UBS : Q1 2024 UBS Americas Holding LLC - Liquidity Coverage Ratio Disclosure

UBS Americas Holdings LLC

U.S. Liquidity Coverage Ratio Disclosure For the Quarter ended March 31, 2024

Overview

UBS Americas Holding LLC (UBS AH, together with its consolidated subsidiaries, the Company) and its subsidiary UBS Bank USA (BUSA) are each required to maintain a minimum Liquidity Coverage Ratio (LCR) of eligible High Quality Liquid Assets (HQLA) to stressed net cash outflows calculated, over a 30 calendar-day period, as provided in the U.S. LCR rule. The Company is also required to provide quarterly public disclosures, including quantitative and qualitative information related to its LCR calculations and liquidity management practices.

UBS AH is a wholly owned subsidiary of UBS AG, which is a wholly owned subsidiary of UBS Group AG. UBS AH is the Intermediate Holding Company for UBS Group AG's U.S. subsidiaries pursuant to Regulation YY of the Board of Governors of the Federal Reserve System. UBS AH's principal operating subsidiaries include BUSA, UBS Financial Services Inc. (FSI) and UBS Securities LLC (SEC LLC). BUSA is a U.S. Insured Depository Institution regulated by the Federal Deposit Insurance Corporation as well as regulators in the state of Utah. FSI and SEC LLC are registered securities broker-dealers and futures commission merchants and along with several other U.S subsidiaries, are subject to regulation by several different government agencies and self-regulatory organizations.

The Company's business includes wealth management, investment banking and asset management. Wealth management provides comprehensive advice and tailored financial services including investment management, wealth planning, banking, and lending, and corporate financial advice to high-net-worth individuals and families. The investment bank provides corporate, institutional and wealth management clients with expert advice, innovative financial solutions, and access to the world's capital markets. Asset management is a full-service asset manager providing investment and sub-advisory services to individuals and institutions in the U.S.

U.S. Liquidity Coverage Ratio

The LCR is a quantitative liquidity requirement intended to promote the short-term resilience of a banking organization's liquidity risk profile over a prospective 30-day period of stress. The Basel Committee on Banking Supervision (BCBS) published the international liquidity standards in December 2010 as part of its Basel III regulatory capital rules and revised the standards in January 2013. In September 2014, the U.S. banking regulators adopted a final rule to implement the quantitative liquidity requirement generally consistent with the BCBS LCR for top-tier U.S. Bank Holding Companies as well as depository institution subsidiaries of U.S. Bank Holding Companies that meet the applicability criteria of the LCR rule. In October 2019, the U.S. banking regulators issued guidance that provided for tailored application of certain capital, liquidity, and stress testing requirements across different categories of banking organizations, including U.S. Intermediate Holding Companies of foreign banking organizations, known as the Tailoring Rule. U.S. banking organizations subject to the LCR minimum requirements are herein referred to as "Covered Companies".

The LCR rule requires Covered Companies to maintain on a daily basis an amount of HQLA that are unencumbered and controlled by the Covered Company's liquidity management function (eligible HQLA) sufficient to meet their total stressed net cash outflows over a prospective 30 calendar-day period, as calculated in accordance with the LCR rule. The LCR is calculated by dividing eligible HQLA by the total net cash outflows, with a minimum ratio requirement of 100%. Under the Tailoring Rule, as a Category III institution with total weighted short-term wholesale funding of less than $75.0bn, the Company is eligible for a reduced LCR requirement whereby the Company's net cash outflow amount is reported as 85% of its full net cash outflow amount.

The LCR rule classifies HQLA into three categories of assets: Level 1 liquid assets, Level 2A liquid assets, and Level 2B liquid assets. Level 1 liquid assets are the highest quality and most liquid assets and include, but not limited to, U.S. treasury securities and central bank reserves. These assets are included in a Covered Company's eligible HQLA without limitation and without haircuts. The LCR rule treats Level 2A liquid assets and Level 2B liquid assets as having characteristics that are associated with being relatively stable and significant sources of liquidity, but not to the same degree as Level 1 liquid assets. Level 2A liquid assets include, but not limited to, securities issued or guaranteed by U.S. government-sponsored enterprises. Liquid and readily marketable municipal and corporate debt and common equity securities are included in Level 2B liquid assets. Accordingly, the LCR rule subjects Level 2A and Level 2B liquid assets to a 15% and 50% haircut, respectively. Level 2A and Level 2B liquid assets, when combined, may not exceed 40% of the total eligible HQLA. Additionally, Level 2B liquid assets may not exceed 15% of the total eligible HQLA.

The total net cash outflow amount is determined under the LCR rule by applying mandated outflow and inflow rates, which reflect certain prescribed, industry-wide stressed assumptions, against the balances of a company's funding sources, obligations, transactions, and assets over a prospective 30 calendar-day period. Inflows that can be included to offset outflows are limited to 75% of outflows to ensure that companies are maintaining sufficient on-balance sheet liquidity and are not overly reliant on inflows, which may not materialize in a period of stress. The total net cash outflow calculation also includes an add-on calculation that accounts for the largest daily difference between certain outflows and inflows with set maturity dates.

LCR Qualitative Disclosures

Main Drivers of LCR

The table below summarizes the Company's daily average LCR for the three months ended March 31, 2024.

The Company maintained a daily LCR well above the regulatory minimum of 100% throughout the quarter. LCR for the quarter ended March 31, 2024 was at 150% in comparison to 148% for the previous quarter ended December 31, 2023.

The average liquidity coverage ratio increased by 2.0%, driven by a USD 0.4bn decrease in HQLA trapping in BUSA and Sec LLC, thereby increasing the Company's HQLA net of trapping. Net cash outflows were relatively stable with cash outflows and inflows both decreasing by USD 0.5bn

Composition of HQLA

The average weighted HQLA for the quarters ended March 31, 2024 and December 31, 2023, were $28.4bn and $28.0bn, respectively, consisting mainly of Level 1 liquid assets. The increase in HQLA was predominantly due to an increase of US Treasury Securities.

1. Excludes amounts that are available to meet funding, collateral, and regulatory requirements of certain subsidiaries of UBS AH but are not readily transferable to UBS AH or any of its subsidiaries.
2. Includes securities owned outright and as unencumbered collateral under reverse repo agreements.

Concentration of Funding Sources

The Company maintains a funding profile that is diversified across a range of funding types and tenors. The Company closely manages its short-term,long-term liquidity needs and risks in the normal course of business and under different stress scenarios. The primary sources of funding for the Company are detailed below.

Potential liquidity risks associated with the Company's sources of funding are monitored and mitigated per the Combined U.S. Operations (CUSO) Liquidity and Funding Risk framework.

Retail Deposits

The Company has a deposit base largely made up of retail customers, which represents a main source of funding for the Company. These deposits provide a sizeable source of relatively stable and low-cost funding and constituted 41% of the Company's average weighted cash outflow amount during the quarter ended March 31, 2024.

Wholesale Funding

For the quarter ended March 31, 2024, the Company's unsecured wholesale funding transactions and secured funding and asset exchange transactions were 24% and 21%, respectively, of its average weighted cash outflow amount.

Additional unsecured funding needs for the Company are available through term borrowings from the Company's parent, UBS AG. These sources are used to support the cash needs of the Company's businesses and fund its liquidity buffer.

Derivative Exposures

The Company enters into derivative transactions in order to meet the financing and hedging needs of its customers, to reduce its own exposure to market and interest rate risk and in connection with its trading activities. The Company may be required to post initial or variation margin in connection with its derivative exposures. The Company's LCR reflects additional collateral calls in the event of potential valuation changes.

Currency Mismatch in the Liquidity Coverage Ratio

The Company conducts business predominantly in U.S. dollars. Exposure from currency mismatches is closely monitored and managed through hedging activities including derivative contracts.

Liquidity Risk Management

The Company maintains a liquidity risk management framework intended to maintain a sound liquidity position and sufficient financial flexibility to respond to a liquidity stress event that is set within the parameters of the overall liquidity and funding framework established for UBS Group AG and its subsidiaries. The liquidity and funding framework for the Company is proposed by management and approved by the CUSO Asset and Liability Management Committee and the UBS AH's Board of Directors. The CUSO Liquidity and Funding Risk framework takes precedence in the event of any differences with the UBS Group AG framework.

The Company manages liquidity primarily through daily and monthly internal liquidity reporting and monitoring by Regional Treasury Americas function. The Company maintains a treasury risk function that operates as a second line of defense to monitor liquidity and funding risk, with support from Market Risk Control, Market Risk Management and Compliance and Operational Risk. Group Internal Audit assesses the adequacy and operating effectiveness of controls over the end-to-end liquidity and funding risk management and governance processes.

LCR Quantitative Disclosures

The following table presents the Company's average daily LCR and unweighted and weighted amounts of HQLA, cash outflows and cash inflows:

1 Excludes amounts that are available to meet funding, collateral, and regulatory requirements of certain subsidiaries of UBS AH but are not readily transferable to UBS AH or any of its other subsidiaries.

Forward-Looking Information

The LCR rule sets forth minimum liquidity standards designed to ensure that Covered Companies maintain adequate liquidity under a 30-calendar day period of stress. Accordingly, the LCR rule prescribes assumptions with respect to the liquidity of certain asset classes and cash flows associated with contractual and contingent obligations. This document may contain forward-looking information based on these assumptions. These assumptions are not intended to be a forecast by the Company of expected future liquidity or cash flows, but rather reflect possible outcomes based on the requirements of the LCR rule. While this forward-looking information represents the Company's judgements and expectations concerning the matters described above, a number of risks, uncertainties and other important factors can cause actual developments and results to differ materially.

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