Scope Ratings has upgraded UBS’s credit ratings by one notch, all with Stable Outlook. UBS’s Issuer Rating is now AA-/Stable Outlook, up from A+/Positive Outlook (see full rating list at the end of this press release). The agency highlighted that this rating action acknowledges the sound credit fundamentals of UBS, which has reassuringly restored its financial metrics in the years after the financial crisis, as well as proven the resilience of its current business model.

The banking group’s strategy is centred on its market-leading global wealth management business and its position as a leading universal bank in its home market of Switzerland. Asset management and investment banking activities further support and complement the group’s overall business franchise. Despite the generally weak macroeconomic environment over the last few years and ongoing volatile financial markets, UBS’s businesses continue to generate solid earnings. Over the last twelve months, Scope estimates that the return on attributed equity was more than 35% for wealth management and above 16% for investment banking.

The wealth management industry benefits from a high degree of recurring income, relatively high barriers to entry, and is not as capital intensive as other business segments, but Scope highlighted ongoing material challenges such as (i) the impact of tax regularization on client flows and margins, and (ii) the shift to lower-margin passive investment strategies. The group’s strong franchise, however, has meant that the business continues to grow profitably. Scope added that UBS is well-placed in Asia and the ultra-high net worth segment – both being areas with promising growth prospects. Management’s focus on improving efficiency and reducing costs should also help to mitigate industry headwinds.

The rating agency further noted that it views UBS’s strengthened balance sheet as a key positive credit consideration, one on which management has delivered well, thus providing restored comfort for all stakeholders – from clients to investors. At end-June 2017, the group’s fully applied TLAC on a RWA and leverage basis were 31.2% and 8.6%, respectively. Scope considers that UBS is well-positioned against relatively demanding Swiss too-big-to-fail requirements which are being phased in and must be met by end-2019.

The rating agency views sustained improvements in cost levels and efficiency as a positive rating change driver while further material litigation, regulatory and conduct matters would be a negative rating change driver. The group’s sound reputation remains an important consideration for its wealth management business. Last, but not least, Scope does not expect UBS to seek heightened returns from riskier business segments in investment banking or elsewhere.

The following ratings were upgraded:

• UBS AG: Issuer Rating to AA-/ Stable from A+/ Positive.
• UBS AG: Senior unsecured debt ratings (not eligible for TLAC) to AA-/ Stable from A+/ Positive.
• UBS Group AG: Senior unsecured debt ratings (eligible for TLAC) to A+/ Stable from A/ Positive.
• UBS AG: Tier 2 ratings to A-/ Stable from BBB+/ Positive.
• UBS Group AG: AT1 ratings to BBB/ Stable from BBB-/ Positive.
• UBS AG: Short-term debt rating to S-1+/ Stable from S-1/ Positive.
• UBS AG: Commercial paper program ratings to S-1+/ Stable from S-1/ Positive.

As UBS Group AG does not issuer commercial paper, its short-term rating is being withdrawn.

Legal and regulatory disclosures

Information pursuant to Regulation (EC) No 1060/2009 on credit rating agencies, as amended by Regulations (EU) No. 513/2011 and (EU) No. 462/2013

Responsibility
This report is issued by Scope Ratings AG, Berlin, District Court for Berlin (Charlottenburg) HRB 161306 B, Executive Board: Torsten Hinrichs (CEO), Dr Stefan Bund.
The rating analysis was prepared by Pauline Lambert, Executive Director. Responsible for approving the rating action: Sam Theodore, Managing Director.

Rating history
Long-Term Issuer Rating and Senior Unsecured Debt Ratings for UBS AG were first assigned 2 April 2014 and last updated on 20 July 2016.
Ratings related to UBS Group AG were first assigned 28 November 2014 and last updated on 13 March 2017.
Short-Term Debt Ratings were first assigned 22 May 2014 and last updated on 20 July 2016.
Additional Tier 1 Ratings were first assigned 17 March 2015 and last updated on 3 August 2016.
Tier 2 Ratings were first assigned 9 October 2014 and last updated on 20 July 2016.

The rating outlook indicates the most likely direction of the rating if the rating were to change within the next 12 to 18 months. A rating change is, however, not automatically ensured.
The rating was prepared independently by Scope Ratings but for a fee based on a mandate of the rated entity. The issuer participated in the rating process.

Key sources of information for the rating
Key sources: website of the rated entity/issuer; annual reports/ quarterly reports of the rated entity/issuer; prospectuses; data provided by external data providers and other public information.
Scope Ratings considers the quality of the available information on the evaluated company to be satisfactory. Scope uses information and data that it considers to be accurate and reliable. Scope cannot, however, independently verify the reliability and accuracy of such information and data.

Examination of the rating by the rated entity prior to publication
Prior to publication, the rated entities were given the opportunity to examine the rating and the rating drivers, including the principal grounds on which the credit rating or rating outlook is based. The rated entity was subsequently provided with at least one full working day, to point out any factual errors, or to appeal the rating decision and deliver additional material information. Following that examination, the ratings were not modified.

Methodology
The methodology applicable for these rating actions “Bank Rating Methodology” (May 2017) is available on www.scoperatings.com. The historical default rates of Scope Ratings can be viewed on the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope’s default rating, definitions of rating notations and further information on the analysis components of a rating can be found on www.scoperatings.com.

Conditions of use / exclusion of liability
© 2017 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings AG, Scope Analysis, Scope Investor Services GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope cannot, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided “as is” without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or otherwise damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party, as opinions on relative credit risk and not as a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings AG at Lennéstraße 5 D-10785 Berlin.

Scope Ratings AG, Lennéstrasse 5, 10785 Berlin