[5] Basel Ill (10 points) Swiss bank UBS has just issued its Q4 2016 earnings re

Question

[5] Basel Ill (10 points) Swiss bank UBS has just issued its Q4 2016 earnings report (January 27, 2017): Despite very challenging market conditions and macroeconomic and geopolitical uncertainty, UBS delivered solid results in 2016, while prudently managing resources and risk. As of 31 December 2016, the Group achieved CHF 1.6 billion of annualized net cost savings, an improvement from CHF 1.1 bilion at year-end 2015, and is on track to achieve its CHF 2.1 billion target by the end of 2017. UBS's capital position remains strong with a CETI capital ratio of 13.77% and a CETI leverage ratio of 3.53%. Risk-weighted assets (RWA) were CHF 223 billion. The leverage ratio denominator (LRD) was CHF 870 billion at year end Question: What is the level of Common Equity Tier 1? (Use one decimal).

Explanation / Answer

Common Equity Tier 1 (CET 1) capital ratio = CET1 / Risk Weighted Assets

Plugging in the numbers we get : CET1 capital ratio = 13.77% = CET1 / 223

or CET1 = 223 * 13.77% = CHF 30.7 billion

We can also use the CET1 leverage ratio and will get the same result : CET1 Leverage Ratio = CET1/LRD = 3.53%

which is 3.53% = CET1/870 or CET1 = CHF 30.7 billion

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