Annual Report 2022
1
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
For the transition period from to .
OR
☐
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number:
Commission file number:
(Jurisdiction of Incorporation or Organization )
UBS Group AG
,
, Switzerland
(Address of Principal Executive Office )
UBS AG
,
,
Aeschenvorstadt 1, CH-4051 Basel, Switzerland
(Address of Principal Executive Offices )
600 Washington Boulevard
Stamford, CT 06901
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 2022
2
Indicate the number of outstanding shares of each of each issuer’s classes of capital or common stock as of 31 December 2022:
UBS Group AG
Ordinary shares, par value CHF 0.10 per share:
(including 416,909,010 treasury shares )
UBS AG
Ordinary shares, par value CHF 0.10 per share:
(none of which are treasury shares)
Indicate by check mark if the registrants are well-known seasoned issuers, as defined in Rule 405 of the Securities Act.
UBS Group AG
Yes
☐
☑
UBS AG
Yes
☐
☑
If this report is an annual or transition report, indicate by check mark if the registrants are 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 Registrants (1) have 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 Registrants were required
to file such reports) and (2) have been subject to such filing requirements for the past 90 day s.
☑
No
☐
Indicate by check mark whether the registrants have 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 registrants were required to submit such files).
☑
No
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or an
emerging growth company. See definition of “accelerated filer and large accelerated filer” and “emerging growth company” in
Rule 12b-2 of the Exchange Act. (Check One):
UBS Group AG
☑
Accelerated filer
☐
Non-accelerated filer
☐
☐
UBS AG
Large accelerated filer
☐
Accelerated filer
☐
☑
☐
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.
UBS Group AG
☑
No
☐
UBS AG
☑
No
☐
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.
UBS Group AG
Yes
☐
No
☑
UBS AG
Yes
☐
No
☑
Indicate by check mark which basis of accounting the registrants have used to prepare the financial statements included in this
filing.
U.S. GAAP
☐
as issued by the International Accounting
Standards Board
☑
Other
☐
Annual Report 2022
3
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the
registrants have elected to follow.
Item 17
☐
Item 18
☐
If this is an annual report, indicate by check mark whether the registrants are shell companies (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:
UBS Group AG
Title of each class
Trading
symbol(s)
Name of each
exchange on
which registered
Ordinary Shares (par value of CHF 0.10 each)
UBS
New York Stock
Exchange
UBS AG
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 MVIS BDC Index ETN due June 10, 2050
BDCX
NYSE Arca
E-TRACS MVIS Business Development Companies 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
E-TRACS 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
UBS AG FI Enhanced Europe 50 ETN due February 12, 2026
FIEE
NYSE Arca
UBS AG FI Enhanced Global High Yield ETN due March 3, 2026
FIHD
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 Linked to the NYSE® Pickens Core Midstream Index due August 20, 2048
PYPE
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
E-TRACS 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
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 2022
4
Cautionary Statement:
Refer to the
Cautionary Statement Regarding Forward-Looking Statements
Report 2022 (page 516).
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
integral part hereof.
●
Supplement
refers to certain supplemental information contained in this forepart of the Form 20-F, starting on page
11 following the cross-reference table.
●
Financial Statements
refers to the consolidated financial statements of either UBS Group AG or UBS AG, or both,
depending upon the context, contained in the Annual Report.
In the cross-reference table below, page numbers refer to either the Annual Report or the Supplement, as noted.
Please see page 9 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,
(56-66).
Item 4
. Information on the Company.
A – History and Development of
the Company
1-3: Annual Report,
Corporate information
and
Contacts
(6). The registrants' agent is
David Kelly, 600 Washington Boulevard, Stamford, CT 06901.
4: Annual Report,
Our evolution
(14);
Our strategy
(15-17);
Our businesses
(18-28);
Note 29 to each set of Financial Statements (
Changes in organization and acquisitions
and disposals of subsidiaries and businesses
) (354 and 475)
5-6: Annual Report,
Our businesses
(18-28), as applicable, Note 11 to each set of
Financial Statements (
Property, equipment and software)
Note 29 to
each set of Financial Statements (
Changes in organization and acquisitions and
disposals of subsidiaries and businesses
) (354 and 475).
7: Nothing to disclose.
8: Annual Report,
Information sources
B – Business Overview.
1, 2 and 5: Annual Report,
Our strategy, business model and environment
2a to each set of Financial Statements (
Segment reporting)
(277-278 and 396-397)
and
Note 2b to each set of Financial Statements (
Segment reporting by geographic location)
(279 and 398). See also Supplement (11).
3: Annual Report,
Seasonal characteristics
(72).
4: Not applicable.
6: None.
7: Information as to the basis for these statements normally accompanies the statements,
except where marked in the report as a statement based upon publicly available
information or internal estimates, as applicable. Annual Report,
Our businesses
(18-28),
as applicable.
8: Annual Report,
Regulation and supervision
(50-53)
and
developments
Supplement (12).
C – Organizational Structure.
Annual Report, Our evolution (14) and Note 28 to each set of Financial Statements
(
Interests in subsidiaries and other entities
) (350-354 and 471-475).
Annual Report 2022
5
D – Property, Plant and
Equipment.
Annual Report,
Property, plant and equipment
(495 and 503)
,
Note 1a, 7) to each set of
Financial Statements (
Summary of material accounting policies: Property, equipment and
software
) (274 and 393), Note 11 to each set of Financial Statements (
Property,
equipment and software)
Information required by SEC
Regulation S-K Part 1400
Annual Report,
Information required under SEC regulation S-K: Subpart 1400
(496-501
and 504-509),
Loss history statistics
(110), and Note 9 to each set of Financial Statements
(
Financial assets at amortized cost and other positions in scope of expected credit loss
measurement)
Item 4A
. Unresolved Staff
Comments.
None.
Item 5
. Operating and Financial Review and Prospects.
A – Operating Results.
1: Annual Report,
Our key figures
(8),
(362)
, Targets,
aspirations and capital guidance
(17),
Our businesses
(18-28),
Group performance
(68-
73), financial and
operating performance by business division and Group Functions (74-
81),
Income statement
(
Segment reporting)
(277-278 and 396-397), and
(494-495 and
502-503).
2: Not applicable
3: Annual Report,
Risk factors
(56-66),
Capital management
(135-149),
Currency
Management
(159-160) and Note 25 to each set of Financial Statements (
Hedge
Accounting)
4:
Annual Report,
Our environment
(28-32),
Regulation and supervision
(50-53),
Regulatory and legal developments
(53-55),
Accounting and financial reporting
Note 1b to each set of Financial Statements (
Changes in accounting policies,
comparability and other adjustments
) (276 and 395).
A discussion on the results for the year 2021 compared with 2020 can be found on UBS
annual report 2021 filed with the SEC in Form 20-F on March 7, 2022, under
Financial
and operating performance
and under
Financial statements
AG.
B – Liquidity and Capital
Resources.
1: Annual Report,
Risk factors
(56-66)
,
Group performance
(68-73)
,
financial and
operating performance by business division and Group Functions (74-81),
Seasonal
characteristics
Interest rate risk in the banking book
Capital,
liquidity
and funding, and balance sheet
(134-162)
, Asset encumbrance
(154),
Note 22 to each set
of Financial Statements (
Restricted and transferred financial assets)
(330-332 and 449-
451) and Note 28(b) to each set of Financial Statements (
Interests in associates and joint
ventures
) (352 and 473).
Liquidity and capital management is undertaken at UBS as an integrated asset and
liability management function. While we believe our 'working capital' is sufficient for the
company's present requirements, it is our opinion that, as a bank, our liquidity coverage
ratio (LCR) is the more relevant measure. For more information see, Annual Report,
Liquidity coverage ratio
2: Annual Report,
Capital,
liquidity and funding, and balance sheet
(134-162),
Management
(159-160), Note 10 to each set of Financial Statements (
Derivative
instruments)
(289-291 and 408-410), Note 15 to each set of Financial Statements (
Debt
issued designated at fair value)
(294 and 413), Note 16 to each set of Financial
Statements (
Debt issued measured at amortized cost
) (295 and 414), Note 18 to each set
of Financial Statements (
Other liabilities
) (302 and 421), and Note 25 to each set of
Financial Statements (
Hedge Accounting
) (337-340 and 456-459).
3: Annual Report,
Material cash requirements
Liquidity and funding management
(150-152), Note 23 to each set of Financial Statements (
Maturity analysis of assets and
liabilities
) (332-334 and 451-453), and Note 11 to each set of Financial Statements
(
Property, equipment and software)
C—Research and Development,
Patents and Licenses, etc.
Not applicable.
D—Trend Information.
Annual Report,
Our businesses
Our environment
Regulatory and legal
developments
Risk factors
Financial and operating performance
81) and
Top and emerging risks
E—Critical Accounting
Estimates
Not applicable.
Annual Report 2022
6
Item 6.
A – Directors and Senior
Management.
1, 2 and 3: Annual Report,
Board of Directors
(173-188) and
Group Executive Board
(189-195).
4, 5: None.
B – Compensation.
1: Annual Report,
Compensation
(201-241), Note 1a, 4) to each set of Financial
Statements (
Share-based and other deferred compensation plans
) (272 and 391), Note 27
to each set of Financial Statements (
Employee benefits: variable compensation)
and 467-471) and Note 30 to each set of Financial Statements (
Related parties)
(355-356
and 476-477).
2: Annual Report,
Compensation
(201-241), Note 26 to each set of Financial Statements
(
Post-employment benefit plans)
(340-347 and 459-467).
C – Board practices.
1: Annual Report,
Board of Directors
(173-188). 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 Group AG Annual General Meeting is scheduled on 5 April
2023, and the next UBS AG Annual General Meeting is scheduled on 4 April 2023 .
2: Annual Report,
Compensation
(201-241),
Clauses on change of control
Note 30 to each set of Financial Statements (
Related parties
) (355-356 and 476-477).
3: Annual Report,
Audit Committee
Compensation Committee
(183).
Refer to the Supplement (15) for information on UBS AG's Board of Directors' executive
sessions.
D—Employees.
Annual Report,
(39-41), and
Selected financial data
(494-495 and 502-503).
In addition to seeking out employee feedback, we maintain an open dialogue with our
formal employee representation groups. The UBS Employee Forum (our European Works
Council) and the UBS Europe SE Works Council represent 16 countries and consider
topics related to our performance and operations. Local works councils such as the
Employee Representation Committee in Switzerland discuss topics such as benefits,
workplace conditions and redundancies. Collectively, these groups represent
approximately 47% of our global workfor ce.
Where applicable, our operations are subject to collective bargaining agreements (CBAs).
In all those locations, the employment terms and conditions for any employees not
covered by CBAs are aligned with those agreements. Benefits are aligned with local
markets, and due to the competitive labor environments in which we operate, often go
beyond legal requirements or market practice.
During 2022, the Global Research and Analytics function was re-aligned, resulting in a
shift of personnel from Group Functions to the Investment Bank. Comparative figures
have been restated accordingly for both UBS Group AG and UBS AG on the tables
below.
UBS group AG (consolidated) personnel by business division and Group Functions:
As of
Full-time equivalents
31.12.22
31.12.21
31.12.20
Personnel (full-time equivalents)
72,597
71,385
71,551
Global Wealth Management
24,351
24,093
24,200
Personal Corporate Banking
5,725
5,791
6,021
Asset Management
2,848
2,693
2,642
Investment Bank
9,177
8,667
8,575
Group Functions
30,497
30,142
30,113
UBS AG (consolidated) personnel by business division and Group Functions:
As of
Full-time equivalents
31.12.22
31.12.21
31.12.20
Personnel (full-time equivalents)
47,628
47,067
47,546
Global Wealth Management
23,292
22,986
23,039
Personal Corporate Banking
4,923
4,993
5,131
Asset Management
2,450
2,375
2,351
Investment Bank
6,929
6,644
6,518
Group Functions
10,035
10,069
10,507
Annual Report 2022
7
E—Share Ownership.
1 and 2: Annual Report,
Compensation
(201-241), Note 27 to each set of Financial
Statements (
Employee benefits: variable compensation
) (347-350 and 467-471) and Note
30b to each set of Financial Statements (
Equity holdings of key management personnel
)
(355 and 476).
F—Disclosure of a registrant’s
action to recover erroneously
awarded compensation.
Not applicable.
Item 7.
A—Major Shareholders.
Annual Report,
Group structure and shareholders
(166-167),
(167-171) and
(171).
The number of shares of UBS Group AG held by the respective shareholders listed on
page 167 of the Annual Report registered in the UBS share register with 3% or more of
total share capital as of 31 December 2022 is as follows:
Shareholder
Number of shares held
Chase Nominees Ltd., London
302,947,749
DTC (Cede Co.), New York
251,014,771
Nortrust Nominees Ltd., London
152,567,310
According to the mandatory FMIA disclosure notifications filed with UBS Group AG and
SIX, the following entities disclosed holding of more than 3% of the total share capital of
UBS Group AG, with the following number of shares:
Shareholder
Number of shares held
Norges Bank, Oslo on 25 July 2019
115,997,262
Artisan Partners Limited Partnership,
Milwaukee on 18 November 2020
121,591,630
Massachusetts Financial Services Company, on
25 June 2021
116,145,996
Dodge Cox International Stock Fund, on 2 8
January 2022
111,816,261
BlackRock Inc., New York, on 29 June 2022
184,188,641
The number of shares of UBS AG held by UBS Group AG as of 31 December 2022 was
3,858,408,466 shares.
B—Related Party Transactions.
Annual Report,
Loans granted to GEB members
(238)
, Loans granted to BoD members
(239)
and
Note 30 to each set of Financial Statements (
Related parties
)
(355-356 and
476-477).
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 each set of
Financial Statements (
Provisions and contingent liabilities
) (295-301 and 414-421).
For developments during the year, please see also the note
Provisions and contingent
liabilities
reports for the First, Second and Third Quarters 2022, filed on Forms 6- K dated April 26,
2022 (UBS Group AG) and April 29, 2022 (UBS AG), July 26, 2022 (UBS Group AG)
and July 29, 2022 (UBS AG) and October 25, 2022 (UBS Group AG) and October 28,
2022 (UBS AG), respectively; as well as the
Provisions and contingent liabilities
in the Fourth Quarter 2022 Report, filed on Form 6-K dated January 31, 2023. The
disclosures in each such Quarterly Report speak only as of their respective dates.
8: Annual Report,
(
2-5
)
, Investors
Dividend distribution
(160)
, Distributions to shareholders
(170).
B—Significant Changes.
None.
Annual Report 2022
8
Item 9
. The Offer and Listing.
A – Offer and Listing Details.
1, 2, 3, 5, 6, 7: Not applicable.
4: Annual Report,
Listing of UBS Group AG shares
(162).
B—Plan of Distribution.
Not applicable.
C—Markets.
Cover page (3).
Annual Report,
Listing of UBS Group AG shares
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 (16).
2: Annual Report,
Compensation governance
(208-209),
Compensation for the
Board of
Directors
(229-231).
Supplement (15).
3: Annual Report,
Share
capital structure
(167-171),
Shareholders' participation rights
(171-172),
Elections and terms of office
4: Supplement (14).
5: Annual Report,
Shareholders' participation rights
6: Annual Report,
Transferability, voting rights and nominee registration
Shareholders' participation rights
7: Annual Report,
Change of control and defense measures
8: Annual Report,
Significant Shareholders
(166-167).
9: Supplement (13-16) and Annual Report, D
ifferences from corporate
governance standards relevant to US-listed companies
(165-166),
Compensation
governance
(208-209),
Compensation for the
Board of Directors
(229-231),
Share
capital structure
(167-171),
Shareholders' participation rights
Elections and
terms of office
Transferability, voting rights and nominee registration
Change of control and defense measures
Significant Shareholders
(166-167)
10:
Supplement (13-16).
C—Material Contracts.
The Terms Conditions of the several series of capital instruments issued to date, and to
be issued pursuant to Deferred Capital Contingent Plans, are exhibits 4.1 through 4.19 to
this Form 20-F. These notes are described under
Swiss SRB total loss-absorbing capacity
framework
Our deferred compensation plans
on page 222-223 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 4.20, 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 Group AG or 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.
Supplement (17-19).
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
Annual Report 2022
9
Item 11
. Quantitative and Qualitative Disclosures About Market Risk.
(a) Quantitative Information
About Market Risk.
Annual Report,
Market risk
(111-119 ).
(b) Qualitative Information
About Market Risk.
Annual Report,
Market risk
(111-119 ).
(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 Group 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
(199), and
Exhibit 12 to this Form 20-F.
(b) Management’s Annual
Report on Internal Control over
Financial Reporting
Annual Report,
Management’s report on internal control over financial reporting
and 364).
(c) Attestation Report of the
Registered Public Accounting
Firm
Annual Report,
Report of Independent Registered Public Accounting Firm
(245 and 365).
(d) Changes in Internal Control
over Financial Reporting
None.
Item 16A.
Audit Committee
Financial Expert.
Annual Report,
Audit Committee
(182) and
Differences from corporate governance
standards relevant to US-listed companies
(165-166).
All Audit Committee members have accounting or related financial management
expertise and, in compliance with the rules established pursuant to the US Sarbanes-
Oxley Act of 2002, at least one member, the Chairperson Jeremy Anderson, qualifies as a
financial expert.
Item 16B.
Code of Ethics.
Annual Report,
Our Code of Conduct and Ethics
(43) UBS's Code of Conduct and Ethics
("the Code") is published on our website under
https://www.ubs.com/code
.The UBS
Code of Business Conduct does not include a waiver option, and no waiver from any
provision of the Code was granted to any employee in 2022.
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.
Annual Report,
Holding of UBS Group AG shares
Item 16F.
Changes in
Registrant’s Certifying
Accountant.
Not applicable.
Annual Report 2022
10
Item 16G.
Corporate
Governance.
Annual Report,
companies
Governance and Nominating Committee
Item 16H.
Mine Safety
Disclosure.
Not applicable.
Item 16I.
Disclosure Regarding
Foreign Jurisdictions that
Prevent Inspections
Not applicable.
Item 17.
Financial Statements.
Not applicable.
Item 18.
Annual Report,
Financial statements
(242-502),
Significant regulated subsidiary and
sub-group information
(521-522) and
Additional regulatory information
Item 19.
Exhibits
Supplement (20-21).
Annual Report 2022
11
Supplemental information
Item 4. Information on the Company
B – Business Overview
Item 4.B.2. Geographic breakdown of total revenues
1
The operating regions shown in the table below correspond to the regional management structure of the Group. The allocation
of 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 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 within
Group Functions, are managed at a Group level. These revenues are included in the
Global
UBS AG consolidated does not differ materially from that for UBS Group AG consolidated.
USD billion
Business Division
FY
Americas
Asia Pacific
EMEA
Switzerland
Global
Total
Global Wealth
Management
2022
10.6
2.6
3.9
1.9
0.0
19.0
2021
10.7
2.9
3.9
1.9
0.0
19.4
2020
9.1
2.7
3.6
1.7
0.0
17.1
Personal
Corporate Banking
2022
0.0
0.0
0.0
4.3
0.0
4.3
2021
0.0
0.0
0.0
4.3
0.0
4.3
2020
0.0
0.0
0.0
3.9
0.0
3.9
Asset Management
2022
0.5
0.4
0.4
0.7
0.8
3.0
2021
0.6
0.5
0.5
0.8
0.0
2.6
2020
0.7
0.5
0.5
0.7
0.6
3.0
Investment Bank
2022
2.7
2.7
2.6
0.7
0.0
8.7
2021
3.2
3.0
2.5
0.8
(0.0)
9.5
2020
3.5
2.8
2.5
0.8
0.0
9.5
Group Functions
2022
0.0
0.0
0.0
0.0
(0.4)
(0.4)
2021
0.0
0.0
0.0
0.0
(0.4)
(0.4)
2020
0.0
0.0
0.0
0.0
(0.5)
(0.5)
Group
2022
13.8
5.6
7.0
7.7
0.5
34.6
2021
14.5
6.5
7.0
7.8
(0.3)
35.4
2020
13.2
6.1
6.5
7.1
0.1
33.1
1
Credit loss expense / (release). This table, including prior-period information, has been updated to reflect the new presentation structure, with
the disclosure of Total revenues instead of Total operating income. Refer to Note 1b to the UBS Group AG consolidated financial statements
for more information.
Annual Report 2022
12
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 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 2022, the gross revenues for this UN-
related account were approximately USD 19,064.61. 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 2022, and no gross revenue or net profit.
In connection with these trade finance arrangements, UBS has maintained one existing account relationship with an Iranian
bank.
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 2022 were CHF 3,097.40. There have been no transactions involving this account. Accordingly, there is no gross
revenue to report for 2022.
Annual Report 2022
13
Item 10. Additional Information.
B—Memorandum and Articles of Association.
Please see the Articles of Association of UBS Group AG and of UBS AG (Exhibits 1.1 and 1.2, respectively, to this Form 20-
F) and the Organization Regulations of UBS Group AG and UBS AG (Exhibit 1.3 and 1.4, respectively, to this Form 20 -F).
Set forth below is a summary of the material provisions of the Articles of Association of UBS Group AG (which we call the
“Articles” throughout this document), Organization Regulations of UBS Group AG (which we call the “Organization
Regulations” throughout this document) and relevant Swiss laws, in particular the Swiss Code of Obligations, relating to our
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 Articles of Association and Organization Regulations of UBS AG are substantially similar to the Articles and
Organization Regulations of UBS Group AG, so the following description applies equally to UBS AG, except where indicated
that it refers to only one of the companies.
The principal legislation under which UBS Group AG and UBS AG operate, and under which the ordinary shares of UBS
Group AG are issued, is the Swiss Code of Obligations.
The shares are registered shares with a par value of CHF 0.10 per share. The shares are fully paid up, and there is no liability of
shareholders to further capital calls by the company. The shares rank
pari passu
voting rights, entitlement to dividends, liquidation proceeds in case of the liquidation of the company, subscription or
preemptive rights in the event of a share issue (
Bezugsrechte
) and preemptive rights in the event of the issuance of equity-
linked securities (
Vorwegzeichnungsrechte
).
Each share carries one vote at our shareholders’ meetings. Voting rights may be exercised only after a shareholder has been
recorded in our share register as a shareholder with voting rights. Registration with voting rights is subject to certain
restrictions. See “Share Register and Transfer of Shares” below.
The Articles provide that we may elect not to print and deliver certificates in respect of registered shares. Shareholders may,
however, following registration in the share register, request at any time that we issue a written statement in respect of their
shares; however, the shareholder has no entitlement to the printing and delivery of share certificates.
Shares and Shareholders
Share Register and Transfer of Shares
UBS Group AG’s share register is kept by UBS Shareholder Services, P.O. Box, CH-8098 Zurich, Switzerland. Shareholder
Services is responsible for the registration of the global shares. It is split into two parts – a Swiss register, which is maintained
by UBS Group, acting as Swiss share registrar, and a US register, which is maintained by Computershare Trust Company NA,
c/o Computershare Investor Services, P.O. Box 505000, Louisville, KY 40233 -5000, United States (US), as US transfer agent.
Swiss law and the Articles of Association of UBS Group AG and UBS AG require UBS to keep a share register in which the
names, addresses and nationality (for legal persons, the registered office) of the owners (and beneficial owners) of registered
shares are recorded. The main function of the share register is to record shareholders entitled to vote and participate in general
meetings, or to assert or exercise other rights related to voting rights.
The transfer of shares which exist in the form of intermediary-held securities is effected by entries in securities accounts in
accordance with applicable law. The transfer of uncertificated securities is effected by way of a written declaration of
assignment and requires notice to the issuer.
In order to register shares in the share register, a purchaser must file a share registration form with the share register. Failing
such registration, the purchaser may not vote at or participate in shareholders’ meetings, but will be entitled to dividends,
preemptive and priority subscription rights, and liquidation proceeds.
Swiss law distinguishes between registration with and without voting rights. Shareholders must be registered in the share
register as shareholders with voting rights in order to vote and participate in general meetings or to assert or exercise other
rights related to voting rights. A purchaser of shares will be recorded in our share register with voting rights upon disclosure of
its name and nationality (and for legal persons, the registered office). 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 as a shareholder without voting rights.
Annual Report 2022
14
General Meeting
A shareholders’ meeting is convened by the Board of Directors (BoD) upon notification of the shareholders at least 20 days
prior to such meeting. An invitation 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 law or the Articles (as indicated in this section), resolutions require the approval of a majority of
the votes represented, excluding blank and invalid ballots, at a shareholders’ meeting. Under Swiss corporate law, a resolution
passed by at least two-thirds of votes represented and a majority of the nominal value of the shares represented is required in
order to approve:
●
A change in our stated purpose in the Articles;
●
The consolidation of shares, unless the consent of all the shareholders concerned is required;
●
The restriction or cancellation of the preemptive right;
●
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;
●
Authorizing contingent capital, a capital band or the creation of reserve capital in accordance with Swiss banking law;
●
A capital increase from equity capital, in return for contributions in kind or by offset with a claim, and the granting of
special privileges;
●
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 general 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 a supermajority of at least two-thirds of the votes
represented at such meeting is required to:
●
Change the limits on BoD size in the Articles;
●
Remove one-fourth or more of the members of the BoD; or
●
Delete or modify these supermajority requirements.
At shareholders’ meetings, a shareholder can be represented by a legal representative or under a written power of attorney by
another shareholder eligible to vote 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 as statutory retained earnings
until these equal, together with the statutory capital reserve, 50% of the corporation’s paid-up share capital. Holding
companies, such as UBS Group AG, must increase the statutory retained earnings until these equal, together with the statutory
capital reserve, 20% of the corporation’s paid-up share capital.
Under Swiss law, dividends may be paid out only if the corporation has sufficient distributable profits from previous business
years or if the reserves of the corporation are sufficient to allow distribution of a dividend. In either event, dividends may be
paid out only after approval by the shareholders’ meeting. The BoD may propose to the shareholders that a dividend be paid
out. The auditors must confirm that the dividend proposal of the BoD conforms with statutory law.
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 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. Shareholders of a Swiss corporation have certain preemptive rights to subscribe for new
issues of shares in proportion to the nominal amount of shares held. The Articles or a resolution adopted at a shareholders’
meeting with a supermajority of at least two -thirds of the votes represented and a majority of the nominal value of the shares
represented at the meeting may, however, limit or suspend preemptive rights in certain limited circumstances.
Annual Report 2022
15
Notices
Notices to shareholders are made by publication in the Swiss Official Gazette of Commerce. The BoD may designate further
means of communication for publishing notices to shareholders.
Mandatory Tender Offer
Under the applicable provisions of the Swiss Financial Market Infrastructure Act, anyone who directly or indirectly or acting in
concert with third parties acquires more than 33 1/3% of the voting rights of a Swiss -listed company will have to submit a
takeover bid to all remaining shareholders. A waiver from the mandatory bid rule may be granted by our supervisory authority.
If no waiver is granted, the mandatory takeover bid must be made pursuant to the procedural rules set forth in the Swiss
Financial Market Infrastructure Act and implementing ordinances.
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.
Swiss law requires that the Articles determine the amount of loans that UBS Group AG, as a listed company, may grant to
members of its BoD. The Articles restrict UBS Group AG's ability to grant loans to BoD members 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 loans shall not exceed CHF 20 million per member.
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 us if the shareholder or director was acting in bad faith.
In addition, our 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 Board member is one
year, and no Board member may serve for more than 10 consecutive terms of office. In exceptional circumstances the Board
can extend this limit.
Executive sessions
UBS AG's Organization Regulations require one-third of the members of the Board of Directors of UBS AG to be
independent. While neither Swiss law applicable to UBS AG nor the Organization Regulations require regularly scheduled
meetings of UBS AG's independent directors, the Organization Regulations of UBS Group AG require independent members
of the Board of Directors of UBS Group AG to meet, without the participation of the Chairman, at least twice a year. All
members of UBS Group AG’s Board of Directors are also members of UBS AG’s Board of Directors and all meetings of UBS
Group AG’s Board of Directors are held as combined meetings with the UBS AG's Board of Directors. As a result, the practice
currently in place at UBS AG is that the independent members regularly meet in sessions of independent members only. In
addition to these joint meetings, standalone meetings of UBS AG’s Board of Directors are held regularly
to discuss and agree
on finance, risk, compliance, operational risk, regulatory and other topics related to UBS AG.
Annual Report 2022
16
The Company
Repurchase of Shares
Swiss law limits a corporation’s ability to hold or repurchase its own shares. We and our Swiss subsidiaries may only
repurchase shares if we have sufficient freely disposable equity capital available at its acquisition value to pay the purchase
price and if the aggregate nominal value of the shares does not exceed 10% of our nominal share capital. Repurchases for
cancellation purposes approved by the shareholders’ meeting are exempted from the 10% threshold. Furthermore, such own
shares must be disclosed as negative items in our shareholders’ equity. Such shares held by us or our Swiss subsidiaries do not
carry any rights to vote at shareholders’ meetings .
Sinking fund provisions
There are no provisions in the Swiss law or in the Articles requiring the company to put resources aside for the exclusive
purpose of redeeming bonds or repurchasing shares.
Registration and Business Purpose
UBS Group AG was incorporated and registered as a corporation limited by shares (
Aktiengesellschaft
) under the laws of
Switzerland. UBS Group AG was entered into the commercial register of Canton Zurich on 10 June 2014 under the registration
number CHE-395.345.924 and has its registered domicile in Zurich, Switzerland. The business purpose of UBS Group AG, as
set forth in article 2 of its Articles, is the acquisition, holding, management and sale of direct and indirect participations in
enterprises of any kind, in particular in the area of banking, financial, advisory, trading and service activities in Switzerland
and abroad. UBS Group may establish enterprises of any kind in Switzerland and abroad, hold equity interests in these
companies, and conduct their management. UBS Group is authorized to acquire, mortgage and sell real estate and building
rights in Switzerland and abroad. UBS Group may provide loans, guarantees and other types of financing and security for
group companies and borrow and invest capital on the money and capital markets.
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 Cant on Zurich and Canton Basel -City 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 its Articles of Association, 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 is a wholly owned subsidiary of UBS
Group AG.
Duration and Liquidation
UBS Group AG and UBS AG have unlimited duration.
Under Swiss law, we may be dissolved at any time by a shareholders’ resolution which must be passed by a supermajority of at
least two-thirds of the votes represented and a majority of the nominal value of the shares represented at the meeting.
Dissolution by law or court order is possible, for example, if we become bankrupt.
Under Swiss law, any surplus arising out of a liquidation (after the settlement of all claims of all creditors) is distributed to
shareholders in proportion to the paid-up nominal value of shares held.
Other
, Aeschengraben 9, CH-4051
, PCAOB number
, have been appointed as statutory
auditors and as auditors of the consolidated accounts of both UBS Group AG and UBS AG. The auditors are subject to election
by the shareholders at the ordinary general meeting on an annual basis.
Annual Report 2022
17
E—Taxation.
This section outlines the material Swiss tax and US federal income tax consequences of the ownership of UBS Group AG's
ordinary shares (defined as "UBS ordinary shares " in this section) by a US holder (as defined below) who holds UBS ordinary
shares as capital assets. This discussion addresses only US federal income taxation and Swiss income and capital taxation and
does not discuss all of the tax consequences that may be relevant to holders in light of their individual circumstances, including
other foreign tax consequences, state or local tax consequences, estate and gift tax consequences, and tax consequences arising
under the Medicare contribution tax on net investment income or the alternative minimum tax. It is designed to explain the
major interactions between Swiss and US taxation for US persons who hold UBS ordinary shares.
The discussion does not address the tax consequences to persons who hold UBS ordinary shares in particular circumstances,
such as tax-exempt entities, banks, financial institu tions, life insurance companies, broker -dealers, traders in securities that
elect to use a mark-to-market method of accounting for securities holdings, holders that actually or constructively own 10% or
more of the total combined voting power of the voting stock of UBS Group AG or of the total value of stock of UBS Group
AG, holders that hold UBS ordinary shares as part of a straddle or a hedging or conversion transaction, holders that purchase or
sell UBS ordinary shares as part of a wash sale for tax purposes or holders whose functional currency for US tax purposes is
not the US dollar. This discussion also does not apply to holders who acquired their UBS ordinary shares through a tax-
qualified retirement plan, nor generally to unvested UBS ordinary shares held under deferred compensation arrangements.
If a partnership (or other entity treated as a partnership) holds UBS ordinary shares, the US federal income tax treatment of a
partner will generally depend on the status of the partner and the tax treatment of the partnership. A partner in a partnership
holding the UBS ordinary shares should consult its tax advisor with regard to the US federal income tax treatment of an
investment in the ordinary shares.
The discussion is based on the tax laws of Switzerland and the United States, including the US Internal Revenue Code of 1986,
as amended, its legislative history, existing and proposed regulations under the Internal Revenue Code, published rulings and
court decisions, as in effect on the date of this document, as well as the Convention between the United States of America and
the Swiss Confederation for the Avoidance of Double Taxation with Respect to Taxes on Income, which we call the “Treaty,”
all of which may be subject to change or change in interpretation, possibly with retroactive effect.
For purposes of this discussion, a “US holder” is any beneficial owner of UBS ordinary shares that is for US federal income
tax purposes:
●
A citizen or resident of the United States;
●
A domestic corporation or other entity taxable as a corporation;
●
An estate, the income of which is subject to US federal income tax without regard to its source; or
●
A trust, if a court within the United States is able to exercise primary supervision over the administration of the trust
and one or more US persons have the authority to control all substantial decisions of the trust.
Holders of UBS ordinary shares are urged to consult their tax advisors regarding the US federal, state and local and the Swiss
and other tax consequences of owning and disposing of these shares in their particular circumstances.
Dividends and Distributions
Dividends paid by UBS Group AG to a holder of UBS ordinary shares (including dividends on liquidation proceeds and stock
dividends) are in principle subject to a Swiss federal withholding tax at a rate of 35%.
Under the Capital Contribution Principle, the repayment of capital contributions, including share premiums made by the
shareholders after December 31, 1996 is in principle no longer subject to Swiss withholding tax if certain requirements
regarding the booking of these capital contributions are met.
Swiss companies listed on a Swiss stock exchange such as UBS Group AG can repay reserves from capital contributions to
their shareholders without deduction of Swiss withholding tax only if they distribute at least the same amount of taxable
dividends. For this reason UBS Group AG pays half of the dividend from capital contribution reserves and half of the dividend
from taxable dividends which is subject to 35% Swiss withholding tax.
Annual Report 2022
18
A US holder resident in the US that qualifies for Treaty benefits may apply for a refund of the withholding tax withheld in
excess of the 15% Treaty rate (or for a full refund in case of qualifying retirement arrangements). The claim for refund must be
filed with the Swiss Federal Tax Administration, Eigerstrasse 65, CH -3003 Berne, Switzerland no later than December 31 of
the third year following the end of the calendar year in which the income subject to withholding was due. The form used for
obtaining a refund is one of the Swiss Tax Forms 82 (82 C for US companies; 82 E for other US entities; 82 I for individuals;
82 R for regulated investment companies), which may be obtained from the Swiss Federal Tax Administration at the address
above or downloaded from the web page of the Swiss Federal tax Administration. The form must be filled out in triplicate with
each copy duly completed and signed before a notary public in the United States. The form must be accompanied by evidence
of the deduction of withholding tax withheld at the source.
A US holder resident outside the US may be eligible for a withholding tax reclaim. If the US holder is resident in Switzerland,
a full reclaim based on the Swiss withholding tax Act is possible provided all necessary conditions are met. A US holder
resident neither in the US nor in Switzerland may be eligible for a partial reclaim provided that a Treaty between Switzerland
and the country of residence is applicable and that all necessary conditions are met.
Transfers of UBS Ordinary Shares
The purchase or sale of UBS ordinary shares, whether by Swiss resident or non -resident holders (including US holders), may
be subject to a Swiss securities transfer stamp duty of up to 0.15% calculated on the purchase price or sale proceeds if it occurs
through or with a bank or other securities dealer as defined in the Swiss Federal Stamp Tax Act in Switzerland or the
Principality of Liechtenstein. In addition to the stamp duty, the sale of UBS ordinary shares by or through a member of a
recognized stock exchange may be subject to a stock exchange levy.
Capital gains realized by a US holder upon the sale of UBS ordinary shares are not subject to Swiss income or gains taxes,
unless such US holder holds such shares as business assets of a Swiss business operation qualifying as a permanent
establishment. In the latter case, gains are taxed at ordinary Swiss individual or corporate income tax rates, as the case may be,
and losses are deductible for purposes of Swiss income taxes. Furthermore, a US holder who is an individual resident in
Switzerland and holds such shares as business assets (as he qualifies as a professional trader of securities as per Swiss tax law)
may be liable to Swiss income taxes on gains.
The tax treatment of the UBS ordinary shares will depend in part on whether or not UBS Group AG is classified as a passive
foreign investment company, or PFIC, for US federal income tax purposes. Except as discussed below under “ —Passive
Foreign Investment Company (PFIC) Rules”, this discussion assumes that UBS Group AG is not classified as a PFIC for
United States federal income tax purposes.
Dividends and Distributions
A US holder will include in gross income and treat as a dividend the gross amount of any distribution paid, before reduction
for Swiss withholding taxes, by UBS Group AG out of its current or accumulated earnings and profits (as determined for US
federal income tax purposes), other than certain pro-rata distributions of UBS ordinary shares, when the distribution is actually
or constructively received by the US holder. Distributions in excess of current and accumulated earnings and profits (as
determined for US federal income tax purposes) will be treated as a return of capital to the extent of the US holder’s basis in its
UBS ordinary shares and thereafter as capital gain. However, UBS Group AG does not expect to calculate earnings and profits
in accordance with US federal income tax principles. Accordingly, a US holder should expect to generally treat distributions
we make on UBS ordinary shares as dividends.
Dividends paid to a noncorporate US holder that constitute qualified dividend income will be taxable to the holder at
preferential rates, provided that the holder has a holding period in the shares of more than 60 days during the 121 -day period
beginning 60 days before the ex-dividend date and meets other holding period requirements. Dividends paid by UBS Group
AG with respect to the ordinary shares will generally be qualified as dividend income provided that, in the year that the US
holder receives the dividend, the UBS ordinary shares are readily tradable on an established securities market in the United
States. The UBS ordinary shares are listed on the New York Stock Exchange, and UBS Group AG therefore expects that
dividends will be qualified dividend income.
For US federal income tax purposes, a dividend will include a distribution characterized under Swiss law as a repayment of
capital contributions if the distribution is made out of current or accumulated earnings and profits, as described above.
Annual Report 2022
19
Dividends will generally be income from sources outside the United States for foreign tax credit limitation purposes, and will
generally be "passive" income for purposes of computing the foreign tax credit allowable to the holder. However, if (a) we are
50% or more owned, by vote or value, by US persons and (b) at least 10% of our earnings and profits are attributable to
sources within the US, then for foreign tax credit purposes, a portion of our dividends would be treated as derived from sources
within the US. With respect to any dividend paid for any taxable year, the US source ratio of our dividends for foreign tax
credit purposes would be equal to the portion of our earnings and profits from sources within the United States for such taxable
year, divided by the total amount of our earnings and profits for such taxable year. Special rules apply in determining the
foreign tax credit limitation with respect to dividends that are subject to preferential rates. The dividend will not be eligible for
the dividends-received deduction generally allowed to US corporations in respect of dividends received from other US
corporations.
In the case of dividends that are paid in Swiss francs, the amount of the dividend distribution included in income of a US
holder will be the US dollar value of the Swiss franc payments made, determined at the spot Swiss franc/US dollar rate on the
date such dividend distribution is includible in the income of the US holder, regardless of whether the payment is in fact
converted into US dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the
date the dividend payment is included in income to the date such dividend payment is converted into US dollars will be treated
as ordinary income or loss and will not be eligible for the special tax rate applicable to qualified dividend income. Such gain or
loss will generally be income or loss from sources within the United States for foreign tax credit limitation purposes.
Subject to US foreign tax credit limitations, the nonrefundable Swiss tax withheld and paid over to Switzerland will be
creditable or deductible against the US holder’s US federal income tax liability. To the extent a reduction or refund of the tax
withheld is available to a US holder under the laws of Switzerland or under the Treaty, the amount of tax withheld that is
refundable will not be eligible for credit against the US holder’s US federal income tax liability, whether or not the refund is
actually obtained. See “(a) Ownership of UBS Ordinary Shares – Swiss Taxation” above, for the procedures for obtaining a tax
refund.
Transfers of UBS Ordinary Shares
A US holder that sells or otherwise disposes of UBS ordinary shares generally will recognize capital gain or loss for US federal
income tax purposes equal to the difference between the US dollar value of the amount realized and its tax basis, determined in
US dollars, in such UBS ordinary shares. Capital gain of a non-corporate US holder is generally taxed at preferential rates if
the UBS ordinary shares were held for more than one year. The gain or loss will generally be income or loss from sources
within the United States for foreign tax credit limitation purposes. A US holder will not be allowed a foreign tax credit in
respect of any stamp duty or stock exchange levy that is imposed upon a transfer of UBS ordinary shares.
Passive Foreign Investment Company (PFIC) Rules
UBS Group AG believes that UBS ordinary shares should not currently be treated as stock of a PFIC for US federal income tax
purposes, and does not expect to become a PFIC in the foreseeable future. However, this conclusion is a factual determination
made annually and thus may be subject to change. It is therefore possible that UBS Group AG could become a PFIC in a future
taxable year. In general, UBS Group AG will be a PFIC with respect to a US holder if, for any taxable year in which the US
holder held UBS ordinary shares, either (i) at least 75% of the gross income of UBS Group AG for the taxable year is passive
income or (ii) at least 50% of the value, determined on the basis of a quarterly average, of UBS’s assets is attributable to assets
that produce or are held for the production of passive income (including cash). If UBS Group AG were to be treated as a PFIC,
gain realized on the sale or other disposition of UBS ordinary shares would in general not be treated as capital gain. Instead,
unless a US holder elects to be taxed annually on a mark-to-market basis with respect to its UBS ordinary shares, such gain and
certain “excess distributions” would be treated as having been realized ratably over the holder’s holding period for the shares
and generally would be taxed at the highest tax rate in effect for each such year to which the gain was allocated, together with
an interest charge in respect of the tax attributable to each such year. With certain exceptions, a holder’s UBS ordinary shares
will be treated as stock in a PFIC if UBS Group AG was a PFIC at any time during the holder’s holding period in the UBS
ordinary shares. In addition, dividends received from UBS Group AG would not be eligible for the preferential tax rate
applicable to qualified dividend income if UBS Group AG were to be treated as a PFIC either in the taxable year of the
distribution or the preceding taxable year, but would instead be taxable at rates applicable to ordinary income.
Annual Report 2022
20
Item 19. Exhibits.
Exhibit
number
Description
1.1
1.2
. (Incorporated by reference to Exhibit 1.2 to UBS's
Annual Report on Form 20-F for the fiscal year ended December 31, 2019)
1.3
(Incorporated by reference to Exhibit 1.3 to
UBS's Annual Report on Form 20-F for the fiscal year ended December 31, 2021)
1.4
(Incorporated by reference to Exhibit 1.4 to UBS's
Annual Report on Form 20-F for the fiscal year ended December 31, 2021)
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 Exhibit 4.4 to UBS AG's Annual Report on Form 20-F for the fiscal
year ended December 31, 2014)
4.3
. (Incorporated by reference to Exhibit 4.6 to UBS AG's Annual Report on Form 20-F for the fiscal
year ended December 31, 2014)
4.4
. (Incorporated by reference to E xhibit 4.8 to UBS's Annual Report on Form 20-F for the fiscal year ended
December 31, 2015)
4.5
. (Incorporated by reference to Exhibit 4.17 to UBS's
Annual Report on Form 20-F for the fiscal year ended December 31, 2018)
4.6
. (Incorporated by reference to Exhibit 4.18 to UBS's
Annual Report on Form 20-F for the fiscal year ended De cember 31, 2018)
4.7
. (Incorporated by reference to Exhibit 4.19 to UBS's Annual Report on Form 20-F for the fiscal year
ended December 31, 2018)
4.8
ended December 31, 2019)
4.9
year ended December 31, 2019)
4.10
ended December 31, 2019)
4.11
. (Incorporated by reference to Exhibit 4.19 to UBS's Annual Report on Form 20-F for the fiscal year
ended December 31, 2020)
Annual Report 2022
21
4.12
. (Incorporated by reference to Exhibit 4.20 to UBS's Annual Report on Form 20-F for the fiscal year
ended December 31, 2020)
4.13
. (Incorporated by reference to Exhibit 4.21 to UBS's Annual Report on Form 20 -F for the fiscal year
ended December 31, 2020)
4.14
. (Incorporated by reference to Exhibit 4.22 to UBS's Annual Report on Form 20-F for the fiscal year
ended December 31, 2020)
4.15
ended December 31, 2021)
4.16
ended December 31, 2021)
4.17
ended December 31, 2021)
4.18
ended December 31, 2021)
4.19
4.20
(Incorporated by
reference to Form 6-K of UBS AG filed on June 17, 2015)
8
Significant Subsidiaries of UBS Group AG.
Please see Note 28 to each set of Financial Statements (
Interests in subsidiaries and other entities),
354 and 471-475 of the Annual Report.
12
13
15.1
15.2
101
Interactive Data Files (sections of the Annual Report formatted in inline XBRL (Extensible Business Reporting
Language)). Furnished electronically herewith.
Annual Report 2022
22
SIGNATURES
The registrants hereby certify that they meet all of the requirements for filing on Form 20-F and that
they have duly caused the undersigned to sign this annual report on their behalf.
UBS Group AG
_/s/ Ralph Hamers _______________
Name: Ralph Hamers
Title: Group Chief Executive Officer
_/s/ Sarah Youngwood__________________
Name: Sarah Youngwood
Title: Group Chief Financial Officer
_/s/ Christopher Castello ___________
Name: Christopher Castello
Title: Group Controller and Chief Accounting Officer
UBS AG
_/s/ Ralph Hamers ________________
Name: Ralph Hamers
Title: President of the Executive Board
_/s/ Sarah Youngwood__________________
Name: Sarah Youngwood
Title: Chief Financial Officer
_/s/ Christopher Castello____________
Name: Christopher Castello
Title: Controller and Chief Accounting Officer
Date: March 6, 2023
UBS Group AG and UBS AG
Our external reporting approach
The scope and content of our external reports are determined by Swiss legal and regulatory requirements, accounting
standards, relevant stock and debt listing rules, including regulations promulgated by the Swiss Financial Market
Supervisory Authority (FINMA), the SIX Swiss Exchange, the US Securities and Exchange Commission (the SEC) and other
regulatory requirements, as well as by our financial reporting policies.
At the center of our external reporting approach is the annual report of UBS Group AG, which consists of disclosures for
UBS Group AG and its consolidated subsidiaries. We also provide a combined annual report for UBS Group AG and
UBS
AG consolidated, which
additional
ly
includes the consolidated financial statements of UBS AG
,
as
well as
supplemental disclosures required under SEC regulations, and is the basis for our SEC Form 20-F filing.
Annual Reports
The 2022 Annual Reports (the UBS Group AG Annual Report 2022 and the combined UBS Group AG and UBS AG Annual
Report 2022) include the consolidated financial statements of UBS Group AG and UBS AG, respectively, and provide
comprehensive information about our firm, including our strategy, businesses, financial and operating performance, and
other key information. The reports are presented in US dollars. The UBS Group AG Annual Report 2022 is partly translated
into German, with the German translation available as of 10 March 2023 under “Annual reporting” at
ubs.com/investors
.
The consolidated financial statements of UBS Group AG and UBS AG have been prepared in accordance with International
Financial Reporting Standards (IFRS). The sections within “Risk, capital, liquidity and funding, and balance sheet“ include
certain audited financial information, which forms part of the consolidated financial statements. The Annual Reports also
include the statutory financial statements of UBS Group AG, which are the basis for our appropriation of profit and the
proposed distribution of dividends, subject to shareholder approval at the Annual General Meeting.
Sustainability Report
The Sustainability Report, which will be available from 6 March 202 3, provides disclosures on environmental, social and
governance topics for UBS Group . Selected information on environmental, social and governance is also included in our
Annual Report.
Standalone reports of significant regulated entities
We publish separate standalone reports for UBS AG and UBS Switzerland AG. Selected financial and regulatory key
figures for these entities, as well as for UBS Europe SE and UBS Americas Holding LLC, are also included in our annual
reports. The UBS Europe SE 2022 financial statements and complementary disclosures will be published on our website
in the first half of 2023.
Pillar 3 Report
The Pillar 3 Report provides detailed quantitative and qualitative information about risk, capital, leverage and liquidity
and funding for UBS Group and prudential key figures and regulatory information for UBS AG standalone,
UBS Switzerland AG standalone, UBS Europe SE consolidated and UBS Americas Holding LLC consolidated.
Diversity, Equity and Inclusion Report
The first global Diversity, Equity and Inclusion (DEI) Report, which will be available in the second quarter of 2023, details
our DEI priority areas of focus, our strategic goals and our approach to achieving them at UBS.
Contents
2
7
8
10
12
14
1
Our strategy, business model and
environment
15
17
18
28
33
50
53
56
2
Financial and
operating performance
67
68
74
76
78
80
81
3
Risk, capital, liquidity and funding,
and balance sheet
83
134
4
Corporate governance
and compensation
164
200
5
Financial
statements
251
371
6
Significant regulated subsidiary and sub-
group information
491
7
Additional
regulatory information
494
502
A
Appendix
510
513
515
516
Annual Report 2022 |
Letter
to
shareholders
2
Dear shareholders,
In 2022, the world was impacted by Russia’s invasion of Ukraine, which led to a humanitarian crisis and wide-ranging
sanctions. The war contributed to higher commodity prices, adding to inflation, which reached multi-decade highs in
most major economies. This prompted central banks to tighten monetary policy at a pace not seen since the 1980s.
As a consequence, equity and bond markets fell in tandem. Global equities delivered a total negative return of 18.4%,
and global GDP growth decelerated to 3.1% from 6.4% in 2021.
Our 2022 financial performance
Our globally diversified business, with strong positions across Switzerland, Asia Pacific, EMEA and the US, allowed us to
deliver value for both our clients and you, our shareholders, in this challenging environment. Our outstanding client
franchises are underpinned by a balance sheet for all seasons, a strong risk culture and an intense focus on costs. This
enabled us to deliver good results in 2022 and achieve our Group financial targets for the full year, with a net profit of
USD 7.6bn, a return on CET1 capital of 17.0% and a cost / income ratio of 72.1%. We also maintained a strong capital
position, ending the year with a CET1 capital ratio of 14.2% and a CET1 leverage ratio of 4.42%, both significantly
above our guidance.
Throughout 2022, our clients turned to us for stability and advice. We helped them reposition their portfolios and take
advantage of longer-term opportunities. This resulted in USD 60bn of net new fee-generating assets in 2022. Net new
money from our asset management clients reached USD 25bn for the year. And we saw continued interest in our
separately managed account (SMA) offering in the US and in alternatives, contributing to our strong momentum.
Leveraging our position as Switzerland’s leading universal bank
In our home market of Switzerland, we benefited from the stability of the economy and strengthened our position as the
country’s #1 universal bank. In 2022, we expanded our offering, with a focus on real estate, sustainability and pension
solutions. Additionally, for our corporate clients, we launched a one -stop marketplace for partner products and services.
All this helped us deliver above-market growth. And we plan to continue to do so. We will further invest in our strategic
technology initiatives and support our clients’ transition to mobile banking, where we have seen a 10 percentage point
increase in active mobile clients. At the same time, we remain disciplined on expenses.
After the initial launch of UBS key4 in Switzerland, we continued to expand our digital product range. Increasingly, clients
want to invest and manage their money more independently, preferably using their smartphones. With UBS key4 smart
investing, clients can now do everything themselves – from opening an account to buying and selling selected funds –
easily, intuitively and all online. Our focus on enhancing user experience has resulted in excellent client feedback and
interest in engaging with our digital product range.
Building on our scale in the Americas
Regionally, more than half of our invested assets in wealth management come from clients in the US, which is the largest
wealth pool globally. In 2022, we remained focused on delivering our entire firm to our core wealth, global family and
institutional wealth clients by leveraging our investment banking and asset management capabilities as well as our
thought leadership.
We will add to our scale and efficiencies by continuing to develop tailored solutions for global family and institutional
wealth clients, expanding our banking capabilities with the long-term goal of becoming our clients’ primary bank,
recruiting highly productive advisors, and increasing the efficiency and effectiveness of our advisors, processes
and controls.
Advisor recruitment is an important component of our organic growth strategy in the US. We have over 20% of Barron’s
Top 100 Private Wealth Management teams and we continued to recruit high-quality advisors in 2022 to support our
industry-leading advisor productivity. By improving our use of digitalization, data and analytics, we are enhancing our
financial advisors’ ability to spend more time with clients, and offering a more personalized, relevant, on-time and
seamless client experience. While we continue to simplify processes and invest in infrastructure and controls, we are also
taking strategic and tactical actions on costs to strengthen profitability.
Annual Report 2022 |
Letter
to
shareholders
3
Capturing growth opportunities in Asia Pacific
Asia Pacific is the fastest-growing wealth market, and our long-term commitment to this region is a cornerstone of our
strategy. UBS is by far the largest wealth manager in the region, and we are #1 in equity capital markets for non-domestic
banks. In 2022, we delivered the best mergers and acquisitions year on record and were recently named both the Best
Investment Bank in Asia and Australia by FinanceAsia and the Best Equity House in Asia and Australia by IFR. This gives
us confidence in our ability to grow further. Our diversified business streams and multi-shoring capabilities enable us to
mitigate short-term geopolitical and macroeconomic headwinds and focus on longer-term opportunities.
The easing of COVID-19 restrictions in China has led to a more positive outlook for 2023, and we are well positioned to
support clients both onshore and offshore in China and the rest of Asia Pacific when client activity levels increase. Our
launch of WE.UBS in October 2022 marked the first digital-led wealth management platform by a global wealth manager
in China. Here, our goal is to be the provider of choice for digital-first wealth advisory for our targeted clients. And in
Southeast Asia, we are expanding our global family and institutional wealth business to better serve family offices,
entrepreneurs and Asian technology firms.
Driving focused growth in EMEA
In EMEA, we made further progress on improving profitability and driving focused growth. In 2022, we completed the
sale of our domestic wealth management business in Spain, following the sale of our domestic Austrian business in 2021.
We are continuing to pursue growth opportunities across Europe and the Middle East, especially by providing holistic
coverage for entrepreneurs. In the Investment Bank, our Global Markets business had its best year on record, and we
outperformed the fee pool in Global Banking.
Making technology a differentiator
We made further progress in leveraging technology as a differentiator, through simplification, automation and user-
experience improvements. We removed around 39,000 legacy technology components and decommissioned over 600
applications in an effort to modernize our technology estate and enhance our cybersecurity position. As part of our
approximately USD 1.1bn cumulative gross cost savings aspiration, we expect our technology strategy to help us achieve
USD 200m in gross cost savings for 2023, which we intend to reinvest.
We are also supporting the development of new financial market infrastructure and are exploring new ideas to create
better solutions for our clients. For example, digital assets and distributed ledger technology have the potential to radically
transform our industry, and we expect the market for digital assets to continue to grow and evolve. In 2022, we launched
and issued the world’s first digital bond that is publicly traded and settled on both blockchain-based and traditional
exchanges. Investors can buy this bond regardless of whether they have blockchain infrastructure, removing a hurdle in
the adoption of the new and disruptive technology that can make issuing bonds faster and more efficient.
Investing in talent and new ways of working
In 2022, we focused on hiring talent with the right capabilities and agile mindsets. And our adoption of flexible ways of
working has made us an even more attractive employer. As of year-end, around 18,500 employees across the firm are
working in agile teams, which is helping us deliver faster, better and in a more connected way.
We are also making progress toward our aspiration of increasing female and ethnic minority representation. Five of the
twelve members of our Group Executive Board, and four of the twelve members of our Board of Directors, are female.
Women held 28% of Director and above roles globally as of the end of 2022, while ethnic minority employees held 20%
of Director and above roles in the US and 23% in the UK.
We are committed to ongoing education of our workforce. We invested USD 78m in training in 2022, and our permanent
employees completed an average of two training days each. We are also investing in the next generation. We welcomed
more than 1,900 graduates, trainees, apprentices and interns to our firm through our junior talent programs worldwide.
We also run multi-year apprenticeship programs in Switzerland, Australia and the UK, along with summer internship
programs in numerous locations globally. In 2022, for the 14th consecutive year, we were recognized among the top 50
of the World’s Most Attractive Employers by employer-branding expert Universum.
Annual Report 2022 |
Letter
to
shareholders
4
Colm Kelleher
Chairman of the Board of Directors
Ralph Hamers
Group Chief Executive Officer
A leader in sustainability
The transition to net zero will be one of the most consequential trends in the coming years. Technological advances and
the need for new infrastructure and new products in carbon markets an d agriculture are just some examples of the
opportunities ahead. Blended finance vehicles that leverage philanthropic capital bring public–private partnerships to the
fore. We have made good progress on the execution of our sustainability strategy, as outlined in our Sustainability
Report 2022.
Our progress is also reflected in feedback from our stakeholders. At our 2022 Annual General Meeting (AGM), our
shareholders supported our climate roadmap, including our net-zero targets. And we have made progress toward those
targets across many areas of the firm, from our lending business to supply chains to our own operations. At the upcoming
2023 AGM, we will ask you to express your view on our 2022 non-financial reporting in an advisory vote. This is set out
in our Sustainability Report 2022, which describes our sustainability strategy, ambitions, governance and achievements.
A number of key sustainability ratings have reconfirmed our leading position. We were again included in the Dow Jones
Sustainability Index and the CDP Climate A list. We maintained our MSCI ESG rating of AA, and saw an improvement in
ESG risk rating by Sustainalytics, which now considers our firm as “low risk.”
Our commitment to society and communities
UBS is committed to giving back to the communities where we live and work through long-standing partnerships and
community-based engagement of our employees. We focus on education and skill development , which is where our
resources can have the most impact. In 2022, 34% of our global workforce engaged in volunteering, and 45% of the
177,000 volunteer hours were skills-based.
In 2022, our UBS Optimus Foundation network raised USD 274m in donations, including UBS matching contributions,
and committed USD 150m in grants. Donations and grants committed increased by 70% and 39% , respectively.
As of year-end 2022, the Ukraine Relief Fund had disbursed over half of the more than USD 5 0m committed by clients,
employees, UBS and our strategic partner XTX Markets for relief and recovery efforts. The fund is supporting more than
25 organizations and their local partners in Ukraine and the neighboring countries of Poland, Moldova and Romania.
Annual Report 2022 |
Letter
to
shareholders
5
Our commitment to capital returns, today and in the future
We remain committed to delivering attractive capital returns and creating long-term sustainable value for our
shareholders. For the 2022 financial year, the Board of Directors is proposing a dividend to UBS Group AG shareholders
of USD 0.55 per share, an increase of 10% year over year. Having also repurchased USD 5.6bn of shares in 2022, we are
returning USD 7.3bn of capital to our shareholders for the financial year.
Looking ahead, we will remain focused on the disciplined execution of our strategy to create value for our shareholders.
We entered 2023 from a position of strength. We remain committed to a progressive dividend and expect to buy back
more than USD 5bn of shares in 2023.
Thank you for your ongoing support. We look forward to your feedback and to welcoming you in person to this year’s
AGM, which will take place on 5 April in Basel, Switzerland.
Yours sincerely,
Colm Kelleher
Ralph
Hamers
Chairman of the Board of Directors
Group Chief Executive Officer
Annual Report 2022 |
Letter
to
shareholders
6
Corporate information
UBS Group AG
under Art. 620ff. of the Swiss Code of Obligations as an Aktiengesellschaft, a
corporation limited by shares. Its registered office is at Bahnhofstrasse 45,
CH-8001 Zurich, Switzerland, telephone +41-44-234 11 11, and its corporate
identification number is CHE-395.345.924. UBS Group AG was incorporated
on 10 June 2014 and was established in 2014 as the holding company of the
UBS Group. UBS Group AG shares are listed on the SIX Swiss Exchange and
on the New York Stock Exchange (ISIN: CH0244767585; CUSIP: H42097107).
UBS Group AG owns 100% of the outstanding shares in UBS AG.
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
P.O. 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
P.O. 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
P.O. Box 505000
Louisville, KY 40233-5000, USA
Shareholder online inquiries:
www-us.computershare.com/
investor/contact
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 Group AG
Publication of the Sustainability Report 2022:
Monday, 6 March 2023
Annual General Meeting 202
3
:
Wednesday,
5
April 202
3
Publication of the first quarter 202
3
report:
Tuesday, 2
5
April 202
3
Publication of the second quarter 202
3
report:
Tuesday, 2
5
July 202
3
Publication of the third quarter 202
3
report:
Tuesday, 2
4
October 202
3
Corporate calendar UBS AG
Publication of the first q
uarter 202
3
report:
Thursday
,
2
7
April
202
3
Publication of the second
quarter 202
3
report:
Thursday
, 2
7
July 202
3
Additional publication dates of quarterly and annual reports
will be made available as part of the corporate calendar of UBS AG at
ubs.com/investors.
Imprint
Publisher: UBS Group AG, Zurich, Switzerland | ubs.com
Language: English
© UBS 2023. The key symbol and UBS are among the registered and
unregistered trademarks of UBS. All rights reserved.
Annual Report 2022
7
Annual Report 2022
8
Our key figures
As of or for the year ended
USD m, except where indicated
31.12.22
31.12.21
31.12.20
Group results
Total revenues
Credit loss expense / (release)
Operating expenses
Operating profit / (loss) before tax
Net profit / (loss) attributable to shareholders
Diluted earnings per share (USD)
1
Profitability and growth
2
Return on equity (%)
Return on tangible equity (%)
Return on common equity tier 1 capital (%)
Return on leverage ratio denominator, gross (%)
3
Cost / income ratio (%)
Effective tax rate (%)
Net profit growth (%)
Resources
2
Total assets
Equity attributable to shareholders
Common equity tier 1 capital
4
Risk-weighted assets
4
Common equity tier 1 capital ratio (%)
4
Going concern capital ratio (%)
4
Total loss-absorbing capacity ratio (%)
4
Leverage ratio denominator
3,4
Common equity tier 1 leverage ratio (%)
3,4
Liquidity coverage ratio (%)
5
Net stable funding ratio (%)
6
Other
Invested assets (USD bn)
7
Personnel (full-time equivalents)
Market capitalization
8
Total book value per share (USD)
8
Tangible book value per share (USD)
8
1 Refer to “Share information and earnings per share” in the “Consolidated financial statements” section of this report for more information. 2 Refer to the “Targets, aspirations and capital guidance” section of
this report for more information about our performance targets. 3 Leverage ratio denominators and leverage ratios for year 2020 do not reflect the effects of the temporary exemption that applied from 25 March
2020 until 1 January 2021 and was granted by FINMA in connection with COVID-19. Refer to the “Regulatory and legal developments” section of our Annual Report 2020 for more information. 4 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. 5 The disclosed ratios represent averages
for the fourth quarter of each year presented, which are calculated based on an average of 63 data points in the fourth quarter of 2022, 66 data points in the fourth quarter of 2021 and 63 data points in the fourth
quarter of 2020. Refer to the “Capital, liquidity and funding, and balance sheet” section of this report for more information. 6 The final Swiss net stable funding ratio (NSFR) regulation became effective on 1 July
2021. Prior to this date, the NSFR was based on estimated pro forma reporting. Refer to the “Capital, liquidity and funding, and balance sheet” section of this report for more information. 7 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. 8 Refer to “UBS shares” in the “Capital, liquidity and funding, and balance sheet” section of this report for more information.
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. We report a number of APMs in the discussion of the financial and operating
performance of the Group, our business divisions and our Group Functions. We use APMs to provide a more complete
picture of our operating performance and to reflect management’s view of the fundamental drivers of our business
results. A definition of each APM, the method used to calculate it and the information content are presented under
“Alternative performance measures” in the appendix to this report. Our APMs may q ualify as non-GAAP measures as
defined by US Securities and Exchange Commission (SEC) regulations .
1
Annual Report 2022
9
Terms used in this report, unless the context requires otherwise
“UBS,” “UBS Group,” “UBS Group AG consolidated,”
“Group,” “the Group,” “we,” “us” and “our”
UBS Group AG and its consolidated subsidiaries
“UBS AG consolidated”
UBS AG and its consolidated subsidiaries
“UBS Group AG” and “UBS Group AG standalone”
UBS Group AG on a standalone basis
“UBS AG” and “UBS AG standalone”
UBS AG on a standalone basis
“UBS Switzerland AG” and “UBS Switzerland AG
standalone”
UBS Switzerland AG on a standalone basis
“UBS Europe SE consolidated”
UBS Europe SE and its consolidated subsidiaries
“UBS Americas Holding LLC” and
“UBS Americas Holding LLC consolidated”
UBS Americas Holding LLC and its consolidated
subsidiaries
“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.
Our Board of Directors
1
Colm Kelleher
Chairman of the Board of Directors / Chairperson of the
Corporate Culture and Responsibility Committee /
Chairperson of the Governance and Nominating Committee
2
Mark Hughes
Chairperson of the Risk Committee / member of the
Corporate Culture and Responsibility Committee
3
Jeanette Wong
Member of the Audit Committee / member of the
Compensation Committee
4
Jeremy Anderson
Senior Independent Director / Chairperson of the
Audit Committee / member of the Governance and
Nominating Committee
5
Fred Hu
Member of the Governance and Nominating Committee
6
Lukas Gähwiler
Vice Chairman of the Board of Directors
7
Claudia Böckstiegel
Member of the Corporate Culture and
Responsibility Committee
8
Patrick Firmenich
Member of the Audit Committee / member of the
Corporate Culture and Responsibility Committee
9
Nathalie Rachou
Member of the Governance and Nominating Committee /
member of the Risk Committee
10
Julie G. Richardson
Chairperson of the Compensation Committee /
member of the Risk Committee
11
William C. Dudley
Member of the Corporate Culture and
Responsibility Committee / member of the Risk Committee
12
Dieter Wemmer
Member of the Audit Committee /
member of the Compensation Committee
The Board of Directors (the BoD) of UBS Group AG, under the leadership of the Chairman, consists of between 6 and 12 members
as per our Articles of Association. The BoD decides on the strategy of the Group upon recommendation by the Group Chief
Executive Officer (the Group CEO) and is responsible for the overall direction, supervision and control of the Group and its
management, as well as for supervising compliance with applicable laws, rules and regulations. The BoD exercises oversight over
UBS Group AG and its subsidiaries and is responsible for establishing a clear Group governance framework to provide effective
steering and supervision of the Group, taking into account the material risks to which UBS Group AG and its subsidiaries are
exposed. The BoD has ultimate responsibility for the success of the Group and for delivering sustainable shareholder value within
a framework of prudent and effective controls, approves all financial statements for issue, and appoints and removes all Group
Executive Board (GEB) members.
Our Group Executive Board
UBS Group AG operates under a strict dual -board structure, as mandated by Swiss banking law, and therefore the BoD
delegates the management of the business to the GEB. Under the leadership of the Group CEO, the GEB was composed of
12 members as of 31 December 2022 and has executive management responsibility for the steering of the Group and its
business. It develops the strategies of the Group, the business divisions and Group Functions, and implements the BoD-
approved strategies.
›
Refer to “Board of Directors” and “Group Executive Board” in the “Corporate governance” section of this report or to
ubs.com/bod
ubs.com/geb
1
Ralph Hamers
Group Chief Executive Officer
2
Sabine Keller-Busse
President Personal Corporate Banking and
President UBS Switzerland
3
Naureen Hassan
President UBS Americas
4
Edmund Koh
President UBS Asia Pacific
5
Barbara Levi
Group General Counsel
6
Markus Ronner
Group Chief Compliance and Governance
Officer
7
Robert Karofsky
President Investment Bank
8
Sarah Youngwood
Group Chief Financial Officer
9
Suni Harford
President Asset Management
10
Mike Dargan
Group Chief Digital and Information Officer
11
Iqbal Khan
President Global Wealth Management and
President UBS Europe, Middle East and Africa
12
Christian Bluhm
Group Chief Risk Officer
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14
Our evolution
Since our origins in the mid-19th century, many financial institutions have become part of the history of our firm and
helped shape our development. 1998 was a major turning point: two of the three largest Swiss banks, Union Bank of
Switzerland and Swiss Bank Corporation (SBC), merged to form UBS. Both banks were well established and successful in
their own right. Union Bank of Switzerland had grown organically to become the largest Swiss bank. In contrast, SBC
had grown mainly through strategic partnerships and acquisitions, including S.G. Warburg in 1995.
In 2000, we acquired PaineWebber, a US brokerage and asset management firm with roots going back to 1879,
establishing us as a significant player in the US. For nearly 60 years, we have been building our strong presence in the
Asia Pacific region, where we are by far the largest wealth manager,
1
capabilities.
After incurring significant losses in the 2008 financial crisis, we sought to return to our roots, emphasizing a client-centric
model that requires less risk-taking and capital. In 2011, we started a strategic transformation of our business model to
focus on our traditional businesses: wealth management globally, and personal and corporate banking in Switzerland.
Today, we are a leading and truly global wealth manager,
2
scale and diversified asset manager, and a focused investment bank.
In 2014, we began adapting our legal entity structure in response to too-big-to-fail requirements and other regulatory
initiatives. First, we established UBS Group AG as the ultimate parent holding company for the Group. In 2015, we
transferred personal and corporate banking and Swiss-booked wealth management businesses from UBS AG to the newly
established UBS Switzerland AG. That same year, we set up UBS Business Solutions AG as the Group’s service company.
In 2016, UBS Americas Holding LLC became the intermediate holding company for our US subsidiaries and our wealth
management subsidiaries across Europe were merged into UBS Europe SE, our Germany-headquartered European
subsidiary. In 2019, we merged UBS Limited, our UK -headquartered subsidiary, into UBS Europe SE.
The chart below gives an overview of our principal legal entities and our legal entity structure.
›
Refer to
ubs.com/history
›
Refer to the “Risk factors” and “Regulatory and legal developments” sections of this report for more information
The legal structure of the UBS Group
1
2
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Our strategy, business model and
environment
Management report
Our strategy
UBS – who we are
UBS is a leading and truly global wealth manager with focused asset management and investment banking capabilities,
and the leading universal bank in Switzerland. We enable people, institutions and corporations to achieve their goals by
providing financial advice and solutions. We have a capital-light, cash-generative and well-diversified business model, a
strong culture, a balance sheet for all seasons, and a respected brand with over 160 years of history.
At UBS, we are driven by a common purpose:
Reimagining the power of investing. Connecting people for a better
world.
We are focused on driving long-term growth while maintaining risk and cost discipline
Our objective is to generate value for our shareholders and clients by driving long -term growth. To accomplish this, we
are building on our scale, content and solutions, while remaining disciplined on risk and costs. This will give us the
capacity to invest strategically and will enable us to deliver against our financial targets and commercial aspirations, which
are outlined in the “Targets, aspirations and capital guidance” section of this report.
Moreover, we are aiming to maximize our and our clients’ impact to create long-term sustainable value. We also have a
responsibility toward our communities and employees. We have outlined selected environmental, social and governance
(ESG) aspirations, which should support our financial and commercial targets.
Our business model helps us to achieve our growth ambitions
In early 2022, we set out our strategy, which we have been executing on since. Our growth plans aim to increase the
value of our network of clients, connections and contributors, in which UBS’s scale, global reach and capabilities play a
central role.
Our invested assets of USD 4.0trn are regionally diversified across the globe, making us a highly attractive partner to
many sophisticated and specialized contributors. This enables us to give our clients access to a broader, more relevant
and customizable range of solutions, which, together with our thought leadership and capabilities, position us well to
become their partner of choice. Our plans are a reflection of the outlook on long-term demographic and social trends
affecting wealth distribution, product demand and client experience. As we see clients’ needs changing, we also expect
continued growth in alternatives and ESG products.
Clients are at the center of everything we do
Helping clients to achieve their financial goals is the essence of what we do. We aim to differentiate our service by
delivering a client experience that is personalized, relevant, on-time and seamless. This is our promi se to clients.
With evolving client needs, we are adapting by making our wealth coverage more needs -based, digital and effective. In
wealth management, our focus remains on our core wealth, global family and institutional wealth clients, while
expanding our coverage of entrepreneurs, women and the next generation of wealthy individuals. We are launching and
scaling digitally customizable services, enhancing personally advised wealth with digital support, and expanding our
custom offerings for global family and institutional wealth to cater for the different needs of our clients
.
›
Refer to “Clients” in the “How we create value for our stakeholders” section of this report for more information
We have a global, diversified business model
Regionally, more than half of our wealth management clients’ invested assets are in the US, which is the largest wealth
pool globally. Here, we are focused on improving scale and profitability by deepening our relationships with core clients
and by building out Global Wealth Management’s digital-led capabilities and banking platform.
In Asia Pacific, which is the fastest-growing wealth market, we are by far the largest wealth manager
1
on that scale to drive growth. We are further developing our onshore business in China and working to offer our
capabilities in a more cohesive way to our clients in Southeast Asia.
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In EMEA, we are focused on improving profitability and driving focused growth, by streamlining our domestic footprint
and providing holistic coverage for entrepreneurs.
Finally, in Switzerland, we have a highly integrated business and aim to expand our lead as the #1 universal bank. We are
driving the digital transformation, improving the client experience, and focusing on capturing selected growth
opportunities.
Our growth plans are underpinned by our asset management and investment banking capabilities
Our asset management business provides clients with a broad offering and exclusive access to premium customized
services, while our investment banking capabilities support our growth plans across the client franchise with unique
insights, execution and risk management. Close collaboration between our businesses also adds value for clients,
including in private markets, alternatives and ESG products, and we are actively looking for additional such opportunities.
Sustainability drives our ambitions and informs our purpose
We partner with our clients to help them mobilize their capital toward a more sustainable world. At UBS, we want to
meet clients’ demands for a credible sustainable offering. We want to be the financial provider of choice for clients that
wish to mobilize capital toward the achievement of the United Nations Sustainable Development Goals and the orderly
transition to a low-carbon economy. In Switzerland, as the leading universal bank, we are helping finance the country’s
transition to net zero.
We are investing in our technology
The trusted and personal relationship with our clients across our businesses is evolving. Today, our clients expect us to
provide our services more seamlessly across the firm in a personalized, relevant and timely fashion, with increasing demand
for services that are digital first, anytime and anywhere. This presents an opportunity for us to fully embrace technology
and make it a differentiator for our firm. To support our ambitions, we have established our technology strategy based
on five key pillars: (i) Agile@UBS, a unified approach to working in an agile way across the firm to become faster and
more adaptable; (ii) engineering excellence, as, in order to succeed in making technology a differentiator for our firm,
we must attract and retain the best engineers, which is only possible by creating and fostering an engineering and digital
culture of excellence; (iii) quarterly business reviews and digital roadmaps that help us to manage our technology
investment portfolio in a more strategic and flexible way; (iv) automation, which increases efficiency and effectiveness;
and (v) modern technology, which accelerates digitalization and efficiency.
We are becoming simpler and more efficient
In order to continuously increase efficiency and our capacity to invest, we are working to become simpler, by further
streamlining and standardizing our functions, processes, entities and general ways of doing business, including our
Agile@UBS approach, to ultimately improve the client experience.
1
Our focus on technology
The world is faster, more digital and more data-driven than ever before, with clients increasingly demanding services that
are digital first, anytime, anywhere, and underpinned by first-class technology. Through our technology strategy and five
key pillars (Agile@UBS; engineering excellence; quarterly business reviews and digital roadmaps; automation; and modern
technology), we aim to make technology a differentiator for our clients and employees, helping to deliver on our client
promise. We are championing the adoption of a single, consistent, agile setup across the firm, driving transformational
and sustainable approaches to our real estate and technology, building an engineering culture to be proud of, and
fostering firm-wide operational resilience.
In 2022, our unified agile approach helped us drive greater business value, enhance the client experience and be more
responsive and adaptable, with faster delivery of client digital solutions. Overall, approximately 18,500 employees
transitioned to working in new Agile@UBS ways, and we continued our efforts to create and foster an engineering culture
of excellence, in order to attract and retain the best engineers. Currently, approximately two-thirds of our global
technology team within the Chief Digital and Information Office (CDIO) are engineers that are instrumental to responding
to our clients’ digital needs, while the remaining part of the technology team manages critical operational functions
at UBS.
›
Refer to “Clients” in the “How we create value for our stakeholders” section of this report for more information about client
digital solutions
›
Refer to “Employees” in the “How we create value for our stakeholders” section of this report for more information about agile
ways of working
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We are using the quarterly business reviews and digital roadmaps to help us manage our technology investment portfolio
in a more strategic and flexible way. During 2022, we aligned 70% of our technology investments to agile teams that
deliver incremental and continuous value to our clients. In addition, we also moved from multiple to one single UBS
DevCloud toolchain and we are increasingly adopting an industry-standard set of metrics (DORA) to measure the
efficiency of our software development process.
We believe the bank of the future will leverage a lean, modern technology estate and Cloud-based applications to provide
clients with flexible, best-in-class service. As such, in 2022, we removed approximately 39,000 legacy technology
components and decommissioned more than 600 applications, as a step to modernize our technology estate and enhance
our cybersecurity position. We also announced the landmark expansion of our partnership with Microsoft, to accelerate
our Cloud footprint over the next five years. As of 31 December 2022, 65% of our applications were on the public Cloud
(i.e., servers not on UBS’s premises) or on our private Cloud (i.e., servers on UBS’s premises).
Targets, aspirations and capital guidance
We aim to create sustainable value through the cycle, which is reflected by our financial targets. In addition, we have
outlined selected commercial aspirations, which support these targets.
Our capital guidance remains unchanged. We intend to operate with a common equity tier 1 (CET1) capital ratio of
around 13% and a CET1 leverage ratio of greater than 3.7%. The Investment Bank is expected to represent up to one-
third of Group risk-weighted assets and leverage ratio denominator.
Performance against targets, aspirations and capital guidance is taken into account when determining variable
compensation.
The table
below shows our targets, guidance and aspirations
, based on reported results.
Our aspirations on
environmental, social and governance (ESG) are set forth in “Our focus on sustainability and climate” in the “How we
create value for our stakeholders” section of this report.
›
Refer to “Society” and “Our focus on sustainability and climate” in the “How we create value for our stakeholders” section and to
the “Corporate governance” section of this report for more information about ESG
›
Refer to the “Compensation” section of this report for more information about variable compensation
›
Refer to “Alternative performance measures” in the appendix to this report for definitions of and further information about our
performance measures
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Our businesses
Delivering one ecosystem
We operate through four business divisions: Global Wealth Management, Personal Corporate Banking, Asset
Management and the Investment Bank. Our global reach and the breadth of our expertise are the major assets setting us
apart from our competitors.
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 (GFIW) offering with integrated global coverage. Initiatives such as the
Group Franchise Awards
encourage employees to look for ways to connect across teams and offer the whole firm to our clients.
How we deliver the whole firm to our clients – examples
Global Family Institutional Wealth
GFIW is a cross-divisional offering that leverages capabilities from the Investment Bank and client
coverage from Global Wealth Management to address the execution, investment, risk management,
financing and banking needs of family offices and their corporate entit ies, as well as entrepreneurs.
Drawing on UBS’s client ecosystem, we aim to connect clients with like-minded peers and recognized
experts to exchange ideas and bring opportunities to life for a return and impact. Client coverage is
managed via regional cross-functional teams (GFIW market pods).
Wealth management platforms
In our major booking centers outside the Americas, we use the Wealth Management Platform, which is
shared between Global Wealth Management and Personal Corporate Banking in Switzerland. In the
Americas, we continue to build out our Wealth Management Americas digital capabilities. All our
platforms can be navigated intuitively and support strong advisory capabilities across channels, helping
our clients to benefit from a broader universe of products and services, simplified onboarding, and a
better banking experience.
Separately managed accounts (SMAs)
We offer Global Wealth Management clients access to selected separately managed account strategies in
the Americas with no additional management fees, including an extensive range of strategies managed
by Asset Management. This enables our advisors to focus on delivering the best ideas, solutions and
capabilities to our clients, regardless of where they originate.
Shifts and referrals
To best serve our clients according to their needs, and to foster growth, we operate a holistic
collaboration framework within our universal bank delivery model in Switzerland. We initiate client shifts
from Personal Banking to Global Wealth Management as their needs become more complex. Examples of
referrals include corporate and institutional clients being introduced to Asset Management for mandate
solutions or to the Investment Bank for capital market transactions, thus providing access to our global
expertise, and entrepreneurs being introduced to Global Wealth Management, ensuring holistic coverage
of their corporate and private n eeds.
Global Lending Unit
The Global Lending Unit delivers lending capabilities to clients of both the Investment Bank and Global
Wealth Management. The unit provides product expertise to clients through collaboration with
Investment Bank bankers and Global Wealth Management advisors. It is organized with a regional focus
by grouping existing regional resources and competencies to best serve respective markets and clients.
Unified Global Markets
We continue to develop the cross-divisional strategic partnership between Global Wealth Management
and the Investment Bank, focused on providing differentiated content that helps our clients identify the
best trading opportunities, uncover new evidence, and generate fresh insights to meet their investment
needs. Through our integrated approach, we provide structured, scalable investment products, asset and
liability management solutions, financing alternatives and other value-added bespoke solutions that
deliver a quality client experience and outcome by catering to specific coverage needs.
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Global Wealth Management
As a leading and truly global wealth manager,
1
employees around the world help to manage our clients’ finances from locations in the Americas, Europe, the Middle
East and Asia. Clients look to us to provide them with the tailored advice, expertise and solutions that they need, to
protect and grow their wealth, today, tomorrow and for generations to come. The size and diversification of our global
franchise, our bespoke cross -divisional solutions, and our premium brand and reputation set us apart.
We have strong positions in the largest and the fastest-growing regions – respectively, the US and Asia Pacific – and
clearly defined regional priorities: scaling our franchise in the US; capturing growth in Asia Pacific; increasing profitability
in EMEA; and increasing market share in Switzerland, our home market. Our focus remains on our core client base of
ultra high and high net worth individuals through trusted relationships with our advisors , while expanding our coverage
of entrepreneur s, women and the next generation of wealthy individuals. We are also strengthening our capabilities to
serve our clients with the most sophisticated needs through our Global Family Institutional Wealth (GFIW) offering .
As our clients’ needs are changing, we are adapting our capabilities and coverage. We are therefore launching and scaling
digitally customizable services, enhancing our personally advised wealth management offering with digital support and
expanding our custom offering s for global family and institutional wealth to cater for the different needs of our clients.
Organizational changes
On 3 October 2022, Iqbal Khan became sole President Global Wealth Management. Since joining UBS in 2019, Mr. Khan
had served as Co-President Global Wealth Management with Tom Naratil, who stepped down after nearly four decades
with UBS.
In April 2022, to better cater to our clients with institutional-like needs that require a more bespoke offering, we created
GFIW, a cross-divisional offering that leverages capabilities from the Investment Bank and client coverage from Global
Wealth Management.
In August 2022, UBS and Wealthfront mutually agreed to terminate the merger agreement first announced in January
2022, under which Wealthfront was to be acquired by UBS Americas Inc. The two organizations will continue to explore
ways to work together, and, as part of that process, UBS purchased a USD 69.7m note convertible into
Wealthfront shares.
In the second half of 2022, we completed the sales of our wholly owned subsidiary UBS Swiss Financial Advisers AG, our
domestic wealth management business in Spain and our US alternative investments administration business.
How we do business
Our distinctive approach to wealth management is designed to help our clients pursue what matters most to them by
offering advice, expertise and solutions and delivering on our client promise to be personalized, relevant, on -time and
seamless.
Our Chief Investment Office (the CIO) produces the
UBS House View
, identifying investment opportunities designed to
protect and increase our clients’ wealth over the longer term, directing the investment advice for and management of
more than
USD
1trn in f
ee
-
generating assets globally. Close integration
between idea generation and product
development enables us to deliver to clients CIO-aligned investment solutions , such as the investment modules in
UBS
Manage Advanced [My Way]
. In Asia Pacific and Switzerland, the
Direct Investment Insights
banking platform enables clients to trade directly based on CIO insights via their smartphones and other digital devices.
›
Refer to “Clients” in the “How we create value for our stakeholders” section and to “Our focus on technology” in the “Our
strategy” section of this report for more information about innovation and digitalization
Regional Chief Investment Officers leverage direct client feedback and insights from Client Analytics to deepen our
understanding of clients’ needs. Our product specialists deliver investment solutions, including our flagship investment
mandates, as well as innovative long -term themes and sustainable investment offerings.
In addition to our investment p roducts, we offer extensive mortgage, securities-based and structured lending expertise.
We provide clients with advice on wealth planning, sustainability and impact investing, and corporate and banking
services, while specialist teams also advise on art and collecting, family strategy and governance, philanthropy, next
generation, and wealth transition.
›
Refer to our Sustainability Report 2022, available under “Annual reporting” at
ubs.com/investors
, for more information about
sustainability matters
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Our private markets business gives clients access to investments in private equity funds, hedge fund s and real estate.
Furthermore, we have increased our offering of institutional-grade products, such as our
Co-Investment STRIPE
investments in private equity) opportunities, a feeder structure to enable clients to invest in closed-ended institutional
private market funds. We have made it easier for private clients to access investment products and services suited to their
individual preferences , e.g., by expanding access to our
Advice SI
the US, and new targeted sustainability focus and impact offerings. Our Global Wealth Management clients have invested
more than USD
20bn in discretionary mandates aligned to our
sustainable investing
strategic
a
sset
a
llocation.
Additionally, we continue to broaden our offering across asset classes and themes, collaborating with external partners,
such as Robeco Asset Management, Ambienta, Rockefeller Asset Management, Rethink Impact and Bridge Investment
Group, to provide clients with access to differentiated sustainable- and impact-investing opportunities.
We are investing in our operating platforms and tools to better serve our clients’ needs, improve their experience and
enhance overall advisor productivity. As of 31 December 2022, more than 80% of invested assets outside the Americas
were booked on our
Wealth Management Platform
. In the US, we are enhancing the Wealth Management Americas
workstation for advisors
,
by
delivering new functionalit
ies
,
as well as driving simplification and improving our
banking capabilities.
›
Refer to “Clients” in the “How we create value for our stakeholders” section and to “Our focus on technology” in the “Our
strategy” section of this report for more information about innovation and digitalization
Our digital transformation aims to make us faster and more responsive and our services more convenient for our clients.
Our clients benefit from a more seamless service across platforms and devices, and our advisors and the teams that
support them are aspiring to deliver best-in-class content and solutions with increasing speed, relevance and
personalization. We are developing new service models through which we seek to serve our clients according to their
individual needs and preferences, based on scalable digital platforms, and underpinned by our client promise: providing
service that is personalized, relevant, on -time and seamless.
For clients with complex financial needs, our GFIW offering addresses the execution, investment, risk management,
financing and banking needs of family offices and their corporate entities, as well as entrepreneurs. In our core personally
advised service model, we focus on expanding our coverage of entrepreneurs, women and next-generation clients,
alternative investments as a differentiated source of returns, and increasing digital convenience for all our clients. We are
making continuous improvements to our digital platforms, and have rolled out innovative new solutions , such as
Circle
One
(in 2022), a global ecosystem that connects clients to experts, thought leaders and actionable investment ideas, and
UBS My Way
(in 2021), a next-generation portfolio management solution that enables clients to tailor their investments
to their individual preferences. We have introduced the
UBS My Way
also offer it in other markets. We have launched
WE.UBS
, the first digital-only offering launched by a global wealth
manager in China, and we are planning the launch of further regional solutions.
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We closely collaborate across business divisions to deliver UBS’s best capabilities to our 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, we launched an SMA initiative in 2020 with Asset
Management in the US and continued to expand our SMA offering throughout 2022. The initiative generated USD 21bn
in net new money inflows in 2022, bringing total invested assets from this initiative to USD 125bn.
›
Refer to “Delivering one ecosystem” in this section for examples of the joint efforts of the business divisions
Our operations and our competitors
We operate a global business tailored to both regional and local clients, combining scale with an ability to provide local
offerings to best serve our clients’ needs. We are regularly recognized as a leading wealth manager by independent
industry awards on a global, regional and country level.
The US is our largest market, accounting for around half of our invested assets, and we are recognized as the industry-
leading firm in terms of overall client satisfaction.
2
3
received numerous independent industry awards for several years in a row,
4
the region. In our home market of Switzerland, we are the leading wealth manager
5
market position with above-market growth and investments into digitalizing our core business. In Western Europe, we
have a strong footprint, which we further optimized with the sales of our domestic businesses in Spain (in 2022) and
Austria (in 2021), and have been recognized as the best bank for wealth management several years in a row.
6
America, we continue to expand our strategic partnership with Banco do Brasil, helping us remain the best bank for
wealth management in the region.
7
and Israel despite substantial geopolitical challenges in parts of the region, supported by our GFIW offering. In the Middle
East and Africa, we are building out our offering with further investment in local offices, such as Dubai and Qatar,
emphasizing our commitment to the region and building on our local strength.
8
Our competitors fall into two categories: competitors with a strong position in the Americas but more limited global
footprints, such as Morgan Stanley and JPMorgan Chase; and competitors with similar international footprints but with
a smaller presence than UBS in the US, such as Credit Suisse and Julius Baer. We have strong positions in the largest and
the fastest-growing regions (respectively, the US and Asia Pacific). The size and diversification of our global franchise,
bespoke cross-divisional solutions, and premium brand and reputation set us apart and would be difficult for our
competitors to replicate.
1
2
3
4
Awards won in two or more consecutive years include the Private Banker International Global Wealth Awards, PWM / The Banker Private Banking Awards, Euromoney Private Banking Awards, Asiamoney Asia Private
Banking Awards, Wealth BriefingAsia Awards and Asian Private Banker Awards.
5
Recognized as “Best Private Bank Switzerland” by Euromoney Private Banking Awards in 2022.
6
7
Recognized as “Latin America’s Best Bank for Wealth Management” by Euromoney Awards for Excellence in 2022.
8
Recognized as “Middle East’s Best Bank for Wealth Management” by Euromoney Awards for Excellence in 2020, 2021 and 2022.
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Personal Corporate Banking
As the #1 Swiss universal bank, we provide a comprehensive range of financial products and services to private, corporate
and institutional clients. Personal Corporate Banking is the core of our universal bank in Switzerland. As a market leader
across all our business areas, we strive to grow at a rate faster than the Swiss market. We aim to be digital at the core
by enabling our clients to satisfy most of their banking needs via our apps, while offering a user experience that is
personalized, relevant, on -time and seamless.
How we do business
Our personal banking clients have 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 2022, we were once again named the “Best
Bank in Switzerland” by Euromoney. Our offering is complemented by our
UBS KeyClub
clients in Switzerland with exclusive and attractive offers, some of which are offered in collaboration with our external
partners. We also work closely with 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.
We work closely with the Investment Bank to offer capital market and foreign exchange products, hedging strategies,
and trading capabilities, as well as corporate finance advice. In cooperation with Asset Management, we also provide
fund and portfolio management solutions.
›
Refer to “Delivering one ecosystem” in this section for examples of the joint efforts of the business divisions
While continuing to focus on the needs of our clients, we need to better connect business and technology and develop
new solutions in an agile way through fully empowered teams. The agile transformation is essential for every part of our
organization. In 2022, we accelerated
Agile@UBS
,
approximately 5,000 colleagues based in Switzerland.
›
Refer to “Clients” and “Employees” in the “How we create value for our stakeholders” section and to “Our focus on technology”
in the “Our strategy” section of this report for more information about innovation and digitalization
In 2022, we continued to support our clients in the transition to a low-carbon economy. For example, we introduced two
new products:
UBS Mortgage Energy
UBS Loan Energy
providing preferential conditions for energy-efficient buildings. Furthermore, we entered into two partnerships with Swiss
start-ups to remove greenhouse gas emissions from the atmosphere.
›
Refer to our Sustainability Report 2022, available under “Annual reporting” at
ubs.com/investors
, for more information about
sustainability-related topics
We collaborate with other companies to better satisfy our clients’ diverse needs. For example, in 2022, we further
expanded our strategic partnership with Baloise. We both increased our stakes in the digital homeowner platform
Houzy
,
which offers prospective and existing homeowners advice about financing, insurance and other property planning and
management matters, and
Brixel
,
which provides our clients real estate sales advice and services.
Our operations and our competitors
We operate primarily in our Swiss home market. With our Personal Banking and Corporate Institutional Clients business
units, 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 Raiffeisen, the cantonal banks, Credit Suisse, 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 Corporate Institutional Clients, the cantonal banks, Credit Suisse 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. No other Swiss bank offers its corporate clients local banking
capabilities abroad.
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Asset Management
Asset Management is a global, large-scale and diversified asset manager, with USD 1.1trn in invested assets. We offer
investment capabilities and styles across all major traditional and alternative asset classes, as well as advisory support to
institutions, wholesale intermediaries and our Global Wealth Management clients.
Our strategy is focused on capitalizing on the areas where we have a leading position and differentiated capabilities –
including sustainability, alternatives, indexed customization, and key markets in Asia Pacific – in order to drive further
profitable growth.
Organizational changes
In April 2022, we completed the sale of our 49% shareholding in our Japanese real estate joint venture, Mitsubishi Corp.-
UBS Realty Inc., to KKR Co .
How we do business
We offer clients a wide range of investment products and services in different asset classes, in the form of segregated,
pooled or advisory mandates, as well as registered investment funds in various jurisdictions. Our traditional and alternative
capabilities include equities, fixed income, hedge funds (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.
Our Investment Solutions business draws on the breadth of our capabilities to offer: asset allocation and currency
investment strategies across the risk–return spectrum; customized multi-asset solutions; and advisory and
fiduciary services.
Sustainable and impact investing remains a key area, as clients increasingly seek solutions that combine their investment
goals with sustainability objectives. We are continuing the expansion of our capabilities through: product and service
innovation; dedicated research; integrating environmental, social and governance risk factors into our investment
processes by leveraging our proprietary analytics; and active corporate engagement.
During 2022, our Real Estate Private Markets business launched a number of new innovative strategies, including UK
Life Sciences and Cold Storage, and again achieved strong results in the latest GRESB Assessments,
1
submitted strategies (representing 96% of Real Estate Private Markets’ direct pooled real estate and infrastructure
strategies) achieving four- or five-star ratings.
We also continue to develop our award-winning
2
Asia. To meet increasing client demand, we have focused on sustainable investing across our product range and provide
customized solutions. Aligned with our purpose and strength in building partnerships, in 2022, we launched the UBS
Global Equity Climate Transition Fund, in partnership with Aon, and the UBS Life Global Equity Sustainable Transition
Fund, in collaboration with the Essex Pension Fund and Hymans Robertson. These funds provide investors with the ability
to mitigate climate-related investment risks while also aiming to make a positive social impact aligned with specific United
Nations Sustainable Development Goals.
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Stewardship is a fundamental element of our sustainability strategy, and we are firmly committed to engaging with
companies to support them on their transition journey. During 2022, we extended our Climate Engagement Program to
include more industry sectors and built out our research to further extend the program to include natural capital. We also
launched our new Social Engagement Program, with a focus on human and labor rights, diversity, equity and inclusion,
and health, to enable us to provide clients with products that meet their criteria in these areas as well.
As a founding member of the Net Zero Asset Managers
3
to deliver on our net-zero interim target, committing to align 20% of total assets under management to achieve a 50%
carbon emissions reduction by 2030. In parallel, we are continuing to work with our clients, standard setters and industry
bodies to help develop the new methodologies, tools and data needed by investors to mitigate risks and
capture opportunities.
›
Refer to our Sustainability Report 2022, available under “Annual reporting” at
ubs.com/investors
, for more information about
sustainability matters
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 .
We have also continued 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, we launched a separately managed accounts (SMA) initiative in 2020 with Global Wealth
Management in the US. We continued to expand our SMA offering throughout 2022, including the launch of new index
SMA portfolios offering personalized tax management, and also a sustainable investing overlay enabling clients to select
from six major themes, including climate change, pollution and governance. The initiative generated USD 21bn in net
new money inflows in 2022, bringing total invested assets from this initiative to USD 125bn.
›
Refer to “Delivering one ecosystem” in this section for examples of the joint efforts of the business divisions
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.
Geographically, we are building on our extensive and long-standing presence in the Asia Pacific region, including China,
where we continue to invest in our products and presence, both on- and off-shore.
In the rapidly evolving and attractive wholesale segment, we aim to further expand our market share through a
combination of measures: a continued increase in the share of clients’ business; expansion of our strategic partnerships
with distributors; the building-out of our client service and product shelf offerings; and the launch of new white-labeling
and portfolio implementation capabilities .
›
Refer to “Clients” in the “How we create value for our stakeholders” section and to “Our focus on technology” in the “Our
strategy” section of this report for more information about innovation and digitalization
Our main competitors are global firms with wide-ranging capabilities and distribution channels, such as AllianceBernstein,
Allianz Asset Management, Amundi, BlackRock, Credit Suisse Asset Management, DWS, Franklin Templeton, Invesco,
JPMorgan 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.
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1
2
ETP Award 2022, Best Provider of Sustainable ETFs; and ranked fifth largest ETF provider in Europe as of December 2022 (source:
ETFBook.com
).
3
netzeroassetmanagers.org
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 UBS’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 capital-light 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.
Organizational changes
In January 2022, Global Research and the Strategic Insights teams, formerly part of Evidence Lab Innovations, were
integrated into the Investment Bank, as Investment Bank Research. With this new setup, we intend to better align our
research coverage with the needs of our clients, while continuing to provide research and analytical services across
the firm.
In April 2022, we created Global Family Institutional Wealth (GFIW), a cross-divisional offering that leverages capabilities
from the Investment Bank and client coverage from Global Wealth Management to address the execution, investment,
risk management, financing and banking needs of family offices and their corporate entities, as well as entrepreneurs .
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, both on public and private markets, to fund their activities.
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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 equit ies 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 22 countries and with coverage of more than 3,000 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.
We seek to develop new products and solutions consistent with our capital -efficient business model, typically related to
new technologies or changing market standards.
›
Refer to “Clients” in the “How we create value for our stakeholders” section and to “Our focus on technology” in the “Our
strategy” section of this report for more information about innovation and digitalization
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, such as thematic portfolio and investment solutions. We have also developed products related to carbon, such
as emissions futures, and we joined
Carbonplace
as a founding member.
Carbonplace
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.
Following the formation of the Global ESG Advisory team within Global Banking in 2021, in 2022, we provided strategic
advisory and capital-raising services by specifically recognizing the structural shift in investor preferences toward ESG
investment opportunities. To do so, we built our capabilities to assess a firm’s sustainability profile and to link such profiles
to ESG investor demand. During 2022, we facilitated USD 48bn of green, social, sustainability and sustainability-linked
(GSSS) bonds financing through 77 bond deals for our clients, including corporate clients, financial firms and sovereign
issuers. UBS has a market-leading share of the Swiss franc GSSS bond market (Bloomberg, 2022), supporting domestic
issuers and bringing international names to the Swiss market.
Our independent ESG research team collaborates with UBS sector analysts and
UBS Evidence Lab
experts. The ESG research team works to identify touchpoints between markets, society and the environment, and to
respond to ESG issues as they move onto investors’ agenda. By December 2022, the ESG team had published more than
90
ESG Sector Radar
In 2022, we launch ed our
ESG Company Radar
assess the impact of ESG factors at company level , and we have seen a very positive client response to those reports.
Other types of ESG content include thematic and cross-sectoral collaborations,
ESG Keys
investing topics), and an increasing number of regional perspectives from our expanded ESG team, which works out of
our offices in London, New York, the Hong Kong SAR, Tokyo and Sydney.
As part of our efforts to enhance governance and oversight, the Sustainable Investment Review Group was launched in
June 2022 with the responsibility for reviewing ESG products within Global Markets. The Investment Bank Sustainable
Finance Guidelines were established in 2022 to set out minimum criteria for ESG products, which are to be applied to
new products. In addition, as part of the Group’s net-zero commitments, the Investment Bank has developed emission
targets for 2030 for its lending business.
›
Refer to the “Environment” section of our Sustainability Report 2022, available under “Annual reporting” at
ubs.com/investors
,
for more information about the Investment Bank’s targets for its lending business
Our
di
gital strategy harnesses technology to provide access to a wide range of sources of global liquidity and
differentiated content. The Investment Bank strives to be the digital investment bank of the future, with innovation-led
businesses driving efficiencies and solutions. We aim to develop new products and solutions consistent with our capital-
efficient business model, which are most often related to new technologies or changing market standards.
In 2021, we announced the creation of a single
Digital Platforms
digital competencies to benefit all products and maximizing the return on our technology spend in close partnership with
our Chief Digital and Information Office.
Digital Platforms
aiming to reduce the number of systems and increase automation, maximizing client impact, revenue and digital
adoption.
Digital Platforms
Agile@UBS
, an evolution of the historically close collaboration with
our Chief Digital and Information Office, creating long -lived teams that learn and continuously improve, which in turn
attracts the best talent.
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Our ambition is to have a simplified and modern technology landscape that is secure and stable, where we re-use more
of everything and where the platforms work together to drive progress toward our overall strategic imperatives.
›
Refer to “Clients” in the “How we create value for our stakeholders” section and to “Our focus on technology” in the “Our
strategy” section of this report for more information about innovation and digitalization
Joint efforts between the Investment Bank and the other business divisions (for example, our work with Global Wealth
Management on our new GFIW offering) and, externally, strategic partnerships (for example, UBS BB jointly with Banco
do Brasil, focused on Latin America) continue to be key strategic priorities. Partnership with Global Wealth Management
and Asset Management enables 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.
›
Refer to “Delivering one ecosystem” in this section for examples of the joint efforts of the business divisions
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, Credit Suisse 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 banks and fintech firms in certain regions and products.
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Group Functions
Group Functions provides services to the Group, focusing on effectiveness, risk mitigation and efficiency. Group Functions
also includes the Non -core and Legacy Portfolio unit.
How we are organized
Group Functions
Group Functions is made up of the following major areas: Group Services (which consists of Chief Digital and Information
Office, Communications Branding, Compliance, Finance, Group Sustainability and Impact, Human Resources, Group
Legal, Regulatory Governance, and Risk Control), Group Treasury and Non-core and Legacy Portfolio.
In recent years, we have aligned support functions and business divisions. The vast majority of such 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 functions close, we improve efficiency and create a working environment built on
accountability and collaboration.
Certain activities are retained centrally, where not directly related to the businesses, such as: Non-core and Legacy
Portfolio; a small residual set of 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 four
business divisions , and its risk management is integrated into the Group risk governance framework.
Non-core and Legacy Portfolio
Non-core and Legacy Portfolio consists of residual trades from businesses exited by the Investment Bank, mainly in 2012.
Positions are typically left to run to contractual maturity, although trades are terminated early where such action is
economically prudent, and the portfolio continues to be actively hedged. The portfolio also includes positions relating to
legal matters arising from businesses transferred to it at the time of its formation.
›
Refer to “Note 17 Provisions and contingent liabilities” in the “Consolidated financial statements” section of this report for more
information about litigation, regulatory and similar matters
Our environment
Market climate
Global economic developments in 2022
1
2022 was a challenging year for the global economy and most markets. After rebounding in 2021 from the COVID-19
pandemic, economic momentum slowed in 2022. The Russia–Ukraine war contributed to higher commodity prices,
adding to rising inflation, which reached multi-decade highs in most major economies. This led to the fastest pace of
monetary tightening by many leading central banks since the 1980s.
Against this backdrop, global GDP growth decelerated to 3.3% in 2022, from 6.5% in 2021, with headwinds continuing
to mount in 2023. US GDP growth slowed to 2.1 % in 2022, from 5.9% in 2021, as the Federal Reserve raised interest
rates. Reduced energy supplies from Russia and tighter monetary policy from the European Central Bank added to
headwinds for the Eurozone economy, where growth was down to 3.5% in 2022, from 5.3% in 2021. Weakness in the
Eurozone contributed to a slowdown in Switzerland. Swiss GDP growth was down to 2.0% in 2022, from 4.2% in 2021.
UK GDP grew by 4.0% in 2022, down from 7.6% in 2021, with momentum undermined by higher inflation, interest
rate increases by the Bank of England (the BoE) and weaker global demand.
China’s economy grew by 3.0% in 2022, down from 8.4% in 2021, reflecting an economic drag from the government’s
zero-COVID policy, along with a downturn in the nation’s real estate sector. Other leading Asian economies slowed less
markedly, with GDP growth in India of 7.0% in 2022, down from 8.7% in 2021. South Korea’s GDP grew by 2.6% in
2022, down from 4.1% in 2021.
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Inflation remained elevated in 2022. Exceptionally strong demand for goods emerged as economies reopened,
overwhelming supply, and creating inflation. Just as this pressure faded, the Russia–Ukraine war led to a rise in energy
and food prices, further boosting inflation. High inflation affected many major economies, averaging 8.5% globally in
2022. US inflation reached a high in June 2022 of 9.1% year on year, having risen at the fastest pace since 1982.
However, inflation remained relatively muted in China, at 3%, and Japan, at 1.1%, with neither country experiencing an
exceptional post-pandemic surge in demand. Inflation in Switzerland was also more muted, at 2% for 2022, due to a
less-pronounced profit margin expansion than elsewhere.
Equity and bond markets fell in tandem in 2022, impacted by the combination of high inflation, monetary tightening
and slowing growth. In 2022, the MSCI USA index fell by 19.8% and the MSCI Eurozone, the MSCI Switzerland and the
MSCI China indices fell by 12.5%, by 17.1% and by 20.7% respectively (in local currency terms). However, more defensive
markets outperformed, such as the MSCI UK index, which increased by 7.1%. Globally, value stocks proved more resilient,
with the MSCI World Value index down 6.5%, compared with a 29.2% decrease in the MSCI World Growth index.
Bond markets also experienced negative returns, amid headwinds from higher inflation and central bank tightening. The
Bloomberg Global Aggregate Bond index decreased by 16.2 % in 2022. The yield on 10 -year US Treasuries ended the
year at 3.9%, up from 1.5% at the end of 2021. The yield on the 10-year Swiss government bonds increased from –
0.2% at the start of 2022 to 1.6% by year-end, and the yield on 10-year German Bunds increased to 2.6%, up from –
0.2% at the end of 2021.
Economic and market outlook for 2023
We expect 2023 to be a year of inflections, as investors try to identify turning points for inflation, interest rates, economic
growth and financial markets against a complex geopolitical backdrop.
We expect inflation to be lower at the end of 2023 than it was at the end of 2022, as tighter monetary policy slows
demand and squeezes profit margins. In addition, a repeat of the 2022 commodity price surge is, in our view, unlikely.
Although future economic data will be key, and recent data suggests the decline in inflation has been slower than forecast
in some economies, we expect the Federal Reserve, the European Central Bank, the Swiss National Bank, and the BoE to
conduct the final interest rate increases of this cycle in 2023 .
We expect the impact of higher interest rates to weigh on economic growth and earnings. Economic growth should hit
bottom later in the year, if, as we expect, financial conditions start to ease. For 2023 as a whole, we expect the US
economy to grow by 0.8 %, with the Eurozone expanding 0.8% and Switzerland 0.4%. We forecast a contraction of
0.4% in UK GDP, with inflation still high, given the prospect of tighter fiscal and monetary policy. The relaxation of China’s
COVID-19 restrictions means a rebound of the Chinese economy is likely over the course of 2023. We expect China’s
GDP to expand 4.9% in 2023.
Geopolitical events look likely to remain a concern for investors. The Russia–Ukraine war poses energy and security threats
to Europe and fosters the risk of a broader war. US–China tensions are unlikely to recede, given Beijing’s focus on self-
sufficiency, the Biden administration’s moves to restrict trade on security grounds, and the potential for further discord
over Taiwan. In addition, we are cognizant of an elevated risk of political tensions within and across countries, as well as
their impact on society and financial markets.
1
Comparative figures as of 28 February 2023.
Industry trends
Although our industry has been heavily affected by various regulatory developments over the past decade, technological
transformation and changing client expectations are further emerging as key drivers of change today, increasingly
affecting the competitive landscape, as well as our products, service models and operations. In parallel, our industry
continues to be materially driven by changes in financial markets and macroeconomic and geopolitical conditions.
Digitalization
While the technological maturity of the financial services sector increased greatly throughout the COVID-19 pandemic,
digitalization in our industry is still developing at a rapid pace. The world is faster, more digital and more data -driven
than ever before, with clients increasingly demanding even more seamless, personalized digital products and services
tailored to their needs. Following the COVID-19 pandemic, regional and demographic differences in the acceptance and
use of digital technologies are narrowing, thus continuing a high rate of digital adoption across all client segments. As a
result, we see a gradual shift from digitalizing and automating existing processes to digital-as-default solutions, while still
allowing for human interaction, a component that continues to be an important competitive advantage.
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Digital communication, with clients and employees alike, has established new remote ways of working, enabling financial
services providers to attract an even wider array of talent than before. The digitalization of the financial services sector
has led to a structural shift in the workforce: more and better engineers are required to keep banks at the forefront of
technology, thus putting them into direct competition with technology companies beyond the borders of the financial
sector.
Continuous investment in technology is driving automation and simplification of labor-intensive processes, improving
banks’ operational efficiency and freeing up resources to focus on client needs. Decision-making is becoming increasingly
data-driven, with advanced analytics and artificial intelligence (AI) enabling banks to address client needs in an even more
targeted manner. In a consistently connected, open, and location-independent financial services ecosystem, the focus
lies on adopting open-source technology, including cloud-native and modular architecture, to drive innovation and open
exchange.
An open-finance environment combined with a shift in business models from in -person to digital channels bears the risk
of increased digital vulnerability. Clients and other stakeholders are demanding ethical and responsible data gathering,
storage and usage, making the protection of the firm’s data a continued priority and focus. We also place great
importance on managing the risk of cyberattacks.
Decentralized finance applications, including digital cash solutions, are gradually being adopted by the banking industry.
Nascent technologies, such as distributed ledger technology, are expected to mature over the coming years and may
reshape our industry. They provide opportunities to overcome friction within the existing financial system, increase
banking efficiency, broaden access to underserved communities and make previously unviable products or services
available to the financial services sector. They also further enable early-stage concepts, such as Web 3.0 and the
metaverse, which could lead to an enhanced digital user experience.
Sustainability
The evolution of corporate business models, the growth in investors factoring the transition to a low -carbon economy
and other sustainability themes into investment risk-and -return expectations, the ongoing shifts in societal values, and
greater regulation are all increasing client demand for sustainable investing strategies.
In 2022, due to the challenging environment for investments, global open-ended fund and exchange-traded fund (ETF)
total net assets decreased by 19%.
1
investing products, while funds and ETFs that were not specifically categorized as sustainable faced outflows throughout
most of 2022.
1
Our view is that the long-term growth trajectory for sustainable funds and ETFs plays to UBS’s strengths, as we have been
at the forefront of sustainable finance for over two decades, making us well placed to build on our offering and continue
to develop the innovative products and solutions our institutional and private clients need.
›
Refer to our Sustainability Report 2022, available under “Annual reporting” at
ubs.com/investors
, for more information about
sustainability matters
Client expectations
As technology progresses, clients more rapidly redefine the way they live, work and interact with others. This is reshaping
clients’ expectations toward financial services firms, as their reference points are increasingly influenced by experiences
with companies outside our sector, where technology-supported and data-driven solutions are progressively enabling a
more personalized, relevant, on-time and seamless client experience. These services often focus on convenience, flexibility
and personalization, and drive toward holistically addressing clients’ needs and facilitating community building. Therefore,
our franchise needs to evolve, as clients measure us against new standards. While the global pandemic further sharpened
our industry’s focus on digital-led solutions, recent geopolitical, macroeconomic and societal shifts have highlighted
values such as security, stability and a credible plan toward a sustainable future. Additionally, many clients not only expect
net-zero commitments from their financial services provider of choice, but they are also increasingly demanding
investment, financing and advisory products and services that fit their own sustainability preferences and ambitions.
Consolidation
Many regions and businesses in the financial services sector are still highly fragmented. We expect further consolidation,
with the key drivers being ongoing margin pressure, a push for cost efficiencies and increasing scale advantages resulting
from fixed technology costs and regulatory requirements. Many players in financial services continue to seek increasing
exposure and access to regions with attractive growth profiles, such as Asia and other emerging markets, through local
acquisitions or partnerships, as well as acquiring new capabilities addressing changes in market dynamics and overall client
demands. The increased focus on core capabilities and geographical footprint, as well as the ongoing simplification of
business models to reduce operational and compliance risks, is likely to drive further disposals of non-core businesses and
assets. While banks already face increasing challenges from digitalization needs and intensified competition, tightening
macroeconomic conditions across major economies may create further pressure if a recessionary environment cannot be
avoided.
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New competitors
Our competitive environment is evolving. In addition to traditional competitors in the asset-gathering businesses, new
entrants are targeting selected parts of the value chain. However, we have not yet seen a fundamental u nbundling of
the value chain and client relationships, which might ultimately result in the further disintermediation of banks by new
competitors. Over the long term, we believe large platform companies entering the financial services sector could pose a
larger competitive threat, given their strong client franchises and access to client data, if they decide to broaden the
scope of their services. While fintech firms have gained greater momentum during the COVID-19 pandemic, recent
macroeconomic developments have slowed down the trend, as funding appetite and valuations have trended downward.
Although we expect our industry to recover in the near term, we do not expect a material disruption of our asset-
gathering businesses. The trend for forging partnerships between new entrants and incumbent banks is continuing, as
technology and innovation help banks overcome new challenges.
Regulation
In 2022, regulators further progressed in their policy developments with a focus on regulations around digital innovation
and sustainable finance along with finalizing and implementing the remaining Basel III requirements.
Regulators increased their focus on AI, data and, particularly, digital assets, as a result of market turbulence. In the area
of digital assets, the attention by regulators was on stablecoins, crypto assets and the prudential treatment of banks’
exposures to digital assets, with recent efforts by supranational standard setters aiming to coordinate relevant national
regulations. Central banks also continued to work on central bank digital currencies, which aim to provide new digital
payment instruments that would be a direct liability of the central bank.
Sustainable finance and climate-related risks continued to be a key focus of policymakers in 2022, where we noted
significant activity, particularly in the areas of disclosures regarding the impact of climate-related risks and corporate
sustainability actions, classification or taxonomies of sustainability -related efforts and activities, and risk management of
climate-related financial risks. The multitude of developments at the jurisdictional level has the potential to create a
fragmented policy landscape. These developments add to the rapidly evolving societal expectations toward financial
institutions.
The national implementation of the remaining Basel III elements continues to be another important focus area. The
authorities in Switzerland and the UK launched consultations on their approaches in 2022 and Switzerland changed the
expected date on which the final Basel III guidelines are to enter into force, from 1 July 2024 to 1 January 2025. The EU
authorities continued with the parliamentary debates. We expect the US authorities also to start their consultation process
in the first half of 2023. Although the timing of the implementation seems broadly aligned across Switzerland, the EU
and the UK at this stage, we still see a significant risk of divergence regarding the content of the provisions.
In addition, regulatory authorities continued to refine existing regulations, including the finalization of the Swiss too-big-
to-fail framework and revision of the EU anti-money laundering framework, as well as efforts to enhance operational
resilience. Following Brexit, the UK started a holistic review of its regulatory framework for financial services, while both
the EU and the UK are updating their wholesale markets and investor protection rules. Furthermore, the focus of
regulatory authorities is also increasingly moving toward corporate responsibility, diversity and inclusion
.
Finally,
digitalization and shifts in the macroeconomic and interest rate environment increased the focus on operational resilience
and
financial stability risks
,
including the assessment of existing policy gaps relating to the non
-
bank
financial
intermediation sector.
Many of these developments are taking place in an environment characterized by significant political uncertainties,
including increasing geopolitical tensions and the Russia–Ukraine war which resulted in the adoption of unprecedented
sanctions packages introduced by various jurisdictions against Russia and Belarus. This led to significant implementation
efforts that were closely coordinated between authorities to ensure consistency in interpretation and implementation.
Political uncertainties and geopolitical tensions are posing additional challenges to the provision of cross-border financial
services.
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.
›
Refer to the “Regulatory and legal developments” and “Capital, liquidity and funding, and balance sheet” sections of this report
for more information
Wealth creation
2
2022 began with the global high net worth individual population and financial wealth both at record highs, with surging
financial markets and recovering economies enabling the global high net worth individual population and financial wealth
to increase 7.8% and 8.0%, respectively, in 2021.
Since then, falling equity and bond markets, slowing economic growth, and US dollar strength, mean that global wealth
growth in 2022 was likely substantially lower, or negative, although we continue to see the longer-term outlook for
wealth creation and financial asset appreciation as positive.
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As of the end of 2021, 46% of global financial wealth was concentrated in North America, followed by Asia (26%) and
Europe (21%).
3
By segment, approximately one-third of global high net worth individual wealth is held by individuals with wealth in
excess of USD 30m, 23% by individuals with wealth ranging from USD 5m to USD 30m and the remaining 43% is within
the wealth segment between USD 1m and USD 5m.
Wealth is being created at a faster rate for certain key client groups, including female clients and entrepreneurs. We also
see significant wealth transition to the next generation over the coming decade.
Wealth transfer
Demographic and socioeconomic developments continue to generate shifts in wealth. Over the next few decades, more
than USD 30trn of wealth will be pass ed between generations. The majority will move from the silent generation and
older baby boomers to younger baby boomers and Gen X (jointly encompassing individuals currently between the ages
of 42 and 65).
2
As a group, these “next gens” are likely to have a longer investment horizon, a greater appetite for risk, often combined
with a desire to use wealth to create a positive societal impact alongside investment returns. Meanwhile, as shown in the
Wealth-X report “World Ultra Wealth Report 2022,” the proportion of ultra-wealthy
4
changing cultural attitudes and growth in female entrepreneurship, as well as wealth transfers between generations.
We are responding to the evolving wealth landscape with a framework that addresses all aspects of our clients’ financial
lives, called
UBS Wealth Way
. It begins with discovery questions and a conversation with clients about what is most
important to them. We help clients organize their financial life along three key strategies:
Liquidity
to help provide cash
flow for short-term expenses;
Longevity
for long-term needs; and
Legacy
for needs that go beyond their own and help
improve the lives of others, a key part of wealth transfer planning.
Investing in an inflationary world
As a result of the major macroeconomic shocks in 2022, investors are facing a very different landscape to the one seen
over the past decade, with significant market volatility, higher interest rates and inflation levels not seen for a generation.
This environment has created opportunities in the bond market, and investors are once again being rewarded for taking
risks in fixed income. Investors also continue to diversify into illiquid alternatives (including private equity, property, hedge
funds and infrastructure) that can deliver compelling longer-term risk-adjusted returns, while also looking for low-cost,
efficient passive strategies across liquid markets. The breadth of our investment expertise and capabilities enables us to
find the right solutions for clients across asset classes and regions.
1
Morningstar Direct, as of or for the year ended 31 December 2022. Encom passes worldwide open-ended funds and exchange-traded funds, excluding money market funds. Sustainable funds are identified on the basis
of Morningstar’s Sustainable-Investment framework . © Morningstar 2023 . All rights reserved. The information contained herein: (1) is proprietary to Morningstar and / or its content providers; (2) may not be copied,
adapted or distributed; (3) is not warranted to be accurate, complete or timely; and (4) does not constitute advice of any kind, whether investment, tax, legal or otherwise. User is solely responsible for ensuring that it
complies with all laws, regulations and restrictions applicable to it. Neither Morningstar nor its content providers are resp onsible for any damages or losses arising from any use of this information, except where such
damages or losses cannot be limited or excluded by law in your jurisdiction. Past performance is no guarantee of future resul ts.
2
All the figures are from the Capgemini World Wealth Report 2022 unless otherwise stated and refer to the 2021 financial year. The Capgemini World Wealth Report 2022 segments wealth as follows: those with
wealth of greater than USD 30m are classified as ultra high net worth individuals ; USD 1m to USD 30m for high net worth individuals.
3
Based on BCG Global Wealth Report 2022, which refers to the 2021 financial year. Wealth concentration is based on financial assets by regions and excludes real assets and liabilities.
4
World Ultra Wealth Report 2022, Altrata. The report defines those with wealth of greater than USD 30m as ultra high net worth individuals (also referred to as the “ultra wealthy”).
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How we create value for our stakeholders
Stakeholder
group
Stakeholder needs:
what our stakeholders expect from us
Value proposition:
how we create value for our
stakeholders
Key topics discussed:
what was important to our
stakeholders in 2022
Stakeholder engagement:
how we engage with our stakeholders
Clients
Advice on a broad range of products
and services from trusted advisors,
addressing increasingly complex
needs
A mix of personal interaction with our
advisors in combination with digital
and remote services (convenient,
seamless digital banking)
High-quality solutions and the highest
standards in terms of asset safety,
data and information security,
confidentiality, and privacy
A combination of global reach and
local capabilities targeting positive
investment outcomes
Competitively priced products and
services, risk management, and the
provision of liquidity
Delivering tailored advice and
customized solutions, using our
intellectual capital and digital
platforms
Developing new products, solutions
and strategic partnerships in response
to clients’ evolving needs
Providing access to global capital
markets and bespoke financing
solutions
Meeting increasing sustainable
investment and private markets
demand from clients
Implementing cross-divisional offering
with fully aligned front-to-back setup
Investing in times of uncertainty: high
inflation, market volatility, rising
interest rates, slowing economic
growth and increasing geopolitical
tensions
Holistic goal-based financial planning
Sustainable finance and investing
opportunities
Data privacy and security
Products and services, including those
around digital banking
Personalized meetings
A blend of virtual and in-person client
events and conferences, including
information about key developments
and opportunities
Client satisfaction surveys
Increasing levels of digital interaction
with clients
Monitor client feedback and complaint
handling
Investors
Disciplined execution of our strategy
leading to attractive capital returns
through dividends and share
repurchases
Comprehensive and clear disclosures
on quantitative and qualitative data
necessary to make informed
investment decisions
Recognizing and proactively
addressing strategic opportunities
and challenges
Executing our strategy with discipline
and agility as the external
environment evolves, while aiming to
deliver cost- and capital-efficient
growth
Providing relevant, transparent, timely
and reliable public disclosures
Strategic plans and targets, and
execution against them
Structural growth in and return
potential of our businesses
Cost efficiency and ability to generate
positive operating leverage
Ability to protect or grow profits in a
higher-inflation and rising-interest-
rate environment
Incorporation of environmental, social
and governance (ESG) factors into the
business model, compensation and
risk management
Financial reports, investor and analyst
conference calls, and webcasts, as
well as media updates about our
performance or other disclosures
General meetings of shareholders
Investor and analyst meetings
Digital interactions with investors as a
result of COVID-19 pandemic
restrictions and hybrid-working patterns
in the industry, with limited impact on
pre-pandemic meeting schedules and
participation, given reliable virtual
solutions; the 2022 Annual General
Meeting was held virtually
Employees
A world-class employer with the
expertise and breadth of opportunity
to empower successful careers
A collaborative, engaging, inclusive
and supportive workplace culture
An environment that provides a sense
of belonging and opportunities to
positively impact colleagues, clients,
shareholders and society
Engaging work and career growth
opportunities, including future-
capabilities development, and
rewards for performance and impact
Hiring talented, diverse employees
and investing in development, now
and for the future
Fair, effective people management
and compensation policies and
practices
Further strengthening our workplace
culture to live up to our purpose, and
providing a framework for employees
to develop their careers
Hybrid- and flexible-working
arrangements, along with holistic
support to empower employees and
foster resilience
Comprehensive data analytics that
enable leaders to make better and
faster decisions to meet business needs
Living up to our purpose and culture,
enabled by our three keys to success
Fair and equitable pay practices
Focusing on impact and outcome in
our performance management
processes
Hybrid-, flexible- and home-working
arrangements
Building a diverse, equitable and
inclusive workplace
Fostering internal mobility and
providing long-term career prospects
Accelerating new ways of working,
particularly through Agile@UBS
Regular CEO and senior leadership
communications and events, along
with divisional, regional and
functional sessions with employees
Group-wide targeted surveys and
other employee engagement activities
Group Franchise Awards and the
Kudos peer-to-peer recognition
program
Health and well-being events and
offerings, employee networks and
volunteering opportunities, and
hybrid- and flexible-working
arrangements
Society
Facilitation of economic development
that is sustainable for the planet and
humankind
Maximization of our positive effects
and minimization of any negative
effects on society and the
environment
Proactive management of the
environmental and societal impacts of
our businesses
Promoting significant and lasting
improvements to the well-being of
communities in which we operate
Taking an active role in the transition
of our economy toward
environmentally and socially
sustainable solutions
Advising clients to align their business
models with ESG parameters and the
United Nations Sustainable
Development Goals
Sustainable finance
Our climate strategy
Our client and corporate philanthropy
efforts
Furthering the economic and social
inclusion of those we support
Grant making and volunteering
through strategic community partners
Participation in forums and round
tables, as well as industry-, sector-
and topic-specific debates
Dialogues with regulators and
governments; interaction with NGOs
Launch of our Ukraine and Pakistan
Relief Funds
Support for COVID -19-related aid
projects across our communities
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Clients
Our clients are the heart of our business. We are committed to building and sustaining long -term relationships based on
mutual respect, trust and integrity. Understanding our clients’ needs and expectations enables us to best serve their
interests and to create value for them, underpinned by our client promise that we aim to differentiate our service by
delivering a client experience that is personalized, relevant, on-time and seamless.
Our clients and what matters most to them
There is no typical UBS client, but each of our clients expects outstanding advice and service, a range of choices, and an
excellent client experience.
Global Wealth Management focuses on serving the unique and sophisticated needs of wealthy families and individuals.
We give them access to outstanding advice, global service and investment opportunities, delivered by experts they can
trust and based on the expertise and insights of our Chief Investment Office (the CIO). Using a holistic, goals-based
approach to financial planning, we deliver a personalized wealth management experience, working closely with clients
to help them realize their ambitions, and we make our wealth coverage more client-centric, digital and effective. Our
client-facing advisors and the global teams supporting them focus on developing long-term client relationships, which
often span generations. Clients look to us for expertise in helping them to grow, protect and transfer their wealth, as
well as helping them make some of the most important decisions in their lives. From significant liquidity events to
professional milestones and personal turning points, we aim to give clients the confidence to move forward and achieve
their goals. Through extensive research into clients’ preferences and goals, and broader analysis of investor sentiment
globally, we constantly evolve our offerings to meet the shifting priorities of today’s wealthy clients. This includes investing
in digital capabilities and developing products to help clients fund their lifestyles and manage their cash flow, as well as
offering guidance on how they can create a lasting and positive impact for their communities and the causes they care
about most. We are the leading global wealth manager for clients interested in sustainable investing,
1
to developing solutions that enable them to align their financial goals with their personal values.
›
Refer to “Global Wealth Management” in the “Our businesses” section of this report for more information about sustainable
investment offerings
Personal Corporate Banking serves a total of approximately 2.6 million retail clients
2
clients,
3
insurers, real estate companies, commodity traders and banks. Our clients include more than 30% of Swiss households,
more than 90% of the 250 largest Swiss corporations and more than 50% of midsize to large pension funds in
Switzerland. They look for financial advice based on their needs at each stage of their individual or corporate journey.
We aim to deliver outstanding advice to all via a multi-channel approach. Clients have access to digital banking, a wide
network of branches and remote advice. These channels are designed to deliver a quality and convenient client experience
with 24/7 availability, security and value for money, resulting in high levels of client satisfaction. Clients are also offered
a broad range of products and services in all relevant areas: basic banking, investing, financing (including mortgages),
retirement planning, cash management, trade and export finance, global custody, and company succession, among
others.
In Asset Management, we manage relationships with institutional clients (including sovereign institutions, central banks,
pension funds and insurers), wholesale intermediaries and Global Wealth Management and its clients. By building long-
term, personalized relationships with our clients and partners, underpinned by disciplined execution, we aim to achieve a
deep understanding of their needs and to earn their trust. We combine our global scale with the independent thinking of
our distinct investment teams to utilize innovative ideas, drawing on the breadth and depth of our investment capabilities,
across traditional and alternative, active and indexed, to deliver the solutions that clients need.
The Investment Bank provides corporate, institutional and wealth management clients with expert advice, financial
solutions, deal execution and access to the world’s capital markets. Our business model is specifically built around our
clients and their needs. Corporate clients can access advisory services, debt and equity capital market solutions, and
bespoke financing through our Global Banking business. Our Global Markets business focuses on helping institutional
clients engage with local markets around the world, offering equities and equity-linked products, and foreign exchange,
rates and credit products and services. Our differentiated content offering is underpinned by Investment Bank Research.
The differentiated nature of our research provides access to insight-ready data sets for thousands of companies, and aims
to give clients an informational edge. In 2022, our experts produced more than 40,000 research reports, attracting seven
million reads.
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We know the security and confidentiality of our clients’ data is of utmost importance to them, as it is for UBS. That is
why we put the highest priority on having comprehensive measures in place that are seeking to ensure client data
confidentiality and integrity are maintained. We continually assess and improve our control environment to mitigate
emerging cyber threats and meet expanding legal and regulatory expectations. Investments in our digital platforms
preserve and improve our security standards, with a focus on giving clients secure access to their data via our digital
channels and protecting that data from unauthorized access. Although the level of sophistication and the impact and
volume of cyberattacks continue to grow worldwide, we are ever vigilant, maintaining a strong and agile cybersecurity
and information security program to mitigate and manage cyber risk by providing robust, consistent, secure and resilient
business processes.
Enhancing the client experience through innovation and digitalization
We streamline and simplify interactions with clients through front-to-back digitalization and innovation.
In Global Wealth Management, we develop and deploy digital tools that help deepen and enhance the relationships we
have built with our clients, a factor that differentiates UBS. Clients expect the convenience and speed that technology
offers but, at the same time, they feel that a personal experience with advisors is more important than ever. Our advisors
use digital tools to spend more time with clients and better evaluate the full scope of their financial lives. Our clients
appreciate digital tools that improve their experience. They also want multiple ways in which to interact conveniently
with their advisors. Clients increasingly embrace the use of digital and mobile tools. We continue to introduce new and
better tools to meet and exceed clients’ expectations . For example, our
UBS Manage Advanced [My Way]
clients in selected markets access to more than 60 professionally managed investment modules. Clients can personalize
beyond what they can normally do in a discretionary solution while continuing to reap the benefits of continuous portfolio
monitoring and risk management. The app is interactive; clients can work with their advisors to design their own portfolio
based on individual preferences and priorities, easily including elements such as sustainable investing modules or themes.
We intend to further extend access and upgrade client convenience and experience with
UBS Manage Advanced [My
Way]
.
In 2022,
UBS Circle One
global ecosystem for investing, connecting them with experts, thought leaders and actionable ideas delivered by the CIO
in an engaging and convenient way. As a trusted brand offering premium content, we see opportunities to deliver our
expertise to a broader set of clients, combining digital experience with human advice. Progress continues on our multi-
year strategy to serve clients via two platforms: the
Wealth Management Americas Platform
Wealth
Management Platform
outside the US.
In Personal Corporate Banking, we further strengthened our leadership position as the leading digital bank in
Switzerland by continuing to develop simple, smart, secure and sustainable solutions for our clients. In 2022 , an average
of 7 4% of Personal Banking clients used Digital Banking, and an average of 56 % logged in via Mobile Banking . This
demonstrates that our clients are engaging more frequently with us through our online and mobile capabilities. Our
continued growth in digital enrollment and engagement led us to take the next evolutionary step , the introduction of a
dedicated digital assortment line:
UBS key4
. Within six months of its launch in May 2022, we introduced a comprehensive
digital product shelf.
UBS key4 banking
biometric self-identification and instant credit card availability, with attractive exchange rates. With
UBS key4 smart
investing
,
UBS key4 gold
,
UBS key4 pension 3a
UBS key4 FX
, our Swiss clients benefit from new seamless digital-
only investing, pension and payment solutions. We have also delivered products and personalized care for our corporate
clients, whose digital adoption has accelerated further in recent years, with an average of 80% of such clients using
Digital Banking in 2022. With
UBS key4 business
, small and medium-sized enterprises that are in the process of being
formed can open their accounts more quickly and entirely paperlessly, and access comprehensive solutions beyond
banking via our
UBS key4 business marketplace
. Complementing our dedicated digital offering, we also continued to
further build out our hybrid touchpoints with clients, such as
Remote Sales Advice
Corporate
Hybrid Bank
.
In addition, to give clients access to market-leading solutions beyond banking, we have expanded our
network of partnerships, such as our targeted long-term collaboration with Baloise, investing in homeowner platforms,
such as
Houzy
and
Brixel
. Furthermore, we entered into a strategic partnership with ETH Zurich, a Swiss Federal Institute
of Technology, to promote innovation and entrepreneurship in Switzerland. We have also continuously developed our
sustainability offerings, such as
UBS Mortgage Energy
, which helps clients with the transition to more sustainable heating,
and
UBS Loan Energy
, thanks to which clients benefit from attractive interest rates and comprehensive advice for their
low-energy investment properties.
In Asset Management, we are accelerating our investment in digitalization. We have extended our digital client
relationship management pilot tools, technologies and data capabilities to enhance the experience of, and service for,
our clients, to foster innovation and to support alpha generation. For example, we are developing a scalable platform to
enable more efficient development and management of theme-based investment products to meet growing client
demand. To simplify and enhance our client service, we are introducing improvements in client and data analytics.
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The Investment Bank strives to be the digital investment bank of the future, with innovation-led businesses driving
efficiencies and solutions. In 2021, we announced the creation of a
Digital Platforms
Bank, to work on transformation through innovation, experimentation and external partnerships. In Global Markets, our
Technology-Enhanced Sales
(TES) teams work in close partnership with our Data Intelligence, Chief Digital and
Information Office and Client Coverage teams to embed our data and technology capabilities across all client teams and
enhance our client service. TES enables clients to choose where and how we deliver content and uses data modeling to
personalize the content they receive.
UBS Neo
, our award-winnin g multi-channel platform and enterprise ecosystem for
digital clients, lets our professional and institutional clients access a comprehensive suite of products and services covering
the full investment life cycle.
Investment Bank DigiOps
, our Operations team working in collaboration with the Chief
Digital and Information Office on digital innovation projects, is enhancing the client experience through a digital platform
that continues to make progress on simplifying Operations’ technology infrastructure, increasing front-to-back efficiency
and enhancing our decision-making and relevance to clients. By utilizing distributed ledger technology, Global Markets
is transforming the business models of products where the Investment Bank has been strong historically. One example is
UBS key4 gold
, our global physical gold transaction network of retail investors, gold merchants, institutional investors
and vault providers that enables clients to buy and sell at interbank prices, which saw growth in 2022. A tokenized
representation of underlying physical gold provides fractional ownership with low -friction transactional capability. Our
vision is to accelerate the tokenization of financial products traded by UBS clients. In November 2022, we launched and
issued the world’s first digital bond that is publicly traded and settled on both blockchain-based and traditional
exchanges. Global Banking has also prioritized the client experience.
Global Banking Strategic Development Lab
data science, predictive analytics and quantitative models to develop solutions for our businesses.
UBS-GUARD
data science and predictive analytics to Global Banking business users, predicting the risk of companies becoming the
targets of activists, identifying deal opportuniti es and helping navigate client pitches.
Engaging with our clients
Our clients’ needs and their preferred communication channels continually evolve. Our objective is to engage with clients
in the ways most convenient for them. We use a variety of channels to engage with clients, including regular client
relationship and service meetings, as well as various corporate roadshows and dedicated events. In the post-COVID “new
normal,” we observe an increase in client interaction across all channels, and ha ve changed to a mix of hybrid and in-
person events.
Global Wealth Management interacted with clients via various settings in 2022, from personalized private briefings with
subject matter experts to segment-specific virtual and in-person events and large -scale initiatives. We utilize marketing
campaigns, events, advertising, publications and digital-only solutions to help drive greater awareness of UBS among
prospective clients and reinforce trust -based relationships between advisors and clients.
Personal Corporate Banking holds regular client events (leveraging a number of formats such as webcasts and in-
person, virtual or hybrid events), covering a wide range of topics. In 2022, we increasingly engaged with clients via online
channels, such as social media, online displays and search engines, and further decreased our use of traditional channels.
In Asset Management, we have a consistent program of client events and engagement activities throughout the year.
These include our flagship conferences, such as the annual
UBS Reserve Management Seminar
, and we held our second
annual
Alternatives Conference
globally in 2022, facilitated by new digital tools, and our publication of macro insights and thought leadership to provide
timely insights into rapidly evolving markets. We also hosted a broad range of hybrid events, including our investment
series, to help our clients better understand market challenges and opportunities, and we continued to engage with
clients through our social media and online channels.
The Investment Bank hosted more than 175 investor conferences and educational seminars globally in 2022, covering a
broad range of macro, sector, regional and regulatory topics. Almost all of those conferences were held virtually. More
than 40,000 clients took part in such events in 2022, providing insight and access to our own opinion leaders, policy
makers and leading industry experts. We leverage our intellectual capital and relationships and use our execution
capabilities, differentiated research content, bespoke solutions, client franchise model and global platform to expand
coverage across a broad set of clients.
UBS Neo Question Bank
asked by professional investors, while
UBS Live Desk
,
built within the
UBS Neo
of fast-paced commentary from UBS traders. Our clients’ needs and their preferred communication channels have
continued to evolve. Our objective is to engage with clients in the manner most convenient for them. Following the
pandemic, we have observed an increase in client interaction through all channels, both digital and in-person .
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How we measure client satisfaction
We use multiple techniques to regularly assess our achievements and the satisfaction of our clients.
Global Wealth Management is increasingly using technology and analytics capabilities to collect and respond to client
feedback. Our digital client feedback tool lets clients submit, via mobile and the web, input about overall satisfaction
with advisors and UBS, and share key topics they wish to discuss with their advisors. Advisors and their teams have
seamless, real-time access to client feedback, enabling them to be highly responsive. The tool is available in the US and
Asia Pacific, as well as most EMEA countries. In 2022, our client satisfaction level and net promoter score (NPS) remained
high.
Personal Corporate Banking has conducted annual surveys of clients in Switzerland since 2008, consistently covering
all private and corporate client segments annually since 2015. Clients provide feedback on their satisfaction with regard
to various topics (e.g., UBS overall, branches, client advisors, products and services) and indicate further product or
advisory needs. Survey responses are distributed to client advisors, who follow up with each respondent individually. In
2022, our client satisfaction levels and NPS remained high, with client satisfaction regarding mobile banking at an all-
time high.
The Quality Feedback system in Global Wealth Management and Personal Corporate Banking provides a comprehensive
and systematic platform to receive and process client feedback and suggestions. We receive feedback in various forms
and through different client touchpo ints. Client feedback, including complaints and suggestions, is vitally important, as
it shows direct and unfiltered client needs, supports the development and introduction of new products and services,
and, therefore, fosters the optimization of our offering in a client-focused manner. By addressing client feedback, we aim
to strengthen client relationships, improve client satisfaction and make tangible improvements to our services. By sharing
their views, clients contribute to quality improvements at all levels. We aim to respond to each individual who provides
feedback. In 2022, key topics and enhancements centered mostly around services rendered by our hotlines and in our
branches, cards, and Digital Banking features.
In Asset Management, we have an integrated process to record and manage client feedback through our client
relationship management tool. We also conduct regular surveys, covering our wholesale and institutional clients globally,
inviting them to assess their satisfaction with our client service, products and solutions, as well as other factors relevant
to their investments. The results are analyzed to identify focus areas for improvement, and our client relationship
managers follow up with respondents to address specific feedback where required.
The Investment Bank closely monitors client satisfaction via individual product coverage points. Direct client feedback is
actively captured and tracked in our systems. Internal regional forums serve as a platform for senior management to
discuss client relationships, possibilities for improvement, potential
opportunities and specific client issues.
Other
processes are in place to enable consolidated findings to be shared within UBS as appropriate. The Investment Bank also
closely monitors external surveys, which provide feedback across a range of investment banking services. We continue to
make progress in simplifying our technology infrastructure, focusing on increasing front-to-back efficiency and enhancing
our decision-making and relevance to clients. In the second quarter of 2022, we extended our Annual Global Markets
Client Survey to a broader population looking to measure client satisfaction, and the ease and frequency of doing
business. We also looked to understand the key drivers of each measure, both to refine individual coverage but also as
an additional input into our investment and development plans. The most significant drivers of client satisfaction remain
relationship management coverage and connectivity, liquidity and competitive pricing. We thoroughly evaluate the
feedback we receive, including complaints from clients, and take measures to address key themes identified.
1
Euromoney Private Banking and Wealth Management Survey 2022: No. 1 in ESG / Sustainable Investing.
2
“Clients” refers to the number of unique business relationships operated by Personal Banking.
3
“Clients” refers to the number of unique business relationships or legal entities operated by Corporate Institutional Clients.
Investors
We aim to create sustainable, long-term value for our investors by executing our strategy with discipline, maintaining risk
and cost discipline, and delivering attractive shareholder returns.
Investor base
Our investor base is well diversified. A substantial proportion of our institutional shareholders are based in the US, the
UK and Switzerland.
›
Refer to the “Corporate governance” section of this report for more information about disclosed shareholdings
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Alignment of interests
We aim to align the interests of our employees with those of our equity and debt investors, and this approach is reflected
in our compensation philosophy and practices.
›
Refer to “Our compensation philosophy” in the “Compensation” section of this report for more information
We are focused on driving long-term growth while maintaining risk and cost discipline
Our objective is to generate value for our shareholders and clients by driving long -term growth. To accomplish this, we
are building on our scale, content and solutions, while remaining disciplined on risk and costs. This will give us the
capacity to invest strategically, and will enable us to deliver against our financial and commercial targets.
Moreover, we are aiming to maximize our and our clients’ impact to create long-term sustainable value. We also have a
responsibility toward our communities and employees. We have outlined selected environmental, social and governance
aspirations, which should support our financial and commercial targets.
Our primary measurement of performance for the Group is return on common equity tier 1 (CET1), as regulatory capital
is our binding constraint and drives our ability to return capital to shareholders.
›
Refer to the “Targets, aspirations and capital guidance” section of this report for more information
Active capital management to enable growth and deliver attractive shareholder returns
Our first priority is ensuring that we can maintain a strong balance sheet. This includes our strong capitalization, in line
with our capital guidance of maintaining a CET1 capital ratio of around 13% and a CET1 leverage ratio of greater than
3.7%.
As a second priority, we consider opportunities for investment in growth.
Our third priority is returning capital to shareholders in the form of a progressive dividend and share buybacks. For 2022,
the Board of Directors is proposing a dividend to UBS Group AG shareholders of USD 0.55 per share. We also bought
back USD 5.6bn of our shares. Looking ahead, we intend to buy back more than USD 5bn of shares in 2023.
›
Refer to “UBS shares” in the “Capital, liquidity and funding, and balance sheet” section of this report for more information
Communications
Our Investor Relations (IR) function is the primary point of contact between UBS and our shareholders. Our senior
management and IR regularly interact with institutional investors, financial analysts and other market participants, such
as credit rating agencies. Clear, transparent and relevant disclosures, and regular direct interactions with existing and
prospective shareholders, form the basis for our communications. The IR team relays the views of and feedback on UBS
from institutional investors and other market participants to our senior management.
IR and our Corporate Responsibility function work together and interact with any investors interested in sustainability
topics relevant to UBS and wider society.
›
Refer to the first part of the “Corporate governance” section of this report and “Information policy” in that same section for more
information
›
Refer to our Sustainability Report 2022, available under “Annual reporting” at
ubs.com/investors
, for more information
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Employees
At UBS, all business is personal. We are dedicated to being a world-class employer for talented individuals across all our
markets, and a place where people can unlock their full potential. We want to have real impact. As such, we invest in
measures to strengthen our unique culture and to provide a framework for employee growth and well-being as part of
our overarching people-management approach.
Deliver on our purpose and culture
Everything we do as a firm starts with our purpose. It is why we do what we do, and, in this respect, our culture is decisive
in achieving our ambitions, and is grounded in our three keys to success: our
Pillars, Principles
Behaviors
. We therefore
engage with our employees and seek to build an even more diverse and inclusive organization. Likewise, embracing
flexibility and agile ways of working and our intentional focus on simplification and efficiency support a transformation
that will generate significant benefits for our clients and for our employees .
In our global employee experience survey conducted in spring 2022, 92% of respondents indicated that they were familiar
with our purpose. In 2022, we therefore sought to ensure that we are living up to our purpose by bringing it to life and
driving it deeply into our daily business and people -management processes. Our Leadership Summit has been pivotal in
that respect. Senior leaders engaged with and were aligned to our purpose and strategy, thereby making those concepts
more tangible within their teams and accelerating our transformation. They also participated in training to discover their
own purpose and to connect it to the firm’s performance opportunities. We will have an ong oing focus on the topic.
›
Refer to “A firm driven by purpose” at the beginning of this report for more information about our purpose and culture
Build a diverse, equitable and inclusive workplace
We live a culture of belonging, where everyone can thrive. In practical terms, we seek to hire individuals with diverse
skills, perspectives and experiences, to provide visibility and opportunities, and to create an inclusive culture where
employees feel recognized and valued.
As a member of The Valuable 500,
a global business collective, we are committed to taking action on disability inclusion.
We have improved the physical accessibility of many of our locations in 2022, increased digital accessibility for clients and
employees, and provided support for our disability-focused employee networks to increase their visibility and impact.
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In 2020, we outlined our intention to increase our female and ethnic minority representation, especially in leadership
positions, and we are making progress toward these aspirations. For example, we aim to have 30% of Director and above
roles globally held by women by 2025. At the end of 2022, that figure was 27.8%, up from 26.7% in 2021. Similarly,
our 2025 aspiration is to have 26% of Director and above roles in the US and the UK held by ethnic minority employees.
This figure was 20.4% in the US and 23.0% in the UK as of the end of 2022.
›
Refer to our Diversity, Equity and Inclusion Report 2022, which will be available in the second quarter of 2023 at
ubs.com/diversity
, for more details
Pay our people fairly and equitably
Fair and consistent pay practices are designed to ensure employees are appropriately rewarded for their contribution. We
pay for performance, and we take pay equity seriously. We’ve embedded clear commitments in our global compensation
policies and practices, and we regularly conduct internal reviews and external audits as quality checks. Since 2020, we
have been certified under the EQUAL-SALARY Foundation standards for our human resources practices in Switzerland,
the US, the UK, the Hong Kong SAR and Singapore, covering more than two- thirds of our global employee population.
Our global human resources policies and standards , including reward, performance management and promotion, from
hiring through retirement, are reviewed annually to further improve our approach and processes. Our processes are
global, and we apply the same standards across all our locations.
Listen to and appreciate employees
Key to bringing our purpose to life is listening to employees and acting on the things that matter to them. As part of our
employee listening strategy, we conduct regular Group-wide, focused and employee life cycle surveys. Those surveys
measure indicators such as strategic alignment, employee experience and well-being, collaboration, innovation, career
development and line manager effectiveness. We implement improvement measures on firm-wide, divisional and regional
levels and use survey results to create future culture-building initiatives.
Employee recognition continued to be a priority in 2022, as appreciation brings teams together and increases employees’
motivation and engagement. In particular, our Group Franchise Awards program rewards employees for promoting
innovation and cross-divisional collaboration. A linked idea-sharing platform helps employees collaborate on solutions
for various operational, client service and sustainability challenges. Furthermore, our peer-to-peer appreciation program,
called Kudos, encourages employees to recognize colleagues’ exemplary behavior, with more than 424,000 recognitions
awarded in 2022 alone.
Attract employees with the right capabilities and support their development
Connecting people with ideas and opportunities starts with our employees. In 2022, we continued to focus on hiring
diverse individuals with strong potential, along with the right capabilities and agile mindset. These qualities enable us to
deliver innovative and personalized products to clients faster, and in a more connected way. We hired a total of 12,693
external candidates in 2022, including more than 1,900 graduates and trainees, apprentices and interns through our
junior talent programs worldwide. We actively support multi-year apprenticeship programs in Switzerland and the UK,
along with summer internship programs in numerous locations. In 2022, for the 14th consecutive year, UBS was
recognized among the top 50 of the World’s Most Attractive Employers by employer-branding expert Universum.
Personnel by region
As of
% change from
Full-time equivalents
31.12.22
31.12.21
31.12.20
31.12.21
Americas
21,819
21,317
21,394
2
of which: USA
21,032
20,537
20,528
2
Asia Pacific
16,489
15,618
15,353
6
Europe, Middle East and Africa (excluding Switzerland)
14,342
14,091
13,899
2
of which: UK
6,234
6,051
6,069
3
of which: rest of Europe (excluding Switzerland)
7,823
7,826
7,652
0
of which: Middle East and Africa
285
215
178
33
Switzerland
19,947
20,359
20,904
(2)
Total
72,597
71,385
71,551
2
Drive career growth
We want our employees to be able to build long and successful careers. It starts with our senior leaders and line managers,
all of whom are expected to invest in their employees’ development and to inspire excellence. We take a systematic
approach to talent management, conducting annual talent reviews that look at our succession planning needs along with
individual employees’ contributions, abilities and future potential. Supporting this is our innovative Career Navigator
platform. It offers a wide range of self-service tools and resources, including mentorship and networking opportunities,
career path and training guidance, access to short-term rotations and internal mobility resources. To date, more than
7,000 people have shared their skills, enabling colleagues or internal recruiters to approach them directly for their subject
matter expertise.
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Our in-house UBS University plays a central role in both skill - and culture-building. Our broad offering includes business,
leadership and line manager education along with training on digitalization, data literacy, agile working, diversity,
inclusion and personal well-being, among other topics. Launched in June 2022, our new learning experience platform
offers AI-powered training recommendations based on employees’ unique needs and interests. We invested USD 78m in
training in 2022, and our permanent employees completed more than 1,327,000 learning activities, including mandatory
training, for an average of two training days per employee.
Work smarter
Driven by our strategic imperatives and evolving client needs, we continued to embrace new ways of working together
in 2022. In particular, we accelerated our transition to agile ways of working, with approximately 18,500 employees
across the firm working in agile teams as of year-end. In this setup, pods of specialists with end-to-end responsibility are
empowered to achieve better results, and more quickly, than in traditional project structures. A number of tailored
measures supported the transition, including the development of one consistent agile model and specialized training
delivered through the Agile Academy within our UBS University.
Comprehensive workforce data dashboards help us analyze all aspects of the employee life cycle, including recruitment,
internal mobility and attrition. These tools enable us to identify trends and make workforce decisions based on relevant
HR data.
Focus on impact and outcome
Our performance management approach (
MyImpact
), which considers both contribution and behavior, supports a high-
performance culture while simplifying our performance management and feedback processes. It features aspirational
objectives with outcomes aligned to strategic priorities, continuous feedback and transparent year-end decisions that
support pay-for-performance principles. Line managers play a key role in the quality of our approach. In 2022, we
introduced an integrated feedback app called
Feedback 365
, which allows employees to easily give and receive
meaningful feedback throughout the year.
Foster a supportive workplace community
We are committed to meeting employees’ needs and supporting their overall well-being. Hybrid-working arrangements
enable many employees to work at home several days a week, with agreed in-office days to support collaboration.
Additionally, starting with Global Wealth Management in the US, a new virtual worker framework launched in March
2022 will enable eligible US employees to work entirely remotely. These measures, along with options such as flexible
hours, part-time working, job sharing and partial retirement, will help us attract and retain top talent while making us a
stronger, more dynamic company.
Having seen the positive impact, we further expanded our employee health and well-being offering in 2022. This included
a suite of programs, benefits and workplace resources, along with a bespoke eLearning curriculum, that aimed to help
our employees manage their health, foster well-being, strengthen their resilience and support the sustainability of the
organization. We also sponsored virtual fitness challenges and mental health initiatives in all regions.
›
Refer to our Sustainability Report 2022, available under “Annual reporting” at
ubs.com/investors
, for more information about our
workforce, our people management approach and relevant data
Society
The world’s social and environmental problems are too big and complex to tackle alone. Lasting change can only be
achieved when philanthropists and public and private organizations work collectively to maximize positive impact for
people and the planet.
Our clients can maximize the positive effect of their giving through our diverse social impact offering: UBS Philanthropy
Services, the grant-making UBS Optimus Foundation network, UBS Global Visionaries and UBS Community Impact.
Reimagining client philanthropy
With more than 100 social impact and philanthropy staff around the globe, we help clients to maximize their impact
locally, nationally and globally. We have partnered for more than two decades with clients and their families by using an
investment-based approach and connecting them to an international network of expertise and support.
To best serve our clients, we base our approach on three pillars: Advice, Insights and Execution.
Advice
clients who are considering setting up their first charitable fund and guiding them on tax-efficient giving, thus maximizing
the value of charitable giving.
Insights
UBS (e.g., through insight trips, publications and events with fellow philanthropists, thought leaders and social
entrepreneurs, such as UBS Global Visionaries).
Execution
philanthropic giving, including structures such as donor-advised funds
(DAFs), outcomes financing, emergency relief funds
and our
UBS Collectives
, and supporting curated p rograms via the UBS Optimus Foundation network.
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Donor-advised funds
A DAF offers clients an easy, flexible and efficient alternative to setting up their own foundation and can be managed in
line with their usual investment approach. Their charitable donations can be invested within the parameters they select,
such as capital, growth or income, so they can grow their fund to give grants at a later date. UBS offers these services in
Switzerland, Singapore and the UK, with USD 249m in donations in 2022.
UBS Optimus Foundation
UBS Optimus Foundation is a network of foundations globally that connects clients with inspiring programs designed to
make a measurable, long-term difference. It has a 20-year track record and is recognized globally as a philanthropic
thought leader and is focused on incubating impact ventures, scaling impact through partnerships and achieving impact
transparency. The network is a pioneer in the social finance space, through which we leverage solutions to mobilize
private capital in new and more efficient ways. It conducts extensive due diligence and only recommends programs
considered to have the capacity to achieve long-term, measurable impact. UBS also makes matching contributions to the
network, to help our clients’ donations go even further.
Collective impact
The
UBS Collectives
their expertise and achieve a longer-term impact. The
Collectives
philanthropists follow a curriculum, network with peers and engage in programs with the goals of preventing family
separation, mitigating climate change and funding programs linked to measurable results. In 2022, USD 4.8m in funding
was raised for this long-term, systems- level change approach .
Emergency relief
In response to urgent relief eff orts, in 2022 UBS raised more than USD 25m for the Ukraine Relief Fund, with matched
funding from UBS and XTX Markets bringing the total to more than USD 50m. Over half the funds have been disbursed
to 14 partners providing relief, recovery and resilience services. In 2022, we also launched our Pakistan Relief Fund with
our partners Americares and The Citizens Foundation, which raised USD 1.2m, including UBS matching contributions, to
provide both response and recovery efforts.
UBS Global Visionaries
Through our UBS Global Visionaries program, we aim to create opportunities for clients and prospective clients to connect
with leading social entrepreneurs, and help entrepreneurs focusing on social and environmental issues increase their
impact by expanding their network, building capacity and raising awareness of their work. Since the program started in
2016, we have onboarded and helped 68 entrepreneurs to accelerate their impact.
A third-party evaluation
1
influence on expanding their networks, with 68% creating partnerships from it, 64% agreed that we had increased
awareness of critical global issues and their solutions, 51% agreed that the program had helped them build skills valuable
to delivering their mission, and 48% felt that the program had influenced their fundraising efforts. We have also started
to evaluate how we can maximize the role of the program in terms of the impact of Global Visionaries on the United
Nations Sustainable Development Goals. In 2022, 27% noted this benefit.
1
UBS Community Impact
At UBS, we seek to have an impact in local communities. We have a strategic focus on education and the development
of skills, as we believe these topics are where our resources can make the most impact. We believe our long-term
investment in these subjects is central to furthering the economic and social inclusion of those we support through our
activities.
With our Community Impact program, we focus on helping young people and adults to learn and develop skills. We
deliver on our commitment through strategic financial support and employee volunteering that will address social issues
to help further their economic and social inclusion. Through our Community Impact program, in 2022, we:
–
supported 370,916 young people and adults in learning and developing skills – our aim is to support 1.5 million young
people and adults by 2025;
–
engaged 34% of our global workforce in volunteering.
Direct cash contributions from the firm, including support through our Community Impact program, UBS’s affiliated
foundations in Switzerland and the UBS Foundation of Economics in Society at the University of Zurich, and contributions
to the UBS Optimus Foundation network, amounted to a total of USD 76m in 2022.
UBS’s overall charitable contributions are measured using the industry-leading Business for Societal Impact (B4SI)
framework. This includes cash, employee time and in-kind supp ort.
›
Refer to the “Social” section of our Sustainability Report 2022, available under “Annual reporting” at
ubs.com/investors
, for more
information
1
valuation led by Wasafiri Consulting in October 2022, based on survey results from 71% (44) of our 62 UBS Global Visionaries and alumni at the time.
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Our focus on sustainability and climate
Our commitment to sustainability starts with our purpose. We know finance has a powerful influence on the world and
we recognize that investments can help create a better world for everyone: a fairer society, a more prosperous economy
and a healthier environment. That is why we partner with our clients to help them mobilize their capital toward a more
sustainable world and why we have put sustainability at the heart of our purpose. We are guided by the goal of being
the financial provider of choice for clients that want to mobilize capital toward the achievement of the United Nations
Sustainable Development Goals (the SDGs) and the orderly transition to a low-carbon economy.
Our Code of Conduct and Ethics
In our Code of Conduct and Ethics (the Code), the Board of Directors (the BoD) and the Group Executive Board (the GEB)
set out the principles and practices that define our ethical standards and the way we do business, which apply to all
aspects of our business. All employees must affirm annually that they have read and will adhere to the Code and other
key policies, supporting a culture where ethical and responsible behavior is part of our everyday operations. In our Code,
we make a commitment to acting with the long term in mind and creating value for clients, employees and shareholders.
We aspire to do our part in creating a fairer, more prosperous society, championing a healthier environment and
addressing inequalities at their root. This ethos underpins our purpose and is in line with our external commitments, such
as our pledge to help making progress toward the SDGs. Following a substantial review in 2021, we made only limited
changes to the Code in 2022, mainly pertaining to clarifications, simplifications and alignment of language .
›
Refer to the Code of Conduct and Ethics of UBS, available at
ubs.com/code
, for more information
Our sustainability and impact governance
Sustainability activities, including climate, are overseen at the highest level of UBS, by the BoD and the GEB, and are
grounded in our Code.
›
Refer to our Sustainability Report 2022, available under “Annual reporting” at
ubs.com/investors
, for more information about our
sustainability and impact governance
Board of Directors and Group Executive Board
The BoD is responsible for setting UBS’s values and standards for the purpose of ensuring that the Group’s obligations
to stakeholders are met. Both the Chairman of the BoD and the Group CEO play key roles in safeguarding our reputation
and ensuring we communicate effectively with all of our stakeholders. The BoD’s Corporate Culture and Responsibility
Committee (the CCRC) is the UBS body primarily responsible for corporate culture, responsibility and sustainability. The
CCRC oversees our sustainability and impact strategy and key activities across environmental and social topics, including
climate, nature and human rights. Annually, it considers and approves our firm’s sustainability and impact objectives.
During its six meetings throughout the course of the year, the CCRC also reviews the GEB’s activities in executing our
climate strategy, including our net-zero targets, and, jointly with the BoD’s Risk Committee, evaluates the progress of
our climate risk program. All BoD committees have environmental, social and governance (ESG)-related responsibilities .
The Group CEO has delegated to the GEB Lead for Sustainability and Impact, Suni Harford, the responsibility to lead
reviews of the firm’s sustainability and impact strategy and related objectives, in agreement with fellow GEB members,
and to propose strategy and objectives to the CCRC. The GEB Lead for Sustainability and Impact also co-chairs the firm’s
cross-divisional and cross-functional Sustainability and Climate Task Force, which oversees the implementation of the
firm’s sustainability activities and its climate action plan, including its net -zero program. We manage these annual plans
and goals through our ISO 14001-certified environmental management system, with management accountabilities across
our firm. Senior representatives from across our firm, including from the business divisions, Risk, Compliance and Finance,
attend the task force’s regular meetings.
The GEB also resolves overarching matters relating to sustainability and climate risks, including risk management
framework, policies, and disclosure .
›
Refer to “Board of Directors” in the “Corporate governance” section of this report for more information about the CCRC
Group Sustainability and Impact
The Group Sustainability and Impact (GSI) organization supports the GEB Lead for Sustainability and Impact with carrying
out her responsibilities. GSI consists of the Chief Sustainability and Social Impact offices, headed by the Chief
Sustainability Officer (the CSO) and the Head Social Impact, respectively. The CSO is responsible for driving the
implementation of the Group-wide sustainability and impact strategy, including reporting on our progress toward net
zero (and the execution thereof by the business divisions and Group Functions). The Head Social Impact is responsible for
driving and implementing our social impact strategy, including Community Impact, Philanthropy Services and UBS Global
Visionaries. Progress toward the firm’s sustainability and impact strategy and associated targets is reviewed at least once
a year by the GEB and the CCRC.
›
Refer to our Sustainability Report 2022, available under “Annual reporting” at
ubs.com/investors
, for more information about our
sustainability and impact governance
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Our sustainability and impact strategy
To help us maximize our impact, we focus on three key areas to drive the sustainability transition: planet, people and
partnerships.
–
Planet:
Climate is a clear focus for us as we shift toward a lower-carbon future. We have committed to achieving net-
zero greenhouse gas (GHG) emissions from across our business by 2050.
–
People
: We believe in a diverse, equitable and inclusive society. We are taking action to get there, within our own
workplace and beyond .
–
Partnerships
: By working in partnership with other thought leaders and standard setters, our goal is to drive change
at a global scale.
›
Refer to our Sustainability Report 2022, available under “Annual reporting” at
ubs.com/investors
, for more information about
how UBS is advancing sustainability in the financial sector and beyond
Our approach to climate and nature
Our climate strategy covers two main areas: managing climate-related financial risks and acting for a low -carbon future.
Underpinning these two areas are four strategic pillars.
We understand the deep interrelationships that exist between climate and nature. Our climate strategy, including our
ambition to achieve net zero, also forms part of our approach toward managing nature -related risks and opportunities.
›
Refer to our Climate and Nature Report 2022, available at
ubs.com/gri
, for a full description of UBS’s approach to climate and
nature
Our approach to sustainable finance
As a global financial institution, we have a role in helping clients direct capital toward the SDGs. Our clients turn to us
for advice on how they can help finance the transition to a low-carbon economy, support sustainable finance, align their
investments with their personal values and better risk manage their portfolios and businesses. They want to take
advantage of these opportunities, while also managing the risks associated with this transfor mational challenge.
During a year of global geopolitical and economic upheaval, sustainability and sustainable finance remained strategically
important topics for UBS and many of our clients, with a focus on two key areas:
–
the implementation of strategic sustainability commitments, for example reaching net-zero GHG emissions across all
our activities by 2050, and
–
the ongoing evolution of regulatory guidance designed to prevent greenwashing.
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At UBS, we want to partner with all our clients by providing innovative and effective products and solutions that can
support them in their sustainability transition and deliver on their commitments, where that is their preference. In
particular, we want to support innovation and technological progress
.
›
Refer to our Sustainability Report 2022, available under “Annual reporting” at
ubs.com/investors
, for more information about our
sustainability and impact strategy and activities
Defining sustainable finance
It is important to set out how we define sustainable finance, as at present there is no global, uniformly accepted definition.
At UBS, sustainable finance means any financial product or service (including both investing and financing solutions) that
aims to explicitly align with and / or contribute to sustainability-related objectives, while targeting market-rate financial
returns.
Sustainability outcomes can occur across a range of topics including goals defined using a reference framework, such as
the SDGs in the United Nations 2030 Agenda for Sustainable Development. As an example, a sustainable investment (SI)
product could invest in companies whose transition plans are aligned with the goal of limiting global warming to 1.5°C
compared with the pre-industrial age or invest with the goal of encouraging companies to adopt such plans.
Our definition is also reflected in our Group’s SI framework, which specifically defines “sustainability focus” and “impact
investing” products. Both categories reflect a defined and explicit sustainability intention of the underlying investment
strategy. This intentionality differentiates them from more “traditional“ investment products, or those that consider ESG
aspects but do not actively and explicitly pursue any specific sustainability objective, such as ESG integration- or
exclusions-only approaches.
Identifying opportunities
UBS has a global and diversified business model. Each client has specific and differentiated sustainable financing, investing
and / or advisory needs. Leveraging the deep expertise of our experienced teams, we work hard to service those needs
in the best way possible. While their needs are diverse, our interactions with our clients follow an established rationale
that starts by building an understanding of the relevance of sustainability for their business and / or investment portfolio.
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Sustainable investment
In 2022, we made progress on a number of important investment product initiatives relevant to a broad spectrum of
clients across our business areas. For example:
–
we made it easier for private clients to access SI products and services, suited to their individual preferences, e.g.,
through expanded access to our Advice SI and separately managed account (SMA) solutions, and new targeted
sustainable and impact offerings. In line with EU regulations for clients in scope thereof, UBS systematically captures
clients’ preferences when it comes to SI;
–
we expanded the range of sustainable and impact funds in public and private markets and exchange-traded funds
available to private, institutional and corporate clients; and
–
we continued to provide customized, tailored, and structured investment solutions for private and institutional
investors.
›
Refer to our Sustainability Report 2022, available under “Annual reporting” at
ubs.com/investors
, for more information about our
sustainable investing and financing offering, including financing solutions, advisory, and research and insights
Sustainable financing
We develop financing solutions to help our clients transition to a more sustainable future. These solutions can be on-
balance sheet (e.g., green or sustainable loans and mortgages) or off-balance sheet (such as access to debt and equity
capital markets), and also include transaction structuring. Highlights in 2022 included: our Investment Bank facilitating
USD 48bn of green, social, sustainability and sustainability-linked (GSSS) bonds financing through 77 bond deals for our
clients, with a market-leading share of the Swiss franc GSSS bond market; our Personal Corporate Banking business
launching both
UBS Mortgage Energy
UBS Loan Energy
, the former to encourage private clients to replace their fossil
fuel heating, either with a more sustainable alternative or by installing a photovoltaic system, and the latter being specially
designed for energy-efficient investment properties. Clients benefit from attractive interest rates and comprehensive
advice for their low-energy properties. In December of 2022, UBS adopted guidelines providing an internal global
standard for all our products in the categories of sustainable lending, sustainable bonds and GHG emissions trading.
During the course of 2023, UBS expects to (re-)assess all its products against these guidelines.
Sustainable investments
For the year ended
% change from
USD bn, except where indicated
31.12.22
31.12.21
31.12.20
31.12.21
Sustainable investments
1
Sustainability focus
2
246.9
222.7
127.7
10.9
Impact investing
3
20.7
28.5
13.1
(27.4)
Total sustainable investments
4,5
267.6
251.2
140.8
6.5
SI proportion of total invested assets (%)
6.8
5.5
3.4
UBS total invested assets
3,957.2
4,596.2
4,187.2
(13.9)
1
We focus our sustainable investment reporting on those investment strategies exhibiting an explicit sustainability intention.
2
Underlying investments may contribute to positive sustainability outcomes through products / services / use of proceeds. Examples include Global Wealth Management’s discretionary Manage SI mandate solutions
and Asset Management’s strategies such as its Global Sustainable Equities product.
3
Strategies that have explicit intentions of generating measurable, verifiable and positive sustainability outcomes. Impact
generated is attributable to investor action and / or contributions. Examples include Global Wealth Management’s Oncology Impact funds and Asset Management’s UBS Engage for Impact or UBS Climate Action
funds.
4
In 2022, UBS converted funds to the sustainability focus and impact investing categories, in line with corresponding changes to the funds’ underlying investment policies. The main impact was on sustainability
focus and impact investing strategies in Asset Management of USD
33bn. Further, we aligned the Global Wealth Management and Personal Corporate Banking reporting of UBS funds and mandates products to
the Asset Management categorization with an impact on sustainable investments of USD
20bn.
5
invested assets of USD 10bn across total sustainable investments.
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In line with global market developments, at UBS , we continue to grow SI assets under management (AuM) as a share of
total AuM, reaching 6.8% by the end of 2022, compared with 5.5% at the end of 2021. As of 31 December 2022,
UBS’s SI assets (sustainability focus and impact investing) were USD 268bn, compared with USD 251bn at year-end 2021.
Impact investing assets decreased to USD 21bn from USD 29bn, reflecting negative market performance and foreign
currency effects, as well as methodology changes .
›
Refer to our Sustainability Report 2022, available under “Annual reporting” at
ubs.com/investors
, for more information about our
sustainable investing and financing offering, including financing solutions, advisory and research and insights
Managing sustainability and climate risks
At UBS, sustainability and climate risk is defined as the risk that UBS negatively impacts, or is impacted by, climate change,
natural capital, human rights, and other environmental, social, governance matters. Sustainability and climate risk may
manifest as credit, market, liquidity and / or non-financial risks for UBS, resulting in potential adverse financial, liability
and / or reputational impacts. These risks extend to the value of investments and may also affect the value of collateral
(e.g., real estate). Climate risks can arise from either changing climate conditions (physical risks) or from efforts to mitigate
climate change (transition risks). Physical and transition risks from a changing climate contribute to a structural change
across economies and, consequently, can affect banks and the financial sector throug h financial and non-financial
impacts.
Our Sustainability and Climate Risk (SCR) unit (part of Group Risk Control) manages material exposure to sustainability
and climate risks. It also advances our firm-wide SCR initiative to build in-house capacity for the management of
sustainability and climate-related risks.
›
Refer to “Sustainability and climate risk” in the “Risk management and control” section of this report
›
Refer to Appendix 2 to our Sustainability Report 2022, available under “Annual reporting” at
ubs.com/investors
, for a full
description of our sustainability and climate risk policy framework
Our sustainability goals and progress
We work with a long-term focus on providing appropriate returns to our stakeholders in a responsible manner. We are
committed to providing transparent targets and reporting on the progress made against them. Our aspirational goals, as
set out below, can therefore only partly be compared with what we set out in previous years.
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Our aspirational goals and progress
Our priorities
Our aspirational goals
Our progress in 2022
Planet, people,
partnerships
USD 400bn invested assets in sustainable investments by
2025.
Increased invested assets in sustainable investments to USD 268 bn
(compared with USD 251bn in 2021).
Planet
Decarbonization targets for 2030 for financing of the real
estate, fossil fuels, power generation and cement sectors
(from 2020 levels):
–
reduce emissions intensity of UBS’s residential real
estate lending portfolio by 42%;
–
reduce emissions intensity of UBS’s commercial real
estate lending portfolio by 44%;
–
reduce absolute financed emissions associated with
UBS loans to fossil fuel compani es by 71%;
–
reduce emissions intensity associated with UBS loans
to power generation companies by 49%; and
–
reduce emissions intensity associated with UBS loans
to cement companies by 15%.
Calculated progress against pathways for the real estate (commercial and
residential), fossil fuel and power generation sectors:
1
–
reduced emissions intensity of UBS’s residential real estate lending
portfolio by 8% (end of 2021 vs 2020 baseline);
–
reduced emissions intensity of UBS’s commercial real estate lending
portfolio by 7% (end of 2021 vs 2020 baseline);
–
reduced absolute financed emissions associated with UBS loans to fossil
fuel companies by 42% (end of 2021 vs 2020 baseline); and
–
reduced emissions intensity associated with UBS loans to power
generation companies by 12% (end of 2021 vs 2020 baseline).
Introduction of an additional decarbonization target for the cement sector,
as well as an estimation of the overall financed emissions.
Align 20% of AuM to be managed in line with net zero
(Asset Management).
2
Achieve net-zero emissions across discretionary client
portfolios by 2050 (Asset Management).
3
Initiated analysis of revisions to fund documentation and investment
management agreements to align with Asset Management’s net -zero-
aligned frameworks.
Achieve net-zero energy emissions resulting from our
own operations (scopes 1 and 2) by 2025; cut energy
consumption by 15% by 2025 (compared with 2020).
Reduced net GHG footprint for scope 1 and 2 emissions by 13% and energy
consumption by 8% (compared with 2021); continued implementation of
the replacement of fossil fuel heating systems and investing in credible
carbon removal projects; achieved 99% renewable electricity coverage
despite challenging market conditions.
Offset historical emissions back to the year 2000 by
sourcing carbon offsets (by year-end 2021) and by
offsetting credit delivery and full retirement in registry (by
year-end 2025).
Continued to follow up on credit delivery and retirement of sourced
portfolio.
Engage with key vendors on aiming for net zero by 2035.
Identified “GHG key vendors” (vendors that collectively account for 50%
of our estimated vendor GHG emissions) and invited the vendors that
accounted for 67% of our annual vendor spend (including all GHG key
vendors) to disclose their environmental performance through CDP’s Supply
Chain Program, with 66% of the invited vendors completing their
disclosures in the CDP platform.
People
30% global female representation at Director level and
above by 2025.
Increased to 27.8% (2021: 26.7%) female representation at Director level
and above.
26% of US roles at Director level and above held by
employees from ethnic minorities by 2025.
Increased to 20.4% (2021: 20.1%) ethnic minority representation at Director
level and above in the US.
26% of UK roles at Director level and above held by
employees from ethnic minorities by 2025.
Increased to 23.0% (2021: 21.3%) ethnic minority representation at Director
level and above in the UK.
Raise USD 1bn in donations to our client philanthropy
foundations and funds and reac h 25 million beneficiaries
by 2025 (cumulative for 2021 –2025).
Achieved a UBS Optimus Foundation network donation volume of
USD 274m in 2022, totaling USD 436m since 2021 (both figures include UBS
matching contributions).
Reached 5.9 million beneficiaries.
Support 1.5 million young people and adults to learn and
develop skills through our community impact activities
(2022–2025).
Reached 370,916 beneficiaries through strategic community impact
activities.
4
Partnerships
Establish UBS as a leading facilitator of discussion,
debate and idea generation.
Co-organized, with the Institute of International Finance, the first Wolfsberg
Forum for Sustainable Finance.
Joined a consortium that is pioneering methods of assessing and maximizing
the GHG reduction potential of energy storage.
Co-founded Carbonplace, a technology platform for the voluntary carbon
market that has the goal of creating a streamlined and transparent market
for our clients.
Drive standards, research and development, and
product development.
Co-led the Taskforce on Nature-related Financial Disclosures’ financial-
sector-specific working group.
Collaboration with two Swiss companies that are pioneering innovative
carbon removal technologies.
Joined the Partnership for Carbon Accounting Financials (PCAF).
1
Refer to the “Environment” section of our Sustainability Report 2022, available under “Annual reporting” at ubs.com/investors , for further information. The inherent one-year time lag between the as- of date of our
lending exposure and the as-of date of emissions can be explained by two factors: corporates disclose their emissions in annual reporting only a few months after the end of a financial year; and specialized third-party
data providers take up to nine months to collect disclosed data and make it available to data users. Consequently, the baselines for our net-zero ambitions are based on year-end 2020 lending exposure and 2019
emissions data. Our 202 1 emissions actuals are based on year-end 2021 lending exposure and 202 0 emissions data.
2
commitment in 2021. By 2030, the weighted average carbon intensity of funds is to be 50% below the carbon intensity of the respective 2019 benchmark.
3
of this goal include our Asset Management business division only.
4
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Our climate-related metrics and targets
We have developed methodologies that we use to set our climate-related targets and identify climate-related risks and
which underly the metrics that are disclosed in this report. Standard-setting organizations and regulators continue to
provide new or revised guidance and standards, as well as new or enhanced regulatory requirements for climate
disclosures. Our disclosed metrics are based upon data available to us, including estimates and approximations where
actual or specific data is not available. We intend to update our disclosures to comply with new guidance and regulatory
requirements as they become applicable to UBS. Such updates may result in revisions to our disclosed metrics, our
methodologies and related disclosures, which may be substantial, as well as changes to the metrics we disclose.
Our climate targets and ambitions are high-level goals that have been set based on the methodologies, data and
assumptions that we currently use. Changes to these methodologies, data and assumptions may affect our progress
toward intermediate targets and ambitions and the achievability of net zero and other climate goals. Our 2050 net-zero
targets, and related ambitions for scope 3 emissions, have a critical dependency on overall progress across all sectors and
countries toward net-zero carbon emissions that require s substantial governmental action across many jurisdictions. In
the absence of such progress, our goals with respect to scope 3 emissions will not be achievable.
›
Refer to our Climate and Nature Report 2022, available at
ubs.com/gri
, for a full description of our net-zero targets, including
baselines and pathways
Climate-related metrics 2022
For the year ended
% change from
31.12.22
31.12.21
31.12.20
31.12.21
Risk management
Carbon-related assets (USD bn)
1,2
33.8
36.5
37.1
(7.4)
of which: UBS AG
8.9
10.1
11.0
(11.9)
of which: UBS Switzerland AG
24.6
26.0
25.4
(5.4)
Proportion of total customer lending exposure, gross (%)
7.5
8.0
8.6
Total exposure to climate-sensitive sectors, transition risk (USD bn)
2,3,4
24.9
27.3
27.1
(8.8)
of which: UBS AG
5.4
6.7
7.5
(19.4)
of which: UBS Switzerland AG
19.3
20.4
19.2
(5.4)
Proportion of total customer lending exposure, gross (%)
5.5
5.9
6.2
Total exposure to climate-sensitive sectors, physical risk (USD bn)
2,3,4
30.0
31.9
35.0
(6.0)
of which: UBS AG
11.6
13.3
18.3
(12.8)
of which: UBS Switzerland AG
17.7
18.2
16.2
(2.7)
Proportion of total customer lending exposure, gross (%)
6.7
7.0
8.0
Opportunities
Number of green, sustainability, and sustainability -linked bond deals
5
69
98
29
(29.6)
Total deal value of green, sustainability, and sustainability-linked bond deals (USD bn)
5
42.4
63.3
19.3
UBS-apportioned deal value of above (USD bn)
8.8
13.2
5.7
Stewardship – Voting
Number of climate-related resolutions voted upon
6
160
89
50
79.8
Proportion of supported climate-related resolutions (%)
71.2
78.6
88.0
Own operations (reporting period: July to June)
Net GHG footprint (1,000 metric tons CO
2
e)
7
25
30
75
(15.4)
Change from baseline 2004 (%)
(93.0)
(92.0)
(79.0)
Share of renewable electricity (%)
99
100
85
1
banking book. UBS further includes the four non-financial sectors addressed by the TCFD, including, but not limited to, fossil fuel extraction, carbon-based power generation, transportation (air, sea, rail, and auto
manufacture), metals production and mining, manufacturing industries, real estate development, chemicals, petrochemicals, and pharmaceuticals, building and construction materials and activities, forestry, agriculture,
fishing, food and beverage production, as well as including trading companies that may trade any of the above (e.g., oil trading or agricultural commodity trading companies). This metric is agnostic of risk rating, and
therefore may include exposures of companies that may be already transitioning or adapting their business models to climate risks, unlike UBS climate-sensitive sectors methodology, which takes a risk-based approach
to defining material exposure to climate impacts.
2
further develop our risk identification and measurement approaches, including further and updated geospatial analysis of properties securing financing with UBS (real estate) and better understanding how private
lending (e.g., Lombard) activities may result in direct financial impacts for UBS. Lombard lending rating is assigned based on the average riskiness of loans.
3
guarantees, as well as irrevocable loan commitments (within the scope of expected credit loss), and is based on consolidated and standalone IFRS numbers. Metrics are calculated and restated based on 2022
methodology, across three years of reporting, 2020 –2022.
4
Climate-related risks are scored between 0 and 1, based upon sustainability and climate risk transmission channels, as outlined in Appendix 3 to our
Sustainability Report 2022, available under “Annual reporting” at ubs.com/investors. Risk ratings represent a range of scores across five risk-rating categories: low, moderately low, moderate, moderately high, and
high. The climate -sensitive exposure metrics are determined based upon the top three out of five rated categories: high to moderate.
5
under the voluntary ICMA Green Bond Principles, Sustainability Bond Principles, and Sustainability -Linked Bond Principles. The principles include a recommendation that the issuer appoints an external review provider
to undertake an independent external review (e.g., second-party opinion). This is consistent with market practice.
This excludes proposals related to Japanese companies that included changes to the companies’
articles of association. The 2022 and 2021 numbers include shareholder and management proposals, the 2020 numb er shareholder proposals only. This reflects the increasingly common market practice of climate-
related proposals being presented by management.
7
Net greenhouse gas (GHG) footprint equals gross GHG emissions minus GHG reductions from renewable electricity and CO
2
e offsets (gross GHG emissions
include: direct GHG emissions by UBS; indirect GHG emissions associated with the generation of imported / purchased electricity (grid average emission factor), heat or steam; and other indirect GHG emissions
associated with business travel, paper consumption and waste disposal). A breakdown of our GHG emissions (scopes 1, 2 and 3) is provided in Appendix 3 to our Sustainability Report 2022, available under
“
Annual
reporting
”
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Reporting to our stakeholders on our sustainability strategy and activities
Further information about our sustainability efforts and commitments is provided in our Sustainability Report 2022,
available under “Annual reporting” at
ubs.com/investors
. The content of our Sustainability Report 2022 has been
prepared in accordance with Global Reporting Initiative (GRI) standards and with the German rules implementing the EU
Directive on disclosure of non -financial and diversity information (2014/95/EU). We also disclose data on climate-related
financial risks, pertaining to the Swiss Financial Market Supervisory Authority’s (FINMA ’s) disclosure requirements as set
out in appendix 5 to FINMA Circular 2016/1 “Disclosure – banks. ” Our reporting on sustainability has been reviewed on
a limited assurance basis by Ernst Young Ltd against the GRI standards.
›
Refer to our Sustainability Report 2022, available under “Annual reporting” at
ubs.com/investors
, for an overview of non-
financial disclosures in accordance with the German rules implementing EU Directive 2014/95 and for information about UBS AG
and UBS Europe SE disclosures pursuant to Art. 8 of the EU Taxonomy Regulation
Regulation and supervision
As a financial services provider based in Switzerland, UBS is subject to consolidated supervision by the Swiss Financial Market
Supervisory Authority (FINMA). Our entities are also regulated and supervised by authorities in each country where they
conduct business. Through UBS AG and UBS Switzerland AG, both 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 a global systemically important bank (a G-SIB), as designated by the Financial Stability Board, and a systemically relevant
bank (an SRB) in Switzerland, we are subject to stricter regulatory requirements and supervision than most other Swiss
banks.
›
Refer to the “Our evolution” section of this report for more information
›
Refer to the “Regulatory and legal developments” and “Risk factors” sections of this report for more information
Regulation and supervision in Switzerland
Supervision
UBS Group AG and its subsidiaries are subject to consolidated supervision by FINMA under the Swiss Banking Act and
related ordinances, which impose standards for matters such as minimum capital, liquidity, risk concentration and internal
organization standards. 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 (SIB), we are subject to capital and total loss -absorbing
capacity (TLAC) requirements that are based on both risk-weighted assets and the leverage ratio denominator, and are
among the most stringent in the world. We are also subject to Swiss SIB liquidity requirements and to minimum long-
term funding requirements .
›
Refer to the “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 “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 and UBS AG are both subject to the Bank Holding Company Act,
pursuant to which the Federal Reserve Board has supervisory authority over the US operations of both UBS Group AG and
UBS AG.
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 as a securities-based swap dealer with the
Securities and Exchange Commission (the SEC).
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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 in London, which serves as a global booking center for our Investment Bank. Our
regulated subsidiaries in the UK that provide asset management services are authorized and regulated mainly by the FCA,
with one entity, UBS Asset Management Life Ltd, being also subject to the authority of the PRA.
Regulation and supervision in Germany / 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 (the 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 13 locations in Asia Pacific and are subject to regulation and supervision by local financial regulators. Our
regional hubs are in Singapore and the Hong Kong SAR.
In Singapore, we conduct our operations primarily through UBS AG Singapore Branch and UBS Securities Pte. Ltd., which
are supervised by the Monetary Authority of Singapore and the Singapore Exchange.
UBS AG Hong Kong Branch is primarily supervised by the Hong Kong Monetary Authority. UBS Securities Hong Kong
Limited, UBS Securities Asia Limited and UBS Asset Management (Hong Kong) Limited are primarily supervised by the
Hong Kong Securities and Futures Commission. In addition, UBS Securities Hong Kong Limited is supervised by the Hong
Kong Stock Exchange and the Hong Kong Futures Exchange.
In mainland China, UBS has multiple licenses to operate its core business lines and the various UBS entities are subject to
regulation by a number of different government agencies. The People’s Bank of China oversees the macro capital markets
policies and ensures coordinated supervisory approaches by the China Banking and Insurance Commission, the China
Securities and Regulatory Commission, and the exchanges.
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 reputation al 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
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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 be stabilized otherwise.
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.
FINMA evaluates the recovery and resolution plans of Swiss SRBs on a regular basis. In its most recent assessment
published in March 2022, FINMA re-confirmed that our Swiss emergency plan is effective and that our recovery plan was
approved. Furthermore, FINMA acknowledged the continued progress we made toward achieving global resolvability.
UBS’s crisis management framework
Our crisis management framework assigns responsibility and actions depending on the nature of the stress incident and
the scale of the response needed.
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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.
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The Group Executive Board (th e 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 such activation, based on
the GRP’s risk indicators.
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FINMA has the authority to determine whether the point of non -viability (PONV) as defined by Swiss law has been
reached and, as part of the resolution strategy, has the power to order the bail-in of creditors to recapitalize and
stabilize the Group, limit payments of dividends and interest, alter our legal structure, take actions to reduce business
risk, and order a restructuring of the bank.
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Global Recovery Plan
The GRP provides a tool to restore financial strength if UBS comes under severe capital and 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 Group enters into resolution. The SPE bail-in strategy would involve writing down
the Group’s remaining equity and additional tier 1 and tier 2 instruments, as well as bail-in of total TLAC-eligible senior
unsecured bonds at the UBS Group AG level. An internal recapitalization of undercapitalized subsidiaries would be made
simultaneously with losses transmitted to UBS AG and, ultimately, UBS Group AG. Post-resolution restructuring measures
could include disposal and winding down of businesses and assets.
Local recovery and resolution plans
The Swiss emergency plan demonstrates 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 holding UBS Switzerland AG as a
separate legal entity and maintaining sufficient capital and liquidity to ensure its continued operation. FINMA considers
the plan to be effective.
The US resolution plan sets out the steps that could be taken to resolve the UBS Americas Holding LLC group if it suffered
material financial distress and the UBS Group was unable or unwilling to provide financial support. As required by US
regulations, our US plan contemplates that UBS Americas Holding LLC will commence US bankruptcy proceedings. Prior
to this, the plan envisages UBS Americas Holding LLC down -streaming financial resources to subsidiaries to facilitate
orderly wind-down or disposal of businesses.
UBS Europe SE develops a local recovery plan annually based on European Central Bank (ECB) requirements, and
resolution planning information and capabilities based on Single Resolution Board requirements. On the basis of such
information the Internal Resolution Team (IRT), 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 Group entities and jurisdictions.
Regulatory and legal developments
Developments regarding prudential matters
In March 2022, the Swiss Financial Market Supervisory Authority (FINMA) presented its annual assessment of the recovery
and resolution plans of systemically important financial institutions in Switzerland as part of the too-big-to-fail framework.
In its report, FINMA acknowledged the further progress that UBS has made with regard to its global resolvability by
significantly reducing the remaining obstacles to the implementation of its resolution strategy and making further
improvements to its recovery plans. FINMA considered UBS’s global recovery plan and Swiss emergency plan to be
effective, while identifying certain areas for further improvement, which UBS is in the process of addressing.
In parallel, the Swiss Federal Council announced the key parameters for a public liquidity backstop in conjunction with
the revision of the Swiss Liquidity Ordinance. The liquidity backstop would enable the Swiss government and the Swiss
National Bank to support the liquidity of a Swiss systemically important bank (SIB) in the process of resolution. The
introduction of the backstop is intended to increase the confidence of market participants in the ability of SIBs to become
successfully recapitalized and remain solvent in a crisis situation. The Swiss Federal Department of Finance (the FDF) is
expected to issue a public consultation by mid-2023.
In July 2022, the revision of the Swiss Liquidity Ordinance became effective, which increases the regulatory minimum
liquidity requirements for SIBs from 1 January 2024. The specific increase for UBS remains uncertain pending supervisory
guidance from FINMA, which is expected to be communicated to the firm in the autumn of 2023. Related new and
revised regulatory reporting requirements became effective from the fourth quarter of 2022 onward.
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In November 2022, the Swiss Federal Council adopted the amendments to the Banking Act and the Banking Ordinance,
which entered into force as of 1 January 2023. The amendments enact insolvency provisions for banks into statutory law
and strengthen the deposit insurance framework. They also replace the current resolvability discount on the gone concern
capital requirements for SIBs, including UBS, with a reduced base gone concern capital requirement. In addition, FINMA
has the authority to impose a surcharge of up to 25% of the base gone concern capital requirement should obstacles to
a SIB’s resolvability be identified in future resolvability assessments. We currently expect that our total gone concern
requirements will remain substantially unchan ged in the first quarter of 2023 because of these changes.
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. We currently estimate that the
revised Basel III framework would lead to a further net increase in risk-weighted assets (RWA) of around USD 12bn, before
taking into account mitigating actions and not reflecting the impact of the output floor, which is phased in over time.
Our estimate includes the finalization of the Basel III framework, as well as the Fundamental Review of the Trading Book,
based on our current understanding of the relevant standards. It may change as a result of new or updated regulatory
interpretations, appropriate conservatism in model calibration, the implementation of Basel III standards into national
law, changes in business growth, market conditions and other factors. The final degree of alignment between the Swiss
implementation and those in other jurisdictions, particularly those regarding the treatment of historical operational losses,
remains uncertain at this stage.
In the US, the Securities and Exchange Commission (the SEC) has proposed a number of significant new and revised
regulations, including, among others, proposals that would significantly change order execution rules in US public equity
markets and new disclosure requirements relating to climate, cybersecurity and share repurchases, as well as changes
relating to investment companies and investment advisors. On 15 February 2023, the SEC approved rule changes to
shorten the settlement cycle for US markets to trade date +1, with the compliance date set as 28 May 2024.
US banking regulators are expected to adopt rules that would substantially change how banks’ service to low-income
and underserved communities is evaluated under the Community Reinvestment Act, which, if adopted as currently
proposed, would change measurement of this obligation for UBS Bank USA . The regulators further propose regulations
to implement the remaining Basel III capital requirements, including the Fundamental Review of the Trading Book
requirements. These requirements, when final, will affect UBS Americas Holding LLC.
The above proposals from the SEC and the US banking regulators represent a significant regulatory agenda, which, if
completed in the near future, would likely require significant resources to implement.
Corporate taxation in Switzerland and the US
In December 2021, the Organisation for Economic Co -operation and Development (the OECD) issued Global Anti-Base
Erosion Rules under the Pillar 2 framework. To address this, the Swiss Federal Council launched the consultation of the
ordinance on the national implementation of a global minimum corporate tax rate in August 2022. The Federal Council
has proposed a minimum tax rate of 15% for Swiss firms with global earnings above EUR 750m from January 2024. The
OECD model rules will be transformed into Swiss national law following a constitutional amendment, which is subject to
a mandatory referendum, expected by June 2023. We do not expect the proposed implementation of global minimum
taxation in Switzerland to materially impact our effective tax rate.
As part of the Inflation Reduction Act (the IRA) passed by the US Congress in August 2022, a new corporate alternative
minimum tax (CAMT) was introduced, with an effective date of 1 January 2023. CAMT is calculated as 15% of an entity’s
consolidated financial statement profits, without taking into account pre-2019 tax loss carry-forwards. As a result, the
Group is expected to incur significant US current tax expenses, although these will be offset by the recognition of
equivalent benefits in respect of deferred tax assets. There is no change to the Group’s effective tax rate. CAMT will
temporarily defer the accretion of profits to the Group’s common equity tier 1 (CET1) capital, but the amount of such
deferral is expected to be recaptured in the future through the use of CAMT credits. The 2022 impact on the accretion
of CET1 capital would have been around USD 250m.
Sanctions related to the Russia–Ukraine war
During 2022, the Swiss Federal Council adopted the EU sanctions against Russia. Recently issued measures provide,
among other things, a legal basis for the introduction of price caps for Russian crude oil and petroleum, and include a
ban on the provision of certain services to the Russian government and Russian companies. 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.
Developments regarding environmental, social and governance matters
In 2022, environmental, social and governance (ESG) matters continued to evolve rapidly across different jurisdictions.
In June 2022, two new self-regulation minimum requirements were issued by the Swiss Bankers Association. One
requirement sets standards for the consideration of sustainability criteria in the investment advisory process and the other
regulates the mortgage advisory process. In parallel, the Swiss Federal Council launched the Swiss Climate Scores, which
consist of six indicators that provide transparency regarding climate-related information, such as carbon emissions and
the implied temperature increase of a portfolio .
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In September 2022, the Swiss Parliament adopted a new federal law on climate protection, including provisions related
to emission-reduction pathways and interim targets. The law provides the legal basis for measures to support the
transition to net zero in different economic sectors, including the financial sector. Subject to a referendum that will take
place in June 2023, the new law is expected to enter into force in 2024 .
The Swiss Federal Council adopted a revised ordinance on climate-related disclosures in November 2022, which will be
mandatory for large companies domiciled in Switzerland as of 1 January 2024. The ordinance makes reference to the
recommendations of the Task Force on Climate-related Financial Disclosures (the TCFD) and sets disclosure requirements
related to the plans for the transition to net zero and regarding climate-related impacts on a company’s business activities.
In parallel, FINMA has issued guidance on disclosures of climate-related financial risks and announced another review of
climate-related disclosures in the course of 2023.
In December 2022, the Swiss Federal Council published a report on sustainability in the financial sector, in which it defined
15 measures planned to be implemented in the years 2023 to 2025. The measures aim to, among other things, ensure
that more and better sustainability data is available from all sectors of the economy, in order to increase overall
transparency. The Swiss government also adopted a position on greenwashing, stating that financial products or services
should only be advertised as being sustainable if they are aligned with or contribute to at least one of the goals of the
wider sustainability frameworks, such as the United Nations Sustainable Development Goals.
In January 2023, FINMA provided further guidance on the developments regarding the management of climate risks.
FINMA reiterated its expectation that supervised institutions, including UBS, will establish adequate frameworks for
managing climate-related financial risks that are adapted to the respective risk profile of the institution. In this context,
FINMA expects the supervised financial institutions to proactively engage with the recommendations and guidance
provided by international bodies, such as the BCBS and its Principles for the Effective Management and Supervision of
Climate-Related Financial Risks issued in June 2023, as well as relevant best practices in the market, and to further develop
their tools and processes where necessary.
In April 2022, the SEC proposed rules on climate-related disclosures. The proposed rules would require qualitative
disclosures on climate risk management processes inclusive of governance, risk identification and scenario analyses, and
quantitative disclosures on greenhouse gas emissions and financial statement impacts.
The European Commission (the EC) proposed draft legislation on corporate sustainability due diligence in February 2022,
requiring companies to identify and, where necessary, prevent, end or mitigate adverse impacts of their activities on
human rights and the environment. The EC also published a consultation aiming to gain a better understanding of the
functioning of ESG ratings provided by specialized rating agencies.
In November 2022, the EU finalized the Corporate Sustainability Reporting Directive, which amends the reporting
requirements of the 2014 Non-Financial Reporting Directive for all large companies and all companies listed on regulated
markets in the EU. It requires the first companies, including UBS, to provide detailed information about sustainability
matters in their annual financial reports from the 2024 fiscal year onward, including the impact of their business activities
on sustainability matters and the influence of sustainability factors (e.g., climate change or human rights issues) on their
business model, outlook and operations. The Swiss Federal Council decided to review the impact of the EU rules on
Switzerland with a consultation planned for July 2024 at the latest.
On a global level, the International Sustainability Standards Board (the ISSB) launched a consultation in March 2022 on
two of its proposed standards: one defining general sustainability-related disclosure requirements and the other specifying
climate-related disclosure requirements. Based on the results of this consultation, the ISSB decided to adopt disclosure
standards on greenhouse gas emissions, to introduce scenarios for reporting on climate resilience and to identify climate-
related risks and opportunities. The ISSB is expected to finalize its standards by June 2023.
We expect to implement the standards and requirements that are applicable to us by their respective due dates.
FINMA revision of Circular 2008/21 “Operational risks and resilience – banks”
In December 2022, FINMA issued a revised “Operational risks and resilience – banks” circular that incorporates the BCBS’s
new Principles on Operational Resilience into the FINMA framework, including information and communication
technology risk, cyber risk, critical data risk, business continuity management, cross-border business service risk, and the
continuation of critical services during resolution and recovery. A two -year transition period has been granted for the
implementation of the requirements on ensuring operational resilience, with the first elements on critical functions and
disruption tolerance required to be in place by 1 January 2024 and the remaining elements in phases until 1 January 2026.
Swiss Federal Council approval of the revised Anti-Money Laundering Act
In August 2022, the Swiss Federal Council revised the Swiss Anti-Money Laundering Act and amended the Anti-Money
Laundering Ordinance, which became effective on 1 January 2023. Among other things, the revised provisions will affect
reporting requirements, as well as requirements to periodically review all clients and client data.
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Risk factors
Certain risks, including those described below, may affect our ability to execute our strategy or our business activities,
financial condition, results of operations and prospects. We are inherently exposed to multiple risks, many of which may
become apparent only with the benefit of hindsight. As a result, risks that we do not consider to be material, or of which
we are not currently aware, could also adversely affect us. Within each category, the risks that we consider to be most
material are presented first.
Market, 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
may therefore reduce transaction -based income and may also impede our ability to manage risks.
Geopolitical events:
with millions of people displaced, a mass exodus of businesses from Russia, and heightened volatility across global
markets. In addition, as a result of the war, several jurisdictions, including the US, the EU, the UK, Switzerland and others,
have imposed extensive sanctions on Russia and Belarus and certain Russian and Belarusian entities and nationals, as well
as the Russian Central Bank. Among others, the financial sanctions include barring certain Russian banks from using the
Society for Worldwide Interbank Financial Telecommunication (SWIFT) messaging system, asset freezes for sanctioned
individuals and corporations, limits on financial transactions with sanctioned entities and individuals, and limitation of
deposits in the EU and Switzerland from Russian persons not entitled to residency in the European Economic Area (the
EEA) or Switzerland. The scale of the conflict and the speed and extent of sanctions may produce many of the effects
described in the paragraph above, including in ways that cannot now 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.
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COVID-19 pandemic:
as labor market displacements, supply chain disruptions, and inflationary pressures, have adversely affected, and may still
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, as well as significant disruptions in certain
regional real estate markets, increased unemployment, increased credit and counterparty risk, and operational challenges.
While in most jurisdictions the pandemic -related governmental measures were reversed, resurgence of the pandemic,
ineffectiveness of vaccines and continuance or imposition of new pandemic control measures may result in additional
adverse effects on the global economy negatively affecting UBS’s results of operations and financial condition. Should
inflationary pressures or other adverse global market conditions persist, or should the pandemic lead to additional
economic or market disruptions, we may experience 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 the COVID-19 pandemic 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.
The extent to which the pandemic, the ongoing Russia–Ukraine war, and 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 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.
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 has 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, particularly in the US, where rates have rapidly increased. Customer deposit outflows may require UBS to
obtain alternative funding, which would likely be more costly than customer deposits.
Our shareholders’ equity and capital are also affected by changes in interest rates.
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Currency
fluctuation may have an adverse effect on our profits, balance sheet and regulatory capital
We are subject to currency fluctuation risks. Although our change from the Swiss franc to the US dollar as our Group
presentation currency in 2018 reduces our exposure to currency fluctuation risks with respect to the Swiss franc, a
substantial portion of our assets and liabilities are denominated in currencies other than the US dollar. Additionally, in
order to hedge our CET1 capital ratio, our CET1 capital must have foreign currency exposure, which leads to currency
sensitivity. As a consequence, it is not possible to simultaneously fully hedge both the amount of capital and the capital
ratio. Accordingly, changes in foreign exchange rates may adversely affect our profits, balance sheet, and capital, leverage
and liquidity coverage ratios.
Regulatory and legal risks
Material legal and regulatory risks arise in the conduct of our business
As a global financial services firm operating in more than 50 countries, we are subject to many different legal, tax and
regulatory regimes, including extensive regulatory oversight, and are exposed to significant liability risk. We are subject
to a large number of claims, disputes, legal proceedings and government investigations, and we expect that our ongoing
business activities will continue to give rise to such matters in the future. The extent of our financial exposure to these
and other matters is material and could substantially exceed the level of provisions that we have established. We are not
able to predict the financial and non-financial consequences these matters may have when resolved.
We may be subject to adverse preliminary determinations or court decisions that may negatively affect public perception
and our reputation, result in prudential actions from regulators, and cause us to record additional provisions for 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 UBS has further appealed
this judgment.
Resolution of regulatory proceedings may require us to obtain waivers of regulatory disqualifications to maintain certain
operations, may entitle regulatory authorities to limit, suspend or terminate licenses and regulatory authorizations, and
may permit financial market utilities to limit, suspend or terminate our participation in them. Failure to obtain such
waivers, or any limitation, suspension or termination of licenses, authorizations or participations, could have material
adverse consequences for us.
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.
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.
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 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. In addition, Swiss regulatory changes with regard to such
matters as capital and liquidity have often proceeded more quickly than those in other major jurisdictions, and
Switzerland’s requirements for major international banks are among the strictest of the major financial centers. This could
put Swiss banks, such as UBS, at a disadvantage when competing with peer financial institutions subject to more lenient
regulation or with unregulated non-bank competitors.
Our implementation of additional regulatory requirements and changes in supervisory standards, as well as our
compliance 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.
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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.
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.
Increases in capital and liquidity standards could significantly curtail our ability to pursue strategic opportunities or to
return capital to shareholders.
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 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 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.
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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 participatio n 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.
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 environmental, social and governance (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 ambitions 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 many cases, goals and standards are defined at a high level
and can be subject to different interpretations. 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 aspirations. 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.
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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.
Our financial results may be negatively affected by changes to assumptions and valuations, as well as changes to
accounting standards
We prepare our consolidated financial statements in accordance with International Financial Reporting Standards (IFRS).
The application of these accounting standards requires the use of judgment based on estimates and assumptions that
may involve significant uncertainty at the time they are made. This is the case, for example, with respect to the
measurement of fair value of financial instruments, the recognition of deferred tax assets (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 proceeding s in
France and in the US relating to residential mortgage-backed securities 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.
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. It
reassures our clients and stakeholders, allows us to maintain our capital return policy and contributes to our credit ratings.
Our capital and leverage ratios are driven primarily by RWA, the leverage ratio denominator and eligible capital, all of
which may fluctuate based on a number of factors, some of which are outside of our control. 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. 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.
These risks could reduce the amount of capital available for return to shareholders and hinder our ability to achieve our
capital returns target of a progressive cash dividend coupled with a share repurchase program.
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, changes in
regulatory interpretations on the inclusion or exclusion of items contributing to our shareholders equity in regulatory
capital, 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 leverage ratio denominator is driven by, among other things, the level of client
activity, including deposits and loans, foreign exchange rates, interest rates and other market factors. Many of these
factors are wholly or partly outside of our control.
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The effect of taxes on our financial results is significantly influenced by tax law changes and reassessments of our
deferred tax assets
Our effective tax rate is highly sensitive to our performance, our expectation of future profitability and any potential
increases or decreases in statutory tax rates, such as any potential increase in the US federal corporate tax rate.
Furthermore, based on prior years’ tax losses, 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.
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 remeasures DTAs could affect UBS’s effective tax
rate, particularly in the year in which the change is made.
Our full-year effective tax rate could change if aggregate tax expenses in respect of profits from branches and subsidiaries
without loss coverage differ from what is expected, or if branches and subsidiaries generate tax losses that we cannot
benefit from through the income statement. In particular, losses at entities or branches that cannot offset for tax purposes
taxable profits in other Group entities, and which do not result in additional DTA recognition, may increase our effective
tax rate. In addition, tax laws or the tax authorities in countries where we have undertaken legal structure changes may
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.
Strategy, management and operational risks
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 proce ssors 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.
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, such
measures have never been tested on the scale or duration that we are currently experiencing, and there is risk that these
measures will prove not to have been effective in the current unprecedented operating environment.
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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.
For financial institutions, cybersecurity risks have increased due to the widespread use of digital technologies, cloud
computing and mobile devices to conduct financial business and transactions. In addition, 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 acto rs. 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.
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. These 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. In
addition to external attacks, we have experienced loss of client data from failure by employees and others to follow
internal policies and procedures and from misappropriation of our data by employees and others. We may not be able
to anticipate, detect or recognize threats to our systems or data and our preventative measures may not be effective to
prevent an attack or a security breach. In the event of a security breach, notwithstanding our preventative measures, we
may not immediately detect a particular breach or attack. Once a particular attack is detected, time may be required to
investigate and assess the nature and extent of the attack, 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. Notwi thstanding 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.
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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 may not be successful in the ongoing execution of our strategic plans
We have transformed UBS to focus on our Global Wealth Management business and our universal bank in Switzerland,
complemented by Asset Management and a significantly smaller and more capital -efficient Investment Bank; we have
substantially reduced the risk-weighted assets and leverage ratio denominator usage in Group Functions; and made
significant cost reductions. Our ongoing strategic initiatives focus on growing our business in the Americas and in Asia
Pacific, particularly China, and investing in technology to differentiate our service to clients, and implementing an agile
mode of work. These measures will require significant change in our organization and we may not succeed in executing
our strategy or achieving our performance targets, or may be delayed in doing so. Macroeconomic conditions, geopolitical
uncertainty, changes to regulatory requirements and the continuing costs of meeting these requirements have prompted
us to adapt our targets and ambitions in the past and we may need to do so again in the future.
To achieve our strategic plans, we expect to continue to make significant expenditures on technology and infrastructure
to improve client experience, improve and further enable digital offerings and increase efficiency. We also may seek to
implement our strategy through acquisitions or strategic partnerships to expand or improve our product offerings or
target additional client segments. Our investments in new technology and our acquisitions and strategic partnerships
may not be successfully completed, fully achieve our objectives or improve our ability to attract and retain clients. In
addition, we face competition in providing digitally enabled offerings from both existing competitors and new financial
service providers in various portions of the value chain. For example, technological advances and the growth of
e-commerce have made it possible for e -commerce firms and other companies to offer products and services that were
traditionally offered only by banks. These advances have also allowed financial institutions and other companies to
provide digitally based financial solutions, including electronic securities trading, payments processing and online
automated algorithmic -based investment advice at a low cost to their clients. We may have to lower our prices, or risk
losing clients as a result. Our ability to develop and implement competitive digitally enabled offerings and processes will
be an important factor in our ability to compete.
As part of our strategy, we seek to improve our operating efficiency, in part by controlling our costs. We may not be able
to identify feasible cost reduction opportunities that are consistent with our business goals and cost reductions may be
realized later or may be smaller than we anticipate. Higher temporary and permanent regulatory costs and higher business
demand than anticipated have partly offset cost reductions and delayed the achievement of our past cost reduction
targets, and we could continue to be challenged in the execution of our ongoing efforts to improve operating efficiency.
Changes in our workforce as a result of outsourcing, nearshoring, offshoring, insourcing or staff reductions, or changes
that arise from the introduction of work from home or other flexible ways of working or agile work methodologies may
introduce new operational risks that, if not effectively addressed, could affect our ability to achieve cost and other benefits
from such changes, or could result in operational losses.
As we implement effectiveness and efficiency programs, we may also experience unintended consequences, such as the
unintended loss or degradation of capabilities that we need in order to maintain our competitive position, achieve our
targeted returns or meet existing or new regulatory requirements and expectations.
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 condi tions, 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. We 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.
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We also hold legacy risk positions, primarily in Group Functions, that, in many cases, are illiquid and may again deteriorate
in value.
We also manage risk on behalf of our clients. The performance of assets we hold for our clients may be adversely affected
by the same 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 not be successful in implementing changes in our wealth management businesses to meet changing market,
regulatory and other conditions
We are exposed to possible outflows of client assets in our asset-gathering businesses and to changes affecting the
profitability of Global Wealth Management, in particular. Initiatives that we may implement to overcome the effects of
changes in the business environment on our profitability, balance sheet and capital positions may not succeed in
counteracting those effects and may cause net new money outflows and reductions in client deposits, as happened with
our balance sheet and capital optimization program in 2015. There is no assurance that we will be successful in our
efforts to offset the adverse effect of these or similar trends and developments.
We may be unable to identify or capture revenue or competitive opportunities, or retain and attract qualified
employees
The financial services industry is characterized by intense competition, continuous innovation, restrictive, detailed, and
sometimes fragmented regulation and ongoing consolidation. We face competition at the level of local markets and
individual business lines, and from global financial institutions that are comparable to us in their size and breadth, 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 Group Executive Board (GEB) members, as well as certain other employees.
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. Swiss law
requires that shareholders approve the compensation of the Board of Directors (the BoD) and the GEB each year. If our
shareholders fail to approve the compensation for the GEB or the BoD, this could have an adverse effect on our ability
to retain experienced directors and our senior management.
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. 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.
Annual Report 2022 |
Our
strategy,
business
model
and
environment
|
Risk
factors
66
As UBS Group AG is a holding company, its operating results, financial condition and ability to pay dividends and other
distributions and / or to pay its obligations in the future depend on funding, dividends and other distributions received
directly or indirectly from its subsidiaries, which may be subject to restrictions
UBS Group AG’s ability to pay dividends and other distributions and to pay its obligations in the future will depend on
the level of funding, dividends and other distributions, if any, received from UBS AG and other subsidiaries. The ability of
such subsidiaries to make loans or distributions, directly or indirectly, to UBS Group AG may be restricted as a result of
several factors, including restrictions in financing agreements and the requirements of applicable law and regulatory,
fiscal or other restrictions. In particular, UBS Group AG’s direct and indirect subsidiaries, including UBS AG, UBS
Switzerland AG, UBS Americas Holding LLC and UBS Europe SE, are subject to laws and regulations that restrict dividend
payments, authorize regulatory bodies to block or reduce the flow of funds from those subsidiaries to UBS Group AG, or
could affect their ability to repay any loans made to, or other investments in, such subsidiary by UBS Group AG or another
member of the Group. For example, 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 Federal Reserve Board has limited capital
distributions by bank holding companies and intermediate holding companies. Restrictions and regulatory actions of this
kind could impede access to funds that UBS Group AG may need to meet its obligations or to pay dividends to
shareholders. In addition, UBS Group AG’s right to participate in a distribution of assets upon a subsidiary’s liquidation
or reorganization is subject to all prior claims of the subsidiary’s creditors.
Our capital instruments may contractually prevent UBS Group AG from proposing the distribution of dividends to
shareholders, other than in the form of shares, and from engaging in repurchases of shares, if we do not pay interest on
these instruments.
Furthermore, UBS Group AG may guarantee some of the payment obligations of certain of the Group’s subsidiaries from
time to time. These guarantees may require UBS Group AG to provide substantial funds or assets to subsidiaries or their
creditors or counterparties at a time when UBS Group AG is in need of liquidity to fund its own obligations.
The credit ratings of UBS Group AG or its subsidiaries used for funding purposes could be lower than the ratings of the
Group’s operating subsidiaries, which may adversely affect the market value of the securities and other obligations of
UBS Group AG or those subsidiaries on a standalone basis.
Liquidity and funding risk
Liquidity and funding management are critical to UBS’s ongoing performance
The viability of our business depends on the availability of funding sources, and our success depends on our ability to
obtain funding at times, in amounts, for tenors and at rates that enable us to efficiently support our asset base in all
market conditions. Our funding sources have generally been stable, but could change in the future because of, among
other things, general market disruptions or widening credit spreads, which could also influence the cost of funding. A
substantial part of our liquidity and funding requirements are met using short-term 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 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 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 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. In particular, UBS AG is subjected to increased liquidity coverage requirements under
the direction of FINMA. 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.
Annual Report 2022 |
Financial
and
operating
performance
|
Accounting
and
financial
reporting
67
Financial and operating
performance
Management report
Accounting and financial reporting
Critical accounting estimates and judgments
In preparing our financial statements in accordance with International Financial Reporting Standards (IFRS), 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:
–
expected credit loss measurement;
–
fair value measurement;
–
income taxes;
–
provisions and contingent liabilities;
–
post-employment benefit plans;
–
goodwill; and
–
consolidation of structured entities.
›
Refer to “Note 1a Material accounting policies” in the “Consolidated financial statements” section of this report for more
information
›
Refer to the “Risk factors” section of this report for more information
Annual Report 2022 |
Financial
and
operating
performance
|
Group
perf
ormance
68
Group performance
Income statement
For the year ended
% change from
USD m
31.12.22
31.12.21
31.12.20
31.12.21
Net interest income
6,621
6,705
5,862
(1)
Other net income from financial instruments measured at fair value through profit or loss
7,517
5,850
6,960
28
Net fee and commission income
18,966
22,387
19,186
(15)
Other income
1,459
452
1,076
223
Total revenues
34,563
35,393
33,084
(2)
Credit loss expense / (release)
29
(148)
694
Personnel expenses
17,680
18,387
17,224
(4)
General and administrative expenses
5,189
5,553
4,885
(7)
Depreciation, amortization and impairment of non -financial assets
2,061
2,118
2,126
(3)
Operating expenses
24,930
26,058
24,235
(4)
Operating profit / (loss) before tax
9,604
9,484
8,155
1
Tax expense / (benefit)
1,942
1,998
1,583
(3)
Net profit / (loss)
7,661
7,486
6,572
2
Net profit / (loss) attributable to non-controlling interests
32
29
15
11
Net profit / (loss) attributable to shareholders
7,630
7,457
6,557
2
Comprehensive income
Total comprehensive income
Total comprehensive income attributable to non-controlling interests
Total comprehensive income attributable to shareholders
2022 compared with 2021
Results
In 2022, net profit attributable to shareholders increased by USD 173m, or 2%, to USD 7,630m, which included a net
tax expense of USD 1,942m .
Operating profit before tax increased by USD 120m, or 1%, to USD 9,604m, reflecting lower operating expenses,
partly offset by lower total revenues. Operating expenses decreased by USD 1,128m, or 4%, to USD 24,930m, which
included positive foreign currency effects. This decrease was mainly driven by USD 707 m lower personnel expenses
and USD 364m lower general and administrative expenses. Net credit loss expenses were USD 29m, compared with
net credit loss releases of USD 148m in the prior year. Total revenues decrease d by USD 830 m, or 2%, to USD 34,563m,
which included negative foreign currency effects. Net fee and commission income decreased by USD 3,421m, partly
offset by a USD 1,582m increase in total combined net interest income and other net income from financial
instruments measured at fair value through profit or loss, as well as USD 1,007 m higher other income.
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 1,582m to USD 14,137m.
Global Wealth Management increased by USD 1,014m to USD 6,355m, predominantly due to higher net interest income,
mainly driven by an increase in deposit revenues, as rising interest rates led to higher deposit margins. This increase was
partly offset by the effects of shifts to lower-margin products and higher interest rates paid to clients. In addition, loan
revenues decreased, driven by lower loan margins.
The Investment Bank increased by USD 702m to USD 5,769m, mainly reflecting USD 803m higher net income in
Financing, largely due to a loss of USD 861m incurred in the first half of 2021 on the default of a US-based client of our
prime brokerage business. In addition, Derivatives Solutions increased by USD 320m, driven by Rates and Foreign
Exchange, which benefited from elevated volatility due to inflationary concerns and the actions of central banks, partly
offset by decreases in Equity Derivatives and Credit revenues due to lower levels of client activity. The increases in
Financing and Derivatives Solutions were partly offset by a USD 409m decrease in Global Banking, mainly due to lower
revenues in Leveraged Capital Markets.
Annual Report 2022 |
Financial
and
operating
performance
|
Group
perf
ormance
69
Personal Corporate Banking increased by USD 128m, predominantly driven by an increase in net interest income, mainly
reflecting higher deposit revenues, as a result of rising interest rates. This increase was partly offset by a lower benefit
from the Swiss National Bank deposit exemption and a decrease in deposit fees.
Group Functions recognized negative income of USD 649m, compared with negative income of USD 397m, mainly driven
by higher funding costs related to deferred tax assets (DTAs) and capitalized software in Group Services and negative net
effects of accounting asymmetries, including hedge accounting ineffectiveness, within Group Treasury. These changes were
partly offset by higher valuation gains on auction rate and other securities in Non-core and Legacy Portfolio.
›
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
31.12.22
31.12.21
31.12.20
31.12.21
Net interest income from financial instruments measured at amortized cost and fair value through other
comprehensive income
5,218
5,274
4,563
(1)
Net interest income from financial instruments measured at fair value through profit or loss and other
1,403
1,431
1,299
(2)
Other net income from financial instruments measured at fair value through profit or loss
7,517
5,850
6,960
28
Total
14,137
12,555
12,822
13
Global Wealth Management
6,355
5,341
5,039
19
of which: net interest income
5,273
4,244
4,027
24
of which: transaction-based income from foreign exchange and other intermediary activity
1,082
1,097
1,012
(1)
Personal Corporate Banking
2,685
2,557
2,459
5
of which: net interest income
2,191
2,120
2,049
3
of which: transaction-based income from foreign exchange and other intermediary activity
494
437
409
13
Asset Management
(23)
(13)
(16)
75
Investment Bank
5,769
5,067
5,643
14
Global Banking
187
596
585
(69)
Global Markets
5,582
4,471
5,057
25
Group Functions
(649)
(397)
(302)
64
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.
Net fee and commission income
Net fee and commission income decreased by USD 3,421m to USD 18,966m.
Underwriting fees decreased by USD 884m to USD 579m, mainly driven by lower equity underwriting revenues from
public offerings in the Investment Bank , reflecting lower levels of client activity.
Net brokerage fees decreased by USD 841m to USD 3,282m, driven by Global Wealth Management, reflecting lower
levels of client activity, and by the Investment Bank, mainly in relation to Cash Equities, partly offset by higher net income
from foreign exchange products .
Investment fund fees decreased by USD 848m, driven by Asset Management and Global Wealth Management, mainly
reflecting negative market performance. In addition, performance-based fee income in Asset Management decreased,
mainly in Hedge Fund Businesses and Equities. Fees for portfolio management and related services decreased by
USD 703m, predominantly driven by Global Wealth Management, also reflecting negative market performance, partly
offset by incremental revenues from net new fee-generating assets.
MA and corporate finance fees decreased by USD 298m to USD 804m, primarily reflecting lower revenues from merger
and acquisition transactions in our Global Banking business in the Investment Bank, due to a decrease in the number of
transactions that closed in 2022.
›
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 increased by USD 1,007m to USD 1,459m, mainly driven by higher 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, there were 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. These gains
compared with a gain of USD 100m in 2021 in Global Wealth Management from the sale of our domestic wealth
management business in Austria . In addition, we recognized USD 98m of gains related to the repurchase of UBS’s own
debt instruments, compared with losses of USD 60m in the prior year. These gains were partly offset by USD 76m lower
net gains from properties held for sale.
›
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
Annual Report 2022 |
Financial
and
operating
performance
|
Group
perf
ormance
70
Credit loss expense / release
Total net credit loss expenses were USD 29m, compared with net credit loss releases of USD 148m in the prior year,
reflecting net expenses of USD 29m related to stage 1 and 2 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)
USD m
Global
Wealth
Management
Personal
Corporate
Banking
Asset
Management
Investment
Bank
Group
Functions
Total
For the year ended 31.12.22
Stages 1 and 2
(5)
27
0
6
1
29
Stage 3
5
12
0
(18)
2
0
Total credit loss expense / (release)
0
39
0
(12)
3
29
For the year ended 31.12.21
Stages 1 and 2
(28)
(62)
0
(34)
0
(123)
Stage 3
(1)
(24)
1
0
0
(25)
Total credit loss expense / (release)
(29)
(86)
1
(34)
0
(148)
For the year ended 31.12.20
Stages 1 and 2
48
129
0
88
0
266
Stage 3
40
128
2
217
42
429
Total credit loss expense / (release)
88
257
2
305
42
694
Operating expenses
Personnel expenses
Personnel expenses decreased by USD 707m to USD 17,680m , mainly driven by USD 352m lower variable compensation
related to financial advisors, following a decrease in compensable revenues. Furthermore, salary costs decreased by
USD 294m, as an underlying increase from higher salaries and an increase in the number of employees were more than
offset by foreign currency translation effects. Other personnel expenses were USD 87m lower, primarily reflecting a
decrease in the number of contractors .
›
Refer to the “Compensation” section of this report for more information
›
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 decreased by USD 364m to USD 5,189m, mainly reflecting USD 563m lower net
expenses for litigation, regulatory and similar matters, as 2021 included expenses of USD 740m related to litigation
provisions for the French cross-border matter. This was partly offset by higher expenses for travel and entertainment,
technology, and consulting fees.
We believe that the industry continues to operate in an environment in which expenses associated with litigation,
regulatory and similar matters will remain elevated for the foreseeable future, and we continue to be exposed to a number
of significant claims and regulatory matters. The outcome of many of these matters, the timing of a resolution, and the
potential effects of resolutions on our future business, financial results or financial condition are extremely difficult to
predict.
›
Refer to “Note 7 General and administrative expenses” and “Note 17 Provisions and contingent liabilities” in the “Consolidated
financial statements” section of this report for more information
Annual Report 2022 |
Financial
and
operating
performance
|
Group
perf
ormance
71
Operating expenses
For the year ended
% change from
USD m
31.12.22
31.12.21
31.12.20
31.12.21
Personnel expenses
17,680
18,387
17,224
(4)
of which: salaries
7,045
7,339
7,023
(4)
of which: variable compensation
7,954
8,280
7,520
3
(4)
of which: performance awards
3,205
3,190
3,209
0
of which: financial advisors
1
4,508
4,860
4,091
(7)
of which: other
241
229
220
5
of which: other personnel expenses
2
2,681
2,768
2,680
3
(3)
General and administrative expenses
5,189
5,553
4,885
(7)
of which: net expenses for litigation, regulatory and similar matters
348
911
197
(62)
of which: other general and administrative expenses
4,841
4,642
4,688
4
Depreciation, amortization and impairment of non -financial assets
2,061
2,118
2,126
(3)
Total operating expenses
24,930
26,058
24,235
(4)
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. 3 During 2020, UBS modified the conditions for continued vesting of certain outstanding
deferred compensation awards for qualifying employees, resulting in an expense of approximately USD 280m, of which USD 240m i s disclosed within Variable compensation and USD 40m within Other personnel
expenses in this table.
Tax
Income tax expenses of USD 1,942m were recognized for the Group in 2022, representing an effective tax rate of 20.2%,
compared with USD 1,998m for 2021, which represented an effective tax rate of 21.1%. The income tax expenses for
2022 included Swiss tax expenses of USD 715m and non-Swiss tax expenses of USD 1,227m.
The Swiss tax expenses included current tax expenses of USD 730m related to taxable profits of UBS Switzerland AG and
other Swiss entities. They also included a deferred tax benefit of USD 15m.
The non -Swiss tax expenses included current tax expenses of USD 718m related to taxable profits earned by non -Swiss
subsidiaries and branches and net deferred tax expenses of USD 509m. Expenses of USD 678m, which primarily related
to the amortization of DTAs previously recognized in relation to tax losses carried forward and deductible temporary
differences of UBS Americas Inc., were partly offset by a benefit of USD 169m in respect of net upward revaluations of
DTAs for certain entities, primarily in connection with our business planning process.
The effective tax rate for the year of 20.2% is lower than our projected rate for the year of 24%, primarily as a result of
the aforementioned deferred tax benefit of USD 169m in respect of net upward revaluations of DTAs and because no tax
expenses were recognized in respect of pre-tax gains from dispositions of UBS subsidiaries in 2022.
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 2023 of around 23%.
›
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 2022, total comprehensive income attributable to shareholders was USD 3,149m, reflecting net profit of USD 7,630m
and negative other comprehensive income (OCI), net of tax, of USD 4,481 m.
OCI related to cash flow hedges was negative USD 4,793m, mainly reflecting net unrealized losses on US dollar hedging
derivatives resulting from significant increases in the relevant US dollar long-term interest rates.
Foreign currency translation OCI was negative USD 525m, mainly due to the weakening of the Swiss franc (1%) and the
euro (6%) against the US dollar.
Defined benefit plan OCI, net of tax, was negative USD 10m. Total net pre-tax OCI related to the Swiss pension plan was
negative USD 285m. This was predominantly driven by an extraordinary employer contribution of USD 209m that
increased the gross plan assets and resulted in an offsetting OCI loss as no net pension asset could be recognized on the
balance sheet as of 31 December 2022 due to the asset ceiling. As announced in 2018, UBS agreed to mitigate the
effects from changes to the Swiss pension plan implemented in 2019 and contributed CHF 646m (USD 698m) in three
installments in 2020, 2021 and 2022. The extraordinary contribution of USD 209m in the first quarter of 2022 reflected
the third and final installment paid.
Total pre-tax OCI related to our non -Swiss pension plans was positive USD 212m, mostly driven by the UK pension plan,
which recorded positive net pre -tax OCI of USD 162m. The positive OCI in the UK plan reflected gains of USD 1,474m
from the remeasurement of the defined benefit obligation (DBO), partly offset by a negative return on plan assets of
USD 1,312m. The DBO remeasurement effect was mainly driven by a gain of USD 1,451m due to an increase in the
applicable discount rate.
Annual Report 2022 |
Financial
and
operating
performance
|
Group
perf
ormance
72
OCI related to own credit on financial liabilities designated at fair value was positive USD 796m, primarily due to a
widening of our own credit spreads.
›
Refer to “Statement of comprehensive income” in the “Consolidated financial statements” section of this report for more
information
›
Refer to “Note 1b Changes in accounting policies, comparability and other adjustments” in the “Consolidated financial
statements” section of this report for more information about the reclassification of a portfolio of assets from Financial assets
measured at fair value through OCI to Other financial assets measured at amortized cost in 2022
›
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 2022, we estimate that a parallel shift in yield curves by +100 basis points could lead to a combined
increase in annual net interest income of approximately USD 1.5bn in Global Wealth Management and Personal
Corporate Banking in the first year after such a shift. Of this increase, approximately USD 0.8bn, USD 0.4bn and
USD 0.2bn 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 1.5bn in Global Wealth Management and Personal Corporate Banking 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 2022 applied to our banking book. These estimates further
assume no change to balance sheet size and structure, constant foreign exchange rates, and no specific management
action. The benefit of the negative rates exemption threshold provided by the Swiss National Bank is not in scope of this
net interest income sensitivity disclosure. As average implied forward rates were above 100 basis points across all tenors
as of 31 December 2022, the impact would have been negligible. These estimates do not represent a forecast of our net
interest income and actual changes in net interest income could differ significantly from the amounts referred to above.
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 the Group. 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 72.1%, compared with 73.6%, mainly reflecting a decrease in operating expenses, partly
offset by a decrease in total revenues.
Return on common equity tier 1 capital
The annualized return on our common equity tier 1 (CET1) capital was 17.0%, compared with 17.5%, reflecting a
USD 2.2bn increase in average CET1 capital, with a partly offsetting effect driven by a USD 173m increase in net profit
attributable to shareholders.
CET1 capital
CET1 capital increased by USD 0.2bn to USD 45.5bn as of 31 December 2022, mainly as a result of operating profit
before tax of USD 9.6bn with associated current tax expenses of USD 1.4bn, partly offset by share repurchases of
USD 5.6bn under our share repurchase programs, dividend accruals of USD 1.7bn, negative foreign currency effects of
USD 0.5bn and compensation - and own share-related capital components of USD 0.3bn.
Risk-weighted assets
Risk-weighted assets (RWA) increased by USD 17.4bn to USD 319.6bn, primarily driven by increases of USD 10.4bn in
credit and counterparty credit risk RWA, USD 4.7bn in operational risk RWA, and USD 2.4bn in market risk RWA.
CET1 capital ratio
Our CET1 capital ratio decreased to 14.2% from 15 .0%, mainly reflecting a USD 17.4bn increase in RWA.
Annual Report 2022 |
Financial
and
operating
performance
|
Group
perf
ormance
73
Leverage ratio denominator
The leverage ratio denominator (the LRD) decreased by USD 40.4bn to USD 1,028.5bn, driven by currency effects of
USD 24.5bn and a USD 15.9bn decrease due to asset size and ot her movements.
CET1 leverage ratio
Our CET1 leverage ratio increased to 4.42% from 4.24%, predominantly due to the aforementioned decrease in the LRD.
Going concern leverage ratio
Our going concern leverage ratio was unchanged at 5.7%, as the aforementioned decrease in the LRD was offset by a
USD 2.2bn decrease in the going concern capital.
Personnel
The number of personnel employed as of 31 December 2022 increased by 1,212 to 72,597 (full-time equivalents)
compared with 31 December 2021 .
Equity, CET1 capital and returns
As of or for the year ended
USD m, except where indicated
31.12.22
31.12.21
31.12.20
Net profit
Net profit attributable to shareholders
Equity
Equity attributable to shareholders
Less: goodwill and intangible assets
6,267
6,378
6,480
Tangible equity attributable to shareholders
50,609
54,283
52,965
Less: other CET1 deductions
5,152
9,003
13,075
CET1 capital
45,457
45,281
39,890
Return on equity
Return on equity (%)
13.3
12.6
11.3
Return on tangible equity (%)
14.9
14.1
12.8
Return on CET1 capital (%)
17.0
17.5
17.4
Annual Report 2022 |
Financial
and
operating
performance
|
Global
Wealth
Management
74
Global Wealth Management
Global Wealth Management
1
As of or for the year ended
% change from
USD m, except where indicated
31.12.22
31.12.21
31.12.21
Results
Net interest income
5,273
4,244
24
Recurring net fee income
2
10,282
11,170
(8)
Transaction-based income
2
3,137
3,836
(18)
Other income
275
168
63
Total revenues
18,967
19,419
(2)
Credit loss expense / (release)
0
(29)
Operating expenses
13,989
14,665
(5)
Business division operating profit / (loss) before tax
4,977
4,783
4
Performance measures and other information
Pre-tax profit growth (year-on-year, %)
2
4.1
19.0
Cost / income ratio (%)
2
73.8
75.5
Average attributed equity (USD bn)
3
20.0
18.8
6
Return on attributed equity (%)
2,3
24.9
25.4
Financial advisor compensation
4
4,508
4,860
(7)
Net new fee-generating assets (USD bn)
2
60.1
106.9
Fee-generating assets (USD bn)
2
1,271
1,482
(14)
Fee-generating asset margin (bps)
2
79.5
82.6
Net new money (USD bn)
2
40.5
111.1
Invested assets (USD bn)
2
2,815
3,303
(15)
Loans, gross (USD bn)
5
225.0
234.1
(4)
Customer deposits (USD bn)
5
348.2
369.8
(6)
Impaired loan portfolio as a percentage of total loan portfolio, gross (%)
2,6
0.3
0.2
Advisors (full-time equivalents)
9,215
9,329
(1)
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. Since the second quarter of 2022, assets related to our Global Financial
Intermediaries business have been excluded from fee-generating assets, given that fee-generating investment management products, such as mandates, are not central to this business. Furthermore, client
commitments into closed-ended private-market investment funds are included as fee-generating assets once recurring fees are charged, rather than when commitments are funded. These changes have been applied
prospectively. 3 Refer to “Capital management” in the “Capital, liquidity and funding, and balance sheet” section of this report for more information. 4 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 1,751m as of 31 December
2022. 5 Loans and Customer deposits in this table include customer brokerage receivables and payables, respectively, which are presen ted in a separate reporting line on the balance sheet. 6 Refer to the “Risk
management and control” section of this report for more information about (credit-)impaired exposures. Excludes loans to financial advisors.
2022 compared with 2021
Results
Profit before tax increased by USD 194m, or 4%, to USD 4,977m, mainly driven by lower operating expenses, as 2021
included expenses of USD 657m related to litigation provisions for the French cross -border matter, partly offset by lower
total revenues.
Total revenues
Total revenues decreased by USD 452m, or 2%, to USD 18,967m, due to decreases across recurring net fee and
transaction-based income, partly offset by increases in net interest and other income.
Net interest income increased by USD 1,029m , or 24%, to USD 5,273m, mainly due to an increase in deposit revenues,
as rising interest rates led to higher deposit margins. This increase was partly offset by the effects of shifts to lower-
margin products and higher interest rates paid to clients. Loan revenu es decreased, driven by lower loan margins.
Recurring net fee income decreased by USD 888m, or 8%, to USD 10,282m, primarily driven by negative market
performance and foreign currency effects, partly offset by incremental revenues from net new fee-generating assets.
Transaction -based income decreased by USD 699m, or 18%, to USD 3,137m, mainly reflecting lower levels of client
activity in Asia Pacific, Americas and EMEA.
Annual Report 2022 |
Financial
and
operating
performance
|
Global
Wealth
Management
75
Other income increased by USD 107m to USD 275m, including 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 in 2022. 2021 included a gain of USD 100m
related to the sale of our domestic wealth management business in Austria. Additionally, 2022 included lower gains on
our equity ownership of SIX Group and lower gains from sales of securities positions.
Credit loss expense / release
Net credit loss expenses were zero, as net expenses related to credit-impaired (stage 3) positions were entirely offset by
net releases from stage 1 and 2 positions, compared with net releases of USD 29m.
Operating expenses
Operating expenses decreased by USD
676m
, or 5%,
to USD
13,989m
,
primarily due to 2021 including the
aforementioned expenses of USD 657m related to litigation provisions for the French cross-border matter. Operating
expenses in 2022 included lower personnel expenses, primarily as a result of lower financial advisor variable compensation
following a decrease in compensable revenues, and benefited from positive foreign currency effects. These effects were
partly offset by higher technology expenses and higher expenses for professional fees, travel and entertainment,
outsourcing, and marketing in 2022.
Pre-tax profit growth
Pre-tax profit growth in 2022 was 4.1%, compared with 19.0% in 2021. Our target range is 10–15% over the cycle.
Cost / income ratio
The cost / income ratio decreased to 73.8% from 75.5%, reflecting positive operating leverage.
Fee-generating assets
Fee-generating assets decreased by USD 211bn, or 14%, to USD 1,271bn, mainly driven by net negative market
performance and foreign currency effects . Net new fee-generating asset inflows were USD 60.1bn, with inflows in all
regions, and resulted in an annualized net new fee-generating asset growth rate of 4.1%.
Loans
Loans decreased by USD 9.1bn, or 4%, to USD 225.0bn, primarily driven by negative foreign exchange effects and net
new loan outflows of USD 2.5bn.
›
Refer to the “Risk management and control” section of this report for more information
Customer deposits
Customer deposits decreased by USD 21.6bn to USD 348.2bn, mainly driven by US dollar deposit shifts into other
products, as well as negative foreign currency effects.
Regional breakdown of performance measures
As of or for the year ended 31.12.22
USD bn, except where indicated
Americas
1
Switzerland
EMEA
2
Asia Pacific
Global Wealth
Management
3
Total revenues (USD m)
Operating profit / (loss) before tax (USD m)
Cost / income ratio (%)
4
Loans, gross
5
Net new loans
Fee-generating assets
4
Net new fee-generating assets
4
Net new fee-generating asset growth rate (%)
4
Invested assets
4
Net new money
4
Advisors (full-time equivalents)
1 Including the following business units: United States and Canada; and Latin America. 2 Including the following business units: Europe; Central Eastern Europe, Greece and Israel; and Middle East and Africa.
3 Including minor functions, which are not included in the four regions individually presented in this table, with USD 5m of total revenues, USD 21m of operating loss before tax, USD 0.7bn of loans, USD 0.6bn of net
new loan inflows, USD 0.8bn of fee-generating assets, USD 0.1bn of net new fee- generating asset outflows, USD 3bn of invested assets, USD 0.1bn of net new money outflows and 74 advisors in 2022. 4 Refer to
“Alternative performance measures” in the appendix to this report for the definition and calculation method. 5 Loans include customer brokerage receivables, which are presented in a separate reporting line on the
balance sheet.
Regional comments: 2022 compared with 2021
Americas
Profit before tax decreased by USD 253m to USD 1,748m, mainly driven by higher operating expenses, including an
increase in net expenses for litigation, regulatory and similar matters. Total revenues decreased by USD 22m to
USD 10,634m, mainly driven by lower recurring net fee and transaction-based income, partly offset by higher net interest
income. The cost / income ratio increased to 83.7% from 81.4%. Loans increased 10% to USD 101.2bn, reflecting
USD 9.0bn of net new loan inflows. Net new fee-generating assets were USD 17.2bn.
Annual Report 2022 |
Financial
and
operating
performance
|
Global
Wealth
Management
76
Switzerland
Profit before tax increased by USD 67m to USD 817m, mostly driven by lower operating expenses, as 2021 included
expenses of USD 85m related to litigation provisions for the French cross-border matter. Total revenues decreased by
USD 41m to USD 1,859m, mainly driven by lower recurring net fee income, partly offset by higher net interest and
transaction-based income. The cost / income ratio decreased to 55.2% from 60.8%. Loans increased 4% to USD 45.1bn,
driven by net new loan inflows of USD 2.5bn, partly offset by negative foreign currency effects. Net new fee -generating
assets were USD 9.1bn .
EMEA
Profit before tax increased by USD 678m to USD 1,490m, primarily driven by lower operating expenses, as 2021 included
expenses of USD 572m related to litigation provisions for the French cross -border matter. Total revenues decreased by
USD 35m to USD 3,913m, due to lower recurring net fee and transaction-based income, partly offset by an increase in
net interest income, as well as an increase in other income, which was driven by the aforementioned gains from sales.
The cost / income ratio decreased to 61.9% from 79.6%. Loans decreased 12% to USD 43.4bn, mainly reflecting
negative foreign currency effects and net new loan outflows of USD 1.4bn. Net new fee-generating assets were
USD 20.3bn.
Asia Pacific
Profit before tax decreased by USD 294m to USD 943m. Total revenues decreased by USD 34 3m to USD 2,556m, mostly
driven by lower transaction -based and recurring net fee income, partly offset by an increase in net interest income. The
cost / income ratio increased to 63.2% from 57.4%. Loans decreased 29% to USD 34.5bn, driven by net new loan
outflows of USD 13.2bn, as clients reduced their debts in light of market uncertainty, as well as negative foreign currency
effects. Net new fee-generating assets were USD 13.7bn .
Personal Corporate Banking
Personal Corporate Banking – in Swiss francs
1
As of or for the year ended
% change from
CHF m, except where indicated
31.12.22
31.12.21
31.12.21
Results
Net interest income
2,087
1,941
8
Recurring net fee income
2
812
774
5
Transaction-based income
2
1,154
1,079
7
Other income
46
110
(58)
Total revenues
4,099
3,904
5
Credit loss expense / (release)
36
(79)
Operating expenses
2,337
2,397
(2)
Business division operating profit / (loss) before tax
1,726
1,587
9
Performance measures and other information
Pre-tax profit growth (year-on-year, %)
2
8.8
35.1
Cost / income ratio (%)
2
57.0
61.4
Average attributed equity (CHF bn)
3
8.8
8.4
6
Return on attributed equity (%)
2,3
19.5
19.0
Net interest margin (bps)
2
147
140
Fee and trading income for Corporate Institutional Clients
2
810
791
2
Investment products for Personal Banking (CHF bn)
2
21.6
23.5
(8)
Net new investment products for Personal Banking (CHF bn)
2
1.99
2.66
Active Digital Banking clients in Personal Banking (%)
2,4
74.3
70.3
Active Mobile Banking clients in Personal Banking (%)
2
56.5
46.7
Active Digital Banking clients in Corporate Institutional Clients (%)
2
80.0
79.3
Loans, gross (CHF bn)
142.9
139.3
3
Customer deposits (CHF bn)
167.2
162.1
3
Impaired loan portfolio as a percentage of total loan portfolio, gross (%)
2,5
0.8
0.9
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 Refer to “Capital management” in the “Capital, liquidity and
funding, and balance sheet” section of this report for more information. 4 In 2022, 86.0% 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). 5 Refer to the “Risk management and control” section of this report for more information about (credit -)impaired exposures.
Annual Report 2022 |
Financial
and
operating
performance
|
Personal
Corporate
Banking
77
2022 compared with 2021
Results
Profit before tax increased by CHF 139m, or 9%, to CHF 1,726m, reflecting higher total revenues and lower operating
expenses, partly offset by net credit loss expenses, compared with net credit loss releases in 2021.
Total revenues
Total revenues increased by CHF 195m, or 5%, to CHF 4,099m, reflecting increases across all income lines except other
income.
Net interest income increased by CHF 146m to CHF 2,087m, mainly driven by higher deposit revenues, as a result of
rising interest rates. This increase was partly offset by a lower benefit from the Swiss National Bank deposit exemption
and lower deposit fees.
Recurring net fee income increased by CHF 38m to CHF 812m, primarily driven by higher revenues from account fees.
Transaction-based income increased by CHF 75m to CHF 1,154m, largely driven by higher revenues from credit card and
foreign exchange transactions, reflecting a continued increase in spending on travel and leisure by clients following the
easing of COVID-19-related restrictions in certain countries compared with 2021 .
Other income decreased by CHF 64m to CHF 46m, mostly due to lower gains on our equity ownership of SIX Group. The
prior year also included a gain of CHF 26m from the sale of several small properties in that year.
Credit loss expense / release
Net credit loss expenses were CHF 36m, compared with net releases of CHF 79m. Stage 1 and 2 net credit loss expenses
were CHF 25m. Prior-year stage 1 and 2 net credit loss releases were CHF 57m, largely resulting from a partial release of
a post -model adjustment during the year, as well as model updates. Stage 3 net credit loss expenses were CHF 11m,
compared with net releases of CHF 23m in 2021.
Operating expenses
Operating expenses decreased by CHF 60m, or 2%, to CHF 2,337m, mostly due to 2021 including expenses of CHF 76m
(USD 83m) related to litigation provisions for the French cross -border matter.
Cost / income ratio
The cost / income ratio was 57.0% , compared with 61.4% in 2021, reflecting both higher total revenues and lower
operating expenses.
Personal Corporate Banking – in US dollars
1
As of or for the year ended
% change from
USD m, except where indicated
31.12.22
31.12.21
31.12.21
Results
Net interest income
2,191
2,120
3
Recurring net fee income
2
852
846
1
Transaction-based income
2
1,212
1,178
3
Other income
48
119
(60)
Total revenues
4,302
4,263
1
Credit loss expense / (release)
39
(86)
Operating expenses
2,452
2,618
(6)
Business division operating profit / (loss) before tax
1,812
1,731
5
Performance measures and other information
Pre-tax profit growth (year-on-year, %)
2
4.7
37.5
Cost / income ratio (%)
2
57.0
61.4
Average attributed equity (USD bn)
3
9.3
9.2
1
Return on attributed equity (%)
2,3
19.5
18.9
Net interest margin (bps)
2
146
142
Fee and trading income for Corporate Institutional Clients
2
851
864
(1)
Investment products for Personal Banking (USD bn)
2
23.4
25.8
(9)
Net new investment products for Personal Banking (USD bn)
2
2.11
2.90
Active Digital Banking clients in Personal Banking (%)
2,4
74.3
70.3
Active Mobile Banking clients in Personal Banking (%)
2
56.5
46.7
Active Digital Banking clients in Corporate Institutional Clients (%)
2
80.0
79.3
Loans, gross (USD bn)
154.6
152.8
1
Customer deposits (USD bn)
180.8
177.8
2
Impaired loan portfolio as a percentage of total loan portfolio, gross (%)
2,5
0.8
0.9
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 Refer to “Capital management” in the “Capital, liquidity and
funding, and balance sheet” section of this report for more information. 4 In 2022, 86.0% 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). 5 Refer to the “Risk management and control” section of this report for more information about (credit -)impaired exposures.
Annual Report 2022 |
Financial
and
operating
performance
|
Asset
Management
78
Asset Management
Asset Management
1
As of or for the year ended
% change from
USD m, except where indicated
31.12.22
31.12.21
31.12.21
Results
Net management fees
2
2,050
2,320
(12)
Performance fees
64
260
(75)
Net gain from disposal of a joint venture / an associate
848
37
Total revenues
2,961
2,617
13
Credit loss expense / (release)
0
1
Operating expenses
1,564
1,586
(1)
Business division operating profit / (loss) before tax
1,397
1,030
36
Performance measures and other information
Pre-tax profit growth (year-on-year, %)
3
35.7
(29.2)
Cost / income ratio (%)
3
52.8
60.6
Average attributed equity (USD bn)
4
1.7
2.0
(13)
Return on attributed equity (%)
3,4
81.2
51.8
Gross margin on invested assets (bps)
3
28
23
Information by business line / asset class
Net new money (USD bn)
3
Equities
(12.8)
10.3
Fixed Income
36.5
22.7
of which: money market
26.3
(3.1)
Multi-asset Solutions
(1.3)
6.8
Hedge Fund Businesses
2.3
5.7
Real Estate Private Markets
0.2
(0.6)
Total net new money
5
24.8
44.9
of which: net new money excluding money market
(1.6)
48.0
Invested assets (USD bn)
3
Equities
456
580
(21)
Fixed Income
296
285
4
of which: money market
119
92
29
Multi-asset Solutions
155
193
(19)
Hedge Fund Businesses
55
55
1
Real Estate Private Markets
102
98
4
Total invested assets
1,064
1,211
(12)
of which: passive strategies
443
540
(18)
Information by region
Invested assets (USD bn)
3
Americas
298
287
4
Asia Pacific
150
190
(21)
Europe, Middle East and Africa (excluding Switzerland)
263
334
(21)
Switzerland
354
399
(11)
Total invested assets
1,064
1,211
(12)
Information by channel
Invested assets (USD bn)
3
Third-party institutional
606
707
(14)
Third-party wholesale
116
145
(20)
UBS’s wealth management businesses
342
359
(5)
Total invested assets
1,064
1,211
(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 Refer to “Capital
management” in the “Capital, liquidity and funding, and balance sheet” section of this report for more information. 5 A net new money inflow of USD 4.1bn was recognized in the fourth quarter of 2022 for the
provision of hedge fund services to Global Wealth Management Americas.
Annual Report 2022 |
Financial
and
operating
performance
|
Asset
Management
79
2022 compared with 2021
Results
Profit before tax increased by USD 367m, or 36%, to USD 1,397m. This increase reflected a gain of USD 848m from the
sale of our shareholding in the Mitsubishi Corp.-UBS Realty Inc. joint venture in the second quarter of 2022. Profit before
tax in 2021 included a post-tax gain of USD 37m related to the sale of our minority interest in Clearstream Fund
Centre AG. Excluding these gains, profit before tax decreased by USD 443m, or 45%, to USD 550m, reflecting lower net
management and performance fees.
›
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 aforementioned sales
Total revenues
Total revenues increased by USD 344m, or 13%, to USD 2,961m. Excluding the aforementioned gains from sales, total
revenues decreased by USD 466m, or 18%.
Net management fees decreased by USD 270m, or 12%, to USD 2,050m, on a lower average invested asset base,
reflecting negative market performance and foreign currency effects.
Performance fees decreased by USD 196m to USD 64m, mainly in Hedge Fund Businesses and Equities.
Operating expenses
Operating expenses decreased by USD 22m, or 1%, to USD 1,564m, mainly reflecting positive foreign currency effects,
lower personnel expenses and lower net expenses for litigation, regulatory and similar matters, as well as lower consulting
expenses. These decreases were almost entirely offset by higher expenses for technology, market data services, travel,
regulatory, and risk management.
Cost / income ratio
The cost / income ratio was 52.8%, compared with 60.6% in 2021. Excluding the aforementioned gains from sales, the
cost / income ratio was 74.0%, compared with 61.5% in 2021.
Invested assets
Invested assets decreased to USD 1,064bn from USD 1,211bn, reflecting negative market performance of USD 137bn
and negative foreign currency effects of USD 32bn, partly offset by net new money inflows of USD 25bn. Excluding
money market flows, net new money was negative USD 2bn.
Investment performance
As of year-end 2022, Morningstar assigned a four- or five-star rating to 62% of our retail and institutional funds assets
under management (AuM) (both actively managed and passive), on an AuM -weighted basis. Furthermore, 47% of our
actively managed open-ended retail and institutional funds AuM are ranked, on an AuM -weighted basis over a three-
year investment period, above their respective peer median.
Investment performance as of 31 December 2022
In %
Total traditional
investments
Equities
Fixed Income
Multi-asset
% of UBS Asset Management fund assets rated as 4- or 5-star
1,2
62
71
55
41
% of UBS Asset Management fund assets above peer median over a 3-year investment period
1,3
47
46
52
44
1 Morningstar® Essentials Quantitative Star Rating Rankings; © Morningstar 2023, extract date 12 January 2023. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and / or its
content providers; (2) may not be copied or distributed; (3) is not warranted to be accurate, complete or timely; and (4) does not constitute advice of any kind, whether investment, tax, legal or otherwise. User is
solely responsible for ensuring that it complies with all laws, regulations and restrictions applicable to it. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use
of this information, except where such damages or losses cannot be limited or excluded by law in your jurisdiction. Past perf ormance is no guarantee of future results. For more detailed information about the
Morningstar Rating, including its methodology, please go to: https://s21.q4cdn.com/198919461/files/doc_downloads/othe_disclosure_materials/MorningstarRatingforFunds.pdf. 2 Percentage of AuM to which
Morningstar has assigned a four- or five-star rating. AuM reflect the AuM of Asset Management’s retail and institutional funds (both actively managed and passive) across all domiciles for which Asset Management
owns the investment performance, i.e., Asset Management is either the sole portfolio manager or co-portfolio manager. Universe is approximately 31% of all active and passive traditional assets of Asset Management
(Equities, Fixed Income excluding money market, and Multi -asset) as of 31 December 2022. 3 Percentage of AuM above peer median over a three-year investment period. AuM reflect the AuM of Asset Management’s
actively managed open-ended retail and institutional funds across all domiciles for which Asset Management owns the investment performance, i.e., Asset Management is either the sole portfolio manager or co-
portfolio manager. Universe is approximately 29% of all active traditional assets of Asset Management (Equities, Fixed Income excluding money market, and Multi-asset) as of 31 December 2022.
Annual Report 2022 |
Financial
and
operating
performance
|
Investment
Bank
80
Investment Bank
Investment Bank
1
As of or for the year ended
% change from
USD m, except where indicated
31.12.22
31.12.21
31.12.21
Results
Advisory
733
988
(26)
Capital Markets
854
2,170
(61)
Global Banking
1,587
3,158
(50)
Execution Services
1,643
1,894
(13)
Derivatives Solutions
3,665
3,422
7
Financing
1,822
979
86
Global Markets
7,129
6,296
13
of which: Equities
4,970
4,581
8
of which: Foreign Exchange, Rates and Credit
2,160
1,715
26
Total revenues
8,717
9,454
(8)
Credit loss expense / (release)
(12)
(34)
(65)
Operating expenses
6,832
6,858
0
Business division operating profit / (loss) before tax
1,897
2,630
(28)
Performance measures and other information
Pre-tax profit growth (year-on-year, %)
2
(27.9)
5.9
Cost / income ratio (%)
2
78.4
72.5
Average attributed equity (USD bn)
3
13.0
13.0
0
Return on attributed equity (%)
2,3
14.6
20.3
Average VaR (1-day, 95% confidence, 5 years of historical data)
10
11
(5)
1 Comparative figures in this table 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 calc ulation method. 3 Refer to “Capital management” in the
“Capital, liquidity and funding, and balance sheet” section of this report for more information.
2022 compared with 2021
Results
Profit before tax decreased by USD 733m, or 28%, to USD 1,897m, driven by lower total revenues and lower net credit
loss releases, partly offset by lower operating expenses.
Total revenues
Total revenues decreased by USD 737m, or 8%, to USD 8,717m, reflecting lower revenues in Global Banking, partly
offset by higher revenues in Global Markets.
Global Banking
Global Banking revenues decreased by USD 1,571m, or 50%, to USD 1,587m, driven by Capital Markets and Advisory
revenues, compared with a 43% decrease in the overall global fee pool.
Advisory revenues decreased by USD 255m, or 26%, to USD 733m, mostly due to lower merger and acquisition (MA)
transaction revenues , which decreased by USD 217m, or 25%, compared with a 21% decrease in the global MA fee
pool.
Capital Markets revenues decreased by USD 1,316m, or 61%, to USD 854m, primarily due to lower Equity Capital
Markets (ECM) revenues, which decreased by USD 738m, or 71%, compared with a 67% decrease in the global ECM
fee pool. Leveraged Capital Markets (LCM) fee revenues decreased by USD 297m, or 58%, compared with a 54%
decrease in the global LCM fee pool.
Global Markets
Global Markets revenues increased by USD 833m, or 13%, to USD 7,129m, driven by higher revenues in our Financing
and Derivatives Solutions businesses, partly offset by lower revenues in Execution Services.
Execution Services revenues decreased by USD 251m, or 13%, to USD 1,643m, mainly driven by lower Cash Equities
revenues.
Derivatives Solutions revenues increased by USD 243m, or 7%, to USD 3,665m, mostly driven by an increase in Foreign
Exchange and Rates, which benefited from elevated volatility due to inflationary concerns and the actions of central
banks, partly offset by a decrease in Equity Derivatives revenues due to lower levels of client activity.
Financing revenues increased by USD 843m, or 86%, to USD 1,822m, predominantly due to 2021 including an
USD 861m loss on the default of a US-based client of our prime brokerage business.
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Global Markets Equities revenues increased by USD 389m, or 8%, to USD 4,970m, mainly driven by Equity Financing,
due to the aforementioned loss in our prime brokerage business in 2021, partly offset by lower revenues in Cash Equities
and Equity Derivatives.
Global Markets Foreign Exchange, Rates and Credit revenues increased by USD 445m, or 26%, to USD 2,160m, mostly
driven by an increase in Foreign Exchange and Rates products, which benefited from elevated volatility due to inflationary
concerns and the actions of central banks.
Credit loss expense / release
Net credit loss releases were USD 12m, primarily related to credit-impaired (stage 3) positions, compared with net releases
of USD 34m in 2021.
Operating expenses
Operating expenses decreased by USD 26m, to USD 6,832m, with positive foreign currency effects being almost entirely
offset by increases across a number of expense lines.
Cost / income ratio
The cost / income ratio increased to 78.4% from 72.5%, as total revenues decreased by 8% and operating expenses
were in line with 2021.
Group Functions
Group Functions
1
As of or for the year ended
% change from
USD m
31.12.22
31.12.21
31.12.21
Results
Total revenues
(385)
(359)
7
Credit loss expense / (release)
3
0
801
Operating expenses
92
330
(72)
Operating profit / (loss) before tax
(480)
(689)
(30)
of which: Group Treasury
(404)
(446)
(9)
of which: Non-core and Legacy Portfolio
131
(79)
of which: Group Services
(206)
(165)
25
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.
2022 compared with 2021
Results
Group Functions recorded a loss before tax of USD 480m, compared with a loss of USD 689m .
Group Treasury
The Group Treasury result was negative USD 404m, compared with negative USD 446m.
The net effects of accounting asymmetries, including hedge accounting ineffectiveness, were negative USD 375m,
compared with negative USD 341m. Accounting asymmetries are generally expected to mean revert to zero over time,
though the length of time needed for full reversion can vary significantly, depending on market conditions.
Income related to centralized Group Treasury risk management was negative USD 2m, compared with negative
USD 63m.
Non-core and Legacy Portfolio
The Non -core and Legacy Portfolio result was positive USD 131m, compared with negative USD 79m. This was mainly
due to income of USD 114 m related to a legacy litigation settlement and a legacy bankruptcy claim, and valuation gains
of USD 81m on our USD 1.3bn portfolio of auction rate securities (ARS). Our remaining exposures to ARS were all rated
investment grade as of 31 December 2022.
Group Services
The Group Services result was negative USD 206m, compared with negative USD 165m, mainly driven by higher funding
costs related to deferred tax assets, partly offset by lower expenses relating to our legal entity transformation program.
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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
International Financial Reporting Standard 7 (IFRS 7),
Financial Instruments: Disclosures,
and International Accounting Standard 1 (IAS 1),
Presentation of
Financial Statements,
form part of the financial statements included in the “Consolidated financial statements” section of this report and 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. The risk profile of UBS AG consolidated does not differ materially from that
of UBS Group AG consolidated. Audited information provided in the “Risk management and control” and “Capital,
liquidity and funding, and balance sheet” sections applies to both UBS Group AG consolidated and UBS AG consolidated.
Signposts
The
Audited |
signpost that is displayed at the beginning of a section, table or chart indicates that those items have been audited. A triangle symbol –
p
indicates the end of the audited section, table or chart.
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Risk management and control
Table of contents
84
85
86
87
89
92
92
93
96
111
119
122
130
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Risk management and control
Overview of risks arising from our business activities
Key risks by business division and Group Functions
Business divisions and Group Functions
Key financial risks arising from business activities
Global Wealth Management
Credit risk
against residential and commercial real estate collateral, as well as corporate and other lending.
Market risk
banking book related to Global Wealth Management is transferred to and managed by Group Treasury.
Personal Corporate Banking
Credit risk
finance, 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
Group Functions
Credit
market risk
arising from management of the Group’s balance sheet, capital, profit or loss
and liquidity portfolios.
Structural risk arising from asset and liability management and liquidity and funding risk (managed by
Group Treasury) .
Non-financial risks
, which include operational, financial crime, compliance, conduct, model and reputational risks, 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 Functions.
›
Refer to “Risk categories” in this section for more information about other financial and non-financial risks relevant to UBS
Key risk developments
Although 2022 was a challenging year for the global economy and most markets, our lending portfolio performed well,
with low credit loss expenses and a USD 0.2bn reduction in credit-impaired exposure to USD 2.5bn. Overall, we saw a
USD 6bn decrease in banking product exposure driven by lower balances at central banks and lower loans and advances
to Global Wealth Management customers. Traded product exposures saw a decrease of USD 3bn across our business
divisions.
Market risk remained stable and at low levels, as a result of our continued focus on managing tail risks.
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Risk categories
We categorize the risk exposures of our business divisions and Group Functions as outlined in the table below. Our 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:
contractual obligations toward UBS. 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:
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:
an issuer to which we are exposed through tradable securities or derivatives referencing the issuer.
Investment risk:
p
Business divisions and
Group Treas ury
Risk Control
Country risk:
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, governance (ESG) matters.
Climate risks can arise from either changing climate conditions (physical risks) or from efforts to mitigate
climate change (transition risks). Sustainability and climate risk may manifest as credit, market, liquidity,
and / or non-financial risks for UBS, resulting in potential adverse financial, liability and / or reputation
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’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 bank’s capital and earnings arising from the
adverse effects of interest rate movements on the bank’s banking book positions. The risk is
transferred from the originating business units GWM and PC to Group Treasury to risk manage this
centrally and benefit from Group-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
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Risk managed by
Independent
oversight by
Non-financial risks
Compliance risk:
procedures.
Business divisions
Group Compliance,
Regulatory
Governance (GCRG)
Employment risk:
requirements and human resources practices, as well as our own internal standards.
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 violations, fraud, bribery and corruption).
Business divisions and
Financial Crime
Prevention (FCP)
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’s data or information systems.
Business divisions and
the Chief Digital and
Information Office (the
CDIO)
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:
breach of applicable laws, rules or regulations; (ii) being held liable for a breach of contractual or other
legal obligations; (iii) an inability or failure to enforce or protect contractual rights or non-contractual
rights sufficiently to protect UBS’s interests, including the risk of being party to a claim in respect of any
of the above (and the risk of loss of attorney–client privilege in the context of any such claim); (iv) a
failure to adequately develop, supervise and resource legal teams or adequately supervise external legal
counsel advising on business legal risk and other matters; and (v) a failure to adequately manage any
potential, threatened and commenced litigation and legal proceedings, including civil, criminal,
arbitration and regulatory proceedings, and / or litigation risk or any dispute or investigation that may
lead to litigation or threat of any litigation.
Business divisions
Legal
Reputational risk:
within the financial system.
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 the Group. 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.
–
We remain watchful of a range of geop olitical developments across the world, including the Russia–Ukraine war, US–
China and US–Iran tensions, and political changes in a number of countries. Geopolitical tensions will continue to
create uncertainty, while the Russia–Ukraine war complicates the energy price outlook.
–
Inflation appears to be moderating in the US and Europe, but there continue to be concerns regarding a potential
resurgence and regarding the timing and extent of central bank policy responses (i.e., interest rate hikes and the
tapering of quantitative easing).
–
We are 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 scenarios for our ongoing risk management activities.
–
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.
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–
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.
–
The geopolitical situation increases the likelihood of external state-driven cyber activity, and attacks are becoming
increasingly sophisticated, which may result in business disruption or the corruption or loss of data. Additionally, as a
result of the dynamic and material nature of recent geopolitical, environmental and health threats 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.
–
ESG / sustainability and climate risks are in the focus of regulators and other stakeholders, in particular climate risks,
nature-related risk and concerns about greenwashing, where UBS may be subject to reputational risk if not fully aligned
with sustainability-related criteria. New standards and rules are developing in several jurisdictions, with the risk of
divergent rules increasing and leading to an increased risk that UBS may not comply with all relevant regulations. Refer
to “Sustainability and climate risk” and “Non-financial risk” in this section.
–
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 being implemented.
Risk governance
Our risk governance framework operates along three lines of defense.
Our first line of defense, business management, owns its risks and is accountable for maintaining effective processes and
systems to manage them in compliance with applicable laws, rules and regulations, as well as internal standards, including
identifying control weaknesses and inadequate processes.
Our second line of defense, control functions, is separate from the business and reports directly to the Group CEO.
Control functions provide independent oversight, challenge financial and non-financial risks arising from the firm’s
business activities, and establish independent frameworks for risk assessment, measurement, aggregation, control and
reporting, protecting against non-compliance with applicable laws, rules and regulations.
Our third line of defense, Group Internal Audit (GIA), reports to the Chairman and to the Audit Committee. This function
assesses the design and operating effectiveness and sustainability of processes to define risk appetite, governance, risk
management, internal controls, remediation activities and processes to comply with legal and regulatory requirements
and internal governance standards.
The key roles and responsibilities for risk management and control are shown in the chart below and described further
below.
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Audited |
The
Board of Directors
the Group and business division overall risk appetite. The BoD is supported by its Risk Committee, which monitors and
oversees the Group’s risk profile and the implementation of the risk framework approved by the BoD, and approves the
Group’s risk appetite methodology. The Corporate Culture and Responsibility Committee (the CCRC) helps the BoD meet
its duty to safeguard and advance UBS’s reputation for responsible and sustainable conduct, reviewing stakeholder
concerns and expectations pertaining to UBS’s societal contribution and corporate culture. The Audit Committee assists
the BoD with its oversight duty relating to financial reporting and internal controls over financial reporting, and the
effectiveness of whistleblowing procedures and the external and internal audit functions.
The
Group
Executive Board
control framework in the Group, managing the risk profile of the Group as a whole.
The
Group Chief Executive Officer
has risk authority over transactions, positions and exposures, and allocates business divisions and Group Functions risk limits
approved by the BoD.
The
business division Presidents and Group functional heads
are responsible for the operation and management of their
business divisions / Group Functions, including controlling the dedicated financial resources and risk appetite of the
business divisions.
The
regional Presidents
any regional activities and issues that may give rise to actual or potentially material regulatory or reputational concerns.
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The
Group Chief Risk Officer
framework (including risk principles and risk appetite) for credit, market, country, treasury, model and sustainability and
climate risks. This includes risk measurement and aggregation, portfolio controls and risk reporting. The Group CRO sets
risk limits and approves credit and market risk transactions and exposures. Risk Control is also the central function for
model risk management and control for all models used in UBS. A framework of policies and authorities support the risk
control process.
The
Group Chief Compliance and Governance Officer
framework, which sets the general requirements for identification, management, assessment and mitigation of non-
financial risk, and for ensuring that all non -financial risks are identified, owned and managed according to the non-
financial risk appetite objectives, supported by an effective control framework.
The
Group Chief Financial Officer
the business divisions, and for managing the Group’s financial accounting, controlling, forecasting, planning and
reporting. Additional responsibilities include managing UBS’s tax affairs, as well as treasury and capital management,
including liquidity and funding risk and UBS’s regulatory ratios, Finance Artificial Intelligence Data Analytics strategy
and Group MA.
The
Group General Counsel
assessment of legal matters impacting the Group or its businesses, and managing and reporting all litigation matters.
The
Head Human Resources
Group Internal Audit
overall adherence to the approved strategy. It also assesses
the effectiveness of governance processes and risk
management, including compliance with legal and regulatory requirements and internal governance documents. The
Head GIA reports to the Chairman of the BoD. GIA also has a functional reporting line to the BoD Audit Committee.
Some of these roles and responsibilities are replicated for significant legal entities of the Group. Designated
legal entity
risk officers
entity control framework, which complements the Group’s risk management and control framework.
p
Risk appetite framework
We have a defined Group-level risk appetite, covering all financial and non-financial risk types, via a complementary set of
qualitative and quantitative risk appetite statements. This is reviewed and recalibrated annually and presented to the BoD
for approval.
Our risk appetite is defined at the aggregate Group level and reflects the types of risk that we are willing to accept or
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.
Qualitative risk appetite statements aim to ensure we maintain the desired risk culture. Quantitative risk appetite
objectives are designed to enhance UBS’s resilience against the effects of potential severe adverse economic or
geopolitical events. These risk appetite objectives cover UBS’s 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 non-financial risk appetite objectives, which are set for each of our non-financial risk categories. A
standardized quantitative firm-wide non-financial risk appetite has been established at the Group and business division
levels. Non-financial risk events exceeding predetermined risk tolerances, expressed as percentages of UBS’s total revenue,
must be escalated as per the firm-wide escalation framework to the respective business division President or higher, as
appropriate.
The quantitative risk appetite objectives are supported by a comprehensive suite of risk limits set at a portfolio level to
monitor specific portfolios and to control potential risk concentrations.
The status of risk appetite objectives is evaluated each month and reported to the BoD and the GEB. As our risk appetite
may change over time, portfolio limits and associated approval authorities are subject to periodic reviews and changes,
particularly in the context of our annual business planning process.
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.
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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. Together these aim to align our decisions with the Group’s strategy, principles and risk appetite. They help
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 of this report 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’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 the Group and is responsible for the continuous and active management of all risk exposures
to provide for balanced risk and return.
Independent controls
Independent 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.
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 about 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. Our non -financial risk framework aims to
identify and manage financial, regulatory and reputational risks, as well as risks to clients and markets.
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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 is reviewed, the risk profile that our operations and
activities result in is assessed, and that risk profile stressed . We use both scenario-based stress tests and statistical 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 Functions.
›
Refer to “Risk measurement” in this section for more information about our stress testing and statistical stress frameworks
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.
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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 Group Risk Report provides a detailed qualitative and quantitative monthly overview of developments in financial
and non-financial risks at the firm-wide level, including the status of our risk appetite objectives and the results of firm-
wide stress testing. The Group Risk Report is distributed internally to the BoD and the GEB, and senior members of Risk
Control, GIA, Finance and Legal. Risk reports are also produced for significant Group 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.
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 from the model sponsor, all our models
are independently validated.
Once validated and approved for use, a model is subject to ongoing model monitoring and annual 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.
Our model risk governance framework follows our overarching risk governance framework, with the three lines of
defense (LoD) assigned as follows.
–
First LoD: model sponsors, model owners, model developers, and model users
–
Second LoD: Chief Model Risk Officer, Model Risk Management Control
–
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.
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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
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 GEB. As described in “Risk appetite framework,” stress testing, along
with statistical loss 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.
Our
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. 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.
Our 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.
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In 2022, the binding scenario for CST was the internal
global crisis
resulting from the COVID-19 pandemic, combined with concerns around inflation, geopolitical tensions and accelerating
policy actions toward a carbon -neutral economy, lead to sovereign defaults in several emerging markets. This then spills
over into a Eurozone crisis, a hard landing in China and a global downturn. The macroeconomic impact is severe, as is
the immediate market impact. Volatility in the bond markets spreads to other asset classes. Greece, Portugal and Cyprus
lose market access and require substantial debt restructurings, while Greece leaves the Eurozone. Weak consumer and
business confidence and a fall in global markets lead to a global recession. The fiscal response in many countries is limited
due to the lack of fiscal headroom, while central banks resume expansionary monetary policy. China is hit severely by the
slowdown in global demand and volatility in financial markets, which further weakens emerging market economies. The
scenario was updated over the course of 2022 to incorporate evolving economic conditions, including rising interest rates
across the globe.
As part of the CST framework, we routinely monitored three additional stress scenarios throu ghout 2022:
–
The
global depression
A combination of political, solvency and liquidity concerns cause several large emerging markets to default, which
triggers a broader sovereign crisis. Several European economies default, and some leave the Eurozone. A negative
feedback loop between collapsing demand in developed and emerging markets, declining asset values and commodity
prices, and disruption in the banking system leads to a deep and prolonged recession across the globe.
–
The
severe Russia –Ukraine conflict
explores a sharp and persistent rise in inflation due to an escalation of geopolitical tensions, leading to a significant
rise in long-term interest rates and a period of market turbulence. Economic activity slows across the globe as both
business and household sentiment collapse, while credit conditions deteriorate. Despite weakness in activity, inflation
remains stubbornly high, forcing central banks to begin raising their policy rates and thereby prolonging the weakness
in economic activity and asset prices.
–
The
US monetary crisis
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.
We have updated the binding stress scenario in our CST framework for 2023. The new
stagflationary geopolitical crisis
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. The
global crisis
and run for monitoring purposes.
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 not modeled on any
historical events). Results of portfolio-specific stress tests may be subject to limits to explicitly control risk-taking or may
be monitored without limits to identify vulnerabilities.
Reverse stress testing
shortfall or a breach of regulatory capital ratios) and works backward to identify economic or financial scenarios that
could result in such an outcome. As such, reverse stress testing is intended to complement scenario-based stress tests by
assuming “what if” outcomes that could extend beyond the range normally considered, and thereby potentially challenge
assumptions regarding severity and plausibility.
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
Statistical measures
We complement the scenario-based CST measures with our statistical stress measures to calculate and aggregate risks
using statistical techniques to derive stress events at chosen confidence levels.
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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), which is a component of our equity attribution framework. RBC measures the potential capital impairment from
an extreme stress event at a 99.9% confidence level.
›
Refer to the “Capital, liquidity and funding, and balance sheet” section of this report for more information about the equity
attribution framework
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.
We apply limits to a variety of exposures at 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 agreement s.
›
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’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
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Credit risk
Audited |
Main sources of credit risk
–
Global Wealth Management credit risk arises from lending against securities collateral, including derivative trading
activity, and lending against residential and commercial real estate collateral, as well as corporate and other lending.
–
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 portfolio relates to derivative transactions and securitized positions.
p
Credit loss expense / release
Total net credit loss expenses were USD 29m in 2022, compared with net credit loss releases of USD 148m in the prior
year, reflecting net expenses of USD 29m related to stage 1 and 2 positions.
Stage 1 and 2 expected credit loss expenses of USD 29m relate to lending to corporate clients not secured by mortgages
(USD 21m), mainly driven by scenario effects related to downward revision of GDP and higher interest rate assumptions,
and lending secured by mortgages (USD 16m), mainly driven by scenario effects related to higher interest rate
assumptions, especially in the newly introduced stagflationary geopolitical crisis scenario, and adverse house price
assumptions, partly offset by releases from other lending (USD 9m).
›
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)
USD m
Global
Wealth
Management
Personal
Corporate
Banking
Asset
Management
Investment
Bank
Group
Functions
Total
For the year ended 31.12.22
Stages 1 and 2
(5)
27
0
6
1
29
Stage 3
5
12
0
(18)
2
0
Total credit loss expense / (release)
0
39
0
(12)
3
29
For the year ended 31.12.21
Stages 1 and 2
(28)
(62)
0
(34)
0
(123)
Stage 3
(1)
(24)
1
0
0
(25)
Total credit loss expense / (release)
(29)
(86)
1
(34)
0
(148)
For the year ended 31.12.20
Stages 1 and 2
48
129
0
88
0
266
Stage 3
40
128
2
217
42
429
Total credit loss expense / (release)
88
257
2
305
42
694
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 Bo ard of Directors and are delegated to the Group CEO, the Group 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.
–
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 Group -wide
and business division levels, and to establish portfolio limits.
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–
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 the Group
The exposures detailed in this section are based on management’s view of credit risk, which differs in certain respects
from the expected credit loss (ECL) measurement requirements of International Financial Reporting Standards (IFRS).
Internally, we put credit risk exposures 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 Functions
31.12.22
USD m
Global Wealth
Management
Personal
Corporate
Banking
Asset
Management
Investment
Bank
Group
Functions
Total
Banking products
1,2
Gross exposure
334,621
236,508
1,454
76,585
37,986
687,152
of which: loans and advances to customers (on -balance sheet)
219,385
154,643
(1)
12,754
1,221
388,003
of which: guarantees and loan commitments (off-balance sheet)
13,147
28,610
0
12,920
7,486
62,163
Traded products
2,3
Gross exposure
8,328
320
0
34,370
43,018
of which: over-the-counter derivatives
6,416
304
0
11,218
17,938
of which: securities financing transactions
0
0
0
17,055
17,055
of which: exchange-traded derivatives
1,912
15
0
6,097
8,024
Other credit lines, gross
4
12,084
23,092
0
6,105
109
41,390
Total credit-impaired exposure, gross (stage 3)
1
757
1,380
0
312
6
2,455
Total allowances and provisions for expected credit losses (stages 1 to 3)
215
701
0
168
7
1,091
of which: stage 1
68
138
0
49
4
259
of which: stage 2
57
156
0
54
0
267
of which: stage 3
90
406
0
64
3
564
31.12.21
USD m
Global Wealth
Management
Personal
Corporate
Banking
Asset
Management
Investment
Bank
Group
Functions
Total
Banking products
1,2
Gross exposure
337,266
229,334
1,520
59,352
65,514
692,985
of which: loans and advances to customers (on -balance sheet)
228,598
152,847
0
13,720
3,445
398,611
of which: guarantees and loan commitments (off-balance sheet)
10,772
29,737
0
14,994
4,947
60,450
Traded products
2,3
Gross exposure
9,582
783
0
35,950
46,314
of which: over-the-counter derivatives
7,186
766
0
9,767
17,719
of which: securities financing transactions
0
0
0
18,566
18,566
of which: exchange-traded derivatives
2,396
17
0
7,617
10,030
Other credit lines, gross
4
12,947
24,174
0
3,629
28
40,778
Total credit-impaired exposure, gross (stage 3)
1
729
1,617
0
264
0
2,610
Total allowances and provisions for expected credit losses (stages 1 to 3)
264
709
0
188
4
1,165
of which: stage 1
89
126
0
64
4
282
of which: stage 2
41
146
0
34
0
220
of which: stage 3
135
438
0
90
0
662
1 ECL gross exposure including other financial assets at amortized cost, but excluding cash, receivables from securities financing transactions, cash collateral receivables on derivative instruments, financial assets at
FVOCI, irrevocable committed prolongation of existing loans and unconditionally revocable committed credit lines and forward starting reverse repurchase and securities borrowing agreements. 2 Internal management
view of credit risk, which differs in certain respects from IFRS. 3 As counterparty risk for traded products is managed at counterparty level, no further split between exposures in the Investment Bank and Group
Functions is provided. 4 Unconditionally revocable committed credit lines.
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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
›
Refer to “Note 13a Other financial assets measured at amortized cost” in the “Consolidated financial statements” section of this
report for more details
Global Wealth Management
Gross banking products exposure within Global Wealth Management decreased slightly to USD 335bn from USD 337bn.
Our Global Wealth Management loan portfolio is mainly secured by securities (Lombard loans) and by residential real
estate. Most of our USD 154bn of Lombard loans, including traded products collateralized by securities, were of high
quality, with 89% rated as investment grade based on our internal ratings and an average loan-to-value (LTV) of 49%.
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. In 2022, the Lombard book, including traded products,
decreased by approximately 11%, while keeping a stable risk profile with regard to collateral concentrations with no
material losses. The decrease was primarily driven by clients in Asia Pacific deleveraging on the back of ongoing market
volatility. The share of non-standard Lombard loans, for example those with less liquid or concentrated collateral, slightly
increased to 5% of the total Lombard book from 4%.
The mortgage book increased by approximately 8%, driven by higher volumes of mortgage loans in the US residential
real estate portfolios (average LTV 48%) and by further expansion of the commercial real estate business to USD 5bn.
Other financings represent approximately 6% of the total banking products exposures and are consolidated in a corporate
and other portfolio that increased by approximately 68% in 2022, mainly driven by private equity subscription facilities
in the US, which are mostly investment grade rated.
Collateralization of Loans and advances to customers
1
UBS
of which:
Global Wealth Management
of which: Personal
Corporate Banking
of which:
Investment Bank
USD m, except where indicated
31.12.22
31.12.21
31.12.22
31.12.21
31.12.22
31.12.21
31.12.22
31.12.21
Secured by collateral
Residential real estate
Commercial / industrial real estate
Cash
Securities
Other collateral
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. UBS applies a risk-based approach that generally prioritizes collateral according to its
liquidity profile.
Personal Corporate Banking
Gross banking products exposure within Personal Corporate Banking increased to USD 237bn, compared with
USD 229bn in 2021. Net banking products exposure (excluding exposure reallocated from Group Treasury) was largely
unchanged at USD 186bn (CHF 172bn ), of which approximately 66% was classified as investment grade, broadly
unchanged from 2021. Around 48 % of the exposure is categorized in the lowest LGD bucket, i.e., 0–25%, compared
with 50% in 2021. Personal Corporate Banking’s gross loan portfolio was USD 155bn (CHF 143bn) compared with
USD 153bn (CHF 139 bn) in 2021. This portfolio is predominantly denominated in Swiss francs and the increase in
Swiss franc terms was largely offset by the effect of the US dollar appreciating. As of 31 December 2022, 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, 53% of the unsecured loan portfolio was rated as investment grade, compared with 50%
in 2021.
Our Swiss corporate banking products take-and-hold portfolio, which was USD 36bn (CHF 33bn) and unchanged compared
with 2021, 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.
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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 7bn (CHF 7bn) as of 31 December 2022, compared with
USD 8bn (CHF 7bn) in 2021, with a considerable part of the exposure correlating with commodity prices.
Our exposure to banks consists primarily of contingent claims and was USD 5bn (CHF 5bn), compared with USD 6bn
(CHF 5bn) in 2021.
Despite the Russia–Ukraine war, higher energy prices and supply chain bottlenecks, as well as the onset of monetary
policy tightening, credit losses were at a low level in 2022. The delinquency ratio was 0.2% for the corporate portfolio,
compared with 0.3% at the end of 2021.
›
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
Our Swiss mortgage loan portfolio secured by residential and commercial real estate in Switzerland continues to be our
largest loan portfolio. These mortgage loans, totaling USD 170bn (CHF 157bn), mainly originate from Personal Corporate
Banking, but also from Global Wealth Management Region Switzerland. Of these mortgage loans, USD 154bn (CHF 142bn)
related to residential properties that the borrower was either occupying or renting out, with full recourse to the borrower.
Of this USD 154bn (CHF 142bn), USD 111bn (CHF 103bn) is related to properties occupied by the borrower, with an
average LTV ratio of 51%, compared with 52% as of 31 December 2021. The average LTV for newly originated loans for
this portfolio was 63%, compared with 64% in 2021. The remaining USD 43bn (CHF 39bn) of the Swiss residential
mortgage loan portfolio related to properties rented out by the borrower and the average LTV of that portfolio was 51%,
compared with 52% as of 31 December 2021. The average LTV for newly originated Swiss residential mortgage loans for
properties rented out by the borrower was 54%, compared with 55% in 2021.
As illustrated in the “Swiss mortgages: distribution of net exposure at default (EAD) 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
31.12.22
31.12.21
LGD buckets
Weighted
average
LGD (%)
Weighted
average
LGD (%)
Internal UBS rating
2
Exposure
0–25%
26–50%
51–75%
76–100%
Exposure
Investment grade
123,358
67,254
44,236
9,162
2,706
28
121,520
27
Sub-investment grade
62,219
22,924
25,168
11,790
2,336
35
63,141
34
of which: 6−9
56,774
21,053
22,976
10,592
2,153
35
57,955
34
of which: 10−13
5,445
1,871
2,193
1,199
182
36
5,185
36
Defaulted / Credit-impaired
1,380
24
1,151
205
42
1,617
42
Total exposure before deduction of allowances and provisions
186,957
90,202
70,555
21,158
5,042
30
186,278
29
Less: allowances and provisions
(664)
(674)
Net banking products exposure
1
186,293
185,604
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
31.12.22
31.12.21
USD m
%
USD m
%
Construction
172
1.3
166
1.5
Financial institutions
3,878
29.8
2,786
25.0
Hotels and restaurants
135
1.0
119
1.1
Manufacturing
1,715
13.2
1,555
13.9
Private households
1,473
11.3
1,488
13.3
Public authorities
416
3.2
419
3.8
Real estate and rentals
547
4.2
574
5.1
Retail and wholesale
2,230
17.1
1,971
17.7
Services
2,242
17.2
1,908
17.1
Other
226
1.7
180
1.6
Exposure, gross
13,034
100.0
11,166
100.0
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Swiss mortgages: distribution of net exposure at default (EAD) across exposure segments and loan-to-value (LTV)
buckets
1
USD bn, except where indicated
31.12.22
31.12.21
LTV buckets
Exposure segment
≤30%
31–50%
51–60%
61–70%
71–80%
81–100%
100%
Total
Total
Residential mortgages
Net EAD
91.5
38.4
9.6
3.9
1.0
0.1
0.0
144.5
143.9
as a % of row total
63
27
7
3
1
0
0
100
Income-producing real estate
Net EAD
15.6
6.1
1.3
0.5
0.1
0.0
0.0
23.7
22.2
as a % of row total
66
26
6
2
1
0
0
100
Corporates
Net EAD
7.2
2.7
0.7
0.4
0.2
0.1
0.0
11.2
10.9
as a % of row total
64
24
6
3
1
1
0
100
Other segments
Net EAD
0.6
0.2
0.0
0.0
0.0
0.0
0.0
0.9
0.9
as a % of row total
67
22
5
3
2
1
0
100
Mortgage-covered exposure
Net EAD
114.8
47.4
11.6
4.9
1.2
0.3
0.1
180.3
177.9
as a % of total
64
26
6
3
1
0
0
100
Mortgage-covered exposure 31.12.21
Net EAD
111.2
47.0
12.2
5.5
1.5
0.3
0.1
177.9
as a % of total
63
26
7
3
1
0
0
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-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.
Investment Bank
The Investment Bank’s lending activities are largely associated with corporate and non-bank financial institutions. The
business is broadly d iversified across industry sectors, but concentrated in North America.
The gross banking products exposure increased to USD 77 bn as of 31 December 2022, compared with USD 59bn as of
31 December 202 1, 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 decreased to USD 32bn from USD 35bn
in 2021, mostly driven by a decrease in irrevocable loan commitments. Based on our internal ratings, 50% 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 %.
Total mandated temporary loan underwriting exposure ended 2022 at USD 2.6bn, compared with USD 6.6bn at the end
of the prior year. USD 2.3bn of commitments had not yet been distributed as originally planned as of 31 December 2022.
Loan underwriting exposures are classified as held for trading, with fair values reflecting market conditions at the end
of 2022.
›
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
31.12.22
31.12.21
LGD buckets
Weighted
average
LGD (%)
Weighted
average
LGD (%)
Internal UBS rating
2
Exposure
0–25%
26–50%
51–75%
76–100%
Exposure
Investment grade
15,878
4,182
7,867
2,127
1,702
37
18,302
36
Sub-investment grade
15,522
4,872
6,324
4,128
198
23
16,250
20
of which: 6−9
9,174
2,746
2,380
3,879
169
17
10,467
14
of which: 10−13
6,348
2,127
3,944
249
29
32
5,783
31
Defaulted / Credit-impaired
312
273
27
9
3
21
264
33
Banking products exposure
1
31,712
9,327
14,218
6,264
1,904
30
34,815
28
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
31.12.22
31.12.21
USD m
%
USD m
%
Asia Pacific
4,766
15.0
5,154
14.8
Latin America
1,209
3.8
1,327
3.8
Middle East and Africa
183
0.6
212
0.6
North America
15,409
48.6
16,282
46.8
Switzerland
461
1.5
453
1.3
Rest of Europe
9,684
30.5
11,387
32.7
Exposure
1
31,712
100.0
34,815
100.0
1 Excluding balances at central banks and Group Treasury reallocations.
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Investment Bank: banking products exposure by industry sector
1
31.12.22
31.12.21
USD m
%
USD m
%
Banks
4,409
13.9
4,908
14.1
Chemicals
583
1.8
645
1.9
Electricity, gas, water supply
363
1.1
359
1.0
Financial institutions, excluding banks
14,587
46.0
13,353
38.4
Manufacturing
1,361
4.3
1,692
4.9
Mining
878
2.8
1,024
2.9
Public authorities
259
0.8
619
1.8
Real estate and construction
1,685
5.3
1,581
4.5
Retail and wholesale
1,654
5.2
2,793
8.0
Technology and communications
2,324
7.3
3,736
10.7
Transport and storage
499
1.6
414
1.2
Other
3,110
9.8
3,691
10.6
Exposure
1
31,712
100.0
34,815
100.0
1 Excluding balances at central banks and Group Treasury reallocations.
Group Functions
Gross banking products exposure within Group Functions, which arises primarily in connection with treasury activities,
decreased by USD 28bn to USD 38bn from balances at central banks. The decrease was mainly due to shifts within the
high-quality liquid asset portfolio from cash into securities, a reduction in short-term debt, decreases in customer deposits,
and outflows related to the share repurchase programs .
›
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 Functions” 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 Portfolio, 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. In the Investment Bank, 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 classes or categories
of collateral on a portfolio level. Such portfolio limits are monitored and reported to senior management.
Trading in OTC derivatives is conducted through central counterparties 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 most major market
participant counterparties, we use two-way collateral agreements under which either party can be required to provide
collateral in the form of cash or marketable securities when the exposure exceeds specified levels. This collateral typically
consists of well-rated government debt or other collateral permitted by applicable regulations. For certain counterparties,
an initial margin is taken to cover some or all of the calculated close-out exposure. This is in addition to the variation
margin taken to settle changes in market value of transactions. Regulations on margining uncleared OTC derivatives
continue to evolve. These generally expand the scope of bilateral derivatives activity subject to margining. They will also
result in greater amounts of initial margin received from, and posted to, certain bilateral trading counterparties than had
been required in the past. These changes should result in lower close-out risk over time.
p
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 Portfolio and Group Treasury: traded products exposure
USD m
OTC derivatives
SFTs
ETDs
Total
Total
31.12.22
31.12.21
Total exposure, before deduction of credit valuation adjustments and hedges
11,218
17,055
6,097
34,370
35,950
Less: credit valuation adjustments and allowances
(34)
(1)
0
(35)
(34)
Less: credit protection bought (credit default swaps, notional)
(109)
(109)
(119)
Net exposure after credit valuation adjustments, allowances and hedges
11,075
17,055
6,097
34,226
35,797
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Investment Bank, Non-core and Legacy Portfolio and Group Treasury: distribution of net OTC derivatives and SFT
exposure across internal UBS ratings and loss given default (LGD) buckets
USD m, except where indicated
31.12.22
31.12.21
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
10,757
310
8,791
444
1,212
48
9,297
47
Sub-investment grade
318
13
114
14
177
72
317
59
of which: 6−9
285
9
89
13
174
76
249
62
of which: 10−12
28
0
25
0
2
41
46
64
of which: 13 and defaulted
5
3
0
2
0
23
22
14
Total net OTC derivatives exposure, after credit valuation adjustments
and hedges
11,075
322
8,905
458
1,389
49
9,615
48
Net SFT exposure
Investment grade
16,682
279
14,414
999
990
40
17,937
40
Sub-investment grade
373
0
151
45
177
71
629
69
Total net SFT exposure
17,055
279
14,565
1,044
1,166
41
18,566
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 Portfolio and Group Treasury: net OTC derivatives and SFT exposure
by geographical region
Net OTC derivatives exposure
Net SFT exposure
31.12.22
31.12.21
31.12.22
31.12.21
USD m
%
USD m
%
USD m
%
USD m
%
Asia Pacific
1,249
11.3
1,586
16.5
4,906
28.8
5,380
29.0
Latin America
117
1.1
111
1.2
34
0.2
20
0.1
Middle East and Africa
615
5.6
112
1.2
483
2.8
360
1.9
North America
2,200
19.9
1,830
19.0
3,177
18.6
4,473
24.1
Switzerland
1,055
9.5
688
7.2
466
2.7
559
3.0
Rest of Europe
5,839
52.7
5,288
55.0
7,988
46.8
7,774
41.9
Exposure
11,075
100.0
9,615
100.0
17,055
100.0
18,566
100.0
Investment Bank, Non-core and Legacy Portfolio and Group Treasury: net OTC derivatives and SFT exposure
by industry sector
Net OTC derivatives exposure
Net SFT exposure
31.12.22
31.12.21
31.12.22
31.12.21
USD m
%
USD m
%
USD m
%
USD m
%
Banks
1,288
11.6
986
10.3
869
5.1
1,654
8.9
Chemicals
71
0.6
14
0.1
0
0.0
0
0.0
Electricity, gas, water supply
118
1.1
103
1.1
0
0.0
0
0.0
Financial institutions, excluding banks
8,614
77.8
7,174
74.6
14,865
87.2
15,866
85.5
Manufacturing
97
0.9
50
0.5
0
0.0
0
0.0
Mining
20
0.2
51
0.5
0
0.0
0
0.0
Public authorities
655
5.9
810
8.4
1,320
7.7
926
5.0
Retail and wholesale
29
0.3
22
0.2
0
0.0
0
0.0
Transport, storage and communication
115
1.0
255
2.6
0
0.0
0
0.0
Other
69
0.6
150
1.6
0
0.0
120
0.6
Exposure
11,075
100.0
9,615
100.0
17,055
100.0
18,566
100.0
Credit risk mitigation
Audited |
We actively manage credit risk in our portfolios by taking collateral against exposures and by utilizing credit
hedging.
p
Lending secured by real estate
Audited |
We use 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. Interest payments are
estimated using a predefined framework, which considers the potential for significant interest rate increases over the
lifetime of the loan. The interest rate is set at 5% per annum in the context of the current environment.
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For residential properties occupied by the borrower, the maximum LTV for the standard approval process is 80% and
60% for holiday homes and luxury real estate. For other properties, the maximum LTV allowed within the standard
approval process ranges from 30% to 80%, depending on the type and age of the property, and the amount of
renovation work needed.
Audited |
The value we assign 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
Two 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. We derive the value of a property 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 quarterly over the lifetime of the loan using region -specific real estate price indices. The price indices
are sourced from an external vendor and subject to internal validation and benchmarking. We use these valuations
quarterly 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 and triggers an assessment and
reappraisal by client advisors and credit officers as needed.
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), and triggers an assessment
and reappraisal by client advisors and credit officers as needed.
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 |
We similarly apply 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
% to
%.
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 our mortgage loan portfolio in the Global Wealth Management regions of EMEA and Asia Pacific, we apply global
underwriting guidelines with regional variations 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
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.
We derive lending values by applying discounts (haircuts) to the pledged collateral’s market value. Haircuts for marketable
securities are calculated to cover a possible change in value over a given close-out period and confidence level. Less liquid
or more volatile collateral will typically ha ve larger haircuts.
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We assess concentration and correlation risks across collateral posted at a counterparty level, and at a divisional level
across counterparties. We also perform targeted Group-wide reviews of concentration. 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 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 requi red period, a close-out is initiated, through which collateral is liquidated, open derivative positions are closed
and guarantees are called.
We conduct stress testing of collateralized exposures to simulate market events that reduce collateral value, increase
exposure of traded products, or do both. 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 |
We use single-name credit default swaps (CDSs), credit-index CDSs, bespoke protection and other instruments to
actively manage credit risk in the Investment Bank and Non-core and Legacy Portfolio. 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 (CVAs).
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. Trading with such counterparties is 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, we reduce actual settlement volumes by using multi -lateral and bi-lateral agreements with
counterparties, including payment netting.
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 delivery-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 |
We have 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 2022 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
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Key features of our main credit risk models
Portfolio in scope
Asset class
Model
approach
Number of
main models
Main drivers
Number of
years of loss
data
1
Probability of
default
Sovereigns and central banks
Central governments and
central banks
Scorecard
1
Political, institutional and economic indicators
10
Owner-occupied mortgages in
Switzerland and the US
Retail: residential
mortgages
Scorecard
2
Behavioral data, affordability relative to income,
property type, loan-to-value. Separate models for
mortgages in Switzerland and the US
28
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. Weights
of risk drivers differ between corporate and private
clients
28
Lombard lending
Retail: other retail,
Corporates: other lending
Merton type
2
Separate models for structured margin lending and
standard Lombard. Key risk drivers for both models:
loan-to-value, historical asset returns, behavioral
data
13–16
Small and medium-sized
enterprises
Corporates: other lending
Scorecard
1
Financial data including balance sheet ratios and
profit and loss, behavioral data. Weights of risk
drivers differ depending on the corporate client sub-
segment
28
Credit cards in Switzerland
Retail: qualifying
revolving retail and other
retail,
Corporates: other lending
Scorecard
1
Client type and characteristics (revolver, transactor,
new client, dormant client), and behavioral data
17
Banks
Banks and securities
dealers
Scorecard
4
Financial data including balance sheet ratios and
profit and loss. Separate models for banks –
developed markets, banks – emerging markets,
broker-dealers and investment banks, and private
banks
15
Commodity traders
Corporates: specialized
lending
Scorecard
1
Financial data including balance sheet ratios and
profit and loss, as well as non-financial criteria
24
Aircraft financing
Corporates: other lending
Scorecard
1
Loan-to-value, AuM, strength of legal framework of
source of wealth, and behavioral factors
16
Large corporates
Corporates: other lending
Scorecard /
market data
3
Financial data including balance sheet ratios and
profit and loss, and market data. Separate rating
tools for corporates with publicly traded and highly
liquid stocks (market intelligence tool), private
corporates, and leveraged corporates
15
Other portfolios
Corporates: other
lending,
Public-sector entities and
multi-lateral development
banks
Scorecard /
pooled rating
approach /
rating
template
10
Financial data and/or historical portfolio performance
for pooled ratings. Separate models for hedge funds,
managed funds, private equity funds, insurance
companies, commercial real estate loans, debt REITs,
mortgage originators, public-sector entities and
multi-lateral development banks / supranationals
15
Loss given default
Owner-occupied mortgages in
Switzerland and the US
Retail: residential
mortgages
Statistical
model
2
Loan-to-value, time since last valuation. Separate
models for mortgages in Switzerland and the US
11–14
Income-producing real estate
mortgages
Retail: residential
mortgages, Corporates:
specialized lending
Statistical
model
1
Loan-to-value, time since last valuation, property
type, location indicator
11
Lombard lending
Retail: other retail,
Corporates: other lending
Statistical
model,
simulation
2
Separate models for structured margin lending and
standard Lombard. Key risk drivers for both models:
historical observed loss rates, liquidity
13–14
Small and medium-sized
enterprises
Corporates: other lending
Statistical
model
2
Separate models for mortgage and non-mortgage
LGDs. Mortgage models: loan-to-value, time since
last valuation, property type, location indicator. Non-
mortgage models: historical observed loss rates
11–17
Credit cards in Switzerland
Retail: qualifying
revolving retail and other
retail,
Corporates: other lending
Statistical
model
1
Collateral, accrued interests, client characteristics.
17
Investment Bank – all
counterparties
Across the asset classes
Statistical
model
2
Counterparty and facility specific, including industry
segment, collateral, seniority, legal environment and
bankruptcy procedures. Specific model for sovereign
LGDs based on econometric modeling of past default
events using GDP per capita, government debt, and
other quantitative and qualitative factors such as the
share of multi-lateral debt service, the size of the
banking sector and institutional quality
10
Exposure at default
Banking products
Across the asset classes
Statistical
model
3
Separate models based on exposure type (committed
credit lines, revocable credit lines, contingent
products)
10
Traded products
Across the asset classes
Statistical
model
2
Product-specific market drivers, e.g., interest rates.
Separate models for OTC derivatives, ETDs and SFTs
that generate the simulation of risk factors used for
the credit exposure measure
n/a
1 For sovereign and Investment Bank PD models, the length of internal portfolio history is shown in “Number of years of loss data.”
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Audited |
Internal UBS rating scale and mapping of external ratings
Internal UBS rating
1-year PD range in %
Description
Moody’s Investors
Service mapping
SP 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 our 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 rating tools for these asset classes are also calibrated to our internal credit rating scale (masterscale),
designed to ensure a consisten t assessment of default probabilities across counterparties.
The ratings of major credit rating agencies, and their mapping to our masterscale and internal PD bands, are shown in
the “Internal UBS rating scale and mapping of external ratings” table above. For Moody’s and SP, 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 SP 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
scenario and statistical techniques. We assess the net amount that may be owed to us or that we may owe to others, taking
into account the effect of market movements over the potential time it would take to close out positions.
We assess 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 our traded products exposure (wrong-way risk), and we have
established specific controls to mitigate such risks.
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. We determine LGD based on the likely
recovery rate of claims against defaulted counterparties, which depends on the type of counterparty and any credit
mitigation due to collateral or guarantees. Our estimates are supported by internal loss data and external information,
where available. If we hold collateral, 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
We use 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.
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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 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 2022
were USD 29m and respective allowances and provisions as of 31 December 2022 were USD 526m. This included ECL
allowances and provisions of USD 485m related to positions under the Basel III advanced internal ratings-based (A-IRB)
approach. Basel III EL for non -defaulted positions increased by U SD 37m to USD 956m.
›
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 (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 book value as of the reporting date; for traded
products, the vast majority of EAD is modeled. 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, discounted to the reporting date using
the effective interest rate. For loan commitments, a credit
conversion factor is applied to model expected future drawdowns
over the life of the transaction without including downturn
assumptions. In both cases, the time period is capped at 12
months, unless an SICR has occurred.
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.
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
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Credit risk model confirmation
Our 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.
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.
This includes analyses of changes in key attributes, changes in portfolio concentration measures and changes in RWA.
›
Refer to “Model risk management” in this section for more information
Backtesting
We monitor 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, if the portfolio average PD lies below the derived lower boundary, the rating tool is
recalibrated.
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, models are recalibrated.
Main credit risk models backtesting by regulatory asset class
Length of time series
used for the calibration
(in years)
Actual rates in %
Estimated average rates
at the start of
2022 in %
Average of last
5 years
1
Min. of last
5 years
2
Max. of last
5 years
2
Probability of default
3
Central governments and central banks
10
4
0.00
0.00
0.00
0.43
Banks and securities dealers
10
0.03
0.00
0.13
0.65
Public-sector entities, multi-lateral development banks
10
0.05
0.00
0.21
0.23
Corporates: specialized lending
10
0.30
0.11
0.60
1.26
Corporates: other lending
5
10
0.28
0.20
0.34
0.44
Retail: residential mortgages
20
0.20
0.14
0.25
0.49
Retail: qualifying revolving retail exposure
5
10
0.71
0.63
0.79
0.83
Retail: other retail
5
10
0.09
0.05
0.19
0.20
Loss given default
Central governments and central banks
10
47.72
Banks and securities dealers
10
53.38
Public-sector entities, multi-lateral development banks
10
27.40
Corporates: specialized lending
10
2.16
0.00
9.51
22.80
Corporates: other lending
5
10
15.92
5.09
24.68
38.24
Retail: residential mortgages
20
0.45
0.00
0.72
22.75
Retail: qualifying revolving retail exposure
5
10
24.88
20.27
27.42
47.87
Retail: other retail
5
10
8.20
4.80
13.54
24.37
Credit conversion factors
Corporates
10
21.65
6.93
38.08
38.10
1 Average of all observations over the last five years. 2 Minimum / maximum annual average of observations in any single year from the last five years. Yearly averages are only calculated where five or more
observations occurred during that year. 3 Average PD estimation is based on all rated clients in the portfolio. 4 Sovereign PD model is calibrated to UBS masterscale, length of time series shows span of internal
history for this portfolio. 5 During 2021, a new PD and LGD model for credit cards went live. Obligors subject to this model contribute to Corporates: other lending, Retail: qualifying revolving retail exposure, and
Retail: other retail.
CCFs, used for the calculation of EAD for undrawn facilities with corporate counterparties, 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, the relevant CCFs are redefined.
The “Main credit risk models backtesting by regulatory asset class” table above compares the current model calibration
for PD, LGD and CCFs with histo rical observed values over the last five years.
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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 2022.
In Personal Corporate Banking and Global Wealth Management, we updated the PD model for owner-occupied
residential properties in Switzerland and the LGD model for mortgages in Switzerland. In Global Wealth Management,
we also recalibrated the PD model for aircraft financing and implemented some model updates for the standard Lombard
model.
In the Investment Bank, a new PD model for private equity counterparties was introduced, and a redeveloped PD model
for hedge funds went live. Additionally, we have implemented a new model for structured margin lending.
For CCR models, we recalibrated the market parameters in the SFT model, enhancing and automating the process, which
is run on a daily basis. The transition from LIBOR required a number of model changes for CCR models, for traded
products to be able to consume the new alternative reference rate curves.
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
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 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. 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).
The published framework has a number of requirements that are subject to national discretion. Also, revisions to the
credit valuation adjustment (CVA) framework were published, 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 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 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 or originated credit-impaired (POCI). An instrument is POCI if it has been purchased at a deep
discount to its carrying amount following a risk event of the issuer or originated with a defaulted counterparty. Once a
financial asset is classified as defaulted / credit-impaired (except POCI), it is reported as a stage 3 instrument and remains
as such unless all past due amounts have been rectified, additional payments have been made on time, the position is
not classified as credit-restructured, and there is general evidence of credit recovery. A three-month probation period is
applied before a transfer back to stages 1 or 2 can be triggered. However, most instruments remain in stage 3 for a
longer period. As of 31 December 2022, we had no instruments classified as POCI on our books.
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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
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 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 and
Loans to financial advisors.
The total combined on- and off-balance sheet coverage ratio was at 21 basis points as of 31 December 2022, 1 basis
point lower than on 31 December 2021. The combined stage 1 and 2 ratio of 10 basis points was unchanged compared
with 31 December 2021; the stage 3 ratio was 22%, 2 percentage points lower than as of 31 December 2021.
›
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 13a Other financial assets measured at amortized cost” in the “Consolidated financial statements” section of this
report for more details
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Loss history statistics
USD m, except where indicated
31.12.22
31.12.21
31.12.20
31.12.19
31.12.18
Banking products, core exposure on- and off-balance sheet, gross
1
491,556
499,839
479,176
408,331
410,117
of which: loans and advances to banks and customers (gross)
402,801
414,099
396,049
340,003
338,000
Credit-impaired exposure, gross (stage 3)
2,455
2,610
3,778
3,113
3,154
of which: credit-impaired loans and advances to banks and customers (stage 3)
2,012
2,150
2,945
2,309
2,300
Non-performing loans and advances to banks and customers
2,333
2,387
3,176
2,466
2,419
ECL allowances and provisions for credit losses
2
1,091
1,165
1,468
1,029
1,054
of which: core loan exposure (all stages)
1,043
1,132
1,426
987
1,003
of which: loans and advances to banks and customers (all stages)
789
857
1,076
770
780
of which: loans and advances to banks and customers (stage 3)
474
572
703
559
549
Write-offs (stage 3)
95
137
356
142
210
of which: write-offs for loans and advances to banks and customers
74
118
348
122
192
Credit loss expense / (release)
3
29
(148)
694
78
118
Ratios
Credit-impaired loans and advances to banks and customers as a percentage of loans and advances to banks
and customers (gross)
0.5
0.5
0.7
0.7
0.7
Non-performing loans and advances to banks and customers as a percentage of loans and advances to banks
and customers (gross)
0.6
0.6
0.8
0.7
0.7
ECL allowances for loans and advances to banks and customers as a percentage of loans and advances to
banks and customers (gross)
0.2
0.2
0.3
0.2
0.2
Write-offs as a percentage of average loans and advances to banks and customers (gross) outstanding during
the period
0.0
0.0
0.1
0.0
0.1
1 Core loan exposure is defined as the sum of Loans and advances to customers and Loans to financial advisors. 2 Includes provisions for ECL of guarantees and loan commitments and allowances for securities
financing transactions. 3 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 Portfolio in Group Functions 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 business, our Swiss personal and corporate banking
business, 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, Group Treasury and Non-core and Legacy Portfolio 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 Treasury Risk Control, as set out below.
–
Our primary portfolio measures of market risk are liquidity-adjusted stress (LAS) loss and VaR. Both are common to all
business divisions and 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 on an integrated basis 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.
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–
Issuer risk is controlled by limits applied at 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 Market Treasury Risk Control function applies a holistic risk framework, setting the appetite for treasury-related
risk-taking activities across the Group. 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 Group CEO.
Limits are also set by the BoD to balance the effect of foreign exchange movements on our CET1 capital and CET1 capital
ratio. Non-trading interest rate and foreign exchange risks are included in Group-wide statistical and stress testing metrics,
which flow into our risk appetite framework.
Equity and debt investments are subject to a range of risk controls, including preapproval of new investments by business
management and Risk Control and regular monitoring and reporting. They are also included in Group -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
LAS is our primary stress loss measure for Group-wide market risk. The LAS framework captures the economic losses that
could arise under specified stress scenarios. This is partially done by replacing the standard 1-day and 10-day holding
period assumptions used for management and regulatory VaR with liquidity-adjusted holding periods, as explained
below. 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 LAS are calibrated to reflect the time needed to reduce or hedge the risk of positions in
each major risk factor in a stressed environment, assuming maximum utilization of the relevant position limits. We apply
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.
LAS-based limits apply at several levels: Group, business division, Group Treasury, and Non-core and Legacy Portfolio;
business area; and sub-portfolio. LAS 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, representing the potential market risk losses over a set time horizon
(holding period) at an established level of confidence. VaR assumes no change in the Group’s trading positions over the
set time horizon.
We calculate VaR daily. The profit or loss distribution VaR is derived from our internally developed VaR model, which
simulates returns over the holding period for those risk factors our trading positions are sensitive to, and subsequently
quantifies the profit / loss effect of these risk factor returns on trading positions. Risk factor returns associated with
general interest rate, foreign exchange and commodities risk factor classes are based on a pure historical simulation
approach, using a five-year look-back window. Risk factor returns for selected issuer-based risk factors (e.g., equity prices
and credit spreads) are split into systematic and residual issuer-specific components using a factor model approach.
Systematic returns are based on historical simulation, and residual returns on a Monte Carlo simulation. VaR model profit
or loss distribution is derived from the sum of systematic and residual returns in such a way that we consistently capture
systematic and residual risk. Correlations among risk factors are implicitly captured via a historical simulation approach.
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, we model the factor
returns using absolute returns or logarithmic returns. Risk factor return distributions are updated fortnightly.
Our VaR model does not have full revaluation capability, but we source full revaluation grids and sensitivities from front-
office systems, enabling us to capture material non-linear profit-or-loss effects.
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We use a single VaR model for both internal management purposes and determining market risk risk -weighted assets
(RWA), although we consider different confidence levels and time horizons. For internal management purposes, we
establish risk limits and measure exposures using VaR at 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 requires 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, with all
observations equally weighted.
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 (
%). Unlike
regulatory VaR, the historical data set for SVaR is not limited to five years, instead covering the period from 1 January
2007 to the present. In deriving SVaR, we seek the largest 10-day holding period VaR for the current Group portfolio
across all one-year look-back windows from 1 January 2007 to the present. SVaR is computed weekly.
p
›
Refer to the 31 December 2022 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
We continued to maintain management VaR at low levels, with average VaR at USD 11m, unchanged compared
with 2021.
Audited |
Management value -at-risk (1-day, 95% confidence, 5 years of historical data) of our business divisions and Group
Functions by general market risk type
1
For the year ended 31.12.22
USD m
Equity
Interest
rates
Credit
spreads
Foreign
exchange
Commodities
Min.
Max.
Average
31.12.22
Total management VaR, Group
Average (per business division and risk type)
Global Wealth Management
Personal Corporate Banking
Asset Management
Investment Bank
Group Functions
Diversification effect
2,3
(5
(5
(1
(3
(4
(1
For the year ended 31.12.21
USD m
Equity
Interest
rates
Credit
spreads
Foreign
exchange
Commodities
Min.
Max.
Average
31.12.21
Total management VaR, Group
Average (per business division and risk type)
Global Wealth Management
Personal Corporate Banking
Asset Management
Investment Bank
Group Functions
Diversification effect
2,3
(6
(5
(5
(5
(1
1 Statistics at individual levels may not be summed to deduce the corresponding aggregate figures. The minima and maxima for each level may well occur on different days, and likewise, the VaR for each business
line or risk type, being driven by the extreme loss tail of the corresponding distribution of simulated profits and losses for that business line or risk type, may well be driven by different days in the historical time series,
rendering invalid the simple summation of figures to arrive at the aggregate total. 2 Difference between the sum of the standalone VaR for the business divisions and Group Functions and the VaR for the Group as
a whole. 3 As the minima and maxima for different business divisions and Group Functions occur on different days, it is not meaningful to calculate a portfolio diversification effect.
p
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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. This may happen due to the number of risk factors included in the VaR model needing to be limited.
–
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.
–
Using a five-year 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 on e-year data sets avoids the smoothing effect of
the five-year data set used for VaR and the absence of the five-year window gives a longer history of potential loss events.
Therefore, although the significant period of stress during the 2007 –2009 financial crisis is no longer contained in the
historical five-year period 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.
We recognize 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 liquidity-adjusted stress and comprehensive stress testing frameworks.
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 regulatory capital, calculated as a multiple
of regulatory VaR and stressed VaR.
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 (PL). We compute backtesting VaR using a 99% confidence level and 1-day holding period for the
regulatory VaR population. Since 99% VaR at UBS is defined as a risk measure that operates on the lower tail of the PL
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 for a like-for-like
comparison. A backtesting exception occurs when backtesting revenues are lower than the previous day’s
backtesting VaR.
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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
five-year window could lead to a higher (or lower) number of exceptions. Therefore, Group -level backtesting exceptions
are investigated, as are exceptional positive backtesting revenues, with the results reported to senior business
management, the Group CRO and the Group Chief Market Treasury Risk Officer. Internal and external auditors and
relevant regulators are also informed about backtesting exceptions.
In the “Group: development of regulatory backtesting revenues and actual trading revenues against backtesting VaR”
chart above, the asymmetry between the negative and positive tails is due to the long gamma risk profile historically run
in the Investment Bank. The actual trading revenues include backtesting and intraday revenues.
The number of negative backtesting exceptions within a 250-business -day window decreased to one from four by the
end of 2022. 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
As well as for regulatory-purposes backtesting described above, we conduct extended backtesting for internal model
confirmation purposes. This includes observing model performance across the entire PL 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 2022
Audited |
In the fourth quarter of 2022, we made an upgrade to our credit spread factor model, in which we significantly
increased the coverage of single -name-issuer bond spread curves.
The resulting RWA decrease was offset by an RWA
increase arising from the introduction of a FINMA-agreed temporary measure.
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.
Key elements of the revised market risk framework include: (i) changes to the internal model-based approach, including
changes to the model approval and performance measurement process; (ii) changes to the standardized approach with
the aim of it being a credible fallback method for an internal model-based approach; and (iii) a revised boundary between
trading book and banking book. UBS maintains a close 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 that UBS 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, which would replace the add-on, is subject to
further discussions between FINMA and UBS. The integration of time decay into regulatory VaR is expected to become
effective in 2023. The FINMA-agreed temporary measure related to the credit spread factor model and the add-on related
to time decay are expected to be removed with the integration of time decay into regulatory VaR.
›
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 |
Interest rate risk in the banking book (IRRBB) arises from balance sheet positions such as Loans and advances to
banks, Loans and advances to customers, Financial assets at fair value not held for trading, Financial assets measured at
amortized cost, Customer deposits, Debt issued measured at amortized cost, and derivatives, including those 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.
Our 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 most of our 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.
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Risk management and governance
IRRBB is measured using several metrics, the most relevant of which are the following.
–
Economic value of equity (EVE) sensitivity to yield curve moves is calculated as changes in the present value of future
cash flows irrespective of accounting treatment. They are also the key risk factors for statistical and stress-based
measures, e.g., value-at-risk 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 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 no specific management actions. The sensitivities
are measured and reported monthly. Our Pillar 3 disclosure (as per specific FINMA requirements) excludes the
contribution from cash held at central banks.
We actively manage 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 (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 “Group Internal Audit” in the “Corporate governance” section of this report and to “Risk measurement” in this section for
more information
Key modeling assumptions
The cash flows from customer deposits and lending products used in 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.
We use 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 relationship.
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. This would be compensated over time by increased NII for higher interest rates. 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.
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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 IFRS equity 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 ineffec tiveness that is recognized in the income statement in accordance with IFRS. 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 cro ss-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 2022, compared with negative USD
m as of 31 December 2021, the change predominantly
driven by rising market rates. This exclude s the sensitivity of USD 3. 4m from additional tier 1 (AT1) capital instruments
(as per specific FINMA requirements) in contrast to general Basel Committee on Banking Supervision (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 2021: 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 2021: 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 2021: 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 our tier 1 capital in the “Parallel up” scenario as of 31 December 2022 would have been only a
decrease of USD
bn, or
% (31 December 2021: 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 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.
Our investment of equity portfolio has a long duration 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 “Group performance” section of this report for more information about sensitivity to interest rate movements
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Audited |
Interest rate risk – banking book
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
Parallel up
2
Parallel down
2
Steepener
3
Flattener
4
Short-term up
5
Short-term down
6
31.12.21
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
Parallel up
2
Parallel down
2
Steepener
3
Flattener
4
Short-term up
5
Short-term down
6
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’s own credit reflected in the valuation of financial liabilities designated at fair value
when UBS’s 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 |
We make direct investments in a variety of entities and buy 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 Group-wide statistical and stress testing metrics, which flow into our
risk appetite framework.
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As of 31 December 2022, 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 2022 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 Group-wide statistical and stress testing metrics, which flow into our risk appetite
framework.
Debt instruments classified as Financial assets measured at fair value through other comprehensive income had a fair
value of USD
bn as of 31 December 2022, compared with USD
bn as of 31 December 2021. 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 to Other financial assets measured at amortized cost, in line with
the principles in IFRS 9,
Financial Instruments
, which require a reclassification when an entity changes its business model
for managing financial assets.
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 that can have a material effect on our IFRS equity 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 Group-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
UBS own share exposure
Group Treasury holds UBS Group AG shares to hedge future share delivery obli gations related to employee share-based
compensation awards, and also holds shares purchased under the share repurchase program. In addition, the Investment
Bank holds a limited number of UBS Group AG shares, primarily in its capacity as a market-maker with regard to UBS
Group AG shares and related derivatives, and to hedge certain issued structured debt instruments.
›
Refer to “UBS shares” in the “Capital, liquidity and funding, and balance sheet” section of this report for more information
Country risk
Country risk framework
Country risk includes all country-specific events occurring in a sovereign jurisdiction that may lead to impairment of UBS’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. We have a well-established risk control framework to assess the risk
profiles of all countries where we have exposure.
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We assign a country rating to each country, which reflects our view of the country’s 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 our risk appetite and risk exposure to 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. We may limit the extension of credit, transactions in traded products or positions in securities
based on a country risk ceiling even if our exposure to a counterparty is otherwise acceptable.
For internal measurement and control of country risk, we also consider the financial effect of market disruptions arising
prior to, during and after a country crisis. These may take the form of a severe deterioration in a country’s debt, equity
or other asset markets, or a sharp depreciation of 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.
Our exposures to market risks are subject to regular stress tests covering major global scenarios, which are also used for
combined stress testing, where we apply market shock factors to equity indices, interest rates and currency rates in all
relevant countries and consider the potential liquidity of the instruments.
Country risk exposure
Country risk exposure measure
The presentation of country risk follows our internal risk view, where the basis for measuring exposures depends on the
product category in which we classified the exposures. In addition to the classification of exposures into banking products
and traded products, covered in “Credit risk profile of the Group” in this section, in the trading inventory we classify
issuer risk on securities such as bonds and equities, as well as risk relating to underlying reference assets for derivative
positions.
As we manage the trading inventory on a net basis, we net the value of long positions against short positions with the
same underlying issuer. Net exposures are, however, floored at zero per issuer in the figures presented in the following
tables. As a result, we do not recognize potentially offsetting benefits of certain hedges and short positions across issuers.
We do not recognize any expected recovery values when reporting country exposures as exposure before hedges, except
for risk-reducing effects of master netting agreements and collateral held in either cash or portfolios of diversified
marketable securities, which we deduct from the positive exposure values. Within banking products and traded products,
risk-reducing effects of credit protection are 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 counterparty risk associated with positive replacement value (PRV) against the
counterparty’s country of domicile (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 domicile 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 (CVAs). 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.
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Top 20 country risk exposures
The table below shows our 20 largest country exposures by product type, excluding our home country, as of 31 December
2022 compared with 31 December 2021.
Compared with the prior year, our net exposure to the UK decreased by USD 14.5bn, driven by central bank exposures
due to treasury activities. Net exposure to Germany increased by USD 4.1bn, driven by central bank exposures due to
treasury activities. Net exposures to Singapore increased by USD 1.9bn, driven by trading inventory due to treasury
activities. Net exposure to China decreased by USD 1.7bn, predominantly driven by trading inventory across issuer risk
and margin loans , as well as traded and banking products. Net exposure to France increased by USD 1.7bn, driven by
trading inventory due to treasury activities. Net exposure to the US increased by USD 1.6bn, driven by mortgages, as well
as trading inventory due to treasury activities with partial offsets related to securities financing transactions.
Based on the sovereign rating categories, as of 31 December 2022, 86% of our emerging market country exposure was
rated investment grade, compared with 84% as of 31 December 2021.
Russia
Our direct country risk exposure to Russia contributed USD 98m to our total emerging market exposure of USD 18.6bn
as of 31 December 2022, compared with a contribution of USD 634m as of 31 December 2021. This includes trade
finance exposures in Personal Corporate Banking, Nostro and cash accounts balances, and issuer risk on trading
inventory within the Investment Bank.
We had no material direct country risk exposures to Belarus or to Ukraine as of 31 December 2022 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
31.12.22
31.12.21
31.12.22
31.12.21
31.12.22
31.12.21
31.12.22
31.12.21
United States
117,994
116,388
81,875
79,647
6,620
8,371
29,499
28,371
United Kingdom
20,360
34,837
10,887
24,788
7,982
7,465
1,490
2,585
Japan
15,894
14,764
13,251
10,572
2,232
3,508
410
684
Germany
14,651
10,564
8,255
3,397
1,495
1,232
4,901
5,934
Singapore
10,863
8,993
3,038
3,110
2,493
2,557
5,332
3,326
France
7,996
6,301
2,056
1,356
1,335
1,711
4,605
3,235
Australia
4,893
6,397
1,365
2,674
1,833
1,786
1,696
1,937
Canada
4,722
3,933
274
1,199
620
1,044
3,827
1,689
China
3,625
5,344
1,347
1,823
295
830
1,983
2,691
South Korea
3,265
2,479
388
462
411
418
2,466
1,599
Luxembourg
3,230
3,453
2,717
2,438
87
58
427
958
Netherlands
2,866
3,020
1,074
1,183
669
830
1,123
1,007
Hong Kong SAR
2,278
3,388
938
1,914
455
367
885
1,107
Norway
1,676
1,215
80
25
396
206
1,200
983
United Arab Emirates
1,393
769
446
555
707
117
240
97
Thailand
1,383
1,469
344
208
23
26
1,017
1,235
Sweden
1,293
1,617
158
647
332
194
803
776
Austria
1,192
1,220
285
265
116
97
792
858
Monaco
1,017
1,022
1,001
984
16
28
0
10
India
975
1,119
847
991
88
87
40
41
Total top 20
2
221,565
228,291
130,626
138,238
28,203
30,930
62,736
59,124
1 Before deduction of IFRS 9 ECL allowances and provisions. 2 Excluding Switzerland, supranationals and global funds.
Emerging markets¹ net exposure² by internal UBS country rating category
USD m
31.12.22
31.12.21
Investment grade
16,029
17,608
Sub-investment grade
2,594
3,261
Total
18,623
20,869
1 We classify 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 a llowances and provisions.
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Sustainability and climate risk
At UBS, sustainability and climate risk is defined as the risk that UBS negatively impacts or is impacted by climate change,
natural capital, human rights or other environmental, social and governance (ESG) matters.
Sustainability and climate risk may manifest as credit, market, liquidity and / or non-financial risk for UBS, resulting in
potential adverse financial, liability and / or reputational impacts. These risks extend to the value of investments and may
also affect the value of collateral (e.g., real estate). The management of sustainability and climate risk is key, amid a global
drive to meet the United Nations Sustainable Development Goals (the SDGs) and the transition to net zero, as defined by
the Paris Agreement. In addition, regulators across jurisdictions increasingly seek to understand the potential financial
impacts of climate change.
Our sustainability and climate risk policy framework governs client and supplier relationships, applies Group-wide to all
activities, and is integrated in management practices and control principles. The sustainability and climate risk framework
is embedded in our standard risk, compliance and operations processes and applied as described below.
The aforementioned processes include client onboarding, transaction due diligence, product development and investment
decision processes, own operations, supply chain management, and portfolio reviews. This framework is geared toward
identifying clients, transactions or suppliers potentially in breach of our standards or otherwise subject to significant
controversies related to sustainability, human rights or climate change.
›
Refer to “Sustainability and climate risk policy framework” in Supplement 2 to our Sustainability Report 2022, available under
“Annual reporting” at
ubs.com/investors
, for more information
Managing climate risk
Climate risk can arise either from changing climate conditions (physical risks) or from efforts to mitigate climate change
(transition risks). The physical and transition risks from a changing climate contribute to a structural change across
economies and consequently can affect banks and the financial sector as a whole through financial and non-financial
impacts.
Our sustainability and climate risk (SCR) unit (part of Group Risk Control) manages material exposure to sustainability and
climate risks. It also advances our firm-wide SCR initiative to build in-house capacity for the management of sustainability
and climate-related risks.
Our SCR initiative follows a multi-year roadmap. It is designed to integrate sustainability and climate risk considerations
into our various traditional financial and non-financial risk management frameworks, and related policies and processes.
This is necessary to meet expectations regarding the management of sustainability and climate risks and to deliver on
climate stress-test exercises. Our roadmap is configured to address current and emerging regulations and builds capacity
through expertise and collaboration, for example, structured engagement with internal and external stakeholders (e.g.,
our Group Compliance, Regulatory Governance (GCRG) function, for non -financial risks) and pertinent experts.
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In 2022, the SCR initiative monitored emerging sustainability and climate risk regulation, engaged with select regulators
for deep dives, and further advanced efforts toward the goal of full integration of sustainability and climate risk into our
traditional risk management frameworks and stress
-
testing
capacity. Further developments included establishing
sustainable product guidelines, building new capacity to centrally structure, acquiring and deploying ESG data across the
firm, and further refining governance and methodologies driving ESG reporting and disclosure.
›
Refer to “Our management of climate risks” in our Sustainability Report 2022, available under “Annual reporting” at
ubs.com/investors
, for more information
UBS’s lending to climate-sensitive sectors
UBS approaches climate risk identification by integrating climate risk drivers, expert -based views on their transmission
channels, and climate risk methodologies (e.g., risk scores and heatmaps). This enables a materiality -driven approach to
climate risk management.
›
Refer to “Climate related materiality assessment” in our Sustainability Report 2022, available under “Annual reporting” at
ubs.com/investors
, for more information
The current inventory of UBS’s exposure to climate-sensitive activities (transition and physical risk) at the sector level is
summarized in the table below. Exposures may appear either under one or more of the risk types, as the methodologies
are distinct in their approach and application and should not be added up as one total exposure figure. Climate risk
analysis is a novel area of research, and, as the methodologies, tools, and data availability improve, we will further develop
our risk identification and measurement approaches.
Risk exposures by sector
1,2
Exposure
Transition risk
Physical risk
Sector
2020–2022
trend
2022
(USD bn)
2022
climate-
sensitive
exposure
3
2022 risk-rating
category
3
2020–2022
trend in risk
profile
4
In scope of
net-zero
target (%)
5
2022
climate-
sensitive
exposure
3
2022 risk-rating
category
3
2020–2022
trend in risk
profile
4
Agriculture
Agriculture, fishing and forestry
¯
0.3
0.0
Moderately low
0.3
Moderate
¯
Food and beverage
¯
3.2
1.4
Moderate
¯
2.3
Moderate
¯
Financial services
Financial services
46.9
0.0
Low
¯
7.1
Moderately low
¯
Industrials
Cement or concrete manufacture
0.5
0.5
Moderately high
¯
98
0.5
Moderate
¯
Chemicals manufacture
¯
1.0
1.0
Moderately high
¯
1.0
Moderate
Electronics manufacture
¯
1.8
0.0
Moderately low
¯
0.1
Moderately low
Goods and apparel manufacture
2.1
1.0
Moderate
¯
0.9
Moderately low
¯
Machinery manufacturing
¯
2.9
2.6
Moderate
¯
0.1
Moderately low
¯
Pharmaceuticals manufacture
1.9
1.9
Moderately high
¯
0.2
Moderately low
¯
Plastics and petrochemicals manufacture
¯
0.9
0.9
Moderate
¯
0.8
Moderate
¯
Metals and mining
Conglomerates (incl. trading)
¯
2.4
2.4
Moderate
¯
0.4
Moderately low
¯
Mining and quarrying
¯
0.4
0.0
Moderately low
¯
0.4
Moderately high
¯
Production
0.4
0.4
Moderate
¯
0.1
Moderate
Fossil fuels
Downstream refining, distribution
0.3
0.3
Moderate
0.3
Moderate
¯
Integrated
¯
0.4
0.4
Moderately high
¯
100
0.4
Moderate
¯
Midstream transport, storage
0.0
0.0
Moderate
¯
0.0
Moderate
¯
Trading
5.2
5.2
Moderate
¯
5.2
Moderately high
¯
Upstream extraction
¯
0.1
0.1
Moderately high
¯
95
0.1
Moderate
¯
Real estate
Real estate development and
management
¯
5.6
1.8
Moderately low
¯
0.8
Moderately low
¯
Residential
2
158.9
0.0
Low
®
99
0.0
Low
®
Commercial
2
47.1
1.4
Moderately low
¯
97
1.7
Low
Services and technology
Services and technology
¯
19.6
0.0
Low
¯
3.0
Moderately low
¯
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Risk exposures by sector
1,2
Exposure
Transition risk
Physical risk
Sector
2020–2022
trend
2022
(USD bn)
2022
climate-
sensitive
exposure
3
2022 risk-rating
category
3
2020–2022
trend in risk
profile
4
In scope of
net-zero
target (%)
5
2022
climate-
sensitive
exposure
3
2022 risk-rating
category
3
2020–2022
trend in risk
profile
4
Transportation
Air transport
¯
1.8
1.8
Moderate
¯
1.1
Moderate
¯
Automotive
¯
0.4
0.1
Moderately low
¯
0.0
Moderately low
¯
Parts and equipment supply
¯
0.5
0.5
Moderate
¯
0.1
Moderately low
¯
Rail freight
¯
0.7
0.0
Low
¯
0.2
Moderately low
¯
Road freight
¯
0.5
0.5
Moderate
¯
0.2
Moderately low
¯
Transit
¯
0.2
0.0
Moderately low
¯
0.1
Moderately low
¯
Water transport
¯
0.4
0.0
Moderately low
¯
0.4
Moderate
¯
Utilities
Other
¯
0.2
0.1
Moderately low
0.1
Moderate
¯
Secondary energy production
2.0
0.5
Moderately low
¯
91
2.0
Moderate
¯
Secondary energy trading
¯
0.0
0.0
Moderately low
¯
0.0
Moderate
¯
Private lending
Lombard
2,6
¯
137.3
0.0
Low
¯
0.0
Moderately low
¯
Private lending, credit cards, other
2
¯
4.1
0.0
Not Classified
®
0.0
Not Classified
®
Total
¯
450.0
24.9
Moderately low
¯
30.0
Moderately low
¯
of which: sensitive exposure (%)
5.5
6.7
1 Consists of total loans and advances to customers and guarantees, as well as irrevocable loan commitments (within the scope of expected credit loss), and is based on consolidated and standalone IFRS numbers,
in USD bn. Metrics and trends are calculated and restated based on 2022 methodology, across three years of reporting, 2020–2022. 2 Methodologies for assessing climate-related risks are emerging and may
change over time. As the methodologies, tools and data availability improve, we will further develop our risk identification and measurement approaches, including further and updated geospatial analysis of properties
securing financing with UBS (real estate) and better understanding how private lending (e.g., Lombard) activities may result in direct financial impacts for UBS. For physical climate risks, UBS has identified select
properties in its real estate portfolio that are vulnerable to acute climate hazards. However, real estate rating is assigned based on the riskiness of loan counterparties or qualitative estimates leveraging internal
studies. 3 Climate-related risks are scored between 0 and 1, based upon sustainability and climate risk transmission channels, as outlined in Appendix 3 to our Sustainability Report 2022, available under “Annual
reporting” at ubs.com/investors. Risk ratings represent a range of scores across five risk -rating categories: low, moderately low, moderate, moderately high, and high. The climate-sensitive exposure metrics are
determined based upon the top three out of five rated categories: high to moderate. Legend on risk codes: not classified means the respective category of risk rating is not classified and its range of risk profiles scores
0%; low means the category of risk rating is low and its range of risk prof iles scores ≤19%; moderately low means the category of risk rating is moderately low and its range of risk profiles scores 19% and ≤39%;
moderate means the category of risk rating is moderate and its range of risk profiles scores 39% and ≤59%; moderately high means the category of risk rating is moderately high and its range of risk profiles scores
59% and ≤79%; high means the category of risk rating is high and its range of risk profiles scores 79% and ≤100%. 4 A material change in risk profile (discrete risk score, weighted average per sub-sector) is
considered a 5% shift up, or down. 5 Calculated as a % of total exposure to the sub-sector, overall net-zero targets cover 45.6% of UBS lending, as defined in footnote 1. 6 Lombard lending rating is assigned
based on the average riskiness of loans.
Transition risk heatmap
Transition risk covers the adjustment to an environmentally sustainable economy, including changes in public policies,
disruptive technological developments and shifts in consumer and investor preferences. Our transition risk heatmap
methodology is based on a risk-segmentation process, dividing and rating economic sectors and industry sub-segments
that share similar risk vulnerability characteristics.
These are then scored and rated according to their vulnerability to (i) climate policy, (ii) low-carbon technology risks and
(iii) revenue or demand shifts under an immediate and ambitious approach , to meeting the well-below-2°C Paris goal.
We are able to use these risk ratings to support identification of potential climate-sensitive concentrations. The ratings in
the heatmap are bands of scores (from 0 to 1), and reflect the levels of risk that would likely occur under an ambitious
transition (in a short-term time horizon).
Our current transition risk heatmap shows that our exposure to activities rated as having high, moderately high or
moderate vulnerability to climate transition risks is relatively low (as a percentage, in 2022 compared with 2021). Most
year-on-year fluctuations (2021 to 2022) were in the energy sector, specifically in the oil and gas midstream and
downstream segments, and were caused by increasing energy prices, as the Russia –Ukraine war tightened the global
energy supply. Despite these fluctuations, we have continued to reduce our exposure to climate-sensitive sectors.
›
Refer to “Managing sustainability and climate risks” in our Sustainability Report 2022, available under “Annual reporting” at
ubs.com/investors
, for more information
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Physical risk heatmap
Physical risk arises from the impact of weather events and long-term or widespread environmental changes. The physical
risk heatmap methodology groups corporate counterparties based on exposure to key physical risk factors, by rating
sectoral (sectoral average risk distribution), geographic (vulnerability and adaptive capacity) and value chain (sectoral
average risk distribution) vulnerabilities in a climate-change trajectory in which no additional policy action is taken, and
scored for the potential for financial loss in the short-term time horizon. Ratings from low to high are based on a
weighted-average score (from 0 to 1), given by double-weighting sector and geography and single-weighting value chain.
›
Refer to “Managing sustainability and climate risks” in our Sustainability Report 2022, available under “Annual reporting” at
ubs.com/investors
We will continue to enhance our methodology in 2023, with relevant subject matter experts (e.g., country risk experts)
and enha nced vendor data sources (e.g., systematic integration of geospatial tools and data). Our current physical risk
heatmap shows that we have relatively low exposure to activities rated as having high, moderately high or moderate
vulnerability to physical climate risks. Key concentrations of exposure include high volumes of real estate lending in
Switzerland. Most of our lending is to the financial sector, which by its nature has a lower physical climate risk. Key
exceptions are lending to property insurance companies or lending in higher-risk regions, such as South Asia.
The chart below shows the location-specific risk distribution compared with the spread of physical risk across sectoral risk
ratings versus country (risk domicile, see above) risk ratings. The size of the circle indicates the relative lending exposure.
Scenario analysis and stress test exercises
We use scenario-based approaches to assess our exposure to physical and transition risks stemming from climate change.
We have introduced a series of assessments performed through industry collaborations in order to harmonize approaches
for addressing methodological and data gaps. We have performed top-down balance sheet stress testing (across the
Group), as well as targeted, bottom-up analysis of specif ic sector exposures covering short-, medium-, and long-term
time horizons.
UBS first participated in regulatory scenario analysis and stress test exercises in 2021,namely the Bank of England (BoE)
2021 Climate Biennial Exploratory Scenario (CBES): Financial risks from climate change; and the Climate Risk Stress Test
(CST) of the European Central Bank (the ECB). In addition, in 2021 UBS participated in climate risk assessment conducted
in Switzerland jointly by FINMA and the Swiss National Bank. Throughout 2022, we engaged with a range of regulatory
surveys and other requests for information from supervisors around the globe.
›
Refer to “Managing sustainability and climate risks” in our Sustainability Report 2022, available under “Annual reporting” at
ubs.com/investors
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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, monetary or non-
monetary, on UBS, its clients or its markets.
Key developments
We have identified eight non -financial risk themes as being currently key to us. These are:
–
digital transformation and change delivery;
–
data life cycle;
–
operational resilience and cyber threat;
–
investor protection and market interaction;
–
strategic growth initiatives and partnerships;
–
the evolving nature of AML / KYC and sanctions;
–
virtual assets; and
–
environmental, social and governance (ESG) risks.
We are continuing our efforts regarding innovation and digitalization to create value for our clients. As part of the
resulting transformation, we focus on timely and properly controlled changes to frameworks, including consideration of
new or revised controls, working practices and oversight, with the aim of mitigating any new risks introduced.
The increasing interest in data-driven advisory processes, and use of artificial intelligence and machine learning, is opening
up new questions related to data ethics, data privacy and records management. In addition, given the interconnectivity
between systems and data flows, it is important that data is properly managed and is complete, timely and correct. We
are actively enhancing the required frameworks, which are designed to ensure proper controls are in place to meet
regulatory and customer expectations.
Given rising geopolitical tensions, coupled with ongoing environmental and health threats, we believe that it is essential
that UBS remains operationally resilient.
We have
developed a global operational resilience framework and
are
implementing it across all business divisions and jurisdictions. The framework will mature over time and is designed to
drive enhancements in operational resilience. In addition, in regions with local COVID-19 restrictions, our response
continues to rely upon our business continuity management and operational risk processes, with no material impact on
our services.
The inherent risk of cyberattacks continues to be elevated, as the geopolitical situation increases the likelihood of external
state-driven cyber activity, and attacks are becoming increasingly sophisticated, which may result in business disruption
or the corruption or loss of data. It is therefore key that our cyber-defense capabilities continue to be strengthened and
evolve in line with developments in the threat landscape. Our IT security controls, staff training and communications, and
cyber-threat monitoring provided adequate cyber defenses to prevent our operations being materially impacted by
cybersecurity incidents in 2022. We continue to enhance our cyber capabilities to stay abreast of evolving threats.
Cyberattacks may also occur on the systems that are operated by external service providers. 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,
investigate and assess the attack, and successfully restore the relevant systems and data.
As we continue to move to a post-pandemic “new normal,” changes to the work environment (including permanent
hybrid working and the introduction of agile ways of working) have introduced new challenges for supervision and
monitoring. Hybrid working can lead to increased conduct risk, inherent risk of fraudulent activities, potential increases
in the number of suspicious transactions, and increased information security risks. We have implemented additional
monitoring and supervision to mitigate these risks.
Competition to find new investment opportunities across the financial services sector, both for firms and for customers,
is increasing. Thus, suitability risk, product selection, cross-divisional service offerings, quality of advice and price
transparency also remain areas of heightened focus for UBS and for the industry as a whole.
With regard to consumer protection, sustainable investing, market volatility and major legislative change programs, such
as 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 require adjustments to control
processes on a geographically aligned basis.
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 fos tering a strong culture.
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Cross-border risk remains an area of regulatory attention for global financial institutions , with a strong focus on fiscal
transparency, as well as market access, particularly third -country market access into the European Economic Area. There
is also an ongoing high level of attention regarding the risk that tax authorities may, on the basis of new interpretations
of existing law, seek to impose taxation based on the existence of a permanent establishment. We maintain a series of
controls designed to address these risks. Remote communication and the use of digital solutions also require that these
evolving client channels remain compliant.
In September 2022, the Securities and Exchange Commission (the SEC) and the Commodity Futures Trading Commission
(the CFTC) issued settlement orders with UBS AG relating to communications recordkeeping requirements in our US
broker-dealers and our registered swap dealer. In response, we have initiated a program to remediate the identified
shortcomings.
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 for UBS. Money laundering and financial fraud techniques are becoming increasingly sophisticated, and
geopolitical volatility makes the sanctions landscape more complex, as new or novel sanctions may be imposed that
require complex implementation in a short time frame, such as the extensive and continuously evolving sanctions arising
from the Russia–Ukraine war. As a regulated financial institution, UBS is subject to the requirements of, and to supervision
by, the Swiss Financial Market Supervisory Authority (FINMA), the US Federal Reserve Board, the US Office of the
Comptroller of the Currency (the OCC) , the US Federal Deposit Insurance Corporation , the US SEC, the UK Prudential
Regulation Authority, the UK Financial Conduct Authority, the German Federal Financial Supervisory Authority (BaFIN)
and the European Central Bank (the ECB), as applicable. As such, we maintain policies and procedures that are reasonably
designed to comply with the sanctions, anti-bribery and anti-corruption regimes in the jurisdictions in which we operate,
including the Swiss, EU, US and UK regimes.
In the US, the OCC issued a Cease and Desist Order against UBS in May 2018 relating to our US branch anti -money-
laundering (AML) and know-your-client (KYC) programs. In response, we initiated an extensive program for the purpose
of ensuring sustainable remediation of US -relevant Bank Secrecy Act / AML issues across all our US legal entities. We
introduced significant improvements to the framework between 2019 and 2022 . We are continuing to implement these
enhancements, as well as evolving them to respond to any new and emerging risks.
We continue to focus on strategic enhancements to our global AML / KYC and sanctions programs, including the
exploration of new technologies and sophisticated monitoring and analytical capabilities, as well as the application of
risk appetite statements for markets.
In line with our firm-wide purpose, ESG topics and the risks related to them are high on our agenda, particularly
considering the increasing regulatory focus on ESG disclosure, climate-related stress testing, net-zero commitments,
greenwashing risk and the strategic commercial pushing of sustainability topics, as well as the potential for new and
diverse regulations being deployed across jurisdictions. Strong regulatory development tracking and impact assessment
are key, as is integrating ESG factors into the financial and non -financial risk control frameworks as required.
›
Refer to “Sustainability and climate risk” in this section for more information about risks related to sustainability and climate risk
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 being implemented.
Non-financial risk framework
Non-financial risk is an inherent part of our business. Losses can result from people and systems, inadequate or failed
internal processes, or external causes.
We
follow a Group
-
wide non
-
financial risk framework that establishes
requirements for identifying, managing, assessing and mitigating operational, compliance and conduct risks to achieve
an agreed balance between risk and return. It is built on the following pillars:
–
classifying inherent risks through 18 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;
–
assessing the design and operating effectiveness of controls through our control assessment process;
–
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.
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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.
Compliance Operational Risk Control (CORC) 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. CORC business- or function-
aligned teams sit within the Group Compliance, Regulatory Governance (GCRG) function, reporting to the Group Chief
Compliance and Governance Officer, who is a member of the Group Executive Board. 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 CORC activities intended to ensure we are able to demonstrate compliance with applicable laws, rules
and regulations.
In 2022, we continued to review and enhance the non-financial risk framework, including delivery of the Group Functions
Risk Control Self-Assessment for the first time and the rolling-out of the simplified risk taxonomy, which also facilitated
the development of the firm-wide non-financial risk appetite statement and assessments across all 18 taxonomies.
All functions within UBS are required to assess the design and operating effectiveness of their internal controls periodically.
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.
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 FINMA and international requirements.
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 Group AMA is leveraged for entity-specific Internal Capital Adequacy Assessment Processes.
Currently, the model includes 16 AMA units of measure (UoM), which are aligned with our non -financial risk taxonomy
as closely as possible. Full transition to the non-financial risk taxonomy is not yet implemented, but is planned by the end
of December 2023 with expected FINMA approval for the Group ’s AMA model. 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 business 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.
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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.
AMA model governance
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.
Expected transition of capital regime under Basel III capital regulations
The AMA is expected to be replaced by the standardized measurement 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.
›
Refer to “Capital planning and activities” in the “Capital, liquidity and funding, and balance sheet” section of this report for more
information about the development of risk-weighted assets
›
Refer to “Risk measurement” in this section for more information about our approach to model confirmation procedures
›
Refer to the “Risk factors” section of this report for more information
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Table of contents
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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 2022, our CET1 capital ratio was 14.2% and our CET1 leverage ratio 4.42%, each above our capital
guidance and also 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.
The BCBS announced the finalization of the Basel III framework in December 2017, and published the final rules on the
minimum capital requirements for market risk from the Fundamental Review of the Trading Book (the FRTB) in January
2019. In response to COVID-19, the Group of Central Bank Governors and Heads of Supervision, which acts as the BCBS’s
oversight body, endorsed the deferral of the implementation date by one year, to 1 January 2023. The accompanying
transitional arrangements for the output floor were also extended by one year, to 1 January 2028. We expect the Swiss
regulations to come into force in 2025 and we continue to make progress on our infrastructure design and operational
governance ahead of the upcoming adoption of these rules. We currently estimate that the revised Basel III framework
would lead to a further net increase in risk-weighted assets (RWA) of around USD 12bn, before taking into account
mitigating actions and not reflecting the impact of the output floor, which is phased in over time. Our estimate includes
the finalization of the Basel III framework, as well as the FRTB, based on our current understanding of the relevant
standards. It may change as a result of new or updated regulatory interpretations, appropriate conservatism in model
calibration, the implementation of Basel III standards into national law, changes in business growth, market conditions
and other factors. The final degree of alignment between the Swiss implementation and those in other jurisdictions,
particularly those regarding the treatment of historical operational losses, remains uncertain at this stage.
›
Refer to the “Our strategy” and “Targets, aspirations and capital guidance” sections of this report for more information about our
capital and resource guidelines
›
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
Capital planning and activities
Audited |
We manage our balance sheet, RWA, leverage ratio denominator (LRD) and TLAC ratio levels based on our
regulatory requirements, within our internal limits and targets, and our externally provided guidance. Our strategic focus
is on achieving an optimal attribution and use of financial resources between our business divisions and Group Functions,
as well as between our legal entities, while remaining within the limits defined for the Group and allocated to the business
divisions by the Board of Directors (the BoD). These resource allocations, in turn, affect business plans and earnings
projections, which are reflected in our capital plans.
The annual strategic planning process includes a capital-planning component that is key in defining our capital targets.
It is based on an attribution of Group RWA and LRD internal limits to the business divisions.
Limits and targets are established at the Group and business division levels, and are approved by the BoD at least annually.
In the target -setting process , we take into account the current and potential future TLAC requirements, our aggregate
risk exposure in terms of capital-at-risk, the assessment by rating agencies, comparisons with peers and the effect of
expected accounting policy changes.
p
Monitoring is based on these internal limits and targets and provides indications if any changes are required. Any breach
of limits in place triggers a series of required remediating actions.
Group Treasury plans for and monitors consolidated TLAC information on an ongoing basis, reflecting business and legal
entity requirements, as well as regulatory developments in capital regulations. In addition, capital planning and
monitoring are performed at the legal entity level for our significant subsidiaries and sub-groups that are subject to
prudential supervision and must meet capital and other supervisory requirements.
›
Refer to “Capital and capital ratios of our significant regulated subsidiaries” in this section for more information
›
Refer to “Statistical measures” in the “Risk management and control” section of this report for more information about capital-at-
risk
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Swiss SRB total loss-absorbing capacity framework
The disclosures in this section are provided for UBS Group AG on a consolidated basis and focus on key developments
during the reporting period and information in accordance with the Basel III framework, as applicable to Swiss SRBs.
Additional regulatory disclosures for UBS Group AG on a consolidated basis are provided in our 31 December 2022 Pillar 3
Report. The Pillar 3 Report further includes information relating to our significant regulated subsidiaries and sub-groups
(UBS AG standalone, UBS Switzerland AG standalone, UBS Europe SE consolidated and UBS Americas Holding LLC
consolidated) as of 31 December 2022 and is available under “Pillar 3 disclosures” at
ubs.com/investors
.
Capital and other regulatory information for UBS AG consolidated in accordance with the Basel III framework, as
applicable to Swiss SRBs, is provided in the combined UBS Group AG and UBS AG Annual Report 2022, 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, which
have been fully phased-in since 1 January 2020.
Under the Swiss SRB framework, going and gone concern requirements represent the Group’s TLAC requirement. TLAC
encompasses regu latory 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 our total loss-absorbing capacity
In addition to CET1 capital, the following instruments contribute to our loss -absorbing capacity:
–
loss-absorbing AT1 capital instruments (high- and low-trigger);
–
loss-absorbing tier 2 capital instruments (high- and low-trigger);
–
non-Basel III-compliant tier 2 capital instruments; and
–
TLAC-eligible senior unsecured debt instruments.
Under the Swiss SRB rules, going concern capital includes CET1 and high-trigger loss-absorbing AT1 capital instruments.
Our 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 senior 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,
unsecured debt instruments and key features and terms and conditions of capital instruments
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 requirements for UBS were unchanged at 0.72% of RWA and 0.25% of LRD. The applicable LRD add-on
requirements remained unchanged at 0.72% of RWA and 0.25% of LRD, as our Group LRD remained within the same
add-on bucket.
On 30 September 2022, the Swiss countercyclical capital buffer was reactivated, at a maximum level of 2.5% on risk-
weighted positions that are directly or indirectly backed by residential properties in Switzerland. This increased our
minimum CET1
capital requirement
by 2
7
basis points
as of 31
December 2022
. We also continued to apply
countercyclical buffer requirements introduced in other BCBS member jurisdictions, which resulted in an additional buffer
requirement of 7 basis points as of 31 December 2022. Overall, countercyclical capital buffers contributed 34 basis points
to our minimum CET1 capital requirement as of 31 December 2022.
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The total going concern capital requirements applicable are 14.64% of RWA (including countercyclical buffer
requirements) and 5.00% of LRD. Furthermore, of the total going concern capital requirement of 14. 64% of RWA, at
least 10. 34% must be met with CET1 capital, while a maximum of 4.3% can be met with high -trigger loss-absorbing
AT1 capital instruments (including 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 (including 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 is also subject to gone concern loss -absorbing capacity requirements. The
gone concern requirements also include add-ons for market share and LRD.
Under the Swiss SRB framework, banks are eligible for a rebate on the gone concern requirement if they take actions
that facilitate recovery and resolvability beyond the minimum requirements. The amount of the rebate for improved
resolvability is assessed annually by the Swiss Financial Market Supervisory Authority (FINMA). Based on actions we had
completed by December 2021 to improve resolvability, FINMA granted a rebate on the gone concern requirement of
65% of the aforementioned maximum rebate in the third quarter of 2022, with an effective maximum rebate of
3.56 percentage points for the RWA -based requirement and 1.25 percentage points for the LRD-based requirement as
of 31 December 2022 .
Our gone concern requirements are further 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 2022, UBS used low-trigger tier 2 capital to fulfill gone concern requirements, resulting in a reduction of
0.38 percentage points for the RWA-based requirement.
From 1 January 2022 onward, the gone concern requirement after the application of the rebate for resolvability measures
and the 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 November 2022, the Swiss Federal Council adopted amendments to the Banking Act and the Banking Ordinance and
both entered into force as of 1 January 2023. The amendments replace the resolvability discount on the gone concern
capital requirements for systemically important banks (SIBs), including UBS, with a reduced base gone concern capital
requirement. In addition, FINMA has the authority to impose a surcharge of up to 25% of the base gone concern capital
requirement based on obstacles to a SIB’s resolvability identified in future resolvability assessments. We currently expect
that our total gone concern requirements will remain substantially unchanged in 2023 as a result of these changes.
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 2022.
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Swiss SRB going and gone concern requirements and information
As of 31.12.22
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
0.37
1,189
Required gone concern capital
Total gone concern loss-absorbing capacity
4
of which: base requirement
5
of which: additional requirement for market share and LRD
of which: applicable reduction on requirements
of which: rebate granted
6
of which: reduction for usage of low-trigger tier 2 capital instruments
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 senior 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 RWA and 0.50% for 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 credi t business. 3 Includes outstanding low-trigger loss-absorbing additional tier 1 capital instruments, which
are available under the Swiss systemically relevant bank framework to meet the going concern requirements 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 The gone concern requirement after the application of the rebate for resolvability measures and the reduction for the use of higher-quality capital instruments is floored at 10%
and 3.75% for the RWA- and LRD-based requirements, respectively. This means that the combined reduction may not exceed 4.3 percentage points for the RWA -based requirement of 14.3% and 1.25 percentage
points for the LRD-based requirement of 5.0%. 6 Based on the actions we completed up to December 2021 to improve resolvability, FINMA granted an increase in the rebate on the gone concern requirement from
55.0% to 65.0% of the maximum rebate, effective 1 July 2022, with an effective maximum rebate of 1.25 percentage points for t he LRD-based requirements and – given the risk density of 35% underlying the
regulatory requirements – an effective maximum rebate of 3.56 percentage points for the RWA-based requirements.
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Total loss-absorbing capacity
Swiss SRB going and gone concern information
USD m, except where indicated
31.12.22
31.12.21
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 senior 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 IFRS equity to Swiss SRB common equity tier 1 capital
USD m
31.12.22
31.12.21
Total IFRS equity
Equity attributable to non-controlling interests
(342 )
(340 )
Defined benefit plans, net of tax
(311 )
(270 )
Deferred tax assets recognized for tax loss carry- forwards
(4,077 )
(4,565 )
Deferred tax assets on temporary differences, excess over threshold
(64 )
(49 )
Goodwill, net of tax
1
(5,754 )
(5,838 )
Intangible assets, net of tax
(150 )
(180 )
Compensation-related components (not recognized in net profit)
(2,287 )
(1,700 )
Expected losses on advanced internal ratings -based portfolio less provisions
(471 )
(482 )
Unrealized (gains) / losses from cash flow hedges, net of tax
(628 )
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
(105 )
(50 )
Unrealized gains related to financial assets at fair value through OCI, net of tax
(68 )
Prudential valuation adjustments
(201 )
(167 )
Accruals for dividends to shareholders
(1,683 )
(1,700 )
Other
(29 )
Total common equity tier 1 capital
1 Includes goodwill related to significant investments in financial institutions of USD
m as of 31 December 2022 (31 December 2021: USD
m) presented on the balance sheet line Investments in associates.
p
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Total loss-absorbing capacity and movement
Our total loss-absorbing capacity increased by USD 0.6bn to USD 105.3bn as of 31 December 2022 .
Going concern capital and movement
Audited |
Our CET1 capital mainly consists of: share capital; share premium, which primarily consists of additional paid-in capital
related to shares issued; and retained earnings. A detailed reconciliation of International Financial Reporting Standards (IFRS)
equity to CET1 capital is provided in the “Reconciliation of IFRS equity to Swiss SRB common equity tier 1 capital” table.
Our CET1 capital increased by USD
bn to USD
bn as of 31 December 2022, mainly as a result of operating profit
before tax of USD
bn with associated current tax expenses of USD
bn, partly offset by share repurchases of
USD
bn under our share repurchase programs, dividend accruals of USD
bn, negative foreign currency effects of
USD
bn and compensation- and own share-related capital components of USD
bn.
›
Refer to “UBS shares” in this section for more information about our share repurchase programs
Our loss-absorbing AT1 capital decreased by USD
bn to USD
bn, mainly driven by our announcement on
5 December 2022 that we intended to redeem an AT1 capital instrument on 31 January 2023, the first call date (ISIN
CH0400441280, with a nominal amount of USD
bn, issued on 31 January 2018; this instrument ceased to be eligible
as AT1 capital when the call was announced in December 2022), a call of a USD
bn equivalent AT1 capital instrument
denominated in euro, and interest rate risk hedge, foreign currency translation and other effects. This was partly offset
by two issuances of AT1 capital instruments denominated in US dollars and Swiss francs amounting to USD
bn
equivalent.
p
Gone concern loss-absorbing capacity and movement
Audited |
Our total gone concern loss-absorbing capacity increased by USD
bn to USD
bn as of 31 December 2022
and included USD
bn of TLAC-eligible senior unsecured debt.
p
The increase was mainly due to 21 issuances of TLAC-eligible senior unsecured debt instruments denominated in
US dollars, euro, yen and Australian dollars amounting to USD 15.2bn, partly offset by four calls of TLAC-eligible senior
unsecured debt instruments denominated in US dollars amounting to USD 6.3bn, as well as interest rate risk hedge,
foreign currency translation and other effects.
Loss-absorbing capacity and leverage ratios
Our CET1 capital ratio decreased to 14.2% from 15.0%, mainly reflecting a USD 17.4bn increase in RWA.
Our CET1 leverage ratio increased to 4.42% from 4.24%, predominantly due to a USD 40.4bn decrease in the LRD.
Our gone concern loss -absorbing capacity ratio increased to 14.7% from 14.6%, due to an increase in gone concern
loss-absorbing capacity of USD 2.7bn, partly offset by the aforementioned increase in RWA.
Our gone concern leverage ratio increased to 4.6% from 4.1%, driven by the aforementioned increase in gone concern
loss-absorbing capacity and the aforementioned decrease in the LRD.
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Swiss SRB total loss -absorbing capacity movement
USD m
Going concern capital
Swiss SRB
Common equity tier 1 capital as of 31.12.21
Operating profit before tax
Current tax (expense) / benefit
Share repurchase programs
Accruals for proposed dividends to shareholders
Foreign currency translation effects, before tax
Compensation- and own share-related capital components
Other
Common equity tier 1 capital as of 31.12.22
Loss-absorbing additional tier 1 capital as of 31.12.21
Issuance of high-trigger loss-absorbing additional tier 1 capital
Call of high-trigger loss-absorbing additional tier 1 capital
1
Call of low-trigger loss-absorbing additional tier 1 capital
Interest rate risk hedge, foreign currency translation and other effects
Loss-absorbing additional tier 1 capital as of 31.12.22
Total going concern capital as of 31.12.21
Total going concern capital as of 31.12.22
Gone concern loss-absorbing capacity
Tier 2 capital as of 31.12.21
Interest rate risk hedge, foreign currency translation and other effects
Tier 2 capital as of 31.12.22
TLAC-eligible senior unsecured debt as of 31.12.21
Issuance of TLAC-eligible senior unsecured debt
Call of TLAC-eligible senior unsecured debt
Interest rate risk hedge, foreign currency translation and other effects
TLAC-eligible senior unsecured debt as of 31.12.22
Total gone concern loss-absorbing capacity as of 31.12.21
Total gone concern loss-absorbing capacity as of 31.12.22
Total loss-absorbing capacity
Total loss-absorbing capacity as of 31.12.21
Total loss-absorbing capacity as of 31.12.22
1 On 5 December 2022, we announced our intention to redeem an AT1 capital instrument on 31 January 2023, the first call date (ISIN CH0400441280). This instrument ceased to be eligible as AT1 capital when the
call was announced.
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. 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 Group Asset and Liability Committee, a committee of the Group Executive Board, has mandated Group Treasury to
adjust the currency mix of CET1 capital, within limits set by the BoD, 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 13bn and our CET1 capital by USD 1.4bn as of 31 December 2022 (31 December 2021: USD 13bn and
USD 1.4bn, respectively) and decreased our CET1 capital ratio 13 basis points (31 December 2021: 15 basis points).
Conversely, we estimate that a 10% appreciation of the US dollar against other currencies would have decreased our
RWA by USD 12bn and our CET1 capital by USD 1.3bn as of 31 December 2022 (31 December 2021: USD 11bn and
USD 1.3bn, respectively) and increased our CET1 capital ratio 13 basis points (31 December 2021 : 14 basis points).
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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 63bn as of 31 December 2022 (31 December 2021: USD 63bn) and decreased our Swiss SRB going concern
leverage ratio 17 basis points (31 December 2021: 15 basis points) . Conversely, we estimate that a 10% appreciation of
the US dollar against other currencies would have decreased our LRD by USD 57bn (31 December 2021: USD 57bn) and
increased our Swiss SRB going concern leverage ratio 17 basis points (31 December 2021: 16 basis points) .
The aforementioned sensitivities do not consider foreign currency translation effects related to defined benefit plans other
than those related to the currency translation of the net equity of foreign operations.
Estimated effect on capital from litigation, regulatory and similar matters subject to provisions and contingent liabilities
We have estimated the loss in capital that we could incur as a result of the risks associated with the matters described in
“Note 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 4.4bn as of 31 December 2022, unchanged compared with
the prior year -end. 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 Group AG is a holding company conducting substantially all operations through UBS AG and subsidiaries thereof.
UBS Group AG and UBS AG have contributed a significant portion of their respective capital to, and provided substantial
liquidity to, subsidiaries. Many of these subsidiaries are subject to regulations requiring compliance with minimum capital,
liquidity and similar requiremen
ts. Regulatory capital components and capital
ratios
of our significant regulated
subsidiaries determined under the regulatory framework of each subsidiary’s home jurisdiction are provided in the
“Financial and regulatory key figures for our significant regulated subsidiaries and sub-groups” section of this report.
Supervisory authorities generally have discretion to impose higher requirements, or to otherwise limit the activities of
subsidiaries. Supervisory authorities also may require entities to measure capital and leverage ratios on a stressed basis,
and may limit the ability of the entity to engage in new activities or take capital actions based on the results of those
tests.
›
Refer to the 31 December 2022 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 resolution or insolvency of such bank.
The joint liability amounts have declined as obligations matured, terminated or were novated following the transfer date.
As of 31 December 2022, the liability of UBS Switzerland AG amounted to CHF 4.0bn (USD 4.3bn), a decrease of
CHF 1.2bn (USD 1.4bn) compared with 31 December 2021. The respective liability of UBS AG has been substantially
extinguished.
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Risk-weighted assets
RWA development in 2022
During 2022, RWA increased by USD 17.4bn to USD 319.6bn, primarily driven by increases of USD 10.4bn in credit and
counterparty credit risk RWA, USD 4.7bn in operational risk RWA, and USD 2.4bn in market risk RWA.
›
Refer to the 31 December 2022 Pillar 3 Report, available under “Pillar 3 disclosures” at
ubs.com/investors,
about RWA movements and definitions of RWA movement key drivers
Movement in risk- weighted assets by key driver
USD bn
RWA as of
31.12.21
Currency
effects
Methodology
and policy
changes
Model
updates /
changes
Regulatory
add-ons
Asset size
and other
1
RWA as of
31.12.22
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 2022 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 10.4bn to USD 200.5bn as of 31 December 2022. This increase
was mainly driven by model updates of USD 6.7bn and asset size increases of USD 6.4bn, partly offset by currency effects
of USD 3.6bn. Model updates resulted in an increase of USD 6.7bn, mainly relating to structured margin loans and similar
products in Global Wealth Management, prime brokerage clients, private equity and hedge fund financing trades and
structured margin loans in the Investment Bank, and mortgage loans in Personal Corporate Banking.
Asset size increased by USD 6.4bn, mainly due to higher RWA from loans and loan commitments in Global Wealth
Management and , to a lesser extent, in Personal Corporate Banking, partly offset by lower RWA from loans and loan
commitments in the Investment Bank.
Movement in credit and counterparty credit risk RWA by key driver
1
USD bn
Global Wealth
Management
Personal
Corporate
Banking
Asset
Management
Investment
Bank
Group
Functions
Group
Total credit and counterparty credit risk RWA as of 31.12.21
56.9
63.0
3.2
60.5
6.4
190.1
Asset size
8.2
2.9
(0.1)
(4.9)
0.3
6.4
Asset quality
0.3
(1.5)
0.0
0.0
0.4
(0.7)
Model updates
2.1
1.3
0.0
3.3
0.0
6.7
Methodology and policy changes
0.1
0.0
0.0
0.0
0.0
0.1
Regulatory add-ons
0.0
0.0
0.0
0.3
0.0
0.3
Acquisitions and disposals
1.2
0.0
0.0
0.0
0.0
1.2
Foreign exchange movements
(0.5)
(0.9)
(0.1)
(1.5)
(0.6)
(3.6)
Other
0.0
0.0
0.0
0.0
0.0
0.0
Total movement
11.5
1.9
(0.2)
(2.8)
0.1
10.4
Total credit and counterparty credit risk RWA as of 31.12.22
68.4
64.9
3.0
57.7
6.5
200.5
1 Refer to the 31 December 2022 Pillar 3 Report, available under “Pillar 3 disclosures” at ubs.com/investors, for the definitions of credit and counterparty credit risk RWA movement categories.
›
Refer to the “Risk management and control” section of this report and the 31 December 2022 Pillar 3 Report, available under
“Pillar 3 disclosures” at
ubs.com/investors
, for more information about credit and counterparty credit risk developments
Market risk
Market risk RWA increased by USD 2.4bn to USD 13.5bn as of 31 December 2022 , driven by an increase of USD 2.3bn
in regulatory add-ons, reflecting updates from the monthly risks-not-in-VaR assessment and an increase of USD 1.3bn in
asset size and other movements related to higher average regulatory and stressed value -at-risk levels in the Investment
Bank’s Global Markets business on the back of heightened market volatility in the first half of 2022. These increases were
partly offset by decreases of USD 2.4bn from changes to the value-at-risk (VaR) model, and such decreases were partly
offset by USD 1.2bn arising from the introduction of a FINMA-agreed temporary measure to offset a VaR-model-change-
related RWA decrease that went live in the fourth quarter of 2022. We are in discussions with FINMA regarding material
updates to the VaR model in 2023, which would replace the aforementioned temporary measure and the currently
applied add-on related to time decay.
›
Refer to the “Risk management and control” section of this report and the 31 December 2022 Pillar 3 Report, available under
“Pillar 3 disclosures” at
ubs.com/investors,
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Operational risk
Operational risk RWA increased by USD 4.7bn to USD 81.4bn as of 31 December 2022. Following a review with FINMA
regarding the French cross-border matter, we reflected additional operational risk RWA of USD 4.1bn in the first half of
2022. In the fourth quarter of 2022, we reflected an increase of USD 0.5bn driven by the annual recalibration of the
advanced measurement approach (AMA) model used for the calculation of operational risk capital.
›
Refer to “Advanced measurement approach model” in the “Risk management and control” section of this report for more
information about the AMA model
Outlook
We expect that regulatory-driven updates to models will result in an RWA increase of around USD 4bn in 2023. The
extent and timing of RWA changes may vary as model updates are completed and receive regulatory approval, along
with changes in the composition of the relevant portfolios. In addition, business growth and changes in market factors
are expected to increase RWA at the beginning of 2023, following a period of lower levels of client activity and market
volatility toward the end of the fourth quarter of 2022 .
›
Refer to the “Regulatory and legal developments” section of this report for more information
Risk-weighted assets by business division and Group Functions
USD bn
Global Wealth
Management
Personal
Corporate
Banking
Asset
Manage-
ment
Investment
Bank
Group
Functions
Total
RWA
31.12.22
Credit and counterparty credit risk
1
Non-counterparty-related risk
2
Market risk
Operational risk
Total
31.12.21
Credit and counterparty credit risk
1
Non-counterparty-related risk
2
Market risk
Operational risk
Total
31.12.22 vs 31.12.21
Credit and counterparty credit risk
1
Non-counterparty-related risk
2
Market risk
Operational risk
Total
1 Includes settlement risk, credit valuation adjustments, equity exposures in the banking book, investments in funds and securitization exposures in the banking book. 2 Non -counterparty-related risk includes
deferred tax assets recognized for temporary differences (31 December 2022: USD 11.4bn; 31 December 2021: USD 11.4bn), as well as property, equipment, software and ot her items (31 December 2022: USD 12.9bn;
31 December 2021: USD 12.9bn).
Leverage ratio denominator
The LRD decreased by USD 40.4bn to USD 1,028.5bn as of 31 December 2022, driven by currency effects of USD 24.5bn
and a USD 15.9bn decrease due to asset size and other movements.
Movement in leverage ratio denominator by key driver
USD bn
LRD as of
31.12.21
Currency
effects
Asset size and
other
LRD as of
31.12.22
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.
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The LRD movements described below exclude currency effects.
On-balance sheet exposures (excluding derivatives and securities financing transactions) decreased by USD 14.1bn, mainly
driven by lower trading portfolio assets in the Investment Bank, lower central bank balances, and a decrease in lending
assets, mainly in Global Wealth Management, partly offset by purchases of high-quality liquid asset securities.
Derivatives increased by USD 2.9bn, primarily reflecting market-driven movements, partly offset by lower client volumes,
in the Investment Bank.
Securities financing transactions decreased by USD 7.4bn, mainly due to lower client activity levels and lower brokerage
receivables in the Investment Bank, as well as trade roll-offs in Group Treasury.
Off-balance sheet items increased by USD 2.2bn, mainly driven by higher unutilized credit lines in Global Wealth
Management, and an increase in forward starting reverse repurchase agreements in Group Treasury.
›
Refer to “Balance sheet and off-balance sheet” in this section for more information about balance sheet movements
Leverage ratio denominator by business division and Group Functions
USD bn
Global Wealth
Management
Personal
Corporate
Banking
Asset
Management
Investment
Bank
Group
Functions
Total
31.12.22
Total IFRS assets
Difference in scope of consolidation
1
Less: derivatives and securities financing transactions
2
On-balance sheet exposures
Derivatives
Securities financing transactions
Off-balance sheet items
Items deducted from Swiss SRB tier 1 capital
Total
31.12.21
Total IFRS assets
Difference in scope of consolidation
1
Less: derivatives and securities financing transactions
2
On-balance sheet exposures
Derivatives
Securities financing transactions
Off-balance sheet items
Items deducted from Swiss SRB tier 1 capital
Total
31.12.22 vs 31.12.21
Total IFRS assets
Difference in scope of consolidation
1
Less: derivatives and securities financing transactions
2
On-balance sheet exposures
Derivatives
Securities financing transactions
Off-balance sheet items
Items deducted from Swiss SRB tier 1 capital
Total
1 Represents the difference between the IFRS and the regulatory scope of consolidation, which is the applicable scope for the LRD calculation. 2 The exposures consist of derivative financial instruments, cash
collateral receivables on derivative instruments, receivables from securities financing transactions, and margin loans, as well as prime brokerage receivables and financial assets at fair value not held for trading, both
related to securities financing transactions, all of which are in accordance with the regulatory scope of consolidation. These exposures are presented separately under Derivatives and Securities financing transactions
in this table.
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UBS AG consolidated total loss-absorbing capacity and leverage ratio
information
Going and gone concern requirements and information
UBS is considered an SRB under Swiss banking law and, on a consolidated basis, both UBS Group AG and UBS AG are
required to comply with regulations based on the Basel III framework as applicable for Swiss SRBs.
The Swiss SRB framework and requirements applicable to UBS AG consolidated are consistent with those applicable to
UBS Group AG consolidated and are described in the “Capital, liquidity and funding, and balance sheet” section of this
report.
›
Refer to “Regulatory framework” in this section for more information about total loss-absorbing capacity, leverage ratio
requirements and gone concern rebate
UBS AG is subject to going and gone concern requirements on a standalone basis. Capital and other regulatory
information for UBS AG standalone is provided under “Holding company and significant regulated subsidiaries and sub-
groups” at
ubs.com/investors
ubs.com/investors
.
The table below provides the RWA- and LRD-based requirements and information as of 31 December 2022 for UBS AG
consolidated.
Swiss SRB going and gone concern requirements and information
As of 31.12.22
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
of which: high-trigger loss-absorbing additional tier 1 capital
of which: low-trigger loss-absorbing additional tier 1 capital
3
Required gone concern capital
Total gone concern loss-absorbing capacity
4
of which: base requirement
5
of which: additional requirement for market share and LRD
of which: applicable reduction on requirements
of which: rebate granted
6
of which: reduction for usage of low-trigger tier 2 capital instruments
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 senior 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 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 AT1 capital instruments qualify as going
concern capital at the UBS AG consolidated level, as agreed with 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 betwe en one and two years remain eligible to be included in the total gone concern capital.
5 The gone concern requirement after the application of the rebate for resolvability measures and the reduction for the use of higher-quality capital instruments is floored at 10% and 3.75% for the RWA - and LRD-
based requirements, respectively. This means that the combined reduction may not exceed 4.3 percentage points for the RWA -based requirement of 14.3% and 1.25 percentage points for the LRD -based requirement
of 5.0%. 6 Based on the actions we completed up to December 2021 to improve resolvability, FINMA granted an increase in the rebate on the gone concern requirement from 55.0% to 65.0% of the maximum
rebate, effective from 1 July 2022, with an effective maximum rebate of 1.25 percentage points for the LRD-based requirements and – given the risk density of 35% underlying the regulatory requirements – an
effective maximum rebate of 3.56 percentage points for the RWA-based requirements.
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Swiss SRB going and gone concern information
USD m, except where indicated
31.12.22
31.12.21
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 senior 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
UBS Group AG consolidated vs UBS AG consolidated loss-absorbing capacity and leverage ratio information
The going concern capital of UBS AG consolidated was USD 3.6bn lower than the going concern capital of UBS Group
AG consolidated as of 31 December 2022, reflecting lower CET1 capital of USD 2.5bn and lower going concern loss-
absorbing additional tier 1 (AT1) capital of USD 1.0bn.
The aforementioned difference in CET1 capital was primarily due to higher UBS AG consolidated accruals for dividends
and USD 0.3bn lower UBS AG consolidated International Financial Reporting Standards equity, as well as a higher capital
deduction at the UBS AG consolidated level related to deferred tax assets on temporary differences. The aforementioned
factors were partly offset by compensation -related regulatory capital accruals at the UBS Group AG consolidated level.
The going concern loss-absorbing AT1 capital of UBS AG consolidated was USD 1.0bn lower than that of UBS Group AG
consolidated as of 31 December 2022, mainly reflecting deferred contingent capital plan awards granted at Group level
to eligible employees for the performance years 2017 to 2021, partly offset by four loss-absorbing AT1 capital instruments
on lent by UBS Group AG to UBS AG.
Differences in capital between UBS Group AG consolidated and UBS AG consolidated related to employee compensation
plans will reverse to the extent underlying services are performed by employees of, and are consequently charged to,
UBS AG and its subsidiaries. Such reversal generally occurs over the service period of the employee compensation plans.
The leverage ratio framework for UBS AG consolidated is consistent with that of UBS Group AG consolidated. As of
31 December 2022, the going concern leverage ratio of UBS AG consolidated was 0.4 percentage points lower than that
of UBS Group AG consolidated, mainly because the going concern capital of UBS AG consolidated was USD 3.6bn lower.
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Audited |
Reconciliation of IFRS equity to Swiss SRB common equity tier 1 capital (UBS Group AG vs UBS AG consolidated)
As of 31.12.22
USD m
UBS Group AG
(consolidated)
UBS AG
(consolidated)
Difference
Total IFRS equity
Equity attributable to non-controlling interests
(342 )
(342 )
Defined benefit plans, net of tax
(311 )
(311 )
Deferred tax assets recognized for tax loss carry- forwards
(4,077 )
(4,077 )
Deferred tax assets on temporary differences, excess over threshold
(64 )
(262 )
Goodwill, net of tax
(5,754 )
(5,754 )
Intangible assets, net of tax
(150 )
(150 )
Compensation-related components (not recognized in net profit)
(2,287 )
(2,287 )
Expected losses on advanced internal ratings -based portfolio less provisions
(471 )
(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 )
(523 )
Own credit related to (gains) / losses on derivative financial instruments that existed at the balance sheet date
(105 )
(105 )
Unrealized gains related to financial assets at fair value through OCI, net of tax
Prudential valuation adjustments
(201 )
(201 )
Accruals for dividends to shareholders
(1,683 )
(6,000 )
Other
(29 )
(51 )
Total common equity tier 1 capital
p
Swiss SRB going and gone concern information (UBS Group AG vs UBS AG consolidated)
As of 31.12.22
USD m, except where indicated
UBS Group AG
(consolidated)
UBS AG
(consolidated)
Difference
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 senior 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
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Equity attribution and return on attributed equity
Under our equity attribution framework, tangible equity is attributed based on a weighting of 50% each for average
risk-weighted assets (RWA) and average leverage ratio denominator (LRD), which both include resource allocations from
Group Functions to the business divisions (the BDs). Average RWA and LRD are converted to common equity tier 1 (CET1)
capital equivalents using capital ratios of 12.5% and 3.75%, respectively. If the attributed tangible equity calculated
under the weighted-driver approach is less than the CET1 capital equivalent of risk-based capital (RBC) for any BD, the
CET1 capital equivalent of RBC is used as a floor for that BD.
In addition to tangible equity, we allocate equity to the BDs to support goodwill and intangible assets.
Furthermore, we allocate to the BDs attributed equity related to certain CET1 deduction items, such as compensation-
related components and expected losses on the advanced internal ratings-based portfolio less provisions.
We attribute all remaining Basel III capital deduction items to Group Functions. These items include deferred tax assets
(DTAs) recognized for tax loss carry-forwards, DTAs on temporary differences in excess of the threshold, accruals for
shareholder returns, and unrealized gains / losses from cash flow hedges.
›
Refer to “Balance sheet and off-balance sheet” in this section for more information about movements in equity attributable to
shareholders
Average attributed equity
For the year ended
USD bn
31.12.22
31.12.21
31.12.20
Global Wealth Management
Personal Corporate Banking
Asset Management
Investment Bank
Group Functions
of which: deferred tax assets
1
of which: related to retained RWA and LRD
2
of which: accruals for shareholder returns and others
3
Average equity attributed to business divisions and Group Functions
1 Includes average attributed equity related to the Basel III capital deduction items for deferred tax assets (deferred tax assets recognized for tax loss carry -forwards and deferred tax assets on temporary differences,
excess over threshold), as well as retained risk -weighted assets (RWA) and leverage ratio denominator (LRD) related to deferred tax assets. 2 Excludes average attributed equity related to retained RWA and LRD
related to deferred tax assets. 3 Includes attributed equity related to dividend accruals, unrealized gains / losses from cash flow hedges, and a balancing item for capital held in excess of the 12.5% -capital and
3.75%-leverage-ratio calibration thresholds for equity attribution.
Return on attributed equity
1, 2
For the year ended
in %
31.12.22
31.12.21
31.12.20
Global Wealth Management
24.9
25.4
23.6
Personal Corporate Banking
19.5
18.9
14.2
Asset Management
81.2
51.8
74.2
Investment Bank
14.6
20.3
19.7
1 Return on attributed equity for Group Functions is not shown, as it is not meaningful. 2 Refer to “Alternative performance measures” in the appendix to this report for the definition and calculatio n method.
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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.
Strategy, objectives and governance
Audited |
prudently managing our internal and regulatory liquidity and funding requ irements. 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 liquidity coverage ratio (the LCR) and the net stable
funding ratio (the NSFR). Our liquidity and funding strategy is proposed by Group Treasury and approved by the Group
Asset and Liability Committee (the Group ALCO), 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 Group and, where
appropriate, at legal entity and business division levels, and are reviewed and reconfirmed at least once a year by
the BoD, the GEB, the Group ALCO, the Group Chief Financial Officer, the Group Chief Risk Offic er 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
Group’s liquidity and funding status and position, including concentration risk, at least monthly, to the Group ALCO and
the Risk Committee of the BoD.
In July 2022, the revision of the Swiss Liquidity Ordinance became effective. Further supervisory guidance from FINMA is
expected to be communicated in the autumn of 2023.
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 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.
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.
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The 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. In addition, the liquidity stress-
testing metric above 12 months aims to ensure that UBS has sufficient long-term (contractual and behavioral) funding
supply to support its long-term funding consumption.
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 Group 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 Group ALCO.
›
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 2022
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 Swiss residential mortgages as collateral to generate long-term funding. In addition, we have several
short-, medium- and long-term funding programs under which we issue senior unsecured debt and structured notes, as
well as short-term debt. These programs enable 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 all 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 is designed to ensure we have the right mix 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 2022, in the event of a one -notch reduction in our long-term credit ratings, we would
have been required to provide USD 0.1bn 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 1.0bn. In the two- and three-notch scenarios the collateral
requirements predominantly relate to OTC derivative positions.
There were no rating actions with regard to UBS Group AG’s or UBS AG’s solicited credit ratings in 2022.
›
Refer to “Liquidity and funding management are critical to UBS’s ongoing performance” in the “Risk factors” section of this report
for more information
Contingency Funding Plan
Audited |
liquidity to meet our payment obligations and raise funding during periods of liquidity 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 and unutilized liquidity facilities at several major central
banks, contingent reductions of trading portfolio assets, and other actions available to the management.
p
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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, 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. Group
HQLA are held by UBS AG and its subsidiaries and may include amounts that are available to meet funding and collateral
needs in certain jurisdictions but are not readily available for use by the Group as a whole. These limitations are typically
the result of local regulatory requirements, including local LCR and large exposure requirements. Funds that are effectively
restricted are excluded from the calculation of Group HQLA to the extent they exceed the outflow assumptions for the
subsidiary that holds the relevant HQLA. On this basis, USD 34bn of assets were excluded from our daily average Group
HQLA for the fourth quarter of 2022. Amounts held in excess of local liquidity requirements that are not subject to other
restrictions are generally available for transfer within the Group.
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.
Our daily average LCR for the fourth quarter of 2022 was 16 3.7%, compared with 155.5% in the fourth quarter of
2021, remaining above the prudential requirement communicated by FINMA.
Average HQLA increased by USD 10.7bn to USD 238.6bn, mainly driven by lower funding consumption from the business
divisions, partly offset by a reduction of short -term debt. Average net cash outflows decreased slightly, by USD 0.8bn, to
USD 146.0bn. Lower average outflows from customer deposits were almost entirely offset by lower average inflows from
loans and securities financing transactions , as well as higher average net cash outflows from derivatives.
›
Refer to the 31 December 2022 Pillar 3 Report, available under “Pillar 3 disclosures” at
ubs.com/investors,
for more information
about the LCR
›
Refer to the “Significant regulated subsidiary and sub-group information” section of this report
for more information about the
LCR of UBS AG and UBS Switzerland AG
Liquidity coverage ratio
USD bn, except where indicated
Average 4Q22
1
Average 4Q21
1
High-quality liquid assets (HQLA)
Total net cash outflows
2
Liquidity coverage ratio (%)
3
1 Calculated based on an average of 63 data points in the fourth quarter of 2022 and 66 data points in the fourth quarter of 2021. 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.
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 2022, the NSFR increased 1.3 percentage points to 119.8%, remaining above the prudential
requirement communicated by FINMA. RSF decreased by USD 19.6bn to USD 468.5bn, mainly due to lower trading assets
and receivables from securities financing transactions, partly offset by higher derivative balances. ASF decreased by
USD 17.0bn to USD 561.4bn , mainly driven by lower debt securities issued and customer deposits.
›
Refer to the 31 December 2022 Pillar 3 Report, available under “Pillar 3 disclosures” at
ubs.com/investors,
for more information
about the NSFR
›
Refer to the “Significant regulated subsidiary and sub-group information” section of this report
for more information about the
NSFR of UBS AG and UBS Switzerland AG
Net stable funding ratio
USD bn, except where indicated
31.12.22
31.12.21
Available stable funding (ASF)
561.4
578.4
Required stable funding (RSF)
468.5
488.1
Net stable funding ratio (%)
119.8
118.5
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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 our financial position.
Balance sheet assets
As of 31 December 2022, balance sheet assets totaled USD 1,104.4 bn, a decrease of USD 12.8bn compared with
31 December 2021, which included a decrease of approximately USD 22.7bn from currency effects.
Cash and balances at central banks dec reased by USD 23.4bn , including currency effects of approximately USD 5.9bn.
The net cash outflow was mainly due to shifts within the high-quality liquid asset (HQLA) portfolio from cash into
securities, a reduction in short-term debt, decreases in customer deposits and outflows related to the share repurchase
programs. These outflows were partly offset by inflows from roll -offs of securities financing transactions, decreases in
trading assets, as well as lower lending.
Trading portfolio assets decreased by USD 22.9bn, mainly in our Financing and Derivatives Solutions businesses in the
Investment Bank, reflecting lower inventory held to hedge client positions and market-driven movements. Lending assets
decreased by USD 11.2bn, mainly driven by currency effects of USD 6.4bn. The movement not related to currency effects
was mainly in Global Wealth Management, reflecting decreases in Lombard loans in Asia Pacific, partly offset by higher
mortgage loans in the Americas. Non -financial assets and financial assets for unit -linked investment contracts decreased
by USD 8.7bn, predominantly in Asset Management , mainly due to market-driven decreases on investments related to
unit-linked contracts, and in Global Wealth Management, due to the completion of the sale of our domestic wealth
management business in Spain and the sale of UBS Swiss Financial Advisers AG in 2022. Securities financing transactions
at amortized cost decreased by USD 7.2bn, mostly due to lower client activity levels in the Investment Bank as interest
rates rose, as well as trade roll-offs in Group Treasury. Brokerage receivables decreased by USD 4.2bn in our Financing
business, as increases in client lending were more than offset by netting effects against Brokerage payables.
These decreases were partly offset by a USD 36.4bn increase in Derivatives and cash collateral receivables on derivative
instruments. The increases were mainly in our Derivatives Solutions and Financing businesses, predominantly reflecting
increases in foreign exchange contracts, where the contracts in place at the end of 2022 had higher fair values compared
with the contracts in place at the end of 2021, as well as increases in interest rate contracts, mainly due to higher trading
volumes and market-driven movements as interest rates increased during the year. These increases were partly offset by
market-driven decreases in Non-core and Legacy Portfolio on long-dated interest rate contracts due to the
aforementioned increases in interest rates.
Other financial assets measured at amortized cost and fair value increased by USD 28.4bn, largely reflecting shifts within
the HQLA portfolio from cash into securities within Group Treasury due to the widening of spreads. Included within Other
financial assets measured at amortized cost and fair value is a portfolio of financial assets reclassified effective from
1 April 2022 from Financial assets measured at fair value through other comprehensive income to Other financial assets
measured at amortized cost, in line with the principles in IFRS 9,
Financial Instruments
.
›
Refer to “Note 1 Summary of material accounting policies” in the “Consolidated financial statements” section of this report for
more information about the reclassification of a portfolio of financial assets
Assets
As of
% change from
USD bn
31.12.22
31.12.21
31.12.21
Cash and balances at central banks
Lending
1
Securities financing transactions at amortized cost
Trading portfolio
2
Derivatives and cash collateral receivables on derivative instruments
Brokerage receivables
Other financial assets measured at amortized cost and fair value
3
Non-financial assets and financial assets for unit -linked investment contracts
Total assets
1 Consists of loans and advances to customers and banks. 2 Consists of financial assets at fair value held for trading. 3 Consists of financial assets at fair value not held for trading, financial assets measured at
fair value through other comprehensive income and other financial assets measured at amortized cost, but excludes financial assets for unit-linked investment contracts.
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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.
›
Refer to “Note 22 Restricted and transferred financial assets” in the “Consolidated financial statements” section of this report for
more information
Assets that cannot be pledged as collateral represents 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. Assets that are considered to be readily available to secure funding on
a Group and / or legal entity level are shown separately and consist of cash and securities readily realizable in the normal
course of business. These include our HQLA and unencumbered positions in our trading portfolio. Unencumbered assets
that are considered to be available to secure funding on a legal entity level may be subject to restrictions that limit the
total amount of assets available to the Group as a whole. Other unencumbered assets, which are not considered to be
readily available to secure funding on a Group and / or legal entity level, primarily consist of loans and advances to banks
and customers.
Asset encumbrance as of 31 December 2022
USD bn
Encumbered
Unencumbered
Assets that
cannot be
pledged as
collateral
Total Group
Assets
pledged
as collateral
Assets
otherwise
restricted and
not available
to secure
funding
Cash and
securities
available to
secure funding
on a Group and /
or legal entity
level
Other
realizable
assets
Balance sheet
Cash and balances at central banks
Loans and advances to banks
Receivables from securities financing transactions
Cash collateral receivables on derivative instruments
Loans and advances to customers
Other financial assets measured at amortized cost
Total financial assets measured at amortized cost
Financial assets at fair value held for trading
1
Derivative financial instruments
Brokerage receivables
Financial assets at fair value not held for trading
1
Total financial assets measured at fair value through profit or loss
Financial assets measured at fair value through other comprehensive income
Non-financial assets
Total balance sheet assets as of 31 December 2022
Total balance sheet assets as of 31 December 2021
Off-balance sheet
Fair value of securities accepted as collateral as of 31 December 2022
Fair value of securities accepted as collateral as of 31 December 2021
Total balance sheet assets and off-balance sheet securities accepted as collateral as of
31 December 2022
of which: high-quality liquid assets
Total balance sheet assets and off-balance sheet securities accepted as collateral as of
31 December 2021
of which: high-quality liquid assets
1 Includes assets pledged as collateral that may be sold or repledged by counterparties. The respective amounts are disclosed in “Note 22 Restricted financial assets” in the “Consolidated financial statements” section
of this report.
Assets available to secure funding on a Group and / or legal entity level by currency
USD bn
31.12.22
31.12.21
Swiss franc
US dollar
Euro
Other
Total
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Balance sheet liabilities
Total liabilities as of 31 December 2022 were USD 1,047.1bn, a decrease of USD 9.1bn compared with 31 December
2021, which included a decrease of approximately USD 20.4bn from currency effects.
Customer deposits decreased by USD 16.9bn, including an USD 8.3bn decrease from currency effects. The decrease not
related to currency ef fects was USD 14.4bn in Global Wealth Management, mostly in the Americas, partly offset by a
USD 5.8bn increase in Personal Corporate Banking. In addition, increases in interest rates during the year resulted in
significant shifts from demand deposits to time deposits. As of 31 December 202 2, our ratio of customer deposits to
outstanding loan
s and advances to customers
was
unchanged at
136%.
Short
-
term borrowings decreased by
USD 14.9bn, mainly due to maturities of commercial paper and certificates of deposit in Group Treasury.
Debt issued designated at fair value and long-term debt issued measured at amortized cost decreased by USD 11.3bn.
Long-term debt issued measured at amortized cost decreased by USD 11.1bn, driven by hedge accounting and foreign
currency effects, as well as net redemptions. Debt issued designated at fair value remained broadly unchanged, while
net new issuances mainly of fixed-rate and equity-linked contracts were offset by market-driven movements on equity-
linked contracts.
During 2022, the redemption of a covered bond of USD 1.4bn and net redemption s of subordinated debt instruments
of USD 1.3bn were partly offset by USD 0.8bn of net new issuances of senior unsecured debt , including TLAC-eligible
benchmark instruments. In December 2022, we announced our intention to call one loss-absorbing tier 1 capital
instrument of USD 2.0bn, which was redeemed in January 2023. As of 31 December 2022, UBS is already compliant with
its 2023 going and gone concern capital requirements and expects to act rationally and strategically with respect to the
refinancing of any callable capital instruments and any potential incremental issuances.
›
Refer to “UBS Group AG consolidated capital instruments and TLAC-eligible senior unsecured debt,” available under “Bondholder
information” at
for more information
Non-financial liabilities and financial liabilities related to unit-linked investment contracts decreased by USD 10.6bn,
mainly reflecting market-driven decreases in unit -linked investment contracts in line with the asset side and in Global
Wealth Management due to the completion of the sale of our domestic wealth management business in Spain and the
sale of UBS Swiss Financial Advisers AG in 2022.
›
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 sales of these businesses
These decreases were partly offset by a USD 38.2bn increase in Derivatives and cash collateral payables on derivative
instruments, in line with the movement on the asset side. Other financial liabilities measured at amortized cost and fair
value increased by USD 9.0bn, mainly in Group Treasury, due to lower netting effects on securities financing transactions
measured at fair value.
Equity
Equity attributable to shareholders decreased by USD 3,786m to USD 56,876m as of 31 December 2022.
This decrease was mainly driven by net treasury share activity that decreased equity by USD 5,999m. This was mainly due
to share repurchases with an acquisition cost of USD 3,966 m under our 2022 share repurchase program, repurchases of
USD 1,637m under our 2021 program and purchases of USD 207m from the market to hedge our share delivery
obligations related to employee share-based compensation awards. In addition, distributions to shareholders reduced
equity by USD 1,668m, reflecting a dividend payment of USD 0.50 per share.
These decreases were partly offset by total comprehensive income attributable to shareholders of positive USD 3 ,149m,
reflecting net profit of USD 7,630 m and negative other comprehensive income (OCI) of USD 4,481m. OCI mainly included
negative cash flow hedge OCI of USD 4,793m, negative OCI related to foreign currency translation of USD 525m and
positive OCI related to own credit on financial liabilities designated at fair value of USD 796m. In addition, deferred share-
based compensation awards of USD 716m were expensed in the income statement, increasing share premium.
In the second quarter of 2022, we canceled 177,787,273 shares purchased under our 2021 share repurchas e program
from its inception in 2021 until 18 February 2022, as approved by shareholders at the 2022 Annual General Meeting.
The cancellation of shares resulted in reclassifications within equity but had no net effect on our total equity attributable
to shareholders.
›
Refer to the “Group performance” and “Consolidated financial statements” sections of this report for more information about OCI
›
Refer to the “Reconciliation of IFRS equity 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
›
Refer to “UBS shares” in this section for more information about our share repurchase programs
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Liabilities and equity
As of
% change from
USD bn
31.12.22
31.12.21
31.12.21
Short-term borrowings
1
Securities financing transactions at amortized cost
Customer deposits
Debt issued designated at fair value and long-term debt issued measured at amortized cost
2
Trading portfolio
3
Derivatives and cash collateral payables on derivative instruments
Brokerage payables
Other financial liabilities measured at amortized cost and fair value
4
Non-financial liabilities and financial liabilities related to unit -linked investment contracts
Total liabilities
Share capital
Share premium
Treasury shares
Retained earnings
Other comprehensive income
5
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 Consists of financial
liabilities at fair value held for trading. 4 Consists of other financial liabilities measured at amortized cost and other financial liabilities designated at fair value, but excl udes financial liabilities related to unit-linked
investment contracts. 5
Excludes other comprehensive income related to defined benefit plans and own credit, which is recorded directly in Retained e
arnings.
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Liabilities by product and currency
USD equivalent
All currencies
of which: USD
of which: CHF
of which: EUR
USD bn
31.12.22
31.12.21
31.12.22
31.12.21
31.12.22
31.12.21
31.12.22
31.12.21
Short-term borrowings
41.3
56.2
23.3
32.2
3.8
4.3
4.4
6.2
of which: amounts due to banks
11.6
13.1
4.2
3.4
3.7
4.2
1.1
0.8
of which: short-term debt issued
1
29.7
43.1
19.0
28.8
0.1
0.2
3.3
5.3
Securities financing transactions at amortized cost
4.2
5.5
3.6
5.2
0.0
0.0
0.2
0.2
Customer deposits
525.1
542.0
226.6
252.1
198.5
189.7
53.6
54.8
of which: demand deposits
180.8
246.4
47.1
92.3
71.4
70.9
37.3
46.3
of which: retail savings / deposits
149.3
133.3
24.6
11.7
119.0
116.0
5.6
5.5
of which: sweep deposits
69.2
113.9
69.2
113.9
0.0
0.0
0.0
0.0
of which: time deposits
125.7
48.4
85.7
34.2
8.1
2.8
10.6
3.0
Debt issued designated at fair value and long-term debt issued
measured at amortized cost
2
158.6
169.9
98.4
100.3
16.9
18.4
29.6
35.1
Trading portfolio
3
29.5
31.7
12.1
13.7
0.8
0.9
8.1
6.3
Derivatives and cash collateral payables on derivative instruments
191.3
153.1
160.4
126.3
3.8
2.1
15.8
15.2
Brokerage payables
45.1
44.0
32.3
32.8
0.4
0.4
3.2
2.8
Other financial liabilities measured at amortized cost and fair value
4
26.6
17.6
16.3
9.3
1.7
1.5
4.8
3.7
Non-financial liabilities and financial liabilities related to unit -linked investment
contracts
25.5
36.1
4.7
6.0
1.5
2.4
2.9
3.4
Total liabilities
1,047.1
1,056.2
577.7
577.8
227.6
219.7
122.6
127.8
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. 3 Consists of financial liabilities at fair value held for trading. 4 Consists of other financial liabilities measured at amortized cost and other financial liabilities designated at fair value, but
excludes financial liabilities related to unit-linked investment contracts.
Off-balance sheet
In the normal course of business, we enter into transactions where, pursuant to IFRS, the maximum contractual exposure
may not be recognized in whole or in part on our balance sheet. These transactions include derivative instruments,
guarantees, loan commitments and similar arrangements .
When we incur an obligation or become entitled to an asset through these arrangements, we recognize them on the
balance sheet. It should be noted that in certain instances the amount recognized on the balance sheet does not represent
the full gain or loss potential inherent in such arrangements.
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, and in the 31 December 2022 Pillar 3 Report, available under “Pillar 3 disclosures” at
ubs.com/investors.
Guarantees, loan commitments and similar arrangements
In the normal course of business, we issue various forms of guarantees, commitments to extend credit, standby and other
letters of credit to support our clients, 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, we will make payments
if our clients fail to fulfill their obligations to third parties. As of 31 December 2022, the net exposure (i.e., gross values
less sub-participations) from guarantees and similar instruments was USD 20.6 bn, compared with USD 18.9bn as of
31 December 2021. The increase of USD 1.7bn reflected higher guarantees issued to corporate clients in Group Treasury.
Fee income from issuing guarantees compared with total net fee and commission income is insignificant for both 2022
and 2021.
We also enter into commitments to extend credit in the form of credit lines available to secure the liquidity needs of
clients. The majority of loan commitments range in maturity from one month to two years. Committed unconditionally
revocable credit lines are generally open-ended. During 2022, loan commitments and committed unconditionally
revocable credit lines remained broadly stable. Forward starting reverse repurchase agreements increased by USD 2.4bn
and forward starting repurchase agreements increased by USD 0.9bn, both predominantly in Group Treasury.
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Off-balance sheet
As of
% change from
USD bn
31.12.22
31.12.21
31.12.21
Guarantees
1
20.6
18.9
9
Loan commitments
1,2
40.0
39.5
1
Committed unconditionally revocable credit lines
41.4
40.8
1
Forward starting reverse repurchase agreements
2
3.8
1.4
163
Forward starting repurchase agreements
2
1.9
1.0
80
1 Guarantees and Loan commitments are shown net of sub-participations. 2 The exposures related to loan commitments, forward starting repurchase and reverse repurchase agreements measured at fair value
through profit or loss are not included in this table but are reflected as notional amounts in “Note 10 Derivative instruments” in the “Consolidated financial statements” section of this report.
If customers fail to meet their obligations, our maximum exposure to credit risk 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 2022, we recognized net credit loss releases of USD 3m related to loan
commitments, guarantees and other credit facilities in the scope of expected credit loss measurement, compared with
net credit loss releases of USD 46m in 2021. Provisions recognized for guarantees, loan commitments and other credit
facilities in the scope of expected credit loss measurement were USD 201m as of 31 December 2022, compared with
USD 196m as of 31 December 2021.
›
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, we enter into partial sub-participations to mitigate various risks from guarantees and loan
commitments. A sub-participation is an agreement by another party to take a share of the loss in the event that the
obligation is not fulfilled by the obligor and, where applicable, to fund a part of the credit facility. We retain the
contractual relationship with the obligor, and the sub -participant has only an indirect relationship. Generally, we only
enter into sub-participation agreements with banks to which we ascribe a credit rating equal to or better than that of
the obligor.
We also provide representations, warranties and indemnifications to third parties in the normal course of business.
Support provided to non -consolidated investment funds
In 2022, the Group did not provide material support, financial or otherwise, to unconsolidated investment funds when
the Group was not contractually obligated to do so , nor does it have an intention to do so.
Clearing house and exchange memberships
We are a member of numerous securities and derivative exchanges and clearing houses. In connection with some of
these memberships, we may be required to pay a share of the financial obligations of another member who defaults, or
we may be otherwise exposed to additional financial obligations. While the membership rules vary, obligations generally
would arise only if the exchange or clearing house had exhausted its resources. We consider the probability of a material
loss due to such obligations to be remote.
Deposit insurance
Swiss banking law and the deposit insurance system require Swiss banks and securities dealers to jointly guarantee an
amount of up to CHF 6bn for privileged client deposits in the event that a Swiss bank or securities dealer becomes
insolvent. As of 31 December 2022, FINMA estimates our share in the deposit insurance system to be CHF 0.9bn. This
represents a contingent payment obligation and exposes us to additional risk. As of 31 December 2022, we considered
the probability of a material loss from our obligations to be remote.
UBS 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 2022 from any other material scheme.
Material cash requirements
The Group’s material cash requirements as of 31 December 2022 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 83.4bn) and long-term debt issued measured at amortized cost
(USD 103.7bn). The amounts represent estimated future interest and principal payments on an undiscounted basis.
In the normal course of business, we also issue or enter into various forms of guarantees, 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.
›
Refer to “Guarantees, loan commitments and similar arrangements” in this section for more information
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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 2022, cash and cash equivalents totaled USD 195.3bn, a decrease of USD 12.6bn compared with
31 December 2021, driven by net cash outflows from investing and financing activities, as well as negative foreign
exchange effects, largely reflecting appreciation of the US dollar against the yen, euro and Swiss franc in 2022. These
effects were partly offset by net cash inflows from operating activities.
Operating activities
Net cash inflows from operating activities were USD 14.6bn in 2022, compared with USD 31.4bn in 2021. The net
operating cash flow, before changes in operating assets and liabilities and income taxes paid, was an outflow of
USD 2.0bn. Changes in operating assets and liabilities resulted in net cash inflows of USD 16.6bn, mainly driven by net
inflows of USD 8.0bn from financial assets and liabilities at fair value held for trading and derivative financial instruments,
USD 6.0bn from brokerage receivables and payables, USD 5.7bn from financial assets and liabilities at fair value not held
for trading and other financial assets and liabilities, as well as USD 4.4bn from securities financing transactions at
amortized cost. These inflows were partly offset by a net outflow from loans and advances to customers and customer
deposits of USD 5.2bn and income tax paid of USD 1.6bn.
Investing activities
Investing activities resulted in a net cash outflow of USD 12.4bn in 2022, compared with USD 2.1bn in 2021, primarily
related to a cash outflow of USD 12.0bn from net purchases of debt securities measured at amortized cost.
Financing activities
Financing activities resulted in a net cash outflow of USD 9.1bn in 2022, compared with an inflow of USD 10.3bn in 2021,
mainly due to net repayment of short-term debt of USD 12.2bn, net cash used to repurchase treasury shares of USD 6.0bn
and a dividend distribution to shareholders of USD 1.7bn. This outflow was partly offset by net issuance proceeds of
USD 11.4bn from debt designated at fair value and long-term debt measured at amortized cost.
›
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
31.12.22
31.12.21
Net cash flow from / (used in) operating activities
14.6
31.4
Net cash flow from / (used in) investing activities
(12.4)
(2.1)
Net cash flow from / (used in) financing activities
(9.1)
10.3
Effects of exchange rate differences on cash and cash equivalents
(5.7)
(5.3)
Net increase / (decrease) in cash and cash equivalents
(12.6)
34.3
Cash and cash equivalents at the end of the year
195.3
207.9
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) sell-down of foreign currency International Financial Reporting 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 at the
consolidated Group level.
Currency-matched funding and investment of non-US-dollar assets and liabilities
For monetary balance sheet items and other investments, as far as is practical and efficient, we follow the principle of
matching the currencies of our assets and liabilities for funding purposes. This avoids profits and losses arising from the
translation of non -US-dollar assets and liabilities.
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160
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 1a 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 our active management of sensitivity to currency
movements and the effect thereof on our 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) arising
in UBS AG and its branches and sells or buys the profit or loss for US dollars on a monthly basis. Our foreign subsidiaries
follow a similar monthly sell-down process into their own functional currencies. Retained earnings in foreign subsidiaries
with a functional currency other than the US dollar are integrated and managed as part of our net investment hedge
accounting program.
Hedging of anticipated non -US-dollar profits and losses
The Group Asset and Liability Committee may at any time instruct Group Treasury to execute hedges to protect
anticipated future profits and losses in foreign currencies against possible adverse trends of foreign exchange rates.
Although intended to hedge future earnings, these transactions are accounted for as open currency positions and subject
to internal market risk limits for value-at- risk and stress loss limits.
Dividend distribution
UBS Group
AG declare
s
dividends in US dollars. Shareholders
holding
shares through
the
SIX
Swiss Exchange
(ISIN: CH0244767585) will receive dividends in Swiss francs, based on a published exchange rate calculated up to five
decimal places, on the day prior to the ex-dividend date. Shareholders holding shares through DTC (ISIN: CH0244767585;
CUSIP: H42097107) will be paid dividends in US dollars.
›
Refer to the “Standalone financial statements” section of this report for more information about the proposed dividend
distribution of UBS Group AG
UBS shares
UBS Group AG shares
Audited |
m, represented by
2021 share repurchase program from its inception in 2021 until 18 February 2022 were canceled by means of a capital
reduction, as approved by shareholders at the 2022 Annual General Meeting (the AGM).
Each share has a nominal value of CHF
, carries one vote if entered into the share register as having the right to vote,
and also entitles the holder to a proportionate share of distributed dividends. All shares are fully paid up. As the Articles of
Association of UBS Group AG indicate, there are no other classes of shares and no preferential rights for shareholders.
p
›
Refer to “Share information and earnings per share” in the “Consolidated financial statements” section of this report for more
information about the planned conversion of our share capital nominal currency in 2023
›
Refer to the “Corporate governance” section of this report for more information about UBS shares
Annual Report 2022 |
Risk,
capital,
liquidity
and
funding,
and
balance
sheet
|
UBS
shares
161
UBS Group share information
As of or for the year ended
% change from
31.12.22
31.12.21
31.12.21
Shares issued
3,524,635,722
3,702,422,995
(5)
Treasury shares
1
416,909,010
302,815,328
38
of which: related to share repurchase program 2021
62,548,000
152,596,273
(59)
of which: related to share repurchase program 2022
233,901,950
Shares outstanding
3,107,726,712
3,399,607,667
(9)
Basic earnings per share (USD)
2
2.34
2.14
9
Basic earnings per share (CHF)
3
2.23
1.96
14
Diluted earnings per share (USD)
2
2.25
2.06
9
Diluted earnings per share (CHF)
3
2.14
1.88
14
Equity attributable to shareholders (USD m)
56,876
60,662
(6)
Less: goodwill and intangible assets (USD m)
6,267
6,378
(2)
Tangible equity attributable to shareholders (USD m)
50,609
54,283
(7)
Ordinary cash dividends per share (USD)
4,5
0.55
0.50
10
Total book value per share (USD)
18.30
17.84
3
Tangible book value per share (USD)
16.28
15.97
2
Share price (USD)
6
18.61
18.01
3
Market capitalization (USD m)
57,848
61,230
(6)
1 Based on a settlement date view. 2 Refer to “Share information and earnings per share” in the “Consolidated financial statements” section of this report for more information. 3 Basic and diluted earnings per
share in Swiss francs are calculated based on a translation of net profit / (loss) under our US dollar presentation currency. 4 Dividends and / or distributions out of the capital contribution reserve are normally
approved and paid in the year subsequent to the reporting period. 5 Refer to “Statement of proposed appropriation of total profit and dividend distribution out of total profit and capital contribution reserve” in the
“Standalone financial statements” section of this report for more information. 6 Represents the share price as listed on t he SIX Swiss Exchange, translated to US dollars using the closing exchange rate as of the
respective date.
Holding of UBS Group AG shares
Group Treasury holds UBS Group AG shares to hedge future share delivery obligations related to employee share -based
compensation awards, and also holds shares purchased under share repurchase programs. As of 31 December 2022, we
held a total of 416,909,010 treasury shares (31 December 2021: 302,815,328).
Our 2021 share repurchase program was concluded on 29 March 2022 with the purchase of an additional 87.7m shares
in 2022 for an acquisition cost of USD 1,637m (CHF 1,516m). The 177.8m shares repurchased under this program from
its inception until 18 February 2022 for a total acquisition cost of USD 3,022 m (CHF 2,775m) were canceled by means
of a capital reduction, as approved by shareholders at the 2022 AGM. We also intend to cancel the remaining shares
purchased under the 2021 program, subject to shareholder approval at the 2023 AGM.
On 31 March 2022, we commenced a new, 2022 share repurchase program of up to USD 6bn. Shares acquired under
this program totaled 233 .9m as of 31 December 2022 for a total acquisition cost of USD 3,944m (CHF 3,808m) and are
intended to be canceled by means of a capital reduction, pending approval by shareholders at a future AGM.
Looking ahead, we intend to commence a new, 2023 repurchase program of up to USD 6bn over two years and expect
to execute more than USD 5bn of share repurchases under both the existing, 2022 repurchase program and the new
program in 2023.
Treasury shares held to hedge our share delivery obligations related to employee share-based compensation awards
totaled 119m shares as of 31 December 2022 (31 December 2021: 149m). Share delivery obligations related to employee
share-based compensation awards totaled 178m shares as of 31 December 202 2 (31 December 202 1: 175m) and are
calculated on the basis of undistributed notional share awards, taking applicable performance conditions into account.
Treasury shares held are delivered to employees at exercise or vesting. As of 31 December 2022, up to 122m UBS Group
AG shares (31 December 2021: 122m) could have been issued out of conditional capital to satisfy share delivery
obligations of any future employee share option programs or similar awards.
The Investment Bank also holds a limited number of UBS Group AG shares, primarily in its capacity as a market-maker
with regard to UBS Group AG shares and related derivatives, and to hedge certain issued structured debt instruments.
The table below outlines the market purchases of UBS Group AG shares by Group Treasury. It does not include the
activities of the Investment Bank.
Annual Report 2022 |
Risk,
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funding,
and
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|
UBS
shares
162
Treasury share purchases
Share repurchase programs
1
Other treasury shares purchased
2
Month of
purchase
3
Number of shares
Average price
in USD
Remaining volume of
2021 share repurchase
program in CHF m
at month-end
Remaining volume of
2021 share repurchase
program in USD m
at month-end
4
Remaining volume of
2022 share repurchase
program in USD m
at month-end
Number of shares
Average price in
USD
January 2022
1,706
1,843
February 2022
38,231,000
20.05
999
1,089
March 2022
51,928,000
17.68
190
5
205
5
5,952
April 2022
29,420,000
18.14
5,418
May 2022
31,670,000
17.65
4,859
June 2022
32,124,500
16.78
4,320
July 2022
32,152,000
15.83
3,811
August 2022
18,284,450
16.41
3,511
September 2022
14,114,500
15.23
3,296
12,510,000
16.52
October 2022
30,526,500
15.15
2,833
November 2022
23,769,000
17.70
2,413
December 2022
20,571,000
18.40
2,034
1 In February 2021, UBS initiated a share repurchase program of up to CHF 4bn and this program was concluded on 29 March 2022 . UBS has an active share repurchase program to buy back up to USD 6bn of its
own shares over the two-year period started in March 2022. The share buybacks were transacted in Swiss francs on a separate trading line on the SIX Swiss Exchange. 2 This table excludes purchases for the purpose
of hedging derivatives linked to UBS Group AG shares and for market-making in UBS Group AG shares. The table also excludes UBS Group AG shares purchased by post-employment benefit funds for UBS employees,
which are managed by a board of UBS mana gement and employee representatives in accordance with Swiss law. UBS’s post -employment benefit funds purchased 1,243,164 UBS Group AG shares during the year
and held 14,213,559 UBS Group AG shares as of 31 December 2022. 3 Based on the transaction date of the respective treasury share purchases. 4 The remaining volume of the 2021 share repurchase program
in US dollars was calculated based on the remaining volume in Swiss francs and the respective month-end closing exchange rate. 5 The 2021 share repurchase program was concluded on 29 March 2022.
Trading volumes
For the year ended
1,000 shares
31.12.22
31.12.21
31.12.20
SIX Swiss Exchange total
2,433,051
2,514,259
5,095,908
SIX Swiss Exchange daily average
9,579
9,899
20,222
New York Stock Exchange total
186,468
137,366
260,681
New York Stock Exchange daily average
743
545
1,030
Source: Reuters
Listing of UBS Group AG shares
UBS Group AG shares are listed on the SIX Swiss Exchange (SIX). They are also listed on the New York Stock Exchange
(the NYSE) as global registered shares. As such, they can be traded and transferred across applicable borders , without
the need for conversion, with identical shares traded on different stock exchanges in different currencies.
During 2022, the average daily trading volume of UBS Group AG shares was 9.6m shares on SIX and 0.7m shares on the
NYSE. SIX is expected to remain the main venue for determining the movement in our share price, because of the high
volume traded on this exchange.
During the hours in which both SIX and the NYSE are simultaneously open for trading, price differences between these
exchanges are likely to be arbitraged away by professional market-makers. Accordingly, the share price will typically be
similar between the two exchanges when considering the prevailing US dollar / Swiss franc exchange rate. When SIX is
closed for trading, globally traded volumes will typically be lower. However, the specialist firm making a market in
UBS Group AG shares on the NYSE is required to facilitate sufficient liquidity and maintain an orderly market in UBS Group
AG shares throughout normal NYSE trading hours.
Ticker symbols UBS Group AG
Security identification codes
Trading exchange
SIX / NYSE
Bloomberg
Reuters
ISIN
CH0244767585
SIX Swiss Exchange
UBSG
UBSG SW
UBSG.S
Valoren
24 476 758
New York Stock Exchange
UBS
UBS UN
UBS.N
CUSIP
CINS H42097 10 7
Annual Report 2022 |
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163
Corporate governance and
compensation
Management report
Audited information according to the Swiss law and applicable regulatory
requirements and guidance
Disclosures provided are in line with the requirements of the Swiss Code of Obligations (tables containing such
information are marked as “Audited” throughout this section), as well as other applicable regulations and guidance.
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164
Corporate governance
Table of contents
165
166
167
171
173
189
196
196
198
Annual Report 2022 |
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165
Corporate governance
UBS Group AG is subject to, and complies with, all relevant Swiss legal and regulatory requirements regarding corporate
governance, including the SIX Swiss Exchange’s Directive on Information relating to Corporate Governance (the SIX Swiss
Exchange Corporate Governance Directive) and the standards established in the Swiss Code of Best Practice for Corporate
Governance.
The revised Swiss Code of Obligations entered into force on 1 January 2023 . The correspondingly amended Articles of
Association of UBS Group AG (the AoA) will be submitted to the Annual General Meeting (the AGM) on 5 April 2023
for approval. The implementation of resulting amendments based on the revised Swiss Code of Obligations will be
reflected in the Annual Report 2023.
As a foreign company with shares listed on the New York Stock Exchange (the NYSE), UBS Group AG also complies with
all relevant corporate governance standards applicable to foreign private issuers.
The Organization Regulations of UBS Group AG, adopted by the Board of Directors (the BoD) based on Art. 716b of the
Swiss Code of Obligations and Art. 25 and 27 of the AoA, constitute our primary corporate governance guidelines.
To the extent practicable, the governance structures of UBS Group AG and UBS AG are aligned. UBS AG complies with
all relevant Swiss legal and regulatory corporate governance requirements. As a foreign private issuer with debt securities
listed on the NYSE, UBS AG also complies with the relevant NYSE corporate governance standards. The discussion in this
section refers to both UBS Group AG and UBS AG, unless specifically noted otherwise or unless the information discussed
is relevant only to listed companies and therefore only applicable to UBS Group AG. This approach is in line with US
Securities and Exchange Commission (SEC) regulations and NYSE standards.
›
Refer to the Articles of Association of UBS Group AG and of UBS AG, and to the Organization Regulations of UBS Group AG,
available at
ubs.com/governance
and
ubs.com/ubs-ag-governance,
›
The SIX Swiss Exchange Corporate Governance Directive is available at
serag/downloads/regulation/listing/directives/dcg-en.pdf,
economiesuisse.ch/en/publications/swiss-code-best-practice-corporate-governance
nyseguide.srorules.com/listed-company-manual
Differences from corporate governance standards relevant to US-listed companies
The NYSE standards on corporate governance require foreign private issuers to disclose any significant ways in which their
corporate governance practices differ from those that have to be followed by domestic companies. The key differences are
discussed below.
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 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 Group AG and 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, our Compensation Committee, together with the BoD, proposes for shareholder approval at the
AGM the maximum aggregate amount of compensation for the BoD, the maximum aggregate amount of fixed
compensation for the Group Executive Board (the GEB) and the aggregate amount of variable compensation for the GEB.
The 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 the aforementioned committees, are provided to and approved
by the BoD, which has ultimate responsibility to the shareholders.
Annual Report 2022 |
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166
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.
›
Refer to
›
Refer to
Group structure and shareholders
Operational Group structure
As of 31 December 2022, the operational structure of the Group is composed of the Global Wealth Management,
Personal Corporate Banking, Asset Management and Investment Bank business divisions, as well as Group Functions.
›
Refer to the
›
Refer to
section of this report for more information
›
Refer to the
Listed and non-listed companies belonging to the Group
The Group includes a number of consolidated entities, of which only UBS Group AG shares are listed.
UBS Group AG’s registered office is at Bahnhofstrasse 45, CH -8001 Zurich, Switzerland. UBS Group AG shares are listed
on the SIX Swiss Exchange (ISIN: CH0244767585) and on the NYSE (CUSIP: H42097107).
›
Refer to
Group AG’s market capitalization and shares held by Group entities
›
Refer to
more information about the significant subsidiaries of the Group
Significant shareholders
General rules
Under the Swiss Federal Act on Financial Market Infrastructures and Market Conduct in Securities and Derivatives Trading
of 19 June 2015 (the FMIA), anyone directly, indirectly or acting in concert with third parties holding shares in a company
listed in Switzerland or holding derivative rights related to shares in such a company directly, indirectly or in concert with
third parties must notify the company and the SIX Swiss Exchange (SIX) if the holding reaches, falls below or exceeds one
of the following percentage thresholds: 3, 5, 10, 15, 20, 25, 33
1
⁄
3
, 50 or 66
2
⁄
3
% of voting rights, regardless of whether or
not such rights may be exercised. Nominee companies that cannot autonomously decide how voting rights are exercised
are not required to notify the company and SIX if they reach, exceed or fall below the aforementioned thresholds.
Pursuant to the Swiss Code of Obligations, we disclose in “Note 24 Significant shareholders” to the UBS Group AG
standalone financial statements the identity of any shareholder with a holding of more than 5% of the total share capital
of UBS Group AG.
Shareholders subject to FMIA disclosure notifications
According to the mandatory FMIA disclosure notifications filed with UBS Group AG and SIX, as of 31 December 2022,
the following entities held more than 3% of the total share capital of UBS Group AG: BlackRock Inc., New York, which
disclosed a holding of 5.23% on 29 June 2022; Dodge Cox International Stock Fund, San Francisco, which disclosed
a holding of 3.02% on 28 January 2022; Massachusetts Financial Services Company, Boston, which disclosed a holding
of 3.01% on 25 June 2021; Artisan Partners Limited Partnership, Milwaukee, which disclosed a holding of 3.15% on
18 November 2020; and Norges Bank, Oslo, which disclosed a holding of 3.01% on 25 July 2019.
As registration in the UBS share register is optional, the aforementioned shareholders that crossed the indicated
percentage thresholds and were required to notify their holding to UBS and SIX do not necessarily appear in the table
below, as such table only discloses registered shareholders.
In accordance with the FMIA, the aforementioned holdings are calculated in relation to the total share capital of
UBS Group AG reflected in the AoA at the time of the respective disclosure notification.
Information on disclosures under the FMIA is available at
ser-ag.com/en/resources/notifications-market-
participants/significant-shareholders.html.
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167
Shareholders registered in the UBS share register with 3% or more of the share capital of UBS Group AG
As a supplement to the mandatory disclosure requirements according to the SIX Swiss Exchange Corporate Governance
Directive, we disclose in the table below the
shareholders (acting in their own name or in their capacity as nominees for
other investors or beneficial owners) that were registered in the UBS share register with 3% or more of the total share
capital of UBS Group AG as of 31 December 2022.
›
Refer to
representation
Audited |
Shareholders registered in the UBS share register with 3% or more of the total share capital
1
% of share capital
31.12.22
31.12.21
31.12.20
Chase Nominees Ltd., London
2
DTC (Cede Co.), New York
2,3
Nortrust Nominees Ltd., London
2
1 As registration in the UBS share register is optional, shareholders crossing the threshold percentages requiring SIX notification under the FMIA do not necessarily appear in this table. 2 Nominee companies and
securities clearing organizations cannot autonomously decide how voting rights are exercised and are therefore not obligated to notify UBS and SIX if they reach, exceed or fall below the threshold percentages
requiring disclosure notification under the FMIA. Consequently, they do not appear in the “Shareholders subject to FMIA disclosure notifications” section above. 3 DTC (Cede Co.), New York, “The Depository
Trust Company,” is a US securities clearing organization.
Cross-shareholdings
UBS Group AG has no cross-shareholdings where reciprocal ownership would be in excess of 5% of capital or voting
rights with any other company.
Share capital structure
Ordinary share capital
At year-end 2022, UBS Group AG had 3,524,635,722 issued shares with a nominal value of CHF 0.10 each, equating to
a share capital of CHF 352,463,572.20.
Under Swiss company law, shareholders must approve, in a general meeting of shareholders, any increase or reduction
in the ordinary share capital or the creation of conditional or authorized share capital.
In 2022, our shareholders were asked to approve a reduction of share capital by way of canceling 177,787,273 registered
shares repurchased under the 2021 share buyback program.
In 2022, our shareholders were not asked to approve the creation of conditional or authorized share capital.
No shares were issued out of existing conditional capital, as there were no employee options and stock appreciation
rights outstanding.
Following revisions to Swiss Corporate Law that are effective from 1 January 2023, the BoD will propose at the 2023
AGM that the shareholders approve the conversion of the share capital currency of UBS Group AG from the Swiss franc
to the US dollar.
›
Refer to
information about the conversion of the share capital currency
Distribution of UBS shares
As of 31 December 2022
Shareholders registered
Shares registered
Number of shares registered
Number
%
Number
% of shares issued
1–100
21 641
1 189 373
101–1,000
95 818
45 447 811
1,001–10,000
62 369
182 418 473
10,001–100,000
6 086
144 786 290
100,001–1,000,000
149 728 515
1,000,001–5,000,000
178 206 417
5,000,001–35,246,357 (1%)
253 068 282
1–2%
134 680 829
2–3%
3–4%
4–5%
152 567 310
Over 5%
1
553 962 520
Total shares registered
186 539
1 796 055 820
2
Shares not registered
3
1 728 579 902
Total
186 539
3 524 635 722
1 On 31 December 2022, Chase Nominees Ltd., London, entered as a nominee, was registered with 8.60% of all UBS shares issued. However, according to the provisions of UBS Group AG, voting rights of nominees
are limited to a maximum of 5% of all UBS shares issued. The US securities clearing organization DTC (Cede Co.), New York, was registered with 7.12% of all UBS shares issued and is not subject to this 5% voting
limit as a securities clearing organization. 2 Of the total shares registered, 264,874,790 shares did not carry voting rig hts. 3 Shares not entered in the UBS share register as of 31 December 2022.
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Conditional share capital
At year-end 2022, the following conditional share capital was available to UBS Group AG’s BoD.
–
A maximum of CHF 38,000,000 represented by up to 380,000,000 fully paid registered shares with a nominal value
of CHF 0.10 each, to be issued through the voluntary or mandatory exercise of conversion rights and / or warrants
granted in connection with the issuance of bonds or similar financial instruments on national or international capital
markets. This conditional capital allowance was approved at the Extraordinary General Meeting (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.
–
A maximum of CHF 12,170,583 represented by 121,705,830 fully paid registered shares with a nominal value of
CHF 0.10 each, to be issued upon exercise of employee options and stock appreciation rights issued to employees and
members of the management and of the BoD of UBS Group AG and its subsidiaries. This conditional capital allowance
was approved by the shareholders at the same EGM in 2014 .
›
Refer to article 4a of the AoA for more information about the terms and conditions of the issue of shares out of existing
conditional capital. The AoA are available at
›
Refer to the
Conditional capital of UBS Group AG
As of 31 December 2022
Maximum number of shares to
be issued
Year approved by Extraor-
dinary General Meeting
% of shares issued
Employee equity participation plans
2014
Conversion rights / warrants granted in connection with bonds
2014
Total
Authorized share capital
UBS Group AG had no authorized capital available to issue on 31 December 2022.
Changes in capital
In accordance with International Financial Reporting Standards (IFRS), Group equity attributable to shareholders was
USD 56.9bn as of 31 December 2022 (2021: USD 60.7bn; 2020: USD 59.4bn). The equity of UBS Group AG shareholders
was represented by 3,524,635,722 issued shares as of 31 December 2022 (31 December 2021: 3,702,422,995 shares;
31 December 2020: 3,859,055,395 shares).
›
Refer to
about changes in shareholders’ equity over the last three years
Ownership
Ownership of UBS Group AG shares is widely spread. The tables in this section provide information about the distribution
of UBS Group AG shareholders by category and geographic location. This information relates only to shareholders
registered in the UBS share register and cannot be assumed to be representative of UBS Group AG’s entire investor base
or the actual beneficial ownership. Only shareholders registered in the share register as “shareholders with voting rights”
are entitled to exercise voting rights.
›
Refer to
As of 31 December 2022, 1,531,181,030 UBS Group AG shares were registered in the share register and carried voting
rights, 264,874,790 shares were registered in the share register without voting rights, and 1,728,579,902 shares were
not registered in the UBS share register. All shares were fully paid up and eligible for dividends. There are no preferential
rights for shareholders, and no other classes of shares have been issued by UBS Group AG.
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Shareholders, legal entities and nominees: type and geographical distribution
Shareholders registered
As of 31 December 2022
Number
%
Individual shareholders
182 738
Legal entities
3 646
Nominees, fiduciaries
Total shares registered
186 539
100.0
Shares not registered
Total
186 539
Individual shareholders
Legal entities
Nominees
Total
Number
%
Number
%
Number
%
Number
%
Americas
1 710
1 881
of which: USA
1 235
1 362
Asia Pacific
5 008
5 110
Europe, Middle East and Africa
12 068
12 351
of which: Germany
3 821
3 854
of which: UK
4 563
4 578
of which: rest of Europe
3 415
3 645
of which: Middle East and Africa
Switzerland
163 952
3 217
167 197
Total shares registered
Shares not registered
Total
182 738
3 646
186 539
At year-end 2022, UBS owned 416,909,010 UBS Group AG registered shares, which corresponded to 11.83% of the
total share capital of UBS Group AG. At the same time, UBS had acquisition positions relating to 440,347,367 voting
rights of UBS Group AG and disposal positions relating to 182,025,794 such rights, corresponding to 12.49% and 5.16%
of the total voting rights of UBS Group AG, respectively. Of the disposal positions, 177,610,490 related to voting rights
on shares deliverable in respect of employee awards. The calculation methodology for the acquisition and disposal
positions is based on the Ordinance of the Swiss Financial Market Supervisory Authority on Financial Market
Infrastructures and Market Conduct in Securities and Derivatives Trading, which states that all future potential share
delivery obligations, irrespective of the contingent nature of the delivery, must be considered.
Employee share ownership
Employee share ownership is encouraged and made possible in a variety of ways. Our Equity Plus Plan is a voluntary plan
that provides eligible employees with the opportunity to purchase UBS Group AG shares at market value and receive, at
no additional cost, one notional UBS Group AG share for every three shares purchased. Additional shares vest after a
maximum of three years, provided the employee remains employed by UBS and has retained the purchased shares
throughout the holding period. The Equity Ownership Plan (the EOP) is a mandatory deferral plan for all employees
(except GEB members)
with regulatory
-
driven deferral requirements or total compensation greater than
USD / CHF 300,000. EOP recipients receive a portion of their deferred performance award in notional shares (or notional
funds for employees in Investment Areas within Asset Management). GEB members receive the equity-based Long-Term
Incentive Plan (the LTIP) instead of the EOP. Both the EOP and LTIP include employment conditions and malus conditions
that allow the firm to reduce or fully forfeit unvested deferred awards under certain circumstances, pursuant to
performance and harmful acts provisions. In addition, forfeiture is triggered in cases where employment has been
terminated for cause. Underlining our emphasis on sustainable performance and risk management, and our focus on
achieving growth ambitions, LTIP awards will only vest if predetermined performance conditions are met.
On 31 December 2022, UBS employees held at least 7.9% of UBS shares outstanding (including approximately 5.05%
in unvested deferred notional shares from our compensation programs). These figures are based on known shareholding
information from employee participation plans, personal holdings with UBS and selected individual retirement plans. At
the end of 2022, at least 25.5% of all employees held UBS shares through the firm’s employee share participation plans.
›
Refer to the
Trading restrictions in UBS shares
UBS employees with regular access to unpublished price-sensitive information about the firm are subject to specific
restrictions in respect to UBS financial instruments, including, but not limited to, pre-clearance requirements and regular
blackout periods. Such UBS employees are not permitted to trade UBS financial instruments in the period starting from
the close of business in New York on the seventh business day of the final month of the financial quarter of UBS Group
AG and ending on the day of the publication of the quarterly financial results.
Shares and participation certificates
UBS Group AG has a single class of shares, which are registered shares in the form of uncertificated securities (in the
sense of the Swiss Code of Obligations) and intermediary-held securities (in the sense of the Swiss Federal Act on
Intermediated Securities). Each registered share has a nominal value of CHF 0.10 and carries one vote, subject to the
restrictions set out under “Transferability, voting rights and nominee registration” below.
We have no participation certificates outstanding.
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Shareholders, legal entities and nominees: type and geographical distribution (continued)
Shares registered
As of 31 December 2022
Number
%
Individual shareholders
384 263 314
Legal entities
490 864 772
Nominees, fiduciaries
920 927 734
Total shares registered
1 796 055 820
Shares not registered
1 728 579 902
Total
3 524 635 722
Individual shareholders
Legal entities
Nominees
Total
Number of shares
%
Number of shares
%
Number of shares
%
Number of shares
%
Americas
2 427 163
29 166 035
342 441 815
374 035 013
of which: USA
935 175
21 746 373
342 247 810
364 929 358
Asia Pacific
19 829 362
12 908 549
7 244 419
39 982 330
Europe, Middle East and Africa
42 154 279
72 455 397
557 324 269
671 933 945
of which: Germany
11 365 680
1 841 712
11 597 965
24 805 357
of which: UK
19 125 762
280 984
517 282 579
536 689 325
of which: rest of Europe
10 608 646
31 497 076
28 310 742
70 416 464
of which: Middle East and Africa
1 054 191
38 835 625
132 983
40 022 799
Switzerland
319 852 510
376 334 791
13 917 231
710 104 532
Total shares registered
384 263 314
490 864 772
920 927 734
1 796 055 820
Shares not registered
1 728 579 902
Total
384 263 314
490 864 772
920 927 734
3 524 635 722
Our shares are listed on the NYSE as global registered shares. As such, they can be traded and transferred across applicable
borders, without the need for conversion, with identical shares traded on different stock exchanges in different currencies.
›
Refer to
Distributions to shareholders
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 2023 AGM, the BoD is propos ing to shareholders for approval a dividend of USD 0.55 per share for the 2022
financial year. Shareholders whose shares are held through SIX SIS AG will receive dividends in Swiss francs, based on a
public exchange rate on the day prior to the ex-dividend date. Shareholders holding shares through The Depository Trust
Company in New York and Computershare will be paid dividends in US dollars.
In compliance with Swiss tax law, 50% of the dividend will be paid out of retained earnings and the balance will be paid
out of the capital contribution reserve. Dividends paid out of capital contribution reserves are not subject to Swiss
withholding tax. The portion of the dividend paid out of retained earnings will be subject to a 35% Swiss withholding
tax. For US federal income tax purposes, we expect that the dividend will be paid out of current or accumulated earnings
and profits.
Provided that the proposed dividend distribution out of retained earnings and out of the capital contribution reserve will
be approved at the AGM on 5 April 2023, the payment of USD 0.55 per share will be made on 14 April 2023 to holders
of shares on the record date 13 April 2023. The shares will be traded ex-dividend as of 12 April 202 3 and, accordingly,
the last day on which the shares may be traded with entitlement to receive the dividend will be 11 April 2023.
In February 202 2, the BoD announced a new two-year share buyback program. At the 2022 AGM, the shareholders
authorized the BoD to buy back shares for cancellation purposes in an aggregate value of up to USD 6bn until the 2024
AGM. Any shares bought back under the program are intended to be canceled by way of capital reduction, which will
be subject to shareholder approval at one or several subsequent AGMs, and the acquisition and holding of such shares
are not subject to the 10% threshold for UBS Group AG’s own shares within the meaning of Art. 659 para. 1 of the
Swiss Code of Obligations. The 2021 share repurchase program was concluded on 29 March 2022 with a total of
240,335,273 sha res repurchased, at an overall purchase price of CHF 3.81bn. A total of 177,787,273 shares purchased
up to 18 February 2022 were canceled in June 2022 upon approval at the 2022 AGM of UBS Group AG. The remaining
62,548,000 shares, repurchased between 21 February 2022 and 29 March 2022, are expected to be canceled by means
of a capital reduction, to be proposed for shareholder approval at the 202 3 AGM.
Looking ahead, we intend to commence a new, 2023 share repurchase program of up to USD 6bn over two years and
expect to execute more than USD 5bn of share repurchases under both the existing, 2022 repurchase program and the
new program in 2023.
›
Refer to
the share repurchase programs
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Transferability, voting rights and nominee registration
We do not apply any restrictions or limitations on the transferability of shares. Voting rights may be exercised without
any restrictions by shareholders entered into the share register if they expressly render a declaration of beneficial
ownership according to the provisions of the A oA.
We have special provisions for the registration of nominees. Nominees are entered in the share register with voting rights
up to a total of 5% of all issued UBS Group AG shares if they agree to disclose, upon our request, beneficial owners
holding 0.3% or more of all issued UBS Group AG shares. An exception to the 5% voting limit rule is in place for securities
clearing organizations, such as The Depository Trust Company in New York.
›
Refer to
Convertible bonds and options
As of 31 December 2022, there were no contingent capital securities or convertible bonds outstanding requiring the
issuance of new shares.
›
Refer to the
capital instruments
As of 31 December 2022, there were no employee options and stock appreciation rights outstanding. Option-based
compensation plans are sourced by issuing new shares out of conditional capital. As of 31 December 2022, 121,705,830
unissued UBS Group AG shares in conditional share capital were available for the issuance of new shares for this purpose.
›
Refer to “
” in this section for more information
›
Refer to
more information about outstanding options and stock appreciation rights
Shareholders’ participation rights
We are committed to shareholder participation in decision-making processes. Our online voting platform offers registered
shareholders a convenient log -in and online voting process. Registered shareholders are sent personal invitations to the
general meetings. Together with the invitation materials, they receive a personal one -time password and a QR code to
easily log in to the online voting platform, where they can enter their voting instructions or order an admission card for
the general meeting.
Shareholders who choose not to receive the comprehensive invitation materials are informed of upcoming general
meetings by a short letter containing a personal one-time password, a QR code for online voting and a reference to
ubs.com/agm
,
where all information for the upcoming meeting is available.
General meetings offer shareholders the opportunity to raise questions for the BoD, GEB and internal and external
auditors. During the pandemic, when the general meetings 2020–2022 had to be held without the physical attendance
of shareholders, we also offered all shareholders the opportunity to contact us with questions, which were answered in
writing or during the general meeting.
Voting rights, restrictions and representation
We place no restrictions on share ownership and voting rights. However, pursuant to general principles formulated by
the BoD, nominee companies, which normally represent a large number of individual shareholders and may hold an
unlimited number of shares, have voting rights limited to a maximum of 5% of all issued UBS Group AG shares. This is
to avoid large shareholders being entered in UBS’s share register via nominee companies so as to exercise influence
without directly registering their shares with UBS. Securities clearing organizations, such as The Depository Trust
Company in New York, are not subject to this 5% voting limit.
Shareholders can exercise voting rights conferred by shares only if they are registered in our share register with voting
rights. To register, shareholders must confirm that they have acquired UBS Group AG shares in their own name and for
their own account. Nominee companies are required to sign an agreement confirming their willingness to disclose, upon
our request, individual beneficial owners holding more than 0.3% of all issued UBS Group AG shares.
All shareholders registered with voting rights are entitled to participate in general meetings. If they do not wish to attend
in person, they may issue instructions to support, reject or abstain for each individual item on the meeting agenda, either
by giving instructions to an independent proxy in accordance with article 14 of the AoA or by appointing another
registered shareholder of their choice to vote on their behalf. Alternatively, registered shareholders may issue their voting
instructions to the independent proxy electronically through our online voting platform. Nominee companies normally
submit the proxy material to the beneficial owners and forward the collected votes to the independent proxy.
›
Refer to article 14 of the AoA, available at
ubs.com/governance
, for more information about the issuing of instructions to
independent voting right representatives
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Statutory quorums
Motions are decided at a general meeting by an absolute majority of the votes cast, excluding blank and invalid ballots.
For the approval of certain specific issues, the Swiss Code of Obligations requires a positive vote from a two-thirds majority
of the votes represented at the given general meeting 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, authorizing contingent capital or a capital band 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.
Votes and elections are generally conducted electronically to ascertain the exact number of votes cast. Voting by a show
of hands is possible if a clear majority is predictable. Shareholders representing at least 3% of the votes represented may
request that a vote or election be carried out electronically or by written ballot. To allow shareholders to clearly express
their views on all individual topics, each agenda item is separately put to a vote and BoD members are elected on a
person-by-person basis.
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 2023, the AGM will
take place on 5 April.
Extraordinary general meetings (EGMs) may be convened whenever the BoD or the auditors consider it necessary.
Shareholders individually or jointly representing at least 10% of the share capital may at any time, including during an
AGM, require, by way of a written statement, that an EGM be convened to address a specific issue they put forward.
A personal invitation, including a detailed agenda, is made available to every registered shareholder at least 20 days
ahead of each scheduled general meeting. The items on the agenda are also published in the Swiss Official Gazette of
Commerce, as well as at
ubs.com/agm.
Placing of items on the agenda
Pursuant to our AoA, shareholders individually or jointly representing shares with an aggregate minimum nominal value
of CHF 62,500 may submit proposals for matters to be placed on the agenda for consideration at the next general
meeting of shareholders.
At the beginning of January, the invitation to submit such proposals is published in the Swiss Official Gazette of
Commerce and at
ubs.com/agm.
put forward, together with a short explanation. Such requests must be submitted to the BoD at least 50 days prior to the
general meeting of shareholders, including a statement from the depository bank confirming the number of shares held
by the requesting shareholder(s) and that these shares are blocked from sale until the end of the general meeting of
shareholders. The BoD formulates opinions on the proposals, which are published together with the motions.
Registrations in the share register
The share register of UBS Group AG, where around 185,000 shareholders are directly registered, is an internal, non-
public register subject to statutory confidentiality, secrecy, privacy and data protection regulations protecting registered
shareholders. In general, third parties and shareholders have no inspection rights with regard to data related to other
shareholders. Disclosure of such data is permitted only in specific and limited instances. In line with the Swiss Federal Act
on Data Protection, the disclosure of personal data as defined thereunder is only allowed with the consent of the
registered shareholder and in cases where there is an overriding private or public interest or if explicitly provided for by
Swiss law. The Swiss Federal Act on Financial Market Infrastructures and Market Conduct in Securities and Derivatives
Trading contains specific reporting duties, such as in relation to significant shareholders (refer to “Significant
shareholders” in this section for more information). Disclosure may also be required or requested by a court of a
competent jurisdiction, by any regulatory body that regulates the conduct of UBS Group AG or by other statutory
provisions.
The general rules for entry into our Swiss share register with voting rights are described in article 5 of our AoA. The same
rules apply to our US transfer agent that operates the US share register for all UBS Group AG shares in a custodian
account in the US, where some 2 55,000 US shareholders are indirectly registered via nominee companies. In order to
determine the voting rights of each shareholder, our share register generally closes two business days prior to a general
meeting. Our independent proxy agent processes voting instructions from shareholders as long as technically possible,
generally also until two business days before a general meeting. Such technical closure of our share register facilitates
the determination of the actual voting rights of every shareholder that issued a voting instruction. Irrespective of this
technical closure, shares that are registered in our share register are never immobilized and are freely tradable at any
time, irrespective of any issued voting instructions.
›
Refer to article 5 of our AoA, available at
ubs.com/governance
, for more information about the general rules for entry into our
Swiss share register
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Board of Directors
The BoD of UBS Group AG, led by the Chairman, consists of between 6 and 12 members, as per our AoA.
The BoD decides on the strategy of the Group, upon recommendation by the Group Chief Executive Officer (the Group
CEO), and is responsible for the overall direction, supervision and control of the Group and its management. It is also
responsible for supervising compliance with applicable laws, rules and regulations. The BoD exercises oversight over UBS
Group AG and its subsidiaries, and is responsible for establishing a clear Group governance framework to provide effective
steering and supervision of the Group, taking into account the material risks to which UBS Group AG and its subsidiaries
are exposed. The BoD has ultimate responsibility for the success of the Group and for delivering sustainable shareholder
value within a framework of prudent and effective controls. It approves all financial statements and appoints and removes
all GEB members.
The BoD of UBS AG, led by the Chairman, decides on the strategy of UBS AG upon recommendation by the President of
its Executive Board 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
At the AGM on 6 April 2022, Jeremy Anderson, Claudia Böckstiegel, William C. Dudley, Patrick Firmenich, Fred Hu, Mark
Hughes, Nathalie Rachou, Julie G. Richardson, Dieter Wemmer and Jeanette Wong were re-elected as members of the
BoD. The Chairman, Axel A. Weber, and Reto Francioni did not stand for re-election; the biographies of Mr. Weber and
Mr. Francioni can be found on pages 194 and 197 of the UBS Group AG Annual Report 2021, available under “Annual
reporting” at
ubs.com/investors
. Colm Kelleher and Lukas Gähwiler were elected for their first terms, as the new
Chairman and a new Board member, respectively. At that same AGM, Julie G. Richardson, Dieter Wemmer and Jeanette
Wong were re-elected as members of the Compensation Committee. ADB Altorfer Duss Beilstein AG was re-elected
as independent proxy agent. Following their election, the BoD appointed Lukas Gähwiler as Vice Chairman and Jeremy
Anderson as Senior Independent Director of UBS Group AG.
Article 31 of our AoA limits the number of mandates that members of the BoD may hold outside UBS Group to four
mandates in listed companies and five additional mandates in non-listed companies. Mandates in companies that are
controlled by us or that control us are not subject to this limitation. In addition, members of the BoD may hold no more
than 10 mandates at UBS’s request and 10 mandates in associations, charitable organizations, foundations, trusts, and
employee welfare foundations. As of 31 December 2022, no member of the BoD reached the thresholds described in
article 31 of our AoA.
The following biographies provide information about the BoD members who were in office after the 2022 AGM and the
Group Company Secretary. In addition to information on mandates, the biographies include information on memberships
or other activities or functions, as required by the SIX Swiss Exchange Corporate Governance Directive.
No member of the BoD currently carries out or has carried out over the past three years operational management tasks
within the Group; therefore, all members of the Board are non -executive members.
All members of UBS Group AG’s BoD are also members of UBS AG’s BoD, and committee membership is the same for
both entities. The Senior Independent Director function relates only to UBS Group AG.
In 2022, UBS AG’s BoD had three permanent committees: the Audit Committee, the Compensation Committee and the
Risk Committee. In addition to these, UBS Group AG also had the Corporate Culture and Responsibility Committee and
the Governance and Nominating Committee as permanent committees.
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Colm Kelleher
Chairman of the Board of Directors and non-executive member of
the Board since 2022
–
Chairperson of the Corporate Culture and Responsibility Committee
since 2022
–
Chairperson of the Governance and Nominating Committee since
2022
Nationality:
Year of birth:
Colm Kelleher was elected Chairman of UBS in April 2022. He served as
President of Morgan Stanley until retiring from that firm in 2019,
overseeing both the Institutional Securities Business and Wealth
Management. Before that, he was Co-President and then President of
Morgan Stanley Institutional Securities. During the global financial crisis,
he held the position of CFO and Co-Head Corporate Strategy from 2007
to 2009. Mr. Kelleher is a well-respected leader in the financial services
sector. His 30-year career with Morgan Stanley attests to his solid
leadership experience in banking and excellent relationships around the
world. He has a deep understanding of the global banking landscape and
broad banking experience across all the geographic regions and major
business areas in which UBS operates.
Professional experience
2016 – 2019
President, Morgan Stanley, responsible for Institutional
Securities and Wealth Management
2011 – 2016
CEO of Morgan Stanley International, Morgan Stanley
2013 – 2015
President, Institutional Securities, Morgan Stanley
2010 – 2012
Co-President, Institutional Securities, Morgan Stanley
2007 – 2009
CFO and Co-Head Corporate Strategy, Morgan Stanley
2006 – 2007
Head Global Capital Markets, Morgan Stanley
2004 – 2006
Co-Head Fixed Income, Europe, Morgan Stanley
1989 – 2004
Various roles, Morgan Stanley
Education
–
Master’s degree, modern history, University of Oxford
–
Fellow of the Institute of Chartered Accountants in England and
Wales
Listed company boards
–
Member of the Board of Norfolk Southern Corporation (chair of the
risk and finance committee)
Other activities and functions
–
Member of the Board of Directors of the Bretton Woods Committee
–
Member of the Board of the Swiss Finance Council
–
Member of the Board of Americans for Oxford
–
Member of the Oxford Chancellor’s Court of Benefactors
–
Member of the Advisory Council of the British Museum
–
Member of the International Advisory Council of the China Securities
Regulatory Commission
–
Member of the European Financial Services Round Table
–
Member of the European Banking Group
–
Member of the International Monetary Conference
Key competencies
–
Banking (wealth management, asset management, personal and
corporate banking) and insurance
–
Investment banking, capital markets
–
Finance, audit, accounting
–
Risk management, compliance and legal
Leadership experience
–
CEO, Chairman
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Lukas Gähwiler
Vice Chairman and non-executive member of the Board since 2022
Nationality:
Year of birth:
Lukas Gähwiler brings a wealth of industry experience and an in-depth
understanding of UBS to the Board. He served as Chairman of the Board
of UBS Switzerland AG for five years and was a member of the Group
Executive Board of UBS and President UBS Switzerland from 2010 to
2016, responsible for the private clients, wealth management, corporate
and institutional clients, investment banking, and asset management
businesses in UBS’s home market. Before joining UBS, Mr. Gähwiler
worked for Credit Suisse for over twenty years, his last role being Chief
Credit Officer, Global Private and Corporate Banking. In addition to his
leadership and industry experience across all parts of the banking
business, his strong connections and network, particularly in Switzerland,
are instrumental for the firm.
Professional experience
2017 – 2022
Chairman of the Board of Directors of UBS Switzerland AG
2010 – 2016
Member of the Group Executive Board, UBS and President
UBS Switzerland
2003 – 2010
Chief Credit Officer, Global Private and Corporate
Banking, Credit Suisse
2002 – 2003
Head Credit Risk Management, Corporate Clients
Switzerland, Credit Suisse
1998 – 2001
Chief of Staff to CEO, Private and Corporate Clients,
Credit Suisse
1990 – 1998
Various senior front office roles in Corporate Clients in
Switzerland and North America, Credit Suisse
1981 – 1986
Client Advisor Retail and Wealth Management, St.Galler
Kantonalbank
Education
–
Advanced Management Program, Harvard Business School
–
MBA program, International Bankers School, New York
–
Bachelor’s degree, business administration, University of Applied
Sciences, St. Gallen
Non-listed company boards
–
Vice Chairman of the Board of Directors of Pilatus Aircraft Ltd
–
Member of the Board of Directors of Ringier AG
Other activities and functions
–
Vice Chairman of the Swiss Bankers Association
–
Chairman of the Employers Association of Banks in Switzerland
–
Member of the Board of Directors of the Swiss Employers Association
–
Member of the Board of economiesuisse
–
Chairman of the Foundation Board of the UBS Pension Fund
–
Member of the Board of the Swiss Finance Council
–
Member of the Board of Trustees of Avenir Suisse
Key competencies
–
Banking (wealth management, asset management, personal and
corporate banking) and insurance
–
Finance, audit, accounting
–
Risk management, compliance and legal
–
Human resources management, including compensation
Leadership experience
–
CEO, Chairman
Jeremy Anderson
Senior Independent Director since 2020 and non-executive
member of the Board since 2018
–
Member of the Governance and Nominating Committee since 2019
–
Chairperson of the Audit Committee since 2018
Nationality:
Year of birth:
Jeremy Anderson is a financial services veteran, with more than 30 years’
experience working in the banking and insurance sector in an advisory
capacity, covering a broad range of topics, including strategy, audit and
risk management, technology-enabled transformation, mergers, and bank
restructuring. Before retiring from KPMG in 2017, he was its Chairman of
Global Financial Services. Mr. Anderson is also 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.
Professional experience
2010 – 2017
Chairman of Global Financial Services, KPMG International
2008 – 2011
Head of Clients and Markets KPMG Europe, KPMG
International
2006 – 2011
Head of Financial Services KPMG Europe, KPMG
International
2004 – 2006
Head of Financial Services KPMG UK, KPMG International
2002 – 2004
Member of the Group Management Board and Head of
UK operations, Atos Origin SA
1985 – 2002
KPMG consulting UK, KPMG
1980 – 1985
Software developer, Triad Computing Systems
Education
–
Bachelor’s degree, economics, University College London
Listed company boards
–
Member of the Board of Prudential plc
Other activities and functions
–
Trustee of the UK’s Productivity Leadership Group
–
Trustee of The Kingham Hill Trust
–
Trustee of St. Helen’s Bishopsgate
Key competencies
–
Banking (wealth management, asset management, personal and
corporate banking) and insurance
–
Finance, audit, accounting
–
Risk management, compliance and legal
–
Technology, cybersecurity
Leadership experience
–
Executive board leadership
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Claudia Böckstiegel
Non-executive member of the Board since 2021
–
Member of the Corporate Culture and Responsibility Committee
since 2022
Nationality:
Year of birth:
Claudia Böckstiegel has been General Counsel and a member of the
Enlarged Executive Committee of Roche Holding AG since 2020. She
started her professional career as an attorney in private practice in
Germany, then joined the Swiss pharmaceutical company
Roche
in
Germany in 2001 and subsequently held various global management
positions in the legal sector in Switzerland. Ms. Böckstiegel brings a wealth
of know-how in a highly regulated sector. Her responsibilities at Roche
Holding AG include a broad range of additional topics, such as safety,
health and environment, patents, audit and risk advisory, compliance, and
sustainability.
Professional experience
2020 – date
General Counsel and member of the Enlarged Executive
Committee, Roche Holding AG
2016 – 2020
Head of Legal Diagnostics, F. Hoffmann-La Roche Ltd.,
Basel, Switzerland, Roche Group
2010 – 2016
Head Legal Business, Roche Diagnostics International Ltd,
Rotkreuz, Switzerland, Roche Group
2005 – 2010
Head Legal Business, Roche Diagnostics GmbH,
Mannheim, Germany, Roche Group
2001 – 2005
Legal Counsel, Roche Diagnostics GmbH,
Mannheim, Germany, Roche Group
1995 – 2001
Attorney (Partner), Philipp Littig, Mannheim, Germany
1992 – 1995
Attorney (Associate), Dr. Hermann Büttner,
Karlsruhe, Germany
Education
–
Master’s degree, law, Universities of Mannheim and Heidelberg
–
Master of Laws (LL.M.), Georgetown University, Washington, DC
Other activities and functions
–
None
Key competencies
–
Finance, audit, accounting
–
Risk management, compliance and legal
–
Regulatory authority, central bank
–
ESG (environmental, social and governance)
Leadership experience
–
Executive board leadership
William C. Dudley
Non-executive member of the Board since 2019
–
Member of the Corporate Culture and Responsibility Committee
since 2019
–
Member of the Risk Committee since 2019
Nationality:
Year of birth:
William C. Dudley served as the President and CEO of the Federal Reserve
Bank of New York for nine years. He demonstrated exceptional leadership
in monetary policy and as a top regulator, including during the years of
the global financial crisis. During that period, his additional area of focus
included cultural behavior and social and governance topics in the
financial services industry. He also served as the Vice Chairman and a
permanent member of the Federal Open Market Committee. Mr. Dudley
brings a wealth of experience in banking and research thanks to his former
management positions at Goldman Sachs Group and Morgan Guaranty
Trust.
Professional experience
2009 – 2018
President and CEO, Federal Reserve Bank of New York
2007 – 2009
Executive Vice President and Head Markets Group,
Federal Reserve Bank of New York
2006
Senior advisor (part-time), Goldman Sachs Group
2002 – 2005
Partner and Director US Economic Research Group,
Goldman Sachs Group
1996 – 2002
Managing Director and Director US Economic Research
Group, Goldman Sachs Group
1983 – 1996
Economist at Goldman Sachs Group, Morgan Guaranty
Trust Company, and Board of Governors of the Federal
Reserve System
Education
–
Bachelor of Arts, New College of Florida
–
Doctorate, economics, University of California, Berkeley
Non-listed company boards
–
Member of the Board of Treliant LLC
Other activities and functions
–
Senior Advisor to the Griswold Center for Economic Policy Studies,
Princeton University
–
Member of the Group of Thirty
–
Member of the Council on Foreign Relations
–
Chairman of the Bretton Woods Committee Board of Directors
–
Member of the Board of the Council for Economic Education
–
Opinion writer and consultant to Bloomberg Economics, Bloomberg
Key competencies
–
Investment banking, capital markets
–
Risk management, compliance and legal
–
Regulatory authority, central bank
–
ESG (environmental, social and governance)
Leadership experience
–
CEO, Chairman
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Patrick Firmenich
Non-executive member of the Board since 2021
–
Member of the Audit Committee since 2021
–
Member of the Corporate Culture and Responsibility Committee
since 2021
Nationality:
Year of birth:
Patrick Firmenich has been Chairman of the Board of Firmenich
International SA, the world’s largest privately owned fragrances and
flavorings company, since 2016, after leading the company as CEO during
a 12-year tenure. He demonstrated his entrepreneurial leadership by
significantly advancing the Firmenich group’s global position through
organic and in-organic growth and succeeded in transforming the
organization to continuously respond to client needs and the market
environment. He developed an ambitious sustainability strategy for the
group to lead the industry in
health, safety and environmental
performance. Before joining Firmenich, he held several positions in the
legal and banking sectors, including working as an international
investment banking analyst.
Professional experience
2014 – 2016
Vice Chairman of the Board, Firmenich International SA
2002 – 2014
CEO, Firmenich SA, Geneva
2001 – 2002
Corporate Vice President, Special Operations,
Firmenich SA, Geneva
1997 – 2001
Vice President Fine Fragrance worldwide and Président
Directeur Général, Firmenich Cie, Paris, and
Firmenich Inc, New York
1993
–
1997
Vice President Fine Fragrance North America,
Firmenich Inc, New York
1990 – 1993
Account Manager, Firmenich Cie, Paris
1988 – 1989
Analyst, International Investment Banking, Credit Suisse
First Boston
1988
Production administrator, Firmenich SA de CV, Mexico
1984 – 1986
Attorney, Business Law, Patry, Junet, Simon Le Fort,
Geneva
Education
–
Master’s degree, law, University of Geneva, admitted to the bar
in Geneva
–
MBA, INSEAD Fontainebleau
Non-listed company boards
–
Chairman of Firmenich International SA
–
Member of the Board of Jacobs Holding AG
Other activities and functions
–
Member of the Board of INSEAD and INSEAD World Foundation
–
Member of the Advisory Council of the Swiss Board Institute
Key competencies
–
Finance, audit, accounting
–
Risk management, compliance and legal
–
Human resources management, including compensation
–
ESG (environmental, social and governance)
Leadership experience
–
CEO, Chairman
Fred Hu
Non-executive member of the Board since 2018
–
Member of the Governance and Nominating Committee since 2020
Nationality:
Year of birth:
Fred Hu has been the Chairman and CEO of Primavera Capital Group, an
Asia-based private investment firm focused on emerging technology and
innovative industries, since founding it in 2010. Prior to that, he was a
partner and Chairman for Greater China at Goldman Sachs. Mr. Hu has a
profound understanding of China’s economy and rapidly developing
financial system, and a vast amount of experience advising and investing
in leading firms in the tech, consumer and health-care sectors in China
and globally. He has worked at the IMF and advised the Chinese
government on economic policy.
Professional experience
2010
–
date
Founder, Chairman and CEO,
Primavera Capital Group, China
2008 – 2010
Partner and Chairman of Greater China, Goldman Sachs
2004 – 2008
Partner and Co-Head, Investment Banking, China,
Goldman Sachs
2003 – 2004
Managing Director and Co-Head, Investment Banking,
China, Goldman Sachs
2000 – 2003
Managing Director and Chief Economist and Strategist,
Greater China, Goldman Sachs
1996 – date
Co-Director, the National Center for Economic Research
1996 – date
Adjunct Professor, Economics, Tsinghua University
Education
–
Master’s degree, engineering science, Tsinghua University
–
Master’s degree and doctorate, economics, Harvard University
Listed company boards
–
Non-executive Chairman of the Board of Yum China Holdings (chair
of the nomination and governance committee)
–
Member of the Board of ICBC
Non-listed company boards
–
Chairman of Primavera Capital Ltd
Other activities and functions
–
Trustee of the China Medical Board
–
Governor of the Chinese International School in Hong Kong SAR
–
Co-Chairman of the Nature Conservancy Asia Pacific Council
–
Member of the Board of Trustees, the Institute for Advanced Study
–
Director and member of the Executive Committee of China Venture
Capital and Private Equity Association Ltd.
Key competencies
–
Investment banking, capital markets
–
Risk management, compliance and legal
–
Technology, cybersecurity
–
Regulatory authority, central bank
Leadership experience
–
CEO, Chairman
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Mark Hughes
Non-executive member of the Board since 2020
–
Chairperson of the Risk Committee since 2020
–
Member of the Corporate Culture and Responsibility Committee
since 2020
Nationality:
Year of birth:
Mark Hughes is a highly experienced professional in the financial services
sector, having spent more than 35 years working for RBC (the Royal Bank
of Canada) in Canada, the US and the UK. In his final role as Group Chief
Risk Officer of RBC, he was responsible for the strategic management of
risk on an enterprise-wide basis and oversaw all risk functions. During his
career, Mr. Hughes has also held senior management positions in the front
office and key operational roles. Currently, he is a visiting lecturer at Leeds
University and is chair of the Global Risk Institute, bringing an enormous
amount of experience as a risk specialist to the Board of Directors of UBS.
Professional experience
2014 – 2018
Group Chief Risk Officer and member Group Executive
Committee, RBC
2013
Deputy Chief Risk Officer, RBC
2008 – 2013
COO, RBC Capital Markets, RBC
2001 – 2008
Head of Global Credit, RBC
1999 – 2001
Head of Debt Products, RBC
1998 – 1999
Senior Vice President and General Manager USA, RBC
1997 – 1998
Senior Vice President Financial Services, RBC
1982 – 1996
Various positions, RBC
Education
–
Bachelor of Laws (LL.B.), University of Leeds
–
MBA, finance, University of Manchester
Other activities and functions
–
Chair of the Board of Directors of the Global Risk Institute
–
Visiting lecturer at the University of Leeds
–
Senior advisor to McKinsey Company
Key competencies
–
Banking (wealth management, asset management,
personal and corporate banking) and insurance
–
Investment banking, capital markets
–
Risk management, compliance and legal
–
Technology, cybersecurity
Leadership experience
–
Executive board leadership
Nathalie Rachou
Non-executive member of the Board since 2020
–
Member of the Governance and Nominating Committee since 2022
–
Member of the Risk Committee since 2020
Nationality:
Year of birth:
Nathalie Rachou is a seasoned expert in financial services, having held a
number of banking positions, such as CEO of Prime Brokerage and head
of a business line in Capital Markets at Crédit Agricole Indosuez in the UK
and in France. In 1999, she founded a London-based asset management
company that merged with a French asset manager and continued as a
senior adviser until 2020. Alongside these roles, Ms. Rachou brings
extensive experience from serving as a board member of Société Générale
for 12 years and is currently on the boards of two other listed companies,
including the pan-European bourse, Euronext N.V.
Professional experience
2015
–
2020
Senior Advisor, Clartan Associés
(formerly Rouvier Associés), France
1999
–
2014
Founding partner and CEO,
Topiary Finance Ltd., UK
1996
–
1999
Head of Global Foreign Exchange and Currency Options,
Crédit Agricole Indosuez (formerly Banque Indosuez), UK
1991 – 1996
Corporate Secretary and Secretary to the
Board of Directors, Crédit Agricole Indosuez, France
1986 – 1991
COO, Carr Futures, France (owned by Banque Indosuez),
Crédit Agricole Indosuez, France
1983 – 1986
Head of Asset and Liability Management Market Risks,
Crédit Agricole Indosuez, France
1978 – 1982
Position in Forex Exchange Sales, Crédit Agricole Indosuez,
France and UK
Education
–
Master’s degree, management, HEC Paris
–
MBA, INSEAD Fontainebleau
Listed company boards
–
Member of the Board of Euronext N.V.
(chair of the remuneration committee)
–
Member of the Board of Veolia Environnement SA
(chair of the audit committee)
Non-listed company boards
–
Member of the Board of the African Financial Institutions Investment
Platform
Key competencies
–
Banking (wealth management, asset management,
personal and corporate banking) and insurance
–
Investment banking, capital markets
–
Finance, audit, accounting
–
Risk management, compliance and legal
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Julie G. Richardson
Non-executive member of the Board since 2017
–
Chairperson of the Compensation Committee since 2019
–
Member of the Risk Committee since 2017
Nationality:
Year of birth:
Julie G. Richardson spent more than 25 years on Wall Street as a senior
investment banker with a focus on telecom, media and technology. She
began her career at Merrill Lynch, before moving to JPMorgan Chase,
where she headed the telecommunications, media and technology
investment banking group. Later, she moved into private equity, as head
of the New York office of Providence Equity Partners. Throughout her
career, Ms. Richardson has spent significant time with both incumbent
and new technology companies, including being a board member of a
digital knowledge management company and a leading cloud monitoring
firm.
Professional experience
2012 – 2014
Senior advisor, Providence Equity Partners, New York
2003
–
2012
Partner and Head of the New York office,
Providence Equity Partners, New York
1998
–
2003
Vice Chairman of the Investment Banking division of
JPMorgan Chase Co. and Head of its Global
Telecommunications, Media and Technology group
1986 – 1998
Various positions at Merrill Lynch, final position:
Managing Director Media and Communications
Investment Banking
Education
–
Bachelor’s degree, business administration, University of
Wisconsin–Madison
Listed company boards
–
Member of the Board of Yext (chair of the audit committee)
–
Member of the Board of Datadog (chair of the audit committee)
Non-listed company boards
–
Member of the Board of Fivetran
–
Member of the Board of Coalition, Inc.
Key competencies
–
Investment banking, capital markets
–
Risk management, compliance and legal
–
Human resources management, including compensation
–
Technology, cybersecurity
Dieter Wemmer
Non-executive member of the Board since 2016
–
Member of the Audit Committee since 2019
–
Member of the Compensation Committee since 2018
Nationality:
Year of birth:
Dieter Wemmer began his highly successful career in the insurance sector with
the Zurich Group in 1986, retiring in 2017 as CFO of Allianz. As a long-serving
CFO of two large multi-national companies in the financial services sector, he
has deep experience across a broad range of highly relevant topics. Mr.
Wemmer brings to the BoD knowledge covering accounting, finance and
audit, including capital markets, investments and risk management, as well as
asset management. His know-how includes hands-on experience in mergers
and acquisitions, and management of large organizations with a focus on
strategy.
Professional experience
2013 – 2017
CFO, Allianz SE
2012 – 2013
Member of the Board of Management, responsible for the
insurance business in France, Benelux, Italy, Greece and
Turkey and for the “Global Property Casualty” Center of
Competence, Allianz SE
2007 – 2011
CFO, Zurich Insurance Group
2010 – 2011
Regional Chairman of Europe, Zurich Insurance Group
2004 – 2007
CEO of the Europe General Insurance business and
member of Zurich’s Group Executive Committee, Zurich
Insurance Group
2003 – 2004
COO of Europe General Insurance, Zurich Insurance Group
1999 – 2003
Head of Mergers and Acquisitions, Zurich Insurance Group
1997 – 1999
Head of Financial Controlling, Zurich Insurance Group
Education
–
Master’s degree and doctorate, mathematics, University of Cologne
Listed company boards
–
Member of the Board of Ørsted A/S
(chair of the audit and risk committee)
Non-listed company boards
–
Chairman of Marco Capital Holdings Limited, Malta and subsidiaries
Other activities and functions
–
Member of the Berlin Center of Corporate Governance
Key competencies
–
Banking (wealth management, asset management,
personal and corporate banking) and insurance
–
Investment banking, capital markets
–
Finance, audit, accounting
–
Risk management, compliance and legal
Leadership experience
–
Executive board leadership
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Jeanette Wong
Non-executive member of the Board since 2019
–
Member of the Compensation Committee since 2020
–
Member of the Audit Committee since 2019
Nationality:
Year of birth:
Jeanette Wong has spent more than 30 years working in the financial
sector in Singapore. She retired from DBS Group in 2019, where she was
Group Executive responsible for the institutional banking business, a post
that encompassed corporate banking, global transaction services,
strategic advisory, and mergers and acquisitions. Prior to that, she held
the position of CFO at DBS Bank. During a 16-year career with JPMorgan
Chase, Ms. Wong helped build up its Asia and emerging markets business.
She brings extensive experience from serving as a member of the board
of directors of two high-value listed companies.
Professional experience
2008 – 2019
Group Executive institutional banking business,
DBS Bank, Singapore
2003 – 2008
CFO, DBS Bank, Singapore
2003
Chief Administration Officer, DBS Bank, Singapore
1997 – 2002
Country Manager Singapore, JPMorgan Chase, Singapore
1986 – 1997
Various roles in Global Markets and Emerging Markets
Sales and Trading business, Asia, JPMorgan Chase,
Singapore
1984 – 1986
Manager, Private Banking, Citibank, Singapore
1982 – 1984
Manager, Corporate Banking, Paribas, Singapore
Education
–
Bachelor’s degree, business administration, the National University
of Singapore
–
MBA, University of Chicago
Listed company boards
–
Member of the Board of Prudential plc
–
Member of the Board of Singapore Airlines Limited
Non-listed company boards
–
Member of the Board Risk Committee of GIC Pte Ltd
–
Member of the Board of Jurong Town Corporation
–
Member of the Board of PSA International
Other activities and functions
–
Chairman of the CareShield Life Council
–
Member of the Securities Industry Council
–
Member of the Board of Trustees of the National University
of Singapore
Key competencies
–
Banking (wealth management, asset management,
personal and corporate banking) and insurance
–
Investment banking, capital markets
–
Finance, audit, accounting
–
ESG (environmental, social and governance)
Leadership experience
–
Executive board leadership
Markus Baumann
Group Company Secretary since 2017
Nationality:
Year of birth:
1963
Markus Baumann joined UBS in 1979 as a banking apprentice
and has now been with the firm for more than 40 years. Earlier
in his career, he worked in Japan for four years, as Corporate
Planning Officer and assistant to the CEO. He then worked as
COO EMEA for UBS Asset Management and has since held a
broad range of leadership roles across the Group in Switzerland,
the US and Japan, including COO of Group Internal Audit from
2006 to 2015.
Professional experience
2017 – date
Group Company Secretary of UBS Group AG
and Company Secretary of UBS AG
2015 – 2016
Chief of Staff to the Chairman of the Board of
Directors, UBS
2006 – 2015
COO, Group Internal Audit, UBS
2005 – 2006
Head Global Reporting Controlling,
Global Asset Management, UBS
2002 – 2004
Head Management Support CEO EMEA,
Global Asset Management, UBS
1998 – 2002
COO EMEA, Global Asset Management, UBS
1979 – 1997
Various positions, Union Bank of Switzerland
Education
–
Swiss Federal Diploma as a Business Analyst
–
MBA, INSEAD Fontainebleau
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Elections and terms of office
Shareholders annually elect each member of the BoD individually, as well as the Chairman and the members of the
Compensation Committee, based on proposals from the BoD.
As set out in the Organization Regulations, BoD members are normally expected to serve for at least three years. BoD
members are limited to serving for a maximum of 10 consecutive terms of office; in exceptional circumstances, the BoD
may extend that limit.
›
Refer to
Organizational principles and structure
Following each AGM, the BoD meets to appoint one or more Vice Chairmen, a Senior Independent Director, the BoD
committee members (other than the Compensation Committee members, who are elected by the shareholders) and the
respective committee Chairpersons. At the same meeting, the BoD appoints the Group 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. During the height of the COVID-19 pandemic, BoD meetings were mainly organized as video calls,
with few exceptions. Based on the experiences during the pandemic, the BoD decided to adopt a split approach for 2022
and going forward. In 2022 , half of the meetings were held in person. During 2022, a total of 31 BoD meetings were
held, 15 of which were attended by GEB members. Average participation in the BoD meetings was 9 8%. In addition to
the BoD meetings attended by GEB members, the Group CEO regularly attended some of the meetings of the BoD
without the participation of other GEB members. The meetings had an average duration of 95 minutes and covered both
UBS Group AG an d UBS AG. Additionally, six ad hoc calls were held. The BoD held a two-day strategy workshop, which
included deep dives on each business division and geographical region, and focused on the execution against the strategy
defined in 2021. A separate one-day strategy deep dive was held with a specific focus on the Asia Pacific region.
At the BoD meetings, each committee Chairperson provides the BoD with an update on current activities of his or her
committee and important committee issues.
In 2022 , four UBS AG BoD meetings were held with members of the Executive Board in attendance. These standalone
meetings are held regularly to discuss and agree on finance, risk, compliance, operational risk, regulatory and other topics
related to UBS AG.
We also continued with the coordination and exchange of information between UBS Group AG and its significant group
entities. Joint meetings between the BoD of UBS Group AG and the boards of directors of the significant group entities,
as well as between the respective chairs of the risk and audit committees, have been held. As in prior years, an annual
workshop, attended by independent members of the boards of the Group and significant group entities, was held.
Performance assessment
Every third year, an external assessment of the effectiveness of the BoD is conducted. In 2022, this review concluded that
the UBS BoD and committees operate effectively, in line with best practice, and set a high standard in comparison with
leading international peers. The review also confirmed that the BoD agenda covers all important and relevant topics and
that these are addressed professionally and in great depth. It further found that the BoD members are independent,
highly committed and of the highest integrity, and that the Chairman provides effective leadership and direction. The
review emphasized that the cooperation between the BoD and the GEB is based on mutual trust, respect and constructive
dialogue. The mix of expertise in the BoD is broad-based and the quality of BoD members is high. The BoD and GEB have
responded well to the economic environment, including successfully managing the firm through the COVID-19 pandemic
and other significant challenges, while maintaining an appropriate focus on control and regulatory issues. The review
highlighted the successful CEO transition and onboarding , and the well-planned and professionally executed Chairman
succession process. No significant weaknesses were identified in the review; maintaining a balanced agenda that provides
sufficient room for each business performance, strategic review and growth initiatives was the main area recommended
for further focus. In spring 2023, the performance assessment will be conducted in-house with a lengthy questionnaire.
BoD committees
The committees listed below assist the BoD in fulfilling the performance of its responsibilities. These committees and their
charters are described in our Organization Regulations, available at
ubs.com/governance.
as their business requires, but no less than four times a year in the case of the Audit Committee, the Risk Committee and
the Compensation Committee, and no less than twice a year in the case of the Corporate Culture and Responsibility
Committee (the CCRC) and the Governance and Nominating Committee. Topics of common interest or affecting more
than one committee are discussed at joint committee meetings.
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During 2022, a total of eight joint committee meetings were held for UBS Group AG (five joint committee meetings were
held simultaneously for UBS AG). The Audit Committee met four times with the Risk Committee and twice with the
CCRC. The Risk Committee met once with the CCRC and once with the Compensation Committee.
Board of Directors
Members in 2022
Meeting attendance
without GEB
3
Meeting attendance
with GEB
Key responsibilities include:
Axel A. Weber, Chairman
1
2/2
100%
2/2
100%
The Board has ultimate responsibility for the success of the Group and
for delivering sustainable shareholder value within a framework of
prudent and effective controls. It decides on the Group’s strategy and
the necessary financial and human resources upon recommendation of
the Group CEO and sets the Group’s values and standards to ensure
that its obligations to shareholders and other stakeholders are met.
›
Refer to the Organization Regulations of UBS Group AG,
available at
ubs.com/governance
, for more information
Colm Kelleher, Chairman
2
14/14
100%
13/13
100%
Lukas Gähwiler
2
14/14
100%
13/13
100%
Jeremy Anderson
16/16
100%
15/15
100%
Claudia Böckstiegel
16/16
100%
15/15
100%
William C. Dudley
16/16
100%
15/15
100%
Patrick Firmenich
16/16
100%
15/15
100%
Reto Francioni
1
2/2
100%
2/2
100%
Fred Hu
14/16
88%
14/15
93%
Mark Hughes
16/16
100%
15/15
100%
Nathalie Rachou
16/16
100%
15/15
100%
Julie G. Richardson
15/16
94%
15/15
100%
Dieter Wemmer
15/16
94%
15/15
100%
Jeanette Wong
16/16
100%
15/15
100%
1
2
to the Board at the 2022 AGM; indicated are their attended and total meetings after their election.
3
Audit Committee
Throughout 2022, the Audit Committee consisted of four independent BoD members. 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 2022, all members of the Audit
Committee, in addition to satisfying our independence criteria, satisfied these requirements, in that they did not receive,
directly or indirectly, any consulting, advisory or compensatory fees from any member of the Group other than in their
capacity as a BoD member, did not hold, directly or indirectly, UBS Group AG shares in excess of 5% of the outstanding
capital, and did not serve on the audit committees of more than two other public companies.
During 2022, the Audit Committee held 12 committee meetings, with a participation rate of 100%. The meetings had
an average duration of approximately 13 5 minutes and covered both UBS Group AG and UBS AG. Additional attendees
included the Group CFO, the Group Controller and Chief Accounting Officer, the Head Group Internal Audit (GIA), and
the external auditors. The Chairman of the BoD, the Vice Chairman and the Group CEO attended most meetings. The
Chairperson and the committee continued to maintain regular contact with core supervisory authorities.
Audit Committee
Members in 2022
Meeting attendance
Key responsibilities include:
Jeremy Anderson (Chairperson)
12/12
100%
The function of the Audit Committee is to support the Board in fulfilling its oversight duty relating
to financial reporting and internal controls over financial reporting, the effectiveness of the
external and internal audit functions, and the effectivene ss of 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.
›
Refer to the Organization Regulations of UBS Group AG,
available at
ubs.com/governance,
Patrick Firmenich
12/12
100%
Dieter Wemmer
12/12
100%
Jeanette Wong
12/12
100%
.
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Compensation Committee
In 2022, the Compensation Committee consisted of four independent members before the AGM and three independent
members after the AGM. In addition to the key responsibilities indicated in the same table, the Compensation Committee
reviews the compensation disclosures included in this report.
During 2022, the Compensation Committee held eight meetings, with a participation rate of 100%. The meetings had
an average duration of approximately 70 minutes and covered both UBS Group AG and UBS AG. All meetings were held
in the presence of the Chairman and the Group CEO and most were attended by external advisors. In 2022, the
Chairperson met regularly with core supervisory authorities.
›
Refer to
Compensation Committee’s decision-making procedures
Compensation Committee
Members in 2022
Meeting attendance
2
Key responsibilities include:
Julie G. Richardson (Chairperson)
8/8
100%
The Compensation Committee is responsible for:
(i)
supporting the Board in its duties to set guidelines on compensation and benefits;
(ii) approving the total compensation for the Chairman and the non -independent Board members;
(iii) proposing, upon proposal of the Chairman, financial and non -financial performance targets
and objectives for the Group CEO for approval by the Board and reviewing,
upon the proposal
of the Group CEO, the performance framework for the other GEB memb
ers;
(iv) proposing, upon proposal of the Chairman, the Group CEO’s performance assessment for
approval by the Board, as well as informing the Board of the performance assessments of
all GEB members, including the Group CEO;
(v)
proposing, upon proposal
of the Chairman, the total compensation for the Group CEO for
approval by the Board; and
(vi) proposing, upon proposal of the Group CEO, the individual total compensation for the other
GEB members for approval by the Board.
›
Refer to the Organization Regulations of UBS Group AG,
available at
ubs.com/governance,
Reto Francioni
1
2/2
100%
Dieter Wemmer
8/8
100%
Jeanette Wong
8/8
100%
1
Reto Francioni did not stand for re-election at the 2022 AGM; indicated are his attended and total meetings up to the 2022 AGM
2
Additionally, the Compensation Committee held one ad hoc call.
Corporate Culture and Responsibility Committee
In 2022, the CCRC consisted of the Chairperson and four independent BoD members. The Group CEO, the Group Chief
Risk Officer, the President Asset Management and GEB Lead for Sustainability and Impact, the Group General Counsel
and the Chief Sustainability Officer are permanent guests of the CCRC. During 2022, six meetings were held, with a
participation rate of 100%. The average duration of each of the meetings was approximately 85 minutes.
Corporate Culture and Responsibility Committee
Members in 2022
Meeting attendance
Key responsibilities include:
Axel A. Weber (Chairperson)
1
2/2
100%
The CCRC supports the Board in its duties to safeguard and advance the Group’s reputation for
responsible and sustainable conduct. Its function is forward-looking in that it monitors and reviews
societal trends and transformational developments and assesses their potential relevance for the
Group.
In undertaking this assessment, it reviews stakeholder concerns and expectations pertaining to the
societal performance of UBS and to the development of its corporate culture. The CCRC’s function
also encompasses the monitoring of the current state and implementation of the programs and
initiatives within the Group pertaining to corporate culture and corporate responsibility, including
sustainability.
›
Refer to the Organization Regulations of UBS Group AG,
available at
ubs.com/governance
, for more information
Colm Kelleher (Chairperson)
2
4/4
100%
Claudia Böckstiegel
2
4/4
100%
William C. Dudley
6/6
100%
Patrick Firmenich
6/6
100%
Mark Hughes
6/6
100%
Jeanette Wong
1
2/2
100%
1
Axel A. Weber did not stand for re-election and Jeannette Wong stepped down from this committee at the 2022 AGM; indicated are their attended and total meetings up to the 2022 AGM.
2
Chairman and Claudia Böckstiegel member of this committee; indicated are their attended and total meetings after election.
Governance and Nominating Committee
In 2022, the Governance and Nominating Committee consisted of, in addition to the Chairperson, five independent
members before the AGM and three independent members after the AGM. During 2022, six meetings were held, with
a participation rate of 100%. The average duration of each of the meetings was approximately 60 minutes. The Group
CEO attended meetings as appropriate .
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Governance and Nominating Committee
Members in 2022
Meeting attendance
3
Key responsibilities include:
Axel A. Weber (Chairperson)
1
2/2
100%
The function of the Governance and Nominating Committee is to support the Board in fulfilling its
duty to establish best practices in corporate governance across the Group, including conducting a
Board assessment, establishing and maintaining a process for appointing new Board and GEB
members, as well as for the annual performance assessment of the Board.
›
Refer to the Organization Regulations of UBS Group AG,
available at
ubs.com/governance
, for more information
Colm Kelleher (Chairperson)
2
4/4
100%
Jeremy Anderson
6/6
100%
William C. Dudley
1
2/2
100%
Fred Hu
6/6
100%
Nathalie Rachou
2
4/4
100%
Julie G. Richardson
1
2/2
100%
Dieter Wemmer
1
2/2
100%
1
Axel A. Weber did not stand for re-election; William Dudley, Julie G. Richardson and Dieter Wemmer stepped down from this committee at the 2022 AGM; indicated are their attended and total meetings up to the
2022 AGM.
2
3
Additionally, the Governance and Nominating
Committee held one ad hoc call.
Risk Committee
In 2022, the Risk Committee consisted of six independent members before the AGM and four independent members
after the AGM. During 2022, the Risk Committee held 12 committee meetings, with a participation rate of 100%. The
average duration of each of the meetings was approximately 145 minutes, covering both UBS Group AG and UBS AG.
The Chairman of the BoD, the Vice Chairman, the Group CEO, the Group CFO, the Group Chief Risk Officer, the Group
Chief Digital and Information Officer , the Group Treasurer, the Group Chief Compliance and Governance Officer, the
Group General Counsel, the Head GIA, and the external auditors attended the meetings. In 2022, the Chairperson or
the full committee met with core supervisory authorities.
Risk Committee
Members in 2022
Meeting attendance
Key responsibilities include:
Mark Hughes (Chairperson)
12/12
100%
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;
(ii)
balance sheet, treasury and c
apital management, including funding,
liquidity and equity attribution
.
›
Refer to the Organization Regulations of UBS Group AG,
available at
ubs.com/governance
, for more information
William C. Dudley
12/12
100%
Reto Francioni
1
3/3
100%
Fred Hu
1
3/3
100%
Nathalie Rachou
12/12
100%
Julie G. Richardson
12/12
100%
1
Reto Francioni did not stand for re-election and Fred Hu stepped down from this committee at the 2022 AGM; indicated are their attended and total meetings up to the 2022 AGM.
Ad hoc committees
The Special Committee and the Strategy Committee are two ad hoc committees, which have a standing composition and
hold meetings as and when required.
Leading up to the 2022 AGM, the Special Committee was chaired by Jeremy Anderson, with Claudia Böckstiegel, Nathalie
Rachou, Julie G. Richardson and Axel A. Weber as its members; after the AGM, Colm Kelleher and Lukas Gähwiler joined
the Special Committee and Axel A. Weber stepped down from the BoD. Its primary purpose is to oversee activities related
to key
litigation and investigation matters, review management’s respective proposals and
provide
to the BoD
recommendations for decisions. In 2022, the main focus was the French cross-border matter. The Group CEO and the
Group General Counsel are permanent guests of the Special Committee. During 2022, two meetings of the Special
Committee were held, covering both UBS Group AG and UBS AG.
Leading up to the 2022 AGM, the Strategy Committee was chaired by Axel A. Weber, with William C. Dudley, Fred Hu
and Dieter Wemmer as its members; after the AGM, Colm Kelleher replaced Axel A. Weber (who stepped down from
the BoD) as the chair and Julie G. Richardson also joined the Strategy Committee. The primary purpose of this committee
is to support management and the BoD with regard to the assessment of strategic considerations and to prepare decisions
on behalf of the BoD. During 2022, four meetings of the Strategy Committee were held, covering both UBS Group AG
and UBS AG. The Group CEO and other members of the GEB and management participated in these meetings as required.
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Roles and responsibilities of the Chairman of the Board of Directors
At the 2022 AGM, Axel A. Weber stepped down and Colm Kelleher was elected as the full-time Chairman of the BoD.
The Chairman coordinates tasks within the BoD, calls BoD meetings and sets their agendas. He presides over all general
meetings of shareholders, chairs the Governance and Nominating Committee, as well as the CCRC , and works with the
committee Chairpersons to coordinate the work of all BoD committees. Together with the Group CEO, the Chairman
undertakes responsibility for UBS’s reputation, and is responsible for effective communication with shareholders and
other stakeholders, including government officials, regulators and public organizations. This is in addition to establishing
and maintaining close working relationships with the Group CEO and other GEB members, and providing advice and
support when appropriate.
›
Refer to
Principles and Behaviors
In 2022, the respective Chairman in office met regularly with core supervisory authorities of all major locations where
UBS is active. Meetings with important supervisory authorities were scheduled on an ad hoc or needs -driven basis.
Roles and responsibilities of the Vice Chairmen and the Senior Independent Director
The BoD appoints one or more Vice Chairmen and a Senior Independent Director. If the BoD appoints more than one
Vice Chairman, at least one of them must be independent. Both the Vice Chairman and the Senior Independent Director
support the Chairman with regard to his responsibilities and authorities and provide him with advice. In conjunction with
the Chairman and the Governance and Nominating Committee, they facilitate good Group-wide corporate governance,
as well as balanced leadership and control within the Group, the Board and the committees.
Lukas Gähwiler was appointed as Vice Chairman following the 2022 AGM. Jeremy Anderson has been the Senior
Independent Director since 2020. The Vice Chairman is required to lead meetings of the BoD in the temporary absence
of the Chairman. Together with the Governance and Nominating Committee, either one of them is tasked with the
ongoing monitoring and the annual evaluation of the Chairman. The Vice Chairman also represents UBS on behalf of
the Chairman in meetings with internal or external stakeholders. In particular, he represents UBS across a broad range of
associations and industry bodies in Switzerland.
The Senior Independent Director enables and supports communication and the flow of information among the
independent BoD members. At least twice a year, he organizes and leads a meeting of the independent BoD members
without the participation of the Chairman. In 2022 and in early 2023, two independent BoD meetings were held, covering
both UBS Group AG and UBS AG, with an average participation rate of 85% and an average duration of approximately
105 minutes. The Senior Independent Director also relays to the Chairman any issues or concerns raised by the
independent BoD members and acts as a point of contact for shareholders and stakeholders seeking discussions with an
independent BoD member
.
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. The
Governance and Nominating Committee determines in each instance whether the nature of the Group’s business
relationship with such a company might compromise our BoD members’ capacity to express independent judgment.
Our Organization Regulations require three-quarters of the UBS Group AG BoD members and one-third of those at
UBS AG to be independent. For this purpose, independence is determined in accordance with FINMA Circular 2017/1
“Corporate governance – banks” and the NYSE rules.
In 2022, our BoD met the standards of the Organization Regulations for the percentage of directors who are considered
independent under the criteria described above. Axel Weber, who served as Chairman of the Board until the Annual
General Meeting on 6 April 2022, had a full-time contract with UBS Group AG and was not considered independent.
Our Vice Chairman, Lukas Gähwiler, previously had a full-time contract with UBS Switzerland AG and, therefore, is
currently not considered independent according to the regulatory independence rules. No current BoD member has either
an employment contract or a significant business connection to UBS or any of its subsidiaries. Except for the Vice
Chairman, no BoD member currently carries out, or has carried out over the past three years, any operational
management tasks within the Group.
All relationships and transactions with UBS Group AG’s independent BoD members are conducted in the ordinary course
of business and are on the same terms as those prevailing at the time for comparable transactions with non -affiliated
persons. All relationships and transactions with BoD members’ associated companies are conducted at arm’s length.
›
Refer to
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Checks and balances: Board of Directors and Group Executive Board
We operate under a strict dual board structure, as mandated by Swiss banking law. The separation of responsibilities
between the BoD and the GEB is clearly defined in the Organization Regulations. The BoD decides on the strategy of the
Group, upon recommendations by the Group CEO, and exercises ultimate supervision over management; whereas the
GEB, headed by the Group CEO, has executive management responsibility. The functions of Chairman and Group CEO
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 the Group, for which
responsibility is delegated to the GEB, under the leadership of the Group CEO. No member of one board may
simultaneously be a member of the other.
Supervision and control of the GEB remain with the BoD. The authorities and responsibilities of the two bodies are
governed by the AoA and the Organization Regulations.
Skills, expertise and training of the Board of Directors
At present, the BoD is well-diversified and composed of members with a broad spectrum of skills, educational
backgrounds, experience, and expertise from a range of sectors that reflect the nature and scope of the firm’s business.
The Governance and Nominating Committee maintains a competencies and experience matrix to identify gaps in the
competencies considered most relevant to the BoD, taking into consideration the firm’s business exposure, risk profile,
strategy and geographic reach.
In recent years, the composition of the BoD has been systematically rebuilt along the identified requirements. The
appointment of a new Chairman and Vice Chairman in 2022 completed this process. As a result, no nominations are
submitted for a vote at the AGM in 2023. Nevertheless, a list of potential candidates is prepared and updated regularly
by UBS Group AG.
We asked our BoD members to select their four key competencies from the following eight categories and to indicate
whether they have ever been a CEO or chairperson of a listed company or a member of the executive board of such a
company:
Key competencies
–
banking (wealth management, asset management, personal and corporate banking) and insurance
–
investment banking, capital markets
–
finance, audit, accounting
–
risk management, compliance and legal
–
human resources management, including compensation
–
technology, cybersecurity
–
regulatory authority, central bank
–
environmental, social and governance (ESG)
Leadership experience
–
experience as a CEO or chairperson
–
executive board leadership experience (e.g., as CFO, chief risk officer or COO of a listed company)
The Governance and Nominating Committee reviews these categories and ratings annually to confirm that the BoD
continues to possess the most relevant experience and competencies to perform its duties.
With regard to the composition of the BoD after the 2022 AGM, the members thereof identified all of the target
competencies as being their key competencies. Particularly strong levels of experience and expertise existed in these areas:
–
financial services
–
risk management, compliance and legal
–
finance, audit, accounting
Furthermore, 10 of the 12 BoD members have held or currently hold chairperson, CEO or other executive board-level
leadership positions.
Moreover, education remained an important priority for our BoD members. In addition to a comprehensive induction
program for new BoD members, continuous training and topical deep dives are part of the BoD agenda.
›
Refer to
governance framework
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Succession planning
Succession planning is one of the key responsibilities of both the BoD and the GEB. Across all divisions and regions, an
inclusive talent development and succession planning process is in place that aims to foster the personal development
and Group-wide mobility of our employees. Although the recruiting process for BoD and GEB members takes into account
a broad spectrum of factors, such as skills, backgrounds, experience and expertise, our approach with regard to diversity
considerations does not constitute a diversity policy within the meaning of the EU Directive on Non -Financial Reporting,
and Swiss law does not require UBS to maintain such a policy.
In 2022, the GEB launched several strategic initiatives with the close involvement of the BoD and with the aim of further
strengthening internal succession planning at UBS. This included the early identification of talents and their systematic
development, including international a
nd cross
-
divisional rotations.
The succession plans for the GEB and the
management layers below it are managed under the lead of the Group CEO and are reviewed and approved by the BoD.
For the BoD, the Chairman leads a systematic succession planning process as illustrated in the chart below.
Our strategy and the business environment constitute the main drivers in our succession planning process for new BoD
members, as they define the key competencies required on the BoD. Taking the diversity and the tenure of the existing
BoD into account, the Governance and Nominating Committee defines the recruiting profile for the search. Both external
and internal sources contribute to identifying suitable candidates. The Chairman and the members of the Governance
and Nominating Committee meet with potential candidates and, with the support of the full BoD, nominations are
submitted to the AGM for approval. New BoD members follow an in-depth onboarding process designed to enable them
to integrate efficiently and become effective in their new role. Due to this succession planning process, the composition
of the BoD is in line with the demanding requirements of a leading global financial services firm.
The smooth and effective succession of both the CEO and Chairman, as well as that of new GEB members, demonstrates
the strength and success of succession planning at UBS.
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Information and control instruments with regard to the Group Executive Board
The BoD is kept informed of the GEB’s activities in various ways, including regular meetings between the Chairman, the
Group CEO and GEB members. The Group CEO and other GEB members also participate in BoD meetings to update its
members on all significant issues. The BoD receives regular comprehensive reports covering financial, capital, funding,
liquidity, regulatory, compliance and legal developments, as well as performance against plan and forecasts for the
remainder of the year. For important developments, BoD members are also updated by the GEB in between meetings. In
addition, the Chairman receives the meeting material and minutes of the GEB meetings.
BoD members may request from other BoD or GEB members any information about matters concerning the Group that
they require in order to fulfill their duties. When these requests are raised outside BoD meetings, such requests must go
through the Group Company Secretary and be addressed to the Chairman.
The BoD is supported in discharging its governance responsibilities by GIA, which independently assesses whether risk
management, control and governance processes are designed and operating sustainably and effectively.
The Head GIA reports directly to the Chairman. In addition, GIA has a functional reporting line to the Audit Committee
in accordance with its responsibilities as set forth in our Organization Regulations. The Audit Committee assesses the
independence and performance of GIA and the effectiveness of both the Head GIA and GIA as an organization, approves
GIA’s annual audit plan and objectives and monitors GIA’s discharge of these objectives.
The committee is also in regular contact with the Head GIA. GIA issues quarterly reports that provide an overview of
significant audit results and key issues, as well as themes and trends , based on results of individual audit s, continuous
risk assessment and issue assurance. The reports are provided to the Chairman, the members of the Audit and the Risk
Committees, the GEB and other stakeholders. The Head GIA regularly updates the Chairman and the Audit Committee
on GIA’s activities, processes, audit plan execution, resourcing requirements and other important developments. GIA
issues an annual Activity Report, which is provided to the Chairman and the Audit Committee to support their assessment
of GIA’s effectiveness.
›
Refer to
›
Refer to
the BoD
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Group Executive Board
The BoD delegates the management of the business to the Group Executive Board (the GEB).
Responsibilities, authorities and organizational principles of the Group Executive Board
As of 31 December 2022 , the GEB, under the leadership of the Group CEO, consisted o f 12 members. It has executive
management responsibility for the steering of the Group and its business, develops the strategies of the Group, business
divisions and Group Functions, and implements the BoD-approved strategies. The GEB is also the risk council of the
Group, with overall responsibility for establishing and supervising the implementation of risk management and control
principles, as well as for managing the risk profile of the Group, as determined by the BoD and the Risk Committee.
In 2022, the GEB held a total of 74 meetings for UBS Group AG.
At UBS AG, management of the business is also delegated, and its Executive Board, under the leadership of its President,
has executive management responsibility for UBS AG and its business. All members of the GEB are members of UBS AG’s
Executive Board, with the exception of Sabine Keller-Busse, who serves as President UBS Switzerland AG. The Executive
Board held 74 combined meetings with the GEB and four standalone meetings for UBS AG in 2022.
›
Refer to the Organization Regulations of UBS Group AG, available at
ubs.com/governance
, for more information about the
authorities of the Group Executive Board
Changes to the Group Executive Board
Effective 16 May 2022, Kirt Gardner stepped down and Sarah Youngwood succeeded him as Group CFO, having joined
the GEB on 1 March 2022. Formerly, she was CFO of JPMorgan Chase’s Consumer Community Banking line of
business.
Effective 3 October 2022, Tom Naratil stepped down as Co -President Global Wealth Management and President UBS
Americas and Naureen Hassan joined UBS as a GEB member with functions of President UBS Americas and CEO of UBS
Americas Holding LLC. Ms. Hassan was most recently First Vice President and Chief Operating Officer of the Federal
Reserve Bank of New York, where she was responsible for technology, operations, finance, risk and HR, and led the New
York Fed’s agile transformation. Iqbal Khan became sole President Global Wealth Management on the same date.
On 8 November 2022, UBS announced that Christian Bluhm will step down from his role as Group Chief Risk Officer on
30 April 2023. Damian Vogel will join the GEB on 1 May 2023 and will take over as Group Chief Risk Officer. Mr. Vogel
is currently Chief Risk Officer for UBS’s Global Wealth Management business division.
The biographies on the following pages provide information about the GEB members in office as of 31 December 2022.
The biographies of Kirt Gardner and Tom Naratil can be found on pages 212 and 216 of the UBS Group AG Annual
Report 2021, available under “Annual reporting” at
ubs.com/investors
. In addition to information on mandates, the
biographies include memberships and other activities or functions, as required by the SIX Swiss Exchange Corporate
Governance Directive.
In line with Swiss law, article 36 of our AoA limits the number of mandates that GEB members may hold outside UBS
Group to one mandate in a listed company and five additional mandates in non-listed companies. Mandates in companies
that are controlled by UBS or that control UBS are not subject to this limitation. In addition, GEB members may not hold
more than 10 mandates at one time at the request of the company and more than eight mandates in associations,
charitable organizations, foundations, trusts and employee welfare foundations. On 31 December 2022, no member of
the GEB reached the aforementioned thresholds.
Responsibilities and authorities of the Asset and Liability Committees
The Asset and Liability Committees (the ALCOs) of UBS Group AG and UBS AG are sub -committees of the GEB and the
Executive Board that are responsible for managing assets and liabilities in line with the strategy, risk appetite, regulatory
commitments and the interests of shareholders and other stakeholders. The ALCO of UBS Group AG proposes the
framework for capital management, capital allocation, and liquidity and funding risk, and proposes limits and indicators
for the Group to the BoD for approval. It oversees the balance sheet management of the Group, its business divisions
and Group Functions. In 2022, the ALCOs of UBS Group AG and UBS AG held 10 meetings.
Management contracts
We have not entered into management contracts with any companies or natural persons that do not belong to the
Group.
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Ralph Hamers
Group Chief Executive Officer, member of the GEB since 2020
Nationality:
Year of birth:
Ralph Hamers has been Group CEO of UBS Group AG and President of
the Executive Board of UBS AG since November 2020, after joining UBS
as Group Executive Board member in September 2020. Mr. Hamers is
committed to ensuring that our firm is positioned to evolve with our clients
and the larger world. He has led work to transform our firm for the future,
with our Group-wide strategy and newly defined purpose launched in
April 2021. Prior to joining UBS, Mr. Hamers was CEO and Chairman of
the Executive Board of ING Group, where he spent over 30 years of his
career. During his time as CEO of ING, he steered the bank to profitability
after the financial crisis and supported the firm’s digital transformation.
Mr. Hamers has played a leading role in driving efforts in areas such as
digital disruption and sustainability.
Professional experience
2020 – date
Group CEO, UBS Group AG, and
President of the
Executive Board,
UBS AG
2013 – 2020
CEO and Chairman of the Executive Board, ING
Supervisory Board member of NN Group (2014 – 2015);
Chairman Management Board Banking (2013 – 2020) and
Chairman Management Board Insurance (2013 – 2014)
2011 – 2013
CEO of ING Belgium and Luxembourg, ING
2010 – 2011
Head of Network Management for Retail Banking Direct
International, ING
2007 – 2010
Global Head of the Commercial Banking network, ING
2005 – 2007
CEO of ING Bank Netherlands, ING
2002 – 2005
General Manager of the ING Bank branch network, ING
Education
–
Master’s degree, business econometrics and operations research,
Tilburg University, Netherlands
Other activities and functions
–
Member of the Board of the Swiss-American Chamber of Commerce
–
Member of the Institut International d’Etudes Bancaires
–
Member of the IMD Foundation Board
–
Member of the McKinsey Advisory Council
–
Member of the World Economic Forum International Business Council
–
Governor of the Financial Services / Banking Community of the World
Economic Forum
–
Member of the International Advisory Panel, Monetary Authority
of Singapore
–
Member of the Board of the Institute of International Finance
Christian Bluhm
Group Chief Risk Officer, member of the GEB since 2016
Nationality:
German |
Year of birth:
Christian Bluhm has been Group Chief Risk Officer since 2016. He held
several positions in academia before starting his banking career in 1999
with Deutsche Bank in credit risk management, and subsequently working
for Hypovereinsbank and Credit Suisse in the same area. Before joining
UBS, he used his expertise and skills as Chief Risk Financial Officer at
FMS Wertmanagement. Mr. Bluhm is responsible for the development of
the Group’s risk management and control framework for various risk
categories and implementation of its independent control frameworks.
Professional experience
2016 – date
Group Chief Risk Officer, UBS Group AG, and Chief Risk
Officer, UBS AG
2012 – 2015
Spokesman of the Executive Board,
FMS Wertmanagement
2010 – 2015
Chief Risk Financial Officer, FMS Wertmanagement
2004 – 2009
Managing Director, Credit Risk Management (Switzerland
and Private Banking worldwide), Credit Suisse
2008 – 2009
Head Credit Risk Management Analytics Instruments,
Credit Suisse
2004 – 2008
Head of Credit Portfolio Management, Credit Suisse
2001 – 2004
Head Structured Finance Analytics, Group Credit Portfolio
Management, Hypovereinsbank
Education
–
Master’s degree, mathematics and informatics, and doctorate,
mathematics, University of Erlangen-Nuremberg, Germany
Non-listed company boards
–
Chairman of the Board of Christian Bluhm Photography AG
Other activities and functions
–
Member of the Board of UBS Switzerland AG
–
Member of the Foundation Board of the UBS Pension Fund
–
Member of the Foundation Board International Financial Risk Institute
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Mike Dargan
Group Chief Digital and Information Officer,
member of the GEB since 2021
Nationality:
Year of birth:
Mike Dargan was appointed Group Chief Digital and Information Officer
(CDIO) in May 2021 after leading our Group Technology function since
joining UBS in 2016. In addition to his CDIO remit, where he oversees
global functions such as technology and corporate services, he is also
Group Executive Board sponsor for our firm’s digital assets strategy and a
co-sponsor of both our AI, Data and Analytics center of expertise (along
with Robert Karofsky) and our agile transformation. Prior to joining UBS,
Mr. Dargan held various senior roles in technology, corporate strategy and
investment banking at Standard Chartered Bank, Merrill Lynch and Oliver
Wyman.
Professional experience
May 2021 – date
Group CDIO, UBS Group AG, and CDIO, UBS AG
Oct. 2021 – date
President of the Executive Board,
UBS Business Solutions AG
2016 – 2021
Head Group Technology, UBS
2015 – 2016
CIO for Corporate and Institutional Banking,
Standard Chartered Bank
2014 – 2015
Global Group Technology and Operations Head for
Global Markets, Wealth Management, Private Banking
and Securities Services, Group Technology and
Operations Engineering, Standard Chartered Bank
2013 – 2014
CIO for Financial Markets, Standard Chartered Bank
2009 – 2013
Global Head of Strategy and Corporate MA, Global
Markets, Standard Chartered Bank
2005 – 2009
Head Corporate Strategy MA, EMEA and Pacific
Rim, Merrill Lynch
Education
–
Master’s degree, politics, philosophy and economics,
St. John’s College, University of Oxford
Non-listed company boards
–
Member of the Board of Directors of Done Next Holdings AG
Other activities and functions
–
Member of the Board of UBS Business Solutions AG
–
Member of the Board of UBS Optimus Foundation
–
Member of the Board of Trustees of the Inter-Community
School Zurich
Suni Harford
President Asset Management, member of the GEB since 2019
Nationality:
Year of birth:
Suni Harford was appointed President Asset Management in 2019 and is
the Chair of UBS Optimus Foundation. Ms. Harford has been the UBS GEB
Lead for Sustainability and Impact since May 2021. She started her Wall
Street career at Merrill Lynch Co., in investment banking, before
embarking on a 24-year career at Citigroup Inc., the last nine years of
which she was the Regional Head of Markets for North America. Ms.
Harford joined UBS in 2017, bringing with her a broad experience from
across the industry, including in research, client coverage and risk
management, and successfully led UBS Asset Management’s integrated
investments capabilities, driving performance for its clients.
Professional experience
2019 – date
President Asset Management, UBS Group AG
and UBS AG
2017 – 2019
Head of Investments, Asset Management, UBS
2008 – 2017
Regional Head of Markets for North Americas,
Citigroup Inc.
2004 – 2008
Global Head of Fixed Income Research, Citigroup Inc.
Education
–
Bachelor’s degree, physics and mathematics, Denison University, Ohio
–
MBA, Tuck School of Business, Dartmouth College, New Hampshire
Other activities and functions
–
Chairman of the Board of Directors of UBS Asset Management AG
–
Chair of the Board of UBS Optimus Foundation
–
Member of the Leadership Council of the Bob Woodruff Foundation
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Naureen Hassan
President UBS Americas, member of the GEB since October 2022
Nationality:
Year of birth:
1971
Naureen Hassan was appointed President UBS Americas and CEO of UBS
Americas Holding LLC in October 2022. She joined UBS from the Federal
Reserve Bank of New York, where she was COO and First Vice President.
After starting her career at McKinsey Company, Ms. Hassan held various
business transformation, strategy, and client experience leadership roles
at Charles Schwab Corporation. As Chief Digital Officer at Morgan Stanley
Wealth Management, she led the digital strategy and executed digital
transformation of the wealth management business to improve client
experience and financial advisor effectiveness and efficiency.
Professional experience
Oct. 2022 – date
President UBS Americas, UBS Group AG and UBS AG
CEO, UBS Americas Holding LLC
2021 – Sept. 2022
First Vice President and COO, Federal Reserve
Bank of New York
2016 – 2020
Chief Digital Officer, Wealth Management,
Morgan Stanley
2014 – 2016
Executive Vice President, Investor Services Segments
Platforms, Charles Schwab Corporation
2014
Senior Vice President, Business Process Transformation,
Charles Schwab Corporation
2012 – 2014
Senior Vice President, Advisor Services Client Experience
Strategic Integration, Charles Schwab Corporation
2010 – 2012
COO and Board Director, Charles Schwab Corporation
2003 – 2010
Various senior positions at Charles Schwab Corporation
Education
–
Bachelor’s degree, economics, Princeton University
–
Master’s degree, business administration, Stanford University
Graduate School of Business
Other activities and functions
–
Member of the Board of UBS Americas Holding LLC
–
Member of the Board of the Securities Industry and Financial Markets
Association
Robert Karofsky
President Investment Bank, member of the GEB since 2018
Nationality:
Year of birth:
1967
Robert Karofsky was appointed Co-President of the Investment Bank in
2018. He became sole President in April 2021. Before joining UBS, he
acquired know-how in investment banking as an analyst and trader,
working for various financial institutions such as Morgan Stanley,
Deutsche Bank and AllianceBernstein. He then became Global Head of
Equities at UBS, responsible for driving UBS’s growth strategy for equities
globally. In October 2021, Mr. Karofsky was appointed to the additional
role of UBS GEB sponsor to co-lead the AI, Data and Analytics center of
expertise, along with Mike Dargan.
Professional experience
Apr. 2021 – date
President Investment Bank, UBS Group AG and UBS AG
2018 – Mar. 2021
Co-President Investment Bank, UBS
2015 – 2021
President UBS Securities LLC, UBS
2014 – 2018
Global Head Equities, UBS
2011 – 2014
Global Head of Equity Trading, AllianceBernstein
2008 – 2010
Co-Head of Global Equities, Deutsche Bank
2005 – 2008
Head of North American Equities, Deutsche Bank
Education
–
Bachelor’s degree, economics, Hobart and William Smith Colleges,
New York
–
MBA, finance and statistics, University of Chicago’s Booth School of
Business
Other activities and functions
–
Member of the Board of UBS Americas Holding LLC
–
Member of the Board of UBS Optimus Foundation
–
Trustee of the UBS Americas Inc. Political Action Committee
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Sabine Keller-Busse
President Personal Corporate Banking and
President UBS Switzerland, member of the GEB since 2016
Nationality:
Year of birth:
Sabine Keller-Busse was appointed President Personal Corporate
Banking and President UBS Switzerland in 2021, heading the leading
universal bank in Switzerland. In her previous role as Group COO, she
oversaw global functions such as technology, operations, human
resources and corporate services. She has been pivotal in driving business
alignment, and digital and cultural transformation, while also facilitating
business growth as President UBS Europe, Middle East and Africa. Ms.
Keller-Busse also brings in-depth experience regarding financial market
infrastructure, having served on the Board of SIX Group for nine years.
Professional experience
Feb. 2021 – date
President Personal Corporate Banking and
President UBS Switzerland, UBS Group AG
Feb. 2021 – date
President of the Executive Board, UBS Switzerland AG
2019 – 2021
President UBS Europe, Middle East and Africa, UBS
2018 – 2021
Group COO of UBS and President of the Executive
Board, UBS Business Solutions AG
2016 – 2021
Member of the Executive Board of UBS AG
2014 – 2017
Group Head Human Resources, UBS
2010 – 2014
COO UBS Switzerland, UBS
Education
–
Master’s degree, economic sciences, University of St. Gallen
–
Ph.D., economic sciences (Dr. oec.), University of St. Gallen
Listed company boards
–
Member of the Board of Zurich Insurance Group
Other activities and functions
–
Member of the Foundation Council of the UBS International Center
of Economics in Society
–
Member of the Board and Board Committee of Zurich Chamber
of Commerce
–
Member of the Board of the University Hospital Zurich Foundation
–
Member of the Board of Trustees of the Swiss Entrepreneurs
Foundation
Iqbal Khan
President Global Wealth Management and
President UBS Europe, Middle East and Africa, member of the GEB
since 2019
Nationality:
Year of birth:
Iqbal Khan has been President Global Wealth Management since October
2022 and President UBS Europe, Middle East and Africa since February
2021. From 2019 until September 2022, he was Co-President Global
Wealth Management. Mr. Khan joined Ernst Young in 2001, holding
many leadership positions and becoming the youngest-ever partner of the
firm’s Swiss arm; when leaving Ernst Young, he was lead auditor of UBS.
In 2013, he moved to Credit Suisse, holding senior leadership positions as
CFO Private Banking Wealth Management and later CEO International
Wealth Management.
Professional experience
Oct. 2022 – date
President Global Wealth Management, UBS Group AG
and UBS AG
Feb. 2021 – date
President UBS Europe, Middle East and Africa, UBS
Group AG and UBS AG
2019 – Sept. 2022
Co-President Global Wealth Management, UBS
2015 – 2019
CEO International Wealth Management, Credit Suisse
2013 – 2015
CFO Private Banking Wealth Management,
Credit Suisse
2011 – 2013
Managing Partner Assurance and Advisory Services –
Financial Services, Ernst Young
2009 – 2011
Industry Lead Partner Banking and Capital Markets,
Switzerland and EMEA Private Banking, Ernst Young
2001 – 2009
Various positions in Ernst Young
Education
–
Swiss Certified Public Accountant
–
Advanced Master of International Business Law degree (LL.M.),
University of Zurich
Other activities and functions
–
Member of the Supervisory Board of UBS Europe SE
–
Member of the Board of UBS Optimus Foundation
–
Member of the Board of Room to Read Switzerland
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Edmund Koh
President UBS Asia Pacific, member of the GEB since 2019
Nationality:
Year of birth:
Edmund Koh has been President UBS Asia Pacific since 2019. He is a
financial sector veteran, with more than 30 years in senior roles in financial
services, including as Head Wealth Management Asia Pacific, Country
Head Singapore and Head Wealth Management South-East Asia and Asia
Pacific Hub for UBS. Before working for DBS Bank in Singapore, Mr. Koh
was CEO for Prudential Assurance and Alverdine Pte Ltd, both companies
based in Singapore. He joined UBS from Taiwan-based Ta Chong Bank,
where he served as President and Director.
Professional experience
2019 – date
President UBS Asia Pacific, UBS Group AG and UBS AG
2016 – 2018
Head Wealth Management Asia Pacific, UBS
2012 – 2018
Country Head Singapore, UBS
2012 – 2015
Head Wealth Management South-East Asia and
Asia Pacific Hub, UBS
2008 – 2012
President and Director, Ta Chong Bank, Taiwan
2001 – 2008
Managing Director and Regional Head, Consumer Banking
Group, DBS Bank, Singapore
Education
–
Bachelor’s degree, psychology, University of Toronto
Non-listed company boards
–
Member of the Board of Trustees of the Wealth Management
Institute, Singapore
–
Member of the Board of Next50 Limited, Singapore
–
Member of the Board of Medico Suites (S) Pte Ltd
–
Member of the Board of Curbside Pte Ltd
Other activities and functions
–
Member of a sub-committee of the Singapore Ministry
of Finance’s Committee on the Future Economy
–
Member of the Financial Centre Advisory Panel of the Monetary
Authority of Singapore
–
Council member of the Asian Bureau of Finance and Economic
Research
–
Trustee of the Cultural Matching Fund, Singapore
–
Member of University of Toronto’s International Leadership
Council for Asia
Barbara Levi
Group General Counsel, member of the GEB since 2021
Nationality:
Year of birth:
Barbara Levi has been Group General Counsel since November 2021. A
qualified attorney-at-law, she has been admitted to the Supreme Court of
the United States, the New York State bar and the bar of Milan, Italy, and
has worked in several law firms in New York and Milan. Ms. Levi began
her corporate career with Novartis Group in 2004 and worked there for
16 years, holding a number of senior legal roles across Europe. Before
joining UBS, she served as Chief Legal Officer External Affairs at Rio
Tinto Group and, before that, as General Counsel. In both roles, she was
a member of that company’s executive committee.
Professional experience
Nov. 2021 – date
Group General Counsel, UBS Group AG, and General
Counsel, UBS AG
2021
Chief Legal Officer External Affairs, Rio Tinto Group
2020 – 2021
Group General Counsel, Rio Tinto Group
2019
Group Legal Head, MA and Strategic Transactions,
Novartis
2016
–
2019
Global General Counsel, Sandoz International GmbH,
Novartis
2014 – 2016
Global Legal Head, Product Strategy
Commercialization, Novartis
2013 – 2014
Global Legal Head, TechOps, Primary Care and
Established Medicines, Novartis
2009 – 2013
Head of Legal Compliance, Region Asia-Pacific,
Middle East, and African Countries, Region Group
Emerging Markets, Novartis
Education
–
Law degree, University of Milan
–
Master of Laws (LL.M.), banking, corporate and finance law, Fordham
University School of Law, New York
Other activities and functions
–
Member of the Employers’ Board of the Global Institute for Women’s
Leadership, King’s College London
–
Member of the Board of Directors of the European General Counsel
Association
–
Member of the Legal Committee of the Swiss-American Chamber of
Commerce
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Markus Ronner
Group Chief Compliance and Governance Officer,
member of the GEB since 2018
Nationality:
Year of birth:
Markus Ronner has been Group Chief Compliance and Governance
Officer since 2018. He 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, as well as investigations and
governance matters. Since 2022, he also serves as Chairman of
UBS Switzerland AG, the leading Swiss universal bank.
Professional experience
2018 – date
Group Chief Compliance and Governance Officer, UBS
Group AG, and Chief Compliance and Governance Officer
UBS AG
2012 – 2018
Head Group Regulatory and Governance, UBS
2011
–
2013
Manager Group-wide too-big-to-fail program, UBS
2010 – 2011
COO Wealth Management Swiss Bank, UBS
2009 – 2010
Head Products and Services of Wealth Management
Swiss Bank, UBS
2007 – 2009
COO Asset Management, UBS
2001 – 2007
Head Group Internal Audit, UBS
Education
–
Swiss Banking Diploma
Other activities and functions
–
Chairman of the Board of Directors of UBS Switzerland AG
Sarah Youngwood
Group Chief Financial Officer, member of the GEB since March
2022
Nationality:
Year of birth:
Sarah Youngwood became Group CFO in May 2022. Before joining UBS,
Ms. Youngwood was CFO for JPMorgan Chase Consumer Community
Banking, CFO for Firmwide Technology and CFO for Diversity Inclusion.
She set up the data and reporting infrastructure for that company’s
USD 30bn racial equity commitments. Previously, Ms. Youngwood was
Head of Investor Relations and worked in the Financial Institutions Group
within JPMorgan’s investment bank in Paris, London and New York. She
brings in-depth finance expertise to the table and has a strong track record
of adding long-term value, and leading agile and data-driven
transformations.
Professional experience
May 2022 – date
Group CFO, UBS Group AG, and CFO, UBS AG
2020 – 2022
CFO, Consumer Community Banking and Diversity
Inclusion, incl. Global Technology, JPMorgan Chase
2016 – 2020
CFO, Consumer Community Banking,
JPMorgan Chase
2012 – 2016
Head of Investor Relations, JPMorgan Chase
1997 – 2012
Investment Bank, Financial Institutions Group, JPMorgan
Chase, Paris, London and New York, including
Managing Director – Head of Mortgage Coverage
activities
Education
–
Master’s degree, Business and Finance, ESCP Business School, Paris
Other activities and functions
–
Member of the Board of UBS Business Solutions AG
–
Advisory Board Member – Wall Street Women’s Alliance
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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.
Duty to make an offer
Pursuant to the Swiss Federal Act on Financial Market Infrastructures and Market Conduct in Securities and Derivatives
Trading of 19 June 2015 , an investor who has acquired (whether directly, indirectly or in concert with third parties)
more than 33
1
⁄
3
% of all voting rights of a company listed in Switzerland, whether such rights are exercisable or not,
is required to submit a takeover offer for all listed shares outstanding. We have not elected to change or opt out of
this rule.
Clauses on change of control
Neither the terms regulating the Board members’ mandate nor any employment contracts with GEB members or
employees holding key functions within the Group contain change of control clauses.
All employment contracts with GEB members stipulate a notice period of six months. During the notice period, GEB
members are entitled to their salaries and the continuation of existing employment benefits and may be eligible to be
considered for a discretionary performance award based on their contribution during their tenure.
In case of a change of control, we may, at our discretion, accelerate the vesting of and / or relax applicable forfeiture
provisions of employees’ awards.
›
Refer to the
Auditors
Audit is an integral part of corporate governance. While safeguarding their independence, the external auditors closely
coordinate their work with Group Internal Audit (GIA). The Audit Committee and, ultimately, the BoD supervise the
effectiveness of audit work.
›
Refer to
External independent auditors
The 2022 AGM re-elected Ernst Young Ltd (EY) as auditors for the Group for the 2022 financial year. EY assumes
virtually all auditing functions according to laws, regulatory requests and the AoA. Bob 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 2022, the Audit Committee held 12 meetings with the external auditors.
Review of UBS Group AG and UBS AG audit engagement
EU rules require UBS Europe SE to rotate its external auditors in the 2024 financial year. In connection with this required
change, and in consideration of governance best practices, the BoD 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, UBS 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 BoD 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.
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Fees paid to external independent auditors
UBS Group AG and its subsidiaries (including UBS AG) paid the following fees (including expenses) to their external independent
auditors.
For the year ended
USD m
31.12.22
31.12.21
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
1
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
1
1 Total audit and non-audit fees amounted to USD 70m for UBS Group AG consolidated as of 31 December 2022 (31 December 2021: USD 72m), of which USD 46m related to UBS AG consolidated (31 December
2021: USD 43m).
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 35.2m in 2022 (USD 34.1m in 2021) for services performed
on behalf of our investment funds, many of which have independent fund boards or trustees.
Audit work includes all services necessary to perform the audit for the Group in accordance with applicable laws and
generally accepted auditing standards, as well as other assurance services that conventionally only the auditor can
provide. These 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 2022 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.
Group Internal Audit
GIA performs the internal auditing role for the Group. 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. In 2022, it operated with an average headcount of 58 5 full-time equivalent employees.
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GIA 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, GIA independently, objectively and systematically
assesses the:
(i)
soundness of the Group’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 da ta 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 the Group’s constitutional
documents and contracts.
Audit reports that include significant issues are provided to the Group CEO, relevant GEB members and other responsible
management. The Chairman, the Audit Committee and the Risk Committee of the BoD are regularly informed of such
issues.
In addition, GIA 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. GIA also cooperates
closely with risk control functions and internal and external legal advisors on investigations into major control issues.
To ensure GIA’s independence from management, the Head GIA reports to the Chairman of the BoD and to the Audit
Committee, which assesses annually whether GIA has sufficient resources to perform its function, as well as its
independence and performance. In the Audit Committee’s assessment, GIA is sufficiently resourced to fulfill its mandate
and complete its auditing objectives. GIA’s role, position, responsibilities and accountability are set out in our Organization
Regulations and the Charter for GIA, available at
ubs.com/governance.
The Charter also applies to UBS AG’s internal
audit function. GIA has unrestricted access to all accounts, books, records, systems, property and personnel, and must
be provided with all information and data that it needs to fulfill its auditing responsibilities. GIA also conducts special
audits at the request of the Audit Committee, or other BoD members, committees or the Group CEO in consultation with
the Audit Committee.
GIA enhances the efficiency of its work through coordination and close cooperation with the external auditors.
Information policy
We provide regular information to our shareholders and to the wider financial community.
Financial reports for UBS Group AG are expected to be published on the following dates:
First quarter 2023
25 April 2023
Second quarter 2023
25 July 2023
Third quarter 2023
24 October 2023
The annual general meetings of the shareholders of UBS Group AG will take place on the following dates:
2023
5 April 2023
2024
11 April 2024
›
Refer to the corporate calendar available at
ubs.com/investors
dates, including the dates of the publication of UBS AG’s financial reports
We meet with institutional investors worldwide throughout the year and regularly hold results presentations, attend and
present at investor conferences, and, from time to time, host investor days. When appropriate, investor meetings are
hosted by senior management and are attended by members of our Investor Relations team. We use various technologies,
such as webcasting, audio links and cross-location videoconferencing, to widen our audience and maintain contact with
shareholders globally.
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We make our publications available to all shareholders simultaneously to provide them with equal access to our financial
information.
Our annual and quarterly publications are available in a fully digital and .pdf format at
ubs.com/investors
, under “Financial
information.” Starting with our Annual Report 2022, we no longer provide printed copies of our Annual Report and our
Compensation Report in any language.
›
Refer to
ubs.com/investors
conference presentations
›
Refer to the
›
Refer to
Financial disclosure principles
We fully support transparency, and consistent and informative disclosure. We aim to communicate our strategy and
results in a manner that enables stakeholders to gain a good understanding of how our Group operates, what our growth
prospects are, and the risks that our businesses and our strategy entail. We assess feedback from analysts and investors
on a regular basis and, where appropriate, reflect this in our disclosures. To continue achieving these goals, we apply the
following principles in our financial reporting and disclosure:
–
transparency
–
consistency
–
simplicity
–
relevance,
by focusing not only on what is required by regulation or statute but also on what is relevant to our
stakeholders; and
–
best practice
We regard the continuous improvement of our disclosures as an ongoing commitment.
Financial reporting policies
We report our Group’s results for each financial quarter, including a breakdown of results by business division and
disclosures or key developments relating to risk management and control, capital, liquidity and funding management.
Each quarter, we publish quarterly financial reports for UBS Group AG, on the same day as the earnings releases.
The consolidated financial statements of UBS Group AG and UBS AG are prepared in accordance with International
Financial Reporting Standards as issued by the International Accounting Standards Board.
›
Refer to
more information about the basis of accounting
We are committed to maintaining the transparency of our reported results and to allowing analysts and investors to make
meaningful comparisons with prior periods. If there is a major reorganization of our business divisions or if changes to
accounting standards or interpretations lead to a material change in the Group’s reported results, our results are restated
for previous periods as required by applicable accounting standards. These restatements show how our results would
have been reported on the new basis and provide clear explanations of all relevant changes.
US disclosure requirements
As a foreign private issuer, we must file reports and other information, including certain financial reports, with the US
Securities and Exchange Commission (the SEC) under the US federal securities laws.
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 2022. No
significant changes have been made to our internal controls or to other factors that could significantly affect these
controls subsequent to the date of their evaluation.
›
Refer to the
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Compensation
Table of contents
201
204
206
207
214
222
229
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Compensation
Julie G. Richardson
Chairperson of the
Compensation Committee
of the Board of Directors
Dear Shareholders,
The Board of Directors (the BoD) and I wish to thank you for your support once again at last year’s Annual General
Meeting (the AGM) and for sharing your views on our compensation practices over the past year.
Throughout 2022, the BoD Compensation Committee continued to oversee the compensation process, aiming to ensure
that reward reflects performance, that risk-taking is appropriate and that employees’ interests are aligned with those of
our stakeholders. As the Chairperson of the Compensation Committee, I am pleased to present our Compensation Report
for 2022.
As part of our ongoing engagement with shareholders during 2022, we received positive feedback on our compensation
framework. We believe it is well suited to support our ambitions for the Group and provides strong alignment with
shareholders. Its robustness supports pay-for-performance through varying business cycles and incentivizes both annual
and longer-term performance. In addition to other measures taken in light of the increasing competition for talent, our
compensation framework further reinforces the attractiveness of UBS for key talent.
Supporting our clients and executing in a challenging environment
The macroeconomic and geopolitical environment has become increasingly complex. Our clients remain focused on key
issues, such as potential persistently high inflation, elevated energy prices, the war in Ukraine and residual effects of the
pandemic. The related impact has been far-reaching, affecting asset levels, market volatility, rates and investor sentiment
across the globe. Our highly accretive, capital-light business model and disciplined risk management position us well to
face the challenges of the current macroeconomic environment.
Sustainable finance is crucial when it comes to helping our clients achieve their diverse sustainability objectives. Leveraging
the deep expertise of our experienced teams, we work hard to service our clients’ diverse sustainable financing, investing
and/or advisory needs in the best way possible. In 2022, we expanded our sustainable investment offering with additional
alternative and tailored-investment solutions and progressed a number of important investment product initiatives
relevant to a broad spectrum of clients across our business areas.
›
Refer to “Financial and operating performance” in our Annual Report 2022 for further details about our Group and business division
performance
How does UBS respond to the increasing competition for talent?
–
We continue to see heightened competition for talent. These pressures come from our competitors but also
organizations in other industries, including technology, consulting and new entrants, such as fintech firms.
–
We continue to be successful in hiring the talent we need to grow our businesses , who are increasingly interested
in operating digitally, and they value diverse experiences, which requires flexibility and agility. That’s one reason
why we support hybrid working arrangements where possible as these benefit current employees and improve
client service while attracting a wider range of candidates and making us a stronger, more dynamic company.
–
Agility drives simplification; we are committed to making it even easier for our clients to do business with us and
for our employees to work at UBS. As of year-end 2022, approximately 18,500 employees across the firm were
working in agile teams.
–
In 2022, we further expanded our employee health and well-being offering. This included a suite of programs,
benefits and workplace resources, along with a bespoke eLearning curriculum, that aimed to help our employees
manage their health,
foster well
-
being
,
strengthen
their resilience and
support
the sustainability of the
organization.
–
Ultimately, we strongly reflect pay-for-performance in our compensation decision-making, and additionally
consider carefully inflation levels and our competitive market position.
›
Refer to
ubs.com/global/en/our-firm/our-employees
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GEB hiring and succession planning
Succession planning is a pivotal activity for the Bo D. We are convinced that a Group Executive Board (GEB) with diverse
backgrounds and experiences is critical to our continued success. We have a successful track record of filling GEB roles
with highly qualified, diverse candidates from within the Group and, in selected cases, from the outside. In order to
attract external top talent, market practice dictates that we consider replacing the forfeited compensation from their
prior employer. In selected situations and with careful consideration, we replace the lost compensation of senior hires.
Awards for new GEB members are subject to independent review to support the like-for-like nature of the replacement
and confirm that these awards do not represent sign-on payments (i.e., there are no “golden hellos”). In 2022, we made
two external GEB hires and in this report we disclose their replacement awards .
Financial performance
We delivered good results in 2022 , with USD 9.6bn profit before tax and 17.0% RoCET1 in a challenging environment,
achieving our Group returns and efficiency targets on a reported and underlying basis. This result was supported by
strong momentum with our clients, who turned to us for advice, resulting in USD 60bn of net new fee-generating assets.
We also demonstrated continued cost discipline despite the backdrop of rising inflation, resulting in a cost-income ratio
of 72.1%. We are well positioned to continue executing our growth strategy and delivering strong capital returns, while
weathering the challenges of the current macroeconomic environment. We enter 2023 in a position of strength and with
a CET1 capital ratio of 14.2%, enabling us to fund growth and deliver attractive and sustainable returns to shareholders.
Commitment to return capital to shareholders
We remain committed to returning excess capital to our shareholders. We repurchased USD 5.6bn of shares in 2022.
Looking ahead, we intend to continue repurchasing shares and accruing for a progressive dividend. The BoD is proposing
a dividend of USD 0.55 per share for 2022 (which represents an increase of 10% compared with the previous year) for
approval at the AGM in 2023.
2022 performance award pool and salaries
The performance award pool continues to reflect our strict pay- for-performance philosophy, our disciplined approach in
managing compensation over business cycles and our alignment to shareholder interests. Reflecting our overall results
while also considering our underlying results, the 2022 performance award pool was USD 3.3bn, a decrease of 10%
compared with 2021.
In addition, the pool also reflects our achievements relative to non -financial objectives, such as our reconfirmed position
among the leading firms when it comes to their approach to sustainability. It also takes into account risk considerations,
as well as the competitive total shareholder return (TSR) of UBS shares versus our core peers. It also considers other
factors, such as the continuing competition to attract and retain a talented and diverse workforce that delivers on our
purpose and strategy.
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While the 2022 GEB pool percentage change appears more favorable than the overall Group pool, this year’s GEB
comparison is impacted by the significant reduction made in 2021 to reflect the loss resulting from the default of a US
client in our prime brokerage business. For 2022, we consider a GEB pool before the impact of the 2021 loss event to
support competitive pay for competitive performance and not to carry forward the 2021 impact over multiple years. In
addition, the 2022 GEB pool reflects changes in both foreign exchange rates and GEB composition. Adjusted for the
direct impact of the 2021 loss event on specific GEB members, the 2022 GEB pool is down approximately 5% in Swiss
franc terms or a decrease of 10% in US dollar terms, which is aligned with the Group pool development.
We take note of the increased impact of inflationary pressures on the broad -based employee population. At a Group
level, we have carefully monitored and adjusted compensation levels where appropriate to address increased competition
for talent in certain markets. For the GEB, we continue with the same salary level instituted in 2011 and propose no
increase to our GEB fixed compensation budget and salary levels for 2024. Furthermore, we also propose no increase to
the fee levels for the BoD and no change to the maximum aggregate amount for BoD from the 2023 AGM to the 2024
AGM.
Commitment to fair pay and diversity, equity and inclusion
Pay equity and equal opportunity are fundamental to achieving our purpose. We pay for performance, and we take pay
equity seriously. Since 2020, we have been certified under the EQUAL-SALARY Foundation standards for our human
resources practices in Switzerland, the US, the UK, the Hong Kong SAR and Singapore, covering more than two-thirds
of our global employee population. Our processes are global and we apply the same standards across all our locations.
In 2022, we extended our internal fair pay analysis by assessing employees’ salaries against local living wages, using
benchmarks defined by the Fair Wage Network. We are committed to fair pay and support all employees being paid at
least a living wage.
In 2020, we outlined our intention to increase diversity, especially among management, and we have made steady
progress toward achieving our aspirations. Women now account for more than 40% of our workforce, nearly 28% of
our Director-level and above population, and 42% of our GEB members.
The 2023 Annual General Meeting
At the 2023 AGM on 5 April, we will seek your support on the following compensation-related items:
–
the maximum aggregate amount of compensation for the BoD for the period from the 2023 AGM to the 2024 AGM;
–
the maximum aggregate amount of fixed compensation for the GEB for 2024;
–
the aggregate amount of variable compensation for the GEB for 2022; and
–
shareholder endorsement in an advisory vote for this Compensation Report.
On behalf of the Compensation Committee and the BoD, I thank you again for your feedback and we respectfully ask
for your continued support at the upcoming AGM.
Julie G. Richardson
Chairperson of the Compensation Committee of the
Board of Directors
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2022 key compensation themes
The feedback we seek from our shareholders about compensation-related topics is very important to us, as we are
committed to maintaining a strong link between the interests of our employees and those of our shareholders. We
continued en
gaging with shareholders during 202
2
and received overall
positive
feedback
about
our
compensation framework.
The text below summarizes key compensation themes for 2022 and provides answers to the questions we most frequently
receive from shareholders.
Summary of 2022 key compensation themes / responses to frequently asked questions
What progress has been made on resolving the French cross -border matter and how is this reflected in GEB
compensation?
In December 2021, UBS filed an appeal with the French Supreme Court regarding the decision of the Court of Appeal
relating to the French cross-border matter. This matter remains ongoing and was considered in the decision-making
process for our 2021 performance award pool.
The use of the RoCET1 metric aims to ensure the cost of litigation matters, including the French cross-border matter, has
an ongoing and direct impact on the compensation awarded and realized by our most senior leaders, including the GEB.
Additionally, when determining the 2019 performance award pool, the impact of the French cross -border matter was
considered in our decision making, following the verdict of the Court of First Instance in early 2019.
Furthermore, up to CHF 7.9m, or 30%, of the 2019 LTIP awards at grant for GEB members active in March 2017, as well
as the former Chairman of the BoD’s unvested share award, remains undelivered and continues to be at risk and directly
linked to the final resolution of the French cross -border matter. In addition, a malus clause allows the Compensation
Committee to assess any new information that becomes available in the future and to retrospectively reduce any
undelivered 2019 LTIP award by up to the full amount if such new information would have impacted our compensation
decision in 2019. This matter continues to be ongoing and, once resolved, the final outcome will be reflected in the final
amounts delivered to relevant current and former employees.
How does UBS support diversity and pay fairness?
Compensating employees fairly and consistently is key to ensuring equal opportunities. A strong commitment to pay for
performance and pay equity is embedded in our compensation policies.
›
Refer to “Environmental, Social and Governance considerations” in the “Compensation philosophy and governance” section of
this report for more information about pay fairness
›
Refer to the “People and culture make the difference“ section of our Sustainability Report 2022, available under “Annual
reporting” at
ubs.com/investors
, for more information about diversity, equity and inclusion (DEI)
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How are environmental, social and governance considerations factored into the compensation process?
We maintain our well -established process that considers environmental, social and governance (ESG) objectives in the
compensation determination process in objective setting, performance award pool funding, performance evaluation and
compensation decisions.
›
Refer to “Environmental, Social and Governance considerations” in the “Compensation philosophy and governance” section of
this report for more information
How does UBS promote and support the health and well-being of employees?
Supporting employee health and well-being remained a priority, and we further expanded our offering in 2022. We are
committed to helping employees thrive in their current roles and deliver sustainable performance over time. Regular
“pulse” surveys gauged employees’ views on remote work, stress, communication and other aspects. Resources to
support holistic well-being included a suite of programs, benefits and workplace resources, along with a bespoke
eLearning curriculum, that aimed to help our employees manage their health, foster well-being, strengthen their
resilience and support the sustainability of the organization.
›
Refer to the “People and culture make the difference“ section of our Sustainability Report 2022, available under “Annual
reporting” at
ubs.com/investors
, for more information about DEI
What is the achievement level of the Long-Term Incentive Plan granted in 2020 for 2019 performance?
The deferred portion of the performance award granted in 2020 (for 2019 performance) to members of the Group
Executive Board (the GEB) and selected senior management was in part delivered through the Long-Term Incentive Plan
(the LTIP) award. The three-year performance period concluded at the end of 2022, with the 2019 LTIP achieving 98%
of the maximum opportunity (of up to 100%). We believe alignment of our senior leadership with our shareholders is
important for long -term success. Our LTIP is designed to support alignment of compensation with the execution of our
strategy, financial performance and long -term growth.
Performance achievement for the 2019 LTIP awarded in 2020
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Say-on-pay
Say-on-pay votes at the AGM
In line with the revised Swiss Code of Obligations (which to a large extent integrates the Swiss Ordinance against Excessive
Compensation in Listed Stock Corporations, which was enacted as an interim measure), we seek binding shareholder
approval for the aggregate compensation awarded to the Group Executive Board (the GEB) and the Board of Directors
(the BoD). Prospective approval of the fixed compensation of the BoD and GEB provides the firm and its governing bodies
with the certainty needed to operate effectively. Retrospective approval of the GEB’s variable compensation aligns their
compensation with performance and contribution.
The table below outlines our compensation proposals, including supporting rationales, that we plan to submit to the
2023 AGM for binding votes, in line with the revised Swiss Code of Obligations and our Articles of Association (the AoA).
These binding votes on compensation and the advisory vote on our compensation report reflect our commitment to
shareholders having their say on pay.
›
Refer to “Provisions of the Articles of Association related to compensation” in the “Supplemental information” section of this
report for more information
Audited |
Approved fixed compensation
At the 2021 AGM, the shareholders approved a maximum aggregate fixed compensation amount of CHF 33.0m for GEB
members for the 2022 performance year. This budget reflects base salaries, role-based allowances in response to EU
Capital Requirements Directive V,
and
estimated standard contributions to retirement benefit plans,
as well as
other benefits.
Our expenses related to fixed compensation for our continuing GEB members were within the budget; however, the
amount of fixed compensation, including replacement awards, related to the hiring of Sarah Youngwood as Group Chief
Financial Officer and Naureen Hassan as President UBS Americas, required the use of the supplemental amount as
authorized by article 46 para. 5 of our AoA. A total of CHF 0.1m (of which CHF 0.05m related to Sarah Youngwood and
CHF 0.05m related to Naureen Hassan) was used to fund the authorized excess to the approved aggregate amount of
fixed compensation.
p
›
Refer to “2022 total compensation for the GEB members” in the “Compensation for GEB members” section of this report
Compensation-related proposals for binding and advisory votes at the 2023 AGM
Item
Approved at the 2022
AGM
BoD proposals for the
2023 AGM
Rationale
GEB variable
compensation
Shareholders approved
CHF 79,750,000 for the
2021 financial year
1,2,3
(vote “for”: 86%)
The BoD proposes an
aggregate amount of
variable compensation of
CHF 81,100,000 for the
members of the GEB for
the 2022 financial year.
The proposed pool reflects the solid performance of the GEB as demonstrated in
the strength of our share price and the good performance of the Group in a
challenging market environment. For 2022, we consider a GEB pool excluding the
impact of the 2021 loss event to support competitive pay for competitive
performance and not to carry forward the 2021 impact over multiple years.
Adjusted for the direct impact of the 2021 loss event on specific GEB members, the
2022 GEB pool is down approximately 5% in Swiss franc terms or a decrease of
10% in US dollar terms, which is aligned with the Group pool development .
GEB fixed
compensation
Shareholders approved
CHF 33,000,000 for the
2023 financial year
1,2,3
(vote “for”: 93%)
The BoD proposes a
maximum aggregate
amount of fixed
compensation of
CHF 33,000,000 for the
members of the GEB for
the 2024 financial year.
The proposed amount is unchanged from the previous year, reflecting consistency
in planning over time and unchanged base salaries for the Group CEO and other
GEB members. Besides the base salaries, it also includes role-based allowances,
estimated standard contributions to retirement benefit plans, as well as other
benefits. The proposed amount provides flexibility in light of potential changes of
GEB composition or roles, competitive considerations where potential additional
role-based allowances may be required as well as other factors (e.g., changes in FX
rates or benefits).
BoD
compensation
Shareholders approved
CHF 13,000,000 for the
period from the 2022
AGM to the 2023 AGM
1,2,4
(vote “for”: 93%)
The BoD proposes a
maximum aggregate
amount of compensation
of CHF 13,000,000 for the
members of the BoD for
the period from the 2023
AGM to the 2024 AGM.
The proposed amount is unchanged compared with the previous period and
includes the total compensation of the Chairman and the newly defined Vice
Chairman role. The compensation for the Chairman is approximately 8% lower
compared with the previous Chairman. The fee for the new full-time Vice Chairman
role was absorbed within the existing budget. All BoD fees remain unchanged for
the period 2023 AGM to 2024 AGM.
Advisory vote
on the
Compensation
Report
Shareholders approved the
UBS Group AG
Compensation Report
2021 in an advisory vote
(vote “for”: 86%)
The BoD proposes that the
UBS Group AG
Compensation Report
2022 be ratified in an
advisory vote.
Our Total Reward Principles and compensation framework are fully aligned with our
purpose and support our strategic imperatives. This aims to ensure that the interests
of our employees are aligned with those of our clients and other stakeholders.
1
2
3
in “Group Executive Board” in the “Corporate governance” section of our Annual Report 2022, twelve GEB members were in office on 31 December 2022 and on 31 December 2021.
4
office on 31 December 2022 and on 31 December 2021.
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Compensation philosophy and governance
Our compensation philosophy
Total Reward Principles
Our Total Reward Principles provide a strong link to our strategic imperatives and encourage employees to live our strong
and inclusive culture that is grounded in our three keys to success: our Pillars, Principles and Behaviors. These guiding
principles underpin our approach to compensation and define our compensation framework. In 202 2, we reviewed our
Total Reward Principles and compensation framework to confirm they are fully aligned with our purpose and support
our strategic imperatives. This aims to ensure that the interests of our employees are aligned with those of our clients
and other stakeholders.
Therefore, our
compensation approach
supports our capital strength and risk management, and provides for
simplification and efficiency. It encourages employees to focus on client centricity, connectivity and sustainable impact in
everything we do. Moreover, we reward behaviors that help build and protect the firm’s reputation, specifically
Accountability with integrity, Collaboration and Innovation. Compensation for each employee is based on individual,
team, business division and Group performance, within the context of the markets in which we operate.
Total Reward Principles
Our Total Reward Principles apply to all employees globally, but vary in certain locations according to local legal
requirements, regulations and practices. The table below provides a summary of our Total Reward Principles.
Support our purpose and strategy
Our compensation approach supports the firm’s purpose and strategy, fosters engagement among
employees and aligns their long -term interests with those of clients and stakeholders.
Attract, retain and connect a diverse,
talented workforce
We embrace a culture of diversity, equity and inclusiveness. Pay at UBS is fair, reflects equal treatment and
is competitive. In this way, our investment in a connected workforce supports the sustainability of the
organization.
Apply a pay-for-performance approach to
promote development and our ways of
working
The setting of clear objectives, as well as a thorough evaluation of what was achieved and how it was
achieved, combined with effective communication, promotes clarity, accountability and establishes a
strong link between pay and performance. This approach emphasizes our Behaviors, which are
Accountability with integrity, Collaboration and Innovation.
Reinforce sustainable growth and support
long-term value creation
Compensation is appropriately balanced between fixed and variable elements and delivered over an
adequate period to support our growth ambitions and sustainable performance.
Support risk awareness and appropriate
risk-taking
Our compensation structure encourages employees to have a focus on risk management and behave
consistently with the firm’s risk framework and appetite, thereby anticipating and managing risks
effectively to protect our capital and reputation.
Our Total Reward approach
At UBS, we apply a holistic Total Reward approach, generally consisting of fixed compensation (base salary and role-
based allowances, if applicable), performance awards, pension contributions and benefits. Our Total Reward approach is
structured to support sustainable results and growth ambitions.
For employees whose total compensation exceeds certain levels, performance awards are delivered in a combination of
cash, deferred contingent capital awards and deferred share-based awards.
A substantial portion of performance awards is deferred and vests over a five-year period (or longer for certain regulated
employees). This deferral approach supports alignment of employee and investor interests, our capital base and the
creation of sustainable shareholder value.
›
Refer to “Compensation elements for all employees” in the “Group compensation” section of this report for more information
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Compensation governance
Board of Directors and Compensation Committee
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 A oA.
As determined in the AoA and the firm’s 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 and to scrutinize executive performance. The Compensation Committee consist s of independent BoD
members, who are elected annually by shareholders at the AGM, and is responsible for governance and oversight of our
compensation process and practices. This includes the alignment between pay and performance, and ensuring that the
compensation framework supports appropriate risk awareness and management, as well as appropriate risk-taking. In
2022, to additionally support the connection between the Compensation Committee and the Risk Committee, the
Compensation Committee Chairperson was also a member of the Risk Committee.
Annually, and on behalf of the BoD, the Compensation Committee:
–
reviews our Total Reward Principles;
–
approves key features of the compensation framework and plans for the non-independent Board members and GEB
members;
–
reviews performance award funding throughout the year and proposes, upon proposal of the Group CEO, the final
annual Group performance award pool to the BoD for approval;
–
upon proposal of the Gro up CEO, reviews the performance framework for the other GEB members;
–
upon proposal of the Group CEO, proposes the performance assessments and the individual total compensation for
the other GEB members for approval by the BoD;
–
upon proposal of the Chairman, for the Group CEO, proposes the financial and non-financial performance targets and
objectives, the performance assessment and the total compensation for approval by the Board;
–
approves the total compensation for the Chairman and the non -independent Board members;
–
upon proposal of the Chairman, proposes the remuneration / fee framework for independent Board members for
approval by the Board;
–
upon proposal of the Chairman and Group CEO, approves the remuneration / fee frameworks for external supervisory
board members of Significant Group Entities and is informed of remuneration / fee frameworks for external supervisory
board members of Significant Regional Entities;
–
proposes to the BoD for approval the annual compensation report and approves other material public disclosures on
UBS compensation matters; and
–
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.
The Compensation Committee is required to meet at least four times each year. All meetings in 2022 were held in the
presence of the Chairman and the Group CEO and most were attended by external advisors. Individuals, including the
Chairman and the Group CEO, are not permitted to attend a meeting or participate in a discussion on their own
performance and compensation.
After the meetings, the Chairperson of the Compensation Committee reports to the BoD on the Compensation
Committee’s activities and discussions and, if necessary, submits proposals for approval by the full BoD. Compensation
Committee meeting minutes are also sent to all members of the BoD.
On 3 1 December 2022, the members of the Compensation Committee were Julie G. Richardson (Chairperson), Dieter
Wemmer and Jeanette Wong.
›
Refer to “Board of Directors” in the “Corporate governance” section of our Annual Report 2022 for more information
External advisors
The Compensation Committee may retain external advisors to support it in fulfilling its duties. In 2022, HCM International
Ltd. (HCM) provided
independent
advice on compensation matters. HCM holds no other mandates with UBS.
Additionally, Willis Towers Watson provided the Compensation Committee with data on market trends and pay levels.
Various subsidiaries of Willis Towers Watson provide similar information to UBS’s human resources department in relation
to compensation for employees. Willis Towers Watson holds no other compensation-related mandates with UBS.
The Risk Committee’s role in compensation
The Risk Committee, a committee of the BoD, works closely with the Compensation Committee with the goal of ensuring
that our compensation framework appropriately reflects risk awareness and management, and supports appropriate risk-
taking. It supervises and sets appropriate risk management and risk control principles and is regularly briefed on how risk
is factored into the compensation process. It also monitors the involvement of Group Risk Control and Compliance and
Operational Risk in compensation and reviews risk-related aspects of the compensation process.
›
Refer to
ubs.com/governance
for more information
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Compensation Committee 2022 / 2023 key activities and timeline
April
July
Sept
Oct
Nov
Dec¹
Jan
Feb
Strategy, policy and governance
Total Reward Principles
l
Sustainability / ESG in the compensation process
l
l
l
Compensation disclosure and stakeholder communication matters
l
l
l
AGM reward-related items
l
l
Compensation Committee governance
l
Annual compensation review
Accruals and full-year forecast of the performance award pool funding
l
l
l
l
Performance targets and performance assessment of the Group CEO and GEB members
l
l
l
Group CEO and GEB members’ salaries and individual performance awards
l
l
l
Update on market practice, trends and peer group matters
l
l
l
l
Pay for performance, including governance on certain higher-paid employees, and
non-standard compensation arrangements
l
l
l
l
l
l
l
Board of Directors remuneration
l
Compensation framework
Compensation framework and deferred compensation matters
l
l
l
l
Risk and regulatory
Risk management in the compensation approach and joint meeting with
BoD Risk Committee
l
l
l
l
Regulatory activities impacting employees and engagement with regulators
l
l
l
l
1
The Compensation Committee held two meetings in December 2022.
Compensation governance
The table below provides an overview of compensation governance by specific role.
Recipients
Compensation recommendations proposed by
Approved by
Chairman of the BoD and Vice
Chairman of the BoD
Compensation Committee
Compensation Committee
1
Other BoD members
Compensation Committee and Chairman of the BoD
BoD
1
Group CEO
Compensation Committee and Chairman of the BoD
BoD
1
Other GEB members
Compensation Committee and Group CEO
BoD
1
Key Risk Takers (KRTs) /
senior employees
Respective GEB member and functional management
team
Individual compensation for KRTs and senior employees:
Group CEO
1
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Environmental, Social and Governance considerations
Environmental, social and governance in the compensation determination process
Environmental, social and governance (ESG) objectives are considered in the compensation determination process in
objective setting, performance award pool funding, performance evaluation and compensation decisions.
ESG-related objectives have been embedded in our Pillars and Principles since they were established in 2011. In 2021,
we introduced explicit sustainability objectives in the non-financial goal category of the Group CEO and GEB scorecards.
These sustainability objectives are linked to our priorities, and their progress is measured via robust quantitative metrics
and qualitative criteria. The table below provides an overview of our metrics and progress achieved in 2022, including
climate-related goals under the priority “Planet.” Sustainability objectives are individually assessed for each GEB member,
and consequently directly impact their performance assessments and compensation decisions .
In addition, in the performance award pool funding across the Group, ESG is also reflected through an assessment of
progress made against targets linked to our focus areas of Planet, People (including progress made against our diversity
ambitions) and Partnerships, alongside other key dimensions. Therefore, ESG is taken into consideration when the
Compensation Committee assesses not only what results were achieved but also how they were achieved.
For 2022, we established robust and concrete targets, and made good progress toward achieving them. We continue to
increase our focus on this topic.
›
Refer to “GEB performance assessments” in the “Compensation for GEB members” section of this report for more information
about the GEB performance measurement process
›
Refer to “Our focus on sustainability and climate,” “Employees” and “Society” in the “How we create value for our stakeholders”
section of our Annual Report 2022 for more information
›
Refer to
ubs.com/gri
Paying our people fairly and equitably
Pay equity and equal opportunity are fundamental to achieving our purpose. To connect for a better world, providing
equal support to all our employees, with their diverse experiences, perspectives and backgrounds, is critical to our success.
Factors such as gender, race, ethnicity, part -time status or a recent leave of absence should not impact opportunities.
Fair and consistent pay practices are designed to ensure that employees are appropriately rewarded for their contribution.
We pay for performance, and we take pay equity seriously. We’ve embedded clear commitments in our global
compensation policies and practices, and we regularly conduct internal reviews and external audits as quality checks. If
we find any gaps not explained by business or by appropri ate employee factors such as role, responsibility, experience,
performance or location, we look at the root causes and address them.
Since 2020, we have been certified under the EQUAL-SALARY Foundation standards for our human resources practices
in Switzerland, the US, the UK, the Hong Kong SAR and Singapore, covering more than two-thirds of our global employee
population. Our global human resources policies and standards, including reward, performance management and
promotion, from hiring through retirement, are reviewed annually to further improve our approach and processes. Our
processes are global and we apply the same standards across all our locations.
The firm also successfully completed an equal pay analysis in Switzerland in 2020, as required by the Swiss Federal Act
on Gender Equality. The results of the analysis confirmed that we are fully compliant with Swiss equal pay standards.
These holistic certifications are a testament to our well-established equal opportunity environment and the strength of
our human resources practices, including performance and reward.
In 2022, we extended our internal fair pay analysis by assessing employees’ salaries against local living wages, using
benchmarks defined by the Fair Wage Network. Excluding our US Financial Advisor population and their related support
population (as their compensation is primarily based on a formulaic approach), our analysis showed that employees’
salaries were at or above the respective benchmarks, and the few outliers have all been addressed. UBS is committed to
fair pay and supports all employees being paid at least a living wage.
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Our aspirational goals and progress
Our priorities
Our aspirational goals
Our progress in 2022
Planet, people,
partnerships
USD 400bn invested assets in sustainable investments
by 2025.
Increased invested assets in sustainable investments to
USD 268bn (compared with USD 251bn in 2021).
Planet
Decarbonization targets for 2030 for financing of the
real estate, fossil fuels, power generation and cement
sectors (from 2020 levels):
–
reduce emissions intensity of UBS’s residential real
estate lending portfolio by 42%;
–
reduce emissions intensity of UBS’s commercial real
estate lending portfolio by 44%;
–
reduce absolute financed emissions associated with
UBS loans to fossil fuel compani es by 71%;
–
reduce emissions intensity associated with UBS
loans to power generation companies by 49%; and
–
reduce emissions intensity associated with UBS loans
to cement companies by 15%.
Calculated progress against pathways for the real estate (commercial and
residential), fossil fuel and power generation sectors:
1
–
reduced emissions intensity of UBS’s residential real estate lending
portfolio by 8% (end of 2021 vs 2020 baseline);
–
reduced emissions intensity of UBS’s commercial real estate lending
portfolio by 7% (end of 2021 vs 2020 baseline);
–
reduced absolute financed emissions associated with UBS loans to fossil
fuel companies by 42% (end of 2021 vs 2020 baseline); and
–
reduced emissions intensity associated with UBS loans to power
generation companies by 12% (end of 2021 vs 2020 baseline).
Introduction of an additional decarbonization target for the cement sector,
as well as an estimation of the overall financed emissions.
Align 20% of AuM to be managed in line with net zero
(Asset Management).
2
Achieve net-zero emissions across discretionary client
portfolios by 2050 (Asset Management).
3
Initiated analysis of revisions to fund documentation and investment
management agreements to align with Asset Management’s net -zero-
aligned frameworks.
Achieve net-zero energy emissions resulting from our
own operations (scopes 1 and 2) by 2025; cut energy
consumption by 15% by 2025 (compared with 2020).
Reduced net greenhouse gas (GHG) footprint for scope 1 and 2 emissions
by 13% and energy consumption by 8% (compared with 2021); continued
implementation of the replacement of fossil fuel heating systems and
investing in credible carbon removal projects; achieved 99% renewable
electricity coverage despite challenging market conditions.
Offset historical emissions back to the year 2000 by
sourcing carbon offsets (by year-end 2021) and by
offsetting credit delivery and full retirement in registry
(by year-end 2025).
Continued to follow up on credit delivery and retirement of sourced
portfolio.
Engage with key vendors on aiming for net zero by
2035.
Identified “GHG key vendors” (vendors that collectively account for 50%
of our estimated vendor GHG emissions) and invited the vendors that
accounted for 67% of our annual vendor spend (including all GHG key
vendors) to disclose their environmental performance through CDP’s
Supply Chain Program, with 66% of the invited vendors completing their
disclosures in the CDP platform.
People
30% global female representation at Director level and
above by 2025.
Increased to 27.8% (2021: 26.7%) female representation at Director level
and above.
26% of US roles at Director level and above held by
employees from ethnic minorities by 2025.
Increased to 20.4% (2021: 20.1%) ethnic minority representation at
Director level and above in the US.
26% of UK roles at Director level and above held by
employees from ethnic minorities by 2025.
Increased to 23.0% (2021: 21.3%) ethnic minority representation at
Director level and above in the UK.
Raise USD 1bn in donations to our client philanthropy
foundations and funds and reach 25 million
beneficiaries by 2025 (cumulative for 2021–2025).
Achieved a UBS Optimus Foundation network donation volume of
USD 274m in 2022, totaling USD 436m since 2021 (both figures include
UBS matching contributions).
Reached 5.9 million beneficiaries.
Support 1.5 million young people and adults to learn
and develop skills through our community impact
activities (2022–2025) .
Reached 370,916 beneficiaries through strategic community impact
activities.
4
Partnerships
Establish UBS as a leading facilitator of discussion,
debate and idea generation.
Co-organized, with the Institute of International Finance, the first
Wolfsberg Forum for Sustainable Finance.
Joined a consortium that is pioneering methods of assessing and
maximizing the GHG reduction potential of energy storage.
Co-founded Carbonplace, a technology platform for the voluntary carbon
market that has the goal of creating a streamlined and transparent market
for our clients.
Drive standards, research and development, and
product development.
Co-led the Taskforce on Nature-related Financial Disclosures’ financial-
sector-specific working group.
Collaboration with two Swiss companies that are pioneering innovative
carbon removal technologies.
Joined the Partnership for Carbon Accounting Financials (PCAF).
1
Refer to the “Environment” section of our Sustainability Report 2022, available under “Annual reporting” at ubs.com/investors, for further information. The inherent one-year time lag between the as -of date of our
lending exposure and the as-of date of emissions can be explained by two factors: corporates disclose their emissions in annual reporting only a few mont hs after the end of a f inancial year; and specialized third-party
data providers take up to nine months to collect disclosed data and make it available to data users. Consequently, the baseli nes for our net-zero ambitions are based on year-end 2020 lending exposure and 2019
emissions data. Our 2021 emissions actuals are based on year-end 2021 lending exposure and 2020 emissions data.
2
in 2021. By 2030, the weighted average carbon intensity of funds is to be 50% below the carbon intensity of the respective 2019 benchmark.
3
include our Asset Management business division only.
4
Cautionary note:
organizations and regulators continue to provide new or revised guidance and standards, as well as new or enhanced regulatory requirements for climate disclosures. Our disclosed metrics are based upon data available
to us, including estimates and approximations where actual or specific data is not available. We intend to update our disclosures to comply with new guidance and regulatory requirements as they become applicable
to UBS. Such updates may result in revisions to our disclosed metrics, our methodologies and related disclosures, which may be substantial, as well as changes to the metrics we disclose.
›
Refer to our Sustainability Report 2022, available under “Annual reporting“ at
ubs.com/investor
s, for more information
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Build a diverse, equitable and inclusive workplace
Our diversity, equity and inclusion (DEI) strategy and initiatives focus on a wide range of characteristics including gender,
gender identity, sexual orientation, ethnic diversity, disabilities, age, and veteran status, along the entire employee life
cycle. Our businesses aim to hire individuals with strong potential along with diverse skills, backgrounds and perspectives.
We invest in the development of all employees and give them the visibility and opportunities to realize their potential,
and implement Group -wide divisional and regional initiatives that support their career growth. These efforts collectively
support the progress towards achieving our DEI aspirational goals. For example, our partnerships with the Investments
and Wealth Institute (the IWI) and Kaplan Financial Education in the US provide scholarships for diverse Wealth
Management professionals at UBS to pursue industry certifications in investment management, private wealth advisory,
retirement management and financial planning . Our leaders and employee networks are essential in our work to build a
sense of belonging and to advance our goals.
We have an ongoing focus on the importance of inclusive leadership skills, ensuring equity in our policies and practices,
and increasing the representation of women and ethnic minority employees. We take a multi-faceted approach that
considers recruitment, development and belonging perspectives. For example, we support flexible working arrangements
that benefit current employees and help us attract a more diverse pool of applicants. We also assess executive candidates
for inclusive leadership competencies.
In 2020, we outlined our intention to increase our female and ethnic minority representation, especially among
management, and we have made steady progress toward achieving those aspirations. Women now account for 41% of
our workforce and 27.8% of our Director-level and above population. At the same time, 42% of our GEB members are
female. Due to variations in legal requirements and historical progress, we continue to take a country-specific approach
to increasing our representation of ethnic minorities, and we have published aspirations for the US and the UK, specifically.
In 2022, we increased the ethnic minority representation at Director level and above to 20.4% (in the US) and 23.0% (in
the UK).
Progress against these aspirations is considered in the determination of the annual performance award pool and included
in the sustainability objectives under “Strategic Growth” for the GEB, as outlined in the table above.
›
Refer to the “People and culture make the difference“ section of our Sustainability Report 2022, available under “Annual
reporting” at
ubs.com/investors
, for more information about DEI
Performance award pool funding
Our compensation
philosophy
focuses
on balancing
performance with
appropriate
risk
-
taking
,
retaining talented
employees and shareholder returns. Our overall performance award pool funding percentage decreases as financial
performance increases. In years of strong financial performance, this prevents excessive compensation and results in an
increased proportion of profit before performance awards being available for distribution to shareholders or growing the
Group’s capital. In years where performance declines, the performance award pool will generally decrease; however, the
funding percentage may increase.
Our performance award pool funding framework is based on Group and business division performance, including
achievements against defined performance measures. In assessing performance, we also consider industry peers, market
competitiveness of our results and pay position, as well as progress against our strategic objectives, including returns,
risk
-
weighted assets and cost efficiency
.
The Risk and Compliance functions support our holistic
reflection and
consideration of the financial and non-financial impact (including reputation) of risk matters. We further consider the
firm’s risk profile and culture, the extent to which operational risks and audit issues have been identified and resolved,
and the success of risk reduction initiatives including significant events.
The funding for Group Functions is linked to overall Group performance and reflects headcount, workforce location and
demographics. For each functional
area,
quantitative and qualitative
assessments
evaluate service quality, risk
management and financial achievements.
Our decisions regarding the performance award pool also balance consideration of financial performance with a range
of factors, including DEI and other ESG metrics, the impact of litigation, regulatory costs, the effect of changes in
financial accounting standards, capital returns and relative total shareholder return.
Before making its final proposal to the BoD, the Compensation Committee considers the CEO’s proposals and can apply
a positive or negative adjustment to the performance award pool.
›
Refer to “2022 Group performance outcomes” in the “Group compensation” section of this report
›
Refer to the “Group performance” section of our Annual Report 2022 for more information about our results
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Compensation for GEB members
GEB compensation framework
In 2022, we made no changes to our GEB compensation framework. The chart below illustrates the compensation
elements, pay mix and key features for GEB members. Of the annual performance award, 20% is paid in the form of
cash and 80% is deferred over a period of five years,
1
Long-Term Incentive Plan (the LTIP ) and 30% under the Deferred Contingent Capital Plan (the DCCP).
›
Refer to “Our deferred compensation plans” in the “Group compensation” section of this report for more information
›
Refer to the “Group Compensation” section of this report for more information
›
Refer to “Regulated staff” in the “Supplemental information” section of this report for more information
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Pay-for-performance safeguards for GEB members
Performance
award caps
–
Cap on the total GEB performance award pool (2.5% of profit before tax)
1
–
Caps on individual performance awards (for the Group CEO capped at five times the fixed compensation and at seven times for the other
GEB members)
–
Cap of 20% of performance award in cash
Delivery and
deferral
–
80% of performance awards are at risk of forfeiture
–
Long-term deferral over five years (or longer for certain regulated GEB members)
–
Alignment with shareholders (through the LTIP) and bondholders (through the DCCP)
–
Final payout of equity-based LTIP award (50% of performance award) subject to absolute and relative performance conditions (three-year
performance period)
Contract
terms
–
No severance terms
–
Notice period between six and twelve months
Other
safeguards
–
Share ownership requirements
–
No hedging allowed
1
GEB share ownership requirements
To align the interests of GEB members with those of our shareholders and to demonstrate personal commitment to the
firm, we require the Group CEO and the other GEB members to hold a substantial number of UBS shares. GEB members
must reach their minimum shareholding requirements within five years from their appointment and retain it throughout
their tenure. The total number of UBS shares held by a GEB member consists of any vested or unvested shares and any
privately held shares. At the end of 2022, all GEB members met their share ownership requirements, except for those
appointed within the last three years, who still have time to build up and meet the required share ownership.
As of 31 December 2022, our GEB members held shares with an aggregate value of approximately USD 154m,
demonstrating their commitment to our strategy and alignment with shareholders.
Share ownership requirements
Group CEO
min. 1,000,000 shares
Must be built up within five years from their appointment and retained throughout
their tenure
Other GEB members
min. 500,000 shares
GEB base salary and role -based allowance
Each GEB member receives a fixed base salary, which is reviewed annually by the Compensation Committee. The 2022
annual base salary for the Group CEO role was CHF 2.5m and has remained unchanged since 2011. The other GEB
members each received a base salary of CHF 1.5m (or local currency equivalent), also unchanged since 2011.
Over the course of 2022, one GEB member held a UK Senior Management Function (SMF) role for one of our UK entities.
In addition to base salary, a role-based allowance was part of the fixed compensation.
At the AGM, shareholders are asked to approve the maximum aggregate amount of fixed compensation for GEB
members for the following financial year.
›
Refer to the “Supplemental information” section of this report for more information about Material Risk Takers (MRTs) and SMFs
›
Refer to the “Say-on-pay” section of this report for more information about the AGM vote on fixed compensation for the GEB
Caps on the GEB performance award pool
The size of the GEB performance award pool may not exceed 2.5% of the Group’s profit before tax. This limits the overall
GEB compensation based on the firm’s profitability.
For 2022, the Group’s profit before tax was USD 9.6bn and the total GEB performance award pool was CHF 81.1m. The
GEB performance award pool was 0.9% of Group profit before tax, well below the 2.5% cap.
In line with the individual compensation caps on the proportion of fixed pay to variable pay for all GEB members
(introduced in 2013), the Group CEO’s granted performance award is capped at five times his fixed compensation.
Granted performance awards of other GEB members are capped at seven times their fixed compensation (or two times
for GEB members who are also MRTs). For 2022, performance awards granted to GEB members and the Group CEO
were, on average, 3.5 times their fixed compensation (in Swiss franc terms, excluding one-time replacement awards,
benefits and contributions to retirement plans).
›
Refer to “Performance award pool funding” in the “Compensation philosophy and governance” section of this report for more
information
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GEB employment contracts
GEB members’ employment contracts do not include severance terms or supplementary pension plan contributions and
are subject to a notice period of between six and twelve months. A GEB member leaving UBS before the end of a
performance year may be considered for a performance award. Such awards are subject to approval by the BoD, and
ultimately by the shareholders at the AGM.
Benchmarking for GEB members
When recommending performance awards for the Group CEO and the other GEB members, the Compensation
Committee reviews the respective total compensation for each role against a financial industry peer group. The peer
group is selected based on comparability of their size, business mix, geographic presence and the extent to which they
compete with us for talent. The Compensation Committee considers our peers’ strategies, practices and pay levels, as
well as their regulatory environment; it also periodically reviews other firms’ pay levels or practices, including both
financial and non-financial sector peers, as applicable. The total compensation for a GEB member’s specific role considers
the compensation paid by our peers for a comparable role and performance within the context of our organizational
profile. The Compensation Committee periodically reviews and approves the peer group composition.
The table below presents the composition of our peer group as approved by the Compensation Committee for the 2022
performance year.
Bank of America
Goldman Sachs
Barclays
HSBC
BlackRock
JPMorgan Chase
BNP Paribas
Julius Baer
Citigroup
Morgan Stanley
Credit Suisse
Standard Chartered
Deutsche Bank
State Street
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GEB performance assessments
We assess each GEB member’s performance against a set of Group financial targets, non-financial objectives and
Behaviors. Under the non-financial objectives, we maintained the categories introduced in 2021: Core Job (which covers
job-specific, risk and people objectives) and Strategic Growth (which covers strategy, digital, and environmental, social
and governance (ESG) objectives). Th is approach fosters an even greater focus on GEB priorities and the success of the
Group overall among all GEB members, and strengthens the understanding and importance of interdependence within
and across the GEB. At the same time, it creates stronger individual accountability, and further increases the focus on
core activities.
The Compensation Committee exercises its judgment with respect to the performance achieved relative to the prior year,
our strategic plan and our competitors, and considers the Group CEO’s proposals. The Compensation Committee’s
proposals are subject to approval by the BoD.
The Compensation Committee, and then the full BoD, follows a similar process for the Group CEO, except that the
proposal comes from the Chairman of the BoD.
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Overview of performance assessment measures
We apply a range of quantitative measures to assess GEB member performance against financial and non-financial
objectives while Behaviors are assessed qualitatively. The table below provides a summary of the main metrics and
measures used for 202 2.
Financial measures
(60%)
–
Reported Group profit before tax
–
Reported Group cost / income ratio
–
Reported Return on CET1 capital
Non-
financial
measures
(30%)
Strategic
Growth
Strategy
–
Progress on Group-wide transformation initiatives
–
Delivery on division- / function-specific strategic programs and initiatives
Digital
–
Progress on digital transformation initiatives
–
Delivery of digital offering and user experience for clients
ESG
–
Refer to the ”Our aspirational goals and progress” table in the ”Environmental, Social and Governance
considerations” section of this report
Core Job
Job-specific
–
Business-specific criteria, such as net new investable asset targets and client engagement-level objectives
–
Operating income growth targets for specific client segments and total cost goals
–
Post-stress CET1 objectives and capital ratio guidance
–
Execution progress regarding key client and internal initiatives; e.g., cross-divisional collaboration
initiatives, efficiency and cost-saving initiatives
Risk
–
Operating within risk appetite constraints
–
Progress to delivering on risk reduction initiatives
People
–
Employee listening / sentiment results and feedback
–
Progress toward meet ing 2025 ambitions for female representation and for ethnic minority
representation in the US and the UK at Director and above levels (as per ESG disclosure)
–
People development, mobility, turnover and succession plan metrics
Behaviors
(10%)
Accountability with integrity
Qualitative assessment
against expected
Behaviors:
–
Responsible for what they say and do
–
Takes ownership and makes things happen
–
Steps up and acts when something is not right
Collaboration
–
Trusts others and helps them to be successful
–
Delivers One UBS, together with their colleagues
–
Fosters a diverse, inclusive and equitable work environment
Innovation
–
Challenges perspectives and looks at every opportunity to improve
–
Actively seeks and provides feedback
–
Learns from every success and failure
Performance assessment categories
The table below presents the three performance categories for the assessment of the performance against non-financial
objectives related to Core Job, Strategic Growth and Behaviors. The achievement score represents the maximum
percentage, and the Compens ation Committee may apply downward adjustments.
Non-financial measures
Needs focus
Good contribution
Excellent contribution
Achievement score: up to 33%
Achievement score: up to 66%
Achievement score: up to 100%
Behaviors
Needs focus
Expected behavior
Exemplary behavior
Achievement score: up to 33%
Achievement score: up to 66%
Achievement score: up to 100%
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2022 performance for the Group CEO
The performance award for the Group CEO is based on the achievement of financial performance targets and non-
financial objectives related to Core Job, Strategic Growth and Behaviors, as described earlier in this section.
These objectives were set to reflect the strategic priorities determined by the Chairman and the BoD.
›
Refer to “GEB compensation framework” in this section of this report for more information
Performance assessment for the Group CEO
The BoD recognized that Ralph Hamers successfully led UBS through a challenging year and delivered good financial
results despite significant headwinds due to geopolitical and macroeconomic developments. In this environment, he
focused the firm on maintaining client momentum and the disciplined execution of our strategy across regions to deliver
the benefits of our geographic diversification. Furthermore, the resulting growth enabled us to achieve a performance in
line with our 2022 targets. In addition, our strong capital position enabled us to return USD 7.3bn of capital to
shareholders for the 2022 financial year.
Furthermore, Mr. Hamers effectively led the Group through the challenging and volatile risk environment and continued
to promote an effective risk culture throughout the o rganization. He also kept the firm focused on risk reduction and
operating within our risk appetite.
Additionally, the BoD acknowledged that Mr. Hamers continued to be a strong ambassador for the drive to make our
organization more digital. He continued to increase the Group’s focus on technology as a differentiator for our clients
and employees, achieving important progress on our technology initiatives and agile transformation that benefit clients
and employees.
Mr. Hamers successfully continued to focus the Group on delivering on its diversity, equity and inclusion (DEI) strategy
and initiatives. Important progress was made in our diversity and ethnicity ambitions and it remains a key area of focus.
He also successfullly managed Group Executive Board (GEB) transitions that rejuvenated the GEB and increased the female
ratio on the GEB to 42%.
Mr. Hamers continued to demonstrate strong leadership and focus on delivering the Group’s sustainability strategy,
including the commitment to net zero. He continued to focus the organization to deliver on the ambitions in the key ESG
focus areas including a reduction of 11% in scope 1 and 2 emissions year on year, partnering with two pioneering
companies on CO
2
investments. As a result, UBS retained its position amongst the leaders in the field , as evidenced by the ratings from the
most important independent sustainability rating agencies.
The table below illustrates the assessment criteria used to evaluate the achievements of Mr. Hamers in 2022.
Financial performance
Weight
Performance measures
2022
targets
2022
results
Achieve-
ment
2
Weighted
assess-
ment
2022 commentary
20%
Reported Group PBT
USD 9.8bn
USD 9.6bn
97.6%
19.5%
–
Profit before tax (PBT) increased to USD 9.6 bn,
slightly below target but up from 2021 and the
highest annual result since 2006, reflecting good
profitability in a challenging market.
20%
Reported Group C/I ratio
70 to 73%
1
72.1%
100%
3
20.0%
–
The cost / income (C/I) ratio was 72.1%, in line with
the 2022 performance target range and an
improvement of 1.5 percentage points compared
with 2021. This demonstrates good cost discipline in
an inflationary environment.
20%
Reported RoCET1
15 to 18%
1
17.0%
100%
20.0%
–
Delivered strong capital returns with a return on CET1
capital (RoCET1) of 17.0%, in line with the 2022
performance target range .
1
within the indicated target ranges.
2
3
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Performance assessment for the Group CEO (continued)
Non-financial performance and Behaviors
Weight
Performance
measures
Achieve-
ment
Weighted
assess-
ment
2022 commentary
30%
Good
contribution
(66%)
20%
–
The evaluation of each non -financial objective considers
quantitative metrics
assessed against internal targets / plan.
Core Job
(Job specific,
Risk, People)
Core Job
–
Good client momentum in a challenging market environment and maintained strong focus
on managing our costs
–
Active capital management to protect our business, enable growth and deliver attractive
returns including executing USD 5.6bn in share buybacks
–
Operated within risk appetite constraints
–
Improved
employee listening / sentiment
–
Successfully managed effective leadership transitions in GEB
–
Continued focus on people diversity , with the
ratio of female leaders increased to 28%
,
on track to meet the 2025 target; stayed on track toward the 2025 ambition for ratios of
UK (23%) and US (20%)
employees from
ethnic minorities
Strategic
Growth
(Strategy, Digital,
ESG)
Strategic Growth
–
Embedded our purpose into the organization and executed on the strategic imperatives,
including executing across regions and delivering benefits of geographic diversification.
–
Focused the Group to deliver
simplification
initiatives,
making it easier for our businesses
to deliver for our clients.
–
Progressed our technology initiatives and agile transformation
with new launches of
key products such as Key4 in Switzerland, Circle One, and WE.UBS in China and
approximately 18,500 employees operating in an
agile
–
See
ESG
10%
Behaviors
(Accountability
with integrity,
Collaboration,
Innovation)
Expected
behavior
(66%)
7%
The assessment of the Behavior objectives is
qualitative
summary assessment:
–
Mr. Hamers continued to be a
role model
in accountability and empowerment in the
organization. He remained the most important ambassador of
collaboration
whole firm to our clients.
–
Mr. Hamers
exemplifies innovation
through new ways of working and
continuously promoted innovative thinking
simplification.
Total weighted assessment
(maximum 100%)
86.5%
In addition to the overall 2022 Group performance and Mr. Hamers’s achievements outlined above, the BoD also
considered other factors, such as the Group’s good profitability, UBS’s performance in context of the underlying results
and the strong relative share price performance. For context, as outlined in our compensation report last year,
Mr. Hamers’s 2021 performance award was additionally impacted by the significant risk event related to a loss from a
US-based client of our prime brokerage business. The 2022 proposal considers a year-on-year change that reflects pay-
for-performance and does not carry forward the 2021 impact over multiple years.
The BoD approved the proposal by the Compensation Committee to grant Mr. Hamers a performance award of
CHF 9.7m, resulting in a total compensation for 2022 of CHF 12.2m (excluding benefits and contributions to his
retirement benefit plan).
Aligned with the GEB compensation framework, the Group CEO’s performance award will be delivered 20% (CHF 1.94m)
in cash and the remaining 80% (CHF 7.76m) subject to deferral and forfeiture provisions, as well as meeting performance
conditions over the next five years.
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2022 total compensation for the GEB members
The 2022 GEB performance award pool is CHF 81.1m, which is an increase of 2% in Swiss franc terms and a decrease
of 3% in US dollar terms. Adjusted for the direct impact of the 2021 loss event on specific GEB members, the 2022 GEB
pool is down approximately 5% in Swiss franc terms or a decrease of 10% in US dollar terms, which is aligned with the
Group pool development. This pool also considers the impact of changes in GEB composition and foreign exchange rates.
This outcome reflects the solid performance of the GEB as demonstrated by the strength of our share price and the good
performance of the Group in a challenging market environment, achieving our returns and efficiency targets on a
reported basis, while also considering our underlying reported results.
At the 2023 AGM, shareholders will vote on the aggregate 2022 total variable compensation for the GEB in Swiss francs.
The tables below provide the awarded compensation for the Group CEO and the GEB members in Swiss francs and, for
reference, the total amounts in US dollars for comparability with financial performance. The individual variable
performance awards for each GEB member will only be confirmed upon shareholder approval at the AGM.
›
Refer to “Deferred compensation” in the “Supplemental information” section of this report for more information about the
vesting of outstanding awards for GEB members
›
Refer to “Provisions of the Articles of Association related to compensation” in the “Supplemental Information” section of this
report for more information
Audited |
Total compensation for GEB members
CHF, except where indicated
USD (for reference)
1
For the
year
Base salary
Contribution
to retirement
benefit plans
Benefits
2
Total fixed
compensa-
tion
Cash
3
Performance
award
under LTIP
4
Performance
award
under
DCCP
5
Total
variable
compensa-
tion
Total fixed
and vari-
able com-
pensation
6
Total fixed
compensa-
tion
Total
variable
compensa-
tion
Total fixed
and vari-
able com-
pensation
6
Group CEO Ralph Hamers (Highest Paid Executive excluding replacement awards)
11
2022
2,500,000
242,239
198,378
2,940,617
1,940,000
4,850,000
2,910,000
9,700,000
12,640,617
3,050,684
10,063,071
13,113,755
2021
2,500,000
246,415
251,856
2,998,271
1,700,000
4,250,000
2,550,000
8,500,000
11,498,271
Aggregate of all GEB members (excluding replacement awards)
7,8,9,10,11,12
2022
23,318,410
1,796,872
693,473
25,808,756
16,220,000
40,550,000
24,330,000
81,100,000
106,908,756
26,774,777
84,135,571
110,910,348
2021
24,853,521
2,064,009
1,179,512
28,097,041
15,950,000
39,875,000
23,925,000
79,750,000
107,847,041
1 Swiss franc amounts have been translated into US dollars for reference at the 2022 performance award currency exchange rate of CHF / USD 1.037430. 2 All benefits are valued at market price. 3 For GEB
members who are also MRTs or S MFs, the cash portion includes blocked shares. 4 LTIP awards for performance year 2022 were awarded at a value of 71.45% of maximum which reflects our best estimate of the
fair value of the award. The maximum number of shares is determined by dividing the awarded amount by the estimated fair value of the award at grant, divided by CHF 20.092 or USD 21.790, the average closing
price of UBS shares over the last ten trading days leading up to and including the award date in February. 5 The amounts reflect the amount of the notional additional tier 1 (AT1) capital instrument excluding future
notional interest. 6 Excludes the portion related to the legally required employer’s social security contributions for 2022 and 2021, which are estimated at grant at CHF 4,675,424 and CHF 4,997,243, respectively,
of which CHF 841,402 and CHF 763,059, respectively, are for the highest -paid GEB member (excluding replacement awards). The legally required employees’ social security contributions are included in the amounts
shown in the table above, as appropriate. 7 As stated in “Group Executive Board” in the “Corporate governance” section of our Annual Report 2022, twelve GEB members were in office on 31 December 2022 and
31 December 2021. 8 Includes compensation paid under employment contracts during notice periods for GEB members who stepped down during the respective years. 9 Includes compensation for newly appointed
GEB members for their time in office as GEB members during the respective years. 10 Base salary may include role-based allowances in line with market practice in response to regulatory requirements. 11 The
2022 total compensation of Sarah Youngwood, Group CFO, including both the one-time replacement awards of her compensation forfeited upon joining UBS as well as her compensation for the 2022 performance
year, amounts to a total of CHF 13,475,863 (which makes her the highest paid executive including replacement awards). 12 For 2022, the one-time replacement awards of CHF 7,206,683 for Sarah Youngwood and
CHF 65,229 for Naureen Hassan are not included in the above table; including these, the 2022 total aggregate compensation of all GEB members is CHF 114,180,668. For 2021, the one-time replacement award of
CHF 7,081,474 for Barbara Levi is not included in the above table; including this, the 2021 total aggregate compensation of all GEB members is CHF 114,928,515.
p
Total realized compensation for the Group CEO
The realized compensation for the Group CEO reflects the total amount paid out in the year. It includes the base salary,
cash performance award payments, and all deferred performance awards vested in the year. As such, realized pay is the
natural culmination of awards granted and approved by shareholders in previous years.
To illustrate the effect of our long -term deferral approach, which has been in place since 2012, we disclose the annual
realized compensation of Mr. Hamers, including a comparison with his total awarded compensation.
Total realized compensation vs awarded compensation for Ralph A.J.G Hamers
CHF
Realized
Awarded
For the year
Base salary
Cash award
2
Performance
award under
equity plans
2
Performance
award under
DCCP
2
Total realized
fixed and variable
compensation
Total awarded
fixed and variable
compensation
3,4
2022
2021
2020
1
1 Includes compensation for 4 months as Ralph A.J.G. Hamers joined UBS on 1 September 2020. 2 Excludes dividend / interest payments. 3 Excludes contributions to retirement benefit plans and benefits. Includes
social security contributions paid by Ralph A.J.G. Hamers but excludes the portion related to the legally required social security contributions paid by UBS. 4 Excludes the one-time replacement award granted in
2020.
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Group compensation
Compensation elements for all employees
All elements of pay are considered when making our compensation decisions. We regularly review our principles and
compensation framework in order to remain competitive and aligned with stakeholders. In 2022, we made no material
changes to our overall framework. We will continue to review our approach to salaries and performance awards,
considering market developments, our performance and our commitment to deliver sustainable returns to shareholders.
Base salary and role-based allowance
Employees’ fixed compensation (e.g., base salary) reflects their level of skill, role and experience, as well as local market
practice. Base salaries are usually paid monthly or fortnightly, in line with local market practice. We offer competitive
base salaries that reflect location, function and role. Salary increases generally consider promotions, skill set, performance
and overall responsibility.
In addition to base salary, and as part of fixed compensation, some employees may receive a role -based allowance. This
allowance is a shift in the compensation mix between fixed and variable compensation, not an increase in total
compensation. It reflects the market value of a specific role and is fixed, non -forfeitable compensation. Unlike salary, a
role-based allowance is paid only if the employee is in a specific role. Similar to previous years, 2022 role-based allowances
consisted of a cash portion and, where applicable, a blocked UBS share award.
Pensions and benefits
We provide a range of benefit plans, such as retirement benefits and health insurance, aiming to provide financial
protection in case of significant life events, and support our employees’ well-being and diverse needs. Retirement and
other benefits are set in the context of local market practice and regularly reviewed for competitiveness.
Pension plan rules in any one location are generally the same for all employees, including GEB members and other
management. There are no enhanced or supplementary pension contributions for the GEB.
Performance award
Most of our employees are eligible for an annual performance award. The level of this award, where applicable, generally
depends on the firm’s overall performance, the employee’s business division, team and individual performance, and
behavior, reflecting their overall contribution to the firm’s results. These awards are in line with applicable local
employment conditions and at the discretion of the firm.
In addition to the firm’s Pillars and Principles, Behaviors related to Accountability with integrity, Collaboration and
Innovation are part of the performance management approach. Therefore, when assessing performance, we consider
not only what was achieved but also how it was achieved.
Our deferred compensation plans
Underlining our emphasis on sustainable performance and risk management , and our focus on achieving our growth
ambitions, we deliver part of our employees’ annual variable compensation through deferred compensation plans . We
believe that our approach, with a single incentive decision and a mandatory deferral, is transparent and well suited to
implementing our compensation philosophy and delivering sustainable performance. This aligns the interests of our
employees and shareholders and appropriately links compensation to longer-term sustainable performance.
Our
mandatory
deferral approach
applie
s
to
all employees with regulatory
-
driven deferral requirements or total
compensation greater than USD / CHF 300,000. Certain regulated employees, such as Senior Management Functions
(SMFs) and Material Risk Takers (MRTs), are subject to additional requirements (e.g., more stringent deferral requirements
and additional blocking periods). In addition, SMFs and MRTs receive 50% of their cash portion in the form of immediately
vested shares, which are blocked for 12 months after grant.
The deferred amount increases at higher marginal rates in line with the value of the performance award. The effective
deferral rate therefore depends on the amount of the performance award and the amount of total compensation.
We believe our deferral regime has one of the longest vesting periods in the industry. The weighted average deferral
period for non -regulated employees is 4.4 years for GEB members and is 3.5 years for employees outside of the GEB.
Additionally, from time to time, we may utilize alternative deferred compensation arrangements to remain competitive
in specific business areas.
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To further promote sustainable performance, all of our deferred compensation plans include employment conditions and
malus conditions. These enable the firm to reduce or fully forfeit unvested deferred awards under certain circumstances,
pursuant to performance and harmful acts provisions. In addition, forfeiture is triggered in cases where employment has
been terminated for cause.
Our share delivery obligations related to notional share awards are satisfied by delivering treasury shares, which are
purchased in the market, to employees at vesting.
›
Refer to “Note 27 Employee benefits: variable compensation” in the “Consolidated financial statements” section of our Annual
Report 2022 for more information
›
Refer to the “Supplemental information” section of this report for more information about MRTs and SMFs
Long-Term Incentive Plan
The Long-Term Incentive Plan (the LTIP ) granted for 2022 performance is a mandatory deferral plan for GEB members.
For the 2022 performance year, we awarded LTIP to 14 GEB members in office during 2022, at a fair value of 71.45%
of the maximum. The value was calculated by an independent third party using a well-established valuation methodology.
The performance metrics of the share -based LTIP awards are average return on CET1 capital (RoCET1) and relative total
shareholder return (rTSR) over a three-year performance period starting on 1 January in the year of grant. Performance
outcomes and actual payout levels will be disclosed at the end of the performance period.
The three -year average RoCET1 performance metric reflects our strategic return ambitions and considers our financial
targets, as well as our cost of capital as outlined below:
–
the required RoCET1 performance for a maximum payout is set at 18%, which represents the upper end of our target
range, without encouraging excessive risk-taking;
–
the required performance threshold for the minimum payout is 8%
,
t
he mid
-
point of the payout thresholds
appropriately reflects our cost of equity ; and
–
the linear payout design between threshold and maximum level supports our growth ambitions and our focus on
delivering sustainable performance without encouraging excessive risk-taking.
The rTSR performance metric over the three-year period further aligns the interests of employees with those of
shareholders:
–
the metric compares the total sharehol der return (the TSR) of UBS with the TSR of an index consisting of listed Global
Systemically Important Banks (G-SIBs) as determined by the Financial Stability Board (excluding UBS Group);
–
the G-SIBs are independently defined and reflect companies with a comparable risk profile and impact on the global
economy;
–
the index, which includes publicly traded G- SIBs, is equally weighted, calculated in Swiss francs and maintained by an
independent index provider, so as to ensure independence of the TSR calculation; and
–
the payout interval of ±25 percentage points versus the index performance demonstrates our ambition of delivering
attractive relative returns to shareholders. The linear payout and the threshold level set below index performance
further support sustainability of results and appropriate risk-taking.
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Global Systemically Important Banks (G-SIBs) that are listed companies
1
Agricultural Bank of China
Goldman Sachs
Santander
Bank of America
Groupe Crédit Agricole
Société Générale
Bank of China
HSBC
Standard Chartered
Bank of New York Mellon
ING
State Street
Barclays
ICBC
Sumitomo Mitsui FG
BNP Paribas
JPMorgan Chase
Toronto -Dominion
China Construction Bank
Mitsubishi UFJ FG
UniCredit
Citigroup
Mizuho FG
Wells Fargo
Credit Suisse
Morgan Stanley
Deutsche Bank
Royal Bank of Canada
1
Dividend equivalents (granted where applicable regulation permits) are subject to the same terms as the underlying LTIP
award.
LTIP award s reflect the long-term focus of our compensation framework. The final number of shares as determined at
the end of the three-year performance period will vest in three equal installments in each of the three years following
the performance period for GEB members (i.e., years 3, 4 and 5 after grant), although longer deferral periods may apply
for regulated employees).
LTIP payout illustration
–
The final number of notional
shares vesting will vary based on
the achievement versus the
performance metrics.
–
Linear payout between threshold
and maximum performance.
–
Achievement levels are a
percentage of the maximum
opportunity of the LTIP and
cannot exceed 100%.
–
Full forfeiture for performance
below the predefined threshold
levels.
–
UK Senior Management Function
holders (SMFs) and UK Material
Risk Takers (UK MRTs) are subject
to an additional non-financial
metric based on a conduct
assessment with a potential
downward adjustment of up to
100% of the entire award.
Performance metric:
Below threshold (8%)
Threshold (8%) up to
maximum (18%)
Maximum and above (18%)
Full forfeiture
(payout 0%)
Partial vest
(payout between 33% and 100%)
Full vest
(payout 100%)
Performance metric:
Below threshold (–25 ppts)
Threshold (–25 ppts) up to
maximum (+25 ppts)
Maximum and above ( +25 ppts)
Full forfeiture
(payout 0%)
Partial vest
(payout between 33% and 100%)
Full vest
(payout 100%)
Performance achievement of the 2019 LTIP granted in 2020
The 2019 LTIP was granted in 2020 (for 2019 performance) at a fair value of 62.25% of a maximum of 100%. The final
performance achieved is 98% of a maximum of 100%. This achievement reflects the outcome of the two equally
weighted performance metrics, RoCET1 and rTSR, both measured over the three-year performance period from 1 January
2020 to 31 December 2022. The achievement level of this 2019 LTIP award (granted in 2020) applies to 8 current GEB
members and 102 other plan participants.
We achieved a three-year average RoCET1 performance of 17.3% against the performance range of 6% to 18%, and
an rTSR outperformance of +50.9 percentage points versus the index of listed Global Systemically Important Banks
(G-SIBs). No adjustments, pandemic-related or otherwise, were made in the assessment of the performance conditions.
For context, at the time when the LTIP was introduced, our communicated ambition for RoCET1 was 12–15%. This
ambition level has since been updated and was raised to 15–18%, as communicated in February 2022.
For GEB members, the first of the three equal installments of the 2019 LTIP vested on 1 March 2023 and the second and
third installments will vest in March 2024 and 2025; while for selected senior management, the 2019 LTIP cliff vested on
1 March 2023 (later dates may apply for regulated employees). For context, and as outlined in our 2019 Compensation
Report, up to CHF 7.3 m, or 30%, of the 2019 LTIP awards at grant for GEB members active in March 2017 continue s to
be at risk and directly linked to the final resolution of the French cross-border matter. In addition, a malus clause allows
the Compensation Committee to assess any new information that becomes available in the future in relation to the
matter and for the affected GEB members, and to retrospectively reduce any undelivered 2019 LTIP award by up to the
full amount if any new information would have impacted our compensation decision in 2019. This matter continues to
be ongoing and, once resolved, the final outcome will be reflected in the final amounts delivered to relevant current and
former employees.
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Performance achievement for the 2019 LTIP awarded in 2020
Equity Ownership Plan / Fund Ownership Plan
The Equity Ownership Plan (the EOP) is the deferred compensation plan for employees outside of the GEB that are subject
to deferral requirements. For the 2022 performance year, we granted EOP awards to 4,458 employees.
Delivering sustainable results is a key objective for UBS. Our EOP creates a direct link with shareholder returns as a notional
equity award and has no upward leverage. This approach promotes growth and sustainable performance. EOP awards
generally vest over three years.
In place of EOP, employees in investment areas within Asset Management receive some or all of their EOP in the form of
notional funds (the Fund Ownership Plan (the FOP), previously named AM EOP) to align their compensation more closely
with industry standards. This plan is generally delivered in cash and vests over three years.
›
Refer to “Vesting of outstanding awards granted in prior years subject to performance metrics and thresholds” in the
“Supplemental information” section of this report for more information
Deferred Contingent Capital Plan
The Deferred Contingent Capital Plan (the DCCP) is a key component of our compensation framework and supports
alignment of the interests of our senior employees with those of our stakeholders.
All employees subject to deferral requirements receive DCCP awards. For the 2022 performance year, we granted DCCP
awards to 4,326 employees.
The DCCP is consistent with many of the features of the loss-absorbing bonds that we issue to investors and may be paid
at vesting in cash or, at the discretion of the firm, as a perpetual, marketable additional tier 1 (AT1) capital instrument.
Employees can elect to have their DCCP awards denominated in Swiss francs or US dollars.
DCCP awards vest in full after five years (longer deferral periods may apply for regulated employees). DCCP awards bear
notional interest paid annually (except as limited by regulation for MRTs), subject to review and confirmation by the
Compensation Committee. The notional interest rate for grants in 2023 was 4.85% for awards denominated in Swiss
francs and 7.80 % for awards denominated in US dollars. These interest rates are based on the current market rates for
similar AT1 capital instruments issued by UBS Group.
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 an insolvency, bankruptcy or failure of UBS) or if the firm receives a commitment of
extraordinary support from the public sector that is necessary to prevent such an event. DCCP awards are also written
down for GEB members if the Group’s CET1 capital ratio falls below 10% and for all other employees if it falls below 7%.
In addition, GEB members forfeit 20% of DCCP awards for each loss-making year during the vesting period. This means
100% of the award is subject to risk of forfeiture. The forfeiture features of DCCP create a strong alignment with our
debt holders and support the sustainability of the firm.
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Over the last five years, USD 2.0bn of DCCP awards have been issued, contributing to the Group’s total loss-absorbing
capacity (TLAC). Therefore, DCCP awards not only support competitive pay but also provide a loss absorption buffer that
protects the firm’s capital position. The following table illustrates the contribution of the DCCP to our AT1 capital and
the effect on our TLAC ratio.
›
Refer to the “Supplemental information” section of this report for more information about performance award and personnel-
related expenses
›
Refer to the “Supplemental information” section of this report for more information about longer vesting and clawback periods
for MRTs and SMFs
Contribution of the Deferred Contingent Capital Plan to our loss -absorbing capacity
1
USD m, except where indicated
31.12.22
31.12.21
Deferred Contingent Capital Plan (DCCP), eligible as high-trigger loss-absorbing additional tier 1 capital
1,794
1,730
DCCP contribution to the total loss-absorbing capacity ratio (%)
0.6
0.6
1 Refer to “Bondholder information” at ubs.com/investors for more information about the capital instruments of UBS Group AG a nd UBS AG both on a consolidated and a standalone basis.
Other variable compensation components
To support hiring and retention, particularly at senior levels, we may offer other compensation components , such as:
–
retention payments to key employees to induce them to stay, particularly during critical periods for the firm, such as a
sale or wind-down of a business;
–
on a limited basis, guarantees that may be required to attract individuals with certain skills and experience – these
awards are fixed incentives subject to our standard deferral rules and limited to the first full year of employment;
–
awards granted to employees hired late in the year to replace performance awards that they would have earned at
their previous employer, but have foregone by joining UBS – these awards are generally structured with the same level
of deferral as for employees at a similar level at UBS; and
–
in exceptional cases, sign-on awards may be offered to candidates to increase the chances of them accepting our offer.
These other variable compensation components are subject to a comprehensive governance process, which may involve
the Compensation Committee, depending on the amount or type of such payments.
Employees outside of the GEB that are made redundant may receive severance payments. Our severance terms comply
with the applicable local laws (legally obligated severance). In certain locations, we may provide severance packages that
are negotiated with our local social partners and may go beyond the applicable minimum legal requirements (standard
severance). Such payments are governed by location-specific severance policies. In addition, we may make severance
payments that exceed legally obligated or standard severance payments where we believe these are aligned with market
practice and appropriate under the circumstances (supplemental severance). GEB members do not receive severance
payments.
Replacement awards and forfeitures
In line with industry practice, our compensation framework and plans include provisions generally requiring reduction /
forfeiture of a terminated employee’s unvested or deferred awards. In particular, these provisions apply if the terminated
employee joins another financial services organization and / or violates restrictive covenants, such as solicitation of clients
or employees.
Conversely, to attract external top talent, market practice dictates that we consider replacing their forfeited compensation
from their prior employer. In select situations and based on careful consideration, we replace the lost compensation of
senior hires. The replacement awards are subject to UBS’s harmful acts provisions. Their value is subject to independent
review as part of the “Report of the statutory auditor on the compensation report” to support the like-for-like nature of
the replacement and to confirm that these awards do not represent sign-on payments (i.e., there are no “golden hellos”).
Based on a thorough review of available documentation, we aim to mirror the type, conditions and timing of the forfeited
compensation, based on actual facts and circumstances. Replacement awards can include cash payments and / or
deferred awards, including EOP share awards and DCCP awards. Where payments are made in cash, there is typically a
clawback period if the employee leaves UBS voluntarily within 12 months of the start of employment. The replacement
awards do not exceed the commercial or fair value of the compensation actually forfeited by the individual and, in case
of GEB members, are disclosed transparently. The total 2022 forfeitures of USD 188m of previously awarded deferred
compensation offset the 2022 total sign-on payments, replacement payments and guarantees of USD 153 m.
In March 2022, Sarah Youngwood joined the GEB and succeeded Kirt Gardner as Group CFO effective 16 May 2022.
Before joining UBS, Ms. Youngwood was CFO for JPMorgan Chase Consumer Community Banking, CFO for Firmwide
Technology and CFO for Diversity Inclusion. In October 2022, Naureen Hassan joined the GEB and succeeded Tom
Naratil in his role as President UBS Americas. She joined UBS from the Federal Reserve Bank of New York, where she was
COO and First Vice President.
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Consistent with the terms of the compensation forfeited at her previous employer, Sarah Youngwood received
replacement awards with a total value of CHF 7,206,683 , consisting of an EOP share award representing 291,584 UBS
shares (denominated in Swiss francs), and replacement of cash items. The deferred portion of the award will vest in
various installments between 2023 and 2026. Similarly, Naureen Hassan received replacement awards with a total value
of CHF 65,229, consisting of a deferred cash award (vesting in 2023) and replacement of cash items. These replacement
awards reflect the different compensation structures of the industries and organizations we recruit from.
Sign-on payments, replacement payments, guarantees and severance payments
Total 2022
of which: non-deferred
cash
of which: deferred
compensation
awards
Total 2021
Number of beneficiaries
USD m, except where indicated
2022
2021
Total sign-on payments
1
of which: Key Risk Takers
2
Total replacement payments
3
of which: Key Risk Takers
2
Total guarantees
4
of which: Key Risk Takers
2
Total severance payments
1,5
of which: Key Risk Takers
2
1 GEB members are not eligible for sign -on or severance payments. Sign- on awards exclude one-time payments for junior associate hires into the Investment Bank. Including these, the 2022 and 2021 total sign-on
payments are USD 1m for each respective year. All one-time payments for junior associate hires are subject to a 12 -month clawback condition. Prior period information has been adjusted to exclude awards granted
to employees hired late in the year. 2 Expenses for Key Risk Takers are full-year amounts for individuals in office on 31 December 2022. Key Risk Takers as defined by UBS, including all employees with a total
compensation exceeding USD / CHF 2.5m (Highly Paid Employees). 3 Includes replacement payments for two GEB members in 2022 and for one GEB member in 2021. Includes awards granted to employees hired
late in the year to replace performance awards that they would have earned at their previous employers, but have foregone by joining UBS. Prior period information has been adjusted to include awards granted to
employees hired late in the year. 4 No GEB member received a guarantee in 2022 or 2021. 5 Includes legally obligated and standard severance payments, as well as payments in lieu of notice.
Forfeitures
1
Total 2022
Total 2021
USD m, except where indicated
Total forfeitures
of which: former GEB members
of which: Key Risk Takers
2
1 For notional share awards, forfeitures are calculated as units forfeited during the year, valued at the share price on 31 December 2022 (USD 18.67) for 2022. The 2021 data is valued using the share price on
31 December 2021 (USD 17.87). For LTIP the forfeited units reflect the fair value awarded at grant. For the notional funds awarded to Asset Managem ent employees under the EOP, this represents the forfeiture
credits recognized in 2022 and 2021. For the DCCP, the fair value at grant of the forfeited awards during the year is reflected. Numbers presented may differ from the effect on the income statement in accordance
with IFRS. 2 Key Risk Takers as defined by UBS, including all employees with a total compensation exceeding USD / CHF 2.5m (Highly Paid Employees) and excluding former GEB members who forfeited awards in
2022 or 2021.
Employee share ownership
According to available records on employee shareholdings, including unvested deferred compensation, as of
31 December 2022, employees held at least USD 4.6bn of UBS shares (of which approximately USD 2.9bn were
unvested), representing approximately 7% of our total shares issued .
The Equity Plus Plan is our employee share purchase program. It allows employees at Executive Director level and below
to voluntarily invest up to 30% of their base salary and / or regular commission payments to purchase UBS shares. In
addition (where offered), eligible employees can invest up to 35% of their performance award under the program.
Participation in the program is capped at USD / CHF 20,000 annually. Eligible employees may purchase UBS shares at
market price and receive one additiona l share for every three shares purchased through the program. Additional shares
vest after a maximum of three years, provided the employee remains employed by UBS and has retained the purchased
shares throughout the holding period.
›
Refer to “Note 27 Employee benefits: variable compensation” in the “Consolidated financial statements” section of our Annual
Report 2022 for more information
Compensation for US financial advisors in Global Wealth Management
In line with market practice for US wealth management businesses, the compensation for US financial advisors in Global
Wealth Management consists of cash compensation and deferred compensation awards, determined using a formulaic
approach based on production.
The monthly cash compensation is determined using an overall percentage rate for each financial advisor. It reflects a
percentage of the compensable production that each financial advisor generates during that month. 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, supporting growth and
alignment with the investment strategy and goals of our clients.
Financial advisors may also be granted annual deferred compensation. These amounts generally vest over a six-year
period. The annual deferred compensation amount reflects their overall percentage rate and production, as previously
outlined.
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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.
2022 Group performance outcomes
Performance awards granted for the 2022 performance year
The “Variable compensation” table below shows the amount of variable compensation awarded to employees for the
2022 performance year, together with the number of beneficiaries for each type of award granted. In the case of deferred
awards, the final amount paid to an employee depends on performance conditions and consideration of relevant
forfeiture provisions. The deferred share award amount is based on the market value of these awards on the date of
grant.
Variable compensation
Expenses recognized
in the IFRS income
statement
Expenses deferred to
future periods
3
Accounting
adjustments
3,4
Total
Number of beneficiaries
6
USD m, except where indicated
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
Non-deferred cash
Deferred compensation awards
of which: Equity Ownership Plan
of which: Deferred Contingent Capital Plan
of which: Long-Term Incentive Plan
of which: Fund Ownership Plan
Variable compensation – performance award pool
Variable compensation – financial advisors
1
Variable compensation – other
2
5
5
Total variable compensation
1 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 commitment s with financial advisors entered into at the time of recruitment that are subject to vesting requirements. 2 Consists of replacement payments, forfeiture credits, severance payments,
retention plan payments and interest expense related to the Deferred Contingent Capital Plan. 3 Estimates as of 31 December 2022 and 2021. Actual amounts to be expensed in future periods may vary; e.g., due
to forfeiture of awards. 4 Represents estimated post-vesting transfer restriction and permanent forfeiture discounts, as well as currency translation adjustments. 5 Included in expenses deferred to future periods
is an amount of USD 146m (2021: USD 121m) in interest expense related to the Deferred Contingent Capital Plan. As the amount recognized as performance award represents the present value of the award at the
date it is granted to the employee, this amount is excluded. 6 Excludes awards that are part of other variable compensation.
2022
performance award pool and expenses
The performance award pool, which includes performance-based variable awards for 2022, was USD 3.3bn, reflecting a
decrease of 10% compared with 2021. Performance award expenses for 2022 remained at USD 3.2bn, reflecting
decreased performance award expenses accrued in the performance year, offset by increased performance award
expenses related to prior performance years. The “Performance award pool and expenses” table below compares the
performance award pool with performance award expenses.
Performance award pool and expenses
USD m, except where indicated
2022
2021
% change
Performance award pool
1
of which: expenses deferred to future periods and accounting adjustments
2,3
Performance award expenses accrued in the performance year
Performance award expenses related to prior performance years
Total performance award expenses recognized for the year
4
1 Excluding employer-paid taxes and social security. 2 Estimate as of the end of the performance year. Actual amounts expensed in future periods may vary, e.g., due to forfeiture of awards. 3 Accounting
adjustments represent estimated post-vesting transfer restriction and permanent forfeiture discounts, as well as currency translation adjustments. 4 Refer to “Note 27 Employee benefits: variable compensation” in
the “Consolidated financial statements” section of our Annual Report 2022 for more information.
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Compensation for the Board of Directors
Chairman of the BoD
Colm Kelleher was elected Chairman of the BoD at the 2022 AGM on 6 April 2022. Under his leadership, the BoD
determines, among other things, the strategy for the Group , based on recommendations by the Group CEO, exercises
ultimate supervision over management and appoints all GEB members.
The Chairman leads all general meetings and BoD meetings and works with the committee Chairpersons to coordinate
the work of all BoD committees. Together with the Group CEO, the Chairman is responsible for effective communication
with shareholders and stakeholders, including clients, government officials, regulators and public organizations. The
Chairman works closely with the Group CEO and other GEB members, providing advice and support when appropriate,
and continues to strengthen and promote our culture through the three keys to success: our Pillars, Principles and
Behaviors.
As an independent director, the Chairman’s total compensation for the period from AGM to AGM consists of a fixed fee
without any variable component, which is delivered 50% in cash and 50% in shares (blocked for four years). For the
current period, from the 2022 AGM to the 2023 AGM, his fixed fee was CHF 4.7m and consisted of a cash payment of
CHF 2.35m and a share component of CHF 2.35m, consisting of 116,961 UBS shares at CHF 20.092 per share. The share
component aligns the Chairman’s pay with the Group’s long-term performance. The Chairman does not receive
performance awards, severance payments or pension contributions in addition to his fixed fee, bu t, given the full-time
nature of his role, he is eligible for employee conditions on UBS products and services.
›
Refer to “Board of Directors” in the “Corporate governance” section of our Annual Report 2022 for more information about the
responsibilities of the Chairman
Vice Chairman of the BoD
Lukas Gähwiler was elected as a member of the BoD at the 2022 AGM on 6 April 2022 and thereafter appointed as Vice
Chairman. In this newly defined full-time role, he leads the BoD in the absence of the Chairman. Together with the Senior
Independent Director, he also supports the Chairman in all aspects of corporate governance and oversight across the
Group. In particular, he represents UBS across a broad range of associations and industry bodies in Switzerland.
The Vice Chairman’s total compensation for the period from AGM to AGM consists of a fixed fee without any variable
component, which is delivered 50% in cash and 50% in shares ( blocked for four years). For the current period, from the
2022 AGM to the 2023 AGM, his fixed fee was CHF 1.5m, excluding benefits and pension fund contributions. The fixed
fee consisted of a cash payment of CHF 0.75m and a share component of CHF 0.75m, consisting of 37,328 UBS shares
at CHF 20.092 per share. The fee for the new full-time Vice Chairman was absorbed within the existing budget and does
not result in an increase of the proposed maximum aggregate amount for BoD compensation.
As a non-independent director, Mr. Gähwiler is entitled to pension fund contributions. Including these, his total reward
for his service as Vice Chairman for the current period was CHF 1,879,0 10.
The Vice Chairman is not eligible for performance awards, severance terms or supplementary contributions to pension
plans. The pension contributions and benefits for the Vice Chairman, in his capacity as non -independent director, are
consistent with all UBS employees and aligned with local market practice.
›
Refer to “Board of Directors” in the “Corporate governance” section of our Annual Report 2022 for more information about the
responsibilities of the Vice Chairman
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Other BoD members
BoD members, except the Chairman and Vice Chairman, receive fixed fees for their services on the BoD and its
committees. BoD members do not receive performance awards, severance payments, benefits or pension contributions
(the benefit eligibility of the Chairman and that of the Vice Chairman are described above).
BoD members must use a minimum of 50% of their fees to purchase UBS shares, which are blocked for four years, and
they may elect to use up to 100% of their fees to purchase blocked UBS shares. As outlined above, the fixed fees of the
Chairman and Vice Chairman 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.
At each AGM, shareholders are invited to approve the aggregate amount of BoD remuneration, including the
compensation for the Chairman and Vice Chairman, which applies until the next AGM. The chart and the tables below
provide details on the fee structure for the BoD members.
Approval governance for BoD compensation
The Chairperson of the Compensation Committee proposes and the Compensation Committee approves the
compensation of the Chairman and that of the Vice Chairman annually for the upcoming AGM -to-AGM period, taking
into consideration fee or compensation levels for comparable roles based on our core financial industry peers and other
relevant leading Swiss companies included in the Swiss Market Index.
The fee structure for the other BoD members is reviewed annually based on the Chairman’s proposal to the Compensation
Committee, which in turn submits a proposal to the BoD for approval. In our regular review of the BoD fee structure, we
concluded that our overall approach for BoD member compensation remains appropriate and thus unchanged.
›
Refer to “Compensation Governance” in the “Compensation philosophy and governance” section of this report for more
information about the remuneration responsibilities of the BoD and Compensation Committee
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Audited |
Remuneration details and additional information for BoD members
Period 2022 AGM to 2023 AGM
CHF, except where indicated
Name, function
1
Audit Committee
Compensation
Committee
Corporate Culture and
Responsibility Committee
Governance and
Nominating Committee
Risk Committee
Base fee
Committee
fee(s)
Additional
payments
2
Benefits
3
Total
4
Share
percentage
5
Number of
shares
6,7
Colm Kelleher, Chairman
8
C
C
Lukas Gähwiler, Vice Chairman
8
Jeremy Anderson, Senior
Independent Director
C
M
Claudia Böckstiegel, member
M
William C. Dudley, member
M
M
Patrick Firmenich, member
M
M
Fred Hu, member
M
Mark Hughes, member
M
C
Nathalie Rachou, member
M
M
Julie G. Richardson, member
C
M
Dieter Wemmer, member
M
M
Jeanette Wong, member
M
M
Aggregate of all BoD members 2022/2023
12,565,504
Aggregate of all BoD members 2022/2023 in USD (for reference)
9
13,035,831
Period 2021 AGM to 2022 AGM
CHF, except where indicated
Name, function
1
Audit Committee
Compensation
Committee
Corporate Culture and
Responsibility Committee
Governance and
Nominating Committee
Risk Committee
Base fee
Committee
fee(s)
Additional
payments
10
Benefits
Total
4
Share
percentage
5
Number of
shares
6,7
Axel A. Weber, Chairman
11
C
C
Jeremy Anderson,
Vice Chairman and Senior
Independent Director
C
M
Claudia Böckstiegel, member
William C. Dudley, member
M
M
M
Patrick Firmenich, member
Reto Francioni, member
M
M
Fred Hu, member
M
M
Mark Hughes, member
M
C
Nathalie Rachou, member
M
Julie G. Richardson, member
C
M
M
Dieter Wemmer, member
M
M
M
Jeanette Wong, member
M
M
M
Aggregate of all BoD members 2021/2022
Legend: C = Chairperson of the respective Committee, M = Member of the respective Committee
1 Twelve BoD members were in office on 31 December 2022. At the 2022 AGM, Colm Kelleher and Lukas Gähwiler were newly elected and Reto Francioni and Axel A. Weber did not stand for re-election. Twelve
BoD members were in office on 31 December 2021. 2 These payments are associated with the Senior Independent Director role. 3 For the period from the 2022 AGM to the 2023 AGM, benefits amount is an
estimate. For the Vice Chairman, the benefits include the portion related to UBS’s contribution to the statutory pension scheme. 4 Excludes UBS’s portion related to the legally required social security contributions,
which for the period from the 2022 AGM to the 2023 AGM (including the Chairman and Vice Chairman) is estimated at grant at CHF 731,329 and which for the period from the 2021 AGM to the 2022 AGM was
estimated at grant at CHF 719,763. The legally required social security contributions paid by the independent BoD members are included in the amounts shown in this table, as appropriate. 5 Except for the former
Chairman (see footnote 11), fees are paid 50% in cash and 50% in blocked UBS shares. 6 For 2022, UBS shares were valued at CHF 20.092 (average closing price of UBS shares over the last 10 trading days
leading up to and including the grant date). For 2021, UBS shares were valued at CHF 19.194 (average closing price of UBS shares over the last 10 trading days leading up to and including the grant date). These
shares are blocked for four years. 7 Number of shares is reduced in case of the 100% election to deduct legally required contributions. All remuneration payments are, where applicable, subject to social security
contributions and / or withholding tax. 8 The Chairman and the Vice Chairman do not receive committee fees in addition to their annual fixed fee. 9 Swiss franc amounts have been translated into US dollars for
reference at the 2022 performance award currency exchange rate of CHF / USD 1.03743. 10 This payment is associated with the Senior Independent Director function and the Vice Chairman role. 11 In his
function as non-independent BoD member for the AGM period 2021/2022, the former Chairman received a base salary of CHF 3,500,000 and an annual share award of CHF 1,400,000. This remuneration is included
above in the Base fee column.
p
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Supplemental information
Fixed and variable compensation for GEB members
Fixed and variable compensation for GEB members
1,2,3
Total for 2022
Not deferred
Deferred
4
Total for 2021
CHF m, except where indicated
Amount
%
Amount
%
Amount
%
Amount
Total compensation
Amount
5
Number of beneficiaries
Fixed compensation
5,6
Cash-based
Equity-based
Variable compensation
Cash
7
Long-Term Incentive Plan (LTIP)
8
Deferred Contingent Capital Plan (DCCP)
8
1 The figures include all GEB members in office during the respective years. 2 Includes compensation paid under the employment contract during the notice period for GEB members who stepped down during the
respective years. 3 Includes compensation for newly appointed GEB members for their time in office as a GEB member during the respective years. 4 Based on the specific plan vesting and reflecting the total
award value at grant, which may differ from the expense recognized in the income statement in accordance with IFRS. 5 Excludes benefits and employer’s contributions to retirement benefit plans. Includes social
security contributions paid by GEB members but excludes the portion related to the legally required social security contributions paid by UBS. For 2022, Sarah Youngwood received a one-time replacement award of
CHF 7m and Naureen Hassan received a one-time replacement award of CHF 0.07m. The replacement awards are not included in the above table; including these, the 2022 total aggregate compensation of all GEB
members is CHF 112m. For 2021, Barbara Levi received a one-time replacement award of CHF 7m. This replacement award is not included in the above table; including this, the 2021 total aggregate compensation
of all GEB members is CHF 112m. 6 Includes base salary and role -based allowances, rounded to the nearest million. 7 Includes allocation of vested but blocked shares, in line with the remuneration section of the
UK Prudential Regulation Authority Rulebook. 8 For the GEB members who are also MRTs or SMFs, the awards do not include dividend and interest payments. Accordingly, the amounts reflect for the LTIP the fair
value of the non-dividend -bearing awards and for the DCCP the fair value of the granted non -interest-bearing awards.
Regulated staff
Key Risk Takers
Key Risk Takers (KRTs) are defined as those employees that, by the nature of their roles, have been determined to
materially set, commit or control significant amounts of the firm’s resources and / or exert significant influence over its
risk profile. This includes employees working in front-office roles, logistics and control functions. Identifying KRTs globally
is part of our risk control framework and an important element in ensuring we incentivize only appropriate risk -taking.
For 2022, in addition to GEB members, 699 employees were classified as KRTs throughout UBS Group globally, including
all employees with a total compensation exceeding USD / CHF 2.5m (Highly Paid Employees), who may not have been
identified as KRTs during the performance year.
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In line with regulatory requirements, the performance of employees identified as KRTs during the performance year is
evaluated by the control functions. In addition, KRTs’ performance awards are subject to a mandatory deferral rate of at
least 50%, regardless of whether the deferral threshold has been met (excluding KRTs with de minimis performance
awards below a predetermined threshold where standard deferral rates apply). A KRT’s deferred compensation award
will only vest if the Group performance conditions are met. Consistent with all other employees, the deferred portion of
a KRT’s compensation is also subject to forfeiture or reduction if the KRT commits harmful acts.
Fixed and variable compensation for Key Risk Takers
1
Total for 2022
Not deferred
Deferred
2
Total for 2021
USD m, except where indicated
Amount
%
Amount
%
Amount
%
Amount
Total compensation
Amount
Number of beneficiaries
Fixed compensation
3,4
Cash-based
Equity-based
Variable compensation
Cash
5
Long-Term Incentive Plan (LTIP) / Equity Ownership
Plan (EOP) / Fund Ownership Plan (FOP)
6
Deferred Contingent Capital Plan (DCCP)
6
1 Includes employees with a total compensation exceeding USD / CHF 2.5m (Highly Paid Employees), excludes payments made to individuals related to their time as GEB member. 2 Based on the specific plan vesting
and reflecting the total value at grant, which may differ from the expense recognized in the income statement in accordance with IFRS. 3 Excludes benefits and employer’s contributions to retirement benefits plan.
Includes social security contributions paid by KRTs but excludes the legally required social security contributions paid by UBS. 4 Includes base salary and role-based allowances. 5 Includes allocation of vested but
blocked shares, in line with regulatory requirements where applicable. 6 KRTs who are also MRTs do not receive dividend and interest payments. Accordingly, the amounts for the EOP / LTIP reflect the fair value of
the non-dividend-bearing awards and for the DCCP the fair value of the granted non-interest-bearing awards.
Deferred compensation of the GEB and KRTs
The table below shows the current economic value of unvested outstanding deferred variable compensation awards
subject to ex post adjustments. For share-based plans, the economic value is determined based on the closing share price
on 31 December 2022. For notional funds, it is determined using the latest available market price for the underlying
funds at year-end 2022, and for deferred cash plans, it is determined based on the outstanding amount of cash owed to
award recipients.
Deferred compensation of the GEB and KRTs
1,2,3
USD m, except where indicated
Relating to awards
for 2022
4
Relating to
awards for prior
years
5
Total
of which: exposed to
ex-post explicit and /
or implicit adjustments
Total deferred
compensation
year-end 2021
Total amount of
deferred compensation
paid out in 2022
6
GEB
Deferred Contingent Capital Plan
Equity Ownership Plan (including notional funds)
Long-Term Incentive Plan
KRTs
Deferred Contingent Capital Plan
Equity Ownership Plan (including notional funds)
Long-Term Incentive Plan
Total GEB and KRTs
1 Based on the specific plan vesting and reflecting the economic value of the outstanding awards, which may differ from the expense recognized in the income statement in accordance with IFRS. Year-to-year
reconciliations would also need to consider the impacts of additional items including off -cycle awards, FX movements, population changes, and dividend equivalent reinvestments. 2 Refer to “Note 27 Employee
benefits: variable compensation” in the “Consolidated financial statements” section of the Annual Report 2022 for more information. 3 GEB members and KRTs who are also MRTs do not receive dividend and
interest payments. Accordingly, the amounts for the EOP / LTIP reflect the fair value of the non-dividend-bearing awards and for the DCCP the fair value of the granted non-interest -bearing awards. 4 Where
applicable, amounts are translated into US dollars at the performance award currency exchange rate. LTIP values reflect the f air value awarded at grant. 5 Takes into account the ex post implicit adjustments, given
the share price movements since grant. Where applicable, amounts are translated from award currency into US dollars using FX rates as of 31 December 2022. LTIP values reflect the fair value awarded at grant.
6 Valued at distribution price and FX rate for all awards distributed in 2022.
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The table below shows the value of actual ex post explicit and implicit adjustments to outstanding deferred compensation
in the 2022 financial year for GEB members and KRTs.
Ex post adjustments occur after an award has been granted. Explicit adjustments occur when we adjust compensation
by forfeiting deferred awards. Implicit adjustments are unrelated to any action taken by the firm and occur as a result of
price movements that affect the value of an award.
The total value of ex post explicit adjustments made to UBS share awards in 202 2, based on the approximately 5.8m
shares forfeited during 202 2, is a reduction of USD 110m.
GEB and KRTs ex post explicit and implicit adjustments to deferred compensation
Ex post explicit adjustments
to unvested awards
1
Ex post implicit adjustments
to unvested awards
2
USD m
31.12.22
31.12.21
31.12.22
31.12.21
GEB
Deferred Contingent Capital Plan
Equity Ownership Plan (including notional funds, if applicable)
Long-Term Incentive Plan
KRTs
Deferred Contingent Capital Plan
Equity Ownership Plan (including notional funds)
Long-Term Incentive Plan
Total GEB and KRTs
1 For notional share awards, ex post explicit adjustments are calculated as units forfeited during the year, valued at the share price on 31 December 2022 (USD 18.67) for 2022 (which may differ from the expense
recognized in the income statement in accordance with IFRS). The 2021 data is valued using the share price on 31 December 2021 (USD 17.87). For LTIP, the forfeited units reflect the fair value awarded at grant. For
the notional funds awarded to employees in investment areas within Asset Management under the FOP, this represents the forfeiture credits recognized in 2022 and 2021. For the DCCP, the fair value at grant of the
forfeited awards during the year is reflected. 2 Ex post implicit adjustments for UBS shares are calculated based on the difference between the weighted average gra nt date fair value and the share price at year-end.
The amount for notional funds is calculated using the mark- to-market change during 2022 and 2021. For the GEB member who was appointed to the GEB during 2022, awards have been fully reflected in the GEB
entries.
Material Risk Takers
For relevant EU- or UK-regulated entities, we identify individuals who are deemed to be Material Risk Takers (MRTs) based
on local regulatory requirements, including the respective EU Commission Delegated Regulation, the fifth iteration of the
EU Capital Requirements Directive (CRD V) and equivalent UK requirements, as applicable. This group consists of senior
management, risk takers, selected staff in control or support functions and certain highly compensated employees. For
2022, UBS identified 616 MRTs in relation to its relevant EU or UK entities.
Variable compensation awarded to MRTs is subject to additional deferral and other requirements. These include a
maximum variable to fixed compensation ratio of 200% based on approval through relevant shareholder votes, a
minimum deferral rate of 40% or 60% (depending on role / variable compensation level) on performance awards and
delivery of at least 50% of any upfront performance award in UBS shares that are vested but blocked for 12 months after
grant.
Deferred awards granted to MRTs under UBS’s deferred compensation plans for their performance in 2022 are subject
to 6- or 12-month blocking periods post vesting and do not pay out dividends or interest during the deferral period.
For up to seven years after grant, performance awards granted to MRTs are subject to clawback provisions, which allow
the firm to claim repayment of both the upfront and the vested deferred element of any performance award if an
individual is found to have contributed substantially to significant financial losses for the Group or corporate structure in
scope, a material downward restatement of disclosed results, or engaged in misconduct and / or failed to take expected
actions that contributed to significant reputational harm.
LTIP awards granted to UK MRTs and SMFs are subject to an additional non -financial conduct-related metric as required
by UK regulation.
UK Senior Managers and Certification Regime
The Senior Managers and Certification Regime (the SMCR) of the UK Prudential Regulation Authority and Financial
Conduct Authority requires that individuals with specified responsibilities, performing certain significant functions and /
or those in certain other identified categories be designated as SMFs.
Subject to de minimis and other compensation-related considerations, variable compensation awards made to SMFs must
comply with specific requirements, including longer deferral, blocking and clawback periods. The deferral period for SMFs
is seven years, with the deferred performance awards vesting no faster than pro rata from years 3 to 7, except those that
have total compensation below GBP 500,000 and variable incentive accounting for less than 33% of total compensation,
for whom a five-year deferral period (instead of a seven-year period) applies. Such awards are also subject to a 12-month
blocking period post vesting. The clawback policy for SMFs permits clawback for up to 10 years from the date of
performance award grants (applicable if an individual is subject to an investigation at the end of the initial seven-year
clawback period). All SMFs are also MRTs and, as such, subject to the same prohibitions on dividend and interest
payments.
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Control functions and Group Internal Audit
Our control functions must be independent in order to monitor risk effectively. Therefore, their compensation is
determined separately from the revenue areas that they oversee, supervise or monitor. Their performance award pool is
based not on the performance of these businesses, but on the performance of the Group as a whole. We also consider
other factors, such as how effectively the function has performed and our market position. Decisions on individual
compensation for the senior managers of the control functions are made by the function heads and approved by the
Group CEO. Decisions on individual compensation for the members of Group Internal Audit (GIA) are made by the Head
GIA and approved by the Chairman. Following a proposal by the Chairman, total compensation for the Head GIA is
approved by the Compensation Committee.
2022 Group personnel expenses
The number of personnel employed as of 31 December 2022 increased by 1,212 to 72,597 (full-time equivalents)
compared with 31 December 2021.
The table below shows our total personnel expenses for 2022, including salaries, pension expenses, social security
contributions, variable compensation and other personnel costs. Variable compensation includes cash performance
awards paid in 2023 for the 2022 performance year, amortization of unvested deferred awards granted in previous years
and the cost of deferred awards granted to employees that are eligible for retirement in the context of the compensation
framework at the date of grant.
The performance award pool reflects the value of performance awards granted relating to the 2022 performance year,
including awards that are paid out immediately and those that are deferred. To determine our variable compensation
expenses, the following adjustments are required in order to reconcile the performance award pool to the expenses
recognized in the Group’s financial statements prepared in accordance with IFRS:
–
a reduction for expenses deferred to future periods (amortization of unvested awards granted in 2023 for the 2022
performance year) and accounting adjustments; and
–
an addition for the 2022 amortization of unvested deferred awards granted in prior years.
As a large part of compensation consists of deferred awards, the amortization of unvested deferred awards granted in
prior years forms a significant part of the IFRS expenses in both 2022 and 2023.
›
Refer to “Note 6 Personnel expenses” and “Note 27 Employee benefits: variable compensation” in the “Consolidated financial
statements” section of our Annual Report 2022 for more information
Personnel expenses
Expenses recognized in the IFRS income statement
USD m
Related to the
performance year 2022
Related to prior
performance years
Total expenses
recognized in
2022
Total expenses
recognized in
2021
Total expenses
recognized in
2020
Salaries
1
Non-deferred cash
Deferred compensation awards
of which: Equity Ownership Plan
of which: Deferred Contingent Capital Plan
of which: Long-Term Incentive Plan
of which: Fund Ownership Plan
Variable compensation – performance awards
Variable compensation – financial advisors
2
Variable compensation – other
3
Total variable compensation
4
Contractors
Social security
Pension and other post-employment benefit plans
5
Other personnel expenses
Total personnel expenses
1 Includes role-based allowances. 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 Refer to “Note 27 Employee benefits: variable compensation” in the “Consolidated
financial statements” section of our Annual Report 2022 for more information. 5 Refer to “Note 26 Post-employment benefit plans” in the “Consolidated financial statements” section of our Annual Report 2022
for more information.
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Deferred compensation
Vesting of outstanding awards granted in prior years subject to performance metrics and thresholds
The tables below show the extent to which the performance metrics and thresholds for awards granted in prior years
have been met and the related vesting in 2023.
Long-Term Incentive Plan (LTIP) 2019 (performance period 2020–2022)
Performance metrics
Performance achievement
1
Vesting
Return on common equity tier 1 capital
(RoCET1) and relative Total Shareholder
Return (rTSR)
The overall achievement level is 98% of the maximum
opportunity (of up to 100%) , based on outcomes for
rTSR (weighted 50%) and RoCET1 (weighted 50%).
-
For GEB, the first installment will vest in 2023 and the
remaining tranches will vest in 2024 and 2025
accordingly. For context, and as outlined in our 2019
Compensation Report, up to CHF 7.3m, or 30%, of
the 2019 LTIP awards at grant for GEB members active
in March 2017 continues to be at risk and directly
linked to the final resolution of the French cross-
border matter.
-
For other select senior management, the full award
will vest in 2023.
1
As disclosed in our Compensation Report 2019, LTIP awards for the 2019 performance year were awarded at a value of 62.25% of maximum, which reflected our best estimate of the fair value of the award. The
maximum number of shares was determined by dividing the awarded amount by the fair value of the award at the date of grant, divided by CHF 12.919 or USD 13.141, the average closing price of UBS shares over the
last ten trading days leading up to and including the grant date.
›
Refer to “Performance achievement of the 2019 LTIP granted in 2020” in the “Group compensation” section of this report for more
information
The below EOP and DCCP thresholds have been set to support the sustainability of the organization and represent
minimum performance levels to retain the awards.
Equity Ownership Plan (EOP) 2017 / 2018, EOP 2018 / 2019, EOP 2019 / 2020 and EOP 2020 / 20 21
Thresholds
Threshold achievement
1
Vesting
Return on common equity tier 1 capital
(RoCET1) and divisional return on
attributed equity
The Group and divisional thresholds have been
satisfied.
The following installments vest in full:
-
for EOP 2017 / 2018, the third and final installment
for GEB members;
-
for EOP 2018 / 2019, the second installment for the
GEB members;
-
for EOP 2019 / 2020, the second installment for all
other employees covered under the plan; and
-
for EOP 2020 / 2021, the first installment for all other
employees covered under the plan.
Deferred Contingent Capital Plan (DCCP) 2017 / 2018
Thresholds
Threshold achievement
1
Vesting
Common equity tier 1 (CET1) capital
ratio, viability event and, additionally for
GEB, Group profit before tax
The thresholds have been satisfied.
-
DCCP 2017 / 2018 vests in full.
1
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Audited |
Share ownership / entitlements of GEB members
1
Name, function
on
31 December
Number of
unvested
shares / at
risk
2
Number of
vested shares
Total number
of shares
Potentially
conferred
voting
rights in %
Ralph A.J.G. Hamers, Group Chief Executive Officer
2022
2021
Christian Bluhm, Group Chief Risk Officer
2022
2021
Mike Dargan, Group Chief Digital and Information Officer
2022
2021
Kirt Gardner, former Group Chief Financial Officer
2022
-
-
-
-
2021
Suni Harford, President Asset Management
2022
2021
Naureen Hassan, President UBS Americas
2022
2021
-
-
-
-
Robert Karofsky, President Investment Bank
2022
2021
Sabine Keller-Busse, President Personal Corporate Banking and President UBS Switzerland
2022
2021
Iqbal Khan, President Global Wealth Management and President EMEA
2022
2021
Edmund Koh, President Asia Pacific
2022
2021
Barbara Levi, Group General Counsel
2022
2021
Tom Naratil, former Co-President Global Wealth Management and President UBS Americas
2022
-
-
-
-
2021
Markus Ronner, Group Chief Compliance and Governance Officer
2022
2021
Sarah Youngwood, Group Chief Financial Officer
2022
2021
-
-
-
-
Total
2022
2021
1 Includes all vested and unvested shares of GEB members, including those held by related parties. No options were held in 2022 and 2021 by any GEB member or any of its related parties. Refer to “Note 27 Employee
benefits: variable compensation” in the “Consolidated financial statements” section of our Annual Report 2022 for more information. 2 Includes shares granted under variable compensation plans with forfeiture
provisions. For the 2019/20 LTIP award, the values reflect the final value. For all other LTIP awards, the values reflect the fair value awarded at grant. The actual number of shares vesting in the future will be calculated
under the terms of the plans. Refer to the “Group compensation” section of this report for more information about the plans.
p
Audited |
Total of all vested and unvested shares of GEB members
1,2
Total
of which: vested
of which: vesting
2023
2024
2025
2026
2027
2028
Shares on 31 December 2022
2022
2023
2024
2025
2026
2027
Shares on 31 December 2021
1 Includes shares held by related parties. 2 Includes shares granted under variable compensation plans with forfeiture provisions. The actual number of shares vesting in the future will be calculated under the terms
of the plans. Refer to the “Group compensation” section of this report for more information.
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Audited |
Number of shares of BoD members
1
Name, function
on 31 December
Number of shares held
Voting rights in %
Colm Kelleher, Chairman
2
2022
2021
-
Lukas Gähwiler, Vice Chairman
2, 3
2022
2021
-
Axel A. Weber, former Chairman
2
2022
-
2021
Jeremy Anderson, Senior Independent Director
2022
2021
Claudia Böckstiegel, member
2022
2021
William C. Dudley, member
2022
2021
Patrick Firmenich, member
2022
2021
Reto Francioni, member
2
2022
-
2021
Fred Hu, member
2022
2021
Mark Hughes, member
2022
2021
Nathalie Rachou, member
2022
2021
Julie G. Richardson, member
2022
2021
Dieter Wemmer, member
2022
2021
Jeanette Wong, member
2022
2021
Total
2022
2021
1 Includes blocked and unblocked shares held by BoD members, including those held by related parties. No options were granted in 2022 and 2021. 2 At the 2022 AGM, Lukas Gähwiler and Colm Kelleher were
newly elected and Reto Francioni and Axel A. Weber did not stand for re-election. 3 Includes 203,246 unvested shares granted under variable compensation plans with forfeiture provisions as part of Lukas Gähwiler’s
compensation for his executive roles previously held at UBS.
p
Audited |
Total of all blocked and unblocked shares of BoD members
1
Total
of which:
unblocked
of which: blocked until
2023
2024
2025
2026
Shares on 31 December 2022
2
2022
2023
2024
2025
Shares on 31 December 2021
1 Includes shares held by related parties. 2 Includes 203,246 unvested shares granted under variable compensation plans with forfeiture provisions as part of Lukas Gähwiler’s compensation for his executive roles
previously held at UBS.
p
Audited |
Loans granted to GEB members
1
Pursuant to article 38 of the Articles of Association (the AoA) of UBS Group AG, GEB members may be granted loans.
Such loans are made in the ordinary course of business on substantially the same terms as those granted to other
employees, including interest rates and collateral, and neither involve more than the normal risk of collectability nor
contain any other unfavorable features for the firm. The total amount of such loans must not exceed CHF 20m per GEB
member.
CHF, except where indicated
2
USD
(for reference)
Name, function
on 31 December
Loans
3
Loans
3
Christian Bluhm, Group Chief Risk Officer (highest loan in 2022)
2022
Christian Bluhm, Group Chief Risk Officer (highest loan in 2021)
2021
Aggregate of all GEB members
4
2022
2021
1 No loans have been granted to related parties of the GEB members at conditions not customary in the market. 2 Swiss franc and US dollar amounts disclosed represent local currency amounts translated at the
relevant year-end closing exchange rate. 3 All loans granted are secured loans. 4 No unused uncommitted credit facilities in 2022 and 202 1.
p
Advisory vote
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Corporate
governance
and
compensation
|
Compensation
239
Audited |
Loans granted to BoD members
1
Pursuant to article 33 of the AoA of UBS Group AG, loans to independent BoD members are made in the ordinary course
of business at general market conditions. The Vice Chairman, given the full-time nature of his role, may be granted loans
in the ordinary course of business on substantially the same terms as those granted to employees, including interest rates
and collateral. Such loans neither involve more than the normal risk of collectability nor contain any other unfavorable
features for the firm. The total amount of such loans must not exceed CHF 20m per BoD member.
CHF, except where indicated
2
USD
(for reference)
on 31 December
Loans
3,4
Loans
3,4
Aggregate of all BoD members
2022
2021
1 No loans have been granted to related parties of the BoD members at conditions not customary in the market. 2 Swiss franc and US dollar amounts disclosed represent local currency amounts translated at the
relevant year-end closing exchange rate. 3 All loans granted are secured loans. 4 No loans in 2022 and CHF 1,500,000 for Reto Francioni in 2021.
p
Audited |
Compensation paid to former BoD and GEB members
1
CHF, except where indicated
2
USD
(for reference)
For the year
Compensation
Benefits
Total
Total
Former BoD members
2022
2021
Aggregate of all former GEB members
3
2022
2021
Aggregate of all former BoD and GEB members
2022
2021
1 Compensation or remuneration that is related to the former members’ activity on the BoD or GEB or that is not at market conditions. 2 Swiss franc and US dollar amounts disclosed represent local currency amounts
translated at the relevant year -end closing exchange rate. 3 Includes benefit payments in 2022 and 2021 to two former GEB members.
Advisory vote
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Corporate
governance
and
compensation
|
Compensation
240
Provisions of the Articles of Association related to compensation
Swiss say-on-pay provisions give shareholders of companies listed in Switzerland significant influence over board and
management compensation. At UBS, this is achieved by means of an annual binding say-on-pay vote in accordance with
the following provisions of the AoA.
Say on pay
In line with article 43 of the AoA, the General Meeting approves proposals from the BoD in relation to:
a) the maximum aggregate amount of compensation of the BoD for the period until the next AGM;
b) the maximum aggregate amount of fixed compensation of the GEB for the following financial year; and
c) the aggregate amoun t of variable compensation of the GEB for the preceding financial year.
The BoD may submit for approval by the General Meeting deviating or additional proposals relating to the same or
different periods. If the General Meeting does not approve a proposal from the BoD, the BoD will determine, taking into
account all relevant factors, the respective (maximum) aggregate amount or (maximum) partial amounts and submit the
amount(s) so determined for approval by the General Meeting. UBS Group AG or companies controlled by it may pay or
grant compensation prior to approval by the General Meeting, subject to subsequent approval.
Principles of compensation
In line with articles 45 and 46 of the AoA, compensation of the members of the BoD includes base remuneration and
may include other compensation elements and benefits. Compensation of the members of the BoD is intended to
recognize the responsibility and governance nature of their role, to attract and retain qualified individuals, and to ensure
alignment with shareholders’ interests.
Compensation of the members of the GEB includes fixed and variable compensation elements. Fixed compensation
includes the base salary and may include other compensation elements and benefits. Variable compensation elements
are governed by financial and non-financial performance measures that take into account the performance of UBS Group
AG and / or parts thereof, targets in relation to the market, other companies or comparable benchmarks, short- and
long-term strategic objectives, and / or individual targets. The BoD or, where delegated to it, the Compensation
Committee, determines the respective performance measures, the overall and individual performance targets, and their
achievement. The BoD or, where delegated to it, the Compensation Committee, aims to ensure alignment with
sustainable performance and appropriate risk-taking through adequate deferrals, forfeiture conditions, caps on
compensation, harmful acts provisions and similar means with regard to parts of or all of the compensation. Parts of
variable compensation are subject to a multi -year vesting period.
Additional amount for GEB members appointed after the vote on the aggregate amount of compensation by the AGM
In line with article 46 of the AoA of UBS Group AG, if the maximum aggregate amount of compensation already approved
by the General Meeting is not sufficient to also cover the compensation of a person that becomes a member of or is
being promoted within the GEB after the General Meeting has approved the compensation, UBS Group AG, or companies
controlled by it, is authorized to pay or grant each such GEB member a supplementary amount during the compensation
period(s) already approved. The aggregate pool for such supplementary amounts per compensation period cannot exceed
40% of the average of total annual compensation paid or granted to the GEB during the previous three years.
›
Refer to
ubs.com/governance
for more information
Advisory vote
|
Corporate
governance
and
compensation
|
Compensation
241
Annual Report 2022 |
Financial
statements
|
Consolidated
financial
statements
242
Financial statements
Consolidated financial statements
Table of contents
244
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252
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|
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financial
statements
243
361
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475
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30
478
31
479
32
479
33
482
34
Annual Report 2022 |
Financial
statements
|
Consolidated
financial
statements
244
Management’s report on internal control over financial reporting
Management’s responsibility for internal control over financial reporting
The Board of Directors and management of UBS Group AG (UBS) are responsible for establishing and maintaining
adequate internal control over financial reporting. UBS’s internal control over financial reporting is designed to provide
reasonable assurance regarding the preparation and fair presentation of published financial statements in accordance
with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB).
UBS’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 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 2022
UBS management has assessed the effectiveness of UBS’s internal control over financial reporting as of 31 December
2022 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 2022, UBS’s internal control over financial reporting was effective.
The effectiveness of UBS’s internal control over financial reporting as of 31 December 2022 has been audited by Ernst
Young Ltd, UBS’s independent registered public accounting firm, as stated in their
opinion on the effectiveness of UBS’s internal control over financial reporting as of 31 December 2022.
Annual Report 2022 |
Financial
statements
|
Consolidated
financial
statements
245
Annual Report 2022 |
Financial
statements
|
Consolidated
financial
statements
246
Annual Report 2022 |
Financial
statements
|
Consolidated
financial
statements
247
Annual Report 2022 |
Financial
statements
|
Consolidated
financial
statements
248
Annual Report 2022 |
Financial
statements
|
Consolidated
financial
statements
249
Annual Report 2022 |
Financial
statements
|
Consolidated
financial
statements
250
Annual Report 2022
|
Consolidated
financial
statements
|
UBS
Group
AG
consolidated
financial
statements
251
UBS Group AG consolidated financial statements
Primary financial statements and share information
Audited |
Income statement
For the year ended
USD m
Note
31.12.22
31.12.21
31.12.20
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
(6,564 )
(3,259 )
(4,247 )
Net interest income from financial instruments measured at fair value through profit or loss and other
Net interest income
Other net income from financial instruments measured at fair value through profit or loss
Fee and commission income
Fee and commission expense
(1,823 )
(1,985 )
(1,775 )
Net fee and commission income
Other income
Total revenues
Credit loss expense / (release)
19
(148 )
Personnel expenses
General and administrative expenses
Depreciation, amortization and impairment of non -financial assets
11, 12
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
Earnings per share (USD)
Basic
Diluted
Annual Report 2022
|
Consolidated
financial
statements
|
UBS
Group
AG
consolidated
financial
statements
252
Statement of comprehensive income
For the year ended
USD m
Note
31.12.22
31.12.21
31.12.20
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
(894 )
(1,076 )
Effective portion of changes in fair value of hedging instruments designated as net investment hedges, before tax
(936 )
Foreign currency translation differences on foreign operations reclassified to the income statement
(2 )
(7 )
Effective portion of changes in fair value of hedging instruments designated as net investment hedges reclassified to
the income statement
(4 )
Income tax relating to foreign currency translations, including the effect of net investment hedges
(67 )
Subtotal foreign currency translation, net of tax
(525 )
(535 )
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 )
(40 )
Reclassification of financial assets to Other financial assets measured at amortized cost
1
Income tax relating to net unrealized gains / (losses)
(3 )
(48 )
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
(5,758 )
(992 )
Net (gains) / losses reclassified to the income statement from equity
(159 )
(1,073 )
(770 )
Income tax relating to cash flow hedges
(231 )
Subtotal cash flow hedges, net of tax
(4,793 )
2
(1,675 )
Cost of hedging
25
Cost of hedging, before tax
(32 )
(13 )
Income tax relating to cost of hedging
Subtotal cost of hedging, net of tax
(26 )
(13 )
Total other comprehensive income that may be reclassified to the income statement, net of tax
(5,267 )
(2,393 )
Other comprehensive income that will not be reclassified to the income statement
Defined benefit plans
26
Gains / (losses) on defined benefit plans, before tax
(73 )
(327 )
Income tax relating to defined benefit plans
(7 )
Subtotal defined benefit plans, net of tax
(10 )
(5 )
(218 )
Own credit on financial liabilities designated at fair value
20
Gains / (losses) from own credit on financial liabilities designated at fair value, before tax
(293 )
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
(293 )
Total other comprehensive income that will not be reclassified to the income statement, net of tax
(511 )
Total other comprehensive income
(4,481 )
(2,351 )
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
(4,494 )
(2,367 )
of which: other comprehensive income that may be reclassified to the income statement
(5,267 )
(2,393 )
of which: other comprehensive income that will not be reclassified to the income statement
(490 )
Total comprehensive income
1 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 1b for more information. 2 Mainly reflects net unrealized losses on US dollar hedging derivatives resulting from significant increases in the relevant US dollar long-term interest rates.
Annual Report 2022
|
Consolidated
financial
statements
|
UBS
Group
AG
consolidated
financial
statements
253
Balance sheet
USD m
Note
31.12.22
31.12.21
Assets
Cash and balances at central banks
Loans and advances to banks
Receivables from securities financing transactions measured at amortized cost
9, 21
Cash collateral receivables on derivative instruments
9, 21
Loans and advances to customers
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
19, 20
Investments in associates
28b
Property, equipment and software
11
Goodwill and intangible assets
12
Deferred tax assets
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
14
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
Treasury shares
(6,874 )
(4,675 )
Retained earnings
Other comprehensive income recognized directly in equity, net of tax
(103 )
Equity attributable to shareholders
Equity attributable to non-controlling interests
Total equity
Total liabilities and equity
Annual Report 2022
|
Consolidated
financial
statements
|
UBS
Group
AG
consolidated
financial
statements
254
Statement of changes in equity
USD m
Share
capital
Share
premium
Treasury
shares
Retained
earnings
Balance as of 31 December 2019
(3,326 )
Acquisition of treasury shares
(1,584 )
2
Delivery of treasury shares under share-based compensation plans
(628 )
Other disposal of treasury shares
(11 )
2
Share-based compensation expensed in the income statement
Tax (expense) / benefit
Dividends
(1,304 )
3
(1,304 )
3
Translation effects recognized directly in retained earnings
(49 )
Share of changes in retained earnings of associates and joint ventures
(40 )
New consolidations / (deconsolidations) and other increases / (decreases)
4
(76 )
Total comprehensive income for the year
of which: net profit / (loss)
of which: OCI, net of tax
(511 )
Balance as of 31 December 2020
(4,068 )
Acquisition of treasury shares
(3,521 )
2
Delivery of treasury shares under share-based compensation plans
(675 )
Other disposal of treasury shares
2
Cancellation of treasury shares related to the 2018–2021 share repurchase program
(16 )
(236 )
(1,792 )
Share-based compensation expensed in the income statement
Tax (expense) / benefit
(88 )
Dividends
(651 )
3
(651 )
3
Equity classified as obligation to purchase own shares
(7 )
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)
5
Total comprehensive income for the year
of which: net profit / (loss)
of which: OCI, net of tax
Balance as of 31 December 2021
(4,675 )
Acquisition of treasury shares
(6,262 )
2
Delivery of treasury shares under share-based compensation plans
(763 )
Other disposal of treasury shares
(1 )
2
Cancellation of treasury shares related to the 2021 share repurchase program
6
(18 )
(1,502 )
(1,502 )
Share-based compensation expensed in the income statement
Tax (expense) / benefit
Dividends
(834 )
3
(834 )
3
Equity classified as obligation to purchase own shares
(15 )
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
(6,874 )
1 Excludes other comprehensive income related to defined benefit plans and own credit, which is recorded directly in Retained earnings. 2 Includes treasury shares acquired and disposed of by the Investment Bank
in its capacity as a market-maker with regard to UBS Group AG shares and related derivatives, and to hedge certain issued structured debt instruments. These acquisitions and disposals are reported based on the sum
of the net monthly movements. 3 Reflects the payment of an ordinary cash dividend of USD
, 2020: USD
) per dividend-bearing share. From 2020 onward, Swiss tax law effective 1 January
2020 requires that Switzerland-domiciled companies with shares listed on a stock exchange pay no more than
% of dividends from capital contribution reserves, with the remainder required to be paid from retained
earnings. 4 Mainly relates to the establishment of a banking partnership with Banco do Brasil. In 2020, UBS issued a
% stake in UBS Brasil Serviços in exchange for exclusive access to Banco do Brasil’s
corporate clients. Upon completion of the transaction in 2020, equity attributable to non-controlling interests increased by USD
m, with no material effect on equity attributable to shareholders. 5 Includes the
effects related to the launch of UBS’s operational partnership entity with Sumitomo Mitsui Trust Holdings, Inc. in 2021. 6 Reflects the cancellation of
repurchase program from its inception in 2021 until 18 February 2022, as approved by shareholders at the 2022 Annual General Meeting. For shares repurchased from 2020 onward, Swiss tax law effective 1 January
2020 requires Switzerland-domiciled companies with shares listed on a Swiss stock exchange to reduce capital contribution reserves by at least
% of the total capital reduction amount exceeding the nominal value
upon cancellation of the shares.
Annual Report 2022
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financial
statements
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Group
AG
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financial
statements
255
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
(1,584 )
(1,584 )
(2,607 )
(6 )
(2,613 )
(40 )
(40 )
(12 )
(3,521 )
(3,521 )
(88 )
(88 )
(1,301 )
(4 )
(1,305 )
(7 )
(7 )
(18 )
(18 )
(2,393 )
(535 )
(157 )
(1,675 )
(2,393 )
(535 )
(157 )
(1,675 )
(2,351 )
(16 )
(2,367 )
(7 )
(6,262 )
(6,262 )
(1,668 )
(9 )
(1,677 )
(15 )
(15 )
(69 )
(69 )
(3 )
(3 )
(7 )
(3 )
(5,267 )
(525 )
(4,793 )
(5,267 )
(525 )
(4,793 )
(4,481 )
(14 )
(4,494 )
(103 )
(4 )
(4,234 )
Annual Report 2022
|
Consolidated
financial
statements
|
UBS
Group
AG
consolidated
financial
statements
256
Share information and earnings per share
Ordinary share capital
As of 31 December 2022, UBS Group AG had
with a nominal value of CHF
. Shares issued decreased by
m in 2022, as the shares acquired under the 2021 share
repurchase program from its inception in 2021 until 18 February 2022 were canceled by means of a capital reduction,
as approved by shareholders at the 2022 Annual General Meeting (the AGM).
Following revisions to Swiss Corporate Law that are effective from 1 January 2023, the Board of Directors (the BoD) will
propose at the 2023 AGM that the shareholders approve the conversion of the share capital currency of UBS Group AG
from the Swiss franc to the US dollar. This would align the share capital currency with the financial statement presentation
currency of UBS Group AG. If the change is approved, the share capital of UBS Group AG will be slightly reduced to a
nominal value per share of USD
contribution reserve (presented as
Share premium
UBS Group AG consolidated will not change.
Conditional share capital
As of 31 December 202 2, the following conditional share capital was available to UBS Group AG’s BoD.
–
A maximum of CHF
of CHF
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.
–
A maximum of CHF
CHF
members of the management and of the BoD of UBS Group AG and its subsidiaries. This conditional capital allowance
was approved by the shareholders at the same EGM in 2014.
Authorized share capital
UBS Group AG had no authorized capital available to issue on 31 December 2022.
Annual Report 2022
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Consolidated
financial
statements
|
UBS
Group
AG
consolidated
financial
statements
257
Share repurchase programs
In February 2021, UBS initiated a share repurchase program of up to CHF
bn. Under this program, UBS repurchased
m shares in 2022 for a total acquisition cost of USD
m (CHF
m).
The 2021 program was concluded on 29 March 2022 and the
its inception in 2021 until 18 February 2022 for a total acquisition cost of USD
m (CHF
m) were canceled by
means of a capital reduction, as approved by shareholders at the 2022 AGM. UBS intends to cancel the remaining
In March 2022, UBS commenced a new two-year share repurchase program of up to USD
bn. Under this program, UBS
repurchased
m shares in 2022 for a total acquisition cost of USD
m (CHF
m). UBS also intends to cancel
the shares purchased under the 2022 program by means of a capital reduction, pending approval by shareholders at a
future AGM.
As of or for the year ended
31.12.22
31.12.21
31.12.20
Shares outstanding
Shares issued
Balance at the beginning of the year
Shares canceled
(177,787,273 )
1
(156,632,400 )
2
Balance at the end of the year
Treasury shares
Balance at the beginning of the year
Acquisitions
Disposals
(67,497,138 )
(62,299,449 )
(63,916,551 )
Cancellation of second trading line treasury shares
(177,787,273 )
1
(156,632,400 )
2
Balance at the end of the year
Shares outstanding
Basic and diluted earnings (USD m)
Net profit / (loss) attributable to shareholders for basic EPS
Less: (profit) / loss on own equity derivative contracts
(1 )
Net profit / (loss) attributable to shareholders for diluted EPS
Weighted average shares outstanding
Weighted average shares outstanding for basic EPS
3
Effect of dilutive potential shares resulting from notional employee shares, in-the-money options and warrants
outstanding
4
Weighted average shares outstanding for diluted EPS
Earnings per share (USD)
Basic
Diluted
Potentially dilutive instruments
5
Employee share-based compensation awards
Other equity derivative contracts
Total
1 Reflects the cancellation of shares purchased under UBS’s 2021 share repurchase program as approved by shareholders at the 2022 Annual General Meeting (AGM). 2 Reflects the cancellation of shares purchased
under UBS’s 2018 –2021 share repurchase program as approved by shareholders at the 2021 AGM. 3 The weighted average shares outstanding for basic EPS are calculated by taking the number of shares at the
beginning of the period, adjusted by the number of shares acquired or issued during the period, multiplied by a time-weighted factor for the period outstanding. As a result, balances are affected by the timing of
acquisitions and issuances during the period. 4 The weighted average number of shares for notional employee awards with pe rformance conditions reflects all potentially dilutive shares that are expected to vest
under the terms of the awards. 5 Reflects potential shares that could dilute basic earnings per share in the future, but were not dilutive for the periods presented.
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Statement of cash flows
For the year ended
USD m
31.12.22
31.12.21
31.12.20
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 profits of associates and joint ventures and impairment related to associates
(32 )
(105 )
(84 )
Deferred tax expense / (benefit)
Net loss / (gain) from investing activities
(1,470 )
(230 )
(698 )
Net loss / (gain) from financing activities
(16,587 )
Other net adjustments
(8,076 )
Net change in operating assets and liabilities:
Loans and advances to banks and amounts due to banks
(1,088 )
Securities financing transactions measured at amortized cost
(2,316 )
Cash collateral on derivative instruments
(3,312 )
(3,487 )
Loans and advances to customers and customer deposits
(5,163 )
Financial assets and liabilities at fair value held for trading and derivative financial instruments
(10,516 )
Brokerage receivables and payables
(5,199 )
Financial assets at fair value not held for trading and other financial assets and liabilities
Provisions and other non-financial assets and liabilities
(387 )
Income taxes paid, net of refunds
(1,582 )
(1,134 )
(1,002 )
Net cash flow from / (used in) operating activities
Cash flow from / (used in) investing activities
Purchase of subsidiaries, associates and intangible assets
(3 )
(1 )
(46 )
Disposal of subsidiaries, associates and intangible assets
1
Purchase of property, equipment and software
(1,643 )
(1,841 )
(1,854 )
Disposal of property, equipment and software
Purchase of financial assets measured at fair value through other comprehensive income
(4,783 )
(5,802 )
(6,290 )
Disposal and redemption of financial assets measured at fair value through other comprehensive income
Net (purchase) / redemption of debt securities measured at amortized cost
(11,993 )
(415 )
(4,166 )
Net cash flow from / (used in) investing activities
(12,447 )
(2,119 )
(6,785 )
Table continues below.
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Statement of cash flows (continued)
Table continued from above.
For the year ended
USD m
31.12.22
31.12.21
31.12.20
Cash flow from / (used in) financing activities
Net short-term debt issued / (repaid)
(12,249 )
(3,093 )
Net movements in treasury shares and own equity derivative activity
(6,006 )
(3,341 )
(1,387 )
Distributions paid on UBS shares
(1,668 )
(1,301 )
(2,607 )
Issuance of debt designated at fair value and long -term debt measured at amortized cost
Repayment of debt designated at fair value and long-term debt measured at amortized cost
(67,670 )
(79,909 )
(87,098 )
Net cash flows from other financing activities
(617 )
(282 )
(575 )
Net cash flow from / (used in) financing activities
(9,094 )
Total cash flow
Cash and cash equivalents at the beginning of the year
Net cash flow from / (used in) operating, investing and financing activities
(6,895 )
Effects of exchange rate differences on cash and cash equivalents
(5,659 )
(5,307 )
Cash and cash equivalents at the end of the year
2
of which: cash and balances at central banks
3
of which: loans and advances to banks
of which: money market paper
4
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
5
1 Includes cash proceeds from the sales of: UBS’s shareholding in Mitsubishi Corp. -UBS Realty Inc.; UBS’s wholly owned subsidiary UBS Swiss Financial Advisers AG; UBS’s US alternative investments administration
business; and UBS’s domestic wealth management business in Spain. Refer to Note 29 for more information. Also includes dividends received from associates. 2 USD
m, USD
m and USD
m of cash
and cash equivalents (mainly reflected in Loans and advances to banks) were restricted as of 31 December 2022, 31 December 2021 and 31 December 2020, respectively. Refer to Note 22 for more information.
3 Includes only balances with an original maturity of three months or less. 4 Money market paper is included in the balance sheet under Financial assets at fair value held for trading (31 December 2022: USD
m;
31 December 2021: USD
m; 31 December 2020: USD
m), Financial assets measured at fair value through other comprehensive income (31 December 2022: USD
m; 31 December 2021: USD
m; 31 December
2020: USD
m), Financial assets at fair value not held for trading (31 December 2022: USD
m; 31 December 2021: USD
m; 31 December 2020: USD
m), and Other financial assets measured at
amortized cost (31 December 2022: USD
m; 31 December 2021: USD
m; 31 December 2020: USD
m). 5 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
Total
Balance as of 1 January 2021
Cash flows
(3,093 )
Non-cash changes
(5,148 )
(475 )
(4,673 )
(56 )
(2,724 )
of which: foreign currency translation
(3,175 )
(475 )
(2,700 )
(1,617 )
(65 )
(4,857 )
of which: fair value changes
of which: hedge accounting and other effects
(1,972 )
(1,972 )
(1,972 )
Balance as of 31 December 2021
Cash flows
(14,333 )
(12,249 )
(2,084 )
(253 )
(804 )
Non-cash changes
(10,201 )
(1,173 )
(9,028 )
(13,944 )
(190 )
(24,335 )
of which: foreign currency translation
(3,526 )
(1,173 )
(2,353 )
(1,394 )
(115 )
(5,035 )
of which: fair value changes
(12,550 )
(75 )
(12,625 )
of which: hedge accounting and other effects
(6,675 )
(6,675 )
(6,675 )
Balance as of 31 December 2022
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.
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Notes to the UBS Group AG consolidated financial statements
Note 1 Summary of material accounting policies
The following table provides an overview of information included in this Note.
261
a)
261
261
1)
261
2)
261
a.
262
b.
266
c.
266
d.
266
e.
266
f.
267
g.
270
h.
270
i.
271
271
3)
272
4)
273
5)
273
6)
274
7)
274
8)
274
9)
275
10)
275
11)
276
b)
276
c)
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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 Group AG and its subsidiaries (UBS or the Group). On 23 February 2023, 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 International Financial Reporting Standards (IFRS), as
issued by the International Accounting Standards Board (the IASB), and are presented in US dollars (USD).
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,
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 requires management to apply judgment and make estimates and assumptions that affect reported amounts
of assets, liabilities, income and expenses, and disclosure of contingent assets and liabilities, and may involve significant uncertainty at the time they are made.
Such estimates and assumptions are based on the best available information. UBS regularly reassesses 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’s estimates, which could result in significant losses to the Group, beyond what was anticipated or provided for.
The following areas contain estimation uncertainty or require critical judgment and have a significant effect on 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 9 in this Note and to Note 17);
–
post-employment benefit plans (refer to item 5 in this Note and to Note 2 6);
–
goodwill (refer to item 8 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 the parent company (UBS Group AG) and its subsidiaries,
presented as a single economic entity; intercompany transactions and balances have been eliminated. UBS 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 an 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 the Group has power over another entity, i.e.,
the current ability to direct the relevant activities of an entity when decisions about those activities need to be made.
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 req uired to establish that control is present.
Business combinations are accounted for using the acquisition method. The amount of any non-controlling interest 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 has power over the entity. As the nature and extent of UBS’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 recognizes financial instruments when it becomes a party to contractual provisions of an instrument. UBS applies
settlement date accounting to all standard purchases and sales of non-derivative financial instruments.
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Note 1 Summary of material accounting policies (continued)
In transactions where UBS acts as a transferee, to the extent the financial asset transfer does not qualify for derecognition
by the transferor, UBS does not recognize the transferred instrument as its asset.
UBS also acts in a fiduciary capacity, which results in 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’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 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 being achieved by
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 a hedge relationship, in which case hedge
accounting requirements apply (refer to item 2j in this Note for more information).
Business model assessment and contractual cash flow characteristics
UBS determines the nature of a business model by considering the way financial assets are managed to achieve a
particular business objective.
In assessing whether contractual cash flows are SPPI, the Group considers whether the contractual terms of the financial
asset contain a term that could change the timing or amount of contractual cash flows arising over the life of the
instrument. 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
Debt issued measured at amortized cost includes contingent capital instruments contain ing contractual provisions under
which the principal amounts would be written down or converted into equity 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.
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.
A gain or loss is recognized in
Other income
activities. A subsequent sale of own bonds in the market is treated as a reissuance of debt.
Financial liabilities measured at fair value through profit or loss
UBS designates certain issued debt instruments as financial liabilities at fair value through profit or loss, on the basis that
such financial instruments include non-closely-related embedded derivatives that 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 classifies, measures and presents its financial assets and liabilities in accordance with IFRS 9,
as described in the table below.
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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;
–
loans and advances to 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
and certain asset-backed 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
are reclassified to the 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.
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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
This classification includes financial asset s mandatorily
measured at FVTPL that are not held for trading, as
follows:
–
certain structured loans, 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; 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 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 o f a financial liability
designated at FVTPL that is attributable to changes in
UBS’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
UBS designates at FVTPL the following financial
liabilities:
–
issued hybrid debt instruments that primarily include
equity-linked, credit -linked and rates-linked bonds or
notes;
–
issued debt instruments managed on a fair value
basis;
–
certain payables 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 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 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
does not retain a portion of the syndicated loan or where UBS does retain a portion of the syndicated loan at the same
effective yield for comparable risk as other participants, are included in
Net fee and commission income
and either
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 derecognizes a transferred financial asset, or a portion of a financial asset, if the purchaser has received 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 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 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 variation margin
on a daily basis represents 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 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 2 0d.
UBS‘s governance framework over fair value measurement is described in Note 20b, and UBS 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’s credit card limits and master
credit facilities, as UBS is exposed to credit risk because the borrower has the ability to draw down funds before UBS 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
cash shortfalls that would result if a default occurs in the 12 months after the reporting date, weighted by the risk of
a default occurring.
–
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 or originated credit-
impaired (POCI). POCI 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 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 “Credit policies for distressed assets” in 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.
For the purpose of determining the ECL-relevant parameters, UBS 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’s model validation and
oversight processes.
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Note 1 Summary of material accounting policies (continued)
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 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 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’s key ECL-relevant portfolios.
For UBS, the following forward-looking macroeconomic variables represent the most relevant factors for ECL calculation:
–
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 our corporate rating tools.
Scenario generation, review process and governance
A team of economists, which is part of Group Risk Control, develop the forward-looking macroeconomic assumptions
with involvement from a broad range of experts.
The scenarios, their weight 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’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 is exposed to
credit risk, taking into account contractual extension, termination and prepayment options. For irrevocable loan
commitments and financial guarantee contracts, the measurement period represents the maximum contractual period
for which UBS has an obligation to extend credit.
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Note 1 Summary of material accounting policies (continued)
Additionally, some financial instruments include both an on-demand loan and a revocable undrawn commitment, where
the contractual cancel lation right does not limit UBS’s exposure to credit risk to the contractual notice period, as the
client has the ability to draw down funds before UBS can take risk-mitigating actions. In such cases UBS is required to
estimate the period over which it is exposed to credit risk. This applies to UBS’s credit card limits, which do not have a
defined contractual maturity date, are callable on demand and where the drawn and undrawn components are managed
as one exposure. The exposure arising from UBS’s credit card limits is not significant and is managed at a portfolio level,
with credit actions triggered when balances are past due. An ECL measurement period of seven years is applied for credit
card limits, capped at 12 months for stage 1 balances, as a proxy for the period that UBS is exposed to credit risk.
Customary master credit agreements in the Swiss corporate market also include on-demand loans and revocable undrawn
commitments. For smaller commercial facilities, a risk-based monitoring (RbM) approach is in place that highlights
negative trends as risk events, at an individual facility level, based on a combination of continuously updated risk
indicators. The risk events trigger additional credit reviews by a risk officer, 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
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
is exposed to credit risk, with 12 months also used as a look-back period for assessing SICR, always from the respective
reporting date.
Significant increase in credit risk
Financial instruments subject to ECL are monitored on an ongoing basis. To determine whether the recognition of a
maximum 12-month ECL continues to be appropriate, an assessment is made as to whether an SICR has occurred
since initial recognition of the financial instrument , applying both quantit ative and qualitative factors.
Primarily, UBS assesses changes in an instrument’s risk of default on a quantitative basis by comparing the annualized
forward-looking and scenario-weighted lifetime PD of an instrument determined at two different dates:
–
at the reporting date; and
–
at inception of the instrument.
If, based on UBS’s quantitative modeling, an increase exceeds a set threshold, an SICR is deemed to have occurred and
the instrument is transferred to stage 2 with lifetime ECL 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’s internal grading system
Irrespective of the SICR assessment based on default probabilities, credit risk is generally deemed to have significantly
increased for an instrument if the contractual payments are more than 30 days past due. For certain less material
portfolios, specifically the Swiss credit card portfolio, the 30-day past due criterion is used as the primary indicator of an
SICR. Where instruments are transferred to stage 2 due to the 30-day past due criterion, a minimum period of six months
is applied before a transfer back to stage 1 can be triggered. For instruments in Personal Corporate Banking and Global
Wealth Management Region Switzerland that are between 90 and 180 days past due but have not been reclassified to
stage 3, a one-year period is applied before a transfer back to stage 1 can be triggered.
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 character istics 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.
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Note 1 Summary of material accounting policies (continued)
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 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’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 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 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 which may significantly
affect ECL. The models are governed by UBS’s model validation controls and approved by the GMGC. The post-model adjustm ents 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 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’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.
i. Offsetting
UBS 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 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’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
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Note 1 Summary of material accounting policies (continued)
j
. Hedge accounting
The Group 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
within
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 continues hedge accounting during the period of uncertainty before existing interest rate benchmarks are replaced
with alternative risk-free interest rates. During this period, UBS assumes that the current benchmark rates will continue
to exist, such that forecast transactions are considered highly probable and hedge relationships remain, with little or no
consequential impact on the financial statements. Upon replacement of existing interest rate benchmark s by alternative
risk-free interest rates, UBS applies 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
3) Fee and commission income and expenses
UBS 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 point-in-time services, such as
underwriting fees, deal-contingent merger and acquisitions fees, and brokerage fees (e.g., securities and derivatives
execution and clearing). UBS 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’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 is not required to apply significant
judgment in allocating the consideration received across the various performance obligations.
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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 does not recognize performance fees related to management of clients’ assets or fees related
to contingencies beyond UBS’s control until such uncertainties are resolved.
UBS’s fees are generally earned from short-term contracts. As a result, UBS’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 has not capitalized any material costs to obtain or fulfill a contract or generated any
significant contract assets or liabilities.
UBS presents expenses primarily in line with their nature in the income statement, differentiating between expenses that
are directly attributable to the satisfaction of specific performance obligations associated with the generation of revenues,
which are generally presented within
Total revenues
Fee and commission expense
, and those that are related to
personnel, general and administrative expenses, which are presented within
Operating expenses
. For derivatives execution
and clearing services (where UBS acts as an agent), UBS 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 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
Share-based compensation expense is measured by reference to the fair value of the equity instruments on the date of
grant, taking into account the terms and conditions inherent in the award, including, where relevant, dividend rights,
transfer restrictions in effect beyond the vesting date, market conditions, and non-vesting conditions.
For equity-settled awards, 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.
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
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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 o f 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‘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 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 is subject to the income tax laws of Switzerland and those of the non -Swiss jurisdictions in which UBS has business
operations.
The Group’s provision for income taxes is composed of current and deferred taxes. Current income taxes represent taxes
to be paid or refunded for the current period or previous periods.
Deferred 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 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) gains and losses on the sale of treasury shares (for which the tax
effects are recognized directly in
Equity
); (iii) unrealized gains or losses on financial instruments that are classified at
FVOCI; (iv) changes in fair value of derivative instruments designated as cash flow hedges; (v) remeasurements of defined
benefit plans; or (vi) certain foreign currency translations of foreign operations. Amounts relating to points (iii) through
(vi) above are recognized in
Other comprehensive income
Equity
.
UBS reflects the potential effect of uncertain tax positions for which acceptance by the relevant tax authority is not
considered probable by adjusting current or deferred taxes, as applicable, using either the most likely amount or expected
value methods, depending on which method is deemed a better predictor of the basis on which, and extent to which,
the uncertainty will be resolved.
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Note 1 Summary of material accounting policies (continued)
Critical accounting estimates and judgments
Tax laws are complex, and judgment and interpretations about the application of such laws are required when accounting for income taxes. UBS considers
the performance of its businesses and the accuracy of historical forecasts and other factors 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’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) 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 8 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
8) 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 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‘s methodology for goodwill impairment testing is based on a model that is most sensitive to the following key assumptions : (i) forecasts of earnings
available to shareholders in years one to three; (ii) changes in the discount rates; and (iii) changes in the long-term growth rate.
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
9) Provisions and contingent liabilities
Provisions are liabilities of uncertain timing or amount, and are generally recognized in accordance with IAS 37,
Provisions,
Contingent Liabilities and Contingent Assets
, when: (i) UBS has a present obligation as a result of a past event; (ii) it is
probable that an outflow of resources will be required to settle the obligation; and (iii) a reliable estimate of the amount
of the obligation can be made.
The majority of UBS’s provisions relate to litigation, regulatory and similar matters, restructuring, and employee benefits.
Restructuring provisions are generally recognized as a consequence of management agreeing to materially change the
scope of the business or the manner in which it is conducted, including changes in 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 presents expected credit loss allowances within
Provisions
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.
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Note 1 Summary of material accounting policies (continued)
Critical accounting estimates and judgments
Recognition of provisions often involves significant judgment in assessing the existence of an obligation that results from past events and in estimating the
probability, timing and amount of any outflows of resources. This is particularly the case for litigation, regulatory and similar matters, which, due to their
nature, are subject to many uncertainties, making their outcome difficult to predict.
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 amount of any potential outflows.
›
Refer to Note 17 for more information
10) 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’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 reclassified to the income statement when UBS disposes of, partially or in its entirety, the foreign operation and UBS no
longer controls the foreign operation.
Share capital issued, share premium and treasury shares 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 or disposal of treasury shares
reported as
Share premium.
Other comprehensive income
and financial assets measured at FVOCI 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
11) Equity, treasury shares and contracts on UBS Group AG shares
Proceeds from the issuance of shares are recognized in
Share capital
in
Share premium
.
UBS Group AG shares held (treasury shares)
UBS Group AG shares held by the Group , including those purchased as part of market-making activities, are presented
in
Equity
Treasury shares
Equity
The difference between the proceeds from sales of treasury shares and their weighted average cost (net of tax, if any) is
reported as
Share premium
.
Contracts on UBS Group AG shares
Contracts involving UBS Group AG shares that require net cash settlement, or provide the counterparty or UBS with a
settlement option that includes a choice of settling net in cash, are classified as derivatives held for trading.
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Note 1 Summary of material accounting policies (continued)
b) Changes in accounting policies, comparability and other adjustments
Changes to the presentation of the financial statements
During 2022, UBS made several changes to simplify the presentation of the income statement alongside other primary
financial statements and disclosure notes, and to align them with management information. In particular,
Total operating
income
Total revenues
Credit loss expense / (release)
, which is now separately presented
below
Total revenues
.
Reclassification of a portfolio from
Financial assets measured at fair value through other comprehensive income
Other financial assets measured at amortized cost
Effective from 1 April 2022, UBS has reclassified a portfolio of financial assets from
Financial assets measured at fair value
through other comprehensive income
bn (the Portfolio) to
Other financial assets measured at
amortized cost
, in line with the principles in IFRS 9,
Financial Instruments
, which require a reclassification when an entity
changes its business model for managing financial assets.
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 (BUSA).
The accounting reclassification has arisen as a direct result of the transformation of UBS’s Global Wealth Management
Americas business, which has significantly impacted BUSA. 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, BUSA’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.
The fair value of the Portfolio as on 31 December 2022 was USD
bn. A pre-tax fair value loss of USD
m would
have been recognized in
Other comprehensive income
›
Refer to the Statement of changes in equity and Note 20 for more information about the effects from the reclassification of the
Portfolio
Accounting for obligations to safeguard crypto-assets an entity h olds for platform users (SAB 121)
In March 2022, the US Security and Exchange Commission (the SEC) issued Staff Accounting Bulletin (SAB) 121,
“Accounting for obligations to safeguard crypto-assets an entity holds for platform users.” SAB 121 adds interpretive
guidance requiring SEC registrants, including foreign private issuers that apply IFRS, to recognize a liability on their
balance sheets to reflect the obligation to safeguard any digital asset that is issued or transferred using distributed ledger
or blockchain technology and held for their platform users, along with a corresponding asset. The guidance is effective
for UBS for annual reporting from 2022 onwards. Amounts that would be recognized as liabilities, with corresponding
assets, under this guidance are not material to UBS.
c) International Financial Reporting Standards and Interpretations to be adopted in 2023 and later and other
changes
IFRS 17,
In May 2017, the IASB issued IFRS 17,
Insurance Contracts
, which sets out the accounting requirements for contractual
rights and obligations that arise from insurance contracts issued and reinsurance contracts held. IFRS 17 is effective from
1 January 2023. Adoption on 1 January 2023 will have no effect on the Group’s financial statements . UBS does not
provide insurance services in any market.
Other amendments to IFRS
The IASB has issued a number of minor amendments to IFRS, effective from 1 January 2023 and in later years. These
amendments are not expected to have a significant effect on the Group when they are adopted.
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Note 2a Segment reporting
UBS’s businesses are organized globally into four business divisions: Global Wealth Management, Personal Corporate
Banking, Asset Management and the Investment Bank. All four business divisions are supported by Group Functions and
qualify as reportable segments for the purpose of segment reporting. Together with Group Functions, the four business
divisions reflect the management structure of the Group .
–
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.
–
Group Functions
Information Office, Communications Branding, Compliance, Finance, Group Sustainability and Impact, Human
Resources, Group Legal, Regulatory Governance, and Risk Control), Group Treasury and Non-core and Legacy
Portfolio.
Financial information about the four business divisions and Group Functions is presented separately in internal
management reports to the Group Executive Board (the GEB), which is considered the “chief operating decision maker”
pursuant to IFRS 8,
Operating Segments
.
UBS’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 the Group are
immaterial, as the majority of the revenues are allocated across the segments by means of revenue-sharing agreements.
Interest income earned from managing UBS’s consolidated equity is allocated to the reportable segments based on
average attributed 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 the GEB. If one operating segment is involved in an external transaction together with another
operating segment or Group Functions, 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.
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Note 2a Segment reporting (continued)
USD m
Global Wealth
Management
Personal
Corporate
Banking
Asset
Management
Investment
Bank
Group
Functions
UBS
For the year ended 31 December 2022
Net interest income
(19 )
(242 )
(584 )
Non-interest income
1
Total revenues
(385 )
Credit loss expense / (release)
(12 )
Operating expenses
Operating profit / (loss) before tax
(480 )
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
Group
Functions
UBS
For the year ended 31 December 2021
Net interest income
(15 )
(127 )
Non-interest income
(233 )
Total revenues
(359 )
Credit loss expense / (release)
(29 )
(86 )
(34 )
(148 )
Operating expenses
Operating profit / (loss) before tax
(689 )
Tax expense / (benefit)
Net profit / (loss)
Additional information
Total assets
2
Additions to non-current assets
USD m
Global Wealth
Management
Personal
Corporate
Banking
Asset
Management
Investment
Bank
Group
Functions
UBS
For the year ended 31 December 2020
Net interest income
(17 )
(481 )
Non-interest income
3
Total revenues
(452 )
Credit loss expense / (release)
Operating expenses
Operating profit / (loss) before tax
(1,060 )
Tax expense / (benefit)
Net profit / (loss)
Additional information
Total assets
Additions to non-current assets
1 Includes an USD
m gain in Asset Management related to the sale of UBS’s shareholding in Mitsubishi Corp.-UBS Realty Inc. 2 During 2022, UBS refined the methodology applied to allocate balance sheet
resources from Group Functions 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 related to the Investment Bank. 3 Includes a USD
m net gain on the sale of a majority stake in Fondcenter AG (now Clearstream Fund Centre AG), of which USD
m
was recognized in Asset Management and USD
m was recognized in Global Wealth Management.
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Note 2b Segment reporting by geographic location
The operating regions shown in the table below correspond to the regional management structure of the Group. The
allocation of 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 in
Group Functions, 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 2022
Total revenues
1
Total non-current assets
USD bn
Share %
USD bn
Share %
Americas
2
Asia Pacific
Europe, Middle East and Africa (excluding Switzerland)
Switzerland
Global
Total
For the year ended 31 December 2021
Total revenues
1
Total non-current assets
USD bn
Share %
USD bn
Share %
Americas
2
Asia Pacific
Europe, Middle East and Africa (excluding Switzerland)
Switzerland
Global
(0.3 )
(1 )
Total
For the year ended 31 December 2020
Total revenues
1
Total non-current assets
USD bn
Share %
USD bn
Share %
Americas
2
Asia Pacific
Europe, Middle East and Africa (excluding Switzerland)
Switzerland
Global
Total
1 During 2022, UBS changed the presentation of its Income statement. Total operating income was renamed Total revenues and excludes Credit loss expense / (release). Note 2b, including prior-period information,
has been updated to reflect the new presentation structure, with the disclosure of Total revenues instead of Total operating income. Refer to Note 1b for more information. 2 Predominantly related to the USA.
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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
31.12.22
31.12.21
31.12.20
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
of which: net gains / (losses) from financial liabilities designated at fair value
1
(6,582 )
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 income from derivative instruments designated as cash flow hedges
Total interest income from financial instruments measured at amortized cost and fair value through other comprehensive income
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 Excludes fair value changes of 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. 2022 included net gains of USD
m (net losses of USD
m and USD
m
in 2021 and 2020, respectively), driven by financial liabilities related to unit-linked investment contracts, which are designated at fair value through profit or loss. This was offset by net losses of USD
m (net
gains of USD
m and USD
m in 2021 and 2020, respectively), related to financial assets for unit-linked investment contracts that are mandatorily measured at fair value through profit or loss not held for
trading. 2 Consists of interest income from cash and balances at central banks, loans and advances to 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, and customer deposits, as well as negative interest on cash and balances at central banks, loans
and advances to 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
31.12.22
31.12.21
31.12.20
Underwriting fees
MA 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 2022, 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 and USD
m for Group Functions (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 and USD
m for Group Functions; for the year ended 31 December 2020: USD
m for Global Wealth Management,
USD
m for Personal Corporate Banking, USD
m for Asset Management, USD
m for the Investment Bank and USD
m for Group Functions).
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Note 5 Other income
For the year ended
USD m
31.12.22
31.12.21
31.12.20
Associates, joint ventures and subsidiaries
Net gains / (losses) from acquisitions and disposals of subsidiaries
1
(11 )
2
Net gains / (losses) from disposals of investments in associates and joint ventures
3
Share of net profits of associates and joint ventures
Total
Net gains / (losses) from disposals of financial assets measured at fair value through other comprehensive income
(1 )
Income from properties
4
Net gains / (losses) from properties held for sale
5
6
Other
7
8
9
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’s acquisitions and
disposals of subsidiaries and businesses. 2 Includes a USD
m net gain on the sale of a majority stake in Fondcenter AG (now Clearstream Fund Centre AG). 3 Includes an USD
m gain related to the sale of
UBS’s shareholding in Mitsubishi Corp.-UBS Realty Inc. Refer to Note 28b for more information. 4 Includes rent received from third parties. 5 Mainly relates to the sale of a property in Basel. 6 Includes net gains
of USD
m arising from sale-and-leaseback transactions, primarily related to a property in Geneva, partly offset by remeasurement losses relating to properties that were reclassified as held for sale. 7 Mainly
relates to a portion of the total USD
m gain on the sale of UBS’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), income of USD
m related to a legacy litigation settlement and a legacy bankruptcy claim, as well as gains of USD
m related to the repurchase of UBS’s own debt instruments
(compared with losses of USD
m in 2021). 8 Includes a gain of USD
m from the sale of UBS’s domestic wealth management business in Austria. 9 Includes a USD
m gain on the sale of intellectual
property rights associated with the Bloomberg Commodity Index family.
Note 6 Personnel expenses
For the year ended
USD m
31.12.22
31.12.21
31.12.20
Salaries
1
Variable compensation
2
of which: performance awards
3
of which: financial advisors
4
of which: other
Contractors
Social security
3
Post-employment benefit plans
5
of which: defined benefit plans
of which: defined contribution plans
Other personnel expenses
3
Total personnel expenses
1 Includes role-based allowances. 2 Refer to Note 27 for more information. 3 During 2020, UBS modified the conditions for continued vesting of certain outstanding deferred compensation awards for qualifying
employees, resulting in an expense of approximately USD
m, of which USD
m is disclosed within Variable compensation – performance awards, USD
m within Social security and USD
m within Other
personnel expenses. 4 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. 5 Refer to Note 26 for more information. Includes curtailment gains of USD
m for the year
ended 31 December 2022 (for the year ended 31 December 2021: USD
m; for the year ended 31 December 2020: 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.
Note 7 General and administrative expenses
For the year ended
USD m
31.12.22
31.12.21
31.12.20
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
Total general and administrative expenses
1 Reflects the net increase in provisions for litigation, regulatory and similar matters recognized in the income statement. Refer to Note 17 for more information.
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Note 8 Income taxes
For the year ended
USD m
31.12.22
31.12.21
31.12.20
Tax expense / (benefit)
Swiss
Current
Deferred
(15 )
Total Swiss
Non-Swiss
Current
Deferred
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 taxable profits of non-Swiss subsidiaries and branches. The non-Swiss
deferred tax expenses include expenses of USD
m that primarily related to the amortization of deferred tax assets
(DTAs) previously recognized in relation to tax losses carried forward and deductible temporary differences of UBS
Americas Inc., which were partly offset by a benefit of USD
m in respect of net upward revaluations of DTAs for
certain entities, primarily in connection with our business planning process.
The effective tax rate for the year of
% is lower than our projected rate for the year of
%, primarily as a result of
the aforementioned deferred tax benefit of USD
m in respect of net upward revaluations of DTAs and because no tax
expenses were recognized in respect of pre-tax gains from dispositions of UBS subsidiaries in 2022.
›
Refer to Note 29 for more information about disposals of subsidiaries
For the year ended
USD m
31.12.22
31.12.21
31.12.20
Operating profit / (loss) before tax
of which: Swiss
of which: non-Swiss
Income taxes at Swiss tax rate of
% for 2022,
% for 2021 and
% for 2020
Increase / (decrease) resulting from:
Non-Swiss tax rates differing from Swiss tax rate
Tax effects of losses not recognized
Previously unrecognized tax losses now utilized
(217 )
(179 )
(212 )
Non-taxable and lower-taxed income
(335 )
(278 )
(394 )
Non-deductible expenses and additional taxable income
Adjustments related to prior years, current tax
(41 )
(40 )
(67 )
Adjustments related to prior years, deferred tax
(10 )
Change in deferred tax recognition
(217 )
(342 )
(381 )
Adjustments to deferred tax balances arising from changes in tax rates
(5 )
Other items
Income tax expense / (benefit)
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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 Group profits or losses arise outside Switzerland, the applicable local tax rate may differ from the Swiss
tax rate. This item reflects, for such profits, an adjustment from the tax expense that would arise at the Swiss tax rate to
the tax expense that would arise at the applicable local tax rate. Similarly, it reflects, for such losses, an adjustment from
the tax benefit that would arise at the Swiss tax rate to the tax benefit that would arise at the applicable local tax rate.
Tax effects of losses
not recognized
This item relates to tax losses of entities arising in the year that are not recognized as DTAs 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 benefit of USD
m was recognized in
Other comprehensive income
m) and
a net tax benefit of USD
m was recognized in
Share premium
(2021: net expense of USD
m).
Annual Report 2022
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Group
AG
consolidated
financial
statements
284
Note 8 Income taxes (continued)
Deferred tax assets and liabilities
The Group 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 the Group 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
2022, this exception was not considered to apply to any taxable temporary differences.
USD m
31.12.22
31.12.21
Deferred tax assets
1
Gross
Valuation
allowance
Recognized
Gross
Valuation
allowance
Recognized
Tax loss carry-forwards
(8,720 )
(9,193 )
Temporary differences
(414 )
(700 )
of which: related to real estate costs capitalized for US tax
purposes
of which: related to compensation and benefits
(175 )
(209 )
of which: related to cash flow hedges
of which: other
(238 )
(491 )
Total deferred tax assets
(9,134 )
2
(9,893 )
2
of which: related to the US
of which: related to other locations
Deferred tax liabilities
Cash flow hedges
Other
Total deferred tax liabilities
1 After offset of DTLs, as applicable. 2 As of 31 December 2022, the Group recognized DTAs of USD
m (31 December 2021: 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
31.12.22
31.12.21
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 2022
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Group
AG
consolidated
financial
statements
285
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’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, seasonalit y,
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 market s (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 2022
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UBS
Group
AG
consolidated
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statements
286
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
31.12.22
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 )
Loans and advances to 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
(889 )
(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
(889 )
(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 )
(259 )
(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 2022
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287
Note 9 Financial assets at amortized cost and other positions in scope of expected credit loss measurement
(continued)
USD m
31.12.21
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
Loans and advances to banks
(8 )
(7 )
(1 )
Receivables from securities financing transactions measured at amortized cost
(2 )
(2 )
Cash collateral receivables on derivative instruments
Loans and advances to customers
(850 )
(126 )
(152 )
(572 )
of which: Private clients with mortgages
(132 )
(28 )
(71 )
(33 )
of which: Real estate financing
(60 )
(19 )
(40 )
of which: Large corporate clients
(170 )
(22 )
(16 )
(133 )
of which: SME clients
(259 )
(19 )
(15 )
(225 )
of which: Lombard
(33 )
(6 )
(28 )
of which: Credit cards
(36 )
(10 )
(9 )
(17 )
of which: Commodity trade finance
(114 )
(6 )
(108 )
Other financial assets measured at amortized cost
(109 )
(27 )
(7 )
(76 )
of which: Loans to financial advisors
(86 )
(19 )
(3 )
(63 )
Total financial assets measured at amortized cost
(969 )
(161 )
(160 )
(647 )
Financial assets measured at fair value through other comprehensive income
Total on-balance sheet financial assets within the scope of ECL requirements
(969 )
(161 )
(160 )
(647 )
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
(41 )
(18 )
(8 )
(15 )
of which: Large corporate clients
(6 )
(3 )
(3 )
of which: SME clients
(8 )
(1 )
(1 )
(7 )
of which: Financial intermediaries and hedge funds
(17 )
(13 )
(4 )
of which: Lombard
(1 )
(1 )
of which: Commodity trade finance
(1 )
(1 )
Irrevocable loan commitments
(114 )
(72 )
(42 )
of which: Large corporate clients
(100 )
(66 )
(34 )
Forward starting reverse repurchase and securities borrowing agreements
Committed unconditionally revocable credit lines
(38 )
(28 )
(10 )
of which: Real estate financing
(5 )
(4 )
(1 )
of which: Large corporate clients
(7 )
(4 )
(3 )
of which: SME clients
(15 )
(11 )
(3 )
of which: Lombard
of which: Credit cards
(6 )
(5 )
(2 )
of which: Commodity trade finance
Irrevocable committed prolongation of existing loans
(3 )
(3 )
Total off-balance sheet financial instruments and credit lines
(196 )
(121 )
(60 )
(15 )
Total allowances and provisions
(1,165 )
(282 )
(220 )
(662 )
1 The carrying amount of financial assets measured at amortized cost represents the total gross exposure net of the respective ECL allowances.
Annual Report 2022
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UBS
Group
AG
consolidated
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statements
288
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 capabilit ies;
–
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 lower than on 31 December 2021. The combined stage 1 and 2 ratio of
with 31 December 2021; the stage 3 ratio was 22%,
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 12
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 12
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 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.
Annual Report 2022
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AG
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289
Note 9 Financial assets at amortized cost and other positions in scope of expected credit loss measurement
(continued)
31.12.21
Gross carrying amount (USD m)
ECL coverage (bps)
On-balance sheet
Total
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 12
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 12
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 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.
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 and
its counterparties. Terms are negotiat ed 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 the Group’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. The Group 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 2022
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Note 10 Derivative instruments (continued)
Risks of derivative instruments
The derivative financial assets shown on the balance sheet can be an important component of the Group’s credit
exposure; however, the positive replacement values related to a respective counterparty are rarely an adequate reflection
of the Group’s credit exposure in its derivatives business with that counterparty. This is generally the case because, on
the one hand, replacement values can increase over time (potential future exposure), while, on the other hand, exposure
may be mitigated by entering into master netting agreements and bilateral collateral arrangements. Both the exposure
measures used internally by the Group to control credit risk and the capital requirements imposed by regulators reflect
these additional factors.
›
Refer to Note 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
31.12.22
31.12.21
USD bn
Derivative
financial
assets
Notional
amounts
related to
derivative
financial
assets
2,3
Derivative
financial
liabilities
Notional
amounts
related to
derivative
financial
liabilities
2,3
Other
notional
amounts
2,4
Derivative
financial
assets
Notional
amounts
related to
derivative
financial
assets
2,3
Derivative
financial
liabilities
Notional
amounts
related to
derivative
financial
liabilities
2,3
Other
notional
amounts
2,4
Interest rate contracts
of which: forwards (OTC)
1
of which: swaps (OTC)
of which: options (OTC)
of which: futures (ETD)
of which: options (ETD)
Credit derivative contracts
of which: credit default swaps (OTC)
of which: total return swaps (OTC)
Foreign exchange contracts
of which: forwards (OTC)
of which: swaps (OTC)
of which: options (OTC)
Equity contracts
of which: swaps (OTC)
of which: options (OTC)
of which: futures (ETD)
of which: options (ETD)
of which: client-cleared transactions (ETD)
Commodity contracts
of which: swaps (OTC)
of which: options (OTC)
of which: futures (ETD)
of which: forwards (ETD)
of which: client-cleared transactions (ETD)
Loan commitments
measured at FVTPL (OTC)
Unsettled purchases of non-derivative
financial instruments
5
Unsettled sales of non-derivative financial
instruments
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 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 Changes in the fair value of purchased and sold non-derivative financial instruments
between trade date and settlement date are recognized as derivative financial instruments. 6 Derivative financial assets and liabilities are presented net on the balance sheet if UBS has the unconditional and legally
enforceable right to offset the rec ognized 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.
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291
Note 10 Derivative instruments (continued)
On a notional amount basis, approximately
% of OTC interest rate contracts held as of 31 December 2022
(31 December 2021:
%) mature within one year,
% (31 December 2021:
%) within one to five years and
%
31 December 2021:
%) 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 2021,
mainly reflecting higher business volumes driven by elevated interest rate volatility and inflation, partly offset by
compression activity.
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
2022
3
2021
3
Historical cost
Balance at the beginning of the year
Additions
Disposals / write-offs
4
(333 )
(62 )
(106 )
(501 )
(751 )
Reclassifications
(1,073 )
(1,301 )
(1,223 )
(18 )
Foreign currency translation
(217 )
(65 )
(42 )
(319 )
(445 )
Balance at the end of the year
Accumulated depreciation
Balance at the beginning of the year
Depreciation
Impairment
5
Disposals / write-offs
4
(332 )
(59 )
(106 )
(497 )
(737 )
Reclassifications
(761 )
(1 )
(761 )
(12 )
Foreign currency translation
(135 )
(24 )
(6 )
(164 )
(243 )
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 as lessee. UBS 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 2022 was USD
m (2021: 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 liabi lities 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 2022 and in 2021. 3 The total reclassification amount for the respective periods represents net reclassifications to Properties and other non-
current assets held for sale. 4 Includes write-offs of fully depreciated assets. 5 Impairment charges recorded in 2022 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 performs an impairment test on its goodwill assets on an annual basis or when indicators of impairment exist.
UBS considers Asset Management , as it is 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 PaineWebber acquisition 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 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.
As of 31 December 2022, 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 concluded that the goodwill balances as of 31 December 202 2 allocated to these
CGUs were not impaired.
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Note 12 Goodwill and intangible assets (continued)
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.
The carrying amount for each CGU is determined by reference to the Group’s equity attribution framework. Within this
framework, which is described in the “Capital, liquidity and funding, and balance sheet” section of this report, 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 Functions 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.
›
Refer to the “Capital, liquidity and funding, and balance sheet” section of this report for more information about the equity
attribution framework
Assumptions
Valuation parameters used within the Group’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
percentage points
,
and the long
-
term growth rates were changed by
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 International Financial R eporting 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 the Group’s capital ratios.
Discount and growth rates
Discount rates
Growth rates
In %
31.12.22
31.12.21
31.12.22
31.12.21
Global Wealth Management Americas
Global Wealth Management Switzerland and International
Asset Management
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Note 12 Goodwill and intangible assets (continued)
USD m
Goodwill
Intangible
assets
1
2022
2021
Historical cost
Balance at the beginning of the year
Additions
Disposals
2
(22 )
(22 )
(3 )
Write-offs
(41 )
Foreign currency translation
(61 )
(14 )
(76 )
(83 )
Balance at the end of the year
Accumulated amortization and impairment
Balance at the beginning of the year
Amortization
Impairment / (reversal of impairment)
(1 )
(1 )
(1 )
Write-offs
(41 )
Foreign currency translation
(11 )
(11 )
(13 )
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.
2 Reflects the derecognition of goodwill allocated to businesses that have been disposed of, in accordance with IAS 36 requirements.
The table below presents estimated aggregated amortization expenses for intangible assets.
USD m
Intangible assets
Estimated aggregated amortization expenses for:
2023
2024
2025
2026
2027
Thereafter
Not amortized due to indefinite useful life
Total
Note 13 Other assets
a) Other financial assets measured at amortized cost
USD m
31.12.22
31.12.21
Debt securities
Loans to financial advisors
Fee- and commission-related receivables
Finance lease receivables
Settlement and clearing accounts
Accrued interest income
Other
Total other financial assets measured at amortized cost
Debt securities increased by USD
bn compared with 31 December 2021, largely reflecting shifts from cash into
securities within UBS’s high -quality liquid asset portfolio as spreads widened. In addition, 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 in 2022.
›
Refer to Note 1b for more information
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Note 13 Other assets (continued)
b) Other non-financial assets
USD m
31.12.22
31.12.21
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
Assets of disposal group held for sale
2
Other
Total other non-financial assets
1 Refer to Note 17 for more information. 2 Refer to Note 29 for more information.
Note 14 Customer deposits
USD m
31.12.22
31.12.21
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.
Increases in interest rates during the year resulted in significant shifts from demand deposits to time deposits.
Note 15 Debt issued designated at fair value
USD m
31.12.22
31.12.21
Issued debt instruments
Equity-linked
1
Rates-linked
Credit-linked
Fixed-rate
Commodity-linked
Other
of which: debt that contributes to total loss-absorbing capacity
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 2022,
% of the balance was unsecured
(31 December 2021:
%).
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Note 16 Debt issued measured at amortized cost
USD m
31.12.22
31.12.21
Short-term debt
1
Senior unsecured debt that contributes to total loss-absorbing capacity (TLAC)
Senior unsecured debt other than TLAC
of which: issued by UBS AG with original maturity greater than one year
Covered bonds
Subordinated debt
of which: eligible as high-trigger loss-absorbing additional tier 1 capital instruments
of which: eligible as low-trigger loss-absorbing additional tier 1 capital instruments
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
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.
The Group uses interest rate and foreign exchange derivatives to manage the risks inherent in certain debt instruments
held at amortized cost. In some cases, the Group applies hedge accounting for interest rate risk as discussed in item 2 j
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 was a decrease of USD
bn as of 31 December 2022 and an increase of USD
bn as of 31 December
2021, 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 2022 pay a fixed rate of interest.
›
Refer to Note 23 for maturity information
Note 17 Provisions and contingent liabilities
a) Provisions
The table below presents an overview of total provisions.
USD m
31.12.22
31.12.21
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
Other
3
Total 2022
Balance at the beginning of the year
Increase in provisions recognized in the income statement
Release of provisions recognized in the income statement
(58 )
(25 )
(36 )
(118 )
Provisions used in conformity with designated purpose
(470 )
(243 )
(32 )
(745 )
Capitalized reinstatement costs
Foreign currency translation / unwind of discount
(91 )
(5 )
(12 )
(108 )
Balance at the end of the year
2
1 Consists of provisions for losses resulting from legal, liability and compliance risks. 2 Consists of personnel-related restructuring provisions of USD
m as of 31 December 2022 (31 December 2021: USD
m)
and provisions for onerous contracts of USD
m as of 31 December 2022 (31 December 2021: USD
m). 3 Mainly includes provisions related to real estate, employee benefits and operational risks.
Restructuring provisions relate to personnel-related provisions and onerous contracts. 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. Onerous contracts for property are recognized when UBS 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.
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.
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Note 17 Provisions and contingent liabilities (continued)
b) Litigation, regulatory and similar matters
The Group operates in a legal and regulatory environment that exposes it to significant litigation and similar risks arising
from disputes and regulatory proceedings. As a result, UBS (which for purposes of this Note may refer to UBS Group AG
and/or one or more of its subsidiaries, as applicable) is involved in various disputes and legal proceedings, including
litigation, arbitration, and regulatory and criminal investigations.
Such matters are subject to many uncertainties, and the outcome and the timing of resolution are often difficult to
predict, particularly in the earlier stages of a case. There are also situations where the Group may enter into a settlement
agreement. This may occur in order to avoid the expense, management distraction or reputational implications of
continuing to contest liability, even for those matters for which the Group believes it should be exonerated. The
uncertainties inherent in all such matters affect the amount and timing of any potential outflows for both matters with
respect to which provisions have been established and other contingent liabilities. The Group makes provisions for such
matters brought against it when, in the opinion of management after seeking legal advice, it is more likely than not that
the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of
resources will be required, and the amount can be reliably estimated. Where these factors are otherwise satisfied, a
provision may be established for claims that have not yet been asserted against the Group, but are nevertheless expected
to be, based on the Group’s experience with similar asserted claims. If any of those conditions is not met, such matters
result in contingent liabilities. If the amount of an obligation cannot be reliably estimated, a liability exists that is not
recognized even if an outflow of resources is probable. Accordingly, no provision is established even if the potential
outflow of resources with respect to such matters could be significant. Developments relating to a matter that occur after
the relevant reporting period, but prior to the issuance of financial statements, which affect management’s assessment
of the provision for such matter (because, for example, the developments provide evidence of conditions that existed at
the end of the reporting period), are adjusting events after the reporting period under IAS 10 and must be recognized in
the financial statements for the reporting period.
Specific litigation, regulatory and other matters are described below, including all such matters that management
considers to be material and others that management believes to be of significance due to potential financial, reputational
and other effects. The amount of damages claimed, the size of a transaction or other information is provided where
available and appropriate in order to assist users in considering the magnitude of potential exposures.
In the case of certain matters below, we state that we have established a provision, and for the other matters, we make
no such statement. When we make this statement and we expect disclosure of the amount of a provision to prejudice
seriously our position with other parties in the matter because it would reveal what UBS believes to be the probable and
reliably estimable outflow, we do not disclose that amount. In some cases we are subject to confidentiality obligations
that preclude such disclosure. With respect to the matters for which we do not state whether we have established a
provision, either: (a) we have not established a provision, in which case the matter is treated as a contingent liability under
the applicable accounting standard; or (b) we have established a provision but expect disclosure of that fact to prejudice
seriously our position with other parties in the matter because it would reveal the fact that UBS believes an outflow of
resources to be probable and reliably estimable.
With respect to certain litigation, regulatory and similar matters for which we have established provisions, we are able to
estimate the expected timing of outflows. However, the aggregate amount of the expected outflows for those matters
for which we are able to estimate expected timing is immaterial relative to our current and expected levels of liquidity
over the relevant time periods.
The aggregate amount provisioned for litigation, regulatory and similar matters as a class is disclosed in the “Provisions”
table in Note 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.
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Note 17 Provisions and contingent liabilities (continued)
Provisions for litigation, regulatory and similar matters by business division and in Group Functions
1
USD m
Global Wealth
Manage-
ment
Personal
Corporate
Banking
Manage-
ment
Investment
Bank
Group
Functions
Total 2022
Balance at the beginning of the year
Increase in provisions recognized in the income statement
Release of provisions recognized in the income statement
(23 )
(15 )
(8 )
(12 )
(58 )
Provisions used in conformity with designated purpose
(331 )
(115 )
(23 )
(470 )
Reclassifications
(4 )
Foreign currency translation / unwind of discount
(70 )
(9 )
(11 )
(91 )
Balance at the end of the year
1 Provisions, if any, for the matters described in items 3 and 4 of this Note are recorded in Global Wealth Management, and provisions, if any, for the matters described in item 2 are recorded in Group Functions.
Provisions, if any, for the matters described in items 1 and 6 of this Note are allocated between Global Wealth Management and Personal Corporate Banking, provisions, if any, for the matters described in item 5
are allocated between the Investment Bank and Group Functions, and provisions, if any, for the matters described in item 7 are allocated between Global Wealth Management and the Investment Bank.
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.
On 20 February 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
French Court of Appeal took place in March 2021. On 13 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 AG has filed an appeal with
the French Supreme Court to preserve its rights. The notice of appeal enables UBS AG to thoroughly assess the verdict of
the Court of Appeal and to determine next steps in the best interest of its stakeholders. The fine and confiscation imposed
by the Court of Appeal are suspended during the appeal. The civil damages award has been paid to the French state
(EUR
m of which was deducted from the bail), subject to the result of UBS’s appeal.
Our balance sheet at 31 December 2022 reflected provisions with respect to this matter in an amount of EUR
bn
(USD
bn). The wide range of possible outcomes in this case contributes to a high degree of estimation uncertainty
and the provision reflects our best estimate of possible financial implications, although actual penalties and civil damages
could exceed (or may be less than) the provision amount.
Our balance sheet at 31 December 2022 reflected provisions with respect to matters described in this item 1 in an amount
that UBS believes to be appropriate under the applicable accounting standard. As in the case of other matters for which
we have established provisions, the future outflow of resources in respect of such matters cannot be determined with
certainty based on currently available information and accordingly may ultimately prove to be substantially greater (or
may be less) than the provision that we have recognized.
2. Claims related to sales of residential mortgage-backed securities and mortgages
From 2002 through 2007, prior to the crisis in the US residential loan market, UBS was a substantial issuer and underwriter
of US residential mortgage-backed securities (RMBS) and was a purchaser and seller of US residential mortgages.
In November 2018, the DOJ filed a civil complaint in the District Court for the Eastern District of New York. The complaint
seeks unspecified civil monetary penalties under the Financial Institutions Reform, Recovery and Enforcement Act of 1989
related to UBS’s issuance, underwriting and sale of 40 RMBS transactions in 2006 and 2007. UBS moved to dismiss the
civil complaint in February 2019. In December 2019, the district court denied UBS’s motion to dismiss.
Our balance sheet at 31 December 2022 reflected a provision with respect to matters described in this item 2 in an
amount that UBS believes to be appropriate under the applicable accounting standard. As in the case of other matters
for which we have established provisions, the future outflow of resources in respect of this matter cannot be determined
with certainty based on currently available information and accordingly may ultimately prove to be substantially greater
(or may be less) than the provision that we have recognized.
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Note 17 Provisions and contingent liabilities (continued)
3. Madoff
In relation to the Bernard L. Madoff Investment Securities LLC (BMIS) investment fraud, UBS AG, UBS (Luxembourg) S.A.
(now UBS Europe SE, Luxembourg branch) and certain other UBS subsidiaries have been subject to inquiries by a number
of regulators, including the Swiss Financial Market Supervisory Authority (FINMA) and the Luxembourg Commission de
Surveillance du Secteur Financier. Those inquiries concerned two third -party funds established under Luxembourg law,
substantially all assets of which were with BMIS, as well as certain funds established in offshore jurisdictions with either
direct or indirect exposure to BMIS. These funds faced severe losses, and the Luxembourg funds are in liquidation. The
documentation establishing both funds identifies UBS entities in various roles, including custodian, administrator,
manager, distributor and promoter, and indicates that UBS employees serve as board members.
In 2009 and 2010, the liquidators of the two Luxembourg funds filed claims against UBS entities, non -UBS entities and
certain individuals, including current and former UBS employees, seeking amounts totaling approximately EUR
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.
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 February 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.
4. Puerto Rico
Declines since 2013 in the market prices of Puerto Rico municipal bonds and of closed-end funds (funds) that are sole-
managed and co-managed by UBS Trust Company of Puerto Rico and distributed by UBS Financial Services Incorporated
of Puerto Rico (UBS PR) led to multiple regulatory inquiries, which in 2014 and 2015, led to settlements with the Office
of the Commissioner of Financial Institutions for the Commonwealth of Puerto Rico, the US Securities and Exchange
Commission (SEC) and the Financial Industry Regulatory Authority.
Since then, UBS clients in Puerto Rico who own the funds or Puerto Rico municipal bonds and/or who used their UBS
account assets as collateral for UBS non-purpose loans filed customer complaints and arbitration demands seeking
aggregate damages of USD
bn, of which USD
bn have been resolved through settlements, arbitration or
withdrawal of claims. Allegations include fraud, misrepresentation and unsuitability of the funds and of the loans.
A shareholder derivative action was filed in 2014 against various UBS entities and current and certain former directors of
the funds, alleging hundreds of millions of US dollars in losses in the funds. In 2021, the parties reached an agreement
to settle this matter for USD
m, subject to court approval.
In 2011, a purported derivative action was filed on behalf of the Employee Retirement System of the Commonwealth of
Puerto Rico (System) against over 40 defendants, including UBS PR, which was named in connection with its underwriting
and consulting services. Plaintiffs alleged that defendants violated their purported fiduciary duties and contractual
obligations in connection with the issuance and underwriting of USD
bn of bonds by the System in 2008 and sought
damages of over USD
m. In 2016, the court granted the System’s request to join the action as a plaintiff. In 2022, a
federal district court enjoined the plaintiffs from proceeding with the action on the grounds it impermissibly conflicted
with Puerto Rico’s approved Plan of Adjustment.
Beginning in 2015, certain agencies and public corporations of the Commonwealth of Puerto Rico (Commonwealth)
defaulted on certain interest payments on Puerto Rico bonds. In 2016, US federal legislation created an oversight board
with power to oversee Puerto Rico’s finances and to restructure its debt. The oversight board has imposed a stay on the
exercise of certain creditors’ rights. In 2017, the oversight board placed certain of the bonds into a bankruptcy-like
proceeding under the supervision of a Federal District Judge.
In May 2019, the oversight board filed complaints in Puerto Rico federal district court bringing claims against financial,
legal and accounting firms that had participated in Puerto Rico municipal bond offerings, including UBS, seeking a return
of underwriting and swap fees paid in connection with those offerings. UBS estimates that it received approximately
USD
m in fees in the relevant offerings.
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Note 17 Provisions and contingent liabilities (continued)
In August 2019, and February and November 2020, four US insurance companies that insured issues of Puerto Rico
municipal bonds sued UBS and several other underwriters of Puerto Rico municipal bonds in three separate cases. The
actions collectively seek recovery of an aggregate of USD
m in damages from the defendants. The plaintiffs in these
cases claim that defendants failed to reasonably investigate financial statements in the offering materials for the insured
Puerto Rico bonds issued between 2002 and 2007, which plaintiffs argue they relied upon in agreeing to insure the
bonds notwithstanding that they had no contractual relationship with the underwriters. Defendants’ motions to dismiss
have been granted in all three cases; those decisions are being appealed by the plaintiffs.
Our balance sheet at 31 December 2022 reflected provisions with respect to matters described in this item 4 in amounts
that UBS believes to be appropriate under the applicable accounting standard. As in the case of other matters for which
we have established provisions, the future outflow of resources in respect of such matters cannot be determined with
certainty based on currently available information and accordingly may ultimately prove to be substantially greater (or
may be less) than the provisions that we have recognized.
5. Foreign exchange, LIBOR and benchmark rates, and other trading practices
Foreign exchange-related regulatory matters:
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 reached an agreement in principle to resolve
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 March 2017, the court granted UBS’s (and the other banks’) motions to dismiss the complaint. The
plaintiffs filed an amended complaint in August 2017. In March 2018, the court denied the defendants’ motions to
dismiss the amended complaint. In March 2022, the court denied plaintiffs’ motion for class certification.
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, SGD
SIBOR and SOR and Australian BBSW, and seek unspecified compensatory and other damages under varying legal
theories.
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Note 17 Provisions and contingent liabilities (continued)
USD LIBOR class and individual actions in the US:
In 2013 and 2015, the district court in the USD LIBOR actions dismissed,
in whole or in part, certain plaintiffs’ antitrust claims, federal racketeering claims, CEA claims, and state common law
claims, and again dismissed the antitrust claims in 2016 following an appeal. In December 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 based on allegations that at least one alleged co -conspirator undertook an overt act in the United States.
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. In July 2018, the Second Circuit denied the petition to appeal of the class of USD lenders
and in November 2018 denied the petition of the USD exchange class. In January 2019, a putative class action was filed
in the District Court for the Southern District of New York against UBS and numerous other banks on behalf of US
residents who, since 1 February 2014, directly transacted with a defendant bank in USD LIBOR instruments. The complaint
asserts antitrust claims. The defendants moved to dismiss the complaint in August 2019. In March 2020 the court granted
defendants’ motion to dismiss the complaint in its entirety. Plaintiffs have appealed the dismissal. In March 2022, the
Second Circuit dismissed the appeal because appellants, who had been substituted in to replace the original plaintiffs
who had withdrawn, lacked standing to pursue the appeal. In August 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. Defendants moved to dismiss the complaint in September 2021. 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
have moved to dismiss the amended complaint in November 2022 .
Other benchmark class actions in the US:
Yen LIBOR / Euroyen TIBOR –
In 2014, 2015 and 2017, the court in one of the Yen LIBOR / Euroyen TIBOR lawsuits
dismissed certain of the plaintiffs’ claims, including the plaintiffs’ federal antitrust and racketeering claims. In August
2020, the court granted defendants’ motion for judgment on the pleadings and dismissed the lone remaining claim in
the action as impermissibly extraterritorial. In October 2022, the appeals court affirmed the dismissal on multiple grounds.
In 2017, the court dismissed the other Yen LIBOR / Euroyen TIBOR action in its entirety on standing grounds. In April
2020, the appeals court reversed the dismissal and in August 2020 plaintiffs in that action filed an amended complaint
focused on Yen LIBOR. The court granted in part and denied in part defendants’ motion to dismiss the amended
complaint in September 2021. In August 2022, the court granted UBS’s motion for reconsideration and dismissed the
case against UBS.
CHF LIBOR
filed an amended complaint, and the court granted a renewed motion to dismiss in September 2019. Plaintiffs appealed.
In September 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 have moved to dismiss
the amended complaint in January 2023 .
EURIBOR
for lack of personal jurisdiction. Plaintiffs have appealed.
SIBOR / SOR
Plaintiffs filed an amended complaint, and the court granted a renewed motion to dismiss in July 2019. Plaintiffs
appealed. In March 2021, the Second Circuit reversed the dismissal. Plaintiffs filed an amended complaint in October
2021, which defendants moved to dismiss in November 2021. In March 2022, plaintiffs reached a settlement in principle
with the remaining defendants, including UBS. The court g ranted final approval of the settlement in November 2022.
BBSW
lack of personal jurisdiction. Plaintiffs filed an amended complaint in April 2019, which UBS and other defendants moved
to dismiss in May 2019. In February 2020, the court granted in part and denied in part defendants’ motions to dismiss
the amended complaint. In August 2020, UBS and other BBSW defendants joined a motion for judgment on the
pleadings, which the court denied in May 2021. In February 2022, plaintiffs reached a settlement in principle with the
remaining defendants, including UBS. The court granted final approval of the settlement in November 2022.
GBP LIBOR
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Note 17 Provisions and contingent liabilities (continued)
Government bonds
: Putative class actions have been filed since 2015 in US federal courts against UBS and other banks
on behalf of persons who participated in markets for US Treasury securities since 2007. A consolidated complaint was
filed in 2017 in the US District Court for the Southern District of New York alleging that the banks colluded with respect
to, and manipulated prices of, US Treasury securities sold at auction and in the secondary market and asserting claims
under the antitrust laws and for unjust enrichment. Defendants’ motions to dismiss the consolidated complaint were
granted in March 2021. Plaintiffs filed an amended complaint, which defendants moved to dismiss in June 2021. In
March 2022, the court granted defendants’ motion to dismiss that complaint. Plaintiffs have appealed the dismissal.
Similar class actions have been filed concerning European government bonds and other government bonds.
In May 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 2022 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.
6. Swiss retrocessions
The Federal Supreme Court of Switzerland ruled in 2012, in a test case against UBS, that distribution fees paid to a firm
for distributing third-party and intra-group investment funds and structured products must be disclosed and surrendered
to clients who have entered into a discretionary mandate agreement with the firm, absent a valid waiver. FINMA 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 2022 reflected a provision with respect to matters described in this item 6 in an
amount that UBS believes to be appropriate under the applicable accounting standard. The ultimate exposure will depend
on client requests and the resolution thereof, factors that are difficult to predict and assess. Hence, as in the case of other
matters for which we have established provisions, the future outflow of resources in respect of such matters cannot be
determined with certainty based on currently available information and accordingly may ultimately prove to be
substantially greater (or may be less) than the provision that we have recognized.
7. Communications recordkeeping
The SEC and CFTC conducted investigations of UBS and other financial institutions regarding compliance with records
preservation requirements relating to business communications sent over unapproved electronic messaging channels.
UBS cooperated with the investigations, and, in September 2022, UBS agreed to pay civil monetary penalties of
USD
m to the SEC and USD
m to the CFTC to resolve these matters.
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Note 18 Other liabilities
a) Other financial liabilities measured at amortized cost
USD m
31.12.22
31.12.21
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
31.12.22
31.12.21
Financial liabilities related to unit-linked investment contracts
Securities financing transactions
Over-the-counter debt instruments and other
Total other financial liabilities designated at fair value
c) Other non-financial liabilities
USD m
31.12.22
31.12.21
Compensation related liabilities
1
Current tax liabilities
Deferred tax liabilities
VAT, withholding tax and other tax payables
Deferred income
Liabilities of disposal group held for sale
2
Other
Total other non-financial liabilities
1 Includes liabilities for payroll taxes and untaken vacation. 2 Refer to Note 29 for more information.
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Additional information
Note 19 Expected credit loss measurement
a) Expected credit losses in the period
Total net credit loss expenses were USD
m in 2022, reflecting net credit loss expenses of USD
m related to stage 1
and 2 positions and USD
m net credit loss expenses related to credit-impaired (stage 3) positions.
Stage 1 and 2 expected credit loss (ECL) expenses of USD
m include USD
m expenses related to scenario and
parameter updates and USD
m related to other book quality and size changes, partly offset by USD
m post-model
adjustment (PMA) releases and USD
m releases related to model changes. Lending to corporate clients not secured by
mortgages contributed USD
m, mainly driven by scenario effects related to the downward revision of GDP and higher
interest rate assumptions in the newly introduced
stagflationary geopolitical crisis scenario
mortgages
contributed USD
m in expenses
, mainly driven by scenario effects related to higher interest rate
assumptions, especially from the SGC, and adverse house price assumptions from both applied downside scenarios. This
was partly offset by releases from other lending of USD
m.
›
Refer to Note 19b for more information regarding changes to ECL models, scenarios, scenario weights and the post-model
adjustment 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 Personal and Corporate Banking and USD
m in Global Wealth Management, offset by releases of USD
m in the
Investment Bank, including a USD
m release for a single airline-related counterparty, mainly due to improved cashflow
assumptions, and USD
m net expenses across a number of defaulted positions.
Credit loss expense / (release)
USD m
Global
Wealth
Management
Personal
Corporate
Banking
Asset
Management
Investment
Bank
Group
Functions
Total
For the year ended 31.12.22
Stages 1 and 2
(5 )
Stage 3
(18 )
Total credit loss expense / (release)
(12 )
For the year ended 31.12.21
Stages 1 and 2
(28 )
(62 )
(34 )
(123 )
Stage 3
(1 )
(24 )
(25 )
Total credit loss expense / (release)
(29 )
(86 )
(34 )
(148 )
For the year ended 31.12.20
Stages 1 and 2
Stage 3
Total credit loss expense / (release)
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Note 19 Expected credit loss measurement (continued)
b) Changes to ECL models, scenarios, scenario weights and key inputs
Refer to Note 1a for information about the principles governing 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 2022, 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 decrease in ECL allowances. This includes
a decrease of USD
m in Global Wealth Management affecting loans to financial advisors and specialized US lending
portfolios and an USD
m decrease in Personal Corporate Banking related to lending to
large corporate clients
financial intermediaries hedge funds
.
Scenario and key input updates
During 2022, the scenarios and related macroeconomic factors were updated from those applied at the end of 2021 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 Russia–Ukraine war, with the subsequent effect on energy markets, 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 data, such as that from Bloomberg Consensus, Oxford
Economics and the International Monetary Fund World Economic Outlook. The expectation for 2023 is that global growth
stalls under the weight of monetary policy tightening, and continued pressure on real purchasing power due to high inflation
– further fueled in Europe by the energy crisis and a lack of labor supply – even though unemployment rates are forecast to
be higher than in 2022 and an energy crisis in Europe seems likely to be averted. Interest rates are expected to remain high,
given the persistence of inflationary trends, leading to a less optimistic outlook for global house prices, which is cushioned
in Switzerland by continued strong demand.
Global crisis scenario:
The first hypothetical downside scenario, the global crisis scenario, is aligned with the Group’s 2022
binding stress scenario and was updated in 2022 to reflect expected risks, resulting in minimal changes. It assumes that,
while the global economy has returned to pre-pandemic levels and the immediate risks from COVID-19 have decreased, the
associated disruptions and the consequences of the unprecedented monetary and fiscal stimulus measures will remain
critical. Concerns regarding the sustainability of public debt, following the marked deterioration of fiscal positions, lead to
a loss of confidence and market turbulence, while protectionism results in a decrease in global trade. Governments and
central banks have limited scope to support the economies, and interest rate levels remain moderate. As a consequence,
China suffers a hard landing which, combined with political, solvency and liquidity concerns, affects emerging markets
significantly. A spillover effect leads to a contraction of the Eurozone, Swiss and US economies, as global demand is
significantly affected. Given the severity of the macroeconomic impact, unemployment rates rise to historical highs and real
estate sectors contract sharply.
Stagflationary geopolitical crisis scenario:
The second downside scenario was changed during 2022. In light of the
developments caused by Russia’s invasion of Ukraine, the
mild global interest rate steepening scenario
severe global interest rate steepening scenario
increased fears of higher inflation and a corresponding reaction by monetary authorities. In the second quarter of the year,
the progression of the war and the enforcement of sanctions regimes led to a redesign of the scenario. The resulting
severe
Russia–Ukraine conflict scenario
specifically the prospect of rising energy costs, especially in Europe, with the consequences of lower growth and higher
inflation rates. In the fourth quarter of 2022, UBS developed a new
stagflationary geopolitical crisis scenario
included this new scenario in the ECL calculation for year-end 2022 in lieu of the
severe Russia–Ukraine conflict scenario
.
While the SGC scenario addresses similar risks as the
severe Russia–Ukraine conflict scenario
, it also covers additional and
broader risks and therefore assumes more severe shocks. 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. The severe interest rate and adverse house price
assumptions in the SGC 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 PMA 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 energy and commodity
prices, effective monetary policies and easing supply chain disruptions helps reduce inflation. Improved consumer and
business sentiment lead to an economic rebound with central banks able to normalize interest rates; asset prices increase
significantly.
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Note 19 Expected credit loss measurement (continued)
The table below details the key assumptions for the four scenarios applied as of 31 December 2022.
Scenario weights and post -model adjustments
Due to the less positive outlook compared with the assessment on 31 December 2021, the scenario weights changed
during 2022. The upside scenario was allocated a
% probability, and the previous
% weight was added to the
baseline
scenario
, now set at
%. Following the introduction of the SGC, which was deemed to have a higher probability of
occurring than the
global crisis scenario
, the weights were rebalanced. The SGC has a weight of
% (compared with
% for the
mild global interest rate steepening scenario
global
crisis scenario
% (from
% as of 31 December 2021). The weights are also shown in the table below.
The scenarios and weight allocation were established in line with the general market sentiment that the short-term
outlook is subdued and a recession in major markets is a strong probability. The downside risks in relation to inflation
and monetary policy, as well as the availability and price of energy, mainly in Europe, are better reflected in our models
compared with the uncertain developments caused by COVID-19 in recent years.
However, unquantifiable risks continue to be relevant, as the pandemic has not been overcome and the world may face
new disruptions. Furthermore, the geopolitical situation worsened during 2022, and the impact on the world economy
from escalations with unforeseeable consequences could be severe. In the near term, this uncertainty relates primarily to
the development of the Russia–Ukraine war. 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 PMAs.
These PMA took into account that more of the downside risks were modeled in 2022, particularly for lending secured by
mortgages. The PMA amounted to USD
m as of 31 December 2022 (31 December 2021: USD
m). These
remaining PMA for uncertainties on potentially unmodeled risk almost entirely relate to corporate lending portfolios in
Personal Corporate Banking and the Investment Bank.
Economic scenarios and weights applied
Assigned weights in %
ECL scenario
31.12.22
31.12.21
Asset price inflation
Baseline
Mild global interest rate steepening
Stagflationary geopolitical crisis
Global crisis
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
(5.6 )
(326.0 )
(13.2 )
(291.1 )
EUR
(270.6 )
(246.5 )
CHF
(209.7 )
(159.6 )
Equity indices (% change)
SP 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 (SP / 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 )
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Note 19 Expected credit loss measurement (continued)
Scenario assumptions
One year
Three years cumulative
31.12.21
Asset price
inflation
Baseline
Mild global
interest rate
steepening
Global crisis
Asset price
inflation
Baseline
Mild global
interest rate
steepening
Global crisis
Real GDP growth (% change)
United States
(0.1 )
(5.9 )
(3.8 )
Eurozone
(0.1 )
(8.7 )
(10.3 )
Switzerland
(0.9 )
(6.6 )
(0.1 )
(5.7 )
Consumer price index (% change)
United States
(1.2 )
Eurozone
(1.3 )
(1.7 )
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
(50.0 )
(15.0 )
EUR
(35.0 )
(25.0 )
CHF
(70.0 )
(35.0 )
Equity indices (% change)
SP 500
(27.0 )
(50.2 )
(21.8 )
(40.1 )
EuroStoxx 50
(23.4 )
(57.6 )
(19.9 )
(50.4 )
SPI
(22.9 )
(53.6 )
(19.6 )
(44.2 )
Swiss real estate (% change)
Single-Family Homes
(4.3 )
(17.0 )
(8.8 )
(30.0 )
Other real estate (% change)
United States (SP / Case–Shiller)
(2.3 )
(9.5 )
(8.7 )
(26.3 )
Eurozone (House Price Index)
(4.0 )
(5.4 )
(7.6 )
(10.8 )
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.
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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 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 )
(259 )
(267 )
(564 )
1 Represents the increase and decrease in allowances and provisions resulting from financial instruments (including guarantee s 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, 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:
Stages 1 and 2 ECL allowances and provisions increased on a net basis by USD
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. The residual effect is spread across
lending segments. Stage 2 releases are largely driven by redemption of corporate loans in the Investment Bank.
–
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 lending transactions in the Investment Bank 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 expenses of USD
m.
These expenses of USD
m relate to large and SME corporate lending (USD
m), substantially due to scenario effects,
and to a single sovereign counterparty (USD
m).
–
Model changes: refer to Note 19b for more information.
Movements without profit or loss impact:
Stage 3 allowances decreased by USD
m almost entirely due to write-offs of
USD
m.
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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 2020
(1,468 )
(306 )
(333 )
(829 )
Net movement from new and derecognized transactions
1
(59 )
(72 )
of which: Private clients with mortgages
(7 )
(10 )
of which: Real estate financing
(7 )
(11 )
of which: Large corporate clients
(13 )
(21 )
of which: SME clients
(8 )
(8 )
of which: Other
(24 )
(23 )
(2 )
(21 )
(18 )
(4 )
(1 )
Remeasurements with stage transfers
2
(40 )
(49 )
of which: Private clients with mortgages
(9 )
(13 )
of which: Real estate financing
(3 )
(4 )
of which: Large corporate clients
(2 )
(8 )
of which: SME clients
(27 )
(36 )
of which: Other
(3 )
(4 )
(1 )
(1 )
Remeasurements without stage transfers
3
of which: Private clients with mortgages
(1 )
of which: Real estate financing
of which: Large corporate clients
of which: SME clients
(1 )
of which: Other
(3 )
Model changes
4
Movements with profit or loss impact
5
Movements without profit or loss impact (write-off, FX and other)
6
Balance as of 31 December 2021
(1,165 )
(282 )
(220 )
(662 )
1 Represents the increase and decrease in allowances and provisions resulting from financial instruments (including guarantee s 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, model and
methodology changes. 6 Represents the decrease in allowa nces 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 (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 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 2022 – 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
(267 )
(196 )
(21 )
(50 )
of which: Private clients with mortgages
(107 )
(83 )
(25 )
of which: Real estate financing
(23 )
(18 )
(5 )
of which: Large corporate clients
(65 )
(51 )
(13 )
of which: SME clients
(37 )
(22 )
(7 )
(7 )
of which: Financial intermediaries and hedge funds
(17 )
(17 )
of which: Loans to financial advisors
(2 )
(2 )
of which: Credit cards
(12 )
(12 )
of which: Other
(5 )
(5 )
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Note 19 Expected credit loss measurement (continued)
d) Maximum exposure to credit risk
The tables below provide the Group’s maximum exposure to credit risk for financial instruments subject to ECL
requirements and the respective collateral and other credit enhancements mitigating credit risk for these classes of
financial instruments.
The maximum exposure to credit risk includes the carrying amounts of financial instruments recognized on the balance
sheet subject to credit risk and the notional amounts for off-balance sheet arrangements. Where information is available,
collateral is presented at fair value. For other collateral, such as real estate, a reasonable alternative value is used. Credit
enhancements, such as credit derivative contracts and guarantees, are included at their notional amounts. Both are
capped at the maximum exposure to credit risk for which they serve as security. The “Risk management and control”
section of this report describes management’s view of credit risk and the related exposures, which can differ in certain
respects from the requirements of International Financial Reporting Standards (IFRS).
Maximum exposure to credit risk
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
Financial assets measured at
amortized cost on the balance sheet
Cash and balances at central banks
Loans and advances to 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
Loan commitments
7
Forward starting transactions, 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
31.12.21
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
Financial assets measured at
amortized cost on the balance sheet
Cash and balances at central banks
Loans and advances to 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
Loan commitments
7
Forward starting transactions, 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 2022 (31 December 2021: USD
m) relates to total credit-impaired financial assets measured at amortized cost and USD
m for 31 December 2022 (31 December 2021:
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. UBS applies a risk-based approach that generally prioritizes collateral according to its liquidity profile. 3 Includes but is not limited to life insurance contracts, inventory, mortgage loans,
gold and other commodities. 4 Loans and advances to 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 The amount shown in the
“Guarantees” column includes sub-participations.
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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 the Group’s internal credit
rating system and year-end stage classification. Under IFRS 9, the credit risk rating reflects the Group’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 the Group’s internal grading system
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 )
Loans and advances to 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
(889 )
On-balance sheet financial instruments
Financial assets measured at FVOCI – debt instruments
Total on-balance sheet financial instruments
(889 )
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.
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Note 19 Expected credit loss measurement (continued)
Financial assets subject to credit risk by rating category
USD m
31.12.21
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
of which: stage 1
Loans and advances to banks
(8 )
of which: stage 1
(7 )
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
(850 )
of which: stage 1
(126 )
of which: stage 2
(152 )
of which: stage 3
(572 )
Other financial assets measured at amortized cost
(109 )
of which: stage 1
(27 )
of which: stage 2
(7 )
of which: stage 3
(76 )
Total financial assets measured at amortized cost
(969 )
On-balance sheet financial instruments
Financial assets measured at FVOCI – debt instruments
Total on-balance sheet financial instruments
(969 )
Off-balance sheet positions subject to expected credit loss by rating category
USD m
31.12.21
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
(41 )
of which: stage 1
(18 )
of which: stage 2
(8 )
of which: stage 3
(15 )
Irrevocable loan commitments
(114 )
of which: stage 1
(72 )
of which: stage 2
(42 )
of which: stage 3
Forward starting reverse repurchase and securities borrowing agreements
Total off-balance sheet financial instruments
(155 )
Credit lines
Committed unconditionally revocable credit lines
(38 )
of which: stage 1
(28 )
of which: stage 2
(10 )
of which: stage 3
Irrevocable committed prolongation of existing loans
(3 )
of which: stage 1
(3 )
of which: stage 2
of which: stage 3
Total credit lines
(41 )
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.
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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 (SCR) 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 indicators that are more influenced by climate change (e.g., energy prices) are factored into the current PD
models where they have demonstrated statistical relevance, UBS currently does not use a specific SCR scenario in addition
to the 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 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 SCR may affect the
quality of the loans extended to small and medium-sized entities and large corporate clients. Initial tests were based on
a set of assumptions presented by external parties (such as the Bank of England). Such analysis undertaken during 2022
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 SCR on the weighted-
average ECL would not be material as of 31 December 2022. Therefore, no specific post-model adjustment was made in
this regard.
›
Refer to “Sustainability and climate risk” in the “Risk management and control” section of this report
›
Refer to “Our focus on sustainability and climate” in the “Our strategy, business model and environment” section of this report
›
Refer to “UBS AG consolidated supplemental disclosures required under SEC regulations” for the maturity profile of UBS 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.
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Note 19 Expected credit loss measurement (continued)
Potential effect on stage 1 and stage 2 positions from changing key parameters as of 31 December 2022
USD m
100% Baseline
100%
Stagflationary
geopolitical crisis
100% Global crisis
Weighted average
Change in key parameters
Fixed income: Government bonds (absolute change)
–0.50%
(3 )
(106 )
(2 )
(14 )
+0.50%
+1.00%
Unemployment rate (absolute change)
–1.00%
(4 )
(138 )
(24 )
(23 )
–0.50%
(2 )
(78 )
(13 )
(12 )
+0.50%
+1.00%
Real GDP growth (relative change)
–2.00%
–1.00%
+1.00%
(3 )
(7 )
(9 )
(5 )
+2.00%
(5 )
(13 )
(18 )
(10 )
House Price Index (relative change)
–5.00%
–2.50%
+2.50%
(4 )
(83 )
(35 )
(19 )
+5.00%
(7 )
(157 )
(65 )
(36 )
Equity (SP500, EuroStoxx, SMI) (relative change)
–10.00%
–5.00%
+5.00%
(2 )
(4 )
(3 )
(2 )
+10.00%
(4 )
(8 )
(7 )
(5 )
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 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
2021: USD
m) instead of USD
m (31 December 2021: USD
m) if ECLs had been determined solely on the
baseline scenario
. The weighted-average ECL therefore amounted to
% (31 December 2021:
%) of the baseline
value. The effects of weighting each of the four scenarios 100% are shown in the table above.
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Note 19 Expected credit loss measurement (continued)
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 2022.
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: a) 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; b) 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.
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 International F inancial Reporting Standards (IFRS). 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 a re 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 applies
valuation adjustments at an individual instrument level, consistent with that unit of account. However, if certain
conditions are met, UBS may estimate the fair value of a portfolio of financial assets and liabilities with substantially
similar and offsetting risk exposures on the basis of the net open risks.
›
Refer to Note 20d for more information
b) Valuation governance
UBS’s fair value measurement and model governance framework includes numerous controls and other procedural
safeguards that are intended to maximize the quality of fair value measurements reported in the financial statements.
New products and valuation techniques must be reviewed and approved by key stakeholders from 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.
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Note 20 Fair value measurement (continued)
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’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
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 2022, 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.
Determination of fair values from quoted market prices or valuation techniques
1
31.12.22
31.12.21
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: Asset-backed securities
2
of which: Government bills / bonds
2
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
3
Total assets measured at fair value
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Note 20 Fair value measurement (continued)
Determination of fair values from quoted market prices or valuation techniques (continued)
1
31.12.22
31.12.21
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: 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 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 1 for more information. 3 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 uses widely recognized valuation techniques for determining the fair value of financial and non-financial instruments
that are not actively traded and quoted. The most frequently applied valuation techniques include discounted value of
expected cash flows, relative value and option pricing methodologies.
Discounted value of expected cash flows is a valuation technique that measures fair value using estimated expected
future cash flows from assets or liabilities and then discounts these cash flows using a discount rate or discount margin
that reflects the credit and / or funding spreads required by the market for instruments with similar risk and liquidity
profiles to produce a present value. When using such valuation techniques, expected future cash flows are estimated
using an observed or implied market price for the future cash flows or by using industry -standard cash flow projection
models. The discount factors within the calculation are generated using industry-standard yield curve modeling
techniques and models.
Relative value models measure fair value based on the market prices of equivalent or comparable assets or liabilities, making
adjustments for differences between the characteristics of the observed instrument and the instrument being valued.
Option pricing models incorporate assumptions regarding the behavior of future price movements of an underlying
referenced asset or assets to generate a probability-weighted future expected payoff for the option. The resulting
probability-weighted expected payoff is then discounted using discount factors generated from industry -standard yield
curve modeling techniques and models. The option pricing model may be implemented using a closed-form analytical
formula or other mathematical techniques (e.g., binomial tree or Monte Carlo simulation).
Where available, valuation techniques use market-observable assumptions and inputs. If such data is not available, inputs
may be derived by reference to similar assets in active markets, from recent prices for comparable transactions or from
other observable market data. In such cases, the inputs selected are based on historical experience and practice for similar
or analogous instruments, derivation of input levels based on similar products with observable price levels, and knowledge
of current market conditions and valuation approaches.
For more complex instruments, fair values may be estimated using a combination of observed transaction prices,
consensus pricing services and relevant quotes. Consideration is given to the nature of the quotes (e.g., indicative or firm)
and the relationship of recently evidenced market activity to the prices provided by consensus pricing services. UBS also
uses internally developed 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 the
Group incorporate the funding and credit characteristics of the instruments to which they are applied.
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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 age ncy 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 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
,
c
ommercial 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.
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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 a s the relevant valuation techniques described below.
Fair value
hierarchy
–
The observability is closely aligned with the equivalent derivatives business and the underlying risk.
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 ( FVAs), as applicable, to reflect an estimation of the effect of counterparty
credit risk, UBS’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.
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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.
–
OTC FX option contracts classified as Level 3 include multi-dimensional FX options and long-dated FX exotic
option contracts where there is no active market from which to derive volatility or correlation inputs.
Equity / index
contracts
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 ob servable.
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.
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Note 20 Fair value measurement (continued)
Deferred day-1 profit or loss reserves
USD m
2022
2021
2020
Reserve balance at the beginning of the year
Profit / (loss) deferred on new transactions
(Profit) / loss recognized in the income statement
(295 )
(308 )
(238 )
Foreign currency translation
(2 )
Reserve balance at the end of the year
Own credit
Own credit risk is reflected in the valuation of UBS’s fair value option liabilities where this component is considered
relevant for valuation purposes by UBS’s counterparties and other market participants.
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 the Group 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’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
31.12.22
31.12.21
31.12.20
Recognized during the period:
Realized gain / (loss)
(14 )
Unrealized gain / (loss)
(295 )
Total gain / (loss), before tax
(293 )
USD m
31.12.22
31.12.21
31.12.20
Recognized on the balance sheet as of the end of the period:
Unrealized life-to-date gain / (loss)
(315 )
(381 )
of which: debt issued designated at fair value
(347 )
(418 )
of which: other financial liabilities designated at fair value
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.
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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’s credit default spreads.
Other valuation adjustments
Instruments that are measured as part of a portfolio of combined long and short positions are valued at mid-market levels
to ensure consistent valuation of the long- and short-component risks. A liquidity valuation adjustment is then made to
the overall net long or short exposure to move the fair value to bid or offer as appropriate, reflecting current levels of
market liquidity. The bid –offer spreads used in the calculation of this valuation adjustment are obtained from market
transactions and other relevant sources and are updated periodically.
Uncertainties associated with the use of model -based valuations are incorporated into the measurement of fair value
through the use of model reserves. These reserves reflect the amounts that the Group estimates should be deducted from
valuations produced directly by models 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, the Group considers a range of market practices, including how it believes market participants would
assess these uncertainties. Model reserves are reassessed periodically in light of data from market transactions, consensus
pricing services and other relevant sources.
Balance sheet valuation adjustments on financial instruments
As of
USD m
31.12.22
31.12.21
Credit valuation adjustments
1
(33 )
(44 )
Funding valuation adjustments
(50 )
(49 )
Debit valuation adjustments
Other valuation adjustments
(839 )
(913 )
of which: liquidity
(311 )
(341 )
of which: model uncertainty
(529 )
(571 )
1 Amounts do not include reserves against defaulted counterparties.
Other items
In the first half of 2021, UBS incurred a loss of USD
m as a result of closing out a significant portfolio of swaps with
a US-based client of its prime brokerage business and the unwinding of related hedges, following the client’s default.
This loss is presented within
Other net income from financial instruments measured at fair value through profit or loss
.
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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 2022 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 the Group’s
estimates and assumptions, but rather the different underlying characteristics of the relevant assets and liabilities held by
the Group. The ranges will therefore vary from period to period and parameter to parameter based on characteristics of
the instruments held at each balance sheet date. Furthermore, the ranges of unobservable inputs may differ across other
financial institutions, reflecting the diversity of the products in each firm’s inventory.
Valuation techniques and inputs used in the fair value measurement of Level 3 assets and liabilities
Fair value
Significant
unobservable
input(s)
1
Range of inputs
Assets
Liabilities
Valuation
technique(s)
31.12.22
31.12.21
USD bn
31.12.22
31.12.21
31.12.22
31.12.21
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
(29 )
(29 )
%
Equity-to-equity
correlation
(25 )
(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 structured notes, which include variable maturity notes with various equity and foreign exchange underlying risks, 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.
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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, 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 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 can fund itself on an unsecured basis, but provide
an estimate of where UBS can source and deploy secured funding with counterparties for a given type of collateral. The
funding spreads are expressed in terms of basis points, 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 2022
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324
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-to-FX correlation is important for equity options based on a currency other than the currency of the underlying stock.
Equity-to-equity correlation is particularly important for complex options that incorporate, in some manner, different equities
in the projected payoff.
Equity dividend
yields
–
The derivation of a forward price for an individual stock or index is important for measuring fair value for forward or swap
contracts and for measuring fair value using option pricing models. The relationship between the current stock price and the
forward price is based on a combination of expected future dividend levels and payment timings, and, to a lesser extent, the
relevant funding rates applicable to the stock in question. Dividend yields are generally expressed as an annualized percentage
of the share price, with the lowest limit of 0% representing a stock that is not expected to pay any dividend. The dividend
yield and timing 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, the Group
believes that the diversification benefit is not significant to this analysis.
Sensitivity of fair value measurements to changes in unobservable input assumptions
1
31.12.22
31.12.21
USD m
Favorable
changes
Unfavorable
changes
Favorable
changes
Unfavorable
changes
Traded loans, loans measured at fair value, loan commitments and guarantees
(12 )
(13 )
Securities financing transactions
(37 )
(53 )
Auction rate securities
2
(46 )
2
(66 )
Asset-backed securities
(27 )
(20 )
Equity instruments
(161 )
(146 )
Interest rate derivatives, net
2
(12 )
2
(19 )
Credit derivatives, net
(4 )
(8 )
Foreign exchange derivatives, net
(5 )
(11 )
Equity / index derivatives, net
(330 )
(335 )
Other
2
(62 )
2
(73 )
Total
(696 )
(744 )
1 Sensitivity of issued and over-the -counter debt instruments is reported with the equivalent derivative or securities financing instrument. 2 Includes refinements applied in estimating valuation uncertainty across
various parameters.
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325
Note 20 Fair value measurement (continued)
g) Level 3 instruments: movements during the period
The table below presents additional information about material movements in Level 3 assets and liabilities measured at
fair value on a recurring basis, excluding any related hedging activity.
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 2022
2
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
3
(2.2 )
(1.8 )
(3.1 )
(3.4 )
(0.3 )
Other financial liabilities designated at
fair value
(0.1 )
(0.1 )
(0.1 )
(0.0 )
(0.0 )
For the twelve months ended 31 December 2021
Financial assets at fair value held for
trading
(0.0 )
(0.1 )
(1.6 )
(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 )
(0.4 )
(0.1 )
(0.0 )
of which: Loans
(0.0 )
(0.8 )
(0.2 )
Derivative financial instruments –
assets
(0.2 )
(0.1 )
(0.7 )
(0.3 )
(0.0 )
of which: Interest rate
(0.2 )
(0.1 )
(0.0 )
of which: Equity / index
(0.1 )
(0.1 )
(0.4 )
(0.2 )
(0.0 )
of which: Credit
(0.1 )
(0.1 )
(0.1 )
(0.0 )
Financial assets at fair value not held
for trading
(0.6 )
(0.3 )
(0.0 )
of which: Loans
(0.0 )
(0.3 )
(0.3 )
(0.0 )
of which: Auction rate securities
of which: Equity instruments
(0.1 )
(0.0 )
(0.0 )
Derivative financial instruments –
liabilities
(0.0 )
(1.8 )
(0.5 )
(0.0 )
of which: Interest rate
(0.1 )
(0.1 )
(0.1 )
(0.0 )
(0.0 )
of which: Equity / index
(1.5 )
(0.4 )
(0.0 )
of which: Credit
(0.1 )
(0.1 )
(0.0 )
(0.1 )
(0.0 )
Debt issued designated at fair value
(4.2 )
(1.2 )
(0.2 )
Other financial liabilities designated at
fair value
(0.2 )
(0.0 )
(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 2022 were USD
bn
(31 December 2021: USD
bn). Total Level 3 liabilities as of 31 December 2022 were USD
bn (31 December 2021: USD
bn). 3 Of the USD
bn in net gains / losses that is included in comprehensive
income, USD
bn is recognized in the Income statement and USD
bn is recognized in the Statement of comprehensive income in Gains / (losses) from own credit on financial liabilities designated at fair value,
before tax.
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326
Note 20 Fair value measurement (continued)
h) Maximum exposure to credit risk for financial instruments measured at fair value
The tables below provide the Group’s maximum exposure to credit risk for financial instruments measured at fair value
and the respective collateral and other credit enhancements mitigating credit risk for these classes of financial
instruments.
The maximum exposure to credit risk includes the carrying amounts of financial instruments recognized on the balance
sheet subject to credit risk and the notional amounts for off-balance sheet arrangements. Where information is available,
collateral is presented at fair value. For other collateral, such as real estate, a reasonable alternative value is used. Credit
enhancements, such as credit derivative contracts and guarantees, are included at their notional amounts. Both are
capped at the maximum exposure to credit risk for which they serve as security. The “Risk management and control”
section of this report describes management’s view of credit risk and the related exposures, which can differ in certain
respects from the requirements of IFRS.
Maximum exposure to credit risk
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
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
6
31.12.21
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
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
6
1 The maximum exposure to loss is generally equal to the carrying amount and subject to change over time with market movements. 2 These positions are generally managed under the market risk framework. For
the purpose of this disclosure, collateral and credit enhancements were not considered. 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 Financial assets at fair value not held for trading collateralized by securities consisted of structured loans and reverse repurchase and
securities borrowing agreements. 6 The amount shown in the “Guarantees” column largely relates to sub-participations.
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327
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
31.12.22
31.12.21
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
Loans and advances to 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
2
Liabilities
Amounts due to banks
Payables from securities financing
transactions measured at amortized cost
Cash collateral payables on derivative
instruments
Customer deposits
Debt issued measured at amortized cost
Other financial liabilities measured at
amortized cost
3
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 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 1 for information. 3 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’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’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.
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Note 21 Offsetting financial assets and financial liabilities
UBS enters into netting agreements with counterparties to manage the credit risks associated primarily with repurchase
and reverse repurchase transactions, securities borrowing and lending, over-the-counter derivatives, and exchange-
traded derivatives. These netting agreements and similar arrangements generally enable the counterparties to set off
liabilities against available assets received in the ordinary course of business and / or in the event that the counterparties
to the transaction are unable to fulfill their contractual obligations.
The 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 .
The Group 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 31.12.22, 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
(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 )
As of 31.12.21, USD bn
Receivables from securities financing
transactions measured at amortized cost
(13.8 )
(2.9 )
(51.0 )
Derivative financial instruments
(3.6 )
(88.9 )
(18.5 )
Cash collateral receivables on
derivative instruments
1
(15.2 )
(3.3 )
Financial assets at fair value
not held for trading
(87.6 )
(1.1 )
(4.4 )
of which: reverse
repurchase agreements
(87.6 )
(1.1 )
(4.4 )
Total assets
(105.0 )
(108.1 )
(77.2 )
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 fin ancial 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.
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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 31.12.22, 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
(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 )
As of 31.12.21, USD bn
Payables from securities financing
transactions measured at amortized cost
(12.8 )
(1.8 )
(2.3 )
Derivative financial instruments
(3.6 )
(88.9 )
(18.1 )
Cash collateral payables on
derivative instruments
1
(13.1 )
(3.3 )
Other financial liabilities
designated at fair value
(88.6 )
(2.2 )
(3.8 )
of which: repurchase agreements
(88.6 )
(2.2 )
(3.8 )
Total liabilities
(105.0 )
(106.0 )
(27.5 )
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 derivativ es 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.
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330
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, against
loans from Swiss mortgage institutions and in connection with the issuance of covered bonds. The Group generally enters
into repurchase and securities lending arrangements under standard market agreements. For securities lending, the cash
received as collateral may be more or less than the fair value of the securities loaned, depending on the nature of the
transaction. For repurchase agreements, the fair value of the collateral sold under an agreement to repurchase is generally
in excess of the cash borrowed. Pledged mortgage loans serve as collateral for existing liabilities against Swiss central
mortgage institutions and for existing covered bond issuances of USD
m as of 31 December 2022 (31 December
2021: USD
m).
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
31.12.22
31.12.21
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
Financial assets at fair value held for trading
Loans and advances to customers
1
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
Loans and advances to banks
Financial assets at fair value held for trading
Cash collateral receivables on derivative 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
Total other restricted financial assets
Total financial assets pledged and other restricted financial assets
2
1 Mainly related to mortgage loans that serve as collateral for existing liabilities toward Swiss central mortgage institutions and for existing covered bond issuances. Of these pledged mortgage loans, approximately
USD
bn as of 31 December 2022 (31 December 2021: approximately USD
bn) could be withdrawn or used for future liabilities or covered bond issuances without breaching existing collateral requirements.
2 Does not include assets placed with central banks related to undrawn credit lines and for payment, clearing and settlement purposes (31 December 2022: USD
bn; 31 December 2021: USD
bn).
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Note 22 Restricted and transferred financial assets (continued)
In addition to restrictions on financial assets, UBS Group AG and its subsidiaries are, in certain cases, subject to regulatory
requirements that affect the transfer of dividends and capital within the Group, 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.
›
Refer to the “Financial and regulatory key figures for our significant regulated subsidiaries and sub-groups” section of this report
for financial information about significant regulated subsidiaries of the Group
b) Transferred financial assets that are not derecognized in their entirety
The table below presents information for financial assets that have been transferred but are subject to continued
recognition in full, as well as recognized liabilities associated with those transferred assets.
Transferred financial assets subject to continued recognition in full
USD m
31.12.22
31.12.21
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
relating to securities lending and repurchase agreements in exchange for cash received
relating to securities lending agreements in exchange for securities received
relating to other financial asset transfers
Financial assets at fair value not held for trading that may be sold or repledged by
counterparties
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’s balance
sheet include securities lending and repurchase agreements, as well as other financial asset transfers. Repurchase and
securities lending arrangements are, for the most part, conducted under standard market agreements and are undertaken
with counterparties subject to UBS’s normal credit risk control processes.
›
Refer to Note 1a item 2e for more information about repurchase and securities lending agreements
As of 31 December 2022, approximately
% of the transferred financial assets were assets held for trading transferred
in exchange for cash, in which case the associated recognized
liability
represents the amount to be repaid to
counterparties. 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 presented in the table above have full recourse to
UBS.
In securities lending arrangements entered into in exchange for the receipt of other securities as collateral, neither the
securities received nor the obligation to return them are recognized on UBS’s balance sheet, as the risks and rewards of
ownership are not transferred to UBS. In cases where such financial assets received are subsequently sold or repledged
in another transaction, this is not considered to be a transfer of financial assets.
Other financial asset transfers primarily include securities transferred to collateralize derivative transactions, for which the
carrying amount of associated liabilities is not provided in the table above, because those replacement values are managed
on a portfolio basis across counterparties and product types, and therefore there is no direct relationship between the
specific collateral pledged and the associated liability.
Transferred financial assets that are not subject to derecognition in full but remain on the balance sheet to the extent of
the Group’s continuing involvement were not material as of 31 December 2022 and as of 31 December 2021.
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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’s continuing involvement from transferred positions as of 31 December 2022
and 31 December 2021 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
31.12.22
31.12.21
Fair value of assets received that can be sold or repledged
received as collateral under reverse repurchase, securities borrowing
and lending arrangements, derivative and other transactions
received in unsecured borrowings
Thereof sold or repledged
in connection with financing activities
to satisfy commitments under short sale transactions
in connection with derivative and other transactions
1 Includes securities received as initial margin from its clients that UBS is required to remit to central counterparties, brokers and deposit banks through its exchange -traded derivative clearing and execution services.
2 Does not include off-balance sheet securities (31 December 2022: USD
bn; 31 December 2021: 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 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.
Loan commitments are classified based on the earliest date they can be drawn down.
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Note 23 Maturity analysis of assets and liabilities (continued)
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
1
Loans and advances to customers
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
1
Total non-financial assets
Total assets
Liabilities
Total financial liabilities measured at amortized cost
Customer deposits
Debt issued measured at amortized cost
of which: non-subordinated fixed rate debt
of which: non-subordinated floating rate debt
of which: subordinated fixed-rate debt
Total financial liabilities measured at fair value through
profit or loss
2
Debt issued designated at fair value
of which: non-subordinated fixed rate debt
of which: non-subordinated floating rate debt
Total non-financial liabilities
Total liabilities
Guarantees, loan commitments and forward starting transactions
3
Loan commitments
Guarantees
Forward starting transactions, reverse repurchase and
securities borrowing agreements
Total
31.12.21
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
Loans and advances to customers
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
Debt issued measured at amortized cost
of which: non-subordinated fixed rate debt
of which: non-subordinated floating rate debt
of which: subordinated fixed-rate debt
Total financial liabilities measured at fair value through
profit or loss
2
Debt issued designated at fair value
of which: non-subordinated fixed rate debt
of which: non-subordinated floating rate debt
Total non-financial liabilities
Total liabilities
Guarantees, loan commitments and forward starting transactions
3
Loan commitments
Guarantees
Forward starting transactions, reverse repurchase and
securities borrowing agreements
Total
1 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 1b for more information. 2 As of 31 December 2022 and 31 December 2021, 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. 3 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.
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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 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.
31.12.22
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
Debt issued measured at amortized cost
2
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, commitments and forward starting transactions
Loan commitments
7
Guarantees
Forward starting transactions, reverse repurchase and
securities borrowing agreements
7
Total
31.12.21
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
Debt issued measured at amortized cost
2
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, commitments and forward starting transactions
Loan commitments
7
Guarantees
Forward starting transactions, reverse repurchase
and securities borrowing agreements
7
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
2021: USD
bn), USD
bn due between 1 month and 1 year (31 December 2021: USD
bn) and USD
bn due between 1 and 5 years (31 December 2021: USD
bn). 5 Includes USD
m (31 December 2021:
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 2021: 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).
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Note 24 Interest rate benchmark reform
Background
A market-wide reform of major interest rate benchmarks is being undertaken globally. The publication of London
Interbank Offered Rates (LIBORs) ceased immediately after 31 December 2021 for all non-US dollar LIBORs, as well as for
one-week and two-month USD LIBOR. Publication of the remaining USD LIBOR tenors will cease immediately after
30 June 2023.
In December 2022 , the FCA consulted on the continued publication of one-, three- and six-month USD LIBOR under a
synthetic format until the end of September 2024 to ensure an orderly winding down of remaining contracts that are
not governed by US law. In addition, in December 2022, the US Federal Reserve Board adopted the final rules that
implement the Adjustable Interest Rate (LIBOR) Act, which is substantially based on, and supersedes, the New York State
LIBOR legislation. The Adjustable Interest Rate (LIBOR) Act provides a legislative solution for USD LIBOR legacy products
governed by any US state law should such products fail to transition prior to the USD LIBOR cessation date of 30 June
2023.
A framework has been established within UBS to address the transition of contracts that do not contain adequate fallback
provisions and to cease entering into new LIBOR contracts, with the exception of specific circumstances that are allowed
by regulatory provisions for USD LIBOR.
Governance over the transition to alternative benchmark rates
Throughout the transition process UBS has been maintaining a global cross-divisional, cross-functional governance
structure and change program to address the scale and complexity of the transition. This global program is sponsored by
the Group CFO and led by senior representatives from the business divisions and UBS’s control and support functions.
The program includes governance and execution structures within each business division, together with cross-divisional
teams from each control and support function. During 2022, progress was overseen centrally via a monthly Group LIBOR
Transition Forum with an increased US regional focus.
Risks
A core part of UBS’s change program is the identification, management and monitoring of the risks associated with IBOR
reform and transition. These risks include, but are not limited to, the following:
–
economic risks to UBS and its clients, through the repricing of existing contracts, reduced transparency and / or liquidity
of pricing information, market uncertainty or disruption;
–
accounting risks, where the transition affects the accounting treatment, including hedge accounting and consequential
income statement volatility;
–
valuation risks arising from the variation between benchmarks that will cease and ARRs, affecting the risk profile of
financial instruments;
–
operational risks arising from changes to UBS’s front-to-back processes and systems to accommodate the transition
(e.g., data sourcing and processing and bulk migration of contracts); and
–
legal and conduct risks relating to UBS’s engagement with clients and market counterparties around new benchmark
products and amendments required for existing contracts referencing benchmarks that will cease.
Overall, the effort required to transition is affected by multiple factors, including whether negotiations need to take place
with multiple stakeholders (as is the case for syndicated loans or certain listed securities), market readiness and a client’s
technical readiness to handle ARR market conventions. UBS remains confident that it has the transparency, oversight and
operational preparedness to progress with the IBOR transition consistent with market timelines, given the significant
progress made as of 31 December 2022. UBS did not have and does not expect changes to its risk management approach
and strategy as a result of interest rate benchmark reform.
Transition progress
UBS’s significant non-derivative exposures subject to IBOR reform primarily related to brokerage receivable and payable
balances, corporate and private loans, and mortgages, linked to CHF and USD LIBORs. During 2020, UBS transitioned
most of its CHF LIBOR- linked deposits to the Swiss Average Overnight Rate (SA RON). In that same year, UBS launched
SARON-based mortgages and corporate loans based on all major ARRs in the Swiss market, as well as Secure Overnight
Financing Rate (SOFR)-based mortgages in the US market.
Throughout 2021, UBS transitioned substantially all of its private and corporate loans linked to non-USD IBORs, with the
remaining CHF LIBOR-linked contracts transitioning on their first roll date in 2022. In addition, as of 31 December 2021
UBS had completed the transition of IBOR-linked non-derivative financial assets and liabilities related to brokerage
accounts, except for balances originated in the US, which transitioned to SOFR in January 2022.
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Note 24 Interest rate benchmark reform (continued)
In 2022, UBS focused its efforts on the transition of USD LIBOR and the remaining non-USD LIBOR contracts, by leveraging
industry solutions (e.g., the use of fallback provisions), through third-party actions (those by clearing houses, agents, etc.)
and bi-lateral contract negotiations. As of 31 December 2022, the transition of non-USD IBORs is substantially complete.
In addition, in 2022, substantially all US securities -based lending has been transitioned to SOFR and UBS continues to
make good progress on the transition of the remaining USD LIBOR non-derivative assets and liabilities, with the US
mortgage portfolio of USD
bn (31 December 2021: USD
bn) the largest remaining exposure left to transition.
In August 2022, to facilitate the transition of derivatives linked to the USD LIBOR Swap Rate, UBS adhered to the June
2022 Benchmark Module of the ISDA 2021 Fallbacks Protocol on the USD LIBOR Swap Rate. UBS will begin gradually
transitioning USD LIBOR derivatives not transacted with clearing houses or exchanges from the first quarter of 2023. The
transition of USD LIBOR-cleared derivatives is planned to commence in the second quarter of 2023.
As of 31 December 2022, UBS had approximately USD
bn equivalent of yen- and US dollar-denominated publicly issued
benchmark bonds that, per current contractual terms, if not called on their respective call dates, would reset based directly
on JPY LIBOR and USD LIBOR. In addition, certain US dollar-denominated benchmark bonds publicly issued by UBS
reference rates indirectly derived from IBORs, if they are not called on their respective call dates. These bonds have robust
IBOR fallback language and the confirmation of interest rate calculation mechanics will be communicated as market
standards formalize and in advance of any rate resets. These debt instruments have not been included in the table below,
given their current fixed-rate coupon.
Financial instruments yet to transition to alternative benchmarks
The amounts included in the table below relate to financial instrument contracts across UBS’s business divisions where
UBS has material exposures subject to IBOR reform that have not yet transitioned to ARRs, and that:
–
contractually reference an interest rate benchmark that will transition to an alternative benchmark; and
–
have a contractual maturity date (including open-ended contracts) after the agreed cessation dates.
Contracts where penalty terms reference IBORs, or where exposure to an IBOR is not the primary purpose of the contract,
have not been included, as these contracts do not have a material impact on the transition process.
In line with information provided to management and external parties monitoring UBS’s transition progress, the table
below includes the following financial metrics for instruments external to the Group that are subject to interest rate
benchmark reform:
–
gross carrying value / exposure for non -derivative financial instruments; and
–
total trade count for derivative financial instruments.
The exposures included in the table below reflect the maximum IBOR exposure, without regard for early termination
rights, with the actual exposure being dependent upon client preferences and investment decisions.
As of 31 December 202 2, UBS had made significant progress in transitioning LIBOR exposures to ARRs. The remaining
USD LIBOR-linked exposures included in the table below primarily relate to derivatives and US mortgages, with the
transition planned to be completed by 30 June 2023.
LIBOR benchmark rates
31.12.22
1
31.12.21
Measure
USD
USD
CHF
GBP
EUR
2
JPY
Carrying value of non -derivative financial instruments
Total non-derivative financial assets
USD m
3
3
4
5
Total non-derivative financial liabilities
USD m
5
5
5
5
6
Trade count of derivative financial instruments
Total derivative financial instruments
Trade count
7
7,8
9
9
9
9
Off-balance sheet exposures
Total irrevocable loan commitments
USD m
10
11
1 As of 31 December 2022, non-USD balances and trade counts are minimal. 2 Relates primarily to EUR LIBOR positions. 3 Includes USD
bn (31 December 2021: USD
bn) of loans related to revolving multi-
currency credit lines, where IBOR transition efforts are complete, except for USD LIBOR. Balances as of 31 December 2021 also include USD
bn USD LIBOR securities-based lending and USD
bn brokerage accounts,
which for the most part transitioned to SOFR in January 2022. The remaining balances as of 31 December 2022 and 31 December 2021 primarily relate to US mortgages and corporate lending. 4 Relates primarily
to CHF LIBOR mortgages, which have automatically transitioned to SARON on their first roll date in 2022. 5 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. 6 Relates to contracts that transitioned in January 2022. 7 Includes approximately
) contracts having a contractual
maturity after 30 June 2023, with the last USD LIBOR fixing occurring before 30 June 2023. No further contractual fixing is required for these contracts. 8 Includes approximately
which approximately
an ARR leg and a USD IBOR leg. 9 Includes predominantly bilateral derivatives, which transitioned in January 2022, and an insignificant amount of cleared derivatives, where the respective clearing houses’ organized
transition happened in January 2022. 10 Includes approximately USD
bn of loan commitments that can be drawn in different currencies, however only USD LIBOR transition efforts remain open, with completion
scheduled for 2023. 11 Includes loan commitments that can be drawn in different currencies at the client‘s discretion, of which approximately USD
bn have only USD LIBOR exposure remaining and approximately
USD
bn retain a non-USD LIBOR interest rate, with transition dependent upon the actions of other parties. The remainder represents loan commitments that can be drawn in US dollars only and will transition on or
before 30 June 2023.
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Note 25 Hedge accounting
Derivatives designated in hedge accounting relationships
The Group 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 the Group
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 re-designated in cash flow hedges, in which case the hedge ratio designated is determined based on the
swap sensitivity.
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 debt issued, debt securities held and long-term fixed-rate mortgage loans in Swiss francs to floating
cash flows by entering into interest rate swaps that either receive fixed and pay floating cash flows or that pay fixed and
receive floating cash flows.
Designations have been made in US dollars, euro, Swiss francs, Australian dollars, yen, pounds sterling and Singapore
dollars. For new hedging instruments and hedged risk designations entered into starting from 2021 in these currencies
(with the exception of euro), the benchmark rate was the relevant alternative reference rate (ARR). Following the
interbank offered rate (IBOR) transition for swaps with LCH (formerly the London Clearing House) in December 2021, the
benchmark hedge rate for Swiss franc, yen and pound sterling designations was changed from an IBOR rate to the
relevant ARR with the hedge relationship 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 hedges of forecast transactions
The Group 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 the
Group, 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. Hedge designations have been made in
the following currencies: US dollars, euro, Swiss francs, pounds sterling and Hong Kong dollars. The cash flow hedges in
Swiss francs, pounds sterling and certain cash flow hedges in US dollars were discontinued and replaced with new ARR
designations in December 2021. In addition, the transition of floating rate hedged items in USD to ARR rates in January
2022 resulted in the update of the hedged risk to ARR in the affected hedge relationships without discontinuation of
hedge accounting in accordance with
Interest Rate Benchmark Reform – Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7,
IFRS 4 and IFRS 16)
.
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 denominated in currencies other than the US dollar to US dollars.
Hedges of net investments in foreign operations
The Group applies hedge accounting for certain net investments in foreign operations, which include subsidiaries,
branches and associates. Upon maturity of hedging instruments, typically two months, the hedge relationship is
terminated and new designations are made to reflect any changes in the net investments in foreign operations.
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Note 25 Hedge accounting (continued)
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 origination 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.
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.
All hedges: designated hedging instruments and hedge ineffectiveness
As of or for the year ended
31.12.22
Carrying amount
USD m
Notional
amount
Derivative
financial
assets
Derivative
financial
liabilities
Changes in
fair value of
hedging
instruments
1
Changes in
fair value of
hedged
items
1
Hedge
ineffectiveness
recognized in the
income statement
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
(337 )
(1 )
As of or for the year ended
31.12.21
Carrying amount
USD m
Notional
amount
Derivative
financial
assets
Derivative
financial
liabilities
Changes in
fair value of
hedging
instruments
1
Changes in
fair value of
hedged
items
1
Hedge
ineffectiveness
recognized in the
income statement
Interest rate risk
Fair value hedges
(1,604 )
(2 )
Cash flow hedges
(1,185 )
(196 )
Foreign exchange risk
Fair value hedges
2
(2,139 )
Hedges of net investments in foreign operations
(497 )
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.
Annual Report 2022
|
Consolidated
financial
statements
|
UBS
Group
AG
consolidated
financial
statements
339
Note 25 Hedge accounting (continued)
Fair value hedges: designated hedged items
USD m
31.12.22
31.12.21
Interest rate
risk
FX risk
Interest rate
risk
FX risk
Debt issued measured at amortized cost
Carrying amount of designated debt issued
(6,057 )
Other financial assets measured at amortized cost – debt securities
Carrying amount of designated debt securities
(180 )
(7 )
Loans and advances to customers
Carrying amount of designated loans
of which: accumulated amount of fair value hedge adjustment
(1,249 )
(109 )
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
(51 )
Fair value hedges: profile of the timing of the nominal amount of the hedging instrument
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
31.12.21
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
31.12.22
31.12.21
Amounts related to hedge relationships for which hedge accounting continues to be applied
(4,692 )
Amounts related to hedge relationships for which hedge accounting is no longer applied
(540 )
Total other comprehensive income recognized directly in equity related to cash flow hedges, on a pre-tax basis
(5,232 )
Foreign currency translation reserve on a pre -tax basis
USD m
31.12.22
31.12.21
Amounts related to hedge relationships for which hedge accounting continues to be applied
(45 )
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
Interest rate benchmark reform
The Group continues to apply the relief provided by
Interest Rate Benchmark Reform
(amendments to IFRS 9, IAS 39 and
IFRS 7)
, published by the IASB in September 2019, mainly to its hedges in USD . The cessation date for USD LIBOR is
30 June 2023.
The following table provides details on the notional amount and carrying amount of the hedging instruments in the
hedge relationships where the designated risk is LIBOR and maturing after the cessation date of the applicable interest
rate benchmarks.
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
›
Refer to earlier parts of this Note for the information about the transition progress of fair value and cash flow hedges
Annual Report 2022
|
Consolidated
financial
statements
|
UBS
Group
AG
consolidated
financial
statements
340
Note 25 Hedge accounting (continued)
Hedging instruments referencing LIBOR
31.12.22
31.12.21
Carrying amount
Carrying amount
USD m
Notional
amount
Derivative
financial
assets
Derivative
financial
liabilities
Notional
amount
Derivative
financial
assets
Derivative
financial
liabilities
Interest rate risk
Fair value hedges
Cash flow hedges
Note 26 Post-employment benefit plans
a) Defined benefit plans
UBS 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.
Swiss pension plan
The Swiss pension plan covers employees of UBS Group AG in Switzerland and employees of companies in Switzerland
having close economic or financial ties with UBS Group AG, and exceeds the minimum benefit requirements under Swiss
pension law. The Swiss 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.
Savings contributions to the Swiss plan are paid by both employer and employee. Depending on the age of the employee,
UBS pays a savings contribution that ranges between
% and
% of contributory base salary and between
%
and
% of contributory variable compensation. UBS also pays risk contributions that are used to fund disability and
survivor benefits. Employees can choose the level of savings contributions paid by them, which vary between
% and
% of contributory base salary and between
% and
% of contributory variable compensation, depending on age
and choice of savings contribution category.
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 can also
continue employment and remain active members of the plan until the age of
. Employees have the opportunity to
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, and the employee and employer contributions that have
been made to the participant’s retirement savings account, as well as the interest accrued. The annual interest rate
credited to participants is determined by the Pension Foundati on Board at the end of each year.
Although the Swiss plan is based on a defined contribution promise under Swiss pension law, it is accounted for as a
defined benefit plan under International Financial Reporting Standards (IFRS), 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 2022, the Swiss plan had a technical funding ratio in
accordance with Swiss pension law of
% (31 December 2021:
%).
The investment strategy of the Swiss 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 on the basis
of 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 202 2, the Swiss plan was in a surplus situation on an IFRS measurement basis, as the fair value of
the plan’s assets exceeded the defined benefit obligation (DBO) by USD
m (31 December 2021: 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 2022 and 31 December 2021,
the estimated future economic benefit was zero and hence no net defined benefit asset was recognized on the balance
sheet.
Annual Report 2022
|
Consolidated
financial
statements
|
UBS
Group
AG
consolidated
financial
statements
341
Note 26 Post-employment benefit plans (continued)
Changes to the Swiss pension plan in 2019
The Pension Foundation Board and UBS agreed to implement measures that took effect from the start of 2019 to support
the long-term financial stability of the Swiss pension fund. The measures, among other things, lowered the conversion rate
and increased the normal retirement age from 64 to 65. Pensions already in payment on 1 January 2019 were not affected.
To mitigate the effects for active participants, UBS committed to pay an extraordinary contribution and contributed
CHF
m (USD
m) in three installments in 2020, 2021 and 2022. The installments of USD
m, USD
m and
USD
m paid in 2020, 2021 and 2022 reduced other comprehensive income with no effect on the income statement.
The regular employer contributions to be made to the Swiss plan in 2023 are estimated at USD
m.
UK pension plan
The UK 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 participants in the UK plan 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, since 2013, participants are no longer accruing benefits for current or future service. Instead,
employees participate in the UK defined contribution plan.
The governance responsibility for the UK plan lies jointly with the Pension Trustee Board and UBS. The employer
contributions to the pension fund reflect agreed-upon deficit funding contributions, which are determined on the basis
of the most recent actuarial valuation using assumptions agreed by the Pension Trustee Board and UBS. In the event of
underfunding, UBS and the Pension Trustee Board must agree on a deficit recovery plan within statutory deadlines. In
2022, UBS made deficit funding contributions of USD
m to the UK plan. In 2021, UBS made no deficit funding
contributions.
The plan assets are invested in a diversified portfolio of financial assets, which include longevity swaps with an external
insurance company. These swaps enable the UK pension plan to hedge the risk between expected and actual longevity,
which should mitigate volatility in the net defined benef it asset / liability. As of 31 December 2022, the longevity swaps
had a negative value of USD
m (31 December 2021: negative USD
m).
In 2019, UBS and the Pension Trustee Board entered into an arrangement whereby a collateral pool was established to
provide security for the pension fund. The value of the collateral pool as of 31 December 2022 was USD
m
(31 December 2021: 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’s
insolvency or not paying a required deficit funding contribution.
The employer contributions to be made to the UK defined benefit plan in 2023 are estimated at USD
m, subject to
regular funding reviews during the year.
US pension plans
There are two distinct major defined benefit plans in the US, 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 defined contribution plan.
One of the 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 defined benefit plan, retirement benefits
accrue based on the career-average earnings of each individual plan participant. Former employees with vested benefits
have the option of taking a lump sum payment or a lifetime annuity.
As required under applicable pension laws, both plans have fiduciaries who, together with UBS, are responsible for the
governance of the plans.
The plan assets of both plans are invested in diversified portfolios of financial assets. Each plan’s fiduciaries are responsible
for the investment decisions with respect to the plan assets.
The employer contributions to be made to the US defined benefit plans in 2023 are estimated at USD
m.
German pension plans
There are two unfunded defined benefit plans in Germany. The normal retirement age is
by UBS. 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. A portion of the pension payments is directly increased in line with price
inflation.
Annual Report 2022
|
Consolidated
financial
statements
|
UBS
Group
AG
consolidated
financial
statements
342
Note 26 Post-employment benefit plans (continued)
In June 2021, UBS implemented a new funded 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 be made to the German defined benefit plans in 2023 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 pension plan
UK pension plan
US and German
pension plans
Total
2022
2021
2022
2021
2022
2021
2022
2021
Defined benefit obligation at the beginning of the year
Current service cost
Interest expense
Plan participant contributions
Remeasurements
(4,151 )
(1,474 )
(267 )
(62 )
(5,891 )
of which: actuarial (gains) / losses due to changes in demographic assumptions
(6 )
(2 )
of which: actuarial (gains) / losses due to changes in financial assumptions
(4,666 )
(678 )
(1,575 )
(3 )
(279 )
(78 )
(6,520 )
(759 )
of which: experience (gains) / losses
1
Past service cost related to plan amendments
Curtailments
(20 )
(80 )
(20 )
(80 )
Benefit payments
(1,454 )
(1,097 )
(123 )
(148 )
(111 )
(112 )
(1,687 )
(1,357 )
Other movements
(5 )
(5 )
Foreign currency translation
(513 )
(809 )
(408 )
(38 )
(28 )
(33 )
(949 )
(880 )
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
(3,248 )
(1,312 )
(223 )
(4,782 )
Interest income
Employer contributions
Plan participant contributions
Benefit payments
(1,454 )
(1,097 )
(123 )
(148 )
(111 )
(112 )
(1,687 )
(1,357 )
Administration expenses, taxes and premiums paid
(12 )
(13 )
(3 )
(4 )
(16 )
(17 )
Other movements
(2 )
(2 )
Foreign currency translation
(567 )
(930 )
(450 )
(39 )
(1,017 )
(969 )
Fair value of plan assets at the end of the year
Surplus / (deficit)
(335 )
(411 )
Asset ceiling effect at the beginning of the year
Interest expense on asset ceiling effect
Asset ceiling effect excluding interest expense and foreign currency translation on
asset ceiling effect
Foreign currency translation
(54 )
(121 )
(54 )
(121 )
Asset ceiling effect at the end of the year
Net defined benefit asset / (liability) of major plans
(335 )
(411 )
(14 )
(219 )
Net defined benefit asset / (liability) of remaining plans
(100 )
(112 )
Total net defined benefit asset / (liability)
(114 )
(331 )
of which: Net defined benefit asset
of which: Net defined benefit liability
2
(469 )
(633 )
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 2022
|
Consolidated
financial
statements
|
UBS
Group
AG
consolidated
financial
statements
343
Note 26 Post-employment benefit plans (continued)
Income statement – expenses related to defined benefit plans
1
USD m
Swiss pension plan
UK pension plan
US and German
pension plans
Total
For the year ended
31.12.22
31.12.21
31.12.22
31.12.21
31.12.22
31.12.21
31.12.22
31.12.21
Current service cost
Interest expense related to defined benefit obligation
Interest income related to plan assets
(485 )
(74 )
(70 )
(58 )
(31 )
(26 )
(586 )
(159 )
Interest expense on asset ceiling effect
Administration expenses, taxes and premiums paid
Past service cost related to plan amendments
Curtailments
(20 )
(80 )
(20 )
(80 )
Net periodic expenses recognized in net profit for major plans
(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 pension plan
UK pension plan
US and German
pension plans
Total
For the year ended
31.12.22
31.12.21
31.12.22
31.12.21
31.12.22
31.12.21
31.12.22
31.12.21
Remeasurement of defined benefit obligation
(837 )
(71 )
(846 )
of which: change in discount rate assumption
of which: change in rate of pension increase assumption
(316 )
(5 )
(1 )
(318 )
of which: change in rate of interest credit on retirement savings assumption
(718 )
(193 )
(82 )
(1 )
(800 )
(194 )
of which: change in life expectancy
(1 )
(3 )
of which: change in other actuarial assumptions
(33 )
(50 )
(23 )
(71 )
of which: experience gains / (losses)
1
(512 )
(1,464 )
(107 )
(59 )
(11 )
(12 )
(631 )
(1,535 )
Return on plan assets excluding interest income
(3,248 )
(1,312 )
(223 )
(4,782 )
Asset ceiling effect excluding interest expense and foreign currency translation
(1,189 )
(1,821 )
(1,189 )
(1,821 )
Total gains / (losses) recognized in other comprehensive income for major plans
(285 )
(336 )
(80 )
(28 )
Total gains / (losses) recognized in other comprehensive income for remaining plans
Total gains / (losses) recognized in other comprehensive income
2
(73 )
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 pension plan
UK pension plan
US and German pension
plans
1
31.12.22
31.12.21
31.12.22
31.12.21
31.12.22
31.12.21
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 2022
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Consolidated
financial
statements
|
UBS
Group
AG
consolidated
financial
statements
344
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 di scount 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 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
Swiss pension plan
UK pension plan
US pension plans
German pension plans
In %
31.12.22
31.12.21
31.12.22
31.12.21
31.12.22
31.12.21
31.12.22
31.12.21
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 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
31.12.22
31.12.21
31.12.22
31.12.21
Switzerland
BVG 2020 G with CMI 2021 projections
1
UK
S3PA with CMI 2021 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
31.12.22
31.12.21
31.12.22
31.12.21
Switzerland
BVG 2020 G with CMI 2021 projections
1
UK
S3PA with CMI 2021 projections
2
USA
Pri-2012 with MP-2021 projection scale
Germany
Dr. K. Heubeck 2018 G
1 In 2021, BVG 2020 G with CMI 2019 projections was used. 2 In 2021, S3PA with CMI 2020 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 pension plan
UK pension plan
US and German pension plans
USD m
31.12.22
31.12.21
31.12.22
31.12.21
31.12.22
31.12.21
Discount rate
Increase by 50 basis points
(1,128 )
(1,695 )
(141 )
(361 )
(51 )
(78 )
Decrease by 50 basis points
Rate of pension increase
Increase by 50 basis points
Decrease by 50 basis points
–
2
–
2
(118 )
(306 )
(3 )
(6 )
Rate of interest credit on retirement savings
Increase by 50 basis points
–
3
–
3
Decrease by 50 basis points
(178 )
(224 )
–
3
–
3
(8 )
(7 )
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 2022 and as of 31 December 2021, 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 2022
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Consolidated
financial
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UBS
Group
AG
consolidated
financial
statements
345
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 pension plans.
Composition and fair value of plan assets
Swiss pension plan
31.12.22
31.12.21
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–
Other
Other investments
Total fair value of plan assets
31.12.22
31.12.21
Total fair value of plan assets
of which:
2
Bank accounts at UBS
UBS debt instruments
UBS shares
Securities lent to UBS
3
Property occupied by UBS
Derivative financial instruments, counterparty UBS
3
1 The bond credit ratings are primarily based on SP’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 SP’s rating classification. 2 Bank accounts at UBS encompass accounts in the name of the Swiss pension fund. The other
positions disclosed in the table encompass both direct investments in UBS instruments and indirect investments, i.e., those made through funds that the pension fund invests in. 3 Securities lent to UBS and derivative
financial instruments are presented gross of any co llateral. Securities lent to UBS were fully covered by collateral as of 31 December 2022 and 31 December 2021. Net of collateral, derivative financial instruments
amounted to negative USD
m as of 31 December 2022 (31 December 2021: positive USD
m).
Annual Report 2022
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Consolidated
financial
statements
|
UBS
Group
AG
consolidated
financial
statements
346
Note 26 Post-employment benefit plans (continued)
Composition and fair value of plan assets (continued)
UK pension plan
31.12.22
31.12.21
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
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 )
(313 )
(313 )
(7 )
Repurchase agreements
(612 )
(612 )
(25 )
(725 )
(725 )
(17 )
Other investments
Total fair value of plan assets
1 The bond credit ratings are primarily based on SP’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 SP’s rating classification.
US and German pension plans
31.12.22
31.12.21
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
Total fair value of plan assets
1 The bond credit ratings are primarily based on SP’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 SP’s rating classification.
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Note 26 Post-employment benefit plans (continued)
b) Defined contribution plans
UBS sponsors a number of defined contribution plans, with the most significant plans in the US and the UK. UBS’s
obligation is limited to its contributions made in accordance with each plan, which may include direct contributions and
matching contributions. Employer contributions to defin ed contribution plans are recognized as an expense and were
USD
m in 2022, USD
m in 2021 and USD
m in 2020.
›
Refer to Note 6 for more information
c) Related-party disclosure
UBS is the principal provider of banking services for the pension fund of UBS in Switzerland. In this capacity, UBS is
engaged to execute most of the pension fund’s banking activities. These activities can include, but are not limited to,
trading, securities lending and borrowing and derivative transactions. The non -Swiss UBS pension funds do not have a
similar banking relationship with UBS. During 2022, UBS received USD
m in fees for banking services from the major
post-employment benefit plans (2021: USD
m). As of 31 December 2022, the major post-employment benefit plans
held USD
m in UBS shares (31 December 2021: 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 instruments held by the Swiss pension fund
Note 27 Employee benefits: variable compensation
a) Plans offered
The Group 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.
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 GEB members for the
performance year 2022. For prior performance years, LTIP was granted to 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.
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.
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Note 27 Employee benefits: variable compensation (continued)
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.
Share delivery obligations
Share delivery obligations related to employee share-based compensation awards were
m shares as of 31 December
2022 (31 December 2021:
m shares). Share delivery obligations are calculated on the basis of undistributed notional
share awards, taking applicable performance conditions into account.
As of 31 December 2022, UBS held
m treasury shares (31 December 2021:
m) that were available to satisfy share
delivery obligations.
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 2022, as well as expenses that were deferred and will be recognized
in the income statement for 2023 and later. The majority of expenses deferred to 20 23 and later that are related to the
2022 performance year pertain to awards granted in February 2023 . The total unamortized compensation expense for
unvested share-based awards granted up to 31 December 2022 will be recognized in future periods over a weighted
average period of
Variable compensation
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
(16 )
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). Total personnel expense related to share-based equity-settled compensation excluding social security was USD
m.
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Note 27 Employee benefits: variable compensation (continued)
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
(10 )
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). Total personnel expense related to share-based equity-settled compensation excluding social security was USD
m.
Variable compensation (continued)
Expenses recognized in 2020
Expenses deferred to 2021 and later
1
USD m
Related to the
2020
performance
year
Related to prior
performance
years
Total
Related to the
2020
performance
year
Related to prior
performance
years
Total
Non-deferred cash
(26 )
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 2020. 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). Total personnel expense related to share-based equity-settled compensation excluding social security was USD
m.
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Note 27 Employee benefits: variable compensation (continued)
c) Outstanding share-based compensation awards
Share and performance share awards
Movements in outstanding share-based awards to employees during 2022 and 2021 are provided in the table below.
Movements in outstanding share-based compensation awards
Number of shares
2022
Weighted average
grant date fair value
(USD)
Number of shares
2021
Weighted average
grant date fair value
(USD)
Outstanding, at the beginning of the year
Awarded during the year
Distributed during the year
(54,639,882 )
(52,137,287 )
Forfeited during the year
(6,235,249 )
(10,906,096 )
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 2022 and
31 December 2021 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 defines its significant subsidiaries as those entities that, either individually or in aggregate, contribute significantly to
the Group’s financial position or results of operations, based on a number of criteria, including the subsidiaries’ equity
and contribution to the Group’s total assets and profit or loss before tax, in accordance with the requirements set by
IFRS 12, Swiss regulations and the rules of the US Securities and Exchange Commission (the SEC).
Individually significant subsidiaries
The two tables below list the Group’s individually significant subsidiaries as of 31 December 2022. Unless otherwise
stated, the subsidiaries listed below have share capital consisting solely of ordinary shares held entirely by the Group and
the proportion of ownership interest held is equal to the voting rights held by the Group.
The country where the respective registered office is located is also the principal place of business. UBS AG operates
through a global 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 and Spain. Share capital is provided in the
currency of the legally registered office.
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Note 28 Interests in subsidiaries and other entities (continued)
Individually significant subsidiaries of UBS Group AG as of 31 December 2022
Company
Registered office
Share capital in million
Equity interest accumulated in %
CHF
1
CHF
1 UBS Business Solutions AG holds subsidiaries in China, India, Israel and Poland.
Individually significant subsidiaries of UBS AG as of 31 December 2022
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 the Group’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 2022
Company
Registered office
Primary business
Share capital in million
Equity interest
accumulated in %
USD
HKD
GBP
CHF
USD
USD
EUR
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 has no individually significant subsidiaries that are SEs.
In 2022 and 2021, the Group did not enter into any contractual obligation that could require the Group to provide
financial support to consolidated SEs. In addition, the Group did not provide support, financial or otherwise, to a
consolidated SE when the Group was not contractually obligated to do so, nor does the Group have any intention to do
so in the future. Further more, the Group did not provide support, financial or otherwise, to a previously unconsolidated
SE that resulted in the Group controlling the SE during the reporting period.
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Note 28 Interests in subsidiaries and other entities (continued)
b) Interests in associates and joint ventures
As of 31 December 2022 and 2021, no associate or joint venture was individually material to the Group. Also, there were
no significant restrictions on the ability of associates or joint ventures to transfer funds to UBS Group 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 the Group.
In 2022, UBS reclassified its minority investment (
%) in its Japanese real estate joint venture, Mitsubishi Corp.-UBS
Realty Inc., of USD
m to
Properties and other non-current assets held for sale
resulted in a pre-tax gain of USD
m in 2022, which was recognized in
Other income
. UBS’s asset management, wealth
management and investment banking businesses operating in Japan were not affected by the sale.
Investments in associates and joint ventures
USD m
2022
2021
Carrying amount at the beginning of the year
Additions
Reclassifications
1
(44 )
(386 )
Share of comprehensive income
(41 )
of which: share of net profit
2
of which: share of other comprehensive income
3
(73 )
Share of changes in retained earnings
Dividends received
(31 )
(39 )
Foreign currency translation
(30 )
(39 )
Carrying amount at the end of the year
of which: associates
of which: SIX Group AG, Zurich
4
of which: other associates
of which: joint ventures
of which: Mitsubishi Corp.-UBS Realty Inc., Tokyo
1
of which: other joint ventures
1 In 2022, UBS reclassified its minority investment (
%) in Mitsubishi Corp.-UBS Realty Inc. of USD
m to Properties and other non-current assets held for sale and sold the investment in the same year. In 2021,
UBS reclassified its minority investment (
%) in Clearstream Fund Centre AG of USD
m to Properties and other non-current assets held for sale and sold the investment in the same year. 2 For 2022, consists
of USD
m from associates and USD
m from joint ventures (for 2021, consists of USD
m from associates and USD
m from joint ventures). 3 For 2022, consists of negative USD
m from associates (for 2021,
consists of USD
m from associates and USD
m from joint ventures). 4 In 2022, UBS AG’s equity interest amounted to
%. UBS AG is represented on the Board of Directors.
c) Unconsolidated structured entities
UBS 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
2022, the Group 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 did not consolidate as of 31 December 2022
because it did not control the m.
Interests in unconsolidated structured entities
The table below presents the Group’s interests in and maximum exposure to loss from unconsolidated SEs, as well as the
total assets held by the SEs in which UBS had an interest as of year-end, except for investment funds sponsored by third
parties, for which the carrying amount of UBS’s interest as of year -end has been disclosed.
Sponsored unconsolidated structured entities in which UBS did not have an interest at year-end
During 2022 and 2021, the Group did not earn material income from sponsored unconsolidated SEs in which UBS did
not have an interest at year-end.
During 2022 and 2021, UBS and third parties did not transfer any assets into sponsored securitization vehicles created in
the year. UBS 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 2022 (2021:
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 2021: USD
bn).
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Note 28 Interests in subsidiaries and other entities (continued)
Interests in unconsolidated structured entities
31.12.22
USD m, except where indicated
Securitization
vehicles
Client
vehicles
Investment
funds
Total
Maximum
exposure to loss
1
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
2
Other financial assets measured at amortized cost
2
3
Total assets
4
Derivative financial instruments
Total liabilities
Assets held by the unconsolidated structured entities in which UBS had an interest
(USD bn)
5
6
7
31.12.21
USD m, except where indicated
Securitization
vehicles
Client
vehicles
Investment
funds
Total
Maximum
exposure to loss
1
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
3
Total assets
4
Derivative financial instruments
Total liabilities
Assets held by the unconsolidated structured entities in which UBS had an interest
(USD bn)
5
6
7
1 For the purpose of this disclosure, maximum exposure to loss amounts do not consider the risk-reducing effects of collateral or other credit enhancements. 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 1b for more information. 3 Includes the
carrying amount of loan commitments. The maximum exposure to loss for these instruments is equal to the notional amount. 4 As of 31 December 2022, USD
bn of the USD
bn (31 December 2021: USD
bn
of the USD
bn) was held in Group Functions – Non-core and Legacy Portfolio. 5 Represents the principal amount outstanding. 6 Represents the market value of total assets. 7 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.
The Group 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. The Group’s maximum exposure to loss is
generally equal to the carrying amount of the Group’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 the G roup is exposed to.
The maximum exposure to loss disclosed in the table above does not reflect the Group’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 2022 and 2021, the Group did not provide support, financial or otherwise, to any unconsolidated SE when not
contractually obligated to do so, nor does the Group have any intention to do so in the future.
In 2022 and 2021, 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 2022 and 31 December 2021, the Group held interests, both retained and acquired, in various
securitization vehicles that relate to financing, underwriting, secondary market and derivative trading activities.
The numbers outlined in the table above may differ from the securitization positions presented in the 31 December 2022
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 the Group did not have an
interest because it did not absorb any risk; (ii) a different measurement basis in certain cases (e.g., IFRS carrying amount
within the previous table compared with net exposure amount at default for Pillar 3 disclosures); and (iii) different
classification of vehicles viewed as sponsored by the Group versus sponsored by third parties.
›
Refer to the 31 December 2022 Pillar 3 Report, available under “Pillar 3 disclosures” at
ubs.com/investors,
for more information
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Note 28 Interests in subsidiaries and other entities (continued)
Interests in client vehicles
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 2022 and 31 December 2021, the Group retained interests in client vehicles sponsored by UBS and
third parties 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 .
The Group 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, the Group 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 the Group’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 2022 and 31 December 2021, respectively, and have been excluded from the table above. The Group did
not have any material exposure to loss from these interests as of 31 December 2022 or as of 31 December 2021.
Note 29 Changes in organization and acquisitions and disposals of subsidiaries and businesses
Disposals of subsidiaries and businesses
Sale of UBS Swiss Financial Advisers AG
In the third quarter of 2022, UBS completed the sale of its wholly owned subsidiary UBS Swiss Financial Advisers AG
(SFA) to Vontobel. UBS continues to refer US clients that want to have discretionary portfolio management or investment
advisory services booked in Switzerland to Vontobel SFA. Upon completion of the sale, UBS recorded a pre-tax gain of
USD
m in 2022, which was recognized in
Other income
.
Prior to completion of the sale, the assets and liabilities that were subject to the transaction were presented as a disposal
group held for sale within
Other non-financial assets
Other non-financial liabilities
m
and USD
m, respectively).
Sale of wealth management business in Spain
UBS completed the sale of its domestic wealth management business in Spain to Singular Bank in the third quarter of
2022. The sale included the transition of employees, client relationships, products and services of the wealth management
business of UBS in Spain and resulted in a pre-tax gain of USD
m in 2022, which was recognized in
Other income
.
Prior to completion of the sale, the assets and liabilities that were subject to the transaction were presented as a disposal
group held for sale within
Other non-financial assets
Other non-financial liabilities
m
and USD
m, respectively).
Sale of US alternative investments administration business
In the fourth quarter of 2022, UBS sold its US alternative investments administration business and recorded a pre -tax
gain of USD
m gain in
Other income
.
Sale of investments in associates and joint ventures
UBS sold its minority investment (49%) in its Japanese real estate joint venture, Mitsubishi Corp.-UBS Realty Inc., in 2022.
›
Refer to Note 28b for more information
Acquisitions of subsidiaries and businesses
Wealthfront
In August 2022, UBS and Wealthfront mutually agreed to terminate their merger agreement, under which Wealthfront
was to be acquired by UBS Americas Inc. In the third quarter of 2022, UBS purchased a USD
m note convertible into
Wealthfront shares.
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Note
30 Related parties
UBS defines related parties as associates (entities that are significantly influenced by UBS), joint ventures (entities in which
UBS shares control with another party), post -employment benefit plans for UBS employees, key management personnel,
close family members of key management personnel and entities that are, directly or indirectly, controlled or jointly
controlled by key management personnel or their close family members. Key management personnel is defined as
members of the Board of Directors (the BoD) and Group Executive Board (the GEB).
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 GEB members is included in
the table below.
Remuneration of key management personnel
USD m, except where indicated
31.12.22
31.12.21
31.12.20
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 perform ance conditions. Refer to Note 27 for more information. For GEB members, share -based compensation for 2022, 2021 and 2020 was entirely
composed of LTIP awards. For the Chairman of the BoD the share -based compensation for 2022, 2021 and 2020 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 (2022: USD / CHF
; 2021: USD / CHF
; 2020: USD / CHF
).
The independent members of the BoD , including the Chairman, do not have employment or service contracts with UBS,
and thus are not entitled to benefits upon termination of their service on the BoD. Payments to these individuals for their
services as independent members of the BoD amounted to USD
m (CHF
m) in 2022, USD
m (CHF
m) in
2021 and USD
m (CHF
m) in 2020.
b) Equity holdings of key management personnel
Equity holdings of key management personnel
1
31.12.22
31.12.21
Number of UBS Group AG shares held by members of the BoD, GEB and parties closely linked to them
2
3,009,686
1 No options were held in 2022 and 2021 by non-independent members of the BoD and any GEB 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
2022 and 31 December 2021. 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 2022 and 31 December 2021. As of
31 December 2022, no member of the BoD or GEB was the beneficial owner of more than 1% of the shares in UBS
Group AG.
c) Loans, advances and mortgages to key management personnel
The non -independent members of the BoD and GEB members are granted loans, fixed advances and mortgages in the
ordinary course of business on substantially the same terms and conditions that are available to other employees,
including interest rates and collateral, and neither involve more than the normal risk of 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.
Movements in the loan, advances and mortgage balances are as follows.
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Note 30 Related parties (continued)
Loans, advances and mortgages to key management personnel
1
USD m, except where indicated
2022
2021
Balance at the beginning of the year
Additions
Reductions
(9 )
(15 )
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 no unused uncommitted credit facilities as of 31 December 2022 and 31 December 2021. 3 Swiss franc amounts disclosed represent the respective US dollar amounts
translated at the relevant year-end closing exchange rate.
d) Other related-party transactions with entities controlled by key management personnel
In 202 2 and 2021, UBS did not enter into transactions with entities that are directly or indirectly controlled or jointly
controlled by UBS’s key management
personnel
or their close family members and as of 31
December 202
2
,
31
December 20
21
and 31
December 20
20
,
there were no outstanding balances related to such transactions.
Furthermore, in 202 2 and 2021, entities controlled by key management personnel did not sell any goods or provide any
services to UBS, and therefore did not receive any fees from UBS. UBS also did not provide services to such entities in
2022 and 2021, 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
2022
2021
Carrying amount at the beginning of the year
Additions
Reductions
(438 )
(497 )
Foreign currency translation
(14 )
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
31.12.22
31.12.21
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
Note 31 Invested assets and net new money
The following disclosures provide a breakdown of UBS’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 for investment purposes. Invested assets
include managed fund assets, managed institutional assets, discretionary and advisory wealth management portfolios,
fiduciary deposits, time deposits, savings accounts, and wealth management securities or brokerage accounts. All assets
held for purely transactional purposes and custody-only assets, including corporate client assets held for cash
management and transactional purposes, are excluded from invested assets, as the Group only administers the assets
and does not offer advice on how 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.
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Note 31 Invested assets and net new money (continued)
Discretionary assets are defined as client assets that UBS decides how to invest. Other invested assets are those where
the client ultimately decides how the assets are invested. When a single product is created in one business division and
sold in another, it is counted in both the business division managing the investment and the one distributing it. This
results in double counting within UBS’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 by new and existing clients, less
those withdrawn by existing clients and clients who terminated relationships with UBS.
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 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.
Invested assets and net new money
As of or for the year ended
USD bn
31.12.22
31.12.21
Fund assets managed by UBS
Discretionary assets
Other invested assets
Total invested assets
1
of which: double counts
Net new money
1
1 Includes double counts.
Development of invested assets
USD bn
2022
2021
Total invested assets at the beginning of the year
1
Net new money
Market movements
2
(595 )
Foreign currency translation
(72 )
(65 )
Other effects
(40 )
(24 )
of which: acquisitions / (divestments)
(19 )
(5 )
Total invested assets at the end of the year
1
1 Includes double counts. 2 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’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
31.12.22
31.12.21
31.12.22
31.12.21
31.12.20
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 the Group with the same functional currency for each month. Weighted average rates for individual business
divisions may deviate from the weighted average rates for the Group.
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Note 33 Main differences between IFRS and Swiss GAAP
The consolidated financial statements of UBS Group AG are prepared in accordance with International Financial Reporting
Standards (IFRS). The Swiss Financial Market Supervisory Authority (FINMA) requires financial groups presenting financial
statements under IFRS to provide a narrative explanation of the main differences between IFRS 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 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, all entities that are controlled by the holding entity are consolidated. Under Swiss GAAP controlled entities
deemed immaterial to a g roup 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.
2. Classification and measurement of financial assets
Under IFRS, debt instruments are measured at amortized cost, fair value through other comprehensive income (FVOCI)
or fair value through profit or loss (FVTPL), depending on the nature of the business model within which the 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. 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
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
measured at cost less impairment. Impairment losses are recorded in the income statement as
Impairment of investments
in non-consolidated subsidiaries and other participations.
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, 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 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 and Swiss GAAP .
For the small residual exposures within the scope of Swiss GAAP ECL requirements, which are not subject to ECL under
IFRS 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.
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Note 33 Main differences between IFRS and Swiss GAAP (continued)
5. Hedge accounting
Under IFRS, 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.
6. Goodwill and intangible assets
Under IFRS, goodwill acquired in a business combination is not amortized but tested annually for impairment. Intangible
assets with an indefinite useful life are also not amortized but tested annually for impairment. Under Swiss GAAP,
goodwill and intangible assets with indefinite useful lives are amortized over a period not exceeding five years, unless a
longer useful life, which may not exceed
impairment.
7. Post-employment benefit plans
Swiss GAAP permit the use of IFRS or Swiss accounting standards for post-employment benefit plans, with the election
made on a plan-by-plan basis.
UBS has elected to apply IFRS (IAS 19) for the non-Swiss defined benefit plans in 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. Key differences between Swiss GAAP and IFRS include the treatment of dynamic
elements, such as future salary increases and future interest credits on retirement savings, which are not considered under
the static method used in accordance with Swiss GAAP. Also, the discount rate used to determine the defined benefit
obligation in accordance with IFRS is based on the yield of high-quality corporate bonds of the market in the respective
pension plan country. The discount rate used in accordance with Swiss GAAP (i.e., the technical interest rate) is
determined by the Pension Foundation Board based on the expected returns of the Board’s investment strategy.
For defined benefit plans, IFRS 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 is 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, 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, operating leases are not recognized on the balance
sheet, with payments recognized as
General and administrative expenses
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.
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Note 33 Main differences between IFRS and Swiss GAAP (continued)
9. Netting of derivative assets and liabilities
Under IFRS, derivative assets, derivative liabilities and related cash collateral not settled to market are reported on a gross
basis unless the restrictive IFRS netting requirements are met: (i) existence of master netting agreements and related
collateral arrangements that are unconditional and legally enforceable, 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.
10. Negative interest
Under IFRS, negative interest income arising on a financial asset does not meet the definition of interest income and,
therefore, negative interest on financial assets and negative interest on financial liabilities are presented within interest
expense and interest income, respectively. Under Swiss GAAP, negative interest on financial assets is presented within
interest income and negative interest on financial liabilities is presented within interest expense.
11. Extraordinary income and expense
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.
p
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UBS AG consolidated financial information
This section contains a comparison of selected financial and capital information between UBS Group AG consolidated
and UBS AG consolidated. Information for UBS AG consolidated does not differ materially from UBS Group AG on a
consolidated basis.
Comparison between UBS Group AG consolidated and UBS AG consolidated
The accounting policies applied under International Financial Reporting Standards (IFRS) to both the UBS Group AG and
the UBS AG consolidated financial statements are identical. However, there are certain scope and presentation differences
as noted below:
–
Assets, liabilities, revenues, operating expenses and tax expenses / (benefits) relating to UBS Group AG and its directly
held subsidiaries, including UBS Business Solutions AG, are reflected in the consolidated financial statements of
UBS Group AG but not of UBS AG. UBS AG’s assets, liabilities, revenues and operating expenses related to transactions
with UBS Group AG and its directly held subsidiaries, including UBS Business Solutions AG and other shared services
subsidiaries, are not subject to elimination in the UBS AG consolidated financial statements, but are eliminated in the
UBS Group AG consolidated financial statements.
–
Differences in net profit between UBS Group AG consolidated and UBS AG consolidated mainly arise as UBS Business
Solutions AG and other shared services subsidiaries of UBS Group AG charge other legal entities within the UBS AG
consolidation scope for services provided, including a markup on costs incurred. In addition, and to a lesser extent,
differences arise as a result of certain compensation-related matters, including pensions.
–
The equity of UBS Group AG consolidated was USD 0.3bn higher than the equity of UBS AG consolidated as of
31 December 2022. This difference was mainly driven by higher dividends paid by UBS AG to UBS Group AG compared
with the dividend distributions of UBS Group AG, as well as higher retained earnings in the UBS Group AG
consolidated financial statements, largely related to the aforementioned markup charged by shared services
subsidiaries of UBS Group AG to other legal entities in the UBS AG scope of consolidation. In addition, UBS Group AG
is the grantor of the majority of the compensation plans of the Group and recognizes share premium for equity-settled
awards granted. These effects were largely offset by treasury shares acquired as part of our share repurchase programs
and those held to hedge share delivery obligations associated with Group compensation plans, as well as additional
share premium recognized at the UBS AG consolidated level related to the establishment of UBS Group AG and
UBS Business Solutions AG, a wholly owned subsidiary of UBS Group AG.
–
The going concern capital of UBS Group AG consolidated was USD 3.6bn higher than the going concern capital of
UBS AG consolidated as of 31 December 2022, reflecting higher common equity tier 1 (CET1) capital of USD 2.5bn
and going concern loss -absorbing additional tier 1 (AT1) capital of USD 1.0bn.
–
The CET1 capital of UBS Group AG consolidated was USD 2.5bn higher than that of UBS AG consolidated as of
31 December 2022, primarily due to lower UBS Group AG accruals for dividends to shareholders and USD 0.3bn higher
UBS Group AG consolidated IFRS equity. The aforementioned factors were partly offset by compensation-related
regulatory capital accruals at the UBS Group AG level.
–
The going concern loss-absorbing AT1 capital of UBS Group AG consolidated was USD 1.0bn higher than that of UBS
AG consolidated as of 31 December 2022, mainly reflecting Deferred Contingent Capital Plan awards granted at the
Group level to eligible employees for the performance years 2017 to 2021, partly offset by four loss-absorbing AT1
capital instruments on-lent by UBS Group AG to UBS AG.
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UBS AG consolidated key figures
As of or for the year ended
USD m, except where indicated
31.12.22
31.12.21
31.12.20
Results
Total revenues
Credit loss expense / (release)
Operating expenses
Operating profit / (loss) before tax
Net profit / (loss) attributable to shareholders
Profitability and growth
1
Return on equity (%)
Return on tangible equity (%)
Return on common equity tier 1 capital (%)
Return on leverage ratio denominator, gross (%)
2
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
2,3
Common equity tier 1 leverage ratio (%)
2,3
Other
Invested assets (USD bn)
4
Personnel (full-time equivalents)
1 Refer to the “Targets, aspirations and capital guidance” section of this report for more information about our performance measurement. 2 Leverage ratio denominators and leverage ratios for year 2020 do not
reflect the effects of the temporary exemption that applied from 25 March 2020 until 1 January 2021 and was granted by FINMA in connection with COVID -19. Refer to the “Regulatory and legal developments”
section of our Annual Report 2020 for more information. 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 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.
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Comparison between UBS Group AG consolidated and UBS AG consolidated
As of or for the year ended 31.12.22
As of or for the year ended 31.12.21
USD m, except where indicated
UBS Group AG
consolidated
UBS AG
consolidated
Difference
(absolute)
UBS Group AG
consolidated
UBS AG
consolidated
Difference
(absolute)
Income statement
Total revenues
Credit loss expense / (release)
Operating expenses
Operating profit / (loss) before tax
of which: Global Wealth Management
of which: Personal Corporate Banking
of which: Asset Management
of which: Investment Bank
of which: Group Functions
Net profit / (loss)
of which: net profit / (loss) attributable to shareholders
of which: net profit / (loss) attributable to non -controlling interests
Statement of comprehensive income
Other comprehensive income
of which: attributable to shareholders
of which: attributable to non-controlling interests
Total comprehensive income
of which: attributable to shareholders
of which: attributable to non-controlling interests
Balance sheet
Total assets
Total liabilities
Total equity
of which: equity attributable to shareholders
of which: equity attributable to non -controlling interests
Capital information
Common equity tier 1 capital
Going concern capital
Risk-weighted assets
Common equity tier 1 capital ratio (%)
Going concern capital ratio (%)
Total loss-absorbing capacity ratio (%)
Leverage ratio denominator
Common equity tier 1 leverage ratio (%)
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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
International Financial Reporting Standards (IFRS) 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
2022
UBS AG management has assessed the effectiveness of UBS AG’s internal control over financial reporting as of
31 December 2022 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 2022, UBS AG’s internal control over financial re porting 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
opinion on the effectiveness of UBS AG’s internal control over financial reporting as of 31 December 2022.
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AG
consolidated
financial
information
367
Annual Report 2022
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Consolidated
financial
statements
|
UBS
AG
consolidated
financial
information
368
Annual Report 2022
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Consolidated
financial
statements
|
UBS
AG
consolidated
financial
information
369
Annual Report 2022
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Consolidated
financial
statements
|
UBS
AG
consolidated
financial
information
370
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financial
statements
|
UBS
AG
consolidated
financial
statements
371
UBS AG consolidated financial statements
Primary financial statements and share information
Audited |
Income statement
For the year ended
USD m
Note
31.12.22
31.12.21
31.12.20
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
(6,696 )
(3,366 )
(4,333 )
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
(1,823 )
(1,985 )
(1,775 )
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
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financial
statements
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UBS
AG
consolidated
financial
statements
372
Statement of comprehensive income
For the year ended
USD m
Note
31.12.22
31.12.21
31.12.20
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
(938 )
Foreign currency translation differences on foreign operations reclassified to the income statement
(1 )
(7 )
Effective portion of changes in fair value of hedging instruments designated as net investment hedges reclassified to
the income statement
(4 )
Income tax relating to foreign currency translations, including the effect of net investment hedges
(67 )
Subtotal foreign currency translation, net of tax
(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 )
(40 )
Reclassification of financial assets to Other financial assets measured at amortized cost
1
Income tax relating to net unrealized gains / (losses)
(3 )
(48 )
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
(5,758 )
(992 )
Net (gains) / losses reclassified to the income statement from equity
(159 )
(1,073 )
(770 )
Income tax relating to cash flow hedges
(231 )
Subtotal cash flow hedges, net of tax
(4,793 )
2
(1,675 )
Cost of hedging
25
Cost of hedging, before tax
(32 )
(13 )
Income tax relating to cost of hedging
Subtotal cost of hedging, net of tax
(26 )
(13 )
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
(222 )
Income tax relating to defined benefit plans
(31 )
Subtotal defined benefit plans, net of tax
(134 )
Own credit on financial liabilities designated at fair value
20
Gains / (losses) from own credit on financial liabilities designated at fair value, before tax
(293 )
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
(293 )
Total other comprehensive income that will not be reclassified to the income statement, net of tax
(427 )
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
(406 )
Total comprehensive income
1 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 1b for more information. 2 Mainly reflects net unrealized losses on US dollar hedging derivatives resulting from significant increases in the relevant US dollar long-term interest rates.
Annual Report 2022
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financial
statements
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UBS
AG
consolidated
financial
statements
373
Balance sheet
USD m
Note
31.12.22
31.12.21
Assets
Cash and balances at central banks
Loans and advances to 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
19, 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
14
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 2022
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financial
statements
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UBS
AG
consolidated
financial
statements
374
Statement of changes in equity
USD m
Share
capital
Share
premium
Retained
earnings
Balance as of 31 December 2019
Premium on shares issued and warrants exercised
(4 )
2
Tax (expense) / benefit
Dividends
(3,848 )
Translation effects recognized directly in retained earnings
(49 )
Share of changes in retained earnings of associates and joint ventures
(40 )
New consolidations / (deconsolidations) and other increases / (decreases)
3
(76 )
Total comprehensive income for the year
of which: net profit / (loss)
of which: OCI, net of tax
(427 )
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)
4
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
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 Mainly relates to the establishment of a banking partnership with Banco do Brasil. In 2020, UBS AG issued a
% stake in UBS Brasil
Serviços in exchange for exclusive access to Banco do Brasil’s corporate clients. Upon completion of the transaction in 2020, equity attributable to non-controlling interests increased by USD
m, with no material
effect on equity attributable to shareholders. 4 Includes the effects related to the launch of UBS AG’s new operational partnership entity with Sumitomo Mitsui Trust Holdings, Inc in 2021.
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AG
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financial
statements
375
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
(4 )
(4 )
(3,848 )
(6 )
(3,854 )
(40 )
(40 )
(12 )
(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 )
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AG
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statements
376
Share information and earnings per share
Ordinary share capital
As of 31 December 2022, UBS AG had
nominal value of CHF
. The shares were entirely held by
UBS Group AG.
Following revisions to Swiss Corporate Law that are effective from 1 January 2023, the Board of Directors (the BoD) will
propose at the 2023 Annual General Meeting (the AGM) that the shareholders approve the conversion of the share
capital currency of UBS AG from the Swiss franc to the US dollar. This would align the share capital currency with the
financial statement presentation currency of UBS AG. If the change is approved, the share capital of UBS AG will be
slightly reduced to a nominal value per share of USD
allocated to the capital contribution reserve (presented as
Share premium
equity reported for UBS AG consolidated will not change.
Conditional share capital
As of 31 December 2022, the following conditional share capital was available to UBS AG’s BoD:
–
A maximum of CHF
of CHF
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 AGM of UBS AG on 14 April 2010. The BoD has
not made use of such allowance.
Authorized share capital
UBS AG had no authorized capital available to issue on 31 December 2022.
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
2022,
% 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.
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AG
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statements
377
Statement of cash flows
For the year ended
USD m
31.12.22
31.12.21
31.12.20
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 profits of associates and joint ventures and impairment related to associates
(32 )
(105 )
(84 )
Deferred tax expense / (benefit)
Net loss / (gain) from investing activities
(1,515 )
(230 )
(698 )
Net loss / (gain) from financing activities
(16,587 )
Other net adjustments
(8,061 )
Net change in operating assets and liabilities:
Loans and advances to banks and amounts due to banks
(1,088 )
Securities financing transactions measured at amortized cost
(2,316 )
Cash collateral on derivative instruments
(3,311 )
(3,486 )
Loans and advances to customers and customer deposits
(7,756 )
Financial assets and liabilities at fair value held for trading and derivative financial instruments
(10,635 )
Brokerage receivables and payables
(5,199 )
Financial assets at fair value not held for trading and other financial assets and liabilities
Provisions and other non-financial assets and liabilities
(437 )
(1,213 )
Income taxes paid, net of refunds
(1,495 )
(1,026 )
(919 )
Net cash flow from / (used in) operating activities
Cash flow from / (used in) investing activities
Purchase of subsidiaries, associates and intangible assets
(3 )
(1 )
(46 )
Disposal of subsidiaries, associates and intangible assets
1
Purchase of property, equipment and software
(1,478 )
(1,581 )
(1,573 )
Disposal of property, equipment and software
Purchase of financial assets measured at fair value through other comprehensive income
(4,783 )
(5,802 )
(6,290 )
Disposal and redemption of financial assets measured at fair value through other comprehensive income
Net (purchase) / redemption of debt securities measured at amortized cost
(11,993 )
(415 )
(4,166 )
Net cash flow from / (used in) investing activities
(12,283 )
(1,860 )
(6,506 )
Table continues below.
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AG
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Statement of cash flows (continued)
Table continued from above.
For the year ended
USD m
31.12.22
31.12.21
31.12.20
Cash flow from / (used in) financing activities
Net short-term debt issued / (repaid)
(12,249 )
(3,093 )
Distributions paid on UBS AG shares
(4,200 )
(4,539 )
(3,848 )
Issuance of debt designated at fair value and long -term debt measured at amortized cost
2
Repayment of debt designated at fair value and long-term debt measured at amortized cost
2
(67,670 )
(79,799 )
(87,099 )
Net cash flows from other financing activities
(595 )
(261 )
(553 )
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
(6,911 )
Effects of exchange rate differences on cash and cash equivalents
(5,645 )
(5,306 )
Cash and cash equivalents at the end of the year
3
of which: cash and balances at central banks
4
of which: loans and advances to banks
of which: money market paper
5
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
6
1 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; UBS AG’s US alternative investments
administration business; and UBS AG’s domestic weal th management business in Spain. Refer to Note 29 for more information. Also includes dividends received from associates. 2 Includes funding from UBS Group
AG measured at amortized cost (recognized in Funding from UBS Group AG measured at amortized cost in the balance sheet) and measured at fair value (recognized in Other financial liabilities designated at fair
value in the balance sheet). 3 USD
m, USD
m and USD
m of cash and cash equivalents (mainly reflected in Loans and advances to banks) were restricted as of 31 December 2022, 31 December
2021 and 31 December 2020, respectively. Refer to Note 22 for more information. 4 Includes only balances with an original maturity of three months or less. 5 Money market paper is included in the balance
sheet under Financial assets at fair value held for trading (31 December 2022: USD
m; 31 December 2021: USD
m; 31 December 2020: USD
m), Financial assets measured at fair value through other
comprehensive income (31 December 2022: USD
m; 31 December 2021: USD
m; 31 December 2020: USD
m), Financial assets at fair value not held for trading (31 December 2022: USD
m; 31 December
2021: USD
m; 31 December 2020: USD
m), and Other financial assets measured at amortized cost (31 December 2022: USD
m; 31 December 2021: USD
m; 31 December 2020: USD
m). 6
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 2021
Cash flows
(550 )
(3,093 )
Non-cash changes
(2,369 )
(475 )
(1,894 )
(58 )
(2,795 )
(2,705 )
of which: foreign currency translation
(1,841 )
(475 )
(1,366 )
(1,611 )
(65 )
(1,340 )
(4,857 )
of which: fair value changes
(30 )
of which: hedge accounting and other effects
(528 )
(528 )
(1,425 )
(1,953 )
Balance as of 31 December 2021
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
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).
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AG
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statements
379
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.
380
a)
380
380
1)
380
2)
380
a.
381
b.
385
c.
385
d.
385
e.
385
f.
386
g.
389
h.
389
i.
390
j.
390
3)
391
4)
392
5)
392
6)
393
7)
393
8)
393
9)
394
10)
394
11)
395
b)
395
c)
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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 23 February 2023, 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 International Financial Reporting Standards (IFRS), as
issued by the International Accounting Standards Board (the IASB), and are presented in US dollars (USD).
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,
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 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 9 in this Note and to Note 17);
–
post-employment benefit plans (refer to item 5 in this Note and to Note 2 6);
–
goodwill (refer to item 8 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 the 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 an 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 g ained 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 any non-controlling interest 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 recognizes financial instruments when it becomes a party to contractual provisions of an instrument. UBS AG
applies settlement date accounting to all standard purchases and sales of non-derivative financial instruments.
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Note 1 Summary of material accounting policies (continued)
In transactions where UBS AG acts as a transferee, to the extent the financial asset transfer does not qualify for
derecognition by the transferor, UBS AG does not recognize the transferred instrument as its asset.
UBS AG also acts 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 being achieved by
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 a hedge relationship, in which case hedge
accounting requirements apply (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.
In assessing whether contractual cash flows are SPPI, the 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
containing contractual provisions under which the principal amounts would be written down or converted into equity
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.
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.
A gain or loss is recognized in
Other income
activities. A subsequent sale of own bonds in the market is treated as a reissuance of debt.
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 non -closely-related embedded derivatives that 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.
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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;
–
loans and advances to 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
and certain asset-backed 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
are reclassified to the 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.
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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
This classification includes financial asset s mandatorily
measured at FVTPL that are not held for trading, as
follows:
–
certain structured loans, 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 presentati on 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
UBS AG designates at FVTPL the following financial
liabilities:
–
issued hybrid debt instruments that primarily include
equity-linked, credit -linked and rates-linked bonds or
notes;
–
issued debt instruments managed on a fair value
basis;
–
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
and either
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 received
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 variation margin
on a daily basis represents 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 2 0d.
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
cash shortfalls that would result if a default occurs in the 12 months after the reporting date, weighted by the risk of
a default occurring.
–
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 or originated credit-
impaired (POCI). POCI 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 “Credit policies for distressed assets” in 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.
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 determi ning 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.
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Note 1 Summary of material accounting policies (continued)
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:
–
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 our corporate rating tools.
Scenario generation, review process and governance
A team of economists, which is part of Group Risk Control, develop the forward-looking macroeconomic assumptions
with involvement from a broad range of experts.
The scenarios, their weight 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
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Note 1 Summary of material accounting policies (continued)
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 o f 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 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 grading system
Irrespective of the SICR assessment based on default probabilities, credit risk is generally deemed to have significantly
increased for an instrument if the contractual payments are more than 30 days past due. For certain less material
portfolios, specifically the Swiss credit card portfolio, the 30-day past due criterion is used as the primary indicator of an
SICR. Where instruments are transferred to stage 2 due to the 30-day past due criterion, a minimum period of six months
is applied before a transfer back to stage 1 can be triggered. For instruments in Personal Corporate Banking and Global
Wealth Management Region Switzerland that are between 90 and 180 days past due but have not been reclassified to
stage 3, a one-year period is applied before a transfer back to stage 1 can be triggered.
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Note 1 Summary of material accounting policies (continued)
Additionally, based on individual counterparty-specific indicators, external market indicators of credit risk or general
economic conditions, counterparties may be moved to a watch list, which is used as a secondary qualitative indicator for
an SICR. Exception management is further applied, allowing for individual and collective adjustments on exposures
sharing the same credit risk characteristics to take account of specific situa tions 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 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 weight s 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 which 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.
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.
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Note 1 Summary of material accounting policies (continued)
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
within
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 continues hedge accounting during the period of uncertainty before existing interest rate benchmarks are
replaced with alternative risk- free interest rates. During this period, UBS AG assumes that the current benchmark rates
will continue to exist, such that forecast transactions are 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 applies 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
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 point-in-time 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.
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Note 1 Summary of material accounting policies (continued)
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, 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.
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
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Note 1 Summary of material accounting policies (continued)
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 o f 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 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) gains and losses on the sale of treasury shares (for which the tax
effects are recognized directly in
Equity
); (iii) unrealized gains or losses on financial instruments that are classified at
FVOCI; (iv) changes in fair value of derivative instruments designated as cash flow hedges; (v) remeasurements of defined
benefit plans; or (vi) certain foreign currency translations of foreign operations. Amounts relating to points (iii) through
(vi) above are recognized in
Other comprehensive income
Equity
.
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.
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Note 1 Summary of material accounting policies (continued)
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 factor s 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) 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 8 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
8) 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 in years one to three; (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
9) 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.
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Note 1 Summary of material accounting policies (continued)
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, timing and amount of any outflows of resources. This is particularly the case for litigation, regulatory and similar matters, which, due to their
nature, are subject to many uncertainties, making their outcome difficult to predict.
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 amount of any potential outflows.
›
Refer to Note 17 for more information
10) 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, share premium and treasury shares 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 or disposal of treasury shares
reported as
Share premium.
Other comprehensive income
and financial assets measured at FVOCI 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
11) Contracts on UBS Group AG shares
Contracts involving UBS Group AG shares that require net cash settlement, or provide the counterparty or UBS AG with
a settlement option that includes a choice of settling net in cash, are classified as derivatives held for trading.
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Note 1 Summary of material accounting policies (continued)
b) Changes in accounting policies, comparability and other adjustments
Changes to the presentation of the financial statements
During 2022, UBS AG made several changes to simplify the presentation of the income statement alongside other primary
financial statements and disclosure notes, and to align them with management information. In particular,
Total operating
income
Total revenues
Credit loss expense / (release)
, which is now separately presented
below
Total revenues
.
Reclassification of a portfolio from
Financial assets measured at fair value through other comprehensive income
Other financial assets measured at amortized cost
Effective from 1 April 2022, UBS AG has reclassified a portfolio of financial assets from
Financial assets measured at fair
value through other comprehensive income
bn (the Portfolio) to
Other financial assets
measured at amortized cost
, in line with the principles in IFRS 9,
Financial Instruments
, which require a reclassification
when an entity changes its business model for managing financial assets.
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 (BUSA).
The accounting reclassification has arisen as a direct result of the transformation of UBS AG’s Global Wealth Management
Americas business, which has significantly impacted BUSA. 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, BUSA’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.
The fair value of the Portfolio as on 31 December 2022 was USD
bn. A pre-tax fair value loss of USD
m would
have been recognized in
Other comprehensive income
›
Refer to the Statement of changes in equity and Note 20 for more information about the effects from the reclassification of the
Portfolio
Accounting for obligations to safeguard crypto-assets an entity holds for platform users (SAB 121)
In March 2022, the US Security and Exchange Commission (the SEC) issued Staff Accounting Bulletin (SAB) 121,
“Accounting for obligations to safeguard crypto-assets an entity holds for platform users.” SAB 121 adds interpretive
guidance requiring SEC registrants, including foreign private issuers that apply IFRS, to recognize a liability on their balance
sheets to reflect the obligation to safeguard any digital asset that is issued or transferred using distributed ledger or
blockchain technology and held for their platform users, along with a corresponding asset. The guidance is effective for
UBS AG for annual reporting from 2022 onwards. Amounts that would be recognized as liabilities, with corresponding
assets, under this guidance are not material to UBS AG.
c) International Financial Reporting Standards and Interpretati ons to be adopted in 202 3 and later and other
changes
IFRS 17,
In May 2017, the IASB issued IFRS 17,
Insurance Contracts
, which sets out the accounting requirements for contractual
rights and obligations that arise from insurance contracts issued and reinsurance contracts held. IFRS 17 is effective from
1 January 2023. Adoption on 1 January 2023 will have no effect on UBS AG’s financial statements. UBS AG does not
provide insurance services in any market.
Other amendments to IFRS
The IASB has issued a number of minor amendments to IFRS, effective from 1 January 2023 and in later years. These
amendments are not expected to have a significant effect on UBS AG when they are adopted.
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Note 2a Segment reporting
UBS AG’s businesses are organized globally into four business divisions: Global Wealth Management, Personal
Corporate Banking, Asset Management and the Investment Bank. All four business divisions are supported by Group
Functions and qualify as reportable segments for the purpose of segment reporting. Together with Group Functions, the
four 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.
–
Group Functions
Information Office, Communications Branding, Compliance, Finance, Group Sustainability and Impact, Human
Resources, Group Legal, Regulatory Governance, and Risk Control), Group Treasury and Non-core and Legacy
Portfolio.
Financial information about the four business divisions and Group Functions 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 Functions, 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.
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Note 2a Segment reporting (continued)
USD m
Global Wealth
Management
Personal
Corporate
Banking
Asset
Management
Investment
Bank
Group
Functions
UBS AG
For the year ended 31 December 2022
Net interest income
(19 )
(241 )
(688 )
Non-interest income
1
Total revenues
(30 )
Credit loss expense / (release)
(12 )
Operating expenses
Operating profit / (loss) before tax
(960 )
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
Group
Functions
UBS AG
For the year ended 31 December 2021
Net interest income
(15 )
(226 )
Non-interest income
Total revenues
Credit loss expense / (release)
(29 )
(86 )
(34 )
(148 )
Operating expenses
Operating profit / (loss) before tax
(1,083 )
Tax expense / (benefit)
Net profit / (loss)
Additional information
Total assets
2
Additions to non-current assets
USD m
Global Wealth
Management
Personal
Corporate
Banking
Asset
Management
Investment
Bank
Group
Functions
UBS AG
For the year ended 31 December 2020
Net interest income
(17 )
(555 )
Non-interest income
3
Total revenues
(52 )
Credit loss expense / (release)
Operating expenses
Operating profit / (loss) before tax
(1,423 )
Tax expense / (benefit)
Net profit / (loss)
Additional information
Total assets
Additions to non-current assets
1 Includes an USD
m gain in Asset Management related to the sale of UBS AG’s shareholding in Mitsubishi Corp.-UBS Realty Inc. 2 During 2022, UBS AG refined the methodology applied to allocate balance
sheet resources from Group Functions 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 related to the Investment Bank. 3 Includes a USD
m net gain on the sale of a majority stake in Fondcenter AG (now Clearstream Fund Centre AG), of which
USD
m was recognized in Asset Management and USD
m was recognized in Global Wealth Management.
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398
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 in
Group Functions, 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 2022
Total revenues
1
Total non-current assets
USD bn
Share %
USD bn
Share %
Americas
2
Asia Pacific
Europe, Middle East and Africa (excluding Switzerland)
Switzerland
Global
Total
For the year ended 31 December 2021
Total revenues
1
Total non-current assets
USD bn
Share %
USD bn
Share %
Americas
2
Asia Pacific
Europe, Middle East and Africa (excluding Switzerland)
Switzerland
Global
Total
For the year ended 31 December 2020
Total revenues
1
Total non-current assets
USD bn
Share %
USD bn
Share %
Americas
2
Asia Pacific
Europe, Middle East and Africa (excluding Switzerland)
Switzerland
Global
Total
1 During 2022, UBS AG changed the presentation of its Income statement. Total operating income was renamed Total revenues and excludes Credit loss expense / (release). Note 2b, including prior-period
information, has been updated to reflect the new presentation structure, with the disclosure of Total revenues instead of Total operating income. Refer to Note 1b for more information. 2 Predominantly related to
the USA.
Annual Report 2022
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AG
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399
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
31.12.22
31.12.21
31.12.20
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
of which: net gains / (losses) from financial liabilities designated at fair value
1
(6,457 )
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 income from derivative instruments designated as cash flow hedges
Total interest income from financial instruments measured at amortized cost and fair value through other comprehensive income
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 Excludes fair value changes of 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. 2022 included net gains of USD
m (net losses of USD
m and
USD
m in 2021 and 2020, respectively), driven by financial liabilities related to unit-linked investment contracts, which are designated at fair value through profit or loss. This was offset by net losses of USD
m
(net gains of USD
m and USD
m in 2021 and 2020, respectively), related to financial assets for unit-linked investment contracts that are mandatorily measured at fair value through profit or loss not held
for trading. 2 Consists of interest income from cash and balances at central banks, loans and advances to banks and custom ers, 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, loans and advances to 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
31.12.22
31.12.21
31.12.20
Underwriting fees
MA 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 2022, 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 and USD
m for Group Functions (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 and USD
m for Group Functions; for the year ended 31 December 2020: USD
m for Global Wealth Management,
USD
m for Personal Corporate Banking, USD
m for Asset Management, USD
m for the Investment Bank and USD
m for Group Functions).
Annual Report 2022
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AG
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statements
400
Note 5 Other income
For the year ended
USD m
31.12.22
31.12.21
31.12.20
Associates, joint ventures and subsidiaries
Net gains / (losses) from acquisitions and disposals of subsidiaries
1
(11 )
2
Net gains / (losses) from disposals of investments in associates and joint ventures
3
Share of net profits of associates and joint ventures
Total
Net gains / (losses) from disposals of financial assets measured at fair value through other comprehensive income
(1 )
Income from properties
4
Net gains / (losses) from properties held for sale
5
6
Income from shared services provided to UBS Group AG or its subsidiaries
Other
7
8
9
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 a USD
m net gain on the sale of a majority stake in Fondcenter AG (now Clearstream Fund Centre AG). 3 Includes an USD
m gain related to the
sale of UBS AG’s shareholding in Mitsubishi Corp.-UBS Realty Inc. Refer to Note 28b for more information. 4 Includes rent received from third parties. 5 Mainly relates to the sale of a property in Basel. 6 Includes
net gains of USD
m arising from sale-and-leaseback transactions, primarily related to a property in Geneva, partly offset by remeasurement losses relating to properties that were reclassified as held for sale.
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), income of USD
m related to a legacy litigation settlement and a legacy bankruptcy claim, as well as gains of USD
m related to the repurchase of UBS’s own debt
instruments (compared with losses of USD
m in 2021). 8 Includes a gain of USD
m from the sale of UBS AG’s domestic wealth management business in Austria. 9 Includes a USD
m gain on the sale of
intellectual property rights associated with the Bloomberg Commodity Index family.
Note 6 Personnel expenses
For the year ended
USD m
31.12.22
31.12.21
31.12.20
Salaries
1
Variable compensation
2
of which: performance awards
3
of which: financial advisors
4
of which: other
Contractors
Social security
3
Post-employment benefit plans
5
of which: defined benefit plans
of which: defined contribution plans
Other personnel expenses
3
Total personnel expenses
1 Includes role-based allowances. 2 Refer to Note 27 for more information. 3 During 2020, UBS AG modified the conditions for continued vesting of certain outstanding deferred compensation awards for qualifying
employees, resulting in an expense of approximately USD
m, of which USD
m is disclosed within Variable compensation – performance awards, USD
m within Social security and USD
m within Other
personnel expenses. 4 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. 5 Refer to Note 26 for more information. Includes curtailment gains of USD
m for the year
ended 31 December 2022 (for the year ended 31 December 2021: USD
m; for the year ended 31 December 2020: 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.
Note 7 General and administrative expenses
For the year ended
USD m
31.12.22
31.12.21
31.12.20
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 in provisions for litigation, regulatory and similar matters recognized in the income statement. Refer to Note 17 for more information.
Annual Report 2022
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AG
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statements
401
Note 8 Income taxes
For the year ended
USD m
31.12.22
31.12.21
31.12.20
Tax expense / (benefit)
Swiss
Current
Deferred
(22 )
Total Swiss
Non-Swiss
Current
Deferred
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 taxable profits of non-Swiss subsidiaries and branches. The non-Swiss
deferred tax expenses include expenses of USD
m that primarily related to the amortization of deferred tax assets
(DTAs) previously recognized in relation to tax losses carried forward and deductible temporary differences of UBS
Americas Inc., which were partly offset by a benefit of USD
m in respect of net upward revaluations of DTAs for
certain entities, primarily in connection with our business planning process.
The effective tax rate for the year of
% is lower than our projected rate for the year of
%, primarily as a result of
the aforementioned deferred tax benefit of USD
m in respect of net upward revaluations of DTAs and because no tax
expenses were recognized in respect of pre-tax gains from dispositions of UBS subsidiaries in 2022.
›
Refer to Note 29 for more information about disposals of subsidiaries
For the year ended
USD m
31.12.22
31.12.21
31.12.20
Operating profit / (loss) before tax
of which: Swiss
of which: non-Swiss
Income taxes at Swiss tax rate of
% for 2022,
% for 2021 and
% for 2020
Increase / (decrease) resulting from:
Non-Swiss tax rates differing from Swiss tax rate
Tax effects of losses not recognized
Previously unrecognized tax losses now utilized
(217 )
(179 )
(212 )
Non-taxable and lower-taxed income
(316 )
(252 )
(381 )
Non-deductible expenses and additional taxable income
Adjustments related to prior years, current tax
(33 )
(38 )
(66 )
Adjustments related to prior years, deferred tax
(3 )
Change in deferred tax recognition
(217 )
(341 )
(383 )
Adjustments to deferred tax balances arising from changes in tax rates
(1 )
Other items
Income tax expense / (benefit)
Annual Report 2022
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UBS
AG
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statements
402
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 benefit of USD
m was recognized in
Other comprehensive income
m) and
a net tax benefit of USD
m was recognized in
Share premium
(2021: net expense of USD
m).
Annual Report 2022
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AG
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statements
403
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
2022, this exception was not considered to apply to any taxable temporary differences.
USD m
31.12.22
31.12.21
Deferred tax assets
1
Gross
Valuation
allowance
Recognized
Gross
Valuation
allowance
Recognized
Tax loss carry-forwards
(8,720 )
(9,193 )
Temporary differences
(408 )
(696 )
of which: related to real estate costs capitalized for US tax
purposes
of which: related to compensation and benefits
(175 )
(209 )
of which: related to cash flow hedges
of which: other
(233 )
(487 )
Total deferred tax assets
(9,128 )
2
(9,889 )
2
of which: related to the US
of which: related to other locations
Deferred tax liabilities
Cash flow hedges
Other
Total deferred tax liabilities
1 After offset of DTLs, as applicable. 2 As of 31 December 2022, UBS AG recognized DTAs of USD
m (31 December 2021: 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
31.12.22
31.12.21
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 2022
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UBS
AG
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financial
statements
404
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, seasonalit y,
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 market s (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 2022
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AG
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statements
405
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
31.12.22
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 )
Loans and advances to 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 2022
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AG
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406
Note 9 Financial assets at amortized cost and other positions in scope of expected credit loss measurement
(continued)
USD m
31.12.21
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
Loans and advances to banks
(8 )
(7 )
(1 )
Receivables from securities financing transactions measured at amortized cost
(2 )
(2 )
Cash collateral receivables on derivative instruments
Loans and advances to customers
(850 )
(126 )
(152 )
(572 )
of which: Private clients with mortgages
(132 )
(28 )
(71 )
(33 )
of which: Real estate financing
(60 )
(19 )
(40 )
of which: Large corporate clients
(170 )
(22 )
(16 )
(133 )
of which: SME clients
(259 )
(19 )
(15 )
(225 )
of which: Lombard
(33 )
(6 )
(28 )
of which: Credit cards
(36 )
(10 )
(9 )
(17 )
of which: Commodity trade finance
(114 )
(6 )
(108 )
Other financial assets measured at amortized cost
(109 )
(27 )
(7 )
(76 )
of which: Loans to financial advisors
(86 )
(19 )
(3 )
(63 )
Total financial assets measured at amortized cost
(969 )
(161 )
(160 )
(647 )
Financial assets measured at fair value through other comprehensive income
Total on-balance sheet financial assets within the scope of ECL requirements
(969 )
(161 )
(160 )
(647 )
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
(41 )
(18 )
(8 )
(15 )
of which: Large corporate clients
(6 )
(3 )
(3 )
of which: SME clients
(8 )
(1 )
(1 )
(7 )
of which: Financial intermediaries and hedge funds
(17 )
(13 )
(4 )
of which: Lombard
(1 )
(1 )
of which: Commodity trade finance
(1 )
(1 )
Irrevocable loan commitments
(114 )
(72 )
(42 )
of which: Large corporate clients
(100 )
(66 )
(34 )
Forward starting reverse repurchase and securities borrowing agreements
Committed unconditionally revocable credit lines
(38 )
(28 )
(10 )
of which: Real estate financing
(5 )
(4 )
(1 )
of which: Large corporate clients
(7 )
(4 )
(3 )
of which: SME clients
(15 )
(11 )
(3 )
of which: Lombard
of which: Credit cards
(6 )
(5 )
(2 )
of which: Commodity trade finance
Irrevocable committed prolongation of existing loans
(3 )
(3 )
Total off-balance sheet financial instruments and credit lines
(196 )
(121 )
(60 )
(15 )
Total allowances and provisions
(1,165 )
(282 )
(220 )
(662 )
1 The carrying amount of financial assets measured at amortized cost represents the total gross exposure net of the respective ECL allowances.
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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 capabilit ies;
–
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 lower than on 31 December 2021. The combined stage 1 and 2 ratio of
with 31 December 2021; the stage 3 ratio was 22%,
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 12
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 12
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 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.
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Note 9 Financial assets at amortized cost and other positions in scope of expected credit loss measurement
(continued)
31.12.21
Gross carrying amount (USD m)
ECL coverage (bps)
On-balance sheet
Total
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 12
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 12
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 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.
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
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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
31.12.22
31.12.21
USD bn
Derivative
financial
assets
Notional
amounts
related to
derivative
financial
assets
2,3
Derivative
financial
liabilities
Notional
amounts
related to
derivative
financial
liabilities
2,3
Other
notional
amounts
2,4
Derivative
financial
assets
Notional
amounts
related to
derivative
financial
assets
2,3
Derivative
financial
liabilities
Notional
amounts
related to
derivative
financial
liabilities
2,3
Other
notional
amounts
2,4
Interest rate contracts
of which: forwards (OTC)
1
of which: swaps (OTC)
of which: options (OTC)
of which: futures (ETD)
of which: options (ETD)
Credit derivative contracts
of which: credit default swaps (OTC)
of which: total return swaps (OTC)
Foreign exchange contracts
of which: forwards (OTC)
of which: swaps (OTC)
of which: options (OTC)
Equity contracts
of which: swaps (OTC)
of which: options (OTC)
of which: futures (ETD)
of which: options (ETD)
of which: client-cleared transactions (ETD)
Commodity contracts
of which: swaps (OTC)
of which: options (OTC)
of which: futures (ETD)
of which: forwards (ETD)
of which: client-cleared transactions (ETD)
Loan commitments
measured at FVTPL (OTC)
Unsettled purchases of non-derivative
financial instruments
5
Unsettled sales of non-derivative financial
instruments
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 bal ance 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 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 Changes in the fair value of purchased and sold non-derivative financial instruments
between trade date and settlement date are recognized as derivative financial instruments. 6 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.
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Note 10 Derivative instruments (continued)
On a notional amount basis, approximately
% of OTC interest rate contracts held as of 31 December 2022
(31 December 2021:
%) mature within one year,
% (31 December 2021:
%) within one to five years and
%
31 December 2021:
%) 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 2021,
mainly reflecting higher business volumes driven by elevated interest rate volatility and inflation, partly offset by
compression activity.
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
2022
3
2021
3
Historical cost
Balance at the beginning of the year
Additions
1
Disposals / write-offs
4
(284 )
(48 )
(81 )
(414 )
(632 )
Reclassifications
(796 )
(1,150 )
(894 )
(18 )
Foreign currency translation
(152 )
(50 )
(5 )
(200 )
(381 )
Balance at the end of the year
Accumulated depreciation
Balance at the beginning of the year
Depreciation
Impairment
5
Disposals / write-offs
4
(283 )
(45 )
(81 )
(410 )
(619 )
Reclassifications
(565 )
(1 )
(566 )
(12 )
Foreign currency translation
(98 )
(18 )
(99 )
(210 )
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 2022 was USD
m (2021: 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 2022 and in 2021. 3 The total reclassification amount for the respective periods represents net reclassifications to Properties and
other non-current assets held for sale. 4 Includes write- offs of fully depreciated assets. 5 Impairment charges recorded in 2022 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 it is 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 PaineWebber acquisition 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.
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Note 12 Goodwill and intangible assets (continued)
As of 31 December 2022, 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 2022 allocated to these
CGUs were not impaired.
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.
The carrying amount for each CGU is determined by reference to UBS’s equity attribution framework. Within this
framework, which is described in the “Capital, liquidity and funding, and balance sheet” section of this report, 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 Functions 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.
›
Refer to the “Capital, liquidity and funding, and balance sheet” section of this report for more information about the equity
attribution framework
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
percentage points
,
and the long
-
term growth rates were changed by
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 International Financial R eporting 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 %
31.12.22
31.12.21
31.12.22
31.12.21
Global Wealth Management Americas
Global Wealth Management Switzerland and International
Asset Management
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Note 12 Goodwill and intangible assets (continued)
USD m
Goodwill
Intangible assets
1
2022
2021
Historical cost
Balance at the beginning of the year
Additions
Disposals
2
(22 )
(22 )
(3 )
Write-offs
(41 )
Foreign currency translation
(61 )
(14 )
(76 )
(83 )
Balance at the end of the year
Accumulated amortization and impairment
Balance at the beginning of the year
Amortization
Impairment / (reversal of impairment)
(1 )
(1 )
(1 )
Write-offs
(41 )
Foreign currency translation
(11 )
(11 )
(13 )
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. 2 Reflects
the derecognition of goodwill allocated to businesses that have been disposed of, in accordance with IAS 36 requirements.
The table below presents estimated aggregated amortization expenses for intangible assets.
USD m
Intangible assets
Estimated aggregated amortization expenses for:
2023
2024
2025
2026
2027
Thereafter
Not amortized due to indefinite useful life
Total
Note 13 Other assets
a) Other financial assets measured at amortized cost
USD m
31.12.22
31.12.21
Debt securities
Loans to financial advisors
Fee- and commission-related receivables
Finance lease receivables
Settlement and clearing accounts
Accrued interest income
Other
Total other financial assets measured at amortized cost
Debt securities increased by USD
bn compared with 31 December 2021, largely reflecting shifts from cash into
securities within UBS’s high -quality liquid asset portfolio as spreads widened. In addition, 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 in 2022.
›
Refer to Note 1b for more information
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Note 13 Other assets (continued)
b) Other non-financial assets
USD m
31.12.22
31.12.21
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
Assets of disposal group held for sale
2
Other
Total other non-financial assets
1 Refer to Note 17 for more information. 2 Refer to Note 29 for more information.
Note 14 Customer deposits, and funding from UBS Group AG
a) Customer deposits
USD m
31.12.22
31.12.21
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.
Increases in interest rates during the year resulted in significant shifts from demand deposits to time deposits.
b) Funding from UBS Group AG measured at amortized cost
USD m
31.12.22
31.12.21
Senior unsecured debt that contributes to total loss-absorbing capacity (TLAC)
Senior unsecured debt other than TLAC
Subordinated debt
of which: eligible as high-trigger loss-absorbing additional tier 1 capital instruments
of which: eligible as low-trigger loss-absorbing additional tier 1 capital instruments
Total funding from UBS Group AG measured at amortized cost
1
1 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
of USD 0.2bn as of 31 December 2021, 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 2022 pay a fixed rate of interest.
›
Refer to Note 23 for maturity information
Note 15 Debt issued designated at fair value
USD m
31.12.22
31.12.21
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 2022,
% of the balance was unsecured
(31 December 2021:
%).
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Note 16 Debt issued measured at amortized cost
USD m
31.12.22
31.12.21
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
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.
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 was a decrease of USD
bn as of 31 December 2022 and an increase of USD
bn as of 31 December 2021,
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 2022 pay a fixed rate of inte rest.
›
Refer to Note 23 for maturity information
Note 17 Provisions and contingent liabilities
a) Provisions
The table below presents an overview of total provisions.
USD m
31.12.22
31.12.21
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
Other
3
Total 2022
Balance at the beginning of the year
Increase in provisions recognized in the income statement
Release of provisions recognized in the income statement
(57 )
(19 )
(32 )
(109 )
Provisions used in conformity with designated purpose
(470 )
(189 )
(31 )
(689 )
Capitalized reinstatement costs
Foreign currency translation / unwind of discount
(90 )
(5 )
(11 )
(106 )
Balance at the end of the year
2
1 Consists of provisions for losses resulting from legal, liability and compliance risks. 2 Consists of personnel-related restructuring provisions of USD
m as of 31 December 2022 (31 December 2021: USD
m)
and provisions for onerous contracts of USD
m as of 31 December 2022 (31 December 2021: USD
m). 3 Mainly includes provisions related to real estate, employee benefits and operational risks.
Restructuring provisions relate to personnel-related provisions and onerous contracts. 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. Onerous contracts for property are recognized when UBS 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.
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.
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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 (which for purposes of this Note may refer to UBS AG and/or one
or more of its subsidiaries, as applicable) is involved in various disputes and legal proceedings, including litigation,
arbitration, and regulatory and criminal investigations.
Such matters are subject to many uncertainties, and the outcome and the timing of resolution are often difficult to
predict, particularly in the earlier stages of a case. There are also situations where 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 due to potential financial, reputational
and other effects. The amount of damages claimed, the size of a transaction or other information is provided where
available and appropriate in order to assist users in considering the magnitude of potential exposures.
In the case of certain matters below, we state that we have established a provision, and for the other matters, we make
no such statement. When we make this statement and we expect disclosure of the amount of a provision to prejudice
seriously our position with other parties in the matter because it would reveal what UBS believes to be the probable and
reliably estimable outflow, we do not disclose that amount. In some cases we are subject to confidentiality obligations
that preclude such disclosure. With respect to the matters for which we do not state whether we have established a
provision, either: (a) we have not established a provision, in which case the matter is treated as a contingent liability under
the applicable accounting standard; or (b) we have established a provision but expect disclosure of that fact to prejudice
seriously our position with other parties in the matter because it would reveal the fact that UBS believes an outflow of
resources to be probable and reliably estimable.
With respect to certain litigation, regulatory and similar matters for which we have established provisions, we are able to
estimate the expected timing of outflows. However, the aggregate amount of the expected outflows for those matters
for which we are able to estimate expected timing is immaterial relative to our current and expected levels of liquidity
over the relevant time periods.
The aggregate amount provisioned for litigation, regulatory and similar matters as a class is disclosed in the “Provisions”
table in Note 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.
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Note 17 Provisions and contingent liabilities (continued)
Provisions for litigation, regulatory and similar matters by business division and in Group Functions
1
USD m
Global Wealth
Manage-
ment
Personal
Corporate
Banking
Manage-
ment
Investment
Bank
Group
Functions
Total 2022
Balance at the beginning of the year
Increase in provisions recognized in the income statement
Release of provisions recognized in the income statement
(23 )
(15 )
(8 )
(12 )
(57 )
Provisions used in conformity with designated purpose
(331 )
(115 )
(23 )
(470 )
Reclassifications
Foreign currency translation / unwind of discount
(70 )
(9 )
(11 )
(90 )
Balance at the end of the year
1 Provisions, if any, for the matters described in items 3 and 4 of this Note are recorded in Global Wealth Management, and provisions, if any, for the matters described in item 2 are recorded in Group Functions.
Provisions, if any, for the matters described in items 1 and 6 of this Note are allocated between Global Wealth Management and Personal Corporate Banking, provisions, if any, for the matters described in item 5
are allocated between the Investment Bank and Group Functions, and provisions, if any, for the matters described in item 7 are allocated between Global Wealth Management and the Investment Bank.
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.
On 20 February 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
French Court of Appeal took place in March 2021. On 13 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 AG has filed an appeal with
the French Supreme Court to preserve its rights. The notice of appeal enables UBS AG to thoroughly assess the verdict of
the Court of Appeal and to determine next steps in the best interest of its stakeholders. The fine and confiscation imposed
by the Court of Appeal are suspended during the appeal. The civil damages award has been paid to the French state
(EUR
m of which was deducted from the bail), subject to the result of UBS’s appeal.
Our balance sheet at 31 December 2022 reflected provisions with respect to this matter in an amount of EUR
bn
(USD
bn). The wide range of possible outcomes in this case contributes to a high degree of estimation uncertainty
and the provision reflects our best estimate of possible financial implications, although actual penalties and civil damages
could exceed (or may be less than) the provision amount.
Our balance sheet at 31 December 2022 reflected provisions with respect to matters described in this item 1 in an amount
that UBS believes to be appropriate under the applicable accounting standard. As in the case of other matters for which
we have established provisions, the future outflow of resources in respect of such matters cannot be determined with
certainty based on currently available information and accordingly may ultimately prove to be substantially greater (or
may be less) than the provision that we have recognized.
2. Claims related to sales of residential mortgage-backed securities and mortgages
From 2002 through 2007, prior to the crisis in the US residential loan market, UBS was a substantial issuer and underwriter
of US residential mortgage-backed securities (RMBS) and was a purchaser and seller of US residential mortgages.
In November 2018, the DOJ filed a civil complaint in the District Court for the Eastern District of New York. The complaint
seeks unspecified civil monetary penalties under the Financial Institutions Reform, Recovery and Enforcement Act of 1989
related to UBS’s issuance, underwriting and sale of 40 RMBS transactions in 2006 and 2007. UBS moved to dismiss the
civil complaint in February 2019. In December 2019, the district court denied UBS’s motion to dismiss.
Our balance sheet at 31 December 2022 reflected a provision with respect to matters described in this item 2 in an
amount that UBS believes to be appropriate under the applicable accounting standard. As in the case of other matters
for which we have established provisions, the future outflow of resources in respect of this matter cannot be determined
with certainty based on currently available information and accordingly may ultimately prove to be substantially greater
(or may be less) than the provision that we have recognized.
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Note 17 Provisions and contingent liabilities (continued)
3. Madoff
In relation to the Bernard L. Madoff Investment Securities LLC (BMIS) investment fraud, UBS AG, UBS (Luxembourg) S.A.
(now UBS Europe SE, Luxembourg branch) and certain other UBS subsidiaries have been subject to inquiries by a number
of regulators, including the Swiss Financial Market Supervisory Authority (FINMA) and the Luxembourg Commission de
Surveillance du Secteur Financier. Those inquiries concerned two third -party funds established under Luxembourg law,
substantially all assets of which were with BMIS, as well as certain funds established in offshore jurisdictions with either
direct or indirect exposure to BMIS. These funds faced severe losses, and the Luxembourg funds are in liquidation. The
documentation establishing both funds identifies UBS entities in various roles, including custodian, administrator,
manager, distributor and promoter, and indicates that UBS employees serve as board members.
In 2009 and 2010, the liquidators of the two Luxembourg fund s 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.
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 February 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.
4. Puerto Rico
Declines since 2013 in the market prices of Puerto Rico municipal bonds and of closed-end funds (funds) that are sole-
managed and co-managed by UBS Trust Company of Puerto Rico and distributed by UBS Financial Services Incorporated
of Puerto Rico (UBS PR) led to multiple regulatory inquiries, which in 2014 and 2015, led to settlements with the Office
of the Commissioner of Financial Institutions for the Commonwealth of Puerto Rico, the US Securities and Exchange
Commission (SEC) and the Financial Industry Regulatory Authority.
Since then, UBS clients in Puerto Rico who own the funds or Puerto Rico municipal bonds and/or who used their UBS
account assets as collateral for UBS non-purpose loans filed customer complaints and arbitration demands seeking
aggregate damages of USD
bn, of which USD
bn have been resolved through settlements, arbitration or
withdrawal of claims. Allegations include fraud, misrepresentation and unsuitability of the funds and of the loans.
A shareholder derivative action was filed in 2014 against various UBS entities and current and certain former directors of
the funds, alleging hundreds of millions of US dollars in losses in the funds. In 2021, the parties reached an agreement
to settle this matter for USD
m, subject to court approval.
In 2011, a purported derivative action was filed on behalf of the Employee Retirement System of the Commonwealth of
Puerto Rico (System) against over 40 defendants, including UBS PR, which was named in connection with its underwriting
and consulting services. Plaintiffs alleged that defendants violated their purported fiduciary duties and contractual
obligations in connection with the issuance and underwriting of USD
bn of bonds by the System in 2008 and sought
damages of over USD
m. In 2016, the court granted the System’s request to join the action as a plaintiff. In 2022, a
federal district court enjoined the plaintiffs from proceeding with the action on the grounds it impermissibly conflicted
with Puerto Rico’s approved Plan of Adjustment.
Beginning in 2015, certain agencies and public corporations of the Commonwealth of Puerto Rico (Commonwealth)
defaulted on certain interest payments on Puerto Rico bonds. In 2016, US federal legislation created an oversight board
with power to oversee Puerto Rico’s finances and to restructure its debt. The oversight board has imposed a stay on the
exercise of certain creditors’ rights. In 2017, the oversight board placed certain of the bonds into a bankruptcy-like
proceeding under the supervision of a Federal District Judge.
In May 2019, the oversight board filed complaints in Puerto Rico federal district court bringing claims against financial,
legal and accounting firms that had participated in Puerto Rico municipal bond offerings, including UBS, seeking a return
of underwriting and swap fees paid in connection with those offerings. UBS estimates that it received approximately
USD
m in fees in the relevant offerings.
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Note 17 Provisions and contingent liabilities (continued)
In August 2019, and February and November 2020, four US insurance companies that insured issues of Puerto Rico
municipal bonds sued UBS and several other underwriters of Puerto Rico municipal bonds in three separate cases. The
actions collectively seek recovery of an aggregate of USD
m in damages from the defendants. The plaintiffs in these
cases claim that defendants failed to reasonably investigate financial statements in the offering materials for the insured
Puerto Rico bonds issued between 2002 and 2007, which plaintiffs argue they relied upon in agreeing to insure the
bonds notwithstanding that they had no contractual relationship with the underwriters. Defendants’ motions to dismiss
have been granted in all three cases; those decisions are being appealed by the plaintiffs.
Our balance sheet at 31 December 2022 reflected provisions with respect to matters described in this item 4 in amounts
that UBS believes to be appropriate under the applicable accounting standard. As in the case of other matters for which
we have established provisions, the future outflow of resources in respect of such matters cannot be determined with
certainty based on currently available information and accordingly may ultimately prove to be substantially greater (or
may be less) than the provisions that we have recognized.
5. Foreign exchange, LIBOR and benchmark rates, and other trading practices
Foreign exchange-related regulatory matters:
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 reached an agreement in principle to resolve
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 March 2017, the court granted UBS’s (and the other banks’) motions to dismiss the complaint. The
plaintiffs filed an amended complaint in August 2017. In March 2018, the court denied the defendants’ motions to
dismiss the amended complaint. In March 2022, the court denied plaintiffs’ motion for class certification.
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, SGD
SIBOR and SOR and Australian BBSW, and seek unspecified compensatory and other damages under varying legal
theories.
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Note 17 Provisions and contingent liabilities (continued)
USD LIBOR class and individual actions in the US:
In 2013 and 2015, the district court in the USD LIBOR actions dismissed,
in whole or in part, certain plaintiffs’ antitrust claims, federal racketeering claims, CEA claims, and state common law
claims, and again dismissed the antitrust claims in 2016 following an appeal. In December 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 based on allegations that at least one alleged co -conspirator undertook an overt act in the United States.
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. In July 2018, the Second Circuit denied the petition to appeal of the class of USD lenders
and in November 2018 denied the petition of the USD exchange class. In January 2019, a putative class action was filed
in the District Court for the Southern District of New York against UBS and numerous other banks on behalf of US
residents who, since 1 February 2014, directly transacted with a defendant bank in USD LIBOR instruments. The complaint
asserts antitrust claims. The defendants moved to dismiss the complaint in August 2019. In March 2020 the court granted
defendants’ motion to dismiss the complaint in its entirety. Plaintiffs have appealed the dismissal. In March 2022, the
Second Circuit dismissed the appeal because appellants, who had been substituted in to replace the original plaintiffs
who had withdrawn, lacked standing to pursue the appeal. In August 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. Defendants moved to dismiss the complaint in September 2021. 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
have moved to dismiss the amended complaint in November 2022 .
Other benchmark class actions in the US:
Yen LIBOR / Euroyen TIBOR –
In 2014, 2015 and 2017, the court in one of the Yen LIBOR / Euroyen TIBOR lawsuits
dismissed certain of the plaintiffs’ claims, including the plaintiffs’ federal antitrust and racketeering claims. In August
2020, the court granted defendants’ motion for judgment on the pleadings and dismissed the lone remaining claim in
the action as impermissibly extraterritorial. In October 2022, the appeals court affirmed the dismissal on multiple grounds.
In 2017, the court dismissed the other Yen LIBOR / Euroyen TIBOR action in its entirety on standing grounds. In April
2020, the appeals court reversed the dismissal and in August 2020 plaintiffs in that action filed an amended complaint
focused on Yen LIBOR. The court granted in part and denied in part defendants’ motion to dismiss the amended
complaint in September 2021. In August 2022, the court granted UBS’s motion for reconsideration and dismissed the
case against UBS.
CHF LIBOR
filed an amended complaint, and the court granted a renewed motion to dismiss in September 2019. Plaintiffs appealed.
In September 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 have moved to dismiss
the amended complaint in January 2023 .
EURIBOR
for lack of personal jurisdiction. Plaintiffs have appealed.
SIBOR / SOR
Plaintiffs filed an amended complaint, and the court granted a renewed motion to dismiss in July 2019. Plaintiffs
appealed. In March 2021, the Second Circuit reversed the dismissal. Plaintiffs filed an amended complaint in October
2021, which defendants moved to dismiss in November 2021. In March 2022, plaintiffs reached a settlement in principle
with the remaining defendants, including UBS. The court granted final approval of the settlement in November 2022.
BBSW
lack of personal jurisdiction. Plaintiffs filed an amended complaint in April 2019, which UBS and other defendants moved
to dismiss in May 2019. In February 2020, the court granted in part and denied in part defendants’ motions to dismiss
the amended complaint. In August 2020, UBS and other BBSW defendants joined a motion for judgment on the
pleadings, which the court denied in May 2021. In February 2022, plaintiffs reached a settlement in principle with the
remaining defendants, including UBS. The court granted final approval of the settlement in November 2022.
GBP LIBOR – The court dismissed the GBP LIBOR action in August 2019. Plaintiffs have appealed.
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Note 17 Provisions and contingent liabilities (continued)
Government bonds: Putative class actions have been filed since 2015 in US federal courts against UBS and other banks
on behalf of persons who participated in markets for US Treasury securities since 2007. A consolidated complaint was
filed in 2017 in the US District Court for the Southern District of New York alleging that the banks colluded with respect
to, and manipulated prices of, US Treasury securities sold at auction and in the secondary market and asserting claims
under the antitrust laws and for unjust enrichment. Defendants’ motions to dismiss the consolidated complaint were
granted in March 2021. Plaintiffs filed an amended complaint, which defendants moved to dismiss in June 2021. In
March 2022, the court granted defendants’ motion to dismiss that complaint. Plaintiffs have appealed the dismissal.
Similar class actions have been filed concerning European government bonds and other government bonds.
In May 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 2022 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.
6. Swiss retrocessions
The Federal Supreme Court of Switzerland ruled in 2012, in a test case against UBS, that distribution fees paid to a firm
for distributing third-party and intra-group investment funds and structured products must be disclosed and surrendered
to clients who have entered into a discretionary mandate agreement with the firm, absent a valid waiver. FINMA 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 2022 reflected a provision with respect to matters described in this item 6 in an
amount that UBS believes to be appropriate under the applicable accounting standard. The ultimate exposure will depend
on client requests and the resolution thereof, factors that are difficult to predict and assess. Hence, as in the case of other
matters for which we have established provisions, the future outflow of resources in respect of such matters cannot be
determined with certainty based on currently available information and accordingly may ultimately prove to be
substantially greater (or may be less) than the provision that we have recognized.
7. Communications recordkeeping
The SEC and CFTC conducted investigations of UBS and other financial institutions regarding compliance with records
preservation requirements relating to business communications sent over unapproved electronic messaging channels.
UBS cooperated with the investigations, and, in September 2022, UBS agreed to pay civil monetary penalties of
USD
m to the SEC and USD
m to the CFTC to resolve these matters.
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Note 18 Other liabilities
a) Other financial liabilities measured at amortized cost
USD m
31.12.22
31.12.21
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
31.12.22
31.12.21
Financial liabilities related to unit-linked investment contracts
Securities financing transactions
Over-the-counter debt instruments and other
Funding from UBS Group AG
Total other financial liabilities designated at fair value
c) Other non-financial liabilities
USD m
31.12.22
31.12.21
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
Liabilities of disposal group held for sale
2
Other
Total other non-financial liabilities
1 Includes liabilities for payroll taxes and untaken vacation. 2 Refer to Note 29 for more information.
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Additional information
Note 19 Expected credit loss measurement
a) Expected credit losses in the period
Total net credit loss expenses were USD
m in 2022, reflecting net credit loss expenses of USD
m related to stage 1
and 2 positions and USD
m net credit loss expenses related to credit-impaired (stage 3) positions.
Stage 1 and 2 expected credit loss (ECL) expenses of USD
m include USD
m expenses related to scenario and
parameter updates and USD
m related to other book quality and size changes, partly offset by USD
m post-model
adjustment (PMA) releases and USD
m releases related to model changes. Lending to corporate clients not secured by
mortgages contributed USD
m, mainly driven by scenario effects related to the downward revision of GDP and higher
interest rate assumptions in the newly introduced
stagflationary geopolitical crisis scenario
mortgages
contributed USD
m in expenses
, mainly driven by scenario ef
fects related to higher interest rate
assumptions, especially from the SGC, and adverse house price assumptions from both applied downside scenarios. This
was partly offset by releases from other lending of USD
m.
›
Refer to Note 19b for more information regarding changes to ECL models, scenarios, scenario weights and the post-model
adjustment 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 Personal and Corporate Banking and USD
m in Global Wealth Management, offset by releases of USD
m in the
Investment Bank, including a USD
m release for a single airline-related counterparty, mainly due to improved cashflow
assumptions, and USD
m net expenses across a number of defaulted positions.
Credit loss expense / (release)
USD m
Global
Wealth
Management
Personal
Corporate
Banking
Asset
Management
Investment
Bank
Group
Functions
Total
For the year ended 31.12.22
Stages 1 and 2
(5 )
Stage 3
(18 )
Total credit loss expense / (release)
(12 )
For the year ended 31.12.21
Stages 1 and 2
(28 )
(62 )
(34 )
(123 )
Stage 3
(1 )
(24 )
(25 )
Total credit loss expense / (release)
(29 )
(86 )
(34 )
(148 )
For the year ended 31.12.20
Stages 1 and 2
Stage 3
Total credit loss expense / (release)
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Note 19 Expected credit loss measurement (continued)
b) Changes to ECL models, scenarios, scenario weights and key inputs
Refer to Note 1a for information about the principles governing 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 2022, 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 decrease in ECL allowances. This includes
a decrease of USD
m in Global Wealth Management affecting loans to financial advisors and specialized US lending
portfolios and an USD
m decrease in Personal Corporate Banking related to lending to
large corporate clients
financial intermediaries hedge funds
.
Scenario and key input updates
During 2022, the scenarios and related macroeconomic factors were updated from those applied at the end of 2021 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 Russia–Ukraine war, with the subsequent effect on energy markets, 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 AG’s business planning purposes, are broadly in line with external data, such as that from Bloomberg Consensus,
Oxford Economics and the International Monetary Fund World Economic Outlook. The expectation for 2023 is that global
growth stalls under the weight of monetary policy tightening, and continued pressure on real purchasing power due to high
inflation – further fueled in Europe by the energy crisis and a lack of labor supply – even though unemployment rates are
forecast to be higher than in 2022 and an energy crisis in Europe seems likely to be averted. Interest rates are expected to
remain high, given the persistence of inflationary trends, leading to a less optimistic outlook for global house prices, which
is cushioned in Switzerland by continued strong demand.
Global crisis scenario:
The first hypothetical downside scenario, the global crisis scenario, is aligned with the UBS AG’s 2022
binding stress scenario and was updated in 2022 to reflect expected risks, resulting in minimal changes. It assumes that,
while the global economy has returned to pre-pandemic levels and the immediate risks from COVID-19 have decreased, the
associated disruptions and the consequences of the unprecedented monetary and fiscal stimulus measures will remain
critical. Concerns regarding the sustainability of public debt, following the marked deterioration of fiscal positions, lead to
a loss of confidence and market turbulence, while protectionism results in a decrease in global trade. Governments and
central banks have limited scope to support the economies, and interest rate levels remain moderate. As a consequence,
China suffers a hard landing which, combined with political, solvency and liquidity concerns, affects emerging markets
significantly. A spillover effect leads to a contraction of the Eurozone, Swiss and US economies, as global demand is
significantly affected. Given the severity of the macroeconomic impact, unemployment rates rise to historical highs and real
estate sectors contract sharply.
Stagflationary geopolitical crisis scenario:
The second downside scenario was changed during 2022. In light of the
developments caused by Russia’s invasion of Ukraine, the
mild global interest rate steepening scenario
severe global interest rate steepening scenario
increased fears of higher inflation and a corresponding reaction by monetary authorities. In the second quarter of the year,
the progression of the war and the enforcement of sanctions regimes led to a redesign of the scenario. The resulting
severe
Russia–Ukraine conflict scenario
specifically the prospect of rising energy costs, especially in Europe, with the consequences of lower growth and higher
inflation rates. In the fourth quarter of 2022, UBS developed a new
stagflationary geopolitical crisis scenario
included this new scenario in the ECL calculation for year-end 2022 in lieu of the
severe Russia–Ukraine conflict scenario
.
While the SGC scenario addresses similar risks as the
severe Russia–Ukraine conflict scenario
, it also covers additional and
broader risks and therefore assumes more severe shocks. 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. The severe interest rate and adverse house price
assumptions in the SGC 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 PMA 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 energy and commodity
prices, effective monetary policies and easing supply chain disruptions helps reduce inflation. Improved consumer and
business sentiment lead to an economic rebound with central banks able to normalize interest rates; asset prices increase
significantly.
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Note 19 Expected credit loss measurement (continued)
The table below details the key assumptions for the four scenarios applied as of 31 December 2022.
Scenario weights and post -model adjustments
Due to the less positive outlook compared with the assessment on 31 December 2021, the scenario weights changed
during 2022. The upside scenario was allocated a
% probability, and the previous
% weight was added to the
baseline
scenario
, now set at
%. Following the introduction of the SGC, which was deemed to have a higher probability of
occurring than the
global crisis scenario
, the weights were rebalanced. The SGC has a weight of
% (compared with
% for the
mild global interest rate steepening scenario
global
crisis scenario
% (from
% as of 31 December 2021). The weights are also shown in the table below.
The scenarios and weight allocation were established in line with the general market sentiment that the short-term
outlook is subdued and a recession in major markets is a strong probability. The downside risks in relation to inflation
and monetary policy, as well as the availability and price of energy, mainly in Europe, are better reflected in our models
compared with the uncertain developments caused by COVID-19 in recent years.
However, unquantifiable risks continue to be relevant, as the pandemic has not been overcome and the world may face
new disruptions. Furthermore, the geopolitical situation worsened during 2022, and the impact on the world economy
from escalations with unforeseeable consequences could be severe. In the near term, this uncertainty relates primarily to
the development of the Russia–Ukraine war. 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 PMAs.
These PMA took into account that more of the downside risks were modeled in 2022, particularly for lending secured by
mortgages. The PMA amounted to USD
m as of 31 December 2022 (31 December 2021: USD
m). These
remaining PMA for uncertainties on potentially unmodeled risk almost entirely relate to corporate lending portfolios in
Personal Corporate Banking and the Investment Bank.
Economic scenarios and weights applied
Assigned weights in %
ECL scenario
31.12.22
31.12.21
Asset price inflation
Baseline
Mild global interest rate steepening
Stagflationary geopolitical crisis
Global crisis
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
(5.6 )
(326.0 )
(13.2 )
(291.1 )
EUR
(270.6 )
(246.5 )
CHF
(209.7 )
(159.6 )
Equity indices (% change)
SP 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 (SP / 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 )
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Note 19 Expected credit loss measurement (continued)
Scenario assumptions
One year
Three years cumulative
31.12.21
Asset price
inflation
Baseline
Mild global
interest rate
steepening
Global crisis
Asset price
inflation
Baseline
Mild global
interest rate
steepening
Global crisis
Real GDP growth (% change)
United States
(0.1 )
(5.9 )
(3.8 )
Eurozone
(0.1 )
(8.7 )
(10.3 )
Switzerland
(0.9 )
(6.6 )
(0.1 )
(5.7 )
Consumer price index (% change)
United States
(1.2 )
Eurozone
(1.3 )
(1.7 )
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
(50.0 )
(15.0 )
EUR
(35.0 )
(25.0 )
CHF
(70.0 )
(35.0 )
Equity indices (% change)
SP 500
(27.0 )
(50.2 )
(21.8 )
(40.1 )
EuroStoxx 50
(23.4 )
(57.6 )
(19.9 )
(50.4 )
SPI
(22.9 )
(53.6 )
(19.6 )
(44.2 )
Swiss real estate (% change)
Single-Family Homes
(4.3 )
(17.0 )
(8.8 )
(30.0 )
Other real estate (% change)
United States (SP / Case–Shiller)
(2.3 )
(9.5 )
(8.7 )
(26.3 )
Eurozone (House Price Index)
(4.0 )
(5.4 )
(7.6 )
(10.8 )
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.
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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 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 guarantee s 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, 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:
Stages 1 and 2 ECL allowances and provisions increased on a net basis by USD
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. The residual effect is spread across
lending segments. Stage 2 releases are largely driven by redemption of corporate loans in the I nvestment Bank.
–
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 lending transactions in the Investment Bank 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 expenses of USD
m.
These expenses of USD
m relate to large and SME corporate lending (USD
m), substantially due to scenario effects,
and to a single sovereign counterparty (USD
m).
–
Model changes: refer to Note 19b for more information.
Movements without profit or loss impact:
Stage 3 allowances decreased by USD
m almost entirely due to write-offs of
USD
m.
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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 2020
(1,468 )
(306 )
(333 )
(829 )
Net movement from new and derecognized transactions
1
(59 )
(72 )
of which: Private clients with mortgages
(7 )
(10 )
of which: Real estate financing
(7 )
(11 )
of which: Large corporate clients
(13 )
(21 )
of which: SME clients
(8 )
(8 )
of which: Other
(24 )
(23 )
(2 )
(21 )
(18 )
(4 )
(1 )
Remeasurements with stage transfers
2
(40 )
(49 )
of which: Private clients with mortgages
(9 )
(13 )
of which: Real estate financing
(3 )
(4 )
of which: Large corporate clients
(2 )
(8 )
of which: SME clients
(27 )
(36 )
of which: Other
(3 )
(4 )
(1 )
(1 )
Remeasurements without stage transfers
3
of which: Private clients with mortgages
(1 )
of which: Real estate financing
of which: Large corporate clients
of which: SME clients
(1 )
of which: Other
(3 )
Model changes
4
Movements with profit or loss impact
5
Movements without profit or loss impact (write-off, FX and other)
6
Balance as of 31 December 2021
(1,165 )
(282 )
(220 )
(662 )
1 Represents the increase and decrease in allowances and provisions resulting from financial instruments (including guarantee s 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, model and
methodology changes. 6 Represents the decrease in allowa nces 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 (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 2022 – 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
(267 )
(196 )
(21 )
(50 )
of which: Private clients with mortgages
(107 )
(83 )
(25 )
of which: Real estate financing
(23 )
(18 )
(5 )
of which: Large corporate clients
(65 )
(51 )
(13 )
of which: SME clients
(37 )
(22 )
(7 )
(7 )
of which: Financial intermediaries and hedge funds
(17 )
(17 )
of which: Loans to financial advisors
(2 )
(2 )
of which: Credit cards
(12 )
(12 )
of which: Other
(5 )
(5 )
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Note 19 Expected credit loss measurement (continued)
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.
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 International Financial Reporting Standards (IFRS).
Maximum exposure to credit risk
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
Financial assets measured at
amortized cost on the balance sheet
Cash and balances at central banks
Loans and advances to 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
Loan commitments
7
Forward starting transactions, 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
31.12.21
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
Financial assets measured at
amortized cost on the balance sheet
Cash and balances at central banks
Loans and advances to 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
Loan commitments
7
Forward starting transactions, 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 2022 (31 December 2021: USD
m) relates to total credit-impaired financial assets measured at amortized cost and USD
m for 31 December 2022 (31 December 2021:
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. UBS AG applies a risk-based approach that generally prioritizes collateral according to its liquidity profile. 3 Includes but is not limited to life insurance contracts, inventory, mortgage
loans, gold and other commodities. 4 Loans and advances to 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 The amount shown in
the “Guarantees” column includes sub-participations.
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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 the UBS AG’s internal credit
rating system and year-end stage classification. Under IFRS 9, the credit risk rating reflects the 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 the UBS AG’s internal grading
system
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 )
Loans and advances to 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 )
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.
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Note 19 Expected credit loss measurement (continued)
Financial assets subject to credit risk by rating category
USD m
31.12.21
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
of which: stage 1
Loans and advances to banks
(8 )
of which: stage 1
(7 )
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
(850 )
of which: stage 1
(126 )
of which: stage 2
(152 )
of which: stage 3
(572 )
Other financial assets measured at amortized cost
(109 )
of which: stage 1
(27 )
of which: stage 2
(7 )
of which: stage 3
(76 )
Total financial assets measured at amortized cost
(969 )
On-balance sheet financial instruments
Financial assets measured at FVOCI – debt instruments
Total on-balance sheet financial instruments
(969 )
Off-balance sheet positions subject to expected credit loss by rating category
USD m
31.12.21
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
(41 )
of which: stage 1
(18 )
of which: stage 2
(8 )
of which: stage 3
(15 )
Irrevocable loan commitments
(114 )
of which: stage 1
(72 )
of which: stage 2
(42 )
of which: stage 3
Forward starting reverse repurchase and securities borrowing agreements
Total off balance sheet financial instruments
(155 )
Credit lines
Committed unconditionally revocable credit lines
(38 )
of which: stage 1
(28 )
of which: stage 2
(10 )
of which: stage 3
Irrevocable committed prolongation of existing loans
(3 )
of which: stage 1
(3 )
of which: stage 2
of which: stage 3
Total credit lines
(41 )
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.
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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 (SCR) 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 indicators that are more influenced by climate change (e.g., energy prices) are factored into the current PD
models where they have demonstrated statistical relevance, UBS AG currently does not use a specific SCR scenario in
addition to the 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 AG has started to use stress loss assumptions to assess the extent to which SCR may affect the
quality of the loans extended to small and medium-sized entities and large corporate clients. Initial tests were based on
a set of assumptions presented by external parties (such as the Bank of England). Such analysis undertaken during 2022
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 SCR on the weighted-
average ECL would not be material as of 31 December 2022. Therefore, no specific post-model adjustment was made in
this regard.
›
Refer to “Sustainability and climate risk” in the “Risk management and control” section of this report
›
Refer to “Our focus on sustainability and climate” in the “Our strategy, business model and environment” section of this report
›
Refer to “UBS AG consolidated supplemental disclosures required under SEC regulations” for the maturity profile of UBS 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.
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Note 19 Expected credit loss measurement (continued)
Potential effect on stage 1 and stage 2 positions from changing key parameters as of 31 December 2022
USD m
100% Baseline
100%
Stagflationary
geopolitical crisis
100% Global crisis
Weighted average
Change in key parameters
Fixed income: Government bonds (absolute change)
–0.50%
(3 )
(106 )
(2 )
(14 )
+0.50%
+1.00%
Unemployment rate (absolute change)
–1.00%
(4 )
(138 )
(24 )
(23 )
–0.50%
(2 )
(78 )
(13 )
(12 )
+0.50%
+1.00%
Real GDP growth (relative change)
–2.00%
–1.00%
+1.00%
(3 )
(7 )
(9 )
(5 )
+2.00%
(5 )
(13 )
(18 )
(10 )
House Price Index (relative change)
–5.00%
–2.50%
+2.50%
(4 )
(83 )
(35 )
(19 )
+5.00%
(7 )
(157 )
(65 )
(36 )
Equity (SP500, EuroStoxx, SMI) (relative change)
–10.00%
–5.00%
+5.00%
(2 )
(4 )
(3 )
(2 )
+10.00%
(4 )
(8 )
(7 )
(5 )
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 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
2021: USD
m) instead of USD
m (31 December 2021: USD
m) if ECLs had been determined solely on the
baseline scenario
. The weighted-average ECL therefore amounted to
% (31 December 2021:
%) of the baseline
value. The effects of weighting each of the four scenarios 100% are shown in the table above.
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Note 19 Expected credit loss measurement (continued)
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 2022.
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: a) 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; b) 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.
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 International F inancial Reporting Standards (IFRS). 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 applies
valuation adjustments at an individual instrument level, consistent with that unit of account. However, if certain
conditions are met, UBS may estimate the fair value of a portfolio of financial assets and liabilities with substantially
similar and offsetting risk exposures on the basis of the net open risks.
›
Refer to Note 20d for more information
b) Valuation governance
UBS’s fair value measurement and model governance framework includes numerous controls and other procedural
safeguards that are intended to maximize the quality of fair value measurements reported in the financial statements.
New products and valuation techniques must be reviewed and approved by key stakeholders from the risk and finance
control functions. Responsibility for the ongoing measurement of f inancial and non -financial instruments at fair value is
with the business divisions.
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Note 20 Fair value measurement (continued)
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’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
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 2022, 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.
Determination of fair values from quoted market prices or valuation techniques
1
31.12.22
31.12.21
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: Asset-backed securities
2
of which: Government bills / bonds
2
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
3
Total assets measured at fair value
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Note 20 Fair value measurement (continued)
Determination of fair values from quoted market prices or valuation techniques (continued)
1
31.12.22
31.12.21
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: 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 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 1 for more information. 3 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 uses widely recognized valuation techniques for determining the fair value of financial and non-financial instruments
that are not actively traded and quoted. The most frequently applied valuation techniques include discounted value of
expected cash flows, relative value and option pricing methodologies.
Discounted value of expected cash flows is a valuation technique that measures fair value using estimated expected
future cash flows from assets or liabilities and then discounts these cash flows using a discount rate or discount margin
that reflects the credit and / or funding spreads required by the market for instruments with similar risk and liquidity
profiles to produce a present value. When using such valuation techniques, expected future cash flows are estimated
using an observed or implied market price for the future cash flows or by using industry -standard cash flow projection
models. The discount factors within the calculation are generated using industry-standard yield curve modeling
techniques and models.
Relative value models measure fair value based on the market prices of equivalent or comparable assets or liabilities, making
adjustments for differences between the characteristics of the observed instrument and the instrument being valued.
Option pricing models incorporate assumptions regarding the behavior of future price movements of an underlying
referenced asset or assets to generate a probability-weighted future expected payoff for the option. The resulting
probability-weighted expected payoff is then discounted using discount factors generated from industry -standard yield
curve modeling techniques and models. The option pricing model may be implemented using a closed-form analytical
formula or other mathematical techniques (e.g., binomial tree or Monte Carlo simulation).
Where available, valuation techniques use market-observable assumptions and inputs. If such data is not available, inputs
may be derived by reference to similar assets in active markets, from recent prices for comparable transactions or from
other observable market data. In such cases, the inputs selected are based on historical experience and practice for similar
or analogous instruments, derivation of input levels based on similar products with observable price levels, and knowledge
of current market conditions and valuation approaches.
For more complex instruments, fair values may be estimated using a combination of observed transaction prices,
consensus pricing services and relevant quotes. Consideration is given to the nature of the quotes (e.g., indicative or firm)
and the relationship of recently evidenced market activity to the prices provided by consensus pricing services. UBS also
uses internally developed 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 incorporate the funding and credit characteristics of the instruments to which they are applied.
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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 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
,
c
ommercial 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.
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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 a s the relevant valuation techniques described below.
Fair value
hierarchy
–
The observability is closely aligned with the equivalent derivatives business and the underlying risk.
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 ( FVAs), as applicable, to reflect an estimation of the effect of counterparty
credit risk, UBS’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.
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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.
–
OTC FX option contracts classified as Level 3 include multi-dimensional FX options and long-dated FX exotic
option contracts where there is no active market from which to derive volatility or correlation inputs.
Equity / index
contracts
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 ob servable.
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.
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Note 20 Fair value measurement (continued)
Deferred day-1 profit or loss reserves
USD m
2022
2021
2020
Reserve balance at the beginning of the year
Profit / (loss) deferred on new transactions
(Profit) / loss recognized in the income statement
(295 )
(308 )
(238 )
Foreign currency translation
(2 )
Reserve balance at the end of the year
Own credit
Own credit risk is reflected in the valuation of UBS’s fair value option liabilities where this component is considered
relevant for valuation purposes by UBS’s counterparties and other market participants.
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 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’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
31.12.22
31.12.21
31.12.20
Recognized during the period:
Realized gain / (loss)
(14 )
Unrealized gain / (loss)
(295 )
Total gain / (loss), before tax
(293 )
USD m
31.12.22
31.12.21
31.12.20
Recognized on the balance sheet as of the end of the period:
Unrealized life-to-date gain / (loss)
(315 )
(381 )
of which: debt issued designated at fair value
(144 )
(233 )
of which: other financial liabilities designated at fair value
(172 )
(148 )
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.
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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’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 sou rces 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 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 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
31.12.22
31.12.21
Credit valuation adjustments
1
(33 )
(44 )
Funding valuation adjustments
(50 )
(49 )
Debit valuation adjustments
Other valuation adjustments
(839 )
(913 )
of which: liquidity
(311 )
(341 )
of which: model uncertainty
(529 )
(571 )
1 Amounts do not include reserves against defaulted counterparties.
Other items
In the first half of 2021, UBS AG incurred a loss of USD
m as a result of closing out a significant portfolio of swaps
with a US-based client of its prime brokerage business and the unwinding of related hedges, following the client’s default.
This loss is presented within
Other net income from financial instruments measured at fair value through profit or loss
.
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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 2022 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’s
estimates and assumptions, but rather the different underlying characteristics of the relevant assets and liabilities held by
UBS. 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)
31.12.22
31.12.21
USD bn
31.12.22
31.12.21
31.12.22
31.12.21
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
(29 )
(29 )
%
Equity-to-equity
correlation
(25 )
(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 structured notes, which include variable maturity notes with various equity and foreign exchange underlying risks, 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.
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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, 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 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 can fund itself on an unsecured basis, but provide
an estimate of where UBS can source and deploy secured funding with counterparties for a given type of collateral. The
funding spreads are expressed in terms of basis points, 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.
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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-to-FX correlation is important for equity options based on a currency other than the currency of the underlying stock.
Equity-to-equity correlation is particularly important for complex options that incorporate, in some manner, different equities
in the projected payoff.
Equity dividend
yields
–
The derivation of a forward price for an individual stock or index is important for measuring fair value for forward or swap
contracts and for measuring fair value using option pricing models. The relationship between the current stock price and the
forward price is based on a combination of expected future dividend levels and payment timings, and, to a lesser extent, the
relevant funding rates applicable to the stock in question. Dividend yields are generally expressed as an annualized percentage
of the share price, with the lowest limit of 0% representing a stock that is not expected to pay any dividend. The dividend
yield and timing 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 believes
that the diversification benefit is not significant to this analysis.
Sensitivity of fair value measurements to changes in unobservable input assumptions
1
31.12.22
31.12.21
USD m
Favorable
changes
Unfavorable
changes
Favorable
changes
Unfavorable
changes
Traded loans, loans measured at fair value, loan commitments and guarantees
(12 )
(13 )
Securities financing transactions
(37 )
(53 )
Auction rate securities
2
(46 )
2
(66 )
Asset-backed securities
(27 )
(20 )
Equity instruments
(161 )
(146 )
Interest rate derivatives, net
2
(12 )
2
(19 )
Credit derivatives, net
(4 )
(8 )
Foreign exchange derivatives, net
(5 )
(11 )
Equity / index derivatives, net
(330 )
(335 )
Other
2
(62 )
2
(73 )
Total
(696 )
(744 )
1 Sensitivity of issued and over-the -counter debt instruments is reported with the equivalent derivative or securities financing instrument. 2 Includes refinements applied in estimating valuation uncertainty across
various parameters.
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Note 20 Fair value measurement (continued)
g) Level 3 instruments: movements during the period
The table below presents additional information about material movements in Level 3 assets and liabilities measured at
fair value on a recurring basis, excluding any related hedging activity.
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 2022
2
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
3
(1.0 )
(1.0 )
(0.1 )
(0.2 )
(0.0 )
For the twelve months ended 31 December 2021
Financial assets at fair value held for
trading
(0.0 )
(0.1 )
(1.6 )
(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 )
(0.4 )
(0.1 )
(0.0 )
of which: Loans
(0.0 )
(0.8 )
(0.2 )
Derivative financial instruments –
assets
(0.2 )
(0.1 )
(0.7 )
(0.3 )
(0.0 )
of which: Interest rate
(0.2 )
(0.1 )
(0.0 )
of which: Equity / index
(0.1 )
(0.1 )
(0.4 )
(0.2 )
(0.0 )
of which: Credit
(0.1 )
(0.1 )
(0.1 )
(0.0 )
Financial assets at fair value not held
for trading
(0.6 )
(0.3 )
(0.0 )
of which: Loans
(0.0 )
(0.3 )
(0.3 )
(0.0 )
of which: Auction rate securities
of which: Equity instruments
(0.1 )
(0.0 )
(0.0 )
Derivative financial instruments –
liabilities
(0.0 )
(1.8 )
(0.5 )
(0.0 )
of which: Interest rate
(0.1 )
(0.1 )
(0.1 )
(0.0 )
(0.0 )
of which: Equity / index
(1.5 )
(0.4 )
(0.0 )
of which: Credit
(0.1 )
(0.1 )
(0.0 )
(0.1 )
(0.0 )
Debt issued designated at fair value
(4.2 )
(1.2 )
(0.2 )
Other financial liabilities designated at
fair value
(0.2 )
(0.0 )
(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 2022 were USD
bn
(31 December 2021: USD
bn). Total Level 3 liabilities as of 31 December 2022 were USD
bn (31 December 2021: USD
bn). 3 Of the USD
bn in net gains / losses that is included in comprehensive
income, USD
bn is recognized in the Income statement and USD
bn is recognized in the Statement of comprehensive income in Gains / (losses) from own credit on financial liabilities designated at fair value,
before tax.
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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.
Maximum exposure to credit risk
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
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
6
31.12.21
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
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
6
1 The maximum exposure to loss is generally equal to the carrying amount and subject to change over time with market movements. 2 These positions are generally managed under the market risk framework. For
the purpose of this disclosure, collateral and credit enhancements were not considered. 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 Financial assets at fair value not held for trading collateralized by securities consisted of structured loans and reverse repurchase and
securities borrowing agreements. 6 The amount shown in the “Guarantees” column largely relates to sub-participations.
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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
31.12.22
31.12.21
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
Loans and advances to 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
2
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
3
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 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 1 for information. 3 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’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’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.
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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 31.12.22, 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
(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 )
As of 31.12.21, USD bn
Receivables from securities financing
transactions measured at amortized cost
(13.8 )
(2.9 )
(51.0 )
Derivative financial instruments
(3.6 )
(88.9 )
(18.5 )
Cash collateral receivables on
derivative instruments
1
(15.2 )
(3.3 )
Financial assets at fair value
not held for trading
(87.6 )
(1.1 )
(4.4 )
of which: reverse
repurchase agreements
(87.6 )
(1.1 )
(4.4 )
Total assets
(105.0 )
(108.1 )
(77.2 )
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 fin ancial 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.
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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 31.12.22, 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
(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 )
As of 31.12.21, USD bn
Payables from securities financing
transactions measured at amortized cost
(12.8 )
(1.8 )
(2.3 )
Derivative financial instruments
(3.6 )
(88.9 )
(18.1 )
Cash collateral payables on
derivative instruments
1
(13.1 )
(3.3 )
Other financial liabilities
designated at fair value
(88.6 )
(2.2 )
(3.8 )
of which: repurchase agreements
(88.6 )
(2.2 )
(3.8 )
Total liabilities
(105.0 )
(106.0 )
(27.5 )
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 derivativ es 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.
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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, against
loans from Swiss mortgage institutions and in connection with the issuance of covered bonds. UBS AG generally enters
into repurchase and securities lending arrangements under standard market agreements. For securities lending, the cash
received as collateral may be more or less than the fair value of the securities loaned, depending on the nature of the
transaction. For repurchase agreements, the fair value of the collateral sold under an agreement to repurchase is generally
in excess of the cash borrowed. Pledged mortgage loans serve as collateral for existing liabilities against Swiss central
mortgage institutions and for existing covered bond issuances of USD
m as of 31 December 2022 (31 December
2021: USD
m).
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
31.12.22
31.12.21
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
Financial assets at fair value held for trading
Loans and advances to customers
1
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
Loans and advances to banks
Financial assets at fair value held for trading
Cash collateral receivables on derivative 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
Total other restricted financial assets
Total financial assets pledged and other restricted financial assets
2
1 Mainly related to mortgage loans that serve as collateral for existing liabilities toward Swiss central mortgage institutions and for existing covered bond issuances. Of these pledged mortgage loans, approximately
USD
bn as of 31 December 2022 (31 December 2021: approximately USD
bn) could be withdrawn or used for future liabilities or covered bond issuances without breaching existing collateral requirements.
2 Does not include assets placed with central banks related to undrawn credit lines and for payment, clearing and settlement purposes (31 December 2022: USD
bn; 31 December 2021: USD
bn).
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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 Capita l 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.
›
Refer to the “Financial and regulatory key figures for our significant regulated subsidiaries and sub-groups” section of this report
for financial information about significant regulated subsidiaries of UBS AG
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
31.12.22
31.12.21
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
relating to securities lending and repurchase agreements in exchange for cash received
relating to securities lending agreements in exchange for securities received
relating to other financial asset transfers
Financial assets at fair value not held for trading that may be sold or repledged by
counterparties
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
As of 31 December 2022, approximately
% of the transferred financial assets were assets held for trading transferred
in exchange for cash, in which case the associated recognized
liability
represents the amount to be repaid to
counterparties. 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 presented 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 provided in the table above, because those replacement values are managed
on a portfolio basis across counterparties and product types, and therefore there is no direct relationship between the
specific collateral pledged and the associated liability.
Transferred financial assets 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 2022 and as of 31 December 2021.
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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
2022 and 31 December 2021 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
31.12.22
31.12.21
Fair value of assets received that can be sold or repledged
received as collateral under reverse repurchase, securities borrowing
and lending arrangements, derivative and other transactions
received in unsecured borrowings
Thereof sold or repledged
in connection with financing activities
to satisfy commitments under short sale transactions
in connection with derivative and other transactions
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 2022: USD
bn; 31 December 2021: 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.
Loan commitments are classified based on the earliest date they can be drawn down.
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Note 23 Maturity analysis of assets and liabilities (continued)
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
1
Loans and advances to customers
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
1
Total non-financial assets
Total assets
Liabilities
Total financial liabilities measured at amortized cost
Customer deposits
Funding from UBS Group AG
Debt issued measured at amortized cost
of which: non-subordinated fixed rate debt
of which: non-subordinated floating rate debt
of which: subordinated fixed-rate debt
Total financial liabilities measured at fair value through
profit or loss
2
Debt issued designated at fair value
of which: non-subordinated fixed rate debt
of which: non-subordinated floating rate debt
Total non-financial liabilities
Total liabilities
Guarantees, loan commitments and forward starting transactions
3
Loan commitments
Guarantees
Forward starting transactions, reverse repurchase and
securities borrowing agreements
Total
31.12.21
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
Loans and advances to customers
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
Debt issued measured at amortized cost
of which: non-subordinated fixed rate debt
of which: non-subordinated floating rate debt
of which: subordinated fixed-rate debt
Total financial liabilities measured at fair value through
profit or loss
2
Debt issued designated at fair value
of which: non-subordinated fixed rate debt
of which: non-subordinated floating rate debt
Total non-financial liabilities
Total liabilities
Guarantees, loan commitments and forward starting transactions
3
Loan commitments
Guarantees
Forward starting transactions, reverse repurchase and
securities borrowing agreements
Total
1 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 1b for more information. 2 As of 31 December 2022 and 31 December 2021, 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. 3 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.
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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 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.
31.12.22
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
2
Debt issued measured at amortized cost
Other financial liabilities measured at amortized cost
Total financial liabilities measured at amortized cost
3, 5
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, commitments and forward starting transactions
Loan commitments
7
Guarantees
Forward starting transactions, reverse repurchase and
securities borrowing agreements
7
Total
31.12.21
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
2
Debt issued measured at amortized cost
Other financial liabilities measured at amortized cost
of which: lease liabilities
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, commitments and forward starting transactions
Loan commitments
7
Guarantees
Forward starting transactions, reverse repurchase
and securities borrowing agreements
7
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
2021: USD
bn), USD
bn due between 1 month and 1 year (31 December 2021: USD
bn) and USD
bn due between 1 and 5 years (31 December 2021: USD
bn). 5 Includes USD
m (31 December
2021: 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 2021: 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).
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Note 24 Interest rate benchmark reform
Background
A market-wide reform of major interest rate benchmarks is being undertaken globally. The publication of London
Interbank Offered Rates (LIBORs) ceased immediately after 31 December 2021 for all non-US dollar LIBORs, as well as for
one-week and two-month USD LIBOR. Publication of the remaining USD LIBOR tenors will cease immediately after
30 June 2023.
In December 2022 , the FCA consulted on the continued publication of one-, three- and six-month USD LIBOR under a
synthetic format until the end of September 2024 to ensure an orderly winding down of remaining contracts that are
not governed by US law. In addition, in December 2022, the US Federal Reserve Board adopted the final rules that
implement the Adjustable Interest Rate (LIBOR) Act, which is substantially based on, and supersedes, the New York State
LIBOR legislation. The Adjustable Interest Rate (LIBOR) Act provides a legislative solution for USD LIBOR legacy products
governed by any US state law should such products fail to transition prior to the USD LIBOR cessation date of 30 June
2023.
A framework has been established within UBS AG to address the transition of contracts that do not contain adequate
fallback provisions and to cease entering into new LIBOR contracts, with the exception of specific circumstances that are
allowed by regulatory provisions for USD LIBOR.
Governance over the transition to alternative benchmark rates
Throughout the transition process UBS AG has been maintain ing a global cross -divisional, cross-functional governance
structure and change program to address the scale and complexity of the transition. This global program is sponsored by
the Group CFO and led by senior representatives from the business divisions and UBS AG’s control and support functions.
The program includes governance and execution structures within each business division, together with cross-divisional
teams from each control and support function. During 2022, progress was overseen centrally via a monthly Group LIBOR
Transition Forum with an increased US regional focus.
Risks
A core part of UBS AG’s change program is the identification, management and monitoring of the risks associated with
IBOR reform and transition. These risks include, but are not limited to, the following:
–
economic risks to UBS AG and its clients, through the repricing of existing contracts, reduced transparency and / or
liquidity of pricing information, market uncertainty or disruption;
–
accounting risks, where the transition affects the accounting treatment, including hedge accounting and consequential
income statement volatility;
–
valuation risks arising from the variation between benchmarks that will cease and ARRs, affecting the risk profile of
financial instruments;
–
operational risks arising from changes to UBS AG’s front-to-back processes and systems to accommodate the transition
(e.g., data sourcing and processing and bulk migration of contracts); and
–
legal and conduct risks relating to UBS AG’s engagement with clients and market counterparties around new
benchmark products and amendments required for existing contracts referencing benchmarks that will cease.
Overall, the effort required to transition is affected by multiple factors, including whether negotiations need to take place
with multiple stakeholders (as is the case for syndicated loans or certain listed securities), market readiness and a client’s
technical readiness to handle ARR market conventions. UBS AG remains confident that it has the transparency, oversight
and operational preparedness to progress with the IBOR transition consistent with market timelines, given the significant
progress made as of 31 December 2022 . UBS AG did not have and does not expect changes to its risk management
approach and strategy as a result of interest rate benchmark reform.
Transition progress
UBS AG’s significant non-derivative exposures subject to IBOR reform primarily related to brokerage receivable and
payable balances, corporate and private loans, and mortgages, linked to CHF and USD LIBORs. During 2020, UBS AG
transitioned most of its CHF LIBOR-linked deposits to the Swiss Average Overnight Rate (SARON ). In that same year, UBS
AG launched SARON-based mortgages and corporate loans based on all major ARRs in the Swiss market, as well as
Secure Overnight Financing R ate (SOFR)-based mortgages in the US market.
Throughout 2021, UBS AG transitioned substantially all of its private and corporate loans linked to non-USD IBORs, with
the remaining CHF LIBOR-linked contracts transitioning on their first roll date in 2022. In addition, as of 31 December
2021 UBS AG had completed the transition of IBOR-linked non-derivative financial assets and liabilities related to
brokerage accounts, except for balances originated in the US, which transitioned to SOFR in January 2022.
Annual Report 2022
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statements
455
Note 24 Interest rate benchmark reform (continued)
In 2022, UBS AG focused its efforts on the transition of USD LIBOR and the remaining non-USD LIBOR contracts, by
leveraging industry solutions (e.g., the use of fallback provisions), through third-party actions (those by clearing houses,
agents, etc.) and bi-lateral contract negotiations. As of 31 December 2022, the transition of non-USD IBORs is
substantially complete.
In addition, in 2022, substantially all US securities-based lending has been transitioned to SOFR and UBS AG continues
to make good progress on the transition of the remaining USD LIBOR non-derivative assets and liabilities, with the US
mortgage portfolio of USD
bn (31 December 2021: USD
bn) the largest remaining exposure left to transition.
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. UBS AG will begin
gradually transitioning USD LIBOR derivatives not transacted with clearing houses or exchanges from the first quarter of
2023. The transition of USD LIBOR-cleared derivatives is planned to commence in the second quarter of 2023.
As of 31 December 2022, 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. In addition, certain US dollar-denominated 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 as
market standards formalize and in advance of any rate resets. These debt instruments have not been included in the table
below, given their current fixed-rate coupon.
Financial instruments yet to transition to alternative benchmarks
The amounts included in the table below relate to financial instrument contracts across UBS AG’s business divisions where
UBS AG has material exposures subject to IBOR reform that have not yet transitioned to ARRs, and that:
–
contractually reference an interest rate benchmark that will transition to an alternative benchmark; and
–
have a contractual maturity date (including open-ended contracts) after the agreed cessation dates.
Contracts where penalty terms reference IBORs, or where exposure to an IBOR is not the primary purpose of the contract,
have not been included, as these contracts do not have a material impact on the transition process.
In line with information provided to management and external parties monitoring UBS AG’s transition progress, the table
below includes the following financial metrics for instruments external to UBS AG that are subject to interest rate
benchmark reform:
–
gross carrying value / exposure for non -derivative financial instruments; and
–
total trade count for derivative financial instruments.
The exposures included in the table below reflect the maximum IBOR exposure, without regard for early termination
rights, with the actual exposure being dependent upon client preferences and investment decisions.
As of 31 December 2022, UBS AG had made significant progress in transitioning LIBOR exposures to ARRs. The remaining
USD LIBOR-linked exposures included in the table below primarily relate to derivatives and US mortgages, with the
transition planned to be completed by 30 June 2023.
LIBOR benchmark rates
31.12.22
1
31.12.21
Measure
USD
USD
CHF
GBP
EUR
2
JPY
Carrying value of non -derivative financial instruments
Total non-derivative financial assets
USD m
3
3
4
5
Total non-derivative financial liabilities
USD m
5
5
5
5
6
Trade count of derivative financial instruments
Total derivative financial instruments
Trade count
7
7,8
9
9
9
9
Off-balance sheet exposures
Total irrevocable loan commitments
USD m
10
11
1 As of 31 December 2022, non-USD balances and trade counts are minimal. 2 Relates primarily to EUR LIBOR positions. 3 Includes USD
bn (31 December 2021: USD
bn) of loans related to revolving multi-
currency credit lines, where IBOR transition efforts are complete, except for USD LIBOR. Balances as of 31 December 2021 also include USD
bn USD LIBOR securities-based lending and USD
bn brokerage accounts,
which for the most part transitioned to SOFR in January 2022. The remaining balances as of 31 December 2022 and 31 December 2021 primarily relate to US mortgages and corporate lending. 4 Relates primarily
to CHF LIBOR mortgages, which have automatically transitioned to SARON on their first roll date in 2022. 5 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. 6 Relates to contracts that transitioned in January 2022. 7 Includes approximately
) contracts having a contractual
maturity after 30 June 2023, with the last USD LIBOR fixing occurring before 30 June 2023. No further contractual fixing is required for these contracts. 8 Includes approximately
which approximately
an ARR leg and a USD IBOR leg. 9 Includes predominantly bilateral derivatives, which transitioned in January 2022, and an insignificant amount of cleared derivatives, where the respective clearing houses’ organized
transition happened in January 2022. 10 Includes approximately USD
bn of loan commitments that can be drawn in different currencies, however only USD LIBOR transition efforts remain open, with completion
scheduled for 2023. 11 Includes loan commitments that can be drawn in different currencies at the client‘s discretion, of which approximately USD
bn have only USD LIBOR exposure remaining and approximately
USD
bn retain a non-USD LIBOR interest rate, with transition dependent upon the actions of other parties. The remainder represents loan commitments that can be drawn in US dollars only and will transition on or
before 30 June 2023.
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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 re-designated in cash flow hedges, in which case the hedge ratio designated is determined based on the
swap sensitivity.
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 debt issued, funding from UBS Group AG, debt securities held and long -term fixed-rate mortgage
loans in Swiss francs to floating cash flows by entering into interest rate swaps that either receive fixed and pay floating
cash flows or that pay fixed and receive floating cash flows.
Designations have been made in US dollars, euro, Swiss francs, Australian dollars, yen, pounds sterling and Singapore
dollars. For new hedging instruments and hedged risk designations entered into starting from 2021 in these currencies
(with the exception of euro), the benchmark rate was the relevant alternative reference rate (ARR). Following the
interbank offered rate (IBOR) transition for swaps with LCH (formerly the London Clearing House) in December 2021, the
benchmark hedge rate for Swiss franc, yen and pound sterling designations was changed from an IBOR rate to the
relevant ARR with the hedge relationship 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 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. Hedge designations have been made in the
following currencies: US dollars, euro, Swiss francs, pounds sterling and Hong Kong dollars. The cash flow hedges in
Swiss francs, pounds sterling and certain cash flow hedges in US dollars were discontinued and replaced with new ARR
designations in December 2021. In addition, the transition of floating rate hedged items in USD to ARR rates in January
2022 resulted in the update of the hedged risk to ARR in the affected hedge relationships without discontinuation of
hedge accounting in accordance with
Interest Rate Benchmark Reform – Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7,
IFRS 4 and IFRS 16)
.
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 denominated in currencies other than the US dollar to US dollars.
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 two months, the hedge relationship is terminated and
new designations are made to reflect any changes in the net investments in foreign operations.
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Note 25 Hedge accounting (continued)
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 origination 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.
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.
All hedges: designated hedging instruments and hedge ineffectiveness
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 )
As of or for the year ended
31.12.21
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
(1,604 )
(2 )
Cash flow hedges
(1,185 )
(196 )
Foreign exchange risk
Fair value hedges
2
(2,139 )
Hedges of net investments in foreign operations
(491 )
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.
Annual Report 2022
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Note 25 Hedge accounting (continued)
Fair value hedges: designated hedged items
USD m
31.12.22
31.12.21
Interest rate
risk
FX risk
Interest rate
risk
FX risk
Debt issued measured at amortized cost
Carrying amount of designated debt issued
(1,002 )
Funding from UBS Group AG
Carrying amount of designated debt instruments
(5,055 )
Other financial assets measured at amortized cost – debt securities
Carrying amount of designated debt securities
(180 )
(7 )
Loans and advances to customers
Carrying amount of designated loans
of which: accumulated amount of fair value hedge adjustment
(1,249 )
(109 )
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
(51 )
Fair value hedges: profile of the timing of the nominal amount of the hedging instrument
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
31.12.21
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
31.12.22
31.12.21
Amounts related to hedge relationships for which hedge accounting continues to be applied
(4,692 )
Amounts related to hedge relationships for which hedge accounting is no longer applied
(540 )
Total other comprehensive income recognized directly in equity related to cash flow hedges, on a pre-tax basis
(5,232 )
Foreign currency translation reserve on a pre -tax basis
USD m
31.12.22
31.12.21
Amounts related to hedge relationships for which hedge accounting continues to be applied
(61 )
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
Interest rate benchmark reform
UBS AG continues to apply the relief provided by
Interest Rate Benchmark Reform
(amendments to IFRS 9, IAS 39 and
IFRS 7)
, published by the IASB in September 2019, mainly to its hedges in USD . The cessation date for USD LIBOR is
30 June 2023.
The following table provides details on the notional amount and carrying amount of the hedging instruments in the
hedge relationships where the designated risk is LIBOR and maturing after the cessation date of the applicable interest
rate benchmarks.
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
›
Refer to earlier parts of this Note for the information about the transition progress of fair value and cash flow hedges
Annual Report 2022
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AG
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459
Note 25 Hedge accounting (continued)
Hedging instruments referencing LIBOR
31.12.22
31.12.21
Carrying amount
Carrying amount
USD m
Notional
amount
Derivative
financial
assets
Derivative
financial
liabilities
Notional
amount
Derivative
financial
assets
Derivative
financial
liabilities
Interest rate risk
Fair value hedges
Cash flow hedges
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.
Swiss pension plan
The Swiss pension plan covers employees of UBS Group AG in Switzerland and employees of companies in Switzerland
having close economic or financial ties with UBS Group AG, and exceeds the minimum benefit requirements under Swiss
pension law. 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 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 UBS’s 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 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 Swiss 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.
Savings contributions to the Swiss plan are paid by both employer and employee. Depending on the age of the employee,
UBS AG pays a savings contribution that ranges between
% and
% of contributory base salary and between
% and
% of contributory variable compensation. UBS AG also pays risk contributions that are used to fund disability
and survivor benefits. Employees can choose the level of savings contributions paid by them, which vary between
%
and
% of contributory base salary and between
% and
% of contributory variable compensation, depending on
age and choice of savings contribution category.
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 can also
continue employment and remain active members of the plan until the age of
. Employees have the opportunity to
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, and the employee and employer contributions that have
been made to the participant’s retirement savings account, as well as the interest accrued. The annual interest rate
credited to participants is determined by the Pension Foundation Board at the end of each year.
Although the Swiss plan is based on a defined contribution promise under Swiss pension law, it is accounted for as a
defined benefit plan under International Financial Reporting Standards (IFRS), 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 2022, the Swiss plan had a technical funding ratio in
accordance with Swiss pension law of
% (31 December 2021:
%).
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Note 26 Post-employment benefit plans (continued)
The investment strategy of the Swiss 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 on the basis
of 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 202 2, the Swiss plan was in a surplus situation on an IFRS measurement basis, as the fair value of
the plan’s assets exceeded the defined benefit obligation (DBO) by USD
m (31 December 2021: 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 2022 and 31 December 2021,
the estimated future economic benefit was zero and hence no net defined benefit asset was recognized on the balance
sheet.
Changes to the Swiss pension plan in 2019
The Pension Foundation Board and UBS AG agreed to implement measures that took effect from the start of 2019 to
support the long-term financial stability of the Swiss pension fund. The measures, among other things, lowered the
conversion rate and increased the normal retirement age from 64 to 65. Pensions already in payment on 1 January 2019
were not affected.
To mitigate the effects for active participants, UBS AG committed to pay an extraordinary contribution and contributed
CHF
m (USD
m) in three installments in 2020, 2021 and 2022. The installments of USD
m, USD
m and
USD
m paid in 2020, 2021 and 2022 reduced other comprehensive income with no effect on the income statement.
The regular employer contributions to be made to the Swiss plan in 2023 are estimated at USD
m.
UK pension plan
The UK 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 participants in the UK plan 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, since 2013, participants are no longer accruing benefits for current or future service. Instead,
employees participate in the UK defined contribution plan.
The governance responsibility for the UK plan lies jointly with the Pension Trustee Board and UBS AG. The employer
contributions to the pension fund reflect agreed-upon deficit funding contributions, which are determined on the basis
of the most recent actuarial valuation using assumptions agreed by the Pension Trustee Board and U BS AG. In the event
of underfunding, UBS AG and the Pension Trustee Board must agree on a deficit recovery plan within statutory deadlines.
In 2022, UBS AG made deficit funding contributions of USD
m to the UK plan. In 2021, UBS AG made no deficit funding
contributions.
The plan assets are invested in a diversified portfolio of financial assets, which include longevity swaps with an external
insurance company. These swaps enable the UK pension plan to hedge the risk between expected and actual longevity,
which should mitigate volatility in the net defined benefit asset / liability. As of 31 December 2022, the longevity swaps
had a negative value of USD
m (31 December 2021: negative USD
m).
In 2019, UBS AG and the Pension Trustee Board entered into an arrangement whereby a collateral pool was established
to provide security for the pension fund. The value of the collateral pool as of 31 December 2022 was USD
m
(31 December 2021: 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 deficit funding contribution.
The employer contributions to be made to the UK defined benefit plan in 2023 are estimated at USD
m, subject to
regular funding reviews during the year.
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Note 26 Post-employment benefit plans (continued)
US pension plans
There are two distinct major defined benefit plans in the US, 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 defined contribution plan.
One of the 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 defined benefit plan, retirement benefits
accrue based on the career-average earnings of each individual plan participant. Former employees with vested benefits
have the option of taking a lump sum payment or a lifetime annuity.
As required under applicable pens ion laws, both plans have fiduciaries who, together with UBS AG, are responsible for
the governance of the plans.
The plan assets of both plans are invested in diversified portfolios of financial assets. Each plan’s fiduciaries are responsible
for the investment decisions with respect to the plan assets.
The employer contributions to be made to the US defined benefit plans in 2023 are estimated at USD
m.
German pension plans
There are two unfunded defined benefit plans in Germany. The normal retirement age is
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.
In June 2021, UBS AG implemented a new funded 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 be made to the German defined benefit plans in 2023 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.
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AG
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462
Note 26 Post-employment benefit plans (continued)
Defined benefit plans
USD m
Swiss pension plan
UK pension plan
US and German
pension plans
Total
2022
2021
2022
2021
2022
2021
2022
2021
Defined benefit obligation at the beginning of the year
Current service cost
Interest expense
Plan participant contributions
Remeasurements
(2,424 )
(1,474 )
(267 )
(62 )
(4,165 )
of which: actuarial (gains) / losses due to changes in demographic assumptions
(6 )
(3 )
of which: actuarial (gains) / losses due to changes in financial assumptions
(2,653 )
(385 )
(1,575 )
(3 )
(279 )
(78 )
(4,506 )
(466 )
of which: experience (gains) / losses
1
Past service cost related to plan amendments
Curtailments
(13 )
(49 )
(13 )
(49 )
Benefit payments
(796 )
(602 )
(123 )
(148 )
(111 )
(112 )
(1,030 )
(862 )
Other movements
(5 )
(5 )
Foreign currency translation
(291 )
(456 )
(408 )
(38 )
(28 )
(33 )
(727 )
(527 )
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
(796 )
(602 )
(123 )
(148 )
(111 )
(112 )
(1,030 )
(862 )
Administration expenses, taxes and premiums paid
(7 )
(8 )
(3 )
(4 )
(11 )
(11 )
Other movements
(1 )
(1 )
Foreign currency translation
(322 )
(524 )
(450 )
(39 )
(772 )
(563 )
Fair value of plan assets at the end of the year
Surplus / (deficit)
(335 )
(411 )
Asset ceiling effect at the beginning of the year
Interest expense on asset ceiling effect
Asset ceiling effect excluding interest expense and foreign currency translation on
asset ceiling effect
Foreign currency translation
(31 )
(68 )
(31 )
(68 )
Asset ceiling effect at the end of the year
Net defined benefit asset / (liability) of major plans
(335 )
(411 )
(14 )
(219 )
Net defined benefit asset / (liability) of remaining plans
(80 )
(96 )
Total net defined benefit asset / (liability)
(94 )
(315 )
of which: Net defined benefit asset
of which: Net defined benefit liability
2
(449 )
(617 )
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 2022
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AG
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463
Note 26 Post-employment benefit plans (continued)
Income statement – expenses related to defined benefit plans
1
USD m
Swiss pension plan
UK pension plan
US and German
pension plans
Total
For the year ended
31.12.22
31.12.21
31.12.22
31.12.21
31.12.22
31.12.21
31.12.22
31.12.21
Current service cost
Interest expense related to defined benefit obligation
Interest income related to plan assets
(274 )
(42 )
(70 )
(58 )
(31 )
(26 )
(376 )
(127 )
Interest expense on asset ceiling effect
Administration expenses, taxes and premiums paid
Past service cost related to plan amendments
Curtailments
(13 )
(49 )
(13 )
(49 )
Net periodic expenses recognized in net profit for major plans
(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 pension plan
UK pension plan
US and German
pension plans
Total
For the year ended
31.12.22
31.12.21
31.12.22
31.12.21
31.12.22
31.12.21
31.12.22
31.12.21
Remeasurement of defined benefit obligation
(490 )
(71 )
(498 )
of which: change in discount rate assumption
of which: change in rate of pension increase assumption
(316 )
(5 )
(1 )
(318 )
of which: change in rate of interest credit on retirement savings assumption
(408 )
(110 )
(82 )
(1 )
(490 )
(110 )
of which: change in life expectancy
(1 )
(3 )
of which: change in other actuarial assumptions
(19 )
(26 )
(23 )
(47 )
of which: experience gains / (losses)
1
(226 )
(848 )
(107 )
(59 )
(11 )
(12 )
(344 )
(919 )
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 )
(1,037 )
(656 )
(1,037 )
Total gains / (losses) recognized in other comprehensive income for major plans
(173 )
(207 )
Total gains / (losses) recognized in other comprehensive income for remaining plans
Total gains / (losses) recognized in other comprehensive income
2
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 pension plan
UK pension plan
US and German pension
plans
1
31.12.22
31.12.21
31.12.22
31.12.21
31.12.22
31.12.21
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 2022
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AG
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464
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 di scount 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
Swiss pension plan
UK pension plan
US pension plans
German pension plans
In %
31.12.22
31.12.21
31.12.22
31.12.21
31.12.22
31.12.21
31.12.22
31.12.21
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 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
31.12.22
31.12.21
31.12.22
31.12.21
Switzerland
BVG 2020 G with CMI 2021 projections
1
UK
S3PA with CMI 2021 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
31.12.22
31.12.21
31.12.22
31.12.21
Switzerland
BVG 2020 G with CMI 2021 projections
1
UK
S3PA with CMI 2021 projections
2
USA
Pri-2012 with MP-2021 projection scale
Germany
Dr. K. Heubeck 2018 G
1 In 2021, BVG 2020 G with CMI 2019 projections was used. 2 In 2021, S3PA with CMI 2020 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 pension plan
UK pension plan
US and German pension plans
USD m
31.12.22
31.12.21
31.12.22
31.12.21
31.12.22
31.12.21
Discount rate
Increase by 50 basis points
(641 )
(975 )
(141 )
(361 )
(51 )
(78 )
Decrease by 50 basis points
Rate of pension increase
Increase by 50 basis points
Decrease by 50 basis points
–
2
–
2
(118 )
(306 )
(3 )
(6 )
Rate of interest credit on retirement savings
Increase by 50 basis points
–
3
–
3
Decrease by 50 basis points
(106 )
(134 )
–
3
–
3
(8 )
(7 )
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 2022 and as of 31 December 2021, 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.
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465
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 pension plans.
Composition and fair value of plan assets
Swiss pension plan
31.12.22
31.12.21
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–
Other
Other investments
Total fair value of plan assets
31.12.22
31.12.21
Total fair value of plan assets
of which:
2
Bank accounts at UBS AG
UBS AG debt instruments
UBS Group AG shares
Securities lent to UBS AG
3
Property occupied by UBS
Derivative financial instruments, counterparty UBS AG
3
1 The bond credit ratings are primarily based on SP’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 SP’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 2022 and 31 December 2021. Net
of collateral, derivative financial instruments amounted to negative USD
m as of 31 December 2022 (31 December 2021: positive USD
m).
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Note 26 Post-employment benefit plans (continued)
Composition and fair value of plan assets (continued)
UK pension plan
31.12.22
31.12.21
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
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 )
(313 )
(313 )
(7 )
Repurchase agreements
(612 )
(612 )
(25 )
(725 )
(725 )
(17 )
Other investments
Total fair value of plan assets
1 The bond credit ratings are primarily based on SP’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 SP’s rating classification.
US and German pension plans
31.12.22
31.12.21
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
Total fair value of plan assets
1 The bond credit ratings are primarily based on SP’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 SP’s rating classification.
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Note 26 Post-employment benefit plans (continued)
b) Defined contribution plans
UBS AG sponsors a number of 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 2022, USD
m in 2021 and USD
m in 2020.
›
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 2022, UBS AG received USD
m in fees for banking services
from the major post-employment benefit plans (2021: USD
m). As of 31 December 2022, the major post-employment
benefit plans held USD
m in UBS Group AG shares (31 December 2021: 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, references 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 GEB members for the
performance year 2022. For prior performance years, LTIP was granted to 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 pe riod 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.
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Note 27 Employee benefits: variable compensation (continued)
Deferred Contingent Ca pital 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 compensa tion 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.
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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 2022, as well as expenses that were deferred and will be recognized
in the income statement for 2023 and later. The majority of expenses deferred to 20 23 and later that are related to the
2022 performance year pertain to awards granted in February 2023 . The total unamortized compensation expense for
unvested share-based awards granted up to 31 December 2022 will be recognized in future periods over a weighted
average period of
Variable compensation
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 award s. 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).
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Note 27 Employee benefits: variable compensation (continued)
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).
Variable compensation (continued)
Expenses recognized in 2020
Expenses deferred to 2021 and later
1
USD m
Related to the
2020
performance
year
Related to prior
performance
years
Total
Related to the
2020
performance
year
Related to prior
performance
years
Total
Non-deferred cash
(29 )
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 2020. 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).
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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 2022 and
2021 are provided in the table below.
Movements in outstanding share-based compensation awards
Number of shares
2022
Weighted
average grant
date fair
value (USD)
Number of shares
2021
Weighted
average grant
date fair
value (USD)
Outstanding, at the beginning of the year
Awarded during the year
Distributed during the year
(37,994 )
(24,176 )
Forfeited during the year
(1,923 )
(13,215 )
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 2022 and
31 December 2021 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 2022. 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 and Spain. Share capital is provided in the
currency of the legally registered office.
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Note 28 Interests in subsidiaries and other entities (continued)
Individually significant subsidiaries of UBS AG as of 31 December 2022
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 2022
Company
Registered office
Primary business
Share capital in million
Equity interest
accumulated in %
USD
HKD
GBP
CHF
USD
USD
EUR
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 2022 and 2021, UBS AG did not enter into any contractual o bligation 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 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.
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Note 28 Interests in subsidiaries and other entities (continued)
b) Interests in associates and joint ventures
As of 31 December 2022 and 2021, 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.
In 2022, UBS AG reclassified its minority investment (
%) in its Japanese real estate joint venture, Mitsubishi Corp.-UBS
Realty Inc., of USD
m to
Properties and other non-current assets held for sale
resulted in a pre-tax gain of USD
m in 2022, which was recognized in
Other income
. UBS AG’s asset management,
wealth management and investment banking businesses operating in Japan were not affected by the sale.
Investments in associates and joint ventures
USD m
2022
2021
Carrying amount at the beginning of the year
Additions
Reclassifications
1
(44 )
(386 )
Share of comprehensive income
(41 )
of which: share of net profit
2
of which: share of other comprehensive income
3
(73 )
Share of changes in retained earnings
Dividends received
(31 )
(39 )
Foreign currency translation
(30 )
(39 )
Carrying amount at the end of the year
of which: associates
of which: SIX Group AG, Zurich
4
of which: other associates
of which: joint ventures
of which: Mitsubishi Corp.-UBS Realty Inc., Tokyo
1
of which: other joint ventures
1 In 2022, UBS AG reclassified its minority investment (
%) in Mitsubishi Corp.-UBS Realty Inc. of USD
m to Properties and other non-current assets held for sale and sold the investment in the same year. In 2021,
UBS AG reclassified its minority investment (
%) in Clearstream Fund Centre AG of USD
m to Properties and other non-current assets held for sale and sold the investment in the same year. 2 For 2022,
consists of USD
m from associates and USD
m from joint ventures (for 2021, consists of USD
m from associates and USD
m from joint ventures). 3 For 2022, consists of negative USD
m from associates
(for 2021, consists of USD
m from associates and USD
m from joint ventures). 4 In 2022, UBS AG’s 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
2022, 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
2022 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.
Sponsored unconsolidated structured entities in which UBS did not have an interest at year-end
During 2022 and 2021, UBS AG did not earn material income from sponsored unconsolidated SEs in which UBS did not
have an interest at year-end.
During 2022 and 2021, 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 2022 (2021:
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 2021: USD
bn).
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Note 28 Interests in subsidiaries and other entities (continued)
Interests in unconsolidated structured entities
31.12.22
USD m, except where indicated
Securitization
vehicles
Client
vehicles
Investment
funds
Total
Maximum
exposure to loss
1
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
2
Other financial assets measured at amortized cost
2
3
Total assets
4
Derivative financial instruments
Total liabilities
Assets held by the unconsolidated structured entities in which UBS AG had an
interest (USD bn)
5
6
7
31.12.21
USD m, except where indicated
Securitization
vehicles
Client
vehicles
Investment
funds
Total
Maximum
exposure to loss
1
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
3
Total assets
4
Derivative financial instruments
Total liabilities
Assets held by the unconsolidated structured entities in which UBS AG had an
interest (USD bn)
5
6
7
1 For the purpose of this disclosure, maximum exposure to loss amounts do not consider the risk-reducing effects of collateral or other credit enhancements. 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 1b for more information. 3 Includes the
carrying amount of loan commitments. The maximum exposure to loss for these instruments is equal to the notional amount. 4 As of 31 December 2022, USD
bn of the USD
bn (31 December 2021: USD
bn
of the USD
bn) was held in Group Functions – Non-core and Legacy Portfolio. 5 Represents the principal amount outstanding. 6 Represents the market value of total assets. 7 Represents the net asset value
of the investment funds sponsored by UBS AG and the carrying amount of UBS AG’s interests in the investment funds not sponsored by UBS AG.
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 2022 and 2021, UBS AG did not provide support, financial or otherwise, to any unconsolidated SE when not
contractually obligated to do so, nor does UBS AG have any intention to do so in the future.
In 2022 and 2021, 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 2022 and 31 December 2021, UBS AG held interests, both retained and acquired, in various
securitization vehicles that relate to financing, underwriting, secondary market and derivative trading activities.
The numbers outlined in the table above may differ from the securitization positions presented in the 31 December 2022
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 carrying amount
within the previous table 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 2022 Pillar 3 Report, available under “Pillar 3 disclosures” at
ubs.com/investors,
for more information
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Note 28 Interests in subsidiaries and other entities (continued)
Interests in client vehicles
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 2022 and 31 December 2021, UBS AG retained interests in client vehicles sponsored by UBS and
third parties 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 2022 and 31 December 2021, 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 2022 or as of 31 December 2021.
Note 29 Changes in organization and acquisitions and disposals of subsidiaries and businesses
Disposals of subsidiaries and businesses
Sale of UBS Swiss Financial Advisers AG
In the third quarter of 2022, UBS AG completed the sale of its wholly owned subsidiary UBS Swiss Financial Advisers AG
(SFA) to Vontobel. UBS AG continues to refer US clients that want to have discretionary portfolio management or
investment advisory services booked in Switzerland to Vontobel SFA. Upon completion of the sale, UBS AG recorded a
pre-tax gain of USD
m in 2022, which was recognized in
Other income
.
Prior to completion of the sale, the assets and liabilities that were subject to the transaction were presented as a disposal
group held for sale within
Other non-financial assets
Other non-financial liabilities
m
and USD
m, respectively).
Sale of wealth management business in Spain
UBS AG completed the sale of its domestic wealth management business in Spain to Singular Bank in the third quarter
of 2022. The sale included the transition of employees, client relationships, products and services of the wealth
management business of UBS AG in Spain and resulted in a pre-tax gain of USD
m in 2022, which was recognized
in
Other income
.
Prior to completion of the sale, the assets and liabilities that were subject to the transaction were presented as a disposal
group held for sale within
Other non-financial assets
Other non-financial liabilities
m
and USD
m, respectively).
Sale of US alternative investments administration business
In the fourth quarter of 2022, UBS AG sold its US alternative investments administration business and recorded a pre-tax
gain of USD
m gain in
Other income
.
Sale of investments in associates and joint ventures
UBS AG sold its minority investment (49%) in its Japanese real estate joint venture, Mitsubishi Corp. -UBS Realty Inc., in
2022.
›
Refer to Note 28b for more information
Acquisitions of subsidiaries and businesses
Wealthfront
In August 2022, UBS AG and Wealthfront mutually agreed to terminate their merger agreement, under which
Wealthfront was to be acquired by UBS Americas Inc. In the third quarter of 2022, UBS AG purchased a USD
m note
convertible into Wealthfront shares.
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Note
30 Related parties
UBS AG defines related parties as associates (entities that are significantly influenced by UBS), joint ventures (entities in
which UBS shares control with another party), post-employment benefit plans for UBS AG employees, key management
personnel, close family members of key management personnel and entities that are, directly or indirectly, controlled or
jointly controlled by key management personnel or their close family members. Key management personnel is defined as
members of the Board of Directors (the BoD) and Executive Board (the EB).
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 managem ent personnel
USD m, except where indicated
31.12.22
31.12.21
31.12.20
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 2022, 2021 and 2020 was entirely
composed of LTIP awards. For the Chairman of the BoD, the share-based compensation for 2022, 2021 and 2020 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 (2022: USD / CHF
; 2021: USD / CHF
; 2020: 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 2022, USD
m (CHF
m)
in 2021 and USD
m (CHF
m) in 2020.
b) Equity holdings of key management personnel
Equity holdings of key management personnel
1
31.12.22
31.12.21
Number of UBS Group AG shares held by members of the BoD, EB and parties closely linked to them
2
2,443,580
1 No options were held in 2022 and 2021 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
2022 and 31 December 2021. 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 2022 and 31 December 2021. As of
31 December 2022, no member of the BoD or EB was the beneficial owner of more than 1% of the shares in UBS Group
AG.
c) Loans, advances and mortgages to 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.
Movements in the loan, advances and mortgage balances are as follows.
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Note 30 Related parties (continued)
Loans, advances and mortgages to key management personnel
1
USD m, except where indicated
2022
2021
Balance at the beginning of the year
Additions
Reductions
(7 )
(15 )
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 no unused uncommitted credit facilities as of 31 December 2022 and 31 December 2021. 3 Swiss franc amounts disclosed represent the respective US dollar amounts
translated at the relevant year-end closing exchange rate.
d) Other related-party transactions with entities controlled by key management personnel
In 2022 and 2021, UBS AG did not enter into transactions with entities that are directly or indirectly controlled or jointly
controlled by UBS AG’s key management personnel or their close family members and as of 31 December 2022,
31
December 20
21
and 31
December 20
20
, there were no outstanding balances related to such transactions.
Furthermore, in 202 2 and 2021, entities controlled by key management personnel 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 2022 and 2021, 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
2022
2021
Carrying amount at the beginning of the year
Additions
Reductions
(438 )
(497 )
Foreign currency translation
(14 )
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
31.12.22
31.12.21
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
f) Receivables and payables from / to UBS Group AG and other subsidiaries of UBS Group AG
USD m
31.12.22
31.12.21
Receivables
Loans and advances to customers
Financial assets at fair value held for trading
Other financial assets measured at amortized cost
Payables
Customer deposits
Funding from UBS Group AG
Other financial liabilities measured at amortized cost
Other financial liabilities designated at fair value
1
1 Represents funding recognized from UBS Group AG that is designated at fair value. Refer to Note 18b for more information.
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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.
Invested assets and net new money
As of or for the year ended
USD bn
31.12.22
31.12.21
Fund assets managed by UBS
Discretionary assets
Other invested assets
Total invested assets
1
of which: double counts
Net new money
1
1 Includes double counts.
Development of invested assets
USD bn
2022
2021
Total invested assets at the beginning of the year
1
Net new money
Market movements
2
(595 )
Foreign currency translation
(72 )
(65 )
Other effects
(40 )
(24 )
of which: acquisitions / (divestments)
(19 )
(5 )
Total invested assets at the end of the year
1
1 Includes double counts. 2 Includes interest and dividend income.
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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
31.12.22
31.12.21
31.12.22
31.12.21
31.12.20
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 and Swiss GAAP
The consolidated financial statements of UBS AG are prepared in accordance with International Financial Reporting
Standards (IFRS). The Swiss Financial Market Supervisory Authority (FINMA) requires financial groups presenting financial
statements under IFRS to provide a narrative explanation of the main differences between IFRS 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 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, all entities that are controll ed 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.
2. Classification and measurement of financial assets
Under IFRS, debt instruments are measured at amortized cost, fair value through other comprehensive income (FVOCI)
or fair value through profit or loss (FVTPL), depending on the nature of the business model within which the 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. 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
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
measured at cost less impairment. Impairment losses are recorded in the income statement as
Impairment of investments
in non-consolidated subsidiaries and other participations.
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, 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
.
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Note 33 Main differences between IFRS and Swiss GAAP (continued)
4. Allowances and provisions for credit losses
Swiss GAAP permit use of IFRS 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 and Swiss GAAP .
For the small residual exposures within the scope of Swiss GAAP ECL requirements, which are not subject to ECL under
IFRS 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, 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.
6. Goodwill and intangible assets
Under IFRS, goodwill acquired in a business combination is not amortized but tested annually for impairment. Intangible
assets with an indefinite useful life are also not amortized but tested annually for impairment. Under Swiss GAAP,
goodwill and intangible assets with indefinite useful lives are amortized over a period not exceeding five years, unless a
longer useful life, which may not exceed
impairment.
7. Post-employment benefit plans
Swiss GAAP permit the use of IFRS or Swiss accounting standards for post-employment benefit plans, with the election
made on a plan-by-plan basis.
UBS has elected to apply IFRS (IAS 19) for the non-Swiss defined benefit plans in 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. Key differences between Swiss GAAP and IFRS include the treatment of dynamic
elements, such as future salary increases and future interest credits on retirement savings, which are not considered under
the static method used in accordance with Swiss GAAP. Also, the discount rate used to determine the defined benefit
obligation in accordance with IFRS is based on the yield of high-quality corporate bonds of the market in the respective
pension plan country. The discount rate used in accordance with Swiss GAAP (i.e., the technical interest rate) is
determined by the Pension Foundation Board based on the expected returns of the Board’s investment strategy.
For defined benefit plans, IFRS 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 is 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).
Annual Report 2022
|
Consolidated
financial
statements
|
UBS
AG
consolidated
financial
statements
481
Note 33 Main differences between IFRS and Swiss GAAP (continued)
8. Leasing
Under IFRS, a single lease accounting model applies that requires UBS to record a right-of-use (RoU) asset and a
corresponding lease liability on the balance sheet when UBS is a lessee in a lease arrangement. The RoU asset and the
lease liability are recognized when UBS acquires control of the physical use of the asset. The lease liability is measured
based on the present value of the lease payments over the lease term, discounted using UBS’s unsecured borrowing rate.
The RoU asset is recorded at an amount equal to the lease liability but is adjusted for rent prepayments, initial direct costs,
any costs to refurbish the leased asset and / or 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, operating leases are not recognized on the balance
sheet, with payments recognized as
General and administrative expenses
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, derivative assets, derivative liabilities and related cash collateral not settled to market are reported on a gross
basis unless the restrictive IFRS netting requirements are met: (i) existence of master netting agreements and related
collateral arrangements that are unconditional and legally enforceable, 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.
10. Negative interest
Under IFRS, negative interest income arising on a financial asset does not meet the definition of interest income and,
therefore, negative interest on financial assets and negative interest on financial liabilities are presented within interest
expense and interest income, respectively. Under Swiss GAAP, negative interest on financial assets is presented within
interest income and negative interest on financial liabilities is presented within interest expense.
11. Extraordinary income and expense
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.
p
Annual Report 2022
|
Consolidated
financial
statements
|
UBS
AG
consolidated
financial
statements
482
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 subsidia ry co-
guarantor.
The joint liability of UBS Switzerland AG for contractual obligations of UBS AG decreased in 2022 by USD
bn to
USD
bn as of 31 December 2022. 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 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.
Annual Report 2022
|
Consolidated
financial
statements
|
UBS
AG
consolidated
financial
statements
483
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 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 1b for more information.
Annual Report 2022
|
Consolidated
financial
statements
|
UBS
AG
consolidated
financial
statements
484
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
Loans and advances to 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
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 2022
|
Consolidated
financial
statements
|
UBS
AG
consolidated
financial
statements
485
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
Purchase of financial assets measured at fair value through other comprehensive income
(4,131 )
(652 )
(4,783 )
Disposal and redemption of financial assets measured at fair value through other comprehensive
income
Net (purchase) / redemption of debt securities measured at amortized cost
(8,159 )
(1,820 )
(2,013 )
(11,993 )
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
of which: loans and advances to banks
of which: money market paper
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 2022
|
Consolidated
financial
statements
|
UBS
AG
consolidated
financial
statements
486
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 2022
|
Consolidated
financial
statements
|
UBS
AG
consolidated
financial
statements
487
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 2021
Assets
Cash and balances at central banks
Loans and advances to banks
(51,245 )
Receivables from securities financing transactions measured at
amortized cost
(21,577 )
Cash collateral receivables on derivative instruments
(10,518 )
Loans and advances to customers
(26,188 )
Other financial assets measured at amortized cost
(1,870 )
Total financial assets measured at amortized cost
(111,397 )
Financial assets at fair value held for trading
(2,156 )
of which: assets pledged as collateral that
may be sold or repledged by counterparties
(10,568 )
Derivative financial instruments
(35,047 )
Brokerage receivables
(7 )
Financial assets at fair value not held for trading
(17,243 )
Total financial assets measured at fair value through profit or loss
(54,454 )
Financial assets measured at fair value
through other comprehensive income
Investments in subsidiaries and associates
(53,038 )
Property, equipment and software
(293 )
Goodwill and intangible assets
Deferred tax assets
Other non-financial assets
(1 )
Total assets
(219,154 )
Liabilities
Amounts due to banks
(105,448 )
Payables from securities financing transactions measured at
amortized cost
(21,615 )
Cash collateral payables on derivative instruments
(10,458 )
Customer deposits
Funding from UBS Group AG
Debt issued measured at amortized cost
(73 )
Other financial liabilities measured at amortized cost
(2,245 )
Total financial liabilities measured at amortized cost
(125,551 )
Financial liabilities at fair value held for trading
(2,046 )
Derivative financial instruments
(35,063 )
Brokerage payables designated at fair value
(1 )
Debt issued designated at fair value
Other financial liabilities designated at fair value
(3,167 )
Total financial liabilities measured at fair value through profit or loss
(40,263 )
Provisions
(21 )
Other non-financial liabilities
(33 )
Total liabilities
(165,868 )
Equity attributable to shareholders
(53,287 )
Equity attributable to non-controlling interests
Total equity
(53,287 )
Total liabilities and equity
(219,154 )
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 2022
|
Consolidated
financial
statements
|
UBS
AG
consolidated
financial
statements
488
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
Purchase of financial assets measured at fair value through other comprehensive income
(1,006 )
(4,795 )
(5,802 )
Disposal and redemption of financial assets measured at fair value through other comprehensive
income
Net (purchase) / redemption of debt securities measured at amortized cost
(807 )
(380 )
(415 )
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
of which: loans and advances to banks
of which: money market paper
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.
Annual Report 2022
|
Consolidated
financial
statements
|
UBS
AG
consolidated
financial
statements
489
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 2020
Interest income from financial instruments measured at amortized cost and
fair value through other comprehensive income
(818 )
Interest expense from financial instruments measured at amortized cost
(3,694 )
(513 )
(1,261 )
(4,333 )
Net interest income from financial instruments measured at fair value through
profit or loss and other
(273 )
Net interest income
Other net income from financial instruments measured at fair value through
profit or loss
Fee and commission income
(984 )
Fee and commission expense
(644 )
(829 )
(1,263 )
(1,775 )
Net fee and commission income
(23 )
Other income
(5,941 )
Total revenues
(5,803 )
Credit loss expense / (release)
Personnel expenses
General and administrative expenses
(2,481 )
Depreciation, amortization and impairment of non -financial assets
(115 )
Operating expenses
(2,596 )
Operating profit / (loss) before tax
(3,207 )
Tax expense / (benefit)
(107 )
Net profit / (loss)
(3,100 )
Net profit / (loss) attributable to non-controlling interests
Net profit / (loss) attributable to shareholders
(3,100 )
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 2020
Comprehensive income attributable to shareholders
Net profit / (loss)
(3,100 )
Other comprehensive income
Other comprehensive income that may be reclassified to the income
statement
Foreign currency translation, net of tax
(969 )
Financial assets measured at fair value through other
comprehensive income, net of tax
Cash flow hedges, net of tax
(18 )
Cost of hedging, net of tax
(13 )
(13 )
Total other comprehensive income that may be reclassified to the
income statement, net of tax
(988 )
Other comprehensive income that will not be reclassified to the
income statement
Defined benefit plans, net of tax
(67 )
(107 )
(134 )
Own credit on financial liabilities designated at fair value, net of tax
(293 )
(293 )
Total other comprehensive income that will not be reclassified to
the income statement, net of tax
(360 )
(107 )
(427 )
Total other comprehensive income
(988 )
Total comprehensive income attributable to shareholders
(4,088 )
Total comprehensive income attributable to non-controlling interests
Total comprehensive income
(4,088 )
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 2022
|
Consolidated
financial
statements
|
UBS
AG
consolidated
financial
statements
490
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 2020
Net cash flow from / (used in) operating activities
(14,883 )
Cash flow from / (used in) investing activities
Purchase of subsidiaries, associates and intangible assets
(3 )
(43 )
(46 )
Disposal of subsidiaries, associates and intangible assets
2
Purchase of property, equipment and software
(714 )
(162 )
(697 )
(1,573 )
Disposal of property, equipment and software
Purchase of financial assets measured at fair value through other comprehensive income
(77 )
(6,213 )
(6,290 )
Disposal and redemption of financial assets measured at fair value through other comprehensive
income
Net (purchase) / redemption of debt securities measured at amortized cost
(3,021 )
(1,277 )
(4,166 )
Net cash flow from / (used in) investing activities
(3,357 )
(33 )
(3,117 )
(6,506 )
Cash flow from / (used in) financing activities
Net short-term debt issued / (repaid)
Distributions paid on UBS AG shares
(3,848 )
(3,848 )
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
(86,204 )
(776 )
(118 )
(87,099 )
Net cash flows from other financing activities
(290 )
(263 )
(553 )
Net activity related to group internal capital transactions and dividends
(1,307 )
(1,677 )
Net cash flow from / (used in) financing activities
(1,009 )
(1,829 )
Total cash flow
Cash and cash equivalents at the beginning of the year
Net cash flow from / (used in) operating, investing and financing activities
(2,905 )
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
of which: loans and advances to banks
of which: money market paper
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 majority stake in Fondcenter 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 2022
|
Significant
regulated
subsidiary
and
sub
-
group
information
491
Significant regulated subsidiary
and sub-group information
Financial and regulatory key figures for our significant regulated
subsidiaries and sub-groups
UBS AG
(standalone)
UBS Switzerland AG
(standalone)
UBS Europe SE
(consolidated)
UBS Americas Holding
LLC
(consolidated)
All values in million, except where indicated
USD
CHF
EUR
USD
Financial and regulatory requirements
Swiss GAAP
Swiss SRB rules
Swiss GAAP
Swiss SRB rules
IFRS
EU regulatory rules
US GAAP
US Basel III rules
As of or for the year ended
31.12.22
31.12.21
31.12.22
31.12.21
31.12.22
31.12.21
31.12.22
31.12.21
Financial information
1
Income statement
Total operating income
2
16,293
8,760
8,490
1,158
1,123
13,575
14,490
Total operating expenses
9,712
5,458
5,472
794
800
12,351
11,925
Operating profit / (loss) before tax
6,581
3,302
3,018
364
323
1,224
2,565
Net profit / (loss)
6,548
2,707
2,452
262
227
511
1,812
Balance sheet
Total assets
509,851
315,657
320,656
47,978
46,411
201,777
209,718
Total liabilities
455,446
300,164
305,919
44,360
42,664
176,309
182,633
Total equity
54,405
15,493
14,736
3,617
3,747
25,468
27,085
Capital
3
Common equity tier 1 capital
2,441
2,764
11,367
13,002
Additional tier 1 capital
600
290
5,082
4,049
Total going concern capital / Tier 1 capital
3,041
3,054
16,449
17,051
Tier 2 capital
131
125
Total capital
3,041
3,054
16,580
17,176
Total gone concern loss-absorbing capacity
2,130
4
2,414
4
7,400
5
7,000
5
Total loss-absorbing capacity
5,171
5,468
23,849
24,051
Risk-weighted assets and leverage ratio denominator
3
Risk-weighted assets
10,726
12,328
70,739
72,979
Leverage ratio denominator
41,818
46,660
194,003
188,130
6
Supplementary leverage ratio denominator
214,709
212,167
Capital and leverage ratios (%)
3
Common equity tier 1 capital ratio
Going concern capital ratio / Tier 1 capital ratio
Total capital ratio
Total loss-absorbing capacity ratio
Tier 1 leverage ratio
Supplementary tier 1 leverage ratio
Going concern leverage ratio
Total loss-absorbing capacity leverage ratio
Gone concern capital coverage ratio
Liquidity coverage ratio
3
High-quality liquid assets (bn)
101.6
89.5
88.9
91.3
20.6
17.1
26.3
32.4
Net cash outflows (bn)
53.6
52.2
62.4
64.1
13.1
10.1
18.3
22.0
Liquidity coverage ratio (%)
191.2
7
173.2
142.4
8
142.6
158.7
170.3
143.5
147.2
Net stable funding ratio
3,9
Total available stable funding (bn)
254.4
258.0
221.7
225.2
13.9
15.4
Total required stable funding (bn)
280.2
289.2
162.3
158.1
7.9
9.0
Net stable funding ratio (%)
90.8
10
89.2
136.6
10
142.5
174.6
171.3
Other
Joint and several liability between UBS AG and UBS Switzerland AG (bn)
11
4
5
1 The financial information disclosed does not represent financial statements under the respective GAAP / IFRS. 2 The total operating income includes credit loss expense / (release). 3 Refer to the
31 December 2022 Pillar 3 Report, available under “Pillar 3 disclosures” at ubs.com/investors, for more information. 4 Consists of positions that meet the conditions laid down in Art. 72a–b of the Capital
Requirements Regulation (CRR) II with regard to contractual, structural or legal subordination. 5 Consists of eligible long-term debt that meets the conditions specified in 12 CFR 252.162 of the final TLAC
rules. Total loss -absorbing capacity is the sum of tier 1 capital (excluding minority interest) and eligible long -term debt. 6 The leverage ratio denominator as of 31 December 2021 has been aligned with UBS
Americas Holding LLC’s reported figure in the FR-Y9C report, which was filed with the Board of Governors of the Federal Reserve. 7 In the fourth quarter of 2022, the liquidity coverage ratio (the LCR) of
UBS AG was 191.2%, remaining above the prudential requirements communicated by FINMA. 8 In the fourth quarter of 2022, the LCR of UBS Switzerland AG, which is a Swiss SRB, was 142.4%, remaining
above the prudential requirement communicated by FINMA in connection with the Swiss Emergency Plan. 9 For UBS Americas Holding LLC consolidated, the NSFR requirement became effective as of 1 July
2021 and related disclosures will come into effect in the second quarter of 2023. 10 In accordance with Art. 17h para. 3 and 4 of the Liquidity Ordinance, UBS AG standalone is required to maintain a
minimum NSFR of at least 80% without taking into account excess funding of UBS Switzerland AG and 100% after taking into acco unt such excess funding. 11 Refer to the “Capital, liquidity and funding,
and balance sheet” section of this report for more information about the joint and several liability. Under certain circumstances, the Swiss Banking Act and FINMA’s Banking Insolvency Ordinance authorize
FINMA to modify, extinguish or convert to common equity liabilities of a bank in connection with a resolution or insolvency of such bank.
Annual Report 2022
|
Significant
regulated
subsidiary
and
sub
-
group
information
492
UBS Group AG is a holding company and conducts substantially all of its operations through UBS AG and subsidiaries
thereof. UBS Group AG and UBS AG have contributed a significant portion of their respective capital to, and provide
substantial liquidity to, such subsidiaries. Many of these subsidiaries are subject to regulations requiring compliance with
minimum capital, liquidity and similar requirements. The table in this section summarizes the regulatory capital
components and capital ratios of our significant regulated subsidiaries and sub-groups determined under the regulatory
framework of each subsidiary’s or sub -group’s home jurisdiction.
›
Refer to “Capital and capital ratios of our significant regulated subsidiaries” in the “Capital, liquidity and funding, and balance
sheet” section of this report for more information
›
Refer to “Note 22 Restricted and transferred financial assets” in the “Consolidated financial statements” section of this report for
more information
Supervisory authorities generally have discretion to impose higher requirements or to otherwise limit the activities of
subsidiaries. Supervisory authorities also may require entities to measure capital and leverage ratios on a stressed basis
and may limit the ability of an entity to engage in new activities or take capital actions based on the results of those tests.
Following the completion of the annual Dodd–Frank Act Stress Test (DFAST) and the Comprehensive Capital Analysis and
Review (CCAR), UBS Americas Holding LLC was assigned a stress capital buffer (an SCB) of 4.8% (previously 7.1%) under
the SCB rule as of 1 October 2022, resulting in a total common equity tier 1 capital requirement of 9.3%.
Standalone regulatory information for UBS AG and UBS Switzerland AG, as well as consolidated regulatory information
for UBS Europe SE and UBS Americas Holding LLC, is provided in the 3 1 December 2022 Pillar 3 Report, available under
“Pillar 3 disclosures”
at ubs.com/investors
.
Standalone financial statements for UBS Group AG, as well as standalone financial statements and regulatory information
for UBS AG and UBS Switzerland AG, are available under “Holding company and significant regulated subsidiaries and
sub-groups” at
ubs.com/investors.
Annual Report 2022 |
Additional
regulatory
information
493
Additional regulatory
information
Table of contents
494
494
494
494
494
495
495
495
496
496
496
498
500
500
501
501
501
502
502
502
502
502
503
503
503
504
504
504
506
508
508
509
509
509
Annual Report 2022 |
Additional
regulatory
information
|
UBS
Group
AG
consolidated
supplemental
disclosures
required
under
SEC
regulations
494
UBS Group AG consolidated supplemental disclosures
required under SEC regulations
A – Introduction
The following pages contain supplemental UBS Group AG disclosures that are required under SEC regulations. UBS Group
AG’s consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (IFRS) as issued by the International Accounting Standards Board (the IASB) and are denominated in US dollars
(USD), which is also the functional currency of: UBS Group AG; UBS AG’s Head Office; UBS AG London Branch; and
UBS’s US-based operations.
B – Selected financial data
Selected information
As of or for the year ended
31.12.22
31.12.21
31.12.20
Personnel (full-time equivalents)
Americas
of which: USA
Asia Pacific
Europe, Middle East and Africa (excluding Switzerland)
of which: UK
of which: rest of Europe (excluding Switzerland)
of which: Middle East and Africa
Switzerland
Registered ordinary shares (number)
1
Treasury shares (number)
1
Ordinary cash dividends declared per share (CHF)
2,3
Ordinary cash dividends declared per share (USD)
2,3
1 Refer to “UBS shares” in the “Capital, liquidity and funding, and balance sheet” section of this report for more information. 2 Dividends and / or distributions out of the capital contribution reserve are normally
approved and paid in the year subsequent to the reporting period. Beginning in 2020, dividends have been declared in US dollars. The Swiss franc equivalent amount for the 2022 dividend will be determined after
the Annual General Meeting using the exchange rate applicable on that date and is therefore not provided in this table. 3 Refer to “Statement of proposed appropriation of total profit and dividend distribution out
of total profit and capital contribution reserve” in the “Standalone financial statements” section of this report for more information.
Dividends received from investments in subsidiaries
In 2022, UBS Group AG received dividends of USD 4,373m (2021: USD 4,672m; 2020: USD 3,853m) from its subsidiaries.
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 2022 |
Additional
regulatory
information
|
UBS
Group
AG
consolidated
supplemental
disclosures
required
under
SEC
regulations
495
Balance sheet data
USD m
31.12.22
31.12.21
31.12.20
Assets
Cash and balances at central banks
Loans and advances to 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
53,264
26,209
27,194
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
11,596
13,101
11,050
Payables from securities financing transactions at amortized cost
4,202
5,533
6,321
Cash collateral payables on derivative instruments
36,436
31,798
37,312
Customer deposits
525,051
542,007
524,605
Debt issued measured at amortized cost
114,621
139,155
139,232
Other financial liabilities measured at amortized cost
9,575
9,001
9,729
Total financial liabilities measured at amortized cost
701,481
740,595
728,250
Financial liabilities at fair value held for trading
29,515
31,688
33,595
Derivative financial instruments
154,906
121,309
161,102
Brokerage payables designated at fair value
45,085
44,045
38,742
Debt issued designated at fair value
73,638
73,799
61,243
Other financial liabilities designated at fair value
30,237
30,074
30,387
Total financial liabilities measured at fair value through profit or loss
333,381
300,916
325,069
Provisions
3,243
3,518
2,828
Other non-financial liabilities
9,040
11,151
9,854
Total liabilities
1,047,146
1,056,180
1,066,000
Equity attributable to shareholders
56,876
60,662
59,445
Equity attributable to non-controlling interests
342
340
319
Total equity
57,218
61,002
59,765
Total liabilities and equity
1,104,364
1,117,182
1,125,765
C – Information about the company
Property, plant and equipment
As of 31 December 2022, UBS operated in about 677 business and banking locations worldwide, of which approximately
33% were in Switzerland , 48% in the Americas, 9% in the rest of Europe, the Middle East and Africa, and 10% in Asia
Pacific. Of the business and banking locations in Switzerland, 23% were owned directly by UBS, with the remainder,
along with most of UBS’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 2022 |
Additional
regulatory
information
|
UBS
Group
AG
consolidated
supplemental
disclosures
required
under
SEC
regulations
496
D – Information required by Subpart 1400 of Regulation S-K
Selected statistical information
The tables below set forth selected statistical information regarding the Group’s banking operations extracted from its
financial statements. Unless otherwise indicated, average balances for the years ended 31 December 2022, 31 December
2021 and 31 December 2020 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 2022, 2021 and 2020. Refer to “Note 3 Net interest income and other net income from financial instruments
measured at fair value through profit or loss” in the “Co nsolidated financial statements” section of this report for more
information about interest income and interest expense.
For the year ended
31.12.22
31.12.21
31.12.20
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
Loans and advances to 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. 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 2022 |
Additional
regulatory
information
|
UBS
Group
AG
consolidated
supplemental
disclosures
required
under
SEC
regulations
497
Average balances and interest rates (continued)
For the year ended
31.12.22
31.12.21
31.12.20
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
Amount 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
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 issued 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. 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 2022 (2021: 60%;
2020: 62%). The percentage of total average interest-bearing liabilities attributable to foreign activities was 60% for
2022 (2021: 59%; 2020: 61%). 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 2022 |
Additional
regulatory
information
|
UBS
Group
AG
consolidated
supplemental
disclosures
required
under
SEC
regulations
498
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
2022 compared with the year ended 31 December 2021, and for the year ended 31 December 2021 compared with the
year ended 31 December 2020. The change in average volume represents the change in the current average balance
compared to 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.
2022 compared with 2021
2021 compared with 2020
Increase / (decrease)
due to changes in
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
Loans and advances to 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
Annual Report 2022 |
Additional
regulatory
information
|
UBS
Group
AG
consolidated
supplemental
disclosures
required
under
SEC
regulations
499
Analysis of changes in interest income and expense (continued)
2022 compared with 2021
2021 compared with 2020
Increase / (decrease)
due to changes in
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
Amount 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
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 issued and other swaps
Interest expense on off-balance sheet securities and other
Total interest expense
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Group
AG
consolidated
supplemental
disclosures
required
under
SEC
regulations
500
Deposits
The table below analyzes average deposits and average rates on each deposit category for the years ended 31 December
2022, 2021 and 2020. For the purpose of this disclosure, foreign deposits represent deposits from depositors who are
based outside of Switzerland. Deposits by foreign deposi tors in domestic offices were USD 59,744m as of 31 December
2022 (31 December 2021 : USD 77,011m; 31 December 2020: USD 76,167m).
31.12.22
31.12.21
31.12.20
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
Interest-bearing deposits
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 2022, total estimated uninsured
deposits were USD 362bn (31 December 2021: USD 392bn; 31 December 2020: USD 380bn). Uninsured deposits are
deposits that are in excess of local deposit insurance or protection scheme limits in the key locations in which UBS
operates, calculated based on the respective local regulations, as well as deposits in uninsured accounts. The main deposit
insurance schemes applicable to UBS 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 456m per client) 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 2022. 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
93,030
3 to 6 months
10,962
6 to 12 months
7,563
Over 12 months
790
Total uninsured time deposits as of 31 December 2022
112,345
1 Amounts are estimated based on the methodologies defined in each local jurisdiction. As of 31 December 2022, there were no US time deposits subject to the FDIC scheme that were in excess of the FDIC insurance
limit.
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Group
AG
consolidated
supplemental
disclosures
required
under
SEC
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501
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
26
26
Corporate and other
2,093
119
2,213
Subtotal as of 31 December 2022
2,120
119
2,239
Debt securities measured at amortized cost
Asset-backed securities
117
1,588
6,735
8,440
Government bills / bonds
8,584
6,236
4,403
1,837
21,060
Corporate and other
2,005
9,662
3,410
16
15,094
Subtotal as of 31 December 2022
10,589
16,015
9,402
8,588
44,594
Total as of 31 December 2022
12,708
16,135
9,402
8,588
46,833
Loan portfolio
The table below provides the maturity profile of UBS’s core loan portfolio as of 31 December 2022. 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
31.12.22
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 2022, 2021 and 2020, 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’s
core loan portfolio, both on an overall basis and on an individual loan category basis. Total write-offs for 31 December
2022 were USD 95m (31 December 2021: USD 137m; 31 December 2020: USD 356m). 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.
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|
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AG
consolidated
supplemental
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required
under
SEC
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502
UBS AG consolidated supplemental disclosures
required under SEC regulations
A
–
The following pages contain supplemental UBS AG disclosures that are required under SEC regulations. UBS AG’s
consolidated financial statements have been prepared in accordance with International Financial Reporting Standards
(IFRS) as issued by the International Accounting Standards Board (the IASB) and are denominated in US dollars (USD),
which is also the functional currency of: UBS AG’s Head Office; UBS AG London Branch; and UBS AG’s US-based
operations.
B – Selected financial data
Selected information
As of or for the year ended
31.12.22
31.12.21
31.12.20
Personnel (full-time equivalents)
Americas
of which: USA
Asia Pacific
Europe, Middle East and Africa (excluding Switzerland)
of which: UK
of which: rest of Europe (excluding Switzerland)
of which: Middle East and Africa
Switzerland
Registered ordinary shares (number)
Treasury shares (number)
Dividends received from investments in subsidiaries and associates
In 2022, UBS AG received dividends of USD 6,465m (2021: USD 6,401m; 2020: USD 3,214m) 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.
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AG
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503
Balance sheet data
USD m
31.12.22
31.12.21
31.12.20
Assets
Cash and balances at central banks
Loans and advances to 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
53,389
26,236
27,219
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
527,171
544,834
527,929
Funding from UBS Group AG measured at amortized cost
Debt issued measured at amortized cost
Other financial liabilities measured at amortized cost
10,391
9,765
10,421
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 2022, UBS AG operated in about 663 business and banking locations worldwide, of which
approximately 33% were in Switzerland, 49% in the Americas, 9% in the rest of Europe, the Middle East and Africa,
and 9% 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 2022 |
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AG
consolidated
supplemental
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required
under
SEC
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504
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 2022, 31 December
2021 and 31 December 2020 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 2022, 2021 and 2020 . 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
31.12.22
31.12.21
31.12.20
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
Loans and advances to 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. 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 2022 |
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AG
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required
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505
Average balances and interest rates (continued)
For the year ended
31.12.22
31.12.21
31.12.20
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
Amount 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. 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 statemen ts” 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 2022 (2021: 60%;
2020: 62%). The percentage of total average interest-bearing liabilities attributable to foreign activities was 60% for
2022 (2021: 59%; 2020: 61%). 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 2022 |
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UBS
AG
consolidated
supplemental
disclosures
required
under
SEC
regulations
506
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
2022 compared with the year ended 31 December 2021, and for the year ended 31 December 2021 compared with the
year ended 31 December 2020. The change in average volume represents the change in the current average balance
compared to 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.
2022 compared with 2021
2021 compared with 2020
Increase / (decrease)
due to changes in
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
Loans and advances to 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
Annual Report 2022 |
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AG
consolidated
supplemental
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required
under
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507
Analysis of changes in interest income and expense (continued)
2022 compared with 2021
2021 compared with 2020
Increase / (decrease)
due to changes in
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
Amount 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
Annual Report 2022 |
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UBS
AG
consolidated
supplemental
disclosures
required
under
SEC
regulations
508
Deposits
The table below analyzes average deposits and average rates on each deposit category for the years ended 31 December
2022, 2021 and 2020. 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 59,897m as of 31 December
2022 (31 December 2021 : USD 77,070m; 31 December 2020 : USD 76,200m).
31.12.22
31.12.21
31.12.20
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
Interest-bearing deposits
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 deposi tor, 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 2022, total estimated uninsured
deposits were USD 365bn (31 December 2021: USD 395bn; 31 December 2020: USD 383bn). 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 456m per client) 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 2022. 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 2022
1 Amounts are estimated based on the methodologies defined in each local jurisdiction. As of 31 December 2022, there were no US time deposits subject to the FDIC scheme that were in excess of the FDIC insurance
limit.
Annual Report 2022 |
Additional
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UBS
AG
consolidated
supplemental
disclosures
required
under
SEC
regulations
509
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
26
26
Corporate and other
2,093
119
2,213
Subtotal as of 31 December 2022
2,120
119
2,239
Debt securities measured at amortized cost
Asset-backed securities
117
1,588
6,735
8,440
Government bills / bonds
8,584
6,236
4,403
1,837
21,060
Corporate and other
2,005
9,662
3,410
16
15,094
Subtotal as of 31 December 2022
10,589
16,015
9,402
8,588
44,594
Total as of 31 December 2022
12,708
16,135
9,402
8,588
46,833
Loan portfolio
The table below provides the maturity profile of UBS AG’s core loan portfolio as of 31 December 2022. 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
31.12.22
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 2022 , 2021 and 2020, 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 2022 were USD 95m (31 December 2021: USD 137m, 31 December 2020: USD 356m). 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 2022 |
Appendix
510
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. We report a number of APMs in the discussion of the financial and operating
performance of the Group, our business divisions and our Group Functions. We use APMs to provide a more complete
picture of our operating performance and to reflect management’s view of the fundamental drivers of our business
results. A definition of each APM, the method used to calculate it and the information content are presented in
alphabetical order in the table below. Our 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 2022 |
Appendix
511
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-generating asset margin (bps)
– Global Wealth Management
Calculated as revenues from fee-generating assets (a
portion of which is included in recurring fee income
and a portion of which is included in transaction-
based income, annualized as applicable) divided by
average fee-generating assets for the relevant
mandate fee billing period. For the US, fees have
been billed on daily balances since the fourth quarter
of 2020 and average fee-generating assets are
calculated as the average of the monthly average
balances. Prior to the fourth quarter of 2020, billing
was based on prior quarter-end balances, and the
average fee-generating assets were thus the prior
quarter-end balance. For balances outside of the US,
billing is based on prior month -end balances and
average fee-generating assets are thus the average of
the prior month-end balances.
This measure provides information about the revenues
from fee-generating assets in relation to their average
volume during the relevant mandate fee billing
period.
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.
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)
Calculated as the sum of investment funds (including
UBS Vitainvest third-pillar pension 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), 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 fee-generating assets (USD)
– Global Wealth Management
Calculated as the sum of 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 fee-generating asset
growth rate (%)
– Global Wealth Management
Calculated as the sum of the net amount of fee-
generating asset inflows and outflows recorded
during a specific period (annualized as applicable)
divided by total fee-generating assets at the
beginning of the period.
This measure provides information about the growth
of fee-generating assets during a specific period as a
result of net new fee-generating asset flows.
Net new investment products for
Personal Banking (USD and CHF)
– Personal Corporate Banking
Calculated as the sum of 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.
Annual Report 2022 |
Appendix
512
APM label
Calculation
Information content
Net new money (USD)
– Global Wealth Management,
Asset Management
Calculated as the sum of 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 the effects on invested assets
of strategic decisions by UBS to exit markets or
services. Net new money for Global Wealth
Management is disclosed on an annual basis. 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 and
excludes 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 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.
Pre-tax profit growth (%)
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.
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.
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.
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.
Annual Report 2022 |
Appendix
513
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
Cap
ital 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
CORC
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
DEI
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
environme
ntal 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
F
ederal 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 thr
ough 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
International Financial
Reporting 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 2022 |
Appendix
514
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
MA
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
PD
probability of default
PIT
point in time
PL
profit or loss
POCI
purchased or originated
credit-impaired
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 shar
eholder
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 t
o 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 2022 |
Appendix
515
Information sources
Reporting publications
Annual publications
Annual Report:
Published in English
,
this single
-
volume report provides descriptions of: our Group strategy and
performance; the strategy and performance of the business divisions and Group Functions; risk, treasury and capital
management; corporate governance, corporate responsibility and our compensation framework, including information
about compensation for the Board of Directors and the Group Executive Board members; and financial information,
including the financial statements.
“Auszug aus dem Geschäftsbericht
”: This publication provides a German translation of selected sections of our Annual
Report.
Compensation Report
: This report discusses our compensation framework and provides information about compensation
for the Board of Directors and the Group Executive Board members. It is available in English and German
(
“Vergütungsbericht
”) and represents a component of the Annual Report.
Sustainability Report
: Published in English, our Sustainability Report provides disclosures on environmental, social and
governance topics related to UBS Group.
Diversity, Equity and Inclusion Report
: This report details our DEI priority areas of focus, our strategic goals and our
approach to achieving them at UBS.
Quarterly publications
Quarterly financial report:
respective quarter. It is available in English.
The annual and quarterly publications are available in a fully digital and .pdf format at
ubs.com/investors
, under “Financial
information.” Starting with our Annual Report 2022, we no longer provide printed copies, in any language, of the
aforementioned annual publications.
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; our 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
Our 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
We file periodic reports and submit other information about UBS 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 combined UBS Group AG and
UBS AG Annual Report. However, there is a small amount of additional information in Form 20-F that is not presented
elsewhere and is particularly targeted at readers in the US. Readers are encouraged to refer to this additional disclosure.
Any document that we file with the SEC is available on the SEC’s website:
sec.gov
. Refer to
ubs.com/investors
information.
Annual Report 2022 |
Appendix
516
Cautionary Statement Regarding Forward -Looking Statements |
but 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. Wh ile 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. The Russia–Ukraine war has led to heightened volatility across
global markets, exacerbated global inflation, and slowed global growth. In addition, the war has caused significant population displacement, and if the conflict
continues or escalates, the scale of disruption will increase and continue to cause shortages of vital commodities, including energy shortages and food insecurity,
and may lead to recessions in OECD economies. The coordinated sanctions on Russia and Belarus, and Russian and Belarusian entities and nationals, and the
uncertainty as to whether the war will widen and intensify, may have significant adverse effects on the market and macroeconomic conditions, including in ways
that cannot be anticipated. 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 ongoing execution
of its strategic plans, including its cost reduction and efficiency initiatives and its ability to manage its levels of risk-weighted assets (RWA) and leverage ratio
denominator (LRD), liquidity coverage ratio and other financial resources, including changes in RWA assets and liabilities arising from higher market volatility;
(ii) the degree to which UBS is successful in implementing changes to its businesses to meet changing market, regulatory and other conditions; (iii) increased
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, 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, including the COVID -19 pandemic and the measures taken to manage it, which
have had and may also continue to have a significant adverse effect on global and regional economic activity, including disruptions to global supply chains and
labor market displacements; (v) changes in the availability of capital and funding, including any changes in UBS’s credit spreads and ratings, as well as availability
and cost of funding to meet requirements for debt eligible for total loss-absorbing capacity (TLAC); (vi) changes in central bank policies or the implementation of
financial legislation and regulation in Switzerland, the US, the UK, the European Union and other financial centers that have imposed, or resulted in, or may do
so in the future, more stringent or entity-specific capital, TLAC, leverage ratio, 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 Group in response to legal and regulatory requirements, or other external 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; (xi i) the liability to which UBS may be exposed, or possible constraints or sanctions that regulatory authorities
might impose on UBS, due to litigation, contractual claims and regulatory investigations, including the potential for disqualification from certain businesses,
potentially large fines or monetary penalties, or the loss of licenses or privileges as a result of regulatory or other governmental sanctions, as well as the effect
that litigation, regulatory and similar matters have on the operational risk component of our RWA, as well as the amount of capital available for return to
shareholders; (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 nation states; (xix) restrictions on the
ability of UBS Group AG to make payments or distributions, including due to restrictions on the ability of its subsidiaries to make loans or distributions, directly
or indirectly, or, in the case of financial difficulties, due to the exercise by FINMA or the regulators of UBS’s operations in other countries of their broad statutory
powers in relation to protective measures, restructuring and liquidation proceedings; (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 regulator y regimes; and (xxii) the effect that these
or other factors or unanticipated events may have on our reputation and the additional consequences that this may have on our business and performance. The
sequence in which the factors above are presented is not indicative of their likelihood of occurrence or the potential magnitude of their consequences. Our
business and financial performance could be affected by other factors identified in our past and future filings and reports, including those filed with the 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 UBS’s Annual Report on Form 20-F for the year ended 31 December 2022. 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.
UBS Group AG
P.O. Box, CH-8098 Zurich
UBS AG
P.O. Box, CH-8098 Zurich
P.O. Box, CH-4002 Basel
ubs.com
TABLE OF CONTENTS
Note 29 To Each Set Of Financial Statements (Note 29 ToNote 2B To Each Set Of Financial Statements (Note 1a, 7) To Each Set OfNote 1B To Each Set Of Financial Statements (Note 22 To Each SetNote 30 To Each Set Of Financial Statements (Item 4. Information on The CompanyItem 4. B.2. Geographic Breakdown Of Total RevenuesItem 10. Additional InformationItem 19. ExhibitsNote 1 Summary Of Material Accounting PoliciesNote 1 Summary Of Material Accounting Policies (continued)Item and Recognized in The Income Statement Along with The Change in The Fair Value Of The Hedging Instrument. TheNote 2A Segment ReportingNote 2A Segment Reporting (continued)Note 2B Segment Reporting By Geographic LocationNote 3 Net Interest Income and Other Net Income From Financial Instruments Measured At Fair Value Through Profit Or LossNote 3 Net Interest Income and Other Net Income From Financial Instruments Measured At Fair Value ThroughNote 4 Net Fee and Commission IncomeNote 5 Other IncomeNote 6 Personnel ExpensesNote 7 General and Administrative ExpensesNote 8 Income TaxesNote 8 Income Taxes (continued)Note 9 Financial Assets At Amortized Cost and Other Positions in Scope Of Expected Credit Loss MeasurementNote 10 Derivative InstrumentsNote 10 Derivative Instruments (continued)Note 11 Property, Equipment and SoftwareNote 12 Goodwill and Intangible AssetsNote 12 Goodwill and Intangible Assets (continued)Note 13 Other AssetsNote 13 Other Assets (continued)Note 14 Customer DepositsNote 15 Debt Issued Designated At Fair ValueNote 16 Debt Issued Measured At Amortized CostNote 17 Provisions and Contingent Liabilities A) Provisions The Table Below Presents An Overview Of Total ProvisionsNote 17 Provisions and Contingent LiabilitiesNote 17 Provisions and Contingent Liabilities (continued)Note 18 Other LiabilitiesNote 19 Expected Credit Loss MeasurementNote 19 Expected Credit Loss Measurement (continued)Note 20 Fair Value MeasurementNote 20 Fair Value Measurement (continued)Note 21 Offsetting Financial Assets and Financial LiabilitiesNote 21 Offsetting Financial Assets and Financial Liabilities (continued)Note 22 Restricted and Transferred Financial AssetsNote 22 Restricted and Transferred Financial Assets (continued)Note 23 Maturity Analysis Of Assets and LiabilitiesNote 23 Maturity Analysis Of Assets and Liabilities (continued)Note 24 Interest Rate Benchmark ReformNote 24 Interest Rate Benchmark Reform (continued)Note 25 Hedge AccountingNote 25 Hedge Accounting (continued)Note 26 Post-employment Benefit PlansNote 26 Post-employment Benefit Plans (continued)Note 27 Employee Benefits: Variable CompensationNote 27 Employee Benefits: Variable Compensation (continued)Note 28 Interests in Subsidiaries and Other EntitiesNote 28 Interests in Subsidiaries and Other Entities (continued)Note 29 Changes in Organization and Acquisitions and Disposals Of Subsidiaries and BusinessesNote 30 Related PartiesNote 30 Related Parties (continued)Note 31 Invested Assets and Net New MoneyNote 31 Invested Assets and Net New Money (continued)Note 32 Currency Translation RatesNote 33 Main Differences Between Ifrs and Swiss GaapNote 33 Main Differences Between Ifrs and Swiss Gaap (continued)Note 14 Customer Deposits, and Funding From Ubs Group AgNote 18 Other Liabilities A) Other Financial Liabilities Measured At Amortized CostNote 34 Supplemental Guarantor Information Required Under Sec RegulationsNote 34 Supplemental Guarantor Information Required Under Sec Regulations (continued)