UBS Group AG (0R3T) Risk Analysis
Risk Overview Q4, 2021
Source: the company's latest filing for the period ended Dec 31, 2021, filed Mar 07, 2022
Risk Change Over Time
No filing history is available.
- Debt & Financing - Risk 1Interest rate trends and changes could negatively affect our financial results
The low or negative interest rate environment, particularly inSwitzerland and the Eurozone, may further erode interest marginsand adversely affect the net interest income generated by thePersonal & Corporate Banking and Global Wealth Managementbusinesses. The Swiss National Bank permits Swiss banks to makedeposits up to a threshold at zero interest. Any reduction in orlimitation on the use of this exemption from the otherwiseapplicable negative interest rates would exacerbate the effect ofnegative interest rates in Switzerland on our business. Low and negative interest rates may also affect customerbehavior and hence our overall balance sheet structure. Mitigatingactions that we have taken, or may take in the future, such as theintroduction of selective deposit fees or minimum lending rates,have resulted and may further result in the loss of customerdeposits (a key source of funding for us), net new money outflowsand a declining market share in our Swiss lending business.Interest rates in the US and some other markets are expected toincrease as central banks respond to higher inflation. As returnsfor alternatives to deposits, such as money market funds, increasewith interest rates, we may experience outflows of customerdeposits or a higher cost of deposit funding if customers shiftfrom deposits to alternative products.Our shareholders’ equity and capital are also affected bychanges in interest rates. In particular, the calculation of our Swisspension plan’s net defined benefit assets and liabilities is sensitiveto the applied discount rate and to fluctuations in the value ofpension plan assets. Any further reduction in interest rates maylower the discount rates and result in pension plan deficits as aresult of the long duration of corresponding liabilities. This couldlead to a corresponding reduction in our equity and CET1 capital.
- Corporate Activity and Growth - Risk 2We may be unable to fully realize our sustainability, climate,environmental and social goals, which could damage ourbusiness prospects, reputation and lead to increased regulatory scrutiny and increased risk of litigation
e have set ambitious goals for environmental, social andgovernance matters. These goals include our ambitions forenvironmental sustainability in our operations, including carbonemissions, in the business we do with clients and in products thatwe offer. They also include goals or ambitions for diversity in ourworkforce and supply chain, and support for the United NationsSustainable Development Goals. There is substantial uncertaintyas to the scope of actions that may be required of us,governments and others to achieve the goals we have set, andmany of our goals and objectives are only achievable with acombination of government and private action. National andinternational standards, industry and scientific practices, andregulatory taxonomies and disclosure obligations addressingthese matters are in a state of rapid development. Although wehave defined and disclosed our goals based on the standards thatexist today, there can be no assurance that the various ESGregulatory and disclosure regimes under which we operate willnot come into conflict with one another or that the currentstandards will not be interpreted differently than ourunderstanding or change in a manner that substantially increasesthe cost or effort for us to achieve such goals or that such goalsmay prove to be considerably more difficult or even impossible toachieve. If we are not able to achieve the goals we have set, orcan only do so at significant expense to our business, we may failto meet regulatory expectations, incur damage to our reputationor be exposed to risk of litigation or other adverse action.
Risk Highlights Q4, 2021
Risk Word Cloud
Risk Factors Full Breakdown - Total Risks 20
- Accounting & Financial Operations - Risk 1Our financial results may be negatively affected by changes toassumptions and valuations, as well as changes to accounting standards
We prepare our consolidated financial statements in accordancewith International Financial Reporting Standards (IFRS). Theapplication of these accounting standards requires the use ofjudgment based on estimates and assumptions that may involvesignificant uncertainty at the time they are made. This is the case,for example, with respect to the measurement of fair value offinancial instruments, the recognition of deferred tax assets, theassessment of the impairment of goodwill, expected credit lossesand estimation of provisions for litigation, regulatory and similarmatters. Such judgments, including the underlying estimates andassumptions, which encompass historical experience,expectations of the future and other factors, are regularlyevaluated to determine their continuing relevance based oncurrent conditions. Using different assumptions could cause thereported results to differ. Changes in assumptions, or failure tomake the changes necessary to reflect evolving market conditions,may have a significant effect on the financial statements in theperiods when changes occur. Estimates of provisions may besubject to a wide range of potential outcomes and significantuncertainty. For example, the broad range of potential outcomesin our proceeding in France increases the uncertainty associatedwith assessing the appropriate provision. If the estimates andassumptions in future periods deviate from the current outlook,our financial results may also be negatively affected. Changes to IFRS or interpretations thereof may cause futurereported results and financial position to differ from currentexpectations, or historical results to differ from those previouslyreported due to the adoption of accounting standards on aretrospective basis. Such changes may also affect our regulatorycapital and ratios. For example, the introduction of the expectedcredit loss (ECL) framework under IFRS 9 in 2018 fundamentallychanged how credit risk arising from loans, loan commitments,guarantees and certain revocable facilities is accounted for. Underthe regime, credit loss expenses may increase rapidly at the onsetof an economic downturn as a result of higher levels of creditimpairments (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 ina deteriorating economic environment. Substantial increases inECL could exceed expected loss for regulatory capital purposesand adversely affect our CET1 capital and regulatory capital ratios.
- Accounting & Financial Operations - Risk 2As UBS Group AG is a holding company, its operating results,financial condition and ability to pay dividends and otherdistributions and / or to pay its obligations in the future dependon funding, dividends and other distributions received directly orindirectly from its subsidiaries, which may be subject to restrictions
UBS Group AG’s ability to pay dividends and other distributionsand to pay its obligations in the future will depend on the level offunding, dividends and other distributions, if any, received fromUBS AG and other subsidiaries. The ability of such subsidiaries tomake loans or distributions, directly or indirectly, to UBS GroupAG may be restricted as a result of several factors, includingrestrictions in financing agreements and the requirements ofapplicable law and regulatory, fiscal or other restrictions. Inparticular, UBS Group AG’s direct and indirect subsidiaries,including UBS AG, UBS Switzerland AG, UBS Americas HoldingLLC and UBS Europe SE, are subject to laws and regulations thatrestrict dividend payments, authorize regulatory bodies to blockor reduce the flow of funds from those subsidiaries to UBS GroupAG, or could affect their ability to repay any loans made to, orother investments in, such subsidiary by UBS Group AG or anothermember of the Group. For example, in the early stages of theCOVID-19 pandemic, the European Central Bank ordered allbanks under its supervision to cease dividend distributions and theFederal Reserve Board has limited capital distributions by bankholding companies and intermediate holding companies.Restrictions and regulatory actions of this kind could impedeaccess to funds that UBS Group AG may need to meet itsobligations or to pay dividends to shareholders. In addition, UBSGroup AG’s right to participate in a distribution of assets upon asubsidiary’s liquidation or reorganization is subject to all priorclaims of the subsidiary’s creditors.Our capital instruments may contractually prevent UBS GroupAG from proposing the distribution of dividends to shareholders,other than in the form of shares and from engaging inrepurchases of shares, if we do not pay interest on these instruments. Furthermore, UBS Group AG may guarantee some of thepayment obligations of certain of the Group’s subsidiaries fromtime to time. These guarantees may require UBS Group AG toprovide substantial funds or assets to subsidiaries or their creditorsor counterparties at a time when UBS Group AG is in need ofliquidity to fund its own obligations.The credit ratings of UBS Group AG or its subsidiaries used forfunding purposes could be lower than the ratings of the Group’soperating subsidiaries, which may adversely affect the marketvalue of the securities and other obligations of UBS Group AG or those subsidiaries on a standalone basis.
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