own
shares held by subsidiaries is created.
Refer to Note 20 for more information
Share-based and other deferred 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
settled 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 compensated for with a loan from UBS AG to
UBS Group AG.
Share-based compensation plans
The grant date fair value of equity-settled share-based
compensation awards granted to employees
is generally
recognized over the vesting period of the awards. Awards
granted in the form of UBS Group AG shares and notional
shares are settled by delivering UBS Group AG shares at vesting
except in jurisdictions where this is not permitted for legal or tax
reasons. They 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 of the balance sheet date. The
amount recognized is adjusted for forfeiture assumptions, such
that the amount ultimately recognized is based on the number
of awards that meet the related service conditions at the vesting
date. The grant date fair value is based on the UBS Group AG
share price, taking into consideration post-vesting sale and
hedge
conditions and market
conditions, where applicable.
restrictions, non-vesting
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-based awards represent the difference
between the market price of the UBS Group AG 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 of 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.
482
Note 2 Accounting policies (continued)
Other deferred compensation plans
Deferred compensation plans that are not share-based, including
DCCP awards and awards in the form of AIVs, are accounted for
as cash-settled awards. The present value or 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 balance sheet date at the present value of the
corresponding DCCP award and the fair value of investments in
from
AIVs,
remeasurement of the
in Other
operating income and Other operating expenses, respectively.
liabilities are recognized
respectively. Gains
resulting
losses
and
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 corresponding
its
to a
obligation toward the employees.
representing
liability
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
financial statements. The
disclosures
dispensations include the management report and the statement
of cash flows, as well as certain note disclosures.
the standalone
in
483
Financial statements
UBS Group AG standalone financial statements
Income statement notes
Note 3 Dividend income from investments in subsidiaries
Dividend income from investments in subsidiaries in 2019
consisted of USD 3,250 million (CHF 3,311 million) received
from UBS AG related to the financial year 2018, which was
approved by the Annual General Meeting of the Shareholders of
UBS AG on 18 April 2019, USD 143 million (CHF 146 million)
received from UBS Business Solutions AG related to the financial
year ended 31 December 2018, which was approved by the
Annual General Meeting of the Shareholders of UBS Business
Solutions AG on 17 April 2019, and USD 6 million (CHF 6
million) received from UBS Group Funding (Switzerland) AG
related to the financial year ended 31 December 2018, which
was approved by the Annual General Meeting of the
Shareholders of UBS Group Funding (Switzerland) AG on
8 March 2019. In 2018, dividend income from investments in
subsidiaries consisted of USD 3,123 million (CHF 3,065 million)
received from UBS AG related to the financial year 2017, which
was approved by the Annual General Meeting of the
Shareholders of UBS AG on 26 April 2018, USD 86 million
(CHF 84 million) received from UBS Business Solutions AG
related to the financial year ended 31 December 2017, which
was approved by the Annual General Meeting of the
Shareholders of UBS Business Solutions AG on 19 April 2018,
and USD 3 million (CHF 3 million) received from UBS Group
Funding (Switzerland) AG related to the financial year ended
31 December 2017, which was approved by the Annual General
Meeting of
the Shareholders of UBS Group Funding
(Switzerland) AG on 8 March 2018.
Note 4 Other operating income
Fair value gains on AIV awards
Gains related to equity-settled awards
Amortization of net liability related to deferred compensation plan transfer
Commission income from guarantees issued
Total other operating income
Total other operating income
Note 5 Financial income
Fair value gains on investments in AIVs
Fair value gains on derivatives
Treasury share gains
Interest income on long-term receivables from UBS AG
Interest income on liquid assets
Foreign currency translation gains
Total financial income
Total financial income
Note 6 Personnel expenses
USD million
For the year ended
CHF million
For the year ended
31.12.19
31.12.19
31.12.18
31.12.19
31.12.19
31.12.18
0
0
119
119
1
1
35
35
155
155
8
106
5
37
157
0
0
118
118
1
1
34
34
153
153
9
105
5
36
155
USD million
For the year ended
CHF million
For the year ended
31.12.19
31.12.19
31.12.18
31.12.19
31.12.19
31.12.18
45
45
2
2
0
0
445
445
4
4
1
1
498
498
0
6
47
13
11
0
77
45
45
2
2
0
0
439
439
4
4
1
1
491
491
0
6
46
13
11
0
76
Personnel expenses include recharges from UBS AG and UBS
Business Solutions AG for personnel-related costs for activities
performed by the personnel of those companies for the benefit
of UBS Group AG.
UBS Group AG had no employees throughout 2019 and
2018. All employees of the UBS Group, including the members
of the Group Executive Board (GEB) of UBS Group AG, were
employed by
subsidiaries of UBS Group AG. As of
31 December 2019, the UBS Group employed 68,601 personnel
(31 December 2018: 66,888) on a full-time equivalent basis.
484
Note 7 Other operating expenses
Fair value losses on AIV awards
Losses related to equity-settled awards
Capital tax
Other
TToottaall ootthheerr ooppeerraattiinngg eexxppeennsseess
Note 8 Financial expenses
Fair value losses on investments in AIVs
Impairment losses on financial assets
Treasury share losses
Interest expense on interest-bearing liabilities
Interest expense on derivatives
Fees paid
Foreign currency losses
TToottaall ffiinnaanncciiaall eexxppeennsseess
USD million
For the year ended
CHF million
For the year ended
3311..1122..1199
31.12.18
3311..1122..1199
31.12.18
4455
00
1133
2222
8811
0
184
14
18
216
4455
00
1133
2222
8800
0
181
14
17
212
USD million
For the year ended
CHF million
For the year ended
3311..1122..1199
31.12.18
3311..1122..1199
31.12.18
00
00
119911
442299
55
11
00
662255
8
0
0
13
6
1
2
30
00
00
119911
442222
11
55
00
661188
8
0
0
13
6
1
2
30
485
Financial statements
UBS Group AG standalone financial statements
Balance sheet notes
Note 9 Liquid assets
As of 31 December 2019, liquid assets comprised USD 794 31 December 2018, liquid assets comprised USD 542 million
million
(CHF 533 million) held on current accounts at UBS Switzerland
UBS Switzerland AG and UBS AG and USD 383 million (CHF 371 AG and UBS AG and USD 384 million (CHF 378 million) of time
million) of time deposits placed with UBS AG. As of deposits placed with UBS AG.
(CHF 769 million) held on current accounts at
Note 10 Marketable securities
Marketable securities include investments in AIVs related to compensation awards vesting within 12 months after the balance sheet date.
Note 11 Other short-term receivables
Onward lending to UBS AG1
Loans to UBS Business Solutions AG
Receivables from employing entities related to compensation awards
Other
Total other short-term receivables
Total other short-term receivables
USD million
CHF million
31.12.19
31.12.19
31.12.18
31.12.19
31.12.19
31.12.18
1,870
1,870
55
55
482
482
5
5
2,412
2,412
0
216
567
5
788
1,811
1,811
53
53
466
466
5
5
2,335
2,335
0
213
557
5
775
1 Short-term receivables from the onward lending of the proceeds from the issuances of TLAC-eligible senior unsecured debt and loss-absorbing additional tier 1 perpetual capital notes to UBS AG. Refer to Note 1
1
for more information.
Note 12 Accrued income and prepaid expenses
Accrued interest income
Other accrued income and prepaid expenses
Total accrued income and prepaid expenses
Total accrued income and prepaid expenses
USD million
CHF million
31.12.19
31.12.19
31.12.18
31.12.19
31.12.19
31.12.18
816
816
194
194
1,010
1,010
6
1
7
790
790
188
188
978
978
6
1
7
486
Note 13 Investments in subsidiaries
Unless otherwise stated, the subsidiaries listed 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
respective registered office is located is also the principal place
of business. UBS AG operates through a global network of
branches and a significant proportion of its business activity is
conducted outside Switzerland in the UK, the US, Singapore,
Hong Kong and other countries. UBS Europe SE has branches
and offices in a number of EU Member States, including
Germany, Italy, Luxembourg, Spain and Austria. Share capital is
provided in the currency of the legally registered office.
Subsidiaries of UBS Group AG as of 31 December 2019
Company
UBS AG
Registered office
Zurich and Basel, Switzerland
UBS Business Solutions AG1
Zurich, Switzerland
UBS Group Funding (Switzerland) AG
Zurich, Switzerland
11 UBS Business Solutions AG holds subsidiaries in Poland, China and India.
Individually significant subsidiaries of UBS AG as of 31 December 20191
Company
Registered office
UBS Americas Holding LLC
Wilmington, Delaware, USA
UBS Americas Inc.
Wilmington, Delaware, USA
UBS Asset Management AG
Zurich, Switzerland
Primary business
Corporate Center
Corporate Center
Asset Management
UBS Bank USA
UBS Europe SE
Salt Lake City, Utah, USA
Global Wealth Management
Frankfurt, Germany
Global Wealth Management
UBS Financial Services Inc.
Wilmington, Delaware, USA
Global Wealth Management
UBS Securities LLC
UBS Switzerland AG
Wilmington, Delaware, USA
Investment Bank
Zurich, Switzerland
Personal & Corporate Banking
Share capital in million Equity interest accumulated in %
CHF
CHF
CHF
385.8
1.0
0.1
100.0
100.0
100.0
Share capital in million Equity interest accumulated in %
USD
USD
CHF
USD
EUR
USD
USD
CHF
3,150.02
0.0
43.2
0.0
446.0
0.0
1,283.13
10.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
11 Includes direct and indirect subsidiaries of UBS AG. 22 Comprised of common share capital of USD 1,000 and non-voting preferred share capital of USD 3,150,000,000. 33 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 or loss before tax, in accordance with
Swiss regulations.
Refer to Note 31 in the “Consolidated financial statements”
section of this report for more information
487
Financial statements
UBS Group AG standalone financial statements
Note 14 Financial assets
Long-term receivables from UBS AG1
Long-term receivables from UBS Business Solutions AG
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
Total financial assets
USD million
CHF million
31.12.19
31.12.19
31.12.18
31.12.19
31.12.19
31.12.18
46,644
46,644
236
236
229
229
4
4
993
224
224
4
45,158
45,158
229
229
222
222
4
4
976
220
220
4
47,113
47,113
1,444
45,612
45,612
1,420
1 As of 31 December 2019, long-term receivables from UBS AG include the onward lending of the proceeds from the issuances of TLAC-eligible senior unsecured debt and loss-absorbing additional tier 1 perpetual
1
capital notes for the total amount of USD 45,682 million (CHF 44,226 million). Refer to Note 1 for more information.
Note 15 Current interest-bearing liabilities
Current interest-bearing liabilities totaled USD 2,547 million
(CHF 2,466 million) as of 31 December 2019 comprising TLAC-
eligible senior unsecured debt instruments of USD 1,800 million
(CHF 1,743 million) and loans from UBS AG of USD 747 million
(CHF 723 million). As of 31 December 2018, current interest-
bearing liabilities comprised loans from UBS AG of USD 457
million (CHF 450 million). In October 2019, all loss-absorbing
AT1 capital notes and TLAC-eligible senior unsecured debt
instruments previously
issued by UBS Group Funding
(Switzerland) AG were transferred to UBS Group AG by means
of an issuer substitution at book value.
Refer to Note 1 for more information
Notes issued, overview by amount, maturity and coupon
31.12.19
31.12.19
Carrying amount
Carrying amount
Carrying amount
in transaction
in transaction Carrying amount Carrying amount
in CHF
currency
In million, except where indicated
in CHF
currency
290
300
290
300
US dollar-denominated TLAC-eligible senior unsecured notes
1,452
1,500
1,452
1,500
US dollar-denominated TLAC-eligible senior unsecured notes
Total notes issued
1,743
1,743
Total notes issued
1 Disclosed maturity refers to the contractual maturity date or, if applicable, to the earlier optional redemption date of the respective issuance. The disclosed coupon rate refers to the contractual coupon rate applied
1
from the issue date up to the contractual maturity date or, if applicable, to the earlier optional redemption date.
Maturity1
Coupon1
Coupon1
Maturity1
24.09.20 3M USD LIBOR + 144 bps
24.09.20 3M USD LIBOR + 144 bps
2.950%
24.09.20
2.950%
24.09.20
Carrying amount
in USD
in USD
300
300
1,500
1,500
1,800
1,800
Note 16 Accrued expenses and deferred income
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
USD million
CHF million
31.12.19
31.12.19
31.12.18
31.12.19
31.12.19
31.12.18
0
0
1,268
1,268
497
497
771
771
784
784
50
50
3
1,405
550
856
4
53
0
0
1,228
1,228
482
482
746
746
759
759
48
48
3
1,382
541
841
3
52
Total accrued expenses and deferred income
Total accrued expenses and deferred income
2,102
2,102
1,465
2,035
2,035
1,440
Note 17 Long-term interest-bearing liabilities
Long-term interest-bearing liabilities totaled USD 45,989 million
(CHF 44,523 million) as of 31 December 2019 comprising loss-
absorbing AT1 perpetual capital notes and TLAC-eligible senior
unsecured debt instruments of USD 45,752 million (CHF 44,294
million) and fixed-term loans from UBS AG of USD 236 million
(CHF 229 million). As of 31 December 2018, long-term interest-
bearing liabilities comprised fixed-term loans from UBS AG of
USD 224 million (CHF 220 million). In October 2019, all loss-
absorbing AT1 capital notes and TLAC-eligible senior unsecured
debt instruments previously issued by UBS Group Funding
(Switzerland) AG were transferred to UBS Group AG by means
of an issuer substitution at book value.
Refer to Note 1 for more information
488
Note 17 Long-term interest-bearing liabilities (continued)
Notes issued, overview by amount, maturity and coupon
3311..1122..1199
CCaarrrryyiinngg aammoouunntt
iinn ttrraannssaaccttiioonn
ccuurrrreennccyy
CCaarrrryyiinngg aammoouunntt
iinn UUSSDD
CCaarrrryyiinngg aammoouunntt
iinn CCHHFF
CCoouuppoonn1,2
MMaattuurriittyy1,2
11,,221100
6688
11,,225500
7700
11,,225500
110000
77..112255%%
33..003300%%
11,,550000
11,,000000
22,,000000
11,,550000
11,,000000
22,,000000
11,,445522
996688
11,,993366
1199..0022..220033
1188..1111..2200
11,,006655
11,,990000
448844
11,,993366
11,,110000
11,,775500
550000
22,,000000
11,,110000
11,,996622
550000
22,,000000
11,,008866
330000
11,,993366
996688
11,,221100
11,,993366
113366
11,,335577
11,,000000
330000
22,,000000
11,,000000
11,,225500
22,,000000
114411
11,,225500
11,,112211
331100
22,,000000
11,,000000
11,,225500
22,,000000
114411
11,,440022
2222..0033..2211
66..887755%%
1144..0044..2211 33MM UUSSDD LLIIBBOORR ++ 117788 bbppss
33..000000%%
1155..0044..2211
1100..0088..2211
77..112255%%
33MM EEUURR LLIIBBOORR ++ 7700 bbppss
2200..0099..2211
0011..0022..2222 33MM UUSSDD LLIIBBOORR ++ 115533 bbppss
22..665500%%
0011..0022..2222
55..775500%%
1199..0022..2222
00..775500%%
2222..0022..2222
2233..0055..2222
33..449911%%
2233..0055..2222 33MM UUSSDD LLIIBBOORR ++ 112222 bbppss
33MM UUSSDD LLIIBBOORR ++ 9955 bbppss
1155..0088..2222
22..885599%%
1155..0088..2222
00..000000%%
0044..1111..2222
11..775500%%
1166..1111..2222
In million, except where indicated
US dollar-denominated high-trigger loss-absorbing additional tier 1
perpetual capital notes
Australian dollar-denominated TLAC-eligible senior unsecured notes
US dollar-denominated high-trigger loss-absorbing additional tier 1
perpetual capital notes
US dollar-denominated TLAC-eligible senior unsecured notes
US dollar-denominated TLAC-eligible senior unsecured notes
US dollar-denominated high-trigger loss-absorbing additional tier 1
perpetual capital notes
Euro-denominated TLAC-eligible senior unsecured notes
US dollar-denominated TLAC-eligible senior unsecured notes
US dollar-denominated TLAC-eligible senior unsecured notes
Euro-denominated low-trigger loss-absorbing additional tier 1
perpetual capital notes
Swiss franc-denominated TLAC-eligible senior unsecured notes
US dollar-denominated TLAC-eligible senior unsecured notes
US dollar-denominated TLAC-eligible senior unsecured notes
US dollar-denominated TLAC-eligible senior unsecured notes
US dollar-denominated TLAC-eligible senior unsecured notes
US dollar-denominated TLAC-eligible senior unsecured notes
Euro-denominated TLAC-eligible senior unsecured notes
US dollar-denominated high-trigger loss-absorbing additional tier 1
perpetual capital notes
Swiss franc-denominated TLAC-eligible senior unsecured notes
Yen-denominated TLAC-eligible senior unsecured notes
Singapore dollar-denominated high-trigger loss-absorbing additional tier 1
perpetual capital notes
Euro-denominated TLAC-eligible senior unsecured notes
Swiss franc-denominated TLAC-eligible senior unsecured notes
US dollar-denominated high-trigger loss-absorbing additional tier 1
perpetual capital notes
Euro-denominated TLAC-eligible senior unsecured notes
Euro-denominated TLAC-eligible senior unsecured notes
Australian dollar-denominated high-trigger loss-absorbing additional tier 1
perpetual capital notes
Singapore dollar-denominated high-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
11,,552255
perpetual capital notes
22,,442200
US dollar-denominated TLAC-eligible senior unsecured notes
227755
Swiss franc-denominated high-trigger loss-absorbing additional tier 1
115500
Swiss franc-denominated TLAC-eligible senior unsecured notes
11,,993366
US dollar-denominated TLAC-eligible senior unsecured notes
11,,335577
Euro-denominated TLAC-eligible senior unsecured notes
11,,993366
US dollar-denominated TLAC-eligible senior unsecured notes
117788
Yen-denominated TLAC-eligible senior unsecured notes
11,,445522
US dollar-denominated TLAC-eligible senior unsecured notes
TToottaall nnootteess iissssuueedd
4444,,229944
11 For the TLAC-eligible senior unsecured notes, disclosed maturity refers to the contractual maturity date or, if applicable, to the earlier optional redemption date of the respective issuance. The disclosed coupon rate
22 For the loss-absorbing additional tier 1 perpetual
refers to the contractual coupon rate applied from the issue date up to the contractual maturity date or, if applicable, to the earlier optional redemption date.
capital notes, disclosed maturity refers to the first call date and the disclosed coupon rate refers to the contractual fixed coupon rate from the issue date up to, but excluding, the first call date. 33 Instrument was
called on 10 January 2020.
0077..0088..2255
2244..0099..2255
1133..1111..2255
2233..0022..2266
1155..0044..2266
0011..0099..2266
2233..0033..2277
0099..1111..2277
1133..0088..2299
66..887755%%
44..112255%%
33..000000%%
11..225500%%
44..112255%%
11..225500%%
44..225533%%
00..997733%%
33..112266%%
11,,557755
22,,550000
228844
115555
22,,000000
11,,440022
22,,000000
118844
11,,550000
4455,,775522
11,,557755
22,,550000
227755
115500
22,,000000
11,,225500
22,,000000
2200,,000000
11,,550000
3311..0011..2244
0044..0033..2244
1177..0044..2244
2288..1111..2233
3300..1111..2233
3300..0011..2244
3311..0011..2233
1188..0055..2233
0088..1111..2233
22,,000000
440000
113300,,000000
77..000000%%
22..112255%%
11..225500%%
55..887755%%
11..550000%%
00..887755%%
55..000000%%
00..662255%%
00..771199%%
552211
11,,440022
441133
770000
11,,225500
440000
22,,550000
775500
11,,775500
22,,550000
884411
11,,996622
22,,000000
441133
11,,119966
550044
11,,335577
440000
22,,442200
881144
11,,990000
11,,993366
440000
11,,115577
0044..0099..2244
2277..0088..2244
1199..0022..2255
44..337755%%
44..885500%%
77..000000%%
11,,225500
11,,225500
11,,221100
770000
449911
775500
555588
447755
554400
489
Financial statements
UBS Group AG standalone financial statements
Note 18 Compensation-related long-term liabilities
Long-term portion of compensation liabilities
of which: Deferred Contingent Capital Plan
of which: other deferred compensation plans
Total compensation-related long-term liabilities
Total compensation-related long-term liabilities
Note 19 Share capital
USD million
CHF million
31.12.19
31.12.19
31.12.18
31.12.19
31.12.19
31.12.18
2,938
2,938
1,340
1,340
1,598
1,598
2,938
2,938
3,022
1,415
1,607
3,022
2,845
2,845
1,298
1,298
1,547
1,547
2,845
2,845
2,972
1,391
1,581
2,972
As of 31 December 2019, the issued share capital consisted of 3,859,055,395 (31 December 2018: 3,855,634,749) registered
shares with a par value of CHF 0.10 each.
Refer to “UBS shares” in the “Capital management” section of this report for more information about UBS Group AG shares
Note 20 Treasury shares
Balance as of 31 December 2017
Balance as of 31 December 2017
of which: treasury shares held by UBS Group AG
of which: treasury shares held by UBS AG and other subsidiaries
Acquisitions
Disposals
Delivery of shares to settle equity-settled awards
Balance as of 31 December 2018
Balance as of 31 December 2018
of which: treasury shares held by UBS Group AG 1
of which: treasury shares held by UBS AG and other subsidiaries
Acquisitions
Disposals
Delivery of shares to settle equity-settled awards
Balance as of 31 December 2019
Balance as of 31 December 2019
of which: treasury shares held by UBS Group AG 1
of which: treasury shares held by UBS AG and other subsidiaries
Number of registered shares
Average price in USD
Average price in CHF
132,301,550
132,301,550
132,211,630
89,920
103,979,927
(2,438,508)
(67,375,167)
166,467,802
166,467,802
166,203,791
264,011
146,876,692
146,876,692
(5,999,827)
(5,999,827)
(64,323,371)
(64,323,371)
243,021,296
243,021,296
242,930,084
242,930,084
91,212
91,212
16.65
16.65
16.65
17.99
15.32
16.90
16.69
15.71
15.71
15.71
12.27
11.86
11.86
11.88
11.88
15.35
15.35
13.57
13.57
13.57
13.57
12.65
12.65
16.23
16.23
16.23
17.54
15.10
16.61
16.39
15.45
15.45
15.46
12.05
11.75
11.75
11.50
11.50
15.28
15.28
13.35
13.35
13.35
13.35
12.75
12.75
1 The carrying amount of treasury shares held by UBS Group AG as of 31 December 2019 was USD 3,297 million / CHF 3,244 million (31 December 2018: USD 2,612 million / CHF 2,569 million).
1
490
Additional information
Note 21 Guarantees
UBS Group AG used to issue guarantees to the external investors
against any default in payments of interest and principal by UBS
Group Funding (Switzerland) AG, a direct subsidiary of UBS Group
AG. As of 31 December 2018, UBS Group Funding (Switzerland)
(CHF 30,920 million)
AG had
issued USD 31,448 million
equivalent of TLAC-eligible senior debt and USD 10,334 million
(CHF 10,161 million) equivalent of loss-absorbing AT1 capital
notes. In October 2019, those guarantees were canceled upon the
transfer of the underlying instruments to UBS Group AG.
Refer to Note 1 for more information
Note 22 Assets pledged to secure own liabilities
As of 31 December 2019, total pledged assets of UBS Group AG
amounted to USD 2,021 million (CHF 1,957 million). These
assets consisted of certain liquid assets, marketable securities
and financial assets and were pledged to UBS AG. As of
31 December 2018, total pledged assets of UBS Group AG
amounted to USD 1,862 million
(CHF 1,831 million). The
associated liabilities secured by these pledged assets were
USD 933 million
(CHF 903 million) and USD 633 million
(CHF 623 million) as of 31 December 2019 and 31 December
2018, respectively.
Note 23 Contingent liabilities
UBS Group AG is jointly and severally liable for the combined value added tax (VAT) liability of UBS entities that belong to the VAT
group of UBS in Switzerland.
491
Financial statements
UBS Group AG standalone financial statements
Note 24 Significant shareholders
Shareholders registered in the UBS Group AG share register with 3% or more of the total share capital
% of share capital
Chase Nominees Ltd., London1
DTC (Cede & Co.), New York1,2
31.12.19
31.12.19
10.94
10.94
7.57
7.57
31.12.18
12.08
7.23
Nortrust Nominees Ltd., London1
1 Nominee companies and securities clearing organization cannot autonomously decide how voting rights are exercised and are therefore not obligated to notify UBS and the SIX if they reach, exceed or fall below
1
2 DTC (Cede & Co.), New
the threshold percentages according to the FMIA disclosure notification. Consequently, they do not appear in the below section “Shareholders subject to FMIA disclosure notifications.”
2
York, “The Depository Trust Company,” is a US securities clearing organization.
4.14
4.90
4.90
10 February 2016. As registration in the UBS share register is
optional, shareholders crossing the aforementioned thresholds
requiring SIX notification under FMIA, do not necessarily appear
in the above table.
The above disclosures have not been
subsequently
superseded and no new disclosures of significant shareholdings
have been made since 31 December 2019.
In accordance with the FMIA, the aforementioned holdings
are calculated in relation to the total share capital of UBS Group
AG reflected in its Articles of Association at the time of the
respective disclosure notification.
Refer to www.six-exchange-regulation.com/en/home/
publications/significant-shareholders.html for information
about disclosures under the FMIA
Shareholders registered in the UBS Group AG share register with
3% or more of the share capital of UBS Group AG
As a supplement to the mandatory disclosure requirements
according to the SIX Swiss Exchange Corporate Governance
Directive, the shareholders (acting in their own name or in their
capacity as nominees for other investors or beneficial owners)
that were registered in the UBS share register with 3% or more
of
total share capital of UBS Group AG as of
31 December 2019 or as of 31 December 2018 are listed in the
table above.
the
Cross-shareholdings
UBS Group AG has no cross-shareholdings where reciprocal
ownership would be in excess of 5% of capital or voting rights
with any other company.
General rules
Under the Swiss Federal Act on Financial Market Infrastructures
and Market Conduct in Securities and Derivatives Trading of
19 June 2015 (FMIA), anyone directly or indirectly, or acting in
concert with third parties, 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 Swiss Exchange
(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. Nominee companies that cannot autonomously
decide how voting rights are exercised are not required to notify
the company and SIX if they reach, exceed or fall below the
threshold percentages.
Pursuant to the Swiss Code of Obligations, UBS Group AG
identity of any
discloses
shareholder with a holding of more than 5% of the total share
capital of UBS Group AG.
its financial statements the
in
Shareholders subject to FMIA disclosure notifications
According to the mandatory FMIA disclosure notifications filed
with UBS Group AG and SIX, as of 31 December 2019, the
following entities held more than 3% of the total share capital
of UBS Group AG: Artisan Partners Limited Partnership,
Milwaukee, disclosed a holding of 3.02% of the total share
capital of UBS Group AG on 20 September 2019; Norges Bank,
Oslo, disclosed a holding of 3.01% on 24 July 2019; Dodge &
Cox, San Francisco, disclosed a holding of 3.03% on
30 November 2018; BlackRock Inc., New York, disclosed a
holding of 4.99% on 28 August 2018; and MFS Investment
Management, Boston, disclosed a holding of 3.05% on
492
Note 25 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 BoD
Awarded to members of the GEB
Awarded to other UBS Group employees
TToottaall
FFoorr tthhee yyeeaarr eennddeedd 3311..1122..1199
For the year ended 31.12.18
NNuummbbeerr ooff sshhaarreess
556600,,888899
VVaalluuee ooff sshhaarreess iinn
UUSSDD mmiilllliioonn
77
VVaalluuee ooff sshhaarreess iinn
CCHHFF mmiilllliioonn
77
Number of shares
354,265
Value of shares in
USD million
6
Value of shares in
CHF million
6
44,,887788,,990088
7722,,776633,,000011
7788,,220022,,779988
5588
881122
887788
5566
778877
885500
2,996,831
55,332,567
58,683,663
52
926
984
51
908
965
Refer to the “Corporate governance and compensation” section of this report for more information about 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, former Vice Chairman2
David Sidwell, Vice Chairman and Senior Independent Director
Jeremy Anderson, member
William C. Dudley, member2
Reto Francioni, member
Ann F. Godbehere, former member2
Fred Hu, member
Julie G. Richardson, member
Isabelle Romy, member
Robert W. Scully, member
Beatrice Weder di Mauro, member
Dieter Wemmer, member
Jeanette Wong, member2
TToottaall
oonn 3311 DDeecceemmbbeerr
22001199
NNuummbbeerr ooff sshhaarreess hheelldd
993388,,662277
Voting rights in %
0.053
22001188
22001199
22001188
22001199
22001188
22001199
22001188
22001199
22001188
22001199
22001188
22001199
22001188
22001199
22001188
22001199
22001188
22001199
22001188
22001199
22001188
22001199
22001188
22001199
22001188
22001199
22001188
22001199
776644,,332299
–
–
332222,,555588
116677,,559955
118899,,880055
3311,,445566
00
00
–
–
112255,,662288
9988,,883322
–
–
225599,,222255
1155,,114455
00
4466,,228833
1177,,115577
114433,,992288
111144,,880022
7711,,554400
4477,,007744
117722,,339977
114455,,660011
6600,,228855
3311,,115599
00
–
–
11,,777722,,888844
0.042
–
0.018
0.009
0.010
0.002
0.000
0.000
–
0.007
0.005
–
0.014
0.001
0.000
0.003
0.001
0.008
0.006
0.004
0.003
0.010
0.008
0.003
0.002
0.000
–
0.100
0.109
11 Includes blocked and unblocked shares held by BoD members, including those held by related parties. No options were granted in 2019 and 2018. 22 At the 2019 AGM, William C. Dudley and Jeanette Wong
were newly elected and Michel Demaré and Ann F. Godbehere did not stand for re-election.
11,,999900,,554422
22001188
493
Financial statements
UBS Group AG standalone financial statements
Note 25 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
Sergio P. Ermotti, Group Chief Executive Officer
Martin Blessing, former Co-President Global Wealth Management
Christian Bluhm, Group Chief Risk Officer
Markus U. Diethelm, Group General Counsel
Kirt Gardner, Group Chief Financial Officer
Suni Harford, President Asset Management
Robert Karofsky, Co-President Investment Bank
Sabine Keller-Busse, Group Chief Operating Officer and President UBS EMEA
Iqbal Khan, Co-President Global Wealth Management
Edmund Koh, President Asia Pacific
Ulrich Körner, former President Asset Management and President UBS EMEA
Axel P. Lehmann, President Personal & Corporate Banking and President UBS Switzerland
Tom Naratil, Co-President Global Wealth Management and President UBS Americas
Piero Novelli, Co-President Investment Bank
Markus Ronner, Group Chief Compliance and Governance Officer
Total
Total
Number of
on
on
unvested
31 December shares / at risk2
31 December
2019
1,862,480
2019
Number of
vested shares
2,150,003
Total number of
Total number of
shares
shares
4,012,483
4,012,483
Potentially
conferred
voting
rights in %
0.227
2018
2018
2019
2019
2018
2018
2019
2019
2018
2018
2019
2019
2018
2018
2019
2019
2018
2018
2019
2019
2018
2018
2019
2019
2018
2018
2019
2019
2018
2018
2019
2019
2018
2018
2019
2019
2018
2018
2019
2019
2018
2018
2019
2019
2018
2018
2019
2019
2018
2018
2019
2019
2018
2018
2019
2019
2018
2018
2019
2019
1,715,430
–
1,757,766
–
256,356
440,953
259,745
698,402
614,222
532,643
343,120
63,211
–
577,606
500,902
423,778
259,762
712,342
–
380,340
–
–
910,951
522,202
307,090
1,307,554
1,132,938
599,156
471,049
214,850
161,152
0
0
0
458,426
317,516
129,807
107,472
0
–
492,476
254,119
315,922
263,362
0
–
183,104
–
–
95,597
277,978
277,978
609,477
484,075
429,652
256,367
68,097
173
3,473,196
3,473,196
–
–
256,356
256,356
440,953
440,953
259,745
259,745
1,156,828
1,156,828
931,738
931,738
662,450
662,450
450,592
450,592
63,211
63,211
–
–
1,070,082
1,070,082
755,021
755,021
739,700
739,700
523,124
523,124
712,342
712,342
–
–
563,444
563,444
–
–
–
–
1,006,548
1,006,548
800,180
800,180
585,068
585,068
1,917,031
1,917,031
1,617,013
1,617,013
1,028,808
1,028,808
727,416
727,416
282,947
282,947
161,325
161,325
8,335,517
5,114,942
13,450,459
13,450,459
0.191
–
0.014
0.025
0.014
0.065
0.051
0.037
0.025
0.004
–
0.061
0.042
0.042
0.029
0.040
–
0.032
–
–
0.055
0.045
0.032
0.108
0.089
0.058
0.040
0.016
0.009
0.761
0.591
1 Includes all vested and unvested shares of GEB members, including those held by related parties. No options were held in 2019 and 2018 by any GEB member or any of its related parties. Refer to “Note 30
1
Employee benefits: variable compensation” in the “Consolidated financial statements” section of the Annual Report 2019 for more information. 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 “Compensation philosophy and framework” section of this report for more
information about the plans.
3,814,425
10,747,142
10,747,142
6,932,717
2018
2018
2
494
Note 26 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 (BoD and GEB), external auditors,
and direct and indirect investments in subsidiaries. Payables due
to members of the GEB and the external auditors are provided in
the table below. Amounts due from and due to subsidiaries are
provided on the face of the balance sheet.
Payables due to the members of the GEB
of which: Deferred Contingent Capital Plan
of which: other deferred compensation plans
Payables due to external auditors
USD million
CHF million
3311..1122..1199
31.12.18
3311..1122..1199
31.12.18
117788
7766
110011
00
156
78
78
0
117722
7744
9988
00
154
77
77
0
495
Financial statements
Ernst & Young Ltd
Aeschengraben 9
P.O. Box
CH-4002 Basel
Phone:
Fax:
www.ey.com/ch
+41 58 286 86 86
+41 58 286 86 00
To the General Meeting of
UBS Group AG, Zurich
Basel, 27 February 2020
Report of the statutory auditor on the financial statements
As statutory auditor, we have audited the financial statements of UBS Group AG, which comprise the
balance sheet, income statement and notes, for the year ended 31 December 2019.
Board of Directors’ responsibility
The Board of Directors is responsible for the preparation of the financial statements in accordance with
the requirements of Swiss law and the company’s articles of incorporation. This responsibility includes
designing, implementing and maintaining an internal control system relevant to the preparation of financial
statements that are free from material misstatement, whether due to fraud or error. The Board of Directors
is further responsible for selecting and applying appropriate accounting policies and making accounting
estimates that are reasonable in the circumstances.
Auditor’s responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted
our audit in accordance with Swiss law and Swiss Auditing Standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance whether the financial statements are free from
material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.
In making those risk assessments, the auditor considers the internal control system relevant to the entity’s
preparation of the financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal
control system. An audit also includes evaluating the appropriateness of the accounting policies used and
the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the
financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements for the year ended 31 December 2019 comply with Swiss law and
the company’s articles of incorporation.
Report on key audit matters based on the circular 1/2015 of the Federal Audit Oversight Authority
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the financial statements of the current period. We have determined that there are no key audit
matters to communicate in our report.
496
2
Report on other legal requirements
We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA)
and independence (article 728 CO and article 11 AOA) and that there are no circumstances incompatible
with our independence.
In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that
an internal control system exists, which has been designed for the preparation of financial statements
according to the instructions of the Board of Directors.
We further confirm that the proposed appropriation of available earnings complies with Swiss law and the
company’s articles of incorporation. We recommend that the financial statements submitted to you be
approved.
Ernst & Young Ltd
-
Marie Laure Delarue
Licensed audit expert
(Auditor in charge)
Bruno Patusi
Licensed audit expert
497
Financial statements
498
Significant
regulated
subsidiary and
sub-group
information
Significant regulated subsidiary and sub-group information
Financial and regulatory key figures
for our significant regulated subsidiaries
and sub-groups
UBS AG
(standalone)
USD million,
UBS Switzerland AG
(standalone)
CHF million,
UBS Europe SE
(consolidated)
EUR million,
UBS Americas Holding LLC
(consolidated)
USD million,
As of or for the year ended
Financial information3,4,5
Income statement
Total operating income
Total operating expenses
Operating profit / (loss) before tax
Net profit / (loss)
Balance sheet
Total assets
Total liabilities
Total equity
Capital6,7
Common equity tier 1 capital
Additional tier 1 capital
Tier 1 capital
Total going concern capital8
Tier 2 capital
Total gone concern loss-absorbing capacity8,9
Total capital
Total loss-absorbing capacity8,9
except where indicated except where indicated except where indicated except where indicated
31.12.182
31.12.191
31.12.191
31.12.19
31.12.19
31.12.19
31.12.19
31.12.18
31.12.18
31.12.19
31.12.19
11,975
11,975
8,086
8,086
3,889
3,889
3,848
3,848
12,040
9,539
2,501
3,333
7,688
7,688
6,351
6,351
1,337
1,337
1,039
1,039
8,257
6,439
1,818
1,401
997
997
810
810
186
186
188
188
478,946
478,946
427,242
427,242
51,705
51,705
480,238
429,130
51,107
285,014
285,014
272,341
272,341
12,673
12,673
293,034
279,200
13,834
46,247
46,247
41,756
41,756
4,490
4,490
49,521
49,521
11,958
11,958
61,479
61,479
66,632
66,632
49,411
7,805
57,217
63,225
10,895
10,895
4,711
4,711
15,606
15,606
15,606
15,606
10,225
4,243
14,468
14,468
10,915
10,915
10,932
26,521
26,521
25,400
3,486
3,486
290
290
3,776
3,776
3,776
3,776
1,84010
1,84010
3,776
3,776
5,616
5,616
12,169
12,169
10,830
10,830
1,339
1,339
730
730
12,953
11,162
1,791
3,969
139,293
139,293
111,016
111,016
28,277
28,277
142,761
115,340
27,421
11,939
11,939
3,048
3,048
14,987
14,987
11,746
2,141
13,887
714
714
714
15,702
15,702
14,601
Risk-weighted assets and leverage ratio denominator6,7
Risk-weighted assets
Leverage ratio denominator
287,999
287,999
589,127
589,127
292,888
601,013
99,667
99,667
302,304
302,304
95,646
306,487
15,146
15,146
41,924
41,924
54,058
54,058
127,290
127,290
54,063
122,829
Capital and leverage ratios (%)6,7
Common equity tier 1 capital ratio
Tier 1 capital ratio
Going concern capital ratio8
Total capital ratio
Total loss-absorbing capacity ratio8
Leverage ratio11
Total loss-absorbing capacity leverage ratio8
Liquidity7,8,12
High-quality liquid assets (billion)
Net cash outflows (billion)
Liquidity coverage ratio (%)14,15
17.2
17.2
16.9
10.9
10.9
10.7
23.1
23.1
21.6
15.7
15.7
15.1
11.3
11.3
10.5
26.6
26.6
26.6
8.8
8.8
8.3
74
74
54
54
137
137
76
55
139
67
67
52
52
130
130
67
53
128
23.0
23.0
24.9
24.9
24.9
24.9
37.1
37.1
9.0
9.0
13.4
13.4
14
14
1013
1013
14713
14713
22.1
22.1
27.7
27.7
29.0
29.0
11.8
11.8
21.7
25.7
27.0
11.3
17
17
Other
Joint and several liability between UBS AG and UBS Switzerland AG (billion)16
1 As a result of the cross-border merger of UBS Limited into UBS Europe SE effective 1 March 2019, UBS Europe SE became a significant regulated subsidiary of UBS Group AG. The size, scope and business model of
1
2 Figures as of or for the year
the merged entity is now materially different. Comparatives for 31 December 2018 have not been provided in the table because data produced on the same basis is not available.
2
ended 31 December 2018 have been adjusted for consistency with the full-year audited financial statements and/or local regulatory reporting, which were finalized after the publication of the UBS Group AG Annual
3 UBS AG and UBS Switzerland AG financial information is prepared in accordance with Swiss GAAP (FINMA Circular 2015/1 and
Report 2018 and the 31 December 2018 Pillar 3 report on 15 March 2019.
3
4 UBS Europe SE financial information is prepared in accordance with International Financial Reporting Standards (IFRS), but
Banking Ordinance), but does not represent financial statements under Swiss GAAP.
4
5 UBS Americas Holding LLC financial information is prepared in accordance with accounting principles generally accepted in the US (US GAAP), but does not
does not represent financial statements under IFRS.
5
6 For UBS AG and UBS Switzerland AG, based on applicable transitional arrangements for Swiss systemically relevant banks (SRBs). For UBS Europe SE, based on
represent financial statements under US GAAP.
6
applicable EU Basel III rules. For UBS Americas Holding LLC, based on applicable US Basel III rules. 7 Refer to the 31 December 2019 Pillar 3 report available under “Pillar 3 disclosures” at www.ubs.com/investors
for more information. 8 There was no local disclosure requirement for UBS Americas Holding LLC as of 31 December 2019 and 31 December 2018. 9 Total loss-absorbing capacity of UBS Americas Holding LLC is
10 Consists of positions which meet the conditions laid down in Art. 72a–b of the Capital Requirements Regulation (CRR) II with regard to contractual,
disclosed on a semi-annual basis in our Pillar 3 report.
10
structural or legal subordination.
12 For UBS Europe SE, figures as of
12
13 Revised
31 December 2019 are based on a ten-month average, rather than a twelve-month average, as data produced on the same basis is only available for the period since the cross-border merger.
13
14 UBS AG is required to maintain a minimum liquidity coverage ratio of 105% as communicated by FINMA.
calculation excludes inflows from overdrafts which we cannot demand repayment of within 30 days.
14
16 Refer to the “Capital management” section of this report for more information about the joint and
15 UBS Switzerland AG, as a Swiss SRB, is required to maintain a minimum liquidity coverage ratio of 100%.
15
16
several liability. Under certain circumstances, the Swiss Banking Act and FINMA’s Banking Insolvency Ordinance authorize FINMA to modify, extinguish or convert to common equity liabilities of a bank in connection
with a resolution or insolvency of such bank.
11 For UBS AG, on the basis of going concern capital. On the basis of tier 1 capital for UBS Europe SE and UBS Americas Holding LLC.
11
26
8
7
9
500
UBS Group AG is a holding company and conducts substantially
all of its operations through UBS AG and its subsidiaries. UBS
Group AG and UBS AG contribute a significant portion of their
respective capital and provide substantial liquidity to their
subsidiaries. Many of these subsidiaries are subject to regulations
requiring compliance with minimum capital, liquidity and similar
requirements. The table
in this section summarizes the
regulatory capital components and capital ratios of our
significant regulated subsidiaries and sub-groups determined
under the regulatory framework of each subsidiary’s or sub-
group’s home jurisdiction.
Refer to “Capital and capital ratios of our significant regulated
subsidiaries” in the “Capital management” section of this report
for more information
Refer to “Note 26 Restricted and transferred financial assets” in
the “Consolidated financial statements” section of this report
for more information.
Supervisory authorities generally have discretion to impose
higher requirements or to otherwise limit the activities of
subsidiaries. Supervisory authorities also may require entities to
measure capital and leverage ratios on a stressed basis and may
limit the ability of an entity to engage in new activities or take
capital actions based on the results of those tests.
In June 2019, the Federal Reserve Board released the results
of its Comprehensive Capital Analysis and Review (CCAR) and
did not object to the capital plan of UBS Americas Holding LLC,
our US intermediate holding company.
Standalone regulatory information for UBS AG and UBS
Switzerland AG, as well as consolidated regulatory information for
UBS Europe SE and UBS Americas Holding LLC is provided in the
31 December 2019 Pillar 3 report, available under “Pillar 3
disclosures” at www.ubs.com/investors.
Standalone financial statements for UBS Group AG as well as
standalone financial statements and regulatory information for
UBS AG and UBS Switzerland AG are available under “Holding
company and significant regulatory subsidiaries and sub-groups” at
www.ubs.com/investors.
501
Significant regulated subsidiary andsub-group information
Appendix
Alternative performance measures
Alternative performance measures
An alternative performance measure (APM) is a financial measure of historical or future financial performance, financial position
or cash flows other than a financial measure defined or specified in the applicable recognized accounting standards or in other
applicable regulations. We report a number of APMs, including adjusted results, in the discussion of the financial and operating
performance of the Group, our business divisions and our Corporate Center. We use APMs to provide a fuller picture of our
operating performance and to reflect management’s view of the fundamental drivers of our business results. A definition of each
APM, the method used to calculate it and the information content are presented in the table below. Our APMs may qualify as
non-GAAP measures as defined by SEC regulations.
AAPPMM llaabbeell
DDeeffiinniittiioonn
IInnffoorrmmaattiioonn ccoonntteenntt
Adjusted results
(adjusted operating profit / (loss) before tax,
adjusted operating income, adjusted
operating expenses)
Invested assets
Calculated by adjusting operating profit / (loss),
operating income and operating expenses as reported
in accordance with International Financial Reporting
Standards (IFRS) for restructuring and litigation
expenses, as well as other material profit or loss items
that management believes are not representative of
the underlying business performance.
Calculated as the sum of managed fund assets,
managed institutional assets, discretionary and
advisory wealth management portfolios, fiduciary
deposits, time deposits, savings accounts, and wealth
management securities or brokerage accounts.
These measures provide information about the
financial and operating performance, excluding items
that management believes are not representative of
the underlying performance of our businesses.
This measure provides information about the volume
of client assets managed by or deposited with UBS for
investment purposes.
Recurring income
– GWM
Calculated as total of net interest income and
recurring net fee income.
This measure provides information about the amount
of the recurring net interest and fee income.
Recurring net fee income
– GWM, P&C
Transaction-based income
– GWM, P&C
Calculated as total of 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 client
assets.
Calculated as total of the non-recurring portion of net
fee and commission income, mainly composed of
brokerage and transaction-based investment fund
fees, as well as credit card fees and fees for payment
transactions, together with other net income from
financial instruments measured at fair value through
profit or loss.
This measure provides information about the amount
of recurring net fee income.
This measure provides information about the amount
of the non-recurring portion of net fee and
commission income.
502
AAPPMM llaabbeell
CCaallccuullaattiioonn
IInnffoorrmmaattiioonn ccoonntteenntt
Adjusted cost / income ratio (%)
Calculated as adjusted operating expenses divided by
adjusted operating income before credit loss expense
or recovery.
This measure provides information about the
efficiency of the business by comparing operating
expenses with gross income, while excluding items
that management believes are not representative of
the underlying performance of the businesses.
Cost / income ratio (%)
Calculated as operating expenses divided by
operating income before credit loss expense or
recovery.
This measure provides information about the
efficiency of the business by comparing operating
expenses with gross income.
Gross margin on invested assets (bps)
– GWM, AM
Calculated as operating income before credit loss
expense or recovery (annualized as applicable) divided
by average invested assets.
This measure provides information about the
operating income before credit loss expense or
recovery of the business in relation to invested assets.
Net interest margin (bps)
– P&C
Calculated as net interest income (annualized as
applicable) divided by average loans.
Net margin on invested assets (bps)
– GWM, AM
Calculated as operating profit before tax (annualized
as applicable) divided by average invested assets.
Net new business volume growth (%)
– P&C
Net profit growth (%)
Calculated as total net inflows and outflows of client
assets and loans during the period (annualized as
applicable) divided by total business volume / client
assets at the beginning of the period.
Calculated as change in net profit attributable to
shareholders from continuing operations between
current and comparison periods divided by net profit
attributable to shareholders from continuing
operations of comparison period.
This measure provides information about the
profitability of the business by calculating the
difference between the price charged for lending and
the cost of funding, relative to loan value.
This measure provides information about the
operating profit before tax of the business in relation
to invested assets.
This measure provides information about the growth
of the business volume as a result of net new business
volume flows during a specific period.
This measure provides information about profit
growth in comparison with the prior period.
Recurring income as a % of income
– GWM
Calculated as net interest income and recurring net
fee income divided by operating income before credit
loss expense or recovery.
This measure provides information about the
proportion of recurring income in operating income.
Return on common equity
tier 1 capital (%)
Calculated as net profit attributable to shareholders
divided by average common equity tier 1 capital.
This measure provides information about the
profitability of the business in relation to common
equity tier 1 capital.
Return on equity (%)
Calculated as net profit attributable to shareholders
divided by average equity attributable to
shareholders.
This measure provides information about the
profitability of the business in relation to equity.
Return on leverage ratio denominator,
gross (%)
Calculated as operating income before credit loss
expense or recovery divided by average leverage ratio
denominator.
This measure provides information about the revenues
of the business in relation to leverage ratio
denominator.
Return on risk-weighted
assets, gross (%)
Return on tangible equity (%)
Calculated as operating income before credit loss
expense or recovery divided by average risk-weighted
assets.
This measure provides information about the revenues
of the business in relation to risk-weighted assets.
Calculated as net profit attributable to shareholders
divided by average equity attributable to shareholders
less average goodwill and intangible assets.1
This measure provides information about the
profitability of the business in relation to tangible
equity.
Total book value per share
(USD and CHF2)
Calculated as equity attributable to shareholders
divided by the number of shares outstanding.
This measure provides information about net assets
on a per-share basis.
Total tangible book value per share
(USD and CHF2)
Calculated as equity attributable to shareholders less
goodwill and intangible assets divided by the number
of shares outstanding.
This measure provides information about tangible net
assets on a per-share basis.
1 Effective 1 January 2019, the definition of the numerator for return on tangible equity has been revised to align it with the numerators for return on equity and return on common equity tier 1 capital; i.e., we no
1
longer adjust for amortization and impairment of goodwill and intangible assets. Prior periods have been restated.
2 Total book value per share and total tangible book value per share in Swiss francs are calculated based on a translation of equity under our US dollar presentation currency.
2
503
Appendix
Abbreviations frequently used in our financial reports
E
EAD
EB
EBA
EC
ECB
ECL
EIR
EL
EMEA
EOP
EPE
EPS
ESG
ETD
ETF
EU
EUR
EURIBOR
EVE
EY
F
FA
FCA
FCT
FINMA
FMIA
exposure at default
Executive Board
European Banking Authority
European Commission
European Central Bank
expected credit loss
effective interest rate
expected loss
Europe, Middle East and
Africa
Equity Ownership Plan
expected positive exposure
earnings per share
environmental, social and
governance
exchange-traded derivatives
exchange-traded fund
European Union
euro
Euro Interbank Offered Rate
economic value of equity
Ernst & Young (Ltd)
financial advisor
UK Financial Conduct
Authority
foreign currency translation
Swiss Financial Market
Supervisory Authority
Swiss Financial Market
Infrastructure Act
asset-backed securities
automatic exchange of
information
Annual General Meeting of
shareholders
advanced internal
ratings-based
alternative investment
vehicle
Asset and Liability
Committee
advanced measurement
approach
anti-money laundering
Articles of Association
Asia Pacific
alternative performance
measure
alternative reference rate
auction rate securities
available stable funding
additional tier 1
assets under management
Basel Committee on
Banking Supervision
base erosion and anti-abuse
tax
Bank for International
Settlements
Board of Directors
Swiss occupational
pension plan
Capital Adequacy
Ordinance
Comprehensive Capital
Analysis and Review
credit conversion factor
CCP
CCR
CCRC
CCyB
CDO
CDS
CEA
CEM
CEO
CET1
CFO
CFTC
CHF
CIC
CIO
CLS
CMBS
C&ORC
CRD IV
CRM
CST
CVA
D
DBO
DCCP
DJSI
DM
DOJ
D-SIB
DTA
DVA
central counterparty
counterparty credit risk
Corporate Culture and
Responsibility Committee
countercyclical buffer
collateralized debt
obligation
credit default swap
Commodity Exchange Act
current exposure method
Chief Executive Officer
common equity tier 1
Chief Financial Officer
US Commodity Futures
Trading Commission
Swiss franc
Corporate & Institutional
Clients
Chief Investment Office
Continuous Linked
Settlement
commercial mortgage-
backed security
Compliance & Operational
Risk Control
EU Capital Requirements
Directive of 2013
credit risk mitigation (credit
risk) or comprehensive risk
measure (market risk)
combined stress test
credit valuation adjustment
defined benefit obligation
Deferred Contingent
Capital Plan
Dow Jones Sustainability
Indices
discount margin
US Department of Justice
domestic systemically
important bank
deferred tax asset
debit valuation adjustment
A
ABS
AEI
AGM
A-IRB
AIV
ALCO
AMA
AML
AoA
APAC
APM
ARR
ARS
ASF
AT1
AuM
B
BCBS
BEAT
BIS
BoD
BVG
C
CAO
CCAR
CCF
504
Abbreviations frequently used in our financial reports (continued)
FSB
FTA
FVA
FVOCI
FVTPL
FX
G
GAAP
GBP
GDP
GEB
GIA
GIIPS
GMD
GRI
GSE
G-SIB
H
HQLA
HR
I
IAA
IAS
IASB
IBOR
IFRIC
Financial Stability Board
Swiss Federal Tax
Administration
funding valuation
adjustment
fair value through other
comprehensive income
fair value through profit or
loss
foreign exchange
generally accepted
accounting principles
pound sterling
gross domestic product
Group Executive Board
Group Internal Audit
Greece, Italy, Ireland,
Portugal and Spain
Group Managing Director
Global Reporting Initiative
government sponsored
entities
global systemically
important bank
high-quality liquid assets
human resources
internal assessment
approach
International Accounting
Standards
International Accounting
Standards Board
interbank offered rate
International Financial
Reporting Interpretations
Committee
IFRS
IHC
IMA
IMM
IRB
IRC
IRRBB
ISDA
K
KRT
L
LAS
LCR
LGD
LIBOR
LLC
LRD
LTIP
LTV
M
M&A
MiFID II
MRT
N
NAV
NCL
NII
NRV
NSFR
NYSE
O
OCA
OCI
OTC
P
PD
PFE
PIT
P&L
POCI
PRA
PRV
Q
QRRE
R
RBA
RBC
RbM
RMBS
RniV
RoAE
RoCET1
RoTE
RoU
RV
RW
RWA
International Financial
Reporting Standards
intermediate holding
company
internal models approach
internal model method
internal ratings-based
incremental risk charge
interest rate risk in the
banking book
International Swaps and
Derivatives Association
Key Risk Taker
liquidity-adjusted stress
liquidity coverage ratio
loss given default
London Interbank Offered
Rate
limited liability company
leverage ratio denominator
Long-Term Incentive Plan
loan-to-value
mergers and acquisitions
Markets in Financial
Instruments Directive II
Material Risk Taker
net asset value
Non-core and Legacy
Portfolio
net interest income
negative replacement value
net stable funding ratio
New York Stock Exchange
own credit adjustment
other comprehensive
income
over-the-counter
probability of default
potential future exposure
point in time
profit or loss
purchased or originated
credit-impaired
UK Prudential Regulation
Authority
positive replacement value
qualifying revolving retail
exposures
role-based allowances
risk-based capital
risk-based monitoring
residential mortgage-
backed securities
risks not in VaR
return on attributed equity
return on CET1 capital
return on tangible equity
right-of-use
replacement value
risk weight
risk-weighted assets
505
Appendix
Abbreviations frequently used in our financial reports (continued)
S
SA
SA-CCR
SAR
SBC
SDG
SE
SEC
SEEOP
SFT
SI
SICR
SIX
SME
SMF
SNB
SPPI
SRB
SRM
SVaR
standardized approach
standardized approach for
counterparty credit risk
stock appreciation right or
Special Administrative
Region
Swiss Bank Corporation
Sustainable Development
Goal
structured entity
US Securities and Exchange
Commission
Senior Executive Equity
Ownership Plan
securities financing
transaction
sustainable investing
significant increase in credit
risk
SIX Swiss Exchange
small and medium-sized
corporate clients
Senior Management
Function
Swiss National Bank
solely payments of principal
and interest
systemically relevant bank
specific risk measure
stressed value-at-risk
T
TBTF
TCJA
TLAC
TTC
U
UoM
USD
V
VaR
VAT
too big to fail
US Tax Cuts and Jobs Act
total loss-absorbing capacity
through-the-cycle
units of measure
US dollar
value-at-risk
value added tax
This is a general list of the abbreviations frequently used in our financial reporting. Not all of the listed abbreviations may appear in
this particular report.
506
Information sources
Reporting publications
Other information
including
framework,
information
in English,
this single-volume
Annual publications: Annual Report
(SAP no. 80531):
Published
report provides
descriptions of: our Group strategy and performance; the
strategy and performance of the business divisions and
Corporate Center; risk, treasury and capital management;
responsibility and our
corporate governance, corporate
compensation
about
compensation for the Board of Directors and the Group
Executive Board members; and financial information, including
the financial statements. Geschäftsbericht (SAP no. 80531): This
publication provides the translation into German of our Annual
Report. Annual Review (SAP no. 80530): This booklet contains
key information about our strategy and performance, with a
focus on corporate responsibility at UBS. It is published in
English, German, French and Italian. Compensation Report (SAP
no. 82307): This report discusses our compensation framework
and provides information about compensation for the Board of
Directors and the Group Executive Board members. It is available
in English and German.
Quarterly publications: The quarterly financial report provides
an update on our strategy and performance for the respective
quarter. It is available in English.
How to order publications: The annual and quarterly
publications are available in .pdf format at www.ubs.com/
investors, in the “UBS Group AG and UBS AG financial
information” section, and printed copies can be requested from
UBS free of charge. For annual publications, refer to the
“Investor
at www.ubs.com/investors.
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.
services”
section
Website: The “Investor Relations” website at www.ubs.com/
investors provides the following information about UBS: news
releases; financial information, including results-related filings
with the US Securities and Exchange Commission; information
for shareholders, including UBS share price charts as well as data
and dividend information, and for bondholders; the UBS
corporate calendar; and presentations by management for
investors and financial analysts. Information on the internet is
available in English, with some information also available in
German.
Results presentations: Our quarterly results presentations are
webcast live. A playback of most presentations is downloadable
at www.ubs.com/presentations.
Messaging service: Email alerts to news about UBS can be
subscribed for under “UBS news alert” at www.ubs.com/global/
en/investor-relations/contact/investor-services.html. Messages are
sent in English, German, French or Italian, with an option to select
theme preferences for such alerts.
Form 20-F and other submissions to the US Securities and
Exchange Commission: 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 the combined UBS Group AG and UBS
AG annual report. However, there is a small amount of
additional information in Form 20-F that is not presented
elsewhere and is particularly targeted at readers in the US.
Readers are encouraged to refer to this additional disclosure.
Any document that we file with the SEC is available on the SEC’s
website www.sec.gov. Refer to www.ubs.com/investors for
more information.
507
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 the ongoing execution of its strategic plans, including its
cost reduction and efficiency initiatives and its ability to manage its levels of risk-weighted assets (RWA) and leverage ratio denominator (LRD), including to
counteract regulatory-driven increases, liquidity coverage ratio and other financial resources, and the degree to which UBS is successful in implementing
changes to its businesses to meet changing market, regulatory and other conditions; (ii) the continuing low or negative interest rate environment in Switzerland
and other jurisdictions, 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 effects of economic conditions, market developments, geopolitical
tensions, and changes to national trade policies on the financial position or creditworthiness of UBS’s clients and counterparties as well as on client sentiment
and levels of activity; (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 eligible for total loss-absorbing capacity (TLAC); (iv) changes in or the implementation of financial legislation,
including Interest Rate Benchmark Reform, and regulation in Switzerland, the US, the UK, the European Union and other financial centers that have imposed,
or resulted in, or may do so in the future, more stringent or entity-specific capital, TLAC, leverage ratio, net stable funding ratio, liquidity and funding
requirements, heightened operational resilience requirements, incremental tax requirements, additional levies, limitations on permitted activities, constraints on
remuneration, constraints on transfers of capital and liquidity and sharing of operational costs across the Group or other measures, and the effect these will or
would have on UBS’s business activities; (v) the degree to which UBS is successful in implementing further changes to its legal structure to improve its
resolvability and meet related regulatory requirements and the potential need to make further changes to the legal structure or booking model of the UBS
Group in response to legal and regulatory requirements, proposals in Switzerland and other jurisdictions for mandatory structural reform of banks or
systemically important institutions or to other external developments, and the extent to which such changes will have the intended effects; (vi) UBS’s ability to
maintain and improve its systems and controls for the detection and prevention of money laundering and compliance with sanctions to meet evolving
regulatory requirements and expectations, in particular in the US; (vii) the uncertainty arising from the UK’s exit from the EU; (viii) 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; (ix) changes in the standards of conduct applicable to our businesses that may result from new regulations or new
enforcement of existing standards, including recently enacted and proposed measures to impose new and enhanced duties when interacting with customers
and in the execution and handling of customer transactions; (x) the liability to which UBS may be exposed, or possible constraints or sanctions that regulatory
authorities might impose on UBS, due to litigation, contractual claims and regulatory investigations, including the potential for disqualification from certain
businesses, potentially large fines or monetary penalties, or the loss of licenses or privileges as a result of regulatory or other governmental sanctions, as well as
the effect that litigation, regulatory and similar matters have on the operational risk component of our RWA as well as the amount of capital available for
return to shareholders; (xi) 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; (xii) 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; (xiii) 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; (xiv) UBS’s ability to implement
new technologies and business methods, including digital services and technologies, and ability to successfully compete with both existing and new financial
service providers, some of which may not be regulated to the same extent; (xv) limitations on the effectiveness of UBS’s internal processes for risk
management, risk control, measurement and modeling, and of financial models generally; (xvi) the occurrence of operational failures, such as fraud,
misconduct, unauthorized trading, financial crime, cyberattacks or other cybersecurity disruptions, and systems failures; (xvii) restrictions on the ability of UBS
Group AG to make payments or distributions, including due to restrictions on the ability of its subsidiaries to make loans or distributions, directly or indirectly,
or, in the case of financial difficulties, due to the exercise by FINMA or the regulators of UBS’s operations in other countries of their broad statutory powers in
relation to protective measures, restructuring and liquidation proceedings; (xviii) the degree to which changes in regulation, capital or legal structure, financial
results or other factors may affect UBS’s ability to maintain its stated capital return objective; and (xix) 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 2019. UBS is not under any obligation to (and expressly disclaims any obligation to) update or alter its forward-looking
statements, whether as a result of new information, future events, or otherwise.
Rounding | Numbers presented throughout this report may not add up precisely to the totals provided in the tables and text. Percentages, percent changes,
and adjusted results are calculated on the basis of unrounded figures. Information about absolute changes between reporting periods, which is provided in text
and which can be derived from figures displayed in the tables, is calculated on a rounded basis.
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. Percentage changes are presented
as a mathematical calculation of the change between periods.
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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 the ongoing execution of its strategic plans, including its
cost reduction and efficiency initiatives and its ability to manage its levels of risk-weighted assets (RWA) and leverage ratio denominator (LRD), including to
counteract regulatory-driven increases, liquidity coverage ratio and other financial resources, and the degree to which UBS is successful in implementing
changes to its businesses to meet changing market, regulatory and other conditions; (ii) the continuing low or negative interest rate environment in Switzerland
and other jurisdictions, 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 effects of economic conditions, market developments, geopolitical
tensions, and changes to national trade policies on the financial position or creditworthiness of UBS’s clients and counterparties as well as on client sentiment
and levels of activity; (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 eligible for total loss-absorbing capacity (TLAC); (iv) changes in or the implementation of financial legislation,
including Interest Rate Benchmark Reform, and regulation in Switzerland, the US, the UK, the European Union and other financial centers that have imposed,
or resulted in, or may do so in the future, more stringent or entity-specific capital, TLAC, leverage ratio, net stable funding ratio, liquidity and funding
requirements, heightened operational resilience requirements, incremental tax requirements, additional levies, limitations on permitted activities, constraints on
remuneration, constraints on transfers of capital and liquidity and sharing of operational costs across the Group or other measures, and the effect these will or
would have on UBS’s business activities; (v) the degree to which UBS is successful in implementing further changes to its legal structure to improve its
resolvability and meet related regulatory requirements and the potential need to make further changes to the legal structure or booking model of the UBS
Group in response to legal and regulatory requirements, proposals in Switzerland and other jurisdictions for mandatory structural reform of banks or
systemically important institutions or to other external developments, and the extent to which such changes will have the intended effects; (vi) UBS’s ability to
maintain and improve its systems and controls for the detection and prevention of money laundering and compliance with sanctions to meet evolving
regulatory requirements and expectations, in particular in the US; (vii) the uncertainty arising from the UK’s exit from the EU; (viii) 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; (ix) changes in the standards of conduct applicable to our businesses that may result from new regulations or new
enforcement of existing standards, including recently enacted and proposed measures to impose new and enhanced duties when interacting with customers
and in the execution and handling of customer transactions; (x) the liability to which UBS may be exposed, or possible constraints or sanctions that regulatory
authorities might impose on UBS, due to litigation, contractual claims and regulatory investigations, including the potential for disqualification from certain
businesses, potentially large fines or monetary penalties, or the loss of licenses or privileges as a result of regulatory or other governmental sanctions, as well as
the effect that litigation, regulatory and similar matters have on the operational risk component of our RWA as well as the amount of capital available for
return to shareholders; (xi) 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; (xii) 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; (xiii) 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; (xiv) UBS’s ability to implement
new technologies and business methods, including digital services and technologies, and ability to successfully compete with both existing and new financial
service providers, some of which may not be regulated to the same extent; (xv) limitations on the effectiveness of UBS’s internal processes for risk
management, risk control, measurement and modeling, and of financial models generally; (xvi) the occurrence of operational failures, such as fraud,
misconduct, unauthorized trading, financial crime, cyberattacks or other cybersecurity disruptions, and systems failures; (xvii) restrictions on the ability of UBS
Group AG to make payments or distributions, including due to restrictions on the ability of its subsidiaries to make loans or distributions, directly or indirectly,
or, in the case of financial difficulties, due to the exercise by FINMA or the regulators of UBS’s operations in other countries of their broad statutory powers in
relation to protective measures, restructuring and liquidation proceedings; (xviii) the degree to which changes in regulation, capital or legal structure, financial
results or other factors may affect UBS’s ability to maintain its stated capital return objective; and (xix) 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 2019. UBS is not under any obligation to (and expressly disclaims any obligation to) update or alter its forward-looking
statements, whether as a result of new information, future events, or otherwise.
Rounding | Numbers presented throughout this report may not add up precisely to the totals provided in the tables and text. Percentages, percent changes,
and adjusted results are calculated on the basis of unrounded figures. Information about absolute changes between reporting periods, which is provided in text
and which can be derived from figures displayed in the tables, is calculated on a rounded basis.
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. Percentage changes are presented
as a mathematical calculation of the change between periods.
508
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