Dec 21 -
Summary analysis -- UBS AG ---------------------------------------- 21-Dec-2012
CREDIT RATING: A/Stable/A-1 Country: Switzerland
Primary SIC: Commercial banks,
Mult. CUSIP6: 870836
Mult. CUSIP6: 87083K
Mult. CUSIP6: 870845
Mult. CUSIP6: 902619
Mult. CUSIP6: 90261A
Mult. CUSIP6: 90261J
Mult. CUSIP6: 90261K
Mult. CUSIP6: 90261T
Mult. CUSIP6: 90261X
Mult. CUSIP6: 902623
Mult. CUSIP6: 902641
Mult. CUSIP6: 902644
Mult. CUSIP6: 90264L
Mult. CUSIP6: 90264M
Mult. CUSIP6: 90265G
Mult. CUSIP6: 90267A
Mult. CUSIP6: 90267R
Mult. CUSIP6: 90347M
Mult. CUSIP6: 905318
Credit Rating History:
Local currency Foreign currency
29-Nov-2011 A/A-1 A/A-1
19-Dec-2008 A+/A-1 A+/A-1
01-Apr-2008 AA-/A-1+ AA-/A-1+
Ratings Score Snapshot
Issuer Credit Rating A/Stable/A-1
Business Position Adequate (0)
Capital and Earnings Adequate (0)
Risk Position Moderate (-1)
Funding and Liquidity Average
and Adequate (0)
GRE Support 0
Group Support 0
Sovereign Support +2
Additional Factors 0
Major Rating Factors
-- Leading franchises in domestic banking and global wealth management.
-- Strong and stable risk-adjusted returns from asset-gathering businesses.
-- Steadily improving core capitalization through retained earnings and de-leveraging.
-- Management's clearly articulated strategy and evident determination to deliver on stated plans
-- Reputational damage to the investment bank from past structured credit and unauthorized trading losses, and LIBOR-related claims.
-- Economic environment and deleveraging of legacy assets set to continue hold statutory earnings below potential through 2014.
-- Still-sizable weight of investment banking activity on the group's balance sheet and a history of risk management and control failures.
Standard & Poor's Ratings Services' stable outlook on UBS AG reflects our expectation that UBS will continue with its substantial restructuring of the investment banking (IB) division's operating model and reduce risk exposures, amid continued unsupportive economic and market conditions. It also reflects our view that the continued economic and political uncertainty in Europe would not have a significant impact on the bank's fortunes, as well as our expectation that any further consequences from LIBOR-related claims would lead neither to serious franchise damage, nor to license restrictions in key markets. We consider UBS' strategy to be supportive of our ratings over the medium term, but see no near-term rating implications, noting in particular a degree of execution risk, the likely drag on earnings of associated charges, and the planned 24-36 month timeframe for the run-down of most legacy risk positions.
We may take a positive rating action on UBS if, after further strategic execution, we consider that UBS' changed business model and risk appetite is highly likely to moderate the group's revenue and earnings volatility, yielding a more sustainable, stable, strongly capitalized, and less wholesale-funded business with strong wealth management and domestic banking franchises at its heart. This transition could be reflected in a strengthening of the bank's business position, or capitalization--for example, if the bank's risk-adjusted capital (RAC) ratio, according to Standard & Poor's measures, is highly likely to exceed 10% on a sustainable basis.
We could take a negative rating action if UBS experiences a material earnings setback that erodes capitalization, or if renewed concerns arise over the effectiveness of the bank's risk management or the resilience of its franchise.
Finally, we note the Swiss authorities' measures to ensure that, over the long term, its provision of wide-ranging support to highly systemic banking groups in a crisis would stem from choice rather than necessity. We continue to monitor developments, but for now remain unconvinced that the government would risk the potential adverse economic consequences of allowing a major financial institution to default. However, we could lower the ratings on UBS if we saw diminished prospects that the government would provide support to the bank to the benefit of senior creditors.
Related Criteria And Research
-- Banks: Rating Methodology And Assumptions, Nov. 9, 2011
-- Banking Industry Country Risk Assessment Methodology And Assumptions, Nov. 9, 2011
-- Bank Hybrid Capital Methodology And Assumptions, Nov. 1, 2011
-- Bank Capital Methodology And Assumptions, Dec. 6, 2010
-- Ratings On 14 Swiss Banks Affirmed In View Of Unchanged Economic Risk, Nov. 29, 2012
-- How The Swiss Bank Resolution Regime Affects Government Support For Its Banks, Nov. 29, 2012
-- UBS AG Ratings Unaffected By Strategic Announcement, Nov. 2, 2012
-- UBS AG Stamford Branch Subordinated Contingent Write-Down Notes Assigned 'BBB-'Rating, Aug. 16, 2012
-- Outlook On UBS AG And Certain Subsidiaries Revised To Stable On Restructuring Progress; 'A/A-1' Ratings Affirmed, Aug. 16, 2012
-- Sharing The Burden Of Bank Support: Countries Where Subordinated Debt Is Becoming Riskier, Nov. 29, 2011