Annual Report 2023
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
☐
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
☑
EXCHANGE ACT OF 1934
For the fiscal year ended
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
☐
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number:
(Jurisdiction of Incorporation or Organization)
,
,
,
,
(Address of Principal Executive Offices)
UBS AG meets the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K, as applied to annual
reports on Form 20-F, and is therefore filing this Form 20-
F
with the reduced disclosure format.
,
Telephone: (
)
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Please see page 3.
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Please see page 3.
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
Please see page 3.
Annual Report 2023
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of 31 December 2023:
UBS AG
Ordinary shares, par value USD 0.10 per share:
(none of which are treasury shares)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
☐
☑
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes
☐
☑
Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports) and (2) has been subject to such filing requirements for the past 90 days.
☑
No
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit such files).
☑
No
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an
emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer” and “emerging growth company”
in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Accelerated filer
☐
☑
☐
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark
if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards† provided pursuant to Section 13(a) of the Exchange Act.
☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards
Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.
7262(b)) by the registered public accounting firm that prepared or issued its audit report.
☑
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the
registrant included in the filing reflect the correction of an error to previously issued financial statements.
☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-
based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to
§240.10D-1(b).
☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this
filing.
U.S. GAAP
☐
Standards Board
☑
Other
☐
Annual Report 2023
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the
registrant has elected to follow.
Item 17
☐
Item 18
☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act)
Yes
☐
☑
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
symbol(s)
Name of each
exchange on
which registered
ETRACS Alerian Midstream Energy Index ETN due June 21, 2050
AMNA
NYSE Arca
ETRACS Alerian Midstream Energy High Dividend Index ETN due July 19, 2050
AMND
NYSE Arca
ETRACS Alerian Midstream Energy Total Return Index ETN due October 20, 2050
AMTR
NYSE Arca
ETRACS Alerian MLP Index ETN Series B due July 18, 2042
AMUB
NYSE Arca
ETRACS Quarterly Pay 1.5x Leveraged MarketVector BDC Liquid Index ETN due June 10,
2050
BDCX
NYSE Arca
ETRACS MarketVector Business Development Companies Liquid Index ETN due April 26,
2041
BDCZ
NYSE Arca
ETRACS Monthly Pay 1.5x Leveraged Closed-End Fund Index ETN due June 10, 2050
CEFD
NYSE Arca
ETRACS Bloomberg Commodity Index Total Return Series B due October 31, 2039
DJCB
NYSE Arca
ETRACS 2x Leveraged MSCI USA ESG Focus TR ETN due September 15, 2061
ESUS
NYSE Arca
UBS AG FI Enhanced Large Cap Growth ETN due June 19, 2024
FBGX
NYSE Arca
ETRACS 2x Leveraged IFED Invest with the Fed TR Index ETN due September 15, 2061
FEDL
NYSE Arca
ETRACS Monthly Pay 2xLeveraged US High Dividend Low Volatility ETN Series B due
October 21, 2049
HDLB
NYSE Arca
ETRACS IFED Invest with the Fed TR Index ETN due September 15, 2061
IFED
NYSE Arca
ETRACS 2x Leveraged US Value Factor TR ETN due February 9, 2051
IWDL
NYSE Arca
ETRACS 2x Leveraged US Growth Factor TR ETN due February 9, 2051
IWFL
NYSE Arca
ETRACS 2x Leveraged US Size Factor TR ETN due February 9, 2051
IWML
NYSE Arca
E-TRACS Alerian MLP Infrastructure Index Series B due April 2, 2040
MLPB
NYSE Arca
ETRACS Quarterly Pay 1.5x Leveraged Alerian MLP Index ETN due June 10, 2050
MLPR
NYSE Arca
ETRACS 2x Leveraged MSCI US Momentum Factor TR ETN due February 9, 2051
MTUL
NYSE Arca
ETRACS Monthly Pay 1.5x Leveraged Mortgage REIT ETN due June 10, 2050
MVRL
NYSE Arca
ETRACS Monthly Pay 2xLeveraged Preferred Stock ETN due September 25, 2048
PFFL
NYSE Arca
ETRACS 2x Leveraged MSCI US Quality Factor TR ETN due February 9, 2051
QULL
NYSE Arca
ETRACS 2x Leveraged US Dividend Factor TR ETN due February 9, 2051
SCDL
NYSE Arca
ETRACS Monthly Pay 2xLeveraged US Small Cap High Dividend ETN Series B due
November 10, 2048
SMHB
NYSE Arca
ETRACS CMCI Total Return ETN Series B due April 5, 2038
UCIB
NYSE Arca
ETRACS 2x Leveraged MSCI US Minimum Volatility Factor TR ETN due February 9, 2051
USML
NYSE Arca
ETRACS Whitney US Critical Technologies ETN due March 13, 2053
WUCT
NYSE Arca
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
Annual Report 2023
Cautionary Statement:
Refer to the
Cautionary Statement Regarding Forward -Looking Statements
Report 2023 (page 266).
Cross-reference table
Set forth below are the respective items of SEC Form 20-F, and the locations in this document where the corresponding
information can be found.
●
Annual Report
●
Supplement
refers to certain supplemental information contained in this forepart of the Form 20-F, starting on page 9
following the cross-reference table.
●
Financial Statements
refers to the consolidated financial statements of UBS AG, contained in the Annual Report.
In the cross-reference table below, page numbers refer either to the Annual Report or the Supplement, as noted.
Please see page 3 of the Annual Report for definitions of terms used in this Form 20-F relating to UBS.
Form 20-F item
Response or location in this filing
Item 1
. Identity of Directors,
Senior Management and
Advisors.
Not applicable.
Item 2
. Offer Statistics and
Expected Timetable.
Not applicable.
Item 3.
B – Capitalization and
Indebtedness.
Not applicable.
C – Reasons for the Offer and
Use of Proceeds.
Not applicable.
D – Risk Factors.
Annual Report,
(23-35).
Item 4
. Information on the Company.
A
– History and Development
of the Company
Not required under the reduced disclosure format.
B – Business Overview.
Annual Report,
Our businesses
C – Organizational Structure.
Not required under the reduced disclosure format.
D – Property, Plant and
Equipment.
Annual Report,
Property, plant and equipment
(252)
Information required by SEC
Regulation S-K Part 1400
Annual Report,
Information required by Subpart 1400 of Regulation S-K
(253-258),
Loss
history statistics
(76-77), and Note 9 to the Financial Statements (
Financial assets at
amortized cost and other positions in scope of expected credit loss measurement)
168).
Item 4A
. Unresolved Staff
Comments.
None.
Item 5
. Operating and Financial Review and Prospects.
A
– Operating Results.
Annual Report,
Financial and operating performance
Statements (
Summary of material accounting policies
) (140-156).
B – Liquidity and Capital
Resources.
Not required under the reduced disclosure format.
C—Research and Development,
Patents and Licenses, etc.
Not required under the reduced disclosure format.
D—Trend Information.
Not required under the reduced disclosure format.
E—Critical Accounting
Estimates
Not applicable.
Item 6.
A
– Directors and Senior
Management.
Not required under the reduced disclosure format.
B – Compensation.
Not required under the reduced disclosure format.
C – Board practices.
1: Annual Report,
Board of Directors
(117-119). The term of office for members of the
Board of Directors and its Chairman expires after completion of the next Annual General
Meeting. The next UBS AG Annual General Meeting is scheduled on 23 April 2024.
2: Annual Report,
Clauses on change of control
Statements (
Related parties
) (235-237).
3: Annual Report,
Members of the Board of Directors
Audit Committee
Compensation Committee
(118), and
Auditors
Annual Report 2023
D—Employees.
Not required under the reduced disclosure format.
E—Share Ownership.
Not required under the reduced disclosure format.
F—Disclosure of a registrant’s
action to recover erroneously
awarded compensation.
Not applicable.
Item 7.
A—Major Shareholders.
Not required under the reduced disclosure format.
B—Related Party Transactions.
Not required under the reduced disclosure format.
C—Interests of Experts and
Counsel.
Not applicable.
Item 8
. Financial Information.
A—Consolidated Statements
and Other Financial Information.
1, 2, 3, 4, 6: Please see Item 18 of this Form 20-F.
5: Not applicable.
7: Information on material legal and regulatory proceedings is in Note 17 to the Financial
Statements (
Provisions and contingent liabilities
) (176-180).
For developments during the year, please see also the note
Provisions and contingent
liabilities
reports for the First, Second and Third Quarters 2023, filed on Forms 6-K dated April 27,
2023, August 31, 2023 and November 7, 2023, respectively. The disclosures in each such
Quarterly Report speak only as of their respective dates.
8: Annual Report,
(116).
B—Significant Changes.
None.
Item 9
. The Offer and Listing.
A
– Offer and Listing Details.
Not applicable.
B—Plan of Distribution.
Not applicable.
C—Markets.
Cover page (3). UBS AG shares are not listed.
D—Selling Shareholders.
Not applicable.
E—Dilution.
Not applicable.
F—Expenses of the Issue.
Not applicable.
Item 10
. Additional Information.
A—Share Capital.
Not applicable.
B—Memorandum and Articles
of Association.
1: Supplement (10-13).
2: Supplement (10-13).
3: Annual Report,
Share
capital structure
(115-116),
Shareholders' participation rights
(116),
Elections and terms of office
Statutory quorums
13).
4: Supplement (10-13).
5: Supplement (10-13).
6:
Share
capital structure
(115-116).
7: Annual Report,
Change of control and defense measures
8: There is no requirement for UBS AG shareholders to disclose ownership, as UBS AG
shares are not listed.
9: Supplement (10-13) and Annual Report,
Share
capital structure
(115-116),
Shareholders' participation rights
Elections and terms of office
Change of
control and defense measures
10: Supplement (10-13).
Annual Report 2023
C—Material Contracts.
The Terms & Conditions of the outstanding Tier 2 capital instrument are included as
exhibit 4.1 to this Form 20-F. For information on these notes, refer to
Swiss SRB total
loss-absorbing capacity framework
The parent bank merger agreement dated 7 December 2023 UBS AG and Credit Suisse
AG is filed as Exhibits 4.3
hereto and the Swiss bank merger agreement dated 9 February
2024 between UBS Switzerland AG and Credit Suisse (Schweiz) AG is filed as Exhibit
4.4 hereto. The mergers described in these agreements will be carried out with some
procedural simplifications and without any consideration given that both companies are
or – in the case of the merger between UBS Switzerland AG and Credit Suisse (Schweiz)
AG – will be wholly-owned by the same parent entity. Upon completion, all assets and
liabilities of Credit Suisse AG and Credit Suisse (Schweiz) AG, respectively, will, in
principle, transfer automatically to UBS AG and UBS Switzerland AG, respectively. For
further information, please see
Integration of Credit Suisse
on page 4 of the Annual
Report.
The Asset Transfer Agreement by which certain assets and liabilities of UBS AG were
transferred to UBS Switzerland AG is filed as Exhibit 4.2, and is described under
Joint
liability of UBS Switzerland AG
D—Exchange Controls.
Other than in relation to economic sanctions, there are no restrictions under the Articles
of Association of UBS AG, nor under Swiss law, as presently in force, that limit the right
of non-resident or foreign owners to hold UBS’s securities freely. There are currently no
Swiss foreign exchange controls or other Swiss laws restricting the import or export of
capital by UBS or its subsidiaries, nor restrictions affecting the remittance of dividends,
interest or other payments to non-resident holders of UBS securities. The Swiss federal
government may impose sanctions on particular countries, regimes, organizations or
persons which may create restrictions on exchange of control. A current list, in German,
French and Italian, of such sanctions can be found at www.seco -admin.ch. UBS may also
be subject to sanctions regulations from other jurisdictions where it operates imposing
further restrictions.
E—Taxation.
UBS AG has no shareholders other than UBS Group AG, which is a Swiss company.
F—Dividends and Paying
Agents.
Not applicable.
G—Statement by Experts.
Not applicable.
H—Documents on Display.
UBS files periodic reports and other information with the Securities and Exchange
Commission. You may read and copy any document that we file with the SEC on the
SEC’s website,
www.sec.gov
. Much of this information may also be found on the UBS
website at
www.ubs.com/investors
.
I—Subsidiary Information.
Not applicable.
J—Annual Report to Security
Holders
Not applicable
Item 11
. Quantitative and Qualitative Disclosures About Market Risk.
(a) Quantitative Information
About Market Risk.
Annual Report,
Market risk
(77-85).
(b) Qualitative Information
About Market Risk.
Annual Report,
Market risk
(77-85).
(c) Interim Periods.
Not applicable.
Item 12.
A
– Debt Securities
Not applicable.
B – Warrants and Rights
Not applicable.
C – Other Securities
Not applicable.
D – American Depositary Shares
Not applicable.
Item 13
. Defaults, Dividend
Arrearages and Delinquencies.
There has been no material default in respect of any indebtedness of UBS or any of its
significant subsidiaries or any arrearages of dividends or any other material delinquency
not cured within 30 days relating to any preferred stock of UBS AG or any of its
significant subsidiaries.
Item 14.
to the Rights of Security Holders
and Use of Proceeds.
None.
Item 15.
(a)
Disclosure Controls and
Procedures
Annual Report,
US disclosure requirements
(123), and
Exhibit 12 to this Form 20-
F.
Annual Report 2023
(b) Management’s Annual
Report on Internal Control over
Financial Reporting
Annual Report,
Management’s report on internal control over financial reporting
(c) Attestation Report of the
Registered Public Accounting
Firm
Annual Report,
Report of Independent Registered Public Accounting Firm
(126).
(d) Changes in Internal Control
over Financial Reporting
None.
Item 16A.
Audit Committee
Financial Expert.
Not required under the reduced disclosure format.
Item 16B.
Code of Ethics.
Not required under the reduced disclosure format.
Item 16C.
Principal Accountant
Fees and Services.
Annual Report,
Auditors
None of the non-audit services so disclosed were approved by the Audit Committee
pursuant to paragraph (c) (7)(i)(C) of Rule 2-01 of Regulation S-X.
Item 16D. Exemptions from
the Listing Standards for
Audit Committees.
Not applicable.
Item 16E.
Purchases of Equity
Securities by the Issuer and
Affiliated Purchasers.
UBS AG does not have any class of equity securities registered pursuant to Section 12 of
the Exchange Act.
Item 16F.
Changes in
Registrant’s Certifying
Accountant.
Not applicable.
Item 16G.
Corporate
Governance.
UBS AG has debt securities listed on the New York Stock Exchange (NYSE), and
therefore discloses below the key differences from its corporate governance practices to
the NYSE standards relevant to US-listed companies.
Responsibility of the Audit Committee regarding independent auditors
Our Audit Committee is responsible for the compensation, retention and oversight of
independent auditors. It assesses the performance and qualifications of external auditors
and submits proposals for appointment, reappointment or removal of independent
auditors to the BoD. As required by the Swiss Code of Obligations, the BoD submits its
proposals for a shareholder vote at the annual general meeting (AGM). Under NYSE
standards audit committees are responsible for appointing independent auditors.
Discussion of risk assessment and risk management policies by the Risk Committee
As per the Organization Regulations of UBS AG, the Risk Committee, instead of the
Audit Committee, as per NYSE standards, oversees our risk principles and risk capacity
on behalf of the BoD. The Risk Committee is responsible for monitoring our adherence
to those risk principles and monitoring whether business divisions and control units
maintain appropriate systems of risk management and control.
Supervision of the internal audit function
Although under NYSE standards only audit committees supervise internal audit
functions, the Chairman of the BoD (the Chairman) and the Audit Committee share the
supervisory responsibility and authority with respect to the internal audit function.
Responsibility of the Compensation Committee for performance evaluations of senior
management of UBS Group AG
In line with Swiss law, UBS Group AG’s Compensation Committee, together with its
BoD, proposes for shareholder approval at the UBS Group AG AGM the maximum
aggregate amount of compensation for the BoD, the maximum aggregate amount of fixed
compensation and the aggregate amount of variable compensation for the Group
Executive Board. As UBS AG’s BoD members are the same as the UBS Group AG BoD
members, this approval by group shareholders is also applicable for UBS AG. The
members of the Compensation Committee are elected by the AGM. Under NYSE
standards it is the responsibility of compensation committees to evaluate senior
management’s performance and to determine and approve, as a committee or together
with the other independent directors, the compensation thereof.
Proxy statement reports of the Audit Committee and the Compensation Committee
NYSE standards require the aforementioned committees to submit their reports directly to
shareholders. However, under Swiss law all reports to shareholders, including those from
Annual Report 2023
the aforementioned committees, are provided to and approved by the BoD, which has
ultimate responsibility to the shareholders.
Shareholder votes on equity compensation plans
NYSE standards require shareholder approval for the establishing of and material
revisions to all equity compensation plans. However, as per Swiss law, the BoD approves
compensation plans. Shareholder approval is only mandatory if equity-based
compensation plans require an increase in capital. No shareholder approval is required if
shares for such plans are purchased in the market.
Item 16H.
Mine Safety
Disclosure.
Not applicable.
Item 16I.
Disclosure Regarding
Foreign Jurisdictions that
Prevent Inspections
Not applicable.
Item 16J.
Insider trading
policies
Not applicable.
Item 16K.
Cybersecurity.
Annual Report,
Operational risks affect our business
Risk management and
control
Cybersecurity governance
Item 17.
Financial Statements.
Not applicable.
Item 18.
Annual Report,
Financial statements
(124-249), and
Additional regulatory information
(251-258).
Item 19.
Exhibits
Supplement (14).
Annual Report 2023
Supplemental information
Disclosure Pursuant To Section 219 of the Iran Threat Reduction And Syrian Human Rights Act
Section 219 of the US Iran Threat Reduction and Syria Human Rights Act of 2012 (“ITRA”) added Section 13(r) to the US
Securities Exchange Act of 1934, as amended (the “Exchange Act”) requiring each SEC reporting issuer to disclose in its
annual and, if applicable, quarterly reports whether it or any of its affiliates have knowingly engaged in certain activities,
transactions or dealings relating to Iran or with the Government of Iran or certain designated natural persons or entities
involved in terrorism or the proliferation of weapons of mass destruction during the period covered by the report. The required
disclosure may include reporting of activities not prohibited by US or other law, even if conducted outside the US by non-US
affiliates in compliance with local law. Pursuant to Section 13(r) of the Exchange Act, we note the following for the period
covered by this annual report:
UBS has a Group Sanctions Policy that prohibits transactions involving sanctioned countries, including Iran, and sanctioned
individuals and entities. However, UBS Switzerland AG maintains one account involving the Iranian government under the
auspices of the United Nations in Geneva after agreeing with the Swiss government that it would do so only under certain
conditions. These conditions include that payments involving the account must: (1) be made within Switzerland; (2) be
consistent with paying rent, salaries, telephone and other expenses necessary for its operations in Geneva; and (3) not involve
any Specially Designated Nationals (SDNs) blocked or otherwise restricted under US or Swiss law. In 2023, the gross
revenues for this UN-related account were approximately USD 5,731.46. We do not allocate expenses to specific client
accounts in a way that enables us to calculate net profits with respect to any individual account. UBS AG intends to continue
maintaining this account pursuant to the conditions it has established with the Swiss Government and consistent with its Group
Sanctions Policy.
As previously reported, UBS had certain outstanding legacy trade finance arrangements issued on behalf of Swiss client
exporters in favor of their Iranian counterparties. In February 2012 UBS ceased accepting payments on these outstanding
export trade finance arrangements and worked with the Swiss government who insured these contracts (Swiss Export Risk
Insurance "SERV"). On December 21, 2012, UBS and the SERV entered into certain Transfer and Assignment Agreements
under which SERV purchased all of UBS's remaining receivables under or in connection with Iran-related export finance
transactions. Hence, the SERV is the sole beneficiary of said receivables. There was no financial activity involving Iran in
connection with these trade finance arrangements in 2023, and no gross revenue or net profit.
In connection with these trade finance arrangements, UBS Switzerland AG has maintained one existing account relationship
with an Iranian bank. This account was established prior to the US designation of this bank and maintained due to the existing
trade finance arrangements. In 2007, following the designation of the bank pursuant to sanctions issued by the US, UN and
Switzerland, the account was blocked under Swiss law and remained subject to blocking requirements until January 2016.
Client assets as of 31 December 2023 were CHF 3,097.40. Gross revenues were USD 3.69 equivalent.
Annual Report 2023
Item 10. Additional Information.
B—Memorandum and Articles of Association.
Please see the Articles of Association of UBS AG (Exhibit 1.1 to this Form 20-F) and the Organization Regulations of UBS
AG (Exhibit 1.2 to this Form 20-F).
Set forth below is a summary of the material provisions of the Articles of Association of UBS AG (the “Articles”),
Organization Regulations of UBS AG (the “Organization Regulations”) and relevant Swiss laws, in particular the Swiss Code
of Obligations, relating to the ordinary shares of UBS AG (the “shares”). This description does not purport to be complete and
is qualified in its entirety by references to Swiss law, including Swiss company law, and to the Articles and Organization
Regulations.
The principal legislation under which UBS AG operates, and under which the shares are issued, is the Swiss Code of
Obligations.
Shares and Shareholders
Shares
The shares are registered shares
(Namenaktien)
securities (
einfache Wertrechte
) (in the sense of the Swiss Code of Obligations)The shares are fully paid up, and there is no
liability of shareholders to further capital calls by UBS AG. The shares rank
pari passu
including voting rights, entitlement to dividends, share of the liquidation proceeds in case of the liquidation of UBS AG,
preemptive rights in the event of a share issue (
Bezugsrechte
) and advance subscription rights in the event of the issuance of
equity-linked securities (
Vorwegzeichnungsrechte
).
Share Register
Swiss law distinguishes between registration with and without voting rights. Shareholders must be registered in our share
register as shareholders with voting rights in order to vote and participate in shareholders’ meetings or to assert or exercise
other rights related to voting rights.
Swiss law and the Articles require UBS AG to keep a share register in which the names, addresses and nationality (or
registered office in the case of legal entities) of the owners of the shares are recorded. The main function of the share register is
to register shareholders entitled to vote and participate in shareholders’ meetings, or to assert or exercise other rights related to
voting rights.
A shareholder will be registered in our share register with voting rights upon disclosure of its name, address and nationality (or
registered office in the case of legal entities). However, we may decline a registration with voting rights if the shareholder does
not declare that it has acquired the shares in its own name and for its own account. If the shareholder refuses to make such
declaration, it will be registered in our share register as a shareholder without voting rights.
In order to register shares in our share register, a shareholder must file a share registration form with the share register. Failing
such registration, a shareholder may not vote at or participate in shareholders’ meetings, but will be entitled to receive
dividends and other rights with financial value, such as preemptive rights in the event of a share issue (
Bezugsrechte
) and
advance subscription rights in the event of the issuance of equity-linked securities (
Vorwegzeichnungsrechte
), and its share of
liquidation proceeds. Shareholders registered in our share register may at any time request from us a confirmation of the shares
that they hold according to our share register.
Shareholders’ Meetings
A shareholders’ meeting is convened by the Board of Directors (the “BoD”) or, if necessary, by the company’s statutory
auditors upon notification of the shareholders at least 20 days prior to such meeting. An invitation to any shareholders’ meeting
will be sent to all registered shareholders. The Articles do not require a minimum number of shareholders to be present in order
to hold a shareholders’ meeting.
Unless otherwise provided by Swiss law or the Articles (as indicated below), resolutions require the approval of a majority of
the votes represented, excluding blank and invalid ballots, at a shareholders’ meeting in order to be passed.
Annual Report 2023
Under Swiss corporate law (or Swiss banking law, as the case may be), a resolution passed at a shareholders’ meeting with the
approval of at least a two-thirds of the votes, and a majority of the nominal value of shares, in each case represented at such
meeting is required in order to approve:
●
A change in the corporation’s stated purpose in its articles of association;
●
The consolidation of shares, unless the consent of all the shareholders concerned is required;
●
The restriction or exclusion of preemptive rights in the event of a share issue (
Bezugsrechte
);
●
The conversion of participation certificates into shares;
●
The introduction of shares with preferential voting rights;
●
Any restriction on the transferability of registered shares;
●
Any change in the currency of the share capital;
●
The introduction of a casting vote for the person chairing the shareholders’ meeting;
●
A provision of the articles of association on holding the shareholders’ meeting abroad;
●
The delisting of the equity securities of the corporation;
●
The creation of conditional capital, the introduction of a capital band or, in accordance with Swiss banking law, the
introduction of reserve capital;
●
An increase in share capital in consideration of contributions in kind, or by off-set of a claim, or involving the
granting of special privileges, or from the transformation of reserves into share capital;
●
A change of domicile of the corporation;
●
The introduction of an arbitration clause in the articles of association;
●
Dispensing with the designation of an independent voting representative for conducting a virtual shareholders’
meeting in the case of corporations whose shares are not listed on a stock exchange (e.g., UBS AG); or
●
Dissolution of the corporation.
Under the Articles, a resolution passed at a shareholders’ meeting with the approval of at least two-thirds of the votes
represented at such meeting is required in order to approve:
●
A change to the provisions in the Articles regarding the number of members of the BoD;
●
Removal of one-quarter or more of the members of the BoD; or
●
The deletion or modification of the provision of the Articles establishing these supermajority requirements.
At shareholders’ meetings, a shareholder can be represented by a legal representative or under a written power of attorney by a
proxy who does not need to be a shareholder or, under a written or electronic power of attorney, by the independent proxy.
Votes are taken electronically, by written ballot or by a show of hands. Shareholders representing at least 3% of the votes
represented may always request that a vote or election take place electronically or by a written ballot.
Net Profits and Dividends
Swiss law requires that at least 5% of the annual net profits of a corporation must be retained and booked as statutory retained
earnings until these retained earnings equal, together with the corporation’s statutory capital reserve, no less than 50% of the
corporation’s share capital registered in the commercial register. Any remaining net profit of the corporation may be allocated
by the shareholders represented at the applicable shareholders’ meeting.
Under Swiss law, dividends may be paid by a corporation only if, based on its audited standalone statements prepared in
accordance with Swiss law, the corporation has sufficient distributable profits from the previous financial years or if the
reserves of the corporation are sufficient to allow distribution of a dividend. In either event, dividends may be paid by the
corporation only after approval by the shareholders’ meeting. The BoD may propose to the shareholders that a dividend be
paid, but cannot itself set the dividend. The corporation’s statutory auditors must confirm that any dividend proposal of the
BoD is in accordance with Swiss law and the corporation’s articles of association.
Dividends are usually due and payable after the shareholders’ resolution relating to the allocation of profits has been passed.
Under Swiss law, the statute of limitations in respect of dividend payments is five years.
Preemptive and Advance Subscription Rights
Under Swiss law, any share issue, whether for cash or non-cash consideration or for no consideration, is subject to the prior
approval of the shareholders’ meeting. Existing shareholders of a Swiss corporation have certain preemptive rights in the event
of a share issue (
Bezugsrechte
) and advance subscription rights in the event of the issuance of equity-linked securities
(
Vorwegzeichnungsrechte
) to subscribe for the new shares or equity-linked securities, as the case may be, in proportion to the
nominal amount of shares held. However, the articles of association of the corporation or a resolution approved at a
shareholders’ meeting by at least two-thirds of the votes and a majority of the nominal value of the shares, in each case
represented at the meeting, may limit or exclude such preemptive or advance subscription rights in certain limited
circumstances.
Annual Report 2023
Notices
Notices to the shareholders may, at the choice of the BoD, be validly given by publication in the Swiss Official Gazette of
Commerce or in a form that allows proof by text. The BoD may designate further means of publication as well.
Board of Directors
Borrowing Power
Neither Swiss law nor the Articles restrict in any way our power to borrow and raise funds, provided that any such borrowing
is entered into on arms’ length terms.
Listed companies, such as UBS Group AG, may grant loans to members of their BoD based on their articles of association.
UBS Group AG’s articles of association restrict its ability to grant loans to members of its BoD as follows: First, loans to the
independent members of the BoD shall be made in accordance with the customary business and market conditions. Second,
loans to the non-independent members of the BoD shall be made in the ordinary course of business on substantially the same
terms as those granted to UBS employees. Third, the total amount of such loas shall not exceed CHF 20m per member. As the
members of UBS AG’s BoD are the same as the members of UBS Group AG’s BoD, these restrictions are enforced with
respect to the UBS AG’s BoD members even though this provision of Swiss law is not applicable to UBS AG.
BoD Compensation
The BoD is ultimately responsible for approving the compensation strategy and principles proposed by the Compensation
Committee, which determines compensation-related matters in line with the principles set forth in the Articles. As determined
in the Articles and the Organization Regulations, the Compensation Committee supports the BoD with its duties to set
guidelines on compensation and benefits, to oversee implementation thereof, to approve certain compensation, such as the total
compensation for the Chairman and the non-independent BoD members, and, upon proposal of the Chairman, proposes the
remuneration / fee framework for independent BoD members for approval by the BoD.
The members of the BoD of UBS AG are the same as of the UBS Group AG BoD. For UBS Group AG, the Compensation
Committee supports the BoD with its duties to set guidelines on compensation and benefits, to oversee implementation thereof,
to approve certain compensation and to scrutinize executive performance. Annually, and on behalf of the Group BoD, the
Compensation Committee of UBS Group AG (among other things):
●
approves the total compensation for the Chairman and the non-independent BoD members;
●
upon proposal of the Chairman, proposes the remuneration / fee framework for independent BoD members for
approval by the BoD;
●
upon proposal of the Chairman and Group CEO, approves the remuneration / fee frameworks for external supervisory
board members of significant Group entities;
●
proposes to the BoD, for approval by the AGM, the maximum aggregate amounts of BoD compensation and GEB
fixed compensation and the aggregate amount of variable compensation for the GEB.
Members of the UBS Group AG BoD must use a minimum of 50% of their fees to purchase UBS Group AG shares, which are
blocked for four years, and they may elect to use up to 100% of their fees to purchase blocked UBS shares. The fixed fees of
the Chairman and Vice Chairman for their services on the UBS Group AG board are delivered 50% in cash and 50% in shares,
which are blocked for four years. The number of shares is calculated based on the average closing price of the 10 trading days
leading up to and including the grant date.
Conflicts of Interests
Swiss law requires directors and members of senior management to inform the BoD immediately and comprehensively of any
conflicts of interest affecting them. The BoD then has to take the measures required to safeguard the interests of the
corporation. Directors and officers are personally liable to the corporation for any breach of these provisions. In addition,
Swiss law contains a provision under which payments made to a shareholder or a director or any person associated therewith,
other than at arm’s length, must be repaid to the corporation if the shareholder or director was acting in bad faith.
In addition, the Organization Regulations provide that the member of the BoD or senior management with a conflict of interest
shall participate in discussions and a double vote (meaning a vote with and a vote without the conflicted individual) shall take
place. A binding decision on the matter requires the same outcome in both votes. This is subject to exceptional circumstances
in which the best interests of UBS dictate that the member of the BoD or senior management with a conflict of interest shall
not participate in the discussions and decision-making involving the interest at stake.
Retirement of Board Members
There is no age-limit requirement for retirement of the members of the BoD. The term of office for each BoD member is until
the next annual general meeting of shareholders, and no BoD member may serve for more than 10 consecutive terms of office.
In exceptional circumstances the BoD can extend this limit.
Annual Report 2023
The Company
Repurchase of Shares
Swiss law limits a corporation’s ability to hold or repurchase its own shares. We and our subsidiaries may repurchase shares
only if and to the extent that (i) we have freely distributable reserves in the amount of the purchase price and (ii) the aggregate
nominal value of all shares held by us and our subsidiaries does not exceed 10% of our nominal share capital (or 20% of our
nominal share capital in specific circumstances). Repurchases for cancellation purposes approved by the shareholders’ meeting
are not subject to the 10% threshold for own shares within the meaning of article 659 paragraph 2 of the Swiss Code of
Obligations. We must create a special reserve in our standalone financial statements prepared in accordance with Swiss law in
the amount of the purchase price of any repurchased shares. Furthermore, in our consolidated financial statements, own shares
are recorded at cost and reported as treasury shares, resulting in a reduction in total shareholders’ equity. Shares held by us or
any of our subsidiaries do not carry any rights to vote at shareholders’ meetings.
Sinking Fund Provisions
There are no provisions in Swiss law or in the Articles requiring us to put resources aside for the exclusive purpose of
redeeming bonds or repurchasing shares.
Registration and Business Purpose
UBS AG was incorporated and registered as a corporation limited by shares (
Aktiengesellschaft
) under the laws of Switzerland.
It is entered into the commercial registers of Canton Zurich and Canton Basel-City on February 28, 1978 under the registration
number CHE-101.329.561 and has registered domiciles in Zurich and Basel, Switzerland. The business purpose of UBS AG,
as set forth in article 2 of the Articles, is the operation of a bank, with a scope of operations extending to all types of banking,
financial, advisory, trading and service activities in Switzerland and abroad.
UBS AG may establish branches and
representative offices as well as banks, finance companies and other enterprises of any kind in Switzerland and abroad, hold
equity interests in these companies, and conduct their management. UBS AG is authorized to acquire, mortgage and sell real
estate and building rights in Switzerland and abroad. UBS AG may borrow and invest money on the capital markets. UBS AG
is part of the group of companies controlled by the group parent company UBS Group AG. It may promote the interests of the
group parent company or other group companies. It may provide loans, guarantees and other kinds of financing and security
for group companies. UBS AG is a wholly owned subsidiary of UBS Group AG.
Duration and Liquidation
UBS AG has an unlimited duration.
Under Swiss law, we may be dissolved at any time by way of liquidation or in the case of a merger in accordance with the
Swiss Federal Act on Merger, Demerger, Transformation of Assets of October 3, 2002, as amended, based on a resolution
passed at a shareholders’ meeting with the approval of at least a two-thirds majority of the votes, and a majority of the nominal
value of shares, in each case represented at such meeting. As UBS AG is a Swiss bank, the Swiss Financial Market
Supervisory Authority FINMA is the only competent authority to open restructuring or liquidation (bankruptcy) proceedings
with respect to UBS AG.
Under Swiss law, any surplus arising out of a liquidation (after the settlement of all claims of all creditors) must be used first to
repay the nominal share capital of UBS AG. Thereafter, any balance must be distributed to shareholders in proportion to the
paid-up nominal value of shares held.
Other
, Aeschengraben 9, 4051
, PCAOB number
, have been appointed as statutory
auditors and as auditors of the consolidated accounts of UBS AG. The auditors are subject to election each year by the
shareholders at the annual general meeting.
Annual Report 2023
Item 19. Exhibits.
Exhibit
number
Description
1.1
1.2
2(b)
Instruments defining the rights of the holders of long-term debt issued by UBS Group AG and its subsidiaries.
We agree to furnish to the SEC upon request, copies of the instruments, including indentures, defining the rights of
the holders of our long-term debt and of our subsidiaries’ long-term debt.
2(d)
4.1
. (Incorporated by
reference to Exhibit 4.3 to UBS AG's Annual Report on Form 20-F for the fiscal year ended December 31, 2014)
4.2
(Incorporated by
reference to Form 6-K of UBS AG filed on June 17, 2015)
4.3
4.4
12
13
15
97
101
Interactive Data Files (sections of the Annual Report formatted in inline XBRL (Extensible Business Reporting
Language)). Furnished electronically herewith.
Annual Report 2023
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly
caused the undersigned to sign this annual report on its behalf.
UBS AG
_/s/ Sergio Ermotti _______________
Name: Sergio Ermotti
Title: President of the Executive Board
Name: Todd Tuckner
Title: Chief Financial Officer
Name: Steffen Henrich
Title: Controller
Date: March 28, 2024
Contents
2
1
Our business model and environment
4
5
12
13
17
23
2
Financial and
operating performance
36
37
43
44
46
47
49
49
3
Risk, capital, liquidity and funding,
and balance sheet
51
93
4
Corporate governance
114
5
Financial
statements
124
Consolidated financial statements
6
Additional
regulatory information
250
A
Appendix
259
263
265
266
Corporate information
UBS AG
Art. 620ff. of the Swiss Code of Obligations as an Aktiengesellschaft, a
corporation limited by shares. The addresses and telephone numbers of the
two registered offices of UBS AG are: Bahnhofstrasse 45, CH-8001 Zurich,
Switzerland, telephone +41-44-234 11 11; and Aeschenvorstadt 1, CH-4051
Basel, Switzerland, telephone +41-61-288 50 50. The corporate identification
number is CHE-101.329.561. UBS AG is a bank. The company was formed on
29 June 1998, when Union Bank of Switzerland (founded in 1862) and
Swiss Bank Corporation (founded in 1872) merged to form UBS AG.
Contacts
Switchboards
For all general inquiries
ubs.com/contact
Zurich +41-44-234 1111
London +44-207-567 8000
New York +1-212-821 3000
Hong Kong SAR +852-2971 8888
Singapore +65-6495 8000
Investor Relations
UBS’s Investor Relations team manages
relationships with institutional investors,
research analysts and credit rating agencies.
ubs.com/investors
Zurich +41-44-234 4100
New York +1-212-882 5734
Media Relations
UBS’s Media Relations team manages
relationships with global media and
journalists.
ubs.com/media
Zurich +41-44-234 8500
mediarelations@ubs.com
London +44-20-7567 4714
ubs-media-relations@ubs.com
New York +1-212-882 5858
mediarelations@ubs.com
Hong Kong SAR +852-2971 8200
sh-mediarelations-ap@ubs.com
Office of the Group Company Secretary
The Group Company Secretary handles
inquiries directed to the Chairman or to other
members of the Board of Directors.
UBS Group AG, Office of the
Group Company Secretary
PO Box, CH-8098 Zurich, Switzerland
sh-company-secretary@ubs.com
Zurich +41-44-235 6652
Shareholder Services
UBS’s Shareholder Services team, a unit
of the Group Company Secretary’s office,
manages relationships with shareholders
and the registration of UBS Group AG
registered shares.
UBS Group AG, Shareholder Services
PO Box, CH-8098 Zurich, Switzerland
sh-shareholder-services@ubs.com
Zurich +41-44-235 6652
US Transfer Agent
For global registered share-related
inquiries in the US.
Computershare Trust Company NA
PO Box 43006
Providence, RI, 02940-3006, USA
Shareholder online inquiries:
www.computershare.com/us/
investor-inquiries
Shareholder website:
computershare.com/investor
Calls from the US
+1-866-305-9566
Calls from outside the US
+1-781-575-2623
TDD for hearing impaired
+1-800-231-5469
TDD for foreign shareholders
+1-201-680-6610
Corporate calendar UBS AG
More information about future publication dates is available at
ubs.com/global/en/investor-relations/events/calendar.html
Imprint
Publisher: UBS AG, Zurich, Switzerland | ubs.com
Language: English
© UBS 2024. The key symbol and UBS are among the registered and
unregistered trademarks of UBS. All rights reserved.
Annual Report 2023
Our key figures
UBS AG consolidated key figures
As of or for the year ended
USD m, except where indicated
31.12.23
31.12.22
31.12.21
Results
Total revenues
Credit loss expense / (release)
Operating expenses
Operating profit / (loss) before tax
Net profit / (loss) attributable to shareholders
Profitability and growth
1,2
Return on equity (%)
Return on tangible equity (%)
Return on common equity tier 1 capital (%)
Return on leverage ratio denominator, gross (%)
Cost / income ratio (%)
Net profit growth (%)
Resources
1
Total assets
Equity attributable to shareholders
Common equity tier 1 capital
3
Risk-weighted assets
3
Common equity tier 1 capital ratio (%)
3
Going concern capital ratio (%)
3
Total loss-absorbing capacity ratio (%)
3
Leverage ratio denominator
3
Common equity tier 1 leverage ratio (%)
3
Liquidity coverage ratio (%)
4
Net stable funding ratio (%)
Other
Invested assets (USD bn)
2,5,6
Personnel (full-time equivalents)
1 Refer to the “Targets, capital guidance and ambitions” section of the UBS Group Annual Report 2023 for more information about our performance measurement. 2 Refer to “Alternative performance measures”
in the appendix to this report for the definition and calculation method. 3 Based on the Swiss systemically relevant bank framework as of 1 January 2020. Refer to the “Capital, liquidity and funding, and balance
sheet” section of this report for more information. 4 The disclosed ratios represent averages for the fourth quarter of each year presented, which were calculated based on an average of 63 data points in the fourth
quarter of 2023. Refer to the “Capital, liquidity and funding, and balance sheet” section of this report for more information. 5 Consists of invested assets for Global Wealth Management, Asset Management and
Personal & Corporate Banking. Refer to “Note 31 Invested assets and net new money” in the “Consolidated financial statements” section of this report for more information. 6 Starting with the second quarter of
2023, invested assets include invested assets from associates in the Asset Management business division, to better reflect the business strategy. Comparative figures have been restated to reflect this change.
Alternative performance measures
An alternative performance measure (an
APM) is a financial measure of historical or future financial performance,
financial position or cash flows other than a financial measure defined or specified in the applicable recognized
accounting standards or in other applicable regulations. A number of APMs are reported in UBS’s external reports (annual,
quarterly and other reports). APMs are used to provide a more complete picture of operating performance and to reflect
management’s view of the fundamental drivers of the business results. A definition of each APM, the method used to
calculate it and the information content are presented under “Alternative performance measures” in the appendix to
this report. These APMs may qualify as non-GAAP measures as defined by US Securities and Exchange Commission (SEC)
regulations.
1
Annual Report 2023
Terms used in this report
”UBS,” ”UBS Group,” “UBS Group AG consolidated,” “Group” and “the
Group”
UBS Group AG and its consolidated subsidiaries
“UBS Group excluding the Credit Suisse AG sub-group”
All UBS Group entities, excluding the Credit Suisse AG sub-group
“UBS AG,” “UBS AG consolidated,“ “UBS AG sub-group,” “we,” “us” and
“our”
UBS AG and its consolidated subsidiaries
“Pre-acquisition UBS”
UBS before the acquisition of the Credit Suisse Group
“Credit Suisse AG,” “Credit Suisse AG consolidated” and “Credit Suisse AG
sub-group”
Credit Suisse AG and its consolidated subsidiaries
“Credit Suisse Group” and “Credit Suisse Group AG consolidated”
Credit Suisse Group AG and its consolidated subsidiaries, before the
acquisition by UBS
“Credit Suisse” and “Credit Suisse sub-group”
Credit Suisse AG, its consolidated subsidiaries, Credit Suisse Services
AG, and other small former Credit Suisse Group entities now directly
held by UBS Group AG
“UBS Group AG” and “UBS Group AG standalone”
UBS Group AG on a standalone basis
“Credit Suisse Group AG” and “Credit Suisse Group AG standalone”
Credit Suisse Group AG on a standalone basis
“UBS AG standalone”
UBS AG on a standalone basis
“UBS Switzerland AG”
UBS Switzerland AG on a standalone basis
“UBS Americas Holding LLC”
UBS Americas Holding LLC and its consolidated subsidiaries
“Pre-acquisition Global Wealth Management”
The UBS Global Wealth Management business division before the
acquisition of the Credit Suisse Group (data, if any, from before the
date of the acquisition of the Credit Suisse Group)
“UBS AG Global Wealth Management”
The Global Wealth Management business division of UBS AG and its
consolidated subsidiaries
“Pre-acquisition Personal & Corporate Banking”
The Personal & Corporate Banking business division before the
acquisition of the Credit Suisse Group (data, if any, from before the
date of the acquisition of the Credit Suisse Group)
“UBS AG Personal & Corporate Banking”
The Personal & Corporate Banking business division of UBS AG and its
consolidated subsidiaries
“Pre-acquisition Asset Management”
The Asset Management business division before the acquisition of the
Credit Suisse Group (data, if any, from before the date of the
acquisition of the Credit Suisse Group)
“UBS AG Asset Management”
The Asset Management business division of UBS AG and its
consolidated subsidiaries
“Pre-acquisition Investment Bank”
The Investment Bank business division before the acquisition of the
Credit Suisse Group (data, if any, from before the date of the
acquisition of the Credit Suisse Group)
“UBS AG Investment Bank”
The Investment Bank business division of UBS AG and its consolidated
subsidiaries
“1m”
One million, i.e., 1,000,000
“1bn”
One billion, i.e., 1,000,000,000
“1trn”
One trillion, i.e., 1,000,000,000,000
In this report, unless the context requires otherwise, references to any gender shall apply to all genders.
Annual Report 2023 |
Our business model and environment | Integration of Credit Suisse 4
Our business model and
environment
Management report
Integration of Credit Suisse
Integration of Credit Suisse
On 12 June 2023, our parent company, UBS Group AG, acquired Credit Suisse Group AG, succeeding by operation of
Swiss law to all assets and liabilities of Credit Suisse Group AG, and became the direct or indirect shareholder of all of
the former direct and indirect subsidiaries of Credit Suisse Group AG.
In December 2023, the Board of Directors of UBS Group AG approved the merger of UBS AG and Credit Suisse AG, and
we entered into a definitive merger agreement with Credit Suisse AG. The completion of the merger is subject to
regulatory approvals and is expected to occur by the end of the second quarter of 2024. The Group also expects to
complete the transition to a single US intermediate holding company in the second quarter of 2024 and the planned
merger of UBS Switzerland AG and Credit Suisse (Schweiz) AG in the third quarter of 2024.
›
Refer to “Acquisition and integration of Credit Suisse” in the “Our strategy, business model and environment” section in the UBS
Group Annual Report 2023
Annual Report 2023 |
Our business model and environment | Our businesses 5
Our businesses
We operate through five business divisions: Global Wealth Management, Personal & Corporate Banking, Asset
Management, the Investment Bank and Non-core and Legacy. Our global reach and the breadth of our expertise are the
major assets setting us apart from our competitors. Our Group functions are support and control functions that provide
services to the Group. Virtually all costs incurred by the support and control functions are allocated to the business
divisions, leaving a residual amount that we refer to as Group Items in our segment reporting. Disclosures in this report
may refer to Group functions as Group Items.
We see joint efforts as key to our growth, both within and between business divisions. We combine our strengths to
provide our clients with better, innovative solutions and differentiated offerings, for example, our Global Family &
Institutional Wealth offering with integrated global coverage .
Global Wealth Management
We are a leading and truly global wealth manager and strive to help our clients pursue what matters most to them. We
are focused on serving the needs of ultra high and high net worth individuals through trusted relationships with our
advisors, while expanding our specialized services. We offer clients our global reach, our advisory approach led by the
Chief Investment Office (the CIO) and access to our platform with its broad array of solutions, alongside our premium
brand.
Organizational changes
During the first half of 2023, we took several steps to simplify our organizational structure into four regions: Americas,
EMEA, Asia Pacific and Switzerland. We also unified key solutions and functions under global leads. This will facilitate
further convergence and simplification of our global operating model, while retaining the flexibility for local and regional
differences.
In June 2023, the new Global Wealth Management leadership team was announced, including the creation of a new
business unit, Global Wealth Management Strategic Clients, which is focused on enabling and delivering to our strategic
clients globally, working in partnership with our regional business leaders and supported by senior client coverage teams.
How we do business
Our distinctive approach to wealth management helps our clients pursue what matters most to them by offering advice,
expertise and solutions, and delivering on our client promise.
Our advice to clients is led by our global CIO, which produces the
UBS House View
, identifying investment opportunities
designed to protect and increase our clients’ wealth over the long term. CIO views drive investment recommendations
for advisory clients and investment decisions for discretionary clients representing more than USD 1.5trn in fee-generating
assets globally.
We make available to clients a broad range of securities and investment products. In addition to traditional equity and
fixed-income securities, our investment specialists source and craft a range of investment products, including separately
managed accounts (SMAs), structured products, sustainable- and impact-investing products, and alternative investments.
Our alternative investments offering gives clients access to private markets, including equity, real estate and other real
assets, and investments in private equity funds and hedge funds. We offer our own private equity multi-manager
investments and enable clients to access selected single-manager funds and open-ended programs.
To complement this advice, we provide clients with advice on wealth planning, sustainability-focused and impact
investing, and corporate and banking services. Our specialist teams also advise on art and collecting, family strategy and
governance, philanthropy, next generation, and wealth transition.
Our Global Family & Institutional Wealth service model, in collaboration with the Investment Bank, provides specialized
services to meet the needs of family offices and ultra high net worth clients. For clients with institutional-level trading,
execution and clearing needs, our Unified Global Markets offers access to the full capabilities of the Global Markets
business of the Investment Bank.
In Asia Pacific and Switzerland, the
Direct Investment Insights
trade directly based on CIO insights via their smartphones and other digital devices.
Advice Compass
enables advisors to
conveniently identify the most relevant ideas and solutions for clients during one-to-one meetings.
To provide our clients with the full breadth of investment management products and solutions, our Global Lending Unit
offers extensive mortgage, securities-based and structured lending expertise, catering to sophisticated client lending
needs.
›
Refer to the UBS Group Sustainability Report 2023, available under “Annual reporting” at
ubs.com/investors
, for more
information about sustainability matters
Annual Report 2023 |
Our business model and environment | Our businesses 6
Our newly established Global Wealth Management Strategic Clients unit aims to deliver the best advice and guidance to
our strategic client segments, including business owners, female clients, the next generation of wealthy clients, athletes
and entertainers, and multi-cultural investors. To this end, we have developed a dedicated approach and resources with
specialized teams supporting our clients in achieving their goals.
We are investing in our operating platforms and tools to better serve our clients’ needs, improve their experience, enhance
overall advisor productivity and improve our operational resilience. We aim to make our services faster and more
responsive and offer more convenience to our clients. For example, our Global Wealth Management clients have invested
more than USD 9bn in
UBS My Way
,
themselves via the UBS mobile banking app. Additionally, we continue to broaden our offering across asset classes and
themes, collaborating with best-in-class managers across the most relevant strategies. We are making continuous
improvements to our direct-to-client digital offerings and have rolled out innovative new solutions, such as
UBS My Way
on mobile
, a next-generation discretionary mandate solution that now enables clients to tailor their investments within
their risk profile to their individual preferences via their mobile device s.
We also closely collaborate across business divisions to deliver our best capabilities to clients. Joint efforts with the
Investment Bank, Asset Management and selected external partners enable us to offer clients broad access to financing,
global capital markets and bespoke portfolio solutions. For example, in the US market, the SMA initiative with Asset
Management continues to gain momentum, with USD 158bn in assets under management.
Competition
Our main competitors fall into two categories: competitors with a strong position in the Americas but more limited global
footprints, such as Morgan Stanley, JPMorgan Chase and Bank of America; and competitors with international footprints
but with a smaller presence than UBS in the US, such as Julius Baer, BNP Paribas and HSBC. We also compete with fintech
firms in some regions and products. We have strong positions in the largest region (the US) and the fastest-growing
regions (Asia Pacific and the Middle East). The size of our global franchise, bespoke cross-divisional solutions and premium
brand and reputation set us apart and would be difficult to replicate.
Annual Report 2023 |
Our business model and environment | Our businesses 7
Personal & Corporate Banking
As the leading bank in Switzerland, we provide a comprehensive range of financial products and services to private,
corporate and institutional clients. Personal & Corporate Banking is the core of our bank in Switzerland, the only country
where we operate in all of our business areas. We are fully committed to our home market, as our leading position in
Switzerland is crucial in terms of sustaining our global brand and the stability of our profits. We draw on a broad network
of branches and highly qualified client advisors, complemented by modern digital banking services and customer service
centers.
Organizational changes
›
Refer to “Personal & Corporate Banking” in the “Our strategy, business model and environment” section of the UBS Group Annual
Report 2023 for more information about Personal & Corporate Banking from a Group perspective, including information about
the planned merger of UBS Switzerland AG and Credit Suisse (Schweiz) AG
How we do business
We provide our personal banking clients with access to a comprehensive, life-cycle-based offering. This includes a broad
range of basic banking products, from payments to deposits, cards and convenient online and mobile banking, as well
as lending (predominantly mortgages), investments and retirement planning services. In 2023, UBS was named “Best
Bank in Switzerland” by
Euromoney
Global Wealth Management to provide our clients with access to leading wealth management services.
Our corporate and institutional clients benefit from our financing and investment solutions, in particular access to equity
and debt capital markets, syndicated and structured credit, private placements, leasing, and traditional financing. We
offer transaction banking solutions for payment and cash management services, trade and export finance, and global
custody solutions for institutional clients.
Personal & Corporate Banking works closely with the Investment Bank to offer capital market and foreign exchange
products, hedging strategies, and trading capabilities, as well as corporate finance advice. In cooperation with Asset
Management, we also provide fund and portfolio manage ment solutions.
In 2023, we continued to support our clients’ sustainability ambitions. In the corporate client segment, we further
expanded our client-centric approach and focused on supporting our clients by advising them as part of a strategic
dialogue and launching a sustainability-linked loan for multi-national corporations. We also took positive steps in
providing transparency and sustainability insights to our private clients. With the launch of the carbon tracker in the UBS
key4
cards and through UBS TWINT, helping them navigate the carbon footprints of their purchases in a relatively simple
manner.
›
Refer to the UBS Group Sustainability Report 2023, available under “Annual reporting” at
ubs.com/investors
, for more
information about sustainability matters
We are building stronger relationships with our clients during the life cycle of their property ownership and providing
services along the value chain. With our strategic partner Baloise, we offer
Houzy
, a leading homeowner platform in
Switzerland with a nationwide network of qualified craftsmen and comprehensive services through buying, renovation,
maintenance and sale of property. Services relating to property transactions and promotion financing are provided
through our partner,
Brixel
. Our exclusive partnership with SMG Swiss Market Group enables us to extend our ecosystem
network to Switzerland’s largest real estate portals, such as Homegate and Immoscout24.
Our operations and our competitors
We operate primarily in our Swiss home market, where we are organized into 10 regions, covering distinct Swiss economic
areas. We operate a multi-channel approach, and we are constantly developing our digital and remote channels.
In Personal Banking, our main competitors are the cantonal banks, Raiffeisen, PostFinance and other regional and local
Swiss banks; we also face competition from international neobanks and other national digital market participants. Areas
of competition are basic banking services, mortgages and foreign exchange, as well as investment mandates and funds.
In the corporate and institutional business, the cantonal banks and globally active foreign banks are our main competitors.
We compete in basic banking services, cash management, trade and export finance, asset servicing, investment advice
for institutional clients, corporate finance and lending, and cash and securities transactions for banks. We also support
the international business activities of our Swiss corporate clients through local hubs in New York, Frankfurt, Singapore
and the Hong Kong SAR in competition with globally active foreign banks. No other Swiss bank offers its corporate clients
local banking capabilities abroad.
Annual Report 2023 |
Our business model and environment | Our businesses 8
Asset Management
Asset Management is a global, large-scale and diversified asset manager. We offer investment capabilities and styles
across all major traditional and alternative asset classes, as well as advisory support to institutions, wholesale
intermediaries and our Global Wealth Management clients.
Our strategy is focused on capitalizing on the areas where we have a leading position
1
(including alternatives, sustainability, indexed customization, separately managed accounts (SMAs) and key markets in
Asia Pacific) in order to further drive profitable growth, while building on our strong business division partnerships across
the Group.
Organizational changes
In October 2023, we completed the sale of our 51% stake in UBS Hana Asset Management Co., Ltd. to Hana Securities,
after that firm exercised its buyout option. Hana Securities now owns 100% of UBS Hana Asset Management Co., Ltd.
›
Refer to “Asset Management” in the “Our strategy, business model and environment” section of the UBS Group Annual Report
2023 for more information about the Asset Management business division from a Group perspective
How we do business
We offer clients a wide range of investment products and services across all major traditional and alternative asset classes,
in the form of segregated, pooled or advisory mandates, as well as registered investment funds in various jurisdictions.
Our capabilities include equities, fixed income, hedge funds (single- and multi-manager), real estate and private markets,
and indexed and alternative beta strategies, including exchange-traded funds (ETFs), as well as sustainable- and impact-
investing products and solutions.
We also draw on the breadth of our capabilities to offer asset allocation and currency investment strategies across the
risk–return spectrum, customized multi-asset solutions, and advisory and fiduciary services.
We continue to develop our award-winning
2
solutions across equities, fixed income and commodities, as well as sustainability-focused products. Our offering also
includes a wide range of ETFs in Europe, Switzerland and Asia.
In our Real Estate & Private Markets business, we continue to build on our global scale, leading core capabilities and
highly differentiated sustainable-investing and specialized-thematic offering, including our Cold Storage,
Energy Storage
and Life Sciences strategies. We also continue to expand our leading multi-manager capabilities across real estate,
infrastructure and private equity, including the development of new products to meet the growing demand from wealth
management clients.
Sustainable and impact investing remain key areas of interest for our clients. In 2023, we further expanded our offering
across asset classes and themes, including new net-zero ambition products. We launched our first sustainability-focused
fund of hedge funds strategy, created in close collaboration with Global Wealth Management.
We also partnered again
with Aon to launch the UBS Global Emerging Markets Equity Climate Transition Fund, which tilts toward emerging market
companies supporting the transition to a low-carbon economy, while factoring in important social considerations.
Stewardship is a fundamental element of our sustainability strategy. In 2023, we sharpened our five-year climate
engagement program’s focus and also aligned our voting policy to our evolved climate engagement objectives. In
addition, to support our increasing focus on natural capital, we became a founding member of the Nature Action 100
collaborative engagement initiative and joined the Principles for Responsible Investment’s Stewardship Advisory
Committee for its initiative on nature.
›
Refer to the UBS Group Sustainability Report 2023, available under “Annual reporting” at
ubs.com/investors
, for more
information about sustainability matters
We also continue to build on our joint efforts with the other business divisions, enabling our teams to draw on the best
ideas, solutions and capabilities from across the firm in order to deliver high-quality investment performance and
experiences for our clients. For example, in 2023 we continued to expand our separately managed accounts (SMA)
offering as part of our joint initiative with Global Wealth Management in the US. In support of this initiative, we launched
the SMA Hub, a new self-service portal that enables financial advisors to generate custom client reports or proposals in
only minutes.
Geographically, we are building on our extensive and long-standing presence in the Asia Pacific region, including China,
where we continue to capitalize on our on- and offshore products and market presence, including our joint ventures.
To support our growth, we are focused on disciplined execution of our operational excellence initiatives. This includes
further automation, simplification, process optimization and offshoring or nearshoring of selected activities,
complemented by continued enhancements to our platform and development of our analytics and data capabilities. One
example is our Portfolio Engineering & Trading initiative, which will streamline trading and portfolio implementation
across our active and index capabilities through an integrated technology architecture. It will harmonize processes and
enable further scalability of customization across asset classes.
Annual Report 2023 |
Our business model and environment | Our businesses 9
Our operations and our competitors
Our business division is organized into five areas: Client Coverage; Investments; Real Estate & Private Markets; Products;
and the COO area. We cover the main asset management markets globally, and have a local presence in 23 locations
across four regions: the Americas; Asia Pacific; EMEA; and Switzerland. We have nine main hubs: Chicago; the Hong
Kong SAR; London; New York; Shanghai; Singapore; Sydney; Tokyo; and Zurich.
Our main competitors are global firms with wide-ranging capabilities and distribution channels, such as AllianceBernstein,
Allianz Asset Management, Amundi, BlackRock, DWS, Franklin Templeton, Invesco, J.P. Morgan Asset Management,
Morgan Stanley Investment Management, Schroders, SSGA Funds Management and T. Rowe Price, as well as firms with
a specific market or asset-class focus.
1
Third-largest asset manager of SI assets (Morningstar); USD 156bn assets invested in hedge fund businesses, real estate and private markets.
2
Investment Bank
The Investment Bank provides services to institutional, corporate and wealth management clients, helping them raise
capital, invest and manage risks, while targeting attractive and sustainable risk-adjusted returns for shareholders. Our
traditional strengths are in equities, foreign exchange, research, advisory services and capital markets, complemented by
a focused rates and credit platform. We use our data-driven research and technology capabilities to help clients adapt to
evolving market structures and changes in regulatory, technological, economic and competitive landscapes.
Aiming to deliver market-leading solutions by using our intellectual capital and electronic platforms, we work closely with
Global Wealth Management, Personal & Corporate Banking and Asset Management to bring the best of the firm’s
capabilities to our clients. We do so with a disciplined approach to balance sheet deployment and costs.
Our priority is providing high-quality execution and seamless client service, through an integrated, solutions-led approach,
with disciplined growth in the advisory and execution businesses, while accelerating our digital transformation. In Global
Banking, we position ourselves as trusted advisors via our client coverage and ability to provide access to the wider suite
of UBS’s capabilities. In Global Markets, we enable clients to buy, sell and finance securities on capital markets worldwide
and to manage their risks and liquidity.
Organizational changes
In October 2023, we launched our Strategic Insights and Advisory team in Global Banking, our content and advisory
offering that brings together the expertise of the UBS Strategic Insights group and the Credit Suisse Corporate Insights
group.
In December 2023, we announced the formation of our Executive Client Group, which is aimed at advising our clients at
the C-suite level on strategic matters and is intended to drive a broad array of transactions to enhance the impact of our
Global Banking coverage teams.
›
Refer to “Investment Bank” in the “Our strategy, business model and environment” section of the UBS Group Annual Report 2023
for more information about the Investment Bank from a Group perspective
How we do business
Our business division consists of two areas: Global Banking and Global Markets, which are supported by Investment Bank
Research. Our global coverage model utilizes our international industry expertise and product capabilities to meet clients’
emerging needs.
Our Global Banking business advises clients on strategic business opportunities, such as mergers, acquisitions and related
strategic matters, and helps them raise capital, in both public and private markets, to fund their activities.
Our Global Markets business enables clients to buy, sell and finance securities on capital markets worldwide and to
manage their risks and liquidity. We distribute, trade, finance and clear cash equities and equity-linked products, as well
as structuring, originating and distributing new equity and equity-linked issues. From origination and distribution to
managing risk and providing liquidity in foreign exchange, rates, credit and precious metals, we help clients to realize
their financial goals. We provide flexible, innovative and bespoke access to solutions, from market and insight tools to
trading strategies and execution.
Our Investment Bank Research business continues to publish research based on primary data to concentrate on data-
driven outcomes and offers clients differentiated content about major financial markets and securities around the globe,
with analysts based in more than 20 countries and with coverage of more than 3,400 stocks in 49 different countries.
The Strategic Insights team provides timely and relevant information and insights to help clients quickly make decisions
regarding their most important questions.
Annual Report 2023 |
Our business model and environment | Our businesses 10
We seek to develop new products and solutions consistent with our capital-efficient business model, typically related to
new technologies or changing market standards.
The Investment Bank offers our clients global advice and access to the world’s primary, secondary and private capital
markets, including through an extensive array of sustainability-focused advice, products, research and events. The
Investment Bank is focused on meeting clients’ needs, including those with respect to environmental, social and
governance (ESG) considerations and sustainable finance, helping to reshape business models and investment
opportunities and to develop sustainable finance products and solutions.
In Global Markets, we develop products and solutions designed to meet clients’ specific and increasingly detailed ESG
objectives. In carbon emissions solutions, our clients continued to access solutions that are linked to the recently launched
UBS Constant Maturity Commodity Index emissions index, as well as those that are available via our execution and
clearing capabilities for carbon emissions futures. We continued to scale the number of portfolio certificates linked to a
range of sustainability and climate investment themes, despite challenging market conditions throughout 2023.
UBS is a founding member of Carbonplace, a marketplace platform that seeks to build infrastructure to scale voluntary
carbon markets, with the aim of enabling firms such as UBS to offer clients the ability to buy, sell, hold and retire voluntary
carbon credits.
In Global Banking, ESG is a core component of many corporate business strategies and a key tool in achieving
sustainability in business and corporate operating models. As pressure from regulators and other key stakeholder groups,
such as customers, investo rs and employees, is increasing, so is the need for transformation. The ESG Advisory group
provides the necessary lens helping UBS’s clients assess ESG topics throughout the corporate life cycle.
UBS arranged USD 53.7bn in green, social, sustainability and sustainability-linked themed (GSSS) bonds through 102
deals during 2023. We also solidified our market position in the Swiss franc-denominated market with a combined market
share of nearly 50%.
We have also built a strong position in the ESG-labelled local debt market in Brazil.
Our independent ESG research team collaborates with UBS sector analysts and
UBS Evidence Lab
providing data-driven insights into ESG-relevant questions. The ESG research team works to identify touchpoints between
markets, society and the environment, and to respond to ESG issues as they move to the center of investors’ agendas.
UBS sector lead analysts authored a variety of our flagship
ESG Sector Radar
reports, as well as a broad range of
ESG
Company Radar
reports.
Our
ESG Company Radar
level, and we continued to see a very positive client response to those reports. Other types of ESG content include
thematic and cross-sectoral collaborations,
ESG Keys
number of regional perspectives from our expanded ESG team, which works out of our offices in New York, London, the
Hong Kong SAR, Tokyo and Sydney.
›
Refer to the UBS Group Sustainability Report 2023, available under “Annual reporting” at
ubs.com/investors
, for more
information about sustainability matters
Our digital strategy harnesses technology to provide access to sources of unique, global liquidity, personalized advice and
differentiated content. The Investment Bank strives to be the digital investment bank of the future, focused on delivering
innovation-led solutions, and efficiencies for our clients. As the world around us changes, our digital capabilities aim to
harness emerging technologies and create new products and solutions, which enable our clients to adapt to evolving
market structures and achieve their investment goals.
Our ambition to be the most client-focused, efficient and data-driven investment bank is being realized through the
simplification of technology architecture, increased speed and quality of delivery and the attraction of best-in-class talent.
As we look forward to the continued evolution
of our digital capabilities, we will see increased adoption of technologies,
such as generative artificial intelligence, the consistent re-use of platforms and products, and the continued drive to make
progress in our overall strategic imperatives, with regard to a new, combined Investment Bank.
Joint efforts between the Investment Bank and the other business divisions (for example, our work with Global Wealth
Management on our new Global Family & Institutional Wealth coverage) and, externally, strategic partnerships (for
example, UBS BB jointly with Banco do Brasil, focused on Latin America) continue to be key strategic priorities.
Partnerships with Global Wealth Management and Asset Management enable us to provide clients with broad access to
financing, global capital markets and portfolio solutions. We expect these initiatives to continue to lead to growth by
delivering global products to each region, leveraging our global connectivity across borders and sharing and strengthening
our best client relationships.
Annual Report 2023 |
Our business model and environment | Our businesses 11
Our operations and our competitors
Our two business areas, Global Banking and Global Markets, are organized globally by product. Our business is regionally
diversified, with a presence in more than 30 countries. We cover the main investment banking markets globally and have
major financial hubs across four regions: the Americas; Asia Pacific; EMEA; and Switzerland.
Our global reach gives attractive options for growth. In the Americas, the largest investment banking fee pool globally,
we continue to focus on increasing market share in our core Global Banking and Global Markets businesses. In Asia
Pacific, opportunities arise mainly from expected market internationalization and growth in China, where we plan to
grow by strengthening our presence, both onshore and offshore. In EMEA, we plan to leverage our strong base and
brand recognition even further.
Competing firms operate in many of our markets, but our strategy differentiates us, with our focus on leadership in the
areas where we have chosen to compete and a business model that leverages talent and technology rather than balance
sheet. Our main competitors are the major global investment banks (e.g., Morgan Stanley and Goldman Sachs) and
corporate investment banks (e.g., Bank of America, Barclays, Citigroup, BNP Paribas, Deutsche Bank and JPMorgan
Chase). We also compete with boutique investment bank s and fintech firms in certain regions and products.
Non-core and Legacy
In 2023, subsequent to the acquisition of the Credit Suisse Group by UBS, Non-core and Legacy was created at the UBS
Group level, to bring together positions and businesses, mainly including those of Credit Suisse, which are not aligned
with the Group’s strategy and policies.
From a UBS AG consolidated perspective, Non-core and Legacy includes the remaining assets and liabilities of UBS’s Non-
core and Legacy Portfolio, previously reported in Group Functions (now renamed to Group Items), and smaller amounts
of assets and liabilities of UBS’s business divisions that have been assessed as not strategic in light of the acquisition of
the Credit Suisse Group.
›
Refer to “Non-core and Legacy” in the “Our strategy, business model and environment” section of the UBS Group Annual Report
2023 for more information about Non-core and Legacy from a Group perspective
Group functions
The Group functions are support and control functions that provide services to the Group, focusing on effectiveness, risk
mitigation and efficiency.
How we are organized
The Group functions include the following major areas: Group Services (which consists of the Group Operations and
Technology Office, Corporate Services, Compliance, Regulatory & Governance, Finance, Risk Control, Human Resources,
Communications & Branding, Legal, the Group Integration Office, Group Sustainability and Impact, and Chief Strategy
Office) and Group Treasury.
Group Services
The vast majority of the support and control functions are fully aligned or shared among the business divisions, where
they have full management responsibility. By keeping the activities of the businesses and support and control functions
closely aligned, we improve efficiency and create a working environment built on accountability and collaboration.
Virtually all costs incurred by the support and control functions are allocated to the business divisions, leaving a residual
amount that we refer to as Group Items in our segment reporting in accordance with IFRS Accounting Standards. Certain
activities are retained centrally, where not directly related to the businesses, such as group hedging and own debt
activities in Group Treasury and certain other costs that are mainly related to deferred tax assets and costs relating to our
legal entity transformation program.
Group Treasury
Group Treasury manages balance sheet structural risk (e.g., interest rate, structural foreign exchange and collateral
risks), as well as the risks associated with our liquidity, capital and funding portfolios. Group Treasury serves all five
business divisions, and its risk management is integrated into the Group risk governance framework.
Annual Report 2023 |
Our business model and environment | Our environment 12
Our environment
Market environment
Global economic developments in 2023
1
The global economy was resilient in 2023, in spite of the steep interest rate rises by major central banks designed to curb
inflation from the multi-decade highs reached in 2022.
Global growth slowed only slightly, to 3.2%, in 2023, down from 3.4% in 2022. This partly reflected the strength of the
US economy, where growth withstood higher interest rates, tightening bank lending standards, and mediocre real income
growth. US GDP growth increased to 2.5% in 2023, up from 1.9% in 2022, as job security and relatively strong balance
sheets encouraged higher spending by middle-income consumers. Economies in Europe also expanded in 2023, though
at a slower pace. Growth in the Eurozone slowed to 0.5% in 2023, down from 3.4% in 2022, as the European Central
Bank (the ECB) repeatedly raised interest rates. Growth in the Swiss economy slowed to 0.7% in 2023, down from 2.7%
in 2022. UK
GDP growth slowed to 0.1% in 2023, down from 4.3% in 2022, as high inflation and interest rate rises also
limited growth.
Growth in China increased to 5.2% in 2023, compared with 3% in 2022, when its economy was slowed by pandemic
restrictions that were in place until late in that year. However, cautious spending by domestic consumers meant that the
rebound in growth was weaker than had been expected. Growth in India remained robust at 7% in 2023, down only
slightly from 7.2% in 2022.
Inflation eased across developed economies, especially in the second half of 2023, as supply chains continued to recover
from COVID-19 disruptions, energy prices were lower than 2022 and central bank interest rate rises increased the cost
of borrowing. US consumer price inflation slowed to an annual 3.4% in December 2023, from 6.4% in January 2023.
Inflation decelerated even more markedly in the Eurozone, to 2.9% year over year in December 2023, compared with
8.5% in January 2023. This trend enabled the Federal Reserve and the ECB to signal late in 2023 that monetary tightening
had probably come to an end.
The MSCI All Country World Index returned a 22.2% gain in 2023, with close to half of that gain coming in the final two
months of the year. The S&P 500 rose by 26.3%, lifted by optimism that innovations in artificial intelligence will boost
profits and hopes that the Federal Reserve will cut rates swiftly in response to falling inflation. The FANG+ index, which
tracks the 10 most traded US tech stocks, increased 96% over the year. The MSCI Japan was the best-performing major
market in local currency terms in 2023, with a return of 28.6%, its highest in a decade. In Europe, the MSCI EMU returned
18.8%. Although the Swiss and UK markets lagged behind global stocks, both ended the year in positive territory, with
returns of 5.3% and 7.7%, respectively. The weakest performance by a major market came from the MSCI China, which
lost 10.7% amid disappointment over the pace of the economic recovery from pandemic restrictions and more limited-
than-expected stimulus.
Economic and market outlook for 2024
1
Our baseline scenario for 2024 is for a soft landing in the US and subdued but positive growth in the Eurozone. We
expect growth in China to enter a new normal of lower, but potentially higher-quality, growth.
We believe inflation will continue falling toward central bank targets, and, as a result, we believe policymakers will feel
confident enough to lower interest rates starting around the middle of 2024. We expect cuts from the Federal Reserve,
the ECB, the Swiss National Bank and the Bank of England. In contrast, with Japanese deflation coming to an end, we
expect the Bank of Japan to raise rates into positive territory for the first time since late 2015.
With regard to growth, we expect the US to slow to a sustainable long-term rate of growth, due to declining housing
affordability and the withdrawal of some government support measures that helped households during the COVID-19
pandemic. However, middle-income consumers still appear to have spending power, as well as relatively strong balance
sheets, and we expect demand for labor to remain resilient. Overall, we expect US GDP growth to remain positive, at
around 1.1% in 2024. We expect growth to be weak in the Eurozone, at 0.6%, due to the lagged effect of higher
interest rates. We also expect UK GDP to increase by 0.6% in 2024, while GDP growth in Switzerland is expected to
increase to 1.2% in 2024.
Geopolitical events and elections also have the potential to play an outsized role in 2024. The US presidential election,
the ongoing Israel–Hamas and Russia–Ukraine wars, and the tension between the US and China could all affect markets
globally. In addition, more than four billion people in more than 40 countries are set to go to the polls in 2024, including
in the US, India and, potentially, the UK.
1
Based on sources: Haver Analytics, CEIC, National Statistic and UBS.
Annual Report 2023 |
Our business model and environment | Regulation and supervision 13
Regulation and supervision
As a financial services provider based in Switzerland, the UBS Group is subject to consolidated supervision by the Swiss
Financial Market Supervisory Authority (FINMA). The Group’s entities are also regulated and supervised by authorities in
each country where we conduct business. Through UBS AG, Credit Suisse AG, UBS Switzerland AG and Credit Suisse
(Schweiz) AG, which are licensed as banks in Switzerland, UBS may engage in a full range of financial services activities in
Switzerland and abroad, including personal banking, commercial banking, investment banking and asset management.
As UBS is a global systemically important bank (a G-SIB), as designated by the Financial Stability Board, and a systemically
relevant bank (an SRB) in Switzerland, UBS Group entities are subject to stricter regulatory requirements and supervision
than most other Swiss banks.
›
Refer to the “Regulatory and legal developments” and “Risk factors” sections of this report for more information
Regulation and supervision in Switzerland
Supervision
UBS Group AG and its subsidiaries, including UBS AG, are subject to consolidated supervision by FINMA under the Swiss
Banking Act and related ordinances, which impose standards for matters such as capital adequacy and risk diversification
rules, liquidity, internal control systems, business conduct, and corporate governance. FINMA meets its statutory supervisory
responsibilities through licensing, regulation, supervision and enforcement. It is responsible for prudential supervision and
mandates audit firms to perform regulatory audits and other supervisory tasks on its behalf.
Capital adequacy and liquidity regulation
As an internationally active Swiss systemically important bank (an SIB), UBS is subject to capital and total loss-absorbing
capacity (TLAC) requirements at both the group level, for UBS Group AG, and the parent bank level, for UBS AG and
Credit Suisse AG, that are based on both risk-weighted assets (RWA) and the leverage ratio denominator (LRD) and are
among the most stringent in the world. UBS Group AG, UBS AG, Credit Suisse AG, UBS Switzerland AG and Credit Suisse
(Schweiz) AG are also subject to Swiss SIB liquidity requirements and to minimum long -term funding requirements.
›
Refer to the “Risk, capital, liquidity and funding, and balance sheet” section of this report for more information about the Swiss
SRB framework and the Swiss too-big-to-fail (TBTF) requirements
›
Refer to “Liquidity coverage ratio” in the “Risk, capital, liquidity and funding, and balance sheet” section of this report for more
information about liquidity coverage ratio requirements
Regulation and supervision outside Switzerland
Regulation and supervision in the US
In the US, UBS is subject to regulation and supervision by the Board of Governors of the Federal Reserve System (the Federal
Reserve Board) under a number of laws. UBS Group AG, UBS AG and Credit Suisse AG are subject to the Bank Holding
Company Act, pursuant to which the Federal Reserve Board has supervisory authority over the UBS Group’s US operations.
In addition to being a financial holding company under the Bank Holding Company Act, UBS AG has US branches, which
are authorized and supervised by the Office of the Comptroller of the Currency (the OCC). UBS AG is registered as a
swap dealer with the Commodity Futures Trading Commission (the CFTC), and registered as a securities-based swap
dealer with the Securities and Exchange Commission (the SEC).
UBS Americas Holding LLC, the intermediate holding company for our operations in the US outside of the UBS AG branch
network, as required under the Dodd–Frank Act, is subject to requirements established by the Federal Reserve Board
related to risk-based capital, liquidity, the Comprehensive Capital Analysis and Review (CCAR) stress testing and capital
planning process, and resolution planning and governance.
UBS Bank USA, a Federal Deposit Insurance Corporation (FDIC)-insured depository institution subsidiary, is licensed and
regulated by state regulators in Utah and is also supervised by the FDIC.
UBS Financial Services Inc., UBS Securities LLC and several other US subsidiaries of UBS are subject to regulation by a
number of different government agencies and self-regulatory organizations, including the SEC, the Financial Industry
Regulatory Authority, the CFTC, the Municipal Securities Rulemaking Board and national securities exchanges, depending
on the nature of their business. Certain of our activities in the US are subject to regulation by the Consumer Financial
Protection Bureau.
Regulation and supervision in the UK
Our regulated UK operations are mainly subject to the authority of the Prudential Regulation Authority (the PRA), which
is part of the Bank of England, and the Financial Conduct Authority (the FCA). We are also subject to the rules of the
London Stock Exchange and other securities and commodities exchanges of which UBS AG is a member.
UBS AG has a UK-registered branch, UBS AG London Branch, which serves as a global booking center for the Investment
Bank. Our regulated subsidiaries that provide asset management services are authorized and regulated by the FCA. UBS
Asset Management Life Ltd is authorized and regulated by the FCA and subject to the authority of the PRA.
Annual Report 2023 |
Our business model and environment | Regulation and supervision 14
Regulation and supervision in Germany and the EU
UBS Europe SE, headquartered in Germany, is subject to the direct supervision of the European Central Bank, as well as
to continued conduct, consumer protection and anti-money-laundering-related supervision by the German Federal
Financial Supervisory Authority (BaFin) and supervisory support by the German Bundesbank. The entity is subject to EU
and German laws and regulations. UBS Europe SE maintains branches in Denmark, France, Italy, Luxembourg, the
Netherlands, Poland, Spain, Sweden and Switzerland and is subject to conduct supervision by authorities in all those
countries.
Regulation and supervision in Asia Pacific
We operate in numerous locations in Asia Pacific, including Singapore, the Hong Kong SAR, mainland China, Australia
and Japan. The operations in these locations are subject to regulation and supervision by local financial regulators. Our
Asia Pacific regional hubs are in Singapore and the Hong Kong SAR.
In Singapore, UBS AG Singapore Branch, UBS Securities Pte Ltd and UBS Asset Management (Singapore) Ltd are
supervised by the Monetary Authority of Singapore and the Singapore Exchange.
In the Hong Kong SAR, UBS AG Hong Kong Branch is supervised by the Hong Kong Monetary Authority. UBS Securities
Hong Kong Limited, UBS Securities Asia Limited and UBS Asset Management (Hong Kong) Limited are supervised by the
Hong Kong Securities and Futures Commission. In addition, UBS Securities Hong Kong Limited is supervised by Hong
Kong Exchanges and Clearing Limited.
In mainland China, we have multiple licenses to operate the business lines of UBS AG, and the various entities are subject
to regulation by a number of different government agencies. The People’s Bank of China oversees China’s macro capital
markets policies and ensures coordinated supervisory approaches by the National Administration of Financial Regulation
(the China Banking and Insurance Regulatory Commission until May 2023), the China Securities Regulatory Commission
and a number of exchanges.
In Australia, UBS AG Australia Branch is supervised by the Australian Prudential Regulation Authority, the Australian
Securities and Investments Commission, the Australian Transaction Reports and Analysis Centre, the Reserve Bank of
Australia, and the Australian Securities Exchange. UBS Securities Australia Limited and UBS Asset Management Limited
are supervised by the Australian Securities and Investments Commission, the Australian Transaction Reports and Analysis
Centre, and the Australian Securities Exchange.
In Japan, UBS Securities Japan Co., Ltd. is supervised by the Financial Services Agency and the Japan Exchange Group.
UBS AG Tokyo Branch is supervised by the Financial Services Agency and the Bank of Japan. UBS SuMi TRUST Wealth
Management Co., Ltd is supervised by the Financial Services Agency and the Japanese Ministry of Finance. UBS Asset
Management (Japan) Ltd and UBS Japan Advisors Inc. are supervised by the Financial Services Agency.
Financial crime prevention
Combating money laundering and terrorist financing has been a major focus of many governments in recent years. Laws
and regulations, including the Swiss Banking Act and the US Bank Secrecy Act, require effective policies, procedures and
controls to detect, prevent and report money laundering and terrorist financing, and the verification of client identities.
Failure to introduce and maintain adequate programs to prevent money laundering and terrorist financing can result in
significant legal and reputational risk and fines.
We are also subject to laws and regulations prohibiting corrupt or illegal payments to government officials and other
persons, including the US Foreign Corrupt Practices Act and the UK Bribery Act. We maintain policies, procedures and
internal controls intended to comply with those regulations.
›
Refer to “Non-financial risk” in the “Risk management and control” section of this report for more information
Data protection
We are subject to regulations concerning the use and protection of customer, employee, and other personal and
confidential information. This includes provisions under Swiss law, the EU General Data Protection Regulation (the GDPR)
and laws of other jurisdictions.
›
Refer to the “Risk factors” section of this report for more information about regulatory change
Recovery and resolution
Swiss TBTF legislation requires each Swiss SRB to establish an emergency plan to maintain systemic functions in case of
impending insolvency. In response to these Swiss requirements and similar ones in other jurisdictions, UBS has developed
recovery plans and resolution strategies, as well as plans for restructuring or winding down businesses if the firm could
not otherwise be stabilized.
Annual Report 2023 |
Our business model and environment | Regulation and supervision 15
In 2013, FINMA stated its preference for a single point of entry (an SPE) strategy for globally active SRBs, such as UBS,
with a bail-in at the group holding company level. UBS has made structural, financial and operational changes to facilitate
an SPE strategy and is confident that a resolution of the bank is operationally executable and legally enforceable. In 2023,
UBS acquired the Credit Suisse Group and merged Credit Suisse Group AG into UBS Group AG. A bail-in remains
operationally executable for the combined UBS Group and an SPE resolution strategy remains the preferred strategy for
UBS.
FINMA evaluates the recovery and resolution plans of Swiss SRBs on a regular basis. In its most recent assessment, which
was published in April 2023 and based on year-end 2022 information, FINMA re-confirmed that UBS’s Swiss emergency
plan is effective, the recovery plan has been approved and that UBS fulfills all resolvability criteria. This assessment did
not reflect the combined organization and the respective plans will need to be amended and approved for the new and
combined Group. FINMA will review its resolvability assessment of the combined UBS Group as the integration progresses.
A new, interim assessment is expected to be published by FINMA at the end of the second quarter of 2024.
Crisis management framework
The UBS Group’s crisis management framework assigns responsibility and actions depending on the nature of the stress
incident and the scale of the response needed.
–
For incident, risk and crisis management, the Group Crisis Task Force works with incident management teams that
provide monitoring and early-warning indicators at the local / regional level, without needing to activate protocols at
the Group level. If a local response is insufficient, global task forces and crisis management teams provide decision-
making guidance and coordination, including crisis management plans, protocols and playbooks, and contingency
funding plans.
–
The Group Executive Board (the GEB) and the Board of Directors (the BoD) would evaluate and decide upon the need
to activate the Global Recovery Plan (the GRP) if a stress event reached a severity requiring activation based on the
GRP’s recovery risk indicators.
–
FINMA has the authority to determine whether the point of non-viability (the PONV), as defined by Swiss law, has been
reached and, as part of the resolution plan, has the power to order the bail-in of creditors to recapitalize and stabilize
the Group, limit payments of dividends and interest, alter our legal structure, take actions to reduce business risk, and
order a restructuring of the bank.
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Our business model and environment | Regulation and supervision 16
Global Recovery Plan
The GRP provides a tool to restore financial strength if UBS comes under severe capital or liquidity stress. Quantitative
and qualitative triggers are monitored daily and are subject to predefined governance and escalation processes. Recovery
options are linked to owners and checklists, with the objectives of preserving capital, raising capital or liquidity, or
disposing of or winding down businesses.
Global Resolution Strategy
FINMA is required to produce a global resolution plan for UBS. The plan includes setting out measures that FINMA can
take to resolve UBS in an orderly manner if the UBS Group enters resolution. The SPE bail-in strategy would involve writing
down the UBS Group’s remaining equity and additional tier 1 and tier 2 instruments, as well as the bailing in of the TLAC-
eligible senior unsecured bonds at the UBS Group AG level. An internal recapitalization of undercapitalized subsidiaries
would be executed simultaneously with losses transmitted to UBS AG or Credit Suisse AG, and, ultimately, UBS
Group AG. Post-resolution restructuring measures could include disposals or wind-down of businesses and assets.
Local recovery and resolution plans
The Swiss emergency plans demonstrate how UBS’s systemically important functions and critical operations in Switzerland
can continue if the UBS Group cannot be restructured. This is achieved mainly by operating the Swiss-booked business
in separate legal entities, including UBS Switzerland AG, and by maintaining sufficient capital and liquidity to ensure their
continued operation.
The US resolution plans set out the steps that could be taken to resolve the US intermediate holding companies (the US
IHCs), including UBS Americas Holding LLC, and their subsidiaries, if they suffered material financial distress and the UBS
Group was unable or unwilling to provide financial support. As such and as required by US regulations, our US plan for
UBS Americas Holding LLC contemplates that the US IHC will commence US bankruptcy proceedings. Prior to this, the
plan envisages the US IHC downstreaming financial resources to their respective subsidiaries to facilitate an orderly wind-
down or disposal of businesses.
UBS Europe SE updates a local recovery plan annually based on European Central Bank requirements, and resolution
planning information and capabilities based on Single Resolution Board requirements. On the basis of such information,
the Internal Resolution Team, composed of members of the Single Resolution Board, produces a resolution plan for
UBS Europe SE.
Other local recovery and resolution plans exist for various UBS AG entities and jurisdictions.
Regulatory trends
In 2023, regulatory policy was strongly impacted by the banking turmoil in March, with financial stability concerns
returning to the forefront, followed by renewed discussions around the effectiveness of too-big-to-fail / resolution
frameworks and subsequent initial lessons drawn being discussed throughout the year. While the reviews by
supranational standard-setters and in Switzerland generally upheld the appropriateness of the international regulatory
and resolution frameworks, certain themes requiring further attention were identified with additional analyses ongoing.
The digitalization of banking and corresponding policy responses continued throughout 2023, with attention paid to
systemic risks, market integrity, investor protection and cross-border aspects related to digital assets. Initial policy efforts
started on decentralized finance. In the meantime, most major central banks increased their engagement related to
central bank digital currencies. New capabilities and wider adoption of artificial intelligence (AI) have resulted in increased
regulatory focus on the topic, particularly regarding sound governance frameworks, safety and fairness. The large-scale
use of both traditional and non-traditional data by AI models has given rise to questions around the adequacy of existing
data legislation and in some jurisdictions will likely result in enhanced protections. Separately, many jurisdictions continued
to make data more available across sectors, with a focus on open finance.
Sustainable finance and climate-related financial risks remained a key focus for policymakers in 2023, where we observed
noteworthy activity in the areas of corporate and product disclosures for climate-related financial risks, specifically relating
to banks’ governance, strategy and risk management, as well as efforts to standardize and harmonize regulations across
different jurisdictions. Policymakers advanced guidelines related to nature and biodiversity topics by intensifying the focus
on disclosures, risk management and quantification methodologies. Furthermore, we observed ongoing regulatory policy
related to net-zero financing, while transition planning started to become an important focus topic for policymakers. On
the topic of products regulation, regulatory initiatives continued to focus on carbon and carbon markets and addressing
issues related to greenwashing. Lastly, we saw increased regulatory attention paid to solutions related to social impact
investing and blended finance.
Annual Report 2023 |
Our business model and environment | Regulation and supervision 17
The national implementation of the Basel III requirements continued to be an important focus area. The authorities in
Switzerland issued rules to implement the final standards into Swiss law, and US banking regulators launched a public
consultation in 2023. Switzerland has confirmed the effective date for the revised rules as 1 January 2025. Although the
EU is still targeting implementation by January 2025, the UK and the US have delayed the application until July 2025,
with the US also including a three-year transition timeline. Differences in the implementation timelines and in the content
of the provisions remain a challenge for globally active banks.
In addition, regulatory authorities continued to refine existing regulations, including efforts to strengthen the anti-money-
laundering guidelines on beneficial ownership and work on enhancing third-party risk management, with operational
resilience remaining a key issue. The focus on retail investor protection sharpened, in particular in asset management. In
the US, retail investor protection features became a component of an ongoing broader equity market reform. In the UK,
reviews of the Senior Managers and Certification Regime focused on determining whether the regime delivers against its
original aim and how it can be improved. Finally, in light of increasing risks, non-bank financial intermediation remained
a topic of concern with national and supranational policymakers.
We believe the continued adaptations made to our business model and our proactive management of regulatory change
put us in a strong position to absorb upcoming changes to the regulatory environment. We trust that our strengthened
position as a combined organization will allow us to cope with any potential challenges.
›
Refer to the “Regulatory and legal developments” and the “Risk, capital, liquidity and funding, and balance sheet” sections of this
report for more information
Regulatory and legal developments
Developments related to the acquisition of the Credit Suisse Group and the banking turmoil in March 2023
Key developments in Switzerland
Based on the emergency ordinance issued by the Swiss Federal Council in connection with the acquisition of the Credit
Suisse Group on 16 March 2023, as amended on 19 March 2023, (the Emergency Ordinance), UBS Group AG entered
into a loss protection agreement (an LPA) with the Swiss Confederation, with an effective date of 12 June 2023. As part
of this agreement, the Swiss Confederation would have borne up to CHF 9bn of losses, if realized, on a designated
portfolio of Credit Suisse’s non-core assets after the first CHF 5bn of losses, which would have been borne by UBS.
Under the Emergency Ordinance, UBS AG and Credit Suisse AG also had access to additional liquidity assistance loans,
the Emergency Liquidity Assistance Plus (ELA+) loans, provided by the Swiss National Bank (the SNB) of up to CHF 100bn
on a combined basis, with the loans under the facility having preferential rights in bankruptcy proceedings. The Credit
Suisse Group was also allowed to borrow up to an additional CHF 100bn from the SNB backed by a Swiss federal default
guarantee, the Public Liquidity Backstop (the PLB), with the loans having preferential rights in bankruptcy proceedings.
On 11 August 2023, UBS Group AG voluntarily terminated the LPA and the PLB. After reviewing all assets covered by the
LPA since the closing of the Transaction in June 2023 and taking the appropriate fair value adjustments, UBS concluded
that the LPA was no longer required. All loans under the PLB were fully repaid by the Credit Suisse Group as of the end
of May 2023 and Credit Suisse AG fully repaid the outstanding ELA+ loans on 10 August 2023. As of 31 December 2023,
Credit Suisse (Schweiz) AG had a total of CHF 38bn outstanding under the Emergency Liquidity Assistance facility, which
is fully collateralized by Swiss mortgages.
In parallel with the measures taken by the Swiss Confederation in March 2023, the Swiss Financial Market Supervisory
Authority (FINMA) also ordered a write-off of CHF 15.8bn principal amount of Credit Suisse Group AG’s additional tier 1
(AT1) instruments.
In May 2023, the Swiss Federal Department of Finance mandated a group of experts on banking stability to assess the
role of banks and the legal and regulatory framework related to the stability of the Swiss financial center. The
corresponding report, published in September 2023, concluded that Swiss capital regulations are working as intended
and that there is no need for a major revision. However, the report sees a need for reforms with regard to banking
supervision and proposes that the relevant authorities be granted broader powers. Furthermore, the report suggests
improvements regarding liquidity regulations, including a proposal to extend the supply of liquidity in the case of a crisis.
The report also suggests that Swiss authorities should make improvements with regard to crisis preparation and
management.
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Our business model and environment | Regulatory and legal developments 18
In June 2023, the Swiss Parliament formed a parliamentary inquiry committee that is mandated to investigate the
legitimacy, expediency and effectiveness of the management of the competent authorities and bodies in the context of
the events involving the Credit Suisse Group. The committee will report to the Swiss Parliament on the results of its
investigation and will propose measures to remedy any identified deficiencies. We expect the results to be published in
the fourth quarter of 2024. The conclusions by the inquiry committee may include potentially significant
recommendations, which could result in more stringent regulation.
In December 2023, FINMA published a report on the case of Credit Suisse that analyzed the development of Credit Suisse
in recent years and examined its supervisory work with the bank. In addition, FINMA noted in its report a number of
lessons to be learned, calling for a stronger legal basis, specifically for instruments such as a Senior Managers Regime,
the power to impose fines, and more stringent rules regarding corporate governance. Furthermore, FINMA explained
that it will adapt its supervisory approach in certain areas and will step up its review of whether stabilization measures
are ready to be implemented.
The findings of the group of experts and the lessons drawn by FINMA include recommendations that could result in more
stringent regulation, and will be considered by the Swiss Federal Council in its next report on systemically important
banks, which is to be presented by April 2024.
Key developments in the US
In May 2023, the Federal Reserve Board and the Federal Deposit Insurance Corporation (the FDIC) released reports that
covered the circumstances leading to the closing of certain banking organizations following the events in the banking
market in March 2023. The reports noted shortcomings in the supervisory agencies’ execution of examination programs,
including escalation of supervisory issues and staffing. They also raised concerns related to the regulatory framework,
including the Federal Reserve’s Tailoring Rule and other topics, such as interest rate risk management. UBS expects these
developments to impact the regulatory environment in the US, where UBS has significant operations.
In November 2023, the FDIC approved a final rule to implement a special assessment to recover losses incurred by the
Deposit Insurance Fund in connection with the failures of Silicon Valley Bank and Signature Bank in March 2023. The
assessment is based on the estimated uninsured deposits of each depository institution at the end of 2022. The
assessment will be collected over an eight-quarter period that started in January 2024. In the fourth quarter of 2023,
UBS Bank USA recorded a charge for the full amount of its estimated assessment of USD 60m.
Key developments at the supranational level
In October 2023, the Basel Committee on Banking Supervision (the BCBS) released a report on the causes of the 2023
banking turmoil. The BCBS argues that while the distress of various banks in March 2023 reflected idiosyncratic factors,
recurring themes can be grouped into three broad categories: bank risk-management practices and governance
arrangements; strong and effective supervision; and robust regulatory standards.
Also in October 2023, the Financial Stability Board (the FSB) identified in a review several areas related to the effective
operationalization and implementation of the international resolution framework that merit further attention as part of
future work, but concluded that recent events demonstrate the soundness of the framework.
No concrete changes to the Basel standards or the FSB framework are proposed at this stage, but the follow-up work is
particularly focused on strengthening supervisory effectiveness, liquidity risk, interest rate risk in the banking book and
the effectiveness of the resolution frameworks.
Developments regarding capital and liquidity adequacy and TBTF frameworks
Developments related to liquidity adequacy
In September 2023, the Swiss Federal Council adopted a dispatch and draft legislation on the introduction of a public
liquidity backstop for systemically important banks (SIBs), which was initially implemented as part of the Emergency
Ordinance. The proposed legislative changes aim to establish the public liquidity backstop as part of ordinary law in order
to enable the Swiss government and the SNB to support an SIB domiciled in Switzerland with liquidity in the process of
resolution, in line with other financial centers. The introduction of the public liquidity backstop is intended to increase
the confidence of market participants in the ability of SIBs to be successfully recapitalized and remain solvent in a crisis.
Furthermore, the draft legislation provides that SIBs will pay the Swiss Confederation an annual fee to mitigate a potential
impact on competition and to compensate the Swiss Confederation for its guarantee to the SNB of the public liquidity
backstop, if required.
In addition to the public liquidity backstop, the proposed legislative changes would enact into ordinary law additional
provisions contained in the Emergency Ordinance, including mandated clawback of variable compensation in the event
that government support is provided to an SIB.
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Our business model and environment | Regulatory and legal developments 19
The legislative changes are expected to come into force by January 2025, at the earliest, as in November 2023, the Swiss
Parliament suspended discussions on the public liquidity backstop until the presentation of the Swiss Federal Council’s
report on systemically important banks.
Furthermore, FINMA communicated in the third quarter of 2023 the liquidity requirements arising from the revisions to
the Swiss Liquidity Ordinance, with the aim of strengthening the resilience of SIBs in Switzerland. The affected legal
entities of the UBS Group are compliant with these requirements, which became effective on 1 January 2024.
Developments related to capital adequacy
In July 2023, US banking regulators, including the Federal Reserve Board, the FDIC and the Office of the Comptroller of
the Currency (the OCC), issued a public consultation on a proposal that would implement the final components of the
Basel III capital standards for US banking organizations and foreign-owned intermediate holding companies, such as UBS
Americas Holding LLC and Credit Suisse Holdings (USA), Inc. Among other matters, the proposed rules would end the
use of the internal model approach for credit risk by the largest banking organizations and would introduce instead a
new standardized approach. In addition, the proposed rules for operational risks would replace the advanced
measurement approach with a standardized measure. The proposal calls for a three-year transition period, starting on
1 July 2025, and full implementation by 1 July 2028. We currently estimate that the proposed rule changes would result
in increased capital requirements for our US-based intermediate holding companies if implemented as proposed.
In November 2023, the Swiss Federal Council adopted amendments to the Capital Adequacy Ordinance (the CAO) for
banks to incorporate the final Basel III standards adopted by the BCBS in Swiss law. The amended CAO will enter into
force on 1 January 2025. The final degree of alignment between the Swiss implementation and those in other jurisdictions
remains uncertain at this stage. Although EU legislators target implementation by January 2025, the implementation
timelines in the UK and the US have been delayed until July 2025. The Swiss Federal Department of Finance will inform
the Swiss Federal Council about the status of international implementation by the end of July 2024. We currently estimate
that the revised Basel III framework will lead to a further net increase in risk-weighted assets of approximately USD 25bn,
of which USD 10bn is in Non-core and Legacy. This estimate is based on static balances, before taking into account
mitigating actions, as well as not reflecting the impact of the output floor, which is phased in over time.
Developments related to TBTF frameworks
In August 2023, the Federal Reserve Board and the FDIC issued joint proposals on long-term debt requirements and
resolution planning guidance for large banks. The long-term debt proposal would require certain large bank-holding
companies, intermediate holding companies and insured depositories with USD 100bn or more in total assets to maintain
a minimum amount of long-term debt, intended to enhance the resilience and resolvability of such organizations. Large
banking organizations would also be prohibited from certain activities that could complicate the resolution or would lead
to contagion risks. If the proposals are implemented, UBS Bank USA would be subject to the long-term debt requirement,
which would be incremental to the requirements already imposed upon its parent organization, UBS Americas Holding
LLC. The resolution planning guidance proposed by US banking regulators would cover our US-based entities and calls
for certain enhancements in the requirements of the submitted resolution plans.
In November 2023, the FSB published the 2023 list of global systemically important banks (G-SIBs). UBS has been moved
from Bucket 1 to Bucket 2, corresponding to an increased FSB common equity tier 1 capital surcharge requirement of
1.5% from 1.0%, effective from 1 January 2025. Credit Suisse has been removed from the list. As UBS is subject to
higher requirements under the Swiss CAO, the change does not affect the capital requirements applicable to UBS.
In February 2024, the FSB published its Peer Review of Switzerland, which examines Switzerland’s implementation of the
FSB’s TBTF reforms for G-SIBs. The review states that although Swiss authorities have made important steps toward
implementing an effective TBTF regime for G-SIBs, additional steps can be taken to further strengthen the Swiss TBTF
framework. Recommendations include increasing supervisory resources, strengthening early intervention powers and
enhancing the recovery and resolution regime.
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Our business model and environment | Regulatory and legal developments 20
Developments regarding climate-related financial risks and sustainable finance
In 2023, the Swiss National Council discussed the revision of the Act on the Reduction of CO
2
2
which contains measures to halve greenhouse gas emissions by 2030 compared with 1990. The proposal is based on
supplementing the existing CO
2
economy. For the financial sector, it contains a provision mandating FINMA and the SNB to regularly assess climate-related
financial risks in the financial sector and to report the results, as well as potential measures, to the Swiss government.
FINMA is currently collecting the data from the financial sector in order to be able to carry out the assessment in 2024.
It is expected that the proposal will be formally adopted by the Swiss Parliament in spring 2024.
In June 2023, the Swiss electorate voted in favor of the new Climate and Innovation Act (the CI Act). The CI Act defines
a net-zero-by-2050 target for Switzerland, including interim targets for selected sectors of the Swiss economy covering
scope 1 and 2 emissions. In addition, each Switzerland-domiciled company is required to set a net-zero target by
1 January 2025. The CI Act also contains provisions for public funding to replace aged heating systems in buildings and
for application of innovative technologies within companies. Article 9 of the CI Act requires the financial sector to make
an effective contribution to the transition to net zero and sets the general goal of the alignment of financial resources to
climate-friendly outcomes. Specific measures to achieve the targets will be proposed in the CO
2
In December 2023, the Swiss Parliament added a provision on greenwashing to the Unfair Competition Act under which
companies are required to make truthful and clear statements in relation to their climate impact that can be substantiated
by objective and verifiable bases.
Also in December 2023, the Swiss Federal Council announced that it intends to further improve climate transparency for
financial products and to further develop the voluntary Swiss Climate Scores (the SCS), which were introduced in 2022.
The SCS provide investors with information about the extent to which their financial investments are compatible with
climate goals. The updated SCS, which will apply from 1 January 2025, will continue to prescribe disclosures by financial
institutions on climate alignment and climate change mitigation characteristics of financial products and will newly
prescribe disclosure of exposures to renewable energy. UBS has committed to the voluntary use of the SCS.
In October 2023, the Federal Reserve Board, the OCC and the FDIC approved guidance on the principles for climate-
related financial risk management. The final principles describe how climate-related risks can be addressed in the
management of traditional financial risks. The principles cover six areas: governance; policies, procedures and limits;
strategic planning; risk management; data, risk measurement and reporting; and scenario analysis. The guidance applies
to our US-based operations. UBS is evaluating the guidance to ensure the principles are addressed by the relevant Group
practices.
In June 2023, the International Sustainability Standards Board (the ISSB) finalized its first set of requirements for corporate
disclosures regarding sustainability matters: IFRS S1 and IFRS S2. IFRS S1 addresses the disclosure of a company’s
sustainability-related risks and opportunities. IFRS S2 addresses the disclosures for the governance processes, controls and
procedures an entity uses to monitor, manage and oversee climate-related risks and opportunities and the entity’s strategy
for managing risks and opportunities. The standards incorporate the recommendations of the Task Force on Climate-
related Financial Disclosures (the TCFD). These ISSB standards have been available for use from January 2024 onward.
UBS’s implementation of the standards will depend, among other factors, on whether the standards are adopted in
jurisdictions in which UBS files financial reports.
In October 2023, the EU finalized the first set of cross-sectoral European Sustainability Reporting Standards (the ESRS)
under the Corporate Sustainability Reporting Directive. In addition to general disclosures and requirements, the ESRS set
out disclosure requirements, which are subject to a materiality assessment that is contingent on external assurance,
effectively allowing companies to focus on reporting sustainability factors that are material to their businesses. Companies
that were previously subject to the Non-Financial Reporting Directive and large non-EU listed companies with more than
500 employees, including UBS, are required to begin reporting under the ESRS for the 2024 financial year, with the first
reports to be published in 2025. The European Commission will develop and adopt additional sector-specific reporting
standards by June 2026.
In March 2024, the US Securities and Exchange Commission (the SEC) released the final rules regarding climate-related
disclosures for investors. The rules will require certain firms, including UBS, to disclose qualitative and quantitative
information on the firm’s exposures to climate-related risks and risk management practices. The rules are anticipated to
be effective for filings for the 2025 financial year.
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Our business model and environment | Regulatory and legal developments 21
Other developments in Switzerland
In June 2023, the Swiss electorate voted in favor of the introduction of a minimum corporate tax rate of 15% applicable
to companies with a consolidated turnover of more than EUR 750m, as stipulated by the Global Anti-Base Erosion Model
Rules (Pillar Two) of the Organisation for Economic Co-operation and Development. In December 2023, the Swiss Federal
Council decided on a partial adoption in Switzerland, by way of an ordinance, and, as a result, a domestic minimum top-
up tax regime became effective from 1 January 2024, ensuring a Swiss local minimal tax burden of at least 15%.
Switzerland will not implement any top-up tax regime in 2024 with respect to non-Swiss taxation below 15%. The Swiss
Federal Council will further observe international developments and decide at a later stage if and when any top-up tax
with respect to non-Swiss taxation below 15% will be introduced in Switzerland. UBS does not expect the implementation
of global minimum taxation in Switzerland to materially impact its effective tax rate.
In August 2023, the Swiss Federal Council launched a consultation on a bill to strengthen the Swiss anti-money-
laundering framework, with the aim of reinforcing the integrity and competitiveness of Switzerland as a financial and
business location. The measures aim to comply with the international standards of the Financial Action Task Force (the
FATF). Among other matters, key elements of the proposal include the introduction of a non-public register managed by
the Federal Department of Justice and Police containing information about the beneficial owners of companies and other
legal entities in Switzerland, as well as due diligence requirements for activities with an increased risk of money
laundering. In the context of the Swiss anti-money-laundering framework, the FATF also acknowledged in October 2023
the progress made by Switzerland, especially with the revision of the Anti-Money Laundering Act adopted in March 2021.
In November 2023, the Swiss Federal Council adopted an amendment to the Financial Market Infrastructure Act that
enacts a measure aimed at protecting the Swiss stock exchange infrastructure into Swiss law with effect from 1 January
2024. This ruling followed the EU’s decision to withdraw equivalence for the Swiss stock exchange regulation in 2019.
The protective measure enables EU firms to trade Swiss shares on the Swiss trading venues, even without EU equivalence.
In the event of equivalence recognition by the EU, the measure may be deactivated at any time.
In the first quarter of 2023, the Swiss Federal Council implemented the remaining measures of the 9th and 10th sanctions
packages imposed by the EU against Russia in December 2022 and February 2023, respectively. The measures include
additional export restrictions and more detailed reporting obligations with regard to frozen assets.
In August 2023, the Swiss Federal Council adopted the EU’s 11th package of sanctions against Russia, which was partially
adopted by Switzerland in June 2023 by expanding the sanction lists. As part of the 11th sanctions package, the EU has
created a specific legal basis for an instrument to prevent the evasion of sanctions. The Swiss Federal Council emphasized
its determination to take effective action against the evasion of sanctions and will examine the implementation of this
instrument in the event of its actual application by the EU. In addition, Switzerland joined the EU in imposing sanctions
at Moldova’s request and against Belarus, in view of its continued involvement in Russia’s ongoing military aggression
against Ukraine.
In September 2023, the Swiss Federal Council issued sanctions measures in connection with the delivery of Iranian drones
to Russia. The sale, supply, export and transit of components used in the construction and production of drones is now
prohibited. In January 2024, the Swiss Federal Council adopted the measures of the EU’s 12th sanctions package relevant
to Switzerland , following the expansion of the sanction lists by Switzerland in December 2023. The measures include
import bans on certain goods that generate significant revenue for Russia, as well as certain bans in the financial and
services sectors. In February 2024, the Federal Department of Economic Affairs, Education and Research adopted
measures of the EU’s 13th sanctions package, which target, among others, individuals, entities and organizations that
are operating in Russia’s military-industrial complex and that are involved in supplying defense equipment from the
Democratic People’s Republic of Korea, as well as officials from the occupied territories of Ukraine.
UBS’s sanctions programs are designed to comply with sanctions across multiple jurisdictions, including those imposed
by the United Nations, Switzerland, the EU, the UK and the US.
The revised Swiss Federal Data Protection Act and the corresponding Data Protection Ordinance entered into force on
1 September 2023. The revised law represents a fundamental reform that strengthens the rights of consumers regarding
their data by enhancing the transparency and accountability rules for companies processing data, among other measures.
In addition, it seeks to align Swiss data protection law with the EU General Data Protection Regulation, in order to ensure
continued cross-border transmission of data with EU Member States.
Other developments in the US
In October 2023, the Federal Reserve Board, the FDIC and the OCC adopted revisions to their regulations implementing
the Community Reinvestment Act (the CRA). The CRA encourages banks to meet the credit needs of the communities in
which they do business, with a focus on low- and moderate-income communities. The final rule will implement separate
evaluations for retail lending, retail services and products, community development financing, and community
development services for banks with over USD 2bn in total assets. For large banks with over USD 10bn in total assets,
the evaluation of retail services and products will cover digital delivery systems. The final rule also updates requirements
on the reporting of exposures. The rule has an implementation date of 1 April 2024, with additional phase-in periods for
general provisions and reporting that extend out to April 2027. UBS Bank USA expects a modest level of increased
monitoring and reporting requirements .
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Our business model and environment | Regulatory and legal developments 22
In October 2022, the SEC adopted rules requiring US national securities exchanges, including the New York Stock
Exchange (the NYSE) and Nasdaq, to adopt listing standards that require issuers to adopt and enforce a policy to recover
from executive officers incentive compensation received based on attainment of a financial reporting measure in the
event that the issuer is required to prepare an accounting restatement of financial statements due to material non-
compliance with financial reporting requirements. The SEC approved the listing standards promulgated by the NYSE and
Nasdaq in June 2023 and the clawback policy requirement came into effect as of 1 December 2023. Under the listing
standards, an issuer must recover the amount of incentive-based compensation that would not have been received if it
had been determined based on the restated financial information. UBS Group AG, UBS AG and Credit Suisse AG each
have securities listed on US national securities exchanges and have adopted a policy to comply with the listing standards.
In September 2023, the new rules from the SEC to enhance and standardize disclosure requirements related to
cybersecurity incidents and cybersecurity risk management, strategy and governance became effective. Among other
changes, the rules require foreign private issuers, including UBS Group AG, UBS AG and Credit Suisse AG, to annually
report material information regarding their cybersecurity risk management, strategy and governance on Form 20-F. The
Form 20-F disclosures are applicable with annual reports for fiscal years ending on or after 15 December 2023.
Other developments in Europe
US securities markets will transition to one business day after the trade date (T+1) settlement of most transactions in May
2024. In October 2023, the European Securities and Markets Authority (ESMA) launched a call for evidence on shortening
the standard settlement cycle for securities transactions from two business days after the trade date (T+2) to T+1. ESMA
aims to perform an assessment of the costs and benefits linked to the potential reduction of the securities settlement
cycle in the EU and intends to submit the results of its assessment to the European Commission and publish a final report
in the fourth quarter of 2024, at the latest. The UK Treasury has also established an Accelerated Settlement Taskforce to
consider whether the UK should follow the US and transition to a T+1 settlement. The UK task force is expected to
publish its findings in 2024, with further work expected during 2024. UBS is implementing and testing required
enhancements based on the US rules and will prepare for further implementation according to the evolving rules and
market practice in the UK, the EU and Switzerland.
In May 2023, the European Commission presented draft legislative proposals aimed at empowering retail investors to
make investment decisions that are aligned with their needs and preferences and ensuring that they are treated fairly
and duly protected. The proposals also aim to encourage greater participation in EU capital markets and to enable a
greater volume of funds to flow more easily into EU capital markets. The package revises EU capital markets rules, which,
once agreed and in force, could have significant implications and require significant implementation efforts by UBS across
business divisions.
In June 2023, legislators in the EU reached a provisional agreement on amendments to the Capital Requirements
Regulation and the Capital Requirements Directive. The provisional agreement includes, alongside measures to implement
the remaining elements of the Basel III standard, a framework that would require non-EU firms to establish a physical
presence within the EU when providing certain banking services to EU-domiciled clients and counterparties (including
deposit-taking and commercial lending), unless they are subject to an exemption. The changes will affect the cross-border
provision of certain banking services and will require UBS to adapt its approaches to providing such services to clients in
the EU. The requirement is expected to become effective in late 2026, with grandfathering provisions for contracts already
in existence at the date of introduction.
In December 2023, the Swiss Confederation and the UK signed a mutual recognition agreement (an MRA) for financial
services to facilitate cross-border financial activities. The MRA is supplemented by measures to enhance supervisory
cooperation and coordination. The MRA envisages a memorandum of understanding between FINMA and the Bank of
England on resolution arrangements, and it is expected to enable Swiss banks to provide cross-border investment services
to high net worth UK-domiciled clients and to broadly allow UK and Swiss over-the-counter derivatives counterparties to
choose whether to rely on Swiss or UK risk mitigation rules (except for physically settled foreign exchange swaps and
forwards). The agreement is expected to apply from 2026, depending on the completion of parliamentary approval in
both countries.
Annual Report 2023 |
Our business model and environment | Risk factors 23
Risk factors
Certain risks, including those described below, may affect our ability to execute our strategy or our business activities,
financial condition, results of operations and prospects. We are inherently exposed to multiple risks, many of which may
become apparent only with the benefit of hindsight. As a result, risks that we do not consider to be material, or of which
we are not currently aware, could also adversely affect us. Within each category, the risks that we consider to be most
material are presented first.
Strategy, management and operational risks
UBS’s acquisition of Credit Suisse Group AG exposes us to heightened litigation risk and regulatory scrutiny and entails
significant additional costs, liabilities and business integration risks that affect UBS AG
UBS acquired Credit Suisse Group AG under exceptional circumstances of volatile financial markets and the continued
outflows and deteriorating overall financial position of Credit Suisse, in order to avert a failure of Credit Suisse and thus
damage to the Swiss financial center and to global financial stability. The acquisition was effected through a merger of
Credit Suisse Group AG with and into UBS Group AG, with UBS Group AG succeeding to all assets and all liabilities of
Credit Suisse Group AG, becoming the direct or indirect shareholder of the former Credit Suisse Group AG‘s direct and
indirect subsidiaries. Therefore, on a consolidated basis, all assets, risks and liabilities of the Credit Suisse Group became
a part of UBS. This includes all ongoing and future litigation, regulatory and similar matters arising out of the business of
the Credit Suisse Group, thereby materially increasing UBS‘s exposure to litigation and investigation risks, as described in
further detail below.
We have incurred substantial transaction fees and costs in connection with the transaction and will continue to incur
substantial integration and restructuring costs. In addition, we may not realize all of the expected cost reductions and
other benefits of the transaction. We may not be able to successfully execute our strategic plans or to achieve the
expected benefits of the acquisition of the Credit Suisse Group. The success of the transaction, including anticipated
benefits and cost savings, will depend, in part, on the ability to successfully integrate the operations of both firms rapidly
and effectively, while maintaining stability of operations and high levels of service to customers of the combined franchise.
Our ability to successfully integrate Credit Suisse will depend on a number of factors, some of which are outside of our
control, including our ability to:
–
combine the operations of the two firms in a manner that preserves client service, simplifies infrastructure and results
in operating cost savings;
–
reverse outflows of deposits and client invested assets at Credit Suisse, particularly in its Wealth Management and
Switzerland and to attract additional deposits and other client assets to the combined firm;
–
achieve cost reductions at the levels and in the timeframe we plan;
–
enhance, integrate, and, where necessary, remediate risk management and financial control and other systems and
frameworks, including to remediate the material weakness in Credit Suisse’s internal controls over financial reporting;
–
simplify the legal structure of the combined firm in an expedited manner, through the planned mergers of UBS AG
and Credit Suisse AG and of UBS Switzerland AG and Credit Suisse (Schweiz) AG, as well as the creation of a single
intermediate holding company (IHC) for the combined firm in the U.S., other entity mergers and consolidations and
asset dispositions, including obtaining regulatory approvals and licenses required to implement such changes;
–
retain staff and to reverse attrition of staff in certain of Credit Suisse’s business areas;
–
successfully execute the wind-down of the assets and liabilities in its Non-core and Legacy division and release capital
and resources for other purposes; and
–
resolve outstanding litigation, regulatory and similar matters, including matters relating to Credit Suisse, on terms that
are not significantly adverse to the UBS Group, as well as to successfully remediate outstanding regulatory and
supervisory matters and meet other regulatory commitments.
Further investigation and planning for integration is taking place, and risks that we do not currently consider to be
material, or of which we are not currently aware, could also adversely affect us.
The level of success in the absorption of Credit Suisse, in the integration of the two groups and their businesses,
particularly in the area of the Swiss domestic bank, as well as domestic and international wealth management business,
and in the execution of the planned strategy regarding cost reduction and divestment of any non-core assets, and the
level of resulting impairments and write-downs, may impact the operational results, share price and the credit rating of
UBS entities. The past financial performance of each of UBS Group AG and Credit Suisse may not be indicative of their
future financial performance. The combined group will be required to devote significant management attention and
resources to integrating its business practices and support functions. The diversion of management’s attention and any
delays or difficulties encountered in connection with the transaction and the coordination of the two companies’
operations could have an adverse effect on the business, financial results, financial condition or the share price of the
combined group following the transaction. The coordination process may also result in additional and unforeseen
expenses.
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Our business model and environment | Risk factors 24
Our reputation is critical to our success
Our reputation is critical to the success of our strategic plans, business and prospects. Reputational damage is difficult to
reverse, and improvements tend to be slow and difficult to measure. In the past, our reputation has been adversely
affected by our losses during the financial crisis, investigations into our cross-border private banking services, criminal
resolutions of LIBOR-related and foreign exchange matters, as well as other matters. We believe that reputational damage
as a result of these events was an important factor in our loss of clients and client assets across our asset-gathering
businesses. The Credit Suisse Group has more recently been subject to significant litigation and regulatory matters and
to financial losses that adversely affected its reputation and the confidence of clients, which played a significant role in
the failure of the Credit Suisse Group in March 2023. These events, or new events that cause reputational damage could
have a material adverse effect on our results of operation and financial condition, as well as our ability to achieve our
strategic goals and financial targets.
Operational risks affect our business
Our businesses depend on our ability to process a large number of transactions, many of which are complex, across
multiple and diverse markets in different currencies, to comply with requirements of many different legal and regulatory
regimes to which we are subject and to prevent, or promptly detect and stop, unauthorized, fictitious or fraudulent
transactions. We also rely on access to, and on the functioning of, systems maintained by third parties, including clearing
systems, exchanges, information processors and central counterparties. Any failure of our or third-party systems could
have an adverse effect on us. These risks may be greater as we deploy newer technologies, such as blockchain, or
processes, platforms or products that rely on these technologies. Our operational risk management and control systems
and processes are designed to help ensure that the risks associated with our activities – including those arising from
process error, failed execution, misconduct, unauthorized trading, fraud, system failures, financial crime, cyberattacks,
breaches of information security, inadequate or ineffective access controls and failure of security and physical protection
– are appropriately controlled. If our internal controls fail or prove ineffective in identifying and remedying these risks,
we could suffer operational failures that might result in material losses, such as the substantial loss we incurred from the
unauthorized trading incident announced in September 2011. The acquisition of the Credit Suisse Group may elevate
these risks, particularly during the first phases of integration, as the firms have historically operated under different
procedures, IT systems, risk policies and structures of governance.
As a significant proportion of our staff have been and will continue working from outside the office, we have faced, and
will continue to face, new challenges and operational risks, including maintenance of supervisory and surveillance
controls, as well as increased fraud and data security risks. While we have taken measures to manage these risks, these
measures could prove not to be effective.
We use automation as part of our efforts to improve efficiency, reduce the risk of error and improve our client experience.
We intend to expand the use of robotic processing, machine learning and artificial intelligence to further these goals.
Use of these tools presents their own risks, including the need for effective design and testing; the quality of the data
used for development and operation of machine learning and artificial intelligence tools may adversely affect their
functioning and result in errors and other operational risks.
Financial services firms have increasingly been subject to breaches of security and to cyber- and other forms of attack,
some of which are sophisticated and targeted attacks intended to gain access to confidential information or systems,
disrupt service or steal or destroy data, which may result in business disruption or the corruption or loss of data at UBS’s
locations or those of third parties. Cyberattacks by hackers, terrorists, criminal organizations, nation states and extremists
have also increased in frequency and sophistication. Current geopolitical tensions have also led to increased risk of
cyberattack from foreign state actors. In particular, the Russia–Ukraine war and the imposition of significant sanctions on
Russia by Switzerland, the US, the EU, the UK and others has resulted and may continue to result in an increase in the
risk of cyberattacks. Such attacks may occur on our own systems or on the systems that are operated by external service
providers, may be attempted through the introduction of ransomware, viruses or malware, phishing and other forms of
social engineering, distributed denial of service attacks and other means. These attempts may occur directly, or using
equipment or security passwords of our employees, third -party service providers or other users. Cybersecurity risks also
have increased due to the widespread use of digital technologies, cloud computing and mobile devices to conduct
financial business and transactions, as well as due to generative AI, which increases the capabilities of adversaries to
mount sophisticated phishing attacks, for example, through the use of deepfake technologies, and presents new
challenges to the protection of our systems and networks and the confidentiality and integrity of our data. During the
first quarter of 2023, a third-party vendor, ION XTP, suffered a ransomware attack, which resulted in some disruption to
our exchange-traded derivatives clearing activities, although we restored our services within 36 hours, using an available
alternative solution. In addition to external attacks, we have experienced loss of client data from failure by employees
and others to follow internal policies and procedures and from misappropriation of our data by employees and others.
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Our business model and environment | Risk factors 25
We may not be able to anticipate, detect or recognize threats to our systems or data and our preventative measures may
not be effective to prevent an attack or a security breach. In the event of a security breach, notwithstanding our
preventative measures, we may not immediately detect a particular breach or attack. The acquisition of the Credit Suisse
Group may elevate and intensify these risks as would -be attackers have a larger potential target in the combined bank
and differences in systems, policies, and platforms could make threat detection more difficult. In addition, the
implementation of the large-scale technological change program that is necessary to integrate the combined bank’s
systems at pace may also result in increased risks. Once a particular attack is detected, time may be required to investigate
and assess the nature and extent of the attack, and to restore and test systems and data. If a successful attack occurs at
a service provider, as we have recently experienced, we may be dependent on the service provider’s ability to detect the
attack, investigate and assess the attack and successfully restore the relevant systems and data. A successful breach or
circumvention of security of our or a service provider’s systems or data could have significant negative consequences for
us, including disruption of our operations, misappropriation of confidential information concerning us or our clients,
damage to our systems, financial losses for us or our clients, violations of data privacy and similar laws, litigation exposure
and damage to our reputation. We may be subject to enforcement actions as regulatory focus on cybersecurity increases
and regulators have announced new rules, guidance and initiatives on ransomware and other cybersecurity-related issues.
We are subject to complex and frequently changing laws and regulations governing the protection of client and personal
data, such as the EU General Data Protection Regulation. Ensuring that we comply with applicable laws and regulations
when we collect, use and transfer personal information requires substantial resources and may affect the ways in which
we conduct our business. In the event that we fail to comply with applicable laws, we may be exposed to regulatory fines
and penalties and other sanctions. We may also incur such penalties if our vendors or other service providers or clients
or counterparties fail to comply with these laws or to maintain appropriate controls over protected data. In addition, any
loss or exposure of client or other data may adversely damage our reputation and adversely affect our business.
A major focus of US and other countries’ governmental policies relating to financial institutions in recent years has been
on fighting money laundering and terrorist financing. We are required to maintain effective policies, procedures and
controls to detect, prevent and report money laundering and terrorist financing, and to verify the identity of our clients
under the laws of many of the countries in which we operate. We are also subject to laws and regulations related to
corrupt and illegal payments to government officials by others, such as the US Foreign Corrupt Practices Act and the UK
Bribery Act. We have implemented policies, procedures and internal controls that are designed to comply with such laws
and regulations. Notwithstanding this, US regulators have found deficiencies in the design and operation of anti-money
laundering programs in our US operations. We have undertaken a significant program to address these regulatory
findings with the objective of fully meeting regulatory expectations for our programs. Failure to maintain and implement
adequate programs to combat money laundering, terrorist financing or corruption, or any failure of our programs in
these areas, could have serious consequences both from legal enforcement action and from damage to our reputation.
Frequent changes in sanctions imposed and increasingly complex sanctions imposed on countries, entities and individuals,
as exemplified by the breadth and scope of the sanctions imposed in relation to the war in Ukraine, increase our cost of
monitoring and complying with sanctions requirements and increase the risk that we will not identify in a timely manner
client activity that is subject to a sanction.
As a result of new and changed regulatory requirements and the changes we have made in our legal structure, the
volume, frequency and complexity of our regulatory and other reporting has remained elevated. Regulators have also
significantly increased expectations regarding our internal reporting and data aggregation, as well as management
reporting. We have incurred, and continue to incur, significant costs to implement infrastructure to meet these
requirements. Failure to meet external reporting requirements accurately and in a timely manner or failure to meet
regulatory expectations of internal reporting, data aggregation and management reporting could result in enforcement
action or other adverse consequences for us.
In addition, despite the contingency plans that we have in place, our ability to conduct business may be adversely affected
by a disruption in the infrastructure that supports our businesses and the communities in which we operate. This may
include a disruption due to natural disasters, pandemics, civil unrest, war or terrorism and involve electrical,
communications, transportation or other services that we use or that are used by third parties with whom we conduct
business.
We depend on our risk management and control processes to avoid or limit potential losses in our businesses
Controlled risk-taking is a major part of the business of a financial services firm. Some losses from risk-taking activities
are inevitable, but to be successful over time, we must balance the risks we take against the returns generated. Therefore,
we must diligently identify, assess, manage and control our risks, not only in normal market conditions but also as they
might develop under more extreme, stressed conditions, when concentrations of exposures can lead to severe losses.
We have not always been able to prevent serious losses arising from risk management failures and extreme or sudden
market events. We recorded substantial losses on fixed-income trading positions in the 2008 financial crisis, in the
unauthorized trading incident in 2011 and, more recently, positions resulting from the default of a US prime brokerage
client. In the recent past, the Credit Suisse Group has suffered very significant losses from the default of the US prime
brokerage client, the losses in supply-chain finance funds managed by it, as well as other matters. As a result of these,
Credit Suisse is subject to significant regulatory remediation obligations to address deficiencies in its risk management
and controls systems, that continue following the merger.
Annual Report 2023 |
Our business model and environment | Risk factors 26
We regularly revise and strengthen our risk management and control frameworks to seek to address identified
shortcomings. Nonetheless, we could suffer further losses in the future if, for example:
–
we do not fully identify the risks in our portfolio, in particular risk concentrations and correlated risks;
–
our assessment of the risks identified, or our response to negative trends, proves to be untimely, inadequate,
insufficient or incorrect;
–
our risk models prove insufficient to predict the scale of financial risks the bank faces;
–
markets move in ways that we do not expect – in terms of their speed, direction, severity or correlation – and our
ability to manage risks in the resulting environment is, therefore, affected;
–
third parties to whom we have credit exposure or whose securities we hold are severely affected by events and we
suffer defaults and impairments beyond the level implied by our risk assessment; or
–
collateral or other security provided by our counterparties and clients proves inadequate to cover their obligations at
the time of default.
We also hold legacy risk positions, primarily in Non-core and Legacy, that, in many cases, are illiquid and may deteriorate
in value. The acquisition of the Credit Suisse Group, and the planned integration of UBS AG with Credit Suisse AG, is
increasing, materially, the portfolio of business that are outside of our risk appetite and subject to exit that will be
managed in the Non-core and Legacy segment.
We also manage risk on behalf of our clients. The performance of assets we hold for our clients may be adversely affected
by the same aforementioned factors. If clients suffer losses or the performance of their assets held with us is not in line
with relevant benchmarks against which clients assess investment performance, we may suffer reduced fee income and
a decline in assets under management, or withdrawal of mandates.
Investment positions, such as equity investments made as part of strategic initiatives and seed investments made at the
inception of funds that we manage, may also be affected by market risk factors. These investments are often not liquid
and generally are intended or required to be held beyond a normal trading horizon. Deteriorations in the fair value of
these positions would have a negative effect on our earnings.
We may be unable to identify or capture revenue or competitive opportunities, or retain and attract qualified
employees
The financial services industry is characterized by intense competition, continuous innovation, restrictive, detailed, and
sometimes fragmented regulation and ongoing consolidation. We face competition at the level of local markets and
individual business lines, and from global financial institutions that are comparable to us in their size and breadth, as well
as competition from new technology-based market entrants, which may not be subject to the same level of regulation.
Barriers to entry in individual markets and pricing levels are being eroded by new technology. We expect these trends to
continue and competition to increase. Our competitive strength and market position could be eroded if we are unable
to identify market trends and developments, do not respond to such trends and developments by devising and
implementing adequate business strategies, do not adequately develop or update our technology, including our digital
channels and tools, or are unable to attract or retain the qualified people needed.
The amount and structure of our employee compensation is affected not only by our business results, but also by
competitive factors and regulatory considerations.
In response to the demands of various stakeholders, including regulatory authorities and shareholders, and in order to
better align the interests of our staff with other stakeholders, we have increased average deferral periods for stock
awards, expanded forfeiture provisions and, to a more limited extent, introduced clawback provisions for certain awards
linked to business performance. We have also introduced individual caps on the proportion of fixed to variable pay for
the Executive Board (EB) members, as well as certain other employees. We will also be required to introduce and enforce
provisions requiring UBS to recover from EB members and certain other executives a portion of performance-based
incentive compensation in the event that UBS Group or another entity with securities listed on a US national securities
exchange, is required to restate its financial statements as a result of a material error.
Constraints on the amount or structure of employee compensation, higher levels of deferral, performance conditions and
other circumstances triggering the forfeiture of unvested awards may adversely affect our ability to retain and attract key
employees, particularly where we compete with companies that are not subject to these constraints. The loss of key staff
and the inability to attract qualified replacements could seriously compromise our ability to execute our strategy and to
successfully improve our operating and control environment, and could affect our business performance. This risk is
intensified by elevated levels of attrition among Credit Suisse employees. Swiss law requires that shareholders approve
the compensation of the UBS Group AG Board of Directors (the Group Board) and the UBS Group AG Group Executive
Board (GEB) each year. If UBS Group AG’s shareholders fail to approve the compensation for the GEB or the Group Board,
this could have an adverse effect on our ability to retain experienced directors and our senior management.
Annual Report 2023 |
Our business model and environment | Risk factors 27
Our operating results, financial condition and ability to pay our obligations in the future may be affected by funding,
dividends and other distributions received directly or indirectly from its subsidiaries, which may be subject to restrictions
UBS AG’s ability to pay its obligations in the future will depend on the level of funding, dividends and other distributions,
if any, received from UBS Switzerland AG and other subsidiaries. The ability of such subsidiaries to make loans or
distributions, directly or indirectly, to UBS AG may be restricted as a result of several factors, including restrictions in
financing agreements and the requirements of applicable law and regulatory, fiscal or other restrictions. In particular,
UBS AG’s direct and indirect subsidiaries, including UBS Switzerland AG, UBS Americas Holding LLC and UBS Europe SE,
are subject to laws and regulations require the entities to maintain minimum levels of capital and liquidity, that restrict
dividend payments, authorize regulatory bodies to block or reduce the flow of funds from those subsidiaries to UBS AG,
or could affect their ability to repay any loans made to, or other investments in, such subsidiary by UBS AG or another
member of the Group. For example, in the early stages of the COVID-19 pandemic, the European Central Bank ordered
all banks under its supervision to cease dividend distributions and the Board of Governors of the Federal Reserve System
limited capital distributions by bank holding companies and intermediate holding companies. Restrictions and regulatory
actions could impede access to funds that UBS AG may need to meet its obligations. In addition, UBS AG’s right to
participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to all prior claims of the
subsidiary’s creditors.
Furthermore, UBS AG may guarantee some of the payment obligations of certain of the Group’s subsidiaries from time
to time. These guarantees may require UBS AG to provide substantial funds or assets to subsidiaries or their creditors or
counterparties at a time when UBS AG is in need of liquidity to fund its own obligations.
Market, credit and macroeconomic risks
Performance in the financial services industry is affected by market conditions and the macroeconomic climate
Our businesses are materially affected by market and macroeconomic conditions. A market downturn and weak
macroeconomic conditions can be precipitated by a number of factors, including geopolitical events, such as international
armed conflicts, war, or acts of terrorism, the imposition of sanctions, global trade or global supply chain disruptions,
including energy shortages and food insecurity, changes in monetary or fiscal policy, changes in trade policies or
international trade disputes, significant inflationary or deflationary price changes, disruptions in one or more concentrated
economic sectors, natural disasters, pandemics or local and regional civil unrest. Such developments can have
unpredictable and destabilizing effects.
Adverse changes in interest rates, credit spreads, securities prices, market volatility and liquidity, foreign exchange rates,
commodity prices, and other market fluctuations, as well as changes in investor sentiment, can affect our earnings and
ultimately our financial and capital positions. As financial markets are global and highly interconnected, local and regional
events can have widespread effects well beyond the countries in which they occur. Any of these developments may
adversely affect our business or financial results.
As a result of significant volatility in the market, our businesses may experience a decrease in client activity levels and
market volumes, which would adversely affect our ability to generate transaction fees, commissions and margins,
particularly in Global Wealth Management and the Investment Bank. A market downturn would likely reduce the volume
and valuation of assets that we manage on behalf of clients, which would reduce recurring fee income that is charged
based on invested assets, primarily in Global Wealth Management and Asset Management, and performance-based fees
in Asset Management. Such a downturn could also cause a decline in the value of assets that we own and account for
as investments or trading positions. In addition, reduced market liquidity or volatility may limit trading opportunities and
therefore may reduce transaction-based income and may also impede our ability to manage risks.
Health emergencies, including pandemics and measures taken by governmental authorities to manage them, may have
effects such as labor market displacements, supply chain disruptions, and inflationary pressures, and adversely affect
global and regional economic conditions, resulting in contraction in the global economy, substantial volatility in the
financial markets, crises in markets for goods and services, disruptions in real estate markets, increased unemployment,
increased credit and counterparty risk, and operational challenges, as we saw with the COVID-19 pandemic. Such
economic or market disruptions, including inflationary pressures, may lead to reduced levels of client activity and demand
for our products and services, increased utilization of lending commitments, significantly increased client defaults,
continued and increasing credit and valuation losses in our loan portfolios, loan commitments and other assets, and
impairments of other financial assets. A fall in equity markets and a consequent decline in invested assets would also
reduce recurring fee income in our Global Wealth Management and Asset Management businesses, as UBS experienced
in the second quarter of 2022. These factors and other consequences of a health emergency may negatively affect our
financial condition, including possible constraints on capital and liquidity, as well as a higher cost of capital, and possible
downgrades to our credit ratings.
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Our business model and environment | Risk factors 28
Geopolitical events:
Ukraine war, may have significant impacts on global markets, exacerbate global inflationary pressures, and slow global
growth. In addition, the ongoing conflicts may continue to cause significant population displacement, and lead to
shortages of vital commodities, including energy shortages and food insecurity outside the areas immediately involved in
armed conflict. Governmental responses to the armed conflicts, including, with respect to the Russia/Ukraine war,
coordinated successive sets of sanctions on Russia and Belarus, and Russian and Belarusian entities and nationals, and
the uncertainty as to whether the ongoing conflicts will widen and intensify, may continue to have significant adverse
effects on the market and macroeconomic conditions, including in ways that cannot be anticipated. If individual countries
impose restrictions on cross-border payments or trade, or other exchange or capital controls, or change their currency
(for example, if one or more countries should leave the Eurozone, as a result of the imposition of sanctions on individuals,
entities or countries, or escalation of trade restrictions and other actions between the US, or other countries, and China),
we could suffer adverse effects on our business, losses from enforced default by counterparties, be unable to access our
own assets or be unable to effectively manage our risks.
We could be materially affected if a crisis develops, regionally or globally, as a result of disruptions in markets due to
macroeconomic or political developments, trade restrictions, or the failure of a major market participant. Over time, our
strategic plans have become more heavily dependent on our ability to generate growth and revenue in emerging markets,
including China, causing us to be more exposed to the risks associated with such markets.
Global Wealth Management derives revenues from all the principal regions, but has a greater concentration in Asia than
many peers and a substantial presence in the US, unlike many European peers. The Investment Bank’s business is more
heavily weighted to Europe and Asia than our peers, while its derivatives business is more heavily weighted to structured
products for wealth management clients, in particular with European and Asian underlyings. Our performance may
therefore be more affected by political, economic and market developments in these regions and businesses than some
other financial service providers.
The extent to which ongoing conflicts, current inflationary pressures and related adverse economic conditions affect our
businesses, results of operations and financial condition, as well as our regulatory capital and liquidity ratios, will depend
on future developments, including the effects of the current conditions on our clients, counterparties, employees and
third-party service providers.
Our credit risk exposure to clients, trading counterparties and other financial institutions would increase under adverse
or other economic conditions
Credit risk is an integral part of many of our activities, including lending, underwriting and derivatives activities. Adverse
economic or market conditions, or the imposition of sanctions or other restrictions on clients, counterparties or financial
institutions, may lead to impairments and defaults on these credit exposures. Losses may be exacerbated by declines in
the value of collateral securing loans and other exposures. In our prime brokerage, securities finance and Lombard lending
businesses, we extend substantial amounts of credit against securities collateral, the value or liquidity of which may
decline rapidly. Market closures and the imposition of exchange controls, sanctions or other measures may limit our
ability to settle existing transactions or to realize on collateral, which may result in unexpected increases in exposures.
Our Swiss mortgage and corporate lending portfolios are a large part of our overall lending. We are therefore exposed
to the risk of adverse economic developments in Switzerland, including property valuations in the housing market, the
strength of the Swiss franc and its effect on Swiss exports, return to negative interest rates applied by the Swiss National
Bank, economic conditions within the Eurozone or the EU, and the evolution of agreements between Switzerland and
the EU or EEA, which represent Switzerland’s largest export market. We have exposures related to real estate in various
countries, including a substantial Swiss mortgage portfolio. Although we believe this portfolio is prudently managed, we
could nevertheless be exposed to losses if a substantial deterioration in the Swiss real estate market were to occur.
As we experienced in 2020, under the International Financial Reporting Standards (IFRS) 9 expected credit loss (ECL)
regime, credit loss expenses may increase rapidly at the onset of an economic downturn as a result of higher levels of
credit impairments (stage 3), as well as higher ECL from stages 1 and 2. Substantial increases in ECL could exceed
expected loss for regulatory capital purposes and adversely affect our common equity tier 1 (CET1) capital and regulatory
capital ratios.
Interest rate trends and changes could negatively affect our financial results
UBS’s businesses are sensitive to changes in interest rate trends. A prolonged period of low or negative interest rates,
particularly in Switzerland and the Eurozone, adversely affected the net interest income generated by UBS’s Personal &
Corporate Banking and Global Wealth Management businesses prior to 2022. Actions that UBS took to mitigate adverse
effects on income, such as the introduction of selective deposit fees or minimum lending rates, contributed to outflows
of customer deposits (a key source of funding for UBS), net new money outflows and a declining market share in its
Swiss lending business.
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Our business model and environment | Risk factors 29
During 2022, interest rates increased sharply in the US and most other markets, including a shift from negative to positive
central bank policy rates in the Eurozone and Switzerland, as central banks responded to higher inflation. Higher interest
rates generally benefit UBS’s net interest income. However, as returns on alternatives to deposits increase with rising
interest rates, such as returns on money market funds, UBS experienced outflows from customer deposits and shifts of
deposits from lower -interest account types to accounts bearing higher interest rates, such as savings and certificates of
deposit, starting with effects in the US, where rates had rapidly increased. In addition, higher for longer rates, such as
those experienced in 2023, have led similar shifts in euro and Swiss Franc deposits. Sustained higher interest rates also
may adversely affect our credit counterparties. Customer deposit outflows could require UBS to obtain alternative
funding, which would likely be more costly than customer deposits.
Currency
fluctuation may have an adverse effect on our profits, balance sheet and regulatory capital
We are subject to currency fluctuation risks as a substantial portion of our assets and liabilities are denominated in
currencies other than our UBS AG presentation currency, the US dollar. In order to hedge our CET1 capital ratio, our
CET1 capital must have foreign currency exposure, which leads to currency sensitivity. As a consequence, it is not possible
to simultaneously fully hedge both CET1 capital and the CET1 capital ratio. Accordingly, changes in foreign exchange
rates may adversely affect our profits, balance sheet, and capital, leverage and liquidity coverage ratios.
Regulatory and legal risks
Material legal and regulatory risks arise in the conduct of our business
As a global financial services firm operating in more than 50 countries, we are subject to many different legal, tax and
regulatory regimes, including extensive regulatory oversight, and are exposed to significant liability risk. We are subject
to a large number of claims, disputes, legal proceedings and government investigations, and we expect that our ongoing
business activities will continue to give rise to such matters in the future. In addition, as noted above, UBS Group inherited
claims against Credit Suisse entities as part of the acquisition, including matters that may be material to the operating
results of the combined group such as the ongoing supply chain finance funds (SCFF) matter. This will affect UBS AG
upon the planned merger with Credit Suisse AG. The extent of our financial exposure to these and other matters is
material and could substantially exceed the level of provisions that we have established. We are not able to predict the
financial and non-financial consequences these matters may have when resolved.
We may be subject to adverse preliminary determinations or court decisions that may negatively affect public perception
and our reputation, result in prudential actions from regulators, and cause us to record additional provisions for such
matters even when we believe we have substantial defenses and expect to ultimately achieve a more favorable outcome.
This risk is illustrated by the award of aggregate penalties and damages of EUR 4.5bn by the court of first instance in
France. This award was reduced to an aggregate of EUR 1.8bn by the Court of Appeal, and in a further appeal, the
French Supreme Court referred the case back to the Paris Court of Appeal to reconsider the amount after a new trial.
Litigation, regulatory and similar matters may also result in non-monetary penalties and consequences. Among other
things, a guilty plea to, or conviction of, a crime (including as a result of termination of the Deferred Prosecution
Agreement Credit Suisse entered into with the United States Department of Justice in 2021 to resolve its Mozambique
matter) could have material consequences for UBS.
Resolution of regulatory proceedings has required us to obtain waivers of regulatory disqualifications to maintain certain
operations, may entitle regulatory authorities to limit, suspend or terminate licenses and regulatory authorizations, and
may permit financial market utilities to limit, suspend or terminate our participation in them. Failure to obtain such
waivers, or any limitation, suspension or termination of licenses, authorizations or participations, could have material
adverse consequences for us.
Our settlements with governmental authorities in connection with foreign exchange, London Interbank Offered Rates
(LIBOR) and other benchmark interest rates starkly illustrate the significantly increased level of financial and reputational
risk now associated with regulatory matters in major jurisdictions. In connection with investigations related to LIBOR and
other benchmark rates and to foreign exchange and precious metals, very large fines and disgorgement amounts were
assessed against us, and we were required to enter guilty pleas despite our full cooperation with the authorities in the
investigations, and despite our receipt of conditional leniency or conditional immunity from anti-trust authorities in a
number of jurisdictions, including the US and Switzerland.
For a number of years, we have been, and we continue to be, subject to a very high level of regulatory scrutiny and to
certain regulatory measures that constrain our strategic flexibility. We believe we have remediated the deficiencies that
led to significant losses in the past and made substantial changes in our controls and conduct risk frameworks to address
the issues highlighted by the LIBOR-related, foreign exchange and precious metals regulatory resolutions. We have also
undertaken extensive efforts to implement new regulatory requirements and meet heightened expectations.
Credit Suisse and UBS have become the target of lawsuits, and may become the target of further litigation, in connection
with the merger transaction and/or the regulatory and other actions taken in connection with the merger transaction, all
of which could result in substantial costs.
We continue to be in active dialogue with regulators concerning the actions we are taking to improve our operational
risk management, risk control, anti-money laundering, data management and other frameworks, and otherwise seek to
meet supervisory expectations, but there can be no assurance that our efforts will have the desired effects. As a result of
this history, our level of risk with respect to regulatory enforcement may be greater than that of some of our peers.
Annual Report 2023 |
Our business model and environment | Risk factors 30
Substantial changes in regulation may adversely affect our businesses and our ability to execute our strategic plans
Since the financial crisis of 2008, we have been subject to significant regulatory requirements, including recovery and
resolution planning, changes in capital and prudential standards, changes in taxation regimes as a result of changes in
governmental administrations, new and revised market standards and fiduciary duties, as well as new and developing
environmental, social and governance (ESG) standards and requirements. Notwithstanding attempts by regulators to
align their efforts, the measures adopted or proposed for banking regulation differ significantly across the major
jurisdictions, making it increasingly difficult to manage a global institution. Regulatory reviews of the events leading to
the failures of US banks and the acquisition of Credit Suisse by UBS Group in 2023, as well as regulatory measures to
complete the implementation of the Basel 3 standards, may increase capital, liquidity and other requirements applicable
to banks, including UBS AG. In addition, Swiss regulatory changes with regard to such matters as capital and liquidity
have often proceeded more quickly than those in other major jurisdictions, and Switzerland’s requirements for major
international banks are among the strictest of the major financial centers. This could put Swiss banks, such as UBS AG,
at a disadvantage when competing with peer financial institutions subject to more lenient regulation or with unregulated
non-bank competitors.
Our implementation of additional regulatory requirements and changes in supervisory standards, as well as our
compliance with existing laws and regulations, continue to receive heightened scrutiny from supervisors. If we do not
meet supervisory expectations in relation to these or other matters, or if additional supervisory or regulatory issues arise,
we would likely be subject to further regulatory scrutiny, as well as measures that may further constrain our strategic
flexibility.
Resolvability and resolution and recovery planning:
We have moved significant operations into subsidiaries to improve
resolvability and meet other regulatory requirements, and this has resulted in substantial implementation costs, increased
our capital and funding costs and reduced operational flexibility. For example, we have transferred all of our US
subsidiaries under a US intermediate holding company to meet US regulatory requirements, and have transferred
substantially all the operations of Personal & Corporate Banking and Global Wealth Management booked in Switzerland
to UBS Switzerland AG to improve resolvability.
These changes create operational, capital, liquidity, funding and tax inefficiencies. Our operations in subsidiaries are
subject to local capital, liquidity, stable funding, capital planning and stress testing requirements. These requirements
have resulted in increased capital and liquidity requirements in affected subsidiaries, which limit our operational flexibility
and negatively affect our ability to benefit from synergies between business units and to distribute earnings to the Group.
Under the Swiss too-big-to-fail (TBTF) framework, we are required to put in place viable emergency plans to preserve the
operation of systemically important functions in the event of a failure. Moreover, under this framework and similar
regulations in the US, the UK, the EU and other jurisdictions in which we operate, we are required to prepare credible
recovery and resolution plans detailing the measures that would be taken to recover in a significant adverse event or in
the event of winding down the Group or the operations in a host country through resolution or insolvency proceedings.
If a recovery or resolution plan that we produce is determined by the relevant authority to be inadequate or not credible,
relevant regulation may permit the authority to place limitations on the scope or size of our business in that jurisdiction,
or oblige us to hold higher amounts of capital or liquidity or to change our legal structure or business in order to remove
the relevant impediments to resolution.
The authorities in Switzerland and internationally are working on lessons learned from the Credit Suisse and the US
regional bank failures, which might result in additional requirements regarding resolution planning and early intervention
tools for authorities.
Capital and prudential standards: As an internationally active Swiss systemically relevant bank (an SRB), we are subject to
capital and total loss-absorbing capacity (TLAC) requirements that are among the most stringent in the world. Moreover,
many of our subsidiaries must comply with minimum capital, liquidity and similar requirements and, as a result, UBS
Group AG and UBS AG have contributed a significant portion of their capital and provide substantial liquidity to these
subsidiaries. These funds are available to meet funding and collateral needs in the relevant entities, but are generally not
readily available for use by the Group as a whole.
We expect our risk-weighted assets (RWA) to further increase as the effective date for additional capital standards
promulgated by the Basel Committee on Banking Supervision (the BCBS) draws nearer. In connection with the acquisition
of the Credit Suisse Group, FINMA has permitted Credit Suisse entities to continue to apply certain prior interpretations
and has provided supervisory rulings on the treatment of certain items for RWA or capital purposes. In general, these
interpretations require that UBS phase out the treatment over the next several years. In addition, FINMA has agreed that
additional capital requirement applicable to Swiss systemically relevant banks, which is based on market share in
Switzerland and leverage ratio denominator (LRD), will not increase as a result of acquisition of the Credit Suisse Group
before the end of 2025. The phase-out or end of these periods will likely increase our overall capital requirements upon
the planned merger with Credit Suisse AG, which increase may be substantial.
Increases in capital and liquidity standards could significantly curtail our ability to pursue strategic opportunities.
Annual Report 2023 |
Our business model and environment | Risk factors 31
Market regulation and fiduciary standards:
Our wealth and asset management businesses operate in an environment of
increasing regulatory scrutiny and changing standards with respect to fiduciary and other standards of care and the focus
on mitigating or eliminating conflicts of interest between a manager or advisor and the client, which require effective
implementation across the global systems and processes of investment managers and other industry participants. For
example, we have made material changes to our business processes, policies and the terms on which we interact with
these clients in order to comply with SEC Regulation Best Interest, which is intended to enhance and clarify the duties of
brokers and investment advisers to retail customers, the Volcker Rule, which limits our ability to engage in proprietary
trading, as well as changes in European and Swiss market conduct regulation. Future changes in the regulation of our
duties to customers may require us to make further changes to our businesses, which would result in additional expense
and may adversely affect our business. We may also become subject to other similar regulations substantively limiting the
types of activities in which we may engage or the way we conduct our operations.
In many instances, we provide services on a cross-border basis, and we are therefore sensitive to barriers restricting market
access for third-country firms. In particular, efforts in the EU to harmonize the regime for third-country firms to access
the European market may have the effect of creating new barriers that adversely affect our ability to conduct business in
these jurisdictions from Switzerland. In addition, a number of jurisdictions are increasingly regulating cross-border
activities based on determinations of equivalence of home country regulation, substituted compliance or similar principles
of comity. A negative determination with respect to Swiss equivalence could limit our access to the market in those
jurisdictions and may negatively influence our ability to act as a global firm. For example, the EU declined to extend its
equivalence determination for Swiss exchanges, which lapsed as of 30 June 2019.
UBS AG Group experienced cross-border outflows over a number of years as a result of heightened focus by fiscal
authorities on cross-border investment and fiscal amnesty programs, in anticipation of the implementation in Switzerland
of the global automatic exchange of tax information, and as a result of the measures UBS AG Group has implemented
in response to these changes. Further changes in local tax laws or regulations and their enforcement, additional cross-
border tax information exchange regimes, national tax amnesty or enforcement programs or similar actions may affect
our clients’ ability or willingness to do business with us and could result in additional cross-border outflows.
If we experience financial difficulties, FINMA has the power to open restructuring or liquidation proceedings or impose
protective measures in relation to UBS Group AG, UBS AG or UBS Switzerland AG, and such proceedings or measures
may have a material adverse effect on our shareholders and creditors
Under the Swiss Banking Act, FINMA is able to exercise broad statutory powers with respect to Swiss banks and Swiss
parent companies of financial groups, such as UBS Group AG, UBS AG and UBS Switzerland AG, if there is justified
concern that the entity is over-indebted, has serious liquidity problems or, after the expiration of any relevant deadline,
no longer fulfills capital adequacy requirements. Such powers include ordering protective measures, instituting
restructuring proceedings (and exercising any Swiss resolution powers in connection therewith), and instituting
liquidation proceedings, all of which may have a material adverse effect on shareholders and creditors or may prevent
UBS Group AG, UBS AG or UBS Switzerland AG from paying dividends or making payments on debt obligations.
UBS would have limited ability to challenge any such protective measures, and creditors and shareholders would also
have limited ability under Swiss law or in Swiss courts to reject them, seek their suspension, or challenge their imposition,
including measures that require or result in the deferment of payments.
If restructuring proceedings are opened with respect to UBS Group AG, UBS AG or UBS Switzerland AG, the resolution
powers that FINMA may exercise include the power to: (i) transfer all or some of the assets, debt and other liabilities, and
contracts of the entity subject to proceedings to another entity; (ii) stay for a maximum of two business days (a) the
termination of, or the exercise of rights to terminate, netting rights, (b) rights to enforce or dispose of certain types of
collateral or (c) rights to transfer claims, liabilities or certain collateral, under contracts to which the entity subject to
proceedings is a party; and / or (iii) partially or fully write down the equity capital and regulatory capital instruments and,
if such regulatory capital is fully written down, write down or convert into equity the other debt instruments of the entity
subject to proceedings. Shareholders and creditors would have no right to reject, or to seek the suspension of, any
restructuring plan pursuant to which such resolution powers are exercised. They would have only limited rights to
challenge any decision to exercise resolution powers or to have that decision reviewed by a judicial or administrative
process or otherwise.
Upon full or partial write-down of the equity and regulatory capital instruments of the entity subject to restructuring
proceedings, the relevant shareholders and creditors would receive no payment in respect of the equity and debt that is
written down, the write-down would be permanent, and the investors would likely not, at such time or at any time
thereafter, receive any shares or other participation rights, or be entitled to any write-up or any other compensation in
the event of a potential subsequent recovery of the debtor. If FINMA orders the conversion of debt of the entity subject
to restructuring proceedings into equity, the securities received by the investors may be worth significantly less than the
original debt and may have a significantly different risk profile. In addition, creditors receiving equity would be effectively
subordinated to all creditors of the restructured entity in the event of a subsequent winding up, liquidation or dissolution
of the restructured entity, which would increase the risk that investors would lose all or some of their investment.
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Our business model and environment | Risk factors 32
FINMA has significant discretion in the exercise of its powers in connection with restructuring proceedings. Furthermore,
certain categories of debt obligations, such as certain types of deposits, are subject to preferential treatment. As a result,
holders of obligations of an entity subject to a Swiss restructuring proceeding may have their obligations written down
or converted into equity even though obligations ranking on par with such obligations are not written down or converted.
Developments in sustainability, climate, environmental and social standards and regulations may affect our business and
impact our ability to fully realize our goals
We have set ambitious goals for ESG matters. These goals include our ambitions for environmental sustainability in our
operations, including carbon emissions, in the business we do with clients and in products that we offer. They also include
goals or aspirations for diversity in our workforce and supply chain, and support for the United Nations Sustainable
Development Goals. There is substantial uncertainty as to the scope of actions that may be required of us, governments
and others to achieve the goals we have set, and many of our goals and objectives are only achievable with a combination
of government and private action. National and international standards and expectations, industry and scientific practices,
and regulatory taxonomies and disclosure obligations addressing these matters are relatively immature and are rapidly
evolving. In addition, there are significant limitations in the data available to measure our climate and other goals.
Although we have defined and disclosed our goals based on the standards existing at the time of disclosure, there can
be no assurance (i) that the various ESG regulatory and disclosure regimes under which we operate will not come into
conflict with one another, (ii) that the current standards will not be interpreted differently than our understanding or
change in a manner that substantially increases the cost or effort for us to achieve such goals or (iii) that additional data
or methods, whether voluntary or required by regulation, may substantially change our calculation of our goals and
ambitions. It is possible that such goals may prove to be considerably more difficult or even impossible to achieve. The
evolving standards may also require us to substantially change the stated goals and ambitions. If we are not able to
achieve the goals we have set, or can only do so at significant expense to our business, we may fail to meet regulatory
expectations, incur damage to our reputation or be exposed to an increased risk of litigation or other adverse action.
While ESG regulatory regimes and international standards are being developed, including to require consideration of ESG
risks in investment decisions, some jurisdictions, notably in the US, have developed rules restricting the consideration of
ESG factors in investment and business decisions. Under these anti-ESG rules, companies that are perceived as boycotting
or discriminating against certain industries may be restricted from doing business with certain governmental entities. Our
businesses may be adversely affected if UBS is considered as discriminating against companies based on ESG
considerations, or if further anti-ESG rules are developed or broadened.
Material weakness of Credit Suisse controls over financial reporting
The Credit Suisse Group delayed its reporting for the year ending 2022 stating that it had identified material weaknesses
in its internal controls over financial reporting as a result of which the Credit Suisse Group management had concluded
that, as of 31 December 2022, its internal controls over financial reporting were not effective, and for the same reasons,
it reached the same conclusion regarding 31 December 2021. A material weakness is a deficiency or a combination of
deficiencies in internal controls over financial reporting such that there is a reasonable possibility that a material
misstatement of a registrant’s financial statements will not be prevented or detected on a timely basis. There is a risk that
a material error may not be detected by UBS Group AG’s internal control structure that could result in a material
misstatement to Credit Suisse’s reported financial results, which are consolidated with UBS Group AG’s results. Since the
acquisition, UBS Group AG has undertaken a review of the processes and systems giving rise to the material weaknesses
and the remediation program undertaken. This review is ongoing, and UBS expects to adopt and implement further
controls and procedures following the completion of such review and discussions with regulators. Based on this
assessment, management believes that, as of 31 December 2023, UBS’s internal control over financial reporting was
effective. Management has excluded Credit Suisse, which UBS Group AG acquired in 2023, from the scope of its
assessment of internal control over financial reporting, as permitted by SEC guidance for acquired businesses. This may
affect the UBS AG Group upon the planned merger with Credit Suisse AG.
Our financial results may be negatively affected by changes to assumptions and valuations, as well as changes to
accounting standards
We prepare our consolidated financial statements in accordance with IFRS. The application of these accounting standards
requires the use of judgment based on estimates and assumptions that may involve significant uncertainty at the time
they are made. This is the case, for example, with respect to the measurement of fair value of financial instruments, the
recognition of deferred tax assets (DTAs), the assessment of the impairment of goodwill, expected credit losses and
estimation of provisions for litigation, regulatory and similar matters. Such judgments, including the underlying estimates
and assumptions, which encompass historical experience, expectations of the future and other factors, are regularly
evaluated to determine their continuing relevance based on current conditions. Using different assumptions could cause
the reported results to differ. Changes in assumptions, or failure to make the changes necessary to reflect evolving market
conditions, may have a significant effect on the financial statements in the periods when changes occur. Estimates of
provisions may be subject to a wide range of potential outcomes and significant uncertainty. For example, the broad
range of potential outcomes in our legal proceedings in France and in a number of Credit Suisse’s legal proceedings
increase the uncertainty associated with assessing the appropriate provision. If the estimates and assumptions in future
periods deviate from the current outlook, our financial results may also be negatively affected.
Annual Report 2023 |
Our business model and environment | Risk factors 33
Changes to IFRS or interpretations thereof may cause future reported results and financial position to differ from current
expectations, or historical results to differ from those previously reported due to the adoption of accounting standards
on a retrospective basis. Such changes may also affect our regulatory capital and ratios. For example, the introduction of
the ECL regime under IFRS 9 in 2018 fundamentally changed how credit risk arising from loans, loan commitments,
guarantees and certain revocable facilities is accounted for. Under the ECL regime, credit loss expenses may increase
rapidly at the onset of an economic downturn as a result of higher levels of credit impairments (stage 3), as well as higher
ECL from stages 1 and 2, only gradually diminishing once the economic outlook improves. As we observed in 2020, this
effect may be more pronounced in a deteriorating economic environment. Substantial increases in ECL could exceed
expected loss for regulatory capital purposes and adversely affect our CET1 capital and regulatory capital ratios.
We may be unable to maintain our capital strength
Capital strength enables us to grow our businesses and absorb increases in regulatory and capital requirements. Our
ability to maintain our capital ratios is subject to numerous risks, including the financial results of our businesses, the
effect of changes to capital standards, methodologies and interpretations that may adversely affect the calculation of our
capital ratios, the imposition of risk add-ons or capital buffers, and the application of additional capital, liquidity and
similar requirements to subsidiaries. Our capital and leverage ratios are driven primarily by RWA, LRD and eligible capital,
all of which may fluctuate based on a number of factors, some of which are outside of our control. The results of our
businesses may be adversely affected by events arising from other risk factors described herein. In some cases, such as
litigation and regulatory risk and operational risk events, losses may be sudden and large.
Our eligible capital may be reduced by losses recognized within net profit or other comprehensive income. Eligible capital
may also be reduced for other reasons, including acquisitions that change the level of goodwill, changes in temporary
differences related to DTAs included in capital, adverse currency movements affecting the value of equity, prudential
adjustments that may be required due to the valuation uncertainty associated with certain types of positions, and changes
in the value of certain pension fund assets and liabilities or in the interest rate and other assumptions used to calculate
the changes in our net defined benefit obligation recognized in other comprehensive income.
RWA are driven by our business activities, by changes in the risk profile of our exposures, by changes in our foreign
currency exposures and foreign exchange rates, and by regulation. For instance, substantial market volatility, a widening
of credit spreads, adverse currency movements, increased counterparty risk, deterioration in the economic environment
or increased operational risk could result in an increase in RWA. Changes in the calculation of RWA, the imposition of
additional supplemental RWA charges or multipliers applied to certain exposures and other methodology changes, as
well as the finalization of the Basel III framework and Fundamental Review of the Trading Book promulgated by the BCBS,
which are expected to increase our RWA.
The leverage ratio is a balance sheet-driven measure and therefore limits balance sheet-intensive activities, such as
lending, more than activities that are less balance sheet intensive, and it may constrain our business even if we satisfy
other risk-based capital requirements. Our LRD is driven by, among other things, the level of client activity, including
deposits and loans, foreign exchange rates, interest rates, other market factors and changes in required liquidity. Many
of these factors are wholly or partly outside of our control.
The effect of taxes on our financial results is significantly influenced by tax law changes and reassessments of our
deferred tax assets and, also, operating losses of certain entities with no associated tax benefit
Our effective tax rate is highly sensitive to our performance, our expectation of future profitability and any potential
increases or decreases in statutory tax rates, such as any potential increase or decrease in the US federal corporate tax
rate. Furthermore, based on prior years’ tax losses and deductible temporary differences, we have recognized DTAs
reflecting the probable recoverable level based on future taxable profit as informed by our business plans. If our
performance is expected to produce diminished taxable profit in future years, particularly in the US, we may be required
to write down all or a portion of the currently recognized DTAs through the income statement in excess of anticipated
amortization. This would have the effect of increasing our effective tax rate in the year in which any write-downs are
taken. Conversely, if we expect the performance of entities in which we have unrecognized tax losses to improve,
particularly in the US or the UK, we could potentially recognize additional DTAs. The effect of doing so would be to
reduce our effective tax rate in years in which additional DTAs are recognized and to increase our effective tax rate in
future years. Our effective tax rate is also sensitive to any future reductions in statutory tax rates, particularly in the US,
which would cause the expected future tax benefit from items such as tax loss carry -forwards in the affected locations
to diminish in value. This, in turn, would cause a write-down of the associated DTAs. Conversely, an increase in US
corporate tax rates would result in an increase in the Group’s DTAs.
We generally revalue our DTAs in the fourth quarter of the financial year based on a reassessment of future profitability
taking into account our updated business plans. We consider the performance of our businesses and the accuracy of
historical forecasts, tax rates and other factors in evaluating the recoverability of our DTAs, including the remaining tax
loss carry-forward period and our assessment of expected future taxable profits over the life of DTAs. Estimating future
profitability is inherently subjective and is particularly sensitive to future economic, market and other conditions, which
are difficult to predict.
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Our business model and environment | Risk factors 34
Our results in past years have demonstrated that changes in the recognition of DTAs can have a very significant effect
on our reported results. Any future change in the manner in which UBS AG remeasures DTAs could affect UBS AG’s
effective tax rate, particularly in the year in which the change is made.
Our full-year effective tax rate would be impacted if aggregate tax expenses in respect of profits from branches and
subsidiaries without loss coverage differ from what is expected, or if certain branches and subsidiaries incur operating
losses that we cannot benefit from through the income statement. In particular, operating losses at entities or branches
that cannot offset for tax purposes taxable profits in other Group entities, and which do not result in additional DTA
recognition, would increase our effective tax rate. In addition, tax laws or the tax authorities in countries where we have
undertaken legal structure changes may cause entities to be subject to taxation as permanent establishments or may
prevent the transfer of tax losses incurred in one legal entity to newly organized or reorganized subsidiaries or affiliates
or may impose limitations on the utilization of tax losses that relate to businesses formerly conducted by the transferor.
Were this to occur in situations where there were also limited planning opportunities to utilize the tax losses in the
originating entity, the DTAs associated with such tax losses may be required to be written down through the income
statement.
Changes in tax law may materially affect our effective tax rate, and, in some cases, may substantially affect the profitability
of certain activities. In addition, statutory and regulatory changes, as well as changes to the way in which courts and tax
authorities interpret tax laws, including assertions that we are required to pay taxes in a jurisdiction as a result of activities
connected to that jurisdiction constituting a permanent establishment or similar theory, and changes in our assessment
of uncertain tax positions, could cause the amount of taxes we ultimately pay to materially differ from the amount
accrued.
We may incur material future tax liabilities in connection with the Credit Suisse Group’s merger with the UBS Group
In the past, the Credit Suisse Group has made significant impairments of the tax value of its participations in subsidiaries
below their tax acquisition costs. Following the acquisition of the Credit Suisse Group by UBS Group AG, tax acquisition
costs of certain participations held by Credit Suisse Group AG and its subsidiaries will be transferred to the UBS AG Group
as a result of further company mergers and restructurings. UBS AG and its subsidiaries may become subject to additional
Swiss tax on future reversals of such impairments for Swiss tax purposes. Reversals of prior impairments may occur to the
extent that the net asset value of the previously impaired subsidiary increases, e.g., as a result of an increase in retained
earnings. Although it is difficult to quantify this additional future tax exposure, as various potential mitigants (e.g.,
transfers of assets and liabilities, business activities, subsidiary investments, as well as other restructuring measures within
the combined Group in the course of the integration) exist, it may be material.
Liquidity and funding risk
Liquidity and funding management are critical to our ongoing performance
The viability of our business depends on the availability of funding sources, and our success depends on our ability to
obtain funding at times, in amounts, for tenors and at rates that enable us to efficiently support our asset base in all
market conditions. Our funding sources have generally been stable, but could change in the future because of, among
other things, general market disruptions or widening credit spreads, which could also influence the cost of funding. A
substantial part of our liquidity and funding requirements are met using short-term unsecured funding sources, including
retail and wholesale deposits and the regular issuance of money market securities. A change in the availability of short-
term funding could occur quickly.
The addition of loss-absorbing debt as a component of capital requirements, the regulatory requirements to maintain
minimum TLAC at UBS’s holding company and at certain of its subsidiaries, as well as the power of resolution authorities
to bail in TLAC instruments and other debt obligations, and uncertainty as to how such powers will be exercised, caused
and may still cause further increase of our cost of funding, and could potentially increase the total amount of funding
required, in the absence of other changes in our business.
Reductions in our credit ratings may adversely affect the market value of the securities and other obligations and increase
our funding costs, in particular with regard to funding from wholesale unsecured sources, and could affect the availability
of certain kinds of funding. In addition, as experienced in connection with Moody’s Investors Service Ltd. downgrade of
UBS AG’s long-term debt rating in June 2012, rating downgrades can require us to post additional collateral or make
additional cash payments under trading agreements. Our credit ratings, together with our capital strength and
reputation, also contribute to maintaining client and counterparty confidence, and it is possible that rating changes could
influence the performance of some of our businesses. The acquisition of the Credit Suisse Group has elevated these risks
and may cause these risks to intensify. Upon the close the acquisition in June 2023, Fitch Ratings Ireland Limited
downgraded the Long-Term Issuer Default Ratings (IDRs) of UBS AG to “A+” from “AA-“. Fitch Ratings Ltd also upgraded
Credit Suisse AG’s Long-Term IDR to “A+” from “BBB+”.
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Our business model and environment | Risk factors 35
The requirement to maintain a liquidity coverage ratio of high-quality liquid assets to estimated stressed short-term net
cash outflows, and other similar liquidity and funding requirements, oblige us to maintain high levels of overall liquidity,
limit our ability to optimize interest income and expense, make certain lines of business less attractive and reduce our
overall ability to generate profits. The liquidity coverage ratio and net stable funding ratio requirements are intended to
ensure that we are not overly reliant on short-term funding and that we have sufficient long-term funding for illiquid
assets. The relevant calculations make assumptions about the relative likelihood and amount of outflows of funding and
available sources of additional funding in market -wide and firm-specific stress situations. In an actual stress situation,
however, our funding outflows could exceed the assumed amounts. Further, UBS AG is subject to increased liquidity
requirements related to too-big-to-fail (TBTF) measures under the direction of FINMA, which became effective on 1
January 2024.
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Financial and operating performance | Accounting and financial reporting 36
Financial and operating
performance
Management report
Accounting and financial reporting
Critical accounting estimates and judgments
In preparing our financial statements in accordance with IFRS Accounting Standards, as issued by the International
Accounting Standards Board (the IASB), we apply judgment and make estimates and assumptions that may involve
significant uncertainty at the time they are made. We regularly reassess those estimates and assumptions, which
encompass historical experience, expectations of the future and other pertinent factors, to determine their continuing
relevance based on current conditions, and update them as necessary. Changes in estimates and assumptions may have
significant effects on the financial statements. Furthermore, actual results may differ significantly from our estimates,
which could result in significant losses to the Group, beyond what we expected or provided for.
Key areas involving a high degree of judgment and areas where estimates and assumptions are significant to the
consolidated financial statements include the following (note references below are found in the “Consolidated financial
statements” section of this report):
–
expected credit loss measurement (refer to “Note 19 Expected credit loss measurement”);
–
fair value measurement (refer to “Note 20 Fair value measurement”);
–
income taxes (refer to “Note 8 Income taxes”);
–
provisions and contingent liabilities (refer to “Note 17 Provisions and contingent liabilities”);
–
post-employment benefit plans (refer to “Note 26 Post-employment benefit plans”);
–
goodwill (refer to Note 12 Goodwill and intangible assets”); and
–
consolidation of structured entities (refer to “Note 28 Interests in subsidiaries and other entities”).
›
Refer to “Note 1 Summary of material accounting policies” in the “Consolidated financial statements” section of this report and to
the “Risk factors” section of this report for more information
Annual Report 2023 |
Financial and operating performance | UBS AG consolidated performance 37
UBS AG consolidated performance
Income statement
For the year ended
% change from
USD m
31.12.23
31.12.22
31.12.21
31.12.22
Net interest income
Other net income from financial instruments measured at fair value through profit or loss
Net fee and commission income
Other income
Total revenues
Credit loss expense / (release)
Personnel expenses
General and administrative expenses
Depreciation, amortization and impairment of non-financial assets
Operating expenses
Operating profit / (loss) before tax
Tax expense / (benefit)
Net profit / (loss)
Net profit / (loss) attributable to non-controlling interests
Net profit / (loss) attributable to shareholders
Comprehensive income
Total comprehensive income
Total comprehensive income attributable to non-controlling interests
Total comprehensive income attributable to shareholders
Integration-related expenses by business division and Group Items
For the year ended
USD m
31.12.23
Global Wealth Management
Personal & Corporate Banking
Asset Management
Investment Bank
Non-core and Legacy
1
Group Items
1
Total net integration-related expenses
of which: personnel expenses
of which: general and administrative expenses
of which: depreciation, amortization and impairment of non-financial assets
1 During 2023, Non-core and Legacy (previously reported within Group Functions) became a separate reportable segment and Group Functions has been renamed Group Items. Prior periods have been restated to
reflect these changes.
2023 compared with 2022
Results
In 2023, net profit attributable to shareholders decreased by USD 3,794m, or 54%, to USD 3,290m, which included a
net tax expense of USD 1,206m.
Operating profit before tax decreased by USD 4,439m, or 50%, to USD 4,521m, reflecting higher operating expenses,
lower total revenues and higher net credit loss expenses. Operating expenses increased by USD 3,084m, or 12%, to
USD 29,011m and included USD 1,392m of integration-related expenses. This increase was mainly driven by a
USD 2,117m increase in general and administrative expenses. Personnel expenses increased by USD 575m and
depreciation, amortization and impairment of non-financial assets increased by USD 393m. Net credit loss expenses
were USD 143m, compared with USD 29m in 2022. Total revenues decreased by USD 1,240m, or 4%, to
USD 33,675m, mainly driven by other income, which decreased by USD 1,316m, largely attributable to the prior year
including a gain of USD 848m in Asset Management on the sale of our shareholding in our Japanese real estate joint
venture, Mitsubishi Corp.-UBS Realty Inc. Total combined net interest income and other net income from financial
instruments measured at fair value through profit and loss increased by USD 489m, partly offset by a USD 413m
decrease in net fee and commission income.
Annual Report 2023 |
Financial and operating performance | UBS AG consolidated performance 38
Integration -related expenses primarily included higher consulting fees and higher real estate costs in general, as well
as administrative expenses and higher personnel expenses, which were mainly due to salaries and variable
compensation , related to the integration of Credit Suisse. Integration-related expenses reflected in depreciation,
amortization and impairment of non-financial assets were mainly in relation to leasehold improvements and internally
developed software.
Integration -related expenses are defined as expenses that are temporary, incremental and directly related to the
integration of Credit Suisse into UBS, including costs of internal staff and contractors substantially dedicated to
integration activities, retention awards, redundancy costs, incremental expenses from the shortening of useful lives of
property, equipment and software, and impairment charges relating to these assets. Classification as integration-
related expenses does not affect the timing of recognition and measurement of those expenses or the presentation
thereof in the income statement.
Total revenues
Net interest income and other net income from financial instruments measured at fair value through profit or loss
Total combined net interest income and other net income from financial instruments measured at fair value through
profit or loss increased by USD 489m to USD 14,500m.
Personal & Corporate Banking increased by USD 955m to USD 3,641m, predominantly driven by an increase in net
interest income, mainly driven by higher deposit margins, which resulted from higher interest rates, and higher loan
revenues, partly offset by lower deposit fees. The prior year included a benefit from the Swiss National Bank deposit
exemption.
Global Wealth Management increased by USD 250m to USD 6,607m, predominantly due to higher net interest income,
mainly driven by higher deposit margins, resulting from higher interest rates, partly offset by the effects of shifts to lower-
margin deposit products.
The Investment Bank decreased by USD 773m to USD 4,997m, mainly reflecting a USD 1,127m decrease in revenues in
Derivatives & Solutions, largely driven by Equity Derivatives, Rates and Foreign Exchange, due to lower levels of both
volatility and client activity. This decrease was partly offset by a USD 185m increase in Financing, reflecting higher client
balances. In addition , there was a USD 142m increase in Global Banking, mainly due to higher revenues in both Risk
Management and Leveraged Capital Markets, reflecting an improvement in mark-to-market.
›
Refer to “Note 3 Net interest income and other net income from financial instruments measured at fair value through profit or
loss” in the “Consolidated financial statements” section of this report for more information
Net interest income and other net income from financial instruments measured at fair value through profit or loss
For the year ended
% change from
USD m
31.12.23
31.12.22
31.12.21
31.12.22
Net interest income from financial instruments measured at amortized cost and fair value through other
comprehensive income
Net interest income from financial instruments measured at fair value through profit or loss and other
Other net income from financial instruments measured at fair value through profit or loss
Total
Global Wealth Management
of which: net interest income
of which: transaction-based income from foreign exchange and other intermediary activity
Personal & Corporate Banking
of which: net interest income
of which: transaction-based income from foreign exchange and other intermediary activity
Asset Management
Investment Bank
2
Global Banking
Global Markets
Non-core and Legacy
Group Items
1 Mainly includes spread-related income in connection with client-driven transactions, foreign currency translation effects and income and expenses from precious metals, which are included in the income statement
line Other net income from financial instruments measured at fair value through profit or loss. The amounts reported on this line are one component of Transaction -based income in the management discussion and
analysis of Global Wealth Management and Personal & Corporate Banking in the “Global Wealth Management” and “Personal & Corporate Banking” sections of this report, respectively. 2 Investment Bank
information is provided at the business line level rather than by financial statement reporting line in order to reflect the underlying business activities, which is consistent with the structure of the management discussion
and analysis in the “Investment Bank” section of this report.
Annual Report 2023 |
Financial and operating performance | UBS AG consolidated performance 39
Net fee and commission income
Net fee and commission income decreased by USD 413m to USD 18,610m.
Investment fund fees decreased by USD 212m to USD 4,730m, driven by Global Wealth Management and Asset
Management, mainly reflecting negative market performance.
Net brokerage fees decreased by USD 206m to USD 3,079m, driven by lower levels of client activity in Global Wealth
Management and lower market volumes of cash equities in Execution Services in the Investment Bank.
M&A and corporate finance fees decreased by USD 135m to USD 669m, primarily reflecting lower revenues from merger
and acquisition transactions in Global Banking in the Investment Bank.
›
Refer to “Note 4 Net fee and commission income” in the “Consolidated financial statements” section of this report for more
information
Other income
Other income decreased by USD 1,316m to USD 566m, largely due to USD 255m of losses relating to our investment in
SIX Group. These losses reflected UBS AG’s share of impairments taken by SIX Group on its investment in Worldline and
on goodwill related to its Bolsas y Mercados Españoles (BME) subsidiary. In contrast, 2022 included gains from disposals
of associates and subsidiaries, largely reflecting a gain of USD 848m in Asset Management on the sale of our shareholding
in our Japanese real estate joint venture, Mitsubishi Corp.-UBS Realty Inc. In addition, 2022 included gains in Global
Wealth Management of USD 133m on the sale of our domestic wealth management business in Spain, USD 86m on the
sale of UBS Swiss Financial Advisers AG and USD 41m on the sale of our US alternative investments administration
business.
›
Refer to “Note 5 Other income” in the “Consolidated financial statements” section of this report for more information
›
Refer to “Note 29 Changes in organization and acquisitions and disposals of subsidiaries and businesses” in the “Consolidated
financial statements” section of this report for more information about the gains from disposals of associates and subsidiaries
Credit loss expense / release
Total net credit loss expenses were USD 143m, compared with USD 29m in 2022, reflecting net expenses of USD 23m
related to stage 1 and 2 positions and USD 120m related to credit-impaired stage 3 positions.
›
Refer to “Note 9 Financial assets at amortized cost and other positions in scope of expected credit loss measurement” and
“Note 19 Expected credit loss measurement” in the “Consolidated financial statements” section of this report for more
information about credit loss expenses / releases
›
Refer to the “Risk factors” section of this report for more information
Credit loss expense / (release)
Performing positions
Credit-impaired positions
USD m
Stages 1 and 2
Stage 3
Total
For the year ended 31.12.23
Global Wealth Management
Personal & Corporate Banking
Asset Management
Investment Bank
Non-core and Legacy
Group Items
1
Total
For the year ended 31.12.22
2
Global Wealth Management
Personal & Corporate Banking
Asset Management
Investment Bank
Non-core and Legacy
Group Items
1
Total
For the year ended 31.12.21
Global Wealth Management
Personal & Corporate Banking
Asset Management
Investment Bank
Non-core and Legacy
Group Items
1
Total
1 Starting with the third quarter of 2023, Non-core and Legacy became a separate reportable segment and Group Functions has been renamed Group Items. Prior periods have been restated to reflect these changes.
2 Certain prior-period figures as of or for the quarter ended 30 June 2023 have been restated due to effects of measurement period adjustments in relation to the acquisition of the Credit Suisse Group. Refer to
“Note 2 Accounting for the acquisition of the Credit Suisse Group” for more information.
Annual Report 2023 |
Financial and operating performance | UBS AG consolidated performance 40
Operating expenses
Personnel expenses
Personnel expenses increased by USD 575m to USD 15,655m and included integration-related expenses of USD 626m.
Salaries increased by USD 370m as a result of the integration and also due to salary adjustments, as well as the impact
of foreign currency translation effects. Social security costs also increased by USD 105m .
›
Refer to “Note 6 Personnel expenses,” “Note 26 Post-employment benefit plans” and “Note 27 Employee benefits: variable
compensation” in the “Consolidated financial statements” section of this report for more information
General and administrative expenses
General and administrative expenses increased by USD 2,117m to USD 11,118m, which included integration-related
expenses of USD 491m, largely reflected in higher consulting and real estate costs. In addition, there was a USD 939m
increase in shared services costs charged by other subsidiaries of UBS Group AG, as well as a USD 468m increase in
expenses for litigation, regulatory and similar matters, driven by a USD 665m increase in provisions recognized in the first
quarter of 2023 related to the US residential mortgage-backed securities litigation matter. Technology costs increased by
USD 56m.
We believe that the industry continues to operate in an environment in which expenses associated with litigation,
regulatory and similar matters will remain elevated for the foreseeable future, and we continue to be exposed to a number
of significant claims and regulatory matters. The outcome of many of these matters, the timing of a resolution, and the
potential effects of resolutions on our future business, financial results or financial condition are extremely difficult to
predict.
›
Refer to “Note 7 General and administrative expenses” and “Note 17 Provisions and contingent liabilities” in the “Consolidated
financial statements” section of this report for more information
Depreciation, amortization and impairment of non-financial assets
Depreciation, amortization and impairment of non-financial assets increased by USD 393m to USD 2,238m and included
integration-related expenses of USD 274m, primarily relating to a USD 214m impairment of software projects in progress
resulting from a reprioritization of software development activity in the context of the integration of Credit Suisse.
Excluding the aforementioned effects, depreciation of internally developed software increased by USD 143m, reflecting
a higher level of capitalized costs.
Operating expenses
For the year ended
% change from
USD m
31.12.23
31.12.22
31.12.21
31.12.22
Personnel expenses
of which: salaries
of which: variable compensation
of which: performance awards
of which: financial advisors
1
of which: other
of which: other personnel expenses
2
General and administrative expenses
of which: net expenses for litigation, regulatory and similar matters
of which: other general and administrative expenses
Depreciation, amortization and impairment of non-financial assets
Total operating expenses
1 Consists of cash and deferred compensation awards and is based on compensable revenues and firm tenure using a formulaic approach. It also includes expenses related to compensation commitments with financial
advisors entered into at the time of recruitment that are subject to vesting requirements. 2 Consists of expenses related to contractors, social security, post-employment benefit plans, and other personnel expenses.
Refer to “Note 6 Personnel expenses” in the “Consolidated financial statements” section of this report for more information.
Tax
Income tax expenses of USD 1,206m were recognized for UBS AG in 2023, representing an effective tax rate of 26.7%,
compared with USD 1,844m for 2022, which represented an effective tax rate of 20.6%. The income tax expenses for
2023 included Swiss tax expenses of USD 849m and non-Swiss tax expenses of USD 356m.
The Swiss tax expenses included current tax expenses of USD 810m in respect of taxable profits of UBS Switzerland AG
and other Swiss entities and deferred tax expenses of USD 39m.
The non-Swiss tax expenses included current tax expenses of USD 618m that related to expenses of USD 100m in respect
of US corporate alternative minimum tax (CAMT) and USD 518m in respect of other taxable profits of non-Swiss
subsidiaries and branches. These were partly offset by a net deferred tax benefit of USD 262m that primarily related to a
benefit of USD 274m in respect of an increase in deferred tax assets (DTAs) that resulted from an increase in the expected
value of future tax deductions for deferred compensation awards due to an increase in the Group’s share price during
the year. In addition, the net deferred tax benefit included a benefit of USD 100m in respect of the recognition of DTAs
for tax credits carried forward in respect of CAMT. These benefits were partly offset by a net deferred tax expense of USD
112m that primarily related to the amortization of DTAs previously recognized in relation to tax losses carried forward.
Annual Report 2023 |
Financial and operating performance | UBS AG consolidated performance 41
Excluding any potential effects from the remeasurement of DTAs in connection with the business planning process and
any material jurisdictional statutory tax rate changes that could be enacted, we expect a tax rate for 2024 of around
24%.
›
Refer to “Note 8 Income taxes” in the “Consolidated financial statements” section of this report for more information
›
Refer to the “Risk factors” section of this report for more information
Total comprehensive income attributable to shareholders
In 2023, total comprehensive income attributable to shareholders was USD 4,598m, reflecting net profit of USD 3,290m
and other comprehensive income (OCI), net of tax, of USD 1,308m.
OCI related to cash flow hedges was USD 1,400m, mainly reflecting net losses on hedging instruments that were
reclassified from OCI to the income statement.
Foreign currency translation OCI was USD 849m, mainly due to the significant strengthening of the Swiss franc (10%)
and the euro (3%) against the US dollar.
OCI related to own credit on financial liabilities designated at fair value was negative USD 790m, primarily due to a
tightening of our own credit spreads.
Defined benefit plan OCI, net of tax, was negative USD 136m. Total net pre-tax OCI related to the Swiss pension plan
was negative USD 56m. This reflected losses of USD 1,901m from the defined benefit obligation (DBO) remeasurement,
largely offset by an increase in the plan assets of USD 513m and a decrease in the effect of the asset ceiling under IFRS
Accounting Standards of USD 1,332m. Total pre-tax OCI related to our non-Swiss pension plans was negative USD 47m,
mostly driven by the UK pension plan, which recorded negative net pre-tax OCI of USD 31m. The negative OCI in the UK
pension plan reflected a loss from the remeasurement of the DBO of USD 96m, partly offset by a positive return on plan
assets of USD 65m.
›
Refer to “Statement of comprehensive income” in the “Consolidated financial statements” section of this report for more
information
›
Refer to “Note 20 Fair value measurement” in the “Consolidated financial statements” section of this report for more information
about own credit on financial liabilities designated at fair value
›
Refer to “Note 25 Hedge accounting” in the “Consolidated financial statements” section of this report for more information about
cash flow hedges of forecast transactions
›
Refer to “Note 26 Post-employment benefit plans” in the “Consolidated financial statements” section of this report for more
information about OCI related to defined benefit plans
Sensitivity to interest rate movements
As of 31 December 2023, we estimated that a parallel shift in yield curves by +100 basis points could lead to a combined
increase in annual net interest income from our banking book of approximately USD 1.2bn in the first year after such a
shift. Of this increase, approximately USD 0.8bn, USD 0.2bn and USD 0.1bn would result from changes in Swiss franc,
US dollar and euro interest rates, respectively. A parallel shift in yield curves by –100 basis points could lead to a combined
decrease in annual net interest income of approximately USD 1.2bn in the first year after such a shift, showing similar
currency contributions as for the aforementioned increase in rates.
These estimates are based on a hypothetical scenario of an immediate change in interest rates, equal across all currencies
and relative to implied forward rates as of 31 December 2023 applied to our banking book. These estimates further
assume no change to balance sheet size and product mix, stable foreign exchange rates, and no specific management
action. These estimates do not represent a forecast of net interest income variability .
Seasonal characteristics
Our revenues may show seasonal patterns, notably in the Investment Bank and transaction-based revenues for Global
Wealth Management, and typically reflect the highest client activity levels in the first quarter, with lower levels throughout
the rest of the year, especially during the summer months and the end-of-year holiday season.
Key figures
Below we provide an overview of selected key figures of UBS AG consolidated. For further information about key figures
related to capital management, refer to the “Capital, liquidity and funding, and balance sheet” section of this report.
Cost / income ratio
The cost / income ratio was 86.2%, compared with 74.3%, mainly reflecting an increase in operating expenses and a
decrease in total revenues.
Return on common equity tier 1 capital
The annualized return on our common equity tier 1 (CET1) capital was 7.6%, compared with 16.8%, reflecting a
USD 3,794m decrease in net profit attributable to shareholders and a USD 1.3bn increase in average CET1 capital.
Annual Report 2023 |
Financial and operating performance | UBS AG consolidated performance 42
CET1 capital
CET1 capital increased by USD 1.2bn to USD 44.1bn as of 31 December 2023, mainly as a result of operating profit
before tax of USD 4.5bn, with associated current tax expenses of USD 1.4bn, positive foreign currency translation effects
of USD 0.9bn, and a net increase of USD 0.2bn in eligible DTAs on temporary differences, partly offset by dividend
accruals of USD 3.0bn.
Risk-weighted assets
Risk-weighted assets (RWA) increased by USD 16.2bn to USD 334.0bn, primarily driven by increases of USD 12.7bn due
to asset size and other movements and USD 8.0bn due to currency effects, partly offset by a decrease of USD 4.6bn due
to model updates and methodology changes.
CET1 capital ratio
Our CET1 capital ratio decreased to 13.2% from 13.5%, reflecting a USD 16.2bn increase in RWA, partly offset by the
aforementioned increase in CET1 capital .
Leverage ratio denominator
The leverage ratio denominator (the LRD) increased by USD 74.8bn to USD 1,104.4bn, primarily driven by increases from
asset size and other movements of USD 37.5bn and currency effects of USD 37.3bn.
CET1 leverage ratio
Our CET1 leverage ratio decreased to 4.0% from 4.2%, due to the aforementioned increase in the LRD, partly offset by
the increase in CET1 capital.
Personnel
The number of personnel employed was 53,925 (workforce count) as of 31 December 2023, a net decrease of 1,013
compared with 31 December 2022. The number of internal personnel employed as of 31 December 2023 was 47,590
(full-time equivalents), a net decrease of 38 compared with 31 December 2022. The number of core external staff was
6,335 (workforce count), a net decrease of 974 compared with 31 December 2022.
Equity, CET1 capital and returns
As of or for the year ended
USD m, except where indicated
31.12.23
31.12.22
31.12.21
Net profit
Net profit attributable to shareholders
Equity
Equity attributable to shareholders
Less: goodwill and intangible assets
Tangible equity attributable to shareholders
Less: other CET1 deductions
CET1 capital
Return on equity
Return on equity (%)
Return on tangible equity (%)
Return on CET1 capital (%)
Annual Report 2023 |
Financial and operating performance | Global Wealth Management 43
Global Wealth Management
Global Wealth Management
1
As of or for the year ended
% change from
USD m, except where indicated
31.12.23
31.12.22
31.12.22
Results
Net interest income
5,436
5,274
3
Recurring net fee income
2
10,143
10,282
(1)
Transaction-based income
2
3,079
3,137
(2)
Other income
(28)
270
Total revenues
18,631
18,963
(2)
Credit loss expense / (release)
25
0
Operating expenses
14,900
14,069
6
Business division operating profit / (loss) before tax
3,705
4,894
(24)
Performance measures and other information
Pre-tax profit growth (year-on-year, %)
2
(24.3)
4.0
Cost / income ratio (%)
2
80.0
74.2
Financial advisor compensation
3
4,548
4,508
1
Net new money (USD bn)
2
75.0
40.5
Invested assets (USD bn)
2
3,187
2,815
13
Loans, gross (USD bn)
4
218.3
225.0
(3)
Customer deposits (USD bn)
4
355.3
348.2
2
Impaired loan portfolio as a percentage of total loan portfolio, gross (%)
2,5
0.3
0.3
Advisors (full-time equivalents)
8,838
9,215
(4)
1 Comparatives may differ as a result of adjustments following organizational changes, restatements due to the retrospective adoption of new accounting standards or changes in accounting policies, and events after
the reporting period. 2 Refer to “Alternative performance measures” in the appendix to this report for the definition and calculation method. 3 Relates to licensed professionals with the ability to provide investment
advice to clients in the Americas. Consists of cash and deferred compensation awards and is based on compensable revenues and firm tenure using a formulaic approach. It also includes expenses related to
compensation commitments with financial advisors entered into at the time of recruitment that are subject to vesting requirements. Recruitment loans to financial advisors were USD 1,754m as of 31 December 2023.
4 Loans and Customer deposits in this table include customer brokerage receivables and payables, respectively, which are presented in a separate reporting line on the balance sheet. 5 Refer to the “Risk management
and control” section of this report for more information about (credit-)impaired exposures. Excludes loans to financial advisors.
2023 compared with 2022
Results
Profit before tax decreased by USD 1,189m, or 24%, to USD 3,705m, mainly driven by higher operating expenses and
lower total revenues.
Total revenues
Total revenues decreased by USD 332m, or 2%, to USD 18,631m, with decreases in other income, recurring net fee
income and transaction-based income, partly offset by increases in net interest income.
Net interest income increased by USD 162m, or 3%, to USD 5,436m, mainly driven by higher deposit margins, resulting
from higher interest rates, partly offset by the effects of shifts to lower-margin deposit products.
Recurring net fee income decreased by USD 139m, or 1%, to USD 10,143m, primarily driven by negative market
performance.
Transaction -based income decreased by USD 58m, or 2%, to USD 3,079m, mainly driven by lower levels of client activity,
particularly in Americas and Asia Pacific.
Other income was negative USD 28m, compared with positive other income of USD 270m, as 2023 included losses of
USD 64m related to our investment in SIX Group. The prior year included a USD 133m gain from the sale of our domestic
wealth management business in Spain, an USD 86m gain from the sale of UBS Swiss Financial Advisers AG and a
USD 41m gain from the sale of our US alternative investments administration business.
Credit loss expense / release
Net credit loss expenses were USD 25m, primarily related to stage 3 positions, compared with net expenses of USD 0m
in 2022.
Annual Report 2023 |
Financial and operating performance | Global Wealth Management 44
Operating expenses
Operating expenses increased by USD 831m, or 6%, to USD 14,900m, mostly driven by integration-related expenses
associated with the acquisition of the Credit Suisse Group, higher technology expenses and adverse foreign currency
effects. These increases were partly offset by lower provisions for litigation, regulatory and similar matters. In addition,
2023 included a charge of USD 60m for the special assessment by the US Federal Deposit Insurance Corporation to
recover losses incurred by the Deposit Insurance Fund in connection with the failures of Silicon Valley Bank and Signature
Bank.
Pre-tax profit growth
Pre-tax profit growth was negative 24.3%, compared with positive 4.0% in 2022.
Cost / income ratio
The cost / income ratio increased to 80.0% from 74.2%, reflecting both higher operating expenses and lower total
revenues.
Invested assets
Invested assets increased by USD 372bn, or 13%, to USD 3,187bn, mainly driven by positive market performance of
USD 279bn, net new money inflows of USD 75.0bn and positive foreign currency effects of USD 31bn.
Loans
Loans decreased by USD 6.7bn to USD 218.3bn, mainly driven by net new loan outflows of USD 12.6bn, partly offset by
positive foreign currency effects .
›
Refer to the “Risk management and control” section of this report for more information
Customer deposits
Customer deposits increased by USD 7.1bn to USD 355.3bn, mainly driven by positive foreign currency effects and net
inflows into fixed-term deposit products. This was partly offset by continued shifts into money market funds and US-
government securities.
Personal & Corporate Banking
Personal & Corporate Banking – in Swiss francs
1
As of or for the year ended
% change from
CHF m, except where indicated
31.12.23
31.12.22
31.12.22
Results
Net interest income
2,804
2,088
34
Recurring net fee income
2
851
812
5
Transaction-based income
2
1,179
1,155
2
Other income
(83)
47
Total revenues
4,751
4,101
16
Credit loss expense / (release)
46
36
27
Operating expenses
2,589
2,359
10
Business division operating profit / (loss) before tax
2,116
1,706
24
Performance measures and other information
Pre-tax profit growth (year-on-year, %)
2
24.1
7.8
Cost / income ratio (%)
2
54.5
57.5
Net interest margin (bps)
2
192
147
Fee and trading income for Corporate & Institutional Clients
2
847
810
4
Investment products for Personal Banking (CHF bn)
2
24.4
21.6
13
Net new investment products for Personal Banking (CHF bn)
2
1.81
1.99
(9)
Active Digital Banking clients in Personal Banking (%)
2,3
77.9
74.3
Active Mobile Banking clients in Personal Banking (%)
2
65.0
56.5
Active Digital Banking clients in Corporate & Institutional Clients (%)
2
81.2
80.0
Loans, gross (CHF bn)
146.8
143.0
3
Customer deposits (CHF bn)
169.6
168.0
1
Impaired loan portfolio as a percentage of total loan portfolio, gross (%)
2,4
0.9
0.8
1 Comparatives may differ as a result of adjustments following organizational changes, restatements due to the retrospective adoption of new accounting standards or changes in accounting policies, and events after
the reporting period. 2 Refer to “Alternative performance measures” in the appendix to this report for the definition and calculation method. 3 In 2023, 88.6% of clients of Personal Banking were “activated
users” of Digital Banking (i.e., clients who had logged into Digital Banking at least once in the course of their relationship with UBS). 4 Refer to the “Risk management and control” section of this report for more
information about (credit-)impaired exposures.
Annual Report 2023 |
Financial and operating performance | Personal & Corporate Banking 45
2023 compared with 2022
Results
Profit before tax increased by CHF 410m, or 24%, to CHF 2,116m, mainly reflecting higher total revenues, partly offset
by higher operating expenses.
Total revenues
Total revenues increased by CHF 650m, or 16%, to CHF 4,751m, reflecting increases across almost all income lines,
predominantly in net interest income.
Net interest income increased by CHF 716m to CHF 2,804m, mainly driven by higher deposit margins, which resulted
from higher interest rates, and higher loan revenues, partly offset by lower deposit fees. The prior year included a benefit
from the Swiss National Bank deposit exemption.
Recurring net fee income increased by CHF 39m to CHF 851m, mainly reflecting higher revenues from account and
custody fees.
Transaction-based income increased by CHF 24m to CHF 1,179m, mainly driven by higher income from Corporate &
Institutional Clients.
Other income was negative CHF 83m, compared with positive other income of CHF 47m, mainly reflecting losses of
CHF 161m related to our investment in SIX Group.
Credit loss expense / release
Net credit loss expenses were CHF 46m, primarily related to stage 3 positions, compared with net expenses of CHF 36m
in 2022.
Operating expenses
Operating expenses increased by CHF 230m, or 10%, to CHF 2,589m, mainly driven by integration-related expenses
associated with the acquisition of the Credit Suisse Group, as well as higher technology expenses and accruals for variable
compensation.
Cost / income ratio
The cost / income ratio decreased to 54.5% from 57.5%, as an increase in total revenues more than offset an increase
in operating expenses.
Personal & Corporate Banking – in US dollars
1
As of or for the year ended
% change from
USD m, except where indicated
31.12.23
31.12.22
31.12.22
Results
Net interest income
3,128
2,192
43
Recurring net fee income
2
949
852
11
Transaction-based income
2
1,314
1,212
8
Other income
(105)
48
Total revenues
5,285
4,304
23
Credit loss expense / (release)
50
39
30
Operating expenses
2,889
2,475
17
Business division operating profit / (loss) before tax
2,346
1,790
31
Performance measures and other information
Pre-tax profit growth (year-on-year, %)
2
31.1
3.7
Cost / income ratio (%)
2
54.7
57.5
Net interest margin (bps)
2
194
146
Fee and trading income for Corporate & Institutional Clients
2
943
851
11
Investment products for Personal Banking (USD bn)
2
29.0
23.4
24
Net new investment products for Personal Banking (USD bn)
2
2.00
2.11
(5)
Active Digital Banking clients in Personal Banking (%)
2,3
77.9
74.3
Active Mobile Banking clients in Personal Banking (%)
2
65.0
56.5
Active Digital Banking clients in Corporate & Institutional Clients (%)
2
81.2
80.0
Loans, gross (USD bn)
174.4
154.7
13
Customer deposits (USD bn)
201.5
181.8
11
Impaired loan portfolio as a percentage of total loan portfolio, gross (%)
2,4
0.9
0.8
1 Comparatives may differ as a result of adjustments following organizational changes, restatements due to the retrospective adoption of new accounting standards or changes in accounting policies, and events after
the reporting period. 2 Refer to “Alternative performance measures” in the appendix to this report for the definition and calculation method. 3 In 2023, 88.6% of clients of Personal Banking were “activated
users” of Digital Banking (i.e., clients who had logged into Digital Banking at least once in the course of their relationship with UBS). 4 Refer to the “Risk management and control” section of this report for more
information about (credit-)impaired exposures.
Annual Report 2023 |
Financial and operating performance | Asset Management 46
Asset Management
Asset Management
1
As of or for the year ended
% change from
USD m, except where indicated
31.12.23
31.12.22
31.12.22
Results
Net management fees
2
1,976
2,049
(4)
Performance fees
70
64
9
Net gain from disposals
23
848
Total revenues
2,069
2,961
(30)
Credit loss expense / (release)
(1)
0
Operating expenses
1,706
1,565
9
Business division operating profit / (loss) before tax
364
1,396
(74)
Performance measures and other information
Pre-tax profit growth (year-on-year, %)
3
(73.9)
36.5
Cost / income ratio (%)
3
82.4
52.9
Gross margin on invested assets (bps)
3,4
18
27
Information by business line / asset class
Net new money (USD bn)
3
Equities
0.2
(12.8)
Fixed Income
29.5
36.5
of which: money market
23.6
26.3
Multi-asset & Solutions
3.3
(1.3)
Hedge Fund Businesses
(3.9)
2.3
Real Estate & Private Markets
2.7
0.2
Total net new money excluding associates
31.8
24.8
of which: net new money excluding money market
8.1
(1.6)
Associates
5
0.5
7.7
Total net new money
4
32.3
32.5
Invested assets (USD bn)
3
Equities
539
456
18
Fixed Income
323
296
9
of which: money market
131
119
10
Multi-asset & Solutions
180
155
16
Hedge Fund Businesses
54
55
(3)
Real Estate & Private Markets
102
102
0
Total invested assets excluding associates
1,199
1,064
13
of which: passive strategies
540
443
22
Associates
5
24
24
0
Total invested assets
4
1,222
1,088
12
Information by region
Invested assets (USD bn)
3
Americas
350
298
17
Asia Pacific
4
153
173
(11)
Europe, Middle East and Africa (excluding Switzerland)
314
263
19
Switzerland
405
354
15
Total invested assets
4
1,222
1,088
12
Information by channel
Invested assets (USD bn)
3
Third-party institutional
659
606
9
Third-party wholesale
126
116
8
UBS’s wealth management businesses
414
342
21
Associates
5
24
24
0
Total invested assets
4
1,222
1,088
12
1 Comparatives may differ as a result of adjustments following organizational changes, restatements due to the retrospective adoption of new accounting standards or changes in accounting policies, and events after
the reporting period. 2 Net management fees include transaction fees, fund administration revenues (including net interest and trading income from lending activities and foreign-exchange hedging as part of the
fund services offering), distribution fees, incremental fund-related expenses, gains or losses from seed money and co-investments, funding costs, the negative pass-through impact of third-party performance fees, and
other items that are not Asset Management’s performance fees. 3 Refer to “Alternative performance measures” in the appendix to this report for the definition and calculation method. 4 Starting with the second
quarter of 2023, net new money and invested assets include net new money and invested assets from associates, to better reflect the business strategy. Comparative figures have been restated to reflect this change.
5 The invested assets and net new money amounts reported for associates are prepared in accordance with their local regulator y requirements and practices.
Annual Report 2023 |
Financial and operating performance | Asset Management 47
2023 compared with 2022
Results
Profit before tax decreased by USD 1,032m, or 74%, to USD 364m, primarily due to 2022 including a gain of USD 848m
from the sale of our shareholding in the Mitsubishi Corp.-UBS Realty Inc. joint venture.
Total revenues
Total revenues decreased by USD 892m, or 30%, to USD 2,069m, primarily due to 2022 including the aforementioned
gain of USD 848m.
Net management fees decreased by USD 73m, or 4%, to USD 1,976m, mainly reflecting negative market performance
and the impact of continued margin compression, partly offset by positive foreign currency effects.
Performance fees increased by USD 6m, or 9%, to USD 70m.
Operating expenses
Operating expenses increased by USD 141m, or 9%, to USD 1,706m, mainly reflecting integration-related expenses and
adverse foreign currency effects, as well as increases in technology expenses, control function expenses, and outsourcing
costs, partly offset by lower personnel expenses.
Cost / income ratio
The cost / income ratio increased to 82.4% from 52.9%, reflecting both lower total revenues and higher operating
expenses.
Invested assets
Invested assets increased by USD 134bn, or 12%, to USD 1,222bn, reflecting positive market performance of USD 97bn,
net new money generation of USD 32bn and foreign currency effects of USD 31bn, partly offset by a reduction of
USD 26bn, mainly related to the sale of UBS Hana Asset Management Co., Ltd. Excluding money market flows, net new
money (excluding associates) was USD 8bn.
Investment Bank
Investment Bank
1
As of or for the year ended
% change from
USD m, except where indicated
31.12.23
31.12.22
31.12.22
Results
Advisory
604
733
(18)
Capital Markets
1,001
854
17
Global Banking
1,605
1,587
1
Execution Services
1,561
1,643
(5)
Derivatives & Solutions
2,612
3,665
(29)
Financing
1,981
1,822
9
Global Markets
6,154
7,129
(14)
of which: Equities
4,459
4,970
(10)
of which: Foreign Exchange, Rates and Credit
1,694
2,160
(22)
Total revenues
7,759
8,717
(11)
Credit loss expense / (release)
67
(12)
Operating expenses
7,588
6,890
10
Business division operating profit / (loss) before tax
104
1,839
(94)
Performance measures and other information
Pre-tax profit growth (year-on-year, %)
2
(94.3)
(29.0)
Cost / income ratio (%)
2
97.8
79.0
Average VaR (1-day, 95% confidence, 5 years of historical data)
14
10
36
1 Comparatives may differ as a result of adjustments following organizational changes, restatements due to the retrospective adoption of new accounting standards or changes in accounting policies, and events after
the reporting period. 2 Refer to “Alternative performance measures” in the appendix to this report for the definition and calculation method.
Annual Report 2023 |
Financial and operating performance | Investment Bank 48
2023 compared with 2022
Results
Profit before tax decreased by USD 1,735m, or 94%, to USD 104m, mainly reflecting lower total revenues and higher
operating expenses.
Total revenues
Total revenues decreased by USD 958m, or 11%, to USD 7,759m, reflecting lower revenues in Global Markets, partly
offset by higher revenues in Global Banking .
Global Banking
Global Banking revenues increased by USD 18m, or 1%, to USD 1,605m, as higher Capital Markets revenues were almost
entirely offset by lower Advisory revenues. Fee-pool-comparable revenues
1
decrease in the overall global fee pool.
2
Advisory revenues decreased by USD 129m, or 18%, to USD 604m, mostly due to lower merger and acquisition
transaction revenues, which decreased by USD 125m, or 19%, compared with a 25% decrease in the relevant global fee
pool.
2
Capital Markets revenues increased by USD 147m, or 17%, to USD 1,001m, mainly due to prior-year mark-to-market
losses of USD 86m in Leveraged Capital Markets, which did not recur, and lower mark-to-market losses on a portfolio of
instruments used to hedge credit exposure in the Investment Bank’s lending and leveraged loan portfolios. Capital
Markets fee-pool-comparable revenues
1
fee pool.
2
Global Markets
Global Markets revenues decreased by USD 975m, or 14%, to USD 6,154m, driven by lower Derivatives & Solutions and
Execution Services revenues, partly offset by higher Financing revenues.
Execution Services revenues decreased by USD 82m, or 5%, to USD 1,561m, due to lower market volumes in Cash
Equities, partly offset by higher revenues from foreign exchange products that are traded over electronic platforms.
Derivatives & Solutions revenues decreased by USD 1,053m, or 29%, to USD 2,612m, mostly driven by Equity Derivatives,
Rates and Foreign Exchange, due to lower levels of both volatility and client activity.
Financing revenues increased by USD 159m, or 9%, to USD 1,981m, reflecting higher client balances.
Equities
Global Markets Equities revenues decreased by USD 511m, or 10%, to USD 4,459m, mainly driven by lower Equity
Derivatives and Cash Equities revenues.
Foreign Exchange, Rates and Credit
Global Markets Foreign Exchange, Rates and Credit revenues decreased by USD 466m, or 22%, to USD 1,694m, primarily
driven by lower Foreign Exchange and Rates revenues .
Credit loss expense / release
Net credit loss expenses were USD 67 m, primarily related to stage 3 positions, compared with net releases of USD 12m.
Operating expenses
Operating expenses increased by USD 698m, or 10%, to USD 7,588m, mainly driven by integration-related expenses
associated with the acquisition of the Credit Suisse Group and higher technology expenses .
Cost / income ratio
The cost / income ratio increased to 97.8% from 79.0%, reflecting both lower total revenues and higher operating
expenses.
1
market movements on loan portfolios; and Debt Capital Markets, excluding revenues related to debt underwriting of UBS instruments.
2
Annual Report 2023 |
Financial and operating performance | Non-core and Legacy 49
Non-core and Legacy
Non-core and Legacy
1
As of or for the year ended
% change from
USD m
31.12.23
31.12.22
31.12.22
Results
Total revenues
59
237
(75)
Credit loss expense / (release)
1
2
Operating expenses
1,010
104
867
Operating profit / (loss) before tax
(952)
131
1 Starting with the third quarter of 2023, Non-core and Legacy represents a separate reportable segment, which includes Non-core and Legacy Portfolio previously reported within Group Functions. Prior periods have
been revised to reflect this presentational change. Additionally, a small amount of exposure of pre-integration UBS business divisions was included in Non-core and Legacy starting with the third quarter of 2023, as
it was assessed as not strategic in light of the acquisition of the Credit Suisse Group.
2023 compared with 2022
Results
Loss before tax was USD 952m, compared with a profit before tax of USD 131m.
Total revenues
Total revenues decreased by USD 178m, or 75%, to USD 59m, mainly due to a USD 112m decrease in valuation gains
on our portfolios of auction rate securities, US real estate finance and residential mortgage-backed securities, as well as
a USD 36m write-down on legacy inflation-linked assets due to a leasehold reform bill. In addition, 2022 included income
of USD 62m related to a legacy litigation settlement.
Operating expenses
Operating expenses increased by USD 906m to USD 1,010m, largely reflecting an increase of USD 665m in provisions
related to the US residential mortgage-backed securities litigation matter, integration-related expenses of USD 225m and
a USD 24m increase in personnel expenses.
Group Items
Group Items
1
As of or for the year ended
% change from
USD m
31.12.23
31.12.22
31.12.22
Results
Total revenues
(128)
(267)
(52)
Credit loss expense / (release)
1
0
Operating expenses
919
823
12
Operating profit / (loss) before tax
(1,048)
(1,091)
(4)
1 Starting with the third quarter of 2023, Group Functions has been renamed Group Items, and Non-core and Legacy Portfolio, which was previously reported within Group Functions, was included in Non-core and
Legacy, which represents a separate reportable segment. Prior periods have been revised to reflect these presentational changes.
2023 compared with 2022
Results
Loss before tax was USD 1,048m, compared with a loss of USD 1,091m.
Income from Group hedging and own debt, including hedge accounting ineffectiveness, was net positive USD 2m,
compared with net negative income of USD 471m. Income related to centralized Group Treasury risk management was
positive USD 107m, compared with negative USD 41m in 2022.
In addition, 2023 included integration-related expenses of USD 289m associated with the acquisition of the Credit Suisse
Group, an increase of USD 273m in funding costs related to deferred tax assets and a USD 17m decrease in net gains on
properties held for sale.
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet 50
Risk, capital, liquidity and
funding, and balance sheet
Management report
Audited information according to IFRS 7 and IAS 1
Risk and capital disclosures provided in line with the requirements of
IFRS 7,
Financial Instruments: Disclosures,
and IAS 1,
Presentation of
Financial Statements,
form part of the financial statements included in the “Consolidated financial
statements” section of this report and are audited by the independent registered public accounting firm Ernst & Young
Ltd, Basel. This information is marked as “Audited” within this section of the report.
Signposts
The
Audited |
signpost that is displayed at the beginning of a section, table or chart indicates that those items have been audited. A triangle symbol –
p
indicates the end of the audited section, table or chart.
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Risk management and control 51
Risk management and control
Table of contents
52
53
54
55
55
58
58
59
62
77
85
88
88
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Risk management and control 52
Risk management and control
Overview of risks arising from our business activities
Key risks by business division and Group Items
Business divisions and Group Items
Key financial risks arising from business activities
Global Wealth Management
Credit risk
investors’ uncalled capital commitments, and residential and commercial real estate, as well as from
derivatives trading.
Market risk
banking book related to Global Wealth Management is transferred to and managed by Group Treasury.
Personal & Corporate Banking
Credit risk
lending, commodity trade finance, trade and export finance, and lending to banks and other regulated
clients, as well as a small amount of derivatives trading activity.
Minimal contribution to
market risk
. Interest rate risk in the banking book related to Personal &
Corporate Banking is transferred to and managed by Group Treasury.
Asset Management
Credit risk
market risk
management and performance fees and cause heightened fund outflows, liquidity risk and losses on our
seed capital and co-investments.
Small amounts of credit and market risk for on-balance sheet items.
Investment Bank
Credit risk
trading and securities financing.
Market risk
Non-core and Legacy
Credit risk
market risk
and derivatives, as well as residual exposures to securitized products.
Group Items
Credit
market risk
liquidity portfolios.
Structural risk arising from asset and liability management and liquidity and funding risk (managed by
Group Treasury).
Non-financial risks
and information-security risks), legal risks and reputational risks. These are an inevitable consequence of being in business and can arise as a result of our past
and current business activities across all business divisions and Group Items.
›
Refer to “Risk categories” in this section for more information about other financial and non-financial risks relevant to UBS AG
Key risk developments
Upon legal close of the acquisition of the Credit Suisse Group by UBS Group, UBS has applied prudent risk management
practices to the material risks of the combined organization, and continued to apply these practices at the UBS AG entity
level. UBS AG’s risk management and control practices and frameworks remained in line with those of the UBS Group.
UBS AG’s risk governance continued to operate along our three lines of defense.
2023 was a challenging year for the global economy and most markets, stage 3 net expenses of USD 120m were
recognized in a number of defaulted positions across our business divisions and a USD 0.5bn increase in credit-impaired
exposure to USD 3.0bn was observed. Overall, we saw a USD 48bn increase in banking product exposure driven by Group
Items and Personal & Corporate Banking while exposure in Global Wealth Management decreased. Traded product
exposures saw an increase of USD 1.4bn across our business divisions. Market risk remained at low levels, as a result of
our continued focus on managing tail risks.
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Risk management and control 53
Risk categories
UBS AG categorizes the risk exposures of the business divisions and Group Items in line with the UBS Group as outlined
in the table below. The risk appetite framework is designed to capture all risk categories.
›
Refer to “Risk appetite framework” in this section for more information
Risk managed by
Independent
oversight by
Financial risks
Audited |
Credit risk:
the risk of loss resulting from the failure of a client or counterparty to meet its
contractual obligations toward UBS AG. This includes settlement risk, loan underwriting risk and step-in
risk.
Settlement risk:
security versus cash) where we must deliver without first being able to determine with certainty that
we will receive the consideration.
Loan underwriting risk:
that are intended for further distribution.
Step-in risk:
entity that is facing stress in the absence of, or in excess of, any contractual obligations to provide
such support.
p
Business divisions
Risk Control
Audited |
Market risk
market variables. Market variables include observable variables, such as interest rates, foreign exchange
rates, equity prices, credit spreads and commodity (including precious metal) prices, as well as variables
that may be unobservable or only indirectly observable, such as volatilities and correlations. Market risk
includes issuer risk and investment risk.
Issuer risk:
the risk of loss that would occur if an issuer to which we are exposed through tradable
securities or derivatives referencing the issuer was subject to a credit-related event.
Investment risk:
p
Business divisions and
Group Treasury
Risk Control
Country risk:
default and also transfer risk, which involves a country’s authorities preventing or restricting the
payment of an obligation, as well as systemic risk events arising from country-specific political or
macroeconomic developments.
Business divisions
Risk Control
Sustainability and climate risk:
change, natural capital, human rights, and other environmental, social and governance matters. Climate
risks can arise from either changing climate conditions (physical risks) or from efforts to mitigate climate
change (transition risks). Sustainability and climate risks may manifest as credit, market, liquidity,
business and non-financial risks for UBS AG, resulting in potential adverse financial, liability and
reputational impacts. These risks extend to the value of investments and may also affect the value of
collateral (e.g., real estate).
Business divisions
Risk Control
Treasury risk:
positions, as well as structural exposures including pension risks.
Group Treasury
Risk Control
Audited |
Liquidity risk:
unexpected current and forecast cash flows and collateral needs without affecting either daily
operations or the financial condition of the firm.
p
Audited |
Funding risk:
the market on an unsecured (or even secured) basis at an acceptable price to fund actual or
proposed commitments, i.e., the risk that UBS AG’s funding capacity is not sufficient to support the
firm’s current business and desired strategy.
p
Interest rate risk in the banking book:
the risk to the firm’s capital and earnings arising from the
adverse effects of interest rate movements on the firm’s banking book positions. The risk is
transferred from the originating business divisions, i.e., Global Wealth Management and Personal &
Corporate Banking, to Group Treasury to risk manage this centrally and benefit from firm-wide
netting while leaving the business units with margin management.
Structural foreign exchange risk:
exchange rates with an adverse translation effect on capital held in currencies other than the
US dollar.
Pension risk:
from decreases in the fair value of assets held in defined benefit pension funds and / or changes in
the value of defined benefit pension obligations due to changes in actuarial assumptions (e.g.,
discount rate, life expectancy, rate of pension increase) and / or changes to plan designs.
Group Treasury and
Human Resources
Risk Control
and Finance
Business risk:
and / or margins, to the extent they are not offset by a decrease in expenses. For example, changes in
the competitive landscape, client behavior or market conditions can potentially have a negative impact.
Business divisions
Risk Control
and Finance
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Risk management and control 54
Risk managed by
Independent
oversight by
Non-financial risks
Compliance risk:
procedures, and the firm’s Code of Conduct and Ethics.
Business divisions
Group Compliance,
Regulatory &
Governance (GCRG)
Employment risk:
human resources policies governing employment practices, discrimination, compensation and
employee-related taxes and benefits.
Human Resources
Conduct risk:
counterparties, undermines the integrity of the financial system or impairs effective competition to
the detriment of consumers.
GCRG
Financial crime risk:
financing, sanctions or embargo violations, internal and external fraud, bribery, and corruption).
Business divisions and
Financial Crime
Prevention
GCRG
Operational risk:
from external causes (deliberate, accidental or natural).
Business divisions
GCRG
Cybersecurity and information security risk:
failure of IT hardware or software, or human error, leading to a material impact on confidentiality,
integrity or availability of UBS AG’s data or information systems.
Business divisions and
the Group Operations
and Technology Office
GCRG
Model risk:
loss, biased business decisions, or reputational damage) resulting from decisions based on incorrect /
inadequate or misused model outputs and reports.
Model owner
Risk Control
Legal risk:
held liable for a breach of contractual or other legal obligations; (iii) an inability or failure to enforce or
protect contractual rights or non-contractual rights sufficiently to protect UBS AG’s interests; and
(iv) being party to a claim or investigated by an external regulator or authority in respect of any of the
above (and the risk of loss of attorney–client privilege in the context of any such claim).
Business divisions
Legal
Reputational risk:
from the point of view of clients, shareholders, regulators, employees or the general public, which may
lead to potential financial loss and / or loss of market share.
All businesses and
functions
All control functions
Top and emerging risks
The top and emerging risks disclosed below reflect those that we currently think have the potential to materialize within
one year and which could significantly affect UBS AG. Investors should also carefully review all information set out in the
“Risk factors” section of this report, where we discuss these and other material risks that we consider could have an
effect on our ability to execute our strategy and may affect our business activities, financial condition, results of operations
and business prospects.
–
UBS AG remains watchful of a range of geopolitical developments and political changes in a number of countries, as
well as international tensions arising from the Russia–Ukraine war, conflicts in the Middle East and US–China trade
relations. Geopolitical tensions will continue to create uncertainty and complicate the energy price outlook. UBS AG is
closely watching elections in several key markets in 2024.
–
Inflation has abated to some extent in major Western economies, though there are still concerns regarding future
developments, and central banks’ monetary policy is in the spotlight. The potential for “higher-for-longer” interest
rates raises the prospect of a global recession, particularly as the growth of China’s economy has been muted. This
combination of factors translates into a more uncertain and volatile environment, which increases the risk of financial
market disruption.
–
UBS AG is exposed to a number of macroeconomic issues, as well as general market conditions. As noted in “Market,
credit and macroeconomic risks” in the “Risk factors” section of this report, these external pressures may have a
significant adverse effect on our business activities and related financial results, primarily through reduced margins and
revenues, asset impairments and other valuation adjustments. Accordingly, these macroeconomic factors are
considered in the development of stress-testing scenari os for our ongoing risk management activities.
–
UBS AG is monitoring the downturn in the commercial real estate sector. Adverse effects on valuations from higher
interest rates and structural decline in demand for office and retail space may trigger broader impacts given bank and
non-bank lenders’ material balance sheet exposure to the sector.
–
We are exposed to substantial changes in the regulation of our businesses that could have a material adverse effect
on our business, as discussed in the “Regulatory and legal developments” section of this report and in “Regulatory
and legal risks” in the “Risk factors” section of this report.
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Risk management and control 55
–
As a global financial services firm, we are subject to many different legal, tax and regulatory regimes and extensive
regulatory oversight. We are exposed to significant liability risk, and we are subject to various claims, disputes, legal
proceedings and government investigations, as noted in “Regulatory and legal risks” in the “Risk factors” section of
this report. Information about litigation, regulatory and similar matters we consider significant is disclosed in “Note 17
Provisions and contingent liabilities” in the “Consolidated financial statements” section of this report.
–
Global geopolitical trends increase the likelihood of external state-driven cyber activity. Alongside a general trend
toward more sophisticated forms of ransomware and other cyber threats, there is a risk of business disruption or the
corruption or loss of data. Additionally, as a result of the dynamic and material nature of recent geopolitical and
environmental events and the operational complexity of all our businesses, we are continually exposed to operational
resilience scenarios such as process error, failed execution, system failures and fraud.
–
Conduct risks are inherent in our businesses. Achieving fair outcomes for our clients, upholding market integrity and
cultivating the highest standards of employee conduct are of critical importance to us. Management of conduct risks
is an integral part of our risk management framework.
–
Financial crime (including money laundering, terrorist financing, sanctions violations, fraud, bribery and corruption)
presents significant risk. Heightened regulatory expectations and attention require investment in people and systems,
while emerging technologies and changing geopolitical risks further increase the complexity of identifying and
preventing financial crime.
›
Refer to “Non-financial risk” in this section and “Strategy, management and operational risks” in the “Risk factors” section of this
report for more information
–
Sustainability and climate risks continue to be in the focus of regulators and stakeholders, with further emphasis put
on measurement of nature-related risk and management of greenwashing risks in 2023. To address these emerging
risks, UBS has enhanced its nature-related risk methodology and
established guidelines for sustainable lending, bonds
and greenhouse gas emissions trading to address potential greenwashing risks.
›
Refer to “Sustainability and climate risk” in the “Risk management and control” section of the UBS Group Annual Report 2023,
available under “Annual reporting” at
ubs.com/investors
, for more information
›
Refer to the UBS Group Sustainability Report 2023, available under “Annual reporting” at
ubs.com/investors
, for a full description
of our sustainability and climate risk policy framework
–
In addition, industry guidelines and regulations are emerging simultaneously in various jurisdictions, leading to an
increased risk of divergence, which in turn increases the risk that UBS may not comply with all relevant regulations.
›
section of the UBS Group Annual Report 2023, available under “Annual reporting” at
ubs.com/investors
–
New risks continue to emerge. For example, client demand for distributed ledger technology, blockchain-based assets
and virtual currencies creates new risks, to which we currently have limited exposure and for which relevant control
frameworks are continuously enhanced and implemented.
Risk governance
The risk governance of UBS AG is modeled on that of UBS Group AG, with the same three lines of defense and equal
governance structure in terms of key roles and responsibility for risk management.
›
Refer to “Risk governance” in the “Risk management and control” section of the UBS Group Annual Report 2023, available under
“Annual reporting” at
ubs.com/investors,
Risk appetite framework
UBS AG manages its risk appetite in line with the UBS Group framework, covering financial and non-financial risk types, via
a complementary set of qualitative and quantitative risk appetite statements. The UBS Group framework is reviewed and
recalibrated annually and presented to the Board of Directors (the BoD) for approval.
Our risk appetite is defined at the aggregate Group level and reflects the risk that we are willing to accept or wish to
avoid. It is set via complementary qualitative and quantitative risk appetite statements defined at a firm-wide level and is
embedded throughout our business divisions and legal entities by Group, business division and legal entity policies, limits
and authorities. Our risk appetite is reviewed and recalibrated annually, with the aim of ensuring that risk-taking at every
level of the organization is in line with our strategic priorities, our capital and liquidity plans, our
Pillars, Principles and
Behaviors
, and minimum regulatory requirements. The “Risk appetite framework” chart below shows the key elements
of the framework, which is described in detail in this section.
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Risk management and control 56
Qualitative risk appetite statements aim to ensure we maintain the desired risk culture. Quantitative risk appetite
objectives are designed to enhance the Group’s, including UBS AG’s, resilience against the effects of potential severe
adverse economic or geopolitical events. These risk appetite objectives cover minimum capital and leverage ratios,
solvency, earnings, liquidity and funding, and are subject to periodic review, including the yearly business planning
process. These objectives are complemented by a standardized set of quantitative firm-wide non-financial risk appetite
objectives. Non-financial risk events exceeding predetermined risk tolerances, expressed as percentages of UBS AG’s total
operating income, must be escalated as per the firm-wide escalation framework.
The quantitative risk appetite objectives are supported by a comprehensive suite of risk limits set at a portfolio level to
monitor specific portfolios and to identify potential risk concentrations.
Our risk appetite framework is governed by a single overarching policy and conforms to the Financial Stability Board’s
Principles for an Effective Risk Appetite Framework.
Risk principles and risk culture
Maintaining a strong risk culture is a prerequisite for success in today’s highly complex operating environment and a
source of sustainable competitive advantage.
Our risk appetite framework combines all the important elements of our risk culture, expressed in our
Pillars, Principles
and Behaviors
, our risk management and control principles, our Code of Conduct and Ethics, and our Total Reward
Principles. They help to create a solid foundation for promoting risk awareness, leading to appropriate risk-taking and
the establishing of robust risk management and control processes. These principles are supported by a range of initiatives
covering employees at all levels, for example the
UBS House View on Leadership
, which is a set of explicit expectations
that establishes consistent leadership standards across UBS, and our Principles of Good Supervision, which establish clear
expectations of managers and employees regarding supervisory responsibilities, specifically: to take responsibility; to know
and organize their business; to know their employees and what they do; to create a good risk culture; and to respond to
and resolve issues.
›
Refer to “Employees” in the “How we create value for our stakeholders” section in the UBS Group Annual Report 2023 for more
information about our Pillars, Principles and Behaviors
›
Refer to the Code of Conduct and Ethics of UBS at
ubs.com/code
Risk management and control principles
Protection of financial strength
Protecting UBS AG’s financial strength by controlling our risk exposure and avoiding potential risk
concentrations at individual exposure levels, at specific portfolio levels and at an aggregate firm-wide
level across all risk types.
Protection of reputation
Protecting our reputation through a sound risk culture characterized by a holistic and integrated view of
risk, performance and reward, and through full compliance with our standards and principles, particularly
our Code of Conduct and Ethics.
Business management accountability
Maintaining management accountability, whereby business management owns all risks assumed
throughout UBS AG and is responsible for the continuous and active management of all risk exposures to
provide for balanced risk and return.
Independent controls
Independent control functions that monitor the effectiveness of the businesses’ risk management and
oversee risk-taking activities.
Risk disclosure
Disclosure of risks to senior management, the BoD, investors, regulators, credit rating agencies and other
stakeholders with an appropriate level of comprehensiveness and transparency.
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Risk management and control 57
Whistleblowing policies and procedures exist to encourage an environment where staff are comfortable raising concerns.
There are multiple channels via which individuals may, either openly or anonymously, escalate suspected breaches of
laws, regulations, rules and other legal requirements, our Code of Conduct and Ethics, policies or relevant professional
standards. We are committed to ensuring there is appropriate training and communication to staff and legal entity
representatives, including information abo ut new regulatory requirements.
Mandatory training programs cover various compliance-related and risk-related topics, including operational risk and anti-
money laundering. Additional specialized training is provided depending on employees’ specific roles and responsibilities,
e.g., credit risk and market risk training for those working in trading areas.
Quantitative risk appetite objectives
Our quantitative risk appetite objectives aim to ensure that our aggregate risk exposure remains within desired risk
capacity, based on capital and business plans. The specific definition of risk capacity for each objective is aimed at ensuring
we have sufficient capital, earnings, funding and liquidity to protect our businesses and exceed minimum regulatory
requirements under a severe stress event. The risk appetite objectives are evaluated during the annual business planning
process and approved by the BoD. The comparison of risk exposure with risk capacity is a key consideration in decisions
on potential adjustments to the business strategy, risk profile, and the level of capital returns to shareholders.
In the annual business planning process , UBS’s business strategy , including that of UBS AG, is reviewed, the risk profile
that our operations and activities result in is assessed, and that risk profile is stressed. We use both scenario-based stress
tests and economic capital risk measurement techniques to assess the effects of severe stress events at a firm-wide level.
These complementary frameworks capture exposures to material risks across our business divisions and Group Item s.
For 2023, the following risk appetite objectives were applied to UBS AG.
›
Refer to “Risk measurement” in this section for more information about our stress-testing and economic capital measures
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Risk management and control 58
Our risk capacity is underpinned by performance targets and capital guidance as per our business plan. When determining
our risk capacity in case of a severe stress event, we estimate projected earnings under stress, factoring in lower expected
income and expenses. We also consider capital impacts under stress from deferred tax assets, pension plan assets and
liabilities, and accruals for capital returns to shareholders.
Risk appetite objectives define the aggregate risk exposure acceptable at the firm-wide level, given our risk capacity. The
maximum acceptable risk exposure is supported by a full set of risk limits, which are cascaded to businesses and portfolios.
These limits aim to ensure that our risks remain in line with risk appetite.
Risk appetite statements at the business division level are derived from the firm-wide risk appetite. They may also include
division-specific strategic goals related to that division’s activities and risks. Risk appetite statements are also set for certain
legal entities, which must be consistent with the firm-wide risk appetite framework and approved in accordance with
Group and legal entity regulations. Differences may exist that reflect the specific nature, size, complexity and regulations
applicable to the relevant legal entity.
Internal risk reporting
Comprehensive and transparent reporting of risks is central to our risk governance framework’s control and oversight
responsibilities and required by our risk management and control principles. Accordingly, risks are reported at a frequency
and level of detail commensurate with the extent and variability of the risk and the needs of the various governance
bodies, regulators and risk authority holders.
The UBS AG Risk Report (formerly the Group Risk Report) provides a detailed qualitative and quantitative monthly
overview of developments in financial and non-financial risks at the firm-wide level. The UBS AG Risk Report is distributed
internally to the BoD and the Executive Board (EB), and senior members of Risk Control and Group Internal Audit (GIA).
Risk reports are also produced for significant UBS AG entities (entities subject to enhanced standards of corporate
governance) and significant branches.
Granular divisional risk reports are provided to the respective business division CROs and business division Presidents. This
monthly reporting is supplemented with daily or weekly reports, at various levels of granularity, covering market and
credit risks for the business divisions to enable risk officers and senior management to monitor and control the Group’s
risk profile, including that of UBS AG.
Our internal risk reporting covers financial and non-financial risks and is supported by risk data and measurement systems
that are also used for external disclosure and regulatory reporting. Dedicated units within Risk Control assume responsibility
for measurement, analysis and reporting of risk and for overseeing the quality and integrity of risk-related data. Our risk
data and measurement systems are subject to periodic review by GIA, following a risk-based audit approach.
Model risk management
Introduction
We rely on models to inform risk management and control decisions, to measure risks or exposures, value instruments
or positions, conduct stress testing, assess adequacy of capital, and manage clients’ assets and our own assets. Models
may also be used to measure and monitor compliance with rules and regulations, for surveillance activities, or to meet
financial or regulatory reporting requirements.
Model risk is defined as the risk of adverse consequences (e.g., financial losses or reputational damage) resulting from
incorrect or misused models.
Model governance framework
Our model governance framework establishes requirements for identifying, measuring, monitoring, reporting, controlling
and mitigating model risk. All the models that we use are subject to governance and controls throughout their life cycles,
with rigor, depth and frequency determined by the model’s materiality and complexity. This is designed to ensure that
risks arising from model use are identified, understood, managed, monitored, controlled and reported on both a model-
specific and an aggregated level. Before they can be granted approval for use, all our models are independently validated.
Once validated and approved for use, a model is subject to ongoing model monitoring and regular model confirmation,
ensuring that the model is only used if it continues to be found fit for purpose. All models are subject to periodic model
re-validation.
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Risk management and control 59
Our model risk governance framework follows our overarching risk governance framework, with the three lines of
defense (LoD) assigned as follows.
–
First LoD: individuals responsible for development, maintenance and appropriate use of the models, within business
units and Group functions.
–
Second LoD: individuals responsible for independent review of and effective challenge to the models, the Model Risk
Management & Control function headed by the Chief Model Risk Officer.
–
Third LoD: Group Internal Audit
An important difference as compared with how LoD are usually defined in financial and non-financial risk is that some
models are owned by traditionally second LoD functions, such as Risk Control, Finance or Compliance.
Model risk appetite framework and statement
The model risk appetite framework sets out the model risk appetite statement, defines the relevant metrics and lays out
how appropriate adherence is assessed.
Model oversight
Model oversight committees and forums ensure that model risk is overseen at different levels of the organization,
appropriate model risk management and control actions are taken and, where necessary, escalated to the next level.
The Group Model Governance Committee is our most senior oversight and escalation body for all models in scope of our
model governance framework. It is co-chaired by the Group CRO and the Group CFO and is responsible for: (i) reviewing
and approving changes to the framework; (ii) approving the model risk appetite statement; (iii) overseeing adherence to
the UBS model risk governance framework; and (iv) monitoring model risk at a firm-wide level.
Risk measurement
Audited |
We apply a variety of methodologies and measurements to quantify the risks of our portfolios and potential risk
concentrations. Risks that are not fully reflected within standard measures are subject to additional controls, which may
include preapproval of specific transactions and the application of specific restrictions. Models to quantify risk are
generally developed by dedicated units within control functions and are subject to independent validation.
p
›
Refer to “Credit risk,” “Market risk” and “Non-financial risk” in this section for more information about model confirmation
procedures
The text below describes the scenario-based stress testing and economic capital measures of UBS AG on a consolidated
basis during 2023.
Stress testing
We perform stress testing to estimate losses that could result from extreme yet plausible macroeconomic and geopolitical
stress events to identify, better understand and manage our potential vulnerabilities and risk concentrations. Stress testing
has a key role in our limits framework at the firm-wide, business division, legal entity and portfolio levels. Stress-test
results are regularly reported to the BoD and the EB. As described in “Risk appetite framework,” stress testing, along
with economic capital measures, has a central role in our risk appetite and business planning processes.
Our stress-testing framework has three pillars: (i) combined stress tests; (ii) an extensive set of portfolio- and risk-type-
specific stress tests; and (iii) reverse stress testing.
The
combined stress-testing (CST)
result from various potential global systemic events. The framework captures all material risks, as covered in “Risk
categories.” Scenarios are forward-looking and encompass macroeconomic and geopolitical stress events calibrated to
different levels of severity. We implement each scenario through the expected evolution of market indicators and
economic variables under that scenario and then estimate the overall loss and capital implications were the scenario to
occur. Following the existing UBS AG scenario governance, at least once a year, the Risk Committee approves the most
relevant scenario, known as the binding scenario, for use as the main scenario for regular CST reporting and for
monitoring risk exposure against our minimum capital, earnings and leverage ratio objectives in our risk appetite
framework.
We provide detailed stress loss analyses to the Swiss Financial Market Supervisory Authority (FINMA) and regulators of
our legal entities in accordance with their requirements.
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Risk management and control 60
The Enterprise-wide Stress Forum (the ESF) aims to ensure the consistency and adequacy of the assumptions and scenarios
used for firm-wide stress measures. As part of its responsibilities, the ESF, with input from the Think Tank, a panel of
senior representatives from the business divisions, Risk Control and Economic Research, seeks to ensure that the set of
stress scenarios adequately reflects current and potential developments in the macroeconomic and geopolitical
environment, current and planned business activities, and actual or potential risk concentrations and vulnerabilities in our
portfolios.
Each scenario captures a wide range of macroeconomic variables, including GDP, equity prices, interest rates, foreign
exchange rates, commodity prices, property prices and unemployment. We use assumed changes in these
macroeconomic and market variables in each scenario to stress the key risk drivers of our portfolios. We also capture the
business risk resulting from lower fee, interest and trading income net of lower expenses. These effects are measured for
all businesses and material risk types to calculate the aggregate estimated effect of the scenario on profit or loss, other
comprehensive income, risk-weighted assets, the leverage ratio denominator and, ultimately, capital and leverage ratios.
The assumed changes in macroeconomic variables are updated periodically to account for changes in the current and
possible future market environment.
In 2023, the binding scenario for CST was the internal stagflationary geopolitical crisis scenario. This scenario assumes
that a geopolitical event leads to economic regionalization and fears of prolonged stagflation. Central banks signal a firm
commitment to price stability and continue to tighten monetary policy, triggering a broad rise in interest rates and
impacting economic activity and asset values.
As part of the CST framework, we routinely monitored three additional stress scenarios throughout 2023:
–
The
global crisis
Combined with political, solvency and liquidity concerns, this results in a sharp sell-off of emerging markets sovereign
debt and some emerging markets default. The macroeconomic and market impacts amplify concerns about peripheral
European sovereign debt, causing Greece and Cyprus to default.
–
The
global depression
concerns around emerging markets sovereign debt, causing several large emerging markets to default. Several
European economies also default, and some leave the Eurozone. A negative feedback loop between collapsing
demand, declining asset values and commodity prices, and disruption in the banking system leads to a deep and
prolonged recession across the globe.
–
The
US monetary crisis
scenario explores a loss of confidence in the US, which leads to a sell-off of US dollar-
denominated assets, sparking an abrupt and substantial depreciation of the US dollar. The US economy is hit hard,
financial markets enter a period of high volatility and other industrialized countries replicate the cyclical pattern of the
US. Regional inflation trends diverge as the US experiences significant inflationary pressures while other developed
markets experience deflation.
Portfolio-specific stress tests
derived from data on past events, but also include forward-looking elements (e.g., we derive the expected market
movements in our liquidity-adjusted stress metric using a combination of historical market behavior, based on an analysis
of historical events, and forward-looking analysis, including consideration of defined scenarios that have never occurred).
Results of portfolio-specific stress tests may be subject to limits to explicitly control risk-taking or may be monitored
without limits to identify vulnerabilities.
Reverse stress testing
shortfall or a breach of minimum capital ratios) and works backward to identify macroeconomic scenarios and / or
idiosyncratic events that could result in such an outcome. As such, reverse stress testing is intended to complement
scenario-based stress tests by assuming “what if” outcomes that could extend beyond the range normally considered,
and thereby potentially challenge assumptions regarding severity and plausibility.
We also routinely analyze the effect of increases or decreases in interest rates and changes in the structure of yield curves.
Within Group Treasury, we also perform stress testing to determine the optimal asset and liability structure, enabling us
to maintain an appropriately balanced liquidity and funding position under various scenarios. These scenarios differ from
those outlined above, because they focus on specific situations that could generate liquidity and funding stress, as
opposed to the scenarios used in the CST framework, which focus on the effect on profit or loss and capital.
›
Refer to “Credit risk” and “Market risk” in this section for more information about stress loss measures
›
Refer to the “Capital, liquidity and funding, and balance sheet” section of this report for more information about stress testing
›
Refer to “Note 19 Expected credit loss measurement” in the “Consolidated financial statements” section of this report for more
information about scenarios used for expected credit loss measurement
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Risk management and control 61
Economic capital measures
We complement the scenario-based CST measures with economic capital stress measures to calculate and aggregate risks
using statistical techniques to derive stress events at chosen confidence levels.
This framework is used to derive a loss distribution, considering effects on both income and expenses, based on the
simulation of historically observed financial and economic risk factors in combination with the firm’s actual earnings and
relevant risk exposures. From that, we determine earnings-at-risk (EaR), measuring the potential shortfall in earnings (i.e.,
the deviation from forecast earnings) at a 95% confidence level and evaluated over a one-year horizon. EaR is used for
the assessment of the earnings objectives in our risk appetite framework.
We extend the EaR measure, incorporating the effects of gains and losses recognized through other comprehensive
income, to derive a distribution of potential effects of stress events on common equity tier 1 capital. From this distribution,
we derive our capital-at-risk (CaR) buffer measure at a 95% confidence level to assess our capital and leverage ratio risk
appetite objectives, and derive our CaR solvency measure at a 99.9% confidence level to assess our solvency risk appetite
objective.
We use the CaR solvency measure as a basis for deriving the contributions of the business divisions to risk-based capital
(RBC). RBC measures the potential capital impairment from an extreme stress event at a 99.9% confidence level.
Portfolio and position limits
UBS maintains a comprehensive set of risk limits across its major risk portfolios. These portfolio limits are set based on
our risk appetite and periodically reviewed and adjusted as part of the business planning process.
Firm-wide stress and statistical metrics are complemented by more granular portfolio and position limits, triggers and
targets. Combining these measures provides a comprehensive framework for control of the key risks of our business
divisions, as well as significant legal entities.
UBS AG applies limits to a variety of exposures at the portfolio level, using statistical and stress-based measures, such as
value-at-risk, liquidity-adjusted stress, loan underwriting limits, economic value sensitivity and portfolio default
simulations for loan books. These are complemented with a set of controls for net interest income sensitivity, mark-to-
market losses on available-for-sale portfolios, and the effect of foreign exchange movements on capital and capital ratios.
Portfolio measures are supplemented with counterparty- and position-level controls. Risk measures for position controls
are based on market risk sensitivities and counterparty-level credit risk exposures. Market risk sensitivities include
sensitivities to changes in general market risk factors (e.g., equity indices, foreign exchange rates and interest rates) and
sensitivities to issuer-specific factors (e.g., changes in an issuer’s credit spread or default risk). We monitor numerous
market and treasury risk controls on a daily basis. Counterparty measures capture the current and potential future
exposure to an individual counterparty, considering collateral and legally enforceable netting agreements.
›
Refer to “Credit risk” in this section for more information about counterparty limits
›
Refer to “Risk appetite framework” in this section for more information about the risk appetite framework
Risk concentrations
Audited |
Risk concentrations may exist where one or several positions within or across different risk categories could result
in significant losses relative to UBS AG’s financial strength. Identifying such risk concentrations and assessing their
potential impact is a critical component of our risk management and control process.
For financial risks, we consider a number of elements, such as shared characteristics of positions, the size of the portfolio
and the sensitivity of positions to changes in the underlying risk factors. Also important in our assessment is the liquidity
of the markets where the positions are traded, as well as the availability and effectiveness of hedges or other potential
risk-mitigating factors. This includes an assessment of, for example, the provider of the hedge and market liquidity where
the hedge might be traded. Particular attention is given to identification of wrong-way risk and risk on risk. Wrong-way
risk is defined as a positive correlation between the size of the exposure and the likelihood of a loss. Risk on risk is when
a position and its risk mitigation can be impacted by the same event.
For non-financial risks, risk concentrations may result from, for example, a single operational risk issue that is large on its
own (i.e., it has the potential to produce a single high-impact loss or a number of losses that together are high impact)
or related risk issues that may link together to create a high impact.
Risk concentrations are subject to increased oversight by Group Risk Control and Group Compliance, Regulatory &
Governance, and assessed to determine whether they should be reduced or mitigated, depending on the available means
to do so. It is possible that material losses could occur on financial or non-financial risks, particularly if the correlations
that emerge in a stressed environment differ markedly from those envisaged by risk models.
p
›
Refer to “Credit risk” and “Market risk” in this section for more information about the composition of our portfolios
›
Refer to the “Risk factors” section of this report for more information
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Risk management and control 62
Credit risk
Audited |
Main sources of credit risk
–
Global Wealth Management credit risk arises from collateralized lending primarily against securities, private equity and
hedge fund interest, investors’ uncalled capital commitments, and residential and commercial real estate, as well as
from derivatives trading.
–
A substantial portion of lending exposure arises from Personal & Corporate Banking, which offers mortgage loans,
secured mainly by owner-occupied properties and income-producing real estate, as well as corporate loans, and
therefore depends on the performance of the Swiss economy and real estate market.
–
The Investment Bank’s credit exposure arises mainly from lending, derivatives trading and securities financing.
Derivatives trading and securities financing are mainly investment grade. Loan underwriting activity can be lower rated
and give rise to temporary concentrated exposure.
–
Credit risk within Non-core and Legacy relates to exposures in auction rate preferred securities, public finance loans
and derivatives, and residual exposures to securitized products.
p
Credit loss expense / release
Total net credit loss expenses were USD 143m in 2023, reflecting net credit loss expenses of USD 23m related to stage 1
and 2 positions and net credit loss expenses of USD 120m related to credit-impaired (stage 3) positions.
Stage 3 net expenses of USD 120m were recognized across a number of defaulted positions, with net expenses of
USD 56m in the Investment Bank, USD 37m in Personal & Corporate Banking and USD 27m in Global Wealth
Management.
›
Refer to “Note 1 Summary of material accounting policies,” “Note 9 Financial assets at amortized cost and other positions in scope
of expected credit loss measurement” and “Note 19 Expected credit loss measurement” in the “Consolidated financial statements”
section of this report for more information about IFRS 9 and expected credit losses
Credit loss expense / (release)
Performing positions
Credit-impaired positions
USD m
Stages 1 and 2
Stage 3
Total
For the year ended 31.12.23
Global Wealth Management
Personal & Corporate Banking
Asset Management
Investment Bank
Non-core and Legacy
Group Items
1
Total
For the year ended 31.12.22
Global Wealth Management
Personal & Corporate Banking
Asset Management
Investment Bank
Non-core and Legacy
Group Items
1
Total
For the year ended 31.12.21
Global Wealth Management
Personal & Corporate Banking
Asset Management
Investment Bank
Non-core and Legacy
Group Items
1
Total
1 Starting with the third quarter of 2023, Non-core and Legacy became a separate reportable segment and Group Functions has been renamed Group Items. Prior periods have been restated to reflect these changes.
Audited |
Overview of measurement, monitoring and management techniques
–
Credit risk from transactions with individual counterparties is based on our estimates of probability of default (PD),
exposure at default (EAD) and loss given default (LGD). Limits are established for individual counterparties and groups
of related counterparties covering banking and traded products, and for settlement amounts. Risk authorities are
approved by the Board of Directors and are delegated to the Group CEO, the Group Chief Risk Officer (the CRO) and
divisional CROs, based on risk exposure amounts, internal credit rating and potential for losses.
–
Limits apply not only to the current outstanding amount but also to contingent commitments and the potential future
exposure of traded products.
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Risk management and control 63
–
The Investment Bank monitoring, measurement and limit framework distinguishes between exposures intended to be
held to maturity (take-and-hold exposures) and those intended for distribution or risk transfer (temporary exposures).
–
We use models to derive portfolio credit risk measures of expected loss, statistical loss and stress loss at firm-wide and
business division levels, and to establish portfolio limits.
–
Credit risk concentrations can arise if clients are engaged in similar activities, located in the same geographical region
or have comparable economic characteristics, e.g., if their ability to meet contractual obligations would be similarly
affected by changes in economic, political or other conditions. To avoid credit risk concentrations, we establish limits /
operational controls that constrain risk concentrations at portfolio, sub-portfolio or counterparty levels for sector
exposure, country risk and specific product exposures.
p
Credit risk profile of UBS AG
The exposures detailed in this section are based on management’s view of credit risk, which differs in certain respects
from the ECL measurement requirements of IFRS Accounting Standards.
Internally, credit risk exposures are put into two broad categories: banking products and traded products. Banking
products include drawn loans, guarantees and loan commitments, amounts due from banks, balances at central banks,
and other financial assets at amortized cost. Traded products include over-the-counter (OTC) derivatives, exchange-traded
derivatives (ETDs) and securities financing transactions (SFTs), consisting of securities borrowing and lending, and
repurchase and reverse repurchase agreements.
Banking and traded products exposure in our business divisions and Group Items
31.12.23
USD m
Global
Wealth
Management
Personal &
Corporate
Banking
Asset
Management
Investment
Bank
Non-core
and Legacy
Group
Items
Total
Banking products
1,2
Gross exposure
of which: loans and advances to customers (on-balance sheet)
of which: guarantees and loan commitments (off-balance sheet)
Traded products
2,3
Gross exposure
of which: over-the-counter derivatives
of which: securities financing transactions
of which: exchange-traded derivatives
Other credit lines, gross
4
Total credit-impaired exposure, gross (stage 3)
1
Total allowances and provisions for expected credit losses
of which: stage 1
of which: stage 2
of which: stage 3
31.12.22
USD m
Global
Wealth
Management
Personal &
Corporate
Banking
Asset
Management
Investment
Bank
Non-core
and Legacy
Group
Items
Total
Banking products
1,2
Gross exposure
of which: loans and advances to customers (on-balance sheet)
of which: guarantees and loan commitments (off-balance sheet)
Traded products
2,3
Gross exposure
of which: over-the-counter derivatives
of which: securities financing transactions
of which: exchange-traded derivatives
Other credit lines, gross
4
Total credit-impaired exposure, gross (stage 3)
1
Total allowances and provisions for expected credit losses
of which: stage 1
of which: stage 2
of which: stage 3
1 IFRS 9 gross exposure for banking products includes the following financial assets in scope of expected credit loss measurement: balances at central banks, amounts due from banks, loans and advances to customers,
other financial assets at amortized cost, guarantees and irrevocable loan commitments. 2 Internal management view of credit risk, which differs in certain respects from IFRS Accounting Standards. 3 As counterparty
risk for traded products is managed at counterparty level, no further split between exposures in the Investment Bank, Non-core and Legacy, and Group Items is provided. 4 Unconditionally revocable committed
credit lines.
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Risk management and control 64
Banking products
›
Refer to “Note 1 Summary of material accounting policies” in the “Consolidated financial statements” section of this report for
more information about our accounting policy for allowances and provisions for ECL
›
Refer to “Note 9 Financial assets at amortized cost and other positions in scope of expected credit loss measurement” and
“Note 19 Expected credit loss measurement” in the “Consolidated financial statements” section of this report for more
information about ECL measurement requirements under IFRS Accounting Standards
›
Refer to “Note 13 Other assets” in the “Consolidated financial statements” section of this report for more details
Global Wealth Management
Gross banking products exposure within Global Wealth Management decreased by USD 20bn to USD 315bn.
Our Global Wealth Management loan portfolio is mainly secured by securities (Lombard loans) and by residential real estate.
Most of our USD 139bn of Lombard loans, including traded products collateralized by securities, were of high quality, with
91% rated as investment grade based on our internal ratings. Moreover, Lombard loans are typically uncommitted, short-
term in nature and can be canceled immediately if the collateral quality deteriorates and margin calls are not met. Lending
values in the Lombard book are derived by applying discounts to the pledged collateral’s market value in line with a
possible adverse change in market value over a given close -out period and confidence level. Less liquid or more volatile
collateral will typically have larger haircuts. In 2023, the Lombard book, including traded products, decreased approximately
10%, mainly driven by the US, from a larger amount of clients paying down as a result of the repricing of loans at current
rates, and Asia Pacific, where deleveraging already started in the second half of 2021 and had slowed by the end of 2023.
The share of non-standard Lombard loans, for example those with less liquid or concentrated collateral, slightly increased to
7% from 5% of the total Lombard book.
The mortgage book (residential and commercial real estate) increased by approximately 9%, mainly driven by higher volumes
of mortgage loans within the Swiss and the US residential and commercial real estate portfolios.
Other financings represent approximately 8% of the total banking products exposures and are consolidated in a corporate
and other portfolio that increased 17% in 2023, mainly through the private equity subscription facilities portfolio in the US.
›
Refer to “Lending secured by real estate” and “Lombard lending” in this section for further information on these types of lending
Collateralization of Loans and advances to customers
1
Global Wealth Management
Personal & Corporate Banking
USD m, except where indicated
31.12.23
31.12.22
31.12.23
31.12.22
Secured by collateral
Residential real estate
Commercial / industrial real estate
Cash
Equity and debt instruments
Other collateral
2
Subject to guarantees
Uncollateralized and not subject to guarantees
Total loans and advances to customers, gross
Allowances
Total loans and advances to customers, net of allowances
Collateralized loans and advances to customers in % of total loans and advances to customers, gross (%)
1 Collateral arrangements generally incorporate a range of collateral, including cash, securities, real estate and other collateral. For the purpose of this disclosure, UBS applies a risk-based approach that generally
prioritizes collateral according to its liquidity profile. 2 Includes but is not limited to life insurance contracts, rights in respect of subscription or capital commitments from fund partners, inventory, gold and other
commodities.
Personal & Corporate Banking
Gross banking products exposure within Personal & Corporate Banking increased to USD 255bn, compared with
USD 237bn in 2022. Net banking products exposure (excluding exposure reallocated from Group Treasury) increased to
USD 205bn (CHF 173bn), of which approximately 65% was classified as investment grade, broadly unchanged from
2022. Around 48% of the exposure is categorized in the lowest LGD bucket, i.e., 0–25%, unchanged compared with
2022.
Personal & Corporate Banking’s gross loan portfolio was USD 174bn (CHF 147bn) compared with USD 155bn (CHF 143bn)
in 2022. This portfolio is predominantly denominated in Swiss francs and the increase in US dollar terms was largely due to
the effect of the Swiss franc appreciating. As of 31 December 2023, 90% of this portfolio was secured by collateral, mainly
residential and commercial property. Of the total unsecured amount, 86% related to cash flow-based lending to corporate
counterparties and 3% related to lending to public authorities. Based on our internal ratings, 57% of the unsecured loan
portfolio was rated as investment grade, compared with 53% in 2022.
Our Swiss corporate banking products take-and-hold portfolio, which was USD 38bn (CHF 32bn) and increased by USD 2bn
compared with 2022, consists of loans, guarantees and loan commitments to multi-national and domestic counterparties.
The small and medium-sized entity (SME) portfolio, in particular, is well diversified across industries. However, such
companies are reliant on the domestic economy and the economies to which they export, in particular the EU and the US.
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Risk management and control 65
Our commodity trade finance portfolio focuses on energy and base-metal trading companies, where the related commodity
price risk is hedged to a large extent by the commodity trader. The majority of limits in this business are uncommitted,
transactional and short-term in nature. Our portfolio size was USD 6bn (CHF 5bn) as of 31 December 2023, compared with
USD 7bn (CHF 7bn) in 2022, with a considerable part of the exposure correlating with commodity prices.
Our exposure to banks consists primarily of contingent claims and was USD 4bn (CHF 3bn), compared with USD 5bn
(CHF 5bn) in 2022.
Despite volatile energy prices, raised higher interest rates, a strong Swiss franc, and the effect of the sanctions imposed
on Russia and Russian entities, and conflicts in the Middle East, stage 3 credit losses in 2023 were only slightly higher
compared with 2022. The delinquency ratio was 0.1% for the corporate portfolio, compared with 0.2% at the end of
2022.
›
Refer to “Credit risk models” in this section for more information about loss given default, rating grades and rating agency
mappings
Swiss mortgage loan portfolio
UBS AG’s Swiss mortgage loan portfolio secured by residential and commercial real estate in Switzerland continues to be
its largest loan portfolio. These mortgage loans (excluding loans on self-used commercial real estate), totaling USD 193bn
(CHF 162bn), mainly originate from Personal & Corporate Banking, but also from Global Wealth Management Region
Switzerland. Of these mortgage loans, USD 174bn (CHF 146bn) related to residential properties that the borrower was
either occupying or renting out, with full recourse to the borrower. Of this USD 174bn (CHF 146bn), USD 125bn
(CHF 105bn) is related to properties occupied by the borrower, with an average LTV ratio of 50%, compared with 51% as
of 31 December 2022. The average LTV for newly originated loans for this portfolio was 64%, compared with 63% in 2022.
The remaining USD 49bn (CHF 41bn) of the Swiss residential mortgage loan portfolio related to properties rented out by
the borrower and the average LTV of that portfolio was 50%, compared with 51% as of 31 December 2022. The average
LTV for newly originated Swiss residential mortgage loans for properties rented out by the borrower was 50%, compared
with 54% in 2022.
As illustrated in the “Swiss mortgages: distribution of exposure across exposure segments and loan-to-value (LTV)
buckets” table below, 99.9% of the aggregate amount of Swiss residential mortgage loans would continue to be covered
by the real estate collateral even if the value assigned to that collateral were to decrease 20%, and more than 99%
would remain covered by the real estate collateral even if the value assigned to that collateral were to decrease 30%.
Personal & Corporate Banking: distribution of banking products exposure across internal UBS ratings and loss given
default (LGD) buckets
1
USD m, except where indicated
31.12.23
31.12.22
LGD buckets
Weighted
average
LGD (%)
Weighted
average
LGD (%)
Internal UBS rating
2
Exposure
0–25%
26–50%
51–75%
76–100%
Exposure
Investment grade
134,095
72,290
47,689
9,707
4,408
28
123,358
28
Sub-investment grade
70,081
26,759
28,328
11,360
3,634
34
62,219
35
of which: 6−9
63,357
24,467
25,390
10,285
3,215
34
56,774
35
of which: 10−13
6,724
2,293
2,938
1,074
419
36
5,445
36
Defaulted / Credit-impaired
1,698
17
1,389
276
15
42
1,380
42
Total exposure before deduction of allowances and provisions
205,873
99,067
77,406
21,343
8,058
30
186,957
30
Less: allowances and provisions
(742)
(664)
Net banking products exposure
1
205,131
186,293
1 Excluding balances at central banks and Group Treasury reallocations. 2 The ratings of the major credit rating agencies, and their mapping to our internal rating scale, are shown in the “Internal UBS rating scale
and mapping of external ratings” table in this section.
Personal & Corporate Banking: loans uncollateralized and not subject to guarantees, by industry sector
31.12.23
31.12.22
USD m
%
USD m
%
Construction
153
1.1
172
1.3
Financial institutions
3,842
26.6
3,980
30.3
Hotels and restaurants
148
1.0
135
1.0
Manufacturing
2,029
14.0
1,715
13.1
Private households
1,641
11.4
1,473
11.2
Public authorities
382
2.6
416
3.2
Real estate and rentals
1,013
7.0
547
4.2
Retail and wholesale
1,801
12.5
2,230
17.0
Services
3,129
21.7
2,242
17.1
Other
303
2.1
226
1.7
Exposure, gross
14,441
100.0
13,136
100.0
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Risk management and control 66
Swiss mortgages: distribution of exposure across exposure segments and loan-to-value (LTV) buckets
1
USD bn, except where indicated
31.12.23
31.12.22
2
LTV buckets
Exposure segment
≤30%
31–50%
51–60%
61–70%
71–80%
81–100%
>100%
Total
Total
Residential mortgages
Exposure
103.9
42.7
10.3
4.2
1.1
0.2
0.1
162.4
144.0
as a % of row total
64
26
6
3
1
0
0
100
100
Income-producing real estate
Exposure
17.0
6.5
1.3
0.5
0.1
0.0
0.0
25.5
21.9
as a % of row total
67
26
5
2
0
0
0
100
100
Corporates
Exposure
7.9
2.9
0.7
0.4
0.2
0.1
0.0
12.2
10.6
as a % of row total
65
24
6
3
1
1
0
100
100
Other segments
Exposure
0.8
0.3
0.1
0.0
0.0
0.0
0.0
1.1
1.0
as a % of row total
67
23
6
2
1
1
0
100
100
Mortgage-covered exposure
Exposure
129.5
52.4
12.4
5.1
1.4
0.3
0.1
201.1
177.5
as a % of total
64
26
6
3
1
0
0
100
100
Mortgage-covered exposure 31.12.22
2
Exposure
113.2
46.7
11.4
4.7
1.2
0.3
0.1
177.5
as a % of total
64
26
6
3
1
0
0
100
1 The amount of each mortgage loan is allocated across the LTV buckets to indicate the portion at risk at the various value levels shown; for example, a loan of 75 with an LTV ratio of 75% (i.e., a collateral value of
100) would result in allocations of 30 in the less-than-or-equal-to-30% LTV bucket, 20 in the 31–50% bucket, 10 in the 51–60% bucket, 10 in the 61–70% bucket and 5 in the 71–80% bucket. 2 Comparative
period has been restated to reflect a change in the measure used to disclose Swiss mortgages exposures.
Investment Bank
The Investment Bank’s lending activities are largely associated with corporate and non-bank financial institutions. The
business is broadly diversified across industry sectors, but concentrated in North America.
Gross banking products exposure decreased to USD 70bn as of 31 December 2023, compared with USD 77bn as of
31 December 2022, mostly driven by balances at central banks allocated to the business division. Excluding balances at
central banks and Group Treasury reallocations, gross banking products exposure increased to USD 37bn from USD 32bn
in 2022, mostly driven by an increase in irrevocable loan commitments. Based on our internal ratings, 49% of this gross
banking products exposure was classified as investment grade. The vast majority of the gross banking products exposure
had an estimated LGD below 50%.
In the Investment Bank, mandated temporary loan underwriting exposure as of the end of 2023 was USD 2.1bn,
compared with USD 2.6bn at the end of the prior year. USD 50m of commitments had not yet been distributed as
originally planned as of 31 December 2023. Loan underwriting exposures are classified as held for trading, with fair
values reflecting market conditions at the end of 2023.
›
Refer to “Credit risk models” in this section for more information about LGD, rating grades and rating agency mappings
Investment Bank: distribution of banking products exposure across internal UBS ratings and loss given default (LGD)
buckets
1
USD m, except where indicated
31.12.23
31.12.22
LGD buckets
Weighted
average
LGD (%)
Weighted
average
LGD (%)
Internal UBS rating
2
Exposure
0–25%
26–50%
51–75%
76–100%
Exposure
Investment grade
17,954
4,448
8,652
2,424
2,430
39
15,878
37
Sub-investment grade
18,306
4,838
7,215
6,023
229
22
15,529
23
of which: 6−9
11,644
2,689
2,883
5,874
198
15
9,181
17
of which: 10−13
6,662
2,149
4,332
149
31
33
6,348
32
Defaulted / Credit-impaired
331
286
28
14
4
24
312
21
Banking products exposure
1
36,591
9,572
15,895
8,461
2,663
30
31,719
30
1 Excluding balances at central banks and Group Treasury reallocations. 2 The ratings of the major credit rating agencies, and their mapping to our internal rating scale, are shown in the “Internal UBS rating scale
and mapping of external ratings” table in this section.
Investment Bank: banking products exposure, by geographical region
1
31.12.23
31.12.22
USD m
%
USD m
%
Asia Pacific
4,618
12.6
4,766
15.0
Latin America
745
2.0
1,209
3.8
Middle East and Africa
249
0.7
183
0.6
North America
19,901
54.4
15,409
48.6
Switzerland
135
0.4
461
1.5
Rest of Europe
10,943
29.9
9,692
30.6
Exposure
1
36,591
100.0
31,719
100.0
1 Excluding balances at central banks and Group Treasury reallocations.
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Risk management and control 67
Investment Bank: banking products exposure, by industry sector
1
31.12.23
31.12.22
USD m
%
USD m
%
Banks
5,092
13.9
4,409
13.9
Chemicals
587
1.6
583
1.8
Electricity, gas, water supply
359
1.0
363
1.1
Financial institutions, excluding banks
15,562
42.5
14,595
46.0
Manufacturing
1,889
5.2
1,361
4.3
Mining
894
2.4
878
2.8
Public authorities
258
0.7
259
0.8
Real estate and construction
1,718
4.7
1,685
5.3
Retail and wholesale
2,945
8.0
1,654
5.2
Technology and communications
2,033
5.6
2,324
7.3
Transport and storage
341
0.9
499
1.6
Other
4,913
13.4
3,109
9.8
Exposure
1
36,591
100.0
31,719
100.0
1 Excluding balances at central banks and Group Treasury reallocations.
Non-core and Legacy
Gross banking products exposure increased by USD 3bn to USD 4bn in 2023 due to smaller amounts of assets of UBS
AG business divisions that were assessed as not strategic in light of the acquisition of the Credit Suisse Group.
›
Refer to “Balance sheet assets” in the “Capital, liquidity and funding, and balance sheet” section of this report for more
information
›
Refer to the "Our Business" in the "Our strategy, business model and environment" section of this report for more information
›
Refer to the "Non-core and Legacy" in the "Financial and operating performance" section of this report for more information
about Non-core and Legacy scope differences between the UBS Group AG and UBS AG
Group Items
Gross banking products exposure within Group Items, which arises primarily in connection with treasury activities,
increased by USD 54bn to USD 94 bn, mainly from Group Treasury reflecting higher levels of high-quality liquid assets
(HQLA) held, funding provided to Credit Suisse and an increase in sponsored repo clearing.
›
Refer to “Balance sheet assets” in the “Capital, liquidity and funding, and balance sheet” section of this report for more
information
›
Refer to the “Group items” section of this report for more information
Traded products
Audited |
Counterparty credit risk (CCR) arising from traded products, which include OTC derivatives, ETD exposures and
SFTs, originating in the Investment Bank, Non-core and Legacy, and Group Treasury, is generally managed on a close-
out basis. This takes into account possible effects of market movements on the exposure and any associated collateral
over the time it would take to close out our positions. Limits are applied to the potential future exposure per counterparty,
with the size of the limit dependent on the counterparty’s creditworthiness (as determined by Risk Control). Limit
frameworks are also used to control overall exposure to specific sectors. Such portfolio limits are monitored and reported
to senior management.
Trading in OTC derivatives is conducted through central counterparties where practicable. Where central counterparties
are not used, we have clearly defined policies and processes for trading on a bilateral basis. Trading is typically conducted
under bilateral International Swaps and Derivatives Association or similar master netting agreements, which generally
allow for close-out and netting of transactions in case of default, subject to applicable law. For certain counterparties,
initial margin is taken to cover some or all of the calculated close-out exposure. This is in addition to the variation margin
taken to settle changes in market value of transactions. For most major market participant counterparties, two-way
collateral agreements under which either party can be required to provide collateral in the form of cash or marketable
securities are used when the exposure exceeds specified levels. Non-cash collateral typically consists of well-rated
government debt or other collateral acceptable to Risk Control and permitted by applicable regulations. Regulations on
margining uncleared OTC derivatives have generally expanded the scope of bilateral derivatives activity subject to initial
margining and increased the amounts of initial margin received from, and posted to, certain bilateral trading
counterparties, resulting in lower close-out risk over time.
p
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Risk management and control 68
In the tables below, OTC derivatives exposures are generally presented as net positive replacement values after the
application of legally enforceable netting agreements and the deduction of cash and marketable securities held as
collateral. SFT exposures are reported taking into account collateral received, and ETD exposures take into account
collateral margin calls.
›
Refer to “Note 10 Derivative instruments” in the “Consolidated financial statements” section of this report for more information
about OTC derivatives settled through central counterparties
›
Refer to “Note 21 Offsetting financial assets and financial liabilities” in the “Consolidated financial statements” section of this report
for more information about the effect of netting and collateral arrangements on derivative exposures
Investment Bank, Non-core and Legacy, and Group Treasury: traded products exposure
USD m
OTC derivatives
SFTs
ETDs
Total
Total
31.12.23
31.12.22
Total exposure, before deduction of credit valuation adjustments and hedges
8,124
16,792
9,796
34,712
34,370
Less: credit valuation adjustments and allowances
(24)
(1)
0
(24)
(35)
Less: credit protection bought (credit default swaps, notional)
(83)
0
0
(83)
(109)
Net exposure after credit valuation adjustments, allowances and hedges
8,017
16,792
9,796
34,605
34,226
Investment Bank, Non-core and Legacy, and Group Treasury: distribution of net OTC derivatives and SFT exposure
across internal UBS ratings and loss given default (LGD) buckets
USD m, except where indicated
31.12.23
31.12.22
LGD buckets
Weighted
average
LGD (%)
Weighted
average
LGD (%)
Internal UBS rating
1
Exposure
0–25%
26–50%
51–75%
76–100%
Exposure
Net OTC derivatives exposure
Investment grade
7,307
152
5,681
285
1,189
48
10,757
48
Sub-investment grade
711
43
203
15
450
77
318
72
of which: 6−9
701
39
203
12
448
77
285
76
of which: 10−12
3
2
0
0
1
53
28
41
of which: 13 and defaulted
6
3
0
3
0
31
5
23
Total net OTC derivatives exposure, after credit valuation adjustments
and hedges
8,017
195
5,884
299
1,639
51
11,075
49
Net SFT exposure
Investment grade
16,631
200
15,245
597
590
41
16,682
40
Sub-investment grade
162
0
43
28
91
80
373
71
Total net SFT exposure
16,792
200
15,288
624
680
42
17,055
41
1 The ratings of the major credit rating agencies, and their mapping to our internal rating scale, are shown in the “Internal UBS rating scale and mapping of external ratings” table in this section.
Investment Bank, Non-core and Legacy, and Group Treasury: net OTC derivatives and SFT exposure, by geographical
region
Net OTC derivatives exposure
Net SFT exposure
31.12.23
31.12.22
31.12.23
31.12.22
USD m
%
USD m
%
USD m
%
USD m
%
Asia Pacific
970
12.1
1,249
11.3
2,510
14.9
4,906
28.8
Latin America
93
1.2
117
1.1
0
0.0
34
0.2
Middle East and Africa
232
2.9
615
5.6
414
2.5
483
2.8
North America
3,118
38.9
2,200
19.9
3,044
18.1
3,177
18.6
Switzerland
900
11.2
1,055
9.5
499
3.0
466
2.7
Rest of Europe
2,704
33.7
5,839
52.7
10,324
61.5
7,988
46.8
Exposure
8,017
100.0
11,075
100.0
16,792
100.0
17,055
100.0
Investment Bank, Non-core and Legacy, and Group Treasury: net OTC derivatives and SFT exposure, by industry sector
Net OTC derivatives exposure
Net SFT exposure
31.12.23
31.12.22
31.12.23
31.12.22
USD m
%
USD m
%
USD m
%
USD m
%
Banks
1,544
19.3
1,288
11.6
1,200
7.1
869
5.1
Chemicals
17
0.2
71
0.6
0
0.0
0
0.0
Electricity, gas, water supply
111
1.4
118
1.1
0
0.0
0
0.0
Financial institutions, excluding banks
5,721
71.4
8,614
77.8
15,093
89.9
14,865
87.2
Manufacturing
29
0.4
97
0.9
0
0.0
0
0.0
Mining
0
0.0
20
0.2
0
0.0
0
0.0
Public authorities
441
5.5
655
5.9
496
3.0
1,320
7.7
Retail and wholesale
18
0.2
29
0.3
0
0.0
0
0.0
Transport, storage and communication
74
0.9
115
1.0
3
0.0
0
0.0
Other
63
0.8
69
0.6
0
0.0
0
0.0
Exposure
8,017
100.0
11,075
100.0
16,792
100.0
17,055
100.0
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Risk management and control 69
Credit risk mitigation
Audited |
UBS AG actively manages credit risk in its portfolios by taking collateral against exposures and by utilizing credit
hedging.
p
Lending secured by real estate
Audited |
UBS AG uses a scoring model as part of a standardized front-to-back process for credit decisions on originating or
modifying Swiss mortgage loans. The model’s two key factors are the LTV ratio and an affordability calculation.
p
The calculation of affordability takes into account interest payments, minimum amortization requirements and potential
property maintenance costs in relation to gross income or rental income for rental properties. The interest rate is set at
5% per annum in the context of the current environment.
For residential properties occupied by the borrower, the maximum LTV for the standard approval process is 80%. For IPRE,
the maximum LTV allowed within the standard approval process ranges from 30% to 75%, depending on the type and
age of the property, and the amount of renovation work needed.
Audited |
The value assigned to each property is based on the lowest value determined from model-derived valuations, the
purchase price, an asset value for income-producing real estate (IPRE), and, in some cases, an additional external
valuation.
p
Separate models provided by a market-leading external vendor are used to derive property valuations for owner-occupied
residential properties (ORPs) and IPRE. We estimate the current value of an ORP using a regression model (a hedonic
model) based on statistical comparison against current transaction data. The value of a property is derived from the
characteristics of the real estate itself, as well as those of its location. In addition to the initial valuation, values for ORPs
are updated regularly over the lifetime of the loan using region-specific real estate price indices or hedonic valuation. The
price indices are sourced from an external vendor and subject to internal validation and benchmarking. UBS AG uses
these valuations regularly to compute indexed LTV for all ORPs. A portfolio-specific monitoring system considers these
along with other risk measures (e.g., rating and behavioral information) to identify higher-risk loans.
For IPRE, the capitalization rate model is used to determine the property valuation by discounting estimated sustainable
future income using a capitalization rate based on various attributes. These attributes consider regional and specific
property characteristics, such as market and location data (e.g., vacancy rates), benchmarks (e.g., for running costs), and
certain other standardized input parameters (e.g., property condition). Updated information regarding rental income
from IPRE is requested from the client at least once every three years. Our portfolio-specific monitoring system alerts us
to changes in rental income and other risk measures (e.g., LTV, rating, behavioral information).
To take market developments into account for these models, the external vendor regularly updates the parameters and /
or refines the architecture for each model. Model changes and parameter updates are subject to the same validation
procedures as our internally developed models.
Audited |
UBS AG similarly applies underwriting guidelines for our Global Wealth Management Region Americas mortgage
loan portfolio, taking into account loan affordability and collateral sufficiency. LTV standards are defined for the various
mortgage types, such as residential mortgages or investment properties, based on associated risk factors, such as property
type, loan size, and purpose. The maximum LTV allowed within the standard approval process ranges from
%.
In addition to LTV, other credit risk metrics, such as debt-to-income ratios, credit scores and required client reserves, are
also part of our underwriting guidelines.
A risk limit framework is applied to the Global Wealth Management Region Americas mortgage loan portfolio. Limits are
set to govern exposures within LTV categories, geographic concentrations, portfolio growth and high-risk mortgage
segments, such as interest-only loans. These limits are monitored by a specialized credit risk monitoring team and reported
to senior management. Supplementing this limit framework is a real estate lending policy and procedures framework,
set up to govern real estate lending activities. Quality assurance and quality control programs monitor compliance with
mortgage underwriting and documentation requirements.
For UBS AG’s mortgage loan portfolio in the Global Wealth Management regions of EMEA and Asia Pacific, global
underwriting guidelines with regional variations are applied to allow for regulatory and market differentials. As in other
regions, the underwriting guidelines take into account affordability and collateral sufficiency. Affordability is assessed at
a stressed interest rate using, for residential real estate, the borrowers’ sustainable income and declared liabilities, and
for commercial real estate the quality and sustainability of rental income. For interest-only loans, a declared and evidenced
repayment strategy must be in place. The applicable LTV for each mortgage is based on the quality and liquidity of the
property and assessed against valuations from bank-appointed third-party valuers. Maximum LTV varies from
% to
%, depending on the type and location of the property, as well as other factors. Collateral sufficiency is often further
supported by personal guarantees from related third parties. The overall portfolio is centrally assessed against a number
of stress scenarios to ensure that exposures remain within predefined stress limits.
p
›
Refer to “Swiss mortgage loan portfolio” in this section for more information about LTV in our Swiss mortgage portfolio
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Risk management and control 70
Lombard lending
Audited |
Lombard loans are secured by pledges of marketable securities, guarantees and other forms of collateral. Eligible
financial securities are primarily liquid and actively traded transferable securities (such as bonds and equities), and other
transferable securities, such as approved structured products for which regular prices are available and the issuer of the
security provides a market. To a lesser degree, less liquid collateral is also used.
Lending values are derived by applying discounts (haircuts) to the pledged collateral’s market value. Haircuts for marketable
securities are calculated to cover a possible adverse change in market value over a given close-out period and confidence
level. Less liquid or more volatile collateral will typically have larger haircuts.
Concentration and correlation risks across collateral posted are assessed at a counterparty level, and at a divisional level
across counterparties. Targeted firm-wide reviews of concentration are performed. Concentration of collateral in single
securities, issuers or issuer groups, industry sectors, countries, regions or currencies may result in higher risk and reduced
liquidity. In such cases, the lending value of the collateral, margin call and close-out levels are adjusted accordingly.
p
Exposures and collateral market values are monitored daily, with the aim of ensuring that the credit exposure is always within
the established risk tolerance. A shortfall occurs when the lending value drops below the exposure; if it exceeds a defined
trigger level, a margin call is initiated, requiring the client to provide additional collateral, reduce the exposure or take other
action to bring exposure in line with the agreed lending value of the collateral. If a shortfall is not corrected within the
required period, a close-out is initiated, through which collateral is liquidated, open derivative positions are closed and
guarantees are called.
Stress testing of collateralized exposures to simulate market events that reduce market collateral value, increase exposure of
traded products, or do both, is conducted. For certain classes of counterparties, limits on such calculated stress exposures
are applied and controlled at a counterparty level. Also, portfolio limits are applied across certain businesses or collateral
types.
›
Refer to “Stress loss” in this section for more information about our stress testing
Credit hedging
Audited |
UBS AG uses single-name credit default swaps (CDSs), credit-index CDSs, bespoke protection and other
instruments to actively manage credit risk. The aim is to reduce concentrations of risk from specific counterparties, sectors
or portfolios and, for CCR, the profit or loss effect arising from changes in credit valuation adjustments.
We have strict guidelines with regard to taking credit hedges into account for credit risk mitigation purposes. For example,
when monitoring exposures against counterparty limits, we do not usually apply certain credit risk mitigants, such as proxy
hedges (credit protection on a correlated but different name) or credit-index CDSs, to reduce counterparty exposures. Buying
credit protection also creates credit exposure with regard to the protection provider. We monitor and limit exposures to
credit protection providers, and also monitor the effectiveness of credit hedges as part of our overall credit exposures to the
relevant counterparties, which are typically collateralized. For credit protection purchased to hedge the lending portfolio,
this includes monitoring mismatches between the maturity of credit protection purchased and the maturity of the associated
loan. Such mismatches result in basis risk and may reduce the effectiveness of the credit protection. Mismatches are routinely
reported to credit officers and mitigating actions are taken when necessary.
p
›
Refer to “Note 10 Derivative instruments” in the “Consolidated financial statements” section of this report for more information
Mitigation of settlement risk
To mitigate settlement risk, actual settlement volumes are reduced by using multi-lateral and bi-lateral agreements with
counterparties, including payment netting. In relation to the exchange of cash or securities, transactions can be settled
on a delivery-versus-payment basis.
Foreign exchange transactions are our most significant source of settlement risk. We are a member of Continuous Linked
Settlement (CLS), an industry utility that provides a multi -lateral framework to settle transactions on a payment-versus-
payment basis, thus reducing foreign-exchange-related settlement risk relative to the volume of business. However,
mitigation of settlement risk through CLS and other means does not fully eliminate credit risk in foreign exchange
transactions resulting from changes in exchange rates prior to settlement, which is managed as part of our overall credit
risk management of OTC derivatives.
Credit risk models
Basel III – A-IRB credit risk models
Audited |
UBS AG has developed tools and models to estimate future credit losses that may be implicit in our current
portfolio.
Exposures to individual counterparties are measured using three generally accepted parameters: PD, EAD and LGD. For a
given credit facility, the product of these three parameters results in the expected loss (the EL). These parameters are the
basis for the majority of our internal measures of credit risk, and key inputs for regulatory capital calculation under the
advanced internal ratings-based (A-IRB) approach of the Basel III framework. We also use models to derive the portfolio
credit risk measures of EL, statistical loss and stress loss.
p
›
Refer to the 31 December 2023 Pillar 3 Report, available under “Pillar 3 disclosures” at
ubs.com/investors,
for more information
about the regulatory capital calculation under the advanced internal ratings-based approach
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Risk management and control 71
Key features of UBS AG’s main credit risk models
Portfolio in scope
Major asset classes
Model
approach
Number of
main models
Main drivers
Number of
years of loss
data
Probability of
default
Sovereigns and central banks
Central governments and
central banks
Scorecard
1
Political, institutional and economic indicators
including qualitative factors
>15
Banks and other financial
institutions
Banks & Securities dealer,
Corporates: other lending
Scorecard
3
Financial data including balance sheet ratios, profit
and loss data and qualitative factors
>15
Funds
Corporates: other lending
Scorecard
3
Financial data and ratios constructed from it (such as
net asset value, volatility of returns), qualitative
factors
>15
Large corporates and
internationals
Corporates: other lending
Scorecard,
market data
2
Financial data including balance sheet ratios and
profit and loss, market data and qualitative factors
>15
Enterprises in Switzerland
Corporates: other lending
Scorecard
1
Financial data including balance sheet ratios and
profit and loss, and behavioral data
>25
Commodity traders
Corporates: specialized
lending
Scorecard
1
Financial data including balance sheet ratios and
profit and loss, as well as non-financial criteria
>20
Owner-occupied mortgages &
other wealth-management
financing
Retail: residential
mortgages, Corporates:
other lending
Scorecard
3
Behavioral data, affordability relative to income,
property type, loan-to-value, assets and qualitative
factors
>10
Income producing real estate
mortgages
Retail: residential
mortgages, Corporates:
specialized lending
Scorecard
1
Loan-to-value, debt-service-coverage, financial data
(for large corporates only), behavioral data and
qualitative factors
>25
Lombard lending and
concentrated equity based
lending (CEL)
Retail: other retail,
Corporates: other lending
(CEL)
Simulation
approach
based on
historical
returns
2
Lending value ratio, collateral asset class, historical
asset returns, counterparty factors
>10
Credit cards in Switzerland
Retail: qualifying
revolving retail and other
retail, Corporates: other
lending
Scorecard
1
Client type and characteristics and behavioral data
>15
Other portfolios
Corporates: other
lending,
Public sector entities and
Multilateral development
banks, Corporates:
specialized lending
Scorecard,
pooled rating
approach,
rating
template
6
Financial data including balance sheet ratios and
profit and loss, market data and qualitative factors.
Separate models for Commercial Real Estate loans,
Debt REITs, Mortgage originators, Public sector
entities and Multilateral development
banks/Supranationals
>15
Loss given default
Investment Bank – all
counterparties
Across the asset classes
Statistical
model
3
Counterparty and facility specific, including industry
segment, region, collateral, seniority, legal
environment, bankruptcy procedures and macro-
economic factors
>20
Swiss corporate and mortgage
lending portfolios
Retail: residential
mortgages, Corporates:
other lending,
Corporates: specialized
lending
Statistical
model
2
Collateral type and client segment, Loan-to-value,
time since last valuation, location indicator
>10
International residential
mortgages & other wealth-
management financing
Retail: residential
mortgages, Corporates:
other lending
Statistical
model
2
Loan-to-value, market value shock
>10
Lombard lending and
concentrated equity based
lending (CEL)
Retail: other retail,
Corporates: other lending
(CEL)
Simulation
approach
based on
historical
returns
2
Loan-to-value, collateral asset class and liquidity,
historical asset returns, counterparty factors
>10
Credit cards in Switzerland
Retail: qualifying
revolving retail and other
retail, Corporates: other
lending
Statistical
model
1
Collateral, accrued interests, client characteristics
>15
Exposure at default
Banking products
Across the asset classes
Statistical
model
4
Facility type and product type, commitment type,
headroom, and client characteristics
>10
Traded products
Across the asset classes
Statistical
model
2
Product specific market drivers, e.g. interest rates.
Separate models for OTC/ETD and SFT that generate
the simulation of risk factors used for the credit
exposure measure
n/a
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Risk management and control 72
Audited |
Internal UBS rating scale and mapping of external ratings
Internal UBS rating
1-year PD range in %
Description
Moody’s Investors
Service mapping
S&P mapping
Fitch mapping
0 and 1
0.00–0.02
Investment grade
Aaa
AAA
AAA
2
0.02–0.05
Aa1 to Aa3
AA+ to AA–
AA+ to AA–
3
0.05–0.12
A1 to A3
A+ to A–
A+ to A–
4
0.12–0.25
Baa1 to Baa2
BBB+ to BBB
BBB+ to BBB
5
0.25–0.50
Baa3
BBB–
BBB–
6
0.50–0.80
Sub-investment grade
Ba1
BB+
BB+
7
0.80–1.30
Ba2
BB
BB
8
1.30–2.10
Ba3
BB–
BB–
9
2.10–3.50
B1
B+
B+
10
3.50–6.00
B2
B
B
11
6.00–10.00
B3
B–
B–
12
10.00–17.00
Caa1 to Caa2
CCC+ to CCC
CCC+ to CCC
13
>17
Caa3 to C
CCC- to C
CCC- to C
Counterparty is in default
Default
Defaulted
D
D
p
Probability of default
PD estimates the likelihood of a counterparty defaulting on its contractual obligations over the next 12 months, and is
assessed using rating tools tailored to the various categories of counterparties. The “Key features of UBS AG’s main credit
risk models” table above gives an overview of the approaches used for our main asset classes and presents the main
drivers of the PD.
The ratings of major credit rating agencies, and their mapping to the UBS masterscale and internal PD bands, are shown
in the “Internal UBS rating scale and mapping of external ratings” table above. For Moody’s and S&P, the mapping is
based on the long-term average of one-year default rates available from these rating agencies, with Fitch ratings being
mapped to the equivalent S&P ratings. For each external rating category, the average default rate is compared with our
internal PD bands to derive a periodically reviewed mapping to our internal rating scale.
Exposure at default
EAD is the amount we expect to be owed by a counterparty at the time of possible default. We derive EAD from current
exposure to the counterparty and possible future exposure development.
The EAD of an on-balance sheet loan is its notional amount, while for off-balance sheet commitments that are not drawn,
credit conversion factors (CCFs) are used in order to obtain an expected on-balance sheet amount.
For traded products, we derive EAD by modeling the range of possible exposure outcomes at various points in time using a
simulation based on a scenario-consistent technique. UBS AG assesses the net amount that may be owed to it or that it
may owe to others, taking into account the effect of market movements over the potential time it would take to close out
positions.
Exposures where there is a material correlation between the factors driving the credit quality of the counterparty and
those driving the potential future value of UBS AG’s traded products exposure (wrong-way risk) are assessed, and specific
controls to mitigate such risks have been established.
Loss given default
LGD is the magnitude of the likely loss if there is a default. Our LGD estimates, which consider downturn conditions,
include loss of principal, interest and other amounts less recovered amounts. UBS AG determines LGD based on the likely
recovery rate of claims against defaulted counterparties, which depends on the type of counterparty and any credit
mitigation due to collateral or guarantees. UBS AG’s estimates are supported by internal loss data and external
information, where available. If collateral is held, such as marketable securities or a mortgage on a property, LTV ratios
are typically a key parameter in determining LGD. For risk-weighted asset (RWA) calculation, floors are applied to LGD in
line with regulation.
Expected loss
UBS AG uses the concept of expected loss to quantify future credit losses that may be implicit in our current portfolio.
The expected loss for a given credit facility is a product of the three components described above, i.e., PD, EAD and LGD.
We aggregate the expected loss for individual counterparties to derive expected portfolio credit losses.
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Risk management and control 73
IFRS 9 – ECL credit risk models
Expected credit loss
Expected credit loss (ECL) is defined as the difference between contractual cash flows and those UBS AG expects to
receive, discounted at the effective interest rate (EIR). For loan commitments and other credit facilities in scope of ECL
requirements, expected cash shortfalls are determined by considering expected future drawdowns. Rather than focusing
on an average through-the-cycle (TTC) expected annual loss, the purpose of ECL is to estimate the amount of losses
inherent in a portfolio based on current conditions and future outlook (a point-in-time (PIT) measure), whereby such a
forecast has to include all information available without undue cost and effort, and address multiple scenarios where
there is perceived non-linearity between changes in economic conditions and their effect on credit losses. From a credit
risk modeling perspective, ECL parameters are generally derivations of the factors assessed for regulatory Basel III EL.
Comparison of Basel III EL and IFRS 9 ECL credit risk models
The IFRS 9 ECL concept has a number of key differences from our Basel III credit risk models, both in the loss estimation
process and the result thereof. Most notably, regulatory Basel III EL parameters are TTC / downturn estimates, which
might include a margin of conservatism, while IFRS 9 ECL parameters are typically PIT, reflecting current economic
conditions and future outlook. The table below summarizes the main differences. Stage 1 and 2 ECL expenses in 2023
were USD 23m and respective allowances and provisions as of 31 December 2023 were USD 580m. This included ECL
allowances and provisions of USD 522m related to positions under the Basel III advanced internal ratings-based (A-IRB)
approach. Basel III EL for non-defaulted positions increased by USD 96m to USD 1,052m.
›
Refer to “Note 1 Summary of material accounting policies” in the “Consolidated financial statements” section of this report for
more information about our accounting policy for allowances and provisions for ECL including key definitions relevant for the ECL
calculation under IFRS 9
The table below shows the main differences between the two expected loss measures.
Basel III EL (advanced internal ratings-based approach)
IFRS 9 ECL
Scope
The Basel III A-IRB approach applies to most credit risk
exposures. It includes transactions measured at amortized
cost, at fair value through profit or loss and at fair value
through OCI, including loan commitments and financial
guarantees.
The IFRS 9 ECL calculation mainly applies to financial assets
measured at amortized cost and debt instruments measured at fair
value through OCI, as well as loan commitments and financial
guarantees not at fair value through profit or loss.
12-month versus
lifetime expected
loss
The Basel III A-IRB approach takes into account expected
losses resulting from expected default events occurring
within the next 12 months.
In the absence of a significant increase in credit risk (an SICR), a
maximum 12-month ECL is recognized to reflect lifetime cash
shortfalls that will result if a default event occurs in the 12 months
after the reporting date (or a shorter period if the expected lifetime
is less). Once an SICR event has occurred, a lifetime ECL is
recognized considering expected default events over the life of the
transaction.
Exposure at default
(EAD)
EAD is the amount we expect a counterparty to owe us at
the time of a possible default. For banking products, EAD
equals the book value as of the reporting date; for traded
products, the vast majority of EAD is modeled. For lending,
EAD is expected to remain constant over a 12-month period.
For loan commitments, a credit conversion factor is applied
to model expected future drawdowns over the 12-month
period, irrespective of the actual maturity of a particular
transaction. The credit conversion factor includes downturn
adjustments.
EAD is generally calculated on the basis of the cash flows that are
expected to be outstanding at the individual points in time during
the life of the transaction. For loan commitments, a credit
conversion factor is applied to model expected future drawdowns
over the life of the transaction without including downturn
assumptions. In both cases, the time period is capped at 12
months, unless an SICR has occurred.
Probability of
default
(PD)
PD estimates are determined on a through-the-cycle (TTC)
basis. They represent historical average PDs, taking into
account observed losses over a prolonged historical period,
and therefore are less sensitive to movements in the
underlying economy.
PD estimates will be determined on a point-in-time (PIT) basis,
based on current conditions and incorporating forecasts for future
economic conditions at the reporting date.
Loss given default
(LGD)
LGD includes prudential adjustments, such as downturn LGD
assumptions and floors. Similar to PD, LGD is determined on
a TTC basis.
LGD should reflect the losses that are reasonably expected and
prudential adjustments should therefore not be applied. Similar to
PD, LGD is determined on the basis of a PIT approach.
Use of scenarios
n / a
Multiple forward-looking scenarios have to be taken into account
to determine a probability-weighted ECL.
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Risk management and control 74
Further key aspects of credit risk models
Stress loss
We complement our statistical modeling approach with scenario-based stress loss measures. Stress tests are run regularly
to monitor potential effects of extreme, but nevertheless plausible, events on our portfolios, under which key credit risk
parameters are assumed to deteriorate substantially. Where we consider it appropriate, we apply limits on this basis.
Stress scenarios and methodologies are tailored to portfolios’ natures, ranging from regionally focused to global systemic
events, and varying in time horizon.
›
Refer to “Stress testing” in this section for more information about our stress testing framework
Credit risk model confirmation
UBS AG’s approach to model confirmation involves both quantitative methods, such as monitoring compositional
changes in portfolios and results of backtesting, and qualitative assessments, such as feedback from users on model
output as a practical indicator of a model’s performance and reliability. In addition, changes in market, regulatory and
business practices are assessed.
Material changes in portfolio composition may invalidate the conceptual soundness of a model. We therefore perform
regular analyses of the evolution of portfolios to identify such changes in the structure and credit quality of portfolios.
›
Refer to “Model risk management” in this section for more information
Backtesting
UBS AG monitors the performance of models by backtesting and benchmarking them, with model outcomes compared
with actual results, based on our internal experience and externally observed results. To assess the predictive power of
credit exposure models for traded products, such as OTC derivatives and ETD products, we statistically compare predicted
future exposure distributions at different forecast horizons with realized values.
For PD, we derive a predicted distribution of the number of defaults. The observed number of defaults is compared with
the upper tail of the predicted distribution. If the observed number of defaults is higher than a given upper tail quantile,
we conclude there is evidence that the model may underpredict the number of defaults. Based on historical long-run
average default rates and, if required, additional margin of conservatism, we also derive PD calibration targets and a
lower boundary. As a general rule, follow-up actions, such as a recalibration of the rating tool, are defined if the portfolio
average PD lies below the derived lower boundary.
For LGD, backtesting statistically tests whether the mean difference between the observed and predicted LGD is zero. If
the test fails, there is evidence that our predicted LGD is too low. In such cases, and where these differences are outside
expectations, follow-up actions, such as a recalibration of the models, are taken.
CCFs, used for the calculation of EAD for undrawn facilities, are dependent on several credit facility contractual
dimensions. We compare the predicted amount drawn with observed historical use of such facilities by defaulted
counterparties. If any statistically significant deviation is observed, follow-up actions, such as an update of the relevant
CCFs, are performed.
Changes to models and model parameters during the period
As part of our continuous efforts to enhance models to reflect market developments and newly available data, we
updated several models in 2023.
In Personal & Corporate Banking and Global Wealth Management models, we recalibrated the risk parameters for the
income-producing real estate mortgages in Switzerland and implemented a model update for the Swiss corporate PD
model. In addition, we recalibrated the PD and LGD models for the commodity trade finance business within Personal &
Corporate Banking and updated the LGD model for corporate clients and financial institutions. In Global Wealth
Management, we also implemented a model update for the standard Lombard model.
In the Investment Bank, new PD models, corporations, insurance companies and managed funds went live. In addition,
certain RWA multipliers were recalibrated as a result of improvements to models.
Where required, changes to models and model parameters were approved by FINMA before being made.
›
Refer to “Risk-weighted assets” in the “Capital, liquidity and funding, and balance sheet” section of this report for more
information about the effect of the changes to models and model parameters on credit risk RWA
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Risk management and control 75
Future credit risk-related regulatory capital developments
In December 2017, the Basel Committee on Banking Supervision (the BCBS) announced the finalization of the Basel III
framework. In November 2023, the Swiss Federal Council published the national implementation of the final Basel III
standards, which is expected to enter into force by January 2025. The updated framework makes a number of revisions
to the internal ratings-based (IRB) approaches, namely: (i) removing the option of using the A-IRB approach for certain
asset classes (including large and medium-sized corporate clients, and banks and other financial institutions); (ii) placing
floors on certain model inputs under the IRB approach, e.g., PD and LGD; and (iii) introducing various requirements to
reduce RWA variability (e.g., for LGD). In addition, revisions to the credit valuation adjustment (CVA) framework were
published in November 2023, including the removal of the advanced CVA approach. UBS has a close dialogue with
FINMA to discuss in detail the implementation objectives and prepare for a smooth transition of the capital regime for
credit risk.
›
Refer to “Capital management objectives, planning and activities” in the “Capital, liquidity and funding, and balance sheet”
section of this report for more information about the development of RWA
›
Refer to “Risk measurement” in this section for more information about our approach to model confirmation procedures
›
Refer to the “Regulatory and legal developments” and “Risk factors” sections of this report for more information
Credit policies for distressed assets
Non-performing
Audited |
In line with the regulatory definition, we report a claim as non-performing when: (i) it is more than 90 days past
due; (ii) it is subject to restructuring proceedings, where preferential conditions concerning interest rates, subordination,
tenor, etc. have been granted in order to avoid default of the counterparty (forbearance); (iii) the counterparty is subject
to bankruptcy / enforced liquidation proceedings in any form, even if there is sufficient collateral to cover the due
payment; or (iv) there is other evidence that payment obligations will not be fully met without recourse to collateral.
Default and credit-impaired
UBS AG uses a single definition of default for classifying assets and determining the PD of its obligors for risk modeling
purposes. The definition of default is based on quantitative and qualitative criteria. A counterparty is classified as
defaulted when material payments of interest, principal or fees are overdue for more than 90 days, or more than 180
days for certain exposures in relation to loans to private and commercial clients in Personal & Corporate Banking and to
private clients of Global Wealth Management Region Switzerland. UBS AG does not consider the general 90-day
presumption for default recognition appropriate for those portfolios, given the cure rates, which show that strict
application of the 90-day criterion would not accurately reflect the inherent credit risk. Counterparties are also classified
as defaulted when: bankruptcy, insolvency proceedings or enforced liquidation have commenced; obligations have been
restructured on preferential terms (forbearance); or there is other evidence that payment obligations will not be fully met
without recourse to collateral. The latter may be the case even if, to date, all contractual payments have been made
when due. If one claim against a counterparty is defaulted on, generally all claims against the counterparty are treated
as defaulted.
An instrument is classified as credit impaired if the counterparty is classified as defaulted and / or the instrument is
identified as purchased credit impaired (PCI). An instrument is PCI if it has been purchased at a deep discount to its
carrying amount following a risk event of the issuer or originated with a defaulted counterparty. Once a financial asset is
classified as defaulted / credit impaired (except PCI), it is reported as a stage 3 instrument and remains as such unless all
past due amounts have been rectified, additional payments have been made on time, the position is not classified as
credit-restructured, and there is general evidence of credit recovery. A three-month probation period is applied before a
transfer back to stages 1 or 2 can be triggered. However, most instruments remain in stage 3 for a longer period.
p
Forbearance (credit restructuring)
Audited |
If payment default is imminent or default has already occurred, we may grant concessions to borrowers in financial
difficulties that we would otherwise not consider in the normal course of business, such as offering preferential interest
rates, extending maturity, modifying the schedule of repayments, debt / equity swap, subordination, etc. When a
forbearance measure takes place, each case is considered individually and the exposure is generally classified as defaulted.
Forbearance classification remains until the loan is repaid or written off, non-preferential conditions are granted that
supersede the preferential conditions, or the counterparty has recovered and the preferential conditions no longer exceed
our risk tolerance.
Contractual adjustments when there is no evidence of imminent payment default, or where changes to terms and
conditions are within our usual risk tolerance, are not considered to be forborne.
p
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Risk management and control 76
Loss history statistics
An instrument is classified as credit impaired if the counterparty has defaulted. This also includes credit-impaired
exposures for which no loss has occurred or for which no allowance has been recognized (e.g., we expect to fully recover
the exposures via collateral held).
Coverage ratios are calculated by taking ECL allowances and provisions divided by the gross carrying amount of the
exposures. Core loan exposure is defined as the sum of Loans and advances to customers and Loans to financial advisors.
The total combined on- and off-balance sheet coverage ratio was at 22 basis points as of 31 December 2023, 1 basis
point lower than on 31 December 2022. The combined stage 1 and 2 ratio of 10 basis points was unchanged compared
with 31 December 2022; the stage 3 ratio was 22%, materially unchanged compared with 31 December 2022.
›
The majority of the credit-impaired exposure relates to loans and advances in our Swiss domestic business. Refer to “Note 9
Financial assets at amortized cost and other positions in scope of expected credit loss measurement” and “Note 19 Expected credit
loss measurement” in the “Consolidated financial statements” section of this report for more information about ECL measurement
and the calculation of the coverage ratio
›
Refer to “Note 13 Other assets” in the “Consolidated financial statements” section of this report for more details
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Risk management and control 77
Loss history statistics
USD m, except where indicated
31.12.23
31.12.22
1
31.12.21
1
31.12.20
1
31.12.19
1
Banking products, core exposure and off-balance sheet, gross
2
562,095
509,024
3
517,866
3
497,313
3
423,771
3
of which: amounts due from banks and loans and advances to customers (gross)
434,780
402,801
414,099
396,049
340,003
Credit-impaired exposure, gross (stage 3)
2,966
2,455
2,610
3,778
3,113
of which: credit-impaired amounts due from banks and loans and advances to customers (stage 3)
2,586
2,012
2,150
2,945
2,309
Non-performing amounts due from banks and loans and advances to customers
2,793
2,333
2,387
3,176
2,466
ECL allowances and provisions for credit losses
4
1,244
1,091
1,165
1,468
1,029
of which: core loan exposure (all stages)
1,172
1,043
1,132
1,426
987
of which: amounts due from banks and loans and advances to customers (all stages)
942
789
857
1,076
770
of which: amounts due from banks and loans and advances to customers (stage 3)
377
474
572
703
559
Write-offs (stage 3)
77
95
137
356
142
of which: write-offs for amounts due from banks and loans and advances to customers
62
74
118
348
122
Credit loss expense / (release)
5
143
29
(148)
694
78
Ratios
Credit-impaired amounts due from banks and loans and advances to customers as a percentage of amounts
due from banks and loans and advances to customers (gross)
0.6
0.5
0.5
0.7
0.7
Non-performing amounts due from banks and loans and advances to customers as a percentage of amounts
due from banks and loans and advances to customer (gross)
0.6
0.6
0.6
0.8
0.7
ECL allowances for amounts due from banks and loans and advances to customers as a percentage of amounts
due from banks and loans and advances to customer (gross)
0.2
0.2
0.2
0.3
0.2
Write-offs as a percentage of average amounts due from banks and loans and advances to customers (gross)
outstanding during the period
0.0
0.0
0.0
0.1
0.0
1 Prior-period numbers are based on pre-acquisition UBS values. 2 Includes amounts due from banks, core loan exposure (Loans and advances to customers and Loans to financial advisors) and off balance sheet
items defined as guarantees and loan commitments. 3 Comparatives have been restated to include amounts due from banks. 4 Includes provisions for ECL of guarantees and loan commitments and allowances
for securities financing transactions. 5 Includes credit loss expense / (release) for other financial assets at amortized cost, guarantees, loan commitments, and securities financing transactions.
Market risk
Audited |
Main sources of market risk
Market risks arise from both trading and non-trading business activities.
–
Trading market risks are mainly connected with primary debt and equity underwriting and securities and derivatives
trading for market-making and client facilitation in our Investment Bank, as well as the remaining positions in Non-
core and Legacy and our municipal securities trading business in Global Wealth Management.
–
Non-trading market risks arise predominantly in the form of interest rate and foreign exchange risks connected with
personal banking and lending in our wealth management businesses, the Swiss business of our Personal & Corporate
Banking business division, the Investment Bank’s lending business, and treasury activities.
–
Group Treasury assumes market risks in the process of managing interest rate risk, structural foreign exchange risk and
the Group’s liquidity and funding profile, including high-quality liquid assets (HQLA).
–
Equity and debt investments can also give rise to market risks, as can some aspects of employee benefits, such as
defined benefit pension schemes.
p
Audited |
Overview of measurement, monitoring and management techniques
–
Market risk limits are set for the Group, the business divisions and Group Treasury at granular levels in the various
business lines, reflecting the nature and magnitude of the market risks.
–
Management value-at-risk (VaR) measures exposures under the market risk framework, including trading market risks
and some non-trading market risks. Non-trading market risks not included in VaR are also covered in the risks controlled
by Market and Treasury Risk Control functions.
–
Our primary portfolio measures of market risk are liquidity-adjusted stress loss and VaR. Both are subject to limits that
are approved by the Board of Directors (the BoD).
–
These measures are complemented by concentration and granular limits for general and specific market risk factors.
Our trading businesses are subject to multiple market risk limits, which take into account the extent of market liquidity
and volatility, available operational capacity, valuation uncertainty, and, for our single-name exposures, issuer credit
quality.
–
Trading market risks are managed at portfolio level. As risk factor sensitivities change due to new transactions,
transaction expiries or changes in market levels, risk factors are dynamically rehedged to remain within limits. We do
not generally seek to distinguish in the trading portfolio between specific positions and associated hedges.
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Risk management and control 78
–
Issuer risk is controlled by limits applied at the business division level based on jump-to-zero measures, which estimate
maximum default exposure (the default event loss assuming zero recovery).
–
Non-trading foreign exchange risks are managed under market risk limits, with the exception of Group Treasury
management of consolidated capital activity.
Our CRO Treasury function applies a holistic risk framework, setting the appetite for treasury-related risk-taking activities
across UBS AG. Key elements of the framework include an overarching economic value sensitivity limit, set by the BoD,
and the sensitivity of net interest income to changes in interest rates targets, set by the CEO. Limits are also set by the
BoD to balance the effect of foreign exchange movements on our common equity tier 1 (CET1) capital and CET1 capital
ratio. Non-trading interest rate and foreign exchange risks are included in firm-wide statistical and stress -testing metrics,
which flow into our risk appetite framework.
Equity and debt investments are subject to a range of risk controls, including preapproval of new investments by business
management and Risk Control and regular monitoring and reporting. They are also included in firm-wide statistical and
stress-testing metrics.
p
›
Refer to “Currency management” in the “Capital, liquidity and funding, and balance sheet” section of this report for more
information about Group Treasury’s management of foreign exchange risks
›
Refer to the “Capital, liquidity and funding, and balance sheet” section of this report for more information about the sensitivity
of our CET1 capital and CET1 capital ratio to currency movements
Market risk stress loss
The measurement and management of market risks include an extensive set of stress tests and scenario analyses,
continuously evaluated to ensure that losses resulting from an extreme yet plausible event do not exceed our risk appetite.
Liquidity-adjusted stress
Liquidity-adjusted stress is UBS AG’s primary stress loss measure for firm-wide market risk. The framework captures the
economic losses that could arise under specified stress scenarios. Shocks are applied to positions based on expected
market movements in the liquidity-adjusted holding periods resulting from the specified scenario.
The holding periods used for liquidity-adjusted stress are calibrated to reflect the time needed to reduce or hedge the risk
of positions in each major risk factor in a stressed environment. UBS AG applies minimum holding periods, regardless of
observed liquidity levels, as identification of and reaction to a crisis may not always be immediate.
The expected market movements are derived using historical market behavior (based on analysis of historical events) and
forward-looking analysis including consideration of defined scenarios that have not occurred in the past.
Stress-based limits apply at several levels of the organizational hierarchy. Liquidity -adjusted stress is also the core market
risk component of our combined stress test framework and therefore integral to our overall risk appetite framework.
›
Refer to “Risk appetite framework” in this section for more information
›
Refer to “Stress testing” in this section for more information about our stress testing framework
Value-at-risk
VaR definition
Audited |
VaR is a statistical measure of market risk, quantifying the potential market risk losses over a set time horizon
(holding period) at an established level of confidence. VaR assumes no change in UBS AG’s trading positions over the set
time horizon.
UBS AG calculates VaR daily. The profit or loss distribution from which VaR is estimated is derived from our internally
developed VaR model, which simulates returns over the holding period for risk factors our trading positions are sensitive
to, and subsequently quantifies the profit / loss effect of these risk factor returns on our trading positions. Systematic
commodity, credit, equity, foreign exchange rate and interest rate risk factor returns are based on a pure historical
simulation approach. UBS AG uses an unweighted five-year look-back window. Modeling idiosyncratic and specific risks
for equity and credit risk factors using historical simulation is challenging, due to the limited availability of continuous
good-quality historical data. UBS AG relies upon factor models to distinguish systematic and idiosyncratic returns. UBS AG
simulates idiosyncratic returns through a Monte Carlo simulation, aggregating the sum of systematic and residual returns
in such a way that systematic and residual risk are consistently captured. When modeling 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 factor class, the factor returns are modeled using absolute returns, proportional or
logarithmic returns. Risk factor return distributions are updated fortnightly.
Risk factor returns are converted into profit or loss values via sensitivities and full revaluation grids sourced from front-
office systems, enabling us to capture material non-linear effects.
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Risk management and control 79
UBS AG uses a single VaR model for internal management purposes and for determining market risk risk-weighted assets
(RWA), although the two cases consider different confidence levels and time horizons. For internal management
purposes, risk limits are established and exposures measured using VaR at a
% confidence level with a 1-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 involves a measure equivalent to a
%
confidence level using a 10-day holding period. To calculate a 10-day holding period VaR, we use 10-day risk factor
returns.
Additionally, the portfolio populations for management and regulatory VaR are slightly different. The one for regulatory
VaR meets regulatory requirements for inclusion in regulatory VaR. Management VaR includes a broader range of
positions. For example, regulatory VaR excludes 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 market risk RWA. SVaR uses broadly the same methodology as
regulatory VaR and is calculated using the same population, holding period (10-day) and confidence level (
%). For
SVaR, UBS AG identifies the most significant one-year period of financial stress from a historical dataset covering the
period from 1 January 2007 to the present. SVaR is computed weekly at a minimum.
p
›
Refer to the 31 December 2023 Pillar 3 Report, available under “Pillar 3 disclosures” at
ubs.com/investors,
for more information
about the regulatory capital calculation under the advanced internal ratings-based approach
Management VaR for the period
UBS AG continued to maintain management VaR at low levels, with average VaR increasing to USD 15m from USD 11m
in 2023, mainly driven by the Investment Bank’s Global Markets business.
Audited |
Management value-at-risk (1-day, 95% confidence, 5 years of historical data) of UBS AG business divisions and Group
Items by general market risk type
1
For the year ended 31.12.23
USD m
Equity
Interest
rates
Credit
spreads
Foreign
exchange
Commodities
Min.
Max.
Average
31.12.23
Total management VaR
Average (per business division and risk type)
Global Wealth Management
Personal & Corporate Banking
Asset Management
Investment Bank
Non-core and Legacy
Group Items
Diversification effect
2,3
(6 )
(6 )
(1 )
(4 )
(4 )
(1 )
For the year ended 31.12.22
4
USD m
Equity
Interest
rates
Credit
spreads
Foreign
exchange
Commodities
Min.
Max.
Average
31.12.22
Total management VaR
Average (per business division and risk type)
Global Wealth Management
Personal & Corporate Banking
Asset Management
Investment Bank
Group Functions (including Non-core and Legacy Portfolio)
Diversification effect
2,3
(5 )
(5 )
(1 )
(3 )
(4 )
(1 )
1 Statistics at individual levels may not be summed to deduce the corresponding aggregate figures. The minima and maxima for each level may occur on different days, and, likewise, the value -at-risk (VaR) for each
business line or risk type, being driven by the extreme loss tail of the corresponding distribution of simulated profits and losses for that business line or risk type, may well be driven by different days in the historical
time series, rendering invalid the simple summation of figures to arrive at the aggregate total. 2 The difference between the sum of the standalone VaR for the business divisions and Group Items and the total VaR.
3 As the minima and maxima for different business divisions and Group Items occur on different days, it is not meaningful to calculate a portfolio diversification effect. 4 Prior-period numbers are based on pre-
acquisition UBS values as the risk profile compared with UBS AG does not materially differ.
p
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Risk management and control 80
VaR limitations
Audited |
Actual realized market risk losses may differ from those implied by VaR for a variety of reasons.
–
VaR is calibrated to a specified level of confidence and may not indicate potential losses beyond this confidence level.
–
The 1-day time horizon used for VaR for internal management purposes (10-day for regulatory VaR) may not fully
capture market risk of positions that cannot be closed out or hedged within the specified period.
–
In some cases, VaR calculations approximate the effect of changes in risk factors on the values of positions and
portfolios.
–
Effects of extreme market movements are subject to estimation errors, which may result from non-linear risk
sensitivities, and the potential for actual volatility and correlation levels to differ from assumptions implicit in VaR
calculations.
–
The choice of a longer historical window means sudden increases in market volatility will tend not to increase VaR as
quickly as the use of shorter historical observation periods, but such increases will affect VaR for a longer period of
time. Similarly, after periods of increased volatility, as markets stabilize, VaR predictions will remain more conservative
for a period of time influenced by the length of the historical observation period.
SVaR is subject to the limitations noted for VaR above, but the use of one-year datasets avoids the smoothing effect of
longer datasets used for VaR. In addition, the ability to select a one-year period outside of recent market history allows
for a wider variety of potential loss events. Therefore, although the significant period of stress during the 2007–2009
financial crisis is no longer contained in the look-back window used for management and regulatory VaR, SVaR continues
to use that data. This approach aims to reduce the procyclicality of the regulatory capital requirements for market risks.
UBS AG recognizes that no single measure can encompass all risks associated with a position or portfolio. We use a set
of metrics with both overlapping and complementary characteristics to create a holistic framework that aims to ensure
material completeness of risk identification and measurement. As a statistical aggregate risk measure, VaR supplements
our comprehensive stress testing framework.
We also have a framework to identify and quantify potential risks not fully captured by our VaR model and refer to such
risks as risks not in VaR. The framework underpins these potential risks with additional regulatory capital.
p
Backtesting of VaR
VaR backtesting is a performance measurement process in which a 1-day VaR prediction is compared with the realized
1-day profit or loss (P&L). We compute backtesting VaR using a 99% confidence level and 1-day holding period for the
regulatory VaR population. Since 99% VaR is defined as a risk measure that operates on the lower tail of the P&L
distribution, 99% backtesting VaR is a negative number. Backtesting revenues exclude non-trading revenues, such as
valuation reserves, fees and commissions, and revenues from intraday trading, so as to provide a like-for-like comparison.
A backtesting exception occurs when backtesting revenues are lower than the previous day’s backtesting VaR.
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Risk management and control 81
Statistically, given the 99% confidence level, two or three backtesting exceptions a year can be expected. More than four
exceptions could indicate that the VaR model is not performing appropriately, as could too few exceptions over a long
period. However, as noted for VaR limitations above, a sudden increase (or decrease) in market volatility relative to the
volatility observed in the look-back window could lead to a higher (or lower) number of exceptions. Therefore, backtesting
exceptions are investigated, as are exceptional positive backtesting revenues, with the results reported to senior business
management and regulators.
The number of negative backtesting exceptions within a 250-business-day window decreased to zero from one by the
end of 2023. The Swiss Financial Market Supervisory Authority (FINMA) VaR multiplier derived from backtesting
exceptions for market risk RWA was unchanged compared with the prior year, at 3.0.
VaR model confirmation
In addition to the for-regulatory-purposes backtesting described above, we conduct extended backtesting for internal
model confirmation purposes. This includes observing model performance across the entire P&L distribution (not just the
tails) and at multiple levels within the business division hierarchies.
›
Refer to “Risk measurement” in this section for more information about our approach to model confirmation procedures
VaR model developments in 2023
Audited |
No material changes were made to the UBS AG VaR model in 2023.
p
Future market risk-related regulatory capital developments
In January 2019, the Basel Committee on Banking Supervision (the BCBS) published the final standards on the minimum
capital requirements for market risk (the Fundamental Review of the Trading Book). In December 2022, the Swiss State
Secretariat for International Finance changed the expected date on which the final Basel III guidelines are to enter into
force, from 1 July 2024 to 1 January 2025. As a result, the Swiss implementation timeline would be aligned to the
currently expected implementation timeline in the EU. In November 2023, the Swiss Federal Council adopted
amendments to the Capital Adequacy Ordinance (the CAO) for banks to incorporate the final Basel III standards adopted
by the BCBS in Swiss law. The Federal Department of Finance (FDF) will inform the Federal Council again about the status
of international implementation by the end of July 2024.
Key elements of the revised market risk framework include: (i) changes to the internal model-based approach, including
changes to the model approval and performance measurement process; (ii) changes to the standardized approach with
the aim of it being a credible fallback method for an internal model-based approach; and (iii) a revised boundary between
the trading book and the banking book. UBS maintains a close dialogue with FINMA to discuss the implementation
objectives in more detail and to provide a smooth transition of the capital regime for market risk.
In September 2021, FINMA mandated UBS to hold an RWA add-on for the omission of time decay in regulatory VaR and
SVaR. The add-on reflects the outcome of discussions with FINMA regarding our regulatory VaR model, which started in
late 2019. The integration of time decay into the regulatory VaR model went live in January 2024.
›
Refer to “Risk-weighted assets” in the “Capital, liquidity and funding, and balance sheet” section of this report for more
information about the development of RWA including the regulatory add-on
›
Refer to “Risk measurement” in this section for more information about our approach to model confirmation procedures
›
Refer to the “Regulatory and legal developments” and “Risk factors” sections of this report for more information
Interest rate risk in the banking book
Sources of interest rate risk in the banking book
Audited |
IRRBB arises from balance sheet positions such as amounts due from banks, Loans and advances to customers,
Financial assets at fair value not held for trading, Financial assets measured at amortized cost, Customer deposits, Debt
issued measured at amortized cost, and derivatives, including those subject to hedge accounting. Fair value changes to
these positions may affect other comprehensive income (OCI) or the income statement, depending on their accounting
treatment.
UBS AG’s largest banking book interest rate exposures arise from customer deposits and lending products in Global
Wealth Management and Personal & Corporate Banking, as well as from debt issuance, liquidity buffers and interest rate
hedges in Group Treasury. The inherent interest rate risks stemming from Global Wealth Management and Personal &
Corporate Banking are generally transferred to Group Treasury, to manage them centrally together with our modeled
interest rate duration assigned to equity, goodwill and real estate. This makes the netting of interest rate risks across
different sources possible, while leaving the originating businesses with commercial margin and volume management.
The residual interest rate risk is mainly hedged with interest rate swaps, to the vast majority of which we apply hedge
accounting. Short-term exposures and HQLA classified as Financial assets at fair value not held for trading are hedged
with derivatives accounted for on a mark-to-market basis. Long-term fixed-rate debt issued and HQLA hedged with
external interest rate swaps are designated in fair value hedge accounting relationships.
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Risk management and control 82
Risk management and governance
IRRBB is measured using several metrics, the most relevant of which are the following.
–
EVE sensitivity to yield curve moves is calculated as changes in the present value of future cash flows irrespective of
accounting treatment. These yield curve moves are also the key risk factors for statistical and stress-based measures,
e.g., VaR and stress scenarios, as well as the regulatory interest rate scenarios. These are measured and reported daily.
The regulatory IRRBB EVE exposure is the most adverse regulatory interest rate scenario that is netted across currencies.
It excludes the sensitivity from additional tier 1 (AT1) capital instruments (as per specific FINMA requirements) and the
modeled interest rate duration assigned to equity, goodwill and real estate. UBS AG also applies granular internal
interest rate shock scenarios to its banking book positions to monitor its specific risk profile.
–
Net interest income (NII) sensitivities to yield curve moves are calculated as changes of baseline NII over a set time
horizon, which we internally compute by assuming interest rates in all currencies develop according to their market-
implied forward rates and assuming constant business volumes and product mix and no specific management actions.
The sensitivities are measured and reported monthly.
UBS AG actively manages IRRBB, with the aim of reducing the volatility of NII subject to limits and triggers for EVE and
NII exposure at consolidated and significant legal entity levels.
The Group Asset and Liability Committee (the ALCO) and, where relevant, ALCOs at a legal entity level perform
independent oversight over the management of IRRBB, which is also subject to Group Internal Audit and model
governance.
›
Refer to “Risk measurement” in this section for more information
Key modeling assumptions
The cash flows from customer deposits and lending products used in calculation of EVE sensitivity exclude commercial
margins and other spread components, are aggregated by daily time buckets and are discounted using risk-free rates.
Our external issuances are discounted using UBS’s senior debt curve, and capital instruments are modeled to the first call
date. NII sensitivity, which includes commercial margins, is calculated over a one-year time horizon, assuming constant
balance sheet structure and volumes, and considers embedded interest rate options.
The average repricing maturity of non-maturing deposits and loans is determined via target replication portfolios designed
to protect product margins. Optimal replicating portfolios are determined at granular currency- and product-specific levels
by simulating and applying a real-world market rate model to historically calibrated client rate and volume models.
UBS AG uses an econometric prepayment model to forecast prepayment rates on US mortgage loans in UBS Bank USA
and agency mortgage-backed securities (MBSs) held in various liquidity portfolios of UBS Americas Holding LLC
consolidated. These prepayment rates are used to forecast both mortgage loan and MBS balances under various
macroeconomic scenarios. The prepayment model is used for a variety of purposes, including risk management and
regulatory stress testing. Swiss mortgages and fixed-term deposits generally do not carry similar optionality, due to
prepayment and early redemption penalties.
p
Effect of interest rate changes on shareholders’ equity and CET1 capital
The “Accounting and capital effect of changes in interest rates” table below shows the effects on shareholders’ equity
and CET1 capital of gains and losses from changes in interest rates in the main banking book positions. We use derivatives
to hedge interest rate risks in the banking book and these reflect changes in interest rates as an immediate fair value
gain or loss, recognized either in the income statement or through OCI. Where hedged items are accrual accounted, we
aim to minimize accounting asymmetries by applying hedge accounting to reflect the economic hedge relation ship.
In a rising rate scenario, we would have an initial decrease in shareholders’ equity as a result of fair value losses on our
derivatives recognized in OCI while we would expect higher NII over time as rates increase. The effect on CET1 capital
would be much lower as gains and losses on interest rate swaps designated as cash flow hedges are not recognized for
regulatory capital purposes.
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Risk management and control 83
Accounting and capital effect of changes in interest rates
1
Recognition
Shareholders’ equity
CET1 capital
Timing
Income statement / OCI
Gains
Losses
Gains
Losses
Loans and deposits at amortized cost
2,3
Gradual
Income statement
l
l
l
l
Other financial assets and liabilities measured at amortized cost
2
Gradual
Income statement
l
l
l
l
Debt issued measured at amortized cost
2,3
Gradual
Income statement
l
l
l
l
Receivables and payables from securities financing transactions
2
Gradual
Income statement
l
l
l
l
Financial assets at fair value not held for trading
Immediate
Income statement
l
l
l
l
Financial assets at fair value through other comprehensive income
Immediate
OCI
l
l
l
Derivatives designated as cash flow hedges
Immediate
OCI
4
l
l
Derivatives designated as fair value hedges
5
Immediate
Income statement
l
l
l
l
Derivatives transacted as economic hedges
Immediate
Income statement
l
l
l
l
1 Refer to the “Reconciliation of equity under IFRS Accounting Standards to Swiss SRB common equity tier 1 capital” table in the “Capital, liquidity and funding, and balance sheet” section of this report for more
information about the differences between shareholders’ equity and CET1 capital. 2 For fixed-rate financial instruments, changes in interest rates affect the income statement when these instruments roll over and
reprice. 3 For hedge-accounted items, a fair value adjustment is applied in line with the treatment of the hedging derivatives. 4 Excluding hedge ineffectiveness that is recognized in the income statement in
accordance with IFRS Accounting Standards. 5 The fair value of the derivatives is offset by the fair value adjustment of the hedged items. Under the fair value hedge program applied to cross-currency swaps and
foreign currency debt, the foreign currency basis spread is excluded from the hedge designation and accounted for through OCI, which is included in CET1.
Economic value of equity sensitivity
Audited |
The EVE sensitivity in the banking book to a +1-basis-point parallel shift in yield curves was negative USD
m
as of 31 December 2023, compared with negative USD
m as of 31 December 2022. This excludes the sensitivity of
USD
m from AT1 capital instruments (as per specific FINMA requirements) in contrast to general BCBS guidance.
The majority of our interest rate risk in the banking book is a reflection of the net asset duration that we run to offset
our modeled sensitivity of net USD
m (31 December 2022: USD
m) assigned to our equity, goodwill and real
estate, with the aim of generating a stable NII contribution. Of this, USD
m and USD
m are attributable to the US
dollar and the Swiss franc portfolios, respectively (31 December 2022: USD
m and USD
m, respectively).
In addition to the sensitivity mentioned above, we calculate the six interest rate shock scenarios prescribed by FINMA.
The “Parallel up” scenario, assuming all positions were fair valued, was the most severe and would have resulted in a
change in EVE of negative USD
bn, or
%, of our tier 1 capital (31 December 2022: negative USD
bn, or
%),
which is well below the
% threshold as per the BCBS supervisory outlier test for high levels of interest rate risk in the
banking book.
The immediate effect on UBS AG’s tier 1 capital in the “Parallel up” scenario as of 31 December 2023 would have been
a decrease of USD
bn, or
% (31 December 2022: USD
bn, or
%), reflecting the fact that the vast majority
of our banking book is accrual accounted or subject to hedge accounting. The “Parallel up” scenario would subsequently
have a positive effect on NII, assuming a constant balance sheet.
UBS AG also applies granular internal interest rate shock scenarios to its banking book positions to monitor the banking
book’s specific risk profile.
Net interest income sensitivity
The main NII sensitivity in the banking book resides in Global Wealth Management and Personal & Corporate Banking.
We assign a target duration to our investment of equity portfolio, and Group Treasury actively manages the residual
IRRBB. This sensitivity is assessed using a number of scenarios assuming parallel and non-parallel shifts in yield curves,
with various degrees of severity, and we have set and monitor thresholds for the NII sensitivity to immediate parallel
shocks of –200 and +200 basis points under the assumption of constant balance sheet volume and structure.
p
›
Refer to the “UBS AG consolidated performance” section for more information about sensitivity to interest rate movements
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Risk management and control 84
Audited |
Interest rate risk – banking book
31.12.23
USD m
Effect on EVE
1
Effect on EVE
1
Scenarios
CHF
EUR
GBP
USD
Other
Total
Additional tier 1 (AT1) capital
instruments
Total
+1 bp
(4.3 )
(0.7 )
(23.1 )
(28.1 )
(23.3 )
Parallel up
2
(608.9 )
(142.9 )
(4,522.3 )
(15.0 )
(5,287.0 )
(4,398.7 )
Parallel down
2
(11.8 )
(1,028.0 )
Steepener
3
(335.2 )
(16.0 )
(13.1 )
(973.6 )
(23.0 )
(1,361.0 )
(1,265.1 )
Flattener
4
(6.8 )
(94.1 )
Short-term up
5
(38.5 )
(48.4 )
(1,909.8 )
(1,976.3 )
(1,498.9 )
Short-term down
6
(14.3 )
(10.0 )
(498.9 )
31.12.22
USD m
Effect on EVE
1
Effect on EVE
1
Scenarios
CHF
EUR
GBP
USD
Other
Total
Additional tier 1 (AT1) capital
instruments
Total
+1 bp
(4.1 )
(0.6 )
(20.4 )
(0.1 )
(25.0 )
(21.5 )
Parallel up
2
(576.5 )
(111.6 )
(3,936.5 )
(26.3 )
(4,617.2 )
(3,964.7 )
Parallel down
2
(45.7 )
(702.8 )
Steepener
3
(256.7 )
(93.2 )
(28.2 )
(1,026.7 )
(3.3 )
(1,408.2 )
(47.3 )
(1,455.5 )
Flattener
4
(2.6 )
Short-term up
5
(84.1 )
(1,514.7 )
(13.9 )
(1,532.9 )
(1,092.2 )
Short-term down
6
(36.1 )
(42.6 )
(457.8 )
1 Economic value of equity. 2 Rates across all tenors move by ±150 bps for Swiss franc, ±200 bps for euro and US dollar, and ±250 bps for pound sterling. 3 Short-term rates decrease and long-term rates
increase. 4 Short-term rates increase and long-term rates decrease. 5 Short-term rates increase more than long-term rates. 6 Short-term rates decrease more than long-term rates.
p
Other market risk exposures
Own credit
We are exposed to changes in UBS AG’s own credit reflected in the valuation of financial liabilities designated at fair
value when our own credit risk would be considered by market participants, except for fully collateralized liabilities or
other obligations for which it is established market practice to not include an own-credit component.
›
Refer to “Note 20 Fair value measurement” in the “Consolidated financial statements” section of this report for more information
about own credit
Structural foreign exchange risk
Upon consolidation, assets and liabilities held in foreign operations are translated into US dollars at the closing foreign
exchange rate on the balance sheet date. Value changes (in US dollars) of non-US dollar assets or liabilities due to foreign
exchange movements are recognized in OCI and therefore affect shareholders’ equity and CET1 capital.
Group Treasury uses strategies to manage this foreign currency exposure, including matched funding of assets and
liabilities and net investment hedging.
›
Refer to the “Capital, liquidity and funding, and balance sheet” section of this report for more information about our exposure to
and management of structural foreign exchange risk
›
Refer to “Note 10 Derivative instruments” in the “Consolidated financial statements” section of this report for more information
about our hedges of net investments in foreign operations
Equity investments and investment fund units
Audited |
UBS AG makes direct investments in a variety of entities and buys equity holdings in both listed and unlisted
companies, with the aim of supporting our business activities and delivering strategic value to UBS. This includes
investments in exchange and clearing house memberships, as well as minority investments in early-stage fintechs and
technology companies via UBS Next. We may also make investments in funds that we manage in order to fund or seed
them at inception or to demonstrate that our interests align with those of investors. We also buy, and are sometimes
required by agreement to buy, securities and units from funds that we have sold to clients.
The fair value of equity investments tends to be influenced by factors specific to the individual investments. Equity
investments are generally intended to be held for the medium or long term and may be subject to lock-up agreements.
For these reasons, we generally do not control these exposures by using market risk measures applied to trading activities.
However, such equity investments are subject to a different range of controls, including preapproval of new investments
by business management and Risk Control, portfolio and concentration limits, and regular monitoring and reporting to
senior management. They are also included in our firm-wide statistical and stress-testing metrics, which flow into our risk
appetite framework.
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Risk management and control 85
As of 31 December 2023, we held equity investments and investment fund units totaling USD
bn, of which USD
bn
was classified as Financial assets at fair value not held for trading and USD
bn as Investments in associates
.
p
›
Refer to “Note 20 Fair value measurement” and “Note 28 Interests in subsidiaries and other entities” in the “Consolidated
financial statements” section of this report for more information
›
Refer to “Note 1 Summary of material accounting policies” in the “Consolidated financial statements” section of this report for
more information about the classification of financial instruments
Debt investments
Audited |
Debt investments classified as Financial assets measured at fair value through other comprehensive income as of
31 December 2023 were measured at fair value with changes in fair value recorded through Equity, and can broadly be
categorized as money market instruments and debt securities primarily held for statutory, regulatory or liquidity reasons.
The risk control framework applied to debt instruments classified as Financial assets measured at fair value through other
comprehensive income depends on the nature of the instruments and the purpose for which we hold them. Our
exposures may be included in market risk limits or be subject to specific monitoring and interest rate sensitivity analysis.
They are also included in our firm-wide statistical and stress-testing metrics, which flow into our risk appetite framework.
Debt instruments classified as Financial assets measured at fair value through other comprehensive income had a fair
value of USD
bn as of 31 December 2023, compared with USD
bn as of 31 December 2022.
p
›
Refer to “Note 20 Fair value measurement” in the “Consolidated financial statements” section of this report for more information
›
Refer to “Economic value of equity sensitivity” in this section for more information
›
Refer to “Note 1 Summary of material accounting policies” in the “Consolidated financial statements” section of this report for
more information about the classification of financial instruments
Pension risk
We provide a number of pension plans for past and current employees, some classified as defined benefit pension plans
under IFRS Accounting Standards, which can have a material effect on our equity under IFRS Accounting Standards and
CET1 capital.
Pension risk is the risk that defined benefit plans’ funded status might decrease, negatively affecting our capital. This can
result from falls in the value of a plan’s assets or in the investment returns, increases in defined benefit obligations, or
combinations of the above.
Important risk factors affecting the fair value of pension plans’ assets include equity market returns, interest rates, bond
yields, and real estate prices. Important risk factors affecting the present value of expected future benefit payments
include high-grade bond yields, interest rates, inflation rates, and life expectancy.
Pension risk is included in our firm-wide statistical and stress-testing metrics, which flow into our risk appetite framework.
The potential effects are thus captured in the post-stress capital ratio calculations.
›
Refer to “Note 1 Summary of material accounting policies” and “Note 26 Post-employment benefit plans” in the “Consolidated
financial statements” section of this report for more information about defined benefit plans
Country risk
Country risk framework
Country risk includes all country-specific events occurring in a sovereign jurisdiction that may lead to impairment of UBS
AG’s exposures. It may take the form of: (i) sovereign risk, which is the ability and willingness of a government to honor
its financial commitments; (ii) transfer risk, which arises if a counterparty or issuer cannot acquire foreign currencies
following a moratorium by a central bank on foreign exchange transfers; or (iii) “other” country risk. “Other” country
risk may manifest itself through, on the one hand, increased and multiple counterparty and issuer default risk (systemic
risk) and, on the other hand, events that may affect a country’s standing, such as adverse shocks affecting political
stability or institutional and / or legal frameworks. UBS AG has a well-established risk control framework to assess the
risk profiles of all countries where we have exposure.
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Risk management and control 86
We assign a country rating to each country, which reflects our view of its creditworthiness and of the probability of a
country risk event occurring. Country ratings are mapped to statistically derived default probabilities, described under
“Probability of default” in this section. We use this internal analysis to set the credit ratings of governments and central
banks, estimate the probability of a transfer event occurring, and establish rules on how aspects of country risk should
be incorporated in counterparty ratings of non-sovereign entities domiciled in the respective country.
Country ratings are also used to define UBS AG’s risk appetite regarding foreign countries. A country risk limit (i.e.,
maximum aggregate exposure) applies to exposures to counterparties or issuers of securities and financial investments in
the given foreign country. UBS AG may limit the extension of credit, transactions in traded products or positions in
securities based on a country risk ceiling even if its exposure to a counterparty is otherwise acceptable.
For internal measurement and control of country risk, UBS AG also considers the financial effect of market disruptions
arising prior to, during and after a country crisis. These may take the form of a severe deterioration in a country’s debt,
equity or other asset markets, or a sharp depreciation of its currency. We use stress testing to assess potential financial
effects of severe country or sovereign crises. This involves the developing of plausible stress scenarios for combined stress
testing and the identification of countries that may potentially be subject to a crisis event, determining potential losses
and making assumptions about recovery rates depending on the types of credit transactions involved and their economic
importance to the affected countries.
Country risk exposure
Country risk exposure measure
The presentation of country risk follows our internal risk view, where the basis for measuring exposures depends on the
product category in which we classify the exposures. In addition to the classification of exposures into banking products
and traded products, covered in “Credit risk profile of UBS AG” in this section, in the trading inventory UBS AG classifies
issuer risk on securities such as bonds and equities, as well as risk relating to underlying reference assets for derivative
positions.
The trading inventory is managed on a net basis, and the value of long positions is netted against that of short positions
with the same underlying issuer. Net exposures are, however, floored at zero per issuer in the figures presented in the
following tables. As a result, potentially offsetting benefits of certain hedges and short positions across issuers are not
recognized.
We do not recognize any expected recovery values when reporting country exposures as exposure before hedges, except
for risk-reducing effects of master netting agreements and collateral held in either cash or portfolios of diversified
marketable securities, which we deduct from the potential exposure values. Within banking products and traded
products, risk-reducing effects of credit protection are generally taken into account on a notional basis when determining
the net of hedge exposures.
Country risk exposure allocation
In general, exposures are shown against the country of domicile of the contractual counterparty or the issuer of the
security. For some counterparties whose economic substance in terms of assets or source of revenues is primarily
located in a different country, the exposure is allocated to the risk domicile of those assets or revenues.
We apply a specific approach for banking products exposures to branches of banks that are located in a country other
than the legal entity’s domicile. In such cases, exposures are recorded in full against the country of domicile of the
counterparty and additionally in full against the country where the branch is located.
In the case of derivatives, we show the counterparty ’s risk potential exposure against the counterparty’s country of risk
(presented within traded products). In addition, risk associated with an instantaneous fall in value of underlying
reference assets to zero (assuming no recovery) is shown against the country of risk of the issuer of the reference asset
(presented within trading inventory). This approach allows us to capture both counterparty and, where applicable, issuer
elements of risk arising from derivatives and applies comprehensively for all derivatives, including single-name credit
default swaps (CDSs) and other credit derivatives.
CDSs are primarily bought and sold in relation to our trading businesses, and, to a much lesser degree, used to hedge
credit valuation adjustments. Holding CDSs for credit default protection does not necessarily protect the buyer of
protection against losses, as contracts only pay out under certain scenarios. The effectiveness of our CDS protection as a
hedge of default risk is influenced by several factors, including the contractual terms under which a given CDS was
written. Generally, only the occurrence of credit events as defined by the CDS contract’s terms (which may include, among
other events, failure to pay, restructuring or bankruptcy) results in payments under the purchased credit protection
contracts. For CDS contracts on sovereign obligations, repudiation can also be deemed as a default event. The
determination as to whether a credit event has occurred is made by the relevant International Swaps and Derivatives
Association (ISDA) determination committees (composed of various ISDA member firms) based on the terms of the CDS
and the facts and circumstances surrounding the event.
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Risk management and control 87
Top 20 country risk exposures
The table below shows UBS AG’s 20 largest country exposures by product type, excluding our home country, as of
31 December 2023 compared with 31 December 2022.
Compared with the prior year, UBS AG’s net exposure to the US increased by USD 26.7bn, driven by central bank
exposures due to treasury activities, as well as loans to corporates. Net exposure to the UK increased by USD 8.7bn, driven
by central bank exposures due to treasury activities.
Based on the sovereign rating categories, as of 31 December 2023, 88% of UBS AG’s emerging market country exposure
was rated investment grade, compared with 87% as of 31 December 2022.
Israel
As of 31 December 2023, UBS AG’s direct country risk exposure to Israel was USD 289m, mainly from lending and
collateralized OTC derivatives exposure within the Investment Bank. UBS AG’s direct exposure to Gulf Cooperation
Council countries was USD 2.5bn. The direct exposure to Egypt, Jordan and Lebanon is limited, and UBS AG has no direct
exposure to Iran, Iraq or Syria.
Russia
UBS AG’s direct country risk exposure to Russia contributed USD 66m to our total emerging market exposure of
USD 22.0bn as of 31 December 2023, compared with a contribution of USD 98m as of 31 December 2022. This includes
nostro accounts balances, and issuer risk on trading inventory within the Investment Bank.
UBS AG had no material direct country risk exposures to Belarus or to Ukraine as of 31 December 2023 and no material
reliance on Russian, Belarusian or Ukrainian collateral.
Top 20 country risk net exposures, by product type
USD m
Total
Banking products
(loans, guarantees, loan
commitments)
Traded products
(counterparty risk from derivatives
and securities financing)
after master netting agreements
and net of collateral
Trading inventory
(securities and potential
benefits / remaining
exposure from derivatives)
Net of hedges
1
Net of hedges
1
Net of hedges
Net long per issuer
31.12.23
31.12.22
2
31.12.23
31.12.22
2
31.12.23
31.12.22
2
31.12.23
31.12.22
2
United States
165,639
138,924
104,845
81,875
27,463
27,550
33,331
29,499
United Kingdom
40,836
32,104
22,248
10,828
16,922
19,786
1,666
1,490
Germany
20,864
20,115
7,212
8,255
7,533
6,959
6,118
4,901
Japan
18,328
22,221
13,300
13,251
4,457
8,559
571
410
Singapore
10,310
12,137
2,122
3,038
3,362
3,767
4,827
5,332
France
9,125
10,641
1,466
2,056
3,206
3,980
4,453
4,605
Canada
8,722
7,832
550
274
2,741
3,730
5,431
3,827
Australia
8,446
8,895
1,964
1,365
4,443
5,834
2,038
1,696
China
4,993
4,709
1,015
1,347
835
1,379
3,144
1,983
South Korea
4,312
3,896
437
388
647
1,042
3,228
2,466
Luxembourg
3,947
3,423
3,212
2,717
566
280
169
427
Netherlands
3,804
5,964
812
1,074
2,051
3,767
941
1,123
Sweden
3,259
2,283
225
158
1,545
1,322
1,490
803
Hong Kong SAR
2,776
3,666
884
938
885
1,843
1,007
885
Norway
2,114
2,417
58
80
530
1,137
1,526
1,200
Italy
1,459
1,492
751
628
470
703
238
161
Austria
1,323
1,526
137
285
572
450
615
792
Spain
1,316
1,032
669
630
321
201
325
200
Monaco
1,204
1,021
1,191
1,001
13
20
0
0
Finland
1,185
1,185
44
62
341
432
800
691
Total top 20
3
313,962
285,483
163,142
130,250
78,903
92,741
71,918
62,491
1 Before deduction of IFRS 9 ECL allowances and provisions. 2 Comparative period has been restated to reflect a change in the measure used to disclose country risk exposures. 3 Excluding Switzerland,
supranationals and global funds.
Emerging markets¹ net exposure², by internal UBS country rating category
USD m
31.12.23
31.12.22
3
Investment grade
19,328
21,900
Sub-investment grade
2,697
3,173
Total
22,025
25,073
1 UBS AG classifies countries as emerging markets based on per capita GDP, historical real GDP growth, alignment with international institutions (such as BIS, World Bank, IMF, MSCI) and other factors. 2 Net of
credit hedges (for banking products and for traded products); net long per issuer (for trading inventory). Before deduction of IFRS 9 ECL allowances and provisions. 3 Comparative period has been restated to reflect
a change in the measure used to disclose country risk exposures.
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Risk management and control 88
Sustainability and climate risk
Our climate strategy and governance are determined and overseen at the UBS Group level. Similarly, we identify and
manage climate risks, including climate-related financial risks, in our own operations, balance sheet, client assets and
supply chain on the UBS Group level.
Climate-related metrics for UBS AG are presented in the UBS Group Annual Report 2023.
›
Refer to “Sustainability and climate risk” in the “Risk management and control” section of the UBS Group Annual Report 2023,
available under “Annual reporting” at
ubs.com/investors
, for more information
›
Refer to the “Our sustainability and impact strategy” section of the UBS Group Sustainability Report 2023, available under
“Annual reporting” at
ubs.com/investors
, for more information
Non-financial risk
Non-financial risk is the risk of undue monetary loss and / or non-monetary adverse consequences resulting from
inadequate or failed internal processes, people and / or systems, failure to comply with laws and regulations and internal
policies and procedures, or external events (deliberate, accidental or natural) that have an impact on UBS, its clients or
its markets.
Key developments
We have identified nine non-financial risk themes as being currently key to us. These are:
–
governance and legal structure integration;
–
financial and regulatory reporting;
–
operational resilience, stability and cybersecurity;
–
data life cycle;
–
investor protection and market interaction;
–
strategic growth initiatives and cross-divisional interaction ;
–
the evolving nature of anti-money laundering (AML), know your client (KYC), sanctions, anti-bribery and corruption
(ABC), and fraud;
–
employee conduct, capacity and culture; and
–
environmental, social and governance (ESG) risks.
UBS continues to actively manage the non-financial risks emerging from the acquisition of the Credit Suisse Group,
including the current operation of dual corporate structures, and the scale, pace and complexity of the required
integration activities. These activities continue to be managed by the program run by our Group Integration Office. The
integration of Credit Suisse requires data to be migrated into the UBS environment and we aim to ensure that we have
robust controls to preserve data integrity, quality and availability to mitigate data migration risks and to meet regulatory
expectations.
Through this period of change, we place an increased focus on maintaining and enhancing our control environment and
continue to cooperate with regulators in relation to the submission and execution of implementation plans to meet
regulatory expectations, including remediation requirements applicable to Credit Suisse AG. In addition, the Group is
closely monitoring non-financial risk indicators to detect any potential for adverse impacts on the control environment .
There is an increased risk of cyber-related operational disruption to business activities at our locations and / or those of
third-party suppliers due to operating an enlarged group of entities. This is combined with the increasingly dynamic threat
environment, which is intensified by current geopolitical factors and evidenced by the increased volumes and
sophistication of cyberattacks against financial institutions globally.
Cyberattacks on third-party vendors have affected our operations in the past and continue to be a source of residual risk
to our business. We remain on heightened alert to respond to and mitigate elevated cyber- and information-security
threats. During the first quarter of 2023, a third-party vendor, ION XTP, suffered a ransomware attack, which resulted in
some disruption to our exchange-traded derivatives clearing activities, although we restored our services within 36 hours,
using an available alternative solution. Following a post-incident review, we are improving our frameworks for managing
third parties that support our important business services and are taking actions to enhance our cyber-risk assessments
and controls over third-party vendors. We continue to invest in improving our technology infrastructure and information-
security governance to improve our defense, detection and response capabilities against cyberattacks.
In addition, we are working to enhance our operational resilience to address these heightened risks and to meet
regulatory deadlines through 2026. We are implementing a global framework designed to drive enhancements in
operational resilience across all business divisions and relevant jurisdictions, as well as working with the third parties,
including vendors, that are of critical importance to our operations to assess their operational resilience against our
standards.
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Risk management and control 89
The increasing interest in data-driven advisory processes, and use of artificial intelligence (AI) and machine learning, is
opening up new questions related to the fairness of AI algorithms, data life-cycle management, data ethics, data privacy
and security, and records management. In addition, new risks continue to emerge, such as those that result from the
demand from our clients for distributed ledger technology, blockchain-based assets and cryptocurrencies; however, we
currently have limited exposure to such risks, and relevant control frameworks for them are implemented and reviewed
on a regular basis as they evolve.
Competition to find new business opportunities, products and services across the financial services sector, both for firms
and for customers, is increasing, particularly during periods of market volatility and economic uncertainty. Thus, suitability
risk, product selection, cross-divisional service offerings, quality of advice and price transparency remain areas of
heightened focus for UBS and for the industry as a whole.
Evolving ESG regulations and major legislation, such as the Consumer Duty regulation in the United Kingdom, the Swiss
Financial Services Act (FIDLEG) in Switzerland, Regulation Best Interest (Reg BI) in the US and the Markets in Financial
Instruments Directive II (MiFID II) in the EU, all significantly affect the industry and have required adjustments to control
processes.
Cross-border risk (including unintended permanent establishment) remains an area of regulatory attention for global
financial institutions, including a focus on market access, such as third-country market access into the European Economic
Area, and taxation of US persons. We maintain a series of controls designed to address these risks, and we are increasing
the number of controls that are automated.
Financial crime, including money laundering, terrorist financing, sanctions violations, fraud, bribery and corruption,
continues to present a major risk, as technological innovation and geopolitical developments increase the complexity of
doing business and heightened regulatory attention continues. An effective financial crime prevention program therefore
remains essential, and we continue to focus on strategic enhancements to our global AML, KYC and sanctions programs.
Money laundering and financial fraud techniques are becoming increasingly sophisticated, and geopolitical volatility
makes the sanctions landscape more complex. The extensive and continuously evolving sanctions arising from the Russia–
Ukraine war require constant attention to prevent circumvention risks, while the conflicts in the Middle East may increase
terrorist-financing risks.
In the US, UBS AG entered into a Consent Order with the Office of the Comptroller of the Currency (the OCC) in May
2018 relating to our US branch AML and KYC programs. In response, we have introduced significant improvements to
our framework for the purpose of ensuring sustainable remediation of US-relevant Bank Secrecy Act / AML issues across
all our US legal entities.
Achieving fair outcomes for our clients, upholding market integrity and cultivating the highest standards of employee
conduct are of critical importance to us. We maintain a conduct risk framework across our activities, which is designed
to align our standards and conduct with these objectives and to retain momentum on fostering a strong culture.
In September 2022, the US Securities and Exchange Commission (the SEC) and the Commodity Futures Trading
Commission (the CFTC) issued settlement orders relating to communications recordkeeping requirements in our US
broker-dealers and our registered swap dealers. In response to shortcomings identified in that context, we continued
work on a global remediation program started in 2022.
Non-financial risk framework
We follow a Group-wide non-financial risk framework that establishes requirements for identifying, managing, assessing
and mitigating operational, compliance and financial crime risks to achieve an agreed balance between risk and return.
It is built on the following pillars:
–
classifying inherent risks through 19 non-financial risk taxonomies, which define the universe of material non-financial
risks that can arise as a consequence of our business activities and external factors;
–
performing control assurance activities, including self-assessing the design and operating effectiveness of controls,
first- and second-line-of-defense control reviews and independent control testing;
–
defining the non-financial risk appetite (including a financial risk appetite statement at the Group, UBS AG and
business division levels for non-financial risk events) through quantitative metrics and thresholds and qualitative
measures, and assessing risk exposure against appetite;
–
assessing inherent and residual risk through risk assessment processes and determining whether additional remediation
plans are required to address identified deficiencies; and
–
proactively and sustainably remediating identified control deficiencies.
Divisional Presidents are accountable for the effectiveness of non-financial risk management and for the robustness of
the front-to-back control environment within their business divisions, and legal-entity-responsible executives are in charge
of non-financial risk management within their legal entities. Group function heads are accountable for supporting the
divisional Presidents and legal -entity-responsible executives of our legal entities in the discharge of this responsibility, by
confirming completeness and effectiveness of the control environment and non-financial risk management within their
Group functions. Collectively, divisional Presidents, central Group function heads and legal-entity-responsible executives
are in charge of implementing the non-financial risk framework.
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Risk management and control 90
Compliance & Operational Risk Control (C&ORC) is responsible for providing an independent and objective view of the
adequacy of non-financial risk management across the Group, and ensuring that compliance risk, financial crime risk and
operational risk are understood, owned and managed in accordance with our risk appetite. C&ORC business- or function-
aligned teams sit within the Group Compliance, Regulatory & Governance function, reporting to the Group Chief
Compliance and Governance Officer, who is a member of the Group Executive Board.
The non-financial risk framework forms the common basis for managing and assessing compliance risk, financial crime
risk and operational risk, and there are additional C&ORC activities intended to ensure we are able to demonstrate
compliance with applicable laws, rules and regulations.
In 2023, we successfully executed on the framework enhancements designed in 2022, with, for example, several cycles
of risk appetite assessments performed on the basis of the Group-wide non-financial risk appetite statements across all
taxonomies. We focused on improving effectiveness by simplifying and digitalizing the non-financial risk framework and
respective processes.
All functions within UBS are required to periodically assess the design and operating effectiveness of key internal non-
financial risk controls. The output of these reviews supports the assessment and testing scope of internal controls over
financial reporting as required by the Sarbanes–Oxley Act, Section 404 (SOX 404).
Key control deficiencies identified during the internal control and risk assessment processes must be reported in the non-
financial risk inventory, and sustainable remediation must be defined and executed. These control deficiencies are
assigned to owners at senior management level and the remediation progress is reflected in the respective managers’
annual performance measurement and objectives. To assist with prioritizing the most material control deficiencies and
measuring aggregated risk exposure, irrespective of origin, a common rating methodology is applied across all three lines
of defense, as well as by external audit.
Cybersecurity
Cybersecurity for UBS AG is integrated into the UBS Group risk control framework.
Risk management and strategy
Cyber- and information security risk is the risk that a malicious internal or external act, or a failure of IT hardware or
software, or human error may have a material impact on confidentiality, integrity, or availability of UBS’s data or
information systems.
Cybersecurity is a key operational risk facing UBS and we devote considerable resources to establishing and maintaining
processes for assessing, identifying and managing cybersecurity risk through our global workforce and cyber-operations
centers around the world.
›
Refer to “Risk governance” in this section for information about our approach to risk management, including our risk governance
framework
Governance
In line with our overall non-financial risk management framework, we take a cross-functional approach to addressing
cybersecurity risk, with the Group Operations and Technology Office (GOTO), business divisions, Group Compliance,
Regulatory & Governance (GCRG), Group Risk Control, Group Legal, and Group Internal Audit all playing key roles. Our
risk control framework follows the three-lines-of-defense model. GOTO establishes the policies and procedures designed
to safeguard our information systems and the information those systems collect and process. The business divisions,
together with GOTO, are then responsible for implementing those policies and procedures as part of the first line of
defense. Group Compliance, Regulatory & Governance (GCRG) leads the second line of defense, by convening and
consulting with additional control functions to provide independent oversight, and challenges the first line’s cybersecurity
framework and implementation. As the third line of defense, Group Internal Audit conducts independent reviews and
validates the first-line and second-line processes and functions.
The Cyber- and Information Security Committee (the CIS-C) is the primary decision-making body with oversight of and
accountability for the Group-wide cyber- and information security (CIS) program. The committee is jointly chaired by the
Group Chief Operations and Technology Officer and the Group Chief Compliance and Governance Officer. The Head
Group Internal Audit is a standing guest. The committee meets on a monthly basis and serves as a platform for interaction
across all business divisions, Group functions and the three lines of defense for the identification and effective governance
of CIS strategy, risks and regulatory obligations. The CIS-C governance structure is intended to streamline decision-making
and, where necessary, escalation to the Board of Directors (the BoD) and Group Executive Board (GEB), who maintain
overall responsibility for overseeing UBS.
Because Credit Suisse and UBS still have separate digital platforms, Credit Suisse maintained much of its pre-acquisition
cyber- and information security governance during 2023, but was increasingly aligned to the UBS CIS risk governance
framework. Credit Suisse’s CIS program is led by the Credit Suisse Chief Information Security Officer, who reports to the
Credit Suisse Chief Technology Officer and the UBS Group Chief Information Security Officer (the Group CISO). In
addition, the Credit Suisse Chief Technology Officer and Credit Suisse Chief Operations Officer report to the Group Chief
Operations and Technology Officer.
›
Refer to “Cybersecurity governance” in “Board of Directors” in the “Corporate governance” section of this report for more
information
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Risk management and control 91
Our cyber- and information security program
Our CIS program is led by the Group CISO, who reports both to the Group Chief Operations and Technology Officer and
the Group Chief Compliance and Governance Officer. The CIS program is designed to identify, prevent, detect and
respond to CIS events, with the goal of maintaining the integrity and availability of our technology infrastructure and the
confidentiality and integrity of our information. Our Group CISO, senior management within GOTO, as well as
management personnel overseeing the CIS program, all have substantial relevant expertise in the areas of cyber- and
information security. Our CIS program includes the following elements:
–
Threat intelligence:
cyber-threat intelligence team analyzes such information and uses it to enhance existing defense capabilities, to
respond to identified threats and to adjust our cybersecurity strategy where needed.
–
Preventative and detection controls:
include system hardening, firewalls, intrusion prevention and detection systems, and other controls. External network
connections are identified and recorded in an inventory. Access rights are defined for information assets, and IT systems
and applications enforce authentication. We maintain access controls and approval processes designed to prevent
unauthorized access.
–
Cyber-defense and incident response capabilities
: The Cybersecurity Operations Center is responsible for providing
24/7/365 real-time monitoring, detection and response capabilities for cybersecurity threats and attacks. Incidents
assessed as having the potential to adversely affect our critical operations are subject to mandatory management
notification. If assessed as potentially significant, cybersecurity and data incidents are managed under our crisis
management framework.
–
Education and training:
All UBS staff, including the external workforce, receive appropriate CIS awareness training,
commensurate with their roles and responsibilities.
–
Third-party risk:
and our ability to maintain our business services. We follow a risk-based approach to assess and mitigate cybersecurity
risks related to third parties. Third-party services and processes are monitored and checked on an ongoing basis, with
appropriate supervision from the CIS-C. This is a key component of our third-party risk management program,
notwithstanding the challenges we face in imposing the same levels of protection to the systems and data of third
parties that we rely on ourselves.
–
Monitoring and testing:
vulnerability assessments, penetration and testing engagements based on specific threat scenarios that simulate tactics,
techniques and procedures that might be used against our systems, as mandated by our policy regulations. This
includes testing by internal and external red teams. Actual security-related events are directly correlated with threat
scenarios to monitor and detect potential threats, such as network-intrusion and malware-driven events. Our deployed
security measures are designed with the objective to isolate and contain threats that are detected to allow for effective
incident response and analysis.
Our cybersecurity assessment framework
Our cybersecurity assessment framework includes internal and external cybersecurity risk assessments for applications
and bank processes alongside a structured risk assessment process of third-party service providers. These processes are
designed, along with our security capabilities, to support business objectives and priorities.
We conduct assessments to evaluate and test our cybersecurity program, and provide guidance on operating and
improving the CIS program, including the design and operational effectiveness of the security and resiliency of our
information systems. Our assessments, along with our threat intelligence capabilities, are used to assess and prioritize
programs to improve our security, our incident response capabilities and our operational resilience. As the cyber-threat
landscape evolves at an increasing pace, we seek to enhance our cybersecurity controls to meet developing threats. We
have ongoing programs that are intended to increase our cybersecurity maturity across various dimensions, including
governance, identification, protection and detection, as well as cyberattack response and recovery, and risk from third-
party service providers.
We recognize that we will never be able to completely eliminate the risk of a future cyberattack, but, by using a risk-
based approach, we work toward reducing the likelihood of a successful attack and toward mitigation of the potential
business impact of such an attack.
The BoD, its Risk Committee and the GEB receive regular presentations and reports throughout the year from our Group
Chief Operations and Technology Officer and our Group CISO on internal and external cybersecurity developments,
threats and risks. In addition, on a quarterly basis, the BoD receives reports on the performance of cybersecurity risk
appetite metrics, including metrics on vulnerabilities and third-party cybersecurity risks and incidents, and is notified
promptly if a Board-level cybersecurity risk limit is breached. The Risk Committee of the BoD and the GEB also receive
regular updates on CIS strategy, risks and alignment with regulatory requirements.
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Risk management and control 92
Operational resilience and incident response
Our business continuity and resilience framework is designed to limit the disruption cybersecurity events cause to our
business activities. In accordance with the firm’s cyber-incident response framework, the CIS-C, including the incident
response team, tracks, documents, responds to and analyzes cybersecurity threats and incidents, including those
experienced by the firm’s third-party service providers that may impact the firm. Additionally, we maintain established
procedures for responding to, and escalating, cybersecurity and other system availability incidents. These are regularly
practiced, including tabletop exercises up to and including the GEB and BoD levels.
Our cybersecurity and data confidentiality contingency plans include event playbooks and escalation procedures designed
to support a structured assessment of potential incidents and timely escalation and reporting of incidents based on the
assessed potential impact. Incidents assessed to have the potential to adversely affect our critical operations are subject
to mandatory management notification. If assessed as potentially significant, cybersecurity and data incidents are
managed under our crisis management framework, which provides pre-established cross-functional task forces to
manage the incident, ensure appropriate and timely regulatory, market and client communications and robust oversight
by management, with escalation frameworks to inform and ensure oversight by the GEB and the BoD.
›
Refer to “Crisis management framework” in the “Regulation and supervision” section of this report for more information about
our crisis management framework
Advanced measurement approach model
The non-financial risk framework outlined above underpins the calculation of regulatory capital for operational risk, which
enables us to quantify operational risk and define effective risk-mitigating management incentives as part of the related
operational risk capital allocation approach to the business divisions.
We measure Group operational risk exposure and calculate operational risk regulatory capital using the advanced
measurement approach (AMA) in accordance with Swiss Financial Market Supervisory Authority (FINMA) and
international requirements. In 2023, we introduced an aggregation of the AMAs for UBS AG and Credit Suisse AG to
report on total operational -risk-related risk-weighted assets (RWA) for the UBS Group. The related diversification effect,
agreed with FINMA, resulted in a USD 10bn reduction for reported RWA from the second quarter of 2023 onward, of
which USD 4.9bn was recognized for UBS AG.
An entity-specific AMA model has been applied for UBS Switzerland AG, while for other regulated entities the basic
indicators or standardized approaches are adopted for regulatory capital in agreement with local regulators. Also, the
methodology of the UBS AMA is leveraged for entity-specific internal capital adequacy assessment processes.
Currently, the model includes 18 AMA units of measure (UoM), which are aligned with our non-financial risk taxonomy.
Frequency and severity distributions are calibrated for each of the model’s UoM. The modeled distribution functions for
both frequency and severity are used to generate the annual loss distribution. The resulting 99.9% quantile of the overall
annual operational risk loss distribution across all UoM determines the required regulatory capital. Currently, we do not
reflect mitigation through insurance or any other risk transfer mechanism in our AMA model.
AMA model calibration and review
A key assumption when calibrating data-driven frequency and severity distributions is that historical losses form a
reasonable proxy for future events. In line with regulatory expectations, the AMA methodology utilizes both historical
internal losses and external losses suffered by the broader industry for model calibration purposes.
Initial model outputs driven by the loss history are reviewed and adjusted to reflect fast-changing external developments,
such as new regulations, geopolitical change, volatile market and economic conditions, and internal factors (e.g., changes
in busines s strategy and control framework enhancements). The resulting baseline data-driven frequency and severity
distributions are reviewed by subject matter experts and where necessary adjusted based on a review of qualitative
information about the business environment and internal control factors, as well as expert judgment, with the aim of
forecasting losses.
Our model is reviewed regularly to maintain risk sensitivity and recalibrated at least annually. Any changes to regulatory
capital as a result of a recalibration or methodology changes are presented to FINMA for approval prior to use for
disclosure purposes.
The Group- and entity-specific AMA models are subject to an independent validation performed by Model Risk
Management & Control in line with the Group’s model risk management framework.
The AMA is expected to be replaced by the standardized approach for regulatory capital determination purposes in line
with the relevant Basel Committee for Banking Supervision Basel III capital regulations. UBS is interacting closely with the
relevant Swiss authorities to discuss the implementation details and related implementation timeline.
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet 93
Capital, liquidity and funding, and balance sheet
Table of contents
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Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Capital management 94
Capital management
Capital management objectives, planning and activities
Capital management objectives
Audited |
An adequate level of common equity tier 1 (CET1) capital and total loss-absorbing capacity (TLAC) meeting both
internal assessment and regulatory requirements is a prerequisite for conducting our business activities.
p
We are therefore committed to maintaining a strong CET1 capital and TLAC position at all times, in order to meet
regulatory capital requirements and our target capital ratios, and to support the growth of our businesses.
As of 31 December 2023, CET1 capital ratio was 13.2% and CET1 leverage ratio 4.0%, each above the requirements for
Swiss systemically relevant banks (SRBs) and the Basel Committee on Banking Supervision (the BCBS) requirements. We
believe that our capital strength, consistent with our capital guidance, is a source of confidence for our stakeholders,
contributes to our sound credit ratings and is one of the foundations of our success.
›
Refer to “We may be unable to maintain our capital strength” in the “Risk factors” section of this report for more information
about capital ratio-related risks
›
Refer to “Capital and capital ratios of our significant regulated subsidiaries” in this section for more information
›
Refer to “Economic capital measures” in the “Risk management and control” section of this report for more information about
capital-at-risk
Swiss SRB total loss-absorbing capacity framework
The disclosures in this section are provided for UBS AG on a consolidated basis and focus on key developments during
the reporting period and information in accordance with the Basel III framework, as applicable to Swiss SRBs.
Additional regulatory disclosures for UBS AG on a consolidated basis are provided in the 31 December 2023 Pillar 3
Report, available under “Pillar 3 disclosures” at
ubs.com/investors
.
Capital and other regulatory information for UBS Group AG consolidated in accordance with the Basel III framework, as
applicable to Swiss SRBs, is provided in the UBS Group Annual Report 2023, available under “Annual reporting” at
ubs.com/investors
.
Regulatory framework
The Basel III framework came into effect in Switzerland on 1 January 2013 and is embedded in the Swiss Capital
Adequacy Ordinance (the CAO). The CAO also includes the too-big-to-fail provisions applicable to Swiss SRBs .
Under the Swiss SRB framework, going and gone concern requirements represent the UBS AG’s TLAC requirement. TLAC
encompasses regulatory capital, such as CET1, loss-absorbing additional tier 1 (AT1) and tier 2 capital instruments, and
liabilities that can be written down or converted into equity in case of resolution or for the purpose of restructuring
measures.
Capital and other instruments contributing to total loss-absorbing capacity
In addition to CET1 capital, the following instruments contribute to loss-absorbing capacity:
–
loss-absorbing AT1 capital instruments (high- and low-trigger);
–
non-Basel III-compliant tier 2 capital instruments; and
–
TLAC-eligible unsecured debt instruments.
Under the Swiss SRB rules, going concern capital includes CET1 and high-trigger loss-absorbing AT1 capital instruments.
Existing outstanding low-trigger loss-absorbing AT1 capital instruments are available to meet the going concern capital
requirements until their first call date. As of their first call date, these instruments are eligible to meet the gone concern
requirements.
Outstanding high- and low-trigger loss-absorbing tier 2 capital instruments, non-Basel III-compliant tier 2 capital
instruments and TLAC-eligible unsecured debt instruments are eligible to meet gone concern requirements until one year
before maturity. A maximum of 25% of the gone concern requirements can be met with instruments that have a
remaining maturity of between one and two years (i.e., are in the last year of eligibility). However, once at least 75% of
the gone concern requirement has been met with instruments that have a remaining maturity of greater than two years,
all instruments that have a remaining maturity of between one and two years remain eligible to be included in the total
gone concern capital.
›
Refer to “Bondholder information,” available at
ubs.com/investors,
and terms and conditions of capital instruments
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Capital management 95
Total loss-absorbing capacity and leverage ratio requirements
Going concern capital requirements
Under the Swiss SRB requirements, total going concern minimum requirements for all Swiss SRBs are a capital ratio
requirement of 12.86% of RWA and a leverage ratio requirement of 4.5%. In addition to these minimum requirements,
an add-on reflecting the degree of systemic importance is applied, based on market share and LRD. The applicable market
share add-on and LRD requirements for UBS AG were both unchanged at 0.72% of RWA and 0.25% of LRD, resulting
in add-ons of 1.44% of RWA and 0.50% of LRD.
The Swiss countercyclical capital buffer, at a maximum level of 2.5% on risk-weighted positions that are directly or
indirectly backed by residential properties in Switzerland, increased the minimum CET1 capital requirement by 32 basis
points as of 31 December 2023. We also continued to apply countercyclical buffer requirements introduced in other BCBS
member jurisdictions, which resulted in an additional buffer requirement of 13 basis points as of 31 December 2023.
Overall, countercyclical capital buffers contributed 45 basis points to the minimum CET1 capital requirement as of
31 December 2023.
The total going concern capital requirements applicable are 14.75% of RWA (including countercyclical buffer
requirements) and 5.00% of LRD. Furthermore, of the total going concern capital requirement of 14.75% of RWA, at
least 10.45% must be met with CET1 capital, while a maximum of 4.3% can be met with high-trigger loss-absorbing
AT1 capital instruments (and our existing outstanding low-trigger AT1 capital instruments, which qualify until their first
call date as mentioned above).
Similarly, of the total going concern leverage ratio requirement of 5.00%, at least 3.5% must be met with CET1 capital,
while a maximum of 1.5% can be met with high-trigger loss-absorbing AT1 capital instruments (and our existing
outstanding low-trigger AT1 capital instruments, which qualify until their first call date as mentioned above).
Gone concern loss-absorbing capacity requirements
As an internationally active Swiss SRB, UBS AG is also subject to gone concern loss-absorbing capacity requirements. The
gone concern requirements also include add-ons for market share and LRD.
In November 2022, the Swiss Federal Council adopted amendments to the Banking Act and the Banking Ordinance,
which entered into force as of 1 January 2023. The amendments replaced the resolvability discount on the gone concern
capital requirements for systemically important banks (SIBs), including UBS, with reduced base gone concern capital
requirements equivalent to 75% of the total going concern requirements (excluding countercyclical buffer requirements).
In addition, as of July 2024, the Swiss Financial Market Supervisory Authority (FINMA) will have the authority to impose
a surcharge of up to 25% of the total going concern requirements (excluding countercyclical buffer requirements) based
on obstacles to an SIB’s resolvability identified in future resolvability assessments. Our total gone concern requirements
remained substantially unchanged in 2023.
Our gone concern requirements can be reduced when higher quality capital instruments (CET1 capital, low-trigger
loss-absorbing AT1 or certain low-trigger tier 2 capital instruments) are used to meet gone concern requirements. As of
31 December 2023, UBS did not use any higher quality capital instruments to fulfill gone concern requirements.
From 1 January 2022 onward, the gone concern requirement after the potential reduction for the use of higher quality
capital instruments has been floored at 10.0% and 3.75% for the RWA- and LRD-based requirements, respectively.
In this report, we refer to the RWA-based gone concern requirements as gone concern loss-absorbing capacity
requirements and the RWA-based gone concern ratio is referred to as the gone concern loss-absorbing capacity ratio.
The table below provides the RWA- and LRD-based requirements and information as of 31 December 2023.
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Capital management 96
Swiss SRB going and gone concern requirements and information
As of 31.12.23
RWA
LRD
USD m, except where indicated
in %
in %
Required going concern capital
Total going concern capital
1
1
Common equity tier 1 capital
2
of which: minimum capital
of which: buffer capital
of which: countercyclical buffer
Maximum additional tier 1 capital
of which: additional tier 1 capital
of which: additional tier 1 buffer capital
Eligible going concern capital
Total going concern capital
Common equity tier 1 capital
Total loss-absorbing additional tier 1 capital
3
of which: high-trigger loss-absorbing additional tier 1 capital
of which: low-trigger loss-absorbing additional tier 1 capital
3
0.36
1,212
Required gone concern capital
Total gone concern loss-absorbing capacity
4,5,6
of which: base requirement including add-ons for market share and LRD
7
7
Eligible gone concern capital
Total gone concern loss-absorbing capacity
Total tier 2 capital
of which: non-Basel III-compliant tier 2 capital
TLAC-eligible unsecured debt
Total loss-absorbing capacity
Required total loss-absorbing capacity
Eligible total loss-absorbing capacity
Risk-weighted assets / leverage ratio denominator
Risk-weighted assets
Leverage ratio denominator
1 Includes applicable add-ons of 1.44% for risk-weighted assets (RWA) and 0.50% for leverage ratio denominator (LRD). 2 Our minimum CET1 leverage ratio requirement of 3.5% consists of a 1.5% base
requirement, a 1.5% base buffer capital requirement, a 0.25% LRD add-on requirement and a 0.25% market share add-on requirement based on our Swiss credit business. 3 Existing outstanding low-trigger
additional tier 1 capital instruments qualify as going concern capital at the UBS AG consolidated level, as agreed with the Swiss Financial Market Supervisory Authority (FINMA), until their first call date. As of their
first call date, these instruments are eligible to meet the gone concern requirements. 4 A maximum of 25% of the gone concern requirements can be met with instruments that have a remaining maturity of between
one and two years. Once at least 75% of the minimum gone concern requirement has been met with instruments that have a remaining maturity of greater than two years, all instruments that have a remaining
maturity of between one and two years remain eligible to be included in the total gone concern capital. 5 From 1 January 2023, the resolvability discount on the gone concern capital requirements for systemically
important banks (SIBs) has been replaced with reduced base gone concern capital requirements equivalent to 75% of the total going concern requirements (excluding countercyclical buffer requirements). 6 As of
July 2024, FINMA will have the authority to impose a surcharge of up to 25% of the total going concern capital requirements should obstacles to an SIB’s resolvability be identified in future resolvability assessments.
7 Includes applicable add-ons of 1.08% for RWA and 0.38% for LRD.
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Capital management 97
Total loss-absorbing capacity
Swiss SRB going and gone concern information
USD m, except where indicated
31.12.23
31.12.22
Eligible going concern capital
Total going concern capital
Total tier 1 capital
Common equity tier 1 capital
Total loss-absorbing additional tier 1 capital
of which: high-trigger loss-absorbing additional tier 1 capital
of which: low-trigger loss-absorbing additional tier 1 capital
Eligible gone concern capital
Total gone concern loss-absorbing capacity
Total tier 2 capital
of which: low-trigger loss-absorbing tier 2 capital
of which: non-Basel III-compliant tier 2 capital
TLAC-eligible unsecured debt
Total loss-absorbing capacity
Total loss-absorbing capacity
Risk-weighted assets / leverage ratio denominator
Risk-weighted assets
Leverage ratio denominator
Capital and loss-absorbing capacity ratios (%)
Going concern capital ratio
of which: common equity tier 1 capital ratio
Gone concern loss-absorbing capacity ratio
Total loss-absorbing capacity ratio
Leverage ratios (%)
Going concern leverage ratio
of which: common equity tier 1 leverage ratio
Gone concern leverage ratio
Total loss-absorbing capacity leverage ratio
Audited |
Reconciliation of equity under IFRS Accounting Standards to Swiss SRB common equity tier 1 capital
USD m
31.12.23
31.12.22
Total equity under IFRS Accounting Standards
Equity attributable to non-controlling interests
(335 )
(342 )
Defined benefit plans, net of tax
(336 )
(311 )
Deferred tax assets recognized for tax loss carry-forwards
(3,004 )
(4,077 )
Deferred tax assets for unused tax credits
(97 )
Deferred tax assets on temporary differences, excess over threshold
(1,233 )
(262 )
Goodwill, net of tax
1
(5,750 )
(5,754 )
Intangible assets, net of tax
(146 )
(150 )
Expected losses on advanced internal ratings-based portfolio less provisions
(532 )
(471 )
Unrealized (gains) / losses from cash flow hedges, net of tax
Own credit related to (gains) / losses on financial liabilities measured at fair value that existed at the balance sheet date, net of tax
(523 )
Own credit related to (gains) / losses on derivative financial instruments that existed at the balance sheet date
(63 )
(105 )
Prudential valuation adjustments
(177 )
(201 )
Accruals for dividends to shareholders
(3,000 )
(6,000 )
Other
(39 )
(51 )
Total common equity tier 1 capital
1 Includes goodwill related to significant investments in financial institutions of USD
m as of 31 December 2023 (31 December 2022: USD
m) presented on the balance sheet line Investments in associates.
p
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Capital management 98
Total loss-absorbing capacity and movement
Total loss-absorbing capacity increased by USD 9.3bn to USD 111.1bn as of 31 December 2023.
Going concern capital and movement
Audited |
CET1 capital mainly consists of: share capital; share premium, which primarily consists of additional paid-in capital
related to shares issued; and retained earnings. A detailed reconciliation of equity under IFRS Accounting Standards to CET1
capital is provided in the “Reconciliation of equity under IFRS Accounting Standards to Swiss SRB common equity tier 1
capital” table.
CET1 capital increased by USD
bn to USD
bn as of 31 December 2023, mainly as a result of operating profit
before tax of USD
bn, with associated current tax expenses of USD
bn, positive foreign currency translation effects
of USD
bn and a net increase of USD
bn in eligible deferred tax assets on temporary differences, partly offset by
dividend accruals of USD
bn.
Loss-absorbing AT1 capital issued by the Group and on-lent to UBS AG increased by USD
bn to USD
bn, mainly
driven by two issuances of AT1 capital instruments denominated in US dollars of USD
bn and positive impacts from
interest risk hedge, foreign currency translation and other effects. These increases were partly offset by a USD
bn AT1
capital instrument that ceased to be eligible as going concern capital when UBS Group AG issued a notice of redemption
of the instrument. In addition, high-trigger loss-absorbing AT1 capital instruments of USD
bn equivalent previously on
lent from the Group to UBS AG were transferred to Credit Suisse AG.
p
AT1 capital instruments issued from the beginning of the fourth quarter of 2023 are currently subject to write-down
upon occurrence of a trigger event or a viability event. The notes provide, however, that, following approval of a minimum
amount of conversion capital by UBS Group AG‘s shareholders at the 2024 Annual General Meeting, upon the occurrence
of a trigger event or a viability event, the notes will be converted into UBS Group AG ordinary shares rather than being
subject to a write-down. The corresponding on-lends to UBS AG contain the same provision.
Gone concern loss-absorbing capacity and movement
Audited |
Total gone concern loss-absorbing capacity increased by USD
bn to USD
bn as of 31 December 2023 and
included USD
bn of TLAC-eligible unsecured debt issued by the Group and on-lent to UBS AG.
p
The increase of USD 7.5bn mainly reflect ed new issuances of USD 13.4bn equivalent of TLAC-eligible unsecured debt
instruments, as well as positive impacts from interest risk hedge, foreign currency translation and other effects. These
increases were partly offset by the redemption of USD 4.0bn equivalent of TLAC-eligible unsecured debt instruments,
amortization of a USD 0.8bn unsecured debt instrument that ceased to be TLAC-eligible as its residual time to maturity
fell below one year, and a partial repurchase of two TLAC-eligible unsecured debt instruments under a tender offer (in
light of the acquisition of the Credit Suisse Group, UBS announced on 22 March 2023 a tender offer to repurchase two
TLAC-eligible unsecured debt instruments, both issued on 17 March 2023, with an initial nominal amount totaling
EUR 2.8bn, at their respective re-offer prices; the nominal amounts of the two instruments bought back under the tender
offer totaled an equivalent of USD 0.8bn). In addition, a USD 2.4bn low-trigger loss-absorbing tier 2 capital instrument
ceased to be eligible as gone concern capital as it had less than one year to maturity.
Loss-absorbing capacity and leverage ratios
Our CET1 capital ratio decreased to 13.2% from 13.5%, reflecting a USD 16.2bn increase in RWA , partly offset by a
USD 1.2bn increase in CET1 capital.
Our CET1 leverage ratio decreased to 4.0% from 4.2%, due to a USD 74.8bn increase in the LRD, partly offset by the
aforementioned increase in CET1 capital.
Our gone concern loss-absorbing capacity ratio increased to 16.3% from 14.8%, due to an increase in gone concern
loss-absorbing capacity of USD 7.5bn, partly offset by the aforementioned increase in RWA.
Our gone concern leverage ratio increased to 4.9% from 4.6%, driven by the aforementioned increase in gone concern
loss-absorbing capacity, partly offset by the increase in the LRD.
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Capital management 99
Swiss SRB total loss-absorbing capacity movement
USD m
Going concern capital
Swiss SRB
Common equity tier 1 capital as of 31.12.22
Operating profit before tax
Current tax (expense) / benefit
Foreign currency translation effects, before tax
Eligible deferred tax assets on temporary differences
Accruals for proposed dividends to shareholders
Other
Common equity tier 1 capital as of 31.12.23
Loss-absorbing additional tier 1 capital as of 31.12.22
Issuance of high-trigger loss-absorbing additional tier 1 capital
Call of high-trigger loss-absorbing additional tier 1 capital
High-trigger loss-absorbing additional tier 1 capital transferred to Credit Suisse AG
Interest rate risk hedge, foreign currency translation and other effects
Loss-absorbing additional tier 1 capital as of 31.12.23
Total going concern capital as of 31.12.22
Total going concern capital as of 31.12.23
Gone concern loss-absorbing capacity
Tier 2 capital as of 31.12.22
Debt no longer eligible as gone concern loss-absorbing capacity due to residual tenor falling to below one year
Interest rate risk hedge, foreign currency translation and other effects
Tier 2 capital as of 31.12.23
TLAC-eligible unsecured debt as of 31.12.22
Issuance of TLAC-eligible unsecured debt
Call of TLAC-eligible unsecured debt
Debt no longer eligible as gone concern loss-absorbing capacity due to residual tenor falling to below one year
Debt bought back under the tender offer
Interest rate risk hedge, foreign currency translation and other effects
TLAC-eligible unsecured debt as of 31.12.23
Total gone concern loss-absorbing capacity as of 31.12.22
Total gone concern loss-absorbing capacity as of 31.12.23
Total loss-absorbing capacity
Total loss-absorbing capacity as of 31.12.22
Total loss-absorbing capacity as of 31.12.23
Additional information
Active management of sensitivity to foreign exchange movements
Group Treasury is mandated to minimize adverse effects from changes in foreign currency rates on our CET1 capital
and / or CET1 capital ratio of UBS AG consolidated. A significant portion of our CET1 capital and RWA is denominated
in Swiss francs, euro, pounds sterling and other currencies. In order to hedge the CET1 capital ratio, CET1 capital needs
to have foreign currency exposure, leading to foreign currency rates sensitivity of CET1 capital.
Consequently, it is not possible to simultaneously fully hedge CET1 capital and the CET1 capital ratio. As the proportion
of RWA denominated in currencies other than the US dollar outweighs CET1 capital in such currencies, a significant
appreciation of the US dollar against such currencies could benefit our capital ratios, while a significant depreciation of
the US dollar against these currencies could adversely affect our capital ratios.
The UBS AG Asset and Liability Committee has mandated Group Treasury to adjust the currency mix of CET1 capital of
UBS AG consolidated, within limits set by the Board of Directors, to balance the effect of foreign exchange movements
on CET1 capital and the CET1 capital ratio. Limits are in place for the sensitivity of both CET1 capital and the CET1 capital
ratio to an appreciation or depreciation of 10% in the value of the US dollar against other currencies.
Sensitivity to currency movements
Risk-weighted assets
We estimate that a 10% depreciation of the US dollar against other currencies would have increased our RWA by USD
15bn and our CET1 capital by USD 1.5bn as of 31 December 2023 (31 December 2022: USD 13bn and USD 1.4bn,
respectively) and decreased our CET1 capital ratio by 12 basis points (31 December 2022: 12 basis points).
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Capital management 100
Conversely, a 10% appreciation of the US dollar against other currencies would have decreased our RWA by USD 13bn
and our CET1 capital by USD 1.4bn (31 December 2022: USD 12bn and USD 1.2bn, respectively) and increased our
CET1 capital ratio by 12 basis points (31 December 2022: 12 basis points).
Leverage ratio denominator
Our leverage ratio is also sensitive to foreign exchange movements as a result of the currency mix of our capital and LRD.
When adjusting the currency mix in capital, potential effects on the going concern leverage ratio are taken into account
and the sensitivity of the going concern leverage ratio to an appreciation or depreciation of 10% in the value of the US
dollar against other currencies is actively monitored.
We estimate that a 10% depreciation of the US dollar against other currencies would have increased our LRD by
USD 69bn as of 31 December 2023 (31 December 2022: USD 62bn) and decreased our CET1 leverage ratio by 10 basis
points (31 December 2022: 11 basis points). Conversely, a 10% appreciation of the US dollar against other currencies
would have decreased our LRD by USD 62bn (31 December 2022: USD 57bn) and increased our CET1 leverage ratio by
11 basis points (31 December 2022: 12 basis points).
The aforementioned sensitivities do not consider foreign currency translation effects related to defined benefit plans other
than those related to the currency translation of the net equity of foreign operations.
Estimated effect on capital from litigation, regulatory and similar matters subject to provisions and contingent liabilities
We have estimated the loss in capital that we could incur as a result of the risks associated with the matters described in
“Note 17 Provisions and contingent liabilities” in the “Consolidated financial statements” section of this report. We have
employed for this purpose the advanced measurement approach (AMA) methodology that we use when determining
the capital requirements associated with operational risks, based on a 99.9% confidence level over a 12-month horizon.
The methodology takes into consideration UBS and industry experience for the AMA operational risk categories to which
those matters correspond, as well as the external environment affecting risks of these types, in isolation from other areas.
On this basis, we estimate the maximum loss in capital that we could incur over a 12-month period as a result of our
risks associated with these operational risk categories at USD 4.0bn as of 31 December 2023. This estimate is not related
to and does not take into account any provisions recognized for any of these matters and does not constitute a subjective
assessment of our actual exposure in any of these matters.
›
Refer to “Non-financial risk” in the “Risk management and control” section of this report for more information
›
Refer to “Note 17 Provisions and contingent liabilities” in the “Consolidated financial statements” section of this report for more
information
Capital and capital ratios of our significant regulated subsidiaries
UBS AG has contributed a significant portion of capital to, and provided substantial liquidity to its subsidiaries. Many of
these subsidiaries are subject to regulations requiring compliance with minimum capital, liquidity and similar
requirements. Regulatory capital components and capital ratios of our significant regulated subsidiaries determined under
the regulatory framework of each subsidiary’s home jurisdiction are provided in the “Financial and regulatory key figures
for our significant regulated subsidiaries and sub-groups” section of the UBS Group Annual Report 2023, available under
“Annual reporting” at
ubs.com/investors
. Supervisory authorities generally have discretion to impose higher
requirements, or to otherwise limit the activities of subsidiaries. Supervisory authorities also may require entities to
measure capital and leverage ratios on a stressed basis and may limit the ability of the entity to engage in new activities
or take capital actions based on the results of those tests.
›
Refer to the 31 December 2023 Pillar 3 Report, available under “Pillar 3 disclosures” at
ubs.com/investors
,
for more capital and
other regulatory information about our significant regulated subsidiaries and sub-groups
Joint liability of UBS AG and UBS Switzerland AG
In June 2015, upon the transfer of the Personal & Corporate Banking and Global Wealth Management businesses booked
in Switzerland from UBS AG to UBS Switzerland AG, UBS AG and UBS Switzerland AG assumed joint liability for
obligations transferred to UBS Switzerland AG and existing at UBS AG, respectively. Under certain circumstances, the
Swiss Banking Act and FINMA’s Banking Insolvency Ordinance authorize FINMA to modify, extinguish or convert to
common equity liabilities of a bank in connection with a reso lution or insolvency of such bank.
The joint liability amounts have declined as obligations matured, terminated or were novated following the transfer date.
As of 31 December 2023, the liability of UBS Switzerland AG amounted to CHF 2.8bn (USD 3.3bn), a decrease of
CHF 1.2bn (USD 1.0bn) compared with 31 December 2022. The respective liability of UBS AG has been substantially
extinguished.
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Capital management 101
Risk-weighted assets
RWA development in 2023
During 2023, RWA increased by USD 16.2bn to USD 334.0bn, primarily driven by increases of USD 12.7bn due to asset
size and other movements and USD 8.0bn due to currency effects, partly offset by a decrease of USD 4.6bn due to model
updates and methodology changes.
›
Refer to the 31 December 2023 Pillar 3 Report, available under “Pillar 3 disclosures” at
ubs.com/investors
, for more information
about RWA movements and definitions of RWA movement key drivers on a UBS Group AG consolidated basis
Movement in risk-weighted assets by key driver
USD bn
RWA as of
31.12.22
Currency
effects
Model updates
and
methodology
changes
Asset size and
other
1
RWA as of
31.12.23
Credit and counterparty credit risk
2
Non-counterparty-related risk
3
Market risk
Operational risk
Total
1 Includes the Pillar 3 categories “Asset size,” “Credit quality of counterparties,” “Acquisitions and disposals” and “Other.” For more information, refer to the 31 December 2023 Pillar 3 Report, available under
“Pillar 3 disclosures” at ubs.com/investors. 2 Includes settlement risk, credit valuation adjustments, equity exposures in the banking book, investments in funds and securitization exposures in the banking book.
3 Non-counterparty-related risk includes deferred tax assets recognized for temporary differences, property, equipment, software and other items.
Credit and counterparty credit risk
Credit and counterparty credit risk RWA increased by USD 19.8bn to USD 220.1bn as of 31 December 2023. This increase
was mainly driven by asset size and other movements of USD 11.7bn, currency effects of USD 7.6bn and model updates
and methodology changes of USD 0.4bn.
Asset size and other movements increased RWA by USD 11.7bn, mainly driven by funding provided by Group Treasury
to Credit Suisse and higher loans in Personal and Corporate Banking.
Model updates and methodology changes resulted in an RWA increase of USD 0.4bn, mainly driven by increases related
to updates in private equity and hedge fund financing trades models, as well as securities financing transaction models,
partly offset by decreases related to the recalibration of certain multipliers as a result of our improvements to models.
›
Refer to “Credit risk” in the “Risk management and control” section of this report for more information about credit and
counterparty credit risk developments
›
Refer to the 31 December 2023 Pillar 3 Report, available under “Pillar 3 disclosures” at
ubs.com/investors,
about credit and counterparty credit risk developments on a UBS Group AG consolidated basis
Market risk
Market risk RWA increased by USD 1.2bn to USD 14.7bn as of 31 December 2023, driven by an increase of USD 1.3bn
from asset size and other movements in Global Markets in the Investment Bank, partly offset by a decrease of USD 0.1bn
related to ongoing parameter updates of the value-at-risk (VaR) model. FINMA approved the integration of time decay
into regulatory VaR and stressed VaR, which went live on 12 January 2024.
›
Refer to “Market risk” in the “Risk management and control” section of this report for more information about market risk
developments
›
Refer to the 31 December 2023 Pillar 3 Report, available under “Pillar 3 disclosures” at
ubs.com/investors,
about market risk developments on a UBS Group AG consolidated basis
Operational risk
Operational risk RWA decreased by USD 4.9bn to USD 76.5bn as of 31 December 2023. In the second quarter of 2023,
we reflected diversification effects at the level of UBS Group AG consolidated, which were partly allocated to UBS AG
consolidated in the third quarter of 2023.
›
Refer to “Advanced measurement approach model” in the “Risk management and control” section of this report for more
information about the AMA model
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Capital management 102
Risk-weighted assets, by business division and Group Items
USD bn
Global Wealth
Management
Personal &
Corporate
Banking
Asset
Manage-
ment
Investment
Bank
Non-core and
Legacy
1
Group
Items
1
Total
RWA
31.12.23
Credit and counterparty credit risk
2
Non-counterparty-related risk
3
Market risk
Operational risk
Total
31.12.22
Credit and counterparty credit risk
2
Non-counterparty-related risk
3
Market risk
Operational risk
Total
31.12.23 vs 31.12.22
Credit and counterparty credit risk
2
Non-counterparty-related risk
3
Market risk
Operational risk
Total
1 Starting with the third quarter of 2023, Non-core and Legacy represents a separate reportable segment and Group Functions has been renamed Group Items. Prior periods have been revised to reflect these changes.
2 Includes settlement risk, credit valuatio n adjustments, equity exposures in the banking book, investments in funds and securitization exposures in the banking book. 3 Non-counterparty-related risk includes
deferred tax assets recognized for temporary differences (31 December 2023: USD 11.3bn; 31 December 2022: USD 10.8bn), as well as property, equipment, software and other items (31 December 2023: USD 11.4bn;
31 December 2022: USD 11.8bn).
Leverage ratio denominator
During 2023, the LRD increased by USD 74.8bn to USD 1,104.4bn, primarily driven by increases from asset size and other
movements of USD 37.5bn and currency effects of USD 37.3bn.
Movement in leverage ratio denominator by key driver
USD bn
LRD as of
31.12.22
Currency
effects
Asset size and
other
LRD as of
31.12.23
On-balance sheet exposures (excluding derivatives and securities financing transactions)
1
Derivatives
Securities financing transactions
Off-balance sheet items
Deduction items
Total
1 The exposures exclude derivative financial instruments, cash collateral receivables on derivative instruments, receivables from securities financing transactions, and margin loans, as well as prime brokerage receivables
and financial assets at fair value not held for trading, both related to securities financing transactions. These exposures are presented separately under Derivatives and Securities financing transactions in this table.
The LRD movements described below exclude currency effects.
On-balance sheet exposures (excluding derivatives and securities financing transactions) increased by USD 26.8bn, mainly
driven by higher trading portfolio assets due to a client-driven increase in hedging activities and market-driven movements
in the Investment Bank and higher lending balances, partly offset by lower cash and central bank balances.
Derivative exposures increased by USD 2.8bn, primarily in the Investment Bank, reflecting higher trading volumes across
products and lower netting, partly offset by market-driven movements in foreign-currency and interest-rate contracts.
Securities financing transactions increased by USD 6.6bn, mainly due to higher collateral sourcing activities, partly offset
by roll-offs of excess cash reinvestment in Group Treasury.
Off-balance sheet items increased by USD 1.4bn, mainly driven by higher loan commitment across various projects in the
Investment Bank.
›
Refer to “Balance sheet and off-balance sheet” in this section for more information about balance sheet movements
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Capital management 103
Leverage ratio denominator by business division and Group Items
USD bn
Global Wealth
Management
Personal &
Corporate
Banking
Asset
Management
Investment
Bank
Non-core and
Legacy
1
Group Items
1
Total
31.12.23
On-balance sheet exposures
Derivatives
Securities financing transactions
Off-balance sheet items
Items deducted from Swiss SRB tier 1 capital
Total
31.12.22
On-balance sheet exposures
Derivatives
Securities financing transactions
Off-balance sheet items
Items deducted from Swiss SRB tier 1 capital
Total
31.12.23 vs 31.12.22
On-balance sheet exposures
Derivatives
Securities financing transactions
Off-balance sheet items
Items deducted from Swiss SRB tier 1 capital
Total
1 Starting with the third quarter of 2023, Non-core and Legacy represents a separate reportable segment and Group Functions has been renamed Group Items. Prior periods have been revised to reflect these changes.
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Liquidity and funding management 104
Liquidity and funding management
We manage the structural risks of our balance sheet, including interest rate risk, structural foreign exchange risk and
collateral risk, as well as liquidity and funding risk. This section provides information about liquidity and funding regulatory
requirements, governance, management (including sources of liquidity and funding), contingency planning, and stress
testing. The balances disclosed in this section represent year-end positions, unless indicated otherwise. Intra-period
balances fluctuate in the ordinary course of business and may differ from year-end positions.
Following the acquisition of the Credit Suisse Group and the corresponding additional disclosure requirements according
to FINMA Circular 2016/1 “Disclosure – banks”, we disclose the liquidity coverage ratio (the LCR) and the net stable
funding ratio (the NSFR) for UBS AG consolidated for the first time in this section.
Strategy, objectives and governance
Audited |
prudently managing our internal and regulatory liquidity and funding requirements. We measure liquidity and funding
risk using internal and regulatory models and metrics. We define and implement internal stress testing across different
time horizons, scenarios and currencies to ensure we have sufficient liquidity and funding, while remaining compliant
with regulatory requirements, primarily expressed through the LCR and the NSFR. Our liquidity and funding strategy is
proposed by Group Treasury and approved by the Asset and Liability Committee (ALCO) of UBS AG, which is a committee
of the Group Executive Board (the GEB) that is overseen by the Risk Committee of the Board of Directors (the BoD).
Liquidity and funding limits and other indicators (including early-warning indicators) are set at UBS AG (consolidated)
and, where appropriate, at legal entity and business division levels. Key limits (under the authority of the BoD) and
indicators linked to these limits are reviewed and reconfirmed at least once a year by the BoD of UBS AG, the
Executive Board of UBS AG, the ALCO of UBS AG and the Group Treasurer, taking into consideration the Group’s
business strategy and risk appetite. Treasury Risk Control provides independent oversight over liquidity and funding
risk.
p
›
Refer to the “Corporate governance” and “Risk management and control” sections of this report for more information
Group Treasury monitors and oversees the implementation and execution of our liquidity and funding strategy and
manages liquidity and funding risk within the limits and other relevant indicators, thereby adhering to the internal risk
appetite and regulatory requirements. This includes close control of both our cash and collateral, including our high-
quality liquid assets (HQLA), and centralizes the Group’s access to wholesale cash markets in Group Treasury. To
complement our business-as-usual management, Group Treasury maintains a Contingency Funding Plan and contributes
to plans for recovery and resolution to define procedures throughout the crisis continuum. Group Treasury reports on the
liquidity and funding status and position, at least monthly, to the ALCO of UBS AG and the Risk Committee of the BoD.
Liquidity and funding stress testing
Audited |
survive a severe idiosyncratic and market-wide liquidity and funding stress event without government support, allowing
for discrete management actions.
Group Treasury maintains a diversified, high-quality pool of unencumbered liquid assets under Treasury control. The liquid
asset portfolio is managed dynamically, so as to operate at all times within the internal risk appetite and other relevant
Group and subsidiary liquidity and funding requirements.
p
Our liquidity and funding stress testing covers two main stress scenarios: a combined (market and idiosyncratic) scenario
and a structural market-wide scenario. We continuously refine stress-testing assumptions.
›
Refer to “Risk measurement” in the “Risk management and control” section of this report for more information about stress
testing
Combined (market and idiosyncratic) scenario
In this scenario, UBS faces the consequences of both a severely deteriorated macroeconomic and financial market
environment and a UBS-specific event, resulting in an acute loss of liquidity over a relatively short period of time. This
scenario represents severe yet plausible events encompassing both market-wide and idiosyncratic elements, in which,
however, franchise client relationships are materially maintained.
The risk appetite objective of this stress test is to ensure that UBS keeps a cumulative liquidity surplus on each day in the
three-month stress horizon. The liquidity gap is assessed by modeling the stressed liquidity value of the liquidity buffer
and stressed liquidity inflows and outflows under the scenario.
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Liquidity and funding management 105
Structural market-wide scenario
In this scenario, UBS is subject to a significant deterioration of macroeconomic and financial market conditions globally,
resulting in a requirement for long-term funding to survive the liquidity drain and support the franchise of the business.
Macroeconomic shocks result in deteriorated financial market conditions over the scenario horizon of one year. UBS is
assumed to be affected equally relative to other global financial institutions.
The risk appetite objective of this stress test is to ensure that UBS maintains a positive cumulative behavioral liquidity gap
across the 3-month, 6-month, 9-month and 12-month tenors. The liquidity gap is assessed by modeling the stressed
liquidity value of the liquidity buffer, and stressed liquidity inflows and outflows under the scenario.
Funding management
Audited |
well-balanced and diversified liability structure. Our funding management team looks to create the optimal liability
structure to finance our businesses in a reliable and cost-efficient manner. Our funding activities are planned by analyzing
the overall liquidity and funding requirements, taking into account the amount of stable funding that would be needed
to support ongoing business activities through periods of difficult market conditions.
p
The funding strategy of UBS AG is set annually in the Funding Plan and is reviewed on an ongoing basis. The Funding
Plan is developed by Group Treasury and approved by the ALCO of UBS AG.
›
Refer to “Balance sheet and off-balance sheet” in this section for more information about the development of our short- and
long-term debt during 2023
Global Wealth Management and Personal & Corporate Banking provide significant, cost-efficient and stable sources of
funding. These include deposits and debt issued through the Swiss central mortgage institutions, which use a portion of
our portfolio of Swi ss residential mortgages as collateral to generate long-term funding. In addition, we have several
short-, medium- and long-term funding programs under which we issue senior unsecured debt and structured notes, as
well as short-term debt. These programs enable UBS to source funding from institutional and private investors who are
active in Europe, the US and Asia Pacific. Collectively, these broad product offerings and funding sources, together with
the global scope of our business activities, support our funding stability.
Internal funding and funds transfer pricing
We use our global liquidity and funding framework to govern the liquidity management of our branches and subsidiaries.
Group Treasury meets internal demands for funding by channeling funds from entities generating surplus cash to those
in need of financing, except in circumstances where transfer restrictions exist.
Funding costs and benefits are allocated to our business divisions according to our liquidity and funding risk management
framework. Our internal funds transfer pricing system aims to incentivize that we have the right balance of assets and
liabilities in currencies and tenors.
Credit ratings
Credit ratings can affect the cost and availability of funding, especially from wholesale unsecured sources. Our credit
ratings can also influence the performance of some of our businesses and the levels of client and counterparty confidence.
Rating agencies take into account a range of factors when assessing creditworthiness and setting credit ratings. These
include the company’s strategy, its business position and franchise value, stability and quality of earnings, capital
adequacy, risk profile and management, liquidity management, diversification of funding sources, asset quality, and
corporate governance. Credit ratings reflect the opinions of the rating agencies and can change at any time.
In evaluating our liquidity and funding requirements, we consider the potential effect of a reduction in our long-term
credit ratings and a corresponding reduction in short-term ratings. If our credit ratings were to be downgraded, rating
trigger clauses could result in an immediate cash settlement or the need to deliver additional collateral to counterparties
from contractual obligations related to over-the-counter (OTC) derivative positions and other obligations. Based on our
credit ratings as of 31 December 2023, in the event of a one-notch reduction in our long-term credit ratings of UBS AG
and UBS Europe SE, we would have been required to provide USD 0.0bn in cash or other collateral. In the event of a two-
notch reduction, it would have been USD 0.3bn and for a three-notch downgrade USD 0.6bn. In the two- and three-
notch scenarios the collateral requirements predominantly relate to OTC derivative positions.
In March 2023, following the announcement of planned acquisition of the Credit Suisse Group, rating agencies took
following actions regarding UBS AG’s ratings: Fitch Ratings Ireland Limited (Fitch) placed its “AA–” Long-Term Issuer
Default Rating (IDR) on Rating Watch Negative and Moody’s Investors Service Limited (Moody’s) changed the outlook on
its Baseline Credit Assessment and Long-term Senior Debt ratings to Negative. Upon the close of UBS’s acquisition of the
Credit Suisse Group in June 2023, Fitch downgraded the Long-Term IDR of UBS AG to “A+” from “AA–” and changed
the outlook to Stable, while Moody‘s maintained all the ratings. S&P Global Ratings Europe Limited (S&P) affirmed UBS
AG’s Long-term and Short-term issuer credit rating and outlook in March 2023 and, more recently, in February 2024.
›
Refer to “Liquidity and funding management are critical to our ongoing performance” in the “Risk factors” section of this report
for more information
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Liquidity and funding management 106
Contingency Funding Plan
Audited |
sufficient liquidity to meet payment obligations in a liquidity and funding stress. The plan specifies the processes, tools
and responsibilities that we have available to effectively manage liquidity and funding through these periods. Our funding
diversification and global scope help to protect our liquidity position in the event of a crisis. Our contingent funding
sources include our HQLA portfolios, available Central Bank eligible non-HQLA collateral for liquidity facilities at several
major central banks, contingent reductions of trading portfolio assets, and other actions available to the management.
p
Liquidity coverage ratio
The LCR measures the short-term resilience of a bank’s liquidity profile by assessing whether sufficient HQLA are available
to meet expected net cash outflows from a significant liquidity stress scenario, as defined by the relevant regulator.
For UBS AG, HQLA are low-risk unencumbered assets under the control of Group Treasury that are easily and immediately
convertible into cash at little or no loss of value, in order to meet liquidity needs. Our HQLA predominantly consist of
assets that qualify as Level 1 in the LCR framework, including cash, central bank reserves and government bonds. HQLA
are held by UBS AG and its subsidiaries and may include amounts that are available to meet funding and collateral needs
in certain jurisdictions but are not readily available for use by UBS AG consolidated as a whole. These limitations are
typically the result of local regulatory requirements, including local LCR and large exposure requirements. Funds that are
effectively restricted in subsidiaries and branches are excluded from the calculation of UBS AG consolidated HQLA. On
this basis, USD 33.5bn of assets were excluded from our daily average UBS AG consolidated HQLA for the fourth quarter
of 2023. Amounts held in excess of local liquidity requirements that are not subject to other restrictions are generally
available for transfer within UBS AG consolidated.
Basel Committee on Banking Supervision (BCBS) standards require an LCR of at least 100%. In a period of financial stress,
the Swiss Financial Market Supervisory Authority (FINMA) may allow banks to use their HQLA and let their LCR temporarily
fall below the minimum threshold. We monitor the LCR in all significant currencies in order to manage any currency
mismatches between HQLA and the net expected cash outflows in times of stress.
The daily average LCR of UBS AG consolidated for the fourth quarter of 2023 was 189.7%
›
Refer to the 31 December 2023 Pillar 3 Report, available under “Pillar 3 disclosures” at
ubs.com/investors,
for more information
about the LCR on a UBS Group AG consolidated basis
Liquidity coverage ratio
USD bn, except where indicated
Average 4Q23
1
High-quality liquid assets
254.5
Total net cash outflows
2
134.3
Liquidity coverage ratio (%)
3
189.7
1 Calculated based on an average of 63 data points in the fourth quarter of 2023. 2 Represents the net cash outflows expected over a stress period of 30 calendar days. 3 Calculated after the application of
haircuts and inflow and outflow rates, as well as, where applicable, caps on Level 2 assets and cash inflows.
Too-big-to-fail liquidity requirements
The too-big-to-fail (TBTF) liquidity requirements communicated by FINMA in the third quarter of 2023 became effective
on 1 January 2024. The affected legal entities of UBS AG consolidated are compliant with these requirements.
Net stable funding ratio
The NSFR framework is intended to limit overreliance on short-term wholesale funding, to encourage a better assessment
of funding risk across all on- and off-balance sheet items and to promote funding stability. The NSFR has two
components: available stable funding (ASF), as numerator, and required stable funding (RSF), as denominator. ASF is the
portion of capital and liabilities expected to be available over the period of one year. RSF is a measure of the stable
funding requirement of assets based on their maturity, encumbrance and other characteristics, as well as the potential
for contingent calls on funding liquidity from off-balance sheet exposures. The BCBS NSFR regulatory framework requires
a ratio of at least 100%.
As of 31 December 2023, the NSFR of UBS AG consolidated was 119.6%.
›
Refer to the 31 December 2023 Pillar 3 Report, available under “Pillar 3 disclosures” at
ubs.com/investors,
for more information
about the NSFR on a UBS Group AG consolidated basis
Net stable funding ratio
USD bn, except where indicated
31.12.23
Available stable funding (ASF)
602.6
Required stable funding (RSF)
503.8
Net stable funding ratio (%)
119.6
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Balance sheet and off-balance sheet 107
Balance sheet and off-balance sheet
Balance sheet
The balances disclosed in this section represent year-end positions, unless indicated otherwise. Intra-period balances
fluctuate in the ordinary course of business and may differ from year -end positions. Refer to the “Consolidated financial
statements” section of this report for more information about the development of UBS AG’s financial position.
Balance sheet assets
As of 31 December 2023, balance sheet assets totaled USD 1,156.0bn, an increase of USD 50.6bn compared with
31 December 2022.
Lending assets increased by USD 29.1bn, mainly driven by currency effects of approximately USD 21.0bn. The movement
not related to currency effects was mainly driven by funding provided by Group Treasury to Credit Suisse, as well as
increases in Personal & Corporate Banking, primarily reflecting higher mortgage loans and real estate financing, partly
offset by decreases in Lombard loans in Global Wealth Management . Trading portfolio assets increased by USD 27.1bn,
mainly in Financing and Derivatives & Solutions in the Investment Bank, reflecting higher inventory held to hedge client
positions and market-driven movements. Securities financing transactions at amortized cost increased by USD 6.3bn,
mainly reflecting higher net cash reinvestment trades in Group Treasury.
These increases were partly offset by a USD 21.1bn decrease in Derivatives and cash collateral receivables on derivative
instruments. The decrease was mainly in Derivatives & Solutions and Financing, predominantly reflecting decreases in
foreign exchange contracts, where the contracts in place at the end of 2023 had lower fair values than the contracts in
place at the end of 2022, as well as decreases in interest rate contracts, mainly resulting from valuation effects due to
decreases in long-term interest rates. These decreases were partly offset by market-driven increases in equity contracts
reflecting a rise in equity markets.
Assets
As of
% change from
USD bn
31.12.23
31.12.22
31.12.22
Cash and balances at central banks
Lending
1
Securities financing transactions at amortized cost
Trading assets
Derivatives and cash collateral receivables on derivative instruments
Brokerage receivables
Other financial assets measured at amortized cost
Other financial assets measured at fair value
2
Non-financial assets
Total assets
1 Consists of Loans and advances to customers and Amounts due from banks. 2 Consists of Financial assets at fair value not held for trading and Financial assets measured at fair value through other comprehensive
income.
Asset encumbrance
The table below provides a breakdown of on- and off-balance sheet assets between encumbered assets, unencumbered
assets and assets that cannot be pledged as collateral.
Assets are presented as Encumbered if they have been pledged as collateral against an existing liability or are otherwise
not available for securing additional funding. Included within the latter category are assets protected under client asset
segregation rules, financial assets for unit-linked investment contracts, and assets held in certain jurisdictions to comply
with explicit minimum local asset maintenance requirements .
Assets that cannot be pledged as collateral represent assets that are not encumbered but by their nature are not
considered available to secure funding or meet collateral needs.
All other assets are presented as Unencumbered. This category consists of cash and securities readily realizable in the
normal course of business, which include high-quality liquid assets and unencumbered positions in the trading portfolio
of UBS AG. In addition, unencumbered assets include loans and advances to customers and amounts due from banks.
Unencumbered assets that are considered to be available to secure funding at the legal entity level may be subject to
restrictions that limit the total amount of assets available to UBS AG as a whole.
›
Refer to “Note 22 Restricted and transferred financial assets” in the “Consolidated financial statements” section of this report for
more information
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Balance sheet and off-balance sheet 108
Asset encumbrance as of 31 December 2023
USD bn
Encumbered
Unencumbered
assets
Assets that
cannot be
pledged as
collateral
Total UBS AG
Assets pledged
as collateral
Assets otherwise
restricted and
not available to
secure funding
Balance sheet
Cash and balances at central banks
0.7
0.2
170.8
171.8
Amounts due from banks
2.5
2
0.1
28.2
Receivables from securities financing transactions measured at amortized cost
74.1
74.1
Cash collateral receivables on derivative instruments
4.7
27.6
32.3
Loans and advances to customers
28.1
0.0
377.5
405.6
Other financial assets measured at amortized cost
1
3.3
36.7
7.3
54.3
Total financial assets measured at amortized cost
35.9
10.8
610.6
109.1
766.4
Financial assets at fair value held for trading
1
0.2
58.4
135.1
Derivative financial instruments
131.7
131.7
Brokerage receivables
20.9
20.9
Financial assets at fair value not held for trading
1
17.8
37.3
5.5
63.8
Total financial assets measured at fair value through profit or loss
79.7
18.0
95.6
158.2
351.5
Financial assets measured at fair value through other comprehensive income
1.8
0.4
2.2
Non-financial assets
0.0
16.5
19.5
35.9
Total balance sheet assets as of 31 December 2023
115.5
30.7
723.0
286.7
1,156.0
Total balance sheet assets as of 31 December 2022
77.6
26.9
698.9
302.0
1,105.4
Off-balance sheet
Fair value of securities accepted as collateral as of 31 December 2023
357.0
5.3
127.1
489.5
Fair value of securities accepted as collateral as of 31
December 2022
331.8
5.6
96.6
434.0
Total balance sheet assets and off-balance sheet securities accepted as collateral as of
31 December 2023
472.6
36.0
850.2
286.7
1,645.5
of which: high-quality liquid assets
261.7
Total balance sheet assets and off-balance sheet securities accepted as collateral as of
31 December 2022
409.4
32.6
795.5
302.0
1,539.5
of which: high-quality liquid assets
239.8
1 Includes assets pledged as collateral that may be sold or repledged by counterparties. The respective amounts are disclosed in “Note 22 Restricted and transferred financial assets” in the “Consolidated financial
statements” section of this report. 2 Mainly includes funding provided by Group Treasury to Credit Suisse.
Balance sheet liabilities
Total liabilities as of 31 December 2023 were USD 1,100.4bn, an increase of USD 51.9bn compared with 31 December
2022.
Customer deposits increased by USD 28.5bn, driven by currency effects of approximately USD 21.3bn and non-foreign-
exchange-related increases of USD 7.2bn, mainly in Personal & Corporate Banking and Global Wealth Management as a
result of net inflows into fixed-term deposit products, partly offset by lower demand and sweep deposits driven by
continued shifts into money market funds and US-government securities. As of 31 December 2023, the ratio of customer
deposits to outstanding loans and advances to customers was at 137% (31 December 2022: 135%).
Debt issued designated at fair value and long-term debt issued measured at amortized cost increased by USD 17.1bn.
Debt issued designated at fair value increased by USD 14.5bn, reflecting net new issuances and market-driven increases
due to the rise in equity markets. Long-term debt issued measured at amortized cost increased by USD 2.7bn, mainly
driven by net new issuances of covered bonds and debt issued through the Swiss central mortgage institutions.
Subordinated debt remained stable during 2023, with one low-trigger loss-absorbing tier 2 capital instrument of
USD 2.4bn being no longer eligible as a capital instrument as the residual maturity was less than one year. Funding from
UBS Group AG measured at amortized cost increased by USD 11.2bn, mainly reflecting higher on-lends eligible as TLAC.
›
Refer to the “Capital management” section of this report for more information
Short-term borrowings increased by USD 12.7bn, mainly due to net new issuances of commercial paper and certificates
of deposit in Group Treasury , as well as an increase in funding obtained from US Federal Home Loan Banks.
These increases were partly offset by a USD 15.7bn decrease in Derivatives and cash collateral payables on derivative
instruments. The decrease was mainly in Derivatives & Solutions and Financing, reflecting the same drivers as on the asset
side.
Equity
Equity attributable to shareholders decreased by USD 1,364m to USD 55,234m as of 31 December 2023.
This decrease was mainly driven by the 2022 dividend distribution of USD 6,000m to UBS Group AG, partly offset by
total comprehensive income attributable to shareholders of USD 4,598m , reflecting net profit of USD 3,290m and other
comprehensive income (OCI) of USD 1,308m. OCI mainly included cash flow hedge OCI of USD 1,400m, OCI related to
foreign currency translation of USD 849m, negative OCI related to own credit on financial liabilities designated at fair
value of USD 790m and negative defined benefit plan OCI of USD 136m.
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Balance sheet and off-balance sheet 109
In the second quarter of 2023, the share capital currency of UBS AG was changed from the Swiss franc to the US dollar,
as approved by the shareholders at the 2023 Annual General Meeting. As a result, the nominal value per share was
changed from CHF 0.10 to USD 0.10, resulting in a reclassification between share capital and capital contribution reserve
(presented as share premium in the consolidated financial statements). Total equity reported was not affected by this
change.
›
Refer to the “UBS AG consolidated performance” and “Consolidated financial statements” sections of this report for more
information about OCI
›
Refer to the “Reconciliation of equity under IFRS Accounting Standards to Swiss SRB common equity tier 1 capital” table in this
section for more information about the effects of OCI on common equity tier 1 capital
Liabilities and equity
As of
% change from
USD bn
31.12.23
31.12.22
31.12.22
Short-term borrowings
1
Securities financing transactions at amortized cost
Customer deposits
Funding from UBS Group AG measured at amortized cost
Debt issued designated at fair value and long-term debt issued measured at amortized cost
2
Trading liabilities
Derivatives and cash collateral payables on derivative instruments
Brokerage payables
Other financial liabilities measured at amortized cost
Other financial liabilities designated at fair value
Non-financial liabilities
Total liabilities
Share capital
Share premium
Retained earnings
Other comprehensive income
3
Total equity attributable to shareholders
Equity attributable to non-controlling interests
Total equity
Total liabilities and equity
1 Consists of short-term debt issued measured at amortized cost and amounts due to banks. 2 The classification of debt issued measured at amortized cost into short-term and long-term is based on original
contractual maturity and therefore long-term debt also includes debt with a remaining time to maturity of less than one year. This classification does not consider any early redemption features. 3 Excludes other
comprehensive income related to defined benefit plans and own credit, which is recorded directly in Retained earnings.
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Balance sheet and off-balance sheet 110
Liabilities by product and currency
USD equivalent
All currencies
of which: USD
of which: CHF
of which: EUR
USD bn
31.12.23
31.12.22
31.12.23
31.12.22
31.12.23
31.12.22
31.12.23
31.12.22
Short-term borrowings
54.0
41.3
35.6
23.3
4.3
3.8
5.9
4.4
of which: amounts due to banks
16.7
11.6
8.1
4.2
3.9
3.7
0.7
1.1
of which: short-term debt issued
1,2
37.3
29.7
27.6
19.0
0.3
0.1
5.2
3.3
Securities financing transactions at amortized cost
5.8
4.2
5.1
3.6
0.0
0.0
0.3
0.2
Customer deposits
555.7
527.2
236.4
228.0
216.0
199.2
51.5
53.6
of which: demand deposits
146.2
182.3
36.8
48.0
61.5
71.9
24.7
37.4
of which: retail savings / deposits
152.7
149.3
28.9
24.6
119.2
119.0
4.5
5.6
of which: sweep deposits
41.0
69.2
41.0
69.2
0.0
0.0
0.0
0.0
of which: time deposits
215.8
126.3
129.6
86.1
35.4
8.3
22.3
10.6
Funding from UBS Group AG measured at amortized cost
67.3
56.1
44.6
34.7
2.0
2.7
18.9
15.7
Debt issued designated at fair value and long-term debt issued
measured at amortized cost
2
118.8
101.7
75.2
63.0
18.8
14.6
14.4
13.7
Trading liabilities
31.7
29.5
12.0
12.1
1.0
0.8
8.9
8.1
Derivatives and cash collateral payables on derivative instruments
175.6
191.3
146.7
160.4
4.1
3.8
15.2
15.8
Brokerage payables
42.3
45.1
31.4
32.3
0.7
0.4
2.4
3.2
Other financial liabilities measured at amortized cost
12.7
10.4
7.6
5.7
1.9
1.6
1.0
0.9
Other financial liabilities designated at fair value
27.4
32.0
5.7
12.8
0.1
0.1
4.1
4.1
Non-financial liabilities
9.2
9.7
2.4
2.8
2.0
1.1
2.5
2.9
Total liabilities
1,100.4
1,048.5
602.7
578.6
251.0
228.1
125.0
122.7
1 Short-term debt issued consists of certificates of deposit, commercial paper, acceptances and promissory notes, and other money market paper. 2 The classification of debt issued measured at amortized cost into
short-term and long-term is based on original contractual maturity and therefore long-term debt also includes debt with a remaining time to maturity of less than one year. This classification does not consider any
early redemption features.
Off-balance sheet
In the normal course of business, UBS AG enters into transactions where, pursuant to IFRS Accounting Standards , the
maximum contractual exposure may not be recognized in whole or in part on its balance sheet. These transactions include
derivative instruments, guarantees, loan commitments and similar arrangements.
When UBS AG incurs an obligation or becomes entitled to an asset through these arrangements, it recognizes them on
the balance sheet. It should be noted that in certain instances the amount recognized on the balance sheet does not
represent the full gain or loss potential inherent in such arrangements.
The following paragraphs provide more information about certain off-balance sheet arrangements. Additional off-
balance sheet information is primarily provided in Notes 9, 10, 17, 19, 20h, 22 and 28 in the “Consolidated financial
statements” section of this report
.
Guarantees, loan commitments and similar arrangements
In the normal course of business, UBS AG issues various forms of guarantees, commitments to extend credit, standby
and other letters of credit to support clients, forward starting transactions, note issuance facilities, and revolving
underwriting facilities. With the exception of related premiums, generally these guarantees and similar obligations are
kept as off-balance sheet items, unless a provision to cover probable losses or expected credit losses is required.
Guarantees represent irrevocable assurances that, subject to the satisfying of certain conditions, UBS AG will make
payments if its clients fail to fulfill their obligations to third parties. As of 31 December 2023, the net exposure (i.e., gross
values less sub-participations) from guarantees and similar instruments was USD 31.5bn, compared with USD 20.6bn as
of 31 December 2022. The increase of USD 10.9bn, was mainly driven by sponsored repo clearing in Group Treasury. Fee
income from issuing guarantees compared with total net fee and commission income is insignificant for both 2023 and
2022.
UBS AG also enters into commitments to extend credit in the form of credit lines available to secure the liquidity needs
of clients. The majority of irrevocable loan commitments range in maturity from one month to three years. During 2023,
irrevocable loan commitments increased by USD 4.0bn, mainly in the Investment Bank, and committed unconditionally
revocable credit lines increased by USD 3.7bn, mainly driven by increases in facilities provided to clients in Personal &
Corporate Banking, as well as currency effects. Forward starting reverse repurchase agreements increased by USD 6.6bn,
in Group Treasury, reflecting fluctuations in levels of business division activity in short-dated securities financing
transactions.
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Balance sheet and off-balance sheet 111
Off-balance sheet
As of
% change from
USD bn
31.12.23
31.12.22
31.12.22
Guarantees
1,2
31.5
20.6
53
Irrevocable loan commitments
1
44.0
40.0
10
Committed unconditionally revocable credit lines
47.4
43.7
9
Forward starting reverse repurchase agreements
10.4
3.8
173
1 Guarantees and irrevocable loan commitments are shown net of sub-participations. 2 Includes guarantees measured at fair value through profit or loss.
If customers fail to meet their obligations, the maximum exposure to credit risk of UBS AG is generally the contractual
amount of these instruments. The risk is similar to the risk involved in extending loan facilities and is subject to the same
risk management and control framework. In 2023, UBS AG recognized net credit loss releases of USD 13m related to
irrevocable loan commitments , guarantees and other credit facilities in the scope of expected credit loss measurement,
compared with net credit loss releases of USD 3m in 2022. Provisions recognized for irrevocable loan commitments,
guarantees and other credit facilities in the scope of expected credit loss measurement were USD 188m as of
31 December 2023, compared with USD 201m as of 31 December 2022.
›
Refer to “Note 9 Financial assets at amortized cost and other positions in scope of expected credit loss measurement” and “Note 19
Expected credit loss measurement” in the “Consolidated financial statements” section of this report for more information about
provisions for expected credit losses
For certain obligations, UBS AG enters into partial sub-participations to mitigate various risks from guarantees and
irrevocable loan commitments. A sub-participation is an agreement by another party to take a share of the loss in the
event that the obligation is not fulfilled by the obligor and, where applicable, to fund a part of the credit facility. UBS AG
retains the contractual relationship with the obligor, and the sub-participant has only an indirect relationship. Generally,
UBS AG only enters into sub-participation agreements with banks to which it ascribes a credit rating equal to or better
than that of the obligor.
UBS AG also provides representations, warranties and indemnifications to third parties in the normal course of business.
Support provided to non-consolidated investment funds
In 2023, UBS AG did not provide material support, financial or otherwise, to unconsolidated investment funds when it
was not contractually obligated to do so, nor does it currently have an intention to do so.
Clearing house and exchange memberships
UBS AG is a member of numerous securities and derivative exchanges and clearing houses. In connection with some of
these memberships, UBS AG may be required to pay a share of the financial obligations of another member who defaults,
or UBS AG may be otherwise exposed to additional financial obligations. While the membership rules vary, obligations
generally would arise only if the exchange or clearing house had exhausted its resources. UBS AG considers the probability
of a material loss due to such obligations to be remote.
Deposit insurance
Swiss banking law and the deposit insurance system require Swiss banks and securities dealers to jointly guarantee an
amount of up to CHF 8bn for privileged client deposits in the event that a Swiss bank or securities dealer becomes
insolvent. As of 31 December 2023, FINMA estimates UBS AG’s share in the deposit insurance system to be CHF 1.2bn.
This represents a contingent payment obligation and exposes UBS AG to additional risk. As of 31 December 2023,
UBS AG considered the probability of a material loss from its obligations to be remote.
UBS AG is also subject to, or is a member of, other deposit protection schemes in other countries. However, no contingent
payment obligation existed as of 31 December 2023 from any other material scheme.
Material cash requirements
The material cash requirements of UBS AG as of 31 December 2023 are represented by the residual contractual maturities
for non-derivative and non-trading financial liabilities included in the table presented in “Note 23b Maturity analysis of
financial liabilities on an undiscounted basis” in the “Consolidated financial statements” section of this report. Included
in the table are debt issued designated at fair value (USD 93.0bn), debt issued measured at amortized cost (USD 73.6bn)
and funding from UBS Group AG measured at amortized cost (USD 86.1bn). The amounts represent estimated future
interest and principal payments on an undiscounted basis.
In the normal course of business, UBS AG also issues or enters into various forms of guarantees, irrevocable loan
commitments and other similar arrangements that may result in an outflow of cash in the future. The maturity profile of
these obligations, which are presented off-balance sheet, are included in “Note 23b Maturity analysis of financial
liabilities on an undiscounted basis” in the “Consolidated financial statements” section of this report.
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Balance sheet and off-balance sheet 112
Cash flows
As a global financial institution, our cash flows are complex and often may bear little relation to our net earnings and net
assets. Consequently, we believe that a traditional cash flow analysis is less meaningful when evaluating our liquidity
position than the liquidity, funding and capital management frameworks and measures described elsewhere in this
section.
›
Refer to the “Liquidity and funding management” section of this report for more information
Cash and cash equivalents
As of 31 December 2023, cash and cash equivalents totaled USD 190.5bn, a decrease of USD 4.7bn compared with
31 December 2022, driven by net cash outflows from operating and investing activities. These outflows were largely
offset by net cash inflows from financing activities, as well as positive foreign exchange effects, mainly reflecting the
depreciation of the US dollar against the Swiss franc in 2023.
Operating activities
Net cash outflows from operating activities were USD 28.2bn in 2023, compared with inflows of USD 10.6bn in 2022,
reflecting changes in operating assets and liabilities of USD 28.1bn and other adjustments to remove the net impact of
non-cash items, such as foreign currency effects. The net change in operating assets and liabilities includes funding of
USD 15bn provided to Credit Suisse (included within amounts due from banks), as well as a USD 16.0bn movement in
financial assets and liabilities at fair value held for trading and derivative financial instruments, USD 6.1bn from brokerage
receivables and payables, and USD 5.0bn from receivables from securities financing transactions measured at amortized
cost. These effects were partly offset by a USD 6.5bn increase in customer deposits and a USD 3.7bn decrease in loans
and advances to customers.
Investing activities
Investing activities resulted in a net cash outflow of USD 4.9bn in 2023, compared with USD 12.3bn in 2022, primarily
related to cash outflows of USD 3.8bn from net purchases of debt securities measured at amortized cost.
Financing activities
Financing activities resulted in a net cash inflow of USD 19.7bn in 2023, compared with an outflow of USD 5.3bn in 2022,
mainly due to net issuance proceeds of USD 19.0bn from debt designated at fair value and long-term debt measured at
amortized cost, as well as net issuances of short-term debt of USD 7.2bn. These inflows were partly offset by a dividend
distribution to shareholders of USD 6.0bn.
›
Refer to “Primary financial statements and share information” in the “Consolidated financial statements” section of this report for
more information about cash flows
Statement of cash flows (condensed)
For the year ended
USD bn
31.12.23
31.12.22
Net cash flow from / (used in) operating activities
(28.2)
10.6
Net cash flow from / (used in) investing activities
(4.9)
(12.3)
Net cash flow from / (used in) financing activities
19.7
(5.3)
Effects of exchange rate differences on cash and cash equivalents
8.7
(5.6)
Net increase / (decrease) in cash and cash equivalents
(4.7)
(12.6)
Cash and cash equivalents at the end of the year
190.5
195.2
Annual Report 2023 |
Risk, capital, liquidity and funding, and balance sheet | Currency management 113
Currency management
Strategy, objectives and governance
Group Treasury focuses on three main areas of currency risk management: (i) currency-matched funding and investment
of non-US-dollar assets and liabilities; (ii) the sell-down of foreign currency IFRS Accounting Standards profits and losses;
and (iii) selective hedging of anticipated non-US-dollar profits and losses to further mitigate the effect of structural
imbalances in the balance sheet. Group Treasury also manages structural currency composition across three scopes: UBS
Group AG consolidated, UBS AG consolidated, and Credit Suisse AG consolidated.
Currency-matched funding and investment of non-US-dollar assets and liabilities
For monetary balance sheet items and other investments, as far as is practical and efficient, UBS AG follows the principle
of matching the currencies of its assets and liabilities for funding purposes. This avoids profits and losses arising from the
translation of non-US-dollar assets and liabilities.
Net investment hedge accounting is applied to non-US-dollar core investments to balance the effect of foreign exchange
movements on both common equity tier 1 (CET1) capital and the CET1 capital ratio.
›
Refer to “Note 1 Summary of material accounting policies” and “Note 25 Hedge accounting” in the “Consolidated financial
statements” section of this report for more information
›
Refer to “Capital management” in this section for more information about UBS AG’s active management of sensitivity to currency
movements and the effect thereof on the key ratios
Sell-down of non-US-dollar reported profits and losses
Income statement items of foreign subsidiaries and branches of UBS AG with a functional currency other than the US
dollar are translated into US dollars at average exchange rates. To reduce earnings volatility on the translation of
previously recognized earnings in foreign currencies, Group Treasury centralizes the profits and losses (under IFRS
Accounting Standards) arising in UBS AG and its branches and sells or buys the profit or loss for US dollars on a monthly
basis. The foreign subsidiaries of UBS AG follow a similar monthly sell-down process into their own functional currencies.
Retained earnings in subsidiaries and branches with a functional currency other than the US dollar are integrated and
managed as part of UBS AG’s net investment hedge accounting program.
Annual Report 2023 |
Corporate governance 114
Corporate governance
Management report
Audited information according to the Swiss law and applicable regulatory
requirements and guidance
Disclosures provided are in line with the requirements of the Swiss Code of Obligations (tables containing such
information are marked as “Audited” throughout this section), as well as other applicable regulations and guidance.
Table of contents
115
115
115
116
117
119
120
121
123
Annual Report 2023 |
Corporate governance 115
Corporate governance
UBS AG is incorporated and domiciled in Switzerland and operates under Art. 620 et seq. of the Swiss Code of Obligations
and Swiss banking law as an
Aktiengesellschaft
, a corporation limited by shares. The addresses and telephone numbers
of the two registered offices of UBS AG are: Bahnhofstrasse 45, CH-8001 Zurich, Switzerland, telephone +41-44-234 11
11; and Aeschenvorstadt 1, CH-4051 Basel, Switzerland, telephone +41-61-288 50 50. The corporate identification
number is CHE-101.329.561.
The company was incorporated with unlimited duration on 29 June 1998, when Union Bank of Switzerland (founded in
1862) and Swiss Bank Corporation (founded in 1872) merged to form UBS AG. UBS AG is a regulated bank in Switzerland
and is 100% owned by UBS Group AG, the ultimate parent of the UBS Group. UBS AG’s purpose, in accordance with
art. 2 of its Articles of Association, as amended on 4 April 2023, is the operation bank and its scope extends to a full
range of financial services activities in Switzerland and abroad.
As a non-US company with securities listed on the New York Stock Exchange (the NYSE), UBS AG complies with the
relevant corporate governance standards applicable to foreign private issuers listing debt securities. In addition, it also
follows the standards established in the Swiss Code of Best Practice for Corporate Governance. The Organization
Regulations of UBS AG, adopted by the Board of Directors of UBS AG (the BoD) based on Art. 716b of the Swiss Code
of Obligations and Art. 25 and 27 of the Articles of Association of UBS AG (the AoA), constitute UBS AG’s primary
corporate governance guidelines.
Operational structure
Operational structure
As of 31 December 2023, the operational structure of the UBS AG is composed of the Global Wealth Management,
Personal & Corporate Banking, Asset Management, the Investment Bank, and Non-core and Legacy business divisions,
as well as Group functions.
›
Refer to the “Our businesses” section of this report for more information about our business divisions and Group functions
Share capital structure
Ordinary share capital
In April 2023, the Annual General Meeting (the AGM) approved the conversion of the share capital currency of UBS AG
from the Swiss franc to the US dollar. To obtain a Swiss franc nominal value per share equaling USD 0.10 after the
conversion, the AGM also approved a CHF 28,860,895.32568 ordinary reduction of the share capital, and this reduction
resulted in a corresponding allocation to the capital contribution reserve on UBS AG’s standalone financial statements.
At year-end 2023, UBS AG had 3,858,408,466 issued shares, with a nominal value of USD 0.10 each, equating to a share
capital of USD 385,840,846.60.
Under Swiss company law, shareholders must approve, in a general meeting of shareholders, any increase or reduction
in the ordinary share capital, the creation of conditional share capital or the introduction of a capital band.
Conditional share capital
At year-end 2023, the following conditional share capital was available to the BoD.
–
A maximum of USD 38,000,000, represented by up to 380,000,000 fully paid registered shares with a nominal value
of USD 0.10 each, to be issued through the voluntary or mandatory exercise of conversion rights and / or warrants
granted in connection with the issuance of bonds or similar financial instruments on national or international capital
markets. This conditional capital allowance was approved at the Extraordinary General Meeting (the EGM) held on
26 November 2014, having originally been approved at the AGM of UBS AG on 14 April 2010. The BoD has not made
use of such allowance.
›
Refer to article 4a of the AoA for more information about the terms and conditions of the issue of shares out of existing
conditional capital – the AoA are available at
Annual Report 2023 |
Corporate governance 116
Capital band, conversion capital and reserve capital
As of 31 December 2023, UBS AG has not introduced a capital band, any conversion capital or any reserve capital.
Shares
UBS AG has a single class of shares, which are registered shares in the form of uncertificated securities (in the sense of
the Swiss Code of Obligations) and intermediary -held securities (in the sense of the Swiss Federal Act on Intermediated
Securities). Each registered share has a nominal value of USD 0.10 and carries one vote . UBS AG imposes no limitation
on the rights to own its securities.
Dividend distributions
The decision to pay a dividend and the amount of any dividend depend on a variety of factors, including our profits, cash
flow generation and capital ratios.
At the 2024 AGM, the BoD is proposing to the shareholder for approval a dividend of USD 3,000m for the 2023 financial
year.
As of 31 December 2023, UBS AG had 3,858,408,466 issued shares with a nominal value of USD 0.10 each, equating
to a share capital of USD 385,840,846.60. All shares carry voting rights, were fully paid in and eligible for dividends.
There are no preferential rights associated with these shares, and no other classes of shares have been issued by UBS AG.
Shareholders’ participation rights
Voting rights
The sole direct shareholder of UBS AG is UBS Group AG, which holds 100% of UBS AG shares. These shares are entitled
to voting rights without restriction.
Statutory quorums
Motions are decided at a general meeting by a majority of the votes represented, excluding blank and invalid ballots. For
the approval of certain specific issues, the Swiss Code of Obligations requires a positive vote from a two-thirds majority
of the votes represented at the given general meeting and from a majority of the nominal value of shares represented
thereat. Such issues include creating shares with privileged voting rights, introducing restrictions on the transferability of
registered shares, creating contingent capital or introducing a capital band, conversion capital or reserve capital and
restricting or excluding shareholders’ preemptive rights.
The AoA also require a two-thirds majority of votes represented for approval of any change to their provisions regarding
the number of BoD members, any decision to remove one-quarter or more of the BoD members and any modification to
the provision establishing this qualified quorum.
Convocation of general meetings of shareholders
The AGM must be held within six months of the close of the financial year (i.e., 31 December). In 2024, the AGM will
take place on 23 April.
EGMs may be convened whenever the BoD or the auditors consider it necessary. Shareholders individually or jointly
representing at least 10% of the share capital may at any time, including during an AGM, require, by way of a written
statement, that an EGM be convened to address a specific issue they put forward.
Annual Report 2023 |
Corporate governance 117
Board of Directors
The BoD, led by the Chairman, consists of at least 5 and no more than 12 members, as per our AoA.
The BoD, led by the Chairman, decides on the strategy of UBS AG upon recommendation by the President of its Executive
Board (the EB) and exercises the ultimate supervision of management. Its ultimate responsibility for the success of UBS AG
is exercised subject to the parameters set by the Group.
Members of the Board of Directors
Board of Directors
Position
Initial
election
Step
down
UBS business address
Colm Kelleher
Chairman of the BoD
2022
Bahnhofstrasse 45, 8001 Zurich, Switzerland
Lukas Gähwiler
Vice Chairman
Member of the Risk Committee
2022
Bahnhofstrasse 45, 8001 Zurich, Switzerland
Jeremy Anderson
Chairperson of Audit Committee
2018
Bahnhofstrasse 45, 8001 Zurich, Switzerland
Claudia Böckstiegel
Member of the BoD
2021
Bahnhofstrasse 45, 8001 Zurich, Switzerland
William C. Dudley
Member of the Risk Committee
2019
Bahnhofstrasse 45, 8001 Zurich, Switzerland
Patrick Firmenich
Member of the Audit Committee
2021
Bahnhofstrasse 45, 8001 Zurich, Switzerland
Fred Hu
Member of the BoD
2018
Bahnhofstrasse 45, 8001 Zurich, Switzerland
Mark Hughes
Chairperson of the Risk Committee
2020
Bahnhofstrasse 45, 8001 Zurich, Switzerland
Nathalie Rachou
Member of the Risk Committee
2020
Bahnhofstrasse 45, 8001 Zurich, Switzerland
Julie G. Richardson
Chairperson of the Compensation
Committee / Member of the Risk Committee
2017
Bahnhofstrasse 45, 8001 Zurich, Switzerland
Dieter Wemmer
Member of the Audit Committee /
member of the Compensation Committee
2016
23.04.2024
Bahnhofstrasse 45, 8001 Zurich, Switzerland
Jeanette Wong
Member of the Audit Committee /
member of the Compensation Committee
2019
Bahnhofstrasse 45, 8001 Zurich, Switzerland
Gail Kelly
Candidate to the UBS AG Board
Proposed
for election
at the 2024
AGM
Bahnhofstrasse 45, 8001 Zurich, Switzerland
›
Refer to the UBS Group Annual Report 2023, available under “Annual reporting” at
ubs.com/investors
, for the biographies of the
members of the BoD
No current BoD member has either an employment contract or a significant business connection to UBS or any of its
subsidiaries. No member of the BoD currently carries out operational management tasks within the Group. All members
of the BoD are therefore non-executive members. Except for Lukas Gähwiler, no member of the BoD has carried out over
the past three years operational management tasks within the Group. All members of the BoD are also members of UBS
Group AG’s Board of Directors, and committee membership is the same for both entities.
In 2023, the BoD had three permanent committees: the Audit Committee, the Compensation Committee and the Risk
Committee.
Elections and terms of office
UBS AG’s sole shareholder, UBS Group AG, annually elects each member of the BoD individually.
Organizational principles and structure
Following each AGM, the BoD meets to appoint one or more Vice Chairmen, the BoD committee members and the
respective committee Chairpersons. At the same meeting, the BoD appoints the Company Secretary, who, pursuant to
the Organization Regulations, acts as secretary to the BoD and its committees.
Pursuant to the AoA and the Organization Regulations, the BoD meets as often as business requires, but it must meet at
least six times a year.
BoD committees
The committees listed below assist the BoD in fulfilling the performance of its responsibilities. Each committee meets as
often as its business requires, but at least four times a year for the Audit Committee, the Compensation Committee and
the Risk Committee.
Annual Report 2023 |
Corporate governance 118
Audit Committee
Throughout 2023, the Audit Committee consisted of the same four independent BoD members, Jeremy Anderson
(Chairperson), Patrick Firmenich, Dieter Wemmer and Jeanette Wong. All Audit Committee members have accounting
or related financial management expertise and, in compliance with the rules established pursuant to the 2002 US
Sarbanes–Oxley Act, at least one member qualifies as a financial expert. The NYSE standards on corporate governance
and Rule 10A-3 under the US Securities Exchange Act set more stringent independence requirements for members of
audit committees than for the other members of the BoD. Throughout 2023, all members of the Audit Committee
satisfied these requirements, in that they did not receive, directly or indirectly, any consulting, advisory or compensatory
fees from any member of the Group other than in their capacity as a BoD member, did not hold, directly or indirectly,
UBS AG shares in excess of 5% of the outstanding capital, and did not serve on the audit committees of more than two
other public companies. The function of the Audit Committee is to support the Board in fulfilling its oversight duty
relating to financial reporting and internal controls over financial reporting, the effectiveness of the external and internal
audit functions, as well as the whistleblowing procedures. Management is responsible for the preparation, presentation
and integrity of the financial statements, while the external auditors are responsible for auditing financial statements.
The Audit Committee’s responsibility is one of oversight and review.
Compensation Committee
Throughout 2023, the Compensation Committee consisted of the same three independent BoD members, Julie G.
Richardson (Chairperson), Dieter Wemmer and Jeanette Wong. The function of the Compensation Committee is to
support the Board in its duties to set guidelines on compensation and benefits, to oversee implementation thereof, to
approve certain compensation and to scrutinize executive performance.
Risk Committee
In 2023, the Risk Committee consisted of four independent BoD members, Mark Hughes (Chairperson), William C.
Dudley, Nathalie Rachou and Julie G. Richardson. After the AGM, the Vice Chairman, Lukas Gähwiler, joined the
committee. The function of the Risk Committee is to oversee and support the Board in fulfilling its duty to set and
supervise an appropriate risk management and control framework in the areas of:
(i) financial and non-financial risks; and
(ii) balance sheet, treasury and capital management, including funding, liquidity and equity attribution.
Cybersecurity governance
Cybersecurity as one of the inherently highest and most rapidly evolving non-financial risks is a key focus for the BoD. It
is primarily covered by the Risk Committee through a combination of (i) regular reporting as part of the monthly risk
reports and quarterly technology risk updates, and (ii) dedicated deep-dives on specific cybersecurity topics, including
summaries and assessments of actual cybersecurity incidents in the industry, assessments of the firm’s security posture
and related continuous improvement measures. In addition, the BoD members receive periodic updates from the Group
Chief Information Security Office on key cybersecurity threats and incidents across the globe and industries, and the Risk
Committee regularly organizes education and training sessions, including cyber exercises, for all BoD members.
With respect to the BoD, Jeremy Anderson, Fred Hu, Mark Hughes and Julie G. Richardson all have expertise in technology
and cybersecurity. Mr. Anderson is an IT expert, having started out as a software developer in the early 1980s, before
working in IT consulting and developing a broad knowledge of systems integration and IT outsourcing services, as well
as software development. He cemented his reputation as a tech specialist by becoming a founding sponsor of KPMG’s
Global Fintech Network in 2014. Mr. Hu has a Master’s degree in engineering science from Tsinghua University and has
vast experience advising and investing in leading firms in the technology sector in China and globally. Mr. Hughes gained
substantial experience overseeing cybersecurity risk as the Group Chief Risk Officer at Royal Bank of Canada. Finally, Ms.
Richardson has spent significant time with both incumbent and new technology companies, including being a board
member of a digital knowledge management company, a leading cloud monitoring firm and a cyber insurance company.
The BoD is supported in overseeing risk at the executive management level by the cybersecurity expertise of Mike Dargan,
who is the Group Chief Operations and Technology Officer, and Markus Ronner, who is the Group Chief Compliance and
Governance Officer. Mr. Dargan is responsible for delivering digital platforms, technology services, infrastructure, and
operations, including cybersecurity and information security. Previously, he was Group Chief Digital and Information
Officer, after leading our Group Technology function since joining UBS in 2016. In addition to this remit, he was also UBS
Group AG’s Group Executive Board (GEB) sponsor for our digital assets strategy and a sponsor of artificial intelligence
and our agile transformation, which were integrated into his area of responsibility in 2023. Prior to joining UBS, he held
various senior roles in technology, corporate strategy and investment banking at Standard Chartered Bank, Merrill Lynch,
and Oliver Wyman. Mr. Ronner has been with UBS for more than 40 years and held various positions across the firm,
including manager of the Group-wide too-big-to-fail program, COO Wealth Management & Swiss Bank, Head Products
and Services of Wealth Management & Swiss Bank, COO Asset Management, and Head Group Internal Audit. In his
current position, he is responsible at the Group level for the control of all non-financial risks, governmental and regulatory
affairs, and investigations and governance matters.
›
Refer to “Non-financial risk” in the “Risk management and control” section of this report for information about cybersecurity
Annual Report 2023 |
Corporate governance 119
Important business connections of independent members of the Board of Directors
As a global financial services provider and a major Swiss bank, we enter into business relationships with many large
companies, including some in which our BoD members have management or independent board responsibilities.
Our Organization Regulations require one-third of UBS AG BoD members to be independent. For this purpose,
independence is determined in accordance with FINMA Circular 2017/1 “Corporate governance – banks” and the NYSE
rules.
In 2023, our BoD met the standards of the Organization Regulations for the percentage of directors who are considered
independent under the criteria described above.
All relationships and transactions with UBS AG’s independent BoD members are conducted in the ordinary course of
business and are on the same terms as those prevailing at the time for comparable transactions with non-affiliated
persons. All relationships and transactions with BoD members’ associated companies are conducted at arm’s length.
Checks and balances: Board of Directors and Executive Board
We operate under a strict dual board structure, as mandated by Swiss banking law. The separation of responsibilities
between the BoD and the EB is clearly defined in the Organization Regulations. The BoD decides on the strategy of
UBS AG, upon recommendations by the President of the EB, and exercises ultimate supervision over management;
whereas the EB, headed by the President of the EB, has executive management responsibility. The functions of Chairman
and President of the EB are assigned to two different people, leading to a separation of powers. This structure establishes
checks and balances and preserves the institutional independence of the BoD from the executive management of UBS
AG, for which responsibility is delegated to the EB, under the leadership of the President of the EB. No member of one
board may simultaneously be a member of the other.
Supervision and control of the EB remain with the BoD. The authorities and responsibilities of the two bodies are governed
by the AoA and the Organization Regulations.
Although the recruiting process for BoD and EB members takes into account a broad spectrum of factors, such as skills,
backgrounds, experience and expertise, our approach with regard to diversity considerations does not constitute a
diversity policy within the meaning of the EU Directive on Non-Financial Reporting, and Swiss law does not require UBS
to maintain such a policy.
Executive Board
The BoD delegates the management of the business to the Executive Board.
Responsibilities, authorities and organizational principles of the Executive Board
At UBS AG, management of the business is also delegated, and its EB, under the leadership of the President of the EB,
has executive management responsibility for UBS AG and its business. All members of the EB are members of the GEB.
Sabine Keller-Busse, who serves as President UBS Switzerland AG and Ulrich Körner, CEO of Credit Suisse AG are both
not member of the EB.
UBS AG EB has two permanent committees: the Asset and Liability Committee (the ALCO) and the Finance and Risk
Committee (the FRC).
The ALCO is responsible for managing UBS AG’s assets and liabilities in line with the UBS AG and Group strategy and
regulatory requirements. In 2023, the ALCO held 10 meetings.
The FRC is responsible for supervising and controlling UBS AG’s business, financial and risk profile of the overall UBS AG
standalone as well as the entity’s business activities in Switzerland and cross-jurisdictional branch-related matters, in line
with the UBS AG and Group strategy and regulatory requirements. The FRC is also responsible for ensuring the financial
and risk profile of UBS AG standalone complies with the agreed risk appetite, by ascertaining that appropriate and timely
actions are taken. In 2023, the FRC held three meetings.
Annual Report 2023 |
Corporate governance 120
Executive Board
Position
Initial
appointment
to the EB
Step-down
date
UBS business address
Sergio P. Ermotti
President of the Executive Board
(also from 2011 to 2020)
05.04.2023
Bahnhofstrasse 45, 8001 Zurich,
Switzerland
Michelle Bereaux
Integration Officer
09.05.2023
Bahnhofstrasse 45, 8001 Zurich,
Switzerland
Christian Bluhm
Chief Risk Officer
2016
Bahnhofstrasse 45, 8001 Zurich,
Switzerland
Michael Dargan
Chief Operations and Technology Officer
2021
Bahnhofstrasse 45, 8001 Zurich,
Switzerland
Suni Harford
President Asset Management
2019
01.03.2024
Bahnhofstrasse 45, 8001 Zurich,
Switzerland
Naureen Hassan
President UBS Americas
2022
Bahnhofstrasse 45, 8001 Zurich,
Switzerland
Aleksandar Ivanovic
President Asset Management
01.03.2024
Bahnhofstrasse 45, 8001 Zurich,
Switzerland
Robert Karofsky
President Investment Bank
2018
Bahnhofstrasse 45, 8001 Zurich,
Switzerland
Iqbal Khan
President Global Wealth Management
2019
Bahnhofstrasse 45, 8001 Zurich,
Switzerland
Edmund Koh
President UBS Asia Pacific
2019
Bahnhofstrasse 45, 8001 Zurich,
Switzerland
Barbara Levi
General Counsel
2021
Bahnhofstrasse 45, 8001 Zurich,
Switzerland
Beatriz Martin
Jimenez
Head Non-core and Legacy and
President UBS Europe, Middle East and
Africa
09.05.2023
Bahnhofstrasse 45, 8001 Zurich,
Switzerland
Markus Ronner
Chief Compliance and Governance Officer
2018
Bahnhofstrasse 45, 8001 Zurich,
Switzerland
Stefan Seiler
Head Human Resources & Corporate
Services
09.05.2023
Bahnhofstrasse 45, 8001 Zurich,
Switzerland
Todd Tuckner
Chief Financial Officer
(as of 12.06.2023)
09.05.2023
Bahnhofstrasse 45, 8001 Zurich,
Switzerland
Ralph Hamers
President of the Executive Board
2020
05.04.2023
Bahnhofstrasse 45, 8001 Zurich,
Switzerland
Sarah Youngwood
Chief Financial Officer
2022
12.06.2023
Bahnhofstrasse 45, 8001 Zurich,
Switzerland
›
Refer to the UBS Group Annual Report 2023, available under “Annual reporting” at
ubs.com/investors
, for the biographies of the
members of the EB
Change of control and defense measures
Our Articles of Association (the AoA) do not provide any measures for delaying, deferring or preventing a change of
control.
Clauses on change of control
Neither the terms regulating the BoD members’ mandate nor any employment contracts with EB members contain
change of control clauses.
All employment contracts with EB members stipulate a notice period of six months. During the notice period, EB members
are entitled to their salaries and the continuation of existing employment benefits and may be eligible to be considered
for a discretionary performance award based on their contribution during their tenure.
In case of a change of control, we may, at our discretion, accelerate the vesting of and / or relax applicable forfeiture
provisions of employees’ awards.
Annual Report 2023 |
Corporate governance 121
Auditors
Audit is an integral part of corporate governance. While safeguarding their independence, the external auditors closely
coordinate their work with Internal Audit (IA). The Audit Committee and, ultimately, the BoD supervise the effectiveness
of audit work.
›
Refer to “Board of Directors” in this section for more information about the Audit Committee
External independent auditors
The 2023 AGM re-elected Ernst & Young Ltd (EY) as auditors for UBS AG for the 2023 financial year. EY assumes virtually
all auditing functions according to laws, regulatory requests and the AoA. Robert Jacob is the EY lead partner in charge
of the overall coordination of the UBS Group financial and regulatory audits and the co-signing partner of the financial
audit. In 2020, Maurice McCormick became the lead audit partner for the financial statement audit and has an
incumbency limit of five years. In 2021, Hannes Smit became the Lead Auditor to the Swiss Financial Market Supervisory
Authority (FINMA), with an incumbency limit of seven years. Daniel Martin has been the co-signing partner for the FINMA
audit since 2019, with an incumbency limit of seven years.
During 2023, the Audit Committee held 14 meetings with the external auditors.
Review of UBS AG audit engagement
EU rules require UBS Europe SE, an indirect subsidiary of UBS AG, to rotate its external auditors in the 2024 financial
year. In connection with this required change, and in consideration of governance best practices, the Board of Directors
of UBS Group AG considered whether it would propose to shareholders a rotation of the Group auditor concurrent with
the change at UBS Europe SE. Under the direction of the Audit Committee of UBS Group AG, UBS Group conducted a
formal review of the Group audit engagement including soliciting proposals from potential auditors. In early 2022, based
on the results of this assessment, the Board of Directors of UBS Group AG decided to retain EY as the Group’s external
auditors.
Audit effectiveness assessment
The Audit Committee assesses the performance, effectiveness and independence of the external auditors on an annual
basis. The assessment is generally based on interviews with senior management and survey feedback from stakeholders
across the Group. Assessment criteria include quality of service delivery, quality and competence of the audit team, value
added as part of the audit, insightfulness, and the overall relationship with EY. Based on its own analysis and the
assessment results, including feedback received as part of the review of the Group audit engagement described above,
the Audit Committee concluded that EY’s audit has been effective.
Fees paid to external independent auditors
UBS AG and its subsidiaries paid the following fees (including expenses) to their external independent auditors.
For the year ended
USD m
31.12.23
31.12.22
Audit
Global audit fees
Additional services classified as audit (services required by law or statute, including work of a non-recurring nature mandated by regulators)
Total audit
Non-audit
Audit-related fees
of which: assurance and attestation services
of which: control and performance reports
of which: consultation concerning financial accounting and reporting standards
Tax fees
All other fees
Total non-audit
Annual Report 2023 |
Corporate governance 122
Special auditors for potential capital increases
At the AGM on 8 April 2021, BDO AG was reappointed as special auditors for a three-year term of office. Special auditors
provide audit opinions in connection with potential capital increases independently from other auditors.
Services performed and fees
The Audit Committee oversees all services provided to UBS by the external auditors. For services requiring the approval
from the Audit Committee, a preapproval may be granted either for a specific mandate or in the form of a blanket
preapproval authorizing a limited and well-defined type and scope of services. The fees (including expenses) paid to EY
are set forth in the table above. In addition, EY received USD 27m in 2023 (USD 35m in 2022) for services performed on
behalf of our investment funds, many of which have independent fund boards or trustees.
Audit work includes all services necessary to perform the audit for UBS AG in accordance with applicable laws and
generally accepted auditing standards, as well as other assurance services that conventionally only the auditor can
provide. These include statutory and regulatory audits, attestation services and the review of documents to be filed with
regulatory bodies. The additional services classified as audit in 2023 included several engagements for which EY was
mandated at the request of FINMA.
Audit-related work consists of assurance and related services traditionally performed by auditors, such as attestation
services related to financial reporting, internal control reviews and performance standard reviews, as well as consultation
concerning financial accounting and reporting standards.
Tax work involves services performed by professional staff in EY’s tax division and includes tax compliance and tax
consultation with respect to our own affairs.
“Other” services are permitted services, which include technical IT security control reviews and assessments.
Internal Audit
IA performs the internal auditing role for UBS AG. It is an independent function that provides expertise and insights to
confirm controls are functioning correctly and highlight where UBS needs to better manage current and emerging risks.
IA supports the BoD in discharging its governance responsibilities by taking a dynamic approach to audit, issue assurance
and risk assessment, drawing attention to key risks in order to drive action to prevent unexpected loss or damage to the
firm’s reputation. To support the achievement of UBS’s objectives, IA independently, objectively and systematically
assesses the:
(i)
soundness of UBS AG’s risk and control culture;
(ii)
reliability and integrity of financial and operational information, including whether activities are properly, accurately
and completely recorded, and the quality of underlying data and models; and
(iii)
design, operating effectiveness and sustainability of:
–
processes to define strategy and risk appetite, as well as the overall adherence to the approved strategy;
–
governance processes;
–
risk management, including whether risks are appropriately identified and managed;
–
internal controls, specifically whether they are commensurate with the risks taken;
–
remediation activities; and
–
processes to comply with legal and regulatory requirements, internal policies, and UBS AG’s constitutional
documents and contracts.
Audit reports that include significant issues are provided to the President of the EB, relevant EB members and other
responsible management. The Chairman, the Audit Committee and the Risk Committee of the BoD are regularly informed
of such issues.
In addition, IA provides independent assurance on the effective and sustainable remediation of control deficiencies within
its mandate, taking a prudent and conservative risk-based approach and assessing at the issue level whether the root
cause and the potential exposure for the firm have been holistically and sustainably addressed. IA also cooperates closely
with risk control functions and internal and external legal advisors on investigations into major control issues.
To ensure IA’s independence from management, the IA Executive UBS AG reports to the Chairman of the BoD and to the
Audit Committee, which assesses annually whether IA has sufficient resources to perform its function, as well as its
independence and performance. In the Audit Committee’s assessment, IA is sufficiently resourced to fulfill its mandate
and complete its auditing objectives. IA’s role, position, responsibilities and accountability are set out in UBS AG’s
Organization Regulations and the Charter for IA
.
IA has unrestricted access to all accounts, books, records, systems,
property and personnel, and must be provided with all information and data that it needs to fulfill its auditing
responsibilities. IA also conducts special audits at the request of the Audit Committee, or other BoD members, committees
or the President of the EB in consultation with the Audit Committee.
IA enhances the efficiency of its work through coordination and close cooperation with the external auditors.
Annual Report 2023 |
Corporate governance 123
Information policy
We provide regular information to our shareholder and to the wider financial community.
Financial reports for UBS AG are expected to be published on the following dates:
First quarter 2024
7 May 2024
Second quarter 2024
27 August 2024
Third quarter 2024
30 October 2024
The annual general meetings of the shareholders of UBS AG will take place on the following dates:
2024
23 April 2024
2025
10 April 2025
›
Refer to the corporate calendar available at
ubs.com/investors
dates
Our annual and quarterly publications are available in fully online and .pdf formats at
ubs.com/investors
, under “Financial
information.”
Financial reporting policies
We report UBS AG’s results for each financial quarter, with the exception of the fourth quarter, including a breakdown
of results by business division and disclosures or key developments relating to risk management and control, capital,
liquidity and funding management. With the exception of the fourth quarter, each quarter we publish quarterly financial
reports for UBS AG.
The consolidated financial statements of UBS AG are prepared in accordance with IFRS Accounting Standards as issued
by the International Accounting Standards Board.
›
Refer to “Note 1 Summary of material accounting policies” in the “Consolidated financial statements” section of this report for
more information about the basis of accounting
US disclosure requirements
As a foreign private issuer, we must file reports and other information, including certain financial reports, with the US
Securities and Exchange Commission (the SEC) under the US federal securities laws.
An evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a–15e) under the US
Securities Exchange Act of 1934 has been carried out, under the supervision of management, including the Group CEO,
the Group CFO and the Group Controller and Chief Accounting Officer. Based on that evaluation, the Group CEO and
the Group CFO concluded that our disclosure controls and procedures were effective as of 31 December 2023. No
significant changes have been made to our internal controls or to other factors that could significantly affect these
controls subsequent to the date of their evaluation.
Annual Report 2023 |
Financial statements | Consolidated financial statements 124
Financial statements
Consolidated financial statements
Table of contents
125
126
127
132
132
132
133
134
135
137
138
140
140
1
157
2a
159
2b
160
160
3
160
4
161
5
161
6
161
7
162
8
165
165
9
169
10
171
11
171
12
173
13
174
14
175
15
175
16
176
17
181
18
182
182
19
194
20
208
21
210
22
212
23
215
24
215
25
220
26
226
27
230
28
234
29
235
30
237
31
238
32
238
33
241
34
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial information 125
Management’s report on internal control over financial reporting
Management’s responsibility for internal control over financial reporting
The Board of Directors and management of UBS AG are responsible for establishing and maintaining adequate internal
control over financial reporting. UBS AG’s internal control over financial reporting is designed to provide reasonable
assurance regarding the preparation and fair presentation of published financial statements in accordance with IFRS
Accounting Standards as issued by the International Accounting Standards Board (IASB).
UBS AG’s internal control over financial reporting includes those policies and procedures that:
–
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and
dispositions of assets;
–
provide reasonable assurance that transactions are recorded as necessary to permit preparation and fair presentation
of financial statements, and that receipts and expenditures of the company are being made only in accordance with
authorizations of UBS AG management; and
–
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition
of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Management’s assessment of internal control over financial reporting as of 31 December
2023
UBS AG management has assessed the effectiveness of UBS AG’s internal control over financial reporting as of
31 December 2023 based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control – Integrated Framework (2013 Framework). Based on this assessment,
management believes that, as of 31 December 2023, UBS AG’s internal control over financial reporting was effective.
The effectiveness of UBS AG’s internal control over financial reporting as of 31 December 2022 has been audited by Ernst
& Young Ltd, UBS AG’s independent registered public accounting firm, as stated in their
registered public accounting firm on internal control over financial reporting,
which expresses an unqualified opinion on
the effectiveness of UBS AG’s internal control over financial reporting as of 31 December 2023.
Reports of the independent registered public accounting firm included in this report
The accompanying reports of the independent registered public accounting firm on the consolidated financial statements
Report of the independent registered public accounting firm on the consolidated financial statements
and internal control
over financial reporting
reporting
of UBS Group are included in our filing on 28 March 2024 with the Securities and Exchange Commission on
Form 20-F pursuant to US reporting obligations.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial information 126
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial information 127
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial information 128
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial information 129
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial information 130
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial information 131
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 132
UBS AG consolidated financial statements
Primary financial statements and share information
Audited |
Income statement
For the year ended
USD m
Note
31.12.23
31.12.22
31.12.21
Interest income from financial instruments measured at amortized cost and fair value through
other comprehensive income
3
Interest expense from financial instruments measured at amortized cost
3
(19,643 )
(6,696 )
(3,366 )
Net interest income from financial instruments measured at fair value through profit or loss and other
3
Net interest income
3
Other net income from financial instruments measured at fair value through profit or loss
3
Fee and commission income
4
Fee and commission expense
4
(1,790 )
(1,823 )
(1,985 )
Net fee and commission income
4
Other income
5
Total revenues
Credit loss expense / (release)
19
(148 )
Personnel expenses
6
General and administrative expenses
7
Depreciation, amortization and impairment of non-financial assets
11, 12
Operating expenses
Operating profit / (loss) before tax
Tax expense / (benefit)
8
Net profit / (loss)
Net profit / (loss) attributable to non-controlling interests
Net profit / (loss) attributable to shareholders
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 133
Statement of comprehensive income
For the year ended
USD m
Note
31.12.23
31.12.22
31.12.21
Comprehensive income attributable to shareholders
Net profit / (loss)
Other comprehensive income that may be reclassified to the income statement
Foreign currency translation
Foreign currency translation movements related to net assets of foreign operations, before tax
(869 )
(1,046 )
Effective portion of changes in fair value of hedging instruments designated as net investment hedges, before tax
(912 )
Foreign currency translation differences on foreign operations reclassified to the income statement
(1 )
Effective portion of changes in fair value of hedging instruments designated as net investment hedges reclassified to
the income statement
(28 )
(4 )
Income tax relating to foreign currency translations, including the effect of net investment hedges
(17 )
Subtotal foreign currency translation, net of tax
1
(519 )
(510 )
Financial assets measured at fair value through other comprehensive income
Net unrealized gains / (losses), before tax
(440 )
(203 )
Net realized (gains) / losses reclassified to the income statement from equity
(9 )
Reclassification of financial assets to Other financial assets measured at amortized cost
2
Income tax relating to net unrealized gains / (losses)
(3 )
Subtotal financial assets measured at fair value through other comprehensive income, net of tax
(157 )
Cash flow hedges of interest rate risk
25
Effective portion of changes in fair value of derivative instruments designated as cash flow hedges, before tax
(36 )
(5,758 )
(992 )
Net (gains) / losses reclassified to the income statement from equity
(159 )
(1,073 )
Income tax relating to cash flow hedges
(309 )
Subtotal cash flow hedges, net of tax
3
(4,793 )
(1,675 )
Cost of hedging
25
Cost of hedging, before tax
(19 )
(32 )
Income tax relating to cost of hedging
Subtotal cost of hedging, net of tax
(19 )
(26 )
Total other comprehensive income that may be reclassified to the income statement, net of tax
(5,260 )
(2,368 )
Other comprehensive income that will not be reclassified to the income statement
Defined benefit plans
26
Gains / (losses) on defined benefit plans, before tax
(103 )
Income tax relating to defined benefit plans
(33 )
(31 )
Subtotal defined benefit plans, net of tax
(136 )
Own credit on financial liabilities designated at fair value
20
Gains / (losses) from own credit on financial liabilities designated at fair value, before tax
(861 )
Income tax relating to own credit on financial liabilities designated at fair value
(71 )
Subtotal own credit on financial liabilities designated at fair value, net of tax
(790 )
4
Total other comprehensive income that will not be reclassified to the income statement, net of tax
(927 )
Total other comprehensive income
(4,383 )
(2,220 )
Total comprehensive income attributable to shareholders
Comprehensive income attributable to non-controlling interests
Net profit / (loss)
Total other comprehensive income that will not be reclassified to the income statement, net of tax
(14 )
(16 )
Total comprehensive income attributable to non-controlling interests
Total comprehensive income
Net profit / (loss)
Other comprehensive income
(4,396 )
(2,235 )
of which: other comprehensive income that may be reclassified to the income statement
(5,260 )
(2,368 )
of which: other comprehensive income that will not be reclassified to the income statement
(924 )
Total comprehensive income
1 Mainly reflects a significant strengthening of the Swiss franc and the euro against the US dollar. 2 Effective 1 April 2022, a portfolio of assets previously classified as Financial assets measured at fair value
through other comprehensive income was reclassified to Other financial assets measured at amortized cost. Refer to Note 13a for more information. 3 Mainly reflects net losses on hedging instruments that were
reclassified from OCI to the income statement. 4 Mainly reflects a tightening of our own credit spreads.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 134
Balance sheet
USD m
Note
31.12.23
31.12.22
Assets
Cash and balances at central banks
Amounts due from banks
9
Receivables from securities financing transactions measured at amortized cost
9, 21
Cash collateral receivables on derivative instruments
9, 21
Loans and advances to customers
9
Other financial assets measured at amortized cost
9, 13a
Total financial assets measured at amortized cost
Financial assets at fair value held for trading
20
of which: assets pledged as collateral that may be sold or repledged by counterparties
Derivative financial instruments
10, 20, 21
Brokerage receivables
20
Financial assets at fair value not held for trading
20
Total financial assets measured at fair value through profit or loss
Financial assets measured at fair value through other comprehensive income
20
Investments in associates
28b
Property, equipment and software
11
Goodwill and intangible assets
12
Deferred tax assets
8
Other non-financial assets
13b
Total assets
Liabilities
Amounts due to banks
Payables from securities financing transactions measured at amortized cost
21
Cash collateral payables on derivative instruments
21
Customer deposits
14a
Funding from UBS Group AG measured at amortized cost
14b
Debt issued measured at amortized cost
16
Other financial liabilities measured at amortized cost
18a
Total financial liabilities measured at amortized cost
Financial liabilities at fair value held for trading
20
Derivative financial instruments
10, 20, 21
Brokerage payables designated at fair value
20
Debt issued designated at fair value
15, 20
Other financial liabilities designated at fair value
18b, 20
Total financial liabilities measured at fair value through profit or loss
Provisions
17a
Other non-financial liabilities
18c
Total liabilities
Equity
Share capital
Share premium
Retained earnings
Other comprehensive income recognized directly in equity, net of tax
(133 )
Equity attributable to shareholders
Equity attributable to non-controlling interests
Total equity
Total liabilities and equity
Annual Report 2023
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Statement of changes in equity
USD m
Share
capital
Share
premium
Retained
earnings
Balance as of 31 December 2020
Premium on shares issued and warrants exercised
(7 )
2
Tax (expense) / benefit
(102 )
Dividends
(4,539 )
Translation effects recognized directly in retained earnings
Share of changes in retained earnings of associates and joint ventures
New consolidations / (deconsolidations) and other increases / (decreases)
3
Total comprehensive income for the year
of which: net profit / (loss)
of which: OCI, net of tax
Balance as of 31 December 2021
Premium on shares issued and warrants exercised
(14 )
2
Tax (expense) / benefit
Dividends
(4,200 )
Translation effects recognized directly in retained earnings
Share of changes in retained earnings of associates and joint ventures
New consolidations / (deconsolidations) and other increases / (decreases)
Total comprehensive income for the year
of which: net profit / (loss)
of which: OCI, net of tax
Balance as of 31 December 2022
Premium on shares issued and warrants exercised
(19 )
2
Tax (expense) / benefit
Dividends
(6,000 )
Translation effects recognized directly in retained earnings
Share of changes in retained earnings of associates and joint ventures
(1 )
Share capital currency change
(48 )
New consolidations / (deconsolidations) and other increases / (decreases)
4
Total comprehensive income for the year
of which: net profit / (loss)
of which: OCI, net of tax
(927 )
Balance as of 31 December 2023
1 Excludes other comprehensive income related to defined benefit plans and own credit, which is recorded directly in Retained earnings. 2 Includes decreases related to recharges by UBS Group AG for share-based
compensation awards granted to employees of UBS AG or its subsidiaries. 3 Includes the effects related to the launch of UBS AG’s new operational partnership entity with Sumitomo Mitsui Trust Holdings, Inc in
2021. 4 Includes an increase of USD
m related to the issuance of high-trigger loss-absorbing additional tier 1 capital with an equity conversion feature.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 136
Other comprehensive
income recognized
directly in equity,
net of tax
1
of which:
foreign currency
translation
of which:
financial assets at
fair value through OCI
of which:
cash flow
hedges
Total equity
attributable to
shareholders
Non-controlling
interests
Total equity
(7 )
(7 )
(102 )
(102 )
(4,539 )
(4 )
(4,542 )
(18 )
(18 )
(2,368 )
(510 )
(157 )
(1,675 )
(2,368 )
(510 )
(157 )
(1,675 )
(2,220 )
(16 )
(2,235 )
(7 )
(14 )
(14 )
(4,200 )
(9 )
(4,209 )
(69 )
(69 )
(3 )
(3 )
(7 )
(3 )
(5,260 )
(519 )
(4,793 )
(5,260 )
(519 )
(4,793 )
(4,383 )
(14 )
(4,396 )
(133 )
(4 )
(4,234 )
(19 )
(19 )
(6,000 )
(4 )
(6,004 )
(127 )
(127 )
(1 )
(1 )
(31 )
(2,961 )
Annual Report 2023
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Share information and earnings per share
Ordinary share capital
As of 31 December 2023, UBS AG had
second quarter of 2023, the share capital currency of UBS AG was changed from the Swiss franc to the US dollar, as
approved by shareholders at the 2023 Annual General Meeting (the AGM). As a result, the nominal value per share has
changed from CHF
, resulting in a reclassification between share capital and capital contribution reserve
(presented as share premium in the consolidated financial statements) and leading to a share capital of
USD
. The shares were entirely held by UBS Group AG.
Conditional share capital
As of 31 December 2023, the following conditional share capital was available to the Board of Directors (the BoD) of
UBS AG:
–
A maximum of USD
of USD
granted in connection with the issuance of bonds or similar financial instruments on national or international capital
markets. This conditional capital allowance was approved at the Extraordinary General Meeting held on
26 November 2014, having originally been approved at the AGM of UBS AG on 14 April 2010. The BoD has not
made use of such allowance.
Capital band, conversion capital and reserve capital
As of 31 December 2023, UBS AG has not introduced a capital band, any conversion capital or any reserve capital.
Earnings per share
In 2015, UBS AG shares were delisted from the SIX Swiss Exchange and the New York Stock Exchange. As of 31 December
2023,
% of UBS AG’s issued shares were held by UBS Group AG and therefore were not publicly traded. Accordingly,
earnings per share information is not provided for UBS AG.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 138
Statement of cash flows
For the year ended
USD m
31.12.23
31.12.22
31.12.21
Cash flow from / (used in) operating activities
Net profit / (loss)
Non-cash items included in net profit and other adjustments:
Depreciation, amortization and impairment of non-financial assets
Credit loss expense / (release)
(148 )
Share of net (profit) / loss of associates and joint ventures and impairment related to associates
(32 )
(105 )
Deferred tax expense / (benefit)
(222 )
Net loss / (gain) from investing activities
(225 )
(1,515 )
(230 )
Net loss / (gain) from financing activities
(16,587 )
Other net adjustments
1
(10,383 )
Net change in operating assets and liabilities:
1,2
Amounts due from banks and amounts due to banks
(10,093 )
3
(1,088 )
Receivables from securities financing transactions measured at amortized cost
(4,993 )
(1,565 )
Payables from securities financing transactions measured at amortized cost
(1,247 )
(751 )
Cash collateral on derivative instruments
(3,311 )
Loans and advances to customers
(26,943 )
Customer deposits
(9,409 )
Financial assets and liabilities at fair value held for trading and derivative financial instruments
(16,017 )
(10,635 )
Brokerage receivables and payables
(6,101 )
Financial assets at fair value not held for trading and other financial assets and liabilities
(4,661 )
Provisions and other non-financial assets and liabilities
(437 )
Income taxes paid, net of refunds
(1,541 )
(1,495 )
(1,026 )
Net cash flow from / (used in) operating activities
(28,202 )
Cash flow from / (used in) investing activities
Purchase of subsidiaries, associates and intangible assets
(4 )
(3 )
(1 )
Disposal of subsidiaries, associates and intangible assets
Purchase of property, equipment and software
(1,283 )
(1,478 )
(1,581 )
Disposal of property, equipment and software
Net (purchase) / redemption of financial assets measured at fair value through other comprehensive income
(699 )
(750 )
Purchase of debt securities measured at amortized cost
(14,244 )
(30,792 )
(4,922 )
Disposal and redemption of debt securities measured at amortized cost
Net cash flow from / (used in) investing activities
(4,924 )
(12,283 )
(1,860 )
Table continues below.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 139
Statement of cash flows (continued)
Table continued from above.
For the year ended
USD m
31.12.23
31.12.22
31.12.21
Cash flow from / (used in) financing activities
Net issuance (repayment) of short-term debt measured at amortized cost
(12,249 )
(3,093 )
Distributions paid on UBS AG shares
(6,000 )
(4,200 )
(4,539 )
Issuance of debt designated at fair value and long-term debt measured at amortized cost
4
Repayment of debt designated at fair value and long-term debt measured at amortized cost
4
(85,541 )
(67,670 )
(79,799 )
Net cash flows from other financing activities
(501 )
(595 )
(261 )
Net cash flow from / (used in) financing activities
(5,257 )
Total cash flow
Cash and cash equivalents at the beginning of the year
Net cash flow from / (used in) operating, investing and financing activities
(13,435 )
(6,911 )
Effects of exchange rate differences on cash and cash equivalents
1
(5,645 )
(5,306 )
Cash and cash equivalents at the end of the year
5
of which: cash and balances at central banks
6
of which: amounts due from banks
6
of which: money market paper
6,7
Additional information
Net cash flow from / (used in) operating activities includes:
Interest received in cash
Interest paid in cash
Dividends on equity investments, investment funds and associates received in cash
8
1 Foreign currency translation and foreign exchange effects on operating assets and liabilities and on cash and cash equivalents are presented within the Other net adjustments line. Does not include foreign currency
hedge effects related to foreign exchange swaps. 2 Effective from 2023, UBS AG has refined the presentation in the statement of cash flows and now presents cash flows from Loans and advances to customers,
Customer deposits, Receivables from securities financing transactions measured at amortized cost and Payables from securities financing transactions measured at amortized cost as separate lines. The presentation
change has had no effect on Net cash flows from / (used in) operating activities. Prior periods have been aligned with this change in presentation. 3 Mainly reflects funding provided to Credit Suisse. 4 Includes
funding from UBS Group AG measured at amortized cost (recognized on the balance sheet in Funding from UBS Group AG) and measured at fair value (recognized on the balance sheet in Other financial liabilities
designated at fair value). 5 USD
m, USD
m and USD
m of Cash and cash equivalents (mainly reflected in Amounts due from banks) were restricted as of 31 December 2023, 31 December 2022
and 31 December 2021, respectively. Refer to Note 22 for more information. 6 Includes only balances with an original maturity of three months or less. 7 Money market paper is included in the balance sheet
under Financial assets at fair value not held for trading (31 December 2023: USD
m; 31 December 2022: USD
m; 31 December 2021: USD
m), Other financial assets measured at amortized cost
(31 December 2023: USD
m; 31 December 2022: USD
m; 31 December 2021: USD
m) and Financial assets at fair value held for trading (31 December 2023: USD
m; 31 December 2022: USD
m;
31 December 2021: USD
m). 8 Includes dividends received from associates reported within Net cash flow from / (used in) investing activities.
Changes in liabilities arising from financing activities
USD m
Debt issued
measured at
amortized cost
of which:
short-term
1
of which:
long-term
2
Debt issued
designated at fair
value
Over-the-
counter debt
instruments
3
Funding from
UBS Group
AG
4
Total
Balance as of 1 January 2022
Cash flows
(19,390 )
(12,249 )
(7,141 )
(251 )
(461 )
Non-cash changes
(3,543 )
(1,173 )
(2,370 )
(12,895 )
(193 )
(7,595 )
(24,225 )
of which: foreign currency translation
(2,233 )
(1,173 )
(1,061 )
(1,405 )
(113 )
(1,285 )
(5,036 )
of which: fair value changes
(11,490 )
(80 )
(1,060 )
(12,629 )
of which: hedge accounting and other effects
(1,310 )
(1,310 )
(5,250 )
(6,560 )
Balance as of 31 December 2022
Cash flows
(122 )
Non-cash changes
of which: foreign currency translation
(50 )
of which: fair value changes
of which: hedge accounting and other effects
Balance as of 31 December 2023
1 Debt with an original contractual maturity of less than one year. 2 Debt with an original maturity greater than or equal to one year. The classification of debt issued into short-term and long-term does not consider
any early redemption features. 3 Included in balance sheet line Other financial liabilities designated at fair value. 4 Includes funding from UBS Group AG measured at amortized cost (refer to Note 14b) and
measured at fair value (refer to Note 18b).
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 140
Notes to the UBS AG consolidated financial statements
Note 1 Summary of material accounting policies
The following table provides an overview of information included in this Note.
141
a)
141
141
1)
141
2)
141
a.
142
b.
146
c.
146
d.
146
e.
146
f.
147
g.
150
h.
151
i.
151
j.
152
3)
152
4)
153
5)
153
6)
154
7)
154
8)
154
9)
155
10)
155
11)
156
b)
156
c)
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 141
Note 1 Summary of material accounting policies (continued)
a) Material accounting policies
This Note describes the material accounting policies applied in the preparation of the consolidated financial statements
(the Financial Statements) of UBS AG and its subsidiaries (UBS AG). On 21 March 2024, the Financial Statements were
authorized for issue by the Board of Directors (the BoD).
Basis of accounting
The Financial Statements have been prepared in accordance with IFRS Accounting Standards, as issued by the
International Accounting Standards Board (the IASB), and are presented in US dollars.
Disclosures marked as audited in the “Risk, capital, liquidity and funding, and balance sheet” section of this report form
an integral part of the Financial Statements. These disclosures relate to requirements under IFRS 7,
Financial Instruments:
Disclosures
, and IAS 1,
Presentation of Financial Statements
, and are not repeated in this section.
The accounting policies described in this Note have been applied consistently in all years presented unless otherwise
stated in Note 1b.
Critical accounting estimates and judgments
Preparation of these Financial Statements under IFRS Accounting Standards requires management to apply judgment and make estimates and assumptions that
affect reported amounts of assets, liabilities, income and expenses and disclosure, of contingent assets and liabilities, and may involve significant uncertainty at the
time they are made. Such estimates and assumptions are based on the best available information. UBS AG regularly reassesses such estimates and assumptions,
which encompass historical experience, expectations of the future and other pertinent factors, to determine their continuing relevance based on current conditions,
updating them as necessary. Changes in those estimates and assumptions may have a significant effect on the Financial Statements. Furthermore, actual results
may differ significantly from UBS AG’s estimates, which could result in significant losses to UBS AG, beyond what was anticipated or provided for.
The following areas contain estimation uncertainty or require critical judgment and have a significant effect on amounts recognized in the Financial
Statements:
–
expected credit loss measurement (refer to item 2g in this Note and to Note 19);
–
fair value measurement (refer to item 2f in this Note and to Note 20);
–
income taxes (refer to item 6 in this Note and to Note 8);
–
provisions and contingent liabilities (refer to item 10 in this Note and to Note 17);
–
post-employment benefit plans (refer to item 5 in this Note and to Note 26);
–
goodwill (refer to item 9 in this Note and to Note 12); and
–
consolidation of structured entities (refer to item 1 in this Note and to Note 28).
1) Consolidation
The Financial Statements include the financial statements of UBS AG and its subsidiaries, presented as a single economic
entity; intercompany transactions and balances have been eliminated. UBS AG consolidates all entities that it controls,
including structured entities (SEs), which is the case when it has: (i) power over the relevant activities of the entity;
(ii) exposure to the entity‘s variable returns; and (iii) the ability to use its power to affect its own returns.
Consideration is given to all facts and circumstances to determine whether UBS AG has power over another entity, i.e.,
the current ability to direct the relevant activities of an entity when decisions about those activities need to be made.
Subsidiaries, including SEs, are consolidated from the date when control is gained and deconsolidated from the date
when control ceases. Control, or the lack thereof, is reassessed if facts and circumstances indicate that there is a change
to one or more elements required to establish that control is present.
Business combinations are accounted for using the acquisition method. The amount of non-controlling interests, if any,
is measured at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets.
›
Refer to Note 28
for more information
Critical accounting estimates and judgments
Each individual entity is assessed for consolidation in line with the aforementioned consolidation principles. The assessment of control can be complex and
requires the use of significant judgment, in particular in determining whether UBS AG has power over the entity. As the nature and extent of UBS AG’s
involvement is unique for each entity, there is no uniform consolidation outcome by entity. Certain entities within a class may be consolidated while others
may not. When carrying out the consolidation assessment, judgment is exercised considering all the relevant facts and circumstances, including the nature
and activities of the investee, as well as the substance of voting and similar rights.
›
Refer to Note 28
for more information
2) Financial instruments
a. Recognition
UBS AG generally recognizes financial instruments when it becomes a party to contractual provisions of an instrument.
However, UBS AG does not recognize assets received in transfers that do not qualify for derecognition by the transferor
(applying derecognition principles under IFRS Accounting Standards as described in item 2e below). UBS AG applies
settlement date accounting to all standard purchases and sales of non-derivative financial instruments.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 142
Note 1 Summary of material accounting policies (continued)
UBS AG may act in a fiduciary capacity, which results in it holding or placing assets on behalf of individuals, trusts,
retirement benefit plans and other institutions. Unless these items meet the definition of an asset and the recognition
criteria are satisfied, they are not recognized on UBS AG’s balance sheet and the related income is excluded from the
Financial Statements.
Client cash balances associated with derivatives clearing and execution services are not recognized on the balance sheet
if, through contractual agreement, regulation or practice, UBS AG neither obtains benefits from nor controls such cash
balances.
b. Classification, measurement and presentation
Financial assets
Where the contractual terms of a debt instrument result in cash flows that are solely payments of principal and interest
(SPPI) on the principal amount outstanding, the debt instrument is classified as measured at amortized cost if it is held
within a business model that has an objective of holding financial assets to collect contractual cash flows, or at fair value
through other comprehensive income (FVOCI) if it is held within a business model with the objective of both collecting
contractual cash flows and selling financial assets.
All other financial assets are measured at fair value through profit or loss (FVTPL), including those held for trading or
those managed on a fair value basis, except for derivatives designated in certain hedge accounting relationships (refer to
item 2j in this Note for more information).
Business model assessment and contractual cash flow characteristics
UBS AG determines the nature of a business model by considering the way financial assets are managed to achieve a
particular business objective at the time an asset is recognized .
In assessing whether contractual cash flows are SPPI, UBS AG considers whether the contractual terms of the financial
asset contain a term that could change the timing or amount of contractual cash flows arising over the life of the
instrument. This assessment includes contractual cash flows that may vary due to environmental, social and governance
(ESG) triggers.
Financial liabilities
Financial liabilities measured at amortized cost
Financial liabilities measured at amortized cost include
Debt issued measured at amortized cost
Funding from UBS
Group AG
measured at amortized cost
. The latter includes contingent capital instruments issued to UBS Group AG prior
to November 2023 that contain contractual provisions under which the principal amounts would be written down upon
either a specified common equity tier 1 (CET1) ratio breach or a determination by the Swiss Financial Market Supervisory
Authority (FINMA) that a viability event has occurred. Such contractual provisions are not derivatives, as the underlying is
deemed to be a non-financial variable specific to a party to the contract. Issuances after November 2023 include a
contractual equity conversion feature with the same triggers, i.e., a CET1 ratio breach or FINMA viability event. When
the debt is issued in US dollars, these conversion features are classified as equity and are accounted for in
Share premium
separately from the amortized cost debt host.
When the legal bail-in mechanism for write-down or conversion into equity does not form part of the contractual terms
of issued debt instruments, it does not affect the accounting classification of these instruments as debt or equity.
If a debt were to be written down or converted into equity in a future period, it would be partially or fully derecognized,
with the difference between its carrying amount and the fair value of any equity issued recognized in the income
statement.
Financial liabilities measured at fair value through profit or loss
UBS AG designates certain issued debt instruments as financial liabilities at fair value through profit or loss, on the basis
that such financial instruments include embedded derivatives that are not closely related and which significantly impact
the cash flows of the instrument and / or are managed on a fair value basis (refer to the table below for more information).
Financial instruments including embedded derivatives arise predominantly from the issuance of certain structured debt
instruments.
Measurement and presentation
After initial recognition, UBS AG classifies, measures and presents its financial assets and liabilities in accordance with
IFRS 9, as described in the table below.
Annual Report 2023
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Note 1 Summary of material accounting policies (continued)
Classification, measurement and presentation of financial assets
Financial assets classification
Significant items included
Measurement and presentation
Measured at
amortized cost
This classification includes:
–
cash and balances at central banks;
–
amounts due from banks;
–
receivables from securities financing transactions;
–
cash collateral receivables on derivative
instruments;
–
residential and commercial mortgages;
–
corporate loans;
–
secured loans, including Lombard loans, and
unsecured loans;
–
loans to financial advisors; and
–
debt securities held as high-quality liquid assets
(HQLA).
Measured at amortized cost using the effective interest
method less allowances for expected credit losses (ECL)
(refer to items 2d and 2g in this Note for more information).
The following items are recognized in the income
statement:
–
interest income, which is accounted for in accordance
with item 2d in this Note;
–
ECL and reversals; and
–
foreign exchange (FX) translation gains and losses.
When a financial asset at amortized cost is derecognized,
the gain or loss is recognized in the income statement.
For amounts arising from settlement of certain derivatives,
see below in this table.
Measured at
FVOCI
Debt
instruments
measured at
FVOCI
This classification primarily includes debt securities
held as HQLA.
Measured at fair value, with unrealized gains and losses
reported in
Other comprehensive income
, net of applicable
income taxes, until such investments are derecognized.
Upon derecognition, any accumulated balances in
Other
comprehensive income
statement and reported within
Other income.
The following items, which are determined on the same
basis as for financial assets measured at amortized cost, are
recognized in the income statement:
–
interest income, which is accounted for in accordance
with item 2d in this Note;
–
ECL and reversals; and
–
FX translation gains and losses.
Annual Report 2023
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Note 1 Summary of material accounting policies (continued)
Classification, measurement and presentation of financial assets
Financial assets classification
Significant items included
Measurement and presentation
Measured at
FVTPL
Held for
trading
Financial assets held for trading include:
–
all derivatives with a positive replacement value, except
those that are designated and effective hedging
instruments; and
–
other financial assets acquired principally for the
purpose of selling or repurchasing in the near term, or
that are part of a portfolio of identified financial
instruments that are managed together and for which
there is evidence of a recent actual pattern of short-
term profit taking. Included in this category are debt
instruments (including those in the form of securities,
money market paper, and traded corporate and bank
loans) and equity instruments.
Measured at fair value, with changes recognized in the
income statement.
Derivative assets (including derivatives that are designated
and effective hedging instruments) are generally
presented as
Derivative financial instruments
, except those
exchange-traded derivatives (ETD) and over-the-counter
(OTC)-cleared derivatives that are legally settled on a daily
basis or economically net settled on a daily basis, which
are presented within
Cash collateral receivables on
derivative instruments.
Changes in fair value, initial transaction costs, dividends
and gains and losses arising on disposal or redemption are
recognized in
Other net income from financial
instruments measured at fair value through profit or loss
,
except interest income on instruments other than
derivatives (refer to item 2d in this Note), interest on
derivatives designated as hedging instruments in hedges
of interest rate risk and forward points on certain short-
and long-duration FX contracts acting as economic
hedges, which are reported in
Net interest income.
Changes in the fair value of derivatives that are
designated and effective hedging instruments are
presented either in the income statement or
Other
comprehensive income
, depending on the type of hedge
relationship (refer to item 2j in this Note for more
information).
Mandatorily
measured at
FVTPL – Other
Financial assets mandatorily measured at FVTPL that are
not held for trading include:
–
certain structured instruments, certain commercial
loans, and receivables from securities financing
transactions that are managed on a fair value basis;
–
loans managed on a fair value basis, including those
hedged with credit derivatives;
–
certain debt securities held as HQLA and managed on a
fair value basis;
–
certain investment fund holdings and assets held to
hedge delivery obligations related to cash-settled
employee compensation plans;
–
brokerage receivables, for which contractual cash flows
do not meet the SPPI criterion because the aggregate
balance is accounted for as a single unit of account,
with interest being calculated on the individual
components;
–
auction rate securities, for which contractual cash flows
do not meet the SPPI criterion because interest may be
reset at rates that contain leverage;
–
equity instruments; and
–
assets held under unit-linked investment contracts.
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Note 1 Summary of material accounting policies (continued)
Classification, measurement and presentation of financial liabilities
Financial liabilities classification
Significant items included
Measurement and presentation
Measured at amortized cost
This classification includes:
–
demand and time deposits;
–
retail savings / deposits;
–
sweep deposits;
–
payables from securities financing transactions;
–
non-structured debt issued;
–
subordinated debt;
–
commercial paper and certificates of deposit;
–
obligations against funding from UBS Group AG; and
–
cash collateral payables on derivative instruments.
Measured at amortized cost using the effective interest
method.
When a financial liability at amortized cost is
derecognized, the gain or loss is recognized in the income
statement.
Interest income generated from client deposits
derecognized pursuant to certain deposit sweep programs
is presented within
Net interest income from financial
instruments measured at fair value through profit or loss
and other
.
Measured at
FVTPL
Held for trading
Financial liabilities held for trading include:
–
all derivatives with a negative replacement value
(including certain loan commitments), except those
that are designated and effective hedging
instruments; and
–
obligations to deliver financial instruments, such as
debt and equity instruments, that UBS AG has sold to
third parties but does not own (short positions).
Measurement and presentation of financial liabilities
classified at FVTPL follow the same principles as for
financial assets classified at FVTPL, except that the amount
of change in the fair value of a financial liability
designated at FVTPL that is attributable to changes in
UBS AG’s own credit risk is presented in
Other
comprehensive income
Retained earnings
and is never reclassified to the income statement.
Derivative liabilities (including derivatives that are
designated and effective hedging instruments) are
generally presented as
Derivative financial instruments
,
except those exchange-traded and OTC-cleared
derivatives that are legally settled on a daily basis or
economically net settled on a daily basis, which are
presented within
Cash collateral payables on derivative
instruments.
Designated at
FVTPL
Financial liabilities designated at FVTPL include:
–
issued hybrid debt instruments, primarily equity-
linked, credit-linked and rates-linked bonds or notes;
–
issued debt instruments managed on a fair value
basis;
–
obligations against funding from UBS Group AG
managed on a fair value basis;
–
certain payables from securities financing
transactions;
–
amounts due under unit-linked investment contracts,
the cash flows of which are linked to financial assets
measured at FVTPL and eliminate an accounting
mismatch; and
–
brokerage payables, which arise in conjunction with
brokerage receivables and are measured at FVTPL to
achieve measurement consistency.
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Note 1 Summary of material accounting policies (continued)
c. Loan commitments and financial guarantees
Loan commitments are arrangements to provide credit under defined terms and conditions. Irrevocable loan
commitments are classified as: (i) derivative loan commitments measured at fair value through profit or loss; (ii) loan
commitments designated at fair value through profit or loss; or (iii) loan commitments not measured at fair value.
Financial guarantee contracts are contracts that require UBS AG to make specified payments to reimburse the holder for
an incurred loss because a specified debtor fails to make payments when due in accordance with the terms of a specified
debt instrument.
d. Interest income and expense
Interest income and expense are recognized in the income statement based on the effective interest method. When
calculating the effective interest rate (the EIR) for financial instruments (other than credit-impaired financial instruments),
UBS AG estimates future cash flows considering all contractual terms of the instrument, but not expected credit losses,
with the EIR applied to the gross carrying amount of the financial asset or the amortized cost of a financial liability.
However, when a financial asset becomes credit impaired after initial recognition, interest income is determined by
applying the EIR to the amortized cost of the instrument, which represents the gross carrying amount adjusted for any
credit loss allowance.
Upfront fees, including fees on loan commitments not measured at fair value where a loan is expected to be issued, and
direct costs are included within the initial measurement of a financial instrument measured at amortized cost or FVOCI
and recognized over the expected life of the instrument as part of its EIR.
Fees related to loan commitments where no loan is expected to be issued, as well as loan syndication fees where UBS AG
does not retain a portion of the syndicated loan or where UBS AG does retain a portion of the syndicated loan at the
same effective yield for comparable risk as other participants, are included in
Net fee and commission income
recognized over the life of the commitment or when syndication occurs.
›
Refer to item 3 in this Note for more information
Interest income on financial assets, excluding derivatives, is included in interest income when positive and in interest
expense when negative. Similarly, interest expense on financial liabilities, excluding derivatives, is included in interest
expense, except when interest rates are negative, in which case it is included in interest income.
›
Refer to item 2b in this Note and Note 3 for more information
e. Derecognition
Financial assets
UBS AG derecognizes a transferred financial asset, or a portion of a financial asset, if the purchaser has obtained
substantially all the risks and rewards of the asset or a significant part of the risks and rewards combined with a practical
ability to sell or pledge the asset.
Where financial assets have been pledged as collateral or in similar arrangements, they are considered to have been
transferred if the counterparty has received the contractual rights to the cash flows of the pledged assets, as may be
evidenced by, for example, the counterparty’s right to sell or repledge the assets. In transfers where control over the
financial asset is retained, UBS AG continues to recognize the asset to the extent of its continuing involvement,
determined by the extent to which it is exposed to changes in the value of the transferred asset following the transfer.
›
Refer to Note 22 for more information
Financial liabilities
UBS AG derecognizes a financial liability when it is extinguished, i.e., when the obligation specified in the contract is
discharged, canceled or expires. When an existing financial liability is exchanged for a new one from the same lender on
substantially different terms, or the terms of an existing liability are substantially modified, the original liability is
derecognized and a new liability recognized with any difference in the respective carrying amounts recorded in the
income statement.
Certain OTC derivative contracts and most exchange-traded futures and option contracts cleared through central clearing
counterparties and exchanges are considered to be settled on a daily basis, as the payment or receipt of a variation margin
on a daily basis represents a legal or economic settlement, which results in derecognition of the associated derivatives.
›
Refer to Note 21 for more information
f. Fair value of financial instruments
UBS AG accounts for a significant portion of its assets and liabilities at fair value. Fair value is the price on the
measurement date that would be received for the sale of an asset or paid to transfer a liability in an orderly transaction
between market participants in the principal market, or in the most advantageous market in the absence of a principal
market.
›
Refer to Note 20 for more information
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Note 1 Summary of material accounting policies (continued)
Critical accounting estimates and judgments
The use of valuation techniques, modeling assumptions and estimates of unobservable market inputs in the fair valuation of financial instruments requires
significant judgment and could affect the amount of gain or loss recorded for a particular position. Valuation techniques that rely more heavily on
unobservable inputs and sophisticated models inherently require a higher level of judgment and may require adjustment to reflect factors that market
participants would consider in estimating fair value, such as close-out costs, which are presented in Note 20d.
UBS AG’s governance framework over fair value measurement is described in Note 20b, and UBS AG provides a sensitivity analysis of the estimated effects
arising from changing significant unobservable inputs in Level 3 financial instruments to reasonably possible alternative assumptions in Note 20f.
›
Refer to Note 20 for more information
g. Allowances and provisions for expected credit losses
ECL are recognized for financial assets measured at amortized cost, financial assets measured at FVOCI, fee and lease
receivables, financial guarantees, and loan commitments not measured at fair value. ECL are also recognized on the
undrawn portion of committed unconditionally revocable credit lines, which include UBS AG’s credit card limits and
master credit facilities, as UBS AG is exposed to credit risk because the borrower has the ability to draw down funds
before UBS AG can take credit risk mitigation actions.
Recognition of expected credit losses
ECL are recognized on the following basis.
–
Stage 1 instruments: Maximum 12-month ECL are recognized from initial recognition, reflecting the portion of lifetime
ECL that would result if a default occurs in the 12 months after the reporting date, weighted by the risk of a default
occurring.
–
Stage 2 instruments: Lifetime ECL are recognized if a significant increase in credit risk (an SICR) is observed subsequent
to the instrument’s initial recognition, reflecting lifetime cash shortfalls that would result from all possible default
events over the expected life of a financial instrument, weighted by the risk of a default occurring. When an SICR is
no longer observed, the instrument will move back to stage 1.
–
Stage 3 instruments: Lifetime ECL are always recognized for credit-impaired financial instruments, as determined by
the occurrence of one or more loss events, by estimating expected cash flows based on a chosen recovery strategy.
Credit-impaired exposures may include positions for which no allowance has been recognized, for example because
they are expected to be fully recoverable through collateral held.
–
Changes in lifetime ECL since initial recognition are also recognized for assets that are purchased credit impaired (PCI).
PCI financial instruments include those that are purchased at a deep discount or newly originated with a defaulted
counterparty; they remain a separate category until derecognition.
All or part of a financial asset is written off if it is deemed uncollectible or forgiven. Write-offs reduce the principal amount
of a claim and are charged against related allowances for credit losses. Recoveries, in part or in full, of amounts previously
written off are generally credited to
Credit loss expense / (release)
.
ECL are recognized in the income statement in
Credit loss expense / (release)
. A corresponding ECL allowance is reported
as a decrease in the carrying amount of financial assets measured at amortized cost on the balance sheet. For financial
assets that are measured at FVOCI, the carrying amount is not reduced, but an accumulated amount is recognized in
Other comprehensive income
. For off-balance sheet financial instruments and other credit lines, provisions for ECL are
presented in
Provisions.
Default and credit impairment
UBS AG applies a single definition of default for credit risk management purposes, regulatory reporting and ECL, with a
counterparty classified as defaulted based on quantitative and qualitative criteria.
›
Refer to the “Risk management and control” section of this report for more information
Measurement of expected credit losses
IFRS 9 ECL reflect an unbiased, probability -weighted estimate based on loss expectations resulting from default events.
The method used to calculate ECL applies the following principal factors: probability of default (PD), loss given default
(LGD) and exposure at default (EAD). Parameters are generally determined on an individual financial asset level. Based
on the materiality of the portfolio, for credit card exposures and personal account overdrafts in Switzerland, a portfolio
approach is applied that derives an average PD and LGD for the entire portfolio. PDs and LGDs used in the ECL calculation
are point-in-time(PIT)-based for key portfolios and consider both current conditions and expected cyclical changes. For
material portfolios, PDs and LGDs are determined for different scenarios, whereas EAD projections are treated as scenario
independent.
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Note 1 Summary of material accounting policies (continued)
For the purpose of determining the ECL -relevant parameters, UBS AG leverages its Basel III advanced internal ratings-
based (A-IRB) models that are also used in determining expected loss (EL) and risk-weighted assets under the Basel III
framework and Pillar 2 stress loss models. Adjustments have been made to these models and IFRS 9-related models have
been developed that consider the complexity, structure and risk profile of relevant portfolios and take account of the fact
that PDs and LGDs used in the ECL calculation are PIT-based, as opposed to the corresponding Basel III through-the-cycle
(TTC) parameters. All models that are relevant for measuring expected credit losses are subject to UBS AG’s model
validation and oversight processes.
Probability of default:
PD represents the probability of a default over a specified time period. A 12-month PD represents
the probability of default determined for the next 12 months and a lifetime PD represents the probability of default over
the remaining lifetime of the instrument. PIT PDs are derived from TTC PDs and scenario forecasts. The modeling is region,
industry and client segment specific and considers both macroeconomic scenario dependencies and client-idiosyncratic
information.
Exposure at default:
EAD represents an estimate of the exposure to credit risk at the time of a potential default occurring,
considering expected repayments, interest payments and accruals, discounted at the EIR. Future drawdowns on facilities
are considered through a credit conversion factor (a CCF) that is reflective of historical drawdown and default patterns
and the characteristics of the respective portfolios.
Loss given default:
LGD represents an estimate of the loss at the time of a potential default occurring, taking into account
expected future cash flows from collateral and other credit enhancements, or expected payouts from bankruptcy
proceedings for unsecured claims and, where applicable, time to realization of collateral and the seniority of claims. LGD is
commonly expressed as a percentage of EAD.
Estimation of expected credit losses
Number of scenarios and estimation of scenario weights
Determination of probability-weighted ECL requires evaluating a range of diverse and relevant future economic conditions,
especially with a view to modeling the non-linear effect of assumptions about macroeconomic factors on the estimate.
To accommodate this requirement, UBS AG uses different economic scenarios in the ECL calculation. Each scenario is
represented by a specific scenario narrative, which is relevant considering the exposure of key portfolios to economic
risks, and for which a set of consistent macroeconomic variables is determined. The estimation of the appropriate weights
for these scenarios is predominantly judgment-based. The assessment is based on a holistic review of the prevailing
economic or political conditions, which may exhibit different levels of uncertainty. It takes into account the impact of
changes in the nature and severity of the underlying scenario narratives and the projected economic variables.
The determined weights constitute the probabilities that the respective set of macroeconomic conditions will occur and
not that the chosen particular narratives with the related macroeconomic variables will materialize.
Macroeconomic and other factors
The range of macroeconomic, market and other factors that is modeled as part of the scenario determination is wide,
and historical information is used to support the identification of the key factors. As the forecast horizon increases, the
availability of information decreases, requiring an increase in judgment. For cycle-sensitive PD and LGD determination
purposes, UBS AG projects the relevant economic factors for a period of three years before reverting, over a specified
period, to cycle-neutral PD and LGD for longer-term projections.
Factors relevant for ECL calculation vary by type of exposure. Regional and client-segment characteristics are generally
taken into account, with specific focus on Switzerland and the US, considering UBS AG’s key ECL-relevant portfolios.
For UBS AG, the following forward-looking macroeconomic variables represent the most relevant factors for ECL
calculation:
–
gross domestic product (GDP) growth rates, given their significant effect on borrowers’ performance;
–
unemployment rates, given their significant effect on private clients’ ability to meet contractual obligations;
–
house price indices, given their significant effect on mortgage collateral valuations;
–
interest rates, given their significant effect on counterparties’ abilities to service debt;
–
consumer price indices, given their overall relevance for companies’ performance, private clients’ purchasing power
and economic stability; and
–
equity indices, given that they are an important factor in UBS AG’s corporate rating tools.
Scenario generation, review process and governance
A team of economists, which is part of Group Risk Control, develops the forward-looking macroeconomic assumptions
with involvement from a broad range of experts.
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Note 1 Summary of material accounting policies (continued)
The scenarios, their weights and the key macroeconomic and other factors are subject to a critical assessment by the
IFRS 9 Scenario Sounding Sessions and ECL Management Forum, which include senior management from Group Risk
and Group Finance. Important aspects for the review include whether there may be particular credit risk concerns that
may not be capable of being addressed systematically and require post-model adjustments for stage allocation and ECL
allowance.
The Group Model Governance Committee (the GMGC), as the highest authority under UBS AG’s model governance
framework, ratifies the decisions taken by the ECL Management Forum.
›
Refer to Note 19 for more information
ECL measurement period
The period for which lifetime ECL are determined is based on the maximum contractual period that UBS AG is exposed
to credit risk, taking into account contractual extension, termination and prepayment options. For irrevocable loan
commitments and financial guarantee contracts, the measurement period represents the maximum contractual period
for which UBS AG has an obligation to extend credit.
Additionally, some financial instruments include both an on-demand loan and a revocable undrawn commitment, where
the contractual cancellation right does not limit UBS AG’s exposure to credit risk to the contractual notice period, as the
client has the ability to draw down funds before UBS AG can take risk-mitigating actions. In such cases UBS AG is required
to estimate the period over which it is exposed to credit risk. This applies to UBS AG’s credit card limits, which do not
have a defined contractual maturity date, are callable on demand and where the drawn and undrawn components are
managed as one exposure. The exposure arising from UBS AG’s credit card limits is not significant and is managed at a
portfolio level, with credit actions triggered when balances are past due. An ECL measurement period of seven years is
applied for credit card limits, capped at 12 months for stage 1 balances, as a proxy for the period that UBS AG is exposed
to credit risk.
Customary master credit agreements in the Swiss corporate market also include on-demand loans and revocable undrawn
commitments. For smaller commercial facilities, a risk-based monitoring (RbM) approach is in place that highlights
negative trends as risk events, at an individual facility level, based on a combination of continuously updated risk
indicators. The risk events trigger additional credit reviews by a risk officer, enabling informed credit decisions to be taken.
Larger corporate facilities are not subject to RbM, but are reviewed at least annually through a formal credit review.
UBS AG has assessed these credit risk management practices and considers both the RbM approach and formal credit
reviews as substantive credit reviews resulting in a re-origination of the given facility. Following this, a 12-month
measurement period from the reporting date is used for both types of facilities as an appropriate proxy of the period over
which UBS AG is exposed to credit risk, with 12 months also used as a look-back period for assessing an SICR, always
from the respective reporting date.
Significant increase in credit risk
Financial instruments subject to ECL are monitored on an ongoing basis. To determine whether the recognition of a
maximum 12 -month ECL continues to be appropriate, an assessment is made as to whether an SICR has occurred
since initial recognition of the financial instrument, applying both quantitative and qualitative factors.
Primarily, UBS AG assesses changes in an instrument’s risk of default on a quantitative basis by comparing the annualized
forward-looking and scenario-weighted lifetime PD of an instrument determined at two different dates:
–
at the reporting date; and
–
at inception of the instrument.
If, based on UBS AG’s quantitative modeling, an increase exceeds a set threshold, an SICR is deemed to have occurred
and the instrument is transferred to stage 2 with lifetime ECL recognized.
The threshold applied varies depending on the original credit quality of the borrower, with a higher SICR threshold set
for those instruments with a low PD at inception. The SICR assessment based on PD changes is made at an individual
financial asset level. A high-level overview of the SICR trigger, which is a multiple of the annualized remaining lifetime
PIT PD expressed in rating downgrades, is provided in the “SICR thresholds” table below. The actual SICR thresholds
applied are defined on a more granular level by interpolating between the values shown in the table.
SICR thresholds
Internal rating at origination
of the instrument
Rating downgrades /
SICR trigger
0–3
3
4–8
2
9–13
1
›
Refer to the “Risk management and control” section of this report for more details about UBS AG’s internal rating system
Annual Report 2023
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Note 1 Summary of material accounting policies (continued)
Irrespective of the SICR assessment based on default probabilities, credit risk is generally deemed to have significantly
increased for an instrument if contractual payments are more than 30 days past due. For certain less material portfolios,
specifically the Swiss credit card portfolio, the 30-day past due criterion is used as the primary indicator of an SICR. Where
instruments are transferred to stage 2 due to the 30-day past due criterion, a minimum period of six months is applied
before a transfer back to stage 1 can be triggered, where applicable. For instruments in Personal & Corporate Banking
and Global Wealth Management Region Switzerland that are between 90 and 180 days past due but have not been
reclassified to stage 3, a one-year period is applied before a transfer back to stage 1 can be triggered.
Additionally, based on individual counterparty-specific indicators, external market indicators of credit risk or general
economic conditions, counterparties may be moved to a watch list, which is used as a secondary qualitative indicator for
an SICR. Exception management is further applied, allowing for individual and collective adjustments on exposures
sharing the same credit risk characteristics to take account of specific situations that are not otherwise fully reflected.
In general, the overall SICR determination process does not apply to Lombard loans, securities financing transactions and
certain other asset-based lending transactions, because of the risk management practices adopted, including daily
monitoring processes with strict margining. If margin calls are not satisfied, a position is closed out and classified as a
stage 3 position. In exceptional cases, an individual adjustment and a transfer into stage 2 may be made to take account
of specific facts.
Credit risk officers are responsible for the identification of an SICR, which for accounting purposes is in some respects
different from internal credit risk management processes. This difference mainly arises because ECL accounting
requirements are instrument-specific, such that a borrower can have multiple exposures allocated to different stages, and
maturing loans in stage 2 will migrate to stage 1 upon renewal irrespective of the actual credit risk at that time. Under a
risk-based approach, a holistic counterparty credit assessment and the absolute level of risk at any given date will
determine what risk-mitigating actions may be warranted.
›
Refer to the “Risk management and control” section of this report for more information
Critical accounting estimates and judgments
The calculation of ECL requires management to apply significant judgment and make estimates and assumptions that can result in significant changes to the
timing and the amount of ECL recognized.
Determination of a significant increase in credit risk
IFRS 9 does not include a definition of what constitutes an SICR, with UBS AG’s assessment considering qualitative and quantitative criteria. An IFRS 9 ECL
Management Forum has been established to review and challenge the SICR results.
Scenarios, scenario weights and macroeconomic variables
ECL reflect an unbiased and probability-weighted amount, which UBS AG determines by evaluating a range of possible outcomes. Management selects
forward-looking scenarios that include relevant macroeconomic variables and management’s assumptions around future economic conditions. IFRS 9
Scenario Sounding Sessions, in addition to the IFRS 9 ECL Management Forum, are in place to derive, review and challenge the scenario selection and weights,
and to determine whether any additional post-model adjustments are required that may significantly affect ECL.
ECL measurement period
Lifetime ECL are generally determined based upon the contractual maturity of the transaction, which significantly affects ECL. For credit card limits and Swiss
callable master credit facilities, judgment is required, as UBS AG must determine the period over which it is exposed to credit risk. A seven-year period is
applied for credit card limits, capped at 12 months for stage 1 positions, and a 12-month period applied for master credit facilities.
Modeling and post-model adjustments
A number of complex models have been developed or modified to calculate ECL, with additional post-model adjustments required that may significantly
affect ECL. The models are governed by UBS AG’s model validation controls and approved by the GMGC. The post-model adjustments are approved by the
ECL Management Forum and endorsed by the GMGC.
A sensitivity analysis covering key macroeconomic variables, scenario weights and SICR trigger points on ECL measurement is provided in Note 19f.
›
Refer to Note 19 for more information
h. Restructured and modified financial assets
When payment default is expected, or where default has already occurred, UBS AG may grant concessions to borrowers
in financial difficulties that it would not consider in the normal course of its business, such as preferential interest rates,
extension of maturity, modifying the schedule of repayments, debt / equity swap, subordination, etc.
›
Refer to the “Risk management and control” section of this report for more information
Modifications result in an alteration of future contractual cash flows and can occur within UBS AG’s normal risk tolerance
or as part of a credit restructuring where a counterparty is in financial difficulties. The restructuring or modification of a
financial asset could lead to a substantial change in the terms and conditions, resulting in the original financial asset
being derecognized and a new financial asset being recognized. Where the modification does not result in a
derecognition, any difference between the modified contractual cash flows discounted at the original EIR and the existing
gross carrying amount of the given financial asset is recognized in the income statement as a modification gain or loss.
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Note 1 Summary of material accounting policies (continued)
i. Offsetting
UBS AG presents financial assets and liabilities on its balance sheet net if (i) it has a legally enforceable right to set off the
recognized amounts and (ii) it intends either to settle on a net basis or to realize the asset and settle the liability
simultaneously. Netted positions include, for example, certain derivatives and repurchase and reverse repurchase
transactions with various counterparties, exchanges and clearing houses.
In assessing whether UBS AG intends to either settle on a net basis, or to realize the asset and settle the liability
simultaneously, emphasis is placed on the effectiveness of operational settlement mechanics in eliminating substantially
all credit and liquidity exposure between the counterparties. This condition precludes offsetting on the balance sheet for
substantial amounts of UBS AG’s financial assets and liabilities, even though they may be subject to enforceable netting
arrangements. Repurchase arrangements and securities financing transactions are presented net only to the extent that
the settlement mechanism eliminates, or results in insignificant, credit and liquidity risk, and processes the receivables
and payables in a single settlement process or cycle.
›
Refer to Note 21
for more information
j. Hedge accounting
UBS AG applies hedge accounting requirements of IFRS 9 where the criteria for documentation and hedge effectiveness
are met. If a hedge relationship no longer meets the criteria for hedge accounting, hedge accounting is discontinued.
Voluntary discontinuation of hedge accounting is not permitted under IFRS 9.
Fair value hedges of interest rate risk related to debt instruments and loan assets
The fair value change of the hedged item attributable to a hedged risk is reflected as an adjustment to the carrying
amount of the hedged item and recognized in the income statement along with the change in the fair value of the
hedging instrument.
Fair value hedges of FX risk related to debt instruments
The fair value change of the hedged item attributable to the hedged risk is reflected in the measurement of the hedged
item and recognized in the income statement along with the change in the fair value of the hedging instrument. The
foreign currency basis spread of cross-currency swaps designated as hedging derivatives is excluded from the designation
and accounted for as a cost of hedging with amounts deferred in
Other comprehensive income
Equity
. These
amounts are released to the income statement over the term of the hedged item.
Discontinuation of fair value hedges
Discontinuations for reasons other than derecognition of the hedged item result in an adjustment to the carrying amount,
which is amortized to the income statement over the remaining life of the hedged item using the effective interest
method. If the hedged item is derecognized, the unamortized fair value adjustment or deferred cost of hedging amount
is recognized immediately in the income statement as part of any derecognition gain or loss.
Cash flow hedges of forecast transactions
Fair value gains or losses associated with the effective portion of derivatives designated as cash flow hedges for cash flow
repricing risk are recognized initially in
Other comprehensive income
Equity
Interest income
from financial instruments measured at amortized cost and fair value through other comprehensive income
Interest
expense from financial instruments measured at amortized cost
affect profit or loss, including discontinued hedges for which forecast cash flows are expected to occur. If the forecast
transactions are no longer expected to occur, the deferred gains or losses are immediately reclassified to the income
statement.
Hedges of net investments in foreign operations
Gains or losses on the hedging instrument relating to the effective portion of a hedge are recognized directly in
Other
comprehensive income
Equity
, while any gains or losses relating to the ineffective and / or undesignated portion
(for example, the interest element of a forward contract) are recognized in the income statement. Upon disposal or partial
disposal of the foreign operation, the cumulative value of any such gains or losses recognized in
Equity
the entity
is reclassified to
Other income
.
Interest Rate Benchmark Reform
UBS AG continued hedge accounting during the period of uncertainty before existing interest rate benchmarks were
replaced with alternative risk-free interest rates. During this period, UBS AG assumed that the current benchmark rates
would continue to exist, such that forecast transactions were considered highly probable and hedge relationships remain,
with little or no consequential impact on the financial statements. Upon replacement of existing interest rate benchmarks
by alternative risk-free interest rates, UBS AG applied the requirements of
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4
and IFRS 16 (Interest Rate Benchmark Reform – Phase 2)
, where applicable
.
›
Refer to Note 25 for more information
Annual Report 2023
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Note 1 Summary of material accounting policies (continued)
3) Fee and commission income and expenses
UBS AG earns fee income from the diverse range of services it provides to its clients. Fee income can be divided into two
broad categories: fees earned from services that are provided over a certain period of time, such as management of
clients’ assets, custody services and certain advisory services; and fees earned from PIT services, such as underwriting fees,
deal-contingent merger and acquisitions fees, and brokerage fees (e.g., securities and derivatives execution and clearing).
UBS AG recognizes fees earned from PIT services when it has fully provided the service to the client. Where the contract
requires services to be provided over time, income is recognized on a systematic basis over the life of the agreement.
Consideration received is allocated to the separately identifiable performance obligations in a contract. Owing to the
nature of UBS AG’s business, contracts that include multiple performance obligations are typically those that are
considered to include a series of similar performance obligations fulfilled over time with the same pattern of transfer to
the client, e.g., management of client assets and custodial services. As a consequence, UBS AG is not required to apply
significant judgment in allocating the consideration received across the various performance obligations.
PIT services are generally for a fixed price or dependent on deal size, e.g., a fixed number of basis points of trade size,
where the amount of revenue is known when the performance obligation is met. Fixed-over-time fees are recognized on
a straight-line basis over the performance period. Custodial and asset management fees can be variable through reference
to the size of the customer portfolio. However, they are generally billed on a monthly or quarterly basis once the
customer’s portfolio size is known or known with near certainty and therefore also recognized ratably over the
performance period. UBS AG does not recognize performance fees related to management of clients’ assets or fees
related to contingencies beyond UBS AG’s control until such uncertainties are resolved.
UBS AG’s fees are generally earned from short-term contracts. As a result, UBS AG’s contracts do not include a financing
component or result in the recognition of significant receivables or prepayment assets. Furthermore, due to the short-
term nature of such contracts, UBS AG has not capitalized any material costs to obtain or fulfill a contract or generated
any significant contract assets or liabilities.
UBS AG presents expenses primarily in line with their nature in the income statement, differentiating between expenses
that are directly attributable to the satisfaction of specific performance obligations associated with the generation of
revenues, which are generally presented within
Total revenues
Fee and commission expense
, and those that are related
to personnel, general and administrative expenses, or depreciation and amortization which are presented within
Operating expenses
. For derivatives execution and clearing services (where UBS AG acts as an agent), UBS AG only records
its specific fees in the income statement, with fees payable to other parties not recognized as an expense but instead
directly offset against the associated income collected from the given client.
›
Refer to Note 4 for more information, including the disaggregation of revenues
4) Share-based and other deferred compensation plans
UBS AG recognizes expenses for deferred compensation awards over the period that the employee is required to provide
service to become entitled to the award. Where the service period is shortened, for example in the case of employees
affected by restructuring programs or mutually agreed termination provisions, recognition of such expense is accelerated
to the termination date. Where no future service is required, such as for employees who are eligible for retirement or
who have met certain age and length-of-service criteria, the services are presumed to have been received and
compensation expense is recognized over the performance year or, in the case of off-cycle awards, immediately on the
grant date.
Share-based compensation plans
UBS Group AG is the grantor of and maintains the obligation to settle share-based compensation plans that are awarded
to employees of UBS AG. As a consequence, UBS AG classifies the awards of UBS Group AG shares as equity-settled
share-based payment transactions. UBS AG recognizes the fair value of awards granted to its employees by reference to
the fair value of UBS Group AG’s equity instruments on the date of grant, taking into account the terms and conditions
inherent in the award, including, where relevant, dividend rights, transfer restrictions in effect beyond the vesting date,
market conditions, and non-vesting conditions.
For equity-settled awards, fair value is not remeasured unless the terms of the award are modified such that there is an
incremental increase in value. Expenses are recognized, on a per-tranche basis, over the service period based on an
estimate of the number of instruments expected to vest and are adjusted to reflect the actual outcomes of service or
performance conditions.
For equity-settled awards, forfeiture events resulting from a breach of a non-vesting condition (i.e., one that does not
relate to a service or performance condition) do not result in any adjustment to the share-based compensation expense.
For cash-settled share-based awards, fair value is remeasured at each reporting date, so that the cumulative expense
recognized equals the cash distributed.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 153
Note 1 Summary of material accounting policies (continued)
Other deferred compensation plans
Compensation expense for other deferred compensation plans is recognized on a per-tranche or straight-line basis,
depending on the nature of the plan. The amount recognized is measured based on the present value of the amount
expected to be paid under the plan and is remeasured at each reporting date, so that the cumulative expense recognized
equals the cash or the fair value of respective financial instruments distributed.
›
Refer to Note 27 for more information
5) Post-employment benefit plans
Defined benefit plans
Defined benefit plans specify an amount of benefit that an employee will receive, which usually depends on one or more
factors, such as age, years of service and compensation. The defined benefit liability recognized in the balance sheet is
the present value of the defined benefit obligation, measured using the projected unit credit method, less the fair value
of the plan’s assets at the balance sheet date, with changes resulting from remeasurements recorded immediately in
Other comprehensive income
. If the fair value of the plan’s assets is higher than the present value of the defined benefit
obligation, the recognition of the resulting net asset is limited to the present value of economic benefits available in the
form of refunds from the plan or reductions in future contributions to the plan. Calculation of the net defined benefit
obligation or asset takes into account the specific features of each plan, including risk sharing between employee and
employer, and is calculated periodically by independent qualified actuaries.
Critical accounting estimates and judgments
The net defined benefit liability or asset at the balance sheet date and the related personnel expense depend on the expected future benefits to be provided,
determined using a number of economic and demographic assumptions. A range of assumptions could be applied, and different assumptions could
significantly alter the defined benefit liability or asset and pension expense recognized. The most significant assumptions include life expectancy, discount
rate, expected salary increases, pension increases and interest credits on retirement savings account balances. Sensitivity analysis for reasonable possible
movements in each significant assumption for UBS AG‘s post-employment obligations is provided in Note 26.
›
Refer to Note 26
for more information
Defined contribution plans
A defined contribution plan pays fixed contributions into a separate entity from which post-employment and other
benefits are paid. UBS AG has no legal or constructive obligation to pay further amounts if the plan does not hold
sufficient assets to pay employees the benefits relating to employee service in the current and prior periods.
Compensation expense is recognized when the employees have rendered services in exchange for contributions. This is
generally in the year of contribution. Prepaid contributions are recognized as an asset to the extent that a cash refund or
a reduction in future payments is available.
6) Income taxes
UBS AG is subject to the income tax laws of Switzerland and those of the non-Swiss jurisdictions in which UBS AG has
business operations.
UBS AG’s provision for income taxes is composed of current and deferred taxes. Current income taxes represent taxes to
be paid or refunded for the current period or previous periods .
Deferred tax assets (DTAs) and deferred tax liabilities (DTLs) are recognized for temporary differences between the carrying
amounts and tax bases of assets and liabilities that will result in deductible or taxable amounts, respectively in future
periods. DTAs may also arise from other sources, including unused tax losses and unused tax credits. DTAs and DTLs are
measured using the applicable tax rates and laws that have been enacted or substantively enacted by the end of the
reporting period and that will be in effect when such differences are expected to reverse.
DTAs are recognized only to the extent it is probable that sufficient taxable profits will be available against which these
differences can be used . When an entity or tax group has a history of recent losses, DTAs are only recognized to the
extent that there are sufficient taxable temporary differences or there is convincing other evidence that sufficient taxable
profit will be available against which the unused tax losses can be utilized.
Deferred and current tax assets and liabilities are offset when: (i) they arise in the same tax reporting group; (ii) they relate
to the same tax authority; (iii) the legal right to offset exists; and (iv) with respect to current taxes they are intended to
be settled net or realized simultaneously.
Current and deferred taxes are recognized as income tax benefit or expense in the income statement, except for current
and deferred taxes recognized in relation to: (i) the acquisition of a subsidiary (for which such amounts would affect the
amount of goodwill arising from the acquisition); (ii) unrealized gains or losses on financial instruments that are classified
at FVOCI; (iii) changes in fair value of derivative instruments designated as cash flow hedges; (iv) remeasurements of
defined benefit plans; or (v) certain foreign currency translations of foreign operations. Amounts relating to points (ii)
through (v) above are recognized in
Other comprehensive income
Equity
.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 154
Note 1 Summary of material accounting policies (continued)
UBS AG reflects the potential effect of uncertain tax positions for which acceptance by the relevant tax authority is not
considered probable by adjusting current or deferred taxes, as applicable, using either the most likely amount or expected
value methods, depending on which method is deemed a better predictor of the basis on which, and extent to which,
the uncertainty will be resolved.
Critical accounting estimates and judgments
Tax laws are complex, and judgment and interpretations about the application of such laws are required when accounting for income taxes. UBS AG considers
the performance of its businesses and the accuracy of historical forecasts and other factors when evaluating the recoverability of its DTAs, including the
remaining tax loss carry-forward period, and its assessment of expected future taxable profits in the forecast period used for recognizing DTAs. Estimating
future profitability and business plan forecasts is inherently subjective and is particularly sensitive to future economic, market and other conditions.
Forecasts are reviewed annually, but adjustments may be made at other times, if required. If recent losses have been incurred, convincing evidence is
required to prove there is sufficient future profitability given that the value of UBS AG’s DTAs may be affected, with effects primarily recognized through the
income statement.
In addition, judgment is required to assess the expected value of uncertain tax positions and the related probabilities, including interpretation of tax laws,
the resolution of any income tax-related appeals and litigation.
›
Refer to Note 8 for more information
7) Investments in associates
Interests in entities where UBS AG has significant influence over the financial and operating policies of these entities but
does not have control are classified as investments in associates and accounted for under the equity method of
accounting. Typically, UBS AG has significant influence when it holds, or has the ability to hold, between 20% and 50%
of an entity’s voting rights. Investments in associates are initially recognized at cost, and the carrying amount is increased
or decreased after the date of acquisition to recognize UBS AG’s share of the investee’s comprehensive income and any
impairment losses. The net investment in an associate is impaired if there is objective evidence of a loss event and the
carrying amount of the investment in the associate exceeds its recoverable amount.
›
Refer to Note 28 for more information
8) Property, equipment and software
Property, equipment and software
development costs are capitalized only when the costs can be measured reliably and it is probable that future economic
benefits will arise. Depreciation of property, equipment and software begins when they are available for use and is
calculated on a straight-line basis over an asset’s estimated useful life.
Property, equipment and software are generally tested for impairment at the appropriate cash-generating unit level,
alongside goodwill and intangible assets as described in item 9 in this Note. An impairment charge is recognized for such
assets if the recoverable amount is below its carrying amount. The recoverable amounts of such assets, other than
property that has a market price, are generally determined using a replacement cost approach that reflects the amount
that would be currently required by a market participant to replace the service capacity of the asset. If such assets are no
longer used, they are tested individually for impairment.
›
Refer to Note 11 for more information
9) Goodwill
Goodwill represents the excess of the consideration over the fair value of identifiable assets, liabilities and contingent
liabilities acquired that arises in a business combination. Goodwill is not amortized but is assessed for impairment at the end
of each reporting period, or when indicators of impairment exist. UBS AG tests goodwill for impairment annually, irrespective
of whether there is any indication of impairment.
An impairment charge is recognized in the income statement if the carrying amount exceeds the recoverable amount of a
cash-generating-unit.
Critical accounting estimates and judgments
UBS AG‘s methodology for goodwill impairment testing is based on a model that is most sensitive to the following key assumptions: (i) forecasts of earnings
available to shareholders (typically estimated on a discrete basis for years one to three but could extend up to five years, as permitted under IFRS Accounting
Standards, in order to reflect facts and circumstances specific to a cash-generating unit); (ii) changes in the discount rates; and (iii) changes in the long-term
growth rate.
Earnings available to shareholders are estimated on the basis of forecast results, which are part of the business plan approved by the BoD. The discount
rates and growth rates are determined using external information, and also considering inputs from both internal and external analysts and the view of
management.
The key assumptions used to determine the recoverable amounts of each cash-generating unit are tested for sensitivity by applying reasonably possible
changes to those assumptions.
›
Refer to Notes 2 and 12 for more information
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 155
Note 1 Summary of material accounting policies (continued)
10) Provisions and contingent liabilities
Provisions are liabilities of uncertain timing or amount, and are generally recognized in accordance with IAS 37,
Provisions,
Contingent Liabilities and Contingent Assets
, when: (i) UBS AG has a present obligation as a result of a past event; (ii) it
is probable that an outflow of resources will be required to settle the obligation; and (iii) a reliable estimate of the amount
of the obligation can be made.
The majority of UBS AG’s provisions relate to litigation, regulatory and similar matters, restructuring, and employee
benefits. Restructuring provisions are generally recognized as a consequence of management agreeing to materially
change the scope of the business or the manner in which it is conducted, including changes in management structures.
Provisions for employee benefits relate mainly to service anniversaries and sabbatical leave, and are recognized in
accordance with measurement principles set out in item 4 in this Note. In addition, UBS AG presents expected credit loss
allowances within
Provisions
credit line.
IAS 37 provisions are measured considering the best estimate of the consideration required to settle the present obligation
at the balance sheet date.
When conditions required to recognize a provision are not met, a contingent liability is disclosed, unless the likelihood of
an outflow of resources is remote. Contingent liabilities are also disclosed for possible obligations that arise from past
events, the existence of which will be confirmed only by uncertain future events not wholly within the control of UBS AG.
Critical accounting estimates and judgments
Recognition of provisions often involves significant judgment in assessing the existence of an obligation that results from past events and in estimating the
probability, the timing and the amount of any outflows of resources. This is particularly the case for litigation, regulatory and similar matters, which, due to
their nature, are subject to many uncertainties, making their outcome difficult to predict.
The amount of any provision recognized is sensitive to the assumptions used, and there could be a wide range of possible outcomes for any particular
matter.
Management regularly reviews all the available information regarding such matters, including legal advice, to assess whether the recognition criteria for
provisions have been satisfied and to determine the timing and the amount of any potential outflows.
›
Refer to Note 17 for more information
11) Foreign currency translation
Transactions denominated in a foreign currency are translated into the functional currency of the reporting entity at the
spot exchange rate on the date of the transaction. At the balance sheet date, all monetary assets, including those at
FVOCI, and monetary liabilities denominated in foreign currency are translated into the functional currency using the
closing exchange rate. Translation differences are reported in
Other net income from financial instruments measured at
fair value through profit or loss
.
Non-monetary items measured at historical cost are translated at the exchange rate on the date of the transaction.
Upon consolidation, assets and liabilities of foreign operations are translated into US dollars, UBS AG’s presentation currency,
at the closing exchange rate on the balance sheet date, and income and expense items and other comprehensive income
are translated at the average rate for the period. The resulting foreign currency translation differences are recognized in
Equity
and UBS AG no longer controls the foreign operation.
Share capital issued and share premium held are translated at the historic average rate, with the difference between the
historic average rate and the spot rate realized upon repayment of share capital reported as
Share premium.
amounts recognized in
Other comprehensive income
are translated at the closing exchange rate as of the balance sheet dates, with any translation effects adjusted through
Retained earnings
.
›
Refer to Note 32 for more information
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 156
Note 1 Summary of material accounting policies (continued)
b) Changes in accounting policies, comparability and other adjustments
New or amended accounting standards
IFRS 17, Insurance Contracts
Effective from 1 January 2023, UBS AG has adopted IFRS 17,
Insurance Contracts
, which sets out the accounting
requirements for contractual rights and obligations that arise from insurance contracts issued and reinsurance contracts
held. The adoption has had no effect on UBS AG’s financial statements. UBS AG does not provide insurance services in
any market.
Amendments to IAS 12, Income Taxes
In May 2023, the IASB issued amendments to IAS 12,
Income Taxes
, in relation to top-up taxes on income under Global
Anti-Base Erosion Rules that is imposed under legislation that has been enacted or substantively enacted to implement
the Pillar Two model rules published by the Organisation for Economic Co-operation and Development.
Certain countries in which UBS AG operates had enacted such legislation by 31 December 2023, including Switzerland,
which introduced a tax with effect from 1 January 2024 that is expected to be a qualified domestic minimum top-up tax,
and other countries (including Germany, France and Italy) also introduced top-up taxes in respect of a non-domestic
UBS AG’s worldwide operations with effect from 1 January 2025. Moreover, it is expected that other countries will enact
such legislation in 2024.
The amendments to IAS 12 introduced an exception, whereby deferred tax assets and deferred tax liabilities should not
be recognized or disclosed in respect of top-up taxes, which has been applied for the purposes of these financial
statements.
An assessment was performed of UBS AG’s potential exposure to top-up taxes under legislation that was enacted or
substantively enacted to implement the Pillar Two model rules by 31 December 2023, reflecting country-by-country
reporting and, also, the corporate tax expenses of UBS AG entities for recent years and those expected in future years.
This assessment indicated that UBS AG’s profits in future years are expected to be almost entirely earned in countries
with corporate tax expenses that are at a tax rate of 15% or more and will not, therefore, be subject to top-up taxes.
Consequently, UBS AG is not expected to have a material annual exposure to top-up taxes for future years under this
legislation.
c) IFRS Accounting Standards and Interpretations to be adopted in 2024 and later and other changes
Other amendments to IFRS Accounting Standards
The IASB has issued a number of minor amendments to IFRS Accounting Standards, effective from 1 January 2024 and
later. These amendments are not expected to have a significant effect on UBS AG when they are adopted.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 157
Note 2a Segment reporting
UBS AG’s businesses are organized globally into five business divisions: Global Wealth Management, Personal &
Corporate Banking, Asset Management, the Investment Bank, and Non-core and Legacy. All five business divisions are
supported by Group Items and qualify as reportable segments for the purpose of segment reporting. Together with
Group Items, the five business divisions reflect the management structure of UBS AG.
–
Global Wealth Management
ranges from investment management to estate planning and corporate finance advice, in addition to specific wealth
management and banking products and services.
–
Personal & Corporate Banking
retirement, financing, investments and strategic transactions, in Switzerland, through its branch network and digital
channels.
–
Asset Management
across all major traditional and alternative asset classes, as well as advisory support to institutions, wholesale
intermediaries and wealth management clients.
–
The
Investment Bank
to help them raise capital, grow their businesses, invest and manage risks. Its offering includes research, advisory
services, facilitating clients raising debt and equity from the public and private markets and capital markets, cash and
derivatives trading across equities and fixed income, and financing.
–
Non-core and Legacy
in Group Functions and smaller amounts of assets and liabilities of UBS AG’s business divisions that have been assessed
as not strategic in light of the acquisition of the Credit Suisse Group.
–
Our Group functions are support and control functions that provide services to the Group. Virtually all costs incurred
by the support and control functions are allocated to the business divisions, leaving a residual amount that we refer to
as
Group Items
(which consists of the Group Operations and Technology Office, Corporate Services, Compliance, Regulatory &
Governance, Finance, Risk Control, Human Resources, Communications & Branding, Legal, the Group Integration
Office, Group Sustainability and Impact, and Chief Strategy Office) and Group Treasury.
Financial information about the five business divisions and Group Items is presented separately in internal management
reports to the Executive Board, which is considered the “chief operating decision-maker” pursuant to IFRS 8,
Operating
Segments
.
UBS AG’s internal accounting policies, which include management accounting policies and service-level agreements,
determine the revenues and expenses directly attributable to each reportable segment. Transactions between the
reportable segments are carried out at internally agreed rates and are reflected in the operating results of the reportable
segments. Revenue-sharing agreements are used to allocate external client revenues to reportable segments where
several reportable segments are involved in the value creation chain. Total intersegment revenues for UBS AG are
immaterial, as the majority of the revenues are allocated across the segments by means of revenue-sharing agreements.
Interest income earned from managing UBS AG’s consolidated equity is allocated to the reportable segments based on
average attributed equity and currency composition. Assets and liabilities of the reportable segments are funded through
and invested with Group functions, and the net interest margin is reflected in the results of each reportable segment.
Segment assets are based on a third-party view and do not include intercompany balances. This view is in line with
internal reporting to management. If one operating segment is involved in an external transaction together with another
operating segment or Group function, additional criteria are considered to determine the segment that will report the
associated assets. This will include a consideration of which segment’s business needs are being addressed by the
transaction and which segment is providing the funding and / or resources. Allocation of liabilities follows the same
principles.
Non-current assets disclosed for segment reporting purposes represent assets that are expected to be recovered more
than 12 months after the reporting date, excluding financial instruments, deferred tax assets and post-employment
benefits.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 158
Note 2a Segment reporting (continued)
USD m
Global Wealth
Management
Personal &
Corporate
Banking
Asset
Management
Investment
Bank
Non-core and
Legacy
1
Group
Items
1
UBS AG
For the year ended 31 December 2023
Net interest income
(39 )
(2,612 )
(1,372 )
Non-interest income
Total revenues
(128 )
Credit loss expense / (release)
(1 )
Operating expenses
Operating profit / (loss) before tax
(952 )
(1,048 )
Tax expense / (benefit)
Net profit / (loss)
Additional information
Total assets
Additions to non-current assets
USD m
Global Wealth
Management
Personal &
Corporate
Banking
Asset
Management
Investment
Bank
Non-core and
Legacy
1
Group
1
UBS AG
For the year ended 31 December 2022
Net interest income
(19 )
(241 )
(690 )
Non-interest income
2
Total revenues
(267 )
Credit loss expense / (release)
(12 )
Operating expenses
Operating profit / (loss) before tax
(1,091 )
Tax expense / (benefit)
Net profit / (loss)
Additional information
Total assets
Additions to non-current assets
USD m
Global Wealth
Management
Personal &
Corporate
Banking
Asset
Management
Investment
Bank
Non-core and
Legacy
1
Group
Items
1
UBS AG
For the year ended 31 December 2021
Net interest income
(15 )
(11 )
(215 )
Non-interest income
Total revenues
Credit loss expense / (release)
(29 )
(86 )
(34 )
(148 )
Operating expenses
Operating profit / (loss) before tax
(78 )
(1,005 )
Tax expense / (benefit)
Net profit / (loss)
Additional information
Total assets
3
Additions to non-current assets
1 As of or for the year ended 31 December 2023, Non-core and Legacy (previously reported within Group Functions) became a separate reportable segment and Group Functions has been renamed Group Items. Prior
periods have been revised to reflect these changes. 2 Includes an USD
m gain in Asset Management related to the sale of UBS AG‘s shareholding in Mitsubishi Corp.-UBS Realty Inc. 3 During 2022, UBS AG
refined the methodology applied to allocate balance sheet resources from Group Items to the business divisions, with prospective effect. If the new methodology had been applied as of 31 December 2021, balance
sheet assets allocated to business divisions would have been USD
bn higher, of which USD
bn would have related to the Investment Bank.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 159
Note 2b Segment reporting by geographic location
The operating regions shown in the table below correspond to the regional management structure of UBS AG. The
allocation of total revenues to these regions reflects, and is consistent with, the basis on which the business is managed
and its performance is evaluated. These allocations involve assumptions and judgments that management considers to
be reasonable, and may be refined to reflect changes in estimates or management structure. The main principles of the
allocation methodology are that client revenues are attributed to the domicile of the given client and trading and portfolio
management revenues are attributed to the country where the risk is managed. This revenue attribution is consistent
with the mandate of the regional Presidents. Certain revenues, such as those related to Non-core and Legacy Portfolio,
are managed at a Group level. These revenues are included in the
Global
The geographic analysis of non-current assets is based on the location of the entity in which the given assets are recorded.
For the year ended 31 December 2023
Total revenues
Total non-current assets
USD bn
Share %
USD bn
Share %
Americas
1
Asia Pacific
Europe, Middle East and Africa (excluding Switzerland)
Switzerland
Global
(0.1 )
Total
For the year ended 31 December 2022
Total revenues
Total non-current assets
USD bn
Share %
USD bn
Share %
Americas
1
Asia Pacific
Europe, Middle East and Africa (excluding Switzerland)
Switzerland
Global
Total
For the year ended 31 December 2021
Total revenues
Total non-current assets
USD bn
Share %
USD bn
Share %
Americas
1
Asia Pacific
Europe, Middle East and Africa (excluding Switzerland)
Switzerland
Global
Total
1 Predominantly related to the US.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 160
Income statement notes
Note 3 Net interest income and other net income from financial instruments measured at fair value through
profit or loss
For the year ended
USD m
31.12.23
31.12.22
31.12.21
Net interest income from financial instruments measured at fair value through profit or loss and other
Other net income from financial instruments measured at fair value through profit or loss
1
Total net income from financial instruments measured at fair value through profit or loss and other
Net interest income
Interest income from loans and deposits
2
Interest income from securities financing transactions measured at amortized cost
3
Interest income from other financial instruments measured at amortized cost
Interest income from debt instruments measured at fair value through other comprehensive income
Interest resulting from derivative instruments designated as cash flow hedges
(1,898 )
Total interest income from financial instruments measured at amortized cost and fair value through other comprehensive income
Interest expense on loans and deposits
4
Interest expense on securities financing transactions measured at amortized cost
5
Interest expense on debt issued
Interest expense on lease liabilities
Total interest expense from financial instruments measured at amortized cost
Total net interest income from financial instruments measured at amortized cost and fair value through other comprehensive income
Total net interest income from financial instruments measured at fair value through profit or loss and other
Total net interest income
1 Includes net losses from financial liabilities designated at fair value of USD
m (net gains of USD
m in 2022 and net losses of USD
m in 2021). This complementary “of which” information for
financial liabilities designated at fair value excludes fair value changes on hedges related to financial liabilities designated at fair value, and foreign currency translation effects arising from translating foreign currency
transactions into the respective functional currency, both of which are reported within Other net income from financial instruments measured at fair value through profit or loss. Net gains / (losses) from financial
liabilities designated at fair value included net losses of
m (net gains of USD
m and net losses of USD
m in 2022 and 2021, respectively) from financial liabilities related to unit-linked investment
notes issued by UBS AG’s Asset Management business. These gains / (losses) are fully offset within Other net income from financial instruments measured at fair value through profit or loss by the fair value change
on the financial assets hedging the unit-linked investment contracts, which are not disclosed as part of Net gains / (losses) from financial liabilities designated at fair value. 2 Consists of interest income from cash
and balances at central banks, amounts due from banks and customers, and cash collateral receivables on derivative instruments, as well as negative interest on amounts due to banks, customer deposits, and cash
collateral payables on derivative instruments. 3 Includes negative interest, including fees, on payables from securities financing transactions measured at amortized cost. 4 Consists of interest expense on amounts
due to banks, cash collateral payables on derivative instruments, customer deposits, and funding from UBS Group AG measured at amortized cost, as well as negative interest on cash and balances at central banks,
amounts due from banks, and cash collateral receivables on derivative instruments. 5 Includes negative interest, including fees, on receivables from securities financing transactions measured at amortized cost.
Note 4 Net fee and commission income
For the year ended
USD m
31.12.23
31.12.22
31.12.21
Underwriting fees
M&A and corporate finance fees
Brokerage fees
Investment fund fees
Portfolio management and related services
Other
Total fee and commission income
1
of which: recurring
of which: transaction-based
of which: performance-based
Fee and commission expense
Net fee and commission income
1 For the year ended 31 December 2023, reflects third-party fee and commission income of USD
m for Global Wealth Management, USD
m for Personal & Corporate Banking, USD
m for Asset
Management, USD
m for the Investment Bank, USD
m for Non-core and Legacy and negative USD
m for Group Items (for the year ended 31 December 2022: USD
m for Global Wealth Management,
USD
m for Personal & Corporate Banking, USD
m for Asset Management, USD
m for the Investment Bank, USD
m for Non-core and Legacy and USD
m for Group Items; for the year
ended 31 December 2021: USD
m for Global Wealth Management, USD
m for Personal & Corporate Banking, USD
m for Asset Management, USD
m for the Investment Bank, USD
m for
Non-core and Legacy and USD
m for Group Items). For the year ended 31 December 2023, Non-core and Legacy (previously reported within Group Functions) represents a separate reportable segment and Group
Functions has been renamed Group Items. Prior periods have been revised to reflect these changes.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 161
Note 5 Other income
For the year ended
USD m
31.12.23
31.12.22
31.12.21
Associates, joint ventures and subsidiaries
Net gains / (losses) from acquisitions and disposals of subsidiaries
1
(11 )
Net gains / (losses) from disposals of investments in associates and joint ventures
2
Share of net profits of associates and joint ventures
(163 )
3
Total
(138 )
Net gains / (losses) from disposals of financial assets measured at fair value through other comprehensive income
(1 )
(1 )
Income from properties
4
Net gains / (losses) from properties held for sale
5
Income from shared services provided to UBS Group AG or its subsidiaries
Other
6
7
8
Total other income
1 Includes foreign exchange gains / (losses) reclassified from other comprehensive income related to the disposal or closure of foreign operations. Refer to Note 29 for more information about UBS AG’s acquisitions
and disposals of subsidiaries and businesses. 2 Includes an USD
m gain related to the sale of UBS AG’s shareholding in Mitsubishi Corp.-UBS Realty Inc. 3 Includes a USD
m share of proportionate
impairment losses reflected in the SIX Group profit and loss, of which USD
m reported in Personal and Corporate Banking and USD
m reported in Global Wealth Management. 4 Includes rent received from
third parties. 5 Mainly relates to the sale of a property in Basel. 6 Includes gains of USD
m related to the repurchase of UBS AG‘s own debt instruments (compared with a gain of USD
m in 2022 and a loss
of USD
m in 2021). 7 Mainly relates to a portion of the total USD
m gain on the sale of UBS AG’s domestic wealth management business in Spain of USD
m (with the remaining amount disclosed within
Net gains / (losses) from acquisitions and disposals of subsidiaries) and income of USD
m related to a legacy litigation settlement and a legacy bankruptcy claim. 8 Includes a gain of USD
m from the sale of
UBS AG’s domestic wealth management business in Austria.
Note 6 Personnel expenses
For the year ended
USD m
31.12.23
31.12.22
31.12.21
Salaries
1
Variable compensation
2
of which: performance awards
of which: financial advisors
3
of which: other
Contractors
Social security
Post-employment benefit plans
4
of which: defined benefit plans
of which: defined contribution plans
Other personnel expenses
Total personnel expenses
1 Includes role-based allowances. 2 Refer to Note 27 for more information. 3 Consists of cash and deferred compensation awards and is based on compensable revenues and firm tenure using a formulaic
approach. It also includes expenses related to compe nsation commitments with financial advisors entered into at the time of recruitment that are subject to vesting requirements. 4 Refer to Note 26 for more
information. Includes curtailment gains of USD
m for the year ended 31 December 2023 (for the year ended 31 December 2022: USD
m; for the year ended 31 December 2021: USD
m), which represent a
reduction in the defined benefit obligation related to the Swiss pension plan resulting from a decrease in headcount following restructuring activities.
Personnel expenses increased by USD
m to USD
m and included integration-related expenses of USD
m.
Note 7 General and administrative expenses
For the year ended
USD m
31.12.23
31.12.22
31.12.21
Outsourcing costs
Technology costs
Consulting, legal and audit fees
Real estate and logistics costs
Market data services
Marketing and communication
Travel and entertainment
Litigation, regulatory and similar matters
1
Other
of which: shared services costs charged by UBS Group AG or its subsidiaries
Total general and administrative expenses
1 Reflects the net increase, including recoveries from third parties, in provisions for litigation, regulatory and similar matters recognized in the income statement. Refer to Note 17 for more information.
General and administrative expenses increased by USD
m to USD
m, which included integration-related
expenses of USD
m, largely reflected in higher consulting and real estate costs.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 162
Note 8 Income taxes
For the year ended
USD m
31.12.23
31.12.22
31.12.21
Tax expense / (benefit)
Swiss
Current
Deferred
(22 )
Total Swiss
Non-Swiss
Current
Deferred
(262 )
Total non-Swiss
Total income tax expense / (benefit) recognized in the income statement
Income tax recognized in the income statement
The Swiss current tax expenses related to taxable profits of UBS Switzerland AG and other Swiss entities.
The non-Swiss current tax expenses related to expenses of USD
m in respect of US corporate alternative minimum
tax (CAMT) and USD
m in respect of other taxable profits of non-Swiss subsidiaries and branches.
The non-Swiss net deferred tax benefit primarily related to a benefit of USD
m in respect of an increase in deferred
tax assets (DTAs) that resulted from an increase in the expected value of future tax deductions for deferred compensation
awards due to an increase in the Group’s share price during the year. In addition, the net deferred tax benefit included a
benefit of USD
m in respect of the recognition of DTAs for tax credits carried forward in respect of CAMT. These
benefits were partly offset by a net deferred tax expense of USD
m that primarily related to the amortization of DTAs
previously recognized in relation to tax losses carried forward .
Excluding any potential effects from the remeasurement of DTAs in connection with the business planning process and
any material jurisdictional statutory tax rate changes that could be enacted, UBS AG expects a tax rate for 2024 of around
%.
For the year ended
USD m
31.12.23
31.12.22
31.12.21
Operating profit / (loss) before tax
of which: Swiss
of which: non-Swiss
Income taxes at Swiss tax rate of
% for 2023,
% for 2022 and
% for 2021
Increase / (decrease) resulting from:
Non-Swiss tax rates differing from Swiss tax rate
(43 )
Tax effects of losses not recognized
Previously unrecognized tax losses now utilized
(401 )
(217 )
(179 )
Non-taxable and lower-taxed income
(165 )
(316 )
(252 )
Non-deductible expenses and additional taxable income
Adjustments related to prior years, current tax
(15 )
(33 )
(38 )
Adjustments related to prior years, deferred tax
(3 )
Change in deferred tax recognition
(273 )
(217 )
(341 )
Adjustments to deferred tax balances arising from changes in tax rates
(1 )
Other items
Income tax expense / (benefit)
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 163
Note 8 Income taxes (continued)
The components of operating profit before tax, and the differences between income tax expense reflected in the financial
statements and the amounts calculated at the Swiss tax rate, are provided in the table above and explained below.
Component
Description
Non-Swiss tax rates
differing from the
Swiss tax rate
To the extent that UBS AG profits or losses arise outside Switzerland, the applicable local tax rate may differ from the
Swiss tax rate. This item reflects, for such profits, an adjustment from the tax expense that would arise at the Swiss tax
rate to the tax expense that would arise at the applicable local tax rate. Similarly, it reflects, for such losses, an adjustment
from the tax benefit that would arise at the Swiss tax rate to the tax benefit that would arise at the applicable local tax
rate.
Tax effects of losses
not recognized
This item relates to tax losses of entities arising in the year that are not recognized as DTAs and where no tax benefit arises
in relation to those losses. Therefore, the tax benefit calculated by applying the local tax rate to those losses as described
above is reversed.
Previously
unrecognized tax losses
now utilized
This item relates to taxable profits of the year that are offset by tax losses of previous years for which no DTAs were
previously recorded. Consequently, no current tax or deferred tax expense arises in relation to those taxable profits and
the tax expense calculated by applying the local tax rate on those profits is reversed.
Non-taxable and lower-
taxed income
This item relates to tax deductions for the year in respect of permanent differences. These include deductions in respect of
profits that are either not taxable or are taxable at a lower rate of tax than the local tax rate. They also include deductions
made for tax purposes, which are not reflected in the accounts.
Non-deductible
expenses and
additional taxable
income
This item relates to additional taxable income for the year in respect of permanent differences. These include income that
is recognized for tax purposes by an entity but is not included in its profit that is reported in the financial statements, as
well as expenses for the year that are non-deductible (e.g., client entertainment costs are not deductible in certain
locations).
Adjustments related to
prior years, current tax
This item relates to adjustments to current tax expense for prior years (e.g., if the tax payable for a year is agreed with the
tax authorities in an amount that differs from the amount previously reflected in the financial statements).
Adjustments related to
prior years, deferred
tax
This item relates to adjustments to deferred tax positions recognized in prior years (e.g., if a tax loss for a year is fully
recognized and the amount of the tax loss agreed with the tax authorities is expected to differ from the amount previously
recognized as DTAs in the accounts).
Change in deferred tax
recognition
This item relates to changes in DTAs, including changes in DTAs previously recognized resulting from reassessments of
expected future taxable profits. It also includes changes in temporary differences in the year, for which deferred tax is not
recognized.
Adjustments to
deferred tax balances
arising from changes in
tax rates
This item relates to remeasurements of DTAs and liabilities recognized due to changes in tax rates. These have the effect
of changing the future tax saving that is expected from tax losses or deductible tax differences and therefore the amount
of DTAs recognized or, alternatively, changing the tax cost of additional taxable income from taxable temporary
differences and therefore the deferred tax liability.
Other items
Other items include other differences between profits or losses at the local tax rate and the actual local tax expense or
benefit, including movements in provisions for uncertain positions in relation to the current year and other items.
Income tax recognized directly in equity
A net tax expense of USD
m was recognized in
Other comprehensive income
m) and
a net tax benefit of USD
m was recognized in
Share premium
m).
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 164
Note 8 Income taxes (continued)
Deferred tax assets and liabilities
UBS AG has gross DTAs, valuation allowances and recognized DTAs related to tax loss carry -forwards and deductible
temporary differences, as well as deferred tax liabilities in respect of taxable temporary differences, as shown in the table
below. The valuation allowances reflect DTAs that were not recognized because, as of the last remeasurement period,
management did not consider it probable that there would be sufficient future taxable profits available to utilize the
related tax loss carry-forwards and deductible temporary differences.
The recognition of DTAs is supported by forecasts of taxable profits for the entities concerned. In addition, tax planning
opportunities are available that would result in additional future taxable income and these would be utilized, if necessary.
Deferred tax liabilities are recognized in respect of investments in subsidiaries, branches and associates, and interests in
joint arrangements, except to the extent that UBS AG can control the timing of the reversal of the associated taxable
temporary difference, and it is probable that such will not reverse in the foreseeable future. However, as of 31 December
2023, this exception was not considered to apply to any taxable temporary differences.
USD m
31.12.23
31.12.22
Deferred tax assets
1
Gross
Valuation
allowance
Recognized
Gross
Valuation
allowance
Recognized
Tax loss carry-forwards
(8,496 )
(8,720 )
Unused tax credits
Temporary differences
(579 )
(408 )
of which: related to real estate costs capitalized for US tax
purposes
of which: related to compensation and benefits
(205 )
(175 )
of which: related to cash flow hedges
of which: other
(374 )
(233 )
Total deferred tax assets
(9,076 )
2
(9,128 )
2
of which: related to the US
of which: related to other locations
Deferred tax liabilities
Total deferred tax liabilities
1 After offset of DTLs, as applicable. 2 As of 31 December 2023, UBS AG recognized DTAs of USD
m (31 December 2022: USD
m) in respect of entities that incurred losses in either the current or preceding
year.
In general, US federal tax losses incurred prior to 31 December 2017 can be carried forward for 20 years. US federal tax
losses incurred after that date can be carried forward indefinitely, although the utilization of such losses is limited to 80%
of the entity’s future year taxable profits. UK tax losses can also be carried forward indefinitely; they can shelter up to
either 25% or 50% of future year taxable profits, depending on when the tax losses arose. The amounts of US tax loss
carry-forwards that are included in the table below are based on their amount for federal tax purposes rather than for
state and local tax purposes.
Unrecognized tax loss carry-forwards
USD m
31.12.23
31.12.22
Within 1 year
From 2 to 5 years
From 6 to 10 years
From 11 to 20 years
No expiry
Total
of which: related to the US
1
of which: related to the UK
of which: related to other locations
1 Related to UBS AG’s US branch.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 165
Balance sheet notes
Note 9 Financial assets at amortized cost and other positions in scope of expected credit loss measurement
The tables below provide information about financial instruments and certain credit lines that are subject to expected
credit loss (ECL ) requirements. UBS AG’s ECL disclosure segments, or “ECL segments” are aggregated portfolios based
on shared risk characteristics and on the same or similar rating methods applied. The key segments are presented in the
table below.
›
Refer to Note 19 for more information about expected credit loss measurement
Segment
Segment description
Description of credit risk sensitivity
Business division
Private clients with
mortgages
Lending to private clients secured by
owner-occupied real estate and
personal account overdrafts of those
clients
Sensitive to the interest rate environment,
unemployment levels, real estate collateral
values and other regional aspects
–
Personal & Corporate Banking
–
Global Wealth Management
Real estate financing
Rental or income-producing real estate
financing to private and corporate
clients secured by real estate
Sensitive to unemployment levels, the
interest rate environment, real estate
collateral values and other regional
aspects
–
Personal & Corporate Banking
–
Global Wealth Management
–
Investment Bank
Large corporate clients
Lending to large corporate and multi-
national clients
Sensitive to GDP developments,
unemployment levels, seasonality,
business cycles and collateral values
(diverse collateral, including real estate
and other collateral types)
–
Personal & Corporate Banking
–
Investment Bank
SME clients
Lending to small and medium-sized
corporate clients
Sensitive to GDP developments,
unemployment levels, the interest rate
environment and, to some extent,
seasonality, business cycles and collateral
values (diverse collateral, including real
estate and other collateral types)
–
Personal & Corporate Banking
Lombard
Loans secured by pledges of marketable
securities, guarantees and other forms
of collateral (including concentration in
hedge funds, private equity and unlisted
equities), as well as unsecured recourse
lending
Sensitive to equity and debt markets (e.g.,
changes in collateral values)
–
Global Wealth Management
Credit cards
Credit card solutions in Switzerland and
the US
Sensitive to unemployment levels
–
Personal & Corporate Banking
–
Global Wealth Management
Commodity trade
finance
Working capital financing of commodity
traders, generally extended on a self-
liquidating transactional basis
Sensitive primarily to the strength of
individual transaction structures and
collateral values (price volatility of
commodities), as the primary source for
debt service is directly linked to the
shipments financed
–
Personal & Corporate Banking
Financial intermediaries
and hedge funds
Lending to financial institutions and
pension funds, including exposures to
broker-dealers and clearing houses
Sensitive to GDP development, the
interest rate environment, price and
volatility risks in financial markets, and
regulatory and political risk
–
Personal & Corporate Banking
–
Investment Bank
›
Refer to Note 19f for more details regarding sensitivity
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 166
Note 9 Financial assets at amortized cost and other positions in scope of expected credit loss measurement
(continued)
The tables below provide ECL exposure and ECL allowance and provision information about financial instruments and
certain non-financial instruments that are subject to ECLs.
USD m
31.12.23
Carrying amount
1
ECL allowances
Financial instruments measured at amortized cost
Total
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Cash and balances at central banks
(26 )
(26 )
Amounts due from banks
(7 )
(6 )
(1 )
Receivables from securities financing transactions measured at amortized cost
(2 )
(2 )
Cash collateral receivables on derivative instruments
Loans and advances to customers
(935 )
(173 )
(185 )
(577 )
of which: Private clients with mortgages
(156 )
(39 )
(89 )
(28 )
of which: Real estate financing
(46 )
(20 )
(25 )
(1 )
of which: Large corporate clients
(241 )
(34 )
(32 )
(174 )
of which: SME clients
(262 )
(34 )
(24 )
(204 )
of which: Lombard
(22 )
(5 )
(17 )
of which: Credit cards
(42 )
(6 )
(11 )
(24 )
of which: Commodity trade finance
(119 )
(7 )
(111 )
Other financial assets measured at amortized cost
(87 )
(16 )
(5 )
(66 )
of which: Loans to financial advisors
(49 )
(4 )
(1 )
(44 )
Total financial assets measured at amortized cost
(1,057 )
(197 )
(217 )
(643 )
Financial assets measured at fair value through other comprehensive income
Total on-balance sheet financial assets within the scope of ECL requirements
(1,057 )
(197 )
(217 )
(643 )
Total exposure
ECL provisions
Off-balance sheet (within the scope of ECL)
Total
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Guarantees
(40 )
(14 )
(7 )
(19 )
of which: Large corporate clients
(10 )
(3 )
(2 )
(6 )
of which: SME clients
(7 )
(1 )
(1 )
(5 )
of which: Financial intermediaries and hedge funds
(12 )
(8 )
(3 )
of which: Lombard
(1 )
(1 )
of which: Commodity trade finance
(1 )
(1 )
Irrevocable loan commitments
(95 )
(55 )
(38 )
(2 )
of which: Large corporate clients
(76 )
(45 )
(28 )
(2 )
Forward starting reverse repurchase and securities borrowing agreements
Committed unconditionally revocable credit lines
(49 )
(39 )
(10 )
of which: Real estate financing
(4 )
(3 )
(1 )
of which: Large corporate clients
(6 )
(4 )
(3 )
of which: SME clients
(21 )
(17 )
(3 )
of which: Lombard
of which: Credit cards
(10 )
(8 )
(2 )
of which: Commodity trade finance
Irrevocable committed prolongation of existing loans
(4 )
(3 )
Total off-balance sheet financial instruments and credit lines
(188 )
(111 )
(56 )
(21 )
Total allowances and provisions
(1,244 )
(308 )
(272 )
(664 )
1 The carrying amount of financial assets measured at amortized cost represents the total gross exposure net of the respective ECL allowances.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 167
Note 9 Financial assets at amortized cost and other positions in scope of expected credit loss measurement
(continued)
USD m
31.12.22
Carrying amount
1
ECL allowances
Financial instruments measured at amortized cost
Total
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Cash and balances at central banks
(12 )
(12 )
Amounts due from banks
(6 )
(5 )
(1 )
Receivables from securities financing transactions measured at amortized cost
(2 )
(2 )
Cash collateral receivables on derivative instruments
Loans and advances to customers
(783 )
(129 )
(180 )
(474 )
of which: Private clients with mortgages
(161 )
(27 )
(107 )
(28 )
of which: Real estate financing
(41 )
(17 )
(23 )
of which: Large corporate clients
(130 )
(24 )
(14 )
(92 )
of which: SME clients
(251 )
(26 )
(22 )
(203 )
of which: Lombard
(26 )
(9 )
(17 )
of which: Credit cards
(36 )
(7 )
(10 )
(19 )
of which: Commodity trade finance
(96 )
(6 )
(90 )
Other financial assets measured at amortized cost
(86 )
(17 )
(6 )
(63 )
of which: Loans to financial advisors
(59 )
(7 )
(2 )
(51 )
Total financial assets measured at amortized cost
(890 )
(154 )
(199 )
(537 )
Financial assets measured at fair value through other comprehensive income
Total on-balance sheet financial assets within the scope of ECL requirements
(890 )
(154 )
(199 )
(537 )
Total exposure
ECL provisions
Off-balance sheet (within the scope of ECL)
Total
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Guarantees
(48 )
(13 )
(9 )
(26 )
of which: Large corporate clients
(26 )
(2 )
(3 )
(21 )
of which: SME clients
(5 )
(1 )
(1 )
(3 )
of which: Financial intermediaries and hedge funds
(12 )
(8 )
(4 )
of which: Lombard
(1 )
(1 )
of which: Commodity trade finance
(1 )
(1 )
Irrevocable loan commitments
(111 )
(59 )
(52 )
of which: Large corporate clients
(93 )
(49 )
(45 )
Forward starting reverse repurchase and securities borrowing agreements
Committed unconditionally revocable credit lines
(40 )
(32 )
(8 )
of which: Real estate financing
(6 )
(6 )
of which: Large corporate clients
(4 )
(1 )
(2 )
of which: SME clients
(19 )
(16 )
(3 )
of which: Lombard
of which: Credit cards
(7 )
(5 )
(2 )
of which: Commodity trade finance
Irrevocable committed prolongation of existing loans
(2 )
(2 )
Total off-balance sheet financial instruments and credit lines
(201 )
(106 )
(69 )
(26 )
Total allowances and provisions
(1,091 )
(260 )
(267 )
(564 )
1 The carrying amount of financial assets measured at amortized cost represents the total gross exposure net of the respective ECL allowances.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 168
Note 9 Financial assets at amortized cost and other positions in scope of expected credit loss measurement
(continued)
Coverage ratios are calculated for the core loan portfolio by taking ECL allowances and provisions divided by the gross
carrying amount of the exposures. Core loan exposure is defined as the sum of
Loans and advances to customers
Loans to financial advisors
.
These ratios are influenced by the following key factors:
–
Lombard loans are generally secured with marketable securities in portfolios that are, as a rule, highly diversified, with
strict lending policies that are intended to ensure that credit risk is minimal under most circumstances;
–
mortgage loans to private clients and real estate financing are controlled by conservative eligibility criteria, including
low loan-to-value ratios and strong debt service capabilities;
–
the amount of unsecured retail lending (including credit cards) is insignificant;
–
lending in Switzerland includes government-backed COVID-19 loans;
–
contractual maturities in the loan portfolio, which are a factor in the calculation of ECLs, are generally short, with
Lombard lending typically having average contractual maturities of 12 months or less, real estate lending generally
between two and three years in Switzerland, with long-dated maturities in the US, and corporate lending between
one and two years with related loan commitments up to four years; and
–
write-offs of ECL allowances against the gross loan balances when all or part of a financial asset is deemed uncollectible
or forgiven, reduces the coverage ratios.
The total combined on- and off-balance sheet coverage ratio was at
point higher than on 31 December 2022. The combined stage 1 and 2 ratio of
with 31 December 2022; the stage 3 ratio was
%, materially unchanged compared with 31 December 2022.
31.12.23
Gross carrying amount (USD m)
ECL coverage (bps)
On-balance sheet
Total
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 1&2
Stage 3
Private clients with mortgages
Real estate financing
Total real estate lending
Large corporate clients
SME clients
Total corporate lending
Lombard
Credit cards
Commodity trade finance
Other loans and advances to customers
Loans to financial advisors
Total other lending
Total
1
Gross exposure (USD m)
ECL coverage (bps)
Off-balance sheet
Total
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 1&2
Stage 3
Private clients with mortgages
Real estate financing
Total real estate lending
Large corporate clients
SME clients
Total corporate lending
Lombard
Credit cards
Commodity trade finance
Financial intermediaries and hedge funds
Other off-balance sheet commitments
Total other lending
Total
2
Total on- and off-balance sheet
3
1 Includes Loans and advances to customers and Loans to financial advisors, which are presented on the balance sheet line Other financial assets measured at amortized cost. 2 Excludes Forward starting reverse
repurchase and securities borrowing agreements. 3 Includes on-balance sheet exposure, gross and off-balance sheet exposure (notional) and the related ECL coverage ratio (bps).
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 169
Note 9 Financial assets at amortized cost and other positions in scope of expected credit loss measurement
(continued)
31.12.22
Gross carrying amount (USD m)
ECL coverage (bps)
On-balance sheet
Total
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 1&2
Stage 3
Private clients with mortgages
Real estate financing
Total real estate lending
Large corporate clients
SME clients
Total corporate lending
Lombard
Credit cards
Commodity trade finance
Other loans and advances to customers
Loans to financial advisors
Total other lending
Total
1
Gross exposure (USD m)
ECL coverage (bps)
Off-balance sheet
Total
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 1&2
Stage 3
Private clients with mortgages
Real estate financing
Total real estate lending
Large corporate clients
SME clients
Total corporate lending
Lombard
Credit cards
Commodity trade finance
Financial intermediaries and hedge funds
Other off-balance sheet commitments
Total other lending
Total
2
Total on- and off-balance sheet
3
1 Includes Loans and advances to customers and Loans to financial advisors, which are presented on the balance sheet line Other financial assets measured at amortized cost. 2 Excludes Forward starting reverse
repurchase and securities borrowing agreements. 3 Includes on-balance sheet exposure, gross and off-balance sheet exposure (notional) and the related ECL coverage ratio (bps).
Note 10 Derivative instruments
Overview
Over-the-counter (OTC) derivative contracts are usually traded under a standardized International Swaps and Derivatives
Association (ISDA) master agreement or other recognized local industry-standard master agreements between UBS AG
and its counterparties. Terms are negotiated directly with counterparties and the contracts have industry-standard
settlement mechanisms prescribed by ISDA or similar industry-standard solutions. Other OTC derivatives are cleared
through clearing houses, in particular interest rate swaps with LCH, where a settled-to-market method has been generally
adopted, under which cash collateral exchanged on a daily basis is considered to legally settle the market value of the
derivatives. Regulators in various jurisdictions have introduced rules requiring the payment and collection of initial and
variation margins on certain OTC derivative contracts, which may have a bearing on price and other relevant terms.
Exchange-traded derivatives (ETD) are standardized in terms of their amounts and settlement dates, and are bought and
sold on regulated exchanges. Exchanges offer the benefits of pricing transparency, standardized daily settlement of
changes in value and, consequently, reduced credit risk.
Most of UBS AG’s derivative transactions relate to sales and market-making activity. Sales activities include the structuring
and marketing of derivative products to customers to enable them to take, transfer, modify or reduce current or expected
risks. Market-making aims to directly support the facilitation and execution of client activity, and involves quoting bid and
offer prices to other market participants with the aim of generating revenues based on spread and volume. UBS AG also
uses various derivative instruments for hedging purposes.
›
Refer to Notes 15 and 20 for more information about derivative instruments
›
Refer to Note 25 for more information about derivatives designated in hedge accounting relationships
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 170
Note 10 Derivative instruments (continued)
Risks of derivative instruments
The derivative financial assets shown on the balance sheet can be an important component of UBS AG’s credit exposure;
however, the positive replacement values related to a respective counterparty are rarely an adequate reflection of
UBS AG’s credit exposure in its derivatives business with that counterparty. This is generally the case because, on the one
hand, replacement values can increase over time (potential future exposure), while, on the other hand, exposure may be
mitigated by entering into master netting agreements and bilateral collateral arrangements. Both the exposure measures
used internally by UBS AG to control credit risk and the capital requirements imposed by regulators reflect these additional
factors.
›
Refer to Note 21 for more information about derivative financial assets and liabilities after consideration of netting potential
permitted under enforceable netting arrangements
›
Refer to the “Risk management and control” section of this report for more information about the risks arising from derivative
instruments
Derivative instruments
31.12.23
31.12.22
USD bn
Derivative
financial
assets
Derivative
financial
liabilities
Notional amounts
related to
derivative financial
assets and
liabilities
2,3
Other
notional
amounts
2,4
Derivative
financial
assets
Derivative
financial
liabilities
Notional amounts
related to
derivative financial
assets and
liabilities
2,3
Other
notional
amounts
2,4
Interest rate
of which: forwards (OTC)
1
of which: swaps (OTC)
of which: options (OTC)
of which: futures (ETD)
of which: options (ETD)
Credit derivatives
of which: credit default swaps (OTC)
of which: total return swaps (OTC)
Foreign exchange
of which: forwards (OTC)
of which: swaps (OTC)
of which: options (OTC)
Equity / index
of which: swaps (OTC)
of which: options (OTC)
of which: futures (ETD)
of which: options (ETD)
of which: client-cleared transactions (ETD)
Commodities
of which: swaps (OTC)
of which: options (OTC)
of which: futures (ETD)
of which: forwards (ETD)
of which: client-cleared transactions (ETD)
Other
5
Total derivative instruments,
based on IFRS netting
6
1 Includes certain forward starting repurchase and reverse repurchase agreements that are classified as measured at fair value through profit or loss and are recognized within derivative instruments. 2 In cases
where derivative financial instruments are presented on a net basis on the balance sheet, the respective notional amounts of the netted derivative financial instruments are still presented on a gross basis. 3 Notional
amounts of client-cleared ETD and OTC transactions through central clearing counterparties are not disclosed, as they have a significantly different risk profile. 4 Other notional amounts relate to derivatives that are
cleared through either a central counterparty or an exchange. The fair value of these derivatives is presented on the balance sheet net of the corresponding cash margin under Cash collateral receivables on derivative
instruments and Cash collateral payables on derivative instruments, and was not material for any of the periods presented. 5 Includes mainly derivative loan commitments measured at FVTPL, as well as unsettled
purchases and sales of non-derivative financial instruments for which the changes in the fair value between trade date and settlement date are recognized as derivative financial instruments. 6 Derivative financial
assets and liabilities are presented net on the balance sheet if UBS AG has the unconditional and legally enforceable right to offset the recognized amounts, both in the normal course of business and in the event of
default, bankruptcy or insolvency of the entity and all of the counterparties, and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously. Refer to Note 21 for more information
on netting arrangements.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 171
Note 10 Derivative instruments (continued)
On a notional amount basis, approximately
% of OTC interest rate contracts held as of 31 December 2023
(31 December 2022:
%) mature within one year,
% (31 December 2022:
%) within one to five years and
%
(31 December 2022:
%) after five years.
Notional amounts of interest rate contracts cleared through either a central counterparty or an exchange that are legally
settled or economically net settled on a daily basis are presented under
Other notional amounts
are categorized into maturity buckets on the basis of contractual maturities of the cleared underlying derivative contracts.
Other notional amounts related to interest rate contracts increased by USD
trn compared with 31 December 2022,
mainly reflecting lower compression activity and higher business volumes driven by elevated interest rate volatility and
inflation.
Note 11 Property, equipment and software
At historical cost less accumulated depreciation
USD m
Owned
properties and
equipment
1
Leased
properties and
equipment
2
Software
Projects in
progress
2023
3
2022
3
Historical cost
Balance at the beginning of the year
Additions
Disposals / write-offs
4
(299 )
(63 )
(1,087 )
(1,449 )
(414 )
Reclassifications
(1,561 )
(894 )
Foreign currency translation
(200 )
Balance at the end of the year
Accumulated depreciation
Balance at the beginning of the year
Depreciation
Impairment
5
Disposals / write-offs
4
(296 )
(62 )
(1,087 )
(1,445 )
(410 )
Reclassifications
(2 )
(566 )
Foreign currency translation
(99 )
Balance at the end of the year
Net book value
Net book value at the beginning of the year
Net book value at the end of the year
6
1 Includes leasehold improvements and IT hardware. 2 Represents right-of-use assets recognized by UBS AG as lessee. UBS AG predominantly enters into lease contracts, or contracts that include lease components,
in relation to real estate, including offices, retail branches and sales offices. The total cash outflow for leases during 2023 was USD
m (2022: USD
m). Interest expense on lease liabilities is included within
Interest expense from financial instruments measured at amortized cost and Lease liabilities are included within Other financial liabilities measured at amortized cost. Refer to Notes 3 and 18a, respectively. There
were no material gains or losses arising from sale-and-leaseback transactions in 2023 and in 2022. 3 The total reclassification amount for the respective periods represents net reclassifications from / to Properties
and other non-current assets held for sale. 4 Includes write-offs of fully depreciated assets. 5 Impairment charges recorded in 2023 generally relate to assets that are no longer used, for which the recoverable
amount based on a value-in-use approach was determined to be zero. 6 Consists of USD
m related to software and USD
m related to Owned properties and equipment.
Note 12 Goodwill and intangible assets
Introduction
UBS AG performs an impairment test on its goodwill assets on an annual basis or when indicators of impairment exist.
UBS AG considers Asset Management, as reported in Note 2a, as a separate cash-generating unit (a CGU), as that is the
level at which the performance of investment (and the related goodwill) is reviewed and assessed by management. Given
that a significant amount of goodwill in Global Wealth Management relates to the acquisition of PaineWebber Group,
Inc. in 2000, which mainly affected the Americas portion of the business, this goodwill remains separately monitored by
the Americas, despite the formation of Global Wealth Management in 2018. Therefore, goodwill for Global Wealth
Management is separately considered for impairment at the level of two CGUs: Americas; and Switzerland and
International (consisting of EMEA, Asia Pacific and Global).
The impairment test is performed for each CGU to which goodwill is allocated by comparing the recoverable amount
with the carrying amount of the respective CGU. UBS AG determines the recoverable amount of the respective CGUs
based on their value in use. An impairment charge is recognized if the carrying amount exceeds the recoverable amount.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 172
Note 12 Goodwill and intangible assets (continued)
As of 31 December 2023, total goodwill recognized on the balance sheet was USD
bn, of which USD
bn was
carried by the Global Wealth Management Americas CGU, USD
bn was carried by the Global Wealth Management
Switzerland and International CGU, and USD
bn was carried by Asset Management. Based on the impairment testing
methodology described below, UBS AG concluded that the goodwill balances as of 31 December 2023 allocated to these
CGUs were not impaired. For each of the CGUs, the recoverable amount substantially exceeded the carrying value as of
31 December 2023 and there was no indication of a significant risk of goodwill impairment based on the testing
performed as of 31 December 2023.
Methodology for goodwill impairment testing
The recoverable amounts are determined using a discounted cash flow model, which has been adapted to use inputs
that consider features of the banking business and its regulatory environment. The recoverable amount of a CGU is the
sum of the discounted earnings attributable to shareholders from the first three forecast years and the terminal value,
adjusted for the effect of the capital assumed to be needed over the next three years and to support growth beyond that
period. The terminal value, which covers all periods beyond the third year, is calculated on the basis of the forecast of
the third-year profit, the discount rate and the long-term growth rate, as well as the implied perpetual capital growth.
For the Global Wealth Management Americas CGU, the methodology is consistently applied, however, the forecast
period was extended from three to five years (with a terminal value thereafter) in 2023 to provide for the CGU’s specific
planning assumptions, namely the ongoing investments in the core banking infrastructure in the US to enhance the
product capabilities and offerings in this market in the mid term. The extension of the forecast period from three to five
years did not trigger, defer or avoid an impairment of goodwill as of 31 December 2023.
The carrying amount for each CGU is determined by reference to UBS’s equity attribution framework. Within this
framework, UBS attributes equity to the businesses on the basis of their risk-weighted assets and leverage ratio
denominator (both metrics include resource allocations from Group Items to the business divisions), their goodwill and
their intangible assets, as well as attributed equity related to certain common equity tier 1 deduction items. The
framework is primarily used for the purpose of measuring the performance of the businesses and includes certain
management assumptions. Attributed equity is equal to the capital a CGU requires to conduct its business and is currently
considered a reasonable approximation of the carrying amount of the CGUs. The attributed equity methodology is also
applied in the business planning process, the inputs from which are used in calculating the recoverable amounts of the
respective CGU.
Assumptions
Valuation parameters used within UBS AG’s impairment test model are linked to external market information, where
applicable. The model used to determine the recoverable amount is most sensitive to changes in the forecast earnings
available to shareholders in years one to three, to changes in the discount rates and to changes in the long-term growth
rate. The applied long-term growth rate is based on long-term economic growth rates for different regions worldwide.
Earnings available to shareholders are estimated on the basis of forecast results, which are part of the business plan
approved by the Board of Directors.
The discount rates are determined by applying a capital asset pricing model-based approach, as well as considering
quantitative and qualitative inputs from both internal and external analysts and the view of management. They also take
into account regional differences in risk-free rates at the level of the individual CGUs. In line with discount rates, long-
term growth rates are determined at the regional level based on nominal GDP growth rate forecasts.
Key assumptions used to determine the recoverable amounts of each CGU are tested for sensitivity by applying a
reasonably possible change to those assumptions. Forecast earnings available to shareholders were changed by
%, the
discount rates were changed by
points. Under all scenarios, reasonably possible changes in key assumptions did not result in an impairment of goodwill
or intangible assets reported by Global Wealth Management Americas, Global Wealth Management Switzerland and
International, and Asset Management.
If the estimated earnings and other assumptions in future periods deviate from the current outlook, the value of goodwill
attributable to Global Wealth Management Americas, Global Wealth Management Switzerland and International, and
Asset Management may become impaired in the future, giving rise to losses in the income statement. Recognition of any
impairment of goodwill would reduce IFRS Accounting Standards equity and net profit. It would not affect cash flows
and, as goodwill is required to be deducted from capital under the Basel III capital framework, no effect would be
expected on UBS AG’s capital ratios.
Discount and growth rates
Discount rates
Growth rates
In %
31.12.23
31.12.22
31.12.23
31.12.22
Global Wealth Management Americas
Global Wealth Management Switzerland and International
Asset Management
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 173
Note 12 Goodwill and intangible assets (continued)
USD m
Goodwill
Intangible assets
1
2023
2022
Historical cost
Balance at the beginning of the year
Additions
Disposals
2
(10 )
(30 )
(40 )
(22 )
Foreign currency translation
(76 )
Balance at the end of the year
Accumulated amortization and impairment
Balance at the beginning of the year
Amortization
Impairment / (reversal of impairment)
(1 )
Disposals
2
(30 )
(30 )
Foreign currency translation
(11 )
Balance at the end of the year
Net book value at the end of the year
of which: Global Wealth Management Americas
of which: Global Wealth Management Switzerland and International
of which: Asset Management
of which: Investment Bank
1 Intangible assets mainly include customer relationships, contractual rights and the fully amortized branch network intangible asset recognized in connection with the acquisition of PaineWebber Group, Inc. in 2000.
2 Reflects the derecognition of goodwill allocated to business and intangible assets held by entities that have been disposed of. Refer to Note 29 for more information.
The table below presents estimated aggregated amortization expenses for intangible assets.
USD m
Intangible assets
Estimated aggregated amortization expenses for:
2024
2025
2026
2027
2028
Thereafter
Not amortized due to indefinite useful life
Total
Note 13 Other assets
a) Other financial assets measured at amortized cost
USD m
31.12.23
31.12.22
Debt securities
Loans to financial advisors
Fee- and commission-related receivables
Finance lease receivables
Settlement and clearing accounts
Accrued interest income
Other
1
Total other financial assets measured at amortized cost
1 Predominantly includes cash collateral provided to exchanges and clearing houses to secure securities trading activity through those counterparties.
Effective from 1 April 2022, UBS has reclassified a portfolio of financial assets from Financial assets measured at fair value
through other comprehensive income with a fair value of USD
bn (the Portfolio) to Other financial assets measured at
amortized cost.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 174
Note 13 Other assets (continued)
The Portfolio’s cumulative fair value losses of USD
m pre-tax and USD
m post-tax, previously recognized in
Other
comprehensive income
, have been removed from equity and adjusted against the value of the assets on the
reclassification date, so that the Portfolio is measured as if the assets had always been classified at amortized cost, with
a value of USD
bn as on 1 April 2022. The reclassification had no effect on the income statement. The reclassified
Portfolio is made up of high-quality liquid assets, primarily US government treasuries and US government agency
mortgage-backed securities, held and separately managed by UBS Bank USA. The accounting reclassification has arisen
as a direct result of the transformation of UBS’s Global Wealth Management Americas business, which has significantly
impacted UBS Bank USA. This includes initiatives approved by the Group Executive Board to significantly grow and extend
the business, as disclosed on 1 February 2022 during UBS’s fourth quarter 2021 earnings presentation. Over the two
years preceding the reclassification date, UBS Bank USA’s deposit base grew by more than 100% generating substantial
cash balances, with a number of new products being launched, including new deposit types that are longer in duration,
additional lending and a broader range of customer segments targeted. Following the commencement of these activities
and the announcement made in the first quarter of 2022, the Portfolio is no longer held in a business model to collect
the contractual cash flows and sell the assets but is instead solely held to collect the contractual cash flows until the
assets mature, requiring a reclassification of the Portfolio in line with IFRS 9 with effect from 1 April 2022.
b) Other non-financial assets
USD m
31.12.23
31.12.22
Precious metals and other physical commodities
Deposits and collateral provided in connection with litigation, regulatory and similar matters
1
Prepaid expenses
VAT, withholding tax and other tax receivables
Properties and other non-current assets held for sale
Other
Total other non-financial assets
1 Refer to Note 17 for more information.
Note 14 Customer deposits, and funding from UBS Group AG
a) Customer deposits
USD m
31.12.23
31.12.22
Demand deposits
Retail savings / deposits
Sweep deposits
Time deposits
1
Total customer deposits
1 Includes customer deposits in UBS AG Jersey Branch placed by UBS Switzerland AG on behalf of its clients.
Customer deposits increased mainly due to net inflows into time deposit products, and positive foreign currency effects,
partly offset by continued shifts into money market funds and US-government securities. In addition, customers
continued to shift funds from Demand and Sweep deposits into time deposits.
b) Funding from UBS Group AG measured at amortized cost
USD m
31.12.23
31.12.22
Debt contributing to total loss-absorbing capacity (TLAC)
Debt eligible as high-trigger loss-absorbing additional tier 1 capital instruments
Debt eligible as low-trigger loss-absorbing additional tier 1 capital instruments
Other
1
Total funding from UBS Group AG measured at amortized cost
2,3
1 Includes debt not eligible as TLAC having a residual maturity of less than one year and high-trigger loss-absorbing additional tier 1 capital instruments that ceased to be eligible when UBS Group AG issued notice
of redemption. 2 The Total funding from UBS Group AG measured at amortized cost consists of subordinated debt of UBS AG and its subsidiaries toward UBS Group AG. Subordinated debt consists of unsecured
debt obligations that are contractually subordinated in right of payment to all other present and future non-subordinated obligations of the respective issuing entity. All instruments contributing to TLAC are subordinated
since 1.1.2020. 3 UBS AG has also recognized funding from UBS Group AG that is designated at fair value. Refer to Note 18b for more information.
UBS AG uses interest rate and foreign exchange derivatives to manage the risks inherent in certain debt instruments held
at amortized cost. In some cases, UBS AG applies hedge accounting for interest rate risk as discussed in item 2j in Note
1a and Note 25. As a result of applying hedge accounting, the life-to-date adjustment to the carrying amount of
Funding
from UBS Group AG measured at amortized cost
bn as of 31 December 2023 and a decrease
of USD
bn as of 31 December 2022, reflecting changes in fair value due to interest rate movements.
Of the
Total funding from UBS Group AG measured at amortized cost
bn
pays a fixed interest rate and USD
bn pays a floating rate of interest.
›
Refer to Note 23 for maturity information
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 175
Note 15 Debt issued designated at fair value
USD m
31.12.23
31.12.22
Issued debt instruments
Equity-linked
1
Rates-linked
Credit-linked
Fixed-rate
Commodity-linked
Other
Total debt issued designated at fair value
of which: issued by UBS AG with original maturity greater than one year
2
1 Includes investment fund unit-linked instruments issued. 2 Based on original contractual maturity without considering any early redemption features. As of 31 December 2023,
% of the balance was unsecured
(31 December 2022:
%).
Note 16 Debt issued measured at amortized cost
USD m
31.12.23
31.12.22
Short-term debt
1
Senior unsecured debt
of which: issued by UBS AG with original maturity greater than one year
Covered bonds
Subordinated debt
of which: eligible as low-trigger loss-absorbing tier 2 capital instruments
of which: eligible as non-Basel III-compliant tier 2 capital instruments
Debt issued through the Swiss central mortgage institutions
Long-term debt
2
Total debt issued measured at amortized cost
3,4
1 Debt with an original contractual maturity of less than one year, includes mainly certificates of deposit and commercial paper. 2 Debt with an original contractual maturity greater than or equal to one year. The
classification of debt issued into short-term and long -term does not consider any early redemption features. 3 Net of bifurcated embedded derivatives, the fair value of which was not material for the periods
presented. 4 Except for Covered bonds and Debt issued through the Swiss central mortgage institutions,
% of the balance was unsecured as of 31 December 2023.
UBS AG uses interest rate and foreign exchange derivatives to manage the risks inherent in certain debt instruments held
at amortized cost. In some cases, UBS AG applies hedge accounting for interest rate risk as discussed in item 2j in Note
1a and Note 25. As a result of applying hedge accounting, the life-to-date adjustment to the carrying amount of
Debt
issued measured at amortized cost
bn as of 31 December 2023 and a decrease of USD
bn
as of 31 December 2022, reflecting changes in fair value due to interest rate movements.
Subordinated debt consists of unsecured debt obligations that are contractually subordinated in right of payment to all
other present and future non-subordinated obligations of the respective issuing entity. All of the subordinated debt
instruments outstanding as of 31 December 2023 pay a fixed rate of interest.
›
Refer to Note 23 for maturity information
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 176
Note 17 Provisions and contingent liabilities
a) Provisions
The table below presents an overview of total provisions.
USD m
31.12.23
31.12.22
Provisions other than provisions for expected credit losses
Provisions for expected credit losses
1
Total provisions
1 Refer to Note 9 for more information about ECL provisions recognized for off-balance sheet financial instruments and credit lines.
The following table presents additional information for provisions other than provisions for expected credit losses.
USD m
Litigation,
regulatory and
similar matters
1
Restructuring
2
Real estate
3
Other
4
Total 2023
Balance at the beginning of the year
Increase in provisions recognized in the income statement
Release of provisions recognized in the income statement
(47 )
(13 )
(17 )
(77 )
Provisions used in conformity with designated purpose
(1,642 )
(114 )
(12 )
(27 )
(1,795 )
Foreign currency translation and other movements
Balance at the end of the year
1 Consists of provisions for losses resulting from legal, liability and compliance risks. 2 Consists of USD
m of provisions for onerous contracts related to real estate as of 31 December 2023 (31 December 2022:
USD
m) and USD
m of personnel-related restructuring provisions as of 31 December 2023 (31 December 2022: USD
m). 3 Mainly includes provisions for reinstatement costs with respect to leased properties.
4 Mainly includes provisions related to employee benefits and operational risks.
Restructuring provisions relate to onerous contracts and personnel-related provisions. Onerous contracts for property are
recognized when UBS AG is committed to pay for non-lease components, such as utilities, service charges, taxes and
maintenance, when a property is vacated or not fully recovered from sub-tenants. Personnel-related restructuring
provisions are generally used within a short period of time. The level of personnel-related provisions can change when
natural staff attrition reduces the number of people affected by a restructuring event, and therefore results in lower
estimated costs.
Information about provisions and contingent liabilities in respect of litigation, regulatory and similar matters, as a class,
is included in Note 17b. There are no material contingent liabilities associated with the other classes of provisions.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 177
Note 17 Provisions and contingent liabilities (continued)
b) Litigation, regulatory and similar matters
UBS operates in a legal and regulatory environment that exposes it to significant litigation and similar risks arising from
disputes and regulatory proceedings. As a result, UBS is involved in various disputes and legal proceedings, including
litigation, arbitration, and regulatory and criminal investigations. “UBS,” “we” and “our,” for purposes of this Note, refer
to UBS AG and / or one or more of its subsidiaries, as applicable.
Such matters are subject to many uncertainties, and the outcome and the timing of resolution are often difficult to
predict, particularly in the earlier stages of a case. There are also situations where UBS may enter into a settlement
agreement. This may occur in order to avoid the expense, management distraction or reputational implications of
continuing to contest liability, even for those matters for which UBS believes it should be exonerated. The uncertainties
inherent in all such matters affect the amount and timing of any potential outflows for both matters with respect to
which provisions have been established and other contingent liabilities. UBS makes provisions for such matters brought
against it when, in the opinion of management after seeking legal advice, it is more likely than not that UBS has a present
legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required, and
the amount can be reliably estimated. Where these factors are otherwise satisfied, a provision may be established for
claims that have not yet been asserted against UBS, but are nevertheless expected to be, based on UBS’s experience with
similar asserted claims. If any of those conditions is not met, such matters result in contingent liabilities. If the amount of
an obligation cannot be reliably estimated, a liability exists that is not recognized even if an outflow of resources is
probable. Accordingly, no provision is established even if the potential outflow of resources with respect to such matters
could be significant. Developments relating to a matter that occur after the relevant reporting period, but prior to the
issuance of financial statements, which affect management’s assessment of the provision for such matter (because, for
example, the developments provide evidence of conditions that existed at the end of the reporting period), are adjusting
events after the reporting period under IAS 10 and must be recognized in the financial statements for the reporting
period.
Specific litigation, regulatory and other matters are described below, including all such matters that management
considers to be material and others that management believes to be of significance to UBS due to potential financial,
reputational and other effects. The amount of damages claimed, the size of a transaction or other information is provided
where available and appropriate in order to assist users in considering the magnitude of potential exposures.
In the case of certain matters below, we state that we have established a provision, and for the other matters, we make
no such statement. When we make this statement and we expect disclosure of the amount of a provision to prejudice
seriously our position with other parties in the matter because it would reveal what UBS believes to be the probable and
reliably estimable outflow, we do not disclose that amount. In some cases we are subject to confidentiality obligations
that preclude such disclosure. With respect to the matters for which we do not state whether we have established a
provision, either: (a) we have not established a provision; or (b) we have established a provision but expect disclosure of
that fact to prejudice seriously our position with other parties in the matter because it would reveal the fact that UBS
believes an outflow of resources to be probable and reliably estimable.
With respect to certain litigation, regulatory and similar matters for which we have established provisions, we are able to
estimate the expected timing of outflows. However, the aggregate amount of the expected outflows for those matters
for which we are able to estimate expected timing is immaterial relative to our current and expected levels of liquidity
over the relevant time periods.
The aggregate amount provisioned for litigation, regulatory and similar matters as a class is disclosed in the “Provisions”
table in Note 17a above. It is not practicable to provide an aggregate estimate of liability for our litigation, regulatory and
similar matters as a class of contingent liabilities. Doing so would require UBS to provide speculative legal assessments as
to claims and proceedings that involve unique fact patterns or novel legal theories, that have not yet been initiated or
are at early stages of adjudication, or as to which alleged damages have not been quantified by the claimants. Although
UBS therefore cannot provide a numerical estimate of the future losses that could arise from litigation, regulatory and
similar matters, UBS believes that the aggregate amount of possible future losses from this class that are more than
remote substantially exceeds the level of current provisions.
Litigation, regulatory and similar matters may also result in non-monetary penalties and consequences. A guilty plea to,
or conviction of, a crime could have material consequences for UBS. Resolution of regulatory proceedings may require
UBS to obtain waivers of regulatory disqualifications to maintain certain operations, may entitle regulatory authorities to
limit, suspend or terminate licenses and regulatory authorizations, and may permit financial market utilities to limit,
suspend or terminate UBS’s participation in such utilities. Failure to obtain such waivers, or any limitation, suspension or
termination of licenses, authorizations or participations, could have material consequences for UBS.
The risk of loss associated with litigation, regulatory and similar matters is a component of operational risk for purposes
of determining capital requirements. Information concerning our capital requirements and the calculation of operational
risk for this purpose is included in the “Capital, liquidity and funding, and balance sheet” section of this report.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 178
Note 17 Provisions and contingent liabilities (continued)
Provisions for litigation, regulatory and similar matters by business division and in Group Items
1
USD m
Global Wealth
Manage-
ment
Personal &
Corporate
Banking
Asset
Manage-
ment
Investment
Bank
Non-core
and
Legacy
2
Group
2
Total 2023
Balance at the beginning of the year
Increase in provisions recognized in the income statement
Release of provisions recognized in the income statement
(7 )
(9 )
(2 )
(29 )
(47 )
Provisions used in conformity with designated purpose
(98 )
(1 )
(106 )
(1,435 )
(1 )
(1,642 )
Foreign currency translation and other movements
Balance at the end of the year
1 Provisions, if any, for the matters described in item 2 of this Note are recorded in Global Wealth Management, and provisions, if any, for the matters described in items 1 and 4 of this Note are allocated between
Global Wealth Management and Personal & Corporate Banking. Provisions, if any, for the matters described in item 3 are allocated between the Investment Bank and Group Items. 2 Starting with the third quarter
of 2023, Non-core and Legacy represents a separate reportable segment and Group Functions has been renamed Group Items. Prior periods have been revised to reflect these changes.
1. Inquiries regarding cross-border wealth management businesses
Tax and regulatory authorities in a number of countries have made inquiries, served requests for information or examined
employees located in their respective jurisdictions relating to the cross-border wealth management services provided by
UBS and other financial institutions.
Since 2013, UBS (France) S.A., UBS AG and certain former employees have been under investigation in France in relation
to UBS’s cross-border business with French clients. In connection with this investigation, the investigating judges ordered
UBS AG to provide bail (“
caution
”) of EUR
bn.
In 2019, the court of first instance returned a verdict finding UBS AG guilty of unlawful solicitation of clients on French
territory and aggravated laundering of the proceeds of tax fraud, and UBS (France) S.A. guilty of aiding and abetting
unlawful solicitation and of laundering the proceeds of tax fraud. The court imposed fines aggregating EUR
bn on
UBS AG and UBS (France) S.A. and awarded EUR
m of civil damages to the French state. A trial in the Paris Court of
Appeal took place in March 2021. In December 2021, the Court of Appeal found UBS AG guilty of unlawful solicitation
and aggravated laundering of the proceeds of tax fraud. The court ordered a fine of EUR
m, the confiscation of
EUR
bn, and awarded civil damages to the French state of EUR
m. UBS appealed the decision to the French Supreme
Court. The Supreme Court rendered its judgment on 15 November 2023. It upheld the Court of Appeal‘s decision
regarding unlawful solicitation and aggravated laundering of the proceeds of tax fraud, but overturned the confiscation
of EUR
bn, the penalty of EUR
m and the EUR
m of civil damages awarded to the French state. The case has
been remanded to the Court of Appeal for a retrial regarding these overturned elements. The French state has reimbursed
the EUR
m of civil damages to UBS AG.
Our balance sheet at 31 December 2023 reflected a provision in an amount that UBS believes to be appropriate under
the applicable accounting standard. As in the case of other matters for which we have established provisions, the future
outflow of resources in respect of such matters cannot be determined with certainty based on currently available
information and accordingly may ultimately prove to be substantially greater (or may be less) than the provision that we
have recognized.
2. Madoff
In relation to the Bernard L. Madoff Investment Securities LLC (BMIS) investment fraud, UBS AG, UBS (Luxembourg) S.A.
(now UBS Europe SE, Luxembourg branch) and certain other UBS subsidiaries have been subject to inquiries by a number
of regulators, including the Swiss Financial Market Supervisory Authority (FINMA) and the Luxembourg Commission de
Surveillance du Secteur Financier. Those inquiries concerned two third-party funds established under Luxembourg law,
substantially all assets of which were with BMIS, as well as certain funds established in offshore jurisdictions with either
direct or indirect exposure to BMIS. These funds faced severe losses, and the Luxembourg funds are in liquidation. The
documentation establishing both funds identifies UBS entities in various roles, including custodian, administrator,
manager, distributor and promoter, and indicates that UBS employees serve as board members.
In 2009 and 2010, the liquidators of the two Luxembourg funds filed claims against UBS entities, non-UBS entities and
certain individuals, including current and former UBS employees, seeking amounts totaling approximately EUR
bn,
which includes amounts that the funds may be held liable to pay the trustee for the liquidation of BMIS (BMIS Trustee).
A large number of alleged beneficiaries have filed claims against UBS entities (and non-UBS entities) for purported losses
relating to the Madoff fraud. The majority of these cases have been filed in Luxembourg, where decisions that the claims
in eight test cases were inadmissible have been affirmed by the Luxembourg Court of Appeal, and the Luxembourg
Supreme Court has dismissed a further appeal in one of the test cases.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 179
Note 17 Provisions and contingent liabilities (continued)
In the US, the BMIS Trustee filed claims against UBS entities, among others, in relation to the two Luxembourg funds and
one of the offshore funds. The total amount claimed against all defendants in these actions was not less than USD
bn.
In 2014, the US Supreme Court rejected the BMIS Trustee’s motion for leave to appeal decisions dismissing all claims
except those for the recovery of approximately USD
m of payments alleged to be fraudulent conveyances and
preference payments. In 2016, the bankruptcy court dismissed these claims against the UBS entities. In 2019, the Court
of Appeals reversed the dismissal of the BMIS Trustee’s remaining claims, and the US Supreme Court subsequently denied
a petition seeking review of the Court of Appeals’ decision. The case has been remanded to the Bankruptcy Court for
further proceedings.
3. Foreign exchange, LIBOR and benchmark rates, and other trading practices
Foreign exchange-related regulatory matters:
concerning possible manipulation of foreign exchange markets and precious metals prices. As a result of these
investigations, UBS entered into resolutions with Swiss, US and United Kingdom regulators and the European
Commission. UBS was granted conditional immunity by the Antitrust Division of the DOJ and by authorities in other
jurisdictions in connection with potential competition law violations relating to foreign exchange and precious metals
businesses.
Foreign exchange-related civil litigation:
jurisdictions against UBS and other banks on behalf of putative classes of persons who engaged in foreign currency
transactions with any of the defendant banks. UBS has resolved US federal court class actions relating to foreign currency
transactions with the defendant banks and persons who transacted in foreign exchange futures contracts and options
on such futures under a settlement agreement that provides for UBS to pay an aggregate of USD
m and provide
cooperation to the settlement classes. Certain class members have excluded themselves from that settlement and have
filed individual actions in US and English courts against UBS and other banks, alleging violations of US and European
competition laws and unjust enrichment. UBS and the other banks have resolved those individual matters.
In 2015, a putative class action was filed in federal court against UBS and numerous other banks on behalf of persons
and businesses in the US who directly purchased foreign currency from the defendants and alleged co-conspirators for
their own end use. In 2022, the court denied plaintiffs’ motion for class certification. In March 2023, the court granted
defendants’ summary judgment motion, dismissing the case. Plaintiffs have appealed.
LIBOR and other benchmark-related regulatory matters:
regarding potential improper attempts by UBS, among others, to manipulate LIBOR and other benchmark rates at certain
times. UBS reached settlements or otherwise concluded investigations relating to benchmark interest rates with the
investigating authorities. UBS was granted conditional leniency or conditional immunity from authorities in certain
jurisdictions, including the Antitrust Division of the DOJ and the Swiss Competition Commission (WEKO), in connection
with potential antitrust or competition law violations related to certain rates. However, UBS has not reached a final
settlement with WEKO, as the Secretariat of WEKO has asserted that UBS does not qualify for full immunity.
LIBOR and other benchmark-related civil litigation:
the federal courts in New York against UBS and numerous other banks on behalf of parties who transacted in certain
interest rate benchmark-based derivatives. Also pending in the US and in other jurisdictions are a number of other actions
asserting losses related to various products whose interest rates were linked to LIBOR and other benchmarks, including
adjustable rate mortgages, preferred and debt securities, bonds pledged as collateral, loans, depository accounts,
investments and other interest-bearing instruments. The complaints allege manipulation, through various means, of
certain benchmark interest rates, including USD LIBOR, Euroyen TIBOR, Yen LIBOR, EURIBOR, CHF LIBOR, GBP LIBOR and
seek unspecified compensatory and other damages under varying legal theories.
USD LIBOR class and individual actions in the US:
In 2013 and 2015, the district court in the USD LIBOR actions dismissed,
in whole or in part, certain plaintiffs’ antitrust claims, federal racketeering claims, Commodity Exchange Act claims, and
state common law claims, and again dismissed the antitrust claims in 2016 following an appeal. In 2021, the Second
Circuit affirmed the district court’s dismissal in part and reversed in part and remanded to the district court for further
proceedings. The Second Circuit, among other things, held that there was personal jurisdiction over UBS and other foreign
defendants. Separately, in 2018, the Second Circuit reversed in part the district court’s 2015 decision dismissing certain
individual plaintiffs’ claims and certain of these actions are now proceeding. In 2018, the district court denied plaintiffs’
motions for class certification in the USD class actions for claims pending against UBS, and plaintiffs sought permission
to appeal that ruling to the Second Circuit. The Second Circuit denied the petition to appeal. In 2020, an individual action
was filed in the Northern District of California against UBS and numerous other banks alleging that the defendants
conspired to fix the interest rate used as the basis for loans to consumers by jointly setting the USD LIBOR rate and
monopolized the market for LIBOR-based consumer loans and credit cards. In September 2022, the court granted
defendants’ motion to dismiss the complaint in its entirety, while allowing plaintiffs the opportunity to file an amended
complaint. Plaintiffs filed an amended complaint in October 2022, and defendants moved to dismiss the amended
complaint. In October 2023, the court dismissed the amended complaint with prejudice. In January 2024, plaintiffs
appealed the dismissal to the Ninth Circuit Court of Appeals. Defendants filed their response to the appeal in March
2024.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 180
Note 17 Provisions and contingent liabilities (continued)
Other benchmark class actions in the US:
Yen LIBOR / Euroyen TIBOR
– In 2017, the court dismissed one Yen LIBOR / Euroyen TIBOR action in its entirety on
standing grounds. In 2020, the appeals court reversed the dismissal and, subsequently, plaintiffs in that action filed an
amended complaint focused on Yen LIBOR. In 2022, the court granted UBS’s motion for reconsideration and dismissed
the case against UBS. The dismissal of the case against UBS could be appealed following the disposition of the case
against the remaining defendant in the district court.
CHF LIBOR
filed an amended complaint, and the court granted a renewed motion to dismiss in 2019. Plaintiffs appealed. In 2021,
the Second Circuit granted the parties’ joint motion to vacate the dismissal and remand the case for further proceedings.
Plaintiffs filed a third amended complaint in November 2022 and defendants moved to dismiss the amended complaint
in January 2023.
EURIBOR
for lack of personal jurisdiction. Plaintiffs have appealed.
GBP LIBOR
Government bonds:
on behalf of persons who participated in markets for US Treasury securities since 2007. A consolidated complaint was
filed in 2017 in the US District Court for the Southern District of New York alleging that the banks colluded with respect
to, and manipulated prices of, US Treasury securities sold at auction and in the secondary market and asserting claims
under the antitrust laws and for unjust enrichment. Defendants’ motions to dismiss the consolidated complaint were
granted in 2021. Plaintiffs filed an amended complaint, which defendants moved to dismiss later in 2021. In March 2022,
the court granted defendants’ motion to dismiss that complaint, and in February 2024, the Second Circuit affirmed the
district court’s dismissal. Similar class actions have been filed concerning European government bonds and other
government bonds.
In 2021, the European Commission issued a decision finding that UBS and six other banks breached European Union
antitrust rules in 2007–2011 relating to European government bonds. The European Commission fined UBS EUR
m.
UBS is appealing the amount of the fine.
With respect to additional matters and jurisdictions not encompassed by the settlements and orders referred to above,
our balance sheet at 31 December 2023 reflected a provision in an amount that UBS believes to be appropriate under
the applicable accounting standard. As in the case of other matters for which we have established provisions, the future
outflow of resources in respect of such matters cannot be determined with certainty based on currently available
information and accordingly may ultimately prove to be substantially greater (or may be less) than the provision that we
have recognized.
4. Swiss retrocessions
The Federal Supreme Court of Switzerland ruled in 2012, in a test case against UBS, that distribution fees paid to a firm
for distributing third-party and intra-group investment funds and structured products must be disclosed and surrendered
to clients who have entered into a discretionary mandate agreement with the firm, absent a valid waiver. FINMA issued
a supervisory note to all Swiss banks in response to the Supreme Court decision. UBS has met the FINMA requirements
and has notified all potentially affected clients.
The Supreme Court decision has resulted, and continues to result, in a number of client requests for UBS to disclose and
potentially surrender retrocessions. Client requests are assessed on a case-by-case basis. Considerations taken into
account when assessing these cases include, among other things, the existence of a discretionary mandate and whether
or not the client documentation contained a valid waiver with respect to distribution fees.
Our balance sheet at 31 December 2023 reflected a provision with respect to matters described in this item 4 in an
amount that UBS believes to be appropriate under the applicable accounting standard. The ultimate exposure will depend
on client requests and the resolution thereof, factors that are difficult to predict and assess. Hence, as in the case of other
matters for which we have established provisions, the future outflow of resources in respect of such matters cannot be
determined with certainty based on currently available information and accordingly may ultimately prove to be
substantially greater (or may be less) than the provision that we have recognized.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 181
Note 18 Other liabilities
a) Other financial liabilities measured at amortized cost
USD m
31.12.23
31.12.22
Other accrued expenses
Accrued interest expenses
Settlement and clearing accounts
Lease liabilities
Other
Total other financial liabilities measured at amortized cost
b) Other financial liabilities designated at fair value
USD m
31.12.23
31.12.22
Financial liabilities related to unit-linked investment contracts
Securities financing transactions
Over-the-counter debt instruments and other
Funding from UBS Group AG
1
Total other financial liabilities designated at fair value
1 The Funding from UBS Group AG consists of subordinated debt of UBS AG and its subsidiaries toward UBS Group AG. Subordinated debt consists of unsecured debt obligations that are contractually subordinated
in right of payment to all other present and future non-subordinated obligations of the respective issuing entity.
c) Other non-financial liabilities
USD m
31.12.23
31.12.22
Compensation-related liabilities
of which: financial advisor compensation plans
of which: other compensation plans
of which: net defined benefit liability
of which: other compensation-related liabilities
1
Current tax liabilities
Deferred tax liabilities
VAT, withholding tax and other tax payables
Deferred income
Other
Total other non-financial liabilities
1 Includes liabilities for payroll taxes and untaken vacation.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 182
Additional information
Note 19 Expected credit loss measurement
a) Expected credit losses in the period
Total net credit loss expenses were USD
m in 2023, reflecting net credit loss expenses of USD
m related to stage 1
and 2 positions and net credit loss expenses of USD
m related to credit-impaired (stage 3) positions.
›
Refer to Note 19b for more information regarding changes to expected credit loss models, scenarios, scenario weights and the
post-model adjustments and to Note 19c for more information regarding the development of ECL allowances and provisions
Stage 3 net expenses of USD
m were recognized across a number of defaulted positions, with net expenses of
USD
m in the Investment Bank, USD
m in Personal & Corporate Banking and USD
m in Global Wealth
Management.
Credit loss expense / (release)
Performing positions
Credit-impaired positions
USD m
Stages 1 and 2
Stage 3
Total
For the year ended 31.12.23
Global Wealth Management
(2 )
Personal & Corporate Banking
Asset Management
(1 )
(1 )
Investment Bank
Non-core and Legacy
Group Items
1
Total
For the year ended 31.12.22
Global Wealth Management
(5 )
Personal & Corporate Banking
Asset Management
Investment Bank
(18 )
(12 )
Non-core and Legacy
Group Items
1
Total
For the year ended 31.12.21
Global Wealth Management
(28 )
(1 )
(29 )
Personal & Corporate Banking
(62 )
(24 )
(86 )
Asset Management
Investment Bank
(34 )
(34 )
Non-core and Legacy
Group Items
1
Total
(123 )
(25 )
(148 )
1 Starting with the third quarter of 2023, Non-core and Legacy became a separate reportable segment and Group Functions has been renamed Group Items. Prior periods have been restated to reflect these changes.
b) Changes to ECL models, scenarios, scenario weights and key inputs
Refer to Note 1a for information about the principles governing expected credit loss (ECL) models, scenarios, scenario
weights and key inputs applied.
Governance
Comprehensive cross-functional and cross-divisional governance processes are in place and are used to discuss and approve
scenario updates and weights, to assess whether significant increases in credit risk resulted in stage transfers, to review
model outputs and to reach conclusions regarding post-model adjustments.
Model changes
During 2023, the model review and enhancement process led to adjustments of the probability of default (PD), loss given
default (LGD) and credit conversion factor (CCF) models, resulting in a USD
m increase in ECL allowances. This includes
an increase of USD
m in the Investment Bank, mainly related to lending to
Large corporate clients
, and a USD
m
increase in Personal & Corporate Banking, mainly related to lending to
Large corporate clients
SME clients.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 183
Note 19 Expected credit loss measurement (continued)
Scenario and key input updates
During 2023, the scenarios and related macroeconomic factors were updated from those applied at the end of 2022 by
considering the prevailing economic and political conditions and uncertainty. The review focused on events that significantly
changed the economic outlook during the year: the inflation outlook and economic growth in Europe, and rising global
interest rates due to central banks’ adoption of more restrictive monetary policies.
Baseline scenario
: the projections of the baseline scenario, which are aligned to the economic and market assumptions used
for UBS’s business planning purposes, are broadly in line with external benchmarks, such as that from Bloomberg Consensus,
Oxford Economics and the International Monetary Fund World Economic Outlook. The expectation for 2024 is that global
growth slows down under the weight of monetary policy tightening and continued pressure on real purchasing power due
to high, though falling inflation, and fading fiscal support. Unemployment rates are forecast to increase slightly from their
2023 levels. Interest rates are expected to remain high, given the persistence of inflationary pressures, leading to a less
optimistic outlook for house prices worldwide, including in Switzerland.
Mild debt crisis scenario
: The first hypothetical downside scenario is the mild debt crisis scenario. At the beginning of the
second quarter of 2023, UBS replaced the global crisis scenario applied at the end of 2022 and at the end of the first quarter
of 2023 with the mild debt crisis scenario. Economic, market and political developments suggested that the scenario suite
should be rebalanced by reintroducing a mild downside scenario. The mild debt crisis scenario covers similar risks, but the
assumptions are milder than the global crisis scenario. Therefore, the scenario shocks are less severe. It assumes that political,
solvency and liquidity concerns cause a sell-off of sovereign debt in emerging markets and the peripheral Eurozone. The
global economy and financial markets are negatively affected, and central banks are assumed to ease their monetary policy.
Stagflationary geopolitical crisis scenario:
The second downside scenario is aligned with the 2024 Group binding stress
scenario and was updated in 2023 to reflect expected risks, resulting in minimal changes. Geopolitical tensions cause an
escalation of security concerns and undermine globalization. The ensuing economic regionalization leads to a surge in global
commodity prices and further disruptions of supply chains, and raises the specter of prolonged stagflation. Central banks
are forced to further tighten monetary policy to contain inflationary pressures. The severe interest rate and house price
assumptions in the scenario had a substantive impact on model-based ECL allowances for loans secured by mortgages in
Switzerland and the US. These effects were partly offset by post-model adjustment releases related to loans secured by
mortgages. Refer to the section below on “Scenario weights and post-model adjustments” for more details.
Asset price inflation scenario:
The upside scenario is based on positive developments, such as an easing of geopolitical
tensions across the globe and a rebound in Chinese economic growth. A combination of lower commodity prices, effective
monetary policies and easing supply chain disruptions helps to reduce inflation. Improved consumer and business sentiment
lead to a global economic rebound, enabling central banks to normalize interest rates, which causes asset prices to increase
significantly.
The table below details the key assumptions for the four scenarios applied as of 31 December 2023.
Scenario weights and post-model adjustments
The scenario weights did not change during 2023, but the scenario suite was adjusted in the second quarter of 2023 to
replace one of the two severe downside scenarios with a mild downside scenario. The mild debt crisis scenario, developed
in early 2023, was introduced in the scenario suite with the same weight as the more severe global crisis scenario, i.e.,
%, to balance a somewhat more optimistic outlook with milder scenario assumptions. The weights were kept
unchanged for the stagflationary geopolitical crisis, baseline and asset price inflation scenarios, i.e.,
%,
% and
%,
respectively. The weights are shown in the table below.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 184
Note 19 Expected credit loss measurement (continued)
However, unquantifiable risks continue to be relevant, as the geopolitical risks remained high in 2023, and the impact on
the world economy from escalations with unforeseeable consequences could be severe. In the near term, this uncertainty
relates primarily to developments in the Russia–Ukraine and Middle East conflicts. Models, which are based on
supportable statistical information from past experiences regarding interdependencies of macroeconomic factors and
their implications for credit risk portfolios, cannot comprehensively reflect such extraordinary events, such as a pandemic
or a fundamental change in the world political order. Rather than creating multiple additional scenarios to attempt
gauging these risks and applying model parameters that lack supportable information and cannot be robustly validated,
management continued to also apply post-model adjustments.
Total stage 1 and 2 allowances and provisions were USD
m as of 31 December 2023 and included post-model
adjustments of USD
m (31 December 2022: USD
m). Overlays are to cover for uncertainty levels, including the
geopolitical situation.
Economic scenarios and weights applied
Assigned weights in %
ECL scenario
31.12.23
31.12.22
Asset price inflation
Baseline
Mild debt crisis
Stagflationary geopolitical crisis
Global crisis
Scenario assumptions
One year
Three years cumulative
31.12.23
Asset price
inflation
Baseline
Mild debt
crisis
Stagflationary
geopolitical
crisis
Asset price
inflation
Baseline
Mild debt
crisis
Stagflationary
geopolitical
crisis
Real GDP growth (% change)
United States
(1.6 )
(4.8 )
(4.4 )
Eurozone
(1.7 )
(5.6 )
(0.1 )
(5.7 )
Switzerland
(1.2 )
(4.8 )
(4.9 )
Consumer price index (% change)
United States
(0.1 )
Eurozone
(0.2 )
Switzerland
(0.4 )
Unemployment rate (end-of-period level, %)
United States
Eurozone
Switzerland
Fixed income: 10-year government bonds (change in yields, basis points)
USD
(82 )
(215 )
(78 )
(155 )
EUR
(90 )
(185 )
(78 )
(140 )
CHF
(41 )
(73 )
(34 )
(28 )
Equity indices (% change)
S&P 500
(26.6 )
(51.5 )
(12.2 )
(45.6 )
EuroStoxx 50
(26.4 )
(51.6 )
(16.6 )
(47.2 )
SPI
(24.5 )
(51.6 )
(11.2 )
(47.2 )
Swiss real estate (% change)
Single-Family Homes
(1.5 )
(4.4 )
(18.5 )
(3.0 )
(28.6 )
Other real estate (% change)
United States (S&P / Case–Shiller)
(8.6 )
(20.0 )
(5.2 )
(30.2 )
Eurozone (House Price Index)
(5.9 )
(8.4 )
(5.2 )
(12.9 )
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 185
Note 19 Expected credit loss measurement (continued)
Scenario assumptions
One year
Three years cumulative
31.12.22
Asset price
inflation
Baseline
Stagflationary
geopolitical
crisis
Global crisis
Asset price
inflation
Baseline
Stagflationary
geopolitical
crisis
Global crisis
Real GDP growth (% change)
United States
(0.3 )
(4.8 )
(6.4 )
(4.4 )
(1.8 )
Eurozone
(5.6 )
(8.5 )
(5.7 )
(8.3 )
Switzerland
(4.8 )
(6.7 )
(4.9 )
(3.7 )
Consumer price index (% change)
United States
(0.5 )
Eurozone
(0.7 )
(0.7 )
Switzerland
(1.8 )
(1.6 )
Unemployment rate (end-of-period level, %)
United States
Eurozone
Switzerland
Fixed income: 10-year government bonds (change in yields, basis points)
USD
(6 )
(326 )
(13 )
(291 )
EUR
(271 )
(247 )
CHF
(210 )
(160 )
Equity indices (% change)
S&P 500
(51.5 )
(50.0 )
(45.6 )
(27.9 )
EuroStoxx 50
(51.6 )
(50.0 )
(47.2 )
(39.3 )
SPI
(51.6 )
(46.0 )
(47.2 )
(32.9 )
Swiss real estate (% change)
Single-Family Homes
(16.7 )
(19.9 )
(32.9 )
(23.9 )
Other real estate (% change)
United States (S&P / Case–Shiller)
(4.5 )
(12.8 )
(19.3 )
(0.6 )
(35.8 )
(32.7 )
Eurozone (House Price Index)
(2.7 )
(8.4 )
(8.9 )
(14.7 )
(17.5 )
c) Development of ECL allowances and provisions
The ECL allowances and provisions recognized in the period are impacted by a variety of factors, such as:
–
the effect of selecting and updating forward-looking scenarios and the respective weights;
–
origination of new instruments during the period;
–
the effect of passage of time (lower residual lifetime PD and the effect of discount unwind) as the ECL on an instrument
for the remaining lifetime decreases (all other factors remaining the same);
–
derecognition of instruments in the period;
–
change in individual asset quality of instruments;
–
movements from a maximum 12-month ECL to the recognition of lifetime ECL (and vice versa) following transfers
between stages 1 and 2;
–
movements from stages 1 and 2 to stage 3 (credit-impaired status) when default has become certain and PD increases
to 100% (or vice versa);
–
changes in models or updates to model parameters;
–
write-off; and
–
foreign exchange translations for assets denominated in foreign currencies.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 186
Note 19 Expected credit loss measurement (continued)
The table below explains the changes in the ECL allowances and provisions for on- and off-balance sheet financial
instruments and credit lines in scope of ECL requirements between the beginning and the end of the period due to the
factors listed above.
Development of ECL allowances and provisions
USD m
Total
Stage 1
Stage 2
Stage 3
Balance as of 31 December 2022
(1,091 )
(260 )
(267 )
(564 )
Net movement from new and derecognized transactions
1
(11 )
(27 )
of which: Private clients with mortgages
(5 )
(8 )
of which: Real estate financing
(2 )
(4 )
of which: Large corporate clients
(8 )
of which: SME clients
(3 )
(3 )
of which: Other
(4 )
(4 )
(1 )
(1 )
Remeasurements with stage transfers
2
(140 )
(7 )
(142 )
of which: Private clients with mortgages
(1 )
of which: Real estate financing
(2 )
(5 )
of which: Large corporate clients
(76 )
(3 )
(76 )
of which: SME clients
(56 )
(1 )
(55 )
of which: Other
(10 )
(11 )
Remeasurements without stage transfers
3
of which: Private clients with mortgages
(5 )
(3 )
of which: Real estate financing
(1 )
of which: Large corporate clients
(8 )
of which: SME clients
(1 )
of which: Other
(34 )
(2 )
(14 )
(18 )
(15 )
(15 )
(7 )
(8 )
Model changes
4
(27 )
(18 )
(9 )
Movements with profit or loss impact
5
(143 )
(30 )
(120 )
Movements without profit or loss impact (write-off, FX and other)
6
(10 )
(18 )
(13 )
Balance as of 31 December 2023
(1,244 )
(308 )
(272 )
(664 )
1 Represents the increase and decrease in allowances and provisions resulting from financial instruments (including guarantees and facilities) that were newly originated, purchased or renewed and from the final
derecognition of loans or facilities on their maturity date or earlier. 2 Represents the remeasurement between 12-month and lifetime ECL due to stage transfers. 3 Represents the change in allowances and provisions
related to changes in model inputs or assumptions, including changes in forward-looking macroeconomic conditions, changes in the exposure profile, PD and LGD changes, and unwinding of the time value.
4 Represents the change in the allowances and provisions related to changes in models and methodologies. 5 Includes ECL movements from new and derecognized transactions, remeasurement changes, and model
and methodology changes. 6 Represents the decrease in allowances and provisions resulting from write-offs of the ECL allowance against the gross carrying amount when all or part of a financial asset is deemed
uncollectible or forgiven and movements in foreign exchange rates.
Movements with profit or loss impact:
m:
–
Net movement from new and derecognized transactions
m stage 1 expenses and USD
m stage 2
releases: Stage 1 expenses are primarily driven by new loans secured by real estate and corporate lending. The residual
effect is spread across other lending segments. Stage 2 releases are largely driven by redemption of real estate lending
in Personal & Corporate Banking and Global Wealth Management.
–
Remeasurements with stage transfers
m releases in stage 1 and USD
m expenses in stage 2. This mainly
includes the transfer of a few large corporate and real estate financing transactions from stage 1 to 2 (i.e., releases in
stage 1 and related but generally higher expenses in stage 2), driven by rating downgrades and scenario effects.
–
Remeasurements without stage transfers
m and stage 2 releases of USD
m. These
releases of USD
m relate to large corporate lending (USD
m) and real estate lending (USD
m), substantially due
to scenario effects, partly offset by expenses to a single sovereign counterparty (USD
m).
–
Model changes
: refer to Note 19b for more information.
Movements without profit or loss impact
: Stages 1 and 2 allowances increased by USD
m, almost entirely driven by
FX. Stage 3 allowances decreased by USD
m, driven by FX and other movements of USD
m, partly offset by net
write-offs / recoveries of USD
m.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 187
Note 19 Expected credit loss measurement (continued)
Development of ECL allowances and provisions
USD m
Total
Stage 1
Stage 2
Stage 3
Balance as of 31 December 2021
(1,165 )
(282 )
(220 )
(662 )
Net movement from new and derecognized transactions
1
(7 )
(21 )
(2 )
of which: Private clients with mortgages
(6 )
(6 )
of which: Real estate financing
(3 )
(5 )
of which: Large corporate clients
(1 )
(2 )
of which: SME clients
(1 )
(1 )
of which: Other
(6 )
(8 )
(2 )
Remeasurements with stage transfers
2
(65 )
(39 )
(46 )
of which: Private clients with mortgages
(10 )
(12 )
of which: Real estate financing
(1 )
of which: Large corporate clients
(33 )
(28 )
(21 )
of which: SME clients
(23 )
(2 )
(22 )
of which: Other
(6 )
(4 )
(3 )
(1 )
Remeasurements without stage transfers
3
(8 )
(27 )
of which: Private clients with mortgages
(12 )
(18 )
of which: Real estate financing
of which: Large corporate clients
(11 )
of which: SME clients
(6 )
(10 )
(9 )
of which: Other
(15 )
(12 )
(8 )
(8 )
(8 )
(3 )
(1 )
(6 )
Model changes
4
Movements with profit or loss impact
5
(29 )
(49 )
Movements without profit or loss impact (write-off, FX and other)
6
Balance as of 31 December 2022
(1,091 )
(260 )
(267 )
(564 )
1 Represents the increase and decrease in allowances and provisions resulting from financial instruments (including guarantees and facilities) that were newly originated, purchased or renewed and from the final
derecognition of loans or facilities on their maturity date or earlier. 2 Represents the remeasurement between 12-month and lifetime ECL due to stage transfers. 3 Represents the change in allowances and provisions
related to changes in model inputs or assumptions, including changes in forward-looking macroeconomic conditions, changes in the exposure profile, PD and LGD changes, and unwinding of the time value.
4 Represents the change in the allowances and provisions related to changes in models and methodologies. 5 Includes ECL movements from new and derecognized transactions, remeasurement changes, and model
and methodology changes. 6 Represents the decrease in allowances and provisions resulting from write-offs of the ECL allowance against the gross carrying amount when all or part of a financial asset is deemed
uncollectible or forgiven and movements in foreign exchange rates.
As explained in Note 1a, the assessment of a significant increase in credit risk (an SICR) considers a number of qualitative
and quantitative factors to determine whether a stage transfer between stage 1 and stage 2 is required, although the
primary assessment considers changes in PD based on rating analyses and economic outlook. Additionally, UBS AG takes
into consideration counterparties that have moved to a credit watch list and those with payments that are at least 30
days past due.
ECL stage 2 (“significant deterioration in credit risk”) allowances / provisions as of 31 December 2023 – classification by trigger
USD m
Stage 2
of which:
PD layer
of which:
watch list
of which:
≥30 days
past due
On- and off-balance sheet
(272 )
(197 )
(23 )
(53 )
of which: Private clients with mortgages
(89 )
(69 )
(21 )
of which: Real estate financing
(26 )
(21 )
(5 )
of which: Large corporate clients
(66 )
(48 )
(15 )
(2 )
of which: SME clients
(38 )
(23 )
(5 )
(9 )
of which: Financial intermediaries and hedge funds
(4 )
(4 )
of which: Loans to financial advisors
(1 )
(1 )
of which: Credit cards
(13 )
(13 )
of which: Other
(33 )
(31 )
(2 )
(1 )
d) Maximum exposure to credit risk
The tables below provide UBS AG’s maximum exposure to credit risk for financial instruments subject to ECL requirements
and the respective collateral and other credit enhancements mitigating credit risk for these classes of financial
instruments.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 188
Note 19 Expected credit loss measurement (continued)
The maximum exposure to credit risk includes the carrying amounts of financial instruments recognized on the balance
sheet subject to credit risk and the notional amounts for off-balance sheet arrangements. Where information is available,
collateral is presented at fair value. For other collateral, such as real estate, a reasonable alternative value is used. Credit
enhancements, such as credit derivative contracts and guarantees, are included at their notional amounts. Both are
capped at the maximum exposure to credit risk for which they serve as security. The “Risk management and control”
section of this report describes management’s view of credit risk and the related exposures, which can differ in certain
respects from the requirements of IFRS Accounting Standards.
Maximum exposure to credit risk
31.12.23
Collateral
1,2
Credit enhancements
1
Exposure to
credit risk
after collateral
and credit
enhancements
USD bn
Maximum
exposure to
credit risk
Cash
collateral
received
Collateralized
by equity and
debt
instruments
Secured by
real estate
Other
collateral
3
Netting
Credit
derivative
contracts
Guarantees
and sub-
participations
Financial assets measured at
amortized cost on the balance sheet
Cash and balances at central banks
Amounts due from banks
4
Receivables from securities financing transactions
measured at amortized cost
Cash collateral receivables on derivative instruments
5,6
Loans and advances to customers
Other financial assets measured at amortized cost
Total financial assets measured at amortized cost
Financial assets measured at fair value
through other comprehensive income – debt
Total maximum exposure to credit risk
reflected on the balance sheet within the scope of ECL
Guarantees
7
Irrevocable loan commitments
Forward starting reverse repurchase and securities
borrowing agreements
Committed unconditionally revocable credit lines
Total maximum exposure to credit risk not
reflected on the balance sheet within the scope of ECL
31.12.22
Collateral
1,2
Credit enhancements
1
Exposure to
credit risk
after collateral
and credit
enhancements
USD bn
Maximum
exposure to
credit risk
Cash
collateral
received
Collateralized
by equity and
debt
instruments
Secured by
real estate
Other
collateral
3
Netting
Credit
derivative
contracts
Guarantees
and sub-
participations
Financial assets measured at
amortized cost on the balance sheet
Cash and balances at central banks
Amounts due from banks
4
Receivables from securities financing transactions
measured at amortized cost
Cash collateral receivables on derivative instruments
5,6
Loans and advances to customers
Other financial assets measured at amortized cost
Total financial assets measured at amortized cost
Financial assets measured at fair value
through other comprehensive income – debt
Total maximum exposure to credit risk
reflected on the balance sheet within the scope of ECL
Guarantees
7
Irrevocable loan commitments
Forward starting reverse repurchase and securities
borrowing agreements
Committed unconditionally revocable credit lines
Total maximum exposure to credit risk not
reflected on the balance sheet within the scope of ECL
1 Of which: USD
m for 31 December 2023 (31 December 2022: USD
m) relates to total credit-impaired financial assets measured at amortized cost and USD
m for 31 December 2023 (31 December
2022: USD
m) to total off-balance sheet financial instruments and credit lines for credit-impaired positions. 2 Collateral arrangements generally incorporate a range of collateral, including cash, equity and debt
instruments, real estate and other collateral. For the purpose of this disclosure, UBS AG applies a risk-based approach that generally prioritizes collateral according to its liquidity profile. In the case of loan facilities
with funded and unfunded elements, the collateral is first allocated to the funded element. 3 Includes but is not limited to life insurance contracts, rights in respect of subscription or capital commitments from fund
partners, inventory, mortgage loans, gold and other commodities. 4 Amounts due from banks include amounts held with third-party banks on behalf of clients. The credit risk associated with these balances may be
borne by those clients. 5 Included within Cash collateral receivables on derivative instruments are margin balances due from exchanges or clearing houses. Some of these margin balances reflect amounts transferred
on behalf of clients who retain the associated credit risk. 6 The amount shown in the “Netting” column represents the netting potential not recognized on the balance sheet. Refer to Note 21 for more information.
7 Guarantees collateralized by equity and debt instruments include certain overnight repurchase and reverse repurchase transactions where UBS acts as a sponsoring member for eligible clients when clearing through
the Fixed Income Clearing Corporation (FICC). As part of this arrangement, UBS guarantees FICC for prompt and full payment and performance of the clients‘ respective obligations under the FICC rules. The Group
minimizes its liability under these guarantees by obtaining a security interest in the cash or high-quality securities collateral that the clients place with the clearing house; therefore, the risk of loss is expected to be
remote.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 189
Note 19 Expected credit loss measurement (continued)
e) Financial assets subject to credit risk by rating category
The table below shows the credit quality and the maximum exposure to credit risk based on UBS AG’s internal credit
rating system and year-end stage classification. Under IFRS 9, the credit risk rating reflects UBS AG’s assessment of the
probability of default of individual counterparties, prior to substitutions. The amounts presented are gross of impairment
allowances.
›
Refer to the “Risk management and control” section of this report for more details regarding UBS AG’s internal grading system
Financial assets subject to credit risk by rating category
USD m
31.12.23
Rating category
1
0–1
2–3
4–5
6–8
9–13
Credit-
impaired
(defaulted)
Total gross
carrying
amount
ECL
allowances
Net carrying
amount
(maximum
exposure to
credit risk)
Financial assets measured at amortized cost
Cash and balances at central banks
(26 )
of which: stage 1
of which: stage 2
(26 )
Amounts due from banks
(7 )
of which: stage 1
(6 )
of which: stage 2
(1 )
of which: stage 3
Receivables from securities financing transactions
(2 )
of which: stage 1
(2 )
Cash collateral receivables on derivative instruments
of which: stage 1
Loans and advances to customers
(935 )
of which: stage 1
(173 )
of which: stage 2
(185 )
of which: stage 3
(577 )
Other financial assets measured at amortized cost
(87 )
of which: stage 1
(16 )
of which: stage 2
(5 )
of which: stage 3
(66 )
Total financial assets measured at amortized cost
(1,057 )
On-balance sheet financial instruments
Financial assets measured at FVOCI – debt instruments
Total on-balance sheet financial instruments
(1,057 )
1 Refer to the “Internal UBS rating scale and mapping of external ratings” table in the “Risk management and control” section of this report for more information on rating categories.
Off-balance sheet positions subject to expected credit loss by rating category
USD m
31.12.23
Rating category
1
0–1
2–3
4–5
6–8
9–13
Credit-
impaired
(defaulted)
Total off-
balance sheet
exposure
(maximum
exposure to
credit risk)
ECL provision
Off-balance sheet financial instruments
Guarantees
(40 )
of which: stage 1
(14 )
of which: stage 2
(7 )
of which: stage 3
(19 )
Irrevocable loan commitments
(95 )
of which: stage 1
(55 )
of which: stage 2
(38 )
of which: stage 3
(2 )
Forward starting reverse repurchase and securities borrowing agreements
Total off-balance sheet financial instruments
(134 )
Credit lines
Committed unconditionally revocable credit lines
(49 )
of which: stage 1
(39 )
of which: stage 2
(10 )
of which: stage 3
Irrevocable committed prolongation of existing loans
(4 )
of which: stage 1
(3 )
of which: stage 2
of which: stage 3
Total credit lines
(53 )
1 Refer to the “Internal UBS rating scale and mapping of external ratings” table in the “Risk management and control” section of this report for more information on rating categories.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 190
Note 19 Expected credit loss measurement (continued)
Financial assets subject to credit risk by rating category
USD m
31.12.22
Rating category
1
0–1
2–3
4–5
6–8
9–13
Credit-
impaired
(defaulted)
Total gross
carrying
amount
ECL
allowances
Net carrying
amount
(maximum
exposure to
credit risk)
Financial assets measured at amortized cost
Cash and balances at central banks
(12 )
of which: stage 1
of which: stage 2
(12 )
Amounts due from banks
(6 )
of which: stage 1
(5 )
of which: stage 2
(1 )
of which: stage 3
Receivables from securities financing transactions
measured at amortized cost
(2 )
of which: stage 1
(2 )
Cash collateral receivables on derivative instruments
of which: stage 1
Loans and advances to customers
(783 )
of which: stage 1
(129 )
of which: stage 2
(180 )
of which: stage 3
(474 )
Other financial assets measured at amortized cost
(86 )
of which: stage 1
(17 )
of which: stage 2
(6 )
of which: stage 3
(63 )
Total financial assets measured at amortized cost
(890 )
On-balance sheet financial instruments
Financial assets measured at FVOCI – debt instruments
Total on-balance sheet financial instruments
(890 )
1 Refer to the “Internal UBS rating scale and mapping of external ratings” table in the “Risk management and control” section of this report for more information on rating categories.
Off-balance sheet positions subject to expected credit loss by rating category
USD m
31.12.22
Rating category
1
0–1
2–3
4–5
6–8
9–13
Credit-
impaired
(defaulted)
Total off-
balance sheet
exposure
(maximum
exposure to
credit risk)
ECL provisions
Off-balance sheet financial instruments
Guarantees
(48 )
of which: stage 1
(13 )
of which: stage 2
(9 )
of which: stage 3
(26 )
Irrevocable loan commitments
(111 )
of which: stage 1
(59 )
of which: stage 2
(52 )
of which: stage 3
Forward starting reverse repurchase and securities borrowing agreements
Total off-balance sheet financial instruments
(159 )
Credit lines
Committed unconditionally revocable credit lines
(40 )
of which: stage 1
(32 )
of which: stage 2
(8 )
of which: stage 3
Irrevocable committed prolongation of existing loans
(2 )
of which: stage 1
(2 )
of which: stage 2
of which: stage 3
Total credit lines
(42 )
1 Refer to the “Internal UBS rating scale and mapping of external ratings” table in the “Risk management and control” section of this report for more information on rating categories.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 191
Note 19 Expected credit loss measurement (continued)
f) Sensitivity information
As outlined in Note 1a, ECL estimates involve significant uncertainties at the time they are made.
ECL models
The models applied to determine point-in-time PD and LGD rely on market and statistical data, which has been found
to correlate well with historically observed defaults in sufficiently homogeneous segments. The risk sensitivities for
each of the ECL reporting segments to such factors are summarized in Note 9.
Sustainability and climate risk
Sustainability and climate risk may negatively affect clients or portfolios due to direct or indirect transition costs, or
exposure to physical risks in locations likely to be impacted by climate change. Such effects could lead to a deterioration
in credit worthiness, which in turn would have an impact on ECLs. While some macroeconomic indicators used in the
current PD models could be influenced by climate change, UBS currently does not use a specific sustainability and climate
risk scenario in addition to the typically four general economic scenarios applied to derive the weighted-average ECL. The
rationale for the approach at this point in time is the significance of model risks and challenges in calibration and
probability weight assessment given the paucity of data.
Instead, UBS AG focuses on the process of vetting clients and business transactions and takes individual actions, where
transition risk is deemed to be a significant driver of a counterparty’s credit worthiness. This review process may lead to
a downward revision of the counterparty ’s credit rating, or the adoption of risk mitigating actions, and hence affect the
individual contribution to ECLs.
At the portfolio level, UBS has started to use stress loss assumptions to assess the extent to which sustainability and
climate risk may affect the quality of the loans extended to small and medium-sized enterprises, large corporate clients
and financial institutions. Initial tests were based on a set of assumptions presented by external parties (such as the Bank
of England), and complemented by internally derived climate pathway scenarios. Such analysis undertaken during 2022,
and reassessed during 2023, concluded that the counterparties are not expected to be significantly impacted by physical
or transition risks, mainly as there are no material risk concentrations in high-risk sectors. The analysis of the corporate
loan book has also shown that any potential significant impacts from transition costs or physical risks would materialize
over a time horizon that exceeds in most cases the contractual lifetime of the underlying assets. Based on current
information on regulatory developments, this would also apply to the portfolio of private clients’ mortgages and real
estate financing, given the long lead times for investments in upgrading the housing stock.
As a result of the aforementioned factors, it was assessed that the magnitude of any impact of sustainability and climate
risk on the weighted -average ECL would not be material as of 31 December 2023. Therefore, no specific post-model
adjustment was made in this regard.
›
Refer to “UBS AG consolidated supplemental disclosures required under SEC regulations” for the maturity profile of UBS AG’s
core loan book
Forward-looking scenarios
Depending on the scenario selection and related macroeconomic assumptions for the risk factors, the components of
the relevant weighted-average ECL change. This is particularly relevant for interest rates, which can move in both
directions under a given growth assumption , e.g., low growth with high interest rates in a stagflation scenario, versus
low growth and falling interest rates in a recession. Management generally looks for scenario narratives that reflect the
key risk drivers of a given credit portfolio.
As forecasting models are complex, due to the combination of multiple factors, simple what-if analyses involving a change
of individual parameters do not necessarily provide realistic information on the exposure of segments to changes in the
macroeconomy. Portfolio-specific analyses based on their key risk factors would also not be meaningful, as potential
compensatory effects in other segments would be ignored. The table below indicates some sensitivities to ECLs, if a key
macroeconomic variable for the forecasting period is amended across all scenarios with all other factors remaining
unchanged.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 192
Note 19 Expected credit loss measurement (continued)
Potential effect on stage 1 and stage 2 positions from changing key parameters as of 31 December 2023
USD m
100% Baseline
100%
Stagflationary
geopolitical crisis
100% Mild Debt
Crisis
Weighted average
Change in key parameters
Fixed income: Government bonds (absolute change)
–0.50%
(3 )
(104 )
(3 )
(14 )
+0.50%
+1.00%
Unemployment rate (absolute change)
–1.00%
(4 )
(142 )
(6 )
(20 )
–0.50%
(2 )
(76 )
(3 )
(11 )
+0.50%
+1.00%
Real GDP growth (relative change)
–2.00%
–1.00%
+1.00%
(3 )
(12 )
(6 )
(6 )
+2.00%
(5 )
(22 )
(7 )
(10 )
House Price Index (relative change)
–5.00%
–2.50%
+2.50%
(7 )
(76 )
(9 )
(18 )
+5.00%
(11 )
(149 )
(19 )
(34 )
Equity (S&P500, EuroStoxx, SMI) (relative change)
–10.00%
–5.00%
+5.00%
(2 )
(5 )
(3 )
(2 )
+10.00%
(3 )
(8 )
(5 )
(4 )
Sensitivities can be more meaningfully assessed in the context of coherent scenarios with consistently developed
macroeconomic factors. The table above outlines favorable and unfavorable effects, based on reasonably possible
alternative changes to the economic conditions for stage 1 and stage 2 positions. The ECL impact is calculated for material
portfolios and disclosed for each scenario.
The forecasting horizon is limited to three years, with a model-based mean reversion of PD and LGD assumed thereafter.
Changes to these timelines may have an effect on ECLs: depending on the cycle, a longer or shorter forecasting horizon
will lead to different annualized lifetime PD and average LGD estimations. This is currently not deemed to be material for
UBS, as a large proportion of loans, including mortgages in Switzerland, have maturities that are within the forecasting
horizon.
Scenario weights and stage allocation
Potential effect on stage 1 and stage 2 positions from changing scenario weights or moving to an ECL lifetime calculation as of 31 December 2023
Actual ECL
allowances and
provisions,
including staging
(as per Note 9)
Pro forma ECL
allowances and
provisions,
assuming all
positions being
subject to lifetime
ECL
Scenarios
Weighted average
100% Baseline
100% Asset price
inflation
100%
Stagflationary
geopolitical crisis
100% Mild debt
crisis
Weighted average
USD m, except where indicated
Segmentation
Private clients with mortgages
(133 )
(43 )
(10 )
(521 )
(63 )
(368 )
Real estate financing
(52 )
(34 )
(21 )
(200 )
(36 )
(125 )
Large corporate clients
(152 )
(108 )
(53 )
(252 )
(146 )
(234 )
SME clients
(103 )
(85 )
(57 )
(186 )
(96 )
(164 )
Other segments
(140 )
(126 )
(78 )
(162 )
(151 )
(302 )
Total
(580 )
(396 )
(219 )
(1,322 )
(492 )
(1,193 )
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 193
Note 19 Expected credit loss measurement (continued)
Potential effect on stage 1 and stage 2 positions from changing scenario weights or moving to an ECL lifetime calculation as of 31 December 2022
Actual ECL
allowances and
provisions,
including staging
(as per Note 9)
Pro forma ECL
allowances and
provisions,
assuming all
positions being
subject to lifetime
ECL
Scenarios
Weighted average
100% Baseline
100% Asset price
inflation
100%
Stagflationary
geopolitical crisis
100% Global crisis
Weighted average
USD m, except where indicated
Segmentation
Private clients with mortgages
(136 )
(25 )
(13 )
(523 )
(184 )
(473 )
Real estate financing
(43 )
(26 )
(22 )
(176 )
(30 )
(126 )
Large corporate clients
(136 )
(97 )
(84 )
(199 )
(174 )
(235 )
SME clients
(86 )
(67 )
(66 )
(162 )
(97 )
(153 )
Other segments
(125 )
(114 )
(111 )
(145 )
(153 )
(281 )
Total
(526 )
(329 )
(295 )
(1,204 )
(638 )
(1,267 )
Scenario weights
ECL is sensitive to changing scenario weights, in particular if narratives and parameters are selected that are not close to
the baseline scenario, highlighting the non-linearity of credit losses.
As shown in the table above, the ECLs for stage 1 and stage 2 positions would have been USD
m (31 December
2022: USD
m) instead of USD
m (31 December 2022: USD
m) if ECLs had been determined solely on the
baseline scenario
. The weighted-average ECL therefore amounted to
% (31 December 2022:
%) of the baseline
value. The effects of weighting each of the four scenarios 100% are shown in the table above.
Stage allocation and SICR
The determination of what constitutes an SICR is based on management judgment, as explained in Note 1a. Changing
the SICR trigger will have a direct effect on ECLs, as more or fewer positions would be subject to lifetime ECLs under any
scenario.
The relevance of the SICR trigger on overall ECL is demonstrated in the table above with the indication that the ECL
allowances and provisions for stage 1 and stage 2 positions would have been USD
m, if all non-impaired positions
across the portfolio had been measured for lifetime ECLs irrespective of their actual SICR status. This amount compares
with actual stage 1 and 2 allowances and provisions of USD
m as of 31 December 2023.
Maturity profile
The maturity profile is an important driver in ECLs, in particular for transactions in stage 2. A transfer of a transaction
into stage 2 may therefore have a significant effect on ECLs. The current maturity profile of most lending books is relatively
short.
Lending to large corporate clients is generally between one and two years, with related loan commitments up to four
years. Real estate lending is generally between two and three years in Switzerland, with long-dated maturities in the US.
Lombard-lending contracts typically have average contractual maturities of 12 months or less, and include callable
features.
A significant portion of our lending to SMEs and Real estate financings is documented under multi-purpose credit
agreements, which allow for various forms of utilization but are unconditionally cancelable by UBS at any time: (i) for
drawings under such agreements with a fixed maturity, the respective term is applied for ECL calculations, or a maximum
of 12 months in stage
1; (ii) for unused credit lines and all drawings that have no fixed maturity (e.g., current accounts),
UBS generally applies a 12-month maturity from the reporting date, given the credit review policies, which require either
continuous monitoring of key indicators and behavioral patterns for smaller positions or an annual formal review for any
other limit. The ECLs for these products are sensitive to shortening or extending the maturity assumption.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 194
Note 20 Fair value measurement
a) Valuation principles
All financial and non-financial assets and liabilities measured or disclosed at fair value are categorized into one of three
fair value hierarchy levels in accordance with IFRS Accounting Standards. The fair value hierarchy is based on the
transparency of inputs to the valuation of an asset or liability as of the measurement date. In certain cases, the inputs
used to measure fair value may fall within different levels of the fair value hierarchy. For disclosure purposes, the level in
the hierarchy within which an instrument is classified in its entirety is based on the lowest level input that is significant to
the position’s fair value measurement:
–
Level 1 – quoted prices (unadjusted) in active markets for identical assets and liabilities;
–
Level 2 – valuation techniques for which all significant inputs are, or are based on, observable market data; or
–
Level 3 – valuation techniques for which significant inputs are not based on observable market data.
Fair values are determined using quoted prices in active markets for identical assets or liabilities, where available. Where
the market for a financial instrument or non-financial asset or liability is not active, fair value is established using a
valuation technique, including pricing models. Valuation adjustments may be made to allow for additional factors,
including model, liquidity, credit and funding risks, which are not explicitly captured within the valuation technique, but
which would nevertheless be considered by market participants when establishing a price. The limitations inherent in a
particular valuation technique are considered in the determination of the classification of an asset or liability within the
fair value hierarchy. Generally, the unit of account for a financial instrument is the individual instrument, and UBS AG
applies valuation adjustments at an individual instrument level, consistent with that unit of account. However, if certain
conditions are met, UBS AG may estimate the fair value of a portfolio of financial assets and liabilities with substantially
similar and offsetting risk exposures on the basis of the net open risks.
›
Refer to Note 20d for more information
b) Valuation governance
UBS AG’s fair value measurement and model governance framework includes numerous controls and other procedural
safeguards that are intended to maximize the quality of fair value measurements reported in the financial statements.
New products and valuation techniques must be reviewed and approved by key stakeholders from the risk and finance
control functions. Responsibility for the ongoing measurement of financial and non-financial instruments at fair value is
with the business divisions.
Fair value estimates are validated by the risk and finance control functions, which are independent of the business
divisions. Independent price verification is performed by Finance through benchmarking the business divisions’ fair value
estimates with observable market prices and other independent sources. A governance framework and associated
controls are in place in order to monitor the quality of third-party pricing sources where used. For instruments where
valuation models are used to determine fair value, independent valuation and model control groups within Finance and
Risk Control evaluate UBS AG’s models on a regular basis, including valuation and model input parameters, as well as
pricing. As a result of the valuation controls employed, valuation adjustments may be made to the business divisions’
estimates of fair value to align with independent market data and the relevant accounting standard.
›
Refer to Note 20d for more information
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 195
Note 20 Fair value measurement (continued)
c) Fair value hierarchy
The table below provides the fair value hierarchy classification of financial and non-financial assets and liabilities measured
at fair value. The narrative that follows describes valuation techniques used in measuring their fair value of different
product types (including significant valuation inputs and assumptions used) and the factors considered in determining
their classification within the fair value hierarchy.
During 2023, assets and liabilities that were transferred from Level 2 to Level 1, or from Level 1 to Level 2, and were held
for the entire reporting period were not material. In the fourth quarter of 2023, UBS AG has prospectively amended its
approach to testing for observability as part of an accounting methodology alignment following the acquisition of Credit
Suisse. This methodological change enhances UBS AG’s assessment of sensitivities to unobservable valuation parameters.
Application of the new methodology as of 31 December 2022 would have resulted in USD
bn lower Level 3 liabilities
(as of 31 December 2023 the balance of affected liabilities in Level 3 was USD
bn), with an offsetting impact to Level
2 liabilities.
Determination of fair values from quoted market prices or valuation techniques
1
31.12.23
31.12.22
USD m
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Financial assets measured at fair value on a recurring basis
Financial assets at fair value held for trading
of which: Equity instruments
of which: Government bills / bonds
of which: Investment fund units
of which: Corporate and municipal bonds
of which: Loans
of which: Asset-backed securities
Derivative financial instruments
of which: Foreign exchange
of which: Interest rate
of which: Equity / index
of which: Credit
of which: Commodities
Brokerage receivables
Financial assets at fair value not held for trading
of which: Financial assets for unit-linked investment contracts
of which: Corporate and municipal bonds
of which: Government bills / bonds
of which: Loans
of which: Securities financing transactions
of which: Auction rate securities
of which: Investment fund units
of which: Equity instruments
Financial assets measured at fair value through other comprehensive income on a recurring basis
Financial assets measured at fair value through other comprehensive income
of which: Commercial paper and certificates of deposit
of which: Corporate and municipal bonds
Non-financial assets measured at fair value on a recurring basis
Precious metals and other physical commodities
Non-financial assets measured at fair value on a non-recurring basis
Other non-financial assets
2
Total assets measured at fair value
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 196
Note 20 Fair value measurement (continued)
Determination of fair values from quoted market prices or valuation techniques (continued)
1
31.12.23
31.12.22
USD m
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Financial liabilities measured at fair value on a recurring basis
Financial liabilities at fair value held for trading
of which: Equity instruments
of which: Corporate and municipal bonds
of which: Government bills / bonds
of which: Investment fund units
Derivative financial instruments
of which: Foreign exchange
of which: Interest rate
of which: Equity / index
of which: Credit
of which: Commodities
Financial liabilities designated at fair value on a recurring basis
Brokerage payables designated at fair value
Debt issued designated at fair value
Other financial liabilities designated at fair value
of which: Financial liabilities related to unit-linked investment contracts
of which: Securities financing transactions
of which: Funding from UBS Group AG
of which: Over-the-counter debt instruments and other
Total liabilities measured at fair value
1 Bifurcated embedded derivatives are presented on the same balance sheet lines as their host contracts and are not included in this table. The fair value of these derivatives was not material for the periods presented.
2 Other non-financial assets primarily consist of properties and other non-current assets held for sale, which are measured at the lower of their net carrying amount or fair value less costs to sell.
Valuation techniques
UBS AG uses widely recognized valuation techniques for determining the fair value of financial and non-financial
instruments that are not actively traded and quoted. The most frequently applied valuation techniques include discounted
value of expected cash flows, relative value and option pricing methodologies.
Discounted value of expected cash flows is a valuation technique that measures fair value using estimated expected
future cash flows from assets or liabilities and then discounts these cash flows using a discount rate or discount margin
that reflects the credit and / or funding spreads required by the market for instruments with similar risk and liquidity
profiles to produce a present value. When using such valuation techniques, expected future cash flows are estimated
using an observed or implied market price for the future cash flows or by using industry-standard cash flow projection
models. The discount factors within the calculation are generated using industry-standard yield curve modeling
techniques and models.
Relative value models measure fair value based on the market prices of equivalent or comparable assets or liabilities, making
adjustments for differences between the characteristics of the observed instrument and the instrument being valued.
Option pricing models incorporate assumptions regarding the behavior of future price movements of an underlying
referenced asset or assets to generate a probability-weighted future expected payoff for the option. The resulting
probability-weighted expected payoff is then discounted using discount factors generated from industry-standard yield
curve modeling techniques and models. The option pricing model may be implemented using a closed-form analytical
formula or other mathematical techniques (e.g., binomial tree or Monte Carlo simulation).
Where available, valuation techniques use market-observable assumptions and inputs. If such data is not available, inputs
may be derived by reference to similar assets in active markets, from recent prices for comparable transactions or from
other observable market data. In such cases, the inputs selected are based on historical experience and practice for similar
or analogous instruments, derivation of input levels based on similar products with observable price levels, and knowledge
of current market conditions and valuation approaches.
For more complex instruments, fair values may be estimated using a combination of observed transaction prices,
consensus pricing services and relevant quotes. Consideration is given to the nature of the quotes (e.g., indicative or firm)
and the relationship of recently evidenced market activity to the prices provided by consensus pricing services. UBS AG
also uses internally developed models, which are typically based on valuation methods and techniques recognized as
standard within the industry. Assumptions and inputs used in valuation techniques include benchmark interest rate curves,
credit and funding spreads used in estimating discount rates, bond and equity prices, equity index prices, foreign
exchange rates, levels of market volatility and correlation. Refer to Note 20e for more information. The discount curves
used by UBS AG incorporate the funding and credit characteristics of the instruments to which they are applied.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 197
Note 20 Fair value measurement (continued)
Financial instruments excluding derivatives: valuation and classification in the fair value hierarchy
Product
Valuation and classification in the fair value hierarchy
Government bills
and bonds
Valuation
–
Generally valued using prices obtained directly from the market.
–
Instruments not priced directly using active-market data are valued using discounted cash flow valuation
techniques that incorporate market data for similar government instruments.
Fair value
hierarchy
–
Generally traded in active markets with prices that can be obtained directly from these markets, resulting
in classification as Level 1, while the remaining positions are classified as Level 2 and Level 3.
Corporate and
municipal bonds
Valuation
–
Generally valued using prices obtained directly from the market for the security, or similar securities,
adjusted for seniority, maturity and liquidity.
–
When prices are not available, instruments are valued using discounted cash flow valuation techniques
incorporating the credit spread of the issuer or similar issuers.
–
For convertible bonds without directly comparable prices, issuances may be priced using a convertible
bond model.
Fair value
hierarchy
–
Generally classified as Level 1 or Level 2, depending on the depth of trading activity behind price sources.
–
Level 3 instruments have no suitable pricing information available.
Traded loans and
loans measured at
fair value
Valuation
–
Valued directly using market prices that reflect recent transactions or quoted dealer prices, where available.
–
Where no market price data is available, loans are valued by relative value benchmarking using pricing
derived from debt instruments in comparable entities or different products in the same entity, or by using
a credit default swap valuation technique, which requires inputs for credit spreads, credit recovery rates
and interest rates. Recently originated commercial real estate loans are measured using a securitization
approach based on rating agency guidelines.
Fair value
hierarchy
–
Instruments with suitably deep and liquid pricing information are classified as Level 2.
–
Positions requiring the use of valuation techniques, or for which the price sources have insufficient trading
depth, are classified as Level 3.
Investment fund
units
Valuation
–
Predominantly exchange-traded, with readily available quoted prices in liquid markets. Where market
prices are not available, fair value may be measured using net asset values (NAVs).
Fair value
hierarchy
–
Listed units are classified as Level 1, provided there is sufficient trading activity to justify active-market
classification, while other positions are classified as Level 2.
–
Positions for which NAVs are not available, or where the unit or underlying investments are illiquid are
classified as Level 3.
Asset-backed
securities (ABS)
Valuation
–
For liquid securities, the valuation process will use trade and price data, updated for movements in market
levels between the time of trading and the time of valuation. Less liquid instruments are measured using
discounted expected cash flows incorporating price data for instruments or indices with similar risk profiles.
Fair value
hierarchy
–
Residential mortgage-backed securities, commercial mortgage-backed securities and other ABS are
generally classified as Level 2. However, if significant inputs are unobservable, or if market or fundamental
data is not available, they are classified as Level 3.
Auction rate
securities (ARS)
Valuation
–
ARS are valued utilizing a discounted cash flow methodology. The model captures interest rate risk
emanating from the note coupon, credit risk attributable to the underlying closed-end fund investments,
liquidity risk as a function of the level of trading volume in these positions, and extension risk, as ARS are
perpetual instruments that require an assumption regarding their maturity or issuer redemption date.
Fair value
hierarchy
–
Granular and liquid pricing information is generally not available for ARS. As a result, these securities are
classified as Level 3.
Equity instruments
Valuation
–
Listed equity instruments are generally valued using prices obtained directly from the market.
–
Unlisted equity holdings, including private equity positions, are initially marked at their transaction price
and are revalued when reliable evidence of price movement becomes available or when the position is
deemed to be impaired.
Fair value
hierarchy
–
The majority of equity securities are actively traded on public stock exchanges where quoted prices are
readily and regularly available, resulting in Level 1 classification.
–
Equity securities less actively traded will be classified as Level 2 and illiquid positions as Level 3.
Financial assets for
unit-linked
investment
contracts
Valuation
–
The majority of assets are listed on exchanges and fair values are determined using quoted prices.
Fair value
hierarchy
–
Most assets are classified as Level 1 if actively traded, or Level 2 if trading is not active.
–
Instruments for which prices are not readily available are classified as Level 3.
Securities
financing
transactions
Valuation
–
These instruments are valued using discounted expected cash flow techniques. The discount rate applied
is based on funding curves that are relevant to the collateral eligibility terms.
Fair value
hierarchy
–
Collateral funding curves for these instruments are generally observable and, as a result, these positions
are classified as Level 2.
–
Where the collateral terms are non-standard, the funding curve may be considered unobservable and these
positions are classified as Level 3.
Brokerage
receivables and
payables
Valuation
–
Fair value is determined based on the value of the underlying balances.
Fair value
hierarchy
–
Due to their on-demand nature, these receivables and payables are deemed as Level 2.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 198
Note 20 Fair value measurement (continued)
Product
Valuation and classification in the fair value hierarchy
Financial liabilities
related to unit-
linked investment
contracts
Valuation
–
The fair values of investment contract liabilities are determined by reference to the fair value of the
corresponding assets.
Fair value
hierarchy
–
The liabilities themselves are not actively traded, but are mainly referenced to instruments that are
actively traded and are therefore classified as Level 2.
Precious metals and
other physical
commodities
Valuation
–
Physical assets are valued using the spot rate observed in the relevant market.
Fair value
hierarchy
–
Generally traded in active markets with prices that can be obtained directly from these markets, resulting
in classification as Level 1.
Debt issued
designated at fair
value
Valuation
–
The risk management and the valuation approaches for these instruments are closely aligned with the
equivalent derivatives business and the underlying risk, and the valuation techniques used for this
component are the same as the relevant valuation techniques described below.
Fair value
hierarchy
–
The observability is closely aligned with the equivalent derivatives business and the underlying risk.
Commercial paper
and certificates of
deposit
Valuation
–
Generally valued using discounted cash flow valuation techniques incorporating the spread of the issuer
or similar issuers over the underlying currency risk-free curve.
Fair value
hierarchy
–
Due to the short-dated nature of the positions and liquid underlying pricing inputs, they are generally
classified as Level 2.
Derivative instruments: valuation and classification in the fair value hierarchy
The curves used for discounting expected cash flows in the valuation of collateralized derivatives reflect the funding terms
associated with the relevant collateral arrangement for the instrument being valued. These collateral arrangements differ
across counterparties with respect to the eligible currency and interest terms of the collateral. The majority of
collateralized derivatives are measured using a discount curve based on funding rates derived from overnight interest in
the cheapest eligible currency for the respective counterparty collateral agreement.
Uncollateralized and partially collateralized derivatives are discounted using the alternative reference rate (the ARR) (or
equivalent) curve for the currency of the instrument. As described in Note 20d, the fair value of uncollateralized and
partially collateralized derivatives is then adjusted by credit valuation adjustments (CVAs), debit valuation adjustments
(DVAs) and funding valuation adjustments (FVA s), as applicable, to reflect an estimation of the effect of counterparty
credit risk, UBS AG’s own credit risk, and funding costs and benefits.
›
Refer to Note 10 for more information about derivative instruments
Derivative product
Valuation and classification in the fair value hierarchy
Interest rate
contracts
Valuation
–
Interest rate swap contracts are valued by estimating future interest cash flows and discounting those cash
flows using a rate that reflects the appropriate funding rate for the position being measured. The yield
curves used to estimate future index levels and discount rates are generated using market-standard yield
curve models using interest rates associated with current market activity. The key inputs to the models are
interest rate swap rates, forward rate agreement rates, short-term interest rate futures prices, basis swap
spreads and inflation swap rates.
–
Interest rate option contracts are valued using various market-standard option models, using inputs that
include interest rate yield curves, inflation curves, volatilities and correlations.
–
When the maturity of an interest rate swap or option contract exceeds the term for which standard market
quotes are observable for a significant input parameter, the contracts are valued by extrapolation from the
last observable point using standard assumptions or by reference to another observable comparable input
parameter to represent a suitable proxy for that portion of the term.
Fair value
hierarchy
–
The majority of interest rate swaps are classified as Level 2, as the standard market contracts that form the
inputs for yield curve models are generally traded in active and observable markets.
–
Options are generally treated as Level 2, as the calibration process enables the model output to be validated
to active-market levels. Models calibrated in this way are then used to revalue the portfolio of both standard
options and more exotic products.
–
Interest rate swap or option contracts are classified as Level 3 when the terms exceed standard market-
observable quotes.
–
Exotic options for which appropriate volatility or correlation input levels cannot be implied from observable
market data are classified as Level 3.
Credit derivative
contracts
Valuation
–
Credit derivative contracts are valued using industry-standard models based primarily on market credit
spreads, upfront pricing points and implied recovery rates. Where a derivative credit spread is not directly
available, it may be derived from the price of the reference cash bond.
–
Asset-backed credit derivatives are valued using a valuation technique similar to that of the underlying
security with an adjustment to reflect the funding differences between cash and synthetic form.
Fair value
hierarchy
–
Single-entity and portfolio credit derivative contracts are classified as Level 2 when credit spreads and
recovery rates are determined from actively traded observable market data. Where the underlying reference
name(s) are not actively traded and the correlation cannot be directly mapped to actively traded tranche
instruments, these contracts are classified as Level 3.
–
Asset-backed credit derivatives follow the characteristics of the underlying security and are therefore
distributed across Level 2 and Level 3.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 199
Note 20 Fair value measurement (continued)
Derivative product
Valuation and classification in the fair value hierarchy
Foreign exchange
contracts
Valuation
–
Open spot foreign exchange (FX) contracts are valued using the FX spot rate observed in the market.
–
Forward FX contracts are valued using the FX spot rate adjusted for forward pricing points observed from
standard market-based sources.
–
Over-the-counter (OTC) FX option contracts are valued using market-standard option valuation models.
The models used for shorter-dated options (i.e., maturities of five years or less) tend to be different than
those used for longer-dated options because the models needed for longer-dated OTC FX contracts require
additional consideration of interest rate and FX rate interdependency.
–
The valuation for multi-dimensional FX options uses a multi-local volatility model, which is calibrated to the
observed FX volatilities for all relevant FX pairs.
Fair value
hierarchy
–
The markets for FX spot and FX forward pricing points are both actively traded and observable and
therefore such FX contracts are generally classified as Level 2.
–
A significant proportion of OTC FX option contracts are classified as Level 2 as inputs are derived mostly
from standard market contracts traded in active and observable markets.
Equity / index
contracts
Valuation
–
Equity forward contracts have a single stock or index underlying and are valued using market-standard
models. The key inputs to the models are stock prices, estimated dividend rates and equity funding rates
(which are implied from prices of forward contracts observed in the market). Estimated cash flows are then
discounted using market-standard discounted cash flow models using a rate that reflects the appropriate
funding rate for that portion of the portfolio. When no market data is available for the instrument maturity,
they are valued by extrapolation of available data, use of historical dividend data, or use of data for a
related equity.
–
Equity option contracts are valued using market-standard models that estimate the equity forward level as
described for equity forward contracts and incorporate inputs for stock volatility and for correlation
between stocks within a basket. The probability-weighted expected option payoff generated is then
discounted using market-standard discounted cash flow models applying a rate that reflects the
appropriate funding rate for that portion of the portfolio. When volatility, forward or correlation inputs are
not available, they are valued using extrapolation of available data, historical dividend, correlation or
volatility data, or the equivalent data for a related equity.
Fair value
hierarchy
–
As inputs are derived mostly from standard market contracts traded in active and observable markets, a
significant proportion of equity forward contracts are classified as Level 2.
–
Equity option positions for which inputs are derived from standard market contracts traded in active and
observable markets are also classified as Level 2. Level 3 positions are those for which volatility, forward or
correlation inputs are not observable.
Commodity
contracts
Valuation
–
Commodity forward and swap contracts are measured using market-standard models that use market
forward levels on standard instruments.
–
Commodity option contracts are measured using market-standard option models that estimate the
commodity forward level as described for commodity forward and swap contracts, incorporating inputs
for the volatility of the underlying index or commodity. For commodity options on baskets of commodities
or bespoke commodity indices, the valuation technique also incorporates inputs for the correlation
between different commodities or commodity indices.
Fair value
hierarchy
–
Individual commodity contracts are typically classified as Level 2, because active forward and volatility
market data is available.
d) Valuation adjustments and other items
The output of a valuation technique is always an estimate of a fair value that cannot be measured with complete certainty.
As a result, valuations are adjusted where appropriate and when such factors would be considered by market participants
in estimating fair value, to reflect close-out costs, credit exposure, model-driven valuation uncertainty, funding costs and
benefits, trading restrictions and other factors.
Deferred day-1 profit or loss reserves
For new transactions where the valuation technique used to measure fair value requires significant inputs that are not
based on observable market data, the financial instrument is initially recognized at the transaction price. The transaction
price may differ from the fair value obtained using a valuation technique, where any such difference is deferred and not
initially recognized in the income statement.
Deferred day-1 profit or loss is generally released into
Other net income from financial instruments measured at fair value
through profit or loss
the transaction is closed out.
The table below summarizes the changes in deferred day-1 profit or loss reserves during the respective period.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 200
Note 20 Fair value measurement (continued)
Deferred day-1 profit or loss reserves
USD m
2023
2022
2021
Reserve balance at the beginning of the year
Profit / (loss) deferred on new transactions
(Profit) / loss recognized in the income statement
(275 )
(295 )
(308 )
Foreign currency translation
(2 )
Reserve balance at the end of the year
Own credit
Own credit risk is reflected in the valuation of UBS AG’s fair value option liabilities where this component is considered
relevant for valuation purposes by UBS AG’s counterparties and other market participants.
Changes in the fair value of financial liabilities designated at fair value through profit or loss related to own credit are
recognized in
Other comprehensive income
Retained earnings, with no reclassification to the income
statement in future periods.
statement, as UBS AG does not hedge changes in own credit.
Own credit is estimated using own credit adjustment (OCA) curves, which incorporate observable market data, including
market-observed secondary prices for UBS’s debt and debt curves of peers. In the table below, the change in unrealized
own credit consists of changes in fair value that are attributable to the change in UBS AG’s credit spreads, as well as the
effect of changes in fair values attributable to factors other than credit spreads, such as redemptions, effects from time
decay and changes in interest and other market rates. Realized own credit is recognized when an instrument with an
associated unrealized OCA is repurchased prior to the contractual maturity date. Life-to-date amounts reflect the
cumulative unrealized change since initial recognition.
›
Refer to Note 15 for more information about debt issued designated at fair value
Own credit adjustments on financial liabilities designated at fair value
Included in Other comprehensive income
For the year ended
USD m
31.12.23
31.12.22
31.12.21
Recognized during the period:
Realized gain / (loss)
(14 )
Unrealized gain / (loss)
(869 )
Total gain / (loss), before tax
(861 )
USD m
31.12.23
31.12.22
31.12.21
Recognized on the balance sheet as of the end of the period:
Unrealized life-to-date gain / (loss)
(312 )
(315 )
of which: debt issued designated at fair value
(208 )
(144 )
of which: other financial liabilities designated at fair value
(105 )
(172 )
Credit valuation adjustments
In order to measure the fair value of OTC derivative instruments, including funded derivative instruments that are
classified as
Financial assets at fair value not held for trading,
inherent in these instruments. This amount represents the estimated fair value of protection required to hedge the
counterparty credit risk of such instruments. A CVA is determined for each counterparty, considering all exposures with
that counterparty, and is dependent on the expected future value of exposures, default probabilities and recovery rates,
applicable collateral or netting arrangements, break clauses, funding spreads, and other contractual factors.
Funding valuation adjustments
FVAs reflect the costs and benefits of funding associated with uncollateralized and partially collateralized derivative
receivables and payables and are calculated as the valuation effect from moving the discounting of the uncollateralized
derivative cash flows from the ARR to OCA using the CVA framework, including the probability of counterparty default.
An FVA is also applied to collateralized derivative assets in cases where the collateral cannot be sold or repledged.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 201
Note 20 Fair value measurement (continued)
Debit valuation adjustments
A DVA is estimated to incorporate own credit in the valuation of derivatives where an FVA is not already recognized. The
DVA calculation is effectively consistent with the CVA framework, being determined for each counterparty, considering
all exposures with that counterparty and taking into account collateral netting agreements, expected future mark-to-
market movements and UBS AG’s credit default spreads.
Other valuation adjustments
Instruments that are measured as part of a portfolio of combined long and short positions are valued at mid-market levels
to ensure consistent valuation of the long- and short-component risks. A liquidity valuation adjustment is then made to
the overall net long or short exposure to move the fair value to bid or offer as appropriate, reflecting current levels of
market liquidity. The bid–offer spreads used in the calculation of this valuation adjustment are obtained from market
transactions and other relevant sources and are updated periodically.
Uncertainties associated with the use of model-based valuations are incorporated into the measurement of fair value
through the use of model reserves. These reserves reflect the amounts that UBS AG estimates should be deducted from
valuations produced directly by models to incorporate uncertainties in the relevant modeling assumptions, in the model
and market inputs used, or in the calibration of the model output to adjust for known model deficiencies. In arriving at
these estimates, UBS AG considers a range of market practices, including how it believes market participants would
assess these uncertainties. Model reserves are reassessed periodically in light of data from market transactions, consensus
pricing services and other relevant sources.
Balance sheet valuation adjustments on financial instruments
As of
USD m
31.12.23
31.12.22
Credit valuation adjustments
1
(37 )
(33 )
Funding and debit valuation adjustments
(82 )
(46 )
Other valuation adjustments
(730 )
(839 )
of which: liquidity
(308 )
(311 )
of which: model uncertainty
(423 )
(529 )
1 Amounts do not include reserves against defaulted counterparties.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 202
Note 20 Fair value measurement (continued)
e) Level 3 instruments: valuation techniques and inputs
The table below presents material Level 3 assets and liabilities, together with the valuation techniques used to measure
fair value, the inputs used in a given valuation technique that are considered significant as of 31 December 2023 and
unobservable, and a range of values for those unobservable inputs.
The range of values represents the highest- and lowest-level inputs used in the valuation techniques. Therefore, the range
does not reflect the level of uncertainty regarding a particular input or an assessment of the reasonableness of UBS AG’s
estimates and assumptions, but rather the different underlying characteristics of the relevant assets and liabilities held by
UBS AG. The ranges will therefore vary from period to period and parameter to parameter based on characteristics of
the instruments held at each balance sheet date. Furthermore, the ranges of unobservable inputs may differ across other
financial institutions, reflecting the diversity of the products in each firm’s inventory.
Valuation techniques and inputs used in the fair value measurement of Level 3 assets and liabilities
Fair value
Significant
unobservable
input(s)
1
Range of inputs
Assets
Liabilities
Valuation
technique(s)
31.12.23
31.12.22
USD bn
31.12.23
31.12.22
31.12.23
31.12.22
low
high
weighted
average
2
low
high
weighted
average
2
unit
1
Financial assets and liabilities at fair value held for trading and Financial assets at fair value not held for trading
Corporate and municipal
bonds
Relative value to
market comparable
Bond price equivalent
points
Discounted expected
cash flows
Discount margin
basis
points
Traded loans, loans
measured at fair value,
loan commitments and
guarantees
Relative value to
market comparable
Loan price equivalent
points
Discounted expected
cash flows
Credit spread
basis
points
Market comparable
and securitization
model
Credit spread
basis
points
Auction rate securities
Discounted expected
cash flows
Credit spread
basis
points
Investment fund units
3
Relative value to
market comparable
Net asset value
Equity instruments
3
Relative value to
market comparable
Price
Debt issued designated at
fair value
4
Other financial liabilities
designated at fair value
Discounted expected
cash flows
Funding spread
basis
points
Derivative financial instruments
Interest rate
Option model
Volatility of interest
rates
basis
points
Credit
Discounted expected
cash flows
Credit spreads
basis
points
Bond price equivalent
points
Equity / index
Option model
Equity dividend yields
%
Volatility of equity
stocks, equity and
other indices
%
Equity-to-FX
correlation
(40 )
(29 )
%
Equity-to-equity
correlation
(25 )
%
1 The ranges of significant unobservable inputs are represented in points, percentages and basis points. Points are a percentage of par (e.g., 100 points would be 100% of par). 2 Weighted averages are provided for
most non-derivative financial instruments and were calculated by weighting inputs based on the fair values of the respective instruments. Weighted averages are not provided for inputs related to Other financial liabilities
designated at fair value and Derivative financial instruments, as this would not be meaningful. 3 The range of inputs is not disclosed, as there is a dispersion of values given the diverse nature of the investments. 4 Debt
issued designated at fair value primarily consists of UBS AG structured notes, which include variable maturity notes with various equity and foreign exchange underlying risks, as well as rates-linked and credit -linked notes,
all of which have embedded derivative parameters that are considered to be unobservable. The equivalent derivative instrument parameters are presented in the respective derivative financial instruments lines in this table.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 203
Note 20 Fair value measurement (continued)
Significant unobservable inputs in Level 3 positions
This section discusses the significant unobservable inputs used in the valuation of Level 3 instruments and assesses the
potential effect that a change in each unobservable input in isolation may have on a fair value measurement. Relationships
between observable and unobservable inputs have not been included in the summary below.
Input
Description
Bond price
equivalent
–
Where market prices are not available for a bond, fair value is measured by comparison with observable pricing data from
similar instruments. Factors considered when selecting comparable instruments include credit quality, maturity and industry
of the issuer. Fair value may be measured either by a direct price comparison or by conversion of an instrument price into a
yield (either as an outright yield or as a spread to the relevant benchmark rate).
–
For corporate and municipal bonds, the range represents the range of prices from reference issuances used in determining
fair value. Bonds priced at 0 are distressed to the point that no recovery is expected, while prices significantly in excess of 100
or par relate to inflation-linked or structured issuances that pay a coupon in excess of the market benchmark as of the
measurement date.
–
For credit derivatives, the bond price range represents the range of prices used for reference instruments, which are typically
converted to an equivalent yield or credit spread as part of the valuation process.
Loan price
equivalent
–
Where market prices are not available for a traded loan or a loan commitment, fair value is measured by comparison with
observable pricing data for similar instruments. Factors considered when selecting comparable instruments include industry
segment, collateral quality, maturity and issuer-specific covenants. Fair value may be measured either by a direct price
comparison or by conversion of an instrument price into a yield. The range represents the range of prices derived from
reference issuances of a similar credit quality used to measure fair value for loans classified as Level 3. Loans priced at 0 are
distressed to the point that no recovery is expected, while a current price of 100 represents a loan that is expected to be
repaid in full.
Credit spread
–
Valuation models for many credit derivatives and other credit sensitive products require an input for the credit spread, which
is a reflection of the credit quality of the associated referenced underlying. The credit spread of a particular security is quoted
in relation to the yield on a benchmark security or reference rate, typically either US Treasury or ARR, and is generally expressed
in terms of basis points. An increase / (decrease) in credit spread will increase / (decrease) the value of credit protection offered
by credit default swaps and other credit derivative products. The income statement effect from such changes depends on the
nature and direction of the positions held. Credit spreads may be negative where the asset is more creditworthy than the
benchmark against which the spread is calculated. A wider credit spread represents decreasing creditworthiness. The range
represents a diverse set of underlyings, with the lower end of the range representing credits of the highest quality and the
upper end of the range representing greater levels of credit risk.
Discount margin
–
The discount margin (DM) spread represents the discount rates applied to present value cash flows of an asset to reflect the
market return required for uncertainty in the estimated cash flows. DM spreads are a rate or rates applied on top of a floating
index (e.g., Secured Overnight Financing Rate (SOFR)) to discount expected cash flows. Generally, a decrease / (increase) in
the DM in isolation would result in a higher / (lower) fair value.
–
The high end of the range relates to securities that are priced low within the market relative to the expected cash flow
schedule. This indicates that the market is pricing an increased risk of credit loss into the security that is greater than what is
being captured by the expected cash flow generation process. The low ends of the ranges are typical of funding rates on
better-quality instruments.
Funding spread
–
Structured financing transactions are valued using synthetic funding curves that best represent the assets that are pledged as
collateral for the transactions. They are not representative of where UBS AG can fund itself on an unsecured basis but provide
an estimate of where UBS AG can source and deploy secured funding with counterparties for a given type of collateral. The
funding spreads are expressed in terms of basis points, and if funding spreads widen, this increases the effect of discounting.
–
A small proportion of structured debt instruments and non-structured fixed-rate bonds within financial liabilities designated
at fair value had an exposure to funding spreads that was longer in duration than the actively traded market.
Volatility
–
Volatility measures the variability of future prices for a particular instrument and is generally expressed as a percentage, where
a higher number reflects a more volatile instrument, for which future price movements are more likely to occur. Volatility is a
key input into option models, where it is used to derive a probability-based distribution of future prices for the underlying
instrument. The effect of volatility on individual positions within the portfolio is driven primarily by whether the option
contract is a long or short position. In most cases, the fair value of an option increases as a result of an increase in volatility
and is reduced by a decrease in volatility. Generally, volatility used in the measurement of fair value is derived from active-
market option prices (referred to as implied volatility). A key feature of implied volatility is the volatility “smile” or “skew,”
which represents the effect of pricing options of different option strikes at different implied volatility levels.
–
Volatilities of low interest rates tend to be much higher than volatilities of high interest rates. In addition, different currencies
may have significantly different implied volatilities.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 204
Note 20 Fair value measurement (continued)
Input
Description
Correlation
–
Correlation measures the interrelationship between the movements of two variables. It is expressed as a percentage between
–100% and +100%, where +100% represents perfectly correlated variables (meaning a movement of one variable is
associated with a movement of the other variable in the same direction) and –100% implies that the variables are inversely
correlated (meaning a movement of one variable is associated with a movement of the other variable in the opposite
direction). The effect of correlation on the measurement of fair value depends on the specific terms of the instruments being
valued, reflecting the range of different payoff features within such instruments.
Equity dividend
yields
–
The derivation of a forward price for an individual stock or index is important for measuring fair value for forward or swap
contracts and for measuring fair value using option pricing models. The relationship between the current stock price and the
forward price is based on a combination of expected future dividend levels and payment timings, and, to a lesser extent, the
relevant funding rates applicable to the stock in question. Dividend yields are generally expressed as an annualized percentage
of the share price, with the lowest limit of 0% representing a stock that is not expected to pay any dividend. The dividend
yield and timing represent the most significant parameter in determining fair value for instruments that are sensitive to an
equity forward price.
f) Level 3 instruments: sensitivity to changes in unobservable input assumptions
The table below summarizes those financial assets and liabilities classified as Level 3 for which a change in one or more
of the unobservable inputs to reflect reasonably possible favorable and unfavorable alternative assumptions would
change fair value significantly, and the estimated effect thereof. The table below does not represent the estimated effect
of stress scenarios. Interdependencies between Level 1, 2 and 3 parameters have not been incorporated in the table.
Furthermore, direct interrelationships between the Level 3 parameters discussed below are not a significant element of
the valuation uncertainty.
Sensitivity data is estimated using a number of techniques, including the estimation of price dispersion among different
market participants, variation in modeling approaches and reasonably possible changes to assumptions used within the
fair value measurement process. The sensitivity ranges are not always symmetrical around the fair values, as the inputs
used in valuations are not always precisely in the middle of the favorable and unfavorable range.
Sensitivity data is determined at a product or parameter level and then aggregated assuming no diversification benefit.
Diversification would incorporate estimated correlations across different sensitivity results and, as such, would result in
an overall sensitivity that would be less than the sum of the individual component sensitivities. However, UBS AG believes
that the diversification benefit is not significant to this analysis.
Sensitivity of fair value measurements to changes in unobservable input assumptions
1
31.12.23
31.12.22
USD m
Favorable
changes
Unfavorable
changes
Favorable
changes
Unfavorable
changes
Traded loans, loans measured at fair value, loan commitments and guarantees
2
(29 )
2
(12 )
Securities financing transactions
(24 )
(37 )
Auction rate securities
(21 )
(46 )
Asset-backed securities
(22 )
(27 )
Equity instruments
(178 )
(161 )
Interest rate derivatives, net
(18 )
(12 )
Credit derivatives, net
(5 )
(4 )
Foreign exchange derivatives, net
(4 )
(5 )
Equity / index derivatives, net
(285 )
(330 )
Other
(62 )
(62 )
Total
(648 )
(696 )
1 Sensitivity of issued and over-the-counter debt instruments is reported with the equivalent derivative or Other. 2 Includes refinements applied in estimating valuation uncertainty across various parameters.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 205
Note 20 Fair value measurement (continued)
g) Level 3 instruments: movements during the period
The table below presents additional information about material Level 3 assets and liabilities measured at fair value on a
recurring basis. Level 3 assets and liabilities may be hedged with instruments classified as Level 1 or Level 2 in the fair
value hierarchy, and, as a result, realized and unrealized gains and losses included in the table may not include the effect
of related hedging activity. Furthermore, the realized and unrealized gains and losses presented in the table are not
limited solely to those arising from Level 3 inputs, as valuations are generally derived from both observable and
unobservable parameters. Assets and liabilities transferred into or out of Level 3 are presented as if those assets or
liabilities had been transferred at the beginning of the year.
Movements of Level 3 instruments
USD bn
Balance at
the beginning
of the period
Net gains /
losses
included in
compre-
hensive
income
1
of which:
related to
instruments
held at the
end of the
period
Purchases
Sales
Issuances
Settlements
Transfers
into
Level 3
Transfers
out of
Level 3
Foreign
currency
translation
Balance at
the end
of the period
For the twelve months ended 31 December 2023
2
Financial assets at fair value held for
trading
(0.1 )
(0.1 )
(0.8 )
(0.3 )
of which: Equity instruments
(0.1 )
(0.1 )
(0.1 )
(0.0 )
of which: Corporate and municipal
bonds
(0.0 )
(0.0 )
(0.3 )
(0.0 )
of which: Loans
(0.1 )
(0.1 )
(0.4 )
(0.2 )
Derivative financial instruments –
assets
(0.3 )
(0.3 )
(0.0 )
(0.5 )
(0.3 )
of which: Interest rate
(0.0 )
(0.2 )
(0.1 )
(0.0 )
of which: Equity / index
(0.2 )
(0.2 )
(0.1 )
(0.2 )
of which: Credit
(0.1 )
(0.1 )
(0.1 )
(0.0 )
Financial assets at fair value not held
for trading
(0.7 )
(0.0 )
(0.1 )
of which: Loans
(0.0 )
(0.0 )
(0.1 )
(0.0 )
of which: Auction rate securities
(0.1 )
of which: Equity instruments
(0.2 )
Derivative financial instruments –
liabilities
(0.0 )
(0.6 )
(0.2 )
of which: Interest rate
(0.1 )
(0.0 )
of which: Equity / index
(0.4 )
(0.2 )
of which: Credit
(0.0 )
(0.1 )
(0.0 )
Debt issued designated at fair value
(3.2 )
(2.6 )
Other financial liabilities designated at
fair value
(0.2 )
(0.0 )
For the twelve months ended 31 December 2022
Financial assets at fair value held for
trading
(0.3 )
(0.3 )
(1.8 )
(0.3 )
(0.0 )
of which: Investment fund units
(0.0 )
(0.0 )
(0.0 )
(0.0 )
(0.0 )
of which: Corporate and municipal
bonds
(0.0 )
(0.0 )
(0.6 )
(0.0 )
(0.0 )
of which: Loans
(0.1 )
(0.1 )
(1.1 )
(0.2 )
Derivative financial instruments –
assets
(0.7 )
(0.0 )
(0.0 )
of which: Interest rate
(0.2 )
(0.1 )
(0.0 )
of which: Equity / index
(0.3 )
(0.0 )
(0.0 )
of which: Credit
(0.1 )
(0.2 )
Financial assets at fair value not held
for trading
(1.2 )
(0.0 )
(0.3 )
(0.0 )
of which: Loans
(0.0 )
(0.0 )
(0.4 )
(0.3 )
(0.0 )
of which: Auction rate securities
(0.3 )
of which: Equity instruments
(0.1 )
(0.0 )
Derivative financial instruments –
liabilities
(0.8 )
(0.4 )
(0.9 )
(0.2 )
(0.1 )
of which: Interest rate
(0.3 )
(0.0 )
(0.0 )
(0.0 )
(0.0 )
of which: Equity / index
(0.4 )
(0.3 )
(0.7 )
(0.2 )
(0.0 )
of which: Credit
(0.1 )
(0.0 )
(0.1 )
(0.0 )
(0.0 )
Debt issued designated at fair value
(1.3 )
(0.9 )
(3.1 )
(3.3 )
(0.3 )
Other financial liabilities designated at
fair value
(1.0 )
(1.0 )
(0.1 )
(0.2 )
(0.0 )
1 Net gains / losses included in comprehensive income are recognized in Net interest income and Other net income from financial instruments measured at fair value through profit or loss in the Income statement, and
also in Gains / (losses) from own credit on financial liabilities designated at fair value, before tax in the Statement of comprehensive income. 2 Total Level 3 assets as of 31 December 2023 were USD
bn
(31 December 2022: USD
bn). Total Level 3 liabilities as of 31 December 2023 were USD
bn (31 December 2022: USD
bn).
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 206
Note 20 Fair value measurement (continued)
h) Maximum exposure to credit risk for financial instruments measured at fair value
The tables below provide UBS AG’s maximum exposure to credit risk for financial instruments measured at fair value and
the respective collateral and other credit enhancements mitigating credit risk for these classes of financial instruments.
The maximum exposure to credit risk includes the carrying amounts of financial instruments recognized on the balance
sheet subject to credit risk and the notional amounts for off-balance sheet arrangements. Where information is available,
collateral is presented at fair value. For other collateral, such as real estate, a reasonable alternative value is used. Credit
enhancements, such as credit derivative contracts and guarantees, are included at their notional amounts. Both are
capped at the maximum exposure to credit risk for which they serve as security. The “Risk management and control”
section of this report describes management’s view of credit risk and the related exposures, which can differ in certain
respects from the requirements of IFRS Accounting Standards.
Maximum exposure to credit risk
31.12.23
Maximum
exposure to
credit risk
Collateral
Credit enhancements
Exposure to
credit risk
after collateral
and credit
enhancements
USD bn
Cash
collateral
received
Collateralized
by equity and
debt
instruments
Secured by
real estate
Other
collateral
Netting
Credit
derivative
contracts
Guarantees
and sub-
participations
Financial assets measured at
fair value on the balance sheet
1
Financial assets at fair value
held for trading – debt instruments
2,3
Derivative financial instruments
4
Brokerage receivables
Financial assets at fair value not
held for trading – debt instruments
5
Total financial assets measured at fair value
Guarantees
31.12.22
Maximum
exposure to
credit risk
Collateral
Credit enhancements
Exposure to
credit risk
after collateral
and credit
enhancements
USD bn
Cash
collateral
received
Collateralized
by equity and
debt
instruments
Secured by
real estate
Other
collateral
Netting
Credit
derivative
contracts
Guarantees
and sub-
participations
Financial assets measured at
fair value on the balance sheet
1
Financial assets at fair value
held for trading – debt instruments
2,3
Derivative financial instruments
4
Brokerage receivables
Financial assets at fair value not
held for trading – debt instruments
5
Total financial assets measured at fair value
Guarantees
1 The maximum exposure to loss is generally equal to the carrying amount and subject to change over time with market movements. 2 For the purpose of this disclosure, collateral and credit enhancements were
not considered as these positions are generally managed under the market risk framework. 3 Does not include investment fund units. 4 The amount shown in the “Netting” column represents the netting potential
not recognized on the balance sheet. Refer to Note 21 for more information. 5 Does not include unit-linked investment contracts and investment fund units. Financial assets at fair value not held for trading
collateralized by equity and debt instruments consisted of structured loans and reverse repurchase and securities borrowing agreements.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 207
Note 20 Fair value measurement (continued)
i) Financial instruments not measured at fair value
The table below provides the estimated fair values of financial instruments not measured at fair value.
Financial instruments not measured at fair value
31.12.23
31.12.22
Carrying
amount
Fair value
Carrying
amount
Fair value
USD bn
Total
Carrying
amount
approximates
fair value
1
Level 1
Level 2
Level 3
Total
Total
Carrying
amount
approximates
fair value
1
Level 1
Level 2
Level 3
Total
Assets
Cash and balances at central banks
Amounts due from banks
Receivables from securities financing
transactions measured at amortized cost
Cash collateral receivables on derivative
instruments
Loans and advances to customers
Other financial assets measured at amortized
cost
Liabilities
Amounts due to banks
Payables from securities financing
transactions measured at amortized cost
Cash collateral payables on derivative
instruments
Customer deposits
Funding from UBS Group AG measured at
amortized cost
Debt issued measured at amortized cost
Other financial liabilities measured at
amortized cost
2
1 Includes certain financial instruments where the carrying amount is a reasonable approximation of the fair value due to the instruments’ short-term nature (instruments that are receivable or payable on demand or
with a remaining maturity (excluding the effects of callable features) of three months or less). 2 Excludes lease liabilities.
The fair values included in the table above have been calculated for disclosure purposes only. The valuation techniques
and assumptions described below relate only to the fair value of UBS AG’s financial instruments not measured at fair
value. Other institutions may use different methods and assumptions for their fair value estimations, and therefore such
fair value disclosures cannot necessarily be compared from one financial institution to another. The following principles
were applied when determining fair value estimates for financial instruments not measured at fair value.
–
For financial instruments with remaining maturities greater than three months, the fair value was determined from
quoted market prices, if available.
–
Where quoted market prices were not available, the fair values were estimated by discounting contractual cash flows
using current market interest rates or appropriate yield curves for instruments with similar credit risk and maturity.
These estimates generally include adjustments for counterparty credit risk or UBS AG’s own credit.
–
For short-term financial instruments with remaining maturities of three months or less, the carrying amount, which is
net of credit loss allowances, is generally considered a reasonable estimate of fair value.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 208
Note 21 Offsetting financial assets and financial liabilities
UBS AG enters into netting agreements with counterparties to manage the credit risks associated primarily with
repurchase and reverse repurchase transactions, securities borrowing and lending, over-the-counter derivatives, and
exchange-traded derivatives. These netting agreements and similar arrangements generally enable the counterparties to
set off liabilities against available assets received in the ordinary course of business and / or in the event that the
counterparties to the transaction are unable to fulfill their contractual obligations.
The tables below provide a summary of financial assets and financial liabilities subject to offsetting, enforceable master
netting arrangements and similar agreements, as well as financial collateral received or pledged to mitigate credit
exposures for these financial instruments.
UBS AG engages in a variety of counterparty credit risk mitigation strategies in addition to netting and collateral
arrangements. Therefore, the net amounts presented in the tables below do not purport to represent their actual credit
risk exposure.
Financial assets subject to offsetting, enforceable master netting arrangements and similar agreements
Assets subject to netting arrangements
Netting recognized on the balance sheet
Netting potential not recognized on
the balance sheet
3
Assets not
subject to netting
arrangements
4
Total assets
As of 31.12.23, USD bn
Gross assets
before netting
Netting with
gross liabilities
2
Net assets
recognized
on the
balance
sheet
Financial
liabilities
Collateral
received
Assets after
consideration
of
netting
potential
Assets
recognized
on the
balance
sheet
Total assets
after
consideration
of netting
potential
Total assets
recognized
on the
balance
sheet
Receivables from securities financing
transactions measured at amortized cost
(12.2 )
(1.5 )
(55.2 )
Derivative financial instruments
(2.5 )
(99.3 )
(23.4 )
Cash collateral receivables on
derivative instruments
1
(20.4 )
(2.5 )
Financial assets at fair value
not held for trading
(89.6 )
(1.8 )
(4.9 )
of which: reverse
repurchase agreements
(89.6 )
(1.8 )
(3.7 )
Total assets
(104.3 )
(122.9 )
(85.9 )
As of 31.12.22, USD bn
Receivables from securities financing
transactions measured at amortized cost
(11.1 )
(3.0 )
(46.4 )
Derivative financial instruments
(2.5 )
(110.9 )
(28.5 )
Cash collateral receivables on
derivative instruments
1
(20.9 )
(1.9 )
Financial assets at fair value
not held for trading
(76.8 )
(1.5 )
(7.3 )
of which: reverse
repurchase agreements
(76.8 )
(1.5 )
(6.1 )
Total assets
(90.4 )
(136.3 )
(84.1 )
1 The net amount of Cash collateral receivables on derivative instruments recognized on the balance sheet includes certain OTC derivatives that are net settled on a daily basis either legally or in substance under
IAS 32 principles and exchange-traded derivatives that are economically settled on a daily basis. 2 The logic of the table results in amounts presented in the “Netting with gross liabilities” column corresponding
directly to the amounts presented in the “Netting with gross assets” column in the liabilities table presented below. Netting in this column for reverse repurchase agreements presented within the lines “Receivables
from securities financing transactions measured at amortized cost” and “Financial assets at fair value not held for trading” taken together corresponds to the amounts presented for repurchase agreements in the
“Payables from securities financing transactions measured at amortized cost” and “Other financial liabilities designated at fair value” lines in the liabilities table presented below. 3 For the purpose of this disclosure,
the amounts of financial instruments and cash collateral presented have been capped so as not to exceed the net amount of financial assets presented on the balance sheet; i.e., over-collateralization, where it exists,
is not reflected in the table. 4 Includes assets not subject to enforceable netting arrangements and other out-of-scope items.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 209
Note 21 Offsetting financial assets and financial liabilities (continued)
Financial liabilities subject to offsetting, enforceable master netting arrangements and similar agreements
Liabilities subject to netting arrangements
Netting recognized on the balance sheet
Netting potential not recognized
on the balance sheet
3
Liabilities not
subject
to netting
arrangements
4
Total liabilities
As of 31.12.23, USD bn
Gross
liabilities
before
netting
Netting with
gross assets
2
Net
liabilities
recognized
on the
balance
sheet
Financial
assets
Collateral
pledged
Liabilities
after
consideration
of netting
potential
Liabilities
recognized
on the
balance
sheet
Total
liabilities
after
consideration
of netting
potential
Total
liabilities
recognized
on the
balance
sheet
Payables from securities financing
transactions measured at amortized cost
(12.1 )
(0.8 )
(3.2 )
Derivative financial instruments
(2.5 )
(99.3 )
(24.5 )
Cash collateral payables on
derivative instruments
1
(17.2 )
(3.4 )
Other financial liabilities
designated at fair value
(89.8 )
(2.5 )
(4.8 )
of which: repurchase agreements
(89.8 )
(2.5 )
(4.4 )
Total liabilities
(104.3 )
(119.7 )
(36.0 )
As of 31.12.22, USD bn
Payables from securities financing
transactions measured at amortized cost
(11.1 )
(1.3 )
(1.8 )
Derivative financial instruments
(2.5 )
(110.9 )
(26.2 )
Cash collateral payables on
derivative instruments
1
(20.0 )
(1.9 )
Other financial liabilities
designated at fair value
(76.9 )
(3.2 )
(12.4 )
of which: repurchase agreements
(76.9 )
(3.2 )
(12.1 )
Total liabilities
(90.4 )
(135.3 )
(42.3 )
1 The net amount of Cash collateral payables on derivative instruments recognized on the balance sheet includes certain OTC derivatives that are net settled on a daily basis either legally or in substance under IAS 32
principles and exchange-traded derivatives that are economically settled on a daily basis. 2 The logic of the table results in amounts presented in the “Netting with gross assets” column corresponding to the amounts
presented in the “Netting with gross liabilities” column in the assets table presented above. Netting in this column for repurchase agreements presented within the lines “Payables from securities financing transactions
measured at amortized cost” and “Other financial liabilities designated at fair value” taken together corresponds to the amounts presented for reverse repurchase agreements in the “Receivables from securities
financing transactions measured at amortized cost” and “Financial assets at fair value not held for trading” lines in the assets table presented above. 3 For the purpose of this disclosure, the amounts of financial
instruments and cash collateral presented have been capped so as not to exceed the net amount of financial liabilities presented on the balance sheet; i.e., over-collateralization, where it exists, is not reflected in the
table. 4 Includes liabilities not subject to enforceable netting arrangements and other out-of-scope items.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 210
Note 22 Restricted and transferred financial assets
This Note provides information about restricted financial assets (Note 22a), transfers of financial assets (Note 22b and
22c) and financial assets that are received as collateral with the right to resell or repledge these assets (Note 22d).
a) Restricted financial assets
Restricted financial assets consist of assets pledged as collateral against an existing liability or contingent liability and
other assets that are otherwise explicitly restricted such that they cannot be used to secure funding.
Financial assets are mainly pledged as collateral in securities lending transactions, in repurchase transactions and in
relation to mortgage loans, which serve as collateral against loans from Swiss mortgage institutions and US Federal Home
Loan Banks and in connection with the issuance of covered bonds. Of these pledged mortgage loans, approximately
USD
bn as of 31 December 2023 could be withdrawn or used for future liabilities or covered bond issuances without
breaching existing collateral requirements (31 December 2022: approximately USD
bn). Existing liabilities against Swiss
central mortgage institutions and US Federal Home Loan Banks and for existing covered bond issuances were USD
bn
as of 31 December 2023 (31 December 2022: USD
bn).
Repurchase and securities lending arrangements are generally entered into under standard market agreements. For
securities lending, the cash received as collateral may be more or less than the fair value of the securities loaned,
depending on the nature of the transaction. For repurchase agreements, the fair value of the collateral sold under an
agreement to repurchase is generally in excess of the cash borrowed.
Other restricted financial assets include assets protected under client asset segregation rules, assets held under unit-linked
investment contracts to back related liabilities to the policy holders and assets held in certain jurisdictions to comply with
explicit minimum local asset maintenance requirements. The carrying amount of the liabilities associated with these other
restricted financial assets is generally equal to the carrying amount of the assets, with the exception of assets held to
comply with local asset maintenance requirements, for which the associated liabilities are greater.
Restricted financial assets
USD m
31.12.23
31.12.22
Restricted
financial assets
of which: assets
pledged as
collateral that
may be sold or
repledged by
counterparties
Restricted
financial assets
of which: assets
pledged as
collateral that
may be sold or
repledged by
counterparties
Financial assets pledged as collateral
Cash and balances at central banks
1
Financial assets at fair value held for trading
Loans and advances to customers
Financial assets at fair value not held for trading
Debt securities classified as Other financial assets measured at amortized cost
Total financial assets pledged as collateral
Other restricted financial assets
Amounts due from banks
Financial assets at fair value held for trading
Cash collateral receivables on derivative instruments
Loans and advances to customers
Other financial assets measured at amortized cost
2
Financial assets at fair value not held for trading
Financial assets measured at fair value through other comprehensive income
Other
Total other restricted financial assets
Total financial assets pledged and other restricted financial assets
3
1 Assets pledged to the depositor protection system in Switzerland following new requirements that became effective in 2023. 2 Predominantly includes cash collateral provided to exchanges and clearing houses
to secure securities trading activity through those counterparties. 3 Does not include assets placed with central banks related to undrawn credit lines and for payment, clearing and settlement purposes
(31 December 2023: USD
bn; 31 December 2022: USD
bn).
In addition to the table above, USD
bn were placed at central banks to meet local statutory minimum reserve
requirements as of 31 December 2023 (31 December 2022: USD
bn).
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 211
Note 22 Restricted and transferred financial assets (continued)
In addition to restrictions on financial assets, UBS AG and its subsidiaries are, in certain cases, subject to regulatory
requirements that affect the transfer of dividends and capital within UBS AG, as well as intercompany lending. Supervisory
authorities also may require entities to measure capital and leverage ratios on a stressed basis, such as the Federal Reserve
Board’s Comprehensive Capital Analysis and Review (CCAR) process, which may limit the relevant subsidiaries’ ability to
make distributions of capital based on the results of those tests.
Supervisory authorities generally have discretion to impose higher requirements or to otherwise limit the activities of
subsidiaries.
Non-regulated subsidiaries are generally not subject to such requirements and transfer restrictions. However, restrictions
can also be the result of different legal, regulatory, contractual, entity- or country-specific arrangements and / or
requirements.
b) Transferred financial assets that are not derecognized in their entirety
The table below presents information for financial assets that have been transferred but are subject to continued
recognition in full, as well as recognized liabilities associated with those transferred assets.
Transferred financial assets subject to continued recognition in full
USD m
31.12.23
31.12.22
Carrying amount
of transferred
assets
Carrying amount of
associated liabilities
recognized
on balance sheet
Carrying amount
of transferred
assets
Carrying amount of
associated liabilities
recognized
on balance sheet
Financial assets at fair value held for trading that may be sold or repledged by counterparties
Financial assets at fair value not held for trading that may be sold or repledged by
counterparties
Debt securities classified as Other financial assets measured at amortized cost that may be
sold or repledged by counterparties
Total financial assets transferred
Transactions in which financial assets are transferred but continue to be recognized in their entirety on UBS AG’s balance
sheet include securities lending and repurchase agreements, as well as other financial asset transfers. Repurchase and
securities lending arrangements are, for the most part, conducted under standard market agreements and are undertaken
with counterparties subject to UBS AG’s normal credit risk control processes.
›
Refer to Note 1a item 2e for more information about repurchase and securities lending agreements
Financial assets at fair value held for trading that may be sold or repledged by counterparties include securities lending
and repurchase agreements in exchange for cash received, securities lending agreements in exchange for securities
received and other financial asset transfers.
For securities lending and repurchase agreements, a haircut of between
% and
% is generally applied to the
transferred assets, which results in associated liabilities having a carrying amount below the carrying amount of the
transferred assets. The counterparties to the associated liabilities included in the table above have full recourse to UBS AG.
In securities lending arrangements entered into in exchange for the receipt of other securities as collateral, neither the
securities received nor the obligation to return them are recognized on UBS AG’s balance sheet, as the risks and rewards
of ownership are not transferred to UBS AG. In cases where such financial assets received are subsequently sold or
repledged in another transaction, this is not considered to be a transfer of financial assets.
Other financial asset transfers primarily include securities transferred to collateralize derivative transactions, for which the
carrying amount of associated liabilities is not included in the table above, because those replacement values are managed
on a portfolio basis across counterparties and product types, and therefore there is no direct relationship between the
specific collateral pledged and the associated liability.
Transferred financial assets that are not subject to derecognition in full but remain on the balance sheet to the extent of
UBS AG’s continuing involvement were not material as of 31 December 2023 and as of 31 December 2022.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 212
Note 22 Restricted and transferred financial assets (continued)
c) Transferred financial assets that are derecognized in their entirety with continuing involvement
Continuing involvement in a transferred and fully derecognized financial asset may result from contractual provisions in
the particular transfer agreement or from a separate agreement, with the counterparty or a third party, entered into in
connection with the transfer.
The fair value and carrying amount of UBS AG’s continuing involvement from transferred positions as of 31 December
2023 and 31 December 2022 was not material. Life-to-date losses reported in prior periods primarily relate to legacy
positions in securitization vehicles that have been fully marked down, with no remaining exposure to loss.
d) Off-balance sheet assets received
The table below presents assets received from third parties that can be sold or repledged and that are not recognized on
the balance sheet but that are held as collateral, including amounts that have been sold or repledged.
Off-balance sheet assets received
USD m
31.12.23
31.12.22
Fair value of assets received that can be sold or repledged
of which: sold or repledged
1 Includes securities received as initial margin from its clients that UBS AG is required to remit to central counterparties, brokers and deposit banks through its exchange-traded derivative clearing and execution
services. 2 Does not include off-balance sheet securities (31 December 2023: USD
bn; 31 December 2022: USD
bn) placed with central banks related to undrawn credit lines and for payment, clearing and
settlement purposes for which there are no associated liabilities or contingent liabilities.
Note 23 Maturity analysis of assets and liabilities
a) Maturity analysis of carrying amounts of assets and liabilities
The table below provides an analysis of carrying amounts of balance sheet assets and liabilities, as well as off-balance
sheet exposures by residual contractual maturity as of the reporting date. The residual contractual maturity of assets
includes the effect of callable features. The residual contractual maturity of liabilities and off-balance sheet exposures is
based on the earliest date on which a third party could require UBS AG to pay.
Derivative financial instruments and financial assets and liabilities at fair value held for trading are presented in the
Due
within 1 month
Assets held to hedge unit-linked investment contracts (presented within
Financial assets at fair value not held for trading
)
are presented in the
Due within 1 month
under unit-linked investment contracts (presented within
Other financial liabilities designated at fair value
).
Other financial assets and liabilities with no contractual maturity, such as equity securities, are presented in the
Perpetual /
Not applicable
counterparty of the instrument is entitled to give. Where there is no contractual notice period, undated or perpetual
contracts are presented in the
Perpetual / Not applicable
Non-financial assets and liabilities with no contractual maturity are generally included in the
Perpetual / Not applicable
column.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 213
Note 23 Maturity analysis of assets and liabilities (continued)
31.12.23
USD bn
Due within
1 month
Due between
1 and 3
months
Due between
3 and 12
months
Due between
1 and 2 years
Due between
2 and 5 years
Due over
5 years
Perpetual /
Not
applicable
Total
Assets
Total financial assets measured at amortized cost
Amounts due from banks
Loans and advances to customers
Other financial assets measured at amortized cost
Total financial assets measured at fair value through profit or
loss
Financial assets at fair value not held for trading
Financial assets measured at fair value through other
comprehensive income
Total non-financial assets
Total assets
Liabilities
Total financial liabilities measured at amortized cost
Customer deposits
Funding from UBS Group AG measured at amortized cost
Debt issued measured at amortized cost
of which: non-subordinated
of which: subordinated
Total financial liabilities measured at fair value through
profit or loss
1
Debt issued designated at fair value
Total non-financial liabilities
Total liabilities
Guarantees, loan commitments and forward starting transactions
2
Irrevocable loan commitments
Guarantees
Forward starting reverse repurchase and securities borrowing
agreements
Irrevocable committed prolongation of existing loans
Total
31.12.22
USD bn
Due within
1 month
Due between
1 and 3
months
Due between
3 and 12
months
Due between
1 and 2 years
Due between
2 and 5 years
Due over
5 years
Perpetual /
Not
applicable
Total
Assets
Total financial assets measured at amortized cost
Amounts due from banks
Loans and advances to customers
Other financial assets measured at amortized cost
Total financial assets measured at fair value through profit or
loss
Financial assets at fair value not held for trading
Financial assets measured at fair value through other
comprehensive income
Total non-financial assets
Total assets
Liabilities
Total financial liabilities measured at amortized cost
Customer deposits
Funding from UBS Group AG measured at amortized cost
Debt issued measured at amortized cost
of which: non-subordinated
of which: subordinated
Total financial liabilities measured at fair value through
profit or loss
1
Debt issued designated at fair value
Total non-financial liabilities
Total liabilities
Guarantees, loan commitments and forward starting transactions
2
Irrevocable loan commitments
Guarantees
Forward starting reverse repurchase and securities borrowing
agreements
Irrevocable committed prolongation of existing loans
Total
1 As of 31 December 2023 and 31 December 2022, the contractual redemption amount at maturity of debt issued designated at fair value through profit or loss and other financial liabilities measured at fair value
through profit or loss was not materially different from the carrying amount. 2 The notional amounts associated with derivative loan commitments, as well as forward starting repurchase and reverse repurchase
agreements, measured at fair value through profit or loss are presented together with notional amounts related to derivative instruments and have been excluded from the table above. Refer to Note 10 for more
information.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 214
Note 23 Maturity analysis of assets and liabilities (continued)
b) Maturity analysis of financial liabilities on an undiscounted basis
The table below provides an analysis of financial liabilities on an undiscounted basis, including all cash flows relating to
principal and future interest payments. The residual contractual maturities for non-derivative and non-trading financial
liabilities are based on the earliest date on which UBS AG could be contractually required to pay. Derivative positions and
trading liabilities, predominantly made up of short sale transactions, are presented in the
Due within 1 month
,
as this provides a conservative reflection of the nature of these trading activities. The residual contractual maturities may
extend over significantly longer periods.
31.12.23
USD bn
Due within
1 month
Due between
1 and 3
months
Due between
3 and 12
months
Due between
1 and 2 years
Due between
2 and 5 years
Due over
5 years
Perpetual /
Not
applicable
Total
Financial liabilities recognized on balance sheet
1
Amounts due to banks
Payables from securities financing transactions
Cash collateral payables on derivative instruments
Customer deposits
Funding from UBS Group AG measured at amortized cost
2
Debt issued measured at amortized cost
Other financial liabilities measured at amortized cost
Total financial liabilities measured at amortized cost
Financial liabilities at fair value held for trading
3,4
Derivative financial instruments
3,5
Brokerage payables designated at fair value
Debt issued designated at fair value
6
Other financial liabilities designated at fair value
Total financial liabilities measured at fair value through
profit or loss
Total
Guarantees, loan commitments and forward starting transactions
Irrevocable loan commitments
7
Guarantees
Forward starting reverse repurchase and securities
borrowing agreements
7
Irrevocable committed prolongation of existing loans
Total
31.12.22
USD bn
Due within
1 month
Due between
1 and 3
months
Due between
3 and 12
months
Due between
1 and 2 years
Due between
2 and 5 years
Due over
5 years
Perpetual /
Not
applicable
Total
Financial liabilities recognized on balance sheet
1
Amounts due to banks
Payables from securities financing transactions
Cash collateral payables on derivative instruments
Customer deposits
Funding from UBS Group AG measured at amortized cost
2
Debt issued measured at amortized cost
Other financial liabilities measured at amortized cost
Total financial liabilities measured at amortized cost
Financial liabilities at fair value held for trading
3,4
Derivative financial instruments
3,5
Brokerage payables designated at fair value
Debt issued designated at fair value
6
Other financial liabilities designated at fair value
Total financial liabilities measured at fair value through
profit or loss
Total
Guarantees, loan commitments and forward starting transactions
Irrevocable loan commitments
7
Guarantees
Forward starting reverse repurchase and securities
borrowing agreements
7
Irrevocable committed prolongation of existing loans
Total
1 Except for financial liabilities at fair value held for trading and derivative financial instruments (see footnote 3), the amounts presented generally represent undiscounted cash flows of future interest and principal
payments. 2 The time-bucket Perpetual / Not applicable includes perpetual loss-absorbing additional tier 1 capital instruments. 3 Carrying amount is fair value. Management believes that this best represents the
cash flows that would have to be paid if these positions had to be settled or closed out. 4 Contractual maturities of financial liabilities at fair value held for trading are: USD
bn due within 1 month
(31 December 2022: USD
bn), USD
bn due between 1 month and 1 year (31 December 2022: USD
bn) and USD
bn due between 1 and 5 years (31 December 2022: USD
bn). 5 Includes USD
m
(31 December 2022: USD
m) related to fair values of derivative loan commitments and forward starting reverse repurchase agreements classified as derivatives, presented within “Due within 1 month”. The full
contractual committed amount of USD
bn (31 December 2022: USD
bn) is presented in Note 10 under notional amounts. 6 Future interest payments on variable-rate liabilities are determined by reference
to the applicable interest rate prevailing as of the reporting date. Future principal payments that are variable are determined by reference to the conditions existing at the relevant reporting date. 7 Excludes derivative
loan commitments and forward starting reverse repurchase agreements measured at fair value (see footnote 5).
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 215
Note 24 Interest rate benchmark reform
During 2023, UBS AG largely completed the transition of the USD London Interbank Offered Rate (LIBOR) contracts. The
transition of the largest remaining non-derivative exposure, the US mortgage portfolio of approximately USD
bn as of
31 December 2022, was substantially completed, with these contracts automatically converting to term Secured
Overnight Financing Rate (SOFR) from their next interest rate reset date following the cessation of the respective USD
LIBOR rates, i.e., 30 June 2023. Corporate loans in the Investment Bank have now also been transitioned to alternative
rates.
In August 2022, to facilitate the transition of derivatives linked to the USD LIBOR Swap Rate, UBS AG adhered to the
June 2022 Benchmark Module of the ISDA 2021 Fallbacks Protocol on the USD LIBOR Swap Rate. As of 31 December
2023, the transition of these USD LIBOR-linked derivatives had been materially accomplished.
The table below sets out the contracts that remained as of 31 December 2022. No contracts are included as of
31 December 2023 given transition has largely completed as noted above.
31.12.22
1
Measure
USD LIBOR
benchmark rates
Carrying value of non-derivative financial instruments
Total non-derivative financial assets
USD m
2
Total non-derivative financial liabilities
USD m
3
Trade count of derivative financial instruments
Total derivative financial instruments
Trade count
4
Off-balance sheet exposures
Total irrevocable loan commitments
USD m
5
1 As of 31 December 2022, non-USD balances and trade counts were minimal. 2 Includes USD
bn of loans related to revolving multi-currency credit lines, where IBOR transition efforts are complete, except for
USD LIBOR. The remaining balances as of 31 December 2022 primarily related to US mortgages and corporate lending. 3 Relates to floating-rate notes that per their contractual terms can reset to rates linked to
LIBOR, with transition dependent upon the actions of respective issuers. 4 Includes approximately
30 June 2023. No further contractual fixing is required for these contracts. 5 Includes approximately USD
bn of loan commitments that can be drawn in different currencies; however, only USD LIBOR transition
efforts remained open as of 31 December 2022.
In addition, as of 31 December 2023 UBS AG had approximately USD
bn equivalent of yen- and US dollar-denominated
funding from UBS Group AG that, per current contractual terms, if not called on their respective call dates, would reset
based directly on JPY LIBOR and USD LIBOR. Furthermore, several contracts providing funding from UBS Group AG
reference rates indirectly derived from IBORs, if they are not called on their respective call dates. These contracts have
robust IBOR fallback language, and the confirmation of interest rate calculation mechanics will be communicated in
advance of any rate resets.
Note 25 Hedge accounting
Derivatives designated in hedge accounting relationships
UBS AG applies hedge accounting to interest rate risk and foreign exchange risk, including structural foreign exchange
risk related to net investments in foreign operations.
›
Refer to “Market risk” in the “Risk management and control” section of this report for more information about how risks arise
and how they are managed by UBS AG
Hedging instruments and hedged risk
Interest rate swaps are designated in fair value hedges or cash flow hedges of interest rate risk arising solely from changes
in benchmark interest rates. Fair value changes arising from such risk are usually the largest component of the overall
change in the fair value of the hedged position in transaction currency.
Cross-currency swaps are designated as fair value hedges of foreign exchange risk. Foreign exchange forwards and
foreign exchange swaps are mainly designated as hedges of structural foreign exchange risk related to net investments
in foreign operations. In both cases the hedged risk arises solely from changes in the spot foreign exchange rate.
The notional of the designated hedging instruments matches the notional of the hedged items, except when the interest
rate swaps are designated in cash flow hedges after the trade date, in which case the hedge ratio designated is
determined based on the swap sensitivity.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 216
Note 25 Hedge accounting (continued)
Hedged items and hedge designation
Fair value hedges of interest rate risk related to debt instruments and loan assets
Fair value hedges of interest rate risk related to debt instruments and loan assets involve swapping fixed cash flows
associated with the loans to customers (including long-term fixed-rate mortgage loans in Swiss francs), debt securities
held, customer deposits, funding from UBS Group AG, debt issued to floating cash flows by entering into interest rate
swaps that either pay fixed and receive floating cash flows or that receive fixed and pay floating cash flows. The floating
future cash flows are based on the following benchmark rates: Secured Overnight Financing Rate (SOFR), Effective Federal
Funds Rate (EFFR), Swiss Average Rate Overnight (SARON), Euro Interbank Offered Rate (EURIBOR), Euro Short-Term Rate
(ESTR), Sterling Overnight Index Average (SONIA), AUD London Interbank Offered Rate (AUD LIBOR), Tokyo Overnight
Average Rate (TONA) and Singapore Overnight Rate Average (SORA).
Cash flow hedges of forecast transactions
UBS AG hedges forecast cash flows on non-trading financial assets and liabilities that bear interest at variable rates or
are expected to be refinanced or reinvested in the future, due to movements in future market rates. The amounts and
timing of future cash flows, representing both principal and interest flows, are projected on the basis of contractual terms
and other relevant factors, including estimates of prepayments and defaults. The aggregate principal balances and
interest cash flows across all portfolios over time form the basis for identifying the non-trading interest rate risk of
UBS AG, which is hedged with interest rate swaps, the maximum maturity of which is 15 years. Cash flow forecasts and
risk exposures are monitored and adjusted on an ongoing basis, and consequently additional hedging instruments are
traded and designated, or are terminated resulting in a hedge discontinuance.
Fair value hedges of foreign exchange risk related to issued debt instruments
Debt instruments denominated in currencies other than the US dollar are designated in fair value hedges of spot foreign
exchange risk, in addition to and separate from the fair value hedges of interest rate risk. Cross-currency swaps
economically convert debt instruments denominated in currencies other than the US dollar to US dollars. The hedge
designations also involve intragroup debt instruments which are eliminated upon consolidation but FX gains and losses
impact consolidated profit or loss.
Hedges of net investments in foreign operations
UBS AG applies hedge accounting for certain net investments in foreign operations, which include subsidiaries, branches
and associates. Upon maturity of hedging instruments, typically one to three months, the hedge relationship is terminated
and new designations are made to reflect any changes in the net investments in foreign operations.
Economic relationship between hedged item and hedging instrument
The economic relationship between the hedged item and the hedging instrument is determined based on a qualitative
analysis of their critical terms. In cases where hedge designation takes place after the trade date of the hedging
instrument, a quantitative analysis of the possible behavior of the hedging derivative and the hedged item during their
respective terms is also performed.
Sources of hedge ineffectiveness
In hedges of interest rate risk, hedge ineffectiveness can arise from mismatches of critical terms and / or the use of
different curves to discount the hedged item and instrument, or from entering into a hedge relationship after the trade
date of the hedging derivative.
In hedges of foreign exchange risk related to debt issued, hedge ineffectiveness can arise due to the discounting of the
hedging instruments and undesignated risk components and lack of such discounting and risk components in the hedged
items.
In hedges of net investments in foreign operations, ineffectiveness is unlikely unless the hedged net assets fall below the
designated hedged amount. The exceptions are hedges where the hedging currency is not the same as the currency of
the foreign operation, where the currency basis may cause ineffectiveness.
Hedge ineffectiveness from financial instruments measured at fair value through profit or loss is recognized in
Other net
income from financial instruments measured at fair value through profit or loss.
Derivatives not designated in hedge accounting relationships
Non-hedge-accounted derivatives are mandatorily held for trading with all fair value movements taken to
Other net
income from financial instruments measured at fair value through profit or loss
, even when held as an economic hedge
or to facilitate client clearing. The one exception relates to forward points on certain short- and long-duration foreign
exchange contracts acting as economic hedges, which are reported in
Net interest income.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 217
Note 25 Hedge accounting (continued)
All hedges: designated hedging instruments and hedge ineffectiveness
As of or for the year ended
31.12.23
USD m
Notional
amount
Carrying amount
Changes in
fair value of
hedging
instruments
1
Changes in
fair value of
hedged
items
1
Hedge
ineffectiveness
recognized in the
income statement
Derivative
financial
assets
Derivative
financial
liabilities
Interest rate risk
Fair value hedges
(2,195 )
Cash flow hedges
(35 )
Foreign exchange risk
Fair value hedges
2
(151 )
(19 )
Hedges of net investments in foreign operations
(910 )
As of or for the year ended
31.12.22
USD m
Notional
amount
Carrying amount
Changes in
fair value of
hedging
instruments
1
Changes in
fair value of
hedged
items
1
Hedge
ineffectiveness
recognized in the
income statement
Derivative
financial
assets
Derivative
financial
liabilities
Interest rate risk
Fair value hedges
(5,195 )
(27 )
Cash flow hedges
(5,813 )
(53 )
Foreign exchange risk
Fair value hedges
2
(1,088 )
Hedges of net investments in foreign operations
(319 )
(1 )
1 Amounts used as the basis for recognizing hedge ineffectiveness for the period. 2 The foreign currency basis spread of cross-currency swaps designated as hedging derivatives is excluded from the hedge
accounting designation and accounted for as a cost of hedging with amounts deferred in Other comprehensive income within Equity.
Fair value hedges: designated hedged items recognized on balance sheet
1
USD m
31.12.23
31.12.22
Interest rate
risk
FX risk
Interest rate
risk
FX risk
Loans and advances to customers
Carrying amount of designated loans
of which: accumulated amount of fair value hedge adjustment
(508 )
(1,249 )
of which: accumulated amount of fair value hedge adjustment subject to amortization attributable to the
portion of the portfolio that ceased to be part of hedge accounting
(179 )
(51 )
Other financial assets measured at amortized cost – debt securities
Carrying amount of designated debt securities
(109 )
(180 )
Customer deposits
Carrying amount of Customer deposits
Funding from UBS Group AG
Carrying amount of designated debt instruments
(3,174 )
(5,055 )
Debt issued measured at amortized cost
Carrying amount of designated debt issued
(412 )
(1,002 )
1 In addition, as of 31 December 2023 UBS AG designated in fair value hedges of FX risk USD
bn of intragroup debt instruments which are not recognized on consolidated balance sheet but FX gains and losses
on these instruments impact consolidated profit or loss. No such designations were in place as of 31 December 2022.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 218
Note 25 Hedge accounting (continued)
Fair value hedges: profile of the timing of the nominal amount of the hedging instrument
31.12.23
USD bn
Due within
1 month
Due between
1 and 3 months
Due between
3 and 12 months
Due between
1 and 5 years
Due after
5 years
Total
Interest rate swaps
Cross-currency swaps
31.12.22
USD bn
Due within
1 month
Due between
1 and 3 months
Due between
3 and 12 months
Due between
1 and 5 years
Due after
5 years
Total
Interest rate swaps
Cross-currency swaps
Cash flow hedge reserve on a pre-tax basis
USD m
31.12.23
31.12.22
Amounts related to hedge relationships for which hedge accounting continues to be applied
(2,349 )
(4,692 )
Amounts related to hedge relationships for which hedge accounting is no longer applied
(1,331 )
(540 )
Total other comprehensive income recognized directly in equity related to cash flow hedges, on a pre-tax basis
(3,680 )
(5,232 )
Foreign currency translation reserve on a pre-tax basis
USD m
31.12.23
31.12.22
Amounts related to hedge relationships for which hedge accounting continues to be applied
(690 )
Amounts related to hedge relationships for which hedge accounting is no longer applied
Total other comprehensive income recognized directly in equity related to hedging instruments designated as net investment hedges, on a pre-tax
basis
(424 )
Interest rate benchmark reform
In 2023, UBS AG applied the relief provided by
Interest Rate Benchmark Reform
(Amendments to IFRS 9, IAS 39 and
IFRS 7)
, published by the International Accounting Standards Board in September 2019, to its hedges in US dollars and
Singapore dollars until they transitioned to alternative reference rate (ARR) designations in May 2023 and June 2023,
respectively. The transition of fair value hedges took place following the IBOR transition for swaps with LCH (formerly
the London Clearing House), with hedge relationships continuing in accordance with
Interest Rate Benchmark Reform –
Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)
. Cash flow hedge relationships were discontinued
and replaced with new ARR designations in May 2023.
As of 31 December 2023, there were no hedge relationships where the designated risk is LIBOR and maturing after the
cessation date of the applicable interest rate benchmarks. The following table provides details on the hedging instruments
in such hedge relationships as of 31 December 2022.
Hedges of net investments in foreign operations are not affected by the amendments.
›
Refer to Note 1a item 2j for more information about the relief provided by the amendments to IFRS 9 and IFRS 7 related to
interest rate benchmark reform
›
Refer to Note 24 for more information about the transition progress
Hedging instruments referencing LIBOR
31.12.22
Carrying amount
USD m
Notional
amount
Derivative
financial
assets
Derivative
financial
liabilities
Interest rate risk
Fair value hedges
Cash flow hedges
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 219
Note 26 Post-employment benefit plans
a) Defined benefit plans
UBS AG has established defined benefit plans for its employees in various jurisdictions in accordance with local regulations
and practices. The major plans are located in Switzerland, the UK, the US and Germany. The level of benefits depends
on the specific plan rules. UBS AG has not been involved in the major Credit Suisse defined benefit plans.
Swiss pension plan
In 2017, a significant number of employees were transferred from UBS AG to UBS Business Solutions AG, which is a
directly held subsidiary of UBS Group AG. There continues to be one pooled UBS Swiss pension plan in Switzerland
covering the employees of UBS AG and those transferred to UBS Business Solutions AG. UBS AG and UBS Business
Solutions AG both are legal sponsors of the UBS Swiss pension plan. Since the date of the employee transfer, UBS AG
and UBS Business Solutions AG apply proportionate defined benefit accounting, i.e., the net pension cost and the net
pension asset / liability of the UBS Swiss pension plan are allocated proportionally between UBS AG and UBS Business
Solutions AG based on the aggregated net pension cost and defined benefit obligations related to their employees. The
UBS Swiss pension plan offers retirement, disability and survivor benefits and is governed by a Pension Foundation Board.
The responsibilities of this board are defined by Swiss pension law and the plan rules. The UBS Swiss pension plan exceeds
the minimum benefit requirements under Swiss pension law.
Savings contributions to the UBS Swiss pension plan are paid by both the employer and the employee. Depending on the
age of the employee, UBS AG pays a savings contribution that ranges between
% and
% of the contributory
base salary and between
% and
% of the contributory variable compensation. Employees can choose the level of
savings contributions paid by them, which vary between
% and
% of the contributory base salary and between
% and
% of the contributory variable compensation, depending on age and choice of savings contribution category.
UBS AG also pays risk contributions that are used to fund disability and survivor benefits.
The plan offers to members at the normal retirement age of
lump sum payment. Participants can choose to draw early retirement benefits starting from the age of
, but they can
also continue employment and remain active members of the plan until the age of
. Employees can make additional
purchases of benefits to fund early retirement benefits.
The pension amount payable to a participant is calculated by applying a conversion rate to the accumulated balance of
the participant’s retirement savings account at the retirement date. The balance is based on credited vested benefits
transferred from previous employers, purchases of benefits, employee and employer contributions made to the
participant’s retirement savings account, and interest accrued. The annual interest rate credited to participants is
determined by the Pension Foundation Board at the end of each year.
Although the UBS Swiss pension plan is based on a defined contribution promise under Swiss pension law, it is accounted
for as a defined benefit plan under IFRS Accounting Standards, primarily because of the obligation to accrue interest on
the participants’ retirement savings accounts and the payment of lifetime pension benefits.
An actuarial valuation in accordance with Swiss pension law is performed regularly. Should an underfunded situation on
this basis occur, the Pension Foundation Board is required to take the necessary measures to ensure that full funding can
be expected to be restored within a maximum period of
underfunded on a Swiss pension law basis, additional employer and employee contributions could be required. In this
situation, the risk is shared between employer and employees, and the employer is not legally obliged to cover more than
% of the additional contributions required. As of 31 December 2023, the UBS Swiss pension plan had a technical
funding ratio in accordance with Swiss pension law of
% (31 December 2022:
%).
The investment strategy of the UBS Swiss pension plan complies with Swiss pension law, including the rules and
regulations relating to diversification of plan assets, and is derived from the risk budget defined by the Pension Foundation
Board based on regularly performed asset and liability management analyses. The Pension Foundation Board strives for
a medium- and long-term balance between assets and liabilities.
As of 31 December 2023, the UBS Swiss pension plan was in a surplus situation on an IFRS Accounting Standards
measurement basis, as the fair value of the plan’s assets exceeded the defined benefit obligation (DBO) by USD
m
(31 December 2022: USD
m). However, a surplus is only recognized on the balance sheet to the extent that it does
not exceed the estimated future economic benefit, which equals the difference between the present value of the
estimated future net service cost and the present value of the estimated future employer contributions. As of both
31 December 2023 and 31 December 2022, the estimated future economic benefit was zero and hence no net defined
benefit asset was recognized on the balance sheet.
The regular employer contributions to the UBS Swiss pension plan in 2024 are estimated at USD
m.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 220
Note 26 Post-employment benefit plans (continued)
UK pension plan
The UBS UK pension plan is a career -average revalued earnings scheme, and benefits increase automatically based on
UK price inflation, subject to defined caps. The normal retirement age for most participants is
. The plan provides
guaranteed lifetime pension benefits to participants upon retirement. The UK plan has been closed to new entrants for
more than 20 years and participants are no longer accruing benefits for current or future service. Instead, employees
participate in the UBS UK defined contribution plan.
The governance responsibility for the UBS UK plan lies jointly with the UBS UK Pension Trustee Board and UBS AG. The
plan assets are invested in a diversified portfolio of financial assets, which include longevity swaps to hedge the risk
between expected and actual longevity.
In 2019, UBS AG and the UBS UK Pension Trustee Board entered an arrangement whereby a collateral pool was
established to provide security for the UBS UK pension fund. The value of the collateral pool as of 31 December 2023
was USD
m (31 December 2022: USD
m) and includes corporate bonds, government-related debt instruments
and other financial assets. The arrangement provides the Pension Trustee Board dedicated access to a pool of assets in
the event of UBS AG’s insolvency or not paying a required funding contribution.
In 2023, UBS AG made funding contributions of USD
m to the UBS UK pension plan (2022: USD
m). The employer
contributions to the UBS UK pension plan in 2024 are estimated at USD
m, subject to regular funding reviews during
the year.
US defined benefit plans
There are two main UBS US pension plans, with a normal retirement age of
. Both plans were closed to new entrants
more than 20 years ago. Since they closed, new employees have participated in a UBS defined contribution plan.
One of the UBS defined benefit plans is a contribution-based plan in which each participant accrues a percentage of
salary in a retirement savings account. The retirement savings account is credited annually with interest based on a rate
that is linked to the average yield on one-year US government bonds. For the other UBS defined benefit plan, retirement
benefits accrue based on the career-average earnings of each individual plan participant. Former employees with vested
benefits can take a lump sum payment or a lifetime annuity.
As required under applicable pension laws, both plans have fiduciaries who, together with UBS AG, are responsible for
the governance of the plans.
Each plan’s fiduciaries are responsible for the investment decisions with respect to the plan assets. The plan assets of
both plans are invested in diversified portfolios of financial assets.
The employer contributions to the UBS US defined benefit plans in 2024 are estimated at USD
m.
German pension plans
There are two major unfunded UBS defined benefit plans in Germany. The normal retirement age is
paid directly by UBS AG. In the larger of the two plans each participant accrues a percentage of salary in a retirement
savings account. The accumulated account balance of the participant is credited on an annual basis with guaranteed
interest at a rate of
%. The plan has been closed to new entrants, and all participants younger than the age of 55 as of
June 2021 no longer accrue benefits. In the other plan, amounts are accrued annually based on employee elections
related to variable compensation. For this plan, the accumulated account balance is credited on an annual basis with a
guaranteed interest rate of
% for amounts accrued before 2010, of
% for amounts accrued from 2010 to 2017 and
of
% for amounts accrued after 2017. Both plans are subject to German pension law, whereby the responsibility to
pay pension benefits when they are due resides entirely with UBS AG. A portion of the pension payments is directly
increased in line with price inflation.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 221
Note 26 Post-employment benefit plans (continued)
In June 2021, UBS AG implemented a new funded UBS pension plan with interest credited to participants equal to actual
investment returns with a guaranteed minimum of
%. The plan was implemented retrospectively for new hires since
June 2018 and for all eligible active participants younger than 55 from July 2021. Each participant accrues a percentage
of salary in a retirement savings account.
The employer contributions to the UBS German defined benefit plans in 2024 are estimated at USD
m.
Financial information by plan
The tables below provide an analysis of the movement in the net asset / liability recognized on the balance sheet for
defined benefit plans, as well as an analysis of amounts recognized in net profit and in
Other comprehensive incom
e.
Defined benefit plans
USD m
Swiss plan
UK plan
US and German plans
Total
31.12.23
31.12.22
31.12.23
31.12.22
31.12.23
31.12.22
31.12.23
31.12.22
Defined benefit obligation at the beginning of the year
Current service cost
Interest expense
Plan participant contributions
Remeasurements
(2,424 )
(1,474 )
(267 )
(4,165 )
of which: actuarial (gains) / losses due to changes in demographic assumptions
(75 )
(6 )
(2 )
(31 )
(3 )
of which: actuarial (gains) / losses due to changes in financial assumptions
(2,653 )
(1,575 )
(279 )
(4,506 )
of which: experience (gains) / losses
1
(3 )
Past service cost related to plan amendments
Curtailments
(3 )
(13 )
(3 )
(13 )
Benefit payments
(662 )
(796 )
(107 )
(123 )
(110 )
(111 )
(880 )
(1,030 )
Other movements
(5 )
(5 )
Foreign currency translation
(291 )
(408 )
(28 )
(727 )
Defined benefit obligation at the end of the year
of which: amounts owed to active members
of which: amounts owed to deferred members
of which: amounts owed to retirees
of which: funded plans
of which: unfunded plans
Fair value of plan assets at the beginning of the year
Return on plan assets excluding interest income
(1,942 )
(1,312 )
(223 )
(3,476 )
Interest income
Employer contributions
Plan participant contributions
Benefit payments
(662 )
(796 )
(107 )
(123 )
(110 )
(111 )
(880 )
(1,030 )
Administration expenses, taxes and premiums paid
(8 )
(7 )
(4 )
(3 )
(12 )
(11 )
Other movements
(1 )
(1 )
Foreign currency translation
(322 )
(450 )
(772 )
Fair value of plan assets at the end of the year
Surplus / (deficit)
(356 )
(335 )
Asset ceiling effect at the beginning of the year
Interest expense on asset ceiling effect
Asset ceiling effect excluding interest expense and foreign currency translation on
asset ceiling effect
(1,332 )
(1,332 )
Foreign currency translation
(31 )
(31 )
Asset ceiling effect at the end of the year
Net defined benefit asset / (liability) of major plans
(356 )
(335 )
(15 )
(14 )
Net defined benefit asset / (liability) of remaining plans
(90 )
(80 )
Total net defined benefit asset / (liability)
(105 )
(94 )
of which: Net defined benefit asset
of which: Net defined benefit liability
2
(487 )
(449 )
1 Experience (gains) / losses are a component of actuarial remeasurements of the defined benefit obligation and reflect the effects of differences between the previous actuarial assumptions and what has actually
occurred. 2 Refer to Note 18c.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 222
Note 26 Post-employment benefit plans (continued)
Income statement – expenses related to defined benefit plans
1
USD m
Swiss plan
UK plan
US and German plans
Total
For the year ended
31.12.23
31.12.22
31.12.23
31.12.22
31.12.23
31.12.22
31.12.23
31.12.22
Current service cost
Interest expense related to defined benefit obligation
Interest income related to plan assets
(393 )
(274 )
(126 )
(70 )
(48 )
(31 )
(568 )
(376 )
Interest expense on asset ceiling effect
Administration expenses, taxes and premiums paid
Past service cost related to plan amendments
Curtailments
(3 )
(13 )
(3 )
(13 )
Net periodic expenses recognized in net profit for major plans
(17 )
(3 )
Net periodic expenses recognized in net profit for remaining plans
2
Total net periodic expenses recognized in net profit
1 Refer to Note 6. 2 Includes differences between actual and estimated performance award accruals.
Other comprehensive income – gains / (losses) on defined benefit plans
USD m
Swiss plan
UK plan
US and German plans
Total
For the year ended
31.12.23
31.12.22
31.12.23
31.12.22
31.12.23
31.12.22
31.12.23
31.12.22
Remeasurement of defined benefit obligation
(1,901 )
(96 )
(33 )
(2,031 )
of which: change in discount rate assumption
(1,332 )
(69 )
(33 )
(1,434 )
of which: change in rate of pension increase assumption
(5 )
of which: change in rate of interest credit on retirement savings assumption
(408 )
(9 )
(82 )
(490 )
of which: change in life expectancy
(1 )
of which: change in other actuarial assumptions
(88 )
(19 )
(83 )
of which: experience gains / (losses)
1
(688 )
(226 )
(135 )
(107 )
(11 )
(820 )
(344 )
Return on plan assets excluding interest income
(1,942 )
(1,312 )
(223 )
(3,476 )
Asset ceiling effect excluding interest expense and foreign currency translation
(656 )
(656 )
Total gains / (losses) recognized in other comprehensive income for major plans
(56 )
(173 )
(31 )
(8 )
(95 )
Total gains / (losses) recognized in other comprehensive income for remaining plans
(8 )
Total gains / (losses) recognized in other comprehensive income
2
(103 )
1 Experience (gains) / losses are a component of actuarial remeasurements of the defined benefit obligation and reflect the effects of differences between the previous actuarial assumptions and what has actually
occurred. 2 Refer to the “Statement of comprehensive income”.
The table below provides information about the duration of the DBO and the timing for expected benefit payments.
Swiss plan
UK plan
US and German plans
1
31.12.23
31.12.22
31.12.23
31.12.22
31.12.23
31.12.22
Duration of the defined benefit obligation (in years)
Maturity analysis of benefits expected to be paid
USD m
Benefits expected to be paid within 12 months
Benefits expected to be paid between 1 and 3 years
Benefits expected to be paid between 3 and 6 years
Benefits expected to be paid between 6 and 11 years
Benefits expected to be paid between 11 and 16 years
Benefits expected to be paid in more than 16 years
1 The duration of the defined benefit obligation represents a weighted average across US and German plans.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 223
Note 26 Post-employment benefit plans (continued)
Actuarial assumptions
The actuarial assumptions used for the defined benefit plans are based on the economic conditions prevailing in the
jurisdiction in which they are offered. Changes in the defined benefit obligation are most sensitive to changes in the
discount rate. The discount rate is based on the yield of high-quality corporate bonds quoted in an active market in the
currency of the respective plan. A decrease in the discount curve increases the DBO. UBS AG regularly reviews the
actuarial assumptions used in calculating the DBO to determine their continuing relevance.
›
Refer to Note 1a item 5 for a description of the accounting policy for defined benefit plans
The tables below show the significant actuarial assumptions used in calculating the DBO at the end of the year.
Significant actuarial assumptions of defined benefit
plans
Swiss plan
UK plan
US plans
German plans
In %
31.12.23
31.12.22
31.12.23
31.12.22
31.12.23
31.12.22
31.12.23
31.12.22
Discount rate
1
1
Rate of pension increase
Rate of interest credit on retirement savings
2
2
1 Represents weighted average across US pension plans. 2 Only applicable to one of the UBS US pension plans
Mortality tables and life expectancies for major plans
Life expectancy at age 65 for a male member currently
aged 65
aged 45
Country
Mortality table
31.12.23
31.12.22
31.12.23
31.12.22
Switzerland
BVG 2020 G with CMI 2022 projections
1
UK
S3PA with CMI 2022 projections
2
USA
Pri-2012 with MP-2021 projection scale
Germany
Dr. K. Heubeck 2018 G
Life expectancy at age 65 for a female member currently
aged 65
aged 45
Country
Mortality table
31.12.23
31.12.22
31.12.23
31.12.22
Switzerland
BVG 2020 G with CMI 2022 projections
1
UK
S3PA with CMI 2022 projections
2
USA
Pri-2012 with MP-2021 projection scale
Germany
Dr. K. Heubeck 2018 G
1 In 2022, BVG 2020 G with CMI 2021 projections was used. 2 In 2022, S3PA with CMI 2021 projections was used.
Sensitivity analysis of significant actuarial assumptions
The table below presents a sensitivity analysis for each significant actuarial assumption, showing how the DBO would
have been affected by changes in the relevant actuarial assumption that were reasonably possible at the balance sheet
date. Unforeseen circumstances may arise, which could result in variations that are outside the range of alternatives
deemed reasonably possible. Caution should be used in extrapolating the sensitivities below on the DBO, as the
sensitivities may not be linear.
Sensitivity analysis of significant actuarial assumptions
1
Increase / (decrease) in defined benefit obligation
Swiss plan
UK plan
US and German plans
USD m
31.12.23
31.12.22
31.12.23
31.12.22
31.12.23
31.12.22
Discount rate
Increase by 50 basis points
(857 )
(641 )
(164 )
(141 )
(50 )
(51 )
Decrease by 50 basis points
Rate of pension increase
Increase by 50 basis points
Decrease by 50 basis points
–
2
–
2
(129 )
(118 )
(4 )
(3 )
Rate of interest credit on retirement savings
Increase by 50 basis points
–
3
–
3
Decrease by 50 basis points
(144 )
(106 )
–
3
–
3
(8 )
(8 )
Life expectancy
Increase in longevity by one additional year
1 The sensitivity analyses are based on a change in one assumption while holding all other assumptions constant, so that interdependencies between the assumptions are excluded. 2 As the assumed rate of pension
increase was
% as of 31 December 2023 and as of 31 December 2022, a downward change in assumption is not applicable. 3 As the UK plan does not provide interest credits on retirement savings, a change in
assumption is not applicable.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 224
Note 26 Post-employment benefit plans (continued)
Fair value of plan assets
The tables below provide information about the composition and fair value of plan assets of the major defined benefit
plans.
Composition and fair value of plan assets
Swiss defined benefit plan
31.12.23
31.12.22
Fair value
Plan asset
allocation %
Fair value
Plan asset
allocation %
USD m
Quoted
in an active
market
Other
Total
Quoted
in an active
market
Other
Total
Cash and cash equivalents
Real estate / property
Domestic
Foreign
Investment funds
Equity
Domestic
Foreign
Bonds
1
Domestic, AAA to BBB–
Foreign, AAA to BBB–
Foreign, below BBB–
Real estate
Foreign
Other
Other investments
Total fair value of plan assets
31.12.23
31.12.22
Total fair value of plan assets
of which:
2
Bank accounts at UBS Group AG
UBS Group AG debt instruments
UBS Group AG shares
Securities lent to UBS Group AG
3
Property occupied by UBS Group AG
Derivative financial instruments, counterparty UBS Group
AG
3
1 The bond credit ratings are primarily based on S&P’s credit ratings. Ratings AAA to BBB– and below BBB– represent investment grade and non-investment grade ratings, respectively. In cases where credit ratings
from other rating agencies were used, these were converted to the equivalent rating in S&P’s rating classification. 2 Bank accounts at UBS AG encompass accounts in the name of the Swiss pension fund. The other
positions disclosed in the table encompass both direct investments in UBS AG instruments and UBS Group AG shares and indirect investments, i.e., those made through funds that the pension fund invests in.
3 Securities lent to UBS AG and derivative financial instruments are presented gross of any collateral. Securities lent to UBS AG were fully covered by collateral as of 31 December 2023 and 31 December 2022. Net
of collateral, derivative financial instruments amounted to negative USD
m as of 31 December 2023 (31 December 2022: negative USD
m).
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 225
Note 26 Post-employment benefit plans (continued)
Composition and fair value of plan assets (continued)
UK defined benefit plan
31.12.23
31.12.22
Fair value
Plan asset
allocation %
Fair value
Plan asset
allocation %
USD m
Quoted
in an active
market
Other
Total
Quoted
in an active
market
Other
Total
Cash and cash equivalents
(27 )
(27 )
(1 )
Bonds
1
Domestic, AAA to BBB–
Foreign, AAA to BBB–
Foreign, below BBB–
Investment funds
Equity
Domestic
Foreign
Bonds
1
Domestic, AAA to BBB–
Domestic, below BBB–
Foreign, AAA to BBB–
Foreign, below BBB–
Real estate
Domestic
Foreign
Other
(280 )
(280 )
(11 )
Repurchase agreements
(947 )
(947 )
(35 )
(612 )
(612 )
(25 )
Other investments
Total fair value of plan assets
1 The bond credit ratings are primarily based on S&P’s credit ratings. Ratings AAA to BBB– and below BBB– represent investment grade and non-investment grade ratings, respectively. In cases where credit ratings
from other rating agencies were used, these were converted to the equivalent rating in S&P’s rating classification.
US and German defined benefit
plans
31.12.23
31.12.22
Fair value
Plan asset
allocation %
Fair value
Plan asset
allocation %
USD m
Quoted
in an active
market
Other
Total
Quoted
in an active
market
Other
Total
Cash and cash equivalents
Equity
Domestic
Foreign
Bonds
1
Domestic, AAA to BBB–
Domestic, below BBB–
Foreign, AAA to BBB–
Foreign, below BBB–
Investment funds
Equity
Domestic
Foreign
Bonds
1
Domestic, AAA to BBB–
Domestic, below BBB–
Foreign, AAA to BBB–
Foreign, below BBB–
Real estate
Domestic
Other
Other investments
(8 )
(7 )
(1 )
Total fair value of plan assets
1 The bond credit ratings are primarily based on S&P’s credit ratings. Ratings AAA to BBB– and below BBB– represent investment grade and non-investment grade ratings, respectively. In cases where credit ratings
from other rating agencies were used, these were converted to the equivalent rating in S&P’s rating classification.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 226
Note 26 Post-employment benefit plans (continued)
b) Defined contribution plans
UBS AG sponsors several defined contribution plans, with the most significant plans in the US and the UK. UBS AG’s
obligation is limited to its contributions made in accordance with each plan, which may include direct contributions and
matching contributions. Employer contributions to defined contribution plans are recognized as an expense and were
USD
m in 2023 and USD
m in 2022.
›
Refer to Note 6 for more information
c) Related-party disclosure
UBS AG is the principal provider of banking services for the pension fund of UBS AG in Switzerland. In this capacity,
UBS AG is engaged to execute most of the pension fund’s banking activities. These activities can include, but are not
limited to, trading, securities lending and borrowing and derivative transactions. The non-Swiss UBS AG pension funds
do not have a similar banking relationship with UBS AG. During 2023, UBS AG received USD
m in fees for banking
services from the major post-employment benefit plans (2022: USD
m). As of 31 December 2023, the major post-
employment benefit plans held USD
m in UBS Group AG shares (31 December 2022: USD
m).
›
Refer to the “Composition and fair value of plan assets” table in Note 26a for more information about fair value of investments in
UBS AG and UBS Group AG instruments held by the Swiss pension fund
Note 27 Employee benefits: variable compensation
a) Plans offered
UBS has several share-based and other deferred compensation plans that align the interests of Group Executive Board
(GEB) members and other employees with the interests of investors.
Share-based awards are granted in the form of notional shares and, where permitted, carry a dividend equivalent that may be
paid in notional shares or cash. Awards are settled by delivering UBS shares at vesting, except in jurisdictions where this is not
permitted for legal or tax reasons.
Deferred compensation awards are generally forfeitable upon, among other circumstances, voluntary termination of
employment with UBS. These compensation plans are also designed to meet regulatory requirements and include special
provisions for regulated employees. For the majority of variable compensation awards granted under such plans to
employees of UBS AG, the grantor entity is UBS Group AG. Expenses associated with these awards are charged by UBS
Group AG to UBS AG. For the purpose of this Note, refere nces to shares refer to UBS Group AG shares.
The most significant deferred compensation plans are described below.
›
Refer to Note 1a item 4 for a description of the accounting policy related to share-based and other deferred compensation plans
Mandatory deferred compensation plans
Long-Term Incentive Plan
The Long-Term Incentive Plan (LTIP) is a mandatory deferred share-based compensation plan for senior leaders of the
Group (i.e., GEB members and selected senior management).
The number of notional shares delivered at vesting depends on two equally weighted performance metrics over a three-
year performance period: return on common equity tier 1 (CET1) capital and relative total shareholder return, which
compares the total shareholder return (TSR) of UBS with the TSR of an index consisting of listed Global Systemically
Important Banks as determined by the Financial Stability Board (excluding UBS). The final number of shares vest over
three years following the performance period for GEB members, and cliff-vest in the year following the performance
period for selected senior management.
Equity Ownership Plan / Fund Ownership Plan
The Equity Ownership Plan (EOP) is the deferred share-based compensation plan for employees outside of the GEB that
are subject to deferral requirements. EOP awards generally vest over three years.
Certain Asset Management employees receive some or all of their EOP in the form of notional funds (Fund Ownership
Plan or FOP, previously named AM EOP). This plan is generally delivered in cash and vests over three years. The amount
delivered depends on the value of the underlying investment funds at the time of vesting.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 227
Note 27 Employee benefits: variable compensation (continued)
Deferred Contingent Capital Plan
The Deferred Contingent Capital Plan (DCCP) is a deferred compensation plan for all employees who are subject to
deferral requirements. Such employees are awarded notional additional tier 1 (AT1) capital instruments, which, at the
discretion of UBS, can be settled in cash or a perpetual, marketable AT1 capital instrument. DCCP awards generally bear
notional interest paid annually (except for certain regulated employees) and vest in full after five years. Awards are
forfeited if a viability event occurs (i.e., if FINMA notifies the firm that the DCCP awards must be written down to mitigate
the risk of insolvency, bankruptcy or failure of UBS) or if the firm receives a commitment of extraordinary support from
the public sector that is necessary to prevent such an event. DCCP awards are also written down if the Group’s CET1
capital ratio falls below a defined threshold. In addition, GEB members forfeit
% of DCCP awards for each loss-making
year during the vesting period.
Financial advisor variable compensation
In line with market practice for US wealth management businesses, the compensation for US financial advisors in Global
Wealth Management consists of cash compensation and deferred compensation awards, determined using a formulaic
approach based on production.
Cash compensation reflects a percentage of the compensable production that each financial advisor generates.
Compensable production is generally based on transaction revenue and investment advisory fees and may reflect further
adjustments. The percentage rate generally varies based on the level of the production and firm tenure.
Financial advisors may also be granted annual deferred compensation. These amounts generally vest over a six-year
period. The annual deferred compensation amount reflects the overall percentage rate and production.
Cash compensation and deferred compensation awards may be reduced for, among other things, errors, negligence or
carelessness, or failure to comply with the firm’s rules, standards, practices and / or policies, and / or applicable laws and
regulations.
Financial advisors may also participate in additional programs to support promoting and developing their business or
supporting the transition of client relationships where appropriate. Financial advisor compensation also includes expenses
related to compensation commitments with financial advisors entered into at the time of recruitment that are subject to
vesting requirements.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 228
Note 27 Employee benefits: variable compensation (continued)
b) Effect on the income statement
Effect on the income statement for the financial year and future periods
The table below provides information about compensation expenses related to total variable compensation that were
recognized in the financial year ended 31 December 2023, as well as expenses that were deferred and will be recognized
in the income statement for 2024 and later. The majority of expenses deferred to 2024 and later that are related to the
2023 performance year pertain to awards granted in February 2024. The total unamortized compensation expense for
unvested share -based awards granted up to 31 December 2023 will be recognized in future periods over a weighted
average period of
Variable compensation
Expenses recognized in 2023
Expenses deferred to 2024 and later
1
USD m
Related to the
2023
performance
year
Related to prior
performance
years
Total
Related to the
2023
performance
year
Related to prior
performance
years
Total
Non-deferred cash
(36 )
Deferred compensation awards
of which: Equity Ownership Plan
of which: Deferred Contingent Capital Plan
of which: Long-Term Incentive Plan
of which: Fund Ownership Plan
Variable compensation – performance awards
Variable compensation – financial advisors
2
of which: non-deferred cash
(4 )
of which: deferred share-based awards
of which: deferred cash-based awards
of which: compensation commitments with recruited financial advisors
Variable compensation – other
3
Total variable compensation
4
1 Estimate as of 31 December 2023. Actual amounts to be expensed in future periods may vary; e.g., due to forfeiture of awards. 2 Financial advisor compensation consists of cash and deferred compensation
awards and is based on compensable revenues and firm tenure using a formulaic approach. It also includes expenses related to compensation commitments with financial advisors entered into at the time of recruitment
that are subject to vesting requirements. 3 Consists of replacement payments, forfeiture credits, severance payments, retention plan payments and interest expense related to the Deferred Contingent Capital Plan.
4 Includes USD
m in expenses related to share-based compensation (performance awards: USD
m; other variable compensation: USD
m; financial advisor compensation: USD
m). A further USD
m
in expenses related to share-based compensation was recognized within other expense categories included in Note 6 (salaries: USD
m related to role-based allowances; social security: USD
m; other personnel
expenses: USD
m related to the Equity Plus Plan).
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 229
Note 27 Employee benefits: variable compensation (continued)
Variable compensation (continued)
Expenses recognized in 2022
Expenses deferred to 2023 and later
1
USD m
Related to the
2022
performance
year
Related to prior
performance
years
Total
Related to the
2022
performance
year
Related to prior
performance
years
Total
Non-deferred cash
(9 )
Deferred compensation awards
of which: Equity Ownership Plan
of which: Deferred Contingent Capital Plan
of which: Long-Term Incentive Plan
of which: Fund Ownership Plan
Variable compensation – performance awards
Variable compensation – financial advisors
2
of which: non-deferred cash
of which: deferred share-based awards
of which: deferred cash-based awards
of which: compensation commitments with recruited financial advisors
Variable compensation – other
3
Total variable compensation
4
1 Estimate as of 31 December 2022. Actual amounts to be expensed in future periods may vary; e.g., due to forfeiture of awards. 2 Financial advisor compensation consists of cash and deferred compensation
awards and is based on compensable revenues and firm tenure using a formulaic approach. It also includes expenses related to compensation commitments with financial advisors entered into at the time of recruitment
that are subject to vesting requirements. 3 Consists of replacement payments, forfeiture credits, severance payments, retention plan payments and interest expense related to the Deferred Contingent Capital Plan.
4 Includes USD
m in expenses related to share-based compensation (performance awards: USD
m; other variable compensation: USD
m; financial advisor compensation: USD
m). A further USD
m in
expenses related to share-based compensation was recognized within other expense categories included in Note 6 (salaries: USD
m related to role-based allowances; social security: USD
m; other personnel
expenses: USD
m related to the Equity Plus Plan).
Variable compensation (continued)
Expenses recognized in 2021
Expenses deferred to 2022 and later
1
USD m
Related to the
2021
performance
year
Related to prior
performance
years
Total
Related to the
2021
performance
year
Related to prior
performance
years
Total
Non-deferred cash
(8 )
Deferred compensation awards
of which: Equity Ownership Plan
of which: Deferred Contingent Capital Plan
of which: Long-Term Incentive Plan
of which: Fund Ownership Plan
Variable compensation – performance awards
Variable compensation – financial advisors
2
of which: non-deferred cash
(6 )
of which: deferred share-based awards
of which: deferred cash-based awards
of which: compensation commitments with recruited financial advisors
Variable compensation – other
3
Total variable compensation
4
1 Estimate as of 31 December 2021. Actual amounts expensed may vary; e.g., due to forfeiture of awards. 2 Financial advisor compensation consists of cash and deferred compensation awards and is based on
compensable revenues and firm tenure using a formulaic approach. It also includes expenses related to compensation commitments with financial advisors entered into at the time of recruitment that are subject to
vesting requirements. 3 Consists of replacement payments, forfeiture credits, severance payments, retention plan payments and interest expense related to the Deferred Contingent Capital Plan. 4 Includes
USD
m in expenses related to share-based compensation (performance awards: USD
m; other variable compensation: USD
m; financial advisor compensation: USD
m). A further USD
m in expenses
related to share-based compensation was recognized within other expense categories included in Note 6 (salaries: USD
m related to role-based allowances; social security: USD
m; other personnel expenses:
USD
m related to the Equity Plus Plan).
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 230
Note 27 Employee benefits: variable compensation (continued)
c) Outstanding share-based compensation awards
Share and performance share awards
Movements in outstanding share -based awards granted by UBS AG and its subsidiaries to employees during 2023 and
2022 are provided in the table below.
Movements in outstanding share-based compensation awards
Number of shares
2023
Weighted
average grant
date fair
value (USD)
Number of shares
2022
Weighted
average grant
date fair
value (USD)
Outstanding, at the beginning of the year
Awarded during the year
Distributed during the year
(132,770 )
(37,994 )
Forfeited during the year
(4,043 )
(1,923 )
Outstanding, at the end of the year
of which: shares vested for accounting purposes
The total carrying amount of the liability related to cash-settled share-based awards as of 31 December 2023 and
31 December 2022 was USD
m and USD
m, respectively.
d) Valuation
UBS share awards
UBS measures compensation expense based on the average market price of UBS shares on the grant date as quoted on
the SIX Swiss Exchange, taking into consideration post-vesting sale and hedge restrictions, non-vesting conditions and
market conditions, where applicable. The fair value of the share awards subject to post-vesting sale and hedge restrictions
is discounted on the basis of the duration of the post-vesting restriction and is referenced to the cost of purchasing an
at-the-money European put option for the term of the transfer restriction. The grant date fair value of notional shares
without dividend entitlements also includes a deduction for the present value of future expected dividends to be paid
between the grant date and distribution.
Note 28 Interests in subsidiaries and other entities
a) Interests in subsidiaries
UBS AG defines its significant subsidiaries as those entities that, either individually or in aggregate, contribute significantly
to UBS AG’s financial position or results of operations, based on a number of criteria, including the subsidiaries’ equity
and contribution to UBS AG’s total assets and profit or loss before tax, in accordance with the requirements set by
IFRS 12, Swiss regulations and the rules of the US Securities and Exchange Commission (the SEC).
Individually significant subsidiaries
The table below lists UBS AG’s individually significant subsidiaries as of 31 December 2023. Unless otherwise stated, the
subsidiaries listed below have share capital consisting solely of ordinary shares held entirely by UBS AG and the proportion
of ownership interest held is equal to the voting rights held by UBS AG.
The country where the respective registered office is located is also the principal place of business. UBS AG operates
through a global branch network and a significant proportion of its business activity is conducted outside Switzerland,
including in the UK, the US, Singapore, the Hong Kong SAR and other countries. UBS Europe SE has branches and offices
in a number of EU Member States, including Germany, Italy, Luxembourg, France and Spain. Share capital is provided in
the currency of the legally registered office.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 231
Note 28 Interests in subsidiaries and other entities (continued)
Individually significant subsidiaries of UBS AG as of 31 December 2023
1
Company
Registered office
Primary business
Share capital in million
Equity interest accumulated in %
USD
2
USD
CHF
USD
EUR
USD
USD
3
CHF
1 Includes direct and indirect subsidiaries of UBS AG. 2 Consists of common share capital of USD
. 3 Consists of common share capital of
USD
.
Other subsidiaries
The table below lists other direct and indirect subsidiaries of UBS AG that are not individually significant but contribute
to UBS AG’s total assets and aggregated profit before tax thresholds and are thus disclosed in accordance with
requirements set by the SEC.
Other subsidiaries of UBS AG as of 31 December 2023
Company
Registered office
Primary business
Share capital in million
Equity interest
accumulated in %
USD
HKD
GBP
CHF
USD
USD
EUR
CHF
EUR
USD
USD
AUD
1
HKD
JPY
JPY
1 Includes a nominal amount relating to redeemable preference shares.
Consolidated structured entities
Consolidated structured entities (SEs) include certain investment funds, securitization vehicles and client investment
vehicles. UBS AG has no individually significant subsidiaries that are SEs.
In 2023 and 2022, UBS AG did not enter into any contractual obligation that could require UBS AG to provide financial
support to consolidated SEs. In addition, UBS AG did not provide support, financial or otherwise, to a consolidated SE
when UBS AG was not contractually obligated to do so, nor does UBS AG currently have any intention to do so in the
future. Furthermore, UBS AG did not provide support, financial or otherwise, to a previously unconsolidated SE that
resulted in UBS AG controlling the SE during the reporting period.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 232
Note 28 Interests in subsidiaries and other entities (continued)
b) Interests in associates and joint ventures
As of 31 December 2023 and 31 December 2022, no associate or joint venture was individually material to UBS AG.
Also, there were no significant restrictions on the ability of associates or joint ventures to transfer funds to UBS AG or its
subsidiaries as cash dividends or to repay loans or advances made. There were no quoted market prices for any associates
or joint ventures of UBS AG.
Investments in associates and joint ventures
USD m
2023
2022
Carrying amount at the beginning of the year
Additions
Reclassifications
(44 )
Share of comprehensive income
(180 )
(41 )
of which: share of net profit / (loss)
1
(163 )
of which: share of other comprehensive income
2
(17 )
(73 )
Share of changes in retained earnings
(1 )
Dividends received
(35 )
(31 )
Foreign currency translation
(30 )
Carrying amount at the end of the year
of which: associates
of which: SIX Group AG, Zurich
3
of which: other associates
of which: joint ventures
1 For 2023, consists of negative USD
m from associates (for 2022, consists of USD
m from associates and USD
m from joint ventures). 2 For 2023, consists of negative USD
m from associates (for 2022,
consists of negative USD
m from associates). 3 In 2023, UBS AG’s legal equity interest amounted to
%. UBS AG is represented on the Board of Directors.
c) Unconsolidated structured entities
UBS AG is considered to sponsor another entity if, in addition to ongoing involvement with that entity, it had a key role
in establishing that entity or in bringing together relevant counterparties for a transaction facilitated by that entity. During
2023, UBS AG sponsored the creation of various SEs and interacted with a number of non-sponsored SEs, including
securitization vehicles, client vehicles and certain investment funds, that UBS AG did not consolidate as of 31 December
2023 because it did not control them.
Interests in unconsolidated structured entities
The table below presents UBS AG’s interests in and maximum exposure to loss from unconsolidated SEs, as well as the
total assets held by the SEs in which UBS had an interest as of year-end, except for investment funds sponsored by third
parties, for which the carrying amount of UBS’s interest as of year-end has been disclosed.
As a consequence of the acquisition of the Credit Suisse Group and the resulting increase in interests in structured entities,
interests in client vehicles sponsored by UBS are presented separately to other vehicles sponsored by third parties, to
clearly distinguish the different types of entities that UBS is involved with. Further, bonds issued by US
government-sponsored entities included within Group Treasury’s HQLA portfolio have been excluded given UBS does not
absorb significant risk and third-party funding vehicles of large multi-nationals have been excluded as they are no longer
considered structured entities. Prior periods have been restated to reflect these changes. As a consequence of these
changes, UBS AG does not disclose any interest in other vehicles sponsored by third parties.
Sponsored unconsolidated structured entities in which UBS did not have an interest at year-end
During 2023 and 2022, UBS AG did not earn material income from sponsored unconsolidated SEs in which UBS did not
have an interest at year-end.
During 2023 and 2022, UBS AG and third parties did not transfer any assets into sponsored securitization vehicles created
in the year. UBS AG and third parties transferred assets, alongside deposits and debt issuances (which are assets from the
perspective of the vehicle), of USD
bn and USD
bn, respectively, into sponsored client vehicles created in 2023
(2022: USD
bn and USD
bn, respectively). For sponsored investment funds, transfers arose during the period as
investors invested and redeemed positions, thereby changing the overall size of the funds, which, when combined with
market movements, resulted in a total closing net asset value of USD
bn (31 December 2022: USD
bn).
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 233
Note 28 Interests in subsidiaries and other entities (continued)
31.12.23
USD m, except where indicated
Securitization
vehicles
1
Client Vehicles
sponsored by UBS
2
Investment
funds
Total
Maximum
exposure to loss
3
Financial assets at fair value held for trading
Derivative financial instruments
Loans and advances to customers
Financial assets at fair value not held for trading
Financial assets measured at fair value through other
comprehensive income
Other financial assets measured at amortized cost
Total assets
Derivative financial instruments
Total liabilities
Assets held by the unconsolidated structured entities in which UBS
AG had an interest (USD bn)
4
5
6
31.12.22
USD m, except where indicated
Securitization
vehicles
1,2
Client Vehicles
sponsored by UBS
2
Investment
funds
Total
Maximum
exposure to loss
3
Financial assets at fair value held for trading
Derivative financial instruments
Loans and advances to customers
Financial assets at fair value not held for trading
Financial assets measured at fair value through other
comprehensive income
Other financial assets measured at amortized cost
Total assets
Derivative financial instruments
Total liabilities
Assets held by the unconsolidated structured entities in which UBS
AG had an interest (USD bn)
4
5
6
1 Includes securities issued by securitization structured entities sponsored by both UBS and third parties. 2 Client vehicles sponsored by UBS are structured entities that do not qualify as a securitization in line with
regulatory requirements and are not considered an investment fund. Effective from 31 December 2023, bonds issued by US government-sponsored entities included in Group Treasury‘s HQLA and interests in third-
party funding vehicles of large multi-nationals have been excluded, with prior periods restated. The restatement resulted in a decrease in interests in securitization vehicles of USD
m and a decrease in interests in
client vehicles of USD
m as of 31 December 2022. There was a corresponding decrease in assets held by securitization vehicles in which UBS has an interest of USD
bn and a decrease in assets held by client
vehicles in which UBS has an interest of USD
bn as of 31 December 2022. 3 For the purpose of this disclosure, maximum exposure to loss amounts do not consider the risk-reducing effects of collateral or other
credit enhancements. 4 Represents the principal amount outstanding. 5 Represents the market value of total assets. 6 Represents the net asset value of the investment funds sponsored by UBS and the carrying
amount of UBS’s interests in the investment funds not sponsored by UBS.
UBS AG retains or purchases interests in unconsolidated SEs in the form of direct investments, financing, guarantees,
letters of credit and derivatives, as well as through management contracts. UBS AG’s maximum exposure to loss is
generally equal to the carrying amount of UBS AG’s interest in the given SE, with this subject to change over time with
market movements. Guarantees, letters of credit and credit derivatives are an exception, with the given contract’s notional
amount, adjusted for losses already incurred, representing the maximum loss that UBS AG is exposed to.
The maximum exposure to loss disclosed in the table above does not reflect UBS AG’s risk management activities,
including effects from financial instruments that may be used to economically hedge risks inherent in the given
unconsolidated SE or risk-reducing effects of collateral or other credit enhancements.
In 2023 and 2022, UBS AG did not provide support, financial or otherwise, to any unconsolidated SE when not
contractually obligated to do so, nor does UBS AG currently have any intention to do so in the future.
In 2023 and 2022, income and expenses from interests in unconsolidated SEs primarily resulted from mark-to-market
movements recognized in
Other net income from financial instruments measured at fair value through profit or loss
,
which were generally hedged with other financial instruments, as well as fee and commission income received from UBS-
sponsored funds.
Interests in securitization vehicles
As of 31 December 2023 and 31 December 2022, UBS AG held interests, both retained and acquired, in various
securitization vehicles that relate to financing, underwriting, secondary market and derivative trading activities.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 234
Note 28 Interests in subsidiaries and other entities (continued)
The numbers outlined in the table above may differ from the securitization positions presented in the 31 December 2023
Pillar 3 Report, available under “Pillar 3 disclosures” at
ubs.com/investors,
synthetic securitizations transacted with entities that are not SEs and transactions in which UBS AG did not have an
interest because it did not absorb any risk; (ii) a different measurement basis in certain cases (e.g., IFRS Accounting
Standards carrying amount within the table above compared with net exposure amount at default for Pillar 3 disclosures);
and (iii) different classification of vehicles viewed as sponsored by UBS AG versus sponsored by third parties.
›
Refer to the 31 December 2023 Pillar 3 Report, available under “Pillar 3 disclosures” at
ubs.com/investors,
for more information
Interests in client vehicles sponsored by UBS
UBS-sponsored client vehicles are established predominantly for clients to gain exposure to specific assets or risk
exposures. Such vehicles may enter into derivative agreements, with UBS or a third party, to align the cash flows of the
entity with the investor’s intended investment objective, or to introduce other desired risk exposures.
As of 31 December 2023 and 31 December 2022, UBS AG retained interests in client vehicles sponsored by UBS that
relate to financing, secondary market and derivative trading activities, and to hedge structured product offerings.
Interests in investment funds
Investment funds have a collective investment objective, and are either passively managed, so that any decision-making
does not have a substantive effect on variability, or are actively managed and investors or their governing bodies do not
have substantive voting or similar rights.
UBS AG holds interests in a number of investment funds, primarily resulting from seed investments or in order to hedge
structured product offerings. In addition to the interests disclosed in the table above, UBS AG manages the assets of
various pooled investment funds and receives fees based, in whole or in part, on the net asset value of the fund and / or
the performance of the fund. The specific fee structure is determined based on various market factors and considers the
fund’s nature and the jurisdiction of incorporation, as well as fee schedules negotiated with clients. These fee contracts
represent an interest in the fund, as they align UBS AG’s exposure with investors, providing a variable return based on
the performance of the entity. Depending on the structure of the fund, these fees may be collected directly from the
fund’s assets and / or from the investors. Any amounts due are collected on a regular basis and are generally backed by
the fund’s assets. Therefore, interest in such funds is not represented by the on-balance sheet fee receivable but rather
by the future exposure to variable fees. The total assets of such funds were USD
bn and USD
bn as of
31 December 2023 and 31 December 2022, respectively, and have been excluded from the table above. UBS AG did not
have any material exposure to loss from these interests as of 31 December 2023 or as of 31 December 2022.
Note 29 Changes in organization and acquisitions and disposals of subsidiaries and businesses
Disposals of subsidiaries and businesses
Sale of UBS Hana Asset Management Co., Ltd.
In the fourth quarter of 2023, UBS AG completed the sale of its
% stake in UBS Hana Asset Management Co., Ltd. to
Hana Securities. Upon completion of the sale, UBS AG recorded a pre-tax gain of USD
m (net of a foreign currency
translation loss) in Asset Management which was recognized in
Other income
.
Changes in organization
Legal structure integration
In December 2023, the Board of Directors of UBS Group AG approved the merger of UBS AG and Credit Suisse AG, and
both entities entered into a definitive merger agreement. The completion of the merger is subject to regulatory approvals
and is expected to occur by the end of the second quarter of 2024.
UBS also expects to complete the transition to a single US intermediate holding company in the second quarter of 2024
and the planned merger of UBS Switzerland AG and Credit Suisse (Schweiz) AG in the third quarter of 2024.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 235
Note
30 Related parties
Related parties of UBS AG are:
–
entities within UBS Group, i.e., the parent entity, UBS Group AG, and fellow subsidiaries consolidated within
UBS Group (including Credit Suisse subsidiaries from the date of the acquisition of the Credit Suisse Group);
–
associates (entities that are under the significant influence of UBS AG or other group entities consolidated within
UBS Group);
–
joint ventures (entities in which UBS AG or other group entity consolidated within UBS Group shares control with
another party);
–
post-employment benefit plans for the benefit of UBS AG’s employees or employees of entities related to UBS AG;
–
key management personnel and close family members of key management personnel; and
–
entities over which key management personnel or their close family members have solely or jointly a direct or indirect
significant influence.
Key management personnel are those persons having authority and responsibility for planning, directing, and controlling
the activities of the Group, directly or indirectly. UBS AG considers the members of the Board of Directors (the BoD) and
the Executive Board (the EB) of UBS AG and the members of the Board of Directors (the BoD) and the Group Executive
Board (the GEB) of UBS Group AG to constitute key management personnel.
a) Remuneration of key management personnel
The Vice Chairman of the BoD has a specific management employment contract and receives pension benefits upon
retirement. Total remuneration of the Chairman and the Vice Chairman of the BoD and all EB members is included in the
table below.
Remuneration of key management personnel
USD m, except where indicated
31.12.23
31.12.22
31.12.21
Base salaries and other cash payments
1
Incentive awards – cash
2
Annual incentive award under DCCP
Employer’s contributions to retirement benefit plans
Benefits in kind, fringe benefits (at market value)
Share-based compensation
3
Total
Total (CHF m)
4
1 May include role-based allowances in line with market practice and regulatory requirements. 2 The cash portion may also include blocked shares in line with regulatory requirements. 3 Compensation expense
is based on the share price on grant date taking into account performance conditions. Refer to Note 27 for more information. For EB members, share-based compensation for 2023, 2022 and 2021 was entirely
composed of LTIP awards. For the Chairman of the BoD, the share-based compensation for 2023, 2022 and 2021 was entirely composed of UBS shares. 4 Swiss franc amounts disclosed represent the respective
US dollar amounts translated at the applicable performance award currency exchange rates (2023: USD / CHF
; 2022: USD / CHF
; 2021: USD / CHF
).
The independent members of the BoD, including the Chairman, do not have employment or service contracts with UBS
AG, and thus are not entitled to benefits upon termination of their service on the BoD. Payments to these individuals for
their services as independent members of the BoD amounted to USD
m (CHF
m) in 2023, USD
m
(CHF
m) in 2022 and USD
m (CHF
m) in 2021.
b) Equity holdings of key management personnel
Equity holdings of key management personnel
1
31.12.23
31.12.22
Number of UBS Group AG shares held by members of the BoD, EB and parties closely linked to them
2
1 No options were held in 2023 and 2022 by non-independent members of the BoD and any EB member or any of its related parties. 2 Excludes shares granted under variable compensation plans with forfeiture
provisions.
Of the share totals above, no shares were held by close family members of key management personnel on 31 December
2023 and 31 December 2022. No shares were held by entities that are directly or indirectly controlled or jointly controlled
by key management personnel or their close family members on 31 December 2023 and 31 December 2022. As of
31 December 2023, no member of the BoD or EB was the beneficial owner of more than 1% of the shares in UBS Group
AG.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 236
Note 30 Related parties (continued)
c) Loans, advances, mortgages and deposit balances with key management personnel
The non-independent members of the BoD and EB members are granted loans, fixed advances and mortgages in the
ordinary course of business on substantially the same terms and conditions that are available to other employees,
including interest rates and collateral, and neither involve more than the normal risk of collectability nor contain any other
unfavorable features for the firm. Independent BoD members are granted loans and mortgages in the ordinary course of
business at general market conditions.
Outstanding balances with key management personnel were as follows.
Loans, advances and mortgages to key management personnel
1
USD m, except where indicated
2023
2022
Balance at the beginning of the year
Balance at the end of the year
2
Balance at the end of the year (CHF m)
2, 3
1 All loans are secured loans. 2 There were USD
m (CHF
m) unused uncommitted credit facilities as of 31 December 2023 and no unused uncommitted credit facilities as of 31 December 2022. 3 Swiss franc
amounts disclosed represent the respective US dollar amounts translated at the relevant year-end closing exchange rate.
In addition, there were USD
m (CHF
m) outstanding deposit balances with key management personnel as of
31 December 2023.
d) Other related-party transactions with entities controlled by key management personnel
In 2023 and 2022, UBS AG did not enter into transactions with entities, over whom key management personnel or their
close family members have solely or jointly a direct or indirect significant influence and as of 31 December 2023,
31 December 2022 and 31 December 2021, there were no outstanding balances related to such transactions.
Furthermore, in 2023 and 2022, such entities did not sell any goods or provide any services to UBS AG, and therefore
did not receive any fees from UBS AG. UBS AG also did not provide services to such entities in 2023 and 2022, and
therefore also received no fees.
e) Transactions with associates and joint ventures
Loans to and outstanding receivables from associates and joint ventures
USD m
2023
2022
Carrying amount at the beginning of the year
Additions
Reductions
(716 )
(438 )
Foreign currency translation
Carrying amount at the end of the year
of which: unsecured loans and receivables
Other transactions with associates and joint ventures
As of or for the year ended
USD m
31.12.23
31.12.22
Payments to associates and joint ventures for goods and services received
Fees received for services provided to associates and joint ventures
Liabilities to associates and joint ventures
Commitments and contingent liabilities to associates and joint ventures
›
Refer to Note 28 for an overview of investments in associates and joint ventures
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 237
Note 30 Related parties (continued)
f) Receivables and payables from / to UBS Group AG and other subsidiaries of UBS Group AG
USD m
31.12.23
31.12.22
Receivables
Amounts due from banks
1
Cash collateral receivables on derivative instruments
Loans and advances to customers
Other financial assets measured at amortized cost
Financial assets at fair value held for trading
Derivative financial instruments
Payables
Amounts due to banks
Cash collateral payables on derivative instruments
Customer deposits
Funding from UBS Group AG measured at amortized cost
Other financial liabilities measured at amortized cost
Derivative financial instruments
Other financial liabilities designated at fair value
2
1 Reflects funding provided to Credit Suisse. 2 Mainly represents funding recognized from UBS Group AG that is designated at fair value. Refer to Note 18b for more information.
Note 31 Invested assets and net new money
The following disclosures provide a breakdown of UBS AG’s invested assets and a presentation of their development,
including net new money, as required by the Swiss Financial Market Supervisory Authority (FINMA).
Invested assets
Invested assets consist of all client assets managed by or deposited with UBS AG for investment purposes. Invested assets
include managed fund assets, managed institutional assets, discretionary and advisory wealth management portfolios,
fiduciary deposits, time deposits, savings accounts, and wealth management securities or brokerage accounts. All assets
held for purely transactional purposes and custody-only assets, including corporate client assets held for cash
management and transactional purposes, are excluded from invested assets, as UBS AG only administers the assets and
does not offer advice on how they should be invested. Also excluded are non-bankable assets (e.g., art collections) and
deposits from third-party banks for funding or trading purposes.
Discretionary assets are defined as client assets that UBS AG decides how to invest. Other invested assets are those where
the client ultimately decides how the assets are invested. When a single product is created in one business division and
sold in another, it is counted in both the business division managing the investment and the one distributing it. This
results in double counting within UBS AG’s total invested assets and net new money, as both business divisions are
independently providing a service to their respective clients, and both add value and generate revenue.
Net new money
Net new money in a reporting period is the amount of invested assets entrusted to UBS AG by new and existing clients,
less those withdrawn by existing clients and clients who terminated relationships with UBS AG.
Net new money is calculated using the direct method, under which inflows and outflows to / from invested assets are
determined at the client level, based on transactions. Interest and dividend income from invested assets are not counted as
net new money inflows. Market and currency movements, as well as fees, commissions and interest on loans charged, are
excluded from net new money, as are effects resulting from any acquisition or divestment of a UBS subsidiary or business.
Reclassifications between invested assets and custody-only assets as a result of a change in service level delivered are
generally treated as net new money flows. However, where the change in service level directly results from an externally
imposed regulation or a strategic decision by UBS AG to exit a market or specific service offering, the one-time net effect is
reported as
Other effects
.
The Investment Bank does not track invested assets and net new money. However, when a client is transferred from the
Investment Bank to another business division, this may produce net new money even though the client’s assets were
already with UBS AG.
In 2023 UBS AG has changed its accounting policy for net new money and invested assets to include its share of net new
money and invested assets from associates, to better reflect the business strategy and aligned with the equity method
accounting applied to these entities. Comparative figures in the tables below have been restated to reflect this change,
resulting in an increase to invested assets as of 31 December 2022 of USD
bn and an increase to net new money for
2022 of USD
bn, all relating to Asset Management.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 238
Note 31 Invested assets and net new money (continued)
Invested assets and net new money
As of or for the year ended
USD bn
31.12.23
31.12.22
1
Fund assets managed by UBS
Discretionary assets
Other invested assets
Total invested assets
2
of which: double counts
Net new money
2
1 Comparative figures have been restated to include net new money and invested assets from associates. 2 Includes double counts.
Development of invested assets
USD bn
31.12.23
31.12.22
1
Total invested assets at the beginning of the year
2
Net new money
Market movements
3
(596 )
Foreign currency translation
(74 )
Other effects
(37 )
(40 )
of which: acquisitions / (divestments)
(25 )
(19 )
Total invested assets at the end of the year
2
1 Comparative figures have been restated to include net new money and invested assets from associates. 2 Includes double counts. 3 Includes interest and dividend income.
Note 32 Currency translation rates
The following table shows the rates of the main currencies used to translate the financial information of UBS AG’s
operations with a functional currency other than the US dollar into US dollars.
Closing exchange rate
Average rate
1
As of
For the year ended
31.12.23
31.12.22
31.12.23
31.12.22
31.12.21
1 CHF
1 EUR
1 GBP
100 JPY
1 Monthly income statement items of operations with a functional currency other than the US dollar are translated into US dollars using month-end rates. Disclosed average rates for a year represent an average of
twelve month-end rates, weighted according to the income and expense volumes of all operations of UBS AG with the same functional currency for each month. Weighted average rates for individual business divisions
may deviate from the weighted average rates for UBS AG.
Note 33 Main differences between IFRS Accounting Standards and Swiss GAAP
The consolidated financial statements of UBS AG are prepared in accordance with IFRS Accounting Standards. The Swiss
Financial Market Supervisory Authority (FINMA) requires financial groups presenting financial statements under IFRS
Accounting Standards to provide a narrative explanation of the main differences between IFRS Accounting Standards
and Swiss generally accepted accounting principles (GAAP) (the FINMA Accounting Ordinance, FINMA Circular 2020/1
“Accounting – banks” and the Banking Ordinance (the BO)). Included in this Note are the significant differences in the
recognition and measurement between IFRS Accounting Standards and the provisions of the BO and the guidelines of
FINMA governing true and fair view financial statement reporting pursuant to Art. 25 to Art. 42 of the BO.
1. Consolidation
Under IFRS Accounting Standards, all entities that are controlled by the holding entity are consolidated. Under Swiss
GAAP controlled entities deemed immaterial to a group or those held only temporarily are exempt from consolidation,
but instead are recorded as participations accounted for under the equity method of accounting or as financial
investments measured at the lower of cost or market value.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 239
Note 33 Main differences between IFRS Accounting Standards and Swiss GAAP (continued)
2. Classification and measurement of financial assets
Under IFRS Accounting Standards, debt instruments are measured at amortized cost, fair value through other
comprehensive income (FVOCI) or fair value through profit or loss (FVTPL), depending on the nature of the business
model within which the particular asset is held and the characteristics of the contractual cash flows of the asset. Equity
instruments are accounted for at FVTPL by UBS. Under Swiss GAAP, trading assets and derivatives are measured at FVTPL,
in line with IFRS Accounting Standards. However, non-trading debt instruments are generally measured at amortized
cost, even when the assets are managed on a fair value basis. In addition, the measurement of financial assets in the
form of securities depends on the nature of the asset: debt instruments not held to maturity, i.e., instruments available
for sale, and equity instruments with no permanent holding intent, are classified as
Financial investments
at the lower of (amortized) cost or market value. Market value adjustments up to the original cost amount and realized
gains or losses upon disposal of the investment are recorded in the income statement as
Other income
from
ordinary
activities.
Equity instruments with a permanent holding intent are classified as participations in
Non-consolidated
investments in subsidiaries and other participations
recorded in the income statement as
Impairment of investments in non-consolidated subsidiaries and other participations.
Reversals of impairments up to the original cost amount and realized gains or losses upon disposal of the investment are
recorded as
Extraordinary income / Extraordinary expenses
.
3. Fair value option applied to financial liabilities
Under IFRS Accounting Standards, UBS applies the fair value option to certain financial liabilities not held for trading.
Instruments for which the fair value option is applied are accounted for at FVTPL. The amount of change in the fair value
attributable to changes in UBS’s own credit is presented in
Other comprehensive income
Retained earnings
.
The fair value option is applied primarily to issued structured debt instruments, certain non-structured debt instruments,
certain payables under repurchase agreements and cash collateral on securities lending agreements, amounts due under
unit-linked investment contracts, and brokerage payables.
Under Swiss GAAP, the fair value option can only be applied to structured debt instruments consisting of a debt host
contract and one or more embedded derivatives that do not relate to own equity. Furthermore, unrealized changes in
fair value attributable to changes in UBS’s own credit are not recognized, whereas realized own credit is recognized in
Net trading income
.
4. Allowances and provisions for credit losses
Swiss GAAP permit use of IFRS Accounting Standards for accounting for allowances and provisions for credit losses based
on an expected credit loss (ECL) model. UBS has chosen to apply the IFRS 9 ECL approach to those exposures that are in
the ECL scope of both frameworks, IFRS Accounting Standards and Swiss GAAP.
For the small residual exposures within the scope of Swiss GAAP ECL requirements, which are not subject to ECL under
IFRS Accounting Standards due to classification differences, UBS applies alternative approaches.
–
For exposures for which Pillar 1 internal ratings-based models are applied to measure credit risk, ECL is determined by
the regulatory expected loss (EL), with an add-on for scaling up to the residual maturity of exposures maturing beyond
the next 12 months, as appropriate. For detailed information on regulatory EL, refer to the “Risk management and
control” section of this report.
–
For exposures for which the Pillar 1 standardized approach is used to measure credit risk, ECL is determined using a
portfolio approach that derives a conservative probability of default (PD) and a conservative loss given default (LGD)
for the entire portfolio.
5. Hedge accounting
Under IFRS Accounting Standards, when cash flow hedge accounting is applied, the fair value gain or loss on the effective
portion of a derivative designated as a cash flow hedge is recognized initially in equity and reclassified to the income
statement when certain conditions are met. When fair value hedge accounting is applied, the fair value change of the
hedged item attributable to the hedged risk is reflected in the measurement of the hedged item and is recognized in the
income statement along with the change in the fair value of the hedging derivative. Under Swiss GAAP, the effective
portion of the fair value change of a derivative instrument designated as a cash flow or as a fair value hedge is deferred
on the balance sheet as
Other assets
Other liabilities
. The carrying amount of the hedged item designated in fair value
hedges is not adjusted for fair value changes attributable to the hedged risk.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 240
Note 33 Main differences between IFRS Accounting Standards and Swiss GAAP (continued)
6. Goodwill and intangible assets
Under IFRS Accounting Standards, goodwill acquired in a business combination is not amortized but tested annually for
impairment. Intangible assets with an indefinite useful life are also not amortized but tested annually for impairment.
Under Swiss GAAP, goodwill and intangible assets with indefinite useful lives are amortized over a period not exceeding
five years, unless a longer useful life, which may not exceed
annually for impairment.
7. Post-employment benefit plans
Swiss GAAP permit the use of IFRS Accounting Standards or Swiss accounting standards for post-employment benefit
plans, with the election made on a plan-by-plan basis.
UBS has elected to apply IAS 19 for the non-Swiss defined benefit plans in the UBS AG standalone financial statements
and Swiss GAAP (FER 16) for the Swiss pension plan in the UBS AG and the UBS Switzerland AG standalone financial
statements. The requirements of Swiss GAAP are better aligned with the specific nature of Swiss pension plans, which
are hybrid in that they combine elements of defined contribution and defined benefit plans, but are treated as defined
benefit plans under IFRS Accounting Standards . Key differences between Swiss GAAP and IFRS Accounting Standards
include the treatment of dynamic elements, such as future salary increases and future interest credits on retirement
savings, which are not considered under the static method used in accordance with Swiss GAAP. Also, the discount rate
used to determine the defined benefit obligation in accordance with IFRS Accounting Standards is based on the yield of
high-quality corporate bonds of the market in the respective pension plan country. The discount rate used in accordance
with Swiss GAAP (i.e., the technical interest rate) is determined by the Pension Foundation Board based on the expected
returns of the Board’s investment strategy.
For defined benefit plans, IFRS Accounting Standards require the full defined benefit obligation net of the plan assets to
be recorded on the balance sheet subject to the asset ceiling rules, with changes resulting from remeasurements
recognized directly in equity. However, for non-Swiss defined benefit plans for which IFRS Accounting Standards are
elected, changes due to remeasurements are recognized in the income statement of UBS AG standalone under Swiss
GAAP.
Swiss GAAP require employer contributions to the pension fund to be recognized as personnel expenses in the income
statement. Swiss GAAP also require an assessment of whether, based on the pension fund’s financial statements prepared
in accordance with Swiss accounting standards (FER 26), an economic benefit to, or obligation of, the employer arises
from the pension fund that is recognized in the balance sheet when conditions are met. Conditions for recording a
pension asset or liability would be met if, for example, an employer contribution reserve is available or the employer is
required to contribute to the reduction of a pension deficit (on an FER 26 basis).
8. Leasing
Under IFRS Accounting Standards, a single lease accounting model applies that requires UBS to record a right-of-use
(RoU) asset and a corresponding lease liability on the balance sheet when UBS is a lessee in a lease arrangement. The
RoU asset and the lease liability are recognized when UBS acquires control of the physical use of the asset. The lease
liability is measured based on the present value of the lease payments over the lease term, discounted using UBS’s
unsecured borrowing rate. The RoU asset is recorded at an amount equal to the lease liability but is adjusted for rent
prepayments, initial direct costs, any costs to refurbish the leased asset and / or lease incentives received. The RoU asset
is depreciated over the shorter of the lease term or the useful life of the underlying asset.
Under Swiss GAAP, leases that transfer substantially all the risks and rewards, but not necessarily legal title in the
underlying assets, are classified as finance leases. All other leases are classified as operating leases. Whereas finance leases
are recognized on the balance sheet and measured in line with IFRS Accounting Standards, operating leases are not
recognized on the balance sheet, with payments recognized as
General and administrative expenses
basis over the lease term, which commences with control of the physical use of the asset. Lease incentives are treated as
a reduction of rental expense and recognized on a consistent basis over the lease term.
9. Netting of derivative assets and liabilities
Under IFRS Accounting Standards , derivative assets, derivative liabilities and related cash collateral not settled to market
are reported on a gross basis unless the restrictive netting requirements under IFRS Accounting Standards are met:
(i) existence of master netting agreements and related collateral arrangements that are unconditional and legally
enforceable, in both the normal course of business and the event of default, bankruptcy or insolvency of UBS and its
counterparties; and (ii) UBS’s intention to either settle on a net basis or to realize the asset and settle the liability
simultaneously. Under Swiss GAAP, derivative assets, derivative liabilities and related cash collateral not settled to market
are generally reported on a net basis, provided the master netting and the related collateral agreements are legally
enforceable in the event of default, bankruptcy or insolvency of UBS’s counterparties.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 241
Note 33 Main differences between IFRS Accounting Standards and Swiss GAAP (continued)
10. Negative interest
Under IFRS Accounting Standards, negative interest income arising on a financial asset does not meet the definition of
interest income and, therefore, negative interest on financial assets and negative interest on financial liabilities are
presented within interest expense and interest income, respectively. Under Swiss GAAP, negative interest on financial
assets is presented within interest income and negative interest on financial liabilities is presented within interest expense.
11. Extraordinary income and expense
Certain non-recurring and non-operating income and expense items, such as realized gains or losses from the disposal
of participations, fixed and intangible assets, and reversals of impairments of participations and fixed assets, are classified
as extraordinary items under Swiss GAAP. This distinction is not available under IFRS Accounting Standards.
p
Note 34 Supplemental guarantor information required under SEC regulations
Joint liability of UBS Switzerland AG
In 2015, the Personal & Corporate Banking and Wealth Management businesses booked in Switzerland were transferred
from UBS AG to UBS Switzerland AG through an asset transfer in accordance with the Swiss Merger Act. Under the
terms of the asset transfer agreement, UBS Switzerland AG assumed joint liability for contractual obligations of UBS AG
existing on the asset transfer date, including the full and unconditional guarantee of certain registered debt securities
issued by UBS AG. To reflect this joint liability, UBS Switzerland AG is presented in a separate column as a subsidiary co-
guarantor.
The joint liability of UBS Switzerland AG for contractual obligations of UBS AG decreased in 2023 by USD
bn to
USD
bn as of 31 December 2023. The decrease substantially relates to a combination of contractual maturities, early
extinguishments, fair value movements and foreign currency effects.
Supplemental guarantor consolidated income statement
USD m
UBS AG
(standalone)
1
UBS
Switzerland AG
(standalone)
1
Other
subsidiaries
2
Elimination
entries
UBS AG
(consolidated)
For the year ended 31 December 2023
Interest income from financial instruments measured at amortized cost and
fair value through other comprehensive income
(5,022 )
Interest expense from financial instruments measured at amortized cost
(14,797 )
(3,055 )
(7,699 )
(19,643 )
Net interest income from financial instruments measured at fair value through
profit or loss and other
(864 )
Net interest income
(2,725 )
Other net income from financial instruments measured at fair value through
profit or loss
(81 )
Fee and commission income
(598 )
Fee and commission expense
(705 )
(456 )
(1,214 )
(1,790 )
Net fee and commission income
(13 )
Other income
(4,198 )
Total revenues
(4,269 )
Credit loss expense / (release)
Personnel expenses
General and administrative expenses
(2,828 )
Depreciation, amortization and impairment of non-financial assets
(109 )
Operating expenses
(2,937 )
Operating profit / (loss) before tax
(240 )
(1,370 )
Tax expense / (benefit)
(48 )
Net profit / (loss)
(463 )
(1,321 )
Net profit / (loss) attributable to non-controlling interests
Net profit / (loss) attributable to shareholders
(488 )
(1,321 )
1 Amounts presented for UBS AG standalone and UBS Switzerland AG standalone represent IFRS standalone information. Refer to the UBS AG standalone and UBS Switzerland AG standalone financial statements
under “Complementary financial information” at ubs.com/investors for information prepared in accordance with Swiss GAAP. 2 The ”Other subsidiaries“ column includes consolidated information for the
UBS Americas Holding LLC, UBS Europe SE and UBS Asset Management AG significant sub-groups, as well as standalone information for other subsidiaries.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 242
Note 34 Supplemental guarantor information required under SEC regulations (continued)
Supplemental guarantor consolidated statement of comprehensive income
USD m
UBS AG
(standalone)
1
UBS
Switzerland AG
(standalone)
1
Other
subsidiaries
2
Elimination
entries
UBS AG
(consolidated)
For the year ended 31 December 2023
Comprehensive income attributable to shareholders
Net profit / (loss)
(488 )
(1,321 )
Other comprehensive income
Other comprehensive income that may be reclassified to the income
statement
Foreign currency translation, net of tax
(975 )
Financial assets measured at fair value through other comprehensive
income, net of tax
3
Cash flow hedges, net of tax
(9 )
Cost of hedging, net of tax
(19 )
(19 )
Total other comprehensive income that may be reclassified to the
income statement, net of tax
(984 )
Other comprehensive income that will not be reclassified to the
income statement
Defined benefit plans, net of tax
(82 )
(36 )
(19 )
(136 )
Own credit on financial liabilities designated at fair value, net of tax
(790 )
(790 )
Total other comprehensive income that will not be reclassified to the
income statement, net of tax
(872 )
(36 )
(19 )
(927 )
Total other comprehensive income
(101 )
(984 )
Total comprehensive income attributable to shareholders
(262 )
(2,305 )
Total comprehensive income attributable to non-controlling interests
Total comprehensive income
(235 )
(2,305 )
1 Amounts presented for UBS AG standalone and UBS Switzerland AG standalone represent IFRS standalone information. Refer to the UBS AG standalone and UBS Switzerland AG standalone financial statements
under “Complementary financial information” at ubs.com/in vestors for information prepared in accordance with Swiss GAAP. 2 The ”Other subsidiaries“ column includes consolidated information for the
UBS Americas Holding LLC, UBS Europe SE and UBS Asset Management AG significant sub-groups, as well as standalone information for other subsidiaries. 3 Effective 1 April 2022, a portfolio of assets previously
classified as Financial assets measured at fair value through other comprehensive income was reclassified to Other financial assets measured at amortized cost. Refer to Note 13a for more information.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 243
Note 34 Supplemental guarantor information required under SEC regulations (continued)
Supplemental guarantor consolidated balance sheet
USD m
UBS AG
(standalone)
1
UBS
Switzerland AG
(standalone)
1
Other
subsidiaries
2
Elimination
entries
UBS AG
(consolidated)
As of 31 December 2023
Assets
Cash and balances at central banks
Amounts due from banks
(56,311 )
Receivables from securities financing transactions measured at
amortized cost
(24,073 )
Cash collateral receivables on derivative instruments
(12,512 )
Loans and advances to customers
(35,093 )
Other financial assets measured at amortized cost
(2,647 )
Total financial assets measured at amortized cost
(130,636 )
Financial assets at fair value held for trading
(1,412 )
of which: assets pledged as collateral that may be
sold or repledged by counterparties
(12,731 )
Derivative financial instruments
(41,223 )
Brokerage receivables
Financial assets at fair value not held for trading
(22,613 )
Total financial assets measured at fair value through profit or loss
(65,249 )
Financial assets measured at fair value
through other comprehensive income
Investments in subsidiaries and associates
(51,190 )
Property, equipment and software
(284 )
Goodwill and intangible assets
Deferred tax assets
(24 )
Other non-financial assets
Total assets
(247,298 )
Liabilities
Amounts due to banks
(141,898 )
Payables from securities financing transactions measured at
amortized cost
(24,171 )
Cash collateral payables on derivative instruments
(12,430 )
Customer deposits
Funding from UBS Group AG measured at amortized cost
Debt issued measured at amortized cost
Other financial liabilities measured at amortized cost
(2,997 )
Total financial liabilities measured at amortized cost
(145,402 )
Financial liabilities at fair value held for trading
(1,325 )
Derivative financial instruments
(41,225 )
Brokerage payables designated at fair value
Debt issued designated at fair value
(69 )
Other financial liabilities designated at fair value
(8,107 )
Total financial liabilities measured at fair value through profit or loss
(50,726 )
Provisions
(1 )
Other non-financial liabilities
Total liabilities
(196,083 )
Equity attributable to shareholders
(51,215 )
Equity attributable to non-controlling interests
Total equity
(51,215 )
Total liabilities and equity
(247,298 )
1 Amounts presented for UBS AG standalone and UBS Switzerland AG standalone represent IFRS standalone information. Refer to the UBS AG standalone and UBS Switzerland AG standalone financial statements,
available under “Complementary financial information” at ubs.com/investors, for information prepared in accordance with Swiss GAAP. 2 The ”Other subsidiaries“ column includes consolidated information for the
UBS Americas Holding LLC, UBS Europe SE and UBS Asset Management AG significant sub-groups, as well as standalone information for other subsidiaries.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 244
Note 34 Supplemental guarantor information required under SEC regulations (continued)
Supplemental guarantor consolidated statement of cash flows
USD m
UBS AG
1
UBS
Switzerland AG
1
Other
1
UBS AG
(consolidated)
For the year ended 31 December 2023
Net cash flow from / (used in) operating activities
(23,275 )
(3,041 )
(1,886 )
(28,202 )
Cash flow from / (used in) investing activities
Purchase of subsidiaries, associates and intangible assets
(1 )
(3 )
(4 )
Disposal of subsidiaries, associates and intangible assets
2
Purchase of property, equipment and software
(427 )
(287 )
(569 )
(1,283 )
Disposal of property, equipment and software
Net (purchase) / redemption of financial assets measured at fair value through other comprehensive
income
Purchase of debt securities measured at amortized cost
(9,561 )
(1,431 )
(3,251 )
(14,244 )
Disposal and redemption of debt securities measured at amortized cost
Net cash flow from / (used in) investing activities
(4,942 )
(94 )
(4,924 )
Cash flow from / (used in) financing activities
Net short-term debt issued / (repaid)
(1 )
Distributions paid on UBS AG shares
(6,000 )
(6,000 )
Issuance of debt designated at fair value and long-term debt measured at amortized cost
3
Repayment of debt designated at fair value and long-term debt measured at amortized cost
3
(84,366 )
(1,017 )
(159 )
(85,541 )
Net cash flows from other financing activities
(249 )
(251 )
(501 )
Net activity related to group internal capital transactions and dividends
(2,944 )
(754 )
Net cash flow from / (used in) financing activities
(1,954 )
(532 )
Total cash flow
Cash and cash equivalents at the beginning of the year
Net cash flow from / (used in) operating, investing and financing activities
(6,040 )
(5,089 )
(2,306 )
(13,435 )
Effects of exchange rate differences on cash and cash equivalents
Cash and cash equivalents at the end of the year
4
of which: cash and balances at central banks
4
of which: amounts due from banks
4
of which: money market paper
4,5
1 Cash flows generally represent a third-party view from a UBS AG consolidated perspective, except for Net activity related to group internal capital transactions and dividends. 2 Includes dividends received from
associates. 3 Includes funding from UBS Group AG to UBS AG. 4 Balances with an original maturity of three months or less. USD
m of cash and cash equivalents were restricted. 5 Money market paper is
included in the balance sheet under Financial assets at fair value not held for trading, Other financial assets measured at amortized cost and Financial assets at fair value held for trading.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 245
Note 34 Supplemental guarantor information required under SEC regulations (continued)
Supplemental guarantor consolidated income statement
USD m
UBS AG
(standalone)
1
UBS
Switzerland AG
(standalone)
1
Other
subsidiaries
2
Elimination
entries
UBS AG
(consolidated)
For the year ended 31 December 2022
Interest income from financial instruments measured at amortized cost and
fair value through other comprehensive income
(1,575 )
Interest expense from financial instruments measured at amortized cost
(5,449 )
(736 )
(2,604 )
(6,696 )
Net interest income from financial instruments measured at fair value through
profit or loss and other
(449 )
Net interest income
Other net income from financial instruments measured at fair value through
profit or loss
Fee and commission income
(660 )
Fee and commission expense
(684 )
(464 )
(1,327 )
(1,823 )
Net fee and commission income
(8 )
Other income
(8,382 )
Total revenues
(8,210 )
Credit loss expense / (release)
(17 )
(3 )
(1 )
Personnel expenses
General and administrative expenses
(2,660 )
Depreciation, amortization and impairment of non-financial assets
(109 )
Operating expenses
(2,769 )
Operating profit / (loss) before tax
(5,440 )
Tax expense / (benefit)
(28 )
Net profit / (loss)
(5,592 )
Net profit / (loss) attributable to non-controlling interests
Net profit / (loss) attributable to shareholders
(5,592 )
1 Amounts presented for UBS AG standalone and UBS Switzerland AG standalone represent IFRS standalone information. Refer to the UBS AG standalone and UBS Switzerland AG standalone financial statements
under “Complementary financial information” at ubs.com/investors for information prepared in accordance with Swiss GAAP. 2 The ”Other subsidiaries“ column includes consolidated information for the UBS
Americas Holding LLC, UBS Europe SE and UBS Asset Management AG significant sub-groups, as well as standalone information for other subsidiaries.
Supplemental guarantor consolidated statement of comprehensive income
USD m
UBS AG
(standalone)
1
UBS
Switzerland AG
(standalone)
1
Other
subsidiaries
2
Elimination
entries
UBS AG
(consolidated)
For the year ended 31 December 2022
Comprehensive income attributable to shareholders
Net profit / (loss)
(5,592 )
Other comprehensive income
Other comprehensive income that may be reclassified to the income
statement
Foreign currency translation, net of tax
(114 )
(197 )
(506 )
(519 )
Financial assets measured at fair value through other comprehensive
income, net of tax
3
(3 )
Cash flow hedges, net of tax
(2,791 )
(1,359 )
(631 )
(12 )
(4,793 )
Cost of hedging, net of tax
Total other comprehensive income that may be reclassified to the
income statement, net of tax
(2,863 )
(1,555 )
(1,128 )
(5,260 )
Other comprehensive income that will not be reclassified to the
income statement
Defined benefit plans, net of tax
(112 )
Own credit on financial liabilities designated at fair value, net of tax
Total other comprehensive income that will not be reclassified to the
income statement, net of tax
(112 )
Total other comprehensive income
(1,897 )
(1,667 )
(1,104 )
(4,383 )
Total comprehensive income attributable to shareholders
(5,306 )
Total comprehensive income attributable to non-controlling interests
Total comprehensive income
(5,306 )
1 Amounts presented for UBS AG standalone and UBS Switzerland AG standalone represent IFRS standalone information. Refer to the UBS AG standalone and UBS Switzerland AG standalone financial statements
under “Complementary financial information” at ubs.com/investors for information prepared in accordance with Swiss GAAP. 2 The ”Other subsidiaries“ column includes consolidated information for the
UBS Americas Holding LLC, UBS Europe SE and UBS Asset Management AG significant sub-groups, as well as standalone information for other subsidiaries. 3 Effective 1 April 2022, a portfolio of assets previously
classified as Financial assets measured at fair value through other comprehensive income was reclassified to Other financial assets measured at amortized cost. Refer to Note 13a for more information.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 246
Note 34 Supplemental guarantor information required under SEC regulations (continued)
Supplemental guarantor consolidated balance sheet
USD m
UBS AG
(standalone)
1
UBS
Switzerland AG
(standalone)
1
Other
subsidiaries
2
Elimination
entries
UBS AG
(consolidated)
As of 31 December 2022
Assets
Cash and balances at central banks
Amounts due from banks
(50,441 )
Receivables from securities financing transactions measured at
amortized cost
(18,691 )
Cash collateral receivables on derivative instruments
(11,856 )
Loans and advances to customers
(31,233 )
Other financial assets measured at amortized cost
(2,029 )
Total financial assets measured at amortized cost
(114,250 )
Financial assets at fair value held for trading
(1,848 )
of which: assets pledged as collateral that may be
sold or repledged by counterparties
(9,892 )
Derivative financial instruments
(40,368 )
Brokerage receivables
Financial assets at fair value not held for trading
(17,091 )
Total financial assets measured at fair value through profit or loss
(59,308 )
Financial assets measured at fair value
through other comprehensive income
Investments in subsidiaries and associates
(53,255 )
Property, equipment and software
(267 )
Goodwill and intangible assets
Deferred tax assets
(16 )
Other non-financial assets
Total assets
(227,087 )
Liabilities
Amounts due to banks
(118,477 )
Payables from securities financing transactions measured at
amortized cost
(18,774 )
Cash collateral payables on derivative instruments
(11,800 )
Customer deposits
Funding from UBS Group AG measured at amortized cost
Debt issued measured at amortized cost
(173 )
Other financial liabilities measured at amortized cost
(2,287 )
Total financial liabilities measured at amortized cost
(128,903 )
Financial liabilities at fair value held for trading
(1,570 )
Derivative financial instruments
(40,363 )
Brokerage payables designated at fair value
(7 )
Debt issued designated at fair value
(110 )
Other financial liabilities designated at fair value
(2,928 )
Total financial liabilities measured at fair value through profit or loss
(44,977 )
Provisions
(2 )
Other non-financial liabilities
Total liabilities
(173,785 )
Equity attributable to shareholders
(53,303 )
Equity attributable to non-controlling interests
Total equity
(53,303 )
Total liabilities and equity
(227,087 )
1 Amounts presented for UBS AG standalone and UBS Switzerland AG standalone represent IFRS standalone information. Refer to the UBS AG standalone and UBS Switzerland AG standalone financial statements,
available under “Complementary financial information” at ubs.com/investors, for information prepared in accordance with Swiss GAAP. 2 The ”Other subsidiaries“ column includes consolidated information for the
UBS Americas Holding LLC, UBS Europe SE and UBS Asset Management AG significant sub-groups, as well as standalone information for other subsidiaries.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 247
Note 34 Supplemental guarantor information required under SEC regulations (continued)
Supplemental guarantor consolidated statement of cash flows
USD m
UBS AG
1
UBS
Switzerland AG
1
Other
1
UBS AG
(consolidated)
For the year ended 31 December 2022
Net cash flow from / (used in) operating activities
(1,165 )
(5,491 )
Cash flow from / (used in) investing activities
Purchase of subsidiaries, associates and intangible assets
(3 )
(3 )
Disposal of subsidiaries, associates and intangible assets
2
Purchase of property, equipment and software
(562 )
(292 )
(624 )
(1,478 )
Disposal of property, equipment and software
Net (purchase) / redemption of financial assets measured at fair value through other comprehensive
income
(943 )
(699 )
Purchase of debt securities measured at amortized cost
(22,602 )
(2,690 )
(5,500 )
(30,792 )
Disposal and redemption of debt securities measured at amortized cost
Net cash flow from / (used in) investing activities
(9,346 )
(1,663 )
(1,274 )
(12,283 )
Cash flow from / (used in) financing activities
Net short-term debt issued / (repaid)
(12,215 )
(3 )
(31 )
(12,249 )
Distributions paid on UBS AG shares
(4,200 )
(4,200 )
Issuance of debt designated at fair value and long-term debt measured at amortized cost
3
Repayment of debt designated at fair value and long-term debt measured at amortized cost
3
(66,526 )
(860 )
(284 )
(67,670 )
Net cash flows from other financing activities
(258 )
(337 )
(595 )
Net activity related to group internal capital transactions and dividends
(2,088 )
(3,128 )
Net cash flow from / (used in) financing activities
(2,401 )
(3,740 )
(5,257 )
Total cash flow
Cash and cash equivalents at the beginning of the year
Net cash flow from / (used in) operating, investing and financing activities
(5,229 )
(10,505 )
(6,911 )
Effects of exchange rate differences on cash and cash equivalents
(3,111 )
(1,338 )
(1,196 )
(5,645 )
Cash and cash equivalents at the end of the year
4
of which: cash and balances at central banks
4
of which: amounts due from banks
4
of which: money market paper
4,5
1 Cash flows generally represent a third-party view from a UBS AG consolidated perspective, except for Net activity related to group internal capital transactions and dividends. 2 Includes cash proceeds from the
sales of: UBS AG’s shareholding in Mitsubishi Corp.-UBS Realty Inc.; UBS AG’s wholly owned subsidiary UBS Swiss Financial Advisers AG (including a loan portfolio in UBS Switzerland AG); UBS AG’s US alternative
investments administration business; and UBS AG’s domestic wealth management business in Spain. Also includes dividends received from associates. 3 Includes funding from UBS Group AG to UBS AG.
4 Balances with an original maturity of three months or less. USD
m of cash and cash equivalents were restricted. 5 Money market paper is included in the balance sheet under Financial assets at fair value
held for trading, Financial assets measured at fair value through other comprehensive income, Financial assets at fair value not held for trading and Other financial assets measured at amortized cost.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 248
Note 34 Supplemental guarantor information required under SEC regulations (continued)
Supplemental guarantor consolidated income statement
USD m
UBS AG
(standalone)
1
UBS
Switzerland AG
(standalone)
1
Other
subsidiaries
2
Elimination
entries
UBS AG
(consolidated)
For the year ended 31 December 2021
Interest income from financial instruments measured at amortized cost and
fair value through other comprehensive income
(703 )
Interest expense from financial instruments measured at amortized cost
(2,847 )
(520 )
(1,024 )
(3,366 )
Net interest income from financial instruments measured at fair value through
profit or loss and other
(274 )
Net interest income
Other net income from financial instruments measured at fair value through
profit or loss
(83 )
Fee and commission income
(770 )
Fee and commission expense
(810 )
(481 )
(1,450 )
(1,985 )
Net fee and commission income
(14 )
Other income
(8,396 )
Total revenues
(8,445 )
Credit loss expense / (release)
(65 )
(98 )
(10 )
(148 )
Personnel expenses
General and administrative expenses
(2,696 )
Depreciation, amortization and impairment of non-financial assets
(114 )
Operating expenses
(2,809 )
Operating profit / (loss) before tax
(5,660 )
Tax expense / (benefit)
(11 )
Net profit / (loss)
(5,649 )
Net profit / (loss) attributable to non-controlling interests
Net profit / (loss) attributable to shareholders
(5,649 )
1 Amounts presented for UBS AG standalone and UBS Switzerland AG standalone represent IFRS standalone information. Refer to the UBS AG standalone and UBS Switzerland AG standalone financial statements
under “Complementary financial information” at ubs.com/investors for information prepared in accordance with Swiss GAAP. 2 The ”Other subsidiaries“ column includes consolidated information for the UBS
Americas Holding LLC, UBS Europe SE and UBS Asset Management AG significant sub-groups, as well as standalone information for other subsidiaries.
Supplemental guarantor consolidated statement of comprehensive income
USD m
UBS AG
(standalone)
1
UBS
Switzerland AG
(standalone)
1
Other
subsidiaries
2
Elimination
entries
UBS AG
(consolidated)
For the year ended 31 December 2021
Comprehensive income attributable to shareholders
Net profit / (loss)
(5,649 )
Other comprehensive income
Other comprehensive income that may be reclassified to the income
statement
Foreign currency translation, net of tax
(1 )
(419 )
(607 )
(510 )
Financial assets measured at fair value through other
comprehensive income, net of tax
(157 )
(157 )
Cash flow hedges, net of tax
(1,129 )
(279 )
(250 )
(17 )
(1,675 )
Cost of hedging, net of tax
(26 )
(26 )
Total other comprehensive income that may be reclassified to the
income statement, net of tax
(1,155 )
(699 )
(1,014 )
(2,368 )
Other comprehensive income that will not be reclassified to the
income statement
Defined benefit plans, net of tax
(135 )
Own credit on financial liabilities designated at fair value, net of tax
Total other comprehensive income that will not be reclassified to
the income statement, net of tax
(135 )
Total other comprehensive income
(939 )
(834 )
(947 )
(2,220 )
Total comprehensive income attributable to shareholders
(5,149 )
Total comprehensive income attributable to non-controlling interests
Total comprehensive income
(5,149 )
1 Amounts presented for UBS AG standalone and UBS Switzerland AG standalone represent IFRS standalone information. Refer to the UBS AG standalone and UBS Switzerland AG standalone financial statements
under “Complementary financial information” at ubs.com/investors for information prepared in accordance with Swiss GAAP. 2 The ”Other subsidiaries“ column includes consolidated information for the
UBS Americas Holding LLC, UBS Europe SE and UBS Asset Management AG significant sub-groups, as well as standalone information for other subsidiaries.
Annual Report 2023
| Consolidated financial statements | UBS AG consolidated financial statements 249
Note 34 Supplemental guarantor information required under SEC regulations (continued)
Supplemental guarantor consolidated statement of cash flows
USD m
UBS AG
1
UBS
Switzerland AG
1
Other
1
UBS AG
(consolidated)
For the year ended 31 December 2021
Net cash flow from / (used in) operating activities
Cash flow from / (used in) investing activities
Purchase of subsidiaries, associates and intangible assets
(1 )
(1 )
Disposal of subsidiaries, associates and intangible assets
2
Purchase of property, equipment and software
(656 )
(276 )
(650 )
(1,581 )
Disposal of property, equipment and software
Net (purchase) / redemption of financial assets measured at fair value through other comprehensive
income
(817 )
(750 )
Purchase of debt securities measured at amortized cost
(1,840 )
(45 )
(3,038 )
(4,922 )
Disposal and redemption of debt securities measured at amortized cost
Net cash flow from / (used in) investing activities
(1,970 )
(385 )
(1,860 )
Cash flow from / (used in) financing activities
Net short-term debt issued / (repaid)
(3,073 )
(21 )
(3,093 )
Distributions paid on UBS AG shares
(4,539 )
(4,539 )
Issuance of debt designated at fair value and long-term debt measured at amortized cost
3
Repayment of debt designated at fair value and long-term debt measured at amortized cost
3
(78,385 )
(1,093 )
(320 )
(79,799 )
Net cash flows from other financing activities
(280 )
(261 )
Net activity related to group internal capital transactions and dividends
(537 )
(4,702 )
Net cash flow from / (used in) financing activities
(475 )
(4,811 )
Total cash flow
Cash and cash equivalents at the beginning of the year
Net cash flow from / (used in) operating, investing and financing activities
Effects of exchange rate differences on cash and cash equivalents
(1,462 )
(2,693 )
(1,151 )
(5,306 )
Cash and cash equivalents at the end of the year
4
of which: cash and balances at central banks
4
of which: amounts due from banks
4
of which: money market paper
4,5
1 Cash flows generally represent a third-party view from a UBS AG consolidated perspective, except for Net activity related to group internal capital transactions and dividends. 2 Includes cash proceeds from the
sale of the minority stake in Clearstream Fund Centre AG and dividends received from associates. 3 Includes funding from UBS Group AG to UBS AG. 4 Balances with an original maturity of three months or less.
USD
m of cash and cash equivalents were restricted. 5 Money market paper is included in the balance sheet under Financial assets at fair value held for trading, Financial assets measured at fair value through
other comprehensive income, Financial assets at fair value not held for trading and Other financial assets measured at amortized cost.
p
Annual Report 2023 |
Additional regulatory information 250
Additional regulatory
information
Table of contents
251
251
251
251
251
252
252
252
253
253
253
255
257
257
258
258
258
es
Annual Report 2023 |
Additional regulatory information | UBS AG consolidated supplemental disclosures required under SEC regulations 251
UBS AG consolidated supplemental disclosures
required under SEC regulations
A
–
The following pages contain supplemental UBS AG disclosures that are required under US Securities and Exchange
Commission (SEC) regulations. UBS AG’s consolidated financial statements have been prepared in accordance with IFRS
Accounting Standards as issued by the International Accounting Standards Board (the IASB) and are denominated in
US dollars.
B – Selected financial data
Selected information
As of or for the year ended
31.12.23
31.12.22
31.12.21
Registered ordinary shares (number)
Treasury shares (number)
Dividends received from investments in subsidiaries and associates
In 2023, UBS AG received dividends of USD 5,430m (2022: USD 6,465m; 2021: USD 6,401m) from its subsidiaries and
associates. Dividends disclosed have been translated to US dollars from the functional currency of the entity paying the
dividend, using the closing exchange rate of the month the dividend was received.
Annual Report 2023 |
Additional regulatory information | UBS AG consolidated supplemental disclosures required under SEC regulations 252
Balance sheet data
USD m
31.12.23
31.12.22
31.12.21
Assets
Cash and balances at central banks
Amounts due from banks
Receivables from securities financing transactions at amortized cost
Cash collateral receivables on derivative instruments
Loans and advances to customers
Other financial assets measured at amortized cost
54,334
53,389
26,236
Total financial assets measured at amortized cost
Financial assets at fair value held for trading
of which: assets pledged as collateral that may be sold or repledged by counterparties
Derivative financial instruments
Brokerage receivables
Financial assets at fair value not held for trading
Total financial assets measured at fair value through profit or loss
Financial assets measured at fair value through other comprehensive income
Investments in associates
Property, equipment and software
Goodwill and intangible assets
Deferred tax assets
Other non-financial assets
Total assets
Liabilities
Amounts due to banks
Payables from securities financing transactions at amortized cost
Cash collateral payables on derivative instruments
Customer deposits
555,673
527,171
544,834
Funding from UBS Group AG measured at amortized cost
Debt issued measured at amortized cost
Other financial liabilities measured at amortized cost
12,713
10,391
9,765
Total financial liabilities measured at amortized cost
Financial liabilities at fair value held for trading
Derivative financial instruments
Brokerage payables designated at fair value
Debt issued designated at fair value
Other financial liabilities designated at fair value
Total financial liabilities measured at fair value through profit or loss
Provisions
Other non-financial liabilities
Total liabilities
Equity attributable to shareholders
Equity attributable to non-controlling interests
Total equity
Total liabilities and equity
C – Information about the company
Property, plant and equipment
As of 31 December 2023, UBS AG operated in about 644 business and banking locations worldwide, of which
approximately 33% were in Switzerland, 50% in the Americas, 9% in the rest of Europe, the Middle East and Africa,
and 8% in Asia Pacific. Of the business and banking locations in Switzerland, 22% were owned directly by UBS AG, with
the remainder, along with most of UBS AG’s offices outside Switzerland, being held under commercial leases. These
premises are subject to continuous maintenance and upgrading and are considered suitable and adequate for current
and anticipated operations.
Annual Report 2023 |
Additional regulatory information | UBS AG consolidated supplemental disclosures required under SEC regulations 253
D – Information required by Subpart 1400 of Regulation S-K
Selected statistical information
The tables below set forth selected statistical information regarding UBS AG’s banking operations extracted from its
financial statements. Unless otherwise indicated, average balances for the years ended 31 December 2023, 31 December
2022 and 31 December 2021 are calculated from monthly data. Unless otherwise indicated, the distinction between
domestic (Swiss) and foreign (non-Swiss) is generally based on the booking location.
Average balances and interest rates
The tables below set forth average interest-earning assets and average interest-bearing liabilities, along with the average
yield, for 2023, 2022 and 2021. Refer to “Note 3 Net interest income and other net income from financial instruments
measured at fair value through profit or loss” in the “Consolidated financial statements” section of this report for more
information about interest income and interest expense.
For the year ended
31.12.23
31.12.22
31.12.21
USD m, except where indicated
Average
balance
Interest
income
Average
yield (%)
Average
balance
Interest
income
Average
yield (%)
Average
balance
Interest
income
Average
yield (%)
Assets
Balances at central banks
Domestic
Foreign
Amounts due from banks
Domestic
Foreign
Receivables from securities financing transactions measured
at amortized cost
1
Domestic
Foreign
Loans and advances to customers
Domestic
Foreign
Financial assets at fair value
1,2
Domestic
Foreign
Other interest-earning assets
Domestic
Foreign
Total interest-earning assets
3
Net interest income on swaps
Interest income on off-balance sheet securities and other
Interest income and average interest-earning assets
4
4
4
Non-interest-earning assets
5
Total average assets
1 Reverse repurchase agreements are presented on a gross basis and therefore, for the purpose of this disclosure, do not reflect the effect of netting permitted under IFRS Accounting Standards. 2 Includes financial
assets at fair value held for trading, financial assets at fair value not held for trading, financial assets at fair value through other comprehensive income and brokerage receivables. 3 Non-taxable positions and
amounts were not material for the years presented. 4 For the purpose of this disclosure, negative interest income on assets is presented as a reduction to interest income, while in the consolidated income statement
negative interest income on assets is presented as interest expense. Refer to “Note 3 Net interest income and other net income from financial instruments measured at fair value through profit or loss” in the
“Consolidated financial statements” section of this report for more information. 5 Mainly includes derivative financial instruments, equity instruments at fair value held for trading and financial assets for unit-linked
investment contracts.
Annual Report 2023 |
Additional regulatory information | UBS AG consolidated supplemental disclosures required under SEC regulations 254
Average balances and interest rates (continued)
For the year ended
31.12.23
31.12.22
31.12.21
USD m, except where indicated
Average
balance
Interest
expense
Average
interest
rate (%)
Average
balance
Interest
expense
Average
interest
rate (%)
Average
balance
Interest
expense
Average
interest
rate (%)
Liabilities and equity
Amounts due to banks
Domestic
Foreign
Payables from securities financing transactions measured at
amortized cost
1
Domestic
Foreign
Customer deposits
Domestic
of which: demand deposits
of which: savings and sweep deposits
of which: time deposits
Foreign
of which: demand deposits
of which: savings and sweep deposits
of which: time deposits
Funding from UBS Group AG
Domestic
Commercial paper
Domestic
Foreign
Other short-term debt issued measured at amortized cost
Domestic
Foreign
Long-term debt issued measured at amortized cost
Domestic
Foreign
Financial liabilities at fair value (excluding debt issued
designated at fair value)
1,2
Domestic
Foreign
Debt issued designated at fair value
Domestic
Foreign
Other interest-bearing liabilities
Domestic
Foreign
Total interest-bearing liabilities
Swap interest on hedged debt instruments and other
swaps
Interest expense on off-balance sheet securities and other
Interest expense and average interest-bearing liabilities
3
3
3
Non-interest-bearing liabilities
4
Total liabilities
Total equity
Total average liabilities and equity
Net interest income
Net yield on interest-earning assets
1 Repurchase agreements are presented on a gross basis and therefore, for the purpose of this disclosure, do not reflect the effect of netting permitted under IFRS Accounting Standards. 2 Includes financial liabilities
at fair value held for trading, other financial liabilities designated at fair value and brokerage payables designated at fair value. 3 For the purpose of this disclosure, negative interest expense on liabilities is presented
as a reduction to interest expense, while in the consolidated income statement negative interest income on liabilities is presented as interest income. Refer to “Note 3 Net interest income and other net income from
financial instruments measured at fair value through profit or loss” in the “Consolidated financial statements” section of this report for more information. 4 Mainly includes derivative financial instruments, equity
instruments at fair value held for trading and financial liabilities related to unit-linked investment contracts.
The percentage of total average interest-earning assets attributable to foreign activities was 61% for 2023 (2022: 61%;
2021: 60%). The percentage of total average interest-bearing liabilities attributable to foreign activities was 61% for
2023 (2022: 60%; 2021: 59%). All assets and liabilities are translated into US dollars at uniform month-end rates. Interest
income and expense are translated at monthly average rates.
Average rates earned and paid on assets and liabilities can change from period to period based on the changes in interest
rates in general, but are also affected by changes in the currency mix included in the assets and liabilities. Tax-exempt
income is not recorded on a tax-equivalent basis. For all three years presented, tax-exempt income is considered to be
insignificant, and the effect from such income is therefore negligible.
Annual Report 2023 |
Additional regulatory information | UBS AG consolidated supplemental disclosures required under SEC regulations 255
Analysis of changes in interest income and expense
The tables below provide information, by categories of interest-earning assets and interest-bearing liabilities, about the
changes in interest income and expense due to changes in volume and interest rates for the year ended 31 December
2023 compared with the year ended 31 December 2022, and for the year ended 31 December 2022 compared with the
year ended 31 December 2021. The change in average volume represents the change in the current average balance
compared with the average balance from the prior year with respect to the average rate of the prior year. The change in
average rate represents the difference between the net change in interest income and expense and the change in average
volume.
2023 compared with 2022
2022 compared with 2021
Increase / (decrease)
due to changes in
1
Increase / (decrease)
due to changes in
USD m
Average
volume
Average
interest rate
Net
change
Average
volume
Average
interest rate
Net
change
Interest income from interest-earning assets
Balances at central banks
Domestic
Foreign
Amounts due from banks
Domestic
Foreign
Receivables from securities financing transactions measured at amortized cost
Domestic
Foreign
Loans and advances to customers
Domestic
Foreign
Financial assets at fair value
Domestic
Foreign
Other interest-earning assets
Domestic
Foreign
Interest income
Domestic
Foreign
Total interest income from interest-earning assets
Net interest income on swaps
Interest income on off-balance sheet securities and other
Total interest income
1 In 2023, the Swiss franc and the euro strengthened significantly against the US dollar. This effect is included within the variances disclosed in this table.
Annual Report 2023 |
Additional regulatory information | UBS AG consolidated supplemental disclosures required under SEC regulations 256
Analysis of changes in interest income and expense (continued)
2023 compared with 2022
2022 compared with 2021
Increase / (decrease)
due to changes in
1
Increase / (decrease)
due to changes in
USD m
Average
volume
Average
interest rate
Net
change
Average
volume
Average
interest rate
Net
change
Interest expense on interest-bearing liabilities
Amounts due to banks
Domestic
Foreign
Payables from securities financing transactions measured at amortized cost
Domestic
Foreign
Customer deposits
Domestic
of which: demand deposits
of which: savings and sweep deposits
of which: time deposits
Foreign
of which: demand deposits
of which: savings and sweep deposits
of which: time deposits
Funding from UBS Group AG
Domestic
Commercial paper
Domestic
Foreign
Other short-term debt issued measured at amortized cost
Domestic
Foreign
Long-term debt issued measured at amortized cost
Domestic
Foreign
Financial liabilities at fair value (excluding debt issued designated at fair value)
Domestic
Foreign
Debt issued designated at fair value
Domestic
Foreign
Other interest-bearing liabilities
Domestic
Foreign
Interest expense
Domestic
Foreign
Total interest expense on interest-bearing liabilities
Swap interest on hedged debt instruments and other swaps
Interest expense on off-balance sheet securities and other
Total interest expense
1 In 2023, the Swiss franc and the euro strengthened significantly against the US dollar. This effect is included within the variances disclosed in this table.
Annual Report 2023 |
Additional regulatory information | UBS AG consolidated supplemental disclosures required under SEC regulations 257
Deposits
The table below analyzes average deposits and average rates on each deposit category for the years ended 31 December
2023, 31 December 2022 and 31 December 2021. For the purpose of this disclosure, foreign deposits represent deposits
from depositors who are based outside of Switzerland. Deposits by foreign depositors in domestic offices were
USD 60,596m as of 31 December 2023 (31 December 2022: USD 59,897m; 31 December 2021: USD 77,070m) .
31.12.23
31.12.22
31.12.21
USD m, except where indicated
Average
deposits
Average
rate (%)
Average
deposits
Average
rate (%)
Average
deposits
Average
rate (%)
Due to banks
Domestic
Demand deposits
Time deposits
Total domestic
Foreign
1
Demand deposits
Time deposits
Total Foreign
Total due to banks
Customer deposits
Domestic
Demand deposits
Savings and sweep deposits
Time deposits
Total domestic
Foreign
1
Demand deposits
Savings and sweep deposits
Time deposits
Total foreign
Total customer deposits
1 For the purpose of this table, the distinction between foreign and domestic deposits is based on the domicile of the depositor, while foreign and domestic deposits disclosed in previous tables are based on the
booking location.
Uninsured deposits
From the combined total of Due to banks and Customer deposits as of 31 December 2023, total estimated uninsured
deposits were USD 415bn (31 December 2022: USD 365bn; 31 December 2021: USD 395bn). Uninsured deposits are
deposits that are in excess of local deposit insurance or protection scheme limits in the key locations in which UBS AG
operates, calculated based on the respective local regulations, as well as deposits in uninsured accounts. The main deposit
insurance schemes applicable to UBS AG deposits are the Swiss depositor protection scheme in Switzerland (which
protects applicable deposits up to a maximum of CHF 100,000 per client and per bank or securities firm), the
Compensation Scheme of German Banks in combination with the Deposit Protection Fund of the Association of German
Banks in Germany (which protects applicable deposits up to a maximum of EUR 5m per client and EUR 50m per business)
and the Federal Deposit Insurance Corporation (the FDIC) scheme in the Americas (which protects applicable deposits up
to a maximum of USD 250,000 per depositor, per insured bank, for each account ownership category).
The table below presents the maturity of estimated uninsured time deposits as of 31 December 2023. Where a depositor
holds multiple accounts, which in aggregate are in excess of a deposit insurance or protection limit, the insured amount
is first allocated to the account with the shortest time to maturity.
USD m
1
Within 3 months
3 to 6 months
6 to 12 months
Over 12 months
Total uninsured time deposits as of 31 December 2023
1 Amounts are estimated based on the methodologies defined in each local jurisdiction. As of 31 December 2023, there were no US time deposits subject to the FDIC scheme that were in excess of the FDIC insurance
limit.
Annual Report 2023 |
Additional regulatory information | UBS AG consolidated supplemental disclosures required under SEC regulations 258
Investments in debt instruments
The table below presents the carrying amount and weighted average yield of debt instruments presented within Financial
assets measured at fair value through other comprehensive income and Other financial assets measured at amortized
cost on the balance sheet by contractual maturity bucket. The yield for each range of maturities is calculated by dividing
the annualized interest income by the average balance of the investment per contractual maturity bucket. The maturity
information presented does not consider any early redemption features , and debt instruments without fixed maturities
are not included.
Within 1 year
1 to 5 years
5 to 10 years
Over 10 years
USD m, except where indicated
Carrying
amount
Yield (%)
Carrying
amount
Yield (%)
Carrying
amount
Yield (%)
Carrying
amount
Yield (%)
Total
Carrying
amount
Debt instruments measured at fair value
through other comprehensive income
Government bills / bonds
Corporate and other
Subtotal as of 31 December 2023
Debt securities measured at amortized cost
Asset-backed securities
Government bills / bonds
Corporate and other
Subtotal as of 31 December 2023
Total as of 31 December 2023
Loan portfolio
The table below provides the maturity profile of UBS AG’s core loan portfolio as of 31 December 2023. The contractual
maturity is based on carrying amounts and includes the effect of callable features. For loans due after one year, a
breakdown between fixed and adjustable or floating interest rates is also provided.
USD m
31.12.23
Within 1 year
1 to 5 years
5 to 15 years
Over 15 years
Total
of which: over 1 year
Fixed rate
Adjustable or
floating rate
Private clients with mortgages
Real estate financing
Large corporate clients
SME clients
Lombard
Credit cards
Commodity trade finance
Other loans and advances to customers
Loans to financial advisors
Total
Allowance for credit losses
For the years ended 31 December 2023, 31 December 2022 and 31 December 2021, the ratio of net charge-offs (i.e.,
write-offs of expected credit loss allowances to gross carrying amount of the average loans outstanding) during the
period was not material for UBS AG’s core loan portfolio, both on an overall basis and on an individual loan category
basis. Total write-offs for 31 December 2023 were USD 77m (31 December 2022: USD 95m, 31 December 2021:
USD 137m). Refer to the coverage ratio tables in “Note 9 Financial assets at amortized cost and other positions in scope
of expected credit loss measurement” in the “Consolidated financial statements” section of this report for the ratio of
expected credit loss allowances to total loans outstanding at each period end.
Annual Report 2023 |
Appendix 259
Appendix
Alternative performance measures
Alternative performance measures
An alternative performance measure (an APM) is a financial measure of historical or future financial performance, financial
position or cash flows other than a financial measure defined or specified in the applicable recognized accounting
standards or in other applicable regulations. A number of APMs are reported in the discussion of the financial and
operating performance of the external reports (annual, quarterly and other reports). APMs are used to provide a more
complete picture of operating performance and to reflect management’s view of the fundamental drivers of the business
results. A definition of each APM, the method used to calculate it and the information content are presented in
alphabetical order in the table below. These APMs may qualify as non-GAAP measures as defined by US Securities and
Exchange Commission (SEC) regulations.
APM label
Calculation
Information content
Active Digital Banking clients in
Corporate & Institutional Clients (%)
– Personal & Corporate Banking
Calculated as the average number of active clients for
each month in the relevant period divided by the
average number of total clients. “Clients” refers to
the number of unique business relationships or legal
entities operated by Corporate & Institutional Clients,
excluding clients that do not have an account, mono-
product clients and clients that have defaulted on
loans or credit facilities. At the end of each month,
any client that has logged on at least once in that
month is determined to be “active” (a log-in time
stamp is allocated to all business relationship numbers
or per legal entity in a digital banking contract).
This measure provides information about the
proportion of active Digital Banking clients in the total
number of UBS clients (within the aforementioned
meaning) which are serviced by Corporate &
Institutional Clients.
Active Digital Banking clients in
Personal Banking (%)
– Personal & Corporate Banking
Calculated as the average number of active clients for
each month in the relevant period divided by the
average number of total clients. “Clients” refers to
the number of unique business relationships operated
by Personal Banking, excluding persons under the age
of 15, clients who do not have a private account,
clients domiciled outside Switzerland and clients who
have defaulted on loans or credit facilities. At the end
of each month, any client that has logged on at least
once in that month is determined to be “active” (a
log-in time stamp is allocated to all business
relationship numbers in a digital banking contract).
This measure provides information about the
proportion of active Digital Banking clients in the total
number of UBS clients (within the aforementioned
meaning) who are serviced by Personal Banking.
Active Mobile Banking clients in
Personal Banking (%)
– Personal & Corporate Banking
Calculated as the average number of active clients for
each month in the relevant period divided by the
average number of total clients. “Clients” refers to
the number of unique business relationships operated
by Personal Banking, excluding persons under the age
of 15, clients who do not have a private account,
clients domiciled outside Switzerland and clients who
have defaulted on loans or credit facilities. At the end
of each month, any client that has logged on via the
mobile app at least once in that month is determined
to be “active” (a log-in time stamp is allocated to all
business relationship numbers in a digital banking
contract).
This measure provides information about the
proportion of active Mobile Banking clients in the
total number of UBS clients (within the
aforementioned meaning) who are serviced by
Personal Banking.
Cost / income ratio (%)
Calculated as operating expenses divided by total
revenues.
This measure provides information about the
efficiency of the business by comparing operating
expenses with gross income.
Fee and trading income for Corporate &
Institutional Clients (USD and CHF)
– Personal & Corporate Banking
Calculated as the total of recurring net fee and
transaction-based income for Corporate &
Institutional Clients.
This measure provides information about the amount
of fee and trading income for Corporate &
Institutional Clients.
Annual Report 2023 |
Appendix 260
APM label
Calculation
Information content
Fee-generating assets (USD)
– Global Wealth Management
Calculated as the sum of discretionary and
nondiscretionary wealth management portfolios
(mandate volume) and assets where generated
revenues are predominantly of a recurring nature, i.e.,
mainly investment, mutual, hedge and private-market
funds where we have a distribution agreement,
including client commitments into closed-ended
private-market funds from the date that recurring
fees are charged. Assets related to our Global
Financial Intermediaries business are excluded, as are
assets of sanctioned clients.
This measure provides information about the volume
of invested assets that create a revenue stream,
whether as a result of the nature of the contractual
relationship with clients or through the fee structure
of the asset. An increase in the level of fee-generating
assets results in an increase in the associated revenue
stream. Assets of sanctioned clients are excluded from
fee-generating assets.
Fee-pool-comparable revenues (USD)
– the Investment Bank
Calculated as the total of revenues from: merger-and-
acquisition-related transactions; Equity Capital
Markets, excluding derivatives; Leveraged Capital
Markets, excluding the impact of mark-to-market
movements on loan portfolios; and Debt Capital
Markets, excluding revenues related to debt
underwriting of UBS instruments.
This measure provides information about the amount
of revenues in the Investment Bank that are
comparable with the relevant global fee pools.
Gross margin on invested assets (bps)
– Asset Management
Calculated as total revenues (annualized as applicable)
divided by average invested assets.
This measure provides information about the total
revenues of the business in relation to invested assets.
Impaired loan portfolio as a percentage
of total loan portfolio, gross (%)
– Global Wealth Management,
Personal & Corporate Banking
Calculated as impaired loan portfolio divided by total
gross loan portfolio.
This measure provides information about the
proportion of impaired loan portfolio in the total gross
loan portfolio.
Integration-related expenses (USD)
Generally include costs of internal staff and
contractors substantially dedicated to integration
activities, retention awards, redundancy costs,
incremental expenses from the shortening of useful
lives of property, equipment and software, and
impairment charges relating to these assets.
Classification as integration-related expenses does not
affect the timing of recognition and measurement of
those expenses or the presentation thereof in the
income statement. Integration-related expenses
incurred by Credit Suisse also included expenses
associated with restructuring programs that existed
prior to the acquisition.
This measure provides information about expenses
that are temporary, incremental and directly related to
the integration of Credit Suisse into UBS.
Invested assets (USD and CHF)
– Global Wealth Management,
Personal & Corporate Banking,
Asset Management
Calculated as the sum of managed fund assets,
managed institutional assets, discretionary and
advisory wealth management portfolios, fiduciary
deposits, time deposits, savings accounts, and wealth
management securities or brokerage accounts.
This measure provides information about the volume
of client assets managed by or deposited with UBS for
investment purposes.
Investment products for Personal
Banking (USD and CHF)
– Personal & Corporate Banking
Calculated as the sum of investment funds (including
UBS Vitainvest third-pillar pension funds, as well as
money market funds), mandates and third-party life
insurance operated in Personal Banking.
This measure provides information about the volume
of investment funds (including UBS Vitainvest third-
pillar pension funds, as well as money market funds),
mandates and third-party life insurance operated in
Personal Banking.
Net interest margin (bps)
– Personal & Corporate Banking
Calculated as net interest income (annualized as
applicable) divided by average loans.
This measure provides information about the
profitability of the business by calculating the
difference between the price charged for lending and
the cost of funding, relative to loan value.
Net new assets (USD)
– Global Wealth Management
Calculated as the net amount of inflows and outflows
of invested assets (as defined in UBS policy) recorded
during a specific period, plus interest and dividends.
Excluded from the calculation are movements due to
market performance, foreign exchange translation,
fees, and the effects on invested assets of strategic
decisions by UBS to exit markets or services.
This measure provides information about the
development of invested assets during a specific
period as a result of net new asset flows, plus the
effect of interest and dividends.
Net new assets growth rate (%)
– Global Wealth Management
Calculated as the net amount of inflows and outflows
of invested assets (as defined in UBS policy) recorded
during a specific period (annualized as applicable),
plus interest and dividends, divided by total invested
assets at the beginning of the period.
This measure provides information about the growth
of invested assets during a specific period as a result
of net new asset flows.
Annual Report 2023 |
Appendix 261
APM label
Calculation
Information content
Net new fee-generating assets (USD)
– Global Wealth Management
Calculated as the net amount of fee-generating asset
inflows and outflows, including dividend and interest
inflows into mandates and outflows from mandate
fees paid by clients during a specific period. Excluded
from the calculation are the effects on fee-generating
assets of strategic decisions by UBS to exit markets or
services.
This measure provides information about the
development of fee-generating assets during a
specific period as a result of net flows, excluding
movements due to market performance and foreign
exchange translation, as well as the effects on fee-
generating assets of strategic decisions by UBS to exit
markets or services.
Net new investment products for
Personal Banking (USD and CHF)
– Personal & Corporate Banking
Calculated as the net amount of inflows and outflows
of investment products during a specific period.
This measure provides information about the
development of investment products during a specific
period as a result of net new investment product
flows.
Net new money (USD)
– Global Wealth Management,
Asset Management
Calculated as the net amount of inflows and outflows
of invested assets (as defined in UBS policy) recorded
during a specific period. Excluded from the calculation
are movements due to market performance, foreign
exchange translation, dividends, interest and fees, as
well as the effects on invested assets of strategic
decisions by UBS to exit markets or services. Net new
money is not measured for Personal & Corporate
Banking.
This measure provides information about the
development of invested assets during a specific
period as a result of net new money flows.
Net new money growth rate (%)
– Global Wealth Management
Calculated as the net amount of inflows and outflows
of invested assets (as defined in UBS policy) recorded
during a specific period (annualized as applicable)
divided by total invested assets at the beginning of
the period.
This measure provides information about the growth
of invested assets during a specific period as a result
of net new money flows.
Net profit growth (%)
Calculated as the change in net profit attributable to
shareholders from continuing operations between
current and comparison periods divided by net profit
attributable to shareholders from continuing
operations of the comparison period.
This measure provides information about profit
growth since the comparison period.
Operating expenses (underlying)
(USD)
Calculated by adjusting operating expenses as
reported in accordance with IFRS Accounting
Standards for items that management believes are
not representative of the underlying performance of
the businesses.
›
Refer to the “Group performance” section of the
UBS Group Annual Report 2023 for more
information
This measure provides information about the amount
of operating expenses, while excluding items that
management believes are not representative of the
underlying performance of the businesses.
Operating profit / (loss) before tax
(underlying) (USD)
Calculated by adjusting operating profit / (loss) before
tax as reported in accordance with IFRS Accounting
Standards for items that management believes are
not representative of the underlying performance of
the businesses.
›
Refer to the “Group performance” section of the
UBS Group Annual Report 2023 for more
information
This measure provides information about the amount
of operating profit / (loss) before tax, while excluding
items that management believes are not
representative of the underlying performance of the
businesses.
Pre-tax profit growth (%)
– Global Wealth Management,
Personal & Corporate Banking,
Asset Management,
the Investment Bank
Calculated as the change in net profit before tax
attributable to shareholders from continuing
operations between current and comparison periods
divided by net profit before tax attributable to
shareholders from continuing operations of the
comparison period.
This measure provides information about pre-tax
profit growth since the comparison period.
Pre-tax profit growth (underlying) (%)
– Global Wealth Management,
Personal & Corporate Banking,
Asset Management,
the Investment Bank
Calculated as the change in net profit before tax
attributable to shareholders from continuing
operations between current and comparison periods
divided by net profit before tax attributable to
shareholders from continuing operations of the
comparison period. Net profit before tax attributable
to shareholders from continuing operations excludes
items that management believes are not
representative of the underlying performance of the
businesses and also excludes related tax impact.
This measure provides information about pre-tax
profit growth since the comparison period, while
excluding items that management believes are not
representative of the underlying performance of the
businesses.
Recurring net fee income
(USD and CHF)
– Global Wealth Management,
Personal & Corporate Banking
Calculated as the total of fees for services provided on
an ongoing basis, such as portfolio management fees,
asset-based investment fund fees and custody fees,
which are generated on client assets, and
administrative fees for accounts.
This measure provides information about the amount
of recurring net fee income.
Annual Report 2023 |
Appendix 262
APM label
Calculation
Information content
Return on attributed equity (%)
Calculated as annualized business division operating
profit before tax divided by average attributed equity.
This measure provides information about the
profitability of the business divisions in relation to
attributed equity.
Return on common equity tier 1
capital (%)
Calculated as annualized net profit attributable to
shareholders divided by average common equity tier 1
capital.
This measure provides information about the
profitability of the business in relation to common
equity tier 1 capital.
Return on equity (%)
Calculated as annualized net profit attributable to
shareholders divided by average equity attributable to
shareholders.
This measure provides information about the
profitability of the business in relation to equity.
Return on leverage ratio denominator,
gross (%)
Calculated as annualized total revenues divided by
average leverage ratio denominator.
This measure provides information about the revenues
of the business in relation to the leverage ratio
denominator.
Return on tangible equity (%)
Calculated as annualized net profit attributable to
shareholders divided by average equity attributable to
shareholders less average goodwill and intangible
assets.
This measure provides information about the
profitability of the business in relation to tangible
equity.
Tangible book value per share
(USD)
Calculated as equity attributable to shareholders less
goodwill and intangible assets divided by the number
of shares outstanding.
This measure provides information about tangible net
assets on a per-share basis.
Total book value per share
(USD)
Calculated as equity attributable to shareholders
divided by the number of shares outstanding.
This measure provides information about net assets
on a per-share basis.
Total revenues (underlying)
(USD)
Calculated by adjusting total revenues as reported in
accordance with IFRS
Accounting Standards for items
that management believes are not representative of
the underlying performance of the businesses.
›
Refer to the “Group performance” section of the
UBS Group Annual Report 2023 for more
information
This measure provides information about the amount
of total revenues, while excluding items that
management believes are not representative of the
underlying performance of the businesses.
Transaction-based income
(USD and CHF)
– Global Wealth Management,
Personal & Corporate Banking
Calculated as the total of the non-recurring portion of
net fee and commission income, mainly composed of
brokerage and transaction-based investment fund
fees, and credit card fees, as well as fees for payment
and foreign-exchange transactions, together with
other net income from financial instruments
measured at fair value through profit or loss.
This measure provides information about the amount
of the non-recurring portion of net fee and
commission income, together with other net income
from financial instruments measured at fair value
through profit or loss.
Underlying cost / income ratio (%)
Calculated as underlying operating expenses (as
defined above) divided by underlying total revenues
(as defined above).
This measure provides information about the
efficiency of the business by comparing operating
expenses with total revenues, while excluding items
that management believes are not representative of
the underlying performance of the businesses.
Underlying net profit growth (%)
Calculated as the change in net profit attributable to
shareholders from continuing operations between
current and comparison periods divided by net profit
attributable to shareholders from continuing
operations of the comparison period. Net profit
attributable to shareholders from continuing
operations excludes items that management believes
are not representative of the underlying performance
of the businesses and also excludes related tax
impact.
This measure provides information about profit
growth since the comparison period, while excluding
items that management believes are not
representative of the underlying performance of the
businesses.
Underlying return on common equity
tier 1 capital (%)
Calculated as annualized net profit attributable to
shareholders divided by average common equity tier 1
capital. Net profit attributable to shareholders
excludes items that management believes are not
representative of the underlying performance of the
businesses and also excludes related tax impact.
This measure provides information about the
profitability of the business in relation to common
equity tier 1 capital, while excluding items that
management believes are not representative of the
underlying performance of the businesses.
Underlying return on tangible equity
(%)
Calculated as annualized net profit attributable to
shareholders divided by average equity attributable to
shareholders less average goodwill and intangible
assets. Net profit attributable to shareholders excludes
items that management believes are not
representative of the underlying performance of the
businesses and also excludes related tax impact.
This measure provides information about the
profitability of the business in relation to tangible
equity, while excluding items that management
believes are not representative of the underlying
performance of the businesses.
This is a general list of the APMs used in our financial reporting. Not all of the APMs listed above may appear in
this particular report.
Annual Report 2023 |
Appendix 263
Abbreviations frequently used in our financial reports
A
ABS asset-backed securities
AG Aktiengesellschaft
AGM Annual General Meeting of
shareholders
A-IRB advanced internal ratings-
based
AIV alternative investment
vehicle
ALCO Asset and Liability
Committee
AMA advanced measurement
approach
AML anti-money laundering
AoA Articles of Association
APM alternative performance
measure
ARR alternative reference rate
ARS auction rate securities
ASF available stable funding
AT1 additional tier 1
AuM assets under management
B
BCBS Basel Committee on
Banking Supervision
BIS Bank for International
Settlements
BoD Board of Directors
C
CAO Capital Adequacy
Ordinance
CCAR Comprehensive Capital
Analysis and Review
CCF credit conversion factor
CCP central counterparty
CCR counterparty credit risk
CCRC Corporate Culture and
Responsibility Committee
CDS credit default swap
CEA Commodity Exchange Act
CEO Chief Executive Officer
CET1 common equity tier 1
CFO Chief Financial Officer
CGU cash-generating unit
CHF Swiss franc
CIO Chief Investment Office
C&ORC Compliance & Operational
Risk Control
CRM credit risk mitigation (credit
risk) or comprehensive risk
measure (market risk)
CST combined stress test
CUSIP Committee on Uniform
Security Identification
Procedures
CVA credit valuation adjustment
D
DBO defined benefit obligation
DCCP Deferred Contingent
Capital Plan
DE&I diversity, equity and
inclusion
DFAST Dodd–Frank Act Stress Test
DM discount margin
DOJ US Department of Justice
DTA deferred tax asset
DVA debit valuation adjustment
E
EAD exposure at default
EB Executive Board
EC European Commission
ECB European Central Bank
ECL expected credit loss
EGM Extraordinary General
Meeting of shareholders
EIR effective interest rate
EL expected loss
EMEA Europe, Middle East and
Africa
EOP Equity Ownership Plan
EPS earnings per share
ESG environmental, social and
governance
ESR environmental and social
risk
ETD exchange-traded derivatives
ETF exchange-traded fund
EU European Union
EUR euro
EURIBOR Euro Interbank Offered Rate
EVE economic value of equity
EY Ernst & Young Ltd
F
FA financial advisor
FCA UK Financial Conduct
Authority
FDIC Federal Deposit Insurance
Corporation
FINMA Swiss Financial Market
Supervisory Authority
FMIA Swiss Financial Market
Infrastructure Act
FSB Financial Stability Board
FTA Swiss Federal Tax
Administration
FVA funding valuation
adjustment
FVOCI fair value through other
comprehensive income
FVTPL fair value through profit or
loss
FX foreign exchange
G
GAAP generally accepted
accounting principles
GBP pound sterling
GCRG Group Compliance,
Regulatory & Governance
GDP gross domestic product
GEB Group Executive Board
GHG greenhouse gas
GIA Group Internal Audit
GRI Global Reporting Initiative
G-SIB global systemically
important bank
H
HQLA
high-quality liquid assets
I
IAS International Accounting
Standards
IASB International Accounting
Standards Board
IBOR interbank offered rate
IFRIC International Financial
Reporting Interpretations
Committee
IFRS Accounting Standards
Accounting issued by the IASB
Standards
IRB internal ratings-based
IRRBB interest rate risk in the
banking book
ISDA International Swaps and
Derivatives Association
ISIN International Securities
Identification Number
Annual Report 2023 |
Appendix 264
Abbreviations frequently used in our financial reports (continued)
K
KRT Key Risk Taker
L
LAS liquidity-adjusted stress
LCR liquidity coverage ratio
LGD loss given default
LIBOR London Interbank Offered
Rate
LLC limited liability company
LoD lines of defense
LRD leverage ratio denominator
LTIP Long-Term Incentive Plan
LTV loan-to-value
M
M&A mergers and acquisitions
MRT Material Risk Taker
N
NII net interest income
NSFR net stable funding ratio
NYSE New York Stock Exchange
O
OCA own credit adjustment
OCI other comprehensive
income
OECD Organisation for Economic
Co-operation and
Development
OTC over-the-counter
P
PCI purchased credit impaired
PD probability of default
PIT point in time
PPA purchase price allocation
P&L profit or loss
Q
QCCP Qualifying central
counterparty
R
RBC risk-based capital
RbM risk-based monitoring
REIT real estate investment trust
RMBS residential mortgage-
backed securities
RniV risks not in VaR
RoCET1 return on CET1 capital
RoU right-of-use
rTSR relative total shareholder
return
RWA risk-weighted assets
S
SA standardized approach or
société anonyme
SA-CCR standardized approach for
counterparty credit risk
SAR Special Administrative
Region of the People’s
Republic of China
SDG Sustainable Development
Goal
SEC US Securities and Exchange
Commission
SFT securities financing
transaction
SI sustainable investing or
sustainable investment
SIBOR Singapore Interbank
Offered Rate
SICR significant increase in credit
risk
SIX SIX Swiss Exchange
SME small and medium-sized
entities
SMF Senior Management
Function
SNB Swiss National Bank
SOR Singapore Swap Offer Rate
SPPI solely payments of principal
and interest
SRB systemically relevant bank
SRM specific risk measure
SVaR stressed value-at-risk
T
TBTF too big to fail
TCFD Task Force on Climate-
related Financial Disclosures
TIBOR Tokyo Interbank Offered
Rate
TLAC total loss-absorbing capacity
TTC through the cycle
U
USD US dollar
V
VaR value-at-risk
VAT
value added tax
This is a general list of the abbreviations frequently used in our financial reporting. Not all of the listed abbreviations may
appear in this particular report.
Annual Report 2023 |
Appendix 265
Information sources
Reporting publications
Annual publications
UBS AG Annual Report
: Published in English, this report provides descriptions of: the UBS AG (consolidated) performance;
the strategy and performance of the business divisions and Group Items; risk, treasury and capital management; corporate
governance; and financial information, including the financial statements.
Compensation Report
: This report discusses the compensation framework and provides information about compensation
for the Board of Directors and the Group Executive Board members. It is available in English and German
(
“Vergütungsbericht
”) and represents a component of the UBS Group Annual Report.
Sustainability Report
: Published in English, the Sustainability Report provides disclosures on environmental, social and
governance topics related to the UBS Group. It also provides certain disclosures related to diversity, equity and inclusion.
Quarterly publications
Quarterly financial report
: This report provides an update on performance and strategy (where applicable) for the
respective quarter. It is available in English.
The annual and quarterly publications are available in .pdf and online formats at
ubs.com/investors
, under “Financial
information.” Starting with the Annual Report 2022, printed copies, in any language, of the aforementioned annual
publications are no longer provided.
Other information
Website
The “Investor Relations” website at
ubs.com/investors
releases; financial information, including results-related filings with the US Securities and Exchange Commission (the
SEC); information for shareholders, including UBS share price charts, as well as data and dividend information, and for
bondholders; the corporate calendar; and presentations by management for investors and financial analysts. Information
is available online in English, with some information also available in German.
Results presentations
Quarterly results presentations are webcast live. Recordings of most presentations can be downloaded from
ubs.com/presentations
.
Messaging service
Email alerts to news about UBS can be subscribed for under “UBS News Alert” at
ubs.com/global/en/investor-
relations/contact/investor-services.html
. Messages are sent in English, German, French or Italian, with an option to select
theme preferences for such alerts.
Form 20-F and other submissions to the US Securities and Exchange Commission
UBS files periodic reports with and submits other information to the SEC. Principal among these filings is the annual
report on Form 20-F, filed pursuant to the US Securities Exchange Act of 1934. The filing of Form 20-F is structured as a
wraparound document. Most sections of the filing can be satisfied by referring to the UBS AG Annual Report. However,
there is a small amount of additional information in Form 20-F that is not presented elsewhere and is particularly targeted
at readers in the US. Readers are encouraged to refer to this additional disclosure. Any document that filed with the SEC
is available on the SEC’s website:
sec.gov
. Refer to
ubs.com/investors
Annual Report 2023 |
Appendix 266
Cautionary statement regarding forward-looking statements |
not limited to management’s outlook for UBS’s financial performance, statements relating to the anticipated effect of transactions and strategic initiatives on
UBS’s business and future development and goals or intentions to achieve climate, sustainability and other social objectives. While these forward-looking
statements represent UBS’s judgments, expectations and objectives concerning the matters described, a number of risks, uncertainties and other important
factors could cause actual developments and results to differ materially from UBS’s expectations. In particular, terrorist activity and conflicts in the Middle East,
as well as the continuing Russia–Ukraine war, may have significant impacts on global markets, exacerbate global inflationary pressures, and slow global growth.
In addition, the ongoing conflicts may continue to cause significant population displacement, and lead to shortages of vital commodities, including energy
shortages and food insecurity outside the areas immediately involved in armed conflict. Governmental responses to the armed conflicts, including, with respect
to the Russia–Ukraine war, coordinated successive sets of sanctions on Russia and Belarus, and Russian and Belarusian entities and nationals, and the uncertainty
as to whether the ongoing conflicts will widen and intensify, may continue to have significant adverse effects on the market and macroeconomic conditions,
including in ways that cannot be anticipated. UBS’s acquisition of the Credit Suisse Group has materially changed our outlook and strategic direction and
introduced new operational challenges. The integration of the Credit Suisse entities into the UBS structure is expected to take between three and five years and
presents significant risks, including the risks that UBS Group AG may be unable to achieve the cost reductions and other benefits contemplated by the transaction.
This creates significantly greater uncertainty about forward-looking statements. Other factors that may affect our performance and ability to achieve our plans,
outlook and other objectives also include, but are not limited to: (i) the degree to which UBS is successful in the execution of its strategic plans, including its cost
reduction and efficiency initiatives and its ability to manage its levels of risk-weighted assets (RWA) and leverage ratio denominator (LRD), liquidity coverage ratio
and other financial resources, including changes in RWA assets and liabilities arising from higher market volatility and the size of the combined Group; (ii) the
degree to which UBS is successful in implementing changes to its businesses to meet changing market, regulatory and other conditions, including as a result of
the acquisition of the Credit Suisse Group; (iii) increased inflation and interest rate volatility in major markets; (iv) developments in the macroeconomic climate
and in the markets in which UBS operates or to which it is exposed, including movements in securities prices or liquidity, credit spreads, currency exchange rates,
deterioration or slow recovery in residential and commercial real estate markets, the effects of economic conditions, including increasing inflationary pressures,
market developments, increasing geopolitical tensions, and changes to national trade policies on the financial position or creditworthiness of UBS’s clients and
counterparties, as well as on client sentiment and levels of activity; (v) changes in the availability of capital and funding, including any adverse changes in UBS’s
credit spreads and credit ratings of UBS, Credit Suisse, sovereign issuers, structured credit products or credit-related exposures, as well as availability and cost of
funding to meet requirements for debt eligible for total loss-absorbing capacity (TLAC), in particular in light of the acquisition of the Credit Suisse Group;
(vi) changes in central bank policies or the implementation of financial legislation and regulation in Switzerland, the US, the UK, the EU and other financial centers
that have imposed, or resulted in, or may do so in the future, more stringent or entity-specific capital, TLAC, leverage ratio, net stable funding ratio, liquidity and
funding requirements, heightened operational resilience requirements, incremental tax requirements, additional levies, limitations on permitted activities,
constraints on remuneration, constraints on transfers of capital and liquidity and sharing of operational costs across the Group or other measures, and the effect
these will or would have on UBS’s business activities; (vii) UBS’s ability to successfully implement resolvability and related regulatory requirements and the potential
need to make further changes to the legal structure or booking model of UBS in response to legal and regulatory requirements and any additional requirements
due to its acquisition of the Credit Suisse Group, or other developments; (viii) UBS’s ability to maintain and improve its systems and controls for complying with
sanctions in a timely manner and for the detection and prevention of money laundering to meet evolving regulatory requirements and expectations, in particular
in current geopolitical turmoil; (ix) the uncertainty arising from domestic stresses in certain major economies; (x) changes in UBS’s competitive position, including
whether differences in regulatory capital and other requirements among the major financial centers adversely affect UBS’s ability to compete in certain lines of
business; (xi) changes in the standards of conduct applicable to our businesses that may result from new regulations or new enforcement of existing standards,
including measures to impose new and enhanced duties when interacting with customers and in the execution and handling of customer transactions; (xii) the
liability to which UBS may be exposed, or possible constraints or sanctions that regulatory authorities might impose on UBS, due to litigation, contractual claims
and regulatory investigations, including the potential for disqualification from certain businesses, potentially large fines or monetary penalties, or the loss of
licenses or privileges as a result of regulatory or other governmental sanctions, as well as the effect that litigation, regulatory and similar matters have on the
operational risk component of our RWA, including as a result of its acquisition of the Credit Suisse Group, as well as the amount of capital available for return
to shareholders; (xiii) the effects on UBS’s business, in particular cross-border banking, of sanctions, tax or regulatory developments and of possible changes in
UBS’s policies and practices; (xiv) UBS’s ability to retain and attract the employees necessary to generate revenues and to manage, support and control its
businesses, which may be affected by competitive factors; (xv) changes in accounting or tax standards or policies, and determinations or interpretations affecting
the recognition of gain or loss, the valuation of goodwill, the recognition of deferred tax assets and other matters; (xvi) UBS’s ability to implement new
technologies and business methods, including digital services and technologies, and ability to successfully compete with both existing and new financial service
providers, some of which may not be regulated to the same extent; (xvii) limitations on the effectiveness of UBS’s internal processes for risk management, risk
control, measurement and modeling, and of financial models generally; (xviii) the occurrence of operational failures, such as fraud, misconduct, unauthorized
trading, financial crime, cyberattacks, data leakage and systems failures, the risk of which is increased with cyberattack threats from both nation states and non-
nation-state actors targeting financial institutions; (xix) restrictions on the ability of UBS Group AG and UBS AG to make payments or distributions, including due
to restrictions on the ability of its subsidiaries to make loans or distributions, directly or indirectly, or, in the case of financial difficulties, due to the exercise by
FINMA or the regulators of UBS’s operations in other countries of their broad statutory powers in relation to protective measures, restructuring and liquidation
proceedings; (xx) the degree to which changes in regulation, capital or legal structure, financial results or other factors may affect UBS’s ability to maintain its
stated capital return objective; (xxi) uncertainty over the scope of actions that may be required by UBS, governments and others for UBS to achieve goals relating
to climate, environmental and social matters, as well as the evolving nature of underlying science and industry and the possibility of conflict between different
governmental standards and regulatory regimes; (xxii) the ability of UBS to access capital markets; (xxiii) the ability of UBS to successfully recover from a disaster
or other business continuity problem due to a hurricane, flood, earthquake, terrorist attack, war, conflict (e.g., the Russia–Ukraine war), pandemic, security
breach, cyberattack, power loss, telecommunications failure or other natural or man-made event, including the ability to function remotely during long-term
disruptions such as the COVID-19 (coronavirus) pandemic; (xxiv) the level of success in the absorption of Credit Suisse, in the integration of the two groups and
their businesses, and in the execution of the planned strategy regarding cost reduction and divestment of any non-core assets, the existing assets and liabilities
of Credit Suisse, the level of resulting impairments and write-downs, the effect of the consummation of the integration on the operational results, share price
and credit rating of UBS – delays, difficulties, or failure in closing the transaction may cause market disruption and challenges for UBS to maintain business,
contractual and operational relationships; and (xxv) the effect that these or other factors or unanticipated events, including media reports and speculations, may
have on our reputation and the additional consequences that this may have on our business and performance. The sequence in which the factors above are
presented is not indicative of their likelihood of occurrence or the potential magnitude of their consequences. Our business and financial performance could be
affected by other factors identified in our past and future filings and reports, including those filed with the US Securities and Exchange Commission (the SEC).
More detailed information about those factors is set forth in documents furnished by UBS and filings made by UBS with the SEC, including the UBS Group AG
and UBS AG Annual Reports on Form 20- F for the year ended 31 December 2023. UBS is not under any obligation to (and expressly disclaims any obligation to)
update or alter its forward-looking statements, whether as a result of new information, future events, or otherwise.
Rounding |
disclosed in text and tables are calculated on the basis of unrounded figures. Absolute changes between reporting periods disclosed in the text, which can be
derived from numbers presented in related tables, are calculated on a rounded basis.
Tables |
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. Values
that are zero on a rounded basis can be either negative or positive on an actual basis.
Websites |
of any such websites into this report.
UBS AG
P.O. Box, CH-8098 Zurich
P.O. Box, CH-4002 Basel
ubs.com
