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UBS AG – ‘20-F’ for 12/31/23

On:  Thursday, 3/28/24, at 7:10am ET   ·   For:  12/31/23   ·   Accession #:  1114446-24-1605   ·   File #:  1-15060

Previous ‘20-F’:  ‘20-F’ on 3/6/23 for 12/31/22   ·   Latest ‘20-F’:  This Filing   ·   3 References:   

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  As Of               Filer                 Filing    For·On·As Docs:Size

 3/28/24  UBS AG                            20-F       12/31/23  245:74M

Annual or Annual-Transition Report by a Foreign Non-Canadian Issuer   —   Form 20-F   —   SEA’34

Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 20-F        Annual or Annual-Transition Report by a Foreign     HTML  15.47M 
                Non-Canadian Issuer                                              
 7: EX-1        Exhibit 1.1                                         HTML    165K 
 8: EX-1        Exhibit 1.2                                         HTML    482K 
 9: EX-2        Plan of Acquisition, Reorganization, Arrangement,   HTML   6.77M 
                Liquidation or Succession                                        
10: EX-4        Instrument Defining the Rights of Security Holders  HTML    338K 
                -- exhibit43                                                     
11: EX-4        Instrument Defining the Rights of Security Holders  HTML    338K 
                -- exhibit44                                                     
13: EX-13       Annual or Quarterly Report to Security Holders      HTML     68K 
15: EX-97       Clawback Policy re: Recovery of Erroneously         HTML     60K 
                Awarded Compensation                                             
12: EX-12       Statement re: the Computation of Ratios             HTML     83K 
14: EX-15       Letter re: Unaudited Interim Financial Info         HTML     63K 
16: R1          Document and Entity Information                     HTML    131K 
17: R2          Consolidated Income Statement                       HTML    112K 
18: R3          Consolidated Statement of Comprehensive Income      HTML    169K 
19: R4          Consolidated Statement of Comprehensive Income      HTML     71K 
                (Parenthetical)                                                  
20: R5          Consolidated Balance Sheet                          HTML    167K 
21: R6          Consolidated Statement of Changes in Equity         HTML    112K 
22: R7          Consolidated Statement of Changes in Equity         HTML     73K 
                (Parenthetical)                                                  
23: R8          Share information and earnings per share            HTML     67K 
24: R9          Consolidated Statement of Cash Flows                HTML    168K 
25: R10         Consolidated Statement ot Cash Flows                HTML     69K 
                (Parenthetical)                                                  
26: R11         Changes in liabilities arising from financing       HTML    100K 
                activities                                                       
27: R12         Summary of material accounting policies - Material  HTML    468K 
                accounting policies                                              
28: R13         Summary of material accounting policies - Changes   HTML     77K 
                in accounting policies, comparability and                        
                adjustments                                                      
29: R14         Summary of material accounting policies - IFRS      HTML     65K 
                Accounting Standards and Interpretations to be                   
                adopted and other changes                                        
30: R15         Segment reporting                                   HTML    166K 
31: R16         Net interest income and other net income from fair  HTML     87K 
                value changes on financial instruments                           
32: R17         Net fee and commission income                       HTML     82K 
33: R18         Other income                                        HTML     80K 
34: R19         Personnel expenses                                  HTML     79K 
35: R20         General and administrative expenses                 HTML     75K 
36: R21         Income taxes                                        HTML    142K 
37: R22         Financial assets at amortized cost and other        HTML    387K 
                positions in scope of expected credit loss                       
                measurement                                                      
38: R23         Derivative instruments                              HTML    130K 
39: R24         Property, equipment and software                    HTML     89K 
40: R25         Goodwill and intangible assets                      HTML    128K 
41: R26         Other financial and non-financial assets            HTML     87K 
42: R27         Customer deposits                                   HTML     82K 
43: R28         Debt issued designated at fair value                HTML     71K 
44: R29         Debt issued held at amortized cost                  HTML     79K 
45: R30         Provisions                                          HTML     83K 
46: R31         Litigation, regulatory and similar matters          HTML    194K 
47: R32         Other financial and non-financial liabilities       HTML     82K 
48: R33         Expected credit loss measurement                    HTML    638K 
49: R34         Fair value measurement                              HTML    600K 
50: R35         Offsetting financial assets and financial           HTML    141K 
                liabilities                                                      
51: R36         Restricted financial assets                         HTML    102K 
52: R37         Transferred financial assets that are not           HTML     85K 
                derecognized in their entirety                                   
53: R38         Transferred financial assets that are derecognized  HTML     67K 
                in their entirety with continuing involvement                    
54: R39         Off-balance sheet assets received                   HTML     69K 
55: R40         Maturity analysis of financial liabilities          HTML    216K 
56: R41         Interest rate benchmark reform                      HTML     83K 
57: R42         Hedge accounting                                    HTML    161K 
58: R43         Post-employment benefit plans                       HTML    395K 
59: R44         Employee benefits: variable compensation            HTML    193K 
60: R45         Interests in subsidiaries                           HTML    107K 
61: R46         Interests in associates and joint ventures          HTML     78K 
62: R47         Interests in unconsolidated structured entities     HTML    137K 
63: R48         Changes in organization and acquisitions and        HTML     68K 
                disposals of subsidiaries and businesses                         
64: R49         Related parties                                     HTML    128K 
65: R50         Invested assets and net new money                   HTML     93K 
66: R51         Currency translation rates                          HTML     73K 
67: R52         Main differences between IFRS and Swiss GAAP        HTML    134K 
68: R53         Supplemental guarantor information required under   HTML    389K 
                SEC regulations                                                  
69: R54         MD&A - Risk management and control                  HTML    357K 
70: R55         MD&A - Capital management                           HTML     88K 
71: R56         Summary of material accounting policies (Policies)  HTML    474K 
72: R57         Segment reporting (Tables)                          HTML    133K 
73: R58         Net interest income and other income from fair      HTML     86K 
                value changes on financial instruments (Tables)                  
74: R59         Net fee and commission income (Tables)              HTML     82K 
75: R60         Other income (Tables)                               HTML     80K 
76: R61         Personnel expenses (Tables)                         HTML     77K 
77: R62         General and administrative expenses (Tables)        HTML     73K 
78: R63         Income taxes (Tables)                               HTML    113K 
79: R64         Financial assets at amortized cost and other        HTML    353K 
                positions in scope of expected credit loss                       
                measurement (Tables)                                             
80: R65         Derivative instruments (Tables)                     HTML    108K 
81: R66         Property, equipment and software (Tables)           HTML     89K 
82: R67         Goodwill and intangible assets (Tables)             HTML     93K 
83: R68         Other financial and non-financial assets (Tables)   HTML     77K 
84: R69         Customer deposits (Tables)                          HTML     75K 
85: R70         Debt issued designated at fair value (Table)        HTML     72K 
86: R71         Debt issued measured at amortized cost (Tables)     HTML     74K 
87: R72         Provisions and contingent liabilities (Tables)      HTML     94K 
88: R73         Other liabilities (Tables)                          HTML     83K 
89: R74         Expected credit loss measurement (Tables)           HTML    533K 
90: R75         Fair value measurement (Tables)                     HTML    384K 
91: R76         Offsetting financial assets and financial           HTML    135K 
                liabilities (Tables)                                             
92: R77         Restricted financial assets (Tables)                HTML     98K 
93: R78         Maturity analysis of assets and liabilities         HTML    202K 
                (Tables)                                                         
94: R79         Interest rate benchmark reform (Tables)             HTML     72K 
95: R80         Hedge accounting (Tables)                           HTML    126K 
96: R81         Post-employment benefit plans (Tables)              HTML    319K 
97: R82         Employee benefits: variable compensation (Tables)   HTML    155K 
98: R83         Interests in subsidiaries (Tables)                  HTML    144K 
99: R84         Related parties (Tables)                            HTML    111K 
100: R85         Invested assets and net new money (Tables)          HTML     77K  
101: R86         Currency translation rates (Tables)                 HTML     70K  
102: R87         Supplemental guarantor information required under   HTML    387K  
                SEC regulations (Tables)                                         
103: R88         MD&A - Risk management and control - Credit Risk    HTML     76K  
                (Tables)                                                         
104: R89         MD&A - Risk management and control - Market Risk    HTML    135K  
                (Tables)                                                         
105: R90         Share capital (Narrative) (Detail)                  HTML     78K  
106: R91         Reclassification of financial assets (Narrative)    HTML     70K  
                (Detail)                                                         
107: R92         Segment reporting (Detail)                          HTML    129K  
108: R93         Segment reporting by geographic location (Detail)   HTML     86K  
109: R94         Net interest income and other net income from fair  HTML    102K  
                value changes on financial instruments (Detail)                  
110: R95         Net fee and commission income (Detail)              HTML     98K  
111: R96         Other income (Detail)                               HTML    104K  
112: R97         Personnel expenses (Detail)                         HTML     91K  
113: R98         General and administrative expenses (Detail)        HTML     85K  
114: R99         Income taxes (Narrative) (Detail)                   HTML     78K  
115: R100        Income taxes (Detail 1)                             HTML     74K  
116: R101        Income taxes (Detail 2)                             HTML    102K  
117: R102        Income taxes - DTA (Detail 3.1)                     HTML     95K  
118: R103        Income taxes - DTL (Detail 3.2)                     HTML     63K  
119: R104        Income taxes (Detail 4)                             HTML     81K  
120: R105        Financial assets at amortized cost and other        HTML    348K  
                positions in scope of expected credit loss                       
                measurement - On-balance sheet financial assets                  
                subject to ECL (Detail)                                          
121: R106        Financial assets at amortized cost and other        HTML    215K  
                positions in scope of expected credit loss                       
                measurement - Off-balance sheet financial assets                 
                subject to ECL (Detail)                                          
122: R107        Financial assets at amortized cost and other        HTML     76K  
                positions in scope of expected credit loss                       
                measurement - Coverage ratios (Narrative) (Detail)               
123: R108        Financial assets at amortized cost and other        HTML    338K  
                positions in scope of expected credit loss                       
                measurement - Coverage ratios (Detail 1)                         
124: R109        Financial assets at amortized cost and other        HTML    185K  
                positions in scope of expected credit loss                       
                measurement - Coverage ratios (Detail 2)                         
125: R110        Derivative instruments (Narrative) (Detail)         HTML     73K  
126: R111        Derivative instruments (Detail)                     HTML    130K  
127: R112        Financial assets measured at fair value through     HTML     63K  
                OCI (Detail)                                                     
128: R113        Property, equipment and software (Detail)           HTML    121K  
129: R114        Goodwill and intangible assets (Narrative)          HTML     77K  
                (Detail)                                                         
130: R115        Goodwill and intangible assets (Detail 1)           HTML     76K  
131: R116        Goodwill and intangible assets (Detail 2)           HTML    116K  
132: R117        Goodwill and intangible assets (Detail 3)           HTML     76K  
133: R118        Other financial assets measured at amortized cost   HTML     86K  
                (Detail)                                                         
134: R119        Other non-financial assets (Detail)                 HTML     74K  
135: R120        Customer deposits (Detail)                          HTML     70K  
136: R121        Funding from Group and other subsidiaries (Detail)  HTML     76K  
137: R122        Debt issued designated at fair value (Detail 1)     HTML     78K  
138: R123        Debt issued measured at amortized cost (Detail 1)   HTML     82K  
139: R124        Debt issued measured at amortized cost (Narrative)  HTML     63K  
                (Detail)                                                         
140: R125        Provisions (Detail)                                 HTML     66K  
141: R126        Provisions - additional information (Detail)        HTML     92K  
142: R127        Litigation, regulatory and similar matters          HTML     97K  
                (Detail)                                                         
143: R128        Litigation, regulatory and similar matters          HTML     97K  
                (Narrative) (Detail)                                             
144: R129        Other financial liabilities measured at amortized   HTML     72K  
                cost (Detail)                                                    
145: R130        Other financial liabilities designated at fair      HTML     70K  
                value (Detail)                                                   
146: R131        Other non-financial liabilities (Detail)            HTML     82K  
147: R132        Expected credit loss measurement - ECL in the       HTML     82K  
                period (Narrative) (Detail)                                      
148: R133        Expected credit loss measurement - Credit loss      HTML     96K  
                expense / (Release) (Detail)                                     
149: R134        Expected credit loss measurement - Changes to ECL   HTML    109K  
                models, scenarios, scenario weights and key inputs               
                (Narrative) (Detail)                                             
150: R135        Expected credit loss measurement - Economic         HTML     72K  
                scenarios and weights applied (Detail)                           
151: R136        Expected credit loss measurement - Scenario         HTML    303K  
                assumptions (Detail)                                             
152: R137        Expected credit loss measurement - Development of   HTML    258K  
                ECL allowances and provisions (Detail)                           
153: R138        Expected credit loss measurement - Development of   HTML    157K  
                ECL allowances and provisions (Narrative) (Detail)               
154: R139        Expected credit loss measurement - ECL stage 2      HTML    127K  
                allowances / provisions - classification by                      
                trigger (Detail)                                                 
155: R140        Expected credit loss measurement - Maximum          HTML    147K  
                exposure to credit risk (Detail)                                 
156: R141        Expected credit loss measurement - Financial        HTML    350K  
                assets subject to credit risk by rating category                 
                (Detail)                                                         
157: R142        Expected credit loss measurement - Off balance      HTML    278K  
                sheet positions subject to expected credit loss by               
                rating category (Detail)                                         
158: R143        Expected credit loss measurement - Sensitivity      HTML     75K  
                analysis (Narrative) (Detail)                                    
159: R144        Expected credit loss measurement - Potential        HTML    168K  
                effect on stage 1 and stage 2 positions from                     
                changing key parameters (Detail)                                 
160: R145        Expected credit loss measurement - Potential        HTML    133K  
                effect on stage 1 and stage 2 positions from                     
                changing scenario weights or moving to an ECL                    
                lifetime calculation (Detail)                                    
161: R146        Fair value measurement (Narrative) (Detail)         HTML     64K  
162: R147        FVM - Fair value hierarchy - Assets (Detail)        HTML    187K  
163: R148        FVM - Fair value hierarchy - Liabilities (Detail)   HTML    166K  
164: R149        FVM - Valuation adjustment reserves on the balance  HTML     66K  
                sheet (Detail)                                                   
165: R150        FVM - Valuation adjustments: Deferred day-1 P&L     HTML     73K  
                (Detail)                                                         
166: R151        FVM - Valuation adjustments: Own credit             HTML     77K  
                adjustments on financial liabilities designated at               
                fair value (Detail)                                              
167: R152        FVM - Valuation adjustments: Valuation adjustments  HTML     70K  
                on financial instruments (Detail)                                
168: R153        FVM - Level 3 instruments: Valuation techniques     HTML    152K  
                and inputs (Detail)                                              
169: R154        FVM - Level 3 instruments: Sensitivity to changes   HTML     94K  
                in unobservable input assumptions (Detail)                       
170: R155        FVM - Movements of level 3 instruments - Assets     HTML    157K  
                (Detail)                                                         
171: R156        FVM - Movements of level 3 instruments -            HTML    120K  
                Liabilities (Detail)                                             
172: R157        Maximum exposure to credit risk - assets at fair    HTML    103K  
                value (Detail)                                                   
173: R158        FVM - Financial instruments not measured at fair    HTML     93K  
                value - Assets (Detail)                                          
174: R159        FVM - Financial instruments not measured at fair    HTML     96K  
                value - Liabilities (Detail)                                     
175: R160        Offsetting financial assets (Detail)                HTML    122K  
176: R161        Offsetting financial liabilities (Detail)           HTML    123K  
177: R162        Restricted financial assets (Detail)                HTML    103K  
178: R163        Restricted financial assets (Narrative) (Detail)    HTML     67K  
179: R164        Transferred financial assets that are not           HTML     75K  
                derecognized in their entirety (Detail)                          
180: R165        Transferred financial assets that are not           HTML     65K  
                derecognized in their entirety (Narrative)                       
                (Detail)                                                         
181: R166        Off-balance sheet assets received (Detail)          HTML     67K  
182: R167        Maturity analysis of assets and liabilities         HTML    193K  
                (Detail]                                                         
183: R168        Maturity analysis of financial liabilities          HTML    164K  
                (Detail)                                                         
184: R169        Interest rate benchmark reform (Narrative)          HTML     64K  
                (Detail)                                                         
185: R170        Interest rate benchmark reform (Detail)             HTML     78K  
186: R171        Hedge accounting (Detail 1)                         HTML     89K  
187: R172        Hedge accounting (Detail 2)                         HTML     95K  
188: R173        Hedge accounting (Detail 3)                         HTML     84K  
189: R174        Hedge accounting (Detail 4)                         HTML     68K  
190: R175        Hedge accounting (Detail 5)                         HTML     68K  
191: R176        Hedge accounting (Detail 6)                         HTML     76K  
192: R177        Post-employment benefit plans (Narrative) (Detail)  HTML    130K  
193: R178        Defined benefit plans (Detail 4.1)                  HTML    173K  
194: R179        Defined benefit plans (Detail 4.2)                  HTML     80K  
195: R180        Defined benefit plans (Detail 4.3)                  HTML     83K  
196: R181        Defined benefit plans (Detail 5.1)                  HTML     98K  
197: R182        Defined benefit plans (Detail 5.2)                  HTML    125K  
198: R183        Defined benefit plans (Detail 6)                    HTML     88K  
199: R184        Defined benefit plans (Detail 7)                    HTML     77K  
200: R185        Defined benefit plans (Detail 8)                    HTML     84K  
201: R186        Defined benefit plans (Detail 9)                    HTML     93K  
202: R187        Defined benefit plans (Detail 10)                   HTML    254K  
203: R188        Defined benefit plans (Detail 11)                   HTML     79K  
204: R189        Defined contribution plans (Narrative) (Detail)     HTML     63K  
205: R190        Related party disclosure (Narrative) (Detail)       HTML     65K  
206: R191        Employee benefits: variable compensation            HTML     64K  
                (Narrative) (Detail 1)                                           
207: R192        Employee benefits: variable compensation            HTML     67K  
                (Narrative) (Detail 2)                                           
208: R193        Employee benefits: variable compensation - Effect   HTML    166K  
                on income statement (Detail)                                     
209: R194        Employee benefits: variable compensation -          HTML     81K  
                Movements (Detail)                                               
210: R195        Interests in subsidiaries (Detail 1)                HTML    109K  
211: R196        Interests in subsidiaries (Detail 2)                HTML    150K  
212: R197        Interests in associates and joint ventures          HTML    105K  
                (Detail)                                                         
213: R198        Interests in unconsolidated structured entities     HTML     75K  
                (Narrative) (Detail)                                             
214: R199        Interests in unconsolidated structured entities     HTML    140K  
                (Detail 1)                                                       
215: R200        Changes in organization and acquisitions and        HTML     70K  
                disposals of subsidiaries and businesses                         
                (Narrative) (Detail)                                             
216: R201        Related parties (Narrative) (Detail)                HTML     65K  
217: R202        Related parties (Detail 1)                          HTML     78K  
218: R203        Related parties (Detail 2)                          HTML     62K  
219: R204        Related parties (Detail 3)                          HTML     62K  
220: R205        Related parties (Detail 4)                          HTML     81K  
221: R206        Related parties (Detail 5)                          HTML     87K  
222: R207        Invested assets and net new money (Detail 1)        HTML     77K  
223: R208        Invested assets and net new money (Detail 2)        HTML     72K  
224: R209        Currency translation rates (Detail)                 HTML     74K  
225: R210        Main differences between IFRS and Swiss GAAP        HTML     63K  
                (Narrative) (Detail)                                             
226: R211        Supplemental guarantor information (Narrative)      HTML     64K  
                (Detail)                                                         
227: R212        Supplemental guarantor consolidated income          HTML    153K  
                statement (Detail)                                               
228: R213        Supplemental guarantor consolidated statement of    HTML    135K  
                comprehensive income (Detail)                                    
229: R214        Supplemental guarantor consolidated balance sheet   HTML    243K  
                (Detail)                                                         
230: R215        Supplemental guarantor consolidated statement of    HTML    154K  
                cash flows (Detail)                                              
231: R216        MD&A - Risk management and control - Credit Risk    HTML     68K  
                (Narrative) (Detail)                                             
232: R217        MD&A - Risk management and control - Credit Risk    HTML     76K  
                (Detail)                                                         
233: R218        MD&A - Risk management and control - Market Risk    HTML    102K  
                (Narrative) (Detail)                                             
234: R219        MD&A - Risk management and control - Market Risk    HTML    165K  
                (Detail 1)                                                       
235: R220        MD&A - Risk management and control - Market Risk    HTML    132K  
                (Detail 2)                                                       
236: R221        MD&A - Capital management (Narrative) (Detail)      HTML     90K  
237: R222        MD&A - Capital management (Detail 1)                HTML     96K  
238: R223        MD&A - Capital management (Detail 2)                HTML     96K  
239: R224        MD&A - UBS shares (Narrative) (Detail)              HTML     67K  
240: R9999       Uncategorized Items - ubs-20231231.htm              HTML     62K  
242: XML         IDEA XML File -- Filing Summary                      XML    487K  
245: XML         XBRL Instance -- ubs-20231231_htm                    XML  22.83M  
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‘20-F’   —   Annual or Annual-Transition Report by a Foreign Non-Canadian Issuer

Document Table of Contents

Page (sequential)   (alphabetic) ↑Top
 
11st Page  –  Filing Submission
"Our key figures
"Integration of Credit Suisse
"Our businesses
"Our environment
"Regulation and supervision
"Regulatory and legal developments
"Risk factors
"Accounting and financial reporting
"UBS AG consolidated performance
"Global Wealth Management
"Personal & Corporate Banking
"Asset Management
"Investment Bank
"Non-core and Legacy
"Group Items
"Risk management and control
"Overview of risks arising from our business activities
"Risk categories
"Top and emerging risks
"Risk governance
"Risk appetite framework
"Internal risk reporting
"Model risk management
"Risk measurement
"Credit risk
"Market risk
"Country risk
"Sustainability and climate risk
"Non-financial risk
"Capital, liquidity and funding, and balance sheet
"Capital management
"Capital management objectives, planning and activities
"Swiss SRB total loss-absorbing capacity framework
"Total loss-absorbing capacity
"Risk-weighted assets
"Leverage ratio denominator
"Liquidity and funding management
"Strategy, objectives and governance
"Liquidity and funding stress testing
"Funding management
"Liquidity coverage ratio
"Too -big-to-fail liquidity requirements
"Net stable funding ratio
"Balance sheet and off-balance sheet
"Balance sheet
"Off-balance sheet
"Cash flows
"Currency management
"Corporate governance
"Operational structure
"Share capital structure
"Shareholders' participation rights
"Board of Directors
"Executive Board
"Change of control and defense measures
"Auditors
"Information policy
"Management's report on internal control over financial
"Reporting
"Report of independent registered public accounting firm on
"Internal Control Over Financial Reporting
"The Financial Statements
"UBS AG consolidated financial statements
"Primary financial statements
"Income statement
"Statement of comprehensive income
"Statement of changes in equity
"Share information and earnings per share
"Statement of cash flows
"Notes to the UBS AG consolidated financial statements
"Summary of material accounting policies
"Material accounting policies
"Basis of accounting
"Consolidation
"Financial instruments
"Recognition
"Classification, measurement and presentation
"Loan commitments and financial guarantees
"Interest income and expense
"Derecognition
"Fair value of financial instruments
"Allowances and provisions for expected credit
"Losses
"Restructured and modified financial assets
"Offsetting
"Hedge accounting
"Fee and commission income and expenses
"Share-based and other deferred compensation plans
"Post-employment benefit plans
"Income taxes
"Investments in associates
"Property, equipment and software
"Goodwill
"Provisions and contingent liabilities
"Foreign currency translation
"Changes in accounting policies, comparability
"And Other Adjustments
"IFRS Accounting Standards and Interpretations
"To Be Adopted in 2024 and Later and Other
"Changes
"Segment reporting
"Segment reporting by geographic location
"Income statement notes
"Net interest income and other net income from
"Financial Instruments Measured at Fair Value Through
"Profit or Loss
"Net fee and commission income
"Other income
"Personnel expenses
"General and administrative expenses
"Balance sheet notes
"Financial assets at amortized cost and other
"Positions in Scope of Expected Credit Loss
"Measurement
"Derivative instruments
"Goodwill and intangible assets
"Other assets
"Customer deposits, and funding from UBS Group
"Debt issued designated at fair value
"Debt issued measured at amortized cost
"Other liabilities
"Additional information
"Expected credit loss measurement
"Fair value measurement
"Offsetting financial assets and financial liabilities
"Restricted and transferred financial assets
"Maturity analysis of assets and liabilities
"Interest rate benchmark reform
"Employee benefits: variable compensation
"Interests in subsidiaries and other entities
"Changes in organization and acquisitions and
"Disposals of Subsidiaries and Businesses
"Related parties
"Invested assets and net new money
"Currency translation rates
"Main differences between IFRS Accounting
"Standards and Swiss GAAP
"Supplemental guarantor information required
"Under SEC regulations
"UBS AG consolidated supplemental disclosures
"Required under SEC regulations
"A -- Introduction
"B -- Selected financial data
"Selected Information
"Dividends received from investments in subsidiaries and
"Associates
"Balance sheet data
"C -- Information about the company
"Property, plant and equipment
"D -- Information required by Subpart 1400 of
"Regulation S-K
"Selected statistical information
"Average balances and interest rates
"Analysis of changes in interest income and expense
"Deposits
"Uninsured deposits
"Investments in debt instruments
"Loan portfolio
"Allowance for credit loss
"Alternative performance measures
"Abbreviations frequently used in our financial reports
"Information sources
"Cautionary statement

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Annual Report 2023
 
1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C. 20549
 
FORM
 i 20-F
 
(Mark One)
 
 
 
 
☐
 
REGISTRATION
 
STATEMENT
 
PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
 
 
 
 
☑
 
 i ANNUAL REPORT
 
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended
OR
 
 
 
 
☐
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
OR
 
 
 
 
☐
 
SHELL COMPANY REPORT
 
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 i UBS AG
 
Commission file number:
 i 1-15060
 
 
(Exact name of registrant as specified in its charter)
 i Switzerland
(Jurisdiction of Incorporation or Organization)
 i Bahnhofstrasse 45
,
 i CH-8001
 i Zurich
,
 i Switzerland
 
and
 i Aeschenvorstadt 1
,
 i CH-4051
 i Basel
,
 i Switzerland
(Address of Principal Executive Offices)
UBS AG meets the conditions set forth in General Instruction (I)(1)(a)
 
and (b) of Form 10-K, as applied to annual
reports on Form 20-F,
 
and is therefore filing this Form 20-
F
with the reduced disclosure format.
 i David Kelly
 i 600 Washington Boulevard
,
 i CT
 
 i 06901
Telephone: (
 i 203
)
 i 719 3000
(Name, Telephone,
 
E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of
 
the Act:
Please see page 3.
Securities registered or to be registered pursuant to Section 12(g) of
 
the Act:
Please see page 3.
Securities for which there is a reporting obligation pursuant to Section 15(d)
 
of the Act:
Please see page 3.
 
Annual Report 2023
 
2
Indicate the number of outstanding shares of each of the issuer’s classes of capital
 
or common stock as of 31 December 2023:
 
UBS AG
Ordinary shares, par value USD 0.10 per share:
 
 i 3,858,408,466
 
ordinary shares
(none of which are treasury shares)
Indicate by check mark if the registrant is a well-known seasoned issuer,
 
as defined in Rule 405 of the Securities Act.
 
Yes
☐
 
 i No
☑
If this report is an annual or transition report, indicate by check mark if the registrant is not required
 
to file reports pursuant to
 
Section 13 or 15(d) of the Securities Exchange Act of 1934.
 
Yes
☐
 
 
 i No
☑
Note — Checking the box above will not relieve any registrant required to
 
file reports pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 from their obligations under those
 
Sections.
 
Indicate by check mark whether the registrant (1) has filed all reports required
 
to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
 
(or for such shorter period that the registrant was required to
file such reports) and (2) has been subject to such filing requirements for
 
the past 90 days.
 
 i Yes
☑
 
 
No
☐
Indicate by check mark whether the registrant has submitted electronically
 
every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during
 
the preceding 12 months (or for such shorter period
that the registrant was required to submit such files).
 i Yes
☑
 
 
No
☐
Indicate by check mark whether the registrant is a large accelerated filer,
 
an accelerated filer, a non-accelerated filer
 
or an
emerging growth company.
 
See the definitions of “large accelerated filer”, “accelerated filer” and
 
“emerging growth company”
in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
 
Accelerated filer
☐
 
 i Non-accelerated filer
☑
 i Emerging growth company
☐
If an emerging growth company that prepares its financial statements
 
in accordance with U.S. GAAP,
 
indicate by check mark
if the registrant has elected not to use the extended transition period for
 
complying with any new or revised financial
accounting standards† provided pursuant to Section 13(a) of the Exchange
 
Act.
☐
† The term “new or revised financial accounting standard” refers to any update
 
issued by the Financial Accounting Standards
Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and
 
attestation to its management’s assessment of
 
the
effectiveness of its internal control over financial reporting under
 
Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.
7262(b)) by the registered public accounting firm that prepared
 
or issued its audit report.
☑
If securities are registered pursuant to Section 12(b) of the Act, indicate by check
 
mark whether the financial statements of the
 
registrant included in the filing reflect the correction of an error to previously
 
issued financial statements.
☐
Indicate by check mark whether any of those error corrections are restatements
 
that required a recovery analysis of incentive-
based compensation received by any of the registrant’s
 
executive officers during the relevant recovery period pursuant
 
to
§240.10D-1(b).
☐
Indicate by check mark which basis of accounting the registrant has used
 
to prepare the financial statements included in this
filing.
 
U.S. GAAP
☐
 
 
 i International Financial Reporting Standards
 
as issued by the International Accounting
Standards Board
 
☑
 
Other
☐
 
Annual Report 2023
 
3
If “Other” has been checked in response to the previous question, indicate by
 
check mark which financial statement item the
registrant has elected to follow.
 
Item 17
☐
 
 
Item 18
☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined
 
in Rule 12b-2 of the
Exchange Act)
 
Yes
☐
 
 
 i No
☑
 
 
Securities registered or to be registered
 
pursuant to Section 12(b) of the Act:
Title of each class
Trading
symbol(s)
Name of each
exchange on
which registered
ETRACS Alerian Midstream Energy Index ETN due June 21, 2050
AMNA
NYSE Arca
ETRACS Alerian Midstream Energy High Dividend Index
 
ETN due July 19, 2050
AMND
NYSE Arca
ETRACS Alerian Midstream Energy Total
 
Return Index ETN due October 20, 2050
AMTR
NYSE Arca
ETRACS Alerian MLP Index ETN Series B due July 18, 2042
AMUB
NYSE Arca
ETRACS Quarterly Pay 1.5x Leveraged MarketVector
 
BDC Liquid Index ETN due June 10,
2050
BDCX
NYSE Arca
ETRACS MarketVector
 
Business Development Companies Liquid Index ETN due April 26,
2041
BDCZ
NYSE Arca
ETRACS Monthly Pay 1.5x Leveraged Closed-End Fund Index
 
ETN due June 10, 2050
CEFD
NYSE Arca
ETRACS Bloomberg Commodity Index Total
 
Return Series B due October 31, 2039
DJCB
NYSE Arca
ETRACS 2x Leveraged MSCI USA ESG Focus TR ETN due September 15,
 
2061
ESUS
NYSE Arca
UBS AG FI Enhanced Large Cap Growth ETN due
 
June 19, 2024
FBGX
NYSE Arca
ETRACS 2x Leveraged IFED Invest with the Fed TR Index ETN due September
 
15, 2061
FEDL
NYSE Arca
ETRACS Monthly Pay 2xLeveraged US High Dividend Low Volatility
 
ETN Series B due
October 21, 2049
HDLB
NYSE Arca
ETRACS IFED Invest with the Fed TR Index ETN due September 15,
 
2061
IFED
NYSE Arca
ETRACS 2x Leveraged US Value
 
Factor TR ETN due February 9, 2051
IWDL
NYSE Arca
ETRACS 2x Leveraged US Growth Factor TR ETN due February 9, 2051
IWFL
NYSE Arca
ETRACS 2x Leveraged US Size Factor TR ETN due February 9, 2051
IWML
NYSE Arca
E-TRACS Alerian MLP Infrastructure Index Series B due April 2, 2040
MLPB
NYSE Arca
ETRACS Quarterly Pay 1.5x Leveraged Alerian MLP Index ETN due
 
June 10, 2050
MLPR
NYSE Arca
ETRACS 2x Leveraged MSCI US Momentum Factor TR ETN due
 
February 9, 2051
MTUL
NYSE Arca
ETRACS Monthly Pay 1.5x Leveraged Mortgage REIT ETN due June 10, 2050
MVRL
NYSE Arca
ETRACS Monthly Pay 2xLeveraged Preferred Stock ETN due September
 
25, 2048
PFFL
NYSE Arca
ETRACS 2x Leveraged MSCI US Quality Factor TR ETN due February
 
9, 2051
QULL
NYSE Arca
ETRACS 2x Leveraged US Dividend Factor TR ETN due February 9, 2051
SCDL
NYSE Arca
ETRACS Monthly Pay 2xLeveraged US Small Cap High Dividend
 
ETN Series B due
November 10, 2048
SMHB
NYSE Arca
ETRACS CMCI Total Return
 
ETN Series B due April 5, 2038
UCIB
NYSE Arca
ETRACS 2x Leveraged MSCI US Minimum Volatility
 
Factor TR ETN due February 9, 2051
USML
NYSE Arca
ETRACS Whitney US Critical Technologies
 
ETN due March 13, 2053
WUCT
NYSE Arca
Securities registered or to be registered
 
pursuant to Section 12(g) of the Act:
 
None
Securities for which there is a reporting obligation
 
pursuant to Section 15(d) of the Act:
 
None
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023
 
4
Cautionary Statement:
Refer to the
Cautionary Statement Regarding Forward
 
-Looking Statements
 
section in the Annual
Report 2023 (page 266).
Cross-reference table
Set forth below are the respective items of SEC Form 20-F,
 
and the locations in this document where the corresponding
information can be found.
 
●
Annual Report
 
refers to the Annual Report 2023 of UBS AG annexed hereto, which
 
forms an integral part hereof.
 
●
Supplement
refers to certain supplemental information contained in this forepart of
 
the Form 20-F,
 
starting on page 9
following the cross-reference table.
 
●
Financial Statements
refers to the consolidated financial statements of UBS AG, contained in the Annual
 
Report.
In the cross-reference table below,
 
page numbers refer either to the Annual Report or the Supplement, as noted.
Please see page 3 of the Annual Report for definitions of terms used in this Form
 
20-F relating to UBS.
Form 20-F item
 
Response or location in this filing
Item 1
.
 
Identity of Directors,
Senior Management and
Advisors.
Not applicable.
Item 2
.
 
Offer Statistics and
Expected Timetable.
Not applicable.
Item 3.
 
Key Information
B – Capitalization and
Indebtedness.
Not applicable.
C – Reasons for the Offer and
Use of Proceeds.
Not applicable.
D – Risk Factors.
Annual Report,
 
Risk factors
(23-35).
Item 4
.
 
Information on the Company.
A
– History and Development
Not required under the reduced disclosure format.
B – Business Overview.
Annual Report,
Our businesses
 
(5-11).
C – Organizational Structure.
Not required under the reduced disclosure format.
D – Property, Plant and
Equipment.
Annual Report,
Property, plant and
 
equipment
(252)
Information required by SEC
Regulation S-K Part 1400
Annual Report,
Information required
 
by Subpart 1400 of Regulation S-K
(253-258),
Loss
history statistics
(76-77), and Note 9 to the Financial Statements (
Financial assets at
amortized cost and other positions in scope of expected credit
 
loss measurement)
 
(165-
168).
Item 4A
.
 
Unresolved Staff
Comments.
None.
Item 5
.
 
Operating and Financial Review and Prospects.
A
– Operating Results.
Annual Report,
Financial and operating performance
 
(36-49), Note 1 to the Financial
Statements (
Summary of material accounting policies
) (140-156).
B – Liquidity and Capital
Resources.
Not required under the reduced disclosure format.
C—Research and Development,
Patents and Licenses, etc.
Not required under the reduced disclosure format.
D—Trend Information.
 
Not required under the reduced disclosure format.
E—Critical Accounting
Estimates
Not applicable.
Item 6.
 
Directors, Senior Management and Employees.
A
– Directors and Senior
Management.
Not required under the reduced disclosure format.
B – Compensation.
Not required under the reduced disclosure format.
C – Board practices.
1: Annual Report,
Board of Directors
(117-119).
 
The term of office for members of the
Board of Directors and its Chairman expires after completion of the next Annual
 
General
Meeting. The next UBS AG Annual General Meeting is scheduled on 23 April
 
2024.
2: Annual Report,
Clauses on change of control
 
(120), and Note 30 to the Financial
Statements (
Related parties
) (235-237).
3: Annual Report,
Members of the Board of Directors
 
(117-119),
Audit Committee
 
(118),
Compensation Committee
(118), and
Auditors
 
(121-122).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023
 
5
D—Employees.
 
Not required under the reduced disclosure format.
E—Share Ownership.
Not required under the reduced disclosure format.
F—Disclosure of a registrant’s
action to recover erroneously
awarded compensation.
Not applicable.
Item 7.
 
Major Shareholders and Related Party Transactions.
A—Major Shareholders.
 
Not required under the reduced disclosure format.
B—Related Party Transactions.
 
Not required under the reduced disclosure format.
C—Interests of Experts and
Counsel.
 
Not applicable.
Item 8
.
 
Financial Information.
A—Consolidated Statements
and Other Financial Information.
 
1, 2, 3, 4, 6: Please see Item 18 of this Form 20-F.
 
5: Not applicable.
7: Information on material legal and regulatory proceedings is in Note 17 to
 
the Financial
Statements (
Provisions and contingent liabilities
) (176-180).
 
For developments during the year, please see also the
 
note
Provisions and contingent
liabilities
 
in the Consolidated Financial Statements section in our respective
 
quarterly
reports for the First, Second and Third Quarters 2023, filed on Forms 6-K
 
dated April 27,
2023, August 31, 2023 and November 7, 2023, respectively.
 
The disclosures in each such
Quarterly Report speak only as of their respective dates.
8: Annual Report,
 
Dividend distributions
(116).
B—Significant Changes.
 
None.
Item 9
.
 
The Offer and Listing.
A
– Offer and Listing Details.
Not applicable.
 
B—Plan of Distribution.
Not applicable.
C—Markets.
 
Cover page (3). UBS AG shares are not listed.
D—Selling Shareholders.
Not applicable.
E—Dilution.
 
Not applicable.
F—Expenses of the Issue.
 
Not applicable.
Item 10
.
 
Additional Information.
A—Share Capital.
 
Not applicable.
B—Memorandum and Articles
of Association.
1: Supplement (10-13).
2: Supplement (10-13).
3: Annual Report,
Share
capital structure
(115-116),
Shareholders' participation rights
(116),
Elections and terms of office
 
(117), and
Statutory quorums
 
(116). Supplement (10-
13).
4: Supplement (10-13).
5: Supplement (10-13).
6:
Share
capital structure
(115-116).
7: Annual Report,
Change of control and defense measures
 
(120).
8: There is no requirement for UBS AG shareholders to disclose ownership,
 
as UBS AG
shares are not listed.
9: Supplement (10-13) and Annual Report,
Share
capital structure
(115-116),
Shareholders' participation rights
 
(116),
Elections and terms of office
 
(117),
Change of
control and defense measures
 
(120).
10: Supplement (10-13).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023
 
6
 
The Terms & Conditions
 
of the outstanding Tier 2 capital instrument are included
 
as
exhibit 4.1 to this Form 20-F.
 
For information on these notes, refer to
Swiss SRB total
loss-absorbing capacity framework
 
on page 94-96 of the Annual Report.
 
The parent bank merger agreement dated 7 December
 
2023 UBS AG and Credit Suisse
AG is filed as Exhibits 4.3
hereto and the Swiss bank merger agreement dated 9
 
February
2024 between UBS Switzerland AG and Credit Suisse (Schweiz) AG is filed
 
as Exhibit
4.4 hereto. The mergers described in these agreements
 
will be carried out with some
procedural simplifications and without any consideration given that
 
both companies are
or – in the case of the merger between UBS Switzerland AG and
 
Credit Suisse (Schweiz)
AG – will be wholly-owned by the same parent entity.
 
Upon completion, all assets and
liabilities of Credit Suisse AG and Credit Suisse (Schweiz) AG, respectively,
 
will, in
principle, transfer automatically to UBS AG and UBS Switzerland AG, respectively.
 
For
further information, please see
Integration of Credit Suisse
on page 4 of the Annual
Report.
The Asset Transfer Agreement by which
 
certain assets and liabilities of UBS AG were
transferred to UBS Switzerland AG is filed as Exhibit 4.2, and is described under
Joint
liability of UBS Switzerland AG
 
on page 241 of the Annual Report
 
D—Exchange Controls.
 
Other than in relation to economic sanctions, there are no restrictions under
 
the Articles
of Association of UBS AG, nor under Swiss law,
 
as presently in force, that limit the right
of non-resident or foreign owners to hold UBS’s
 
securities freely. There
 
are currently no
Swiss foreign exchange controls or other Swiss laws restricting the import
 
or export of
capital by UBS or its subsidiaries, nor restrictions affecting the remittance
 
of dividends,
interest or other payments to non-resident holders of UBS securities. The
 
Swiss federal
government may impose sanctions on particular countries, regimes, organizations
 
or
persons which may create restrictions on exchange of control. A current
 
list, in German,
French and Italian, of such sanctions can be found at www.seco
 
-admin.ch. UBS may also
be subject to sanctions regulations from other jurisdictions where it operates
 
imposing
further restrictions.
E—Taxation.
 
UBS AG has no shareholders other than UBS Group AG, which is a Swiss company.
F—Dividends and Paying
Agents.
 
Not applicable.
G—Statement by Experts.
 
Not applicable.
H—Documents on Display.
 
UBS files periodic reports and other information with the Securities and Exchange
Commission. You
 
may read and copy any document that we file with the SEC on the
SEC’s website,
www.sec.gov
. Much of this information may also be found on the UBS
.
I—Subsidiary Information.
 
Not applicable.
J—Annual Report to Security
Holders
Not applicable
Item 11
.
 
Quantitative and Qualitative Disclosures About Market Risk.
(a) Quantitative Information
About Market Risk.
 
Annual Report,
Market risk
(77-85).
(b) Qualitative Information
About Market Risk.
 
Annual Report,
Market risk
(77-85).
(c) Interim Periods.
 
Not applicable.
 
Item 12.
 
Description of Securities Other than Equity Securities.
A
– Debt Securities
Not applicable.
 
B – Warrants and
 
Rights
Not applicable.
 
C – Other Securities
Not applicable.
 
D – American Depositary Shares
Not applicable.
 
Item 13
.
 
Defaults, Dividend
Arrearages and Delinquencies.
There has been no material default in respect of any indebtedness of UBS or any of
 
its
significant subsidiaries or any arrearages of dividends or any other material delinquency
not cured within 30 days relating to any preferred stock of UBS AG or any of its
significant subsidiaries.
Item 14.
 
Material Modifications
to the Rights of Security Holders
and Use of Proceeds.
None.
Item 15.
 
Controls and Procedures.
 
(a)
Disclosure Controls and
Procedures
Annual Report,
US disclosure requirements
(123), and
Exhibit 12 to this Form 20-
F.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023
 
7
(b) Management’s Annual
Report on Internal Control over
Financial Reporting
Annual Report,
Management’s
 
report on internal control
 
over financial reporting
 
(125).
(c) Attestation Report of the
Registered Public Accounting
Firm
Annual Report,
Report of Independent Registered Public Accounting Firm
(126).
(d) Changes in Internal Control
over Financial Reporting
None.
Item 16A.
 
Audit Committee
Financial Expert.
Not required under the reduced disclosure format.
Item 16B.
 
Code of Ethics.
Not required under the reduced disclosure format.
Item 16C.
 
Principal Accountant
Fees and Services.
Annual Report,
Auditors
 
(121-122).
None of the non-audit services so disclosed were approved by the Audit Committee
pursuant to paragraph (c) (7)(i)(C) of Rule 2-01 of Regulation S-X.
Item 16D.
 
Exemptions from
the Listing Standards for
Audit Committees.
Not applicable.
Item 16E.
 
Purchases of Equity
Securities by the Issuer and
Affiliated Purchasers.
UBS AG does not have any class of equity securities registered pursuant
 
to Section 12 of
the Exchange Act.
Item 16F.
 
Changes in
Registrant’s Certifying
Accountant.
Not applicable.
Item 16G.
 
Corporate
Governance.
UBS AG has debt securities listed on the New York
 
Stock Exchange (NYSE), and
therefore discloses below the key differences from its corporate governance
 
practices to
the NYSE standards relevant to US-listed companies.
Responsibility of the Audit Committee regarding independent auditors
Our Audit Committee is responsible for the compensation, retention and oversight
 
of
independent auditors. It assesses the performance and qualifications of
 
external auditors
and submits proposals for appointment, reappointment or removal of independent
auditors to the BoD. As required by the Swiss Code of Obligations, the BoD submits
 
its
proposals for a shareholder vote at the annual general meeting (AGM). Under
 
NYSE
standards audit committees are responsible for appointing independent auditors.
Discussion of risk assessment and risk management policies by the
 
Risk Committee
As per the Organization Regulations of UBS AG, the Risk Committee,
 
instead of the
Audit Committee, as per NYSE standards, oversees our risk principles and
 
risk capacity
on behalf of the BoD. The Risk Committee is responsible for monitoring our
 
adherence
to those risk principles and monitoring whether business divisions and
 
control units
maintain appropriate systems of risk management and control.
Supervision of the internal audit function
Although under NYSE standards only audit committees supervise internal
 
audit
functions, the Chairman of the BoD (the Chairman) and the Audit Committee
 
share the
supervisory responsibility and authority with respect to the internal
 
audit function.
Responsibility of the Compensation Committee for performance
 
evaluations of senior
management of UBS Group AG
In line with Swiss law, UBS Group
 
AG’s Compensation Committee, together
 
with its
BoD, proposes for shareholder approval at the UBS Group AG AGM the maximum
aggregate amount of compensation for the BoD, the maximum aggregate amount
 
of fixed
compensation and the aggregate amount of variable compensation for
 
the Group
Executive Board. As UBS AG’s BoD members
 
are the same as the UBS Group AG BoD
members, this approval by group shareholders is also applicable for UBS AG. The
members of the Compensation Committee are elected by the AGM. Under
 
NYSE
standards it is the responsibility of compensation committees to evaluate
 
senior
management’s performance
 
and to determine and approve, as a committee or together
with the other independent directors, the compensation thereof.
Proxy statement reports of the Audit Committee and the Compensation Committee
NYSE standards require the aforementioned committees to submit their reports
 
directly to
shareholders. However, under Swiss law all reports
 
to shareholders, including those from
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023
 
8
the aforementioned committees, are provided to and approved by the BoD, which
 
has
ultimate responsibility to the shareholders.
Shareholder votes on equity compensation plans
NYSE standards require shareholder approval for the establishing of
 
and material
revisions to all equity compensation plans. However,
 
as per Swiss law, the BoD approves
compensation plans. Shareholder approval is only mandatory if
 
equity-based
compensation plans require an increase in capital. No shareholder approval
 
is required if
shares for such plans are purchased in the market.
Item 16H.
Mine Safety
Disclosure.
Not applicable.
Item 16I.
Disclosure Regarding
Foreign Jurisdictions that
Prevent Inspections
Not applicable.
Item 16J.
Insider trading
policies
Not applicable.
Item 16K.
Cybersecurity.
Annual Report,
Operational risks affect our business
 
(24-25),
Risk management and
control
 
(51-92),
Cybersecurity governance
 
(118).
Item 17.
 
Financial Statements.
Not applicable.
Item 18.
 
Financial Statements.
Annual Report,
Financial statements
(124-249), and
Additional regulatory information
(251-258).
Item 19.
 
Exhibits
Supplement (14).
 
Annual Report 2023
 
9
Supplemental information
Disclosure Pursuant To
 
Section 219 of the Iran Threat Reduction And Syrian
 
Human Rights Act
Section 219 of the US Iran Threat Reduction and Syria Human Rights Act of
 
2012 (“ITRA”) added Section 13(r) to the US
Securities Exchange Act of 1934, as amended (the “Exchange Act”) requiring
 
each SEC reporting issuer to disclose in its
annual and, if applicable, quarterly reports whether it or any of its affiliates
 
have knowingly engaged in certain activities,
transactions or dealings relating to Iran or with the Government of Iran
 
or certain designated natural persons or entities
involved in terrorism or the proliferation of weapons of mass destruction during
 
the period covered by the report. The required
disclosure may include reporting of activities not prohibited by US or other
 
law, even if conducted outside the
 
US by non-US
affiliates in compliance with local law.
 
Pursuant to Section 13(r) of the Exchange Act, we note the following for
 
the period
covered by this annual report:
UBS has a Group Sanctions Policy that prohibits transactions involving
 
sanctioned countries, including Iran, and sanctioned
individuals and entities. However, UBS
 
Switzerland AG maintains one account involving the Iranian government
 
under the
auspices of the United Nations in Geneva after agreeing with the Swiss government
 
that it would do so only under certain
conditions. These conditions include that payments involving the account
 
must: (1) be made within Switzerland; (2) be
consistent with paying rent, salaries, telephone and other expenses necessary for
 
its operations in Geneva; and (3) not involve
any Specially Designated Nationals (SDNs) blocked or otherwise restricted under
 
US or Swiss law. In 2023, the gross
revenues for this UN-related account were approximately USD 5,731.46.
 
We do not allocate expenses
 
to specific client
accounts in a way that enables us to calculate net profits with respect to any individual
 
account. UBS AG intends to continue
maintaining this account pursuant to the conditions it has established with
 
the Swiss Government and consistent with its Group
Sanctions Policy.
As previously reported, UBS had certain outstanding legacy trade finance arrangements
 
issued on behalf of Swiss client
exporters in favor of their Iranian counterparties. In February 2012 UBS ceased accepting
 
payments on these outstanding
export trade finance arrangements and worked with the Swiss government
 
who insured these contracts (Swiss Export Risk
Insurance "SERV").
 
On December 21, 2012, UBS and the SERV
 
entered into certain Transfer and Assignment
 
Agreements
under which SERV
 
purchased all of UBS's remaining receivables under or in connection with
 
Iran-related export finance
transactions. Hence, the SERV
 
is the sole beneficiary of said receivables. There was no financial activity
 
involving Iran in
connection with these trade finance arrangements in 2023, and no gross revenue
 
or net profit.
In connection with these trade finance arrangements, UBS Switzerland
 
AG has maintained one existing account relationship
with an Iranian bank. This account was established prior to the US designation
 
of this bank and maintained due to the existing
trade finance arrangements. In 2007, following the designation of the bank
 
pursuant to sanctions issued by the US, UN and
Switzerland, the account was blocked under Swiss law and remained
 
subject to blocking requirements until January 2016.
Client assets as of 31 December 2023 were CHF 3,097.40. Gross revenues were
 
USD 3.69 equivalent.
 
 
Annual Report 2023
 
10
Item 10.
 
Additional Information.
B—Memorandum and Articles of Association.
 
Please see the Articles of Association of UBS AG (Exhibit 1.1 to this Form
 
20-F) and the Organization Regulations of UBS
AG (Exhibit 1.2 to this Form 20-F).
 
Set forth below is a summary of the material provisions of the Articles of Association
 
of UBS AG (the “Articles”),
Organization Regulations of UBS AG (the “Organization
 
Regulations”) and relevant Swiss laws, in particular the Swiss Code
of Obligations, relating to the ordinary shares of UBS AG (the “shares”).
 
This description does not purport to be complete and
is qualified in its entirety by references to Swiss law,
 
including Swiss company law,
 
and to the Articles and Organization
Regulations.
 
The principal legislation under which UBS AG operates, and under which the shares are
 
issued, is the Swiss Code of
Obligations.
Shares and Shareholders
Shares
The shares are registered shares
(Namenaktien)
 
with a par value of USD 0.10 per share and are issued as uncertificated
securities (
einfache Wertrechte
) (in the sense of the Swiss Code of Obligations)The shares are fully paid up,
 
and there is no
liability of shareholders to further capital calls by UBS AG. The shares rank
pari passu
 
in all respects with each other,
including voting rights, entitlement to dividends, share of the liquidation
 
proceeds in case of the liquidation of UBS AG,
preemptive rights in the event of a share issue (
Bezugsrechte
) and advance subscription rights in the event of the issuance of
equity-linked securities (
Vorwegzeichnungsrechte
).
Share Register
Swiss law distinguishes between registration with and without voting rights.
 
Shareholders must be registered in our share
register as shareholders with voting rights in order to vote and participate
 
in shareholders’ meetings or to assert or exercise
other rights related to voting rights.
 
Swiss law and the Articles require UBS AG to keep a share register in which the names,
 
addresses and nationality (or
registered office in the case of legal entities) of the owners of the
 
shares are recorded. The main function of the share register is
to register shareholders entitled to vote and participate in shareholders’
 
meetings, or to assert or exercise other rights related to
voting rights.
A shareholder will be registered in our share register with voting rights upon disclosure
 
of its name, address and nationality (or
registered office in the case of legal entities). However,
 
we may decline a registration with voting rights if the shareholder does
not declare that it has acquired the shares in its own name and for its own account. If the shareholder
 
refuses to make such
declaration, it will be registered in our share register as a shareholder without
 
voting rights.
In order to register shares in our share register,
 
a shareholder must file a share registration form with the share register.
 
Failing
such registration, a shareholder may not vote at or participate in shareholders’
 
meetings, but will be entitled to receive
dividends and other rights with financial value, such as preemptive rights in the event of
 
a share issue (
Bezugsrechte
) and
advance subscription rights in the event of the issuance of equity-linked
 
securities (
Vorwegzeichnungsrechte
), and its share of
liquidation proceeds. Shareholders registered in our share register may at
 
any time request from us a confirmation of the shares
that they hold according to our share register.
Shareholders’ Meetings
 
A shareholders’ meeting is convened by the Board of Directors (the “BoD”) or,
 
if necessary, by the company’s
 
statutory
auditors upon notification of the shareholders at least 20 days prior to such meeting.
 
An invitation to any shareholders’ meeting
will be sent to all registered shareholders. The Articles do not require a minimum number
 
of shareholders to be present in order
to hold a shareholders’ meeting.
Unless otherwise provided by Swiss law or the Articles (as indicated below),
 
resolutions require the approval of a majority of
the votes represented, excluding blank and invalid ballots, at a shareholders’
 
meeting in order to be passed.
 
Annual Report 2023
 
11
Under Swiss corporate law (or Swiss banking law,
 
as the case may be), a resolution passed at a shareholders’ meeting with the
approval of at least a two-thirds of the votes, and a majority of the nominal value
 
of shares, in each case represented at such
meeting is required in order to approve:
●
A change in the corporation’s stated purpose
 
in its articles of association;
●
The consolidation of shares, unless the consent of all the shareholders concerned
 
is required;
●
The restriction or exclusion of preemptive rights in the event of a share
 
issue (
Bezugsrechte
);
●
The conversion of participation certificates into shares;
●
The introduction of shares with preferential voting rights;
●
Any restriction on the transferability of registered shares;
●
Any change in the currency of the share capital;
●
The introduction of a casting vote for the person chairing the shareholders’
 
meeting;
●
A provision of the articles of association on holding the shareholders’ meeting abroad;
●
The delisting of the equity securities of the corporation;
●
The creation of conditional capital, the introduction of a capital band or,
 
in accordance with Swiss banking law,
 
the
introduction of reserve capital;
●
An increase in share capital in consideration of contributions in kind,
 
or by off-set of a claim, or involving the
granting of special privileges, or from the transformation of reserves into share
 
capital;
●
A change of domicile of the corporation;
 
●
The introduction of an arbitration clause in the articles of association;
 
●
Dispensing with the designation of an independent voting representative for
 
conducting a virtual shareholders’
meeting in the case of corporations whose shares are not listed on a stock exchange
 
(e.g., UBS AG); or
●
Dissolution of the corporation.
Under the Articles, a resolution passed at a shareholders’ meeting with the
 
approval of at least two-thirds of the votes
represented at such meeting is required in order to approve:
●
A change to the provisions in the Articles regarding the number of members of
 
the BoD;
●
Removal of one-quarter or more of the members of the BoD; or
●
The deletion or modification of the provision of the Articles establishing these supermajority
 
requirements.
At shareholders’ meetings, a shareholder can be represented by a legal
 
representative or under a written power of attorney by a
proxy who does not need to be a shareholder or,
 
under a written or electronic power of attorney,
 
by the independent proxy.
Votes
 
are taken electronically, by
 
written ballot or by a show of hands. Shareholders representing at least 3% of the votes
represented may always request that a vote or election take place electronically
 
or by a written ballot.
 
Net Profits and Dividends
 
Swiss law requires that at least 5% of the annual net profits of a corporation must
 
be retained and booked as statutory retained
earnings until these retained earnings equal, together with the corporation’s
 
statutory capital reserve, no less than 50% of the
corporation’s share capital registered
 
in the commercial register. Any remaining
 
net profit of the corporation may be allocated
by the shareholders represented at the applicable shareholders’ meeting.
Under Swiss law, dividends
 
may be paid by a corporation only if, based on its audited standalone statements prepared
 
in
accordance with Swiss law, the
 
corporation has sufficient distributable profits from the previous
 
financial years or if the
reserves of the corporation are sufficient to allow distribution
 
of a dividend. In either event, dividends may be paid by the
corporation only after approval by the shareholders’ meeting. The BoD may
 
propose to the shareholders that a dividend be
paid, but cannot itself set the dividend. The corporation’s
 
statutory auditors must confirm that any dividend proposal of the
BoD is in accordance with Swiss law and the corporation’s
 
articles of association.
Dividends are usually due and payable after the shareholders’ resolution relating
 
to the allocation of profits has been passed.
Under Swiss law, the statute of
 
limitations in respect of dividend payments is five years.
 
Preemptive and Advance Subscription Rights
 
Under Swiss law, any share
 
issue, whether for cash or non-cash consideration or for no consideration,
 
is subject to the prior
approval of the shareholders’ meeting. Existing shareholders of a Swiss corporation
 
have certain preemptive rights in the event
of a share issue (
Bezugsrechte
) and advance subscription rights in the event of the issuance of equity-linked
 
securities
(
Vorwegzeichnungsrechte
) to subscribe for the new shares or equity-linked securities, as the case may be, in
 
proportion to the
nominal amount of shares held. However,
 
the articles of association of the corporation or a resolution approved at a
shareholders’ meeting by at least two-thirds of the votes and a majority
 
of the nominal value of the shares, in each case
represented at the meeting, may limit or exclude such preemptive or advance
 
subscription rights in certain limited
circumstances.
 
 
Annual Report 2023
 
12
Notices
 
Notices to the shareholders may,
 
at the choice of the BoD, be validly given by publication in the Swiss Official Gazette of
Commerce or in a form that allows proof by text. The BoD may designate further means
 
of publication as well.
Board of Directors
 
Borrowing Power
 
Neither Swiss law nor the Articles restrict in any way our power to borrow and raise funds, provided
 
that any such borrowing
is entered into on arms’ length terms.
Listed companies, such as UBS Group AG, may grant loans to members of their
 
BoD based on their articles of association.
UBS Group AG’s articles of association
 
restrict its ability to grant loans to members of its BoD as follows: First, loans to
 
the
independent members of the BoD shall be made in accordance with the customary
 
business and market conditions. Second,
loans to the non-independent members of the BoD shall be made in the ordinary
 
course of business on substantially the same
terms as those granted to UBS employees. Third, the total amount of such
 
loas shall not exceed CHF 20m per member. As the
members of UBS AG’s BoD are the
 
same as the members of UBS Group AG’s BoD, these
 
restrictions are enforced with
respect to the UBS AG’s BoD members
 
even though this provision of Swiss law is not applicable to UBS AG.
BoD Compensation
The BoD is ultimately responsible for approving the compensation strategy and
 
principles proposed by the Compensation
Committee, which determines compensation-related matters in line with the
 
principles set forth in the Articles. As determined
in the Articles and the Organization Regulations, the Compensation
 
Committee supports the BoD with its duties to set
guidelines on compensation and benefits, to oversee implementation thereof,
 
to approve certain compensation, such as the total
compensation for the Chairman and the non-independent BoD members,
 
and, upon proposal of the Chairman, proposes the
remuneration / fee framework for independent BoD members for approval by
 
the BoD.
The members of the BoD of UBS AG are the same as of the UBS Group AG BoD. For UBS Group
 
AG, the Compensation
Committee supports the BoD with its duties to set guidelines on compensation
 
and benefits, to oversee implementation thereof,
to approve certain compensation and to scrutinize executive performance.
 
Annually, and on behalf of the Group
 
BoD, the
Compensation Committee of UBS Group AG (among other things):
●
approves the total compensation for the Chairman and the non-independent
 
BoD members;
●
upon proposal of the Chairman, proposes the remuneration / fee framework
 
for independent BoD members for
approval by the BoD;
 
●
upon proposal of the Chairman and Group CEO, approves the remuneration
 
/ fee frameworks for external supervisory
board members of significant Group entities;
●
proposes to the BoD, for approval by the AGM, the maximum aggregate amounts
 
of BoD compensation and GEB
fixed compensation and the aggregate amount of variable compensation for
 
the GEB.
Members of the UBS Group AG BoD must use a minimum of 50% of their fees to purchase UBS Group
 
AG shares, which are
blocked for four years, and they may elect to use up to 100% of their fees to purchase
 
blocked UBS shares. The fixed fees of
the Chairman and Vice Chairman
 
for their services on the UBS Group AG board are delivered 50% in cash and 50%
 
in shares,
which are blocked for four years. The number of shares is calculated based on the
 
average closing price of the 10 trading days
leading up to and including the grant date.
 
Conflicts of Interests
 
Swiss law requires directors and members of senior management to inform the BoD immediately
 
and comprehensively of any
conflicts of interest affecting them. The BoD then has to take the measures
 
required to safeguard the interests of the
corporation. Directors and officers are personally liable
 
to the corporation for any breach of these provisions. In addition,
Swiss law contains a provision under which payments made to a shareholder
 
or a director or any person associated therewith,
other than at arm’s length, must be repaid
 
to the corporation if the shareholder or director was acting in bad faith.
 
In addition, the Organization Regulations provide that
 
the member of the BoD or senior management with a conflict of interest
shall participate in discussions and a double vote (meaning a vote with and a vote without
 
the conflicted individual) shall take
place. A binding decision on the matter requires the same outcome in both
 
votes. This is subject to exceptional circumstances
in which the best interests of UBS dictate that the member of the BoD or senior
 
management with a conflict of interest shall
not participate in the discussions and decision-making involving the
 
interest at stake.
 
Retirement of Board Members
There is no age-limit requirement for retirement of the members of the BoD. The term
 
of office for each BoD member is until
the next annual general meeting of shareholders, and no BoD member may serve
 
for more than 10 consecutive terms of office.
In exceptional circumstances the BoD can extend this limit.
 
 
Annual Report 2023
 
13
Repurchase of Shares
 
Swiss law limits a corporation’s ability
 
to hold or repurchase its own shares. We
 
and our subsidiaries may repurchase shares
only if and to the extent that (i) we have freely distributable reserves in the amount
 
of the purchase price and (ii) the aggregate
nominal value of all shares held by us and our subsidiaries does not exceed
 
10% of our nominal share capital (or 20% of our
nominal share capital in specific circumstances). Repurchases for cancellation
 
purposes approved by the shareholders’ meeting
are not subject to the 10% threshold for own shares within the meaning of article
 
659 paragraph 2 of the Swiss Code of
Obligations. We
 
must create a special reserve in our standalone financial statements prepared
 
in accordance with Swiss law in
the amount of the purchase price of any repurchased shares. Furthermore,
 
in our consolidated financial statements, own shares
are recorded at cost and reported as treasury shares, resulting in a reduction
 
in total shareholders’ equity.
 
Shares held by us or
any of our subsidiaries do not carry any rights to vote at shareholders’ meetings.
Sinking Fund Provisions
There are no provisions in Swiss law or in the Articles requiring us to put resources aside for
 
the exclusive purpose of
redeeming bonds or repurchasing shares.
Registration and Business Purpose
 
UBS AG was incorporated and registered as a corporation limited by shares (
Aktiengesellschaft
) under the laws of Switzerland.
It is entered into the commercial registers of Canton Zurich and Canton
 
Basel-City on February 28, 1978 under the registration
number CHE-101.329.561 and has registered domiciles in Zurich and
 
Basel, Switzerland. The business purpose of UBS AG,
as set forth in article 2 of the Articles, is the operation of a bank, with a scope of operations extending
 
to all types of banking,
financial, advisory,
 
trading and service activities in Switzerland and abroad.
UBS AG may establish branches and
representative offices as well as banks, finance companies and
 
other enterprises of any kind in Switzerland and abroad, hold
equity interests in these companies, and conduct their management.
 
UBS AG is authorized to acquire, mortgage and sell real
estate and building rights in Switzerland and abroad. UBS AG may borrow and
 
invest money on the capital markets. UBS AG
is part of the group of companies controlled by the group parent company
 
UBS Group AG. It may promote the interests of the
group parent company or other group companies. It may provide loans, guarantees
 
and other kinds of financing and security
for group companies. UBS AG is a wholly owned subsidiary of UBS Group
 
AG.
Duration and Liquidation
UBS AG has an unlimited duration.
 
Under Swiss law, we may be dissolved
 
at any time by way of liquidation or in the case of a merger in accordance
 
with the
Swiss Federal Act on Merger, Demerger,
 
Transformation of Assets of October 3, 2002, as amended, based
 
on a resolution
passed at a shareholders’ meeting with the approval of at least a two-thirds
 
majority of the votes, and a majority of the nominal
value of shares, in each case represented at such meeting. As UBS AG is a Swiss bank, the
 
Swiss Financial Market
Supervisory Authority FINMA is the only competent authority to open restructuring
 
or liquidation (bankruptcy) proceedings
with respect to UBS AG.
Under Swiss law, any surplus arising
 
out of a liquidation (after the settlement of all claims of all creditors) must be used
 
first to
repay the nominal share capital of UBS AG. Thereafter,
 
any balance must be distributed to shareholders in proportion to the
paid-up nominal value of shares held.
 
Other
 i Ernst & Young Ltd
, Aeschengraben 9, 4051
 i Basel, Switzerland
, PCAOB number
 i 1460
, have been appointed as statutory
auditors and as auditors of the consolidated accounts of UBS AG. The auditors
 
are subject to election each year by the
shareholders at the annual general meeting.
 
Annual Report 2023
 
14
Item 19.
 
Exhibits.
 
Exhibit
number
Description
1.1
1.2
 
2(b)
Instruments defining the rights of the holders of long-term debt issued by
 
UBS Group AG and its subsidiaries.
We agree to furnish
 
to the SEC upon request, copies of the instruments, including indentures, defining
 
the rights of
the holders of our long-term debt and of our subsidiaries’ long-term debt.
2(d)
4.1
. (Incorporated by
reference to Exhibit 4.3 to UBS AG's Annual Report on Form 20-F for the fiscal
 
year ended December 31, 2014)
4.2
(Incorporated by
reference to Form 6-K of UBS AG filed on June 17, 2015)
4.3
4.4
 
12
13
15
97
101
Interactive Data Files (sections of the Annual Report formatted in inline XBRL (Extensible
 
Business Reporting
Language)). Furnished electronically herewith.
 
 
 
 
 
Annual Report 2023
 
15
SIGNATURES
The registrant hereby certifies that it meets
 
all of the requirements for filing on Form 20-F and that
 
it has duly
caused the undersigned to sign this annual report
 
on its behalf.
UBS AG
_/s/
 
Sergio Ermotti _______________
Title:
 
President of the Executive Board
 
/s/ Todd Tuckner _______________
Name:
 
Todd Tuckner
Title:
 
Chief Financial Officer
 
/s/ Steffen Henrich______________
Title:
 
Controller
 
 
 
ubs-20231231p16i0
 
Annual Report
 
2023
 
UBS AG
 
 
 
 
Corporate information
UBS AG
 
is incorporated and domiciled in Switzerland
 
and operates under
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
London +44-20-7567 4714
 
New York +1-212-882 5858
 
Hong Kong SAR +852-2971 8200
Office of the Group Company Secretary
The Group Company Secretary handles
inquiries directed to the Chairman or to other
members of the Board of Directors.
UBS Group AG, Office of the
 
Group Company Secretary
PO Box, CH-8098 Zurich, Switzerland
Zurich +41-44-235 6652
Shareholder Services
UBS’s Shareholder Services team, a unit
 
of the Group Company Secretary’s office,
manages relationships with shareholders
and the registration of UBS Group AG
registered shares.
UBS Group AG, Shareholder Services
PO Box, CH-8098 Zurich, Switzerland
Zurich +41-44-235 6652
US Transfer Agent
For global registered share-related
 
inquiries in the US.
Computershare Trust Company NA
PO Box 43006
Providence, RI, 02940-3006, USA
Shareholder online inquiries:
investor-inquiries
Shareholder website:
computershare.com/investor
Calls from the US
 
+1-866-305-9566
Calls from outside the US
 
+1-781-575-2623
TDD for hearing impaired
+1-800-231-5469
TDD for foreign shareholders
+1-201-680-6610
Corporate calendar UBS AG
More information about future publication dates is
 
available at
ubs.com/global/en/investor-relations/events/calendar.html
Imprint
Publisher: UBS AG, Zurich, Switzerland | ubs.com
Language: English
 
© UBS 2024. The key symbol and UBS are among
 
the registered and
unregistered trademarks of UBS. All rights reserved.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023
 
2
Our key figures
UBS AG consolidated key figures
As of or for the year ended
USD m, except where indicated
31.12.23
31.12.22
31.12.21
Results
Total revenues
 
33,675
 
34,915
 
35,828
Credit loss expense / (release)
 
143
 
29
 
(148)
Operating expenses
 
29,011
 
25,927
 
27,012
Operating profit / (loss) before tax
 
4,521
 
8,960
 
8,964
Net profit / (loss) attributable to shareholders
 
3,290
 
7,084
 
7,032
Profitability and growth
1,2
Return on equity (%)
 
6.0
 
12.6
 
12.3
Return on tangible equity (%)
 
6.7
 
14.2
 
13.9
Return on common equity tier 1 capital (%)
 
7.6
 
16.8
 
17.6
Return on leverage ratio denominator, gross (%)
 
3.2
 
3.4
 
3.4
Cost / income ratio (%)
 
86.2
 
74.3
 
75.4
Net profit growth (%)
 
(53.6)
 
0.7
 
13.5
Resources
1
Total assets
 
1,156,016
 
1,105,436
 
1,116,145
Equity attributable to shareholders
 
55,234
 
56,598
 
58,102
Common equity tier 1 capital
3
 
44,130
 
42,929
 
41,594
Risk-weighted assets
3
 
333,979
 
317,823
 
299,005
Common equity tier 1 capital ratio (%)
3
 
13.2
 
13.5
 
13.9
Going concern capital ratio (%)
3
 
17.0
 
17.2
 
18.5
Total loss-absorbing capacity ratio (%)
3
 
33.3
 
32.0
 
33.3
Leverage ratio denominator
3
 
1,104,408
 
1,029,561
 
1,067,679
Common equity tier 1 leverage ratio (%)
3
 
4.0
 
4.2
 
3.9
Liquidity coverage ratio (%)
4
 
189.7
Net stable funding ratio (%)
 
119.6
Other
Invested assets (USD bn)
2,5,6
 
4,505
 
3,981
 
4,614
Personnel (full-time equivalents)
 
47,590
 
47,628
 
47,067
1 Refer to the “Targets, capital guidance
 
and ambitions” section of the UBS Group Annual Report 2023 for more information
 
about our performance measurement.
 
2 Refer to “Alternative performance measures”
in the appendix to this report for the
 
definition and calculation method.
 
3 Based on the Swiss systemically
 
relevant bank framework as of 1
 
January 2020. Refer to the “Capital,
 
liquidity and funding, and balance
sheet” section of this report for more information.
 
4 The disclosed ratios represent averages for the fourth quarter of each year presented, which were calculated based on an average of 63 data points in the fourth
quarter of 2023. Refer to the “Capital, liquidity
 
and funding, and balance sheet” section
 
of this report for more information.
 
5 Consists of invested assets for Global Wealth
 
Management, Asset Management and
Personal & Corporate Banking. Refer to
 
“Note 31 Invested assets and net new money” in the “Consolidated
 
financial statements” section of this report for more information.
 
6 Starting with the second quarter of
2023, invested assets include invested assets from associates in the Asset Management business division, to better reflect the business strategy.
 
Comparative figures have been restated to reflect this change.
 
Alternative performance measures
An
 
alternative
 
performance
 
measure
 
(an
APM)
 
is
 
a
 
financial
 
measure
 
of
 
historical
 
or
 
future
 
financial
 
performance,
financial
 
position
 
or
 
cash
 
flows
 
other
 
than
 
a
 
financial
 
measure
 
defined
 
or
 
specified
 
in
 
the
 
applicable
 
recognized
accounting standards or
 
in other
 
applicable regulations. A
 
number of APMs
 
are reported in
 
UBS’s external
 
reports (annual,
quarterly and other reports). APMs are used to provide a more complete picture of operating performance and to reflect
management’s view
 
of the
 
fundamental drivers
 
of the
 
business results.
 
A definition
 
of each APM,
 
the method
 
used to
calculate it
 
and the
 
information content
 
are
 
presented
 
under “Alternative
 
performance
 
measures”
 
in the
 
appendix to
this report. These APMs may qualify as non-GAAP measures as defined
 
by US Securities and Exchange Commission (SEC)
regulations.
1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023
 
3
Terms used in this report
”UBS,” ”UBS Group,” “UBS Group AG consolidated,” “Group” and “the
Group”
 
UBS Group AG and its consolidated subsidiaries
“UBS Group excluding the Credit Suisse AG sub-group”
All UBS Group entities, excluding the Credit Suisse AG sub-group
 
“UBS AG,” “UBS AG consolidated,“ “UBS AG sub-group,” “we,”
 
“us” and
“our”
UBS AG and its consolidated subsidiaries
 
“Pre-acquisition UBS”
UBS before the acquisition of the Credit Suisse Group
 
“Credit Suisse AG,” “Credit Suisse AG consolidated” and “Credit Suisse AG
sub-group”
Credit Suisse AG and its consolidated subsidiaries
“Credit Suisse Group” and “Credit Suisse Group AG consolidated”
Credit Suisse Group AG and its consolidated subsidiaries, before the
acquisition by UBS
 
“Credit Suisse” and “Credit Suisse sub-group”
Credit Suisse AG, its consolidated subsidiaries, Credit Suisse Services
AG, and other small former Credit Suisse Group entities now directly
held by UBS Group AG
“UBS Group AG” and “UBS Group AG standalone”
UBS Group AG on a standalone basis
“Credit Suisse Group AG” and “Credit Suisse Group AG standalone”
Credit Suisse Group AG on a standalone basis
“UBS AG standalone”
UBS AG on a standalone basis
“UBS Switzerland AG”
UBS Switzerland AG on a standalone basis
 
“UBS Americas Holding LLC”
UBS Americas Holding LLC and its consolidated
 
subsidiaries
 
“Pre-acquisition Global Wealth Management”
The UBS Global Wealth Management business division before the
acquisition of the Credit Suisse Group (data, if any, from before the
date of the acquisition of the Credit Suisse Group)
“UBS AG Global Wealth Management”
The Global Wealth Management business division of UBS
 
AG and its
consolidated subsidiaries
“Pre-acquisition Personal & Corporate Banking”
The Personal & Corporate Banking business division before the
acquisition of the Credit Suisse Group (data, if any, from before the
date of the acquisition of the Credit Suisse Group)
“UBS AG Personal & Corporate Banking”
The Personal & Corporate Banking business division of
 
UBS AG and its
consolidated subsidiaries
“Pre-acquisition Asset Management”
The Asset Management business division before the acquisition
 
of the
Credit Suisse Group (data, if any, from before the date of the
acquisition of the Credit Suisse Group)
“UBS AG Asset Management”
The Asset Management business division of UBS AG
 
and its
consolidated subsidiaries
“Pre-acquisition Investment Bank”
The Investment Bank business division before the acquisition
 
of the
Credit Suisse Group (data, if any, from before the date of the
acquisition of the Credit Suisse Group)
“UBS AG Investment Bank”
The Investment Bank business division of UBS
 
AG and its consolidated
“1m”
One million, i.e., 1,000,000
“1bn”
One billion, i.e., 1,000,000,000
“1trn”
One trillion, i.e., 1,000,000,000,000
In this report, unless the context requires
 
otherwise, references to any gender shall
 
apply to all genders.
 
Annual Report 2023 |
Our business model and environment |
 
Integration of Credit Suisse
 
4
Our business model and
environment
Management report
Integration of Credit Suisse
Integration of Credit Suisse
On 12 June
 
2023, our
 
parent company,
 
UBS Group
 
AG, acquired
 
Credit Suisse
 
Group AG,
 
succeeding by
 
operation of
Swiss law to
 
all assets
 
and liabilities
 
of Credit
 
Suisse Group
 
AG, and
 
became the
 
direct or
 
indirect shareholder
 
of all
 
of
the former direct and indirect subsidiaries of Credit Suisse
 
Group AG.
 
In December 2023, the Board of Directors of UBS Group AG approved the merger of UBS AG and Credit Suisse AG, and
we
 
entered
 
into
 
a
 
definitive
 
merger
 
agreement
 
with
 
Credit
 
Suisse
 
AG.
 
The
 
completion
 
of
 
the
 
merger
 
is
 
subject
 
to
regulatory
 
approvals
 
and
 
is
 
expected
 
to
 
occur
 
by
 
the
 
end of
 
the
 
second
 
quarter
 
of
 
2024. The
 
Group
 
also
 
expects
 
to
complete the
 
transition to
 
a single
 
US intermediate
 
holding company
 
in the
 
second quarter
 
of 2024
 
and the
 
planned
merger of UBS Switzerland AG and Credit Suisse (Schweiz)
 
AG in the third quarter of 2024.
›
Refer to “Acquisition and integration of Credit Suisse”
 
in the “Our strategy, business model and environment” section in the UBS
Group Annual Report 2023
 
 
Annual Report 2023 |
Our business model and environment | Our
 
businesses
 
5
Our businesses
We
 
operate
 
through
 
five
 
business
 
divisions:
 
Global
 
Wealth
 
Management,
 
Personal
 
&
 
Corporate
 
Banking,
 
Asset
Management,
 
the Investment Bank and Non-core and Legacy. Our global reach and the
 
breadth of our expertise are the
major assets setting us apart
 
from our competitors. Our Group
 
functions are support and
 
control functions that provide
services
 
to
 
the
 
Group.
 
Virtually
 
all
 
costs
 
incurred
 
by
 
the
 
support
 
and
 
control
 
functions
 
are
 
allocated
 
to
 
the
 
business
divisions, leaving a residual
 
amount that we refer
 
to as Group Items
 
in our segment
 
reporting. Disclosures in
 
this report
may refer to Group functions as Group Items.
We see
 
joint efforts
 
as key
 
to our
 
growth, both
 
within and
 
between
 
business divisions.
 
We combine
 
our strengths
 
to
provide
 
our
 
clients
 
with
 
better,
 
innovative
 
solutions
 
and
 
differentiated
 
offerings,
 
for
 
example,
 
our
 
Global
 
Family
 
&
Institutional Wealth offering with integrated global coverage
 
.
 
 
Global Wealth Management
 
We are a leading and truly global
 
wealth manager and strive to
 
help our clients pursue what
 
matters most to them. We
are
 
focused on
 
serving
 
the
 
needs of
 
ultra
 
high and
 
high
 
net
 
worth
 
individuals through
 
trusted
 
relationships
 
with
 
our
advisors, while
 
expanding our
 
specialized services.
 
We offer
 
clients our
 
global reach,
 
our advisory
 
approach led
 
by the
Chief Investment
 
Office (the
 
CIO) and
 
access to
 
our platform
 
with its
 
broad array
 
of solutions,
 
alongside our
 
premium
brand.
 
Organizational changes
 
During the first half
 
of 2023, we took
 
several steps to
 
simplify our organizational
 
structure into four
 
regions: Americas,
EMEA, Asia
 
Pacific and
 
Switzerland. We
 
also unified
 
key solutions
 
and functions
 
under global
 
leads. This
 
will facilitate
further convergence and simplification of our global operating model,
 
while retaining the flexibility for local and regional
differences.
In June
 
2023, the
 
new Global
 
Wealth Management
 
leadership team
 
was announced,
 
including the
 
creation of
 
a new
business unit, Global Wealth Management Strategic Clients, which is focused on enabling and delivering to
 
our strategic
clients globally, working in partnership with our
 
regional business leaders and supported by senior client
 
coverage teams.
 
How we do business
Our distinctive approach to wealth management helps our clients pursue what matters most to them by offering advice,
expertise and solutions, and delivering on our client promise.
Our advice to clients is led by our global CIO, which produces the
UBS House View
, identifying investment opportunities
designed to
 
protect and
 
increase our
 
clients’ wealth
 
over the
 
long term.
 
CIO views
 
drive investment
 
recommendations
for advisory
 
clients and investment
 
decisions for discretionary
 
clients representing more
 
than USD 1.5trn in
 
fee-generating
assets globally.
 
We make
 
available to
 
clients a
 
broad range
 
of securities
 
and investment
 
products. In
 
addition to
 
traditional equity
 
and
fixed-income securities, our investment
 
specialists source and craft
 
a range of investment products,
 
including separately
managed accounts (SMAs), structured products,
 
sustainable-
 
and impact-investing products, and
 
alternative investments.
Our alternative
 
investments offering
 
gives clients
 
access to
 
private markets,
 
including equity,
 
real estate
 
and other
 
real
assets,
 
and
 
investments
 
in
 
private
 
equity
 
funds
 
and
 
hedge
 
funds.
 
We
 
offer
 
our
 
own
 
private
 
equity
 
multi-manager
investments and enable clients to access selected single-manager
 
funds and open-ended programs.
 
To
 
complement
 
this
 
advice,
 
we
 
provide
 
clients
 
with
 
advice
 
on
 
wealth
 
planning,
 
sustainability-focused
 
and
 
impact
investing, and corporate and banking services. Our specialist teams also advise
 
on art and collecting, family strategy and
governance, philanthropy, next generation, and wealth transition.
Our Global Family
 
& Institutional Wealth
 
service model,
 
in collaboration with
 
the Investment Bank,
 
provides specialized
services to
 
meet the
 
needs of
 
family offices
 
and ultra
 
high net
 
worth clients.
 
For clients
 
with institutional-level
 
trading,
execution
 
and
 
clearing
 
needs,
 
our
 
Unified
 
Global
 
Markets
 
offers
 
access
 
to
 
the
 
full
 
capabilities
 
of
 
the
 
Global
 
Markets
business of the Investment Bank.
In Asia Pacific and Switzerland, the
Direct Investment Insights
 
function on our online banking platform enables clients to
trade directly based on CIO insights via their smartphones
 
and other digital devices.
Advice Compass
enables advisors to
conveniently identify the most relevant ideas and solutions for clients
 
during one-to-one meetings.
To provide our clients with the
 
full breadth of investment management
 
products and solutions, our Global Lending
 
Unit
offers
 
extensive
 
mortgage,
 
securities-based
 
and
 
structured
 
lending
 
expertise,
 
catering
 
to
 
sophisticated
 
client
 
lending
needs.
 
›
Refer to the UBS Group Sustainability Report 2023,
 
available under “Annual reporting” at
ubs.com/investors
, for more
information about sustainability matters
 
ubs-20231231p23i0
Annual Report 2023 |
Our business model and environment | Our
 
businesses
 
6
Our newly established Global Wealth Management Strategic Clients unit aims to deliver the best advice and guidance to
our strategic client segments,
 
including business owners, female
 
clients, the next generation of
 
wealthy clients, athletes
and entertainers, and multi-cultural
 
investors. To this end, we
 
have developed a dedicated
 
approach and resources with
specialized teams supporting our clients in achieving their
 
goals.
We are
 
investing in
 
our operating
 
platforms and
 
tools to
 
better serve our
 
clients’ needs,
 
improve their
 
experience, enhance
overall
 
advisor
 
productivity
 
and
 
improve
 
our
 
operational
 
resilience.
 
We
 
aim
 
to
 
make
 
our
 
services
 
faster
 
and
 
more
responsive and offer more
 
convenience to our clients.
 
For example, our Global
 
Wealth Management clients have invested
more than USD 9bn in
UBS My Way
,
 
our discretionary mandate solution that enables clients to
 
customize their portfolio
themselves via the
 
UBS mobile banking
 
app. Additionally, we
 
continue to broaden
 
our offering across
 
asset classes and
themes,
 
collaborating
 
with
 
best-in-class
 
managers
 
across
 
the
 
most
 
relevant
 
strategies.
 
We
 
are
 
making
 
continuous
improvements to our direct-to-client digital offerings and have rolled out innovative
 
new solutions, such as
UBS My Way
on mobile
, a next-generation
 
discretionary mandate
 
solution that now
 
enables clients to
 
tailor their investments
 
within
their risk profile to their individual preferences via their mobile device
 
s.
 
We
 
also
 
closely
 
collaborate
 
across
 
business
 
divisions
 
to
 
deliver
 
our
 
best
 
capabilities
 
to
 
clients.
 
Joint
 
efforts
 
with
 
the
Investment Bank, Asset Management and selected external partners enable us to offer
 
clients broad access to financing,
global capital
 
markets
 
and
 
bespoke
 
portfolio
 
solutions.
 
For example,
 
in
 
the
 
US market,
 
the
 
SMA initiative
 
with
 
Asset
Management continues to gain momentum, with USD
 
158bn in assets under management.
Competition
 
Our main competitors fall
 
into two categories:
 
competitors with a strong
 
position in the Americas
 
but more limited global
footprints, such as Morgan Stanley, JPMorgan Chase
 
and Bank of America; and competitors with
 
international footprints
but with a
 
smaller presence than UBS in
 
the US, such as
 
Julius Baer, BNP Paribas
 
and HSBC. We also
 
compete with fintech
firms
 
in
 
some
 
regions
 
and
 
products.
 
We
 
have
 
strong
 
positions
 
in the
 
largest
 
region
 
(the
 
US) and
 
the
 
fastest-growing
regions (Asia
 
Pacific and the
 
Middle East).
 
The size
 
of our global
 
franchise, bespoke cross-divisional
 
solutions and
 
premium
brand and reputation set us apart and would be difficult
 
to replicate.
 
 
 
Annual Report 2023 |
Our business model and environment | Our
 
businesses
 
7
Personal & Corporate Banking
As the
 
leading
 
bank
 
in
 
Switzerland,
 
we
 
provide
 
a
 
comprehensive
 
range
 
of
 
financial
 
products
 
and
 
services
 
to
 
private,
corporate and institutional clients. Personal & Corporate Banking is the core of our bank in
 
Switzerland, the only country
where we
 
operate in all
 
of our
 
business areas.
 
We are
 
fully committed
 
to our
 
home market,
 
as our leading
 
position in
Switzerland is crucial in
 
terms of sustaining our
 
global brand and the
 
stability of our profits.
 
We draw on a
 
broad network
of branches and highly qualified client advisors, complemented by modern digital banking
 
services and customer service
centers.
Organizational changes
›
Refer to “Personal & Corporate Banking” in the
 
“Our strategy, business model and environment” section of the UBS Group Annual
Report 2023 for more information about Personal & Corporate
 
Banking from a Group perspective, including information
 
about
the planned merger of UBS Switzerland AG
 
and Credit Suisse (Schweiz) AG
How we do business
We provide our personal banking clients with access to a comprehensive, life-cycle-based
 
offering. This includes a broad
range of basic
 
banking products,
 
from payments
 
to deposits,
 
cards and
 
convenient online
 
and mobile banking,
 
as well
as lending
 
(predominantly
 
mortgages),
 
investments and
 
retirement
 
planning
 
services.
 
In 2023,
 
UBS was
 
named
 
“Best
Bank in
 
Switzerland”
 
by
Euromoney
 
for the
 
ninth time
 
since 2012.
 
Personal
 
& Corporate
 
Banking works
 
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.
Personal
 
&
 
Corporate
 
Banking
 
works
 
closely
 
with
 
the
 
Investment
 
Bank
 
to
 
offer
 
capital
 
market
 
and
 
foreign
 
exchange
products,
 
hedging
 
strategies,
 
and
 
trading
 
capabilities,
 
as
 
well
 
as
 
corporate
 
finance
 
advice.
 
In
 
cooperation
 
with
 
Asset
Management, we also provide fund and portfolio manage
 
ment solutions.
In
 
2023,
 
we
 
continued
 
to
 
support
 
our
 
clients’
 
sustainability
 
ambitions.
 
In
 
the
 
corporate
 
client
 
segment,
 
we
 
further
expanded
 
our
 
client-centric
 
approach
 
and
 
focused
 
on
 
supporting
 
our
 
clients
 
by
 
advising
 
them
 
as
 
part
 
of
 
a
 
strategic
dialogue
 
and
 
launching
 
a
 
sustainability-linked
 
loan
 
for
 
multi-national
 
corporations.
 
We
 
also
 
took
 
positive
 
steps
 
in
providing transparency and sustainability insights to our private clients. With the launch of the carbon tracker in the UBS
key4
 
mobile banking
 
app, clients
 
can see
 
an estimated
 
carbon footprint
 
for their
 
purchases with
 
UBS credit
 
and debit
cards
 
and
 
through
 
UBS
 
TWINT,
 
helping
 
them
 
navigate
 
the
 
carbon
 
footprints
 
of
 
their
 
purchases
 
in
 
a
 
relatively
 
simple
manner.
›
Refer to the UBS Group Sustainability Report 2023,
 
available under “Annual reporting” at
ubs.com/investors
, for more
information about sustainability matters
We are
 
building stronger
 
relationships with
 
our clients
 
during the
 
life cycle
 
of their
 
property ownership
 
and providing
services
 
along the
 
value
 
chain.
 
With
 
our
 
strategic
 
partner
 
Baloise, we
 
offer
Houzy
,
 
a
 
leading homeowner
 
platform
 
in
Switzerland with a
 
nationwide network of
 
qualified craftsmen and
 
comprehensive services through
 
buying, renovation,
maintenance
 
and
 
sale
 
of
 
property.
 
Services
 
relating
 
to
 
property
 
transactions
 
and
 
promotion
 
financing
 
are
 
provided
through our partner,
Brixel
. Our exclusive partnership with SMG Swiss Market Group
 
enables us to extend our ecosystem
network to Switzerland’s largest real estate portals, such
 
as Homegate and Immoscout24.
Our operations and our competitors
We operate
 
primarily in
 
our Swiss
 
home market,
 
where we
 
are organized
 
into 10
 
regions, covering distinct
 
Swiss economic
areas. We operate a multi-channel approach,
 
and we are constantly developing our digital and remote
 
channels.
In Personal Banking,
 
our main competitors
 
are the cantonal
 
banks, Raiffeisen, PostFinance
 
and other regional
 
and local
Swiss banks; we also face competition from international neobanks and other national digital market participants. Areas
of competition are basic banking services, mortgages and
 
foreign exchange, as well as investment mandates and
 
funds.
In the
 
corporate and institutional
 
business, the cantonal
 
banks and
 
globally active foreign
 
banks are
 
our main
 
competitors.
We compete
 
in basic banking
 
services, cash
 
management, trade
 
and export
 
finance, asset
 
servicing, investment
 
advice
for institutional
 
clients, corporate
 
finance and lending,
 
and cash and
 
securities transactions
 
for banks. We
 
also support
the international business
 
activities of our
 
Swiss corporate
 
clients through local
 
hubs in New
 
York, Frankfurt, Singapore
and the Hong
 
Kong SAR in
 
competition with globally active
 
foreign banks. No
 
other Swiss bank
 
offers its corporate
 
clients
local banking capabilities abroad.
 
 
Annual Report 2023 |
Our business model and environment | Our
 
businesses
 
8
Asset Management
Asset
 
Management
 
is
 
a
 
global,
 
large-scale
 
and
 
diversified
 
asset
 
manager.
 
We
 
offer
 
investment
 
capabilities
 
and
 
styles
across
 
all
 
major
 
traditional
 
and
 
alternative
 
asset
 
classes,
 
as
 
well
 
as
 
advisory
 
support
 
to
 
institutions,
 
wholesale
intermediaries and our Global Wealth Management
 
clients.
Our strategy
 
is focused
 
on
 
capitalizing
 
on the
 
areas where
 
we have
 
a leading
 
position
1
 
and differentiated
 
capabilities
(including alternatives,
 
sustainability,
 
indexed customization,
 
separately managed
 
accounts
 
(SMAs) and
 
key markets
 
in
Asia Pacific) in order to further drive profitable growth, while
 
building on our strong business division partnerships across
the Group.
Organizational changes
In October 2023, we completed the sale of our 51% stake in UBS Hana Asset Management Co., Ltd. to Hana Securities,
after that firm exercised its buyout option. Hana Securities
 
now owns 100% of UBS Hana Asset Management
 
Co., Ltd.
 
›
Refer to “Asset Management” in the “Our strategy, business model and environment”
 
section of the UBS Group Annual Report
2023 for more information about the Asset Management
 
business division from a Group perspective
How we do business
 
We offer clients
 
a wide range of
 
investment products and services
 
across all major
 
traditional and alternative asset
 
classes,
in the form
 
of segregated,
 
pooled or advisory
 
mandates, as well
 
as registered
 
investment funds
 
in various jurisdictions.
Our capabilities include equities, fixed income, hedge funds (single-
 
and multi-manager), real estate and private markets,
and indexed and alternative beta strategies,
 
including exchange-traded funds (ETFs), as
 
well as sustainable- and impact-
investing products and solutions.
We also
 
draw on
 
the breadth
 
of our
 
capabilities to
 
offer asset
 
allocation and
 
currency investment
 
strategies across
 
the
risk–return spectrum, customized multi-asset solutions,
 
and advisory and fiduciary services.
We continue to develop our award-winning
2
 
Indexed business globally, with a focus on customization, and
 
provide client
solutions
 
across
 
equities,
 
fixed
 
income
 
and
 
commodities,
 
as
 
well
 
as
 
sustainability-focused
 
products.
 
Our
 
offering
 
also
includes a wide range of ETFs in Europe, Switzerland and
 
Asia.
 
In our
 
Real Estate
 
& Private
 
Markets
 
business, we
 
continue
 
to build
 
on our
 
global
 
scale, leading
 
core capabilities
 
and
highly differentiated sustainable-investing and specialized-thematic offering, including our Cold Storage,
Energy Storage
and
 
Life
 
Sciences
 
strategies.
 
We
 
also
 
continue
 
to
 
expand
 
our
 
leading
 
multi-manager
 
capabilities
 
across
 
real
 
estate,
infrastructure and private equity, including the development of new products to meet the growing demand from wealth
management
 
clients.
 
Sustainable and impact investing remain
 
key areas of interest for
 
our clients. In 2023, we further
 
expanded our offering
across asset classes and themes, including
 
new net-zero ambition products. We
 
launched our first sustainability-focused
fund of hedge funds strategy,
 
created in close collaboration with
 
Global Wealth Management.
We also partnered again
with Aon
 
to launch the
 
UBS Global
 
Emerging Markets Equity
 
Climate Transition Fund,
 
which tilts
 
toward emerging market
companies supporting the transition to a low-carbon economy,
 
while factoring in important social considerations.
Stewardship
 
is
 
a
 
fundamental
 
element
 
of
 
our
 
sustainability
 
strategy.
 
In
 
2023,
 
we
 
sharpened
 
our
 
five-year
 
climate
engagement
 
program’s
 
focus
 
and
 
also
 
aligned
 
our
 
voting
 
policy
 
to
 
our
 
evolved
 
climate
 
engagement
 
objectives.
 
In
addition, to
 
support our
 
increasing focus
 
on natural
 
capital, we
 
became a
 
founding member
 
of the
 
Nature Action
 
100
collaborative
 
engagement
 
initiative
 
and
 
joined
 
the
 
Principles
 
for
 
Responsible
 
Investment’s
 
Stewardship
 
Advisory
Committee for its initiative on nature.
›
Refer to the UBS Group Sustainability Report 2023,
 
available under “Annual reporting” at
ubs.com/investors
, for more
information about sustainability matters
We also continue to build on
 
our joint efforts with the other
 
business divisions, enabling our teams
 
to draw on the best
ideas,
 
solutions
 
and
 
capabilities
 
from
 
across
 
the
 
firm
 
in
 
order
 
to
 
deliver
 
high-quality
 
investment
 
performance
 
and
experiences
 
for
 
our
 
clients.
 
For
 
example,
 
in
 
2023
 
we
 
continued
 
to
 
expand
 
our
 
separately
 
managed
 
accounts
 
(SMA)
offering as part of
 
our joint initiative with
 
Global Wealth Management in
 
the US. In support
 
of this initiative, we
 
launched
the SMA Hub, a
 
new self-service portal
 
that enables financial
 
advisors to generate
 
custom client reports or
 
proposals in
only minutes.
Geographically, we are building on our extensive
 
and long-standing presence in the Asia Pacific
 
region, including China,
where we continue to capitalize on our on- and offshore
 
products and market presence, including our joint ventures.
To support
 
our growth,
 
we are
 
focused on
 
disciplined execution
 
of our
 
operational excellence
 
initiatives. This
 
includes
further
 
automation,
 
simplification,
 
process
 
optimization
 
and
 
offshoring
 
or
 
nearshoring
 
of
 
selected
 
activities,
complemented by continued enhancements to our platform and development of
 
our analytics and data capabilities. One
example
 
is
 
our
 
Portfolio
 
Engineering
 
&
 
Trading
 
initiative,
 
which
 
will
 
streamline
 
trading
 
and
 
portfolio
 
implementation
across our
 
active and
 
index capabilities
 
through an
 
integrated technology
 
architecture. It
 
will harmonize
 
processes and
enable further scalability of customization across asset classes.
 
 
Annual Report 2023 |
Our business model and environment | Our
 
businesses
 
9
Our operations and our competitors
Our business division is organized into
 
five areas: Client Coverage; Investments; Real
 
Estate & Private Markets; Products;
and the
 
COO area.
 
We cover
 
the main
 
asset management
 
markets globally,
 
and have
 
a local
 
presence in
 
23 locations
across four
 
regions: the
 
Americas; Asia
 
Pacific; EMEA;
 
and Switzerland.
 
We have
 
nine main
 
hubs: Chicago;
 
the Hong
Kong SAR; London; New York; Shanghai; Singapore; Sydney;
 
Tokyo; and Zurich.
 
Our main
 
competitors are global
 
firms with wide-ranging
 
capabilities and distribution
 
channels, such as
 
AllianceBernstein,
Allianz
 
Asset
 
Management,
 
Amundi,
 
BlackRock,
 
DWS,
 
Franklin
 
Templeton,
 
Invesco,
 
J.P.
 
Morgan
 
Asset
 
Management,
Morgan Stanley Investment Management, Schroders, SSGA Funds Management
 
and T. Rowe Price, as well as firms with
a specific market or asset-class focus.
1
Third-largest asset manager of SI assets (Morningstar); USD 156bn assets invested in hedge fund businesses,
 
real estate and private markets.
 
2
 
Best ESG Fund House (Passive), ESG Clarity Awards 2023; Best ESG Emerging Market
 
Equity Fund (Passive), ESG Clarity Awards 2023.
 
 
Investment Bank
The
 
Investment
 
Bank
 
provides
 
services
 
to institutional,
 
corporate
 
and wealth
 
management
 
clients, helping
 
them
 
raise
capital, invest
 
and manage
 
risks, while
 
targeting attractive
 
and sustainable
 
risk-adjusted
 
returns for
 
shareholders.
 
Our
traditional strengths are in equities, foreign exchange, research, advisory services and
 
capital markets, complemented by
a focused rates and credit platform. We use our data-driven research and technology capabilities to help clients adapt to
evolving market structures and changes in regulatory, technological,
 
economic and competitive landscapes.
Aiming to deliver market-leading
 
solutions by using our
 
intellectual capital and electronic platforms,
 
we work closely with
Global
 
Wealth
 
Management,
 
Personal
 
&
 
Corporate
 
Banking
 
and
 
Asset
 
Management
 
to
 
bring
 
the
 
best
 
of
 
the
 
firm’s
capabilities to our clients. We do so with a disciplined
 
approach to balance sheet deployment and
 
costs.
Our priority is
 
providing high-quality execution
 
and seamless client
 
service, through an
 
integrated, solutions-led approach,
with disciplined growth in the advisory and execution businesses, while accelerating our digital transformation. In Global
Banking, we position ourselves as trusted advisors via our
 
client coverage and ability to provide access to the wider suite
of UBS’s capabilities. In Global
 
Markets, we enable clients to
 
buy, sell and finance
 
securities on capital markets worldwide
and to manage their risks and liquidity.
Organizational changes
In October
 
2023, we
 
launched
 
our Strategic
 
Insights and
 
Advisory
 
team
 
in Global
 
Banking, our
 
content
 
and advisory
offering that brings
 
together the expertise
 
of the UBS
 
Strategic Insights group
 
and the Credit
 
Suisse Corporate Insights
group.
In December 2023, we announced the formation of our Executive Client Group, which is aimed at advising our
 
clients at
the C-suite level on strategic matters and is intended to drive a broad array of transactions to enhance the impact of our
Global Banking coverage teams.
›
Refer to “Investment Bank” in the “Our strategy, business model and environment” section
 
of the UBS Group Annual Report 2023
for more information about the Investment Bank from a Group
 
perspective
How we do business
Our business division consists
 
of two areas: Global
 
Banking and Global Markets,
 
which are supported by
 
Investment Bank
Research. Our global coverage model utilizes our
 
international industry expertise and product capabilities to meet
 
clients’
emerging needs.
Our Global Banking business advises
 
clients on strategic business opportunities, such
 
as mergers, acquisitions and related
strategic matters, and helps them raise capital, in both public
 
and private markets, to fund their activities.
Our
 
Global
 
Markets
 
business
 
enables
 
clients
 
to
 
buy,
 
sell
 
and
 
finance
 
securities
 
on
 
capital
 
markets
 
worldwide
 
and
 
to
manage their risks and liquidity. We
 
distribute, trade, finance and clear
 
cash equities and equity-linked products,
 
as well
as
 
structuring,
 
originating
 
and
 
distributing
 
new
 
equity
 
and
 
equity-linked
 
issues.
 
From
 
origination
 
and
 
distribution
 
to
managing risk
 
and providing
 
liquidity in
 
foreign exchange,
 
rates, credit
 
and precious
 
metals, we
 
help clients
 
to realize
their financial
 
goals. We
 
provide flexible,
 
innovative and
 
bespoke access
 
to solutions,
 
from market
 
and insight
 
tools to
trading strategies and execution.
Our Investment
 
Bank Research
 
business continues
 
to publish
 
research based
 
on primary
 
data to
 
concentrate
 
on data-
driven outcomes and offers clients differentiated content about major financial markets and securities around the globe,
with analysts
 
based in
 
more than
 
20 countries
 
and with
 
coverage of
 
more than
 
3,400 stocks
 
in 49
 
different countries.
The Strategic Insights
 
team provides timely
 
and relevant
 
information and insights
 
to help clients
 
quickly make decisions
regarding their most important questions.
 
Annual Report 2023 |
Our business model and environment | Our
 
businesses
 
10
We seek to develop new
 
products and solutions consistent
 
with our capital-efficient business
 
model, typically related
 
to
new technologies or changing market standards.
The Investment
 
Bank
 
offers
 
our clients
 
global advice
 
and access
 
to the
 
world’s
 
primary, secondary
 
and private
 
capital
markets,
 
including
 
through
 
an
 
extensive
 
array
 
of
 
sustainability-focused
 
advice,
 
products,
 
research
 
and
 
events.
 
The
Investment
 
Bank
 
is
 
focused
 
on
 
meeting
 
clients’
 
needs,
 
including
 
those
 
with
 
respect
 
to
 
environmental,
 
social
 
and
governance
 
(ESG)
 
considerations
 
and
 
sustainable
 
finance,
 
helping
 
to
 
reshape
 
business
 
models
 
and
 
investment
opportunities and to develop sustainable finance products and
 
solutions.
 
In Global
 
Markets, we
 
develop products
 
and solutions
 
designed to
 
meet clients’
 
specific and
 
increasingly detailed
 
ESG
objectives. In carbon
 
emissions solutions, our
 
clients continued to
 
access solutions that are
 
linked to the
 
recently launched
UBS
 
Constant
 
Maturity
 
Commodity
 
Index
 
emissions
 
index,
 
as
 
well
 
as
 
those
 
that
 
are
 
available
 
via
 
our
 
execution
 
and
clearing capabilities for
 
carbon emissions futures.
 
We continued to
 
scale the number of
 
portfolio certificates linked
 
to a
range of sustainability and climate investment themes, despite
 
challenging market conditions throughout 2023.
UBS is a founding
 
member of Carbonplace,
 
a marketplace platform
 
that seeks to
 
build infrastructure to
 
scale voluntary
carbon markets, with
 
the aim of
 
enabling firms such
 
as UBS to
 
offer clients the
 
ability to buy,
 
sell, hold and
 
retire voluntary
carbon credits.
 
In
 
Global
 
Banking,
 
ESG
 
is
 
a
 
core
 
component
 
of
 
many
 
corporate
 
business
 
strategies
 
and
 
a
 
key
 
tool
 
in
 
achieving
sustainability in business and corporate operating
 
models. As pressure from regulators and
 
other key stakeholder groups,
such as
 
customers, investo
 
rs and
 
employees,
 
is increasing,
 
so is
 
the need
 
for transformation.
 
The ESG
 
Advisory
 
group
provides the necessary lens helping UBS’s clients assess ESG
 
topics throughout the corporate life cycle.
UBS
 
arranged
 
USD 53.7bn
 
in
 
green,
 
social,
 
sustainability
 
and
 
sustainability-linked
 
themed
 
(GSSS)
 
bonds
 
through
 
102
deals during
 
2023. We also
 
solidified our
 
market position in
 
the Swiss
 
franc-denominated market with
 
a combined
 
market
share of nearly 50%.
 
We have also built a strong position in the ESG-labelled
 
local debt market in Brazil.
Our independent
 
ESG research
 
team collaborates with
 
UBS sector
 
analysts and
UBS Evidence
 
Lab
 
primary research
 
experts,
providing data-driven insights
 
into ESG-relevant questions. The
 
ESG research team
 
works to identify
 
touchpoints between
markets, society
 
and the
 
environment, and to
 
respond to
 
ESG issues as
 
they move
 
to the
 
center of
 
investors’ agendas.
UBS sector
 
lead analysts
 
authored a
 
variety of
 
our flagship
ESG Sector
 
Radar
reports, as
 
well as
 
a broad
 
range of
ESG
Company Radar
reports.
Our
ESG Company
 
Radar
 
research reports,
 
which we
 
launched in
 
2022, assess
 
the impact
 
of ESG
 
factors at
 
company
level,
 
and
 
we
 
continued
 
to
 
see
 
a
 
very
 
positive
 
client
 
response
 
to
 
those
 
reports.
 
Other
 
types
 
of
 
ESG
 
content
 
include
thematic
 
and
 
cross-sectoral
 
collaborations,
ESG
 
Keys
 
(which
 
covers
 
sustainable
 
investing
 
topics),
 
and
 
an
 
increasing
number of regional perspectives from our expanded ESG team, which works out of
 
our offices in New York, London, the
Hong Kong SAR, Tokyo and Sydney.
›
Refer to the UBS Group Sustainability Report 2023, available
 
under “Annual reporting” at
ubs.com/investors
, for more
information about sustainability matters
Our digital strategy harnesses technology to
 
provide access to sources of
 
unique, global liquidity, personalized advice and
differentiated content. The Investment Bank strives to be the
 
digital investment bank of the future, focused on delivering
innovation-led solutions, and
 
efficiencies for our
 
clients. As the
 
world around us changes,
 
our digital capabilities
 
aim to
harness emerging
 
technologies
 
and create
 
new products
 
and solutions,
 
which enable
 
our clients
 
to adapt
 
to evolving
market structures and achieve their investment goals.
 
Our
 
ambition
 
to
 
be
 
the
 
most
 
client-focused,
 
efficient
 
and
 
data-driven
 
investment
 
bank
 
is
 
being
 
realized
 
through
 
the
simplification of technology architecture, increased
 
speed and quality of
 
delivery and the attraction
 
of best-in-class talent.
As we look forward to the continued
 
evolution
of our digital capabilities, we will see increased adoption of
 
technologies,
such as generative
 
artificial intelligence,
 
the consistent re-use of
 
platforms and products, and
 
the continued drive to
 
make
progress in our overall strategic imperatives, with regard to a
 
new, combined Investment Bank.
Joint efforts between
 
the Investment Bank
 
and the other
 
business divisions (for
 
example, our work
 
with Global
 
Wealth
Management
 
on
 
our
 
new
 
Global
 
Family
 
&
 
Institutional
 
Wealth
 
coverage)
 
and,
 
externally,
 
strategic
 
partnerships
 
(for
example,
 
UBS
 
BB
 
jointly
 
with
 
Banco
 
do
 
Brasil,
 
focused
 
on
 
Latin
 
America)
 
continue
 
to
 
be
 
key
 
strategic
 
priorities.
Partnerships with Global Wealth Management and Asset Management
 
enable us to provide clients with broad access to
financing, global
 
capital
 
markets and
 
portfolio solutions.
 
We expect
 
these initiatives
 
to continue
 
to lead
 
to growth
 
by
delivering global
 
products to
 
each region,
 
leveraging our
 
global connectivity
 
across borders
 
and sharing
 
and strengthening
our best client relationships.
 
Annual Report 2023 |
Our business model and environment | Our
 
businesses
 
11
Our operations and our competitors
Our two business areas,
 
Global Banking and Global
 
Markets, are organized globally by
 
product. Our business is
 
regionally
diversified, with a presence in more
 
than 30 countries. We cover the main
 
investment banking markets globally and have
major financial hubs across four regions: the Americas; Asia
 
Pacific; EMEA; and Switzerland.
 
Our global reach
 
gives attractive
 
options for growth.
 
In the Americas,
 
the largest investment
 
banking fee pool
 
globally,
we
 
continue
 
to
 
focus
 
on
 
increasing
 
market
 
share
 
in
 
our
 
core
 
Global Banking
 
and
 
Global
 
Markets
 
businesses.
 
In
 
Asia
Pacific,
 
opportunities
 
arise
 
mainly
 
from
 
expected
 
market
 
internationalization
 
and
 
growth
 
in
 
China,
 
where
 
we
 
plan
 
to
grow by
 
strengthening
 
our
 
presence,
 
both
 
onshore
 
and
 
offshore.
 
In EMEA,
 
we
 
plan
 
to leverage
 
our strong
 
base
 
and
brand recognition even further.
Competing firms operate in many
 
of our markets, but our strategy
 
differentiates us, with our focus on leadership
 
in the
areas where we have chosen to compete and a business model that leverages talent and technology rather than balance
sheet.
 
Our
 
main
 
competitors
 
are
 
the
 
major
 
global
 
investment
 
banks
 
(e.g.,
 
Morgan
 
Stanley
 
and
 
Goldman
 
Sachs)
 
and
corporate
 
investment
 
banks
 
(e.g.,
 
Bank
 
of
 
America,
 
Barclays,
 
Citigroup,
 
BNP
 
Paribas,
 
Deutsche
 
Bank
 
and
 
JPMorgan
Chase). We also compete with boutique investment bank
 
s
 
and fintech firms in certain regions and products.
 
Non-core and Legacy
In 2023, subsequent to the acquisition
 
of the Credit Suisse Group by
 
UBS, Non-core and Legacy was
 
created at the UBS
Group level,
 
to bring
 
together positions
 
and businesses,
 
mainly including
 
those of
 
Credit Suisse,
 
which are
 
not aligned
with the Group’s strategy and policies.
From a UBS AG consolidated perspective,
 
Non-core and Legacy includes the
 
remaining assets and liabilities of
 
UBS’s Non-
core and Legacy Portfolio,
 
previously reported in
 
Group Functions (now renamed
 
to Group Items), and
 
smaller amounts
of assets and
 
liabilities of UBS’s
 
business divisions that
 
have been assessed
 
as not strategic
 
in light of
 
the acquisition of
the Credit Suisse Group.
 
›
Refer to “Non-core and Legacy” in the “Our strategy, business model and environment” section
 
of the UBS Group Annual Report
2023 for more information about Non-core and Legacy from a Group
 
perspective
 
Group functions
The Group functions are support and control functions that provide services to the Group, focusing on effectiveness, risk
mitigation and efficiency.
 
How we are organized
The
 
Group
 
functions
 
include
 
the
 
following major
 
areas:
 
Group
 
Services
 
(which
 
consists
 
of the
 
Group
 
Operations
 
and
Technology
 
Office, Corporate Services, Compliance, Regulatory & Governance, Finance, Risk Control, Human Resources,
Communications &
 
Branding, Legal,
 
the Group
 
Integration Office,
 
Group Sustainability
 
and Impact, and
 
Chief Strategy
Office) and Group Treasury.
 
Group Services
The vast
 
majority of the
 
support and
 
control functions
 
are fully
 
aligned or
 
shared among
 
the business
 
divisions, where
they have full management
 
responsibility.
 
By keeping the
 
activities of the businesses
 
and support and control
 
functions
closely
 
aligned,
 
we
 
improve
 
efficiency
 
and
 
create
 
a
 
working
 
environment
 
built
 
on
 
accountability
 
and
 
collaboration.
Virtually all costs incurred by
 
the support and control functions
 
are allocated to the
 
business divisions, leaving a residual
amount that we refer to
 
as Group Items in
 
our segment reporting in accordance with
 
IFRS Accounting Standards. Certain
activities
 
are
 
retained
 
centrally,
 
where
 
not
 
directly
 
related
 
to
 
the
 
businesses,
 
such
 
as
 
group
 
hedging
 
and
 
own
 
debt
activities in Group Treasury and certain other costs that are mainly related to deferred tax assets and costs relating to our
legal entity transformation program.
 
Group Treasury
Group Treasury
 
manages balance
 
sheet structural
 
risk (e.g.,
 
interest rate,
 
structural foreign
 
exchange and
 
collateral
risks), as
 
well as
 
the risks
 
associated with
 
our liquidity,
 
capital and
 
funding portfolios.
 
Group Treasury
 
serves all
 
five
business divisions, and its risk management is integrated into
 
the Group risk governance framework.
 
 
 
Annual Report 2023 |
Our business model and environment | Our
 
environment
 
12
Our environment
Market environment
Global economic developments in 2023
1
The global economy was resilient in 2023, in
 
spite of the steep interest rate rises by
 
major central banks designed to curb
inflation from the multi-decade highs reached
 
in 2022.
Global growth slowed only slightly, to 3.2%, in 2023, down from 3.4% in 2022. This partly reflected the strength of the
US economy, where
 
growth withstood higher
 
interest rates, tightening
 
bank lending standards,
 
and mediocre real
 
income
growth. US GDP growth increased to 2.5% in 2023, up from 1.9% in 2022, as job security and relatively strong balance
sheets encouraged higher spending by middle-income
 
consumers. Economies in Europe also expanded
 
in 2023, though
at a slower pace. Growth in
 
the Eurozone slowed to 0.5%
 
in 2023, down from 3.4%
 
in 2022, as the European
 
Central
Bank (the ECB) repeatedly raised interest rates.
 
Growth in the Swiss economy slowed to
 
0.7% in 2023, down from 2.7%
in 2022. UK
GDP growth slowed to 0.1% in 2023,
 
down from 4.3% in 2022, as high inflation
 
and interest rate rises also
limited growth.
 
Growth in China
 
increased to 5.2%
 
in 2023, compared
 
with 3% in
 
2022, when its
 
economy was slowed
 
by pandemic
restrictions that were in place until late in that
 
year. However, cautious spending by domestic
 
consumers meant that the
rebound in
 
growth was
 
weaker than
 
had been
 
expected. Growth
 
in India
 
remained robust
 
at 7%
 
in 2023,
 
down only
slightly from 7.2% in 2022.
 
Inflation eased across developed economies, especially in the second half of 2023, as supply chains continued to recover
from COVID-19 disruptions,
 
energy prices were
 
lower than 2022
 
and central
 
bank interest
 
rate rises increased
 
the cost
of borrowing.
 
US consumer
 
price inflation
 
slowed to
 
an annual 3.4%
 
in December
 
2023, from
 
6.4% in January
 
2023.
Inflation decelerated
 
even more
 
markedly in
 
the Eurozone,
 
to 2.9%
 
year over
 
year in
 
December 2023,
 
compared with
8.5% in
 
January 2023. This
 
trend enabled the
 
Federal Reserve and
 
the ECB
 
to signal
 
late in
 
2023 that
 
monetary tightening
had probably come to an end.
The MSCI All Country World Index
 
returned a 22.2% gain in 2023,
 
with close to half of that
 
gain coming in the final
 
two
months of
 
the year.
 
The S&P
 
500 rose
 
by 26.3%,
 
lifted by
 
optimism that
 
innovations in
 
artificial intelligence
 
will boost
profits and hopes that
 
the Federal Reserve
 
will cut rates swiftly in
 
response to falling inflation.
 
The FANG+ index,
 
which
tracks the 10 most traded US tech stocks, increased 96%
 
over the year. The MSCI Japan was the best-performing
 
major
market in
 
local currency
 
terms in 2023,
 
with a
 
return of
 
28.6%, its highest
 
in a
 
decade. In
 
Europe, the MSCI
 
EMU returned
18.8%. Although the Swiss and
 
UK markets lagged behind global
 
stocks, both ended the year
 
in positive territory,
 
with
returns of 5.3% and 7.7%, respectively. The weakest performance by a major
 
market came from the MSCI China, which
lost 10.7% amid disappointment
 
over the pace
 
of the economic recovery
 
from pandemic restrictions
 
and more limited-
than-expected stimulus.
 
Economic and market outlook for 2024
1
Our baseline
 
scenario for
 
2024 is
 
for a
 
soft landing
 
in
 
the US
 
and subdued
 
but positive
 
growth in
 
the Eurozone.
 
We
expect growth in China to enter a new normal of lower,
 
but potentially higher-quality, growth.
 
We believe inflation
 
will continue falling
 
toward central bank
 
targets, and, as
 
a result, we
 
believe policymakers will
 
feel
confident enough to lower
 
interest rates starting
 
around the middle
 
of 2024. We expect
 
cuts from the Federal
 
Reserve,
the ECB, the
 
Swiss National
 
Bank and the
 
Bank of England.
 
In contrast, with
 
Japanese deflation
 
coming to an
 
end, we
expect the Bank of Japan to raise rates into positive territory
 
for the first time since late 2015.
 
With regard
 
to growth,
 
we expect
 
the US
 
to slow to
 
a sustainable
 
long-term rate
 
of growth, due
 
to declining
 
housing
affordability and
 
the withdrawal
 
of some
 
government support
 
measures that
 
helped households
 
during the
 
COVID-19
pandemic. However, middle-income
 
consumers still appear
 
to have spending power,
 
as well as relatively
 
strong balance
sheets, and
 
we expect
 
demand for
 
labor to
 
remain resilient.
 
Overall, we
 
expect US
 
GDP growth
 
to remain
 
positive, at
around
 
1.1%
 
in
 
2024.
 
We
 
expect
 
growth
 
to
 
be
 
weak
 
in the
 
Eurozone,
 
at
 
0.6%,
 
due
 
to
 
the
 
lagged
 
effect
 
of higher
interest rates.
 
We also
 
expect
 
UK GDP
 
to increase
 
by 0.6%
 
in 2024,
 
while GDP
 
growth in
 
Switzerland
 
is expected
 
to
increase to 1.2% in 2024.
 
Geopolitical events
 
and elections
 
also have
 
the potential
 
to play an
 
outsized role
 
in 2024.
 
The US
 
presidential election,
the ongoing Israel–Hamas and Russia–Ukraine wars,
 
and the tension between the US and China could all affect markets
globally. In addition, more than four billion people in more than 40 countries are set to
 
go to the polls in 2024, including
in the US, India and, potentially,
 
the UK.
1
Based on sources: Haver Analytics, CEIC, National Statistic and UBS.
 
Annual Report 2023 |
Our business model and environment |
 
Regulation and supervision
 
13
Regulation and supervision
As a
 
financial services provider based
 
in Switzerland, the
 
UBS Group
 
is subject to
 
consolidated supervision by the
 
Swiss
Financial Market Supervisory Authority (FINMA). The
 
Group’s entities are
 
also regulated and
 
supervised by authorities in
each
 
country
 
where
 
we
 
conduct
 
business. Through
 
UBS AG,
 
Credit Suisse AG,
 
UBS
 
Switzerland AG and
 
Credit
 
Suisse
(Schweiz) AG, which
 
are licensed as banks in Switzerland,
 
UBS may engage in a full range of financial services
 
activities in
Switzerland
 
and abroad, including
 
personal banking,
 
commercial banking,
 
investment banking
 
and asset management.
 
As UBS is a global systemically important
 
bank (a G-SIB), as designated by the
 
Financial Stability Board, and a systemically
relevant bank (an SRB) in Switzerland, UBS Group
 
entities are subject to stricter regulatory
 
requirements and supervision
than most other Swiss banks.
 
›
Refer to the “Regulatory and legal developments”
 
and “Risk factors” sections of this report for
 
more information
Regulation and supervision in Switzerland
Supervision
UBS Group AG and its subsidiaries, including UBS AG, are subject to consolidated supervision by FINMA under the
 
Swiss
Banking Act and related ordinances, which impose standards for matters such as capital adequacy
 
and risk diversification
rules, liquidity,
 
internal
 
control systems,
 
business
 
conduct, and
 
corporate
 
governance.
 
FINMA meets
 
its statutory
 
supervisory
responsibilities through licensing,
 
regulation, supervision and enforcement.
 
It is responsible for prudential supervision
 
and
mandates audit
 
firms to perform
 
regulatory audits
 
and other supervisory
 
tasks on its behalf.
Capital adequacy and liquidity regulation
As an internationally active
 
Swiss systemically important bank
 
(an SIB), UBS is subject
 
to capital and total loss-absorbing
capacity (TLAC)
 
requirements
 
at both
 
the group
 
level, for
 
UBS Group
 
AG, and
 
the parent
 
bank level,
 
for UBS
 
AG and
Credit Suisse AG, that
 
are based on both
 
risk-weighted assets (RWA)
 
and the leverage
 
ratio denominator (LRD)
 
and are
among the most
 
stringent in the
 
world. UBS Group AG,
 
UBS AG, Credit Suisse AG,
 
UBS Switzerland AG
 
and Credit Suisse
(Schweiz) AG are also subject to Swiss SIB liquidity
 
requirements and to minimum long
 
-term funding requirements.
›
Refer to the “Risk, capital, liquidity and funding,
 
and balance sheet” section of this report for
 
more information about the Swiss
SRB framework and the Swiss too-big-to-fail (TBTF)
 
requirements
›
Refer to “Liquidity coverage ratio” in the “Risk,
 
capital, liquidity and funding, and balance sheet”
 
section of this report for more
information about liquidity coverage ratio requirements
 
Regulation and supervision outside Switzerland
Regulation and supervision in the US
In the
 
US, UBS
 
is subject
 
to regulation
 
and supervision
 
by the
 
Board of
 
Governors
 
of the
 
Federal Reserve
 
System (the
 
Federal
Reserve Board) under a
 
number of laws.
 
UBS Group AG, UBS AG and
 
Credit Suisse AG
 
are subject to
 
the Bank Holding
Company Act,
 
pursuant to
 
which the Federal
 
Reserve Board
 
has supervisory
 
authority over
 
the UBS Group’s
 
US operations.
 
In addition to being
 
a financial holding company
 
under the Bank Holding Company Act,
 
UBS AG has US branches, which
are authorized
 
and supervised
 
by the
 
Office of
 
the Comptroller
 
of the
 
Currency (the
 
OCC). UBS
 
AG is
 
registered
 
as a
swap
 
dealer
 
with
 
the
 
Commodity
 
Futures
 
Trading
 
Commission
 
(the
 
CFTC),
 
and
 
registered
 
as
 
a
 
securities-based
 
swap
dealer with the Securities and Exchange Commission (the
 
SEC).
 
UBS Americas Holding
 
LLC, the intermediate
 
holding company for
 
our operations in
 
the US outside
 
of the UBS AG
 
branch
network,
 
as required
 
under
 
the
 
Dodd–Frank
 
Act,
 
is subject
 
to requirements
 
established
 
by
 
the
 
Federal
 
Reserve
 
Board
related to risk-based
 
capital, liquidity, the
 
Comprehensive Capital
 
Analysis and Review
 
(CCAR) stress testing
 
and capital
planning process, and resolution planning and governance.
 
UBS Bank USA,
 
a Federal Deposit
 
Insurance Corporation
 
(FDIC)-insured depository
 
institution subsidiary,
 
is licensed and
regulated by state regulators in Utah and is also supervised
 
by the FDIC.
 
UBS Financial
 
Services
 
Inc.,
 
UBS Securities
 
LLC and
 
several other
 
US subsidiaries
 
of UBS
 
are subject
 
to regulation
 
by a
number
 
of
 
different
 
government
 
agencies
 
and
 
self-regulatory
 
organizations,
 
including
 
the
 
SEC,
 
the
 
Financial
 
Industry
Regulatory Authority, the CFTC,
 
the Municipal Securities Rulemaking Board
 
and national securities exchanges,
 
depending
on the
 
nature of
 
their business.
 
Certain of
 
our activities
 
in the
 
US are
 
subject to
 
regulation by
 
the Consumer
 
Financial
Protection Bureau.
Regulation and supervision in the UK
Our regulated UK operations are mainly
 
subject to the authority of the Prudential Regulation
 
Authority (the PRA), which
is part
 
of the
 
Bank of
 
England, and
 
the Financial
 
Conduct Authority
 
(the FCA).
 
We are
 
also subject
 
to the
 
rules of
 
the
London Stock Exchange and other securities and commodities exchanges
 
of which UBS AG is a member.
UBS AG has a UK-registered branch, UBS AG
 
London Branch, which serves as a global booking
 
center for the Investment
Bank. Our regulated subsidiaries that
 
provide asset management services are
 
authorized and regulated by the FCA.
 
UBS
Asset Management Life Ltd is authorized and regulated by
 
the FCA and subject to the authority of the PRA.
 
 
Annual Report 2023 |
Our business model and environment |
 
Regulation and supervision
 
14
Regulation and supervision in Germany and the EU
UBS Europe SE, headquartered
 
in Germany,
 
is subject to the direct
 
supervision of the European Central
 
Bank, as well as
to
 
continued
 
conduct,
 
consumer
 
protection
 
and
 
anti-money-laundering-related
 
supervision
 
by
 
the
 
German
 
Federal
Financial Supervisory
 
Authority (BaFin)
 
and supervisory
 
support by
 
the German
 
Bundesbank. The
 
entity is subject
 
to EU
and
 
German
 
laws
 
and
 
regulations.
 
UBS
 
Europe
 
SE
 
maintains
 
branches
 
in
 
Denmark,
 
France,
 
Italy,
 
Luxembourg,
 
the
Netherlands,
 
Poland,
 
Spain,
 
Sweden
 
and
 
Switzerland
 
and
 
is
 
subject
 
to
 
conduct
 
supervision
 
by authorities
 
in
 
all
 
those
countries.
Regulation and supervision in Asia Pacific
We operate
 
in numerous
 
locations in Asia
 
Pacific, including
 
Singapore, the
 
Hong Kong SAR,
 
mainland China,
 
Australia
and Japan. The
 
operations in these
 
locations are subject
 
to regulation and
 
supervision by local
 
financial regulators.
 
Our
Asia Pacific regional hubs are in Singapore
 
and the Hong Kong SAR.
In
 
Singapore,
 
UBS AG
 
Singapore
 
Branch,
 
UBS
 
Securities
 
Pte
 
Ltd
 
and
 
UBS
 
Asset
 
Management
 
(Singapore)
 
Ltd
 
are
supervised by the Monetary Authority of Singapore and the
 
Singapore Exchange.
In the Hong Kong SAR, UBS
 
AG Hong Kong Branch is supervised
 
by the Hong Kong Monetary
 
Authority. UBS Securities
Hong Kong Limited, UBS Securities Asia Limited and UBS Asset Management (Hong Kong) Limited
 
are supervised by the
Hong Kong
 
Securities
 
and Futures
 
Commission. In
 
addition, UBS
 
Securities
 
Hong Kong
 
Limited
 
is supervised
 
by Hong
Kong Exchanges and Clearing Limited.
 
In mainland China, we have
 
multiple licenses to operate the
 
business lines of UBS AG, and
 
the various entities are subject
to regulation by a number of different government agencies. The People’s Bank of China oversees China’s macro capital
markets policies and ensures coordinated supervisory
 
approaches by the National Administration of
 
Financial Regulation
(the China Banking and Insurance Regulatory Commission until May 2023), the China Securities Regulatory Commission
and a number of exchanges.
 
In
 
Australia,
 
UBS AG
 
Australia
 
Branch
 
is
 
supervised
 
by
 
the
 
Australian
 
Prudential
 
Regulation
 
Authority,
 
the
 
Australian
Securities
 
and
 
Investments
 
Commission,
 
the
 
Australian
 
Transaction
 
Reports
 
and
 
Analysis
 
Centre,
 
the
 
Reserve
 
Bank
 
of
Australia, and the
 
Australian Securities
 
Exchange. UBS Securities
 
Australia Limited
 
and UBS Asset
 
Management Limited
are supervised by the Australian Securities and Investments Commission, the Australian Transaction Reports and Analysis
Centre, and the Australian Securities Exchange.
 
In Japan,
 
UBS Securities
 
Japan Co.,
 
Ltd. is
 
supervised by
 
the Financial
 
Services Agency
 
and the
 
Japan Exchange
 
Group.
UBS AG Tokyo
 
Branch is
 
supervised by
 
the Financial
 
Services Agency
 
and the
 
Bank of
 
Japan. UBS
 
SuMi TRUST
 
Wealth
Management Co.,
 
Ltd is
 
supervised by
 
the Financial
 
Services
 
Agency and
 
the Japanese
 
Ministry of
 
Finance.
 
UBS Asset
Management (Japan) Ltd and UBS Japan Advisors Inc. are
 
supervised by the Financial Services Agency.
 
Financial crime prevention
Combating money laundering and terrorist financing has been a major focus of
 
many governments in recent years. Laws
and regulations, including the Swiss Banking Act and the US Bank Secrecy Act, require effective policies, procedures and
controls to detect,
 
prevent and report
 
money laundering and
 
terrorist financing, and
 
the verification of client
 
identities.
Failure to introduce
 
and maintain adequate
 
programs to prevent
 
money laundering and
 
terrorist financing can
 
result in
significant legal and reputational risk and fines.
We are
 
also subject
 
to laws
 
and regulations
 
prohibiting
 
corrupt or
 
illegal payments
 
to government
 
officials and
 
other
persons, including
 
the US
 
Foreign Corrupt
 
Practices Act
 
and the
 
UK Bribery
 
Act. We
 
maintain policies,
 
procedures and
internal controls intended to comply with those regulations.
›
Refer to “Non-financial risk” in the “Risk
 
management and control” section of this report for more information
Data protection
We
 
are
 
subject
 
to
 
regulations
 
concerning
 
the
 
use
 
and
 
protection
 
of
 
customer,
 
employee,
 
and
 
other
 
personal
 
and
confidential information. This includes provisions under Swiss
 
law, the EU General Data Protection Regulation (the GDPR)
and laws of other jurisdictions.
›
Refer to the “Risk factors” section of this report for
 
more information about regulatory change
Recovery and resolution
Swiss TBTF legislation
 
requires each Swiss
 
SRB to establish
 
an emergency plan
 
to maintain systemic
 
functions in case
 
of
impending insolvency. In response to these Swiss requirements and similar ones in other jurisdictions, UBS has developed
recovery plans and
 
resolution strategies, as
 
well as plans
 
for restructuring or
 
winding down businesses
 
if the firm could
not otherwise be stabilized.
 
 
ubs-20231231p32i0
Annual Report 2023 |
Our business model and environment |
 
Regulation and supervision
 
15
In 2013, FINMA
 
stated its
 
preference for
 
a single point
 
of entry
 
(an SPE)
 
strategy for globally
 
active SRBs,
 
such as
 
UBS,
with a bail-in
 
at the group
 
holding company level.
 
UBS has made
 
structural, financial and operational
 
changes to facilitate
an SPE strategy and
 
is confident that
 
a resolution of
 
the bank is
 
operationally executable and legally
 
enforceable. In 2023,
UBS
 
acquired
 
the
 
Credit
 
Suisse
 
Group
 
and
 
merged
 
Credit
 
Suisse
 
Group AG
 
into
 
UBS
 
Group AG.
 
A
 
bail-in
 
remains
operationally executable for
 
the combined UBS Group
 
and an SPE resolution
 
strategy remains the preferred
 
strategy for
UBS.
FINMA evaluates the recovery and resolution plans of Swiss SRBs on a regular basis. In its most recent assessment, which
was published in April 2023 and based on year-end 2022 information, FINMA
 
re-confirmed that UBS’s Swiss emergency
plan is
 
effective, the
 
recovery plan
 
has been
 
approved and
 
that UBS
 
fulfills all
 
resolvability criteria.
 
This assessment
 
did
not reflect the combined organization
 
and the respective plans will need to
 
be amended and approved for the new
 
and
combined Group. FINMA
 
will review its
 
resolvability assessment of
 
the combined UBS
 
Group as
 
the integration progresses.
A new, interim assessment is expected to be published
 
by FINMA at the end of the second quarter of 2024.
Crisis management framework
The UBS Group’s crisis management framework
 
assigns responsibility and actions depending on the
 
nature of the stress
incident and the scale of the response needed.
–
For incident,
 
risk and
 
crisis
 
management,
 
the Group
 
Crisis Task
 
Force
 
works with
 
incident management
 
teams that
provide monitoring and early-warning
 
indicators at the local /
 
regional level, without needing
 
to activate protocols at
the Group
 
level. If
 
a local
 
response is
 
insufficient, global
 
task forces
 
and crisis
 
management teams
 
provide decision-
making
 
guidance
 
and
 
coordination,
 
including
 
crisis
 
management
 
plans,
 
protocols
 
and
 
playbooks,
 
and
 
contingency
funding plans.
–
The Group Executive Board (the GEB) and the Board of Directors
 
(the BoD) would evaluate and decide upon the need
to activate
 
the Global
 
Recovery
 
Plan (the
 
GRP) if
 
a stress
 
event reached
 
a severity
 
requiring activation
 
based on
 
the
GRP’s recovery risk indicators.
–
FINMA has the authority
 
to determine whether the
 
point of non-viability (the
 
PONV), as defined by
 
Swiss law, has been
reached and, as part of the resolution plan, has the power to order the
 
bail-in of creditors to recapitalize and stabilize
the Group, limit payments of dividends and interest, alter our legal structure, take actions to reduce business risk, and
order a restructuring of the bank.
 
Annual Report 2023 |
Our business model and environment |
 
Regulation and supervision
 
16
Global Recovery Plan
 
The GRP
 
provides a
 
tool to
 
restore financial
 
strength if
 
UBS comes
 
under severe
 
capital or
 
liquidity stress.
 
Quantitative
and qualitative triggers are monitored daily and are
 
subject to predefined governance and escalation processes. Recovery
options
 
are
 
linked
 
to
 
owners
 
and
 
checklists,
 
with
 
the
 
objectives
 
of
 
preserving
 
capital,
 
raising
 
capital
 
or
 
liquidity,
 
or
disposing of or winding down businesses.
Global Resolution Strategy
FINMA is required
 
to produce
 
a global resolution
 
plan for UBS.
 
The plan
 
includes setting out
 
measures that
 
FINMA can
take to resolve
 
UBS in
 
an orderly manner
 
if the
 
UBS Group enters
 
resolution. The SPE
 
bail-in strategy would
 
involve writing
down the UBS
 
Group’s remaining equity and
 
additional tier 1 and
 
tier 2 instruments, as well
 
as the bailing
 
in of the
 
TLAC-
eligible senior unsecured
 
bonds at the
 
UBS Group AG
 
level. An internal
 
recapitalization of
 
undercapitalized subsidiaries
would
 
be
 
executed
 
simultaneously
 
with
 
losses
 
transmitted
 
to
 
UBS AG
 
or
 
Credit
 
Suisse AG,
 
and,
 
ultimately,
 
UBS
Group AG. Post-resolution restructuring measures could
 
include disposals or wind-down of businesses and assets.
Local recovery and resolution plans
The Swiss
 
emergency plans demonstrate
 
how UBS’s
 
systemically important functions
 
and critical
 
operations in
 
Switzerland
can continue if
 
the UBS Group
 
cannot be restructured.
 
This is achieved
 
mainly by operating
 
the Swiss-booked
 
business
in separate legal entities, including
 
UBS Switzerland AG, and by maintaining
 
sufficient capital and liquidity to
 
ensure their
continued operation.
 
The US resolution plans set
 
out the steps that could be taken
 
to resolve the US intermediate
 
holding companies (the US
IHCs), including UBS Americas Holding LLC, and their subsidiaries,
 
if they suffered material financial distress and the UBS
Group was unable or
 
unwilling to provide
 
financial support. As
 
such and as required
 
by US regulations, our
 
US plan for
UBS Americas
 
Holding LLC
 
contemplates that
 
the US
 
IHC will commence
 
US bankruptcy
 
proceedings. Prior
 
to this,
 
the
plan envisages the US IHC downstreaming financial resources
 
to their respective subsidiaries to facilitate an orderly wind-
down or disposal of businesses.
 
UBS Europe
 
SE
 
updates
 
a
 
local
 
recovery
 
plan
 
annually
 
based
 
on
 
European
 
Central
 
Bank
 
requirements,
 
and
 
resolution
planning information and capabilities based on
 
Single Resolution Board requirements. On the basis
 
of such information,
the
 
Internal
 
Resolution
 
Team,
 
composed
 
of
 
members
 
of
 
the
 
Single
 
Resolution
 
Board,
 
produces
 
a
 
resolution
 
plan
 
for
UBS Europe SE.
 
Other local recovery and resolution plans
 
exist for various UBS AG entities and jurisdictions.
Regulatory trends
In
 
2023,
 
regulatory
 
policy
 
was
 
strongly
 
impacted
 
by
 
the
 
banking
 
turmoil
 
in
 
March,
 
with
 
financial
 
stability
 
concerns
returning
 
to
 
the
 
forefront,
 
followed
 
by
 
renewed
 
discussions
 
around
 
the
 
effectiveness
 
of
 
too-big-to-fail
 
/
 
resolution
frameworks
 
and
 
subsequent
 
initial
 
lessons
 
drawn
 
being
 
discussed
 
throughout
 
the
 
year.
 
While
 
the
 
reviews
 
by
supranational standard-setters
 
and in
 
Switzerland generally
 
upheld the
 
appropriateness
 
of the
 
international regulatory
and resolution frameworks, certain themes requiring further
 
attention were identified with additional analyses ongoing.
The
 
digitalization
 
of banking
 
and corresponding
 
policy
 
responses
 
continued
 
throughout
 
2023,
 
with attention
 
paid to
systemic risks, market integrity, investor
 
protection and cross-border aspects
 
related to digital assets. Initial
 
policy efforts
started
 
on
 
decentralized
 
finance.
 
In
 
the
 
meantime,
 
most
 
major
 
central
 
banks
 
increased
 
their
 
engagement
 
related
 
to
central bank digital currencies.
 
New capabilities and wider
 
adoption of artificial intelligence (AI)
 
have resulted in increased
regulatory focus on the
 
topic, particularly regarding
 
sound governance frameworks,
 
safety and fairness. The
 
large-scale
use of both traditional and non-traditional data by AI
 
models has given rise to questions around the adequacy
 
of existing
data legislation
 
and in
 
some jurisdictions will
 
likely result
 
in enhanced
 
protections. Separately, many
 
jurisdictions continued
to make data more available across sectors, with a focus
 
on open finance.
Sustainable finance and climate-related financial
 
risks remained a key
 
focus for policymakers in
 
2023, where we observed
noteworthy activity in
 
the areas of
 
corporate and product
 
disclosures for climate-related
 
financial risks, specifically
 
relating
to banks’ governance, strategy and risk management, as well as efforts to standardize and harmonize regulations across
different jurisdictions. Policymakers advanced guidelines
 
related to nature and
 
biodiversity topics by intensifying
 
the focus
on disclosures, risk management and
 
quantification methodologies. Furthermore, we observed ongoing regulatory
 
policy
related to net-zero financing, while transition planning started to become an important focus topic for policymakers. On
the topic of products regulation, regulatory initiatives continued
 
to focus on carbon and carbon markets and addressing
issues related
 
to greenwashing.
 
Lastly, we
 
saw increased
 
regulatory attention
 
paid to
 
solutions related
 
to social
 
impact
investing and blended finance.
 
Annual Report 2023 |
Our business model and environment |
 
Regulation and supervision
 
17
The national
 
implementation of
 
the Basel III
 
requirements continued
 
to be
 
an important
 
focus area.
 
The authorities
 
in
Switzerland issued
 
rules to
 
implement the
 
final standards
 
into Swiss
 
law, and
 
US banking
 
regulators launched
 
a public
consultation in 2023. Switzerland has confirmed the effective date for the revised rules as 1 January 2025. Although the
EU is
 
still targeting
 
implementation by
 
January 2025,
 
the UK
 
and the
 
US have
 
delayed the
 
application until
 
July 2025,
with the US also
 
including a three-year transition
 
timeline. Differences in the implementation
 
timelines and in the
 
content
of the provisions remain a challenge for globally active banks.
In addition, regulatory
 
authorities continued to
 
refine existing regulations,
 
including efforts to
 
strengthen the anti-money-
laundering guidelines
 
on beneficial
 
ownership and
 
work
 
on enhancing
 
third-party
 
risk management,
 
with operational
resilience remaining a key issue. The focus on retail
 
investor protection sharpened, in particular in asset management.
 
In
the US, retail investor protection features became a component of an ongoing broader
 
equity market reform. In the UK,
reviews of the Senior Managers and Certification Regime focused
 
on determining whether the regime delivers against its
original aim and how it can be improved.
 
Finally, in light of increasing risks,
 
non-bank financial intermediation remained
a topic of concern with national and supranational policymakers.
We believe the continued adaptations made to our business model
 
and our proactive management of regulatory change
put us in a strong position
 
to absorb upcoming changes
 
to the regulatory environment.
 
We trust that our strengthened
position as a combined organization will allow us to cope
 
with any potential challenges.
›
Refer to the “Regulatory and legal developments”
 
and the “Risk, capital, liquidity and funding,
 
and balance sheet” sections of this
report for more information
Regulatory and legal developments
Developments related to the acquisition of the Credit Suisse
 
Group and the banking turmoil in March 2023
Key developments in Switzerland
Based on the emergency
 
ordinance issued by the
 
Swiss Federal Council in
 
connection with the
 
acquisition of the Credit
Suisse Group
 
on 16 March
 
2023, as amended
 
on 19 March
 
2023, (the Emergency
 
Ordinance), UBS
 
Group AG entered
into a loss protection agreement (an LPA)
 
with the Swiss Confederation, with an effective date of 12 June 2023. As part
of
 
this
 
agreement,
 
the
 
Swiss
 
Confederation
 
would
 
have
 
borne up
 
to
 
CHF 9bn
 
of
 
losses,
 
if
 
realized,
 
on
 
a
 
designated
portfolio of Credit Suisse’s non-core assets
 
after the first CHF 5bn of losses, which would have
 
been borne by UBS.
Under the Emergency
 
Ordinance, UBS AG
 
and Credit
 
Suisse AG also
 
had access to
 
additional liquidity
 
assistance loans,
the Emergency Liquidity Assistance Plus (ELA+) loans, provided by the Swiss National Bank
 
(the SNB) of up to CHF 100bn
on a combined
 
basis, with
 
the loans
 
under the
 
facility having
 
preferential rights
 
in bankruptcy
 
proceedings. The
 
Credit
Suisse Group was also allowed to borrow up
 
to an additional CHF 100bn from the SNB backed
 
by a Swiss federal default
guarantee,
 
the Public Liquidity Backstop
 
(the PLB), with the loans having preferential rights
 
in bankruptcy proceedings.
On 11 August 2023, UBS Group AG voluntarily terminated the LPA
 
and the PLB. After reviewing all assets
 
covered by the
LPA since the closing of the
 
Transaction in June 2023 and
 
taking the appropriate fair
 
value adjustments, UBS concluded
that the LPA was no
 
longer required. All loans
 
under the PLB were
 
fully repaid by the
 
Credit Suisse Group as
 
of the end
of May 2023
 
and Credit Suisse AG
 
fully repaid the
 
outstanding ELA+ loans
 
on 10 August 2023.
 
As of 31 December
 
2023,
Credit Suisse (Schweiz) AG had a total of CHF 38bn outstanding under the Emergency Liquidity Assistance facility, which
is fully collateralized by Swiss mortgages.
In parallel with
 
the measures
 
taken by
 
the Swiss
 
Confederation in
 
March 2023,
 
the Swiss
 
Financial Market
 
Supervisory
Authority (FINMA) also ordered a write-off of CHF 15.8bn principal amount of Credit Suisse Group AG’s additional tier 1
(AT1) instruments.
In May 2023,
 
the Swiss
 
Federal Department
 
of Finance
 
mandated a group
 
of experts
 
on banking
 
stability to assess
 
the
role
 
of
 
banks
 
and
 
the
 
legal
 
and
 
regulatory
 
framework
 
related
 
to
 
the
 
stability
 
of
 
the
 
Swiss
 
financial
 
center.
 
The
corresponding report,
 
published in
 
September 2023,
 
concluded that
 
Swiss capital
 
regulations are
 
working as
 
intended
and
 
that
 
there
 
is
 
no
 
need
 
for
 
a
 
major
 
revision.
 
However,
 
the
 
report
 
sees
 
a
 
need
 
for
 
reforms
 
with
 
regard
 
to
 
banking
supervision
 
and
 
proposes
 
that
 
the
 
relevant
 
authorities
 
be
 
granted
 
broader
 
powers.
 
Furthermore,
 
the
 
report
 
suggests
improvements regarding liquidity regulations, including a proposal to extend the supply of liquidity in the case of a crisis.
The
 
report
 
also
 
suggests
 
that
 
Swiss
 
authorities
 
should
 
make
 
improvements
 
with
 
regard
 
to
 
crisis
 
preparation
 
and
management.
 
 
Annual Report 2023 |
Our business model and environment |
 
Regulatory and legal developments
 
18
In
 
June
 
2023,
 
the
 
Swiss
 
Parliament
 
formed
 
a
 
parliamentary
 
inquiry
 
committee
 
that
 
is
 
mandated
 
to
 
investigate
 
the
legitimacy, expediency and
 
effectiveness of the
 
management of the competent
 
authorities and bodies
 
in the context
 
of
the
 
events
 
involving
 
the
 
Credit
 
Suisse
 
Group.
 
The
 
committee
 
will
 
report
 
to
 
the
 
Swiss
 
Parliament
 
on
 
the
 
results
 
of
 
its
investigation and will
 
propose measures to
 
remedy any identified
 
deficiencies. We
 
expect the results
 
to be published
 
in
the
 
fourth
 
quarter
 
of
 
2024.
 
The
 
conclusions
 
by
 
the
 
inquiry
 
committee
 
may
 
include
 
potentially
 
significant
recommendations, which could result in more stringent regulation.
In December 2023, FINMA
 
published a report on
 
the case of
 
Credit Suisse that analyzed
 
the development of Credit
 
Suisse
in recent
 
years and
 
examined
 
its supervisory
 
work with
 
the bank.
 
In addition,
 
FINMA
 
noted in
 
its report
 
a number
 
of
lessons to
 
be learned,
 
calling for
 
a stronger
 
legal basis,
 
specifically for
 
instruments such
 
as a
 
Senior Managers
 
Regime,
the
 
power
 
to impose
 
fines,
 
and more
 
stringent
 
rules regarding
 
corporate
 
governance.
 
Furthermore,
 
FINMA explained
that it
 
will adapt
 
its supervisory
 
approach in
 
certain areas
 
and will
 
step up
 
its review
 
of whether
 
stabilization measures
are ready to be implemented.
 
The findings of the
 
group of experts and the
 
lessons drawn by FINMA include
 
recommendations that could result in
 
more
stringent
 
regulation,
 
and
 
will
 
be
 
considered
 
by
 
the
 
Swiss
 
Federal
 
Council
 
in
 
its
 
next
 
report
 
on
 
systemically
 
important
banks, which is to be presented by April 2024.
Key developments in the US
In May 2023, the
 
Federal Reserve Board
 
and the Federal Deposit
 
Insurance Corporation (the
 
FDIC) released reports
 
that
covered the
 
circumstances leading
 
to the
 
closing of
 
certain banking
 
organizations following
 
the events
 
in the
 
banking
market in March 2023. The reports noted shortcomings in the supervisory agencies’ execution of
 
examination programs,
including escalation
 
of supervisory
 
issues and
 
staffing. They
 
also raised
 
concerns related
 
to the
 
regulatory
 
framework,
including the Federal Reserve’s Tailoring Rule and other topics, such as interest rate risk management. UBS expects these
developments to impact the regulatory environment
 
in the US, where UBS has significant
 
operations.
In November
 
2023, the
 
FDIC approved
 
a final rule
 
to implement
 
a special
 
assessment to
 
recover losses
 
incurred by
 
the
Deposit Insurance
 
Fund in
 
connection with
 
the failures
 
of Silicon
 
Valley Bank
 
and Signature
 
Bank in
 
March 2023.
 
The
assessment
 
is
 
based
 
on
 
the
 
estimated
 
uninsured
 
deposits
 
of
 
each
 
depository
 
institution
 
at
 
the
 
end
 
of
 
2022.
 
The
assessment will
 
be collected
 
over an
 
eight-quarter
 
period that
 
started in
 
January 2024.
 
In the
 
fourth quarter
 
of 2023,
UBS Bank USA recorded a charge for the full amount of
 
its estimated assessment of USD 60m.
Key developments at the supranational level
In October 2023,
 
the Basel Committee
 
on Banking Supervision
 
(the BCBS) released
 
a report
 
on the causes
 
of the 2023
banking turmoil. The BCBS argues that
 
while the distress of various banks
 
in March 2023 reflected
 
idiosyncratic factors,
recurring
 
themes
 
can
 
be
 
grouped
 
into
 
three
 
broad
 
categories:
 
bank
 
risk-management
 
practices
 
and
 
governance
arrangements; strong and effective
 
supervision; and robust regulatory standards.
 
Also in October
 
2023, the
 
Financial Stability
 
Board (the
 
FSB) identified
 
in a review
 
several areas
 
related to
 
the effective
operationalization and implementation
 
of the international
 
resolution framework that
 
merit further attention as
 
part of
future work, but concluded that recent events demonstrate
 
the soundness of the framework.
No concrete changes to the Basel
 
standards or the FSB framework
 
are proposed at this stage, but the
 
follow-up work is
particularly focused
 
on strengthening
 
supervisory effectiveness,
 
liquidity risk,
 
interest rate
 
risk in the
 
banking book
 
and
the effectiveness of the resolution frameworks.
Developments regarding capital and liquidity adequacy
 
and TBTF frameworks
Developments related to liquidity adequacy
In September
 
2023, the
 
Swiss Federal
 
Council adopted
 
a dispatch
 
and draft
 
legislation on
 
the introduction
 
of a
 
public
liquidity
 
backstop
 
for
 
systemically
 
important
 
banks
 
(SIBs),
 
which
 
was
 
initially
 
implemented
 
as
 
part
 
of
 
the
 
Emergency
Ordinance. The proposed legislative changes aim to
 
establish the public liquidity backstop
 
as part of ordinary law
 
in order
to enable the Swiss
 
government and the SNB
 
to support an
 
SIB domiciled in Switzerland
 
with liquidity in the
 
process of
resolution, in
 
line with
 
other financial
 
centers. The
 
introduction of
 
the public
 
liquidity backstop
 
is intended
 
to increase
the confidence of market
 
participants in the ability of
 
SIBs to be successfully
 
recapitalized and remain
 
solvent in a crisis.
Furthermore, the draft legislation
 
provides that SIBs
 
will pay the
 
Swiss Confederation an
 
annual fee to
 
mitigate a potential
impact on competition
 
and to compensate
 
the Swiss
 
Confederation for
 
its guarantee
 
to the SNB
 
of the
 
public liquidity
backstop,
 
if required.
 
In addition
 
to the
 
public liquidity
 
backstop, the
 
proposed legislative
 
changes would
 
enact into
 
ordinary law
 
additional
provisions contained in
 
the Emergency Ordinance,
 
including mandated clawback
 
of variable compensation
 
in the event
that government support is provided to an SIB.
 
 
Annual Report 2023 |
Our business model and environment |
 
Regulatory and legal developments
 
19
The legislative changes are expected to come into force by January 2025, at the earliest,
 
as in November 2023, the Swiss
Parliament suspended
 
discussions on
 
the public
 
liquidity backstop
 
until the
 
presentation of
 
the Swiss
 
Federal Council’s
report on systemically important banks.
Furthermore, FINMA communicated
 
in the third
 
quarter of 2023
 
the liquidity requirements
 
arising from the
 
revisions to
the
 
Swiss
 
Liquidity
 
Ordinance,
 
with
 
the
 
aim
 
of
 
strengthening
 
the
 
resilience
 
of
 
SIBs
 
in
 
Switzerland.
 
The
 
affected
 
legal
entities of the UBS Group are compliant with these requirements,
 
which became effective on 1 January 2024.
Developments related to capital adequacy
In July 2023, US banking regulators,
 
including the Federal Reserve
 
Board, the FDIC and the
 
Office of the Comptroller
 
of
the Currency
 
(the OCC), issued
 
a public consultation
 
on a proposal
 
that would
 
implement the
 
final components of
 
the
Basel III capital standards for US banking organizations and foreign-owned intermediate holding
 
companies, such as UBS
Americas Holding
 
LLC and
 
Credit Suisse
 
Holdings (USA),
 
Inc. Among
 
other matters,
 
the proposed
 
rules would
 
end the
use of
 
the internal
 
model approach
 
for credit
 
risk by
 
the largest
 
banking organizations
 
and would
 
introduce instead
 
a
new
 
standardized
 
approach.
 
In
 
addition,
 
the
 
proposed
 
rules
 
for
 
operational
 
risks
 
would
 
replace
 
the
 
advanced
measurement approach
 
with a
 
standardized
 
measure. The
 
proposal calls
 
for a
 
three-year
 
transition period,
 
starting on
1 July 2025, and full implementation by 1 July 2028. We currently estimate that the proposed rule changes would
 
result
in increased capital requirements
 
for our US-based intermediate holding companies
 
if implemented as proposed.
In November
 
2023, the
 
Swiss Federal
 
Council adopted
 
amendments to
 
the Capital
 
Adequacy Ordinance
 
(the CAO)
 
for
banks to
 
incorporate the
 
final Basel III
 
standards adopted
 
by the
 
BCBS in
 
Swiss law.
 
The amended
 
CAO will
 
enter into
force on
 
1 January 2025. The
 
final degree
 
of alignment
 
between the
 
Swiss implementation and
 
those in
 
other jurisdictions
remains
 
uncertain
 
at
 
this
 
stage.
 
Although
 
EU
 
legislators
 
target
 
implementation
 
by
 
January
 
2025, the
 
implementation
timelines in the UK and
 
the US have been
 
delayed until July 2025.
 
The Swiss Federal Department
 
of Finance will inform
the Swiss
 
Federal Council about
 
the status of
 
international implementation by
 
the end of
 
July 2024. We
 
currently estimate
that the revised Basel III framework will lead
 
to a further net increase in
 
risk-weighted assets of approximately USD 25bn,
of
 
which
 
USD 10bn
 
is
 
in
 
Non-core
 
and
 
Legacy.
 
This
 
estimate
 
is
 
based
 
on
 
static
 
balances,
 
before
 
taking
 
into
 
account
mitigating actions, as well as not reflecting the impact of
 
the output floor, which is phased in over time.
Developments related to TBTF frameworks
In
 
August
 
2023,
 
the
 
Federal
 
Reserve
 
Board
 
and
 
the
 
FDIC
 
issued
 
joint
 
proposals
 
on
 
long-term
 
debt
 
requirements
 
and
resolution
 
planning
 
guidance
 
for
 
large
 
banks.
 
The
 
long-term
 
debt
 
proposal
 
would
 
require
 
certain
 
large
 
bank-holding
companies, intermediate holding companies
 
and insured depositories with
 
USD 100bn or more in
 
total assets to
 
maintain
a minimum amount of long-term debt, intended
 
to enhance the resilience and resolvability
 
of such organizations. Large
banking organizations would also be
 
prohibited from certain activities that could
 
complicate the resolution or would lead
to contagion risks.
 
If the proposals are
 
implemented, UBS Bank
 
USA would be
 
subject to the
 
long-term debt requirement,
which would be
 
incremental to
 
the requirements
 
already imposed
 
upon its parent
 
organization, UBS
 
Americas Holding
LLC. The resolution
 
planning guidance
 
proposed by
 
US banking regulators
 
would cover
 
our US-based
 
entities and calls
for certain enhancements in the requirements
 
of the submitted resolution plans.
In November 2023, the FSB published the 2023 list of global
 
systemically important banks (G-SIBs). UBS has been moved
from Bucket
 
1 to
 
Bucket 2,
 
corresponding to
 
an increased
 
FSB common
 
equity tier
 
1 capital
 
surcharge requirement
 
of
1.5%
 
from
 
1.0%,
 
effective
 
from
 
1 January
 
2025.
 
Credit
 
Suisse
 
has
 
been
 
removed
 
from the
 
list.
 
As UBS
 
is
 
subject
 
to
higher requirements under the Swiss CAO, the change does
 
not affect the capital requirements applicable to UBS.
 
In February 2024, the FSB published its
 
Peer Review of Switzerland, which examines Switzerland’s implementation of the
FSB’s
 
TBTF
 
reforms
 
for
 
G-SIBs.
 
The
 
review
 
states
 
that
 
although
 
Swiss
 
authorities
 
have
 
made
 
important
 
steps
 
toward
implementing an
 
effective TBTF
 
regime for
 
G-SIBs, additional
 
steps can
 
be taken
 
to further
 
strengthen the
 
Swiss TBTF
framework.
 
Recommendations
 
include
 
increasing
 
supervisory
 
resources,
 
strengthening
 
early
 
intervention
 
powers
 
and
enhancing the recovery and resolution regime.
 
Annual Report 2023 |
Our business model and environment |
 
Regulatory and legal developments
 
20
Developments regarding climate-related financial
 
risks and sustainable finance
In 2023, the Swiss
 
National Council discussed
 
the revision of
 
the Act on
 
the Reduction of
 
CO
2
 
Emissions (the CO
2
 
Act),
which contains
 
measures to
 
halve greenhouse
 
gas emissions
 
by 2030
 
compared
 
with 1990.
 
The proposal
 
is based
 
on
supplementing the
 
existing
 
CO
2
 
Act with
 
additional
 
incentives
 
to reduce
 
emissions
 
in different
 
industry
 
sectors
 
of the
economy. For the
 
financial sector, it
 
contains a provision
 
mandating FINMA and
 
the SNB to
 
regularly assess climate-related
financial risks
 
in the
 
financial sector
 
and to
 
report the
 
results,
 
as well
 
as potential
 
measures,
 
to the
 
Swiss government.
FINMA is currently collecting
 
the data from the
 
financial sector in
 
order to be able
 
to carry out
 
the assessment in
 
2024.
It is expected that the proposal will be formally adopted by the
 
Swiss Parliament in spring 2024.
 
In June 2023, the Swiss electorate voted in favor of the
 
new Climate and Innovation Act (the CI Act). The CI
 
Act defines
a net-zero-by-2050 target
 
for Switzerland, including
 
interim targets for
 
selected sectors of
 
the Swiss economy
 
covering
scope 1
 
and
 
2
 
emissions.
 
In
 
addition,
 
each
 
Switzerland-domiciled
 
company
 
is
 
required
 
to
 
set
 
a
 
net-zero
 
target
 
by
1 January 2025. The CI Act
 
also contains provisions for
 
public funding to replace aged
 
heating systems in buildings and
for application of innovative technologies within companies.
 
Article 9 of the CI Act requires the financial
 
sector to make
an effective contribution to the transition to net zero and sets the general goal of the alignment of financial resources to
climate-friendly outcomes. Specific measures to achieve
 
the targets will be proposed in the CO
2
 
Act.
In December 2023, the Swiss Parliament added a provision on greenwashing to the Unfair Competition Act under which
companies are required
 
to make truthful and
 
clear statements in
 
relation to their
 
climate impact that
 
can be substantiated
by objective and verifiable bases.
Also in December 2023, the Swiss Federal Council announced that it intends to further improve climate transparency for
financial products and to further
 
develop the voluntary Swiss Climate
 
Scores (the SCS), which were
 
introduced in 2022.
The SCS
 
provide investors
 
with information
 
about the
 
extent to
 
which their
 
financial investments
 
are compatible
 
with
climate goals. The updated SCS, which will apply from 1 January 2025, will continue to prescribe disclosures by financial
institutions
 
on
 
climate
 
alignment
 
and
 
climate
 
change
 
mitigation
 
characteristics
 
of
 
financial
 
products
 
and
 
will
 
newly
prescribe disclosure of exposures to renewable energy. UBS
 
has committed to the voluntary use of the SCS.
In October
 
2023, the
 
Federal
 
Reserve
 
Board, the
 
OCC and
 
the FDIC
 
approved guidance
 
on the
 
principles for
 
climate-
related
 
financial
 
risk
 
management.
 
The
 
final
 
principles
 
describe
 
how
 
climate-related
 
risks
 
can
 
be
 
addressed
 
in
 
the
management
 
of
 
traditional
 
financial
 
risks.
 
The
 
principles
 
cover
 
six
 
areas:
 
governance;
 
policies,
 
procedures
 
and
 
limits;
strategic planning; risk management; data, risk measurement and reporting; and scenario analysis. The guidance applies
to our US-based operations. UBS is evaluating the guidance to ensure the principles are addressed by the relevant Group
practices.
In June 2023,
 
the International Sustainability Standards
 
Board (the ISSB)
 
finalized its first
 
set of requirements
 
for corporate
disclosures
 
regarding
 
sustainability
 
matters:
 
IFRS S1
 
and
 
IFRS S2.
 
IFRS S1
 
addresses
 
the
 
disclosure
 
of
 
a
 
company’s
sustainability-related risks and
 
opportunities. IFRS S2 addresses the
 
disclosures for the
 
governance processes, controls
 
and
procedures an
 
entity uses
 
to monitor,
 
manage and oversee
 
climate-related risks and
 
opportunities and
 
the entity’s strategy
for managing
 
risks and
 
opportunities.
 
The
 
standards
 
incorporate
 
the recommendations
 
of the
 
Task
 
Force
 
on Climate-
related Financial
 
Disclosures (the
 
TCFD). These
 
ISSB standards
 
have been
 
available for
 
use from
 
January 2024
 
onward.
UBS’s
 
implementation
 
of
 
the
 
standards
 
will
 
depend,
 
among
 
other
 
factors,
 
on
 
whether
 
the
 
standards
 
are
 
adopted
 
in
jurisdictions in which UBS files financial reports.
In October
 
2023, the
 
EU finalized
 
the first
 
set of
 
cross-sectoral
 
European Sustainability
 
Reporting Standards
 
(the ESRS)
under the Corporate Sustainability Reporting Directive. In addition to
 
general disclosures and requirements,
 
the ESRS
 
set
out
 
disclosure
 
requirements,
 
which
 
are
 
subject
 
to
 
a
 
materiality
 
assessment
 
that
 
is
 
contingent
 
on
 
external
 
assurance,
effectively allowing companies
 
to focus
 
on reporting
 
sustainability factors that
 
are material
 
to their
 
businesses. Companies
that were previously subject to the Non-Financial Reporting Directive and
 
large non-EU listed companies with more than
500 employees, including UBS, are
 
required to begin reporting under the
 
ESRS for the 2024 financial year,
 
with the first
reports to
 
be published
 
in 2025.
 
The European
 
Commission will
 
develop and
 
adopt additional
 
sector-specific reporting
standards by June 2026.
In March 2024, the
 
US Securities and
 
Exchange Commission (the
 
SEC) released the
 
final rules regarding
 
climate-related
disclosures
 
for
 
investors.
 
The
 
rules
 
will
 
require
 
certain
 
firms,
 
including
 
UBS,
 
to
 
disclose
 
qualitative
 
and
 
quantitative
information on the firm’s exposures
 
to climate-related risks and
 
risk management practices. The
 
rules are anticipated to
be effective for filings for the 2025 financial year.
 
 
Annual Report 2023 |
Our business model and environment |
 
Regulatory and legal developments
 
21
Other developments in Switzerland
In June 2023, the Swiss electorate voted in favor of the introduction of a minimum corporate tax rate of 15% applicable
to companies with a consolidated turnover of
 
more than EUR 750m, as stipulated by
 
the Global Anti-Base Erosion Model
Rules (Pillar Two) of
 
the Organisation for Economic Co-operation and
 
Development. In December 2023, the
 
Swiss Federal
Council decided on a partial adoption in Switzerland, by way of
 
an ordinance, and, as a result, a domestic minimum top-
up
 
tax
 
regime
 
became
 
effective
 
from
 
1 January
 
2024,
 
ensuring
 
a
 
Swiss
 
local
 
minimal
 
tax
 
burden
 
of
 
at
 
least
 
15%.
Switzerland will not implement any top-up tax regime in 2024 with respect to
 
non-Swiss taxation below 15%. The Swiss
Federal Council will
 
further observe
 
international developments
 
and decide at
 
a later stage
 
if and when
 
any top-up tax
with respect
 
to non-Swiss
 
taxation below
 
15% will
 
be introduced
 
in Switzerland. UBS
 
does not
 
expect the
 
implementation
of global minimum taxation in Switzerland to materially
 
impact its effective tax rate.
In
 
August
 
2023,
 
the
 
Swiss
 
Federal
 
Council
 
launched
 
a
 
consultation
 
on
 
a
 
bill
 
to
 
strengthen
 
the
 
Swiss
 
anti-money-
laundering framework,
 
with the
 
aim of
 
reinforcing the
 
integrity and
 
competitiveness
 
of Switzerland
 
as a
 
financial and
business location.
 
The measures
 
aim to
 
comply with
 
the international
 
standards of
 
the Financial
 
Action Task
 
Force (the
FATF). Among other matters, key elements of the proposal include the introduction of a
 
non-public register managed by
the Federal Department of Justice
 
and Police containing information about
 
the beneficial owners of
 
companies and other
legal
 
entities
 
in
 
Switzerland,
 
as
 
well
 
as
 
due
 
diligence
 
requirements
 
for
 
activities
 
with
 
an
 
increased
 
risk
 
of
 
money
laundering. In the context of the Swiss anti-money-laundering framework, the FATF also acknowledged in October 2023
the progress made
 
by Switzerland, especially
 
with the revision
 
of the Anti-Money
 
Laundering Act adopted
 
in March 2021.
In November
 
2023, the
 
Swiss Federal
 
Council adopted
 
an amendment
 
to the
 
Financial Market
 
Infrastructure
 
Act that
enacts a measure aimed at protecting
 
the Swiss stock exchange infrastructure
 
into Swiss law with effect
 
from 1 January
2024. This ruling
 
followed the
 
EU’s decision to
 
withdraw equivalence
 
for the Swiss
 
stock exchange regulation
 
in 2019.
The protective measure enables
 
EU firms to
 
trade Swiss shares on
 
the Swiss trading venues,
 
even without EU equivalence.
In the event of equivalence recognition by the EU, the
 
measure may be deactivated at any time.
In the first
 
quarter of 2023,
 
the Swiss Federal
 
Council implemented the
 
remaining measures of
 
the 9th and
 
10th sanctions
packages imposed
 
by the
 
EU against
 
Russia in
 
December 2022
 
and February
 
2023, respectively.
 
The measures
 
include
additional export restrictions and more detailed reporting
 
obligations with regard to frozen assets.
 
In August 2023,
 
the Swiss Federal
 
Council adopted the
 
EU’s 11th package
 
of sanctions against
 
Russia, which was
 
partially
adopted by Switzerland in June 2023 by expanding the sanction lists. As part
 
of the 11th sanctions package, the EU has
created a specific legal
 
basis for an instrument to
 
prevent the evasion of sanctions.
 
The Swiss Federal Council emphasized
its determination
 
to take
 
effective action
 
against the
 
evasion of
 
sanctions and
 
will examine
 
the implementation
 
of this
instrument in the event
 
of its actual application
 
by the EU. In
 
addition, Switzerland joined
 
the EU in imposing
 
sanctions
at Moldova’s
 
request and
 
against Belarus,
 
in view
 
of its
 
continued involvement
 
in Russia’s
 
ongoing military
 
aggression
against Ukraine.
In September 2023,
 
the Swiss Federal Council
 
issued sanctions measures in
 
connection with the
 
delivery of Iranian drones
to Russia. The sale,
 
supply, export and
 
transit of components
 
used in the construction
 
and production of
 
drones is now
prohibited. In January 2024,
 
the Swiss Federal Council
 
adopted the measures of
 
the EU’s 12th sanctions
 
package relevant
to Switzerland
 
,
 
following the
 
expansion of
 
the sanction
 
lists by
 
Switzerland
 
in December
 
2023. The
 
measures include
import bans
 
on certain
 
goods
 
that generate
 
significant revenue
 
for Russia,
 
as well
 
as certain
 
bans in
 
the financial
 
and
services
 
sectors.
 
In
 
February
 
2024,
 
the
 
Federal
 
Department
 
of
 
Economic
 
Affairs,
 
Education
 
and
 
Research
 
adopted
measures of
 
the EU’s
 
13th sanctions
 
package, which
 
target, among
 
others, individuals,
 
entities and
 
organizations that
are
 
operating
 
in
 
Russia’s
 
military-industrial
 
complex
 
and
 
that
 
are
 
involved
 
in
 
supplying
 
defense
 
equipment
 
from
 
the
Democratic People’s Republic of Korea, as well as officials from
 
the occupied territories of Ukraine.
UBS’s sanctions
 
programs are
 
designed to
 
comply with
 
sanctions across
 
multiple jurisdictions,
 
including those
 
imposed
by the United Nations, Switzerland, the EU, the UK and the
 
US.
The revised
 
Swiss Federal
 
Data Protection
 
Act and
 
the corresponding
 
Data Protection
 
Ordinance entered
 
into force
 
on
1 September 2023. The revised law represents a fundamental reform that strengthens the rights of consumers regarding
their data by
 
enhancing the transparency and
 
accountability rules for
 
companies processing data, among
 
other measures.
In addition, it seeks to
 
align Swiss data protection law with
 
the EU General Data Protection Regulation,
 
in order to ensure
continued cross-border transmission of data with EU Member
 
States.
Other developments in the US
In October 2023, the Federal Reserve Board,
 
the FDIC and the OCC adopted revisions
 
to their regulations implementing
the Community Reinvestment Act (the CRA). The CRA encourages banks to meet the credit needs of the communities
 
in
which they do business, with a focus on low- and moderate-income communities. The final rule will implement separate
evaluations
 
for
 
retail
 
lending,
 
retail
 
services
 
and
 
products,
 
community
 
development
 
financing,
 
and
 
community
development services
 
for banks
 
with over
 
USD 2bn in
 
total assets.
 
For large
 
banks with
 
over USD 10bn
 
in total
 
assets,
the evaluation of retail services
 
and products will cover
 
digital delivery systems. The final
 
rule also updates requirements
on the reporting of exposures. The rule has an implementation date of
 
1 April 2024, with additional phase-in periods for
general
 
provisions
 
and
 
reporting
 
that
 
extend
 
out
 
to
 
April
 
2027.
 
UBS
 
Bank
 
USA
 
expects
 
a
 
modest
 
level
 
of
 
increased
monitoring and reporting requirements
 
.
 
Annual Report 2023 |
Our business model and environment |
 
Regulatory and legal developments
 
22
In
 
October
 
2022,
 
the
 
SEC
 
adopted
 
rules
 
requiring
 
US
 
national
 
securities
 
exchanges,
 
including
 
the
 
New
 
York
 
Stock
Exchange (the NYSE) and Nasdaq, to adopt listing standards that require issuers to adopt and enforce a policy to recover
from
 
executive
 
officers
 
incentive
 
compensation
 
received
 
based
 
on
 
attainment
 
of
 
a
 
financial
 
reporting
 
measure
 
in
 
the
event
 
that
 
the
 
issuer
 
is
 
required
 
to
 
prepare
 
an
 
accounting
 
restatement
 
of
 
financial
 
statements
 
due
 
to
 
material
 
non-
compliance with financial reporting requirements. The SEC approved the listing standards promulgated by the NYSE and
Nasdaq in
 
June 2023
 
and the
 
clawback policy
 
requirement came
 
into effect
 
as of
 
1 December 2023.
 
Under the
 
listing
standards, an issuer
 
must recover the
 
amount of incentive-based
 
compensation that would
 
not have been
 
received if it
had been
 
determined based
 
on the
 
restated financial
 
information. UBS
 
Group AG, UBS
 
AG and
 
Credit Suisse AG
 
each
have securities listed on US national securities exchanges and have adopted a
 
policy to comply with the listing standards.
In
 
September
 
2023,
 
the
 
new
 
rules
 
from
 
the
 
SEC
 
to
 
enhance
 
and
 
standardize
 
disclosure
 
requirements
 
related
 
to
cybersecurity
 
incidents
 
and
 
cybersecurity
 
risk
 
management,
 
strategy
 
and
 
governance
 
became
 
effective.
 
Among
 
other
changes, the
 
rules require
 
foreign private
 
issuers, including
 
UBS Group AG,
 
UBS AG and
 
Credit Suisse AG,
 
to annually
report material information
 
regarding their cybersecurity
 
risk management, strategy
 
and governance on
 
Form 20-F. The
Form 20-F disclosures are applicable with annual reports for
 
fiscal years ending on or after 15 December 2023.
Other developments in Europe
US securities markets will
 
transition to one business day
 
after the trade date (T+1)
 
settlement of most transactions in
 
May
2024. In
 
October 2023, the
 
European Securities and
 
Markets
 
Authority (ESMA) launched
 
a call
 
for evidence on
 
shortening
the standard settlement cycle for securities transactions from two business days after
 
the trade date (T+2) to T+1. ESMA
aims to
 
perform an
 
assessment of
 
the costs
 
and benefits
 
linked to
 
the potential
 
reduction
 
of the
 
securities settlement
cycle in the EU and
 
intends to submit the results of
 
its assessment to the European Commission and publish
 
a final report
in the fourth quarter of 2024, at the latest. The UK Treasury has also established an Accelerated Settlement
 
Taskforce
 
to
consider
 
whether
 
the
 
UK
 
should
 
follow
 
the
 
US
 
and
 
transition
 
to
 
a
 
T+1
 
settlement.
 
The
 
UK
 
task
 
force
 
is expected
 
to
publish
 
its
 
findings
 
in
 
2024,
 
with
 
further
 
work
 
expected
 
during
 
2024.
 
UBS
 
is
 
implementing
 
and
 
testing
 
required
enhancements based
 
on the
 
US rules
 
and will
 
prepare
 
for further
 
implementation
 
according to
 
the evolving
 
rules and
market practice in the UK, the EU and Switzerland.
 
In May
 
2023, the
 
European Commission
 
presented draft
 
legislative proposals
 
aimed at
 
empowering retail
 
investors to
make investment
 
decisions that
 
are aligned
 
with their
 
needs and
 
preferences and
 
ensuring that
 
they are
 
treated fairly
and duly
 
protected.
 
The
 
proposals
 
also
 
aim
 
to encourage
 
greater
 
participation in
 
EU
 
capital
 
markets
 
and to
 
enable
 
a
greater volume of funds to
 
flow more easily into EU capital
 
markets. The package revises EU capital
 
markets rules, which,
once agreed and in
 
force, could have significant
 
implications and require significant
 
implementation efforts by UBS across
business divisions.
In
 
June
 
2023,
 
legislators
 
in
 
the
 
EU
 
reached
 
a
 
provisional
 
agreement
 
on
 
amendments
 
to
 
the
 
Capital
 
Requirements
Regulation and
 
the Capital Requirements
 
Directive. The provisional
 
agreement includes, alongside
 
measures to
 
implement
the remaining
 
elements
 
of the
 
Basel III standard,
 
a framework
 
that would
 
require non-EU
 
firms to
 
establish a
 
physical
presence within
 
the EU
 
when
 
providing certain
 
banking services
 
to EU-domiciled
 
clients
 
and counterparties
 
(including
deposit-taking and commercial
 
lending), unless they
 
are subject to
 
an exemption. The
 
changes will affect
 
the cross-border
provision of certain banking services
 
and will require UBS to adapt
 
its approaches to providing such
 
services to clients in
the EU.
 
The requirement
 
is expected to
 
become effective in
 
late 2026,
 
with grandfathering provisions
 
for contracts already
in existence at the date of introduction.
In December 2023, the
 
Swiss Confederation and
 
the UK signed a
 
mutual recognition agreement
 
(an MRA) for financial
services
 
to
 
facilitate
 
cross-border
 
financial
 
activities.
 
The
 
MRA
 
is
 
supplemented
 
by
 
measures
 
to
 
enhance
 
supervisory
cooperation and coordination.
 
The MRA envisages
 
a memorandum
 
of understanding
 
between FINMA and
 
the Bank of
England on resolution arrangements,
 
and it is
 
expected to enable Swiss
 
banks to provide cross-border
 
investment services
to high net worth UK-domiciled clients and to broadly
 
allow UK and Swiss over-the-counter derivatives counterparties to
choose whether
 
to rely
 
on Swiss
 
or UK
 
risk mitigation
 
rules (except
 
for physically
 
settled foreign
 
exchange swaps
 
and
forwards). The
 
agreement is
 
expected to
 
apply from
 
2026, depending
 
on the
 
completion of
 
parliamentary approval
 
in
both countries.
 
Annual Report 2023 |
Our business model and environment |
 
Risk factors
 
23
Risk factors
Certain risks,
 
including those
 
described below,
 
may affect
 
our ability
 
to execute
 
our strategy
 
or our
 
business activities,
financial condition, results of operations and prospects. We
 
are inherently exposed to multiple risks, many of which may
become apparent only with the benefit of hindsight.
 
As a result, risks that we do
 
not consider to be material, or
 
of which
we are
 
not currently
 
aware, could also
 
adversely affect
 
us. Within each category,
 
the risks that
 
we consider to
 
be most
material are presented first.
Strategy, management and operational risks
UBS’s acquisition of Credit Suisse Group AG exposes us to heightened
 
litigation risk and regulatory scrutiny and entails
significant additional costs, liabilities and business integration risks
 
that affect UBS AG
UBS acquired
 
Credit Suisse
 
Group AG
 
under exceptional
 
circumstances of
 
volatile financial
 
markets and
 
the continued
outflows and deteriorating overall financial
 
position of Credit Suisse, in
 
order to avert a failure
 
of Credit Suisse and thus
damage to the Swiss
 
financial center and
 
to global financial
 
stability.
 
The acquisition was
 
effected through
 
a merger of
Credit Suisse
 
Group AG
 
with and
 
into UBS Group
 
AG, with UBS
 
Group AG
 
succeeding to all
 
assets and all
 
liabilities of
Credit Suisse Group
 
AG, becoming the direct
 
or indirect shareholder
 
of the former Credit
 
Suisse Group AG‘s
 
direct and
indirect subsidiaries. Therefore,
 
on a consolidated basis, all assets, risks and liabilities of the
 
Credit Suisse Group became
a part of UBS. This includes all ongoing and future litigation, regulatory and similar matters arising out of the business of
the Credit Suisse Group, thereby materially increasing UBS‘s exposure to litigation and investigation risks, as described in
further detail below.
We
 
have incurred
 
substantial
 
transaction fees
 
and costs
 
in connection
 
with the
 
transaction and
 
will continue
 
to incur
substantial integration
 
and restructuring
 
costs. In
 
addition, we
 
may not
 
realize all
 
of the
 
expected cost
 
reductions and
other
 
benefits
 
of
 
the
 
transaction.
 
We
 
may
 
not
 
be
 
able
 
to
 
successfully
 
execute
 
our
 
strategic
 
plans
 
or
 
to
 
achieve
 
the
expected
 
benefits
 
of the
 
acquisition
 
of
 
the
 
Credit
 
Suisse
 
Group.
 
The
 
success
 
of the
 
transaction,
 
including
 
anticipated
benefits and cost savings, will depend, in part, on the
 
ability to successfully integrate the operations of both firms rapidly
and effectively, while maintaining
 
stability of
 
operations and
 
high levels
 
of service
 
to customers
 
of the
 
combined franchise.
 
Our ability to successfully
 
integrate Credit
 
Suisse will depend on
 
a number of factors,
 
some of which are
 
outside of our
control, including our ability to:
–
combine the operations of the two firms in a
 
manner that preserves client service, simplifies infrastructure
 
and results
in operating cost savings;
–
reverse
 
outflows of
 
deposits
 
and client
 
invested assets
 
at
 
Credit Suisse,
 
particularly
 
in its
 
Wealth
 
Management
 
and
Switzerland and to attract additional deposits and other
 
client assets to the combined firm;
–
achieve cost reductions at the levels and in the timeframe
 
we plan;
–
enhance, integrate,
 
and, where
 
necessary, remediate
 
risk management
 
and financial
 
control and
 
other systems
 
and
frameworks, including to remediate the material weakness in Credit Suisse’s internal controls over financial reporting;
 
–
simplify the
 
legal structure
 
of the
 
combined firm
 
in an
 
expedited manner,
 
through the
 
planned mergers
 
of UBS
 
AG
and Credit Suisse
 
AG and of
 
UBS Switzerland
 
AG and Credit
 
Suisse (Schweiz)
 
AG, as well
 
as the creation
 
of a single
intermediate holding
 
company (IHC)
 
for the
 
combined firm
 
in the U.S.,
 
other entity
 
mergers and
 
consolidations and
asset dispositions, including obtaining regulatory approvals and
 
licenses required to implement such changes;
–
retain staff and to reverse attrition of staff in certain of Credit
 
Suisse’s business areas;
–
successfully execute the wind-down of the assets
 
and liabilities in its Non-core and Legacy
 
division and release capital
and resources for other purposes;
 
and
–
resolve outstanding litigation, regulatory and similar matters, including matters relating to Credit
 
Suisse, on terms that
are
 
not
 
significantly
 
adverse
 
to
 
the
 
UBS
 
Group,
 
as
 
well
 
as
 
to
 
successfully
 
remediate
 
outstanding
 
regulatory
 
and
supervisory matters and meet other regulatory commitments.
Further
 
investigation
 
and
 
planning
 
for
 
integration
 
is
 
taking
 
place,
 
and
 
risks
 
that
 
we
 
do
 
not
 
currently
 
consider
 
to
 
be
material, or of which we are not currently
 
aware, could also adversely affect
 
us.
The
 
level
 
of
 
success
 
in
 
the
 
absorption
 
of
 
Credit
 
Suisse,
 
in
 
the
 
integration
 
of
 
the
 
two
 
groups
 
and
 
their
 
businesses,
particularly in the area of
 
the Swiss domestic bank, as well as domestic
 
and international wealth management business,
and in the
 
execution of
 
the planned
 
strategy regarding
 
cost reduction
 
and divestment
 
of any
 
non-core assets,
 
and the
level of resulting
 
impairments and write-downs,
 
may impact the operational
 
results, share
 
price and the credit
 
rating of
UBS entities. The
 
past financial performance
 
of each of
 
UBS Group AG
 
and Credit Suisse
 
may not be
 
indicative of their
future
 
financial
 
performance.
 
The
 
combined
 
group
 
will
 
be
 
required
 
to
 
devote
 
significant
 
management
 
attention
 
and
resources to
 
integrating its business
 
practices and support
 
functions. The diversion
 
of management’s attention
 
and any
delays
 
or
 
difficulties
 
encountered
 
in
 
connection
 
with
 
the
 
transaction
 
and
 
the
 
coordination
 
of
 
the
 
two
 
companies’
operations could
 
have an
 
adverse effect
 
on the
 
business, financial
 
results, financial
 
condition or
 
the share
 
price of
 
the
combined
 
group
 
following
 
the
 
transaction.
 
The
 
coordination
 
process
 
may
 
also
 
result
 
in
 
additional
 
and
 
unforeseen
expenses.
 
Annual Report 2023 |
Our business model and environment |
 
Risk factors
 
24
Our reputation is critical to our success
Our reputation is critical to the success of our strategic plans, business and prospects. Reputational damage is difficult to
reverse,
 
and
 
improvements
 
tend
 
to
 
be
 
slow
 
and
 
difficult
 
to
 
measure.
 
In
 
the
 
past,
 
our
 
reputation
 
has
 
been
 
adversely
affected
 
by our
 
losses during
 
the financial
 
crisis, investigations
 
into our
 
cross-border
 
private banking
 
services, criminal
resolutions of LIBOR-related and
 
foreign exchange matters,
 
as well
 
as other matters.
 
We believe that
 
reputational damage
as
 
a
 
result
 
of
 
these
 
events
 
was
 
an
 
important
 
factor
 
in
 
our
 
loss
 
of
 
clients
 
and
 
client
 
assets
 
across
 
our
 
asset-gathering
businesses. The Credit
 
Suisse Group
 
has more
 
recently been
 
subject to significant
 
litigation and regulatory
 
matters and
to financial losses
 
that adversely affected
 
its reputation and
 
the confidence of
 
clients, which played
 
a significant role
 
in
the failure of the Credit Suisse Group in March 2023. These events,
 
or new events that cause reputational damage could
have a
 
material adverse
 
effect on
 
our results
 
of operation
 
and financial
 
condition, as
 
well as
 
our ability
 
to achieve
 
our
strategic goals and financial targets.
Operational risks affect our business
Our
 
businesses
 
depend
 
on
 
our
 
ability
 
to
 
process
 
a
 
large
 
number
 
of
 
transactions,
 
many
 
of
 
which
 
are
 
complex,
 
across
multiple and diverse markets in different currencies,
 
to comply with requirements of many different
 
legal and regulatory
regimes
 
to
 
which
 
we
 
are
 
subject
 
and
 
to
 
prevent,
 
or
 
promptly
 
detect
 
and
 
stop,
 
unauthorized,
 
fictitious
 
or
 
fraudulent
transactions. We also rely on access to, and
 
on the functioning of, systems maintained by
 
third parties, including clearing
systems, exchanges,
 
information processors
 
and central
 
counterparties. Any
 
failure of
 
our or
 
third-party
 
systems could
have
 
an
 
adverse
 
effect
 
on
 
us.
 
These
 
risks
 
may
 
be
 
greater
 
as
 
we
 
deploy
 
newer
 
technologies,
 
such
 
as
 
blockchain,
 
or
processes, platforms or products
 
that rely on these technologies.
 
Our operational risk management
 
and control systems
and processes
 
are
 
designed
 
to help
 
ensure
 
that
 
the
 
risks
 
associated
 
with
 
our
 
activities
 
–
 
including
 
those
 
arising
 
from
process error,
 
failed execution,
 
misconduct, unauthorized
 
trading, fraud,
 
system failures,
 
financial crime,
 
cyberattacks,
breaches of information security,
 
inadequate or ineffective access controls and failure of security and physical protection
– are
 
appropriately controlled.
 
If our
 
internal controls
 
fail or
 
prove ineffective
 
in identifying
 
and remedying
 
these risks,
we could suffer operational failures that might result in material losses, such as the substantial loss we incurred from the
unauthorized trading
 
incident announced
 
in September
 
2011. The
 
acquisition of
 
the Credit
 
Suisse Group
 
may elevate
these
 
risks,
 
particularly
 
during
 
the
 
first
 
phases
 
of
 
integration,
 
as
 
the
 
firms
 
have
 
historically
 
operated
 
under
 
different
procedures, IT systems, risk policies and structures
 
of governance.
 
As a significant proportion of our staff have been and will continue working from outside the office, we have faced, and
will
 
continue
 
to
 
face,
 
new
 
challenges
 
and
 
operational
 
risks,
 
including
 
maintenance
 
of
 
supervisory
 
and
 
surveillance
controls, as well as
 
increased fraud and
 
data security risks. While
 
we have taken
 
measures to manage
 
these risks, these
measures could prove not to be effective.
We use automation
 
as part of
 
our efforts to
 
improve efficiency, reduce the risk of error
 
and improve our
 
client experience.
We intend
 
to expand
 
the use
 
of robotic
 
processing,
 
machine learning
 
and artificial
 
intelligence to
 
further these
 
goals.
Use of these
 
tools presents
 
their own
 
risks, including
 
the need
 
for effective
 
design and
 
testing; the
 
quality of
 
the data
used
 
for
 
development
 
and
 
operation
 
of
 
machine
 
learning
 
and
 
artificial
 
intelligence
 
tools
 
may
 
adversely
 
affect
 
their
functioning and result in errors and
 
other operational risks.
Financial services
 
firms have
 
increasingly been
 
subject to
 
breaches of
 
security and
 
to cyber-
 
and other
 
forms of
 
attack,
some of
 
which are
 
sophisticated
 
and targeted
 
attacks intended
 
to gain
 
access to
 
confidential information
 
or systems,
disrupt service or steal or destroy data, which may result in business
 
disruption or the corruption or loss of data at UBS’s
locations or those of
 
third parties. Cyberattacks by hackers, terrorists,
 
criminal organizations, nation states and extremists
have
 
also
 
increased
 
in
 
frequency
 
and
 
sophistication.
 
Current
 
geopolitical
 
tensions
 
have
 
also
 
led
 
to
 
increased
 
risk
 
of
cyberattack from foreign state actors. In particular, the Russia–Ukraine war and
 
the imposition of significant sanctions on
Russia by Switzerland,
 
the US,
 
the EU, the
 
UK and others
 
has resulted
 
and may continue
 
to result
 
in an increase
 
in the
risk of cyberattacks. Such attacks may occur on our own systems or on the systems that
 
are operated by external service
providers, may be attempted
 
through the introduction of
 
ransomware, viruses or malware,
 
phishing and other forms of
social engineering,
 
distributed
 
denial of
 
service attacks
 
and other
 
means. These
 
attempts
 
may occur
 
directly,
 
or using
equipment or security
 
passwords of
 
our employees, third
 
-party service
 
providers or
 
other users. Cybersecurity
 
risks also
have
 
increased
 
due
 
to
 
the
 
widespread
 
use
 
of
 
digital
 
technologies,
 
cloud
 
computing
 
and
 
mobile
 
devices
 
to
 
conduct
financial
 
business
 
and
 
transactions,
 
as well
 
as
 
due
 
to
 
generative
 
AI, which
 
increases
 
the
 
capabilities
 
of adversaries
 
to
mount
 
sophisticated
 
phishing
 
attacks,
 
for
 
example,
 
through
 
the
 
use
 
of
 
deepfake
 
technologies,
 
and
 
presents
 
new
challenges to
 
the protection
 
of our systems
 
and networks
 
and the
 
confidentiality and
 
integrity of
 
our data.
 
During the
first quarter of 2023, a third-party
 
vendor, ION XTP, suffered a ransomware
 
attack, which resulted in some disruption
 
to
our exchange-traded derivatives clearing activities, although we restored our services within 36 hours, using an available
alternative solution.
 
In addition
 
to external
 
attacks, we
 
have experienced
 
loss of
 
client data
 
from failure
 
by employees
and others to follow internal policies and procedures and
 
from misappropriation of our data by employees and others.
 
 
Annual Report 2023 |
Our business model and environment |
 
Risk factors
 
25
We may not be able to anticipate, detect or recognize threats to our systems
 
or data and our preventative measures may
not
 
be
 
effective
 
to
 
prevent
 
an
 
attack
 
or
 
a
 
security
 
breach.
 
In
 
the
 
event
 
of
 
a
 
security
 
breach,
 
notwithstanding
 
our
preventative measures, we may not immediately detect a particular breach or attack. The acquisition of the Credit Suisse
Group may elevate
 
and intensify these
 
risks as would
 
-be attackers
 
have a larger
 
potential target
 
in the combined
 
bank
and
 
differences
 
in
 
systems,
 
policies,
 
and
 
platforms
 
could
 
make
 
threat
 
detection
 
more
 
difficult.
 
In
 
addition,
 
the
implementation
 
of
 
the
 
large-scale
 
technological
 
change
 
program
 
that
 
is
 
necessary
 
to
 
integrate
 
the
 
combined
 
bank’s
systems at pace
 
may also result
 
in increased risks.
 
Once a particular
 
attack is detected, time
 
may be required
 
to investigate
and assess the nature and extent of the attack,
 
and to restore and test systems and data.
 
If a successful attack occurs at
a service provider, as we have
 
recently experienced, we may be
 
dependent on the service provider’s
 
ability to detect the
attack, investigate
 
and assess
 
the attack
 
and successfully
 
restore the
 
relevant systems
 
and data.
 
A successful
 
breach or
circumvention of security of our or a service provider’s systems
 
or data could have significant negative consequences
 
for
us,
 
including
 
disruption
 
of
 
our
 
operations,
 
misappropriation
 
of
 
confidential
 
information
 
concerning
 
us
 
or
 
our
 
clients,
damage to our
 
systems, financial losses for
 
us or our
 
clients, violations of data
 
privacy and similar laws,
 
litigation exposure
and damage to our reputation. We may be subject to enforcement actions as regulatory focus on
 
cybersecurity increases
and regulators
 
have announced new
 
rules, guidance and
 
initiatives on
 
ransomware and other
 
cybersecurity-related issues.
We are subject to complex and frequently changing laws
 
and regulations governing the protection of client
 
and personal
data, such as the EU General Data
 
Protection Regulation. Ensuring that
 
we comply with applicable laws and regulations
when we collect, use and transfer personal information
 
requires substantial resources
 
and may affect the ways in which
we conduct our business. In
 
the event that we fail
 
to comply with applicable laws,
 
we may be exposed to
 
regulatory fines
and penalties and
 
other sanctions.
 
We may also
 
incur such penalties
 
if our vendors
 
or other service
 
providers or
 
clients
or counterparties fail to comply with these laws or to maintain appropriate controls over protected data. In addition, any
loss or exposure of client or other data may adversely
 
damage our reputation and adversely affect
 
our business.
A major focus of US and other countries’ governmental policies
 
relating to financial institutions in recent
 
years has been
on fighting
 
money
 
laundering
 
and
 
terrorist
 
financing.
 
We
 
are
 
required
 
to
 
maintain
 
effective
 
policies,
 
procedures
 
and
controls to detect,
 
prevent and report
 
money laundering and
 
terrorist financing, and
 
to verify the identity
 
of our clients
under the
 
laws of
 
many of
 
the countries
 
in which
 
we operate.
 
We are
 
also subject
 
to laws
 
and regulations
 
related
 
to
corrupt and illegal payments to government officials by others, such as the
 
US Foreign Corrupt Practices Act and the UK
Bribery Act. We have implemented policies, procedures and internal controls that are designed to comply with such laws
and regulations. Notwithstanding this, US
 
regulators have found deficiencies
 
in the design and operation of anti-money
laundering
 
programs
 
in
 
our
 
US
 
operations.
 
We
 
have
 
undertaken
 
a
 
significant
 
program
 
to
 
address
 
these
 
regulatory
findings with the objective of fully meeting regulatory expectations for our programs. Failure to maintain and implement
adequate
 
programs
 
to
 
combat
 
money
 
laundering,
 
terrorist
 
financing
 
or corruption,
 
or any
 
failure
 
of our
 
programs
 
in
these areas, could have
 
serious consequences both from
 
legal enforcement action
 
and from damage
 
to our reputation.
Frequent changes in
 
sanctions imposed and
 
increasingly complex sanctions
 
imposed on countries,
 
entities and individuals,
as exemplified by the breadth and scope
 
of the sanctions imposed in relation to
 
the war in Ukraine, increase our
 
cost of
monitoring and complying with sanctions requirements and increase the risk that we will not identify in a timely manner
client activity that is subject to a sanction.
As a
 
result
 
of
 
new
 
and
 
changed
 
regulatory
 
requirements
 
and
 
the
 
changes
 
we
 
have
 
made
 
in
 
our
 
legal
 
structure,
 
the
volume, frequency
 
and complexity
 
of our
 
regulatory
 
and other
 
reporting
 
has remained
 
elevated. Regulators
 
have also
significantly
 
increased
 
expectations
 
regarding
 
our
 
internal
 
reporting
 
and
 
data
 
aggregation,
 
as
 
well
 
as
 
management
reporting.
 
We
 
have
 
incurred,
 
and
 
continue
 
to
 
incur,
 
significant
 
costs
 
to
 
implement
 
infrastructure
 
to
 
meet
 
these
requirements.
 
Failure
 
to
 
meet
 
external
 
reporting
 
requirements
 
accurately
 
and
 
in
 
a
 
timely
 
manner
 
or
 
failure
 
to
 
meet
regulatory expectations of
 
internal reporting, data aggregation
 
and management reporting
 
could result in enforcement
action or other adverse consequences for us.
In addition, despite
 
the contingency plans
 
that we have
 
in place, our
 
ability to conduct
 
business may be
 
adversely affected
by a
 
disruption in
 
the infrastructure
 
that supports
 
our businesses
 
and the
 
communities in
 
which we
 
operate. This
 
may
include
 
a
 
disruption
 
due
 
to
 
natural
 
disasters,
 
pandemics,
 
civil
 
unrest,
 
war
 
or
 
terrorism
 
and
 
involve
 
electrical,
communications, transportation
 
or other services
 
that we
 
use or that
 
are used
 
by third
 
parties with whom
 
we conduct
business.
We depend on our risk management and control processes to avoid
 
or limit potential losses in our businesses
 
Controlled risk-taking
 
is a
 
major part
 
of the
 
business of
 
a financial
 
services firm.
 
Some losses
 
from risk-taking
 
activities
are inevitable, but
 
to be successful
 
over time, we
 
must balance the
 
risks we take
 
against the returns
 
generated. Therefore,
we must diligently identify,
 
assess, manage and control
 
our risks, not only
 
in normal market
 
conditions but also as
 
they
might develop under more extreme,
 
stressed conditions, when concentrations of exposures
 
can lead to severe losses.
 
We have
 
not always
 
been able
 
to prevent
 
serious losses
 
arising from
 
risk management
 
failures and
 
extreme or
 
sudden
market
 
events.
 
We
 
recorded
 
substantial
 
losses
 
on
 
fixed-income
 
trading
 
positions
 
in
 
the
 
2008
 
financial
 
crisis,
 
in
 
the
unauthorized trading incident in
 
2011 and, more recently,
 
positions resulting from
 
the default of a US
 
prime brokerage
client. In
 
the recent
 
past, the
 
Credit Suisse
 
Group has
 
suffered
 
very significant
 
losses from
 
the default
 
of the
 
US prime
brokerage client,
 
the losses in
 
supply-chain finance
 
funds managed by
 
it, as well
 
as other matters.
 
As a result
 
of these,
Credit Suisse
 
is subject
 
to significant
 
regulatory
 
remediation obligations
 
to address
 
deficiencies in
 
its risk
 
management
and controls systems, that continue following the
 
merger.
 
Annual Report 2023 |
Our business model and environment |
 
Risk factors
 
26
We
 
regularly
 
revise
 
and
 
strengthen
 
our
 
risk
 
management
 
and
 
control
 
frameworks
 
to
 
seek
 
to
 
address
 
identified
shortcomings. Nonetheless, we could suffer further
 
losses in the future if, for example:
–
we do not fully identify the risks in our portfolio, in particular
 
risk concentrations and correlated risks;
–
our
 
assessment
 
of
 
the
 
risks
 
identified,
 
or
 
our
 
response
 
to
 
negative
 
trends,
 
proves
 
to
 
be
 
untimely,
 
inadequate,
insufficient or incorrect;
 
–
our risk models prove insufficient to predict the scale of financial
 
risks the bank faces;
 
–
markets
 
move in
 
ways that
 
we do
 
not expect
 
– in
 
terms of
 
their speed,
 
direction,
 
severity
 
or correlation
 
– and
 
our
ability to manage risks in the resulting environment is, therefore,
 
affected;
–
third parties
 
to whom
 
we have
 
credit exposure
 
or whose
 
securities we
 
hold are
 
severely affected
 
by events
 
and we
suffer defaults and impairments beyond the level implied
 
by our risk assessment; or
 
–
collateral or other
 
security provided by
 
our counterparties
 
and clients proves
 
inadequate to
 
cover their obligations
 
at
the time of default.
 
We also hold legacy risk positions, primarily in Non-core and Legacy, that, in many cases, are illiquid and may deteriorate
in value.
 
The acquisition
 
of the
 
Credit Suisse
 
Group, and
 
the planned
 
integration of
 
UBS AG
 
with Credit
 
Suisse AG,
 
is
increasing,
 
materially,
 
the
 
portfolio
 
of
 
business
 
that
 
are
 
outside
 
of
 
our
 
risk
 
appetite
 
and
 
subject
 
to
 
exit
 
that
 
will
 
be
managed in the Non-core and Legacy segment.
We also manage
 
risk on behalf
 
of our clients.
 
The performance of assets
 
we hold for
 
our clients may
 
be adversely affected
by the same aforementioned
 
factors. If clients suffer
 
losses or the performance
 
of their assets held
 
with us is not
 
in line
with relevant benchmarks against
 
which clients assess investment
 
performance, we may suffer
 
reduced fee income and
a decline in assets under management, or withdrawal of mandates.
Investment positions, such
 
as equity investments
 
made as part
 
of strategic initiatives
 
and seed investments
 
made at the
inception of funds that we
 
manage, may also be affected
 
by market risk factors. These
 
investments are often not
 
liquid
and generally
 
are intended
 
or required
 
to be
 
held beyond
 
a normal
 
trading horizon.
 
Deteriorations in
 
the fair
 
value of
these positions would have a negative effect on our earnings.
We may be unable to identify or capture revenue or competitive
 
opportunities, or retain and attract qualified
employees
The financial
 
services industry
 
is characterized
 
by intense
 
competition, continuous
 
innovation, restrictive,
 
detailed, and
sometimes
 
fragmented
 
regulation
 
and
 
ongoing
 
consolidation.
 
We
 
face
 
competition
 
at
 
the
 
level
 
of
 
local
 
markets
 
and
individual business lines, and from global financial institutions
 
that are comparable to us in
 
their size and breadth, as well
as competition from
 
new technology-based market
 
entrants, which may not
 
be subject to the
 
same level of regulation.
Barriers to entry in individual markets and pricing levels are being eroded
 
by new technology. We
 
expect these trends to
continue and competition
 
to increase.
 
Our competitive
 
strength and
 
market position
 
could be eroded
 
if we are
 
unable
to
 
identify
 
market
 
trends
 
and
 
developments,
 
do
 
not
 
respond
 
to
 
such
 
trends
 
and
 
developments
 
by
 
devising
 
and
implementing adequate
 
business strategies,
 
do not adequately
 
develop or update
 
our technology,
 
including our
 
digital
channels and tools, or are unable to attract
 
or retain the qualified people needed.
The
 
amount
 
and
 
structure
 
of
 
our
 
employee
 
compensation
 
is
 
affected
 
not
 
only
 
by
 
our
 
business
 
results,
 
but
 
also
 
by
competitive factors and regulatory considerations.
 
In response
 
to the
 
demands of
 
various stakeholders,
 
including regulatory
 
authorities and
 
shareholders, and
 
in order
 
to
better
 
align
 
the
 
interests
 
of
 
our
 
staff
 
with
 
other
 
stakeholders,
 
we
 
have
 
increased
 
average
 
deferral
 
periods
 
for
 
stock
awards, expanded forfeiture provisions and, to a more limited extent, introduced clawback
 
provisions for certain awards
linked to business
 
performance. We
 
have also
 
introduced individual
 
caps on the
 
proportion of
 
fixed to variable
 
pay for
the Executive Board (EB) members, as well as certain other employees. We will also be required to introduce and enforce
provisions
 
requiring
 
UBS
 
to
 
recover
 
from
 
EB
 
members
 
and
 
certain
 
other
 
executives
 
a
 
portion
 
of
 
performance-based
incentive compensation
 
in the
 
event that
 
UBS Group
 
or another
 
entity with
 
securities listed
 
on a
 
US national
 
securities
exchange, is required to restate
 
its financial statements as a result of a material error.
Constraints on the
 
amount or structure of
 
employee compensation, higher levels
 
of deferral, performance conditions
 
and
other circumstances triggering the forfeiture of unvested awards may adversely affect our
 
ability to retain and attract key
employees, particularly where we compete with companies that are not subject to
 
these constraints. The loss of key staff
and the inability to
 
attract qualified replacements
 
could seriously compromise
 
our ability to execute
 
our strategy and to
successfully
 
improve
 
our
 
operating
 
and
 
control
 
environment,
 
and
 
could
 
affect
 
our
 
business
 
performance.
 
This
 
risk
 
is
intensified by
 
elevated levels
 
of attrition
 
among Credit
 
Suisse employees.
 
Swiss law
 
requires that
 
shareholders approve
the compensation of the
 
UBS Group AG Board
 
of Directors (the
 
Group Board) and
 
the UBS Group
 
AG Group Executive
Board (GEB) each
 
year. If UBS Group AG’s
 
shareholders fail to
 
approve the compensation for
 
the GEB or
 
the Group Board,
this could have an adverse effect on our ability to retain
 
experienced directors and our senior management.
 
Annual Report 2023 |
Our business model and environment |
 
Risk factors
 
27
Our operating results, financial condition and ability to pay
 
our obligations in the future may be affected by funding,
dividends and other distributions received directly or indirectly
 
from its subsidiaries, which may be subject to restrictions
UBS AG’s ability to pay
 
its obligations in the future will depend
 
on the level of funding, dividends
 
and other distributions,
if
 
any,
 
received
 
from
 
UBS
 
Switzerland
 
AG
 
and
 
other
 
subsidiaries.
 
The
 
ability
 
of
 
such
 
subsidiaries
 
to
 
make
 
loans
 
or
distributions,
 
directly
 
or indirectly,
 
to UBS
 
AG
 
may
 
be restricted
 
as a
 
result
 
of
 
several
 
factors,
 
including
 
restrictions
 
in
financing agreements
 
and the
 
requirements
 
of applicable
 
law and
 
regulatory,
 
fiscal or
 
other restrictions.
 
In particular,
UBS AG’s direct and indirect subsidiaries, including UBS Switzerland
 
AG, UBS Americas Holding LLC and UBS Europe SE,
are subject
 
to laws and
 
regulations require
 
the entities to
 
maintain minimum
 
levels of capital
 
and liquidity,
 
that restrict
dividend payments, authorize regulatory bodies to block or reduce
 
the flow of funds from those subsidiaries to UBS AG,
or could affect
 
their ability to
 
repay any
 
loans made to,
 
or other investments
 
in, such subsidiary
 
by UBS AG
 
or another
member of the Group. For
 
example, in the early stages of
 
the COVID-19 pandemic, the European
 
Central Bank ordered
all banks under its supervision to cease dividend distributions and
 
the Board of Governors of the Federal Reserve
 
System
limited capital distributions by bank holding companies and intermediate holding companies. Restrictions and regulatory
actions
 
could
 
impede
 
access
 
to
 
funds
 
that
 
UBS
 
AG
 
may
 
need
 
to
 
meet
 
its
 
obligations.
 
In
 
addition,
 
UBS
 
AG’s
 
right
 
to
participate in a distribution
 
of assets upon a subsidiary’s
 
liquidation or reorganization
 
is subject to all
 
prior claims of the
subsidiary’s creditors.
Furthermore, UBS AG
 
may guarantee some
 
of the payment
 
obligations of certain
 
of the Group’s subsidiaries
 
from time
to time. These guarantees may
 
require UBS AG to provide substantial
 
funds or assets to subsidiaries
 
or their creditors or
counterparties at a time when UBS AG is in need of liquidity
 
to fund its own obligations.
Market, credit and macroeconomic risks
Performance in the financial services industry is affected
 
by market conditions and the macroeconomic climate
 
Our
 
businesses
 
are
 
materially
 
affected
 
by
 
market
 
and
 
macroeconomic
 
conditions.
 
A
 
market
 
downturn
 
and
 
weak
macroeconomic conditions can be
 
precipitated by a
 
number of
 
factors, including geopolitical
 
events, such as
 
international
armed conflicts,
 
war,
 
or acts
 
of terrorism,
 
the imposition
 
of sanctions,
 
global trade
 
or global
 
supply chain
 
disruptions,
including
 
energy
 
shortages
 
and
 
food
 
insecurity,
 
changes
 
in
 
monetary
 
or
 
fiscal
 
policy,
 
changes
 
in
 
trade
 
policies
 
or
international trade
 
disputes, significant
 
inflationary or deflationary
 
price changes,
 
disruptions in
 
one or
 
more concentrated
economic
 
sectors,
 
natural
 
disasters,
 
pandemics
 
or
 
local
 
and
 
regional
 
civil
 
unrest.
 
Such
 
developments
 
can
 
have
unpredictable and destabilizing effects.
 
Adverse changes in interest rates,
 
credit spreads, securities prices, market
 
volatility and liquidity, foreign exchange
 
rates,
commodity prices, and
 
other market fluctuations,
 
as well as changes
 
in investor sentiment,
 
can affect our earnings
 
and
ultimately our financial
 
and capital positions. As
 
financial markets are global
 
and highly interconnected, local
 
and regional
events
 
can
 
have
 
widespread
 
effects
 
well
 
beyond
 
the
 
countries
 
in
 
which
 
they
 
occur.
 
Any
 
of
 
these
 
developments
 
may
adversely affect our business or financial results.
As a
 
result of
 
significant volatility
 
in the
 
market, our
 
businesses
 
may experience
 
a decrease
 
in client
 
activity levels
 
and
market
 
volumes,
 
which
 
would
 
adversely
 
affect
 
our
 
ability
 
to
 
generate
 
transaction
 
fees,
 
commissions
 
and
 
margins,
particularly in Global Wealth Management and
 
the Investment Bank. A market downturn
 
would likely reduce the volume
and valuation of
 
assets that
 
we manage on
 
behalf of clients,
 
which would reduce
 
recurring fee
 
income that is
 
charged
based on invested assets, primarily in Global Wealth Management and Asset Management, and performance-based fees
in Asset Management.
 
Such a downturn
 
could also cause
 
a decline in the
 
value of assets that
 
we own and account
 
for
as investments or trading positions. In addition, reduced market
 
liquidity or volatility may limit trading opportunities and
therefore may reduce transaction-based income and may also
 
impede our ability to manage risks.
Health emergencies, including
 
pandemics and measures
 
taken by governmental authorities
 
to manage them,
 
may have
effects
 
such
 
as
 
labor
 
market
 
displacements,
 
supply
 
chain
 
disruptions,
 
and
 
inflationary
 
pressures,
 
and
 
adversely
 
affect
global
 
and
 
regional
 
economic
 
conditions,
 
resulting
 
in
 
contraction
 
in
 
the
 
global
 
economy,
 
substantial
 
volatility
 
in
 
the
financial markets, crises
 
in markets for
 
goods and services, disruptions
 
in real estate
 
markets, increased unemployment,
increased
 
credit
 
and
 
counterparty
 
risk,
 
and
 
operational
 
challenges,
 
as
 
we
 
saw
 
with
 
the
 
COVID-19
 
pandemic.
 
Such
economic or market disruptions,
 
including inflationary pressures, may lead
 
to reduced levels of
 
client activity and demand
for
 
our
 
products
 
and
 
services,
 
increased
 
utilization
 
of
 
lending
 
commitments,
 
significantly
 
increased
 
client
 
defaults,
continued
 
and
 
increasing
 
credit
 
and
 
valuation
 
losses
 
in
 
our
 
loan
 
portfolios,
 
loan
 
commitments
 
and
 
other
 
assets,
 
and
impairments of
 
other financial
 
assets.
 
A fall
 
in equity
 
markets
 
and a
 
consequent decline
 
in invested
 
assets would
 
also
reduce recurring fee income in our Global Wealth Management and Asset Management businesses, as UBS experienced
in the second
 
quarter of 2022. These
 
factors and other
 
consequences of a
 
health emergency may
 
negatively affect
 
our
financial condition, including possible constraints on capital and liquidity,
 
as well as a higher cost of capital, and possible
downgrades to our credit ratings.
 
Annual Report 2023 |
Our business model and environment |
 
Risk factors
 
28
Geopolitical events:
 
Terrorist activity and
 
escalating armed
 
conflict in the
 
Middle East, as
 
well as the
 
continuing Russia–
Ukraine war,
 
may have
 
significant impacts on
 
global markets,
 
exacerbate global
 
inflationary pressures,
 
and slow
 
global
growth.
 
In
 
addition,
 
the
 
ongoing
 
conflicts
 
may
 
continue
 
to
 
cause
 
significant
 
population
 
displacement,
 
and
 
lead
 
to
shortages of vital commodities, including energy shortages and food insecurity outside the areas immediately involved in
armed
 
conflict.
 
Governmental
 
responses
 
to
 
the
 
armed
 
conflicts,
 
including,
 
with
 
respect
 
to
 
the
 
Russia/Ukraine
 
war,
coordinated successive
 
sets of
 
sanctions on
 
Russia and
 
Belarus, and
 
Russian and
 
Belarusian entities
 
and nationals,
 
and
the uncertainty
 
as to
 
whether the
 
ongoing conflicts
 
will widen
 
and intensify,
 
may continue
 
to have
 
significant adverse
effects on the
 
market and macroeconomic
 
conditions, including in
 
ways that cannot
 
be anticipated.
 
If individual countries
impose restrictions
 
on cross-border
 
payments or
 
trade, or
 
other exchange
 
or capital
 
controls, or
 
change their
 
currency
(for example, if one
 
or more countries should
 
leave the Eurozone, as
 
a result of
 
the imposition of sanctions on
 
individuals,
entities or countries, or escalation of trade restrictions and other
 
actions between the US, or other countries, and China),
we could suffer adverse effects on our business, losses from enforced
 
default by counterparties, be unable to access our
own assets or be unable to effectively manage our risks.
We could
 
be materially
 
affected
 
if a
 
crisis develops,
 
regionally or
 
globally, as
 
a result
 
of disruptions
 
in markets
 
due to
macroeconomic or political developments, trade
 
restrictions, or the failure of a major
 
market participant. Over time, our
strategic plans have
 
become more heavily
 
dependent on our
 
ability to generate
 
growth and
 
revenue in emerging
 
markets,
including China, causing us to be more exposed to the risks
 
associated with such markets.
Global Wealth Management derives revenues from all the principal regions, but has a greater concentration in Asia than
many peers and a
 
substantial presence in
 
the US, unlike
 
many European peers.
 
The Investment Bank’s
 
business is more
heavily weighted to Europe and Asia than our peers, while its derivatives business is more heavily weighted to structured
products
 
for
 
wealth
 
management
 
clients,
 
in
 
particular
 
with
 
European
 
and
 
Asian
 
underlyings.
 
Our
 
performance
 
may
therefore be more affected
 
by political, economic and
 
market developments in these
 
regions and businesses than
 
some
other financial service providers.
The extent to which ongoing conflicts, current inflationary pressures
 
and related adverse economic conditions affect our
businesses, results of operations and financial condition, as well as our regulatory capital and liquidity ratios, will depend
on future
 
developments,
 
including the
 
effects
 
of the
 
current
 
conditions on
 
our clients,
 
counterparties, employees
 
and
third-party service providers.
Our credit risk exposure to clients, trading counterparties
 
and other financial institutions would increase under adverse
or other economic conditions
Credit risk is an integral part of many of our activities,
 
including lending, underwriting and derivatives activities. Adverse
economic or market conditions, or the imposition of sanctions or other
 
restrictions on clients, counterparties or financial
institutions, may lead
 
to impairments and
 
defaults on these
 
credit exposures.
 
Losses may be
 
exacerbated by declines
 
in
the value
 
of collateral
 
securing loans and
 
other exposures. In
 
our prime
 
brokerage, securities finance
 
and Lombard lending
businesses,
 
we
 
extend
 
substantial
 
amounts
 
of
 
credit
 
against
 
securities
 
collateral,
 
the
 
value
 
or
 
liquidity
 
of
 
which
 
may
decline
 
rapidly.
 
Market
 
closures
 
and
 
the
 
imposition
 
of
 
exchange
 
controls,
 
sanctions
 
or
 
other
 
measures
 
may
 
limit
 
our
ability to
 
settle existing
 
transactions or
 
to realize
 
on collateral,
 
which may
 
result in
 
unexpected increases
 
in exposures.
Our Swiss mortgage
 
and corporate
 
lending portfolios are
 
a large part
 
of our overall
 
lending. We are
 
therefore exposed
to the
 
risk of adverse
 
economic developments
 
in Switzerland,
 
including property
 
valuations in the
 
housing market,
 
the
strength of the Swiss franc and its effect on Swiss exports, return to negative interest rates applied by the Swiss National
Bank, economic
 
conditions within
 
the Eurozone
 
or the
 
EU, and the
 
evolution of
 
agreements
 
between Switzerland
 
and
the EU or EEA, which represent
 
Switzerland’s largest export market.
 
We have exposures
 
related to real
 
estate in various
countries, including a substantial Swiss mortgage portfolio. Although we believe this portfolio is prudently managed, we
could nevertheless be exposed to losses if a substantial deterioration
 
in the Swiss real estate market were
 
to occur.
 
As
 
we
 
experienced
 
in
 
2020,
 
under
 
the
 
International
 
Financial
 
Reporting
 
Standards
 
(IFRS) 9
 
expected
 
credit
 
loss
 
(ECL)
regime, credit
 
loss expenses
 
may increase
 
rapidly at
 
the onset
 
of an
 
economic downturn
 
as a
 
result of
 
higher levels
 
of
credit
 
impairments
 
(stage 3),
 
as
 
well
 
as
 
higher
 
ECL
 
from
 
stages 1
 
and
 
2.
 
Substantial
 
increases
 
in
 
ECL
 
could
 
exceed
expected loss for regulatory capital purposes and
 
adversely affect our common equity tier 1 (CET1) capital
 
and regulatory
capital ratios.
Interest rate trends and changes could negatively affect our
 
financial results
UBS’s businesses
 
are sensitive
 
to changes
 
in interest
 
rate trends.
 
A prolonged
 
period of
 
low or
 
negative interest
 
rates,
particularly in Switzerland
 
and the Eurozone,
 
adversely affected
 
the net interest
 
income generated by
 
UBS’s Personal &
Corporate Banking and Global Wealth Management businesses prior to 2022. Actions that UBS
 
took to mitigate adverse
effects on income, such as
 
the introduction of
 
selective deposit fees or minimum
 
lending rates, contributed to
 
outflows
of customer
 
deposits (a
 
key source
 
of funding
 
for
 
UBS), net
 
new money
 
outflows and
 
a declining
 
market
 
share
 
in its
Swiss lending business.
 
Annual Report 2023 |
Our business model and environment |
 
Risk factors
 
29
During 2022, interest
 
rates increased sharply in
 
the US and most
 
other markets, including a
 
shift from negative
 
to positive
central bank policy rates in the Eurozone and Switzerland, as central
 
banks responded to higher inflation. Higher interest
rates
 
generally
 
benefit
 
UBS’s
 
net
 
interest
 
income.
 
However,
 
as returns
 
on
 
alternatives
 
to deposits
 
increase
 
with
 
rising
interest rates, such
 
as returns on
 
money market
 
funds, UBS experienced
 
outflows from customer
 
deposits and shifts
 
of
deposits from lower
 
-interest account types
 
to accounts
 
bearing higher interest
 
rates, such as
 
savings and certificates
 
of
deposit, starting
 
with effects
 
in the
 
US, where
 
rates had
 
rapidly increased.
 
In addition,
 
higher for
 
longer rates,
 
such as
those experienced
 
in 2023,
 
have led similar
 
shifts in euro
 
and Swiss Franc
 
deposits. Sustained
 
higher interest rates
 
also
may
 
adversely
 
affect
 
our
 
credit
 
counterparties.
 
Customer
 
deposit
 
outflows
 
could
 
require
 
UBS
 
to
 
obtain
 
alternative
funding, which would likely be more costly than customer
 
deposits.
 
Currency
fluctuation may have an adverse effect
 
on our profits, balance sheet and regulatory capital
We
 
are
 
subject
 
to
 
currency
 
fluctuation
 
risks
 
as
 
a
 
substantial
 
portion
 
of
 
our
 
assets
 
and
 
liabilities
 
are
 
denominated
 
in
currencies
 
other than
 
our UBS
 
AG presentation
 
currency,
 
the US
 
dollar.
 
In order
 
to hedge
 
our CET1
 
capital ratio,
 
our
CET1 capital must
 
have foreign currency exposure, which
 
leads to currency sensitivity. As a
 
consequence, it is
 
not possible
to simultaneously
 
fully hedge
 
both CET1
 
capital and
 
the CET1
 
capital ratio.
 
Accordingly,
 
changes in
 
foreign
 
exchange
rates may adversely affect our profits, balance
 
sheet, and capital, leverage and liquidity coverage
 
ratios.
 
Regulatory and legal risks
Material legal and regulatory risks arise in the conduct of
 
our business
As a global
 
financial services
 
firm operating
 
in more
 
than 50 countries,
 
we are
 
subject to many
 
different legal,
 
tax and
regulatory regimes,
 
including extensive regulatory
 
oversight, and are
 
exposed to significant
 
liability risk. We
 
are subject
to a large number of claims,
 
disputes, legal proceedings and government investigations, and
 
we expect that our ongoing
business activities will
 
continue to give
 
rise to such
 
matters in the
 
future. In addition, as
 
noted above, UBS
 
Group inherited
claims against
 
Credit Suisse
 
entities as
 
part of
 
the acquisition,
 
including matters
 
that may
 
be material
 
to the
 
operating
results of
 
the combined
 
group such
 
as the
 
ongoing supply
 
chain finance
 
funds (SCFF)
 
matter.
 
This will
 
affect
 
UBS AG
upon
 
the
 
planned
 
merger
 
with
 
Credit
 
Suisse
 
AG.
 
The
 
extent
 
of
 
our
 
financial
 
exposure
 
to
 
these
 
and
 
other
 
matters
 
is
material and could
 
substantially exceed the
 
level of provisions
 
that we have
 
established. We
 
are not able
 
to predict
 
the
financial and non-financial consequences these matters may
 
have when resolved.
 
We may be subject to adverse preliminary determinations or court decisions that may negatively affect public perception
and our
 
reputation,
 
result
 
in prudential
 
actions from
 
regulators, and
 
cause us
 
to record
 
additional
 
provisions
 
for
 
such
matters even when we believe we have substantial
 
defenses and expect to ultimately achieve a more
 
favorable outcome.
This risk
 
is illustrated
 
by the
 
award of
 
aggregate penalties
 
and damages
 
of EUR 4.5bn
 
by the
 
court of
 
first instance
 
in
France.
 
This
 
award
 
was
 
reduced
 
to an
 
aggregate
 
of EUR
 
1.8bn
 
by the
 
Court
 
of
 
Appeal,
 
and
 
in
 
a
 
further
 
appeal,
 
the
French Supreme Court referred the case back to the
 
Paris Court of Appeal to reconsider the amount after
 
a new trial.
 
Litigation,
 
regulatory
 
and
 
similar
 
matters
 
may
 
also
 
result
 
in
 
non-monetary
 
penalties
 
and consequences.
 
Among
 
other
things,
 
a
 
guilty
 
plea
 
to,
 
or
 
conviction
 
of,
 
a
 
crime
 
(including
 
as
 
a
 
result
 
of
 
termination
 
of
 
the
 
Deferred
 
Prosecution
Agreement Credit Suisse
 
entered into with
 
the United States
 
Department of Justice
 
in 2021 to
 
resolve its Mozambique
matter) could have material consequences for UBS.
 
Resolution of regulatory proceedings has required us to obtain waivers of regulatory disqualifications to maintain certain
operations, may entitle
 
regulatory authorities
 
to limit, suspend
 
or terminate licenses
 
and regulatory authorizations,
 
and
may
 
permit
 
financial
 
market
 
utilities
 
to
 
limit,
 
suspend
 
or
 
terminate
 
our
 
participation
 
in
 
them.
 
Failure
 
to
 
obtain
 
such
waivers,
 
or any
 
limitation,
 
suspension
 
or termination
 
of
 
licenses,
 
authorizations
 
or
 
participations,
 
could
 
have
 
material
adverse consequences for us.
Our settlements
 
with governmental
 
authorities
 
in connection
 
with foreign
 
exchange,
 
London Interbank
 
Offered Rates
(LIBOR) and other benchmark interest
 
rates starkly illustrate the significantly increased
 
level of financial and reputational
risk now associated with regulatory matters in major jurisdictions. In connection with investigations related to LIBOR and
other benchmark rates
 
and to foreign
 
exchange and precious
 
metals, very large
 
fines and disgorgement
 
amounts were
assessed against
 
us, and
 
we were
 
required to enter
 
guilty pleas despite
 
our full cooperation
 
with the
 
authorities in
 
the
investigations,
 
and
 
despite
 
our receipt
 
of conditional
 
leniency
 
or conditional
 
immunity
 
from
 
anti-trust
 
authorities
 
in a
number of jurisdictions, including the US and Switzerland.
For a number of years, we
 
have been,
 
and we continue
 
to be, subject
 
to a very
 
high level of
 
regulatory scrutiny
 
and to
certain regulatory
 
measures that
 
constrain our
 
strategic flexibility.
 
We believe we
 
have remediated
 
the deficiencies
 
that
led to significant losses in the past
 
and made substantial changes in our controls and
 
conduct risk frameworks to address
the issues highlighted
 
by the LIBOR-related,
 
foreign exchange and
 
precious metals regulatory
 
resolutions. We have
 
also
undertaken extensive efforts to implement new regulatory
 
requirements and meet heightened expectations.
 
Credit Suisse and UBS
 
have become the target of
 
lawsuits, and may become
 
the target of further
 
litigation, in connection
with the merger transaction and/or the regulatory and other actions taken in connection with
 
the merger transaction, all
of which could result in substantial costs.
We continue
 
to be
 
in active
 
dialogue with
 
regulators concerning
 
the actions
 
we are
 
taking to
 
improve our
 
operational
risk management, risk control, anti-money laundering,
 
data management and other frameworks, and
 
otherwise seek to
meet supervisory expectations, but there can be no assurance that our efforts will have the desired effects. As a result of
this history, our level of risk with respect to regulatory enforcement
 
may be greater than that of some of our peers.
 
Annual Report 2023 |
Our business model and environment |
 
Risk factors
 
30
Substantial changes in regulation may adversely affect our
 
businesses and our ability to execute our strategic plans
Since the
 
financial crisis
 
of 2008,
 
we have
 
been subject
 
to significant
 
regulatory
 
requirements,
 
including recovery
 
and
resolution planning,
 
changes in
 
capital and
 
prudential standards,
 
changes in
 
taxation regimes
 
as a
 
result of
 
changes in
governmental administrations,
 
new and
 
revised market
 
standards and
 
fiduciary duties,
 
as well
 
as new
 
and developing
environmental,
 
social
 
and
 
governance
 
(ESG)
 
standards
 
and
 
requirements.
 
Notwithstanding
 
attempts
 
by
 
regulators
 
to
align
 
their
 
efforts,
 
the
 
measures
 
adopted
 
or
 
proposed
 
for
 
banking
 
regulation
 
differ
 
significantly
 
across
 
the
 
major
jurisdictions, making
 
it increasingly
 
difficult to
 
manage a
 
global institution.
 
Regulatory reviews
 
of the
 
events leading
 
to
the failures
 
of US
 
banks and
 
the acquisition
 
of Credit
 
Suisse by
 
UBS Group
 
in 2023,
 
as well
 
as regulatory
 
measures to
complete the implementation of the Basel
 
3 standards, may increase capital, liquidity
 
and other requirements applicable
to banks,
 
including UBS
 
AG. In
 
addition, Swiss
 
regulatory
 
changes with
 
regard
 
to such
 
matters as
 
capital and
 
liquidity
have often
 
proceeded
 
more
 
quickly
 
than those
 
in other
 
major jurisdictions,
 
and Switzerland’s
 
requirements
 
for
 
major
international banks are
 
among the strictest
 
of the major
 
financial centers. This
 
could put Swiss
 
banks, such as
 
UBS AG,
at a disadvantage when
 
competing with peer financial institutions
 
subject to more lenient regulation or
 
with unregulated
non-bank competitors.
Our
 
implementation
 
of
 
additional
 
regulatory
 
requirements
 
and
 
changes
 
in
 
supervisory
 
standards,
 
as
 
well
 
as
 
our
compliance with
 
existing laws
 
and regulations,
 
continue to
 
receive heightened
 
scrutiny from
 
supervisors. If
 
we do
 
not
meet supervisory expectations in relation to these or other
 
matters, or if additional supervisory or regulatory issues arise,
we would
 
likely be
 
subject to
 
further regulatory
 
scrutiny,
 
as well
 
as measures
 
that may
 
further constrain
 
our strategic
flexibility.
 
Resolvability and
 
resolution
 
and recovery
 
planning:
We have
 
moved significant
 
operations into
 
subsidiaries to
 
improve
resolvability and meet other regulatory requirements, and this
 
has resulted in substantial implementation costs, increased
our
 
capital
 
and
 
funding
 
costs
 
and
 
reduced
 
operational
 
flexibility.
 
For
 
example,
 
we
 
have
 
transferred
 
all
 
of
 
our
 
US
subsidiaries
 
under
 
a
 
US
 
intermediate
 
holding
 
company
 
to
 
meet
 
US
 
regulatory
 
requirements,
 
and
 
have
 
transferred
substantially all the operations of Personal & Corporate Banking and Global Wealth Management booked in Switzerland
to UBS Switzerland AG to improve resolvability.
These
 
changes
 
create
 
operational,
 
capital,
 
liquidity,
 
funding
 
and
 
tax
 
inefficiencies.
 
Our
 
operations
 
in
 
subsidiaries
 
are
subject
 
to
 
local
 
capital,
 
liquidity,
 
stable
 
funding,
 
capital
 
planning
 
and
 
stress
 
testing
 
requirements.
 
These
 
requirements
have resulted in increased capital and liquidity requirements in
 
affected subsidiaries, which limit our operational flexibility
and negatively affect our
 
ability to benefit
 
from synergies between business
 
units and to
 
distribute earnings to
 
the Group.
Under the Swiss too-big-to-fail (TBTF) framework, we are required to put in place viable emergency plans to
 
preserve the
operation
 
of
 
systemically
 
important
 
functions
 
in
 
the
 
event
 
of
 
a
 
failure.
 
Moreover,
 
under
 
this
 
framework
 
and
 
similar
regulations in
 
the US,
 
the UK,
 
the EU
 
and other
 
jurisdictions in
 
which we
 
operate, we
 
are required
 
to prepare
 
credible
recovery and resolution
 
plans detailing the
 
measures that would
 
be taken to recover
 
in a significant adverse
 
event or in
the event of winding down the Group or the operations
 
in a host country through resolution or insolvency
 
proceedings.
If a recovery or resolution plan that we produce is determined by the relevant authority to be inadequate or not credible,
relevant regulation may permit the authority
 
to place limitations on the scope or
 
size of our business in that jurisdiction,
or oblige us to hold higher amounts of capital or liquidity or to change our legal structure or business in order to remove
the relevant impediments to resolution.
The
 
authorities
 
in
 
Switzerland
 
and
 
internationally
 
are
 
working
 
on
 
lessons
 
learned
 
from
 
the
 
Credit
 
Suisse
 
and
 
the
 
US
regional bank failures, which might result
 
in additional requirements regarding resolution planning and early
 
intervention
tools for authorities.
Capital and prudential standards: As an internationally active Swiss systemically relevant bank (an SRB),
 
we are subject to
capital and total loss-absorbing capacity (TLAC) requirements that are among the most stringent in the world. Moreover,
many
 
of
 
our
 
subsidiaries
 
must
 
comply
 
with
 
minimum
 
capital,
 
liquidity
 
and
 
similar
 
requirements
 
and,
 
as
 
a
 
result,
 
UBS
Group AG
 
and UBS
 
AG have
 
contributed a
 
significant portion
 
of their
 
capital and
 
provide substantial
 
liquidity to
 
these
subsidiaries. These funds are available to meet funding and collateral needs in the relevant entities, but are generally not
readily available for use by the Group as a whole.
 
We
 
expect
 
our
 
risk-weighted
 
assets
 
(RWA)
 
to
 
further
 
increase
 
as
 
the
 
effective
 
date
 
for
 
additional
 
capital
 
standards
promulgated by the Basel
 
Committee on Banking Supervision
 
(the BCBS) draws nearer. In
 
connection with the acquisition
of the Credit Suisse
 
Group, FINMA has permitted
 
Credit Suisse entities to
 
continue to apply certain
 
prior interpretations
and has
 
provided supervisory
 
rulings on
 
the treatment
 
of certain
 
items for
 
RWA or
 
capital purposes.
 
In general,
 
these
interpretations require that UBS phase out the treatment over the next several
 
years. In addition, FINMA has agreed that
additional
 
capital
 
requirement
 
applicable
 
to
 
Swiss
 
systemically
 
relevant
 
banks,
 
which
 
is
 
based
 
on
 
market
 
share
 
in
Switzerland and leverage
 
ratio denominator (LRD), will
 
not increase as a
 
result of acquisition of
 
the Credit Suisse Group
before the end of 2025. The
 
phase-out or end of these periods
 
will likely increase our overall
 
capital requirements upon
the planned merger with Credit Suisse AG, which increase
 
may be substantial.
Increases in capital and liquidity standards could significantly
 
curtail our ability to pursue strategic opportunities.
 
Annual Report 2023 |
Our business model and environment |
 
Risk factors
 
31
Market regulation and fiduciary standards:
Our wealth and asset management
 
businesses operate in an environment
 
of
increasing regulatory scrutiny and changing standards
 
with respect to fiduciary and
 
other standards of care and
 
the focus
on mitigating
 
or eliminating
 
conflicts of
 
interest between
 
a manager
 
or advisor
 
and the
 
client, which
 
require effective
implementation
 
across
 
the
 
global systems
 
and
 
processes
 
of investment
 
managers
 
and
 
other
 
industry
 
participants.
 
For
example, we
 
have made
 
material changes
 
to our
 
business processes,
 
policies and
 
the terms
 
on which we
 
interact with
these clients in order to comply with SEC Regulation Best Interest, which is intended to enhance and clarify the duties of
brokers and
 
investment advisers
 
to retail
 
customers, the
 
Volcker Rule,
 
which limits
 
our ability
 
to engage
 
in proprietary
trading, as
 
well as
 
changes in
 
European and
 
Swiss market
 
conduct regulation.
 
Future changes
 
in the
 
regulation of
 
our
duties to customers may require us to make further changes to our businesses, which would result in additional expense
and may adversely affect our
 
business. We may also become
 
subject to other similar regulations
 
substantively limiting the
types of activities in which we may engage or the way
 
we conduct our operations.
In many
 
instances, we provide
 
services on
 
a cross-border basis,
 
and we
 
are therefore sensitive
 
to barriers restricting
 
market
access for
 
third-country firms.
 
In particular,
 
efforts in
 
the EU
 
to harmonize
 
the regime
 
for third-country
 
firms to
 
access
the European market may have the effect of creating new barriers that adversely affect our ability to conduct business in
these
 
jurisdictions
 
from
 
Switzerland.
 
In
 
addition,
 
a
 
number
 
of
 
jurisdictions
 
are
 
increasingly
 
regulating
 
cross-border
activities based on
 
determinations of equivalence of
 
home country regulation,
 
substituted compliance or
 
similar principles
of
 
comity.
 
A
 
negative
 
determination
 
with
 
respect
 
to
 
Swiss
 
equivalence
 
could
 
limit
 
our
 
access
 
to
 
the
 
market
 
in
 
those
jurisdictions and
 
may negatively
 
influence our
 
ability to
 
act as a
 
global firm. For
 
example, the
 
EU declined to
 
extend its
equivalence determination for Swiss exchanges, which lapsed as
 
of 30 June 2019.
 
UBS
 
AG
 
Group
 
experienced
 
cross-border
 
outflows
 
over
 
a
 
number
 
of
 
years
 
as
 
a
 
result
 
of
 
heightened
 
focus
 
by
 
fiscal
authorities on cross-border investment and
 
fiscal amnesty programs, in anticipation of
 
the implementation in Switzerland
of the global
 
automatic exchange
 
of tax information,
 
and as a
 
result of the
 
measures UBS AG
 
Group has implemented
in response
 
to these
 
changes. Further
 
changes in
 
local tax
 
laws or
 
regulations and
 
their enforcement,
 
additional cross-
border tax
 
information exchange
 
regimes, national
 
tax amnesty
 
or enforcement
 
programs or
 
similar actions
 
may affect
our clients’ ability or willingness to do business with us and
 
could result in additional cross-border outflows.
If we experience financial difficulties, FINMA has the power
 
to open restructuring or liquidation proceedings or impose
protective measures in relation to UBS Group AG, UBS AG
 
or UBS Switzerland AG, and such proceedings or measures
may have a material adverse effect on our shareholders
 
and creditors
Under the
 
Swiss Banking
 
Act, FINMA
 
is able
 
to exercise
 
broad statutory
 
powers with
 
respect to
 
Swiss banks
 
and Swiss
parent
 
companies
 
of
 
financial
 
groups,
 
such
 
as
 
UBS
 
Group
 
AG,
 
UBS
 
AG
 
and
 
UBS Switzerland AG,
 
if
 
there
 
is
 
justified
concern that the entity
 
is over-indebted, has
 
serious liquidity problems
 
or,
 
after the expiration
 
of any relevant
 
deadline,
no
 
longer
 
fulfills
 
capital
 
adequacy
 
requirements.
 
Such
 
powers
 
include
 
ordering
 
protective
 
measures,
 
instituting
restructuring
 
proceedings
 
(and
 
exercising
 
any
 
Swiss
 
resolution
 
powers
 
in
 
connection
 
therewith),
 
and
 
instituting
liquidation proceedings,
 
all of
 
which may
 
have a
 
material adverse
 
effect on
 
shareholders and
 
creditors or
 
may prevent
UBS Group AG, UBS AG or UBS Switzerland AG from
 
paying dividends or making payments on debt obligations.
UBS would
 
have limited
 
ability
 
to challenge
 
any such
 
protective
 
measures,
 
and creditors
 
and shareholders
 
would
 
also
have limited ability under Swiss
 
law or in Swiss courts
 
to reject them, seek their suspension,
 
or challenge their imposition,
including measures that require
 
or result in the deferment of payments.
If restructuring proceedings
 
are opened with respect
 
to UBS Group
 
AG, UBS AG or
 
UBS Switzerland AG,
 
the resolution
powers that FINMA may exercise include the
 
power to: (i) transfer all or some
 
of the assets, debt and other
 
liabilities, and
contracts
 
of the
 
entity
 
subject
 
to proceedings
 
to another
 
entity;
 
(ii) stay
 
for
 
a
 
maximum
 
of two
 
business
 
days
 
(a) the
termination of,
 
or the
 
exercise of
 
rights to
 
terminate, netting
 
rights, (b)
 
rights to
 
enforce or
 
dispose of
 
certain types
 
of
collateral
 
or
 
(c)
 
rights
 
to
 
transfer
 
claims,
 
liabilities
 
or
 
certain
 
collateral,
 
under
 
contracts
 
to
 
which
 
the
 
entity
 
subject
 
to
proceedings is a party; and / or (iii) partially or fully write down the equity capital and regulatory capital instruments and,
if such regulatory capital is fully
 
written down, write down or convert into
 
equity the other debt instruments of the entity
subject
 
to
 
proceedings.
 
Shareholders
 
and
 
creditors
 
would
 
have
 
no
 
right
 
to
 
reject,
 
or
 
to
 
seek
 
the
 
suspension
 
of,
 
any
restructuring
 
plan
 
pursuant
 
to
 
which
 
such
 
resolution
 
powers
 
are
 
exercised.
 
They
 
would
 
have
 
only
 
limited
 
rights
 
to
challenge
 
any
 
decision
 
to
 
exercise
 
resolution
 
powers
 
or to
 
have
 
that
 
decision
 
reviewed
 
by
 
a
 
judicial
 
or
 
administrative
process or otherwise.
Upon full
 
or partial
 
write-down
 
of the
 
equity and
 
regulatory
 
capital
 
instruments
 
of the
 
entity
 
subject to
 
restructuring
proceedings, the relevant shareholders
 
and creditors would receive
 
no payment in respect of the equity
 
and debt that is
written
 
down,
 
the
 
write-down
 
would
 
be
 
permanent,
 
and
 
the
 
investors
 
would
 
likely
 
not,
 
at
 
such
 
time
 
or
 
at
 
any
 
time
thereafter,
 
receive any
 
shares or other
 
participation rights,
 
or be entitled
 
to any write-up
 
or any other
 
compensation in
the event of a potential subsequent
 
recovery of the debtor.
 
If FINMA orders the conversion
 
of debt of the entity subject
to restructuring proceedings
 
into equity,
 
the securities received by
 
the investors may be worth significantly
 
less than the
original debt and may have a
 
significantly different risk profile. In addition, creditors receiving equity would be effectively
subordinated to all creditors of the restructured entity in the event
 
of a subsequent winding up, liquidation
 
or dissolution
of the restructured entity,
 
which would increase the risk that investors would
 
lose all or some of their investment.
 
 
Annual Report 2023 |
Our business model and environment |
 
Risk factors
 
32
FINMA has significant discretion in the exercise of its powers in connection with restructuring proceedings. Furthermore,
certain categories of debt obligations, such as certain types of
 
deposits, are subject to preferential treatment. As a result,
holders of obligations
 
of an entity
 
subject to a
 
Swiss restructuring
 
proceeding may
 
have their obligations
 
written down
or converted
 
into equity even
 
though obligations ranking
 
on par
 
with such obligations
 
are not written
 
down or
 
converted.
 
Developments in sustainability, climate, environmental and social
 
standards and regulations may affect our business and
impact our ability to fully realize our goals
We have set
 
ambitious goals for
 
ESG matters. These
 
goals include our
 
ambitions for environmental
 
sustainability in our
operations, including carbon
 
emissions, in the
 
business we do
 
with clients and
 
in products that
 
we offer. They also include
goals
 
or
 
aspirations
 
for
 
diversity
 
in
 
our
 
workforce
 
and
 
supply
 
chain,
 
and
 
support
 
for
 
the
 
United
 
Nations
 
Sustainable
Development Goals. There is substantial
 
uncertainty as to the scope of actions that
 
may be required of us, governments
and others to
 
achieve the goals
 
we have set,
 
and many of
 
our goals
 
and objectives are only
 
achievable with a
 
combination
of government
 
and private action.
 
National and
 
international standards and
 
expectations, industry and
 
scientific practices,
and regulatory
 
taxonomies and
 
disclosure obligations
 
addressing these
 
matters are
 
relatively immature
 
and are
 
rapidly
evolving.
 
In
 
addition,
 
there
 
are
 
significant
 
limitations
 
in
 
the
 
data
 
available
 
to
 
measure
 
our
 
climate
 
and
 
other
 
goals.
Although we have
 
defined and disclosed
 
our goals based
 
on the standards
 
existing at the
 
time of disclosure,
 
there can
be no assurance
 
(i) that the
 
various ESG
 
regulatory and
 
disclosure regimes
 
under which
 
we operate
 
will not come
 
into
conflict with
 
one another,
 
(ii) that the
 
current
 
standards
 
will not
 
be interpreted
 
differently
 
than our
 
understanding
 
or
change in a manner that substantially increases
 
the cost or effort for us to achieve such goals
 
or (iii) that additional data
or
 
methods,
 
whether
 
voluntary
 
or
 
required
 
by
 
regulation,
 
may
 
substantially
 
change
 
our
 
calculation
 
of
 
our
 
goals
 
and
ambitions. It
 
is possible that
 
such goals
 
may prove
 
to be considerably
 
more difficult
 
or even impossible
 
to achieve.
 
The
evolving
 
standards
 
may
 
also
 
require
 
us
 
to
 
substantially
 
change
 
the
 
stated
 
goals
 
and
 
ambitions.
 
If
 
we
 
are
 
not able
 
to
achieve the goals we
 
have set, or
 
can only do
 
so at significant
 
expense to our
 
business, we may
 
fail to meet
 
regulatory
expectations, incur damage to our reputation or be exposed
 
to an increased risk of litigation or other adverse
 
action.
While ESG regulatory regimes and
 
international standards are being developed, including
 
to require consideration of ESG
risks in investment decisions,
 
some jurisdictions, notably in
 
the US, have developed rules
 
restricting the consideration
 
of
ESG factors in investment
 
and business decisions. Under
 
these anti-ESG rules, companies
 
that are perceived
 
as boycotting
or discriminating against certain industries may be
 
restricted from doing business with certain governmental
 
entities. Our
businesses
 
may
 
be
 
adversely
 
affected
 
if
 
UBS
 
is
 
considered
 
as
 
discriminating
 
against
 
companies
 
based
 
on
 
ESG
considerations, or if further anti-ESG rules are developed
 
or broadened.
Material weakness of Credit Suisse controls over financial
 
reporting
The Credit Suisse Group delayed its reporting for the year ending 2022 stating
 
that it had identified material weaknesses
in its internal controls over
 
financial reporting as a
 
result of which the Credit
 
Suisse Group management
 
had concluded
that, as of 31 December 2022, its internal controls over financial reporting were not effective, and for the same reasons,
it reached
 
the same conclusion
 
regarding
 
31 December
 
2021. A material
 
weakness is
 
a deficiency
 
or a combination
 
of
deficiencies
 
in
 
internal
 
controls
 
over
 
financial
 
reporting
 
such
 
that
 
there
 
is
 
a
 
reasonable
 
possibility
 
that
 
a
 
material
misstatement of a registrant’s financial statements will
 
not be prevented or detected on
 
a timely basis. There is a
 
risk that
a
 
material
 
error
 
may
 
not
 
be
 
detected
 
by
 
UBS
 
Group
 
AG’s
 
internal
 
control
 
structure
 
that
 
could
 
result
 
in
 
a
 
material
misstatement to Credit Suisse’s reported financial results, which are consolidated with UBS Group AG’s results. Since the
acquisition, UBS Group AG has undertaken a review of the processes and systems giving rise to the material weaknesses
and
 
the
 
remediation
 
program
 
undertaken.
 
This
 
review
 
is
 
ongoing,
 
and
 
UBS
 
expects
 
to
 
adopt
 
and
 
implement
 
further
controls
 
and
 
procedures
 
following
 
the
 
completion
 
of
 
such
 
review
 
and
 
discussions
 
with
 
regulators.
 
Based
 
on
 
this
assessment,
 
management
 
believes
 
that,
 
as of
 
31
 
December
 
2023,
 
UBS’s
 
internal control
 
over
 
financial
 
reporting
 
was
effective.
 
Management
 
has
 
excluded
 
Credit
 
Suisse,
 
which
 
UBS
 
Group
 
AG
 
acquired
 
in
 
2023,
 
from
 
the
 
scope
 
of
 
its
assessment of internal control
 
over financial reporting,
 
as permitted by
 
SEC guidance for
 
acquired businesses. This
 
may
affect the UBS AG Group upon the planned
 
merger with Credit Suisse AG.
Our financial results may be negatively affected by changes
 
to assumptions and valuations, as well as changes to
accounting standards
We prepare our consolidated financial statements
 
in accordance with IFRS.
 
The application of
 
these accounting standards
requires the
 
use of
 
judgment based
 
on estimates
 
and assumptions
 
that may
 
involve significant
 
uncertainty at
 
the time
they are made. This is the
 
case, for example, with respect
 
to the measurement of fair value
 
of financial instruments, the
recognition
 
of
 
deferred
 
tax
 
assets
 
(DTAs),
 
the
 
assessment
 
of
 
the
 
impairment
 
of
 
goodwill,
 
expected
 
credit
 
losses
 
and
estimation of provisions for litigation, regulatory and similar
 
matters. Such judgments, including the underlying
 
estimates
and
 
assumptions,
 
which
 
encompass
 
historical
 
experience,
 
expectations
 
of
 
the
 
future
 
and
 
other
 
factors,
 
are
 
regularly
evaluated to determine their continuing relevance based on current conditions.
 
Using different assumptions could cause
the reported results
 
to differ. Changes in assumptions,
 
or failure to
 
make the changes
 
necessary to
 
reflect evolving market
conditions, may
 
have a
 
significant effect
 
on the
 
financial statements
 
in the
 
periods when
 
changes occur.
 
Estimates of
provisions
 
may be
 
subject
 
to a
 
wide range
 
of potential
 
outcomes and
 
significant uncertainty.
 
For example,
 
the
 
broad
range
 
of potential
 
outcomes
 
in our
 
legal proceedings
 
in
 
France
 
and in
 
a
 
number
 
of Credit
 
Suisse’s
 
legal proceedings
increase the uncertainty
 
associated with assessing
 
the appropriate
 
provision. If the
 
estimates and assumptions
 
in future
periods deviate from the current
 
outlook, our financial results may also be negatively
 
affected.
 
 
Annual Report 2023 |
Our business model and environment |
 
Risk factors
 
33
Changes to IFRS or interpretations thereof may cause future reported results and financial position to differ from current
expectations, or
 
historical results
 
to differ
 
from those
 
previously reported
 
due to the
 
adoption of
 
accounting standards
on a retrospective basis. Such changes may also affect our regulatory capital and ratios. For example, the introduction of
the
 
ECL
 
regime
 
under
 
IFRS 9
 
in
 
2018
 
fundamentally
 
changed
 
how
 
credit
 
risk
 
arising
 
from
 
loans,
 
loan
 
commitments,
guarantees
 
and
 
certain
 
revocable
 
facilities
 
is accounted
 
for.
 
Under
 
the
 
ECL
 
regime,
 
credit
 
loss
 
expenses
 
may
 
increase
rapidly at the onset
 
of an economic downturn
 
as a result of
 
higher levels of credit
 
impairments (stage 3), as well as
 
higher
ECL from stages 1 and 2, only gradually diminishing once
 
the economic outlook improves. As we observed in 2020, this
effect
 
may
 
be more
 
pronounced
 
in
 
a
 
deteriorating
 
economic
 
environment.
 
Substantial
 
increases
 
in
 
ECL
 
could
 
exceed
expected loss for regulatory capital purposes and adversely
 
affect our CET1 capital and regulatory capital ratios.
 
We may be unable to maintain our capital strength
Capital
 
strength
 
enables
 
us
 
to grow
 
our
 
businesses
 
and
 
absorb
 
increases
 
in
 
regulatory
 
and
 
capital
 
requirements.
 
Our
ability to
 
maintain our
 
capital
 
ratios is
 
subject to
 
numerous risks,
 
including the
 
financial results
 
of our
 
businesses,
 
the
effect of changes to
 
capital standards, methodologies and interpretations that may
 
adversely affect the calculation of our
capital
 
ratios, the
 
imposition
 
of risk
 
add-ons
 
or capital
 
buffers,
 
and the
 
application
 
of additional
 
capital,
 
liquidity
 
and
similar requirements to subsidiaries. Our capital and leverage ratios are driven primarily by RWA, LRD and eligible capital,
all of
 
which may
 
fluctuate based
 
on a
 
number of
 
factors, some
 
of which
 
are outside
 
of our control.
 
The results
 
of our
businesses may
 
be adversely
 
affected by
 
events arising from
 
other risk
 
factors described
 
herein. In
 
some cases,
 
such as
litigation and regulatory risk and operational risk events, losses
 
may be sudden and large.
Our eligible capital may be
 
reduced by losses recognized within net
 
profit or other comprehensive income.
 
Eligible capital
may also
 
be reduced
 
for other
 
reasons, including
 
acquisitions that
 
change the
 
level of
 
goodwill, changes
 
in temporary
differences
 
related
 
to
 
DTAs
 
included
 
in
 
capital,
 
adverse
 
currency
 
movements
 
affecting
 
the
 
value
 
of
 
equity,
 
prudential
adjustments that may
 
be required due
 
to the valuation
 
uncertainty associated with
 
certain types of
 
positions, and changes
in the value
 
of certain pension
 
fund assets and
 
liabilities or in
 
the interest rate
 
and other assumptions
 
used to calculate
the changes in our net defined benefit obligation recognized
 
in other comprehensive income.
RWA
 
are
 
driven
 
by
 
our
 
business
 
activities,
 
by
 
changes
 
in
 
the
 
risk
 
profile
 
of
 
our
 
exposures,
 
by
 
changes
 
in
 
our
 
foreign
currency exposures and foreign exchange rates, and by regulation.
 
For instance, substantial market volatility, a widening
of credit spreads,
 
adverse currency movements,
 
increased counterparty
 
risk, deterioration in the
 
economic environment
or increased
 
operational risk
 
could result
 
in an
 
increase in
 
RWA. Changes
 
in the
 
calculation of
 
RWA, the
 
imposition of
additional
 
supplemental RWA
 
charges or
 
multipliers applied
 
to certain
 
exposures and
 
other methodology
 
changes,
 
as
well as the
 
finalization of the Basel
 
III framework and
 
Fundamental Review of the
 
Trading Book promulgated by
 
the BCBS,
which are expected to increase our RWA.
The
 
leverage
 
ratio
 
is
 
a
 
balance
 
sheet-driven
 
measure
 
and
 
therefore
 
limits
 
balance
 
sheet-intensive
 
activities,
 
such
 
as
lending, more
 
than activities
 
that are
 
less balance
 
sheet intensive,
 
and it
 
may constrain
 
our business
 
even if
 
we satisfy
other
 
risk-based
 
capital
 
requirements.
 
Our
 
LRD
 
is
 
driven
 
by,
 
among
 
other
 
things,
 
the
 
level
 
of
 
client
 
activity,
 
including
deposits and loans,
 
foreign exchange
 
rates, interest rates,
 
other market
 
factors and changes
 
in required liquidity.
 
Many
of these factors are wholly or partly outside of our control.
The effect of taxes on our financial results is significantly
 
influenced by tax law changes and reassessments of our
deferred tax assets and, also, operating losses of certain entities with
 
no associated tax benefit
Our
 
effective
 
tax
 
rate
 
is highly
 
sensitive
 
to
 
our
 
performance,
 
our
 
expectation
 
of
 
future
 
profitability
 
and
 
any
 
potential
increases or
 
decreases in
 
statutory tax
 
rates, such as
 
any potential
 
increase or
 
decrease in
 
the US
 
federal corporate
 
tax
rate.
 
Furthermore,
 
based
 
on
 
prior
 
years’
 
tax
 
losses
 
and
 
deductible
 
temporary
 
differences,
 
we
 
have
 
recognized
 
DTAs
reflecting
 
the
 
probable
 
recoverable
 
level
 
based
 
on
 
future
 
taxable
 
profit
 
as
 
informed
 
by
 
our
 
business
 
plans.
 
If
 
our
performance is expected to produce diminished taxable
 
profit in future years, particularly in the US, we
 
may be required
to write down
 
all or a
 
portion of the
 
currently recognized
 
DTAs
 
through the
 
income statement
 
in excess of
 
anticipated
amortization. This
 
would have
 
the effect
 
of increasing
 
our
 
effective
 
tax rate
 
in the
 
year in
 
which any
 
write-downs are
taken.
 
Conversely,
 
if
 
we
 
expect
 
the
 
performance
 
of
 
entities
 
in
 
which
 
we
 
have
 
unrecognized
 
tax
 
losses
 
to
 
improve,
particularly
 
in
 
the
 
US or
 
the
 
UK, we
 
could potentially
 
recognize
 
additional
 
DTAs.
 
The
 
effect
 
of doing
 
so
 
would
 
be to
reduce our
 
effective tax
 
rate in
 
years in
 
which additional
 
DTAs
 
are recognized
 
and to
 
increase our
 
effective
 
tax rate
 
in
future years. Our
 
effective tax rate
 
is also sensitive to
 
any future reductions
 
in statutory tax
 
rates, particularly in
 
the US,
which would cause
 
the expected
 
future tax
 
benefit from
 
items such as
 
tax loss carry
 
-forwards in
 
the affected
 
locations
to
 
diminish
 
in
 
value.
 
This,
 
in
 
turn,
 
would
 
cause
 
a
 
write-down
 
of
 
the
 
associated
 
DTAs.
 
Conversely,
 
an
 
increase
 
in
 
US
corporate tax rates would result in an increase
 
in the Group’s DTAs.
We generally revalue our
 
DTAs in the
 
fourth quarter of the financial year
 
based on a reassessment of future
 
profitability
taking into
 
account our
 
updated
 
business plans.
 
We
 
consider
 
the performance
 
of our
 
businesses and
 
the accuracy
 
of
historical forecasts,
 
tax rates and
 
other factors in
 
evaluating the recoverability
 
of our DTAs,
 
including the remaining
 
tax
loss carry-forward
 
period and our assessment
 
of expected future
 
taxable profits over
 
the life of DTAs.
 
Estimating future
profitability is
 
inherently subjective
 
and is particularly
 
sensitive to future
 
economic, market
 
and other conditions,
 
which
are difficult to predict.
 
 
Annual Report 2023 |
Our business model and environment |
 
Risk factors
 
34
Our results
 
in past
 
years have
 
demonstrated that
 
changes in
 
the recognition
 
of DTAs
 
can have
 
a very
 
significant effect
on our
 
reported
 
results.
 
Any
 
future
 
change in
 
the manner
 
in which
 
UBS AG
 
remeasures
 
DTAs
 
could affect
 
UBS AG’s
effective tax rate, particularly in the year in which
 
the change is made.
Our
 
full-year
 
effective
 
tax
 
rate
 
would
 
be
 
impacted
 
if
 
aggregate
 
tax
 
expenses
 
in
 
respect
 
of
 
profits
 
from
 
branches
 
and
subsidiaries without
 
loss coverage
 
differ from
 
what is
 
expected, or
 
if certain
 
branches and
 
subsidiaries incur
 
operating
losses that we cannot benefit
 
from through the income
 
statement. In particular, operating
 
losses at entities or branches
that cannot
 
offset
 
for tax
 
purposes
 
taxable
 
profits
 
in other
 
Group entities,
 
and which
 
do not
 
result in
 
additional
 
DTA
recognition, would increase our effective tax rate. In addition, tax laws or the tax
 
authorities in countries where we have
undertaken
 
legal structure
 
changes
 
may cause
 
entities to
 
be subject
 
to taxation
 
as
 
permanent
 
establishments
 
or may
prevent the transfer
 
of tax losses incurred
 
in one legal entity
 
to newly organized
 
or reorganized subsidiaries
 
or affiliates
or may impose limitations
 
on the utilization
 
of tax losses that
 
relate to businesses formerly
 
conducted by the transferor.
Were
 
this
 
to
 
occur
 
in
 
situations
 
where
 
there
 
were
 
also
 
limited
 
planning
 
opportunities
 
to
 
utilize
 
the
 
tax
 
losses
 
in
 
the
originating entity,
 
the
 
DTAs
 
associated with
 
such tax
 
losses
 
may be
 
required to
 
be written
 
down through
 
the
 
income
statement.
Changes in
 
tax law
 
may materially
 
affect our
 
effective tax rate,
 
and, in
 
some cases,
 
may substantially affect
 
the profitability
of certain activities. In addition, statutory and regulatory changes, as well as changes
 
to the way in which courts and tax
authorities interpret tax laws, including
 
assertions that we are required
 
to pay taxes in
 
a jurisdiction as a
 
result of activities
connected to that
 
jurisdiction constituting a
 
permanent establishment
 
or similar theory,
 
and changes in
 
our assessment
of
 
uncertain
 
tax
 
positions,
 
could
 
cause
 
the
 
amount
 
of
 
taxes
 
we
 
ultimately
 
pay
 
to
 
materially
 
differ
 
from
 
the
 
amount
accrued.
We may incur material future tax liabilities in connection
 
with the Credit Suisse Group’s merger with the UBS Group
In the past, the Credit Suisse Group has made significant impairments of the tax value of its participations in subsidiaries
below their tax acquisition costs. Following the
 
acquisition of the Credit Suisse Group
 
by UBS Group AG, tax acquisition
costs of certain
 
participations held by
 
Credit Suisse Group AG
 
and its subsidiaries
 
will be transferred to
 
the UBS AG
 
Group
as a result of further company mergers and restructurings.
 
UBS AG and its subsidiaries may become subject to
 
additional
Swiss tax on future reversals of such
 
impairments for Swiss tax purposes. Reversals of
 
prior impairments may occur to the
extent that the net asset
 
value of the previously impaired
 
subsidiary increases, e.g., as
 
a result of an increase
 
in retained
earnings.
 
Although
 
it
 
is
 
difficult
 
to
 
quantify
 
this
 
additional
 
future
 
tax
 
exposure,
 
as
 
various
 
potential
 
mitigants
 
(e.g.,
transfers of assets and
 
liabilities, business activities, subsidiary investments, as
 
well as other restructuring measures within
the combined Group in the course of the integration)
 
exist, it may be material.
 
Liquidity and funding risk
Liquidity and funding management are critical to our ongoing
 
performance
 
The viability
 
of our
 
business depends
 
on the
 
availability of
 
funding sources,
 
and our
 
success depends
 
on our
 
ability to
obtain funding
 
at times,
 
in amounts,
 
for tenors
 
and at
 
rates that
 
enable us
 
to efficiently
 
support our
 
asset base
 
in all
market conditions. Our
 
funding sources
 
have generally been
 
stable, but could
 
change in the
 
future because
 
of, among
other things,
 
general market
 
disruptions or
 
widening credit
 
spreads, which
 
could also
 
influence the
 
cost of
 
funding. A
substantial part of our liquidity
 
and funding requirements are met using short-term unsecured funding
 
sources, including
retail and wholesale
 
deposits and the regular
 
issuance of money market
 
securities. A change in the
 
availability of short-
term funding could occur quickly.
The addition
 
of loss-absorbing
 
debt as
 
a component
 
of capital
 
requirements,
 
the regulatory
 
requirements
 
to maintain
minimum TLAC at UBS’s holding company and at certain
 
of its subsidiaries, as well as the
 
power of resolution authorities
to bail in TLAC instruments and other debt obligations, and uncertainty as to how such powers will be exercised, caused
and may
 
still cause
 
further increase
 
of our cost
 
of funding,
 
and could
 
potentially increase
 
the total
 
amount of funding
required, in the absence of other changes
 
in our business.
Reductions in our credit ratings
 
may adversely affect the market value
 
of the securities and
 
other obligations and increase
our funding costs,
 
in particular with
 
regard to funding from
 
wholesale unsecured sources, and could
 
affect the availability
of certain kinds of funding. In addition,
 
as experienced in connection with Moody’s
 
Investors Service Ltd. downgrade
 
of
UBS AG’s
 
long-term debt
 
rating in
 
June 2012,
 
rating downgrades
 
can require
 
us to
 
post additional
 
collateral or
 
make
additional
 
cash
 
payments
 
under
 
trading
 
agreements.
 
Our
 
credit
 
ratings,
 
together
 
with
 
our
 
capital
 
strength
 
and
reputation, also contribute to
 
maintaining client and counterparty confidence,
 
and it is
 
possible that rating changes
 
could
influence the performance of some of our businesses. The acquisition of the Credit Suisse Group has elevated these risks
and
 
may
 
cause
 
these
 
risks
 
to
 
intensify.
 
Upon
 
the
 
close
 
the
 
acquisition
 
in
 
June
 
2023,
 
Fitch
 
Ratings
 
Ireland
 
Limited
downgraded the
 
Long-Term Issuer Default Ratings (IDRs) of
 
UBS AG
 
to “A+” from
 
“AA-“. Fitch
 
Ratings Ltd also
 
upgraded
Credit Suisse AG’s Long-Term
 
IDR to “A+” from “BBB+”.
 
Annual Report 2023 |
Our business model and environment |
 
Risk factors
 
35
The requirement
 
to maintain a
 
liquidity coverage ratio
 
of high-quality liquid
 
assets to estimated
 
stressed short-term
 
net
cash outflows, and other similar liquidity and funding requirements,
 
oblige us to maintain high levels of overall liquidity,
limit our
 
ability to
 
optimize interest
 
income and
 
expense, make
 
certain lines
 
of business
 
less attractive
 
and reduce
 
our
overall ability to generate
 
profits. The liquidity coverage
 
ratio and net stable funding
 
ratio requirements are
 
intended to
ensure that
 
we are
 
not overly
 
reliant on
 
short-term
 
funding and
 
that we
 
have sufficient
 
long-term funding
 
for illiquid
assets. The relevant calculations make assumptions about the relative likelihood and amount of outflows of funding and
available sources
 
of additional
 
funding
 
in market
 
-wide and
 
firm-specific
 
stress
 
situations. In
 
an actual
 
stress
 
situation,
however,
 
our funding
 
outflows
 
could exceed
 
the
 
assumed amounts.
 
Further,
 
UBS AG
 
is subject
 
to increased
 
liquidity
requirements
 
related
 
to
 
too-big-to-fail
 
(TBTF)
 
measures
 
under
 
the
 
direction
 
of
 
FINMA,
 
which
 
became
 
effective
 
on
 
1
January 2024.
 
Annual Report 2023 |
Financial and operating performance | Accounting
 
and financial reporting
 
36
Financial and operating
performance
Management report
Accounting and financial reporting
 
Critical accounting estimates and judgments
In
 
preparing
 
our
 
financial
 
statements
 
in
 
accordance
 
with
 
IFRS
 
Accounting
 
Standards,
 
as
 
issued
 
by
 
the
 
International
Accounting
 
Standards
 
Board
 
(the
 
IASB),
 
we
 
apply
 
judgment
 
and
 
make
 
estimates
 
and
 
assumptions
 
that
 
may
 
involve
significant
 
uncertainty
 
at
 
the
 
time
 
they
 
are
 
made.
 
We
 
regularly
 
reassess
 
those
 
estimates
 
and
 
assumptions,
 
which
encompass historical
 
experience, expectations
 
of the
 
future and
 
other pertinent
 
factors, to
 
determine their
 
continuing
relevance based on current conditions, and
 
update them as necessary.
 
Changes in estimates and assumptions may have
significant
 
effects
 
on the
 
financial
 
statements.
 
Furthermore,
 
actual
 
results
 
may
 
differ
 
significantly from
 
our estimates,
which could result in significant losses to the Group,
 
beyond what we expected or provided for.
 
Key
 
areas
 
involving
 
a
 
high
 
degree
 
of
 
judgment
 
and
 
areas
 
where
 
estimates
 
and
 
assumptions
 
are
 
significant
 
to
 
the
consolidated financial statements include
 
the following (note references below
 
are found in the “Consolidated financial
statements” section of this report):
–
expected credit loss measurement (refer to “Note 19 Expected
 
credit loss measurement”);
–
fair value measurement (refer to “Note 20 Fair value measurement”);
–
income taxes (refer to “Note 8 Income taxes”);
–
provisions and contingent liabilities (refer to “Note 17 Provisions
 
and contingent liabilities”);
–
post-employment benefit plans (refer to “Note 26 Post-employment
 
benefit plans”);
–
goodwill (refer to Note 12 Goodwill and intangible assets”); and
 
–
consolidation of structured entities (refer to “Note 28 Interests
 
in subsidiaries and other entities”).
›
Refer to “Note 1 Summary of material accounting
 
policies” in the “Consolidated financial statements”
 
section of this report and to
the “Risk factors” section of this report for more information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Financial and operating performance | UBS
 
AG consolidated performance
 
37
UBS AG consolidated performance
Income statement
For the year ended
% change from
USD m
31.12.23
31.12.22
31.12.21
31.12.22
Net interest income
 
4,566
 
6,517
 
6,605
 
(30)
Other net income from financial instruments measured
 
at fair value through profit or loss
 
9,934
 
7,493
 
5,844
 
33
Net fee and commission income
 
18,610
 
19,023
 
22,438
 
(2)
Other income
 
566
 
1,882
 
941
 
(70)
Total revenues
 
33,675
 
34,915
 
35,828
 
(4)
Credit loss expense / (release)
 
143
 
29
 
(148)
 
386
Personnel expenses
 
15,655
 
15,080
 
15,661
 
4
General and administrative expenses
 
11,118
 
9,001
 
9,476
 
24
Depreciation, amortization and impairment of non-financial
 
assets
 
2,238
 
1,845
 
1,875
 
21
Operating expenses
 
29,011
 
25,927
 
27,012
 
12
Operating profit / (loss) before tax
 
4,521
 
8,960
 
8,964
 
(50)
Tax expense / (benefit)
 
 
1,206
 
1,844
 
1,903
 
(35)
Net profit / (loss)
 
3,315
 
7,116
 
7,061
 
(53)
Net profit / (loss) attributable to non-controlling interests
 
25
 
32
 
29
 
(22)
Net profit / (loss) attributable to shareholders
 
3,290
 
7,084
 
7,032
 
(54)
Comprehensive income
Total comprehensive income
 
4,625
 
2,719
 
4,826
 
70
Total comprehensive income attributable to non-controlling interests
 
27
 
18
 
13
 
49
Total comprehensive income attributable to shareholders
 
4,598
 
2,701
 
4,813
 
70
Integration-related expenses by business division and Group Items
For the year ended
USD m
31.12.23
Global Wealth Management
 
423
Personal & Corporate Banking
 
123
Asset Management
 
51
Investment Bank
 
281
Non-core and Legacy
1
 
225
Group Items
1
 
289
Total net integration-related expenses
 
1,392
of which: personnel expenses
 
626
of which: general and administrative expenses
 
491
of which: depreciation, amortization and impairment of non-financial
 
assets
 
274
1 During 2023, Non-core
 
and Legacy (previously reported
 
within Group Functions) became
 
a separate reportable segment
 
and Group Functions has
 
been renamed Group Items.
 
Prior periods have been
 
restated to
reflect these changes.
2023 compared with 2022
Results
In 2023,
 
net profit
 
attributable to
 
shareholders decreased
 
by USD 3,794m,
 
or 54%,
 
to USD 3,290m,
 
which included
 
a
net tax expense of USD 1,206m.
Operating profit before tax
 
decreased by USD 4,439m, or 50%, to USD 4,521m, reflecting
 
higher operating expenses,
lower total revenues
 
and higher net
 
credit loss expenses.
 
Operating expenses increased
 
by USD 3,084m,
 
or 12%, to
USD 29,011m
 
and
 
included
 
USD 1,392m
 
of
 
integration-related
 
expenses.
 
This
 
increase
 
was
 
mainly
 
driven
 
by
 
a
USD 2,117m
 
increase
 
in
 
general
 
and
 
administrative
 
expenses.
 
Personnel
 
expenses
 
increased
 
by
 
USD 575m
 
and
depreciation, amortization
 
and impairment
 
of non-financial
 
assets increased
 
by USD 393m.
 
Net credit
 
loss expenses
were
 
USD 143m,
 
compared
 
with
 
USD 29m
 
in
 
2022.
 
Total
 
revenues
 
decreased
 
by
 
USD 1,240m,
 
or
 
4%,
 
to
USD 33,675m, mainly driven by other income,
 
which decreased by USD 1,316m, largely attributable to
 
the prior year
including
 
a gain
 
of USD 848m
 
in Asset
 
Management
 
on the sale
 
of our shareholding
 
in our Japanese
 
real estate
 
joint
venture,
 
Mitsubishi
 
Corp.-UBS
 
Realty
 
Inc.
 
Total
 
combined
 
net
 
interest
 
income
 
and
 
other
 
net
 
income
 
from
 
financial
instruments
 
measured
 
at
 
fair
 
value
 
through
 
profit
 
and
 
loss
 
increased
 
by
 
USD 489m,
 
partly
 
offset
 
by
 
a
 
USD 413m
decrease in net fee and commission income.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Financial and operating performance | UBS
 
AG consolidated performance
 
38
Integration
 
-related expenses primarily
 
included higher consulting
 
fees and higher
 
real estate costs
 
in general, as well
as
 
administrative
 
expenses
 
and
 
higher
 
personnel
 
expenses,
 
which
 
were
 
mainly
 
due
 
to
 
salaries
 
and
 
variable
compensation
 
,
 
related
 
to
 
the
 
integration
 
of
 
Credit
 
Suisse.
 
Integration-related
 
expenses
 
reflected
 
in
 
depreciation,
amortization and impairment of non-financial assets were mainly in relation to leasehold improvements and internally
developed software.
Integration
 
-related
 
expenses
 
are
 
defined
 
as
 
expenses
 
that
 
are
 
temporary,
 
incremental
 
and
 
directly
 
related
 
to
 
the
integration
 
of
 
Credit
 
Suisse
 
into
 
UBS,
 
including
 
costs
 
of
 
internal
 
staff
 
and
 
contractors
 
substantially
 
dedicated
 
to
integration activities, retention awards, redundancy costs, incremental expenses from the shortening of useful lives of
property,
 
equipment
 
and
 
software,
 
and
 
impairment
 
charges
 
relating
 
to
 
these
 
assets.
 
Classification
 
as
 
integration-
related expenses
 
does not
 
affect the
 
timing of
 
recognition and
 
measurement of
 
those expenses
 
or the
 
presentation
thereof in the income statement.
 
Total revenues
Net interest income and other net income from financial instruments
 
measured at fair value through profit or loss
Total
 
combined
 
net
 
interest
 
income
 
and other
 
net
 
income
 
from
 
financial
 
instruments
 
measured
 
at
 
fair
 
value
 
through
profit or loss increased by USD 489m to
 
USD 14,500m.
Personal
 
&
 
Corporate
 
Banking
 
increased
 
by
 
USD 955m
 
to
 
USD 3,641m,
 
predominantly
 
driven
 
by
 
an
 
increase
 
in
 
net
interest
 
income,
 
mainly
 
driven
 
by
 
higher
 
deposit
 
margins,
 
which
 
resulted
 
from
 
higher
 
interest
 
rates,
 
and
 
higher
 
loan
revenues,
 
partly
 
offset
 
by lower
 
deposit fees.
 
The
 
prior
 
year
 
included a
 
benefit
 
from
 
the
 
Swiss
 
National
 
Bank
 
deposit
exemption.
Global Wealth Management increased by
 
USD 250m to USD 6,607m, predominantly due
 
to higher net interest income,
mainly driven by higher
 
deposit margins, resulting from
 
higher interest rates, partly offset
 
by the effects of
 
shifts to lower-
margin deposit products.
The Investment Bank decreased
 
by USD 773m
 
to USD 4,997m, mainly
 
reflecting a USD 1,127m
 
decrease in revenues in
Derivatives
 
&
 
Solutions,
 
largely
 
driven
 
by Equity
 
Derivatives,
 
Rates
 
and Foreign
 
Exchange,
 
due to
 
lower
 
levels
 
of
 
both
volatility and client activity.
 
This decrease was partly
 
offset by a USD 185m
 
increase in Financing,
 
reflecting higher client
balances.
 
In addition
 
,
 
there
 
was a
 
USD 142m
 
increase
 
in Global
 
Banking,
 
mainly
 
due to
 
higher revenues
 
in
 
both Risk
Management and Leveraged Capital Markets,
 
reflecting an improvement in mark-to-market.
›
Refer to “Note 3 Net interest income and other
 
net income from financial instruments measured at fair value through profit or
loss” in the “Consolidated financial statements”
 
section of this report for more information
Net interest income and other net income from financial instruments measured at fair value through profit or loss
For the year ended
% change from
USD m
31.12.23
31.12.22
31.12.21
31.12.22
Net interest income from financial instruments measured
 
at amortized cost and fair value through other
comprehensive income
 
2,801
 
5,108
 
5,168
 
(45)
Net interest income from financial instruments measured
 
at fair value through profit or loss and other
 
1,765
 
1,410
 
1,437
 
25
Other net income from financial instruments measured
 
at fair value through profit or loss
 
9,934
 
7,493
 
5,844
 
33
Total
 
14,500
 
14,011
 
12,449
 
3
Global Wealth Management
 
6,607
 
6,357
 
5,341
 
4
of which: net interest income
 
5,436
 
5,274
 
4,244
 
3
of which: transaction-based income from foreign exchange and other
 
intermediary activity
 
1
 
1,171
 
1,082
 
1,097
 
8
Personal & Corporate Banking
 
 
3,641
 
2,686
 
2,557
 
36
of which: net interest income
 
 
3,128
 
2,192
 
2,120
 
43
of which: transaction-based income from foreign exchange and other
 
intermediary activity
 
1
 
513
 
495
 
437
 
4
Asset Management
 
(35)
 
(23)
 
(13)
 
51
Investment Bank
2
 
4,997
 
5,770
 
5,074
 
(13)
Global Banking
 
329
 
187
 
596
 
76
Global Markets
 
4,667
 
5,582
 
4,478
 
(16)
Non-core and Legacy
 
44
 
118
 
7
 
(63)
Group Items
 
(755)
 
(896)
 
(516)
 
(16)
1 Mainly includes spread-related income in connection with client-driven transactions,
 
foreign currency translation effects and income and expenses from precious metals,
 
which are included in the income statement
line Other net income from financial instruments measured
 
at fair value through profit or loss.
 
The amounts reported on this
 
line are one component of Transaction
 
-based income in the management discussion and
analysis of
 
Global Wealth
 
Management and
 
Personal &
 
Corporate Banking
 
in the
 
“Global Wealth
 
Management” and
 
“Personal &
 
Corporate Banking”
 
sections of
 
this report,
 
respectively.
 
2 Investment Bank
information is provided at the
 
business line level rather than by
 
financial statement reporting line in
 
order to reflect the underlying
 
business activities, which is consistent with the
 
structure of the management discussion
and analysis in the “Investment Bank” section of this report.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Financial and operating performance | UBS
 
AG consolidated performance
 
39
Net fee and commission income
Net fee and commission income decreased by USD
 
413m to USD 18,610m.
Investment
 
fund
 
fees
 
decreased
 
by
 
USD 212m
 
to
 
USD 4,730m,
 
driven
 
by
 
Global
 
Wealth
 
Management
 
and
 
Asset
Management, mainly reflecting negative market performance.
Net brokerage
 
fees decreased
 
by USD 206m
 
to USD 3,079m,
 
driven
 
by lower
 
levels of
 
client activity
 
in Global
 
Wealth
Management and lower market volumes of cash equities
 
in Execution Services in the Investment Bank.
M&A and corporate finance fees decreased
 
by USD 135m to USD 669m, primarily reflecting lower
 
revenues from merger
and acquisition transactions in Global Banking in the Investment
 
Bank.
›
Refer to “Note 4 Net fee and commission
 
income” in the “Consolidated financial statements”
 
section of this report for more
information
Other income
Other income decreased by USD 1,316m to
 
USD 566m, largely due to USD 255m of losses relating
 
to our investment in
SIX Group.
 
These losses reflected UBS AG’s share of impairments
 
taken by SIX Group on its investment in Worldline and
on goodwill related to its Bolsas y Mercados
 
Espańoles (BME) subsidiary.
 
In contrast, 2022 included gains from disposals
of associates
 
and subsidiaries, largely
 
reflecting a gain
 
of USD 848m
 
in Asset
 
Management on
 
the sale
 
of our
 
shareholding
in
 
our
 
Japanese
 
real
 
estate
 
joint venture,
 
Mitsubishi
 
Corp.-UBS
 
Realty
 
Inc.
 
In
 
addition,
 
2022
 
included
 
gains
 
in
 
Global
Wealth Management of USD 133m on the sale of our domestic wealth management business in
 
Spain, USD 86m on the
sale
 
of
 
UBS
 
Swiss
 
Financial
 
Advisers AG
 
and
 
USD 41m
 
on
 
the
 
sale
 
of
 
our
 
US
 
alternative
 
investments
 
administration
business.
›
Refer to “Note 5 Other income” in the “Consolidated
 
financial statements”
 
section of this report for more information
›
Refer to “Note 29 Changes in organization and
 
acquisitions and disposals of subsidiaries and businesses”
 
in the “Consolidated
financial statements”
 
section of this report for more information about the
 
gains from disposals of associates and subsidiaries
Credit loss expense / release
Total
 
net credit
 
loss expenses
 
were USD 143m,
 
compared with
 
USD 29m in
 
2022, reflecting
 
net expenses
 
of USD 23m
related to stage 1 and 2 positions and USD 120m
 
related to credit-impaired stage
 
3 positions.
›
Refer to “Note 9 Financial assets at amortized
 
cost and other positions in scope of expected credit loss
 
measurement” and
“Note 19 Expected credit loss measurement” in the “Consolidated
 
financial statements” section of this report for more
information about credit loss expenses / releases
›
Refer to the “Risk factors” section of this report for
 
more information
Credit loss expense / (release)
Performing positions
Credit-impaired positions
USD m
Stages 1 and 2
Stage 3
Total
For the year ended 31.12.23
Global Wealth Management
 
(2)
 
27
 
25
Personal & Corporate Banking
 
13
 
37
 
50
Asset Management
 
0
 
(1)
 
(1)
Investment Bank
 
11
 
56
 
67
Non-core and Legacy
 
0
 
1
 
1
Group Items
1
 
1
 
0
 
1
Total
 
23
 
120
 
143
For the year ended 31.12.22
2
Global Wealth Management
 
(5)
 
5
 
0
Personal & Corporate Banking
 
27
 
12
 
39
Asset Management
 
0
 
0
 
0
Investment Bank
 
6
 
(18)
 
(12)
Non-core and Legacy
 
0
 
2
 
2
Group Items
1
 
0
 
0
 
0
Total
 
29
 
0
 
29
For the year ended 31.12.21
Global Wealth Management
 
(28)
 
(1)
 
(29)
Personal & Corporate Banking
 
(62)
 
(24)
 
(86)
Asset Management
 
0
 
1
 
1
Investment Bank
 
(34)
 
0
 
(34)
Non-core and Legacy
 
0
 
0
 
0
Group Items
1
 
0
 
0
 
0
Total
 
(123)
 
(25)
 
(148)
1 Starting with the third quarter of 2023, Non-core and Legacy became a separate reportable segment and Group Functions has been renamed Group Items. Prior periods have been restated to reflect these changes.
 
2 Certain prior-period
 
figures as of
 
or for the
 
quarter ended 30
 
June 2023 have
 
been restated due
 
to effects of
 
measurement period adjustments
 
in relation to
 
the acquisition of
 
the Credit Suisse
 
Group. Refer
 
to
“Note 2 Accounting for the acquisition of the Credit Suisse Group” for more information.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Financial and operating performance | UBS
 
AG consolidated performance
 
40
Operating expenses
Personnel expenses
Personnel expenses
 
increased by
 
USD 575m to
 
USD 15,655m and
 
included integration-related
 
expenses of USD
 
626m.
Salaries increased
 
by USD 370m as
 
a result of
 
the integration and
 
also due to
 
salary adjustments, as
 
well as the
 
impact
of foreign currency translation effects.
 
Social security costs also increased by USD 105m
 
.
›
Refer to “Note 6 Personnel expenses,” “Note 26
 
Post-employment benefit plans” and “Note 27
 
Employee benefits: variable
compensation” in the “Consolidated financial statements”
 
section of this report for more information
General and administrative expenses
General
 
and
 
administrative
 
expenses
 
increased
 
by
 
USD 2,117m
 
to
 
USD 11,118m,
 
which
 
included
 
integration-related
expenses of USD 491m,
 
largely reflected
 
in higher consulting
 
and real
 
estate costs.
 
In addition, there
 
was a USD 939m
increase
 
in
 
shared
 
services
 
costs
 
charged
 
by
 
other
 
subsidiaries
 
of
 
UBS
 
Group AG,
 
as
 
well
 
as
 
a
 
USD 468m
 
increase
 
in
expenses for litigation, regulatory and similar matters,
 
driven by a USD 665m increase in
 
provisions recognized in the first
quarter of 2023 related to the US residential mortgage-backed securities litigation matter. Technology costs increased by
USD 56m.
We
 
believe
 
that
 
the
 
industry
 
continues
 
to
 
operate
 
in
 
an
 
environment
 
in
 
which
 
expenses
 
associated
 
with
 
litigation,
regulatory and
 
similar matters will
 
remain elevated for
 
the foreseeable
 
future, and
 
we continue to
 
be exposed
 
to a
 
number
of significant claims and regulatory
 
matters. The outcome of
 
many of these matters,
 
the timing of a resolution,
 
and the
potential effects
 
of resolutions
 
on our
 
future business,
 
financial results
 
or financial
 
condition
 
are extremely
 
difficult to
predict.
›
Refer to “Note 7 General and administrative expenses”
 
and “Note 17 Provisions and contingent liabilities” in
 
the “Consolidated
financial statements” section of this report for more information
Depreciation, amortization and impairment of non-financial
 
assets
Depreciation, amortization and impairment of non-financial assets increased by USD 393m to USD 2,238m
 
and included
integration-related expenses of USD 274m, primarily relating to
 
a USD 214m impairment of software projects
 
in progress
resulting
 
from
 
a
 
reprioritization
 
of
 
software
 
development
 
activity
 
in
 
the
 
context
 
of
 
the
 
integration
 
of
 
Credit
 
Suisse.
Excluding the aforementioned
 
effects,
 
depreciation of internally developed
 
software increased
 
by USD 143m, reflecting
a higher level of capitalized costs.
Operating expenses
For the year ended
% change from
USD m
31.12.23
31.12.22
31.12.21
31.12.22
Personnel expenses
 
 
15,655
 
15,080
 
15,661
 
4
of which: salaries
 
5,898
 
5,528
 
5,723
 
7
of which: variable compensation
 
7,669
 
7,636
 
7,973
 
0
of which: performance awards
 
2,841
 
2,910
 
2,916
 
(2)
of which: financial advisors
1
 
4,549
 
4,508
 
4,860
 
1
of which: other
 
279
 
217
 
196
 
29
of which: other personnel expenses
2
 
2,088
 
1,916
 
1,965
 
9
General and administrative expenses
 
 
11,118
 
9,001
 
9,476
 
24
of which: net expenses for litigation, regulatory and similar
 
matters
 
816
 
348
 
910
 
135
of which: other general and administrative expenses
 
10,302
 
8,653
 
8,566
 
19
Depreciation, amortization and impairment of non-financial
 
assets
 
2,238
 
1,845
 
1,875
 
21
Total operating expenses
 
29,011
 
25,927
 
27,012
 
12
1 Consists of cash and deferred compensation awards and
 
is based on compensable revenues and firm tenure
 
using a formulaic approach. It also includes expenses
 
related to compensation commitments with financial
advisors entered into at the time of recruitment that are subject to vesting requirements.
 
2 Consists of expenses related to contractors, social security, post-employment benefit plans,
 
and other personnel expenses.
Refer to “Note 6 Personnel expenses” in the “Consolidated financial statements” section of this report for more information.
Tax
Income tax expenses of USD 1,206m were
 
recognized for UBS AG in 2023, representing
 
an effective tax rate of 26.7%,
compared with
 
USD 1,844m for
 
2022, which represented
 
an effective
 
tax rate
 
of 20.6%. The
 
income tax expenses
 
for
2023 included Swiss tax expenses of USD 849m and non-Swiss
 
tax expenses of USD 356m.
The Swiss tax expenses
 
included current tax
 
expenses of USD 810m
 
in respect of taxable
 
profits of UBS Switzerland
 
AG
and other Swiss entities and deferred tax expenses of USD 39m.
The non-Swiss tax expenses included
 
current tax expenses of USD
 
618m that related to expenses
 
of USD 100m in
 
respect
of
 
US
 
corporate
 
alternative
 
minimum
 
tax
 
(CAMT)
 
and
 
USD
 
518m
 
in
 
respect
 
of
 
other
 
taxable
 
profits
 
of
 
non-Swiss
subsidiaries and branches. These were partly offset by a net deferred tax benefit of USD 262m that primarily related to a
benefit of USD 274m
 
in respect of an
 
increase in deferred tax assets
 
(DTAs) that resulted from an
 
increase in the expected
value of
 
future tax
 
deductions for
 
deferred compensation
 
awards due
 
to an
 
increase in
 
the Group’s
 
share price
 
during
the year. In addition, the
 
net deferred tax benefit included
 
a benefit of USD 100m
 
in respect of the recognition
 
of DTAs
for tax credits carried forward in
 
respect of CAMT. These benefits were partly offset
 
by a net deferred tax expense
 
of USD
112m that primarily related to the amortization of DTAs
 
previously recognized in relation to tax losses carried forward.
 
 
Annual Report 2023 |
Financial and operating performance | UBS
 
AG consolidated performance
 
41
Excluding any potential
 
effects from the
 
remeasurement of
 
DTAs in connection
 
with the business
 
planning process and
any material
 
jurisdictional statutory
 
tax rate
 
changes that
 
could be
 
enacted,
 
we expect
 
a tax
 
rate for
 
2024 of
 
around
24%.
›
Refer to “Note 8 Income taxes”
 
in the “Consolidated financial statements”
 
section of this report for more information
›
Refer to the “Risk factors” section of this report for
 
more information
Total comprehensive income attributable to shareholders
In 2023, total comprehensive income attributable to shareholders was USD 4,598m, reflecting net profit of USD 3,290m
and other comprehensive income (OCI), net of tax,
 
of USD 1,308m.
OCI
 
related
 
to
 
cash
 
flow
 
hedges
 
was
 
USD 1,400m,
 
mainly
 
reflecting
 
net
 
losses
 
on
 
hedging
 
instruments
 
that
 
were
reclassified from OCI to the income statement.
Foreign currency
 
translation OCI
 
was USD 849m,
 
mainly due
 
to the
 
significant strengthening
 
of the
 
Swiss franc
 
(10%)
and the euro (3%) against the US dollar.
OCI
 
related
 
to
 
own
 
credit
 
on
 
financial
 
liabilities
 
designated
 
at
 
fair
 
value
 
was
 
negative
 
USD 790m,
 
primarily
 
due
 
to
 
a
tightening of our own credit spreads.
 
Defined benefit
 
plan OCI,
 
net of
 
tax, was
 
negative USD 136m.
 
Total net
 
pre-tax OCI
 
related to
 
the Swiss
 
pension plan
was negative USD 56m. This reflected losses of USD
 
1,901m
 
from the defined benefit obligation (DBO) remeasurement,
largely offset by an
 
increase in the plan
 
assets of USD 513m
 
and a decrease in
 
the effect of
 
the asset ceiling under
 
IFRS
Accounting Standards of USD 1,332m. Total pre-tax OCI related to our non-Swiss pension plans was negative USD 47m,
mostly driven by the UK pension plan, which recorded negative net
 
pre-tax OCI of USD 31m. The negative OCI in the UK
pension plan reflected a loss from the remeasurement of the DBO of USD 96m, partly
 
offset by a positive return on plan
assets of USD 65m.
›
Refer to “Statement of comprehensive income” in the
 
“Consolidated financial statements” section of this
 
report for more
information
›
Refer to “Note 20 Fair value measurement” in the “Consolidated
 
financial statements” section of this report for more information
about own credit on financial liabilities designated at
 
fair value
›
Refer to “Note 25 Hedge accounting”
 
in the “Consolidated financial statements”
 
section of this report for more information about
cash flow hedges of forecast transactions
›
Refer to “Note 26 Post-employment benefit plans”
 
in the “Consolidated financial statements” section
 
of this report for more
information about OCI related to defined benefit plans
Sensitivity to interest rate movements
As of 31 December 2023, we estimated
 
that a parallel shift in
 
yield curves by +100 basis points
 
could lead to a combined
increase in annual net
 
interest income from
 
our banking book of
 
approximately USD 1.2bn
 
in the first year
 
after such a
shift. Of this
 
increase, approximately
 
USD 0.8bn, USD 0.2bn
 
and USD 0.1bn
 
would result
 
from changes
 
in Swiss
 
franc,
US dollar and
 
euro interest rates, respectively. A parallel
 
shift in yield
 
curves by –100
 
basis points could
 
lead to a
 
combined
decrease
 
in annual
 
net interest
 
income of
 
approximately
 
USD 1.2bn in
 
the first
 
year after
 
such a
 
shift, showing
 
similar
currency contributions as for the aforementioned
 
increase in rates.
 
These estimates are based on a
 
hypothetical scenario of an immediate change
 
in interest rates, equal across all
 
currencies
and relative
 
to
 
implied
 
forward
 
rates
 
as of
 
31 December
 
2023 applied
 
to
 
our
 
banking
 
book.
 
These
 
estimates
 
further
assume no change
 
to balance
 
sheet size
 
and product
 
mix, stable
 
foreign exchange
 
rates, and
 
no specific management
action. These estimates do not represent
 
a forecast of net interest income variability
 
.
Seasonal characteristics
Our revenues
 
may show
 
seasonal patterns,
 
notably in
 
the Investment
 
Bank and
 
transaction-based revenues
 
for Global
Wealth Management, and
 
typically reflect the
 
highest client
 
activity levels in
 
the first quarter, with lower
 
levels throughout
the rest of the year,
 
especially during the summer months and the end-of-year
 
holiday season.
 
Key figures
 
Below we provide an overview of selected key figures of UBS AG consolidated. For further information about key figures
related to capital management, refer
 
to the “Capital, liquidity and funding, and balance sheet” section
 
of this report.
Cost / income ratio
The cost
 
/ income
 
ratio was
 
86.2%, compared
 
with 74.3%,
 
mainly reflecting
 
an increase
 
in operating
 
expenses and
 
a
decrease in total revenues.
Return on common equity tier 1 capital
The
 
annualized
 
return
 
on
 
our
 
common
 
equity
 
tier 1
 
(CET1)
 
capital
 
was
 
7.6%,
 
compared
 
with
 
16.8%,
 
reflecting
 
a
USD 3,794m
 
decrease in net profit attributable to
 
shareholders and a USD 1.3bn increase
 
in average CET1 capital.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Financial and operating performance | UBS
 
AG consolidated performance
 
42
CET1 capital
CET1
 
capital
 
increased
 
by
 
USD 1.2bn
 
to
 
USD 44.1bn
 
as
 
of
 
31 December
 
2023,
 
mainly
 
as
 
a
 
result
 
of
 
operating
 
profit
before tax of USD 4.5bn, with associated current tax expenses
 
of USD 1.4bn, positive foreign currency translation effects
of
 
USD 0.9bn,
 
and
 
a
 
net
 
increase
 
of
 
USD 0.2bn
 
in
 
eligible
 
DTAs
 
on
 
temporary
 
differences,
 
partly
 
offset
 
by
 
dividend
accruals of USD 3.0bn.
Risk-weighted assets
Risk-weighted assets (RWA) increased
 
by USD 16.2bn to USD 334.0bn, primarily
 
driven by increases of USD 12.7bn
 
due
to asset size and other movements and USD 8.0bn due to currency effects, partly offset by a decrease of USD 4.6bn due
to model updates and methodology changes.
CET1 capital ratio
Our CET1 capital
 
ratio decreased
 
to 13.2% from
 
13.5%, reflecting
 
a USD 16.2bn increase
 
in RWA,
 
partly offset by
 
the
aforementioned increase in CET1 capital
 
.
Leverage ratio denominator
The leverage ratio denominator (the LRD) increased by USD 74.8bn to
 
USD 1,104.4bn, primarily driven by increases from
asset size and other movements of USD 37.5bn and currency
 
effects of USD 37.3bn.
 
CET1 leverage ratio
Our CET1 leverage ratio decreased to 4.0% from
 
4.2%, due to the aforementioned increase
 
in the LRD, partly offset by
the increase in CET1 capital.
 
Personnel
The number
 
of personnel
 
employed was
 
53,925 (workforce
 
count) as
 
of 31 December
 
2023, a
 
net decrease
 
of 1,013
compared with
 
31 December 2022.
 
The number
 
of internal personnel
 
employed as
 
of 31 December
 
2023 was
 
47,590
(full-time equivalents), a
 
net decrease
 
of 38 compared
 
with 31 December 2022.
 
The number of
 
core external
 
staff was
6,335 (workforce count), a net decrease
 
of 974 compared with 31 December 2022.
 
Equity, CET1 capital and returns
As of or for the year ended
USD m, except where indicated
31.12.23
31.12.22
31.12.21
Net profit
Net profit attributable to shareholders
 
3,290
 
7,084
 
7,032
Equity
 
Equity attributable to shareholders
 
55,234
 
56,598
 
58,102
Less: goodwill and intangible assets
 
6,265
 
6,267
 
6,378
Tangible equity attributable to shareholders
 
48,969
 
50,331
 
51,724
Less: other CET1 deductions
 
4,839
 
7,402
 
10,130
CET1 capital
 
44,130
 
42,929
 
41,594
Return on equity
Return on equity (%)
 
6.0
 
12.6
 
12.3
Return on tangible equity (%)
 
6.7
 
14.2
 
13.9
Return on CET1 capital (%)
 
7.6
 
16.8
 
17.6
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Financial and operating performance | Global
 
Wealth Management
 
43
Global Wealth Management
Global Wealth Management
1
As of or for the year ended
% change from
USD m, except where indicated
31.12.23
31.12.22
31.12.22
Results
Net interest income
5,436
5,274
3
Recurring net fee income
2
10,143
10,282
(1)
Transaction-based income
2
3,079
3,137
(2)
Other income
(28)
270
Total revenues
18,631
18,963
(2)
Credit loss expense / (release)
25
0
Operating expenses
14,900
14,069
6
Business division operating profit / (loss) before tax
3,705
4,894
(24)
Performance measures and other information
Pre-tax profit growth (year-on-year, %)
2
(24.3)
4.0
Cost / income ratio (%)
2
80.0
74.2
Financial advisor compensation
3
4,548
4,508
1
Net new money (USD bn)
2
75.0
40.5
Invested assets (USD bn)
2
3,187
2,815
13
Loans, gross (USD bn)
4
218.3
225.0
(3)
Customer deposits (USD bn)
4
355.3
348.2
2
Impaired loan portfolio as a percentage of total loan portfolio, gross (%)
2,5
0.3
0.3
Advisors (full-time equivalents)
8,838
9,215
(4)
1 Comparatives may differ as a result of adjustments following organizational changes, restatements due to the retrospective
 
adoption of new accounting standards or changes in accounting policies, and events after
the reporting period.
 
2 Refer to “Alternative performance measures” in the appendix to
 
this report for the definition
 
and calculation method.
 
3 Relates to licensed professionals with the
 
ability to provide investment
advice to
 
clients in
 
the Americas.
 
Consists of
 
cash and
 
deferred compensation
 
awards and
 
is based
 
on compensable
 
revenues and
 
firm tenure
 
using a
 
formulaic approach.
 
It also
 
includes expenses
 
related to
compensation commitments with financial advisors entered into at the time of
 
recruitment that are subject to vesting requirements. Recruitment loans to financial advisors
 
were USD 1,754m as of 31 December 2023.
 
4 Loans and Customer deposits
 
in this table include
 
customer brokerage receivables and payables, respectively, which are
 
presented in a separate reporting
 
line on the balance
 
sheet.
 
5 Refer to the “Risk
 
management
and control” section of this report for more information about (credit-)impaired exposures. Excludes loans to financial advisors.
2023 compared with 2022
Results
Profit before
 
tax decreased
 
by USD 1,189m,
 
or 24%,
 
to USD 3,705m,
 
mainly driven
 
by higher operating
 
expenses and
lower total revenues.
Total revenues
Total
 
revenues
 
decreased
 
by
 
USD 332m,
 
or
 
2%,
 
to
 
USD 18,631m,
 
with
 
decreases
 
in
 
other
 
income,
 
recurring
 
net
 
fee
income and transaction-based income, partly offset
 
by increases in net interest income.
Net interest income increased by USD 162m,
 
or 3%, to USD 5,436m, mainly driven
 
by higher deposit margins, resulting
from higher interest rates, partly offset by the effects
 
of shifts to lower-margin deposit products.
Recurring
 
net
 
fee
 
income
 
decreased
 
by
 
USD 139m,
 
or
 
1%,
 
to
 
USD 10,143m,
 
primarily
 
driven
 
by
 
negative
 
market
performance.
Transaction
 
-based income decreased by
 
USD 58m, or 2%,
 
to USD 3,079m, mainly driven by
 
lower levels of
 
client activity,
particularly in Americas and Asia Pacific.
Other income
 
was negative
 
USD 28m, compared
 
with positive
 
other income
 
of USD 270m,
 
as 2023
 
included losses
 
of
USD 64m related to our
 
investment in SIX Group. The
 
prior year included a
 
USD 133m gain from the sale
 
of our domestic
wealth
 
management
 
business
 
in
 
Spain,
 
an
 
USD 86m
 
gain
 
from
 
the
 
sale
 
of
 
UBS
 
Swiss
 
Financial
 
Advisers
 
AG
 
and
 
a
USD 41m gain from the sale of our US alternative investments
 
administration business.
Credit loss expense / release
Net credit loss
 
expenses were USD
 
25m, primarily related
 
to stage 3 positions,
 
compared with
 
net expenses of
 
USD 0m
in 2022.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Financial and operating performance | Global
 
Wealth Management
 
44
Operating expenses
Operating
 
expenses
 
increased
 
by
 
USD 831m,
 
or
 
6%,
 
to
 
USD 14,900m,
 
mostly
 
driven
 
by
 
integration-related
 
expenses
associated
 
with the
 
acquisition
 
of the
 
Credit
 
Suisse
 
Group,
 
higher
 
technology
 
expenses
 
and
 
adverse
 
foreign
 
currency
effects. These
 
increases were
 
partly offset
 
by lower provisions
 
for litigation,
 
regulatory and
 
similar matters.
 
In addition,
2023
 
included
 
a
 
charge
 
of
 
USD 60m
 
for
 
the
 
special
 
assessment
 
by
 
the
 
US
 
Federal
 
Deposit
 
Insurance
 
Corporation
 
to
recover losses incurred by the Deposit Insurance Fund
 
in connection with the failures of
 
Silicon Valley Bank and Signature
Bank.
Pre-tax profit growth
Pre-tax profit growth was negative
 
24.3%, compared with positive 4.0% in 2022.
Cost / income ratio
The
 
cost
 
/
 
income
 
ratio
 
increased
 
to
 
80.0%
 
from
 
74.2%,
 
reflecting
 
both
 
higher
 
operating
 
expenses
 
and
 
lower
 
total
revenues.
Invested assets
Invested
 
assets
 
increased
 
by
 
USD 372bn,
 
or
 
13%,
 
to
 
USD 3,187bn,
 
mainly
 
driven
 
by
 
positive
 
market
 
performance
 
of
USD 279bn, net new money inflows of USD 75.0bn and
 
positive foreign currency effects
 
of USD 31bn.
 
Loans
Loans decreased by USD 6.7bn to USD 218.3bn,
 
mainly driven by net new loan outflows of USD 12.6bn, partly offset by
positive foreign currency effects
 
.
 
›
Refer to the “Risk management and control” section of this
 
report for more information
Customer deposits
Customer deposits increased
 
by USD 7.1bn to
 
USD 355.3bn, mainly
 
driven by positive
 
foreign currency
 
effects and
 
net
inflows into
 
fixed-term
 
deposit products.
 
This was
 
partly offset
 
by continued
 
shifts
 
into money
 
market
 
funds and
 
US-
government securities.
Personal & Corporate Banking
Personal & Corporate Banking – in Swiss francs
1
As of or for the year ended
% change from
CHF m, except where indicated
31.12.23
31.12.22
31.12.22
Results
Net interest income
2,804
2,088
34
Recurring net fee income
2
851
812
5
Transaction-based income
2
1,179
1,155
2
Other income
(83)
47
Total revenues
4,751
4,101
16
Credit loss expense / (release)
46
36
27
Operating expenses
2,589
2,359
10
Business division operating profit / (loss) before tax
2,116
1,706
24
Performance measures and other information
Pre-tax profit growth (year-on-year, %)
2
24.1
7.8
Cost / income ratio (%)
2
54.5
57.5
Net interest margin (bps)
2
192
147
Fee and trading income for Corporate & Institutional Clients
2
847
810
4
Investment products for Personal Banking (CHF bn)
2
24.4
21.6
13
Net new investment products for Personal Banking (CHF bn)
2
1.81
1.99
(9)
Active Digital Banking clients in Personal Banking (%)
2,3
77.9
74.3
Active Mobile Banking clients in Personal Banking (%)
2
65.0
56.5
Active Digital Banking clients in Corporate & Institutional
 
Clients (%)
2
81.2
80.0
Loans, gross (CHF bn)
146.8
143.0
3
Customer deposits (CHF bn)
169.6
168.0
1
Impaired loan portfolio as a percentage of total loan portfolio, gross (%)
2,4
0.9
0.8
1 Comparatives may differ as a result of adjustments following organizational changes, restatements due to the retrospective adoption of new accounting standards or changes in accounting policies, and events after
the reporting period.
 
2 Refer to “Alternative
 
performance measures” in the
 
appendix to this report
 
for the definition and
 
calculation method.
 
3 In 2023,
 
88.6% of clients of
 
Personal Banking were
 
“activated
users” of Digital Banking (i.e., clients who
 
had logged into Digital Banking at least once in
 
the course of their relationship with UBS).
 
4 Refer to the “Risk management and control” section of
 
this report for more
information about (credit-)impaired exposures.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Financial and operating performance | Personal
 
& Corporate Banking
 
45
2023 compared with 2022
Results
Profit before tax
 
increased by CHF 410m, or
 
24%, to CHF 2,116m, mainly
 
reflecting higher total revenues,
 
partly offset
by higher operating expenses.
Total revenues
Total
 
revenues
 
increased
 
by
 
CHF 650m,
 
or
 
16%,
 
to
 
CHF 4,751m,
 
reflecting
 
increases
 
across
 
almost
 
all
 
income
 
lines,
predominantly in net interest income.
Net interest
 
income increased
 
by CHF 716m
 
to CHF 2,804m,
 
mainly driven
 
by higher
 
deposit margins,
 
which resulted
from higher interest rates, and higher loan
 
revenues, partly offset by lower deposit fees. The
 
prior year included a benefit
from the Swiss National Bank deposit exemption.
Recurring
 
net
 
fee
 
income
 
increased
 
by
 
CHF 39m
 
to
 
CHF 851m,
 
mainly
 
reflecting
 
higher
 
revenues
 
from
 
account
 
and
custody fees.
Transaction-based
 
income
 
increased
 
by
 
CHF 24m
 
to
 
CHF 1,179m,
 
mainly
 
driven
 
by
 
higher
 
income
 
from
 
Corporate
 
&
Institutional Clients.
Other
 
income
 
was
 
negative
 
CHF 83m,
 
compared
 
with
 
positive
 
other
 
income
 
of
 
CHF 47m,
 
mainly
 
reflecting
 
losses
 
of
CHF 161m related to our investment in SIX Group.
Credit loss expense / release
Net credit loss expenses were CHF 46m, primarily
 
related to stage 3 positions, compared
 
with net expenses of CHF 36m
in 2022.
Operating expenses
Operating
 
expenses
 
increased
 
by
 
CHF 230m,
 
or
 
10%,
 
to
 
CHF 2,589m,
 
mainly
 
driven
 
by
 
integration-related
 
expenses
associated with the
 
acquisition of the
 
Credit Suisse Group, as
 
well as higher
 
technology expenses and
 
accruals for variable
compensation.
Cost / income ratio
The cost / income
 
ratio decreased
 
to 54.5% from
 
57.5%, as an increase
 
in total revenues
 
more than offset
 
an increase
in operating expenses.
 
Personal & Corporate Banking – in US dollars
1
As of or for the year ended
% change from
USD m, except where indicated
31.12.23
31.12.22
31.12.22
Results
Net interest income
3,128
2,192
43
Recurring net fee income
2
949
852
11
Transaction-based income
2
1,314
1,212
8
Other income
(105)
48
Total revenues
5,285
4,304
23
Credit loss expense / (release)
50
39
30
Operating expenses
2,889
2,475
17
Business division operating profit / (loss) before tax
2,346
1,790
31
Performance measures and other information
Pre-tax profit growth (year-on-year, %)
2
31.1
3.7
Cost / income ratio (%)
2
54.7
57.5
Net interest margin (bps)
2
194
146
Fee and trading income for Corporate & Institutional Clients
2
943
851
11
Investment products for Personal Banking (USD bn)
2
29.0
23.4
24
Net new investment products for Personal Banking (USD bn)
2
2.00
2.11
(5)
Active Digital Banking clients in Personal Banking (%)
2,3
77.9
74.3
Active Mobile Banking clients in Personal Banking (%)
2
65.0
56.5
Active Digital Banking clients in Corporate & Institutional
 
Clients (%)
2
81.2
80.0
Loans, gross (USD bn)
174.4
154.7
13
Customer deposits (USD bn)
201.5
181.8
11
Impaired loan portfolio as a percentage of total loan portfolio, gross (%)
2,4
0.9
0.8
1 Comparatives may differ as a result of adjustments following organizational changes, restatements due to the retrospective adoption of new accounting
 
standards or changes in accounting policies, and events after
the reporting period.
 
2 Refer to “Alternative
 
performance measures” in the
 
appendix to this report
 
for the definition and
 
calculation method.
 
3 In 2023, 88.6%
 
of clients of Personal
 
Banking were “activated
users” of Digital Banking (i.e., clients who
 
had logged into Digital Banking at least once in the course of
 
their relationship with UBS).
 
4 Refer to the “Risk management and control” section of
 
this report for more
information about (credit-)impaired exposures.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Financial and operating performance | Asset
 
Management
 
46
Asset Management
Asset Management
1
As of or for the year ended
% change from
USD m, except where indicated
31.12.23
31.12.22
31.12.22
Results
Net management fees
2
1,976
2,049
(4)
Performance fees
70
64
9
Net gain from disposals
23
848
Total revenues
2,069
2,961
(30)
Credit loss expense / (release)
(1)
0
Operating expenses
1,706
1,565
9
Business division operating profit / (loss) before tax
364
1,396
(74)
Performance measures and other information
Pre-tax profit growth (year-on-year, %)
3
(73.9)
36.5
Cost / income ratio (%)
3
82.4
52.9
Gross margin on invested assets (bps)
3,4
18
27
Information by business line / asset
 
class
Net new money (USD bn)
3
Equities
0.2
(12.8)
Fixed Income
29.5
36.5
of which: money market
23.6
26.3
Multi-asset & Solutions
3.3
(1.3)
Hedge Fund Businesses
(3.9)
2.3
Real Estate & Private Markets
2.7
0.2
Total net new money excluding associates
31.8
24.8
of which: net new money excluding money market
8.1
(1.6)
Associates
5
0.5
7.7
Total net new money
4
32.3
32.5
Invested assets (USD bn)
3
Equities
539
456
18
Fixed Income
323
296
9
of which: money market
131
119
10
Multi-asset & Solutions
180
155
16
Hedge Fund Businesses
54
55
(3)
Real Estate & Private Markets
102
102
0
Total invested assets excluding associates
1,199
1,064
13
of which: passive strategies
540
443
22
Associates
5
24
24
0
Total invested assets
4
1,222
1,088
12
Information by region
Invested assets (USD bn)
3
Americas
350
298
17
Asia Pacific
4
153
173
(11)
Europe, Middle East and Africa (excluding Switzerland)
314
263
19
Switzerland
405
354
15
Total invested assets
4
1,222
1,088
12
Information by channel
Invested assets (USD bn)
3
Third-party institutional
659
606
9
Third-party wholesale
126
116
8
UBS’s wealth management businesses
414
342
21
Associates
5
24
24
0
Total invested assets
4
1,222
1,088
12
1 Comparatives may differ as a result of adjustments following organizational changes, restatements due to the retrospective adoption of new accounting standards or changes in accounting policies, and events after
the reporting period.
 
2 Net management fees include
 
transaction fees, fund administration
 
revenues (including net interest and trading
 
income from lending activities and foreign-exchange
 
hedging as part of the
fund services offering), distribution fees, incremental fund-related expenses, gains or losses from seed money and co-investments, funding costs, the negative pass-through impact of third-party performance fees, and
other items that are not Asset Management’s performance fees.
 
3 Refer to “Alternative performance measures” in the appendix to this report for the definition and calculation method.
 
4 Starting with the second
quarter of 2023, net new money and invested assets include net new money and invested assets from associates, to better reflect the business strategy.
 
Comparative figures have been restated to reflect this change.
 
5 The invested assets and net new money amounts reported for associates are prepared in accordance with their local regulator
 
y
 
requirements and practices.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Financial and operating performance | Asset
 
Management
 
47
2023 compared with 2022
Results
Profit before tax decreased by USD 1,032m, or 74%, to
 
USD 364m, primarily due to 2022 including a
 
gain of USD 848m
from the sale of our shareholding in the Mitsubishi
 
Corp.-UBS Realty Inc. joint venture.
Total revenues
Total
 
revenues decreased
 
by USD 892m, or
 
30%, to USD 2,069m,
 
primarily due to
 
2022 including the aforementioned
gain of USD 848m.
Net management fees
 
decreased by USD
 
73m, or 4%,
 
to USD 1,976m,
 
mainly reflecting negative
 
market performance
and the impact of continued margin compression, partly
 
offset by positive foreign currency effects.
Performance fees increased by USD 6m, or 9%, to USD
 
70m.
Operating expenses
Operating expenses increased by USD 141m, or 9%, to USD 1,706m, mainly reflecting integration-related
 
expenses and
adverse foreign currency effects, as well as increases in technology expenses,
 
control function expenses,
 
and outsourcing
costs, partly offset by lower personnel expenses.
 
Cost / income ratio
The
 
cost
 
/
 
income
 
ratio
 
increased
 
to
 
82.4%
 
from
 
52.9%,
 
reflecting
 
both
 
lower
 
total
 
revenues
 
and
 
higher
 
operating
expenses.
Invested assets
Invested assets increased by USD 134bn, or 12%, to
 
USD 1,222bn, reflecting positive market performance of USD 97bn,
net
 
new
 
money
 
generation
 
of
 
USD 32bn
 
and
 
foreign
 
currency
 
effects
 
of
 
USD 31bn,
 
partly
 
offset
 
by
 
a
 
reduction
 
of
USD 26bn, mainly related to the sale of UBS Hana Asset Management Co., Ltd. Excluding money market flows, net new
money (excluding associates) was USD 8bn.
Investment Bank
Investment Bank
1
As of or for the year ended
% change from
USD m, except where indicated
31.12.23
31.12.22
31.12.22
Results
Advisory
604
733
(18)
Capital Markets
1,001
854
17
Global Banking
1,605
1,587
1
Execution Services
1,561
1,643
(5)
Derivatives & Solutions
2,612
3,665
(29)
Financing
1,981
1,822
9
Global Markets
6,154
7,129
(14)
of which: Equities
4,459
4,970
(10)
of which: Foreign Exchange, Rates and Credit
 
1,694
2,160
(22)
Total revenues
7,759
8,717
(11)
Credit loss expense / (release)
67
(12)
Operating expenses
7,588
6,890
10
Business division operating profit / (loss) before tax
104
1,839
(94)
Performance measures and other information
Pre-tax profit growth (year-on-year, %)
2
(94.3)
(29.0)
Cost / income ratio (%)
2
97.8
79.0
Average VaR (1-day, 95% confidence, 5 years of historical data)
14
10
36
1 Comparatives may differ as a result of adjustments following organizational changes, restatements due to the retrospective adoption of new accounting standards or changes in accounting policies, and events after
the reporting period.
 
2 Refer to “Alternative performance measures” in the appendix
 
to this report for the definition and calculation method.
 
 
Annual Report 2023 |
Financial and operating performance | Investment
 
Bank
 
48
2023 compared with 2022
Results
Profit before
 
tax decreased
 
by USD 1,735m,
 
or 94%,
 
to USD 104m,
 
mainly reflecting
 
lower total
 
revenues and
 
higher
operating expenses.
Total revenues
Total
 
revenues
 
decreased
 
by USD 958m,
 
or 11%,
 
to USD 7,759m,
 
reflecting
 
lower revenues
 
in Global
 
Markets,
 
partly
offset by higher revenues in Global Banking
 
.
Global Banking
Global Banking revenues
 
increased by USD 18m,
 
or 1%, to
 
USD 1,605m, as higher
 
Capital Markets revenues
 
were almost
entirely
 
offset
 
by
 
lower
 
Advisory
 
revenues.
 
Fee-pool-comparable
 
revenues
1
 
decreased
 
13%,
 
compared
 
with
 
a
 
16%
decrease in the overall global fee pool.
2
Advisory
 
revenues
 
decreased
 
by
 
USD 129m,
 
or
 
18%,
 
to
 
USD 604m,
 
mostly
 
due
 
to
 
lower
 
merger
 
and
 
acquisition
transaction revenues, which decreased by USD 125m, or 19%, compared with
 
a 25% decrease in the relevant global fee
pool.
2
Capital Markets
 
revenues increased
 
by USD 147m,
 
or 17%,
 
to USD 1,001m,
 
mainly
 
due to
 
prior-year
 
mark-to-market
losses of USD 86m in Leveraged Capital Markets,
 
which did not recur, and lower mark-to-market losses on a portfolio of
instruments
 
used
 
to
 
hedge
 
credit
 
exposure
 
in
 
the
 
Investment
 
Bank’s
 
lending
 
and
 
leveraged
 
loan
 
portfolios.
 
Capital
Markets fee-pool-comparable revenues
1
 
decreased 8% year on year, compared with a 7% decrease
 
in the overall global
fee pool.
2
Global Markets
Global Markets revenues decreased by USD 975m, or 14%, to USD 6,154m, driven by lower Derivatives & Solutions and
Execution Services revenues, partly offset
 
by higher Financing revenues.
Execution
 
Services
 
revenues
 
decreased
 
by
 
USD 82m,
 
or
 
5%,
 
to
 
USD 1,561m,
 
due
 
to
 
lower
 
market
 
volumes
 
in
 
Cash
Equities, partly offset by higher revenues from foreign exchange
 
products that are traded over electronic platforms.
Derivatives & Solutions
 
revenues decreased by USD 1,053m,
 
or 29%, to
 
USD 2,612m, mostly driven by
 
Equity Derivatives,
Rates and Foreign Exchange, due to lower levels of both volatility
 
and client activity.
Financing revenues increased by USD 159m, or 9%, to USD 1,981m,
 
reflecting higher client balances.
Equities
Global
 
Markets
 
Equities
 
revenues
 
decreased
 
by
 
USD 511m,
 
or
 
10%,
 
to
 
USD 4,459m,
 
mainly
 
driven
 
by
 
lower
 
Equity
Derivatives and Cash Equities revenues.
Foreign Exchange, Rates and Credit
Global Markets Foreign
 
Exchange, Rates and
 
Credit revenues decreased by
 
USD 466m, or 22%,
 
to USD 1,694m, primarily
driven by lower Foreign Exchange and Rates revenues
 
.
Credit loss expense / release
Net credit loss expenses were USD 67
 
m, primarily related to stage 3 positions, compared
 
with net releases of USD 12m.
Operating expenses
Operating
 
expenses
 
increased
 
by
 
USD 698m,
 
or
 
10%,
 
to
 
USD 7,588m,
 
mainly
 
driven
 
by
 
integration-related
 
expenses
associated with the acquisition of the Credit Suisse
 
Group and higher technology expenses
 
.
Cost / income ratio
The
 
cost
 
/
 
income
 
ratio
 
increased
 
to
 
97.8%
 
from
 
79.0%,
 
reflecting
 
both
 
lower
 
total
 
revenues
 
and
 
higher
 
operating
expenses.
1
 
UBS fee-pool-comparable revenues consist of revenues
 
from: merger-and-acquisition-related transactions; Equity Capital
 
Markets, excluding derivatives;
 
Leveraged Capital Markets,
 
excluding the impact of mark-to-
market movements on loan portfolios; and Debt Capital Markets,
 
excluding revenues related to debt underwriting of UBS instruments.
2
 
Source: Dealogic, as of 29 December 2023.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Financial and operating performance | Non-core
 
and Legacy
 
49
Non-core and Legacy
Non-core and Legacy
1
As of or for the year ended
% change from
USD m
31.12.23
31.12.22
31.12.22
Results
Total revenues
59
237
(75)
Credit loss expense / (release)
1
2
Operating expenses
1,010
104
867
Operating profit / (loss) before tax
(952)
131
1 Starting with the third quarter of 2023, Non-core and Legacy represents a separate reportable segment, which includes Non-core and Legacy Portfolio previously reported within Group Functions. Prior periods have
been revised to reflect this presentational change.
 
Additionally, a small amount of exposure of
 
pre-integration UBS business divisions was included in
 
Non-core and Legacy starting with the third quarter
 
of 2023, as
it was assessed as not strategic in light of the acquisition of the Credit Suisse Group.
2023 compared with 2022
Results
Loss before tax was USD 952m, compared with a profit
 
before tax of USD 131m.
Total revenues
Total
 
revenues decreased
 
by USD 178m, or
 
75%, to
 
USD 59m, mainly
 
due to
 
a USD 112m
 
decrease in
 
valuation gains
on our portfolios of auction
 
rate securities, US real
 
estate finance and residential
 
mortgage-backed securities, as well
 
as
a USD 36m write-down
 
on legacy inflation-linked assets
 
due to a
 
leasehold reform bill. In
 
addition, 2022 included income
of USD 62m related to a legacy litigation settlement.
Operating expenses
Operating expenses
 
increased
 
by USD 906m
 
to USD 1,010m,
 
largely reflecting
 
an increase
 
of USD 665m
 
in provisions
related to the US residential mortgage-backed securities
 
litigation matter,
 
integration-related expenses of USD 225m and
a USD 24m increase in personnel expenses.
Group Items
Group Items
1
As of or for the year ended
% change from
USD m
31.12.23
31.12.22
31.12.22
Results
Total revenues
(128)
(267)
(52)
Credit loss expense / (release)
1
0
Operating expenses
919
823
12
Operating profit / (loss) before tax
(1,048)
(1,091)
(4)
1 Starting with the third quarter of 2023,
 
Group Functions has been renamed Group Items,
 
and Non-core and Legacy Portfolio,
 
which was previously reported within Group
 
Functions, was included in Non-core
 
and
Legacy, which represents a separate reportable segment. Prior periods have been revised to reflect
 
these presentational changes.
2023 compared with 2022
Results
Loss before tax was USD 1,048m, compared
 
with a loss of USD 1,091m.
Income
 
from
 
Group
 
hedging
 
and
 
own
 
debt,
 
including
 
hedge
 
accounting
 
ineffectiveness,
 
was
 
net
 
positive
 
USD 2m,
compared with net negative
 
income of USD 471m.
 
Income related to centralized
 
Group Treasury risk
 
management was
positive USD 107m, compared with negative USD 41m
 
in 2022.
In addition,
 
2023 included integration-related expenses of USD 289m associated with the
 
acquisition of the Credit Suisse
Group, an increase of USD 273m in funding costs related to deferred tax assets and a USD 17m decrease in net gains on
properties held for sale.
 
 
 
 
 
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet
 
50
Risk, capital, liquidity and
funding, and balance sheet
Management report
Audited information according to IFRS 7 and IAS 1
Risk and capital disclosures
 
provided in line with
 
the requirements of
IFRS 7,
Financial Instruments: Disclosures,
and IAS 1,
Presentation
 
of
Financial
 
Statements,
form
 
part
 
of
 
the
 
financial
 
statements
 
included
 
in
 
the
 
“Consolidated
 
financial
statements” section of
 
this report and
 
are audited by the
 
independent registered public
 
accounting firm Ernst
 
& Young
Ltd, Basel. This information is marked as “Audited” within
 
this section of the report.
 
Signposts
The
Audited |
signpost that is displayed at the beginning
 
of a section, table or chart indicates that
 
those items have been audited. A triangle
 
symbol –
p
 
–
indicates the end of the audited section, table
 
or chart.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Risk management and control
 
52
Risk management and control
Overview of risks arising from our business activities
Key risks by business division and Group Items
Business divisions and Group Items
Key financial risks arising from business activities
Global Wealth Management
Credit risk
 
from collateralized lending primarily against
 
securities, private equity and hedge fund interest,
investors’ uncalled capital commitments,
 
and residential and commercial real estate, as well as from
derivatives trading.
 
Market risk
 
from municipal securities and taxable fixed-income
 
securities.
 
Interest rate risk in the
banking book related to Global Wealth Management
 
is transferred to and managed by Group Treasury.
Personal & Corporate Banking
Credit risk
 
from mortgages (owner-occupied and income-producing), secured and
 
unsecured corporate
lending, commodity trade finance, trade and
 
export finance, and lending to banks
 
and other regulated
clients, as well as a small amount of derivatives
 
trading activity.
 
Minimal contribution to
market risk
. Interest rate risk in the banking book related to
 
Personal
 
&
Corporate Banking is transferred to and managed
 
by Group Treasury.
Asset Management
Credit risk
 
and
market risk
 
on client assets invested in Asset Management
 
funds can impact
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
 
from lending (take-and-hold, as well as temporary
 
loan underwriting activities), derivatives
trading and securities financing.
 
Market risk
 
from primary underwriting activities and
 
secondary trading.
Non-core and Legacy
Credit risk
 
and
market risk
 
arise from exposures in auction rate preferred securities, public finance
 
loans
and derivatives, as well as residual exposures to securitized
 
products.
Group Items
Credit
 
and
market risk
 
arising from management of UBS AG’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
 
consist of compliance risks (including employment
 
and conduct risks), financial crime, operational
 
risk (including model risks and cyber-
and information-security risks), legal risks and
 
reputational risks. These are an inevitable consequence
 
of being in business and can arise as a result of
 
our past
and current business activities across all business divisions
 
and Group Items.
›
Refer to “Risk categories” in this section for
 
more information about other financial and non-financial
 
risks relevant to UBS AG
Key risk developments
Upon legal close of the acquisition of the Credit Suisse Group by UBS Group, UBS has applied prudent risk management
practices to the material risks of the
 
combined organization, and continued to apply these practices at the
 
UBS AG entity
level. UBS AG’s risk
 
management and control
 
practices and frameworks
 
remained in line
 
with those of
 
the UBS Group.
UBS AG’s risk governance continued to operate along our three
 
lines of defense.
2023
 
was
 
a
 
challenging
 
year
 
for
 
the
 
global
 
economy
 
and
 
most
 
markets,
 
stage
 
3
 
net
 
expenses
 
of
 
USD 120m
 
were
recognized in a number of defaulted
 
positions across our business divisions and
 
a USD 0.5bn increase in credit-impaired
exposure to USD 3.0bn
 
was observed.
 
Overall,
 
we saw a
 
USD 48bn increase in
 
banking product exposure driven
 
by Group
Items
 
and
 
Personal
 
&
 
Corporate
 
Banking
 
while
 
exposure
 
in
 
Global
 
Wealth
 
Management
 
decreased.
 
Traded
 
product
exposures saw an increase
 
of USD 1.4bn across
 
our business divisions.
 
Market risk remained
 
at low levels, as
 
a result of
our continued focus on managing tail risks.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Risk management and control
 
53
Risk categories
UBS AG categorizes
 
the risk exposures of the business divisions
 
and Group Items in line with
 
the UBS Group as outlined
in the table below. The risk
 
appetite framework is designed to capture all risk categories.
›
Refer to “Risk appetite framework” in this
 
section for more information
Risk managed by
Independent
oversight by
Financial risks
Audited |
 i 
 
Credit risk:
the risk of loss resulting from the failure of a client or counterparty
 
to meet its
contractual obligations toward UBS AG.
 
This includes settlement risk, loan underwriting
 
risk and step-in
risk.
Settlement risk:
 
the risk of loss resulting from transactions that involve
 
exchange of value (e.g.,
security versus cash) where we must deliver without
 
first being able to determine with certainty
 
that
we will receive the consideration.
Loan underwriting risk:
 
the risk of loss arising during the holding
 
period of financing transactions
that are intended for further distribution.
Step-in risk:
 
the risk that UBS AG may decide to provide financial
 
support to an unconsolidated
entity that is facing stress in the absence of, or in
 
excess of, any contractual obligations to provide
such support.
p
Business divisions
Risk Control
Audited |
Market risk
 
(traded and non-traded): the risk of loss resulting
 
from adverse movements in
market variables. Market variables include observable
 
variables, such as interest rates, foreign exchange
rates, equity prices, credit spreads and commodity (including
 
precious metal) prices, as well as variables
that may be unobservable or only indirectly observable,
 
such as volatilities and correlations. Market risk
includes issuer risk and investment risk.
Issuer risk:
the risk of loss that would occur if an issuer to
 
which we are exposed through tradable
securities or derivatives referencing the issuer was subject to
 
a credit-related event.
Investment risk:
 
issuer risk associated with positions held
 
as financial investments.
p
Business divisions and
Group Treasury
Risk Control
Country risk:
 
the risk of loss resulting from country-specific events.
 
This includes the risk of sovereign
default and also transfer risk, which involves
 
a country’s authorities preventing or restricting the
payment of an obligation, as well as systemic
 
risk events arising from country-specific political
 
or
macroeconomic developments.
Business divisions
Risk Control
Sustainability and climate risk:
 
the risk that UBS AG negatively impacts, or is impacted
 
by, climate
change, natural capital, human rights, and
 
other environmental, social and governance
 
matters. Climate
risks can arise from either changing climate conditions
 
(physical risks) or from efforts to mitigate climate
change (transition risks). Sustainability and climate
 
risks may manifest as credit, market, liquidity,
business and non-financial risks for UBS AG,
 
resulting in potential adverse financial, liability
 
and
reputational impacts. These risks extend to the value
 
of investments and may also affect the value
 
of
collateral (e.g., real estate).
Business divisions
Risk Control
Treasury risk:
 
the risks associated with asset and liability
 
management and our liquidity and funding
positions, as well as structural exposures including
 
pension risks.
 
Group Treasury
Risk Control
Audited |
Liquidity risk:
 
the risk that the firm will not be able to
 
efficiently meet both expected and
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 risk that the firm will be unable, on
 
an ongoing basis, to borrow funds in
the market on an unsecured (or even secured) basis at
 
an acceptable price to fund actual or
proposed commitments, i.e., the risk that UBS AG’s
 
funding capacity is not sufficient to support
 
the
firm’s current business and desired strategy.
p
Interest rate risk in the banking book:
the risk to the firm’s capital and earnings
 
arising from the
adverse effects of interest rate movements on the firm’s banking
 
book positions. The risk is
transferred from the originating business divisions, i.e.,
 
Global Wealth Management and Personal &
Corporate Banking,
 
to Group Treasury to risk manage this centrally and benefit from firm-wide
netting while leaving the business units
 
with margin management.
Structural foreign exchange risk:
 
the risk of decreases in our capital due to changes
 
in foreign
exchange rates with an adverse translation
 
effect on capital held in currencies other than the
US dollar.
Pension risk:
 
the risk of a negative impact on our capital
 
as a result of deteriorating funded status
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:
 
the potential negative impact on earnings
 
from lower-than-expected business volumes
and / or margins, to the extent they are not offset by a decrease
 
in expenses. For example, changes in
the competitive landscape, client behavior
 
or market conditions can potentially have a negative
 
impact.
Business divisions
Risk Control
and Finance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Risk management and control
 
54
Risk managed by
Independent
oversight by
Non-financial risks
 
Compliance risk:
 
the risk of failure to comply with laws, rules and
 
regulations, internal policies and
procedures, and the firm’s Code of Conduct and Ethics.
 
Business divisions
Group Compliance,
Regulatory &
Governance (GCRG)
Employment risk:
 
the risks arising from acts inconsistent with
 
laws, rules,
 
regulations or the firm’s
human resources policies governing employment
 
practices, discrimination, compensation and
employee-related taxes and benefits.
 
Human Resources
Conduct risk:
 
the risk that the conduct of the firm or its
 
individuals unfairly impacts clients or
counterparties, undermines the integrity of the
 
financial system or impairs effective competition
 
to
the detriment of consumers.
GCRG
Financial crime risk:
 
the risk of failure to prevent financial crime (including
 
money laundering, terrorist
financing, sanctions or embargo violations,
 
internal and external fraud,
 
bribery, and corruption).
Business divisions and
Financial Crime
Prevention
 
GCRG
Operational risk:
 
the risk resulting from inadequate or failed internal
 
processes, people or systems, or
from external causes (deliberate, accidental
 
or natural).
Business divisions
GCRG
Cybersecurity and information security risk:
 
the risk of a malicious internal or
 
external act, or a
failure of IT hardware or software, or human error, leading to a material impact on confidentiality,
integrity or availability of UBS AG’s data or information
 
systems.
 
Business divisions and
the Group Operations
and Technology Office
 
GCRG
Model risk:
 
the risk of adverse consequences (e.g.,
 
financial loss, due to legal matters, operational
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:
 
the risk of: (i) being held liable for a 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 AG’s interests; and
(iv) being party to a claim or investigated
 
by an external regulator or authority in respect
 
of any of the
above (and the risk of loss of attorney–client
 
privilege in the context of any such claim).
Business divisions
Legal
Reputational risk:
 
the risk of an unfavorable perception of UBS
 
AG or a decline in the firm’s reputation
from the point of view of clients, shareholders, regulators,
 
employees or the general public, which
 
may
lead to potential financial loss and / or loss of
 
market share.
All businesses and
functions
All control functions
Top and emerging risks
The top and emerging risks disclosed below reflect those that we currently think have the potential to materialize within
one year and which could significantly affect UBS AG. Investors should also carefully review all information set out in the
“Risk factors”
 
section of
 
this report,
 
where
 
we discuss
 
these and
 
other material
 
risks that
 
we consider
 
could have
 
an
effect on our
 
ability to
 
execute our strategy
 
and may
 
affect our
 
business activities,
 
financial condition, results
 
of operations
and business prospects.
–
UBS AG remains watchful of
 
a range of geopolitical developments
 
and political changes in a
 
number of countries, as
well as
 
international tensions
 
arising from
 
the Russia–Ukraine
 
war, conflicts
 
in the
 
Middle East
 
and US–China
 
trade
relations. Geopolitical tensions will continue to create uncertainty and complicate the energy price outlook. UBS AG is
closely watching elections in several key markets in 2024.
–
Inflation
 
has abated
 
to
 
some
 
extent
 
in
 
major
 
Western
 
economies,
 
though
 
there
 
are
 
still
 
concerns
 
regarding
 
future
developments,
 
and central
 
banks’ monetary
 
policy is
 
in
 
the spotlight.
 
The potential
 
for “higher-for-longer”
 
interest
rates raises
 
the prospect
 
of a
 
global recession,
 
particularly as
 
the growth
 
of China’s
 
economy has
 
been muted.
 
This
combination of factors translates into a more uncertain and volatile
 
environment, which increases the risk of financial
market disruption.
 
–
UBS AG is exposed to a number of macroeconomic issues, as well as general market conditions. As noted in “Market,
credit
 
and
 
macroeconomic
 
risks”
 
in
 
the
 
“Risk
 
factors”
 
section
 
of
 
this
 
report,
 
these
 
external
 
pressures
 
may
 
have
 
a
significant adverse effect on
 
our business activities and
 
related financial results, primarily through
 
reduced margins and
revenues,
 
asset
 
impairments
 
and
 
other
 
valuation
 
adjustments.
 
Accordingly,
 
these
 
macroeconomic
 
factors
 
are
considered in the development of stress-testing scenari
 
os for our ongoing risk management activities.
–
UBS AG
 
is monitoring
 
the downturn
 
in the
 
commercial real
 
estate sector.
 
Adverse effects
 
on valuations
 
from higher
interest rates and structural decline in demand for office and retail space may trigger broader impacts given bank
 
and
non-bank lenders’ material balance sheet exposure to the
 
sector.
–
We are
 
exposed to
 
substantial changes
 
in the regulation
 
of our businesses
 
that could
 
have a
 
material adverse
 
effect
on our
 
business, as
 
discussed in
 
the “Regulatory
 
and legal
 
developments” section
 
of this
 
report and
 
in “Regulatory
and legal risks” in the “Risk factors” section of this report.
 
 
 
 
 
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Risk management and control
 
55
–
As a
 
global financial
 
services firm,
 
we are
 
subject to
 
many different
 
legal, tax
 
and regulatory
 
regimes and
 
extensive
regulatory oversight.
 
We are
 
exposed to
 
significant liability
 
risk, and we
 
are subject
 
to various
 
claims, disputes,
 
legal
proceedings and government
 
investigations, as noted
 
in “Regulatory and
 
legal risks” in the
 
“Risk factors” section
 
of
this report. Information about litigation, regulatory and
 
similar matters we consider significant is
 
disclosed in “Note 17
Provisions and contingent liabilities” in the “Consolidated
 
financial statements” section of this report.
–
Global
 
geopolitical
 
trends
 
increase
 
the
 
likelihood
 
of
 
external
 
state-driven
 
cyber
 
activity.
 
Alongside
 
a
 
general
 
trend
toward more sophisticated
 
forms of ransomware
 
and other cyber threats,
 
there is a risk of
 
business disruption or
 
the
corruption
 
or
 
loss
 
of
 
data.
 
Additionally,
 
as
 
a
 
result
 
of
 
the
 
dynamic
 
and
 
material
 
nature
 
of
 
recent
 
geopolitical
 
and
environmental events and the operational complexity
 
of all our businesses, we are continually
 
exposed to operational
resilience scenarios such as process error, failed execution,
 
system failures and fraud.
–
Conduct risks are inherent
 
in our businesses. Achieving
 
fair outcomes for our
 
clients, upholding market
 
integrity and
cultivating the highest standards
 
of employee conduct are
 
of critical importance to us.
 
Management of conduct risks
is an integral part of our risk management framework.
–
Financial crime
 
(including
 
money laundering,
 
terrorist
 
financing,
 
sanctions
 
violations,
 
fraud,
 
bribery
 
and corruption)
presents significant risk. Heightened regulatory
 
expectations and attention require investment
 
in people and systems,
while
 
emerging
 
technologies
 
and
 
changing
 
geopolitical
 
risks
 
further
 
increase
 
the
 
complexity
 
of
 
identifying
 
and
preventing financial crime.
 
›
Refer to “Non-financial risk” in this section
 
and “Strategy, management and operational risks” in the “Risk factors”
 
section of this
report for more information
–
Sustainability and climate
 
risks continue to be
 
in the focus of
 
regulators and stakeholders,
 
with further emphasis
 
put
on measurement
 
of nature-related
 
risk and management
 
of greenwashing
 
risks in 2023.
 
To address
 
these emerging
risks, UBS has enhanced its nature-related risk methodology and
established guidelines for sustainable lending, bonds
and greenhouse gas emissions trading to address potential
 
greenwashing risks.
 
›
Refer to “Sustainability and climate risk” in the
 
“Risk management and control” section of the UBS
 
Group Annual Report 2023,
available under “Annual reporting” at
ubs.com/investors
, for more information
 
›
Refer to the UBS Group Sustainability Report 2023,
 
available under “Annual reporting” at
ubs.com/investors
, for a full description
of our sustainability and climate risk policy
 
framework
–
In
 
addition,
 
industry
 
guidelines
 
and
 
regulations
 
are
 
emerging
 
simultaneously
 
in
 
various
 
jurisdictions,
 
leading
 
to
 
an
increased risk of divergence, which in turn increases the risk that
 
UBS may not comply with all relevant regulations.
›
 
Refer to the “Non-financial risk” section of
 
this report and “Sustainability and climate risk”
 
in the “Risk management and control”
section of the UBS Group Annual Report 2023, available
 
under “Annual reporting” at
ubs.com/investors
–
New risks continue to emerge. For example, client demand for distributed ledger technology, blockchain-based
 
assets
and virtual
 
currencies creates
 
new risks,
 
to which
 
we currently
 
have limited
 
exposure and
 
for which
 
relevant control
frameworks are continuously enhanced and implemented.
Risk governance
The risk
 
governance of
 
UBS AG
 
is modeled
 
on that
 
of UBS
 
Group AG,
 
with the
 
same three
 
lines of defense
 
and equal
governance structure in terms of key roles and responsibility for
 
risk management.
›
Refer to “Risk governance” in the “Risk
 
management and control” section of the UBS Group Annual Report
 
2023, available under
“Annual reporting” at
ubs.com/investors,
 
for more information about our risk governance
 
and the three lines of defense
 
Risk appetite framework
UBS AG manages
 
its risk
 
appetite in
 
line with
 
the UBS Group
 
framework, covering
 
financial and
 
non-financial
 
risk types,
 
via
a complementary set of qualitative and quantitative risk appetite statements.
 
The UBS Group framework is reviewed and
recalibrated
 
annually and presented
 
to the Board of
 
Directors (the
 
BoD) for approval.
Our risk
 
appetite is
 
defined at
 
the aggregate
 
Group level
 
and reflects
 
the risk
 
that we
 
are willing
 
to accept
 
or wish
 
to
avoid. It is set via complementary qualitative and quantitative risk appetite statements defined at a firm-wide level and is
embedded throughout our business divisions and legal entities by
 
Group, business division and legal entity policies, limits
and authorities. Our risk appetite is reviewed and recalibrated annually, with the aim of ensuring that risk-taking at every
level of
 
the organization
 
is in
 
line with
 
our strategic
 
priorities, our
 
capital and
 
liquidity plans,
 
our
Pillars, Principles
 
and
Behaviors
, and minimum regulatory
 
requirements. The
 
“Risk appetite framework”
 
chart below shows the
 
key elements
of the framework, which is described in detail in this section.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ubs-20231231p73i0
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Risk management and control
 
56
Qualitative
 
risk
 
appetite
 
statements
 
aim
 
to
 
ensure
 
we
 
maintain
 
the
 
desired
 
risk
 
culture.
 
Quantitative
 
risk
 
appetite
objectives are
 
designed
 
to enhance
 
the Group’s,
 
including UBS
 
AG’s, resilience
 
against the
 
effects
 
of potential
 
severe
adverse
 
economic
 
or
 
geopolitical
 
events.
 
These
 
risk
 
appetite
 
objectives
 
cover
 
minimum
 
capital
 
and
 
leverage
 
ratios,
solvency,
 
earnings,
 
liquidity
 
and
 
funding,
 
and
 
are
 
subject
 
to
 
periodic
 
review,
 
including
 
the
 
yearly
 
business
 
planning
process. These
 
objectives are
 
complemented by
 
a standardized
 
set of
 
quantitative firm-wide
 
non-financial risk
 
appetite
objectives. Non-financial risk events exceeding
 
predetermined risk tolerances, expressed as
 
percentages of UBS AG’s
 
total
operating income, must be escalated as per the firm-wide
 
escalation framework.
The quantitative
 
risk appetite
 
objectives are
 
supported by
 
a comprehensive
 
suite of
 
risk limits
 
set at
 
a portfolio
 
level to
monitor specific portfolios and to identify potential risk concentrations.
 
Our risk
 
appetite framework
 
is governed
 
by a
 
single overarching policy
 
and conforms
 
to the
 
Financial Stability Board’s
Principles
 
for an Effective
 
Risk Appetite
 
Framework.
Risk principles and risk culture
Maintaining
 
a
 
strong
 
risk
 
culture
 
is a
 
prerequisite
 
for
 
success
 
in today’s
 
highly
 
complex
 
operating
 
environment
 
and a
source of sustainable competitive advantage.
 
Our risk appetite
 
framework combines
 
all the important
 
elements of our
 
risk culture,
 
expressed in our
Pillars, Principles
and
 
Behaviors
,
 
our
 
risk
 
management
 
and
 
control
 
principles,
 
our
 
Code
 
of
 
Conduct
 
and
 
Ethics,
 
and
 
our
 
Total
 
Reward
Principles. They
 
help to
 
create a
 
solid foundation
 
for promoting
 
risk awareness,
 
leading to
 
appropriate risk-taking
 
and
the establishing of robust
 
risk management and control processes. These
 
principles are supported by
 
a range of initiatives
covering employees at
 
all levels, for
 
example the
UBS House View
 
on Leadership
, which is
 
a set of
 
explicit expectations
that establishes consistent leadership standards across UBS, and our Principles of
 
Good Supervision, which establish clear
expectations of
 
managers and
 
employees regarding supervisory
 
responsibilities, specifically: to
 
take responsibility;
 
to know
and organize their business; to know their employees and what they do; to create a good risk culture; and to respond to
and resolve issues.
 
›
Refer to “Employees” in the “How we create value
 
for our stakeholders” section in the UBS Group Annual
 
Report 2023 for more
information about our Pillars, Principles and Behaviors
›
Refer to the Code of Conduct and Ethics of
 
UBS at
ubs.com/code
 
for more information
Risk management and control principles
Protection of financial strength
Protecting UBS AG’s financial strength by controlling our risk
 
exposure and avoiding potential risk
concentrations at individual exposure levels,
 
at specific portfolio levels and at an aggregate firm-wide
level across all risk types.
Protection of reputation
Protecting our reputation through a sound risk culture characterized
 
by a holistic and integrated view of
risk, performance and reward, and through full compliance
 
with our standards and principles, particularly
our Code of Conduct and Ethics.
Business management accountability
Maintaining management accountability, whereby business management owns
 
all risks assumed
throughout UBS AG and is responsible for the continuous
 
and active management of all risk exposures
 
to
provide for balanced risk and return.
Independent controls
Independent control functions that monitor the
 
effectiveness of the businesses’ risk management
 
and
oversee risk-taking activities.
Risk disclosure
Disclosure of risks to senior management, the BoD,
 
investors, regulators, credit rating agencies
 
and other
stakeholders with an appropriate level of comprehensiveness
 
and transparency.
 
ubs-20231231p74i0
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57
Whistleblowing policies and procedures exist to
 
encourage an environment where staff are comfortable raising
 
concerns.
There
 
are
 
multiple channels
 
via which
 
individuals
 
may,
 
either
 
openly or
 
anonymously,
 
escalate
 
suspected
 
breaches
 
of
laws, regulations,
 
rules and other
 
legal requirements,
 
our Code of
 
Conduct and Ethics,
 
policies or relevant
 
professional
standards.
 
We
 
are
 
committed
 
to
 
ensuring
 
there
 
is
 
appropriate
 
training
 
and
 
communication
 
to
 
staff
 
and
 
legal
 
entity
representatives, including information abo
 
ut new regulatory requirements.
Mandatory training programs
 
cover various compliance-related
 
and risk-related topics,
 
including operational risk
 
and anti-
money laundering. Additional specialized training is
 
provided depending on employees’ specific roles
 
and responsibilities,
e.g., credit risk and market risk training for those working
 
in trading areas.
 
Quantitative risk appetite objectives
Our
 
quantitative
 
risk
 
appetite
 
objectives
 
aim
 
to
 
ensure
 
that
 
our
 
aggregate
 
risk
 
exposure
 
remains
 
within
 
desired
 
risk
capacity, based on capital
 
and business
 
plans. The
 
specific definition of
 
risk capacity
 
for each
 
objective is
 
aimed at
 
ensuring
we
 
have
 
sufficient
 
capital,
 
earnings,
 
funding
 
and
 
liquidity
 
to
 
protect
 
our
 
businesses
 
and
 
exceed
 
minimum
 
regulatory
requirements under a severe stress event. The risk appetite
 
objectives are evaluated during the annual business planning
process and approved by
 
the BoD. The comparison of
 
risk exposure with risk
 
capacity is a key consideration in
 
decisions
on potential adjustments to the business strategy,
 
risk profile,
 
and the level of capital returns to shareholders.
In the annual
 
business planning process
 
,
 
UBS’s business strategy
 
,
 
including that of
 
UBS AG, is
 
reviewed, the risk
 
profile
that our operations and activities result in is assessed,
 
and that risk profile is stressed. We use both scenario-based
 
stress
tests and economic capital risk measurement techniques to assess the effects of severe stress events at a firm-wide level.
These complementary frameworks capture exposures to material
 
risks across our business divisions and Group Item
 
s.
 
For 2023, the following risk appetite objectives were applied to
 
UBS AG.
›
Refer to “Risk measurement” in this section for
 
more information about our stress-testing and economic capital
 
measures
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Risk management and control
 
58
Our risk
 
capacity is
 
underpinned by performance
 
targets and capital
 
guidance as per
 
our business
 
plan. When
 
determining
our risk capacity in
 
case of a severe stress event,
 
we estimate projected earnings under
 
stress, factoring in lower expected
income and
 
expenses. We
 
also consider
 
capital impacts
 
under stress
 
from deferred
 
tax assets,
 
pension plan
 
assets and
liabilities, and accruals for capital returns to shareholders.
Risk appetite objectives define the aggregate risk exposure acceptable
 
at the firm-wide level, given our risk capacity. The
maximum acceptable risk
 
exposure is
 
supported by
 
a full set
 
of risk
 
limits, which
 
are cascaded to
 
businesses and portfolios.
These limits aim to ensure that our risks remain in line with
 
risk appetite.
Risk appetite statements at the business division level are derived from
 
the firm-wide risk appetite. They may also include
division-specific strategic goals
 
related to that
 
division’s activities and
 
risks. Risk
 
appetite statements are
 
also set
 
for certain
legal entities,
 
which must
 
be consistent
 
with the
 
firm-wide risk
 
appetite framework
 
and approved
 
in accordance
 
with
Group and legal entity regulations. Differences may exist that reflect the specific nature, size, complexity and regulations
applicable to the relevant legal entity.
Internal risk reporting
Comprehensive
 
and transparent
 
reporting of
 
risks is
 
central to
 
our risk
 
governance framework’s
 
control and
 
oversight
responsibilities and required by
 
our risk management
 
and control principles.
 
Accordingly, risks are reported at a
 
frequency
and level
 
of detail
 
commensurate
 
with the
 
extent
 
and
 
variability of
 
the
 
risk and
 
the
 
needs of
 
the various
 
governance
bodies, regulators and risk authority holders.
The
 
UBS AG
 
Risk
 
Report
 
(formerly
 
the
 
Group
 
Risk
 
Report)
 
provides
 
a
 
detailed
 
qualitative
 
and
 
quantitative
 
monthly
overview of developments in
 
financial and non-financial risks
 
at the firm-wide
 
level. The UBS AG Risk
 
Report is distributed
internally to the BoD and the
 
Executive Board (EB), and senior
 
members of Risk Control and
 
Group Internal Audit (GIA).
Risk
 
reports
 
are
 
also
 
produced
 
for
 
significant
 
UBS AG
 
entities
 
(entities
 
subject
 
to
 
enhanced
 
standards
 
of
 
corporate
governance) and significant branches.
Granular divisional risk reports are
 
provided to the respective
 
business division CROs and business
 
division Presidents. This
monthly
 
reporting
 
is
 
supplemented
 
with
 
daily
 
or weekly
 
reports,
 
at
 
various
 
levels
 
of
 
granularity,
 
covering
 
market
 
and
credit risks for the
 
business divisions to enable
 
risk officers and senior
 
management to monitor
 
and control the Group’s
risk profile, including that of UBS AG.
Our internal risk reporting
 
covers financial and non-financial
 
risks and is supported by risk data
 
and measurement systems
that are
 
also used
 
for external
 
disclosure
 
and regulatory
 
reporting.
 
Dedicated units
 
within Risk
 
Control assume
 
responsibility
for measurement, analysis and reporting of risk
 
and for overseeing the
 
quality and integrity of risk-related data. Our risk
data and measurement
 
systems are subject
 
to periodic review
 
by GIA, following
 
a risk-based audit
 
approach.
Model risk management
Introduction
We rely
 
on models to
 
inform risk management
 
and control
 
decisions, to measure
 
risks or exposures,
 
value instruments
or positions, conduct
 
stress testing, assess
 
adequacy of
 
capital, and manage
 
clients’ assets and
 
our own assets.
 
Models
may also be
 
used to measure
 
and monitor compliance
 
with rules and
 
regulations, for
 
surveillance activities,
 
or to meet
financial or regulatory reporting requirements.
 
Model risk
 
is defined
 
as the
 
risk of
 
adverse consequences
 
(e.g., financial
 
losses or
 
reputational damage)
 
resulting from
incorrect or misused models.
Model governance framework
Our model governance
 
framework establishes requirements for
 
identifying, measuring, monitoring, reporting,
 
controlling
and mitigating model risk. All
 
the models that we use
 
are subject to governance and
 
controls throughout their life cycles,
with rigor,
 
depth and
 
frequency determined
 
by the
 
model’s materiality
 
and complexity.
 
This is designed
 
to ensure
 
that
risks arising from model use are identified, understood, managed, monitored, controlled
 
and reported on both a model-
specific and an
 
aggregated level. Before they can
 
be granted approval
 
for use, all
 
our models are independently
 
validated.
 
Once validated and approved for use,
 
a model is subject to ongoing model
 
monitoring and regular model confirmation,
ensuring that the model is only used if it continues
 
to be found fit for purpose. All models
 
are subject to periodic model
re-validation.
 
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59
Our
 
model
 
risk
 
governance
 
framework
 
follows
 
our
 
overarching
 
risk
 
governance
 
framework,
 
with
 
the
 
three
 
lines
 
of
defense (LoD) assigned as follows.
–
First LoD:
 
individuals responsible
 
for development,
 
maintenance and
 
appropriate use
 
of the
 
models, within
 
business
units and Group functions.
–
Second LoD: individuals responsible
 
for independent review of
 
and effective challenge to
 
the models, the Model
 
Risk
Management & Control function headed by the Chief Model
 
Risk Officer.
–
Third LoD: Group Internal Audit
An important difference
 
as compared
 
with how LoD
 
are usually
 
defined in financial
 
and non-financial
 
risk is that
 
some
models are owned by traditionally second LoD functions,
 
such as Risk Control, Finance or Compliance.
Model risk appetite framework and statement
The model risk appetite framework sets out the
 
model risk appetite statement, defines the relevant
 
metrics and lays out
how appropriate adherence is assessed.
Model oversight
Model
 
oversight
 
committees
 
and
 
forums
 
ensure
 
that
 
model
 
risk
 
is
 
overseen
 
at
 
different
 
levels
 
of
 
the
 
organization,
appropriate model risk management and control
 
actions are taken and, where
 
necessary,
 
escalated to the next level.
 
The Group Model Governance Committee is our most
 
senior oversight and escalation body for
 
all models in scope of our
model governance framework. It is co-chaired by the Group CRO
 
and the Group CFO and is responsible for: (i) reviewing
and approving changes to the framework;
 
(ii) approving the model risk appetite statement;
 
(iii) overseeing adherence to
the UBS model risk governance framework; and (iv) monitoring
 
model risk at a firm-wide level.
Risk measurement
Audited |
We apply a
 
variety of methodologies
 
and measurements
 
to quantify the
 
risks of our
 
portfolios and potential
 
risk
concentrations. Risks that are
 
not fully reflected within standard
 
measures are subject to
 
additional controls, which may
include
 
preapproval
 
of
 
specific
 
transactions
 
and
 
the
 
application
 
of
 
specific
 
restrictions.
 
Models
 
to
 
quantify
 
risk
 
are
generally developed by dedicated units within control
 
functions and are subject to independent validation.
p
›
Refer to “Credit risk,” “Market risk” and “Non-financial
 
risk” in this section for more information about model
 
confirmation
procedures
The text below describes the
 
scenario-based stress testing and
 
economic capital measures of
 
UBS AG on a consolidated
basis during 2023.
Stress testing
We perform stress testing to
 
estimate losses that could
 
result from extreme yet plausible macroeconomic and
 
geopolitical
stress events to
 
identify, better understand and
 
manage our potential
 
vulnerabilities and risk
 
concentrations. Stress testing
has a
 
key
 
role
 
in
 
our
 
limits
 
framework
 
at the
 
firm-wide,
 
business
 
division,
 
legal entity
 
and portfolio
 
levels.
 
Stress-test
results are
 
regularly reported
 
to the
 
BoD and
 
the EB.
 
As described
 
in “Risk
 
appetite framework,”
 
stress testing,
 
along
with economic capital measures, has a central role
 
in our risk appetite and business planning processes.
Our stress-testing
 
framework has
 
three pillars:
 
(i) combined stress
 
tests; (ii) an
 
extensive set
 
of portfolio-
 
and risk-type-
specific stress tests; and (iii) reverse stress testing.
The
combined stress-testing (CST)
 
framework is scenario-based
 
and aims to
 
quantify overall firm-wide
 
losses that could
result
 
from
 
various
 
potential
 
global
 
systemic
 
events.
 
The
 
framework
 
captures
 
all
 
material
 
risks,
 
as
 
covered
 
in
 
“Risk
categories.” Scenarios
 
are forward-looking
 
and encompass
 
macroeconomic and
 
geopolitical stress
 
events calibrated
 
to
different
 
levels
 
of
 
severity.
 
We
 
implement
 
each
 
scenario
 
through
 
the
 
expected
 
evolution
 
of
 
market
 
indicators
 
and
economic variables under
 
that scenario
 
and then estimate
 
the overall loss
 
and capital
 
implications were the
 
scenario to
occur. Following the
 
existing UBS AG scenario
 
governance, at least
 
once a year,
 
the Risk Committee
 
approves the most
relevant
 
scenario,
 
known
 
as
 
the
 
binding
 
scenario,
 
for
 
use
 
as
 
the
 
main
 
scenario
 
for
 
regular
 
CST
 
reporting
 
and
 
for
monitoring
 
risk
 
exposure
 
against
 
our
 
minimum
 
capital,
 
earnings
 
and
 
leverage
 
ratio
 
objectives
 
in
 
our
 
risk
 
appetite
framework.
 
We provide
 
detailed stress
 
loss analyses
 
to the
 
Swiss Financial
 
Market Supervisory
 
Authority (FINMA)
 
and regulators
 
of
our legal entities in accordance with their requirements.
 
 
Annual Report 2023 |
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balance sheet | Risk management and control
 
60
The Enterprise-wide Stress
 
Forum (the
 
ESF) aims
 
to ensure the
 
consistency and adequacy
 
of the
 
assumptions and scenarios
used for
 
firm-wide
 
stress
 
measures.
 
As part
 
of its
 
responsibilities,
 
the ESF,
 
with input
 
from the
 
Think Tank,
 
a panel
 
of
senior representatives
 
from the
 
business divisions,
 
Risk Control
 
and Economic
 
Research, seeks
 
to ensure that
 
the set of
stress
 
scenarios
 
adequately
 
reflects
 
current
 
and
 
potential
 
developments
 
in
 
the
 
macroeconomic
 
and
 
geopolitical
environment, current and planned business activities,
 
and actual or potential risk
 
concentrations and vulnerabilities in our
portfolios.
 
Each
 
scenario
 
captures
 
a
 
wide
 
range
 
of macroeconomic
 
variables,
 
including
 
GDP,
 
equity prices,
 
interest
 
rates,
 
foreign
exchange
 
rates,
 
commodity
 
prices,
 
property
 
prices
 
and
 
unemployment.
 
We
 
use
 
assumed
 
changes
 
in
 
these
macroeconomic and market variables in each scenario to stress the key risk drivers of our portfolios. We also capture the
business risk resulting from lower fee, interest and trading income net of lower
 
expenses. These effects are measured for
all businesses and
 
material risk types
 
to calculate the
 
aggregate estimated effect
 
of the scenario on
 
profit or loss,
 
other
comprehensive income, risk-weighted assets, the leverage ratio denominator and, ultimately, capital and leverage
 
ratios.
The assumed
 
changes in
 
macroeconomic variables
 
are updated
 
periodically to
 
account for
 
changes in
 
the current
 
and
possible future market environment.
In 2023,
 
the binding
 
scenario for
 
CST was
 
the internal
 
stagflationary geopolitical
 
crisis scenario.
 
This scenario
 
assumes
that a geopolitical event leads
 
to economic regionalization and fears
 
of prolonged stagflation. Central banks signal
 
a firm
commitment
 
to
 
price
 
stability
 
and
 
continue
 
to
 
tighten
 
monetary
 
policy,
 
triggering
 
a
 
broad
 
rise
 
in
 
interest
 
rates
 
and
impacting economic activity and asset values.
As part of the CST framework, we routinely monitored three
 
additional stress scenarios throughout 2023:
–
The
global crisis
 
scenario
 
assumes
 
a
 
fall
 
in
 
global
 
trade,
 
which
 
particularly
 
hits
 
China
 
and
 
leads
 
to
 
a
 
hard
 
landing.
Combined with political, solvency and liquidity concerns, this results in a sharp sell-off
 
of emerging markets sovereign
debt and some emerging markets
 
default. The macroeconomic and market impacts
 
amplify concerns about peripheral
European sovereign debt, causing Greece and Cyprus to
 
default.
–
The
global depression
 
scenario explores a global risk-off market with a combination
 
of political, solvency and liquidity
concerns
 
around
 
emerging
 
markets
 
sovereign
 
debt,
 
causing
 
several
 
large
 
emerging
 
markets
 
to
 
default.
 
Several
European
 
economies
 
also
 
default,
 
and
 
some
 
leave
 
the
 
Eurozone.
 
A
 
negative
 
feedback
 
loop
 
between
 
collapsing
demand,
 
declining
 
asset
 
values
 
and
 
commodity
 
prices,
 
and
 
disruption
 
in
 
the
 
banking
 
system
 
leads
 
to
 
a
 
deep
 
and
prolonged recession across the globe.
 
–
The
US
 
monetary
 
crisis
scenario
 
explores
 
a
 
loss
 
of
 
confidence
 
in
 
the
 
US,
 
which
 
leads
 
to
 
a
 
sell-off
 
of
 
US
 
dollar-
denominated assets,
 
sparking an
 
abrupt and
 
substantial depreciation
 
of the
 
US dollar.
 
The US
 
economy is
 
hit hard,
financial markets enter a period of high volatility and other industrialized countries replicate the cyclical pattern of the
US. Regional
 
inflation
 
trends
 
diverge
 
as the
 
US experiences
 
significant
 
inflationary
 
pressures
 
while
 
other
 
developed
markets experience deflation.
Portfolio-specific stress tests
 
are measures tailored to the risks of
 
specific portfolios. Our portfolio stress loss measures are
derived
 
from
 
data
 
on
 
past
 
events,
 
but
 
also
 
include
 
forward-looking
 
elements
 
(e.g.,
 
we
 
derive
 
the
 
expected
 
market
movements in our liquidity-adjusted stress metric using a combination
 
of historical market behavior, based on an analysis
of historical events, and
 
forward-looking analysis, including consideration of defined scenarios
 
that have never occurred).
Results
 
of
 
portfolio-specific
 
stress
 
tests
 
may
 
be
 
subject
 
to
 
limits
 
to
 
explicitly
 
control
 
risk-taking
 
or
 
may
 
be
 
monitored
without limits to identify vulnerabilities.
Reverse stress testing
 
starts from a defined
 
stress outcome (e.g., a specified
 
loss amount, reputational damage, a liquidity
shortfall
 
or
 
a
 
breach
 
of
 
minimum
 
capital
 
ratios)
 
and
 
works
 
backward
 
to
 
identify
 
macroeconomic
 
scenarios
 
and
 
/
 
or
idiosyncratic
 
events
 
that
 
could
 
result
 
in
 
such
 
an
 
outcome.
 
As
 
such,
 
reverse
 
stress
 
testing
 
is
 
intended
 
to
 
complement
scenario-based stress
 
tests by
 
assuming “what
 
if” outcomes
 
that could
 
extend beyond
 
the range
 
normally considered,
and thereby potentially challenge assumptions regarding
 
severity and plausibility.
We also routinely
 
analyze the effect of
 
increases or decreases in
 
interest rates and changes
 
in the structure of
 
yield curves.
Within Group Treasury, we
 
also perform stress testing
 
to determine the
 
optimal asset and liability
 
structure, enabling us
to maintain an appropriately balanced liquidity and funding position under various scenarios. These scenarios differ from
those
 
outlined
 
above,
 
because
 
they
 
focus
 
on
 
specific
 
situations
 
that
 
could
 
generate
 
liquidity
 
and
 
funding
 
stress,
 
as
opposed to the scenarios used in the CST framework,
 
which focus on the effect on profit or loss and capital.
›
Refer to “Credit risk” and “Market risk” in this section
 
for more information about stress loss measures
›
Refer to the “Capital, liquidity and funding,
 
and balance sheet” section of this report for more information
 
about stress testing
›
Refer to “Note 19 Expected credit loss measurement”
 
in the “Consolidated financial statements” section
 
of this report for more
information about scenarios used for expected
 
credit loss measurement
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Risk management and control
 
61
Economic capital measures
We complement the
 
scenario-based CST measures with
 
economic capital stress
 
measures to calculate
 
and aggregate risks
using statistical techniques to derive stress events at chosen
 
confidence levels.
This framework
 
is
 
used
 
to derive
 
a
 
loss
 
distribution,
 
considering
 
effects
 
on
 
both
 
income
 
and
 
expenses,
 
based
 
on
 
the
simulation of historically observed financial and economic risk factors in combination with the firm’s actual earnings and
relevant risk exposures. From that, we
 
determine earnings-at-risk (EaR), measuring the potential shortfall
 
in earnings (i.e.,
the deviation from forecast
 
earnings) at a 95%
 
confidence level and
 
evaluated over a
 
one-year horizon. EaR
 
is used for
the assessment of the earnings objectives in our risk appetite
 
framework.
We
 
extend
 
the
 
EaR
 
measure,
 
incorporating
 
the
 
effects
 
of
 
gains
 
and
 
losses
 
recognized
 
through
 
other
 
comprehensive
income, to
 
derive a
 
distribution of potential
 
effects of
 
stress events on
 
common equity tier 1
 
capital. From
 
this distribution,
we derive our capital-at-risk (CaR) buffer measure
 
at a 95% confidence level to assess our capital
 
and leverage ratio risk
appetite objectives, and derive our
 
CaR solvency measure at a
 
99.9% confidence level to
 
assess our solvency risk
 
appetite
objective.
We use the CaR solvency measure
 
as a basis for deriving the
 
contributions of the business divisions
 
to risk-based capital
(RBC). RBC measures the potential capital impairment from
 
an extreme stress event at a 99.9% confidence level.
Portfolio and position limits
UBS maintains
 
a comprehensive
 
set of
 
risk limits
 
across its
 
major risk
 
portfolios. These
 
portfolio limits
 
are set
 
based on
our risk appetite and periodically reviewed and adjusted
 
as part of the business planning process.
Firm-wide
 
stress and
 
statistical metrics
 
are complemented
 
by more
 
granular
 
portfolio
 
and position
 
limits, triggers
 
and
targets.
 
Combining
 
these
 
measures
 
provides
 
a
 
comprehensive
 
framework
 
for
 
control
 
of
 
the
 
key
 
risks
 
of
 
our
 
business
divisions, as well as significant legal entities.
UBS AG applies limits to a variety
 
of exposures at the portfolio level, using statistical
 
and stress-based measures, such as
value-at-risk,
 
liquidity-adjusted
 
stress,
 
loan
 
underwriting
 
limits,
 
economic
 
value
 
sensitivity
 
and
 
portfolio
 
default
simulations for
 
loan books.
 
These are
 
complemented with
 
a set
 
of controls for
 
net interest
 
income sensitivity,
 
mark-to-
market losses on
 
available-for-sale portfolios, and the
 
effect of foreign exchange
 
movements on capital and
 
capital ratios.
Portfolio measures are
 
supplemented with counterparty-
 
and position-level controls.
 
Risk measures for position
 
controls
are
 
based
 
on
 
market
 
risk
 
sensitivities
 
and
 
counterparty-level
 
credit
 
risk
 
exposures.
 
Market
 
risk
 
sensitivities
 
include
sensitivities to changes in general market
 
risk factors (e.g., equity indices, foreign exchange
 
rates and interest rates) and
sensitivities
 
to
 
issuer-specific
 
factors
 
(e.g.,
 
changes
 
in
 
an
 
issuer’s
 
credit
 
spread
 
or default
 
risk).
 
We
 
monitor
 
numerous
market
 
and
 
treasury
 
risk
 
controls
 
on
 
a
 
daily
 
basis.
 
Counterparty
 
measures
 
capture
 
the
 
current
 
and
 
potential
 
future
exposure to an individual counterparty, considering collateral
 
and legally enforceable netting agreements.
 
›
Refer to “Credit risk” in this section for more information about
 
counterparty limits
 
›
Refer to “Risk appetite framework” in this section
 
for more information about the risk appetite framework
 
Risk concentrations
Audited |
Risk concentrations may exist where one or several positions within
 
or across different
 
risk categories could result
in
 
significant
 
losses
 
relative
 
to
 
UBS
 
AG’s
 
financial
 
strength.
 
Identifying
 
such
 
risk
 
concentrations
 
and
 
assessing
 
their
potential impact is a critical component of our risk management
 
and control process.
For financial risks, we consider a number of elements, such
 
as shared characteristics of positions, the size of the portfolio
and the sensitivity of positions to changes in the underlying risk factors. Also
 
important in our assessment is the liquidity
of the markets
 
where the positions
 
are traded,
 
as well as
 
the availability and
 
effectiveness of hedges
 
or other potential
risk-mitigating factors. This includes an
 
assessment of, for example, the
 
provider of the hedge and
 
market liquidity where
the hedge might be traded. Particular
 
attention is given to identification of
 
wrong-way risk and risk on risk.
 
Wrong-way
risk is defined as a positive correlation between the size of the exposure and the likelihood of a loss. Risk on risk is when
a position and its risk mitigation can be impacted by the same
 
event.
For non-financial risks, risk concentrations may result from, for example, a single operational risk issue that is large on its
own (i.e., it has
 
the potential to
 
produce a single high-impact
 
loss or a number
 
of losses that together
 
are high impact)
or related risk issues that may link together to create
 
a high impact.
Risk
 
concentrations
 
are
 
subject
 
to
 
increased
 
oversight
 
by
 
Group
 
Risk
 
Control
 
and
 
Group
 
Compliance,
 
Regulatory
 
&
Governance, and assessed
 
to determine whether they
 
should be reduced
 
or mitigated, depending on
 
the available means
to do
 
so. It is
 
possible that
 
material losses
 
could occur
 
on financial
 
or non-financial
 
risks, particularly
 
if the
 
correlations
that emerge in a stressed environment differ markedly from those
 
envisaged by risk models.
p
›
Refer to “Credit risk” and “Market risk” in this
 
section for more information about the composition
 
of our portfolios
›
Refer to the “Risk factors”
 
section of this report for more information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Risk management and control
 
62
Credit risk
Audited |
Main sources of credit risk
 
–
Global Wealth Management credit risk
 
arises from collateralized lending primarily against
 
securities, private equity and
hedge fund
 
interest, investors’
 
uncalled capital
 
commitments, and
 
residential and
 
commercial real
 
estate, as
 
well as
from derivatives trading.
–
A substantial
 
portion
 
of lending
 
exposure arises
 
from Personal
 
& Corporate
 
Banking, which
 
offers mortgage
 
loans,
secured
 
mainly
 
by
 
owner-occupied
 
properties
 
and
 
income-producing
 
real
 
estate,
 
as
 
well
 
as
 
corporate
 
loans,
 
and
therefore depends on the performance of the Swiss economy and
 
real estate market.
–
The
 
Investment
 
Bank’s
 
credit
 
exposure
 
arises
 
mainly
 
from
 
lending,
 
derivatives
 
trading
 
and
 
securities
 
financing.
Derivatives trading and securities financing are
 
mainly investment grade. Loan underwriting activity
 
can be lower rated
and give rise to temporary concentrated exposure.
–
Credit risk
 
within Non-core
 
and Legacy
 
relates to
 
exposures in
 
auction rate
 
preferred securities,
 
public finance
 
loans
and derivatives, and residual exposures to securitized products.
p
Credit loss expense / release
Total net credit loss expenses were USD
 
143m in 2023, reflecting net credit loss expenses of USD 23m related to stage 1
and 2 positions and net credit loss expenses of USD
 
120m related to credit-impaired
 
(stage 3) positions.
Stage 3
 
net
 
expenses
 
of
 
USD 120m
 
were
 
recognized
 
across
 
a
 
number
 
of
 
defaulted
 
positions,
 
with
 
net
 
expenses
 
of
USD 56m
 
in
 
the
 
Investment
 
Bank,
 
USD 37m
 
in
 
Personal
 
&
 
Corporate
 
Banking
 
and
 
USD 27m
 
in
 
Global
 
Wealth
Management.
›
Refer to “Note 1 Summary of material accounting
 
policies,” “Note 9 Financial assets at amortized
 
cost and other positions in scope
of expected credit loss measurement” and “Note 19 Expected
 
credit loss measurement” in the “Consolidated financial
 
statements”
section of this report for more information about IFRS 9 and
 
expected credit losses
Credit loss expense / (release)
Performing positions
Credit-impaired positions
USD m
Stages 1 and 2
Stage 3
Total
For the year ended 31.12.23
Global Wealth Management
 
(2)
 
27
 
25
Personal & Corporate Banking
 
13
 
37
 
50
Asset Management
 
0
 
(1)
 
(1)
Investment Bank
 
11
 
56
 
67
Non-core and Legacy
 
0
 
1
 
1
Group Items
1
 
1
 
0
 
1
Total
 
23
 
120
 
143
For the year ended 31.12.22
Global Wealth Management
 
(5)
 
5
 
0
Personal & Corporate Banking
 
27
 
12
 
39
Asset Management
 
0
 
0
 
0
Investment Bank
 
6
 
(18)
 
(12)
Non-core and Legacy
 
0
 
2
 
2
Group Items
1
 
0
 
0
 
0
Total
 
29
 
0
 
29
For the year ended 31.12.21
Global Wealth Management
 
(28)
 
(1)
 
(29)
Personal & Corporate Banking
 
(62)
 
(24)
 
(86)
Asset Management
 
0
 
1
 
1
Investment Bank
 
(34)
 
0
 
(34)
Non-core and Legacy
 
0
 
0
 
0
Group Items
1
 
0
 
0
 
0
Total
 
(123)
 
(25)
 
(148)
1 Starting with the third quarter of 2023, Non-core and Legacy became a separate reportable segment and Group Functions has been renamed Group Items. Prior periods have been restated to reflect these changes.
 
Audited |
Overview of measurement, monitoring and management
 
techniques
–
Credit risk
 
from transactions
 
with individual
 
counterparties
 
is based
 
on our
 
estimates of
 
probability of
 
default (PD),
exposure at default (EAD) and loss given default (LGD). Limits are established for individual counterparties and groups
of
 
related
 
counterparties
 
covering
 
banking
 
and
 
traded
 
products,
 
and
 
for
 
settlement
 
amounts.
 
Risk
 
authorities
 
are
approved by the Board of Directors and
 
are delegated to the Group CEO, the
 
Group Chief Risk Officer (the CRO)
 
and
divisional CROs, based on risk exposure amounts, internal credit rating
 
and potential for losses.
–
Limits apply not only to the current outstanding
 
amount but also to contingent commitments and the potential future
exposure of traded products.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Risk management and control
 
63
–
The Investment Bank monitoring, measurement and limit framework distinguishes between
 
exposures intended to be
held to maturity (take-and-hold exposures) and those intended
 
for distribution or risk transfer (temporary exposures).
–
We use models to derive portfolio credit risk measures of expected loss, statistical loss and stress loss at firm-wide and
business division levels, and to establish portfolio limits.
–
Credit risk concentrations can arise if clients are engaged
 
in similar activities, located in the same geographical
 
region
or have
 
comparable economic
 
characteristics,
 
e.g., if
 
their ability
 
to meet
 
contractual obligations
 
would be
 
similarly
affected by changes in economic, political or other conditions. To avoid credit risk concentrations, we establish limits /
operational
 
controls
 
that
 
constrain
 
risk
 
concentrations
 
at
 
portfolio,
 
sub-portfolio
 
or
 
counterparty
 
levels
 
for
 
sector
exposure, country risk and specific product exposures.
p
Credit risk profile of UBS AG
The exposures
 
detailed in
 
this section
 
are based
 
on management’s
 
view of
 
credit risk,
 
which differs
 
in certain
 
respects
from the ECL measurement requirements
 
of IFRS Accounting Standards.
Internally,
 
credit
 
risk
 
exposures
 
are
 
put
 
into
 
two
 
broad
 
categories:
 
banking
 
products
 
and
 
traded
 
products.
 
Banking
products include drawn loans,
 
guarantees and loan commitments,
 
amounts due from banks,
 
balances at central banks,
and other
 
financial assets at
 
amortized cost. Traded
 
products include over-the-counter (OTC)
 
derivatives, exchange-traded
derivatives
 
(ETDs)
 
and
 
securities
 
financing
 
transactions
 
(SFTs),
 
consisting
 
of
 
securities
 
borrowing
 
and
 
lending,
 
and
repurchase and reverse repurchase agreements.
Banking and traded products exposure in our business divisions and Group Items
31.12.23
USD m
Global
Wealth
Management
Personal &
Corporate
Banking
Asset
 
Management
Investment
 
Bank
Non-core
and Legacy
Group
Items
Total
Banking products
1,2
Gross exposure
 
314,747
 
254,646
 
1,331
 
69,505
 
3,621
 
93,730
 
737,579
of which: loans and advances to customers (on-balance sheet)
 
213,377
 
174,425
 
0
 
13,657
 
168
 
4,941
 
406,568
of which: guarantees and loan commitments (off-balance sheet)
 
12,323
 
28,385
 
0
 
15,744
 
1,728
 
19,049
 
77,229
Traded products
2,3
Gross exposure
 
8,789
 
952
 
0
 
34,712
 
44,454
of which: over-the-counter derivatives
 
6,668
 
938
 
0
 
8,124
 
15,730
of which: securities financing transactions
 
0
 
0
 
0
 
16,792
 
16,792
of which: exchange-traded derivatives
 
2,122
 
14
 
0
 
9,796
 
11,932
Other credit lines, gross
4
 
13,438
 
27,574
 
0
 
4,714
 
0
 
1,694
 
47,421
Total credit-impaired exposure, gross (stage 3)
1
 
925
 
1,698
 
0
 
331
 
12
 
1
 
2,966
Total allowances and provisions for expected credit losses
 
224
 
783
 
0
 
225
 
6
 
6
 
1,244
of which: stage 1
 
74
 
171
 
0
 
57
 
0
 
6
 
308
of which: stage 2
 
52
 
165
 
0
 
56
 
0
 
0
 
272
of which: stage 3
 
97
 
448
 
0
 
112
 
6
 
0
 
664
31.12.22
USD m
Global
Wealth
Management
Personal &
Corporate
Banking
Asset
 
Management
Investment
 
Bank
Non-core
and Legacy
Group
Items
Total
Banking products
1,2
Gross exposure
 
334,715
 
236,613
 
1,453
 
76,593
 
804
 
39,786
 
689,963
of which: loans and advances to customers (on-balance sheet)
 
219,385
 
154,748
 
(1)
 
12,754
 
0
 
3,924
 
390,810
of which: guarantees and loan commitments (off-balance sheet)
 
13,147
 
28,610
 
0
 
12,920
 
0
 
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
 
0
 
2,397
 
43,677
Total credit-impaired exposure, gross (stage 3)
1
 
757
 
1,380
 
0
 
312
 
0
 
6
 
2,455
Total allowances and provisions for expected credit losses
 
215
 
701
 
0
 
168
 
0
 
7
 
1,091
of which: stage 1
 
68
 
138
 
0
 
48
 
0
 
5
 
260
of which: stage 2
 
57
 
156
 
0
 
54
 
0
 
0
 
267
of which: stage 3
 
90
 
406
 
0
 
64
 
0
 
3
 
564
1 IFRS 9 gross exposure
 
for banking products includes the following
 
financial assets in scope of expected
 
credit loss measurement: balances at central banks, amounts
 
due from banks, loans and advances to
 
customers,
other financial assets at amortized
 
cost, guarantees and irrevocable loan commitments.
 
2 Internal management view of
 
credit risk, which differs in
 
certain respects from IFRS Accounting
 
Standards.
 
3 As counterparty
risk for traded products
 
is managed at counterparty
 
level, no further split
 
between exposures in
 
the Investment Bank, Non-core
 
and Legacy, and
 
Group Items is provided.
 
4 Unconditionally revocable
 
committed
credit lines.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Risk management and control
 
64
Banking products
›
Refer to “Note 1 Summary of material accounting
 
policies” in the “Consolidated financial statements”
 
section of this report for
more information about our accounting policy for allowances
 
and provisions for ECL
›
Refer to “Note 9 Financial assets at amortized
 
cost and other positions in scope of expected credit
 
loss measurement” and
“Note 19 Expected credit loss measurement” in the “Consolidated
 
financial statements” section of this report for more
information about ECL measurement requirements under IFRS Accounting
 
Standards
 
›
Refer to “Note 13 Other assets” in the “Consolidated
 
financial statements” section of this report for
 
more details
 
Global Wealth Management
Gross banking products exposure
 
within Global Wealth Management decreased
 
by USD 20bn to USD 315bn.
Our Global
 
Wealth Management
 
loan portfolio
 
is mainly
 
secured
 
by securities
 
(Lombard loans)
 
and by
 
residential
 
real estate.
Most of our USD
 
139bn of Lombard
 
loans, including
 
traded products
 
collateralized
 
by securities,
 
were of high quality,
 
with
91% rated as investment grade based
 
on our internal ratings.
 
Moreover, Lombard loans
 
are typically uncommitted,
 
short-
term in nature
 
and can be canceled
 
immediately if
 
the collateral
 
quality deteriorates
 
and margin calls
 
are not met. Lending
values
 
in the
 
Lombard
 
book
 
are
 
derived
 
by
 
applying
 
discounts
 
to the
 
pledged
 
collateral’s
 
market
 
value
 
in
 
line
 
with a
possible adverse change
 
in market value
 
over a given close
 
-out period and
 
confidence level. Less
 
liquid or more
 
volatile
collateral will typically
 
have larger haircuts.
 
In 2023,
 
the Lombard
 
book, including
 
traded
 
products,
 
decreased
 
approximately
10%,
 
mainly driven by the US,
 
from a larger amount
 
of clients paying down
 
as a result of the repricing
 
of loans at current
rates,
 
and Asia Pacific,
 
where deleveraging
 
already started
 
in the second half
 
of 2021 and had
 
slowed by the end
 
of 2023.
The share
 
of non-standard
 
Lombard loans,
 
for example
 
those with
 
less liquid
 
or concentrated
 
collateral,
 
slightly
 
increased
 
to
7% from 5% of
 
the total Lombard
 
book.
 
The mortgage
 
book
 
(residential
 
and commercial
 
real
 
estate)
 
increased
 
by approximately
 
9%, mainly
 
driven
 
by higher
 
volumes
of mortgage
 
loans within
 
the Swiss and
 
the US residential
 
and commercial
 
real estate portfolios.
Other financings
 
represent approximately
 
8% of the total banking
 
products exposures
 
and are consolidated
 
in a corporate
and other
 
portfolio
 
that increased
 
17% in 2023,
 
mainly through
 
the private
 
equity subscription
 
facilities portfolio
 
in the US.
›
Refer to “Lending secured by real estate” and “Lombard lending”
 
in this section for further information on these types
 
of lending
 
Collateralization of Loans and advances to customers
1
Global Wealth Management
Personal & Corporate Banking
USD m, except where indicated
31.12.23
31.12.22
31.12.23
31.12.22
Secured by collateral
 
210,243
 
216,993
 
157,278
 
138,854
Residential real estate
 
67,910
 
62,200
 
126,199
 
110,500
Commercial / industrial real estate
 
5,045
 
4,955
 
22,632
 
19,795
Cash
 
24,797
 
30,514
 
2,750
 
3,039
Equity and debt instruments
 
96,371
 
107,253
 
2,626
 
2,228
Other collateral
2
 
16,121
 
12,071
 
3,071
 
3,293
Subject to guarantees
 
92
 
144
 
2,706
 
2,758
Uncollateralized and not subject to guarantees
 
3,042
 
2,247
 
14,441
 
13,136
Total loans and advances to customers, gross
 
213,377
 
219,385
 
174,425
 
154,748
Allowances
 
(147)
 
(138)
 
(634)
 
(559)
Total loans and advances to customers, net of allowances
 
213,230
 
219,247
 
173,791
 
154,189
Collateralized loans and advances to customers in % of total loans
 
and advances to customers, gross (%)
 
98.5
 
98.9
 
90.2
 
89.7
1 Collateral arrangements
 
generally incorporate a
 
range of collateral,
 
including cash, securities,
 
real estate and other
 
collateral. For
 
the purpose of this
 
disclosure, UBS applies
 
a risk-based approach
 
that generally
prioritizes collateral according to
 
its liquidity profile.
 
2 Includes but is not
 
limited to life insurance
 
contracts, rights in
 
respect of subscription or
 
capital commitments from fund
 
partners, inventory,
 
gold and other
commodities.
Personal & Corporate Banking
 
Gross
 
banking
 
products
 
exposure
 
within
 
Personal
 
&
 
Corporate
 
Banking
 
increased
 
to
 
USD 255bn,
 
compared
 
with
USD 237bn in 2022. Net banking products
 
exposure (excluding exposure
 
reallocated from Group
 
Treasury)
 
increased to
USD 205bn
 
(CHF 173bn),
 
of
 
which
 
approximately
 
65%
 
was
 
classified
 
as
 
investment
 
grade,
 
broadly
 
unchanged
 
from
2022. Around
 
48% of
 
the exposure
 
is categorized
 
in the
 
lowest LGD
 
bucket, i.e.,
 
0–25%, unchanged
 
compared
 
with
2022.
 
Personal &
 
Corporate
 
Banking’s
 
gross loan
 
portfolio
 
was USD 174bn
 
(CHF 147bn)
 
compared with
 
USD 155bn (CHF
 
143bn)
in 2022.
 
This portfolio
 
is predominantly
 
denominated
 
in Swiss francs
 
and the increase
 
in US dollar
 
terms was largely
 
due to
the effect
 
of the Swiss
 
franc appreciating.
 
As of 31
 
December 2023,
 
90% of this
 
portfolio
 
was secured
 
by collateral,
 
mainly
residential and
 
commercial property. Of the
 
total unsecured
 
amount, 86%
 
related to cash
 
flow-based lending
 
to corporate
counterparties
 
and 3% related to lending to public authorities. Based on our internal
 
ratings, 57% of the unsecured loan
portfolio was
 
rated as investment
 
grade, compared
 
with 53% in 2022.
Our Swiss
 
corporate
 
banking products
 
take-and-hold
 
portfolio,
 
which was
 
USD 38bn
 
(CHF 32bn)
 
and increased
 
by USD
 
2bn
compared with 2022, consists
 
of loans, guarantees
 
and loan commitments
 
to multi-national and domestic
 
counterparties.
The
 
small
 
and
 
medium-sized
 
entity
 
(SME)
 
portfolio,
 
in
 
particular,
 
is
 
well
 
diversified
 
across
 
industries.
 
However,
 
such
companies are
 
reliant on the
 
domestic economy
 
and the economies
 
to which they
 
export, in particular
 
the EU and the
 
US.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Risk management and control
 
65
Our commodity
 
trade finance
 
portfolio
 
focuses on
 
energy and
 
base-metal
 
trading companies,
 
where the
 
related
 
commodity
price risk
 
is hedged
 
to a
 
large extent by
 
the commodity trader.
 
The majority of
 
limits in
 
this business are
 
uncommitted,
transactional
 
and short-term
 
in nature.
 
Our portfolio
 
size was
 
USD 6bn (CHF
 
5bn) as
 
of 31 December
 
2023, compared
 
with
USD 7bn (CHF
 
7bn) in 2022,
 
with a considerable
 
part of the exposure
 
correlating
 
with commodity
 
prices.
Our exposure
 
to banks
 
consists
 
primarily
 
of contingent
 
claims and
 
was
 
USD 4bn
 
(CHF 3bn),
 
compared
 
with
 
USD 5bn
(CHF 5bn) in 2022.
Despite volatile energy prices,
 
raised higher interest rates,
 
a strong Swiss franc,
 
and the effect of
 
the sanctions imposed
on Russia
 
and Russian
 
entities, and
 
conflicts in
 
the Middle
 
East, stage
 
3 credit
 
losses in
 
2023 were
 
only slightly
 
higher
compared with
 
2022. The
 
delinquency ratio
 
was 0.1% for
 
the corporate
 
portfolio, compared with
 
0.2% at
 
the end of
2022.
 
›
Refer to “Credit risk models” in this section for
 
more information about loss given default, rating
 
grades and rating agency
mappings
Swiss mortgage loan portfolio
UBS AG’s Swiss mortgage loan portfolio secured by residential and commercial
 
real estate in Switzerland continues to be
its largest loan portfolio.
 
These mortgage loans (excluding
 
loans on self-used commercial real estate),
 
totaling USD 193bn
(CHF 162bn), mainly
 
originate from
 
Personal &
 
Corporate Banking,
 
but
 
also
 
from
 
Global Wealth
 
Management Region
Switzerland. Of these
 
mortgage loans,
 
USD 174bn (CHF 146bn) related
 
to residential
 
properties that the
 
borrower was
either
 
occupying
 
or
 
renting
 
out,
 
with
 
full
 
recourse
 
to
 
the
 
borrower.
 
Of
 
this
 
USD 174bn
 
(CHF 146bn),
 
USD 125bn
(CHF 105bn) is
 
related to properties
 
occupied by the
 
borrower, with an average LTV ratio of 50%, compared
 
with 51% as
of 31 December
 
2022.
 
The average
 
LTV for newly
 
originated
 
loans
 
for this
 
portfolio
 
was 64%,
 
compared
 
with 63%
 
in 2022.
The remaining USD 49bn (CHF 41bn) of the Swiss residential mortgage loan portfolio related to properties rented out by
the borrower and
 
the average LTV of that portfolio
 
was 50%, compared
 
with 51% as of 31 December
 
2022. The average
LTV for newly originated Swiss residential mortgage
 
loans for properties rented out by the
 
borrower was 50%, compared
with 54% in
 
2022.
As
 
illustrated
 
in
 
the
 
“Swiss
 
mortgages:
 
distribution
 
of
 
exposure
 
across
 
exposure
 
segments
 
and
 
loan-to-value
 
(LTV)
buckets” table below,
 
99.9% of the
 
aggregate amount of
 
Swiss residential mortgage
 
loans would continue
 
to be covered
by the
 
real
 
estate
 
collateral
 
even
 
if the
 
value
 
assigned
 
to
 
that
 
collateral
 
were
 
to decrease
 
20%, and
 
more
 
than
 
99%
would remain covered by the real estate collateral
 
even if the value assigned to that collateral were to decrease
 
30%.
Personal & Corporate Banking: distribution of banking products exposure across internal UBS ratings and loss given
default (LGD) buckets
1
USD m, except where indicated
31.12.23
31.12.22
LGD buckets
Weighted
average
LGD (%)
Weighted
average
LGD (%)
Internal UBS rating
2
Exposure
0–25%
26–50%
51–75%
76–100%
Exposure
Investment grade
134,095
72,290
47,689
9,707
4,408
28
123,358
28
Sub-investment grade
70,081
26,759
28,328
11,360
3,634
34
62,219
35
of which: 6−9
63,357
24,467
25,390
10,285
3,215
34
56,774
35
of which: 10−13
6,724
2,293
2,938
1,074
419
36
5,445
36
Defaulted / Credit-impaired
 
1,698
17
1,389
276
15
42
1,380
42
Total exposure before deduction of allowances and provisions
205,873
99,067
77,406
21,343
8,058
30
186,957
30
Less: allowances and provisions
(742)
(664)
Net banking products exposure
1
205,131
186,293
1 Excluding balances at central banks and Group Treasury
 
reallocations.
 
2 The ratings of the major credit rating agencies,
 
and their mapping to our internal rating scale, are shown in
 
the “Internal UBS rating scale
and mapping of external ratings” table in this section.
Personal & Corporate Banking: loans uncollateralized and not subject to guarantees, by industry sector
31.12.23
31.12.22
USD m
%
USD m
%
Construction
153
1.1
172
1.3
Financial institutions
3,842
26.6
3,980
30.3
Hotels and restaurants
148
1.0
135
1.0
Manufacturing
2,029
14.0
1,715
13.1
Private households
1,641
11.4
1,473
11.2
Public authorities
382
2.6
416
3.2
Real estate and rentals
1,013
7.0
547
4.2
Retail and wholesale
1,801
12.5
2,230
17.0
Services
3,129
21.7
2,242
17.1
Other
303
2.1
226
1.7
Exposure, gross
14,441
100.0
13,136
100.0
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Risk management and control
 
66
Swiss mortgages: distribution of exposure across exposure segments and loan-to-value (LTV)
 
buckets
1
USD bn, except where indicated
31.12.23
31.12.22
2
LTV buckets
Exposure segment
≤30%
31–50%
51–60%
61–70%
71–80%
81–100%
>100%
Total
Total
Residential mortgages
Exposure
103.9
42.7
10.3
4.2
1.1
0.2
0.1
162.4
144.0
as a % of row total
64
26
6
3
1
0
0
100
100
Income-producing real estate
Exposure
17.0
6.5
1.3
0.5
0.1
0.0
0.0
25.5
21.9
as a % of row total
67
26
5
2
0
0
0
100
100
Corporates
Exposure
7.9
2.9
0.7
0.4
0.2
0.1
0.0
12.2
10.6
as a % of row total
65
24
6
3
1
1
0
100
100
Other segments
Exposure
0.8
0.3
0.1
0.0
0.0
0.0
0.0
1.1
1.0
as a % of row total
67
23
6
2
1
1
0
100
100
Mortgage-covered exposure
Exposure
129.5
52.4
12.4
5.1
1.4
0.3
0.1
201.1
177.5
as a % of total
64
26
6
3
1
0
0
100
100
Mortgage-covered exposure 31.12.22
2
Exposure
113.2
46.7
11.4
4.7
1.2
0.3
0.1
177.5
as a % of total
64
26
6
3
1
0
0
100
1 The amount of each mortgage loan is allocated across the LTV
 
buckets to indicate the portion at risk at the various
 
value levels shown; for example, a loan of 75 with an
 
LTV ratio of 75% (i.e.,
 
a collateral value of
100) would result in allocations of 30 in the less-than-or-equal-to-30% LTV bucket,
 
20 in the 31–50% bucket, 10 in the 51–60% bucket, 10 in the 61–70% bucket and 5 in the 71–80% bucket.
 
2 Comparative
period has been restated to reflect a change in the measure used to disclose Swiss mortgages exposures.
Investment Bank
The Investment
 
Bank’s lending
 
activities are
 
largely associated
 
with corporate
 
and non-bank
 
financial institutions.
 
The
business is broadly diversified across industry
 
sectors, but concentrated in North America.
Gross
 
banking
 
products
 
exposure
 
decreased
 
to
 
USD 70bn
 
as
 
of
 
31 December
 
2023,
 
compared
 
with
 
USD 77bn
 
as
 
of
31 December 2022, mostly
 
driven by balances
 
at central banks
 
allocated to the
 
business division. Excluding
 
balances at
central banks and Group Treasury reallocations,
 
gross banking products exposure increased to USD 37bn from
 
USD 32bn
in 2022, mostly driven by an increase
 
in irrevocable loan commitments. Based on
 
our internal ratings, 49% of this gross
banking products exposure was classified as investment grade. The vast majority of the gross banking products exposure
had an estimated LGD below 50%.
In
 
the
 
Investment
 
Bank,
 
mandated
 
temporary
 
loan
 
underwriting
 
exposure
 
as
 
of
 
the
 
end
 
of
 
2023
 
was
 
USD 2.1bn,
compared
 
with
 
USD 2.6bn
 
at
 
the
 
end
 
of
 
the
 
prior
 
year.
 
USD 50m
 
of
 
commitments
 
had
 
not
 
yet
 
been
 
distributed
 
as
originally
 
planned
 
as
 
of
 
31 December
 
2023.
 
Loan
 
underwriting
 
exposures
 
are
 
classified
 
as
 
held
 
for
 
trading,
 
with
 
fair
values reflecting market conditions at the end of 2023.
›
Refer to “Credit risk models” in this section for
 
more information about LGD, rating grades and rating agency
 
mappings
Investment Bank: distribution of banking products exposure across internal UBS ratings and loss given default (LGD)
buckets
1
USD m, except where indicated
31.12.23
31.12.22
LGD buckets
Weighted
average
LGD (%)
Weighted
average
LGD (%)
Internal UBS rating
2
Exposure
0–25%
26–50%
51–75%
76–100%
Exposure
Investment grade
17,954
4,448
8,652
2,424
2,430
39
15,878
37
Sub-investment grade
18,306
4,838
7,215
6,023
229
22
15,529
23
of which: 6−9
11,644
2,689
2,883
5,874
198
15
9,181
17
of which: 10−13
6,662
2,149
4,332
149
31
33
6,348
32
Defaulted / Credit-impaired
331
286
28
14
4
24
312
21
Banking products exposure
1
36,591
9,572
15,895
8,461
2,663
30
31,719
30
1 Excluding balances at central banks and Group Treasury
 
reallocations.
 
2 The ratings of the major credit rating agencies,
 
and their mapping to our internal rating scale, are shown in the “Internal
 
UBS rating scale
and mapping of external ratings” table in this section.
 
Investment Bank: banking products exposure, by geographical region
1
31.12.23
31.12.22
USD m
%
USD m
%
Asia Pacific
4,618
12.6
4,766
15.0
Latin America
745
2.0
1,209
3.8
Middle East and Africa
249
0.7
183
0.6
North America
19,901
54.4
15,409
48.6
Switzerland
135
0.4
461
1.5
Rest of Europe
10,943
29.9
9,692
30.6
Exposure
1
36,591
100.0
31,719
100.0
1 Excluding balances at central banks and Group Treasury reallocations.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Risk management and control
 
67
Investment Bank: banking products exposure, by industry sector
1
31.12.23
31.12.22
USD m
%
USD m
%
Banks
5,092
13.9
4,409
13.9
Chemicals
587
1.6
583
1.8
Electricity, gas, water supply
359
1.0
363
1.1
Financial institutions, excluding banks
15,562
42.5
14,595
46.0
Manufacturing
1,889
5.2
1,361
4.3
Mining
894
2.4
878
2.8
Public authorities
258
0.7
259
0.8
Real estate and construction
1,718
4.7
1,685
5.3
Retail and wholesale
2,945
8.0
1,654
5.2
Technology and communications
2,033
5.6
2,324
7.3
Transport and storage
341
0.9
499
1.6
Other
4,913
13.4
3,109
9.8
Exposure
1
36,591
100.0
31,719
100.0
1 Excluding balances at central banks and Group Treasury reallocations.
Non-core and Legacy
Gross banking
 
products exposure
 
increased by
 
USD 3bn to
 
USD 4bn in
 
2023 due
 
to smaller
 
amounts of
 
assets of
 
UBS
AG business divisions that were assessed as not
 
strategic in light of the acquisition of the Credit Suisse
 
Group.
›
Refer to “Balance sheet assets” in the “Capital,
 
liquidity and funding, and balance sheet” section
 
of this report for more
information
›
Refer to the "Our Business" in the "Our
 
strategy, business model and environment" section of this report for more information
›
Refer to the "Non-core and Legacy" in the "Financial
 
and operating performance" section of this
 
report for more information
about Non-core and Legacy scope differences between the UBS Group AG and
 
UBS AG
 
Group Items
Gross
 
banking
 
products
 
exposure
 
within
 
Group
 
Items,
 
which
 
arises
 
primarily
 
in
 
connection
 
with
 
treasury
 
activities,
increased
 
by USD 54bn
 
to USD 94
 
bn, mainly
 
from
 
Group
 
Treasury
 
reflecting
 
higher levels
 
of high-quality
 
liquid assets
(HQLA) held, funding provided to Credit Suisse
 
and an increase in sponsored repo
 
clearing.
 
›
Refer to “Balance sheet assets” in the “Capital,
 
liquidity and funding, and balance sheet” section
 
of this report for more
information
›
Refer to the “Group items” section of this report
 
for more information
Traded products
Audited |
Counterparty credit
 
risk (CCR)
 
arising from
 
traded products,
 
which include
 
OTC derivatives,
 
ETD exposures
 
and
SFTs,
 
originating in
 
the Investment
 
Bank, Non-core
 
and Legacy,
 
and Group
 
Treasury,
 
is generally
 
managed on
 
a close-
out basis.
 
This takes
 
into account
 
possible effects
 
of market
 
movements on
 
the exposure
 
and any
 
associated collateral
over the
 
time it
 
would take to
 
close out our
 
positions. Limits are
 
applied to the
 
potential future exposure per
 
counterparty,
with
 
the
 
size
 
of
 
the
 
limit
 
dependent
 
on
 
the
 
counterparty’s
 
creditworthiness
 
(as
 
determined
 
by
 
Risk
 
Control).
 
Limit
frameworks are also used to control overall exposure to specific sectors.
 
Such portfolio limits are monitored and reported
to senior management.
Trading in OTC derivatives
 
is conducted through central
 
counterparties where practicable.
 
Where central counterparties
are not used, we have clearly defined
 
policies and processes for trading on a
 
bilateral basis. Trading is typically conducted
under bilateral
 
International
 
Swaps
 
and Derivatives
 
Association
 
or similar
 
master
 
netting agreements,
 
which generally
allow for
 
close-out and
 
netting of
 
transactions in
 
case of
 
default, subject
 
to applicable
 
law. For
 
certain counterparties,
initial margin is taken to cover some or all
 
of the calculated close-out exposure. This is in addition to the
 
variation margin
taken
 
to
 
settle
 
changes
 
in
 
market
 
value
 
of
 
transactions.
 
For
 
most
 
major
 
market
 
participant
 
counterparties,
 
two-way
collateral agreements
 
under which
 
either party
 
can be
 
required to
 
provide collateral
 
in the
 
form of
 
cash or
 
marketable
securities
 
are
 
used
 
when
 
the
 
exposure
 
exceeds
 
specified
 
levels.
 
Non-cash
 
collateral
 
typically
 
consists
 
of
 
well-rated
government debt or other
 
collateral acceptable to
 
Risk Control and permitted
 
by applicable regulations. Regulations
 
on
margining uncleared OTC
 
derivatives have generally
 
expanded the scope
 
of bilateral derivatives
 
activity subject to
 
initial
margining
 
and
 
increased
 
the
 
amounts
 
of
 
initial
 
margin
 
received
 
from,
 
and
 
posted
 
to,
 
certain
 
bilateral
 
trading
counterparties, resulting in lower close-out risk over time.
p
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Risk management and control
 
68
In
 
the
 
tables
 
below,
 
OTC
 
derivatives
 
exposures
 
are
 
generally
 
presented
 
as
 
net
 
positive
 
replacement
 
values
 
after
 
the
application
 
of
 
legally
 
enforceable
 
netting
 
agreements
 
and
 
the
 
deduction
 
of
 
cash
 
and
 
marketable
 
securities
 
held
 
as
collateral.
 
SFT
 
exposures
 
are
 
reported
 
taking
 
into
 
account
 
collateral
 
received,
 
and
 
ETD
 
exposures
 
take
 
into
 
account
collateral margin calls.
›
Refer to “Note 10 Derivative instruments” in the “Consolidated financial statements” section of this report for more information
about OTC derivatives settled through central counterparties
›
Refer to “Note 21 Offsetting financial assets and financial
 
liabilities” in the “Consolidated financial statements” section of this report
for more information about the effect of netting and collateral
 
arrangements on derivative exposures
Investment Bank, Non-core and Legacy,
 
and Group Treasury:
 
traded products exposure
USD m
OTC derivatives
SFTs
ETDs
Total
Total
31.12.23
31.12.22
Total exposure, before deduction of credit valuation adjustments and hedges
8,124
16,792
9,796
34,712
34,370
Less: credit valuation adjustments and allowances
(24)
(1)
0
(24)
(35)
Less: credit protection bought (credit default swaps, notional)
(83)
0
0
(83)
(109)
Net exposure after credit valuation adjustments, allowances and hedges
8,017
16,792
9,796
34,605
34,226
Investment Bank, Non-core and Legacy,
 
and Group Treasury:
 
distribution of net OTC derivatives and SFT exposure
across internal UBS ratings and loss given default (LGD) buckets
USD m, except where indicated
31.12.23
31.12.22
LGD buckets
Weighted
average
LGD (%)
Weighted
average
LGD (%)
Internal UBS rating
1
Exposure
0–25%
26–50%
51–75%
76–100%
Exposure
Net OTC derivatives exposure
Investment grade
7,307
152
5,681
285
1,189
48
10,757
48
Sub-investment grade
711
43
203
15
450
77
318
72
of which: 6−9
701
39
203
12
448
77
285
76
of which: 10−12
3
2
0
0
1
53
28
41
of which: 13 and defaulted
6
3
0
3
0
31
5
23
Total net OTC derivatives exposure, after credit valuation adjustments
and hedges
8,017
195
5,884
299
1,639
51
11,075
49
Net SFT exposure
Investment grade
16,631
200
15,245
597
590
41
16,682
40
Sub-investment grade
162
0
43
28
91
80
373
71
Total net SFT exposure
16,792
200
15,288
624
680
42
17,055
41
1 The ratings of the major credit rating agencies, and
 
their mapping to our internal rating scale, are shown in the “Internal UBS rating
 
scale and mapping of external ratings” table in this section.
 
Investment Bank, Non-core and Legacy,
 
and Group Treasury:
 
net OTC derivatives and SFT exposure, by geographical
region
Net OTC derivatives exposure
Net SFT exposure
31.12.23
31.12.22
31.12.23
31.12.22
USD m
%
USD m
%
USD m
%
USD m
%
Asia Pacific
970
12.1
1,249
11.3
2,510
14.9
4,906
28.8
Latin America
93
1.2
117
1.1
0
0.0
34
0.2
Middle East and Africa
232
2.9
615
5.6
414
2.5
483
2.8
North America
3,118
38.9
2,200
19.9
3,044
18.1
3,177
18.6
Switzerland
900
11.2
1,055
9.5
499
3.0
466
2.7
Rest of Europe
2,704
33.7
5,839
52.7
10,324
61.5
7,988
46.8
Exposure
8,017
100.0
11,075
100.0
16,792
100.0
17,055
100.0
Investment Bank, Non-core and Legacy,
 
and Group Treasury:
 
net OTC derivatives and SFT exposure, by industry sector
Net OTC derivatives exposure
Net SFT exposure
31.12.23
31.12.22
31.12.23
31.12.22
USD m
%
USD m
%
USD m
%
USD m
%
Banks
1,544
19.3
1,288
11.6
1,200
7.1
869
5.1
Chemicals
17
0.2
71
0.6
0
0.0
0
0.0
Electricity, gas, water supply
111
1.4
118
1.1
0
0.0
0
0.0
Financial institutions, excluding banks
5,721
71.4
8,614
77.8
15,093
89.9
14,865
87.2
Manufacturing
29
0.4
97
0.9
0
0.0
0
0.0
Mining
0
0.0
20
0.2
0
0.0
0
0.0
Public authorities
441
5.5
655
5.9
496
3.0
1,320
7.7
Retail and wholesale
18
0.2
29
0.3
0
0.0
0
0.0
Transport, storage and communication
74
0.9
115
1.0
3
0.0
0
0.0
Other
63
0.8
69
0.6
0
0.0
0
0.0
Exposure
8,017
100.0
11,075
100.0
16,792
100.0
17,055
100.0
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Risk management and control
 
69
Credit risk mitigation
Audited |
UBS AG actively
 
manages credit
 
risk in its
 
portfolios by taking
 
collateral against
 
exposures and
 
by utilizing credit
hedging.
p
Lending secured by real estate
Audited |
UBS AG uses a scoring model as part of a
 
standardized front-to-back process for credit decisions on originating or
modifying Swiss mortgage loans. The model’s two key factors
 
are the LTV
 
ratio and an affordability calculation.
p
The calculation of affordability takes
 
into account interest payments, minimum amortization
 
requirements and potential
property maintenance
 
costs in relation
 
to gross income
 
or rental income
 
for rental properties.
 
The interest
 
rate is set
 
at
5% per annum in the context of the current environment.
For residential properties
 
occupied by the
 
borrower, the maximum LTV
 
for the standard
 
approval process is 80%.
 
For IPRE,
the maximum LTV allowed
 
within the standard approval
 
process ranges from 30%
 
to 75%, depending on
 
the type and
age of the property, and the amount of renovation work needed.
 
Audited |
The value assigned to each
 
property is based on the
 
lowest value determined from model-derived
 
valuations, the
purchase
 
price,
 
an
 
asset
 
value
 
for
 
income-producing
 
real
 
estate
 
(IPRE),
 
and,
 
in
 
some
 
cases,
 
an
 
additional
 
external
valuation.
p
Separate models provided by
 
a market-leading external vendor
 
are used to derive
 
property valuations for owner-occupied
residential
 
properties
 
(ORPs)
 
and IPRE.
 
We
 
estimate
 
the
 
current
 
value
 
of an
 
ORP
 
using a
 
regression
 
model
 
(a
 
hedonic
model)
 
based
 
on
 
statistical
 
comparison
 
against
 
current
 
transaction
 
data.
 
The
 
value
 
of
 
a
 
property
 
is
 
derived
 
from
 
the
characteristics of the real estate
 
itself, as well as those of
 
its location. In addition to the
 
initial valuation, values for
 
ORPs
are updated regularly over the lifetime of
 
the loan using region-specific real estate price indices
 
or hedonic valuation. The
price
 
indices are
 
sourced
 
from
 
an external
 
vendor
 
and subject
 
to internal
 
validation
 
and benchmarking.
 
UBS AG
 
uses
these valuations
 
regularly to
 
compute indexed
 
LTV for
 
all ORPs.
 
A portfolio-specific
 
monitoring system
 
considers these
along with other risk measures (e.g., rating and behavioral
 
information) to identify higher-risk loans.
For IPRE, the capitalization
 
rate model is used
 
to determine the
 
property valuation by discounting
 
estimated sustainable
future
 
income
 
using
 
a
 
capitalization
 
rate
 
based
 
on
 
various
 
attributes.
 
These
 
attributes
 
consider
 
regional
 
and
 
specific
property characteristics, such as market and location data (e.g., vacancy rates), benchmarks (e.g., for running costs), and
certain
 
other
 
standardized
 
input
 
parameters
 
(e.g.,
 
property
 
condition).
 
Updated
 
information
 
regarding
 
rental
 
income
from IPRE is requested
 
from the client
 
at least once every
 
three years. Our portfolio-specific
 
monitoring system alerts
 
us
to changes in rental income and other risk measures (e.g., LTV, rating,
 
behavioral information).
To take market developments into account for these models, the external vendor regularly updates the parameters and /
or refines
 
the
 
architecture
 
for
 
each model.
 
Model
 
changes and
 
parameter
 
updates are
 
subject to
 
the
 
same validation
procedures as our internally developed models.
 
Audited |
UBS AG similarly applies underwriting guidelines
 
for our Global Wealth Management
 
Region Americas mortgage
loan portfolio, taking
 
into account loan
 
affordability and collateral
 
sufficiency. LTV standards
 
are defined for the
 
various
mortgage types, such
 
as residential mortgages
 
or investment properties,
 
based on
 
associated risk factors,
 
such as
 
property
type, loan size, and
 
purpose. The maximum
 
LTV allowed within
 
the standard approval
 
process ranges from
 i 45
 
to
 i 80
%.
In addition to LTV,
 
other credit risk metrics,
 
such as debt-to-income
 
ratios, credit scores
 
and required client reserves,
 
are
also part of our underwriting guidelines.
A risk limit framework is applied to
 
the Global Wealth Management Region Americas mortgage loan portfolio. Limits are
set
 
to
 
govern
 
exposures
 
within
 
LTV
 
categories,
 
geographic
 
concentrations,
 
portfolio
 
growth
 
and
 
high-risk
 
mortgage
segments, such
 
as interest-only loans.
 
These limits
 
are monitored by
 
a specialized
 
credit risk
 
monitoring team and
 
reported
to senior
 
management. Supplementing
 
this limit
 
framework is
 
a real
 
estate lending
 
policy and
 
procedures framework,
set up to
 
govern real estate
 
lending activities. Quality
 
assurance and quality
 
control programs monitor
 
compliance with
mortgage underwriting and documentation requirements.
For
 
UBS AG’s
 
mortgage
 
loan
 
portfolio
 
in
 
the
 
Global
 
Wealth
 
Management
 
regions
 
of
 
EMEA
 
and
 
Asia
 
Pacific,
 
global
underwriting guidelines with
 
regional variations are applied
 
to allow for regulatory
 
and market differentials.
 
As in other
regions, the underwriting guidelines
 
take into account affordability
 
and collateral sufficiency.
 
Affordability is assessed at
a stressed
 
interest rate
 
using, for
 
residential real
 
estate, the
 
borrowers’ sustainable
 
income and
 
declared liabilities,
 
and
for commercial real
 
estate the quality
 
and sustainability of
 
rental income. For
 
interest-only loans, a
 
declared and evidenced
repayment strategy
 
must be in
 
place. The applicable
 
LTV for each
 
mortgage is based
 
on the quality
 
and liquidity
 
of the
property
 
and assessed
 
against
 
valuations
 
from bank-appointed
 
third-party
 
valuers.
 
Maximum
 
LTV
 
varies
 
from
 i 30
% to
 i 70
%, depending on the type
 
and location of the property, as well
 
as other factors. Collateral sufficiency is
 
often further
supported by personal guarantees
 
from related third parties. The
 
overall portfolio is centrally assessed
 
against a number
of stress scenarios to ensure that exposures remain within predefined
 
stress limits.
p
›
Refer to “Swiss mortgage loan portfolio” in this
 
section for more information about LTV in our Swiss mortgage portfolio
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Risk management and control
 
70
Lombard lending
 
Audited |
Lombard loans are
 
secured by pledges
 
of marketable securities, guarantees and
 
other forms of
 
collateral. Eligible
financial securities are primarily
 
liquid and actively
 
traded transferable securities (such as
 
bonds and equities),
 
and other
transferable securities, such as approved
 
structured products for
 
which regular prices
 
are available and
 
the issuer of
 
the
security provides
 
a market. To a lesser degree, less
 
liquid collateral
 
is also used.
Lending values
 
are derived
 
by applying
 
discounts (haircuts)
 
to the pledged
 
collateral’s
 
market value.
 
Haircuts
 
for marketable
securities are calculated to cover a possible adverse change in market value over a given close-out period and confidence
level. Less
 
liquid or more
 
volatile collateral
 
will typically
 
have larger haircuts.
Concentration and correlation risks across collateral posted
 
are assessed at
 
a counterparty level, and
 
at a
 
divisional level
across counterparties. Targeted
 
firm-wide reviews
 
of
 
concentration are
 
performed. Concentration of
 
collateral in
 
single
securities, issuers or issuer groups, industry sectors, countries, regions or currencies may result in higher risk and reduced
liquidity. In
 
such cases, the
 
lending value
 
of the collateral,
 
margin call
 
and close-out levels
 
are adjusted accordingly.
p
Exposures
 
and collateral
 
market values
 
are monitored
 
daily, with
 
the aim
 
of ensuring
 
that the
 
credit
 
exposure
 
is always
 
within
the established risk
 
tolerance. A shortfall
 
occurs when the lending value
 
drops below the exposure; if it
 
exceeds a defined
trigger level,
 
a margin call
 
is initiated,
 
requiring the
 
client to provide
 
additional collateral,
 
reduce the
 
exposure or
 
take other
action to
 
bring exposure in
 
line with
 
the agreed
 
lending value of
 
the collateral. If
 
a shortfall is
 
not corrected within
 
the
required period,
 
a
 
close-out is
 
initiated, through which
 
collateral is
 
liquidated, open
 
derivative positions are
 
closed and
guarantees are
 
called.
Stress testing
 
of collateralized
 
exposures
 
to simulate
 
market events
 
that reduce
 
market collateral
 
value, increase
 
exposure of
traded products, or do both,
 
is conducted. For certain classes of counterparties,
 
limits on such calculated stress exposures
are applied and controlled at
 
a counterparty level. Also, portfolio limits are applied across
 
certain businesses or collateral
types.
 
›
Refer to “Stress loss” in this section for more information
 
about our stress testing
Credit hedging
Audited
 
|
UBS AG
 
uses
 
single-name
 
credit
 
default
 
swaps
 
(CDSs),
 
credit-index
 
CDSs,
 
bespoke
 
protection
 
and
 
other
instruments to actively
 
manage credit risk. The
 
aim is
 
to reduce concentrations of
 
risk from specific
 
counterparties, sectors
or portfolios and, for CCR, the profit or loss effect
 
arising from changes in credit valuation adjustments.
We have strict guidelines
 
with regard to taking
 
credit hedges into
 
account for credit
 
risk mitigation
 
purposes. For example,
when monitoring
 
exposures against
 
counterparty limits,
 
we do not usually
 
apply certain
 
credit risk mitigants,
 
such as proxy
hedges
 
(credit
 
protection
 
on a
 
correlated
 
but different
 
name)
 
or credit-index
 
CDSs,
 
to reduce
 
counterparty
 
exposures.
 
Buying
credit protection also creates
 
credit exposure with
 
regard to
 
the protection provider. We
 
monitor and limit
 
exposures to
credit protection
 
providers,
 
and also
 
monitor the
 
effectiveness
 
of credit
 
hedges as
 
part of our
 
overall credit
 
exposures to
 
the
relevant counterparties,
 
which are typically collateralized. For credit protection purchased to hedge the
 
lending portfolio,
this includes
 
monitoring
 
mismatches
 
between
 
the maturity
 
of credit
 
protection
 
purchased
 
and the
 
maturity
 
of the
 
associated
loan.
 
Such mismatches
 
result
 
in basis
 
risk and
 
may reduce
 
the effectiveness
 
of the
 
credit
 
protection.
 
Mismatches
 
are routinely
reported to
 
credit officers
 
and mitigating
 
actions are taken
 
when necessary.
p
›
Refer to “Note 10 Derivative instruments”
 
in the “Consolidated financial statements”
 
section of this report for more information
Mitigation of settlement risk
To
 
mitigate settlement risk, actual settlement
 
volumes are reduced
 
by using multi-lateral and bi-lateral
 
agreements with
counterparties, including
 
payment netting.
 
In relation to
 
the exchange of
 
cash or securities,
 
transactions can
 
be settled
on a delivery-versus-payment basis.
Foreign exchange transactions are our most
 
significant source of settlement risk. We
 
are a member of Continuous Linked
Settlement (CLS),
 
an industry
 
utility that
 
provides a multi
 
-lateral framework
 
to settle transactions
 
on a payment-versus-
payment
 
basis,
 
thus
 
reducing
 
foreign-exchange-related
 
settlement
 
risk
 
relative
 
to
 
the
 
volume
 
of
 
business.
 
However,
mitigation
 
of
 
settlement
 
risk
 
through
 
CLS
 
and
 
other
 
means
 
does
 
not
 
fully
 
eliminate
 
credit
 
risk
 
in
 
foreign
 
exchange
transactions resulting from changes in exchange rates prior to settlement, which is managed as
 
part of our overall credit
risk management of OTC derivatives.
 
Credit risk models
Basel III – A-IRB credit risk models
Audited |
UBS
 
AG
 
has
 
developed
 
tools
 
and
 
models
 
to
 
estimate
 
future
 
credit
 
losses
 
that
 
may
 
be
 
implicit
 
in
 
our
 
current
portfolio.
Exposures to individual counterparties are measured using three generally accepted parameters: PD, EAD and LGD. For a
given credit facility, the product of these three parameters results
 
in the expected loss (the EL). These parameters
 
are the
basis for the
 
majority of our
 
internal measures of
 
credit risk, and
 
key inputs for
 
regulatory capital
 
calculation under
 
the
advanced internal ratings-based
 
(A-IRB) approach of the
 
Basel III framework. We also
 
use models to derive the
 
portfolio
credit risk measures of EL, statistical loss and stress loss.
p
›
Refer to the 31 December 2023 Pillar 3 Report,
 
available under “Pillar 3 disclosures” at
ubs.com/investors,
for more information
about the regulatory capital calculation under the advanced
 
internal ratings-based approach
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Risk management and control
 
71
Key features of UBS AG’s main credit risk models
Portfolio in scope
Major asset classes
Model
approach
Number of
main models
Main drivers
Number of
years of loss
data
Probability of
default
Sovereigns and central banks
Central governments and
central banks
Scorecard
1
Political, institutional and economic indicators
including qualitative factors
>15
Banks and other financial
institutions
Banks & Securities dealer,
Corporates: other lending
Scorecard
3
Financial data including balance sheet ratios, profit
and loss data and qualitative factors
>15
Funds
Corporates: other lending
Scorecard
3
Financial data and ratios constructed from it (such as
net asset value, volatility of returns), qualitative
factors
>15
Large corporates and
internationals
Corporates: other lending
Scorecard,
market data
2
Financial data including balance sheet ratios and
profit and loss, market data and qualitative factors
>15
Enterprises in Switzerland
Corporates: other lending
Scorecard
1
Financial data including balance sheet ratios and
profit and loss, and behavioral data
 
>25
Commodity traders
Corporates: specialized
lending
Scorecard
1
Financial data including balance sheet ratios and
profit and loss, as well as non-financial criteria
>20
Owner-occupied mortgages &
other wealth-management
financing
Retail: residential
mortgages, Corporates:
other lending
Scorecard
3
Behavioral data, affordability relative to income,
property type, loan-to-value, assets and qualitative
factors
>10
Income producing real estate
mortgages
Retail: residential
mortgages, Corporates:
specialized lending
Scorecard
1
Loan-to-value, debt-service-coverage, financial data
(for large corporates only), behavioral data and
qualitative factors
>25
Lombard lending and
concentrated equity based
lending (CEL)
Retail: other retail,
Corporates: other lending
(CEL)
Simulation
approach
based on
historical
returns
2
Lending value ratio, collateral asset class, historical
asset returns, counterparty factors
>10
Credit cards in Switzerland
Retail: qualifying
revolving retail and other
retail, Corporates: other
lending
Scorecard
1
Client type and characteristics and behavioral data
>15
Other portfolios
Corporates: other
lending,
Public sector entities and
Multilateral development
banks, Corporates:
specialized lending
Scorecard,
pooled rating
approach,
rating
template
6
Financial data including balance sheet ratios and
profit and loss, market data and qualitative factors.
Separate models for Commercial Real Estate loans,
Debt REITs, Mortgage originators, Public sector
entities and Multilateral development
banks/Supranationals
>15
Loss given default
Investment Bank – all
counterparties
Across the asset classes
Statistical
model
3
Counterparty and facility specific, including industry
segment, region, collateral, seniority, legal
environment, bankruptcy procedures and macro-
economic factors
>20
Swiss corporate and mortgage
lending portfolios
Retail: residential
mortgages, Corporates:
other lending,
Corporates: specialized
lending
Statistical
model
2
Collateral type and client segment, Loan-to-value,
time since last valuation, location indicator
>10
International residential
mortgages & other wealth-
management financing
 
Retail: residential
mortgages, Corporates:
other lending
Statistical
model
2
Loan-to-value, market value shock
>10
Lombard lending and
concentrated equity based
lending (CEL)
Retail: other retail,
Corporates: other lending
(CEL)
Simulation
approach
based on
historical
returns
2
Loan-to-value, collateral asset class and liquidity,
historical asset returns, counterparty factors
>10
Credit cards in Switzerland
Retail: qualifying
revolving retail and other
retail, Corporates: other
lending
Statistical
model
1
Collateral, accrued interests, client characteristics
>15
Exposure at default
Banking products
Across the asset classes
Statistical
model
4
Facility type and product type, commitment type,
headroom, and client characteristics
>10
Traded products
Across the asset classes
Statistical
model
2
Product specific market drivers, e.g. interest rates.
Separate models for OTC/ETD and SFT that generate
the simulation of risk factors used for the credit
exposure measure
 
n/a
 
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Risk management and control
 
72
Audited |
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Internal UBS rating scale and mapping of external ratings
Internal UBS rating
1-year PD range in %
Description
Moody’s Investors
Service mapping
S&P mapping
Fitch mapping
0 and 1
0.00–0.02
Investment grade
Aaa
AAA
AAA
2
0.02–0.05
Aa1 to Aa3
AA+ to AA–
AA+ to AA–
3
0.05–0.12
A1 to A3
A+ to A–
A+ to A–
4
0.12–0.25
Baa1 to Baa2
BBB+ to BBB
BBB+ to BBB
5
0.25–0.50
Baa3
BBB–
BBB–
6
0.50–0.80
Sub-investment grade
Ba1
BB+
BB+
7
0.80–1.30
Ba2
BB
BB
8
1.30–2.10
Ba3
BB–
BB–
9
2.10–3.50
B1
B+
B+
10
3.50–6.00
B2
B
B
11
6.00–10.00
B3
B–
B–
12
10.00–17.00
Caa1 to Caa2
CCC+ to CCC
CCC+ to CCC
13
>17
Caa3 to C
CCC- to C
CCC- to C
Counterparty is in default
 
Default
Defaulted
D
D
p
Probability of default
PD estimates the
 
likelihood of a
 
counterparty defaulting on
 
its contractual obligations over
 
the next
 
12 months,
 
and is
assessed using rating
 
tools tailored to the
 
various categories of counterparties.
 
The “Key features of
 
UBS AG’s main
 
credit
risk models”
 
table above
 
gives an
 
overview
 
of the
 
approaches
 
used for
 
our main
 
asset classes
 
and presents
 
the main
drivers of the PD.
 
The ratings of major credit rating agencies, and their mapping to the UBS masterscale and internal PD bands, are shown
in the
 
“Internal UBS
 
rating scale
 
and mapping
 
of external
 
ratings” table
 
above. For
 
Moody’s and
 
S&P, the
 
mapping is
based on the
 
long-term average of
 
one-year default rates
 
available from these
 
rating agencies, with
 
Fitch ratings being
mapped to the equivalent
 
S&P ratings. For each
 
external rating category,
 
the average default rate
 
is compared with our
internal PD bands to derive a periodically reviewed mapping
 
to our internal rating scale.
Exposure at default
EAD is the amount we expect to be owed by a counterparty at the time of possible default. We derive EAD from current
exposure to the counterparty and possible future
 
exposure development.
The EAD of an on-balance
 
sheet loan is its
 
notional amount,
 
while for off-balance
 
sheet commitments
 
that are not drawn,
credit conversion
 
factors (CCFs)
 
are used in order
 
to obtain an
 
expected on-balance
 
sheet amount.
For traded products,
 
we derive EAD
 
by modeling
 
the range of
 
possible exposure
 
outcomes at various
 
points in
 
time using a
simulation based on a scenario-consistent technique. UBS AG assesses the net amount
 
that may be
 
owed to it
 
or that it
may owe to others,
 
taking into account
 
the effect of market
 
movements over
 
the potential time
 
it would take to
 
close out
positions.
 
Exposures where
 
there is
 
a material
 
correlation between
 
the factors
 
driving the
 
credit quality
 
of the
 
counterparty
 
and
those driving the potential
 
future value of UBS AG’s
 
traded products exposure (wrong-way risk) are
 
assessed, and specific
controls to mitigate such risks have been established.
 
Loss given default
LGD is
 
the magnitude
 
of the
 
likely loss
 
if there
 
is a
 
default. Our
 
LGD estimates,
 
which consider
 
downturn conditions,
include loss of principal, interest and
 
other amounts less recovered amounts. UBS AG determines
 
LGD based on the likely
recovery
 
rate
 
of
 
claims
 
against
 
defaulted
 
counterparties,
 
which
 
depends
 
on
 
the
 
type
 
of
 
counterparty
 
and
 
any
 
credit
mitigation
 
due
 
to
 
collateral
 
or
 
guarantees.
 
UBS
 
AG’s
 
estimates
 
are
 
supported
 
by
 
internal
 
loss
 
data
 
and
 
external
information, where
 
available. If collateral
 
is held, such
 
as marketable
 
securities or a
 
mortgage on a
 
property,
 
LTV
 
ratios
are typically a key parameter in determining LGD. For risk-weighted asset (RWA) calculation, floors are applied to LGD in
line with regulation.
Expected loss
UBS AG uses the
 
concept of
 
expected loss
 
to quantify
 
future credit
 
losses that
 
may be implicit
 
in our current
 
portfolio.
The expected loss for a given
 
credit facility is a product of the three components
 
described above, i.e., PD, EAD and LGD.
We aggregate the expected loss for individual
 
counterparties to derive expected portfolio credit
 
losses.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Risk management and control
 
73
IFRS 9 – ECL credit risk models
Expected credit loss
 
Expected
 
credit
 
loss (ECL)
 
is
 
defined
 
as
 
the
 
difference
 
between
 
contractual
 
cash
 
flows
 
and
 
those
 
UBS
 
AG
 
expects
 
to
receive, discounted
 
at the
 
effective
 
interest rate
 
(EIR). For
 
loan commitments
 
and other
 
credit facilities
 
in scope
 
of ECL
requirements, expected cash shortfalls are determined by considering expected future drawdowns. Rather than focusing
on an
 
average
 
through-the-cycle
 
(TTC)
 
expected
 
annual loss,
 
the
 
purpose
 
of ECL
 
is
 
to estimate
 
the
 
amount of
 
losses
inherent in
 
a portfolio
 
based on
 
current conditions
 
and future
 
outlook (a
 
point-in-time (PIT)
 
measure), whereby
 
such a
forecast
 
has to
 
include all
 
information available
 
without
 
undue cost
 
and effort,
 
and address
 
multiple scenarios
 
where
there is perceived
 
non-linearity between changes
 
in economic conditions and
 
their effect on credit
 
losses. From a
 
credit
risk modeling perspective, ECL parameters are
 
generally derivations of the factors assessed for regulatory
 
Basel III EL.
Comparison of Basel III EL and IFRS 9 ECL credit risk models
The IFRS 9 ECL concept has a number
 
of key differences from
 
our Basel III credit risk
 
models, both in the loss estimation
process
 
and
 
the
 
result
 
thereof.
 
Most
 
notably,
 
regulatory
 
Basel III
 
EL
 
parameters
 
are
 
TTC
 
/ downturn
 
estimates,
 
which
might
 
include
 
a
 
margin
 
of
 
conservatism,
 
while
 
IFRS 9
 
ECL
 
parameters
 
are
 
typically
 
PIT,
 
reflecting
 
current
 
economic
conditions and future
 
outlook. The
 
table below summarizes
 
the main differences.
 
Stage 1 and 2
 
ECL expenses in
 
2023
were USD 23m
 
and respective
 
allowances and
 
provisions as
 
of 31 December
 
2023 were
 
USD 580m. This
 
included ECL
allowances and
 
provisions of
 
USD 522m related
 
to positions under
 
the Basel III
 
advanced internal ratings-based
 
(A-IRB)
approach. Basel III EL for non-defaulted positions
 
increased by USD 96m to USD 1,052m.
›
Refer to “Note 1 Summary of material accounting
 
policies” in the “Consolidated financial statements”
 
section of this report for
more information about our accounting policy for allowances
 
and provisions for ECL including key definitions
 
relevant for the ECL
calculation under IFRS 9
The table below shows the main differences between the
 
two expected loss measures.
Basel III EL (advanced internal
 
ratings-based approach)
IFRS 9 ECL
Scope
The Basel III A-IRB approach applies to most credit risk
exposures. It includes transactions measured at amortized
cost, at fair value through profit or loss and at fair value
through OCI, including loan commitments and
 
financial
guarantees.
The IFRS 9 ECL calculation mainly applies to financial
 
assets
measured at amortized cost and debt instruments
 
measured at fair
value through OCI, as well as loan commitments
 
and financial
guarantees not at fair value through profit or loss.
12-month versus
lifetime expected
loss
The Basel III A-IRB approach takes into account expected
losses resulting from expected default events occurring
within the next 12 months.
In the absence of a significant increase in credit risk
 
(an SICR), a
maximum 12-month ECL is recognized to reflect lifetime
 
cash
shortfalls that will result if a default event occurs
 
in the 12 months
after the reporting date (or a shorter period if the
 
expected lifetime
is less). Once an SICR event has occurred, a lifetime
 
ECL is
recognized considering expected default events
 
over the life of the
transaction.
Exposure at default
(EAD)
EAD is the amount we expect a counterparty
 
to owe us at
the time of a possible default. For banking products,
 
EAD
equals the book value as of the reporting date;
 
for traded
products, the vast majority of EAD is modeled. For
 
lending,
EAD is expected to remain constant over a 12-month
 
period.
For loan commitments, a credit conversion factor
 
is applied
to model expected future drawdowns over the
 
12-month
period, irrespective of the actual maturity of a particular
transaction. The credit conversion factor includes
 
downturn
adjustments.
EAD is generally calculated on the basis of the
 
cash flows that are
expected to be outstanding at the individual
 
points in time during
the life of the transaction. For loan commitments,
 
a credit
conversion factor is applied to model expected
 
future drawdowns
over the life of the transaction without including
 
downturn
assumptions. In both cases, the time period
 
is capped at 12
months, unless an SICR has occurred.
Probability of
default
(PD)
PD estimates are determined on a through-the-cycle
 
(TTC)
basis. They represent historical average PDs, taking into
account observed losses over a prolonged historical
 
period,
and therefore are less sensitive to movements in the
underlying economy.
PD estimates will be determined on a point-in-time
 
(PIT) basis,
based on current conditions and incorporating forecasts
 
for future
economic conditions at the reporting date.
Loss given default
(LGD)
LGD includes prudential adjustments, such
 
as downturn LGD
assumptions and floors. Similar to PD, LGD
 
is determined on
a TTC basis.
LGD should reflect the losses that are reasonably expected
 
and
prudential adjustments should therefore not be applied.
 
Similar to
PD, LGD is determined on the basis of a PIT
 
approach.
Use of scenarios
n / a
Multiple forward-looking scenarios have to be taken
 
into account
to determine a probability-weighted ECL.
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Risk management and control
 
74
Further key aspects of credit risk models
Stress loss
We complement our statistical modeling approach with
 
scenario-based stress loss measures. Stress tests are run regularly
to monitor potential effects
 
of extreme, but nevertheless
 
plausible, events on our portfolios,
 
under which key credit
 
risk
parameters are assumed to deteriorate substantially.
 
Where we consider it appropriate,
 
we apply limits on this basis.
Stress scenarios and methodologies are tailored to portfolios’
 
natures, ranging from regionally focused to global systemic
events, and varying in time horizon.
›
Refer to “Stress testing” in this section for more information
 
about our stress testing framework
Credit risk model confirmation
UBS AG’s
 
approach
 
to
 
model
 
confirmation
 
involves
 
both
 
quantitative
 
methods,
 
such
 
as
 
monitoring
 
compositional
changes
 
in
 
portfolios
 
and
 
results
 
of
 
backtesting,
 
and
 
qualitative
 
assessments,
 
such
 
as
 
feedback
 
from
 
users
 
on
 
model
output as
 
a practical
 
indicator of
 
a model’s
 
performance and
 
reliability.
 
In addition,
 
changes in
 
market, regulatory
 
and
business practices are assessed.
Material changes
 
in portfolio
 
composition may
 
invalidate the
 
conceptual soundness
 
of a
 
model. We
 
therefore perform
regular analyses of the evolution of portfolios to identify
 
such changes in the structure and credit quality of portfolios.
 
›
Refer to “Model risk management” in this section
 
for more information
 
Backtesting
UBS AG monitors
 
the performance of models by backtesting
 
and benchmarking them, with model outcomes
 
compared
with actual
 
results, based
 
on our
 
internal experience
 
and externally observed
 
results. To
 
assess the
 
predictive power
 
of
credit exposure models for
 
traded products, such as OTC
 
derivatives and ETD
 
products, we statistically compare predicted
future exposure distributions at different
 
forecast horizons with realized values.
 
For PD, we derive a predicted distribution of the number of defaults. The observed number of defaults is compared with
the upper tail of the predicted distribution. If the observed number
 
of defaults is higher than a given upper tail quantile,
we conclude
 
there is
 
evidence
 
that the
 
model may
 
underpredict
 
the number
 
of defaults.
 
Based on
 
historical
 
long-run
average
 
default rates
 
and, if
 
required, additional
 
margin
 
of conservatism,
 
we
 
also
 
derive
 
PD calibration
 
targets
 
and a
lower boundary. As a general
 
rule, follow-up actions, such as
 
a recalibration of the rating
 
tool, are defined if
 
the portfolio
average PD lies below the derived lower boundary.
 
For LGD, backtesting statistically
 
tests whether the mean
 
difference between the observed
 
and predicted LGD is
 
zero. If
the test fails, there is evidence that
 
our predicted LGD is too low. In such
 
cases, and where these differences are
 
outside
expectations,
 
follow-up actions, such as a recalibration of the models, are
 
taken.
 
CCFs,
 
used
 
for
 
the
 
calculation
 
of
 
EAD
 
for
 
undrawn
 
facilities,
 
are
 
dependent
 
on
 
several
 
credit
 
facility
 
contractual
dimensions.
 
We
 
compare
 
the
 
predicted
 
amount
 
drawn
 
with
 
observed
 
historical
 
use
 
of
 
such
 
facilities
 
by
 
defaulted
counterparties. If
 
any statistically
 
significant deviation
 
is observed,
 
follow-up actions,
 
such as an
 
update of
 
the relevant
CCFs, are performed.
Changes to models and model parameters during the period
As
 
part
 
of
 
our
 
continuous
 
efforts
 
to
 
enhance
 
models
 
to
 
reflect
 
market
 
developments
 
and
 
newly
 
available
 
data,
 
we
updated several models in 2023.
In Personal
 
& Corporate
 
Banking and
 
Global Wealth
 
Management models,
 
we recalibrated
 
the risk
 
parameters for
 
the
income-producing
 
real estate
 
mortgages in
 
Switzerland
 
and implemented
 
a model
 
update for
 
the Swiss
 
corporate
 
PD
model. In addition, we recalibrated the PD and LGD
 
models for the commodity trade finance business within
 
Personal &
Corporate
 
Banking
 
and
 
updated
 
the
 
LGD
 
model
 
for
 
corporate
 
clients
 
and
 
financial
 
institutions.
 
In
 
Global
 
Wealth
Management, we also implemented a model update
 
for the standard Lombard model.
In the Investment
 
Bank, new PD models,
 
corporations, insurance companies
 
and managed funds
 
went live. In addition,
certain RWA multipliers were recalibrated as a result of improvements
 
to models.
 
Where required, changes to models and model parameters
 
were approved by FINMA before being made.
›
Refer to “Risk-weighted assets” in the “Capital,
 
liquidity and funding, and balance sheet” section
 
of this report for more
information about the effect of the changes to models
 
and model parameters on credit risk RWA
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Risk management and control
 
75
Future credit risk-related regulatory capital developments
In December
 
2017, the
 
Basel Committee
 
on Banking
 
Supervision (the
 
BCBS) announced
 
the finalization
 
of the
 
Basel III
framework.
 
In November
 
2023, the
 
Swiss Federal
 
Council published
 
the
 
national implementation
 
of the
 
final
 
Basel III
standards, which is expected to
 
enter into force by January
 
2025. The updated framework makes
 
a number of revisions
to the
 
internal ratings-based
 
(IRB) approaches,
 
namely: (i)
 
removing the
 
option of
 
using the
 
A-IRB approach
 
for certain
asset classes (including large and
 
medium-sized corporate clients, and
 
banks and other financial institutions);
 
(ii) placing
floors on certain
 
model inputs
 
under the
 
IRB approach,
 
e.g., PD and
 
LGD; and
 
(iii) introducing
 
various requirements
 
to
reduce RWA
 
variability (e.g.,
 
for LGD).
 
In addition,
 
revisions to
 
the credit
 
valuation adjustment
 
(CVA)
 
framework were
published
 
in
 
November
 
2023,
 
including
 
the
 
removal
 
of
 
the
 
advanced
 
CVA
 
approach.
 
UBS
 
has
 
a
 
close
 
dialogue
 
with
FINMA to discuss
 
in detail
 
the implementation
 
objectives and
 
prepare
 
for a
 
smooth transition
 
of the
 
capital regime
 
for
credit risk.
 
›
Refer to “Capital management objectives, planning
 
and activities” in the “Capital, liquidity and
 
funding, and balance sheet”
section of this report for more information about the development
 
of RWA
›
Refer to “Risk measurement” in this section for
 
more information about our approach to model confirmation procedures
›
Refer to the “Regulatory and legal developments”
 
and “Risk factors” sections of this report for
 
more information
Credit policies for distressed assets
Non-performing
Audited |
In line with the
 
regulatory definition,
 
we report a
 
claim as non-performing
 
when: (i) it is
 
more than 90
 
days past
due; (ii) it is subject to restructuring proceedings, where
 
preferential conditions concerning interest
 
rates, subordination,
tenor,
 
etc. have been granted in order to avoid default of the counterparty (forbearance);
 
(iii) the counterparty is subject
to
 
bankruptcy
 
/
 
enforced
 
liquidation
 
proceedings
 
in
 
any
 
form,
 
even
 
if
 
there
 
is
 
sufficient
 
collateral
 
to
 
cover
 
the
 
due
payment; or (iv) there is other evidence that payment
 
obligations will not be fully met without recourse to collateral.
Default and credit-impaired
 
UBS AG uses a
 
single definition of default
 
for classifying assets
 
and determining the PD
 
of its obligors for
 
risk modeling
purposes.
 
The
 
definition
 
of
 
default
 
is
 
based
 
on
 
quantitative
 
and
 
qualitative
 
criteria.
 
A
 
counterparty
 
is
 
classified
 
as
defaulted when
 
material payments
 
of interest,
 
principal or
 
fees are
 
overdue for
 
more than
 
90 days,
 
or more
 
than 180
days for certain exposures in
 
relation to loans to private
 
and commercial clients in Personal
 
& Corporate Banking and to
private
 
clients
 
of
 
Global
 
Wealth
 
Management
 
Region
 
Switzerland.
 
UBS
 
AG
 
does
 
not
 
consider
 
the
 
general
 
90-day
presumption
 
for
 
default
 
recognition
 
appropriate
 
for
 
those
 
portfolios,
 
given
 
the
 
cure
 
rates,
 
which
 
show
 
that
 
strict
application of the 90-day criterion would not accurately reflect
 
the inherent credit risk. Counterparties are
 
also classified
as defaulted when: bankruptcy, insolvency proceedings
 
or enforced liquidation have commenced; obligations have been
restructured on preferential terms (forbearance); or there is other evidence that payment obligations will not be
 
fully met
without recourse
 
to collateral.
 
The
 
latter
 
may
 
be the
 
case even
 
if, to
 
date,
 
all contractual
 
payments
 
have
 
been made
when due. If
 
one claim against
 
a counterparty
 
is defaulted on,
 
generally all claims
 
against the counterparty
 
are treated
as defaulted.
An
 
instrument
 
is
 
classified
 
as
 
credit
 
impaired
 
if
 
the
 
counterparty
 
is
 
classified
 
as
 
defaulted
 
and
 
/
 
or
 
the
 
instrument
 
is
identified
 
as
 
purchased
 
credit
 
impaired
 
(PCI).
 
An
 
instrument
 
is PCI
 
if
 
it
 
has
 
been
 
purchased
 
at
 
a
 
deep
 
discount
 
to
 
its
carrying amount following a risk event of the issuer or originated with a defaulted counterparty. Once a financial asset is
classified as defaulted / credit impaired
 
(except PCI), it is reported as
 
a stage 3 instrument and remains as
 
such unless all
past due
 
amounts have
 
been rectified,
 
additional
 
payments
 
have been
 
made on
 
time, the
 
position is
 
not classified
 
as
credit-restructured, and there is
 
general evidence of credit
 
recovery. A three-month probation
 
period is applied before
 
a
transfer back to stages 1 or 2 can be triggered. However,
 
most instruments remain in stage 3 for a longer period.
p
Forbearance (credit restructuring)
 
Audited |
If payment default is
 
imminent or default has
 
already occurred, we may grant
 
concessions to borrowers in
 
financial
difficulties that we would otherwise
 
not consider in the normal course
 
of business, such as offering
 
preferential interest
rates,
 
extending
 
maturity,
 
modifying
 
the
 
schedule
 
of
 
repayments,
 
debt
 
/
 
equity
 
swap,
 
subordination,
 
etc.
 
When
 
a
forbearance measure takes
 
place, each
 
case is
 
considered individually and
 
the exposure is
 
generally classified as
 
defaulted.
Forbearance
 
classification
 
remains
 
until the
 
loan
 
is repaid
 
or written
 
off,
 
non-preferential
 
conditions
 
are
 
granted
 
that
supersede the preferential conditions,
 
or the counterparty
 
has recovered and the
 
preferential conditions no longer
 
exceed
our risk tolerance.
Contractual
 
adjustments
 
when
 
there
 
is
 
no
 
evidence
 
of
 
imminent
 
payment
 
default,
 
or
 
where
 
changes
 
to
 
terms
 
and
conditions are within our usual risk tolerance, are not considered
 
to be forborne.
p
 
ubs-20231231p93i0
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Risk management and control
 
76
Loss history statistics
An
 
instrument
 
is
 
classified
 
as
 
credit
 
impaired
 
if
 
the
 
counterparty
 
has
 
defaulted.
 
This
 
also
 
includes
 
credit-impaired
exposures for which no loss
 
has occurred or for which
 
no allowance has been recognized (e.g.,
 
we expect to fully recover
the exposures via collateral held).
 
Coverage
 
ratios
 
are
 
calculated
 
by
 
taking
 
ECL
 
allowances
 
and
 
provisions
 
divided
 
by
 
the
 
gross
 
carrying
 
amount
 
of
 
the
exposures. Core loan exposure is defined
 
as the sum of Loans
 
and advances to customers and Loans
 
to financial advisors.
 
The total
 
combined on-
 
and off-balance
 
sheet coverage
 
ratio was
 
at 22 basis
 
points as
 
of 31 December
 
2023, 1 basis
point lower than on 31 December 2022. The combined stage 1 and 2 ratio of 10 basis points was unchanged compared
with 31 December 2022; the stage 3 ratio was 22%, materially
 
unchanged compared with 31 December 2022.
 
›
The majority of the credit-impaired exposure relates to loans and advances
 
in our Swiss domestic business. Refer to
 
“Note 9
Financial assets at amortized cost and other positions
 
in scope of expected credit loss measurement” and “Note 19
 
Expected credit
loss measurement” in the “Consolidated financial statements”
 
section of this report for more information about ECL
 
measurement
and the calculation of the coverage ratio
›
Refer to “Note 13 Other assets” in the “Consolidated
 
financial statements” section of this report for
 
more details
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Risk management and control
 
77
Loss history statistics
USD m, except where indicated
31.12.23
31.12.22
1
31.12.21
1
31.12.20
1
31.12.19
1
Banking products, core exposure and off-balance sheet, gross
2
562,095
509,024
3
517,866
3
497,313
3
423,771
3
of which: amounts due from banks and loans and advances to customers
 
(gross)
434,780
402,801
414,099
396,049
340,003
Credit-impaired exposure, gross (stage 3)
2,966
2,455
2,610
3,778
3,113
of which: credit-impaired amounts due from banks and loans
 
and advances to customers (stage 3)
2,586
2,012
2,150
2,945
2,309
Non-performing amounts due from banks and loans and
 
advances to customers
2,793
2,333
2,387
3,176
2,466
ECL allowances and provisions for credit losses
4
1,244
1,091
1,165
1,468
1,029
of which: core loan exposure (all stages)
1,172
1,043
1,132
1,426
987
of which: amounts due from banks and loans and advances to customers
 
(all stages)
942
789
857
1,076
770
of which: amounts due from banks and loans and advances to customers
 
(stage 3)
377
474
572
703
559
Write-offs (stage 3)
77
95
137
356
142
of which: write-offs for amounts due from banks and loans
 
and advances to customers
62
74
118
348
122
Credit loss expense / (release)
5
143
29
(148)
694
78
Ratios
Credit-impaired amounts due from banks and loans and advances
 
to customers as a percentage of amounts
due from banks and loans and advances to customers (gross)
0.6
0.5
0.5
0.7
0.7
Non-performing amounts due from banks and loans and
 
advances to customers as a percentage of amounts
due from banks and loans and advances to customer (gross)
0.6
0.6
0.6
0.8
0.7
ECL allowances for amounts due from banks and loans and
 
advances to customers as a percentage of amounts
due from banks and loans and advances to customer (gross)
0.2
0.2
0.2
0.3
0.2
Write-offs as a percentage of average amounts due from banks and loans
 
and advances to customers (gross)
outstanding during the period
0.0
0.0
0.0
0.1
0.0
1 Prior-period numbers are based
 
on pre-acquisition UBS values.
 
2 Includes amounts due from
 
banks, core loan exposure (Loans
 
and advances to customers and
 
Loans to financial advisors) and off
 
balance sheet
items defined as guarantees and loan commitments.
 
3 Comparatives have been restated to
 
include amounts due from banks.
 
4 Includes provisions for ECL of guarantees
 
and loan commitments and allowances
for securities financing transactions.
 
5 Includes credit loss expense / (release) for other financial assets at amortized cost, guarantees,
 
loan commitments, and securities financing transactions.
 
Market risk
 
Audited |
Main sources of market risk
Market risks arise from both trading and non-trading
 
business activities.
–
Trading market
 
risks are
 
mainly connected
 
with primary
 
debt and
 
equity underwriting
 
and securities
 
and derivatives
trading for
 
market-making and
 
client facilitation
 
in our
 
Investment Bank,
 
as well
 
as the
 
remaining positions
 
in Non-
core and Legacy and our municipal securities trading business
 
in Global Wealth Management.
–
Non-trading market
 
risks arise predominantly
 
in the form
 
of interest rate
 
and foreign exchange
 
risks connected
 
with
personal banking and lending in our wealth management
 
businesses, the Swiss business of our Personal & Corporate
Banking business division,
 
the Investment Bank’s lending business, and treasury
 
activities.
–
Group Treasury assumes market risks
 
in the process of
 
managing interest rate risk, structural foreign
 
exchange risk and
the Group’s liquidity and funding profile, including high-quality
 
liquid assets (HQLA).
–
Equity and
 
debt
 
investments
 
can
 
also give
 
rise to
 
market
 
risks, as
 
can
 
some aspects
 
of employee
 
benefits,
 
such
 
as
defined benefit pension schemes.
p
Audited |
Overview of measurement, monitoring and management techniques
–
Market
 
risk limits
 
are
 
set for
 
the Group,
 
the
 
business
 
divisions and
 
Group
 
Treasury
 
at granular
 
levels in
 
the various
business lines, reflecting the nature and magnitude of the
 
market risks.
–
Management value-at-risk (VaR) measures exposures under
 
the market risk framework, including trading market risks
and some
 
non-trading market risks.
 
Non-trading market risks
 
not included
 
in VaR
 
are also
 
covered in
 
the risks
 
controlled
by Market and Treasury Risk Control functions.
–
Our primary portfolio measures of market risk are liquidity-adjusted stress
 
loss and VaR. Both are subject to limits that
are approved by the Board of Directors (the BoD).
–
These measures are
 
complemented by
 
concentration and
 
granular limits for
 
general and specific
 
market risk factors.
Our trading businesses are subject
 
to multiple market risk limits, which
 
take into account the extent of
 
market liquidity
and volatility,
 
available
 
operational capacity,
 
valuation uncertainty,
 
and, for
 
our single-name
 
exposures, issuer
 
credit
quality.
–
Trading
 
market
 
risks
 
are
 
managed
 
at
 
portfolio
 
level.
 
As
 
risk
 
factor
 
sensitivities
 
change
 
due
 
to
 
new
 
transactions,
transaction expiries or changes
 
in market levels, risk
 
factors are dynamically
 
rehedged to remain
 
within limits. We
 
do
not generally seek to distinguish in the trading portfolio between
 
specific positions and associated hedges.
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Risk management and control
 
78
–
Issuer risk is controlled by limits applied at the business division level based on jump-to-zero measures, which estimate
maximum default exposure (the default event loss assuming
 
zero recovery).
–
Non-trading
 
foreign
 
exchange
 
risks
 
are
 
managed
 
under
 
market
 
risk
 
limits,
 
with
 
the
 
exception
 
of
 
Group
 
Treasury
management of consolidated capital activity.
 
Our CRO Treasury function applies a holistic risk framework, setting the appetite for treasury-related risk-taking activities
across UBS AG.
 
Key elements of
 
the framework include
 
an overarching economic
 
value sensitivity limit,
 
set by the BoD,
and the sensitivity
 
of net interest
 
income to changes
 
in interest
 
rates targets,
 
set by the
 
CEO. Limits are
 
also set by
 
the
BoD to balance the effect of foreign exchange movements
 
on our common equity tier 1 (CET1) capital and CET1 capital
ratio. Non-trading interest rate and foreign exchange risks are included in firm-wide statistical and stress
 
-testing metrics,
which flow into our risk appetite framework.
Equity and debt investments are
 
subject to a range
 
of risk controls, including preapproval of
 
new investments by business
management and Risk Control
 
and regular monitoring
 
and reporting. They are
 
also included in firm-wide
 
statistical and
stress-testing metrics.
p
›
Refer to “Currency management” in the “Capital, liquidity
 
and funding, and balance sheet” section of
 
this report for more
information about Group Treasury’s management of foreign exchange risks
›
Refer to the “Capital, liquidity and funding,
 
and balance sheet” section of this report for more information
 
about the sensitivity
of our CET1 capital and CET1 capital ratio to currency
 
movements
Market risk stress loss
The
 
measurement
 
and
 
management
 
of
 
market
 
risks
 
include
 
an
 
extensive
 
set
 
of
 
stress
 
tests
 
and
 
scenario
 
analyses,
continuously evaluated to
 
ensure that losses
 
resulting from an
 
extreme yet plausible
 
event do
 
not exceed
 
our risk
 
appetite.
Liquidity-adjusted stress
Liquidity-adjusted stress is
 
UBS AG’s primary stress
 
loss measure
 
for firm-wide market
 
risk. The framework
 
captures the
economic
 
losses
 
that
 
could
 
arise
 
under
 
specified
 
stress
 
scenarios.
 
Shocks
 
are
 
applied
 
to
 
positions
 
based
 
on
 
expected
market movements in the liquidity-adjusted holding periods
 
resulting from the specified scenario.
The holding periods used for
 
liquidity-adjusted stress are calibrated to reflect
 
the time needed to reduce
 
or hedge the risk
of positions in each major risk factor in a stressed environment.
 
UBS AG applies minimum holding periods, regardless
 
of
observed liquidity levels, as identification of and reaction
 
to a crisis may not always be immediate.
The expected market movements are derived using historical market behavior (based on analysis of
 
historical events) and
forward-looking analysis including consideration of defined
 
scenarios that have not occurred in the past.
Stress-based limits apply at several
 
levels of the organizational hierarchy. Liquidity
 
-adjusted stress is also the core
 
market
risk component of our combined stress test framework and
 
therefore integral to our overall risk appetite framework.
›
Refer to “Risk appetite framework” in this
 
section for more information
›
Refer to “Stress testing” in this section for more information
 
about our stress testing framework
Value-at-risk
VaR definition
Audited |
VaR
 
is a
 
statistical
 
measure
 
of market
 
risk, quantifying
 
the potential
 
market risk
 
losses over
 
a
 
set time
 
horizon
(holding period) at an established level of confidence. VaR assumes no change in UBS AG’s trading
 
positions over the set
time horizon.
UBS AG
 
calculates
 
VaR daily.
 
The profit
 
or loss
 
distribution
 
from which
 
VaR is
 
estimated
 
is derived
 
from our
 
internally
developed VaR model, which simulates returns over the holding period
 
for risk factors our trading positions are sensitive
to, and
 
subsequently quantifies
 
the profit
 
/ loss
 
effect of
 
these risk
 
factor returns
 
on our
 
trading positions.
 
Systematic
commodity,
 
credit,
 
equity,
 
foreign
 
exchange
 
rate
 
and
 
interest
 
rate
 
risk
 
factor
 
returns
 
are
 
based
 
on
 
a
 
pure
 
historical
simulation approach. UBS AG uses an unweighted five-year look-back window.
 
Modeling idiosyncratic and
 
specific risks
for equity
 
and credit
 
risk factors
 
using historical
 
simulation is
 
challenging,
 
due to
 
the limited
 
availability of
 
continuous
good-quality historical data.
 
UBS AG relies
 
upon factor models
 
to distinguish systematic
 
and idiosyncratic
 
returns.
 
UBS AG
simulates idiosyncratic returns through
 
a Monte Carlo
 
simulation, aggregating the sum of systematic and residual returns
in such a way that systematic and residual risk are consistently captured. When modeling risk factor returns, we consider
the stationarity properties of the historical time series of risk
 
factor changes. Depending on the stationarity properties
 
of
the
 
risk
 
factors
 
within
 
a
 
given
 
factor
 
class,
 
the
 
factor
 
returns
 
are
 
modeled
 
using
 
absolute
 
returns,
 
proportional
 
or
logarithmic returns. Risk factor return distributions are updated
 
fortnightly.
Risk factor
 
returns are
 
converted into
 
profit or
 
loss values
 
via sensitivities
 
and full
 
revaluation grids
 
sourced from front-
office systems, enabling us to capture material non-linear
 
effects.
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Risk management and control
 
79
UBS AG uses a single
 
VaR model for internal management purposes
 
and for determining market risk
 
risk-weighted assets
(RWA),
 
although
 
the
 
two
 
cases
 
consider
 
different
 
confidence
 
levels
 
and
 
time
 
horizons.
 
For
 
internal
 
management
purposes, risk limits are
 
established and exposures measured
 
using VaR at a
 i 95
% confidence level with
 
a 1-day holding
period, aligned to the way we consider the risks associated with our trading activities. The regulatory measure of market
risk
 
used
 
to
 
underpin
 
the
 
market
 
risk
 
capital
 
requirement
 
under
 
Basel III
 
involves
 
a
 
measure
 
equivalent
 
to
 
a
 i 99
%
confidence
 
level
 
using
 
a
 
10-day
 
holding
 
period.
 
To
 
calculate
 
a
 
10-day
 
holding
 
period
 
VaR,
 
we
 
use
 
10-day
 
risk
 
factor
returns.
Additionally, the portfolio populations
 
for management and regulatory
 
VaR are slightly different.
 
The one for regulatory
VaR
 
meets
 
regulatory
 
requirements
 
for
 
inclusion
 
in
 
regulatory
 
VaR.
 
Management
 
VaR
 
includes
 
a
 
broader
 
range
 
of
positions. For
 
example, regulatory
 
VaR excludes
 
credit spread
 
risks from
 
the securitization
 
portfolio, which
 
are treated
instead under the securitization approach for regulatory
 
purposes.
We also
 
use stressed
 
VaR (SVaR)
 
for the
 
calculation of
 
market risk
 
RWA. SVaR
 
uses broadly
 
the same
 
methodology as
regulatory
 
VaR and
 
is calculated
 
using the
 
same
 
population,
 
holding
 
period (10-day)
 
and confidence
 
level (
 i 99
%). For
SVaR,
 
UBS AG
 
identifies
 
the
 
most significant
 
one-year
 
period of
 
financial
 
stress
 
from
 
a
 
historical
 
dataset
 
covering the
period from 1 January 2007 to the present. SVaR is computed
 
weekly at a minimum.
p
›
Refer to the 31 December 2023 Pillar 3 Report,
 
available under “Pillar 3 disclosures” at
ubs.com/investors,
for more information
about the regulatory capital calculation under the advanced
 
internal ratings-based approach
Management VaR for the period
UBS AG continued to maintain management VaR at low levels, with average VaR
 
increasing to USD 15m from USD 11m
in 2023, mainly driven by the Investment Bank’s Global
 
Markets business.
Audited |
 
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Management value-at-risk (1-day, 95% confidence, 5 years of historical data) of UBS AG business divisions and Group
Items by general market risk type
1
For the year ended 31.12.23
USD m
Equity
Interest
rates
Credit
spreads
Foreign
exchange
Commodities
Min.
 i 3
 i 9
 i 3
 i 1
 i 1
Max.
 i 19
 i 21
 i 19
 i 10
 i 10
Average
 i 9
 i 12
 i 6
 i 2
 i 3
31.12.23
 i 11
 i 18
 i 7
 i 2
 i 3
Total management VaR
 i 7
 i 25
 i 15
 i 19
Average (per business division and risk type)
Global Wealth Management
 i 1
 i 2
 i 1
 i 2
 i 0
 i 1
 i 2
 i 0
 i 0
Personal & Corporate Banking
 i 0
 i 0
 i 0
 i 0
 i 0
 i 0
 i 0
 i 0
 i 0
Asset Management
 i 0
 i 0
 i 0
 i 0
 i 0
 i 0
 i 0
 i 0
 i 0
Investment Bank
 i 5
 i 23
 i 14
 i 18
 i 9
 i 12
 i 5
 i 2
 i 3
Non-core and Legacy
 i 1
 i 2
 i 1
 i 1
 i 0
 i 1
 i 1
 i 0
 i 0
Group Items
 i 3
 i 6
 i 4
 i 4
 i 1
 i 3
 i 3
 i 1
 i 0
Diversification effect
2,3
( i 6)
( i 6)
( i 1)
( i 4)
( i 4)
( i 1)
 i 0
For the year ended 31.12.22
4
USD m
Equity
Interest
rates
Credit
spreads
Foreign
exchange
Commodities
Min.
 i 2
 i 8
 i 4
 i 2
 i 2
Max.
 i 17
 i 18
 i 9
 i 11
 i 7
Average
 i 6
 i 10
 i 5
 i 3
 i 3
31.12.22
 i 6
 i 10
 i 4
 i 3
 i 3
Total management VaR
 i 6
 i 18
 i 11
 i 9
Average (per business division and risk type)
Global Wealth Management
 i 1
 i 2
 i 1
 i 1
 i 0
 i 1
 i 1
 i 0
 i 0
Personal & Corporate Banking
 i 0
 i 0
 i 0
 i 0
 i 0
 i 0
 i 0
 i 0
 i 0
Asset Management
 i 0
 i 0
 i 0
 i 0
 i 0
 i 0
 i 0
 i 0
 i 0
Investment Bank
 i 6
 i 17
 i 10
 i 8
 i 6
 i 9
 i 5
 i 3
 i 3
Group Functions (including Non-core and Legacy Portfolio)
 i 3
 i 5
 i 4
 i 5
 i 1
 i 4
 i 3
 i 1
 i 0
Diversification effect
2,3
( i 5)
( i 5)
( i 1)
( i 3)
( i 4)
( i 1)
 i 0
1 Statistics at individual levels may not be summed to deduce the corresponding aggregate figures.
 
The minima and maxima for each level may occur on different
 
days, and, likewise, the value
 
-at-risk (VaR) for each
business line or risk type, being driven
 
by the extreme loss tail of the corresponding distribution of
 
simulated profits and losses for that business line
 
or risk type, may well be driven by
 
different days in the historical
time series, rendering invalid the simple summation of figures to arrive at the aggregate total.
 
2 The difference between the sum of the standalone VaR for the business divisions and Group Items and the total VaR.
 
3 As the minima and
 
maxima for different
 
business divisions and Group
 
Items occur on different
 
days, it is
 
not meaningful to calculate a
 
portfolio diversification effect.
 
4 Prior-period numbers
 
are based on pre-
acquisition UBS values as the risk profile compared with UBS AG does not materially differ.
 / 
p
 
ubs-20231231p97i0
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Risk management and control
 
80
VaR limitations
Audited |
Actual realized market risk losses may differ
 
from those implied by VaR
 
for a variety of reasons.
–
VaR is calibrated to a specified level of confidence and
 
may not indicate potential losses beyond this confidence
 
level.
–
The
 
1-day
 
time horizon
 
used
 
for
 
VaR for
 
internal
 
management
 
purposes
 
(10-day
 
for
 
regulatory
 
VaR) may
 
not
 
fully
capture market risk of positions that cannot be closed out
 
or hedged within the specified period.
–
In
 
some
 
cases,
 
VaR
 
calculations
 
approximate
 
the
 
effect
 
of
 
changes
 
in
 
risk
 
factors
 
on
 
the
 
values
 
of
 
positions
 
and
portfolios.
 
–
Effects
 
of
 
extreme
 
market
 
movements
 
are
 
subject
 
to
 
estimation
 
errors,
 
which
 
may
 
result
 
from
 
non-linear
 
risk
sensitivities,
 
and
 
the
 
potential
 
for
 
actual
 
volatility
 
and
 
correlation
 
levels
 
to
 
differ
 
from
 
assumptions
 
implicit
 
in
 
VaR
calculations.
–
The choice of a
 
longer historical window means
 
sudden increases in market
 
volatility will tend not
 
to increase VaR as
quickly as
 
the use
 
of shorter
 
historical observation
 
periods, but
 
such increases
 
will affect
 
VaR for
 
a longer
 
period of
time. Similarly, after periods
 
of increased volatility, as markets
 
stabilize, VaR predictions will remain
 
more conservative
for a period of time influenced by the length of the historical
 
observation period.
 
SVaR is
 
subject to the limitations
 
noted for VaR
 
above, but the
 
use of one-year
 
datasets avoids the
 
smoothing effect of
longer datasets
 
used for VaR.
 
In addition,
 
the ability to
 
select a one-year
 
period outside of
 
recent market
 
history allows
for a
 
wider variety
 
of potential
 
loss events.
 
Therefore,
 
although the
 
significant period
 
of stress
 
during the
 
2007–2009
financial crisis is
 
no longer contained in
 
the look-back window used
 
for management and regulatory VaR, SVaR continues
to use that data. This approach
 
aims to reduce the procyclicality of the
 
regulatory capital requirements
 
for market risks.
UBS AG recognizes that
 
no single measure can
 
encompass all risks associated
 
with a position or
 
portfolio. We use
 
a set
of metrics with
 
both overlapping
 
and complementary
 
characteristics to
 
create a holistic
 
framework that
 
aims to ensure
material completeness of risk
 
identification and measurement. As
 
a statistical aggregate
 
risk measure, VaR supplements
our comprehensive stress testing framework.
We also have a framework to identify and quantify potential
 
risks not fully captured by our VaR model and refer
 
to such
risks as risks not in VaR. The framework underpins these potential
 
risks with additional regulatory capital.
p
Backtesting of VaR
VaR backtesting
 
is a performance
 
measurement process
 
in which a
 
1-day VaR
 
prediction is
 
compared with
 
the realized
1-day profit or loss
 
(P&L). We compute
 
backtesting VaR
 
using a 99% confidence
 
level and 1-day holding
 
period for the
regulatory
 
VaR
 
population.
 
Since
 
99%
 
VaR
 
is
 
defined
 
as
 
a
 
risk
 
measure
 
that
 
operates
 
on
 
the
 
lower
 
tail
 
of
 
the
 
P&L
distribution,
 
99% backtesting
 
VaR
 
is a
 
negative number.
 
Backtesting revenues
 
exclude non-trading
 
revenues,
 
such as
valuation reserves, fees and commissions,
 
and revenues from intraday trading, so
 
as to provide a like-for-like comparison.
A backtesting exception occurs when backtesting revenues
 
are lower than the previous day’s backtesting
 
VaR.
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Risk management and control
 
81
Statistically, given the 99% confidence level,
 
two or three backtesting exceptions a
 
year can be expected. More than
 
four
exceptions could
 
indicate that
 
the VaR
 
model is not
 
performing appropriately,
 
as could too
 
few exceptions
 
over a
 
long
period. However,
 
as noted
 
for VaR
 
limitations above,
 
a sudden
 
increase (or
 
decrease) in
 
market volatility
 
relative to
 
the
volatility observed
 
in the
 
look-back window could
 
lead to
 
a higher
 
(or lower)
 
number of
 
exceptions. Therefore, backtesting
exceptions are investigated, as are exceptional positive backtesting revenues, with the results reported to senior business
management and regulators.
The number
 
of negative
 
backtesting exceptions
 
within a
 
250-business-day window
 
decreased to
 
zero from
 
one by
 
the
end
 
of
 
2023.
 
The
 
Swiss
 
Financial
 
Market
 
Supervisory
 
Authority
 
(FINMA)
 
VaR
 
multiplier
 
derived
 
from
 
backtesting
exceptions for market risk RWA was unchanged compared
 
with the prior year, at 3.0.
VaR model confirmation
In addition
 
to the
 
for-regulatory-purposes
 
backtesting described
 
above, we
 
conduct extended
 
backtesting for
 
internal
model confirmation purposes. This includes observing model performance across the entire P&L distribution (not just the
tails) and at multiple levels within the business division hierarchies.
›
Refer to “Risk measurement” in this section for
 
more information about our approach to model confirmation
 
procedures
VaR model developments in 2023
Audited |
No material changes were made to the UBS AG VaR
 
model in 2023.
p
Future market risk-related regulatory capital developments
 
In January 2019, the Basel Committee on Banking Supervision (the BCBS) published the final standards on the minimum
capital requirements
 
for market risk
 
(the Fundamental Review of
 
the Trading
 
Book). In December 2022,
 
the Swiss State
Secretariat for
 
International Finance changed
 
the expected
 
date on
 
which the
 
final Basel
 
III guidelines
 
are to
 
enter into
force,
 
from
 
1
 
July
 
2024
 
to
 
1
 
January
 
2025.
 
As
 
a
 
result,
 
the
 
Swiss
 
implementation
 
timeline
 
would
 
be
 
aligned
 
to
 
the
currently
 
expected
 
implementation
 
timeline
 
in
 
the
 
EU.
 
In
 
November
 
2023,
 
the
 
Swiss
 
Federal
 
Council
 
adopted
amendments to the Capital Adequacy Ordinance (the CAO) for banks
 
to incorporate the final Basel III standards adopted
by the BCBS in
 
Swiss law. The Federal Department of Finance (FDF)
 
will inform the Federal Council
 
again about the status
of international implementation by the end of July 2024.
Key elements of the revised market
 
risk framework include: (i) changes to the
 
internal model-based approach, including
changes to the model
 
approval and performance
 
measurement process; (ii) changes
 
to the standardized
 
approach with
the aim of
 
it being a
 
credible fallback method for
 
an internal model-based approach;
 
and (iii) a revised
 
boundary between
the
 
trading
 
book
 
and
 
the
 
banking
 
book.
 
UBS
 
maintains
 
a
 
close
 
dialogue
 
with
 
FINMA
 
to
 
discuss
 
the
 
implementation
objectives in more detail and to provide a smooth transition of the
 
capital regime for market risk.
In September 2021, FINMA mandated UBS to hold an RWA add-on for the omission of time decay in regulatory VaR and
SVaR. The add-on reflects the outcome of
 
discussions with FINMA regarding our regulatory
 
VaR model, which started in
late 2019. The integration of time decay into the regulatory
 
VaR model went live in January 2024.
›
Refer to “Risk-weighted assets” in the “Capital,
 
liquidity and funding, and balance sheet” section
 
of this report for more
information about the development of RWA including the regulatory add-on
›
Refer to “Risk measurement” in this section for
 
more information about our approach to model confirmation
 
procedures
›
Refer to the “Regulatory and legal developments”
 
and “Risk factors” sections of this report for
 
more information
Interest rate risk in the banking book
Sources of interest rate risk in the banking book
 
Audited |
IRRBB arises
 
from
 
balance sheet
 
positions such
 
as amounts
 
due from
 
banks, Loans
 
and advances
 
to customers,
Financial assets at fair
 
value not held for
 
trading, Financial assets
 
measured at amortized
 
cost, Customer deposits,
 
Debt
issued measured at
 
amortized cost, and
 
derivatives, including those
 
subject to hedge
 
accounting. Fair value
 
changes to
these positions may affect
 
other comprehensive income
 
(OCI) or the income
 
statement, depending on
 
their accounting
treatment.
UBS AG’s
 
largest
 
banking
 
book
 
interest
 
rate
 
exposures
 
arise
 
from
 
customer
 
deposits
 
and
 
lending
 
products
 
in
 
Global
Wealth Management and Personal & Corporate Banking, as well
 
as from debt issuance, liquidity buffers and interest rate
hedges in
 
Group Treasury.
 
The inherent
 
interest rate
 
risks stemming
 
from Global
 
Wealth Management
 
and Personal
 
&
Corporate Banking
 
are generally
 
transferred
 
to Group
 
Treasury, to
 
manage them
 
centrally
 
together
 
with our
 
modeled
interest rate
 
duration assigned
 
to equity,
 
goodwill
 
and real
 
estate.
 
This makes
 
the
 
netting of
 
interest
 
rate
 
risks
 
across
different sources
 
possible, while
 
leaving the
 
originating businesses
 
with commercial
 
margin and
 
volume management.
The residual
 
interest rate
 
risk is
 
mainly hedged
 
with interest
 
rate swaps,
 
to the
 
vast majority
 
of which
 
we apply
 
hedge
accounting. Short-term
 
exposures and
 
HQLA classified
 
as Financial
 
assets at
 
fair value
 
not held
 
for trading
 
are hedged
with
 
derivatives
 
accounted
 
for
 
on
 
a
 
mark-to-market
 
basis.
 
Long-term
 
fixed-rate
 
debt
 
issued
 
and
 
HQLA
 
hedged
 
with
external interest rate swaps are designated in fair value hedge accounting
 
relationships.
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Risk management and control
 
82
Risk management and governance
IRRBB is measured using several metrics, the most
 
relevant of which are the following.
–
EVE sensitivity
 
to yield
 
curve moves
 
is calculated
 
as changes
 
in the
 
present value
 
of future
 
cash flows
 
irrespective of
accounting treatment.
 
These yield curve
 
moves are also
 
the key
 
risk factors for
 
statistical and stress-based
 
measures,
e.g., VaR and stress scenarios, as well as the regulatory interest rate scenarios. These are measured and reported daily.
The regulatory IRRBB
 
EVE exposure is
 
the most adverse
 
regulatory interest rate scenario
 
that is netted
 
across currencies.
It excludes the sensitivity from additional tier 1 (AT1) capital instruments (as per
 
specific FINMA requirements) and the
modeled
 
interest
 
rate
 
duration
 
assigned
 
to
 
equity,
 
goodwill
 
and
 
real
 
estate.
 
UBS AG
 
also
 
applies
 
granular
 
internal
interest rate shock scenarios to its banking book positions
 
to monitor its specific risk profile.
 
–
Net
 
interest
 
income
 
(NII) sensitivities
 
to yield
 
curve
 
moves
 
are
 
calculated
 
as changes
 
of baseline
 
NII over
 
a
 
set time
horizon, which we
 
internally compute
 
by assuming interest
 
rates in all
 
currencies develop
 
according to their
 
market-
implied forward rates and assuming constant business
 
volumes and product mix and no specific management actions.
The sensitivities are measured and reported monthly.
UBS AG actively manages
 
IRRBB, with the
 
aim of reducing
 
the volatility of
 
NII subject to
 
limits and triggers
 
for EVE
 
and
NII exposure at consolidated and significant legal entity levels.
The
 
Group
 
Asset
 
and
 
Liability
 
Committee
 
(the
 
ALCO)
 
and,
 
where
 
relevant,
 
ALCOs
 
at
 
a
 
legal
 
entity
 
level
 
perform
independent
 
oversight
 
over
 
the
 
management
 
of
 
IRRBB,
 
which
 
is
 
also
 
subject
 
to
 
Group
 
Internal
 
Audit
 
and
 
model
governance.
›
Refer to “Risk measurement” in this section for
 
more information
Key modeling assumptions
The cash
 
flows from
 
customer deposits
 
and lending
 
products used
 
in calculation
 
of EVE
 
sensitivity exclude
 
commercial
margins and
 
other spread
 
components, are
 
aggregated
 
by daily
 
time buckets
 
and are
 
discounted using
 
risk-free
 
rates.
Our external issuances are discounted using UBS’s senior debt curve, and
 
capital instruments are modeled to the first call
date. NII
 
sensitivity,
 
which includes
 
commercial margins,
 
is calculated
 
over a
 
one-year time
 
horizon, assuming
 
constant
balance sheet structure and volumes, and considers
 
embedded interest rate options.
The average repricing
 
maturity of non-maturing
 
deposits and
 
loans is
 
determined via
 
target replication
 
portfolios designed
to protect
 
product margins. Optimal
 
replicating portfolios are
 
determined at granular
 
currency- and product-specific
 
levels
by simulating and applying a real-world market rate
 
model to historically calibrated client rate and volume models.
UBS AG uses an
 
econometric prepayment model
 
to forecast prepayment
 
rates on US
 
mortgage loans in
 
UBS Bank USA
and
 
agency
 
mortgage-backed
 
securities
 
(MBSs)
 
held
 
in
 
various
 
liquidity
 
portfolios
 
of
 
UBS
 
Americas
 
Holding
 
LLC
consolidated.
 
These
 
prepayment
 
rates
 
are
 
used
 
to
 
forecast
 
both
 
mortgage
 
loan
 
and
 
MBS
 
balances
 
under
 
various
macroeconomic
 
scenarios.
 
The
 
prepayment
 
model
 
is
 
used
 
for
 
a
 
variety
 
of
 
purposes,
 
including
 
risk
 
management
 
and
regulatory
 
stress
 
testing.
 
Swiss
 
mortgages
 
and
 
fixed-term
 
deposits
 
generally
 
do
 
not
 
carry
 
similar
 
optionality,
 
due
 
to
prepayment and early redemption penalties.
p
Effect of interest rate changes on shareholders’ equity and
 
CET1 capital
The “Accounting and
 
capital effect
 
of changes in
 
interest rates” table
 
below shows the
 
effects on shareholders’
 
equity
and CET1
 
capital of gains
 
and losses from
 
changes in interest
 
rates in
 
the main
 
banking book positions.
 
We use derivatives
to hedge
 
interest
 
rate risks
 
in the
 
banking book
 
and these
 
reflect changes
 
in interest
 
rates as
 
an immediate
 
fair value
gain or loss, recognized either in the income statement or through OCI.
 
Where hedged items are accrual accounted, we
aim to minimize accounting asymmetries by applying hedge
 
accounting to reflect the economic hedge relation
 
ship.
In a rising
 
rate scenario, we
 
would have an
 
initial decrease in
 
shareholders’ equity as
 
a result of
 
fair value losses
 
on our
derivatives recognized
 
in OCI
 
while we
 
would expect
 
higher NII
 
over time
 
as rates
 
increase. The
 
effect on
 
CET1 capital
would be much lower as gains
 
and losses on interest rate
 
swaps designated as cash flow hedges
 
are not recognized for
regulatory capital purposes.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Risk management and control
 
83
Accounting and capital effect of changes in interest rates
1
Recognition
Shareholders’ equity
CET1 capital
Timing
Income statement / OCI
Gains
Losses
Gains
Losses
Loans and deposits at amortized cost
2,3
Gradual
Income statement
l
l
l
l
Other financial assets and liabilities measured at amortized
 
cost
2
Gradual
Income statement
l
l
l
l
Debt issued measured at amortized cost
2,3
Gradual
Income statement
l
l
l
l
Receivables and payables from securities financing transactions
2
Gradual
Income statement
l
l
l
l
Financial assets at fair value not held for trading
Immediate
Income statement
l
l
l
l
Financial assets at fair value through other comprehensive income
Immediate
OCI
l
l
l
Derivatives designated as cash flow hedges
Immediate
OCI
4
l
l
Derivatives designated as fair value hedges
5
Immediate
Income statement
l
l
l
l
Derivatives transacted as economic hedges
Immediate
Income statement
l
l
l
l
1 Refer to the “Reconciliation
 
of equity under IFRS
 
Accounting Standards to Swiss SRB
 
common equity tier 1
 
capital” table in the “Capital,
 
liquidity and funding, and
 
balance sheet” section of
 
this report for more
information about the differences between shareholders’ equity
 
and CET1 capital.
 
2 For fixed-rate financial instruments,
 
changes in interest rates affect the income
 
statement when these instruments roll over and
reprice.
 
3 For hedge-accounted
 
items, a fair
 
value adjustment
 
is applied in
 
line with the
 
treatment of the
 
hedging derivatives.
 
4 Excluding hedge
 
ineffectiveness that is
 
recognized in the
 
income statement in
accordance with IFRS Accounting Standards.
 
5 The fair value of
 
the derivatives is offset by
 
the fair value adjustment of
 
the hedged items. Under
 
the fair value hedge program
 
applied to cross-currency swaps and
foreign currency debt, the foreign currency basis spread is excluded from the hedge designation and accounted for through OCI,
 
which is included in CET1.
Economic value of equity sensitivity
Audited |
The EVE sensitivity
 
in the banking
 
book to a
 
+1-basis-point parallel shift
 
in yield curves
 
was negative USD
 i 28.1
m
as of 31 December 2023,
 
compared with negative
 
USD
 i 25.0
m as of 31 December
 
2022. This excludes the
 
sensitivity of
USD
 i 4.8
m from AT1
 
capital instruments (as per specific FINMA requirements)
 
in contrast to general BCBS guidance.
The majority of
 
our interest
 
rate risk in
 
the banking
 
book is a
 
reflection of
 
the net asset
 
duration that
 
we run to
 
offset
our modeled
 
sensitivity of
 
net USD
 i 22.4
m (31 December
 
2022: USD
 i 19.6
m) assigned
 
to our
 
equity,
 
goodwill and
 
real
estate, with the aim of generating a
 
stable NII contribution. Of this, USD
 i 15.8
m and USD
 i 5.6
m are attributable to the US
dollar and the Swiss franc portfolios, respectively
 
(31 December 2022: USD
 i 14.0
m and USD
 i 4.8
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
 i 5.3
bn, or
 i 9.3
%, of our tier 1 capital (31 December 2022: negative USD
 i 4.6
bn, or
 i 8.4
%),
which is well below the
 i 15
% threshold as per the BCBS
 
supervisory outlier test for high levels
 
of interest rate risk in the
banking book.
 
The immediate effect on UBS AG’s tier 1 capital in the “Parallel up” scenario
 
as of 31 December 2023 would have been
a decrease of
 
USD
 i 0.5
bn, or
 i 0.9
% (31 December
 
2022: USD
 i 0.4
bn, or
 i 0.7
%), reflecting the
 
fact that the
 
vast majority
of our banking book
 
is accrual accounted or
 
subject to hedge accounting.
 
The “Parallel up” scenario
 
would subsequently
have a positive effect on NII, assuming a constant balance
 
sheet.
UBS AG also applies granular internal interest rate shock
 
scenarios to its banking book positions to monitor the banking
book’s specific risk profile.
 
Net interest income sensitivity
The main NII
 
sensitivity in the
 
banking book resides
 
in Global Wealth
 
Management and Personal
 
& Corporate
 
Banking.
We
 
assign a
 
target
 
duration
 
to our
 
investment
 
of equity
 
portfolio,
 
and
 
Group
 
Treasury
 
actively
 
manages
 
the
 
residual
IRRBB. This
 
sensitivity is
 
assessed using
 
a number
 
of scenarios
 
assuming parallel
 
and non-parallel
 
shifts in
 
yield curves,
with various
 
degrees
 
of
 
severity,
 
and we
 
have
 
set
 
and
 
monitor
 
thresholds
 
for
 
the
 
NII sensitivity
 
to
 
immediate
 
parallel
shocks of –200 and +200 basis points under the assumption
 
of constant balance sheet volume and structure.
p
›
Refer to the “UBS AG consolidated performance”
 
section for more information about sensitivity
 
to interest rate movements
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Risk management and control
 
84
Audited |
 
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate risk – banking book
31.12.23
USD m
Effect on EVE
1
 
– FINMA
Effect on EVE
1
 
– BCBS
Scenarios
CHF
EUR
GBP
USD
Other
Total
Additional tier 1 (AT1) capital
instruments
Total
+1 bp
( i 4.3)
( i 0.7)
 i 0.0
( i 23.1)
 i 0.1
( i 28.1)
 i 4.8
( i 23.3)
Parallel up
2
( i 608.9)
( i 142.9)
 i 2.2
( i 4,522.3)
( i 15.0)
( i 5,287.0)
 i 888.3
( i 4,398.7)
Parallel down
2
 i 686.1
 i 150.0
( i 11.8)
 i 4,593.2
 i 17.1
 i 5,434.5
( i 1,028.0)
 i 4,406.6
Steepener
3
( i 335.2)
( i 16.0)
( i 13.1)
( i 973.6)
( i 23.0)
( i 1,361.0)
 i 95.9
( i 1,265.1)
Flattener
4
 i 214.1
( i 6.8)
 i 12.3
( i 94.1)
 i 17.5
 i 142.9
 i 104.7
 i 247.6
Short-term up
5
( i 38.5)
( i 48.4)
 i 13.4
( i 1,909.8)
 i 7.1
( i 1,976.3)
 i 477.4
( i 1,498.9)
Short-term down
6
 i 42.9
 i 49.8
( i 14.3)
 i 2,036.8
( i 10.0)
 i 2,105.3
( i 498.9)
 i 1,606.4
31.12.22
USD m
Effect on EVE
1
 
– FINMA
Effect on EVE
1
 
– BCBS
Scenarios
CHF
EUR
GBP
USD
Other
Total
Additional tier 1 (AT1) capital
instruments
Total
+1 bp
( i 4.1)
( i 0.6)
 i 0.1
( i 20.4)
( i 0.1)
( i 25.0)
 i 3.4
( i 21.5)
Parallel up
2
( i 576.5)
( i 111.6)
 i 33.4
( i 3,936.5)
( i 26.3)
( i 4,617.2)
 i 652.5
( i 3,964.7)
Parallel down
2
 i 644.2
 i 142.2
( i 45.7)
 i 4,066.1
 i 21.9
 i 4,828.5
( i 702.8)
 i 4,125.7
Steepener
3
( i 256.7)
( i 93.2)
( i 28.2)
( i 1,026.7)
( i 3.3)
( i 1,408.2)
( i 47.3)
( i 1,455.5)
Flattener
4
 i 144.7
 i 75.4
 i 32.7
 i 95.4
( i 2.6)
 i 345.8
 i 191.1
 i 536.9
Short-term up
5
( i 84.1)
 i 37.1
 i 42.4
( i 1,514.7)
( i 13.9)
( i 1,532.9)
 i 440.8
( i 1,092.2)
Short-term down
6
 i 88.1
( i 36.1)
( i 42.6)
 i 1,654.0
 i 13.4
 i 1,676.6
( i 457.8)
 i 1,218.8
1 Economic value
 
of equity.
 
2 Rates across
 
all tenors move
 
by ±150 bps
 
for Swiss franc,
 
±200 bps for
 
euro and US
 
dollar, and
 
±250 bps for
 
pound sterling.
 
3 Short-term rates
 
decrease and long-term
 
rates
increase.
 
4 Short-term rates increase and long-term rates decrease.
 
5 Short-term rates increase more than long-term rates.
 
6 Short-term rates decrease more than long-term rates.
 / 
p
Other market risk exposures
Own credit
We
 
are
 
exposed to
 
changes in
 
UBS AG’s
 
own credit
 
reflected
 
in the
 
valuation of
 
financial liabilities
 
designated
 
at fair
value when
 
our own
 
credit risk
 
would be
 
considered
 
by market
 
participants, except
 
for fully
 
collateralized liabilities
 
or
other obligations for which it is established market practice
 
to not include an own-credit component.
 
›
Refer to “Note 20 Fair value measurement” in the “Consolidated
 
financial statements” section of this report for more information
about own credit
Structural foreign exchange risk
Upon consolidation,
 
assets and
 
liabilities held
 
in foreign
 
operations are
 
translated into
 
US dollars
 
at the
 
closing foreign
exchange rate on the
 
balance sheet date. Value changes (in US
 
dollars) of non-US dollar assets or
 
liabilities due to foreign
exchange
 
movements are recognized in OCI and
 
therefore affect
 
shareholders’ equity and CET1 capital.
Group
 
Treasury
 
uses
 
strategies
 
to
 
manage
 
this
 
foreign
 
currency
 
exposure,
 
including
 
matched
 
funding
 
of
 
assets
 
and
liabilities and net investment hedging.
›
Refer to the “Capital, liquidity and funding,
 
and balance sheet” section of this report for more information
 
about our exposure to
and management of structural foreign exchange risk
›
Refer to “Note 10 Derivative instruments”
 
in the “Consolidated financial statements” section
 
of this report for more information
about our hedges of net investments in foreign operations
Equity investments and investment fund units
Audited |
UBS
 
AG
 
makes
 
direct
 
investments
 
in
 
a
 
variety
 
of
 
entities
 
and
 
buys
 
equity
 
holdings
 
in
 
both
 
listed
 
and
 
unlisted
companies,
 
with
 
the
 
aim
 
of
 
supporting
 
our
 
business
 
activities
 
and
 
delivering
 
strategic
 
value
 
to
 
UBS.
 
This
 
includes
investments in
 
exchange and
 
clearing house
 
memberships,
 
as well
 
as minority
 
investments in
 
early-stage fintechs
 
and
technology companies via
 
UBS Next. We
 
may also make investments
 
in funds that we
 
manage in order
 
to fund or seed
them at
 
inception or
 
to demonstrate
 
that our
 
interests
 
align with
 
those of
 
investors. We
 
also buy,
 
and are
 
sometimes
required by agreement to buy,
 
securities and units from funds that we have
 
sold to clients.
The
 
fair
 
value
 
of
 
equity
 
investments
 
tends
 
to
 
be
 
influenced
 
by
 
factors
 
specific
 
to
 
the
 
individual
 
investments.
 
Equity
investments are generally intended
 
to be held for the
 
medium or long term
 
and may be subject
 
to lock-up agreements.
For these reasons,
 
we generally do
 
not control these
 
exposures by using
 
market risk measures
 
applied to trading
 
activities.
However, such equity investments are subject to a different
 
range of controls, including preapproval of new investments
by business management
 
and Risk Control,
 
portfolio and concentration
 
limits, and regular
 
monitoring and reporting
 
to
senior management. They are also included
 
in our firm-wide statistical and stress-testing metrics,
 
which flow into our risk
appetite framework.
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Risk management and control
 
85
As of
 
31 December 2023, we
 
held equity
 
investments and investment
 
fund units
 
totaling USD
 i 2.9
bn, of
 
which USD
 i 1.9
bn
was classified as Financial assets at fair value not held for
 
trading and USD
 i 1.0
bn as Investments in associates
.
p
›
Refer to “Note 20 Fair value measurement” and “Note 28
 
Interests in subsidiaries and other entities”
 
in the “Consolidated
financial statements”
 
section of this report for more information
›
Refer to “Note 1 Summary of material accounting
 
policies” in the “Consolidated financial statements”
 
section of this report for
more information about the classification of financial instruments
Debt investments
Audited |
Debt investments classified
 
as Financial assets
 
measured at
 
fair value through
 
other comprehensive
 
income as of
31 December 2023 were measured
 
at fair value with changes in fair
 
value recorded through
 
Equity,
 
and can broadly be
categorized as money market instruments and debt securities primarily held for statutory,
 
regulatory or liquidity reasons.
The risk control framework applied to
 
debt instruments classified as Financial assets measured at fair
 
value through other
comprehensive
 
income
 
depends
 
on
 
the
 
nature
 
of
 
the
 
instruments
 
and
 
the
 
purpose
 
for
 
which
 
we
 
hold
 
them.
 
Our
exposures may be included
 
in market risk limits or
 
be subject to specific monitoring
 
and interest rate sensitivity analysis.
They are also included in our
 
firm-wide statistical and stress-testing metrics, which flow into
 
our risk appetite framework.
 
Debt instruments
 
classified
 
as Financial
 
assets
 
measured
 
at fair
 
value through
 
other
 
comprehensive
 
income
 
had a
 
fair
value of USD
 i 2.2
bn as of 31 December 2023, compared with USD
 i 2.2
bn as of 31 December 2022.
p
›
Refer to “Note 20 Fair value measurement” in the “Consolidated
 
financial statements”
 
section of this report for more information
›
Refer to “Economic value of equity sensitivity”
 
in this section for more information
›
Refer to “Note 1 Summary of material accounting
 
policies” in the “Consolidated financial statements”
 
section of this report for
more information about the classification of financial instruments
Pension risk
We provide a number of pension plans for past and current
 
employees, some classified as defined benefit pension plans
under IFRS Accounting Standards,
 
which can have a material effect
 
on our equity under IFRS Accounting Standards
 
and
CET1 capital.
Pension risk is the risk that defined benefit plans’ funded status
 
might decrease, negatively affecting our capital. This can
result from
 
falls in
 
the value
 
of a
 
plan’s assets
 
or in
 
the investment
 
returns, increases
 
in defined
 
benefit obligations,
 
or
combinations of the above.
Important risk factors affecting the fair
 
value of pension plans’ assets include equity
 
market returns, interest rates, bond
yields,
 
and
 
real
 
estate
 
prices.
 
Important
 
risk
 
factors
 
affecting
 
the
 
present
 
value
 
of
 
expected
 
future
 
benefit
 
payments
include high-grade bond yields, interest rates, inflation rates,
 
and life expectancy.
Pension risk is
 
included in our
 
firm-wide statistical and
 
stress-testing metrics, which flow
 
into our risk
 
appetite framework.
The potential effects are thus captured in the post-stress
 
capital ratio calculations.
›
Refer to “Note 1 Summary of material accounting
 
policies” and “Note 26 Post-employment benefit plans”
 
in the “Consolidated
financial statements” section of this report for more information
 
about defined benefit plans
 
Country risk
 
Country risk framework
Country risk includes all country-specific events occurring
 
in a sovereign jurisdiction that may lead to
 
impairment of UBS
AG’s exposures. It may take the form of: (i) sovereign
 
risk, which is the ability and willingness of a government to
 
honor
its
 
financial
 
commitments;
 
(ii) transfer
 
risk,
 
which
 
arises
 
if
 
a
 
counterparty
 
or
 
issuer
 
cannot
 
acquire
 
foreign
 
currencies
following a
 
moratorium by
 
a central
 
bank on
 
foreign exchange
 
transfers; or
 
(iii) “other” country
 
risk. “Other”
 
country
risk may manifest itself
 
through, on the
 
one hand, increased
 
and multiple counterparty
 
and issuer default risk
 
(systemic
risk)
 
and,
 
on
 
the
 
other
 
hand,
 
events
 
that
 
may
 
affect
 
a
 
country’s
 
standing,
 
such
 
as
 
adverse
 
shocks
 
affecting
 
political
stability or
 
institutional and
 
/ or
 
legal frameworks.
 
UBS AG has
 
a well-established
 
risk control
 
framework to
 
assess the
risk profiles of all countries where
 
we have exposure.
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Risk management and control
 
86
We assign
 
a country
 
rating to
 
each country,
 
which reflects
 
our view
 
of its
 
creditworthiness
 
and of
 
the probability
 
of a
country risk
 
event occurring.
 
Country ratings
 
are mapped
 
to statistically
 
derived
 
default probabilities,
 
described
 
under
“Probability of default” in this section.
 
We use this internal analysis
 
to set the credit ratings of
 
governments and central
banks, estimate
 
the probability
 
of a transfer
 
event occurring,
 
and establish
 
rules on how
 
aspects of country
 
risk should
be incorporated in counterparty ratings of non-sovereign
 
entities domiciled in the respective country.
Country
 
ratings
 
are
 
also
 
used
 
to
 
define
 
UBS AG’s
 
risk
 
appetite
 
regarding
 
foreign
 
countries.
 
A
 
country
 
risk
 
limit
 
(i.e.,
maximum aggregate exposure) applies to exposures to counterparties or issuers of securities and financial investments in
the
 
given
 
foreign
 
country.
 
UBS AG
 
may
 
limit
 
the
 
extension
 
of
 
credit,
 
transactions
 
in
 
traded
 
products
 
or
 
positions
 
in
securities based on a country risk ceiling even if its exposure
 
to a counterparty is otherwise acceptable.
For internal
 
measurement and
 
control of
 
country risk,
 
UBS AG also
 
considers
 
the financial
 
effect of
 
market disruptions
arising prior to, during
 
and after a
 
country crisis. These may
 
take the form of
 
a severe deterioration in a
 
country’s debt,
equity or other
 
asset markets,
 
or a sharp
 
depreciation of
 
its currency.
 
We use stress
 
testing to assess
 
potential financial
effects of severe country or sovereign crises.
 
This involves the developing of plausible stress scenarios for combined stress
testing and the
 
identification of countries
 
that may
 
potentially be subject
 
to a crisis
 
event, determining
 
potential losses
and making assumptions about recovery rates depending on
 
the types of credit transactions involved and their
 
economic
importance to the affected countries.
Country risk exposure
Country risk exposure measure
The presentation of country risk follows
 
our internal risk view, where
 
the basis for measuring exposures depends
 
on the
product category in which we classify the exposures.
 
In addition to the classification of exposures into
 
banking products
and traded products, covered in “Credit risk profile of UBS AG” in this section, in the trading inventory UBS AG
 
classifies
issuer risk
 
on securities
 
such as
 
bonds and
 
equities, as
 
well as risk
 
relating to
 
underlying reference
 
assets for
 
derivative
positions.
 
The trading inventory is managed on a net basis, and the value of long positions is netted against that of short
 
positions
with the
 
same underlying
 
issuer. Net
 
exposures are,
 
however, floored
 
at zero
 
per issuer
 
in the
 
figures presented
 
in the
following tables.
 
As a
 
result, potentially
 
offsetting benefits
 
of certain
 
hedges and
 
short positions
 
across issuers
 
are not
recognized.
We do not recognize any expected recovery values when reporting country exposures as
 
exposure before hedges, except
for
 
risk-reducing
 
effects
 
of
 
master
 
netting
 
agreements
 
and
 
collateral
 
held
 
in
 
either
 
cash
 
or
 
portfolios
 
of
 
diversified
marketable
 
securities,
 
which
 
we
 
deduct
 
from
 
the
 
potential
 
exposure
 
values.
 
Within
 
banking
 
products
 
and
 
traded
products, risk-reducing effects of credit
 
protection are generally taken
 
into account on
 
a notional basis
 
when determining
the net of hedge exposures.
Country risk exposure allocation
In general, exposures
 
are shown against
 
the country of
 
domicile of the
 
contractual counterparty or
 
the issuer of
 
the
security.
 
For
 
some
 
counterparties
 
whose
 
economic
 
substance
 
in
 
terms
 
of
 
assets
 
or
 
source
 
of
 
revenues
 
is
 
primarily
located in a different country, the exposure is allocated to
 
the risk domicile of those assets or revenues.
We apply
 
a specific approach
 
for banking
 
products exposures
 
to branches
 
of banks
 
that are
 
located in a
 
country other
than
 
the
 
legal
 
entity’s
 
domicile.
 
In
 
such
 
cases,
 
exposures
 
are
 
recorded
 
in
 
full
 
against
 
the
 
country
 
of
 
domicile
 
of
 
the
counterparty and additionally in full against the country
 
where the branch is located.
In the case of derivatives,
 
we show the counterparty
 
’s risk potential exposure
 
against the counterparty’s
 
country of risk
(presented
 
within
 
traded
 
products).
 
In
 
addition,
 
risk
 
associated
 
with
 
an
 
instantaneous
 
fall
 
in
 
value
 
of
 
underlying
reference assets
 
to zero (assuming
 
no recovery) is
 
shown against the
 
country of risk
 
of the issuer
 
of the reference
 
asset
(presented within trading inventory). This approach allows us to capture both counterparty and, where applicable, issuer
elements
 
of risk
 
arising
 
from
 
derivatives
 
and
 
applies
 
comprehensively
 
for
 
all
 
derivatives,
 
including
 
single-name
 
credit
default swaps (CDSs)
 
and other credit
 
derivatives.
CDSs are primarily
 
bought and
 
sold in
 
relation to
 
our trading
 
businesses, and,
 
to a
 
much lesser
 
degree, used
 
to hedge
credit
 
valuation
 
adjustments.
 
Holding
 
CDSs
 
for
 
credit
 
default
 
protection
 
does
 
not
 
necessarily
 
protect
 
the
 
buyer
 
of
protection against losses, as contracts only pay out under certain scenarios. The effectiveness of
 
our CDS protection as a
hedge
 
of
 
default
 
risk
 
is
 
influenced
 
by
 
several
 
factors,
 
including
 
the
 
contractual
 
terms
 
under
 
which
 
a
 
given
 
CDS
 
was
written. Generally, only
 
the occurrence of
 
credit events
 
as defined
 
by the
 
CDS contract’s terms
 
(which may
 
include, among
other
 
events,
 
failure
 
to
 
pay,
 
restructuring
 
or
 
bankruptcy)
 
results
 
in
 
payments
 
under
 
the
 
purchased
 
credit
 
protection
contracts.
 
For
 
CDS
 
contracts
 
on
 
sovereign
 
obligations,
 
repudiation
 
can
 
also
 
be
 
deemed
 
as
 
a
 
default
 
event.
 
The
determination
 
as to
 
whether
 
a
 
credit event
 
has occurred
 
is made
 
by the
 
relevant
 
International Swaps
 
and Derivatives
Association (ISDA) determination committees
 
(composed of various ISDA member
 
firms) based on the terms of
 
the CDS
and the facts and circumstances surrounding the event.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Risk management and control
 
87
Top 20 country risk exposures
The
 
table
 
below
 
shows
 
UBS
 
AG’s
 
20
 
largest
 
country
 
exposures
 
by
 
product
 
type,
 
excluding
 
our
 
home
 
country,
 
as
 
of
31 December 2023 compared with 31 December
 
2022.
Compared
 
with
 
the
 
prior
 
year,
 
UBS
 
AG’s
 
net
 
exposure
 
to
 
the
 
US
 
increased
 
by
 
USD 26.7bn,
 
driven
 
by
 
central
 
bank
exposures due to
 
treasury activities, as
 
well as loans
 
to corporates. Net
 
exposure to the
 
UK increased by
 
USD 8.7bn, driven
by central bank exposures due to treasury activities.
 
Based on the
 
sovereign rating categories, as
 
of 31 December 2023, 88%
 
of UBS AG’s emerging
 
market country exposure
was rated investment grade, compared with 87% as of 31
 
December 2022.
Israel
As
 
of
 
31 December
 
2023,
 
UBS
 
AG’s
 
direct
 
country
 
risk
 
exposure
 
to
 
Israel
 
was
 
USD 289m,
 
mainly
 
from
 
lending
 
and
collateralized
 
OTC
 
derivatives
 
exposure
 
within
 
the
 
Investment
 
Bank.
 
UBS
 
AG’s
 
direct
 
exposure
 
to
 
Gulf
 
Cooperation
Council countries was USD 2.5bn.
 
The direct exposure to Egypt,
 
Jordan and Lebanon is
 
limited,
 
and UBS AG has
 
no direct
exposure to Iran, Iraq or Syria.
 
Russia
UBS
 
AG’s
 
direct
 
country
 
risk
 
exposure
 
to
 
Russia
 
contributed
 
USD 66m
 
to
 
our
 
total
 
emerging
 
market
 
exposure
 
of
USD 22.0bn as of 31 December 2023,
 
compared with a contribution of USD 98m
 
as of 31 December 2022. This
 
includes
nostro accounts balances, and issuer risk on trading
 
inventory within the Investment Bank.
UBS AG had no material direct country risk exposures
 
to Belarus or to Ukraine as of 31 December
 
2023 and no material
reliance on Russian, Belarusian or Ukrainian collateral.
Top
 
20 country risk net exposures, by product type
USD m
Total
Banking products
(loans, guarantees, loan
 
commitments)
Traded products
(counterparty risk from derivatives
and securities financing)
after master netting agreements
and net of collateral
Trading inventory
(securities and potential
benefits / remaining
exposure from derivatives)
Net of hedges
1
Net of hedges
1
Net of hedges
Net long per issuer
31.12.23
31.12.22
2
31.12.23
31.12.22
2
31.12.23
31.12.22
2
31.12.23
31.12.22
2
United States
165,639
138,924
104,845
81,875
27,463
27,550
33,331
29,499
United Kingdom
40,836
32,104
22,248
10,828
16,922
19,786
1,666
1,490
Germany
20,864
20,115
7,212
8,255
7,533
6,959
6,118
4,901
Japan
18,328
22,221
13,300
13,251
4,457
8,559
571
410
Singapore
10,310
12,137
2,122
3,038
3,362
3,767
4,827
5,332
France
9,125
10,641
1,466
2,056
3,206
3,980
4,453
4,605
Canada
8,722
7,832
550
274
2,741
3,730
5,431
3,827
Australia
8,446
8,895
1,964
1,365
4,443
5,834
2,038
1,696
China
4,993
4,709
1,015
1,347
835
1,379
3,144
1,983
South Korea
4,312
3,896
437
388
647
1,042
3,228
2,466
Luxembourg
3,947
3,423
3,212
2,717
566
280
169
427
Netherlands
3,804
5,964
812
1,074
2,051
3,767
941
1,123
Sweden
3,259
2,283
225
158
1,545
1,322
1,490
803
Hong Kong SAR
2,776
3,666
884
938
885
1,843
1,007
885
Norway
2,114
2,417
58
80
530
1,137
1,526
1,200
Italy
1,459
1,492
751
628
470
703
238
161
Austria
1,323
1,526
137
285
572
450
615
792
Spain
1,316
1,032
669
630
321
201
325
200
Monaco
1,204
1,021
1,191
1,001
13
20
0
0
Finland
1,185
1,185
44
62
341
432
800
691
Total top 20
3
313,962
285,483
163,142
130,250
78,903
92,741
71,918
62,491
1 Before
 
deduction of
 
IFRS 9
 
ECL allowances
 
and provisions.
 
2 Comparative
 
period has
 
been restated
 
to reflect
 
a change
 
in the
 
measure used
 
to disclose
 
country risk
 
exposures.
 
3 Excluding
 
Switzerland,
supranationals and global funds.
Emerging marketsą net exposure˛, by internal UBS country rating category
USD m
31.12.23
31.12.22
3
Investment grade
19,328
21,900
Sub-investment grade
2,697
3,173
Total
22,025
25,073
1 UBS AG classifies countries as emerging
 
markets based on per capita
 
GDP, historical
 
real GDP growth, alignment with international
 
institutions (such as BIS, World
 
Bank, IMF,
 
MSCI) and other factors.
 
2 Net of
credit hedges (for banking products and for traded products); net long per issuer (for trading inventory). Before deduction of IFRS 9 ECL allowances and provisions.
 
3 Comparative period has been restated to reflect
a change in the measure used to disclose country risk exposures.
 
 
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Risk management and control
 
88
Sustainability and climate risk
Our climate
 
strategy
 
and governance
 
are determined
 
and overseen
 
at
 
the
 
UBS Group
 
level. Similarly,
 
we identify
 
and
manage climate
 
risks, including
 
climate-related
 
financial risks,
 
in our
 
own operations,
 
balance sheet,
 
client assets
 
and
supply chain on the UBS Group level.
 
Climate-related metrics for UBS AG are presented in the
 
UBS Group Annual Report 2023.
›
Refer to “Sustainability and climate risk” in the
 
“Risk management and control” section of the UBS
 
Group Annual Report 2023,
available under “Annual reporting” at
ubs.com/investors
, for more information
›
Refer to the “Our sustainability and impact strategy”
 
section of the UBS Group Sustainability Report 2023, available
 
under
“Annual reporting” at
ubs.com/investors
, for more information
 
Non-financial risk
Non-financial
 
risk
 
is
 
the
 
risk
 
of
 
undue
 
monetary
 
loss
 
and
 
/
 
or
 
non-monetary
 
adverse
 
consequences
 
resulting
 
from
inadequate or failed internal processes, people and / or systems, failure to comply with laws
 
and regulations and internal
policies and
 
procedures, or
 
external events
 
(deliberate, accidental
 
or natural)
 
that have
 
an impact
 
on UBS, its
 
clients or
its markets.
Key developments
We have identified nine non-financial risk themes as
 
being currently key to us. These are:
–
governance and legal structure integration;
–
financial and regulatory reporting;
–
operational resilience,
 
stability and cybersecurity;
–
data life cycle;
–
investor protection and market interaction;
–
strategic growth initiatives and cross-divisional interaction
 
;
–
the evolving
 
nature of
 
anti-money laundering
 
(AML), know
 
your client
 
(KYC), sanctions,
 
anti-bribery and
 
corruption
(ABC), and fraud;
–
employee conduct, capacity and culture; and
–
environmental, social and governance (ESG) risks.
UBS
 
continues
 
to
 
actively
 
manage
 
the
 
non-financial
 
risks
 
emerging
 
from
 
the
 
acquisition
 
of
 
the
 
Credit
 
Suisse
 
Group,
including
 
the
 
current
 
operation
 
of
 
dual
 
corporate
 
structures,
 
and
 
the
 
scale,
 
pace
 
and
 
complexity
 
of
 
the
 
required
integration activities. These
 
activities continue to be
 
managed by the
 
program run by our
 
Group Integration Office.
 
The
integration of Credit Suisse
 
requires data to be
 
migrated into the UBS
 
environment and we
 
aim to ensure that
 
we have
robust controls to preserve data
 
integrity, quality and availability to mitigate
 
data migration risks and to meet
 
regulatory
expectations.
Through this period of change,
 
we place an increased focus on maintaining and enhancing our control environment and
continue
 
to
 
cooperate
 
with
 
regulators
 
in
 
relation
 
to
 
the
 
submission
 
and
 
execution
 
of
 
implementation
 
plans
 
to
 
meet
regulatory
 
expectations,
 
including
 
remediation
 
requirements
 
applicable
 
to
 
Credit
 
Suisse AG.
 
In
 
addition,
 
the
 
Group
 
is
closely monitoring non-financial risk indicators to detect
 
any potential for adverse impacts on the control environment
 
.
There is an
 
increased risk
 
of cyber-related
 
operational disruption to
 
business activities
 
at our locations
 
and / or
 
those of
third-party suppliers due
 
to operating an
 
enlarged group of
 
entities. This is
 
combined with the
 
increasingly dynamic threat
environment,
 
which
 
is
 
intensified
 
by
 
current
 
geopolitical
 
factors
 
and
 
evidenced
 
by
 
the
 
increased
 
volumes
 
and
sophistication of cyberattacks against financial institutions
 
globally.
Cyberattacks on third-party vendors have affected our operations in the past and continue to be a source of residual risk
to our
 
business.
 
We
 
remain
 
on
 
heightened
 
alert
 
to respond
 
to
 
and
 
mitigate
 
elevated
 
cyber-
 
and
 
information-security
threats. During the first quarter
 
of 2023, a third-party vendor, ION XTP,
 
suffered a ransomware attack,
 
which resulted in
some disruption to our
 
exchange-traded derivatives clearing activities, although we
 
restored our services within
 
36 hours,
using an available alternative solution. Following a post-incident review,
 
we are improving our frameworks for managing
third parties that
 
support our
 
important business services
 
and are taking
 
actions to enhance
 
our cyber-risk assessments
and controls over third-party vendors. We continue
 
to invest in improving our technology infrastructure and
 
information-
security governance to improve our defense, detection and response
 
capabilities against cyberattacks.
In
 
addition,
 
we
 
are
 
working
 
to
 
enhance
 
our
 
operational
 
resilience
 
to
 
address
 
these
 
heightened
 
risks
 
and
 
to
 
meet
regulatory
 
deadlines
 
through
 
2026.
 
We
 
are
 
implementing
 
a
 
global
 
framework
 
designed
 
to
 
drive
 
enhancements
 
in
operational
 
resilience
 
across
 
all
 
business
 
divisions
 
and
 
relevant
 
jurisdictions,
 
as
 
well
 
as working
 
with
 
the
 
third
 
parties,
including
 
vendors,
 
that
 
are
 
of
 
critical
 
importance
 
to
 
our
 
operations
 
to
 
assess
 
their
 
operational
 
resilience
 
against
 
our
standards.
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Risk management and control
 
89
The increasing
 
interest in
 
data-driven advisory
 
processes, and
 
use of
 
artificial intelligence
 
(AI) and
 
machine learning,
 
is
opening up new questions related to the fairness of AI algorithms, data life-cycle management, data ethics, data privacy
and security,
 
and records
 
management.
 
In addition,
 
new risks
 
continue to
 
emerge, such
 
as those
 
that result
 
from the
demand from our
 
clients for
 
distributed ledger
 
technology, blockchain-based
 
assets and
 
cryptocurrencies; however,
 
we
currently have limited
 
exposure to such
 
risks, and relevant
 
control frameworks for
 
them are implemented
 
and reviewed
on a regular basis as they evolve.
Competition to find new business opportunities,
 
products and services across the financial services sector, both for
 
firms
and for customers, is
 
increasing, particularly during periods
 
of market volatility and
 
economic uncertainty.
 
Thus, suitability
risk,
 
product
 
selection,
 
cross-divisional
 
service
 
offerings,
 
quality
 
of
 
advice
 
and
 
price
 
transparency
 
remain
 
areas
 
of
heightened focus for UBS and for the industry as a whole.
Evolving ESG regulations
 
and major legislation, such as the Consumer Duty regulation
 
in the United Kingdom, the Swiss
Financial Services
 
Act (FIDLEG)
 
in Switzerland,
 
Regulation Best
 
Interest (Reg
 
BI) in
 
the US
 
and the
 
Markets in
 
Financial
Instruments Directive II
 
(MiFID II) in
 
the EU, all
 
significantly affect
 
the industry and
 
have required adjustments
 
to control
processes.
Cross-border
 
risk
 
(including
 
unintended
 
permanent
 
establishment)
 
remains
 
an
 
area
 
of
 
regulatory
 
attention
 
for
 
global
financial institutions, including
 
a focus on
 
market access, such
 
as third-country market
 
access into
 
the European Economic
Area, and taxation of US persons.
 
We maintain a series of controls designed to
 
address these risks, and we are increasing
the number of controls that are automated.
Financial
 
crime,
 
including
 
money
 
laundering,
 
terrorist
 
financing,
 
sanctions
 
violations,
 
fraud,
 
bribery
 
and
 
corruption,
continues to present a
 
major risk, as technological
 
innovation and geopolitical
 
developments increase the
 
complexity of
doing business and heightened regulatory
 
attention continues. An effective financial crime
 
prevention program therefore
remains essential,
 
and we continue to
 
focus on strategic enhancements to
 
our global AML, KYC
 
and sanctions programs.
Money
 
laundering
 
and
 
financial
 
fraud
 
techniques
 
are
 
becoming
 
increasingly
 
sophisticated,
 
and
 
geopolitical
 
volatility
makes the sanctions
 
landscape more complex.
 
The extensive and continuously
 
evolving sanctions arising from
 
the Russia–
Ukraine war require constant attention to prevent
 
circumvention risks, while the conflicts in
 
the Middle East may increase
terrorist-financing risks.
In the US,
 
UBS AG entered
 
into a Consent
 
Order with the
 
Office of the
 
Comptroller of the
 
Currency (the
 
OCC) in
 
May
2018 relating to
 
our US branch
 
AML and KYC
 
programs. In response,
 
we have
 
introduced significant
 
improvements to
our framework for the purpose of ensuring sustainable remediation
 
of US-relevant Bank Secrecy Act / AML issues across
all our US legal entities.
Achieving fair
 
outcomes for
 
our clients,
 
upholding market
 
integrity and
 
cultivating
 
the highest
 
standards of
 
employee
conduct are of
 
critical importance
 
to us. We
 
maintain a conduct
 
risk framework
 
across our activities,
 
which is designed
to align our standards and conduct with these objectives
 
and to retain momentum on fostering a strong culture.
In
 
September
 
2022,
 
the
 
US
 
Securities
 
and
 
Exchange
 
Commission
 
(the
 
SEC)
 
and
 
the
 
Commodity
 
Futures
 
Trading
Commission
 
(the
 
CFTC)
 
issued
 
settlement
 
orders
 
relating
 
to
 
communications
 
recordkeeping
 
requirements
 
in
 
our
 
US
broker-dealers
 
and our
 
registered
 
swap
 
dealers.
 
In response
 
to shortcomings
 
identified
 
in that
 
context,
 
we
 
continued
work on a global remediation program started in 2022.
Non-financial risk framework
We follow a Group-wide non-financial risk framework that establishes requirements for identifying, managing, assessing
and mitigating operational,
 
compliance and financial
 
crime risks to achieve
 
an agreed balance between
 
risk and return.
It is built on the following pillars:
–
classifying inherent risks through 19 non-financial risk taxonomies,
 
which define the universe of material non-financial
risks that can arise as a consequence of our business activities
 
and external factors;
–
performing
 
control
 
assurance
 
activities,
 
including
 
self-assessing
 
the
 
design
 
and
 
operating
 
effectiveness
 
of
 
controls,
first- and second-line-of-defense control reviews and
 
independent control testing;
–
defining
 
the
 
non-financial
 
risk
 
appetite
 
(including
 
a
 
financial
 
risk
 
appetite
 
statement
 
at
 
the
 
Group,
 
UBS AG
 
and
business
 
division
 
levels
 
for
 
non-financial
 
risk
 
events)
 
through
 
quantitative
 
metrics
 
and
 
thresholds
 
and
 
qualitative
measures, and assessing risk exposure against appetite;
–
assessing inherent
 
and residual risk
 
through risk
 
assessment processes and
 
determining whether additional
 
remediation
plans are required to address identified deficiencies;
 
and
–
proactively and sustainably remediating identified control deficiencies.
Divisional Presidents
 
are accountable
 
for the
 
effectiveness of
 
non-financial risk
 
management and
 
for the
 
robustness of
the front-to-back control
 
environment within their
 
business divisions, and
 
legal-entity-responsible executives are in
 
charge
of non-financial
 
risk management
 
within their
 
legal entities.
 
Group function
 
heads are
 
accountable for
 
supporting the
divisional Presidents and legal
 
-entity-responsible executives of
 
our legal entities in
 
the discharge of this
 
responsibility, by
confirming completeness
 
and effectiveness
 
of the control
 
environment and non-financial
 
risk management
 
within their
Group functions. Collectively,
 
divisional Presidents, central
 
Group function heads
 
and legal-entity-responsible executives
are in charge of implementing the non-financial risk framework.
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Risk management and control
 
90
Compliance & Operational
 
Risk Control (C&ORC)
 
is responsible for
 
providing an independent
 
and objective view
 
of the
adequacy of non-financial risk management across
 
the Group, and ensuring that
 
compliance risk, financial crime risk and
operational risk are
 
understood, owned and
 
managed in accordance
 
with our risk
 
appetite. C&ORC business-
 
or function-
aligned
 
teams
 
sit
 
within
 
the
 
Group
 
Compliance,
 
Regulatory
 
&
 
Governance
 
function,
 
reporting
 
to
 
the
 
Group
 
Chief
Compliance and Governance Officer, who is a member
 
of the Group Executive Board.
The non-financial risk
 
framework forms the
 
common basis for
 
managing and assessing
 
compliance risk, financial
 
crime
risk
 
and
 
operational
 
risk,
 
and
 
there
 
are
 
additional
 
C&ORC
 
activities
 
intended
 
to
 
ensure
 
we
 
are
 
able
 
to
 
demonstrate
compliance with applicable laws, rules and regulations.
In 2023, we successfully executed
 
on the framework enhancements
 
designed in 2022, with, for
 
example, several cycles
of risk appetite
 
assessments performed
 
on the basis
 
of the Group-wide
 
non-financial risk appetite
 
statements across all
taxonomies. We focused on improving effectiveness by simplifying and digitalizing
 
the non-financial risk framework and
respective processes.
All functions
 
within UBS
 
are required
 
to periodically
 
assess the
 
design and
 
operating effectiveness
 
of key
 
internal non-
financial risk
 
controls. The
 
output of
 
these reviews
 
supports the
 
assessment and
 
testing scope
 
of internal
 
controls over
financial reporting as required by the Sarbanes–Oxley Act,
 
Section 404 (SOX 404).
Key control deficiencies identified during the internal control and risk
 
assessment processes must be reported in the non-
financial
 
risk
 
inventory,
 
and
 
sustainable
 
remediation
 
must
 
be
 
defined
 
and
 
executed.
 
These
 
control
 
deficiencies
 
are
assigned to
 
owners at
 
senior management
 
level and
 
the remediation
 
progress is
 
reflected
 
in the
 
respective managers’
annual performance
 
measurement and
 
objectives. To
 
assist with
 
prioritizing the
 
most material
 
control deficiencies
 
and
measuring aggregated risk exposure, irrespective of origin, a
 
common rating methodology is applied across
 
all three lines
of defense, as well as by external audit.
Cybersecurity
Cybersecurity for UBS AG is integrated into the UBS Group risk control
 
framework.
Risk management and strategy
 
Cyber-
 
and information
 
security risk
 
is the
 
risk that
 
a
 
malicious
 
internal or
 
external act,
 
or a
 
failure
 
of IT
 
hardware
 
or
software,
 
or
 
human
 
error
 
may
 
have
 
a
 
material
 
impact
 
on
 
confidentiality,
 
integrity,
 
or
 
availability
 
of
 
UBS’s
 
data
 
or
information systems.
Cybersecurity is a key operational risk facing UBS
 
and we devote considerable resources to establishing
 
and maintaining
processes for assessing, identifying
 
and managing cybersecurity
 
risk through our global workforce
 
and cyber-operations
centers around the world.
 
›
Refer to “Risk governance” in this section
 
for information about our approach to risk management,
 
including our risk governance
framework
Governance
In line
 
with our
 
overall non-financial
 
risk management
 
framework,
 
we take
 
a cross-functional
 
approach to
 
addressing
cybersecurity
 
risk,
 
with
 
the
 
Group
 
Operations
 
and
 
Technology
 
Office
 
(GOTO),
 
business
 
divisions,
 
Group
 
Compliance,
Regulatory & Governance (GCRG), Group
 
Risk Control, Group Legal,
 
and Group Internal Audit all playing
 
key roles. Our
risk control framework follows the three-lines-of-defense model. GOTO establishes the policies and
 
procedures designed
to
 
safeguard
 
our
 
information
 
systems
 
and
 
the
 
information
 
those
 
systems
 
collect
 
and
 
process.
 
The
 
business
 
divisions,
together
 
with GOTO,
 
are
 
then responsible
 
for
 
implementing
 
those
 
policies
 
and
 
procedures
 
as part
 
of the
 
first line
 
of
defense.
 
Group
 
Compliance,
 
Regulatory
 
&
 
Governance
 
(GCRG)
 
leads
 
the
 
second
 
line
 
of
 
defense,
 
by
 
convening
 
and
consulting with additional
 
control functions to provide independent
 
oversight, and challenges
 
the first line’s
 
cybersecurity
framework and
 
implementation. As
 
the third
 
line of
 
defense, Group
 
Internal Audit
 
conducts independent
 
reviews and
validates the first-line and second-line processes and
 
functions.
The Cyber- and
 
Information Security
 
Committee (the
 
CIS-C) is the
 
primary decision-making
 
body with oversight
 
of and
accountability for the Group-wide cyber- and information security
 
(CIS) program. The committee is jointly chaired by the
Group
 
Chief Operations
 
and Technology
 
Officer and
 
the
 
Group
 
Chief Compliance
 
and Governance
 
Officer.
 
The
 
Head
Group Internal Audit
 
is a
 
standing guest. The committee
 
meets on a
 
monthly basis and
 
serves as a
 
platform for interaction
across all
 
business divisions, Group
 
functions and the
 
three lines of
 
defense for the
 
identification and effective
 
governance
of CIS
 
strategy, risks
 
and regulatory obligations.
 
The CIS-C governance
 
structure is
 
intended to
 
streamline decision-making
and, where
 
necessary, escalation
 
to the
 
Board of
 
Directors (the
 
BoD) and
 
Group Executive
 
Board (GEB),
 
who maintain
overall responsibility for overseeing UBS.
 
Because Credit Suisse and
 
UBS still have separate
 
digital platforms, Credit Suisse
 
maintained much of its
 
pre-acquisition
cyber- and
 
information security
 
governance during
 
2023, but
 
was increasingly
 
aligned to
 
the UBS
 
CIS risk
 
governance
framework. Credit Suisse’s CIS program is led by the Credit Suisse Chief
 
Information Security Officer, who reports to the
Credit
 
Suisse
 
Chief
 
Technology
 
Officer
 
and
 
the
 
UBS
 
Group
 
Chief
 
Information
 
Security
 
Officer
 
(the
 
Group
 
CISO).
 
In
addition, the Credit Suisse Chief Technology Officer and Credit
 
Suisse Chief Operations Officer report to the Group Chief
Operations and Technology Officer.
›
Refer to “Cybersecurity governance” in “Board
 
of Directors”
 
in the “Corporate governance” section of
 
this report for more
information
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Risk management and control
 
91
Our cyber- and information security program
Our CIS program is led by the Group CISO, who
 
reports both to the Group Chief Operations and Technology Officer and
the
 
Group
 
Chief
 
Compliance
 
and
 
Governance
 
Officer.
 
The
 
CIS
 
program
 
is
 
designed
 
to
 
identify,
 
prevent,
 
detect
 
and
respond to CIS events, with the goal of
 
maintaining the integrity and availability of our technology infrastructure and the
confidentiality
 
and
 
integrity
 
of
 
our
 
information.
 
Our
 
Group
 
CISO,
 
senior
 
management
 
within
 
GOTO,
 
as
 
well
 
as
management
 
personnel overseeing
 
the CIS
 
program,
 
all have
 
substantial relevant
 
expertise
 
in the
 
areas
 
of cyber-
 
and
information security.
 
Our CIS program includes the following elements:
–
Threat intelligence:
 
We systematically gather
 
threat information and
 
monitor threat alerts
 
from external sources.
 
Our
cyber-threat
 
intelligence
 
team
 
analyzes
 
such
 
information
 
and
 
uses
 
it
 
to
 
enhance
 
existing
 
defense
 
capabilities,
 
to
respond to identified threats and to adjust our cybersecurity
 
strategy where needed.
 
–
Preventative and detection
 
controls:
 
We use layered
 
firm-wide controls to
 
prevent and detect
 
cyberattacks. Defenses
include system hardening, firewalls, intrusion prevention
 
and detection systems, and other controls. External
 
network
connections are identified
 
and recorded in
 
an inventory. Access
 
rights are defined
 
for information assets,
 
and IT systems
and
 
applications
 
enforce
 
authentication.
 
We
 
maintain
 
access
 
controls
 
and
 
approval
 
processes
 
designed
 
to
 
prevent
unauthorized access.
–
Cyber-defense
 
and
 
incident
 
response
 
capabilities
:
 
The
 
Cybersecurity
 
Operations
 
Center
 
is responsible
 
for
 
providing
24/7/365
 
real-time
 
monitoring,
 
detection
 
and
 
response
 
capabilities
 
for
 
cybersecurity
 
threats
 
and
 
attacks.
 
Incidents
assessed
 
as
 
having
 
the
 
potential
 
to
 
adversely
 
affect
 
our
 
critical
 
operations
 
are
 
subject
 
to
 
mandatory
 
management
notification.
 
If
 
assessed
 
as
 
potentially
 
significant,
 
cybersecurity
 
and
 
data
 
incidents
 
are
 
managed
 
under
 
our
 
crisis
management framework.
–
Education and
 
training:
All UBS
 
staff, including
 
the external
 
workforce,
 
receive appropriate
 
CIS awareness
 
training,
commensurate with their roles and responsibilities.
 
–
Third-party risk:
 
Vulnerabilities
 
in the
 
cyber-risk environment
 
of third
 
parties represent
 
a particular
 
threat to
 
our CIS
and our ability to maintain our
 
business services. We follow a risk-based approach to
 
assess and mitigate cybersecurity
risks related to third parties. Third-party services
 
and processes are monitored and checked
 
on an ongoing basis, with
appropriate
 
supervision
 
from
 
the
 
CIS-C.
 
This
 
is
 
a
 
key
 
component
 
of
 
our
 
third-party
 
risk
 
management
 
program,
notwithstanding the
 
challenges we
 
face in
 
imposing the
 
same levels
 
of protection
 
to the
 
systems and
 
data of
 
third
parties that we rely on ourselves.
 
–
Monitoring
 
and
 
testing:
 
Effective
 
incident
 
response
 
and
 
problem
 
management
 
processes
 
are
 
complemented
 
by
vulnerability assessments, penetration
 
and testing
 
engagements based
 
on specific
 
threat scenarios
 
that simulate
 
tactics,
techniques
 
and
 
procedures
 
that
 
might
 
be
 
used
 
against
 
our
 
systems,
 
as
 
mandated
 
by
 
our
 
policy
 
regulations.
 
This
includes testing
 
by internal
 
and external
 
red teams.
 
Actual security-related
 
events are
 
directly correlated
 
with threat
scenarios to monitor and
 
detect potential threats, such
 
as network-intrusion and malware-driven events.
 
Our deployed
security measures are designed with
 
the objective to isolate and
 
contain threats that are detected to
 
allow for effective
incident response and analysis.
Our cybersecurity assessment framework
Our cybersecurity
 
assessment
 
framework
 
includes internal
 
and external
 
cybersecurity
 
risk assessments
 
for applications
and bank processes
 
alongside a
 
structured risk
 
assessment process
 
of third-party
 
service providers.
 
These processes
 
are
designed, along with our security capabilities, to support
 
business objectives and priorities.
 
We
 
conduct
 
assessments
 
to
 
evaluate
 
and
 
test
 
our
 
cybersecurity
 
program,
 
and
 
provide
 
guidance
 
on
 
operating
 
and
improving
 
the
 
CIS
 
program,
 
including
 
the
 
design
 
and
 
operational
 
effectiveness
 
of
 
the
 
security
 
and
 
resiliency
 
of
 
our
information systems.
 
Our assessments,
 
along with
 
our threat
 
intelligence capabilities,
 
are used
 
to assess
 
and prioritize
programs to
 
improve our
 
security, our
 
incident response
 
capabilities and
 
our operational
 
resilience. As
 
the cyber-threat
landscape evolves at an increasing
 
pace, we seek to enhance
 
our cybersecurity controls to
 
meet developing threats. We
have
 
ongoing
 
programs
 
that
 
are
 
intended to
 
increase
 
our
 
cybersecurity
 
maturity
 
across
 
various
 
dimensions,
 
including
governance, identification,
 
protection and
 
detection, as
 
well as cyberattack
 
response and recovery,
 
and risk from
 
third-
party service providers.
 
We recognize
 
that we
 
will never
 
be able
 
to completely
 
eliminate the
 
risk of
 
a future
 
cyberattack, but,
 
by using
 
a risk-
based approach, we
 
work toward reducing
 
the likelihood of
 
a successful attack
 
and toward mitigation
 
of the potential
business impact of such an attack.
 
The BoD, its Risk Committee and the GEB receive regular presentations and reports throughout the year from our Group
Chief
 
Operations
 
and
 
Technology
 
Officer
 
and
 
our
 
Group
 
CISO
 
on
 
internal
 
and
 
external
 
cybersecurity
 
developments,
threats
 
and
 
risks.
 
In
 
addition,
 
on
 
a
 
quarterly
 
basis,
 
the
 
BoD receives
 
reports
 
on
 
the
 
performance
 
of
 
cybersecurity
 
risk
appetite
 
metrics,
 
including
 
metrics
 
on
 
vulnerabilities
 
and
 
third-party
 
cybersecurity
 
risks
 
and
 
incidents,
 
and
 
is
 
notified
promptly if
 
a Board-level
 
cybersecurity risk
 
limit is
 
breached. The
 
Risk Committee
 
of the
 
BoD and
 
the GEB
 
also receive
regular updates on CIS strategy, risks and alignment with
 
regulatory requirements.
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Risk management and control
 
92
Operational resilience and incident response
 
Our business
 
continuity and
 
resilience
 
framework
 
is designed
 
to limit
 
the disruption
 
cybersecurity events
 
cause to
 
our
business activities.
 
In accordance
 
with the
 
firm’s cyber-incident
 
response
 
framework,
 
the CIS-C,
 
including the
 
incident
response
 
team,
 
tracks,
 
documents,
 
responds
 
to
 
and
 
analyzes
 
cybersecurity
 
threats
 
and
 
incidents,
 
including
 
those
experienced by
 
the firm’s
 
third-party
 
service providers
 
that may
 
impact the
 
firm. Additionally,
 
we maintain
 
established
procedures
 
for responding
 
to, and
 
escalating, cybersecurity
 
and other
 
system availability
 
incidents. These
 
are
 
regularly
practiced, including tabletop exercises up to and
 
including the GEB and BoD levels.
 
Our cybersecurity and
 
data confidentiality contingency plans
 
include event playbooks and
 
escalation procedures designed
to support a structured
 
assessment of potential
 
incidents and timely
 
escalation and reporting
 
of incidents based
 
on the
assessed potential impact.
 
Incidents assessed to
 
have the potential to
 
adversely affect our
 
critical operations are
 
subject
to
 
mandatory
 
management
 
notification.
 
If
 
assessed
 
as
 
potentially
 
significant,
 
cybersecurity
 
and
 
data
 
incidents
 
are
managed
 
under
 
our
 
crisis
 
management
 
framework,
 
which
 
provides
 
pre-established
 
cross-functional
 
task
 
forces
 
to
manage the incident, ensure appropriate
 
and timely regulatory, market
 
and client communications and robust oversight
by management, with escalation frameworks to inform and
 
ensure oversight by the GEB and the BoD.
›
Refer to “Crisis management framework” in the
 
“Regulation and supervision” section of this
 
report for more information about
our crisis management framework
Advanced measurement approach model
The non-financial risk
 
framework outlined above
 
underpins the calculation
 
of regulatory capital
 
for operational
 
risk, which
enables us to quantify operational risk
 
and define effective risk-mitigating management
 
incentives as part of the related
operational risk capital allocation approach to the business divisions.
We
 
measure
 
Group
 
operational
 
risk
 
exposure
 
and
 
calculate
 
operational
 
risk
 
regulatory
 
capital
 
using
 
the
 
advanced
measurement
 
approach
 
(AMA)
 
in
 
accordance
 
with
 
Swiss
 
Financial
 
Market
 
Supervisory
 
Authority
 
(FINMA)
 
and
international requirements.
 
In 2023,
 
we introduced
 
an aggregation
 
of the
 
AMAs for
 
UBS AG and
 
Credit Suisse AG
 
to
report on total operational
 
-risk-related risk-weighted
 
assets (RWA) for the
 
UBS Group. The related
 
diversification effect,
agreed with
 
FINMA, resulted
 
in a
 
USD 10bn reduction
 
for reported
 
RWA from
 
the second
 
quarter of
 
2023 onward,
 
of
which USD 4.9bn was recognized for UBS AG.
An
 
entity-specific
 
AMA
 
model
 
has
 
been
 
applied
 
for
 
UBS
 
Switzerland AG,
 
while
 
for
 
other
 
regulated
 
entities
 
the
 
basic
indicators or
 
standardized approaches
 
are adopted
 
for regulatory
 
capital in
 
agreement
 
with local
 
regulators. Also,
 
the
methodology of the UBS AMA is leveraged for entity-specific
 
internal capital adequacy assessment processes.
Currently, the model includes 18 AMA
 
units of measure (UoM), which are
 
aligned with our non-financial risk
 
taxonomy.
Frequency and severity distributions
 
are calibrated for each
 
of the model’s UoM.
 
The modeled distribution functions
 
for
both frequency and severity are used
 
to generate the annual loss distribution.
 
The resulting 99.9% quantile of the
 
overall
annual operational risk
 
loss distribution across
 
all UoM determines
 
the required regulatory
 
capital. Currently, we
 
do not
reflect mitigation through insurance or any other risk transfer
 
mechanism in our AMA model.
AMA model calibration and review
A
 
key
 
assumption
 
when
 
calibrating
 
data-driven
 
frequency
 
and
 
severity
 
distributions
 
is
 
that
 
historical
 
losses
 
form
 
a
reasonable proxy
 
for future
 
events. In
 
line with
 
regulatory
 
expectations, the
 
AMA methodology
 
utilizes both
 
historical
internal losses and external losses suffered by the broader
 
industry for model calibration purposes.
Initial model outputs driven by the loss
 
history are reviewed and adjusted to reflect fast-changing external developments,
such as
 
new regulations, geopolitical
 
change, volatile market
 
and economic
 
conditions, and internal
 
factors (e.g., changes
in busines
 
s
 
strategy
 
and control
 
framework
 
enhancements).
 
The
 
resulting baseline
 
data-driven
 
frequency
 
and severity
distributions
 
are
 
reviewed
 
by
 
subject
 
matter
 
experts
 
and
 
where
 
necessary
 
adjusted
 
based
 
on
 
a
 
review
 
of
 
qualitative
information about
 
the business
 
environment and
 
internal control
 
factors, as
 
well as
 
expert judgment,
 
with the
 
aim of
forecasting losses.
Our model is reviewed
 
regularly to maintain risk
 
sensitivity and recalibrated
 
at least annually. Any
 
changes to regulatory
capital
 
as
 
a
 
result
 
of
 
a
 
recalibration
 
or
 
methodology
 
changes
 
are
 
presented
 
to
 
FINMA
 
for
 
approval
 
prior
 
to
 
use
 
for
disclosure purposes.
The
 
Group-
 
and
 
entity-specific
 
AMA
 
models
 
are
 
subject
 
to
 
an
 
independent
 
validation
 
performed
 
by
 
Model
 
Risk
Management & Control in line with the Group’s model risk management
 
framework.
The AMA is expected to
 
be replaced by the
 
standardized approach for regulatory
 
capital determination purposes
 
in line
with the relevant Basel Committee for Banking Supervision Basel III capital regulations. UBS
 
is interacting closely with the
relevant Swiss authorities to discuss the implementation
 
details and related implementation timeline.
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Capital management
 
94
Capital management
Capital management objectives, planning and activities
 
Capital management objectives
Audited |
 i 
An adequate level of
 
common equity tier 1
 
(CET1) capital and total
 
loss-absorbing capacity (TLAC)
 
meeting both
internal assessment and regulatory requirements
 
is a prerequisite for conducting our
 
business activities.
p
We
 
are
 
therefore
 
committed
 
to
 
maintaining
 
a
 
strong
 
CET1
 
capital
 
and
 
TLAC
 
position
 
at
 
all
 
times,
 
in
 
order
 
to
 
meet
regulatory capital requirements and our target capital ratios,
 
and to support the growth of our businesses.
As of 31 December 2023, CET1 capital ratio
 
was 13.2% and CET1 leverage ratio 4.0%, each
 
above the requirements for
Swiss systemically relevant
 
banks (SRBs) and the
 
Basel Committee on
 
Banking Supervision (the
 
BCBS) requirements. We
believe that
 
our capital
 
strength, consistent
 
with our
 
capital
 
guidance,
 
is a
 
source of
 
confidence for
 
our stakeholders,
contributes to our sound credit ratings and is one of the
 
foundations of our success.
 
›
Refer to “We may be unable to maintain our capital
 
strength” in the “Risk factors” section of this report for
 
more information
about capital ratio-related risks
 
›
Refer to “Capital and capital ratios of our significant
 
regulated subsidiaries” in this section for more information
 
›
Refer to “Economic
 
capital measures”
 
in the
 
“Risk management and control” section of this report for
 
more information about
capital-at-risk
Swiss SRB total loss-absorbing capacity framework
The disclosures
 
in this section
 
are provided
 
for UBS AG
 
on a consolidated
 
basis and
 
focus on key
 
developments during
the reporting period and information in accordance
 
with the Basel III framework, as applicable to Swiss
 
SRBs.
Additional
 
regulatory
 
disclosures
 
for
 
UBS AG
 
on
 
a
 
consolidated
 
basis
 
are
 
provided
 
in
 
the
 
31 December
 
2023
 
Pillar 3
Report, available under “Pillar 3 disclosures” at
ubs.com/investors
.
Capital and other regulatory information
 
for UBS Group AG consolidated in
 
accordance with the Basel III framework,
 
as
applicable
 
to
 
Swiss
 
SRBs,
 
is
 
provided
 
in
 
the
 
UBS
 
Group
 
Annual
 
Report
 
2023,
 
available
 
under
 
“Annual
 
reporting”
 
at
ubs.com/investors
.
Regulatory framework
The
 
Basel III
 
framework
 
came
 
into
 
effect
 
in
 
Switzerland
 
on
 
1 January
 
2013
 
and
 
is
 
embedded
 
in
 
the
 
Swiss
 
Capital
Adequacy Ordinance (the CAO). The CAO also includes
 
the too-big-to-fail provisions applicable to Swiss SRBs
 
.
Under the Swiss
 
SRB framework, going and
 
gone concern requirements represent the
 
UBS AG’s TLAC requirement. TLAC
encompasses regulatory
 
capital, such as
 
CET1, loss-absorbing
 
additional tier 1
 
(AT1) and tier 2
 
capital instruments,
 
and
liabilities
 
that
 
can
 
be
 
written
 
down
 
or
 
converted
 
into
 
equity
 
in
 
case
 
of
 
resolution
 
or
 
for
 
the
 
purpose
 
of
 
restructuring
measures.
Capital and other instruments contributing to total loss-absorbing
 
capacity
In addition to CET1 capital, the following instruments contribute
 
to loss-absorbing capacity:
–
loss-absorbing
 
AT1 capital instruments
 
(high-
 
and low-trigger);
–
non-Basel III-compliant tier 2 capital instruments; and
–
TLAC-eligible unsecured debt instruments.
Under the Swiss SRB rules, going concern capital includes CET1 and high-trigger loss-absorbing AT1 capital instruments.
Existing outstanding low-trigger
 
loss-absorbing AT1 capital
 
instruments are available
 
to meet the
 
going concern capital
requirements until their first call
 
date. As of their first call
 
date, these instruments are eligible
 
to meet the gone concern
requirements.
Outstanding
 
high-
 
and
 
low-trigger
 
loss-absorbing
 
tier 2
 
capital
 
instruments,
 
non-Basel III-compliant
 
tier 2
 
capital
instruments and TLAC-eligible unsecured debt instruments are
 
eligible to meet gone concern
 
requirements until one year
before
 
maturity.
 
A
 
maximum
 
of
 
25%
 
of
 
the
 
gone
 
concern
 
requirements
 
can
 
be
 
met
 
with
 
instruments
 
that
 
have
 
a
remaining maturity of between one
 
and two years (i.e., are in the
 
last year of eligibility). However,
 
once at least 75% of
the gone concern requirement has been met with instruments that have a remaining maturity of greater than two years,
all instruments that have a
 
remaining maturity of between
 
one and two years remain eligible
 
to be included in the
 
total
gone concern capital.
 
›
Refer to “Bondholder information,” available at
ubs.com/investors,
 
for more information about the eligibility and key
 
features
and terms and conditions of capital instruments
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Capital management
 
95
Total loss-absorbing capacity and leverage ratio requirements
Going concern capital requirements
Under
 
the
 
Swiss
 
SRB
 
requirements,
 
total
 
going
 
concern
 
minimum
 
requirements
 
for
 
all
 
Swiss
 
SRBs
 
are
 
a
 
capital
 
ratio
requirement of 12.86% of RWA and a leverage ratio requirement
 
of 4.5%. In addition to these minimum requirements,
an add-on
 
reflecting the degree of
 
systemic importance is
 
applied, based on
 
market share and
 
LRD. The applicable
 
market
share add-on and
 
LRD requirements
 
for UBS AG were
 
both unchanged at
 
0.72% of RWA
 
and 0.25% of LRD,
 
resulting
in add-ons of 1.44% of RWA and
 
0.50% of LRD.
 
The
 
Swiss
 
countercyclical
 
capital
 
buffer,
 
at
 
a
 
maximum
 
level
 
of
 
2.5%
 
on
 
risk-weighted
 
positions
 
that
 
are
 
directly
 
or
indirectly backed
 
by residential
 
properties in
 
Switzerland,
 
increased the
 
minimum CET1
 
capital requirement
 
by 32 basis
points as
 
of 31 December 2023.
 
We also
 
continued to apply
 
countercyclical buffer requirements introduced
 
in other BCBS
member jurisdictions,
 
which
 
resulted
 
in an
 
additional
 
buffer
 
requirement
 
of 13 basis
 
points as
 
of 31 December
 
2023.
Overall,
 
countercyclical
 
capital
 
buffers
 
contributed
 
45 basis
 
points
 
to
 
the
 
minimum
 
CET1
 
capital
 
requirement
 
as
 
of
31 December 2023.
 
The
 
total
 
going
 
concern
 
capital
 
requirements
 
applicable
 
are
 
14.75%
 
of
 
RWA
 
(including
 
countercyclical
 
buffer
requirements) and
 
5.00% of
 
LRD. Furthermore,
 
of the
 
total going
 
concern capital
 
requirement of
 
14.75% of
 
RWA, at
least 10.45%
 
must be
 
met with
 
CET1 capital,
 
while a
 
maximum of
 
4.3% can
 
be met
 
with high-trigger
 
loss-absorbing
AT1 capital instruments
 
(and our existing
 
outstanding low-trigger
 
AT1 capital instruments,
 
which qualify until
 
their first
call date as mentioned above).
 
Similarly, of the total going concern leverage ratio requirement
 
of 5.00%, at least 3.5% must be met with CET1 capital,
while
 
a
 
maximum
 
of
 
1.5%
 
can
 
be
 
met
 
with
 
high-trigger
 
loss-absorbing
 
AT1
 
capital
 
instruments
 
(and
 
our
 
existing
outstanding low-trigger AT1 capital instruments, which qualify until
 
their first call date as mentioned above).
Gone concern loss-absorbing capacity requirements
As an internationally active Swiss SRB, UBS AG is
 
also subject to gone concern loss-absorbing capacity requirements. The
gone concern requirements also include add-ons for
 
market share and LRD.
 
In
 
November
 
2022, the
 
Swiss
 
Federal
 
Council
 
adopted
 
amendments
 
to
 
the
 
Banking
 
Act and
 
the
 
Banking
 
Ordinance,
which entered into force as of 1 January 2023.
 
The amendments replaced the resolvability discount on the gone concern
capital
 
requirements
 
for
 
systemically
 
important
 
banks
 
(SIBs),
 
including
 
UBS,
 
with
 
reduced
 
base
 
gone
 
concern
 
capital
requirements equivalent to 75%
 
of the total going
 
concern requirements (excluding countercyclical buffer requirements).
In addition, as of
 
July 2024, the Swiss
 
Financial Market Supervisory Authority
 
(FINMA) will have the
 
authority to impose
a surcharge of up to 25% of the total going concern requirements
 
(excluding countercyclical buffer requirements) based
on obstacles to
 
an SIB’s resolvability
 
identified in future
 
resolvability assessments.
 
Our total gone
 
concern requirements
remained substantially unchanged in 2023.
Our
 
gone
 
concern
 
requirements
 
can
 
be
 
reduced
 
when
 
higher
 
quality
 
capital
 
instruments
 
(CET1
 
capital,
 
low-trigger
loss-absorbing AT1 or certain
 
low-trigger tier 2 capital
 
instruments)
 
are used to meet
 
gone concern requirements.
 
As of
31 December 2023, UBS did not use any higher quality capital
 
instruments to fulfill gone concern requirements.
From 1 January 2022
 
onward, the gone
 
concern requirement
 
after the potential
 
reduction for the
 
use of higher
 
quality
capital instruments has been floored at 10.0% and 3.75%
 
for the RWA- and LRD-based requirements, respectively.
In
 
this
 
report,
 
we
 
refer
 
to
 
the
 
RWA-based
 
gone
 
concern
 
requirements
 
as
 
gone
 
concern
 
loss-absorbing
 
capacity
requirements and the RWA-based gone concern ratio is
 
referred to as the gone concern loss-absorbing capacity ratio.
The table below provides the RWA- and LRD-based requirements
 
and information as of 31 December 2023.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Capital management
 
96
Swiss SRB going and gone concern requirements and information
As of 31.12.23
RWA
LRD
USD m, except where indicated
in %
in %
Required going concern capital
Total going concern capital
 
14.75
1
 
49,268
 
5.00
1
 
55,220
Common equity tier 1 capital
 
10.45
 
34,907
 
3.50
2
 
38,654
of which: minimum capital
 
4.50
 
15,029
 
1.50
 
16,566
of which: buffer capital
 
5.50
 
18,369
 
2.00
 
22,088
of which: countercyclical buffer
 
0.45
 
1,509
Maximum additional tier 1 capital
 
4.30
 
14,361
 
1.50
 
16,566
of which: additional tier 1 capital
 
3.50
 
11,689
 
1.50
 
16,566
of which: additional tier 1 buffer capital
 
0.80
 
2,672
Eligible going concern capital
Total going concern capital
 
16.96
 
56,628
 
5.13
 
56,628
Common equity tier 1 capital
 
13.21
 
44,130
 
4.00
 
44,130
Total loss-absorbing additional tier 1 capital
3
 
3.74
 
12,498
 
1.13
 
12,498
of which: high-trigger loss-absorbing additional tier 1 capital
 
3.38
 
11,286
 
1.02
 
11,286
of which: low-trigger loss-absorbing additional tier 1 capital
3
0.36
 
1,212
 
0.11
1,212
Required gone concern capital
Total gone concern loss-absorbing capacity
4,5,6
 
10.73
 
35,819
 
3.75
 
41,415
of which: base requirement including add-ons for market share and LRD
 
10.73
7
 
35,819
 
3.75
7
 
41,415
Eligible gone concern capital
Total gone concern loss-absorbing capacity
 
16.31
 
54,458
 
4.93
 
54,458
Total tier 2 capital
 
0.16
 
538
 
0.05
 
538
of which: non-Basel III-compliant tier 2 capital
 
0.16
 
538
 
0.05
 
538
TLAC-eligible unsecured debt
 
16.14
 
53,920
 
4.88
 
53,920
Total loss-absorbing capacity
Required total loss-absorbing capacity
 
25.48
 
85,088
 
8.75
 
96,636
Eligible total loss-absorbing capacity
 
33.26
 
111,086
 
10.06
 
111,086
Risk-weighted assets / leverage ratio denominator
Risk-weighted assets
 
333,979
Leverage ratio denominator
 
1,104,408
1 Includes
 
applicable add-ons
 
of 1.44%
 
for risk-weighted
 
assets (RWA)
 
and 0.50%
 
for leverage
 
ratio denominator
 
(LRD).
 
2 Our
 
minimum CET1
 
leverage ratio
 
requirement of
 
3.5% consists
 
of a
 
1.5% base
requirement, a 1.5%
 
base buffer capital
 
requirement, a 0.25% LRD
 
add-on requirement and
 
a 0.25% market
 
share add-on requirement
 
based on our
 
Swiss credit business.
 
3 Existing outstanding
 
low-trigger
additional tier 1 capital instruments qualify as going
 
concern capital at the UBS AG consolidated
 
level, as agreed with the Swiss Financial
 
Market Supervisory Authority (FINMA), until
 
their first call date. As
 
of their
first call date, these instruments are eligible to meet the
 
gone concern requirements.
 
4 A maximum of 25% of the gone
 
concern requirements can be met with instruments that
 
have a remaining maturity of between
one and two years.
 
Once at least 75%
 
of the minimum gone
 
concern requirement has
 
been met with instruments
 
that have a remaining
 
maturity of greater than
 
two years, all
 
instruments that have
 
a remaining
maturity of between one and two years remain eligible to be included in the total gone concern capital.
 
5 From 1 January 2023, the resolvability discount
 
on the gone concern capital requirements for systemically
important banks (SIBs) has been replaced with reduced
 
base gone concern capital requirements equivalent to 75%
 
of the total going concern requirements (excluding countercyclical buffer
 
requirements).
 
6 As of
July 2024, FINMA will have the authority to impose a surcharge of up to 25% of the total
 
going concern capital requirements should obstacles to an SIB’s resolvability be identified in future resolvability assessments.
 
7 Includes applicable add-ons of 1.08% for RWA and 0.38% for LRD.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Capital management
 
97
Total loss-absorbing capacity
Swiss SRB going and gone concern information
USD m, except where indicated
31.12.23
31.12.22
Eligible going concern capital
Total going concern capital
 
56,628
 
54,770
Total tier 1 capital
 
56,628
 
54,770
Common equity tier 1 capital
 
44,130
 
42,929
Total loss-absorbing additional tier 1 capital
 
12,498
 
11,841
of which: high-trigger loss-absorbing additional tier 1 capital
 
11,286
 
10,654
of which: low-trigger loss-absorbing additional tier 1 capital
 
1,212
 
1,187
Eligible gone concern capital
Total gone concern loss-absorbing capacity
 
54,458
 
46,991
Total tier 2 capital
 
538
 
2,958
of which: low-trigger loss-absorbing tier 2 capital
 
0
 
2,422
of which: non-Basel III-compliant tier 2 capital
 
538
 
536
TLAC-eligible unsecured debt
 
53,920
 
44,033
Total loss-absorbing capacity
Total loss-absorbing capacity
 
111,086
 
101,761
Risk-weighted assets / leverage ratio denominator
Risk-weighted assets
 
333,979
 
317,823
Leverage ratio denominator
 
1,104,408
 
1,029,561
Capital and loss-absorbing capacity ratios (%)
Going concern capital ratio
 
17.0
 
17.2
of which: common equity tier 1 capital ratio
 
13.2
 
13.5
Gone concern loss-absorbing capacity ratio
 
16.3
 
14.8
Total loss-absorbing capacity ratio
 
33.3
 
32.0
Leverage ratios (%)
Going concern leverage ratio
 
5.1
 
5.3
of which: common equity tier 1 leverage ratio
 
4.0
 
4.2
Gone concern leverage ratio
 
4.9
 
4.6
Total loss-absorbing capacity leverage ratio
 
10.1
 
9.9
Audited |
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation of equity under IFRS Accounting Standards to Swiss SRB common equity tier 1 capital
USD m
31.12.23
31.12.22
Total equity under IFRS Accounting Standards
 i 55,569
 i 56,940
Equity attributable to non-controlling interests
( i 335)
( i 342)
Defined benefit plans, net of tax
( i 336)
( i 311)
Deferred tax assets recognized for tax loss carry-forwards
( i 3,004)
( i 4,077)
Deferred tax assets for unused tax credits
( i 97)
Deferred tax assets on temporary differences, excess over threshold
( i 1,233)
( i 262)
Goodwill, net of tax
1
( i 5,750)
( i 5,754)
Intangible assets, net of tax
( i 146)
( i 150)
Expected losses on advanced internal ratings-based portfolio less provisions
( i 532)
( i 471)
Unrealized (gains) / losses from cash flow hedges, net of tax
 i 2,961
 i 4,234
Own credit related to (gains) / losses on financial liabilities
 
measured at fair value that existed at the balance sheet date, net of tax
 i 313
( i 523)
Own credit related to (gains) / losses on derivative financial instruments
 
that existed at the balance sheet date
( i 63)
( i 105)
Prudential valuation adjustments
( i 177)
( i 201)
Accruals for dividends to shareholders
( i 3,000)
( i 6,000)
Other
( i 39)
( i 51)
Total common equity tier 1 capital
 i 44,130
 i 42,929
1 Includes goodwill related to significant investments in financial institutions of USD
 i 20
m as of 31 December 2023 (31 December 2022: USD
 i 20
m) presented on the balance sheet line Investments in associates.
p
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Capital management
 
98
Total loss-absorbing capacity and movement
 
Total
 
loss-absorbing capacity increased by USD 9.3bn
 
to USD 111.1bn as of 31 December 2023.
 
Going concern capital and movement
Audited |
CET1 capital mainly consists of: share capital; share premium, which primarily consists of additional paid-in capital
related to
 
shares issued;
 
and retained
 
earnings.
 
A detailed
 
reconciliation
 
of equity
 
under IFRS
 
Accounting
 
Standards to
 
CET1
capital is provided
 
in the
 
“Reconciliation of equity under IFRS
 
Accounting Standards to Swiss
 
SRB common equity
 
tier 1
capital” table.
 
CET1
 
capital
 
increased
 
by
 
USD
 i 1.2
bn
 
to
 
USD
 i 44.1
bn
 
as
 
of
 
31 December
 
2023,
 
mainly
 
as
 
a
 
result
 
of
 
operating
 
profit
before tax of USD
 i 4.5
bn, with associated current tax expenses of USD
 i 1.4
bn, positive foreign currency translation effects
of USD
 i 0.9
bn and a
 
net increase
 
of USD
 i 0.2
bn in eligible
 
deferred tax
 
assets on temporary
 
differences, partly
 
offset by
dividend accruals of USD
 i 3.0
bn.
Loss-absorbing AT1 capital
 
issued by the Group
 
and on-lent to
 
UBS AG increased
 
by USD
 i 0.7
bn to USD
 i 12.5
bn, mainly
driven by two
 
issuances of
 
AT1 capital instruments
 
denominated in
 
US dollars
 
of USD
 i 3.5
bn and positive
 
impacts from
interest risk hedge, foreign currency translation and other effects. These increases were partly offset by a USD
 i 2.5
bn AT1
capital instrument that ceased to be eligible
 
as going concern capital when UBS Group AG
 
issued a notice of redemption
of the instrument. In addition, high-trigger loss-absorbing AT1
 
capital instruments of USD
 i 1.1
bn equivalent previously on
lent from the Group to UBS AG were transferred to Credit
 
Suisse AG.
p
AT1 capital
 
instruments
 
issued from
 
the
 
beginning
 
of the
 
fourth
 
quarter
 
of 2023
 
are currently
 
subject to
 
write-down
upon occurrence of
 
a trigger event
 
or a
 
viability event.
 
The notes provide,
 
however, that, following
 
approval of a
 
minimum
amount of
 
conversion capital by
 
UBS Group AG‘s
 
shareholders at the
 
2024 Annual
 
General Meeting, upon
 
the occurrence
of a trigger event
 
or a viability
 
event, the notes will
 
be converted into
 
UBS Group AG ordinary
 
shares rather than
 
being
subject to a write-down. The corresponding on-lends to
 
UBS AG contain the same provision.
Gone concern loss-absorbing capacity and movement
Audited |
Total
 
gone concern loss-absorbing capacity
 
increased
 
by USD
 i 7.5
bn to
 
USD
 i 54.5
bn as of
 
31 December 2023 and
included USD
 i 53.9
bn of TLAC-eligible
 
unsecured debt issued
 
by the Group and
 
on-lent to UBS
 
AG.
p
The increase
 
of USD 7.5bn
 
mainly reflect
 
ed new
 
issuances of
 
USD 13.4bn equivalent
 
of TLAC-eligible
 
unsecured
 
debt
instruments,
 
as well
 
as positive
 
impacts from
 
interest risk
 
hedge, foreign
 
currency translation
 
and other
 
effects.
 
These
increases were
 
partly offset
 
by the
 
redemption of
 
USD 4.0bn
 
equivalent of
 
TLAC-eligible unsecured
 
debt instruments,
amortization of a USD 0.8bn
 
unsecured debt instrument
 
that ceased to be
 
TLAC-eligible as its residual
 
time to maturity
fell below one
 
year,
 
and a
 
partial repurchase
 
of two
 
TLAC-eligible unsecured
 
debt instruments
 
under a
 
tender offer
 
(in
light of the acquisition of the
 
Credit Suisse Group, UBS announced
 
on 22 March 2023 a tender
 
offer to repurchase two
TLAC-eligible
 
unsecured
 
debt
 
instruments,
 
both
 
issued
 
on
 
17 March
 
2023,
 
with
 
an
 
initial
 
nominal
 
amount
 
totaling
EUR 2.8bn, at their respective
 
re-offer prices; the nominal
 
amounts of the two
 
instruments bought back under
 
the tender
offer totaled an
 
equivalent of USD 0.8bn).
 
In addition,
 
a USD 2.4bn low-trigger
 
loss-absorbing tier 2
 
capital instrument
ceased to be eligible as gone concern capital as it had less than
 
one year to maturity.
Loss-absorbing capacity and leverage ratios
Our CET1
 
capital ratio
 
decreased
 
to 13.2%
 
from
 
13.5%, reflecting
 
a USD
 
16.2bn increase
 
in RWA
 
,
 
partly offset
 
by a
USD 1.2bn increase in CET1 capital.
Our CET1
 
leverage ratio
 
decreased to
 
4.0% from
 
4.2%, due
 
to a
 
USD 74.8bn increase
 
in the LRD,
 
partly offset
 
by the
aforementioned increase in CET1 capital.
Our gone
 
concern loss-absorbing
 
capacity ratio
 
increased to
 
16.3% from
 
14.8%, due
 
to an
 
increase in
 
gone concern
loss-absorbing capacity of USD 7.5bn, partly offset by the
 
aforementioned increase in RWA.
Our gone concern leverage ratio increased to
 
4.9% from 4.6%, driven by the aforementioned
 
increase in gone concern
loss-absorbing capacity, partly offset by the increase in the
 
LRD.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Capital management
 
99
Swiss SRB total loss-absorbing capacity movement
USD m
Going concern capital
Swiss SRB
Common equity tier 1 capital as of 31.12.22
 
42,929
Operating profit before tax
 
4,521
Current tax (expense) / benefit
 
(1,429)
Foreign currency translation effects, before tax
 
866
Eligible deferred tax assets on temporary differences
 
227
Accruals for proposed dividends to shareholders
 
(3,000)
Other
 
16
Common equity tier 1 capital as of 31.12.23
 
44,130
Loss-absorbing additional tier 1 capital as of 31.12.22
 
11,841
Issuance of high-trigger loss-absorbing additional tier 1 capital
 
3,455
Call of high-trigger loss-absorbing additional tier 1 capital
 
(2,500)
High-trigger loss-absorbing additional tier 1 capital transferred
 
to Credit Suisse AG
 
(1,104)
Interest rate risk hedge, foreign currency translation and other effects
 
806
Loss-absorbing additional tier 1 capital as of 31.12.23
 
12,498
Total going concern capital as of 31.12.22
 
54,770
Total going concern capital as of 31.12.23
 
56,628
Gone concern loss-absorbing capacity
Tier 2 capital as of 31.12.22
 
2,958
Debt no longer eligible as gone concern loss-absorbing capacity
 
due to residual tenor falling to below one year
 
(2,437)
Interest rate risk hedge, foreign currency translation and other effects
 
17
Tier 2 capital as of 31.12.23
 
538
TLAC-eligible unsecured debt as of 31.12.22
 
44,033
Issuance of TLAC-eligible unsecured debt
 
13,403
Call of TLAC-eligible unsecured debt
 
(3,976)
Debt no longer eligible as gone concern loss-absorbing capacity
 
due to residual tenor falling to below one year
 
(791)
Debt bought back under the tender offer
 
(792)
Interest rate risk hedge, foreign currency translation and other effects
 
2,042
TLAC-eligible unsecured debt as of 31.12.23
 
53,920
Total gone concern loss-absorbing capacity as of 31.12.22
 
46,991
Total gone concern loss-absorbing capacity as of 31.12.23
 
54,458
Total loss-absorbing capacity
Total loss-absorbing capacity as of 31.12.22
 
101,761
Total loss-absorbing capacity as of 31.12.23
 
111,086
Additional information
Active management of sensitivity to foreign exchange movements
Group
 
Treasury
 
is mandated
 
to
 
minimize
 
adverse
 
effects
 
from
 
changes
 
in
 
foreign
 
currency
 
rates
 
on our
 
CET1
 
capital
and / or CET1 capital
 
ratio of UBS
 
AG consolidated.
 
A significant portion
 
of our CET1
 
capital and RWA
 
is denominated
in Swiss francs, euro, pounds
 
sterling and other currencies.
 
In order to hedge the CET1
 
capital ratio, CET1 capital needs
to have foreign currency exposure,
 
leading to foreign currency
 
rates sensitivity of CET1 capital.
 
Consequently,
 
it is not possible to simultaneously
 
fully hedge CET1 capital and the
 
CET1 capital ratio. As the proportion
of
 
RWA
 
denominated
 
in
 
currencies
 
other
 
than
 
the
 
US
 
dollar
 
outweighs
 
CET1
 
capital
 
in
 
such
 
currencies,
 
a
 
significant
appreciation of the
 
US dollar against
 
such currencies could
 
benefit our capital
 
ratios, while a
 
significant depreciation
 
of
the US dollar against these currencies could adversely affect
 
our capital ratios.
The UBS AG
 
Asset and Liability
 
Committee has mandated
 
Group Treasury to
 
adjust the currency
 
mix of CET1
 
capital of
UBS AG consolidated,
 
within limits set
 
by the Board of
 
Directors, to balance the
 
effect of foreign
 
exchange movements
on CET1 capital and
 
the CET1 capital ratio. Limits
 
are in place for
 
the sensitivity of both CET1
 
capital and the CET1 capital
ratio to an appreciation or depreciation of 10% in the value
 
of the US dollar against other currencies.
Sensitivity to currency movements
 
Risk-weighted assets
We estimate that
 
a 10% depreciation
 
of the US dollar
 
against other currencies
 
would have increased
 
our RWA
 
by USD
15bn
 
and
 
our
 
CET1
 
capital
 
by
 
USD 1.5bn
 
as
 
of
 
31
 
December
 
2023
 
(31
 
December
 
2022:
 
USD 13bn
 
and
 
USD 1.4bn,
respectively) and decreased our CET1 capital
 
ratio by 12 basis points (31 December 2022: 12 basis points).
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Capital management
 
100
Conversely, a 10%
 
appreciation of the
 
US dollar against
 
other currencies would
 
have decreased our
 
RWA by USD 13bn
and our
 
CET1 capital
 
by USD 1.4bn
 
(31 December
 
2022: USD 12bn
 
and USD 1.2bn,
 
respectively) and
 
increased our
CET1 capital ratio by 12 basis points (31 December 2022:
 
12 basis points).
Leverage ratio denominator
Our leverage ratio is also sensitive to
 
foreign exchange movements as a result of the currency mix of our capital
 
and LRD.
When adjusting the currency mix in capital,
 
potential effects on the going concern leverage
 
ratio are taken into account
and the sensitivity of the
 
going concern leverage ratio to
 
an appreciation or depreciation
 
of 10% in the value
 
of the US
dollar against other currencies is actively monitored.
We
 
estimate
 
that
 
a
 
10%
 
depreciation
 
of
 
the
 
US
 
dollar
 
against
 
other
 
currencies
 
would
 
have
 
increased
 
our
 
LRD
 
by
USD 69bn as of 31 December
 
2023 (31 December 2022: USD 62bn)
 
and decreased our CET1 leverage
 
ratio by 10 basis
points (31
 
December 2022:
 
11 basis points).
 
Conversely, a
 
10% appreciation
 
of the
 
US dollar
 
against other
 
currencies
would have decreased our
 
LRD by USD 62bn (31
 
December 2022: USD 57bn)
 
and increased our
 
CET1 leverage ratio by
11 basis points (31 December 2022: 12 basis points).
The aforementioned sensitivities
 
do not
 
consider foreign currency
 
translation effects related
 
to defined
 
benefit plans other
than those related to the currency translation of the net
 
equity of foreign operations.
Estimated effect on capital from litigation, regulatory and
 
similar matters subject to provisions and contingent liabilities
We have estimated the loss in capital that we could incur as a result of the risks associated with the matters described in
“Note 17 Provisions and contingent liabilities”
 
in the “Consolidated financial statements”
 
section of this report. We have
employed for
 
this purpose
 
the advanced
 
measurement
 
approach (AMA)
 
methodology
 
that we
 
use when
 
determining
the capital requirements associated with operational risks, based on a 99.9% confidence level over a 12-month horizon.
The methodology takes into consideration UBS and
 
industry experience for the AMA operational risk categories
 
to which
those matters correspond, as well
 
as the external environment
 
affecting risks of these
 
types, in isolation
 
from other areas.
On this
 
basis, we
 
estimate the
 
maximum loss
 
in capital
 
that we
 
could incur
 
over a
 
12-month period
 
as a
 
result of
 
our
risks associated with these operational risk categories
 
at USD 4.0bn as of 31 December 2023. This estimate is
 
not related
to and does
 
not take into account
 
any provisions recognized for any of
 
these matters and
 
does not constitute a
 
subjective
assessment of our actual exposure in any of these
 
matters.
›
Refer to “Non-financial risk” in the “Risk management
 
and control” section of this report for more information
›
Refer to “Note 17 Provisions and contingent liabilities”
 
in the “Consolidated financial statements”
 
section of this report for more
information
Capital and capital ratios of our significant regulated
 
subsidiaries
UBS AG has contributed a
 
significant portion of capital
 
to, and provided
 
substantial liquidity to its
 
subsidiaries. Many of
these
 
subsidiaries
 
are
 
subject
 
to
 
regulations
 
requiring
 
compliance
 
with
 
minimum
 
capital,
 
liquidity
 
and
 
similar
requirements. Regulatory capital components
 
and capital ratios
 
of our
 
significant regulated subsidiaries
 
determined under
the regulatory framework of each subsidiary’s home jurisdiction are provided in the “Financial and regulatory key figures
for our significant regulated subsidiaries and
 
sub-groups” section of the UBS Group Annual
 
Report 2023, available under
“Annual
 
reporting”
 
at
ubs.com/investors
.
 
Supervisory
 
authorities
 
generally
 
have
 
discretion
 
to
 
impose
 
higher
requirements,
 
or
 
to
 
otherwise
 
limit
 
the
 
activities
 
of
 
subsidiaries.
 
Supervisory
 
authorities
 
also
 
may
 
require
 
entities
 
to
measure capital and leverage
 
ratios on a stressed basis and
 
may limit the ability of the
 
entity to engage in new activities
or take capital actions based on the results of those tests.
 
›
Refer to the 31 December 2023 Pillar 3 Report,
 
available under “Pillar 3 disclosures” at
ubs.com/investors
,
for more capital and
other regulatory information about our significant regulated
 
subsidiaries and sub-groups
Joint liability of UBS AG and UBS Switzerland AG
In June
 
2015, upon the
 
transfer of the
 
Personal & Corporate
 
Banking and Global
 
Wealth Management businesses booked
in
 
Switzerland
 
from
 
UBS AG
 
to
 
UBS
 
Switzerland
 
AG,
 
UBS AG
 
and
 
UBS
 
Switzerland
 
AG
 
assumed
 
joint
 
liability
 
for
obligations
 
transferred
 
to UBS
 
Switzerland
 
AG and
 
existing
 
at
 
UBS AG,
 
respectively.
 
Under certain
 
circumstances,
 
the
Swiss
 
Banking
 
Act
 
and
 
FINMA’s
 
Banking
 
Insolvency
 
Ordinance
 
authorize
 
FINMA
 
to
 
modify,
 
extinguish
 
or
 
convert
 
to
common equity liabilities of a bank in connection with a reso
 
lution or insolvency of such bank.
The joint liability amounts have declined
 
as obligations matured, terminated or were novated following
 
the transfer date.
As
 
of
 
31 December
 
2023,
 
the
 
liability
 
of
 
UBS
 
Switzerland
 
AG
 
amounted
 
to
 
CHF 2.8bn
 
(USD 3.3bn),
 
a
 
decrease
 
of
CHF 1.2bn
 
(USD 1.0bn)
 
compared
 
with
 
31 December
 
2022.
 
The
 
respective
 
liability
 
of
 
UBS AG
 
has
 
been
 
substantially
extinguished.
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Capital management
 
101
Risk-weighted assets
RWA development in 2023
During 2023, RWA
 
increased by USD 16.2bn to
 
USD 334.0bn, primarily driven by
 
increases of USD 12.7bn due
 
to asset
size and other
 
movements and USD 8.0bn due
 
to currency effects,
 
partly offset by a
 
decrease of USD 4.6bn due
 
to model
updates and methodology changes.
 
›
Refer to the 31 December 2023 Pillar 3 Report,
 
available under “Pillar 3 disclosures” at
ubs.com/investors
, for more information
about RWA movements and definitions of RWA movement key drivers on a UBS Group AG
 
consolidated basis
Movement in risk-weighted assets by key driver
USD bn
RWA as of
31.12.22
Currency
effects
Model updates
and
methodology
changes
Asset size and
other
1
RWA as of
31.12.23
Credit and counterparty credit risk
2
 
200.4
 
7.6
 
0.4
 
11.7
 
220.1
Non-counterparty-related risk
3
 
22.6
 
0.4
 
(0.3)
 
22.7
Market risk
 
13.5
 
(0.1)
 
1.3
 
14.7
Operational risk
 
81.4
 
(4.9)
 
76.5
Total
 
317.8
 
8.0
 
(4.6)
 
12.7
 
334.0
1 Includes the
 
Pillar 3 categories
 
“Asset size,”
 
“Credit quality of
 
counterparties,” “Acquisitions
 
and disposals” and
 
“Other.”
 
For more information,
 
refer to the
 
31 December 2023 Pillar
 
3 Report, available
 
under
“Pillar 3 disclosures” at ubs.com/investors.
 
2 Includes settlement risk, credit
 
valuation adjustments,
 
equity exposures in the banking
 
book, investments in funds
 
and securitization exposures in
 
the banking book.
 
3 Non-counterparty-related risk includes deferred tax assets recognized for temporary differences, property,
 
equipment, software and other items.
Credit and counterparty credit risk
Credit and counterparty
 
credit risk
 
RWA increased by
 
USD 19.8bn to USD 220.1bn
 
as of 31 December
 
2023. This increase
was mainly driven by asset size and other movements of USD 11.7bn, currency effects of USD 7.6bn and model updates
and methodology changes of USD 0.4bn.
 
Asset size and
 
other movements
 
increased RWA
 
by USD 11.7bn,
 
mainly driven by
 
funding provided
 
by Group Treasury
to Credit Suisse and higher loans in Personal and
 
Corporate Banking.
Model updates and methodology changes resulted in an RWA increase
 
of USD 0.4bn, mainly driven by increases related
to updates in private equity
 
and hedge fund financing trades
 
models, as well as securities financing
 
transaction models,
partly offset by decreases related
 
to the recalibration of certain multipliers as a result
 
of our improvements to models.
›
Refer to “Credit risk” in the “Risk management and
 
control” section of this report for more information about
 
credit and
counterparty credit risk developments
›
Refer to the 31 December 2023 Pillar 3 Report,
 
available under “Pillar 3 disclosures” at
ubs.com/investors,
 
for more information
about credit and counterparty credit risk developments on a UBS
 
Group AG consolidated basis
Market risk
Market risk RWA
 
increased by USD 1.2bn
 
to USD 14.7bn as of
 
31 December 2023, driven
 
by an increase
 
of USD 1.3bn
from asset size and other
 
movements in Global Markets in
 
the Investment Bank, partly offset by
 
a decrease of USD 0.1bn
related to
 
ongoing parameter
 
updates of the
 
value-at-risk (VaR)
 
model. FINMA approved
 
the integration
 
of time decay
into regulatory VaR
 
and stressed VaR,
 
which went live on 12 January 2024.
 
›
Refer to “Market risk” in the “Risk management
 
and control” section of this report for more information about
 
market risk
developments
›
Refer to the 31 December 2023 Pillar 3 Report,
 
available under “Pillar 3 disclosures” at
ubs.com/investors,
 
for more information
about market risk developments on a UBS Group
 
AG consolidated basis
Operational risk
 
Operational risk RWA decreased
 
by USD 4.9bn to USD 76.5bn as of 31 December
 
2023. In the second quarter of 2023,
we reflected
 
diversification effects
 
at the
 
level of
 
UBS Group
 
AG consolidated,
 
which were
 
partly allocated
 
to UBS AG
consolidated in the third quarter of 2023.
›
Refer to “Advanced measurement approach model” in the
 
“Risk management and control” section of this report for
 
more
information about the AMA model
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Capital management
 
102
Risk-weighted assets, by business division and Group Items
USD bn
Global Wealth
Management
Personal &
Corporate
Banking
Asset
Manage-
ment
Investment
Bank
Non-core and
Legacy
1
Group
 
Items
1
Total
RWA
31.12.23
Credit and counterparty credit risk
2
 
71.1
 
74.7
 
2.5
 
58.5
 
1.5
 
11.9
 
220.1
Non-counterparty-related risk
3
 
5.6
 
1.9
 
0.6
 
3.8
 
0.0
 
10.8
 
22.7
Market risk
 
1.6
 
0.0
 
11.1
 
1.6
 
0.5
 
14.7
Operational risk
 
30.2
 
10.3
 
3.8
 
13.1
 
15.8
 
3.3
 
76.5
Total
 
108.5
 
86.9
 
6.9
 
86.5
 
18.8
 
26.4
 
334.0
31.12.22
Credit and counterparty credit risk
2
 
68.5
 
65.0
 
2.3
 
57.7
 
2.2
 
4.8
 
200.4
Non-counterparty-related risk
3
 
5.9
 
1.9
 
0.6
 
3.7
 
0.0
 
10.5
 
22.6
Market risk
 
1.6
 
0.0
 
10.1
 
0.7
 
1.1
 
13.5
Operational risk
 
37.6
 
9.1
 
3.2
 
21.3
 
10.1
 
81.4
Total
 
113.6
 
76.0
 
6.0
 
92.8
 
13.0
 
16.4
 
317.8
31.12.23 vs 31.12.22
Credit and counterparty credit risk
2
 
2.6
 
9.8
 
0.2
 
0.7
 
(0.7)
 
7.1
 
19.8
Non-counterparty-related risk
3
 
(0.3)
 
0.0
 
0.0
 
0.1
 
0.0
 
0.3
 
0.1
Market risk
 
0.0
 
0.0
 
1.0
 
0.9
 
(0.6)
 
1.2
Operational risk
 
(7.4)
 
1.1
 
0.6
 
(8.2)
 
5.6
 
3.3
 
(4.9)
Total
 
(5.1)
 
10.8
 
0.9
 
(6.3)
 
5.9
 
10.0
 
16.2
1 Starting with the third quarter of 2023, Non-core and Legacy
 
represents a separate reportable segment and Group Functions has been renamed Group Items. Prior periods
 
have been revised to reflect these changes.
 
2 Includes settlement
 
risk, credit valuatio
 
n
 
adjustments, equity
 
exposures in the
 
banking book, investments
 
in funds and
 
securitization exposures in
 
the banking
 
book.
 
3 Non-counterparty-related risk
 
includes
deferred tax assets recognized
 
for temporary differences (31 December
 
2023: USD 11.3bn; 31 December 2022:
 
USD 10.8bn), as well as
 
property, equipment, software and other items
 
(31 December 2023: USD 11.4bn;
31 December 2022: USD 11.8bn).
 
Leverage ratio denominator
During 2023, the
 
LRD increased by USD 74.8bn to
 
USD 1,104.4bn, primarily driven by
 
increases from asset size
 
and other
movements of USD 37.5bn and currency effects
 
of USD 37.3bn.
Movement in leverage ratio denominator by key driver
USD bn
LRD as of
 
31.12.22
Currency
 
effects
Asset size and
 
other
LRD as of
 
31.12.23
On-balance sheet exposures (excluding derivatives and securities
 
financing transactions)
1
 
817.0
 
34.3
 
26.8
 
878.2
Derivatives
 
90.3
 
1.0
 
2.8
 
94.0
Securities financing transactions
 
98.6
 
0.9
 
6.6
 
106.1
Off-balance sheet items
 
34.6
 
1.1
 
1.4
 
37.2
Deduction items
 
(11.0)
 
0.0
 
(0.1)
 
(11.1)
Total
 
1,029.6
 
37.3
 
37.5
 
1,104.4
1 The exposures exclude derivative
 
financial instruments, cash collateral receivables on
 
derivative instruments, receivables from securities financing transactions, and
 
margin loans, as well as
 
prime brokerage receivables
and financial assets at fair value not held for trading, both related to securities financing transactions.
 
These exposures are presented separately under Derivatives and Securities
 
financing transactions in this table.
The LRD movements described below exclude currency
 
effects.
 
On-balance sheet exposures (excluding
 
derivatives and securities
 
financing transactions) increased by USD 26.8bn, mainly
driven by
 
higher trading
 
portfolio assets due
 
to a
 
client-driven increase in
 
hedging activities
 
and market-driven movements
in the Investment Bank and higher lending balances, partly
 
offset by lower cash and central bank balances.
Derivative exposures increased
 
by USD 2.8bn, primarily in the Investment
 
Bank, reflecting higher trading volumes
 
across
products and lower netting, partly offset
 
by market-driven movements in foreign-currency
 
and interest-rate contracts.
Securities financing transactions increased by
 
USD 6.6bn, mainly due to higher collateral sourcing
 
activities, partly offset
by roll-offs of excess cash reinvestment in Group Treasury.
 
Off-balance sheet items increased by USD 1.4bn, mainly driven by higher loan commitment across various projects in
 
the
Investment Bank.
 
›
Refer to “Balance sheet and off-balance sheet” in this
 
section for more information about balance sheet
 
movements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Capital management
 
103
Leverage ratio denominator by business division and Group Items
USD bn
Global Wealth
Management
 
Personal &
Corporate
Banking
Asset
Management
Investment
Bank
Non-core and
Legacy
1
Group Items
1
Total
 
31.12.23
On-balance sheet exposures
 
337.4
 
238.7
 
3.6
 
203.8
 
4.0
 
90.7
 
878.2
Derivatives
 
6.0
 
1.8
 
0.0
 
84.0
 
1.4
 
0.8
 
94.0
Securities financing transactions
 
27.9
 
16.7
 
0.1
 
37.6
 
1.6
 
22.2
 
106.1
Off-balance sheet items
 
8.7
 
17.7
 
0.0
 
8.2
 
0.9
 
1.8
 
37.2
Items deducted from Swiss SRB tier 1 capital
 
(5.3)
 
(0.2)
 
(1.2)
 
(0.4)
 
0.0
 
(4.1)
 
(11.1)
Total
 
374.8
 
274.8
 
2.5
 
333.1
 
7.9
 
111.3
 
1,104.4
31.12.22
On-balance sheet exposures
 
364.9
 
223.5
 
3.6
 
189.7
 
2.9
 
32.4
 
817.0
Derivatives
 
5.4
 
1.5
 
0.0
 
80.0
 
2.5
 
0.9
 
90.3
Securities financing transactions
 
20.5
 
10.8
 
0.1
 
40.4
 
0.9
 
26.0
 
98.6
Off-balance sheet items
 
8.8
 
16.6
 
0.0
 
6.9
 
0.0
 
2.3
 
34.6
Items deducted from Swiss SRB tier 1 capital
 
(5.2)
 
(0.2)
 
(1.2)
 
(0.4)
 
0.0
 
(4.1)
 
(11.0)
Total
 
394.5
 
252.2
 
2.5
 
316.7
 
6.3
 
57.5
 
1,029.6
31.12.23 vs 31.12.22
On-balance sheet exposures
 
(27.5)
 
15.3
 
0.0
 
14.0
 
1.1
 
58.3
 
61.1
Derivatives
 
0.6
 
0.4
 
0.0
 
3.9
 
(1.1)
 
(0.1)
 
3.8
Securities financing transactions
 
7.4
 
5.9
 
0.0
 
(2.8)
 
0.8
 
(3.8)
 
7.5
Off-balance sheet items
 
(0.2)
 
1.1
 
0.0
 
1.2
 
0.9
 
(0.5)
 
2.5
Items deducted from Swiss SRB tier 1 capital
 
(0.1)
 
0.0
 
0.0
 
0.0
 
0.0
 
0.0
 
(0.1)
Total
 
(19.7)
 
22.6
 
0.0
 
16.4
 
1.6
 
53.9
 
74.8
1 Starting with the third quarter of 2023, Non-core and Legacy represents
 
a separate reportable segment and Group Functions has been renamed Group
 
Items. Prior periods have been revised to reflect these changes.
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Liquidity and funding management
 
104
Liquidity and funding management
We
 
manage the
 
structural risks
 
of our
 
balance sheet,
 
including interest
 
rate
 
risk, structural
 
foreign
 
exchange
 
risk and
collateral risk,
 
as well
 
as liquidity
 
and funding
 
risk. This
 
section provides information
 
about liquidity
 
and funding
 
regulatory
requirements,
 
governance, management
 
(including sources
 
of liquidity
 
and funding),
 
contingency planning,
 
and stress
testing.
 
The
 
balances
 
disclosed
 
in
 
this
 
section
 
represent
 
year-end
 
positions,
 
unless
 
indicated
 
otherwise.
 
Intra-period
balances fluctuate in the ordinary course of business
 
and may differ from year-end positions.
Following the acquisition of the Credit Suisse Group and the corresponding additional disclosure requirements according
to FINMA
 
Circular
 
2016/1
 
“Disclosure
 
–
 
banks”,
 
we
 
disclose
 
the
 
liquidity
 
coverage
 
ratio
 
(the
 
LCR) and
 
the
 
net
 
stable
funding ratio (the NSFR) for UBS AG consolidated for the
 
first time in this section.
Strategy, objectives and governance
Audited |
 
Our
 
management
 
of
 
liquidity
 
and
 
funding
 
has
 
the
 
overall
 
objective
 
of
 
protecting
 
our
 
business
 
franchises
 
and
prudently managing
 
our internal
 
and regulatory
 
liquidity and
 
funding requirements.
 
We measure
 
liquidity and
 
funding
risk using internal
 
and regulatory
 
models and metrics.
 
We define
 
and implement
 
internal stress
 
testing across
 
different
time horizons,
 
scenarios and
 
currencies
 
to ensure
 
we have
 
sufficient liquidity
 
and funding,
 
while remaining
 
compliant
with regulatory
 
requirements,
 
primarily expressed
 
through the
 
LCR and
 
the NSFR.
 
Our liquidity
 
and funding
 
strategy is
proposed by Group Treasury and approved by
 
the Asset and
 
Liability Committee (ALCO) of
 
UBS AG, which
 
is a
 
committee
of the Group Executive Board (the GEB) that
 
is overseen by the Risk Committee of the Board
 
of Directors (the BoD).
Liquidity and
 
funding limits
 
and other indicators
 
(including early-warning indicators)
 
are set at
 
UBS AG (consolidated)
and, where appropriate, at legal entity
 
and business division levels. Key
 
limits (under the authority of the
 
BoD) and
indicators
 
linked
 
to
 
these
 
limits
 
are
 
reviewed
 
and
 
reconfirmed
 
at
 
least
 
once
 
a
 
year
 
by
 
the
 
BoD
 
of
 
UBS
 
AG,
 
the
Executive Board
 
of UBS
 
AG, the
 
ALCO of
 
UBS AG
 
and the
 
Group Treasurer,
 
taking into
 
consideration the
 
Group’s
business strategy and risk appetite. Treasury Risk Control provides independent oversight
 
over liquidity and funding
risk.
p
›
Refer to the “Corporate governance”
 
and “Risk management and control” sections of
 
this report for more information
Group
 
Treasury
 
monitors
 
and
 
oversees
 
the
 
implementation
 
and
 
execution
 
of
 
our
 
liquidity
 
and
 
funding
 
strategy
 
and
manages liquidity
 
and funding
 
risk within
 
the limits
 
and other
 
relevant indicators,
 
thereby adhering
 
to the
 
internal risk
appetite
 
and regulatory
 
requirements.
 
This
 
includes
 
close
 
control
 
of both
 
our
 
cash
 
and collateral,
 
including
 
our
 
high-
quality
 
liquid
 
assets
 
(HQLA),
 
and
 
centralizes
 
the
 
Group’s
 
access
 
to
 
wholesale
 
cash
 
markets
 
in
 
Group
 
Treasury.
 
To
complement our business-as-usual management, Group Treasury maintains a Contingency Funding Plan and contributes
to plans for recovery and resolution
 
to define procedures throughout the crisis continuum. Group Treasury reports
 
on the
liquidity and funding status and position, at least monthly, to the
 
ALCO of UBS AG and the Risk Committee of the
 
BoD.
Liquidity and funding stress testing
Audited |
 
Our liquidity
 
and funding
 
risk management
 
aims to
 
ensure
 
that the
 
firm has
 
sufficient
 
liquidity and
 
funding to
survive a severe idiosyncratic
 
and market-wide liquidity and
 
funding stress event
 
without government support, allowing
for discrete management actions.
 
Group Treasury maintains a
 
diversified, high-quality pool of
 
unencumbered liquid assets under
 
Treasury control. The liquid
asset portfolio is
 
managed dynamically,
 
so as to
 
operate at
 
all times within
 
the internal
 
risk appetite and
 
other relevant
Group and subsidiary liquidity and funding requirements.
p
Our liquidity and funding stress testing covers two main stress scenarios: a combined
 
(market and idiosyncratic) scenario
and a structural market-wide scenario. We continuously refine stress-testing
 
assumptions.
›
Refer to “Risk measurement” in the “Risk management
 
and control” section of this report for more information about
 
stress
testing
Combined (market and idiosyncratic) scenario
In
 
this
 
scenario,
 
UBS
 
faces
 
the
 
consequences
 
of
 
both
 
a
 
severely
 
deteriorated
 
macroeconomic
 
and
 
financial
 
market
environment and
 
a UBS-specific
 
event, resulting
 
in an
 
acute loss
 
of liquidity
 
over a
 
relatively short
 
period of
 
time. This
scenario represents
 
severe
 
yet plausible
 
events
 
encompassing
 
both
 
market-wide
 
and idiosyncratic
 
elements,
 
in which,
however,
 
franchise client relationships are materially maintained.
The risk appetite objective of this stress test is to ensure that UBS keeps a
 
cumulative liquidity surplus on each day in the
three-month stress
 
horizon. The
 
liquidity gap
 
is assessed
 
by modeling
 
the stressed
 
liquidity value
 
of the
 
liquidity buffer
and stressed liquidity inflows and outflows under the scenario.
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Liquidity and funding management
 
105
Structural market-wide scenario
In this scenario, UBS is subject
 
to a significant deterioration of
 
macroeconomic and financial
 
market conditions globally,
resulting in a requirement
 
for long-term funding to survive
 
the liquidity drain and support the
 
franchise of the business.
Macroeconomic shocks
 
result in
 
deteriorated financial
 
market conditions
 
over the
 
scenario horizon
 
of one
 
year.
 
UBS is
assumed to be affected equally relative
 
to other global financial institutions.
The risk appetite objective of this stress test is to
 
ensure that UBS maintains a positive cumulative behavioral liquidity gap
across the
 
3-month,
 
6-month,
 
9-month
 
and
 
12-month
 
tenors.
 
The
 
liquidity
 
gap
 
is assessed
 
by
 
modeling
 
the
 
stressed
liquidity value of the liquidity buffer, and stressed liquidity inflows and
 
outflows under the scenario.
 
Funding management
Audited |
 
Group Treasury
 
monitors our funding position, including concentration
 
risk, aiming to ensure that we
 
maintain a
well-balanced
 
and
 
diversified
 
liability
 
structure.
 
Our
 
funding
 
management
 
team
 
looks
 
to
 
create
 
the
 
optimal
 
liability
structure to finance our businesses
 
in a reliable and
 
cost-efficient manner. Our funding activities are planned by
 
analyzing
the overall liquidity and funding requirements,
 
taking into account the amount
 
of stable funding that would be
 
needed
to support ongoing business activities through periods
 
of difficult market conditions.
p
The funding
 
strategy of
 
UBS AG
 
is set
 
annually in
 
the Funding
 
Plan and
 
is reviewed
 
on an
 
ongoing basis.
 
The Funding
Plan is developed by Group Treasury and approved by the
 
ALCO of UBS AG.
›
Refer to “Balance sheet and off-balance sheet” in this
 
section for more information about the development
 
of our short- and
long-term debt during 2023
Global Wealth Management
 
and Personal
 
& Corporate
 
Banking provide
 
significant, cost-efficient
 
and stable
 
sources of
funding. These include deposits and debt issued through the Swiss central mortgage institutions,
 
which use a portion of
our portfolio
 
of Swi
 
ss
 
residential
 
mortgages
 
as collateral
 
to generate
 
long-term
 
funding.
 
In addition,
 
we
 
have
 
several
short-, medium-
 
and long-term funding programs under which we
 
issue senior unsecured debt and structured
 
notes, as
well as short-term
 
debt. These programs
 
enable UBS to
 
source funding from
 
institutional and private
 
investors who are
active in Europe, the US and
 
Asia Pacific. Collectively, these
 
broad product offerings and funding
 
sources, together with
the global scope of our business activities, support our funding
 
stability.
Internal funding and funds transfer pricing
We use our
 
global liquidity and funding
 
framework to govern the
 
liquidity management of our
 
branches and subsidiaries.
Group Treasury
 
meets internal demands for funding
 
by channeling funds from
 
entities generating surplus cash to
 
those
in need of financing, except in circumstances where
 
transfer restrictions exist.
Funding costs and benefits
 
are allocated to our
 
business divisions according to
 
our liquidity and
 
funding risk management
framework. Our
 
internal funds
 
transfer pricing
 
system aims
 
to incentivize
 
that we
 
have the
 
right balance
 
of assets
 
and
liabilities in currencies and tenors.
Credit ratings
Credit
 
ratings can
 
affect
 
the cost
 
and availability
 
of funding,
 
especially from
 
wholesale
 
unsecured
 
sources.
 
Our credit
ratings can
 
also influence
 
the performance of
 
some of
 
our businesses
 
and the
 
levels of
 
client and
 
counterparty confidence.
Rating agencies
 
take into
 
account a
 
range of
 
factors when
 
assessing creditworthiness
 
and setting
 
credit ratings.
 
These
include
 
the
 
company’s
 
strategy,
 
its
 
business
 
position
 
and
 
franchise
 
value,
 
stability
 
and
 
quality
 
of
 
earnings,
 
capital
adequacy,
 
risk
 
profile
 
and
 
management,
 
liquidity
 
management,
 
diversification
 
of
 
funding
 
sources,
 
asset
 
quality,
 
and
corporate governance. Credit ratings reflect the
 
opinions of the rating agencies and can change at any time.
In evaluating
 
our liquidity
 
and funding
 
requirements, we
 
consider the
 
potential effect
 
of a
 
reduction in
 
our long-term
credit ratings
 
and a
 
corresponding reduction
 
in short-term
 
ratings. If
 
our credit
 
ratings were
 
to be
 
downgraded, rating
trigger clauses could result in an immediate cash settlement or the
 
need to deliver additional collateral to counterparties
from contractual obligations
 
related to over-the-counter
 
(OTC) derivative
 
positions and other
 
obligations. Based
 
on our
credit ratings as of 31 December
 
2023, in the event of a
 
one-notch reduction in our long-term credit
 
ratings of UBS AG
and UBS Europe SE,
 
we would have been
 
required to provide USD 0.0bn in
 
cash or other collateral. In
 
the event of a
 
two-
notch reduction,
 
it would
 
have been
 
USD 0.3bn and
 
for a
 
three-notch downgrade
 
USD 0.6bn. In
 
the two-
 
and three-
notch scenarios the collateral requirements predominantly
 
relate to OTC derivative positions.
In March
 
2023, following
 
the announcement
 
of planned
 
acquisition of
 
the
 
Credit Suisse
 
Group, rating
 
agencies
 
took
following
 
actions
 
regarding
 
UBS
 
AG’s
 
ratings:
 
Fitch
 
Ratings
 
Ireland
 
Limited
 
(Fitch)
 
placed
 
its
 
“AA–”
 
Long-Term
 
Issuer
Default Rating (IDR) on Rating Watch Negative and Moody’s Investors Service Limited (Moody’s) changed the outlook on
its Baseline Credit Assessment and Long-term Senior Debt ratings
 
to Negative. Upon the close of UBS’s acquisition of
 
the
Credit Suisse Group in
 
June 2023, Fitch downgraded
 
the Long-Term IDR of
 
UBS AG to “A+” from
 
“AA–” and changed
the outlook to Stable,
 
while Moody‘s maintained
 
all the ratings. S&P
 
Global Ratings Europe
 
Limited (S&P) affirmed
 
UBS
AG’s Long-term and Short-term issuer credit rating and
 
outlook in March 2023 and, more recently, in February 2024.
›
Refer to “Liquidity and funding management are critical
 
to our ongoing performance” in the “Risk factors”
 
section of this report
for more information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Liquidity and funding management
 
106
Contingency Funding Plan
Audited
 
|
 
We
 
maintain
 
our
 
Contingency
 
Funding
 
Plan
 
as
 
a
 
preparation
 
and
 
action
 
plan,
 
aiming
 
to
 
ensure
 
we
 
maintain
sufficient liquidity
 
to meet
 
payment obligations
 
in a liquidity
 
and funding
 
stress. The
 
plan specifies
 
the processes,
 
tools
and responsibilities that we
 
have available to
 
effectively manage liquidity and
 
funding through these periods.
 
Our funding
diversification
 
and
 
global
 
scope
 
help
 
to
 
protect
 
our
 
liquidity
 
position
 
in
 
the
 
event
 
of
 
a
 
crisis. Our
 
contingent
 
funding
sources include
 
our HQLA portfolios,
 
available Central
 
Bank eligible non-HQLA
 
collateral for liquidity
 
facilities at several
major central banks, contingent reductions of trading portfolio assets, and other actions available to the management.
p
Liquidity coverage ratio
The LCR measures the
 
short-term resilience of a
 
bank’s liquidity profile by
 
assessing whether sufficient HQLA are
 
available
to meet expected net cash outflows from a significant
 
liquidity stress scenario, as defined by the relevant
 
regulator.
For UBS AG,
 
HQLA are low-risk
 
unencumbered assets under the
 
control of Group
 
Treasury that are easily
 
and immediately
convertible into
 
cash at
 
little or
 
no loss
 
of value,
 
in order
 
to meet
 
liquidity needs.
 
Our HQLA
 
predominantly consist
 
of
assets that qualify as Level 1 in the LCR framework, including
 
cash, central bank reserves and government
 
bonds. HQLA
are held by UBS AG and its subsidiaries and
 
may include amounts that are available to meet funding
 
and collateral needs
in
 
certain
 
jurisdictions
 
but
 
are
 
not
 
readily
 
available
 
for
 
use
 
by
 
UBS AG
 
consolidated
 
as
 
a
 
whole.
 
These
 
limitations
 
are
typically the result of local regulatory requirements,
 
including local LCR and large exposure requirements.
 
Funds that are
effectively restricted
 
in subsidiaries
 
and branches
 
are excluded
 
from the
 
calculation of
 
UBS AG consolidated
 
HQLA. On
this basis, USD 33.5bn of assets were excluded from
 
our daily average UBS AG consolidated HQLA for the fourth
 
quarter
of 2023.
 
Amounts held
 
in excess
 
of local
 
liquidity requirements
 
that are
 
not subject
 
to other
 
restrictions are
 
generally
available for transfer within UBS AG consolidated.
Basel Committee on
 
Banking Supervision (BCBS) standards
 
require an LCR
 
of at least
 
100%. In a
 
period of financial stress,
the Swiss
 
Financial Market Supervisory
 
Authority (FINMA) may
 
allow banks
 
to use
 
their HQLA and
 
let their
 
LCR temporarily
fall below
 
the
 
minimum
 
threshold.
 
We
 
monitor
 
the
 
LCR
 
in
 
all
 
significant
 
currencies
 
in
 
order
 
to
 
manage
 
any
 
currency
mismatches between HQLA and the net expected cash outflows
 
in times of stress.
The daily average LCR of UBS AG consolidated for the fourth
 
quarter of 2023 was 189.7%
›
Refer to the 31 December 2023 Pillar 3 Report,
 
available under “Pillar 3 disclosures” at
ubs.com/investors,
for more information
about the LCR on a UBS Group AG consolidated
 
basis
Liquidity coverage ratio
USD bn, except where indicated
Average 4Q23
1
High-quality liquid assets
254.5
Total net cash outflows
2
134.3
Liquidity coverage ratio (%)
3
189.7
1 Calculated based on
 
an average of
 
63 data points in
 
the fourth quarter of
 
2023.
 
2 Represents the net
 
cash outflows expected
 
over a stress period
 
of 30 calendar days.
 
3 Calculated after the
 
application of
haircuts and inflow and outflow rates, as well as, where applicable,
 
caps on Level 2 assets and cash inflows.
Too-big-to-fail liquidity requirements
The too-big-to-fail (TBTF)
 
liquidity requirements communicated
 
by FINMA in the
 
third quarter of
 
2023 became effective
on 1 January 2024. The affected legal entities of UBS AG
 
consolidated are compliant with these requirements.
Net stable funding ratio
The NSFR framework
 
is intended to
 
limit overreliance on short-term
 
wholesale funding, to
 
encourage a better assessment
of
 
funding
 
risk
 
across
 
all
 
on-
 
and
 
off-balance
 
sheet
 
items
 
and
 
to
 
promote
 
funding
 
stability.
 
The
 
NSFR
 
has
 
two
components: available stable
 
funding (ASF), as numerator, and required
 
stable funding (RSF), as denominator. ASF is the
portion
 
of
 
capital
 
and
 
liabilities
 
expected
 
to
 
be
 
available
 
over
 
the
 
period
 
of
 
one
 
year.
 
RSF
 
is a
 
measure
 
of
 
the
 
stable
funding requirement
 
of assets
 
based on their
 
maturity,
 
encumbrance and
 
other characteristics,
 
as well as
 
the potential
for contingent calls on
 
funding liquidity from off-balance sheet exposures. The
 
BCBS NSFR regulatory framework requires
a ratio of at least 100%.
As of 31 December 2023, the NSFR of UBS AG consolidated
 
was 119.6%.
›
Refer to the 31 December 2023 Pillar 3 Report,
 
available under “Pillar 3 disclosures” at
ubs.com/investors,
for more information
about the NSFR on a UBS Group AG consolidated
 
basis
 
Net stable funding ratio
USD bn, except where indicated
31.12.23
Available stable funding (ASF)
602.6
Required stable funding (RSF)
503.8
Net stable funding ratio (%)
119.6
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Balance sheet and off-balance
 
sheet
 
107
Balance sheet and off-balance sheet
Balance sheet
The
 
balances
 
disclosed
 
in
 
this
 
section
 
represent
 
year-end
 
positions,
 
unless
 
indicated
 
otherwise.
 
Intra-period
 
balances
fluctuate in the ordinary course of business and may differ from year
 
-end positions. Refer to the “Consolidated financial
statements”
 
section of this report for more information
 
about the development of UBS AG’s financial position.
Balance sheet assets
As
 
of
 
31 December
 
2023,
 
balance
 
sheet
 
assets
 
totaled
 
USD 1,156.0bn,
 
an
 
increase
 
of
 
USD 50.6bn
 
compared
 
with
31 December 2022.
Lending assets increased by USD 29.1bn, mainly
 
driven by currency effects of approximately USD 21.0bn. The
 
movement
not related
 
to currency
 
effects
 
was
 
mainly
 
driven
 
by funding
 
provided
 
by Group
 
Treasury
 
to Credit
 
Suisse,
 
as
 
well as
increases in
 
Personal &
 
Corporate Banking,
 
primarily reflecting
 
higher mortgage
 
loans and
 
real estate
 
financing, partly
offset by decreases in Lombard
 
loans in Global Wealth Management
 
.
 
Trading
 
portfolio assets increased by USD
 
27.1bn,
mainly in Financing and
 
Derivatives & Solutions
 
in the Investment
 
Bank, reflecting higher
 
inventory held to
 
hedge client
positions
 
and
 
market-driven
 
movements.
 
Securities
 
financing
 
transactions
 
at
 
amortized
 
cost
 
increased
 
by
 
USD 6.3bn,
mainly reflecting higher net cash reinvestment
 
trades in Group Treasury.
These increases
 
were partly
 
offset by
 
a USD 21.1bn decrease
 
in Derivatives and
 
cash collateral receivables
 
on derivative
instruments. The
 
decrease
 
was mainly
 
in Derivatives
 
&
 
Solutions and
 
Financing,
 
predominantly
 
reflecting
 
decreases
 
in
foreign exchange contracts,
 
where the contracts in
 
place at the end of
 
2023 had lower fair
 
values than the contracts
 
in
place at
 
the end
 
of 2022, as
 
well as decreases
 
in interest
 
rate contracts,
 
mainly resulting
 
from valuation
 
effects due
 
to
decreases in
 
long-term interest
 
rates.
 
These decreases
 
were partly
 
offset by
 
market-driven increases
 
in equity
 
contracts
reflecting a rise in equity markets.
Assets
As of
% change from
USD bn
31.12.23
31.12.22
31.12.22
Cash and balances at central banks
 
171.8
 
169.4
 
1
Lending
1
 
433.8
 
404.7
 
7
Securities financing transactions at amortized cost
 
74.1
 
67.8
 
9
Trading assets
 
135.1
 
108.0
 
25
Derivatives and cash collateral receivables on derivative instruments
 
164.0
 
185.1
 
(11)
Brokerage receivables
 
20.9
 
17.6
 
19
Other financial assets measured at amortized cost
 
54.3
 
53.4
 
2
Other financial assets measured at fair value
2
 
66.0
 
61.6
 
7
Non-financial assets
 
 
35.9
 
37.7
 
(5)
Total assets
 
1,156.0
 
1,105.4
 
5
1 Consists of Loans and advances to customers and Amounts due from banks.
 
2 Consists of Financial assets at fair value not held for trading and Financial assets measured at
 
fair value through other comprehensive
income.
Asset encumbrance
The table below provides a breakdown of on- and off-balance sheet assets between encumbered assets, unencumbered
assets and assets that cannot be pledged as collateral.
Assets are presented as
 
Encumbered if they have
 
been pledged as collateral
 
against an existing liability
 
or are otherwise
not available for
 
securing additional funding.
 
Included within the
 
latter category are
 
assets protected under
 
client asset
segregation rules, financial
 
assets for unit-linked
 
investment contracts, and
 
assets held in
 
certain jurisdictions to
 
comply
with explicit minimum local asset maintenance requirements
 
.
Assets
 
that
 
cannot
 
be
 
pledged
 
as
 
collateral
 
represent
 
assets
 
that
 
are
 
not
 
encumbered
 
but
 
by
 
their
 
nature
 
are
 
not
considered available to secure funding or meet collateral
 
needs.
All other
 
assets are
 
presented
 
as Unencumbered.
 
This
 
category
 
consists of
 
cash and
 
securities readily
 
realizable
 
in the
normal course of business,
 
which include high-quality liquid assets
 
and unencumbered positions in the
 
trading portfolio
of UBS AG.
 
In addition,
 
unencumbered assets
 
include loans
 
and advances
 
to customers
 
and amounts
 
due from
 
banks.
Unencumbered assets
 
that are
 
considered to
 
be available
 
to secure
 
funding at
 
the legal
 
entity level
 
may be
 
subject to
restrictions that limit the total amount of assets available
 
to UBS AG as a whole.
›
Refer to “Note 22 Restricted and transferred financial
 
assets”
 
in the “Consolidated financial statements” section
 
of this report for
more information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Balance sheet and off-balance
 
sheet
 
108
Asset encumbrance as of 31 December 2023
USD bn
Encumbered
Unencumbered
assets
Assets that
cannot be
pledged as
collateral
Total UBS AG
Assets pledged
as collateral
Assets otherwise
restricted and
not available to
secure funding
Balance sheet
Cash and balances at central banks
0.7
0.2
170.8
171.8
Amounts due from banks
2.5
 
25.6
2
0.1
28.2
Receivables from securities financing transactions measured at amortized
 
cost
74.1
74.1
Cash collateral receivables on derivative instruments
4.7
27.6
32.3
Loans and advances to customers
28.1
0.0
377.5
405.6
Other financial assets measured at amortized cost
 
7.0
1
3.3
36.7
7.3
54.3
Total financial assets measured at amortized cost
35.9
10.8
610.6
109.1
766.4
Financial assets at fair value held for trading
 
76.6
1
0.2
58.4
135.1
Derivative financial instruments
131.7
131.7
Brokerage receivables
20.9
20.9
Financial assets at fair value not held for trading
 
3.1
1
17.8
37.3
5.5
63.8
Total financial assets measured at fair value through profit or loss
79.7
18.0
95.6
158.2
351.5
Financial assets measured at fair value through other comprehensive income
1.8
0.4
2.2
Non-financial assets
0.0
16.5
19.5
35.9
Total balance sheet assets as of 31 December 2023
115.5
30.7
723.0
286.7
1,156.0
Total balance sheet assets as of 31 December 2022
77.6
26.9
698.9
302.0
1,105.4
Off-balance sheet
Fair value of securities accepted as collateral as of 31 December 2023
357.0
5.3
127.1
489.5
Fair value of securities accepted as collateral as of 31
December 2022
331.8
5.6
96.6
434.0
Total balance sheet assets and off-balance sheet securities accepted as collateral as of
31 December 2023
472.6
36.0
850.2
286.7
1,645.5
of which: high-quality liquid assets
261.7
Total balance sheet assets and off-balance sheet securities accepted as collateral as of
31 December 2022
409.4
32.6
795.5
302.0
1,539.5
of which: high-quality liquid assets
239.8
1 Includes assets pledged
 
as collateral that
 
may be sold or
 
repledged by counterparties.
 
The respective amounts
 
are disclosed in
 
“Note 22 Restricted and
 
transferred financial assets”
 
in the “Consolidated financial
statements” section of this report.
 
2 Mainly includes funding provided by Group Treasury to Credit Suisse.
Balance sheet liabilities
Total
 
liabilities as of 31 December
 
2023 were USD 1,100.4bn,
 
an increase of
 
USD 51.9bn compared
 
with 31 December
2022.
Customer deposits increased
 
by USD 28.5bn, driven by currency
 
effects of approximately
 
USD 21.3bn and non-foreign-
exchange-related increases of USD 7.2bn, mainly in Personal & Corporate Banking and Global Wealth Management as a
result
 
of
 
net
 
inflows
 
into
 
fixed-term
 
deposit
 
products,
 
partly
 
offset
 
by
 
lower
 
demand
 
and
 
sweep
 
deposits
 
driven
 
by
continued shifts into money
 
market funds and
 
US-government securities. As of
 
31 December 2023, the ratio
 
of customer
deposits to outstanding loans and advances to customers
 
was at 137% (31 December 2022: 135%).
 
Debt issued
 
designated at
 
fair value
 
and long-term
 
debt issued
 
measured at
 
amortized cost
 
increased
 
by USD 17.1bn.
Debt issued designated at fair value increased
 
by USD 14.5bn, reflecting net new
 
issuances and market-driven increases
due to
 
the rise
 
in equity
 
markets. Long-term
 
debt issued
 
measured
 
at amortized
 
cost increased
 
by USD 2.7bn,
 
mainly
driven
 
by
 
net
 
new
 
issuances
 
of
 
covered
 
bonds
 
and
 
debt
 
issued
 
through
 
the
 
Swiss
 
central
 
mortgage
 
institutions.
Subordinated
 
debt
 
remained
 
stable
 
during
 
2023,
 
with
 
one
 
low-trigger
 
loss-absorbing
 
tier
 
2
 
capital
 
instrument
 
of
USD 2.4bn being no longer eligible as a capital instrument as the residual maturity was less than one year. Funding from
UBS Group AG measured at amortized cost increased by USD 11.2bn, mainly reflecting higher on-lends eligible as TLAC.
 
›
Refer to the “Capital management” section of
 
this report for more information
 
Short-term borrowings increased
 
by USD 12.7bn, mainly due to net
 
new issuances of commercial paper
 
and certificates
of deposit in Group Treasury
 
,
 
as well as an increase in funding obtained from
 
US Federal Home Loan Banks.
 
These
 
increases
 
were
 
partly offset
 
by a
 
USD 15.7bn decrease
 
in Derivatives
 
and cash
 
collateral
 
payables
 
on derivative
instruments. The decrease was mainly
 
in Derivatives & Solutions
 
and Financing, reflecting the same
 
drivers as on
 
the asset
side.
Equity
Equity attributable to shareholders decreased
 
by USD 1,364m to USD 55,234m as of 31 December
 
2023.
 
This decrease
 
was mainly
 
driven by
 
the 2022
 
dividend
 
distribution of
 
USD 6,000m
 
to UBS
 
Group AG,
 
partly offset
 
by
total comprehensive income attributable to shareholders of USD 4,598m
 
,
 
reflecting net profit of USD 3,290m and other
comprehensive income (OCI) of USD
 
1,308m.
 
OCI mainly included cash flow
 
hedge OCI of USD 1,400m,
 
OCI related to
foreign currency
 
translation
 
of USD 849m,
 
negative OCI
 
related to
 
own credit
 
on financial
 
liabilities designated
 
at fair
value of USD 790m and negative defined benefit plan OCI
 
of USD 136m.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ubs-20231231p126i0
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Balance sheet and off-balance
 
sheet
 
109
In the second quarter of 2023, the share capital currency
 
of UBS AG was changed from the Swiss franc to the US dollar,
as approved
 
by the
 
shareholders
 
at
 
the
 
2023
 
Annual
 
General
 
Meeting.
 
As a
 
result,
 
the
 
nominal
 
value
 
per
 
share
 
was
changed from CHF 0.10 to USD 0.10,
 
resulting in a reclassification between share
 
capital and capital contribution reserve
(presented as
 
share
 
premium
 
in the
 
consolidated
 
financial
 
statements).
 
Total equity
 
reported was
 
not affected
 
by this
change.
›
Refer to the “UBS AG consolidated performance”
 
and “Consolidated financial statements” sections
 
of this report for more
information about OCI
›
Refer to the “Reconciliation of equity under IFRS
 
Accounting Standards to Swiss SRB common equity tier
 
1 capital” table in this
section for more information about the effects of OCI on common
 
equity tier 1 capital
Liabilities and equity
As of
% change from
USD bn
31.12.23
31.12.22
31.12.22
Short-term borrowings
1
 
54.0
 
41.3
 
31
Securities financing transactions at amortized cost
 
5.8
 
4.2
 
38
Customer deposits
 
555.7
 
527.2
 
5
Funding from UBS Group AG measured at amortized cost
 
67.3
 
56.1
 
20
Debt issued designated at fair value and long-term debt issued measured
 
at amortized cost
2
 
118.8
 
101.7
 
17
Trading liabilities
 
31.7
 
29.5
 
7
Derivatives and cash collateral payables on derivative instruments
 
175.6
 
191.3
 
(8)
Brokerage payables
 
42.3
 
45.1
 
(6)
Other financial liabilities measured at amortized cost
 
 
12.7
 
10.4
 
22
Other financial liabilities designated at fair value
 
27.4
 
32.0
 
(15)
Non-financial liabilities
 
 
9.2
 
9.7
 
(5)
Total liabilities
 
1,100.4
 
1,048.5
 
5
Share capital
 
0.4
 
0.3
 
14
Share premium
 
24.6
 
24.6
 
0
Retained earnings
 
28.2
 
31.7
 
(11)
Other comprehensive income
3
 
2.0
 
(0.1)
Total equity attributable to shareholders
 
55.2
 
56.6
 
(2)
Equity attributable to non-controlling interests
 
0.3
 
0.3
 
(2)
Total equity
 
55.6
 
56.9
 
(2)
Total liabilities and equity
 
1,156.0
 
1,105.4
 
5
1 Consists of
 
short-term debt issued
 
measured at
 
amortized cost and
 
amounts due to
 
banks.
 
2 The
 
classification of debt
 
issued measured
 
at amortized
 
cost into short-term
 
and long-term
 
is based on
 
original
contractual maturity and therefore
 
long-term debt also includes
 
debt with a remaining
 
time to maturity of
 
less than one year.
 
This classification does
 
not consider any early
 
redemption features.
 
3 Excludes other
comprehensive income related to defined benefit plans and own credit, which is recorded directly in Retained earnings.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Balance sheet and off-balance
 
sheet
 
110
Liabilities by product and currency
USD equivalent
All currencies
of which: USD
of which: CHF
of which: EUR
USD bn
31.12.23
31.12.22
31.12.23
31.12.22
31.12.23
31.12.22
31.12.23
31.12.22
Short-term borrowings
54.0
41.3
35.6
23.3
4.3
3.8
5.9
4.4
of which: amounts due to banks
16.7
11.6
8.1
4.2
3.9
3.7
0.7
1.1
of which: short-term debt issued
1,2
37.3
29.7
27.6
19.0
0.3
0.1
5.2
3.3
Securities financing transactions at amortized cost
5.8
4.2
5.1
3.6
0.0
0.0
0.3
0.2
Customer deposits
555.7
527.2
236.4
228.0
216.0
199.2
51.5
53.6
of which: demand deposits
146.2
182.3
36.8
48.0
61.5
71.9
24.7
37.4
of which: retail savings / deposits
152.7
149.3
28.9
24.6
119.2
119.0
4.5
5.6
of which: sweep deposits
41.0
69.2
41.0
69.2
0.0
0.0
0.0
0.0
of which: time deposits
215.8
126.3
129.6
86.1
35.4
8.3
22.3
10.6
Funding from UBS Group AG measured at amortized cost
67.3
56.1
44.6
34.7
2.0
2.7
18.9
15.7
Debt issued designated at fair value and long-term debt issued
 
measured at amortized cost
2
118.8
101.7
75.2
63.0
18.8
14.6
14.4
13.7
Trading liabilities
31.7
29.5
12.0
12.1
1.0
0.8
8.9
8.1
Derivatives and cash collateral payables on derivative instruments
175.6
191.3
146.7
160.4
4.1
3.8
15.2
15.8
Brokerage payables
42.3
45.1
31.4
32.3
0.7
0.4
2.4
3.2
Other financial liabilities measured at amortized cost
 
12.7
10.4
7.6
5.7
1.9
1.6
1.0
0.9
Other financial liabilities designated at fair value
27.4
32.0
5.7
12.8
0.1
0.1
4.1
4.1
Non-financial liabilities
 
9.2
9.7
2.4
2.8
2.0
1.1
2.5
2.9
Total liabilities
1,100.4
1,048.5
602.7
578.6
251.0
228.1
125.0
122.7
1 Short-term debt issued consists of certificates of deposit, commercial paper,
 
acceptances and promissory notes, and other money market paper.
 
2 The classification of debt issued measured at amortized cost into
short-term and long-term is based
 
on original contractual
 
maturity and therefore long-term
 
debt also includes debt
 
with a remaining time to
 
maturity of less than
 
one year.
 
This classification does not
 
consider any
early redemption features.
Off-balance sheet
In the
 
normal course
 
of business,
 
UBS AG enters
 
into transactions
 
where, pursuant
 
to IFRS
 
Accounting Standards
 
,
 
the
maximum contractual exposure
 
may not
 
be recognized in
 
whole or
 
in part
 
on its
 
balance sheet. These
 
transactions include
derivative instruments, guarantees,
 
loan commitments and similar arrangements.
When UBS AG incurs an
 
obligation or becomes
 
entitled to an asset
 
through these arrangements,
 
it recognizes them on
the balance
 
sheet. It
 
should be
 
noted that
 
in certain
 
instances the
 
amount recognized
 
on the
 
balance sheet
 
does not
represent the full gain or loss potential inherent in such arrangements.
The
 
following
 
paragraphs
 
provide
 
more
 
information
 
about
 
certain
 
off-balance
 
sheet
 
arrangements.
 
Additional
 
off-
balance sheet
 
information is
 
primarily provided
 
in Notes 9,
 
10, 17,
 
19, 20h,
 
22 and
 
28 in
 
the “Consolidated
 
financial
statements” section of this report
.
Guarantees,
 
loan commitments and similar arrangements
In the
 
normal course
 
of business,
 
UBS AG issues
 
various forms
 
of guarantees,
 
commitments to
 
extend credit,
 
standby
and
 
other
 
letters
 
of
 
credit
 
to
 
support
 
clients,
 
forward
 
starting
 
transactions,
 
note
 
issuance
 
facilities,
 
and
 
revolving
underwriting facilities.
 
With the
 
exception of
 
related premiums,
 
generally these
 
guarantees and
 
similar obligations
 
are
kept as off-balance sheet items, unless a provision
 
to cover probable losses or expected credit
 
losses is required.
Guarantees
 
represent
 
irrevocable
 
assurances
 
that,
 
subject
 
to
 
the
 
satisfying
 
of
 
certain
 
conditions,
 
UBS AG
 
will
 
make
payments if its clients fail to fulfill
 
their obligations to third parties. As of
 
31 December 2023, the net exposure (i.e., gross
values less sub-participations) from guarantees and
 
similar instruments was USD 31.5bn, compared
 
with USD 20.6bn as
of 31 December 2022. The increase of USD 10.9bn,
 
was mainly driven by sponsored repo clearing in
 
Group Treasury.
 
Fee
income from issuing guarantees
 
compared with total net fee
 
and commission income is insignificant
 
for both 2023 and
2022.
UBS AG also enters
 
into commitments to
 
extend credit
 
in the form
 
of credit lines
 
available to secure
 
the liquidity needs
of clients. The majority of irrevocable loan commitments range in maturity from one month to three years. During 2023,
irrevocable loan
 
commitments increased
 
by USD 4.0bn,
 
mainly in the
 
Investment Bank,
 
and committed
 
unconditionally
revocable credit
 
lines increased
 
by USD
 
3.7bn, mainly
 
driven by
 
increases
 
in facilities
 
provided
 
to clients
 
in Personal
 
&
Corporate Banking,
 
as well as currency effects.
 
Forward starting reverse repurchase agreements increased by USD 6.6bn,
in
 
Group
 
Treasury,
 
reflecting
 
fluctuations
 
in
 
levels
 
of
 
business
 
division
 
activity
 
in
 
short-dated
 
securities
 
financing
transactions.
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Balance sheet and off-balance
 
sheet
 
111
Off-balance sheet
As of
% change from
USD bn
31.12.23
31.12.22
31.12.22
Guarantees
1,2
31.5
20.6
53
Irrevocable loan commitments
1
44.0
40.0
10
Committed unconditionally revocable credit lines
47.4
43.7
9
Forward starting reverse repurchase agreements
10.4
3.8
173
1 Guarantees and irrevocable loan commitments are shown net of sub-participations.
 
2 Includes guarantees measured at fair value through profit or loss.
If customers
 
fail to
 
meet their
 
obligations, the
 
maximum exposure
 
to credit
 
risk of
 
UBS AG is
 
generally the
 
contractual
amount of these instruments. The risk is similar to the risk involved in extending loan facilities and is subject
 
to the same
risk management
 
and control
 
framework.
 
In 2023,
 
UBS AG recognized
 
net credit
 
loss releases
 
of USD 13m
 
related to
irrevocable loan commitments
 
,
 
guarantees and
 
other credit facilities
 
in the scope
 
of expected
 
credit loss measurement,
compared
 
with
 
net
 
credit
 
loss
 
releases
 
of
 
USD 3m
 
in
 
2022.
 
Provisions
 
recognized
 
for
 
irrevocable
 
loan
 
commitments,
guarantees
 
and
 
other
 
credit
 
facilities
 
in
 
the
 
scope
 
of
 
expected
 
credit
 
loss
 
measurement
 
were
 
USD 188m
 
as
 
of
31 December 2023, compared with USD 201m as of 31
 
December 2022.
›
Refer to “Note 9 Financial
 
assets at
 
amortized
 
cost and
 
other positions
 
in scope
 
of expected
 
credit loss
 
measurement”
 
and “Note 19
Expected
 
credit loss
 
measurement”
 
in the “Consolidated
 
financial
 
statements”
 
section of this report for more information about
provisions for expected credit losses
For
 
certain
 
obligations,
 
UBS AG
 
enters
 
into
 
partial
 
sub-participations
 
to
 
mitigate
 
various
 
risks
 
from
 
guarantees
 
and
irrevocable loan
 
commitments. A
 
sub-participation is
 
an agreement
 
by another
 
party to
 
take a
 
share of
 
the loss
 
in the
event that the obligation is not fulfilled by the obligor and, where applicable, to fund a part of the credit
 
facility. UBS AG
retains the contractual relationship
 
with the obligor, and
 
the sub-participant has
 
only an indirect relationship.
 
Generally,
UBS AG only enters
 
into sub-participation
 
agreements with
 
banks to which
 
it ascribes
 
a credit rating
 
equal to or
 
better
than that of the obligor.
UBS AG also provides
 
representations, warranties and indemnifications to third
 
parties in the normal course of business.
Support provided to non-consolidated investment funds
In 2023, UBS
 
AG did not
 
provide material
 
support, financial
 
or otherwise,
 
to unconsolidated
 
investment funds
 
when it
was not contractually obligated to do so, nor does it currently
 
have an intention to do so.
Clearing house and exchange memberships
UBS AG is a member
 
of numerous securities
 
and derivative exchanges
 
and clearing houses. In
 
connection with some
 
of
these memberships, UBS AG
 
may be required
 
to pay
 
a share of
 
the financial obligations
 
of another member
 
who defaults,
or UBS AG
 
may be
 
otherwise exposed
 
to additional
 
financial obligations.
 
While the
 
membership rules
 
vary,
 
obligations
generally would
 
arise only
 
if the
 
exchange or
 
clearing house
 
had exhausted
 
its resources. UBS AG
 
considers
 
the probability
of a material loss due to such obligations to be remote.
Deposit insurance
Swiss banking
 
law and
 
the deposit
 
insurance system
 
require Swiss
 
banks and
 
securities dealers
 
to jointly
 
guarantee an
amount
 
of
 
up
 
to
 
CHF 8bn
 
for
 
privileged
 
client
 
deposits
 
in
 
the
 
event
 
that
 
a
 
Swiss
 
bank
 
or
 
securities
 
dealer
 
becomes
insolvent. As of 31 December 2023, FINMA
 
estimates UBS AG’s share in the
 
deposit insurance system to be CHF 1.2bn.
This
 
represents
 
a
 
contingent
 
payment
 
obligation
 
and
 
exposes
 
UBS AG
 
to
 
additional
 
risk.
 
As
 
of
 
31 December
 
2023,
UBS AG considered the probability of a
 
material loss from its obligations to be remote.
UBS AG is
 
also subject to,
 
or is
 
a member of,
 
other deposit protection
 
schemes in other
 
countries. However, no
 
contingent
payment obligation existed as of 31 December 2023 from
 
any other material scheme.
Material cash requirements
The material cash
 
requirements of UBS AG
 
as of
 
31 December 2023 are
 
represented by the
 
residual contractual maturities
for non-derivative and
 
non-trading financial
 
liabilities included
 
in the table
 
presented in
 
“Note 23b Maturity
 
analysis of
financial liabilities on an undiscounted basis”
 
in the “Consolidated financial statements”
 
section of this report. Included
in the table are debt issued designated at fair value (USD 93.0bn), debt issued measured at amortized cost (USD 73.6bn)
and funding
 
from UBS
 
Group AG
 
measured at
 
amortized cost
 
(USD 86.1bn).
 
The amounts
 
represent
 
estimated future
interest and principal payments on an undiscounted
 
basis.
In
 
the
 
normal
 
course
 
of
 
business,
 
UBS AG
 
also
 
issues
 
or
 
enters
 
into
 
various
 
forms
 
of
 
guarantees,
 
irrevocable
 
loan
commitments and other similar arrangements that may result in an outflow of cash in the future. The maturity profile
 
of
these
 
obligations,
 
which
 
are
 
presented
 
off-balance
 
sheet,
 
are
 
included
 
in
 
“Note 23b
 
Maturity
 
analysis
 
of
 
financial
liabilities on an undiscounted basis” in the “Consolidated
 
financial statements” section of this report.
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Balance sheet and off-balance
 
sheet
 
112
Cash flows
As a global financial institution, our cash
 
flows are complex and often may bear little
 
relation to our net earnings and
 
net
assets.
 
Consequently,
 
we believe
 
that a
 
traditional cash
 
flow analysis
 
is less
 
meaningful
 
when evaluating
 
our liquidity
position
 
than
 
the
 
liquidity,
 
funding
 
and
 
capital
 
management
 
frameworks
 
and
 
measures
 
described
 
elsewhere
 
in
 
this
section.
›
Refer to the “Liquidity and funding management”
 
section of this report for more information
Cash and cash equivalents
As of
 
31 December
 
2023,
 
cash
 
and
 
cash
 
equivalents
 
totaled
 
USD 190.5bn,
 
a
 
decrease
 
of
 
USD 4.7bn
 
compared
 
with
31 December
 
2022,
 
driven
 
by net
 
cash
 
outflows
 
from
 
operating
 
and
 
investing
 
activities.
 
These
 
outflows
 
were
 
largely
offset
 
by net
 
cash inflows
 
from
 
financing
 
activities,
 
as
 
well as
 
positive
 
foreign
 
exchange
 
effects,
 
mainly
 
reflecting
 
the
depreciation of the US dollar against the Swiss franc
 
in 2023.
Operating activities
Net cash outflows
 
from operating
 
activities were
 
USD 28.2bn in
 
2023, compared
 
with inflows
 
of USD 10.6bn in
 
2022,
reflecting changes in
 
operating assets and
 
liabilities of USD 28.1bn
 
and other adjustments
 
to remove the
 
net impact of
non-cash items,
 
such as
 
foreign currency
 
effects. The
 
net change
 
in operating
 
assets and
 
liabilities includes
 
funding of
USD 15bn provided
 
to Credit
 
Suisse (included within
 
amounts due from
 
banks), as
 
well as a
 
USD 16.0bn movement
 
in
financial assets and
 
liabilities at fair value
 
held for trading
 
and derivative financial
 
instruments,
 
USD 6.1bn from brokerage
receivables and payables,
 
and USD 5.0bn from receivables
 
from securities financing transactions
 
measured at amortized
cost. These effects
 
were partly offset
 
by a USD 6.5bn
 
increase in
 
customer deposits and
 
a USD 3.7bn decrease
 
in loans
and advances to customers.
 
Investing activities
Investing activities resulted
 
in a net
 
cash outflow of
 
USD 4.9bn in 2023,
 
compared with
 
USD 12.3bn in 2022,
 
primarily
related to cash outflows of USD 3.8bn from
 
net purchases of debt securities measured
 
at amortized cost.
Financing activities
Financing activities
 
resulted in a
 
net cash inflow
 
of USD 19.7bn
 
in 2023, compared
 
with an outflow
 
of USD 5.3bn
 
in 2022,
mainly due to net
 
issuance proceeds of USD 19.0bn from debt designated at fair
 
value and long-term debt measured at
amortized cost,
 
as well as net
 
issuances
 
of short-term debt of USD 7.2bn. These inflows were partly offset
 
by a dividend
distribution
 
to shareholders
 
of USD 6.0bn.
 
›
Refer to “Primary financial statements and share information”
 
in the “Consolidated financial statements” section
 
of this report for
more information about cash flows
Statement of cash flows (condensed)
For the year ended
USD bn
31.12.23
31.12.22
Net cash flow from / (used in) operating activities
(28.2)
10.6
Net cash flow from / (used in) investing activities
(4.9)
(12.3)
Net cash flow from / (used in) financing activities
19.7
(5.3)
Effects of exchange rate differences on cash and cash equivalents
8.7
(5.6)
Net increase / (decrease) in cash and cash equivalents
(4.7)
(12.6)
Cash and cash equivalents at the end of the year
190.5
195.2
 
Annual Report 2023 |
Risk, capital, liquidity and funding, and
 
balance sheet | Currency management
 
113
Currency management
Strategy, objectives and governance
Group Treasury
 
focuses on three main areas of currency risk management: (i) currency-matched funding and investment
of non-US-dollar assets and liabilities; (ii) the sell-down of foreign currency IFRS Accounting Standards profits
 
and losses;
and
 
(iii) selective
 
hedging
 
of
 
anticipated
 
non-US-dollar
 
profits
 
and
 
losses
 
to
 
further
 
mitigate
 
the
 
effect
 
of
 
structural
imbalances in the balance sheet. Group Treasury
 
also manages structural currency composition across three scopes: UBS
Group AG consolidated, UBS AG consolidated,
 
and Credit Suisse AG consolidated.
Currency-matched funding and investment of non-US-dollar
 
assets and liabilities
For monetary balance sheet items and other investments, as far as is practical and efficient, UBS AG follows
 
the principle
of matching the currencies of its assets and liabilities for funding purposes. This
 
avoids profits and losses arising from the
translation of non-US-dollar assets and liabilities.
Net investment hedge accounting is applied to non-US-dollar core investments to
 
balance the effect of foreign exchange
movements on both common equity tier 1 (CET1) capital
 
and the CET1 capital ratio.
›
Refer to “Note 1 Summary of material accounting
 
policies” and “Note 25 Hedge accounting” in the
 
“Consolidated financial
statements”
 
section of this report for more information
›
Refer to “Capital management” in this section for
 
more information about UBS AG’s active management of sensitivity to currency
movements and the effect thereof on the key ratios
Sell-down of non-US-dollar reported profits and losses
Income statement
 
items of
 
foreign
 
subsidiaries and
 
branches of
 
UBS AG with
 
a functional
 
currency other
 
than the
 
US
dollar
 
are
 
translated
 
into
 
US
 
dollars
 
at
 
average
 
exchange
 
rates.
 
To
 
reduce
 
earnings
 
volatility
 
on
 
the
 
translation
 
of
previously
 
recognized
 
earnings
 
in
 
foreign
 
currencies,
 
Group
 
Treasury
 
centralizes
 
the
 
profits
 
and
 
losses
 
(under
 
IFRS
Accounting Standards)
 
arising in UBS AG and its branches and sells or buys the profit or loss for US dollars on a monthly
basis. The foreign subsidiaries of UBS AG
 
follow a similar monthly sell-down process into their
 
own functional currencies.
Retained earnings
 
in subsidiaries
 
and branches
 
with a
 
functional currency
 
other than
 
the US
 
dollar are
 
integrated and
managed as part of UBS AG’s net investment hedge accounting
 
program.
 
Annual Report 2023 |
Corporate governance
 
114
Corporate governance
Management report
Audited information according to the Swiss law and applicable regulatory
requirements and guidance
Disclosures
 
provided
 
are
 
in
 
line
 
with
 
the
 
requirements
 
of
 
the
 
Swiss
 
Code
 
of
 
Obligations
 
(tables
 
containing
 
such
information are marked as “Audited” throughout this section),
 
as well as other applicable regulations and guidance.
115
115
115
116
117
119
120
121
123
 
 
Annual Report 2023 |
Corporate governance
 
115
Corporate governance
UBS AG
 
is incorporated
 
and domiciled in
 
Switzerland and operates
 
under Art.
 
620 et
 
seq. of
 
the Swiss
 
Code of
 
Obligations
and Swiss banking law
 
as an
Aktiengesellschaft
, a corporation limited
 
by shares. The addresses
 
and telephone numbers
of the two registered offices of UBS AG are: Bahnhofstrasse 45, CH-8001 Zurich,
 
Switzerland, telephone +41-44-234 11
11;
 
and
 
Aeschenvorstadt
 
1,
 
CH-4051
 
Basel,
 
Switzerland,
 
telephone
 
+41-61-288
 
50
 
50.
 
The
 
corporate
 
identification
number is CHE-101.329.561.
 
The company was incorporated with unlimited duration on 29
 
June 1998, when Union Bank of Switzerland (founded in
1862) and
 
Swiss Bank Corporation
 
(founded in 1872)
 
merged to form
 
UBS AG. UBS
 
AG is
 
a regulated bank
 
in Switzerland
and is 100%
 
owned by
 
UBS Group
 
AG, the ultimate
 
parent of
 
the UBS
 
Group. UBS
 
AG’s purpose,
 
in accordance
 
with
art. 2 of
 
its Articles
 
of Association,
 
as amended
 
on 4 April
 
2023, is
 
the operation
 
bank and
 
its scope
 
extends to
 
a full
range of financial services activities in Switzerland and abroad.
 
As a
 
non-US
 
company
 
with
 
securities listed
 
on
 
the
 
New
 
York
 
Stock
 
Exchange
 
(the NYSE),
 
UBS AG
 
complies
 
with the
relevant corporate
 
governance standards
 
applicable to
 
foreign private
 
issuers listing
 
debt securities.
 
In addition,
 
it also
follows
 
the
 
standards
 
established
 
in
 
the
 
Swiss
 
Code
 
of
 
Best
 
Practice
 
for
 
Corporate
 
Governance.
 
The
 
Organization
Regulations of UBS
 
AG, adopted by the
 
Board of Directors
 
of UBS AG (the
 
BoD) based on
 
Art. 716b of
 
the Swiss Code
of
 
Obligations
 
and
 
Art.
 
25
 
and
 
27
 
of
 
the
 
Articles
 
of
 
Association
 
of
 
UBS
 
AG
 
(the
 
AoA),
 
constitute
 
UBS
 
AG’s
 
primary
corporate governance guidelines.
Operational structure
 
Operational structure
As of
 
31 December
 
2023,
 
the
 
operational
 
structure
 
of
 
the
 
UBS AG
 
is composed
 
of the
 
Global Wealth
 
Management,
Personal &
 
Corporate Banking,
 
Asset Management,
 
the Investment
 
Bank, and
 
Non-core and
 
Legacy business
 
divisions,
as well as Group functions.
›
Refer to the “Our businesses” section of this
 
report for more information about our business divisions
 
and Group functions
Share capital structure
Ordinary share capital
In April 2023, the Annual General Meeting (the AGM) approved
 
the conversion of the share capital currency
 
of UBS AG
from
 
the
 
Swiss
 
franc
 
to
 
the
 
US
 
dollar.
 
To
 
obtain
 
a
 
Swiss
 
franc
 
nominal
 
value
 
per
 
share
 
equaling
 
USD 0.10
 
after
 
the
conversion, the AGM also approved a CHF 28,860,895.32568 ordinary reduction of the share capital, and this reduction
resulted in a corresponding allocation to the
 
capital contribution reserve on UBS AG’s
 
standalone financial statements.
At year-end 2023, UBS
 
AG had 3,858,408,466 issued
 
shares,
 
with a nominal
 
value of USD 0.10 each,
 
equating to a share
capital of USD 385,840,846.60.
 
Under Swiss company
 
law, shareholders
 
must approve, in
 
a general meeting
 
of shareholders, any
 
increase or reduction
in the ordinary share capital,
 
the creation of conditional share capital or the introduction
 
of a capital band.
 
Conditional share capital
At year-end 2023, the following conditional share
 
capital was available to the BoD.
 
–
A maximum of USD 38,000,000,
 
represented by up to 380,000,000
 
fully paid registered shares with
 
a nominal value
of USD 0.10
 
each, to
 
be issued
 
through the
 
voluntary or
 
mandatory exercise
 
of conversion
 
rights and
 
/ or
 
warrants
granted in connection
 
with the issuance
 
of bonds or
 
similar financial instruments
 
on national or
 
international capital
markets.
 
This conditional
 
capital
 
allowance
 
was approved
 
at the
 
Extraordinary
 
General
 
Meeting (the
 
EGM) held
 
on
26 November 2014, having originally been approved at
 
the AGM of UBS AG
 
on 14 April 2010. The BoD has
 
not made
use of such allowance.
›
Refer to article 4a of the AoA for more information
 
about the terms and conditions of the
 
issue of shares out of existing
conditional capital – the AoA are available at
 
ubs.com/governance
 
Annual Report 2023 |
Corporate governance
 
116
Capital band,
 
conversion capital and reserve capital
As of 31 December 2023, UBS AG has not introduced
 
a capital band, any conversion capital or any reserve
 
capital.
Shares
 
UBS AG has
 
a single class
 
of shares, which
 
are registered
 
shares in the
 
form of uncertificated
 
securities (in the
 
sense of
the Swiss Code of
 
Obligations) and intermediary
 
-held securities (in
 
the sense of the
 
Swiss Federal Act on
 
Intermediated
Securities). Each registered
 
share has a
 
nominal value
 
of USD 0.10 and
 
carries one vote
 
.
 
UBS AG imposes
 
no limitation
on the rights to own its securities.
Dividend distributions
 
The decision to pay a dividend
 
and the amount of any dividend
 
depend on a variety of factors, including
 
our profits, cash
flow generation and capital ratios.
 
At the 2024 AGM,
 
the BoD is proposing
 
to the shareholder for approval
 
a dividend of USD 3,000m
 
for the 2023 financial
year.
 
As of 31 December
 
2023, UBS AG
 
had 3,858,408,466
 
issued shares with
 
a nominal
 
value of USD
 
0.10 each, equating
to a
 
share
 
capital
 
of USD
 
385,840,846.60.
 
All shares
 
carry
 
voting rights,
 
were fully
 
paid
 
in and
 
eligible for
 
dividends.
There are no preferential
 
rights associated with these shares, and
 
no other classes of shares
 
have been issued by UBS AG.
Shareholders’ participation rights
Voting rights
The sole direct shareholder of UBS AG is UBS Group AG, which holds 100% of UBS AG shares. These shares are entitled
to voting rights without restriction.
 
Statutory quorums
Motions are decided at a general meeting by a majority of the votes represented, excluding blank and invalid ballots. For
the approval of
 
certain specific issues, the
 
Swiss Code of Obligations
 
requires a positive
 
vote from a two-thirds
 
majority
of the
 
votes represented
 
at the given
 
general meeting
 
and from
 
a majority
 
of the
 
nominal value
 
of shares
 
represented
thereat. Such issues include creating shares with privileged voting rights, introducing restrictions
 
on the transferability of
registered
 
shares,
 
creating
 
contingent
 
capital
 
or
 
introducing
 
a
 
capital
 
band,
 
conversion
 
capital
 
or
 
reserve
 
capital
 
and
restricting or excluding shareholders’ preemptive
 
rights.
 
The AoA also require a two-thirds majority of votes represented
 
for approval of any change to their provisions regarding
the number of BoD members, any decision to remove one-quarter or more of
 
the BoD members and any modification to
the provision establishing this qualified quorum.
Convocation of general meetings of shareholders
The AGM
 
must be held
 
within six
 
months of
 
the close
 
of the
 
financial year
 
(i.e., 31 December).
 
In 2024, the
 
AGM will
take place on 23 April.
EGMs
 
may
 
be
 
convened
 
whenever
 
the
 
BoD
 
or
 
the
 
auditors
 
consider
 
it
 
necessary.
 
Shareholders
 
individually
 
or
 
jointly
representing at least
 
10% of the
 
share capital may
 
at any time,
 
including during an
 
AGM, require, by
 
way of a
 
written
statement, that an EGM be convened to address a specific
 
issue they put forward.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Corporate governance
 
117
Board of Directors
 
The BoD, led by the Chairman, consists of at least 5 and
 
no more than 12 members, as per our AoA.
 
The BoD, led
 
by the Chairman,
 
decides on the strategy
 
of UBS AG upon
 
recommendation by the President
 
of its Executive
Board (the EB)
 
and exercises the
 
ultimate supervision of
 
management. Its ultimate
 
responsibility for the
 
success of UBS AG
is exercised subject to the parameters set by the Group.
Members of the Board of Directors
Board of Directors
Position
Initial
election
Step
down
UBS business address
Colm Kelleher
Chairman of the BoD
2022
Bahnhofstrasse 45, 8001 Zurich, Switzerland
Lukas Gähwiler
Vice Chairman
 
Member of the Risk Committee
2022
Bahnhofstrasse 45, 8001 Zurich, Switzerland
Jeremy Anderson
Chairperson of Audit Committee
2018
Bahnhofstrasse 45, 8001 Zurich, Switzerland
Claudia Böckstiegel
Member of the BoD
2021
Bahnhofstrasse 45, 8001 Zurich, Switzerland
William C. Dudley
Member of the Risk Committee
2019
Bahnhofstrasse 45, 8001 Zurich, Switzerland
Patrick Firmenich
Member of the Audit Committee
2021
Bahnhofstrasse 45, 8001 Zurich, Switzerland
Fred Hu
Member of the BoD
2018
Bahnhofstrasse 45, 8001 Zurich, Switzerland
Mark Hughes
Chairperson of the Risk Committee
2020
Bahnhofstrasse 45, 8001 Zurich, Switzerland
Nathalie Rachou
Member of the Risk Committee
2020
Bahnhofstrasse 45, 8001 Zurich, Switzerland
Julie G. Richardson
Chairperson of the Compensation
Committee / Member of the Risk Committee
2017
Bahnhofstrasse 45, 8001 Zurich, Switzerland
Dieter Wemmer
Member of the Audit Committee /
 
member of the Compensation Committee
2016
23.04.2024
Bahnhofstrasse 45, 8001 Zurich, Switzerland
Jeanette Wong
Member of the Audit Committee /
 
member of the Compensation Committee
2019
Bahnhofstrasse 45, 8001 Zurich, Switzerland
Gail Kelly
Candidate to the UBS AG Board
Proposed
for election
at the 2024
AGM
Bahnhofstrasse 45, 8001 Zurich, Switzerland
›
Refer to the UBS Group Annual Report 2023, available
 
under “Annual reporting” at
ubs.com/investors
, for the biographies of the
members of the BoD
No current
 
BoD member
 
has either
 
an employment
 
contract
 
or a
 
significant business
 
connection to
 
UBS or
 
any of
 
its
subsidiaries. No member of the BoD currently carries
 
out operational management tasks within the Group.
 
All members
of the BoD are therefore non-executive members. Except for
 
Lukas Gähwiler, no member of the BoD
 
has carried out over
the past three years operational management tasks within the Group. All members of the
 
BoD are also members of UBS
Group AG’s Board of Directors, and committee membership is
 
the same for both entities.
 
In 2023, the
 
BoD had three
 
permanent committees:
 
the Audit Committee,
 
the Compensation
 
Committee and
 
the Risk
Committee.
Elections and terms of office
UBS AG’s sole shareholder,
 
UBS Group AG, annually elects each member of the
 
BoD individually.
Organizational principles and structure
Following
 
each
 
AGM,
 
the
 
BoD meets
 
to
 
appoint
 
one
 
or
 
more
 
Vice
 
Chairmen,
 
the
 
BoD committee
 
members
 
and the
respective committee
 
Chairpersons. At
 
the same meeting,
 
the BoD appoints
 
the Company Secretary,
 
who, pursuant to
the Organization Regulations, acts as secretary
 
to the BoD and its committees.
Pursuant to the AoA and the Organization Regulations, the BoD meets as often as business requires, but it must meet at
least six times a year.
BoD committees
The committees listed below
 
assist the BoD in fulfilling
 
the performance of its responsibilities.
 
Each committee meets as
often as its business requires, but at least four times a year for the Audit Committee,
 
the Compensation Committee and
the Risk Committee.
 
Annual Report 2023 |
Corporate governance
 
118
Audit Committee
Throughout
 
2023,
 
the
 
Audit
 
Committee
 
consisted
 
of
 
the
 
same
 
four
 
independent
 
BoD
 
members,
 
Jeremy
 
Anderson
(Chairperson), Patrick
 
Firmenich, Dieter
 
Wemmer and
 
Jeanette Wong.
 
All Audit
 
Committee members
 
have accounting
or
 
related
 
financial
 
management
 
expertise
 
and,
 
in
 
compliance
 
with
 
the
 
rules
 
established
 
pursuant
 
to
 
the
 
2002
 
US
Sarbanes–Oxley Act,
 
at least
 
one member
 
qualifies as
 
a financial
 
expert. The
 
NYSE standards
 
on corporate
 
governance
and Rule
 
10A-3 under
 
the US
 
Securities Exchange
 
Act set
 
more stringent
 
independence requirements
 
for members
 
of
audit
 
committees
 
than
 
for
 
the
 
other
 
members
 
of
 
the
 
BoD.
 
Throughout
 
2023,
 
all
 
members
 
of
 
the
 
Audit
 
Committee
satisfied these requirements, in
 
that they did not receive, directly
 
or indirectly,
 
any consulting, advisory or compensatory
fees from
 
any member
 
of the
 
Group other
 
than in their
 
capacity as
 
a BoD member,
 
did not hold,
 
directly or
 
indirectly,
UBS AG shares in excess of 5% of the outstanding capital, and did not serve on the audit committees
 
of more than two
other
 
public
 
companies.
 
The
 
function
 
of
 
the
 
Audit
 
Committee
 
is
 
to
 
support
 
the
 
Board
 
in
 
fulfilling
 
its
 
oversight
 
duty
relating to financial reporting and internal controls over financial reporting, the effectiveness of the external and internal
audit functions, as well as the
 
whistleblowing procedures. Management
 
is responsible for the preparation,
 
presentation
and integrity
 
of the
 
financial statements,
 
while the
 
external auditors
 
are
 
responsible
 
for auditing
 
financial statements.
The Audit Committee’s responsibility is one of
 
oversight and review.
Compensation Committee
Throughout
 
2023,
 
the
 
Compensation
 
Committee
 
consisted
 
of
 
the
 
same
 
three
 
independent
 
BoD
 
members,
 
Julie
 
G.
Richardson
 
(Chairperson),
 
Dieter
 
Wemmer
 
and
 
Jeanette
 
Wong.
 
The
 
function
 
of
 
the
 
Compensation
 
Committee
 
is
 
to
support the
 
Board in
 
its duties
 
to set
 
guidelines on
 
compensation and
 
benefits, to
 
oversee implementation
 
thereof, to
approve certain compensation and to scrutinize executive
 
performance.
Risk Committee
In
 
2023,
 
the
 
Risk
 
Committee
 
consisted
 
of
 
four
 
independent
 
BoD
 
members,
 
Mark
 
Hughes
 
(Chairperson),
 
William
 
C.
Dudley,
 
Nathalie
 
Rachou
 
and
 
Julie
 
G.
 
Richardson.
 
After
 
the
 
AGM,
 
the
 
Vice
 
Chairman,
 
Lukas
 
Gähwiler,
 
joined
 
the
committee.
 
The
 
function
 
of
 
the
 
Risk
 
Committee
 
is
 
to
 
oversee
 
and
 
support
 
the
 
Board
 
in
 
fulfilling
 
its
 
duty
 
to
 
set
 
and
supervise an appropriate risk management and control
 
framework in the areas of:
 
(i)
 
financial and non-financial risks; and
(ii)
 
balance sheet, treasury and capital management,
 
including funding, liquidity and equity attribution.
 
Cybersecurity governance
Cybersecurity as one of the inherently highest
 
and most rapidly evolving non-financial
 
risks is a key focus for the
 
BoD. It
is primarily
 
covered
 
by the
 
Risk Committee
 
through a
 
combination
 
of (i) regular
 
reporting as
 
part
 
of the
 
monthly
 
risk
reports
 
and quarterly
 
technology
 
risk updates,
 
and (ii)
 
dedicated
 
deep-dives
 
on
 
specific
 
cybersecurity
 
topics,
 
including
summaries and
 
assessments of
 
actual cybersecurity
 
incidents in
 
the industry,
 
assessments of
 
the firm’s
 
security posture
and related continuous improvement
 
measures. In addition, the BoD
 
members receive periodic updates from
 
the Group
Chief Information Security Office on key cybersecurity threats and incidents across the globe and industries, and the Risk
Committee regularly organizes education and training
 
sessions, including cyber exercises, for all BoD
 
members.
With respect
 
to the BoD,
 
Jeremy Anderson, Fred
 
Hu, Mark Hughes
 
and Julie G.
 
Richardson all have
 
expertise in technology
and cybersecurity.
 
Mr. Anderson
 
is an
 
IT expert,
 
having started
 
out as
 
a software
 
developer in
 
the early
 
1980s, before
working in IT
 
consulting and
 
developing a broad
 
knowledge of systems
 
integration and
 
IT outsourcing
 
services, as well
as software development.
 
He cemented
 
his reputation as
 
a tech specialist
 
by becoming a
 
founding sponsor
 
of KPMG’s
Global Fintech Network in
 
2014. Mr. Hu has a
 
Master’s degree in engineering
 
science from Tsinghua University
 
and has
vast experience advising and investing in leading firms in the
 
technology sector in China and globally. Mr. Hughes gained
substantial experience overseeing cybersecurity risk as the Group Chief Risk Officer at Royal Bank of Canada. Finally, Ms.
Richardson
 
has
 
spent
 
significant
 
time with
 
both
 
incumbent
 
and
 
new
 
technology
 
companies,
 
including
 
being
 
a
 
board
member of a digital knowledge management company, a leading
 
cloud monitoring firm and a cyber insurance company.
The BoD is
 
supported in overseeing risk
 
at the executive management
 
level by the
 
cybersecurity expertise of Mike
 
Dargan,
who is the Group Chief
 
Operations and Technology Officer, and Markus Ronner,
 
who is the Group Chief
 
Compliance and
Governance
 
Officer.
 
Mr.
 
Dargan
 
is responsible
 
for
 
delivering
 
digital
 
platforms,
 
technology
 
services,
 
infrastructure,
 
and
operations,
 
including
 
cybersecurity
 
and
 
information
 
security.
 
Previously,
 
he
 
was
 
Group
 
Chief
 
Digital
 
and
 
Information
Officer, after leading our Group Technology function since joining UBS
 
in 2016. In addition to this remit, he
 
was also UBS
Group AG’s
 
Group Executive
 
Board (GEB)
 
sponsor for
 
our digital
 
assets strategy
 
and a
 
sponsor of
 
artificial intelligence
and our agile transformation, which were
 
integrated into his area of responsibility
 
in 2023. Prior to joining UBS, he
 
held
various senior roles in technology, corporate strategy and investment banking at Standard Chartered
 
Bank, Merrill Lynch,
and Oliver
 
Wyman. Mr.
 
Ronner has
 
been with
 
UBS for
 
more than
 
40 years
 
and held
 
various positions
 
across the
 
firm,
including manager of the Group-wide
 
too-big-to-fail program, COO Wealth
 
Management & Swiss Bank, Head
 
Products
and Services
 
of Wealth
 
Management
 
& Swiss
 
Bank,
 
COO
 
Asset
 
Management,
 
and
 
Head
 
Group
 
Internal
 
Audit.
 
In his
current position, he
 
is responsible at
 
the Group level
 
for the control
 
of all non-financial risks,
 
governmental and regulatory
affairs, and investigations and governance matters.
›
Refer to “Non-financial risk” in the “Risk
 
management and control” section of this report for information
 
about cybersecurity
 
Annual Report 2023 |
Corporate governance
 
119
Important business connections of independent members
 
of the Board of Directors
As a
 
global
 
financial
 
services
 
provider
 
and
 
a
 
major
 
Swiss
 
bank,
 
we
 
enter
 
into
 
business
 
relationships
 
with
 
many
 
large
companies, including some in which our BoD members have
 
management or independent board responsibilities.
 
Our
 
Organization
 
Regulations
 
require
 
one-third
 
of
 
UBS AG
 
BoD
 
members
 
to
 
be
 
independent.
 
For
 
this
 
purpose,
independence is determined in accordance with FINMA Circular 2017/1
 
“Corporate governance – banks” and the NYSE
rules.
 
In 2023, our BoD met the standards of the Organization Regulations for the percentage
 
of directors who are considered
independent under the criteria described above.
 
All relationships
 
and transactions
 
with
 
UBS
 
AG’s
 
independent
 
BoD members
 
are
 
conducted in
 
the
 
ordinary
 
course
 
of
business
 
and
 
are
 
on
 
the
 
same
 
terms
 
as
 
those
 
prevailing
 
at
 
the
 
time
 
for
 
comparable
 
transactions
 
with
 
non-affiliated
persons. All relationships and transactions with BoD members’
 
associated companies are conducted at arm’s length.
Checks and balances: Board of Directors and Executive Board
We
 
operate
 
under a
 
strict dual
 
board
 
structure,
 
as mandated
 
by Swiss
 
banking law.
 
The separation
 
of responsibilities
between
 
the
 
BoD
 
and
 
the
 
EB
 
is
 
clearly
 
defined
 
in
 
the
 
Organization
 
Regulations.
 
The
 
BoD
 
decides
 
on
 
the
 
strategy
 
of
UBS AG,
 
upon
 
recommendations
 
by
 
the
 
President
 
of
 
the
 
EB,
 
and
 
exercises
 
ultimate
 
supervision
 
over
 
management;
whereas the EB, headed by the President of the
 
EB, has executive management responsibility. The functions of Chairman
and President of the
 
EB are assigned to
 
two different people, leading to a
 
separation of powers. This structure establishes
checks and
 
balances and
 
preserves the
 
institutional independence
 
of the
 
BoD from
 
the executive
 
management of
 
UBS
AG, for which responsibility
 
is delegated to the
 
EB, under the
 
leadership of the
 
President of the
 
EB. No member
 
of one
board may simultaneously be a member of the
 
other.
Supervision and
 
control of
 
the EB remain
 
with the
 
BoD. The authorities
 
and responsibilities of
 
the two
 
bodies are
 
governed
by the AoA and the Organization Regulations.
Although the recruiting process for
 
BoD and EB members takes
 
into account a broad spectrum of
 
factors, such as skills,
backgrounds,
 
experience
 
and
 
expertise,
 
our
 
approach
 
with
 
regard
 
to
 
diversity
 
considerations
 
does
 
not
 
constitute
 
a
diversity policy within the
 
meaning of the EU
 
Directive on Non-Financial
 
Reporting, and Swiss
 
law does not require
 
UBS
to maintain such a policy.
Executive Board
The BoD delegates the management of the business to the
 
Executive Board.
 
Responsibilities, authorities and organizational principles
 
of the Executive Board
At UBS AG,
 
management of the
 
business is also
 
delegated, and its
 
EB, under the
 
leadership of the
 
President of
 
the EB,
has executive management
 
responsibility for UBS
 
AG and its business.
 
All members of
 
the EB are
 
members of the
 
GEB.
Sabine Keller-Busse,
 
who serves as
 
President UBS
 
Switzerland AG
 
and Ulrich Körner,
 
CEO of Credit
 
Suisse AG are
 
both
not member of the EB.
UBS AG
 
EB
 
has two
 
permanent
 
committees:
 
the
 
Asset
 
and Liability
 
Committee
 
(the
 
ALCO) and
 
the
 
Finance
 
and Risk
Committee (the FRC).
 
The ALCO
 
is responsible
 
for managing
 
UBS AG’s
 
assets and
 
liabilities in
 
line with
 
the UBS
 
AG and
 
Group strategy
 
and
regulatory requirements. In 2023, the ALCO held 10 meetings.
The FRC is responsible for supervising and controlling UBS AG’s business, financial
 
and risk profile of the overall UBS AG
standalone as well as the entity’s business activities in Switzerland
 
and cross-jurisdictional branch-related matters, in line
with the UBS AG and Group strategy and regulatory
 
requirements. The FRC is also responsible for
 
ensuring the financial
and risk profile of UBS AG
 
standalone complies with the agreed risk appetite, by
 
ascertaining that appropriate and timely
actions are taken. In 2023, the FRC held three meetings.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Corporate governance
 
120
Executive Board
Position
Initial
appointment
to the EB
Step-down
date
UBS business address
Sergio P.
 
Ermotti
President of the Executive Board
(also from 2011 to 2020)
05.04.2023
Bahnhofstrasse 45, 8001 Zurich,
Switzerland
Michelle Bereaux
Integration Officer
09.05.2023
Bahnhofstrasse 45, 8001 Zurich,
Switzerland
Christian Bluhm
Chief Risk Officer
2016
Bahnhofstrasse 45, 8001 Zurich,
Switzerland
Michael Dargan
Chief Operations and Technology Officer
2021
Bahnhofstrasse 45, 8001 Zurich,
Switzerland
Suni Harford
President Asset Management
2019
01.03.2024
Bahnhofstrasse 45, 8001 Zurich,
Switzerland
Naureen Hassan
President UBS Americas
2022
Bahnhofstrasse 45, 8001 Zurich,
Switzerland
Aleksandar Ivanovic
President Asset Management
01.03.2024
Bahnhofstrasse 45, 8001 Zurich,
Switzerland
Robert Karofsky
President Investment Bank
2018
Bahnhofstrasse 45, 8001 Zurich,
Switzerland
Iqbal Khan
President Global Wealth Management
2019
Bahnhofstrasse 45, 8001 Zurich,
Switzerland
Edmund Koh
President UBS Asia Pacific
2019
Bahnhofstrasse 45, 8001 Zurich,
Switzerland
Barbara Levi
General Counsel
2021
Bahnhofstrasse 45, 8001 Zurich,
Switzerland
Beatriz Martin
Jimenez
Head Non-core and Legacy and
 
President UBS Europe, Middle East and
Africa
09.05.2023
Bahnhofstrasse 45, 8001 Zurich,
Switzerland
Markus Ronner
Chief Compliance and Governance Officer
2018
Bahnhofstrasse 45, 8001 Zurich,
Switzerland
Stefan Seiler
Head Human Resources & Corporate
Services
09.05.2023
Bahnhofstrasse 45, 8001 Zurich,
Switzerland
Chief Financial Officer
 
(as of 12.06.2023)
09.05.2023
Bahnhofstrasse 45, 8001 Zurich,
Switzerland
Ralph Hamers
President of the Executive Board
2020
05.04.2023
Bahnhofstrasse 45, 8001 Zurich,
Switzerland
Sarah Youngwood
Chief Financial Officer
 
2022
12.06.2023
Bahnhofstrasse 45, 8001 Zurich,
Switzerland
›
Refer to the UBS Group Annual Report 2023, available
 
under “Annual reporting” at
ubs.com/investors
, for the biographies of the
members of the EB
 
Change of control and defense measures
Our Articles
 
of Association
 
(the
 
AoA) do
 
not
 
provide
 
any
 
measures
 
for
 
delaying,
 
deferring or
 
preventing
 
a change
 
of
control.
 
Clauses on change of control
Neither
 
the
 
terms
 
regulating
 
the
 
BoD
 
members’
 
mandate
 
nor
 
any
 
employment
 
contracts
 
with
 
EB
 
members
 
contain
change of control clauses.
All employment contracts
 
with EB members
 
stipulate a notice
 
period of six
 
months. During the
 
notice period, EB
 
members
are entitled to their
 
salaries and the continuation
 
of existing employment
 
benefits and may be
 
eligible to be considered
for a discretionary performance award based on their contribution
 
during their tenure.
In case
 
of a
 
change of
 
control, we
 
may, at
 
our discretion,
 
accelerate the
 
vesting of
 
and /
 
or relax
 
applicable forfeiture
provisions of employees’ awards.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Corporate governance
 
121
Auditors
 
Audit is an
 
integral part of
 
corporate governance. While
 
safeguarding their
 
independence, the
 
external auditors closely
coordinate their work with Internal Audit (IA). The Audit Committee and, ultimately,
 
the BoD supervise the effectiveness
of audit work.
›
Refer to “Board of Directors” in this section for more information
 
about the Audit Committee
External independent auditors
The 2023 AGM re-elected Ernst
 
& Young Ltd (EY) as auditors for
 
UBS AG for the
 
2023 financial year. EY assumes virtually
all auditing functions according to
 
laws, regulatory requests
 
and the AoA. Robert Jacob is
 
the EY lead partner in charge
of the overall coordination
 
of the UBS Group
 
financial and regulatory
 
audits and the
 
co-signing partner of
 
the financial
audit.
 
In
 
2020,
 
Maurice
 
McCormick
 
became
 
the
 
lead
 
audit
 
partner
 
for
 
the
 
financial
 
statement
 
audit
 
and
 
has
 
an
incumbency limit of five years. In 2021, Hannes Smit became the Lead Auditor to the Swiss Financial Market Supervisory
Authority (FINMA),
 
with an incumbency limit
 
of seven years.
 
Daniel Martin has been
 
the co-signing partner for
 
the FINMA
audit since 2019, with an incumbency limit of seven years.
 
During 2023, the Audit Committee held 14 meetings with the external
 
auditors.
Review of UBS AG audit engagement
EU rules
 
require
 
UBS Europe
 
SE, an
 
indirect
 
subsidiary of
 
UBS AG,
 
to rotate
 
its external
 
auditors in
 
the 2024
 
financial
year.
 
In connection with this required
 
change, and in consideration of governance best
 
practices, the Board of
 
Directors
of UBS Group AG considered whether it would propose to shareholders a rotation of the Group auditor concurrent with
the change at
 
UBS Europe SE.
 
Under the direction
 
of the Audit
 
Committee of UBS
 
Group AG, UBS
 
Group conducted
 
a
formal review of the Group
 
audit engagement including soliciting proposals from potential auditors.
 
In early 2022, based
on the results of
 
this assessment, the
 
Board of Directors
 
of UBS Group AG
 
decided to retain
 
EY as the Group’s
 
external
auditors.
Audit effectiveness assessment
The Audit Committee
 
assesses the performance,
 
effectiveness and
 
independence of the
 
external auditors on an
 
annual
basis. The assessment is generally
 
based on interviews with senior
 
management and survey feedback
 
from stakeholders
across the Group. Assessment criteria include quality of service delivery, quality and competence of the audit team,
 
value
added
 
as
 
part
 
of
 
the
 
audit,
 
insightfulness,
 
and
 
the
 
overall
 
relationship
 
with
 
EY.
 
Based
 
on
 
its
 
own
 
analysis
 
and
 
the
assessment results, including
 
feedback received
 
as part of the
 
review of the
 
Group audit engagement
 
described above,
the Audit Committee concluded that EY’s audit has been effective.
Fees paid to external independent auditors
UBS AG and its subsidiaries paid the following fees (including expenses) to their external independent auditors.
For the year ended
USD m
31.12.23
31.12.22
Audit
Global audit fees
 
52
 
48
Additional services classified as audit (services required
 
by law or statute, including work of a non-recurring nature mandated
 
by regulators)
 
5
 
7
Total audit
 
57
 
56
Non-audit
Audit-related fees
 
10
 
11
of which: assurance and attestation services
 
5
 
6
of which: control and performance reports
 
5
 
5
of which: consultation concerning financial accounting and
 
reporting standards
 
0
 
0
Tax fees
 
1
 
2
All other fees
 
0
 
1
Total non-audit
 
11
 
14
 
Annual Report 2023 |
Corporate governance
 
122
Special auditors for potential capital increases
At the AGM
 
on 8 April 2021, BDO
 
AG was reappointed as
 
special auditors for
 
a three-year term of
 
office. Special auditors
provide audit opinions in connection with potential
 
capital increases independently from
 
other auditors.
Services performed and fees
The Audit Committee
 
oversees all services
 
provided to
 
UBS by the
 
external auditors. For
 
services requiring
 
the approval
from
 
the
 
Audit
 
Committee,
 
a
 
preapproval
 
may
 
be
 
granted
 
either
 
for
 
a
 
specific
 
mandate
 
or
 
in
 
the
 
form
 
of
 
a
 
blanket
preapproval authorizing
 
a limited and
 
well-defined type and
 
scope of services.
 
The fees (including
 
expenses) paid to
 
EY
are set forth in the table above.
 
In addition, EY received USD 27m
 
in 2023 (USD 35m in 2022) for services performed on
behalf of our investment funds, many of which have independent
 
fund boards or trustees.
 
Audit
 
work
 
includes
 
all
 
services
 
necessary
 
to
 
perform
 
the
 
audit
 
for
 
UBS
 
AG
 
in
 
accordance
 
with
 
applicable
 
laws
 
and
generally
 
accepted
 
auditing
 
standards,
 
as
 
well
 
as
 
other
 
assurance
 
services
 
that
 
conventionally
 
only
 
the
 
auditor
 
can
provide. These include statutory and regulatory audits, attestation
 
services and the review of documents to be filed
 
with
regulatory
 
bodies.
 
The
 
additional
 
services
 
classified
 
as audit
 
in 2023
 
included
 
several
 
engagements
 
for
 
which
 
EY
 
was
mandated at the request of FINMA.
Audit-related
 
work
 
consists
 
of
 
assurance
 
and
 
related
 
services
 
traditionally
 
performed
 
by
 
auditors,
 
such
 
as
 
attestation
services related to financial reporting, internal control reviews and performance standard reviews, as well as consultation
concerning financial accounting and reporting standards.
Tax
 
work
 
involves
 
services
 
performed
 
by
 
professional
 
staff
 
in
 
EY’s
 
tax
 
division
 
and
 
includes
 
tax
 
compliance
 
and
 
tax
consultation with respect to our own affairs.
“Other” services are permitted services, which include technical
 
IT security control reviews and assessments.
 
Internal Audit
IA performs the
 
internal auditing role
 
for UBS
 
AG. It is
 
an independent function
 
that provides
 
expertise and
 
insights to
confirm controls are functioning correctly
 
and highlight where UBS needs to better manage
 
current and emerging risks.
 
IA supports the BoD in discharging its
 
governance responsibilities by taking a dynamic approach to
 
audit, issue assurance
and risk assessment, drawing attention to key risks in order
 
to drive action to prevent unexpected loss or damage to the
firm’s
 
reputation.
 
To
 
support
 
the
 
achievement
 
of
 
UBS’s
 
objectives,
 
IA
 
independently,
 
objectively
 
and
 
systematically
assesses the:
(i)
soundness of UBS AG’s risk and control culture;
 
(ii)
reliability and integrity of financial and operational
 
information, including whether activities are properly,
 
accurately
and completely recorded, and the quality of underlying data
 
and models; and
(iii)
design, operating effectiveness and sustainability of:
–
processes to define strategy and risk appetite, as well as
 
the overall adherence to the approved strategy;
–
governance processes;
 
–
risk management, including whether risks are appropriately
 
identified and managed;
 
–
internal controls, specifically whether they are commensurate
 
with the risks taken;
–
remediation activities; and
–
processes
 
to
 
comply
 
with
 
legal
 
and
 
regulatory
 
requirements,
 
internal
 
policies,
 
and
 
UBS
 
AG’s
 
constitutional
documents and contracts.
Audit
 
reports
 
that
 
include
 
significant
 
issues
 
are
 
provided
 
to
 
the
 
President
 
of
 
the
 
EB,
 
relevant
 
EB
 
members
 
and
 
other
responsible management. The
 
Chairman, the
 
Audit Committee and
 
the Risk
 
Committee of the
 
BoD are
 
regularly informed
of such issues.
In addition, IA
 
provides independent assurance on
 
the effective and sustainable
 
remediation of control deficiencies
 
within
its mandate,
 
taking a
 
prudent and
 
conservative
 
risk-based approach
 
and assessing
 
at the
 
issue level
 
whether
 
the root
cause and the potential exposure for the firm have been holistically and sustainably addressed. IA also cooperates closely
with risk control functions and internal and external legal advisors
 
on investigations into major control issues.
To ensure IA’s independence from management, the
 
IA Executive UBS AG reports to
 
the Chairman of the BoD and
 
to the
Audit
 
Committee,
 
which
 
assesses
 
annually
 
whether
 
IA
 
has
 
sufficient
 
resources
 
to
 
perform
 
its
 
function,
 
as
 
well
 
as
 
its
independence and
 
performance. In
 
the Audit
 
Committee’s assessment,
 
IA is
 
sufficiently resourced
 
to fulfill
 
its mandate
and
 
complete
 
its
 
auditing
 
objectives.
 
IA’s
 
role,
 
position,
 
responsibilities
 
and
 
accountability
 
are
 
set
 
out
 
in
 
UBS
 
AG’s
Organization
 
Regulations
 
and
 
the
 
Charter
 
for
 
IA
.
IA
 
has
 
unrestricted
 
access
 
to
 
all
 
accounts,
 
books,
 
records,
 
systems,
property
 
and
 
personnel,
 
and
 
must
 
be
 
provided
 
with
 
all
 
information
 
and
 
data
 
that
 
it
 
needs
 
to
 
fulfill
 
its
 
auditing
responsibilities. IA
 
also conducts special
 
audits at
 
the request
 
of the
 
Audit Committee, or
 
other BoD
 
members, committees
or the President of the EB in consultation with the Audit
 
Committee.
 
IA enhances the efficiency of its work through coordination
 
and close cooperation with the external auditors.
 
 
 
 
 
 
 
 
Annual Report 2023 |
Corporate governance
 
123
Information policy
We provide regular information to
 
our shareholder and to the wider financial community.
Financial reports for UBS AG are expected to be published
 
on the following dates:
First quarter 2024
7 May 2024
Second quarter 2024
27 August 2024
Third quarter 2024
30 October 2024
The annual general meetings of the shareholders of UBS
 
AG will take place on the following dates:
2024
23 April 2024
2025
10 April 2025
›
Refer to the corporate calendar available at
ubs.com/investors
 
for the dates of the publication of
 
financial reports and other key
dates
Our annual and
 
quarterly publications are available in
 
fully online and .pdf
 
formats
 
at
ubs.com/investors
, under “Financial
information.”
 
Financial reporting policies
We report UBS
 
AG’s results for
 
each financial quarter,
 
with the exception of
 
the fourth quarter,
 
including a breakdown
of results
 
by business
 
division
 
and
 
disclosures
 
or key
 
developments
 
relating
 
to
 
risk
 
management
 
and control,
 
capital,
liquidity and funding management. With the exception of the
 
fourth quarter, each quarter we publish quarterly financial
reports for UBS AG.
The consolidated financial
 
statements of
 
UBS AG are
 
prepared in accordance
 
with IFRS Accounting
 
Standards as issued
by the International Accounting Standards Board.
 
›
Refer to “Note 1 Summary of material accounting
 
policies” in the “Consolidated financial statements”
 
section of this report for
more information about the basis of accounting
US disclosure requirements
As a
 
foreign private
 
issuer,
 
we must
 
file reports
 
and other
 
information, including
 
certain financial
 
reports, with
 
the US
Securities and Exchange Commission (the SEC) under the
 
US federal securities laws.
 
An evaluation of the
 
effectiveness of our
 
disclosure controls and
 
procedures (as defined
 
in Rule 13a–15e)
 
under the US
Securities Exchange Act of 1934 has been carried out, under the supervision of management,
 
including the Group CEO,
the Group CFO
 
and the Group
 
Controller and
 
Chief Accounting
 
Officer. Based on
 
that evaluation,
 
the Group
 
CEO and
the
 
Group
 
CFO
 
concluded
 
that
 
our
 
disclosure
 
controls
 
and
 
procedures
 
were
 
effective
 
as
 
of
 
31 December
 
2023.
 
No
significant
 
changes
 
have
 
been
 
made
 
to
 
our
 
internal
 
controls
 
or
 
to
 
other
 
factors
 
that
 
could
 
significantly
 
affect
 
these
controls subsequent to the date of their evaluation.
 
Annual Report 2023 |
Financial statements | Consolidated financial
 
statements
 
124
Financial statements
Consolidated financial statements
125
126
127
132
132
 
and share information
132
133
134
135
137
138
140
140
1
157
2a
159
2b
160
160
3
160
4
161
5
161
6
161
7
162
8
165
165
9
169
10
171
11
171
12
173
13
174
14
175
15
175
16
176
17
181
18
182
182
19
194
20
208
21
210
22
212
23
215
24
215
25
220
26
226
27
230
28
234
29
235
30
237
31
238
32
238
33
241
34
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial information
 
125
Management’s report on internal control over financial
 
reporting
Management’s responsibility for internal control over financial reporting
The Board of
 
Directors and management
 
of UBS AG are
 
responsible for establishing
 
and maintaining adequate
 
internal
control
 
over
 
financial
 
reporting.
 
UBS
 
AG’s
 
internal
 
control
 
over
 
financial
 
reporting
 
is
 
designed
 
to
 
provide
 
reasonable
assurance
 
regarding
 
the
 
preparation
 
and
 
fair
 
presentation
 
of
 
published
 
financial
 
statements
 
in
 
accordance
 
with
 
IFRS
Accounting Standards as issued by the International Accounting
 
Standards Board (IASB).
UBS AG’s internal control over financial reporting includes
 
those policies and procedures that:
–
pertain
 
to
 
the
 
maintenance
 
of
 
records
 
that,
 
in
 
reasonable
 
detail,
 
accurately
 
and
 
fairly
 
reflect
 
transactions
 
and
dispositions of assets;
–
provide reasonable assurance
 
that transactions are
 
recorded as necessary
 
to permit preparation
 
and fair presentation
of financial statements,
 
and that
 
receipts and expenditures
 
of the company
 
are being made
 
only in accordance
 
with
authorizations of UBS AG management; and
–
provide reasonable assurance regarding prevention or
 
timely detection of unauthorized acquisition, use or
 
disposition
of the company’s assets that could have a material effect
 
on the financial statements.
Because
 
of its
 
inherent
 
limitations,
 
internal
 
control
 
over
 
financial
 
reporting
 
may
 
not
 
prevent
 
or detect
 
misstatements.
Also, projections
 
of any
 
evaluation of
 
effectiveness to
 
future
 
periods are
 
subject to
 
the risk
 
that controls
 
may become
inadequate
 
because
 
of
 
changes
 
in
 
conditions,
 
or
 
that
 
the
 
degree
 
of
 
compliance
 
with
 
the
 
policies
 
or
 
procedures
 
may
deteriorate.
Management’s assessment of internal control over financial reporting
 
as of 31 December
2023
UBS
 
AG
 
management
 
has
 
assessed
 
the
 
effectiveness
 
of
 
UBS
 
AG’s
 
internal
 
control
 
over
 
financial
 
reporting
 
as
 
of
31 December
 
2023
 
based
 
on
 
the
 
criteria
 
set
 
forth
 
by
 
the
 
Committee
 
of
 
Sponsoring
 
Organizations
 
of
 
the
 
Treadway
Commission
 
(COSO)
 
in
 
Internal
 
Control
 
–
 
Integrated
 
Framework
 
(2013
 
Framework).
 
Based
 
on
 
this
 
assessment,
management believes that, as of 31 December 2023, UBS
 
AG’s internal control over financial reporting was effective.
The effectiveness of
 
UBS AG’s internal control
 
over financial reporting as
 
of 31 December 2022
 
has been audited by
 
Ernst
&
 
Young
 
Ltd,
 
UBS
 
AG’s
 
independent
 
registered
 
public
 
accounting
 
firm,
 
as
 
stated
 
in
 
their
 
Report
 
of
 
the
 
independent
registered public accounting firm on internal control over financial reporting,
which expresses an unqualified opinion on
the effectiveness of UBS AG’s internal control over financial reporting
 
as of 31 December 2023.
Reports of the independent registered public accounting
 
firm included in this report
The accompanying reports of
 
the independent registered public accounting
 
firm on the
 
consolidated financial statements
Report of
 
the independent registered
 
public accounting firm
 
on the consolidated
 
financial statements
and internal
 
control
over financial
 
reporting
 
Report
 
of the
 
independent registered
 
public accounting
 
firm on
 
internal control
 
over financial
reporting
of UBS Group
 
are included
 
in our filing
 
on 28 March
 
2024 with the
 
Securities and Exchange
 
Commission on
Form 20-F pursuant to US reporting obligations.
 
 
 
ubs-20231231p143i0
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| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
132
UBS AG consolidated financial statements
Primary financial statements and share information
Audited |
Income statement
For the year ended
USD m
Note
31.12.23
31.12.22
31.12.21
Interest income from financial instruments measured at
 
amortized cost and fair value through
other comprehensive income
3
 i 22,444
 i 11,803
 i 8,534
Interest expense from financial instruments measured at
 
amortized cost
3
( i 19,643)
( i 6,696)
( i 3,366)
Net interest income from financial instruments measured
 
at fair value through profit or loss and other
3
 i 1,765
 i 1,410
 i 1,437
Net interest income
3
 i 4,566
 i 6,517
 i 6,605
Other net income from financial instruments measured
 
at fair value through profit or loss
3
 i 9,934
 i 7,493
 i 5,844
Fee and commission income
4
 i 20,399
 i 20,846
 i 24,422
Fee and commission expense
4
( i 1,790)
( i 1,823)
( i 1,985)
Net fee and commission income
4
 i 18,610
 i 19,023
 i 22,438
Other income
5
 i 566
 i 1,882
 i 941
Total revenues
 i 33,675
 i 34,915
 i 35,828
Credit loss expense / (release)
19
 i 143
 i 29
( i 148)
Personnel expenses
6
 i 15,655
 i 15,080
 i 15,661
General and administrative expenses
7
 i 11,118
 i 9,001
 i 9,476
Depreciation, amortization and impairment of non-financial
 
assets
11, 12
 i 2,238
 i 1,845
 i 1,875
Operating expenses
 i 29,011
 i 25,927
 i 27,012
Operating profit / (loss) before tax
 i 4,521
 i 8,960
 i 8,964
Tax expense / (benefit)
 
8
 i 1,206
 i 1,844
 i 1,903
Net profit / (loss)
 i 3,315
 i 7,116
 i 7,061
Net profit / (loss) attributable to non-controlling interests
 i 25
 i 32
 i 29
Net profit / (loss) attributable to shareholders
 i 3,290
 i 7,084
 i 7,032
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
133
Statement of comprehensive income
For the year ended
USD m
Note
31.12.23
31.12.22
31.12.21
Comprehensive income attributable to shareholders
Net profit / (loss)
 i 3,290
 i 7,084
 i 7,032
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
 i 1,747
( i 869)
( i 1,046)
Effective portion of changes in fair value of hedging instruments
 
designated as net investment hedges, before tax
( i 912)
 i 319
 i 492
Foreign currency translation differences on foreign operations reclassified to the
 
income statement
 i 58
 i 32
( i 1)
Effective portion of changes in fair value of hedging instruments
 
designated as net investment hedges reclassified
 
to
the income statement
( i 28)
( i 4)
 i 10
Income tax relating to foreign currency translations, including the effect of
 
net investment hedges
( i 17)
 i 4
 i 35
Subtotal foreign currency translation, net of tax
 i 849
1
( i 519)
( i 510)
Financial assets measured at fair value through other comprehensive income
Net unrealized gains / (losses), before tax
 i 4
( i 440)
( i 203)
Net realized (gains) / losses reclassified to the income statement
 
from equity
 i 1
 i 1
( i 9)
Reclassification of financial assets to Other financial assets measured
 
at amortized cost
2
 i 449
Income tax relating to net unrealized gains / (losses)
 i 0
( i 3)
 i 55
Subtotal financial assets measured at fair value through other comprehensive
 
income, net of tax
 i 5
 i 6
( i 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
( i 36)
( i 5,758)
( i 992)
Net (gains) / losses reclassified to the income statement from
 
equity
 i 1,745
( i 159)
( i 1,073)
Income tax relating to cash flow hedges
( i 309)
 i 1,124
 i 390
Subtotal cash flow hedges, net of tax
 i 1,400
3
( i 4,793)
( i 1,675)
Cost of hedging
25
Cost of hedging, before tax
( i 19)
 i 45
( i 32)
Income tax relating to cost of hedging
 
 i 0
 i 0
 i 6
Subtotal cost of hedging, net of tax
( i 19)
 i 45
( i 26)
Total other comprehensive income that may be reclassified to the income statement, net
 
of tax
 i 2,235
( i 5,260)
( i 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
( i 103)
 i 40
 i 133
Income tax relating to defined benefit plans
( i 33)
 i 41
( i 31)
Subtotal defined benefit plans, net of tax
( i 136)
 i 81
 i 102
Own credit on financial liabilities designated at fair value
20
Gains / (losses) from own credit on financial liabilities designated
 
at fair value, before tax
( i 861)
 i 867
 i 46
Income tax relating to own credit on financial liabilities designated
 
at fair value
 i 71
( i 71)
 i 0
Subtotal own credit on financial liabilities designated at
 
fair value, net of tax
( i 790)
4
 i 796
 i 46
Total other comprehensive income that will not be reclassified to the income statement,
 
net of tax
( i 927)
 i 877
 i 148
Total other comprehensive income
 i 1,308
( i 4,383)
( i 2,220)
Total comprehensive income attributable to shareholders
 i 4,598
 i 2,701
 i 4,813
Comprehensive income attributable to non-controlling
 
interests
Net profit / (loss)
 i 25
 i 32
 i 29
Total other comprehensive income that will not be reclassified to the income statement,
 
net of tax
 i 2
( i 14)
( i 16)
Total comprehensive income attributable to non-controlling interests
 i 27
 i 18
 i 13
Total comprehensive income
 
Net profit / (loss)
 i 3,315
 i 7,116
 i 7,061
Other comprehensive income
 
 i 1,311
( i 4,396)
( i 2,235)
of which: other comprehensive income that may be reclassified
 
to the income statement
 i 2,235
( i 5,260)
( i 2,368)
of which: other comprehensive income that will not be reclassified
 
to the income statement
( i 924)
 i 864
 i 132
Total comprehensive income
 
 i 4,625
 i 2,719
 i 4,826
1 Mainly reflects
 
a significant strengthening
 
of the Swiss
 
franc and the
 
euro against the
 
US dollar.
 
2 Effective 1
 
April 2022, a
 
portfolio of assets
 
previously classified as
 
Financial assets measured
 
at fair value
through other comprehensive income
 
was reclassified to
 
Other financial assets measured
 
at amortized cost. Refer
 
to Note 13a for
 
more information.
 
3 Mainly reflects net
 
losses on hedging instruments
 
that were
reclassified from OCI to the income statement.
 
4 Mainly reflects a tightening of our own credit spreads.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
134
Balance sheet
USD m
Note
31.12.23
31.12.22
Assets
Cash and balances at central banks
 i 171,806
 i 169,445
Amounts due from banks
9
 i 28,206
 i 14,671
Receivables from securities financing transactions measured at amortized
 
cost
9, 21
 i 74,128
 i 67,814
Cash collateral receivables on derivative instruments
9, 21
 i 32,300
 i 35,033
Loans and advances to customers
9
 i 405,633
 i 390,027
Other financial assets measured at amortized cost
9, 13a
 i 54,334
 i 53,389
Total financial assets measured at amortized cost
 i 766,407
 i 730,379
Financial assets at fair value held for trading
20
 i 135,098
 i 108,034
of which: assets pledged as collateral that may be sold or repledged
 
by counterparties
 i 44,524
 i 36,742
Derivative financial instruments
10, 20, 21
 i 131,728
 i 150,109
Brokerage receivables
20
 i 20,883
 i 17,576
Financial assets at fair value not held for trading
20
 i 63,754
 i 59,408
Total financial assets measured at fair value through profit or loss
 i 351,463
 i 335,127
Financial assets measured at fair value through other comprehensive income
20
 i 2,233
 i 2,239
Investments in associates
28b
 i 983
 i 1,101
Property, equipment and software
11
 i 11,044
 i 11,316
Goodwill and intangible assets
12
 i 6,265
 i 6,267
Deferred tax assets
8
 i 9,244
 i 9,354
Other non-financial assets
13b
 i 8,377
 i 9,652
Total assets
 i 1,156,016
 i 1,105,436
Liabilities
Amounts due to banks
 
 i 16,720
 i 11,596
Payables from securities financing transactions measured at amortized cost
21
 i 5,782
 i 4,202
Cash collateral payables on derivative instruments
21
 i 34,886
 i 36,436
Customer deposits
14a
 i 555,673
 i 527,171
Funding from UBS Group AG measured at amortized cost
14b
 i 67,282
 i 56,147
Debt issued measured at amortized cost
16
 i 69,784
 i 59,499
Other financial liabilities measured at amortized cost
18a
 i 12,713
 i 10,391
Total financial liabilities measured at amortized cost
 i 762,840
 i 705,442
Financial liabilities at fair value held for trading
20
 i 31,712
 i 29,515
Derivative financial instruments
10, 20, 21
 i 140,707
 i 154,906
Brokerage payables designated at fair value
20
 i 42,275
 i 45,085
Debt issued designated at fair value
15, 20
 i 86,341
 i 71,842
Other financial liabilities designated at fair value
18b, 20
 i 27,366
 i 32,033
Total financial liabilities measured at fair value through profit or loss
 i 328,401
 i 333,382
Provisions
17a
 i 2,524
 i 3,183
Other non-financial liabilities
18c
 i 6,682
 i 6,489
Total liabilities
 i 1,100,448
 i 1,048,496
Equity
Share capital
 i 386
 i 338
Share premium
 i 24,638
 i 24,648
Retained earnings
 i 28,235
 i 31,746
Other comprehensive income recognized directly in equity, net of tax
 i 1,974
( i 133)
Equity attributable to shareholders
 i 55,234
 i 56,598
Equity attributable to non-controlling interests
 i 335
 i 342
Total equity
 i 55,569
 i 56,940
Total liabilities and equity
 i 1,156,016
 i 1,105,436
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
135
Statement of changes in equity
USD m
Share
capital
Share
 
premium
Retained
earnings
Balance as of 31 December 2020
 i 338
 i 24,580
 i 25,251
Premium on shares issued and warrants exercised
( i 7)
2
Tax (expense) / benefit
( i 102)
Dividends
( i 4,539)
Translation effects recognized directly in retained earnings
 i 18
Share of changes in retained earnings of associates and
 
joint ventures
 i 1
New consolidations / (deconsolidations) and other increases
 
/ (decreases)
3
 i 182
Total comprehensive income for the year
 i 7,180
of which: net profit / (loss)
 i 7,032
of which: OCI, net of tax
 i 148
Balance as of 31 December 2021
 i 338
 i 24,653
 i 27,912
Premium on shares issued and warrants exercised
( i 14)
2
Tax (expense) / benefit
 i 5
Dividends
( i 4,200)
Translation effects recognized directly in retained earnings
 i 69
Share of changes in retained earnings of associates and
 
joint ventures
 i 0
New consolidations / (deconsolidations) and other increases
 
/ (decreases)
 i 4
 i 3
Total comprehensive income for the year
 i 7,961
of which: net profit / (loss)
 i 7,084
of which: OCI, net of tax
 i 877
Balance as of 31 December 2022
 i 338
 i 24,648
 i 31,746
Premium on shares issued and warrants exercised
( i 19)
2
Tax (expense) / benefit
 i 12
Dividends
( i 6,000)
Translation effects recognized directly in retained earnings
 i 127
Share of changes in retained earnings of associates and
 
joint ventures
( i 1)
Share capital currency change
 i 48
( i 48)
New consolidations / (deconsolidations) and other increases
 
/ (decreases)
 i 45
4
 i 0
Total comprehensive income for the year
 i 2,363
of which: net profit / (loss)
 i 3,290
of which: OCI, net of tax
( i 927)
Balance as of 31 December 2023
 i 386
 i 24,638
 i 28,235
1 Excludes other comprehensive income related to defined benefit plans and own credit, which is recorded directly in Retained earnings.
 
2 Includes decreases related to recharges by UBS Group AG for share-based
compensation awards granted to
 
employees of UBS AG or
 
its subsidiaries.
 
3 Includes the effects related
 
to the launch of UBS
 
AG’s new operational
 
partnership entity with Sumitomo Mitsui
 
Trust Holdings,
 
Inc in
2021.
 
4 Includes an increase of USD
 i 45
m related to the issuance of high-trigger loss-absorbing additional tier 1 capital with an equity conversion feature.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
136
Other comprehensive
 
income recognized
 
directly in equity,
 
net of tax
1
of which:
 
foreign currency
 
translation
of which:
 
financial assets at
fair value through OCI
of which:
 
cash flow
 
hedges
Total equity
 
attributable to
 
shareholders
Non-controlling
 
interests
Total equity
 i 7,585
 i 5,126
 i 151
 i 2,321
 i 57,754
 i 319
 i 58,073
( i 7)
( i 7)
( i 102)
( i 102)
( i 4,539)
( i 4)
( i 4,542)
( i 18)
 i 0
( i 18)
 i 0
 i 0
 i 1
 i 1
 i 182
 i 12
 i 193
( i 2,368)
( i 510)
( i 157)
( i 1,675)
 i 4,813
 i 13
 i 4,826
 i 7,032
 i 29
 i 7,061
( i 2,368)
( i 510)
( i 157)
( i 1,675)
( i 2,220)
( i 16)
( i 2,235)
 i 5,200
 i 4,617
( i 7)
 i 628
 i 58,102
 i 340
 i 58,442
( i 14)
( i 14)
 i 5
 i 5
( i 4,200)
( i 9)
( i 4,209)
( i 69)
 i 0
( i 69)
 i 0
 i 0
 i 0
 i 0
( i 3)
( i 3)
 i 4
( i 7)
( i 3)
( i 5,260)
( i 519)
 i 6
( i 4,793)
 i 2,701
 i 18
 i 2,719
 i 7,084
 i 32
 i 7,116
( i 5,260)
( i 519)
 i 6
( i 4,793)
( i 4,383)
( i 14)
( i 4,396)
( i 133)
 i 4,098
( i 4)
( i 4,234)
 i 56,598
 i 342
 i 56,940
( i 19)
( i 19)
 i 12
 i 12
( i 6,000)
( i 4)
( i 6,004)
( i 127)
 i 0
( i 127)
 i 0
 i 0
( i 1)
( i 1)
 i 0
 i 0
 i 45
( i 31)
 i 15
 i 2,235
 i 849
 i 5
 i 1,400
 i 4,598
 i 27
 i 4,625
 i 3,290
 i 25
 i 3,315
 i 2,235
 i 849
 i 5
 i 1,400
 i 1,308
 i 2
 i 1,311
 i 1,974
 i 4,947
 i 1
( i 2,961)
 i 55,234
 i 335
 i 55,569
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
137
Share information and earnings per share
Ordinary share capital
As of 31 December 2023, UBS AG had
 i 3,858,408,466
 
issued shares (31 December 2022:
 i 3,858,408,466
 
shares). In the
second quarter
 
of 2023,
 
the share
 
capital currency
 
of UBS
 
AG was
 
changed from
 
the Swiss
 
franc to
 
the US
 
dollar,
 
as
approved by shareholders at
 
the 2023 Annual General Meeting (the
 
AGM). As a result, the nominal value
 
per share has
changed from CHF
 i 0.10
 
to USD
 i 0.10
, resulting in a
 
reclassification between share capital and capital contribution
 
reserve
(presented
 
as
 
share
 
premium
 
in
 
the
 
consolidated
 
financial
 
statements)
 
and
 
leading
 
to
 
a
 
share
 
capital
 
of
USD
 i 385,840,846.60
. The shares were entirely
 
held by UBS Group AG.
Conditional share capital
As of
 
31 December 2023,
 
the following
 
conditional share
 
capital was
 
available to
 
the Board
 
of Directors
 
(the BoD)
 
of
UBS AG:
 
–
A maximum of
 
USD
 i 38,000,000
 
represented by up
 
to
 i 380,000,000
 
fully paid registered
 
shares with a
 
nominal value
of USD
 i 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
 
held
 
on
26 November 2014, having originally
 
been approved at the AGM of
 
UBS AG on 14 April
 
2010. The BoD has not
made use of such allowance.
Capital band, conversion capital and reserve capital
As of 31 December 2023, UBS AG has not introduced a
 
capital band, any conversion capital or any reserve
 
capital.
Earnings per share
In 2015,
 
UBS AG
 
shares were delisted
 
from the
 
SIX Swiss
 
Exchange and the
 
New York
 
Stock Exchange. As
 
of 31 December
2023,
 i 100
% of UBS AG’s issued
 
shares were held by UBS
 
Group AG and therefore were
 
not publicly traded. Accordingly,
earnings per share information is not provided for UBS AG.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
138
Statement of cash flows
For the year ended
USD m
31.12.23
31.12.22
31.12.21
Cash flow from / (used in) operating activities
Net profit / (loss)
 i 3,315
 i 7,116
 i 7,061
Non-cash items included in net profit and other adjustments:
Depreciation, amortization and impairment of non-financial
 
assets
 i 2,238
 i 1,845
 i 1,875
Credit loss expense / (release)
 i 143
 i 29
( i 148)
Share of net (profit) / loss of associates and joint ventures
 
and impairment related to associates
 i 163
( i 32)
( i 105)
Deferred tax expense / (benefit)
( i 222)
 i 491
 i 432
Net loss / (gain) from investing activities
( i 225)
( i 1,515)
( i 230)
Net loss / (gain) from financing activities
 i 4,919
( i 16,587)
 i 100
Other net adjustments
1
( i 10,383)
 i 5,792
 i 3,790
Net change in operating assets and liabilities:
1,2
Amounts due from banks and amounts due to banks
( i 10,093)
3
( i 1,088)
 i 2,148
Receivables from securities financing transactions measured at amortized
 
cost
( i 4,993)
 i 5,690
( i 1,565)
Payables from securities financing transactions measured at amortized cost
 i 1,543
( i 1,247)
( i 751)
Cash collateral on derivative instruments
 i 1,162
 i 73
( i 3,311)
Loans and advances to customers
 i 3,707
 i 1,653
( i 26,943)
Customer deposits
 i 6,521
( i 9,409)
 i 29,349
Financial assets and liabilities at fair value held for trading and derivative financial
 
instruments
( i 16,017)
 i 8,173
( i 10,635)
Brokerage receivables and payables
( i 6,101)
 i 6,019
 i 8,115
Financial assets at fair value not held for trading and other financial assets
 
and liabilities
( i 4,661)
 i 5,557
 i 19,793
Provisions and other non-financial assets and liabilities
 i 2,325
( i 437)
 i 2,617
Income taxes paid, net of refunds
( i 1,541)
( i 1,495)
( i 1,026)
Net cash flow from / (used in) operating activities
( i 28,202)
 i 10,630
 i 30,563
Cash flow from / (used in) investing activities
Purchase of subsidiaries, associates and intangible assets
( i 4)
( i 3)
( i 1)
Disposal of subsidiaries, associates and intangible assets
 i 109
 i 1,729
 i 593
Purchase of property, equipment and software
( i 1,283)
( i 1,478)
( i 1,581)
Disposal of property, equipment and software
 i 33
 i 161
 i 295
Net (purchase) / redemption of financial assets measured
 
at fair value through other comprehensive income
 i 30
( i 699)
( i 750)
Purchase of debt securities measured at amortized cost
( i 14,244)
( i 30,792)
( i 4,922)
Disposal and redemption of debt securities measured at amortized
 
cost
 i 10,435
 i 18,799
 i 4,507
Net cash flow from / (used in) investing activities
( i 4,924)
( i 12,283)
( i 1,860)
Table
 
continues below.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
139
Statement of cash flows (continued)
Table
 
continued from above.
For the year ended
USD m
31.12.23
31.12.22
31.12.21
Cash flow from / (used in) financing activities
Net issuance (repayment) of short-term debt measured at amortized
 
cost
 i 7,181
( i 12,249)
( i 3,093)
Distributions paid on UBS AG shares
( i 6,000)
( i 4,200)
( i 4,539)
Issuance of debt designated at fair value and long-term debt measured
 
at amortized cost
4
 i 104,551
 i 79,457
 i 98,619
Repayment of debt designated at fair value and long-term debt measured
 
at amortized cost
4
( i 85,541)
( i 67,670)
( i 79,799)
Net cash flows from other financing activities
( i 501)
( i 595)
( i 261)
Net cash flow from / (used in) financing activities
 i 19,690
( i 5,257)
 i 10,927
Total cash flow
Cash and cash equivalents at the beginning of the year
 i 195,200
 i 207,755
 i 173,430
Net cash flow from / (used in) operating, investing and financing
 
activities
( i 13,435)
( i 6,911)
 i 39,630
Effects of exchange rate differences on cash and cash equivalents
1
 i 8,704
( i 5,645)
( i 5,306)
Cash and cash equivalents at the end of the year
5
 i 190,469
 i 195,200
 i 207,755
of which: cash and balances at central banks
6
 i 171,723
 i 169,363
 i 192,706
of which: amounts due from banks
6
 i 12,078
 i 13,329
 i 13,822
of which: money market paper
6,7
 i 6,668
 i 12,508
 i 1,227
Additional information
Net cash flow from / (used in) operating activities includes:
Interest received in cash
 i 32,576
 i 15,730
 i 11,170
Interest paid in cash
 i 26,711
 i 8,315
 i 4,802
Dividends on equity investments, investment funds and associates
 
received in cash
8
 i 2,241
 i 1,907
 i 2,531
1 Foreign currency translation and foreign exchange effects on operating assets and liabilities and on cash and cash equivalents
 
are presented within the Other net adjustments line. Does not include foreign currency
hedge effects related to foreign exchange
 
swaps.
 
2 Effective from 2023, UBS AG has refined the presentation in the statement of cash flows and now presents cash flows from Loans and advances to customers,
Customer deposits, Receivables from
 
securities financing transactions measured at
 
amortized cost and Payables
 
from securities financing transactions measured
 
at amortized cost as separate lines.
 
The presentation
change has had no effect on Net
 
cash flows from / (used in) operating
 
activities. Prior periods have been
 
aligned with this change in presentation.
 
3 Mainly reflects funding provided to
 
Credit Suisse.
 
4 Includes
funding from UBS Group AG
 
measured at amortized cost
 
(recognized on the balance sheet
 
in Funding from UBS Group
 
AG) and measured at
 
fair value (recognized on the
 
balance sheet in Other
 
financial liabilities
designated at fair value).
 
5 USD
 i 4,553
m, USD
 i 4,253
m and USD
 i 3,408
m of Cash and cash
 
equivalents (mainly reflected in
 
Amounts due from banks) were
 
restricted as of 31 December
 
2023, 31 December 2022
and 31 December 2021, respectively.
 
Refer to Note 22
 
for more information.
 
6 Includes only balances
 
with an original maturity of
 
three months or less.
 
7 Money market paper
 
is included in the balance
 
sheet
under Financial assets
 
at fair value
 
not held for
 
trading (31 December
 
2023: USD
 i 6,345
m; 31 December 2022:
 
USD
 i 6,048
m; 31 December 2021:
 
USD
 i 1,066
m), Other financial
 
assets measured at
 
amortized cost
(31 December 2023: USD
 i 295
m; 31 December 2022:
 
USD
 i 6,459
m; 31 December 2021:
 
USD
 i 141
m) and Financial assets
 
at fair value
 
held for trading (31
 
December 2023: USD
 i 29
m; 31 December 2022:
 
USD
 i 2
m;
31 December 2021: USD
 i 20
m).
 
8 Includes dividends received from associates reported within Net cash flow from / (used in) investing activities.
Changes in liabilities arising from financing activities
USD m
Debt issued
measured at
amortized cost
of which:
short-term
1
of which:
long-term
2
Debt issued
designated at fair
value
Over-the-
counter debt
instruments
3
Funding from
UBS Group
AG
4
Total
Balance as of 1 January 2022
 i 82,432
 i 43,098
 i 39,334
 i 71,460
 i 2,128
 i 59,635
 i 215,655
Cash flows
( i 19,390)
( i 12,249)
( i 7,141)
 i 13,277
( i 251)
 i 5,903
( i 461)
Non-cash changes
( i 3,543)
( i 1,173)
( i 2,370)
( i 12,895)
( i 193)
( i 7,595)
( i 24,225)
of which: foreign currency translation
( i 2,233)
( i 1,173)
( i 1,061)
( i 1,405)
( i 113)
( i 1,285)
( i 5,036)
of which: fair value changes
( i 11,490)
( i 80)
( i 1,060)
( i 12,629)
of which: hedge accounting and other effects
( i 1,310)
( i 1,310)
( i 5,250)
( i 6,560)
Balance as of 31 December 2022
 i 59,499
 i 29,676
 i 29,823
 i 71,842
 i 1,684
 i 57,943
 i 190,968
Cash flows
 i 7,979
 i 7,181
 i 798
 i 8,433
( i 122)
 i 9,901
 i 26,191
Non-cash changes
 i 2,306
 i 428
 i 1,878
 i 6,066
 i 4
 i 2,389
 i 10,764
of which: foreign currency translation
 i 1,718
 i 428
 i 1,290
 i 1,033
( i 50)
 i 766
 i 3,467
of which: fair value changes
 i 5,033
 i 53
 i 374
 i 5,461
of which: hedge accounting and other effects
 i 588
 i 588
 i 1,249
 i 1,836
Balance as of 31 December 2023
 i 69,784
 i 37,285
 i 32,499
 i 86,341
 i 1,566
 i 70,232
 i 227,923
1 Debt with an original contractual maturity of less than one year.
 
2 Debt with an original maturity greater than or equal to one year. The classification of debt issued into short-term and long-term does not consider
any early redemption
 
features.
 
3 Included in
 
balance sheet line
 
Other financial liabilities
 
designated at fair
 
value.
 
4 Includes funding
 
from UBS Group
 
AG measured at
 
amortized cost (refer
 
to Note 14b)
 
and
measured at fair value (refer to Note 18b).
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
141
Note 1
 
Summary of material accounting policies (continued)
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
a) Material accounting policies
This Note describes
 
the material accounting
 
policies applied in
 
the preparation
 
of the consolidated
 
financial statements
(the Financial
 
Statements) of
 
UBS AG and
 
its subsidiaries
 
(UBS AG). On
 
21 March 2024,
 
the Financial
 
Statements were
authorized for issue by the Board of Directors
 
(the BoD).
 
 i 
Basis of accounting
The
 
Financial
 
Statements
 
have
 
been
 
prepared
 
in
 
accordance
 
with
 
IFRS
 
Accounting
 
Standards,
 
as
 
issued
 
by
 
the
International Accounting Standards Board (the IASB),
 
and are presented in US dollars.
Disclosures marked as audited in the “Risk, capital, liquidity
 
and funding, and balance sheet” section of this report form
an integral part of the Financial Statements. These disclosures relate to requirements under IFRS 7,
Financial Instruments:
Disclosures
, and IAS 1,
Presentation of Financial Statements
, and are not repeated in this section.
 
The
 
accounting
 
policies
 
described
 
in
 
this
 
Note
 
have
 
been
 
applied
 
consistently
 
in
 
all
 
years
 
presented
 
unless
 
otherwise
stated in Note 1b.
 
 i 
 
 
 
Critical accounting estimates and judgments
Preparation of these Financial Statements under
 
IFRS Accounting Standards requires management to apply
 
judgment and make estimates and assumptions that
affect reported amounts of assets, liabilities,
 
income and expenses and disclosure,
 
of contingent assets and liabilities,
 
and may involve significant uncertainty
 
at the
time they are made. Such estimates and
 
assumptions are based on the best
 
available information. UBS AG regularly reassesses such estimates and assumptions,
which encompass historical
 
experience, expectations of
 
the future and
 
other pertinent factors,
 
to determine their
 
continuing relevance based
 
on current conditions,
updating them as necessary. Changes in those
 
estimates and assumptions may have a significant effect on
 
the Financial Statements. Furthermore, actual results
may differ significantly from UBS AG’s estimates, which could
 
result in significant losses to UBS AG,
 
beyond what was anticipated or provided for.
 
The following
 
areas contain
 
estimation uncertainty
 
or require
 
critical judgment
 
and have
 
a significant
 
effect on
 
amounts recognized
 
in the
 
Financial
Statements:
 
–
expected credit loss measurement (refer to item 2g in this Note
 
and to Note 19);
–
fair value measurement (refer to item 2f in this Note
 
and to Note 20);
–
income taxes (refer to item 6 in this Note and to Note
 
8);
–
provisions and contingent liabilities (refer to item 10 in this
 
Note and to Note 17);
–
post-employment benefit plans (refer to item 5 in
 
this Note and to Note 26);
–
goodwill (refer to item 9 in this Note and to Note
 
12); and
–
consolidation of structured entities (refer to item 1 in this Note
 
and to Note 28).
 
 i 
1) Consolidation
 
The Financial Statements include the financial statements of UBS AG and its subsidiaries, presented as a single economic
entity; intercompany
 
transactions and
 
balances have
 
been eliminated.
 
UBS AG consolidates
 
all entities
 
that it
 
controls,
including
 
structured
 
entities
 
(SEs),
 
which
 
is
 
the
 
case
 
when
 
it
 
has:
 
(i) power
 
over
 
the
 
relevant
 
activities
 
of
 
the
 
entity;
(ii) exposure to the entity‘s variable returns;
 
and (iii) the ability to use its power to affect
 
its own returns.
Consideration is given
 
to all facts
 
and circumstances to
 
determine whether UBS AG
 
has power over
 
another entity,
 
i.e.,
the current ability to direct the relevant activities of an entity when
 
decisions about those activities need to be made.
 
Subsidiaries,
 
including
 
SEs,
 
are
 
consolidated
 
from the
 
date
 
when
 
control
 
is gained
 
and deconsolidated
 
from
 
the
 
date
when control ceases. Control, or the lack thereof, is reassessed if facts and circumstances
 
indicate that there is a change
to one or more elements required to establish that control
 
is present.
Business combinations are
 
accounted for using
 
the acquisition method.
 
The amount of
 
non-controlling interests,
 
if any,
is measured at the non-controlling interest’s proportionate
 
share of the acquiree’s identifiable net assets.
 
›
Refer to Note 28
for more information
Critical accounting estimates and judgments
Each individual entity is assessed for consolidation in line with the aforementioned consolidation principles. The assessment of
 
control can be complex and
requires
 
the use
 
of significant judgment,
 
in particular in
 
determining whether UBS AG
 
has power over
 
the entity.
 
As the
 
nature and
 
extent of UBS AG’s
involvement is unique for each entity, there is no uniform consolidation outcome by entity.
 
Certain entities within a class may be consolidated while others
may not. When carrying out the consolidation assessment, judgment is exercised considering all
 
the relevant facts and circumstances, including the nature
and activities of the investee, as well as the
 
substance of voting and similar rights.
 
›
Refer to Note 28
for more information
 i 
2) Financial instruments
a. Recognition
UBS AG generally recognizes
 
financial instruments when
 
it becomes a
 
party to contractual
 
provisions of an
 
instrument.
However,
 
UBS AG does not recognize assets received
 
in transfers that do not qualify for derecognition
 
by the transferor
(applying
 
derecognition
 
principles
 
under
 
IFRS
 
Accounting
 
Standards
 
as
 
described
 
in
 
item
 
2e
 
below).
 
UBS AG
 
applies
settlement date accounting to all standard purchases
 
and sales of non-derivative financial instruments.
 / 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
142
Note 1
 
Summary of material accounting policies (continued)
UBS AG
 
may
 
act
 
in
 
a
 
fiduciary
 
capacity,
 
which
 
results
 
in
 
it
 
holding
 
or
 
placing
 
assets
 
on
 
behalf
 
of
 
individuals,
 
trusts,
retirement benefit
 
plans and
 
other institutions.
 
Unless these
 
items meet
 
the definition
 
of an
 
asset and
 
the recognition
criteria are
 
satisfied, they
 
are not
 
recognized on
 
UBS AG’s balance
 
sheet and
 
the related
 
income is
 
excluded from
 
the
Financial Statements.
 
Client cash balances associated with derivatives clearing
 
and execution services are not recognized on the
 
balance sheet
if, through contractual
 
agreement, regulation
 
or practice, UBS AG
 
neither obtains
 
benefits from
 
nor controls such
 
cash
balances.
b. Classification, measurement and presentation
Financial assets
 
Where the contractual
 
terms of a debt
 
instrument result in cash
 
flows that are
 
solely payments of principal and
 
interest
(SPPI) on
 
the principal
 
amount outstanding,
 
the debt
 
instrument is
 
classified as
 
measured at
 
amortized cost
 
if it is
 
held
within a business model that has an objective of holding financial assets to collect contractual cash flows, or at fair value
through other
 
comprehensive income
 
(FVOCI) if it
 
is held within
 
a business model
 
with the objective
 
of both collecting
contractual cash flows and selling financial assets.
 
All other
 
financial
 
assets
 
are measured
 
at fair
 
value
 
through
 
profit or
 
loss (FVTPL),
 
including those
 
held for
 
trading
 
or
those managed on a fair value basis, except for derivatives designated in certain hedge accounting relationships
 
(refer to
item 2j in this Note for more information).
 
Business model assessment and contractual cash flow characteristics
 
UBS AG determines
 
the nature
 
of a
 
business model
 
by considering
 
the way
 
financial assets
 
are managed
 
to achieve
 
a
particular business objective at the time an asset is recognized
 
.
 
In assessing
 
whether contractual
 
cash flows
 
are SPPI,
 
UBS AG considers
 
whether the
 
contractual terms
 
of the
 
financial
asset
 
contain
 
a
 
term
 
that
 
could
 
change
 
the
 
timing
 
or
 
amount
 
of
 
contractual
 
cash
 
flows
 
arising
 
over
 
the
 
life
 
of
 
the
instrument. This assessment includes contractual
 
cash flows that may vary
 
due to environmental, social and governance
(ESG) triggers.
Financial liabilities
 
Financial liabilities measured at amortized cost
 
Financial liabilities
 
measured at
 
amortized cost
 
include
Debt issued
 
measured at
 
amortized cost
 
and
Funding from
 
UBS
Group AG
measured at amortized cost
. The latter includes contingent capital instruments issued to UBS Group
 
AG prior
to November 2023 that contain contractual provisions under
 
which the principal amounts would be written down upon
either a specified common equity tier 1 (CET1) ratio breach or a determination by the Swiss Financial Market Supervisory
Authority (FINMA) that a viability event has occurred. Such contractual provisions are not derivatives, as the underlying is
deemed
 
to
 
be
 
a
 
non-financial
 
variable
 
specific
 
to
 
a
 
party
 
to
 
the
 
contract.
 
Issuances
 
after
 
November
 
2023
 
include
 
a
contractual equity
 
conversion feature
 
with the
 
same triggers,
 
i.e., a
 
CET1 ratio
 
breach or
 
FINMA viability
 
event. When
the debt is issued in
 
US dollars, these conversion features are classified as
 
equity and are accounted for in
Share premium
separately from the amortized cost debt host.
When the legal bail-in mechanism for write-down
 
or conversion into equity does not form part
 
of the contractual terms
of issued debt instruments, it does not affect the accounting classification
 
of these instruments as debt or equity.
 
If a debt were to be written down or converted into equity in a future period, it would be partially or fully derecognized,
with
 
the
 
difference
 
between
 
its
 
carrying
 
amount
 
and
 
the
 
fair
 
value
 
of
 
any
 
equity
 
issued
 
recognized
 
in
 
the
 
income
statement.
 
Financial liabilities measured at fair value through profit or
 
loss
 
UBS AG designates certain issued debt instruments
 
as financial liabilities at fair value
 
through profit or loss, on the
 
basis
that such financial instruments
 
include embedded derivatives
 
that are not
 
closely related and
 
which significantly impact
the cash
 
flows of
 
the instrument and
 
/ or
 
are managed on
 
a fair
 
value basis
 
(refer to the
 
table below
 
for more information).
Financial instruments
 
including embedded
 
derivatives arise
 
predominantly from
 
the issuance
 
of certain
 
structured debt
instruments.
 
Measurement and presentation
 
After initial
 
recognition,
 
UBS AG classifies,
 
measures
 
and presents
 
its financial
 
assets and
 
liabilities in
 
accordance
 
with
IFRS 9, as described in the table below.
 
 
 
 
 
 
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
143
Note 1
 
Summary of material accounting policies (continued)
 
 
 
 
 
 
Classification, measurement and presentation
 
of financial assets
 
 
 
 
 
 
 
 
 
 
Financial assets classification
Significant items included
Measurement and presentation
Measured at
 
amortized cost
This classification includes:
–
cash and balances at central banks;
–
amounts due from banks;
–
receivables from securities financing transactions;
–
cash collateral receivables on derivative
instruments;
–
residential and commercial mortgages;
–
corporate loans;
–
secured loans, including Lombard loans, and
unsecured loans;
–
loans to financial advisors;
 
and
–
debt securities held as high-quality liquid
 
assets
(HQLA).
 
Measured at amortized cost using the effective interest
method less allowances for expected credit losses
 
(ECL)
(refer to items 2d and 2g in this Note for more information).
The following items are recognized in the income
statement:
–
interest income, which is accounted for in accordance
with item 2d in this Note;
–
ECL and reversals; and
–
foreign exchange (FX) translation gains and losses.
When a financial asset at amortized cost is derecognized,
the gain or loss is recognized in the income statement.
For amounts arising from settlement of certain derivatives,
see below in this table.
 
Measured at
FVOCI
 
Debt
instruments
measured at
FVOCI
This classification primarily includes debt securities
held as HQLA.
Measured at fair value,
 
with unrealized gains and losses
reported in
Other comprehensive income
, net of applicable
income taxes, until such investments are derecognized.
Upon derecognition, any accumulated balances in
Other
comprehensive income
 
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.
 
 
 
 
 
 
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
144
Note 1
 
Summary of material accounting policies (continued)
 
 
 
 
 
Classification, measurement and presentation
 
of financial assets
 
 
 
 
 
 
 
 
Financial assets classification
Significant items included
Measurement and presentation
Measured at
FVTPL
Held for
 
trading
Financial assets held for trading include:
–
all derivatives with a positive replacement value,
 
except
those that are designated and effective hedging
instruments; and
–
other financial assets acquired principally for the
purpose of selling or repurchasing in the near term, or
that are part of a portfolio of identified financial
instruments that are managed together and for
 
which
there is evidence of a recent actual pattern of short-
term profit taking. Included in this category are debt
instruments (including those in the form of
 
securities,
money market paper,
 
and traded corporate and bank
loans) and equity instruments.
 
Measured at fair value,
 
with changes recognized in the
income statement.
Derivative assets (including derivatives that
 
are designated
and effective hedging instruments) are generally
presented as
Derivative financial instruments
, except those
exchange-traded derivatives (ETD) and over-the-counter
(OTC)-cleared derivatives that are legally settled on
 
a daily
basis or economically net settled on a daily basis,
 
which
are presented within
Cash collateral receivables on
derivative instruments.
Changes in fair value, initial transaction costs,
 
dividends
and gains and losses arising on disposal or redemption
 
are
recognized in
Other net income from financial
instruments measured at fair value through
 
profit or loss
,
except interest income on instruments other than
derivatives (refer to item 2d in this Note), interest on
derivatives designated as hedging instruments
 
in hedges
of interest rate risk and forward points on certain short-
and long-duration FX contracts acting as economic
hedges,
 
which are reported in
Net interest income.
 
Changes in the fair value of derivatives that
 
are
designated and effective hedging instruments are
presented either in the income statement or
Other
comprehensive income
, depending on the type of hedge
relationship (refer to item 2j in this Note for more
information).
Mandatorily
measured at
FVTPL – Other
Financial assets mandatorily measured at FVTPL that
 
are
not held for trading include:
 
–
certain structured instruments, certain commercial
loans, and receivables from securities financing
transactions that are managed on a fair value basis;
 
–
loans managed on a fair value basis,
 
including those
hedged with credit derivatives;
–
certain debt securities held as HQLA and
 
managed on a
fair value basis;
 
–
certain investment fund holdings and assets
 
held to
hedge delivery obligations related to cash-settled
employee compensation plans;
 
–
brokerage receivables, for which contractual cash flows
do not meet the SPPI criterion because the aggregate
balance is accounted for as a single unit of
 
account,
with interest being calculated on the individual
components;
–
auction rate securities, for which contractual cash
 
flows
do not meet the SPPI criterion because interest may
 
be
reset at rates that contain leverage;
–
equity instruments;
 
and
–
assets held under unit-linked investment contracts.
 
 
 
 
 
 
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
145
Note 1
 
Summary of material accounting policies (continued)
 
 
 
 
 
 
 
 
 
 
 
 
 
Classification, measurement and presentation
 
of financial liabilities
 
Financial liabilities classification
Significant items included
Measurement and presentation
Measured at amortized cost
This classification includes:
–
demand and time deposits;
 
–
retail savings / deposits;
–
sweep deposits;
–
payables
 
from securities financing transactions;
 
–
non-structured debt issued;
 
–
subordinated debt;
 
–
commercial paper and certificates of deposit;
 
–
obligations against funding from UBS Group AG;
 
and
–
cash collateral payables on derivative instruments.
Measured at amortized cost using the effective interest
method.
When a financial liability at amortized cost is
derecognized, the gain or loss is recognized in the income
statement.
 
Interest income generated from client deposits
derecognized pursuant to certain deposit sweep
 
programs
is presented within
Net interest income from financial
instruments measured at fair value through
 
profit or loss
and other
.
Measured at
FVTPL
Held for trading
Financial liabilities held for trading include:
–
all derivatives with a negative replacement value
(including certain loan commitments),
 
except those
that are designated and effective hedging
instruments; and
–
obligations to deliver financial instruments,
 
such as
debt and equity instruments, that UBS AG has
 
sold to
third parties but does not own (short positions).
Measurement and presentation of financial liabilities
classified at FVTPL follow the same principles
 
as for
financial assets classified at FVTPL, except that
 
the amount
of change in the fair value of a financial liability
designated at FVTPL that is attributable to changes
 
in
UBS AG’s own credit risk is presented in
Other
comprehensive income
 
directly within
Retained earnings
and is never reclassified to the income statement.
Derivative liabilities (including derivatives that
 
are
designated and effective hedging instruments)
 
are
generally presented as
Derivative financial instruments
,
except those exchange-traded and OTC-cleared
derivatives that are legally settled on a daily basis
 
or
economically net settled on a daily basis, which
 
are
presented within
Cash collateral payables on derivative
instruments.
Designated at
FVTPL
Financial liabilities designated
 
at FVTPL include:
–
issued hybrid debt instruments,
 
primarily equity-
linked, credit-linked and rates-linked bonds or notes;
–
issued debt instruments managed on a fair
 
value
basis;
–
obligations against funding from UBS Group AG
managed on a fair value basis;
–
certain payables from securities financing
transactions;
–
amounts due under unit-linked investment
 
contracts,
the cash flows of which are linked to financial
 
assets
measured at FVTPL and eliminate an accounting
mismatch;
 
and
–
brokerage payables, which arise in conjunction with
brokerage receivables and are measured at FVTPL to
achieve measurement consistency.
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
146
Note 1
 
Summary of material accounting policies (continued)
c. Loan commitments and financial guarantees
 i 
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.
 i 
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.
 i 
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
 i 
e. Derecognition
 
Financial assets
UBS AG
 
derecognizes
 
a
 
transferred
 
financial
 
asset,
 
or
 
a
 
portion
 
of
 
a
 
financial
 
asset,
 
if
 
the
 
purchaser
 
has
 
obtained
substantially all the risks and rewards of the asset or a significant part of the risks and rewards combined with a practical
ability to sell or pledge the asset.
 
Where
 
financial
 
assets
 
have
 
been
 
pledged
 
as
 
collateral
 
or
 
in
 
similar
 
arrangements,
 
they
 
are
 
considered
 
to
 
have
 
been
transferred
 
if the
 
counterparty
 
has received
 
the contractual
 
rights to
 
the
 
cash flows
 
of the
 
pledged assets,
 
as
 
may be
evidenced
 
by,
 
for
 
example,
 
the
 
counterparty’s
 
right to
 
sell or
 
repledge
 
the
 
assets.
 
In
 
transfers
 
where
 
control
 
over
 
the
financial
 
asset
 
is
 
retained,
 
UBS AG
 
continues
 
to
 
recognize
 
the
 
asset
 
to
 
the
 
extent
 
of
 
its
 
continuing
 
involvement,
determined by the extent to which it is exposed to changes
 
in the value of the transferred asset following the transfer.
 
›
Refer to Note 22 for more information
 
Financial liabilities
UBS AG derecognizes
 
a financial
 
liability when
 
it is
 
extinguished,
 
i.e., when
 
the
 
obligation
 
specified
 
in the
 
contract
 
is
discharged, canceled or expires. When an existing financial liability is exchanged for a new one from the same lender on
substantially
 
different
 
terms,
 
or
 
the
 
terms
 
of
 
an
 
existing
 
liability
 
are
 
substantially
 
modified,
 
the
 
original
 
liability
 
is
derecognized
 
and
 
a
 
new
 
liability
 
recognized
 
with
 
any
 
difference
 
in
 
the
 
respective
 
carrying
 
amounts
 
recorded
 
in
 
the
income statement.
 
Certain OTC derivative
 
contracts and most
 
exchange-traded futures and option
 
contracts cleared through central
 
clearing
counterparties
 
and exchanges are
 
considered to be
 
settled on a
 
daily basis, as
 
the payment or
 
receipt of a
 
variation margin
on a daily basis represents a legal or economic settlement,
 
which results in derecognition of the associated derivatives.
›
Refer to Note 21 for more information
 
 i 
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
 
 
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
147
Note 1
 
Summary of material accounting policies (continued)
 
 
 
 
 
 
 
Critical accounting estimates and judgments
The use of valuation techniques, modeling assumptions and estimates of
 
unobservable market inputs in the fair valuation of
 
financial instruments requires
significant
 
judgment
 
and
 
could
 
affect
 
the
 
amount
 
of
 
gain
 
or
 
loss
 
recorded
 
for
 
a
 
particular
 
position.
 
Valuation
 
techniques
 
that
 
rely
 
more
 
heavily
 
on
unobservable inputs
 
and sophisticated
 
models inherently
 
require a
 
higher level
 
of judgment
 
and may
 
require adjustment
 
to reflect
 
factors that
 
market
participants would consider in estimating fair value,
 
such as close-out costs, which are presented in Note 20d.
 
UBS AG’s governance
 
framework over
 
fair value
 
measurement is described
 
in Note 20b,
 
and UBS AG provides
 
a sensitivity analysis
 
of the
 
estimated effects
arising from changing significant unobservable
 
inputs in Level 3 financial instruments to reasonably
 
possible alternative assumptions in Note
 
20f.
 
›
Refer to Note 20 for more information
 i 
g. Allowances and provisions for expected credit losses
ECL are
 
recognized for
 
financial assets
 
measured at
 
amortized cost,
 
financial assets
 
measured at
 
FVOCI, fee
 
and lease
receivables,
 
financial
 
guarantees,
 
and
 
loan
 
commitments
 
not
 
measured
 
at
 
fair
 
value.
 
ECL
 
are
 
also
 
recognized
 
on
 
the
undrawn
 
portion
 
of
 
committed
 
unconditionally
 
revocable
 
credit
 
lines,
 
which
 
include
 
UBS AG’s
 
credit
 
card
 
limits
 
and
master credit
 
facilities,
 
as UBS
 
AG is
 
exposed to
 
credit
 
risk because
 
the borrower
 
has the
 
ability
 
to draw
 
down funds
before UBS AG can take credit risk
 
mitigation actions.
Recognition of expected credit losses
 
ECL are recognized on the following basis.
–
Stage 1 instruments: Maximum 12-month ECL
 
are recognized from initial
 
recognition, reflecting the portion
 
of lifetime
ECL that would result
 
if a default occurs
 
in the 12 months
 
after the reporting date,
 
weighted by the risk
 
of a default
occurring.
 
–
Stage 2 instruments: Lifetime ECL are
 
recognized if a significant
 
increase in credit risk
 
(an SICR) is observed
 
subsequent
to
 
the
 
instrument’s
 
initial
 
recognition,
 
reflecting
 
lifetime
 
cash
 
shortfalls
 
that
 
would
 
result
 
from
 
all
 
possible
 
default
events over the
 
expected life
 
of a financial
 
instrument, weighted
 
by the risk
 
of a default
 
occurring. When
 
an SICR is
no longer observed, the instrument will move back to stage
 
1.
–
Stage 3 instruments:
 
Lifetime ECL
 
are always
 
recognized for
 
credit-impaired financial
 
instruments, as
 
determined by
the occurrence
 
of one
 
or more
 
loss events,
 
by estimating
 
expected cash
 
flows based
 
on a
 
chosen recovery
 
strategy.
Credit-impaired exposures
 
may include
 
positions for
 
which no
 
allowance has
 
been recognized,
 
for example
 
because
they are expected to be fully recoverable through collateral
 
held.
–
Changes in lifetime ECL since initial recognition are also
 
recognized for assets that are purchased credit impaired (PCI).
PCI financial
 
instruments include
 
those that
 
are purchased
 
at a
 
deep discount
 
or newly
 
originated with
 
a defaulted
counterparty;
 
they remain a separate category until derecognition.
 
All or part
 
of a financial
 
asset is written
 
off if it
 
is deemed uncollectible
 
or forgiven. Write-offs
 
reduce the principal
 
amount
of a claim
 
and are charged against
 
related allowances for credit
 
losses. Recoveries, in part or
 
in full, of
 
amounts previously
written off are generally credited to
Credit loss expense / (release)
.
 
ECL are recognized in the income statement in
Credit loss expense / (release)
. A corresponding ECL allowance is reported
as a decrease
 
in the carrying
 
amount of financial
 
assets measured at
 
amortized cost on
 
the balance sheet.
 
For financial
assets that
 
are measured
 
at FVOCI,
 
the carrying
 
amount is
 
not reduced,
 
but an
 
accumulated
 
amount is
 
recognized in
Other comprehensive
 
income
. For
 
off-balance sheet
 
financial instruments
 
and other
 
credit lines,
 
provisions for
 
ECL are
presented in
Provisions.
Default and credit impairment
UBS AG applies a single definition of
 
default for credit risk management
 
purposes, regulatory reporting and ECL,
 
with a
counterparty classified as defaulted based on quantitative
 
and qualitative criteria.
 
›
Refer to the “Risk management and control” section of this
 
report for more information
Measurement of expected credit losses
IFRS 9 ECL reflect
 
an unbiased, probability
 
-weighted estimate
 
based on loss
 
expectations resulting
 
from default
 
events.
The method
 
used to
 
calculate ECL
 
applies the
 
following principal
 
factors: probability
 
of default
 
(PD), loss
 
given default
(LGD) and
 
exposure
 
at default
 
(EAD). Parameters
 
are generally
 
determined on
 
an individual
 
financial asset
 
level. Based
on the materiality of
 
the portfolio, for
 
credit card
 
exposures and personal
 
account overdrafts
 
in Switzerland, a portfolio
approach is applied that
 
derives an average PD
 
and LGD for
 
the entire portfolio. PDs
 
and LGDs used in
 
the ECL calculation
are point-in-time(PIT)-based
 
for key
 
portfolios and
 
consider both
 
current conditions
 
and expected
 
cyclical changes.
 
For
material portfolios, PDs
 
and LGDs are determined
 
for different scenarios, whereas EAD projections are
 
treated as scenario
independent.
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
148
Note 1
 
Summary of material accounting policies (continued)
For the
 
purpose
 
of determining
 
the ECL
 
-relevant
 
parameters,
 
UBS AG
 
leverages
 
its Basel
 
III advanced
 
internal
 
ratings-
based (A-IRB)
 
models that
 
are
 
also used
 
in determining
 
expected
 
loss (EL)
 
and risk-weighted
 
assets under
 
the Basel III
framework and Pillar 2 stress loss models. Adjustments have been made to these models and IFRS 9-related models have
been developed that consider the complexity, structure and
 
risk profile of relevant portfolios and take account
 
of the fact
that PDs and LGDs used in the ECL calculation are PIT-based, as opposed to the corresponding Basel III through-the-cycle
(TTC)
 
parameters.
 
All
 
models
 
that
 
are
 
relevant
 
for
 
measuring
 
expected
 
credit
 
losses
 
are
 
subject
 
to
 
UBS AG’s
 
model
validation and oversight processes.
 
Probability of default:
PD represents the probability
 
of a default over a
 
specified time period. A 12-month
 
PD represents
the probability of default determined for the next 12 months and a lifetime PD represents
 
the probability of default over
the remaining lifetime
 
of the instrument.
 
PIT PDs are
 
derived from TTC
 
PDs and scenario
 
forecasts. The modeling
 
is region,
industry and
 
client segment
 
specific and considers
 
both macroeconomic
 
scenario dependencies
 
and client-idiosyncratic
information.
Exposure at default:
EAD represents an estimate of
 
the exposure to credit
 
risk at the time
 
of a potential default occurring,
considering expected repayments, interest payments and accruals,
 
discounted at the EIR. Future drawdowns on facilities
are considered through
 
a credit conversion
 
factor (a CCF)
 
that is reflective
 
of historical
 
drawdown and default
 
patterns
and the characteristics of the respective portfolios.
Loss given default:
LGD represents an estimate
 
of the loss at the time of a potential
 
default occurring,
 
taking into account
expected
 
future
 
cash
 
flows
 
from
 
collateral
 
and
 
other
 
credit
 
enhancements,
 
or
 
expected
 
payouts
 
from
 
bankruptcy
proceedings
 
for unsecured claims
 
and, where applicable,
 
time to realization
 
of collateral and
 
the seniority of
 
claims. LGD is
commonly expressed
 
as a percentage
 
of EAD.
Estimation of expected credit losses
Number of scenarios and estimation of scenario weights
Determination
 
of probability-weighted
 
ECL requires evaluating
 
a range of
 
diverse and
 
relevant future economic
 
conditions,
especially
 
with a view to
 
modeling the
 
non-linear effect
 
of assumptions
 
about macroeconomic
 
factors on the
 
estimate.
 
To accommodate
 
this requirement,
 
UBS AG
 
uses different
 
economic
 
scenarios
 
in the
 
ECL calculation.
 
Each
 
scenario
 
is
represented by
 
a specific
 
scenario
 
narrative,
 
which
 
is relevant
 
considering
 
the exposure
 
of key
 
portfolios to
 
economic
risks, and for
 
which a set
 
of consistent macroeconomic variables
 
is determined. The
 
estimation of the
 
appropriate weights
for
 
these
 
scenarios
 
is
 
predominantly
 
judgment-based.
 
The
 
assessment
 
is
 
based
 
on
 
a
 
holistic
 
review
 
of
 
the
 
prevailing
economic or
 
political conditions,
 
which
 
may exhibit
 
different
 
levels of
 
uncertainty.
 
It takes
 
into account
 
the impact
 
of
changes in the nature and severity of the underlying scenario
 
narratives and the projected economic variables.
 
The determined weights constitute
 
the probabilities that
 
the respective set of
 
macroeconomic conditions will
 
occur and
not that the chosen particular narratives with the related
 
macroeconomic variables will materialize.
Macroeconomic and other factors
The range
 
of macroeconomic,
 
market and
 
other factors
 
that is
 
modeled as
 
part of
 
the scenario
 
determination is
 
wide,
and historical information
 
is used to support
 
the identification of
 
the key factors.
 
As the forecast
 
horizon increases, the
availability of
 
information decreases,
 
requiring an
 
increase
 
in judgment.
 
For cycle-sensitive
 
PD and
 
LGD determination
purposes, UBS AG
 
projects the
 
relevant economic
 
factors for
 
a period
 
of three
 
years before
 
reverting, over
 
a specified
period, to cycle-neutral PD and LGD for longer-term
 
projections.
 
Factors relevant
 
for ECL
 
calculation vary
 
by type
 
of exposure.
 
Regional and
 
client-segment characteristics
 
are generally
taken into account, with specific focus on Switzerland and
 
the US, considering UBS AG’s key ECL-relevant portfolios.
For
 
UBS AG,
 
the
 
following
 
forward-looking
 
macroeconomic
 
variables
 
represent
 
the
 
most
 
relevant
 
factors
 
for
 
ECL
calculation:
 
–
gross domestic product (GDP) growth rates, given their significant
 
effect on borrowers’ performance;
 
–
unemployment rates, given their significant effect on private
 
clients’ ability to meet contractual obligations;
 
–
house price indices, given their significant effect on mortgage
 
collateral valuations;
 
–
interest rates, given their significant effect on counterparties’
 
abilities to service debt;
 
–
consumer price
 
indices, given
 
their overall
 
relevance for
 
companies’ performance,
 
private clients’
 
purchasing power
and economic stability; and
–
equity indices, given that they are an important factor
 
in UBS AG’s corporate rating tools.
 
Scenario generation, review process and governance
A team of economists,
 
which is part of
 
Group Risk Control,
 
develops
 
the forward-looking
 
macroeconomic assumptions
with involvement from a broad range
 
of experts.
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
149
Note 1
 
Summary of material accounting policies (continued)
 
The scenarios,
 
their weights
 
and the
 
key macroeconomic
 
and other
 
factors are
 
subject to
 
a critical
 
assessment by
 
the
IFRS 9 Scenario
 
Sounding Sessions
 
and ECL
 
Management
 
Forum, which
 
include senior
 
management
 
from Group
 
Risk
and Group
 
Finance. Important
 
aspects for
 
the review
 
include whether
 
there may
 
be particular
 
credit risk
 
concerns that
may not be capable
 
of being addressed systematically
 
and require post-model adjustments
 
for stage allocation and
 
ECL
allowance.
 
The
 
Group
 
Model
 
Governance
 
Committee
 
(the
 
GMGC),
 
as
 
the
 
highest
 
authority
 
under
 
UBS AG’s
 
model
 
governance
framework, ratifies the decisions taken by the ECL Management
 
Forum.
 
›
Refer to Note 19 for more information
 
 
 
 
 
 
 
ECL measurement period
 
The period for which
 
lifetime ECL are
 
determined is based on
 
the maximum contractual
 
period that UBS AG
 
is exposed
to
 
credit
 
risk,
 
taking
 
into
 
account
 
contractual
 
extension,
 
termination
 
and
 
prepayment
 
options.
 
For
 
irrevocable
 
loan
commitments and
 
financial guarantee
 
contracts, the
 
measurement period
 
represents
 
the maximum
 
contractual period
for which UBS AG has an obligation to extend credit.
Additionally, some financial instruments include both an on-demand loan and a revocable undrawn commitment, where
the contractual cancellation right does not limit UBS
 
AG’s exposure to credit risk to the contractual notice period,
 
as the
client has
 
the ability to
 
draw down funds
 
before UBS AG can
 
take risk-mitigating actions.
 
In such
 
cases UBS AG is
 
required
to estimate
 
the period
 
over which
 
it is
 
exposed to
 
credit risk.
 
This applies
 
to UBS AG’s
 
credit card
 
limits, which
 
do not
have a defined
 
contractual maturity
 
date, are callable
 
on demand and
 
where the drawn
 
and undrawn components
 
are
managed as one
 
exposure. The exposure
 
arising from UBS
 
AG’s credit card
 
limits is not
 
significant and is
 
managed at a
portfolio level, with
 
credit actions triggered
 
when balances are
 
past due. An
 
ECL measurement
 
period of seven
 
years is
applied for credit card limits,
 
capped at 12 months
 
for stage 1 balances, as a proxy
 
for the period that UBS AG
 
is exposed
to credit risk.
Customary master credit
 
agreements in the
 
Swiss corporate market
 
also include
 
on-demand loans and
 
revocable undrawn
commitments.
 
For
 
smaller
 
commercial
 
facilities,
 
a
 
risk-based
 
monitoring
 
(RbM)
 
approach
 
is
 
in
 
place
 
that
 
highlights
negative
 
trends
 
as
 
risk
 
events,
 
at
 
an
 
individual
 
facility
 
level,
 
based
 
on
 
a
 
combination
 
of
 
continuously
 
updated
 
risk
indicators. The risk
 
events trigger additional
 
credit reviews by
 
a risk officer,
 
enabling informed credit decisions
 
to be taken.
Larger
 
corporate
 
facilities
 
are
 
not
 
subject
 
to
 
RbM,
 
but
 
are
 
reviewed
 
at
 
least
 
annually
 
through
 
a
 
formal
 
credit
 
review.
UBS AG has
 
assessed these
 
credit risk
 
management practices
 
and considers
 
both the
 
RbM approach
 
and formal
 
credit
reviews
 
as
 
substantive
 
credit
 
reviews
 
resulting
 
in
 
a
 
re-origination
 
of
 
the
 
given
 
facility.
 
Following
 
this,
 
a
 
12-month
measurement period from the reporting date
 
is used for both
 
types of facilities as
 
an appropriate proxy of the
 
period over
which UBS AG
 
is exposed
 
to credit
 
risk, with
 
12 months
 
also used
 
as a
 
look-back period
 
for assessing
 
an SICR,
 
always
from the respective reporting date.
Significant increase in credit risk
 
Financial instruments subject
 
to ECL are
 
monitored on an
 
ongoing basis. To
 
determine whether the
 
recognition of a
maximum 12
 
-month ECL
 
continues to
 
be appropriate,
 
an assessment
 
is
 
made as
 
to whether
 
an SICR
 
has occurred
since initial recognition of the financial instrument, applying both
 
quantitative and qualitative factors.
 
Primarily, UBS AG assesses changes in
 
an instrument’s risk of default
 
on a quantitative basis by
 
comparing the annualized
forward-looking and scenario-weighted lifetime PD of an
 
instrument determined at two different dates:
 
–
at the reporting date; and
 
–
at inception of the instrument.
If, based on
 
UBS AG’s quantitative
 
modeling, an
 
increase exceeds
 
a set threshold,
 
an SICR
 
is deemed to
 
have occurred
and the instrument is transferred to stage 2 with lifetime
 
ECL recognized.
The threshold
 
applied varies
 
depending on
 
the original
 
credit quality
 
of the
 
borrower, with
 
a higher
 
SICR threshold
 
set
for those
 
instruments with
 
a low
 
PD at
 
inception. The
 
SICR assessment
 
based on
 
PD changes
 
is made
 
at an
 
individual
financial asset
 
level. A
 
high-level overview
 
of the
 
SICR trigger,
 
which is
 
a multiple
 
of the
 
annualized remaining
 
lifetime
PIT
 
PD expressed
 
in rating
 
downgrades,
 
is provided
 
in the
 
“SICR thresholds”
 
table
 
below. The
 
actual
 
SICR
 
thresholds
applied are defined on a more granular level by interpolating
 
between the values shown in the table.
SICR thresholds
Internal rating at origination
 
of the instrument
Rating downgrades /
SICR trigger
0–3
3
4–8
2
9–13
1
›
Refer to the “Risk management and control” section of this
 
report for more details about UBS AG’s internal rating system
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
150
Note 1
 
Summary of material accounting policies (continued)
 
 
 
 
 
 
 
 
 
 
Irrespective of
 
the SICR
 
assessment based
 
on default
 
probabilities, credit
 
risk is
 
generally deemed
 
to have
 
significantly
increased for an instrument if contractual payments
 
are more than 30 days past due. For certain
 
less material portfolios,
specifically the Swiss
 
credit card portfolio, the
 
30-day past due
 
criterion is used
 
as the primary
 
indicator of an
 
SICR. Where
instruments are transferred
 
to stage 2 due
 
to the 30-day
 
past due criterion,
 
a minimum period
 
of six months
 
is applied
before a
 
transfer back
 
to stage 1 can
 
be triggered,
 
where applicable.
 
For instruments
 
in Personal &
 
Corporate Banking
and Global
 
Wealth Management
 
Region Switzerland
 
that
 
are between
 
90 and
 
180
 
days past
 
due but
 
have not
 
been
reclassified to stage 3, a one-year period is applied before
 
a transfer back to stage 1 can be triggered.
Additionally,
 
based
 
on
 
individual
 
counterparty-specific
 
indicators,
 
external
 
market
 
indicators
 
of
 
credit
 
risk
 
or
 
general
economic conditions, counterparties may be moved to a watch list, which is used as a secondary qualitative indicator for
an
 
SICR.
 
Exception
 
management
 
is
 
further
 
applied,
 
allowing
 
for
 
individual
 
and
 
collective
 
adjustments
 
on
 
exposures
sharing the same credit risk characteristics to take account
 
of specific situations that are not otherwise fully reflected.
 
In general, the overall SICR determination process does not
 
apply to Lombard loans, securities financing transactions and
certain
 
other
 
asset-based
 
lending
 
transactions,
 
because
 
of
 
the
 
risk
 
management
 
practices
 
adopted,
 
including
 
daily
monitoring processes
 
with strict
 
margining. If
 
margin calls
 
are not
 
satisfied, a
 
position is
 
closed out
 
and classified
 
as a
stage 3 position. In exceptional cases, an individual adjustment and a transfer into stage 2 may be made to take account
of specific facts.
Credit risk
 
officers are
 
responsible for
 
the identification
 
of an
 
SICR, which
 
for accounting
 
purposes is
 
in some
 
respects
different
 
from
 
internal
 
credit
 
risk
 
management
 
processes.
 
This
 
difference
 
mainly
 
arises
 
because
 
ECL
 
accounting
requirements are instrument-specific, such that
 
a borrower can have multiple
 
exposures allocated to different stages, and
maturing loans in stage 2 will migrate to stage 1 upon renewal irrespective of the
 
actual credit risk at that time. Under a
risk-based
 
approach,
 
a
 
holistic
 
counterparty
 
credit
 
assessment
 
and
 
the
 
absolute
 
level
 
of
 
risk
 
at
 
any
 
given
 
date
 
will
determine what risk-mitigating actions may be warranted.
›
Refer to the “Risk management and control” section of this
 
report for more information
Critical accounting estimates and judgments
The calculation of ECL requires
 
management to apply significant
 
judgment and make estimates
 
and assumptions that can
 
result in significant changes to
 
the
timing and the amount of ECL recognized.
 
Determination of a significant increase in
 
credit risk
 
IFRS 9 does not include a definition of what constitutes an
 
SICR, with UBS AG’s assessment considering qualitative and quantitative criteria. An IFRS 9 ECL
Management Forum has been established to
 
review and challenge the SICR results.
Scenarios, scenario weights and macroeconomic
 
variables
 
ECL reflect
 
an unbiased
 
and probability-weighted amount,
 
which UBS AG
 
determines by
 
evaluating a
 
range of
 
possible outcomes.
 
Management selects
forward-looking
 
scenarios
 
that
 
include
 
relevant
 
macroeconomic
 
variables
 
and
 
management’s
 
assumptions
 
around
 
future
 
economic
 
conditions.
 
IFRS 9
Scenario Sounding
 
Sessions,
 
in addition
 
to the IFRS
 
9 ECL
 
Management Forum,
 
are in place
 
to derive,
 
review and
 
challenge the
 
scenario selection
 
and weights,
and to determine whether any additional post-model
 
adjustments are required that may significantly affect ECL.
 
ECL measurement period
Lifetime ECL are generally
 
determined based upon
 
the contractual maturity
 
of the transaction, which
 
significantly affects ECL. For
 
credit card limits and
 
Swiss
callable master credit
 
facilities, judgment is required,
 
as UBS AG must
 
determine the period over
 
which it is
 
exposed to credit
 
risk. A seven-year
 
period is
applied for credit card limits, capped at 12 months for
 
stage 1 positions, and a 12-month period
 
applied for master credit facilities.
 
Modeling and post-model adjustments
A number of
 
complex models have
 
been developed or
 
modified to calculate
 
ECL, with additional
 
post-model adjustments required
 
that may significantly
affect ECL. The models are governed by UBS AG’s model validation controls
 
and approved by the GMGC. The post-model adjustments are approved by the
ECL Management Forum and endorsed by the
 
GMGC.
A sensitivity analysis covering key macroeconomic
 
variables, scenario weights and SICR trigger
 
points on ECL measurement is provided in Note 19f.
 
›
Refer to Note 19 for more information
 i 
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.
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
151
Note 1
 
Summary of material accounting policies (continued)
 i 
i. Offsetting
UBS AG presents financial assets and liabilities on its
 
balance sheet net if (i) it has a
 
legally enforceable right to set off the
recognized
 
amounts
 
and
 
(ii) it
 
intends
 
either
 
to
 
settle
 
on
 
a
 
net
 
basis
 
or
 
to
 
realize
 
the
 
asset
 
and
 
settle
 
the
 
liability
simultaneously.
 
Netted
 
positions
 
include,
 
for
 
example,
 
certain
 
derivatives
 
and
 
repurchase
 
and
 
reverse
 
repurchase
transactions with various counterparties, exchanges and clearing houses.
In
 
assessing
 
whether
 
UBS AG
 
intends
 
to
 
either
 
settle
 
on
 
a
 
net
 
basis,
 
or
 
to
 
realize
 
the
 
asset
 
and
 
settle
 
the
 
liability
simultaneously, emphasis is
 
placed on the effectiveness
 
of operational settlement
 
mechanics in eliminating
 
substantially
all credit and liquidity exposure between the counterparties. This condition precludes offsetting
 
on the balance sheet for
substantial amounts of UBS AG’s financial assets
 
and liabilities, even though they may be
 
subject to enforceable netting
arrangements. Repurchase arrangements
 
and securities financing transactions
 
are presented net
 
only to the extent
 
that
the settlement
 
mechanism
 
eliminates, or
 
results in
 
insignificant, credit
 
and liquidity
 
risk, and
 
processes the
 
receivables
and payables in a single settlement process or cycle.
›
Refer to Note 21
for more information
 
 i 
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
 
within
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
 
and reclassified
 
to
Interest
 
income
from financial
 
instruments measured
 
at amortized
 
cost and
 
fair value
 
through other
 
comprehensive income
 
or
Interest
expense
 
from
 
financial
 
instruments
 
measured
 
at
 
amortized
 
cost
 
in
 
the
 
periods
 
when
 
the
 
hedged
 
forecast
 
cash
 
flows
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
 
within
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
 
associated with
the entity
is reclassified to
Other income
.
Interest Rate Benchmark Reform
 
UBS AG
 
continued
 
hedge
 
accounting
 
during
 
the
 
period
 
of uncertainty
 
before
 
existing
 
interest
 
rate
 
benchmarks
 
were
replaced with
 
alternative risk-free
 
interest rates. During
 
this period, UBS AG
 
assumed that
 
the current
 
benchmark rates
would continue to
 
exist, such that
 
forecast transactions were considered highly probable and
 
hedge relationships remain,
with little or
 
no consequential impact on
 
the financial statements. Upon
 
replacement of existing interest rate benchmarks
by alternative risk-free interest
 
rates, UBS AG applied the
 
requirements of
Amendments to IFRS 9, IAS 39,
 
IFRS 7, IFRS 4
and IFRS 16 (Interest Rate Benchmark Reform – Phase 2)
, where applicable
.
›
Refer to Note 25 for more information
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
152
Note 1
 
Summary of material accounting policies (continued)
 i 
3) Fee and commission income and expenses
UBS AG earns fee income from the diverse range of services it provides to its clients. Fee income can be divided into two
broad
 
categories:
 
fees
 
earned from
 
services
 
that
 
are
 
provided
 
over
 
a
 
certain
 
period
 
of time,
 
such
 
as
 
management
 
of
clients’ assets, custody services
 
and certain advisory
 
services; and fees
 
earned from PIT services,
 
such as underwriting fees,
deal-contingent merger and acquisitions
 
fees, and brokerage fees (e.g.,
 
securities and derivatives execution
 
and clearing).
UBS AG recognizes fees earned from PIT services
 
when it has fully provided the service
 
to the client. Where the contract
requires services to be provided
 
over time, income is recognized on a systematic
 
basis over the life of the agreement.
Consideration
 
received
 
is allocated
 
to the
 
separately
 
identifiable performance
 
obligations
 
in a
 
contract.
 
Owing to
 
the
nature
 
of
 
UBS AG’s
 
business,
 
contracts
 
that
 
include
 
multiple
 
performance
 
obligations
 
are
 
typically
 
those
 
that
 
are
considered to include a
 
series of similar performance
 
obligations fulfilled over time
 
with the same pattern
 
of transfer to
the client, e.g., management
 
of client assets and
 
custodial services. As
 
a consequence, UBS AG
 
is not required to
 
apply
significant judgment in allocating the consideration received
 
across the various performance obligations.
PIT services
 
are generally
 
for a
 
fixed price
 
or dependent
 
on deal size,
 
e.g., a
 
fixed number
 
of basis
 
points of trade
 
size,
where the amount of revenue is known when the performance obligation is met. Fixed-over-time fees are recognized on
a straight-line
 
basis over
 
the performance period.
 
Custodial and asset
 
management fees
 
can be
 
variable through
 
reference
to
 
the
 
size
 
of
 
the
 
customer
 
portfolio.
 
However,
 
they
 
are
 
generally
 
billed
 
on
 
a
 
monthly
 
or
 
quarterly
 
basis
 
once
 
the
customer’s
 
portfolio
 
size
 
is
 
known
 
or
 
known
 
with
 
near
 
certainty
 
and
 
therefore
 
also
 
recognized
 
ratably
 
over
 
the
performance
 
period.
 
UBS AG
 
does
 
not
 
recognize
 
performance
 
fees
 
related
 
to
 
management
 
of
 
clients’
 
assets
 
or
 
fees
related to contingencies beyond UBS AG’s control until such
 
uncertainties are resolved.
 
UBS AG’s fees are generally earned from
 
short-term contracts. As a result, UBS AG’s contracts do
 
not include a financing
component or
 
result in
 
the recognition
 
of significant
 
receivables or
 
prepayment assets.
 
Furthermore, due
 
to the
 
short-
term nature of such contracts,
 
UBS AG has not capitalized
 
any material costs to
 
obtain or fulfill a contract
 
or generated
any significant contract assets or liabilities.
UBS AG presents expenses primarily in
 
line with their nature in the
 
income statement, differentiating between
 
expenses
that
 
are
 
directly
 
attributable
 
to the
 
satisfaction
 
of
 
specific
 
performance
 
obligations
 
associated
 
with
 
the
 
generation
 
of
revenues, which are generally
 
presented within
Total revenues
 
as
Fee and commission expense
, and those
 
that are related
to
 
personnel,
 
general
 
and
 
administrative
 
expenses,
 
or
 
depreciation
 
and
 
amortization
 
which
 
are
 
presented
 
within
Operating expenses
. For
 
derivatives execution and
 
clearing services (where
 
UBS AG acts
 
as an
 
agent), UBS AG
 
only records
its specific
 
fees in
 
the income
 
statement, with
 
fees payable
 
to other
 
parties not
 
recognized as
 
an expense
 
but instead
directly offset against the associated income collected from the given
 
client.
›
Refer to Note 4 for more information, including the
 
disaggregation of revenues
 i 
4) Share-based and other deferred compensation plans
UBS AG recognizes expenses for deferred compensation awards over the period that the
 
employee is required to provide
service to
 
become entitled
 
to the
 
award. Where
 
the service
 
period is
 
shortened, for
 
example in
 
the case
 
of employees
affected by restructuring programs or mutually agreed termination provisions, recognition of such expense is accelerated
to the
 
termination date.
 
Where no
 
future service
 
is required,
 
such as
 
for employees
 
who are
 
eligible for
 
retirement
 
or
who
 
have
 
met
 
certain
 
age
 
and
 
length-of-service
 
criteria,
 
the
 
services
 
are
 
presumed
 
to
 
have
 
been
 
received
 
and
compensation expense is
 
recognized over the
 
performance year or,
 
in the case of
 
off-cycle awards,
 
immediately on the
grant date.
Share-based compensation plans
UBS Group AG is the
 
grantor of and maintains the
 
obligation to settle share-based compensation plans that
 
are awarded
to employees
 
of UBS
 
AG. As
 
a consequence,
 
UBS AG
 
classifies the
 
awards
 
of UBS
 
Group
 
AG shares
 
as equity-settled
share-based payment transactions. UBS AG recognizes
 
the fair value of awards granted to its employees by reference
 
to
the fair value of UBS Group
 
AG’s equity instruments on the date of
 
grant, taking into account the terms and
 
conditions
inherent in the award,
 
including, where relevant,
 
dividend rights, transfer
 
restrictions in effect
 
beyond the vesting date,
market conditions, and non-vesting conditions.
 
For equity-settled awards,
 
fair value is
 
not remeasured unless the
 
terms of the award
 
are modified such that
 
there is an
incremental
 
increase
 
in
 
value.
 
Expenses
 
are
 
recognized,
 
on
 
a
 
per-tranche
 
basis,
 
over
 
the
 
service
 
period
 
based
 
on
 
an
estimate of
 
the number
 
of instruments
 
expected to
 
vest and
 
are adjusted
 
to reflect
 
the actual
 
outcomes of
 
service or
performance conditions.
 
For equity-settled
 
awards, forfeiture
 
events resulting
 
from a
 
breach of
 
a non-vesting
 
condition (i.e.,
 
one that
 
does not
relate to a service or performance condition) do not result
 
in any adjustment to the share-based compensation
 
expense.
For cash-settled
 
share-based
 
awards,
 
fair
 
value
 
is remeasured
 
at
 
each
 
reporting
 
date,
 
so that
 
the
 
cumulative
 
expense
recognized equals the cash distributed.
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
153
Note 1
 
Summary of material accounting policies (continued)
 
 
 
 
 
 
 
 
 
Other deferred compensation plans
Compensation
 
expense
 
for
 
other
 
deferred
 
compensation
 
plans
 
is
 
recognized
 
on
 
a
 
per-tranche
 
or
 
straight-line
 
basis,
depending on
 
the nature
 
of the
 
plan. The
 
amount recognized
 
is measured
 
based on
 
the present
 
value of
 
the amount
expected to be paid under the
 
plan and is remeasured at each reporting date, so
 
that the cumulative expense recognized
equals the cash or the fair value of respective financial
 
instruments distributed.
›
Refer to Note 27 for more information
 i 
 
5) Post-employment benefit plans
Defined benefit plans
Defined benefit plans specify an amount of benefit
 
that an employee will receive, which usually depends on one or
 
more
factors,
 
such as age,
 
years of service
 
and compensation.
 
The defined benefit
 
liability recognized
 
in the balance
 
sheet is
the present value of the
 
defined benefit obligation,
 
measured using the projected
 
unit credit method, less the
 
fair value
of the
 
plan’s assets
 
at
 
the
 
balance
 
sheet
 
date,
 
with changes
 
resulting
 
from
 
remeasurements
 
recorded
 
immediately
 
in
Other comprehensive income
. If the fair value of the plan’s assets is higher than the present value of the defined benefit
obligation, the recognition of
 
the resulting net asset is limited
 
to the present value of
 
economic benefits available in the
form of
 
refunds from
 
the plan
 
or reductions
 
in future
 
contributions to
 
the plan.
 
Calculation of
 
the net
 
defined benefit
obligation or
 
asset takes
 
into account
 
the specific
 
features of
 
each plan,
 
including risk
 
sharing between
 
employee and
employer, and
 
is calculated periodically by independent qualified actuaries.
Critical accounting estimates and judgments
The net defined benefit
 
liability or asset at
 
the balance sheet date
 
and the related personnel
 
expense depend on the
 
expected future benefits to
 
be provided,
determined
 
using
 
a
 
number
 
of
 
economic
 
and
 
demographic assumptions.
 
A
 
range
 
of
 
assumptions
 
could
 
be
 
applied,
 
and
 
different
 
assumptions could
significantly alter the defined
 
benefit liability or asset and
 
pension expense recognized. The most
 
significant assumptions include life expectancy,
 
discount
rate, expected
 
salary increases,
 
pension increases
 
and interest
 
credits on
 
retirement savings
 
account balances. Sensitivity
 
analysis for
 
reasonable possible
movements in each significant assumption for
 
UBS AG‘s post-employment obligations
 
is provided in Note 26.
›
Refer to Note 26
for more information
Defined contribution plans
A
 
defined
 
contribution
 
plan
 
pays
 
fixed
 
contributions
 
into
 
a
 
separate
 
entity
 
from
 
which
 
post-employment
 
and
 
other
benefits
 
are
 
paid.
 
UBS AG
 
has
 
no
 
legal
 
or
 
constructive
 
obligation
 
to
 
pay
 
further
 
amounts
 
if
 
the
 
plan
 
does
 
not
 
hold
sufficient
 
assets
 
to
 
pay
 
employees
 
the
 
benefits
 
relating
 
to
 
employee
 
service
 
in
 
the
 
current
 
and
 
prior
 
periods.
Compensation expense is
 
recognized when the
 
employees have rendered
 
services in exchange for
 
contributions. This is
generally in the year of contribution. Prepaid contributions are recognized as an asset to the extent that a cash refund or
a reduction in future payments is available.
 i 
6) Income taxes
UBS AG is subject
 
to the income
 
tax laws of
 
Switzerland and
 
those of the
 
non-Swiss jurisdictions
 
in which UBS AG
 
has
business operations.
UBS AG’s provision for income taxes is composed of current and deferred taxes. Current income taxes represent taxes to
be paid or refunded for the current period or previous periods
 
.
 
Deferred tax assets
 
(DTAs) and
 
deferred tax liabilities
 
(DTLs) are
 
recognized for
 
temporary differences between
 
the carrying
amounts and
 
tax bases
 
of assets
 
and liabilities
 
that will
 
result in
 
deductible
 
or taxable
 
amounts,
 
respectively
 
in future
periods. DTAs may also arise
 
from other sources, including unused
 
tax losses and unused tax
 
credits. DTAs and DTLs are
measured using
 
the applicable
 
tax rates
 
and laws
 
that
 
have been
 
enacted
 
or substantively
 
enacted
 
by the
 
end of
 
the
reporting period and that will be in effect when such differences
 
are expected to reverse.
DTAs are recognized
 
only to the extent
 
it is probable
 
that sufficient taxable
 
profits will be
 
available against which
 
these
differences can
 
be used
 
.
 
When an
 
entity
 
or tax
 
group has
 
a history
 
of recent
 
losses, DTAs
 
are only
 
recognized
 
to the
extent that there are sufficient taxable temporary differences or there is convincing other evidence that sufficient taxable
profit will be available against which the unused tax losses
 
can be utilized.
Deferred and current tax
 
assets and liabilities are
 
offset when: (i) they arise
 
in the same tax
 
reporting group; (ii) they relate
to the
 
same tax
 
authority; (iii) the
 
legal right
 
to offset
 
exists; and
 
(iv) with respect
 
to current
 
taxes they
 
are intended
 
to
be settled net or realized simultaneously.
Current and deferred taxes are recognized as income tax benefit or expense
 
in the income statement, except for current
and deferred taxes recognized in relation to: (i)
 
the acquisition of a subsidiary (for which
 
such amounts would affect the
amount of goodwill arising from the acquisition); (ii) unrealized gains or losses on
 
financial instruments that are classified
at
 
FVOCI;
 
(iii) changes
 
in
 
fair
 
value
 
of
 
derivative
 
instruments
 
designated
 
as
 
cash
 
flow
 
hedges;
 
(iv) remeasurements
 
of
defined benefit
 
plans; or
 
(v) certain
 
foreign currency
 
translations
 
of foreign
 
operations.
 
Amounts relating
 
to points
 
(ii)
through (v) above are recognized in
Other comprehensive income
 
within
Equity
.
 
 
 
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
154
Note 1
 
Summary of material accounting policies (continued)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
UBS AG reflects the
 
potential effect of
 
uncertain tax positions
 
for which acceptance
 
by the relevant
 
tax authority is
 
not
considered probable by
 
adjusting current or deferred
 
taxes, as applicable, using
 
either the most
 
likely amount or
 
expected
value methods,
 
depending on which
 
method is
 
deemed a better
 
predictor of the
 
basis on which,
 
and extent
 
to which,
the uncertainty will be resolved.
 
Critical accounting estimates and judgments
Tax laws are complex,
 
and judgment
 
and interpretations
 
about the
 
application of
 
such laws
 
are required when
 
accounting for
 
income taxes.
 
UBS AG considers
the performance of
 
its businesses and
 
the accuracy of
 
historical forecasts and
 
other factors when
 
evaluating the
 
recoverability of its
 
DTAs, including
 
the
remaining tax loss carry-forward period, and its
 
assessment of expected future taxable profits in
 
the forecast period used for recognizing DTAs.
 
Estimating
future profitability and business plan forecasts is inherently subjective
 
and is particularly sensitive to future economic,
 
market and other conditions.
 
Forecasts are
 
reviewed annually,
 
but adjustments may be
 
made at other
 
times, if required.
 
If recent losses
 
have been incurred,
 
convincing evidence is
required to prove there is sufficient future profitability
 
given that the value of
 
UBS AG’s DTAs may be affected, with
 
effects primarily recognized through the
income statement.
In addition, judgment is
 
required to assess the expected
 
value of uncertain tax
 
positions and the related
 
probabilities, including interpretation
 
of tax laws,
the resolution of any income tax-related appeals and litigation.
 
›
Refer to Note 8 for more information
 
 i 
7) Investments in associates
Interests in entities where UBS AG has significant influence
 
over the financial and operating policies of these entities but
does
 
not
 
have
 
control
 
are
 
classified
 
as
 
investments
 
in
 
associates
 
and
 
accounted
 
for
 
under
 
the
 
equity
 
method
 
of
accounting. Typically,
 
UBS AG has significant influence when it holds, or has the ability to hold, between 20% and 50%
of an entity’s voting rights. Investments
 
in associates are initially recognized at cost, and the
 
carrying amount is increased
or decreased after the date of acquisition
 
to recognize UBS AG’s share
 
of the investee’s comprehensive income
 
and any
impairment losses.
 
The net
 
investment in
 
an associate
 
is impaired
 
if there
 
is objective
 
evidence of
 
a loss
 
event and
 
the
carrying amount of the investment in the associate exceeds
 
its recoverable amount.
›
Refer to Note 28 for more information
 i 
8) Property, equipment and software
Property,
 
equipment and
 
software
 
is measured
 
at cost
 
less accumulated
 
depreciation and
 
impairment losses.
 
Software
development costs are capitalized
 
only when the costs can be measured
 
reliably and it is probable
 
that future economic
benefits
 
will
 
arise.
 
Depreciation
 
of
 
property,
 
equipment
 
and
 
software
 
begins
 
when
 
they
 
are
 
available
 
for
 
use
 
and
 
is
calculated on a straight-line basis over an asset’s estimated
 
useful life.
 
Property,
 
equipment
 
and
 
software
 
are
 
generally
 
tested
 
for
 
impairment
 
at
 
the
 
appropriate
 
cash-generating
 
unit
 
level,
alongside goodwill and intangible assets as
 
described in item 9 in this Note.
 
An impairment charge is recognized for
 
such
assets
 
if
 
the
 
recoverable
 
amount
 
is
 
below
 
its
 
carrying
 
amount.
 
The
 
recoverable
 
amounts
 
of
 
such
 
assets,
 
other
 
than
property that has a
 
market price, are
 
generally determined using
 
a replacement cost
 
approach that reflects
 
the amount
that would be currently required by a market participant to replace the service capacity of the asset. If such assets are no
longer used, they are tested individually for impairment.
›
Refer to Note 11 for more information
 i 
 
9) Goodwill
Goodwill represents
 
the
 
excess
 
of
 
the
 
consideration over
 
the
 
fair
 
value
 
of
 
identifiable assets,
 
liabilities and
 
contingent
liabilities
 
acquired that
 
arises in
 
a business
 
combination.
 
Goodwill
 
is not
 
amortized
 
but is
 
assessed
 
for impairment
 
at the
 
end
of
 
each
 
reporting
 
period,
 
or when
 
indicators
 
of impairment
 
exist.
 
UBS AG
 
tests
 
goodwill
 
for impairment
 
annually,
 
irrespective
of whether there
 
is any indication
 
of impairment.
 
An impairment charge
 
is recognized in the income
 
statement if the carrying
 
amount exceeds the recoverable
 
amount of a
cash-generating-unit.
 
Critical accounting estimates and judgments
UBS AG‘s methodology for goodwill impairment
 
testing is based on a model
 
that is most sensitive to the
 
following key assumptions:
 
(i) forecasts of earnings
available to shareholders (typically estimated
 
on a discrete basis for years
 
one to three but could extend
 
up to five years, as permitted
 
under IFRS Accounting
Standards, in order to reflect facts and circumstances specific to a cash-generating
 
unit);
 
(ii) changes in the discount rates; and (iii) changes in
 
the long-term
growth rate.
 
Earnings available to shareholders are estimated on the basis of forecast results, which are part of the business plan approved by the BoD. The discount
rates and
 
growth rates
 
are determined
 
using external information,
 
and also
 
considering inputs from
 
both internal and
 
external analysts and
 
the view
 
of
management.
 
The key assumptions used to determine the recoverable amounts of each cash-generating unit are tested for sensitivity by
 
applying reasonably possible
changes to those assumptions.
 
›
Refer to Notes 2 and 12 for more information
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
155
Note 1
 
Summary of material accounting policies (continued)
 
 
 
 
 
 
 
 
 
 i 
 
10) Provisions and contingent liabilities
Provisions are
 
liabilities of
 
uncertain timing or
 
amount, and
 
are generally recognized
 
in accordance
 
with IAS 37,
Provisions,
Contingent Liabilities and Contingent
 
Assets
, when: (i) UBS AG has
 
a present obligation as
 
a result of a past event;
 
(ii) it
is probable that
 
an outflow of resources
 
will be required
 
to settle the obligation;
 
and (iii) a reliable
 
estimate of the
 
amount
of the obligation can be made.
 
The
 
majority
 
of
 
UBS AG’s
 
provisions
 
relate
 
to
 
litigation,
 
regulatory
 
and
 
similar
 
matters,
 
restructuring,
 
and
 
employee
benefits.
 
Restructuring
 
provisions
 
are
 
generally
 
recognized
 
as
 
a
 
consequence
 
of
 
management
 
agreeing
 
to
 
materially
change the scope of the business
 
or the manner in which it is conducted,
 
including changes in management structures.
Provisions
 
for
 
employee
 
benefits
 
relate
 
mainly
 
to
 
service
 
anniversaries
 
and
 
sabbatical
 
leave,
 
and
 
are
 
recognized
 
in
accordance with measurement principles set out in item 4 in this Note. In addition, UBS AG presents expected credit loss
allowances within
Provisions
 
if they
 
relate to
 
a loan commitment,
 
financial guarantee
 
contract or
 
a revolving revocable
credit line.
IAS 37 provisions
 
are measured considering
 
the best
 
estimate of
 
the consideration
 
required to
 
settle the
 
present obligation
at the balance sheet date.
 
When conditions required to recognize a provision are not met, a contingent liability is disclosed, unless the likelihood of
an outflow
 
of resources
 
is remote.
 
Contingent liabilities
 
are also
 
disclosed for
 
possible obligations
 
that arise
 
from past
events,
 
the existence of which
 
will be confirmed only
 
by uncertain future events not
 
wholly within the control
 
of UBS AG.
Critical accounting estimates and judgments
Recognition of provisions often involves significant judgment in assessing the existence of an obligation that results from past events and in
 
estimating the
probability, the timing and the amount of any outflows of resources. This is particularly the case for litigation, regulatory and similar matters, which, due to
their nature, are subject to many uncertainties,
 
making their outcome difficult to predict.
 
The amount of any provision
 
recognized is sensitive to the assumptions used,
 
and there could be a
 
wide range of possible outcomes for any
 
particular
matter.
Management regularly reviews all the available information regarding such matters, including legal advice, to assess whether the recognition criteria
 
for
provisions have been satisfied and to determine the
 
timing and the amount of any potential outflows.
›
Refer to Note 17 for more information
 i 
11) Foreign currency translation
Transactions
 
denominated in a foreign currency
 
are translated into the functional
 
currency of the reporting entity
 
at the
spot exchange
 
rate
 
on the
 
date of
 
the transaction.
 
At the
 
balance sheet
 
date, all
 
monetary
 
assets, including
 
those at
FVOCI, and
 
monetary
 
liabilities
 
denominated
 
in foreign
 
currency
 
are
 
translated
 
into
 
the functional
 
currency
 
using the
closing exchange rate. Translation
 
differences are
 
reported in
Other net income from
 
financial instruments measured
 
at
fair value through profit or loss
.
Non-monetary items measured at historical cost are translated
 
at the exchange rate on the date of the transaction.
 
Upon
 
consolidation,
 
assets
 
and liabilities
 
of foreign
 
operations
 
are translated
 
into
 
US dollars,
 
UBS AG’s
 
presentation
 
currency,
at the closing exchange rate on the balance sheet date,
 
and income and expense items and other comprehensive
 
income
are translated at the
 
average rate for
 
the period. The
 
resulting foreign currency translation differences are recognized in
Equity
 
and reclassified to
 
the income statement when UBS
 
AG disposes of, partially
 
or in its entirety, the
 
foreign operation
and UBS AG no
 
longer controls
 
the foreign operation.
Share
 
capital issued and share premium held are
 
translated at the historic average rate, with the
 
difference between the
historic average rate and the spot rate
 
realized upon repayment of share capital reported as
Share premium.
 
Cumulative
amounts recognized
 
in
Other comprehensive
 
income
 
in respect
 
of cash
 
flow hedges
 
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
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
156
 i 
 
 
Note 1
 
Summary of material accounting policies (continued)
b) Changes in accounting policies, comparability and
 
other adjustments
New or amended accounting standards
IFRS 17, Insurance Contracts
 
Effective
 
from
 
1 January
 
2023,
 
UBS AG
 
has
 
adopted
 
IFRS
 
17,
Insurance
 
Contracts
,
 
which
 
sets
 
out
 
the
 
accounting
requirements for contractual rights
 
and obligations that
 
arise from insurance contracts
 
issued and reinsurance contracts
held. The adoption
 
has had no
 
effect on UBS AG’s
 
financial statements. UBS
 
AG does not
 
provide insurance services
 
in
any market.
Amendments to IAS 12, Income Taxes
In May 2023, the IASB issued amendments to IAS 12,
Income Taxes
, in relation to top-up taxes on income under
 
Global
Anti-Base Erosion
 
Rules that is
 
imposed under
 
legislation that
 
has been enacted
 
or substantively enacted
 
to implement
the Pillar Two
 
model rules published by the Organisation for Economic
 
Co-operation and Development.
Certain countries in which UBS
 
AG operates had enacted such
 
legislation by 31 December 2023,
 
including Switzerland,
which introduced a tax with effect from 1 January 2024
 
that is expected to be a qualified domestic minimum
 
top-up tax,
and
 
other
 
countries
 
(including
 
Germany,
 
France
 
and
 
Italy)
 
also
 
introduced
 
top-up
 
taxes
 
in
 
respect
 
of
 
a
 
non-domestic
UBS AG’s worldwide operations with effect from 1 January 2025. Moreover, it is
 
expected that other countries will enact
such legislation in 2024.
The amendments to IAS
 
12 introduced an exception,
 
whereby deferred tax
 
assets and deferred tax
 
liabilities should not
be
 
recognized
 
or
 
disclosed
 
in
 
respect
 
of top-up taxes,
 
which
 
has
 
been
 
applied
 
for
 
the
 
purposes
 
of
 
these
 
financial
statements.
 
An assessment
 
was
 
performed
 
of UBS
 
AG’s potential
 
exposure
 
to top-up
 
taxes
 
under
 
legislation that
 
was
 
enacted
 
or
substantively
 
enacted
 
to
 
implement
 
the
 
Pillar
 
Two
 
model
 
rules
 
by
 
31 December
 
2023,
 
reflecting
 
country-by-country
reporting and, also,
 
the corporate
 
tax expenses of
 
UBS AG entities
 
for recent years
 
and those expected
 
in future
 
years.
This assessment
 
indicated that
 
UBS AG’s profits
 
in future
 
years are
 
expected to
 
be almost
 
entirely earned
 
in countries
with corporate
 
tax expenses
 
that are
 
at a
 
tax rate
 
of 15%
 
or more
 
and will
 
not, therefore,
 
be subject
 
to top-up
 
taxes.
Consequently, UBS AG
 
is not
 
expected to
 
have a
 
material annual
 
exposure to
 
top-up
 
taxes for
 
future years
 
under this
legislation.
 
 
 i 
 
c) IFRS Accounting Standards and Interpretations
 
to be adopted in 2024 and later and other changes
Other amendments to IFRS Accounting Standards
The IASB has issued
 
a number of
 
minor amendments to
 
IFRS Accounting Standards,
 
effective from
 
1 January 2024 and
later.
 
These amendments are not expected to have a significant
 
effect on UBS AG when they are
 
adopted.
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
157
 i 
Note 2a
 
Segment reporting
UBS AG’s
 
businesses
 
are
 
organized
 
globally
 
into
 
five
 
business
 
divisions:
 
Global
 
Wealth
 
Management,
 
Personal
 
&
Corporate Banking,
 
Asset Management,
 
the Investment
 
Bank, and
 
Non-core and
 
Legacy.
 
All five business
 
divisions are
supported
 
by
 
Group
 
Items
 
and
 
qualify
 
as
 
reportable
 
segments
 
for
 
the
 
purpose
 
of
 
segment
 
reporting.
 
Together
 
with
Group Items, the five business divisions reflect
 
the management structure of UBS AG.
–
Global Wealth
 
Management
 
provides financial
 
services, advice
 
and solutions
 
to private
 
wealth clients.
 
Its offering
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
 
serves
 
its
 
private,
 
corporate
 
and
 
institutional
 
clients’
 
needs,
 
from
 
banking
 
to
retirement, financing,
 
investments and
 
strategic transactions,
 
in Switzerland,
 
through its
 
branch network
 
and digital
channels.
–
Asset Management
 
is a global, large-scale
 
and diversified asset manager.
 
It offers investment capabilities
 
and styles
across
 
all
 
major
 
traditional
 
and
 
alternative
 
asset
 
classes,
 
as
 
well
 
as
 
advisory
 
support
 
to
 
institutions,
 
wholesale
intermediaries and wealth management clients.
 
–
The
Investment Bank
 
provides a range of
 
services to institutional,
 
corporate and wealth management
 
clients globally,
to
 
help
 
them
 
raise
 
capital,
 
grow
 
their
 
businesses,
 
invest
 
and
 
manage
 
risks.
 
Its
 
offering
 
includes
 
research,
 
advisory
services, facilitating clients raising debt
 
and equity from the public
 
and private markets and capital
 
markets, cash and
derivatives trading across equities and fixed income, and
 
financing.
 
–
Non-core and Legacy
 
includes positions and
 
businesses not aligned with
 
our strategy and
 
policies previously reported
in Group Functions
 
and smaller amounts of
 
assets and liabilities of
 
UBS AG’s business
 
divisions that have
 
been assessed
as not strategic in light of the acquisition of the Credit Suisse
 
Group.
–
Our Group functions are
 
support and control functions
 
that provide services to
 
the Group. Virtually
 
all costs incurred
by the support and control functions are allocated to
 
the business divisions, leaving a residual amount that we refer to
as
Group Items
 
in our segment reporting.
 
Group functions is made
 
up of the following
 
major areas: Group Services
(which
 
consists
 
of
 
the
 
Group
 
Operations
 
and
 
Technology
 
Office,
 
Corporate
 
Services,
 
Compliance,
 
Regulatory
 
&
Governance,
 
Finance,
 
Risk
 
Control,
 
Human
 
Resources,
 
Communications
 
&
 
Branding,
 
Legal,
 
the
 
Group
 
Integration
Office, Group Sustainability and Impact, and Chief Strategy
 
Office) and Group Treasury.
Financial information about
 
the five business divisions
 
and Group Items
 
is presented separately
 
in internal management
reports to the Executive Board,
 
which is considered the
 
“chief operating decision-maker”
 
pursuant to IFRS 8,
Operating
Segments
.
UBS AG’s
 
internal
 
accounting
 
policies,
 
which
 
include
 
management
 
accounting
 
policies
 
and
 
service-level
 
agreements,
determine
 
the
 
revenues
 
and
 
expenses
 
directly
 
attributable
 
to
 
each
 
reportable
 
segment.
 
Transactions
 
between
 
the
reportable segments are carried out at internally agreed rates and are
 
reflected in the operating results of the reportable
segments.
 
Revenue-sharing
 
agreements
 
are
 
used
 
to
 
allocate
 
external
 
client
 
revenues
 
to
 
reportable
 
segments
 
where
several
 
reportable
 
segments
 
are
 
involved
 
in
 
the
 
value
 
creation
 
chain.
 
Total
 
intersegment
 
revenues
 
for
 
UBS AG
 
are
immaterial, as the majority of the
 
revenues are allocated across the segments by
 
means of revenue-sharing agreements.
Interest income earned
 
from managing UBS
 
AG’s consolidated
 
equity is allocated
 
to the reportable
 
segments based on
average attributed equity and currency composition. Assets and
 
liabilities of the reportable segments are funded
 
through
and invested with Group functions, and the net interest
 
margin is reflected in the results of each reportable segment.
Segment
 
assets
 
are
 
based
 
on
 
a
 
third-party
 
view
 
and
 
do
 
not
 
include
 
intercompany
 
balances.
 
This
 
view
 
is
 
in
 
line
 
with
internal reporting to management. If one operating segment is involved in
 
an external transaction together with another
operating segment
 
or Group
 
function, additional
 
criteria are
 
considered to
 
determine the
 
segment that
 
will report
 
the
associated
 
assets.
 
This
 
will
 
include
 
a
 
consideration
 
of
 
which
 
segment’s
 
business
 
needs
 
are
 
being
 
addressed
 
by
 
the
transaction
 
and
 
which
 
segment
 
is
 
providing
 
the
 
funding
 
and
 
/
 
or
 
resources.
 
Allocation
 
of
 
liabilities
 
follows
 
the
 
same
principles.
Non-current assets
 
disclosed
 
for segment
 
reporting purposes
 
represent assets
 
that are
 
expected to
 
be recovered
 
more
than
 
12
 
months
 
after
 
the
 
reporting
 
date,
 
excluding
 
financial
 
instruments,
 
deferred
 
tax
 
assets
 
and
 
post-employment
benefits.
 
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
158
Note 2a
 
Segment reporting (continued)
 i 
 
 
 
 
 
 
 
 
 
 
 
 
USD m
Global Wealth
Management
Personal &
Corporate
Banking
Asset
 
Management
Investment
Bank
Non-core and
Legacy
1
Group
 
Items
1
UBS AG
For the year ended 31 December 2023
Net interest income
 i 5,436
 i 3,128
( i 39)
( i 2,612)
 i 25
( i 1,372)
 i 4,566
Non-interest income
 i 13,194
 i 2,158
 i 2,108
 i 10,371
 i 34
 i 1,244
 i 29,109
Total revenues
 i 18,631
 i 5,285
 i 2,069
 i 7,759
 i 59
( i 128)
 i 33,675
Credit loss expense / (release)
 i 25
 i 50
( i 1)
 i 67
 i 1
 i 1
 i 143
Operating expenses
 i 14,900
 i 2,889
 i 1,706
 i 7,588
 i 1,010
 i 919
 i 29,011
Operating profit / (loss) before tax
 i 3,705
 i 2,346
 i 364
 i 104
( i 952)
( i 1,048)
 i 4,521
Tax expense / (benefit)
 i 1,206
Net profit / (loss)
 i 3,315
Additional information
Total assets
 i 369,176
 i 257,068
 i 19,662
 i 381,023
 i 13,845
 i 115,242
 i 1,156,016
Additions to non-current assets
 i 666
 i 219
 i 70
 i 445
 i 0
 i 0
 i 1,400
 / 
 
 
 
 
 
 
 
 
 
 
 
 
USD m
Global Wealth
Management
Personal &
Corporate
Banking
Asset
 
Management
Investment
Bank
Non-core and
Legacy
1
Group
 
Items
1
UBS AG
For the year ended 31 December 2022
Net interest income
 i 5,274
 i 2,192
( i 19)
( i 241)
 i 1
( i 690)
 i 6,517
Non-interest income
 i 13,689
 i 2,113
 i 2,980
2
 i 8,958
 i 236
 i 423
 i 28,398
Total revenues
 i 18,963
 i 4,304
 i 2,961
 i 8,717
 i 237
( i 267)
 i 34,915
Credit loss expense / (release)
 i 0
 i 39
 i 0
( i 12)
 i 2
 i 0
 i 29
Operating expenses
 i 14,069
 i 2,475
 i 1,565
 i 6,890
 i 104
 i 823
 i 25,927
Operating profit / (loss) before tax
 i 4,894
 i 1,790
 i 1,396
 i 1,839
 i 131
( i 1,091)
 i 8,960
Tax expense / (benefit)
 i 1,844
Net profit / (loss)
 i 7,116
Additional information
Total assets
 i 388,624
 i 235,330
 i 16,971
 i 391,495
 i 13,367
 i 59,649
 i 1,105,436
Additions to non-current assets
 i 42
 i 13
 i 1
 i 33
 i 0
 i 1,773
 i 1,862
 
 
 
 
 
 
 
 
 
 
 
 
 
USD m
Global Wealth
Management
Personal &
Corporate
Banking
Asset
 
Management
Investment
Bank
Non-core and
Legacy
1
Group
Items
1
UBS AG
For the year ended 31 December 2021
Net interest income
 i 4,244
 i 2,120
( i 15)
 i 481
( i 11)
( i 215)
 i 6,605
Non-interest income
 i 15,175
 i 2,144
 i 2,632
 i 8,978
 i 70
 i 224
 i 29,222
Total revenues
 i 19,419
 i 4,264
 i 2,617
 i 9,459
 i 60
 i 9
 i 35,828
Credit loss expense / (release)
( i 29)
( i 86)
 i 1
( i 34)
 i 0
 i 0
( i 148)
Operating expenses
 i 14,743
 i 2,623
 i 1,593
 i 6,902
 i 138
 i 1,014
 i 27,012
Operating profit / (loss) before tax
 i 4,706
 i 1,726
 i 1,023
 i 2,592
( i 78)
( i 1,005)
 i 8,964
Tax expense / (benefit)
 i 1,903
Net profit / (loss)
 i 7,061
Additional information
Total assets
3
 i 395,235
 i 225,425
 i 25,202
 i 346,641
 i 25,153
 i 98,488
 i 1,116,145
Additions to non-current assets
 i 56
 i 16
 i 1
 i 30
 i 0
 i 1,689
 i 1,791
1 As of or for the year ended 31 December 2023, Non-core and Legacy (previously reported within Group Functions) became a separate reportable segment and Group Functions has been renamed Group Items. Prior
periods have been revised to reflect these changes.
 
2 Includes an USD
 i 848
m gain in Asset Management related to the sale of
 
UBS AG‘s shareholding in Mitsubishi Corp.-UBS
 
Realty Inc.
 
3 During 2022, UBS AG
refined the methodology applied to allocate balance
 
sheet resources from Group Items to the business
 
divisions, with prospective effect. If the
 
new methodology had been applied as
 
of 31 December 2021, balance
sheet assets allocated to business divisions would have been USD
 i 26
bn higher, of which USD
 i 14
bn would have related to the Investment Bank.
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
159
Note 2b
 
Segment reporting by geographic location
The
 
operating
 
regions
 
shown
 
in
 
the
 
table
 
below
 
correspond
 
to
 
the
 
regional
 
management
 
structure
 
of
 
UBS AG.
 
The
allocation of total revenues to these
 
regions reflects, and is consistent with, the
 
basis on which the business is managed
and its performance
 
is evaluated.
 
These allocations
 
involve assumptions
 
and judgments
 
that management
 
considers to
be reasonable, and may
 
be refined to reflect
 
changes in estimates or
 
management structure. The
 
main principles of the
allocation methodology are
 
that client revenues
 
are attributed to
 
the domicile of
 
the given client
 
and trading and
 
portfolio
management
 
revenues are
 
attributed
 
to the
 
country where
 
the risk
 
is managed.
 
This
 
revenue attribution
 
is consistent
with the mandate
 
of the regional Presidents.
 
Certain revenues, such
 
as those related
 
to Non-core and
 
Legacy Portfolio,
are managed at a Group level. These revenues are included
 
in the
Global
 
line.
The geographic analysis
 
of non-current assets
 
is based on
 
the location of
 
the entity in
 
which the given
 
assets are recorded.
 
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the year ended 31 December 2023
Total revenues
Total non-current assets
USD bn
Share %
USD bn
Share %
 
Americas
1
 i 13.3
 i 39
 i 8.6
 i 47
Asia Pacific
 i 5.2
 i 15
 i 1.2
 i 7
Europe, Middle East and Africa (excluding Switzerland)
 i 6.1
 i 18
 i 2.6
 i 14
Switzerland
 i 9.2
 i 27
 i 5.9
 i 32
Global
( i 0.1)
 i 0
 i 0.0
 i 0
Total
 i 33.7
 i 100
 i 18.3
 i 100
For the year ended 31 December 2022
Total revenues
Total non-current assets
USD bn
Share %
USD bn
Share %
 
Americas
1
 i 13.8
 i 40
 i 9.0
 i 48
Asia Pacific
 i 5.6
 i 16
 i 1.5
 i 8
Europe, Middle East and Africa (excluding Switzerland)
 i 7.0
 i 20
 i 2.6
 i 14
Switzerland
 i 7.7
 i 22
 i 5.6
 i 30
Global
 i 0.8
 i 2
 i 0.0
 i 0
Total
 i 34.9
 i 100
 i 18.7
 i 100
For the year ended 31 December 2021
Total revenues
Total non-current assets
USD bn
Share %
USD bn
Share %
 
Americas
1
 i 14.5
 i 40
 i 9.0
 i 47
Asia Pacific
 i 6.5
 i 18
 i 1.4
 i 7
Europe, Middle East and Africa (excluding Switzerland)
 i 7.0
 i 20
 i 2.6
 i 13
Switzerland
 i 7.8
 i 22
 i 6.3
 i 33
Global
 i 0.1
 i 0
 i 0.0
 i 0
Total
 i 35.8
 i 100
 i 19.3
 i 100
1 Predominantly related to the US.
 / 
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
160
Income statement notes
 i 
Note 3
 
Net interest
 
income and other
 
net income from
 
financial instruments
 
measured at fair
 
value through
profit or loss
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the year ended
USD m
31.12.23
31.12.22
31.12.21
Net interest income from financial instruments measured
 
at fair value through profit or loss and other
 i 1,765
 i 1,410
 i 1,437
Other net income from financial instruments measured
 
at fair value through profit or loss
1
 i 9,934
 i 7,493
 i 5,844
Total net income from financial instruments measured at fair value through profit or loss and
 
other
 i 11,698
 i 8,903
 i 7,281
Net interest income
Interest income from loans and deposits
2
 i 19,637
 i 9,634
 i 6,489
Interest income from securities financing transactions measured
 
at amortized cost
3
 i 3,450
 i 1,378
 i 513
Interest income from other financial instruments measured
 
at amortized cost
 i 1,152
 i 545
 i 284
Interest income from debt instruments measured at fair
 
value through other comprehensive income
 i 103
 i 74
 i 115
Interest resulting from derivative instruments designated as cash
 
flow hedges
( i 1,898)
 i 173
 i 1,133
Total interest income from financial instruments measured at amortized cost and fair
 
value through other comprehensive income
 i 22,444
 i 11,803
 i 8,534
Interest expense on loans and deposits
4
 i 14,977
 i 4,488
 i 1,655
Interest expense on securities financing transactions measured
 
at amortized cost
5
 i 1,714
 i 1,089
 i 1,102
Interest expense on debt issued
 i 2,855
 i 1,031
 i 512
Interest expense on lease liabilities
 i 97
 i 88
 i 98
Total interest expense from financial instruments measured at amortized cost
 i 19,643
 i 6,696
 i 3,366
Total net interest income from financial instruments measured at amortized cost and fair
 
value through other comprehensive income
 i 2,801
 i 5,108
 i 5,168
Total net interest income from financial instruments measured at fair value through profit or loss
 
and other
 i 1,765
 i 1,410
 i 1,437
Total net interest income
 i 4,566
 i 6,517
 i 6,605
1 Includes net losses from financial liabilities
 
designated at fair value of
 
USD
 i 4,065
m (net gains of USD
 i 17,036
m in 2022 and net losses
 
of USD
 i 6,457
m in 2021). This complementary
 
“of which” information for
financial liabilities designated at fair value excludes
 
fair value changes on hedges related to
 
financial liabilities designated at fair value, and foreign currency translation effects
 
arising from translating foreign currency
transactions into the respective
 
functional currency, both
 
of which are reported within
 
Other net income from financial
 
instruments measured at fair
 
value through profit or
 
loss. Net gains /
 
(losses) from financial
liabilities designated at fair value included net
 
losses of
 i 2,045
m (net gains of USD
 i 4,112
m and net losses of USD
 i 2,068
m in 2022 and 2021, respectively) from
 
financial liabilities related to unit-linked investment
notes issued by UBS AG’s Asset Management business. These gains /
 
(losses) are fully offset within Other net income from financial instruments measured at fair value through profit or loss by the fair value change
on the financial assets hedging the unit-linked investment contracts, which are not disclosed as part of Net gains / (losses) from financial liabilities designated at fair value.
 
2 Consists of interest income from cash
and balances at central banks, amounts due from banks and customers, and cash collateral receivables on derivative instruments, as well as negative interest on amounts due to banks, customer deposits, and
 
cash
collateral payables on derivative instruments.
 
3 Includes negative interest, including fees, on payables from
 
securities financing transactions measured at amortized cost.
 
4 Consists of interest expense on
 
amounts
due to banks, cash collateral payables on derivative instruments, customer deposits, and funding from UBS Group AG measured at amortized cost, as well as negative interest on cash and balances at central banks,
amounts due from banks, and cash collateral receivables on derivative instruments.
 
5 Includes negative interest, including fees, on receivables from securities financing transactions
 
measured at amortized cost.
 / 
 
 i 
Note 4
 
Net fee and commission income
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the year ended
USD m
31.12.23
31.12.22
31.12.21
Underwriting fees
 i 637
 i 633
 i 1,512
M&A and corporate finance fees
 i 669
 i 804
 i 1,102
Brokerage fees
 i 3,323
 i 3,487
 i 4,383
Investment fund fees
 i 4,730
 i 4,942
 i 5,790
Portfolio management and related services
 i 9,091
 i 9,059
 i 9,762
Other
 i 1,950
 i 1,921
 i 1,874
Total fee and commission income
1
 i 20,399
 i 20,846
 i 24,422
of which: recurring
 i 14,008
 i 14,229
 i 15,410
of which: transaction-based
 i 6,320
 i 6,550
 i 8,743
of which: performance-based
 i 71
 i 68
 i 269
Fee and commission expense
 i 1,790
 i 1,823
 i 1,985
Net fee and commission income
 i 18,610
 i 19,023
 i 22,438
1 For the
 
year ended 31 December
 
2023, reflects third-party
 
fee and commission
 
income of USD
 i 12,687
m for Global
 
Wealth Management, USD
 i 1,840
m for Personal
 
& Corporate Banking,
 
USD
 i 2,723
m for Asset
Management, USD
 i 3,153
m for the Investment Bank, USD
 i 7
m for Non-core and Legacy and negative USD
 i 11
m for Group Items (for the year ended 31 December 2022: USD
 i 12,990
m for Global Wealth Management,
USD
 i 1,657
m for
 
Personal
 
& Corporate
 
Banking,
 
USD
 i 2,840
m for
 
Asset Management,
 
USD
 i 3,350
m for
 
the Investment
 
Bank, USD
 i 0
m for
 
Non-core
 
and Legacy
 
and USD
 i 10
m for
 
Group Items;
 
for the
 
year
ended 31 December 2021: USD
 i 14,545
m for Global Wealth
 
Management, USD
 i 1,645
m for Personal
 
& Corporate Banking,
 
USD
 i 3,337
m for Asset Management,
 
USD
 i 4,863
m for the Investment
 
Bank, USD
 i 0
m for
Non-core and Legacy and USD
 i 33
m for Group Items). For the year ended 31 December
 
2023, Non-core and Legacy (previously reported within Group Functions)
 
represents a separate reportable segment and Group
Functions has been renamed Group Items. Prior periods have been revised to reflect these changes.
 / 
 
 
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
161
 i 
Note 5
 
Other income
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the year ended
USD m
31.12.23
31.12.22
31.12.21
Associates, joint ventures and subsidiaries
Net gains / (losses) from acquisitions and disposals of
 
subsidiaries
1
 i 24
 i 148
( i 11)
Net gains / (losses) from disposals of investments in associates
 
and joint ventures
 i 0
 i 844
2
 i 41
Share of net profits of associates and joint ventures
( i 163)
3
 i 32
 i 105
Total
( i 138)
 i 1,024
 i 134
Net gains / (losses) from disposals of financial assets measured
 
at fair value through other comprehensive income
( i 1)
( i 1)
 i 9
Income from properties
4
 i 18
 i 20
 i 22
Net gains / (losses) from properties held for sale
 i 8
 i 71
 i 100
5
Income from shared services provided to UBS Group AG or its subsidiaries
 i 568
 i 460
 i 451
Other
6
 i 112
 i 308
7
 i 224
8
Total other income
 i 566
 i 1,882
 i 941
1 Includes foreign exchange gains / (losses) reclassified
 
from other comprehensive income related to the
 
disposal or closure of foreign operations.
 
Refer to Note 29 for more information about
 
UBS AG’s acquisitions
and disposals of
 
subsidiaries and businesses.
 
2 Includes an USD
 i 848
m gain related
 
to the sale
 
of UBS AG’s
 
shareholding in Mitsubishi
 
Corp.-UBS Realty
 
Inc.
 
3 Includes a
 
USD
 i 255
m share of
 
proportionate
impairment losses reflected in the SIX Group profit
 
and loss, of which USD
 i 191
m reported in Personal
 
and Corporate Banking and USD
 i 64
m reported in Global Wealth Management.
 
4 Includes rent received from
third parties.
 
5 Mainly relates to the sale of a property in Basel.
 
6 Includes gains of USD
 i 21
m related to the repurchase of UBS AG‘s
 
own debt instruments (compared with a gain of USD
 i 23
m in 2022 and a loss
of USD
 i 17
m in 2021).
 
7 Mainly relates to a portion of the total USD
 i 133
m gain on the sale of UBS AG’s domestic wealth
 
management business in Spain of USD
 i 111
m (with the remaining amount disclosed within
Net gains / (losses) from acquisitions and disposals of subsidiaries) and income of USD
 i 111
m related to a legacy litigation settlement and a legacy bankruptcy claim.
 
8 Includes a gain of USD
 i 100
m from the sale of
UBS AG’s domestic wealth management business in Austria.
 / 
 
 i 
Note 6
 
Personnel expenses
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the year ended
USD m
31.12.23
31.12.22
31.12.21
Salaries
1
 i 5,898
 i 5,528
 i 5,723
Variable compensation
2
 i 7,669
 i 7,636
 i 7,973
of which: performance awards
 i 2,841
 i 2,910
 i 2,916
of which: financial advisors
3
 i 4,549
 i 4,508
 i 4,860
of which: other
 i 279
 i 217
 i 196
Contractors
 i 98
 i 119
 i 142
Social security
 i 835
 i 730
 i 762
Post-employment benefit plans
4
 i 579
 i 555
 i 582
of which: defined benefit plans
 i 259
 i 256
 i 280
of which: defined contribution plans
 i 320
 i 299
 i 303
Other personnel expenses
 i 576
 i 513
 i 479
Total personnel expenses
 i 15,655
 i 15,080
 i 15,661
1 Includes role-based
 
allowances.
 
2 Refer to
 
Note 27 for
 
more information.
 
3 Consists of
 
cash and deferred
 
compensation awards
 
and is based
 
on compensable
 
revenues and firm
 
tenure using a
 
formulaic
approach. It also
 
includes expenses
 
related to compe
 
nsation commitments
 
with financial advisors
 
entered into
 
at the time
 
of recruitment that
 
are subject
 
to vesting requirements.
 
4 Refer to Note
 
26 for
 
more
information. Includes curtailment
 
gains of USD
 i 3
m for the
 
year ended 31
 
December 2023 (for
 
the year ended
 
31 December 2022:
 
USD
 i 13
m; for the
 
year ended 31 December
 
2021: USD
 i 49
m), which represent a
reduction in the defined benefit obligation related to the Swiss pension plan resulting from a decrease in headcount following restructuring activities.
 / 
Personnel expenses increased by USD
 i 575
m to USD
 i 15,655
m and included integration-related expenses
 
of USD
 i 626
m.
 
 
 i 
Note 7
 
General and administrative expenses
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the year ended
USD m
31.12.23
31.12.22
31.12.21
Outsourcing costs
 i 478
 i 451
 i 426
Technology costs
 i 558
 i 502
 i 490
Consulting, legal and audit fees
 i 650
 i 494
 i 465
Real estate and logistics costs
 i 679
 i 507
 i 530
Market data services
 i 400
 i 367
 i 367
Marketing and communication
 i 209
 i 195
 i 171
Travel and entertainment
 i 205
 i 156
 i 66
Litigation, regulatory and similar matters
1
 i 816
 i 348
 i 910
Other
 i 7,123
 i 5,981
 i 6,051
of which: shared services costs charged by UBS Group AG or its subsidiaries
 i 6,203
 i 5,264
 i 5,321
Total general and administrative expenses
 i 11,118
 i 9,001
 i 9,476
1 Reflects the net increase, including recoveries from third parties, in provisions for litigation,
 
regulatory and similar matters recognized in the income statement. Refer to Note 17 for more information.
 / 
General
 
and
 
administrative
 
expenses
 
increased
 
by
 
USD
 i 2,117
m
 
to
 
USD
 i 11,118
m,
 
which
 
included
 
integration-related
expenses of USD
 i 491
m, largely reflected in higher consulting and
 
real estate costs.
 
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
162
 i 
Note 8
 
Income taxes
 i 
 
 
 
 
 
 
 
 
 
 
 
 
For the year ended
USD m
31.12.23
31.12.22
31.12.21
Tax expense / (benefit)
Swiss
Current
 i 810
 i 664
 i 614
Deferred
 i 39
( i 22)
 i 26
Total Swiss
 i 849
 i 642
 i 640
Non-Swiss
 
Current
 i 618
 i 689
 i 857
Deferred
( i 262)
 i 513
 i 406
Total non-Swiss
 i 356
 i 1,202
 i 1,263
Total income tax expense / (benefit) recognized in the income statement
 i 1,206
 i 1,844
 i 1,903
 / 
Income tax recognized in the income statement
The Swiss current tax expenses related to taxable profits
 
of UBS Switzerland AG and other Swiss entities.
The non-Swiss
 
current tax
 
expenses related
 
to expenses
 
of USD
 i 100
m in
 
respect of
 
US corporate
 
alternative minimum
tax (CAMT) and USD
 i 518
m in respect of other taxable profits of non-Swiss subsidiaries
 
and branches.
The non-Swiss net
 
deferred tax
 
benefit primarily related
 
to a benefit
 
of USD
 i 274
m in respect
 
of an increase
 
in deferred
tax assets (DTAs) that resulted
 
from an increase in the
 
expected value of future tax deductions
 
for deferred compensation
awards due to an increase in the Group’s share price during the year. In addition, the net deferred tax benefit included a
benefit
 
of USD
 i 100
m in
 
respect
 
of the
 
recognition of
 
DTAs for
 
tax
 
credits carried
 
forward
 
in respect
 
of CAMT.
 
These
benefits were partly offset by a net deferred tax expense of USD
 i 112
m that primarily related to the amortization of DTAs
previously recognized in relation to tax losses carried forward
 
.
Excluding any potential
 
effects from the
 
remeasurement of
 
DTAs in connection
 
with the business
 
planning process and
any material jurisdictional
 
statutory tax rate changes
 
that could be
 
enacted, UBS AG expects
 
a tax rate
 
for 2024 of
 
around
 i 24
%.
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the year ended
USD m
31.12.23
31.12.22
31.12.21
Operating profit / (loss) before tax
 i 4,521
 i 8,960
 i 8,964
of which: Swiss
 i 3,174
 i 4,052
 i 2,983
of which: non-Swiss
 i 1,347
 i 4,907
 i 5,981
Income taxes at Swiss tax rate of
 i 18.5
% for 2023,
 i 18
% for 2022 and
 i 18.5
% for 2021
 i 836
 i 1,613
 i 1,658
Increase / (decrease) resulting from:
Non-Swiss tax rates differing from Swiss tax rate
( i 43)
 i 267
 i 217
Tax effects of losses not recognized
 i 71
 i 74
 i 124
Previously unrecognized tax losses now utilized
( i 401)
( i 217)
( i 179)
Non-taxable and lower-taxed income
( i 165)
( i 316)
( i 252)
Non-deductible expenses and additional taxable income
 i 1,017
 i 414
 i 487
Adjustments related to prior years, current tax
( i 15)
( i 33)
( i 38)
Adjustments related to prior years, deferred tax
 i 10
 i 19
( i 3)
Change in deferred tax recognition
( i 273)
( i 217)
( i 341)
Adjustments to deferred tax balances arising from changes
 
in tax rates
 i 0
 i 0
( i 1)
Other items
 i 169
 i 240
 i 230
Income tax expense / (benefit)
 
 i 1,206
 i 1,844
 i 1,903
 / 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
163
Note 8
 
Income taxes (continued)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The components of
 
operating profit before tax,
 
and the differences between
 
income tax expense
 
reflected in the
 
financial
statements and the amounts calculated at the Swiss tax rate,
 
are provided in the table above and explained
 
below.
Component
Description
Non-Swiss tax rates
differing from the
Swiss tax rate
To the extent that UBS AG profits or losses arise outside Switzerland, the applicable local
 
tax rate may differ from the
Swiss tax rate. This item reflects, for such profits, an adjustment
 
from the tax expense that would arise at the
 
Swiss tax
rate to the tax expense that would arise at the
 
applicable local tax rate. Similarly, it reflects, for such losses, an adjustment
from the tax benefit that would arise at the Swiss
 
tax rate to the tax benefit that would arise
 
at the applicable local tax
rate.
Tax effects of losses
not recognized
This item relates to tax losses of entities arising in the
 
year that are not recognized as DTAs and where no tax benefit arises
in relation to those losses. Therefore, the tax benefit calculated
 
by applying the local tax rate to those losses
 
as described
above is reversed.
Previously
unrecognized tax losses
now utilized
This item relates to taxable profits of the year that are offset by tax losses
 
of previous years for which no DTAs were
previously recorded. Consequently, no current tax or deferred tax expense arises in relation to those taxable
 
profits and
the tax expense
 
calculated by applying the local tax rate on
 
those profits is reversed.
Non-taxable and lower-
taxed income
This item relates to tax deductions for the year in
 
respect of permanent differences. These include deductions in
 
respect of
profits that are either not taxable or are taxable at a lower rate of
 
tax than the local tax rate. They also include
 
deductions
made for tax purposes, which are not reflected in the
 
accounts.
Non-deductible
expenses and
additional taxable
income
This item relates to additional taxable income for
 
the year in respect of permanent differences. These include
 
income that
is recognized for tax purposes by an entity but is
 
not included in its profit that is reported in the financial
 
statements, as
well as expenses for the year that are non-deductible
 
(e.g., client entertainment costs are not deductible
 
in certain
locations).
Adjustments related to
prior years,
 
current tax
This item relates to adjustments to current tax expense for
 
prior years (e.g., if the tax payable for a year is
 
agreed with the
tax authorities in an amount that differs from the amount
 
previously reflected in the financial statements).
Adjustments related to
prior years,
 
deferred
tax
This item relates to adjustments to deferred tax positions
 
recognized in prior years (e.g., if a tax loss
 
for a year is fully
recognized and the amount of the tax loss agreed with
 
the tax authorities is expected to differ from the
 
amount previously
recognized as DTAs in the accounts).
Change in deferred tax
recognition
This item relates to changes in DTAs, including changes in DTAs previously recognized resulting from reassessments of
expected future taxable profits. It also includes changes
 
in temporary differences in the year, for which deferred tax is not
recognized.
Adjustments to
deferred tax balances
arising from changes in
tax rates
This item relates to remeasurements of DTAs and liabilities recognized due to changes
 
in tax rates. These have the effect
of changing the future tax saving that is expected from tax
 
losses or deductible tax differences and therefore the amount
of DTAs recognized or, alternatively,
 
changing the tax cost of additional taxable
 
income from taxable temporary
differences and therefore the deferred tax liability.
Other items
Other items include other differences between profits or losses
 
at the local tax rate and the actual local tax
 
expense or
benefit, including movements in provisions for uncertain
 
positions in relation to the current year and other items.
Income tax recognized directly in equity
A net tax expense of USD
 i 288
m was recognized in
Other comprehensive income
 
(2022: net benefit of USD
 i 1,095
m) and
a net tax benefit of USD
 i 12
m was recognized in
Share premium
 
(2022: net benefit of USD
 i 5
m).
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
164
Note 8
 
Income taxes (continued)
Deferred tax assets and liabilities
UBS AG has
 
gross
 
DTAs,
 
valuation
 
allowances
 
and recognized
 
DTAs
 
related
 
to tax
 
loss carry
 
-forwards
 
and deductible
temporary differences, as well as deferred tax liabilities in respect of taxable temporary differences, as shown in
 
the table
below.
 
The valuation
 
allowances reflect
 
DTAs
 
that were
 
not recognized
 
because, as
 
of the
 
last remeasurement
 
period,
management
 
did not
 
consider
 
it probable
 
that
 
there
 
would be
 
sufficient
 
future
 
taxable
 
profits
 
available
 
to utilize
 
the
related tax loss carry-forwards and deductible
 
temporary differences.
The recognition of DTAs is
 
supported by forecasts of taxable
 
profits for the entities concerned.
 
In addition, tax planning
opportunities are available that would
 
result in additional future taxable income
 
and these would be utilized,
 
if necessary.
Deferred tax
 
liabilities are recognized
 
in respect of
 
investments in subsidiaries,
 
branches and associates,
 
and interests in
joint arrangements,
 
except to
 
the extent
 
that UBS AG
 
can control
 
the timing
 
of the
 
reversal of
 
the associated
 
taxable
temporary difference, and it is probable that such will not reverse in
 
the foreseeable future. However, as of 31 December
2023, this exception was not considered to apply to any
 
taxable temporary differences.
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USD m
31.12.23
31.12.22
Deferred tax assets
1
Gross
Valuation
allowance
Recognized
Gross
Valuation
allowance
Recognized
Tax loss carry-forwards
 i 11,453
( i 8,496)
 i 2,957
 i 12,708
( i 8,720)
 i 3,988
Unused tax credits
 i 95
 i 0
 i 95
 i 0
 i 0
 i 0
Temporary differences
 i 6,771
( i 579)
 i 6,192
 i 5,774
( i 408)
 i 5,365
of which: related to real estate costs capitalized for US
 
tax
purposes
 i 2,703
 i 0
 i 2,703
 i 2,485
 i 0
 i 2,485
of which: related to compensation and benefits
 i 1,457
( i 205)
 i 1,252
 i 1,169
( i 175)
 i 993
of which: related to cash flow hedges
 i 619
 i 0
 i 619
 i 947
 i 0
 i 947
of which: other
 i 1,992
( i 374)
 i 1,618
 i 1,173
( i 233)
 i 940
Total deferred tax assets
 i 18,319
( i 9,076)
 i 9,244
2
 i 18,482
( i 9,128)
 i 9,354
2
of which: related to the US
 i 8,505
 i 8,294
of which: related to other locations
 i 739
 i 1,060
Deferred tax liabilities
Total deferred tax liabilities
 i 162
 i 233
1 After offset of DTLs, as applicable.
 
2 As of 31 December 2023, UBS AG recognized DTAs of USD
 i 408
m (31 December 2022: USD
 i 471
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.
 
 i 
 
 
 
 
 
 
 
 
 
 
 
Unrecognized tax loss carry-forwards
USD m
31.12.23
31.12.22
Within 1 year
 i 192
 i 231
From 2 to 5 years
 i 10,278
 i 2,184
From 6 to 10 years
 i 2,708
 i 11,106
From 11 to 20 years
 i 1,199
 i 1,610
No expiry
 i 16,252
 i 16,960
Total
 i 30,630
 i 32,091
of which: related to the US
1
 i 12,354
 i 13,350
of which: related to the UK
 i 14,333
 i 14,332
of which: related to other locations
 i 3,943
 i 4,409
1 Related to UBS AG’s US branch.
 / 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
165
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance sheet notes
Note 9
 
Financial assets at amortized cost and other positions
 
in scope of expected credit loss measurement
The tables
 
below provide
 
information about
 
financial instruments
 
and certain
 
credit
 
lines that
 
are
 
subject to
 
expected
credit loss (ECL
 
)
 
requirements.
 
UBS AG’s ECL
 
disclosure segments,
 
or “ECL segments”
 
are aggregated
 
portfolios based
on shared risk characteristics and on the
 
same or similar rating methods applied. The
 
key segments are presented in the
table below.
›
Refer to Note 19 for more information about expected
 
credit loss measurement
Segment
Segment description
Description of credit risk sensitivity
Business division
 
Private clients with
mortgages
Lending to private clients secured by
owner-occupied real estate and
personal account overdrafts of those
clients
Sensitive to the interest rate environment,
unemployment levels, real estate collateral
values and other regional aspects
 
–
Personal & Corporate Banking
–
Global Wealth Management
Real estate financing
Rental or income-producing real estate
financing to private and corporate
clients secured by real estate
Sensitive to unemployment
 
levels, the
interest rate environment, real estate
collateral values and other regional
aspects
 
–
Personal & Corporate Banking
–
Global Wealth Management
–
Investment Bank
Large corporate clients
Lending to large corporate and multi-
national clients
Sensitive to GDP developments,
unemployment levels, seasonality,
business cycles and collateral values
(diverse collateral,
 
including real estate
and other collateral types)
–
Personal & Corporate Banking
–
Investment Bank
SME clients
Lending to small and medium-sized
corporate clients
Sensitive to GDP developments,
unemployment levels, the interest rate
environment and, to some extent,
seasonality,
 
business cycles and collateral
values (diverse collateral,
 
including real
estate and other collateral types)
–
Personal & Corporate Banking
Lombard
Loans secured by pledges of marketable
securities, guarantees and other forms
of collateral (including concentration in
hedge funds, private equity and unlisted
equities), as well as unsecured recourse
lending
Sensitive to equity and debt markets (e.g.,
changes in collateral values)
–
Global Wealth Management
Credit cards
Credit card solutions in Switzerland and
the US
Sensitive to unemployment levels
–
Personal & Corporate Banking
–
Global Wealth Management
Commodity trade
finance
Working capital financing of commodity
traders, generally extended on a self-
liquidating transactional basis
Sensitive primarily to the strength of
individual transaction structures and
collateral values (price volatility of
commodities),
 
as the primary source for
debt service is directly linked to the
shipments financed
–
Personal & Corporate Banking
Financial intermediaries
and hedge funds
Lending to financial institutions and
pension funds, including exposures to
broker-dealers and clearing houses
Sensitive to GDP development, the
interest rate environment, price and
volatility risks in financial markets, and
regulatory and political risk
–
Personal & Corporate Banking
–
Investment Bank
›
Refer to Note 19f for more details regarding sensitivity
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
166
Note 9
 
Financial assets at amortized cost and other positions
 
in scope of expected credit loss measurement
(continued)
The tables
 
below provide
 
ECL exposure
 
and ECL
 
allowance and
 
provision
 
information about
 
financial instruments
 
and
certain non-financial instruments that are
 
subject to ECLs.
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USD m
31.12.23
Carrying amount
1
ECL allowances
Financial instruments measured at amortized
 
cost
Total
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Cash and balances at central banks
 i 171,806
 i 171,788
 i 18
 i 0
( i 26)
 i 0
( i 26)
 i 0
Amounts due from banks
 i 28,206
 i 28,191
 i 14
 i 0
( i 7)
( i 6)
( i 1)
 i 0
Receivables from securities financing transactions measured at amortized
 
cost
 i 74,128
 i 74,128
 i 0
 i 0
( i 2)
( i 2)
 i 0
 i 0
Cash collateral receivables on derivative instruments
 i 32,300
 i 32,300
 i 0
 i 0
 i 0
 i 0
 i 0
 i 0
Loans and advances to customers
 i 405,633
 i 385,493
 i 18,131
 i 2,009
( i 935)
( i 173)
( i 185)
( i 577)
of which: Private clients with mortgages
 i 174,400
 i 163,617
 i 9,955
 i 828
( i 156)
( i 39)
( i 89)
( i 28)
of which: Real estate financing
 i 54,305
 i 50,252
 i 4,038
 i 15
( i 46)
( i 20)
( i 25)
( i 1)
of which: Large corporate clients
 i 14,431
 i 12,594
 i 1,331
 i 506
( i 241)
( i 34)
( i 32)
( i 174)
of which: SME clients
 i 12,694
 i 10,662
 i 1,524
 i 508
( i 262)
( i 34)
( i 24)
( i 204)
of which: Lombard
 i 117,924
 i 117,874
 i 0
 i 50
( i 22)
( i 5)
 i 0
( i 17)
of which: Credit cards
 i 2,041
 i 1,564
 i 438
 i 39
( i 42)
( i 6)
( i 11)
( i 24)
of which: Commodity trade finance
 i 2,889
 i 2,873
 i 12
 i 4
( i 119)
( i 7)
 i 0
( i 111)
Other financial assets measured at amortized cost
 i 54,334
 i 53,882
 i 312
 i 141
( i 87)
( i 16)
( i 5)
( i 66)
of which: Loans to financial advisors
 i 2,615
 i 2,422
 i 79
 i 114
( i 49)
( i 4)
( i 1)
( i 44)
Total financial assets measured at amortized cost
 i 766,407
 i 745,782
 i 18,475
 i 2,150
( i 1,057)
( i 197)
( i 217)
( i 643)
Financial assets measured at fair value through other comprehensive income
 i 2,233
 i 2,233
 i 0
 i 0
 i 0
 i 0
 i 0
 i 0
Total on-balance sheet financial assets within the scope of ECL requirements
 i 768,640
 i 748,015
 i 18,475
 i 2,150
( i 1,057)
( i 197)
( i 217)
( i 643)
Total exposure
ECL provisions
Off-balance sheet (within the scope of ECL)
Total
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Guarantees
 i 33,211
 i 32,332
 i 761
 i 118
( i 40)
( i 14)
( i 7)
( i 19)
of which: Large corporate clients
 i 3,624
 i 3,051
 i 486
 i 87
( i 10)
( i 3)
( i 2)
( i 6)
of which: SME clients
 i 1,506
 i 1,299
 i 177
 i 31
( i 7)
( i 1)
( i 1)
( i 5)
of which: Financial intermediaries and hedge funds
 
 i 22,549
 i 22,504
 i 46
 i 0
( i 12)
( i 8)
( i 3)
 i 0
of which: Lombard
 i 3,009
 i 3,009
 i 0
 i 0
( i 1)
 i 0
 i 0
( i 1)
of which: Commodity trade finance
 i 1,811
 i 1,803
 i 8
 i 0
( i 1)
( i 1)
 i 0
 i 0
Irrevocable loan commitments
 i 44,018
 i 42,085
 i 1,878
 i 56
( i 95)
( i 55)
( i 38)
( i 2)
of which: Large corporate clients
 i 26,096
 i 24,444
 i 1,622
 i 30
( i 76)
( i 45)
( i 28)
( i 2)
Forward starting reverse repurchase and securities borrowing agreements
 i 10,373
 i 10,373
 i 0
 i 0
 i 0
 i 0
 i 0
 i 0
Committed unconditionally revocable credit lines
 
 i 47,421
 i 45,452
 i 1,913
 i 56
( i 49)
( i 39)
( i 10)
 i 0
of which: Real estate financing
 i 9,439
 i 8,854
 i 585
 i 0
( i 4)
( i 3)
( i 1)
 i 0
of which: Large corporate clients
 i 5,110
 i 4,951
 i 151
 i 8
( i 6)
( i 4)
( i 3)
 i 0
of which: SME clients
 i 5,408
 i 5,188
 i 191
 i 29
( i 21)
( i 17)
( i 3)
 i 0
of which: Lombard
 i 8,964
 i 8,964
 i 0
 i 1
 i 0
 i 0
 i 0
 i 0
of which: Credit cards
 i 10,458
 i 9,932
 i 522
 i 4
( i 10)
( i 8)
( i 2)
 i 0
of which: Commodity trade finance
 i 537
 i 537
 i 0
 i 0
 i 0
 i 0
 i 0
 i 0
Irrevocable committed prolongation of existing loans
 i 4,183
 i 4,169
 i 11
 i 4
( i 4)
( i 3)
 i 0
 i 0
Total off-balance sheet financial instruments and credit lines
 i 139,206
 i 134,410
 i 4,562
 i 234
( i 188)
( i 111)
( i 56)
( i 21)
Total allowances and provisions
( i 1,244)
( i 308)
( i 272)
( i 664)
1 The carrying amount of financial assets measured at amortized cost represents the total gross exposure net of the respective ECL
 
allowances.
 / 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
167
Note 9
 
Financial assets at amortized cost and other positions
 
in scope of expected credit loss measurement
(continued)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USD m
31.12.22
Carrying amount
1
ECL allowances
Financial instruments measured at amortized
 
cost
Total
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Cash and balances at central banks
 i 169,445
 i 169,402
 i 44
 i 0
( i 12)
 i 0
( i 12)
 i 0
Amounts due from banks
 i 14,671
 i 14,670
 i 1
 i 0
( i 6)
( i 5)
( i 1)
 i 0
Receivables from securities financing transactions measured at amortized
 
cost
 i 67,814
 i 67,814
 i 0
 i 0
( i 2)
( i 2)
 i 0
 i 0
Cash collateral receivables on derivative instruments
 i 35,033
 i 35,033
 i 0
 i 0
 i 0
 i 0
 i 0
 i 0
Loans and advances to customers
 i 390,027
 i 372,903
 i 15,587
 i 1,538
( i 783)
( i 129)
( i 180)
( i 474)
of which: Private clients with mortgages
 i 156,930
 i 147,651
 i 8,579
 i 699
( i 161)
( i 27)
( i 107)
( i 28)
of which: Real estate financing
 i 46,470
 i 43,112
 i 3,349
 i 9
( i 41)
( i 17)
( i 23)
 i 0
of which: Large corporate clients
 i 12,226
 i 10,733
 i 1,189
 i 303
( i 130)
( i 24)
( i 14)
( i 92)
of which: SME clients
 i 13,903
 i 12,211
 i 1,342
 i 351
( i 251)
( i 26)
( i 22)
( i 203)
of which: Lombard
 i 132,287
 i 132,196
 i 0
 i 91
( i 26)
( i 9)
 i 0
( i 17)
of which: Credit cards
 i 1,834
 i 1,420
 i 382
 i 31
( i 36)
( i 7)
( i 10)
( i 19)
of which: Commodity trade finance
 i 3,272
 i 3,261
 i 0
 i 11
( i 96)
( i 6)
 i 0
( i 90)
Other financial assets measured at amortized cost
 i 53,389
 i 52,829
 i 413
 i 147
( i 86)
( i 17)
( i 6)
( i 63)
of which: Loans to financial advisors
 i 2,611
 i 2,357
 i 128
 i 126
( i 59)
( i 7)
( i 2)
( i 51)
Total financial assets measured at amortized cost
 i 730,379
 i 712,651
 i 16,044
 i 1,685
( i 890)
( i 154)
( i 199)
( i 537)
Financial assets measured at fair value through other comprehensive income
 i 2,239
 i 2,239
 i 0
 i 0
 i 0
 i 0
 i 0
 i 0
Total on-balance sheet financial assets within the scope of ECL requirements
 i 732,618
 i 714,889
 i 16,044
 i 1,685
( i 890)
( i 154)
( i 199)
( i 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
 i 22,167
 i 19,805
 i 2,254
 i 108
( i 48)
( i 13)
( i 9)
( i 26)
of which: Large corporate clients
 i 3,663
 i 2,883
 i 721
 i 58
( i 26)
( i 2)
( i 3)
( i 21)
of which: SME clients
 i 1,337
 i 1,124
 i 164
 i 49
( i 5)
( i 1)
( i 1)
( i 3)
of which: Financial intermediaries and hedge funds
 
 i 11,833
 i 10,513
 i 1,320
 i 0
( i 12)
( i 8)
( i 4)
 i 0
of which: Lombard
 i 2,376
 i 2,376
 i 0
 i 1
( i 1)
 i 0
 i 0
( i 1)
of which: Commodity trade finance
 i 2,121
 i 2,121
 i 0
 i 0
( i 1)
( i 1)
 i 0
 i 0
Irrevocable loan commitments
 i 39,996
 i 37,531
 i 2,341
 i 124
( i 111)
( i 59)
( i 52)
 i 0
of which: Large corporate clients
 i 23,611
 i 21,488
 i 2,024
 i 99
( i 93)
( i 49)
( i 45)
 i 0
Forward starting reverse repurchase and securities borrowing agreements
 i 3,801
 i 3,801
 i 0
 i 0
 i 0
 i 0
 i 0
 i 0
Committed unconditionally revocable credit lines
 
 i 43,677
 i 41,809
 i 1,833
 i 36
( i 40)
( i 32)
( i 8)
 i 0
of which: Real estate financing
 i 8,711
 i 8,528
 i 183
 i 0
( i 6)
( i 6)
 i 0
 i 0
of which: Large corporate clients
 i 4,578
 i 4,304
 i 268
 i 5
( i 4)
( i 1)
( i 2)
 i 0
of which: SME clients
 i 4,723
 i 4,442
 i 256
 i 26
( i 19)
( i 16)
( i 3)
 i 0
of which: Lombard
 i 7,855
 i 7,854
 i 0
 i 1
 i 0
 i 0
 i 0
 i 0
of which: Credit cards
 i 9,390
 i 8,900
 i 487
 i 3
( i 7)
( i 5)
( i 2)
 i 0
of which: Commodity trade finance
 i 327
 i 327
 i 0
 i 0
 i 0
 i 0
 i 0
 i 0
Irrevocable committed prolongation of existing loans
 i 4,696
 i 4,600
 i 94
 i 2
( i 2)
( i 2)
 i 0
 i 0
Total off-balance sheet financial instruments and credit lines
 i 114,337
 i 107,545
 i 6,522
 i 270
( i 201)
( i 106)
( i 69)
( i 26)
Total allowances and provisions
( i 1,091)
( i 260)
( i 267)
( i 564)
1 The carrying amount of financial assets measured at amortized cost represents the total gross exposure net of the respective ECL
 
allowances.
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
168
Note 9
 
Financial assets at amortized cost and other positions
 
in scope of expected credit loss measurement
(continued)
Coverage ratios are
 
calculated for
 
the core loan
 
portfolio by taking
 
ECL allowances
 
and provisions
 
divided by the
 
gross
carrying amount
 
of the
 
exposures. Core
 
loan exposure
 
is defined
 
as the
 
sum of
Loans and
 
advances to
 
customers
 
and
Loans to financial advisors
.
 
These ratios are influenced by the following key factors:
 
–
Lombard loans are generally secured with marketable securities in portfolios that are, as a rule, highly diversified,
 
with
strict lending policies that are intended to ensure that
 
credit risk is minimal under most circumstances;
 
–
mortgage loans
 
to private
 
clients and real
 
estate financing
 
are controlled
 
by conservative
 
eligibility criteria,
 
including
low loan-to-value ratios and strong debt service capabilities;
–
the amount of unsecured retail lending (including credit cards)
 
is insignificant;
 
–
lending in Switzerland includes government-backed COVID-19 loans;
–
contractual
 
maturities
 
in
 
the
 
loan portfolio,
 
which
 
are
 
a
 
factor
 
in the
 
calculation
 
of
 
ECLs,
 
are
 
generally
 
short,
 
with
Lombard lending
 
typically having
 
average
 
contractual
 
maturities of
 
12 months
 
or less,
 
real estate
 
lending generally
between two
 
and three
 
years in
 
Switzerland,
 
with long-dated
 
maturities in
 
the US,
 
and corporate
 
lending between
one and two years with related loan commitments up to
 
four years; and
 
–
write-offs of
 
ECL allowances against
 
the gross
 
loan balances
 
when all
 
or part
 
of a
 
financial asset
 
is deemed
 
uncollectible
or forgiven, reduces the coverage ratios.
The total
 
combined on-
 
and off-balance
 
sheet coverage
 
ratio was
 
at
 i 22
 
basis points
 
as of
 
31 December 2023,
 i 1
 
basis
point higher than on
 
31 December 2022. The combined stage 1 and
 
2 ratio of
 i 10
 
basis points was unchanged compared
with 31 December 2022; the stage 3 ratio was
 i 22
%, materially unchanged compared with 31 December
 
2022.
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
31.12.23
Gross carrying amount (USD m)
ECL coverage (bps)
On-balance sheet
Total
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 1&2
Stage 3
Private clients with mortgages
 i 174,555
 i 163,656
 i 10,044
 i 856
 i 9
 i 2
 i 88
 i 7
 i 326
Real estate financing
 i 54,351
 i 50,272
 i 4,063
 i 16
 i 9
 i 4
 i 61
 i 8
 i 594
Total real estate lending
 i 228,906
 i 213,928
 i 14,107
 i 872
 i 9
 i 3
 i 81
 i 8
 i 331
Large corporate clients
 i 14,671
 i 12,628
 i 1,363
 i 680
 i 164
 i 27
 i 237
 i 48
 i 2,558
SME clients
 i 12,956
 i 10,696
 i 1,548
 i 712
 i 202
 i 32
 i 155
 i 47
 i 2,861
Total corporate lending
 i 27,627
 i 23,324
 i 2,911
 i 1,392
 i 182
 i 29
 i 193
 i 48
 i 2,714
Lombard
 i 117,946
 i 117,879
 i 0
 i 67
 i 2
 i 0
 i 0
 i 0
 i 2,487
Credit cards
 i 2,083
 i 1,571
 i 449
 i 63
 i 200
 i 40
 i 253
 i 87
 i 3,801
Commodity trade finance
 i 3,008
 i 2,881
 i 12
 i 115
 i 394
 i 25
 i 62
 i 25
 i 9,676
Other loans and advances to customers
 i 26,997
 i 26,083
 i 837
 i 77
 i 18
 i 10
 i 44
 i 11
 i 2,379
Loans to financial advisors
 i 2,665
 i 2,426
 i 80
 i 159
 i 185
 i 17
 i 122
 i 20
 i 2,793
Total other lending
 i 152,699
 i 150,840
 i 1,378
 i 481
 i 18
 i 3
 i 117
 i 4
 i 4,462
Total
1
 i 409,232
 i 388,092
 i 18,396
 i 2,744
 i 24
 i 5
 i 101
 i 9
 i 2,263
Gross exposure (USD m)
ECL coverage (bps)
Off-balance sheet
Total
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 1&2
Stage 3
Private clients with mortgages
 i 6,801
 i 6,560
 i 226
 i 15
 i 8
 i 7
 i 29
 i 8
 i 40
Real estate financing
 i 10,662
 i 10,064
 i 599
 i 0
 i 6
 i 5
 i 22
 i 6
 i 0
Total real estate lending
 i 17,463
 i 16,624
 i 824
 i 15
 i 6
 i 6
 i 24
 i 6
 i 40
Large corporate clients
 i 34,829
 i 32,446
 i 2,259
 i 125
 i 27
 i 16
 i 147
 i 25
 i 628
SME clients
 i 7,872
 i 7,337
 i 456
 i 80
 i 47
 i 29
 i 230
 i 41
 i 626
Total corporate lending
 i 42,702
 i 39,782
 i 2,715
 i 205
 i 30
 i 18
 i 161
 i 28
 i 627
Lombard
 i 13,609
 i 13,609
 i 0
 i 1
 i 1
 i 1
 i 0
 i 1
 i 0
Credit cards
 i 10,458
 i 9,932
 i 522
 i 4
 i 10
 i 8
 i 35
 i 10
 i 0
Commodity trade finance
 i 2,354
 i 2,346
 i 8
 i 0
 i 4
 i 4
 i 36
 i 4
 i 0
Financial intermediaries and hedge funds
 i 25,378
 i 25,148
 i 230
 i 0
 i 5
 i 4
 i 157
 i 5
 i 0
Other off-balance sheet commitments
 i 16,869
 i 16,596
 i 264
 i 9
 i 12
 i 5
 i 170
 i 8
 i 0
Total other lending
 i 68,668
 i 67,630
 i 1,024
 i 14
 i 7
 i 4
 i 97
 i 6
 i 5,921
Total
2
 i 128,833
 i 124,037
 i 4,562
 i 234
 i 15
 i 9
 i 122
 i 13
 i 908
Total on- and off-balance sheet
3
 i 538,065
 i 512,129
 i 22,958
 i 2,978
 i 22
 i 6
 i 105
 i 10
 i 2,157
1 Includes Loans
 
and advances to
 
customers and Loans
 
to financial advisors,
 
which are presented
 
on the balance
 
sheet line Other
 
financial assets measured
 
at amortized cost.
 
2 Excludes Forward
 
starting reverse
repurchase and securities borrowing agreements.
 
3 Includes on-balance sheet exposure, gross and off-balance sheet exposure (notional) and the related
 
ECL coverage ratio (bps).
 / 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
169
Note 9
 
Financial assets at amortized cost and other positions
 
in scope of expected credit loss measurement
(continued)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
31.12.22
Gross carrying amount (USD m)
ECL coverage (bps)
On-balance sheet
Total
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 1&2
Stage 3
Private clients with mortgages
 i 157,091
 i 147,678
 i 8,686
 i 727
 i 10
 i 2
 i 123
 i 9
 i 381
Real estate financing
 i 46,511
 i 43,129
 i 3,372
 i 9
 i 9
 i 4
 i 70
 i 9
 i 232
Total real estate lending
 i 203,602
 i 190,807
 i 12,059
 i 736
 i 10
 i 2
 i 108
 i 9
 i 379
Large corporate clients
 i 12,356
 i 10,757
 i 1,204
 i 395
 i 105
 i 22
 i 120
 i 32
 i 2,325
SME clients
 i 14,154
 i 12,237
 i 1,364
 i 553
 i 177
 i 22
 i 161
 i 36
 i 3,664
Total corporate lending
 i 26,510
 i 22,994
 i 2,567
 i 949
 i 144
 i 22
 i 142
 i 34
 i 3,106
Lombard
 i 132,313
 i 132,205
 i 0
 i 108
 i 2
 i 1
 i 0
 i 1
 i 1,580
Credit cards
 i 1,869
 i 1,427
 i 393
 i 50
 i 190
 i 46
 i 256
 i 91
 i 3,779
Commodity trade finance
 i 3,367
 i 3,266
 i 0
 i 101
 i 285
 i 18
 i 0
 i 18
 i 8,901
Other loans and advances to customers
 i 23,149
 i 22,333
 i 748
 i 68
 i 18
 i 6
 i 38
 i 7
 i 3,769
Loans to financial advisors
 i 2,670
 i 2,364
 i 130
 i 176
 i 221
 i 28
 i 124
 i 33
 i 2,870
Total other lending
 i 163,368
 i 161,595
 i 1,270
 i 503
 i 16
 i 3
 i 114
 i 3
 i 4,016
Total
1
 i 393,480
 i 375,396
 i 15,896
 i 2,188
 i 21
 i 4
 i 114
 i 8
 i 2,398
Gross exposure (USD m)
ECL coverage (bps)
Off-balance sheet
Total
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 1&2
Stage 3
Private clients with mortgages
 i 6,535
 i 6,296
 i 236
 i 3
 i 5
 i 4
 i 18
 i 4
 i 1,183
Real estate financing
 i 10,054
 i 9,779
 i 275
 i 0
 i 6
 i 7
 i 0
 i 6
 i 0
Total real estate lending
 i 16,589
 i 16,075
 i 511
 i 3
 i 6
 i 6
 i 2
 i 6
 i 1,288
Large corporate clients
 i 32,126
 i 28,950
 i 3,013
 i 163
 i 38
 i 18
 i 165
 i 32
 i 1,263
SME clients
 i 7,122
 i 6,525
 i 499
 i 98
 i 47
 i 30
 i 214
 i 43
 i 304
Total corporate lending
 i 39,247
 i 35,475
 i 3,513
 i 260
 i 40
 i 20
 i 172
 i 34
 i 903
Lombard
 i 12,919
 i 12,918
 i 0
 i 1
 i 2
 i 1
 i 0
 i 1
 i 0
Credit cards
 i 9,390
 i 8,900
 i 487
 i 3
 i 7
 i 5
 i 36
 i 7
 i 0
Commodity trade finance
 i 2,459
 i 2,459
 i 0
 i 0
 i 3
 i 3
 i 0
 i 3
 i 0
Financial intermediaries and hedge funds
 i 18,128
 i 16,464
 i 1,664
 i 0
 i 7
 i 6
 i 25
 i 7
 i 0
Other off-balance sheet commitments
 i 11,803
 i 11,454
 i 346
 i 3
 i 11
 i 8
 i 68
 i 9
 i 0
Total other lending
 i 54,700
 i 52,195
 i 2,498
 i 7
 i 6
 i 5
 i 33
 i 6
 i 0
Total
2
 i 110,537
 i 103,745
 i 6,522
 i 270
 i 18
 i 10
 i 106
 i 16
 i 980
Total on- and off-balance sheet
3
 i 504,016
 i 479,140
 i 22,418
 i 2,458
 i 21
 i 5
 i 112
 i 10
 i 2,242
1 Includes Loans
 
and advances to
 
customers and Loans
 
to financial advisors,
 
which are presented
 
on the balance
 
sheet line Other
 
financial assets measured
 
at amortized cost.
 
2 Excludes Forward
 
starting reverse
repurchase and securities borrowing agreements.
 
3 Includes on-balance sheet exposure, gross and off-balance sheet exposure (notional) and the related
 
ECL coverage ratio (bps).
 
 i 
 
Note 10
 
Derivative instruments
Overview
Over-the-counter (OTC) derivative
 
contracts are usually traded under a standardized International Swaps
 
and Derivatives
Association (ISDA)
 
master agreement
 
or other
 
recognized local
 
industry-standard master
 
agreements between
 
UBS AG
and
 
its
 
counterparties.
 
Terms
 
are
 
negotiated
 
directly
 
with
 
counterparties
 
and
 
the
 
contracts
 
have
 
industry-standard
settlement
 
mechanisms
 
prescribed
 
by
 
ISDA
 
or
 
similar
 
industry-standard
 
solutions.
 
Other
 
OTC
 
derivatives
 
are
 
cleared
through clearing houses,
 
in particular interest
 
rate swaps with
 
LCH, where a
 
settled-to-market method has
 
been generally
adopted, under
 
which cash
 
collateral exchanged
 
on a
 
daily basis
 
is considered
 
to legally
 
settle the
 
market value
 
of the
derivatives. Regulators
 
in various
 
jurisdictions have
 
introduced rules
 
requiring the
 
payment and
 
collection of
 
initial and
variation margins on certain OTC derivative contracts, which may
 
have a bearing on price and other relevant
 
terms.
Exchange-traded derivatives (ETD) are standardized in terms of their amounts and
 
settlement dates, and are bought and
sold
 
on
 
regulated
 
exchanges.
 
Exchanges
 
offer
 
the
 
benefits
 
of
 
pricing
 
transparency,
 
standardized
 
daily
 
settlement
 
of
changes in value and, consequently, reduced credit risk.
Most of UBS AG’s
 
derivative transactions relate to
 
sales and market-making
 
activity. Sales activities
 
include the structuring
and marketing of derivative products
 
to customers to enable
 
them to take, transfer,
 
modify or reduce current
 
or expected
risks. Market-making aims to
 
directly support the facilitation and
 
execution of client activity,
 
and involves quoting bid and
offer prices to other market participants with the aim of generating revenues based on spread and volume. UBS AG also
uses various derivative instruments for hedging purposes.
›
Refer to Notes 15 and 20 for more information about
 
derivative instruments
›
Refer to Note 25 for more information about derivatives
 
designated in hedge accounting relationships
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
170
Note 10
 
Derivative instruments (continued)
Risks of derivative instruments
The derivative financial assets shown on the
 
balance sheet can be an important component of UBS AG’s credit
 
exposure;
however,
 
the
 
positive
 
replacement
 
values
 
related
 
to
 
a
 
respective
 
counterparty
 
are
 
rarely
 
an
 
adequate
 
reflection
 
of
UBS AG’s credit exposure in its derivatives business with that counterparty. This is
 
generally the case because, on the one
hand, replacement values can increase over time (potential future exposure), while, on the other hand, exposure may be
mitigated by entering into master netting agreements and bilateral collateral arrangements. Both the exposure measures
used internally
 
by UBS AG
 
to control
 
credit risk
 
and the
 
capital requirements imposed
 
by regulators
 
reflect these additional
factors.
›
Refer to Note 21 for more information about derivative
 
financial assets and liabilities after consideration
 
of netting potential
permitted under enforceable netting arrangements
›
Refer to the “Risk management and control” section of this
 
report for more information about the risks arising from derivative
instruments
Derivative instruments
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
31.12.23
31.12.22
USD bn
Derivative
financial
assets
Derivative
financial
liabilities
Notional amounts
related to
derivative financial
assets and
liabilities
2,3
Other
notional
amounts
2,4
Derivative
financial
assets
Derivative
financial
liabilities
Notional amounts
related to
derivative financial
assets and
liabilities
2,3
Other
notional
amounts
2,4
Interest rate
 i 35.3
 i 32.8
 i 2,471.7
 i 13,749.0
 i 39.8
 i 37.5
 i 2,080.3
 i 11,255.4
of which: forwards (OTC)
1
 i 0.1
 i 0.0
 i 114.0
 i 1,061.4
 i 0.2
 i 0.0
 i 72.3
 i 792.7
of which: swaps (OTC)
 i 23.0
 i 18.2
 i 788.0
 i 11,884.1
 i 25.2
 i 19.8
 i 607.1
 i 9,728.6
of which: options (OTC)
 i 12.1
 i 14.4
 i 1,569.4
 i 14.2
 i 17.5
 i 1,392.5
of which: futures (ETD)
 i 707.4
 i 606.3
of which: options (ETD)
 i 0.0
 i 0.0
 i 0.2
 i 96.1
 i 0.0
 i 0.0
 i 8.3
 i 127.7
Credit derivatives
 i 1.8
 i 1.6
 i 93.1
 i 1.0
 i 1.2
 i 73.9
of which: credit default swaps (OTC)
 i 1.6
 i 1.5
 i 91.4
 i 0.9
 i 1.0
 i 71.0
of which: total return swaps (OTC)
 i 0.0
 i 0.1
 i 0.7
 i 0.1
 i 0.2
 i 1.2
Foreign exchange
 i 65.4
 i 71.7
 i 6,367.1
 i 179.6
 i 85.5
 i 88.5
 i 6,080.1
 i 40.1
of which: forwards (OTC)
 i 15.6
 i 18.9
 i 1,881.7
 i 26.5
 i 28.6
 i 1,763.8
of which: swaps (OTC)
 i 43.5
 i 46.7
 i 3,587.2
 i 178.7
 i 49.6
 i 50.4
 i 3,233.0
 i 38.4
of which: options (OTC)
 i 6.2
 i 6.1
 i 892.6
 i 9.3
 i 9.2
 i 1,073.2
Equity / index
 i 27.3
 i 32.9
 i 1,191.1
 i 84.3
 i 22.2
 i 26.1
 i 885.8
 i 63.4
of which: swaps (OTC)
 i 6.0
 i 8.9
 i 263.4
 i 5.3
 i 6.6
 i 217.4
of which: options (OTC)
 i 2.8
 i 5.9
 i 193.4
 i 2.8
 i 4.4
 i 140.6
of which: futures (ETD)
 i 77.3
 i 52.2
of which: options (ETD)
 i 10.3
 i 10.0
 i 732.7
 i 6.9
 i 9.0
 i 8.1
 i 526.7
 i 11.2
of which: client-cleared transactions (ETD)
 i 8.1
 i 8
 i 5.1
 i 7.0
Commodities
 i 1.6
 i 1.3
 i 128.6
 i 15.5
 i 1.4
 i 1.4
 i 132.3
 i 17.6
of which: swaps (OTC)
 i 0.7
 i 0.5
 i 44.8
 i 0.5
 i 0.7
 i 38.5
of which: options (OTC)
 i 0.6
 i 0.3
 i 38.4
 i 0.4
 i 0.3
 i 29.1
of which: futures (ETD)
 i 13.0
 i 16.4
of which: forwards (ETD)
 i 0.0
 i 0.0
 i 31.5
 i 0.0
 i 0.0
 i 47.7
of which: client-cleared transactions (ETD)
 i 0.2
 i 0.3
 i 0.2
 i 0.3
Other
5
 i 0.3
 i 0.4
 i 86.0
 i 0.2
 i 0.1
 i 49.7
Total derivative instruments,
 
based on IFRS netting
6
 i 131.7
 i 140.7
 i 10,337.6
 i 14,028.4
 i 150.1
 i 154.9
 i 9,302.1
 i 11,376.5
1 Includes certain
 
forward starting repurchase
 
and reverse repurchase agreements
 
that are classified
 
as measured at
 
fair value
 
through profit or
 
loss and are recognized
 
within derivative instruments.
 
2 In cases
where derivative financial instruments are presented on a net basis on the balance sheet, the
 
respective notional amounts of the netted derivative financial instruments are still presented on a gross basis.
 
3 Notional
amounts of client-cleared ETD and OTC transactions through central clearing counterparties are not disclosed, as they have a significantly different risk profile.
 
4 Other notional amounts relate to derivatives that are
cleared through either a central counterparty or an exchange. The fair value of these derivatives is presented
 
on the balance sheet net of the corresponding cash margin under Cash collateral receivables on derivative
instruments and Cash collateral payables on
 
derivative instruments, and was
 
not material for any of the periods
 
presented.
 
5 Includes mainly derivative
 
loan commitments measured at FVTPL, as well
 
as unsettled
purchases and sales of non-derivative financial instruments
 
for which the changes in the fair value
 
between trade date and settlement date are
 
recognized as derivative financial instruments.
 
6 Derivative financial
assets and liabilities are presented net on the balance sheet if UBS AG
 
has the unconditional and legally enforceable right to offset
 
the recognized amounts, both in the normal course of
 
business and in the event of
default, bankruptcy or insolvency of the entity and all of
 
the counterparties, and intends either to settle on a net basis or to
 
realize the asset and settle the liability simultaneously. Refer to Note 21 for
 
more information
on netting arrangements.
 / 
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
171
Note 10
 
Derivative instruments (continued)
On
 
a
 
notional
 
amount
 
basis,
 
approximately
 i 51
%
 
of
 
OTC
 
interest
 
rate
 
contracts
 
held
 
as
 
of
 
31 December
 
2023
(31 December 2022:
 i 46
%) mature
 
within one year,
 i 30
% (31 December 2022:
 i 32
%) within one to
 
five years and
 i 19
%
(31 December 2022:
 i 22
%) 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
 
in the table
 
above and
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
 i 2.5
trn compared
 
with 31 December
 
2022,
mainly reflecting
 
lower compression
 
activity and
 
higher business
 
volumes driven
 
by elevated
 
interest rate
 
volatility and
inflation.
 
 i 
Note 11
 
Property, equipment and software
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At historical cost less accumulated depreciation
USD m
Owned
properties and
equipment
1
Leased
properties and
equipment
2
Software
Projects in
progress
2023
3
2022
3
Historical cost
Balance at the beginning of the year
 i 10,352
 i 4,275
 i 9,220
 i 1,046
 i 24,893
 i 24,542
Additions
 i 106
 i 96
 i 81
 i 1,110
 i 1,393
 i 1,859
Disposals / write-offs
4
( i 299)
( i 63)
( i 1,087)
 i 0
( i 1,449)
( i 414)
Reclassifications
 i 550
 i 0
 i 1,390
( i 1,561)
 i 378
( i 894)
Foreign currency translation
 i 653
 i 71
 i 185
 i 45
 i 954
( i 200)
Balance at the end of the year
 i 11,362
 i 4,379
 i 9,789
 i 640
 i 26,169
 i 24,893
Accumulated depreciation
Balance at the beginning of the year
 i 6,697
 i 1,638
 i 5,242
 i 0
 i 13,577
 i 12,830
Depreciation
 i 457
 i 446
 i 1,070
 i 0
 i 1,974
 i 1,819
Impairment
5
 i 15
 i 0
 i 223
 i 0
 i 238
 i 2
Disposals / write-offs
4
( i 296)
( i 62)
( i 1,087)
 i 0
( i 1,445)
( i 410)
Reclassifications
 i 207
 i 0
( i 2)
 i 0
 i 206
( i 566)
Foreign currency translation
 i 439
 i 36
 i 101
 i 0
 i 576
( i 99)
Balance at the end of the year
 i 7,520
 i 2,058
 i 5,548
 i 0
 i 15,126
 i 13,577
Net book value
Net book value at the beginning of the year
 i 3,655
 i 2,637
 i 3,978
 i 1,046
 i 11,316
 i 11,712
Net book value at the end of the year
 i 3,842
 i 2,321
 i 4,241
 i 640
6
 i 11,044
 i 11,316
1 Includes leasehold improvements and IT hardware.
 
2 Represents right-of-use assets recognized by UBS AG as lessee. UBS AG predominantly enters into lease contracts, or contracts that include lease components,
in relation to real
 
estate, including offices,
 
retail branches and
 
sales offices. The
 
total cash outflow for
 
leases during 2023 was
 
USD
 i 594
m (2022: USD
 i 589
m). Interest expense on
 
lease liabilities is included
 
within
Interest expense from financial
 
instruments measured at amortized
 
cost and Lease liabilities
 
are included within Other
 
financial liabilities measured
 
at amortized cost.
 
Refer to Notes 3
 
and 18a, respectively.
 
There
were no material gains or losses arising from sale-and-leaseback
 
transactions in 2023 and in 2022.
 
3 The total reclassification amount for the
 
respective periods represents net reclassifications from / to
 
Properties
and other non-current assets held
 
for sale.
 
4 Includes write-offs of
 
fully depreciated assets.
 
5 Impairment charges recorded in
 
2023 generally relate to
 
assets that are no longer
 
used, for which the
 
recoverable
amount based on a value-in-use approach was determined to be zero.
 
6 Consists of USD
 i 415
m related to software and USD
 i 224
m related to Owned properties and equipment.
 / 
 
 i 
 
Note 12
 
Goodwill and intangible assets
Introduction
UBS AG performs an impairment test on its goodwill assets
 
on an annual basis or when indicators of impairment exist.
 
UBS AG considers Asset Management,
 
as reported in Note 2a, as a separate cash-generating unit (a CGU), as that is the
level at which the
 
performance of investment (and the
 
related goodwill) is reviewed and
 
assessed by management. Given
that a
 
significant amount
 
of goodwill
 
in Global Wealth
 
Management relates
 
to the
 
acquisition of
 
PaineWebber Group,
Inc. in 2000, which mainly affected the Americas portion
 
of the business, this goodwill remains separately monitored
 
by
the
 
Americas,
 
despite
 
the
 
formation
 
of
 
Global
 
Wealth
 
Management
 
in
 
2018.
 
Therefore,
 
goodwill
 
for
 
Global
 
Wealth
Management
 
is
 
separately
 
considered
 
for
 
impairment
 
at
 
the
 
level
 
of
 
two
 
CGUs:
 
Americas;
 
and
 
Switzerland
 
and
International (consisting of EMEA, Asia Pacific and Global).
The impairment
 
test is
 
performed for
 
each CGU
 
to which
 
goodwill is
 
allocated by
 
comparing the
 
recoverable amount
with the
 
carrying amount
 
of the
 
respective CGU.
 
UBS AG determines
 
the recoverable
 
amount of
 
the respective
 
CGUs
based on their value in use. An impairment
 
charge is recognized if the carrying amount exceeds the recoverable
 
amount.
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
172
Note 12
 
Goodwill and intangible assets (continued)
As
 
of
 
31 December
 
2023,
 
total
 
goodwill
 
recognized
 
on
 
the
 
balance
 
sheet
 
was
 
USD
 i 6.0
bn,
 
of
 
which
 
USD
 i 3.7
bn
 
was
carried by
 
the Global
 
Wealth Management
 
Americas CGU,
 
USD
 i 1.2
bn was
 
carried by
 
the Global
 
Wealth Management
Switzerland and International CGU, and USD
 i 1.1
bn was carried by Asset Management. Based on the impairment testing
methodology described below, UBS AG
 
concluded that the goodwill
 
balances as of
 
31 December 2023 allocated to
 
these
CGUs were not impaired. For each
 
of the CGUs, the recoverable amount
 
substantially exceeded the carrying value
 
as of
31 December
 
2023
 
and
 
there
 
was
 
no
 
indication
 
of
 
a
 
significant
 
risk
 
of
 
goodwill
 
impairment
 
based
 
on
 
the
 
testing
performed as of 31 December 2023.
Methodology for goodwill impairment testing
The recoverable
 
amounts are
 
determined using
 
a discounted
 
cash flow
 
model, which
 
has been
 
adapted to
 
use inputs
that consider features of
 
the banking business and its
 
regulatory environment.
 
The recoverable amount of
 
a CGU is the
sum of
 
the discounted
 
earnings attributable
 
to shareholders
 
from the
 
first three
 
forecast years
 
and the
 
terminal value,
adjusted for the effect of the capital
 
assumed to be needed over the next
 
three years and to support growth beyond that
period. The
 
terminal value,
 
which covers
 
all periods
 
beyond the
 
third year,
 
is calculated
 
on the
 
basis of
 
the forecast
 
of
the third-year
 
profit, the
 
discount rate
 
and the
 
long-term growth
 
rate, as well
 
as the
 
implied perpetual
 
capital growth.
For
 
the
 
Global
 
Wealth
 
Management
 
Americas
 
CGU,
 
the
 
methodology
 
is
 
consistently
 
applied,
 
however,
 
the
 
forecast
period was extended from three to five years (with a
 
terminal value thereafter) in 2023 to provide for the CGU’s specific
planning
 
assumptions,
 
namely
 
the
 
ongoing
 
investments
 
in
 
the
 
core
 
banking
 
infrastructure
 
in
 
the
 
US
 
to
 
enhance
 
the
product capabilities and offerings
 
in this market in the mid term. The extension
 
of the forecast period from three
 
to five
years did not trigger,
 
defer or avoid an impairment of goodwill as of 31
 
December 2023.
The
 
carrying
 
amount
 
for
 
each
 
CGU
 
is
 
determined
 
by
 
reference
 
to
 
UBS’s
 
equity
 
attribution
 
framework.
 
Within
 
this
framework,
 
UBS
 
attributes
 
equity
 
to
 
the
 
businesses
 
on
 
the
 
basis
 
of
 
their
 
risk-weighted
 
assets
 
and
 
leverage
 
ratio
denominator (both
 
metrics include
 
resource allocations
 
from Group
 
Items to the
 
business divisions),
 
their goodwill
 
and
their
 
intangible
 
assets,
 
as
 
well
 
as
 
attributed
 
equity
 
related
 
to
 
certain
 
common
 
equity
 
tier 1
 
deduction
 
items.
 
The
framework
 
is
 
primarily
 
used
 
for
 
the
 
purpose
 
of
 
measuring
 
the
 
performance
 
of
 
the
 
businesses
 
and
 
includes
 
certain
management assumptions. Attributed equity
 
is equal to
 
the capital a
 
CGU requires to
 
conduct its business
 
and is currently
considered a reasonable
 
approximation of the
 
carrying amount of
 
the CGUs. The
 
attributed equity methodology
 
is also
applied in the
 
business planning process,
 
the inputs from
 
which are used
 
in calculating the
 
recoverable amounts
 
of the
respective CGU.
Assumptions
Valuation
 
parameters
 
used
 
within
 
UBS AG’s
 
impairment
 
test
 
model are
 
linked
 
to external
 
market
 
information,
 
where
applicable. The
 
model used
 
to determine
 
the recoverable
 
amount is
 
most sensitive
 
to changes
 
in the
 
forecast earnings
available to shareholders in years one to three, to changes in the discount rates and to changes in the long-term growth
rate. The applied
 
long-term growth
 
rate is based
 
on long-term economic
 
growth rates for
 
different regions
 
worldwide.
Earnings available
 
to
 
shareholders
 
are
 
estimated
 
on
 
the
 
basis of
 
forecast
 
results,
 
which
 
are
 
part
 
of the
 
business
 
plan
approved by the Board of Directors.
The
 
discount
 
rates
 
are
 
determined
 
by
 
applying
 
a
 
capital
 
asset
 
pricing
 
model-based
 
approach,
 
as
 
well
 
as
 
considering
quantitative and qualitative inputs from both internal and external analysts and the view of management. They also take
into account
 
regional differences
 
in risk-free
 
rates at
 
the level of
 
the individual
 
CGUs. In line
 
with discount
 
rates, long-
term growth rates are determined at the regional level based
 
on nominal GDP growth rate forecasts.
Key
 
assumptions
 
used
 
to
 
determine
 
the
 
recoverable
 
amounts
 
of
 
each
 
CGU
 
are
 
tested
 
for
 
sensitivity
 
by
 
applying
 
a
reasonably possible change to
 
those assumptions. Forecast earnings available
 
to shareholders were changed by
 i 20
%, the
discount rates
 
were changed by
 i 1.5
 
percentage points, and
 
the long-term
 
growth rates
 
were changed
 
by
 i 0.75
 
percentage
points. Under all scenarios,
 
reasonably possible changes
 
in key assumptions did
 
not result in an
 
impairment of goodwill
or
 
intangible
 
assets
 
reported
 
by
 
Global
 
Wealth
 
Management
 
Americas,
 
Global
 
Wealth
 
Management
 
Switzerland
 
and
International, and Asset Management.
If the estimated earnings
 
and other assumptions in future periods
 
deviate from the current outlook,
 
the value of goodwill
attributable to
 
Global Wealth
 
Management Americas,
 
Global Wealth
 
Management
 
Switzerland and
 
International, and
Asset Management may become impaired in the
 
future, giving rise to losses
 
in the income statement. Recognition of any
impairment of
 
goodwill would
 
reduce IFRS
 
Accounting Standards
 
equity and
 
net profit.
 
It would
 
not affect
 
cash flows
and,
 
as
 
goodwill
 
is
 
required
 
to
 
be
 
deducted
 
from
 
capital
 
under
 
the
 
Basel III
 
capital
 
framework,
 
no
 
effect
 
would
 
be
expected on UBS AG’s capital ratios.
 i 
 
 
 
 
 
 
 
Discount and growth rates
Discount rates
Growth rates
In %
31.12.23
31.12.22
31.12.23
31.12.22
Global Wealth Management Americas
 i 9.5
 i 10.5
 i 3.8
 i 3.8
Global Wealth Management Switzerland and International
 i 9.5
 i 9.4
 i 3.4
 i 3.6
Asset Management
 i 9.0
 i 9.5
 i 3.3
 i 3.4
 / 
 
 
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
173
Note 12
 
Goodwill and intangible assets (continued)
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USD m
Goodwill
Intangible assets
1
2023
2022
Historical cost
Balance at the beginning of the year
 i 6,043
 i 1,598
 i 7,641
 i 7,739
Additions
 i 0
 i 6
 i 6
 i 0
Disposals
2
( i 10)
( i 30)
( i 40)
( i 22)
Foreign currency translation
 i 10
 i 28
 i 38
( i 76)
Balance at the end of the year
 i 6,043
 i 1,602
 i 7,645
 i 7,641
Accumulated amortization and impairment
Balance at the beginning of the year
 i 0
 i 1,374
 i 1,374
 i 1,360
Amortization
 i 26
 i 26
 i 26
Impairment / (reversal of impairment)
 i 0
 i 0
 i 0
( i 1)
Disposals
2
 i 0
( i 30)
( i 30)
 i 0
Foreign currency translation
 i 0
 i 9
 i 9
( i 11)
Balance at the end of the year
 i 0
 i 1,379
 i 1,379
 i 1,374
Net book value at the end of the year
 i 6,043
 i 223
 i 6,265
 i 6,267
of which: Global Wealth Management Americas
 i 3,712
 i 36
 i 3,748
 i 3,740
of which: Global Wealth Management Switzerland and International
 i 1,182
 i 52
 i 1,233
 i 1,225
of which: Asset Management
 i 1,149
 i 0
 i 1,149
 i 1,167
of which: Investment Bank
 i 0
 i 135
 i 135
 i 135
1 Intangible assets mainly include customer relationships, contractual rights and the fully amortized branch network intangible asset recognized in connection with the acquisition of PaineWebber Group, Inc. in 2000.
 
2 Reflects the derecognition of goodwill allocated to business and intangible assets held by entities that have been disposed of.
 
Refer to Note 29 for more information.
 / 
 
The table below presents estimated aggregated
 
amortization expenses for intangible assets.
 i 
 
 
 
 
 
 
 
 
 
USD m
Intangible assets
Estimated aggregated amortization expenses for:
2024
 i 27
2025
 i 26
2026
 i 26
2027
 i 25
2028
 i 19
Thereafter
 i 98
Not amortized due to indefinite useful life
 i 2
Total
 i 223
 / 
 
 i 
Note 13
 
Other assets
a) Other financial assets measured at amortized cost
 i 
 
 
 
 
 
 
 
 
 
USD m
31.12.23
31.12.22
Debt securities
 i 43,245
 i 44,594
Loans to financial advisors
 i 2,615
 i 2,611
Fee- and commission-related receivables
 i 1,883
 i 1,803
Finance lease receivables
 i 1,427
 i 1,314
Settlement and clearing accounts
 
 i 311
 i 1,174
Accrued interest income
 i 2,004
 i 1,276
Other
 i 2,849
1
 i 618
Total other financial assets measured at amortized cost
 i 54,334
 i 53,389
1 Predominantly includes cash collateral provided to exchanges and clearing houses to secure securities trading activity through
 
those counterparties.
 / 
Effective from 1 April
 
2022, UBS has reclassified a
 
portfolio of financial assets from
 
Financial assets measured at fair value
through other comprehensive income with a fair value of USD
 i 6.9
bn (the Portfolio) to Other financial assets measured at
amortized cost.
 
 
 
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
174
Note 13
 
Other assets (continued)
The Portfolio’s cumulative fair value losses of USD
 i 449
m pre-tax and USD
 i 333
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
 i 7.4
bn as
 
on 1
 
April 2022.
 
The reclassification
 
had no
 
effect on
 
the income
 
statement. The
 
reclassified
Portfolio
 
is
 
made
 
up
 
of
 
high-quality
 
liquid
 
assets,
 
primarily
 
US
 
government
 
treasuries
 
and
 
US
 
government
 
agency
mortgage-backed securities, held
 
and separately managed
 
by UBS Bank
 
USA. The accounting
 
reclassification has arisen
as a direct result
 
of the transformation
 
of UBS’s Global
 
Wealth Management Americas
 
business, which has significantly
impacted UBS Bank
 
USA. This includes initiatives
 
approved by the
 
Group Executive Board to
 
significantly grow and extend
the business,
 
as disclosed
 
on 1 February
 
2022 during
 
UBS’s fourth
 
quarter
 
2021 earnings
 
presentation.
 
Over the
 
two
years preceding the reclassification date, UBS Bank USA’s deposit base
 
grew by more than 100% generating substantial
cash balances, with a number of new products being launched,
 
including new deposit types that are longer in duration,
additional lending and a broader range of customer
 
segments targeted. Following the commencement of these activities
and the announcement
 
made in the
 
first quarter of
 
2022, the Portfolio
 
is no longer
 
held in a
 
business model to
 
collect
the contractual
 
cash flows
 
and sell
 
the assets
 
but
 
is instead
 
solely held
 
to collect
 
the contractual
 
cash flows
 
until the
assets mature, requiring a reclassification of the Portfolio
 
in line with IFRS 9 with effect from 1 April 2022.
b) Other non-financial assets
 i 
 
 
 
 
 
 
 
 
USD m
31.12.23
31.12.22
Precious metals and other physical commodities
 
 i 4,426
 i 4,471
Deposits and collateral provided in connection with litigation,
 
regulatory and similar matters
1
 i 1,379
 i 2,205
Prepaid expenses
 i 1,062
 i 709
VAT,
 
withholding tax and other tax receivables
 i 746
 i 1,405
Properties and other non-current assets held for sale
 i 105
 i 279
Other
 
 i 660
 i 583
Total other non-financial assets
 i 8,377
 i 9,652
1 Refer to Note 17 for more information.
 / 
 
 
 i 
Note 14
 
Customer deposits, and funding from UBS Group
 
AG
a) Customer deposits
 i 
 
 
 
 
 
 
USD m
31.12.23
31.12.22
Demand deposits
 i 146,163
 i 182,307
Retail savings / deposits
 i 152,683
 i 149,310
Sweep deposits
 i 41,045
 i 69,223
Time deposits
1
 i 215,782
 i 126,331
Total customer deposits
 i 555,673
 i 527,171
1 Includes customer deposits in UBS AG Jersey Branch placed by UBS Switzerland AG on behalf of its clients.
 / 
Customer deposits increased mainly due to net inflows into time deposit products,
 
and positive foreign currency effects,
partly
 
offset
 
by
 
continued
 
shifts
 
into
 
money
 
market
 
funds
 
and
 
US-government
 
securities.
 
In
 
addition,
 
customers
continued to shift funds from Demand and Sweep
 
deposits into time deposits.
b) Funding from UBS Group AG measured at amortized
 
cost
 i 
 
 
 
 
 
 
USD m
31.12.23
31.12.22
Debt contributing to total loss-absorbing capacity (TLAC)
 i 51,102
 i 42,073
Debt eligible as high-trigger loss-absorbing additional tier
 
1 capital instruments
 i 11,286
 i 10,654
Debt eligible as low-trigger loss-absorbing additional
 
tier 1 capital instruments
 i 1,212
 i 1,187
Other
1
 i 3,682
 i 2,232
Total funding from UBS Group AG measured at amortized cost
2,3
 i 67,282
 i 56,147
1 Includes debt not eligible as TLAC having
 
a residual maturity of less than one year
 
and high-trigger loss-absorbing additional tier 1 capital instruments
 
that ceased to be eligible when UBS Group AG
 
issued notice
of redemption.
 
2 The Total
 
funding from UBS Group AG
 
measured at amortized cost consists
 
of subordinated debt of UBS
 
AG and its subsidiaries toward
 
UBS Group AG. Subordinated
 
debt consists of unsecured
debt obligations that are
 
contractually subordinated in right of
 
payment to all other
 
present and future non-subordinated
 
obligations of the respective
 
issuing entity. All instruments contributing
 
to TLAC are subordinated
since 1.1.2020.
 
3 UBS AG has also recognized funding from UBS Group AG that is designated at fair value.
 
Refer to Note 18b for more information.
 / 
UBS AG uses interest rate and foreign exchange derivatives to
 
manage the risks inherent in certain debt
 
instruments held
at amortized cost. In
 
some cases, UBS AG applies
 
hedge accounting for
 
interest rate risk
 
as discussed in item
 
2j in Note
1a and Note 25.
 
As a result of applying
 
hedge accounting, the life-to-date adjustment to
 
the carrying amount of
Funding
from UBS Group AG measured at amortized cost
 
was a decrease of USD
 i 3.2
bn as of 31 December 2023 and a decrease
of USD
 i 5.1
bn as of 31 December 2022, reflecting changes
 
in fair value due to interest rate movements.
Of the
Total funding from UBS
 
Group AG measured at
 
amortized cost
 
outstanding as of 31
 
December 2023, USD
 i 65.6
bn
pays a fixed interest rate and USD
 i 1.7
bn pays a floating rate of interest.
›
Refer to Note 23 for maturity information
 
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
175
 i 
Note 15
 
Debt issued designated at fair value
 i 
 
 
 
 
 
 
 
 
 
 
USD m
31.12.23
31.12.22
Issued debt instruments
Equity-linked
1
 i 46,269
 i 41,901
Rates-linked
 
 i 16,880
 i 16,276
Credit-linked
 i 4,506
 i 2,170
Fixed-rate
 i 14,295
 i 6,538
Commodity-linked
 i 3,704
 i 4,294
Other
 i 687
 i 663
Total debt issued designated at fair value
 i 86,341
 i 71,842
of which: issued by UBS AG with original maturity greater than one
 
year
2
 i 73,544
 i 57,750
1 Includes investment fund unit-linked instruments issued.
 
2 Based on original contractual maturity without considering any early redemption features. As of 31 December 2023,
 i 100
% of the balance was unsecured
(31 December 2022:
 i 100
%).
 / 
 
 i 
Note 16
 
Debt issued measured at amortized cost
 i 
 
 
 
 
 
 
 
 
 
 
 
USD m
31.12.23
31.12.22
Short-term debt
1
 i 37,285
 i 29,676
Senior unsecured debt
 i 18,450
 i 17,892
of which: issued by UBS AG with original maturity greater than one
 
year
 i 18,446
 i 17,892
Covered bonds
 i 1,006
 i 0
Subordinated debt
 i 3,008
 i 2,968
of which: eligible as low-trigger loss-absorbing tier 2 capital
 
instruments
 i 0
 i 2,422
of which: eligible as non-Basel III-compliant tier 2 capital
 
instruments
 i 538
 i 536
Debt issued through the Swiss central mortgage institutions
 i 10,035
 i 8,962
Long-term debt
2
 i 32,499
 i 29,823
Total debt issued measured at amortized cost
3,4
 i 69,784
 i 59,499
1 Debt with an original contractual maturity
 
of less than one year,
 
includes mainly certificates of deposit and
 
commercial paper.
 
2 Debt with an original contractual
 
maturity greater than or equal to one year.
 
The
classification of debt
 
issued into
 
short-term and long
 
-term does not
 
consider any early
 
redemption features.
 
3 Net of
 
bifurcated embedded derivatives,
 
the fair value
 
of which was
 
not material
 
for the
 
periods
presented.
 
4 Except for Covered bonds and Debt issued through the Swiss central mortgage institutions,
 i 100
% of the balance was unsecured as of 31 December 2023.
 / 
UBS AG uses interest rate and foreign exchange derivatives to
 
manage the risks inherent in certain debt
 
instruments held
at amortized cost. In
 
some cases, UBS AG applies
 
hedge accounting for
 
interest rate risk
 
as discussed in item
 
2j in Note
1a and Note
 
25.
 
As a result
 
of applying hedge
 
accounting, the
 
life-to-date adjustment
 
to the carrying
 
amount of
Debt
issued measured at amortized cost
 
was a decrease of USD
 i 0.4
bn as of 31 December 2023 and a decrease of USD
 i 1.0
bn
as of 31 December 2022, reflecting changes
 
in fair value due to interest rate movements.
Subordinated debt consists
 
of unsecured debt
 
obligations that are
 
contractually subordinated
 
in right of
 
payment to all
other
 
present
 
and
 
future
 
non-subordinated
 
obligations
 
of
 
the
 
respective
 
issuing
 
entity.
 
All
 
of
 
the
 
subordinated
 
debt
instruments outstanding as of 31 December 2023 pay a
 
fixed rate of interest.
›
Refer to Note 23 for maturity information
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
176
 i 
 
 
Note 17
 
Provisions and contingent liabilities
a) Provisions
The table below presents an overview of total provisions.
 i 
 
 
 
 
USD m
31.12.23
31.12.22
Provisions other than provisions for expected credit losses
 i 2,336
 i 2,982
Provisions for expected credit losses
1
 i 188
 i 201
Total provisions
 i 2,524
 i 3,183
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.
 i 
 
 
 
 
 
 
 
USD m
Litigation,
regulatory and
similar matters
1
Restructuring
2
Real estate
3
Other
4
Total 2023
Balance at the beginning of the year
 i 2,586
 i 98
 i 122
 i 175
 i 2,982
Increase in provisions recognized in the income statement
 i 866
 i 234
 i 8
 i 41
 i 1,148
Release of provisions recognized in the income statement
( i 47)
( i 13)
 i 0
( i 17)
( i 77)
Provisions used in conformity with designated purpose
( i 1,642)
( i 114)
( i 12)
( i 27)
( i 1,795)
Foreign currency translation and other movements
 i 48
 i 4
 i 18
 i 10
 i 79
Balance at the end of the year
 
 i 1,810
 i 209
 i 135
 i 181
 i 2,336
1 Consists of provisions for losses resulting from legal, liability and compliance risks.
 
2 Consists of USD
 i 146
m of provisions for onerous contracts related to real estate as of 31 December 2023 (31 December 2022:
USD
 i 28
m) and USD
 i 64
m of personnel-related restructuring provisions as of 31 December
 
2023 (31 December 2022: USD
 i 70
m).
 
3 Mainly includes provisions for reinstatement costs with respect to
 
leased properties.
 
4 Mainly includes provisions related to employee benefits and operational risks.
 / 
 
Restructuring provisions relate to onerous contracts and personnel-related provisions. Onerous contracts for property are
recognized
 
when
 
UBS AG
 
is committed
 
to pay
 
for non-lease
 
components, such
 
as utilities,
 
service charges,
 
taxes and
maintenance,
 
when
 
a
 
property
 
is
 
vacated
 
or
 
not
 
fully
 
recovered
 
from
 
sub-tenants.
 
Personnel-related
 
restructuring
provisions are
 
generally used
 
within a
 
short period
 
of time.
 
The level
 
of personnel-related
 
provisions can
 
change when
natural
 
staff
 
attrition
 
reduces
 
the
 
number
 
of
 
people
 
affected
 
by
 
a
 
restructuring
 
event,
 
and
 
therefore
 
results
 
in
 
lower
estimated costs.
 
Information about provisions
 
and contingent liabilities
 
in respect of
 
litigation, regulatory
 
and similar matters,
 
as a class,
is included in Note 17b. There are no material contingent
 
liabilities associated with the other classes of provisions.
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
177
Note 17
 
Provisions and contingent liabilities (continued)
 i 
 
b) Litigation, regulatory and similar matters
UBS operates in
 
a legal and
 
regulatory environment that
 
exposes it to
 
significant litigation and
 
similar risks arising
 
from
disputes and
 
regulatory
 
proceedings.
 
As a
 
result,
 
UBS
 
is involved
 
in various
 
disputes
 
and legal
 
proceedings,
 
including
litigation, arbitration, and regulatory
 
and criminal investigations. “UBS,”
 
“we” and “our,” for
 
purposes of this
 
Note, refer
to UBS AG and / or one or more of its subsidiaries, as applicable.
Such
 
matters
 
are
 
subject
 
to
 
many
 
uncertainties,
 
and
 
the
 
outcome
 
and
 
the
 
timing
 
of
 
resolution
 
are
 
often
 
difficult
 
to
predict,
 
particularly
 
in
 
the
 
earlier
 
stages
 
of
 
a
 
case.
 
There
 
are
 
also
 
situations
 
where
 
UBS
 
may
 
enter
 
into
 
a
 
settlement
agreement.
 
This
 
may
 
occur
 
in
 
order
 
to
 
avoid
 
the
 
expense,
 
management
 
distraction
 
or
 
reputational
 
implications
 
of
continuing to contest
 
liability, even for
 
those matters for
 
which UBS believes
 
it should be
 
exonerated. The uncertainties
inherent in
 
all such
 
matters
 
affect
 
the amount
 
and timing
 
of any
 
potential outflows
 
for
 
both matters
 
with respect
 
to
which provisions have
 
been established and
 
other contingent liabilities.
 
UBS makes provisions
 
for such matters
 
brought
against it when,
 
in the opinion of
 
management after seeking legal
 
advice, it is
 
more likely than not
 
that UBS has a
 
present
legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required, and
the amount
 
can be
 
reliably
 
estimated. Where
 
these factors
 
are otherwise
 
satisfied, a
 
provision may
 
be established
 
for
claims that have not yet been asserted
 
against UBS, but are nevertheless expected to be,
 
based on UBS’s experience with
similar asserted claims. If any of those conditions is not met, such matters result in contingent liabilities. If the amount of
an
 
obligation
 
cannot
 
be
 
reliably
 
estimated,
 
a
 
liability
 
exists
 
that
 
is
 
not
 
recognized
 
even
 
if
 
an
 
outflow
 
of
 
resources
 
is
probable. Accordingly, no provision is established even if the potential outflow of resources
 
with respect to such matters
could be
 
significant. Developments
 
relating to
 
a matter
 
that occur
 
after the
 
relevant reporting
 
period, but
 
prior to
 
the
issuance of financial
 
statements, which affect
 
management’s assessment
 
of the provision
 
for such matter
 
(because, for
example, the developments provide evidence of conditions that existed at the end of the reporting period), are adjusting
events
 
after
 
the
 
reporting
 
period
 
under
 
IAS
 
10
 
and
 
must
 
be
 
recognized
 
in
 
the
 
financial
 
statements
 
for
 
the
 
reporting
period.
Specific
 
litigation,
 
regulatory
 
and
 
other
 
matters
 
are
 
described
 
below,
 
including
 
all
 
such
 
matters
 
that
 
management
considers to
 
be material
 
and others
 
that management
 
believes to
 
be of
 
significance to
 
UBS due
 
to potential
 
financial,
reputational and other
 
effects. The amount of
 
damages claimed, the size
 
of a transaction
 
or other information is
 
provided
where available and appropriate in order to assist users in considering
 
the magnitude of potential exposures.
In the case of certain matters below, we
 
state that we have established a provision,
 
and for the other matters, we make
no such statement.
 
When we
 
make this statement
 
and we
 
expect disclosure
 
of the
 
amount of a
 
provision to prejudice
seriously our position with other parties in the matter because it would reveal
 
what UBS believes to be the probable and
reliably estimable
 
outflow, we
 
do not
 
disclose that
 
amount. In
 
some cases
 
we are
 
subject to
 
confidentiality obligations
that preclude
 
such disclosure.
 
With respect
 
to the
 
matters
 
for which
 
we do
 
not state
 
whether
 
we have
 
established a
provision, either: (a) we have
 
not established a provision;
 
or (b) we have established
 
a provision but expect disclosure
 
of
that fact
 
to prejudice
 
seriously our
 
position with
 
other parties
 
in the
 
matter because
 
it would
 
reveal the
 
fact that
 
UBS
believes an outflow of resources to be probable and reliably estimable.
With respect to certain litigation, regulatory and similar matters for which we have established provisions, we are able to
estimate the expected
 
timing of outflows.
 
However, the aggregate
 
amount of the
 
expected outflows for
 
those matters
for which
 
we are
 
able to
 
estimate expected
 
timing is
 
immaterial relative
 
to our
 
current and
 
expected levels
 
of liquidity
over the relevant time periods.
The aggregate amount provisioned for litigation, regulatory and similar matters
 
as a class is disclosed in the “Provisions”
table in Note 17a
 
above. It is not practicable to
 
provide an aggregate estimate of liability
 
for our litigation, regulatory and
similar matters as a class of contingent liabilities. Doing so would require UBS to provide speculative legal assessments as
to claims
 
and proceedings
 
that involve
 
unique fact
 
patterns or
 
novel legal
 
theories, that
 
have not
 
yet been
 
initiated or
are at early stages of adjudication, or as to which alleged damages have not been quantified by the claimants. Although
UBS therefore
 
cannot provide
 
a numerical
 
estimate of
 
the future
 
losses that
 
could arise
 
from litigation,
 
regulatory and
similar
 
matters,
 
UBS
 
believes
 
that
 
the
 
aggregate
 
amount
 
of
 
possible
 
future
 
losses
 
from
 
this
 
class
 
that
 
are
 
more
 
than
remote substantially exceeds the level of current provisions.
 
Litigation, regulatory and
 
similar matters may also
 
result in non-monetary
 
penalties and consequences.
 
A guilty plea to,
or conviction
 
of, a
 
crime could
 
have material
 
consequences for
 
UBS. Resolution
 
of regulatory
 
proceedings may
 
require
UBS to obtain waivers of regulatory disqualifications to maintain certain operations,
 
may entitle regulatory authorities to
limit,
 
suspend
 
or
 
terminate
 
licenses
 
and
 
regulatory
 
authorizations,
 
and
 
may
 
permit
 
financial
 
market
 
utilities
 
to
 
limit,
suspend or terminate UBS’s participation in
 
such utilities. Failure to obtain such waivers,
 
or any limitation, suspension or
termination of licenses, authorizations or participations, could
 
have material consequences for UBS.
The risk of loss associated with
 
litigation, regulatory and similar matters
 
is a component of operational
 
risk for purposes
of determining capital requirements. Information concerning our capital requirements and the calculation of operational
risk for this purpose is included in the “Capital, liquidity
 
and funding, and balance sheet” section of this report.
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
178
Note 17
 
Provisions and contingent liabilities (continued)
 i 
 
 
 
 
 
 
 
 
Provisions for litigation, regulatory and similar matters
 
by business division and in Group Items
1
USD m
Global Wealth
Manage-
ment
Personal &
Corporate
Banking
Asset
Manage-
ment
Investment
Bank
Non-core
 
and
 
Legacy
2
Group
 
Items
2
Total 2023
Balance at the beginning of the year
 i 1,182
 i 159
 i 8
 i 308
 i 771
 i 158
 i 2,586
Increase in provisions recognized in the income statement
 i 113
 i 0
 i 5
 i 81
 i 665
 i 2
 i 866
Release of provisions recognized in the income statement
( i 7)
( i 9)
 i 0
( i 2)
 i 0
( i 29)
( i 47)
Provisions used in conformity with designated purpose
( i 98)
 i 0
( i 1)
( i 106)
( i 1,435)
( i 1)
( i 1,642)
Foreign currency translation and other movements
 i 31
 i 6
 i 0
 i 5
 i 4
 i 1
 i 48
Balance at the end of the year
 i 1,220
 i 156
 i 12
 i 286
 i 4
 i 132
 i 1,810
1 Provisions, if any,
 
for the matters described in item 2
 
of this Note are recorded in Global Wealth
 
Management, and provisions, if any,
 
for the matters described in items 1 and
 
4 of this Note are allocated between
Global Wealth Management and Personal & Corporate Banking. Provisions,
 
if any, for the matters described in item 3 are allocated between the Investment
 
Bank and Group Items.
 
2 Starting with the third quarter
of 2023, Non-core and Legacy represents a separate reportable segment and Group Functions has been renamed Group Items.
 
Prior periods have been revised to reflect these changes.
 / 
1. Inquiries regarding cross-border wealth management businesses
 
Tax and regulatory authorities in a number of
 
countries have made inquiries,
 
served requests for information or
 
examined
employees located in their
 
respective jurisdictions
 
relating to the
 
cross-border wealth
 
management services provided
 
by
UBS and other financial institutions.
Since 2013, UBS (France) S.A., UBS AG and certain former employees have been under investigation in
 
France in relation
to UBS’s cross-border business with French clients. In connection with this investigation, the
 
investigating judges ordered
UBS AG to provide bail (“
caution
”) of EUR
 i 1.1
bn.
In 2019, the court
 
of first instance
 
returned a verdict
 
finding UBS AG
 
guilty of unlawful solicitation
 
of clients on
 
French
territory
 
and aggravated
 
laundering of
 
the proceeds
 
of tax
 
fraud, and
 
UBS (France)
 
S.A. guilty
 
of aiding
 
and abetting
unlawful solicitation
 
and of
 
laundering the
 
proceeds of
 
tax fraud.
 
The court
 
imposed fines
 
aggregating EUR
 i 3.7
bn on
UBS AG and UBS (France) S.A. and
 
awarded EUR
 i 800
m of civil damages to the
 
French state. A trial in the Paris
 
Court of
Appeal took place in March 2021. In December
 
2021, the Court of Appeal found UBS
 
AG guilty of unlawful solicitation
and aggravated
 
laundering
 
of the
 
proceeds of
 
tax
 
fraud. The
 
court
 
ordered a
 
fine of
 
EUR
 i 3.75
m, the
 
confiscation
 
of
EUR
 i 1
bn, and awarded civil
 
damages to the French
 
state of EUR
 i 800
m. UBS appealed the
 
decision to the French
 
Supreme
Court.
 
The
 
Supreme
 
Court
 
rendered
 
its
 
judgment
 
on
 
15
 
November
 
2023.
 
It
 
upheld
 
the
 
Court
 
of
 
Appeal‘s
 
decision
regarding unlawful solicitation and aggravated
 
laundering of the proceeds of tax
 
fraud, but overturned the confiscation
of EUR
 i 1
bn, the
 
penalty of
 
EUR
 i 3.75
m and the
 
EUR
 i 800
m of civil
 
damages awarded
 
to the
 
French state.
 
The case
 
has
been remanded to
 
the Court of
 
Appeal for a
 
retrial regarding these
 
overturned elements. The
 
French state has
 
reimbursed
the EUR
 i 800
m of civil damages to UBS AG.
Our balance sheet
 
at 31 December
 
2023 reflected
 
a provision
 
in an amount
 
that UBS believes
 
to be appropriate
 
under
the applicable accounting standard. As in the case of other matters for which we have established provisions,
 
the future
outflow
 
of
 
resources
 
in
 
respect
 
of
 
such
 
matters
 
cannot
 
be
 
determined
 
with
 
certainty
 
based
 
on
 
currently
 
available
information and accordingly may ultimately
 
prove to be substantially greater
 
(or may be less) than the provision
 
that we
have recognized.
2. Madoff
In relation to the Bernard L. Madoff Investment Securities LLC (BMIS) investment
 
fraud, UBS AG, UBS (Luxembourg) S.A.
(now UBS Europe SE, Luxembourg branch) and certain other UBS
 
subsidiaries have been subject to inquiries by a
 
number
of regulators,
 
including the
 
Swiss Financial Market
 
Supervisory Authority
 
(FINMA) and the
 
Luxembourg Commission
 
de
Surveillance du
 
Secteur Financier.
 
Those inquiries
 
concerned two
 
third-party funds
 
established under
 
Luxembourg law,
substantially all assets of which
 
were with BMIS,
 
as well as certain
 
funds established in offshore
 
jurisdictions with either
direct or
 
indirect exposure
 
to BMIS. These
 
funds faced severe
 
losses, and the
 
Luxembourg funds
 
are in
 
liquidation. The
documentation
 
establishing
 
both
 
funds
 
identifies
 
UBS
 
entities
 
in
 
various
 
roles,
 
including
 
custodian,
 
administrator,
manager,
 
distributor and promoter,
 
and indicates that UBS employees serve as board
 
members.
In 2009 and 2010,
 
the liquidators of
 
the two Luxembourg
 
funds filed claims
 
against UBS entities,
 
non-UBS entities and
certain individuals,
 
including
 
current and
 
former
 
UBS employees,
 
seeking amounts
 
totaling approximately
 
EUR
 i 2.1
bn,
which includes amounts that the funds may be held liable
 
to pay the trustee for the liquidation of BMIS (BMIS Trustee).
A large number of alleged beneficiaries have filed claims against UBS entities (and non-UBS entities) for purported losses
relating to the Madoff fraud. The majority of these
 
cases have been filed in Luxembourg, where decisions that the claims
in
 
eight
 
test
 
cases
 
were
 
inadmissible
 
have
 
been
 
affirmed
 
by
 
the
 
Luxembourg
 
Court
 
of
 
Appeal,
 
and
 
the
 
Luxembourg
Supreme Court has dismissed a further appeal in one of
 
the test cases.
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
179
Note 17
 
Provisions and contingent liabilities (continued)
In the US, the BMIS Trustee
 
filed claims against UBS entities, among others, in
 
relation to the two Luxembourg funds and
one of the offshore funds. The total amount
 
claimed against all defendants in these
 
actions was not less than USD
 i 2
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
 i 125
m
 
of
 
payments
 
alleged
 
to
 
be
 
fraudulent
 
conveyances
 
and
preference payments. In 2016, the
 
bankruptcy court dismissed these claims
 
against the UBS entities. In
 
2019, the Court
of Appeals reversed
 
the dismissal of the
 
BMIS Trustee’s remaining claims,
 
and the US
 
Supreme Court subsequently denied
a petition
 
seeking review
 
of the
 
Court of
 
Appeals’ decision.
 
The case
 
has been
 
remanded to
 
the Bankruptcy
 
Court for
further proceedings.
3. Foreign exchange, LIBOR and benchmark rates, and other
 
trading practices
Foreign
 
exchange-related
 
regulatory
 
matters:
 
Beginning
 
in
 
2013,
 
numerous
 
authorities
 
commenced
 
investigations
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:
 
Putative class actions have
 
been filed since
 
2013 in US
 
federal courts and in
 
other
jurisdictions
 
against
 
UBS
 
and
 
other
 
banks
 
on
 
behalf
 
of
 
putative
 
classes
 
of
 
persons
 
who
 
engaged
 
in
 
foreign
 
currency
transactions with any of
 
the defendant banks. UBS has resolved
 
US federal court class actions
 
relating to foreign currency
transactions with
 
the defendant
 
banks and
 
persons who
 
transacted in
 
foreign exchange
 
futures contracts
 
and options
on such
 
futures
 
under
 
a
 
settlement
 
agreement
 
that
 
provides for
 
UBS to
 
pay
 
an aggregate
 
of USD
 i 141
m and
 
provide
cooperation to the
 
settlement classes. Certain
 
class members have
 
excluded themselves
 
from that settlement
 
and have
filed individual
 
actions in
 
US and
 
English courts
 
against
 
UBS and
 
other banks,
 
alleging violations
 
of US
 
and European
competition laws and unjust enrichment. UBS and the other
 
banks have resolved those individual matters.
In 2015, a
 
putative class
 
action was
 
filed in federal
 
court against
 
UBS and numerous
 
other banks
 
on behalf of
 
persons
and businesses
 
in the US
 
who directly
 
purchased foreign
 
currency from
 
the defendants
 
and alleged
 
co-conspirators for
their own end use.
 
In 2022, the
 
court denied plaintiffs’
 
motion for class certification.
 
In March 2023, the
 
court granted
defendants’ summary judgment motion, dismissing the case.
 
Plaintiffs have appealed.
LIBOR
 
and
 
other
 
benchmark-related
 
regulatory
 
matters:
 
Numerous
 
government
 
agencies
 
conducted
 
investigations
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:
 
A number of
 
putative class actions
 
and other actions
 
are pending in
the federal
 
courts in
 
New York
 
against UBS
 
and numerous
 
other banks
 
on behalf
 
of parties
 
who transacted
 
in certain
interest rate benchmark-based derivatives.
 
Also pending in
 
the US and
 
in other jurisdictions are
 
a number of other
 
actions
asserting losses related
 
to various products
 
whose interest
 
rates were
 
linked to LIBOR
 
and other benchmarks,
 
including
adjustable
 
rate
 
mortgages,
 
preferred
 
and
 
debt
 
securities,
 
bonds
 
pledged
 
as
 
collateral,
 
loans,
 
depository
 
accounts,
investments
 
and
 
other
 
interest-bearing
 
instruments.
 
The
 
complaints
 
allege
 
manipulation,
 
through
 
various
 
means,
 
of
certain benchmark interest rates, including USD LIBOR, Euroyen TIBOR, Yen LIBOR, EURIBOR, CHF LIBOR, GBP LIBOR and
seek unspecified compensatory and other damages under
 
varying legal theories.
USD LIBOR class and individual
 
actions in the US:
In 2013 and 2015,
 
the district court in
 
the USD LIBOR actions dismissed,
in whole or in part, certain
 
plaintiffs’ antitrust claims, federal racketeering
 
claims, Commodity Exchange Act claims,
 
and
state common
 
law claims,
 
and again
 
dismissed the
 
antitrust claims
 
in 2016
 
following
 
an appeal.
 
In 2021,
 
the Second
Circuit affirmed
 
the district
 
court’s dismissal
 
in part
 
and reversed
 
in part
 
and remanded
 
to the
 
district court
 
for further
proceedings. The
 
Second Circuit,
 
among other
 
things, held
 
that there
 
was personal
 
jurisdiction over
 
UBS and
 
other foreign
defendants. Separately, in
 
2018, the Second
 
Circuit reversed in part
 
the district court’s
 
2015 decision dismissing
 
certain
individual plaintiffs’ claims and
 
certain of these actions
 
are now proceeding. In
 
2018, the district court denied
 
plaintiffs’
motions for class
 
certification in
 
the USD class
 
actions for
 
claims pending against
 
UBS, and plaintiffs
 
sought permission
to appeal that
 
ruling to the
 
Second Circuit. The Second
 
Circuit denied the
 
petition to appeal. In
 
2020, an individual action
was
 
filed
 
in
 
the
 
Northern
 
District
 
of
 
California
 
against
 
UBS
 
and
 
numerous
 
other
 
banks
 
alleging
 
that
 
the
 
defendants
conspired
 
to
 
fix
 
the
 
interest
 
rate
 
used
 
as
 
the
 
basis
 
for
 
loans
 
to
 
consumers
 
by
 
jointly
 
setting
 
the
 
USD LIBOR
 
rate
 
and
monopolized
 
the
 
market
 
for
 
LIBOR-based
 
consumer
 
loans
 
and
 
credit
 
cards.
 
In
 
September
 
2022,
 
the
 
court
 
granted
defendants’ motion to
 
dismiss the complaint
 
in its entirety, while
 
allowing plaintiffs the
 
opportunity to file an
 
amended
complaint.
 
Plaintiffs
 
filed
 
an
 
amended
 
complaint
 
in
 
October
 
2022,
 
and
 
defendants
 
moved
 
to
 
dismiss
 
the
 
amended
complaint.
 
In
 
October
 
2023,
 
the
 
court
 
dismissed
 
the
 
amended
 
complaint
 
with
 
prejudice.
 
In
 
January
 
2024,
 
plaintiffs
appealed the
 
dismissal to
 
the
 
Ninth Circuit
 
Court of
 
Appeals.
 
Defendants
 
filed their
 
response
 
to the
 
appeal
 
in
 
March
2024.
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
180
Note 17
 
Provisions and contingent liabilities (continued)
Other benchmark class actions in the US:
 
Yen
 
LIBOR
 
/
 
Euroyen
 
TIBOR
–
 
In
 
2017,
 
the
 
court
 
dismissed
 
one
 
Yen
 
LIBOR
 
/
 
Euroyen
 
TIBOR
 
action
 
in
 
its
 
entirety
 
on
standing grounds.
 
In 2020,
 
the appeals court
 
reversed the
 
dismissal and,
 
subsequently,
 
plaintiffs in
 
that action filed
 
an
amended complaint focused
 
on Yen
 
LIBOR. In 2022, the
 
court granted UBS’s motion
 
for reconsideration and
 
dismissed
the
 
case
 
against
 
UBS.
 
The
 
dismissal
 
of
 
the
 
case
 
against
 
UBS
 
could be
 
appealed
 
following
 
the
 
disposition
 
of
 
the
 
case
against the remaining defendant in the district court.
CHF LIBOR
 
– In 2017,
 
the court dismissed the
 
CHF LIBOR action on standing
 
grounds and failure to
 
state a claim. Plaintiffs
filed an amended
 
complaint, and
 
the court granted
 
a renewed motion
 
to dismiss in
 
2019. Plaintiffs appealed.
 
In 2021,
the Second Circuit granted the parties’ joint motion
 
to vacate the dismissal and remand the case
 
for further proceedings.
Plaintiffs filed a third amended
 
complaint in November 2022
 
and defendants moved
 
to dismiss the amended
 
complaint
in January 2023.
EURIBOR
 
– In 2017, the court in the EURIBOR lawsuit dismissed the case
 
as to UBS and certain other foreign defendants
for lack of personal jurisdiction. Plaintiffs have appealed.
 
GBP LIBOR
 
– The court dismissed the GBP LIBOR action in 2019. Plaintiffs
 
have appealed.
 
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 2021.
 
Plaintiffs filed an
 
amended complaint, which defendants
 
moved to dismiss
 
later in 2021.
 
In March 2022,
the court granted defendants’
 
motion to dismiss that
 
complaint, and in February
 
2024, the Second Circuit
 
affirmed the
district
 
court’s
 
dismissal.
 
Similar
 
class
 
actions
 
have
 
been
 
filed
 
concerning
 
European
 
government
 
bonds
 
and
 
other
government bonds.
In 2021,
 
the European
 
Commission
 
issued a
 
decision finding
 
that UBS
 
and six
 
other
 
banks breached
 
European
 
Union
antitrust rules in 2007–2011 relating
 
to European government bonds. The
 
European Commission fined UBS
 
EUR
 i 172
m.
UBS is appealing the amount of the fine.
With respect to
 
additional matters
 
and jurisdictions
 
not encompassed
 
by the
 
settlements and
 
orders referred
 
to above,
our balance
 
sheet at
 
31 December
 
2023 reflected
 
a provision
 
in an amount
 
that UBS
 
believes to
 
be appropriate
 
under
the applicable accounting standard. As in the case of other matters
 
for which we have established provisions, the future
outflow
 
of
 
resources
 
in
 
respect
 
of
 
such
 
matters
 
cannot
 
be
 
determined
 
with
 
certainty
 
based
 
on
 
currently
 
available
information and accordingly may ultimately
 
prove to be substantially greater
 
(or may be less) than the provision that
 
we
have recognized.
4. Swiss retrocessions
The Federal Supreme Court of Switzerland
 
ruled in 2012, in a test case
 
against UBS, that distribution fees paid
 
to a firm
for distributing third-party and intra-group investment funds and structured products must be disclosed and surrendered
to clients who have entered
 
into a discretionary mandate
 
agreement with the firm,
 
absent a valid waiver.
 
FINMA issued
a supervisory note to
 
all Swiss banks
 
in response to
 
the Supreme
 
Court decision. UBS
 
has met the FINMA
 
requirements
and has notified all potentially affected clients.
The Supreme Court decision has resulted, and continues to result, in a number of client requests for
 
UBS to disclose and
potentially
 
surrender
 
retrocessions.
 
Client
 
requests
 
are
 
assessed
 
on
 
a
 
case-by-case
 
basis.
 
Considerations
 
taken
 
into
account when assessing these cases include, among other things, the existence of a discretionary
 
mandate and whether
or not the client documentation contained a valid waiver
 
with respect to distribution fees.
Our
 
balance
 
sheet
 
at
 
31
 
December
 
2023 reflected
 
a
 
provision
 
with
 
respect
 
to
 
matters
 
described
 
in
 
this
 
item
 
4
 
in
 
an
amount that UBS
 
believes to be
 
appropriate under the
 
applicable accounting standard. The
 
ultimate exposure will
 
depend
on client requests and
 
the resolution thereof, factors that are
 
difficult to predict and
 
assess. Hence, as in the
 
case of other
matters for which
 
we have established
 
provisions, the future
 
outflow of resources
 
in respect of
 
such matters cannot
 
be
determined
 
with
 
certainty
 
based
 
on
 
currently
 
available
 
information
 
and
 
accordingly
 
may
 
ultimately
 
prove
 
to
 
be
substantially greater (or may be less) than the provision that
 
we have recognized.
 
 
 
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
181
 i 
 
Note 18
 
Other liabilities
a) Other financial liabilities measured at amortized
 
cost
 i 
 
 
 
 
 
 
USD m
31.12.23
31.12.22
Other accrued expenses
 i 1,613
 i 1,564
Accrued interest expenses
 i 4,186
 i 2,008
Settlement and clearing accounts
 i 1,314
 i 1,060
Lease liabilities
 i 2,904
 i 3,211
Other
 i 2,695
 i 2,549
Total other financial liabilities measured at amortized cost
 i 12,713
 i 10,391
 / 
b) Other financial liabilities designated at fair value
 i 
 
 
 
 
 
 
USD m
31.12.23
31.12.22
Financial liabilities related to unit-linked investment contracts
 i 15,922
 i 13,221
Securities financing transactions
 i 6,927
 i 15,333
Over-the-counter debt instruments and other
 i 1,566
 i 1,684
Funding from UBS Group AG
1
 i 2,950
 i 1,796
Total other financial liabilities designated at fair value
 i 27,366
 i 32,033
1 The Funding from UBS Group AG consists
 
of subordinated debt of UBS AG and its subsidiaries
 
toward UBS Group AG. Subordinated
 
debt consists of unsecured debt obligations that are contractually
 
subordinated
in right of payment to all other present and future non-subordinated obligations of the respective issuing entity.
 / 
c) Other non-financial liabilities
 i 
 
 
 
 
 
 
 
 
 
 
 
 
USD m
31.12.23
31.12.22
Compensation-related liabilities
 i 4,526
 i 4,424
of which: financial advisor compensation plans
 i 1,472
 i 1,463
of which: other compensation plans
 i 1,955
 i 2,023
of which: net defined benefit liability
 i 487
 i 449
of which: other compensation-related liabilities
1
 i 611
 i 490
Current tax liabilities
 i 932
 i 1,044
Deferred tax liabilities
 i 162
 i 233
VAT,
 
withholding tax and other tax payables
 i 712
 i 472
Deferred income
 i 276
 i 233
Other
 i 74
 i 84
Total other non-financial liabilities
 
 i 6,682
 i 6,489
1 Includes liabilities for payroll taxes and untaken vacation.
 / 
 
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
182
Additional information
 i 
 
 
Note 19
 
Expected credit loss measurement
a) Expected credit losses in the period
Total net credit loss expenses were USD
 i 143
m in 2023, reflecting net credit loss expenses of USD
 i 23
m related to stage 1
and 2 positions and net credit loss expenses of
 
USD
 i 120
m related to credit-impaired
 
(stage 3) positions.
›
Refer to Note 19b for more information regarding changes to expected
 
credit loss
 
models, scenarios, scenario weights and the
post-model adjustments
 
and to Note 19c for more information regarding the development
 
of ECL allowances and provisions
Stage 3
 
net
 
expenses
 
of
 
USD
 i 120
m
 
were
 
recognized
 
across
 
a
 
number
 
of
 
defaulted
 
positions,
 
with
 
net
 
expenses
 
of
USD
 i 56
m
 
in
 
the
 
Investment
 
Bank,
 
USD
 i 37
m
 
in
 
Personal
 
&
 
Corporate
 
Banking
 
and
 
USD
 i 27
m
 
in
 
Global
 
Wealth
Management.
 / 
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit loss expense / (release)
Performing positions
Credit-impaired positions
USD m
Stages 1 and 2
Stage 3
Total
For the year ended 31.12.23
Global Wealth Management
( i 2)
 i 27
 i 25
Personal & Corporate Banking
 i 13
 i 37
 i 50
Asset Management
 i 0
( i 1)
( i 1)
Investment Bank
 i 11
 i 56
 i 67
Non-core and Legacy
 i 0
 i 1
 i 1
Group Items
1
 i 1
 i 0
 i 1
Total
 i 23
 i 120
 i 143
For the year ended 31.12.22
Global Wealth Management
( i 5)
 i 5
 i 0
Personal & Corporate Banking
 i 27
 i 12
 i 39
Asset Management
 i 0
 i 0
 i 0
Investment Bank
 i 6
( i 18)
( i 12)
Non-core and Legacy
 i 0
 i 2
 i 2
Group Items
1
 i 0
 i 0
 i 0
Total
 i 29
 i 0
 i 29
For the year ended 31.12.21
Global Wealth Management
( i 28)
( i 1)
( i 29)
Personal & Corporate Banking
( i 62)
( i 24)
( i 86)
Asset Management
 i 0
 i 1
 i 1
Investment Bank
( i 34)
 i 0
( i 34)
Non-core and Legacy
 i 0
 i 0
 i 0
Group Items
1
 i 0
 i 0
 i 0
Total
( i 123)
( i 25)
( i 148)
1 Starting with the third quarter of 2023, Non-core and Legacy became a separate reportable segment and Group Functions has been renamed Group Items. Prior periods have been restated to reflect these changes.
 / 
 
 
b) Changes to
 
ECL models, scenarios,
 
scenario weights
 
and key inputs
 
Refer to
 
Note 1a for
 
information about
 
the
 
principles governing expected
 
credit
 
loss (ECL)
 
models, scenarios,
 
scenario
weights and
 
key inputs applied.
 
Governance
Comprehensive
 
cross-functional
 
and cross-divisional
 
governance
 
processes are
 
in place
 
and are
 
used to
 
discuss and
 
approve
scenario updates and weights,
 
to assess whether
 
significant increases in credit
 
risk resulted in
 
stage transfers, to
 
review
model outputs
 
and to reach conclusions
 
regarding post-model
 
adjustments.
 
Model changes
During 2023, the model review and enhancement
 
process led to adjustments of the probability
 
of default (PD), loss given
default (LGD) and credit conversion
 
factor (CCF) models, resulting
 
in a USD
 i 27
m increase in ECL allowances. This includes
an increase
 
of USD
 i 16
m
 
in
 
the Investment
 
Bank, mainly
 
related to
 
lending to
Large corporate
 
clients
,
 
and a
 
USD
 i 12
m
increase in Personal
 
& Corporate Banking,
 
mainly related
 
to lending to
Large corporate
 
clients
 
and
SME clients.
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
183
Note 19
 
Expected credit loss measurement (continued)
Scenario and
 
key input updates
During 2023, the scenarios and related macroeconomic factors were updated from
 
those applied at the end
 
of 2022 by
considering
 
the prevailing
 
economic
 
and political
 
conditions
 
and uncertainty.
 
The review
 
focused
 
on events
 
that significantly
changed the economic outlook during the year:
 
the inflation outlook and economic growth
 
in Europe, and
 
rising global
interest rates
 
due to central
 
banks’ adoption
 
of more restrictive
 
monetary policies.
Baseline
 
scenario
: the
 
projections
 
of the
 
baseline scenario,
 
which are
 
aligned
 
to the
 
economic and
 
market assumptions
 
used
for
 
UBS’s
 
business
 
planning
 
purposes,
 
are broadly
 
in line
 
with
 
external
 
benchmarks,
 
such
 
as that
 
from Bloomberg
 
Consensus,
Oxford Economics
 
and the International
 
Monetary Fund World Economic
 
Outlook. The expectation
 
for 2024 is that global
growth slows
 
down under
 
the weight of
 
monetary policy
 
tightening and
 
continued pressure
 
on real purchasing
 
power due
to high, though falling inflation,
 
and fading fiscal support. Unemployment
 
rates are forecast to increase
 
slightly from their
2023 levels.
 
Interest rates are
 
expected to
 
remain high,
 
given the
 
persistence of inflationary pressures, leading
 
to a
 
less
optimistic outlook
 
for house prices
 
worldwide,
 
including in
 
Switzerland.
 
Mild debt crisis scenario
: The first hypothetical downside scenario is the mild debt crisis scenario. At the beginning of the
second quarter
 
of 2023,
 
UBS replaced
 
the global
 
crisis scenario
 
applied
 
at the
 
end of
 
2022 and
 
at the
 
end of
 
the first
 
quarter
of 2023 with the mild debt crisis
 
scenario. Economic,
 
market and political
 
developments suggested
 
that the scenario suite
should be rebalanced by reintroducing
 
a mild downside scenario. The mild debt crisis scenario
 
covers similar risks, but the
assumptions
 
are milder
 
than the
 
global
 
crisis
 
scenario.
 
Therefore,
 
the scenario
 
shocks
 
are less
 
severe.
 
It assumes
 
that political,
solvency and liquidity concerns cause a
 
sell-off of sovereign debt in
 
emerging markets and the peripheral Eurozone. The
global economy
 
and financial
 
markets are
 
negatively
 
affected,
 
and central
 
banks are
 
assumed to
 
ease their
 
monetary policy.
Stagflationary geopolitical crisis scenario:
The second
 
downside scenario is
 
aligned with
 
the 2024
 
Group binding
 
stress
scenario and was updated in 2023
 
to reflect expected risks, resulting in minimal changes.
 
Geopolitical tensions cause an
escalation
 
of security
 
concerns
 
and undermine
 
globalization.
 
The ensuing
 
economic
 
regionalization
 
leads
 
to a
 
surge
 
in global
commodity prices and further disruptions
 
of supply chains,
 
and raises the specter of prolonged stagflation. Central
 
banks
are forced
 
to further
 
tighten monetary policy
 
to contain
 
inflationary pressures. The severe
 
interest rate and
 
house price
assumptions in the scenario had a substantive impact on model-based ECL allowances
 
for loans secured by mortgages in
Switzerland and the
 
US. These
 
effects were
 
partly offset by
 
post-model adjustment releases related to
 
loans secured by
mortgages. Refer
 
to the section
 
below on “Scenario
 
weights and post-model
 
adjustments” for
 
more details.
Asset price
 
inflation scenario:
The upside
 
scenario is
 
based on
 
positive developments, such
 
as an
 
easing of
 
geopolitical
tensions across
 
the globe
 
and a rebound
 
in Chinese
 
economic growth.
 
A combination
 
of lower commodity
 
prices, effective
monetary
 
policies
 
and easing
 
supply chain
 
disruptions
 
helps to
 
reduce inflation.
 
Improved
 
consumer
 
and business
 
sentiment
lead to
 
a global
 
economic rebound,
 
enabling central
 
banks to
 
normalize interest
 
rates, which
 
causes asset
 
prices to
 
increase
significantly.
The table below details the key assumptions for the four scenarios
 
applied as of 31 December 2023.
Scenario weights and post-model adjustments
The scenario weights did not change during 2023, but the
 
scenario suite was adjusted in the second quarter of 2023
 
to
replace one of
 
the two severe downside
 
scenarios with a
 
mild downside scenario.
 
The mild debt
 
crisis scenario, developed
in early 2023,
 
was introduced
 
in the scenario
 
suite with the
 
same weight as
 
the more
 
severe global crisis
 
scenario, i.e.,
 i 15
%,
 
to
 
balance
 
a
 
somewhat
 
more
 
optimistic
 
outlook
 
with
 
milder
 
scenario
 
assumptions.
 
The
 
weights
 
were
 
kept
unchanged for the stagflationary geopolitical crisis, baseline and asset price inflation scenarios, i.e.,
 i 25
%,
 i 60
% and
 i 0
%,
respectively.
 
The weights are shown in the table below.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
184
Note 19
 
Expected credit loss measurement (continued)
However, unquantifiable risks continue to be relevant, as the
 
geopolitical risks remained high in 2023, and the
 
impact on
the world economy from
 
escalations with unforeseeable consequences could be
 
severe. In the near
 
term, this uncertainty
relates
 
primarily
 
to
 
developments
 
in
 
the
 
Russia–Ukraine
 
and
 
Middle
 
East
 
conflicts.
 
Models,
 
which
 
are
 
based
 
on
supportable
 
statistical
 
information
 
from
 
past
 
experiences
 
regarding
 
interdependencies
 
of
 
macroeconomic
 
factors
 
and
their implications for credit risk portfolios, cannot comprehensively reflect such extraordinary events, such as a pandemic
or
 
a
 
fundamental
 
change
 
in
 
the
 
world
 
political
 
order.
 
Rather
 
than
 
creating
 
multiple
 
additional
 
scenarios
 
to
 
attempt
gauging these risks and applying model parameters that
 
lack supportable information and cannot be robustly
 
validated,
management continued to also apply post-model adjustments.
 
Total
 
stage 1
 
and
 
2
 
allowances
 
and
 
provisions
 
were
 
USD
 i 580
m
 
as
 
of
 
31 December
 
2023
 
and
 
included
 
post-model
adjustments of
 
USD
 i 133
m (31 December
 
2022: USD
 i 131
m). Overlays
 
are to
 
cover for
 
uncertainty levels,
 
including the
geopolitical situation.
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Economic scenarios and weights applied
Assigned weights in %
ECL scenario
31.12.23
31.12.22
Asset price inflation
 i 0.0
 i 0.0
Baseline
 i 60.0
 i 60.0
Mild debt crisis
 i 15.0
 i 0.0
Stagflationary geopolitical crisis
 i 25.0
 i 25.0
Global crisis
 i 0.0
 i 15.0
 / 
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Scenario assumptions
One year
Three years cumulative
31.12.23
Asset price
inflation
Baseline
Mild debt
crisis
Stagflationary
geopolitical
crisis
Asset price
inflation
Baseline
Mild debt
crisis
Stagflationary
geopolitical
crisis
Real GDP growth (% change)
United States
 i 4.0
 i 0.1
( i 1.6)
( i 4.8)
 i 9.1
 i 4.4
 i 0.6
( i 4.4)
Eurozone
 i 3.0
 i 0.5
( i 1.7)
( i 5.6)
 i 6.2
 i 2.9
( i 0.1)
( i 5.7)
Switzerland
 i 3.0
 i 1.4
( i 1.2)
( i 4.8)
 i 6.6
 i 4.4
 i 0.3
( i 4.9)
Consumer price index (% change)
United States
 i 2.5
 i 2.3
( i 0.1)
 i 10.0
 i 8.1
 i 7.1
 i 2.3
 i 15.8
Eurozone
 i 2.3
 i 2.0
( i 0.2)
 i 9.6
 i 7.4
 i 6.1
 i 1.8
 i 14.8
Switzerland
 i 2.1
 i 1.5
( i 0.4)
 i 5.8
 i 6.2
 i 4.3
 i 0.8
 i 10.7
Unemployment rate (end-of-period level, %)
United States
 i 3.0
 i 4.4
 i 6.3
 i 9.2
 i 3.0
 i 4.4
 i 7.7
 i 11.8
Eurozone
 i 6.0
 i 6.9
 i 8.2
 i 10.6
 i 6.0
 i 6.8
 i 9.0
 i 11.8
Switzerland
 i 1.6
 i 2.3
 i 2.9
 i 4.1
 i 1.5
 i 2.3
 i 3.8
 i 5.0
Fixed income: 10-year government bonds (change in yields, basis points)
USD
 i 13
( i 82)
( i 215)
 i 270
 i 37
( i 78)
( i 155)
 i 245
EUR
 i 20
( i 90)
( i 185)
 i 225
 i 58
( i 78)
( i 140)
 i 195
CHF
 i 25
( i 41)
( i 73)
 i 195
 i 63
( i 34)
( i 28)
 i 180
Equity indices (% change)
S&P 500
 i 20.0
 i 15.3
( i 26.6)
( i 51.5)
 i 51.7
 i 28.1
( i 12.2)
( i 45.6)
EuroStoxx 50
 i 20.0
 i 12.0
( i 26.4)
( i 51.6)
 i 46.6
 i 22.9
( i 16.6)
( i 47.2)
SPI
 i 15.0
 i 4.6
( i 24.5)
( i 51.6)
 i 39.2
 i 15.9
( i 11.2)
( i 47.2)
Swiss real estate (% change)
Single-Family Homes
 i 6.6
( i 1.5)
( i 4.4)
( i 18.5)
 i 14.0
 i 0.8
( i 3.0)
( i 28.6)
Other real estate (% change)
United States (S&P / Case–Shiller)
 i 8.1
 i 0.6
( i 8.6)
( i 20.0)
 i 19.7
 i 5.8
( i 5.2)
( i 30.2)
Eurozone (House Price Index)
 i 7.0
 i 0.6
( i 5.9)
( i 8.4)
 i 15.4
 i 6.4
( i 5.2)
( i 12.9)
 / 
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
185
Note 19
 
Expected credit loss measurement (continued)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Scenario assumptions
One year
Three years cumulative
31.12.22
Asset price
inflation
Baseline
Stagflationary
geopolitical
crisis
Global crisis
Asset price
inflation
Baseline
Stagflationary
geopolitical
crisis
Global crisis
Real GDP growth (% change)
United States
 i 4.0
( i 0.3)
( i 4.8)
( i 6.4)
 i 9.1
 i 3.2
( i 4.4)
( i 1.8)
Eurozone
 i 3.0
 i 0.6
( i 5.6)
( i 8.5)
 i 6.2
 i 2.5
( i 5.7)
( i 8.3)
Switzerland
 i 3.0
 i 0.7
( i 4.8)
( i 6.7)
 i 6.6
 i 3.5
( i 4.9)
( i 3.7)
Consumer price index (% change)
United States
 i 2.5
 i 2.6
 i 10.0
( i 0.5)
 i 8.1
 i 6.5
 i 15.8
 i 1.2
Eurozone
 i 2.3
 i 5.0
 i 9.6
( i 0.7)
 i 7.4
 i 9.6
 i 14.8
( i 0.7)
Switzerland
 i 2.1
 i 1.6
 i 5.8
( i 1.8)
 i 6.2
 i 3.9
 i 10.7
( i 1.6)
Unemployment rate (end-of-period level, %)
United States
 i 3.0
 i 3.9
 i 9.2
 i 10.0
 i 3.0
 i 5.3
 i 11.8
 i 9.4
Eurozone
 i 6.0
 i 7.0
 i 10.9
 i 11.9
 i 6.0
 i 7.1
 i 12.2
 i 13.0
Switzerland
 i 1.7
 i 2.3
 i 4.3
 i 4.4
 i 1.5
 i 2.6
 i 5.1
 i 4.9
Fixed income: 10-year government bonds (change in yields, basis points)
USD
 i 25
( i 6)
 i 235
( i 326)
 i 70
( i 13)
 i 205
( i 291)
EUR
 i 20
 i 48
 i 250
( i 271)
 i 58
 i 45
 i 220
( i 247)
CHF
 i 25
 i 46
 i 220
( i 210)
 i 63
 i 57
 i 205
( i 160)
Equity indices (% change)
S&P 500
 i 20.0
 i 7.4
( i 51.5)
( i 50.0)
 i 51.7
 i 22.8
( i 45.6)
( i 27.9)
EuroStoxx 50
 i 17.0
 i 17.2
( i 51.6)
( i 50.0)
 i 42.9
 i 29.2
( i 47.2)
( i 39.3)
SPI
 i 14.0
 i 5.6
( i 51.6)
( i 46.0)
 i 37.9
 i 19.3
( i 47.2)
( i 32.9)
Swiss real estate (% change)
Single-Family Homes
 i 6.6
 i 1.1
( i 16.7)
( i 19.9)
 i 14.0
 i 2.3
( i 32.9)
( i 23.9)
Other real estate (% change)
United States (S&P / Case–Shiller)
 i 7.8
( i 4.5)
( i 12.8)
( i 19.3)
 i 19.1
( i 0.6)
( i 35.8)
( i 32.7)
Eurozone (House Price Index)
 i 7.0
( i 2.7)
( i 8.4)
( i 8.9)
 i 15.4
 i 2.0
( i 14.7)
( i 17.5)
 
c) Development of ECL allowances and provisions
 
The ECL allowances and provisions recognized
 
in the period are impacted by a variety
 
of factors, such as:
–
the effect of selecting and updating forward-looking scenarios
 
and the respective weights;
–
origination of new instruments during the period;
 
–
the effect of
 
passage of
 
time (lower residual
 
lifetime PD and
 
the effect of
 
discount unwind) as
 
the ECL on
 
an instrument
for the remaining lifetime decreases (all other factors remaining
 
the same);
–
derecognition of instruments in the period;
–
change in individual asset quality of instruments;
–
movements
 
from
 
a
 
maximum
 
12-month
 
ECL to
 
the
 
recognition
 
of lifetime
 
ECL (and
 
vice versa)
 
following transfers
between stages 1 and 2;
 
–
movements from stages 1 and 2 to stage 3 (credit-impaired status)
 
when default has become certain and PD increases
to 100% (or vice versa);
–
changes in models or updates to model parameters;
–
write-off; and
–
foreign exchange translations for assets denominated in
 
foreign currencies.
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
186
Note 19
 
Expected credit loss measurement (continued)
The
 
table
 
below
 
explains
 
the
 
changes
 
in
 
the
 
ECL
 
allowances
 
and
 
provisions
 
for
 
on-
 
and
 
off-balance
 
sheet
 
financial
instruments and credit lines
 
in scope of ECL requirements
 
between the beginning and
 
the end of the
 
period due to the
factors listed above.
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Development of ECL allowances and
 
provisions
USD m
Total
Stage 1
Stage 2
Stage 3
Balance as of 31 December 2022
( i 1,091)
( i 260)
( i 267)
( i 564)
Net movement from new and derecognized transactions
1
( i 11)
( i 27)
 i 9
 i 7
of which: Private clients with mortgages
( i 5)
( i 8)
 i 3
 i 0
of which: Real estate financing
( i 2)
( i 4)
 i 3
 i 0
of which: Large corporate clients
 i 2
( i 8)
 i 3
 i 7
of which: SME clients
( i 3)
( i 3)
 i 0
 i 0
of which: Other
( i 4)
( i 4)
 i 0
 i 0
 
of which: Financial intermediaries and hedge funds
( i 1)
( i 1)
 i 0
 i 0
 
of which: Loans to financial advisors
 i 0
 i 0
 i 0
 i 0
Remeasurements with stage transfers
2
( i 140)
 i 8
( i 7)
( i 142)
of which: Private clients with mortgages
 i 3
 i 1
 i 3
( i 1)
of which: Real estate financing
( i 2)
 i 2
( i 5)
 i 0
of which: Large corporate clients
( i 76)
 i 3
( i 3)
( i 76)
of which: SME clients
( i 56)
 i 1
( i 1)
( i 55)
of which: Other
( i 10)
 i 1
 i 0
( i 11)
 
of which: Financial intermediaries and hedge funds
 i 0
 i 0
 i 1
 i 0
 
of which: Loans to financial advisors
 i 1
 i 0
 i 0
 i 0
Remeasurements without stage transfers
3
 i 35
 i 7
 i 14
 i 14
of which: Private clients with mortgages
 i 5
( i 5)
 i 14
( i 3)
of which: Real estate financing
 i 5
 i 2
 i 3
( i 1)
of which: Large corporate clients
 i 15
 i 13
 i 10
( i 8)
of which: SME clients
 i 44
( i 1)
 i 1
 i 44
of which: Other
( i 34)
( i 2)
( i 14)
( i 18)
 
of which: Sovereigns
( i 15)
 i 0
( i 15)
 
0
 
of which: Loans to financial advisors
( i 7)
 i 1
 i 0
( i 8)
Model changes
4
( i 27)
( i 18)
( i 9)
 i 0
Movements with profit or loss impact
5
( i 143)
( i 30)
 i 7
( i 120)
Movements without profit or loss impact (write-off, FX and other)
6
( i 10)
( i 18)
( i 13)
 i 21
Balance as of 31 December 2023
( i 1,244)
( i 308)
( i 272)
( i 664)
1 Represents the
 
increase and decrease
 
in allowances
 
and provisions resulting
 
from financial instruments
 
(including guarantees
 
and facilities) that
 
were newly originated,
 
purchased or renewed
 
and from the
 
final
derecognition of loans or facilities on
 
their maturity date or earlier.
 
2 Represents the remeasurement between 12-month and lifetime
 
ECL due to stage transfers.
 
3 Represents the change in allowances and provisions
related to
 
changes in
 
model inputs
 
or assumptions,
 
including changes
 
in forward-looking
 
macroeconomic
 
conditions,
 
changes in
 
the exposure
 
profile,
 
PD and
 
LGD changes,
 
and unwinding
 
of the
 
time value.
 
4 Represents the change in the allowances and provisions related to changes in models and methodologies.
 
5 Includes ECL movements from new and derecognized transactions, remeasurement changes, and model
and methodology changes.
 
6 Represents the decrease in allowances
 
and provisions resulting from write-offs
 
of the ECL allowance against
 
the gross carrying amount when all
 
or part of a financial asset
 
is deemed
uncollectible or forgiven and movements in foreign exchange rates.
 / 
Movements with
 
profit or
 
loss impact:
 
Stages 1
 
and 2
 
ECL allowances
 
and provisions increased
 
on a
 
net basis
 
by USD
 i 23
m:
–
Net movement
 
from new
 
and derecognized
 
transactions
 
includes USD
 i 27
m stage
 
1 expenses
 
and USD
 i 9
m stage
 
2
releases: Stage 1 expenses are primarily
 
driven by new loans secured by
 
real estate and corporate lending. The residual
effect is spread across other lending segments. Stage 2
 
releases are largely driven by redemption of real estate lending
in Personal & Corporate Banking and Global Wealth Management.
–
Remeasurements with stage transfers
 
include USD
 i 8
m releases in
 
stage 1 and USD
 i 7
m expenses in
 
stage 2. This
 
mainly
includes the transfer of a few large corporate and real estate
 
financing transactions from stage 1 to 2 (i.e., releases in
stage 1 and related but generally higher expenses in stage
 
2), driven by rating downgrades and scenario effects.
–
Remeasurements without stage transfers
 
include stage 1 releases of USD
 i 7
m and stage 2 releases of USD
 i 14
m. These
releases of USD
 i 21
m relate to large corporate lending
 
(USD
 i 23
m) and real estate lending (USD
 i 14
m), substantially due
to scenario effects, partly offset by expenses to a single
 
sovereign counterparty (USD
 i 15
m).
–
Model changes
: refer to Note 19b for more information.
Movements without
 
profit or
 
loss impact
: Stages
 
1 and
 
2 allowances
 
increased by
 
USD
 i 31
m, almost
 
entirely driven
 
by
FX. Stage
 
3 allowances
 
decreased
 
by USD
 i 21
m, driven
 
by FX
 
and other
 
movements
 
of USD
 i 48
m, partly
 
offset
 
by net
write-offs / recoveries of USD
 i 69
m.
 
 
 
 
 
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
187
Note 19
 
Expected credit loss measurement (continued)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Development of ECL allowances and
 
provisions
USD m
Total
Stage 1
Stage 2
Stage 3
Balance as of 31 December 2021
( i 1,165)
( i 282)
( i 220)
( i 662)
Net movement from new and derecognized transactions
1
( i 7)
( i 21)
 i 16
( i 2)
of which: Private clients with mortgages
( i 6)
( i 6)
 i 0
 i 0
of which: Real estate financing
( i 3)
( i 5)
 i 2
 i 0
of which: Large corporate clients
 i 8
( i 1)
 i 11
( i 2)
of which: SME clients
( i 1)
( i 1)
 i 0
 i 0
of which: Other
( i 6)
( i 8)
 i 3
 i 0
 
of which: Financial intermediaries and hedge funds
 i 0
( i 2)
 i 2
 i 0
 
of which: Loans to financial advisors
 i 0
 i 0
 i 0
 i 0
Remeasurements with stage transfers
2
( i 65)
 i 20
( i 39)
( i 46)
of which: Private clients with mortgages
( i 10)
 i 3
( i 12)
 i 0
of which: Real estate financing
 i 7
( i 1)
 i 8
 i 0
of which: Large corporate clients
( i 33)
 i 16
( i 28)
( i 21)
of which: SME clients
( i 23)
 i 2
( i 2)
( i 22)
of which: Other
( i 6)
 i 1
( i 4)
( i 3)
 
of which: Financial intermediaries and hedge funds
 i 0
 i 0
 i 0
 i 0
 
of which: Loans to financial advisors
 i 1
 i 2
( i 1)
 i 0
Remeasurements without stage transfers
3
 i 13
( i 8)
( i 27)
 i 48
of which: Private clients with mortgages
( i 12)
 i 5
( i 18)
 i 1
of which: Real estate financing
 i 13
 i 3
 i 10
 i 0
of which: Large corporate clients
 i 32
( i 11)
 i 2
 i 41
of which: SME clients
( i 6)
( i 10)
( i 9)
 i 14
of which: Other
( i 15)
 i 5
( i 12)
( i 8)
 
of which: Sovereigns
( i 8)
 i 0
( i 8)
 
0
 
of which: Loans to financial advisors
( i 3)
 i 3
( i 1)
( i 6)
Model changes
4
 i 30
 i 29
 i 1
 i 0
Movements with profit or loss impact
5
( i 29)
 i 20
( i 49)
 i 0
Movements without profit or loss impact (write-off, FX and other)
6
 i 104
 i 3
 i 1
 i 99
Balance as of 31 December 2022
( i 1,091)
( i 260)
( i 267)
( i 564)
1 Represents the
 
increase and decrease
 
in allowances
 
and provisions resulting
 
from financial instruments
 
(including guarantees
 
and facilities) that
 
were newly originated,
 
purchased or renewed
 
and from the
 
final
derecognition of loans or facilities on
 
their maturity date or earlier.
 
2 Represents the remeasurement between 12-month and lifetime
 
ECL due to stage transfers.
 
3 Represents the change in allowances and provisions
related to
 
changes in
 
model inputs
 
or assumptions,
 
including changes
 
in forward-looking
 
macroeconomic
 
conditions,
 
changes in
 
the exposure
 
profile,
 
PD and
 
LGD changes,
 
and unwinding
 
of the
 
time value.
 
4 Represents the change in the allowances and provisions related to changes in models and methodologies.
 
5 Includes ECL movements from new and derecognized transactions, remeasurement changes, and model
and methodology changes.
 
6 Represents the decrease in allowances
 
and provisions resulting from write-offs
 
of the ECL allowance against
 
the gross carrying amount when all
 
or part of a financial asset
 
is deemed
uncollectible or forgiven and movements in foreign exchange rates.
As explained in Note 1a, the assessment of a significant increase in credit risk (an
 
SICR) considers a number of qualitative
and quantitative
 
factors to
 
determine whether
 
a stage
 
transfer between
 
stage 1 and
 
stage 2 is
 
required, although
 
the
primary assessment considers changes in PD based on rating analyses and economic
 
outlook. Additionally, UBS AG takes
into consideration
 
counterparties
 
that have
 
moved to
 
a credit
 
watch list
 
and those
 
with payments
 
that are
 
at least
 
30
days past due.
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ECL stage 2 (“significant deterioration
 
in credit risk”) allowances / provisions as of 31 December
 
2023 – classification by trigger
USD m
Stage 2
of which:
PD layer
of which:
watch list
of which:
≥30 days
past due
On- and off-balance sheet
( i 272)
( i 197)
( i 23)
( i 53)
of which: Private clients with mortgages
( i 89)
( i 69)
 i 0
( i 21)
of which: Real estate financing
( i 26)
( i 21)
 i 0
( i 5)
of which: Large corporate clients
( i 66)
( i 48)
( i 15)
( i 2)
of which: SME clients
( i 38)
( i 23)
( i 5)
( i 9)
of which: Financial intermediaries and hedge funds
( i 4)
( i 4)
 i 0
 i 0
of which: Loans to financial advisors
( i 1)
 i 0
 i 0
( i 1)
of which: Credit cards
( i 13)
( i 13)
of which: Other
( i 33)
( i 31)
( i 2)
( i 1)
 / 
 
d) Maximum exposure to credit risk
The tables
 
below provide UBS AG’s
 
maximum exposure to
 
credit risk for
 
financial instruments subject
 
to ECL
 
requirements
and
 
the
 
respective
 
collateral
 
and
 
other
 
credit
 
enhancements
 
mitigating
 
credit
 
risk
 
for
 
these
 
classes
 
of
 
financial
instruments.
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
188
Note 19
 
Expected credit loss measurement (continued)
The maximum exposure
 
to credit risk
 
includes the carrying
 
amounts of financial
 
instruments recognized on
 
the balance
sheet subject to credit risk
 
and the notional amounts for off-balance sheet
 
arrangements. Where information is available,
collateral is presented at fair
 
value. For other collateral, such as
 
real estate, a reasonable alternative
 
value is used. Credit
enhancements,
 
such
 
as
 
credit
 
derivative
 
contracts
 
and
 
guarantees,
 
are
 
included
 
at
 
their
 
notional
 
amounts.
 
Both
 
are
capped at
 
the maximum
 
exposure to
 
credit risk
 
for which
 
they serve
 
as security.
 
The “Risk
 
management
 
and control”
section of this
 
report describes
 
management’s view
 
of credit
 
risk and the
 
related exposures,
 
which can differ
 
in certain
respects from the requirements of IFRS Accounting Standards.
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Maximum exposure to credit risk
31.12.23
Collateral
1,2
Credit enhancements
1
Exposure to
credit risk
after collateral
and credit
enhancements
USD bn
Maximum
exposure to
credit risk
Cash
collateral
received
Collateralized
by equity and
debt
instruments
Secured by
real estate
Other
collateral
3
Netting
Credit
derivative
Guarantees
and sub-
participations
Financial assets measured at
amortized cost on the balance sheet
Cash and balances at central banks
 i 171.8
 i 171.8
Amounts due from banks
4
 i 28.2
 i 0.2
 i 4.8
 i 0.1
 i 23.1
Receivables from securities financing transactions
measured at amortized cost
 i 74.1
 i 0.0
 i 70.7
 i 2.8
 i 0.7
Cash collateral receivables on derivative instruments
5,6
 i 32.3
 i 22.8
 i 9.5
Loans and advances to customers
 i 405.6
 i 31.4
 i 105.2
 i 222.7
 i 24.9
 i 2.8
 i 18.7
Other financial assets measured at amortized cost
 i 54.3
 i 0.1
 i 0.8
 i 0.0
 i 1.5
 i 51.9
Total financial assets measured at amortized cost
 i 766.4
 i 31.5
 i 176.8
 i 222.7
 i 33.9
 i 22.8
 i 0.0
 i 2.9
 i 275.7
Financial assets measured at fair value
through other comprehensive income – debt
 i 2.2
 i 2.2
Total maximum exposure to credit risk
reflected on the balance sheet within the scope of ECL
 i 768.6
 i 31.5
 i 176.8
 i 222.7
 i 33.9
 i 22.8
 i 0.0
 i 2.9
 i 277.9
Guarantees
7
 i 33.2
 i 1.6
 i 19.8
 i 0.2
 i 1.8
 i 2.0
 i 7.8
Irrevocable loan commitments
 i 43.9
 i 0.2
 i 2.0
 i 1.8
 i 8.9
 i 0.0
 i 1.0
 i 30.0
Forward starting reverse repurchase and securities
borrowing agreements
 i 10.4
 i 10.4
 i 0.0
Committed unconditionally revocable credit lines
 i 47.4
 i 0.5
 i 9.1
 i 7.1
 i 5.1
 i 0.6
 i 25.1
Total maximum exposure to credit risk not
reflected on the balance sheet within the scope of ECL
 i 134.8
 i 2.3
 i 41.3
 i 9.0
 i 15.7
 i 0.0
 i 0.0
 i 3.5
 i 62.9
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
Guarantees
and sub-
participations
Financial assets measured at
amortized cost on the balance sheet
Cash and balances at central banks
 i 169.4
 i 169.4
Amounts due from banks
4
 i 14.7
 i 0.0
 i 0.1
 i 14.6
Receivables from securities financing transactions
measured at amortized cost
 i 67.8
 i 0.0
 i 64.5
 i 2.4
 i 0.9
Cash collateral receivables on derivative instruments
5,6
 i 35.0
 i 22.9
 i 12.1
Loans and advances to customers
 i 390.0
 i 36.1
 i 115.9
 i 197.8
 i 19.6
 i 3.0
 i 17.6
Other financial assets measured at amortized cost
 i 53.4
 i 0.1
 i 0.5
 i 0.0
 i 1.3
 i 51.4
Total financial assets measured at amortized cost
 i 730.4
 i 36.2
 i 181.0
 i 197.9
 i 23.4
 i 22.9
 i 0.0
 i 3.0
 i 266.1
Financial assets measured at fair value
through other comprehensive income – debt
 i 2.2
 i 2.2
Total maximum exposure to credit risk
reflected on the balance sheet within the scope of ECL
 i 732.6
 i 36.2
 i 181.0
 i 197.9
 i 23.4
 i 22.9
 i 0.0
 i 3.0
 i 268.3
Guarantees
7
 i 22.1
 i 1.2
 i 9.3
 i 0.1
 i 2.0
 i 1.8
 i 7.7
Irrevocable loan commitments
 i 39.9
 i 0.2
 i 3.1
 i 1.3
 i 6.5
 i 0.1
 i 1.0
 i 27.8
Forward starting reverse repurchase and securities
borrowing agreements
 i 3.8
 i 3.8
 i 0.0
Committed unconditionally revocable credit lines
 i 43.6
 i 0.2
 i 8.2
 i 6.0
 i 6.2
 i 0.5
 i 22.5
Total maximum exposure to credit risk not
reflected on the balance sheet within the scope of ECL
 i 109.4
 i 1.6
 i 24.4
 i 7.5
 i 14.7
 i 0.0
 i 0.1
 i 3.3
 i 58.0
1 Of which: USD
 i 1,637
m for 31 December 2023
 
(31 December 2022: USD
 i 1,372
m) relates to total credit-impaired
 
financial assets measured at amortized
 
cost and USD
 i 105
m for 31 December 2023
 
(31 December
2022: USD
 i 113
m) to total off-balance sheet financial instruments and
 
credit lines for credit-impaired positions.
 
2 Collateral arrangements generally incorporate
 
a range of collateral, including cash, equity
 
and debt
instruments, real estate and
 
other collateral. For
 
the purpose of this
 
disclosure, UBS AG
 
applies a risk-based
 
approach that generally prioritizes
 
collateral according to its
 
liquidity profile. In the
 
case of loan facilities
with funded and unfunded elements, the
 
collateral is first allocated to the funded element.
 
3 Includes but is not limited to life insurance contracts,
 
rights in respect of subscription or capital commitments from fund
partners, inventory, mortgage loans, gold
 
and other commodities.
 
4 Amounts due from banks include amounts held with third-party banks on behalf of clients.
 
The credit risk associated with these balances may be
borne by those clients.
 
5 Included within Cash collateral receivables on derivative instruments are margin balances due from exchanges or clearing houses. Some of these margin balances reflect amounts transferred
on behalf of clients who retain the associated credit risk.
 
6 The amount shown in the “Netting” column represents
 
the netting potential not recognized on the balance sheet. Refer to
 
Note 21 for more information.
 
7 Guarantees collateralized by equity and debt instruments include certain overnight repurchase and
 
reverse repurchase transactions where UBS acts as a sponsoring member for eligible clients when
 
clearing through
the Fixed Income Clearing Corporation
 
(FICC). As part of
 
this arrangement, UBS guarantees
 
FICC for prompt and
 
full payment and performance
 
of the clients‘ respective
 
obligations under the FICC rules.
 
The Group
minimizes its liability under
 
these guarantees by obtaining
 
a security interest in
 
the cash or high-quality
 
securities collateral that the
 
clients place with the
 
clearing house; therefore,
 
the risk of loss
 
is expected to be
remote.
 / 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
189
Note 19
 
Expected credit loss measurement (continued)
 
e) Financial assets subject to credit risk by rating category
The table
 
below shows
 
the
 
credit quality
 
and the
 
maximum exposure
 
to credit
 
risk based
 
on
 
UBS AG’s internal
 
credit
rating system and
 
year-end stage
 
classification. Under
 
IFRS 9, the
 
credit risk
 
rating reflects
 
UBS AG’s assessment
 
of the
probability of default of individual counterparties,
 
prior to substitutions. The amounts presented are gross of impairment
allowances.
›
Refer to the “Risk management and control” section of this
 
report for more details regarding UBS AG’s internal grading system
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial assets subject to credit risk by rating
 
category
USD m
31.12.23
Rating category
1
0–1
2–3
4–5
6–8
9–13
Credit-
impaired
(defaulted)
Total gross
carrying
amount
ECL
allowances
Net carrying
amount
(maximum
exposure to
credit risk)
Financial assets measured at amortized cost
Cash and balances at central banks
 i 171,573
 i 215
 i 0
 i 0
 i 43
 i 0
 i 171,832
( i 26)
 i 171,806
of which: stage 1
 i 171,573
 i 215
 i 0
 i 0
 i 0
 i 0
 i 171,788
 i 0
 i 171,788
of which: stage 2
 i 0
 i 0
 i 0
 i 0
 i 43
 i 0
 i 43
( i 26)
 i 18
Amounts due from banks
 i 811
 i 25,095
 i 1,359
 i 463
 i 485
 i 0
 i 28,213
( i 7)
 i 28,206
of which: stage 1
 i 811
 i 25,095
 i 1,354
 i 462
 i 476
 i 0
 i 28,198
( i 6)
 i 28,191
of which: stage 2
 i 0
 i 0
 i 5
 i 1
 i 9
 i 0
 i 15
( i 1)
 i 14
of which: stage 3
 i 0
 i 0
 i 0
 i 0
 i 0
 i 0
 i 0
 i 0
 i 0
Receivables from securities financing transactions
 i 36,689
 i 15,958
 i 6,073
 i 14,319
 i 1,091
 i 0
 i 74,130
( i 2)
 i 74,128
of which: stage 1
 i 36,689
 i 15,958
 i 6,073
 i 14,319
 i 1,091
 i 0
 i 74,130
( i 2)
 i 74,128
Cash collateral receivables on derivative instruments
 i 8,009
 i 13,575
 i 6,423
 i 4,095
 i 198
 i 0
 i 32,300
 i 0
 i 32,300
of which: stage 1
 i 8,009
 i 13,575
 i 6,423
 i 4,095
 i 198
 i 0
 i 32,300
 i 0
 i 32,300
Loans and advances to customers
 i 5,993
 i 196,897
 i 82,867
 i 89,738
 i 28,486
 i 2,586
 i 406,568
( i 935)
 i 405,633
of which: stage 1
 i 5,993
 i 195,590
 i 80,534
 i 82,633
 i 20,916
 i 0
 i 385,666
( i 173)
 i 385,493
of which: stage 2
 i 0
 i 1,307
 i 2,333
 i 7,106
 i 7,570
 i 0
 i 18,316
( i 185)
 i 18,131
of which: stage 3
 i 0
 i 0
 i 0
 i 0
 i 0
 i 2,586
 i 2,586
( i 577)
 i 2,009
Other financial assets measured at amortized cost
 i 25,727
 i 20,541
 i 678
 i 6,770
 i 499
 i 206
 i 54,421
( i 87)
 i 54,334
of which: stage 1
 i 25,727
 i 20,539
 i 659
 i 6,619
 i 353
 i 0
 i 53,897
( i 16)
 i 53,882
of which: stage 2
 i 0
 i 2
 i 19
 i 151
 i 146
 i 0
 i 317
( i 5)
 i 312
of which: stage 3
 i 0
 i 0
 i 0
 i 0
 i 0
 i 206
 i 206
( i 66)
 i 141
Total financial assets measured at amortized cost
 i 248,802
 i 272,281
 i 97,400
 i 115,386
 i 30,802
 i 2,792
 i 767,462
( i 1,057)
 i 766,407
On-balance sheet financial instruments
Financial assets measured at FVOCI – debt instruments
 i 1,222
 i 850
 i 0
 i 161
 i 0
 i 0
 i 2,233
 i 0
 i 2,233
Total on-balance sheet financial instruments
 i 250,024
 i 273,131
 i 97,400
 i 115,547
 i 30,802
 i 2,792
 i 769,696
( i 1,057)
 i 768,640
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.
 / 
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Off-balance sheet positions subject to expected
 
credit loss by rating category
USD m
31.12.23
Rating category
1
0–1
2–3
4–5
6–8
9–13
Credit-
impaired
(defaulted)
Total off-
balance sheet
exposure
(maximum
exposure to
credit risk)
ECL provision
Off-balance sheet financial instruments
Guarantees
 i 17,771
 i 7,306
 i 4,268
 i 2,800
 i 948
 i 118
 i 33,211
( i 40)
of which: stage 1
 i 17,771
 i 7,267
 i 4,219
 i 2,301
 i 774
 i 0
 i 32,332
( i 14)
of which: stage 2
 i 0
 i 39
 i 49
 i 499
 i 174
 i 0
 i 761
( i 7)
of which: stage 3
 i 0
 i 0
 i 0
 i 0
 i 0
 i 118
 i 118
( i 19)
Irrevocable loan commitments
 i 1,720
 i 13,920
 i 9,834
 i 11,142
 i 7,345
 i 56
 i 44,018
( i 95)
of which: stage 1
 i 1,720
 i 13,920
 i 9,781
 i 10,845
 i 5,818
 i 0
 i 42,085
( i 55)
of which: stage 2
 i 0
 i 0
 i 53
 i 298
 i 1,527
 i 0
 i 1,878
( i 38)
of which: stage 3
 i 0
 i 0
 i 0
 i 0
 i 0
 i 56
 i 56
( i 2)
Forward starting reverse repurchase and securities borrowing agreements
 i 10,152
 i 2
 i 84
 i 135
 i 0
 i 0
 i 10,373
 i 0
Total off-balance sheet financial instruments
 i 29,643
 i 21,228
 i 14,186
 i 14,077
 i 8,293
 i 174
 i 87,601
( i 134)
Credit lines
Committed unconditionally revocable credit lines
 i 2,604
 i 17,303
 i 10,893
 i 11,950
 i 4,616
 i 56
 i 47,421
( i 49)
of which: stage 1
 i 2,604
 i 16,903
 i 10,553
 i 11,452
 i 3,941
 i 0
 i 45,452
( i 39)
of which: stage 2
 i 0
 i 400
 i 341
 i 497
 i 675
 i 0
 i 1,913
( i 10)
of which: stage 3
 i 0
 i 0
 i 0
 i 0
 i 0
 i 56
 i 56
 i 0
Irrevocable committed prolongation of existing loans
 i 4
 i 1,803
 i 1,045
 i 826
 i 501
 i 4
 i 4,183
( i 4)
of which: stage 1
 i 4
 i 1,803
 i 1,045
 i 824
 i 493
 i 0
 i 4,169
( i 3)
of which: stage 2
 i 0
 i 0
 i 0
 i 2
 i 9
 i 0
 i 11
 i 0
of which: stage 3
 i 0
 i 0
 i 0
 i 0
 i 0
 i 4
 i 4
 i 0
Total credit lines
 i 2,609
 i 19,105
 i 11,939
 i 12,776
 i 5,117
 i 59
 i 51,604
( i 53)
1 Refer to the “Internal UBS rating scale and mapping of external ratings” table in the “Risk management
 
and control” section of this report for more information on rating categories.
 / 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
190
Note 19
 
Expected credit loss measurement (continued)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial assets subject to credit risk by rating
 
category
USD m
31.12.22
Rating category
1
0–1
2–3
4–5
6–8
9–13
Credit-
impaired
(defaulted)
Total gross
carrying
amount
ECL
allowances
Net carrying
amount
(maximum
exposure to
credit risk)
Financial assets measured at amortized cost
Cash and balances at central banks
 i 168,525
 i 877
 i 0
 i 0
 i 56
 i 0
 i 169,457
( i 12)
 i 169,445
of which: stage 1
 i 168,525
 i 877
 i 0
 i 0
 i 0
 i 0
 i 169,402
 i 0
 i 169,402
of which: stage 2
 i 0
 i 0
 i 0
 i 0
 i 56
 i 0
 i 56
( i 12)
 i 44
Amounts due from banks
 i 862
 i 11,150
 i 832
 i 996
 i 837
 i 0
 i 14,676
( i 6)
 i 14,671
of which: stage 1
 i 862
 i 11,150
 i 832
 i 996
 i 836
 i 0
 i 14,675
( i 5)
 i 14,670
of which: stage 2
 i 0
 i 0
 i 0
 i 0
 i 1
 i 0
 i 1
( i 1)
 i 1
of which: stage 3
 i 0
 i 0
 i 0
 i 0
 i 0
 i 0
 i 0
 i 0
 i 0
Receivables from securities financing transactions
measured at amortized cost
 i 27,158
 i 15,860
 i 8,870
 i 15,207
 i 721
 i 0
 i 67,816
( i 2)
 i 67,814
of which: stage 1
 i 27,158
 i 15,860
 i 8,870
 i 15,207
 i 721
 i 0
 i 67,816
( i 2)
 i 67,814
Cash collateral receivables on derivative instruments
 i 10,613
 i 12,978
 i 7,138
 i 4,157
 i 147
 i 0
 i 35,034
 i 0
 i 35,033
of which: stage 1
 i 10,613
 i 12,978
 i 7,138
 i 4,157
 i 147
 i 0
 i 35,034
 i 0
 i 35,033
Loans and advances to customers
 i 6,491
 i 216,824
 i 68,444
 i 76,147
 i 20,891
 i 2,012
 i 390,810
( i 783)
 i 390,027
of which: stage 1
 i 6,491
 i 215,332
 i 66,202
 i 69,450
 i 15,557
 i 0
 i 373,032
( i 129)
 i 372,903
of which: stage 2
 i 0
 i 1,493
 i 2,242
 i 6,698
 i 5,334
 i 0
 i 15,767
( i 180)
 i 15,587
of which: stage 3
 i 0
 i 0
 i 0
 i 0
 i 0
 i 2,012
 i 2,012
( i 474)
 i 1,538
Other financial assets measured at amortized cost
 i 29,011
 i 16,649
 i 447
 i 6,708
 i 450
 i 210
 i 53,475
( i 86)
 i 53,389
of which: stage 1
 i 29,011
 i 16,646
 i 427
 i 6,426
 i 336
 i 0
 i 52,846
( i 17)
 i 52,829
of which: stage 2
 i 0
 i 2
 i 20
 i 283
 i 114
 i 0
 i 419
( i 6)
 i 413
of which: stage 3
 i 0
 i 0
 i 0
 i 0
 i 0
 i 210
 i 210
( i 63)
 i 147
Total financial assets measured at amortized cost
 i 242,660
 i 274,337
 i 85,731
 i 103,216
 i 23,102
 i 2,222
 i 731,269
( i 890)
 i 730,379
On-balance sheet financial instruments
Financial assets measured at FVOCI – debt instruments
 i 1,307
 i 840
 i 0
 i 92
 i 0
 i 0
 i 2,239
 i 0
 i 2,239
Total on-balance sheet financial instruments
 i 243,966
 i 275,178
 i 85,731
 i 103,308
 i 23,102
 i 2,222
 i 733,508
( i 890)
 i 732,618
1 Refer to the “Internal UBS rating scale and mapping of external ratings” table in the “Risk management and
 
control” section of this report for more information on rating categories.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Off-balance sheet positions subject to expected
 
credit loss by rating category
USD m
31.12.22
Rating category
1
0–1
2–3
4–5
6–8
9–13
Credit-
impaired
(defaulted)
Total off-
balance sheet
exposure
(maximum
exposure to
credit risk)
ECL provisions
Off-balance sheet financial instruments
Guarantees
 i 7,252
 i 5,961
 i 4,772
 i 3,049
 i 1,025
 i 108
 i 22,167
( i 48)
of which: stage 1
 i 7,252
 i 5,917
 i 3,812
 i 2,229
 i 596
 i 0
 i 19,805
( i 13)
of which: stage 2
 i 0
 i 44
 i 960
 i 821
 i 429
 i 0
 i 2,254
( i 9)
of which: stage 3
 i 0
 i 0
 i 0
 i 0
 i 0
 i 108
 i 108
( i 26)
Irrevocable loan commitments
 i 1,770
 i 14,912
 i 6,986
 i 10,097
 i 6,107
 i 124
 i 39,996
( i 111)
of which: stage 1
 i 1,770
 i 14,789
 i 6,818
 i 9,625
 i 4,529
 i 0
 i 37,531
( i 59)
of which: stage 2
 i 0
 i 123
 i 168
 i 472
 i 1,578
 i 0
 i 2,341
( i 52)
of which: stage 3
 i 0
 i 0
 i 0
 i 0
 i 0
 i 124
 i 124
 i 0
Forward starting reverse repurchase and securities borrowing agreements
 i 2,781
 i 2
 i 11
 i 1,007
 i 0
 i 0
 i 3,801
 i 0
Total off-balance sheet financial instruments
 i 11,803
 i 20,874
 i 11,769
 i 14,153
 i 7,132
 i 233
 i 65,964
( i 159)
Credit lines
Committed unconditionally revocable credit lines
 i 2,288
 i 16,483
 i 9,247
 i 11,885
 i 3,739
 i 36
 i 43,677
( i 40)
of which: stage 1
 i 2,288
 i 15,777
 i 8,960
 i 11,355
 i 3,429
 i 0
 i 41,809
( i 32)
of which: stage 2
 i 0
 i 705
 i 287
 i 531
 i 310
 i 0
 i 1,833
( i 8)
of which: stage 3
 i 0
 i 0
 i 0
 i 0
 i 0
 i 36
 i 36
 i 0
Irrevocable committed prolongation of existing loans
 i 7
 i 1,939
 i 1,489
 i 868
 i 392
 i 2
 i 4,696
( i 2)
of which: stage 1
 i 7
 i 1,938
 i 1,411
 i 864
 i 380
 i 0
 i 4,600
( i 2)
of which: stage 2
 i 0
 i 1
 i 78
 i 4
 i 11
 i 0
 i 94
 i 0
of which: stage 3
 i 0
 i 0
 i 0
 i 0
 i 0
 i 2
 i 2
 i 0
Total credit lines
 i 2,295
 i 18,421
 i 10,736
 i 12,753
 i 4,131
 i 37
 i 48,373
( i 42)
1 Refer to the “Internal UBS rating scale and mapping of external ratings” table in the “Risk management and
 
control” section of this report for more information on rating categories.
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
191
Note 19
 
Expected credit loss measurement (continued)
 
f) Sensitivity information
As outlined in Note 1a, ECL estimates involve significant uncertainties
 
at the time they are made.
ECL models
The models applied to determine point-in-time PD and LGD rely on market and statistical data, which has been found
to
 
correlate
 
well
 
with
 
historically
 
observed
 
defaults
 
in sufficiently
 
homogeneous
 
segments.
 
The risk
 
sensitivities
 
for
each of the ECL reporting segments to such factors are summarized
 
in Note 9.
Sustainability and climate risk
Sustainability
 
and
 
climate
 
risk
 
may
 
negatively
 
affect
 
clients
 
or
 
portfolios
 
due
 
to
 
direct
 
or
 
indirect
 
transition
 
costs,
 
or
exposure to physical risks in locations likely to be impacted
 
by climate change. Such effects could lead to a deterioration
in credit
 
worthiness, which
 
in turn
 
would have
 
an impact
 
on ECLs.
 
While some
 
macroeconomic indicators
 
used in
 
the
current PD models could be
 
influenced by climate change, UBS
 
currently does not use a specific
 
sustainability and climate
risk scenario in addition
 
to the typically four
 
general economic scenarios applied to
 
derive the weighted-average ECL. The
rationale
 
for
 
the
 
approach
 
at
 
this
 
point
 
in
 
time
 
is
 
the
 
significance
 
of
 
model
 
risks
 
and
 
challenges
 
in
 
calibration
 
and
probability weight assessment given the paucity of
 
data.
 
Instead, UBS AG focuses
 
on the process
 
of vetting clients
 
and business transactions
 
and takes individual
 
actions, where
transition risk is deemed to
 
be a significant driver of
 
a counterparty’s credit worthiness.
 
This review process may
 
lead to
a downward revision of the counterparty
 
’s credit rating, or the adoption of
 
risk mitigating actions, and hence
 
affect the
individual contribution to ECLs.
At the
 
portfolio
 
level,
 
UBS
 
has started
 
to
 
use
 
stress
 
loss assumptions
 
to assess
 
the
 
extent
 
to which
 
sustainability
 
and
climate risk may
 
affect the quality
 
of the loans
 
extended to
 
small and medium-sized
 
enterprises, large corporate
 
clients
and financial institutions. Initial tests were based on a set of assumptions presented by external parties (such as the Bank
of England), and complemented by internally derived climate pathway scenarios. Such analysis undertaken during 2022,
and reassessed during 2023, concluded that the counterparties are not expected to be significantly impacted by physical
or transition risks,
 
mainly as
 
there are no
 
material risk concentrations
 
in high-risk
 
sectors. The analysis
 
of the corporate
loan book has also shown
 
that any potential significant
 
impacts from transition costs
 
or physical risks would
 
materialize
over
 
a
 
time
 
horizon
 
that
 
exceeds
 
in
 
most
 
cases
 
the
 
contractual
 
lifetime
 
of
 
the
 
underlying
 
assets.
 
Based
 
on
 
current
information
 
on regulatory
 
developments,
 
this
 
would
 
also apply
 
to the
 
portfolio
 
of
 
private clients’
 
mortgages
 
and real
estate financing, given the long lead times for investments
 
in upgrading the housing stock.
As a result of the aforementioned factors, it was assessed that the magnitude of any impact of sustainability and climate
risk on
 
the weighted
 
-average
 
ECL would
 
not be
 
material
 
as of
 
31 December
 
2023. Therefore,
 
no specific
 
post-model
adjustment was made in this regard.
›
Refer to “UBS AG consolidated supplemental disclosures
 
required under SEC regulations” for the maturity profile of UBS AG’s
core loan book
 
Forward-looking scenarios
Depending on
 
the scenario
 
selection and
 
related
 
macroeconomic
 
assumptions for
 
the risk
 
factors, the
 
components of
the
 
relevant
 
weighted-average
 
ECL
 
change.
 
This
 
is
 
particularly
 
relevant
 
for
 
interest
 
rates,
 
which
 
can
 
move
 
in
 
both
directions under
 
a given
 
growth assumption
 
,
 
e.g., low
 
growth with
 
high interest
 
rates in
 
a stagflation
 
scenario, versus
low growth and falling
 
interest rates
 
in a recession. Management
 
generally looks for scenario
 
narratives that reflect
 
the
key risk drivers of a given credit portfolio.
As forecasting
 
models are complex,
 
due to
 
the combination of
 
multiple factors, simple
 
what-if analyses involving
 
a change
of individual parameters
 
do not necessarily provide
 
realistic information on
 
the exposure of
 
segments to changes
 
in the
macroeconomy.
 
Portfolio-specific
 
analyses
 
based
 
on
 
their
 
key
 
risk
 
factors
 
would
 
also
 
not
 
be
 
meaningful,
 
as
 
potential
compensatory effects in other
 
segments would be ignored. The table
 
below indicates some sensitivities to ECLs,
 
if a key
macroeconomic
 
variable
 
for
 
the
 
forecasting
 
period
 
is
 
amended
 
across
 
all
 
scenarios
 
with
 
all
 
other
 
factors
 
remaining
unchanged.
 
 
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
192
Note 19
 
Expected credit loss measurement (continued)
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Potential effect on stage 1 and stage 2 positions
 
from changing key parameters as of 31 December
 
2023
USD m
100% Baseline
100%
Stagflationary
geopolitical crisis
100% Mild Debt
Crisis
Weighted average
Change in key parameters
Fixed income: Government bonds (absolute change)
–0.50%
( i 3)
( i 104)
( i 3)
( i 14)
+0.50%
 i 3
 i 125
 i 6
 i 17
+1.00%
 i 7
 i 274
 i 14
 i 42
Unemployment rate (absolute change)
–1.00%
( i 4)
( i 142)
( i 6)
( i 20)
–0.50%
( i 2)
( i 76)
( i 3)
( i 11)
+0.50%
 i 2
 i 89
 i 3
 i 13
+1.00%
 i 5
 i 188
 i 7
 i 26
Real GDP growth (relative change)
–2.00%
 i 10
 i 27
 i 11
 i 14
–1.00%
 i 6
 i 13
 i 6
 i 8
+1.00%
( i 3)
( i 12)
( i 6)
( i 6)
+2.00%
( i 5)
( i 22)
( i 7)
( i 10)
House Price Index (relative change)
–5.00%
 i 16
 i 174
 i 25
 i 46
–2.50%
 i 8
 i 84
 i 12
 i 21
+2.50%
( i 7)
( i 76)
( i 9)
( i 18)
+5.00%
( i 11)
( i 149)
( i 19)
( i 34)
Equity (S&P500, EuroStoxx, SMI) (relative change)
–10.00%
 i 4
 i 10
 i 8
 i 6
–5.00%
 i 2
 i 5
 i 3
 i 2
+5.00%
( i 2)
( i 5)
( i 3)
( i 2)
+10.00%
( i 3)
( i 8)
( i 5)
( i 4)
 / 
Sensitivities
 
can
 
be
 
more
 
meaningfully
 
assessed
 
in
 
the
 
context
 
of
 
coherent
 
scenarios
 
with
 
consistently
 
developed
macroeconomic
 
factors.
 
The
 
table
 
above
 
outlines
 
favorable
 
and
 
unfavorable
 
effects,
 
based
 
on
 
reasonably
 
possible
alternative changes
 
to the
 
economic conditions for
 
stage 1 and
 
stage 2 positions.
 
The ECL
 
impact is
 
calculated for
 
material
portfolios and disclosed for each scenario.
The forecasting horizon is limited to three years, with a model-based mean reversion of PD and LGD assumed thereafter.
Changes to these timelines may have an effect on ECLs:
 
depending on the cycle, a longer or shorter forecasting
 
horizon
will lead to different annualized lifetime PD and average LGD estimations. This is currently not deemed to be
 
material for
UBS, as a large
 
proportion of loans,
 
including mortgages in
 
Switzerland, have maturities
 
that are within the
 
forecasting
horizon.
Scenario weights and stage allocation
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Potential effect on stage 1 and stage 2 positions
 
from changing scenario weights or moving
 
to an ECL lifetime calculation as of 31 December
 
2023
Actual ECL
allowances and
provisions,
including staging
(as per Note 9)
 
Pro forma ECL allowances and provisions, including staging
 
and assuming application of 100% scenario weighting
 
Pro forma ECL
allowances and
provisions,
assuming all
positions being
subject to lifetime
ECL
Scenarios
Weighted average
100% Baseline
100% Asset price
inflation
100%
Stagflationary
geopolitical crisis
100% Mild debt
crisis
Weighted average
USD m, except where indicated
Segmentation
Private clients with mortgages
( i 133)
( i 43)
( i 10)
( i 521)
( i 63)
( i 368)
Real estate financing
( i 52)
( i 34)
( i 21)
( i 200)
( i 36)
( i 125)
Large corporate clients
( i 152)
( i 108)
( i 53)
( i 252)
( i 146)
( i 234)
SME clients
( i 103)
( i 85)
( i 57)
( i 186)
( i 96)
( i 164)
Other segments
( i 140)
( i 126)
( i 78)
( i 162)
( i 151)
( i 302)
Total
( i 580)
( i 396)
( i 219)
( i 1,322)
( i 492)
( i 1,193)
 / 
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
193
Note 19
 
Expected credit loss measurement (continued)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Potential effect on stage 1 and stage 2 positions
 
from changing scenario weights or moving
 
to an ECL lifetime calculation as of 31 December
 
2022
Actual ECL
allowances and
provisions,
including staging
(as per Note 9)
 
Pro forma ECL allowances and provisions, including staging
 
and assuming application of 100% scenario weighting
 
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
( i 136)
( i 25)
( i 13)
( i 523)
( i 184)
( i 473)
Real estate financing
( i 43)
( i 26)
( i 22)
( i 176)
( i 30)
( i 126)
Large corporate clients
( i 136)
( i 97)
( i 84)
( i 199)
( i 174)
( i 235)
SME clients
( i 86)
( i 67)
( i 66)
( i 162)
( i 97)
( i 153)
Other segments
( i 125)
( i 114)
( i 111)
( i 145)
( i 153)
( i 281)
Total
( i 526)
( i 329)
( i 295)
( i 1,204)
( i 638)
( i 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
 i 396
m (31
 
December
2022:
 
USD
 i 329
m)
 
instead
 
of
 
USD
 i 580
m (31
 
December
 
2022:
 
USD
 i 526
m)
 
if ECLs
 
had
 
been
 
determined
 
solely
 
on the
baseline scenario
. The weighted-average ECL therefore amounted
 
to
 i 146
% (31 December 2022:
 i 160
%) of the baseline
value. The effects of weighting each of the four scenarios 100%
 
are shown in the table above.
Stage allocation and SICR
The determination of
 
what constitutes an
 
SICR is based
 
on management judgment,
 
as explained in
 
Note 1a. Changing
the SICR trigger will have a direct effect on ECLs, as more or
 
fewer positions would be subject to lifetime ECLs under any
scenario.
 
The
 
relevance
 
of the
 
SICR trigger
 
on overall
 
ECL is
 
demonstrated
 
in the
 
table
 
above
 
with the
 
indication that
 
the
 
ECL
allowances and provisions for stage 1 and stage
 
2 positions would have been USD
 i 1,193
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
 i 580
m as of 31 December 2023.
Maturity profile
The maturity
 
profile is
 
an important
 
driver in
 
ECLs, in
 
particular for
 
transactions in
 
stage 2.
 
A transfer
 
of a
 
transaction
into stage
 
2 may
 
therefore have a
 
significant effect on
 
ECLs. The
 
current maturity profile
 
of most
 
lending books
 
is relatively
short.
 
Lending to
 
large corporate
 
clients is
 
generally between
 
one and
 
two years,
 
with related
 
loan commitments
 
up to
 
four
years. Real estate lending is generally between two and three years in Switzerland, with long-dated maturities in the US.
Lombard-lending
 
contracts
 
typically
 
have
 
average
 
contractual
 
maturities
 
of
 
12
 
months
 
or
 
less,
 
and
 
include
 
callable
features.
A
 
significant
 
portion
 
of
 
our
 
lending
 
to
 
SMEs
 
and
 
Real
 
estate
 
financings
 
is
 
documented
 
under
 
multi-purpose
 
credit
agreements, which
 
allow for
 
various forms
 
of utilization
 
but are
 
unconditionally cancelable
 
by UBS
 
at any
 
time: (i) for
drawings under such agreements with a fixed
 
maturity, the respective term is applied for ECL
 
calculations, or a maximum
of 12 months in stage
1; (ii) for unused credit lines and all drawings that
 
have no fixed maturity (e.g., current accounts),
UBS generally applies a 12-month maturity from the reporting date, given the credit review policies, which require either
continuous monitoring of key indicators and behavioral patterns for smaller positions or an annual formal review for any
other limit. The ECLs for these products are sensitive
 
to shortening or extending the maturity assumption.
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
194
 i 
Note 20
 
Fair value measurement
 
 
a) Valuation principles
All financial and non-financial
 
assets and liabilities
 
measured or disclosed
 
at fair value
 
are categorized into
 
one of three
fair
 
value
 
hierarchy
 
levels
 
in
 
accordance
 
with
 
IFRS
 
Accounting
 
Standards.
 
The
 
fair
 
value
 
hierarchy
 
is
 
based
 
on
 
the
transparency
 
of inputs
 
to the
 
valuation of
 
an asset
 
or liability
 
as of
 
the measurement
 
date. In
 
certain cases,
 
the inputs
used to measure fair value may fall within different
 
levels of the fair value hierarchy.
 
For disclosure purposes, the level in
the hierarchy within which an instrument is classified in its entirety is based on the lowest level input
 
that is significant to
the position’s fair value measurement:
–
Level 1 – quoted prices (unadjusted) in active markets
 
for identical assets and liabilities;
–
Level 2 – valuation techniques for which all significant inputs
 
are, or are based on, observable market data;
 
or
–
Level 3 – valuation techniques for which significant inputs
 
are not based on observable market data.
Fair values are determined using quoted
 
prices in active markets for
 
identical assets or liabilities, where available.
 
Where
the
 
market
 
for
 
a
 
financial
 
instrument
 
or
 
non-financial
 
asset
 
or
 
liability
 
is
 
not
 
active,
 
fair
 
value
 
is
 
established
 
using
 
a
valuation
 
technique,
 
including
 
pricing
 
models.
 
Valuation
 
adjustments
 
may
 
be
 
made
 
to
 
allow
 
for
 
additional
 
factors,
including model, liquidity, credit
 
and funding risks, which are
 
not explicitly captured within
 
the valuation technique, but
which would nevertheless
 
be considered by
 
market participants
 
when establishing a
 
price. The limitations
 
inherent in a
particular valuation technique
 
are considered in
 
the determination of
 
the classification of
 
an asset or
 
liability within the
fair value
 
hierarchy. Generally,
 
the unit
 
of account
 
for a
 
financial instrument
 
is the
 
individual instrument,
 
and UBS
 
AG
applies valuation adjustments
 
at an individual instrument
 
level, consistent with that
 
unit of account. However,
 
if certain
conditions are met, UBS AG
 
may estimate the fair value
 
of a portfolio of financial
 
assets and liabilities with substantially
similar and offsetting risk exposures on the basis of the
 
net open risks.
›
Refer to Note 20d for more information
 
b) Valuation governance
UBS AG’s fair value
 
measurement and
 
model governance
 
framework includes numerous
 
controls and
 
other procedural
safeguards that
 
are intended
 
to maximize
 
the quality
 
of fair
 
value measurements
 
reported
 
in the
 
financial statements.
New products and
 
valuation techniques
 
must be reviewed
 
and approved
 
by key stakeholders
 
from the
 
risk and finance
control functions. Responsibility
 
for the ongoing measurement
 
of financial and non-financial
 
instruments at fair value
 
is
with the business divisions.
 
Fair
 
value
 
estimates
 
are
 
validated
 
by
 
the
 
risk
 
and
 
finance
 
control
 
functions,
 
which
 
are
 
independent
 
of
 
the
 
business
divisions. Independent price verification is performed by Finance through benchmarking the business divisions’ fair
 
value
estimates
 
with
 
observable
 
market
 
prices
 
and
 
other
 
independent
 
sources.
 
A
 
governance
 
framework
 
and
 
associated
controls are
 
in place
 
in order
 
to monitor
 
the quality
 
of third-party
 
pricing sources
 
where
 
used. For
 
instruments
 
where
valuation models are used to
 
determine fair value, independent
 
valuation and model control
 
groups within Finance and
Risk Control
 
evaluate UBS AG’s
 
models on
 
a regular
 
basis, including
 
valuation and
 
model input
 
parameters, as
 
well as
pricing. As
 
a result
 
of the
 
valuation controls
 
employed,
 
valuation adjustments
 
may be
 
made to
 
the business
 
divisions’
estimates of fair value to align with independent market
 
data and the relevant accounting standard.
›
Refer to Note 20d for more information
 
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
195
Note 20
 
Fair value measurement (continued)
 
c) Fair value hierarchy
The table
 
below provides the
 
fair value
 
hierarchy classification of
 
financial and non-financial
 
assets and
 
liabilities measured
at
 
fair
 
value.
 
The
 
narrative
 
that
 
follows
 
describes
 
valuation
 
techniques
 
used
 
in
 
measuring
 
their
 
fair
 
value
 
of
 
different
product types
 
(including significant
 
valuation inputs
 
and assumptions
 
used) and
 
the factors
 
considered in
 
determining
their classification within the fair value hierarchy.
During 2023, assets and liabilities that were transferred from Level 2 to
 
Level 1, or from Level 1 to Level
 
2, and were held
for the entire reporting
 
period were not
 
material. In the fourth
 
quarter of 2023,
 
UBS AG has prospectively
 
amended its
approach to testing for observability as part of
 
an accounting methodology alignment following the acquisition of Credit
Suisse. This methodological change enhances
 
UBS AG’s assessment of
 
sensitivities to unobservable valuation parameters.
Application of the new methodology as of 31 December 2022 would have resulted in USD
 i 1.3
bn lower Level 3 liabilities
(as of 31 December 2023 the balance of affected liabilities in Level 3 was USD
 i 1.9
bn), with an offsetting impact to Level
2 liabilities.
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Determination of fair values from quoted market
 
prices or valuation techniques
1
31.12.23
31.12.22
USD m
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Financial assets measured at fair value on a recurring basis
Financial assets at fair value held for trading
 i 115,345
 i 17,936
 i 1,817
 i 135,098
 i 96,263
 i 10,284
 i 1,488
 i 108,034
of which: Equity instruments
 i 99,510
 i 721
 i 140
 i 100,372
 i 83,095
 i 789
 i 126
 i 84,010
of which: Government bills / bonds
 i 6,843
 i 2,195
 i 14
 i 9,052
 i 5,496
 i 950
 i 18
 i 6,464
of which: Investment fund units
 i 8,008
 i 1,082
 i 9
 i 9,098
 i 6,673
 i 596
 i 61
 i 7,330
of which: Corporate and municipal bonds
 i 982
 i 11,956
 i 648
 i 13,586
 i 976
 i 6,509
 i 541
 i 8,026
of which: Loans
 i 0
 i 1,870
 i 904
 i 2,775
 i 0
 i 1,179
 i 628
 i 1,807
of which: Asset-backed securities
 i 3
 i 111
 i 101
 i 215
 i 22
 i 261
 i 114
 i 397
Derivative financial instruments
 i 593
 i 129,871
 i 1,264
 i 131,728
 i 769
 i 147,876
 i 1,464
 i 150,109
of which: Foreign exchange
 i 317
 i 65,070
 i 0
 i 65,387
 i 575
 i 84,882
 i 2
 i 85,459
of which: Interest rate
 i 0
 i 35,028
 i 284
 i 35,311
 i 0
 i 39,345
 i 460
 i 39,805
of which: Equity / index
 i 0
 i 26,649
 i 667
 i 27,317
 i 1
 i 21,542
 i 653
 i 22,195
of which: Credit
 i 0
 i 1,452
 i 301
 i 1,752
 i 0
 i 719
 i 318
 i 1,038
of which: Commodities
 i 0
 i 1,627
 i 12
 i 1,639
 i 0
 i 1,334
 i 30
 i 1,365
Brokerage receivables
 i 0
 i 20,883
 i 0
 i 20,883
 i 0
 i 17,576
 i 0
 i 17,576
Financial assets at fair value not held for trading
 i 29,529
 i 30,124
 i 4,101
 i 63,754
 i 26,572
 i 29,110
 i 3,725
 i 59,408
of which: Financial assets for unit-linked investment contracts
 i 15,814
 i 0
 i 0
 i 15,814
 i 13,071
 i 1
 i 0
 i 13,072
of which: Corporate and municipal bonds
 i 62
 i 16,716
 i 215
 i 16,994
 i 35
 i 14,101
 i 230
 i 14,366
of which: Government bills / bonds
 i 13,262
 i 3,332
 i 0
 i 16,594
 i 13,103
 i 3,638
 i 0
 i 16,741
of which: Loans
 i 0
 i 4,172
 i 1,254
 i 5,426
 i 0
 i 3,602
 i 736
 i 4,337
of which: Securities financing transactions
 i 0
 i 5,541
 i 4
 i 5,545
 i 0
 i 7,590
 i 114
 i 7,704
of which: Auction rate securities
 i 0
 i 0
 i 1,208
 i 1,208
 i 0
 i 0
 i 1,326
 i 1,326
of which: Investment fund units
 i 367
 i 233
 i 205
 i 804
 i 307
 i 178
 i 190
 i 675
of which: Equity instruments
 i 24
 i 0
 i 1,088
 i 1,112
 i 57
 i 0
 i 792
 i 849
Financial assets measured at fair value through other comprehensive income on
 
a recurring basis
Financial assets measured at fair value through other comprehensive
 
income
 i 68
 i 2,165
 i 0
 i 2,233
 i 57
 i 2,182
 i 0
 i 2,239
of which: Commercial paper and certificates of deposit
 i 0
 i 1,948
 i 0
 i 1,948
 i 0
 i 1,878
 i 0
 i 1,878
of which: Corporate and municipal bonds
 i 68
 i 207
 i 0
 i 276
 i 57
 i 278
 i 0
 i 335
Non-financial assets measured at fair value on a recurring basis
Precious metals and other physical commodities
 i 4,426
 i 0
 i 0
 i 4,426
 i 4,471
 i 0
 i 0
 i 4,471
Non-financial assets measured at fair value on a non-recurring basis
Other non-financial assets
2
 i 0
 i 0
 i 17
 i 17
 i 0
 i 0
 i 21
 i 21
Total assets measured at fair value
 i 149,962
 i 200,979
 i 7,198
 i 358,139
 i 128,132
 i 207,028
 i 6,698
 i 341,858
 / 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
196
Note 20
 
Fair value measurement (continued)
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Determination of fair values from quoted market
 
prices or valuation techniques (continued)
1
31.12.23
31.12.22
USD m
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Financial liabilities measured at fair value on a recurring basis
Financial liabilities at fair value held for trading
 i 25,451
 i 6,110
 i 151
 i 31,712
 i 23,578
 i 5,823
 i 114
 i 29,515
of which: Equity instruments
 i 16,310
 i 236
 i 87
 i 16,632
 i 16,521
 i 352
 i 78
 i 16,951
of which: Corporate and municipal bonds
 i 28
 i 4,893
 i 58
 i 4,979
 i 36
 i 4,643
 i 27
 i 4,707
of which: Government bills / bonds
 i 8,320
 i 806
 i 0
 i 9,126
 i 5,880
 i 706
 i 1
 i 6,587
of which: Investment fund units
 i 794
 i 117
 i 4
 i 915
 i 1,141
 i 84
 i 3
 i 1,229
Derivative financial instruments
 i 716
 i 136,833
 i 3,158
 i 140,707
 i 640
 i 152,582
 i 1,684
 i 154,906
of which: Foreign exchange
 
 i 400
 i 71,322
 i 21
 i 71,743
 i 587
 i 87,897
 i 24
 i 88,508
of which: Interest rate
 
 i 0
 i 32,656
 i 107
 i 32,763
 i 0
 i 37,429
 i 116
 i 37,545
of which: Equity / index
 
 i 0
 i 30,209
 i 2,717
 i 32,926
 i 0
 i 24,963
 i 1,184
 i 26,148
of which: Credit
 i 0
 i 1,341
 i 273
 i 1,614
 i 0
 i 920
 i 279
 i 1,199
of which: Commodities
 i 0
 i 1,271
 i 20
 i 1,291
 i 0
 i 1,309
 i 52
 i 1,361
Financial liabilities designated at fair value on a recurring basis
Brokerage payables designated at fair value
 i 0
 i 42,275
 i 0
 i 42,275
 i 0
 i 45,085
 i 0
 i 45,085
Debt issued designated at fair value
 i 0
 i 78,509
 i 7,832
 i 86,341
 i 0
 i 62,603
 i 9,240
 i 71,842
Other financial liabilities designated at fair value
 i 0
 i 25,069
 i 2,297
 i 27,366
 i 0
 i 30,055
 i 1,978
 i 32,033
of which: Financial liabilities related to unit-linked investment contracts
 i 0
 i 15,922
 i 0
 i 15,922
 i 0
 i 13,221
 i 0
 i 13,221
of which: Securities financing transactions
 i 0
 i 6,927
 i 0
 i 6,927
 i 0
 i 15,333
 i 0
 i 15,333
of which: Funding from UBS Group AG
 i 0
 i 1,327
 i 1,623
 i 2,950
 i 0
 i 508
 i 1,287
 i 1,796
of which: Over-the-counter debt instruments and other
 i 0
 i 892
 i 674
 i 1,566
 i 0
 i 993
 i 691
 i 1,684
Total liabilities measured at fair value
 i 26,167
 i 288,796
 i 13,438
 i 328,401
 i 24,219
 i 296,148
 i 13,015
 i 333,382
1 Bifurcated embedded derivatives are presented on the same balance sheet lines
 
as their host contracts and are not included in this table. The fair value of these derivatives was not
 
material for the periods presented.
 
2 Other non-financial assets primarily consist of properties and other non-current assets held for sale, which are measured at the
 
lower of their net carrying amount or fair value less costs to sell.
 / 
Valuation techniques
 
UBS AG
 
uses
 
widely
 
recognized
 
valuation
 
techniques
 
for
 
determining
 
the
 
fair
 
value
 
of
 
financial
 
and
 
non-financial
instruments that are
 
not actively traded
 
and quoted. The
 
most frequently applied
 
valuation techniques include
 
discounted
value of expected cash flows, relative value
 
and option pricing methodologies.
Discounted
 
value
 
of
 
expected
 
cash
 
flows
 
is
 
a
 
valuation
 
technique
 
that
 
measures
 
fair
 
value
 
using
 
estimated
 
expected
future cash flows from
 
assets or liabilities and
 
then discounts these
 
cash flows using a
 
discount rate or discount
 
margin
that
 
reflects
 
the
 
credit and
 
/ or
 
funding spreads
 
required
 
by the
 
market
 
for
 
instruments with
 
similar
 
risk and
 
liquidity
profiles to
 
produce
 
a present
 
value. When
 
using such
 
valuation
 
techniques,
 
expected
 
future cash
 
flows are
 
estimated
using an observed
 
or implied
 
market price
 
for the future
 
cash flows or
 
by using
 
industry-standard cash
 
flow projection
models.
 
The
 
discount
 
factors
 
within
 
the
 
calculation
 
are
 
generated
 
using
 
industry-standard
 
yield
 
curve
 
modeling
techniques and models.
Relative
 
value models
 
measure fair
 
value based
 
on the
 
market prices
 
of equivalent
 
or comparable
 
assets or
 
liabilities,
 
making
adjustments
 
for differences
 
between the
 
characteristics
 
of the observed
 
instrument and
 
the instrument
 
being valued.
Option
 
pricing
 
models
 
incorporate
 
assumptions
 
regarding
 
the
 
behavior
 
of
 
future
 
price
 
movements
 
of
 
an
 
underlying
referenced
 
asset
 
or
 
assets
 
to
 
generate
 
a
 
probability-weighted
 
future
 
expected
 
payoff
 
for
 
the
 
option.
 
The
 
resulting
probability-weighted expected
 
payoff is
 
then discounted
 
using discount
 
factors generated
 
from industry-standard
 
yield
curve modeling
 
techniques and
 
models. The
 
option pricing
 
model may
 
be implemented
 
using a
 
closed-form analytical
formula or other mathematical techniques (e.g., binomial tree
 
or Monte Carlo simulation).
Where available, valuation techniques use
 
market-observable assumptions and inputs. If
 
such data is not
 
available, inputs
may be derived
 
by reference
 
to similar assets
 
in active markets,
 
from recent prices
 
for comparable
 
transactions or
 
from
other observable market data.
 
In such cases,
 
the inputs selected are
 
based on historical
 
experience and practice for
 
similar
or analogous
 
instruments, derivation of
 
input levels
 
based on
 
similar products
 
with observable price
 
levels, and
 
knowledge
of current market conditions and valuation approaches.
For
 
more
 
complex
 
instruments,
 
fair
 
values
 
may
 
be
 
estimated
 
using
 
a
 
combination
 
of
 
observed
 
transaction
 
prices,
consensus pricing services and relevant
 
quotes. Consideration is given
 
to the nature of
 
the quotes (e.g., indicative
 
or firm)
and the
 
relationship of recently
 
evidenced market
 
activity to
 
the prices
 
provided by consensus
 
pricing services.
 
UBS AG
also
 
uses
 
internally
 
developed
 
models,
 
which
 
are
 
typically
 
based on
 
valuation
 
methods
 
and
 
techniques
 
recognized
 
as
standard within
 
the industry. Assumptions
 
and inputs
 
used in
 
valuation techniques include
 
benchmark interest
 
rate curves,
credit
 
and
 
funding
 
spreads
 
used
 
in
 
estimating
 
discount
 
rates,
 
bond
 
and
 
equity
 
prices,
 
equity
 
index
 
prices,
 
foreign
exchange rates, levels
 
of market volatility
 
and correlation. Refer
 
to Note 20e
 
for more information.
 
The discount curves
used by UBS AG incorporate the funding and credit characteristics
 
of the instruments to which they are applied.
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
197
Note 20
 
Fair value measurement (continued)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial instruments excluding derivatives: valuation and classification in the fair value hierarchy
Product
Valuation and classification in the fair value hierarchy
Government bills
and bonds
Valuation
–
Generally valued using prices obtained directly
 
from the market.
–
Instruments not priced directly using active-market data are valued using discounted cash flow valuation
techniques that incorporate market data
 
for similar government instruments.
 
Fair value
hierarchy
–
Generally traded in active markets with prices that can be obtained directly from these markets,
 
resulting
in classification as Level 1, while the remaining
 
positions are classified as Level 2 and Level
 
3.
Corporate and
municipal bonds
Valuation
–
Generally
 
valued
 
using
 
prices
 
obtained
 
directly from
 
the
 
market
 
for
 
the
 
security,
 
or
 
similar
 
securities,
adjusted for seniority, maturity and liquidity.
–
When prices are
 
not available, instruments
 
are valued
 
using discounted cash
 
flow valuation techniques
incorporating the credit spread of the
 
issuer or similar issuers.
–
For convertible
 
bonds without
 
directly comparable
 
prices, issuances
 
may be
 
priced using
 
a convertible
bond model.
Fair value
hierarchy
–
Generally classified as Level 1 or Level 2, depending
 
on the depth of trading activity behind price
 
sources.
–
Level 3 instruments have no suitable pricing information
 
available.
Traded loans and
loans measured at
fair value
Valuation
–
Valued directly
 
using market
 
prices that
 
reflect recent
 
transactions or
 
quoted dealer
 
prices, where
 
available.
–
Where no
 
market price data
 
is available,
 
loans are
 
valued by relative
 
value benchmarking using
 
pricing
derived from debt instruments in comparable entities
 
or different products in the same entity,
 
or by using
a credit default swap
 
valuation technique, which requires inputs
 
for credit spreads, credit
 
recovery rates
and interest
 
rates. Recently originated
 
commercial real estate
 
loans are
 
measured using a
 
securitization
approach based on rating agency guidelines.
Fair value
hierarchy
–
Instruments with suitably deep and liquid pricing
 
information are classified as Level 2.
–
Positions requiring the
 
use of valuation
 
techniques, or for
 
which the price
 
sources have insufficient
 
trading
depth, are classified as Level 3.
Investment fund
units
Valuation
–
Predominantly exchange-traded,
 
with
 
readily available
 
quoted
 
prices
 
in
 
liquid
 
markets. Where
 
market
prices are not available, fair value may be measured
 
using net asset values (NAVs).
Fair value
hierarchy
–
Listed units
 
are classified
 
as Level 1,
 
provided there
 
is sufficient
 
trading activity
 
to justify
 
active-market
classification, while other positions are classified
 
as Level 2.
–
Positions for
 
which NAVs are
 
not available,
 
or where the
 
unit or
 
underlying investments are
 
illiquid are
classified as Level 3.
Asset-backed
securities (ABS)
Valuation
–
For liquid securities, the
 
valuation process will
 
use trade and price
 
data, updated for movements
 
in market
levels between the time of trading and the time of valuation. Less liquid instruments are measured using
discounted expected
 
cash flows
 
incorporating price
 
data for
 
instruments or
 
indices with
 
similar risk
 
profiles.
Fair value
hierarchy
–
Residential
 
mortgage-backed
 
securities,
 
commercial
 
mortgage-backed
 
securities
 
and
 
other
 
ABS
 
are
generally classified as
 
Level 2. However, if
 
significant inputs are
 
unobservable, or if market
 
or fundamental
data is not available, they are classified as Level
 
3.
Auction rate
securities (ARS)
Valuation
–
ARS
 
are
 
valued
 
utilizing
 
a
 
discounted
 
cash
 
flow
 
methodology.
 
The
 
model
 
captures
 
interest
 
rate
 
risk
emanating from the note coupon, credit risk attributable to the underlying closed-end fund investments,
liquidity risk as a function of the level of trading volume in these
 
positions, and extension risk, as ARS are
perpetual instruments that require an assumption
 
regarding their maturity or issuer redemption
 
date.
 
Fair value
hierarchy
–
Granular and liquid pricing information is generally not available for ARS. As a result, these securities are
classified as Level 3.
Equity instruments
Valuation
–
Listed equity instruments are generally valued
 
using prices obtained directly from the market.
–
Unlisted equity holdings, including private
 
equity positions, are initially
 
marked at their transaction price
and are
 
revalued when reliable
 
evidence of
 
price movement becomes
 
available or
 
when the
 
position is
deemed to be impaired.
 
Fair value
hierarchy
–
The majority of
 
equity securities are
 
actively traded on
 
public stock exchanges
 
where quoted prices
 
are
readily and regularly available, resulting in Level
 
1 classification.
–
Equity securities less actively traded will be
 
classified as Level 2 and illiquid positions
 
as Level 3.
Financial assets for
unit-linked
investment
Valuation
–
The majority of assets are listed on exchanges
 
and fair values are determined using quoted
 
prices.
Fair value
hierarchy
–
Most assets are classified as Level 1 if actively traded,
 
or Level 2 if trading is not active.
–
Instruments for which prices are not readily available
 
are classified as Level 3.
Securities
financing
transactions
Valuation
–
These instruments are valued using discounted expected cash flow techniques. The discount rate applied
is based on funding curves that are relevant
 
to the collateral eligibility terms.
Fair value
hierarchy
–
Collateral funding curves for these
 
instruments are generally observable and, as
 
a result, these positions
are classified as Level 2.
–
Where the
 
collateral terms
 
are non-standard,
 
the funding
 
curve may
 
be considered
 
unobservable and
 
these
positions are classified as Level 3.
Brokerage
receivables and
payables
Valuation
–
Fair value is determined based on the value of
 
the underlying balances.
Fair value
hierarchy
–
Due to their on-demand nature, these receivables
 
and payables are deemed as Level 2.
 
 
 
 
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
198
Note 20
 
Fair value measurement (continued)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Product
Valuation and classification in the fair value hierarchy
Financial liabilities
related to unit-
linked investment
Valuation
–
The fair
 
values of
 
investment contract
 
liabilities are
 
determined by
 
reference to
 
the fair
 
value of
 
the
corresponding assets.
Fair value
hierarchy
–
The
 
liabilities themselves
 
are
 
not actively
 
traded, but
 
are
 
mainly referenced
 
to
 
instruments that
 
are
actively traded and are therefore classified
 
as Level 2.
Precious metals and
other physical
commodities
Valuation
–
Physical assets are valued using the spot rate
 
observed in the relevant market.
Fair value
hierarchy
–
Generally traded
 
in active
 
markets with
 
prices that
 
can be
 
obtained directly
 
from these
 
markets, resulting
in classification as Level 1.
Debt issued
designated at fair
value
Valuation
–
The risk management and the valuation approaches for these instruments are closely aligned with the
equivalent
 
derivatives
 
business
 
and
 
the
 
underlying risk,
 
and
 
the
 
valuation
 
techniques used
 
for
 
this
component are the same as the relevant valuation
 
techniques described below.
Fair value
hierarchy
–
The observability is closely aligned with the equivalent
 
derivatives business and the underlying risk.
Commercial paper
and certificates of
deposit
Valuation
–
Generally valued using
 
discounted cash flow
 
valuation techniques
 
incorporating the
 
spread of the
 
issuer
or similar issuers over the underlying currency
 
risk-free curve.
Fair value
hierarchy
–
Due to the short-dated nature of
 
the positions and liquid underlying pricing inputs, they are generally
classified as Level 2.
Derivative instruments: valuation and classification
 
in the fair value hierarchy
The curves used
 
for discounting expected cash
 
flows in the
 
valuation of collateralized
 
derivatives reflect the funding
 
terms
associated with the relevant collateral arrangement for the instrument
 
being valued. These collateral arrangements differ
across
 
counterparties
 
with
 
respect
 
to
 
the
 
eligible
 
currency
 
and
 
interest
 
terms
 
of
 
the
 
collateral.
 
The
 
majority
 
of
collateralized derivatives are
 
measured using a discount
 
curve based on funding rates
 
derived from overnight interest
 
in
the cheapest eligible currency for the respective
 
counterparty collateral agreement.
Uncollateralized and
 
partially collateralized
 
derivatives are
 
discounted using
 
the alternative
 
reference rate
 
(the ARR)
 
(or
equivalent)
 
curve
 
for
 
the
 
currency
 
of the
 
instrument. As
 
described
 
in Note
 
20d, the
 
fair
 
value
 
of uncollateralized
 
and
partially collateralized
 
derivatives
 
is then
 
adjusted
 
by credit
 
valuation
 
adjustments
 
(CVAs),
 
debit valuation
 
adjustments
(DVAs) and
 
funding valuation
 
adjustments (FVA
 
s), as
 
applicable,
 
to reflect
 
an estimation
 
of the
 
effect
 
of counterparty
credit risk, UBS AG’s own credit risk, and funding costs
 
and benefits.
›
Refer to Note 10 for more information about derivative
 
instruments
Derivative product
Valuation and classification in the fair value hierarchy
Interest rate
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
Valuation
–
Credit derivative
 
contracts are
 
valued using
 
industry-standard models
 
based primarily
 
on
 
market credit
spreads, upfront pricing points and implied recovery rates. Where a derivative credit spread is not directly
available, it may be derived from the price of
 
the reference cash bond.
 
–
Asset-backed credit
 
derivatives are
 
valued using
 
a valuation
 
technique similar
 
to that
 
of the
 
underlying
security with an adjustment to reflect
 
the funding differences between cash
 
and synthetic form.
Fair value
hierarchy
–
Single-entity and
 
portfolio
 
credit derivative
 
contracts are
 
classified as
 
Level 2
 
when credit
 
spreads and
recovery rates
 
are determined
 
from actively
 
traded observable
 
market data.
 
Where the
 
underlying reference
name(s) are not actively traded
 
and the correlation cannot be
 
directly mapped to actively traded tranche
instruments, these contracts are classified
 
as Level 3.
 
–
Asset-backed
 
credit
 
derivatives
 
follow
 
the
 
characteristics
 
of
 
the
 
underlying
 
security
 
and
 
are
 
therefore
distributed across Level 2 and Level 3.
 
 
 
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
199
Note 20
 
Fair value measurement (continued)
 
 
 
 
 
 
 
 
 
Derivative product
Valuation and classification in the fair value hierarchy
Foreign exchange
Valuation
–
Open spot foreign exchange (FX) contracts are
 
valued using the FX spot rate observed
 
in the market.
–
Forward FX contracts are valued using the FX spot rate adjusted for forward pricing points observed from
standard market-based sources.
–
Over-the-counter (OTC) FX
 
option contracts are
 
valued using
 
market-standard option valuation
 
models.
The models used for shorter-dated options (i.e.,
 
maturities of five years or
 
less) tend to be different
 
than
those used for
 
longer-dated options
 
because the models
 
needed for longer-dated
 
OTC FX contracts
 
require
additional consideration of interest rate and FX
 
rate interdependency.
–
The valuation for
 
multi-dimensional FX
 
options uses a
 
multi-local volatility
 
model, which is
 
calibrated to the
observed FX volatilities for all relevant FX pairs.
Fair value
hierarchy
–
The
 
markets
 
for
 
FX
 
spot
 
and
 
FX
 
forward
 
pricing
 
points
 
are
 
both
 
actively
 
traded
 
and
 
observable
 
and
therefore such FX contracts are generally classified
 
as Level 2.
 
–
A significant proportion of
 
OTC FX option contracts are
 
classified as Level 2 as
 
inputs are derived mostly
from standard market contracts traded in
 
active and observable markets.
Equity / index
Valuation
–
Equity forward
 
contracts have
 
a single
 
stock or
 
index underlying and
 
are valued
 
using market-standard
models. The key inputs to the models are stock
 
prices, estimated dividend rates and equity funding rates
(which are implied
 
from prices of
 
forward contracts observed
 
in the market).
 
Estimated cash flows
 
are then
discounted using market-standard discounted cash flow models using a rate that reflects the appropriate
funding rate for
 
that portion
 
of the portfolio.
 
When no market
 
data is
 
available for the
 
instrument maturity,
they are
 
valued by
 
extrapolation of
 
available data,
 
use of
 
historical dividend
 
data, or
 
use of
 
data for
 
a
related equity.
 
–
Equity option contracts are valued
 
using market-standard models
 
that estimate the equity forward
 
level as
described
 
for
 
equity
 
forward
 
contracts
 
and
 
incorporate
 
inputs
 
for
 
stock
 
volatility
 
and
 
for
 
correlation
between
 
stocks
 
within
 
a
 
basket.
 
The
 
probability-weighted expected
 
option
 
payoff
 
generated
 
is
 
then
discounted
 
using
 
market-standard
 
discounted
 
cash
 
flow
 
models
 
applying
 
a
 
rate
 
that
 
reflects
 
the
appropriate funding rate
 
for that portion of
 
the portfolio. When
 
volatility, forward or
 
correlation inputs are
not
 
available,
 
they
 
are
 
valued
 
using
 
extrapolation
 
of
 
available
 
data,
 
historical
 
dividend,
 
correlation
 
or
volatility data, or the equivalent data for
 
a related equity.
Fair value
hierarchy
–
As inputs are
 
derived mostly from standard
 
market contracts traded in
 
active and observable
 
markets, a
significant proportion of equity forward contracts
 
are classified as Level 2.
 
–
Equity option positions for which inputs are derived
 
from standard market contracts traded in active and
observable markets are also classified
 
as Level 2. Level 3 positions are those
 
for which volatility, forward or
correlation inputs are not observable.
Commodity
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
 
when pricing
 
of equivalent
 
products or
 
the underlying
 
parameters
 
becomes observable
 
or when
the transaction is closed out.
The table below summarizes the changes in deferred day-1
 
profit or loss reserves during the respective period.
 
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
200
Note 20
 
Fair value measurement (continued)
 i 
 
 
 
 
 
 
Deferred day-1 profit or loss reserves
USD m
2023
2022
2021
Reserve balance at the beginning of the year
 i 422
 i 418
 i 269
Profit / (loss) deferred on new transactions
 i 250
 i 299
 i 459
(Profit) / loss recognized in the income statement
( i 275)
( i 295)
( i 308)
Foreign currency translation
 i 0
 i 0
( i 2)
Reserve balance at the end of the year
 i 397
 i 422
 i 418
 / 
Own credit
 
Own credit risk
 
is reflected in
 
the valuation of
 
UBS AG’s fair value
 
option liabilities where
 
this component is considered
relevant for valuation purposes by UBS AG’s counterparties
 
and other market participants.
Changes in
 
the fair
 
value of
 
financial liabilities
 
designated at
 
fair value
 
through profit
 
or loss
 
related to
 
own credit
 
are
recognized
 
in
Other
 
comprehensive
 
income
 
directly
 
within
Retained
 
earnings,
 
with
 
no
 
reclassification
 
to
 
the
 
income
statement
 
in
 
future
 
periods.
 
This
 
presentation
 
neither
 
creates
 
nor
 
increases
 
an
 
accounting
 
mismatch
 
in
 
the
 
income
statement, as UBS AG does not hedge changes in own credit.
Own credit is estimated using own credit adjustment (OCA) curves, which incorporate observable market data,
 
including
market-observed secondary prices for UBS’s debt
 
and debt curves of peers. In the
 
table below, the change in unrealized
own credit consists of changes in fair value that are attributable to the change in UBS
 
AG’s credit spreads, as well as the
effect of changes in
 
fair values attributable
 
to factors other
 
than credit spreads,
 
such as redemptions,
 
effects from time
decay and
 
changes in
 
interest and
 
other market
 
rates. Realized
 
own credit
 
is recognized
 
when an
 
instrument with
 
an
associated
 
unrealized
 
OCA
 
is
 
repurchased
 
prior
 
to
 
the
 
contractual
 
maturity
 
date.
 
Life-to-date
 
amounts
 
reflect
 
the
cumulative unrealized change since initial recognition.
›
Refer to Note 15 for more information about debt
 
issued designated at fair value
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Own credit adjustments on financial liabilities
 
designated at fair value
Included in Other comprehensive income
For the year ended
USD m
31.12.23
31.12.22
31.12.21
Recognized during the period:
Realized gain / (loss)
 
 i 8
 i 1
( i 14)
Unrealized gain / (loss)
 
( i 869)
 i 866
 i 60
Total gain / (loss), before tax
( i 861)
 i 867
 i 46
USD m
31.12.23
31.12.22
31.12.21
Recognized on the balance sheet as of the end of the period:
Unrealized life-to-date gain / (loss)
 
( i 312)
 i 556
( i 315)
of which: debt issued designated at fair value
( i 208)
 i 289
( i 144)
of which: other financial liabilities designated at fair value
( i 105)
 i 266
( i 172)
 / 
Credit valuation adjustments
In
 
order
 
to
 
measure
 
the
 
fair
 
value
 
of
 
OTC
 
derivative
 
instruments,
 
including
 
funded
 
derivative
 
instruments
 
that
 
are
classified as
Financial assets at
 
fair value
 
not held
 
for trading,
 
CVAs are needed to
 
reflect the credit
 
risk of
 
the counterparty
inherent
 
in
 
these
 
instruments.
 
This
 
amount
 
represents
 
the
 
estimated
 
fair
 
value
 
of
 
protection
 
required
 
to
 
hedge
 
the
counterparty credit risk of
 
such instruments. A CVA
 
is determined for each counterparty,
 
considering all exposures with
that counterparty,
 
and is dependent on the expected future
 
value of exposures, default probabilities
 
and recovery rates,
applicable collateral or netting arrangements, break
 
clauses, funding spreads, and other contractual
 
factors.
 
Funding valuation adjustments
FVAs
 
reflect
 
the
 
costs
 
and
 
benefits
 
of
 
funding
 
associated
 
with
 
uncollateralized
 
and
 
partially
 
collateralized
 
derivative
receivables and payables
 
and are calculated
 
as the valuation effect
 
from moving the
 
discounting of the uncollateralized
derivative cash flows from the ARR to OCA using the CVA
 
framework, including the probability of counterparty
 
default.
An FVA is also applied to collateralized
 
derivative assets in cases where the collateral
 
cannot be sold or repledged.
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
201
Note 20
 
Fair value measurement (continued)
Debit valuation adjustments
A DVA is estimated to incorporate own credit in the valuation of derivatives where an FVA is not already recognized. The
DVA calculation
 
is effectively consistent with
 
the CVA framework,
 
being determined for each counterparty,
 
considering
all exposures
 
with that
 
counterparty
 
and taking
 
into account
 
collateral
 
netting agreements,
 
expected
 
future
 
mark-to-
market movements and UBS AG’s credit default
 
spreads.
Other valuation adjustments
Instruments that are measured as
 
part of a
 
portfolio of combined long
 
and short positions
 
are valued at mid-market levels
to ensure consistent valuation
 
of the long- and
 
short-component risks. A liquidity
 
valuation adjustment is then
 
made to
the overall
 
net long
 
or short
 
exposure to
 
move the
 
fair value
 
to bid
 
or offer
 
as appropriate,
 
reflecting current
 
levels of
market
 
liquidity.
 
The bid–offer
 
spreads
 
used in
 
the calculation
 
of this
 
valuation adjustment
 
are
 
obtained from
 
market
transactions and other relevant sources and
 
are updated periodically.
Uncertainties
 
associated
 
with
 
the
 
use of
 
model-based
 
valuations
 
are
 
incorporated
 
into the
 
measurement
 
of fair
 
value
through the use of model
 
reserves. These reserves reflect
 
the amounts that UBS AG estimates
 
should be deducted from
valuations produced directly
 
by models to incorporate
 
uncertainties in the relevant
 
modeling assumptions, in the
 
model
and market inputs used,
 
or in the calibration
 
of the model output
 
to adjust for known
 
model deficiencies. In
 
arriving at
these
 
estimates,
 
UBS AG
 
considers
 
a
 
range
 
of
 
market
 
practices,
 
including
 
how
 
it
 
believes
 
market
 
participants
 
would
assess these uncertainties. Model reserves
 
are reassessed periodically in light
 
of data from market
 
transactions, consensus
pricing services and other relevant sources.
 i 
 
 
 
 
 
 
 
 
 
Balance sheet valuation adjustments
 
on financial instruments
As of
USD m
31.12.23
31.12.22
Credit valuation adjustments
1
( i 37)
( i 33)
Funding and debit valuation adjustments
( i 82)
( i 46)
Other valuation adjustments
( i 730)
( i 839)
of which: liquidity
( i 308)
( i 311)
of which: model uncertainty
( i 423)
( i 529)
1 Amounts do not include reserves against defaulted counterparties.
 / 
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
202
Note 20
 
Fair value measurement (continued)
 
e) Level 3 instruments: valuation techniques and inputs
 
The table below presents
 
material Level 3 assets
 
and liabilities, together
 
with the valuation techniques
 
used to measure
fair value,
 
the inputs
 
used in
 
a given
 
valuation technique
 
that are
 
considered significant
 
as of
 
31 December 2023
 
and
unobservable, and a range of values for those unobservable inputs.
 
The range of
 
values represents the highest-
 
and lowest-level inputs used
 
in the valuation
 
techniques. Therefore, the range
does not reflect the level of uncertainty regarding a particular input or an assessment of the reasonableness of UBS AG’s
estimates and assumptions, but rather the different underlying characteristics of the relevant assets and liabilities held by
UBS AG. The
 
ranges will
 
therefore vary
 
from period
 
to period
 
and parameter
 
to parameter
 
based on
 
characteristics of
the instruments held at each balance sheet date. Furthermore, the ranges of unobservable inputs may
 
differ across other
financial institutions, reflecting the diversity of the products
 
in each firm’s inventory.
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Valuation techniques and inputs used in the fair value measurement
 
of Level 3 assets and liabilities
Fair value
Significant
unobservable
input(s)
1
Range of inputs
Assets
Liabilities
Valuation
technique(s)
31.12.23
31.12.22
USD bn
31.12.23
31.12.22
31.12.23
31.12.22
low
high
weighted
average
2
low
high
weighted
average
2
unit
1
Financial assets and liabilities at fair value held for trading and Financial assets at fair
 
value not held for trading
Corporate and municipal
bonds
 i 0.9
 i 0.8
 i 0.1
 i 0.0
Relative value to
market comparable
Bond price equivalent
 i 9
 i 114
 i 93
 i 14
 i 112
 i 85
points
Discounted expected
cash flows
Discount margin
 i 491
 i 491
 i 412
 i 412
basis
points
Traded loans, loans
measured at fair value,
loan commitments and
guarantees
 i 2.3
 i 1.7
 i 0.0
 i 0.0
Relative value to
market comparable
Loan price equivalent
 i 6
 i 101
 i 98
 i 30
 i 100
 i 97
points
Discounted expected
cash flows
Credit spread
 i 200
 i 275
 i 252
 i 200
 i 200
 i 200
basis
points
Market comparable
and securitization
model
Credit spread
 i 162
 i 1,849
 i 318
 i 145
 i 1,350
 i 322
basis
points
Auction rate securities
 i 1.2
 i 1.3
Discounted expected
cash flows
Credit spread
 i 135
 i 205
 i 150
 i 115
 i 196
 i 144
basis
points
Investment fund units
3
 i 0.2
 i 0.3
 i 0.0
 i 0.0
Relative value to
market comparable
Net asset value
Equity instruments
3
 i 1.2
 i 0.9
 i 0.1
 i 0.1
Relative value to
market comparable
Price
Debt issued designated at
fair value
4
 i 7.8
 i 9.2
Other financial liabilities
designated at fair value
 i 2.3
 i 2.0
Discounted expected
cash flows
Funding spread
 i 51
 i 201
 i 23
 i 175
basis
points
Derivative financial instruments
Interest rate
 i 0.3
 i 0.5
 i 0.1
 i 0.1
Option model
Volatility of interest
rates
 i 84
 i 112
 i 75
 i 143
basis
points
Credit
 i 0.3
 i 0.3
 i 0.3
 i 0.3
Discounted expected
cash flows
Credit spreads
 
 i 1
 i 306
 i 9
 i 565
basis
points
Bond price equivalent
 i 2
 i 242
 i 3
 i 277
points
Equity / index
 i 0.7
 i 0.7
 i 2.7
 i 1.2
Option model
Equity dividend yields
 i 0
 i 14
 i 0
 i 20
%
Volatility of equity
stocks, equity and
other indices
 i 4
 i 104
 i 4
 i 120
%
Equity-to-FX
correlation
( i 40)
 i 70
( i 29)
 i 84
%
Equity-to-equity
correlation
 i 13
 i 100
( i 25)
 i 100
%
1 The ranges
 
of significant unobservable inputs
 
are represented in points,
 
percentages and basis points.
 
Points are a percentage
 
of par (e.g., 100
 
points would be 100%
 
of par).
 
2 Weighted averages are
 
provided for
most non-derivative financial instruments and were
 
calculated by weighting inputs based on the fair values
 
of the respective instruments. Weighted averages
 
are not provided for inputs related to Other
 
financial liabilities
designated at fair value and Derivative financial instruments, as this would not be meaningful.
 
3 The range of inputs is not disclosed, as there is a dispersion of values given the diverse nature of the investments.
 
4 Debt
issued designated at fair value primarily consists of UBS AG structured notes, which include variable maturity
 
notes with various equity and foreign exchange underlying risks, as well as rates-linked and credit
 
-linked notes,
all of which have embedded derivative parameters that are considered to be unobservable. The equivalent
 
derivative instrument parameters are presented in the respective derivative financial instruments lines in this table.
 / 
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
203
Note 20
 
Fair value measurement (continued)
 
 
 
 
 
 
 
 
 
 
 
Significant unobservable inputs in Level 3 positions
This section
 
discusses the
 
significant unobservable
 
inputs used
 
in the valuation
 
of Level 3
 
instruments and
 
assesses the
potential effect that
 
a change
 
in each
 
unobservable input in
 
isolation may
 
have on
 
a fair value
 
measurement. Relationships
between observable and unobservable inputs have not
 
been included in the summary below.
Input
Description
Bond price
equivalent
–
Where market prices are
 
not available for a
 
bond, fair value is
 
measured by comparison with observable pricing data
 
from
similar instruments. Factors considered when selecting comparable instruments include credit quality, maturity and industry
of the issuer. Fair value may be measured either by a direct price comparison or
 
by conversion of an instrument price into a
yield (either as an outright yield or as a spread
 
to the relevant benchmark rate).
 
–
For corporate and municipal bonds, the
 
range represents the range of prices
 
from reference issuances used in determining
fair value. Bonds priced
 
at 0 are distressed
 
to the point that
 
no recovery is
 
expected, while prices
 
significantly in excess
 
of 100
or
 
par relate
 
to inflation-linked
 
or structured
 
issuances that
 
pay a
 
coupon in
 
excess of
 
the market
 
benchmark as
 
of the
measurement date.
–
For credit derivatives, the bond price range
 
represents the range of prices used for
 
reference instruments, which are typically
converted to an equivalent yield or credit
 
spread as part of the valuation process.
Loan price
equivalent
–
Where market prices are
 
not available for a
 
traded loan or a
 
loan commitment, fair value is
 
measured by comparison with
observable pricing data for similar instruments. Factors considered when selecting comparable instruments include industry
segment,
 
collateral
 
quality,
 
maturity
 
and
 
issuer-specific
 
covenants.
 
Fair
 
value
 
may
 
be
 
measured either
 
by
 
a
 
direct
 
price
comparison or
 
by conversion
 
of an
 
instrument price
 
into a
 
yield. The
 
range represents
 
the range
 
of prices
 
derived from
reference issuances of a similar credit quality used to measure fair value for loans classified as Level 3. Loans priced at 0
 
are
distressed to the
 
point that no
 
recovery is expected,
 
while a current
 
price of
 
100 represents a
 
loan that is
 
expected to be
repaid in full.
Credit spread
–
Valuation models for many credit derivatives
 
and other credit sensitive products require
 
an input for the credit spread, which
is a reflection of the
 
credit quality of the
 
associated referenced underlying.
 
The credit spread of
 
a particular security is quoted
in relation
 
to the
 
yield on
 
a benchmark
 
security or
 
reference rate,
 
typically either
 
US Treasury
 
or ARR,
 
and is
 
generally expressed
in terms of
 
basis points.
 
An increase /
 
(decrease) in
 
credit spread will
 
increase /
 
(decrease) the value
 
of credit protection
 
offered
by credit default swaps
 
and other credit
 
derivative products. The
 
income statement effect
 
from such changes
 
depends on the
nature and direction
 
of the positions
 
held. Credit spreads
 
may be negative
 
where the asset
 
is more creditworthy
 
than the
benchmark against which the spread is calculated. A wider credit spread represents decreasing creditworthiness. The range
represents a diverse set of underlyings, with
 
the lower end of the
 
range representing credits of the highest quality and
 
the
upper end of the range representing greater
 
levels of credit risk.
Discount margin
–
The discount margin (DM) spread represents the discount rates applied to present
 
value cash flows of an asset to reflect the
market return required
 
for uncertainty in
 
the estimated cash
 
flows. DM spreads
 
are a rate
 
or rates applied
 
on top of
 
a floating
index (e.g., Secured Overnight Financing Rate
 
(SOFR)) to discount expected cash flows.
 
Generally, a decrease / (increase) in
the DM in isolation would result in a higher
 
/ (lower) fair value.
–
The high
 
end of
 
the range
 
relates to
 
securities that
 
are priced
 
low within
 
the market
 
relative to
 
the expected
 
cash flow
schedule. This indicates that the market is pricing
 
an increased risk of credit loss into the security
 
that is greater than what is
being captured by
 
the expected cash flow
 
generation process. The low
 
ends of the
 
ranges are typical
 
of funding rates
 
on
better-quality instruments.
Funding spread
–
Structured financing transactions
 
are valued using synthetic
 
funding curves that best
 
represent the assets that
 
are pledged as
collateral for the
 
transactions. They
 
are not representative
 
of where UBS AG
 
can fund itself
 
on an unsecured
 
basis but provide
an estimate of where UBS AG can source and deploy secured funding with counterparties
 
for a given type of collateral. The
funding spreads are expressed
 
in terms of basis points,
 
and if funding spreads
 
widen, this increases the
 
effect of discounting.
 
–
A small proportion of structured debt instruments and non-structured fixed-rate bonds within financial liabilities designated
at fair value had an exposure to funding
 
spreads that was longer in duration than the
 
actively traded market.
Volatility
–
Volatility measures
 
the variability
 
of future prices
 
for a particular
 
instrument and
 
is generally expressed
 
as a percentage,
 
where
a higher number reflects a more volatile
 
instrument, for which future price
 
movements are more likely to occur.
 
Volatility is a
key input into
 
option models, where it
 
is used to derive
 
a probability-based distribution of future
 
prices for the underlying
instrument. The
 
effect
 
of
 
volatility on
 
individual positions
 
within
 
the portfolio
 
is driven
 
primarily by
 
whether the
 
option
contract is a long or short position. In most cases, the fair value of an
 
option increases as a result of an increase in volatility
and is reduced
 
by a decrease
 
in volatility. Generally, volatility used
 
in the measurement of
 
fair value is
 
derived from active-
market option prices (referred to as
 
implied volatility). A key feature of
 
implied volatility is the volatility “smile”
 
or “skew,”
which represents the effect of pricing options
 
of different option strikes at different implied
 
volatility levels.
–
Volatilities of low interest rates
 
tend to be much higher
 
than volatilities of high
 
interest rates. In addition,
 
different currencies
may have significantly different implied volatilities.
 
 
 
 
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
204
Note 20
 
Fair value measurement (continued)
 
 
 
 
 
Input
Description
Correlation
–
Correlation measures the
 
interrelationship between
 
the movements of
 
two variables. It is
 
expressed as a percentage
 
between
 
–100%
 
and
 
+100%,
 
where
 
+100%
 
represents
 
perfectly
 
correlated
 
variables
 
(meaning
 
a
 
movement
 
of
 
one
 
variable
 
is
associated with a movement of the other variable in the same direction) and –100% implies that
 
the variables are inversely
correlated
 
(meaning
 
a
 
movement of
 
one
 
variable
 
is
 
associated
 
with
 
a
 
movement of
 
the
 
other
 
variable
 
in
 
the
 
opposite
direction). The effect of correlation
 
on the measurement of
 
fair value depends on the
 
specific terms of the instruments
 
being
valued, reflecting the range of different payoff
 
features within such instruments.
Equity dividend
yields
–
The derivation of a forward price
 
for an individual stock or index is
 
important for measuring fair value for forward or swap
contracts and for measuring fair
 
value using option pricing models.
 
The relationship between the
 
current stock price and the
forward price is based on a combination
 
of expected future dividend levels
 
and payment timings, and, to a lesser
 
extent, the
relevant funding
 
rates applicable
 
to the stock
 
in question.
 
Dividend yields
 
are generally
 
expressed as
 
an annualized
 
percentage
of the share price, with
 
the lowest limit of 0% representing a
 
stock that is not expected to
 
pay any dividend. The dividend
yield and timing represent
 
the most significant parameter in
 
determining fair value for instruments
 
that are sensitive to
 
an
equity forward price.
f) Level 3 instruments: sensitivity to changes in unobservable
 
input assumptions
The table below summarizes
 
those financial assets and
 
liabilities classified as Level
 
3 for which a
 
change in one or
 
more
of
 
the
 
unobservable
 
inputs
 
to
 
reflect
 
reasonably
 
possible
 
favorable
 
and
 
unfavorable
 
alternative
 
assumptions
 
would
change fair value significantly, and the estimated effect thereof. The table below does not represent the estimated effect
of stress
 
scenarios.
 
Interdependencies
 
between
 
Level 1,
 
2 and
 
3 parameters
 
have not
 
been
 
incorporated
 
in the
 
table.
Furthermore, direct
 
interrelationships
 
between the
 
Level 3 parameters
 
discussed below
 
are not
 
a significant element
 
of
the valuation uncertainty.
Sensitivity data is estimated
 
using a number of techniques,
 
including the estimation
 
of price dispersion among
 
different
market participants, variation
 
in modeling approaches
 
and reasonably possible
 
changes to assumptions
 
used within the
fair value
 
measurement process.
 
The sensitivity
 
ranges are
 
not always
 
symmetrical around
 
the fair
 
values, as the
 
inputs
used in valuations are not always precisely in the middle
 
of the favorable and unfavorable range.
Sensitivity data
 
is determined at
 
a product or
 
parameter level
 
and then aggregated
 
assuming no diversification
 
benefit.
Diversification would
 
incorporate estimated
 
correlations across
 
different sensitivity
 
results and,
 
as such,
 
would result
 
in
an overall sensitivity that would
 
be less than the sum
 
of the individual component sensitivities. However,
 
UBS AG believes
that the diversification benefit is not significant to this analysis.
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sensitivity of fair value measurements to changes
 
in unobservable input assumptions
1
31.12.23
31.12.22
USD m
Favorable
 
changes
Unfavorable
 
changes
Favorable
 
changes
Unfavorable
 
changes
Traded loans, loans measured at fair value, loan commitments and guarantees
 i 22
2
( i 29)
2
 i 19
( i 12)
Securities financing transactions
 i 24
( i 24)
 i 33
( i 37)
Auction rate securities
 i 67
( i 21)
 i 46
( i 46)
Asset-backed securities
 i 25
( i 22)
 i 27
( i 27)
Equity instruments
 i 189
( i 178)
 i 183
( i 161)
Interest rate derivatives, net
 i 27
( i 18)
 i 18
( i 12)
Credit derivatives, net
 i 2
( i 5)
 i 3
( i 4)
Foreign exchange derivatives, net
 i 5
( i 4)
 i 10
( i 5)
Equity / index derivatives, net
 i 358
( i 285)
 i 361
( i 330)
Other
 i 62
( i 62)
 i 39
( i 62)
Total
 i 781
( i 648)
 i 738
( i 696)
1 Sensitivity of issued and over-the-counter debt instruments is reported with the equivalent derivative
 
or Other.
 
2 Includes refinements applied in estimating valuation uncertainty across various parameters.
 / 
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
205
Note 20
 
Fair value measurement (continued)
 
g) Level 3 instruments: movements during the period
The table below presents
 
additional information about
 
material Level 3 assets
 
and liabilities measured
 
at fair value on
 
a
recurring basis.
 
Level 3 assets
 
and liabilities
 
may be
 
hedged with
 
instruments classified
 
as Level 1
 
or Level 2
 
in the
 
fair
value hierarchy,
 
and, as a result, realized and unrealized gains and losses included in the table may not
 
include the effect
of
 
related
 
hedging
 
activity.
 
Furthermore,
 
the
 
realized
 
and
 
unrealized
 
gains
 
and
 
losses
 
presented
 
in
 
the
 
table
 
are
 
not
limited
 
solely
 
to
 
those
 
arising
 
from
 
Level
 
3 inputs,
 
as
 
valuations
 
are
 
generally
 
derived
 
from
 
both
 
observable
 
and
unobservable
 
parameters.
 
Assets
 
and
 
liabilities
 
transferred
 
into
 
or
 
out
 
of
 
Level 3
 
are
 
presented
 
as
 
if
 
those
 
assets
 
or
liabilities had been transferred at the beginning of the
 
year.
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Movements of Level 3 instruments
USD bn
Balance at
the beginning
of the period
Net gains /
losses
included in
compre-
hensive
income
1
of which:
related to
instruments
held at the
end of the
period
Purchases
Sales
Issuances
Settlements
Transfers
 
into
 
Level 3
Transfers
 
out of
 
Level 3
Foreign
 
currency
 
translation
Balance at
the end
of the period
For the twelve months ended 31 December 2023
2
Financial assets at fair value held for
trading
 i 1.5
( i 0.1)
( i 0.1)
 i 0.4
( i 0.8)
 i 0.8
 i 0.0
 i 0.2
( i 0.3)
 i 0.0
 i 1.8
of which: Equity instruments
 i 0.1
( i 0.1)
( i 0.1)
 i 0.0
( i 0.1)
 i 0.0
 i 0.0
 i 0.2
( i 0.0)
 i 0.0
 i 0.1
of which: Corporate and municipal
bonds
 i 0.5
( i 0.0)
( i 0.0)
 i 0.4
( i 0.3)
 i 0.0
 i 0.0
 i 0.0
( i 0.0)
 i 0.0
 i 0.6
of which: Loans
 i 0.6
( i 0.1)
( i 0.1)
 i 0.1
( i 0.4)
 i 0.8
 i 0.0
 i 0.0
( i 0.2)
 i 0.0
 i 0.9
Derivative financial instruments –
assets
 i 1.5
( i 0.3)
( i 0.3)
 i 0.0
( i 0.0)
 i 0.7
( i 0.5)
 i 0.1
( i 0.3)
 i 0.0
 i 1.3
of which: Interest rate
 i 0.5
 i 0.0
( i 0.0)
 i 0.0
 i 0.0
 i 0.1
( i 0.2)
 i 0.0
( i 0.1)
( i 0.0)
 i 0.3
of which: Equity / index
 i 0.7
( i 0.2)
( i 0.2)
 i 0.0
 i 0.0
 i 0.6
( i 0.1)
 i 0.0
( i 0.2)
 i 0.0
 i 0.7
of which: Credit
 i 0.3
( i 0.1)
( i 0.1)
 i 0.0
 i 0.0
 i 0.1
( i 0.1)
 i 0.1
( i 0.0)
 i 0.0
 i 0.3
Financial assets at fair value not held
for trading
 i 3.7
 i 0.2
 i 0.2
 i 0.8
( i 0.7)
 i 0.0
( i 0.0)
 i 0.1
( i 0.1)
 i 0.0
 i 4.1
of which: Loans
 i 0.7
 i 0.3
 i 0.3
 i 0.3
( i 0.0)
 i 0.0
( i 0.0)
 i 0.1
( i 0.1)
( i 0.0)
 i 1.3
of which: Auction rate securities
 i 1.3
 i 0.0
 i 0.0
 i 0.0
( i 0.1)
 i 0.0
 i 0.0
 i 0.0
 i 0.0
 i 0.0
 i 1.2
of which: Equity instruments
 i 0.8
 i 0.1
 i 0.0
 i 0.4
( i 0.2)
 i 0.0
 i 0.0
 i 0.1
 i 0.0
 i 0.0
 i 1.1
Derivative financial instruments –
liabilities
 i 1.7
 i 0.3
 i 0.3
 i 0.0
( i 0.0)
 i 1.9
( i 0.6)
 i 0.0
( i 0.2)
 i 0.0
 i 3.2
of which: Interest rate
 i 0.1
 i 0.0
 i 0.0
 i 0.0
 i 0.0
 i 0.0
( i 0.1)
 i 0.0
( i 0.0)
 i 0.0
 i 0.1
of which: Equity / index
 i 1.2
 i 0.3
 i 0.3
 i 0.0
 i 0.0
 i 1.8
( i 0.4)
 i 0.0
( i 0.2)
 i 0.0
 i 2.7
of which: Credit
 i 0.3
( i 0.0)
 i 0.0
 i 0.0
 i 0.0
 i 0.1
 i 0.0
 i 0.0
( i 0.1)
( i 0.0)
 i 0.3
Debt issued designated at fair value
 i 9.2
 i 0.4
 i 0.3
 i 0.0
 i 0.0
 i 3.5
( i 3.2)
 i 0.5
( i 2.6)
 i 0.0
 i 7.8
Other financial liabilities designated at
fair value
 i 2.0
 i 0.3
 i 0.4
 i 0.0
 i 0.0
 i 0.2
( i 0.2)
 i 0.0
( i 0.0)
 i 0.0
 i 2.3
 / 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the twelve months ended 31 December 2022
Financial assets at fair value held for
trading
 i 2.3
( i 0.3)
( i 0.3)
 i 0.3
( i 1.8)
 i 0.5
 i 0.0
 i 0.7
( i 0.3)
( i 0.0)
 i 1.5
of which: Investment fund units
 i 0.0
( i 0.0)
( i 0.0)
 i 0.0
( i 0.0)
 i 0.0
 i 0.0
 i 0.1
( i 0.0)
( i 0.0)
 i 0.1
of which: Corporate and municipal
bonds
 i 0.6
( i 0.0)
( i 0.0)
 i 0.3
( i 0.6)
 i 0.0
 i 0.0
 i 0.4
( i 0.0)
( i 0.0)
 i 0.5
of which: Loans
 i 1.4
( i 0.1)
( i 0.1)
 i 0.0
( i 1.1)
 i 0.5
 i 0.0
 i 0.0
( i 0.2)
 i 0.0
 i 0.6
Derivative financial instruments –
assets
 i 1.1
 i 0.6
 i 0.3
 i 0.0
 i 0.0
 i 0.4
( i 0.7)
 i 0.1
( i 0.0)
( i 0.0)
 i 1.5
of which: Interest rate
 i 0.5
 i 0.3
 i 0.3
 i 0.0
 i 0.0
 i 0.0
( i 0.2)
 i 0.0
( i 0.1)
( i 0.0)
 i 0.5
of which: Equity / index
 i 0.4
 i 0.2
 i 0.1
 i 0.0
 i 0.0
 i 0.4
( i 0.3)
 i 0.1
( i 0.0)
( i 0.0)
 i 0.7
of which: Credit
 i 0.2
 i 0.1
( i 0.1)
 i 0.0
 i 0.0
 i 0.0
( i 0.2)
 i 0.0
 i 0.1
 i 0.0
 i 0.3
Financial assets at fair value not held
for trading
 i 4.2
 i 0.1
 i 0.1
 i 0.7
( i 1.2)
 i 0.1
( i 0.0)
 i 0.2
( i 0.3)
( i 0.0)
 i 3.7
of which: Loans
 i 0.9
( i 0.0)
( i 0.0)
 i 0.4
( i 0.4)
 i 0.1
 i 0.0
 i 0.1
( i 0.3)
( i 0.0)
 i 0.7
of which: Auction rate securities
 i 1.6
 i 0.1
 i 0.0
 i 0.0
( i 0.3)
 i 0.0
 i 0.0
 i 0.0
 i 0.0
 i 0.0
 i 1.3
of which: Equity instruments
 i 0.7
 i 0.0
 i 0.0
 i 0.1
( i 0.1)
 i 0.0
 i 0.0
 i 0.1
 i 0.0
( i 0.0)
 i 0.8
Derivative financial instruments –
liabilities
 i 2.2
( i 0.8)
( i 0.4)
 i 0.0
 i 0.0
 i 1.1
( i 0.9)
 i 0.3
( i 0.2)
( i 0.1)
 i 1.7
of which: Interest rate
 i 0.3
( i 0.3)
( i 0.0)
 i 0.0
 i 0.0
 i 0.1
( i 0.0)
 i 0.0
( i 0.0)
( i 0.0)
 i 0.1
of which: Equity / index
 i 1.5
( i 0.4)
( i 0.3)
 i 0.0
 i 0.0
 i 0.8
( i 0.7)
 i 0.1
( i 0.2)
( i 0.0)
 i 1.2
of which: Credit
 i 0.3
( i 0.1)
( i 0.0)
 i 0.0
 i 0.0
 i 0.1
( i 0.1)
 i 0.1
( i 0.0)
( i 0.0)
 i 0.3
Debt issued designated at fair value
 i 11.9
( i 1.3)
( i 0.9)
 i 0.0
 i 0.0
 i 4.7
( i 3.1)
 i 0.7
( i 3.3)
( i 0.3)
 i 9.2
Other financial liabilities designated at
fair value
 i 3.2
( i 1.0)
( i 1.0)
 i 0.0
 i 0.0
 i 0.0
( i 0.1)
 i 0.1
( i 0.2)
( i 0.0)
 i 2.0
1 Net gains / losses included in comprehensive income are recognized in Net interest income and Other net income from financial instruments measured at fair value through profit or loss in the Income statement, and
also in
 
Gains /
 
(losses) from
 
own credit
 
on financial
 
liabilities designated
 
at fair
 
value, before
 
tax in
 
the Statement
 
of comprehensive
 
income.
 
2 Total
 
Level 3 assets
 
as of
 
31 December 2023
 
were USD
 i 7.2
bn
(31 December 2022: USD
 i 6.7
bn). Total Level 3 liabilities as of 31 December 2023 were USD
 i 13.4
bn (31 December 2022: USD
 i 13.0
bn).
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
206
Note 20
 
Fair value measurement (continued)
 
h) Maximum exposure to credit risk for financial instruments
 
measured at fair value
The tables below provide UBS AG’s maximum exposure to credit risk for financial instruments measured at fair value
 
and
the respective collateral and other credit
 
enhancements mitigating credit risk for these
 
classes of financial instruments.
 
The maximum exposure
 
to credit risk
 
includes the carrying
 
amounts of financial
 
instruments recognized on
 
the balance
sheet subject to credit risk
 
and the notional amounts for off-balance sheet
 
arrangements. Where information is available,
collateral is presented at fair
 
value. For other collateral, such as
 
real estate, a reasonable alternative
 
value is used. Credit
enhancements,
 
such
 
as
 
credit
 
derivative
 
contracts
 
and
 
guarantees,
 
are
 
included
 
at
 
their
 
notional
 
amounts.
 
Both
 
are
capped at
 
the maximum
 
exposure to
 
credit risk
 
for which
 
they serve
 
as security.
 
The “Risk
 
management
 
and control”
section of this
 
report describes
 
management’s view
 
of credit
 
risk and the
 
related exposures,
 
which can differ
 
in certain
respects from the requirements of IFRS Accounting Standards.
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Maximum exposure to credit risk
 
31.12.23
Maximum
exposure to
credit risk
Collateral
Credit enhancements
Exposure to
credit risk
after collateral
and credit
enhancements
USD bn
Cash
collateral
received
Collateralized
by equity and
debt
instruments
Secured by
real estate
Other
 
collateral
Netting
Credit
derivative
Guarantees
and sub-
participations
Financial assets measured at
 
fair value on the balance sheet
1
Financial assets at fair value
 
held for trading – debt instruments
2,3
 i 25.6
 
 i 25.6
Derivative financial instruments
4
 i 131.7
 i 5.1
 i 117.6
 i 9.1
Brokerage receivables
 i 20.9
 i 20.5
 i 0.4
Financial assets at fair value not
 
held for trading – debt instruments
5
 i 46.0
 i 10.2
 i 35.8
Total financial assets measured at fair value
 i 224.3
 i 0.0
 i 35.8
 i 0.0
 i 0.0
 i 117.6
 i 0.0
 i 0.0
 i 70.9
Guarantees
 i 0.1
 i 0.1
 i 0.0
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
Guarantees
and sub-
participations
Financial assets measured at
 
fair value on the balance sheet
1
Financial assets at fair value
 
held for trading – debt instruments
2,3
 i 16.7
 
 i 16.7
Derivative financial instruments
4
 i 150.1
 i 5.9
 i 133.5
 i 10.7
Brokerage receivables
 i 17.6
 i 17.3
 i 0.3
Financial assets at fair value not
 
held for trading – debt instruments
5
 i 44.8
 i 11.4
 i 33.4
Total financial assets measured at fair value
 i 229.2
 i 0.0
 i 34.6
 i 0.0
 i 0.0
 i 133.5
 i 0.0
 i 0.0
 i 61.2
Guarantees
 i 0.2
 i 0.2
 i 0.0
1 The maximum exposure to loss
 
is generally equal to the carrying
 
amount and subject to change over
 
time with market movements.
 
2 For the purpose of
 
this disclosure, collateral and credit
 
enhancements were
not considered as these positions are generally managed under the market risk framework.
 
3 Does not include investment fund units.
 
4 The amount shown in the “Netting” column represents the netting potential
not recognized
 
on the
 
balance sheet.
 
Refer to
 
Note 21 for
 
more information.
 
5 Does not
 
include unit-linked
 
investment contracts
 
and investment
 
fund units.
 
Financial assets
 
at fair
 
value not
 
held for
 
trading
collateralized by equity and debt instruments consisted of structured loans and reverse repurchase and securities borrowing agreements.
 / 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
207
Note 20
 
Fair value measurement (continued)
 
i) Financial instruments not measured at fair value
The table below provides the estimated fair values of financial
 
instruments not measured at fair value.
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial instruments not measured at fair value
31.12.23
31.12.22
Carrying
amount
Fair value
Carrying
amount
Fair value
USD bn
Total
Carrying
amount
approximates
fair value
1
Level 1
Level 2
Level 3
Total
Total
Carrying
amount
approximates
fair value
1
Level 1
Level 2
Level 3
Total
Assets
Cash and balances at central banks
 i 171.8
 i 171.7
 i 0.0
 i 0.1
 i 0.0
 i 171.8
 i 169.4
 i 169.4
 i 0.1
 i 0.0
 i 0.0
 i 169.4
Amounts due from banks
 i 28.2
 i 12.5
 i 0.0
 i 15.4
 i 0.2
 i 28.2
 i 14.7
 i 13.9
 i 0.0
 i 0.7
 i 0.0
 i 14.6
Receivables from securities financing
transactions measured at amortized cost
 i 74.1
 i 68.7
 i 0.0
 i 3.9
 i 1.5
 i 74.1
 i 67.8
 i 64.3
 i 0.0
 i 1.8
 i 1.7
 i 67.8
Cash collateral receivables on derivative
instruments
 i 32.3
 i 32.3
 i 0.0
 i 0.0
 i 0.0
 i 32.3
 i 35.0
 i 35.0
 i 0.0
 i 0.0
 i 0.0
 i 35.0
Loans and advances to customers
 i 405.6
 i 131.8
 i 0.0
 i 44.3
 i 220.4
 i 396.5
 i 390.0
 i 136.9
 i 0.0
 i 45.9
 i 195.0
 i 377.7
Other financial assets measured at amortized
cost
 i 54.3
 i 9.0
 i 12.8
 i 29.6
 i 2.6
 i 54.1
 i 53.4
 i 13.0
 i 10.3
 i 25.1
 i 2.5
 i 51.0
Liabilities
Amounts due to banks
 i 16.7
 i 8.8
 i 0.0
 i 8.0
 i 0.0
 i 16.7
 i 11.6
 i 8.9
 i 0.0
 i 2.7
 i 0.0
 i 11.6
Payables from securities financing
transactions measured at amortized cost
 i 5.8
 i 5.1
 i 0.0
 i 0.4
 i 0.4
 i 5.8
 i 4.2
 i 3.5
 i 0.0
 i 0.7
 i 0.0
 i 4.2
Cash collateral payables on derivative
instruments
 i 34.9
 i 34.9
 i 0.0
 i 0.0
 i 0.0
 i 34.9
 i 36.4
 i 36.4
 i 0.0
 i 0.0
 i 0.0
 i 36.4
Customer deposits
 i 555.7
 i 482.1
 i 0.0
 i 74.5
 i 0.0
 i 556.6
 i 527.2
 i 493.0
 i 0.0
 i 33.9
 i 0.0
 i 526.9
Funding from UBS Group AG measured at
amortized cost
 i 67.3
 i 3.3
 i 0.0
 i 64.4
 i 0.0
 i 67.7
 i 56.1
 i 2.0
 i 0.0
 i 53.7
 i 0.0
 i 55.7
Debt issued measured at amortized cost
 i 69.8
 i 18.1
 i 0.0
 i 51.7
 i 0.0
 i 69.8
 i 59.5
 i 13.4
 i 0.0
 i 45.5
 i 0.0
 i 58.9
Other financial liabilities measured at
amortized cost
2
 i 9.8
 i 9.8
 i 0.0
 i 0.0
 i 0.0
 i 9.8
 i 7.2
 i 7.2
 i 0.0
 i 0.0
 i 0.0
 i 7.2
1 Includes certain financial instruments where the carrying
 
amount is a reasonable approximation of the
 
fair value due to the instruments’ short-term
 
nature (instruments that are receivable or
 
payable on demand or
with a remaining maturity (excluding the effects of callable features) of three months or less).
 
2 Excludes lease liabilities.
 / 
The fair values
 
included in the
 
table above have
 
been calculated for
 
disclosure purposes
 
only.
 
The valuation techniques
and assumptions
 
described
 
below relate
 
only to
 
the fair
 
value of
 
UBS AG’s financial
 
instruments not
 
measured
 
at fair
value. Other institutions may use different
 
methods and assumptions for their fair value
 
estimations, and therefore
 
such
fair value disclosures
 
cannot necessarily be compared
 
from one financial
 
institution to another.
 
The following principles
were applied when determining fair value estimates for
 
financial instruments not measured at fair
 
value.
–
For financial
 
instruments
 
with remaining
 
maturities greater
 
than three
 
months, the
 
fair value
 
was determined
 
from
quoted market prices, if available.
–
Where quoted market prices were
 
not available, the fair values were estimated
 
by discounting contractual cash flows
using current
 
market
 
interest
 
rates
 
or appropriate
 
yield curves
 
for
 
instruments
 
with
 
similar credit
 
risk and
 
maturity.
These estimates generally include adjustments for counterparty
 
credit risk or UBS AG’s own credit.
–
For short-term financial instruments with
 
remaining maturities of three months
 
or less, the carrying amount, which
 
is
net of credit loss allowances, is generally considered a reasonable
 
estimate of fair value.
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
208
 i 
 
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.
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial assets subject to offsetting, enforceable
 
master netting arrangements and similar
 
agreements
Assets subject to netting arrangements
 
Netting recognized on the balance sheet
Netting potential not recognized on
the balance sheet
3
Assets not
subject to netting
arrangements
4
Total assets
As of 31.12.23, USD bn
Gross assets
before netting
Netting with
 
gross liabilities
2
Net assets
recognized
on the
balance
 
sheet
Financial
liabilities
Collateral
received
Assets after
consideration
of
netting
potential
Assets
recognized
on the
balance
 
sheet
Total assets
after
consideration
of netting
 
potential
Total assets
recognized
 
on the
 
balance
sheet
Receivables from securities financing
transactions measured at amortized cost
 i 69.2
( i 12.2)
 i 56.9
( i 1.5)
( i 55.2)
 i 0.3
 i 17.2
 i 17.5
 i 74.1
Derivative financial instruments
 
 i 128.8
( i 2.5)
 i 126.3
( i 99.3)
( i 23.4)
 i 3.7
 i 5.4
 i 9.1
 i 131.7
Cash collateral receivables on
 
derivative instruments
1
 i 31.5
 i 0.0
 i 31.5
( i 20.4)
( i 2.5)
 i 8.7
 i 0.8
 i 9.5
 i 32.3
Financial assets at fair value
 
not held for trading
 i 96.3
( i 89.6)
 i 6.7
( i 1.8)
( i 4.9)
 i 0.0
 i 57.1
 i 57.1
 i 63.8
of which: reverse
 
repurchase agreements
 i 95.1
( i 89.6)
 i 5.5
( i 1.8)
( i 3.7)
 i 0.0
 i 0.0
 i 0.0
 i 5.5
Total assets
 i 325.7
( i 104.3)
 i 221.4
( i 122.9)
( i 85.9)
 i 12.6
 i 80.5
 i 93.1
 i 301.9
As of 31.12.22, USD bn
Receivables from securities financing
transactions measured at amortized cost
 i 60.8
( i 11.1)
 i 49.6
( i 3.0)
( i 46.4)
 i 0.3
 i 18.2
 i 18.5
 i 67.8
Derivative financial instruments
 
 i 147.4
( i 2.5)
 i 144.9
( i 110.9)
( i 28.5)
 i 5.5
 i 5.2
 i 10.7
 i 150.1
Cash collateral receivables on
 
derivative instruments
1
 i 33.5
 i 0.0
 i 33.5
( i 20.9)
( i 1.9)
 i 10.6
 i 1.5
 i 12.1
 i 35.0
Financial assets at fair value
 
not held for trading
 i 85.6
( i 76.8)
 i 8.7
( i 1.5)
( i 7.3)
 i 0.0
 i 50.7
 i 50.7
 i 59.4
of which: reverse
 
repurchase agreements
 i 84.4
( i 76.8)
 i 7.6
( i 1.5)
( i 6.1)
 i 0.0
 i 0.1
 i 0.1
 i 7.7
Total assets
 i 327.2
( i 90.4)
 i 236.8
( i 136.3)
( i 84.1)
 i 16.4
 i 75.6
 i 92.0
 i 312.4
1 The net
 
amount of Cash collateral
 
receivables on derivative
 
instruments recognized on
 
the balance sheet includes
 
certain OTC
 
derivatives that are
 
net settled on
 
a daily basis either
 
legally or in substance
 
under
IAS 32 principles and exchange-traded
 
derivatives that are economically
 
settled on a daily basis.
 
2 The logic of
 
the table results in amounts
 
presented in the “Netting
 
with gross liabilities” column corresponding
directly to the amounts presented in the “Netting with gross
 
assets” column in the liabilities table presented below.
 
Netting in this column for reverse repurchase agreements presented within
 
the lines “Receivables
from securities financing transactions
 
measured at amortized cost”
 
and “Financial assets at
 
fair value not
 
held for trading”
 
taken together corresponds
 
to the amounts presented
 
for repurchase agreements
 
in the
“Payables from securities financing transactions measured at amortized cost” and “Other financial liabilities designated at fair value” lines
 
in the liabilities table presented below.
 
3 For the purpose of this disclosure,
the amounts of financial instruments and cash collateral presented have been capped so as not to exceed the net amount of financial assets presented on the balance sheet; i.e., over-collateralization, where
 
it exists,
is not reflected in the table.
 
4 Includes assets not subject to enforceable netting arrangements and other out-of-scope items.
 / 
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
209
Note 21
 
Offsetting financial assets and financial liabilities (continued)
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial liabilities subject to offsetting, enforceable
 
master netting arrangements and similar
 
agreements
Liabilities subject to netting arrangements
 
Netting recognized on the balance sheet
Netting potential not recognized
 
on the balance sheet
3
Liabilities not
subject
 
to netting
 
arrangements
4
Total liabilities
As of 31.12.23, USD bn
Gross
liabilities
before
netting
Netting with
 
gross assets
2
Net
 
liabilities
recognized
on the
balance
sheet
Financial
assets
Collateral
pledged
Liabilities
after
consideration
 
of netting
potential
Liabilities
recognized
on the
balance
 
sheet
Total
 
liabilities
 
after
consideration
of netting
potential
Total
 
liabilities
recognized
on the
balance
 
sheet
Payables from securities financing
transactions measured at amortized cost
 i 16.1
( i 12.1)
 i 4.0
( i 0.8)
( i 3.2)
 i 0.0
 i 1.8
 i 1.8
 i 5.8
Derivative financial instruments
 
 i 135.9
( i 2.5)
 i 133.5
( i 99.3)
( i 24.5)
 i 9.7
 i 7.2
 i 16.9
 i 140.7
Cash collateral payables on
 
derivative instruments
1
 i 33.5
 i 0.0
 i 33.5
( i 17.2)
( i 3.4)
 i 12.9
 i 1.4
 i 14.3
 i 34.9
Other financial liabilities
 
designated at fair value
 i 97.1
( i 89.8)
 i 7.3
( i 2.5)
( i 4.8)
 i 0.0
 i 20.1
 i 20.1
 i 27.4
of which: repurchase agreements
 i 96.7
( i 89.8)
 i 6.9
( i 2.5)
( i 4.4)
 i 0.0
 i 0.0
 i 0.0
 i 6.9
Total liabilities
 i 282.6
( i 104.3)
 i 178.3
( i 119.7)
( i 36.0)
 i 22.5
 i 30.4
 i 53.0
 i 208.7
As of 31.12.22, USD bn
Payables from securities financing
transactions measured at amortized cost
 i 14.1
( i 11.1)
 i 3.0
( i 1.3)
( i 1.8)
 i 0.0
 i 1.2
 i 1.2
 i 4.2
Derivative financial instruments
 
 i 150.3
( i 2.5)
 i 147.8
( i 110.9)
( i 26.2)
 i 10.7
 i 7.1
 i 17.8
 i 154.9
Cash collateral payables on
 
derivative instruments
1
 i 34.9
 i 0.0
 i 34.9
( i 20.0)
( i 1.9)
 i 13.0
 i 1.6
 i 14.5
 i 36.4
Other financial liabilities
 
designated at fair value
 i 92.5
( i 76.9)
 i 15.6
( i 3.2)
( i 12.4)
 i 0.0
 i 16.4
 i 16.4
 i 32.0
of which: repurchase agreements
 i 92.1
( i 76.9)
 i 15.3
( i 3.2)
( i 12.1)
 i 0.0
 i 0.1
 i 0.1
 i 15.3
Total liabilities
 i 291.7
( i 90.4)
 i 201.3
( i 135.3)
( i 42.3)
 i 23.7
 i 26.3
 i 49.9
 i 227.6
1 The net amount of Cash collateral payables on derivative instruments recognized on the balance sheet includes certain OTC derivatives that are net settled on a daily basis either legally or in substance under IAS 32
principles and exchange-traded derivatives that are economically settled on
 
a daily basis.
 
2 The logic of the table results
 
in amounts presented in the “Netting with
 
gross assets” column corresponding to the amounts
presented in the “Netting with gross
 
liabilities” column in the assets table presented
 
above. Netting in this column for repurchase agreements
 
presented within the lines “Payables from securities financing transactions
measured at amortized
 
cost” and “Other
 
financial liabilities designated
 
at fair value”
 
taken together
 
corresponds to the
 
amounts presented for
 
reverse repurchase agreements
 
in the “Receivables
 
from securities
financing transactions measured at amortized cost”
 
and “Financial assets at fair value not held
 
for trading” lines in the assets
 
table presented above.
 
3 For the purpose of this
 
disclosure, the amounts of financial
instruments and cash collateral presented have been capped so as not to exceed the net amount of financial liabilities presented on the balance sheet;
 
i.e., over-collateralization, where it exists,
 
is not reflected in the
table.
 
4 Includes liabilities not subject to enforceable netting arrangements and other out-of-scope items.
 / 
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
210
 i 
 
 
Note 22
 
Restricted and transferred financial assets
This Note
 
provides information
 
about restricted
 
financial assets
 
(Note 22a),
 
transfers of
 
financial assets
 
(Note 22b
 
and
22c) and financial assets that are received
 
as collateral with the right to resell or repledge
 
these assets (Note 22d).
a) Restricted financial assets
Restricted
 
financial
 
assets
 
consist
 
of
 
assets
 
pledged
 
as
 
collateral
 
against
 
an existing
 
liability
 
or contingent
 
liability
 
and
other assets that are otherwise explicitly restricted
 
such that they cannot be used to secure
 
funding.
 
Financial
 
assets
 
are
 
mainly
 
pledged
 
as
 
collateral
 
in
 
securities
 
lending
 
transactions,
 
in
 
repurchase
 
transactions
 
and
 
in
relation to mortgage loans,
 
which serve as
 
collateral against loans from
 
Swiss mortgage institutions and US
 
Federal Home
Loan Banks
 
and
 
in
 
connection
 
with
 
the
 
issuance
 
of covered
 
bonds.
 
Of
 
these
 
pledged
 
mortgage
 
loans, approximately
USD
 i 2.0
bn as of 31 December 2023 could be withdrawn or used for future liabilities or covered
 
bond issuances without
breaching existing collateral
 
requirements (31 December
 
2022: approximately USD
 i 3.1
bn). Existing liabilities
 
against Swiss
central mortgage institutions
 
and US
 
Federal Home Loan
 
Banks and
 
for existing covered
 
bond issuances were
 
USD
 i 15.4
bn
as of 31 December 2023 (31 December 2022: USD
 i 9.0
bn).
Repurchase
 
and
 
securities
 
lending
 
arrangements
 
are
 
generally
 
entered
 
into
 
under
 
standard
 
market
 
agreements.
 
For
securities
 
lending,
 
the
 
cash
 
received
 
as
 
collateral
 
may
 
be
 
more
 
or
 
less
 
than
 
the
 
fair
 
value
 
of
 
the
 
securities
 
loaned,
depending on
 
the nature
 
of the
 
transaction. For
 
repurchase agreements,
 
the fair
 
value of
 
the collateral
 
sold under
 
an
agreement to repurchase is generally in excess of the cash borrowed.
 
Other restricted financial
 
assets include assets
 
protected under client
 
asset segregation rules,
 
assets held under
 
unit-linked
investment contracts to back related liabilities to the policy holders and assets held in certain jurisdictions to comply with
explicit minimum local asset
 
maintenance requirements. The carrying amount
 
of the liabilities associated
 
with these other
restricted financial
 
assets
 
is generally
 
equal to
 
the carrying
 
amount of
 
the assets,
 
with the
 
exception of
 
assets held
 
to
comply with local asset maintenance requirements, for
 
which the associated liabilities are greater.
 / 
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Restricted financial assets
 
USD m
31.12.23
31.12.22
Restricted
financial assets
of which: assets
pledged as
collateral that
may be sold or
repledged by
counterparties
Restricted
financial assets
of which: assets
pledged as
collateral that
may be sold or
repledged by
counterparties
Financial assets pledged as collateral
Cash and balances at central banks
1
 i 709
Financial assets at fair value held for trading
 i 76,579
 i 44,524
 i 57,435
 i 36,742
Loans and advances to customers
 i 28,105
 i 15,195
Financial assets at fair value not held for trading
 i 3,099
 i 2,110
 i 1,509
 i 1,220
Debt securities classified as Other financial assets measured
 
at amortized cost
 i 7,043
 i 6,299
 i 3,432
 i 2,685
Total financial assets pledged as collateral
 i 115,535
 i 77,571
Other restricted financial assets
Amounts due from banks
 i 2,543
 i 3,689
Financial assets at fair value held for trading
 i 169
 i 162
Cash collateral receivables on derivative instruments
 i 4,685
 i 5,155
Loans and advances to customers
 i 28
 i 1,127
Other financial assets measured at amortized cost
 i 3,334
2
 i 815
Financial assets at fair value not held for trading
 i 17,844
 i 14,090
Financial assets measured at fair value through other comprehensive
 
income
 i 1,846
 i 1,842
Other
 i 249
 i 44
Total other restricted financial assets
 i 30,698
 i 26,924
Total financial assets pledged and other restricted financial assets
3
 i 146,233
 i 104,495
1 Assets pledged to the depositor protection system in Switzerland following new requirements that became effective in 2023.
 
2 Predominantly includes cash collateral provided to exchanges and clearing houses
to secure
 
securities trading
 
activity through
 
those
 
counterparties.
 
3 Does
 
not include
 
assets placed
 
with central
 
banks related
 
to undrawn
 
credit lines
 
and for
 
payment, clearing
 
and settlement
 
purposes
(31 December 2023: USD
 i 9.7
bn; 31 December 2022: USD
 i 5.9
bn).
 / 
In
 
addition
 
to
 
the
 
table
 
above,
 
USD
 i 4.7
bn
 
were
 
placed
 
at
 
central
 
banks
 
to
 
meet
 
local
 
statutory
 
minimum
 
reserve
requirements as of 31 December 2023 (31
 
December 2022: USD
 i 4.4
bn).
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
211
Note 22
 
Restricted and transferred financial assets (continued)
In
 
addition
 
to
 
restrictions
 
on
 
financial
 
assets,
 
UBS AG
 
and
 
its
 
subsidiaries
 
are,
 
in
 
certain
 
cases,
 
subject
 
to
 
regulatory
requirements that affect
 
the transfer
 
of dividends
 
and capital
 
within UBS AG,
 
as well
 
as intercompany lending.
 
Supervisory
authorities also may
 
require entities to measure
 
capital and leverage ratios
 
on a stressed
 
basis, such as
 
the Federal Reserve
Board’s Comprehensive Capital Analysis and
 
Review (CCAR) process, which may
 
limit the relevant subsidiaries’ ability
 
to
make distributions of capital based on the results of those
 
tests.
Supervisory
 
authorities
 
generally
 
have
 
discretion
 
to
 
impose
 
higher
 
requirements
 
or
 
to
 
otherwise
 
limit
 
the
 
activities
 
of
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.
 i 
 
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.
 i 
 
 
 
 
 
 
 
 
Transferred financial assets subject to continued recognition in full
 
USD m
31.12.23
31.12.22
Carrying amount
of transferred
assets
Carrying amount of
 
associated liabilities
 
recognized
 
on balance sheet
Carrying amount
of transferred
assets
Carrying amount of
 
associated liabilities
 
recognized
 
on balance sheet
Financial assets at fair value held for trading that may be sold or repledged
 
by counterparties
 i 44,524
 i 23,374
 i 36,742
 i 16,470
Financial assets at fair value not held for trading that may be sold or repledged
 
by
counterparties
 i 2,110
 i 1,976
 i 1,220
 i 1,050
Debt securities classified as Other financial assets measured
 
at amortized cost that may be
sold or repledged by counterparties
 i 6,299
 i 5,928
 i 2,685
 i 2,302
Total financial assets transferred
 i 52,933
 i 31,278
 i 40,647
 i 19,822
 / 
Transactions in which financial assets are transferred but continue to be
 
recognized in their entirety on UBS AG’s balance
sheet include
 
securities lending
 
and repurchase
 
agreements,
 
as well
 
as other
 
financial asset
 
transfers. Repurchase
 
and
securities lending
 
arrangements are, for
 
the most
 
part, conducted
 
under standard market
 
agreements and are
 
undertaken
with counterparties subject to UBS AG’s normal credit
 
risk control processes.
 
›
Refer to Note 1a item 2e for more information about repurchase
 
and securities lending agreements
Financial assets at
 
fair value held
 
for trading that
 
may be sold
 
or repledged
 
by counterparties
 
include securities lending
and
 
repurchase
 
agreements
 
in
 
exchange
 
for
 
cash
 
received,
 
securities
 
lending
 
agreements
 
in
 
exchange
 
for
 
securities
received and other financial asset transfers.
For
 
securities
 
lending
 
and
 
repurchase
 
agreements,
 
a
 
haircut
 
of
 
between
 i 0
%
 
and
 i 15
%
 
is
 
generally
 
applied
 
to
 
the
transferred
 
assets,
 
which
 
results
 
in
 
associated
 
liabilities
 
having
 
a
 
carrying
 
amount
 
below
 
the
 
carrying
 
amount
 
of
 
the
transferred assets. The
 
counterparties to the
 
associated liabilities included
 
in the
 
table above have
 
full recourse to
 
UBS AG.
In securities
 
lending arrangements
 
entered into
 
in exchange
 
for the
 
receipt of
 
other securities
 
as collateral,
 
neither the
securities received nor the obligation to return them are recognized on UBS AG’s balance sheet, as the risks and rewards
of
 
ownership
 
are
 
not
 
transferred
 
to
 
UBS AG.
 
In
 
cases
 
where
 
such
 
financial
 
assets
 
received
 
are
 
subsequently
 
sold
 
or
repledged in another transaction, this is not considered to
 
be a transfer of financial assets.
Other financial asset transfers primarily include
 
securities transferred to collateralize derivative transactions, for which the
carrying amount
 
of associated liabilities
 
is not
 
included in
 
the table above,
 
because those replacement
 
values are
 
managed
on a
 
portfolio basis
 
across counterparties
 
and product
 
types, and
 
therefore there
 
is no
 
direct relationship
 
between the
specific collateral pledged and the associated liability.
Transferred financial assets that are not subject
 
to derecognition in full but remain on the balance
 
sheet to the extent of
UBS AG’s continuing involvement were not material as of
 
31 December 2023 and as of 31 December 2022.
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
212
Note 22
 
Restricted and transferred financial assets (continued)
 i 
 
c) Transferred financial assets that are derecognized
 
in their entirety with continuing involvement
Continuing involvement in
 
a transferred and
 
fully derecognized financial
 
asset may result from
 
contractual provisions in
the particular transfer
 
agreement or from
 
a separate
 
agreement, with the
 
counterparty or
 
a third party,
 
entered into
 
in
connection with the transfer.
 
The fair
 
value and
 
carrying amount of
 
UBS AG’s continuing
 
involvement from
 
transferred positions
 
as of
 
31 December
2023 and
 
31 December
 
2022 was
 
not material.
 
Life-to-date
 
losses reported
 
in prior
 
periods primarily
 
relate
 
to legacy
positions in securitization vehicles that have been fully marked
 
down, with no remaining exposure to loss.
 i 
 
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.
 i 
 
 
 
 
Off-balance sheet assets received
USD m
31.12.23
31.12.22
Fair value of assets received that can be sold or repledged
 
1
 i 489,476
 i 434,023
of which: sold or repledged
 
2
 i 357,020
 i 331,805
1 Includes securities
 
received as initial
 
margin from its
 
clients that UBS
 
AG is required
 
to remit to
 
central counterparties,
 
brokers and
 
deposit banks through
 
its exchange-traded
 
derivative clearing
 
and execution
services.
 
2 Does not include off-balance sheet securities (31 December
 
2023: USD
 i 16.0
bn; 31 December 2022: USD
 i 9.9
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.
 / 
 
 i 
 
 
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
 
column;
 
however, the respective contractual maturities may extend
 
over significantly longer periods.
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
 
column,
 
consistent
 
with
 
the
 
maturity
 
assigned
 
to
 
the
 
related
 
amounts
 
due
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
 
column. Undated or
 
perpetual instruments are
 
classified based on the
 
contractual notice period
 
that the
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
 
column.
Non-financial assets
 
and liabilities
 
with no
 
contractual maturity
 
are generally
 
included in
 
the
Perpetual /
 
Not applicable
column.
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
213
Note 23
 
Maturity analysis of assets and liabilities (continued)
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
31.12.23
USD bn
Due within
 
1 month
Due between
 
1 and 3
months
Due between
 
3 and 12
months
Due between
 
1 and 2 years
Due between
 
2 and 5 years
Due over
 
5 years
Perpetual /
Not
applicable
Total
Assets
Total financial assets measured at amortized cost
 i 416.2
 i 25.6
 i 47.6
 i 105.2
 i 77.8
 i 94.0
 i 766.4
Amounts due from banks
 i 12.0
 i 0.5
 i 5.4
 i 10.0
 i 0.2
 i 0.1
 i 28.2
Loans and advances to customers
 i 135.5
 i 12.1
 i 33.3
 i 89.4
 i 61.4
 i 74.0
 i 405.6
Other financial assets measured at amortized cost
 i 7.4
 i 1.6
 i 4.2
 i 5.1
 i 16.1
 i 19.9
 i 54.3
Total financial assets measured at fair value through profit or
loss
 i 312.5
 i 6.7
 i 7.8
 i 7.4
 i 11.8
 i 3.4
 i 1.9
 i 351.5
Financial assets at fair value not held for trading
 i 24.8
 i 6.7
 i 7.8
 i 7.4
 i 11.8
 i 3.4
 i 1.9
 i 63.8
Financial assets measured at fair value through other
comprehensive income
 i 0.1
 i 1.1
 i 1.0
 i 0.1
 i 0.0
 i 0.0
 i 2.2
Total non-financial assets
 i 6.6
 i 0.2
 i 1.2
 i 0.4
 i 27.5
 i 35.9
Total assets
 i 735.4
 i 33.4
 i 56.5
 i 112.7
 i 90.8
 i 97.8
 i 29.5
 i 1,156.0
Liabilities
Total financial liabilities measured at amortized cost
 i 497.1
 i 65.1
 i 81.1
 i 30.3
 i 49.6
 i 27.1
 i 12.5
 i 762.8
Customer deposits
 i 433.2
 i 48.9
 i 49.6
 i 15.3
 i 8.4
 i 0.3
 i 555.7
Funding from UBS Group AG measured at amortized cost
 i 2.5
 i 0.8
 i 8.2
 i 24.3
 i 19.0
 i 12.5
 i 67.3
Debt issued measured at amortized cost
 i 6.4
 i 11.7
 i 26.8
 i 6.3
 i 11.8
 i 6.8
 i 69.8
of which: non-subordinated
 i 6.4
 i 11.7
 i 24.3
 i 6.0
 i 11.6
 i 6.8
 i 66.8
of which: subordinated
 i 2.5
 i 0.3
 i 0.2
 i 3.0
Total financial liabilities measured at fair value through
profit or loss
1
 i 250.1
 i 11.4
 i 22.6
 i 23.3
 i 8.3
 i 12.7
 i 328.4
Debt issued designated at fair value
 i 13.1
 i 11.3
 i 21.8
 i 23.0
 i 8.0
 i 9.1
 i 86.3
Total non-financial liabilities
 i 5.2
 i 2.8
 
0.0
 
0.1
 
0.4
 
0.1
 i 0.5
 i 9.2
Total liabilities
 
 i 752.5
 i 79.3
 i 103.8
 i 53.7
 i 58.3
 i 39.9
 i 13.0
 i 1,100.4
Guarantees, loan commitments and forward starting transactions
2
Irrevocable loan commitments
 i 43.0
 i 0.5
 i 0.4
 i 0.0
 i 0.0
 i 44.0
Guarantees
 i 33.4
 i 33.4
Forward starting reverse repurchase and securities borrowing
agreements
 i 10.4
 i 10.4
Irrevocable committed prolongation of existing loans
 i 2.0
 i 0.8
 i 1.3
 i 0.0
 i 0.0
 i 4.2
Total
 i 88.8
 i 1.4
 i 1.8
 i 0.0
 i 0.0
 i 91.9
 / 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 i 425.2
 i 28.7
 i 34.5
 i 78.8
 i 70.5
 i 92.8
 i 730.4
Amounts due from banks
 i 13.3
 i 0.6
 i 0.6
 i 0.0
 i 0.0
 i 0.1
 i 14.7
Loans and advances to customers
 i 141.9
 i 16.3
 i 28.3
 i 74.9
 i 55.6
 i 73.0
 i 390.0
Other financial assets measured at amortized cost
 i 8.8
 i 4.2
 i 2.8
 i 3.0
 i 14.8
 i 19.7
 i 53.4
Total financial assets measured at fair value through profit or
loss
 i 300.4
 i 10.0
 i 7.8
 i 3.6
 i 9.9
 i 2.0
 i 1.5
 i 335.1
Financial assets at fair value not held for trading
 i 24.6
 i 10.0
 i 7.8
 i 3.6
 i 9.9
 i 2.0
 i 1.5
 i 59.4
Financial assets measured at fair value through other
comprehensive income
 i 0.3
 i 0.9
 i 0.9
 i 0.1
 i 0.0
 i 0.0
 i 2.2
Total non-financial assets
 i 7.1
 i 0.2
 i 2.0
 i 0.4
 i 28.0
 i 37.7
Total assets
 i 732.9
 i 39.5
 i 43.4
 i 82.4
 i 82.4
 i 95.1
 i 29.6
 i 1,105.4
Liabilities
Total financial liabilities measured at amortized cost
 i 524.3
 i 40.2
 i 49.6
 i 20.7
 i 35.2
 i 23.5
 i 11.8
 i 705.4
Customer deposits
 i 464.5
 i 28.5
 i 23.8
 i 7.7
 i 2.3
 i 0.3
 i 527.2
Funding from UBS Group AG measured at amortized cost
 i 2.0
 i 4.8
 i 21.2
 i 16.3
 i 11.8
 i 56.1
Debt issued measured at amortized cost
 i 4.6
 i 8.8
 i 23.3
 i 7.2
 i 10.0
 i 5.7
 i 59.5
of which: non-subordinated
 i 4.6
 i 8.8
 i 23.3
 i 4.8
 i 9.5
 i 5.7
 i 56.5
of which: subordinated
 i 2.4
 i 0.5
 i 3.0
Total financial liabilities measured at fair value through
profit or loss
1
 i 265.9
 i 13.8
 i 16.3
 i 19.6
 i 7.3
 i 10.5
 i 333.4
Debt issued designated at fair value
 i 9.3
 i 12.3
 i 15.9
 i 19.3
 i 6.9
 i 8.2
 i 71.8
Total non-financial liabilities
 i 6.7
 i 2.6
 i 0.5
 i 9.7
Total liabilities
 
 i 796.9
 i 56.5
 i 65.9
 i 40.4
 i 42.5
 i 34.0
 i 12.3
 i 1,048.5
Guarantees, loan commitments and forward starting transactions
2
Irrevocable loan commitments
 i 39.3
 i 0.3
 i 0.4
 i 0.0
 i 40.0
Guarantees
 i 22.4
 i 22.4
Forward starting reverse repurchase and securities borrowing
agreements
 i 3.8
 i 3.8
Irrevocable committed prolongation of existing loans
 
 i 4.7
 i 4.7
Total
 i 70.1
 i 0.3
 i 0.4
 i 0.0
 i 70.9
1 As of 31 December
 
2023 and 31 December 2022,
 
the contractual redemption amount
 
at maturity of debt issued
 
designated at fair value
 
through profit or loss and
 
other financial liabilities measured at
 
fair value
through profit or loss
 
was not materially
 
different from the carrying
 
amount.
 
2 The notional
 
amounts associated with
 
derivative loan commitments,
 
as well as
 
forward starting repurchase
 
and reverse repurchase
agreements, measured at
 
fair value through
 
profit or loss
 
are presented together
 
with notional amounts
 
related to derivative
 
instruments and have
 
been excluded from
 
the table above.
 
Refer to Note
 
10 for more
information.
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
214
Note 23
 
Maturity analysis of assets and liabilities (continued)
 
b) Maturity analysis of financial liabilities on an undiscounted
 
basis
The table below provides
 
an analysis of financial
 
liabilities on an undiscounted
 
basis, including all
 
cash flows relating
 
to
principal and
 
future interest
 
payments. The
 
residual contractual
 
maturities for
 
non-derivative and
 
non-trading financial
liabilities are based on the earliest date on
 
which UBS AG could be contractually required to pay. Derivative positions and
trading liabilities,
 
predominantly made
 
up of short
 
sale transactions,
 
are presented
 
in the
Due within 1
 
month
 
column
,
as this provides a conservative reflection of the nature of these trading activities. The residual contractual
 
maturities may
extend over significantly longer periods.
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
31.12.23
USD bn
Due within
 
1 month
Due between
 
1 and 3
months
Due between
 
3 and 12
months
Due between
 
1 and 2 years
Due between
 
2 and 5 years
Due over
 
5 years
Perpetual /
Not
applicable
Total
Financial liabilities recognized on balance sheet
1
Amounts due to banks
 i 6.2
 i 2.6
 i 3.9
 i 0.3
 i 4.4
 i 0.0
 i 17.4
Payables from securities financing transactions
 i 4.0
 i 1.1
 i 0.7
 i 5.8
Cash collateral payables on derivative instruments
 i 34.9
 i 34.9
Customer deposits
 i 433.5
 i 49.7
 i 51.6
 i 16.9
 i 9.8
 i 0.3
 i 561.8
Funding from UBS Group AG measured at amortized cost
2
 i 2.8
 i 1.7
 i 1.7
 i 11.0
 i 31.9
 i 24.1
 i 12.9
 i 86.1
Debt issued measured at amortized cost
 i 6.4
 i 11.9
 i 27.4
 i 7.0
 i 12.8
 i 8.1
 i 73.6
Other financial liabilities measured at amortized cost
 i 6.2
 i 0.1
 i 0.4
 i 0.5
 i 1.1
 i 1.1
 i 9.4
 
of which: lease liabilities
 i 0.0
 i 0.1
 i 0.4
 i 0.5
 i 1.1
 i 1.1
 i 3.3
Total financial liabilities measured at amortized cost
 i 494.1
 i 67.0
 i 85.7
 i 35.6
 i 60.1
 i 33.6
 i 12.9
 i 789.1
Financial liabilities at fair value held for trading
3,4
 i 31.7
 i 31.7
Derivative financial instruments
3,5
 i 140.7
 i 140.7
Brokerage payables designated at fair value
 i 42.3
 i 42.3
Debt issued designated at fair value
6
 i 13.1
 i 11.8
 i 22.5
 i 25.7
 i 8.1
 i 11.8
 i 93.0
Other financial liabilities designated at fair value
 i 22.1
 i 0.1
 i 0.8
 i 0.3
 i 0.3
 i 7.2
 i 30.8
Total financial liabilities measured at fair value through
profit or loss
 i 249.9
 i 11.9
 i 23.3
 i 26.0
 i 8.4
 i 19.0
 i 338.4
Total
 i 744.0
 i 78.9
 i 109.0
 i 61.6
 i 68.5
 i 52.6
 i 12.9
 i 1,127.5
Guarantees, loan commitments and forward starting transactions
Irrevocable loan commitments
7
 i 43.0
 i 0.5
 i 0.4
 i 0.0
 i 0.0
 i 44.0
Guarantees
 i 33.4
 i 33.4
Forward starting reverse repurchase and securities
borrowing agreements
7
 i 10.4
 i 10.4
Irrevocable committed prolongation of existing loans
 i 2.0
 i 0.8
 i 1.3
 i 0.0
 i 0.0
 i 4.2
Total
 i 88.8
 i 1.4
 i 1.8
 i 0.0
 i 0.0
 i 91.9
 / 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 i 6.3
 i 2.6
 i 1.9
 i 0.3
 i 0.6
 i 0.0
 i 11.7
Payables from securities financing transactions
 i 3.3
 i 0.3
 i 0.4
 i 0.3
 i 0.0
 i 4.4
Cash collateral payables on derivative instruments
 i 36.4
 i 36.4
Customer deposits
 i 464.6
 i 28.8
 i 24.5
 i 8.2
 i 2.6
 i 0.3
 i 529.0
Funding from UBS Group AG measured at amortized cost
2
 i 2.2
 i 0.6
 i 1.2
 i 6.8
 i 27.6
 i 21.2
 i 12.7
 i 72.3
Debt issued measured at amortized cost
 i 4.6
 i 8.9
 i 23.7
 i 7.8
 i 10.8
 i 6.9
 i 62.8
Other financial liabilities measured at amortized cost
 i 5.6
 i 0.1
 i 0.4
 i 0.5
 i 1.2
 i 1.3
 i 9.2
 
of which: lease liabilities
 i 0.1
 i 0.1
 i 0.4
 i 0.5
 i 1.2
 i 1.3
 i 3.7
Total financial liabilities measured at amortized cost
 i 523.1
 i 41.2
 i 52.2
 i 24.0
 i 42.8
 i 29.8
 i 12.7
 i 725.8
Financial liabilities at fair value held for trading
3,4
 i 29.5
 i 29.5
Derivative financial instruments
3,5
 i 154.9
 i 154.9
Brokerage payables designated at fair value
 i 45.1
 i 45.1
Debt issued designated at fair value
6
 i 9.4
 i 12.4
 i 16.0
 i 19.7
 i 7.1
 i 12.3
 i 76.8
Other financial liabilities designated at fair value
 i 27.1
 i 1.4
 i 0.4
 i 0.4
 i 0.5
 i 5.0
 i 34.8
Total financial liabilities measured at fair value through
profit or loss
 i 266.0
 i 13.8
 i 16.4
 i 20.0
 i 7.5
 i 17.3
 i 341.1
Total
 i 789.2
 i 55.0
 i 68.6
 i 44.0
 i 50.3
 i 47.1
 i 12.7
 i 1,066.9
Guarantees, loan commitments and forward starting transactions
Irrevocable loan commitments
7
 i 39.3
 i 0.3
 i 0.4
 i 0.0
 i 40.0
Guarantees
 i 22.4
 i 22.4
Forward starting reverse repurchase and securities
borrowing agreements
7
 i 3.8
 i 3.8
Irrevocable committed prolongation of existing loans
 i 4.7
 i 4.7
Total
 i 70.1
 i 0.3
 i 0.4
 i 0.0
 i 70.9
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
 i 29.9
bn due
 
within 1
 
month
(31 December 2022: USD
 i 27.8
bn), USD
 i 1.8
bn due between 1
 
month and 1 year
 
(31 December 2022:
 
USD
 i 1.7
bn) and USD
 i 0
bn due between 1
 
and 5 years (31
 
December 2022: USD
 i 0
bn).
 
5 Includes USD
 i 52
m
(31 December 2022: USD
 i 46
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
 i 65.2
bn (31 December 2022: USD
 i 34.4
bn) is presented in Note 10 under notional amounts.
 
6 Future interest payments on variable-rate liabilities are determined by reference
to the applicable interest rate prevailing as of
 
the reporting date. Future principal payments that are variable are
 
determined by reference to the conditions existing at
 
the relevant reporting date.
 
7 Excludes derivative
loan commitments and forward starting reverse repurchase agreements measured at fair value (see footnote 5).
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
215
 i 
 
Note 24
 
Interest rate benchmark reform
During 2023, UBS AG largely completed the transition of the USD London Interbank Offered Rate (LIBOR) contracts. The
transition of the
 
largest remaining non-derivative
 
exposure, the US
 
mortgage portfolio
 
of approximately
 
USD
 i 9
bn as of
31 December
 
2022,
 
was
 
substantially
 
completed,
 
with
 
these
 
contracts
 
automatically
 
converting
 
to
 
term
 
Secured
Overnight Financing
 
Rate (SOFR)
 
from their
 
next interest
 
rate reset
 
date following
 
the cessation
 
of the
 
respective USD
LIBOR rates, i.e.,
 
30 June 2023. Corporate
 
loans in the
 
Investment Bank have
 
now also been transitioned
 
to alternative
rates.
 
In August
 
2022, to
 
facilitate
 
the transition
 
of derivatives
 
linked to
 
the USD
 
LIBOR Swap
 
Rate, UBS AG
 
adhered
 
to the
June 2022
 
Benchmark Module
 
of the
 
ISDA 2021
 
Fallbacks Protocol
 
on the
 
USD LIBOR
 
Swap Rate.
 
As of
 
31 December
2023, the transition of these USD LIBOR-linked derivatives had been
 
materially accomplished.
The
 
table
 
below
 
sets
 
out
 
the
 
contracts
 
that
 
remained
 
as
 
of
 
31
 
December
 
2022.
 
No
 
contracts
 
are
 
included
 
as
 
of
31 December 2023 given transition has largely completed as noted
 
above.
 / 
 i 
 
 
 
 
 
 
 
 
 
 
 
31.12.22
1
Measure
USD LIBOR
benchmark rates
Carrying value of non-derivative financial instruments
Total non-derivative financial assets
 
USD m
 i 14,269
2
Total non-derivative financial liabilities
 
USD m
 i 1,138
3
Trade count of derivative financial instruments
Total derivative financial instruments
Trade count
 i 32,006
4
Off-balance sheet exposures
Total irrevocable loan commitments
USD m
 i 4,606
5
1 As of 31 December 2022, non-USD balances and trade counts were minimal.
 
2 Includes USD
 i 1
bn of loans related to revolving multi-currency credit lines,
 
where IBOR transition efforts are complete, except
 
for
USD LIBOR. The remaining balances as of 31 December 2022 primarily related to US mortgages and corporate
 
lending.
 
3 Relates to floating-rate notes that per their contractual terms can reset to rates
 
linked to
LIBOR, with transition dependent upon the actions of respective issuers.
 
4 Includes approximately
 i 2,000
 
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.
 
5 Includes approximately USD
 i 3
bn of loan commitments that can be drawn in different currencies; however,
 
only USD LIBOR transition
efforts remained open as of 31 December 2022.
 / 
In addition, as of 31 December 2023
 
UBS AG had approximately USD
 i 2
bn equivalent of yen- and US
 
dollar-denominated
funding from UBS Group
 
AG that, per current
 
contractual terms, if not
 
called on their respective
 
call dates, would reset
based
 
directly
 
on
 
JPY
 
LIBOR
 
and
 
USD
 
LIBOR.
 
Furthermore,
 
several
 
contracts
 
providing
 
funding
 
from
 
UBS
 
Group AG
reference rates
 
indirectly derived
 
from IBORs,
 
if they
 
are not
 
called on
 
their respective
 
call dates.
 
These contracts
 
have
robust
 
IBOR
 
fallback
 
language,
 
and
 
the
 
confirmation
 
of
 
interest
 
rate
 
calculation
 
mechanics
 
will
 
be
 
communicated
 
in
advance of any rate resets.
 
 i 
 
 
Note 25
 
Hedge accounting
Derivatives designated in hedge accounting relationships
UBS AG applies hedge
 
accounting to interest
 
rate risk and
 
foreign exchange
 
risk, including structural
 
foreign exchange
risk related to net investments in foreign
 
operations.
 
›
Refer to “Market risk” in the “Risk management
 
and control” section of this report for more information about
 
how risks arise
and how they are managed by UBS AG
 
Hedging instruments and hedged risk
Interest rate swaps are
 
designated in fair
 
value hedges or
 
cash flow hedges
 
of interest rate risk
 
arising solely
 
from changes
in benchmark
 
interest
 
rates. Fair
 
value changes
 
arising from
 
such risk
 
are usually
 
the largest
 
component of
 
the overall
change in the fair value of the hedged position in transaction
 
currency.
 
Cross-currency
 
swaps
 
are
 
designated
 
as
 
fair
 
value
 
hedges
 
of
 
foreign
 
exchange
 
risk.
 
Foreign
 
exchange
 
forwards
 
and
foreign exchange swaps
 
are mainly designated
 
as hedges of
 
structural foreign exchange
 
risk related to
 
net investments
in foreign operations. In both cases the hedged risk arises solely from
 
changes in the spot foreign exchange rate.
 
The notional of the designated hedging instruments matches the
 
notional of the hedged items, except when
 
the interest
rate
 
swaps
 
are
 
designated
 
in
 
cash
 
flow
 
hedges
 
after
 
the
 
trade
 
date,
 
in
 
which
 
case
 
the
 
hedge
 
ratio
 
designated
 
is
determined based on the swap sensitivity.
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
216
 
Note 25
 
Hedge accounting (continued)
Hedged items and hedge designation
 
Fair value hedges of interest rate risk related to
 
debt instruments and loan assets
Fair
 
value
 
hedges
 
of
 
interest
 
rate
 
risk
 
related
 
to
 
debt
 
instruments
 
and
 
loan
 
assets
 
involve
 
swapping
 
fixed
 
cash
 
flows
associated with
 
the loans
 
to customers
 
(including long-term
 
fixed-rate mortgage
 
loans in
 
Swiss francs),
 
debt securities
held, customer
 
deposits, funding
 
from UBS
 
Group AG, debt
 
issued to floating
 
cash flows
 
by entering
 
into interest
 
rate
swaps that either pay fixed and receive floating cash flows or that receive fixed and pay floating cash flows. The floating
future cash flows
 
are based on
 
the following benchmark
 
rates: Secured Overnight
 
Financing Rate (SOFR),
 
Effective Federal
Funds Rate (EFFR), Swiss
 
Average Rate Overnight (SARON), Euro Interbank Offered Rate
 
(EURIBOR), Euro Short-Term Rate
(ESTR),
 
Sterling Overnight
 
Index Average
 
(SONIA), AUD
 
London Interbank
 
Offered
 
Rate (AUD
 
LIBOR),
 
Tokyo
 
Overnight
Average Rate (TONA) and Singapore
 
Overnight Rate Average (SORA).
Cash flow hedges of forecast transactions
UBS AG hedges
 
forecast cash
 
flows on
 
non-trading financial
 
assets and
 
liabilities that
 
bear interest
 
at variable
 
rates or
are expected
 
to be refinanced
 
or reinvested
 
in the future,
 
due to movements
 
in future
 
market rates.
 
The amounts and
timing of future
 
cash flows, representing both
 
principal and interest flows,
 
are projected on the
 
basis of contractual
 
terms
and
 
other
 
relevant
 
factors,
 
including
 
estimates
 
of
 
prepayments
 
and
 
defaults.
 
The
 
aggregate
 
principal
 
balances
 
and
interest
 
cash
 
flows
 
across
 
all
 
portfolios
 
over
 
time
 
form
 
the
 
basis
 
for
 
identifying
 
the
 
non-trading
 
interest
 
rate
 
risk
 
of
UBS AG, which is hedged with interest rate swaps, the maximum maturity of which is
 
15 years. Cash flow forecasts and
risk exposures
 
are monitored
 
and adjusted
 
on an
 
ongoing basis,
 
and consequently
 
additional hedging
 
instruments are
traded and designated, or are terminated resulting
 
in a hedge discontinuance.
 
Fair value hedges of foreign exchange risk related to issued
 
debt instruments
Debt instruments denominated in currencies other than the US dollar are designated in fair value hedges of spot foreign
exchange
 
risk,
 
in
 
addition
 
to
 
and
 
separate
 
from
 
the
 
fair
 
value
 
hedges
 
of
 
interest
 
rate
 
risk.
 
Cross-currency
 
swaps
economically
 
convert
 
debt
 
instruments
 
denominated
 
in
 
currencies
 
other
 
than
 
the
 
US
 
dollar
 
to
 
US
 
dollars.
 
The
 
hedge
designations also involve
 
intragroup debt instruments
 
which are
 
eliminated upon consolidation
 
but FX gains
 
and losses
impact consolidated profit or loss.
 
Hedges of net investments in foreign operations
UBS AG applies hedge accounting for certain net investments in
 
foreign operations, which include subsidiaries, branches
and associates.
 
Upon maturity of
 
hedging instruments, typically
 
one to
 
three months, the
 
hedge relationship is
 
terminated
and new designations are made to reflect
 
any changes in the net investments in foreign operations.
Economic relationship between hedged item and hedging
 
instrument
The economic relationship
 
between the
 
hedged item and
 
the hedging
 
instrument is
 
determined based
 
on a qualitative
analysis
 
of
 
their
 
critical
 
terms.
 
In
 
cases
 
where
 
hedge
 
designation
 
takes
 
place
 
after
 
the
 
trade
 
date
 
of
 
the
 
hedging
instrument, a quantitative
 
analysis of the
 
possible behavior of
 
the hedging
 
derivative and the
 
hedged item
 
during their
respective terms is also performed.
Sources of hedge ineffectiveness
 
In
 
hedges
 
of
 
interest
 
rate
 
risk,
 
hedge
 
ineffectiveness
 
can
 
arise
 
from
 
mismatches
 
of
 
critical
 
terms
 
and
 
/
 
or
 
the
 
use
 
of
different curves to
 
discount the hedged item and
 
instrument, or from entering
 
into a hedge relationship
 
after the trade
date of the hedging derivative.
 
In hedges of foreign
 
exchange risk related
 
to debt issued, hedge
 
ineffectiveness can arise
 
due to the discounting
 
of the
hedging instruments and
 
undesignated risk components and
 
lack of such
 
discounting and risk
 
components in the
 
hedged
items.
 
In hedges of net investments in foreign operations, ineffectiveness is unlikely unless the hedged net assets fall below the
designated hedged amount.
 
The exceptions are
 
hedges where the
 
hedging currency is
 
not the same
 
as the currency
 
of
the foreign operation, where the currency basis may cause ineffectiveness.
Hedge ineffectiveness from financial instruments
 
measured at fair value through profit or loss
 
is recognized in
Other net
income from financial instruments measured at fair value
 
through profit or loss.
 
Derivatives not designated in hedge accounting relationships
 
Non-hedge-accounted
 
derivatives
 
are
 
mandatorily
 
held
 
for
 
trading
 
with
 
all
 
fair
 
value
 
movements
 
taken
 
to
Other
 
net
income from financial instruments
 
measured at fair value through
 
profit or loss
, even when held as an
 
economic hedge
or to
 
facilitate client
 
clearing. The
 
one exception
 
relates to
 
forward points
 
on certain
 
short- and
 
long-duration foreign
exchange contracts acting as economic hedges, which are
 
reported in
Net interest income.
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
217
Note 25
 
Hedge accounting (continued)
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
All hedges: designated hedging instruments
 
and hedge ineffectiveness
As of or for the year ended
31.12.23
USD m
Notional
amount
Carrying amount
Changes in
fair value of
hedging
instruments
1
Changes in
fair value of
hedged
items
1
Hedge
ineffectiveness
recognized in the
income statement
Derivative
financial
assets
Derivative
financial
liabilities
Interest rate risk
Fair value hedges
 i 114,618
 i 0
 i 0
 i 2,203
( i 2,195)
 i 8
Cash flow hedges
 i 83,333
 i 3
 i 0
( i 35)
 i 57
 i 22
Foreign exchange risk
Fair value hedges
2
 i 33,877
 i 468
 i 291
 i 132
( i 151)
( i 19)
Hedges of net investments in foreign operations
 i 13,260
 i 3
 i 455
( i 910)
 i 912
 i 3
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
 i 92,415
 i 0
 i 0
( i 5,195)
 i 5,169
( i 27)
Cash flow hedges
 i 75,304
 i 2
 i 5
( i 5,813)
 i 5,760
( i 53)
Foreign exchange risk
Fair value hedges
2
 i 20,566
 i 845
 i 3
( i 1,088)
 i 1,105
 i 18
Hedges of net investments in foreign operations
 i 13,844
 i 7
 i 528
 i 318
( i 319)
( i 1)
1 Amounts used
 
as the basis
 
for recognizing hedge
 
ineffectiveness for the
 
period.
 
2 The
 
foreign currency basis
 
spread of cross-currency
 
swaps designated as
 
hedging derivatives
 
is excluded from
 
the hedge
accounting designation and accounted for as a cost of hedging with amounts deferred in Other comprehensive income within Equity.
 / 
 
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair value hedges: designated hedged items
 
recognized on balance sheet
1
USD m
31.12.23
31.12.22
Interest rate
risk
FX risk
Interest rate
risk
FX risk
Loans and advances to customers
Carrying amount of designated loans
 i 15,296
 i 14,270
of which: accumulated amount of fair value hedge adjustment
( i 508)
( i 1,249)
of which: accumulated amount of fair value hedge adjustment subject
 
to amortization attributable to the
portion of the portfolio that ceased to be part of hedge
 
accounting
( i 179)
( i 51)
Other financial assets measured at amortized cost – debt securities
Carrying amount of designated debt securities
 i 6,333
 i 4,577
 
of which: accumulated amount of fair value hedge adjustment
( i 109)
( i 180)
Customer deposits
Carrying amount of Customer deposits
 i 8,972
 
of which: accumulated amount of fair value hedge adjustment
 i 50
Funding from UBS Group AG
Carrying amount of designated debt instruments
 i 63,760
 i 17,693
 i 57,250
 i 14,828
 
of which: accumulated amount of fair value hedge adjustment
( i 3,174)
( i 5,055)
Debt issued measured at amortized cost
Carrying amount of designated debt issued
 i 15,243
 i 4,636
 i 11,279
 i 5,737
 
of which: accumulated amount of fair value hedge adjustment
( i 412)
( i 1,002)
1 In addition, as of 31 December
 
2023 UBS AG designated in
 
fair value hedges of FX
 
risk USD
 i 12
bn of intragroup debt instruments
 
which are not recognized on consolidated
 
balance sheet but FX gains and
 
losses
on these instruments impact consolidated profit or loss. No such designations were in place as of 31 December 2022.
 / 
 
 
 
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
218
Note 25
 
Hedge accounting (continued)
 i 
 
 
 
 
 
 
 
 
Fair value hedges: profile of the timing of the
 
nominal amount of the hedging instrument
31.12.23
USD bn
Due within
1 month
Due between
1 and 3 months
Due between
3 and 12 months
Due between
1 and 5 years
Due after
5 years
Total
Interest rate swaps
 i 1
 i 6
 i 12
 i 62
 i 35
 i 115
Cross-currency swaps
 i 1
 i 2
 i 2
 i 22
 i 7
 i 34
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
 i 0
 i 4
 i 10
 i 53
 i 26
 i 92
Cross-currency swaps
 i 0
 i 1
 i 2
 i 12
 i 5
 i 21
 / 
 i 
 
 
 
 
Cash flow hedge reserve on a pre-tax basis
USD m
31.12.23
31.12.22
Amounts related to hedge relationships for which hedge
 
accounting continues to be applied
( i 2,349)
( i 4,692)
Amounts related to hedge relationships for which hedge
 
accounting is no longer applied
( i 1,331)
( i 540)
Total other comprehensive income recognized directly in equity related to cash flow hedges, on a pre-tax basis
( i 3,680)
( i 5,232)
 / 
 i 
 
 
 
 
Foreign currency translation reserve on a pre-tax basis
USD m
31.12.23
31.12.22
Amounts related to hedge relationships for which hedge
 
accounting continues to be applied
( i 690)
 i 250
Amounts related to hedge relationships for which hedge
 
accounting is no longer applied
 i 266
 i 266
Total other comprehensive income recognized directly in equity related to hedging instruments
 
designated as net investment hedges, on a pre-tax
basis
( i 424)
 i 515
 / 
Interest rate benchmark reform
In 2023,
 
UBS AG
 
applied
 
the
 
relief
 
provided
 
by
Interest
 
Rate
 
Benchmark
 
Reform
(Amendments
 
to
 
IFRS 9,
 
IAS 39
 
and
IFRS 7)
, published by
 
the International Accounting
 
Standards Board
 
in September 2019,
 
to its hedges
 
in US dollars
 
and
Singapore dollars
 
until they
 
transitioned to
 
alternative reference
 
rate (ARR)
 
designations
 
in May
 
2023 and
 
June 2023,
respectively.
 
The transition
 
of fair
 
value hedges
 
took place
 
following the
 
IBOR transition
 
for swaps
 
with LCH
 
(formerly
the London Clearing House), with hedge relationships
 
continuing in accordance with
Interest Rate Benchmark Reform –
Phase 2 (Amendments
 
to IFRS 9,
 
IAS 39, IFRS
 
7, IFRS
 
4 and IFRS
 
16)
. Cash flow
 
hedge relationships
 
were discontinued
and replaced with new ARR designations in May
 
2023.
As of 31 December 2023,
 
there were no hedge
 
relationships where the designated
 
risk is LIBOR and
 
maturing after the
cessation date of
 
the applicable
 
interest rate benchmarks.
 
The following
 
table provides details
 
on the
 
hedging instruments
in such hedge relationships as of 31 December 2022.
Hedges of net investments in foreign operations are not
 
affected by the amendments.
›
Refer to Note 1a item 2j for more information
 
about the relief provided by the amendments to IFRS
 
9 and IFRS 7 related to
interest rate benchmark reform
›
Refer to Note 24 for more information about the transition
 
progress
 
 i 
 
 
 
 
 
 
 
Hedging instruments referencing LIBOR
31.12.22
Carrying amount
USD m
Notional
amount
Derivative
financial
assets
Derivative
financial
liabilities
Interest rate risk
Fair value hedges
 i 20,383
 i 0
 i 0
Cash flow hedges
 i 2,179
 i 0
 i 0
 / 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
219
 i 
Note 26
 
Post-employment benefit plans
 
a) Defined benefit plans
UBS AG has
 
established defined benefit
 
plans for
 
its employees in
 
various jurisdictions in
 
accordance with local
 
regulations
and practices.
 
The major
 
plans are
 
located in
 
Switzerland, the
 
UK, the
 
US and Germany.
 
The level
 
of benefits
 
depends
on the specific plan rules.
 
UBS AG has not been involved in the major Credit
 
Suisse defined benefit plans.
Swiss pension plan
In 2017,
 
a
 
significant number
 
of employees
 
were
 
transferred
 
from
 
UBS AG to
 
UBS
 
Business Solutions
 
AG, which
 
is a
directly
 
held
 
subsidiary
 
of
 
UBS
 
Group AG.
 
There
 
continues
 
to
 
be
 
one
 
pooled
 
UBS
 
Swiss
 
pension
 
plan
 
in
 
Switzerland
covering
 
the
 
employees
 
of
 
UBS AG
 
and
 
those
 
transferred
 
to
 
UBS
 
Business
 
Solutions
 
AG.
 
UBS AG
 
and
 
UBS
 
Business
Solutions AG
 
both are
 
legal sponsors
 
of the
 
UBS Swiss pension
 
plan. Since
 
the date
 
of the
 
employee transfer,
 
UBS AG
and UBS
 
Business Solutions
 
AG apply
 
proportionate
 
defined benefit
 
accounting, i.e.,
 
the net
 
pension cost
 
and the
 
net
pension asset
 
/ liability
 
of the
 
UBS Swiss
 
pension plan
 
are allocated
 
proportionally
 
between UBS AG
 
and UBS
 
Business
Solutions AG based on the aggregated
 
net pension cost and defined benefit obligations
 
related to their employees.
 
The
UBS Swiss pension plan
 
offers retirement, disability and survivor benefits and is
 
governed by a
 
Pension Foundation Board.
The responsibilities of
 
this board are defined
 
by Swiss pension
 
law and the
 
plan rules. The
 
UBS Swiss pension
 
plan exceeds
the minimum benefit requirements under
 
Swiss pension law.
Savings contributions to the UBS Swiss
 
pension plan are paid by both
 
the employer and the employee. Depending on
 
the
age of
 
the employee,
 
UBS AG pays
 
a savings
 
contribution
 
that ranges
 
between
 i 6.5
% and
 i 27.5
% of
 
the contributory
base salary
 
and between
 i 2.8
% and
 i 9
% of
 
the contributory
 
variable compensation.
 
Employees can
 
choose the
 
level of
savings contributions paid by them,
 
which vary between
 i 2.5
% and
 i 13.5
% of the contributory base salary
 
and between
 i 0
% and
 i 9
% of the contributory
 
variable compensation, depending on
 
age and choice of savings
 
contribution category.
UBS AG also pays risk contributions that are used to fund
 
disability and survivor benefits.
The plan offers to members at the
 
normal retirement age of
 i 65
 
a choice between a lifetime pension
 
and a partial or full
lump sum payment. Participants
 
can choose to draw
 
early retirement benefits starting
 
from the age of
 i 58
, but they can
also continue employment
 
and remain active
 
members of
 
the plan until
 
the age of
 i 70
. Employees can
 
make additional
purchases of benefits to fund early retirement benefits.
The pension amount
 
payable to a
 
participant is calculated
 
by applying a conversion
 
rate to the
 
accumulated balance of
the
 
participant’s
 
retirement
 
savings
 
account
 
at
 
the
 
retirement
 
date.
 
The
 
balance
 
is
 
based
 
on
 
credited
 
vested
 
benefits
transferred
 
from
 
previous
 
employers,
 
purchases
 
of
 
benefits,
 
employee
 
and
 
employer
 
contributions
 
made
 
to
 
the
participant’s
 
retirement
 
savings
 
account,
 
and
 
interest
 
accrued.
 
The
 
annual
 
interest
 
rate
 
credited
 
to
 
participants
 
is
determined by the Pension Foundation Board at the end
 
of each year.
Although the UBS
 
Swiss pension plan is
 
based on a
 
defined contribution promise under
 
Swiss pension law, it
 
is accounted
for as a defined benefit plan
 
under IFRS Accounting Standards,
 
primarily because of the obligation
 
to accrue interest on
the participants’ retirement savings accounts and the payment
 
of lifetime pension benefits.
 
An actuarial valuation in accordance with Swiss pension law is performed regularly.
 
Should an underfunded situation on
this basis occur, the Pension Foundation Board is required to take the necessary measures to ensure that full funding can
be
 
expected
 
to
 
be
 
restored
 
within
 
a
 
maximum
 
period
 
of
 i 10
 
years.
 
If
 
a
 
Swiss
 
plan
 
were
 
to
 
become
 
significantly
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
 i 50
%
 
of the
 
additional
 
contributions
 
required.
 
As of
 
31 December
 
2023,
 
the
 
UBS Swiss
 
pension
 
plan
 
had a
 
technical
funding ratio in accordance with Swiss pension law of
 i 119.2
% (31 December 2022:
 i 119.0
%).
The
 
investment
 
strategy
 
of
 
the
 
UBS
 
Swiss
 
pension
 
plan
 
complies
 
with
 
Swiss
 
pension
 
law,
 
including
 
the
 
rules
 
and
regulations relating
 
to diversification of
 
plan assets, and
 
is derived from
 
the risk budget
 
defined by
 
the Pension
 
Foundation
Board based on
 
regularly performed
 
asset and liability
 
management analyses.
 
The Pension Foundation
 
Board strives for
a medium- and long-term balance between assets and liabilities.
 
As
 
of
 
31 December
 
2023,
 
the
 
UBS
 
Swiss
 
pension
 
plan
 
was
 
in
 
a
 
surplus
 
situation
 
on
 
an
 
IFRS
 
Accounting
 
Standards
measurement basis, as the fair value
 
of the plan’s assets exceeded
 
the defined benefit obligation (DBO) by
 
USD
 i 3,585
m
(31 December 2022: USD
 i 4,418
m). However, a surplus is only recognized on the balance sheet to the extent that it does
not
 
exceed
 
the
 
estimated
 
future
 
economic
 
benefit,
 
which
 
equals
 
the
 
difference
 
between
 
the
 
present
 
value
 
of
 
the
estimated
 
future
 
net
 
service
 
cost
 
and
 
the
 
present
 
value
 
of
 
the
 
estimated
 
future
 
employer
 
contributions.
 
As
 
of
 
both
31 December 2023 and 31 December
 
2022, the estimated future economic
 
benefit was zero and hence
 
no net defined
benefit asset was recognized on the balance sheet.
The regular employer contributions to the UBS Swiss pension
 
plan in 2024 are estimated at USD
 i 315
m.
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
220
Note 26
 
Post-employment benefit plans (continued)
UK pension plan
The UBS
 
UK pension
 
plan is
 
a career
 
-average revalued
 
earnings scheme,
 
and benefits
 
increase
 
automatically based
 
on
UK price inflation, subject
 
to defined caps. The
 
normal retirement age for most participants is
 i 60
 
or
 i 65
. The plan provides
guaranteed lifetime pension
 
benefits to participants upon
 
retirement. The
 
UK plan has been
 
closed to new entrants
 
for
more
 
than 20
 
years and
 
participants
 
are
 
no longer
 
accruing benefits
 
for current
 
or future
 
service. Instead,
 
employees
participate in the UBS UK defined contribution plan.
The governance responsibility
 
for the UBS
 
UK plan lies
 
jointly with the
 
UBS UK Pension
 
Trustee Board and
 
UBS AG. The
plan
 
assets
 
are
 
invested
 
in
 
a
 
diversified
 
portfolio
 
of
 
financial
 
assets,
 
which
 
include
 
longevity
 
swaps
 
to
 
hedge
 
the
 
risk
between expected and actual longevity.
In
 
2019,
 
UBS AG
 
and
 
the
 
UBS
 
UK
 
Pension
 
Trustee
 
Board
 
entered
 
an
 
arrangement
 
whereby
 
a
 
collateral
 
pool
 
was
established to
 
provide security
 
for the
 
UBS UK
 
pension fund.
 
The value
 
of the
 
collateral pool
 
as of
 
31 December 2023
was USD
 i 260
m (31 December
 
2022: USD
 i 292
m) and
 
includes corporate
 
bonds, government-related
 
debt instruments
and other financial
 
assets. The
 
arrangement provides
 
the Pension
 
Trustee Board
 
dedicated access
 
to a
 
pool of assets
 
in
the event of UBS AG’s insolvency or not paying a required funding
 
contribution.
In 2023, UBS AG
 
made funding contributions
 
of USD
 i 19
m to the
 
UBS UK pension
 
plan (2022: USD
 i 5
m). The employer
contributions to the UBS UK
 
pension plan in 2024 are estimated
 
at USD
 i 19
m, subject to regular funding reviews
 
during
the year.
US defined benefit plans
There are two main
 
UBS US pension plans, with a
 
normal retirement age of
 i 65
. Both plans were closed to
 
new entrants
more than 20 years
 
ago. Since they
 
closed, new employees
 
have participated
 
in a UBS defined
 
contribution
 
plan.
One of
 
the
 
UBS defined
 
benefit
 
plans
 
is a
 
contribution-based
 
plan
 
in which
 
each
 
participant accrues
 
a
 
percentage
 
of
salary in a retirement
 
savings account. The
 
retirement savings account
 
is credited annually with
 
interest based on
 
a rate
that is linked to the average yield on one-year US government bonds. For the other UBS defined benefit plan, retirement
benefits accrue based on the
 
career-average earnings of each individual
 
plan participant. Former employees with
 
vested
benefits can take a lump sum payment
 
or a lifetime annuity.
As required under
 
applicable pension laws,
 
both plans have
 
fiduciaries who, together
 
with UBS AG, are
 
responsible for
the governance of the plans.
Each plan’s
 
fiduciaries are
 
responsible
 
for the
 
investment
 
decisions with
 
respect to
 
the plan
 
assets. The
 
plan assets
 
of
both plans are invested in diversified portfolios of financial assets.
 
The employer contributions to the UBS US defined benefit
 
plans in 2024 are estimated at USD
 i 12
m.
German pension plans
There are two major unfunded UBS defined
 
benefit plans in Germany.
 
The normal retirement age
 
is
 i 65
 
and benefits are
paid directly
 
by UBS AG.
 
In the
 
larger of
 
the two
 
plans each
 
participant accrues
 
a percentage
 
of salary
 
in a
 
retirement
savings account.
 
The accumulated
 
account
 
balance
 
of the
 
participant
 
is credited
 
on an
 
annual
 
basis with
 
guaranteed
interest at a rate of
 i 5
%. 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
 i 6
% for amounts accrued
 
before 2010, of
 i 4
% for amounts accrued
 
from 2010 to 2017
 
and
of
 i 0.9
% for amounts accrued
 
after 2017. Both
 
plans are subject
 
to German pension
 
law, whereby
 
the responsibility
 
to
pay
 
pension
 
benefits
 
when
 
they
 
are
 
due
 
resides
 
entirely
 
with
 
UBS AG.
 
A
 
portion
 
of
 
the
 
pension
 
payments
 
is
 
directly
increased in line with price inflation.
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
221
Note 26
 
Post-employment benefit plans (continued)
In June 2021, UBS AG implemented a
 
new funded UBS pension plan with
 
interest credited to participants equal
 
to actual
investment returns
 
with a
 
guaranteed minimum
 
of
 i 0
%. The
 
plan was
 
implemented retrospectively
 
for new
 
hires since
June 2018 and for all eligible active participants younger
 
than 55 from July 2021. Each participant accrues
 
a percentage
of salary in a retirement savings account.
The employer contributions to the UBS German defined benefit
 
plans in 2024 are estimated at USD
 i 14
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.
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Defined benefit plans
USD m
Swiss plan
UK plan
US and German plans
Total
31.12.23
31.12.22
31.12.23
31.12.22
31.12.23
31.12.22
31.12.23
31.12.22
Defined benefit obligation at the beginning of the year
 i 12,539
 i 15,480
 i 2,166
 i 4,105
 i 1,375
 i 1,740
 i 16,080
 i 21,324
Current service cost
 i 236
 i 240
 i 0
 i 0
 i 5
 i 5
 i 241
 i 244
Interest expense
 i 287
 i 195
 i 109
 i 67
 i 61
 i 35
 i 457
 i 297
Plan participant contributions
 i 163
 i 154
 i 0
 i 0
 i 0
 i 0
 i 163
 i 154
Remeasurements
 i 1,901
( i 2,424)
 i 96
( i 1,474)
 i 33
( i 267)
 i 2,031
( i 4,165)
of which: actuarial (gains) / losses due to changes in demographic
 
assumptions
 i 45
 i 2
( i 75)
( i 6)
( i 2)
 i 1
( i 31)
( i 3)
of which: actuarial (gains) / losses due to changes in financial
 
assumptions
 i 1,168
( i 2,653)
 i 36
( i 1,575)
 i 37
( i 279)
 i 1,241
( i 4,506)
of which: experience (gains) / losses
1
 i 688
 i 226
 i 135
 i 107
( i 3)
 i 11
 i 820
 i 344
Past service cost related to plan amendments
 i 0
 i 0
 i 0
 i 0
 i 0
 i 0
 i 0
 i 0
Curtailments
( i 3)
( i 13)
 i 0
 i 0
 i 0
 i 0
( i 3)
( i 13)
Benefit payments
( i 662)
( i 796)
( i 107)
( i 123)
( i 110)
( i 111)
( i 880)
( i 1,030)
Other movements
 i 0
( i 5)
 i 0
 i 0
 i 0
 i 0
 i 0
( i 5)
Foreign currency translation
 i 1,288
( i 291)
 i 114
( i 408)
 i 9
( i 28)
 i 1,411
( i 727)
Defined benefit obligation at the end of the year
 i 15,748
 i 12,539
 i 2,379
 i 2,166
 i 1,373
 i 1,375
 i 19,500
 i 16,080
of which: amounts owed to active members
 i 9,336
 i 7,103
 i 73
 i 65
 i 209
 i 169
 i 9,618
 i 7,336
of which: amounts owed to deferred members
 i 0
 i 0
 i 950
 i 656
 i 527
 i 528
 i 1,478
 i 1,184
of which: amounts owed to retirees
 i 6,412
 i 5,436
 i 1,356
 i 1,445
 i 636
 i 678
 i 8,404
 i 7,560
of which: funded plans
 i 15,748
 i 12,539
 i 2,379
 i 2,166
 i 979
 i 1,011
 i 19,106
 i 15,717
of which: unfunded plans
 i 0
 i 0
 i 0
 i 0
 i 394
 i 363
 i 394
 i 363
Fair value of plan assets at the beginning of the year
 i 16,957
 i 19,196
 i 2,488
 i 4,297
 i 1,039
 i 1,329
 i 20,484
 i 24,821
Return on plan assets excluding interest income
 i 513
( i 1,942)
 i 65
( i 1,312)
 i 26
( i 223)
 i 603
( i 3,476)
Interest income
 i 393
 i 274
 i 126
 i 70
 i 48
 i 31
 i 568
 i 376
Employer contributions
 
 i 290
 i 401
 i 19
 i 5
 i 17
 i 16
 i 327
 i 422
Plan participant contributions
 i 163
 i 154
 i 0
 i 0
 i 0
 i 0
 i 163
 i 154
Benefit payments
( i 662)
( i 796)
( i 107)
( i 123)
( i 110)
( i 111)
( i 880)
( i 1,030)
Administration expenses, taxes and premiums paid
( i 8)
( i 7)
 i 0
 i 0
( i 4)
( i 3)
( i 12)
( i 11)
Other movements
 i 2
( i 1)
 i 0
 i 0
 i 0
 i 0
 i 2
( i 1)
Foreign currency translation
 i 1,685
( i 322)
 i 130
( i 450)
 i 0
 i 0
 i 1,815
( i 772)
Fair value of plan assets at the end of the year
 i 19,333
 i 16,957
 i 2,720
 i 2,488
 i 1,017
 i 1,039
 i 23,070
 i 20,484
Surplus / (deficit)
 i 3,585
 i 4,418
 i 341
 i 321
( i 356)
( i 335)
 i 3,570
 i 4,404
Asset ceiling effect at the beginning of the year
 i 4,418
 i 3,716
 i 0
 i 0
 i 0
 i 0
 i 4,418
 i 3,716
Interest expense on asset ceiling effect
 i 102
 i 77
 i 0
 i 0
 i 0
 i 0
 i 102
 i 77
Asset ceiling effect excluding interest expense and foreign currency
 
translation on
asset ceiling effect
( i 1,332)
 i 656
 i 0
 i 0
 i 0
 i 0
( i 1,332)
 i 656
Foreign currency translation
 i 397
( i 31)
 i 0
 i 0
 i 0
 i 0
 i 397
( i 31)
Asset ceiling effect at the end of the year
 i 3,585
 i 4,418
 i 0
 i 0
 i 0
 i 0
 i 3,585
 i 4,418
Net defined benefit asset / (liability) of major plans
 i 0
 i 0
 i 341
 i 321
( i 356)
( i 335)
( i 15)
( i 14)
Net defined benefit asset / (liability) of remaining plans
( i 90)
( i 80)
Total net defined benefit asset / (liability)
( i 105)
( i 94)
of which: Net defined benefit asset
 i 383
 i 355
of which: Net defined benefit liability
2
( i 487)
( i 449)
1 Experience (gains) /
 
losses are a component
 
of actuarial remeasurements of
 
the defined benefit obligation
 
and reflect the effects
 
of differences between
 
the previous actuarial assumptions
 
and what has actually
occurred.
 
2 Refer to Note 18c.
 / 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
222
Note 26
 
Post-employment benefit plans (continued)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income statement – expenses related to defined benefit plans
1
USD m
Swiss plan
UK plan
US and German plans
Total
For the year ended
31.12.23
31.12.22
31.12.23
31.12.22
31.12.23
31.12.22
31.12.23
31.12.22
Current service cost
 i 236
 i 240
 i 0
 i 0
 i 5
 i 5
 i 241
 i 244
Interest expense related to defined benefit obligation
 i 287
 i 195
 i 109
 i 67
 i 61
 i 35
 i 457
 i 297
Interest income related to plan assets
( i 393)
( i 274)
( i 126)
( i 70)
( i 48)
( i 31)
( i 568)
( i 376)
Interest expense on asset ceiling effect
 i 102
 i 77
 i 0
 i 0
 i 0
 i 0
 i 102
 i 77
Administration expenses, taxes and premiums paid
 i 8
 i 7
 i 0
 i 0
 i 4
 i 3
 i 12
 i 11
Past service cost related to plan amendments
 i 0
 i 0
 i 0
 i 0
 i 0
 i 0
 i 0
 i 0
Curtailments
( i 3)
( i 13)
 i 0
 i 0
 i 0
 i 0
( i 3)
( i 13)
Net periodic expenses recognized in net profit for major plans
 i 236
 i 230
( i 17)
( i 3)
 i 22
 i 12
 i 241
 i 239
Net periodic expenses recognized in net profit for remaining plans
2
 i 19
 i 17
Total net periodic expenses recognized in net profit
 i 259
 i 256
1 Refer to Note 6.
 
2 Includes differences between actual and estimated performance award accruals.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income – gains / (losses) on defined benefit plans
 
USD m
Swiss plan
UK plan
US and German plans
Total
For the year ended
31.12.23
31.12.22
31.12.23
31.12.22
31.12.23
31.12.22
31.12.23
31.12.22
Remeasurement of defined benefit obligation
( i 1,901)
 i 2,424
( i 96)
 i 1,474
( i 33)
 i 267
( i 2,031)
 i 4,165
of which: change in discount rate assumption
( i 1,332)
 i 3,078
( i 69)
 i 1,451
( i 33)
 i 317
( i 1,434)
 i 4,846
of which: change in rate of pension increase assumption
 i 0
 i 0
 i 34
 i 123
 i 1
( i 5)
 i 34
 i 118
of which: change in rate of interest credit on retirement savings
 
assumption
 i 207
( i 408)
 i 0
 i 0
( i 9)
( i 82)
 i 198
( i 490)
of which: change in life expectancy
 i 0
 i 0
 i 75
 i 5
 i 0
( i 1)
 i 75
 i 4
of which: change in other actuarial assumptions
( i 88)
( i 19)
 i 0
 i 1
 i 5
 i 48
( i 83)
 i 30
of which: experience gains / (losses)
1
( i 688)
( i 226)
( i 135)
( i 107)
 i 3
( i 11)
( i 820)
( i 344)
Return on plan assets excluding interest income
 i 513
( i 1,942)
 i 65
( i 1,312)
 i 26
( i 223)
 i 603
( i 3,476)
Asset ceiling effect excluding interest expense and foreign currency
 
translation
 i 1,332
( i 656)
 i 0
 i 0
 i 0
 i 0
 i 1,332
( i 656)
Total gains / (losses) recognized in other comprehensive income for major plans
( i 56)
( i 173)
( i 31)
 i 162
( i 8)
 i 43
( i 95)
 i 32
Total gains / (losses) recognized in other comprehensive income for remaining plans
( i 8)
 i 8
Total gains / (losses) recognized in other comprehensive income
2
( i 103)
 i 40
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.
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Swiss plan
UK plan
US and German plans
1
31.12.23
31.12.22
31.12.23
31.12.22
31.12.23
31.12.22
Duration of the defined benefit obligation (in years)
 i 14.1
 i 13.4
 i 14.5
 i 13.7
 i 7.8
 i 7.9
Maturity analysis of benefits expected to be paid
USD m
Benefits expected to be paid within 12 months
 i 811
 i 702
 i 137
 i 107
 i 133
 i 123
Benefits expected to be paid between 1 and 3 years
 i 1,627
 i 1,445
 i 256
 i 234
 i 235
 i 232
Benefits expected to be paid between 3 and 6 years
 i 2,552
 i 2,183
 i 415
 i 384
 i 336
 i 335
Benefits expected to be paid between 6 and 11 years
 i 4,233
 i 3,751
 i 721
 i 667
 i 502
 i 502
Benefits expected to be paid between 11 and 16 years
 i 3,878
 i 3,519
 i 723
 i 667
 i 376
 i 388
Benefits expected to be paid in more than 16 years
 i 13,751
 i 13,243
 i 2,703
 i 2,570
 i 417
 i 516
1 The duration of the defined benefit obligation represents a weighted average across US and
 
German plans.
 / 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
223
Note 26
 
Post-employment benefit plans (continued)
Actuarial assumptions
The
 
actuarial
 
assumptions
 
used
 
for
 
the
 
defined
 
benefit
 
plans
 
are
 
based on
 
the
 
economic
 
conditions
 
prevailing
 
in the
jurisdiction in
 
which they
 
are
 
offered.
 
Changes in
 
the defined
 
benefit obligation
 
are
 
most sensitive
 
to changes
 
in the
discount rate. The discount
 
rate is based on
 
the yield of high-quality
 
corporate bonds quoted
 
in an active market
 
in the
currency
 
of
 
the
 
respective
 
plan.
 
A
 
decrease
 
in
 
the
 
discount
 
curve
 
increases
 
the
 
DBO.
 
UBS AG
 
regularly
 
reviews
 
the
actuarial assumptions used in calculating the DBO to determine
 
their continuing relevance.
›
Refer to Note 1a item 5 for a description
 
of the accounting policy for defined benefit plans
The tables below show the significant actuarial assumptions
 
used in calculating the DBO at the end of the year.
 i 
 
 
 
 
 
 
 
 
 
 
Significant actuarial assumptions of
 
defined benefit
plans
Swiss plan
UK plan
US plans
German plans
In %
31.12.23
31.12.22
31.12.23
31.12.22
31.12.23
31.12.22
31.12.23
31.12.22
Discount rate
 i 1.48
 i 2.34
 i 4.79
 i 5.02
 i 4.72
1
 i 4.92
1
 i 3.28
 i 3.81
Rate of pension increase
 i 0.00
 i 0.00
 i 3.00
 i 3.08
 i 0.00
 i 0.00
 i 2.10
 i 2.20
Rate of interest credit on retirement savings
 
 i 2.48
 i 3.39
 i 0.00
 i 0.00
 i 6.28
2
 i 5.73
2
 i 0.00
 i 0.00
1 Represents weighted average across US pension plans.
 
2 Only applicable to one of the UBS US pension plans
 / 
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortality tables and life expectancies for
 
major plans
Life expectancy at age 65 for a male member currently
aged 65
aged 45
Country
Mortality table
31.12.23
31.12.22
31.12.23
31.12.22
Switzerland
BVG 2020 G with CMI 2022 projections
1
 i 21.8
 i 21.7
 i 23.5
 i 23.4
UK
S3PA with CMI 2022 projections
2
 i 22.2
 i 23.5
 i 23.4
 i 24.6
USA
Pri-2012 with MP-2021 projection scale
 i 22.0
 i 22.0
 i 23.4
 i 23.3
Germany
Dr. K. Heubeck 2018 G
 i 20.8
 i 20.6
 i 23.5
 i 23.4
Life expectancy at age 65 for a female member currently
aged 65
aged 45
Country
Mortality table
31.12.23
31.12.22
31.12.23
31.12.22
Switzerland
BVG 2020 G with CMI 2022 projections
1
 i 23.5
 i 23.5
 i 25.1
 i 25.1
UK
S3PA with CMI 2022 projections
2
 i 24.0
 i 25.0
 i 25.7
 i 26.4
USA
Pri-2012 with MP-2021 projection scale
 i 23.5
 i 23.4
 i 24.8
 i 24.8
Germany
Dr. K. Heubeck 2018 G
 i 24.2
 i 24.0
 i 26.4
 i 26.3
1 In 2022, BVG 2020 G with CMI 2021 projections was used.
 
2 In 2022, S3PA with CMI 2021 projections was used.
 / 
Sensitivity analysis of significant actuarial assumptions
The table
 
below presents
 
a sensitivity
 
analysis for
 
each significant
 
actuarial assumption,
 
showing how
 
the DBO
 
would
have been affected
 
by changes in
 
the relevant
 
actuarial assumption that
 
were reasonably
 
possible at the
 
balance sheet
date.
 
Unforeseen
 
circumstances
 
may
 
arise,
 
which
 
could
 
result
 
in
 
variations
 
that
 
are
 
outside
 
the
 
range
 
of
 
alternatives
deemed
 
reasonably
 
possible.
 
Caution
 
should
 
be
 
used
 
in
 
extrapolating
 
the
 
sensitivities
 
below
 
on
 
the
 
DBO,
 
as
 
the
sensitivities may not be linear.
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sensitivity analysis of significant actuarial
 
assumptions
1
Increase / (decrease) in defined benefit obligation
Swiss plan
UK plan
US and German plans
USD m
31.12.23
31.12.22
31.12.23
31.12.22
31.12.23
31.12.22
Discount rate
Increase by 50 basis points
( i 857)
( i 641)
( i 164)
( i 141)
( i 50)
( i 51)
Decrease by 50 basis points
 i 973
 i 723
 i 183
 i 157
 i 54
 i 55
Rate of pension increase
Increase by 50 basis points
 i 639
 i 487
 i 137
 i 127
 i 4
 i 4
Decrease by 50 basis points
–
2
–
2
( i 129)
( i 118)
( i 4)
( i 3)
Rate of interest credit on retirement savings
Increase by 50 basis points
 i 144
 i 106
–
3
–
3
 i 9
 i 9
Decrease by 50 basis points
( i 144)
( i 106)
–
3
–
3
( i 8)
( i 8)
Life expectancy
Increase in longevity by one additional year
 i 416
 i 304
 i 78
 i 65
 i 39
 i 39
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
 i  i 0 / 
% as of 31 December 2023 and as of 31 December 2022, a downward change in assumption
 
is not applicable.
 
3 As the UK plan does not provide interest credits on retirement savings,
 
a change in
assumption is not applicable.
 / 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
224
Note 26
 
Post-employment benefit plans (continued)
Fair value of plan assets
The tables below
 
provide information
 
about the composition
 
and fair value
 
of plan assets
 
of the major
 
defined benefit
plans.
 
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Composition and fair value of plan assets
Swiss defined benefit plan
31.12.23
31.12.22
Fair value
Plan asset
allocation %
Fair value
Plan asset
allocation %
USD m
Quoted
in an active
market
Other
Total
Quoted
in an active
market
Other
Total
Cash and cash equivalents
 i 62
 i 0
 i 62
 i 0
 i 183
 i 0
 i 183
 i 1
Real estate / property
Domestic
 i 0
 i 2,426
 i 2,426
 i 13
 i 0
 i 2,130
 i 2,130
 i 13
Foreign
 i 0
 i 576
 i 576
 i 3
 i 0
 i 517
 i 517
 i 3
Investment funds
Equity
 
Domestic
 i 489
 i 0
 i 489
 i 3
 i 418
 i 0
 i 418
 i 2
Foreign
 i 3,283
 i 1,244
 i 4,526
 i 23
 i 2,794
 i 1,222
 i 4,017
 i 24
Bonds
1
Domestic, AAA to BBB–
 i 2,605
 i 0
 i 2,605
 i 13
 i 2,117
 i 0
 i 2,117
 i 12
Foreign, AAA to BBB–
 i 4,073
 i 0
 i 4,073
 i 21
 i 3,395
 i 0
 i 3,395
 i 20
Foreign, below BBB–
 i 668
 i 0
 i 668
 i 3
 i 598
 i 0
 i 598
 i 4
Real estate
Foreign
 i 0
 i 45
 i 45
 i 0
 i 0
 i 0
 i 0
 i 0
Other
 i 1,094
 i 1,910
 i 3,004
 i 16
 i 867
 i 1,997
 i 2,864
 i 17
Other investments
 i 378
 i 481
 i 859
 i 4
 i 351
 i 367
 i 718
 i 4
Total fair value of plan assets
 i 12,652
 i 6,681
 i 19,333
 i 100
 i 10,724
 i 6,233
 i 16,957
 i 100
31.12.23
31.12.22
Total fair value of plan assets
 i 19,333
 i 16,957
of which:
2
Bank accounts at UBS Group AG
 i 69
 i 189
UBS Group AG debt instruments
 i 116
 i 28
UBS Group AG shares
 i 26
 i 15
Securities lent to UBS Group AG
3
 i 467
 i 489
Property occupied by UBS Group AG
 i 61
 i 51
Derivative financial instruments, counterparty UBS Group
AG
3
 i 302
 i 43
1 The bond credit ratings are
 
primarily based on S&P’s credit ratings.
 
Ratings AAA to BBB– and below BBB– represent investment
 
grade and non-investment grade ratings,
 
respectively. In cases where credit
 
ratings
from other rating agencies were used, these were converted to the equivalent rating in S&P’s rating classification.
 
2 Bank accounts at UBS AG encompass accounts in the name of the Swiss pension fund. The other
positions disclosed
 
in the
 
table encompass
 
both direct
 
investments in
 
UBS AG
 
instruments and
 
UBS Group
 
AG shares
 
and indirect
 
investments, i.e.,
 
those made
 
through funds
 
that the
 
pension fund
 
invests in.
 
3 Securities lent to UBS AG and derivative
 
financial instruments are presented gross of any
 
collateral. Securities lent to UBS AG
 
were fully covered by collateral as
 
of 31 December 2023 and 31 December 2022.
 
Net
of collateral, derivative financial instruments amounted to negative USD
 i 19
m as of 31 December 2023 (31 December 2022: negative USD
 i 5
m).
 / 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
225
Note 26
 
Post-employment benefit plans (continued)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Composition and fair value of plan assets
 
(continued)
UK defined benefit plan
31.12.23
31.12.22
Fair value
Plan asset
allocation %
Fair value
Plan asset
allocation %
USD m
Quoted
in an active
market
Other
Total
Quoted
in an active
market
Other
Total
Cash and cash equivalents
( i 27)
 i 0
( i 27)
( i 1)
 i 104
 i 0
 i 104
 i 4
Bonds
1
Domestic, AAA to BBB–
 i 2,375
 i 0
 i 2,375
 i 87
 i 1,729
 i 0
 i 1,729
 i 69
Foreign, AAA to BBB–
 i 357
 i 0
 i 357
 i 13
 i 297
 i 0
 i 297
 i 12
Foreign, below BBB–
 i 0
 i 0
 i 0
 i  i 0 / 
 i 7
 i 0
 i 7
 i 0
Investment funds
Equity
 
Domestic
 i 9
 i 3
 i 12
 i 0
 i 19
 i 3
 i 22
 i 1
Foreign
 i 234
 i 0
 i 234
 i 9
 i 366
 i 0
 i 366
 i 15
Bonds
1
Domestic, AAA to BBB–
 i 310
 i 38
 i 348
 i 13
 i 367
 i 90
 i 457
 i 18
Domestic, below BBB–
 i 6
 i 0
 i 6
 i 0
 i 1
 i 0
 i 1
 i 0
Foreign, AAA to BBB–
 i 97
 i 0
 i 97
 i 4
 i 90
 i 0
 i 90
 i 4
Foreign, below BBB–
 i 93
 i 0
 i 93
 i 3
 i 114
 i 0
 i 114
 i 5
Real estate
Domestic
 i 61
 i 0
 i 61
 i 2
 i 64
 i 0
 i 64
 i 3
Foreign
 i 4
 i 12
 i 16
 i 1
 i 6
 i 31
 i 36
 i 1
Other
 i 64
 i 0
 i 64
 i 2
( i 280)
 i 0
( i 280)
( i 11)
Repurchase agreements
( i 947)
 i 0
( i 947)
( i 35)
( i 612)
 i 0
( i 612)
( i 25)
Other investments
 i 15
 i 16
 i 31
 i 1
 i 66
 i 27
 i 94
 i 4
Total fair value of plan assets
 i 2,652
 i 69
 i 2,720
 i 100
 i 2,336
 i 151
 i 2,488
 i 100
1 The bond credit ratings are
 
primarily based on S&P’s credit ratings.
 
Ratings AAA to BBB– and below BBB– represent
 
investment grade and non-investment grade
 
ratings, respectively. In
 
cases where credit ratings
from other rating agencies were used, these were converted to the equivalent rating in S&P’s
 
rating classification.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
US and German defined benefit
plans
31.12.23
31.12.22
Fair value
Plan asset
allocation %
Fair value
Plan asset
allocation %
USD m
Quoted
in an active
market
Other
Total
Quoted
in an active
market
Other
Total
Cash and cash equivalents
 i 4
 i 0
 i 4
 i 0
 i 7
 i 0
 i 7
 i 1
Equity
Domestic
 i 54
 i 0
 i 54
 i 5
 i 55
 i 0
 i 55
 i 5
Foreign
 i 23
 i 0
 i 23
 i 2
 i 24
 i 0
 i 24
 i 2
Bonds
1
Domestic, AAA to BBB–
 i 308
 i 0
 i 308
 i 30
 i 359
 i 0
 i 359
 i 35
Domestic, below BBB–
 i 3
 i 0
 i 3
 i 0
 i 4
 i 0
 i 4
 i 0
Foreign, AAA to BBB–
 i 51
 i 0
 i 51
 i 5
 i 74
 i 0
 i 74
 i 7
Foreign, below BBB–
 i 2
 i 0
 i 2
 i 0
 i 3
 i 0
 i 3
 i 0
Investment funds
Equity
 
Domestic
 i 25
 i 0
 i 25
 i 2
 i 27
 i 0
 i 27
 i 3
Foreign
 i 43
 i 0
 i 43
 i 4
 i 33
 i 0
 i 33
 i 3
Bonds
1
Domestic, AAA to BBB–
 i 271
 i 0
 i 271
 i 27
 i 266
 i 0
 i 266
 i 26
Domestic, below BBB–
 i 172
 i 0
 i 172
 i 17
 i 109
 i 0
 i 109
 i 10
Foreign, AAA to BBB–
 i 4
 i 0
 i 4
 i 0
 i 2
 i 0
 i 2
 i 0
Foreign, below BBB–
 i 6
 i 0
 i 6
 i 1
 i 5
 i 0
 i 5
 i 0
Real estate
Domestic
 i 0
 i 9
 i 9
 i 1
 i 0
 i 11
 i 11
 i 1
Other
 i 49
 i 0
 i 49
 i 5
 i 54
 i 0
 i 54
 i 5
Other investments
( i 8)
 i 1
( i 7)
( i 1)
 i 5
 i 1
 i 6
 i 1
Total fair value of plan assets
 i 1,007
 i 10
 i 1,017
 i 100
 i 1,027
 i 12
 i 1,039
 i 100
1 The bond credit ratings are
 
primarily based on S&P’s credit ratings.
 
Ratings AAA to BBB– and below BBB– represent
 
investment grade and non-investment grade
 
ratings, respectively. In
 
cases where credit ratings
from other rating agencies were used, these were converted to the equivalent rating in S&P’s
 
rating classification.
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
226
Note 26
 
Post-employment benefit plans (continued)
 
b) Defined contribution plans
UBS AG sponsors
 
several defined
 
contribution
 
plans, with
 
the most
 
significant plans
 
in the
 
US and
 
the
 
UK. UBS
 
AG’s
obligation is limited to its contributions made
 
in accordance with each plan, which
 
may include direct contributions and
matching contributions.
 
Employer contributions
 
to defined
 
contribution plans
 
are
 
recognized as
 
an expense
 
and were
USD
 i 320
m in 2023 and USD
 i 299
m in 2022.
›
Refer to Note 6 for more information
 
c) Related-party disclosure
UBS AG
 
is the
 
principal
 
provider
 
of banking
 
services
 
for
 
the
 
pension fund
 
of
 
UBS AG
 
in
 
Switzerland.
 
In this
 
capacity,
UBS AG is
 
engaged to
 
execute
 
most of
 
the pension
 
fund’s banking
 
activities. These
 
activities can
 
include, but
 
are
 
not
limited to, trading,
 
securities lending
 
and borrowing
 
and derivative
 
transactions. The
 
non-Swiss UBS AG
 
pension funds
do not
 
have a
 
similar banking
 
relationship with
 
UBS AG. During
 
2023, UBS
 
AG received
 
USD
 i 20
m in
 
fees for
 
banking
services
 
from
 
the
 
major post-employment
 
benefit
 
plans
 
(2022:
 
USD
 i 20
m).
 
As of
 
31 December
 
2023,
 
the
 
major
 
post-
employment benefit plans held USD
 i 396
m in UBS Group AG shares (31 December
 
2022: USD
 i 253
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
 i 
 
 
Note 27
 
Employee benefits: variable compensation
 
a) Plans offered
UBS has
 
several share-based
 
and other
 
deferred compensation
 
plans that
 
align the
 
interests of
 
Group Executive
 
Board
(GEB) members and other employees with the interests
 
of investors.
 
Share-based awards are granted
 
in the form of
 
notional shares and, where
 
permitted, carry a dividend
 
equivalent that may be
paid in notional shares or cash. Awards are settled by delivering UBS shares at vesting, except in jurisdictions
 
where this is not
permitted for legal or tax reasons.
 
Deferred
 
compensation
 
awards
 
are
 
generally
 
forfeitable
 
upon,
 
among
 
other
 
circumstances,
 
voluntary
 
termination
 
of
employment with UBS. These compensation plans are also designed to meet
 
regulatory requirements and include special
provisions
 
for
 
regulated
 
employees.
 
For
 
the
 
majority
 
of
 
variable
 
compensation
 
awards
 
granted
 
under
 
such
 
plans
 
to
employees of UBS AG, the
 
grantor entity is UBS
 
Group AG. Expenses associated
 
with these awards
 
are charged by
 
UBS
Group AG to UBS AG. For the purpose of this Note, refere
 
nces to shares refer to UBS Group AG shares.
The most significant deferred compensation plans
 
are described below.
›
Refer to Note 1a
 
item 4 for a description of the accounting
 
policy related to share-based and other deferred compensation plans
Mandatory deferred compensation plans
Long-Term Incentive Plan
The Long-Term
 
Incentive Plan
 
(LTIP)
 
is a
 
mandatory deferred
 
share-based
 
compensation plan
 
for senior
 
leaders of
 
the
Group (i.e., GEB members and selected senior management).
The number of notional shares delivered at vesting depends on two equally weighted
 
performance metrics over a three-
year
 
performance
 
period:
 
return
 
on
 
common
 
equity
 
tier
 
1
 
(CET1)
 
capital
 
and
 
relative
 
total
 
shareholder
 
return,
 
which
compares
 
the
 
total
 
shareholder
 
return
 
(TSR)
 
of
 
UBS
 
with
 
the
 
TSR
 
of
 
an
 
index
 
consisting
 
of
 
listed
 
Global
 
Systemically
Important
 
Banks as
 
determined
 
by the
 
Financial Stability
 
Board (excluding
 
UBS). The
 
final number
 
of shares
 
vest
 
over
three
 
years
 
following the
 
performance
 
period for
 
GEB
 
members,
 
and cliff-vest
 
in
 
the
 
year
 
following the
 
performance
period for selected senior management.
Equity Ownership Plan / Fund Ownership Plan
The Equity Ownership Plan
 
(EOP) is the deferred
 
share-based compensation
 
plan for employees outside
 
of the GEB that
are subject to deferral requirements.
 
EOP awards generally vest over three
 
years.
 
Certain Asset
 
Management employees
 
receive some
 
or all of
 
their EOP
 
in the form
 
of notional
 
funds (Fund
 
Ownership
Plan or FOP, previously
 
named AM EOP).
 
This plan is
 
generally delivered in
 
cash and vests
 
over three years.
 
The amount
delivered depends on the value of the underlying investment
 
funds at the time of vesting.
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
227
Note 27
 
Employee benefits: variable compensation
 
(continued)
Deferred Contingent Capital Plan
The
 
Deferred
 
Contingent
 
Capital
 
Plan
 
(DCCP)
 
is
 
a
 
deferred
 
compensation
 
plan
 
for
 
all
 
employees
 
who
 
are
 
subject
 
to
deferral requirements.
 
Such employees
 
are
 
awarded
 
notional additional
 
tier 1
 
(AT1)
 
capital instruments,
 
which, at
 
the
discretion of UBS, can be settled in cash or a perpetual, marketable AT1 capital instrument. DCCP awards generally bear
notional
 
interest
 
paid
 
annually
 
(except
 
for
 
certain
 
regulated
 
employees)
 
and
 
vest
 
in
 
full
 
after
 
five
 
years.
 
Awards
 
are
forfeited if a
 
viability event occurs
 
(i.e., if FINMA
 
notifies the firm
 
that the DCCP
 
awards must be written
 
down to mitigate
the risk of insolvency,
 
bankruptcy or failure
 
of UBS) or
 
if the firm
 
receives a commitment
 
of extraordinary
 
support from
the public
 
sector that
 
is necessary
 
to prevent
 
such an
 
event. DCCP
 
awards are
 
also written
 
down if
 
the Group’s
 
CET1
capital ratio falls
 
below a defined threshold. In
 
addition, GEB members forfeit
 i 20
% of DCCP
 
awards for each loss-making
year during the vesting period.
Financial advisor variable compensation
In line with market practice for US wealth management businesses, the compensation for US financial advisors in Global
Wealth Management
 
consists of cash
 
compensation and deferred
 
compensation awards, determined
 
using a formulaic
approach based on production.
 
Cash
 
compensation
 
reflects
 
a
 
percentage
 
of
 
the
 
compensable
 
production
 
that
 
each
 
financial
 
advisor
 
generates.
Compensable production is generally based on transaction revenue and investment advisory fees and may reflect further
adjustments. The percentage rate generally varies based
 
on the level of the production and firm tenure.
Financial
 
advisors
 
may
 
also
 
be
 
granted
 
annual
 
deferred
 
compensation.
 
These
 
amounts
 
generally
 
vest
 
over
 
a
 
six-year
period. The annual deferred compensation amount reflects
 
the overall percentage rate and production.
 
Cash compensation and
 
deferred compensation awards
 
may be reduced
 
for, among other
 
things, errors, negligence
 
or
carelessness, or failure to comply with the firm’s rules, standards, practices and / or policies, and / or applicable laws and
regulations.
 
Financial
 
advisors
 
may
 
also
 
participate
 
in
 
additional
 
programs
 
to
 
support
 
promoting
 
and
 
developing
 
their
 
business
 
or
supporting the transition of
 
client relationships where appropriate. Financial
 
advisor compensation also includes
 
expenses
related to compensation commitments with financial advisors
 
entered into at the time of recruitment that are
 
subject to
vesting requirements.
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
228
Note 27
 
Employee benefits: variable compensation
 
(continued)
 
b) Effect on the income statement
Effect on the income statement for the financial year and
 
future periods
The table
 
below provides
 
information about
 
compensation
 
expenses related
 
to total
 
variable compensation
 
that were
recognized in the financial year ended
 
31 December 2023, as well as
 
expenses that were deferred and will be
 
recognized
in the income statement for 2024
 
and later.
 
The majority of expenses deferred
 
to 2024 and later that are
 
related to the
2023 performance
 
year pertain
 
to awards
 
granted in
 
February 2024.
 
The total
 
unamortized compensation
 
expense for
unvested share
 
-based awards
 
granted up
 
to 31 December
 
2023 will
 
be recognized
 
in future
 
periods over
 
a weighted
average period of
 i 2.6
 
years.
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Variable compensation
Expenses recognized in 2023
Expenses deferred to 2024 and later
1
USD m
Related to the
2023
performance
year
Related to prior
performance
years
Total
Related to the
2023
performance
year
Related to prior
performance
years
Total
Non-deferred cash
 i 1,884
( i 36)
 i 1,848
 i 0
 i 0
 i 0
Deferred compensation awards
 i 356
 i 637
 i 993
 i 537
 i 731
 i 1,268
of which: Equity Ownership Plan
 i 95
 i 319
 i 415
 i 180
 i 235
 i 416
of which: Deferred Contingent Capital Plan
 i 124
 i 233
 i 357
 i 216
 i 436
 i 652
of which: Long-Term Incentive Plan
 i 121
 i 39
 i 160
 i 112
 i 33
 i 145
of which: Fund Ownership Plan
 i 15
 i 45
 i 61
 i 28
 i 27
 i 55
Variable compensation – performance awards
 i 2,240
 i 601
 i 2,841
 i 537
 i 731
 i 1,268
Variable compensation – financial advisors
2
 i 3,761
 i 788
 i 4,549
 i 1,236
 i 3,300
 i 4,536
of which: non-deferred cash
 i 3,440
( i 4)
 i 3,436
 i 0
 i 0
 i 0
of which: deferred share-based awards
 i 110
 i 87
 i 197
 i 113
 i 209
 i 321
of which: deferred cash-based awards
 i 169
 i 245
 i 414
 i 301
 i 1,029
 i 1,331
of which: compensation commitments with recruited financial
 
advisors
 i 42
 i 459
 i 501
 i 822
 i 2,062
 i 2,884
Variable compensation – other
3
 i 168
 i 111
 i 279
 i 224
 i 214
 i 438
Total variable compensation
 i 6,169
 i 1,500
 i 7,669
4
 i 1,997
 i 4,245
 i 6,242
1 Estimate as
 
of 31 December 2023.
 
Actual amounts to
 
be expensed in
 
future periods may
 
vary; e.g., due
 
to forfeiture of
 
awards.
 
2 Financial advisor compensation
 
consists of cash
 
and deferred compensation
awards and is based on
 
compensable revenues and firm tenure
 
using a formulaic approach. It
 
also includes expenses related to
 
compensation commitments with financial advisors
 
entered into at the time
 
of recruitment
that are subject to vesting requirements.
 
3 Consists of replacement payments, forfeiture credits,
 
severance payments, retention plan payments and interest
 
expense related to the Deferred Contingent Capital Plan.
 
4 Includes USD
 i 818
m in expenses related to share-based compensation
 
(performance awards: USD
 i 575
m; other variable compensation: USD
 i 46
m; financial advisor compensation: USD
 i 197
m). A further USD
 i 135
m
in expenses related to share-based compensation
 
was recognized within other expense categories
 
included in Note 6 (salaries: USD
 i 4
m related to role-based allowances;
 
social security: USD
 i 109
m; other personnel
expenses: USD
 i 22
m related to the Equity Plus Plan).
 / 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
229
Note 27
 
Employee benefits: variable compensation
 
(continued)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Variable compensation (continued)
Expenses recognized in 2022
Expenses deferred to 2023 and later
1
USD m
Related to the
2022
performance
year
Related to prior
performance
years
Total
Related to the
2022
performance
year
Related to prior
performance
years
Total
Non-deferred cash
 i 2,012
( i 9)
 i 2,003
 i 0
 i 0
 i 0
Deferred compensation awards
 i 346
 i 561
 i 907
 i 582
 i 730
 i 1,312
of which: Equity Ownership Plan
 i 191
 i 225
 i 416
 i 294
 i 240
 i 534
of which: Deferred Contingent Capital Plan
 i 123
 i 211
 i 334
 i 238
 i 395
 i 634
of which: Long-Term Incentive Plan
 i 11
 i 30
 i 41
 i 30
 i 40
 i 70
of which: Fund Ownership Plan
 i 21
 i 95
 i 116
 i 20
 i 54
 i 74
Variable compensation – performance awards
 i 2,358
 i 552
 i 2,910
 i 582
 i 730
 i 1,312
Variable compensation – financial advisors
2
 i 3,799
 i 709
 i 4,508
 i 1,290
 i 2,652
 i 3,942
of which: non-deferred cash
 i 3,481
 i 0
 i 3,481
 i 0
 i 0
 i 0
of which: deferred share-based awards
 i 104
 i 62
 i 166
 i 122
 i 180
 i 302
of which: deferred cash-based awards
 i 185
 i 215
 i 400
 i 588
 i 636
 i 1,224
of which: compensation commitments with recruited financial
 
advisors
 i 29
 i 432
 i 461
 i 580
 i 1,836
 i 2,416
Variable compensation – other
3
 i 146
 i 72
 i 217
 i 230
 i 189
 i 419
Total variable compensation
 i 6,304
 i 1,332
 i 7,636
4
 i 2,101
 i 3,571
 i 5,672
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
 i 680
m in expenses related to share-based compensation (performance awards: USD
 i 457
m; other variable compensation: USD
 i 56
m; financial advisor compensation: USD
 i 166
m). A further USD
 i 80
m in
expenses related to
 
share-based compensation
 
was recognized
 
within other
 
expense categories
 
included in
 
Note 6 (salaries:
 
USD
 i 4
m related to
 
role-based allowances;
 
social security:
 
USD
 i 57
m; other
 
personnel
expenses: USD
 i 19
m related to the Equity Plus Plan).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Variable compensation (continued)
Expenses recognized in 2021
Expenses deferred to 2022 and later
1
USD m
Related to the
2021
performance
year
Related to prior
performance
years
Total
Related to the
2021
performance
year
Related to prior
performance
years
Total
Non-deferred cash
 i 2,136
( i 8)
 i 2,128
 i 0
 i 0
 i 0
Deferred compensation awards
 i 389
 i 399
 i 788
 i 767
 i 606
 i 1,373
of which: Equity Ownership Plan
 i 175
 i 174
 i 350
 i 374
 i 180
 i 553
of which: Deferred Contingent Capital Plan
 i 134
 i 151
 i 285
 i 290
 i 318
 i 608
of which: Long-Term Incentive Plan
 i 51
 i 17
 i 69
 i 48
 i 32
 i 79
of which: Fund Ownership Plan
 i 29
 i 55
 i 84
 i 56
 i 77
 i 133
Variable compensation – performance awards
 i 2,525
 i 391
 i 2,916
 i 767
 i 606
 i 1,373
Variable compensation – financial advisors
2
 i 4,175
 i 685
 i 4,860
 i 1,097
 i 2,323
 i 3,419
of which: non-deferred cash
 i 3,858
( i 6)
 i 3,853
 i 0
 i 0
 i 0
of which: deferred share-based awards
 i 106
 i 51
 i 157
 i 123
 i 146
 i 269
of which: deferred cash-based awards
 i 170
 i 202
 i 372
 i 311
 i 495
 i 806
of which: compensation commitments with recruited financial
 
advisors
 i 41
 i 438
 i 479
 i 662
 i 1,682
 i 2,344
Variable compensation – other
3
 i 163
 i 33
 i 196
 i 210
 i 178
 i 388
Total variable compensation
 i 6,863
 i 1,109
 i 7,973
4
 i 2,074
 i 3,107
 i 5,181
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
 i 631
m in expenses related to share-based compensation
 
(performance awards: USD
 i 419
m; other variable compensation: USD
 i 56
m; financial advisor compensation: USD
 i 157
m). A further USD
 i 77
m in expenses
related to share-based
 
compensation was
 
recognized within
 
other expense categories
 
included in Note
 
6 (salaries: USD
 i 5
m related to
 
role-based allowances;
 
social security: USD
 i 59
m; other personnel
 
expenses:
USD
 i 13
m related to the Equity Plus Plan).
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
230
Note 27
 
Employee benefits: variable compensation
 
(continued)
 
c) Outstanding share-based compensation awards
Share and performance share awards
Movements in
 
outstanding share
 
-based awards
 
granted by
 
UBS AG and
 
its subsidiaries
 
to employees
 
during 2023
 
and
2022 are provided in the table below.
 i 
 
 
 
 
 
 
 
Movements in outstanding share-based compensation
 
awards
Number of shares
2023
Weighted
average grant
date fair
value (USD)
Number of shares
2022
Weighted
average grant
date fair
value (USD)
Outstanding, at the beginning of the year
 i 614,428
 i 17
 i 295,921
 i 15
Awarded during the year
 i 279,310
 i 20
 i 358,424
 i 19
Distributed during the year
( i 132,770)
 i 15
( i 37,994)
 i 14
Forfeited during the year
( i 4,043)
 i 19
( i 1,923)
 i 15
Outstanding, at the end of the year
 i 756,925
 i 19
 i 614,428
 i 17
of which: shares vested for accounting purposes
 i 217,420
 i 174,329
 / 
 
The
 
total
 
carrying
 
amount
 
of
 
the
 
liability
 
related
 
to
 
cash-settled
 
share-based
 
awards
 
as
 
of
 
31 December
 
2023
 
and
31 December 2022 was USD
 i 14
m and USD
 i 7
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.
 
 i 
 
 
Note 28
 
Interests in subsidiaries and other entities
a) Interests in subsidiaries
UBS AG
 
defines its significant subsidiaries
 
as those entities
 
that, either individually
 
or in aggregate, contribute
 
significantly
to UBS AG’s
 
financial position or
 
results of
 
operations, based
 
on a number
 
of criteria, including
 
the subsidiaries’ equity
and
 
contribution
 
to
 
UBS
 
AG’s
 
total
 
assets
 
and
 
profit
 
or
 
loss
 
before
 
tax,
 
in
 
accordance
 
with
 
the
 
requirements
 
set
 
by
IFRS 12, Swiss regulations and the rules of the US Securities
 
and Exchange Commission (the SEC).
Individually significant subsidiaries
The table below lists UBS AG’s individually significant subsidiaries as of 31 December 2023. Unless otherwise stated, the
subsidiaries listed below
 
have share capital consisting
 
solely of ordinary
 
shares held entirely by
 
UBS AG
 
and the proportion
of ownership interest held is equal to the voting
 
rights held by UBS AG.
 
The
 
country
 
where
 
the
 
respective
 
registered
 
office
 
is located
 
is also
 
the
 
principal
 
place
 
of business.
 
UBS
 
AG operates
through a
 
global branch
 
network and
 
a significant
 
proportion of
 
its business
 
activity is
 
conducted outside
 
Switzerland,
including in the UK,
 
the US, Singapore, the Hong
 
Kong SAR and other countries. UBS
 
Europe SE has branches
 
and offices
in a number of EU Member
 
States, including Germany, Italy, Luxembourg,
 
France and Spain. Share
 
capital is provided in
the currency of the legally registered office.
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
231
Note 28
 
Interests in subsidiaries and other entities
 
(continued)
 i 
 
 
 
 
 
 
 
 
 
 
Individually significant subsidiaries of
 
UBS AG as of 31 December 2023
1
Company
Registered office
Primary business
Share capital in million
Equity interest accumulated in %
 i UBS Americas Holding LLC
 i Wilmington, Delaware, USA
 i Group Items
USD
 i 2,900.0
2
 i 100.0
 i UBS Americas Inc.
 i Wilmington, Delaware, USA
 i Group Items
USD
 i 0.0
 i 100.0
 i UBS Asset Management AG
 i Zurich, Switzerland
 i Asset Management
CHF
 i 43.2
 i 100.0
 i UBS Bank USA
 i Salt Lake City, Utah, USA
 i Global Wealth Management
USD
 i 0.0
 i 100.0
 i UBS Europe SE
 i Frankfurt, Germany
 i Global Wealth Management
EUR
 i 446.0
 i 100.0
 i UBS Financial Services Inc.
 i Wilmington, Delaware, USA
 i Global Wealth Management
USD
 i 0.0
 i 100.0
 i UBS Securities LLC
 i Wilmington, Delaware, USA
 i Investment Bank
USD
 i 1,283.1
3
 i 100.0
 i UBS Switzerland AG
 i Zurich, Switzerland
 i Personal & Corporate Banking
CHF
 i 10.0
 i 100.0
1 Includes direct
 
and indirect subsidiaries
 
of UBS AG.
 
2 Consists of common
 
share capital of
 
USD
 i 1,000
 
and non-voting preferred
 
share capital of
 
USD
 i 2,900,000,000
.
 
3 Consists of common
 
share capital of
USD
 i 100,000
 
and non-voting preferred share capital of USD
 i 1,283,000,000
.
 / 
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.
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other subsidiaries of UBS AG as of 31
 
December 2023
Company
Registered office
Primary business
Share capital in million
Equity interest
 
accumulated in %
 i UBS Asset Management (Americas) Inc.
 i Wilmington, Delaware, USA
 i Asset Management
USD
 i 0.0
 i 100.0
 i UBS Asset Management (Hong Kong) Limited
 i Hong Kong SAR, China
 
 i Asset Management
HKD
 i 153.8
 i 100.0
 i UBS Asset Management Life Ltd
 i London, United Kingdom
 i Asset Management
GBP
 i 15.0
 i 100.0
 i UBS Asset Management Switzerland AG
 i Zurich, Switzerland
 i Asset Management
CHF
 i 0.5
 i 100.0
 i UBS Business Solutions US LLC
 i Wilmington, Delaware, USA
 i Group Items
USD
 i 0.0
 i 100.0
 i UBS Credit Corp.
 i Wilmington, Delaware, USA
 i Global Wealth Management
USD
 i 0.0
 i 100.0
 i UBS Fund Management (Luxembourg) S.A.
 i Luxembourg, Luxembourg
 i Asset Management
EUR
 i 13.7
 i 100.0
 i UBS Fund Management (Switzerland) AG
 i Basel, Switzerland
 i Asset Management
CHF
 i 1.0
 i 100.0
 i UBS (Monaco) S.A.
 i Monte Carlo, Monaco
 i Global Wealth Management
EUR
 i 49.2
 i 100.0
 i UBS O‘Connor LLC
 i Wilmington, Delaware, USA
 i Asset Management
USD
 i 1.0
 i 100.0
 i UBS Realty Investors LLC
 i Boston, Massachusetts, USA
 i Asset Management
USD
 i 9.0
 i 100.0
 i UBS Securities Australia Ltd
 i Sydney, Australia
 i Investment Bank
AUD
 i 0.3
1
 i 100.0
 i UBS Securities Hong Kong Limited
 i Hong Kong SAR, China
 
 i Investment Bank
HKD
 i 2,841.6
 i 100.0
 i UBS Securities Japan Co., Ltd.
 i Tokyo, Japan
 i Investment Bank
JPY
 i 34,708.7
 i 100.0
 i UBS SuMi TRUST Wealth Management Co., Ltd.
 i Tokyo, Japan
 i Global Wealth Management
JPY
 i 5,165.0
 i 51.0
1 Includes a nominal amount relating to redeemable preference shares.
 / 
Consolidated structured entities
Consolidated
 
structured
 
entities
 
(SEs)
 
include
 
certain
 
investment
 
funds,
 
securitization
 
vehicles
 
and
 
client
 
investment
vehicles. UBS AG has no individually significant subsidiaries that
 
are SEs.
In 2023 and 2022, UBS
 
AG did not enter into any
 
contractual obligation that could
 
require UBS AG to provide
 
financial
support to
 
consolidated SEs.
 
In addition,
 
UBS AG
 
did not
 
provide support,
 
financial or
 
otherwise, to
 
a consolidated
 
SE
when UBS
 
AG was not
 
contractually obligated
 
to do so,
 
nor does
 
UBS AG currently
 
have any intention
 
to do
 
so in the
future.
 
Furthermore,
 
UBS
 
AG
 
did
 
not
 
provide
 
support,
 
financial
 
or
 
otherwise,
 
to
 
a
 
previously
 
unconsolidated
 
SE
 
that
resulted in UBS AG controlling the SE during the reporting
 
period.
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
232
 i 
 
 
Note 28
 
Interests in subsidiaries and other entities
 
(continued)
b) Interests in associates and joint ventures
As of
 
31 December
 
2023 and
 
31 December
 
2022, no
 
associate or
 
joint venture
 
was
 
individually
 
material to
 
UBS AG.
Also, there were no significant restrictions on the ability of associates or joint ventures to transfer funds to UBS AG or its
subsidiaries as cash dividends or
 
to repay loans or advances
 
made. There were no quoted market
 
prices for any associates
or joint ventures of UBS AG.
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investments in associates and joint ventures
USD m
2023
2022
Carrying amount at the beginning of the year
 i 1,101
 i 1,243
Additions
 i 1
 i 3
Reclassifications
 i 0
( i 44)
Share of comprehensive income
( i 180)
( i 41)
of which: share of net profit / (loss)
1
( i 163)
 i 32
of which: share of other comprehensive income
2
( i 17)
( i 73)
Share of changes in retained earnings
( i 1)
 i 0
Dividends received
( i 35)
( i 31)
Foreign currency translation
 i 97
( i 30)
Carrying amount at the end of the year
 i 983
 i 1,101
of which: associates
 i 980
 i 1,098
of which: SIX Group AG, Zurich
3
 i 826
 i 954
of which: other associates
 i 154
 i 144
of which: joint ventures
 i 3
 i 3
1 For 2023, consists of negative USD
 i 163
m from associates (for 2022, consists of USD
 i 27
m from associates and USD
 i 5
m from joint ventures).
 
2 For 2023, consists of negative USD
 i 17
m from associates (for 2022,
consists of negative USD
 i 73
m from associates).
 
3 In 2023, UBS AG’s legal equity interest amounted to
 i 17
%. UBS AG is represented on the Board of Directors.
 / 
 i 
 
c) Unconsolidated structured entities
UBS AG is considered to
 
sponsor another entity if, in addition
 
to ongoing involvement with
 
that entity,
 
it had a key role
in establishing that
 
entity or in
 
bringing together relevant counterparties
 
for a transaction
 
facilitated by that
 
entity. During
2023,
 
UBS
 
AG
 
sponsored
 
the
 
creation
 
of various
 
SEs
 
and
 
interacted
 
with a
 
number
 
of non-sponsored
 
SEs,
 
including
securitization vehicles, client vehicles and certain
 
investment funds, that UBS AG did not consolidate
 
as of 31 December
2023 because it did not control them.
Interests in unconsolidated structured entities
The table below
 
presents UBS AG’s
 
interests in and
 
maximum exposure
 
to loss from
 
unconsolidated SEs, as
 
well as the
total assets held by the SEs in which UBS had an interest
 
as of year-end, except for investment funds sponsored
 
by third
parties, for which the carrying amount of UBS’s interest
 
as of year-end has been disclosed.
As a
 
consequence of the
 
acquisition of the
 
Credit Suisse Group
 
and the
 
resulting increase in
 
interests in
 
structured entities,
interests
 
in
 
client
 
vehicles
 
sponsored
 
by
 
UBS
 
are
 
presented
 
separately
 
to
 
other
 
vehicles
 
sponsored
 
by third
 
parties,
 
to
clearly
 
distinguish
 
the
 
different
 
types
 
of
 
entities
 
that
 
UBS
 
is
 
involved
 
with.
 
Further,
 
bonds
 
issued
 
by
 
US
government-sponsored entities included within Group Treasury’s HQLA
 
portfolio have been excluded given UBS
 
does not
absorb significant risk and third-party funding vehicles of large multi-nationals have been excluded as they are no longer
considered
 
structured
 
entities.
 
Prior
 
periods
 
have
 
been
 
restated
 
to
 
reflect
 
these
 
changes.
 
As
 
a
 
consequence
 
of
 
these
changes, UBS AG does not disclose any interest in other vehicles
 
sponsored by third parties.
Sponsored unconsolidated structured entities in which UBS
 
did not have an interest at year-end
During 2023 and 2022, UBS AG did not earn material income from
 
sponsored unconsolidated SEs in which UBS
 
did not
have an interest at year-end.
During 2023 and
 
2022, UBS AG
 
and third parties
 
did not transfer
 
any assets into
 
sponsored securitization vehicles created
in the year. UBS AG
 
and third parties transferred assets, alongside deposits and
 
debt issuances (which are assets from the
perspective
 
of
 
the
 
vehicle),
 
of
 
USD
 i 0.5
bn
 
and
 
USD
 i 0.5
bn,
 
respectively,
 
into
 
sponsored
 
client
 
vehicles
 
created
 
in
 
2023
(2022:
 
USD
 i 1
bn
 
and
 
USD
 i 3
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
 i 44
bn (31 December 2022: USD
 i 38
bn).
 / 
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
233
Note 28
 
Interests in subsidiaries and other entities
 
(continued)
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
31.12.23
USD m, except where indicated
Securitization
vehicles
1
Client Vehicles
sponsored by UBS
2
Investment
funds
Total
Maximum
exposure to loss
3
Financial assets at fair value held for trading
 i 88
 i 37
 i 7,413
 i 7,538
 i 7,538
Derivative financial instruments
 i 2
 i 147
 i 66
 i 215
 i 215
Loans and advances to customers
 i 0
 i 0
 i 200
 i 200
 i 200
Financial assets at fair value not held for trading
 i 0
 i 0
 i 143
 i 143
 i 143
Financial assets measured at fair value through other
comprehensive income
 i 0
 i 0
 i 0
 i 0
 i 0
Other financial assets measured at amortized cost
 i 188
 i 0
 i 0
 i 188
 i 438
Total assets
 i 278
 i 185
 i 7,821
 i 8,285
 i 8,534
Derivative financial instruments
 i 1
 i 8
 i 590
 i 598
 i 2
Total liabilities
 i 1
 i 8
 i 590
 i 598
 i 2
Assets held by the unconsolidated structured entities in which UBS
AG had an interest (USD bn)
 i 17
4
 i 2
5
 i 118
6
31.12.22
USD m, except where indicated
Securitization
vehicles
1,2
Client Vehicles
sponsored by UBS
2
Investment
funds
Total
Maximum
exposure to loss
3
Financial assets at fair value held for trading
 i 263
 i 2
 i 5,884
 i 6,149
 i 6,149
Derivative financial instruments
 i 3
 i 160
 i 115
 i 278
 i 278
Loans and advances to customers
 i 0
 i 0
 i 119
 i 119
 i 119
Financial assets at fair value not held for trading
 i 0
 i 0
 i 108
 i 108
 i 108
Financial assets measured at fair value through other
comprehensive income
 i 0
 i 0
 i 0
 i 0
 i 0
Other financial assets measured at amortized cost
 i 0
 i 0
 i 2
 i 3
 i 252
Total assets
 i 266
 i 162
 i 6,228
 i 6,657
 i 6,907
Derivative financial instruments
 i 1
 i 35
 i 763
 i 798
 i 2
Total liabilities
 i 1
 i 35
 i 763
 i 798
 i 2
Assets held by the unconsolidated structured entities in which UBS
AG had an interest (USD bn)
 i 39
4
 i 2
5
 i 95
6
1 Includes securities issued by securitization structured entities sponsored by both UBS
 
and third parties.
 
2 Client vehicles sponsored by UBS are structured entities that do
 
not qualify as a securitization in line with
regulatory requirements and are not
 
considered an investment fund. Effective
 
from 31 December 2023,
 
bonds issued by US government-sponsored
 
entities included in Group Treasury‘s
 
HQLA and interests in third-
party funding vehicles of large multi-nationals have been excluded, with prior periods restated. The restatement resulted in a
 
decrease in interests in securitization vehicles of USD
 i 852
m and a decrease in interests in
client vehicles of USD
 i 5,057
m as of 31 December 2022. There was a corresponding decrease
 
in assets held by securitization vehicles in which UBS has an interest of USD
 i 11
bn and a decrease in assets held by client
vehicles in which UBS has an interest of USD
 i 105
bn as of 31 December 2022.
 
3 For the purpose of this disclosure, maximum exposure to loss amounts do not consider the risk-reducing effects of collateral
 
or other
credit enhancements.
 
4 Represents the principal amount outstanding.
 
5 Represents the market value of total assets.
 
6 Represents the net asset value of the investment funds sponsored by UBS and the carrying
amount of UBS’s interests in the investment funds not sponsored by UBS.
 / 
UBS AG
 
retains or
 
purchases
 
interests in
 
unconsolidated
 
SEs in
 
the form
 
of direct
 
investments, financing,
 
guarantees,
letters
 
of
 
credit
 
and
 
derivatives,
 
as
 
well
 
as
 
through
 
management
 
contracts.
 
UBS
 
AG’s
 
maximum
 
exposure
 
to
 
loss
 
is
generally equal to the
 
carrying amount of
 
UBS AG’s interest
 
in the given SE,
 
with this subject to
 
change over time
 
with
market movements.
 
Guarantees, letters of
 
credit and
 
credit derivatives
 
are an
 
exception, with the
 
given contract’s
 
notional
amount, adjusted for losses already incurred, representing the
 
maximum loss that UBS AG is exposed to.
The
 
maximum
 
exposure
 
to
 
loss
 
disclosed
 
in
 
the
 
table
 
above
 
does
 
not
 
reflect
 
UBS
 
AG’s
 
risk
 
management
 
activities,
including
 
effects
 
from
 
financial
 
instruments
 
that
 
may
 
be
 
used
 
to
 
economically
 
hedge
 
risks
 
inherent
 
in
 
the
 
given
unconsolidated SE or risk-reducing effects of collateral or
 
other credit enhancements.
In
 
2023
 
and
 
2022,
 
UBS
 
AG
 
did
 
not
 
provide
 
support,
 
financial
 
or
 
otherwise,
 
to
 
any
 
unconsolidated
 
SE
 
when
 
not
contractually obligated to do so, nor does UBS AG currently
 
have any intention to do so in the future.
In 2023
 
and 2022,
 
income and
 
expenses from
 
interests in
 
unconsolidated SEs
 
primarily resulted
 
from mark-to-market
movements
 
recognized
 
in
Other
 
net
 
income from
 
financial
 
instruments
 
measured
 
at
 
fair
 
value
 
through
 
profit or
 
loss
,
which were generally hedged with
 
other financial instruments, as well
 
as fee and commission income
 
received from UBS-
sponsored funds.
Interests in securitization vehicles
As
 
of
 
31 December
 
2023
 
and
 
31 December
 
2022,
 
UBS
 
AG
 
held
 
interests,
 
both
 
retained
 
and
 
acquired,
 
in
 
various
securitization vehicles that relate to financing,
 
underwriting, secondary market and derivative trading activities.
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
234
Note 28
 
Interests in subsidiaries and other entities
 
(continued)
The numbers outlined in the table
 
above may differ from the securitization
 
positions presented in the 31 December 2023
Pillar 3
 
Report,
 
available
 
under
 
“Pillar 3
 
disclosures”
 
at
ubs.com/investors,
 
for
 
the
 
following
 
reasons:
 
(i) exclusion
 
of
synthetic
 
securitizations
 
transacted
 
with
 
entities
 
that
 
are
 
not
 
SEs
 
and
 
transactions
 
in
 
which
 
UBS
 
AG
 
did
 
not
 
have
 
an
interest
 
because
 
it
 
did
 
not
 
absorb
 
any
 
risk;
 
(ii) a
 
different
 
measurement
 
basis
 
in
 
certain
 
cases
 
(e.g.,
 
IFRS
 
Accounting
Standards carrying amount within
 
the table above
 
compared with net
 
exposure amount at default
 
for Pillar 3 disclosures);
and (iii) different classification of vehicles viewed as sponsored
 
by UBS AG versus sponsored by third parties.
›
Refer to the 31 December 2023 Pillar 3 Report,
 
available under “Pillar 3 disclosures” at
ubs.com/investors,
for more information
Interests in client vehicles sponsored by UBS
UBS-sponsored
 
client
 
vehicles
 
are
 
established
 
predominantly
 
for
 
clients
 
to
 
gain
 
exposure
 
to
 
specific
 
assets
 
or
 
risk
exposures. Such vehicles
 
may enter into derivative
 
agreements, with UBS
 
or a third party,
 
to align the cash flows
 
of the
entity with the investor’s intended investment objective,
 
or to introduce other desired risk exposures.
 
As of
 
31 December
 
2023 and
 
31 December
 
2022, UBS
 
AG retained
 
interests in
 
client vehicles
 
sponsored by
 
UBS that
relate to financing, secondary market and derivative
 
trading activities,
 
and to hedge structured product offerings.
Interests in investment funds
Investment funds have a collective
 
investment objective, and are
 
either passively managed, so
 
that any decision-making
does not have a substantive effect
 
on variability,
 
or are actively managed and investors
 
or their governing bodies do not
have substantive voting or similar rights.
UBS AG holds interests in a number
 
of investment funds, primarily resulting from
 
seed investments or in order to
 
hedge
structured product
 
offerings.
 
In addition
 
to the
 
interests disclosed
 
in the
 
table
 
above,
 
UBS AG
 
manages
 
the assets
 
of
various pooled investment funds and receives fees based, in whole or in part, on the net asset value of the fund and / or
the performance of the fund. The specific fee structure is determined based on various market
 
factors and considers the
fund’s nature and the
 
jurisdiction
 
of incorporation,
 
as well as fee
 
schedules negotiated with
 
clients. These fee contracts
represent an
 
interest in
 
the fund,
 
as they
 
align UBS
 
AG’s exposure
 
with investors,
 
providing a
 
variable return
 
based on
the performance
 
of the
 
entity. Depending
 
on the
 
structure of
 
the fund,
 
these fees
 
may be
 
collected directly
 
from the
fund’s assets and / or from
 
the investors. Any amounts
 
due are collected on a
 
regular basis and are generally
 
backed by
the fund’s assets.
 
Therefore, interest
 
in such funds
 
is not represented
 
by the on-balance
 
sheet fee receivable
 
but rather
by
 
the
 
future
 
exposure
 
to
 
variable
 
fees.
 
The
 
total
 
assets
 
of
 
such
 
funds
 
were
 
USD
 i 356
bn
 
and
 
USD
 i 336
bn
 
as
 
of
31 December 2023 and 31 December 2022, respectively, and have been excluded from the table above. UBS AG
 
did not
have any material exposure to loss from these interests as
 
of 31 December 2023 or as of 31 December 2022.
 
 i 
 
Note 29
 
Changes in organization and acquisitions and disposals
 
of subsidiaries and businesses
 
Disposals of subsidiaries and businesses
Sale of UBS Hana Asset Management Co., Ltd.
In the fourth quarter of 2023, UBS AG completed the sale of its
 i 51
% stake in UBS Hana Asset Management Co., Ltd. to
Hana Securities.
 
Upon completion
 
of the
 
sale, UBS
 
AG recorded
 
a pre-tax
 
gain of
 
USD
 i 23
m (net
 
of a
 
foreign currency
translation loss) in Asset Management which was recognized
 
in
Other income
.
Changes in organization
 / 
Legal structure integration
In December 2023, the Board of Directors of UBS Group AG approved the merger of UBS AG and Credit Suisse AG, and
both entities entered into a
 
definitive merger agreement. The completion of
 
the merger is subject
 
to regulatory approvals
and is expected to occur by the end of the second quarter
 
of 2024.
 
UBS also expects
 
to complete the transition to a single US
 
intermediate holding company in the second quarter
 
of 2024
and the planned merger of UBS Switzerland AG and Credit
 
Suisse (Schweiz) AG in the third quarter of 2024.
 
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
235
 i 
Note
30
 
Related parties
 
Related parties of UBS AG are:
–
entities
 
within
 
UBS Group,
 
i.e.,
 
the
 
parent
 
entity,
 
UBS Group AG,
 
and
 
fellow
 
subsidiaries
 
consolidated
 
within
UBS Group (including Credit Suisse subsidiaries from the date
 
of the acquisition of the Credit Suisse Group);
–
associates
 
(entities
 
that
 
are
 
under
 
the
 
significant
 
influence
 
of
 
UBS AG
 
or
 
other
 
group
 
entities
 
consolidated
 
within
UBS Group);
 
–
joint
 
ventures
 
(entities
 
in
 
which
 
UBS AG
 
or
 
other
 
group
 
entity
 
consolidated
 
within
 
UBS Group
 
shares
 
control
 
with
another party);
 
–
post-employment benefit plans for the benefit of UBS AG’s employees
 
or employees of entities related to UBS AG;
–
key management personnel and close family members of
 
key management personnel; and
 
–
entities over which key management personnel or their
 
close family members have solely or jointly a direct
 
or indirect
significant influence.
Key management personnel are those persons having authority
 
and responsibility for planning, directing, and controlling
the activities of the Group, directly or indirectly.
 
UBS AG considers the members of the Board of Directors
 
(the BoD) and
the Executive Board
 
(the EB) of
 
UBS AG and the
 
members of the
 
Board of Directors
 
(the BoD) and the
 
Group Executive
Board (the GEB) of UBS Group AG to
 
constitute key management personnel.
a) Remuneration of key management personnel
The
 
Vice Chairman
 
of the
 
BoD
 
has a
 
specific
 
management
 
employment
 
contract
 
and receives
 
pension
 
benefits
 
upon
retirement. Total
 
remuneration of the Chairman and the Vice
 
Chairman of the BoD and all
 
EB members is included in the
table below.
 i 
 
 
 
 
 
 
 
 
 
 
Remuneration of key management
 
personnel
USD m, except where indicated
31.12.23
31.12.22
31.12.21
Base salaries and other cash payments
1
 i 35
 i 26
 i 30
Incentive awards – cash
2
 i 24
 i 16
 i 17
Annual incentive award under DCCP
 i 36
 i 23
 i 26
Employer’s contributions to retirement benefit plans
 i 3
 i 2
 i 2
Benefits in kind, fringe benefits (at market value)
 i 1
 i 1
 i 1
Share-based compensation
3
 i 63
 i 42
 i 45
Total
 i 162
 i 110
 i 122
Total (CHF m)
4
 i 147
 i 106
 i 112
1 May include role-based allowances in line with market practice
 
and regulatory requirements.
 
2 The cash portion may also include blocked
 
shares in line with regulatory requirements.
 
3 Compensation expense
is based on
 
the share price
 
on grant date
 
taking into account
 
performance conditions.
 
Refer to Note
 
27 for more
 
information. For EB
 
members, share-based
 
compensation for 2023,
 
2022 and 2021
 
was entirely
composed of LTIP
 
awards. For the
 
Chairman of the BoD, the
 
share-based compensation for 2023, 2022
 
and 2021 was entirely composed
 
of UBS shares.
 
4 Swiss franc amounts disclosed represent
 
the respective
US dollar amounts translated at the applicable performance award currency exchange rates (2023: USD
 
/ CHF
 i 0.91
; 2022: USD / CHF
 i 0.96
; 2021: USD / CHF
 i 0.92
).
 / 
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
 i 11.7
m
 
(CHF
 i 10.6
m)
 
in
 
2023,
 
USD
 i 11.1
m
(CHF
 i 10.7
m) in 2022 and USD
 i 7.5
m (CHF
 i 6.9
m) in 2021.
b) Equity holdings of key management personnel
 i 
 
 
 
Equity holdings of key management personnel
1
31.12.23
31.12.22
Number of UBS Group AG shares held by members of the
 
BoD, EB and parties closely linked to them
2
 i 5,121,564
 i 2,443,580
1 No options were held in
 
2023 and 2022 by non-independent
 
members of the BoD and
 
any EB member or any of
 
its related parties.
 
2 Excludes shares granted under
 
variable compensation plans with
 
forfeiture
provisions.
 / 
Of the share totals above, no shares were held by close family members of key management personnel on 31 December
2023 and 31 December 2022.
 
No shares were held
 
by entities that
 
are directly or indirectly controlled or
 
jointly controlled
by
 
key
 
management
 
personnel
 
or
 
their
 
close
 
family
 
members
 
on
 
31 December
 
2023
 
and
 
31 December
 
2022.
 
As
 
of
31 December 2023, no member of the BoD
 
or EB was the beneficial owner
 
of more than 1% of the shares in
 
UBS Group
AG.
 
 
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
236
Note 30
 
Related parties (continued)
 
c) Loans, advances, mortgages and deposit balances
 
with key management personnel
The non-independent
 
members
 
of the
 
BoD and
 
EB members
 
are
 
granted loans,
 
fixed advances
 
and mortgages
 
in the
ordinary
 
course
 
of
 
business
 
on
 
substantially
 
the
 
same
 
terms
 
and
 
conditions
 
that
 
are
 
available
 
to
 
other
 
employees,
including interest rates and
 
collateral, and neither
 
involve more than the
 
normal risk of
 
collectability nor contain
 
any other
unfavorable features for the firm. Independent BoD members are granted loans and mortgages in the ordinary course of
business at general market conditions.
Outstanding balances with key management personnel were
 
as follows.
 i 
 
 
 
 
 
Loans, advances and mortgages to key management
 
personnel
1
USD m, except where indicated
2023
2022
Balance at the beginning of the year
 i 28
 i 28
Balance at the end of the year
2
 i 55
 i 28
Balance at the end of the year (CHF m)
2, 3
 i 46
 i 26
1 All loans are secured loans.
 
2 There were USD
 i 14
m (CHF
 i 12
m) unused uncommitted credit facilities as of 31 December 2023 and no unused uncommitted credit facilities as of 31 December 2022.
 
3 Swiss franc
amounts disclosed represent the respective US dollar amounts translated at the relevant year-end
 
closing exchange rate.
 / 
 
In
 
addition,
 
there
 
were
 
USD
 i 21
m
 
(CHF
 i 18
m)
 
outstanding
 
deposit
 
balances
 
with
 
key
 
management
 
personnel
 
as
 
of
31 December 2023.
d) Other related-party transactions with entities controlled
 
by key management personnel
In 2023 and 2022, UBS AG did not enter into transactions with entities,
 
over whom key management personnel or their
close
 
family
 
members
 
have
 
solely
 
or
 
jointly
 
a
 
direct
 
or
 
indirect
 
significant
 
influence
 
and
 
as
 
of
 
31 December
 
2023,
31 December
 
2022
 
and
 
31 December
 
2021,
 
there
 
were
 
no
 
outstanding
 
balances
 
related
 
to
 
such
 
transactions.
Furthermore, in
 
2023 and
 
2022, such
 
entities did
 
not sell any
 
goods or
 
provide any
 
services to
 
UBS AG,
 
and therefore
did not
 
receive
 
any fees
 
from
 
UBS
 
AG. UBS
 
AG also
 
did not
 
provide
 
services to
 
such
 
entities
 
in 2023
 
and
 
2022, and
therefore also received no fees.
e) Transactions with associates and joint ventures
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans to and outstanding receivables from associates
 
and joint ventures
USD m
2023
2022
Carrying amount at the beginning of the year
 i 217
 i 251
Additions
 i 664
 i 402
Reductions
( i 716)
( i 438)
Foreign currency translation
 i 18
 i 1
Carrying amount at the end of the year
 
 i 183
 i 217
of which: unsecured loans and receivables
 i 174
 i 209
Other transactions with associates and
 
joint ventures
As of or for the year ended
USD m
31.12.23
31.12.22
Payments to associates and joint ventures for goods and services
 
received
 i 155
 i 138
Fees received for services provided to associates and joint ventures
 i 10
 i 4
Liabilities to associates and joint ventures
 i 103
 i 90
Commitments and contingent liabilities to associates
 
and joint ventures
 i 8
 i 7
 / 
›
Refer to Note 28 for an overview of investments
 
in associates and joint ventures
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
237
Note 30
 
Related parties (continued)
f) Receivables and payables from / to UBS Group AG
 
and other subsidiaries of UBS Group AG
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USD m
31.12.23
31.12.22
Receivables
Amounts due from banks
1
 i 14,752
 i 0
Cash collateral receivables on derivative instruments
 i 312
 i 1
Loans and advances to customers
 i 4,889
 i 2,807
Other financial assets measured at amortized cost
 i 232
 i 147
Financial assets at fair value held for trading
 i 325
 i 146
Derivative financial instruments
 i 3,031
 i 1
Payables
Amounts due to banks
 i 364
 i 0
Cash collateral payables on derivative instruments
 i 1,447
 i 0
Customer deposits
 i 3,069
 i 2,119
Funding from UBS Group AG measured at amortized cost
 i 67,282
 i 56,147
Other financial liabilities measured at amortized cost
 i 2,574
 i 1,985
Derivative financial instruments
 i 2,032
 i 0
Other financial liabilities designated at fair value
2
 i 2,995
 i 1,796
1 Reflects funding provided to Credit Suisse.
 
2 Mainly represents funding recognized from UBS Group AG that is designated at fair value.
 
Refer to Note 18b for more information.
 / 
 
 i 
 
Note 31
 
Invested assets and net new money
 
The following
 
disclosures
 
provide
 
a breakdown
 
of UBS AG’s
 
invested assets
 
and a
 
presentation
 
of their
 
development,
including net new money,
 
as required by the Swiss Financial Market
 
Supervisory Authority (FINMA).
Invested assets
Invested assets consist of all
 
client assets managed by or
 
deposited with UBS AG for investment purposes. Invested
 
assets
include managed
 
fund assets,
 
managed institutional
 
assets, discretionary
 
and advisory
 
wealth management
 
portfolios,
fiduciary deposits, time deposits, savings accounts, and
 
wealth management securities or brokerage
 
accounts. All assets
held
 
for
 
purely
 
transactional
 
purposes
 
and
 
custody-only
 
assets,
 
including
 
corporate
 
client
 
assets
 
held
 
for
 
cash
management and transactional purposes,
 
are excluded from
 
invested assets, as UBS AG only
 
administers the assets and
does not offer
 
advice on how they
 
should be invested. Also excluded
 
are non-bankable
 
assets (e.g., art collections)
 
and
deposits from third-party banks for
 
funding or trading purposes.
Discretionary assets are defined
 
as client assets
 
that UBS AG decides how
 
to invest. Other invested
 
assets are those where
the client ultimately
 
decides how the
 
assets are invested.
 
When a single
 
product is created
 
in one business
 
division and
sold
 
in another,
 
it is
 
counted
 
in
 
both
 
the
 
business
 
division
 
managing
 
the
 
investment
 
and the
 
one
 
distributing
 
it. This
results
 
in
 
double
 
counting
 
within
 
UBS AG’s
 
total
 
invested
 
assets
 
and
 
net
 
new
 
money,
 
as
 
both
 
business
 
divisions
 
are
independently providing a service to their respective clients,
 
and both add value and generate revenue.
Net new money
Net new money in a reporting
 
period is the amount of invested assets
 
entrusted to UBS AG by new and
 
existing clients,
less those withdrawn by existing clients and clients who terminated
 
relationships with UBS AG.
Net new
 
money is
 
calculated using the
 
direct method,
 
under which
 
inflows and
 
outflows to
 
/ from
 
invested assets are
determined at
 
the client level,
 
based on transactions.
 
Interest and dividend
 
income from
 
invested assets
 
are not counted
 
as
net new money inflows.
 
Market and currency
 
movements,
 
as well as fees, commissions
 
and interest on loans
 
charged,
 
are
excluded from net new money,
 
as are effects resulting
 
from any acquisition or divestment
 
of a UBS subsidiary or business.
Reclassifications between invested
 
assets
 
and
 
custody-only assets
 
as
 
a
 
result of
 
a
 
change
 
in
 
service level
 
delivered are
generally treated as net new
 
money flows.
 
However, where the change in
 
service level directly results from an externally
imposed regulation
 
or a strategic
 
decision by
 
UBS AG to exit
 
a market or
 
specific service
 
offering,
 
the one-time
 
net effect is
reported as
Other effects
.
The Investment Bank does not track
 
invested assets and net new money. However,
 
when a client is transferred from the
Investment Bank
 
to another
 
business division,
 
this may
 
produce net
 
new money
 
even though
 
the client’s
 
assets
 
were
already with UBS AG.
 
In 2023 UBS AG has
 
changed its accounting policy for net new
 
money and invested assets to
 
include its share of net new
money and
 
invested assets
 
from associates,
 
to better
 
reflect the
 
business strategy
 
and aligned
 
with the
 
equity method
accounting applied to
 
these entities. Comparative
 
figures in the tables
 
below have been
 
restated to reflect
 
this change,
resulting in an increase to
 
invested assets as of
 
31 December 2022 of
 
USD
 i 24
bn and an increase
 
to net new money
 
for
2022 of USD
 i 8
bn, all relating to Asset Management.
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
238
Note 31
 
Invested assets and net new money (continued)
 
 i 
 
 
 
 
 
 
 
 
 
 
Invested assets and net new money
As of or for the year ended
USD bn
31.12.23
31.12.22
1
Fund assets managed by UBS
 i 429
 i 390
Discretionary assets
 i 1,674
 i 1,464
Other invested assets
 i 2,402
 i 2,127
Total invested assets
2
 i 4,505
 i 3,981
of which: double counts
 i 411
 i 340
Net new money
2
 i 112
 i 76
1 Comparative figures have been restated to include net new money and invested assets from associates.
 
2 Includes double counts.
 / 
 
 i 
 
 
 
 
 
 
 
 
 
Development of invested assets
USD bn
31.12.23
31.12.22
1
Total invested assets at the beginning of the year
2
 i 3,981
 i 4,614
Net new money
 i 112
 i 76
Market movements
3
 i 379
( i 596)
Foreign currency translation
 i 69
( i 74)
Other effects
( i 37)
( i 40)
of which: acquisitions / (divestments)
( i 25)
( i 19)
Total invested assets at the end of the year
2
 i 4,505
 i 3,981
1 Comparative figures have been restated to include net new money and invested assets from associates.
 
2 Includes double counts.
 
3 Includes interest and dividend income.
 / 
 
 
 i 
 
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.
 i 
 
 
 
 
 
 
 
 
 
 
 
Closing exchange rate
Average rate
1
As of
For the year ended
31.12.23
31.12.22
31.12.23
31.12.22
31.12.21
1 CHF
 i 1.19
 i 1.08
 i 1.11
 i 1.05
 i 1.09
1 EUR
 i 1.10
 i 1.07
 i 1.08
 i 1.05
 i 1.18
1 GBP
 i 1.28
 i 1.21
 i 1.25
 i 1.23
 i 1.37
100 JPY
 i 0.71
 i 0.76
 i 0.71
 i 0.76
 i 0.91
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.
 / 
 
 i 
 
Note 33
 
Main differences between IFRS Accounting Standards
 
and Swiss GAAP
 
The consolidated financial statements of UBS AG are prepared in accordance with IFRS Accounting Standards. The Swiss
Financial
 
Market
 
Supervisory
 
Authority
 
(FINMA)
 
requires
 
financial
 
groups
 
presenting
 
financial
 
statements
 
under
 
IFRS
Accounting Standards
 
to provide
 
a narrative
 
explanation
 
of the
 
main differences
 
between
 
IFRS Accounting
 
Standards
and Swiss
 
generally accepted
 
accounting principles
 
(GAAP)
 
(the FINMA
 
Accounting Ordinance,
 
FINMA Circular
 
2020/1
“Accounting – banks”
 
and the Banking
 
Ordinance (the
 
BO)). Included in
 
this Note are
 
the significant differences
 
in the
recognition and
 
measurement between
 
IFRS Accounting
 
Standards and
 
the provisions
 
of the
 
BO and
 
the guidelines
 
of
FINMA governing true and fair view financial statement reporting
 
pursuant to Art. 25 to Art. 42 of the BO.
1. Consolidation
Under
 
IFRS
 
Accounting
 
Standards,
 
all
 
entities
 
that
 
are
 
controlled
 
by the
 
holding
 
entity
 
are
 
consolidated.
 
Under
 
Swiss
GAAP controlled
 
entities deemed
 
immaterial to a
 
group or
 
those held only
 
temporarily are
 
exempt from
 
consolidation,
but
 
instead
 
are
 
recorded
 
as
 
participations
 
accounted
 
for
 
under
 
the
 
equity
 
method
 
of
 
accounting
 
or
 
as
 
financial
investments measured at the lower of cost or market
 
value.
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
239
Note 33
 
Main differences between IFRS Accounting Standards
 
and Swiss GAAP (continued)
2. Classification and measurement of financial assets
Under
 
IFRS
 
Accounting
 
Standards,
 
debt
 
instruments
 
are
 
measured
 
at
 
amortized
 
cost,
 
fair
 
value
 
through
 
other
comprehensive
 
income
 
(FVOCI)
 
or
 
fair
 
value
 
through
 
profit
 
or
 
loss
 
(FVTPL),
 
depending
 
on
 
the
 
nature
 
of
 
the
 
business
model within which the
 
particular asset is
 
held and the characteristics
 
of the contractual cash
 
flows of the
 
asset. Equity
instruments are accounted for
 
at FVTPL by
 
UBS. Under Swiss GAAP, trading assets and derivatives are
 
measured at FVTPL,
in
 
line with
 
IFRS
 
Accounting
 
Standards.
 
However,
 
non-trading
 
debt
 
instruments
 
are
 
generally
 
measured
 
at
 
amortized
cost, even
 
when the
 
assets are
 
managed on
 
a fair
 
value basis.
 
In addition,
 
the measurement
 
of financial
 
assets in
 
the
form of securities
 
depends on the nature
 
of the asset:
 
debt instruments not
 
held to maturity,
 
i.e., instruments available
for sale, and equity instruments with no permanent
 
holding intent, are classified as
Financial investments
 
and measured
at the lower of
 
(amortized) cost or market
 
value. Market value adjustments
 
up to the original
 
cost amount and realized
gains or
 
losses upon
 
disposal
 
of the
 
investment are
 
recorded
 
in the
 
income statement
 
as
Other income
from
ordinary
activities.
Equity
 
instruments
 
with
 
a
 
permanent
 
holding
 
intent
 
are
 
classified
 
as
 
participations
 
in
Non-consolidated
investments
 
in
 
subsidiaries
 
and
 
other
 
participations
 
and
 
are
 
measured
 
at
 
cost
 
less
 
impairment.
 
Impairment
 
losses
 
are
recorded in the
 
income statement as
Impairment of investments
 
in non-consolidated subsidiaries
 
and other participations.
Reversals of impairments up to the original cost amount and realized gains or losses upon disposal of the investment are
recorded as
Extraordinary income / Extraordinary expenses
.
3. Fair value option applied to financial liabilities
Under IFRS
 
Accounting Standards,
 
UBS applies
 
the fair
 
value option
 
to certain
 
financial liabilities
 
not held
 
for trading.
Instruments for which the fair value option is applied are accounted for at FVTPL. The
 
amount of change in the fair value
attributable to
 
changes in
 
UBS’s own
 
credit is
 
presented in
Other comprehensive
 
income
 
directly within
Retained earnings
.
The fair value option is applied primarily to issued structured
 
debt instruments, certain non-structured
 
debt instruments,
certain payables under repurchase agreements and cash collateral on securities lending agreements, amounts due under
unit-linked investment contracts, and brokerage
 
payables.
Under Swiss
 
GAAP, the
 
fair value
 
option can
 
only be
 
applied to
 
structured debt
 
instruments consisting
 
of a
 
debt host
contract and
 
one or
 
more embedded
 
derivatives that
 
do not
 
relate to
 
own equity.
 
Furthermore, unrealized
 
changes in
fair value
 
attributable to
 
changes in
 
UBS’s own
 
credit are
 
not recognized,
 
whereas realized
 
own credit
 
is recognized
 
in
Net trading income
.
4. Allowances and provisions for credit losses
Swiss GAAP permit use
 
of IFRS Accounting Standards for
 
accounting for allowances and
 
provisions for credit losses based
on an expected credit loss (ECL) model. UBS has chosen to
 
apply the IFRS 9 ECL approach to those exposures
 
that are in
the ECL scope of both frameworks, IFRS Accounting Standards
 
and Swiss GAAP.
For the small residual
 
exposures within the scope
 
of Swiss GAAP ECL
 
requirements, which are
 
not subject to ECL
 
under
IFRS Accounting Standards due to classification differences,
 
UBS applies alternative approaches.
 
–
For exposures for which Pillar 1 internal ratings-based models are applied to measure credit risk, ECL is determined by
the regulatory expected loss (EL), with an
 
add-on for scaling up to the
 
residual maturity of exposures maturing beyond
the next
 
12 months,
 
as appropriate.
 
For detailed
 
information on
 
regulatory EL,
 
refer to
 
the “Risk
 
management and
control”
 
section of this report.
 
–
For exposures for
 
which the
 
Pillar 1 standardized
 
approach is
 
used to
 
measure credit
 
risk, ECL is
 
determined using
 
a
portfolio approach
 
that derives
 
a conservative
 
probability of
 
default (PD)
 
and a
 
conservative loss
 
given default
 
(LGD)
for the entire portfolio.
 
5. Hedge accounting
Under IFRS Accounting
 
Standards, when cash
 
flow hedge accounting is
 
applied, the fair value
 
gain or loss
 
on the effective
portion of
 
a derivative
 
designated
 
as a
 
cash flow
 
hedge
 
is recognized
 
initially in
 
equity and
 
reclassified
 
to the
 
income
statement when
 
certain conditions
 
are met.
 
When fair
 
value hedge
 
accounting is
 
applied, the
 
fair value
 
change of
 
the
hedged item attributable to the hedged risk is reflected in the measurement of the hedged item and is recognized in the
income statement
 
along with
 
the change
 
in the
 
fair value
 
of the
 
hedging derivative.
 
Under Swiss
 
GAAP,
 
the effective
portion of the fair value change of a derivative
 
instrument designated as a cash flow
 
or as a fair value hedge is deferred
on the balance sheet as
Other assets
 
or
Other liabilities
. The carrying amount of the hedged item designated in fair value
hedges is not adjusted for fair value changes attributable
 
to the hedged risk.
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
240
Note 33
 
Main differences between IFRS Accounting Standards
 
and Swiss GAAP (continued)
 
6. Goodwill and intangible assets
Under IFRS Accounting Standards,
 
goodwill acquired in a
 
business combination is not amortized
 
but tested annually for
impairment. Intangible
 
assets with
 
an indefinite
 
useful life
 
are
 
also not
 
amortized but
 
tested annually
 
for impairment.
Under Swiss GAAP,
 
goodwill and intangible assets with indefinite useful lives are
 
amortized over a period not exceeding
five years, unless a longer useful life, which may
 
not exceed
 i 10
 
years, can be justified. In addition, these assets are tested
annually for impairment.
7. Post-employment benefit plans
Swiss GAAP
 
permit the
 
use of
 
IFRS Accounting
 
Standards
 
or Swiss
 
accounting standards
 
for post-employment
 
benefit
plans, with the election made on a plan-by-plan basis.
UBS has elected to
 
apply IAS 19 for the
 
non-Swiss defined benefit
 
plans in the UBS AG
 
standalone financial statements
and Swiss
 
GAAP (FER 16)
 
for the
 
Swiss pension
 
plan in
 
the UBS
 
AG and
 
the UBS
 
Switzerland
 
AG standalone
 
financial
statements. The
 
requirements of
 
Swiss GAAP
 
are better
 
aligned with
 
the specific
 
nature of
 
Swiss pension
 
plans, which
are hybrid in
 
that they combine
 
elements of defined
 
contribution and
 
defined benefit
 
plans, but are
 
treated as defined
benefit plans
 
under IFRS
 
Accounting Standards
 
.
 
Key differences
 
between
 
Swiss GAAP
 
and IFRS
 
Accounting Standards
include
 
the
 
treatment
 
of
 
dynamic
 
elements,
 
such
 
as
 
future
 
salary
 
increases
 
and
 
future
 
interest
 
credits
 
on
 
retirement
savings, which are not considered under the
 
static method used in accordance with
 
Swiss GAAP. Also, the discount rate
used to determine the defined
 
benefit obligation in accordance with
 
IFRS Accounting Standards is based
 
on the yield of
high-quality corporate bonds of the market in the respective pension plan country. The discount rate used in accordance
with Swiss GAAP (i.e., the technical interest rate) is determined by the Pension Foundation Board based on the expected
returns of the Board’s investment strategy.
For defined benefit plans, IFRS Accounting Standards
 
require the full defined benefit obligation net of the
 
plan assets to
be
 
recorded
 
on
 
the
 
balance
 
sheet
 
subject
 
to
 
the
 
asset
 
ceiling
 
rules,
 
with
 
changes
 
resulting
 
from
 
remeasurements
recognized
 
directly
 
in
 
equity.
 
However,
 
for
 
non-Swiss
 
defined
 
benefit
 
plans
 
for
 
which
 
IFRS
 
Accounting
 
Standards
 
are
elected, changes
 
due to
 
remeasurements are
 
recognized in
 
the income
 
statement
 
of UBS
 
AG standalone
 
under Swiss
GAAP.
Swiss GAAP require
 
employer contributions
 
to the pension
 
fund to be
 
recognized as personnel
 
expenses in the
 
income
statement. Swiss GAAP
 
also require an
 
assessment of whether,
 
based on
 
the pension fund’s
 
financial statements prepared
in accordance
 
with Swiss
 
accounting standards
 
(FER 26),
 
an economic
 
benefit to,
 
or obligation
 
of, the
 
employer arises
from
 
the
 
pension
 
fund
 
that
 
is
 
recognized
 
in
 
the
 
balance
 
sheet
 
when
 
conditions
 
are
 
met.
 
Conditions
 
for
 
recording
 
a
pension asset
 
or liability
 
would be
 
met if,
 
for example,
 
an employer
 
contribution reserve
 
is available or
 
the employer
 
is
required to contribute to the reduction of a pension deficit
 
(on an FER 26 basis).
8. Leasing
Under
 
IFRS
 
Accounting
 
Standards,
 
a
 
single
 
lease
 
accounting
 
model
 
applies
 
that
 
requires
 
UBS
 
to
 
record
 
a
 
right-of-use
(RoU) asset
 
and a
 
corresponding lease
 
liability on
 
the balance
 
sheet when
 
UBS is
 
a lessee
 
in a
 
lease arrangement.
 
The
RoU asset
 
and the
 
lease liability
 
are recognized
 
when
 
UBS acquires
 
control of
 
the physical
 
use of
 
the asset.
 
The lease
liability
 
is
 
measured
 
based
 
on
 
the
 
present
 
value
 
of
 
the
 
lease
 
payments
 
over
 
the
 
lease
 
term,
 
discounted
 
using
 
UBS’s
unsecured borrowing
 
rate. The
 
RoU asset
 
is recorded
 
at an
 
amount equal
 
to the
 
lease liability
 
but is
 
adjusted for
 
rent
prepayments, initial direct costs, any
 
costs to refurbish the leased
 
asset and / or lease
 
incentives received. The RoU asset
is depreciated over the shorter of the lease term or the
 
useful life of the underlying asset.
Under
 
Swiss
 
GAAP,
 
leases
 
that
 
transfer
 
substantially
 
all
 
the
 
risks
 
and
 
rewards,
 
but
 
not
 
necessarily
 
legal
 
title
 
in
 
the
underlying assets, are
 
classified as finance
 
leases. All other
 
leases are
 
classified as operating
 
leases. Whereas finance
 
leases
are
 
recognized
 
on
 
the
 
balance
 
sheet
 
and
 
measured
 
in
 
line
 
with
 
IFRS
 
Accounting
 
Standards,
 
operating
 
leases
 
are
 
not
recognized on
 
the balance
 
sheet, with
 
payments recognized
 
as
General and
 
administrative
 
expenses
 
on a
 
straight-line
basis over the lease term, which commences with control of the physical use of the asset. Lease incentives are treated as
a reduction of rental expense and recognized on a consistent
 
basis over the lease term.
9. Netting of derivative assets and liabilities
Under IFRS Accounting Standards
 
,
 
derivative assets, derivative liabilities
 
and related cash collateral
 
not settled to market
are
 
reported
 
on
 
a
 
gross
 
basis
 
unless
 
the
 
restrictive
 
netting
 
requirements
 
under
 
IFRS
 
Accounting
 
Standards
 
are
 
met:
(i) existence
 
of
 
master
 
netting
 
agreements
 
and
 
related
 
collateral
 
arrangements
 
that
 
are
 
unconditional
 
and
 
legally
enforceable,
 
in both
 
the normal
 
course of
 
business and
 
the event
 
of default,
 
bankruptcy
 
or insolvency
 
of UBS
 
and its
counterparties;
 
and
 
(ii) UBS’s
 
intention
 
to
 
either
 
settle
 
on
 
a
 
net
 
basis
 
or
 
to
 
realize
 
the
 
asset
 
and
 
settle
 
the
 
liability
simultaneously. Under Swiss GAAP,
 
derivative assets, derivative liabilities and related cash collateral not settled to
 
market
are
 
generally
 
reported
 
on
 
a
 
net
 
basis,
 
provided
 
the
 
master
 
netting
 
and
 
the
 
related
 
collateral
 
agreements
 
are
 
legally
enforceable in the event of default, bankruptcy
 
or insolvency of UBS’s counterparties.
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
241
 
Note 33
 
Main differences between IFRS Accounting Standards
 
and Swiss GAAP (continued)
10. Negative interest
Under IFRS Accounting
 
Standards, negative
 
interest income
 
arising on a
 
financial asset
 
does not meet
 
the definition
 
of
interest
 
income
 
and,
 
therefore,
 
negative
 
interest
 
on
 
financial
 
assets
 
and
 
negative
 
interest
 
on
 
financial
 
liabilities
 
are
presented
 
within interest
 
expense and
 
interest
 
income,
 
respectively.
 
Under Swiss
 
GAAP,
 
negative interest
 
on financial
assets is presented
 
within interest income and
 
negative interest on financial
 
liabilities is presented within
 
interest expense.
11. Extraordinary income and expense
Certain non-recurring
 
and non-operating
 
income and
 
expense items,
 
such as realized
 
gains or
 
losses from
 
the disposal
of participations, fixed and intangible
 
assets, and reversals of impairments of
 
participations and fixed assets, are classified
as extraordinary items under Swiss GAAP.
 
This distinction is not available under IFRS Accounting Standards.
p
 
 i 
 
Note 34
 
Supplemental guarantor information required
 
under SEC regulations
Joint liability of UBS Switzerland AG
In 2015, the Personal & Corporate Banking
 
and Wealth Management businesses booked in Switzerland were transferred
from
 
UBS AG
 
to
 
UBS
 
Switzerland AG
 
through
 
an
 
asset
 
transfer
 
in accordance
 
with
 
the
 
Swiss
 
Merger
 
Act.
 
Under
 
the
terms of the asset transfer agreement,
 
UBS Switzerland AG assumed joint liability for
 
contractual obligations of UBS AG
existing on
 
the asset
 
transfer date,
 
including the
 
full and
 
unconditional guarantee
 
of certain
 
registered
 
debt securities
issued by UBS AG. To
 
reflect this joint liability,
 
UBS Switzerland AG is presented in a separate
 
column as a subsidiary co-
guarantor.
The
 
joint
 
liability
 
of
 
UBS
 
Switzerland AG
 
for
 
contractual
 
obligations
 
of
 
UBS AG
 
decreased
 
in
 
2023
 
by
 
USD
 i 1.0
bn
 
to
USD
 i 3.3
bn as of 31 December 2023. The
 
decrease substantially relates to a
 
combination of contractual maturities, early
extinguishments, fair value movements and foreign currency effects.
 / 
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Supplemental guarantor consolidated
 
income statement
USD m
UBS AG
(standalone)
1
UBS
Switzerland AG
(standalone)
1
Other
 
2
Elimination
entries
UBS AG
(consolidated)
For the year ended 31 December 2023
Interest income from financial instruments measured at
 
amortized cost and
fair value through other comprehensive income
 i 11,181
 i 7,229
 i 9,057
( i 5,022)
 i 22,444
Interest expense from financial instruments measured at
 
amortized cost
( i 14,797)
( i 3,055)
( i 7,699)
 i 5,907
( i 19,643)
Net interest income from financial instruments measured
 
at fair value through
profit or loss and other
 i 891
 i 785
 i 952
( i 864)
 i 1,765
Net interest income
( i 2,725)
 i 4,959
 i 2,310
 i 22
 i 4,566
Other net income from financial instruments measured
 
at fair value through
profit or loss
 i 7,879
 i 1,031
 i 1,105
( i 81)
 i 9,934
Fee and commission income
 i 2,581
 i 5,067
 i 13,350
( i 598)
 i 20,399
Fee and commission expense
( i 705)
( i 456)
( i 1,214)
 i 585
( i 1,790)
Net fee and commission income
 i 1,876
 i 4,611
 i 12,136
( i 13)
 i 18,610
Other income
 i 2,994
 i 228
 i 1,542
( i 4,198)
 i 566
Total revenues
 i 10,023
 i 10,829
 i 17,092
( i 4,269)
 i 33,675
Credit loss expense / (release)
 i 18
 i 57
 i 31
 i 37
 i 143
Personnel expenses
 i 3,356
 i 2,201
 i 10,097
 i 0
 i 15,655
General and administrative expenses
 i 3,951
 i 3,840
 i 6,155
( i 2,828)
 i 11,118
Depreciation, amortization and impairment of non-financial
 
assets
 i 888
 i 411
 i 1,048
( i 109)
 i 2,238
Operating expenses
 i 8,195
 i 6,452
 i 17,301
( i 2,937)
 i 29,011
Operating profit / (loss) before tax
 i 1,810
 i 4,320
( i 240)
( i 1,370)
 i 4,521
Tax expense / (benefit)
 i 251
 i 779
 i 224
( i 48)
 i 1,206
Net profit / (loss)
 i 1,559
 i 3,540
( i 463)
( i 1,321)
 i 3,315
Net profit / (loss) attributable to non-controlling interests
 i 0
 i 0
 i 25
 i 0
 i 25
Net profit / (loss) attributable to shareholders
 i 1,559
 i 3,540
( i 488)
( i 1,321)
 i 3,290
1 Amounts presented for UBS
 
AG standalone and UBS
 
Switzerland AG standalone represent
 
IFRS standalone information. Refer
 
to the UBS AG
 
standalone and UBS Switzerland
 
AG standalone financial statements
under “Complementary
 
financial information”
 
at ubs.com/investors
 
for information
 
prepared
 
in accordance
 
with Swiss
 
GAAP.
 
2 The
 
”Other subsidiaries“
 
column includes
 
consolidated information
 
for the
UBS Americas Holding LLC, UBS Europe SE and UBS Asset Management AG significant sub-groups,
 
as well as standalone information for other subsidiaries.
 / 
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
242
Note 34
 
Supplemental guarantor information required
 
under SEC regulations (continued)
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Supplemental guarantor consolidated
 
statement of comprehensive income
USD m
UBS AG
(standalone)
1
UBS
Switzerland AG
(standalone)
1
Other
 
2
Elimination
entries
UBS AG
(consolidated)
For the year ended 31 December 2023
Comprehensive income attributable to shareholders
Net profit / (loss)
 i 1,559
 i 3,540
( i 488)
( i 1,321)
 i 3,290
Other comprehensive income
Other comprehensive income that may be reclassified to the income
statement
Foreign currency translation, net of tax
 i 79
 i 1,523
 i 222
( i 975)
 i 849
Financial assets measured at fair value through other comprehensive
income, net of tax
3
 i 4
 i 1
 i 0
 i 5
Cash flow hedges, net of tax
 i 707
 i 679
 i 23
( i 9)
 i 1,400
Cost of hedging, net of tax
( i 19)
 i 0
( i 19)
Total other comprehensive income that may be reclassified to the
income statement, net of tax
 i 771
 i 2,202
 i 245
( i 984)
 i 2,235
Other comprehensive income that will not be reclassified to the
income statement
Defined benefit plans, net of tax
( i 82)
( i 36)
( i 19)
 i 0
( i 136)
Own credit on financial liabilities designated at fair value, net of tax
( i 790)
( i 790)
Total other comprehensive income that will not be reclassified to the
income statement, net of tax
( i 872)
( i 36)
( i 19)
 i 0
( i 927)
Total other comprehensive income
( i 101)
 i 2,167
 i 226
( i 984)
 i 1,308
Total comprehensive income attributable to shareholders
 i 1,458
 i 5,707
( i 262)
( i 2,305)
 i 4,598
Total comprehensive income attributable to non-controlling interests
 i 27
 i 27
Total comprehensive income
 i 1,458
 i 5,707
( i 235)
( i 2,305)
 i 4,625
1 Amounts presented for UBS
 
AG standalone and UBS
 
Switzerland AG standalone represent
 
IFRS standalone information. Refer
 
to the UBS AG
 
standalone and UBS Switzerland
 
AG standalone financial statements
under “Complementary
 
financial information”
 
at ubs.com/in
 
vestors for
 
information prepared
 
in accordance
 
with Swiss
 
GAAP.
 
2 The
 
”Other subsidiaries“
 
column includes
 
consolidated information
 
for the
UBS Americas Holding LLC, UBS Europe SE and UBS Asset Management AG
 
significant sub-groups, as well as standalone information for other
 
subsidiaries.
 
3 Effective 1 April 2022, a portfolio of assets previously
classified as Financial assets measured at fair value through other comprehensive income was reclassified to Other financial assets
 
measured at amortized cost. Refer to Note 13a for more information.
 / 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
243
Note 34
 
Supplemental guarantor information required
 
under SEC regulations (continued)
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Supplemental guarantor consolidated
 
balance sheet
USD m
UBS AG
(standalone)
1
UBS
Switzerland AG
(standalone)
1
Other
 
2
Elimination
entries
UBS AG
(consolidated)
As of 31 December 2023
Assets
Cash and balances at central banks
 i 49,620
 i 87,044
 i 35,142
 i 171,806
Amounts due from banks
 i 61,579
 i 6,241
 i 16,696
( i 56,311)
 i 28,206
Receivables from securities financing transactions measured at
amortized cost
 i 61,116
 i 63
 i 37,022
( i 24,073)
 i 74,128
Cash collateral receivables on derivative instruments
 i 34,048
 i 1,640
 i 9,124
( i 12,512)
 i 32,300
Loans and advances to customers
 i 91,940
 i 255,205
 i 93,581
( i 35,093)
 i 405,633
Other financial assets measured at amortized cost
 i 24,403
 i 9,149
 i 23,429
( i 2,647)
 i 54,334
Total financial assets measured at amortized cost
 i 322,705
 i 359,343
 i 214,995
( i 130,636)
 i 766,407
Financial assets at fair value held for trading
 i 121,947
 i 101
 i 14,463
( i 1,412)
 i 135,098
of which: assets pledged as collateral that may be
sold or repledged by counterparties
 i 51,325
 i 0
 i 5,930
( i 12,731)
 i 44,524
Derivative financial instruments
 i 126,916
 i 5,845
 i 40,190
( i 41,223)
 i 131,728
Brokerage receivables
 i 12,924
 i 7,959
 i 0
 i 20,883
Financial assets at fair value not held for trading
 i 46,658
 i 10,022
 i 29,688
( i 22,613)
 i 63,754
Total financial assets measured at fair value through profit or loss
 i 308,444
 i 15,968
 i 92,300
( i 65,249)
 i 351,463
Financial assets measured at fair value
 
through other comprehensive income
 i 1,957
 i 276
 i 2,233
Investments in subsidiaries and associates
 i 52,134
 i 37
 i 2
( i 51,190)
 i 983
Property, equipment and software
 i 5,842
 i 1,798
 i 3,687
( i 284)
 i 11,044
Goodwill and intangible assets
 i 212
 i 5,974
 i 79
 i 6,265
Deferred tax assets
 i 1,488
 i 147
 i 7,633
( i 24)
 i 9,244
Other non-financial assets
 i 5,366
 i 1,748
 i 1,256
 i 7
 i 8,377
Total assets
 i 698,149
 i 379,042
 i 326,124
( i 247,298)
 i 1,156,016
Liabilities
Amounts due to banks
 
 i 55,680
 i 44,170
 i 58,769
( i 141,898)
 i 16,720
Payables from securities financing transactions measured at
amortized cost
 i 14,329
 i 336
 i 15,288
( i 24,171)
 i 5,782
Cash collateral payables on derivative instruments
 i 35,148
 i 1,076
 i 11,091
( i 12,430)
 i 34,886
Customer deposits
 i 108,279
 i 293,133
 i 118,168
 i 36,094
 i 555,673
Funding from UBS Group AG measured at amortized cost
 i 67,282
 i 67,282
Debt issued measured at amortized cost
 i 58,729
 i 11,042
 i 12
 i 0
 i 69,784
Other financial liabilities measured at amortized cost
 i 6,589
 i 2,974
 i 6,147
( i 2,997)
 i 12,713
Total financial liabilities measured at amortized cost
 i 346,036
 i 352,731
 i 209,475
( i 145,402)
 i 762,840
Financial liabilities at fair value held for trading
 i 27,280
 i 248
 i 5,508
( i 1,325)
 i 31,712
Derivative financial instruments
 i 135,272
 i 6,223
 i 40,436
( i 41,225)
 i 140,707
Brokerage payables designated at fair value
 i 30,724
 i 11,552
 i 0
 i 42,275
Debt issued designated at fair value
 i 85,424
 i 986
( i 69)
 i 86,341
Other financial liabilities designated at fair value
 i 14,392
 i 21,081
( i 8,107)
 i 27,366
Total financial liabilities measured at fair value through profit or loss
 i 293,092
 i 6,471
 i 79,564
( i 50,726)
 i 328,401
Provisions
 i 1,903
 i 208
 i 413
( i 1)
 i 2,524
Other non-financial liabilities
 i 1,572
 i 1,377
 i 3,688
 i 46
 i 6,682
Total liabilities
 i 642,602
 i 360,788
 i 293,140
( i 196,083)
 i 1,100,448
Equity attributable to shareholders
 i 55,546
 i 18,254
 i 32,649
( i 51,215)
 i 55,234
Equity attributable to non-controlling interests
 i 335
 i 0
 i 335
Total equity
 i 55,546
 i 18,254
 i 32,984
( i 51,215)
 i 55,569
Total liabilities and equity
 i 698,149
 i 379,042
 i 326,124
( i 247,298)
 i 1,156,016
1 Amounts presented for UBS AG
 
standalone and UBS Switzerland AG
 
standalone represent IFRS standalone information.
 
Refer to the UBS AG standalone
 
and UBS Switzerland AG standalone
 
financial statements,
available under “Complementary financial information” at ubs.com/investors, for information prepared
 
in accordance with Swiss GAAP.
 
2 The ”Other subsidiaries“ column includes consolidated information for the
UBS Americas Holding LLC, UBS Europe SE and UBS Asset Management AG significant sub-groups,
 
as well as standalone information for other subsidiaries.
 / 
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
244
Note 34
 
Supplemental guarantor information required
 
under SEC regulations (continued)
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Supplemental guarantor consolidated
 
statement of cash flows
USD m
UBS AG
1
UBS
Switzerland AG
1
Other
1
UBS AG
(consolidated)
For the year ended 31 December 2023
Net cash flow from / (used in) operating activities
( i 23,275)
( i 3,041)
( i 1,886)
( i 28,202)
Cash flow from / (used in) investing activities
Purchase of subsidiaries, associates and intangible assets
( i 1)
( i 3)
( i 4)
Disposal of subsidiaries, associates and intangible assets
2
 i 109
 i 109
Purchase of property, equipment and software
( i 427)
( i 287)
( i 569)
( i 1,283)
Disposal of property, equipment and software
 i 33
 i 33
Net (purchase) / redemption of financial assets measured
 
at fair value through other comprehensive
income
 i 15
 i 15
 i 30
Purchase of debt securities measured at amortized cost
( i 9,561)
( i 1,431)
( i 3,251)
( i 14,244)
Disposal and redemption of debt securities measured at amortized
 
cost
 i 4,890
 i 1,625
 i 3,920
 i 10,435
Net cash flow from / (used in) investing activities
( i 4,942)
( i 94)
 i 112
( i 4,924)
Cash flow from / (used in) financing activities
Net short-term debt issued / (repaid)
 i 7,138
( i 1)
 i 44
 i 7,181
Distributions paid on UBS AG shares
( i 6,000)
( i 6,000)
Issuance of debt designated at fair value and long-term debt measured
 
at amortized cost
3
 i 101,956
 i 2,007
 i 588
 i 104,551
Repayment of debt designated at fair value and long-term debt measured
 
at amortized cost
3
( i 84,366)
( i 1,017)
( i 159)
( i 85,541)
Net cash flows from other financing activities
( i 249)
( i 251)
( i 501)
Net activity related to group internal capital transactions and dividends
 i 3,698
( i 2,944)
( i 754)
 i 0
Net cash flow from / (used in) financing activities
 i 22,177
( i 1,954)
( i 532)
 i 19,690
Total cash flow
Cash and cash equivalents at the beginning of the year
 i 63,608
 i 86,232
 i 45,359
 i 195,200
Net cash flow from / (used in) operating, investing and financing
 
activities
( i 6,040)
( i 5,089)
( i 2,306)
( i 13,435)
Effects of exchange rate differences on cash and cash equivalents
 i 591
 i 7,860
 i 253
 i 8,704
Cash and cash equivalents at the end of the year
4
 i 58,159
 i 89,003
 i 43,307
 i 190,469
of which: cash and balances at central banks
4
 i 49,537
 i 87,044
 i 35,142
 i 171,723
of which: amounts due from banks
4
 i 2,763
 i 1,448
 i 7,866
 i 12,078
of which: money market paper
4,5
 i 5,858
 i 511
 i 299
 i 6,668
1 Cash flows generally represent a third-party
 
view from a UBS AG consolidated
 
perspective, except for Net activity
 
related to group internal capital transactions
 
and dividends.
 
2 Includes dividends received from
associates.
 
3 Includes funding from UBS Group AG to UBS AG.
 
4 Balances with an original maturity of three months or less. USD
 i 4,553
m of cash and cash equivalents were restricted.
 
5 Money market paper is
included in the balance sheet under Financial assets at fair value not held for trading, Other financial assets measured at amortized
 
cost and Financial assets at fair value held for trading.
 / 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
245
Note 34
 
Supplemental guarantor information required
 
under SEC regulations (continued)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Supplemental guarantor consolidated
 
income statement
USD m
UBS AG
(standalone)
1
UBS
Switzerland AG
(standalone)
1
Other
 
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
 i 4,824
 i 3,894
 i 4,661
( i 1,575)
 i 11,803
Interest expense from financial instruments measured at
 
amortized cost
( i 5,449)
( i 736)
( i 2,604)
 i 2,093
( i 6,696)
Net interest income from financial instruments measured
 
at fair value through
profit or loss and other
 i 881
 i 546
 i 431
( i 449)
 i 1,410
Net interest income
 i 257
 i 3,704
 i 2,488
 i 68
 i 6,517
Other net income from financial instruments measured
 
at fair value through
profit or loss
 i 5,541
 i 900
 i 940
 i 112
 i 7,493
Fee and commission income
 i 2,875
 i 4,865
 i 13,766
( i 660)
 i 20,846
Fee and commission expense
( i 684)
( i 464)
( i 1,327)
 i 652
( i 1,823)
Net fee and commission income
 i 2,191
 i 4,401
 i 12,439
( i 8)
 i 19,023
Other income
 i 6,732
 i 203
 i 3,329
( i 8,382)
 i 1,882
Total revenues
 i 14,721
 i 9,208
 i 19,197
( i 8,210)
 i 34,915
Credit loss expense / (release)
( i 17)
 i 50
( i 3)
( i 1)
 i 29
Personnel expenses
 i 3,251
 i 1,995
 i 9,835
 i 0
 i 15,080
General and administrative expenses
 i 3,374
 i 3,258
 i 5,029
( i 2,660)
 i 9,001
Depreciation, amortization and impairment of non-financial
 
assets
 i 871
 i 340
 i 744
( i 109)
 i 1,845
Operating expenses
 i 7,496
 i 5,592
 i 15,607
( i 2,769)
 i 25,927
Operating profit / (loss) before tax
 i 7,242
 i 3,566
 i 3,592
( i 5,440)
 i 8,960
Tax expense / (benefit)
( i 28)
 i 638
 i 1,083
 i 151
 i 1,844
Net profit / (loss)
 i 7,270
 i 2,928
 i 2,509
( i 5,592)
 i 7,116
Net profit / (loss) attributable to non-controlling interests
 i 0
 i 0
 i 32
 i 0
 i 32
Net profit / (loss) attributable to shareholders
 i 7,270
 i 2,928
 i 2,477
( i 5,592)
 i 7,084
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
 
2
Elimination
entries
UBS AG
(consolidated)
For the year ended 31 December 2022
Comprehensive income attributable to shareholders
Net profit / (loss)
 i 7,270
 i 2,928
 i 2,477
( i 5,592)
 i 7,084
Other comprehensive income
Other comprehensive income that may be reclassified to the income
statement
Foreign currency translation, net of tax
( i 114)
( i 197)
( i 506)
 i 298
( i 519)
Financial assets measured at fair value through other comprehensive
income, net of tax
3
( i 3)
 i 0
 i 9
 i 0
 i 6
Cash flow hedges, net of tax
( i 2,791)
( i 1,359)
( i 631)
( i 12)
( i 4,793)
Cost of hedging, net of tax
 i 45
 i 45
Total other comprehensive income that may be reclassified to the
income statement, net of tax
( i 2,863)
( i 1,555)
( i 1,128)
 i 286
( i 5,260)
Other comprehensive income that will not be reclassified to the
income statement
Defined benefit plans, net of tax
 i 170
( i 112)
 i 23
 i 0
 i 81
Own credit on financial liabilities designated at fair value, net of tax
 i 796
 i 796
Total other comprehensive income that will not be reclassified to the
income statement, net of tax
 i 966
( i 112)
 i 23
 i 0
 i 877
Total other comprehensive income
( i 1,897)
( i 1,667)
( i 1,104)
 i 286
( i 4,383)
Total comprehensive income attributable to shareholders
 i 5,373
 i 1,261
 i 1,373
( i 5,306)
 i 2,701
Total comprehensive income attributable to non-controlling interests
 i 18
 i 18
Total comprehensive income
 i 5,373
 i 1,261
 i 1,391
( i 5,306)
 i 2,719
1 Amounts presented for UBS
 
AG standalone and UBS
 
Switzerland AG standalone represent
 
IFRS standalone information. Refer
 
to the UBS AG
 
standalone and UBS Switzerland
 
AG standalone financial statements
under “Complementary
 
financial information”
 
at ubs.com/investors
 
for information
 
prepared in
 
accordance
 
with Swiss
 
GAAP.
 
2
 
The
 
”Other subsidiaries“
 
column includes
 
consolidated information
 
for the
UBS Americas Holding LLC, UBS Europe SE and UBS Asset Management AG
 
significant sub-groups, as well as standalone information for other
 
subsidiaries.
 
3 Effective 1 April 2022, a portfolio of assets previously
classified as Financial assets measured at fair value through other comprehensive income was reclassified to Other financial assets
 
measured at amortized cost. Refer to Note 13a for more information.
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
246
Note 34
 
Supplemental guarantor information required
 
under SEC regulations (continued)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Supplemental guarantor consolidated
 
balance sheet
USD m
UBS AG
(standalone)
1
UBS
Switzerland AG
(standalone)
1
Other
 
2
Elimination
entries
UBS AG
(consolidated)
As of 31 December 2022
Assets
Cash and balances at central banks
 i 48,689
 i 84,465
 i 36,291
 i 0
 i 169,445
Amounts due from banks
 i 39,691
 i 6,357
 i 19,063
( i 50,441)
 i 14,671
Receivables from securities financing transactions measured at
amortized cost
 i 51,493
 i 903
 i 34,110
( i 18,691)
 i 67,814
Cash collateral receivables on derivative instruments
 i 35,594
 i 1,221
 i 10,074
( i 11,856)
 i 35,033
Loans and advances to customers
 i 90,168
 i 229,861
 i 101,231
( i 31,233)
 i 390,027
Other financial assets measured at amortized cost
 i 24,005
 i 9,532
 i 21,880
( i 2,029)
 i 53,389
Total financial assets measured at amortized cost
 i 289,641
 i 332,339
 i 222,649
( i 114,250)
 i 730,379
Financial assets at fair value held for trading
 i 95,810
 i 173
 i 13,899
( i 1,848)
 i 108,034
of which: assets pledged as collateral that may be
sold or repledged by counterparties
 i 41,056
 i 0
 i 5,578
( i 9,892)
 i 36,742
Derivative financial instruments
 i 149,447
 i 5,925
 i 35,106
( i 40,368)
 i 150,109
Brokerage receivables
 i 9,763
 i 0
 i 7,814
 i 0
 i 17,576
Financial assets at fair value not held for trading
 i 45,302
 i 4,354
 i 26,843
( i 17,091)
 i 59,408
Total financial assets measured at fair value through profit or loss
 i 300,321
 i 10,453
 i 83,661
( i 59,308)
 i 335,127
Financial assets measured at fair value
 
through other comprehensive income
 i 1,953
 i 0
 i 286
 i 0
 i 2,239
Investments in subsidiaries and associates
 i 54,323
 i 33
 i 0
( i 53,255)
 i 1,101
Property, equipment and software
 i 5,852
 i 1,654
 i 4,077
( i 267)
 i 11,316
Goodwill and intangible assets
 i 213
 i 0
 i 6,050
 i 5
 i 6,267
Deferred tax assets
 i 1,624
 i 276
 i 7,470
( i 16)
 i 9,354
Other non-financial assets
 i 6,930
 i 1,768
 i 951
 i 4
 i 9,652
Total assets
 i 660,856
 i 346,522
 i 325,144
( i 227,087)
 i 1,105,436
Liabilities
Amounts due to banks
 
 i 41,395
 i 37,123
 i 51,555
( i 118,477)
 i 11,596
Payables from securities financing transactions measured at
amortized cost
 i 9,425
 i 247
 i 13,303
( i 18,774)
 i 4,202
Cash collateral payables on derivative instruments
 i 35,528
 i 1,518
 i 11,191
( i 11,800)
 i 36,436
Customer deposits
 i 98,628
 i 273,316
 i 132,619
 i 22,608
 i 527,171
Funding from UBS Group AG measured at amortized cost
 i 56,147
 i 0
 i 0
 i 56,147
Debt issued measured at amortized cost
 i 50,706
 i 8,965
 i 1
( i 173)
 i 59,499
Other financial liabilities measured at amortized cost
 i 4,903
 i 2,221
 i 5,554
( i 2,287)
 i 10,391
Total financial liabilities measured at amortized cost
 i 296,733
 i 323,391
 i 214,222
( i 128,903)
 i 705,442
Financial liabilities at fair value held for trading
 i 25,059
 i 183
 i 5,843
( i 1,570)
 i 29,515
Derivative financial instruments
 i 153,778
 i 6,177
 i 35,314
( i 40,363)
 i 154,906
Brokerage payables designated at fair value
 i 32,346
 i 0
 i 12,746
( i 7)
 i 45,085
Debt issued designated at fair value
 i 71,444
 i 0
 i 508
( i 110)
 i 71,842
Other financial liabilities designated at fair value
 i 17,888
 i 0
 i 17,074
( i 2,928)
 i 32,033
Total financial liabilities measured at fair value through profit or loss
 i 300,514
 i 6,360
 i 71,484
( i 44,977)
 i 333,382
Provisions
 i 1,904
 i 239
 i 1,041
( i 2)
 i 3,183
Other non-financial liabilities
 i 1,630
 i 1,019
 i 3,742
 i 98
 i 6,489
Total liabilities
 i 600,782
 i 331,009
 i 290,490
( i 173,785)
 i 1,048,496
Equity attributable to shareholders
 i 60,075
 i 15,513
 i 34,313
( i 53,303)
 i 56,598
Equity attributable to non-controlling interests
 i 342
 i 0
 i 342
Total equity
 i 60,075
 i 15,513
 i 34,655
( i 53,303)
 i 56,940
Total liabilities and equity
 i 660,856
 i 346,522
 i 325,144
( i 227,087)
 i 1,105,436
1 Amounts presented for UBS AG
 
standalone and UBS Switzerland AG
 
standalone represent IFRS standalone information.
 
Refer to the UBS AG
 
standalone and UBS Switzerland AG standalone
 
financial statements,
available under “Complementary financial information” at ubs.com/investors, for information prepared
 
in accordance with Swiss GAAP.
 
2 The ”Other subsidiaries“ column includes consolidated information for the
UBS Americas Holding LLC, UBS Europe SE and UBS Asset Management AG significant sub-groups,
 
as well as standalone information for other subsidiaries.
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
247
Note 34
 
Supplemental guarantor information required
 
under SEC regulations (continued)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Supplemental guarantor consolidated
 
statement of cash flows
USD m
UBS AG
1
UBS
Switzerland AG
1
Other
1
UBS AG
(consolidated)
For the year ended 31 December 2022
Net cash flow from / (used in) operating activities
 i 17,286
( i 1,165)
( i 5,491)
 i 10,630
Cash flow from / (used in) investing activities
Purchase of subsidiaries, associates and intangible assets
( i 3)
( i 3)
Disposal of subsidiaries, associates and intangible assets
2
 i 157
 i 453
 i 1,120
 i 1,729
Purchase of property, equipment and software
( i 562)
( i 292)
( i 624)
( i 1,478)
Disposal of property, equipment and software
 i 161
 i 161
Net (purchase) / redemption of financial assets measured
 
at fair value through other comprehensive
income
( i 943)
 i 244
( i 699)
Purchase of debt securities measured at amortized cost
( i 22,602)
( i 2,690)
( i 5,500)
( i 30,792)
Disposal and redemption of debt securities measured at amortized
 
cost
 i 14,442
 i 870
 i 3,487
 i 18,799
Net cash flow from / (used in) investing activities
( i 9,346)
( i 1,663)
( i 1,274)
( i 12,283)
Cash flow from / (used in) financing activities
Net short-term debt issued / (repaid)
( i 12,215)
( i 3)
( i 31)
( i 12,249)
Distributions paid on UBS AG shares
( i 4,200)
( i 4,200)
Issuance of debt designated at fair value and long-term debt measured
 
at amortized cost
3
 i 78,866
 i 550
 i 41
 i 79,457
Repayment of debt designated at fair value and long-term debt measured
 
at amortized cost
3
( i 66,526)
( i 860)
( i 284)
( i 67,670)
Net cash flows from other financing activities
( i 258)
( i 337)
( i 595)
Net activity related to group internal capital transactions and dividends
 i 5,217
( i 2,088)
( i 3,128)
 i 0
Net cash flow from / (used in) financing activities
 i 884
( i 2,401)
( i 3,740)
( i 5,257)
Total cash flow
Cash and cash equivalents at the beginning of the year
 i 57,895
 i 92,799
 i 57,061
 i 207,755
Net cash flow from / (used in) operating, investing and financing
 
activities
 i 8,824
( i 5,229)
( i 10,505)
( i 6,911)
Effects of exchange rate differences on cash and cash equivalents
( i 3,111)
( i 1,338)
( i 1,196)
( i 5,645)
Cash and cash equivalents at the end of the year
4
 i 63,608
 i 86,232
 i 45,359
 i 195,200
of which: cash and balances at central banks
4
 i 48,607
 i 84,465
 i 36,291
 i 169,363
of which: amounts due from banks
4
 i 2,957
 i 1,550
 i 8,821
 i 13,329
of which: money market paper
4,5
 i 12,044
 i 216
 i 248
 i 12,508
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
 i 4,253
m of cash and cash equivalents
 
were restricted.
 
5 Money market paper is
 
included in the balance sheet under
 
Financial assets at fair value
held for trading, Financial assets measured at fair value through other comprehensive income,
 
Financial assets at fair value not held for trading and Other financial assets measured at amortized cost.
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
248
Note 34
 
Supplemental guarantor information required
 
under SEC regulations (continued)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Supplemental guarantor consolidated
 
income statement
USD m
UBS AG
(standalone)
1
UBS
Switzerland AG
(standalone)
1
Other
 
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
 i 3,130
 i 3,652
 i 2,456
( i 703)
 i 8,534
Interest expense from financial instruments measured at
 
amortized cost
( i 2,847)
( i 520)
( i 1,024)
 i 1,025
( i 3,366)
Net interest income from financial instruments measured
 
at fair value through
profit or loss and other
 i 1,229
 i 254
 i 228
( i 274)
 i 1,437
Net interest income
 i 1,512
 i 3,386
 i 1,660
 i 48
 i 6,605
Other net income from financial instruments measured
 
at fair value through
profit or loss
 i 3,751
 i 807
 i 1,369
( i 83)
 i 5,844
Fee and commission income
 i 3,837
 i 5,204
 i 16,151
( i 770)
 i 24,422
Fee and commission expense
( i 810)
( i 481)
( i 1,450)
 i 755
( i 1,985)
Net fee and commission income
 i 3,027
 i 4,723
 i 14,702
( i 14)
 i 22,438
Other income
 i 7,555
 i 221
 i 1,560
( i 8,396)
 i 941
Total revenues
 i 15,845
 i 9,137
 i 19,291
( i 8,445)
 i 35,828
Credit loss expense / (release)
( i 65)
( i 98)
( i 10)
 i 24
( i 148)
Personnel expenses
 i 3,401
 i 2,098
 i 10,161
 i 1
 i 15,661
General and administrative expenses
 i 4,255
 i 3,442
 i 4,474
( i 2,696)
 i 9,476
Depreciation, amortization and impairment of non-financial
 
assets
 i 949
 i 285
 i 755
( i 114)
 i 1,875
Operating expenses
 i 8,605
 i 5,825
 i 15,390
( i 2,809)
 i 27,012
Operating profit / (loss) before tax
 i 7,305
 i 3,409
 i 3,910
( i 5,660)
 i 8,964
Tax expense / (benefit)
 i 203
 i 622
 i 1,090
( i 11)
 i 1,903
Net profit / (loss)
 i 7,102
 i 2,788
 i 2,820
( i 5,649)
 i 7,061
Net profit / (loss) attributable to non-controlling interests
 i 0
 i 0
 i 29
 i 0
 i 29
Net profit / (loss) attributable to shareholders
 i 7,102
 i 2,788
 i 2,792
( i 5,649)
 i 7,032
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
 
2
Elimination
entries
UBS AG
(consolidated)
For the year ended 31 December 2021
Comprehensive income attributable to shareholders
Net profit / (loss)
 i 7,102
 i 2,788
 i 2,792
( i 5,649)
 i 7,032
Other comprehensive income
Other comprehensive income that may be reclassified to the income
statement
Foreign currency translation, net of tax
( i 1)
( i 419)
( i 607)
 i 517
( i 510)
Financial assets measured at fair value through other
comprehensive income, net of tax
 i 0
( i 157)
 i 0
( i 157)
Cash flow hedges, net of tax
( i 1,129)
( i 279)
( i 250)
( i 17)
( i 1,675)
Cost of hedging, net of tax
( i 26)
( i 26)
Total other comprehensive income that may be reclassified to the
income statement, net of tax
( i 1,155)
( i 699)
( i 1,014)
 i 500
( i 2,368)
Other comprehensive income that will not be reclassified to the
income statement
Defined benefit plans, net of tax
 i 170
( i 135)
 i 67
 i 0
 i 102
Own credit on financial liabilities designated at fair value, net of tax
 i 46
 i 46
Total other comprehensive income that will not be reclassified to
the income statement, net of tax
 i 217
( i 135)
 i 67
 i 0
 i 148
Total other comprehensive income
( i 939)
( i 834)
( i 947)
 i 500
( i 2,220)
Total comprehensive income attributable to shareholders
 i 6,163
 i 1,954
 i 1,845
( i 5,149)
 i 4,813
Total comprehensive income attributable to non-controlling interests
 i 13
 i 13
Total comprehensive income
 i 6,163
 i 1,954
 i 1,858
( i 5,149)
 i 4,826
1 Amounts presented for UBS AG
 
standalone and UBS Switzerland AG
 
standalone represent IFRS standalone information.
 
Refer to the UBS AG
 
standalone and UBS Switzerland AG
 
standalone financial statements
under “Complementary
 
financial information”
 
at ubs.com/investors
 
for information
 
prepared in
 
accordance with
 
Swiss GAAP.
 
2 The
 
”Other subsidiaries“
 
column
 
includes consolidated
 
information
 
for the
UBS Americas Holding LLC, UBS Europe SE and UBS Asset Management AG significant sub-groups,
 
as well as standalone information for other subsidiaries.
 
 
 
Annual Report 2023
| Consolidated financial statements | UBS
 
AG consolidated financial statements
 
249
Note 34
 
Supplemental guarantor information required
 
under SEC regulations (continued)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Supplemental guarantor consolidated
 
statement of cash flows
USD m
UBS AG
1
UBS
Switzerland AG
1
Other
1
UBS AG
(consolidated)
For the year ended 31 December 2021
Net cash flow from / (used in) operating activities
 i 5,714
 i 2,131
 i 22,718
 i 30,563
Cash flow from / (used in) investing activities
Purchase of subsidiaries, associates and intangible assets
( i 1)
( i 1)
Disposal of subsidiaries, associates and intangible assets
2
 i 16
 i 0
 i 577
 i 593
Purchase of property, equipment and software
( i 656)
( i 276)
( i 650)
( i 1,581)
Disposal of property, equipment and software
 i 294
 i 1
 i 295
Net (purchase) / redemption of financial assets measured
 
at fair value through other comprehensive
income
( i 817)
 i 67
( i 750)
Purchase of debt securities measured at amortized cost
( i 1,840)
( i 45)
( i 3,038)
( i 4,922)
Disposal and redemption of debt securities measured at amortized
 
cost
 i 1,033
 i 817
 i 2,658
 i 4,507
Net cash flow from / (used in) investing activities
( i 1,970)
 i 495
( i 385)
( i 1,860)
Cash flow from / (used in) financing activities
Net short-term debt issued / (repaid)
( i 3,073)
( i 21)
 i 0
( i 3,093)
Distributions paid on UBS AG shares
( i 4,539)
( i 4,539)
Issuance of debt designated at fair value and long-term debt measured
 
at amortized cost
3
 i 97,250
 i 1,177
 i 193
 i 98,619
Repayment of debt designated at fair value and long-term debt measured
 
at amortized cost
3
( i 78,385)
( i 1,093)
( i 320)
( i 79,799)
Net cash flows from other financing activities
( i 280)
 i 20
( i 261)
Net activity related to group internal capital transactions and dividends
 i 5,240
( i 537)
( i 4,702)
 i 0
Net cash flow from / (used in) financing activities
 i 16,212
( i 475)
( i 4,811)
 i 10,927
Total cash flow
Cash and cash equivalents at the beginning of the year
 i 39,400
 i 93,342
 i 40,689
 i 173,430
Net cash flow from / (used in) operating, investing and financing
 
activities
 i 19,957
 i 2,151
 i 17,523
 i 39,630
Effects of exchange rate differences on cash and cash equivalents
( i 1,462)
( i 2,693)
( i 1,151)
( i 5,306)
Cash and cash equivalents at the end of the year
4
 i 57,895
 i 92,799
 i 57,061
 i 207,755
of which: cash and balances at central banks
4
 i 53,729
 i 91,031
 i 47,946
 i 192,706
of which: amounts due from banks
4
 i 3,258
 i 1,588
 i 8,975
 i 13,822
of which: money market paper
4,5
 i 908
 i 179
 i 139
 i 1,227
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
 i 3,408
m of cash and cash equivalents were restricted.
 
5 Money market paper is included in the balance sheet under Financial assets at fair value held for trading, Financial assets measured at fair value through
other comprehensive income, Financial assets at fair value not held for trading and Other financial
 
assets measured at amortized cost.
p
 
 
 
 
 
 
 
Annual Report 2023 |
Additional regulatory information | UBS
 
AG consolidated supplemental disclosures
 
required under SEC regulations
 
251
UBS AG consolidated supplemental disclosures
required under SEC regulations
A
–
 
Introduction
The
 
following
 
pages
 
contain
 
supplemental
 
UBS
 
AG
 
disclosures
 
that
 
are
 
required
 
under
 
US
 
Securities
 
and
 
Exchange
Commission (SEC) regulations. UBS
 
AG’s consolidated financial statements have
 
been prepared in accordance
 
with IFRS
Accounting
 
Standards
 
as
 
issued
 
by
 
the
 
International
 
Accounting
 
Standards
 
Board
 
(the
 
IASB)
 
and
 
are
 
denominated
 
in
US dollars.
 
 
B – Selected financial data
Selected information
As of or for the year ended
31.12.23
31.12.22
31.12.21
Registered ordinary shares (number)
 
3,858,408,466
 
3,858,408,466
 
3,858,408,466
Treasury shares (number)
 
0
 
0
 
0
Dividends received from investments in subsidiaries and associates
In 2023, UBS
 
AG received
 
dividends of USD 5,430m
 
(2022: USD 6,465m; 2021:
 
USD 6,401m) from
 
its subsidiaries and
associates. Dividends disclosed
 
have been translated
 
to US dollars
 
from the functional
 
currency of the
 
entity paying the
dividend, using the closing exchange rate of the month the
 
dividend was received.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Additional regulatory information | UBS
 
AG consolidated supplemental disclosures
 
required under SEC regulations
 
252
Balance sheet data
USD m
31.12.23
31.12.22
31.12.21
Assets
Cash and balances at central banks
 
171,806
 
169,445
 
192,817
Amounts due from banks
 
 
28,206
 
14,671
 
15,360
Receivables from securities financing transactions at amortized cost
 
74,128
 
67,814
 
75,012
Cash collateral receivables on derivative instruments
 
32,300
 
35,033
 
30,514
Loans and advances to customers
 
405,633
 
390,027
 
398,693
Other financial assets measured at amortized cost
54,334
53,389
26,236
Total financial assets measured at amortized cost
 
766,407
 
730,379
 
738,632
Financial assets at fair value held for trading
 
135,098
 
108,034
 
131,033
of which: assets pledged as collateral that may be sold or repledged
 
by counterparties
 
44,524
 
36,742
 
43,397
Derivative financial instruments
 
131,728
 
150,109
 
118,145
Brokerage receivables
 
20,883
 
17,576
 
21,839
Financial assets at fair value not held for trading
 
63,754
 
59,408
 
59,642
Total financial assets measured at fair value through profit or loss
 
351,463
 
335,127
 
330,659
Financial assets measured at fair value through other comprehensive income
 
2,233
 
2,239
 
8,844
Investments in associates
 
983
 
1,101
 
1,243
Property, equipment and software
 
11,044
 
11,316
 
11,712
Goodwill and intangible assets
 
6,265
 
6,267
 
6,378
Deferred tax assets
 
9,244
 
9,354
 
8,839
Other non-financial assets
 
8,377
 
9,652
 
9,836
Total assets
 
1,156,016
 
1,105,436
 
1,116,145
Liabilities
Amounts due to banks
 
 
16,720
 
11,596
 
13,101
Payables from securities financing transactions at amortized cost
 
5,782
 
4,202
 
5,533
Cash collateral payables on derivative instruments
 
34,886
 
36,436
 
31,801
Customer deposits
555,673
527,171
544,834
Funding from UBS Group AG measured at amortized cost
 
67,282
 
56,147
 
57,295
Debt issued measured at amortized cost
 
69,784
 
59,499
 
82,432
Other financial liabilities measured at amortized cost
12,713
10,391
9,765
Total financial liabilities measured at amortized cost
 
762,840
 
705,442
 
744,762
Financial liabilities at fair value held for trading
 
31,712
 
29,515
 
31,688
Derivative financial instruments
 
140,707
 
154,906
 
121,309
Brokerage payables designated at fair value
 
42,275
 
45,085
 
44,045
Debt issued designated at fair value
 
86,341
 
71,842
 
71,460
Other financial liabilities designated at fair value
 
27,366
 
32,033
 
32,414
Total financial liabilities measured at fair value through profit or loss
 
328,401
 
333,382
 
300,916
Provisions
 
2,524
 
3,183
 
3,452
Other non-financial liabilities
 
6,682
 
6,489
 
8,572
Total liabilities
 
1,100,448
 
1,048,496
 
1,057,702
Equity attributable to shareholders
 
55,234
 
56,598
 
58,102
Equity attributable to non-controlling interests
 
335
 
342
 
340
Total equity
 
55,569
 
56,940
 
58,442
Total liabilities and equity
 
1,156,016
 
1,105,436
 
1,116,145
 
C – Information about the company
Property, plant and equipment
As
 
of
 
31
 
December
 
2023,
 
UBS
 
AG
 
operated
 
in
 
about
 
644
 
business
 
and
 
banking
 
locations
 
worldwide,
 
of
 
which
approximately
 
33% were
 
in Switzerland,
 
50% in
 
the Americas,
 
9% in
 
the rest
 
of Europe,
 
the Middle
 
East and
 
Africa,
and 8% in Asia Pacific.
 
Of the business and banking locations in
 
Switzerland, 22% were owned directly by UBS AG, with
the
 
remainder,
 
along
 
with
 
most
 
of UBS
 
AG’s
 
offices
 
outside
 
Switzerland,
 
being
 
held
 
under
 
commercial
 
leases.
 
These
premises are
 
subject to
 
continuous maintenance
 
and upgrading
 
and are
 
considered
 
suitable and
 
adequate for
 
current
and anticipated operations.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Additional regulatory information | UBS
 
AG consolidated supplemental disclosures
 
required under SEC regulations
 
253
D – Information required by Subpart 1400 of Regulation
 
S-K
Selected statistical information
The
 
tables
 
below
 
set
 
forth
 
selected
 
statistical
 
information
 
regarding
 
UBS
 
AG’s
 
banking
 
operations
 
extracted
 
from
 
its
financial statements. Unless otherwise indicated,
 
average balances for the
 
years ended 31
 
December 2023, 31 December
2022
 
and
 
31 December
 
2021
 
are
 
calculated
 
from
 
monthly
 
data.
 
Unless
 
otherwise
 
indicated,
 
the
 
distinction
 
between
domestic (Swiss) and foreign (non-Swiss) is generally
 
based on the booking location.
 
Average balances and interest rates
The tables below set forth average interest-earning assets and average interest-bearing liabilities, along with the average
yield, for
 
2023, 2022
 
and 2021.
 
Refer to
 
“Note 3
 
Net interest income and other net income from financial instruments
measured at fair value through profit or loss”
 
in the “Consolidated
 
financial statements”
 
section of this
 
report for
 
more
information about interest income and interest
 
expense.
For the year ended
31.12.23
31.12.22
31.12.21
USD m, except where indicated
Average
 
balance
Interest
 
income
Average
 
yield (%)
Average
 
balance
Interest
 
income
Average
 
yield (%)
Average
 
balance
Interest
 
income
Average
 
yield (%)
Assets
Balances at central banks
Domestic
 
84,775
 
1,267
 
1.5
 
99,777
 
92
 
0.1
 
98,804
 
(105)
 
(0.1)
Foreign
 
70,892
 
2,946
 
4.2
 
88,267
 
595
 
0.7
 
71,529
 
(31)
 
0.0
Amounts due from banks
Domestic
 
7,370
 
323
 
4.4
 
2,966
 
50
 
1.7
 
3,158
 
40
 
1.3
Foreign
 
10,937
 
48
 
0.4
 
12,205
 
8
 
0.1
 
12,961
 
12
 
0.1
Receivables from securities financing transactions measured
at amortized cost
1
Domestic
 
3,592
 
167
 
4.6
 
6,431
 
30
 
0.5
 
9,435
 
(28)
 
(0.3)
Foreign
 
75,553
 
3,016
 
4.0
 
70,942
 
1,105
 
1.6
 
79,297
 
234
 
0.3
Loans and advances to customers
Domestic
 
243,241
 
5,868
 
2.4
 
225,540
 
3,212
 
1.4
 
229,794
 
3,214
 
1.4
Foreign
 
150,165
 
7,472
 
5.0
 
160,496
 
4,824
 
3.0
 
160,869
 
2,698
 
1.7
Financial assets at fair value
1,2
Domestic
 
6,970
 
199
 
2.9
 
5,922
 
50
 
0.8
 
10,023
 
11
 
0.1
Foreign
 
172,570
 
6,782
 
3.9
 
151,672
 
2,113
 
1.4
 
169,368
 
1,203
 
0.7
Other interest-earning assets
Domestic
 
8,840
 
181
 
2.1
 
8,226
 
125
 
1.5
 
7,477
 
121
 
1.6
Foreign
 
71,488
 
2,171
 
3.0
 
63,108
 
858
 
1.4
 
47,042
 
298
 
0.6
Total interest-earning assets
3
 
906,393
 
30,440
 
3.4
 
895,553
 
13,064
 
1.5
 
899,757
 
7,666
 
0.9
Net interest income on swaps
 
2,253
 
1,812
 
1,558
Interest income on off-balance sheet securities and other
 
747
 
677
 
472
Interest income and average interest-earning assets
 
906,393
 
33,440
4
 
3.7
 
895,553
 
15,553
4
 
1.7
 
899,757
 
9,695
4
 
1.1
Non-interest-earning assets
5
 
282,137
 
297,691
 
296,300
Total average assets
 
1,188,531
 
1,193,244
 
1,196,057
1 Reverse repurchase agreements are presented on a gross basis and therefore, for the purpose of this disclosure, do not reflect the effect of netting permitted under IFRS Accounting Standards.
 
2 Includes financial
assets at fair
 
value held for
 
trading, financial assets
 
at fair value
 
not held for
 
trading, financial assets
 
at fair value
 
through other comprehensive
 
income and brokerage
 
receivables.
 
3 Non-taxable positions and
amounts were not material for the years presented.
 
4 For the purpose of this disclosure, negative interest income on assets is presented as
 
a reduction to interest income, while in the consolidated income statement
negative interest
 
income on
 
assets is
 
presented as
 
interest expense.
 
Refer to
 
“Note 3
 
Net interest
 
income and
 
other net
 
income from
 
financial instruments
 
measured at
 
fair value
 
through profit
 
or loss”
 
in the
“Consolidated financial statements” section of this report for more information.
 
5 Mainly includes derivative financial instruments, equity instruments at fair value held for trading and financial assets for unit-linked
investment contracts.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Additional regulatory information | UBS
 
AG consolidated supplemental disclosures
 
required under SEC regulations
 
254
Average balances and interest rates (continued)
For the year ended
31.12.23
31.12.22
31.12.21
USD m, except where indicated
Average
balance
Interest
expense
Average
 
interest
 
rate (%)
Average
balance
Interest
expense
Average
 
interest
 
rate (%)
Average
balance
Interest
expense
Average
 
interest
 
rate (%)
Liabilities and equity
Amounts due to banks
Domestic
 
9,890
 
158
 
1.6
 
10,733
 
3
 
0.0
 
10,369
 
(32)
 
(0.3)
Foreign
 
5,026
 
174
 
3.5
 
3,255
 
44
 
1.3
 
2,897
 
18
 
0.6
Payables from securities financing transactions measured at
amortized cost
1
Domestic
 
3,225
 
163
 
5.0
 
3,357
 
40
 
1.2
 
4,786
 
1
 
0.0
Foreign
 
16,552
 
853
 
5.2
 
13,351
 
289
 
2.2
 
14,161
 
209
 
1.5
Customer deposits
Domestic
 
276,288
 
1,663
 
0.6
 
275,270
 
(61)
 
0.0
 
293,028
 
(281)
 
(0.1)
of which: demand deposits
 
119,796
 
500
 
0.4
 
149,357
 
(141)
 
(0.1)
 
162,016
 
(273)
 
(0.2)
of which: savings and sweep deposits
 
 
122,954
 
243
 
0.2
 
119,685
 
6
 
0.0
 
126,290
 
4
 
0.0
of which: time deposits
 
33,538
 
920
 
2.7
 
6,227
 
74
 
1.2
 
4,721
 
(12)
 
(0.3)
Foreign
 
243,413
 
7,722
 
3.2
 
246,072
 
1,820
 
0.7
 
232,165
 
107
 
0.0
of which: demand deposits
 
38,043
 
626
 
1.6
 
66,987
 
120
 
0.2
 
82,226
 
(31)
 
0.0
of which: savings and sweep deposits
 
 
75,671
 
2,176
 
2.9
 
111,130
 
578
 
0.5
 
99,847
 
81
 
0.1
of which: time deposits
 
129,698
 
4,920
 
3.8
 
67,956
 
1,121
 
1.7
 
50,092
 
58
 
0.1
Funding from UBS Group AG
Domestic
 
61,922
 
2,416
 
3.9
 
56,884
 
1,875
 
3.3
 
56,008
 
1,699
 
3.0
Commercial paper
Domestic
 
1
 
0
 
0.0
 
1
 
0
 
0.0
 
292
 
0
 
0.0
Foreign
 
20,858
 
1,097
 
5.3
 
20,452
 
256
 
1.3
 
24,461
 
33
 
0.1
Other short-term debt issued measured at amortized cost
Domestic
 
322
 
4
 
1.3
 
366
 
4
 
1.2
 
13
 
0
 
(0.1)
Foreign
 
12,023
 
610
 
5.1
 
11,927
 
124
 
1.0
 
18,473
 
37
 
0.2
Long-term debt issued measured at amortized cost
Domestic
 
11,830
 
211
 
1.8
 
11,538
 
184
 
1.6
 
12,352
 
192
 
1.6
Foreign
 
17,177
 
492
 
2.9
 
22,929
 
439
 
1.9
 
27,820
 
491
 
1.8
Financial liabilities at fair value (excluding debt issued
designated at fair value)
1,2
Domestic
 
374
 
11
 
3.0
 
289
 
11
 
3.7
 
421
 
3
 
0.8
Foreign
 
154,909
 
5,578
 
3.6
 
141,526
 
1,476
 
1.0
 
139,374
 
81
 
0.1
Debt issued designated at fair value
Domestic
 
7,304
 
209
 
2.9
 
7,400
 
43
 
0.6
 
7,806
 
(20)
 
(0.3)
Foreign
 
72,610
 
3,451
 
4.8
 
63,470
 
1,283
 
2.0
 
60,388
 
429
 
0.7
Other interest-bearing liabilities
Domestic
 
2,174
 
62
 
2.8
 
2,872
 
14
 
0.5
 
2,884
 
(7)
 
(0.2)
Foreign
 
33,639
 
1,229
 
3.7
 
38,838
 
429
 
1.1
 
34,833
 
101
 
0.3
Total interest-bearing liabilities
 
949,537
 
26,104
 
2.7
 
930,531
 
8,273
 
0.9
 
942,531
 
3,060
 
0.3
Swap interest on hedged debt instruments and other
swaps
 
2,061
 
40
 
(765)
Interest expense on off-balance sheet securities and other
 
710
 
723
 
797
Interest expense and average interest-bearing liabilities
 
949,537
 
28,874
3
 
3.0
 
930,531
 
9,035
3
 
1.0
 
942,531
 
3,091
3
 
0.3
Non-interest-bearing liabilities
4
 
183,979
 
206,337
 
196,273
Total liabilities
 
1,133,517
 
1,136,868
 
1,138,804
Total equity
 
55,014
 
56,376
 
57,254
Total average liabilities and equity
 
1,188,531
 
1,193,244
 
1,196,057
Net interest income
 
4,566
 
6,517
 
6,604
Net yield on interest-earning assets
 
0.5
 
0.7
 
0.7
1 Repurchase agreements are presented on a gross
 
basis and therefore, for the purpose of this disclosure, do not reflect
 
the effect of netting permitted under IFRS Accounting Standards.
 
2 Includes financial liabilities
at fair value held for trading, other financial liabilities
 
designated at fair value and brokerage payables designated at fair value.
 
3 For the purpose of this disclosure, negative interest expense on
 
liabilities is presented
as a reduction to interest expense, while in the consolidated income statement negative interest
 
income on liabilities is presented as interest income. Refer to “Note 3 Net interest
 
income and other net income from
financial instruments measured at fair value through
 
profit or loss” in the “Consolidated financial statements”
 
section of this report for more information.
 
4 Mainly includes derivative financial instruments,
 
equity
instruments at fair value held for trading and financial liabilities related to unit-linked investment
 
contracts.
The percentage of total average interest-earning assets attributable
 
to foreign activities was 61% for 2023 (2022: 61%;
2021: 60%).
 
The
 
percentage
 
of total
 
average
 
interest-bearing
 
liabilities
 
attributable
 
to foreign
 
activities
 
was
 
61% for
2023 (2022: 60%;
 
2021: 59%). All
 
assets and liabilities
 
are translated into
 
US dollars
 
at uniform
 
month-end rates. Interest
income and expense are translated at monthly average
 
rates.
Average rates earned and
 
paid on assets and
 
liabilities can change from
 
period to period based
 
on the changes in
 
interest
rates in
 
general, but
 
are also
 
affected by
 
changes in
 
the currency
 
mix included
 
in the
 
assets and
 
liabilities. Tax-exempt
income is
 
not recorded
 
on a
 
tax-equivalent basis.
 
For all
 
three years
 
presented, tax-exempt
 
income is
 
considered to
 
be
insignificant, and the effect from such income is therefore
 
negligible.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Additional regulatory information | UBS
 
AG consolidated supplemental disclosures
 
required under SEC regulations
 
255
Analysis of changes in interest income and expense
The tables below
 
provide information,
 
by categories of
 
interest-earning assets and
 
interest-bearing liabilities,
 
about the
changes in
 
interest income
 
and expense
 
due to
 
changes in
 
volume and
 
interest rates
 
for the
 
year ended
 
31 December
2023 compared with the year ended 31 December 2022, and for the year ended 31 December 2022 compared with the
year
 
ended 31 December
 
2021. The
 
change in
 
average volume
 
represents
 
the change
 
in the
 
current
 
average balance
compared with the average balance from the prior year with respect to the average rate of the prior year.
 
The change in
average rate represents the
 
difference between the net
 
change in interest
 
income and expense
 
and the change
 
in average
volume.
 
2023 compared with 2022
2022 compared with 2021
Increase / (decrease)
due to changes in
1
Increase / (decrease)
due to changes in
USD m
Average
 
volume
Average
interest rate
Net
change
Average
 
volume
Average
 
interest rate
Net
change
Interest income from interest-earning assets
Balances at central banks
Domestic
 
(14)
 
1,189
 
1,175
 
(1)
 
198
 
197
Foreign
 
(117)
 
2,467
 
2,350
 
(7)
 
633
 
626
Amounts due from banks
Domestic
 
75
 
198
 
273
 
(2)
 
12
 
10
Foreign
 
(1)
 
42
 
41
 
(1)
 
(3)
 
(4)
Receivables from securities financing transactions measured at amortized
 
cost
Domestic
 
(13)
 
149
 
136
 
9
 
49
 
58
Foreign
 
72
 
1,839
 
1,911
 
(25)
 
896
 
871
Loans and advances to customers
Domestic
 
252
 
2,403
 
2,655
 
(59)
 
58
 
(1)
Foreign
 
(311)
 
2,959
 
2,648
 
(6)
 
2,133
 
2,127
Financial assets at fair value
Domestic
 
9
 
140
 
149
 
(5)
 
44
 
39
Foreign
 
291
 
4,378
 
4,669
 
(126)
 
1,036
 
910
Other interest-earning assets
Domestic
 
9
 
47
 
56
 
12
 
(8)
 
4
Foreign
 
114
 
1,199
 
1,313
 
102
 
458
 
560
Interest income
Domestic
 
318
 
4,126
 
4,444
 
(46)
 
354
 
308
Foreign
 
48
 
12,884
 
12,932
 
(63)
 
5,154
 
5,091
Total interest income from interest-earning assets
 
366
 
17,010
 
17,376
 
(109)
 
5,507
 
5,398
Net interest income on swaps
 
441
 
254
Interest income on off-balance sheet securities and other
 
70
 
205
Total interest income
 
17,887
 
5,858
1 In 2023, the Swiss franc and the euro strengthened significantly against the US dollar.
 
This effect is included within the variances disclosed in this table.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Additional regulatory information | UBS
 
AG consolidated supplemental disclosures
 
required under SEC regulations
 
256
Analysis of changes in interest income and expense
 
(continued)
2023 compared with 2022
2022 compared with 2021
Increase / (decrease)
due to changes in
1
Increase / (decrease)
due to changes in
USD m
Average
 
volume
Average
interest rate
Net
change
Average
 
volume
Average
 
interest rate
Net
change
Interest expense on interest-bearing liabilities
Amounts due to banks
Domestic
 
0
 
155
 
155
 
(1)
 
36
 
35
Foreign
 
24
 
106
 
130
 
2
 
23
 
25
Payables from securities financing transactions measured at amortized cost
Domestic
 
(2)
 
124
 
122
 
0
 
39
 
39
Foreign
 
69
 
495
 
564
 
(12)
 
92
 
80
Customer deposits
 
Domestic
 
351
 
1,373
 
1,724
 
17
 
203
 
220
of which: demand deposits
 
28
 
613
 
641
 
21
 
111
 
132
of which: savings and sweep deposits
 
 
0
 
237
 
237
 
0
 
2
 
2
of which: time deposits
 
323
 
523
 
846
 
(4)
 
90
 
86
Foreign
 
(20)
 
5,923
 
5,903
 
6
 
1,707
 
1,713
of which: demand deposits
 
(52)
 
558
 
506
 
6
 
145
 
151
of which: savings and sweep deposits
 
 
(184)
 
1,782
 
1,598
 
9
 
488
 
497
of which: time deposits
 
1,019
 
2,779
 
3,798
 
21
 
1,043
 
1,064
Funding from UBS Group AG
 
Domestic
 
166
 
375
 
541
 
27
 
149
 
176
Commercial paper
Domestic
 
0
 
0
 
0
 
0
 
0
 
0
Foreign
 
5
 
836
 
841
 
(5)
 
228
 
223
Other short-term debt issued measured at amortized cost
Domestic
 
(1)
 
1
 
0
 
0
 
5
 
5
Foreign
 
1
 
485
 
486
 
(13)
 
100
 
87
Long-term debt issued measured at amortized cost
Domestic
 
5
 
22
 
27
 
(13)
 
5
 
(8)
Foreign
 
(110)
 
163
 
53
 
(86)
 
34
 
(52)
Financial liabilities at fair value (excluding debt issued designated
 
at fair value)
Domestic
 
3
 
(2)
 
1
 
(1)
 
8
 
7
Foreign
 
140
 
3,962
 
4,102
 
1
 
1,395
 
1,396
Debt issued designated at fair value
Domestic
 
(1)
 
167
 
166
 
1
 
61
 
62
Foreign
 
185
 
1,983
 
2,168
 
22
 
832
 
854
Other interest-bearing liabilities
Domestic
 
(3)
 
51
 
48
 
0
 
21
 
21
Foreign
 
(57)
 
858
 
801
 
12
 
316
 
328
Interest expense
Domestic
 
518
 
2,265
 
2,783
 
30
 
529
 
559
Foreign
 
237
 
14,811
 
15,048
 
(73)
 
4,727
 
4,654
Total interest expense on interest-bearing liabilities
 
755
 
17,076
 
17,831
 
(43)
 
5,256
 
5,213
Swap interest on hedged debt instruments and other swaps
 
2,021
 
805
Interest expense on off-balance sheet securities and other
 
(12)
 
(74)
Total interest expense
 
19,839
 
5,944
1 In 2023, the Swiss franc and the euro strengthened significantly against the US dollar.
 
This effect is included within the variances disclosed in this table.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Additional regulatory information | UBS
 
AG consolidated supplemental disclosures
 
required under SEC regulations
 
257
Deposits
The table below analyzes average deposits and
 
average rates on each deposit category for the years
 
ended 31 December
2023, 31 December 2022 and 31 December 2021.
 
For the purpose of this
 
disclosure, foreign deposits represent deposits
from
 
depositors
 
who
 
are
 
based
 
outside
 
of
 
Switzerland.
 
Deposits
 
by
 
foreign
 
depositors
 
in
 
domestic
 
offices
 
were
USD 60,596m as of 31 December 2023 (31 December
 
2022: USD 59,897m; 31 December 2021: USD 77,070m)
 
.
31.12.23
31.12.22
31.12.21
USD m, except where indicated
Average
 
deposits
Average
 
rate (%)
Average
 
deposits
Average
 
rate (%)
Average
 
deposits
Average
 
rate (%)
Due to banks
Domestic
 
Demand deposits
 
766
 
(0.1)
 
908
 
(0.3)
 
927
 
(0.5)
Time deposits
 
2,301
 
2.7
 
2,793
 
0.5
 
3,026
 
0.0
Total domestic
 
 
3,067
 
2.0
 
3,700
 
0.3
 
3,953
 
(0.1)
Foreign
1
Demand deposits
 
5,118
 
1.0
 
5,774
 
0.0
 
5,414
 
(0.6)
Time deposits
 
6,731
 
3.3
 
4,513
 
0.8
 
3,899
 
0.5
Total Foreign
 
11,849
 
2.3
 
10,288
 
0.3
 
9,313
 
(0.1)
Total due to banks
 
14,916
 
2.2
 
13,988
 
0.3
 
13,266
 
(0.1)
Customer deposits
Domestic
 
Demand deposits
 
88,794
 
0.6
 
97,217
 
(0.1)
 
103,267
 
(0.2)
Savings and sweep deposits
 
111,750
 
0.2
 
109,039
 
0.0
 
114,792
 
0.0
Time deposits
 
31,742
 
2.4
 
9,715
 
0.4
 
10,306
 
(0.2)
Total domestic
 
 
232,285
 
0.7
 
215,971
 
0.0
 
228,366
 
(0.1)
Foreign
1
Demand deposits
 
69,046
 
0.9
 
119,127
 
0.1
 
140,975
 
(0.1)
Savings and sweep deposits
 
86,875
 
2.5
 
121,776
 
0.5
 
111,345
 
0.1
Time deposits
 
131,494
 
3.9
 
64,468
 
1.8
 
44,507
 
0.1
Total foreign
 
 
287,415
 
2.7
 
305,370
 
0.6
 
296,826
 
0.0
Total customer deposits
 
519,701
 
1.8
 
521,342
 
0.3
 
525,192
 
0.0
1 For the
 
purpose of this
 
table, the distinction
 
between foreign and
 
domestic deposits is
 
based on the
 
domicile of the
 
depositor, while
 
foreign and domestic
 
deposits disclosed in
 
previous tables are
 
based on the
booking location.
Uninsured deposits
From the
 
combined total
 
of Due
 
to banks
 
and Customer
 
deposits as
 
of 31 December
 
2023, total
 
estimated uninsured
deposits were
 
USD 415bn (31
 
December
 
2022: USD 365bn;
 
31 December
 
2021: USD
 
395bn).
 
Uninsured
 
deposits are
deposits that
 
are in excess
 
of local
 
deposit insurance
 
or protection
 
scheme limits
 
in the
 
key locations
 
in which
 
UBS AG
operates, calculated based
 
on the respective
 
local regulations, as
 
well as deposits
 
in uninsured accounts.
 
The main deposit
insurance
 
schemes
 
applicable
 
to
 
UBS
 
AG
 
deposits
 
are
 
the
 
Swiss
 
depositor
 
protection
 
scheme
 
in
 
Switzerland
 
(which
protects
 
applicable
 
deposits
 
up
 
to
 
a
 
maximum
 
of
 
CHF 100,000
 
per
 
client
 
and
 
per
 
bank
 
or
 
securities
 
firm),
 
the
Compensation Scheme of German Banks in combination with the Deposit Protection Fund of the
 
Association of German
Banks in Germany (which
 
protects applicable deposits up to
 
a maximum of EUR 5m per client
 
and EUR 50m per
 
business)
and the Federal Deposit Insurance Corporation (the FDIC) scheme in the Americas (which
 
protects applicable deposits up
to a maximum of USD 250,000 per depositor, per insured bank,
 
for each account ownership category).
The table below presents the maturity of
 
estimated uninsured time deposits as of 31 December 2023. Where a
 
depositor
holds multiple accounts, which in aggregate are
 
in excess of a deposit insurance or protection
 
limit, the insured amount
is first allocated to the account with the shortest time to
 
maturity.
 
USD m
 
Uninsured time deposits
1
Within 3 months
 
141,142
3 to 6 months
 
23,182
6 to 12 months
 
21,263
Over 12 months
 
13,704
Total uninsured time deposits as of 31 December 2023
 
199,292
1 Amounts are estimated based on the methodologies defined in each local jurisdiction. As of 31 December 2023, there were no US time deposits subject to the FDIC scheme that
 
were in excess of the FDIC insurance
limit.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Additional regulatory information | UBS
 
AG consolidated supplemental disclosures
 
required under SEC regulations
 
258
Investments in debt instruments
The table below presents the
 
carrying amount and weighted
 
average yield of debt
 
instruments presented within Financial
assets measured
 
at fair
 
value through
 
other comprehensive
 
income and
 
Other financial
 
assets
 
measured
 
at amortized
cost on the balance sheet by contractual maturity bucket. The yield for each
 
range of maturities is calculated by dividing
the annualized interest
 
income by the average
 
balance of the investment
 
per contractual maturity
 
bucket. The maturity
information presented
 
does not consider
 
any early
 
redemption features
 
,
 
and debt
 
instruments without
 
fixed maturities
are not included.
Within 1 year
1 to 5 years
5 to 10 years
Over 10 years
USD m, except where indicated
Carrying
amount
Yield (%)
Carrying
amount
Yield (%)
Carrying
amount
Yield (%)
Carrying
amount
Yield (%)
Total
Carrying
amount
Debt instruments measured at fair value
through other comprehensive income
Government bills / bonds
 
10
 
0.86
 
10
Corporate and other
 
2,151
 
4.65
 
72
 
2.56
 
2,223
Subtotal as of 31 December 2023
 
2,161
 
72
 
2,233
Debt securities measured at amortized cost
Asset-backed securities
 
289
 
1.56
 
1,569
 
2.57
 
6,662
 
2.87
 
8,520
Government bills / bonds
 
4,354
 
1.96
 
6,605
 
2.20
 
4,005
 
2.03
 
2,302
 
3.78
 
17,266
Corporate and other
 
1,315
 
1.17
 
12,739
 
2.27
 
3,405
 
2.37
 
17,459
Subtotal as of 31 December 2023
 
5,669
 
19,633
 
8,979
 
8,964
 
43,245
Total as of 31 December 2023
 
7,830
 
19,705
 
8,979
 
8,964
 
45,478
 
Loan portfolio
The table below provides the
 
maturity profile of UBS AG’s
 
core loan portfolio as of
 
31 December 2023. The contractual
maturity
 
is
 
based
 
on
 
carrying
 
amounts
 
and
 
includes
 
the
 
effect
 
of
 
callable
 
features.
 
For
 
loans
 
due
 
after
 
one
 
year,
 
a
breakdown between fixed and adjustable or floating
 
interest rates is also provided.
USD m
31.12.23
Within 1 year
1 to 5 years
5 to 15 years
Over 15 years
Total
of which: over 1 year
Fixed rate
Adjustable or
floating rate
Private clients with mortgages
 
14,071
 
99,663
 
32,527
 
28,138
 
174,400
 
82,007
 
78,321
Real estate financing
 
22,843
 
22,822
 
8,595
 
44
 
54,305
 
18,759
 
12,702
Large corporate clients
 
5,382
 
7,867
 
1,181
 
0
 
14,431
 
3,231
 
5,817
SME clients
 
7,126
 
4,408
 
1,161
 
0
 
12,694
 
3,160
 
2,408
Lombard
 
111,361
 
6,277
 
287
 
0
 
117,924
 
5,962
 
602
Credit cards
 
2,041
 
0
 
0
 
0
 
2,041
 
0
 
0
Commodity trade finance
 
2,718
 
172
 
0
 
0
 
2,889
 
89
 
82
Other loans and advances to customers
 
15,356
 
9,504
 
2,027
 
62
 
26,949
 
1,486
 
10,107
Loans to financial advisors
 
92
 
711
 
1,497
 
316
 
2,615
 
2,524
 
0
Total
 
180,989
 
151,424
 
47,275
 
28,560
 
408,248
 
117,218
 
110,041
 
Allowance for credit losses
For the years
 
ended 31 December
 
2023, 31 December
 
2022 and 31
 
December 2021,
 
the ratio of
 
net charge-offs
 
(i.e.,
write-offs
 
of
 
expected
 
credit
 
loss
 
allowances
 
to
 
gross
 
carrying
 
amount
 
of
 
the
 
average
 
loans
 
outstanding)
 
during
 
the
period was
 
not material
 
for UBS
 
AG’s core
 
loan portfolio,
 
both on
 
an overall
 
basis and
 
on an
 
individual loan
 
category
basis.
 
Total
 
write-offs
 
for
 
31 December
 
2023
 
were
 
USD 77m
 
(31 December
 
2022:
 
USD 95m,
 
31 December
 
2021:
USD 137m). Refer to the coverage ratio tables in “Note 9 Financial assets
 
at amortized cost and other positions in scope
of expected credit
 
loss measurement”
 
in the “Consolidated
 
financial statements”
 
section of this
 
report for
 
the ratio of
expected credit loss allowances to total loans
 
outstanding at each period end.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Appendix
 
259
Appendix
Alternative performance measures
Alternative performance measures
An alternative
 
performance measure (an
 
APM) is
 
a financial
 
measure of
 
historical or
 
future financial
 
performance, financial
position
 
or
 
cash
 
flows
 
other
 
than
 
a
 
financial
 
measure
 
defined
 
or
 
specified
 
in
 
the
 
applicable
 
recognized
 
accounting
standards
 
or
 
in
 
other
 
applicable
 
regulations.
 
A
 
number
 
of
 
APMs
 
are
 
reported
 
in
 
the
 
discussion
 
of
 
the
 
financial
 
and
operating performance
 
of the
 
external reports
 
(annual, quarterly
 
and other
 
reports). APMs
 
are used
 
to provide
 
a more
complete picture of operating performance and
 
to reflect management’s view of
 
the fundamental drivers of the business
results.
 
A
 
definition
 
of
 
each
 
APM,
 
the
 
method
 
used
 
to
 
calculate
 
it
 
and
 
the
 
information
 
content
 
are
 
presented
 
in
alphabetical order
 
in the table
 
below. These
 
APMs may
 
qualify as non-GAAP
 
measures as
 
defined by US
 
Securities and
Exchange Commission (SEC) regulations.
APM label
Calculation
 
Information content
Active Digital Banking clients in
Corporate & Institutional Clients (%)
– Personal & Corporate Banking
Calculated as the average number of active
 
clients for
each month in the relevant period divided by the
average number of total clients. “Clients” refers
 
to
the number of unique business relationships or legal
entities operated by Corporate & Institutional
 
Clients,
excluding clients that do not have an account,
 
mono-
product clients and clients that have defaulted on
loans or credit facilities. At the end of each month,
any client that has logged on at least once in
 
that
month is determined to be “active” (a log-in
 
time
stamp is allocated to all business relationship numbers
or per legal entity in a digital banking contract).
This measure provides information about the
proportion of active Digital Banking clients in the total
number of UBS clients (within the aforementioned
meaning) which are serviced by Corporate &
Institutional Clients.
Active Digital Banking clients in
Personal Banking (%)
– Personal & Corporate Banking
Calculated as the average number of active
 
clients for
each month in the relevant period divided by the
average number of total clients. “Clients” refers
 
to
the number of unique business relationships operated
by Personal Banking, excluding persons
 
under the age
of 15, clients who do not have a private account,
clients domiciled outside Switzerland and clients
 
who
have defaulted on loans or credit facilities. At the
 
end
of each month, any client that has logged on
 
at least
once in that month is determined to be “active”
 
(a
log-in time stamp is allocated to all business
relationship numbers in a digital banking contract).
This measure provides information about the
proportion of active Digital Banking clients in the total
number of UBS clients (within the aforementioned
meaning) who are serviced by Personal Banking.
Active Mobile Banking clients in
Personal Banking (%)
– Personal & Corporate Banking
Calculated as the average number of active
 
clients for
each month in the relevant period divided by the
average number of total clients. “Clients” refers
 
to
the number of unique business relationships operated
by Personal Banking, excluding persons
 
under the age
of 15, clients who do not have a private account,
clients domiciled outside Switzerland and clients
 
who
have defaulted on loans or credit facilities. At the
 
end
of each month, any client that has logged on
 
via the
mobile app at least once in that month is determined
to be “active” (a log-in time stamp is allocated
 
to all
business relationship numbers in a digital banking
This measure provides information about the
proportion of active Mobile Banking clients in the
total number of UBS clients (within the
aforementioned meaning) who are serviced by
Personal Banking.
Cost / income ratio (%)
Calculated as operating expenses divided by
 
total
revenues.
This measure provides information about the
efficiency of the business by comparing operating
expenses with gross income.
Fee and trading income for Corporate
 
&
Institutional Clients (USD and CHF)
– Personal & Corporate Banking
Calculated as the total of recurring net fee and
transaction-based income for Corporate &
Institutional Clients.
This measure provides information about the amount
of fee and trading income for Corporate
 
&
Institutional Clients.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Appendix
 
260
APM label
Calculation
 
Information content
Fee-generating assets (USD)
– Global Wealth Management
Calculated as the sum of discretionary and
nondiscretionary wealth management portfolios
(mandate volume) and assets where generated
revenues are predominantly of a recurring nature, i.e.,
mainly investment, mutual, hedge and private-market
funds where we have a distribution agreement,
including client commitments into closed-ended
private-market funds from the date that recurring
fees are charged. Assets related to our Global
Financial Intermediaries business are excluded, as
 
are
assets of sanctioned clients.
 
This measure provides information about the volume
of invested assets that create a revenue stream,
whether as a result of the nature of the contractual
relationship with clients or through the fee structure
of the asset. An increase in the level of fee-generating
assets results in an increase in the associated revenue
stream. Assets of sanctioned clients are excluded from
fee-generating assets.
 
Fee-pool-comparable revenues (USD)
– the Investment Bank
Calculated as the total of revenues from: merger-and-
acquisition-related transactions; Equity Capital
Markets,
 
excluding derivatives; Leveraged Capital
Markets, excluding the impact of mark-to-market
movements on loan portfolios; and Debt
 
Capital
Markets, excluding revenues related to debt
underwriting of UBS instruments.
This measure provides information about the amount
of revenues in the Investment Bank that are
comparable with the relevant global fee pools.
Gross margin on invested assets (bps)
– Asset Management
Calculated as total revenues (annualized as applicable)
divided by average invested assets.
This measure provides information about the total
revenues of the business in relation to invested assets.
Impaired loan portfolio as a percentage
of total loan portfolio, gross (%)
– Global Wealth Management,
Personal & Corporate Banking
Calculated as impaired loan portfolio divided by
 
total
gross loan portfolio.
This measure provides information about the
proportion of impaired loan portfolio in the total gross
loan portfolio.
Integration-related expenses (USD)
Generally include costs of internal staff
 
and
contractors substantially dedicated to integration
activities, retention awards, redundancy costs,
incremental expenses from the shortening of useful
lives of property, equipment and software, and
impairment charges relating to these assets.
Classification as integration-related expenses does
 
not
affect the timing of recognition and measurement of
those expenses or the presentation thereof in the
income statement. Integration-related expenses
incurred by Credit Suisse also included expenses
associated with restructuring programs that existed
prior to the acquisition.
This measure provides information about expenses
that are temporary, incremental and directly related to
the integration of Credit Suisse into UBS.
Invested assets (USD and CHF)
– Global Wealth Management,
Personal & Corporate Banking,
Asset Management
Calculated as the sum of managed fund
 
assets,
managed institutional assets, discretionary and
advisory wealth management portfolios, fiduciary
deposits, time deposits, savings accounts,
 
and wealth
management securities or brokerage accounts.
This measure provides information about the volume
of client assets managed by or deposited with
 
UBS for
investment purposes.
Investment products for Personal
Banking (USD and CHF)
– Personal & Corporate Banking
Calculated as the sum of investment funds
 
(including
UBS Vitainvest third-pillar pension funds, as
 
well as
money market funds), mandates and third-party life
insurance operated in Personal Banking.
This measure provides information about the volume
of investment funds (including UBS Vitainvest
 
third-
pillar pension funds, as well as money
 
market funds),
mandates and third-party life insurance operated in
Personal Banking.
Net interest margin (bps)
– Personal & Corporate Banking
Calculated as net interest income (annualized
 
as
applicable) divided by average loans.
This measure provides information about the
profitability of the business by calculating the
difference between the price charged for lending and
the cost of funding, relative to loan value.
Net new assets (USD)
– Global Wealth Management
Calculated as the net amount of inflows and
 
outflows
of invested assets (as defined in UBS policy) recorded
during a specific period, plus interest and dividends.
Excluded from the calculation are movements due to
market performance, foreign exchange translation,
fees, and the effects on invested assets of strategic
decisions by UBS to exit markets or services.
 
This measure provides information about the
development of invested assets during a
 
specific
period as a result of net new asset flows, plus the
effect of interest and dividends.
 
Net new assets growth rate (%)
– Global Wealth Management
Calculated as the net amount of inflows and
 
outflows
of invested assets (as defined in UBS policy) recorded
during a specific period (annualized as applicable),
plus interest and dividends, divided by total invested
assets at the beginning of the period.
 
This measure provides information about the growth
of invested assets during a specific period
 
as a result
of net new asset flows.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Appendix
 
261
APM label
Calculation
 
Information content
Net new fee-generating assets (USD)
– Global Wealth Management
Calculated as the net amount of fee-generating
 
asset
inflows and outflows, including dividend
 
and interest
inflows into mandates and outflows from mandate
fees paid by clients during a specific period.
 
Excluded
from the calculation are the effects on fee-generating
assets of strategic decisions by UBS to exit
 
markets or
services.
This measure provides information about the
development of fee-generating assets during
 
a
specific period as a result of net flows, excluding
movements due to market performance and
 
foreign
exchange translation, as well as the effects on fee-
generating assets of strategic decisions by UBS
 
to exit
markets or services.
Net new investment products for
Personal Banking (USD and CHF)
– Personal & Corporate Banking
Calculated as the net amount of inflows and
 
outflows
of investment products during a specific period.
This measure provides information about the
development of investment products during a specific
period as a result of net new investment product
flows.
Net new money (USD)
– Global Wealth Management,
Asset Management
Calculated as the net amount of inflows and
 
outflows
of invested assets (as defined in UBS policy) recorded
during a specific period. Excluded from the calculation
are movements due to market performance, foreign
exchange translation, dividends, interest and fees,
 
as
well as the effects on invested assets of strategic
decisions by UBS to exit markets
 
or services. Net new
money is not measured for Personal & Corporate
Banking.
This measure provides information about the
development of invested assets during a
 
specific
period as a result of net new money flows.
Net new money growth rate (%)
– Global Wealth Management
Calculated as the net amount of inflows and
 
outflows
of invested assets (as defined in UBS policy) recorded
during a specific period (annualized as applicable)
divided by total invested assets at the beginning
 
of
the period.
 
This measure provides information about the growth
of invested assets during a specific period
 
as a result
of net new money flows.
Net profit growth (%)
Calculated as the change in net profit attributable
 
to
shareholders from continuing operations between
current and comparison periods divided by net profit
attributable to shareholders from continuing
operations of the comparison period.
This measure provides information about profit
growth since the comparison period.
Operating expenses (underlying)
(USD)
Calculated by adjusting operating expenses
 
as
reported in accordance with IFRS Accounting
Standards for items that management believes
 
are
not representative of the underlying performance of
the businesses.
›
Refer to the “Group performance” section of the
UBS Group Annual Report 2023 for more
information
This measure provides information about the amount
of operating expenses, while excluding items
 
that
management believes are not representative of the
underlying performance of the businesses.
Operating profit / (loss) before tax
(underlying) (USD)
Calculated by adjusting operating profit / (loss) before
tax as reported in accordance with IFRS Accounting
Standards for items that management believes
 
are
not representative of the underlying performance of
the businesses.
›
Refer to the “Group performance” section of the
UBS Group Annual Report 2023 for more
information
This measure provides information about the amount
of operating profit / (loss) before tax, while excluding
items that management believes are not
representative of the underlying performance of the
businesses.
Pre-tax profit growth (%)
– Global Wealth Management,
Personal & Corporate Banking,
Asset Management,
the Investment Bank
Calculated as the change in net profit before tax
attributable to shareholders from continuing
operations between current and comparison periods
divided by net profit before tax attributable to
shareholders from continuing operations of the
comparison period.
This measure provides information about pre-tax
profit growth since the comparison period.
Pre-tax profit growth (underlying) (%)
– Global Wealth Management,
Personal & Corporate Banking,
Asset Management,
the Investment Bank
Calculated as the change in net profit before tax
attributable to shareholders from continuing
operations between current and comparison periods
divided by net profit before tax attributable to
shareholders from continuing operations of the
comparison period. Net profit before tax attributable
to shareholders from continuing operations excludes
items that management believes are not
representative of the underlying performance of the
businesses and also excludes related tax impact.
This measure provides information about pre-tax
profit growth since the comparison period, while
excluding items that management believes
 
are not
representative of the underlying performance of the
businesses.
Recurring net fee income
(USD and CHF)
– Global Wealth Management,
Personal & Corporate Banking
Calculated as the total of fees for services provided
 
on
an ongoing basis, such as portfolio management
 
fees,
asset-based investment fund fees and custody
 
fees,
which are generated on client assets, and
administrative fees for accounts.
This measure provides information about the amount
of recurring net fee income.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Report 2023 |
Appendix
 
262
APM label
Calculation
 
Information content
Return on attributed equity (%)
Calculated as annualized business division
 
operating
profit before tax divided by average attributed equity.
This measure provides information about the
profitability of the business divisions in relation to
attributed equity.
Return on common equity tier 1
capital (%)
Calculated as annualized net profit attributable to
shareholders divided by average common equity
 
tier 1
capital.
This measure provides information about the
profitability of the business in relation to common
equity tier 1 capital.
Return on equity (%)
Calculated as annualized net profit attributable to
shareholders divided by average equity attributable
 
to
shareholders.
This measure provides information about the
profitability of the business in relation to equity.
Return on leverage ratio denominator,
gross (%)
Calculated as annualized total revenues divided by
average leverage ratio denominator.
This measure provides information about the revenues
of the business in relation to the leverage ratio
denominator.
Return on tangible equity (%)
Calculated as annualized net profit attributable to
shareholders divided by average equity attributable
 
to
shareholders less average goodwill and intangible
assets.
This measure provides information about the
profitability of the business in relation to tangible
equity.
Tangible book value per share
(USD)
Calculated as equity attributable to shareholders less
goodwill and intangible assets divided by the
 
number
of shares outstanding.
This measure provides information about tangible net
assets on a per-share basis.
Total book value per share
(USD)
Calculated as equity attributable to shareholders
divided by the number of shares outstanding.
This measure provides information about net assets
on a per-share basis.
Total revenues (underlying)
(USD)
Calculated by adjusting total revenues as reported in
accordance with IFRS
Accounting Standards for items
that management believes are not representative of
the underlying performance of the businesses.
›
Refer to the “Group performance” section of the
UBS Group Annual Report 2023 for more
information
This measure provides information about the amount
of total revenues, while excluding items that
management believes are not representative of the
underlying performance of the businesses.
Transaction-based income
(USD and CHF)
– Global Wealth Management,
Personal & Corporate Banking
Calculated as the total of the non-recurring portion
 
of
net fee and commission income, mainly composed
 
of
brokerage and transaction-based investment fund
fees, and credit card fees, as well as fees for payment
and foreign-exchange transactions, together with
other net income from financial instruments
measured at fair value through profit or loss.
This measure provides information about the amount
of the non-recurring portion of net fee and
commission income, together with other net
 
income
from financial instruments measured at fair value
through profit or loss.
Underlying cost / income ratio (%)
Calculated as underlying operating expenses
 
(as
defined above) divided by underlying total
 
revenues
(as defined above).
 
This measure provides information about the
efficiency of the business by comparing operating
expenses with total revenues, while excluding items
that management believes are not representative of
the underlying performance of the businesses.
Underlying net profit growth (%)
Calculated as the change in net profit attributable
 
to
shareholders from continuing operations between
current and comparison periods divided by net profit
attributable to shareholders from continuing
operations of the comparison period.
 
Net profit
attributable to shareholders from continuing
operations excludes items that management
 
believes
are not representative of the underlying performance
of the businesses and also excludes related tax
impact.
This measure provides information about profit
growth since the comparison period,
 
while excluding
items that management believes are not
representative of the underlying performance of the
businesses.
Underlying return on common equity
tier 1 capital (%)
Calculated as annualized net profit attributable to
shareholders divided by average common equity
 
tier 1
capital. Net profit attributable to shareholders
excludes items that management believes
 
are not
representative of the underlying performance of the
businesses and also excludes related tax impact.
This measure provides information about the
profitability of the business in relation to common
equity tier 1 capital,
 
while excluding items that
management believes are not representative of the
underlying performance of the businesses.
Underlying return on tangible equity
(%)
Calculated as annualized net profit attributable to
shareholders divided by average equity attributable
 
to
shareholders less average goodwill and intangible
assets.
 
Net profit attributable to shareholders excludes
items that management believes are not
representative of the underlying performance of the
businesses and also excludes related tax impact.
This measure provides information about the
profitability of the business in relation to tangible
equity, while excluding items that management
believes are not representative of the underlying
performance of the businesses.
This is a general list of the APMs used in our
 
financial reporting. Not all of the APMs
 
listed above may appear in
this particular report.
 
 
 
Annual Report 2023 |
Appendix
 
263
Abbreviations frequently used in our financial reports
A
ABS
 
asset-backed securities
AG
 
Aktiengesellschaft
AGM
 
Annual General Meeting of
shareholders
A-IRB
 
advanced internal ratings-
based
AIV
 
alternative investment
vehicle
ALCO
 
Asset and Liability
Committee
AMA
 
advanced measurement
approach
AML
 
anti-money laundering
APM
 
alternative performance
measure
ARR
 
alternative reference rate
ARS
 
auction rate securities
ASF
 
available stable funding
AT1
 
additional tier 1
AuM
 
assets under management
B
BCBS
 
Basel Committee on
Banking Supervision
BIS
 
Bank for International
Settlements
BoD
 
Board of Directors
C
CAO
 
Capital Adequacy
Ordinance
CCAR
 
Comprehensive Capital
Analysis and Review
CCF
 
credit conversion factor
CCP
 
central counterparty
CCR
 
counterparty credit risk
CCRC
 
Corporate Culture and
Responsibility Committee
CDS
 
credit default swap
CEA
 
Commodity Exchange Act
CEO
 
Chief Executive Officer
CET1
 
common equity tier 1
CFO
 
Chief Financial Officer
CGU
 
cash-generating unit
CHF
 
Swiss franc
CIO
 
Chief Investment Office
C&ORC
 
Compliance & Operational
Risk Control
CRM
 
credit risk mitigation (credit
risk) or comprehensive risk
measure (market risk)
CST
 
combined stress test
CUSIP
 
Committee on Uniform
Security Identification
Procedures
CVA
 
credit valuation adjustment
D
DBO
 
defined benefit obligation
DCCP
 
Deferred Contingent
Capital Plan
 
DE&I
 
diversity, equity and
inclusion
DFAST
 
Dodd–Frank Act Stress Test
DM
 
discount margin
DOJ
 
US Department of Justice
DTA
 
deferred tax asset
DVA
 
debit valuation adjustment
E
EAD
 
exposure at default
EB
 
Executive Board
EC
 
European Commission
ECB
 
European Central Bank
ECL
 
expected credit loss
EGM
 
Extraordinary General
Meeting of shareholders
EIR
 
effective interest rate
EL
 
expected loss
EMEA
 
Europe, Middle East and
Africa
EOP
 
Equity Ownership Plan
EPS
 
earnings per share
ESG
 
environmental, social and
governance
ESR
 
environmental and social
risk
ETD
 
exchange-traded derivatives
ETF
 
exchange-traded fund
EU
 
European Union
EUR
 
euro
EURIBOR
 
Euro Interbank Offered Rate
EVE
 
economic value of equity
EY
 
Ernst & Young Ltd
F
FA
 
financial advisor
FCA
 
UK Financial Conduct
Authority
FDIC
 
Federal Deposit Insurance
Corporation
FINMA
 
Swiss Financial Market
Supervisory Authority
FMIA
 
Swiss Financial Market
Infrastructure Act
FSB
 
Financial Stability Board
FTA
 
Swiss Federal Tax
Administration
FVA
 
funding valuation
adjustment
FVOCI
 
fair value through other
comprehensive income
FVTPL
 
fair value through profit or
loss
FX
 
foreign exchange
G
GAAP
 
generally accepted
accounting principles
GBP
 
pound sterling
GCRG
 
Group Compliance,
Regulatory & Governance
GDP
 
gross domestic product
GEB
 
Group Executive Board
GHG
 
greenhouse gas
GIA
 
Group Internal Audit
GRI
 
Global Reporting Initiative
G-SIB
 
global systemically
important bank
H
HQLA
high-quality liquid assets
I
IAS
 
International Accounting
Standards
IASB
 
International Accounting
Standards Board
IBOR
 
interbank offered rate
IFRIC
 
International Financial
Reporting Interpretations
Committee
IFRS
 
Accounting Standards
Accounting
 
issued by the IASB
Standards
IRB
 
internal ratings-based
IRRBB
 
interest rate risk in the
banking book
ISDA
 
International Swaps and
Derivatives Association
ISIN
 
International Securities
Identification Number
 
 
Annual Report 2023 |
Appendix
 
264
Abbreviations frequently used in our financial reports (continued)
K
KRT
 
Key Risk Taker
L
LAS
 
liquidity-adjusted stress
LCR
 
liquidity coverage ratio
LGD
 
loss given default
LIBOR
 
London Interbank Offered
Rate
LLC
 
limited liability company
LoD
 
lines of defense
LRD
 
leverage ratio denominator
LTIP
 
Long-Term
 
Incentive Plan
LTV
 
loan-to-value
M
M&A
 
mergers and acquisitions
MRT
 
Material Risk Taker
N
NII
 
net interest income
NSFR
 
net stable funding ratio
NYSE
 
New York Stock Exchange
O
OCA
 
own credit adjustment
OCI
 
other comprehensive
income
OECD
 
Organisation for Economic
Co-operation and
Development
OTC
 
over-the-counter
P
PCI
 
purchased credit impaired
PD
 
probability of default
PIT
 
point in time
PPA
 
purchase price allocation
P&L
 
profit or loss
Q
QCCP
 
Qualifying central
counterparty
R
RBC
 
risk-based capital
RbM
 
risk-based monitoring
REIT
 
real estate investment trust
RMBS
 
residential mortgage-
backed securities
RniV
 
risks not in VaR
RoCET1
 
return on CET1 capital
RoU
 
right-of-use
rTSR
 
relative total shareholder
return
RWA
 
risk-weighted assets
S
SA
 
standardized approach or
société anonyme
SA-CCR
 
standardized approach for
counterparty credit risk
SAR
 
Special Administrative
Region of the People’s
Republic of China
SDG
 
Sustainable Development
Goal
SEC
 
US Securities and Exchange
Commission
SFT
 
securities financing
transaction
SI
 
sustainable investing or
sustainable investment
SIBOR
 
Singapore Interbank
Offered Rate
SICR
 
significant increase in credit
risk
SIX
 
SIX Swiss Exchange
SME
 
small and medium-sized
entities
SMF
 
Senior Management
Function
SNB
 
Swiss National Bank
SOR
 
Singapore Swap Offer Rate
SPPI
 
solely payments of principal
and interest
SRB
 
systemically relevant bank
SRM
 
specific risk measure
SVaR
 
stressed value-at-risk
T
TBTF
 
too big to fail
TCFD
 
Task
 
Force on Climate-
related Financial Disclosures
TIBOR
 
Tokyo
 
Interbank Offered
Rate
TLAC
 
total loss-absorbing capacity
TTC
 
through the cycle
U
USD
 
US dollar
V
VaR
 
value-at-risk
VAT
value added tax
This is a general list of the abbreviations frequently used in our financial reporting. Not all of
 
the listed abbreviations may
appear in this particular report.
 
 
Annual Report 2023 |
Appendix
 
265
Information sources
 
Reporting publications
Annual publications
UBS AG Annual
 
Report
: Published in
 
English,
 
this report provides
 
descriptions of: the
 
UBS AG
 
(consolidated) performance;
the strategy
 
and performance
 
of the
 
business divisions
 
and Group Items;
 
risk, treasury
 
and capital
 
management; corporate
governance; and financial information, including the financial
 
statements.
 
Compensation Report
: This report discusses the
 
compensation framework and provides information about compensation
for
 
the
 
Board
 
of
 
Directors
 
and
 
the
 
Group
 
Executive
 
Board
 
members.
 
It
 
is
 
available
 
in
 
English
 
and
 
German
(
“Vergütungsbericht
”) and represents a component of the UBS Group Annual
 
Report.
Sustainability
 
Report
:
 
Published
 
in
 
English,
 
the
 
Sustainability
 
Report
 
provides
 
disclosures
 
on
 
environmental,
 
social
 
and
governance topics related to the UBS Group. It also provides
 
certain disclosures related to diversity, equity and inclusion.
Quarterly publications
 
Quarterly
 
financial
 
report
:
 
This
 
report
 
provides
 
an
 
update
 
on
 
performance
 
and
 
strategy
 
(where
 
applicable)
 
for
 
the
respective quarter. It is available in English.
The
 
annual and
 
quarterly
 
publications
 
are
 
available
 
in
 
.pdf
 
and
 
online
 
formats
 
at
ubs.com/investors
,
 
under
 
“Financial
information.”
 
Starting
 
with
 
the
 
Annual
 
Report
 
2022,
 
printed
 
copies,
 
in
 
any
 
language,
 
of the
 
aforementioned
 
annual
publications are no longer provided.
 
Other information
The “Investor Relations”
 
website at
ubs.com/investors
 
provides the following
 
information about UBS:
 
results-related news
releases;
 
financial
 
information,
 
including
 
results-related
 
filings
 
with
 
the
 
US
 
Securities
 
and
 
Exchange
 
Commission
 
(the
SEC); information for
 
shareholders, including
 
UBS share
 
price charts,
 
as well as
 
data and dividend
 
information, and
 
for
bondholders; the corporate calendar; and presentations by management for investors and
 
financial analysts. Information
is available online in English, with some information also
 
available in German.
Results presentations
Quarterly
 
results
 
presentations
 
are
 
webcast
 
live.
 
Recordings
 
of
 
most
 
presentations
 
can
 
be
 
downloaded
 
from
ubs.com/presentations
.
Messaging service
Email
 
alerts
 
to
 
news
 
about
 
UBS
 
can
 
be
 
subscribed
 
for
 
under
 
“UBS
 
News
 
Alert”
 
at
ubs.com/global/en/investor-
relations/contact/investor-services.html
. Messages are sent in English, German, French or Italian, with an option to select
theme preferences for such alerts.
Form 20-F and other submissions to the US Securities
 
and Exchange Commission
UBS files
 
periodic
 
reports
 
with
 
and submits
 
other
 
information
 
to
 
the
 
SEC.
 
Principal
 
among
 
these
 
filings
 
is the
 
annual
report on Form 20-F, filed pursuant to
 
the US Securities Exchange Act of 1934.
 
The filing of Form 20-F is structured
 
as a
wraparound document. Most sections of the filing
 
can be satisfied by referring to the
 
UBS AG Annual Report. However,
there is a
 
small amount of
 
additional information in Form 20-F
 
that is not
 
presented elsewhere and is
 
particularly targeted
at readers in the US. Readers are encouraged to refer to this additional disclosure. Any document that filed with the SEC
is available on the SEC’s website:
sec.gov
. Refer to
ubs.com/investors
 
for more information.
 
 
 
Annual Report 2023 |
Appendix
 
266
Cautionary statement
 
regarding forward-looking statements
 
|
 
This report contains
 
statements that
 
constitute “forward-looking
 
statements,” including
 
but
not limited to management’s
 
outlook for UBS’s financial performance,
 
statements relating to the
 
anticipated effect of transactions
 
and strategic initiatives on
UBS’s
 
business and
 
future
 
development and
 
goals
 
or
 
intentions to
 
achieve climate,
 
sustainability and
 
other social
 
objectives. While
 
these
 
forward-looking
statements represent
 
UBS’s judgments,
 
expectations and
 
objectives concerning the
 
matters described,
 
a number
 
of risks,
 
uncertainties and
 
other important
factors could cause actual developments and results to differ materially from UBS’s expectations. In particular,
 
terrorist activity and conflicts
 
in the Middle East,
as well as the continuing Russia–Ukraine
 
war, may have significant impacts on global markets,
 
exacerbate global inflationary pressures, and slow
 
global growth.
In addition,
 
the ongoing
 
conflicts may
 
continue to
 
cause significant
 
population displacement,
 
and lead
 
to shortages
 
of vital
 
commodities, including
 
energy
shortages and food insecurity outside the areas immediately involved in armed conflict. Governmental responses to the armed conflicts, including, with
 
respect
to the Russia–Ukraine war, coordinated successive
 
sets of sanctions on
 
Russia and Belarus,
 
and Russian and Belarusian
 
entities and nationals, and
 
the uncertainty
as to whether
 
the ongoing conflicts will
 
widen and intensify,
 
may continue to
 
have significant adverse effects
 
on the market and
 
macroeconomic conditions,
including in
 
ways that
 
cannot be
 
anticipated. UBS’s
 
acquisition of
 
the Credit
 
Suisse Group
 
has materially
 
changed our
 
outlook and
 
strategic direction
 
and
introduced new operational challenges. The integration
 
of the Credit Suisse entities into the UBS structure is expected
 
to take between three and five years and
presents significant
 
risks, including
 
the risks that
 
UBS Group AG
 
may be unable
 
to achieve
 
the cost reductions
 
and other benefits
 
contemplated by
 
the transaction.
This creates significantly greater uncertainty about forward-looking statements. Other factors that may affect our performance and ability to achieve our plans,
outlook and other objectives also
 
include, but are not limited to:
 
(i) the degree to which UBS is successful
 
in the execution of its
 
strategic plans, including its cost
reduction and efficiency initiatives
 
and its ability to manage
 
its levels of risk-weighted
 
assets (RWA) and leverage ratio
 
denominator (LRD), liquidity
 
coverage ratio
and other financial resources,
 
including changes in RWA assets
 
and liabilities arising from higher
 
market volatility and the size
 
of the combined Group; (ii) the
degree to which UBS is successful in implementing changes to its businesses to meet changing market, regulatory
 
and other conditions, including as a result of
the acquisition of the Credit Suisse
 
Group; (iii) increased inflation and interest rate
 
volatility in major markets; (iv) developments in the macroeconomic climate
and in the markets in
 
which UBS operates or
 
to which it is
 
exposed, including movements
 
in securities prices or liquidity, credit spreads, currency
 
exchange rates,
deterioration or slow recovery in residential and commercial real estate markets, the effects of economic conditions, including increasing inflationary pressures,
market developments, increasing geopolitical tensions, and changes to national trade policies on the financial position or creditworthiness of
 
UBS’s clients and
counterparties, as well as on client sentiment and levels of activity; (v) changes in the availability of capital and funding, including
 
any adverse changes in UBS’s
credit spreads and credit ratings of UBS, Credit Suisse, sovereign issuers, structured credit products or
 
credit-related exposures, as well as availability and cost of
funding to
 
meet requirements
 
for debt
 
eligible for
 
total loss-absorbing
 
capacity (TLAC),
 
in particular
 
in light
 
of the
 
acquisition of
 
the Credit
 
Suisse Group;
(vi) changes in central
 
bank policies or
 
the implementation
 
of financial legislation
 
and regulation in
 
Switzerland, the
 
US, the UK,
 
the EU and
 
other financial
 
centers
that have imposed, or resulted
 
in, or may do so
 
in the future, more stringent
 
or entity-specific capital,
 
TLAC, leverage ratio, net
 
stable funding ratio, liquidity
 
and
funding
 
requirements,
 
heightened
 
operational
 
resilience
 
requirements,
 
incremental
 
tax
 
requirements,
 
additional
 
levies,
 
limitations
 
on
 
permitted
 
activities,
constraints on remuneration, constraints
 
on transfers of capital
 
and liquidity and sharing of
 
operational costs across the
 
Group or other measures, and the
 
effect
these will
 
or would
 
have on
 
UBS’s business
 
activities; (vii) UBS’s
 
ability to
 
successfully implement
 
resolvability and
 
related regulatory requirements
 
and the
 
potential
need to make further changes to the
 
legal structure or booking model of
 
UBS in response to legal and regulatory requirements
 
and any additional requirements
due to its acquisition of the Credit Suisse Group, or other developments; (viii) UBS’s ability to maintain and improve its systems and controls for complying
 
with
sanctions in a timely
 
manner and for the detection
 
and prevention of money
 
laundering to meet evolving
 
regulatory requirements and expectations,
 
in particular
in current geopolitical turmoil; (ix)
 
the uncertainty arising from domestic
 
stresses in certain major economies;
 
(x) changes in UBS’s competitive
 
position, including
whether differences in regulatory capital and other requirements among the major financial centers adversely affect UBS’s ability to
 
compete in certain lines of
business; (xi) changes in the standards of conduct applicable to our businesses that may result from new regulations or new enforcement of existing standards,
including measures to impose new and enhanced duties when interacting with customers and in the execution and handling of customer transactions; (xii) the
liability to which UBS may be exposed, or possible
 
constraints or sanctions that regulatory authorities
 
might impose on UBS, due to litigation, contractual
 
claims
and regulatory
 
investigations, including the
 
potential for
 
disqualification from
 
certain businesses, potentially
 
large fines
 
or monetary
 
penalties, or
 
the loss
 
of
licenses or privileges as
 
a result of
 
regulatory or other governmental sanctions, as
 
well as the effect
 
that litigation, regulatory and similar
 
matters have on the
operational risk component of our RWA, including as a result of
 
its acquisition of the Credit Suisse Group, as well as
 
the amount of capital available for return
to shareholders; (xiii) the effects on UBS’s business, in particular cross-border
 
banking, of sanctions, tax or regulatory developments and of possible changes in
UBS’s policies
 
and practices;
 
(xiv) UBS’s ability
 
to retain
 
and attract
 
the employees
 
necessary to
 
generate revenues
 
and to
 
manage, support
 
and control
 
its
businesses, which may be
 
affected by competitive factors;
 
(xv) changes in accounting
 
or tax standards or
 
policies, and determinations
 
or interpretations affecting
the
 
recognition
 
of
 
gain
 
or
 
loss,
 
the
 
valuation
 
of
 
goodwill,
 
the
 
recognition
 
of
 
deferred
 
tax
 
assets
 
and
 
other matters;
 
(xvi) UBS’s ability
 
to
 
implement new
technologies and business methods, including digital services and technologies, and ability to successfully compete with both existing
 
and new financial service
providers, some of which may not be
 
regulated to the same extent; (xvii) limitations on the
 
effectiveness of UBS’s internal processes for risk management, risk
control, measurement and modeling,
 
and of financial models
 
generally; (xviii) the occurrence of
 
operational failures, such as
 
fraud, misconduct, unauthorized
trading, financial crime, cyberattacks,
 
data leakage and systems failures,
 
the risk of which is increased
 
with cyberattack threats from both
 
nation states and non-
nation-state actors targeting
 
financial institutions; (xix) restrictions
 
on the ability of UBS
 
Group AG and UBS AG
 
to make payments or
 
distributions, including due
to restrictions on the ability of
 
its subsidiaries to make loans or distributions, directly
 
or indirectly,
 
or, in
 
the case of financial difficulties, due to
 
the exercise by
FINMA or the regulators of UBS’s operations in other countries of their broad statutory powers in relation
 
to protective measures, restructuring and liquidation
proceedings; (xx) the degree to which
 
changes in regulation, capital or
 
legal structure, financial results or
 
other factors may affect UBS’s ability
 
to maintain its
stated capital return objective;
 
(xxi) uncertainty over the scope
 
of actions that may
 
be required by UBS, governments
 
and others for UBS to
 
achieve goals relating
to climate, environmental and social matters, as well as the evolving
 
nature of underlying science and industry and the possibility of conflict
 
between different
governmental standards and regulatory regimes; (xxii) the ability of UBS to
 
access capital markets; (xxiii) the ability of UBS to successfully
 
recover from a disaster
or other
 
business continuity
 
problem due
 
to a
 
hurricane, flood,
 
earthquake, terrorist
 
attack, war,
 
conflict (e.g.,
 
the Russia–Ukraine
 
war), pandemic,
 
security
breach, cyberattack, power
 
loss, telecommunications failure or
 
other natural or
 
man-made event, including
 
the ability to
 
function remotely during
 
long-term
disruptions such as the COVID-19 (coronavirus) pandemic; (xxiv) the level
 
of success in the absorption of Credit Suisse, in the integration of the two groups
 
and
their businesses, and in the execution of the planned strategy regarding cost reduction and divestment of any non-core assets, the existing assets and liabilities
of Credit Suisse, the level
 
of resulting impairments and write-downs, the effect of
 
the consummation of the integration on the operational results,
 
share price
and credit
 
rating of UBS
 
– delays,
 
difficulties, or
 
failure in
 
closing the transaction
 
may cause market
 
disruption and challenges
 
for UBS
 
to maintain
 
business,
contractual and operational relationships;
 
and (xxv) the effect that these or other
 
factors or unanticipated events,
 
including media reports and speculations,
 
may
have on our
 
reputation and the
 
additional consequences that this
 
may have on
 
our business and
 
performance. The sequence in
 
which the factors
 
above are
presented is not indicative of their likelihood of occurrence or the potential magnitude of their consequences.
 
Our business and financial performance could be
affected by other factors identified in our past and
 
future filings and reports, including those filed with the
 
US Securities and Exchange Commission (the SEC).
More detailed information about those factors is set forth in documents furnished by UBS and filings made by UBS with
 
the SEC, including the UBS Group AG
and UBS AG Annual Reports
 
on Form 20- F for the year
 
ended 31 December 2023. UBS
 
is not under any obligation
 
to (and expressly disclaims any
 
obligation to)
update or alter its forward-looking statements, whether
 
as a result of new information, future events, or otherwise.
Rounding |
 
Numbers presented throughout this report may not add up
 
precisely to the totals provided in the tables and text.
 
Percentages and percent changes
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 |
 
Within tables, blank fields generally indicate non-applicability or that presentation of any content would not be meaningful, or that information is not
available as of the relevant date or for the relevant period. Zero values generally indicate that the respective figure is zero on an actual or rounded basis.
 
Values
that are zero on a rounded basis can be either negative
 
or positive on an actual basis.
 
In this report, any
 
website addresses are provided
 
solely for information
 
and are not intended
 
to be active links.
 
UBS is not incorporating
 
the contents
of any such websites into this report.
ubs-20231231p284i0
 
 
UBS AG
P.O. Box, CH-8098 Zurich
P.O. Box, CH-4002 Basel
ubs.com

Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘20-F’ Filing    Date    Other Filings
6/19/24
Filed on:3/28/24424B2,  6-K
For Period end:12/31/2313F-NT,  6-K
11/7/23424B2,  424B3,  6-K
8/31/23424B2,  424B8,  6-K,  FWP
4/27/23424B2,  424B3,  6-K,  FWP
6/17/15424B2,  6-K,  FWP
12/31/1420-F,  424B2,  6-K,  FWP
12/21/12424B2,  6-K,  FWP
4/5/12424B2,  6-K,  FWP
10/3/02
 List all Filings 

1 Subsequent Filing that References this Filing

  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 4/25/24  UBS AG                            F-3                    6:709K                                   Donnelley … Solutions/FA

2 Previous Filings that this Filing References

  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 6/17/15  UBS Group AG                      6-K         6/17/15    1:5M                                     Donnelley … Solutions/FA
 3/13/15  UBS AG                            20-F       12/31/14   14:45M                                    Donnelley … Solutions/FA
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