Report of Foreign Issuer (6-k)

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: May 3, 2016

 

 

UBS Group AG

Commission File Number: 1-36764

 

UBS AG

Commission File Number: 1-15060

 

 

(Registrants' Name)

 

Bahnhofstrasse 45, Zurich, Switzerland

(Address of principal executive office)

 

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

 

This Form 6-K consists of the First Quarter 2016 Report of UBS Group AG, which appears immediately following this page.

 

  

  

Our financial results

 

First quarter 2016  report 

 

  

UBS Group key figures

		As of or for the quarter ended
CHF million, except where indicated		31.3.16	31.12.15	31.3.15
Group results
Operating income		6,833	6,775	8,841
Operating expenses		5,855	6,541	6,134
Operating profit / (loss) before tax		978	234	2,708
Net profit / (loss) attributable to UBS Group AG shareholders		707	949	1,977
Diluted earnings per share (CHF)¹		0.18	0.25	0.53
Key performance indicators²
Profitability
Return on tangible equity (%)		6.0	8.1	17.8
Return on assets, gross (%)		2.9	2.8	3.4
Cost / income ratio (%)		85.7	95.7	69.2
Growth
Net profit growth (%)		(25.5)	(54.1)	130.4
Net new money growth for combined wealth management businesses (%)		5.9	2.9	3.8
Resources
Common equity tier 1 capital ratio (fully applied, %)³		14.0	14.5	13.7
Leverage ratio (phase-in, %)⁴		6.0	6.2	5.6
Additional information
Profitability
Return on equity (RoE) (%)		5.1	6.9	15.4
Return on risk-weighted assets, gross (%)⁵		13.0	12.9	16.4
Resources
Total assets		966,873	942,819	1,048,850
Equity attributable to UBS Group AG shareholders		54,845	55,313	52,359
Common equity tier 1 capital (fully applied)³		29,853	30,044	29,566
Common equity tier 1 capital (phase-in)³		36,580	40,378	40,779
Risk-weighted assets (fully applied)³		213,558	207,530	216,385
Common equity tier 1 capital ratio (phase-in, %)³		16.9	19.0	18.6
Total capital ratio (fully applied, %)³		22.7	22.9	20.6
Total capital ratio (phase-in, %)³		25.7	26.8	25.9
Leverage ratio (fully applied, %)⁴		5.4	5.3	4.6
Leverage ratio denominator (fully applied)⁴		905,801	897,607	976,934
Liquidity coverage ratio (%)⁶		134	124	116
Other
Invested assets (CHF billion)⁷		2,618	2,689	2,708
Personnel (full-time equivalents)		60,547	60,099	60,113
Market capitalization⁸		59,638	75,147	68,508
Total book value per share (CHF)⁸		14.74	14.75	14.33
Tangible book value per share (CHF)⁸		13.04	13.00	12.59
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 "Measurement of performance" section of our Annual Report 2015 for the definitions of our key performance indicators.    3 Based on the Basel III framework as applicable for Swiss systemically relevant banks (SRBs). Refer to the "Capital management" section of this report for more information.    4 Calculated in accordance with Swiss SRB rules. Refer to the "Capital management" section of this report for more information. From 31 December 2015 onward, the leverage ratio denominator calculation is fully aligned with the Basel III rules. Figures for periods prior to 31 December 2015 are calculated in accordance with former Swiss SRB rules and are therefore not fully comparable.    5 Based on fully applied risk-weighted assets.    6 Refer to the "Liquidity and funding management" section of this report for more information. Figures represent a 3-month average. The average first quarter 2015 liquidity coverage ratio was adjusted from 122% to 116%.    7 Includes invested assets for Personal & Corporate Banking.    8 Refer to the "UBS shares" section of this report for more information.

  

1  

Switchboards

For all general inquiries.
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UBS’s Investor Relations team supports
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investors from our offices in Zurich,
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Hotline Zurich +41-44-234 4100
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Fax (Zurich) +41-44-234 3415

Media Relations

UBS’s Media Relations team supports
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London +44-20-7567 4714
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Office of the Group Company Secretary

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

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

sh-company-secretary@ubs.com

Hotline +41-44-235 6652
Fax +41-44-235 8220

Shareholder Services

UBS’s Shareholder Services team, a unit
of the Group Company Secretary office,
is responsible for the registration of the
global registered shares.

UBS Group AG, Shareholder Services
P.O. Box, CH-8098 Zurich, Switzerland

sh-shareholder-services@ubs.com

Hotline +41-44-235 6652
Fax +41-44-235 8220

US Transfer Agent

For global registered share-related
inquiries in the US.

Computershare Trust Company NA
P.O. Box 30170
College Station
TX 77842-3170, USA

Shareholder online inquiries:
https://www-us.computershare.com/investor/Contact

Shareholder website:
www.computershare.com/investor

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

 

Beginning with the first quarter of 2016, and in line with standard industry practice, UBS will no longer publish a separate quarterly shareholder letter. UBS will continue to publish a shareholder letter as part of its annual report.

 

 

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

“UBS AG (consolidated)”                                                                                                                           UBS AG and its consolidated subsidiaries

“UBS Group AG” and “UBS Group AG (standalone)”                                                                                 UBS Group AG on a standalone basis

“UBS AG” and “UBS AG (standalone)”                                                                                                      UBS AG on a standalone basis

“UBS Switzerland AG”                                                                                                                               UBS Switzerland AG on a standalone basis

“UBS Limited”                                                                                                                                           UBS Limited on a standalone basis

 

 

2  

Annual General Meeting 2016:                                 Tuesday, 10 May 2016
Publication of the second quarter 2016 report:           Friday, 29 July 2016
Publication of the third quarter 2016 report:               Tuesday, 1 November 2016
Fourth quarter 2016 earnings release:                        Tuesday, 31 January 2017

 

1.	UBS Group
6	Recent developments
8	Group performance
2.	UBS business divisions and Corporate Center
22	Wealth Management
26	Wealth Management Americas
31	Personal & Corporate Banking
34	Asset Management
38	Investment Bank
42	Corporate Center
3.	Risk, treasury and capital management
55	Risk management and control
71	Balance sheet
74	Liquidity and funding management
78	Capital management
99	UBS shares
4.	Consolidated financial statements
103	UBS Group AG interim consolidated financial statements (unaudited)
150	UBS AG interim consolidated financial information (unaudited)
5.	Legal entity financial and regulatory information
155	UBS Group AG
157	UBS AG
161	UBS Switzerland AG
165	UBS Limited
	Appendix
168	Abbreviations frequently used in our financial reports
170 171	Information sources Cautionary statement

Publication of the first quarter 2016 report:                 Friday, 6 May 2016

* 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 

 

Publisher: UBS Group AG, Zurich, Switzerland | www.ubs.com
Language: English | SAP-No. 80834E-1601

© UBS 2016. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved.

Printed in Switzerland on chlorine-free paper with mineral oil-reduced inks. Paper production from socially responsible and ecologically sound forestry practices.

 

      

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

UBS and its businesses

We provide financial advice and solutions to private, institutional and corporate clients worldwide, as well as private clients in Switzerland. The operational structure of the Group is comprised of our Corporate Center and five business divisions: Wealth Management, Wealth Management Americas, Personal & Corporate Banking, Asset Management and the Investment Bank. Our strategy builds on the strengths of all of our businesses and focuses our efforts on areas in which we excel, while seeking to capitalize on the compelling growth prospects in the businesses and regions in which we operate, in order to generate attractive and sustainable returns for our shareholders. All of our businesses are capital-efficient and benefit from a strong competitive position in their targeted markets.

 

Wealth Management

Wealth Management provides comprehensive advice and financial services to wealthy private clients around the world, with the exception of those served by Wealth Management Americas. UBS is a global firm with global capabilities, and its clients benefit from a full spectrum of resources, including wealth planning, investment management solutions and corporate finance advice, banking and lending solutions, as well as a wide range of specific offerings. Wealth Management’s guided architecture model gives clients access to a wide range of products from the world's leading third-party institutions that complement its own products.

Wealth Management Americas

Wealth Management Americas is one of the leading wealth managers in the Americas in terms of financial advisor productivity and invested assets. Its business includes UBS’s domestic US and Canadian wealth management businesses, as well as international business booked in the US. It provides a fully integrated set of wealth management solutions designed to address the needs of ultra high net worth and high net worth clients.

Personal & Corporate Banking

Personal & Corporate Banking provides comprehensive financial products and services to UBS's private, corporate and institutional clients in Switzerland, maintaining a leading position in these segments and embedding its offering in a multi-channel approach. The business is a central element of UBS’s universal bank delivery model in Switzerland, supporting other business divisions by referring clients and growing the wealth of the firm's private clients so they can be transferred to Wealth Management. Personal & Corporate Banking leverages the cross-selling potential of UBS's asset-gathering and investment bank businesses, and manages a substantial part of UBS’s Swiss infrastructure and banking products platform.

Asset Management

Asset Management is a large-scale asset manager, with a presence in 22 countries. It offers investment capabilities and investment styles across all major traditional and alternative asset classes to institutions, wholesale intermediaries and wealth management clients around the world. It is a leading fund house in Europe, the largest mutual fund manager in Switzerland, the third-largest international asset manager in Asia, the second largest fund of hedge funds manager and one of the largest real estate investment managers in the world.

Investment Bank

The Investment Bank provides corporate, institutional and wealth management clients with expert advice, innovative solutions, execution and comprehensive access to international capital markets. It offers advisory services and provides in-depth cross-asset research, along with access to equities, foreign exchange, precious metals and selected rates and credit markets, through its business units, Corporate Client Solutions and Investor Client Services. The Investment Bank is an active participant in capital markets flow activities, including sales, trading and market-making across a range of securities.

Corporate Center

Corporate Center is comprised of Services, Group Asset and Liability Management (Group ALM) and Non-core and Legacy Portfolio. Services includes the Group’s control functions such as finance, risk control (including compliance) and legal, and, within these, certain corporate and stewardship services and the costs associated therewith. In addition, it provides all logistics and support services, including operations, information technology, human resources, regulatory relations and strategic initiatives, communications and branding, corporate services, physical security, information security as well as outsourcing, nearshoring and offshoring. Group ALM is responsible for business division-aligned risk management, capital investment and issuance and Group structural risk management activities. Non-core and Legacy Portfolio is comprised of the non-core businesses and legacy positions that were part of the Investment Bank prior to its restructuring.

  

UBS Group

Management report

  

Recent developments

Financial reporting and accounting changes

Own credit

In the first quarter of 2016, we adopted the own credit presentation requirements of IFRS 9, Financial Instruments . Under these requirements of IFRS 9, changes in the fair value of financial liabilities designated at fair value through profit or loss related to own credit are recognized in Other comprehensive income directly within Retained earnings . As the Group does not hedge changes in own credit arising on financial liabilities designated at fair value, presenting own credit within Other comprehensive income does not create or increase an accounting mismatch in the income statement. The unrealized and any realized own credit recognized in Other comprehensive income will not be reclassified to the income statement in future periods. Changes in own credit presented in prior periods have not been restated and remain within Net trading income . We will adopt the classification, measurement and impairment requirements of IFRS 9 as of the mandatory effective date of 1 January 2018.

®    Refer to “Note 10 Fair value measurement” in the “Consolidated financial statements” section of this report for more information

Balance sheet classification of newly purchased high-quality liquid debt securities

Starting with the first quarter of 2016, we classify newly purchased debt securities held as high-quality liquid assets (HQLA), and managed by Corporate Center – Group Asset and Liability Management (Group ALM), as either financial assets designated at fair value through profit or loss or financial assets held to maturity. Debt securities acquired prior to the first quarter of 2016 and held for liquidity purposes remain classified as financial assets available for sale.

Classification of debt securities as financial assets designated at fair value through profit or loss is applied for most debt securities purchased starting with the first quarter of 2016, and is intended to reduce accounting mismatches by ensuring that changes in the fair value of the securities are recognized in the income statement in line with the associated interest rate derivatives used for risk management purposes. A small portion of newly purchased debt securities are classified as financial assets held to maturity, reflecting the intended holding period for these assets.

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

Change in disclosure of Group ALM activities

To further enhance the transparency of Group ALM, effective 2016, Group ALM’s results are disclosed for the three main risk management activities: (i) business division-aligned risk management, (ii) capital investment and issuance and (iii) Group structural risk management. Prior periods are presented in accordance with this new structure.

Change in Asset Management business lines

As of 1 January 2016, Asset Management was reorganized into the following business lines: (i) Equities, Multi Asset & O'Connor, (ii) Fixed Income, (iii) Global Real Estate, (iv) Infrastructure and Private Equity, (v) Solutions and (vi) Fund Services. This change is reflected throughout this report and prior-period figures are presented in accordance with this new structure.

Cost reduction target

We have identified structural cost reduction opportunities of a front-to-back nature that will result in business divisions contributing to our CHF 2.1 billion net cost reduction target.

Regulatory and legal developments

Basel Committee on Banking Supervision proposes changes to the capital framework

In the first quarter of 2016, the Basel Committee on Banking Supervision (BCBS) published a series of consultation papers as part of the revision of the BCBS capital framework, which the BCBS expects to complete by the end of 2016.

In March 2016, the BCBS published a consultation document proposing restrictions on the use of internal model approaches for the calculation of credit risk-weighted assets (RWA). Specifically, the BCBS proposes to (i) remove the option to use the internal ratings-based approaches for certain exposure categories, such as loans to banks, other financial institutions and large corporates, (ii) adopt exposure-level, model-parameter floors, and (iii) provide greater specification of parameter estimation practices.

In a separate consultation document, also published in March 2016, the BCBS proposed to replace existing standardized and advanced measurement approaches for calculating operational risk capital with a single non-model-based method, the so-called standardized measurement approach.

We expect that if the proposals are adopted in their current form and implemented in Switzerland, the proposed changes to the capital framework would likely result in a significant increase in our overall RWA.

The BCBS has also proposed changes to Pillar 3 disclosure requirements in a consultation document published in March 2016, including a new requirement to disclose hypothetical RWA calculated on the basis of the Basel framework's standardized approach, as a benchmark to RWA calculated using the internal ratings-based approach.

In April 2016, the BCBS published a consultation document proposing revisions to the Basel III leverage ratio framework, including changes to the treatment of derivative exposures, regular-way purchases and sales of financial assets, and provisions. As part of this consultation, the BCBS also asked for views on additional leverage ratio requirements applicable to global systemically important banks.

Margin requirements for non-cleared over-the-counter derivatives

Regulators in various jurisdictions, including Switzerland, the EU and the US, have issued rules that require the margining of non-cleared over-the-counter (OTC) derivatives. While the specifics vary from jurisdiction to jurisdiction, the rules require that counterparties transacting in OTC derivatives that are not cleared by an appropriate central counterparty must exchange both initial and variation margin, using the forms of permitted collateral and collateral haircuts specified by the rules. The requirements of the various non-cleared bilateral margin rules will be phased in beginning in September 2016 and are expected to have significant implications for the operations of, and collateral requirements for, our and many of our clients' OTC derivatives activities.

US Federal Reserve re-proposes rule for single counterparty risk

In March 2016, the Federal Reserve Board proposed a rule to impose new limits on significant single-counterparty credit exposures of large banking organizations, including large US bank holding companies and US operations of foreign banking organizations. The proposal would apply single-counterparty credit limits to US-domiciled bank holding companies with total consolidated assets of USD 50 billion or more.

The proposed limits are designed to become more stringent as the systemic importance of a firm increases. Under the proposal, the exposure of our US operations to another systemically important financial firm would be limited to a maximum of 15% of our tier 1 capital, and exposure to any other single counterparty would be restricted to 25% of our tier 1 capital.

In addition, the single-counterparty credit limits would apply separately to UBS Americas Holding LLC, our US intermediate holding company (IHC), based on its capital . If adopted as proposed, these limits may affect how we conduct our operations in the US, including our use of other financial firms for payments and securities clearing services and as transactional counterparties.

US Department of Labor finalizes fiduciary rule

In April 2016, the US Department of Labor (DOL) adopted a rule that expands the definition of “fiduciary” under the Employee Retirement Income Security Act of 1974 (ERISA). The rule becomes effective in April 2017, although certain aspects of the rule do not become effective until January 2018. The rule will require all advisors, including broker-dealers, to abide by an ERISA fiduciary standard in dealings with qualified retirement plans and individual retirement accounts. The rule prohibits various customary transactions and fee arrangements in the financial services industry with respect to retirement plan investors, unless certain exemption criteria are fully met. We are currently determining the changes we will need to make to our business practices, policies and procedures, and fee structures to comply with the rule. Wealth Management Americas and Asset Management will likely be required to materially change some of their business processes in response to the rule.

US Treasury proposes regulations affecting treatment of debt issued by a US entity to a foreign parent

In April 2016, the US Internal Revenue Service (IRS), in an effort to deter inversions of US corporations, issued proposed regulations that would authorize the IRS to re-characterize debt of a US subsidiary to an affiliated foreign corporation as equity if the US entity engages in certain types of transactions with affiliated companies or if documentation requirements are not met. The proposed regulations are effective for transactions entered into on or after 4 April 2016 and may affect debt issued by our US-domiciled subsidiaries to a non-US UBS entity. If debt issued by any US affiliates of UBS were re-characterized under the proposed regulations, this could result in the partial or total loss of US interest expense deductions, and the imposition of US withholding taxes on payments on the relevant debt.

  

Group performance

Net profit attributable to UBS Group AG shareholders was CHF 707 million in the first  quarter of 2016  compared with CHF 949 million in the fourth  quarter of 2015 . We recorded an operating profit before tax of CHF 978 million compared with CHF 234 million. On an adjusted basis, operating profit before tax was CHF 1,366 million compared with CHF 754 million, mainly driven by CHF 629 million lower non-personnel expenses. We recorded a net tax expense of CHF 270 million compared with a net tax benefit of CHF 715 million in the prior quarter.

 

 

Income statement
		For the quarter ended				% change from
CHF million		31.3.16	31.12.15	31.3.15		4Q15	1Q15
Net interest income		1,712	1,759	1,637		(3)	5
Credit loss (expense) / recovery		(3)	(59)	(16)		(95)	(81)
Net interest income after credit loss expense		1,709	1,700	1,621		1	5
Net fee and commission income		4,093	4,218	4,401		(3)	(7)
Net trading income		1,013	898	2,135		13	(53)
of which: net trading income excluding own credit		1,013	863	1,908		17	(47)
of which: own credit on financial liabilities designated at fair value			35	226
Other income		17	(41)	685			(98)
Total operating income		6,833	6,775	8,841		1	(23)
of which: net interest and trading income		2,725	2,657	3,772		3	(28)
Personnel expenses		3,924	3,843	4,172		2	(6)
General and administrative expenses		1,664	2,413	1,713		(31)	(3)
Depreciation and impairment of property, equipment and software		243	260	221		(7)	10
Amortization and impairment of intangible assets		23	24	28		(4)	(18)
Total operating expenses		5,855	6,541	6,134		(10)	(5)
Operating profit / (loss) before tax		978	234	2,708		318	(64)
Tax expense / (benefit)		270	(715)	670			(60)
Net profit / (loss)		708	950	2,038		(25)	(65)
Net profit / (loss) attributable to non-controlling interests		0	1	61		(100)	(100)
Net profit / (loss) attributable to UBS Group AG shareholders		707	949	1,977		(26)	(64)
Comprehensive income
Total comprehensive income		349	1,164	1,726		(70)	(80)
Total comprehensive income attributable to non-controlling interests		(50)	38	(81)			(38)
Total comprehensive income attributable to UBS Group AG shareholders		399	1,126	1,808		(65)	(78)

 

 

Results: 1Q16 vs 4Q15

We recorded an operating profit before tax of CHF 978 million compared with CHF 234 million. Operating income increased by CHF 58 million, reflecting a CHF 68 million increase in combined net interest and trading income, CHF 58 million higher other income, as well as a CHF 56 million reduction in net credit loss expense, partly offset by CHF 125 million lower net fee and commission income. Operating expenses decreased by CHF 686 million, primarily due to CHF 326 million lower net expenses for provisions for litigation, regulatory and similar matters and as the prior quarter included an expense of CHF 166 million for the annual UK bank levy.

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 SEC regulations. For the first quarter of 2016, we excluded net foreign currency translation losses of CHF 123 million and net restructuring expenses of CHF 265 million. For the fourth quarter of 2015, we excluded net losses of CHF 257 million related to the buyback of debt in a tender offer, a net foreign currency translation gain of CHF 115 million, an own credit gain of CHF 35 million, net gains of CHF 28 million on the sale of subsidiaries and businesses as well as net restructuring expenses of CHF 441 million.

On this adjusted basis, operating profit before tax was CHF 1,366 million in the first quarter compared with CHF 754 million in the prior quarter mainly driven by CHF 629 million lower non-personnel expenses.

Due to our ongoing efforts to optimize our legal entity structure, we anticipate that further foreign currency translation gains and losses previously booked directly into equity through other comprehensive income will be released into profit and loss due to the disposal or partial disposal of foreign branches and subsidiaries. As a result, we currently expect to record net foreign currency translation losses of around CHF 40 million in the second quarter of 2016 and around CHF 150 million in the second half of 2016, although these net losses could be recognized in different periods. Consistent with past practice, these net losses will be treated as adjusting items and recorded in Corporate Center – Group Asset and Liability Management (Group ALM). The release of foreign currency translation losses from equity to profit and loss does not affect shareholders’ equity or regulatory capital.

Operating income: 1Q16 vs 4Q15

Total operating income was CHF 6,833 million compared with CHF 6,775 million. On an adjusted basis, total operating income increased by CHF 102 million to CHF 6,956 million, reflecting an increase of CHF 103 million in combined net interest and trading income, CHF 67 million higher other income and a CHF 56 million lower net credit loss expense, partly offset by CHF 125 million lower net fee and commission income.

 

 

 

 

Net interest and trading income

Total combined net interest and trading income increased by CHF 68 million to CHF 2,725 million.

Excluding the own credit gain of CHF 35 million in the prior quarter, net interest and trading income increased by CHF 103 million. In Wealth Management, net interest and trading income decreased by CHF 24 million to CHF 750 million, mainly due to lower allocations from Corporate Center – Group ALM and lower lending revenues, partly offset by higher deposit revenues.

In the Investment Bank, net interest and trading income increased by CHF 219 million to CHF 1,021 million. Net interest and trading income in Foreign Exchange, Rates and Credit increased by CHF 133 million, mainly reflecting higher client activity levels in Foreign Exchange and stronger trading revenues within Credit. In addition, net interest and trading income in Equities increased by CHF 120 million, primarily due to higher revenues in Derivatives due to increased client activity and improved trading revenues.

Corporate Center – Group ALM net interest and trading income, excluding the effect of own credit in the prior quarter, decreased by CHF 138 million, mainly due to accounting asymmetries related to economic hedges, partly offset by hedge accounting ineffectiveness gains and improved risk management net income.

In Corporate Center – Non-core and Legacy Portfolio, net interest and trading income improved by CHF 40 million, mainly due to lower losses from novation and unwind activities.

®    Refer to the “Recent developments” section of this report for more information on own credit

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

Net fee and commission income

Net fee and commission income was CHF 4,093 million compared with CHF 4,218 million.

Mergers and acquisitions and corporate finance fees decreased by CHF 94 million to CHF 139 million, primarily due to a decline in the fee pool.

Underwriting fees decreased by CHF 60 million to CHF 221 million due to lower equity underwriting revenues from public offerings as the fee pool decreased, partly offset by higher equity underwriting revenues from private transactions.

Investment fund fees decreased by CHF 36 million to CHF 814 million, mainly in Wealth Management and primarily due to a decrease in invested assets and the ongoing effects of cross-border outflows.

Net brokerage fees increased by CHF 64 million to CHF 769 million, predominantly due to improved client activity.

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

 

Group performance

Credit loss (expense) / recovery
		For the quarter ended				% change from
CHF million		31.3.16	31.12.15	31.3.15		4Q15	1Q15
Wealth Management		0	0	1			(100)
Wealth Management Americas		(1)	0	0
Personal & Corporate Banking		0	(11)	(21)		(100)	(100)
Investment Bank		2	(50)	2			0
Corporate Center		(3)	2	2
of which: Non-core and Legacy Portfolio		(3)	2	2
Total		(3)	(59)	(16)		(95)	(81)

 

 

 

Credit loss expense / recovery

The net credit loss expense was CHF 3 million compared with CHF 59 million, mainly reflecting a specific loan loss recovery of CHF 22 million and lower net credit loss expenses related to the energy sector, both within the Investment Bank. Net credit loss expense in Personal & Corporate Banking was negligible compared with CHF 11 million in the prior quarter.

®    Refer to the “Investment Bank”, “Personal & Corporate Banking” and “Risk management and control” sections of this report for more information

Other income

Other income was positive CHF 17 million compared with negative CHF 41 million. The first quarter included net foreign currency translation losses of CHF 123 million, mainly related to the closure of foreign UBS AG branches, compared with a gain of CHF 115 million in the prior quarter. The prior quarter also included net gains on sales of subsidiaries and businesses of CHF 28 million and net losses of CHF 257 million related to the buyback of debt in a tender offer.

Excluding these items, adjusted other income increased by CHF 67 million to CHF 140 million, mainly as the first quarter included net gains of CHF 76 million from the sale of financial assets available for sale, primarily within Corporate Center – Group ALM, and due to the re-balancing of our high-quality liquid asset (HQLA) portfolios from financial assets available for sale to financial assets designated at fair value and financial assets held to maturity.

In the second quarter of 2016, UBS sold certain real estate in Switzerland for a total sales price of approximately CHF 180 million, resulting in a pre-tax gain on sale of approximately CHF 120 million. This gain will be recognized in the income statement within Corporate Center – Services in the second quarter of 2016 and will be treated as an adjusting item for the purpose of calculating adjusted results.

®    Refer to the “Recent developments” section of this report for more information on the balance sheet classification of newly purchased high-quality liquid debt securities

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

Recurring net fee and transaction-based income in Wealth Management, Wealth Management Americas and Personal & Corporate Banking

Recurring net fee income for Wealth Management, Wealth Management Americas and Personal & Corporate Banking includes fees for services provided on an ongoing basis such as portfolio management fees, asset-based investment fund fees, custody fees and account keeping fees, which are generated on the respective business divisions’ client assets. This is part of total net fee and commission income in the consolidated income statement. Transaction-based income includes non-recurring net fee and commission income for these business divisions, mainly consisting of brokerage and transaction-based investment fund fees, as well as credit card fees and fees for payment transactions, together with the respective divisional net trading income.

®    Refer to the “Wealth Management,” “Wealth Management Americas” and “Personal & Corporate Banking” sections of this report for more information

 

 

 

Operating expenses: 1Q16 vs 4Q15

Total operating expenses decreased by CHF 686 million to CHF 5,855 million. Net restructuring expenses were CHF 265 million compared with CHF 441 million. Personnel-related restructuring expenses declined by CHF 36 million to CHF 128 million, and non-personnel-related restructuring expenses decreased by CHF 139 million to CHF 137 million, largely due to lower expenses for outsourcing of IT and other services, and a reduction in professional fees.

Excluding restructuring expenses in both quarters, adjusted total operating expenses decreased by CHF 510 million to CHF 5,590 million.

®    Refer to “Note 18 Changes in organization and disposals” in the “Consolidated financial statements” section of this report for more information on restructuring expenses

Personnel expenses

Personnel expenses increased by CHF 81 million to CHF 3,924 million. On an adjusted basis, excluding restructuring expenses, personnel expenses increased by CHF 117 million to CHF 3,796 million.

Expenses for salaries and variable compensation, excluding the effect of restructuring, increased by CHF 154 million to CHF 2,245 million, mainly reflecting higher expenses for variable compensation.

Other personnel expenses decreased by CHF 28 million to CHF 642 million on an adjusted basis, largely due to a decrease in expenses for pension and other post-employment benefit plans.

®    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 CHF 749 million to CHF 1,664 million. On an adjusted basis, excluding restructuring expenses, general and administrative expenses decreased by CHF 609 million, largely reflecting CHF 326 million lower net expenses for provisions for litigation, regulatory and similar matters and as the prior quarter included an expense of CHF 166 million for the annual UK bank levy. Professional fees were CHF 91 million lower and expenses for marketing and public relations decreased by CHF 40 million.

At this point in time, 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.

®    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 for more information

Depreciation, impairment and amortization

Depreciation and impairment of property, equipment and software was CHF 243 million compared with CHF 260 million, mainly because the prior quarter included higher depreciation expenses related to internally generated capitalized software.

Amortization and impairment of intangible assets was CHF 23 million compared with CHF 24 million.

 

Tax: 1Q16 vs 4Q15

We recognized a net income tax expense of CHF 270 million compared with a net tax benefit of CHF 715 million.

The first quarter of 2016 included net tax expenses of CHF 205 million, which related primarily to current taxes payable by UBS AG and its subsidiaries, including UBS Switzerland AG. In addition, it included an expense of CHF 65 million with respect to the amortization of deferred tax assets previously recognized in relation to Swiss tax losses carried forward and deductible temporary differences to reflect their offset against profits for the quarter.

The net tax benefit for the fourth quarter of 2015 was primarily related to a net increase in recognized deferred tax assets, mainly related to the US.

For 2016, we currently forecast a full-year tax rate of approximately 25%, excluding the effects on the tax rate from the reassessment of deferred tax assets.

In March 2016, the UK government announced a proposed change in law which would reduce the proportion of banks’ annual taxable profits that can be offset by UK tax losses carried forward from 50% to 25% with effect from 1 April 2016. The UK government also proposed to reduce the UK corporate income tax rate from 18% to 17% with effect from 1 April 2020. To the extent that these changes are enacted in 2016, we would expect to incur a reduction in recognized UK deferred tax assets of approximately CHF 115 million.

Total comprehensive income attributable to UBS Group AG shareholders: 1Q16 vs 4Q15

Total comprehensive income attributable to UBS Group AG shareholders was CHF 399 million compared with CHF 1,126 million. Net profit attributable to UBS Group AG shareholders was CHF 707 million compared with CHF 949 million. Other comprehensive income (OCI) attributable to UBS Group AG shareholders was negative CHF 308 million compared with positive CHF 177 million.

In the first quarter of 2016, foreign currency translation OCI was negative CHF 825 million, primarily resulting from the weakening of the US dollar against the Swiss franc, partly offset by the reclassification of net losses totaling CHF 123 million to the income statement. OCI related to foreign currency translation in the prior quarter was CHF 452 million.

Defined benefit plan OCI was negative CHF 179 million compared with positive CHF 202 million. We recorded net pre-tax OCI losses of CHF 183 million related to our non-Swiss pension plans, mainly due to net increases in defined benefit obligations resulting from declines in applicable discount rates, partly offset by gains following increases in the fair value of underlying plan assets. Net pre-tax OCI related to the Swiss pension plan was negligible, as an OCI loss of CHF 803 million related to an increase in the defined benefit obligation, primarily reflecting a decline in the applicable discount rate, and an OCI loss of CHF 105 million due to a decrease in the fair value of the underlying plan assets, were entirely offset by a gain of CHF 901 million from the partial reversal of the excess of the pension surplus over the estimated future economic benefit. In the first quarter of 2016, we updated the life expectancy assumptions for our Swiss pension plan by adopting the Swiss occupational pension plan (BVG) 2015 generational mortality tables, replacing the BVG 2010 generational mortality tables. At the same time, we refined the disability assumption and updated the rate of salary increase assumption. These changes did not have a material net effect on the DBO.

OCI related to cash flow hedges was CHF 513 million, mainly reflecting unrealized gains on hedging derivatives from decreases in long-term interest rates across all major currencies. OCI related to cash flow hedges was negative CHF 419 million in the prior quarter,

OCI associated with financial assets available for sale was CHF 131 million compared with negative CHF 59 million, and mainly related to net unrealized gains following declines in long-term interest rates, partly offset by net gains that were reclassified from OCI to the income statement upon sale of investments. At this point in time, we expect to recognize in the income statement gains of approximately CHF 110 million during the second or third quarter of 2016, currently deferred in OCI, as transactions involving certain equity investments classified as available for sale are closed. Approximately CHF 90 million of these expected gains will be recorded in Personal & Corporate Banking and the remainder in Wealth Management and, consistent with past practice, treated as adjusting items. The reclassification of gains from OCI to the income statement will not affect shareholders’ equity, but will increase CET1 capital.

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

®    Refer to “Note 28 Pension and other post-employment benefit plans” in the “Consolidated financial statements” section of our Annual Report 2015 for more information on other comprehensive income related to defined benefit plans

Sensitivity to interest rate movements

As of 31 March 2016, 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 CHF 0.6 billion in Wealth Management, Wealth Management Americas and Personal & Corporate Banking. Of this increase, approximately CHF 0.4 billion would result from changes in US dollar interest rates. Including the estimated impact related to pension fund assets and liabilities, the immediate effect of such a shift on shareholders’ equity would be an estimated decrease of at least approximately CHF 1.9 billion recognized in OCI, of which approximately CHF 1.5 billion would result from changes in US dollar interest rates. Since the majority of this negative OCI impact on shareholders’ equity is related to cash flow hedges, and these are not recognized for the purposes of calculating regulatory capital, the immediate impact on regulatory capital would not be significant. The above estimates are based on an immediate increase in interest rates, equal across all currencies and relative to implied forward rates applied to our banking book and available-for-sale portfolios. The estimates further assume a static balance sheet and constant foreign exchange rates.

Net profit attributable to non-controlling interests: 1Q16 vs 4Q15

Net profit attributable to non-controlling interests was zero compared with CHF 1 million.

We currently expect to attribute net profit to non-controlling interests related to preferred notes issued by UBS AG of approximately CHF 80 million in 2016, all in the second quarter of 2016, approximately CHF 70 million in 2017 and less than CHF 10 million per year from 2018.

Key figures and personnel: 1Q16 vs 4Q15

Cost / income ratio

The cost / income ratio was 85.7% compared with 95.7%. On an adjusted basis, the cost / income ratio was 80.3% compared with 88.2%.

Return on tangible equity

The annualized return on tangible equity (RoTE) was 6.0% compared with 8.1%. On an adjusted basis, the annualized RoTE was 8.5% compared with 11.4%.

Common equity tier 1 capital ratio

In the first quarter of 2016, our fully applied CET1 capital ratio decreased 0.5 percentage points to 14.0%, primarily due to a CHF 6 billion increase in risk-weighted assets (RWA).

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

Risk-weighted assets

RWA increased by CHF 6 billion to CHF 214 billion on a fully applied basis, below our short- to medium-term expectation of around CHF 250 billion. Credit risk RWA increased by CHF 5 billion, mainly due to book size and other increases of CHF 4 billion and regulatory add-ons of CHF 3 billion, partly offset by foreign currency translation effects of CHF 2 billion. Operational risk RWA increased by CHF 1 billion, driven by changes to the advanced measurement approach model used for the calculation of operational risk capital requirements that were approved by FINMA in the first quarter of 2016. Market risk RWA decreased by CHF 1 billion.

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

Leverage ratio denominator  

The Swiss SRB leverage ratio denominator (LRD) increased by CHF 8 billion to CHF 906 billion on a fully applied basis, and was below our short- to medium-term expectation of around CHF 950 billion. The increase in the LRD was driven by an increase in book size of CHF 32 billion, partly offset by foreign currency translation effects of CHF 19 billion and incremental netting and collateral mitigation benefits of CHF 5 billion.

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

Net new money and invested assets

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

 

Group performance

Net new money¹
		For the quarter ended
CHF billion		31.3.16	31.12.15	31.3.15
Wealth Management		15.5	(3.4)	14.4
Wealth Management Americas		13.6	16.9	4.6
Asset Management		(2.9)	(11.0)	5.1
of which: excluding money market flows		(5.9)	(8.9)	7.5
of which: money market flows		3.0	(2.1)	(2.4)
1 Net new money excludes interest and dividend income.

 

Invested assets
		As of				% change from
CHF billion		31.3.16	31.12.15	31.3.15		31.12.15	31.3.15
Wealth Management		925	947	970		(2)	(5)
Wealth Management Americas		1,009	1,035	1,021		(3)	(1)
Asset Management		628	650	661		(3)	(5)
of which: excluding money market funds		568	592	601		(4)	(5)
of which: money market funds		60	58	60		3	0

 

Personnel

We employed 60,547 personnel as of 31 March 2016, an increase of 448 compared with 60,099 personnel as of 31 December 2015. Corporate Center – Services personnel increased by 225, mainly reflecting increases in Group Technology, Risk Control and in our nearshoring and offshoring locations, partly offset by decreases in Group Operations. Wealth Management personnel increased by 93, driven by an increase in non-client-facing staff.

®    Refer to the discussions of personnel in the “UBS business divisions and Corporate Center” section of this report for more information

 

 

 

Personnel by business division and Corporate Center¹
		As of				% change from
Full-time equivalents		31.3.16	31.12.15	31.3.15		31.12.15	31.3.15
Wealth Management		10,332	10,239	10,366		1	0
Wealth Management Americas		13,682	13,611	13,275		1	3
Personal & Corporate Banking		5,092	5,058	5,157		1	(1)
Asset Management		2,329	2,277	2,369		2	(2)
Investment Bank		5,218	5,243	5,276		0	(1)
Corporate Center		23,894	23,671	23,670		1	1
of which: Services		23,695	23,470	23,424		1	1
of which: Group ALM		127	125	122		2	4
of which: Non-core and Legacy Portfolio		73	77	125		(5)	(42)
Total		60,547	60,099	60,113		1	1
1 Comparative figures in this table may differ from those originally published in quarterly and annual reports due to adjustments following organizational changes.

 

 

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