New York, January 11, 2016 -- Moody's Investors Service has upgraded -- by one notch -- the
long-term ratings of UBS AG and affiliates, including the
bank's long-term deposit rating to Aa3 from A1, its senior
unsecured debt rating to A1 from A2, its standalone baseline credit
assessment (BCA) to baa1 from baa2, its counterparty risk assessment
of Aa3(cr) from A1(cr) and the rating on the senior unsecured debt of
UBS Group Funding (Jersey) Limited guaranteed by the bank's parent holding
company, UBS Group AG, to Baa2 from Baa3. The bank's
short term ratings and counterparty risk assessment of Prime-1
and Prime-1(cr), respectively, were affirmed.
The rating action concludes a review for upgrade which began on 12 October
2015. The rating outlook is stable.
RATINGS RATIONALE
The rating action reflects UBS's improved leverage ratio and Moody's
expectations that UBS's profitability and earnings stability will
improve as the bank benefits from lower restructuring charges, a
reduced drag on earnings from its Non-core and Legacy Portfolio
as well as the realization of cost savings from initiatives begun several
years ago. Based on Moody's adjustments, the rating
agency expects the bank's pre-tax return on tangible assets
will likely average 0.9% (0.7% after-tax)
over the next two years -- a considerable improvement over the last
four years (January 2012 through the first nine months of 2015),
when this metric averaged 0.5% (0.6% after-tax).
Moody's noted that profitability at UBS has been a weakness over
the last several years, as the bank has borne considerable costs
related to litigation, restructuring charges, regulatory compliance
initiatives, and the wind-down of its Non-core and
Legacy Portfolio. At the same time the bank has also faced significant
revenue pressure from the low interest rate environment. After-tax
results were aided by several revaluations of deferred tax assets;
however, these revaluations are expected to be considerably smaller
going forward. Nonetheless, Moody's expects that UBS's
pre-tax earnings on a Moody's adjusted basis will improve
significantly over the next two years as the restructuring and re-engineering
initiatives the bank began in 2011 start to bear fruit in the form of
realized cost savings, lower restructuring charges, accompanied
by a further reduction in losses in the Non-core and Legacy Portfolio.
Moody's also expects that in addition to a strengthened earnings
profile UBS will exhibit greater earnings stability going forward.
During the financial crisis UBS suffered from significant earnings volatility
and the bank has continued to grapple with elevated earnings volatility
compared to many of its peers in the years since (2010 to present).
However, Moody's expects that with the bank's restructuring
efforts largely completed, including a reduction in reliance on
the more volatile investment banking business -- and with the significant
and continuing focus on improving risk management, risk controls,
and risk culture which the bank has implemented in the past few years
-- the bank's earnings stability should improve.
UBS's strengthened credit profile is also supported by continued
improvements in the bank's leverage ratio. While UBS's risk-based
capital ratios have been the strongest amongst its peers for some time,
the bank's leverage ratio has until recently been a relative ratings weakness,
the rating agency said. However, increased retained earnings
and the recent issuance of high-trigger contingent capital,
together with reductions in the bank's balance sheet and leverage exposure,
have boosted the bank's leverage ratio to a level more consistent with
peers. Moody's believes that the bank's higher leverage ratios
are likely to be sustained or increased in light of the higher regulatory
capital requirements recently announced by the Swiss government.
The risk of additional litigation charges remains a threat to the bank's
improved profitability. While the bank has resolved a considerable
number of legacy legal matters over the past several years, Moody's
believes the bank remains exposed to legal charges related, most
notably, to its US residential mortgage-backed securities
(RMBS) activities prior to the financial crisis. While such charges
are difficult to estimate, the rating agency believes they could
be sizeable given the bank's significant market share in US RMBS
underwriting during that time. However, UBS has already established
significant legal reserves for its US RMBS activities, which reduces
the potential risk that such charges could have a significant negative
impact on earnings or capital.
Moody's rating action also considered the potential benefit for
senior creditors at both the bank and the holding company of UBS's
planned issuance of additional holding company debt in response to recent
regulatory changes. This includes, most notably, the
Swiss "gone concern" Too Big To Fail (TBTF) capital requirements
and the Financial Stability Board's Total Loss Absorbing Capital
(TLAC) rules. UBS recently began, and is expected to continue,
to issue a significant volume of long-term holding company debt
which will provide a larger buffer to absorb losses in resolution.
However, under Moody's Advanced Loss Given Failure (LGF) analysis
the rating agency does not expect this buffer to be of sufficient magnitude
over the next year to significantly further reduce the likely loss-given-failure
for bank and holding company senior creditors. As a result,
Moody's has concluded not to increase the amount of ratings uplift
incorporated into the bank's senior debt ratings to reflect a lower
loss-given-failure. Thus, all of UBS's
long-term debt ratings were upgraded by one notch -- consistent
with the one notch upgrade of its BCA.
The outlook for UBS's ratings is stable, reflecting the bank's
strong capital and improved leverage position, improved risk management
and controls and strong liquidity position as well as the challenges posed
by the bank's still sizeable (albeit restructured and better risk-controlled)
capital markets activities.
WHAT COULD CHANGE THE RATING UP/DOWN
Upward pressure on the bank's ratings could arise if the bank were to
significantly and sustainably reduce its reliance on earnings from capital
markets businesses. In addition, a significant and permanent
increase in the amount of holding company long-term debt outstanding,
providing a significant buffer to absorb losses in resolution and reducing
the loss-given-failure for both holding company and bank-level
senior creditors, could put upward pressure on the senior debt ratings.
The rating could face downward pressure if the bank were to suffer from
any control or risk management failure, if there were a significant
decline in the Swiss economy, if the bank were to increase in its
risk appetite (evidence of which would be a rebuilding of the investment
banking franchise) or if there were a deterioration in the bank's
capital or liquidity profile.
The principal methodology used in these ratings was Banks published in
January 2016. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology.
The following ratings were affected by the rating action:
Upgrades:
UBS AG
.... LT Issuer Rating, Upgraded to A1
from A2
....LT Bank Deposits, Upgraded to Aa3
from A1
....Senior Unsecured Regular Bond/Debenture,
Upgraded to A1 from A2
....LT Deposit Note/CD Program, Upgraded
to (P)Aa3 from (P)A1
....Subordinate Deposit Program, Upgraded
to (P)Baa2 from (P)Baa3
....Senior Unsecured MTN, Upgraded to
(P)A1 from (P)A2
....Subordinate MTN, Upgraded to (P)Baa2
from (P)Baa3
....Subordinate Regular Bond/Debenture,
Upgraded to Baa2 from Baa3
....Senior Unsecured Shelf, Upgraded
to (P)A1 from (P)A2
.... Adjusted Baseline Credit Assessment,
Upgraded to baa1 from baa2
.... Baseline Credit Assessment, Upgraded
to baa1 from baa2
.... Counterparty Risk Assessment, Upgraded
to Aa3(cr) from A1(cr)
UBS AG, Australian Branch
....Senior Unsecured Regular Bond/Debenture,
Upgraded to A1 from A2
....Senior Unsecured MTN, Upgraded to
(P)A1 from (P)A2
....Subordinate MTN, Upgraded to (P)Baa2
from (P)Baa3
....Counterparty Risk Assessment, Upgraded
to Aa3(cr) from A1(cr)
UBS AG, Jersey Branch
....Senior Unsecured Regular Bond/Debenture,
Upgraded to A1 from A2
....Senior Unsecured MTN, Upgraded to
(P)A1 from (P)A2
....Subordinate MTN, Upgraded to (P)Baa2
from (P)Baa3
....Subordinate Regular Bond/Debenture,
Upgraded to Baa2 from Baa3
....Senior Unsecured Shelf, Upgraded
to (P)A1 from (P)A2
....Counterparty Risk Assessment, Upgraded
to Aa3(cr) from A1(cr)
UBS AG, London Branch
....Senior Unsecured Regular Bond/Debenture,
Upgraded to A1 from A2
....Senior Unsecured MTN, Upgraded to
(P)A1 from (P)A2
....Subordinate MTN, Upgraded to (P)Baa2
from (P)Baa3
....Counterparty Risk Assessment, Upgraded
to Aa3(cr) from A1(cr)
UBS AG, New York Branch
....LT Deposit Note/CD Program, Upgraded
to (P)Aa3 from (P)A1
....Subordinate Deposit Program, Upgraded
to (P)Baa2 from (P)Baa3
....Senior Unsecured MTN, Upgraded to
(P)A1 from (P)A2
....Subordinate MTN, Upgraded to (P)Baa2
from (P)Baa3
....Counterparty Risk Assessment, Upgraded
to Aa3(cr) from A1(cr)
UBS AG, Stamford Branch
....Senior Unsecured Regular Bond/Debenture,
Upgraded to A1 from A2
....LT Deposit Note/CD Program, Upgraded
to (P)Aa3 from (P)A1
....Subordinate MTN, Upgraded to (P)Baa2
from (P)Baa3
....Senior Unsecured MTN, Upgraded to
(P)A1 from (P)A2
....Subordinate Regular Bond/Debenture,
Upgraded to Baa2 from Baa3
....Counterparty Risk Assessment, Upgraded
to Aa3(cr) from A1(cr)
Swiss Bank Corporation
....BACKED Subordinate Regular Bond/Debenture,
Upgraded to Baa2 from Baa3
Swiss Bank Corporation, New York Branch
....BACKED Subordinate Regular Bond/Debenture,
Upgraded to Baa2 from Baa3
UBS Americas, Inc.
....BACKED LT Issuer Rating, Upgraded
to A1 from A2
....BACKED Senior Unsecured Regular Bond/Debenture,
Upgraded to A1 from A2
....BACKED Senior Unsecured Shelf, Upgraded
to (P)A1 from (P)A2
UBS Capital Securities (Jersey) LTD
....BACKED Pref. Stock Non-cumulative
Preferred Stock, Upgraded to Ba1 (hyb) from Ba2 (hyb)
UBS Finance (Curacao) N.V.
....BACKED Senior Unsecured Regular Bond/Debenture,
Upgraded to A1 from A2
UBS Group Funding (Jersey) Limited
....BACKED Senior Unsecured Regular Bond/Debenture,
Upgraded to Baa2 from Baa3
UBS Limited
....LT Issuer Rating, Upgraded to A1
from A2
UBS Preferred Funding Company LLC IV
....BACKED Pref. Stock Non-cumulative
Shelf, Upgraded to (P)Ba1 from (P)Ba2
UBS Preferred Funding Company LLC V
....BACKED Pref. Stock Non-cumulative
Shelf, Upgraded to (P)Ba1 from (P)Ba2
UBS Preferred Funding Trust IV
....BACKED Pref. Stock Non-cumulative
Preferred Stock, Upgraded to Ba1 (hyb) from Ba2 (hyb)
....BACKED Pref. Stock Non-cumulative
Shelf, Upgraded to (P)Ba1 from (P)Ba2
UBS Preferred Funding Trust V
....BACKED Pref. Stock Non-cumulative
Preferred Stock, Upgraded to Ba1 (hyb) from Ba2 (hyb)
....BACKED Pref. Stock Non-cumulative
Shelf, Upgraded to (P)Ba1 from (P)Ba2
Affirmations:
UBS AG
....ST Bank Deposits, Affirmed P-1
....Other Short Term, Affirmed (P)P-1
.... Counterparty Risk Assessment, Affirmed
P-1(cr)
UBS AG, Australian Branch
....BACKED Commercial Paper, Affirmed
P-1
....Counterparty Risk Assessment, Affirmed
P-1(cr)
UBS AG, Jersey Branch
....Other Short Term, Affirmed (P)P-1
....Counterparty Risk Assessment, Affirmed
P-1(cr)
UBS AG, London Branch
....ST Deposit Note/CD Program, Affirmed
P-1
.Commercial Paper, Affirmed P-1
....Other Short Term ,Affirmed (P)P-1
.... Counterparty Risk Assessment, Affirmed
P-1(cr)
UBS AG, New York Branch
....Other Short Term, Affirmed (P)P-1
....Counterparty Risk Assessment, Affirmed
P-1(cr)
UBS AG, Stamford Branch
....Other Short Term, Affirmed (P)P-1
.... Counterparty Risk Assessment, Affirmed
P-1(cr)
UBS Americas, Inc.
....BACKED Commercial Paper, Affirmed
P-1
UBS Finance (Delaware), LLC.
....BACKED Commercial Paper, Affirmed
P-1
UBS Limited
....ST Issuer Rating, Affirmed P-1
Outlook Actions:
UBS AG
....Outlook, Changed To Stable From
Rating Under Review
UBS AG, Australian Branch
....Outlook, Changed To Stable From
Rating Under Review
UBS AG, Jersey Branch
....Outlook, Changed To Stable From
Rating Under Review
UBS AG, London Branch
....Outlook, Changed To Stable From
Rating Under Review
UBS AG, Stamford Branch
....Outlook, Changed To Stable From
Rating Under Review
UBS Americas, Inc.
....Outlook, Changed To Stable From
Rating Under Review
UBS Finance (Curacao) N.V.
....Outlook, Changed To Stable From
Rating Under Review
UBS Group Funding (Jersey) Limited
....Outlook, Changed To Stable From
Rating Under Review
UBS Limited
....Outlook, Changed To Stable From
Rating Under Review
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
David Fanger
Senior Vice President
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Robert Young
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's upgrades UBS AG's long-term ratings (senior debt to A1), outlook stable
