DBRS Ratings Limited (DBRS Morningstar) confirmed the Long-Term Issuer Rating of UBS AG (the Bank) at AA (low) and the Long-Term Issuer Rating of UBS Group AG (UBSG or the Group), the top-level holding company, at A (high). All the Short-Term ratings were confirmed at R-1 (middle). The trend on all the ratings is Stable. The Bank’s Intrinsic Assessment (IA) is AA (low) and the Support Assessment is SA1. The Group’s Support Assessment is SA3. See the full list of ratings in the table at the end of this press release.
KEY RATING CONSIDERATIONS
The confirmation of UBSG’s ratings reflects the Group’s global and diversified franchise in wealth management, its strong investment bank and asset management business, and the leading banking franchise in its home country of Switzerland. The rating confirmation also reflects the Group’s improved profitability, which has benefitted from strong revenue growth across all businesses, particularly in Global Wealth Management and in the Investment Bank, which has also benefited from strong client activity and market volatility. UBSG’s ratings continue to reflect the Group’s sound asset quality and solid funding and liquidity and strong capital position. DBRS Morningstar considers that the Group’s improved earnings generation and solid capitalisation should provide a significant cushion to absorb any potential fines arising from outstanding litigation cases which should not translate into any material impact on the Group’s franchise.
UBSG’s Long-Term Issuer Rating is positioned one notch below the Bank’s IA reflecting the structural subordination of the holding company.
The Long-Term ratings would be upgraded if the Group demonstrates sustainable growth in profitability across multiple business lines whilst maintaining its current robust risk profile and capitalisation.
A downgrade of the Long-Term ratings would arise if there is evidence of any material weakening of the core franchise, risk profile and / or capital.
Franchise Combined Building Block (BB) Assessment: Very Strong/Strong
UBSG is one of the largest international financial institutions globally and is the number one Wealth Manager globally. The Group has a leading franchise in retail and commercial banking in Switzerland and has a strong Investment Bank (IB) that provides services that include advisory, equity underwriting and equities and FX trading services, with particular strength in equity derivatives in EMEA and APAC. In Global Wealth Management (GWM), the Group is present in EMEA, Asia Pacific and the US and is particularly focused on the Ultra High Net Worth (UHNW) and High Net Worth (HNW) segments. The Group had total invested assets in GWM and Asset Management businesses of USD 4.4 trillion at end-Q3 2021.
Earnings Combined Building Block (BB) Assessment: Strong/Good
UBSG's profitability is improving, partly benefiting from the strategic initiatives that have been implemented to reposition its wealth management business, whilst also taking advantage of its investment banking franchise capability. This increased collaboration between GWM and IB has resulted in profitability improving in both of the last 2 years. UBSG reported net profit attributable to shareholders of USD 6.1 billion in 9M 2021, up 24% Year-on-Year (YoY), reflecting strong revenue growth in GWM and in the IB, although the latter’s 9M 2021 result was impacted by a USD 861 million operating revenue loss related to a US prime brokerage client default. Similar to most US and European peers, UBS also reported COVID-19 credit reversals, these totalled USD 121 million in 9M 2021, against the credit loss of USD 628 million in 9M 2020. The Group’s reported Return on Equity was 13.8% in 9M 2021, up from 11.5% in 9M 2020 and much improved from 8.9% in 9M 2019. Revenues from GWM benefitted from strong growth in recurring fee-based income, and growth was strong across all geographies, particularly in the Americas. IB revenues, excluding the prime brokerage loss, were up around 8% YoY, with strong growth in underwriting and advisory revenues YoY. Operating expenses increased by 5% in 9M 2021 YoY, largely attributable to variable and financial advisors compensation.
Risk Combined Building Block (BB) Assessment: Strong
UBSG has a conservative risk profile and sound asset quality. However, similarly to many US and European peers, the Group remains subject to investigations related to managing operational/reputational risk. We consider that any material fine as a result of major litigation cases has the potential to negatively impact banks’ franchise and profitability. At present, there are two major outstanding cases, the French tax case and the RMBS case in the US. In February 2019, a French court found the Group guilty of unlawful solicitation of clients on French territory and aggravated laundering of the proceeds of tax fraud and imposed fines of around EUR 4.5 billion on the Group. The Group has appealed the case and an outcome on the appeal is expected in mid-December 2021. Our expectation is that the final economic and reputational impact from this case will be manageable for the Group due to the Group’s strong franchise and capital position and sound earnings generation. Moreover, UBSG has already provisioned EUR 450 million for this case and has total provisions for litigation, regulatory and similar matters of USD 2.1 billion at end-September 2021.
UBSG has strong asset quality with low levels of gross impaired loans (stage 3). Stage 3 loans to customers and financial advisors totaled USD 2.8 billion at end-Q3 2021, down 19% from end-2020 although slightly higher than USD 2.6 billion at end-2019. At end-Q3 2021, the stage 3 loans to customers and financial advisors ratio (as calculated by DBRS Morningstar) was 0.7%, improved from 0.9% at end-2020 and 0.8% at end-2019.
Funding and Liquidity Combined Building Block (BB) Assessment: Very Strong / Strong
The Group’s funding and liquidity position is strong, supported by a large and stable deposit base, benefiting from its GWM business and the strength of its banking franchise in its home country. The pandemic has benefited its customer deposit base, with total customer deposits increasing to USD 517.7 billion at end-Q3 2021, up 15% from end-2019, largely supported by deposit growth in GWM and P&CB. The Group has well-diversified funding sources across various markets, products and currencies. At end-Q3 2021, the Group reported a sound liquidity coverage ratio (LCR) of 157%, and a Net Stable Funding Ratio (NSFR) of 118%.
Capitalisation Combined Building Block (BB) Assessment: Strong
UBSG's capital position is strong and has been significantly reinforced with improved retained earnings generation. UBSG reported a fully-loaded Basel 3 CET1 ratio of 14.9% at end-Q3 2021, significantly up from 13.5% at end-Q3 2020 and 13.8% at end-2020, and well above the approximately 13% CET1 ratio guidance. The fully applied Tier 1 leverage ratio also improved to 5.8% at end-Q3 2021 from 5.5% the year before and compares well to peers.
Further details on the Scorecard Indicators and Building Block Assessments can be found at
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.
All figures are in USD unless otherwise noted.
The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (19 July 2021). https://www.dbrsmorningstar.com/research/381742/global-methodology-for-rating-banks-and-banking-organisations
Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (3 February 2021) https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings
The sources of information used for this rating include UBS Annual Reports (2015-2020), UBS Quarterly Reports (2015 Q1-2021 Q3), UBS Earnings Presentations (2015-2021 Q3), and S&P Global Market Intelligence. DBRS Morningstar considers the information available to it for the purposes of providing this rating to be of satisfactory quality.
With respect to FCA and ESMA regulations in the United Kingdom and European Union, respectively, this is an unsolicited credit rating. This credit rating was not initiated at the request of the issuer.
With Rated Entity or Related Third-Party Participation: YES
With Access to Internal Documents: NO
With Access to Management: NO
DBRS Morningstar does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.
Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar's outlooks and ratings are under regular surveillance.
For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.
The sensitivity analysis of the relevant key rating assumptions can be found at: https://www.dbrsmorningstar.com/research/388186
This rating is endorsed by DBRS Ratings GmbH for use in the European Union.
Lead Analyst: Maria Rivas, Senior Vice President - Global FIG
Rating Committee Chair: Ross Abercromby, Managing Director, Global FIG
Initial Rating Date: May 17, 2010
Last Rating Date: November 17, 2020
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