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Share Name | Share Symbol | Market | Type |
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UBS Group AG | NYSE:UBS | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
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0.12 | 0.45% | 26.94 | 2,550 | 12:04:00 |
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: March 10, 2017
UBS Group AG
Commission File Number: 1-36764
UBS AG
Commission File Number: 1-15060
(Registrants' Name)
Bahnhofstrasse 45, Zurich, Switzerland and
Aeschenvorstadt 1, Basel, 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.
Form 20-F x Form 40-F o
This Form 6-K consists of the Basel III Pillar 3 UBS Group AG 2016 report, which appears immediately following this page.
Basel III Pillar 3
UBS Group AG 2016 report
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1
Basel III Pillar 3 UBS Group AG 2016 report
Scope and location of Basel III Pillar 3 disclosures
The Basel III capital adequacy framework consists of three complementary pillars. Pillar 1 provides a framework for measuring minimum capital requirements for the credit, market, operational and non-counterparty-related risks faced by banks. Pillar 2 addresses the principles of the supervisory review process, emphasizing the need for a qualitative approach to supervising banks. Pillar 3 requires banks to publish a range of disclosures, mainly covering risk, capital, leverage, liquidity and remuneration.
This report provides Pillar 3 disclosures for UBS Group AG on a consolidated basis, as well as prudential key figures for our significant regulated subsidiaries and subgroups. Information provided in our Annual Report 2016 or other publications may also serve to address Pillar 3 disclosure requirements. Where this is the case, a reference has been provided in this report to the UBS publication where the information can be located. These Pillar 3 disclosures are supplemented by specific additional requirements of the Swiss Financial Market Supervisory Authority (FINMA) and discretionary disclosures on our part.
As UBS is considered a systemically relevant bank (SRB) under Swiss banking law, UBS Group AG and UBS AG are required to comply with regulations based on the Basel III framework as applicable to Swiss SRBs on a consolidated basis. Capital information as of 31 December 2016 for UBS Group AG (consolidated) is provided in the “Capital management” section of our Annual Report 2016, available under “Annual reporting” at www.ubs.com/investors . UBS AG (consolidated) capital and leverage ratio information is provided in the UBS Group AG and UBS AG Annual Report 2016 under “Annual Reporting” at www.ubs.com/investors .
We are also required to disclose total and tier 1 capital, leverage and liquidity coverage ratios for the significant banking subsidiaries UBS AG, UBS Switzerland AG and UBS Limited, as well as the significant subgroup under our US intermediate holding company UBS Americas Holding LLC. Prudential key figures are provided in section 16 of this report. Additional capital and other regulatory information for UBS AG (standalone), UBS Switzerland AG (standalone), UBS Limited (standalone) and UBS Americas Holding LLC (consolidated) is available under “Disclosure for legal entities” at www.ubs.com/investors .
UBS Pillar 3 disclosures are based on phase-in rules under the Basel III framework, as implemented by the revised Swiss Capital Adequacy Ordinance issued by the Swiss Federal Council and required by FINMA regulation.
Revised Pillar 3 disclosure requirements, effective 31 December 2016
In January 2015, the Basel Committee on Banking Supervision (BCBS) issued revised Pillar 3 disclosure requirements that aim to improve comparability and consistency of disclosures through the introduction of harmonized templates. In October 2015, FINMA published its associated Pillar 3 disclosure requirements for Swiss banking institutions in Circular 2016/01 Disclosures - banks . In addition, in August 2016, BCBS issued further guidance in its Frequently asked questions on the revised Pillar 3 disclosure requirements (BCBS 376) . Finally, in December 2016, FINMA issued additional disclosure requirements relating to the Swiss too big to fail (TBTF) provisions within its Circular 2016/01, Disclosures - banks . The Pillar 3 disclosures in this report or in other publications as referenced within this report are based on these revised requirements.
The revised Pillar 3 disclosure requirements include information on risk management, the linkage between our financial statements and our regulatory exposures, credit risk, securitization and market risk. The main changes in comparison with the former Pillar 3 disclosure requirements are as follows:
– The revised Pillar 3 disclosure templates provide a stronger link between regulatory exposures and the Financial Statements prepared under International Financial Reporting Standards (IFRS) by introducing new tables as provided in Section 3 of this report.
– Counterparty credit risk (CCR) is now separately disclosed from credit risk. CCR includes over-the-counter (OTC) and exchanged-traded derivatives (ETD), securities financing transactions (SFTs) and long settlement transactions.
– Asset classes are now reported in accordance with FINMA disclosure requirements, whereas previously the BIS-defined exposure segments were used. Refer to “FINMA-defined asset classes” further in this section for more information.
– Revised Pillar 3 disclosure requirements include narrative commentary on significant changes over the reporting period and the key driver of such changes for many of the required templates. As noted below under “Frequency and comparability of Pillar 3 disclosures,” comparative figures and movement commentary will be provided at the end of the first relevant reporting period in 2017.
– Additional disclosures under the Swiss SRB framework are provided, including detailed disclosure of the Swiss SRB going and gone concern capital information.
Pillar 3 disclosure requirements for operational risk, interest rate risk in the banking book, eligible capital, leverage ratio, liquidity coverage ratio and remuneration are unchanged as of 31 December 2016 compared with 31 December 2015.
Regulatory developments
Further information on regulatory developments from BCBS and FINMA is provided on pages 23–26 in our Annual Report 2016, available under “Annual reporting” at www.ubs.com/investors.
2
Frequency and comparability of Pillar 3 disclosures
FINMA has specified the reporting frequency for each disclosure as either annual, semi-annual or quarterly. Comparative period information and commentary provided on movements in the period must be provided in line with this FINMA-specified frequency, as outlined in the table below. As a result, movement commentary for tables in this report is provided either for the quarter, semi-annual or annual period as prescribed by FINMA. For the first-time publication of new disclosure requirements at 31 December 2016, comparative period information and related commentary on movements in the period are not required and have been provided only in a few instances where the disclosure is substantially unchanged from prior-period reporting. Accordingly, full comparative figures and movement commentary will be provided at the end of the first relevant reporting period in 2017.
3
Basel III Pillar 3 UBS Group AG 2016 report
Format of Pillar 3 disclosures
As defined by FINMA, certain Pillar 3 disclosures follow a fixed format, whereas other disclosures are flexible and may be modified to a certain degree to present the most relevant information. Revised Pillar 3 requirements are presented under the relevant FINMA table / template reference (e.g., OVA, OV1, LI1, etc.). Pillar 3 disclosures may also include column or row labelling (a, b, c, etc.) as prescribed by FINMA. Naming conventions used in our Pillar 3 disclosures are based on the FINMA guidance and may not reflect UBS naming conventions.
FINMA-defined asset classes
The FINMA-defined asset classes used within this Pillar 3 report are as follows:
– Central governments and central banks, consisting of exposures relating to governments at the level of the nation state and their central banks. The European Union is also treated as a central government.
– Banks and securities dealers, consisting of exposures to legal entities holding a banking license and securities firms subject to adequate supervisory and regulatory arrangements, including risk-based capital requirements. The securities firms included carry a broker / dealer license issued in the European Union, a G-10 country or Australia.
– Public sector entities, multilateral development banks, consisting of exposures to institutions established on the basis of public law in different forms, such as administrative entities or public companies as well as regional governments, the BIS, the International Monetary Fund, the European Central Bank and eligible multilateral development banks recognized by FINMA.
– Corporates: specialized lending, consisting of exposures relating to income-producing real estate and high-volatility commercial real estate, commodities finance, project finance and object finance.
– Corporates: other lending, consisting of all exposures that do not fit into any of the other asset classes. This segment includes private commercial entities such as corporations, partnerships or proprietorships, insurance companies and funds (including managed funds).
– Retail: residential mortgages, consisting of residential mortgages, regardless of exposure size, if the owner occupies or rents out the mortgaged property.
– Retail: qualifying revolving retail exposures, consisting of unsecured and revolving credits to individuals that exhibit appropriate loss characteristics relating to credit card relationships at UBS.
– Retail: other, consisting primarily of Lombard lending that represents loans made against the pledge of eligible marketable securities or cash, as well as exposures to small businesses, private clients and other retail customers without mortgage financing.
Governance over Pillar 3 disclosures
The Board of Directors and senior management are responsible for establishing and maintaining an effective internal control structure over the disclosure of financial information, including Pillar 3 disclosures. In line with BCBS and FINMA requirements, we have established a board-approved Basel III Pillar 3 disclosure governance policy which includes information on the key internal controls and procedures designed to govern the preparation, review and sign-off of Pillar 3 disclosures. This Pillar 3 report has been verified and approved in line with this policy.
4
Risk management framework
Our Group-wide risk management framework is applied across all risk types. The table below presents an overview of risk management disclosures separately provided in our Annual Report 2016, available under “Annual reporting” at www.ubs.com/investors.
5
Basel III Pillar 3 UBS Group AG 2016 report
Our approach to measuring risk exposure and risk-weighted assets
Measures of risk exposure may differ, depending on whether the exposures are calculated for financial accounting purposes under International Financial Reporting Standards (IFRS), for deriving our regulatory capital requirement or for internal risk management and control purposes. Our Pillar 3 disclosures are generally based on measures of risk exposure used to derive the regulatory capital required to underpin those risks.
The table below provides a summary of the approaches we use for the main risk categories to derive the regulatory risk exposure and risk-weighted assets (RWA). Our RWA are calculated according to the BIS Basel III framework, as implemented by the Swiss Capital Adequacy Ordinance issued by the Swiss Federal Council.
6
7
Basel III Pillar 3 UBS Group AG 2016 report
8
The table below provides an overview
of RWA and the related minimum capital requirement by risk type. Capital
requirements presented in the tables in this report are calculated based on 8%
of RWA as of 31 December 2016. Further information on capital management and
RWA, including detail on movements in RWA over 2016 is provided on pages 184–197
of our
Annual Report 2016, available under “Annual reporting” at
www.ubs.com/investors
.
Further
information on movements in RWA over the fourth quarter of 2016 is provided on
pages 50–51 of our fourth quarter 2016 report, available under “Quarterly
reporting” at www.
ubs.com/investors
. As permitted by FINMA,
RWA flow statements
for credit risk, CCR and market risk exposures under the revised Pillar 3
disclosure requirements will be provided for the first time as of 31 March
2017.
9
Basel III Pillar 3 UBS Group AG 2016 report
The table below presents the net exposure at default (EAD) and RWA by risk type and FINMA-defined asset class, which forms the basis for the calculation of RWA, as well as the capital requirement per exposure category. These exposures are further broken down into the A-IRB / model-based approaches and standardized approach. For credit and counterparty credit risk, this defines the method used to derive the risk weight factors, through either internal ratings (A-IRB) or external ratings (standardized approach). Market and operational risk RWA are derived using model calculations and are therefore included in the model-based approach columns.
The table provides references to sections in this report containing further information on the specific topics.
10
This section provides information about the differences between our regulatory exposures and carrying values presented in our IFRS financial statements. Assets and liabilities presented in our IFRS financial statements may be subject to more than one risk framework as explained further on the next page.
11
Basel III Pillar 3 UBS Group AG 2016 report
The table above provides a breakdown of the IFRS balance sheet into the risk types used to calculate our regulatory capital requirements. Cash collateral on securities borrowed and lent, repurchase and reverse repurchase agreements, positive and negative replacement values and cash collateral receivables and payables on derivative instruments are subject to regulatory capital charges in both the market risk and the counterparty credit risk categories. In addition, trading portfolio assets, financial assets designated at fair value and financial assets available for sale include securities that were pledged as collateral which are also considered in the counterparty credit risk framework, as collateral posted is subject to counterparty credit risk.
Explanation of differences between the IFRS and regulatory scope of consolidation
The scope of consolidation for the purpose of calculating Group regulatory capital is generally the same as the consolidation scope under IFRS and includes subsidiaries directly or indirectly controlled by UBS Group AG that are active in the banking and finance sector. However, subsidiaries consolidated under IFRS that are active in sectors other than banking and finance are excluded from the regulatory scope of consolidation.
The main differences between the IFRS and regulatory capital scope of consolidation relate to the following entities as of 31 December 2016 :
– investments in insurance, real estate and commercial companies as well as investment vehicles that were consolidated under IFRS, but not for regulatory capital purposes, and were subject to risk-weighting
– joint ventures that were fully consolidated for regulatory capital purposes, but which were accounted for under the equity method under IFRS
– UBS Capital Securities (Jersey) Ltd. has issued preferred securities and is consolidated for regulatory capital purposes but not for IFRS purposes. This entity holds bonds issued by UBS AG, which are eliminated in the consolidated regulatory capital accounts. This entity does not have material third-party asset balances and its equity is attributable to non-controlling interests
The table below provides a list of the most significant entities that were included in the IFRS scope of consolidation, but not in the regulatory capital scope of consolidation. These entities make up most of the difference between columns a) and b) in the table “LI1: Differences between accounting and regulatory scopes of consolidation and mapping of financial statement categories with regulatory risk categories” on the previous page. As of 31 December 2016 , entities consolidated under either the IFRS or the regulatory scope of consolidation did not report any significant capital deficiencies.
In the banking book, certain equity investments are not consolidated under IFRS or under the regulatory scope. These investments mainly consisted of infrastructure holdings and joint operations (for example, settlement and clearing institutions, stock and financial futures exchanges) and included our participation in the SIX Group. These investments were risk-weighted based on applicable threshold rules.
Further information on the legal structure of the UBS Group and on the IFRS scope of consolidation is provided on pages 13–14 and 325–326, respectively, of our Annual Report 2016, available under “Annual reporting” at www.ubs.com/investors .
12
Regulatory exposures
The table above illustrates the key differences between regulatory exposure amounts and accounting carrying values under the regulatory scope of consolidation. In addition to the accounting carrying values, the regulatory exposure amount includes:
– off-balance sheet amounts (row 1)
– potential future exposure (PFE) for derivatives, offset by netting where an enforceable master netting agreement is in place, and by eligible financial collateral deductions (row 6)
– effects from the model calculation of effective expected positive exposure (EEPE) applied to derivatives (row 6)
– any netting and collateral mitigation on SFTs through the application of the close-out period approach or the comprehensive measurement approach (row 8)
– effect of collateral mitigation in the banking book (row 9)
The regulatory exposure amount excludes prudential filters (row 5), comprising items subject to deduction from capital, which are not risk weighted. In addition, exposures that are only subject to market risk do not create any regulatory exposure, as their risk is reflected as part of our market risk RWA calculation (row 8).
Fair value measurement
The table below references further information on fair value measurement that can be found in our Annual Report 2016, available under “Annual reporting” at www.ubs.com/investors .
|
|||||||
Pillar 3 disclosure requirement |
|
Annual Report 2016 section |
|
Disclosure |
|
Annual Report 2016 page number |
|
|
|
|
|
|
|
|
|
Valuation methodologies applied, including mark–to–market and mark–to–model methodologies in use |
|
Consolidated financial statements |
|
– |
Note 22 a) Valuation principles |
|
386 |
|
|
|
– |
Note 22 c) Fair value hierarchy |
|
388–394 |
|
|
|
|
– |
Note 22 f) Level 3 instruments: valuation techniques and inputs |
|
397–401 |
|
Description of the independent price verification process |
|
Consolidated financial statements |
|
– |
Note 22 b) Valuation governance |
|
387 |
Procedures for valuation adjustments or reserves for valuing trading positions by type of instrument |
|
Consolidated financial statements |
|
– |
Note 22 d) Valuation adjustments |
|
394–396 |
Prudent valuation
To ensure compliance with the prudent valuation guidance contained within the BCBS framework, UBS has established systems, controls and governance around the valuation of positions measured on the balance sheet at fair value. Further information on this framework is provided in our Annual Report 2016 as shown above.
UBS makes adjustments to tier 1 regulatory capital in accordance with FINMA’s prudent valuation guidance. These adjustments are in addition to those made under financial accounting standards, as shown on page 189 of our Annual Report 2016, available under “Annual reporting” at www.ubs.com/investors .
13
Basel III Pillar 3 UBS Group AG 2016 report
This section includes items subject to the Basel credit risk framework, as illustrated in the table “Detailed segmentation of exposures and risk weighted assets” in section 2 of this report. Information on counterparty credit risk arising from OTC derivatives, exchange-traded derivatives, securities financing transactions and long settlement transactions are reflected in section 5 of this document. Securitization positions subject to the securitization regulatory framework are reported in section 7 of this document.
The tables in this section provide details on the exposures used to determine the firm’s credit risk-related regulatory capital requirement. The parameters applied under the A-IRB approach are generally based on the same methodologies, data and systems we use for internal credit risk quantification, except where certain treatments are specified by regulatory requirements. These include, for example, the application of regulatory prescribed floors and multipliers, and differences with respect to eligibility criteria and exposure definitions. The exposure information presented in this section may therefore differ from our internal management view disclosed in the “Risk management and control” sections of our quarterly and annual reports. Similarly, the regulatory capital prescribed measure of credit risk exposure also differs from that defined under IFRS.
Credit risk exposure categories
In this section, we use the term “loans” in three different contexts:
1) Balances subject to credit risk in the IFRS balance sheet line Loans as used in the tables “CRB – Breakdown of exposures by industry,” “CRB – Breakdown of exposures by geographical area,” and “CRB – Breakdown of exposures by residual maturity.”
2) Balances that are by nature loans (including the IFRS balance sheet lines Loans and Due from banks ) as used in the table “Past due loans.”
3) The FINMA-defined Pillar 3 exposure category “Loans” as used in tables “CR1: Credit quality of assets” and “CR3: Credit risk mitigation techniques – overview.”
The Pillar 3 category “Loans” includes the following IFRS balances to the extent that they are subject to the credit risk framework:
– balances with central banks
– due from banks
– loans, excluding securities presented in the IFRS balance sheet line Loans
– traded loans that are included within Trading portfolio assets
– financial assets designated at fair value, excluding money market instruments, checks and bills and other debt instruments
– other assets subject to the credit risk framework
The Pillar 3 category “Debt securities” includes the following IFRS balances to the extent that they are subject to the credit risk framework:
– trading portfolio assets, excluding traded loans
– money market instruments, checks and bills and other debt instruments in the IFRS balance sheet line Financial assets designated at fair value
– financial assets available for sale
– financial assets held to maturity
– securities presented in the IFRS balance sheet line Loans
This section is structured into five sub-sections:
Credit risk management
This sub-section includes a reference to disclosures on our risk management objectives and risk management process, our organizational structure and our risk governance.
Credit risk exposure and credit quality of assets
This sub-section includes information on our credit risk exposures and credit quality of assets.
Credit risk mitigation
We provide a reference to disclosures on policies and processes for collateral evaluation and management, the use of netting and credit risk mitigation instruments. We also disclose information on our credit risk mitigation (CRM) techniques used to reduce credit risk for loans and debt securities. The table in this sub-section depicts all secured exposures, irrespective of whether the standardized approach or the A-IRB approach is used for the RWA calculation.
Credit risk under the standardized approach
We include information on the use of external credit assessment institutions (ECAI) to determine risk weightings applied to rated counterparties. In addition, we provide quantitative information on credit risk exposures and the effect of CRM under the standardized approach.
Credit risk under internal risk-based approaches
We provide a reference to disclosures on our internal risk-based models used to calculate risk-weighted assets, including information on internal model development and control, as well as characteristics of our models. The tables in this sub-section provide information on credit risk exposures under the A-IRB approach, including the main parameters used in A-IRB models for the calculation of capital requirements, depicted by portfolio and probability of default (PD) range.
14
Credit risk management
The table below presents an overview of Pillar 3 disclosures separately provided in our Annual Report 2016, available under “Annual reporting” at www.ubs.com/investors .
Backtesting
Table “CR9: IRB – Backtesting of probability of default (PD) per portfolio” is not required by FINMA for first-time disclosure as of 31 December 2016 and will be provided in full for the first time as of 31 December 2017. Further information on backtesting of credit models is provided on pages 142–143 of our Annual Report 2016, available under “Annual reporting” at www.ubs.com/investors .
15
Basel III Pillar 3 UBS Group AG 2016 report
Credit risk exposure and credit quality of assets
Amounts shown in the tables below are IFRS carrying values according to the regulatory scope of consolidation that are subject to the credit risk framework.
The table below provides a breakdown of our credit risk exposures by geographical area. The geographical distribution is based on the legal domicile of the counterparty or issuer.
16
The table below provides a breakdown of our credit risk exposure by residual maturity. Residual maturity is presented based on contract end date and does not include potential early redemption features.
Policies for past due, non-performing and impaired claims
A past due claim is considered non-performing when the payment of interest, principal or fees is overdue by more than 90 days, or 180 days for certain specified retail portfolios. Claims are also classified as non-performing when bankruptcy or insolvency proceedings or enforced liquidation have commenced, or obligations have been restructured on preferential terms, such as preferential interest rates, extension of maturity or subordination.
Individual claims are classified as impaired if following an individual impairment assessment, an allowance or provision for credit losses is established. Accordingly, both performing and non-performing loans may be classified as impaired. Refer to pages 143–147 in our Annual Report 2016, available under “Annual reporting” at www.ubs.com/investors , for further information on our policies for past due, non-performing and impaired claims.
A counterparty is deemed to be in default if any of the following events have taken place: (i) any financial asset against the counterparty has become individually impaired; (ii) the payment of interest, principal or fees is past due by more than 90 days, or 180 days for certain specified retail portfolios; (iii) the counterparty is subject to bankruptcy or insolvency proceedings have commenced; or (iv) obligations of the counterparty have been restructured on preferential terms. Defaulted exposures are generally rated as in default (CDF), according to our internal UBS rating scale.
The tables below provide a breakdown of impaired exposures by geographical region and industry. The amounts shown are IFRS carrying values. The geographical distribution is based on the legal domicile of the counterparty or issuer.
17
Basel III Pillar 3 UBS Group AG 2016 report
The table below provides a breakdown of defaulted and non-defaulted loans, debt securities and off-balance sheet exposures.
The table below shows a breakdown of total loan balances where payments have been missed. The loan balances in the table are predominantly within Personal & Corporate Banking, where delayed payments are routinely observed, and, to a lesser extent, Wealth Management. The amount of past due mortgage loans was not significant compared with the overall size of the mortgage portfolio. Amounts in the table below are IFRS carrying values and include the IFRS balance sheet lines Loans and Due from banks . Information on past due but not impaired loans is provided on page 147 of our Annual Report 2016, available under “Annual reporting” at www.ubs.com/investors .
CRB: Past due loans |
|
|
CHF million |
|
31.12.16 |
1–10 days |
|
57 |
11–30 days |
|
115 |
31–60 days |
|
75 |
61–90 days |
|
12 |
>90 days |
|
1,060 |
of which: mortgage loans |
|
619¹ |
Total |
|
1,320 |
1 Total mortgage loans: CHF 153,006 million. |
|
|
18
Restructured exposures
We do not operate a general policy for restructuring claims in order to avoid counterparty default. Where restructuring does take place, we assess each case individually. Typical features of terms and conditions granted through restructuring to avoid default may include concessions of special interest rates, postponement of interest or principal payments, debt / equity swaps, modification of the schedule of repayments, subordination or amendment of loan maturity.
If a loan is restructured with preferential conditions (i.e., new terms and conditions are agreed that do not meet the normal current market criteria for the quality of the obligor and the type of loan), the claim is still classified as non-performing. It will remain so until the loan is collected, written off or non-preferential conditions are granted that supersede the preferential conditions, and will be assessed for impairment on an individual basis. Concessions granted where there is no evidence of financial difficulty, or where any changes to terms and conditions are within usual risk appetite, are not considered restructured. Refer to pages 143–144 in our Annual Report 2016, available under “Annual reporting” at www.ubs.com/investors , for further information on our policies for restructured exposures.
The table below provides further information on restructured exposures as of 31 December 2016.
CRB: Breakdown of restructured exposures between impaired and non-impaired |
|||
|
31.12.16 |
||
CHF million |
Impaired |
Non-impaired |
Total |
Restructured exposures |
289 |
756 |
1,045 |
19
Basel III Pillar 3 UBS Group AG 2016 report
Credit risk mitigation
The table below presents an overview of Pillar 3 disclosures separately provided in our Annual Report 2016, available under “Annual reporting” at www.ubs.com/investors .
Additional information on counterparty credit risk mitigation is provided on pages 29–32 of this report.
The table below provides a breakdown of unsecured and partially or fully secured exposures, including security type, for the categories Loans and Debt securities .
20
Standardized approach – credit risk mitigation
The table below illustrates the effect of credit risk mitigation on the calculation of capital requirements under the standardized approach. The exposure balance in the FINMA asset class “Central governments and central banks” has increased in comparison with 30 June 2016, mainly reflecting liquidity requirements applicable to UBS Europe SE in the second half of 2016. Certain local liquidity portfolios that have been established more recently are measured under the standardized approach. However we intend to migrate these portfolios to the A-IRB approach during the first half of 2017.
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Basel III Pillar 3 UBS Group AG 2016 report
IRB approach – credit derivatives used as credit risk mitigation
We actively manage the credit risk in our corporate loan portfolios by utilizing credit derivatives. Single-name credit derivatives that fulfill the operational requirements prescribed by FINMA are recognized in the RWA calculation using the PD or rating (and asset class) assigned to the hedge provider. The PD (or rating) substitution is only applied in the RWA calculation when the PD (or rating) of the hedge provider is lower than the PD (or rating) of the obligor. In addition, default correlation between the obligor and hedge provider is taken into account through the double default approach. Credit derivatives with tranched cover or first-loss protection are recognized through the securitization framework. Refer to table “CCR6: Credit derivatives exposures” for notional and fair value information on credit derivatives used as credit risk mitigation.
22
Credit risk under the standardized approach
The standardized approach is generally applied where it is not possible to use the advanced internal ratings-based (A-IRB) approach. The standardized approach requires banks to use, where possible, risk assessments prepared by external credit assessment institutions (ECAI) or export credit agencies to determine the risk weightings applied to rated counterparties. We use FINMA-recognized ECAI risk assessments to determine the risk weight for certain counterparties according to the BIS-defined exposure segments.
We use three FINMA-recognized ECAI for this purpose: Standard & Poor’s, Moody’s Investors Service and Fitch Ratings. The mapping of external ratings to the standardized approach risk weights is determined by FINMA and published on its website. There were no changes in the ECAI used compared with 31 December 2015.
We risk-weight debt instruments in accordance with the specific issue ratings available. In case there is no specific issue rating published by the ECAI, the issuer rating is applied to the senior unsecured claims of that issuer subject to the conditions prescribed by FINMA.
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Basel III Pillar 3 UBS Group AG 2016 report
Credit risk under internal risk-based approaches
We use the A-IRB approach for calculating certain credit risk exposures. The tables in this sub-section provide information on credit risk exposures under the A-IRB approach, including the main parameters used in A-IRB models for the calculation of capital requirements, depicted by portfolio and probability of default (PD) range.
Under the A-IRB approach, the required capital for credit risk is quantified through empirical models that we have developed to estimate the probability of default (PD), loss given default (LGD), exposure at default (EAD) and other parameters, subject to FINMA approval. The table below presents an overview of Pillar 3 disclosures separately provided in our Annual Report 2016, available under “Annual reporting” at www.ubs.com/investors .
The proportion of EAD covered by either the standardized or A-IRB approach is provided in the table “Detailed segmentation of exposures and risk-weighted assets” in this report. The majority of our exposure in the FINMA-defined asset class “Central governments and central banks” is included in portfolios held for liquidity purposes, which are already measured under the A-IRB approach. As previously noted, certain local liquidity portfolios that have been established more recently are measured under the standardized approach. However we intend to migrate these portfolios to the A-IRB approach during the first half of 2017.
The table on the following pages provides a breakdown of the main parameters used for calculation of capital requirements under the A-IRB approach, shown by PD range across FINMA-defined asset classes.
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Basel III Pillar 3 UBS Group AG 2016 report
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Equity exposures
The table below provides information on our equity exposures under the simple risk weight method.
28
Counterparty credit risk (CCR) includes over-the-counter (OTC) and exchange-traded derivatives (ETD), securities financing transactions (SFTs) and long settlement transactions. Within traded products, we determine the regulatory credit exposure on the majority of our derivatives portfolio by applying the effective EPE and sEPE as defined in the Basel III framework. However, for the rest of the portfolio we apply the current exposure method (CEM) based on the replacement value of derivatives in combination with a regulatory prescribed add-on. For the majority of securities financing transactions (securities borrowing, securities lending, margin lending, repurchase agreements and reverse repurchase agreements), we determine the regulatory credit exposure using the close-out period (COP) approach.
The counterparty credit risk-related tables in this report are based on Swiss SRB phase-in requirements and correspond to the counterparty credit risk by asset class that is shown in the table “Detailed segmentation of exposures and risk-weighted assets” in section 2 of this document.
The table below presents an overview of Pillar 3 disclosures separately provided in our Annual Report 2016, available under “Annual reporting” at www.ubs.com/investors .
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Basel III Pillar 3 UBS Group AG 2016 report
In addition to the default risk capital requirements for counterparty credit risk determined based on the A-IRB or standardized approach, we are required to add a capital charge to derivatives to cover the risk of mark-to-market losses associated with the deterioration of counterparty credit quality, referred to as the credit value adjustment (CVA). The advanced CVA VaR approach has been used to calculate the CVA capital charge where we apply the internal model method (IMM). Where this is not the case, the standardized CVA approach has been applied. Further detail on our portfolios subject to the CVA capital charge as of 31 December 2016 is provided in the table below.
CCR2: Credit valuation adjustment (CVA) capital charge |
|||
31.12.16 |
a |
b |
|
CHF million |
EAD post CRM¹ |
RWA |
|
|
Total portfolios subject to the advanced CVA capital charge |
37,663 |
4,202 |
1 |
(i) VaR component (including the 3× multiplier) |
|
1,326 |
2 |
(ii) Stressed VaR component (including the 3× multiplier) |
|
2,876 |
3 |
All portfolios subject to the standardized CVA capital charge |
8,034 |
1,524 |
4 |
Total subject to the CVA capital charge |
45,698 |
5,726 |
1 Includes EAD of the underlying portfolio subject to the respective CVA charge. |
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Section 6 Comparison of A-IRB approach and standardized approach
In accordance with current prudential regulations, FINMA has approved our use of the advanced IRB (A-IRB) approach for calculating the required capital for a majority of our credit risk and counterparty credit risk exposures.
The principal differences between the standardized approach (SA) and the A-IRB approach identified below are based on the current SA rules without consideration of the material revisions proposed by the Basel Committee on Banking Supervision (BCBS) in its consultative documents. Given the uncertainty regarding the revised rules and the calibration of any capital floors, the differences described are not indicative of differences which may arise under the revised rules.
We continue to believe that advanced approaches that adequately capture economic risks are paramount for the appropriate representation of the capital requirements related to risk-taking activities. Within a strong risk control framework and in combination with robust stress-testing practices, strict risk limits, as well as leverage and liquidity requirements, advanced approaches promote a proactive risk culture, ensuring the right incentives are in place to prudently manage risks.
For comparability with our prior-year disclosure, we refer to the BIS exposure segments “Sovereigns,” “Banks” and “Corporates” within this section. These reconcile to the FINMA-defined asset classes disclosed elsewhere in this report as follows:
– “Sovereigns” includes the FINMA asset class “Central governments and central banks,” as well as highly rated multilateral development banks, which are now reported in the FINMA asset class “Public sector entities, multilateral development banks.”
– “Banks” includes the FINMA asset class “Banks and securities dealers,” as well as public sector entities with revenue-raising power, which are now reported in the FINMA asset class “Public sector entities, multilateral development banks.”
– “Corporates” includes the FINMA asset classes “Corporates: specialized lending” and “Corporates: other lending,” as well as public sector entities without revenue-raising power, which are now reported under the FINMA asset class “Public sector entities, multilateral development banks.”
Key methodological differences between A-IRB and current SA approaches
In line with the BCBS objective, the A-IRB approach seeks to balance the maintenance of prudent levels of capital while encouraging, where appropriate, the use of advanced risk management techniques. By design, the calibration of the current SA rules and the A-IRB approaches is such that low-risk, short-maturity, well-collateralized portfolios across the various asset classes (with the exception of Sovereigns) receive lower risk weights under the A-IRB than under the current SA rules. Accordingly, risk-weighted assets (RWA) and capital requirements under the current SA rules would be substantially higher than under the A-IRB approach for lower-risk portfolios. Conversely, RWA for higher-risk portfolios are higher under the A-IRB than under the current SA approach.
Differences primarily arise due to the measurement of exposure at default (EAD) and to the risk weights applied. In both cases, the treatment of risk mitigation such as collateral can have a significant impact.
EAD measurement
For the measurement of EAD, the main differences relate to derivatives, driven by the differences between the internal model method (IMM) and the regulatory prescribed current exposure method (CEM).
The model-based approaches to derive estimates of EAD for derivatives and securities financing transactions reflect the detailed characteristics of individual transactions. They model the range of possible exposure outcomes across all transactions within the same legally enforceable netting set at various future time points. This assesses the net amount that may be owed to us or that we may owe to others, taking into account the impact of correlated market moves over the potential time it could take to close out a position. The calculation considers current market conditions and is therefore sensitive to deteriorations in the market environment.
In contrast, EAD under the regulatory prescribed rules are calculated as replacement costs at the balance sheet date plus regulatory add-ons, which take into account potential future market movements but at predetermined fixed rates, which are not sensitive to changes in market conditions. These add-ons are crudely differentiated by reference to only five product types and three maturity buckets. Moreover, the current regulatory prescribed rules calculation gives very limited recognition to the benefits of diversification across transactions within the same legally enforceable netting set. As a result, large diversified portfolios, such as those arising from our activities with other market-making banks, will generate much higher EAD under the current regulatory prescribed rules than under the model-based approach.
Risk weights
Under the A-IRB approach, risk weights are assigned according to the bank’s internal credit assessment of the counterparty to determine the probability of default (PD) and loss given default (LGD).
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The PD is an estimate of the likelihood of a counterparty defaulting on its contractual obligations. It is assessed using rating tools tailored to the various categories of counterparties. Statistically developed scorecards, based on key attributes of the obligor, are used to determine PD for many of our corporate clients and for loans secured by real estate. Where available, market data may also be used to derive the PD for large corporate counterparties. For Lombard loans, Merton-type model simulations are used that take into account potential changes in the value of securities collateral. PD is not only an integral part of the credit risk measurement, but also an important input for determining the level of credit approval required for any given transaction. Moreover, for the purpose of capital underpinning, the majority of counterparty PDs are subject to a floor.
The LGD is an estimate of the magnitude of the likely loss if there is a default. The calculation takes into account the loss of principal, interest and other amounts such as workout costs, including the cost of carrying an impaired position during the workout process less recovered amounts. Importantly, LGD considers credit mitigation by way of collateral or guarantees, with the estimates being supported by our internal historical loss data and external information where available.
The combination of PD and LGD determined at the counterparty level results in a highly granular level of differentiation of the economic risk from different borrowers and transactions.
In contrast, the SA risk weights are largely reliant on external rating agencies’ assessments of the credit quality of the counterparty, with a 100% risk weight typically being applied where no external rating is available. Even where external ratings are available, there is only a coarse granularity of risk weights, with only four primary risk weights used for differentiating counterparties, with the addition of a 0% risk weight for AA– or better rated sovereigns. Risk weights of 35% and 75% are used for mortgages and retail exposures, respectively.
The SA does not differentiate across transaction maturities except for interbank lending, albeit in a very simplistic manner considering only shorter or longer than three months. This has clear limitations. For example, the economic risk of a six-month loan to, say, a BB-rated US corporate is significantly different to that of a 10-year loan to the same borrower. This difference is evident from the distinction of probability of default levels based on ratings assigned by external rating agencies through their separate ratings for short-term and long-term debt for a given issuer.
The SA typically assigns lower risk weights to sub-investment grade counterparties than the A-IRB approach, thereby potentially understating the economic risk. Conversely, investment grade counterparties typically receive higher risk weights under the SA than under the A-IRB approach.
Maturity is also an important factor, with the A-IRB approach producing a higher capital requirement for longer maturity exposures than for shorter maturity exposures. Since the accelerated implementation of our strategy in 2012, the maturity effect has become particularly important as we had a notable shift from longer-term to shorter-term transactions in our credit portfolio.
Additionally, under the A-IRB approach we calculate expected loss measures that are deducted from CET1 capital to the extent that they exceed general provisions, which is not the case under the SA.
Given the divergence between the SA and the economic risk, which is better represented under the A-IRB approach, particularly for lower-grade counterparties, there is a risk that applying the SA could incentivize higher risk-taking without a commensurate increase in required capital.
Comparison of the A-IRB approach EAD and leverage ratio denominator by exposure segment
The following table shows EAD, average risk weight (RW), risk-weighted assets (RWA) and leverage ratio denominator (LRD) per exposure segment for Sovereigns, Banks, Corporates and Retail credit risk and counterparty credit risk exposures subject to the A-IRB approach. LRD is the exposure measure used for the leverage ratio.
LRD estimates presented in the table reflect the credit risk and counterparty credit risk components of exposures only and are therefore not representative of the LRD requirement at bank level overall. The LRD estimates exclude exposures subject to market risk, non-counterparty-related risk and SA credit risk to provide a like-for-like comparison with the A-IRB credit risk EAD shown.
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Comparison of the A-IRB approach, the SA and LRD by exposure segment
The following discusses the differences between the A-IRB approach, the SA and LRD per exposure segment.
Exposure segment Sovereigns
The regulatory net EAD for Sovereigns is CHF 145 billion under the A-IRB approach. Since the vast majority of our exposure to Sovereigns is driven by banking products exposures, the LRD is broadly in line with the A-IRB net EAD and we would expect a similar amount under the SA.
The chart below provides a comparison of risk weights for Sovereigns exposures calculated under the A-IRB approach and the SA. Risk weights under the A-IRB approach are shown for one-year and five-year maturities, both assuming an LGD of 45% (the default LGD assigned for senior unsecured exposures under the Foundation IRB approach). Our internal A-IRB ratings have been mapped to external ratings based on the long-term average of one-year default rates available from the major credit rating agencies, as described on page 140 of our Annual Report 2016, available under “Annual reporting” at www.ubs.com/investors .
The SA assigns a zero risk weight to Sovereigns counterparties rated AA– and better, while the A-IRB approach generally assigns risk weights higher than zero even for the highest-quality sovereign counterparties.
Despite this, we would expect an increase in average risk weight under the SA due to exposures to unrated counterparties such as sovereign wealth funds, which attract a 100% risk weight under the SA despite being generally considered very low risk, and short-term repo transactions with central banks rated below AA–, such as the Bank of Japan.
However, as the Sovereigns exposure segment is not a significant driver of RWA, we would expect any resulting increase in RWA to be relatively small.
Exposure segment Banks
The regulatory net EAD for Banks is CHF 39 billion under the A-IRB approach. The A-IRB net EAD is lower compared to the LRD as a result of collateral mitigation on derivatives and securities financing transactions. We would expect the net EAD to increase significantly under the regulatory prescribed rules related to derivatives and securities financing transactions within the Investment Bank, due to the aforementioned methodological differences between the calculation of EAD under the two approaches.
The chart below provides a comparison of risk weights for SA.
The vast majority of our Banks exposure is of investment grade quality. The average contractual maturity of this exposure is closer to the one-year example provided in the chart above. Therefore, we would expect a higher average risk weight under the SA than the 21% average risk weight under the A-IRB approach. In combination with higher EAD, we would expect this to lead to significantly higher RWA for Banks under the SA.
Exposure segment Corporates
The regulatory net EAD for Corporates is CHF 135 billion under the A-IRB approach. The A-IRB net EAD is lower compared to the LRD as a result of collateral mitigation on derivatives and securities financing transactions. We would expect the EAD figure to be higher under the regulatory prescribed rules related to derivatives, which typically account for one-third of the EAD for this exposure segment, due to the aforementioned methodological differences between the calculation of EAD under the two approaches.
The following chart provides a comparison of risk weights for Corporates exposures calculated under the A-IRB approach and the SA. These exposures primarily arise from corporate lending and derivatives trading within the Investment Bank, and lending to large corporates and small and medium-sized enterprises within Switzerland.
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Basel III Pillar 3 UBS Group AG 2016 report
Investment grade counterparties typically receive higher risk weights under the SA than under the A-IRB approach. The majority of our Corporates exposures fall into this category. We would therefore expect risk weights for Corporates to be generally higher under the SA.
In addition, SA risk weights are reliant on external ratings, with a default weighting of 100% applied where no external rating is available. Typically, counterparties with no external rating are riskier and thus also have higher risk weights under the A-IRB approach. However, managed funds, which comprise nearly one-third of our Corporates EAD, typically have no debt and are therefore unrated. The SA applies a 100% risk weight to exposures to these funds. Under A-IRB, these funds are considered very low risk and have an average risk weight of 7%. We believe the SA significantly overstates the risk.
Conversely, for certain exposures, we consider the risk weight of 100% under the SA resulting from the absence of an external rating as insufficient, as evident from the hypothetical leveraged finance counterparty example in the table below.
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Exposure segment Retail
Sub-segment residential mortgages
The regulatory net EAD for residential mortgages is CHF 133 billion under the A-IRB approach. Since the vast majority is driven by banking products exposures, the LRD is broadly in line with the A-IRB net EAD and we would expect a similar amount under the SA.
With our leading personal and corporate banking business in Switzerland, our domestic portfolios represent a significant portion of our overall lending exposures, with the largest being loans secured by residential properties.
Our internal models take a sophisticated approach in assigning risk weights to such loans by considering the debt service capacity of borrowers as well as the availability of other collateral. These are important considerations for the Swiss market, where there is legal recourse to the borrower.
In contrast, and different to the assignment of risk weights for exposure segments above, the SA only crudely differentiates the risk weights based on loan-to-value (LTV) ranges as shown in the table below.
The vast majority of our exposures would attract the 35% risk weight under the SA, compared to the 15% observed under the A-IRB approach.
The difference is largely due to the current SA rules not giving benefit to the portion of exposures with LTV lower than 67%. The vast majority of exposures fall within this category, as shown in the “Swiss mortgages: distribution of net exposure at default (EAD) across exposure segments and loan-to-value (LTV) buckets” table on page 133 of our Annual Report 2016, available under “Annual reporting” at www.ubs.com/investors .
The following example illustrates the importance of considering the quality of the portfolio at a more granular level than the SA allows. The majority of the CHF 133 billion Residential mortgages EAD shown relates to loans secured by real estate in Switzerland. If the value assigned to the real estate collateral underlying those Swiss mortgage loans were to reduce by 30% and costs of closing out impaired loans were 20% of the current property value, we estimate that the default rates would need to be higher than 10% to lose an amount equivalent to the current capital requirement of CHF 1.6 billion related to that portfolio (calculated based on 8% of RWA). Moreover, FINMA requires banks using the A-IRB approach to apply bank-specific A-IRB multipliers when calculating RWA for Swiss mortgages. As the multiplier is phased in through 2019, the default rate required to generate a loss exceeding the capital requirement will increase substantially.
Sub-segment Lombard lending:
Lombard loans, with CHF 113 billion of regulatory net EAD under the A-IRB approach, mainly arise in our wealth management businesses, which offer comprehensive financial services to private clients with substantial financial resources.
Eligible collateral is more limited under the SA than under A-IRB. However, the haircuts applied to collateral under the A-IRB approach are generally greater than those prescribed under the SA. Given this, we would expect the overall effect of applying current SA rules to be limited for this portfolio.
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Basel III Pillar 3 UBS Group AG 2016 report
This section provides details of traditional and synthetic securitization exposures in the banking and trading book based on the Basel III framework. Securitized exposures are generally risk weighted, based on their external ratings. This section also provides details of the regulatory capital requirement associated with the securitization exposures in the banking book.
In a traditional securitization, a pool of loans (or other debt obligations) is typically transferred to structured entities that have been established to own the loan pool and to issue tranched securities to third-party investors referencing this pool of loans. In a synthetic securitization, legal ownership of securitized pools of assets is typically retained, but associated credit risk is transferred to structured entities typically through guarantees, credit derivatives or credit-linked notes. Hybrid structures with a mix of traditional and synthetic features are disclosed as synthetic securitizations.
We act in different roles in securitization transactions. As originator, we create or purchase financial assets, which are then securitized in traditional or synthetic securitization transactions, enabling us to transfer significant risk to third-party investors. As sponsor, we manage, provide financing for or advise securitization programs. In line with the Basel framework, sponsoring includes underwriting activities. In all other cases, we act in the role of investor by taking securitization positions.
Objectives, roles and involvement
Securitization in the banking book
Securitization positions held in the banking book include tranches of synthetic securitization of loan exposures. These are primarily hedging transactions executed by synthetically transferring credit risk on loans to corporates. In addition, securitization in the banking book includes legacy risk positions in Corporate Center – Non-core and Legacy Portfolio.
In 2016, for the majority of securitization carrying values on the balance sheet we acted in the roles of originator or sponsor and only for a minority as investor.
Securitization and resecuritization positions in the banking book are measured at fair value, reflecting market prices where available or based on our internal pricing models.
Securitization in the trading book
Securitizations held in the trading book are part of trading activities, including market-making and client facilitation, that could result in retention of certain securitization positions as an investor, including those that we may have originated or sponsored. In the trading book, securitization and resecuritization positions are measured at fair value, reflecting market prices where available, or based on our internal pricing models.
Type of structured entities and
affiliated entities involved in
securitization transactions
For the securitization of third-party exposures, the type of structured entities employed is selected as appropriate based on the type of transaction undertaken. Examples include limited liability companies, common law trusts and depositor entities.
We also manage or advise groups of affiliated entities that invest in exposures we have securitized or in structured entities that we sponsor.
Refer to Note 28 “Interests in subsidiaries and other entities” on pages 441–449 of our Annual Report 2016, available under “Annual reporting” at www.ubs.com/investors for further information on interests in structured entities.
Managing and monitoring of the credit and market risk of securitization positions
The banking book securitization and resecuritization portfolio is subject to specific risk monitoring, which may include interest rate and credit spread sensitivity analysis, as well as inclusion in firm-wide earnings-at-risk, capital-at-risk and combined stress test metrics.
The trading book securitization and resecuritization positions are also subject to multiple risk limits, such as management VaR and stress limits as well as market value limits. As part of managing risks within predefined risk limits, traders may utilize hedging and risk mitigation strategies. Hedging may, however, expose the firm to basis risks as the hedging instrument and the position being hedged may not always move in parallel. Such basis risks are managed within the overall limits. Any retained securitization from origination activities and any purchased securitization positions are governed by risk limits together with any other trading positions. Legacy trading book securitization exposure is subject to the same management VaR limit framework. Additionally, risk limits are used to control the unwinding, novation and asset sales process on an ongoing basis.
Accounting policies
Refer to Note 1 a) item 1 “Consolidation” on pages 325–326 of our Annual Report 2016, available under “Annual reporting” at www.ubs.com/investors for information on accounting policies that relate to securitization activities.
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Regulatory capital treatment of securitization structures
Generally, in both the banking and the trading book we apply the ratings-based approach (RBA) to traditional securitization positions using ratings, if available, from Standard & Poor’s, Moody’s Investors Service and Fitch Ratings for all securitization and resecuritization exposures. The selection of the external credit assessment institutions (ECAI) is based on the primary rating agency concept. This concept is applied, in principle, to avoid having the credit assessment by one ECAI applied to one or more tranches and by another ECAI to the other tranches, unless this is the result of the application of the specific rules for multiple assessments. If any two of the aforementioned rating agencies have issued a rating for a particular position, we would apply the lower of the two credit ratings. If all three rating agencies have issued a rating for a particular position, we would apply the middle of the three credit ratings. Under the ratings-based approach, the amount of capital required for securitization and resecuritization exposures in the banking book is capped at the level of the capital requirement that would have been assessed against the underlying assets had they not been securitized. This treatment has been applied in particular to the US and European reference-linked note programs. For the purposes of determining regulatory capital and the Pillar 3 disclosure for these positions, the underlying exposures are reported under the standardized approach, the advanced internal ratings-based approach or the securitization approach, depending on the category of the underlying security. If the underlying security is reported under the standardized approach or the advanced internal ratings-based approach, the related positions are excluded from the tables on the following pages.
The supervisory formula approach (SFA) is applied to synthetic securitizations of portfolios of credit risk inherent in loan exposures for which an external rating was not sought. The supervisory formula approach is also applied to leveraged super senior tranches.
We do not apply the concentration ratio approach or the internal assessment approach to securitization positions.
The counterparty risk of interest rate or foreign currency derivatives with securitization vehicles is treated under the advanced internal ratings-based approach and is therefore not part of this disclosure.
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Basel III Pillar 3 UBS Group AG 2016 report
Securitization exposures in the banking and trading book
Tables “SEC1: Securitization exposures in the banking book” and “SEC2: Securitization exposures in the trading book” outline the carrying values on the balance sheet in the banking and trading book as of 31 December 2016. The activity is further broken down by our role (originator, sponsor or investor) and by type (traditional or synthetic).
Amounts disclosed under the Traditional column of these tables reflect the total outstanding notes at par value issued by the securitization vehicle at issuance. For synthetic securitization transactions, the amounts disclosed generally reflect the balance sheet carrying values of the securitized exposures at issuance.
40
The following pages provide details on securitization exposures in the banking book and the associated regulatory capital requirements where the bank acts as originator, sponsor or investor.
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The amount of capital required to underpin market risk in the regulatory trading book is calculated using a variety of methods approved by FINMA. The components of market risk RWA are value-at-risk (VaR), stressed VaR (SVaR), an add-on for risks that are potentially not fully modeled in VaR, the incremental risk charge (IRC), the comprehensive risk measure (CRM) for the correlation portfolio and the securitization framework for securitization positions in the trading book. More information on each of these components is detailed in the following pages.
The table below presents an overview of Pillar 3 disclosures separately provided in our Annual Report 2016, available under “Annual reporting” at www.ubs.com/investors .
MRA – Market risk |
|||||||
Pillar 3 disclosure requirement |
|
Annual Report 2016 section |
|
Disclosure |
|
Annual Report 2016 page number |
|
|
|
|
|
|
|
|
|
Strategies and processes of the bank for market risk |
|
Risk, treasury and capital management |
|
– |
Risk appetite framework |
|
122–125 |
|
|
– |
Market risk – Overview of measurement, monitoring and management techniques |
|
148 |
||
|
|
– |
Market risk stress loss, Value-at-risk |
|
149–152 |
||
|
Consolidated financial statements |
|
– |
Note 12 Derivative instruments and hedge accounting |
|
359–365 |
|
Structure and organization of the market risk management function |
|
Risk, treasury and capital management |
|
– |
Key risks, risk measures and performance by business division and Corporate Center unit |
|
118 |
|
|
– |
Risk governance |
|
121–122 |
||
Scope and nature of risk reporting and/or measurement systems. |
|
Risk, treasury and capital management |
|
– |
Internal risk reporting |
|
125 |
|
|
|
– |
Main sources of market risk, Overview of measurement, monitoring and management techniques |
|
148 |
Securitization positions in the trading book
Our exposure to securitization positions in the trading book is limited and relates primarily to positions in Corporate Center – Non-core and Legacy Portfolio that we continue to wind down. A small amount of exposure also arises from secondary trading in commercial mortgage-backed securities in the Investment Bank. Refer to the table “Detailed segmentation of Basel III exposures and risk-weighted assets” in section 2 of this report and to section 7 “Securitizations” in this report for more information.
The table below provides information on market risk RWA from securitization exposures in the trading book.
MR1: Market risk under standardized approach |
||
31.12.16 |
a |
|
CHF million |
RWA |
|
|
Outright products |
|
1 |
Interest rate risk (general and specific) |
|
2 |
Equity risk (general and specific) |
|
3 |
Foreign exchange risk |
|
4 |
Commodity risk |
|
|
Options |
|
5 |
Simplified approach |
|
6 |
Delta-plus method |
|
7 |
Scenario approach |
|
8 |
Securitization |
428 |
9 |
Total |
428 |
|
44
The table below presents an overview of Pillar 3 disclosures separately provided in our Annual Report 2016, available under “Annual reporting” at www.ubs.com/investors .
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Basel III Pillar 3 UBS Group AG 2016 report
Regulatory calculation of market risk
The table below shows minimum, maximum, average and period-end regulatory VaR, stressed VaR, the incremental risk charge (IRC) and the comprehensive risk capital charge.
Our average 10-day 99% regulatory and stressed VaR increased in the second half of the year, driven primarily by various factors across our Equities and Foreign Exchange, Rates and Credit businesses, including option expiries and strong client flows. These measures returned to lower levels by the end of the year. Period-end IRC increased in the second half of 2016 by CHF 60 million from CHF 132 million per 30 June 2016 to CHF 192 million per 31 December 2016.
The increase was driven by exposures in high-yield US corporate issuers in the Investment Bank. This semi-annual increase was only partially offset by a risk reduction from the reclassification of Corporate Center – Group Asset and Liability Management (Group ALM) high-quality liquid asset portfolio from trading book into banking book treatment.
Since the exit of the Non-core correlation trading portfolio market risk in 2014, the CRM for the Group has remained at low levels.
MR3: IMA values for trading portfolios |
|||
|
For the six-month period ended 31.12.16 |
For the six-month period ended 30.6.16 |
|
CHF million |
a |
a |
|
|
VaR (10-day 99%) |
|
|
1 |
Maximum value |
84 |
54 |
2 |
Average value |
27 |
22 |
3 |
Minimum value |
5 |
6 |
4 |
Period end |
16 |
10 |
|
Stressed VaR (10-day 99%) |
|
|
5 |
Maximum value |
179 |
292 |
6 |
Average value |
67 |
57 |
7 |
Minimum value |
20 |
13 |
8 |
Period end |
31 |
13 |
|
Incremental risk charge (99.9%) |
|
|
9 |
Maximum value |
280 |
223 |
10 |
Average value |
225 |
180 |
11 |
Minimum value |
144 |
132 |
12 |
Period end |
192 |
132 |
|
Comprehensive risk capital charge (99.9%) |
|
|
13 |
Maximum value |
12 |
11 |
14 |
Average value |
8 |
7 |
15 |
Minimum value |
7 |
4 |
16 |
Period end |
8 |
5 |
17 |
Floor (standardized measurement method) |
1 |
2 |
|
46
Value-at-risk
VaR definition
VaR is a statistical measure of market risk, representing the market risk losses that could potentially be realized over a set time horizon (holding period) at an established level of confidence. The measure assumes no change in the Group’s trading positions over the set time horizon.
We calculate VaR on a daily basis. The profit and loss (P&L) distribution from which VaR is derived is constructed by our internally developed VaR model. The VaR model simulates returns over the holding period of those risk factors to which our trading positions are sensitive, and subsequently quantifies the P&L impact of these risk factor returns on the trading positions. Risk factor returns associated with the risk factor classes of general interest rates, foreign exchange and commodities are based on a pure historical simulation approach, taking into account a five-year look-back window. Risk factor returns for selected issuer based risk factors, such as equity price and credit spreads, are decomposed into systematic and residual, issuer-specific components using a factor model approach. Systematic returns are based on historical simulation, and residual returns are based on a Monte Carlo simulation. The VaR model P&L distribution is derived from the sum of the systematic and the residual returns in such a way that we consistently capture systematic and residual risk. Correlations among risk factors are implicitly captured via the historical simulation approach. In modeling the risk factor returns, we consider the stationarity properties of the historical time series of risk factor changes. Depending on the stationarity properties of the risk factors within a given risk factor class, we choose to model the risk factor returns using absolute returns or logarithmic returns. The risk factor return distributions are updated on a monthly basis.
Although our VaR model does not have full revaluation capability, we source full revaluation grids and sensitivities from our front-office systems, enabling us to capture material non-linear P&L effects.
We use a single VaR model for both internal management purposes and determining market risk regulatory capital requirements, although we consider different confidence levels and time horizons. For internal management purposes, we establish risk limits and measure exposures using VaR at the 95% confidence level with a one-day holding period, aligned to the way we consider the risks associated with our trading activities. The regulatory measure of market risk used to underpin the market risk capital requirement under Basel III requires a measure equivalent to a 99% confidence level using a 10-day holding period. In the calculation of a 10-day holding period VaR, we employ 10-day risk factor returns, whereby all observations are equally weighted.
Additionally, the population of the portfolio within management and regulatory VaR is slightly different. The population within regulatory VaR meets minimum regulatory requirements for inclusion in regulatory VaR. Management VaR includes a broader population of positions. For example, regulatory VaR excludes the credit spread risks from the securitization portfolio, which are treated instead under the securitization approach for regulatory purposes.
We also use stressed VaR (SVaR) for the calculation of regulatory capital. SVaR adopts broadly the same methodology as regulatory VaR and is calculated using the same population, holding period (10-day) and confidence level (99%). However, unlike regulatory VaR, the historical data set for SVaR is not limited to five years, but spans the time period from 1 January 2007 to present. In deriving SVaR, we search for the largest 10-day holding period VaR for the current portfolio of the Group across all one-year look-back windows that fall into the interval from 1 January 2007 to present. SVaR is computed weekly.
Derivation of VaR and SVaR based RWA
VaR and SVaR are used to derive the VaR and SVaR components of the market risk Basel III RWA, as shown in the table “Detailed segmentation of Basel III exposures and risk-weighted assets” in this report. This calculation takes the maximum of the respective period-end VaR measure and the average VaR measure for the 60 trading days immediately preceding the period end, multiplied by a VaR multiplier set by FINMA. The VaR multiplier, which was 3.65 as of 31 December 2016, is dependent upon the number of VaR backtesting exceptions within a 250 business day window. When the number of exceptions is greater than four, the multiplier increases gradually from three to a maximum of four if 10 or more backtesting exceptions occur. This is then multiplied by a risk weight factor of 1,250% to determine RWA.
In addition to the VaR multiplier, at the time of the structural change to our VaR model in the first quarter of 2016, FINMA introduced a model multiplier of 1.3 to be applied in the calculation of VaR and SVaR RWA. This model multiplier was temporarily introduced to offset a reduction in VaR at the time, pending other improvements to the VaR model which are expected to increase VaR.
This calculation is set out in the table below.
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Basel III Pillar 3 UBS Group AG 2016 report
MR4: Comparison of VaR estimates with gains/losses
The “Group: development of backtesting revenues and actual trading revenues against backtesting VaR (1-day, 99% confidence)” chart below shows the 12-month development of backtesting VaR against the Group’s backtesting revenues for 2016. The chart shows both the negative and positive tails of the backtesting VaR distribution at 99% confidence intervals representing, respectively, the losses and gains that could potentially be realized over a one-day period at that level of confidence. The asymmetry between the negative and positive tails is due to the long gamma risk profile that has been run historically in the Investment Bank. This long gamma position profits from increases in volatility, which therefore benefits the positive tail of the VaR simulated profit or loss distribution.
There were seven regulatory Group VaR negative backtesting exceptions during 2016, primarily in the first six months of the year. This brought the total number of negative exceptions within the 250-business-day window to seven, as the four downside exceptions that occurred in the previous year moved out of this time window. Correspondingly, the FINMA VaR multiplier for the market risk RWA calculation increased from 3.0 at the end of 2015 to 3.65 as of 31 December 2016. We have investigated the cause for each of the backtesting exceptions and identified several factors that contributed to the increase. In particular, with market risk being managed at such low levels of VaR, the impact of these factors on the backtesting results became relatively more significant, contributing to the higher frequency of exceptions.
– Periods of increased market volatility relative to the volatility in the historical five-year time series led to daily profit or loss exceeding that predicted by the VaR model. Significant market volatility occurred in the first quarter of 2016 arising from uncertainties with regard to macroeconomic developments in China and emerging markets more broadly, and to weakening commodity prices, particularly oil, as well as in the second quarter of 2016 following the outcome of the UK referendum on EU membership. In addition, the markets saw large movements coming into year-end, particularly in euro and Swiss franc interest rate curves.
– Adjustments to trading revenues arising from non-daily marking or valuation processes can result in the recognition of profits and losses disconnected from the previous day’s backtesting VaR. We have initiatives to reduce such adjustments.
– Profit or loss on risks accounted for in the capital underpinning of RniV is captured in the backtesting revenue, even though the risks are not covered by the VaR model. We continue to focus on extending the VaR model to better capture these risks.
Given the factors outlined above, the statistical expectation of two or three exceptions per year, and combined with a review of the VaR model to confirm that it is performing consistent with its design and expectations considering the current risk profile and the market behavior, we do not believe that the increase in the number of regulatory negative backtesting exceptions during the year indicates a deficiency in our VaR model.
48
Risks-not-in-VaR definition
We have an established framework to identify and quantify potential risk factors that are not fully captured by our VaR model. We refer to these risk factors as risks-not-in-VaR (RniV). This framework is used to underpin these potential risk factors with regulatory capital, calculated as a multiple of VaR and SVaR.
RniV arises from approximations made by the VaR model to quantify the effect of risk factor changes on the profit and loss of positions and portfolios, as well as the use of proxies for certain market risk factors. We categorize RniV by means of items and keep track of which instrument classes are affected by each item.
When new types of instruments are included in the VaR population, we assess whether new items must be added to the inventory of RniV items.
Risks-not-in-VaR quantification
Risk officers perform a quantitative assessment for each position in the inventory of RniV annually. The assessment is made in terms of a 10-day 99%-VaR measure applied to the difference between the profit and loss scenarios that would have been produced based on our best estimate given available data, and the profit and loss scenarios generated by the current model used for the regulatory VaR calculation. Whenever the available market data allows, a historical simulation approach with five years of historical data is used to estimate the 10-day 99%-VaR for an item. Other eligible methods are based on analytical considerations or stress test and worst-case assessments. Statistical methods are used to aggregate the standalone risks, yielding a Group-level 10-day 99%-VaR estimate of the entire inventory of RniV items at the specific date. The ratio of this amount to regulatory VaR is used to produce estimates for arbitrary points in time by scaling the corresponding regulatory VaR figures with that fixed ratio. An analogous approach is applied for SVaR.
Risks-not-in-VaR mitigation
Material RniV items are monitored and controlled by means and measures other than VaR, such as position limits and stress limits. Additionally, there are ongoing initiatives to extend the VaR model to better capture these risks.
Derivation of RWA add-on for risks-not-in-VaR
The RniV framework is used to derive the RniV-based component of the market risk Basel III RWA, using the aforementioned approach, which is approved by FINMA and subject to an annual recalibration. As the RWA from RniV are add-ons, they do not reflect any diversification benefits across risks capitalized through VaR and SVaR.
Following the annual calibration of the ratios in the second quarter of 2016 and in consideration of certain VaR model improvements made during 2016, the RniV VaR and SVaR capital ratios reduced from 105% and 92%, respectively, as of 31 December 2015, to 86% and 28%, respectively, as of 31 December 2016.
FINMA continues to require that RniV stressed VaR capital is floored at RniV VaR capital.
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Basel III Pillar 3 UBS Group AG 2016 report
Incremental risk charge
The incremental risk charge (IRC) represents an estimate of the default and rating migration risk of all trading book positions with issuer risk, except for equity products and securitization exposures, measured over a one-year time horizon at a 99.9% confidence level. The calculation of the measure assumes all positions in the IRC portfolio have a one-year liquidity horizon and are kept unchanged over this period.
The portfolio default and rating migration loss distribution is estimated using a Monte Carlo simulation approach. The simulation is performed in two steps: first, the distribution of credit ratings (including the defaulted state) at the one-year time horizon is estimated by a portfolio rating migration model, and second, default and migration losses conditional on credit events generated by the portfolio rating migration model are modeled employing the random recovery concept.
The portfolio rating migration model is of the Merton type: migrations of credit ratings are considered to be functions of the underlying asset value of a firm. The correlation structure of asset values is based on the SunGard APT factor model with factor loadings and volatilities homogenized within region-industry-size buckets. For the government bucket, a conservative expert-based correlation value is used. The transition matrix approach is utilized to set migration and default thresholds. The transition matrix for sovereign obligors is calibrated to the history of S&P sovereign ratings. The transition matrix for non-sovereigns is calibrated to the history of UBS internal ratings.
For each position related to a defaulted obligor, default losses are calculated based on the maximum default exposure measure (the loss in the case of a default event assuming zero recovery) and a random recovery concept. To account for potential basis risk between instruments, different recovery values may be generated for different instruments even if they belong to the same issuer. To calculate rating migration losses, a linear (delta) approximation is used. A loss due to a rating migration event is calculated as the estimated change in credit spread due to the change in rating migration, multiplied by the corresponding sensitivity of a position to changes in credit spreads.
The validation of the IRC model relies heavily on sensitivity analyses embedded into the annual model reconfirmation.
IRC is calculated weekly, the results of which are used to derive the IRC-based component of the market risk Basel III RWA, as shown in the table “Detailed segmentation of Basel III exposures and risk-weighted assets” in this report. The derivation is similar to that for VaR- and SVaR-based RWA, but without a VaR multiplier, and is shown below.
50
Comprehensive risk measure
The comprehensive risk measure (CRM) is an estimate of the default and complex price risk, including the convexity and cross-convexity of the CRM portfolio across credit spread, correlation and recovery, measured over a one-year time horizon at a 99.9% confidence level. The calculation assumes a static portfolio with trade aging, a modeling choice consistent with the portfolio being hedged in a back-to-back manner. The model scope covers collateralized debt obligation (CDO) swaps, credit-linked notes (CLNs), 1st- and nth-to-default swaps and CLNs and hedges for these positions, including credit default swaps (CDSs), CLNs and index CDSs.
The CRM profit and loss distribution is estimated using a Monte Carlo simulation of defaults, loss given defaults (LGDs) and market data changes over the next 12 months where spreads follow their own stochastic processes and are correlated to defaults. The risk engine loads the definition of all trades and, for each Monte Carlo scenario, generates the trade cash flows over the next 12 months and revalues the trades on the horizon date. The revaluation relies on sampled FX rates, credit spreads and index bases and introduces a correlation skew by using stochastic correlations and stochastic LGDs. The correlation skew is calibrated at irregular intervals. The 99.9% negative quantile of the resulting profit and loss distribution is then taken to be the CRM result. Our CRM methodology is subject to minimum qualitative standards.
CRM is calculated weekly, and the results are used to derive the CRM-based component of the market risk Basel III RWA, as shown in the table “Detailed segmentation of Basel III exposures and risk-weighted assets” in this report. The calculation is subject to a floor equal to 8% of the equivalent capital charge under the specific risk measure (SRM) for the correlation trading portfolio. The calculation is shown below.
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Basel III Pillar 3 UBS Group AG 2016 report
The table below presents an overview of Pillar 3 disclosures separately provided in our Annual Report 2016, available under “Annual reporting” at www.ubs.com/investors .
|
|||||||
Pillar 3 disclosure requirement |
|
Annual Report 2016 section |
|
Disclosure |
|
Annual Report 2016 page number |
|
|
|
|
|
|
|
|
|
Details of the approach for operational risk capital assessment for which the bank qualifies |
|
Risk, treasury and capital management |
|
– |
Operational risk framework |
|
165 |
Description of the advanced measurement approaches for operational risk (AMA) |
|
Risk, treasury and capital management |
|
– |
Advanced measurement approach model |
|
166–167 |
52
Interest rate risk in the banking book arises from balance sheet positions such as Loans, Due from customers and Debt issued, Financial assets available for sale, Financial assets held to maturity , certain Financial assets and liabilities designated at fair value , derivatives measured at fair value, including derivatives used for cash flow hedge accounting purposes, as well as related funding transactions.
The table below presents an overview of Pillar 3 disclosures separately provided in our Annual Report 2016, available under “Annual reporting” at www.ubs.com/investors .
Interest rate risk sensitivity to parallel shifts in yield curves
Interest rate risk in the banking book is not underpinned for capital purposes, but is subject to a regulatory threshold. As of 31 December 2016, the economic-value effect of an adverse parallel shift in interest rates of ±200 basis points on our banking book interest rate risk exposures is significantly below the threshold of 20% of eligible capital recommended by regulators.
The interest rate risk sensitivity figures presented in the “Interest rate sensitivity – banking book” table on the next page represent the effect of +1, ±100 and ±200-basis-point parallel moves in yield curves on present values of future cash flows, irrespective of accounting treatment. For some portfolios, the +1-basis-point sensitivity has been estimated by dividing the +100-basis-point sensitivity by 100. In the prevailing negative interest rate environment for the Swiss franc in particular, and to a lesser extent for the euro and for Japanese yen, interest rates for Wealth Management and Personal & Corporate Banking client transactions are generally being floored at non-negative levels. Accordingly, for the purposes of this disclosure table, downward moves of 100 / 200 basis points are floored to ensure that the resulting shocked interest rates do not turn negative. The flooring results in non-linear sensitivity behavior.
The sensitivity of the banking book to rising rates decreased to negative CHF 3.1 million per basis point from negative CHF 4.1 million per basis point. This was mainly due to a decreased negative sensitivity in Wealth Management Americas and was mainly driven by a revised client rate model for the non-maturity deposits in Wealth Management Americas, which was enhanced to represent more accurately the relationship between historical market rates and the client rates. The change in Swiss franc interest rate sensitivity, from negative CHF 0.2 million per basis point to positive CHF 0.5 million per basis point, is predominantly attributable to the residual adjustment of the banking book exposure by Corporate Center – Group ALM to the new target duration of our Swiss franc-denominated equity, which we had shortened during 2015, primarily in response to the prevailing negative interest-rate environment in Swiss francs.
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Basel III Pillar 3 UBS Group AG 2016 report
54
The table below provides detail on the Swiss SRB going and gone concern requirements as required by FINMA. Further information on capital management is provided on pages 184–197 of our Annual Report 2016, available under “Annual reporting” at www.ubs.com/investors.
Swiss SRB going and gone concern requirements and information¹ |
||||||||||
As of 31.12.16 |
|
Swiss SRB including transitional arrangements (phase-in) |
|
Swiss SRB as of 1.1.20 (fully applied) |
||||||
CHF million, except where indicated |
|
Risk-weighted assets |
Leverage ratio denominator |
|
Risk-weighted assets |
Leverage ratio denominator |
||||
|
|
|
|
|
|
|
|
|
|
|
Required loss-absorbing capacity |
|
in % |
|
in % |
|
|
in % |
|
in % |
|
Common equity tier 1 capital |
|
8.31 |
18,732 |
2.30 |
20,123 |
|
10.19 |
22,680 |
3.50 |
30,466 |
of which: minimum capital |
|
6.18 |
13,919 |
2.30 |
20,123 |
|
4.50 |
10,020 |
1.50 |
13,057 |
of which: buffer capital |
|
1.95 |
4,396 |
|
|
|
5.50 |
12,247 |
2.00 |
17,409 |
of which: countercyclical buffer² |
|
0.19 |
418 |
|
|
|
0.19 |
412 |
|
|
Maximum additional tier 1 capital |
|
2.63 |
5,917 |
0.70 |
6,124 |
|
4.30 |
9,575 |
1.50 |
13,057 |
of which: high-trigger loss-absorbing additional tier 1 minimum capital |
|
1.83 |
4,114 |
0.70 |
6,124 |
|
3.50 |
7,794 |
1.50 |
13,057 |
of which: high-trigger loss-absorbing additional tier 1 buffer capital |
|
0.80 |
1,803 |
|
|
|
0.80 |
1,781 |
|
|
Total going concern capital |
|
10.94 |
24,649 |
3.00 |
26,248 |
|
14.49³ |
32,255 |
5.00³ |
43,523 |
Base gone concern requirement |
|
3.50 |
7,889 |
1.00 |
8,749 |
|
14.30³ |
31,843 |
5.00³ |
43,523 |
Total gone concern loss-absorbing capacity |
|
3.50 |
7,889 |
1.00 |
8,749 |
|
14.30 |
31,843 |
5.00 |
43,523 |
Total loss-absorbing capacity |
|
14.44 |
32,539 |
4.00 |
34,997 |
|
28.79 |
64,098 |
10.00 |
87,047 |
|
|
|
|
|
|
|
|
|
|
|
Eligible loss-absorbing capacity |
|
|
|
|
|
|
|
|
|
|
Common equity tier 1 capital |
|
16.76 |
37,788 |
4.32 |
37,788 |
|
13.78 |
30,693 |
3.53 |
30,693 |
High-trigger loss-absorbing additional tier 1 capital⁴˒⁵ |
|
7.90 |
17,805 |
2.04 |
17,805 |
|
4.11 |
9,151 |
1.05 |
9,151 |
of which: high-trigger loss-absorbing additional tier 1 capital |
|
2.89 |
6,512 |
0.74 |
6,512 |
|
3.06 |
6,809 |
0.78 |
6,809 |
of which: low-trigger loss-absorbing additional tier 1 capital |
|
0.00 |
0 |
0.00 |
0 |
|
1.05 |
2,342 |
0.27 |
2,342 |
of which: high-trigger loss-absorbing tier 2 capital |
|
0.40 |
891 |
0.10 |
891 |
|
|
|
|
|
of which: low-trigger loss-absorbing tier 2 capital |
|
4.61 |
10,402 |
1.19 |
10,402 |
|
|
|
|
|
Total going concern capital |
|
24.66 |
55,593 |
6.35 |
55,593 |
|
17.89 |
39,844 |
4.58 |
39,844 |
Gone concern loss-absorbing capacity |
|
8.09 |
18,229 |
2.08 |
18,229 |
|
13.16 |
29,311 |
3.37 |
29,311 |
of which: TLAC-eligible senior unsecured debt |
|
7.49 |
16,890 |
1.93 |
16,890 |
|
7.58 |
16,890 |
1.94 |
16,890 |
Total gone concern loss-absorbing capacity |
|
8.09 |
18,229 |
2.08 |
18,229 |
|
13.16 |
29,311 |
3.37 |
29,311 |
Total loss-absorbing capacity |
|
32.75 |
73,822 |
8.44 |
73,822 |
|
31.06 |
69,154 |
7.94 |
69,154 |
|
|
|
|
|
|
|
|
|
|
|
Risk-weighted assets / leverage ratio denominator |
|
|
|
|
|
|
|
|
|
|
Risk-weighted assets |
|
|
225,412 |
|
|
|
|
222,677 |
|
|
Leverage ratio denominator |
|
|
|
|
874,925 |
|
|
|
|
870,470 |
1 This table does not include the effect of any potential gone concern requirement rebate. 2 Going concern capital ratio requirements as of 31 December 2016 include countercyclical buffer requirements of 0.19% for the phase-in and fully applied requirement. 3 Includes applicable add-ons of 1.44% for RWA and 0.5% for LRD. 4 Includes outstanding low-trigger loss-absorbing additional tier 1 capital instruments, which under the transitional rules of the Swiss SRB framework will remain available to meet the going concern requirements until their first call date, even if the first call date is after 31 December 2019. From their first call date, they may be used to meet the gone concern requirements. Low-trigger loss-absorbing additional tier 1 capital was fully offset by required deductions for goodwill on a phase-in basis. 5 Includes outstanding high- and low-trigger loss-absorbing tier 2 capital instruments, which under the transitional rules of the Swiss SRB framework will remain available to meet the going concern requirements until the earlier of (i) their maturity or first call date or (ii) 31 December 2019. From 1 January 2020, these instruments may be used to meet the gone concern requirements until one year before maturity, with a haircut of 50% applied in the last year of eligibility. |
55
Basel III Pillar 3 UBS Group AG 2016 report
The table below provides a reconciliation of the IFRS balance sheet to the balance sheet according to the regulatory scope of consolidation as defined by BIS and FINMA. Lines in the balance sheet under the regulatory scope of consolidation are expanded and referenced where relevant to display all components that are used in the table “Composition of capital.” Refer to section 3 of this report for more information on the most significant entities consolidated under IFRS, but not included in the regulatory scope of consolidation.
56
Reconciliation of accounting balance sheet to balance sheet under the regulatory scope of consolidation ( continued)
57
Basel III Pillar 3 UBS Group AG 2016 report
The table below and on the following pages provides the “Composition of capital” as defined by BIS and FINMA. Reference is made to items reconciling to the balance sheet under the regulatory scope of consolidation as disclosed in the table “Reconciliation of accounting balance sheet to balance sheet under the regulatory scope of consolidation.” Where relevant, the effect of phase-in arrangements is disclosed as well.
Refer to the documents “Capital instruments of UBS Group AG (consolidated) and UBS AG (consolidated and standalone) – Key features” and “UBS Group AG (consolidated) capital instruments and TLAC-eligible senior unsecured debt” under “Bondholder information” at www.ubs.com/investors for an overview of the main features of our regulatory capital instruments, as well as the full terms and conditions.
Composition of capital |
|
|
|
|
As of 31.12.16 |
Numbers phase-in |
Effect of the transition phase |
References¹ |
|
CHF million, except where indicated |
|
|
|
|
1 |
Directly issued qualifying common share (and equivalent for non-joint stock companies) capital plus related stock surplus |
28,640 |
|
1 |
2 |
Retained earnings |
31,466 |
|
2 |
3 |
Accumulated other comprehensive income (and other reserves) |
(6,616) |
|
3 |
4 |
Directly issued capital subject to phase-out from common equity tier 1 capital (only applicable to non-joint stock companies) |
|
|
|
5 |
Common share capital issued by subsidiaries and held by third parties (amount allowed in Group common equity tier 1 capital) |
|
|
|
6 |
Common equity tier 1 capital before regulatory adjustments |
53,490 |
|
|
7 |
Prudential valuation adjustments |
(68) |
|
|
8 |
Goodwill, net of tax, less additional tier 1 capital² |
(3,959) |
(2,639) |
4 |
9 |
Intangible assets, net of tax² |
(241) |
|
5 |
10 |
Deferred tax assets recognized for tax loss carry-forwards³ |
(5,042) |
(3,361) |
9 |
11 |
Unrealized (gains) / losses from cash flow hedges, net of tax |
(972) |
|
11 |
12 |
Expected losses on advanced internal ratings-based portfolio less general provisions |
(356) |
|
|
13 |
Securitization gain on sale |
|
|
|
14 |
Own credit related to financial liabilities designated at fair value, net of tax, and replacement values |
(294) |
|
|
15 |
Defined benefit plans |
|
|
10 |
16 |
Compensation and own shares-related capital components (not recognized in net profit) |
(1,589) |
|
|
17 |
Reciprocal crossholdings in common equity |
|
|
|
17a |
Qualifying interest where a controlling influence is exercised together with other owners (CET instruments) |
|
|
|
17b |
Consolidated investments (CET1 instruments) |
|
|
|
18 |
Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of the issued share capital (amount above 10% threshold) |
|
|
|
19 |
Significant investments in the common stock of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions (amount above 10% threshold) |
|
|
|
20 |
Mortgage servicing rights (amount above 10% threshold) |
|
|
|
21 |
Deferred tax assets arising from temporary differences (amount above 10% threshold, net of related tax liability)⁴ |
(741) |
(1,094) |
12 |
22 |
Amount exceeding the 15% threshold |
|
|
|
23 |
of which: significant investments in the common stock of financials |
|
|
|
24 |
of which: mortgage servicing rights |
|
|
|
25 |
of which: deferred tax assets arising from temporary differences |
|
|
|
26 |
Expected losses on equity investments treated according to the PD/LGD approach |
|
|
|
26a |
Other adjustments relating to the application of an internationally accepted accounting standard |
(262) |
|
|
26b |
Other deductions |
(2,179) |
|
13 |
27 |
Regulatory adjustments applied to common equity tier 1 due to insufficient additional tier 1 and tier 2 to cover deductions |
|
|
|
28 |
Total regulatory adjustments to common equity tier 1 |
(15,703) |
(7,095) |
|
58
Composition of capital (continued)
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Basel III Pillar 3 UBS Group AG 2016 report
Composition of capital (continued)
As of 31.12.16 |
Numbers phase-in |
Effect of the transition phase |
References¹ |
|
CHF million, except where indicated |
|
|
|
|
58 |
Tier 2 capital (T2) |
11,511 |
(698) |
|
|
of which: high-trigger loss-absorbing capital⁵ |
272 |
|
13 |
|
of which: low-trigger loss-absorbing capital⁶ |
10,402 |
|
7 |
59 |
Total capital (TC = T1 + T2) |
56,452 |
(5,795) |
|
|
Amount with risk weight pursuant to the transitional arrangement (phase-in) |
|
(2,735) |
|
|
of which: net defined benefit pension assets |
|
|
|
|
of which: DTA on temporary differences |
|
2,736 |
|
60 |
Total risk-weighted assets |
225,412 |
(2,735) |
|
|
Capital ratios and buffers |
|
|
|
61 |
Common equity tier 1 (as a percentage of risk-weighted assets) |
16.8 |
|
|
62 |
Tier 1 (pos 45 as a percentage of risk-weighted assets) |
19.9 |
|
|
63 |
Total capital (pos 59 as a percentage of risk-weighted assets) |
25.0 |
|
|
64 |
CET1 requirement (base capital, buffer capital and countercyclical buffer requirements) plus G-SIB buffer requirement, expressed as a percentage of risk-weighted assets⁷ |
5.6 |
|
|
65 |
of which: capital buffer requirement |
0.6 |
|
|
66 |
of which: bank-specific countercyclical buffer requirement |
0.2 |
|
|
67 |
of which: G-SIB buffer requirement |
0.3 |
|
|
68 |
Common equity tier 1 available to meet buffers (as a percentage of risk-weighted assets) |
16.8 |
|
|
68a–f |
Not applicable for systemically relevant banks according to FINMA RS 11/2 |
|
|
|
72 |
Non-significant investments in the capital of other financials |
1,232 |
|
|
73 |
Significant investments in the common stock of financials |
759 |
|
|
74 |
Mortgage servicing rights (net of related tax liability) |
|
|
|
75 |
Deferred tax assets arising from temporary differences (net of related tax liability) |
5,088 |
|
|
|
Applicable caps on the inclusion of provisions in tier 2 |
|
|
|
76 |
Provisions eligible for inclusion in tier 2 in respect of exposures subject to standardized approach (prior to application of cap) |
|
|
|
77 |
Cap on inclusion of provisions in tier 2 under standardized approach |
|
|
|
78 |
Provisions eligible for inclusion in tier 2 in respect of exposures subject to internal ratings-based approach (prior to application of cap) |
|
|
|
79 |
Cap for inclusion of provisions in tier 2 under internal ratings-based approach |
|
|
|
1 References link the lines of this table to the respective reference numbers provided in the column “References” in the table “Reconciliation of accounting balance sheet to balance sheet under the regulatory scope of consolidation." 2 The CHF 6,599 million (CHF 3,959 million and CHF 2,639 million) reported in line 8 includes goodwill on investments in associates of CHF 342 million and DTL on goodwill of CHF 55 million. The CHF 241 million reported in line 9 includes DTL on intangible assets of CHF 4 million. 3 The CHF 8,403 million (CHF 5,042 million and CHF 3,361 million) deferred tax assets recognized for tax loss carry-forwards reported in line 10 differ from the CHF 8,197 million deferred tax assets shown in line "Deferred tax assets" in the table “Reconciliation of accounting balance sheet to balance sheet under the regulatory scope of consolidation" because the latter figure is shown after the offset of deferred tax liabilities for cash flow hedge gains (CHF 156 million) and other temporary differences, which are adjusted out in line 11 and other lines of this table, respectively. 4 The CHF 1,835 million (CHF 741 million and CHF 1,094 million) deferred tax assets arising from temporary differences in line 21 differ from the CHF 4,958 million deferred tax assets on temporary differences shown in the line “Deferred tax assets” in the table “Reconciliation of accounting balance sheet to balance sheet under the regulatory scope of consolidation" as the former relates only to the amount above the 10% threshold. 5 CHF 9,151 million and CHF 272 million reported in line 32 and 58, respectively, of this table includes the following positions: CHF 5,429 million and CHF 2,342 million recognized in line "Debt issued" in the table “Reconciliation of accounting balance sheet to balance sheet under the regulatory scope of consolidation," CHF 919 million DCCP recognized in line "Other liabilities" in the table “Reconciliation of accounting balance sheet to balance sheet under the regulatory scope of consolidation" and CHF 732 million recognized in DCCP-related charge for regulatory capital purpose in line 16 "Compensation and own shares-related capital components (not recognized in net profit)" of this table. 6 The CHF 11,527 million in line 51 includes CHF 10,402 million low-trigger loss-absorbing tier 2 capital recognized in line "Debt issued" in the table “Reconciliation of accounting balance sheet to balance sheet under the regulatory scope of consolidation," which is shown net of CHF 1 million investments in own tier 2 instruments reported in line 52 of this table, CHF 698 million phase-out capital recognized in line "Debt issued" in the table “Reconciliation of accounting balance sheet to balance sheet under the regulatory scope of consolidation," which is shown net of CHF 16 million investments in own tier 2 reported in line 52 of this table, high-trigger loss-absorbing capital of CHF 272 million reported in line 58 and CHF 139 million of unrealized gains on financial assets available for sale, which are eligible under BIS rules. 7 BCBS requirements are exceeded by our Swiss SRB requirements. Refer to the "Capital Management" section of our Annual Report 2016 for more information on the Swiss SRB requirements. |
60
The BIS leverage ratio is calculated by dividing the period-end tier 1 capital by the period-end leverage ratio denominator (LRD). The LRD consists of IFRS on-balance sheet assets and off-balance sheet items. Derivative exposures are adjusted for a number of items, including replacement value and eligible cash variation margin netting, the current exposure method add-on and net notional amounts for written credit derivatives. The LRD also includes an additional charge for counterparty credit risk related to securities financing transactions. In addition, balance sheet assets deducted from our tier 1 capital are excluded from LRD, resulting in a difference between phase-in and fully applied LRD for deferred tax assets (DTAs) and net defined benefit pension plan assets.
The “Reconciliation of IFRS total assets to BIS Basel III total on-balance sheet exposures excluding derivatives and securities financing transactions” table below shows the difference between total IFRS assets per IFRS consolidation scope and the BIS total on-balance sheet exposures, which are the starting point for calculating the BIS LRD as shown in the “BIS Basel III leverage ratio common disclosure” table on the next page. The difference is due to the application of the regulatory scope of consolidation for the purpose of the BIS calculation. In addition, carrying values for derivative financial instruments and securities financing transactions are deducted from IFRS total assets. They are measured differently under BIS leverage ratio rules and are therefore added back in separate exposure line items in the “BIS Basel III leverage ratio common disclosure” table on the next page.
As of 31 December 2016, our BIS Basel III leverage ratio was 4.6% on a fully applied basis and 5.1% on a phase-in basis. The BIS Basel III LRD was CHF 870.5 billion on a fully applied basis and CHF 874.9 billion on a phase-in basis. Information on our Swiss SRB leverage ratio and the movement in our LRD on a fully applied basis compared with the prior quarter is provided on page 52 of our fourth quarter 2016 report, available under “Quarterly reporting” at www.ubs.com/investors .
Differences between the Swiss SRB and BIS leverage ratio
The leverage ratio denominator is the same under Swiss SRB and BIS rules. However, there are differences in the capital numerator between the two frameworks. Under BIS rules, only common equity tier 1 and additional tier 1 capital are included in the numerator, whereas under Swiss SRB rules total capital is eligible. Furthermore, the BIS capital framework does not include gone concern requirements as defined by the revised Swiss SRB framework, under which non-Basel III-compliant tier 1 capital is only eligible to meet gone concern requirements and is not included in the capital numerator for the purpose of the BIS leverage ratio calculation.
61
Basel III Pillar 3 UBS Group AG 2016 report
BIS Basel III leverage ratio common disclosure |
|||
CHF million, except where indicated |
31.12.16 |
30.9.16 |
|
|
|
|
|
|
On-balance sheet exposures |
|
|
1 |
On-balance sheet items excluding derivatives and SFTs, but including collateral |
638,091 |
637,153 |
2 |
(Asset amounts deducted in determining Basel III tier 1 capital) |
(13,240) |
(13,070) |
3 |
Total on-balance sheet exposures (excluding derivatives and SFTs) |
624,850 |
624,083 |
|
|
|
|
|
Derivative exposures |
|
|
4 |
Replacement cost associated with all derivatives transactions (i.e., net of eligible cash variation margin) |
51,919 |
48,412 |
5 |
Add-on amounts for PFE associated with all derivatives transactions |
84,156 |
87,298 |
6 |
Gross-up for derivatives collateral provided where deducted from the balance sheet assets pursuant to the operative accounting framework |
0 |
0 |
7 |
(Deductions of receivables assets for cash variation margin provided in derivatives transactions) |
(14,667) |
(13,911) |
8 |
(Exempted CCP leg of client-cleared trade exposures) |
(17,314) |
(16,018) |
9 |
Adjusted effective notional amount of all written credit derivatives¹ |
128,079 |
143,757 |
10 |
(Adjusted effective notional offsets and add-on deductions for written credit derivatives)² |
(124,533) |
(140,098) |
11 |
Total derivative exposures |
107,640 |
109,440 |
|
|
|
|
|
Securities financing transaction exposures |
|
|
12 |
Gross SFT assets (with no recognition of netting), after adjusting for sale accounting transactions |
167,822 |
176,975 |
13 |
(Netted amounts of cash payables and cash receivables of gross SFT assets) |
(71,470) |
(73,517) |
14 |
CCR exposure for SFT assets |
8,366 |
8,729 |
15 |
Agent transaction exposures |
0 |
0 |
16 |
Total securities financing transaction exposures |
104,718 |
112,187 |
|
|
|
|
|
Other off-balance sheet exposures |
|
|
17 |
Off-balance sheet exposure at gross notional amount |
112,024 |
104,158 |
18 |
(Adjustments for conversion to credit equivalent amounts) |
(74,306) |
(68,152) |
19 |
Total off-balance sheet items |
37,718 |
36,006 |
|
Total exposures (leverage ratio denominator), phase-in |
874,925 |
881,717 |
|
(Additional asset amounts deducted in determining Basel III tier 1 capital fully applied) |
(4,456) |
(4,404) |
|
Total exposures (leverage ratio denominator), fully applied |
870,470 |
877,313 |
|
|
|
|
|
Capital and total exposures (leverage ratio denominator), phase-in |
|
|
20 |
Tier 1 capital |
44,941 |
44,061 |
21 |
Total exposures (leverage ratio denominator) |
874,925 |
881,717 |
|
Leverage ratio |
|
|
22 |
Basel III leverage ratio phase-in (%) |
5.1 |
5.0 |
|
|
|
|
|
Capital and total exposures (leverage ratio denominator), fully applied |
|
|
20 |
Tier 1 capital |
39,844 |
39,003 |
21 |
Total exposures (leverage ratio denominator) |
870,470 |
877,313 |
|
Leverage ratio |
|
|
22 |
Basel III leverage ratio fully applied (%) |
4.6 |
4.4 |
1 Includes protection sold, including agency transactions. 2 Protection sold can be offset with protection bought on the same underlying reference entity, provided that the conditions according to the Basel III leverage ratio framework and disclosure requirements are met. |
62
BIS Basel III leverage ratio |
|
|
|
|
CHF million, except where indicated |
||||
Phase-in |
31.12.16 |
30.9.16 |
30.6.16 |
31.3.16 |
Total tier 1 capital |
44,941 |
44,061 |
42,934 |
43,541 |
BIS total exposures (leverage ratio denominator) |
874,925 |
881,717 |
902,431 |
910,000 |
BIS Basel III leverage ratio (%) |
5.1 |
5.0 |
4.8 |
4.8 |
|
|
|
|
|
Fully applied |
31.12.16 |
30.9.16 |
30.6.16 |
31.3.16 |
Total tier 1 capital |
39,844 |
39,003 |
38,049 |
37,438 |
BIS total exposures (leverage ratio denominator) |
870,470 |
877,313 |
898,195 |
905,801 |
BIS Basel III leverage ratio (%) |
4.6 |
4.4 |
4.2 |
4.1 |
63
Basel III Pillar 3 UBS Group AG 2016 report
In the fourth quarter of 2016, our three-month average total liquidity coverage ratio (LCR) increased 8 percentage points to 132%, remaining above the 110% Group LCR minimum communicated by FINMA. The increase was mainly due to a CHF 10 billion reduction in net cash outflows, largely driven by a decrease in outflows from securities financing transactions and an increase in inflows reflecting a higher amount of maturing performing loan positions within the relevant 30-day window during the quarter.
64
Pillar 3 disclosures on remuneration are separately provided on pages 225 and 256–298 in our Annual Report 2016, available under “Annual reporting” at www.ubs.com/investors .
65
Basel III Pillar 3 UBS Group AG 2016 report
The Financial Stability Board (FSB) determined that UBS is a global systemically important bank (G-SIB), using an indicator-based methodology adopted by the BCBS. Banks that qualify as G-SIBs are required to disclose the 12 indicators for assessing the systemic importance of G-SIBs as defined by the BCBS. These indicators are used for the G-SIB score calculation and cover the five categories size, cross-jurisdictional activity, interconnectedness, substitutability / financial institution infrastructure and complexity.
Based on the published indicators, G-SIBs are subject to additional CET1 capital buffer requirements in the range from 1.0% to 3.5%. These requirements are phased in from 1 January 2016 to 31 December 2018 and become fully effective on 1 January 2019. In November 2016, the FSB determined that, based on the year-end 2015 indicators, the requirement for the UBS Group is 1.0%. As our Swiss SRB Basel III capital requirements exceed the BCBS requirements including the G-SIB buffer, UBS is not affected by the above.
Our G-SIB indicators as of 31 December 2016 will be available online by the end of April 2017 under “Pillar 3, SEC filings & other disclosures” at www.ubs.com/investors .
66
The FINMA-defined tables below include required information on the regulatory capital components and capital ratios, as well as leverage and liquidity coverage ratios where required, of UBS AG (standalone), UBS Limited (standalone) and UBS Americas Holding LLC (consolidated). Regulatory information for UBS Switzerland AG (standalone) is available under “Disclosure for legal entities” at www.ubs.com/investors . UBS AG (consolidated) capital and leverage ratio information is provided in the UBS Group AG and UBS AG Annual Report 2016 under “Annual Reporting” at www.ubs.com/investors .
In addition to the Pillar 1 capital requirements presented below, entities may be subject to significant additional Pillar 2 requirements, which represent additional amounts of capital considered necessary and agreed with regulators based on the risk profile of the entities.
67
Basel III Pillar 3 UBS Group AG 2016 report
68
A
ABS asset-backed security
AGM annual general meeting of shareholders
A-IRB advanced internal ratings-based
AIV alternative investment vehicle
AMA advanced measurement approach
ASFA advanced supervisory formula approach
AT1 additional tier 1
B
BCBS Basel Committee on
Banking Supervision
BD business division
BIS Bank for International Settlements
BoD Board of Directors
BVG Swiss occupational pension plan
C
CC Corporate Center
CCAR Comprehensive Capital Analysis and Review
CCF credit conversion factor
CCP central counterparty
CCR counterparty credit risk
CDO collateralized
debt
obligation
CDR constant default rate
CDS credit default swap
CEA Commodity Exchange Act
CEM current exposure method
CEO Chief Executive Officer
CET1 common equity tier 1
CFO Chief Financial Officer
CHF Swiss franc
CLN credit-linked note
CLO collateralized loan obligation
CMBS commercial mortgage-
backed security
CM credit risk mitigation
COP close-out period
CRM credit risk mitigation (credit risk) or comprehensive risk measure (market risk)
CVA credit valuation
adjustment
D
DBO defined benefit obligation
DCCP Deferred Contingent Capital Plan
DOJ Department of Justice
DTA deferred tax asset
DTL deferred tax liability
DVA debit valuation adjustment
E
EAD exposure at default
EC European Commission
ECAI external credit assessment institutions
ECB European Central Bank
EEPE effective expected positive exposure
EPE expected positive exposure
EIR effective interest rate
EL expected loss
EMEA Europe, Middle East and Africa
EOP Equity Ownership Plan
EPS earnings per share
ETD exchange-traded derivatives
ETF exchange-traded fund
EU European Union
EUR euro
EURIBOR Euro Interbank Offered Rate
F
FCA UK Financial
Conduct
Authority
FCT foreign currency translation
FDIC Federal Deposit Insurance Corporation
FINMA Swiss Financial Market Supervisory Authority
FRA forward rate agreement
FSA UK Financial Services Authority
FSB Financial Stability Board
FTD first to default
FTP funds transfer price
FVA funding valuation adjustment
FX foreign exchange
G
GAAP generally accepted
accounting principles
GBP British pound
GEB Group Executive Board
GIIPS Greece, Italy,
Ireland,
Group ALM Group Asset and Liability Management
G-SIB global systemically important bank
H
HQLA high-quality liquid assets
I
IAA internal assessment approach
IAS International Accounting Standards
IASB International Accounting Standards Board
IFRS International Financial Reporting Standards
IMM internal model method
IMA internal models approach
IRB internal ratings-based
IRC incremental risk charge
ISDA International Swaps and Derivatives Association
Abbreviations frequently used in our financial reports (continued)
K
KPI key performance indicator
L
LAC loss-absorbing capital
LAS liquidity-adjusted stress
LCR liquidity coverage ratio
LGD loss given default
LIBOR London Interbank Offered Rate
LRD leverage ratio denominator
LTV loan-to-value
M
MTN medium-term note
N
NAV net asset value
NCPA non-counterparty-related risk
NPA non-prosecution agreement
NRV negative replacement value
NSFR net stable funding ratio
O
OCI other comprehensive income
OTC over-the-counter
P
PD probability of default
PFE potential future exposure
P&L profit and loss
PRA UK Prudential Regulation Authority
PRV positive replacement value
Q
QRRE qualifying revolving retail exposures
R
RBA ratings-based approach
RLN reference-linked note
RMBS residential mortgage-backed security
RniV risks-not-in-VaR
RoAE return on attributed equity
RoE return on equity
RoTE return on tangible equity
RV replacement value
RW risk weight
RWA risk-weighted assets
S
SA standardized approach
SA-CCR standardized approach for counterparty credit risk
SE structured entity
SEC US Securities and Exchange Commission
SEEOP Senior Executive Equity Ownership Plan
SSFA simplified supervisory formula approach
SFA supervisory formula approach
SFT securities financing transaction
SME small and medium enterprises
SNB Swiss National Bank
SRB systemically relevant bank
SRM specific risk measure
SVaR stressed value-at-risk
T
TBTF too big to fail
TLAC total loss-absorbing capacity
TRS total return swap
U
USD US dollar
V
VaR value-at-risk
Cautionary Statement | This report and the information contained herein are provided solely for information purposes, and are not to be construed as solicitation of an offer to buy or sell any securities or other financial instruments in Switzerland, the United States or any other jurisdiction. No investment decision relating to securities of or relating to UBS Group AG, UBS AG or their affiliates should be made on the basis of this report. Refer to UBS’s Annual Report 2016, available at www.ubs.com/investors , for additional information.
Rounding | Numbers presented throughout this report may not add up precisely to the totals provided in the tables and text. Percentages, percent changes and absolute variances are calculated on the basis of rounded figures displayed in the tables and text and may not precisely reflect the percentages, percent changes and absolute variances that would be calculated on the basis of figures that are not rounded.
Tables | Within tables, blank fields generally indicate that the field is not applicable or not meaningful, or that information is not available as of the relevant date or for the relevant period. Zero values generally indicate that the respective figure is zero on an actual or rounded basis. Percentage changes are presented as a mathematical calculation of the change between periods.
UBS Group AG
P.O. Box
CH-8098 Zurich
www.ubs.com
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
UBS GROUP AG
By: _/s/ David Kelly_____________
Name: David Kelly
Title: Managing Director
By: _/s/ Sarah M. Starkweather_____
Name: Sarah M. Starkweather
Title: Executive Director
UBS AG
By: _/s/ David Kelly_____________
Name: David Kelly
Title: Managing Director
By: _/s/ Sarah M. Starkweather_____
Name: Sarah M. Starkweather
Title: Executive Director
Date: March 10, 2017
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