Contacts & Terms

Corporate calendar UBS Group AG

Publication of the third quarter 2022 report: Tuesday, 25 October 2022

Publication of the fourth quarter 2022 report: Tuesday, 31 January 2023

Corporate calendar UBS AG

Publication of the second quarter 2022 report: Friday, 29 July 2022

Publication dates of future quarterly and annual reports and results are made available as part of the corporate calendar of UBS AG at ubs.com/investors.

Contacts

Switchboards

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Investor Relations

UBS’s Investor Relations team manages relationships with institutional investors, research analysts and credit rating agencies.

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UBS’s Media Relations team manages relationships with global media and journalists.

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Office of the Group Company Secretary

The Group Company Secretary handles inquiries directed to the Chairman or to other members of the Board of Directors.

UBS Group AG, Office of the Group Company Secretary
P.O. Box, CH-8098 Zurich, Switzerland

sh-company-secretary@ubs.com

Zurich +41-44-235 6652

Shareholder Services

UBS’s Shareholder Services team, a unit of the Group Company Secretary’s office, manages relationships with shareholders and the registration of UBS Group AG registered shares.

UBS Group AG, Shareholder Services
P.O. Box, CH-8098 Zurich, Switzerland

sh-shareholder-services@ubs.com

Zurich +41-44-235 6652

US Transfer Agent

For global registered share-related
inquiries in the US.

Computershare Trust Company NA
P.O. Box 505000
Louisville, KY 40233-5000, USA

Shareholder online inquiries:
www-us.computershare.com/​investor/​contact

Shareholder website:
computershare.com/investor

Calls from the US
+1-866-305-9566
Calls from outside the US
+1-781-575-2623
TDD for hearing impaired
+1-800-231-5469
TDD for foreign shareholders
+1-201-680-6610

Imprint

Publisher: UBS Group AG, Zurich, Switzerland | ubs.com
Language: English

© UBS 2022. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved.

Terms used in this report, unless the context requires otherwise

UBS Group

Management report

Recent developments

Russia’s invasion of Ukraine

The war in Ukraine has led to one of the largest humanitarian crises in decades, severe sanctions imposed by various governments on Russia and certain Russian entities and nationals, a mass exodus of businesses from Russia, and heightened volatility across global markets. The long-term consequences are still difficult to assess, but there will likely be global ramifications that are felt for some time.

As a result of Russia’s invasion of Ukraine, several jurisdictions, including the US, the EU, the UK, Switzerland and others, continue to impose extensive sanctions on Russia and Belarus and certain Russian and Belarusian entities and nationals.

We are not conducting any new business in Russia or with Russia-domiciled clients.

We have reduced our exposure to Russia following the invasion of Ukraine in February 2022. Our direct country risk exposure to Russia decreased to USD 0.3bn as of 30 June 2022 compared with USD 0.4bn as of 31 March 2022 and USD 0.6bn as of 31 December 2021. This includes trade finance exposures in Personal & Corporate Banking, a single loan in the Investment Bank, nostro and cash account balances and issuer risk on trading inventory within the Investment Bank. We had no material direct country risk exposures to Ukraine or to Belarus as of 30 June 2022.

Reliance on Russian, Ukrainian or Belarusian assets as collateral for secured financing is negligible.

Countries have imposed, and continue to impose, novel forms of sanctions. For example, in the first quarter of 2022, the EU and Switzerland prohibited acceptance of deposits in excess of EUR 100,000 from Russian persons not entitled to residency in the European Economic Area (the EEA) or Switzerland. Around 0.4% of our invested assets in Global Wealth Management as of 30 June 2022 related to such clients, compared with around 0.7% as of 31 March 2022.

We are monitoring potential second-order impacts on our clients and other counterparties, including those that may result from a prolongation or escalation of hostilities. These may include, but are not limited to, effects of supply chain disruptions and impacts on industry sectors that are affected by energy and other commodity prices or dependent on specific geographies.

We continue to monitor settlement risk on certain open transactions with Russian bank and non-bank counterparties or Russian underlyings, as market closures and the imposition of exchange controls, sanctions or other measures may further limit our ability to settle transactions or to realize collateral if required, which may result in unexpected increases in exposures.

Russia’s invasion of Ukraine and the imposition of sanctions on Russia and Belarus have increased the risk of cyberattacks from foreign state actors, activists or other parties.

As of 19 July 2022, more than 10,000 clients and 12,000 UBS employees had donated over USD 25m to the UBS Optimus Foundation Ukraine Relief Fund. Combined with the matched funding from UBS and our strategic partner XTX Markets, more than USD 50m has been raised to support the immediate response to the humanitarian crisis, as well as longer-term recovery efforts. Through partners, including Hope and Homes for Children and the International Rescue Committee, we provide a variety of assistance measures, such as distributing basic survival and medical supplies and services, making emergency grants to local organizations serving children, and facilitating refugee integration into host countries.

Regulatory and legal developments

Amendment of the Swiss Capital Adequacy Ordinance regarding the final implementation of Basel III

In July 2022, the Swiss Federal Department of Finance (the FDF) launched a consultation on amending the Swiss Capital Adequacy Ordinance with the aim of implementing the final elements of the Basel Committee on Banking Supervision (BCBS) reforms (Basel III) in Swiss law. In parallel, the Swiss Financial Market Supervisory Authority (FINMA) has opened a consultation on the associated implementing circulars.

We currently estimate that the implementation of the revised Basel III framework may lead to a net increase in risk-weighted assets (RWA) of around USD 20bn in 2024, excluding mitigating actions. The estimate includes credit risk and operational risk RWA from the finalization of the Basel III framework, as well as market risk and credit valuation adjustment RWA from the fundamental review of the trading book (FRTB), based on our current understanding of the relevant standards. The precise impact might change as a result of new or revised regulatory interpretations, including those related to historical operational losses and model calibration, the implementation of Basel III standards into national law, changes in business growth, market conditions and other factors.

The consultations will last until 25 October 2022. The Swiss Federal Council’s Capital Adequacy Ordinance and the associated FINMA ordinances are scheduled to enter into force on 1 July 2024, with the phasing in of certain elements until 2028.

Revision of the Swiss liquidity requirements

In June 2022, the Swiss Federal Council adopted the revisions to the Swiss Liquidity Ordinance. The revisions will increase the regulatory minimum liquidity requirements for systemically important banks, including UBS Group AG. The increase in UBS’s liquidity requirements remains uncertain pending supervisory guidance from FINMA. The final rule became effective on 1 July 2022, with a transition period of 18 months.

In accordance with Article 31b of the Liquidity Ordinance, the FDF provided a report to the Swiss Federal Council in which it reviewed Swiss and foreign provisions regarding the net stable funding ratio. The report identified no need for regulatory action.

FINMA revision of Circular 2008/21 “Operational Risks – Banks”

In July 2022, FINMA completed a consultation regarding the revision of Circular 2008/21 “Operational Risks – Banks,” which will incorporate the BCBS’s new Principles on Operational Resilience into the FINMA framework. The circular will also cover the updated Principles for the Sound Management of Operational Risk, which cover a range of issues, including managing information and communication technology risks, cyber risks, and the risks involving critical data. The revised circular will enter into force on 1 January 2023, and firms will be given three years thereafter to comply with the operational resilience elements thereof.

Developments regarding sustainability and climate risk

In June 2022, the Swiss Bankers Association issued two new self-regulation minimum requirements. One requirement sets standards for the consideration of sustainability criteria in the investment advisory process and the other regulates the mortgage advisory process.

In parallel, in June 2022 the FDF jointly with industry associations, non-governmental organizations and selected companies, including UBS, developed a voluntary best-practice approach for investing in line with the COP 21 Paris Agreement. This resulted in the Swiss Climate Scores, which consist of six indicators that provide transparency regarding climate-related information, such as carbon emissions and the implied temperature increase of a portfolio. The scores were developed to underpin Switzerland’s leading role as a sustainable financial center. UBS will start its implementation efforts in the second half of 2022.

In April 2022, the US Securities and Exchange Commission published its proposed rules on climate-related disclosures in the US Federal Register. The proposal requires qualitative disclosures on climate risk management processes inclusive of governance, risk identification and scenario analyses, and quantitative disclosures on greenhouse gas emissions and financial statement impacts. As proposed, the new requirements would apply beginning with our Annual Report 2023.

Other developments

Sale of our shareholding in Mitsubishi Corp.-UBS Realty Inc.

In the second quarter of 2022, we completed the sale of our 49% shareholding in our Japanese real estate joint venture, Mitsubishi Corp.-UBS Realty Inc., to KKR & Co. Inc., as announced on 17 March 2022. The sale resulted in a pre-tax gain of USD 848m in Asset Management and increased our CET1 capital by USD 979m. Our asset management, wealth management and investment banking businesses operating in Japan were not affected by the sale.

Organizational changes

As announced on 12 July 2022, Iqbal Khan will become sole President Global Wealth Management, effective 3 October 2022, following Tom Naratil’s decision to step down as Co-President Global Wealth Management and President UBS Americas. Naureen Hassan will join UBS from the Federal Reserve Bank of New York to succeed Tom Naratil as President UBS Americas and CEO of UBS Americas Holding LLC and will become a member of UBS’s Group Executive Board on 3 October 2022.

Group performance

Results: 2Q22 vs 2Q21

Operating profit before tax increased by USD 22m, or 1%, to USD 2,615m, reflecting lower operating expenses and an increase in total revenues, largely offset by net credit loss expenses of USD 7m compared with net credit loss releases of USD 80m in the second quarter of 2021. Operating expenses decreased by USD 89m, or 1%, to USD 6,295m, which included positive foreign currency effects. Personnel expenses decreased by USD 350m, mainly reflecting lower expenses for salaries and variable compensation, partly offset by a USD 267m increase in general and administrative expenses, mainly due to higher expenses for litigation, regulatory and similar matters. Total revenues increased by USD 20m to USD 8,917m, which included negative foreign currency effects. Other income increased by USD 626m, largely driven by USD 810m higher gains on sale of minority shareholdings in Asset Management, partly offset by real estate-related losses of USD 46m, compared with gains of USD 101m in the prior-year quarter. In addition, total combined net interest income and other net income from financial instruments measured at fair value through profit or loss increased by USD 178m. These effects were largely offset by a USD 783m decrease in net fee and commission income, reflecting negative market performance and lower levels of IPO and follow-on activity, as well as a decrease in the level of client activity.

Total revenues: 2Q22 vs 2Q21

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 178m to USD 3,284m, mainly driven by Global Wealth Management and the Investment Bank, partly offset by Group Functions.

Global Wealth Management increased by USD 227m to USD 1,548m, largely reflecting higher net interest income, mainly due to an increase in deposit revenues, which was driven by both higher deposit margins, as a result of rising interest rates, and increased deposit volumes.

The Investment Bank increased by USD 73m to USD 1,370m. Financing increased by USD 122m, mainly as the prior-year quarter included an USD 87m loss incurred from the exit of remaining exposures relating to the default of a US-based client of our prime brokerage business in the first quarter of 2021. Derivatives & Solutions increased by USD 107m, driven by Rates and Foreign Exchange, which benefited from elevated volatility due to inflationary concerns and the actions of central banks, partly offset by lower revenues in Credit resulting from widening spreads. These increases were partly offset by a USD 126m decrease in Global Banking, mainly reflecting lower Leveraged Capital Markets revenues.

Group Functions was negative USD 265m compared with negative USD 158m, mainly reflecting the net effects of accounting asymmetries, including hedge accounting ineffectiveness, within Group Treasury.

Net fee and commission income

Net fee and commission income decreased by USD 783m to USD 4,774m.

Underwriting fees decreased by USD 276m to USD 111m, largely driven by lower equity underwriting revenues from public offerings in the Investment Bank, reflecting lower levels of IPO and follow-on activity.

Investment fund fees and fees for portfolio management and related services decreased by USD 172m and USD 128m, respectively, driven by Asset Management and Global Wealth Management, mainly reflecting negative market performance, partly offset by the effects of net new money generation and net new fee-generating assets, respectively. In addition, Asset Management performance fee income decreased, mainly in our Hedge Fund businesses and Equities.

Net brokerage fees decreased by USD 145m to USD 818m, reflecting lower levels of client activity in Global Wealth Management, particularly in the Americas and Asia Pacific, and in the Investment Bank in relation to cash equities.

M&A and corporate finance fees decreased by USD 110m to USD 220m, largely reflecting lower revenues from merger and acquisition transactions in the Global Banking business in the Investment Bank.

Other income

Other income was USD 859m, compared with USD 233m in the prior-year quarter. The increase was largely driven by USD 810m higher gains on sale of minority shareholdings in Asset Management, largely reflecting an USD 848m gain in the second quarter of 2022, related to the sale of our shareholding in our Japanese real estate joint venture, Mitsubishi Corp.-UBS Realty Inc. This was partly offset by USD 46m of remeasurement losses relating to properties held for sale, compared with gains of USD 101m in the prior-year quarter. The second quarter of 2021 also included income of USD 45m related to a legacy bankruptcy claim.

Credit loss expense / release: 2Q22 vs 2Q21

Total net credit loss expenses were USD 7m, compared with net credit loss releases of USD 80m in the prior-year quarter, reflecting USD 16m net credit loss expenses related to stage 1 and 2 positions and USD 9m net credit loss releases related to stage 3 positions.

Operating expenses: 2Q22 vs 2Q21

Personnel expenses

Personnel expenses decreased by USD 350m to USD 4,422m, largely driven by lower salary costs, mainly reflecting foreign currency effects, lower variable compensation and a decrease in financial advisor compensation resulting from lower compensable revenues.

General and administrative expenses

General and administrative expenses increased by USD 267m to USD 1,370m, mainly driven by higher expenses for litigation, regulatory and similar matters, travel and entertainment, and IT.

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.

Tax: 2Q22 vs 2Q21

We recognized income tax expenses of USD 497m for the second quarter of 2022, representing an effective tax rate of 19.0%, compared with USD 581m and an effective tax rate of 22.4% for the second quarter of 2021. Current tax expenses were USD 367m, compared with USD 362m, and related to taxable profits of UBS Switzerland AG and other entities. Deferred tax expenses were USD 130m, compared with USD 219m. These include an expense of USD 76m that primarily relates to the amortization of deferred tax assets previously recognized in relation to tax losses carried forward and deductible temporary differences of UBS Americas Inc. In addition, they include an expense of USD 54m in respect of a decrease in the expected value of future tax deductions for deferred compensation awards, due to a decrease in the Group’s share price during the quarter.

The effective tax rate for the second quarter of 2022 of 19.0% is low primarily because no net tax expense was recognized in respect of the pre-tax gain of USD 848m that resulted from the sale of our shareholding in Mitsubishi Corp.-UBS Realty Inc. However, this impact on the effective tax rate was partly offset by the aforementioned expense of USD 54m in respect of deferred compensation awards.

Excluding any potential effects from the remeasurement of deferred tax assets in connection with this year’s business planning process and any potential US corporate tax rate changes or other material jurisdictional statutory tax rate changes that could be enacted, we expect a tax rate for the second half of 2022 of around 24%.

Total comprehensive income attributable to shareholders

In the second quarter of 2022, total comprehensive income attributable to shareholders was positive USD 1,097m, reflecting net profit of USD 2,108m and other comprehensive income (OCI), net of tax, of negative USD 1,011m.

OCI related to cash flow hedges was negative USD 1,171m, mainly reflecting net unrealized losses on US dollar hedging derivatives resulting from significant increases in the relevant US dollar long-term interest rates.

Foreign currency translation OCI was negative USD 577m, mainly resulting from a weakening of the Swiss franc (3%) and the euro (5%) against the US dollar.

OCI associated with financial assets measured at fair value through OCI (FVOCI) was positive USD 330m, mainly reflecting the reclassification of a portfolio of high-quality liquid assets from Financial assets measured at FVOCI to Other financial assets measured at amortized cost, thereby reversing post-tax unrealized losses of USD 333m.

OCI related to own credit on financial liabilities designated at fair value was positive USD 271m, primarily due to a widening of our own credit spreads.

Defined benefit plan OCI was positive USD 115m, reflecting positive net pre-tax OCI related to our non-Swiss pension plans of USD 135m, mainly driven by the UK pension plan, partly offset by negative pre-tax OCI in our Swiss pension plan of USD 13m.

OCI related to cost of hedging was positive USD 21m, mainly driven by a widening of the US dollar / euro cross-currency basis that increased the fair value of the cross-currency swaps.

Sensitivity to interest rate movements

As of 30 June 2022, we estimate that a parallel shift in yield curves by +100 basis points could lead to a combined increase in annual net interest income of approximately USD 1.8bn in Global Wealth Management and Personal & Corporate Banking in the first year after such a shift. Of this increase, approximately USD 0.7bn would result from changes in US dollar interest rates, a similar amount from changes in Swiss franc interest rates and USD 0.2bn from changes in euro interest rates. A parallel shift in yield curves by –100 basis points could lead to a combined decrease in annual net interest income of approximately USD 1.4bn in Global Wealth Management and Personal & Corporate Banking in the first year after such a shift, mainly driven by positions denominated in US dollars.

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 30 June 2022 applied to our banking book. These estimates further assume no change to balance sheet size and structure, constant foreign exchange rates and no specific management action.

Key figures and personnel

Below we provide an overview of selected key figures of the Group. For further information about key figures related to capital management, refer to the “Capital management” section of this report.

Cost / income ratio: 2Q22 vs 2Q21

The cost / income ratio was 70.6%, compared with 71.8%, mainly reflecting a decrease in operating expenses, and includes the effect of the gain on sale of our shareholding in Mitsubishi Corp.-UBS Realty Inc.

Personnel: 2Q22 vs 1Q22

The number of personnel employed as of 30 June 2022 was broadly stable at 71,294 (full-time equivalents), a net decrease of 403 compared with 31 March 2022.

Common equity tier 1 capital: 2Q22 vs 1Q22

During the second quarter of 2022, our common equity tier 1 (CET1) capital increased by USD 0.2bn to USD 44.8bn, mainly driven by operating profit before tax of USD 2.6bn and a positive pre-tax effect of USD 0.4bn from the reclassification of a portfolio of high-quality liquid assets from Financial assets measured at FVOCI to Other financial assets measured at amortized cost, largely offset by share repurchases of USD 1.6bn, negative effects from foreign currency translation of USD 0.6bn, dividend accruals of USD 0.4bn and current tax expenses of USD 0.4bn.

Return on CET1 capital: 2Q22 vs 2Q21

The annualized return on CET1 capital was 18.9%, compared with 19.3%, driven by higher net profit attributable to shareholders, partly offset by an increase in average CET1 capital.

Risk-weighted assets: 2Q22 vs 1Q22

Risk-weighted assets (RWA) increased by USD 3.6bn to USD 315.7bn, primarily driven by increases of USD 4.3bn from model updates and USD 3.8bn from asset size and other movements, partly offset by a decrease of USD 5.0bn from currency effects.

Common equity tier 1 capital ratio: 2Q22 vs 1Q22

Our CET1 capital ratio decreased to 14.2% from 14.3%, reflecting a USD 3.6bn increase in RWA, partly offset by an increase in CET1 capital of USD 0.2bn.

Leverage ratio denominator: 2Q22 vs 1Q22

The leverage ratio denominator (the LRD) decreased by USD 47.5bn to USD 1,025.4bn, driven by currency effects of USD 27.3bn and a USD 20.3bn decrease due to asset size and other movements.

Common equity tier 1 leverage ratio: 2Q22 vs 1Q22

Our CET1 leverage ratio increased to 4.37% from 4.16%, primarily due to a USD 47.5bn decrease in the LRD.

Going concern leverage ratio: 2Q22 vs 1Q22

Our going concern leverage ratio increased to 5.8% from 5.6%, mainly reflecting the aforementioned decrease in the LRD.

Results 6M22 vs 6M21

Operating profit before tax increased by USD 453m, or 9%, to USD 5,344m.

Total revenues increased by USD 725m, or 4%, to USD 18,299m, which included negative foreign currency effects. Total combined net interest income and other net income from financial instruments measured at fair value through profit or loss increased by USD 1,253m, mainly reflecting the USD 861m loss in the prior-year period in relation to a default by a US-based client of our prime brokerage business. Other income increased by USD 594m, largely driven by USD 810m higher gains on sale of minority shareholdings in Asset Management, partly offset by real estate-related losses of USD 45m, compared with gains of USD 100m in the prior-year period. These increases were partly offset by USD 1,121m lower net fee and commission income, mainly reflecting a decrease in underwriting fees, particularly in Equity Capital Markets, and a decrease in net brokerage fees due to lower levels of client activity in Global Wealth Management and the Investment Bank. Investment fund fees decreased, reflecting negative market performance and lower performance fees, and revenues from merger and acquisition transactions also decreased.

Expected credit loss expenses were USD 25m, compared with releases of USD 108m in the prior-year period. Stage 1 and 2 net expenses were USD 27m and included scenario-related net expenses of USD 28m, model change-related net releases of USD 23m, mainly in Global Wealth Management Americas, and other net expenses of USD 22m, mainly including book quality and size effects from corporate and real estate lending portfolios in Switzerland. This was partly offset by a USD 2m release of stage 3 allowances.

Operating expenses increased by USD 139m, or 1%, to USD 12,929m, which included positive foreign currency effects. General and administrative expenses increased by USD 386m, mainly reflecting higher expenses for litigation, regulatory and similar matters, IT, outsourcing, and travel and entertainment. This increase was largely offset by a USD 230m decrease in personnel expenses, largely driven by lower salary costs, mainly reflecting foreign currency effects.

Outlook

High and increasing inflation and tight labor markets in many countries have led central banks to raise interest rates at an accelerated pace. The implications of Russia’s ongoing war in Ukraine, including higher energy and commodity prices, as well as the continuing effects of the pandemic and related restrictions, particularly in Asia Pacific, have increased uncertainty about the global economic outlook. As a result, equity and fixed income valuations declined steeply in the second quarter and high volatility persisted. Against this backdrop, client sentiment and activity among our private clients remained muted in the second quarter of 2022, while institutional trading activity remained strong. We expect these uncertainties to continue to affect client sentiment, which, combined with normal seasonality, may also affect client activity levels in the third quarter of 2022.

While lower asset valuations will have a negative impact on our recurring net fee income and weak client sentiment may affect net new assets in our asset gathering businesses, we expect higher interest rates will positively affect our net interest income.

Our clients value our capital strength and expert guidance, particularly in these uncertain times, and we remain focused on supporting them with advice and solutions.

UBS business divisions and Group Functions

Management report

Global Wealth Management

Results: 2Q22 vs 2Q21

Profit before tax decreased by USD 137m, or 11%, to USD 1,157m, mainly driven by lower total revenues and higher operating expenses.

Total revenues

Total revenues decreased by USD 83m to USD 4,677m, mainly due to decreases across transaction-based and recurring net fee income, partly offset by an increase in net interest income.

Net interest income increased by USD 242m, or 24%, to USD 1,268m, mainly reflecting higher deposit revenues, which were driven by both higher deposit margins, as a result of rising interest rates, and increased deposit volumes.

Recurring net fee income decreased by USD 160m, or 6%, to USD 2,614m, primarily driven by negative market performance and foreign currency effects, partly offset by net new fee-generating assets over the past twelve months.

Transaction-based income decreased by USD 160m, or 17%, to USD 793m, mainly driven by lower levels of client activity, particularly in the Americas and Asia Pacific.

Credit loss expense / release

Net credit loss releases were USD 3m, primarily related to stage 1 and 2 positions, compared with net releases of USD 14m in the second quarter of 2021.

Operating expenses

Operating expenses increased by USD 44m to USD 3,523m, mainly driven by an increase in provisions for litigation, regulatory and similar matters, as well as higher expenses for travel and entertainment, professional fees and outsourcing. These effects were partly offset by lower personnel expenses.

Fee-generating assets: 2Q22 vs 1Q22

Fee-generating assets decreased by USD 169.5bn, or 12%, to USD 1,244bn, almost entirely driven by net negative market performance and foreign currency effects. The change in fee-generating assets included a net decrease of USD 16bn from refinements to our fee-generating asset classification. Net new fee-generating asset inflows were USD 0.4bn and included an effect of USD 0.5bn due to the aforementioned refinements.

Loans: 2Q22 vs 1Q22

Loans decreased by USD 3.2bn to USD 227.1bn, mainly driven by negative foreign currency effects, partly offset by net new loans of USD 0.9bn.

Results: 6M22 vs 6M21

Profit before tax decreased by USD 237m, or 9%, to USD 2,467m, mainly reflecting higher operating expenses.

Total revenues decreased by USD 25m to USD 9,581m, as lower transaction-based and other income were almost entirely offset by increases in net interest and recurring net fee income.

Net interest income increased by USD 386m, or 19%, to USD 2,409m, mostly due to higher deposit revenues, driven by increases in deposit margins and volumes, as well as higher loan revenues, mainly driven by higher loan volumes and margins.

Recurring net fee income increased by USD 16m to USD 5,419m, primarily driven by net new fee-generating assets. This was largely offset by negative market performance and foreign currency effects.

Transaction-based income decreased by USD 389m, or 18%, to USD 1,747m, mainly driven by lower levels of client activity, particularly in Asia Pacific and the Americas.

Other income decreased by USD 39m to USD 5m, mainly driven by a valuation loss of USD 6m on our equity ownership of SIX Group, compared with a USD 9m gain in the first half of 2021, and lower gains from sales of securities positions.

Net credit loss releases were USD 10m, compared with net releases of USD 16m.

Operating expenses increased by USD 206m, or 3%, to USD 7,124m, mostly driven by an increase in provisions for litigation, regulatory and similar matters, as well as higher expenses for professional fees and travel and entertainment.

Regional comments 2Q22 vs 2Q21, except where indicated

Americas

Profit before tax decreased by USD 108m to USD 397m, mainly driven by an increase in provisions for litigation, regulatory and similar matters. Total revenues increased by USD 30m, or 1%, to USD 2,639m, mostly driven by higher net interest income. The cost / income ratio increased to 85.0% from 80.9%. Loans increased 4% compared with the first quarter of 2022, to USD 99bn, reflecting USD 3.8bn of net new loans, which were mostly securities-based loans and mortgages. Net new fee-generating assets were negative USD 3.5bn, resulting in a negative annualized net new fee-generating asset growth rate of 1.6%.

Switzerland

Profit before tax increased by USD 14m to USD 218m. Total revenues increased by USD 10m, or 2%, to USD 474m, mainly driven by higher net interest income. The cost / income ratio decreased to 54.1% from 57.5%. Loans decreased 2% compared with the first quarter of 2022, to USD 43bn, as USD 0.4bn of net new loans were offset by negative foreign currency effects. Net new fee-generating assets were USD 1.1bn, resulting in an annualized net new fee-generating asset growth rate of 3.4%.

EMEA

Profit before tax increased by USD 5m to USD 313m. Total revenues decreased by USD 48m, or 5%, to USD 925m, as higher net interest income was more than offset by decreases in recurring net fee and transaction-based income. The cost / income ratio decreased to 66.3% from 68.5%. Loans decreased 4% compared with the first quarter of 2022, to USD 43bn, reflecting net new loan outflows and negative foreign currency effects. Net new fee-generating assets were negative USD 0.5bn, resulting in a negative annualized net new fee-generating asset growth rate of 0.6%.

Asia Pacific

Profit before tax decreased by USD 44m to USD 239m. Total revenues decreased by USD 70m, or 10%, to USD 641m, mainly driven by lower transaction-based income. The cost / income ratio increased to 62.7% from 60.2%. Loans decreased 9% compared with the first quarter of 2022, to USD 41bn, reflecting USD 3.3bn of net new loan outflows as the current market uncertainty led to clients deleveraging. Net new fee-generating assets were USD 3.3bn, resulting in an annualized net new fee-generating asset growth rate of 12.0%.

Personal & Corporate Banking

Results: 2Q22 vs 2Q21

Profit before tax decreased by CHF 58m, or 13%, to CHF 398m, reflecting net credit loss expenses compared with net credit loss releases in the second quarter of 2021, as well as slightly higher operating expenses, partly offset by higher total revenues. Profit before tax in the prior-year quarter benefited from a number of items that totaled around CHF 90m, including CHF 42m of credit loss releases.

Total revenues

Total revenues increased by CHF 23m, or 2%, to CHF 1,018m, reflecting a CHF 49m increase from strong business momentum, with higher net interest, recurring net fee and transaction-based income. This was partly offset by lower other income.

Net interest income increased by CHF 22m to CHF 502m, mainly driven by deposit revenues due to higher deposit margins as a result of rising interest rates, as well as deposit management actions that led to higher deposit fees and a decrease in liquidity and funding costs. Growth in loan volumes more than offset the effects from pressure on loan margins.

Recurring net fee income increased by CHF 15m to CHF 202m, mostly driven by higher revenues from account fees, as well as higher revenues from mandate and custody fees, mainly due to net new investment product inflows over the past four quarters.

Transaction-based income increased by CHF 12m to CHF 300m, mainly driven by higher revenues from credit card and foreign exchange transactions, including the effects of a continued increase in spending on travel by clients following the easing of COVID-19-related restrictions in certain countries.

Other income decreased by CHF 27m to CHF 13m, due to the second quarter of 2021 including a CHF 26m gain from the sale of several properties across Switzerland.

Credit loss expense / release

Net credit loss expenses were CHF 33m, which primarily related to stage 1 and 2 positions, reflecting scenario-related net expenses related to corporate lending, as well as additional net expenses from book quality and size changes, mainly across the corporate and real estate lending portfolios. The second quarter of 2021 included net credit loss releases of CHF 42m.

Operating expenses

Operating expenses increased by CHF 6m, or 1%, to CHF 587m, mainly driven by higher investments in technology in the second quarter of 2022 and releases of provisions for litigation, regulatory and similar matters in the second quarter of 2021. These effects were almost entirely offset by lower personnel expenses in the second quarter of 2022.

Results: 6M22 vs 6M21

Profit before tax decreased by CHF 21m, or 3%, to CHF 793m, mainly reflecting net credit loss expenses compared with net credit loss releases in the first half of 2021, partly offset by higher total revenues.

Total revenues increased by CHF 96m, or 5%, to CHF 2,020m, reflecting a CHF 162m increase from strong business momentum, with higher transaction-based, recurring net fee and net interest income, partly offset by lower other income.

Net interest income increased by CHF 46m to CHF 996m, mainly driven by deposit revenues due to higher deposit margins as a result of rising interest rates, as well as deposit management actions that led to higher deposit fees and a decrease in liquidity and funding costs. Growth in loans more than offset the impact from pressure on margins.

Recurring net fee income increased by CHF 43m to CHF 412m, primarily reflecting higher revenues from mandate and custody fees, mainly due to net new investment product inflows, as well as higher revenues from account fees.

Transaction-based income increased by CHF 73m to CHF 600m, mainly driven by higher revenues from credit card and foreign exchange transactions, reflecting a continued increase in spending on travel by clients following the easing of COVID-19-related restrictions in certain countries in the first half of 2022.

Other income decreased by CHF 65m to CHF 13m, mostly due to the first half of 2022 including a valuation loss of CHF 16m on our equity ownership of SIX Group, compared with a CHF 26m gain thereon in the first half of 2021. The prior-year period also included a CHF 26m gain from the sale of several properties across Switzerland.

Net credit loss expenses were CHF 54m, with net credit loss expenses primarily related to stage 1 and 2 positions, reflecting scenario-related net expenses related to corporate lending, as well as additional net expenses from book quality and size changes, mainly across the corporate and real estate lending portfolios. The first half of 2021 included net credit loss releases of CHF 64m.

Total operating expenses were broadly stable at CHF 1,173m. Increased investments in technology were largely offset by lower personnel expenses and real estate expenses, as the prior-year period included expenses due to accelerated depreciation resulting from the closure of 44 branches, which led to lower real estate expenses for our branch network in the first half of 2022.

Asset Management

Results: 2Q22 vs 2Q21

Profit before tax increased by USD 704m, or 276%, to USD 959m, driven by a gain of USD 848m from the sale of our shareholding in the Mitsubishi Corp.-UBS Realty Inc. joint venture. Profit before tax in the second quarter of 2021 included a post-tax gain of USD 37m related to the sale of our minority interest in Clearstream Fund Centre. Excluding these gains, profit before tax decreased by USD 107m, or 49%, to USD 111m, reflecting lower net management and performance fees.

Total revenues

Total revenues increased by USD 706m, or 106%, to USD 1,372m. This included the aforementioned gains of USD 848m in the second quarter of 2022 and USD 37m in the prior-year quarter.

Net management fees decreased by USD 73m, or 12%, to USD 515m, reflecting negative market performance and foreign currency effects, partly offset by net new money generation over the past twelve months.

Performance fees decreased by USD 31m to USD 9m, mainly in our Hedge Fund Businesses and Equities.

Operating expenses

Operating expenses were broadly stable at USD 413m. Lower salary costs, partly reflecting foreign currency effects, were mainly offset by increases across a number of other expense lines, including variable compensation-related expenses.

Invested assets: 2Q22 vs 1Q22

Invested assets decreased by USD 128bn to USD 1,026bn, reflecting negative market performance of USD 84bn, foreign currency effects of USD 31bn and net new money outflows of USD 12bn. Excluding money market flows, net new money outflows were USD 12bn, primarily driven by Equities.

Results: 6M22 vs 6M21

Profit before tax increased by USD 651m, or 135%, to USD 1,133m, driven by the aforementioned gain of USD 848m. Profit before tax in the prior-year period included the aforementioned gain of USD 37m. Excluding these gains, profit before tax decreased by USD 159m, or 36%, to USD 286m, reflecting lower performance and net management fees.

Total revenues increased by USD 647m, or 50%, to USD 1,950m. This included the aforementioned gains of USD 848m in the first half of 2022 and USD 37m in the prior-year period.

Net management fees decreased by USD 57m, or 5%, to USD 1,076m, reflecting negative market performance and foreign currency effects, partly offset by net new money generation over the past twelve months.

Performance fees decreased by USD 107m to USD 26m, mainly in our Hedge Fund Businesses and Equities, compared with the particularly high levels of performance fees in the first half of 2021.

Operating expenses were broadly stable at USD 817m. Lower salary costs, partly reflecting foreign currency effects, were mainly offset by increases across a number of other expense lines, including variable compensation-related expenses.

Investment Bank

Results: 2Q22 vs 2Q21

Profit before tax decreased by USD 258m, or 39%, to USD 410m, mainly driven by lower total revenues, partly offset by lower operating expenses.

Total revenues

Total revenues decreased by USD 355m, or 14%, to USD 2,094m, reflecting lower revenues in Global Banking, partly offset by higher revenues in Global Markets.

Global Banking

Global Banking revenues decreased by USD 504m, or 57%, to USD 377m, mostly driven by lower Capital Markets revenues, compared with a 51% decrease in the overall global fee pool.

Advisory revenues decreased by USD 91m, or 30%, to USD 209m, due to lower revenues from merger and acquisition transactions, compared with a 28% reduction in the global merger and acquisition fee pool.

Capital Markets revenues decreased by USD 413m, or 71%, to USD 168m. Equity Capital Markets (ECM) revenues decreased by USD 235m, or 83%, reflecting lower levels of IPO and follow-on activity, compared with a 73% decrease in the global ECM fee pool, reflecting a challenging market environment. Leveraged Capital Markets (LCM) fee revenues decreased by USD 79m, or 64%, compared with a 60% decrease in the global LCM fee pool.

Global Markets

Global Markets revenues increased by USD 151m, or 10%, to USD 1,718m, partly due to the second quarter of 2021 including an USD 87m loss incurred from the exit of remaining exposure relating to the default of a US-based client of our prime brokerage business in the first quarter of 2021. Excluding that loss, revenues increased by USD 64m, or 4%, primarily driven by higher revenues in Rates and Foreign Exchange, partly offset by lower Credit and Cash Equities revenues.

Execution Services revenues decreased by USD 44m, or 10%, to USD 399m, partly driven by lower Cash Equities revenues due to lower exchange-traded volumes. Derivatives & Solutions revenues increased by USD 66m, or 9%, to USD 839m, driven by Rates and Foreign Exchange, benefiting from elevated volatility due to inflationary concerns and the actions of central banks, partly offset by lower revenues in Credit resulting from widening spreads.

Financing revenues increased by USD 127m, or 36%, to USD 479m. Excluding the aforementioned USD 87m loss in the second quarter of 2021, revenues increased by USD 40m, or 9%, due to higher Equity Financing revenues and increases in Clearing, which benefited from a higher interest rate environment.

Equities

Global Markets Equities revenues increased by USD 80m, or 7%, to USD 1,274m, as the second quarter of 2021 included the aforementioned loss in our prime brokerage business. Excluding that loss, Equities revenues decreased by USD 7m, or 1%.

Foreign Exchange, Rates and Credit

Global Markets Foreign Exchange, Rates and Credit revenues increased by USD 71m, or 19%, to USD 444m, mainly driven by Foreign Exchange and Rates, due to elevated volatility, inflationary concerns and the actions of central banks, partly offset by decreases in Credit revenues resulting from widening spreads.

Credit loss expense / release

Net credit loss releases were USD 28m, primarily related to a stage 3 net release, compared with net credit loss releases of USD 21m.

Operating expenses

Operating expenses decreased by USD 90m, or 5%, to USD 1,712m, mainly driven by favorable foreign currency effects and lower variable compensation, partly offset by higher expenses on technology and increases across a number of other expense lines.

Results: 6M22 vs 6M21

Profit before tax increased by USD 259m, or 24%, to USD 1,339m, due to the prior-year period including a loss related to the default of a client reported within Financing in Global Markets. This was partly offset by lower revenues in Global Banking.

Total revenues increased by USD 283m, or 6%, to USD 5,003m, reflecting higher revenues in Global Markets, offset by lower revenues in Global Banking.

Global Banking revenues decreased by USD 743m, or 44%, to USD 927m, reflecting lower revenues in Capital Markets and Advisory.

Advisory revenues decreased by USD 98m, or 19%, to USD 425m, due to lower revenues from merger and acquisition transactions, compared with a 6% decrease in the global merger and acquisition fee pool.

Capital Markets revenues decreased by USD 645m, or 56%, to USD 502m, mainly reflecting a USD 426m, or 75%, decrease in Equity Capital Markets revenues, compared with a decrease in the global ECM fee pool of 71%.

Global Markets revenues increased by USD 1,025m, or 34%, to USD 4,076m, partly due to the first half of 2021 including an USD 861m loss on the default of a US-based client of our prime brokerage business. Excluding that loss, revenues increased by USD 164m, or 4%, primarily driven by higher revenues in our Rates, Foreign Exchange and Equity Derivatives businesses, partly offset by lower revenues in Credit and Cash Equities.

Execution Services revenues decreased by USD 103m, or 10%, to USD 895m, mainly driven by Cash Equities due to lower exchange-traded volumes, particularly in Asia Pacific.

Derivatives & Solutions revenues increased by USD 237m, or 12%, to USD 2,257m, driven by Rates, Foreign Exchange and Equity Derivatives, on elevated volatility, inflationary concerns and the actions of central banks, partly offset by Credit, due to widening credit spreads.

Financing revenues increased by USD 891m to USD 924m, predominantly due to the first half of 2021 including the aforementioned loss in our prime brokerage business. Excluding that loss, revenues increased by USD 30m, or 3%.

Global Markets Equities revenues increased by USD 865m, or 41%, to USD 2,979m, due to the first half of 2021 including the aforementioned loss in our prime brokerage business. Global Markets Foreign Exchange, Rates and Credit revenues increased by USD 160m, or 17%, to USD 1,097m, driven by higher revenues in our Rates and Foreign Exchange businesses, partly offset by decreases in Credit revenues.

Net credit loss releases were largely unchanged.

Operating expenses increased by USD 25m, or 1%, to USD 3,688m, as favorable foreign exchange effects were more than offset by increases across a number of expense lines.

Group Functions

Results: 2Q22 vs 2Q21

Group Functions recorded a loss before tax of USD 324m, compared with a loss of USD 124m.

Group Treasury

The Group Treasury result was negative USD 239m, compared with negative USD 125m. Income from accounting asymmetries, including hedge accounting ineffectiveness, was net negative USD 214m, compared with net negative income of USD 84m. Accounting asymmetries are generally expected to mean revert to zero over time. Income related to centralized Group Treasury risk management was negative USD 19m, compared with negative USD 33m. Operating expenses decreased by USD 1m to USD 6m.

Non-core and Legacy Portfolio

The Non-core and Legacy Portfolio result was positive USD 1m, compared with negative USD 24m. This result was mainly due to valuation gains of USD 9m on our USD 1.6bn portfolio of auction rate securities (ARS), compared with valuation losses of USD 25m in the second quarter of 2021. Our remaining exposures to ARS were all rated investment grade as of 30 June 2022.

Group Services

The Group Services result was negative USD 86m, compared with positive USD 25m, mainly related to remeasurement losses of USD 46m on properties held for sale in the second quarter of 2022, compared with gains of USD 72m in the second quarter of 2021. The second quarter of 2022 also included higher funding costs related to deferred tax assets, partly offset by lower expenses relating to our legal entity transformation program.

Results: 6M22 vs 6M21

Group Functions recorded a loss before tax of USD 436m, compared with a loss of USD 263m.

The Group Treasury result was negative USD 400m, compared with negative USD 229m. This included income from accounting asymmetries, including hedge accounting ineffectiveness, of net negative USD 352m, compared with net negative income of USD 174m. Income related to centralized Group Treasury risk management was negative USD 36m, compared with negative USD 35m in the first half of 2021. Operating expenses decreased by USD 7m to USD 13m.

The Non-core and Legacy Portfolio result was positive USD 46m, compared with negative USD 19m. This result was mainly due to valuation gains of USD 58m on our USD 1.6bn portfolio of ARS, compared with valuation gains of USD 36m in the same period last year.

The Group Services result was negative USD 82m, compared with negative USD 14m, mainly due to remeasurement losses of USD 46m on properties held for sale in the first half of 2022, compared with gains of USD 72m in the same period last year. The first half of 2022 also included higher funding costs related to deferred tax assets, partly offset by lower expenses relating to our legal entity transformation program.

Risk, capital, liquidity and funding, and balance sheet

Management report

Risk management and control

This section provides information about key developments during the reporting period and should be read in conjunction with the “Risk management and control” section of our Annual Report 2021.

Credit risk

Overall banking products exposure

Overall banking products exposure decreased by USD 17bn to USD 689bn as of 30 June 2022, driven by a USD 16bn decrease in balances at central banks and an USD 8bn decrease in loans and advances to customers, primarily in Global Wealth Management and Personal & Corporate Banking due to the US dollar appreciating and clients in Asia Pacific deleveraging. This was partially offset by a USD 9bn increase in other financial assets measured at amortized cost, primarily due to a reclassification of a portfolio of Financial assets measured at fair value through other comprehensive income.

Credit-impaired gross exposure increased by USD 111m to USD 2,605m. Total net credit loss expenses were USD 7m, reflecting USD 16m net credit loss expenses related to stage 1 and 2 positions and USD 9m net credit loss releases related to stage 3 positions.

In aggregate, exposure related to traded products increased by USD 2.4bn to USD 55.4bn during the second quarter of 2022, driven primarily by increased market volatility.

Loan underwriting

In the Investment Bank, mandated loan underwriting commitments on a notional basis increased by USD 1.8bn to USD 4.8bn as of 30 June 2022, driven by a higher level of origination activity in the loan underwriting business compared with the prior quarter, yet below 2021 levels. USD 0.7bn of commitments had not yet been distributed as originally planned as of 30 June 2022.

Loan underwriting exposures are classified as held for trading, with fair values reflecting the market conditions at the end of the quarter. Credit hedges are in place to help protect against fair value movements in the portfolio.

Market risk

We continued to maintain generally low levels of management value-at-risk (VaR). Average management VaR (1‑day, 95% confidence level) increased marginally to USD 12m from USD 11m at the end of the first quarter of 2022.

There were no new Group VaR negative backtesting exceptions in the second quarter of 2022, and the total number of negative backtesting exceptions within the most recent 250-business-day window decreased to 1 from 2. The Swiss Financial Market Supervisory Authority (FINMA) VaR multiplier derived from backtesting exceptions for market risk risk-weighted assets was unchanged compared with the prior quarter, at 3.0.

Economic value of equity and net interest income sensitivity

The economic value of equity (EVE) sensitivity in the banking book to a +1-basis-point parallel shift in yield curves was negative USD 27.1m as of 30 June 2022, compared with negative USD 28.3m as of 31 March 2022, the change predominantly driven by rising market rates. EVE represents the present value of future cash flows related to the banking book irrespective of accounting treatment and, as per specific FINMA requirements, disregards the sensitivity of USD 4.2m from additional tier 1 (AT1) capital instruments that otherwise would be included under 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 19.9m (31 March 2022: USD 20.9m) assigned to our equity, goodwill and real estate, with the aim of generating a stable net interest income contribution. Of this, USD 14.3m and USD 4.7m are attributable to the US dollar and the Swiss franc portfolios, respectively (31 March 2022: USD 14.9m and USD 5.2m, 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 5.1bn, or 8.5%, of our tier 1 capital (31 March 2022: negative USD 5.5bn, or 9.1%), which is well below the 15% threshold as per the BCBS supervisory outlier test for high levels of interest rate risk in the banking book.

The immediate effect on our tier 1 capital in the “Parallel up” scenario as of 30 June 2022 would have been only a decrease of USD 0.1bn, or 0.2% (31 March 2022: USD 1.0bn or 1.7%), 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 net interest income, assuming a constant balance sheet.

UBS also applies granular internal interest rate shock scenarios to its banking book positions to monitor its specific risk profile.

Country risk

We remain watchful of a range of geopolitical developments and political changes in a number of countries, as well as international tensions arising from Russia’s invasion of Ukraine. As described in the “Recent developments” section of this report, our direct exposure to Russia, Belarus and Ukraine is limited, and we continue to monitor potential second-order impacts. We do have significant country risk exposure to major European economies, including Germany, the UK and France.

There continue to be concerns regarding a resurgence in global inflation, and the timing and economic impact of central bank policy responses (e.g., interest rate hikes and tapering of quantitative easing). There are related concerns about increasing energy prices in a number of countries, and global supply chain stresses and tight labor markets are creating negative pressure on growth. China has experienced a slowing economy following the post-pandemic boom, as well as recent COVID-19-related lockdowns.

We continue to monitor potential trade policy disputes, as well as economic and political developments in addition to those mentioned above. A number of emerging markets are facing economic, political and market pressures, particularly in light of challenges related to the COVID-19 pandemic, but our exposure to emerging market countries is diversified.

Non-financial risk

Operational resilience continues to be a focus area for us, as well as for regulators globally. We have a global program to enhance our operational-resilience capabilities, including addressing developing regulatory requirements.

Increases in the sophistication of cyberattacks and fraud are noted worldwide, especially with regard to ransomware attacks. We believe that to date, our security controls, regular communications to help employees to stay alert to cyber threats while working remotely, and enhanced monitoring of cyber threats have been generally effective. No cybersecurity incidents had a material effect on our operations during the second quarter of 2022. UBS continues to be vigilant, particularly in view of the potential for cyber threats to intensify, both in volume and sophistication, as a result of Russia’s invasion of Ukraine.

Our response to the COVID-19 pandemic has relied upon our business continuity management and operational risk processes. They have enabled us to: maintain stable operations while complying with governmental measures to contain COVID-19; continue to serve our clients without material impact; and support the safety and well-being of our staff.

Hybrid working arrangements can lead to increased conduct risk, inherent risk of fraudulent activities, potential increases in the number of suspicious transactions and increased information security risks. We have implemented additional monitoring and supervision intended to mitigate these risks and continue to review the effectiveness of these measures. In addition, changes to the work environment, including permanent hybrid and the introduction of agile ways of working, may introduce new challenges for supervision and monitoring.

Achieving fair outcomes for our clients, upholding market integrity and cultivating the highest standards of employee conduct are of critical importance to the firm. 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.

We are continuing our efforts regarding innovation and digitalization to create value for our clients. As part of the resulting transformation, we focus on timely changes to frameworks, including consideration of new or revised controls, working practices and oversight, with the aim of mitigating any new risks introduced, including those around data ethics.

Competition to find new business opportunities across the financial services industry, both for firms and for customers, is increasing. Thus, suitability risk, product selection, cross-divisional service offerings, quality of advice and price transparency also remain areas of heightened focus for UBS and for the industry as a whole. Market volatility and major legislative change programs (such as the Swiss Financial Services Act (FIDLEG) in Switzerland, Regulation Best Interest (Reg BI) in the US and the revised Markets in Financial Instruments Directive (MiFID II) in the EU), along with new requirements for sustainable investments, all significantly impact the industry and require adjustments to control processes. We regularly monitor our suitability, product and conflicts-of-interest control frameworks to assess whether they are reasonably designed to facilitate adherence to applicable laws and regulatory expectations.

Cross-border risk remains an area of regulatory attention for global financial institutions, with a strong focus on fiscal transparency, as well as market access, particularly third-country market access into the European Economic Area (the EEA). There is also an ongoing high level of attention regarding the risk that tax authorities may, on the basis of new interpretations of existing law, seek to impose taxation based on the existence of a permanent establishment. We maintain a series of controls designed to address these risks.

Financial crime, including money laundering, terrorist financing, sanctions violations, fraud, bribery and corruption, continues to present a major risk, as technological innovation and geopolitical developments increase the complexity of doing business and heightened regulatory attention continues. An effective financial crime prevention program therefore remains essential for UBS. Money laundering and financial fraud techniques are becoming increasingly sophisticated, and geopolitical volatility makes the sanctions landscape more complex, as new or novel sanctions may be imposed that require complex implementation in a short time frame. This was evidenced by the extensive sanctions arising from Russia’s invasion of Ukraine. New risks continue to emerge, such as virtual currencies and related activities or investments.

The Office of the Comptroller of the Currency issued a Cease and Desist Order against the firm in May 2018 relating to our US branch know-your-client (KYC) and anti-money-laundering (AML) programs. In response, we initiated an extensive program for the purpose of ensuring sustainable remediation of US-relevant Bank Secrecy Act / AML issues across all our US legal entities. We introduced significant improvements to the framework between 2019 and 2021 and are continuing to implement these.

We continued to focus on strategic enhancements to our global AML / KYC and sanctions programs to address evolving risk profiles and regulatory expectations, including the exploration of new technologies and more sophisticated monitoring.

Capital management

The disclosures in this section are provided for UBS Group AG on a consolidated basis and focus on key developments during the reporting period and information in accordance with the Basel III framework, as applicable to Swiss systemically relevant banks (SRBs).

UBS Group AG is a holding company and conducts substantially all of its operations through UBS AG and subsidiaries thereof. UBS Group AG and UBS AG have contributed a significant portion of their respective capital to, and provide substantial liquidity to, such subsidiaries. Many of these subsidiaries are subject to regulations requiring compliance with minimum capital, liquidity and similar requirements.

We are subject to the going and gone concern requirements of the Swiss Capital Adequacy Ordinance that include the too-big-to-fail provisions applicable to Swiss SRBs. The table on the previous page provides the risk-weighted asset (RWA)- and leverage ratio denominator (LRD)-based requirements and information as of 30 June 2022.

The applicable gone concern requirement floor as of 30 June 2022 was 10% for RWA and 3.75% for LRD purposes. This floor was increased by 1.4% for RWA and 0.75% for LRD in the first quarter of 2022. The aforementioned requirements are also applicable to UBS AG consolidated. UBS Switzerland AG and UBS AG are subject to going and gone concern requirements on a standalone basis.

Total loss-absorbing capacity

The table below provides Swiss SRB going and gone concern information based on the Swiss SRB framework and requirements that are discussed under “Capital management” in the “Capital, liquidity and funding, and balance sheet” section of our Annual Report 2021.

Total loss-absorbing capacity and movement

Our total loss-absorbing capacity (TLAC) decreased by USD 0.3bn to USD 106.2bn in the second quarter of 2022.

Going concern capital and movement

Our going concern capital decreased by USD 0.1bn to USD 59.9bn. Our common equity tier 1 (CET1) capital increased by USD 0.2bn to USD 44.8bn, mainly driven by operating profit before tax of USD 2.6bn and a positive pre-tax effect of USD 0.4bn from the reclassification of a portfolio of high-quality liquid assets from Financial assets measured at fair value through other comprehensive income (FVOCI) to Other financial assets measured at amortized cost, largely offset by share repurchases of USD 1.6bn, negative effects from foreign currency translation of USD 0.6bn, dividend accruals of USD 0.4bn and current tax expenses of USD 0.4bn.

Our additional tier 1 (AT1) capital decreased by USD 0.4bn to USD 15.1bn, mainly reflecting interest rate risk hedge, foreign currency translation and other effects.

Gone concern loss-absorbing capacity and movement

Our total gone concern loss-absorbing capacity decreased by USD 0.2bn to USD 46.3bn, mainly due to two calls of TLAC-eligible unsecured debt denominated in US dollars amounting to USD 3.0bn and interest rate risk hedge, foreign currency translation and other effects, largely offset by eight new issuances of TLAC-eligible senior unsecured debt, denominated in US dollars, euro and Australian dollars, amounting to USD 5.2bn equivalent.

Loss-absorbing capacity and leverage ratios

Our CET1 capital ratio decreased to 14.2% from 14.3%, reflecting a USD 3.6bn increase in RWA, partly offset by an increase in CET1 capital of USD 0.2bn.

Our CET1 leverage ratio increased to 4.37% from 4.16%, primarily due to a USD 47.5bn decrease in the LRD.

Our gone concern loss-absorbing capacity ratio decreased to 14.7% from 14.9%, due to the aforementioned increase in RWA and the decrease in gone concern loss-absorbing capacity of USD 0.2bn.

Our gone concern leverage ratio increased to 4.5% from 4.3%, mainly reflecting the aforementioned decrease in the LRD.