6kubsgorupag1q19

 



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________

 

FORM 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER

 

PURSUANT TO RULE 13a-16 OR 15d-16 UNDER

THE SECURITIES EXCHANGE ACT OF 1934

 

Date: April 25, 2019

 

UBS Group AG

Commission File Number: 1-36764

 

UBS AG

Commission File Number: 1-15060

 

 

(Registrants' Name)

 

Bahnhofstrasse 45, Zurich, Switzerland

Aeschenvorstadt 1, Basel, Switzerland

(Address of principal executive offices)

 

Indicate by check mark whether the registrants file or will file annual reports under cover of Form 20‑F or Form 40-F.

 

Form 20-F                         Form 40-F 

 


 

This Form 6-K consists of the First Quarter 2019 Report of UBS Group AG, which appears immediately following this page.

 

  

 


 

  

Our financial results

 

First quarter 2019  report 

 

 


 

  

 


 

Corporate calendar UBS Group AG

 

1.

UBS
Group

4

Recent developments

7

Group performance

   

2.

UBS business divisions and
Corporate Center

20

Global Wealth Management

23

Personal & Corporate Banking

27

Asset Management

30

Investment Bank

33

Corporate Center

   

3.

Risk, treasury and capital
management

37

Risk management and control

42

Balance sheet, liquidity and funding management

46

Capital management

   

4.

Consolidated
financial statements

61

UBS Group AG interim consolidated financial statements (unaudited)

103

UBS AG interim consolidated financial information (unaudited)

   

5.

Significant regulated subsidiary and sub-group information

106

Financial and regulatory key figures for our significant regulated subsidiaries and sub-groups

 

 

 

Appendix

 

 

108

Abbreviations frequently used in
our financial reports

111

Information sources

112

Cautionary statement

 

 

   
Annual General Meeting 2019:                                           Thursday, 2 May 2019
Publication of the second quarter 2019 report:                     Tuesday, 23 July 2019
Publication of the third quarter 2019 report:                         Tuesday, 22 October 2019
Publication of the fourth quarter 2019 report:                      Tuesday, 21 January 2020

Corporate calendar UBS AG*

Publication of the first quarter 2019 report:                          Tuesday, 30 April 2019

*Publication dates of further quarterly and annual reports and results will be made available as part of the corporate calendar of UBS AG at www.ubs.com/investors

 

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,
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
offices in Zurich, London, New York
and Hong Kong.

www.ubs.com/media

Zurich +41-44-234 8500
mediarelations@ubs.com

London +44-20-7567 4714
ubs-media-relations@ubs.com

New York +1-212-882 5857
mediarelations-ny@ubs.com

Hong Kong +852-2971 8200
sh-mediarelations-ap@ubs.com


Office of the Group Company Secretary

The Group Company Secretary receives
inquiries on compensation and related
issues addressed to members of the
Board of Directors.

UBS Group AG, Office of the Group Company Secretary
P.O. Box, CH-8098 Zurich, Switzerland

sh-company-secretary@ubs.com

+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:
https://www-us.computershare.com/ investor/Contact

Shareholder website:
www.computershare.com/investor

Calls from the US
+1-866-305-9566
Calls from outside the US
+1-781-575-2623
TDD for hearing impaired
+1-800-231-5469
TDD for foreign shareholders
+1-201-680-6610

Imprint

Publisher: UBS Group AG, Zurich, Switzerland | www.ubs.com
Language: English

© UBS 2019. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved.

 

 

  

 


First quarter 2019 report

Our key figures

 

 

As of or for the quarter ended

USD million, except where indicated

 

31.3.19

31.12.18

31.3.18

Group results

 

 

 

 

Operating income

 

 7,218 

 6,972 

 8,168 

Operating expenses

 

 5,672 

 6,492 

 6,069 

Operating profit / (loss) before tax

 

 1,546 

 481 

 2,100 

Net profit / (loss) attributable to shareholders

 

 1,141 

 315 

 1,566 

Diluted earnings per share (USD)1

 

 0.30 

 0.08 

 0.41 

Profitability and growth2

 

 

 

 

Return on equity (%)3

 

 8.6 

 2.4 

 11.8 

Return on tangible equity (%)4

 

 9.8 

 2.7 

 13.5 

Return on common equity tier 1 capital (%)5

 

 13.3 

 3.7 

 18.3 

Return on risk-weighted assets, gross (%)6

 

 10.9 

 10.8 

 12.9 

Return on leverage ratio denominator, gross (%)6

 

 3.2 

 3.1 

 3.6 

Cost / income ratio (%)7

 

 78.4 

 92.4 

 74.1 

Adjusted cost / income ratio (%)8

 

 77.9 

 92.2 

 75.3 

Net profit growth (%)9

 

 (27.1) 

 

 25.1 

Resources

 

 

 

 

Total assets

 

 956,579 

 958,489 

 964,260 

Equity attributable to shareholders

 

 53,667 

 52,928 

 53,662 

Common equity tier 1 capital10

 

 34,658 

 34,119 

 34,774 

Risk-weighted assets10

 

 267,556 

 263,747 

 266,169 

Common equity tier 1 capital ratio (%)10

 

 13.0 

 12.9 

 13.1 

Going concern capital ratio (%)10

 

 18.5 

 17.5 

 17.3 

Total loss-absorbing capacity ratio (%)10

 

 32.7 

 31.7 

 31.2 

Leverage ratio denominator10

 

 910,993 

 904,598 

 925,651 

Common equity tier 1 leverage ratio (%)10

 

 3.80 

 3.77 

 3.76 

Going concern leverage ratio (%)10

 

 5.4 

 5.1 

 5.0 

Total loss-absorbing capacity leverage ratio (%)10

 

 9.6 

 9.3 

 9.0 

Liquidity coverage ratio (%)11

 

 153 

 136 

 136 

Other

 

 

 

 

Invested assets (USD billion)12

 

 3,318 

 3,101 

 3,309 

Personnel (full-time equivalents)

 

 67,481 

 66,888 

 62,537 

Market capitalization13,14

 

 45,009 

 45,907 

 66,261 

Total book value per share (USD)13

 

 14.45 

 14.35 

 14.27 

Total book value per share (CHF)13,15

 

 14.39 

 14.11 

 13.60 

Tangible book value per share (USD)13

 

 12.67 

 12.55 

 12.53 

Tangible book value per share (CHF)13,15

 

 12.62 

 12.33 

 11.94 

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” section of our Annual Report 2018 for more information on our performance targets.    3 Calculated as net profit attributable to shareholders (annualized as applicable) / average equity attributable to shareholders.    4 Calculated as net profit attributable to shareholders (annualized as applicable) / average equity attributable to shareholders less average goodwill and intangible assets. The definition of the numerator for return on tangible equity has been revised to align with numerators for return on equity and return on CET1 capital; i.e., we no longer adjust for amortization and impairment of goodwill and intangible assets. Prior periods have been restated.    5 Calculated as net profit attributable to shareholders (annualized as applicable) / average common equity tier 1 capital.    6 Calculated as operating income before credit loss expense or recovery (annualized as applicable) / average risk-weighted assets and average leverage ratio denominator, respectively.    7 Calculated as operating expenses / operating income before credit loss expense or recovery.    8 Calculated as adjusted operating expenses / adjusted operating income before credit loss expense or recovery.    9 Calculated as change in net profit attributable to shareholders from continuing operations between current and comparison periods / net profit attributable to shareholders from continuing operations of comparison period.    10 Based on the Swiss systemically relevant bank framework as of 1 January 2020. Refer to the “Capital management” section of this report for more information.    11 Refer to the “Balance sheet, liquidity and funding management” section of this report for more information.    12 Includes invested assets for Global Wealth Management, Asset Management and Personal & Corporate Banking.    13 Refer to “UBS shares” in the “Capital management” section of this report for more information.    14 Beginning with our Annual Report 2018, the calculation of market capitalization has been amended to reflect total shares outstanding multiplied by the share price at the end of the period. The calculation was previously based on total shares issued multiplied by the share price at the end of the period. Market capitalization has been reduced by USD 2.1 billion as of 31 December 2018 and by USD 1.7 billion as of 31 March 2018 as a result.    15 Total book value per share and tangible book value per share in Swiss francs are calculated based on a translation of equity under our US dollar presentation currency. As a consequence of the restatement to a US dollar presentation currency, amounts may differ from those originally published in our quarterly and annual reports.

 

Performance measures: reasons for use

Return on equity                                               This measure provides information on the profitability of the business in relation to equity.

Return on tangible equity                                 This measure provides information on the profitability of the business in relation to tangible equity.

Return on common equity tier 1 capital                   This measure provides information on the profitability of the business in relation to common equity tier 1 capital.

Return on risk-weighted assets, gross              This measure provides information on the revenues of the business in relation to risk-weighted assets.

Return on leverage ratio denominator, gross           This measure provides information on the revenues of the business in relation to leverage ratio denominator.

Cost / income ratio                                           This measure provides information on the efficiency of the business by comparing operating expenses with gross income.

Adjusted cost / income ratio                             This measure provides information on 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.

Net profit growth                                             This measure provides information on profit growth in comparison with the prior-year period.

  

 

2


 

UBS Group

Management report

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes to our presentation currency

Effective from 1 October 2018, the presentation currency of UBS Group AG’s consolidated financial statements has changed from Swiss francs to US dollars. Comparative information in this report for periods prior to the fourth quarter of 2018 has been restated. Assets, liabilities and total equity were translated to US dollars at closing exchange rates prevailing on the respective balance sheet dates, and income and expenses were translated at the respective average rates prevailing for the relevant periods.

 

 

 

 

Terms used in this report, unless the context requires otherwise

“UBS,” “UBS Group,” “UBS Group AG consolidated,”                                  UBS Group AG and its consolidated subsidiaries
“Group,” “the Group,” “we,” “us” and “our”                                              

“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 and its
“UBS Americas Holding LLC consolidated”                                                       consolidated subsidiaries  

  

 


Recent developments

Recent developments

Regulatory and legal developments

Revised gone concern capital requirements in Switzerland

In April 2019, the Swiss Federal Department of Finance issued a revised Capital Adequacy Ordinance for consultation. Among other items, the proposal introduces gone concern capital requirements for Swiss-based legal entities of global systemically important banks. Under the proposal, UBS AG would be subject to a gone concern capital requirement on its third-party exposure on a standalone basis, as well as to an additional gone concern capital buffer requirement on its consolidated exposure. UBS Switzerland AG would continue to be required to maintain gone concern capital. These gone concern requirements would become effective on 1 January 2020 and the buffer would be phased in in full between 1 January 2021 and 1 January 2024.

The proposal also caps the maximum gone concern rebate relevant for UBS Group AG consolidated and UBS AG at 1.25% of total exposure, compared with a maximum rebate level of 2.0% under the current regime.

Finally, the eligibility of bail-in bonds with a remaining maturity between one and two years would increase, from 50% under the current regime to 100% effective 1 January 2020; however, their share in total gone concern capital would be capped at 20%.

Based on our initial assessment, we would expect that when fully phased in on 1 January 2024, UBS would be required to maintain a gone concern leverage ratio of around 100 basis points higher than otherwise needed to meet the Group requirements.

®   Refer to the “Capital management” section of our Annual Report 2018 for information on the current capital requirements

UK withdrawal from the EU

The previously announced combined UK business transfer and cross-border merger of UBS Limited into UBS Europe SE became legally effective on 1 March 2019. As a result, we are able to continue to serve our clients and access relevant markets in any political Brexit scenario, including a scenario in which the UK leaves the EU without a binding withdrawal agreement (a “no-deal scenario”).


The cross-border merger of UBS Limited into UBS Europe SE resulted in a combined balance sheet of EUR 57 billion. Following the merger, UBS Europe SE is subject to direct supervision by the European Central Bank and is considered a significant regulated subsidiary. Effective from the first quarter of 2019, we include financial and regulatory information of UBS Europe SE in our quarterly and annual Group reporting.

®   Refer to the “Significant regulated subsidiary and sub-group information” section of this report for the financial and regulatory key figures for UBS Europe SE consolidated

®   Refer to the 31 March 2019 Pillar 3 report under “Pillar 3 disclosures” at www.ubs.com/investors  for more information on the regulatory capital components and capital ratios, as well as the leverage ratio of UBS Europe SE consolidated

 

The UK’s Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) have opened registration for the Temporary Permissions Regime (TPR). This regime will allow firms and funds domiciled in the European Economic Area (EEA) that currently are passported into the UK to continue operating within the scope of their existing permissions for a limited period after the UK’s withdrawal. UBS has provided TPR notifications for UBS subsidiaries in the EEA that currently passport into the UK, in order to ensure the continuity of UK regulatory permissions in the event of a no-deal scenario.

In addition, the European Securities and Markets Authority (ESMA) has taken measures to mitigate potential disruptions in a no-deal scenario. It agreed to recognize the three UK-authorized central counterparties (CCPs): LCH Limited, ICE Clear Europe Ltd and LME Clear Limited. This will allow them to continue to provide clearing services in the EU for a limited period in a no-deal scenario and will avoid the need to migrate UBS Europe SE’s current derivatives exposures from a UK CCP to an EU CCP ahead of the exit date. ESMA has also announced a recognition decision for the UK-authorized Central Securities Depository – Euroclear UK & Ireland Limited – for a limited period. This will make possible the continued use of the Euroclear UK & Ireland securities depository to settle Irish securities for as long as they are recognized by ESMA.

These ESMA decisions will be effective from 31 October 2019 unless there is a change in circumstances.

 

4


 

Tailoring of regulation for foreign banks in the US

In April 2019, the US Federal banking agencies released two proposals that would tailor how certain capital and liquidity requirements and enhanced prudential standards (EPS) apply to foreign banking organizations (FBO) with significant US operations. Under the proposal, FBOs with USD 100 billion or more, over USD 250 billion and over USD 700 billion or more in combined US assets and their US intermediate holding companies (IHC) would be assigned to categories based on their size in total assets and scores for four other risk-based indicators: non-bank assets, a weighted measure of short-term wholesale funding, off-balance sheet exposure and cross-jurisdictional activity. The category determined based on calculations at the organizational level of an FBO’s intermediate holding company (IHC), would determine capital requirements and capital-related EPS applicable to the FBO’s IHC and, in some cases, a US depository institution subsidiary. The category, determined based on calculations at the organizational level of an FBO’s combined US operations (CUSO), would determine liquidity requirements, liquidity-related EPS and other EPS applicable to the FBO’s CUSO, IHC or certain US depository institution subsidiaries. The Federal Reserve Board has estimated that we would be a category III firm. In this category, among other things, UBS Americas Holding LLC would continue to be subject to annual assessments of its capital plan through the Comprehensive Capital Analysis and Review (CCAR) process, the supplementary leverage ratio, the newly applicable liquidity coverage ratio requirements and the proposed net stable funding ratio requirements.

We are evaluating the proposal’s implications.

Other developments

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 Depreciation and impairment of property, equipment and software and Interest expense which have been partly offset by a decrease in General and administrative expenses. In the first quarter of 2019, this resulted in a net decrease in operating profit or loss of USD 12 million. For the full year 2019, IFRS 16 is expected to result in a total net decrease in operating profit or loss of approximately USD 60 million, with this effect reversing over the tenor of the leases.


As permitted by IFRS 16, we elected not to restate prior-period information.

®   Refer to “Note 1 Basis of accounting” in the “Consolidated financial statements” section of this report for more information on the adoption of IFRS 16

Presentation of dividend income and expense from financial instruments measured at fair value through profit or loss

Effective from 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 on a quarterly basis.

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 in Other net income from financial instruments measured at fair value through profit or loss

®   Refer to “Note 1 Basis of accounting” 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 were 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 by 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 been fully allocated to the business divisions.

5


Recent developments

Changes in equity attribution

The aforementioned changes in resource allocation from 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% 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 on the equity attributed to the business divisions


Changes in Corporate Center segment reporting

Beginning with this 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 ALM and Non-core and Legacy Portfolio. Furthermore, we operationally combined Group Treasury with Group ALM and call this combined function Group Treasury. Commentary on the performance of this function is included in the Corporate Center management discussion and analysis in our quarterly and annual reporting, with total revenue information for this function presented under Net treasury income as a separate line item. Prior-period information has been restated. In addition, we provide in separate line items information on net operating income and operating expenses after allocations related to Non-core and Legacy Portfolio.

®   Refer to the “Note 1 Basis of accounting” in the “Consolidated financial statements” section of this report for more information

  

6


 

Group performance

Income statement

 

 

 

 

 

 

 

 

 

For the quarter ended

 

% change from

USD million

 

31.3.19

31.12.18

31.3.18

 

4Q18

1Q18

Net interest income

 

 1,123 

 1,226 

 1,435 

 

 (8) 

 (22) 

Other net income from financial instruments measured at fair value through profit or loss

 

 1,935 

 1,297 

 1,973 

 

 49 

 (2) 

Credit loss (expense) / recovery

 

 (20) 

 (53) 

 (26) 

 

 (62) 

 (22) 

Fee and commission income

 

 4,541 

 4,700 

 5,178 

 

 (3) 

 (12) 

Fee and commission expense

 

 (409) 

 (439) 

 (433) 

 

 (7) 

 (6) 

Net fee and commission income

 

 4,132 

 4,261 

 4,744 

 

 (3) 

 (13) 

Other income

 

 49 

 241 

 42 

 

 (80) 

 15 

Total operating income

 

 7,218 

 6,972 

 8,168 

 

 4 

 (12) 

Personnel expenses

 

 4,043 

 3,839 

 4,254 

 

 5 

 (5) 

General and administrative expenses

 

 1,187 

 2,293 

 1,510 

 

 (48) 

 (21) 

Depreciation and impairment of property, equipment and software

 

 427 

 343 

 288 

 

 24 

 48 

Amortization and impairment of intangible assets

 

 16 

 17 

 16 

 

 (8) 

 (5) 

Total operating expenses

 

 5,672 

 6,492 

 6,069 

 

 (13) 

 (7) 

Operating profit / (loss) before tax

 

 1,546 

 481 

 2,100 

 

 222 

 (26) 

Tax expense / (benefit)

 

 407 

 165 

 533 

 

 146 

 (24) 

Net profit / (loss)

 

 1,139 

 315 

 1,567 

 

 261 

 (27) 

Net profit / (loss) attributable to non-controlling interests

 

 (2) 

 1 

 2 

 

 

 

Net profit / (loss) attributable to shareholders

 

 1,141 

 315 

 1,566 

 

 263 

 (27) 

 

 

 

 

 

 

 

 

Comprehensive income

 

 

 

 

 

 

 

Total comprehensive income

 

 1,039 

 1,208 

 1,854 

 

 (14) 

 (44) 

Total comprehensive income attributable to non-controlling interests

 

 2 

 2 

 3 

 

 0 

 (33) 

Total comprehensive income attributable to shareholders

 

 1,037 

 1,207 

 1,850 

 

 (14) 

 (44) 

 

7


Group performance

Performance of our business divisions and Corporate Center – reported and adjusted1,2

 

 

For the quarter ended 31.3.19

USD million

 

Global Wealth Management

Personal &

Corporate

Banking

Asset

Manage-

ment

Investment Bank

Corporate Center3

UBS

Operating income as reported

 

 4,003 

 957 

 446 

 1,765 

 47 

 7,218 

Operating income (adjusted)

 

 4,003 

 957 

 446 

 1,765 

 47 

 7,218 

 

 

 

 

 

 

 

 

Operating expenses as reported

 

 3,140 

 570 

 343 

 1,558 

 62 

 5,672 

of which: personnel-related restructuring expenses4

 

 0 

 0 

 2 

 1 

 14 

 17 

of which: non-personnel-related restructuring expenses4

 

 0 

 0 

 2 

 2 

 10 

 14 

of which: restructuring expenses allocated from Corporate Center4

 

 10 

 4 

 2 

 11 

 (27) 

 0 

Operating expenses (adjusted)

 

 3,130 

 567 

 337 

 1,544 

 63 

 5,641 

of which: net expenses for litigation, regulatory and similar matters5

 

 0 

 0 

 0 

 (1) 

 (8) 

 (8) 

 

 

 

 

 

 

 

 

Operating profit / (loss) before tax as reported

 

 863 

 387 

 103 

 207 

 (15) 

 1,546 

Operating profit / (loss) before tax (adjusted)

 

 873 

 391 

 109 

 221 

 (17) 

 1,577 

 

 

 

 

 

 

 

 

 

 

For the quarter ended 31.12.18

USD million

 

Global Wealth Management

Personal &

Corporate

Banking

Asset

Manage-

ment

Investment Bank

Corporate Center3

UBS

Operating income as reported

 

 4,129 

 1,278 

 468 

 1,521 

 (423) 

 6,972 

of which: gains related to investments in associates6

 

 101 

 359 

 

 

 

 460 

of which: remeasurement loss related to UBS Securities China7

 

 

 

 

 

 (270) 

 (270) 

Operating income (adjusted)

 

 4,028 

 919 

 468 

 1,521 

 (154) 

 6,782 

 

 

 

 

 

 

 

 

Operating expenses as reported

 

 3,802 

 634 

 362 

 1,598 

 95 

 6,492 

of which: personnel-related restructuring expenses4

 

 17 

 1 

 5 

 1 

 70 

 95 

of which: non-personnel-related restructuring expenses4

 

 0 

 0 

 3 

 3 

 87 

 93 

of which: restructuring expenses allocated from Corporate Center4

 

 59 

 17 

 13 

 69 

 (157) 

 0 

Operating expenses (adjusted)

 

 3,726 

 616 

 342 

 1,526 

 95 

 6,304 

of which: net expenses for litigation, regulatory and similar matters5

 

 505 

 41 

 0 

 (6) 

 (8) 

 533 

 

 

 

 

 

 

 

 

Operating profit / (loss) before tax as reported

 

 327 

 644 

 106 

 (78) 

 (518) 

 481 

Operating profit / (loss) before tax (adjusted)

 

 302 

 303 

 126 

 (5) 

 (248) 

 478 

 

8


 

Performance of our business divisions and Corporate Center – reported and adjusted (continued)1,2

 

 

For the quarter ended 31.3.18

USD million

 

Global Wealth Management

Personal &

Corporate

Banking

Asset

Manage-

ment

Investment Bank

Corporate Center3

UBS

Operating income as reported

 

 4,409 

 981 

 466 

 2,415 

 (101) 

 8,168 

Operating income (adjusted)

 

 4,409 

 981 

 466 

 2,415 

 (101) 

 8,168 

 

 

 

 

 

 

 

 

Operating expenses as reported

 

 3,306 

 573 

 360 

 1,838 

 (9) 

 6,069 

of which: personnel-related restructuring expenses4

 

 3 

 1 

 1 

 12 

 50 

 68 

of which: non-personnel-related restructuring expenses4

 

 10 

 0 

 3 

 2 

 53 

 68 

of which: restructuring expenses allocated from Corporate Center4

 

 50 

 9 

 7 

 34 

 (99) 

 0 

of which: gain related to changes to the Swiss pension plan8

 

 (66) 

 (38) 

 (10) 

 (5) 

 (122) 

 (241) 

Operating expenses (adjusted)

 

 3,310 

 600 

 359 

 1,796 

 109 

 6,174 

of which: net expenses for litigation, regulatory and similar matters5

 

 32 

 0 

 0 

 (2) 

 (41) 

 (11) 

 

 

 

 

 

 

 

 

Operating profit / (loss) before tax as reported

 

 1,102 

 408 

 105 

 576 

 (92) 

 2,100 

Operating profit / (loss) before tax (adjusted)

 

 1,099 

 380 

 107 

 619 

 (211) 

 1,994 

1 Adjusted results are non-GAAP financial measures as defined by SEC regulations.    2 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 the “Recent developments” section and “Note 1 Basis of accounting” in the “Consolidated financial statements” section of this report for more information. Comparatives may additionally differ due to adjustments following organizational changes, restatements due to the retrospective adoption of new accounting standards or changes in accounting policies, and events after the reporting period.    3 Corporate Center operating expenses presented in this table are after service allocations to business divisions.    4 Reflects restructuring expenses related to legacy cost programs as well as expenses for new restructuring initiatives.    5 Reflects the net increase in / (release of) provisions for litigation, regulatory and similar matters recognized in the income statement. Refer to ”Note 16 Provisions and contingent liabilities” in the “Consolidated financial statements” section of this report for more information. Also includes recoveries from third parties (first quarter of 2019: USD 7 million; fourth quarter of 2018: USD 1 million; first quarter of 2018: USD 17 million).    6 Related to Worldline acquisition of SIX Payment Services.    7 Related to the increase of stake in and consolidation of UBS Securities China.    8 Changes to the Pension Fund of UBS in Switzerland in the first quarter of 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 the first quarter of 2018, with no overall effect on total equity. Refer to “Note 5 Personnel expenses” in the “Consolidated financial statements” section of the first quarter 2018 report for more information.

 

9


Group performance

Results: 1Q19 vs 1Q18

Profit before tax decreased by USD 554 million or 26% to USD 1,546 million, reflecting a decrease in operating income, partly offset by lower operating expenses. Operating income decreased by USD 950 million or 12% to USD 7,218 million mainly reflecting USD 612 million lower net fee and commission income and a USD 350 million decrease in net interest income and other net income from financial instruments measured at fair value through profit or loss. Operating expenses decreased by USD 397 million or 7% to USD 5,672 million, primarily due to a USD 323 million decrease in general and administrative expenses and a USD 211 million decrease in personnel expenses, partly offset by a USD 139 million increase in depreciation, amortization and impairment of property, equipment and software.

In addition to reporting our results in accordance with International Financial Reporting Standards (IFRS), we report adjusted results that exclude items that management believes are not representative of the underlying performance of our businesses. Such adjusted results are non-GAAP financial measures as defined by 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). For the full year 2019, we expect residual restructuring expenses in connection with such legacy cost programs, as well as expenses relating to new restructuring initiatives to be approximately USD 0.2 billion.

For the purpose of determining adjusted results for the first quarter of 2019, we excluded USD 31 million of these net restructuring expenses. For the first quarter of 2018, we excluded a gain related to changes to our Swiss pension plan of USD 241 million and net restructuring expenses of USD 135 million.

On this adjusted basis, profit before tax for the first quarter of 2019 decreased by USD 417 million or 21% to USD 1,577 million, driven by a USD 950 million, or 12%, decrease in operating income, partly offset by a USD 533 million, or 9%, decrease in operating expenses.

Operating income: 1Q19 vs 1Q18

Total operating income decreased by USD 950 million or 12% to USD 7,218 million, mainly reflecting USD 612 million lower net fee and commission income and a USD 350 million decrease in net interest income and other net income from financial instruments measured at fair value through profit or loss.

 

10


 

Net interest income and other net income from financial instruments measured at fair value through profit or loss

 

 

For the quarter ended

 

% change from

USD million

 

31.3.19

31.12.18

31.3.18

 

4Q18

1Q18

Net interest income from financial instruments measured at amortized cost and fair value through

other comprehensive income

 

 785 

 902 

 998 

 

 (13) 

 (21) 

Net interest income from financial instruments measured at fair value through profit or loss1

 

 339 

 324 

 437 

 

 5 

 (22) 

Other net income from financial instruments measured at fair value through profit or loss1

 

 1,935 

 1,297 

 1,973 

 

 49 

 (2) 

Total

 

 3,058 

 2,523 

 3,408 

 

 21 

 (10) 

Global Wealth Management2

 

 1,261 

 1,246 

 1,317 

 

 1 

 (4) 

of which: net interest income

 

 1,009 

 1,028 

 1,021 

 

 (2) 

 (1) 

of which: transaction-based income from foreign exchange and other intermediary activity3

 

 252 

 218 

 296 

 

 16 

 (15) 

Personal & Corporate Banking2

 

 609 

 615 

 623 

 

 (1) 

 (2) 

of which: net interest income

 

 493 

 517 

 516 

 

 (5) 

 (4) 

of which: transaction-based income from foreign exchange and other intermediary activity3

 

 116 

 98 

 107 

 

 18 

 8 

Asset Management2

 

 1 

 (15) 

 (7) 

 

 

 

Investment Bank2,4

 

 1,094 

 793 

 1,522 

 

 38 

 (28) 

Corporate Client Solutions

 

 164 

 172 

 417 

 

 (5) 

 (61) 

Investor Client Services

 

 930 

 621 

 1,104 

 

 50 

 (16) 

Corporate Center2

 

 94 

 (116) 

 (46) 

 

 

 

1 Effective as of 1 January 2019, UBS refined the presentation of dividend income and expense by reclassifying dividends from Net interest income 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-period information was restated accordingly and the total effect to the Group was as follows: For the quarters ended 31 December 2018 and 31 March 2018, respectively USD 250 million and USD 412 million net dividend income was reclassified. Refer to the “Recent developments“ section and “Note 1 Basis of accounting” in the “Consolidated financial statements” section of this report for more information.    2 Comparative figures have been restated for changes in Corporate Center cost allocations to the business divisions. Refer to the “Recent developments“ section and “Note 1 Basis of accounting” in the “Consolidated financial statements” section of this report for more information.    3 Mainly includes spread-related income in connection with client-driven transactions, foreign currency translation effects and income and expenses from precious metals, which are included in the income statement line Other net income from financial instruments measured at fair value through profit or loss. The amounts reported on this line are one component of Transaction-based income in the management discussion and analysis of Global Wealth Management and Personal & Corporate Banking in the “Global Wealth Management” and “Personal & Corporate Banking” sections of this report.    4 Investment Bank information is provided at the business line level rather than by financial statement reporting line in order to reflect the underlying business activities, which is consistent with the structure of the management discussion and analysis in the “Investment Bank” section of this report.

 

 

Net 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 350 million to USD 3,058 million. This was mainly driven by a USD 311 million decrease in net interest income, mainly in our Equities and Corporate Client Solutions businesses in the Investment Bank and in Corporate Center, with the latter reflecting higher funding costs relating to Corporate Center balance sheet assets, most of which were allocated to the business divisions.

Global Wealth Management

In Global Wealth Management, net interest income decreased by USD 12 million to USD 1,009 million, mainly reflecting lower loan volumes, mostly caused by currency effects, as well as reductions in net income from structural risk management activities and banking book interest income. This was partly offset by higher investment of equity income.

Transaction-based income from foreign exchange and other intermediary activity decreased by USD 44 million to USD 252 million, mainly due to lower client activity across all regions.


Personal & Corporate Banking

In Personal & Corporate Banking, net interest income decreased by USD 23 million to USD 493 million, reflecting foreign currency effects and higher funding costs for total loss-absorbing capacity, partly offset by an increase in deposit and loan revenues.

Transaction-based income from foreign exchange and other intermediary activity increased by USD 9 million to USD 116 million, mainly driven by higher client activity in derivatives.

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 428 million to USD 1,094 million. This was driven by a USD 253 million decrease in Corporate Client Solutions, mainly reflecting lower revenues from private transactions in Equity Capital Markets. Additionally, a USD 211 million decrease in Investor Client Services – Equities was driven by lower client activity in Derivatives, as well as reduced net interest income in Financing Services, reflecting lower Prime Brokerage and Equity Finance revenues as a result of lower client balances and activity levels. These effects were partly offset by an increase of USD 37 million in Investor Client Services – Foreign Exchange, Rates and Credit.

  

 

11


Group performance

Corporate Center

In Corporate Center, net interest income and other net income from fair value changes on financial instruments increased by USD 140 million to USD 94 million. Net treasury income increased by USD 255 million, reflecting net income from centralized Group Treasury risk management services, revenues from accounting asymmetries, mark-to-market effects from certain internal funding transactions and income related to hedge accounting ineffectiveness. This was partly offset by a decrease in other Corporate Center revenues, driven mainly by higher funding costs relating to Corporate Center balance sheet assets, most of which were allocated to the business divisions through the line “Services (to) / from business divisions.” These costs included USD 32 million of additional interest expense related to lease liabilities recognized as a result of the adoption of IFRS 16, Leases,  effective from 1 January 2019. The adoption of IFRS 16 has also resulted in a decrease in rental expense of USD 136 million, and an increase in depreciation expense of USD 118 million in the first quarter of 2019.

®   Refer to “Note 1 Basis of accounting” in the “Consolidated financial statements” section of this report for more information on the adoption of IFRS 16

®   Refer to “Note 3 Net interest income” in the “Consolidated financial statements” section of this report for more information on net interest income

Net fee and commission income

Net fee and commission income was USD 4,132 million compared with USD 4,744 million.

Net brokerage fees decreased by USD 189 million to USD 748 million, mainly in Global Wealth Management, driven by lower client activity across all regions.

Portfolio management and related services decreased by USD 145 million to USD 1,804 million, mainly in Global Wealth Management, primarily driven by a decline in average invested assets as a result of the lower market levels in the fourth quarter of 2018 and margin compression, mainly reflecting shifts into lower margin products, partly offset by an increase in mandate penetration.

Investment fund fees decreased by USD 102 million to USD 1,177 million, mainly in Global Wealth Management, Asset Management and Personal & Corporate Banking, primarily driven by a decline in average invested assets as a result of the lower market levels in the fourth quarter of 2018 and lower sales volumes, as well as continued pressure on margins in Asset Management.

M&A and corporate finance fees decreased by USD 89 million to USD 117 million, primarily reflecting lower revenues from merger and acquisition transactions against a global fee pool decline of 6% and a decrease in revenues from private transactions.

Underwriting fees decreased by USD 84 million to USD 155 million, mainly in our Corporate Client Solutions business in the Investment Bank, driven by lower revenues from public offerings, where the global fee pool decreased 21%.

®   Refer to “Note 4 Net fee and commission income” in the “Consolidated financial statements” section of this report for more information

Other income

Other income was broadly unchanged at USD 49 million compared with USD 42 million.

®   Refer to “Note 5 Other income” in the “Consolidated financial statements” section of this report for more information

 

 

Credit loss (expense) / recovery

 

 

 

 

 

 

 

 

 

For the quarter ended

 

% change from

USD million

 

31.3.19

31.12.18

31.3.18

 

4Q18

1Q18

Global Wealth Management

 

 1 

 (12) 

 3 

 

 

 (78) 

Personal & Corporate Banking

 

 2 

 (17) 

 (14) 

 

 

 

Investment Bank

 

 (22) 

 (18) 

 (16) 

 

 25 

 43 

Corporate Center

 

 0 

 (7) 

 0 

 

 (94) 

 231 

Total

 

 (20) 

 (53) 

 (26) 

 

 (62) 

 (22) 

 

Credit loss expense / recovery

Total net credit loss expenses were USD 20 million in the first quarter of 2019, mainly in the Investment Bank, reflecting losses of USD 15 million from credit-impaired (stage 3) positions and USD 5 million in expected credit losses from stage 1 and 2 positions.

®   Refer to “Note 10 Expected credit loss measurement” in the “Consolidated financial statements” section of this report for more information on credit loss expense / recovery


12


 

Operating expenses

 

 

 

 

 

 

 

 

 

For the quarter ended

 

% change from

USD million

 

31.3.19

31.12.18

31.3.18

 

4Q18

1Q18

 

 

 

 

 

 

 

 

Operating expenses as reported

 

 

 

 

 

 

 

Personnel expenses

 

 4,043 

 3,839 

 4,254 

 

 5 

 (5) 

General and administrative expenses

 

 1,187 

 2,293 

 1,510 

 

 (48) 

 (21) 

Depreciation and impairment of property, equipment and software

 

 427 

 343 

 288 

 

 24 

 48 

Amortization and impairment of intangible assets

 

 16 

 17 

 16 

 

 (8) 

 (5) 

Total operating expenses as reported

 

 5,672 

 6,492 

 6,069 

 

 (13) 

 (7) 

 

 

 

 

 

 

 

 

Adjusting items

 

 

 

 

 

 

 

Personnel expenses

 

 17 

 95 

 (174) 

 

 

 

of which: restructuring expenses1

 

 17 

 95 

 68 

 

 

 

of which: gain related to changes to the Swiss pension plan2

 

 

 

 (241) 

 

 

 

General and administrative expenses1

 

 10 

 72 

 68 

 

 

 

Depreciation and impairment of property, equipment and software1

 

 4 

 21 

 0 

 

 

 

Total adjusting items

 

 31 

 188 

 (106) 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses (adjusted)3

 

 

 

 

 

 

 

Personnel expenses

 

 4,026 

 3,744 

 4,428 

 

 8 

 (9) 

of which: salaries and variable compensation

 

 2,410 

 2,100 

 2,687 

 

 15 

 (10) 

of which: financial advisor variable compensation4

 

 960 

 999 

 1,032 

 

 (4) 

 (7) 

of which: other personnel expenses5

 

 655 

 645 

 709 

 

 2 

 (8) 

General and administrative expenses

 

 1,177 

 2,221 

 1,442 

 

 (47) 

 (18) 

of which: net expenses for litigation, regulatory and similar matters

 

 (8) 

 533 

 (11) 

 

 

 (27) 

of which: other general and administrative expenses

 

 1,185 

 1,688 

 1,453 

 

 (30) 

 (18) 

Depreciation and impairment of property, equipment and software

 

 422 

 322 

 288 

 

 31 

 47 

Amortization and impairment of intangible assets

 

 16 

 17 

 16 

 

 (8) 

 (5) 

Total operating expenses (adjusted)

 

 5,641 

 6,304 

 6,174 

 

 (11) 

 (9) 

1 Reflects restructuring expenses related to legacy cost programs as well as expenses for new restructuring initiatives.    2 Changes to the Pension Fund of UBS in Switzerland in the first quarter of 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 the first quarter of 2018, with no overall effect on total equity. Refer to “Note 5 Personnel expenses” in the “Consolidated financial statements” section of the first quarter 2018 report for more information.    3 Adjusted results are non-GAAP financial measures as defined by SEC regulations.    4 Financial advisor variable compensation consists of formulaic compensation based directly on compensable revenues generated by financial advisors and supplemental compensation calculated on the 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 are subject to vesting requirements.    5 Consists of expenses related to contractors, social security, pension and other post-employment benefit plans and other personnel expenses. Refer to “Note 6 Personnel expenses” in the “Consolidated financial statements” section of this report for more information.

 

13


Group performance

Operating expenses: 1Q19 vs 1Q18

Total operating expenses decreased by USD 397 million or 7% to USD 5,672 million. Adjusted total operating expenses decreased by USD 533 million or 9% to USD 5,641 million. These exclude net restructuring expenses related to legacy cost programs and new restructuring initiatives of USD 31 million, compared with USD 135 million in the prior year, and a gain related to changes to our Swiss pension plan of USD 241 million in the first quarter of 2018.

Personnel expenses

Personnel expenses decreased by USD 211 million to USD 4,043 million on a reported basis, primarily due to lower variable compensation and a decrease in net restructuring expenses, partly offset by higher pension costs when compared with the first quarter of 2018, which included a gain of USD 241 million related to changes to our Swiss pension plan.

On an adjusted basis, personnel expenses decreased by USD 402 million to USD 4,026 million, primarily due to the aforementioned decrease in variable compensation.

®   Refer to “Note 6 Personnel expenses” in the “Consolidated financial statements” section of this report for more information

General and administrative expenses

General and administrative expenses decreased by USD 323 million to USD 1,187 million, mainly driven by lower expenses related to outsourcing and professional fees. Additionally, rent expenses have decreased by USD 136 million following the adoption of IFRS 16, Leases.  This decrease is more than offset by an increase of USD 118 million in depreciation expense and an increase of USD 32 million in interest expense relating to lease liabilities, also as a result of the adoption of IFRS 16.

On an adjusted basis, general and administrative expenses decreased by USD 265 million to USD 1,177 million, largely due to the aforementioned decreases in outsourcing and professional fees, as well as the decrease in rent expenses.

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 1 Basis of accounting” in the “Consolidated financial statements” section of this report for more information on the adoption of IFRS 16

®   Refer to “Note 7 General and administrative expenses” in the “Consolidated financial statements” section of this report for more information

®   Refer to “Note 16 Provisions and contingent liabilities” in the “Consolidated financial statements” section of this report and to the “Regulatory and legal developments” and “Risk factors” sections of our Annual Report 2018 for more information on litigation, regulatory and similar matters


Depreciation, amortization and impairment

Depreciation, amortization and impairment of property, equipment and software increased by USD 138 million to USD 442 million, mainly resulting from USD 118 million higher depreciation expenses following the adoption of IFRS 16 in the first quarter of 2019.

On an adjusted basis, depreciation, amortization and impairment of property, equipment and software increased by USD 134 million to USD 438 million, primarily due to the aforementioned effect of the adoption of IFRS 16.

®   Refer to “Note 1 Basis of accounting” in the “Consolidated financial statements” section of this report for more information on the adoption of IFRS 16

Tax: 1Q19 vs 1Q18

We recognized income tax expenses of USD 407 million for the first quarter of 2019, compared with USD 533 million for the first quarter of 2018.

Current tax expenses were USD 170 million, compared with USD 215 million, and related to taxable profits of UBS Switzerland AG and other entities.

Deferred tax expenses were USD 237 million, compared with USD 318 million. These include expenses of USD 218 million relating to profits for the current quarter, which primarily reflect the amortization of deferred tax assets (DTAs) previously recognized in relation to tax losses carried forward and deductible temporary differences to reflect their offset against profits for the quarter, including the amortization of US tax loss DTAs at the level of UBS Americas Inc. In addition, deferred tax expenses in the first quarter of 2019 included a net expense of USD 19 million, mainly relating to a decrease in temporary difference DTAs of USD 29 million as the expected value of future tax deductions for deferred compensation awards decreased. This deferred tax expense was partially offset by a tax loss DTA increase of USD 10 million for locations affected by our UK business transfer activity during the quarter.

For 2019, we expect a full-year tax rate of approximately 25%, excluding the effect of remeasurements of DTAs in the year.

®   Refer to “Note 8 Income taxes” in the “Consolidated financial statements” section of this report for more information

 

14


 

Total comprehensive income attributable to shareholders: 1Q19 vs 1Q18

Total comprehensive income attributable to shareholders was USD 1,037 million compared with USD 1,850 million. Net profit attributable to shareholders was USD 1,141 million compared with USD 1,566 million and other comprehensive income (OCI) attributable to shareholders, net of tax, was negative USD 104 million compared with positive USD 285 million.

In the first quarter of 2019, OCI related to own credit on financial liabilities designated at fair value was negative USD 318 million compared with positive USD 178 million and mainly reflected a tightening of credit spreads in the first quarter of 2019.

Defined benefit plan OCI was negative USD 179 million compared with negative USD 107 million. We recorded net pre-tax OCI losses of USD 153 million related to our non-Swiss pension plans, mainly driven by the UK defined benefit plans, which recorded OCI losses of USD 144 million. This reflected OCI losses of USD 316 million from the remeasurement of the defined benefit obligation, partly offset by OCI gains of USD 172 million due to a positive return on plan assets. Net pre-tax OCI losses related to the Swiss pension plans amounted to USD 10 million.

Foreign currency translation OCI was negative USD 128 million in the first quarter of 2019, mainly resulting from the weakening of the Swiss franc and the euro against the US dollar. OCI related to foreign currency translation in the same quarter of last year was positive USD 758 million.

OCI related to cash flow hedges was positive USD 459 million in the first quarter of 2019, mainly reflecting an increase in unrealized gains on US dollar hedging derivatives resulting from decreases in the relevant US dollar long-term interest rates. In the first quarter of 2018, OCI related to cash flow hedges was negative USD 488 million.

OCI associated with financial assets measured at fair value was positive USD 62 million compared with negative USD 57 million and mainly reflected net unrealized gains following decreases in the relevant US dollar long-term interest rates in the first quarter of 2019.

®   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 our Annual Report 2018 for more information on other comprehensive income related to defined benefit plans


Sensitivity to interest rate movements

As of 31 March 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. Of this increase, approximately USD 0.3 billion and USD 0.2 billion would result from changes in US dollar and euro interest rates, respectively.

The immediate effect on shareholders’ equity of such a shift in yield curves would be a decrease of approximately USD 2.3 billion recognized in OCI, of which approximately USD 1.7 billion would result from changes in US dollar interest rates. The immediate effect on regulatory capital would be immaterial, as OCI from cash flow hedges is not recognized in capital and the effect from debt instruments measured at fair value through OCI would be offset by a positive effect from pension fund assets and liabilities.

The aforementioned estimates are based on a hypothetical

scenario of an immediate increase in interest rates, equal across all currencies and relative to implied forward rates applied to our

banking book and financial assets measured at fair value through OCI. These estimates further assume no change to balance sheet size and structure, constant foreign exchange rates and no specific management action.

Key figures and personnel

Return on common equity tier 1 (CET1) capital: 1Q19 vs 1Q18

The annualized return on CET1 capital (RoCET1) was 13.3% compared with 18.3%, reflecting a decrease in net profit / (loss) attributable to shareholders of USD 0.4 billion and a USD 0.1 billion decrease in CET1 capital.

Adjusted cost / income ratio: 1Q19 vs 1Q18

The adjusted cost / income ratio was 77.9% compared with 75.3%.

Risk-weighted assets: 1Q19 vs 4Q18

During the first quarter of 2019, risk-weighted assets (RWA) increased by USD 3.8 billion to USD 267.6 billion. USD 3.8 billion higher RWA from methodology and policy changes, including an increase of USD 3.5 billion from the adoption of IFRS 16, as well as increased RWA of USD 3.9 billion from model updates and USD 0.9 billion higher RWA from regulatory add-ons were partly offset by USD 3.8 billion lower RWA from asset size and other movements and currency effects of USD 0.9 billion. The increase in RWA from model updates was mainly due to an increase of USD 2.8 billion in operational risk RWA, as model inputs in the advanced measurement approach model were updated during the quarter to reflect developments related to litigation on the cross-border matter.

®   Refer to the “Capital management” section of this report for more information

 

15


Group performance

Common equity tier 1 capital ratio: 1Q19 vs 4Q18

Our CET1 capital ratio increased 0.1 percentage points to 13.0%, reflecting a USD 0.5 billion increase in CET1 capital, partly offset by a USD 3.8 billion increase in RWA.

®   Refer to the “Capital management” section of this report for more information

Leverage ratio denominator: 1Q19 vs 4Q18

During the first quarter of 2019, the leverage ratio denominator (LRD) increased by USD 6 billion to USD 911 billion. This increase was driven by asset size and other movements of USD 8 billion, as well as policy changes of USD 4 billion related to the adoption of IFRS 16, Leases, partly offset by a decrease in currency effects of USD 5 billion.

®   Refer to the “Capital management” section of this report for more information

Common equity tier 1 leverage ratio: 1Q19 vs 4Q18

Our CET1 leverage ratio increased from 3.77% to 3.80% in the first quarter of 2019, reflecting the aforementioned increase in CET1 capital, partly offset by a USD 6 billion increase in the LRD.

®   Refer to the “Capital management” section of this report for more information


Going concern leverage ratio: 1Q19 vs 4Q18

Our going concern leverage ratio increased from 5.1% to 5.4%, reflecting a USD 3.2 billion increase in going concern capital, partly offset by a USD 6 billion increase in the LRD.

®   Refer to the “Capital management” section of this report for more information

Net new money and invested assets

Management’s discussion and analysis of net new money and invested assets is provided in the “UBS business divisions and Corporate Center” section of this report.

Personnel: 1Q19 vs 4Q18

We employed 67,481 personnel (full-time equivalents) as of 31 March 2019, a net increase of 593 compared with 31 December 2018. Corporate Center personnel increased by 639, primarily due to higher staffing levels related to continued insourcing of certain activities from third-party vendors to our Business Solutions Centers, mainly in Group Technology. At the same time, we have seen a decrease of 1,256 in external staff.

 

 

Return on equity

 

 

 

 

 

 

As of or for the quarter ended

USD million, except where indicated

 

31.3.19

31.12.18

31.3.18

 

 

 

 

 

Net profit

 

 

 

 

Net profit / (loss) attributable to shareholders

 

 1,141 

 315 

 1,566 

 

 

 

 

 

Equity

 

 

 

 

Equity attributable to shareholders

 

 53,667 

 52,928 

 53,662 

Less: goodwill and intangible assets

 

 6,621 

 6,647 

 6,540 

Tangible equity attributable to shareholders

 

 47,046 

 46,281 

 47,122 

Less: other CET1 deductions

 

 12,388 

 12,162 

 12,348 

Common equity tier 1 capital

 

 34,658 

 34,119 

 34,774 

 

 

 

 

 

Return on equity

 

 

 

 

Return on equity (%)1

 

 8.6 

 2.4 

 11.8 

Return on tangible equity (%)2

 

 9.8 

 2.7 

 13.5 

Return on common equity tier 1 capital (%)3

 

 13.3 

 3.7 

 18.3 

1 Calculated as net profit attributable to shareholders (annualized as applicable) / average equity attributable to shareholders.    2 Calculated as net profit attributable to shareholders (annualized as applicable) / average equity attributable to shareholders less average goodwill and intangible assets. The definition of the numerator for return on tangible equity has been revised to align with numerators for return on equity and return on CET1 capital, i.e., we no longer adjust for amortization and impairment of goodwill and intangible assets. Prior periods have been restated.    3 Calculated as net profit attributable to shareholders (annualized as applicable) / average common equity tier 1 capital.

 

16


 

Net new money1

 

 

 

 

 

 

For the quarter ended

USD billion

 

31.3.19

31.12.18

31.3.18

Global Wealth Management

 

 22.3 

 (7.9) 

 20.0 

Asset Management2

 

 0.1 

 (2.1) 

 33.3 

of which: excluding money market flows

 

 (2.3) 

 (4.9) 

 27.8 

of which: money market flows

 

 2.3 

 2.8 

 5.5 

1 Net new money excludes interest and dividend income.    2 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 net new money. This change resulted in a reclassification from net new money excluding money market flows to net new money from money market flows of USD 0.4 billion for 31 March 2018.

 

Invested assets

 

 

 

 

 

 

 

 

 

As of

 

% change from

USD billion

 

31.3.19

31.12.18

31.3.18

 

31.12.18

31.3.18

Global Wealth Management

 

 2,432 

 2,260 

 2,415 

 

 8 

 1 

Asset Management1

 

 824 

 781 

 831 

 

 5 

 (1) 

of which: excluding money market funds

 

 726 

 686 

 737 

 

 6 

 (2) 

of which: money market funds

 

 98 

 95 

 93 

 

 3 

 5 

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 invested assets. This change resulted in a reclassification from invested assets excluding money market funds to invested assets from money market funds of USD 10 billion and USD 11 billion for 31 December 2018 and 31 March 2018, respectively.

 

 

Outlook

The overall pace of growth has decreased as a result of a synchronized global slowdown. Economic growth and markets are expected to continue to recover and stabilize at different speeds across regions and asset classes.

We are likely to benefit from this environment as a result of our regional and business diversification. Higher invested assets are expected to lead to an increase in recurring revenues in Global Wealth Management and Asset Management, compared with the first quarter of 2019. Further momentum would require a sustained improvement in market activity and client sentiment across our businesses.

We will continue to execute our strategy with discipline, focusing on balancing efficiency and investments for growth, to deliver on our capital return objectives and to create sustainable long-term value for our shareholders.

 

  

17


 

 


 

UBS business
divisions
and Corporate
Center

 Management report

  

 


Global Wealth Management

Global Wealth Management

Global Wealth Management1

 

 

 

 

 

 

 

As of or for the quarter ended

 

% change from

USD million, except where indicated

 

31.3.19

31.12.18

31.3.18

 

4Q18

1Q18

 

 

 

 

 

 

 

 

Results

 

 

 

 

 

 

 

Net interest income

 

 1,009 

 1,028 

 1,021 

 

 (2) 

 (1) 

Recurring net fee income2

 

 2,218 

 2,374 

 2,419 

 

 (7) 

 (8) 

Transaction-based income3

 

 765 

 627 

 953 

 

 22 

 (20) 

Other income

 

 11 

 112 

 11 

 

 (90) 

 (1) 

Income

 

 4,003 

 4,141 

 4,405 

 

 (3) 

 (9) 

Credit loss (expense) / recovery

 

 1 

 (12) 

 3 

 

 

 (78) 

Total operating income

 

 4,003 

 4,129 

 4,409 

 

 (3) 

 (9) 

Personnel expenses

 

 1,900 

 1,882 

 1,973 

 

 1 

 (4) 

Salaries and other personnel costs

 

 940 

 883 

 941 

 

 7 

 0 

Financial advisor variable compensation4,5

 

 816 

 857 

 878 

 

 (5) 

 (7) 

Compensation commitments with recruited financial advisors4,6

 

 144 

 142 

 155 

 

 2 

 (7) 

General and administrative expenses

 

 249 

 816 

 304 

 

 (69) 

 (18) 

Services (to) / from Corporate Center and other business divisions

 

 975 

 1,088 

 1,015 

 

 (10) 

 (4) 

of which: services from Corporate Center

 

 938 

 1,050 

 981 

 

 (11) 

 (4) 

Depreciation and impairment of property, equipment and software

 

 1 

 2 

 1 

 

 (18) 

 62 

Amortization and impairment of intangible assets

 

 14 

 14 

 13 

 

 (6) 

 3 

Total operating expenses

 

 3,140 

 3,802 

 3,306 

 

 (17) 

 (5) 

Business division operating profit / (loss) before tax

 

 863 

 327 

 1,102 

 

 164 

 (22) 

 

 

 

 

 

 

 

 

Adjusted results7

 

 

 

 

 

 

 

Total operating income as reported

 

 4,003 

 4,129 

 4,409 

 

 (3) 

 (9) 

of which: gains related to investments in associates

 

 

 101 

 

 

 

 

Total operating income (adjusted)

 

 4,003 

 4,028 

 4,409 

 

 (1) 

 (9) 

Total operating expenses as reported

 

 3,140 

 3,802 

 3,306 

 

 (17) 

 (5) 

of which: personnel-related restructuring expenses8

 

 0 

 17 

 3 

 

 

 

of which: non-personnel-related restructuring expenses8

 

 0 

 0 

 10 

 

 

 

of which: restructuring expenses allocated from Corporate Center8

 

 10 

 59 

 50 

 

 

 

of which: gain related to changes to the Swiss pension plan

 

 

 

 (66) 

 

 

 

Total operating expenses (adjusted)

 

 3,130 

 3,726 

 3,310 

 

 (16) 

 (5) 

Business division operating profit / (loss) before tax as reported

 

 863 

 327 

 1,102 

 

 164 

 (22) 

Business division operating profit / (loss) before tax (adjusted)

 

 873 

 302 

 1,099 

 

 189 

 (21) 

 

 

 

 

 

 

 

 

Performance measures9

 

 

 

 

 

 

 

Pre-tax profit growth (%)

 

 (21.7) 

 (52.9) 

 31.3 

 

 

 

Cost / income ratio (%)

 

 78.4 

 91.8 

 75.1 

 

 

 

Net new money growth (%)

 

 3.9 

 (1.3) 

 3.3 

 

 

 

 

 

 

 

 

 

 

 

Adjusted performance measures7,9

 

 

 

 

 

 

 

Pre-tax profit growth (%)

 

 (20.5) 

 (66.1) 

 15.7 

 

 

 

Cost / income ratio (%)

 

 78.2 

 92.2 

 75.1 

 

 

 

 

20


 

Global Wealth Management (continued)¹

 

 

 

 

As of or for the quarter ended

 

% change from

USD million, except where indicated

 

31.3.19

31.12.18

31.3.18

 

4Q18

1Q18

 

 

 

 

 

 

 

 

Additional information

 

 

 

 

 

 

 

Recurring income10

 

 3,227 

 3,402 

 3,440 

 

 (5) 

 (6) 

Recurring income as a percentage of income (%)

 

 80.6 

 82.2 

 78.1 

 

 

 

Average attributed equity (USD billion)11

 

 16.4 

 16.3 

 16.3 

 

 0 

 1 

Return on attributed equity (%)11

 

 21.1 

 8.0 

 27.1 

 

 

 

Risk-weighted assets (USD billion)11

 

 76.9 

 74.3 

 76.8 

 

 4 

 0 

Leverage ratio denominator (USD billion)11

 

 325.9 

 315.8 

 307.5 

 

 3 

 6 

Goodwill and intangible assets (USD billion)

 

 5.1 

 5.2 

 5.1 

 

 0 

 1 

Net new money (USD billion)

 

 22.3 

 (7.9) 

 20.0 

 

 

 

Invested assets (USD billion)

 

 2,432 

 2,260 

 2,415 

 

 8 

 1 

Net margin on invested assets (bps)12

 

 15 

 6 

 18 

 

 164 

 (20) 

Gross margin on invested assets (bps)

 

 68 

 71 

 73 

 

 (3) 

 (7) 

Client assets (USD billion)

 

 2,709 

 2,519 

 2,676 

 

 8 

 1 

Loans, gross (USD billion)13

 

 174.3 

 174.7 

 180.1 

 

 0 

 (3) 

Due to customers (USD billion)13

 

 274.8 

 271.8 

 277.0 

 

 1 

 (1) 

Recruitment loans to financial advisors4

 

 2,264 

 2,296 

 2,490 

 

 (1) 

 (9) 

Other loans to financial advisors4

 

 894 

 994 

 999 

 

 (10) 

 (10) 

Personnel (full-time equivalents)

 

 23,443 

 23,618 

 23,383 

 

 (1) 

 0 

Advisors (full-time equivalents)

 

 10,573 

 10,677 

 10,654 

 

 (1) 

 (1) 

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 the “Recent developments” section and “Note 1 Basis of accounting” in the “Consolidated financial statements” section of this report for more information. Comparatives may additionally differ due to adjustments following organizational changes, restatements due to the retrospective adoption of new accounting standards or changes in accounting policies, and events after the reporting period.    2 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 account-keeping fees, which are generated on client assets.    3 Transaction-based income consists of the non-recurring portion of net fee and commission income, mainly consisting 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.    4 Relates to licensed professionals with the ability to provide investment advice to clients in the Americas.    5 Financial advisor variable compensation consists of formulaic compensation based directly on compensable 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 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 Adjusted results are non-GAAP financial measures as defined by SEC regulations.    8 Reflects restructuring expenses related to legacy cost programs as well as expenses for new restructuring initiatives.    9 Refer to the “Performance targets and measurement” section of our Annual Report 2018 for the definitions of our performance measures.    10 Recurring income consists of net interest income and recurring net fee income.    11 Refer to the “Capital management” section of this report for more information.    12 Calculated as operating profit before tax (annualized as applicable) / average invested assets.    13 Loans and Due to customers in this table include customer brokerage receivables and payables, respectively, which with the adoption of IFRS 9 effective 1 January 2018 have been reclassified to a separate reporting line on the balance sheet.

 

Regional breakdown of performance measures1

 

 

 

 

 

 

As of or for the quarter ended 31.03.19

USD billion, except where indicated

Americas

EMEA

Asia Pacific

Switzerland

Total of regions2

of which: ultra high net worth (UHNW)

Net new money

 (0.1) 

 2.9 

 16.3 

 3.2 

 22.2 

 20.5 

Net new money growth (%)

 0.0 

 2.3 

 18.2 

 6.4 

 3.9 

 7.3 

Invested assets

 1,298 

 514 

 405 

 212 

 2,429 

 1,236 

Loans, gross

 59.23

 37.2 

 42.5 

 34.8 

 173.7 

 

Advisors (full-time equivalents)

 6,790 

 1,797 

 1,136 

 741 

 10,463 

 1,1004

1 Refer to the “Performance targets and measurement” section of our Annual Report 2018 for the definitions of our performance measures.    2 Excluding minor functions with 110 advisors, USD 4 billion of invested assets, USD 0.6 billion of loans and USD 0.1 billion of net new money inflows in the first quarter of 2019.    3 Loans include customer brokerage receivables, which with the adoption of IFRS 9 effective 1 January 2018 have been reclassified to a separate reporting line on the balance sheet.    4 Represents advisors who exclusively serve ultra high net worth clients in a globally managed unit.

 

21


Global Wealth Management

Results: 1Q19 vs 1Q18

Profit before tax decreased by USD 239 million, or 22%, to USD 863 million. Excluding a credit of USD 66 million related to changes to our Swiss pension plan in the first quarter of 2018 and restructuring expenses, adjusted profit before tax decreased by USD 226 million, or 21%, to USD 873 million, reflecting lower operating income, partly offset by lower operating expenses.

Operating income

Total operating income decreased by USD 406 million, or 9%, to USD 4,003 million, mainly driven by lower recurring net fee income and transaction-based income.

Net interest income decreased by USD 12 million to USD 1,009 million, mainly reflecting lower loan volumes, mostly caused by currency effects, as well as reductions in net income from structural risk management activities and banking book interest income. This was partly offset by higher investment of equity income.

Recurring net fee income decreased by USD 201 million to USD 2,218 million, primarily driven by a decline in average invested assets as a result of the lower market levels in the fourth quarter of 2018. Margin compression also contributed to the decrease, mainly reflecting shifts into lower-margin products, although this was partly offset by an increase in mandate penetration.

Transaction-based income decreased by USD 188 million to USD 765 million, mainly due to lower client activity in all regions, most notably in Asia Pacific and, to a lesser extent, the Americas.

Other income was unchanged at USD 11 million.

Operating expenses

Total operating expenses decreased by USD 166 million, or 5%, to USD 3,140 million and adjusted operating expenses decreased by USD 180 million, or 5%, to USD 3,130 million.


Personnel expenses decreased by USD 73 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 decreased by USD 135 million to USD 1,901 million. This decrease was mainly due to lower variable compensation.

General and administrative expenses decreased by USD 55 million and adjusted general and administrative expenses decreased by USD 45 million to USD 249 million, predominantly driven by lower expenses for provisions for litigation matters.

Net expenses for services from Corporate Center and other business divisions decreased by USD 40 million to USD 975 million, while adjusted net expenses for services remained stable at USD 965 million.

Net new money: 1Q19 vs 1Q18

Net new money was USD 22.3 billion, including a small number of large inflows, compared with USD 20.0 billion; an annualized net new money growth rate of 3.9% compared with 3.3%. Net new money was notably strong in Asia Pacific, with USD 16.3 billion. Net new money from ultra high net worth clients was USD 20.5 billion.

Invested assets: 1Q19 vs 4Q18

Invested assets increased by USD 172 billion to USD 2,432 billion, driven by a positive market performance of USD 160 billion and net new money inflows of USD 22 billion, slightly offset by currency effects of USD 7 billion and reclassifications of USD 3 billion from invested assets to client assets, mainly related to regulatory change. Mandate penetration increased to 33.9% from 33.6%.

 

  

22


 

Personal & Corporate Banking

Personal & Corporate Banking – in Swiss francs1

 

 

 

 

 

 

 

 

 

As of or for the quarter ended

 

% change from

CHF million, except where indicated

 

31.3.19

31.12.18

31.3.18

 

4Q18

1Q18

 

 

 

 

 

 

 

 

Results

 

 

 

 

 

 

 

Net interest income

 

 491 

 515 

 487 

 

 (5) 

 1 

Recurring net fee income2

 

 155 

 157 

 154 

 

 (1) 

 1 

Transaction-based income3

 

 282 

 247 

 281 

 

 14 

 1 

Other income

 

 23 

 373 

 17 

 

 (94) 

 37 

Income

 

 952 

 1,292 

 938 

 

 (26) 

 1 

Credit loss (expense) / recovery

 

 2 

 (17) 

 (13) 

 

 

 

Total operating income

 

 954 

 1,275 

 925 

 

 (25) 

 3 

Personnel expenses

 

 218 

 185 

 178 

 

 18 

 23 

General and administrative expenses

 

 52 

 109 

 59 

 

 (52) 

 (11) 

Services (to) / from Corporate Center and other business divisions

 

 295 

 334 

 301 

 

 (12) 

 (2) 

of which: services from Corporate Center

 

 319 

 360 

 331 

 

 (11) 

 (4) 

Depreciation and impairment of property, equipment and software

 

 3 

 4 

 3 

 

 (30) 

 (1) 

Amortization and impairment of intangible assets

 

 0 

 0 

 0 

 

 

 

Total operating expenses

 

 568 

 632 

 541 

 

 (10) 

 5 

Business division operating profit / (loss) before tax

 

 385 

 643 

 384 

 

 (40) 

 0 

 

 

 

 

 

 

 

 

Adjusted results4

 

 

 

 

 

 

 

Total operating income as reported

 

 954 

 1,275 

 925 

 

 (25) 

 3 

of which: gains related to investments in associates

 

 

 359 

 

 

 

 

Total operating income (adjusted)

 

 954 

 916 

 925 

 

 4 

 3 

Total operating expenses as reported

 

 568 

 632 

 541 

 

 (10) 

 5 

of which: personnel-related restructuring expenses5

 

 0 

 1 

 1 

 

 

 

of which: non-personnel-related restructuring expenses5

 

 0 

 0 

 0 

 

 

 

of which: restructuring expenses allocated from Corporate Center5

 

 4 

 17 

 9 

 

 

 

of which: gain related to changes to the Swiss pension plan

 

 

 

 (35) 

 

 

 

Total operating expenses (adjusted)

 

 564 

 614 

 566 

 

 (8) 

 0 

Business division operating profit / (loss) before tax as reported

 

 385 

 643 

 384 

 

 (40) 

 0 

Business division operating profit / (loss) before tax (adjusted)

 

 389 

 303 

 359 

 

 29 

 8 

 

 

 

 

 

 

 

 

Performance measures6

 

 

 

 

 

 

 

Pre-tax profit growth (%)

 

 0.3 

 79.9 

 1.5 

 

 

 

Cost / income ratio (%)

 

 59.7 

 48.9 

 57.7 

 

 

 

Net interest margin (bps)

 

 150 

 157 

 148 

 

 

 

 

 

 

 

 

 

 

 

Adjusted performance measures4,6

 

 

 

 

 

 

 

Pre-tax profit growth (%)

 

 8.5 

 (23.1) 

 (9.8) 

 

 

 

Cost / income ratio (%)

 

 59.3 

 65.8 

 60.4 

 

 

 

 

23


Personal & Corporate Banking

Personal & Corporate Banking – in Swiss francs (continued)1

 

 

 

 

 

 

 

 

 

As of or for the quarter ended

 

% change from

CHF million, except where indicated

 

31.3.19

31.12.18

31.3.18

 

4Q18

1Q18

 

 

 

 

 

 

 

 

Additional information

 

 

 

 

 

 

 

Average attributed equity (CHF billion)7

 

 8.3 

 8.1 

 7.5 

 

 3 

 10 

Return on attributed equity (%)7

 

 18.5 

 31.8 

 20.3 

 

 

 

Risk-weighted assets (CHF billion)7

 

 64.0 

 62.8 

 56.5 

 

 2 

 13 

Leverage ratio denominator (CHF billion)7

 

 210.7 

 210.2 

 205.6 

 

 0 

 2 

Business volume for personal banking (CHF billion)

 

 159 

 156 

 156 

 

 2 

 2 

Net new business volume for personal banking (CHF billion)

 

 3.2 

 0.9 

 2.4 

 

 

 

Net new business volume growth for personal banking (%)8

 

 8.2 

 2.2 

 6.3 

 

 

 

Client assets (CHF billion)9

 

 674 

 638 

 652 

 

 6 

 3 

Loans, gross (CHF billion)

 

 131.5 

 131.0 

 130.8 

 

 0 

 1 

Due to customers (CHF billion)

 

 143.5 

 141.7 

 137.6 

 

 1 

 4 

Secured loan portfolio as a percentage of total loan portfolio, gross (%)

 

 91.9 

 92.0 

 92.2 

 

 

 

Impaired loan portfolio as a percentage of total loan portfolio, gross (%)10

 

 1.2 

 1.3 

 1.2 

 

 

 

Personnel (full-time equivalents)

 

 5,220 

 5,183 

 5,160 

 

 1 

 1 

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 the “Recent developments” section and “Note 1 Basis of accounting” in the “Consolidated financial statements” section of this report for more information. Comparatives may additionally differ due to adjustments following organizational changes, restatements due to the retrospective adoption of new accounting standards or changes in accounting policies, and events after the reporting period.    2 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 account-keeping fees, which are generated on client assets.    3 Transaction-based income comprises the non-recurring portion of net fee and commission income, mainly consisting 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.    4 Adjusted results are non-GAAP financial measures as defined by SEC regulations.    5 Reflects restructuring expenses related to legacy cost programs.    6 Refer to the “Performance targets and measurement” section of our Annual Report 2018 for the definitions of our performance measures.    7 Refer to the “Capital management” section of this report for more information.    8 Calculated as net new business volume for the period (annualized as applicable) / business volume at the beginning of the period.    9 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.    10 Refer to the “Risk management and control” section of this report for more information on (credit-)impaired exposures.

 

Results: 1Q19 vs 1Q18

Profit before tax increased by CHF 1 million to CHF 385 million. Excluding a credit of CHF 35 million related to changes to our Swiss pension plan in the first quarter of 2018 and restructuring expenses, adjusted profit before tax increased by CHF 30 million, or 8%, to CHF 389 million, predominantly reflecting higher operating income.

Operating income

Total operating income increased by 3% to CHF 954 million from CHF 925 million, mainly reflecting a net credit loss recovery of CHF 2 million compared with credit loss expenses of CHF 13 million in the first quarter of 2018, as well as higher other income and net interest income.

Net interest income increased by CHF 4 million to CHF 491 million as a result of higher deposit and loan revenues, partly offset by higher funding costs for total loss-absorbing capacity.

Recurring net fee income was CHF 155 million compared with CHF 154 million in the first quarter of 2018.

Transaction-based income increased by CHF 1 million to CHF 282 million. Higher fees in the Corporate Clients business were partly offset by lower fees received from Global Wealth Management, reflecting decreased referral volumes.

Other income increased by CHF 6 million to CHF 23 million, primarily due to the sale of an investment in an associate.


Net credit loss recovery was CHF 2 million, compared with losses of CHF 13 million in the first quarter of 2018, as small stage 3 expected credit losses, primarily in the Corporate Clients area, were more than offset by a release of CHF 4 million of stage 1 and 2 expected credit losses.

Operating expenses

Total operating expenses increased by CHF 27 million, or 5%, to CHF 568 million. Excluding a credit of CHF 35 million related to changes to our Swiss pension plan in the first quarter of 2018 and a reduction in restructuring expenses, adjusted operating expenses decreased by CHF 2 million to CHF 564 million.

Personnel expenses increased by CHF 40 million to CHF 218 million. Excluding the aforementioned credit of CHF 35 million related to changes to our Swiss pension plan in the first quarter of 2018 and personnel-related restructuring expenses, adjusted personnel expenses increased by CHF 7 million to CHF 218 million, reflecting higher salaries and variable compensation. General and administrative expenses decreased by CHF 7 million to CHF 52 million, mainly reflecting lower marketing and consulting costs.

Net expenses for services from Corporate Center and other business divisions decreased by CHF 6 million to CHF 295 million. On an adjusted basis, net expenses for services from Corporate Center and other business divisions decreased by CHF 2 million to CHF 291 million. This reflected lower expenses for Group Operations as well as strategic and regulatory initiatives, partly offset by higher expenses from Group Technology.

24


 

Personal & Corporate Banking – in US dollars1

 

 

 

 

 

 

 

 

 

As of or for the quarter ended

 

% change from

USD million, except where indicated

 

31.3.19

31.12.18

31.3.18

 

4Q18

1Q18

 

 

 

 

 

 

 

 

Results

 

 

 

 

 

 

 

Net interest income

 

 493 

 517 

 516 

 

 (5) 

 (4) 

Recurring net fee income2

 

 156 

 157 

 163 

 

 (1) 

 (4) 

Transaction-based income3

 

 283 

 247 

 298 

 

 15 

 (5) 

Other income

 

 23 

 373 

 18 

 

 (94) 

 30 

Income

 

 955 

 1,295 

 994 

 

 (26) 

 (4) 

Credit loss (expense) / recovery

 

 2 

 (17) 

 (14) 

 

 

 

Total operating income

 

 957 

 1,278 

 981 

 

 (25) 

 (2) 

Personnel expenses

 

 219 

 185 

 188 

 

 18 

 17 

General and administrative expenses

 

 52 

 110 

 62 

 

 (52) 

 (16) 

Services (to) / from Corporate Center and other business divisions

 

 296 

 335 

 320 

 

 (12) 

 (7) 

of which: services from Corporate Center

 

 320 

 361 

 351 

 

 (11) 

 (9) 

Depreciation and impairment of property, equipment and software

 

 3 

 4 

 3 

 

 (30) 

 (7) 

Amortization and impairment of intangible assets

 

 0 

 0 

 0 

 

 

 

Total operating expenses

 

 570 

 634 

 573 

 

 (10) 

 0 

Business division operating profit / (loss) before tax

 

 387 

 644 

 408 

 

 (40) 

 (5) 

 

 

 

 

 

 

 

 

Adjusted results4

 

 

 

 

 

 

 

Total operating income as reported

 

 957 

 1,278 

 981 

 

 (25) 

 (2) 

of which: gains related to investments in associates

 

 

 359 

 

 

 

 

Total operating income (adjusted)

 

 957 

 919 

 981 

 

 4 

 (2) 

Total operating expenses as reported

 

 570 

 634 

 573 

 

 (10) 

 0 

of which: personnel-related restructuring expenses5

 

 0 

 1 

 1 

 

 

 

of which: non-personnel-related restructuring expenses5

 

 0 

 0 

 0 

 

 

 

of which: restructuring expenses allocated from Corporate Center5

 

 4 

 17 

 9 

 

 

 

of which: gain related to changes to the Swiss pension plan

 

 

 

 (38) 

 

 

 

Total operating expenses (adjusted)

 

 567 

 616 

 600 

 

 (8) 

 (6) 

Business division operating profit / (loss) before tax as reported

 

 387 

 644 

 408 

 

 (40) 

 (5) 

Business division operating profit / (loss) before tax (adjusted)

 

 391 

 303 

 380 

 

 29 

 3 

 

 

 

 

 

 

 

 

Performance measures6

 

 

 

 

 

 

 

Pre-tax profit growth (%)

 

 (5.2) 

 77.6 

 7.6 

 

 

 

Cost / income ratio (%)

 

 59.7 

 49.0 

 57.6 

 

 

 

Net interest margin (bps)

 

 149 

 155 

 152 

 

 

 

 

 

 

 

 

 

 

 

Adjusted performance measures4,6

 

 

 

 

 

 

 

Pre-tax profit growth (%)

 

 2.7 

 (24.0) 

 (4.5) 

 

 

 

Cost / income ratio (%)

 

 59.3 

 65.8 

 60.4 

 

 

 

 

25


Personal & Corporate Banking

Personal & Corporate Banking – in US dollars (continued)¹

 

 

 

 

 

 

 

 

 

As of or for the quarter ended

 

% change from

USD million, except where indicated

 

31.3.19

31.12.18

31.3.18

 

4Q18

1Q18

 

 

 

 

 

 

 

 

Additional information

 

 

 

 

 

 

 

Average attributed equity (USD billion)7

 

 8.3 

 8.1 

 8.0 

 

 3 

 5 

Return on attributed equity (%)7

 

 18.5 

 31.8 

 20.4 

 

 

 

Risk-weighted assets (USD billion)7

 

 64.3 

 63.9 

 59.3 

 

 1 

 8 

Leverage ratio denominator (USD billion)7

 

 211.6 

 213.7 

 215.7 

 

 (1) 

 (2) 

Business volume for personal banking (USD billion)

 

 160 

 158 

 163 

 

 1 

 (2) 

Net new business volume for personal banking (USD billion)

 

 3.2 

 0.9 

 2.6 

 

 

 

Net new business volume growth for personal banking (%)8

 

 8.0 

 2.1 

 6.5 

 

 

 

Client assets (USD billion)9

 

 677 

 648 

 684 

 

 4 

 (1) 

Loans, gross (USD billion)

 

 132.0 

 133.3 

 137.2 

 

 (1) 

 (4) 

Due to customers (USD billion)

 

 144.1 

 144.1 

 144.3 

 

 0 

 0 

Secured loan portfolio as a percentage of total loan portfolio, gross (%)

 

 91.9 

 92.0 

 92.2 

 

 

 

Impaired loan portfolio as a percentage of total loan portfolio, gross (%)10

 

 1.2 

 1.3 

 1.2 

 

 

 

Personnel (full-time equivalents)

 

 5,220 

 5,183 

 5,160 

 

 1 

 1 

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 the “Recent developments” section and “Note 1 Basis of accounting” in the “Consolidated financial statements” section of this report for more information. Comparatives may additionally differ due to adjustments following organizational changes, restatements due to the retrospective adoption of new accounting standards or changes in accounting policies, and events after the reporting period.    2 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 account-keeping fees, which are generated on client assets.    3 Transaction-based income comprises the non-recurring portion of net fee and commission income, mainly consisting 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.    4 Adjusted results are non-GAAP financial measures as defined by SEC regulations.    5 Reflects restructuring expenses related to legacy cost programs.    6 Refer to the “Performance targets and measurement” section of our Annual Report 2018 for the definitions of our performance measures.    7 Refer to the “Capital management” section of this report for more information.    8 Calculated as net new business volume for the period (annualized as applicable) / business volume at the beginning of the period.    9 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.    10 Refer to the “Risk management and control” section of this report for more information on (credit-)impaired exposures.

26


 

Asset Management

Asset Management1

 

 

 

 

 

 

 

 

 

As of or for the quarter ended

 

% change from

USD million, except where indicated

 

31.3.19

31.12.18

31.3.18

 

4Q18

1Q18

 

 

 

 

 

 

 

 

Results

 

 

 

 

 

 

 

Net management fees2

 

 419 

 440 

 451 

 

 (5) 

 (7) 

Performance fees

 

 27 

 28 

 15 

 

 (4) 

 79 

Total operating income

 

 446 

 468 

 466 

 

 (5) 

 (4) 

Personnel expenses

 

 178 

 166 

 177 

 

 7 

 1 

General and administrative expenses

 

 48 

 57 

 52 

 

 (16) 

 (8) 

Services (to) / from Corporate Center and other business divisions

 

 117 

 139 

 131 

 

 (16) 

 (11) 

of which: services from Corporate Center

 

 128 

 150 

 143 

 

 (15) 

 (10) 

Depreciation and impairment of property, equipment and software

 

 0 

 0 

 0 

 

 

 

Amortization and impairment of intangible assets

 

 0 

 0 

 0 

 

 

 

Total operating expenses

 

 343 

 362 

 360 

 

 (5) 

 (5) 

Business division operating profit / (loss) before tax

 

 103 

 106 

 105 

 

 (2) 

 (2) 

 

 

 

 

 

 

 

 

Adjusted results3

 

 

 

 

 

 

 

Total operating income as reported

 

 446 

 468 

 466 

 

 (5) 

 (4) 

Total operating income (adjusted)

 

 446 

 468 

 466 

 

 (5) 

 (4) 

Total operating expenses as reported

 

 343 

 362 

 360 

 

 (5) 

 (5) 

of which: personnel-related restructuring expenses4

 

 2 

 5 

 1 

 

 

 

of which: non-personnel-related restructuring expenses4

 

 2 

 3 

 3 

 

 

 

of which: restructuring expenses allocated from Corporate Center4

 

 2 

 13 

 7 

 

 

 

of which: gain related to changes to the Swiss pension plan

 

 

 

 (10) 

 

 

 

Total operating expenses (adjusted)

 

 337 

 342 

 359 

 

 (1) 

 (6) 

Business division operating profit / (loss) before tax as reported

 

 103 

 106 

 105 

 

 (2) 

 (2) 

Business division operating profit / (loss) before tax (adjusted)

 

 109 

 126 

 107 

 

 (14) 

 2 

 

 

 

 

 

 

 

 

Performance measures5

 

 

 

 

 

 

 

Pre-tax profit growth (%)

 

 (1.8) 

 (54.5) 

 12.1 

 

 

 

Cost / income ratio (%)

 

 76.8 

 77.4 

 77.4 

 

 

 

Net new money growth excluding money market flows (%)6

 

 (1.3) 

 (2.7) 

 15.7 

 

 

 

 

 

 

 

 

 

 

 

Adjusted performance measures3,5

 

 

 

 

 

 

 

Pre-tax profit growth (%)7

 

 2.1 

 14.4 

 0.5 

 

 

 

Cost / income ratio (%)

 

 75.5 

 73.0 

 77.1 

 

 

 

 

 

 

 

 

 

 

 

Information by business line / asset class

 

 

 

 

 

 

 

Net new money (USD billion)6

 

 

 

 

 

 

 

Equities

 

 6.0 

 (6.4) 

 16.6 

 

 

 

Fixed Income

 

 (5.5) 

 6.7 

 3.9 

 

 

 

of which: money market

 

 2.3 

 2.8 

 5.5 

 

 

 

Multi-asset & Solutions

 

 (1.0) 

 (1.3) 

 13.0 

 

 

 

Hedge Fund Businesses

 

 (0.1) 

 (0.4) 

 (0.8) 

 

 

 

Real Estate & Private Markets

 

 0.7 

 (0.8) 

 0.6 

 

 

 

Total net new money

 

 0.1 

 (2.1) 

 33.3 

 

 

 

of which: net new money excluding money markets

 

 (2.3) 

 (4.9) 

 27.8 

 

 

 

 

27


Asset Management

Asset Management (continued)¹

 

 

 

 

As of or for the quarter ended

 

% change from

USD million, except where indicated

 

31.3.19

31.12.18

31.3.18

 

4Q18

1Q18

 

 

 

 

 

 

 

 

Invested assets (USD billion)6

 

 

 

 

 

 

 

Equities

 

 310 

 272 

 312 

 

 14 

 (1) 

Fixed Income

 

 250 

 253 

 252 

 

 (1) 

 (1) 

of which: money market

 

 98 

 95 

 93 

 

 3 

 5 

Multi-asset & Solutions

 

 138 

 132 

 143 

 

 5 

 (3) 

Hedge Fund Businesses

 

 43 

 42 

 43 

 

 1 

 0 

Real Estate & Private Markets

 

 82 

 82 

 79 

 

 1 

 4 

Total invested assets

 

 824 

 781 

 831 

 

 5 

 (1) 

of which: passive strategies

 

 327 

 298 

 320 

 

 10 

 2 

 

 

 

 

 

 

 

 

Information by region

 

 

 

 

 

 

 

Invested assets (USD billion)

 

 

 

 

 

 

 

Americas

 

 196 

 192 

 188 

 

 2 

 4 

Asia Pacific

 

 149 

 141 

 166 

 

 6 

 (11) 

Europe, Middle East and Africa

 

 209 

 189 

 204 

 

 11 

 3 

Switzerland

 

 270 

 259 

 272 

 

 4 

 (1) 

Total invested assets

 

 824 

 781 

 831 

 

 5 

 (1) 

 

 

 

 

 

 

 

 

Information by channel

 

 

 

 

 

 

 

Invested assets (USD billion)

 

 

 

 

 

 

 

Third-party institutional

 

 509 

 484 

 526 

 

 5 

 (3) 

Third-party wholesale

 

 84 

 78 

 85 

 

 8 

 (1) 

UBS’s wealth management businesses

 

 230 

 219 

 220 

 

 5 

 5 

Total invested assets

 

 824 

 781 

 831 

 

 5 

 (1) 

 

 

 

 

 

 

 

 

Additional information

 

 

 

 

 

 

 

Average attributed equity (USD billion)8

 

 1.8 

 1.8 

 1.8 

 

 0 

 (2) 

Return on attributed equity (%)8

 

 23.0 

 23.7 

 22.9 

 

 

 

Risk-weighted assets (USD billion)8

 

 4.8 

 4.3 

 4.5 

 

 11 

 6 

Leverage ratio denominator (USD billion)8

 

 5.1 

 5.0 

 5.0 

 

 1 

 1 

Goodwill and intangible assets (USD billion)

 

 1.3 

 1.4 

 1.4 

 

 0 

 (3) 

Net margin on invested assets (bps)9

 

 5 

 5 

 5 

 

 (2) 

 0 

Gross margin on invested assets (bps)

 

 22 

 23 

 23 

 

 (4) 

 (3) 

Personnel (full-time equivalents)

 

 2,287 

 2,301 

 2,361 

 

 (1) 

 (3) 

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 the “Recent developments” section and “Note 1 Basis of accounting” in the “Consolidated financial statements” section of this report for more information. Comparatives may additionally differ due to adjustments following organizational changes, restatements due to the retrospective adoption of new accounting standards or changes in accounting policies, and events after the reporting period.    2 Net management fees include transaction fees, fund administration revenues (including net interest and trading income from lending activities and foreign exchange hedging as part of the fund services offering), gains or losses from seed money and co-investments, funding costs, and other items that are not performance fees.    3 Adjusted results are non-GAAP financial measures as defined by SEC regulations.    4 Reflects restructuring expenses related to legacy cost programs as well as expenses for new restructuring initiatives.    5 Refer to the “Performance targets and measurement” section of our Annual Report 2018 for the definitions of our performance measures.    6 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 net new money and total invested assets. This primarily resulted in the following effects for invested assets: for the quarter ended 31 December 2018, USD 13 billion was reclassified from Equities to Multi-asset & Solutions and USD 10 billion was reclassified within Fixed Income to money market instruments. The change had a corresponding effect on the composition of net new money for the respective periods resulting in an immaterial effect on net new money growth excluding money market flows.    7 Excluding the effect of business exits.    8 Refer to the “Capital management” section of this report for more information.    9 Calculated as operating profit before tax (annualized as applicable) / average invested assets.

 

28


 

Results: 1Q19 vs 1Q18

Profit before tax decreased by USD 2 million, or 2%, to USD 103 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 2 million, or 2%, to USD 109 million, reflecting reduced operating expenses, largely offset by lower operating income.

Operating income

Total operating income decreased by USD 20 million, or 4%, to USD 446 million. Net management fees decreased by USD 32 million to USD 419 million, driven by lower average invested assets as a result of the lower market levels in the fourth quarter of 2018, and continued pressure on margins.

Performance fees increased by USD 12 million to USD 27 million, mainly driven by an increase in performance fees in Equities.

We expect to see a continuation of the trend of clients moving invested assets into lower-margin passive products, which is expected to have a dampening effect on margins.

Operating expenses

Total operating expenses decreased by USD 17 million, or 5%, to USD 343 million, and adjusted operating expenses decreased by USD 22 million, or 6%, to USD 337 million.

Personnel expenses remained stable at USD 178 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 decreased by USD 9 million to USD 176 million, primarily driven by reduced salaries and lower expenses for variable compensation

General and administrative expenses decreased by USD 4 million to USD 48 million, and on an adjusted basis by USD 3 million to USD 46 million. This reduction in adjusted general and <R>
</R>administrative expenses was mainly due to lower expenses for tax-related provisions, reduced marketing costs and lower expenses for travel and entertainment.

Net expenses for services to / from Corporate Center and other business divisions decreased by USD 14 million to USD 117 million, and on an adjusted basis by USD 9 million to USD 115 million, reflecting lower expenses from Group Operations, variable compensation, and strategic and regulatory initiatives, partly offset by higher expenses from Group Technology.

Net new money: 1Q19  vs 1Q18 

Net new money was USD 0.1 billion compared with net inflows of USD 33.3 billion. Excluding money market flows, net new money was negative USD 2.3 billion compared with net inflows of USD 27.8 billion, an annualized net new money growth rate of negative 1.3% compared with positive 15.7%. The first quarter of 2018 included two large inflows from institutional clients totaling USD 22.5 billion.

Invested assets: 1Q19  vs 4Q18   

Invested assets increased by USD 43 billion to USD 824 billion, reflecting positive market performance of USD 48 billion, partly offset by currency effects of USD 4 billion, resulting primarily from the strengthening of the US dollar against the euro and the Swiss franc.

Following an internal asset reporting methodology review, we have adjusted our asset classification, effective as of 1 January 2019, in order to better reflect the underlying nature of respective assets. The adjustments had no effect on total net new money and total invested assets. Prior-period information was restated, primarily resulting for 2018 in a 12% increase in fixed income money market instruments, a 10% increase in Multi-asset & Solutions and a 5% decrease in Equities.

  

29


Investment Bank

Investment Bank

Investment Bank1

 

 

 

 

 

 

 

 

 

As of or for the quarter ended

 

% change from

USD million, except where indicated

 

31.3.19

31.12.18

31.3.18

 

4Q18

1Q18

 

 

 

 

 

 

 

 

Results

 

 

 

 

 

 

 

Corporate Client Solutions

 

 451 

 460 

 875 

 

 (2) 

 (48) 

Advisory

 

 109 

 115 

 197 

 

 (5) 

 (45) 

Equity Capital Markets

 

 126 

 122 

 312 

 

 4 

 (60) 

Debt Capital Markets

 

 154 

 160 

 262 

 

 (4) 

 (41) 

Financing Solutions

 

 57 

 53 

 72 

 

 7 

 (21) 

Risk Management

 

 5 

 11 

 31 

 

 (56) 

 (84) 

Investor Client Services

 

 1,337 

 1,078 

 1,556 

 

 24 

 (14) 

Equities

 

 883 

 776 

 1,138 

 

 14 

 (22) 

Foreign Exchange, Rates and Credit

 

 454 

 302 

 417 

 

 50 

 9 

Income

 

 1,788 

 1,539 

 2,430 

 

 16 

 (26) 

Credit loss (expense) / recovery

 

 (22) 

 (18) 

 (16) 

 

 25 

 43 

Total operating income

 

 1,765 

 1,521 

 2,415 

 

 16 

 (27) 

Personnel expenses

 

 705 

 537 

 952 

 

 31 

 (26) 

General and administrative expenses

 

 141 

 253 

 152 

 

 (44) 

 (7) 

Services (to) / from Corporate Center and other business divisions

 

 708 

 805 

 730 

 

 (12) 

 (3) 

of which: services from Corporate Center

 

 722 

 820 

 738 

 

 (12) 

 (2) 

Depreciation and impairment of property, equipment and software

 

 2 

 2 

 2 

 

 1 

 1 

Amortization and impairment of intangible assets

 

 2 

 2 

 3 

 

 1 

 (16) 

Total operating expenses

 

 1,558 

 1,598 

 1,838 

 

 (3) 

 (15) 

Business division operating profit / (loss) before tax

 

 207 

 (78) 

 576 

 

 

 (64) 

 

 

 

 

 

 

 

 

Adjusted results2

 

 

 

 

 

 

 

Total operating income as reported

 

 1,765 

 1,521 

 2,415 

 

 16 

 (27) 

Total operating income (adjusted)

 

 1,765 

 1,521 

 2,415 

 

 16 

 (27) 

Total operating expenses as reported

 

 1,558 

 1,598 

 1,838 

 

 (3) 

 (15) 

of which: personnel-related restructuring expenses3

 

 1 

 1 

 12 

 

 

 

of which: non-personnel-related restructuring expenses3

 

 2 

 3 

 2 

 

 

 

of which: restructuring expenses allocated from Corporate Center3

 

 11 

 69 

 34 

 

 

 

of which: gain related to changes to the Swiss pension plan

 

 

 

 (5) 

 

 

 

Total operating expenses (adjusted)

 

 1,544 

 1,526 

 1,796 

 

 1 

 (14) 

Business division operating profit / (loss) before tax as reported

 

 207 

 (78) 

 576 

 

 

 (64) 

Business division operating profit / (loss) before tax (adjusted)

 

 221 

 (5) 

 619 

 

 

 (64) 

 

 

 

 

 

 

 

 

Performance measures4

 

 

 

 

 

 

 

Return on attributed equity (%)5

 

 6.8 

 (2.5) 

 17.6 

 

 

 

Cost / income ratio (%)

 

 87.1 

 103.9 

 75.6 

 

 

 

 

 

 

 

 

 

 

 

Adjusted performance measures2,4

 

 

 

 

 

 

 

Return on attributed equity (%)5

 

 7.2 

 (0.2) 

 18.9 

 

 

 

Cost / income ratio (%)

 

 86.4 

 99.1 

 73.9 

 

 

 

 

30


 

Investment Bank (continued)¹

 

 

 

 

 

 

 

 

 

As of or for the quarter ended

 

% change from

USD million, except where indicated

 

31.3.19

31.12.18

31.3.18

 

4Q18

1Q18

 

 

 

 

 

 

 

 

Additional information

 

 

 

 

 

 

 

Pre-tax profit growth (%)

 

 (64.0) 

 

 33.8 

 

 

 

Adjusted pre-tax profit growth (%)

 

 (64.3) 

 

 21.7 

 

 

 

Average attributed equity (USD billion)5

 

 12.3 

 12.7 

 13.1 

 

 (3) 

 (6) 

Risk-weighted assets (USD billion)5

 

 92.6 

 93.2 

 95.8 

 

 (1) 

 (3) 

Return on risk-weighted assets, gross (%)6

 

 7.7 

 6.8 

 11.0 

 

 

 

Leverage ratio denominator (USD billion)5

 

 288.4 

 283.4 

 313.5 

 

 2 

 (8) 

Return on leverage ratio denominator, gross (%)6

 

 2.5 

 2.1 

 3.1 

 

 

 

Goodwill and intangible assets (USD billion)

 

 0.1 

 0.1 

 0.1 

 

 1 

 100 

Compensation ratio (%)

 

 39.4 

 34.9 

 39.2 

 

 

 

Average VaR (1-day, 95% confidence, 5 years of historical data)

 

 10 

 10 

 16 

 

 1 

 (39) 

Impaired loan portfolio as a percentage of total loan portfolio, gross (%)7

 

 1.5 

 1.5 

 1.0 

 

 

 

Personnel (full-time equivalents)

 

 5,311 

 5,205 

 4,867 

 

 2 

 9 

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 the “Recent developments” section and “Note 1 Basis of accounting” in the “Consolidated financial statements” section of this report for more information. Comparatives may additionally differ due to adjustments following organizational changes, restatements due to the retrospective adoption of new accounting standards or changes in accounting policies, and events after the reporting period.    2 Adjusted results are non-GAAP financial measures as defined by SEC regulations.    3 Reflects restructuring expenses related to legacy cost programs.    4 Refer to the “Performance targets and measurement” section of our Annual Report 2018 for the definitions of our performance measures.    5 Refer to the “Capital management” section of this report for more information.    6 Based on total RWA and LRD.    7 Refer to the “Risk management and control” section of this report for more information on (credit-)impaired loan exposures.

 

Results: 1Q19 vs 1Q18

Profit before tax decreased by USD 369 million, or 64%, to USD 207 million. Excluding restructuring expenses and a credit related to changes to our Swiss pension plan in the first quarter of 2018, adjusted profit before tax decreased by USD 398 million, or 64%, to USD 221 million. This was driven mainly by lower operating income in Corporate Client Solutions and Equities, partly offset by lower operating expenses and higher Foreign Exchange, Rates and Credit revenues.

Operating income

Total operating income decreased by USD 650 million, or 27%, to USD 1,765 million, driven by a decrease in Corporate Client Solutions and Equities revenues, partly offset by higher Foreign Exchange, Rates and Credit revenues.

Corporate Client Solutions

Corporate Client Solutions revenues decreased by USD 424 million, or 48%, to USD 451 million. This mainly reflected lower revenues in Equity Capital Markets, Debt Capital Markets and Advisory, the result of significantly lower levels of market activity and significantly reduced private transaction revenues, particularly in Equity Capital Markets, compared with a strong first quarter of 2018.


Advisory revenues decreased to USD 109 million from USD 197 million, due to lower revenues from merger and acquisition transactions, where the global fee pool declined 6%, as well as from private transactions. The reduction in merger and acquisition revenues was partly a result of participating in fewer large deals.

Equity Capital Markets revenues decreased by USD 186 million to USD 126 million, compared with a strong first quarter of 2018, mainly due to reduced revenues from private transactions. Revenues from public offerings were also lower, with the global fee pool decreasing 42%.

Debt Capital Markets revenues decreased to USD 154 million from USD 262 million, primarily reflecting lower leveraged finance revenues, where the fee pool decreased 21%.

Financing Solutions revenues decreased to USD 57 million from USD 72 million, reflecting lower client activity across most products.

Risk Management revenues decreased by USD 26 million to USD 5 million, mainly as the first quarter 2018 included gains related to a portfolio of loans, almost all of which have been subsequently sold.

 

31


Investment Bank

Investor Client Services

Investor Client Services revenues decreased by USD 219 million, or 14%, to USD 1,337 million, reflecting a decrease in Equities revenues, partly offset by higher Foreign Exchange, Rates and Credit revenues.

Equities

Equities revenues decreased by USD 255 million, or 22%, to USD 883 million, reflecting reduced client activity amid challenging market conditions and lower market volatility, as well as a strong first quarter of 2018.

Cash revenues decreased to USD 302 million from USD 346 million, mainly due to lower client activity levels.

Derivatives revenues decreased to USD 258 million from USD 362 million, reflecting a strong first quarter of 2018 and reduced client activity.

Financing Services revenues decreased to USD 338 million from USD 434 million, driven by lower prime brokerage and equity finance revenues as a result of lower client balances and activity levels.

Foreign Exchange, Rates and Credit

Foreign Exchange, Rates and Credit revenues increased by USD 37 million, or 9%, to USD 454 million, driven by higher Rates and Credit revenues. Foreign Exchange revenues decreased, reflecting lower volatility and client activity levels. Rates and Credit revenues increased across most regions, reflecting higher revenues across most products.

Operating expenses

Total operating expenses decreased by USD 280 million, or 15%, to USD 1,558 million and adjusted operating expenses decreased by USD 252 million, or 14%, to USD 1,544 million.


Personnel expenses decreased by USD 247 million to USD 705 million and adjusted personnel expenses decreased by USD 242 million to USD 704 million, mainly due to lower variable compensation and salaries.

General and administrative expenses decreased by USD 11 million to USD 141 million, and on an adjusted basis by USD 10 million to USD 139 million, mainly due to the reclassification of certain administration costs to personnel expenses following the consolidation of UBS Securities China, as well as lower expenses for communication and market data services.

Net expenses for services from Corporate Center and other business divisions decreased to USD 708 million from USD 730 million. Excluding a reduction in restructuring expenses, adjusted net expenses remained stable at USD 697 million.

Risk-weighted assets and leverage ratio denominator: 1Q19  vs 4Q18 

Risk-weighted assets

Total risk-weighted assets (RWA) were stable at USD 93 billion. A decrease in market risk RWA, reflecting lower average regulatory and stressed value-at-risk (VaR) levels following reduced market volatility in the quarter, was offset by a credit risk RWA increase from asset size and other movements.

®   Refer to the “Capital management” section of this report for more information

Leverage ratio denominator

The leverage ratio denominator (LRD) increased by USD 5 billion to USD 288 billion, mainly due to higher trading portfolio assets in Equities, reflecting market-driven effects.

®   Refer to the “Capital management” and “Balance sheet, liquidity and funding management” sections of this report for more information

  

32


 

Corporate Center

Corporate Center1

 

 

 

 

 

 

 

 

 

As of or for the quarter ended

 

% change from

USD million, except where indicated

 

31.3.19

31.12.18

31.3.18

 

4Q18

1Q18

 

 

 

 

 

 

 

 

Results

 

 

 

 

 

 

 

Total operating income

 

 47 

 (423) 

 (101) 

 

 

 

of which: net treasury income

 

 124 

 (59) 

 (131) 

 

 

 

of which: Non-core and Legacy Portfolio

 

 47 

 (26) 

 50 

 

 

 (6) 

Personnel expenses

 

 1,040 

 1,069 

 965 

 

 (3) 

 8 

General and administrative expenses

 

 697 

 1,058 

 940 

 

 (34) 

 (26) 

Depreciation and impairment of property, equipment and software

 

 420 

 334 

 281 

 

 26 

 49 

Amortization and impairment of intangible assets

 

 0 

 0 

 0 

 

 

 

Total operating expenses before allocations to / from BDs

 

 2,157 

 2,461 

 2,186 

 

 (12) 

 (1) 

Services (to) / from business divisions

 

 (2,095) 

 (2,367) 

 (2,195) 

 

 (11) 

 (5) 

of which: services to Global Wealth Management

 

 (938) 

 (1,050) 

 (981) 

 

 (11) 

 (4) 

of which: services to Personal & Corporate Banking

 

 (320) 

 (361) 

 (351) 

 

 (11) 

 (9) 

of which: services to Asset Management

 

 (128) 

 (150) 

 (143) 

 

 (15) 

 (10) 

of which: services to Investment Bank

 

 (722) 

 (820) 

 (738) 

 

 (12) 

 (2) 

Total operating expenses

 

 62 

 95 

 (9) 

 

 (35) 

 

of which: Non-core and Legacy Portfolio

 

 43 

 65 

 56 

 

 (33) 

 (23) 

Operating profit / (loss) before tax

 

 (15) 

 (518) 

 (92) 

 

 (97) 

 (84) 

 

 

 

 

 

 

 

 

Adjusted results2

 

 

 

 

 

 

 

Total operating income as reported

 

 47 

 (423) 

 (101) 

 

 

 

of which: remeasurement loss related to UBS Securities China

 

 

 (270) 

 

 

 

 

Total operating income (adjusted)

 

 47 

 (154) 

 (101) 

 

 

 

Total operating expenses as reported

 

 62 

 95 

 (9) 

 

 (35) 

 

of which: personnel-related restructuring expenses3

 

 14 

 70 

 50 

 

 

 

of which: non-personnel-related restructuring expenses3

 

 10 

 87 

 53 

 

 

 

of which: restructuring expenses allocated from Corporate Center3

 

 (27) 

 (157) 

 (99) 

 

 

 

of which: gain related to changes to the Swiss pension plan

 

 

 

 (122) 

 

 

 

Total operating expenses (adjusted)

 

 63 

 95 

 109 

 

 (33) 

 (42) 

Operating profit / (loss) before tax as reported

 

 (15) 

 (518) 

 (92) 

 

 (97) 

 (84) 

Operating profit / (loss) before tax (adjusted)

 

 (17) 

 (248) 

 (211) 

 

 (93) 

 (92) 

 

 

 

 

 

 

 

 

Additional information

 

 

 

 

 

 

 

Average attributed equity (USD billion)4

 

 14.5 

 13.6 

 13.9 

 

 6 

 5 

Risk-weighted assets (USD billion)4

 

 29.0 

 28.1 

 29.7 

 

 3 

 (2) 

Leverage ratio denominator (USD billion)4

 

 79.9 

 86.5 

 84.0 

 

 (8) 

 (5) 

Personnel (full-time equivalents)

 

 31,220 

 30,581 

 26,766 

 

 2 

 17 

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 the “Recent developments” section and “Note 1 Basis of accounting” in the “Consolidated financial statements” section of this report for more information. Comparatives may additionally differ due to adjustments following organizational changes, restatements due to the retrospective adoption of new accounting standards or changes in accounting policies, and events after the reporting period.    2 Adjusted results are non-GAAP financial measures as defined by SEC regulations.    3 Reflects restructuring expenses related to legacy cost programs.    4 Refer to the “Capital management” section of this report for more information.

33


Corporate Center

Results: 1Q19 vs 1Q18

Corporate Center recorded a loss before tax of USD 15 million compared with a loss of USD 92 million in the prior-year quarter, and an adjusted loss before tax of USD 17 million compared with a loss of USD 211 million.

Operating income

Operating income was positive USD 47 million compared with negative USD 101 million. An increase in net treasury income of USD 255 million was partly offset by slightly lower net income from Non-core and Legacy Portfolio and a decrease in other Corporate Center revenues, driven mainly by higher funding costs relating to Corporate Center balance sheet assets, most of which were allocated to the business divisions through the line ”Services (to) / from business divisions.” These costs included additional interest expenses related to right-of-use assets as a result of the adoption of IFRS 16, Leases, effective from 1 January 2019.

®   Refer to ”Note 1 Basis of accounting” in the “Consolidated financial statements” section of this report for more information about the adoption of IFRS 16

Net treasury income

The net treasury income result was positive USD 124 million in the first quarter of 2019 compared with negative USD 131 million.

This included negative revenues of USD 19 million relating to centralized Group Treasury risk management services (previously called total risk management net income after allocations), compared with negative revenues of USD 89 million.

Revenues from accounting asymmetries related to economic hedges and the mark-to-market effects from certain internal funding transactions were positive USD 80 million compared with positive USD 5 million.

Income related to hedge accounting ineffectiveness was positive USD 60 million compared with negative USD 55 million. The prior-year quarter was negatively affected by increases in the London Interbank Offered Rate (LIBOR) rates and overnight index swap (OIS) rates and a widening of the spread between the rates. The first quarter of 2019 was positively affected by decreases in rates and a tightening of the spread.

Operating income from Non-core and Legacy Portfolio

The operating income from Non-core and Legacy Portfolio was USD 47 million compared with USD 50 million. The first quarter of 2019 included valuation gains on financial assets measured at fair value through profit or loss and gains related to the unwinding of certain transactions.

Operating expenses

Operating expenses before service allocations to / from business divisions

Before service allocations to business divisions, total operating expenses decreased by USD 29 million to USD 2,157 million, for reasons including favorable currency effects and lower restructuring costs. The first quarter of 2018 included a credit of USD 122 million related to changes to our Swiss pension plan. Adjusted operating expenses before allocations decreased by USD 73 million, or 3%, to USD 2,132 million.

Personnel expenses increased by USD 75 million to USD 1,040 million, mainly due to the credit of USD 122 million in the first quarter of 2018 related to changes to our Swiss pension plan, partly offset by lower restructuring costs. On an adjusted basis, personnel expenses decreased by USD 11 million or 1%, to USD 1,026 million, mainly driven by lower variable compensation and favorable currency movements, partly offset by continued insourcing of certain activities and staff from third-party vendors to our Business Solutions Centers.

General and administrative expenses decreased by USD 243 million to USD 697 million and on an adjusted basis decreased by USD 196 million to USD 691 million. This was mainly due to the adoption of IFRS 16 resulting in lower rental costs, a reduction in outsourcing costs following the aforementioned insourcing of certain activities and staff, and lower professional fees, as well as favorable currency movements.

Depreciation expenses increased to USD 420 million from USD 281 million, primarily reflecting higher depreciation charges related to right-of-use assets resulting from the adoption of IFRS 16 and increased amortization expenses for internally generated capitalized software.

Services to / from business divisions

Corporate Center allocated net expenses of USD 2,095 million to the business divisions, compared with USD 2,195 million. Adjusted allocated net expenses for services to business divisions were USD 2,069 million compared with USD 2,096 million, mainly reflecting the aforementioned movements in operating expenses before allocations, partly offset by the allocation of certain funding costs, including additional interest expenses relating to the adoption of IFRS 16.

Operating expenses after service allocations to / from business divisions

Corporate Center retains costs mainly related to our legal entity transformation program and other costs not attributable to, or representative of the performance of, the business divisions. Total operating expenses remaining in Corporate Center after allocations were USD 62 million compared with negative USD 9 million, which included the aforementioned credit related to changes to our Swiss pension plan, and USD 63 million on an adjusted basis compared with USD 109 million, mainly related to the allocation of the funding costs recorded under operating income.

Personnel: 1Q19 vs 4Q18

As of 31 March 2019, Corporate Center employed 31,220 personnel (full-time equivalents), a net increase of 639 compared with 31 December 2018. The increase was primarily due to the continued insourcing of certain activities from third-party vendors to our Business Solutions Centers, mainly in Group Technology. At the same time, we have seen a decrease of 1,256 in external staff.

  

34


 

Risk, treasury and capital management

Management report

 


 

Table of contents

37

Risk management and control

37

Credit risk

37

Market risk

38

Country risk  

38

Operational risk

39

Key risk metrics

 

 

42

Balance sheet, liquidity and funding management

42

Strategy, objectives and governance

42

Assets and liquidity management

43

Liabilities and funding management

 

 

46

Capital management

47

Swiss SRB requirements and information

48

Total loss-absorbing capacity

52

Risk-weighted assets

54

Leverage ratio denominator

56

Equity attribution and return on attributed equity

58

UBS shares

 

  

36


 

Risk management and control

This section provides information on key developments during the reporting period and should be read in conjunction with the “Risk management and control” section of our Annual Report 2018.

Credit risk

Total net credit loss expenses were USD 20 million in the first quarter of 2019, mainly in the Investment Bank, reflecting losses of USD 15 million from credit-impaired (stage 3) positions and USD 5 million in expected credit losses from stage 1 and 2 positions.

Overall credit risk exposures were broadly unchanged during the first quarter of 2019.

We continue to manage our Swiss lending portfolios prudently and remain watchful for any signs of deterioration that could affect our counterparties.

Within the Investment Bank, our leveraged loan underwriting business’s overall ability to distribute risk remained robust. Loan underwriting exposures are held for trading, with fair values reflecting the market conditions at the end of the quarter.


Market risk

We continued to manage market risks at generally low levels of management value-at-risk (VaR). Average management VaR
(1-day, 95% confidence level) remained unchanged, at USD 11 million, compared with the fourth quarter of 2018. Average regulatory VaR and stressed VaR decreased in the first quarter. This decrease was driven by the Investment Bank’s Equities business due to a reduction in market volatility, a decrease in client activity and an overall reduction in credit exposure in the Foreign Exchange, Rates and Credit business.

There were no Group VaR negative backtesting exceptions in the first quarter of 2019, and the total number of negative backtesting exceptions within the most recent 250-business-day window remained at 2. The FINMA VaR multiplier for market risk RWA was unchanged compared with the prior quarter, at 3.

As of 31 March 2019, the interest rate sensitivity of our banking book to a +1 basis point parallel shift in yield curves was positive USD 1.1 million, compared with positive USD 1.0 million as of 31 December 2018.

®   Refer to “Interest rate risk in the banking book” in the “Market risk” section of our Annual Report 2018 for more information on the management of interest rate risk in the banking book

 

The interest rate sensitivity to a +1 basis point parallel shift in yield curves of the positions in the banking book that are valued through OCI was negative USD 26 million as of 31 March 2019. This OCI sensitivity was predominantly attributable to cash flow hedges denominated in US dollars and, to a lesser extent, in euros and Swiss francs. The OCI associated with cash flow hedges is not recognized for the purpose of calculating regulatory capital.

®   Refer to “Sensitivity to interest rate movements” in the “Group performance” section of this report for more information on the effect of increases in interest rates on equity, capital and net interest income

 

37


Risk management and control

Country risk

We remain watchful of developments in Europe and political shifts in a number of countries. Our direct exposure to peripheral European countries is limited, although we have significant country risk exposure to major European economies, including the UK, Germany and France. The UK’s process of exiting the EU, as well as Italy’s deficit and tensions between Italy and the EU are still areas of concern.

®   Refer to the “Recent developments” section of this report for more information on the UK’s withdrawal from the EU

 

We are closely monitoring the growing risks stemming from ongoing US trade policy shifts, and their potential effect on key markets, economies and countries.

We also continue to closely monitor our direct exposure to China. In addition, a number of emerging markets are facing economic, political and market pressures. Our exposure to emerging market countries is well diversified.

®   Refer to the “Risk management and control” section of our Annual Report 2018 for more information


Operational risk

Operational resilience, conduct and culture, and financial crime continue to be the pervasive consequential risk themes challenging both UBS and the financial industry.

Operational resilience remains a key focus for the firm as we continually enhance our ability to respond to disruptions and maintain effective day-to-day business activities. Cybersecurity and data protection are critical elements of operational resilience, and our cybersecurity objectives are set in line with prevailing international standards, while our data protection standards are intended to align with applicable data protection regulations and standards. We are investing in preemptive and detective measures to defend against evolving and highly sophisticated cyberattacks, to achieve our objectives and meet applicable standards. Our investment priorities focus on increasing readiness to detect and respond to cyber threats and data loss, employee training and behaviors, and application and infrastructure security (including vulnerability management).

Financial crime (including money laundering, terrorist financing, sanctions violations, fraud, bribery and corruption) continues to present a 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. We continue to invest heavily in our detection capabilities and core systems as part of our financial crime prevention program, with a focus on improving these to meet regulatory expectations, including to address the requirements of the May 2018 cease and desist order issued by the Office of the Comptroller of the Currency relating to our US branch know-your-customer and AML programs.

Management of conduct risk is an integral part of our operational risk framework. In managing conduct risk, we are focusing on embedding the framework, enhancing management information and maintaining the momentum of improving culture. Conduct-related management information is reviewed at the business and regional governance level, providing metrics on employee conduct, clients and markets. Furthermore, we continue to pursue behavioral initiatives, such as the “Principles of Good Supervision,” and provide mandatory compliance and risk training.

We maintain our focus on regulatory reporting, updating our regulatory process management framework and enhancing our regulatory developments tracking, as well as continuing to enhance our operational risk framework (ORF) assessment processes, including legal entity reporting, to meet evolving regulatory expectations.

 

38


 

Key risk metrics

Banking and traded products exposure in our business divisions and Corporate Center

 

 

31.3.19

USD million

 

Global Wealth

Management

Personal &

Corporate

Banking

Asset

Management

Investment

Bank

Corporate

Center

Group

Banking products1

 

 

 

 

 

 

 

Gross exposure (IFRS 9)

 

 243,592 

 184,219 

 3,016 

 54,513 

 28,959 

 514,299 

of which: loans and advances to customers (on-balance sheet)

 

 169,600 

 132,020 

 0 

 9,593 

 8,171 

 319,383 

of which: guarantees and loan commitments (off-balance sheet)

 

 6,060 

 19,718 

 0 

 19,245 

 331 

 45,353 

Traded products2, 3

 

 

 

 

 

 

 

Gross exposure

 

 9,038 

 953 

 0 

 33,850 

 43,840 

of which: over-the-counter derivatives

 

 5,979 

 866 

 0 

 9,324 

 16,169 

of which: securities financing transactions

 

 190 

 0 

 0 

 17,943 

 18,133 

of which: exchange-traded derivatives

 

 2,868 

 86 

 0 

 6,584 

 9,539 

Other credit lines, gross4

 

 7,422 

 23,513 

 0 

 2,305 

 139 

 33,379 

 

 

 

 

 

 

 

 

Total credit-impaired exposure, gross (stage 3)1

 

 583 

 1,848 

 0 

 127 

 433 

 2,991 

Total allowances and provisions for expected credit losses (stages 1 to 3)

 

 216 

 677 

 0 

 132 

 27 

 1,052 

of which: stage 1

 

 57 

 78 

 0 

 45 

 2 

 182 

of which: stage 2

 

 35 

 138 

 0 

 5 

 0 

 179 

of which: stage 3 (allowances and provisions for credit-impaired exposures)

 

 123 

 461 

 0 

 82 

 25 

 691 

 

 

 

 

 

 

 

 

 

 

31.12.18

USD million

 

Global Wealth Management

Personal &

Corporate

Banking

Asset

Management

Investment

Bank

Corporate

Center

Group

Banking products1

 

 

 

 

 

 

 

Gross exposure (IFRS 9)

 

 239,835 

 186,802 

 2,751 

 59,980 

 28,357 

 517,725 

of which: loans and advances to customers (on-balance sheet)

 

 170,413 

 133,253 

 7 

 9,090 

 8,362 

 321,125 

of which: guarantees and loan commitments (off-balance sheet)

 

 6,111 

 20,609 

 0 

 22,290 

 348 

 49,358 

Traded products2, 3

 

 

 

 

 

 

 

Gross exposure

 

 10,606 

 873 

 0 

 30,771 

 42,250 

of which: over-the-counter derivatives

 

 5,960 

 762 

 0 

 9,441 

 16,163 

of which: securities financing transactions

 

 153 

 0 

 0 

 16,004 

 16,157 

of which: exchange-traded derivatives

 

 4,494 

 111 

 0 

 5,325 

 9,930 

Other credit lines, gross4

 

 10,345 

 22,994 

 0 

 3,202 

 94 

 36,634 

 

 

 

 

 

 

 

 

Total credit-impaired exposure, gross (stage 3)1

 

 625 

 1,974 

 0 

 140 

 415 

 3,154 

Total allowances and provisions for expected credit losses (stages 1 to 3)

 

 223 

 697 

 0 

 108 

 26 

 1,054 

of which: stage 1

 

 62 

 78 

 0 

 34 

 3 

 176 

of which: stage 2

 

 34 

 146 

 0 

 3 

 0 

 183 

of which: stage 3 (allowances and provisions for credit-impaired exposures)

 

 127 

 474 

 0 

 71 

 23 

 695 

1 IFRS 9 gross exposure including other financial assets at amortized cost, but excluding cash, receivables from securities financing transactions, cash collateral receivables on derivative instruments, financial assets at FVOCI, irrevocable committed prolongation of existing loans and unconditionally revocable committed credit lines and forward starting reverse repurchase and securities borrowing agreements.     2 Internal management view of credit risk, which differs in certain respects from IFRS.    3 As counterparty risk for traded products is managed at counterparty level, no further split between exposures in the Investment Bank and Corporate Center is provided.    4 Unconditionally revocable committed credit lines.

 

39


Risk management and control

Global Wealth Management and Personal & Corporate Banking loans and advances to customers, gross

 

 

Global Wealth Management

 

Personal & Corporate Banking

USD million

 

31.3.19

31.12.18

 

31.3.19

31.12.18

Secured by residential property

 

 51,774 

 51,251 

 

 95,984 

 96,841 

Secured by commercial / industrial property

 

 2,297 

 2,233 

 

 16,805 

 16,887 

Secured by cash

 

 14,191 

 15,529 

 

 1,424 

 1,467 

Secured by securities

 

 91,142 

 90,946 

 

 1,751 

 1,647 

Secured by guarantees and other collateral

 

 9,388 

 9,469 

 

 5,411 

 5,754 

Unsecured loans and advances to customers

 

 807 

 986 

 

 10,645 

 10,657 

Total loans and advances to customers, gross

 

 169,600 

 170,413 

 

 132,020 

 133,253 

Allowances

 

 (101) 

 (102) 

 

 (564) 

 (594) 

Total loans and advances to customers, net of allowances

 

 169,500 

 170,312 

 

 131,455 

 132,659 

 

 

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

 

 

 

 

 

 

Average by risk type

USD million

 

Min.

Max.

Period end

Average

Equity

Interest

rates

Credit

spreads

Foreign

exchange

Commodities

Global Wealth Management

 

 1 

 1 

 1 

 1 

 0 

 1 

 1 

 0 

 0 

Personal & Corporate Banking

 

 0 

 0 

 0 

 0 

 0 

 0 

 0 

 0 

 0 

Asset Management

 

 0 

 0 

 0 

 0 

 0 

 0 

 0 

 0 

 0 

Investment Bank

 

 7 

 13 

 13 

 10 

 6 

 7 

 4 

 3 

 2 

Corporate Center

 

 4 

 6 

 5 

 5 

 1 

 4 

 2 

 1 

 0 

Diversification effect2,3

 

 

 

 (4) 

 (4) 

 (1) 

 (4) 

 (2) 

 (1) 

 0 

Total as of 31.3.19

 

 7 

 15 

 15 

 11 

 6 

 8 

 4 

 4 

 2 

Total as of 31.12.18

 

 7 

 15 

 12 

 11 

 7 

 7 

 6 

 3 

 2 

1 Statistics at individual levels may not be summed to deduce the corresponding aggregate figures. The minima and maxima for each level may occur on different days, and likewise, the VaR for each business line or risk type, being driven by the extreme loss tail of the corresponding distribution of simulated profits and losses for that business line or risk type, may well be driven by different days in the historical time series, rendering invalid the simple summation of figures to arrive at the aggregate total.    2 Difference between the sum of the standalone 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.

 

40


 

Interest rate sensitivity – banking book1

 

 

 

 

 

 

USD million

 

–200 bps

–100 bps

+1 bp

+100 bps

+200 bps

CHF

 

 (6.8) 

 (6.8) 

 1.6 

 158.0 

 315.4 

EUR

 

 (113.2) 

 (114.9) 

 (0.3) 

 (26.9) 

 (51.8) 

GBP

 

 (37.0) 

 (43.9) 

 0.1 

 12.7 

 23.7 

USD

 

 (281.1) 

 (105.0) 

 (0.3) 

 (143.2) 

 (400.7) 

Other

 

 15.7 

 6.9 

 (0.1) 

 (7.4) 

 (13.8) 

Total effect on fair value of interest rate-sensitive banking book positions as of 31.3.19

 

 (422.4) 

 (263.8) 

 1.1 

 (6.9) 

 (127.2) 

Total effect on fair value of interest rate-sensitive banking book positions as of 31.12.18

 

 (611.1) 

 (298.5) 

 1.0 

 33.4 

 13.6 

1 In the prevailing negative interest rate environment for the Swiss franc in particular, and to a lesser extent for the euro, interest rates for Global Wealth Management (excluding Americas) and Personal & Corporate Banking client transactions are generally floored at non-negative levels. Accordingly, for the purposes of this disclosure table, downward moves of 100 / 200 basis points are floored to ensure that the resulting shocked interest rates do not turn negative. The flooring results in non-linear sensitivity behavior.

 

 

Exposures to eurozone countries rated lower than AAA / Aaa by at least one major rating agency

 

USD million

 

31.3.19

 

31.12.18

 

 

Banking products, gross1

 

Traded products

 

Trading inventory

 

Total

 

Total

 

 

Before

hedges

Net of

hedges

 

Before

hedges

Net of

hedges

 

Net long per issuer

 

 

Net of

hedges

 

 

Net of

hedges

Austria

 

 81 

 79 

 

 93 

 30 

 

 195 

 

 369 

 305 

 

 379 

 298 

Belgium

 

 362 

 358 

 

 110 

 110 

 

 46 

 

 518 

 514 

 

 425 

 420 

Finland

 

 13 

 13 

 

 112 

 112 

 

 90 

 

 215 

 215 

 

 310 

 310 

France

 

 459 

 457 

 

 1,104 

 1,012 

 

 1,473 

 

 3,036 

 2,941 

 

 3,475 

 3,381 

Greece

 

 8 

 3 

 

 0 

 0 

 

 3 

 

 12 

 6 

 

 6 

 4 

Ireland2

 

 246 

 239 

 

 40 

 40 

 

 635 

 

 921 

 914 

 

 1,100 

 1,093 

Italy

 

 730 

 637 

 

 278 

 249 

 

 172 

 

 1,181 

 1,058 

 

 1,181 

 1,041 

Portugal

 

 26 

 26 

 

 22 

 21 

 

 3 

 

 52 

 50 

 

 27 

 27 

Spain

 

 396 

 395 

 

 39 

 39 

 

 245 

 

 680 

 678 

 

 635 

 633 

Other3

 

 281 

 260 

 

 3 

 3 

 

 33 

 

 317 

 296 

 

 307 

 290 

Total

 

 2,604 

 2,466 

 

 1,802 

 1,617 

 

 2,895 

 

 7,300 

 6,978 

 

 7,845 

 7,497 

1 Before deduction of IFRS 9 ECL allowances and provisions.    2 The majority of the Ireland exposure relates to funds and foreign bank subsidiaries.    3 Represents aggregate exposures to Andorra, Cyprus, Estonia, Latvia, Lithuania, Malta, Monaco, Montenegro, San Marino, Slovakia and Slovenia.

41


Balance sheet, liquidity and funding management

Balance sheet, liquidity and funding management

Strategy, objectives and governance

This section provides balance sheet, liquidity and funding management information and should be read in conjunction with the “Treasury management” section of our Annual Report 2018, which provides more information about the Group’s strategy, objectives and governance for liquidity and funding management.

Balances disclosed in this section represent quarter-end positions, unless indicated otherwise. Intra-quarter balances fluctuate in the ordinary course of business and may differ from quarter-end positions.

Assets and liquidity management

Balance sheet assets (31 March 2019 vs 31 December 2018)

As of 31 March 2019, balance sheet assets totaled USD 957 billion, a decrease of USD 2 billion from 31 December 2018. Total assets excluding derivatives and cash collateral receivables on derivative instruments increased by USD 12 billion to USD 820 billion, mainly driven by increases in trading portfolio assets, non-financial assets and financial assets for unit-linked investment contracts, and securities financing transactions at amortized cost, partly offset by a decrease in other financial assets measured at amortized cost and fair value.

Derivatives and cash collateral receivables on derivative instruments decreased by USD 13 billion, primarily in the Investment Bank, reflecting lower embedded spreads on new trades compared to those rolling off in our Equities and Foreign Exchange, Rates and Credit businesses. Other financial assets measured at amortized cost and fair value decreased by USD 4 billion, mainly relating to a reduction in receivables for securities financing transactions measured at fair value, as well as transfers into cash within our high-quality liquid assets (HQLA) portfolio. Lending assets decreased by USD 2 billion, driven by Global Wealth Management and Personal & Corporate Banking, mainly reflecting currency effects.

These decreases were partly offset by a USD 5 billion increase in trading portfolio assets, primarily in the Investment Bank, mainly reflecting increases in economic hedges of long-term debt issued measured at fair value in our Equities business and higher client activity in fixed income products in our Foreign Exchange, Rates and Credit business. Non-financial assets and financial assets for unit-linked investment contracts increased by USD 5 billion, driven in part by the recognition of USD 3.4 billion of right-of-use assets with the adoption of IFRS 16, as well as by a USD 2.5 billion increase in assets held to hedge unit-linked investment contracts, reflecting fair value changes. Receivables from securities financing transactions held at amortized cost increased by USD 5 billion, mainly relating to increased client activity in our Equities business. Cash and balances at central banks increased by USD 2 billion, primarily driven by an increase in deposits and reduced funding consumption by the business divisions.

®   Refer to “Note 1 Basis of accounting” in the “Consolidated financial statements” section of this report for more information on the adoption of IFRS 16

®   Refer to the “Consolidated financial statements” section of this report for more information

 

 

Assets

 

 

 

 

 

 

 

As of

 

% change from

USD billion

 

31.3.19

31.12.18

 

31.12.18

Cash and balances at central banks

 

 110.6 

 108.4 

 

 2 

Lending1

 

 335.6 

 337.2 

 

 0 

Securities financing transactions at amortized cost

 

 100.2 

 95.3 

 

 5 

Trading portfolio2

 

 109.6 

 104.4 

 

 5 

Derivatives and cash collateral receivables on derivative instruments

 

 136.3 

 149.8 

 

 (9) 

Brokerage receivables

 

 16.3 

 16.8 

 

 (3) 

Other financial assets at AC / FV3

 

 86.9 

 90.5 

 

 (4) 

Non-financial assets and financial assets for unit-linked investment contracts

 

 61.0 

 56.1 

 

 9 

Total assets

 

 956.6 

 958.5 

 

 0 

1 Consists of loans and advances to banks and customers.    2 Consists of financial assets at fair value held for trading.    3 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 and cash collateral receivables on derivative instruments.

 

42


 

Liquidity coverage ratio

In the first quarter of 2019, the UBS Group liquidity coverage ratio (LCR) increased by 17 percentage points to 153%, remaining above the 110% Group LCR minimum communicated by the Swiss Financial Market Supervisory Authority (FINMA). The LCR increase was primarily driven by additional HQLA relating to higher average cash balances, reflecting higher deposit volumes and reduced funding consumption by the business divisions, as well as lower net cash outflows, mainly from secured financing transactions, driven by additional inflows from excess cash investments and lower outflows from client activity.

®   Refer to the “Treasury management” section of our Annual Report 2018 for more information on liquidity management and the liquidity coverage ratio

 

Liquidity coverage ratio

 

 

 

USD billion, except where indicated

 

Average 1Q191

Average 4Q181

 

High-quality liquid assets2

 

 

 

Cash balances3

 

 115 

 96 

Securities (on- and off-balance sheet)

 

 71 

 78 

Total high-quality liquid assets4

 

 186 

 173 

 

 

 

 

Cash outflows5

 

 

 

Retail deposits and deposits from small business customers

 

 27 

 26 

Unsecured wholesale funding

 

 103 

 102 

Secured wholesale funding

 

 73 

 76 

Other cash outflows

 

 42 

 42 

Total cash outflows

 

 246 

 246 

 

 

 

 

Cash inflows5

 

 

 

Secured lending

 

 84 

 79 

Inflows from fully performing exposures

 

 29 

 29 

Other cash inflows

 

 11 

 10 

Total cash inflows

 

 124 

 119 

 

 

 

 

Liquidity coverage ratio

 

 

 

High-quality liquid assets

 

 186 

 173 

Net cash outflows

 

 122 

 127 

Liquidity coverage ratio (%)

 

 153 

 136 

1 Calculated based on an average of 63 data points in the first quarter of 2019 and 64 data points in the fourth quarter of 2018.    2 Calculated after the application of haircuts.    3 Includes cash and balances at central banks and other eligible balances as prescribed by FINMA.    4 Calculated in accordance with FINMA requirements.    5 Calculated after the application of inflow and outflow rates.

 

 

Liabilities and funding management

Liabilities (31 March 2019 vs 31 December 2018)

Total liabilities decreased by USD 3 billion to USD 903 billion as of 31 March 2019. Total liabilities excluding derivatives and cash collateral increased to USD 762 billion as of 31 March 2019 from USD 751 billion as of 31 December 2018.

Derivatives and cash collateral payables on derivative instruments decreased by USD 14 billion, in line with the aforementioned decrease in derivative financial assets and cash collateral receivables. Short-term borrowings decreased by USD 9 billion, mainly reflecting net maturities and redemptions of commercial paper and certificates of deposit. Securities financing transactions at amortized cost decreased by USD 5 billion, mainly reflecting reduced funding needs in asset-sourcing and firm-financing activities.

Long-term debt issued increased by USD 13 billion, primarily related to a USD 10 billion increase in debt issued designated at fair value in the Investment Bank, driven by client activity and mark-to-market effects. Long-term debt issued measured at
amortized cost increased by USD 3 billion, reflecting the issuance of a USD 2.5 billion US dollar-denominated high-trigger loss-absorbing additional tier 1 capital instrument and USD 0.4 billion-equivalent Swiss franc-denominated senior unsecured debt that contributes to our total loss-absorbing capacity (TLAC). Customer deposits increased by USD 6 billion, predominantly in Global Wealth Management. Trading portfolio liabilities increased by USD 5 billion, driven by both increased client activity and mark-to-market effects in the Investment Bank.

Other financial liabilities at amortized cost and fair value were stable at USD 19 billion. Upon adoption of IFRS 16, an increase in lease liabilities of USD 4 billion was recognized. This effect was largely offset by a decrease in payables for securities financing transactions measured at fair value.

The “Funding by product and currency” table in this section provides more information on our funding sources.

®   Refer to “Bondholder information” at www.ubs.com/investors  for more information on capital and senior debt instruments

®   Refer to the “Consolidated financial statements” section of this report for more information

 

43


Balance sheet, liquidity and funding management

Equity

Equity attributable to shareholders increased to USD 53,667 million as of 31 March 2019 from USD 52,928 million as of 31 December 2018.

Total comprehensive income attributable to shareholders was USD 1,037 million, reflecting net profit of USD 1,141 million and negative other comprehensive income (OCI) of USD 104 million. OCI included negative OCI related to own credit of USD 318 million, negative defined benefit plan OCI of USD 179 million and negative foreign currency translation OCI of USD 128 million. These effects were partly offset by positive cash flow hedge OCI of USD 459 million and positive OCI related to debt instruments measured at fair value of USD 62 million.

Share premium decreased by USD 708 million, mainly due to the delivery of treasury shares under share-based compensation plans.

Net treasury share activity increased equity attributable to shareholders by USD 421 million, reflecting the aforementioned delivery of treasury shares, partly offset by the purchase of shares from the market in order to hedge future share delivery obligations 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.

We expect that the payment of the proposed CHF 0.70 dividend per share, which is subject to approval by the Annual General Meeting of Shareholders on 2 May 2019, will reduce equity attributable to shareholders by approximately USD 2.6 billion in the second quarter of 2019, subject to the CHF / USD exchange rate on 2 May 2019.

®   Refer to the “Consolidated financial statements” and “Group performance” sections of this report for more information

®   Refer to “Note 1 Basis of accounting” in the “Consolidated financial statements” section of this report for more information on the adoption of IFRIC 23

®   Refer to the “UBS Group AG standalone financial statements” section of our Annual Report 2018 for more information on the proposed dividend for the financial year 2018

 

Liabilities and equity

 

 

 

 

 

 

 

As of

 

% change from

USD billion

 

31.3.19

31.12.18

 

31.12.18

Short-term borrowings1

 

 41.1 

 50.0 

 

 (18) 

Securities financing transactions at amortized cost

 

 5.2 

 10.3 

 

 (49) 

Customer deposits

 

 425.9 

 419.8 

 

 1 

Long-term debt issued2

 

 163.0 

 150.3 

 

 8 

Trading portfolio3

 

 34.3 

 28.9 

 

 18 

Derivatives and cash collateral payables on derivative instruments

 

 141.1 

 154.6 

 

 (9) 

Brokerage payables

 

 39.3 

 38.4 

 

 2 

Other financial liabilities at AC / FV4

 

 18.5 

 18.8 

 

 (2) 

Non-financial liabilities and amounts due under unit-linked investment contracts

 

 34.2 

 34.2 

 

 0 

Total liabilities

 

 902.7 

 905.4 

 

 0 

Share capital

 

 0.3 

 0.3 

 

 0 

Share premium

 

 20.1 

 20.8 

 

 (3) 

Treasury shares

 

 (2.2) 

 (2.6) 

 

 (16) 

Retained earnings

 

 31.1 

 30.4 

 

 2 

Other comprehensive income5

 

 4.3 

 3.9 

 

 10 

Total equity attributable to shareholders

 

 53.7 

 52.9 

 

 1 

Equity attributable to non-controlling interests

 

 0.2 

 0.2 

 

 (1) 

Total equity

 

 53.8 

 53.1 

 

 1 

Total liabilities and equity

 

 956.6 

 958.5 

 

 0 

1 Consists of short-term debt issued measured at amortized cost and amounts due to banks.    2 Consists of long-term debt issued measured at amortized 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.    3 Consists of financial liabilities at fair value held for trading.    4 Consists of other financial liabilities measured at amortized cost and other financial liabilities designated at fair value, but excludes amounts due under unit-linked investment contracts.    5 Excludes defined benefit plans and own credit that are recorded directly in Retained earnings.

 

44


 

Off-balance sheet1

 

 

 

 

 

 

 

As of

 

% change from

USD billion

 

31.3.19

31.12.18

 

31.12.18

Total guarantees2

 

 16.5 

 17.0 

 

(3)

Loan commitments2

 

 33.6 

 34.1 

 

(1)

Forward starting reverse repurchase agreements

 

 31.3 

 9.0 

 

248

Forward starting repurchase agreements

 

 16.0 

 8.3 

 

93

1 The information provided in this table is aligned with the scope disclosed in “Note 17 Guarantees, commitments and forward starting transactions” in the “Consolidated financial statements” section of this report.    2 Total guarantees and Loan commitments are shown net of sub-participations.

 

Off-balance sheet (31 March 2019 vs 31 December 2018)  

Forward starting reverse repurchase agreements and forward starting repurchase agreements increased by USD 22 billion and USD 8 billion, respectively, primarily in Corporate Center, reflecting higher market activity on the back of a seasonally low year-end period in 2018. Guarantees and Loan commitments each decreased by USD 0.5 billion, primarily in Personal & Corporate Banking.

 

 

Pro forma net stable funding ratio

 

 

USD billion, except where indicated

31.3.19

31.12.18

Available stable funding

 474 

 469 

Required stable funding

 432 

 426 

Pro forma net stable funding ratio (%)

 110 

 110 

 

Net stable funding ratio

As of 31 March 2019, our estimated pro forma net stable funding ratio (NSFR) was 110%, unchanged from 31 December 2018, primarily reflecting a USD 5 billion increase in available stable funding, mainly driven by an increase in deposits and debt issuances, offset by a USD 6 billion increase in required stable funding, mainly due to an increase in trading assets and loans.

The calculation of our pro forma NSFR includes estimates of the effect of the Basel Committee on Banking Supervision rules and will be refined when NSFR rule-making is completed in Switzerland and as regulatory interpretations evolve and new models and associated systems are enhanced.

®   Refer to the “Treasury management” section of our Annual Report 2018 for more information on the net stable funding ratio

 

Funding by product and currency

 

 

USD billion

 

As a percentage of total funding sources (%)

 

 

All currencies

 

All currencies

 

USD

 

CHF

 

EUR

 

Other

 

 

31.3.19

31.12.18

 

31.3.19

31.12.18

 

31.3.19

31.12.18

 

31.3.19

31.12.18

 

31.3.19

31.12.18

 

31.3.19

31.12.18

Short-term borrowings

 

 41.1 

 50.0 

 

 5.8 

 7.2 

 

 3.0 

 4.0 

 

 0.4 

 0.5 

 

 1.5 

 1.7 

 

 0.9 

 1.0 

of which: due to banks

 

 9.1 

 11.0 

 

 1.3 

 1.6 

 

 0.3 

 0.5 

 

 0.4 

 0.4 

 

 0.2 

 0.2 

 

 0.4 

 0.4 

of which: short-term debt issued1

 

 32.0 

 39.0 

 

 4.5 

 5.6 

 

 2.7 

 3.5 

 

 0.0 

 0.0 

 

 1.3 

 1.4 

 

 0.5 

 0.7 

Securities financing transactions

 

 5.2 

 10.3 

 

 0.7 

 1.5 

 

 0.6 

 1.2 

 

 0.0 

 0.0 

 

 0.0 

 0.0 

 

 0.1 

 0.3 

Cash collateral payables on derivative instruments

 

 30.3 

 28.9 

 

 4.3 

 4.1 

 

 2.0 

 1.9 

 

 0.1 

 0.1 

 

 1.5 

 1.3 

 

 0.8 

 0.8 

Customer deposits

 

 425.9 

 419.8 

 

 60.4 

 60.2 

 

 20.4 

 20.5 

 

 26.2 

 26.0 

 

 8.1 

 8.0 

 

 5.7 

 5.7 

of which: demand deposits

 

 179.9 

 181.9 

 

 25.5 

 26.1 

 

 5.7 

 5.8 

 

 9.9 

 9.9 

 

 6.5 

 6.7 

 

 3.5 

 3.6 

of which: retail savings / deposits

 

 162.2 

 165.8 

 

 23.0 

 23.8 

 

 6.9 

 7.8 

 

 15.3 

 15.2 

 

 0.8 

 0.8 

 

 0.0 

 0.0 

of which: time deposits

 

 61.7 

 53.6 

 

 8.8 

 7.7 

 

 5.9 

 4.9 

 

 0.8 

 0.8 

 

 0.1 

 0.1 

 

 2.0 

 1.9 

of which: fiduciary deposits

 

 22.2 

 18.6 

 

 3.1 

 2.7 

 

 1.9 

 2.0 

 

 0.2 

 0.1 

 

 0.8 

 0.4 

 

 0.2 

 0.2 

Long-term debt issued2

 

 163.0 

 150.3 

 

 23.1 

 21.5 

 

 13.3 

 6.8 

 

 2.1 

 1.4 

 

 5.2 

 4.3 

 

 2.5 

 9.1 

Brokerage payables

 

 39.3 

 38.4 

 

 5.6 

 5.5 

 

 3.9 

 3.8 

 

 0.1 

 0.1 

 

 0.5 

 0.4 

 

 1.1 

 1.2 

Total

 

 704.9 

 697.7 

 

 100.0 

 100.0 

 

 43.1 

 38.2 

 

 28.9 

 28.0 

 

 16.9 

 15.7 

 

 11.1 

 18.1 

1 Short-term debt issued is comprised of certificates of deposit, commercial paper, acceptances and promissory notes, and other money market paper.    2 Long-term debt issued also includes debt with a remaining time to maturity of less than one year.   

 

  

45


Capital management

Capital management

This section provides information on key developments during the reporting period and should be read in conjunction with the “Capital management” section of our Annual Report 2018, which provides more information about our strategy, objectives and governance for capital management. Disclosures in this section are provided for UBS Group AG on a consolidated basis and focus on information in accordance with the Basel III framework, as applicable to Swiss systemically relevant banks (SRBs).


Information in accordance with the Basel Committee on Banking Supervision framework for UBS Group AG consolidated together with capital and other regulatory information for UBS AG consolidated and standalone, UBS Switzerland AG standalone, UBS Europe SE consolidated and UBS Americas Holding LLC consolidated is provided in our 31 March 2019 Pillar 3 report – UBS Group and significant regulated subsidiaries and sub-groups, which is available under “Pillar 3 disclosures” at www.ubs.com/investors.  

Capital and other regulatory information for UBS AG consolidated is provided in the UBS AG first quarter 2019 report, which will be available as of 30 April 2019 under “Quarterly reporting” at www.ubs.com/investors

 

46


 

Swiss SRB requirements and information

Information on the Swiss SRB capital framework and on Swiss SRB going and gone concern requirements that are being phased in until the end of 2019 is provided in the “Capital management” section of our Annual Report 2018, which is available under “Annual reporting” at www.ubs.com/investors These requirements are also applicable to UBS AG consolidated and UBS Switzerland AG standalone. UBS AG is subject to going concern requirements on a standalone basis, for which details are provided in the 31 December 2018 Pillar 3 report – UBS Group and significant regulated subsidiaries and sub-groups, which is available under “Pillar 3 disclosures” at www.ubs.com/investors, and in our 31 March 2019 Pillar 3 report – UBS Group and significant regulated subsidiaries and sub-groups, which is available under “Pillar 3 disclosures” at www.ubs.com/investors

The table below provides the risk-weighted assets (RWA)- and leverage ratio denominator (LRD)-based requirements and information as of 31 March 2019.

 

 

Swiss SRB going and gone concern requirements and information1

 

 

Swiss SRB, including transitional arrangements

As of 31.3.19

 

RWA

 

LRD

USD million, except where indicated

 

Requirement (%)

Actual (%)

Requirement

Eligible

 

Requirement (%)

Actual (%)

Requirement

Eligible

Common equity tier 1 capital

 

 9.99 

 12.95 

 26,730 

 34,658 

 

 3.20 

 3.80 

 29,152 

 34,658 

Maximum high-trigger loss-absorbing additional

tier 1 capital2,3

 

 3.90 

 7.77 

 10,435 

 20,790 

 

 1.30 

 2.28 

 11,843 

 20,790 

of which: high-trigger loss-absorbing additional tier 1 capital

 

 

 4.63 

 

 12,397 

 

 

 1.36 

 

 12,397 

of which: low-trigger loss-absorbing additional tier 1 capital

 

 

 0.89 

 

 2,381 

 

 

 0.26 

 

 2,381 

of which: low-trigger loss-absorbing tier 2 capital

 

 

 2.25 

 

 6,012 

 

 

 0.66 

 

 6,012 

Total going concern capital

 

 13.894

 20.72 

 37,165 

 55,448 

 

 4.505

 6.09 

 40,995 

 55,448 

Base gone concern loss-absorbing capacity, including applicable add-ons and rebate

 

 9.746

 11.97 

 26,071 

 32,020 

 

 3.366

 3.51 

 30,609 

 32,020 

Total gone concern loss-absorbing capacity

 

 9.74 

 11.97 

 26,071 

 32,020 

 

 3.36 

 3.51 

 30,609 

 32,020 

Total loss-absorbing capacity

 

 23.63 

 32.69 

 63,236 

 87,468 

 

 7.86 

 9.60 

 71,604 

 87,468 

 

 

 

 

 

 

 

 

 

 

 

 

 

Swiss SRB as of 1.1.20

As of 31.3.19

 

RWA

 

LRD

USD million, except where indicated

 

Requirement (%)

Actual (%)

Requirement

Eligible

 

Requirement (%)

Actual (%)

Requirement

Eligible

Common equity tier 1 capital

 

 10.31 

 12.95 

 27,586 

 34,658 

 

 3.50 

 3.80 

 31,885 

 34,658 

Maximum high-trigger loss-absorbing additional

tier 1 capital2

 

 4.30 

 5.52 

 11,505 

 14,778 

 

 1.50 

 1.62 

 13,665 

 14,778 

of which: high-trigger loss-absorbing additional tier 1 capital

 

 

 4.63 

 

 12,397 

 

 

 1.36 

 

 12,397 

of which: low-trigger loss-absorbing additional tier 1 capital

 

 

 0.89 

 

 2,381 

 

 

 0.26 

 

 2,381 

Total going concern capital

 

 14.617

 18.48 

 39,091 

 49,436 

 

 5.008

 5.43 

 45,550 

 49,436 

Base gone concern loss-absorbing capacity, including applicable add-ons and rebate/reduction

 

 10.749

 14.21 

 28,742 

 38,032 

 

 3.839

 4.17 

 34,865 

 38,032 

Total gone concern loss-absorbing capacity

 

 10.74 

 14.21 

 28,742 

 38,032 

 

 3.83 

 4.17 

 34,865 

 38,032 

Total loss-absorbing capacity

 

 25.35 

 32.69 

 67,834 

 87,468 

 

 8.83 

 9.60 

 80,415 

 87,468 

1 This table includes a rebate equal to 40% of the maximum rebate on the gone concern requirements, which was granted by FINMA and will be phased in until 1 January 2020, plus an additional reduction of 1.27% for the RWA requirement and 0.37% for the LRD requirement, respectively under Swiss SRB as of 1.1.20 rules, for the usage of low-trigger tier 2 capital instruments to fulfill gone concern requirements.    2 Includes outstanding low-trigger loss-absorbing additional tier 1 (AT1) 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. As of their first call date, these instruments are eligible to meet the gone concern requirements.    3 Includes outstanding high- and low-trigger loss-absorbing tier 2 capital instruments, which are available under the transitional rules of the Swiss SRB framework to meet the going concern 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. 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.    4 Consists of a minimum capital requirement of 8% and a buffer capital requirement of 5.89%, including the effect of countercyclical buffers of 0.31%.    5 Consists of a minimum leverage ratio requirement of 3% and a buffer leverage ratio requirement of 1.5%.    6 Includes applicable add-ons of 1.08% for RWA and 0.38% for LRD and applicable rebate of 1.86% for RWA and 0.64% for LRD.    7 Consists of a minimum capital requirement of 8% and a buffer capital requirement of 6.61%, including the effect of countercyclical buffers of 0.31% and applicable add-ons of 1.44%.    8 Consists of a minimum leverage ratio requirement of 3% and a buffer leverage ratio requirement of 2%, including applicable add-ons of 0.5%.    9 Includes applicable add-ons of 1.44% for RWA and 0.5% for LRD and applicable rebate/reduction of 3.56% for RWA and 1.17% for LRD.

 

47


Capital management

Total loss-absorbing capacity

The table below provides Swiss SRB going and gone concern information based on transitional arrangements and based on the final rules, which will be effective as of 1 January 2020. The remaining differences between the columns “Swiss SRB, including transitional arrangements” and “Swiss SRB as of 1.1.20” are fully related to the eligibility of instruments as required by the too big to fail provisions in the Swiss Capital Adequacy Ordinance applicable to Swiss SRBs, which are described in the “Swiss SRB total loss-absorbing capacity framework” in the “Capital management” section of our Annual Report 2018.

 

 

Swiss SRB going and gone concern information

 

 

 

 

 

 

 

 

Swiss SRB, including

transitional arrangements

 

Swiss SRB as of 1.1.20

USD million, except where indicated

 

31.3.19

31.12.18

 

31.3.19

31.12.18

 

 

 

 

 

 

 

Going concern capital

 

 

 

 

 

 

Common equity tier 1 capital

 

 34,658 

 34,119 

 

 34,658 

 34,119 

High-trigger loss-absorbing additional tier 1 capital

 

 12,397 

 9,790 

 

 12,397 

 9,790 

Low-trigger loss-absorbing additional tier 1 capital

 

 2,381 

 2,369 

 

 2,381 

 2,369 

Total loss-absorbing additional tier 1 capital

 

 14,778 

 12,160 

 

 14,778 

 12,160 

Total tier 1 capital

 

 49,436 

 46,279 

 

 49,436 

 46,279 

Low-trigger loss-absorbing tier 2 capital1

 

 6,012 

 6,008 

 

 

 

Total tier 2 capital

 

 6,012 

 6,008 

 

 

 

Total going concern capital

 

 55,448 

 52,287 

 

 49,436 

 46,279 

 

 

 

 

 

 

 

Gone concern loss-absorbing capacity2

 

 

 

 

 

 

Low-trigger loss-absorbing tier 2 capital1

 

 781 

 771 

 

 6,793 

 6,779 

Non-Basel III-compliant tier 2 capital3

 

 690 

 693 

 

 690 

 693 

Total tier 2 capital

 

 1,471 

 1,464 

 

 7,483 

 7,471 

TLAC-eligible senior unsecured debt

 

 30,548 

 29,988 

 

 30,548 

 29,988 

Total gone concern loss-absorbing capacity

 

 32,020 

 31,452 

 

 38,032 

 37,460 

 

 

 

 

 

 

 

Total loss-absorbing capacity

 

 

 

 

 

 

Total loss-absorbing capacity

 

 87,468 

 83,738 

 

 87,468 

 83,738 

 

 

 

 

 

 

 

Risk-weighted assets / leverage ratio denominator

 

 

 

 

 

 

Risk-weighted assets

 

 267,556 

 263,747 

 

 267,556 

 263,747 

Leverage ratio denominator

 

 910,993 

 904,598 

 

 910,993 

 904,598 

 

 

 

 

 

 

 

Capital and loss-absorbing capacity ratios (%)

 

 

 

 

 

 

Going concern capital ratio

 

 20.7 

 19.8 

 

 18.5 

 17.5 

of which: common equity tier 1 capital ratio

 

 13.0 

 12.9 

 

 13.0 

 12.9 

Gone concern loss-absorbing capacity ratio

 

 12.0 

 11.9 

 

 14.2 

 14.2 

Total loss-absorbing capacity ratio

 

 32.7 

 31.7 

 

 32.7 

 31.7 

 

 

 

 

 

 

 

Leverage ratios (%)

 

 

 

 

 

 

Going concern leverage ratio

 

 6.1 

 5.8 

 

 5.4 

 5.1 

of which: common equity tier 1 leverage ratio

 

 3.80 

 3.77 

 

 3.80 

 3.77 

Gone concern leverage ratio

 

 3.5 

 3.5 

 

 4.2 

 4.1 

Total loss-absorbing capacity leverage ratio

 

 9.6 

 9.3 

 

 9.6 

 9.3 

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 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.    3 Non-Basel III-compliant tier 2 capital instruments qualify as gone concern instruments.

 

48


 

Total loss-absorbing capacity and movement under
Swiss SRB rules applicable as of 1 January 2020

Going concern capital and movement

As of 31 March 2019, our common equity tier 1 (CET1) capital increased by USD 0.5 billion to USD 34.7 billion, mainly as a result of higher operating profit before tax, partly offset by accruals for capital returns to shareholders. Our loss-absorbing additional tier 1 (AT1) capital increased by USD 2.6 billion to USD 14.8 billion as of 31 March 2019, following the issuance of a US dollar-denominated high-trigger additional tier 1 capital instrument.

®   Refer to “UBS shares” in this section for more information on the share repurchase program

Gone concern loss-absorbing capacity and movement

Our total gone concern loss-absorbing capacity increased by USD 0.6 billion to USD 38.0 billion, primarily due to the issuance of USD 0.4 billion equivalent of total loss-absorbing capacity (TLAC)-eligible senior unsecured debt instruments denominated in Swiss francs.

®   Refer to “Bondholder information” at www.ubs.com/investors  for more information on the eligibility of capital and senior unsecured debt instruments and on key features and terms and conditions of capital instruments


Loss-absorbing capacity and leverage ratios

Our CET1 capital ratio increased 0.1 percentage points to 13.0%, reflecting a USD 0.5 billion increase in CET1 capital, partly offset by a USD 3.8 billion increase in RWA.

Our CET1 leverage ratio increased from 3.77% to 3.80% in the first quarter of 2019, reflecting the aforementioned increase in CET1 capital, partly offset by a USD 6 billion increase in the leverage ratio denominator (LRD).

Our gone concern loss-absorbing capacity ratio remained at 14.2% as increased loss absorbing capacity was offset mainly by the aforementioned increase in RWA. Our gone concern leverage ratio increased 0.1 percentage points to 4.2%, mainly resulting from the aforementioned increase in TLAC-eligible senior unsecured debt instruments.

 

 

Reconciliation of IFRS equity to Swiss SRB common equity tier 1 capital

 

 

 

USD million

 

31.3.19

31.12.18

Total IFRS equity

 

 53,840 

 53,103 

Equity attributable to non-controlling interests

 

 (173) 

 (176) 

Deferred tax assets recognized for tax loss carry-forwards

 

 (6,308) 

 (6,107) 

Deferred tax assets on temporary differences, excess over threshold

 

 (344) 

 (586) 

Goodwill, net of tax1

 

 (6,298) 

 (6,514) 

Intangible assets, net of tax

 

 (236) 

 (251) 

Compensation-related components (not recognized in net profit)

 

 (1,359) 

 (1,652) 

Expected losses on advanced internal ratings-based portfolio less provisions

 

 (379) 

 (368) 

Unrealized (gains) / losses from cash flow hedges, net of tax

 

 (564) 

 (109) 

Unrealized own credit related to financial liabilities designated at fair value, net of tax, and replacement values

 

 (51) 

 (397) 

Prudential valuation adjustments

 

 (104) 

 (120) 

Accruals for proposed dividends to shareholders for 2018

 

 (2,648) 

 (2,648) 

Other2

 

 (717) 

 (56) 

Total common equity tier 1 capital

 

 34,658 

 34,119 

1 Includes goodwill related to significant investments in financial institutions of USD 175 million (31 December 2018: USD 176 million) presented on the balance sheet line “Investments in associates.”    2 Includes accruals for dividends to shareholders for the current year and other items.

 

 

49


Capital management

Swiss SRB total loss-absorbing capacity movement

 

 

USD million

Swiss SRB, including

transitional arrangements

Swiss SRB as of 1.1.20

 

 

 

Going concern capital

 

 

Common equity tier 1 capital as of 31.12.18

 34,119 

 34,119 

Operating profit before tax

 1,546 

 1,546 

Current tax (expense) / benefit

 (170) 

 (170) 

Foreign currency translation effects

 (102) 

 (102) 

Defined benefit plans

 (165) 

 (165) 

Other

 (570) 

 (570) 

Common equity tier 1 capital as of 31.3.19

 34,658 

 34,658 

Loss-absorbing additional tier 1 capital as of 31.12.18

 12,160 

 12,160 

Issuance of high-trigger loss-absorbing additional tier 1 capital

 2,534 

 2,534 

Foreign currency translation and other effects

 84 

 84 

Loss-absorbing additional tier 1 capital as of 31.3.19

 14,778 

 14,778 

Tier 2 capital as of 31.12.18

 6,008 

 

Foreign currency translation and other effects

 4 

 

Tier 2 capital as of 31.3.19

 6,012 

 

Total going concern capital as of 31.12.18

 52,287 

 46,279 

Total going concern capital as of 31.3.19

 55,448 

 49,436 

 

 

 

Gone concern loss-absorbing capacity

 

 

Tier 2 capital as of 31.12.18

 1,464 

 7,471 

Foreign currency translation and other effects

 8 

 12 

Tier 2 capital as of 31.3.19

 1,471 

 7,483 

TLAC-eligible senior unsecured debt as of 31.12.18

 29,988 

 29,988 

Issuance of TLAC-eligible senior unsecured debt instruments

 407 

 407 

Foreign currency translation and other effects

 154 

 154 

TLAC-eligible senior unsecured debt as of 31.3.19

 30,548 

 30,548 

Total gone concern loss-absorbing capacity as of 31.12.18

 31,452 

 37,460 

Total gone concern loss-absorbing capacity as of 31.3.19

 32,020 

 38,032 

 

 

 

Total loss-absorbing capacity

 

 

Total loss-absorbing capacity as of 31.12.18

 83,738 

 83,738 

Total loss-absorbing capacity as of 31.3.19

 87,468 

 87,468 

 

 

50


 

Additional information

Sensitivity to currency movements

Risk-weighted assets

We estimate that a 10% depreciation of the US dollar against other currencies would have increased our RWA by USD 11 billion and our CET1 capital by USD 1.2 billion as of 31 March 2019 (31 December 2018: USD 11 billion and USD 1.2 billion, respectively) and reduced our CET1 capital ratio by 9 basis points (31 December 2018: 9 basis points). Conversely, we estimate that a 10% appreciation of the US dollar against other currencies would have reduced our RWA by USD 10 billion and our CET1 capital by USD 1.1 billion (31 December 2018: USD 10 billion and USD 1.1 billion, respectively) and increased our CET1 capital ratio by 9 basis points (31 December 2018: 9 basis points).

Leverage ratio denominator

We estimate that a 10% depreciation of the US dollar against other currencies would have increased our LRD by USD 58  billion (31 December 2018: USD 57 billion) and reduced our Swiss SRB going concern leverage ratio by 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 reduced our LRD by USD 52 billion (31 December 2018: USD 51 billion) and increased our Swiss SRB going concern leverage ratio by 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.

®   Refer to “Active management of sensitivity to currency movements” in the “Capital management” section of our Annual Report 2018 for more information


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 16 Provisions and contingent liabilities” in the “Consolidated financial statements” section of this report. We have used for this purpose the advanced measurement approach (AMA) methodology that we use when determining the capital requirements associated with operational risks, based on a 99.9% confidence level over a 12-month horizon. The methodology takes into consideration UBS and industry experience for the AMA operational risk categories to which those matters correspond, as well as the external environment affecting risks of these types, in isolation from other areas. On this standalone basis, we estimate the loss in capital that we could incur over a 12-month period as a result of our risks associated with these operational risk categories at USD 4.6 billion as of 31 March 2019. 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 our Annual Report 2018 for more information

®   Refer to “Note 16  Provisions and contingent liabilities” in the “Consolidated financial statements” section of this report for more information

 

51


Capital management

Risk-weighted assets

During the first quarter of 2019, risk-weighted assets (RWA) increased by USD 3.8 billion to USD 267.6 billion, reflecting increases from model updates of USD 3.9 billion, methodology and policy changes of USD 3.8 billion and regulatory add-ons of USD 0.9 billion, partly offset by asset size and other movements of USD 3.8 billion and currency effects of USD 0.9 billion.

 

Movement in risk-weighted assets by key driver

USD billion

 

RWA as of 31.12.18

Currency

effects

Methodology and policy changes

Model updates / changes

Regulatory add-ons

Asset size and other1

RWA as of 31.3.19

Credit and counterparty credit risk2

 

 147.9 

 (0.9) 

 0.3 

 0.4 

 0.6 

 4.3 

 152.7 

Non-counterparty-related risk

 

 18.3 

 (0.1) 

 3.5 

 

 

 (0.2) 

 21.5 

Market risk

 

 20.0 

 

 

 0.7 

 0.3 

 (8.0) 

 13.0 

Operational risk

 

 77.6 

 

 

 2.8 

 

 

 80.3 

Total

 

 263.7 

 (0.9) 

 3.8 

 3.9 

 0.9 

 (3.8) 

 267.6 

1 Includes the Pillar 3 categories “Asset size,” “Credit quality of counterparties,” “Acquisitions and disposals” and “Other.” Refer to the 31 March 2019 Pillar 3 report under “Pillar 3 disclosures” at www.ubs.com/investors for more information.    2 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 4.8 billion to USD 152.7 billion as of 31 March 2019.

The RWA increase from asset size and other movements of USD 4.3 billion was mainly driven by a USD 4.3 billion increase in the Investment Bank, primarily reflecting increases in traded loans and exposures in real estate financing within the Corporate Client Solutions business, as well as an increase in derivative exposures within the Foreign Exchange, Rates and Credit business.

A regulatory add-on of USD 0.6 billion was agreed with FINMA in the first quarter for certain portfolios awaiting the development of a formalized rating tool, resulting in an increase of USD 0.5 billion in Corporate Center, and USD 0.1 billion in the Investment Bank. In addition, RWA increased by USD 0.4 billion as a result of model updates, predominantly the continued phasing-in of RWA increases related to probability of default (PD) and loss given default (LGD) changes from the implementation of revised models for Swiss residential mortgages, affecting Personal & Corporate Banking and Global Wealth Management.

A further increase from methodology and policy changes of USD 0.3 billion was related to the removal of the expert rating approach applied for exposures with no approved rating methodology.

We anticipate that methodology changes and model updates, including the continued phase-in of RWA increases related to PD and LGD factors on Swiss mortgages, will increase credit and counterparty credit risk RWA by around USD 1.5 billion for the remainder of 2019, of which approximately USD 0.5 billion is expected in the second quarter of 2019. The extent and timing of RWA changes may vary as methodology changes and model updates are completed and receive regulatory approval, and as regulatory multipliers are adjusted. In addition, changes in the
composition of the relevant portfolios and other factors will affect our RWA.

®   Refer to “Credit risk models” in the “Risk management and control” section of our Annual Report 2018 for more information

Non-counterparty credit risk

Non-counterparty credit risk RWA increased by USD 3.2 billion to USD 21.5 billion as of 31 March 2019, primarily driven by an increase of USD 3.5 billion from the adoption of IFRS 16, Leases

®   Refer to “Note 1 Basis of accounting” in the “Consolidated financial statements” section of this report for more information on IFRS 16

Market risk

Market risk RWA decreased by USD 7.0 billion in the first quarter of 2019, driven by asset size and other movements resulting from lower average regulatory value-at-risk (VaR), stressed VaR and incremental risk charge (IRC) levels observed in the Investment Bank. This decrease was driven by the Equities business due to a reduction in market volatility as well as a decrease in client activity along with an overall reduction in credit exposure in the FRC business. This was partly offset by an increase of USD 0.7 billion, primarily related to the ongoing parameter update of the VaR model and VaR model changes as well as an increase from regulatory add-ons of USD 0.3 billion, reflecting updates from the monthly risks-not-in-VaR assessment.

®   Refer to the “Risk management and control” section of this report and the 31 March 2019 Pillar 3 report – UBS Group and significant regulated subsidiaries and sub-groups, which is available under “Pillar 3 disclosures” at www.ubs.com/investors, for more information on market risk developments

 

52


 

Operational risk

Operational risk RWA increased by USD 2.8 billion to USD 80.3 billion as of 31 March 2019, as model inputs in the advanced measurement approach (AMA) model were updated during the quarter to reflect developments related to litigation on the cross-border matter.  

®  Refer to “Operational risk” in the “Risk management and control” section of our Annual Report 2018 for more information on the advanced measurement approach model

®  Refer to “Note 16  Provisions and contingent liabilities” in the “Consolidated financial statements” section of this report for more information on the French litigation matter


 

Risk-weighted assets by business division and Corporate Center

USD billion

 

Global Wealth

Management

Personal &

Corporate

Banking

Asset

Manage-

ment

Investment

Bank

Corporate Center

Total

RWA

 

 

31.3.19

Credit and counterparty credit risk1

 

 32.6 

 54.2 

 2.0 

 55.5 

 8.5 

 152.7 

Non-counterparty-related risk2

 

 6.3 

 2.1 

 0.7 

 3.3 

 9.1 

 21.5 

Market risk

 

 0.8 

 0.0 

 0.0 

 10.5 

 1.7 

 13.0 

Operational risk

 

 37.2 

 8.0 

 2.1 

 23.3 

 9.7 

 80.3 

Total

 

 76.9 

 64.3 

 4.8 

 92.6 

 29.0 

 267.6 

 

 

 

 

 

 

 

 

 

 

31.12.18

Credit and counterparty credit risk1

 

 32.5 

 54.7 

 1.8 

 51.3 

 7.7 

 147.9 

Non-counterparty-related risk2

 

 4.5 

 1.5 

 0.6 

 2.5 

 9.2 

 18.3 

Market risk

 

 1.3 

 0.0 

 0.0 

 16.8 

 1.9 

 20.0 

Operational risk

 

 36.0 

 7.7 

 2.0 

 22.5 

 9.4 

 77.6 

Total

 

 74.3 

 63.9 

 4.3 

 93.2 

 28.1 

 263.7 

 

 

 

 

 

 

 

 

 

 

31.3.19 vs 31.12.18

Credit and counterparty credit risk1

 

 0.1 

 (0.4) 

 0.2 

 4.1 

 0.8 

 4.8 

Non-counterparty-related risk2

 

 1.7 

 0.6 

 0.2 

 0.8 

 (0.1) 

 3.2 

Market risk

 

 (0.5) 

 0.0 

 0.0 

 (6.3) 

 (0.2) 

 (7.0) 

Operational risk

 

 1.3 

 0.3 

 0.1 

 0.8 

 0.3 

 2.8 

Total

 

 2.6 

 0.4 

 0.5 

 (0.6) 

 0.9 

 3.8 

1 Includes settlement risk, credit valuation adjustments, equity exposures in the banking book and securitization exposures in the banking book.    2 Non-counterparty-related risk includes deferred tax assets recognized for temporary differences (31 March 2019: USD 8.7 billion; 31 December 2018: USD 8.8 billion), property, equipment and software (31 March 2019: USD 12.6 billion; 31 December 2018: USD 9.3 billion) and other items (31 March 2019: USD 0.2 billion; 31 December 2018: USD 0.2 billion).   

 

53


Capital management

Leverage ratio denominator

During the first quarter of 2019, the leverage ratio denominator (LRD) increased by USD 6 billion to USD 911 billion. This increase was driven by asset size and other movements of USD 8 billion as well as policy changes of USD 4 billion, partly offset by a decrease in currency effects of USD 5 billion.

 

Movement in leverage ratio denominator by key driver

USD billion

 

LRD as of

31.12.18

Currency

effects

Policy changes

Asset size and

other

LRD as of

31.03.19

On-balance sheet exposures (excluding derivative exposures and SFTs)1

 

 663.1 

 (3.9) 

 3.5 

 8.4 

 671.1 

Derivative exposures

 

 95.4 

 (0.3) 

 

 0.0 

 95.0 

Securities financing transactions

 

 130.9 

 (0.3) 

 

 1.5 

 132.1 

Off-balance sheet items

 

 29.0 

 (0.2) 

 

 (2.6) 

 26.3 

Deduction items

 

 (13.8) 

 0.0 

 

 0.3 

 (13.6) 

Total

 

 904.6 

 (4.7) 

 3.5 

 7.6 

 911.0 

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 related to securities financing transactions, which are presented separately under Derivative exposures and Securities financing transactions in this table.

 

 

The LRD movements described below exclude currency effects.

On-balance sheet exposures (excluding derivatives and securities financing transactions (SFTs)) increased by USD 12 billion due to higher trading portfolio assets resulting from increases in economic hedges of long-term debt issued measured at fair value and higher cash and cash equivalents, positive market-driven effects on certain financial assets measured at fair value, as well as an increase of USD 3.5 billion from the adoption of IFRS 16, Leases

Off-balance sheet items decreased by USD 3 billion, mainly due to client-driven activity and treating certain derivative loan commitments from the first quarter 2019 as derivative exposures to align with the accounting presentation.


SFTs increased by USD 1 billion, due to asset size and other movements, primarily resulting from USD 5 billion increase in receivables from securities financing transactions held at amortized cost, mainly relating to increased client activity. This increase was partly offset by a decrease of USD 3 billion in other financial assets at fair value not held for trading as a result of trade unwinds and reinvestment of cash and cash equivalents in the Corporate Center.  

®   Refer to the “Balance sheet, liquidity and funding management” section of this report for more information on balance sheet movements

54


 

Leverage ratio denominator by business division and Corporate Center

USD billion

 

Global Wealth

Management

Personal &

Corporate

Banking

Asset

Management

Investment

Bank

Corporate Center

Total

 

 

31.3.19

Total IFRS assets

 

 322.3 

 199.0 

 31.0 

 295.3 

 109.0 

 956.6 

Difference in scope of consolidation1

 

 (0.2) 

 0.0 

 (24.6) 

 (0.4) 

 0.1 

 (25.1) 

Less: derivative exposures and SFTs2

 

 (42.1) 

 (18.7) 

 (0.9) 

 (137.9) 

 (60.7) 

 (260.4) 

On-balance sheet exposures

 

 280.0 

 180.3 

 5.5 

 157.0 

 48.3 

 671.1 

Derivative exposures

 

 7.5 

 1.4 

 0.0 

 76.8 

 9.3 

 95.0 

Securities financing transactions

 

 38.9 

 17.7 

 0.9 

 46.7 

 27.9 

 132.1 

Off-balance sheet items

 

 4.7 

 12.5 

 0.0 

 8.2 

 0.8 

 26.3 

Items deducted from Swiss SRB tier 1 capital

 

 (5.2) 

 (0.3) 

 (1.4) 

 (0.3) 

 (6.4) 

 (13.6) 

Total

 

 325.9 

 211.6 

 5.1 

 288.4 

 79.9 

 911.0 

 

 

 

 

 

 

 

 

 

 

31.12.18

Total IFRS assets

 

 313.7 

 200.7 

 28.1 

 302.1 

 113.7 

 958.4 

Difference in scope of consolidation1

 

 (0.2) 

 0.0 

 (21.7) 

 (0.4) 

 0.0 

 (22.3) 

Less: derivative exposures and SFTs2

 

 (41.6) 

 (18.9) 

 (1.0) 

 (148.1) 

 (63.4) 

 (273.0) 

On-balance sheet exposures

 

 272.0 

 181.8 

 5.4 

 153.6 

 50.3 

 663.1 

Derivative exposures

 

 8.6 

 1.2 

 0.0 

 75.2 

 10.3 

 95.4 

Securities financing transactions

 

 35.5 

 18.1 

 1.0 

 44.3 

 32.0 

 130.9 

Off-balance sheet items

 

 5.0 

 13.0 

 0.0 

 10.6 

 0.5 

 29.0 

Items deducted from Swiss SRB tier 1 capital

 

 (5.3) 

 (0.3) 

 (1.4) 

 (0.2) 

 (6.7) 

 (13.8) 

Total

 

 315.8 

 213.7 

 5.0 

 283.4 

 86.5 

 904.6 

 

 

 

31.3.19 vs 31.12.18

Total IFRS assets

 

 8.6 

 (1.7) 

 2.9 

 (6.9) 

 (4.7) 

 (1.8) 

Difference in scope of consolidation1

 

 0.0 

 0.0 

 (2.8) 

 0.0 

 0.0 

 (2.8) 

Less: derivative exposures and SFTs2

 

 (0.6) 

 0.2 

 0.1 

 10.2 

 2.6 

 12.6 

On-balance sheet exposures

 

 8.0 

 (1.5) 

 0.1 

 3.4 

 (2.0) 

 8.0 

Derivative exposures

 

 (1.0) 

 0.2 

 0.0 

 1.5 

 (1.0) 

 (0.3) 

Securities financing transactions

 

 3.4 

 (0.4) 

 (0.1) 

 2.4 

 (4.1) 

 1.2 

Off-balance sheet items

 

 (0.3) 

 (0.4) 

 0.0 

 (2.3) 

 0.3 

 (2.7) 

Items deducted from Swiss SRB tier 1 capital

 

 0.0 

 0.0 

 0.0 

 0.0 

 0.2 

 0.2 

Total

 

 10.1 

 (2.1) 

 0.1 

 5.0 

 (6.6) 

 6.4 

1 Represents the difference between the IFRS and the regulatory scope of consolidation, which is the applicable scope for the LRD calculation.    2 Consists of 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.   

55


Capital management

Equity attribution and return on attributed equity

As of 1 January 2019, we have updated our equity attribution framework. Specifically, we have revised the capital ratio for risk-weighted assets (RWA) from 11% to 12.5% 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 “Recent developments” section of this report for more information on the 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 loss 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 constituted the largest component of Corporate Center Group items, dividend accruals and unrealized gains from cash flow hedges.

®   Refer to the “Capital management” section of our Annual Report 2018 for more information on the equity attribution framework

 

 

Attributed equity

 

 

 

 

 

 

For the quarter ended

USD billion

 

31.3.19

31.12.18

31.3.18

 

 

 

 

 

Average attributed equity

 

 

 

 

Global Wealth Management

 

 16.4 

 16.3 

 16.3 

Personal & Corporate Banking

 

 8.3 

 8.1 

 8.0 

Asset Management

 

 1.8 

 1.8 

 1.8 

Investment Bank

 

 12.3 

 12.7 

 13.1 

Corporate Center

 

 14.5 

 13.6 

 13.9 

of which: deferred tax assets1

 

 7.3 

 7.1 

 7.4 

of which: dividend accruals and others

 

 4.1 

 3.7 

 3.4 

of which: related to retained RWA and LRD2

 

 3.1 

 2.9 

 3.1 

Average equity attributed to business divisions and Corporate Center

 

 53.3 

 52.5 

 53.1 

1 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.    2 Excludes average attributed equity related to retained RWA and LRD related to deferred tax assets.

 

 

56


 

Return on attributed equity

 

 

For the quarter ended

In %

 

31.3.19

31.12.18

31.3.18

 

 

 

 

 

Return on (attributed) equity1

 

 

 

 

 

 

 

 

 

Reported

 

 

 

 

Global Wealth Management

 

 21.1 

 8.0 

 27.1 

Personal & Corporate Banking

 

 18.5 

 31.8 

 20.4 

Asset Management

 

 23.0 

 23.7 

 22.9 

Investment Bank

 

 6.8 

 (2.5) 

 17.6 

UBS Group

 

 8.6 

 2.4 

 11.8 

 

 

 

 

 

Adjusted2

 

 

 

 

Global Wealth Management

 

 21.3 

 7.4 

 27.0 

Personal & Corporate Banking

 

 18.7 

 15.0 

 19.1 

Asset Management

 

 24.3 

 28.2 

 23.2 

Investment Bank

 

 7.2 

 (0.2) 

 18.9 

UBS Group

 

 8.7 

 2.4 

 11.2 

1 Return on attributed equity shown for the business divisions. Return on equity attributable to shareholders shown for the UBS Group. Return on attributed equity  for Corporate Center is not shown, as it is not meaningful.    2 Adjusted results are non-GAAP financial measures as defined by SEC regulations.

57


Capital management

UBS shares

UBS Group AG shares are listed on the SIX Swiss Exchange (SIX). They are also listed on the New York Stock Exchange (NYSE) as global registered shares. Each share has a par value of CHF 0.10 per share.

Shares issued increased by 3 million shares in the first quarter of 2019 due to the issuance of shares out of conditional share capital upon exercise of employee share options.


Treasury shares, which are primarily held to hedge our share delivery obligations related to employee share-based compensation and participation plans, totaled 146 million shares as of 31 March 2019.

Treasury shares held decreased by 21 million shares in the first quarter of 2019, mainly due to the delivery of treasury shares under share-based compensation plans, partly offset by the purchase of shares from the market in order to hedge future share delivery obligations related to employee share-based compensation awards.

 

 

UBS Group AG share information

 

 

 

 

 

 

 

 

As of or for the quarter ended

 

% change from

 

 

31.3.19

31.12.18

31.3.18

 

31.12.18

Shares issued

 

 3,858,959,179 

 3,855,634,749 

 3,854,297,125 

 

 0 

Treasury shares

 

 145,878,663 

 166,467,802 

 93,077,090 

 

 (12) 

Shares outstanding

 

 3,713,080,516 

 3,689,166,947 

 3,761,220,035 

 

 1 

Basic earnings per share (USD)1

 

 0.31 

 0.08 

 0.42 

 

 288 

Diluted earnings per share (USD)1

 

 0.30 

 0.08 

 0.41 

 

 275 

Basic earnings per share (CHF)2

 

 0.31 

 0.09 

 0.39 

 

 244 

Diluted earnings per share (CHF)2

 

 0.30 

 0.09 

 0.38 

 

 233 

Equity attributable to shareholders (USD million)

 

 53,667 

 52,928 

 53,662 

 

 1 

Less: goodwill and intangible assets (USD million)

 

 6,621 

 6,647 

 6,540 

 

 0 

Tangible equity attributable to shareholders (USD million)

 

 47,046 

 46,281 

 47,122 

 

 2 

Total book value per share (USD)

 

 14.45 

 14.35 

 14.27 

 

1

Tangible book value per share (USD)

 

 12.67 

 12.55 

 12.53 

 

1

Share price (USD)3

 

 12.12 

 12.44 

 17.62 

 

 (3) 

Market capitalization (USD million)4

 

 45,009 

 45,907 

 66,261 

 

(2)

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 Basic and diluted earnings per share in Swiss francs are calculated based on a translation of net profit / (loss) under our US dollar presentation currency. As a consequence of the restatement to a US dollar presentation currency, amounts may differ from those originally published in our quarterly and annual reports.    3 Represents the share price as listed on the SIX Swiss Exchange, translated to US dollars using the closing exchange rate as of the respective date.    4 Beginning with our Annual Report 2018, the calculation of market capitalization has been amended to reflect total shares outstanding multiplied by the share price at the end of the period. The calculation was previously based on total shares issued multiplied by the share price at the end of the period. Market capitalization has been reduced by USD 2.1 billion as of 31 December 2018 and by USD 1.7 billion as of 31 March 2018 as a result.

 

 

 

 

Ticker symbols UBS Group AG

 

 

 

 

Trading exchange

SIX / NYSE

Bloomberg

Reuters

SIX Swiss Exchange

UBSG

UBSG SW

UBSG.S

New York Stock Exchange

UBS

UBS UN

UBS.N

 

Security identification codes

ISIN

 

CH0244767585

Valoren

 

24 476 758

CUSIP

 

CINS H42097 10 7

58


 

Consolidated financial statements

Unaudited

 

 

 


 

Table of contents

 

UBS Group AG interim consolidated financial
statements (unaudited)

 

 

61

Income statement

62

Statement of comprehensive income

64

Balance sheet

66

Statement of changes in equity

68

Statement of cash flows

 

 

70

1     Basis of accounting

74

2     Segment reporting

76

3     Net interest income

76

4     Net fee and commission income

77

5     Other income

77

6     Personnel expenses

77

7     General and administrative expenses

78

8     Income taxes

78

9     Earnings per share (EPS) and shares outstanding

79

10   Expected credit loss measurement

82

11   Fair value measurement

91

12   Derivative instruments

92

13   Other assets and liabilities

94

14   Debt issued designated at fair value

94

15   Debt issued measured at amortized cost

95

16   Provisions and contingent liabilities

102

17   Guarantees, commitments and forward starting
       transactions

102

18   Currency translation rates

 

 

 

UBS AG interim consolidated financial information
(unaudited)

 

 

103

Comparison UBS Group AG consolidated versus
UBS AG consolidated

  

 


 

UBS Group AG interim consolidated financial statements (unaudited)

Income statement

 

 

 

 

 

 

 

 

 

 

For the quarter ended

USD million

 

Note

 

31.3.19

31.12.18

31.3.18

Interest income from financial instruments measured at amortized cost and fair value through

other comprehensive income

 

 3 

 

 2,669 

 2,683 

 2,386 

Interest expense from financial instruments measured at amortized cost

 

 3 

 

 (1,885) 

 (1,781) 

 (1,388) 

Interest income from financial instruments measured at fair value through profit or loss

 

 3 

 

 1,345 

 1,337 

 1,113 

Interest expense from financial instruments measured at fair value through profit or loss

 

 3 

 

 (1,006) 

 (1,013) 

 (677) 

Net interest income

 

 3 

 

 1,123 

 1,226 

 1,435 

Other net income from financial instruments measured at fair value through profit or loss

 

 

 

 1,935 

 1,297 

 1,973 

Credit loss (expense) / recovery

 

 10 

 

 (20) 

 (53) 

 (26) 

Fee and commission income

 

 4 

 

 4,541 

 4,700 

 5,178 

Fee and commission expense

 

 4 

 

 (409) 

 (439) 

 (433) 

Net fee and commission income

 

 4 

 

 4,132 

 4,261 

 4,744 

Other income

 

 5 

 

 49 

 241 

 42 

Total operating income

 

 

 

 7,218 

 6,972 

 8,168 

Personnel expenses

 

 6 

 

 4,043 

 3,839 

 4,254 

General and administrative expenses

 

 7 

 

 1,187 

 2,293 

 1,510 

Depreciation and impairment of property, equipment and software

 

 

 

 427 

 343 

 288 

Amortization and impairment of intangible assets

 

 

 

 16 

 17 

 16 

Total operating expenses

 

 

 

 5,672 

 6,492 

 6,069 

Operating profit / (loss) before tax

 

 

 

 1,546 

 481 

 2,100 

Tax expense / (benefit)

 

 8 

 

 407 

 165 

 533 

Net profit / (loss)

 

 

 

 1,139 

 315 

 1,567 

Net profit / (loss) attributable to non-controlling interests

 

 

 

 (2) 

 1 

 2 

Net profit / (loss) attributable to shareholders

 

 

 

 1,141 

 315 

 1,566 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share (USD)

 

 

 

 

 

 

Basic

 

 9 

 

 0.31 

 0.08 

 0.42 

Diluted

 

 9 

 

 0.30 

 0.08 

 0.41 

 

61


UBS Group AG interim consolidated financial statements (unaudited)

Statement of comprehensive income

 

 

 

 

 

 

For the quarter ended

USD million

 

31.3.19

31.12.18

31.3.18

 

 

 

 

 

Comprehensive income attributable to shareholders

 

 

 

 

Net profit / (loss)

 

 1,141 

 315 

 1,566 

 

 

 

 

 

Other comprehensive income that may be reclassified to the income statement

 

 

 

 

Foreign currency translation

 

 

 

 

Foreign currency translation movements related to net assets of foreign operations, before tax

 

 (157) 

 (120) 

 652 

Effective portion of changes in fair value of hedging instruments designated as net investment hedges, before tax

 

 26 

 21 

 106 

Foreign currency translation differences on foreign operations reclassified to the income statement

 

 1 

 (8) 

 0 

Effective portion of changes in fair value of hedging instruments designated as net investment hedges reclassified to the income statement

 

 0 

 2 

 0 

Income tax relating to foreign currency translations, including the impact of net investment hedges

 

 1 

 0 

 0 

Subtotal foreign currency translation, net of tax

 

 (128) 

 (105) 

 758 

Financial assets measured at fair value through other comprehensive income

 

 

 

 

Net unrealized gains / (losses), before tax

 

 81 

 68 

 (80) 

Impairment charges reclassified to the income statement from equity

 

 0 

 0 

 0 

Realized gains reclassified to the income statement from equity

 

 (1) 

 0 

 0 

Realized losses reclassified to the income statement from equity

 

 0 

 0 

 0 

Income tax relating to net unrealized gains / (losses)

 

 (17) 

 (23) 

 24 

Subtotal financial assets measured at fair value through other comprehensive income, net of tax

 

 62 

 44 

 (57) 

Cash flow hedges of interest rate risk

 

 

 

 

Effective portion of changes in fair value of derivative instruments designated as cash flow hedges, before tax

 

 588 

 816 

 (476) 

Net (gains) / losses reclassified to the income statement from equity

 

 (21) 

 (43) 

 (134) 

Income tax relating to cash flow hedges

 

 (107) 

 (157) 

 122 

Subtotal cash flow hedges, net of tax

 

 459 

 616 

 (488) 

Total other comprehensive income that may be reclassified to the income statement, net of tax

 

 393 

 556 

 214 

 

 

 

 

 

Other comprehensive income that will not be reclassified to the income statement

 

 

 

 

Defined benefit plans

 

 

 

 

Gains / (losses) on defined benefit plans, before tax

 

 (163) 

 (252) 

 (154) 

Income tax relating to defined benefit plans

 

 (16) 

 221 

 47 

Subtotal defined benefit plans, net of tax

 

 (179) 

 (31) 

 (107) 

Own credit on financial liabilities designated at fair value

 

 

 

 

Gains / (losses) from own credit on financial liabilities designated at fair value, before tax

 

 (326) 

 376 

 180 

Income tax relating to own credit on financial liabilities designated at fair value

 

 8 

 (8) 

 (2) 

Subtotal own credit on financial liabilities designated at fair value, net of tax

 

 (318) 

 368 

 178 

Total other comprehensive income that will not be reclassified to the income statement, net of tax

 

 (497) 

 336 

 71 

 

 

 

 

 

Total other comprehensive income

 

 (104) 

 892 

 285 

Total comprehensive income attributable to shareholders

 

 1,037 

 1,207 

 1,850 

 

62


 

Statement of comprehensive income (continued)

 

 

 

 

 

 

For the quarter ended

USD million

 

31.3.19

31.12.18

31.3.18

 

 

 

 

 

Comprehensive income attributable to non-controlling interests

 

 

 

 

Net profit / (loss)

 

 (2) 

 1 

 2 

 

 

 

 

 

Other comprehensive income that will not be reclassified to the income statement

 

 

 

 

Foreign currency translation movements, before tax

 

 4 

 1 

 2 

Income tax relating to foreign currency translation movements

 

 0 

 0 

 0 

Subtotal foreign currency translation, net of tax

 

 4 

 1 

 2 

Total other comprehensive income that will not be reclassified to the income statement, net of tax

 

 4 

 1 

 2 

Total comprehensive income attributable to non-controlling interests

 

 2 

 2 

 3 

 

 

 

 

 

Total comprehensive income

 

 

 

 

Net profit / (loss)

 

 1,139 

 315 

 1,567 

Other comprehensive income

 

 (100) 

 893 

 286 

of which: other comprehensive income that may be reclassified to the income statement

 

 393 

 556 

 214 

of which: other comprehensive income that will not be reclassified to the income statement

 

 (493) 

 337 

 73 

Total comprehensive income

 

 1,039 

 1,208 

 1,854 

 

 

63


UBS Group AG interim consolidated financial statements (unaudited)

 

Balance sheet

 

 

 

 

 

USD million

 

Note

 

31.3.19

31.12.18

 

 

 

 

 

 

Assets

 

 

 

 

 

Cash and balances at central banks

 

 

 

 110,618 

 108,370 

Loans and advances to banks

 

 

 

 17,013 

 16,868 

Receivables from securities financing transactions

 

 

 

 100,222 

 95,349 

Cash collateral receivables on derivative instruments

 

 12 

 

 25,164 

 23,602 

Loans and advances to customers

 

 10 

 

 318,623 

 320,352 

Other financial assets measured at amortized cost

 

 13 

 

 22,433 

 22,563 

Total financial assets measured at amortized cost

 

 

 

 594,074 

 587,104 

Financial assets at fair value held for trading

 

 11 

 

 109,586 

 104,370 

of which: assets pledged as collateral that may be sold or repledged by counterparties

 

 

 

 33,828 

 32,121 

Derivative financial instruments

 

11, 12

 

 111,160 

 126,210 

Brokerage receivables

 

 11 

 

 16,275 

 16,840 

Financial assets at fair value not held for trading

 

 11 

 

 81,267 

 82,690 

Total financial assets measured at fair value through profit or loss

 

 

 

 318,288 

 330,110 

Financial assets measured at fair value through other comprehensive income

 

 11 

 

 7,168 

 6,667 

Investments in associates

 

 

 

 1,095 

 1,099 

Property, equipment and software

 

 

 

 12,612 

 9,348 

Goodwill and intangible assets

 

 

 

 6,621 

 6,647 

Deferred tax assets

 

 

 

 9,828 

 10,105 

Other non-financial assets

 

 13 

 

 6,893 

 7,410 

Total assets

 

 

 

 956,579 

 958,489 

 

64


 

Balance sheet (continued)

 

 

 

 

 

USD million

 

Note

 

31.3.19

31.12.18

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Amounts due to banks

 

 

 

 9,083 

 10,962 

Payables from securities financing transactions

 

 

 

 5,246 

 10,296 

Cash collateral payables on derivative instruments

 

 12 

 

 30,319 

 28,906 

Customer deposits

 

 

 

 425,943 

 419,838 

Debt issued measured at amortized cost

 

 15 

 

 128,105 

 132,271 

Other financial liabilities measured at amortized cost

 

 13 

 

 10,416 

 6,885 

Total financial liabilities measured at amortized cost

 

 

 

 609,111 

 609,158 

Financial liabilities at fair value held for trading

 

 11 

 

 34,259 

 28,943 

Derivative financial instruments

 

11, 12

 

 110,807 

 125,723 

Brokerage payables designated at fair value

 

 11 

 

 39,326 

 38,420 

Debt issued designated at fair value

 

11, 14

 

 66,919 

 57,031 

Other financial liabilities designated at fair value

 

11, 13

 

 32,394 

 33,594 

Total financial liabilities measured at fair value through profit or loss

 

 

 

 283,705 

 283,711 

Provisions

 

 16 

 

 3,197 

 3,494 

Other non-financial liabilities

 

 13 

 

 6,726 

 9,022 

Total liabilities

 

 

 

 902,739 

 905,386 

 

 

 

 

 

 

Equity

 

 

 

 

 

Share capital

 

 

 

 338 

 338 

Share premium

 

 

 

 20,135 

 20,843 

Treasury shares

 

 

 

 (2,210) 

 (2,631) 

Retained earnings

 

 

 

 31,085 

 30,448 

Other comprehensive income recognized directly in equity, net of tax

 

 

 

 4,320 

 3,930 

Equity attributable to shareholders

 

 

 

 53,667 

 52,928 

Equity attributable to non-controlling interests

 

 

 

 173 

 176 

Total equity

 

 

 

 53,840 

 53,103 

Total liabilities and equity

 

 

 

 956,579 

 958,489 

 

65


UBS Group AG interim consolidated financial statements (unaudited)

 

Statement of changes in equity

 

 

 

 

USD million

Share

capital

Share

premium

Treasury

shares

Retained

earnings

Balance as of 1 January 2018

 338 

 23,598 

 (2,210) 

 25,389 

Issuance of share capital

 0 

 

 

 

Acquisition of treasury shares

 

 

 (379) 

 

Delivery of treasury shares under share-based compensation plans

 

 (945) 

 999 

 

Other disposal of treasury shares

 

 

 13 

 

Premium on shares issued and warrants exercised

 

 10 

 

 

Share-based compensation expensed in the income statement

 

 219 

 

 

Tax (expense) / benefit

 

 3 

 

 

Dividends

 

 

 

 

Translation effects recognized directly in retained earnings

 

 

 

 (22) 

New consolidations / (deconsolidations) and other increases / (decreases)

 

 14 

 

 

Total comprehensive income for the period

 

 

 

 1,637 

of which: net profit / (loss)

 

 

 

 1,566 

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

 

 

 

 (107) 

of which: OCI that will not be reclassified to the income statement, net of tax – own credit

 

 

 

 178 

of which: OCI that will not be reclassified to the income statement, net of tax – foreign currency translation

 

 

 

 

Balance as of 31 March 2018

 338 

 22,897 

 (1,577) 

 27,004 

 

 

 

 

 

Balance as of 1 January 2019 before the adoption of IFRIC 23

 338 

 20,843 

 (2,631) 

 30,448 

Effect of adoption of IFRIC 23

 

 

 

 (11) 

Balance as of 1 January 2019 after the adoption of IFRIC 23

 338 

 20,843 

 (2,631) 

 30,437 

Issuance of share capital

 0 

 

 

 

Acquisition of treasury shares

 

 

 (466) 

 

Delivery of treasury shares under share-based compensation plans

 

 (841) 

 871 

 

Other disposal of treasury shares

 

 (1) 

 16 

 

Premium on shares issued and warrants exercised

 

 28 

 

 

Share-based compensation expensed in the income statement

 

 167 

 

 

Tax (expense) / benefit

 

 5 

 

 

Dividends

 

 

 

 

Equity classified as obligation to purchase own shares

 

 (60) 

 

 

Translation effects recognized directly in retained earnings

 

 

 

 4 

New consolidations / (deconsolidations) and other increases / (decreases)

 

 (6) 

 

 

Total comprehensive income for the period

 

 

 

 644 

of which: net profit / (loss)

 

 

 

 1,141 

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

 

 

 

 (179) 

of which: OCI that will not be reclassified to the income statement, net of tax – own credit

 

 

 

 (318) 

of which: OCI that will not be reclassified to the income statement, net of tax – foreign currency translation

 

 

 

 

Balance as of 31 March 2019

 338 

 20,135 

 (2,210) 

 31,085 

1 Excludes defined benefit plans and own credit that are recorded directly in Retained earnings.   

 

66


 

 

 

 

 

 

 

 

Other comprehensive

income recognized

directly in equity,

net of tax1

of which:

foreign currency translation

of which:

financial assets

measured at fair value through OCI

of which:

cash flow hedges

Total equity

attributable to

shareholders

Non-controlling

interests

Total equity

 4,764 

 4,466 

 (61) 

 360 

 51,879 

 59 

 51,938 

 

 

 

 

 0 

 

 0 

 

 

 

 

 (379) 

 

 (379) 

 

 

 

 

 54 

 

 54 

 

 

 

 

 13 

 

 13 

 

 

 

 

 10 

 

 10 

 

 

 

 

 219 

 

 219 

 

 

 

 

 3 

 

 3 

 

 

 

 

 0 

 (4) 

 (4) 

 22 

 

 3 

 20 

 0 

 

 0 

 

 

 

 

 14 

 8 

 21 

 214 

 758 

 (57) 

 (488) 

 1,850 

 3 

 1,854 

 

 

 

 

 1,566 

 2 

 1,567 

 214 

 758 

 (57) 

 (488) 

 214 

 

 214 

 

 

 

 

 (107) 

 

 (107) 

 

 

 

 

 178 

 

 178 

 

 

 

 

 0 

 2 

 2 

 5,000 

 5,224 

 (115) 

 (108) 

 53,662 

 65 

 53,727 

 

 

 

 

 

 

 

 3,930 

 3,924 

 (103) 

 109 

 52,928 

 176 

 53,103 

 

 

 

 

 (11) 

 

 (11) 

 3,930 

 3,924 

 (103) 

 109 

 52,917 

 176 

 53,092 

 

 

 

 

 0 

 

 0 

 

 

 

 

 (466) 

 

 (466) 

 

 

 

 

 30 

 

 30 

 

 

 

 

 16 

 

 16 

 

 

 

 

 28 

 

 28 

 

 

 

 

 167 

 

 167 

 

 

 

 

 5 

 

 5 

 

 

 

 

 0 

 (4) 

 (4) 

 

 

 

 

 (60) 

 

 (60) 

 (4) 

 

 

 (4) 

 0 

 

 0 

 

 

 

 

 (6) 

 0 

 (7) 

 393 

 (128) 

 62 

 459 

 1,037 

 2 

 1,039 

 

 

 

 

 1,141 

 (2) 

 1,139 

 393 

 (128) 

 62 

 459 

 393 

 

 393 

 

 

 

 

 (179) 

 

 (179) 

 

 

 

 

 (318) 

 

 (318) 

 

 

 

 

 0 

 4 

 4 

 4,320 

 3,796 

 (40) 

 564 

 53,667 

 173 

 53,840 

 

 

 

 

 

 

 

 

67


UBS Group AG interim consolidated financial statements (unaudited)

 

Statement of cash flows

 

 

 

 

 

Year-to-date

USD million

 

31.3.19

31.3.18

 

 

 

 

Cash flow from / (used in) operating activities

 

 

 

Net profit / (loss)

 

 1,139 

 1,567 

Non-cash items included in net profit and other adjustments:

 

 

 

Depreciation and impairment of property, equipment and software

 

 427 

 288 

Amortization and impairment of intangible assets

 

 16 

 16 

Credit loss expense / (recovery)

 

 20 

 26 

Share of net profits of associates / joint ventures and impairment of associates

 

 (15) 

 (16) 

Deferred tax expense / (benefit)

 

 237 

 318 

Net loss / (gain) from investing activities

 

 (73) 

 157 

Net loss / (gain) from financing activities

 

 4,273 

 (3,911) 

Other net adjustments

 

 173 

 (565) 

Net change in operating assets and liabilities:

 

 

 

Loans and advances to banks / amounts due to banks

 

 (1,696) 

 1,785 

Securities financing transactions

 

 (9,997) 

 5,254 

Cash collateral on derivative instruments

 

 (133) 

 (1,866) 

Loans and advances to customers

 

 (855) 

 (7,142) 

Customer deposits

 

 9,793 

 (3,757) 

Financial assets and liabilities at fair value held for trading and derivative financial instruments

 

 1,652 

 15,540 

Brokerage receivables and payables

 

 1,473 

 4,015 

Financial assets at fair value not held for trading, other financial assets and liabilities

 

 (1,031) 

 (6,580) 

Provisions, other non-financial assets and liabilities

 

 (1,188) 

 (1,682) 

Income taxes paid, net of refunds

 

 (219) 

 (148) 

Net cash flow from / (used in) operating activities

 

 3,995 

 3,300 

 

 

 

 

Cash flow from / (used in) investing activities

 

 

 

Purchase of subsidiaries, associates and intangible assets

 

 (1) 

 (6) 

Disposal of subsidiaries, associates and intangible assets1

 

 27 

 30 

Purchase of property, equipment and software

 

 (367) 

 (384) 

Disposal of property, equipment and software

 

 2 

 28 

Purchase of financial assets measured at fair value through other comprehensive income

 

 (1,033) 

 (450) 

Disposal and redemption of financial assets measured at fair value through other comprehensive income

 

 610 

 253 

Net (purchase) / redemption of debt securities measured at amortized cost

 

 629 

 (1,124) 

Net cash flow from / (used in) investing activities

 

 (132) 

 (1,652) 

 

 

 

 

Table continues on the next page.

 

 

 

 

68


 

Statement of cash flows (continued)

 

 

 

 

 

 

 

Table continued from previous page.

 

 

 

 

 

Year-to-date

USD million

 

31.3.19

31.3.18

 

 

 

 

Cash flow from / (used in) financing activities

 

 

 

Net short-term debt issued / (repaid)

 

 (6,858) 

 (4,650) 

Net movements in treasury shares and own equity derivative activity

 

 (399) 

 (337) 

Issuance of long-term debt, including debt issued designated at fair value

 

 17,641 

 20,394 

Repayment of long-term debt, including debt issued designated at fair value

 

 (10,263) 

 (10,541) 

Net changes in non-controlling interests and preferred notes

 

 (4) 

 17 

Net cash flow from / (used in) financing activities

 

 116 

 4,884 

 

 

 

 

Total cash flow

 

 

 

Cash and cash equivalents at the beginning of the period

 

 126,079 

 104,834 

Net cash flow from / (used in) operating, investing and financing activities

 

 3,979 

 6,531 

Effects of exchange rate differences on cash and cash equivalents

 

 (1,289) 

 2,110 

Cash and cash equivalents at the end of the period2

 

 128,769 

 113,476 

of which: cash and balances at central banks

 

 110,514 

 97,260 

of which: loans and advances to banks

 

 15,971 

 12,831 

of which: money market paper3

 

 2,285 

 3,385 

 

 

 

 

Additional information

 

 

 

Net cash flow from / (used in) operating activities includes:

 

 

 

Interest received in cash

 

 1,334 

 1,693 

Interest paid in cash

 

 2,343 

 1,419 

Dividends on equity investments, investment funds and associates received in cash4

 

 1,238 

 571 

1 Includes dividends received from associates.    2 USD 4,678 million and USD 3,596 million of cash and cash equivalents (mainly reflected in Loans and advances to banks) were restricted as of 31 March 2019 and 31 March 2018, respectively. Refer to “Note 26 Restricted and transferred financial assets” in the “Consolidated financial statements” section in the Annual Report 2018 for more information.    3 Money market paper is included in the balance sheet under Financial assets at fair value held for trading, Financial assets measured at fair value through other comprehensive income, Financial assets at fair value not held for trading and Other financial assets measured at amortized cost.    4 Includes dividends received from associates reported within Net cash flow from / (used in) investing activities.

  

69


Notes to the UBS Group AG interim consolidated financial statements (unaudited)

Notes to the UBS Group AG interim
consolidated financial statements (unaudited)

Note 1 Basis of accounting

Basis of preparation

The consolidated financial statements (the financial statements) of UBS Group AG and its subsidiaries (together “UBS” or “the Group”) are prepared in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (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’s London Branch and UBS’s US-based operations. These interim financial statements are prepared in accordance with IAS 34, Interim Financial Reporting

In preparing these interim financial statements, the same accounting policies and methods of computation have been applied as in the UBS Group AG consolidated annual financial statements for the period ended 31 December 2018, except for the changes described in this note. These interim financial statements are unaudited and should be read in conjunction with UBS Group AG’s audited consolidated financial statements included in the Annual Report 2018. In the opinion of management, all necessary adjustments were made for a fair presentation of the Group’s financial position, results of operations and cash flows.

Preparation of these interim financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income, expenses and disclosures of contingent assets and liabilities. These estimates and assumptions are based on the best available information. Actual results in the future could differ from such estimates and such differences may be material to the financial statements. Revisions to estimates, based on regular reviews, are recognized in the period in which they occur. For more information on areas of estimation uncertainty that are considered to require critical judgment, refer to “Note 1a Significant accounting policies” in the “Consolidated financial statements” section of the Annual Report 2018.


Adoption of IFRS 16, Leases 

Application and transition effect

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 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. There was no effect on equity.

®   Refer to the table below for more information

 

UBS applied the following practical expedients that are permitted on transition to IFRS 16 where UBS is the 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;

   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 at 1 January 2019;

   to initially measure the right-of-use 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 whose remaining term will end within 12 months from the transition date.

 

70


 

 

Note 1 Basis of accounting (continued)

The measurement of leases previously classified as finance leases, where UBS acts as lessee, has not changed on transition to IFRS 16. Similarly UBS has made no adjustments where UBS acts as lessor, in either a finance or operating lease, of physical assets it owns. Where UBS acts as an intermediate lessor, i.e., enters into a head lease and subleases the asset to a third party, the sublease has been classified as either a finance or operating lease based primarily on whether the sublease term consumes the majority of the remaining useful life of the right-of-use asset arising from the head lease as at the transition date.

The following table reconciles the obligations in respect of operating leases as at 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

 

Total undiscounted operating lease commitments as of 31 December 2018

 4,688 

Leases with a remaining term of less than one year as of 1 January 2019

 (18) 

Excluded service components

 (296) 

Reassessment of lease term for extension or termination options

 403 

Total undiscounted lease payments

 4,777 

Discounted at a weighted average incremental borrowing rate of 3.07%

 (744) 

IFRS 16 transition adjustment

 4,033 

Finance lease liabilities as of 31 December 2018

 24 

Carrying amount of total lease liabilities as of 1 January 2019

 4,057 

 

 

The following table provides details on the determination of right-of-use assets on transition:

 

Determination of right-of-use assets on transition

 

USD million

Carrying amount

Other financial assets measured at amortized cost (finance lease assets recognized under IAS 17 as of 31 December 2018)

 24 

IFRS 16 transition adjustment

 4,033 

Other non-financial assets (prepaid rent)

 19 

Other non-financial liabilities (lease incentives)

 (204) 

Other financial liabilities at amortized cost (rent accruals)

 (185) 

Provisions (onerous lease provisions)

 (132) 

Other financial assets at amortized cost (finance lease receivables from subleases as intermediate lessor)

 (176) 

Property, equipment and software (total right-of-use assets as of 1 January 2019)1

 3,378 

1 Upon adoption of IFRS 16 on 1 January 2019, total liabilities for the Group increased by USD 3,512 million, representing USD 4,033 million in newly recognized lease liabilities, less USD 521 million liabilities from lease incentives, rent accruals and onerous lease provisions which were reclassified and presented as part of the right-of-use assets carrying amount.  Total assets for the Group increased by USD 3,512 million, representing USD 3,336 million in right-of-use assets and USD 176 million in additional finance lease receivables from subleases.

 

 

Lease liabilities are presented within Other financial liabilities measured at amortized cost and right-of-use 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.

During the first quarter of 2019, the weighted average lease term was approximately 9 years and the depreciation charge for right-of-use assets presented within Depreciation and impairment of property, equipment and software was USD 118 million. The interest charge on lease liabilities presented within Interest expense from financial instruments measured at amortized cost was USD 32 million and other rental expenses (including non-lease components paid to landlords) presented within General and administrative expenses were USD 16 million during the first quarter of 2019. This compares with a total rental expense presented in General and administrative expenses of USD 152 million and USD 141 million for the quarters ended 31 March 2018 and 31 December 2018, respectively.

 

 

71


Notes to the UBS Group AG interim consolidated financial statements (unaudited)

 

Note 1 Basis of accounting (continued)

Update to significant accounting policy – Leasing (disclosed in Note 1a item 15 Leasing in the financial statements 2018)

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 for them separately from lease components.

When UBS is 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 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 or lease incentives received. The RoU asset 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.  

Lease payments generally include fixed payments and variable payments that depend on an index (such as an inflation index). When the lease contains an extension or termination option that the Group considers reasonably certain to be exercised, the 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 lessor or sublessor 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 subleases, 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 sublessor in an operating lease of owned real estate, UBS recognizes the operating lease income on a straight-line basis over the lease term.

Lease receivables are subject to impairment requirements as set out in point g. in “Note 1a item 3 Financial instruments.” Expected credit losses (ECL) on lease receivables are determined following the general impairment model within IFRS 9, Financial Instruments, without utilizing the simplified approach of always measuring impairment at the amount of lifetime ECL.

Other changes to accounting policies

Changes in Corporate Center cost allocations and equity attribution to business divisions

In order to further align Group and divisional performance, UBS adjusted the methodology for the allocation of Corporate Center – Group Asset and Liability Management (Group ALM) 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 are effective as of 1 January 2019 and prior-period segment information has been restated. Together, these changes have decreased the business divisions’ operating results and thereby increased their adjusted cost / income ratios by 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. Upon adoption of IFRS 16, Leases,  as of 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 2 Segment reporting” for more information

 

72


 

 

Note 1 Basis of accounting (continued)

Changes to Corporate Center segment reporting

As announced in the Annual Report 2018, there has been a substantial reduction in the size and resource consumption of the Non-core and Legacy Portfolio. In addition, following the aforementioned changes to UBS’s methodology for allocating funding costs and expenses from Corporate Center – Services and Corporate Center – Group Asset and Liability Management (Group ALM) to the business divisions, the operating loss retained in Corporate Center – Services and Corporate Center – Group ALM has been significantly reduced. As a consequence and in compliance with IFRS 8, Operating Segments, beginning with the first quarter 2019 report, UBS provides results for total Corporate Center only and does not separately report Corporate Center – Services, Group ALM and Non-core and Legacy Portfolio. Furthermore, UBS has operationally combined Group Treasury with Group ALM and calls this combined unit Group Treasury. Prior-period information has been restated.

®   Refer to “Note 2 Segment reporting” for more information


Presentation of dividend income and expense from financial instruments measured at fair value through profit or loss

Effective from the first quarter of 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 the equity instruments and economic hedges removing volatility that has historically arisen within both Net interest income and Other net income from fair value changes on financial instruments. 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 quarter ended

 

Year-to-date

USD million

31.3.18

30.6.18

30.9.18

31.12.18

 

31.12.18

Interest income from financial instruments measured at fair value through profit or loss

 (572) 

 (636) 

 (699) 

 (401) 

 

 (2,308) 

Interest expense from financial instruments measured at fair value through profit or loss

 160 

 846 

 175 

 151 

 

 1,331 

Net interest income

 (412) 

 210 

 (524) 

 (250) 

 

 (976) 

Other net income from financial instruments measured at fair value through profit or loss

 412 

 (210) 

 524 

 250 

 

 976 

 

IFRIC 23, Uncertainty over Income Tax Treatments

Effective 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.

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 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 requirements for accounting for a plan amendment, curtailment or settlement affect the asset ceiling 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.

Annual Improvements to IFRS Standards 2015–2017 Cycle

Effective 1 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.

  

73


Notes to the UBS Group AG interim consolidated financial statements (unaudited)

Note   Segment reporting

Overview and changes in Corporate Center 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 of which are supported by Corporate Center. The four business divisions qualify as reportable segments for the purpose of segment reporting and, together with Corporate Center, reflect the management structure of the Group.

®   Refer to “Note 1a Significant accounting policies item 2” and “Note 2 Segment reporting” in the “Consolidated financial statements” section of the Annual Report 2018 for more information on the Group’s reporting segments

 

As outlined in Note 1, beginning with the first quarter 2019 report, UBS provides results for total Corporate Center only and does not separately report Corporate Center – Services, Group Asset and Liability Management and Non-core and Legacy Portfolio.

®   Refer to Note 1 for more information


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. Prior-period information for the first quarter of 2018 has been restated, resulting in a decrease in Operating profit / (loss) before tax for Global Wealth Management of USD 97 million, for Personal & Corporate Banking of USD 37 million, for Asset Management of USD 8 million and for the Investment Bank of USD 51 million, with a corresponding increase in Corporate Center of USD 193 million.

Additionally, UBS has increased the allocation of balance sheet resources from Corporate Center to the business divisions. Prior-period information for the fourth quarter of 2018 has been restated, resulting 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 million.

These changes had no effect on the reported results or financial position of the Group.

®   Refer to Note 1 for more information

 

 

 

USD million

 

Global Wealth Management

 

Personal & Corporate Banking

 

Asset

Management

 

Investment Bank

 

Corporate Center

 

UBS

 

 

 

 

 

 

 

 

 

 

 

 

 

For the quarter ended 31 March 20191

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 1,009 

 

 493 

 

 (7) 

 

 (188) 

 

 (184) 

 

 1,123 

Non-interest income

 

 2,994 

 

 462 

 

 453 

 

 1,976 

 

 231 

 

 6,115 

Income

 

 4,003 

 

 955 

 

 446 

 

 1,788 

 

 47 

 

 7,239 

Credit loss (expense) / recovery

 

 1 

 

 2 

 

 0 

 

 (22) 

 

 0 

 

 (20) 

Total operating income

 

 4,003 

 

 957 

 

 446 

 

 1,765 

 

 47 

 

 7,218 

Personnel expenses

 

 1,900 

 

 219 

 

 178 

 

 705 

 

 1,040 

 

 4,043 

General and administrative expenses

 

 249 

 

 52 

 

 48 

 

 141 

 

 697 

 

 1,187 

Services (to) / from CC and other BDs

 

 975 

 

 296 

 

 117 

 

 708 

 

 (2,095) 

 

 0 

of which: services from Corporate Center

 

 938 

 

 320 

 

 128 

 

 722 

 

 (2,108) 

 

 0 

Depreciation and impairment of property, equipment and software

 

 1 

 

 3 

 

 0 

 

 2 

 

 420 

 

 427 

Amortization and impairment of intangible assets

 

 14 

 

 0 

 

 0 

 

 2 

 

 0 

 

 16 

Total operating expenses

 

 3,140 

 

 570 

 

 343 

 

 1,558 

 

 62 

 

 5,672 

Operating profit / (loss) before tax

 

 863 

 

 387 

 

 103 

 

 207 

 

 (15) 

 

 1,546 

Tax expense / (benefit)

 

 

 

 

 

 

 

 

 

 

 

 407 

Net profit / (loss)

 

 

 

 

 

 

 

 

 

 

 

 1,139 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of 31 March 2019

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

 322,330 

 

 198,967 

 

 31,033 

 

 295,257 

 

 108,993 

 

 956,579 

 

74


 

 

Note   Segment reporting (continued)

USD million

 

Global Wealth Management

 

Personal & Corporate Banking

 

Asset

Management

 

Investment Bank

 

Corporate Center

 

UBS

 

 

 

 

 

 

 

 

 

 

 

 

 

For the quarter ended 31 March 20181

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income2

 

 1,021 

 

 516 

 

 (7) 

 

 10 

 

 (106) 

 

 1,435 

Non-interest income2

 

 3,384 

 

 478 

 

 472 

 

 2,420 

 

 5 

 

 6,760 

Income

 

 4,405 

 

 994 

 

 466 

 

 2,430 

 

 (101) 

 

 8,194 

Credit loss (expense) / recovery

 

 3 

 

 (14) 

 

 0 

 

 (16) 

 

 0 

 

 (26) 

Total operating income

 

 4,409 

 

 981 

 

 466 

 

 2,415 

 

 (101) 

 

 8,168 

Personnel expenses

 

 1,973 

 

 188 

 

 177 

 

 952 

 

 965 

 

 4,254 

General and administrative expenses

 

 304 

 

 62 

 

 52 

 

 152 

 

 940 

 

 1,510 

Services (to) / from CC and other BDs

 

 1,015 

 

 320 

 

 131 

 

 730 

 

 (2,195) 

 

 0 

of which: services from Corporate Center

 

 981 

 

 351 

 

 143 

 

 738 

 

 (2,213) 

 

 0 

Depreciation and impairment of property, equipment and software

 

 1 

 

 3 

 

 0 

 

 2 

 

 281 

 

 288 

Amortization and impairment of intangible assets

 

 13 

 

 0 

 

 0 

 

 3 

 

 0 

 

 16 

Total operating expenses

 

 3,306 

 

 573 

 

 360 

 

 1,838 

 

 (9) 

 

 6,069 

Operating profit / (loss) before tax

 

 1,102 

 

 408 

 

 105 

 

 576 

 

 (92) 

 

 2,100 

Tax expense / (benefit)

 

 

 

 

 

 

 

 

 

 

 

 533 

Net profit / (loss)

 

 

 

 

 

 

 

 

 

 

 

 1,567 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of 31 December 2018

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

 313,737 

 

 200,703 

 

 28,140 

 

 302,253 

 

 113,656 

 

 958,489 

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 discussion in this note and in Note 1.    2 Effective from the first quarter of 2019, UBS 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 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 1 for more information.

 

  

75


Notes to the UBS Group AG interim consolidated financial statements (unaudited)

Note 3  Net interest income1

 

 

For the quarter ended

USD million

 

31.3.19

31.12.18

31.3.18

Net interest income from financial instruments measured at amortized cost and fair value through other comprehensive income

 

 

 

 

Interest income from loans and deposits2

 

 2,024 

 2,047 

 1,867 

Interest income from securities financing transactions3

 

 498 

 468 

 305 

Interest income from other financial instruments measured at amortized cost

 

 96 

 90 

 31 

Interest income from debt instruments measured at fair value through other comprehensive income

 

 26 

 30 

 38 

Interest income from derivative instruments designated as cash flow hedges

 

 26 

 49 

 145 

Total interest income from financial instruments measured at amortized cost and fair value through other comprehensive income

 

 2,669 

 2,683 

 2,386 

Interest expense on loans and deposits4

 

 666 

 626 

 377 

Interest expense on securities financing transactions5

 

 288 

 282 

 253 

Interest expense on debt issued

 

 899 

 873 

 757 

Interest expense on lease liabilities6

 

 32 

 

 

Total interest expense from financial instruments measured at amortized cost

 

 1,885 

 1,781 

 1,388 

Total net interest income from financial instruments measured at amortized cost and fair value through other comprehensive income

 

 785 

 902 

 998 

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

 

 434 

 358 

 279 

Net interest income from brokerage balances

 

 77 

 104 

 179 

Interest income from financial instruments at fair value not held for trading

 

 522 

 540 

 351 

Other interest income

 

 46 

 49 

 73 

Interest expense on financial instruments designated at fair value

 

 (740) 

 (727) 

 (444) 

Total net interest income from financial instruments measured at fair value through profit or loss

 

 339 

 324 

 437 

Total net interest income

 

 1,123 

 1,226 

 1,435 

1 Effective from the first quarter of 2019, UBS refined the presentation of dividend income and expense, reclassifying 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-period information was restated accordingly. Refer to Note 1 for more information.    2 Consists of interest income from cash and balances at central banks, loans and advances to banks, and negative interest on amounts due to banks and customer deposits.    3 Includes interest income on receivables from securities financing transactions and negative interest, including fees, on payables from securities financing transactions.    4 Consists of interest expense on amounts due to banks and customer deposits, and negative interest on cash and balances at central banks, loans and advances to banks.    5 Includes interest expense on payables from securities financing transactions and negative interest, including fees, on receivables from securities financing transactions.    6 Relates to lease liabilities recognized upon adoption of IFRS 16 on 1 January 2019. Refer to Note 1 for more information.  

 

 

  

 

Note Net fee and commission income

 

 

For the quarter ended

USD million

 

31.3.19

31.12.18

31.3.18

Underwriting fees

 

 155 

 177 

 239 

of which: equity underwriting fees

 

 48 

 118 

 127 

of which: debt underwriting fees

 

 107 

 59 

 112 

M&A and corporate finance fees

 

 117 

 122 

 206 

Brokerage fees

 

 828 

 822 

 1,026 

Investment fund fees

 

 1,177 

 1,228 

 1,279 

Portfolio management and related services

 

 1,804 

 1,937 

 1,949 

Other

 

 459 

 414 

 480 

Total fee and commission income1

 

 4,541 

 4,700 

 5,178 

of which: recurring

 

 2,998 

 3,219 

 3,257 

of which: transaction-based

 

 1,516 

 1,448 

 1,903 

of which: performance-based

 

 27 

 33 

 18 

Brokerage fees paid

 

 79 

 88 

 90 

Other

 

 329 

 352 

 344 

Total fee and commission expense

 

 409 

 439 

 433 

Net fee and commission income

 

 4,132 

 4,261 

 4,744 

of which: net brokerage fees

 

 748 

 735 

 937 

1 Reflects third-party fee and commission income for the first quarter of 2019 of USD 2,817 million for Global Wealth Management (fourth quarter of 2018: USD 2,897 million; first quarter of 2018: USD 3,204 million), USD 324 million for Personal & Corporate Banking (fourth quarter of 2018: USD 321 million; first quarter of 2018: USD 342 million), USD 619 million for Asset Management (fourth quarter of 2018: USD 657 million; first quarter of 2018: USD 646 million), USD 758 million for the Investment Bank (fourth quarter of 2018: USD 802 million; first quarter of 2018: USD 953 million) and USD 22 million for Corporate Center (fourth quarter of 2018: USD 24 million; first quarter of 2018: USD 33 million).

 

 

  

76


 

Note Other income

 

 

For the quarter ended

USD million

 

31.3.19

31.12.18

31.3.18

Associates, joint ventures and subsidiaries

 

 

 

 

Net gains / (losses) from acquisitions and disposals of subsidiaries1

 

 1 

 (310) 

 0 

Net gains / (losses) from disposals of investments in associates

 

 4 

 46 

 0 

Share of net profits of associates and joint ventures

 

 15 

 481 

 16 

Total

 

 19 

 217 

 16 

Financial assets measured at fair value through other comprehensive income

 

 

 

 

Dividend income

 

 1 

 0 

 0 

Net gains / (losses) from disposals

 

 1 

 0 

 0 

Total

 

 2 

 1 

 1 

Income from properties2

 

 7 

 6 

 6 

Net gains / (losses) from disposals of properties held for sale

 

 0 

 9 

 0 

Other

 

 21 

 9 

 20 

Total other income

 

 49 

 241 

 42 

1 Includes foreign exchange gains / (losses) reclassified from other comprehensive income related to disposed foreign subsidiaries and branches.    2 Includes rent received from third parties.

 

  

 

Note Personnel expenses

 

 

For the quarter ended

USD million

 

31.3.19

31.12.18

31.3.18

Salaries and variable compensation

 

 2,420 

 2,184 

 2,742 

Financial advisor variable compensation1

 

 960 

 999 

 1,032 

Contractors

 

 96 

 119 

 123 

Social security

 

 213 

 163 

 243 

Pension and other post-employment benefit plans

 

 224 

 172 

 (35)2

Other personnel expenses

 

 128 

 203 

 150 

Total personnel expenses

 

 4,043 

 3,839 

 4,254 

1 Financial advisor variable compensation consists of grid-based compensation based directly on compensable revenues generated by financial advisors and 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 entered into at the time of recruitment that are subject to vesting requirements.    2 Changes to the Pension Fund of UBS in Switzerland in the first quarter of 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 the first quarter of 2018, with no overall effect on total equity. Refer to “Note 5 Personnel expenses” in the “Consolidated financial statements” section of the first quarter 2018 report for more information.

 

  

 

NoteGeneral and administrative expenses

 

 

For the quarter ended

USD million

 

31.3.19

31.12.18

31.3.18

Occupancy

 

 97 

 228 

 233 

Rent and maintenance of IT and other equipment

 

 185 

 187 

 159 

Communication and market data services

 

 156 

 163 

 161 

Administration

 

 123 

 256 

 144 

of which: UK and German bank levy

 

 15 

 87 

 0 

Marketing and public relations

 

 65 

 114 

 85 

Travel and entertainment

 

 90 

 113 

 98 

Professional fees

 

 176 

 294 

 245 

Outsourcing of IT and other services

 

 271 

 368 

 361 

Litigation, regulatory and similar matters1

 

 (8) 

 533 

 (11) 

Other

 

 32 

 37 

 36 

Total general and administrative expenses

 

 1,187 

 2,293 

 1,510 

1 Reflects the net increase / (release) in provisions for litigation, regulatory and similar matters recognized in the income statement. Refer to Note 16 for more information. Also includes recoveries from third parties (first quarter of 2019: USD 7 million; fourth quarter of 2018: USD 1 million; first quarter of 2018: USD 17 million).   

  

77


Notes to the UBS Group AG interim consolidated financial statements (unaudited)

Note   Income taxes

The Group recognized income tax expenses of USD 407 million for the first quarter of 2019, compared with USD 533 million for the first quarter of 2018.

Current tax expenses were USD 170 million, compared with USD 215 million, and related to taxable profits of UBS Switzerland AG and other entities.

Deferred tax expenses were USD 237 million, compared with USD 318 million. These include expenses of USD 218 million relating to profits for the current quarter, which primarily reflect the amortization of deferred tax assets (DTAs) previously recognized in relation to tax losses carried forward and deductible temporary differences to reflect their offset against profits for the quarter, including the amortization of US tax loss DTAs at the level of UBS Americas Inc. In addition, deferred tax expenses in the first quarter of 2019 included a net expense of USD 19 million, mainly relating to a decrease in temporary difference DTAs of USD 29 million, as the expected value of future tax deductions for deferred compensation awards decreased. This deferred tax expense was partially offset by a tax loss DTA increase of USD 10 million for locations affected by our UK business transfer activity during the quarter.

 

 

  

 

Note Earnings per share (EPS) and shares outstanding

 

 

As of or for the quarter ended

 

 

31.3.19

31.12.18

31.3.18

 

 

 

 

 

Basic earnings (USD million)

 

 

 

 

Net profit / (loss) attributable to shareholders

 

 1,141 

 315 

 1,566 

 

 

 

 

 

Diluted earnings (USD million)

 

 

 

 

Net profit / (loss) attributable to shareholders

 

 1,141 

 315 

 1,566 

Less: (profit) / loss on own equity derivative contracts

 

 0 

 0 

 (1) 

Net profit / (loss) attributable to shareholders for diluted EPS

 

 1,141 

 315 

 1,565 

 

 

 

 

 

Weighted average shares outstanding

 

 

 

 

Weighted average shares outstanding for basic EPS1

 

 3,694,398,974 

 3,712,860,295 

 3,728,701,542 

Effect of dilutive potential shares resulting from notional shares, in-the-money options and warrants outstanding

 

 106,745,967 

 107,685,855 

 128,521,488 

Weighted average shares outstanding for diluted EPS

 

 3,801,144,941 

 3,820,546,150 

 3,857,223,030 

 

 

 

 

 

Earnings per share (USD)

 

 

 

 

Basic

 

 0.31 

 0.08 

 0.42 

Diluted

 

 0.30 

 0.08 

 0.41 

 

 

 

 

 

Shares outstanding

 

 

 

 

Shares issued

 

 3,858,959,179 

 3,855,634,749 

 3,854,297,125 

Treasury shares

 

 145,878,663 

 166,467,802 

 93,077,090 

Shares outstanding

 

 3,713,080,516 

 3,689,166,947 

 3,761,220,035 

1 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 that could dilute basic earnings per share in the future, but were not dilutive for the periods presented.

 

 

 

 

Number of shares

 

31.3.19

31.12.18

31.3.18

 

 

 

 

 

Potentially dilutive instruments

 

 

 

 

Employee share-based compensation awards

 

 3,516,195 

 3,605,198 

 7,283,110 

Other equity derivative contracts

 

 22,528,782 

 15,501,021 

 7,757,622 

Total

 

 26,044,977 

 19,106,219 

 15,040,732 

 

  

78


 

Note 10  Expected credit loss measurement

a) Expected credit losses in the period

Total net credit loss expenses were USD 20 million in the first quarter of 2019, reflecting expenses of USD 5 million in expected credit losses (ECL) from stage 1 and 2 positions and losses of USD 15 million from credit-impaired (stage 3) positions.

A USD 5 million increase in stage 1 and 2 ECL during the period was primarily the result of updates to macroeconomic and market data in the Investment Bank portfolio, partly offset by recoveries in Global Wealth Management and Personal & Corporate Banking, reflecting improvements in collateral and credit scores.

Stage 3 losses of USD 15 million were recognized, predominantly in the Investment Bank, as well as across a number of defaulted positions in Global Wealth Management and Personal & Corporate Banking.

There have not been any material changes to the models used to calculate ECL and to determine stage allocation in the quarter.

UBS uses four different economic scenarios in the ECL calculation: an upside, a baseline, a mild downside and a severe downside scenario. The scenario narratives and weights were reviewed and remain unchanged from those applied as of 31 December 2018. Macroeconomic data and market data was updated across all scenarios, as well as the baseline scenario shocks, as of 31 March 2019.

®   Refer to “Note 1a Significant accounting policies item g” and “Note 23 Expected credit loss measurement” in the “Consolidated financial statements” section of the Annual Report 2018 for more information

b) ECL-relevant balance sheet and off-balance sheet positions including ECL allowances and provisions

The tables on the following pages provide information on financial instruments and certain non-financial instruments that are subject to ECL. For amortized cost instruments, the net carrying value represents the maximum exposure to credit risk, taking into account the allowance for credit losses. Financial assets measured at fair value through other comprehensive income (FVOCI) are also subject to ECL; however, unlike amortized cost instruments, the allowance does not reduce the carrying value of these financial assets. The carrying value of financial assets measured at FVOCI represents the maximum exposure to credit risk.

In addition to on-balance sheet financial assets, certain off-balance sheet 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 notional amounts.

 

79


Notes to the UBS Group AG interim consolidated financial statements (unaudited)

 

Note 10   Expected credit loss measurement (continued)

USD million

 

31.3.19

 

 

Carrying amount1

 

ECL allowance

Financial instruments measured at amortized cost

 

Total

Stage 1

Stage 2

Stage 3

 

Total

Stage 1

Stage 2

Stage 3

Cash and balances at central banks

 

 110,618 

 110,618 

 0 

 0 

 

 0 

 0 

 0 

 0 

Loans and advances to banks

 

 17,013 

 16,963 

 50 

 0 

 

 (5) 

 (2) 

 0 

 (3) 

Receivables from securities financing transactions

 

 100,222 

 100,222 

 0 

 0 

 

 (2) 

 (2) 

 0 

 0 

Cash collateral receivables on derivative instruments

 

 25,164 

 25,164 

 0 

 0 

 

 0 

 0 

 0 

 0 

Loans and advances to customers

 

 318,623 

 297,539 

 19,465 

 1,619 

 

 (760) 

 (74) 

 (142) 

 (545) 

of which: Private clients with mortgages

 

 126,412 

 116,432 

 9,217 

 763 

 

 (129) 

 (16) 

 (77) 

 (36) 

of which: Real estate financing

 

 36,670 

 28,945 

 7,687 

 39 

 

 (61) 

 (5) 

 (38) 

 (18) 

of which: Large corporate clients

 

 12,070 

 11,525 

 468 

 77 

 

 (109) 

 (12) 

 (5) 

 (91) 

of which: SME clients

 

 9,775 

 8,163 

 996 

 616 

 

 (262) 

 (14) 

 (8) 

 (240) 

of which: Lombard

 

 110,142 

 110,117 

 0 

 24 

 

 (20) 

 (3) 

 0 

 (17) 

of which: Credit cards

 

 1,446 

 1,136 

 294 

 16 

 

 (31) 

 (7) 

 (13) 

 (11) 

of which: Commodity trade finance

 

 2,867 

 2,427 

 422 

 19 

 

 (81) 

 (4) 

 0 

 (76) 

Other financial assets measured at amortized cost

 

 22,433 

 21,650 

 292 

 491 

 

 (150) 

 (40) 

 (6) 

 (104) 

of which: Loans to financial advisors

 

 3,158 

 2,942 

 107 

 109 

 

 (108) 

 (31) 

 (3) 

 (74) 

Total financial assets measured at amortized cost

 

 594,074 

 572,157 

 19,807 

 2,110 

 

 (917) 

 (118) 

 (148) 

 (651) 

Financial assets measured at fair value through other comprehensive income

 

 7,168 

 7,168 

 0 

 0 

 

 0 

 0 

 0 

 0 

Total on-balance sheet financial assets in scope of ECL requirements

 

 601,242 

 579,325 

 19,807 

 2,110 

 

 (917) 

 (118) 

 (148) 

 (651) 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total exposure

 

ECL provision

Off-balance sheet (in scope of ECL)

 

Total

Stage 1

Stage 2

Stage 3

 

Total

Stage 1

Stage 2

Stage 3

Guarantees

 

 17,434 

 16,713 

 506 

 215 

 

 (48) 

 (6) 

 (2) 

 (40) 

of which: Large corporate clients

 

 3,505 

 3,247 

 118 

 140 

 

 (7) 

 (1) 

 (1) 

 (5) 

of which: SME clients

 

 1,205 

 948 

 188 

 69 

 

 (30) 

 0 

 0 

 (29) 

of which: Financial intermediaries and hedge funds

 

 6,995 

 6,959 

 36 

 0 

 

 (3) 

 (3) 

 0 

 0 

of which: Lombard

 

 666 

 666 

 0 

 0 

 

 0 

 0 

 0 

 0 

of which: Commodity trade finance

 

 1,936 

 1,774 

 156 

 6 

 

 (1) 

 (1) 

 0 

 0 

Irrevocable loan commitments

 

 27,919 

 27,321 

 583 

 15 

 

 (44) 

 (36) 

 (8) 

 0 

of which: Large corporate clients

 

 19,051 

 18,660 

 389 

 1 

 

 (38) 

 (32) 

 (7) 

 0 

Forward starting reverse repurchase and securities borrowing agreements

 

 2,058 

 2,058 

 0 

 0 

 

 0 

 0 

 0 

 0 

Committed unconditionally revocable credit lines

 

 33,379 

 31,895 

 1,392 

 92 

 

 (39) 

 (19) 

 (20) 

 0 

of which: Real estate financing

 

 2,636 

 2,239 

 397 

 0 

 

 (19) 

 (3) 

 (17) 

 0 

of which: Large corporate clients

 

 4,124 

 4,055 

 52 

 16 

 

 (1) 

 (1) 

 0 

 0 

of which: SME clients

 

 4,331 

 4,006 

 264 

 62 

 

 (7) 

 (6) 

 (1) 

 0 

of which: Lombard

 

 4,537 

 4,537 

 0 

 0 

 

 0 

 0 

 0 

 0 

of which: Credit cards

 

 7,587 

 7,281 

 306 

 0 

 

 (6) 

 (4) 

 (2) 

 0 

of which: Commodity trade finance

 

 4,154 

 3,823 

 321 

 10 

 

 (2) 

 (2) 

 0 

 0 

Irrevocable committed prolongation of existing loans

 

 3,450 

 3,393 

 52 

 5 

 

 (4) 

 (2) 

 (2) 

 0 

Total off-balance sheet financial instruments and other credit lines

 

 84,241 

 81,381 

 2,533 

 328 

 

 (134) 

 (64) 

 (31) 

 (40) 

Total allowances and provisions

 

 

 

 

 

 

 (1,052) 

 (182) 

 (179) 

 (691) 

1 The carrying value of financial assets measured at amortized cost represents the total gross exposure net of the respective ECL allowances.

 

80


 

 

Note 10   Expected credit loss measurement (continued)

USD million

 

31.12.18

 

 

Carrying amount1

 

ECL allowance

Financial instruments measured at amortized cost

 

Total

Stage 1

Stage 2

Stage 3

 

Total

Stage 1

Stage 2

Stage 3

Cash and balances at central banks

 

 108,370 

 108,370 

 0 

 0 

 

 0 

 0 

 0 

 0 

Loans and advances to banks

 

 16,868 

 16,666 

 202 

 0 

 

 (7) 

 (4) 

 (1) 

 (3) 

Receivables from securities financing transactions

 

 95,349 

 95,349 

 0 

 0 

 

 (2) 

 (2) 

 0 

 0 

Cash collateral receivables on derivative instruments

 

 23,602 

 23,602 

 0 

 0 

 

 0 

 0 

 0 

 0 

Loans and advances to customers

 

 320,352 

 298,248 

 20,357 

 1,748 

 

 (772) 

 (69) 

 (155) 

 (549) 

of which: Private clients with mortgages

 

 126,335 

 115,679 

 9,859 

 796 

 

 (138) 

 (16) 

 (83) 

 (39) 

of which: Real estate financing

 

 36,474 

 28,578 

 7,858 

 38 

 

 (59) 

 (3) 

 (40) 

 (16) 

of which: Large corporate clients

 

 11,390 

 10,845 

 457 

 88 

 

 (95) 

 (9) 

 (4) 

 (82) 

of which: SME clients

 

 9,924 

 8,029 

 1,263 

 632 

 

 (281) 

 (13) 

 (12) 

 (256) 

of which: Lombard

 

 111,722 

 111,707 

 0 

 14 

 

 (21) 

 (4) 

 0 

 (17) 

of which: Credit cards

 

 1,529 

 1,216 

 297 

 16 

 

 (30) 

 (6) 

 (13) 

 (11) 

of which: Commodity trade finance

 

 3,260 

 2,798 

 445 

 16 

 

 (86) 

 (5) 

 (3) 

 (78) 

Other financial assets measured at amortized cost

 

 22,563 

 21,862 

 223 

 478 

 

 (155) 

 (43) 

 (4) 

 (109) 

of which: Loans to financial advisors

 

 3,291 

 3,104 

 62 

 125 

 

 (113) 

 (34) 

 (2) 

 (77) 

Total financial assets measured at amortized cost

 

 587,104 

 564,096 

 20,782 

 2,226 

 

 (937) 

 (117) 

 (159) 

 (660) 

Financial assets measured at fair value through other comprehensive income

 

 6,667 

 6,667 

 0 

 0 

 

 0 

 0 

 0 

 0 

Total on-balance sheet financial assets in scope of ECL requirements

 

 593,770 

 570,763 

 20,782 

 2,226 

 

 (937) 

 (117) 

 (159) 

 (660) 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total exposure

 

ECL provision

Off-balance sheet (in scope of ECL)

 

Total

Stage 1

Stage 2

Stage 3

 

Total

Stage 1

Stage 2

Stage 3

Guarantees

 

 18,146 

 17,321 

 611 

 215 

 

 (43) 

 (7) 

 (2) 

 (34) 

of which: Large corporate clients

 

 3,862 

 3,599 

 136 

 127 

 

 (8) 

 (1) 

 (1) 

 (6) 

of which: SME clients

 

 1,298 

 1,057 

 164 

 77 

 

 (26) 

 0 

 0 

 (25) 

of which: Financial intermediaries and hedge funds

 

 7,193 

 7,125 

 67 

 0 

 

 (4) 

 (3) 

 0 

 0 

of which: Lombard

 

 834 

 834 

 0 

 0 

 

 0 

 0 

 0 

 0 

of which: Commodity trade finance

 

 2,097 

 1,851 

 236 

 11 

 

 (1) 

 (1) 

 0 

 0 

Irrevocable loan commitments

 

 31,212 

 30,590 

 568 

 53 

 

 (37) 

 (32) 

 (5) 

 0 

of which: Large corporate clients

 

 22,019 

 21,492 

 519 

 7 

 

 (31) 

 (26) 

 (4) 

 0 

Forward starting reverse repurchase and securities borrowing agreements

 

 937 

 937 

 0 

 0 

 

 0 

 0 

 0 

 0 

Committed unconditionally revocable credit lines

 

 36,634 

 35,121 

 1,420 

 93 

 

 (36) 

 (19) 

 (16) 

 0 

of which: Real estate financing

 

 2,562 

 2,150 

 401 

 11 

 

 (17) 

 (4) 

 (12) 

 0 

of which: Large corporate clients

 

 4,260 

 4,152 

 91 

 17 

 

 (2) 

 (1) 

 0 

 0 

of which: SME clients

 

 4,505 

 4,163 

 285 

 57 

 

 (7) 

 (6) 

 (1) 

 0 

of which: Lombard

 

 7,402 

 7,402 

 0 

 0 

 

 0 

 (1) 

 0 

 0 

of which: Credit cards

 

 7,343 

 7,035 

 309 

 0 

 

 (6) 

 (4) 

 (2) 

 0 

of which: Commodity trade finance

 

 3,467 

 3,209 

 254 

 4 

 

 (2) 

 (2) 

 0 

 0 

Irrevocable committed prolongation of existing loans

 

 3,339 

 2,861 

 456 

 22 

 

 (1) 

 (1) 

 0 

 0 

Total off-balance sheet financial instruments and other credit lines

 

 90,268 

 86,830 

 3,055 

 383 

 

 (116) 

 (59) 

 (23) 

 (34) 

Total allowances and provisions

 

 

 

 

 

 

 (1,054) 

 (176) 

 (183) 

 (695) 

1 The carrying value of financial assets measured at amortized cost represents the total gross exposure net of the respective ECL allowances.

 

  

81


Notes to the UBS Group AG interim consolidated financial statements (unaudited)

Note 11  Fair value measurement

This Note provides fair value measurement information for both financial and non-financial instruments and should be read in conjunction with “Note 24 Fair value measurement” in the “Consolidated financial statements” section of the Annual Report 2018, which provides more information on valuation

principles, valuation governance, fair value hierarchy classification, valuation adjustments, valuation techniques and inputs, sensitivity of fair value measurements and methods applied to calculate fair values for financial instruments not measured at fair value.

a) Fair value hierarchy

The fair value hierarchy classification of financial and non-financial assets and liabilities measured at fair value is summarized in the table below.

 

Determination of fair values from quoted market prices or valuation techniques1

 

 

31.3.19

 

31.12.18

USD million

 

Level 1

Level 2

Level 3

Total

 

Level 1

Level 2

Level 3

Total

 

 

 

 

 

 

 

 

 

 

 

Financial assets measured at fair value on a recurring basis

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets at fair value held for trading

 

 94,777 

 12,490 

 2,319 

 109,586 

 

 88,452 

 13,956 

 1,962 

 104,370 

of which:

 

 

 

 

 

 

 

 

 

 

Government bills / bonds

 

 11,866 

 1,671 

 0 

 13,537 

 

 9,554 

 1,607 

 0 

 11,161 

Corporate and municipal bonds

 

 483 

 6,130 

 417 

 7,030 

 

 558 

 5,559 

 651 

 6,768 

Loans

 

 0 

 1,701 

 1,451 

 3,152 

 

 0 

 2,886 

 680 

 3,566 

Investment fund units

 

 7,308 

 1,445 

 247 

 9,000 

 

 6,074 

 3,200 

 442 

 9,716 

Asset-backed securities

 

 1 

 313 

 138 

 451 

 

 0 

 248 

 144 

 392 

Equity instruments

 

 75,119 

 1,231 

 54 

 76,404 

 

 72,266 

 455 

 46 

 72,768 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

 715 

 109,052 

 1,394 

 111,160 

 

 753 

 124,033 

 1,424 

 126,210 

of which:

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

 0 

 39,708 

 431 

 40,139 

 

 0 

 36,658 

 418 

 37,076 

Credit derivative contracts

 

 0 

 1,617 

 529 

 2,146 

 

 0 

 1,444 

 476 

 1,920 

Foreign exchange contracts

 

 346 

 43,915 

 22 

 44,283 

 

 311 

 53,148 

 30 

 53,489 

Equity / index contracts

 

 7 

 22,523 

 406 

 22,937 

 

 3 

 30,905 

 496 

 31,404 

Commodity contracts

 

 0 

 1,185 

 0 

 1,185 

 

 0 

 1,768 

 2 

 1,769 

 

 

 

 

 

 

 

 

 

 

 

Brokerage receivables

 

 0 

 16,275 

 0 

 16,275 

 

 0 

 16,840 

 0 

 16,840 

 

 

 

 

 

 

 

 

 

 

 

Financial assets at fair value not held for trading

 

 36,799 

 40,733 

 3,735 

 81,267 

 

 35,458 

 42,819 

 4,413 

 82,690 

of which:

 

 

 

 

 

 

 

 

 

 

Government bills / bonds

 

 16,729 

 4,270 

 0 

 20,998 

 

 17,687 

 4,806 

 0 

 22,493 

Corporate and municipal bonds

 

 779 

 15,534 

 0 

 16,313 

 

 781 

 16,455 

 0 

 17,236 

Financial assets for unit-linked investment contracts

 

 19,049 

 4,914 

 0 

 23,963 

 

 16,694 

 4,751 

 0 

 21,446 

Loans

 

 0 

 8,547 

 1,084 

 9,631 

 

 0 

 6,380 

 1,752 

 8,132 

Securities financing transactions

 

 0 

 6,927 

 25 

 6,952 

 

 0 

 9,899 

 39 

 9,937 

Auction rate securities

 

 0 

 0 

 1,636 

 1,636 

 

 0 

 0 

 1,664 

 1,664 

Investment fund units

 

 168 

 447 

 113 

 728 

 

 173 

 428 

 109 

 710 

Equity instruments

 

 75 

 60 

 542 

 677 

 

 123 

 62 

 517 

 702 

Other

 

 0 

 35 

 335 

 370 

 

 0 

 38 

 331 

 369 

 

 

 

 

 

 

 

 

 

 

 

Financial assets measured at fair value through other comprehensive income on a recurring basis

 

 

 

 

 

 

 

 

 

 

 

Financial assets measured at fair value through other comprehensive income

 

 2,219 

 4,949 

 0 

 7,168 

 

 2,319 

 4,347 

 0 

 6,667 

of which:

 

 

 

 

 

 

 

 

 

 

Government bills / bonds

 

 2,173 

 13 

 0 

 2,186 

 

 2,171 

 69 

 0 

 2,239 

Corporate and municipal bonds

 

 47 

 456 

 0 

 503 

 

 149 

 348 

 0 

 497 

Asset-backed securities

 

 0 

 4,480 

 0 

 4,480 

 

 0 

 3,931 

 0 

 3,931 

 

 

 

 

 

 

 

 

 

 

 

Non-financial assets measured at fair value on a recurring basis

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Precious metals and other physical commodities

 

 3,816 

 0 

 0 

 3,816 

 

 4,298 

 0 

 0 

 4,298 

 

 

 

 

 

 

 

 

 

 

 

Non-financial assets measured at fair value on a non-recurring basis

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other non-financial assets2

 

 0 

 57 

 1 

 58 

 

 0 

 82 

 0 

 82 

Total assets measured at fair value

 

 138,326 

 183,555 

 7,448 

 329,329 

 

 131,280 

 202,077 

 7,800 

 341,156 

 

82


 

 

Note 11  Fair value measurement (continued)

Determination of fair values from quoted market prices or valuation techniques (continued)1

 

 

31.3.19

 

31.12.18

USD million

 

Level 1

Level 2

Level 3

Total

 

Level 1

Level 2

Level 3

Total

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities measured at fair value on a recurring basis

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities at fair value held for trading

 

 28,642 

 5,519 

 98 

 34,259 

 

 24,406 

 4,468 

 69 

 28,943 

of which:

 

 

 

 

 

 

 

 

 

 

Government bills / bonds

 

 3,944 

 464 

 0 

 4,408 

 

 2,423 

 416 

 0 

 2,839 

Corporate and municipal bonds

 

 64 

 3,986 

 63 

 4,113 

 

 126 

 3,377 

 27 

 3,530 

Investment fund units

 

 480 

 436 

 0 

 916 

 

 551 

 137 

 0 

 689 

Equity instruments

 

 24,154 

 627 

 35 

 24,816 

 

 21,306 

 537 

 42 

 21,886 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

 758 

 107,903 

 2,146 

 110,807 

 

 580 

 122,933 

 2,210 

 125,723 

of which:

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

 6 

 35,203 

 211 

 35,419 

 

 7 

 32,511 

 226 

 32,743 

Credit derivative contracts

 

 0 

 2,628 

 579 

 3,207 

 

 0 

 2,203 

 519 

 2,722 

Foreign exchange contracts

 

 315 

 44,363 

 84 

 44,762 

 

 322 

 52,964 

 86 

 53,372 

Equity / index contracts

 

 6 

 24,662 

 1,270 

 25,939 

 

 1 

 33,669 

 1,371 

 35,041 

Commodity contracts

 

 0 

 988 

 1 

 989 

 

 0 

 1,487 

 0 

 1,487 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities designated at fair value on a recurring basis

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Brokerage payables designated at fair value

 

 0 

 39,326 

 0 

 39,326 

 

 0 

 38,420 

 0 

 38,420 

 

 

 

 

 

 

 

 

 

 

 

Debt issued designated at fair value

 

 0 

 54,543 

 12,376 

 66,919 

 

 0 

 46,074 

 10,957 

 57,031 

 

 

 

 

 

 

 

 

 

 

 

Other financial liabilities designated at fair value

 

 0 

 31,716 

 678 

 32,394 

 

 0 

 32,569 

 1,025 

 33,594 

of which:

 

 

 

 

 

 

 

 

 

 

Amounts due under unit-linked investment contracts

 

 0 

 24,317 

 0 

 24,317 

 

 0 

 21,679 

 0 

 21,679 

Securities financing transactions

 

 0 

 6,190 

 0 

 6,190 

 

 0 

 9,461 

 0 

 9,461 

Over-the-counter debt instruments

 

 0 

 1,205 

 676 

 1,882 

 

 0 

 1,427 

 1,023 

 2,450 

Total liabilities measured at fair value

 

 29,400 

 239,007 

 15,298 

 283,705 

 

 24,986 

 244,465 

 14,260 

 283,711 

1 Bifurcated embedded derivatives are presented on the same balance sheet lines as their host contracts and are not included in this table. The fair value of these derivatives was not material for the periods presented.    2 Other non-financial assets primarily consist of properties and other non-current assets held for sale, which are measured at the lower of their net carrying amount or fair value less costs to sell.

 

All financial and non-financial assets and liabilities measured or disclosed at fair value are categorized into one of three fair value hierarchy levels. In certain cases, the inputs used to measure fair value may fall within different levels of the fair value hierarchy. For disclosure purposes, the level in the hierarchy within which the instrument is classified in its entirety is based on the lowest level input that is significant to the position’s fair value measurement:


   Level 1 – quoted prices (unadjusted) in active markets for 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.

 

 

83


Notes to the UBS Group AG interim consolidated financial statements (unaudited)

 

Note 11  Fair value measurement (continued)

b) Valuation adjustments

Deferred day-1 profit or loss reserves

The table below summarizes the changes in deferred day-1 profit or loss reserves during the relevant period.

Deferred day-1 profit or loss is generally released into Other net income from financial instruments measured at fair value through profit or loss when pricing of equivalent products or the underlying parameters become observable or when the transaction is closed out.

In the first quarter of 2019, a deferred day-1 profit or loss reserve release of USD 126 million was recognized in the income statement, mainly related to loans which are reported within Financial assets at fair value not held for trading on the balance sheet, following an increase in observability.

 

 

Deferred day-1 profit or loss reserves

 

 

 

For the quarter ended

USD million

 

31.3.19

31.12.18

31.3.18

Reserve balance at the beginning of the period

 

 255 

 250 

 338 

Profit / (loss) deferred on new transactions

 

 33 

 48 

 197 

(Profit) / loss recognized in the income statement

 

 (126) 

 (41) 

 (56) 

Foreign currency translation

 

 (1) 

 (2) 

 1 

Reserve balance at the end of the period

 

 161 

 255 

 479 

c) Transfers between Level 1 and Level 2

The amounts disclosed in this section reflect transfers between Level 1 and Level 2 for instruments that were held for the entire reporting period.

Assets totaling approximately USD 1.8 billion, which were mainly comprised of investment fund units presented in the line Financial assets at fair value held for trading on the balance sheet, were transferred from Level 2 to Level 1 during the first quarter of 2019, generally due to increased levels of trading activity observed within the market for these instruments. Liabilities transferred from Level 2 to Level 1 during the first quarter of 2019 were not material. Assets and liabilities transferred from Level 1 to Level 2 during the first quarter of 2019 were also not material.

  

 

84


 

 

Note 11  Fair value measurement (continued)

d) 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 the valuation technique that are considered unobservable and a range of values for those unobservable inputs.

The range of values represents the highest- and lowest-level input used in the valuation techniques. Therefore, the range does not reflect the level of uncertainty regarding a particular input, but rather the different underlying characteristics of the relevant assets and liabilities. The ranges will therefore vary from period to period and parameter to parameter based on characteristics of the instruments held at each balance sheet date. Furthermore, the ranges and weighted averages of unobservable inputs may differ across other financial institutions due to the diversity of the products in each firm’s inventory.

The significant unobservable inputs disclosed in the table below are consistent with those included in “Note 24 Fair value measurement” in the “Consolidated financial statements” section of the Annual Report 2018. A description of 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 ranges shown, is also provided in “Note 24 Fair value measurement” in the “Consolidated financial statements” section of the Annual Report 2018.

 

Valuation techniques and inputs used in the fair value measurement of Level 3 assets and liabilities

 

Fair value

 

 

 

Significant unobservable input(s)1

Range of inputs

 

Assets

 

Liabilities

 

Valuation technique(s)

 

31.3.19

 

31.12.18

 

USD billion

31.3.19

31.12.18

 

31.3.19

31.12.18

 

 

low

high

weighted average2

 

low

high

weighted average2

unit1

Financial assets and liabilities at fair value held for trading and Financial assets at fair value not held for trading

Corporate and municipal bonds

 0.4 

 0.7 

 

 0.1 

 0.0 

 

Relative value to market comparable

 

Bond price equivalent

 0 

 134 

 92 

 

 0 

 134 

 89 

points

Traded loans, loans designated at fair value, loan commitments and guarantees

 2.8 

 2.7 

 

 0.0 

 0.0 

 

Relative value to market comparable

 

Loan price equivalent

 0 

 101 

 99 

 

 0 

 100 

 99 

points

 

 

 

 

 

 

 

Discounted expected cash flows

 

Credit spread

 301 

 700 

 

 

 301 

 513 

 

basis points

 

 

 

 

 

 

 

Market comparable and securitization model

 

Discount margin

 1 

 14 

 2 

 

 1 

 14 

 2 

%

Auction rate securities

 1.6 

 1.7 

 

 0.0 

 0.0 

 

Relative value to market comparable

 

Bond price equivalent

 79 

 99 

 89 

 

 79 

 99 

 89 

points

Investment fund units3

 0.4 

 0.6 

 

 0.0 

 0.0 

 

Relative value to market comparable

 

Net asset value

 

 

 

 

 

 

 

 

Equity instruments3

 0.6 

 0.6 

 

 0.0 

 0.0 

 

Relative value to market comparable

 

Price

 

 

 

 

 

 

 

 

Debt issued designated at fair value4

 

 

 

 12.4 

 11.0 

 

 

 

 

 

 

 

 

 

 

 

 

Other financial liabilities designated at fair value4

 

 

 

 0.7 

 1.0 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

Interest rate contracts

 0.4 

 0.4 

 

 0.2 

 0.2 

 

Option model

 

Volatility of interest rates

 46 

 69 

 

 

 50 

 81 

 

basis points

Credit derivative contracts

 0.5 

 0.5 

 

 0.6 

 0.5 

 

Discounted expected cash flows

 

Credit spreads

 4 

 574 

 

 

 4 

 545 

 

basis points

 

 

 

 

 

 

 

 

 

Bond price equivalent

 3 

 99 

 

 

 3 

 99 

 

points

Equity / index contracts

 0.4 

 0.5 

 

 1.3 

 1.4 

 

Option model

 

Equity dividend yields

 0 

 9 

 

 

 0 

 12 

 

%

 

 

 

 

 

 

 

 

 

Volatility of equity stocks, equity and other indices

 0 

 109 

 

 

 4 

 93 

 

%

 

 

 

 

 

 

 

 

 

Equity-to-FX correlation

 (45) 

 64 

 

 

 (39) 

 67 

 

%

 

 

 

 

 

 

 

 

 

Equity-to-equity correlation

 (50) 

 98 

 

 

 (50) 

 97 

 

%

1 The ranges of significant unobservable inputs are represented in points, percentages and basis points. Points are a percentage of par (e.g., 100 points would be 100% of par).    2 Weighted averages are provided for 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.    3 The range of inputs is not disclosed as there is a dispersion of values given the diverse nature of the investments.    4 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 mainly include over-the-counter debt instruments, are the same as the equivalent derivative or structured financing instruments presented elsewhere in this table.   

 

85


Notes to the UBS Group AG interim consolidated financial statements (unaudited)

 

Note 11  Fair value measurement (continued)

e) Level 3 instruments: sensitivity to changes in unobservable input assumptions

The table below summarizes those financial assets and liabilities classified as Level 3 for which a change in one or more of the unobservable inputs to reflect reasonably possible alternative assumptions would change fair value significantly, and the estimated effect thereof.

The 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 of fair value measurements for debt issued designated at fair value and over-the-counter debt instruments designated at fair value is reported with the equivalent derivative or structured financing instrument within the table below.


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 are not a significant element of the valuation uncertainty.

 

Sensitivity of fair value measurements to changes in unobservable input assumptions

 

 

 

 

 

31.3.19

 

31.12.18

USD million

 

Favorable

changes

Unfavorable

changes

 

Favorable

changes

Unfavorable

changes

Traded loans, loans designated at fair value, loan commitments and guarantees

 

 92 

 (20) 

 

 99 

 (44) 

Securities financing transactions

 

 32 

 (18) 

 

 17 

 (11) 

Auction rate securities

 

 80 

 (80) 

 

 81 

 (81) 

Asset-backed securities

 

 32 

 (28) 

 

 27 

 (23) 

Equity instruments

 

 176 

 (77) 

 

 155 

 (94) 

Interest rate derivative contracts, net

 

 6 

 (26) 

 

 8 

 (39) 

Credit derivative contracts, net

 

 32 

 (37) 

 

 33 

 (37) 

Foreign exchange derivative contracts, net

 

 11 

 (6) 

 

 10 

 (5) 

Equity / index derivative contracts, net

 

 188 

 (217) 

 

 213 

 (225) 

Other

 

 17 

 (17) 

 

 19 

 (19) 

Total

 

 667 

 (527) 

 

 661 

 (578) 

 

 

86


 

 

Note 11  Fair value measurement (continued)

f) Level 3 instruments: movements during the period

Significant changes in Level 3 instruments

The table on the following pages presents additional information about Level 3 assets and liabilities measured at fair value on a recurring basis. Level 3 assets and liabilities may be hedged with instruments classified as Level 1 or Level 2 in the fair value hierarchy and, as a result, realized and unrealized gains and losses included in the table may not include the effect of related hedging activity. Furthermore, the realized and unrealized gains and losses presented 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.

Upon adoption of IFRS 9 on 1 January 2018, certain financial assets and liabilities were newly classified as measured at fair value through profit or loss and 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. Refer to “Note 24 Fair value measurement” in the “Consolidated financial statements” section of the Annual Report 2018 for more information.

In the first quarter of 2019, loans reported within Financial assets at fair value not held for trading on the balance sheet, were transferred from Level 3 to Level 2 in the fair value hierarchy, reflecting increased observability.

 

87


Notes to the UBS Group AG interim consolidated financial statements (unaudited)

 

Note 11  Fair value measurement (continued)

Movements of Level 3 instruments

 

 

 

 

Total gains / (losses) included in comprehensive income

 

 

 

 

 

 

 

 

USD billion

Balance

as of

31 December 2017

Reclassifi-cations and remeasure-

ments upon

 adoption of

IFRS 9

Balance

as of

1 January 2018

Net gains / (losses) included in income1

of which: related to Level 3 instruments held at the end of the reporting period

Purchases

Sales

Issuances

Settlements

Transfers

into

Level 3

Transfers

out of

Level 3

Foreign currency translation

Balance

as of

31 March

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets at fair value held for trading

 2.0 

 0.4 

 2.4 

 (0.2) 

 (0.1) 

 0.5 

 (1.5) 

 0.5 

 0.0 

 0.3 

 0.0 

 0.1 

 2.0 

of which:

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate and municipal bonds

 0.6 

 

 0.6 

 0.0 

 0.0 

 0.1 

 (0.5) 

 0.0 

 0.0 

 0.1 

 0.0 

 0.0 

 0.2 

Loans

 0.5 

 0.4 

 0.9 

 (0.1) 

 0.0 

 0.1 

 (0.8) 

 0.5 

 0.0 

 0.0 

 0.0 

 0.0 

 0.6 

Investment fund units

 0.6 

 

 0.6 

 (0.2) 

 (0.2) 

 0.1 

 0.0 

 0.0 

 0.0 

 0.2 

 0.0 

 0.0 

 0.7 

Other

 0.4 

 

 0.4 

 0.1 

 0.1 

 0.1 

 (0.1) 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 0.4 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets at fair value not held for trading

 1.5 

 3.0 

 4.4 

 (0.3) 

 (0.3) 

 0.9 

 (0.4) 

 0.0 

 0.0 

 0.1 

 0.0 

 0.3 

 4.9 

of which:

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 0.8 

 0.6 

 1.4 

 (0.3) 

 (0.3) 

 0.8 

 (0.2) 

 0.0 

 0.0 

 0.1 

 0.0 

 0.2 

 2.0 

Auction rate securities

 

 1.9 

 1.9 

 0.0 

 0.0 

 0.0 

 (0.2) 

 0.0 

 0.0 

 0.0 

 0.0 

 0.1 

 1.8 

Equity instruments

 

 0.4 

 0.4 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 0.4 

Other

 0.7 

 0.1 

 0.8 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 (0.1) 

 0.7 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets measured at fair value through other comprehensive income

 0.5 

 (0.5) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments – assets

 1.6 

 

 1.6 

 (0.1) 

 (0.1) 

 0.0 

 0.0 

 0.2 

 (0.4) 

 0.0 

 0.0 

 0.1 

 1.4 

of which:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 0.1 

 

 0.1 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 (0.1) 

 0.0 

 0.0 

 0.0 

 0.0 

Credit derivative contracts

 0.6 

 

 0.6 

 (0.1) 

 0.0 

 0.0 

 0.0 

 0.0 

 (0.1) 

 0.0 

 0.0 

 0.0 

 0.5 

Equity / index contracts

 0.7 

 

 0.7 

 0.0 

 (0.1) 

 0.0 

 0.0 

 0.2 

 (0.2) 

 0.0 

 0.0 

 0.0 

 0.6 

Other

 0.2 

 

 0.2 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 0.3 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments – liabilities

 2.9 

 0.0 

 2.9 

 (0.2) 

 (0.2) 

 0.0 

 0.0 

 0.5 

 (0.6) 

 0.2 

 (0.1) 

 0.2 

 2.8 

of which:

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit derivative contracts

 0.6 

 

 0.6 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 0.7 

Equity / index contracts

 2.0 

 

 2.0 

 (0.3) 

 (0.3) 

 0.0 

 0.0 

 0.4 

 (0.4) 

 0.1 

 (0.1) 

 0.2 

 1.8 

Other

 0.3 

 0.0 

 0.3 

 0.1 

 0.1 

 0.0 

 0.0 

 0.0 

 (0.2) 

 0.1 

 0.0 

 0.0 

 0.3 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt issued designated at fair value

 11.2 

 

 11.2 

 (0.3) 

 (0.3) 

 0.0 

 0.0 

 2.7 

 (1.6) 

 0.4 

 (0.6) 

 0.7 

 12.4 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other financial liabilities designated at fair value

 2.0 

 

 2.0 

 (0.3) 

 (0.3) 

 0.0 

 0.0 

 0.2 

 (0.6) 

 0.0 

 0.0 

 0.1 

 1.4 

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.    2 Total Level 3 assets as of 31 March 2019 were USD 7.4 billion (31 December 2018: USD 7.8 billion). Total Level 3 liabilities as of 31 March 2019 were USD 15.3 billion (31 December 2018: USD 14.3 billion).       

 

88


 

 

Note 11   Fair value measurement (continued)

 

 

 

 

 

 

 

 

 

 

 

 

Total gains / (losses) included in comprehensive income

 

 

 

 

 

 

 

 

Balance

as of

31 December 2018

Net gains / (losses) included in income1

of which: related to Level 3 instruments held at the end of the reporting period

Purchases

Sales

Issuances

Settlements

Transfers

into

Level 3

Transfers

out of

Level 3

Foreign

currency

translation

Balance

as of

31 March

20192

 

 

 

 

 

 

 

 

 

 

 

 2.0 

 (0.1) 

 0.0 

 0.4 

 (1.5) 

 1.6 

 0.0 

 0.2 

 (0.2) 

 0.0 

 2.3 

 

 

 

 

 

 

 

 

 

 

 

 0.7 

 0.0 

 0.0 

 0.2 

 (0.4) 

 0.0 

 0.0 

 0.0 

 (0.1) 

 0.0 

 0.4 

 0.7 

 (0.1) 

 0.0 

 0.1 

 (0.9) 

 1.6 

 0.0 

 0.0 

 0.0 

 0.0 

 1.5 

 0.4 

 0.0 

 0.0 

 0.0 

 (0.2) 

 0.0 

 0.0 

 0.1 

 (0.1) 

 0.0 

 0.2 

 0.2 

 0.0 

 0.0 

 0.1 

 (0.1) 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 0.2 

 

 

 

 

 

 

 

 

 

 

 

 4.4 

 0.1 

 0.2 

 0.5 

 (0.4) 

 0.0 

 0.0 

 0.0 

 (0.9) 

 0.0 

 3.7 

 

 

 

 

 

 

 

 

 

 

 

 1.8 

 0.1 

 0.1 

 0.4 

 (0.3) 

 0.0 

 0.0 

 0.0 

 (0.9) 

 0.0 

 1.1 

 1.7 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 1.6 

 0.5 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 0.5 

 0.5 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 0.5 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 1.4 

 (0.1) 

 (0.1) 

 0.0 

 0.0 

 0.5 

 (0.4) 

 0.1 

 (0.1) 

 0.0 

 1.4 

 

 

 

 

 

 

 

 

 

 

 

 0.4 

 0.0 

 0.0 

 0.0 

 0.0 

 0.1 

 0.0 

 0.0 

 0.0 

 0.0 

 0.4 

 0.5 

 0.0 

 0.0 

 0.0 

 0.0 

 0.2 

 (0.1) 

 0.0 

 0.0 

 0.0 

 0.5 

 0.5 

 (0.1) 

 (0.1) 

 0.0 

 0.0 

 0.2 

 (0.2) 

 0.0 

 (0.1) 

 0.0 

 0.4 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 

 

 

 

 

 

 

 

 

 

 

 2.2 

 0.1 

 0.1 

 0.0 

 0.0 

 0.4 

 (0.4) 

 0.1 

 (0.2) 

 0.0 

 2.1 

 

 

 

 

 

 

 

 

 

 

 

 0.5 

 0.0 

 0.0 

 0.0 

 0.0 

 0.1 

 (0.1) 

 0.0 

 0.0 

 0.0 

 0.6 

 1.4 

 0.1 

 0.1 

 0.0 

 0.0 

 0.2 

 (0.3) 

 0.0 

 (0.2) 

 0.0 

 1.3 

 0.3 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 0.0 

 0.3 

 

 

 

 

 

 

 

 

 

 

 

 11.0 

 0.5 

 0.4 

 0.0 

 0.0 

 2.8 

 (1.2) 

 0.3 

 (1.0) 

 0.0 

 12.4 

 

 

 

 

 

 

 

 

 

 

 

 1.0 

 0.1 

 0.1 

 0.0 

 0.0 

 0.1 

 (0.5) 

 0.0 

 0.0 

 0.0 

 0.7 

 

 

89


Notes to the UBS Group AG interim consolidated financial statements (unaudited)

 

Note 11   Fair value measurement (continued)

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.

Assets transferred into and out of Level 3 in the first quarter of 2019 totaled USD 0.3 billion and USD 1.1 billion, respectively. Transfers into Level 3 were primarily comprised of investment fund units reflecting decreased observability of the relevant net asset value inputs. Transfers out of Level 3 were primarily comprised of loans due to increased observability of the relevant valuation inputs.

Liabilities transferred into and out of Level 3 in the first quarter of 2019 totaled USD 0.4 billion and USD 1.1 billion, respectively. Transfers into and out of Level 3 were primarily comprised of equity-linked issued debt instruments (presented within Debt issued designated at fair value) due to decreased or increased observability, respectively, of the embedded derivative inputs.

g) Financial instruments not measured at fair value

The table below reflects the estimated fair values of financial instruments not measured at fair value.

 

Financial instruments not measured at fair value

 

 

 

 

 

 

31.3.19

 

31.12.18

USD billion

 

Carrying value

Fair value

 

Carrying value

Fair value

Assets

 

 

 

 

 

 

Cash and balances at central banks

 

 110.6 

 110.6 

 

 108.4 

 108.4 

Loans and advances to banks

 

 17.0 

 17.0 

 

 16.9 

 16.9 

Receivables from securities financing transactions

 

 100.2 

 100.2 

 

 95.3 

 95.4 

Cash collateral receivables on derivative instruments

 

 25.2 

 25.2 

 

 23.6 

 23.6 

Loans and advances to customers

 

 318.6 

 320.7 

 

 320.4 

 320.9 

Other financial assets measured at amortized cost

 

 22.4 

 22.4 

 

 22.6 

 22.4 

Liabilities

 

 

 

 

 

 

Amounts due to banks

 

 9.1 

 9.1 

 

 11.0 

 11.0 

Payables from securities financing transactions

 

 5.2 

 5.2 

 

 10.3 

 10.3 

Cash collateral payables on derivative instruments

 

 30.3 

 30.3 

 

 28.9 

 28.9 

Customer deposits

 

 425.9 

 426.0 

 

 419.8 

 419.9 

Debt issued measured at amortized cost

 

 128.1 

 130.4 

 

 132.3 

 135.0 

Other financial liabilities measured at amortized cost

 

 10.4 

 10.4 

 

 6.9 

 6.9 

 

 

The fair values included in the table above have been calculated for disclosure purposes only. The fair value valuation techniques and assumptions 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.

  

90


 

Note 12  Derivative instruments

a) Derivative instruments

As of 31.3.19, USD billion

 

Derivative

financial

assets

Notional values

related to derivative

financial assets3

Derivative

financial

liabilities

Notional values

related to derivative

financial liabilities3

Other

notional

values4

Derivative financial instruments1,2

 

 

 

 

 

 

Interest rate contracts

 

 40.1 

 1,114 

 35.4 

 1,115 

 11,049 

Credit derivative contracts

 

 2.1 

 74 

 3.2 

 78 

 0 

Foreign exchange contracts

 

 44.3 

 2,892 

 44.8 

 2,752 

 1 

Equity / index contracts

 

 22.9 

 430 

 25.9 

 527 

 122 

Commodity contracts

 

 1.2 

 50 

 1.0 

 40 

 8 

Unsettled purchases of non-derivative financial instruments5

 

 0.2 

 29 

 0.2 

 17 

 

Unsettled sales of non-derivative financial instruments5

 

 0.2 

 27 

 0.3 

 22 

 

Total derivative financial instruments, based on IFRS netting6

 

 111.2 

 4,617 

 110.8 

 4,550 

 11,180 

Further netting potential not recognized on the balance sheet7

 

 (100.9) 

 

 (97.5) 

 

 

of which: netting of recognized financial liabilities / assets

 

 (81.4) 

 

 (81.4) 

 

 

of which: netting with collateral received / pledged

 

 (19.5) 

 

 (16.0) 

 

 

Total derivative financial instruments, after consideration of further netting potential

 

 10.2 

 

 13.3 

 

 

 

 

 

 

 

 

 

As of 31.12.18, USD billion

 

 

 

 

 

 

Derivative financial instruments1,2

 

 

 

 

 

 

Interest rate contracts

 

 37.1 

 1,051 

 32.7 

 1,021 

 10,779 

Credit derivative contracts

 

 1.9 

 74 

 2.7 

 78 

 0 

Foreign exchange contracts

 

 53.5 

 2,626 

 53.4 

 2,517 

 0 

Equity / index contracts

 

 31.4 

 409 

 35.0 

 489 

 106 

Commodity contracts

 

 1.8 

 46 

 1.5 

 39 

 9 

Unsettled purchases of non-derivative financial instruments5

 

 0.2 

 17 

 0.1 

 6 

 

Unsettled sales of non-derivative financial instruments5

 

 0.4 

 15 

 0.2 

 13 

 

Total derivative financial instruments, based on IFRS netting6

 

 126.2 

 4,239 

 125.7 

 4,163 

 10,894 

Further netting potential not recognized on the balance sheet7

 

 (114.8) 

 

 (111.7) 

 

 

of which: netting of recognized financial liabilities / assets

 

 (90.8) 

 

 (90.8) 

 

 

of which: netting with collateral received / pledged

 

 (24.0) 

 

 (20.9) 

 

 

Total derivative financial instruments, after consideration of further netting potential

 

 11.4 

 

 14.0 

 

 

1 Derivative financial liabilities as of 31 March 2019 include USD 18 million related to derivative loan commitments (31 December 2018: USD 17 million). No notional amounts related to these commitments are included in this table, but they are disclosed in Note 17 under Loan commitments.    2 Includes certain forward starting repurchase and reverse repurchase agreements that are classified as measured at fair value through profit or loss and are recognized within derivative instruments. The fair value of these derivative instruments was not material as of 31 March 2019 or 31 December 2018. No notional amounts related to these instruments are included in this table, but they are disclosed within Note 17 under Forward starting transactions.    3 In cases where derivative financial instruments are presented on a net basis on the balance sheet, the respective notional values of the netted derivative financial instruments are still presented on a gross basis.    4 Other notional values relate to derivatives that are cleared through either a central counterparty or an exchange. The fair value of these derivatives is presented on the balance sheet net of the corresponding cash margin under Cash collateral receivables on derivative instruments and Cash collateral payables on derivative instruments and was not material for all periods presented.    5 Changes in the fair value of purchased and sold non-derivative financial instruments between trade date and settlement date are recognized as derivative financial instruments.    6 Financial assets and liabilities are presented net on the balance sheet if UBS has the unconditional and legally enforceable right to offset the recognized amounts, both in the normal course of business and in the event of default, bankruptcy or insolvency of 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.    7 Reflects the netting potential in accordance with enforceable master netting and similar arrangements where not all criteria for a net presentation on the balance sheet have been met. Refer to “Note 25 Offsetting financial assets and financial liabilities” in the “Consolidated financial statements” section of the Annual Report 2018 for more information.   

 

91


Notes to the UBS Group AG interim consolidated financial statements (unaudited)

 

Note 12  Derivative instruments (continued)

b) Cash collateral on derivative instruments

USD billion

 

Receivables

31.3.19

Payables

31.3.19

 

Receivables

31.12.18

Payables

31.12.18

Cash collateral on derivative instruments, based on IFRS netting1

 

 25.2 

 30.3 

 

 23.6 

 28.9 

Further netting potential not recognized on the balance sheet2

 

 (14.1) 

 (15.0) 

 

 (14.5) 

 (15.4) 

of which: netting of recognized financial liabilities / assets

 

 (12.2) 

 (13.7) 

 

 (13.5) 

 (14.2) 

of which: netting with collateral received / pledged

 

 (1.9) 

 (1.4) 

 

 (1.0) 

 (1.2) 

Cash collateral on derivative instruments, after consideration of further netting potential

 

 11.1 

 15.3 

 

 9.1 

 13.5 

1 Financial assets and liabilities are presented net on the balance sheet if UBS has the unconditional and legally enforceable right to offset the recognized amounts, both in the normal course of business and in the event of default, bankruptcy or insolvency of UBS or its counterparties, and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.    2 Reflects the netting potential in accordance with enforceable master netting and similar arrangements where not all criteria for a net presentation on the balance sheet have been met. Refer to “Note 25 Offsetting financial assets and financial liabilities” in the “Consolidated financial statements” section of the Annual Report 2018 for more information.

 

  

 

Note 13  Other assets and liabilities

a) Other financial assets measured at amortized cost

USD million

31.3.19

31.12.18

Debt securities

 12,938 

 13,562 

of which: government bills / bonds

 8,094 

 8,778 

Loans to financial advisors1

 3,158 

 3,291 

Fee- and commission-related receivables

 1,824 

 1,643 

Finance lease receivables2

 1,224 

 1,091 

Settlement and clearing accounts

 707 

 1,050 

Accrued interest income

 729 

 694 

Other

 1,855 

 1,233 

Total other financial assets measured at amortized cost

 22,433 

 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.

 

 

b) Other non-financial assets

USD million

31.3.19

31.12.18

Precious metals and other physical commodities

 3,816 

 4,298 

Bail deposit1

 1,286 

 1,312 

Prepaid expenses

 1,026 

 990 

Net defined benefit pension and post-employment assets

 3 

 0 

VAT and other tax receivables

 280 

 334 

Properties and other non-current assets held for sale

 58 

 82 

Other 

 425 

 395 

Total other non-financial assets

 6,893 

 7,410 

1 Refer to item 1 in Note 16b for more information.

 

92


 

 

Note 13  Other assets and liabilities (continued)

c) Other financial liabilities measured at amortized cost

USD million

31.3.19

31.12.18

Other accrued expenses

 1,909 

 2,192 

Accrued interest expenses

 1,300 

 1,544 

Settlement and clearing accounts

 1,164 

 1,486 

Lease liabilities1

 3,968 

 

Other

 2,075 

 1,663 

Total other financial liabilities measured at amortized cost

 10,416 

 6,885 

1 Relates to lease liabilities of USD 4,057 million recognized upon adoption of IFRS 16 on 1 January 2019. Refer to Note 1 for more information.

 

 

d) Other financial liabilities designated at fair value

USD million

31.3.19

31.12.18

Amounts due under unit-linked investment contracts

 24,317 

 21,679 

Securities financing transactions

 6,190 

 9,461 

Over-the-counter debt instruments

 1,882 

 2,450 

of which: life-to-date own credit (gain) / loss

 (27) 

 (51) 

Other

 5 

 5 

Total other financial liabilities designated at fair value

 32,394 

 33,594 

 

 

e) Other non-financial liabilities

USD million

31.3.19

31.12.18

Compensation-related liabilities

 4,947 

 7,278 

of which: accrued expenses

 1,027 

 2,696 

of which: Deferred Contingent Capital Plan

 1,538 

 1,983 

of which: other deferred compensation plans

 1,472 

 1,823 

of which: net defined benefit pension and post-employment liabilities

 910 

 775 

Current and deferred tax liabilities

 1,013 

 1,002 

VAT and other tax payables

 491 

 431 

Deferred income

 171 

 215 

Other

 103 

 98 

Total other non-financial liabilities

 6,726 

 9,022 

  

93


Notes to the UBS Group AG interim consolidated financial statements (unaudited)

Note 14  Debt issued designated at fair value

USD million

31.3.19

31.12.18

Issued debt instruments

 

 

Equity-linked1

 41,033 

 34,392 

Rates-linked

 14,430 

 12,073 

Credit-linked

 3,389 

 3,282 

Fixed-rate

 5,681 

 5,099 

Other

 2,386 

 2,185 

Total debt issued designated at fair value

 66,919 

 57,031 

of which: life-to-date own credit (gain) / loss

 33 

 (270) 

1 Includes investment fund unit-linked instruments issued.

 

  

 

Note 15  Debt issued measured at amortized cost

USD million

31.3.19

31.12.18

Certificates of deposit

 6,869 

 7,980 

Commercial paper

 21,711 

 27,514 

Other short-term debt

 3,453 

 3,531 

Short-term debt1

 32,033 

 39,025 

Senior unsecured debt that contributes to total loss-absorbing capacity (TLAC)

 30,548 

 29,988 

Senior unsecured debt other than TLAC

 32,850 

 33,018 

Covered bonds

 3,815 

 3,947 

Subordinated debt

 20,299 

 17,665 

of which: high-trigger loss-absorbing additional tier 1 capital instruments

 10,396 

 7,785 

of which: low-trigger loss-absorbing additional tier 1 capital instruments

 2,381 

 2,369 

of which: low-trigger loss-absorbing tier 2 capital instruments

 6,821 

 6,808 

of which: non-Basel III-compliant tier 2 capital instruments

 700 

 703 

Debt issued through the Swiss central mortgage institutions

 8,505 

 8,569 

Other long-term debt

 55 

 58 

Long-term debt2

 96,072 

 93,246 

Total debt issued measured at amortized cost3

 128,105 

 132,271 

1 Debt with an original maturity of less than one year.    2 Debt with original maturity greater than or equal to one year. The classification of debt issued into short-term and long-term does not consider any early redemption features.    3 Net of bifurcated embedded derivatives, the fair value of which was not material for the periods presented.

  

94


 

Note 16   Provisions and contingent liabilities

a) Provisions

The table below presents an overview of total provisions recognized under both IAS 37 and IFRS 9.

USD million

 

31.3.19

31.12.18

Provisions recognized under IAS 37

 

 3,063 

 3,377 

Provisions for off-balance sheet financial instruments

 

 91 

 79 

Provisions for other credit lines

 

 43 

 37 

Total provisions

 

 3,197 

 3,494 

 

 

The following table presents additional information for provisions recognized under IAS 37.

USD million

Operational risks2

Litigation, regulatory and similar matters3

Restructuring

Real estate

Employee benefits6

Other

Total

Balance as of 31 December 2018

 46 

 2,827 

 224 

 131 

 70 

 78 

 3,377 

Adjustment from adoption of IFRS 161

 0 

 0 

 (103) 

 (29) 

 0 

 0 

 (132) 

Balance as of 1 January 2019

 46 

 2,827 

 121 

 102 

 70 

 78 

 3,245 

Increase in provisions recognized in the income statement

 4 

 16 

 6 

 0 

 1 

 2 

 29 

Release of provisions recognized in the income statement

 0 

 (17) 

 (5) 

 0 

 (2) 

 0 

 (24) 

Provisions used in conformity with designated purpose

 (4) 

 (134) 

 (23) 

 (4) 

 0 

 (6) 

 (171) 

Foreign currency translation / unwind of discount

 (2) 

 (15) 

 0 

 (1) 

 0 

 (1) 

 (18) 

Balance as of 31 March 2019

 45 

 2,677 

 1014

 985

 69 

 73 

 3,063 

1 Refer to Note 1 for more information.    2 Comprises provisions for losses resulting from security risks and transaction processing risks.    3 Comprises provisions for losses resulting from legal, liability and compliance risks.    4 Primarily consists of personnel-related restructuring provisions of USD 31 million as of 31 March 2019 (31 December 2018: USD 50 million) and provisions for onerous contracts of USD 64 million as of 31 March 2019 (31 December 2018: USD 170 million).    5 Consists of reinstatement costs for leasehold improvements of USD 88 million as of 31 March 2019 (31 December 2018: USD 89 million) and provisions for onerous contracts of USD 10 million as of 31 March 2019 (31 December 2018: USD 42 million).    6 Includes provisions for sabbatical and anniversary awards.    

 

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 subtenants. Severance-related provisions are used within a short time period, usually within six months, but potential changes in amount may be triggered when natural staff attrition reduces the number of people affected by a restructuring event and therefore the estimated costs.

Information on provisions and contingent liabilities in respect of litigation, regulatory and similar matters, as a class, is included in Note 16b. There are no material contingent liabilities associated with the other classes of provisions.

b) Litigation, regulatory and similar matters

The Group operates in a legal and regulatory environment that exposes it to significant litigation and similar risks arising from disputes and regulatory proceedings. As a result, UBS (which for purposes of this Note may refer to UBS Group AG and / or one or more of its subsidiaries, as applicable) is involved in various disputes and legal proceedings, including litigation, arbitration, and regulatory and criminal investigations.

Such matters are subject to many uncertainties, and the outcome and the timing of resolution are often difficult to predict, particularly in the earlier stages of a case. There are also situations where the Group may enter into a settlement agreement. This may occur in order to avoid the expense, management distraction or reputational implications of continuing to contest liability, even for those matters for which the Group believes it should be exonerated. The uncertainties inherent in all such matters affect the amount and timing of any potential outflows for both matters with respect to which provisions have been established and other contingent liabilities. The Group makes provisions for such matters brought against it when, in the opinion of management after seeking legal advice, it is more likely than not that the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required, and the amount can be reliably estimated. Where these factors are otherwise satisfied, a provision may be established for claims that have not yet been asserted against the Group, but are nevertheless expected to be, based on the Group’s experience with similar asserted claims. If any of those conditions is not met, such matters result in contingent liabilities. If the amount of an obligation cannot be reliably estimated, a liability exists that is not recognized even if an outflow of resources is probable. Accordingly, no provision is established even if the potential outflow of resources with respect to such matters could be significant. Developments relating to a matter that occur after the relevant reporting period, but prior to the issuance of financial statements, which affect management’s assessment of the provision for such matter (because, for example, the developments provide evidence of conditions that existed at the end of the reporting period), are adjusting events after the reporting period under IAS 10 and must be recognized in the financial statements for the reporting period.

 

95


Notes to the UBS Group AG interim consolidated financial statements (unaudited)

 

Note 16  Provisions and contingent liabilities (continued)

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.

In the case of certain matters below, we state that we have established a provision, and for the other matters, we make no such statement. When we make this statement and we expect disclosure of the amount of a provision to prejudice seriously our position with other parties in the matter because it would reveal what UBS believes to be the probable and reliably estimable outflow, we do not disclose that amount. In some cases we are subject to confidentiality obligations that preclude such disclosure. With respect to the matters for which we do not state whether we have established a provision, either (a) we have not established a provision, 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 16a 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 others, the British Bankers’ Association London Interbank Offered Rate (LIBOR), was terminated by the DOJ based on its determination that we had committed a US crime in relation to foreign exchange matters. As a consequence, UBS AG pleaded guilty to one count of wire fraud for conduct in the LIBOR matter, paid a fine and is subject to probation through January 2020.

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 limit, suspend or terminate licenses and regulatory authorizations, and may permit financial market utilities to limit, suspend or terminate our participation in such utilities. Failure to obtain such waivers, or any limitation, suspension or termination of licenses, authorizations or participations, could have material consequences for UBS.

The risk of loss associated with litigation, regulatory and similar matters is a component of operational risk for purposes of 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

Global Wealth

Manage-

ment

Personal & Corporate Banking

Asset

Manage-

ment

Investment Bank

Corporate Center

UBS

Balance as of 31 December 2018

 1,003 

 117 

 0 

 269 

 1,438 

 2,827 

Increase in provisions recognized in the income statement

 14 

 0 

 0 

 2 

 0 

 16 

Release of provisions recognized in the income statement

 (13) 

 0 

 0 

 (2) 

 (2) 

 (17) 

Provisions used in conformity with designated purpose

 (49) 

 (1) 

 0 

 (66) 

 (18) 

 (134) 

Foreign currency translation / unwind of discount

 (12) 

 (2) 

 0 

 (2) 

 1 

 (15) 

Balance as of 31 March 2019

 943 

 114 

 0 

 201 

 1,419 

 2,677 

1 Provisions, if any, for the matters described in this disclosure are recorded in Global Wealth Management (item 3 and item 4) and Corporate Center (item 2). Provisions, if any, for the matters described in 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.

 

96


 

 

Note 16  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 transfer information based on requests for international 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 has taken steps to inform affected clients about the 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.

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.

Since 2013, UBS (France) S.A., UBS AG and certain former employees have been under investigation in France for alleged complicity in having illicitly solicited 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 illicitly soliciting 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 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 March 2019 reflected provisions with respect to this matter in an amount of USD 516 million. 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 March 2019 reflects our best estimate of possible financial implications, although it is reasonably possible that actual penalties and civil damages could exceed the provision amount.

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.

UBS has, and reportedly numerous other financial institutions have, received inquiries from authorities concerning accounts relating to the Fédération Internationale de Football Association (FIFA) and other constituent soccer associations and related persons and entities. UBS is cooperating with authorities in these inquiries.

Our balance sheet at 31 March 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.

 

97


Notes to the UBS Group AG interim consolidated financial statements (unaudited)

 

Note 16  Provisions and contingent liabilities (continued)

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.

Lawsuits related to 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. The settlement remains subject to court approval and proceedings to determine how the settlement funds will be distributed to RMBS holders. 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.

Our balance sheet at 31 March 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 Authority (FINMA) and the Luxembourg Commission de Surveillance du Secteur Financier. Those inquiries concerned two third-party funds established under Luxembourg law, substantially all assets of which were with BMIS, as well as certain funds established in offshore jurisdictions with either direct or indirect exposure to BMIS. These funds faced severe losses, and the Luxembourg funds are in liquidation. The documentation establishing both funds identifies UBS entities in various roles, including custodian, administrator, manager, distributor and promoter, and indicates that UBS employees serve as board members.

In 2009 and 2010, the liquidators of the two Luxembourg funds filed claims against UBS entities, non-UBS entities and certain individuals, including current and former UBS employees, seeking amounts totaling approximately EUR 2.1 billion, which includes amounts that the funds may be held liable to pay the trustee for the liquidation of BMIS (BMIS Trustee).

 

 

 

98


 

 

Note 16  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. The BMIS Trustee appealed. In February 2019, the Court of Appeals reversed the dismissal of the BMIS Trustee’s remaining claims and remanded the case to the bankruptcy court for further proceedings. The defendants, including UBS, filed a petition for rehearing in March 2019.

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 2.9 billion, of which claims with aggregate claimed damages of USD 1.9 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 (SEC) and the Financial Industry Regulatory Authority in relation to their examinations of UBS’s operations.

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.

Our balance sheet at 31 March 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.

 

 

99


Notes to the UBS Group AG interim consolidated financial statements (unaudited)

 

Note 16  Provisions and contingent liabilities (continued)

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 is subject to probation through January 2020. 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 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.

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 or are continuing to conduct investigations regarding potential improper attempts by UBS, among others, to manipulate LIBOR and other benchmark rates at certain times. In 2012, UBS reached settlements relating to benchmark interest rates with the UK Financial Services Authority, the CFTC and the Criminal Division of the DOJ, and FINMA issued an order in its proceedings with respect to UBS relating to benchmark interest rates. In addition, UBS entered into settlements with the European Commission and with the Swiss Competition Commission (WEKO) regarding its investigation of bid-ask spreads in connection with Swiss franc interest rate derivatives. UBS has ongoing obligations to cooperate with the authorities with whom we have reached resolutions and to undertake certain remediation measures with respect to benchmark interest rate submissions. In December 2018, UBS entered into a settlement agreement with the New York and other state attorneys general under which it will pay USD 68 million to resolve claims by the attorneys general related to LIBOR. UBS has been granted conditional leniency or conditional immunity from authorities in certain jurisdictions, including the Antitrust Division of the DOJ and 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.

 

100


 

 

Note 16  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 LIBOR and other benchmarks, including adjustable rate mortgages, preferred and debt securities, bonds pledged as collateral, loans, depository accounts, investments and other interest-bearing instruments. The complaints allege manipulation, through various means, of certain benchmark interest rates, including USD LIBOR, Euroyen TIBOR, Yen LIBOR, EURIBOR, CHF LIBOR, GBP LIBOR, USD and SGD SIBOR and SOR and Australian BBSW, and seek unspecified compensatory and other damages under varying legal theories.

USD LIBOR class and individual actions in the US: In 2013 and 2015, the district court in the USD LIBOR actions dismissed, in whole or in part, certain plaintiffs’ antitrust claims, federal racketeering claims, 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. 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 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 and unjust enrichment claims.

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 courts in the EURIBOR lawsuit dismissed the cases as to UBS and certain other foreign defendants for lack of personal jurisdiction. 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 have filed amended complaints following the dismissals, which UBS and other defendants have moved to dismiss. 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 moved in January 2019 to file an amended complaint seeking to re-name UBS and certain other banks as defendants. UBS and other defendants also moved to dismiss the GBP LIBOR action in December 2016, but that motion was denied as to UBS in December 2018. UBS moved for reconsideration of that decision in January 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.

UBS and reportedly other banks are responding to investigations and requests for information from various authorities regarding US Treasury securities and other government bond trading practices. As a result of its review to date, UBS has taken appropriate action.

With respect to additional matters and jurisdictions not encompassed by the settlements and orders referred to above, our balance sheet at 31 March 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 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.

 

101


Notes to the UBS Group AG interim consolidated financial statements (unaudited)

 

Note 16  Provisions and contingent liabilities (continued)

6. Swiss retrocessions

The Federal Supreme Court of Switzerland ruled in 2012, in a test case against UBS, that distribution fees paid to a firm for 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 March 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.

 

 

 

  

 

Note 17   Guarantees, commitments and forward starting transactions

The table below presents the maximum irrevocable amount of guarantees, commitments and forward starting transactions.

 

USD million

 

31.3.19

 

31.12.18

 

 

Gross

 

Sub-

partici-

pations

 

Net

 

Gross

 

Sub-

partici-

pations

 

Net

 

 

Measured

at fair value

Not measured

at fair value

 

 

 

 

 

Measured

at fair value

Not measured

at fair value

 

 

 

 

Total guarantees

 

 1,840 

 17,434 

 

 (2,760) 

 

 16,514 

 

 1,639 

 18,146 

 

 (2,803) 

 

 16,982 

Loan commitments

 

 6,401 

 27,919 

 

 (690) 

 

 33,630 

 

 3,535 

 31,212 

 

 (647) 

 

 34,099 

Forward starting transactions1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reverse repurchase agreements

 

 29,284 

 2,038 

 

 

 

 

 

 8,117 

 925 

 

 

 

 

Securities borrowing agreements

 

 

 20 

 

 

 

 

 

 

 12 

 

 

 

 

Repurchase agreements

 

 15,321 

 629 

 

 

 

 

 

 7,926 

 400 

 

 

 

 

1 Cash to be paid in the future by either UBS or the counterparty.

 

  

 

Note 18   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.

 

 

 

Closing exchange rate

 

Average rate1

 

 

 

As of

 

For the quarter ended

 

 

 

31.3.19

31.12.18

31.3.18

 

31.3.19

31.12.18

31.3.18

 

1 CHF

 

 1.00 

 1.02 

 1.05 

 

 1.00 

 1.00 

 1.06 

 

1 EUR

 

 1.12 

 1.15 

 1.23 

 

 1.14 

 1.14 

 1.23 

 

1 GBP

 

 1.30 

 1.28 

 1.40 

 

 1.31 

 1.28 

 1.40 

 

100 JPY

 

 0.90 

 0.91 

 0.94 

 

 0.91 

 0.89 

 0.93 

 

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 quarter represent an average of three month-end rates, weighted according to the income and expense volumes of all operations of the Group with the same functional currency for each month. Weighted average rates for individual business divisions may deviate from the weighted average rates for the Group.

 
 

  

102


 

UBS AG interim consolidated financial
information (unaudited)

This section contains a comparison of selected financial and capital information between UBS Group AG consolidated and UBS AG consolidated. Refer to the UBS AG first quarter 2019 report, which will be available as of 30 April 2019 under “Quarterly reporting” at www.ubs.com/investors, for the interim consolidated financial statements of UBS AG.

Comparison between UBS Group AG consolidated and UBS AG consolidated

The accounting policies applied under International Financial Reporting Standards (IFRS) to both UBS Group AG and UBS AG consolidated financial statements are identical. However, there are certain scope and presentation differences as noted below:

   Assets, liabilities, operating income, operating expenses and operating profit before tax relating to UBS Group AG and its directly held subsidiaries, including UBS Business Solutions AG, are reflected in the consolidated financial statements of UBS Group AG but not of UBS AG. UBS AG’s assets, liabilities, operating income and operating expenses related to transactions with UBS Group AG and its directly held subsidiaries, including UBS Business Solutions AG and other shared services subsidiaries, are not subject to elimination in the UBS AG consolidated financial statements, but are eliminated in the UBS Group AG consolidated financial statements. UBS Business Solutions AG and other shared services subsidiaries of UBS Group AG charge other legal entities within the UBS AG consolidation scope for services provided, including a markup on costs incurred.

   UBS Group AG consolidated equity was USD 0.5 billion higher compared to the equity of UBS AG consolidated as of 31 March 2019, mainly driven by higher dividends paid by UBS AG to UBS Group AG compared with the dividend distributions of UBS Group AG, as well as higher retained earnings in the UBS Group AG consolidated financial statements, largely related to the aforementioned markup charged by shared services subsidiaries of UBS Group AG to other legal entities in the UBS AG scope of consolidation. UBS Group AG is also the grantor of the majority of the compensation plans of the Group and recognizes share premium for equity-settled awards granted, largely offset by the treasury shares held to hedge the related share delivery obligation and those acquired as part of our share repurchase program. These effects were partly offset by additional share premium recognized at the UBS AG consolidated level related to the establishment of UBS Group AG and UBS Business Solutions AG, a wholly owned subsidiary of UBS Group AG.

   Going concern capital of UBS AG consolidated was USD 4.1 billion lower than going concern capital of UBS Group AG consolidated as of 31 March 2019, reflecting additional tier 1 (AT1) capital of USD 4.3 billion partly offset by higher common equity tier 1 (CET1) capital of USD 0.3 billion.

   CET1 capital of UBS AG consolidated was USD 0.3 billion higher than that of UBS Group AG consolidated as of 31 March 2019. The main drivers are differences in equity, in deductions for compensation-related regulatory capital components and in dividend accruals.

   Going concern loss-absorbing AT1 capital of UBS AG consolidated was USD 4.3 billion lower than that of UBS Group AG consolidated as of 31 March 2019, reflecting Deferred Contingent Capital Plan awards and AT1 capital notes. These AT1 capital notes were issued by UBS Group Funding (Switzerland) AG, a direct subsidiary of UBS Group AG, after the implementation of the new Swiss SRB framework, and only qualify as gone concern loss-absorbing capacity at the UBS AG consolidated level.

 

 

103


Notes to the UBS Group AG interim consolidated financial statements (unaudited)

 

Comparison UBS Group AG consolidated versus UBS AG consolidated

 

 

 

 

 

 

As of or for the quarter ended 31.3.19

 

As of or for the quarter ended 31.12.18

USD million, except where indicated

 

UBS Group AG

(consolidated)

UBS AG

(consolidated)

Difference

(absolute)

 

UBS Group AG

(consolidated)

UBS AG

(consolidated)

Difference

(absolute)

 

 

 

 

 

 

 

 

 

Income statement

 

 

 

 

 

 

 

 

Operating income

 

 7,218 

 7,343 

 (125) 

 

 6,972 

 7,083 

 (111) 

Operating expenses

 

 5,672 

 5,890 

 (217) 

 

 6,492 

 6,667 

 (176) 

Operating profit / (loss) before tax

 

 1,546 

 1,454 

 92 

 

 481 

 416 

 65 

of which: Global Wealth Management

 

 863 

 848 

 16 

 

 327 

 316 

 11 

of which: Personal & Corporate Banking

 

 387 

 386 

 1 

 

 644 

 645 

 (1) 

of which: Asset Management

 

 103 

 103 

 0 

 

 106 

 105 

 1 

of which: Investment Bank

 

 207 

 187 

 20 

 

 (78) 

 (79) 

 1 

of which: Corporate Center

 

 (15) 

 (71) 

 56 

 

 (518) 

 (571) 

 53 

Net profit / (loss)

 

 1,139 

 1,067 

 72 

 

 315 

 273 

 42 

of which: net profit / (loss) attributable to shareholders

 

 1,141 

 1,069 

 72 

 

 315 

 272 

 42 

of which: net profit / (loss) attributable to non-controlling interests

 

 (2) 

 (2) 

 0 

 

 1 

 1 

 0 

 

 

 

 

 

 

 

 

 

Statement of comprehensive income

 

 

 

 

 

 

 

 

Other comprehensive income

 

(100)

(90)

(10)

 

893

895

(2)

of which: attributable to shareholders

 

(104)

(94)

(10)

 

892

894

(2)

of which: attributable to non-controlling interests

 

4

4

0

 

1

1

0

Total comprehensive income

 

1,039

977

62

 

1,208

1,168

41

of which: attributable to shareholders

 

1,037

974

62

 

1,207

1,166

41

of which: attributable to non-controlling interests

 

2

2

0

 

2

2

0

 

 

 

 

 

 

 

 

 

Balance sheet

 

 

 

 

 

 

 

 

Total assets

 

956,579

956,737

(158)

 

958,489

958,055

434

Total liabilities

 

902,739

903,348

(609)

 

905,386

905,624

(238)

Total equity

 

53,840

53,389

451

 

53,103

52,432

671

of which: equity attributable to shareholders

 

53,667

53,216

451

 

52,928

52,256

671

of which: equity attributable to non-controlling interests

 

173

173

0

 

176

176

0

 

 

 

 

 

 

 

 

 

Capital information

 

 

 

 

 

 

 

 

Common equity tier 1 capital

 

34,658

34,933

(275)

 

34,119

34,608

(489)

Going concern capital

 

49,436

45,368

4,068

 

46,279

42,413

3,865

Risk-weighted assets

 

267,556

266,581

976

 

263,747

262,840

907

Common equity tier 1 capital ratio (%)

 

13.0

13.1

(0.2)

 

12.9

13.2

(0.2)

Going concern capital ratio (%)

 

18.5

17.0

1.5

 

17.5

16.1

1.4

Total loss-absorbing capacity ratio (%)

 

32.7

32.2

0.5

 

31.7

31.3

0.5

Leverage ratio denominator

 

910,993

911,410

(417)

 

904,598

904,458

140

Common equity tier 1 leverage ratio (%)

 

3.80

3.83

(0.03)

 

3.77

3.83

(0.05)

Going concern leverage ratio (%)

 

5.4

5.0

0.4

 

5.1

4.7

0.4

Total loss-absorbing capacity leverage ratio (%)

 

9.6

9.4

0.2

 

9.3

9.1

0.2

 

 

  

104


 

Significant regulated subsidiary and sub-group information

Unaudited

  

 


Significant regulated subsidiary and sub-group information

Financial and regulatory key figures for our significant regulated subsidiaries and
sub-groups

 

 

UBS AG

(standalone)

 

UBS Switzerland AG

(standalone)

 

UBS Europe SE

(consolidated)

 

UBS Americas Holding LLC

(consolidated)

 

 

USD million,

except where indicated

 

CHF million,

except where indicated

 

EUR million,

except where indicated

 

USD million,

except where indicated

As of or for the quarter ended

 

31.3.19

31.12.18

 

31.3.19

31.12.18

 

31.3.191

 

 

31.3.19

31.12.182

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial information3,4,5

 

 

 

 

 

 

 

 

 

 

 

 

Income statement

 

 

 

 

 

 

 

 

 

 

 

 

Total operating income

 

2,237

1,912

 

2,060

2,039

 

193

 

 

2,933

3,124

Total operating expenses

 

2,200

3,173

 

1,600

1,637

 

186

 

 

2,626

2,799

Operating profit / (loss) before tax

 

37

(1,260)

 

460

402

 

7

 

 

307

325

Net profit / (loss)

 

55

(435)

 

360

298

 

11

 

 

225

2,385

Balance sheet

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

498,426

480,238

 

295,806

293,034

 

56,687

 

 

140,376

142,761

Total liabilities

 

447,264

429,130

 

281,612

279,200

 

51,972

 

 

112,662

115,340

Total equity

 

51,162

51,107

 

14,194

13,834

 

4,715

 

 

27,714

27,421

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital6,7

 

 

 

 

 

 

 

 

 

 

 

 

Common equity tier 1 capital

 

49,024

49,411

 

10,463

10,225

 

3,568

 

 

12,028

11,746

Additional tier 1 capital

 

10,435

7,805

 

4,248

 4,243 

 

290

 

 

2,141

2,141

Tier 1 capital

 

59,460

57,217

 

 14,712 

 14,468 

 

3,858

 

 

14,170

13,887

Total going concern capital

 

65,472

63,225

 

 14,712 

 14,468 

 

 

 

 

 

 

Tier 2 capital

 

 

 

 

 

 

 

 

 

 

713

714

Total gone concern loss-absorbing capacity

 

 

 

 

10,945

10,932

 

 

 

 

 

 

Total capital

 

 

 

 

 

 

 

3,858

 

 

14,882

14,601

Total loss-absorbing capacity

 

 

 

 

25,657

25,400

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0

 

 

 

 

Risk-weighted assets and leverage ratio denominator6,7

 

 

 

 

 

 

 

 

 

 

 

 

Risk-weighted assets

 

300,734

292,888

 

96,067

95,646

 

14,432

 

 

55,313

54,063

Leverage ratio denominator

 

617,329

601,013

 

310,545

306,487

 

51,060

 

 

124,981

122,829

 

 

 

 

 

 

 

 

0

 

 

 

 

Capital and leverage ratios (%)6,7

 

 

 

 

 

 

 

 

 

 

 

 

Common equity tier 1 capital ratio

 

16.3

16.9

 

10.9

10.7

 

24.7

 

 

21.7

21.7

Tier 1 capital ratio

 

 

 

 

 

 

 

26.7

 

 

25.6

25.7

Going concern capital ratio

 

21.8

21.6

 

15.3

15.1

 

 

 

 

 

 

Total capital ratio

 

 

 

 

 

 

 

26.7

 

 

26.9

27.0

Total loss-absorbing capacity ratio

 

 

 

 

26.7

26.6

 

 

 

 

 

 

Leverage ratio8

 

10.6

10.5

 

 

 

 

7.6

 

 

11.3

11.3

Total loss-absorbing capacity leverage ratio

 

 

 

 

8.3

8.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0

 

 

 

 

Liquidity7,9,10

 

 

 

 

 

 

 

 

 

 

 

 

High-quality liquid assets (billion)

 

87

76

 

71

67

 

15

 

 

 

 

Net cash outflows (billion)

 

51

55

 

52

53

 

7

 

 

 

 

Liquidity coverage ratio (%)11,12

 

169

139

 

137

128

 

214

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

Joint and several liability between UBS AG and UBS Switzerland AG (billion)13

 

 

 

 

26

26

 

 

 

 

 

 

1 As a result of the cross-border merger of UBS Limited into UBS Europe SE effective 1 March 2019, UBS Europe SE has become a significant regulated subsidiary of UBS Group AG. The size, scope and business model of the merged entity is now materially different. Comparatives for December 2018 have not been provided in the table because data produced on the same basis is not available. For more information on the cross-border merger of UBS Limited into UBS Europe SE, refer to the “Recent developments” section of this report.    2 Figures as of or for the quarter 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 Report 2018 and the 31 December 2018 Pillar 3 report on 15 March 2019.    3 UBS AG and UBS Switzerland AG financial information is prepared in accordance with Swiss GAAP (FINMA Circular 2015/1 and Banking Ordinance), but does not represent interim financial statements under Swiss GAAP.    4 UBS Europe SE financial information is prepared in accordance with International Financial Reporting Standards (IFRS), but does not represent interim financial statements under IFRS.    5 UBS Americas Holding LLC financial information is prepared in accordance with accounting principles generally accepted in the US (US GAAP), but does not represent interim financial statements under US GAAP.    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 applicable EU Basel III rules.    7 Refer to the 31 March 2019 Pillar 3 report under “Pillar 3 disclosures” at www.ubs.com/investors for more information.    8 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.    9 There was no local disclosure requirement for UBS Americas Holding LLC as of 31 March 2019 and 31 December 2018.    10 For UBS Europe SE, March month-end reporting date values rather than an average calculation are disclosed as the size, scope and business model of UBS Europe SE have significantly changed as a result of the cross-border merger with UBS Limited.    11 UBS AG is required to maintain a minimum liquidity coverage ratio of 105% as communicated by FINMA.    12 UBS Switzerland AG, as a Swiss SRB, is required to maintain a minimum liquidity coverage ratio of 100%.    13 Refer to the “Capital management” section of our Annual Report 2018 for more information on the joint and several liability. Under certain circumstances, the Swiss Banking Act and FINMA’s Banking Insolvency Ordinance authorize FINMA to modify, extinguish or convert to common equity liabilities of a bank in connection with a resolution or insolvency of such bank.   

106


 

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 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. The tables in this section summarize the regulatory capital components and capital ratios of our significant regulated subsidiaries and sub-groups determined under the regulatory framework of each subsidiary’s or sub-group’s home jurisdiction.

Supervisory authorities generally have discretion to impose higher requirements or to otherwise limit the activities of subsidiaries. Supervisory authorities also may require entities to measure capital and leverage ratios on a stressed basis and may limit the ability of the entity to engage in new activities or take capital actions based on the results of those tests.

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 March 2019 Pillar 3 report, which is available under “Pillar 3 disclosures” at www.ubs.com/investors

Selected financial and regulatory information for UBS AG consolidated is included in the key figures table below. Refer also to the UBS AG first quarter 2019 report, which will be available as of 30 April 2019 under “Quarterly reporting” at www.ubs.com/investors

 

UBS AG consolidated key figures

 

 

 

 

 

 

As of or for the quarter ended

USD million, except where indicated

 

31.3.19

31.12.18

31.3.18

Results

 

 

 

 

Operating income

 

 7,343 

 7,083 

 8,301 

Operating expenses

 

 5,890 

 6,667 

 6,404 

Operating profit / (loss) before tax

 

 1,454 

 416 

 1,897 

Net profit / (loss) attributable to shareholders

 

 1,069 

 272 

 1,412 

Profitability and growth1

 

 

 

 

Return on equity (%)2

 

 8.1 

 2.1 

 10.7 

Return on tangible equity (%)3

 

 9.3 

 2.4 

 12.3 

Return on common equity tier 1 capital (%)4

 

 12.3 

 3.1 

 16.3 

Return on risk-weighted assets, gross (%)5

 

 11.1 

 11.0 

 13.1 

Return on leverage ratio denominator, gross (%)5

 

 3.2 

 3.1 

 3.6 

Cost / income ratio (%)6

 

 80.0 

 93.4 

 76.9 

Net profit growth (%)7

 

 (24.3) 

 

 16.4 

Resources

 

 

 

 

Total assets

 

 956,737 

 958,055 

 965,224 

Equity attributable to shareholders

 

 53,216 

 52,256 

 53,185 

Common equity tier 1 capital8

 

 34,933 

 34,608 

 35,060 

Risk-weighted assets8

 

 266,581 

 262,840 

 266,202 

Common equity tier 1 capital ratio (%)8

 

 13.1 

 13.2 

 13.2 

Going concern capital ratio (%)8

 

 17.0 

 16.1 

 15.9 

Total loss-absorbing capacity ratio (%)8

 

 32.2 

 31.3 

 30.7 

Leverage ratio denominator8

 

 911,410 

 904,458 

 926,914 

Common equity tier 1 leverage ratio (%)8

 

 3.83 

 3.83 

 3.78 

Going concern leverage ratio (%)8

 

 5.0 

 4.7 

 4.6 

Total loss-absorbing capacity leverage ratio (%)8

 

 9.4 

 9.1 

 8.8 

Other

 

 

 

 

Invested assets (USD billion)9

 

 3,318 

 3,101 

 3,309 

Personnel (full-time equivalents)10

 

 47,773 

 47,643 

 46,433 

1 Refer to the “Performance targets and measurement” section of our Annual Report 2018 for more information on our performance targets.    2 Calculated as net profit attributable to shareholders (annualized as applicable) / average equity attributable to shareholders.    3 Calculated as net profit attributable to shareholders (annualized as applicable) / average equity attributable to shareholders less average goodwill and intangible assets. The definition of the numerator for return on tangible equity has been revised to align with numerators for return on equity and return on CET1 capital; i.e., we no longer adjust for amortization and impairment of goodwill and intangible assets. Prior periods have been restated.    4 Calculated as net profit attributable to shareholders (annualized as applicable) / average common equity tier 1 capital.    5 Calculated as operating income before credit loss expense or recovery (annualized as applicable) / average risk-weighted assets and average leverage ratio denominator, respectively.    6 Calculated as operating expenses / operating income before credit loss expense or recovery.    7 Calculated as change in net profit attributable to shareholders from continuing operations between current and comparison periods / net profit attributable to shareholders from continuing operations of comparison period.    8 Based on the Swiss systemically relevant bank framework as of 1 January 2020. Refer to the “Capital management” section of this report for more information.    9 Includes invested assets for Global Wealth Management, Asset Management and Personal & Corporate Banking.    10 As of 31 March 2019, the breakdown of personnel by business division and Corporate Center was: Global Wealth Management: 23,397; Personal & Corporate Banking: 5,133; Asset Management: 2,250; Investment Bank: 5,008; Corporate Center: 11,986.

 

 

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Appendix

Abbreviations frequently used in our financial reports

 

A

ABS                 asset-backed security

AEI                  automatic exchange of information

AGM               annual general meeting of shareholders

A-IRB              advanced internal
ratings-based

AI                    artificial intelligence

AIV                  alternative investment vehicle

ALCO              Asset and Liability Management Committee

AMA               advanced measurement approach

AML                anti-money laundering

AoA                Articles of Association of UBS Group AG

ASF                  available stable funding

ASFA               advanced supervisory formula approach

AT1                 additional tier 1

AuM               assets under management

 

B

BCBS               Basel Committee on
Banking Supervision

BD                   business division

BEAT               base erosion and anti-abuse tax

BIS                   Bank for International Settlements

BoD                 Board of Directors

BSC                 Business Solutions Center

BVG                Swiss occupational
pension plan

 

C

CAO                Capital Adequacy Ordinance

CC                   Corporate Center

CCAR              Comprehensive Capital Analysis and Review

CCB                countercyclical buffer

CCF                 credit conversion factor

CCP                 central counterparty

CCR                counterparty credit risk

CCRC              Corporate Culture and Responsibility Committee

CDO                collateralized debt
obligation


CDR                constant default rate

CDS                 credit default swap

CEA                 Commodity Exchange Act

CECL               current expected credit loss

CEM                current exposure method

CEO                Chief Executive Officer

CET1               common equity tier 1

CFO                 Chief Financial Officer

CFTC               US Commodity Futures Trading Commission

CHF                 Swiss franc

CIC                  Corporate Institutional Clients

CIO                 Chief Investment Office

CLN                 credit-linked note

CLO                 collateralized loan obligation

CLS                  continuous linked settlement

CMBS             commercial mortgage-backed security

C&ORC           Compliance & Operational Risk Control

CRD IV            EU Capital Requirements Directive of 2013

CSO                Client Strategy Office

CVA                credit valuation adjustment

 

D

DBO                defined benefit obligation

DCCP              Deferred Contingent Capital Plan

DJSI                 Dow Jones Sustainability Indices

DOJ                 US Department of Justice

DOL                 US Department of Labor

D-SIB               domestic systemically important bank

DTA                 deferred tax asset

DVA                debit valuation adjustment

 


E

EAD                 exposure at default

EBA                 European Banking Authority

EC                   European Commission

ECB                 European Central Bank

ECL                  expected credit loss(es)

EIR                   effective interest rate

EL                    expected loss

EMEA              Europe, Middle East and Africa

EOP                 Equity Ownership Plan

EPE                  expected positive exposure

EPS                  earnings per share

ERISA              Employee Retirement Income Security Act of 1974

ESG                 environmental, social and governance

ESMA              European Securities and Markets Authority

ESR                  environmental and social risk

ETD                 exchange-traded derivative

ETF                  exchange-traded fund

EU                   European Union

EUR                 euro

EURIBOR        Euro Interbank Offered Rate

 

F

FCA                 UK Financial Conduct
Authority

FCT                  foreign currency translation

FINMA            Swiss Financial Market Supervisory Authority

FINRA              US Financial Industry Regulatory Authority

FMIA               Swiss Federal Act on Financial Market Infrastructures and Market Conduct in Securities and Derivatives Trading

 

 

 

108  


 

 
 

Abbreviations frequently used in our financial reports (continued)

 

FRA                 forward rate agreement

FSB                  Financial Stability Board

FTA                  Swiss Federal Tax Administration

FTD                  first to default

FTP                  funds transfer pricing

FVA                 funding valuation adjustment

FVOCI             fair value through other comprehensive income

FVTPL              fair value through profit or loss

FX                    foreign exchange

 

G

GAAP              generally accepted
accounting principles

GBP                 British pound

GEB                 Group Executive Board

GFA                 Group Franchise Awards

GHG               greenhouse gas

GIA                 Group Internal Audit

GIIPS               Greece, Italy, Ireland,
Portugal and Spain

GMD               Group Managing Director

GRI                  Global Reporting Initiative

Group ALM    Group Asset and Liability Management

G-SIB              global systemically important bank

H

HQLA              high-quality liquid assets

HR                   human resources

 

I

IAA                  internal assessment approach

IAS                  International Accounting Standards

IASB                International Accounting Standards Board

IBOR               interbank offered rates

IFRIC               International Financial Reporting Interpretations Committee


IFRS                 International Financial Reporting Standards

IHC                  intermediate holding companies

IMA                 internal models approach

IMM                internal model method

IPS                   Investment Platforms and Solutions

IRB                  internal ratings-based

IRC                  incremental risk charge

ISDA                International Swaps and Derivatives Association

 

K

KRT                 Key Risk Taker

 

L

LAC                 loss-absorbing capacity

LAS                  liquidity-adjusted stress

LCR                 liquidity coverage ratio

LGD                 loss given default

LIBOR              London Interbank Offered Rate

LLC                  limited liability company

LRD                 leverage ratio denominator

LTV                  loan-to-value

 

M

MiFID II           Markets in Financial Instruments Directive II

MiFIR              Markets in Financial Instruments associated Regulation

MRT                Material Risk Taker

MTN                medium-term note  

 

N

NAV                net asset value

NII                   net interest income

NRV                 negative replacement value

NSFR               net stable funding ratio

NYSE               New York Stock Exchange

 


O

OCA                own credit adjustment

OCI                 other comprehensive income

OECD              Organisation for Economic Co-operation and Development 

OIS                  overnight index swap

OTC                over-the-counter

 

P

PD                   probability of default  

PFE                  potential future exposure

PIT                   point in time

P&L                  profit or loss

POCI               purchased or originated credit-impaired

PRA                 UK Prudential Regulation Authority

PRV                 positive replacement value

 

Q

QRRE              qualifying revolving retail exposures

 

R

RBA                 Role-based allowances

RBC                 risk-based capital

RLN                 reference-linked note

RMBS              residential mortgage-backed securities

RniV                risks not in VaR

RoAE               return on attributed equity

RoCET1          return on CET1

RoE                 return on equity

RoTE               return on tangible equity

RV                   replacement value

RW                  risk weight

RWA               risk-weighted assets

 

 

 

 

 

  109 


 

 
Appendix

Abbreviations frequently used in our financial reports (continued)

 

S

SA                   standardized approach

SA-CCR          standardized approach for counterparty credit risk

SAR                 stock appreciation right

SBC                 Swiss Bank Corporation

SCCL               single-counterparty credit limit

SDGs               Sustainable Development Goals

SE                    structured entity

SEC                 US Securities and Exchange Commission

SEEOP             Senior Executive Equity Ownership Plan

SFTs                 securities financing transactions


SI                     sustainable investing

SICR                significant increase in credit risk

SIX                   SIX Swiss Exchange

SMA                standardized measurement approach

SME                small and medium-sized enterprises

SMF                 Senior Management Function

SNB                 Swiss National Bank

SPPI                 solely payments of principal and interest

SRB                 systemically relevant bank

SRM                specific risk measure

SVaR               stressed value-at-risk

 


T

TBTF                too big to fail

TCJA               US Tax Cuts and Jobs Act

TLAC               total loss-absorbing capacity

TRS                  total return swap

TTC                 through the cycle

 

U

UoM               units of measure

USD                 US dollar

US IHC            US intermediate holding company

 

V

VaR                 value-at-risk

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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.

 

 

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Information sources

Reporting publications

Annual publications: Annual Report (SAP no. 80531): Published in English, this single-volume 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; corporate governance, corporate responsibility and our compensation framework, including information on compensation for the Board of Directors and the Group Executive Board members; and financial information, including the financial statements. Auszug aus dem Geschäftsbericht (SAP no. 80531): This publication provides the translation into German of selected sections of the Annual Report. Annual Review (SAP no. 80530): This booklet contains key information on 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): The report discusses our compensation framework and provides information on 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 at www.ubs.com/investors  in the “UBS Group AG and UBS AG consolidated financial information” section, and printed copies can be requested from UBS free of charge. For annual publications refer to www.ubs.com/investors  in the “Investor services” section, which can be accessed via the link on the left-hand side of the screen. Alternatively, they can be ordered by quoting the SAP number and the language preference, where applicable, from UBS AG, F4UK–AUL, P.O. Box, CH-8098 Zurich, Switzerland.

 


Other information

Website: The “Investor Relations” website at www.ubs.com/
investors
provides the following information on UBS: news releases; financial information, including results-related filings with the US Securities and Exchange Commission; 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 to under ”UBS news alert” at www.ubs.com/investors. 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.

  

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Appendix

 

 

 

 

 

 

 

Cautionary Statement Regarding Forward-Looking Statements | This report contains statements that constitute “forward-looking statements,” including but not limited to management’s outlook for UBS’s financial performance and statements relating to the anticipated effect of transactions and strategic initiatives on UBS’s business and future development. While these forward-looking statements represent UBS’s judgments and expectations concerning the matters described, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from UBS’s expectations. These factors include, but are not limited to: (i) the degree to which UBS is successful in 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, and geopolitical tensions 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 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, liquidity and funding 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 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 timing and nature of the UK 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 regulation 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, 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 2018. 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 on absolute changes between reporting periods, which is provided in text and that 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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UBS Group AG

P.O. Box

CH-8098 Zurich 

 

ubs.com

 

 

 

 

 

 

 

  

 


 

This Form 6-K is hereby incorporated by reference into (1) each of the registration statements of UBS AG on Form F-3 (Registration Number 333-225551) and of UBS Group AG on Form S-8 (Registration Numbers 333-200634; 333-200635; 333-200641; 333-200665; 333-215254; 333-215255; 333-228653; and 333-230312), and into each prospectus outstanding under any of the foregoing registration statements, (2) any outstanding offering circular or similar document issued or authorized by UBS AG that incorporates by reference any Form 6-K’s of UBS AG that are incorporated into its registration statements filed with the SEC, and (3) the base prospectus of Corporate Asset Backed Corporation (“CABCO”) dated June 23, 2004 (Registration Number 333-111572), the Form 8-K of CABCO filed and dated June 23, 2004 (SEC File Number 001-13444), and the Prospectus Supplements relating to the CABCO Series 2004-101 Trust dated May 10, 2004 and May 17, 2004 (Registration Number 033-91744 and 033-91744-05).

 


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized.

 

 

UBS Group AG

 

 

 

By: _/s/   Sergio Ermotti_______________ 

Name:  Sergio Ermotti

Title:    Group Chief Executive Officer

 

 

By: _/s/ Kirt Gardner__________________

Name:  Kirt Gardner

Title:    Group Chief Financial Officer

 

 

By: _/s/ Todd Tuckner_________________

      Name: Todd Tuckner

      Title: Group Controller and

            Chief Accounting Officer

 

 

 

UBS AG

 

 

 

By: _/s/   Sergio Ermotti_______________

Name:  Sergio Ermotti

Title:    President of the Executive Board

 

 

By: _/s/ Kirt Gardner__________________

Name:  Kirt Gardner

Title:    Chief Financial Officer

 

 

By: _/s/ Todd Tuckner_________________

      Name: Todd Tuckner

      Title: Group Controller and

            Chief Accounting Officer

 

 

 

Date:  April 25, 2019