6-K

This report provides an update to our Bank for International Settlements (BIS) Basel III Pillar 3 disclosures for UBS Group as presented in our Annual Report 2013 to the extent that this was not already provided in our first and second quarter 2014 reports.

The capital adequacy framework consists of three pillars, each of which focuses on a different aspect of capital adequacy. Pillar 1 provides a framework for measuring minimum capital requirements for the credit, market and operational risks faced by banks. Pillar 2 addresses the principles of the supervisory review process, emphasizing the need for a qualitative approach to supervising banks. Pillar 3 aims to encourage market discipline by requiring banks to publish a range of disclosures, mainly on risk and capital.

As UBS is considered a systemically relevant bank (SRB) under Swiss banking law, we are required to comply on both a Group and UBS AG (Parent Bank) basis with regulations based on the Basel III framework as applicable for Swiss SRB.

FINMA requires us to publish comprehensive quantitative and qualitative Pillar 3 disclosures annually, as well as an update of quantitative disclosures and any significant changes to qualitative information semi-annually. This report is based on Swiss SRB Basel III phase-in rules.

Refer to “Swiss SRB Basel III capital framework” and “Differences between Swiss SRB and BIS Basel III capital” in the “Capital management” section of our second quarter 2014 report for more information on regulatory requirements and differences between the Swiss SRB and BIS Basel III capital regulations, respectively

Table 1a: Overview of disclosure requirements

The following table provides an overview of Pillar 3 disclosures in our Annual Report 2013 and our second quarter 2014 report, where relevant.


Pillar 3 requirements	Location of Pillar 3 disclosures in our Annual Report 2013	Location of Pillar 3 disclosures in our second quarter 2014 report
Scope of consolidation	Financial information – Note 1 Summary of significant accounting policies Supplemental disclosures required under Basel III Pillar 3 regulations (on pages 559 – 606) Table 1c: Main legal entities according to the IFRS scope of consolidation not subject to the regulatory scope of consolidation
Capital structure	Capital management (on page 230)	Capital management (on page 80) Financial information (on pages 159 and 163)
Capital adequacy	Capital management (on pages 226–248)	Capital management (on pages 78–96) Financial information (on pages 159–160 and 163)
Capital instruments	Capital management (on page 235) “Bondholder information” at www.ubs.com/investors	Capital management (on page 84) “Bondholder information” at www.ubs.com/investors
Risk management objectives, policies and methodologies (qualitative disclosures)	Risk management and control (on pages 150–212)

Table 1a: Overview of disclosure requirements (continued)


Pillar 3 requirements	Location of Pillar 3 disclosures in our Annual Report 2013	Location of Pillar 3 disclosures in our second quarter 2014 report¹
Risk-weighted assets	Capital management (on pages 237–243)	Capital management (on pages 85–89)
	Supplemental disclosures required under Basel III Pillar 3 regulations (on pages 559–606)
	Table 2: Detailed segmentation of Basel III exposures and risk-weighted assets
Credit risk	Risk management and control (on pages 163–187)
	Supplemental disclosures required under Basel III Pillar 3 regulations (on pages 559–606)
	Table 3: Counterparty credit risk by exposure segment and RWA
	Table 4: Regulatory gross credit exposure by geographical region
	Table 5: Regulatory gross credit exposure by counterparty type
	Table 6: Regulatory gross credit exposure by residual contractual maturity
	Table 7: Derivation of regulatory net credit exposure
	Table 8: Regulatory gross credit exposure covered by guarantees and credit derivatives
	Table 9a: Corporates – Advanced IRB approach: Regulatory net credit exposure, weighted average PD, LGD and RWA by internal UBS ratings
	Table 9b: Sovereigns – Advanced IRB approach: Regulatory net credit exposure, weighted average PD, LGD and RWA by internal UBS ratings
	Table 9c: Banks – Advanced IRB approach: Regulatory net credit exposure, weighted average PD, LGD and RWA by internal UBS ratings
	Table 9d: Residential mortgages – Advanced IRB approach: Regulatory net credit exposure, weighted average PD, LGD and RWA by internal UBS ratings
	Table 9e: Lombard – Advanced IRB approach: Regulatory net credit exposure, weighted average PD, LGD and RWA by internal UBS ratings
	Table 9f: Other Retail – Advanced IRB approach: Regulatory net credit exposure, weighted average PD, LGD and RWA by internal UBS ratings
	Table 10: Regulatory gross and net credit exposure by risk weight under the standardized approach
	Table 11: Eligible financial collateral recognized under the standardized approach
	Table 12: Credit exposure of derivative instruments
	Table 13: Credit derivatives
Equity instruments in the banking book	Supplemental disclosures required under Basel III Pillar 3 regulations (on pages 559–606)
	Table 14: Equity instruments in the banking book
Market risk	Risk management and control (on pages 188–204)	Risk management and control (on pages 61–65 in our second quarter 2014 report and 57–61 in our first quarter 2014 report)
Operational risk	Risk management and control (on pages 210–212)
Interest rate risk in the banking book	Risk management and control (on pages 201–203)	Risk management and control (on pages 61–62 and 66)

¹ Or, where indicated, in our first quarter 2014 report.

Table 1a: Overview of disclosure requirements (continued)


Pillar 3 requirements	Location of Pillar 3 disclosures in our Annual Report 2013	Location of Pillar 3 disclosures in our second quarter 2014 report
Securitization	Supplemental disclosures required under Basel III Pillar 3 regulations (on pages 559–606)
	Table 15: Securitization / re-securitization
	Table 16: Securitization activity of the year in the banking book
	Table 17: Securitization activity of the year in the trading book
	Table 18: Outstanding securitized exposures
	Table 19: Impaired or past due securitized exposures and losses related to securitized exposures in the banking book
	Table 20: Exposures intended to be securitized in the banking and trading book
	Table 21: Securitization positions retained or purchased in the banking book
	Table 22: Securitization positions retained or purchased in the trading book
	Table 23: Capital requirement for securitization / re-securitization positions retained or purchased in the banking book
	Table 24: Re-securitization positions retained or purchased in the banking book
	Table 25: Re-securitization positions retained or purchased in the trading book
	Table 26: Aggregated amount of securitized exposures subject to the market risk approach
	Table 27: Correlation products subject to the comprehensive risk measure or the securitization framework for specific risk
	Table 28: Securitization positions and capital requirement for trading book positions subject to the securitization framework
	Table 29: Capital requirement for securitization positions related to correlation products
Composition of capital	Supplemental disclosures required under Basel III Pillar 3 regulations (on pages 559–606)
	Table 30: Reconciliation of accounting balance sheet to balance sheet under the regulatory scope of consolidation
	Table 31: Composition of capital
G-SIBs indicator (annual disclosure requirement only)	Supplemental disclosures required under Basel III Pillar 3 regulations (on page 606) “Pillar 3, SEC filings & other disclosures” at www.ubs.com/investors
Remuneration (annual disclosure requirement only)	Compensation (on pages 302–340)

Risk exposure measures and derivation of risk-weighted assets

Measures of risk exposure may differ depending on whether the exposures are calculated for financial accounting purposes under International Financial Reporting Standards (IFRS), for determining our regulatory capital or for risk management purposes. Our Basel III Pillar 3 disclosures are generally based on measures of risk exposure used to determine the regulatory capital required to underpin those risks.

The table below provides a more detailed summary of the approaches we use for the main risk categories for determining regulatory capital.

The naming conventions for the exposure segments used in the following tables are based on BIS rules and may differ

from those under Swiss and European Union (EU) regulations. For example, “sovereigns” under the BIS naming convention equate to what are termed “central governments and central banks” under the Swiss and EU regulations. Similarly, “banks” equate to “institutions” and “residential mortgages” equate to “claims secured by residential real estate.”

Our risk-weighted assets (RWA) are published according to the BIS Basel III framework, as implemented by the revised Swiss Capital Adequacy Ordinance issued by the Swiss Federal Council and required by FINMA regulation.

Refer to “Differences between Swiss SRB and BIS Basel III capital” in the “Capital management” section of our second quarter 2014 report for more information on differences between Swiss SRB and BIS Basel III capital regulations

Table 1b: Requirements by risk type


Category		UBS approach
Credit risk
Counterparty credit risk by exposure segment		Under the advanced internal ratings-based approach applied for the majority of our businesses, counterparty credit risk weights are determined by reference to internal counterparty ratings and loss given default estimates. We use internal models, approved by FINMA, to measure the credit risk exposures to third parties on over-the-counter derivatives and securities financing transactions. Our disclosure includes the Basel III requirements for credit risk that were adopted as of 1 January 2013 (e.g., stressed expected positive exposure (sEPE), changes in the risk weighting of central counterparties, capital charge for credit valuation adjustments, asset value correlation (AVC) multiplier). For a subset of our credit portfolio, we apply the standardized approach, based on external ratings.
Securitization / re-securitization in the banking book		Securitization / re-securitization exposures in the banking book are generally assessed using the ratings-based approach, applying risk weights based on external ratings. For certain exposures, the supervisory formula based approach is applied based on the capital charge using the advanced internal ratings-based approach had the underlying exposures not been securitized.
Equity instruments in the banking book		Simple risk-weight method under the advanced internal ratings-based approach.
Credit valuation adjustment (CVA)		The credit valuation adjustment (CVA) is an additional capital charge to the existing counterparty credit risk default charge. Banks are required to hold capital for the risk of mark-to-market losses (i.e., CVA) associated with the deterioration of counterparty credit quality.
Settlement risk		Capital requirements for failed transactions are determined according to the rules for failed trades and non-delivery- versus-payment transactions under the Basel III framework.
Non-counterparty-related risk		The required capital for non-counterparty-related assets such as our premises, other properties and equipment and deferred tax assets on temporary differences is calculated according to prescribed regulatory risk weights.
Market risk		Regulatory capital requirement is calculated using a variety of methods approved by FINMA. The components are value-at-risk (VaR), stressed VaR (SVaR), an add-on for risks which are potentially not fully modeled in VaR, the incremental risk charge, the comprehensive risk charge for the correlation portfolio and the securitization framework for securitization positions in the trading book described below. Details on the derivation of RWA for each of these components are provided in the “Risk management and control” section of our Annual Report 2013.
Securitization / re-securitization in the trading book		Securitization / re-securitization exposures in the trading book are assessed for their general market risk as well as for their specific risk. The capital charged for general market risk is determined by the value-at-risk (VaR) and stressed VaR (SVaR) methods, whereas the capital charge for specific risk is determined using the comprehensive risk measure method or the ratings-based approach, applying risk weights based on external ratings.
Operational risk		Our model to quantify operational risk meets the regulatory capital standard under the advanced measurement approach and is approved by FINMA. Operational risk RWA also include the incremental operational risk RWA based on the supplemental operational risk capital analysis mutually agreed to by UBS and FINMA.

Scope of regulatory consolidation

The scope of consolidation for the purpose of calculating Group regulatory capital is generally the same as the consolidation scope under IFRS and includes subsidiaries directly or indirectly controlled by UBS AG that are active in the banking and finance sector. However, subsidiaries consolidated under IFRS that are active in sectors other than banking and finance are excluded from the regulatory scope of consolidation. More information on the IFRS scope of consolidation as well as the list of significant subsidiaries included in this scope as of 31 December 2013 are available in the “Financial information” section of our Annual Report 2013.

Refer to “Note 1 Summary of significant accounting policies” and “Note 30 Interests in subsidiaries and other entities” in the “Financial information” section of our Annual Report 2013 for more information

The main differences in the basis of consolidation between IFRS and regulatory capital purposes relate to the following entities, and apply regardless of our level of control as of 30 June 2014:

–

Approximately 170 real estate and commercial companies and investment vehicles were consolidated under IFRS, but not for regulatory capital purposes, but were risk-weighted instead;

–

Seven insurance companies were consolidated under IFRS, but not for regulatory capital purposes, but were risk-weighted based on applicable threshold rules instead;

–

Three joint ventures were fully consolidated for regulatory capital purposes, but were accounted for under the equity method under IFRS;

–

Four entities which have issued preferred securities are consolidated for regulatory capital purposes but not consolidated under IFRS. These entities hold bonds issued by UBS which are eliminated in the consolidated regulatory capital accounts. These entities do not have material third-party asset balances and equity is attributable to non-controlling interests.

The table below provides a list of the most significant entities that were included in the IFRS scope of consolidation, but not in the regulatory capital scope of consolidation. As of 30 June 2014, entities consolidated under IFRS, but not included in the regulatory scope of consolidation, did not report any capital deficiencies.

In the banking book, approximately 90 equity investments were not required to be consolidated, neither under IFRS nor in the regulatory scope. These investments mainly consisted of infrastructure holdings and joint operations (for example, settlement and clearing institutions, stock and financial futures exchanges) and included our participation in the SIX Group. These investments were risk-weighted based on applicable threshold rules.

Refer to “Table 18: Equity instruments in the banking book” of this report for more information on the measurement of these instruments

Refer to “Table 35: Reconciliation of accounting balance sheet to balance sheet under the regulatory scope of consolidation” of this report for more information

Refer to “Note 25 Restricted and transferred financial assets” in the “Financial information” section of our Annual Report 2013 for more information on transferability restrictions under IFRS 12

Table 1c: Main legal entities consolidated under IFRS but not included in the regulatory scope of consolidation


	30.6.14
CHF million	Total assets¹		Total equity¹			Purpose
UBS Global Asset Management Life Ltd		10,760		14		Life insurance

UBS International Life Limited		5,221		62		Life insurance

UBS A&Q Alternative Solution Master Limited		874		846	²	Investment vehicle for feeder funds

UBS A&Q Alternative Solution Limited		858		836	²	Investment vehicle for multiple investors

UBS Global Life AG – Vaduz		686		11		Life insurance

UBS Life AG – Zurich		448		58		Life insurance

UBS Alpha Select Hedge Fund		396		351	²	Investment vehicle for multiple investors

UBS A&Q Alpha Select Hedge Fund XL		279		140	²	Fund

UBS Life Insurance Company USA		275		38		Life insurance

O’Connor Global Multi-Strategy Alpha (Levered) Limited		221		212	²	Investment vehicle for multiple investors

UBS Multi-Manager Alternative Commodities Fund Ltd.		219		161	²	Investment vehicle for multiple investors

UBS Diversed Alpha XL Master Limited		203		174	²	Fund

¹ Total assets and total equity on a standalone basis. ² Represents the net asset value (NAV) of issued fund units. These fund units are subject to liability treatment in the Group financial statements under IFRS.

Risk-weighted assets

“Table 2: Detailed segmentation of Basel III exposures and risk-weighted assets” and subsequent tables provide a breakdown according to BIS-defined exposure segments as follows:

–

Sovereigns, consisting of exposures relating to sovereign states and their central banks, the BIS, the International Monetary Fund, the EU (including the European Central Bank) and eligible multilateral development banks.

–

Banks, consisting of exposures to legal entities holding a banking license. This segment also includes securities firms subject to supervisory and regulatory arrangements, including risk-based capital requirements, which are comparable to those applied to banks according to the framework. This segment also includes exposures to public sector entities with tax-raising power or entities whose liabilities are fully guaranteed by a public entity.

–

Corporates, consisting of all exposures that do not fit into any of the other exposure segments. This segment includes private commercial entities such as corporations, partnerships or proprietorships, insurance companies, funds.

–

Central counterparties – A central counterparty (CCP) is a clearing house that interposes itself between counterparties to contracts traded in one or more financial markets, becoming the buyer to every seller and the seller to every buyer and thereby ensuring the future performance of open contracts.

A CCP becomes counterparty to trades with market participants through novation, an open offer system, or another legally binding arrangement.

–

Retail – Residential mortgages, consisting of residential mortgages, regardless of exposure size, if the obligor occupies or rents out the mortgaged property.

–

Retail – Lombard lending, consisting of loans made against the pledge of eligible marketable securities or cash.

–

Retail – Other retail, consisting of exposures to small businesses, private clients and other retail customers without mortgage financing. This segment also includes “Qualifying revolving retail exposures.”

Table 2 also shows the gross and net exposure at default (EAD) per risk type and exposure segment for the current disclosure period, which form the basis for the calculation of the RWA as well as the capital requirement per exposure category. The Basel III credit risk-related components “Credit valuation adjustment (CVA)” and “Stressed expected positive exposure (sEPE)” are disclosed separately in this table.

Refer to the table “Basel III risk-weighted assets by risk type, exposure and reporting segment” in the “Capital management” section of our second quarter 2014 report for more information on RWA by business division and Corporate Center

Table 2: Detailed segmentation of Basel III exposures and risk-weighted assets

30.6.14

Basel III (phase-in)

Gross EAD

Net EAD

RWA

Capital requirement

CHF million

Total

Advanced

IRB /
model-
based
approach

Standardized
approach

Total

Advanced

IRB /
model-
based
approach

Standardized
approach

Total

Advanced

IRB /
model-
based
approach

Standardized
approach

Total¹

Credit risk

643,341

508,107

112,755

620,862

93,527

26,987

120,513

10,730

3,096

13,826

Counterparty credit risk by exposure segment (incl. sEPE)

630,173

495,632

112,625

608,257

72,262

23,445

95,707

8,290

2,690

10,980

Stressed EPE (sEPE)²

20,058

4,806

551

Counterparty credit risk by exposure segment (excl. sEPE)

610,116

475,574

112,625

588,200

67,456

23,445

90,901

7,739

2,690

10,428

Sovereigns

145,011

89,269

55,397

144,666

1,560

180

1,740

179

200

Banks

59,456

45,831

7,875

53,706

9,321

2,241

11,562

1,069

257

1,326

Corporates

143,068

114,185

20,179

134,365

34,911

15,513

50,424

4,005

1,780

5,785

Central counterparties

21,857

21,694

1,903

218

Retail

240,724

226,289

7,480

233,768

21,663

3,609

25,271

2,485

414

2,899

Residential mortgages

135,577

129,696

5,138

134,835

15,991

1,852

17,843

1,834

213

2,047

Lombard lending

100,773

94,560

4,892

561

Other retail⁴

4,374

2,032

2,341

4,373

780

1,756

2,536

202

291

Securitization / re-securitization in the banking book

10,964

10,424

5,559

638

Equity instruments in the banking book⁵

1,394

4,636

532

Credit valuation adjustment (CVA)

9,413

3,407

12,820

1,080

391

1,471

Settlement risk

809

657

130

786

1,657

135

1,792

190

206

Non-counterparty-related risk

14,838

13,410

1,538

Market risk

2,253

13,214

1,516

Value-at-risk (VaR)

1,803

207

Stressed value-at-risk (SVaR)

3,637

417

Add-on for risks-not-in-VaR (RNiV)

2,210

253

Incremental risk charge (IRC)

2,068

237

Comprehensive risk measure (CRM)

1,628

187

Securitization / re-securitization in the trading book

2,253

1,869

214

Operational risk

82,770

9,496

of which: incremental RWA⁶

25,813

2,961

Total Swiss SRB

660,432

510,360

127,593

637,953

189,511

40,397

229,908

⁷

21,741

4,634

26,376

¹ Calculated based on our Swiss SRB Basel III total capital requirement of 11.5% of RWA. ² Majority relates to exposures to Banks and Corporates. ³ Exposures to sovereigns increased by CHF 55 billion between 31 December 2013 and 30 June 2014, mainly as assets held at central banks, which are part of our multi-currency portfolio of unencumbered, high-quality liquid assets, are now treated under the advanced IRB / model-based approach. Previously, these assets were treated under the standardized approach. The impact on RWA was minimal due to the low risk weights that these exposures attract. ⁴ Includes qualifying revolving retail exposures of RWA 0.5 billion as of 30 June 2014. ⁵ Simple risk-weight method. ⁶ Incremental RWA reflect the effect of the supplemental operational risk capital analysis mutually agreed to by UBS and FINMA. ⁷ Refer to the “Capital management” section of our second quarter 2014 report for more information on the differences between phase-in and fully applied RWA.

Table 2: Detailed segmentation of Basel III exposures and risk-weighted assets (continued)


	31.12.13
	Basel III (phase-in)
	Gross EAD		Net EAD						RWA							Capital requirement
CHF million	Total		Advanced IRB / model- based approach		Standardized approach		Total		Advanced IRB / model- based approach		Standardized approach		Total			Advanced IRB / model- based approach		Standardized approach		Total¹
Credit risk		644,448		460,505		164,328		624,833		97,472		26,783		124,255			8,349		2,294		10,643

Counterparty credit risk by exposure segment (incl. sEPE)		630,097		446,948		164,290		611,239		73,171		20,992		94,163			6,267		1,798		8,065

Stressed EPE (sEPE)²		22,579		22,579				22,579		6,202				6,202			531				531

Counterparty credit risk by exposure segment (excl. sEPE)		607,518		424,369		164,290		588,660		66,969		20,992		87,960			5,736		1,798		7,534

Sovereigns		148,381		33,863		114,518		148,381		840		266		1,106			72		23		95

Banks		67,515		54,396		5,950		60,346		11,615		1,981		13,596			995		170		1,165

Corporates		143,106		118,279		18,848		137,127		34,659		13,606		48,265			2,969		1,165		4,134

Central counterparties		18,107				18,106		18,106				1,793		1,793					154		154

Retail		230,410		217,831		6,868		224,699		19,855		3,346		23,200			1,701		287		1,987

Residential mortgages		133,552		128,563		4,646		133,209		14,667		1,680		16,346			1,256		144		1,400

Lombard lending		92,661		87,293				87,293		4,437				4,437			380				380

Other retail ³		4,197		1,975		2,222		4,197		751		1,666		2,417			64		143		207

Securitization / re-securitization in the banking book		12,569		11,928				11,928		8,352				8,352			715				715

Equity instruments in the banking book⁴		1,522		1,522				1,522		4,999				4,999			428				428

Credit valuation adjustment (CVA)										10,598		5,696		16,294			908		488		1,396

Settlement risk		260		107		37		144		352		95		447			30		8		38

Non-counterparty-related risk⁵		16,924				16,924		16,924				12,634		12,634					1,082		1,082

Market risk		2,098		1,966				1,966		13,727				13,727			1,176				1,176

Value-at-risk (VaR)										1,746				1,746			150				150

Stressed value-at-risk (SVaR)										2,604				2,604			223				223

Add-on for risks-not-in-VaR (RNiV)										2,025				2,025			173				173

Incremental risk charge (IRC)										1,377				1,377			118				118

Comprehensive risk measure (CRM)										4,176				4,176			358				358

Securitization / re-securitization in the trading book		2,098		1,966				1,966		1,799				1,799			154				154

Operational risk										77,941				77,941			6,676				6,676

of which: incremental RWA⁶										22,500				22,500			1,927				1,927

Total Swiss SRB		663,469		462,471		181,251		643,722		189,141		39,417		228,557	⁷		16,201		3,376		19,577

¹ Calculated based on our Swiss SRB Basel III total capital requirement of 8.6% of RWA. ² Majority relates to exposures to Banks and Corporates. ³ Includes qualifying revolving retail exposures. ⁴ Simple risk-weight method. ⁵ In 2014, we corrected both gross and net EAD. As a result, both gross and net EAD decreased by CHF 2,567 million. ⁶ Incremental RWA reflect the effect of the supplemental operational risk capital analysis mutually agreed to by UBS and FINMA. ⁷ Refer to the “Capital management” section of our Annual Report 2013 for more information on the differences between phase-in and fully applied RWA.

Credit risk

The tables in this section provide details on the exposures used to determine the firm’s credit risk-related regulatory capital requirement. The parameters applied under the advanced internal ratings-based approach are generally based on the same methodologies, data and systems we use for internal credit risk quantification, except where certain treatments are specified by regulatory requirements. These include, for example, the application of regulatory prescribed floors and multipliers, and differences with respect to eligibility criteria and exposure definitions. The exposure information presented in this section therefore differs from that disclosed in the “Risk management and control” sections of our quarterly and annual reports. Similarly, the regulatory capital prescribed measure of credit risk exposure also differs from that required under IFRS. The following credit risk-related tables are based on Basel III phase-in and correspond to the counterparty credit risk by exposure segment excluding sEPE, which is shown in “Table 2: Detailed segmentation of Basel III exposures and risk-weighted assets.”

Refer to “Credit risk” in the “Risk management and control” section of our Annual Report 2013 for more information

The regulatory gross credit exposure for banking products is equal to the drawn loan amounts represented on the balance sheet, with the exception of off-balance sheet commitments

where the regulatory gross credit exposure is calculated by applying a credit conversion factor to the undrawn amount or contingent claim.

Within traded products, we determine the regulatory credit exposure on the majority of our derivative exposures by applying the effective expected positive exposure (EPE) and sEPE as defined in the Basel III framework. However, for a small portion of the derivatives portfolio we apply the current exposure method (CEM) based on the replacement value of derivatives in combination with a regulatory prescribed add-on. For a majority of securities financing transactions (securities borrowing / lending and repurchase agreements / reverse repurchase agreements), we determine the regulatory gross credit exposure using the close-out period (COP) approach. The regulatory gross credit exposure for traded products is equal to regulatory net credit exposure, in the credit risk tables on the following pages.

The regulatory net credit exposure detailed in the tables on the following pages is shown as the regulatory exposure at default after applying collateral, netting and other eligible risk mitigants permitted by the relevant regulations. The information on impaired and defaulted assets by segmentation, consistent with the regulatory capital treatment, is presented in the “Impairment, default and credit loss” section of this report.

Table 3: Regulatory gross credit risk by exposure segment and RWA

This table shows the derivation of RWA from the regulatory gross credit exposure excluding sEPE broken

down by major types of credit exposure according to classes of financial instruments.


	Exposure									Average regulatory risk-weighting			RWA¹
CHF million	Average regulatory gross credit exposure²		Regulatory gross credit exposure		Less: regulatory credit risk offsets and adjustments			Regulatory net credit exposure
Cash and balances with central banks		81,455		76,490					76,490		0	%		224

Due from banks³		31,395		34,108		(4,920	)		29,189		14	%		3,972

Loans		294,009		296,813		(14,535	)		282,278		15	%		42,809

Financial assets designated at fair value		2,146		2,086		(374	)		1,712		37	%		630

Off-balance sheet		34,004		33,321		(638	)		32,683		31	%		10,190

Banking products		443,009		442,818		(20,467	)		422,351		14	%		57,825

Derivatives		33,705		30,889					30,889		26	%		8,014

Cash collateral on derivative instruments		13,243		13,986					13,986		29	%		4,114

Securities financing		53,465		52,713					52,713		8	%		4,286

Traded products		100,413		97,588					97,588		17	%		16,414

Trading portfolio assets		3,148		4,019		(8	)		4,011		84	%		3,361

Financial investments available-for-sale		51,441		50,865		0			50,865		3	%		1,331

Other assets⁴		13,781		14,826		(1,442	)		13,384		89	%		11,969

Other products		68,370		69,710		(1,449	)		68,261		24	%		16,661

Total 30.6.14		611,792		610,116		(21,916	)		588,200		15	%		90,901

Total 31.12.13		630,724		607,518		(18,859	)		588,660		15	%		87,960

¹ The derivation of RWA is based on the various credit risk parameters of the advanced IRB approach and the standardized approach, respectively. ² The average regulatory gross credit exposure represents the average of the applicable quarter-end exposures for the relevant reporting periods. ³ Includes non-bank financial institutions. ⁴ Includes accrued income and prepaid expenses.

Table 4: Regulatory gross credit exposure by geographical region

This table provides a breakdown of our portfolio by major types of credit exposure excluding sEPE according to classes of financial instruments

and also by geographical regions. The geographical distribution is based on the legal domicile of the counterparty or issuer.


CHF million	Asia Pacific		Latin America		Middle East and Africa		North America		Switzerland		Rest of Europe		Total regulatory gross credit exposure		Total regulatory net credit exposure
Cash and balances with central banks		5,254		0		1		47,936		13,471		9,828		76,490		76,490

Due from banks¹		4,551		144		197		12,461		817		15,937		34,108		29,189

Loans		21,428		6,015		4,531		68,438		165,997		30,403		296,813		282,278

Financial assets designated at fair value		30						909		43		1,104		2,086		1,712

Off-balance sheet		1,005		424		491		17,416		6,939		7,047		33,321		32,683

Banking products		32,268		6,583		5,220		147,160		187,268		64,319		442,818		422,351

Derivatives		3,282		404		181		10,978		3,754		12,290		30,889		30,889

Cash collateral on derivative instruments		204		5		47		1,982		150		11,597		13,986		13,986

Securities financing		5,796		186		2,227		15,735		2,712		26,058		52,713		52,713

Traded products		9,283		595		2,455		28,694		6,616		49,944		97,588		97,588

Trading portfolio assets		1,236		70		18		1,237		14		1,444		4,019		4,011

Financial investments available-for-sale		3,646		95				17,818		1,595		27,712		50,865		50,865

Other assets²		465		55		58		5,421		4,567		4,260		14,826		13,384

Other products		5,347		220		76		24,475		6,175		33,416		69,710		68,261

Total 30.6.14		46,897		7,399		7,752		200,330		200,059		147,679		610,116		588,200

Total 31.12.13		50,141		7,294		6,907		192,507		200,307		150,363		607,518		588,660

¹ Includes non-bank financial institutions. ² Includes accrued income and prepaid expenses.

Table 5: Regulatory gross credit exposure by counterparty type

This table provides a breakdown of our portfolio by major types of credit exposure excluding sEPE according to classes of financial instruments and also by counterparty type. The counterparty type is different from

the BIS-defined exposure segments used in certain other tables in this section.


CHF million	Private individuals		Corporates¹		Public entities (including sovereigns and central banks)		Banks and multilateral institutions		Total regulatory gross credit exposure		Total regulatory net credit exposure
Cash and balances with central banks				0		76,044		446		76,490		76,490

Due from banks¹						9,514		24,594		34,108		29,189

Loans		186,954		106,008		3,852				296,813		282,278

Financial assets designated at fair value				1,610		2		474		2,086		1,712

Off-balance sheet		2,198		29,406		163		1,553		33,321		32,683

Banking products		189,152		137,024		89,575		27,067		442,818		422,351

Derivatives		1,724		14,424		4,744		9,998		30,889		30,889

Cash collateral on derivative financial instruments		3		4,741		56		9,186		13,986		13,986

Securities financing		104		36,090		6,291		10,228		52,713		52,713

Traded products		1,831		55,254		11,091		29,412		97,588		97,588

Trading portfolio assets		1		3,117		831		70		4,019		4,011

Financial investments available-for-sale		0		10,267		29,389		11,210		50,865		50,865

Other assets²		4,901		7,920		835		1,170		14,826		13,384

Other products		4,901		21,304		31,055		12,450		69,710		68,261

Total 30.6.14		195,884		213,582		131,721		68,929		610,116		588,200

Total 31.12.13		189,964		211,890		138,706		66,958		607,518		588,660

¹ Also includes non-bank financial institutions. ² Includes accrued income and prepaid expenses.

Table 6: Regulatory gross credit exposure by residual contractual maturity

This table provides a breakdown of our portfolio by major types of credit exposure excluding sEPE according to classes of financial instruments

and also by residual contractual maturity, not taking into account any early redemption features.


CHF million	On demand¹		Due in 1 year or less		Due between 1 year and 5 years		Due over 5 years		Total regulatory gross credit exposure		Total regulatory net credit exposure
Cash and balances with central banks		76,490								76,490		76,490

Due from banks²		22,344		11,641		98		26		34,108		29,189

Loans		85,814		105,045		62,783		43,171		296,813		282,278

Financial assets designated at fair value		0		391		1,126		570		2,086		1,712

Off-balance sheet		96		8,456		22,035		2,734		33,321		32,683

Banking products		184,743		125,532		86,042		46,500		442,818		422,351

Derivatives		0		13,255		6,866		10,768		30,889		30,889

Cash collateral on derivative instruments		7,402		6,583		0		0		13,986		13,986

Securities financing		42,325		9,778		610		0		52,713		52,713

Traded products		49,727		29,617		7,476		10,768		97,588		97,588

Trading portfolio assets		42		1,911		1,277		788		4,019		4,011

Financial investments available-for-sale		33		19,979		26,629		4,224		50,865		50,865

Other assets³		11,823		88		1,658		1,256		14,826		13,384

Other products		11,897		21,979		29,565		6,269		69,710		68,261

Total 30.6.14		246,368		177,128		123,083		63,537		610,116		588,200

Total 31.12.13		233,075		171,259		134,204		68,981		607,518		588,660

¹ Includes loans without a fixed term, collateral swaps, exchange-traded derivatives and cash collateral receivables on derivative instruments, on which notice of termination has not been given. ² Includes non-bank financial institutions. ³ Includes accrued income and prepaid expenses.

Table 7: Derivation of regulatory net credit exposure

This table provides a derivation of the regulatory net credit exposure from the regulatory gross credit exposure excluding sEPE according to

the advanced internal ratings-based approach and the standardized approach.


CHF million	Advanced IRB approach			Standardized approach			Total 30.6.14			Total 31.12.13
Total regulatory gross credit exposure		490,549			119,567			610,116			607,518

Less: regulatory credit risk offsets and adjustments		(14,975	)		(6,941	)		(21,916	)		(18,859	)

Total regulatory net credit exposure		475,574	¹		112,625			588,200

Total 31.12.13		424,369			164,290						588,660

¹ Total regulatory net credit exposure increased by CHF 51 billion between 31 December 2013 and 30 June 2014, mainly due to higher exposures to sovereigns, primarily as assets held at central banks, which are part of our multi-currency portfolio of unencumbered, high-quality liquid assets, are now treated under the advanced IRB / model-based approach. Previously, these assets were treated under the standardized approach.

Table 8: Regulatory gross credit exposure covered by guarantees and credit derivatives

This table provides a breakdown of regulatory gross credit exposures excluding sEPE covered by guarantees and credit derivatives, according to BIS-defined exposure segments. The amounts in the table reflect the

values used for determining regulatory capital to the extent collateral is eligible under the BIS framework.

CHF million

Regulatory gross
credit exposure

of which: covered by
guarantees¹

of which: covered by
credit derivatives

Exposure segment

Sovereigns

145,011

Banks

59,456

299

Corporates

143,068

4,122

9,373

Central counterparties

21,857

Retail

Residential mortgages

135,577

Lombard lending

100,773

466

Other retail

4,374

Total 30.6.14

610,116

5,035

9,408

Total 31.12.13

607,518

5,145

12,357

¹ Includes guarantees and standby letters of credit provided by third parties, mainly banks.

Advanced internal ratings-based approach

UBS uses the advanced internal ratings-based (A-IRB) approach for calculating certain credit risk exposures across all business divisions and the Corporate Center. Under the A-IRB approach, the required capital for credit risk is quantified through empirical models developed by us for estimating the probability of default (PD), loss given default (LGD), exposure at default (EAD) and other parameters, subject to the approval of FINMA.

Refer to “Credit risk models” in the “Risk management and control” section of our Annual Report 2013 for more information

Tables 9a to 9f provide a breakdown of the regulatory net credit exposure-weighted average PD, LGD, RWA and the average risk weight by internal UBS ratings across BIS-defined exposure segments. The allocation of exposure to the UBS internal ratings in the following tables is based on PD before the effects of regulatory adjustments. In addition, a breakdown of the regulatory net credit exposure and RWA for which we apply the A-IRB approach by internal UBS rating class is shown for each of the exposure segments.

Total regulatory net credit exposure and RWA are not equal to the numbers presented in table 2, as impaired and defaulted assets are excluded in tables 9a through 9f.

Table 9a: Sovereigns – Advanced IRB approach: Regulatory net credit exposure, weighted average PD, LGD and RWA by internal UBS ratings



	30.6.14
CHF million, except where indicated¹	Regulatory net credit exposure		of which: loan commitments		Average PD in %²		Average LGD in %		RWA		Average risk weight in %
Investment grade

Rating 0		76,055		1		0.0		37.5		38		0.1

Rating 1		8,320		87		0.0		34.0		294		3.5

Rating 2		3,292		4		0.0		43.0		376		11.4

Rating 3		1,022				0.1		43.0		160		15.7

Rating 4		235		0		0.2		56.4		100		42.6

Rating 5		9				0.4		10.1		2		20.7

Sub-investment grade

Rating 6		17		0		0.6		37.0		10		56.8

Rating 7		4		0		1.0		68.2		5		143.4

Rating 8		6		0		1.7		14.6		3		48.5

Rating 9		5		0		2.7		34.0		5		106.5

Rating 10		281				4.6		57.0		542		192.6

Rating 11		3		0		7.8		23.5		3		114.2

Rating 12		1				13.0		10.0		1		59.0

Rating 13		0				22.0		10.0		0		54.5

Total 30.6.14		89,249		91		0.0		37.5		1,539		1.7

¹ Impaired and defaulted assets are excluded from this table (RWA: CHF 21 million as of 30 June 2014). Refer to the “Risk management and control” section of our second quarter 2014 report for impaired and defaulted figures. ² Average PD for the internal rating categories are based on median values.



	31.12.13
CHF million, except where indicated¹	Regulatory net credit exposure		of which: loan commitments		Average PD in %²		Average LGD in %		RWA		Average risk weight in %
Investment grade

Rating 0		25,714		1		0.0		39.4		51		0.2

Rating 1		4,273		194		0.0		31.3		117		2.7

Rating 2		2,652		16		0.0		42.5		309		11.7

Rating 3		882		6		0.1		43.5		161		18.2

Rating 4		267		24		0.2		58.6		142		53.4

Rating 5		10				0.4		11.5		2		22.8

Sub-investment grade

Rating 6		22		0		0.6		39.2		14		64.5

Rating 7		3		0		1.0		51.5		4		133.0

Rating 8		8				1.7		22.2		6		70.8

Rating 9		2		0		2.7		22.5		1		69.2

Rating 10		0				4.6		10.0		0		47.1

Rating 11		4				7.8		30.1		6		139.4

Rating 12		1				13.0		10.0		1		58.6

Rating 13		0				22.0		10.0		0		54.5

Total 31.12.13		33,840		240		0.0		38.8		815		2.4

¹ Impaired and defaulted assets are excluded from this table (RWA: CHF 25 million as of 31 December 2013). Refer to the “Risk management and control” section of our Annual Report 2013 for impaired and defaulted figures. ² Average PD for the internal rating categories are based on median values.

Table 9b: Banks – Advanced IRB approach: Regulatory net credit exposure, weighted average PD, LGD and RWA by internal UBS ratings



	30.6.14
CHF million, except where indicated¹	Regulatory net credit exposure		of which: loan commitments		Average PD in %²		Average LGD in %		RWA		Average risk weight in %
Investment grade

Rating 0

Rating 1		2,150		7		0.0		34.2		152		7.1

Rating 2		30,026		6,128		0.0		36.0		5,398		18.0

Rating 3		7,952		1,286		0.1		35.2		1,341		16.9

Rating 4		2,883		135		0.2		38.9		1,007		34.9

Rating 5		1,160		15		0.4		28.4		420		36.2

Sub-investment grade

Rating 6		514		4		0.6		37.4		329		64.1

Rating 7		311				1.0		32.1		202		65.1

Rating 8		462		141		1.7		5.9		61		13.3

Rating 9		159		0		2.7		35.3		172		108.3

Rating 10		15				4.6		44.6		26		171.0

Rating 11		32		1		7.8		39.2		59		184.9

Rating 12		36				13.0		7.3		13		36.2

Rating 13		1				22.0		36.0		1		212.6

Total 30.6.14		45,700		*7,718*		*0.1*		35.4		9,183		20.1

¹ Impaired and defaulted assets are excluded from this table (RWA: CHF 138 million as of 30 June 2014). Refer to the “Risk management and control” section of our second quarter 2014 report for impaired and defaulted figures. ² Average PD for the internal rating categories are based on median values.



	31.12.13
CHF million, except where indicated¹	Regulatory net credit exposure		of which: loan commitments		Average PD in %²		Average LGD in %		RWA		Average risk weight in %
Investment grade

Rating 0

Rating 1		2,094		0		0.0		37.7		174		8.3

Rating 2		36,415		7,724		0.0		34.6		6,823		18.7

Rating 3		9,714		1,449		0.1		33.8		1,586		16.3

Rating 4		3,206		45		0.2		40.7		1,189		37.1

Rating 5		1,196		42		0.4		25.3		415		34.7

Sub-investment grade

Rating 6		414		4		0.6		37.0		266		64.2

Rating 7		383		0		1.0		43.5		338		88.3

Rating 8		517		197		1.7		16.2		199		38.5

Rating 9		118		5		2.7		36.7		142		119.7

Rating 10		32		0		4.6		41.6		50		159.5

Rating 11		69		1		7.8		38.0		119		172.3

Rating 12		67				13.0		41.9		140		210.2

Rating 13		0				22.0		19.0		0		112.3

Total 31.12.13		54,225		9,466		0.1		34.7		11,441		21.1

¹ Impaired and defaulted assets are excluded from this table (RWA: CHF 174 million as of 31 December 2013). Refer to the “Risk management and control” section of our Annual Report 2013 for impaired and defaulted figures. ² Average PD for the internal rating categories are based on median values.

Table 9c: Corporates – Advanced IRB approach: Regulatory net credit exposure, weighted average PD, LGD and RWA by internal UBS ratings



	30.6.14
CHF million, except where indicated¹	Regulatory net credit exposure		of which: loan commitments		Average PD in %²		Average LGD in %		RWA		Average risk weight in %
Investment grade

Rating 0

Rating 1		8,688		238		0.0		21.8		436		5.0

Rating 2		24,582		2,332		0.0		20.0		1,631		6.6

Rating 3		16,900		4,738		0.1		34.5		3,252		19.2

Rating 4		9,955		1,642		0.2		34.2		3,017		30.3

Rating 5		11,963		767		0.4		26.9		3,999		33.4

Sub-investment grade

Rating 6		12,248		634		0.6		23.5		4,844		39.5

Rating 7		10,503		617		1.0		23.7		5,038		48.0

Rating 8		8,081		732		1.7		18.9		3,474		43.0

Rating 9		4,702		544		2.7		23.1		2,934		62.4

Rating 10		3,732		1,471		4.6		24.3		3,426		91.8

Rating 11		1,337		684		7.8		21.3		1,260		94.2

Rating 12		247		74		13.0		27.2		322		130.3

Rating 13		69		22		22.0		9.1		30		43.8

Total 30.6.14		113,007		*14,496*		0.8		25.2		33,662		29.8

¹ Impaired and defaulted assets are excluded from this table (RWA: CHF 1,249 million as of 30 June 2014). Refer to the “Risk management and control” section of our second quarter 2014 report for impaired and defaulted figures. ² Average PD for the internal rating categories are based on median values.



	31.12.13
CHF million, except where indicated¹	Regulatory net credit exposure		of which: loan commitments		Average PD in %²		Average LGD in %		RWA		Average risk weight in %
Investment grade

Rating 0		10				0.0		45.5		1		7.0

Rating 1		10,199		239		0.0		24.0		565		5.5

Rating 2		28,845		2,242		0.0		22.1		1,650		5.7

Rating 3		17,027		3,444		0.1		32.8		3,154		18.5

Rating 4		10,317		1,659		0.2		37.6		3,400		33.0

Rating 5		11,673		977		0.4		31.2		4,573		39.2

Sub-investment grade

Rating 6		11,682		595		0.6		21.8		4,853		41.5

Rating 7		9,755		519		1.0		22.6		4,473		45.9

Rating 8		7,900		907		1.7		22.4		3,983		50.4

Rating 9		4,973		576		2.7		20.8		2,766		55.6

Rating 10		3,138		1,238		4.6		23.2		2,606		83.1

Rating 11		997		403		7.8		19.1		797		80.0

Rating 12		426		122		13.0		19.6		406		95.4

Rating 13		165		54		22.0		21.2		187		113.3

Total 31.12.13		117,104		12,975		0.8		26.1		33,414		28.5

¹ Impaired and defaulted assets are excluded in this table (RWA: CHF 1,245 million as of 31 December 2013). Refer to the “Risk management and control” section of our Annual Report 2013 for impaired and defaulted figures. ² Average PDs for the internal rating categories are based on median values.

Table 9d: Residential mortgages – Advanced IRB approach: Regulatory net credit exposure, weighted average PD, LGD and RWA by internal UBS ratings



	30.6.14
CHF million, except where indicated¹	Regulatory net credit exposure		of which: loan commitments		Average PD in %²		Average LGD in %		RWA		Average risk weight in %
Investment grade

Rating 0

Rating 1		26,769		102		0.0		10.6		419		1.6

Rating 2		10,217		18		0.0		10.5		180		1.8

Rating 3		17,042		32		0.1		11.1		565		3.3

Rating 4		17,434		45		0.2		11.3		1,063		6.1

Rating 5		17,059		57		0.4		12.0		1,762		10.3

Sub-investment grade

Rating 6		11,228		32		0.6		12.6		1,829		16.3

Rating 7		11,071		231		1.0		12.0		2,351		21.2

Rating 8		7,701		55		1.7		11.5		2,186		28.4

Rating 9		5,413		27		2.7		11.0		2,028		37.5

Rating 10		2,987		17		4.6		10.9		1,487		49.8

Rating 11		1,512		12		7.8		10.8		977		64.6

Rating 12		594		4		13.0		10.9		469		78.9

Rating 13		197		2		22.0		10.9		176		89.3

Total 30.6.14		129,224		*633*		0.8		11.3		15,490		12.0

¹ Impaired and defaulted assets are excluded from this table (RWA: CHF 501 million as of 30 June 2014). Refer to the “Risk management and control” section of our second quarter 2014 report for impaired and defaulted figures. ² Average PD for the internal rating categories are based on median values.



	31.12.13
CHF million, except where indicated¹	Regulatory net credit exposure		of which: loan commitments		Average PD in %²		Average LGD in %		RWA		Average risk weight in %
Investment grade

Rating 0

Rating 1		22,895		107		0.0		9.8		293		1.3

Rating 2		9,825		17		0.0		9.7		144		1.5

Rating 3		16,970		43		0.1		10.3		481		2.8

Rating 4		17,212		48		0.2		10.6		905		5.3

Rating 5		17,126		73		0.4		11.5		1,625		9.5

Sub-investment grade

Rating 6		11,931		57		0.6		11.8		1,740		14.6

Rating 7		12,796		281		1.0		11.5		2,474		19.3

Rating 8		8,612		117		1.7		10.9		2,157		25.0

Rating 9		5,577		24		2.7		10.4		1,806		32.4

Rating 10		3,160		21		4.6		10.2		1,358		43.0

Rating 11		1,370		16		7.8		10.1		756		55.2

Rating 12		475		7		13.0		10.2		320		67.3

Rating 13		156		5		22.0		10.5		122		77.7

Total 31.12.13		128,104		816		0.8		10.7		14,180		11.1

¹ Impaired and defaulted assets are excluded from this table (RWA: CHF 487 million as of 31 December 2013). Refer to the “Risk management and control” section of our Annual Report 2013 for impaired and defaulted figures. ² Average PD for the internal rating categories are based on median values.

Table 9e: Lombard lending – Advanced IRB approach: Regulatory net credit exposure, weighted average PD, LGD and RWA by internal UBS ratings



	30.6.14
CHF million, except where indicated¹	Regulatory net credit exposure		of which: loan commitments		Average PD in %²		Average LGD in %		RWA		Average risk weight in %
Investment grade

Rating 0

Rating 1

Rating 2		49,778		232		0.0		20.0		1,308		2.6

Rating 3		30,689		63		0.1		20.0		1,369		4.5

Rating 4		2,086		24		0.2		20.0		160		7.7

Rating 5		6,348		8		0.4		20.0		784		12.3

Sub-investment grade

Rating 6		2,551		11		0.6		20.0		441		17.3

Rating 7		900		9		1.0		20.0		194		21.6

Rating 8		1,133		21		1.7		20.0		293		25.9

Rating 9		159		0		2.7		20.0		46		29.1

Rating 10		436		36		4.6		20.0		135		31.0

Rating 11		480				7.8		20.0		160		33.3

Rating 12

Rating 13

Total 30.6.14		94,560		*405*		0.2		20.0		4,892		5.2

¹ Impaired and defaulted assets are excluded in this table (RWA: CHF 0 million as of 30 June 2014). Refer to the “Risk management and control” section of our second quarter 2014 report for impaired and defaulted figures. ² Average PD for the internal rating categories are based on median values.



	31.12.13
CHF million, except where indicated¹	Regulatory net credit exposure		of which: loan commitments		Average PD in %²		Average LGD in %		RWA		Average risk weight in %
Investment grade

Rating 0

Rating 1

Rating 2		47,034		259		0.0		20.0		1,236		2.6

Rating 3		26,482		19		0.1		20.0		1,182		4.5

Rating 4		2,598		16		0.2		20.0		200		7.7

Rating 5		6,646		25		0.4		20.0		821		12.3

Sub-investment grade

Rating 6		2,241		3		0.6		20.0		387		17.3

Rating 7		890		1		1.0		20.0		192		21.6

Rating 8		431		25		1.7		20.0		111		25.9

Rating 9		36		0		2.7		20.0		11		29.1

Rating 10		649		3		4.6		20.0		201		31.0

Rating 11		286				7.8		20.0		95		33.3

Rating 12

Rating 13

Total 31.12.13		87,293		351		0.2		20.0		4,436		5.1

¹ Impaired and defaulted assets are excluded from this table (RWA: CHF 0 million as of 31 December 2013). Refer to the “Risk management and control” section of our Annual Report 2013 for impaired and defaulted figures. ² Average PD for the internal rating categories are based on median values.

Table 9f: Other retail – Advanced IRB approach: Regulatory net credit exposure, weighted average PD, LGD and RWA by internal UBS ratings



	30.6.14
CHF million, except where indicated¹	Regulatory net credit exposure		of which: loan commitments		Average PD in %²		Average LGD in %		RWA		Average risk weight in %
Investment grade

Rating 0

Rating 1		18				0.0		6.6		0		0.7

Rating 2		130				0.0		19.5		4		2.7

Rating 3		28				0.1		15.2		1		3.7

Rating 4		9				0.2		17.0		1		7.3

Rating 5		11				0.4		9.4		1		6.1

Sub-investment grade

Rating 6		5		0		0.6		10.1		0		9.6

Rating 7		111				1.0		28.6		38		34.3

Rating 8		1				1.7		7.7		0		9.8

Rating 9		1,675		1		2.7		43.6		700		41.8

Rating 10		25				4.6		43.1		17		67.7

Rating 11		11				7.8		48.9		9		79.7

Rating 12		0				13.0		7.0		0		13.7

Rating 13

Total 30.6.14		2,023		1		2.4		40.1		770		38.1

¹ Impaired and defaulted assets are excluded from this table (RWA: CHF 10 million as of 30 June 2014). Refer to the “Risk management and control” section of our second quarter 2014 report for impaired and defaulted figures. ² Average PD for the internal rating categories are based on median values.



	31.12.13
CHF million, except where indicated¹	Regulatory net credit exposure		of which: loan commitments		Average PD in %²		Average LGD in %		RWA		Average risk weight in %
Investment grade

Rating 0

Rating 1		14				0.0		6.5		0		0.7

Rating 2		126				0.0		19.6		3		2.7

Rating 3		10				0.1		12.3		0		2.8

Rating 4		8				0.2		11.0		0		4.9

Rating 5		10				0.4		8.5		1		5.5

Sub-investment grade

Rating 6		6		0		0.6		10.7		1		9.6

Rating 7		135				1.0		26.3		45		33.6

Rating 8		2				1.7		6.2		0		8.1

Rating 9		1,644		2		2.7		43.6		688		41.9

Rating 10		10				4.6		21.7		3		34.0

Rating 11		1				7.8		7.3		0		12.3

Rating 12

Rating 13

Total 31.12.13		1,966		2		2.4		39.8		742		37.8

¹ Impaired and defaulted assets are excluded from this table (RWA: CHF 9 million as of 31 December 2013). Refer to the “Risk management and control” section of our Annual Report 2013 for impaired and defaulted figures. ² Average PD for the internal rating categories are based on median values.

Standardized approach

The standardized approach is generally applied where it is not possible to use the A-IRB approach. The standardized approach requires banks to use risk assessments prepared by external credit assessment institutions (ECAI) or export credit agencies to determine the risk weightings applied to rated counterparties. We use FINMA-recognized ECAI risk assessments to

determine the risk weightings for certain counterparties according to the BIS-defined exposure segments.

We use three FINMA-recognized ECAI for this purpose: Standard & Poor’s Ratings Group, Moody’s Investors Service and Fitch Ratings. The mapping of external ratings to the standardized approach risk weights is determined by FINMA and published on its website.

Table 10a: Regulatory gross and net credit exposure by risk weight under the standardized approach

This table provides a breakdown of the regulatory gross and net credit exposure by risk weight according to BIS-defined exposure segments

for those credit exposures for which we apply the standardized approach.



CHF million	Total exposure										Total exposure
Risk weight	0%		>0–35%		36–75%		76–100%		150%		30.6.14		31.12.13

Regulatory gross credit exposure

Sovereigns		55,052		60		234		51				55,397		114,518

Banks				5,671		2,196		9		0		7,876		5,950

Corporates				5,428		1,241		19,056		488		26,212		24,967

Central counterparties				21,857								21,857		18,107

Retail

Residential mortgages				5,013		110		758				*5,881*		4,989

Lombard lending

Other retail						2,340		3				*2,343*		2,224

Total 30.6.14		55,052		38,029		6,120		19,877		488		119,567

Total 31.12.13		114,132		31,936		6,258		18,297		132				170,754


Regulatory net credit exposure

Sovereigns		55,052		60		234		51				55,397		114,518

Banks				5,670		2,196		9		0		7,875		5,950

Corporates				5,428		1,125		13,151		475		20,179		18,848

Central counterparties				21,694								21,694		18,106

Retail

Residential mortgages				5,013		110		15				*5,138*		4,646

Lombard lending

Other retail						2,338		3				*2,341*		2,222

Total 30.6.14		55,052		37,866		6,003		13,230		475		112,625

Total 31.12.13		114,132		31,935		6,248		11,857		118				164,290

Table 10b: Regulatory net credit exposure under the standardized approach risk-weighted using external ratings

This table provides a breakdown of the regulatory net credit exposure rated / unrated by ECAI and by risk weight according to BIS-defined

exposure segments for those credit exposures for which we apply the standardized approach.



CHF million		Total exposure										Total exposure
Risk weight		0%		0–20%		20–50%		50–100%		150%		30.6.14

Regulatory net credit exposure¹

Sovereigns	Rated²		55,011		60		234		10				55,315
	Unrated		41						41				82

Banks	Rated²				3,434		6		2		0		3,442
	Unrated				2,236		2,189		7				4,433

Corporates	Rated²				5,428		1,125				465		7,018
	Unrated								13,151		10		13,161

Central Counterparties	Rated²				1,594								1,594
	Unrated³				19,117		983						20,100

Retail	Rated²
	Unrated						5,013		2,467				7,480

Total 30.6.14			55,052		31,869		9,552		15,678		475		112,625

Total 31.12.13			114,132		27,299		8,557		14,185		118		164,290

¹ For a breakdown of securitization exposures by risk weight bands and rating clusters refer to tables 28a to 28c (banking book) and 33a to 33c (trading book) of this report. ² We use three FINMA- recognized ECAI for this purpose: Standard & Poor’s Ratings Group, Moody’s Investors Service and Fitch Ratings. ³ In accordance with the regulations based on the Basel III framework, external ratings are not used for the risk-weighting of exposures to central counterparties.

Table 11: Eligible financial collateral recognized under the standardized approach

This table provides a breakdown of the financial collateral eligible for recognition in the regulatory capital calculation under

the standardized approach, according to BIS-defined exposure segments.

CHF million

Regulatory net credit exposure
under standardized approach

Eligible financial collateral
recognized in capital calculation¹

30.6.14

31.12.13

30.6.14

31.12.13

Exposure segment

Sovereigns

55,397

114,518

Banks

7,875

5,950

1,414

500

Corporates

20,179

18,848

8,307

7,668

Central counterparties

21,694

18,106

1,119

887

Retail

Residential mortgages

5,138

4,646

743

343

Lombard lending

Other retail

2,341

2,222

Total

112,625

164,290

11,665

9,444

¹ Reflects the impact of the application of regulatory haircuts for exposures not covered under an internal exposure model. The eligible financial collateral recognized in the capital calculation is based on the difference between the IFRS reported values and the regulatory net credit exposure.

Impairment, default and credit loss

The “Risk management and control” section of our annual reports provides additional information on the impaired, default and credit loss-related disclosures.

Refer to “Impaired assets” in the “Risk management and control” section of our Annual Report 2013 for more information

Table 12: Impaired assets by region

This table shows a breakdown by region of credit exposures arising from impaired assets as well as corresponding allowances and provisions for credit losses. Impaired asset exposures include loans,

off-balance sheet items, securities financing transactions and derivative transactions.



CHF million	Impaired assets¹			Specific allowances, provisions and credit valuation adjustments			Impaired assets net of specific allowances, provisions and credit valuation adjustments			Collective allowances and provisions²			Total allowances, provisions and specific credit valuation adjustments 30.6.14²			Total allowances, provisions and specific credit valuation adjustments 31.12.13²
Asia Pacific		60			(45	)		15			0			(45	)		(46	)

Latin America		22			(19	)		3			0			(19	)		(34	)³

Middle East and Africa		22			(21	)		1			0			(21	)		(24	)

North America		446			(207	)		240			(2	)		(208	)		(201	)³

Switzerland		703			(361	)		342			(6	)		(366	)		(488	)

Rest of Europe		343			(243	)		100			0			(243	)		(239	)

Total 30.6.14		1,596			(896	)		700			(7	)		(903	)⁴

Total 31.12.13		1,926	⁵		(1,013	)		914	⁵		(20	)					(1,033	)⁴

¹ Values of defaulted derivative contracts (CHF 402 million; 31 December 2013: CHF 582 million) are based on replacement values and do not include “add-ons” used in the calculation of regulatory capital. ² Does not include collective credit valuation adjustments of CHF 384 million (31 December 2013: CHF 433 million). ³ In 2014, we reclassified CHF 25 million of specific allowances as of 31 December 2013 from Latin America to North America. ⁴ Does not include an allowance of CHF 160 million related to certain disputed receivables (31 December 2013: CHF 83 million). ⁵ In 2014, we corrected the impaired loan exposure as of 31 December 2013. As a result, the impaired loan exposure was increased by CHF 42 million.

Table 13: Impaired assets by exposure segment

This table provides a breakdown by exposure segment of credit exposures arising from impaired

assets as well as corresponding allowances and provisions for credit losses.



CHF million	Impaired assets¹			Specific allowances, provisions and credit valuation adjustments			Collective allowances and provisions²			Total allowances, provisions and specific credit valuation adjustments 30.6.14²			Write-offs for the six-month period ended 30.6.14			Total allowances, provisions and specific credit valuation adjustments 31.12.13²
Sovereigns		14			(10	)		0			(10	)					(10	)

Banks		16			(15	)		0			(15	)		(1	)		(19	)

Corporates		1,314			(738	)		0			(738	)		(51	)		(829	)

Central counterparties

Retail

Residential mortgages		128			(41	)		0			(41	)					(46	)

Lombard lending		51			(49	)		0			(49	)					(68	)

Other retail		73			(44	)		(2	)		(45	)		(13	)		(42	)

Not allocated segment³								(6	)		(6	)					(18	)

Total 30.6.14		1,596			(896	)		(7	)		(903	)⁴		(64	)⁵

Total 31.12.13		1,926	⁶		(1,013	)		(20	)					(93	)⁵		(1,033	)

¹ Values of defaulted derivative contracts (CHF 402 million; 31 December 2013: CHF 582 million) are based on replacement values and do not include “add-ons” used in the calculation of regulatory capital. ² Does not include collective credit valuation adjustments of CHF 384 million (31 December 2013: CHF 433 million). ³ With the exception of certain lombard lending exposures, collective loan loss allowances are not allocated to individual counterparties and thus also not to exposure segments. ⁴ Does not include an allowance of CHF 160 million related to certain disputed receivables (31 December 2013: CHF 83 million). ⁵ Does not include CHF 1 million securitization-related write-offs (31 December 2013: CHF 35 million). ⁶ In 2014, we corrected the impaired exposure for loans as of 31 December 2013. As a result, the impaired loan exposure increased by CHF 42 million.

Table 14: Changes in allowances, provisions and specific credit valuation adjustments

This table provides a breakdown of movements in the specific and collective allowances and provisions for credit losses for impaired assets, including changes in the credit valuation adjustments for defaulted derivatives.

Refer to “Note 12 Allowances and provisions for credit losses” in the “Financial information” section of our Annual Report 2013 for more information



CHF million	Specific allowances and provisions for banking products and securities financing			Specific credit valuation adjustments for derivatives			Total specific allowances, provisions and credit valuation adjustments			Collective loan loss allowances for credit losses¹			For the six-month period ended 30.6.14				For the year ended 31.12.13
Opening balance as of 1.1.14		730	³		283			1,013			20			1,033		Opening balance as of 1.1.13		1,233

Write-offs / usage of provisions		(65	)		1			(64	)		(1	)		(65	)			(128	)

Recoveries (on written-off positions)		15						15						15				45

Increase / (decrease) in allowances, provisions and specific credit valuation adjustments²		(2	)		(68	)		(71	)		(12	)		(83	)			(92	)

Foreign currency translations and other adjustments		4			(1	)		3			0			3				(27	)

Closing balance as of 30.6.14		682	³		215			896			7			903	⁴	Closing balance as of 31.12.13		1,033

¹ This table does not include collective valuation adjustments of CHF 384 million (31 December 2013: CHF 433 million). ² Total actual credit loss (credit loss expense and changes in specific credit valuation adjustments recognized in net trading income). ³ Includes CHF 3 million allowances for securities financing (31 December 2013: CHF 2 million). ⁴ Does not include an allowance of CHF 160 million related to certain disputed receivables (31 December 2013: CHF 83 million).

Table 15: Total actual and expected credit losses

This table provides a breakdown by exposure segment of the actual credit (loss) / recovery amount (including credit valuation adjustments on derivatives) recognized in our income statement, as well as the corresponding expected loss. A comparison of our expected loss versus

actual loss for 2014 will be provided in our full-year Basel III Pillar 3 disclosure to be included in our Annual Report 2014.

Refer to “Comparison of actual versus expected loss” in the “Risk management and control” section of our Annual Report 2013 for more information



CHF million	Actual loss			Expected loss			Actual loss			Expected loss			Actual loss			Expected loss			Actual loss			Expected loss			Actual loss
	For the six-month period ended 30.6.14			As of 31.12.12 for the year ended 31.12.13			For the year ended 31.12.13			As of 31.12.11 for the year ended 31.12.12			For the year ended 31.12.12			As of 31.12.10 for the year ended 31.12.11			For the year ended 31.12.11			As of 31.12.09 for the year ended 31.12.10			For the year ended 31.12.10
Sovereigns		0			(4	)		0			(19	)		0			(27	)					(8	)

Banks		0			(36	)		3			(35	)		(1	)		(40	)		(1	)		(37	)		26

Corporates		80			(199	)		31			(322	)		884			(336	)		(321	)		(359	)		1,577

Central counterparties

Retail

Residential mortgages		1			(96	)		(2	)		(59	)		15			(62	)		3			(84	)		1

Lombard lending		16			(32	)		(36	)		(24	)		(12	)		(30	)		12			(19	)		5

Other retail		(4	)		(18	)		(8	)		(5	)		(11	)					(5	)		(5	)		(2	)

Not allocated segment¹		15						99						24						(75	)					7

Total		108			(386	)		88			(463	)		899			(494	)		(387	)		(512	)		1,615

¹ Includes changes in collective loan loss allowances and provisions.

Derivatives credit risk

Table 16: Credit exposure of derivative instruments

This table provides an overview of our credit exposures arising from derivatives. Exposures are provided based on the balance sheet carrying values of derivatives as well as regulatory net credit exposures. The net balance sheet credit exposure differs from the regulatory net credit exposures because of differences in valuation methods, netting and

collateral deductions used for accounting and regulatory capital purposes. Net current credit exposure is derived from gross positive replacement values, whereas regulatory net credit exposure is calculated using our internal credit valuation models.



CHF million	30.6.14			31.12.13¹
Gross positive replacement values		204,698			254,084

Netting benefits recognized		(156,958	)		(192,856	)

Collateral held		(26,809	)		(33,955	)

of which: Cash collateral		*(23,060*	)		(28,288	)

of which: Securities collateral and debt instruments collateral (excluding equity)		*(3,636*	)		(5,490	)

of which: Equity instruments collateral		*(50*	)		(50	)

of which: Other collateral		*(63*	)		(127	)

Net current credit exposure		20,931			27,274


Regulatory net credit exposure (total counterparty credit risk)		30,889			45,718

of which: treated with internal models (effective expected positive exposure [EPE])		*24,848*			38,906

of which: treated with supervisory approaches (current exposure method)		*6,041*			6,812

¹ In 2014, certain figures for 31 December 2013 were restated upon the adoption of the amendments to IAS 32. The lines “Gross replacement values” and “Netting benefits recognized” were both increased by approximately CHF 8 billion. The line “Collateral held” was increased by an immaterial amount. There was no impact to the line “Net current credit exposure.” Refer to “Note 1 Basis of accounting” of our first quarter 2014 report for more information on the adoption of the amendments to IAS 32.

Other credit risk information

Our credit derivatives trading is predominantly conducted on a collateralized basis. This means that our mark-to-market exposures arising from derivatives activities with collateralized counterparties are typically closed out in full or reduced to nominal levels on a regular basis by the use of collateral.

Derivatives trading with counterparties with high credit ratings is typically conducted under an International Swaps and Derivatives Association (ISDA) master netting agreement. Credit exposures to those counterparties from credit default swaps (CDS), together with exposures from other over-the-counter (OTC) derivatives, are netted and included in the calculation

of the collateral that is required to be posted. Trading with lower-rated counterparties, such as hedge funds, would generally require an initial margin to be posted by the counterparty.

We receive collateral from or post collateral to our counterparties based on our open net receivable or net payable from OTC derivative activities. Under the terms of the ISDA master netting agreement and similar agreements, this collateral, which generally takes the form of cash or highly liquid debt securities, is available to cover any amounts due under those derivative transactions.

We did not have any significant losses from failed settlements of CDS contracts in the first half of 2014.

Table 17: Credit derivatives

This table provides an overview of the notional amount of credit derivatives, including those used to manage risks within our banking and trading books. Notional amounts of credit derivatives are based on accounting definitions and do not include any netting benefits. For capital underpinning of the counterparty

credit risk of derivative positions, the effective expected positive exposure (or exposure according to current exposure method) is taken. Notional amounts are reported based on regulatory scope of consolidation and only include amounts related to positive and negative replacement values.



	Regulatory banking book						Regulatory trading book						Total
Notional amounts, CHF million	Protection bought		Protection sold		Total		Protection bought		Protection sold		Total		30.6.14		31.12.13
Credit default swaps		16,851		1,281		18,132		512,221		516,843		1,029,064		1,047,196		1,068,660

Total rate of return swaps		381		0		381		6,527		1,032		7,559		7,940		6,182

Options and warrants								3,629		61		3,690		3,690		3,658

Total 30.6.14		17,232		1,281		18,513		522,377		517,936		1,040,313		1,058,826

Total 31.12.13		22,676		3,307		25,983		529,200		523,317		1,052,517				1,078,500

Measured on a notional basis, our counterparties for buying and selling protection are mainly banks and to a lesser extent broker-dealers and central counterparties. In the first half of 2014, we saw a reduction in notional exposures, primarily with broker-dealers and central counterparties.

Refer to “Note 14 Derivative instruments and hedge accounting” in the “Financial information” section of our Annual Report 2013 for more information on credit derivatives by counterparties

Equity instruments in the banking book

The regulatory capital view for equity instruments in the banking book differs from the IFRS view, primarily due to the following:

–	Differences in the basis of valuation, for example financial investments available-for-sale are subject to fair value accounting under IFRS but have to be treated under the “lower of cost or market” or “cost less impairment” concept for regulatory capital purposes.

–	Certain instruments which are held as debt investments on the IFRS balance sheet, mainly investment fund units, are treated as equity instruments for regulatory capital purposes.

–	Certain instruments which are held as trading portfolio assets on the IFRS balance sheet, but which are not part of the regulatory VaR framework, are included in the banking book for regulatory capital purposes.

–	Differences in the scope of consolidation.

Refer to the “Scope of regulatory consolidation” section of this report for more information

Table 18: Equity instruments in the banking book

The table below shows the different equity instruments categories held in the banking book with their amounts as recognized under IFRS, followed by the regulatory capital adjustment amount. This adjustment considers the abovementioned differences to IFRS resulting in the total regulatory equity instruments

exposure under the BIS framework, the corresponding RWA and the capital charge.

The table also shows net realized gains and losses and unrealized revaluation gains relating to equity instruments.



	As of
CHF million		30.6.14	31.12.13
Equity instruments

Financial investments available-for-sale		590	649

Investments in associates		848	842

Total equity instruments under IFRS		1,438	1,491

Regulatory capital adjustment¹		756	885

Total equity instruments under regulatory capital²		2,194	2,376

of which: to be risk-weighted

publicly traded		*164*	132

privately held ^3,4		*1,002*	1,225

not deducted in application of threshold, but risk-weighted at 250%		*694*	674

of which: deduction from common equity tier 1 capital⁵		*334*	344

RWA according to simple risk-weight method⁶		4,636	4,999

Capital requirement according to simple risk-weight method⁶		532	428

Total capital charge		866	772


Net realized gains / (losses) and unrealized gains from equity instruments		For the six months ended 30.6.14	For the year ended 31.12.13

Net realized gains / (losses) from disposals		61	122

Unrealized revaluation gains		11	11

of which: included in tier 2 capital		5	5

¹ As of 30 June 2014, this included CHF 710 million in investment fund units treated as debt investments under IFRS. ² As of 30 June 2014, this included CHF 465 million booked in trust entities (compensation and benefit vehicles) and CHF 334 million in goodwill of investments in associates. Excluding these items, equity instruments in the banking book were CHF 1,394 million, which equals the gross and net exposure of equity instruments presented in “Table 2: Detailed segmentation of Basel III exposures and risk-weighted assets.” ³ Includes CHF 465 million exposure booked in trust entities (compensation and benefit vehicles) that did not generate risk-weighted assets. ⁴ Includes equity investments in companies active in the banking and finance business where UBS owns less than 10% of the entity’s common equity. ⁵ Under Basel III, goodwill of investments in associates is deducted from common equity tier 1 capital. ⁶ The risk-weighted assets of CHF 4,636 million and the capital requirement of CHF 532 million, as of 30 June 2014, are also disclosed in the “Equity instruments in the banking book” line of “Table 2: Detailed segmentation of Basel III exposures and risk-weighted assets.”

Market risk

The “Risk management and control” section of our quarterly and annual reports provides additional information on market risk-related Pillar 3 disclosures.

Refer to “Market risk” in the “Risk management and control” section of our Annual Report 2013, as well as our first and second quarter 2014 reports for more information

Backtesting of VaR

For backtesting purposes, we compute backtesting VaR using a 99% confidence level and one-day holding period for the population included within regulatory VaR. The backtesting process compares backtesting VaR calculated on positions at the close of each business day with the revenues generated by those positions on the following business day. Backtesting revenues exclude non-trading revenues, such as fees and commissions and revenues from intraday trading, to ensure a like-for-like comparison. A backtesting exception occurs when backtesting revenues are negative and the absolute value of those revenues is greater than the previous day’s backtesting VaR.

We did not have any Group backtesting exceptions in the first six months of 2014 or in the 12 months preceding the end of June 2014.

The chart “Group: development of backtesting revenues against backtesting VaR” shows the development of backtest VaR against backtesting revenues of the Group for the first six months of 2014. The chart shows both the negative and positive tails of the backtest VaR distribution at 99% confidence intervals representing, respectively, the losses and gains that could potentially be realized over a one-day period at that level of confidence.

The histogram “Investment Bank and Corporate Center – Non-core and Legacy Portfolio daily revenue distribution” shows the daily revenue distribution for the Investment Bank and Corporate Center – Non-core and Legacy Portfolio for the first six months of 2014. This includes, in addition to backtesting revenues, revenues such as commissions and fees, revenues for intraday trading and own credit. Negative trading revenue in the second quarter of 2014 was driven by exits in Non-core.

Table 19: Group: regulatory value-at-risk (1-day, 99% confidence, 5 years of historical data)

This table shows the Group’s minimum, maximum, average and period-end regulatory backtesting VaR.



	For the six months ended 30.6.14				For the year ended 31.12.13
CHF million	Min.	Max.	Average	30.6.14	Min.	Max.	Average	31.12.13
Group	15	36	21	19	15	42	23	17


Chart 1: Group: development of backtesting revenues¹ against backtesting VaR² (1-day, 99% confidence)		Chart 2: Investment Bank and Corporate Center – Non-core and Legacy Portfolio daily revenue distribution¹


¹ Excludes non-trading revenues, such as commissions and fees, and revenues from intraday trading. ² Based on Basel III regulatory VaR, excludes CVA positions and their eligible hedges which are subject to the standalone CVA charge.		¹ In addition to backtesting revenues, includes revenues such as commissions and fees, revenues for intraday trading, and own credit.

Securitization

This section provides details of traditional and synthetic securitization exposures in the banking and trading book based on the Basel III framework. Securitized exposures are risk-weighted, generally, based on their external ratings. This section also provides details of the regulatory capital requirement associated with these exposures.

In a traditional securitization, a pool of loans (or other debt obligations) is typically transferred to structured entities that have been established to own the loan pool and to issue tranched securities to third-party investors referencing this pool of loans. In a synthetic securitization, legal ownership of securitized pools of assets is typically retained, but associated credit risk is transferred to structured entities typically through guarantees, credit derivatives or credit-linked notes. Hybrid structures with a mix of traditional and synthetic features are disclosed as synthetic securitizations.

We act in different roles in securitization transactions. As originator, we create or purchase financial assets, which are then securitized in traditional or synthetic securitization transactions, enabling us to transfer significant risk to third-party investors. As sponsor, we manage, provide financing or advise securitization programs. In line with the Basel framework,

sponsoring includes underwriting, that is, placing securities in the market. In all other cases, we act in the role of investor by taking securitization positions.

RWA attributable to securitization positions decreased to CHF 7.4 billion as of 30 June 2014 from CHF 10.2 billion as of 31 December 2013, mainly due to a decline of CHF 3.0 billion in Corporate Center – Non-core and Legacy Portfolio, predominantly reflecting the sale of commercial mortgage-backed securities and collateralized debt obligations. This was partly offset by an increase due to the expiry of the transition phase mandated under the Basel 2.5 framework, i.e., net long and net short securitization positions in the trading book require separate underpinning since January 2014, rather than the higher of net long or net short positions underpinned until 31 December 2013.

Refer to “Note 30 Interests in subsidiaries and other entities” in the “Financial information” section of our Annual Report 2013 for more information on structured entities

Refer to “Corporate Center – Non-core and Legacy Portfolio” in the “Risk management and control” section of our second quarter 2014 report for more information on RWA by portfolio composition and exposure category

Table 20: Securitization / re-securitization

30.6.14

31.12.13

CHF million

Gross EAD

Net EAD

RWA

Capital
requirement

Gross EAD

Net EAD

RWA

Capital
requirement

Securitization / re-securitization in the banking book

10,964

10,424

5,559

638

12,569

11,928

8,352

715

CC – Non-core and Legacy Portfolio

6,806

6,266

4,967

570

8,767

8,125

7,772

666

Other business divisions¹

4,158

592

3,803

580

Securitization / re-securitization in the trading book

2,253

1,869

214

2,098

1,966

1,799

154

CC – Non-core and Legacy Portfolio

1,874

1,562

179

1,896

1,799

1,711

147

Other business divisions¹

378

307

202

167

¹ Mainly reflecting exposures in the Investment Bank.

Objectives, roles and involvement

Securitization in the banking book

Securitization positions held in the banking book include tranches of synthetic securitization of loan exposures and over-the-counter derivatives. These were primarily hedging transactions executed in 2013 and 2012 by synthetically transferring counterparty credit risk. In addition, securitization in the banking book includes legacy risk positions, some of which were (i) reclassified under IFRS from Held for trading to Loans and receivables in the fourth quarter of 2008 and the first quarter of 2009, or (ii) classified as Loans and receivables when acquiring student loan auction rate securities from clients. As of 30 June 2014, this portfolio included student loan auction rate securities, collateralized debt obligations and collateralized loan obligations, some of which have credit default swap protection purchased from monoline insurers, as well as commercial mortgage-backed securities, residential mortgage-backed securities and reference-linked note programs.

In the first half of 2014, we acted in the roles of both originator and sponsor. As originator, we sold originated commercial mortgage loans into securitization programs. As sponsor, we managed or advised securitization programs and helped to place the securities in the market. Refer to “Table 21: Securitization activity for the period in the banking book” for an overview of our originating and sponsoring activities in the first half of 2014 and in full year 2013, respectively.

Securitization and re-securitization positions in the banking book are measured either at fair value or at amortized cost less impairment. The impairment assessment for a securitized position is generally based on the net present value of future cash flows expected from the underlying pool of assets.

Securitization in the trading book

Securitizations (including correlation products) held in the trading book are part of the trading activities, which typically include market-making and client facilitation. Included in the trading book are positions in our correlation book and legacy positions in leveraged super senior tranches. In the trading book, securitization and re-securitization positions are measured at fair value reflecting market prices where available or are based on our internal pricing models.

Type of structured entities and affiliated entities involved in the securitization transactions

For the securitization of third-party exposures, the type of structured entities employed is selected as appropriate based on the type of transaction undertaken. Examples of this include limited liability corporations, common law trusts and depositor entities.

We manage or advise significant groups of affiliated entities that invest in exposures we have securitized or in structured entities that we sponsor. Significant groups of affiliated entities include North Street, Brooklands / ELM, and East Street, which are involved in the US, European and Asia Pacific reference-linked note programs, respectively.

Refer to “Note 30 Interests in subsidiaries and other entities” in the “Financial information” section of our Annual Report 2013 for more information on structured entities

Managing and monitoring of the credit and market risk of securitization positions

The banking book securitization and re-securitization portfolio is subject to specific risk monitoring, which may include interest rate and credit spread sensitivity analysis, as well as inclusion in firm-wide earnings-at-risk, capital-at-risk and combined stress test metrics.

The trading book securitization and re-securitization positions are also subject to multiple risk limits in our Investment Bank, such as management VaR and stress limits as well as market value limits. As part of managing risks within the predefined risk limits, traders may utilize hedging and risk mitigation strategies. Hedging may however expose the firm to basis risks as the hedging instrument and the position being hedged may not always move in parallel. Such basis risks are managed within the overall limits. Any retained securitization from origination activities and any purchased securitization positions are governed by risk limits together with any other trading positions. Legacy trading book securitization exposure is subject to the same management VaR limit framework. Additionally, risk limits are used to control the unwind, novation and asset sales process on an ongoing basis.

Regulatory capital treatment of securitization structures

Generally, in both the banking and trading book we apply the ratings-based approach to securitization positions using ratings, if available, from Standard & Poor’s Ratings Group, Moody’s Investors Service and Fitch Ratings for all securitization and re-securitization exposures. The selection of the External Credit Assessment Institutions (ECAI) is based on the primary rating agency concept. This concept is applied, in principle, to avoid that the credit assessment by one ECAI is applied for one or more tranches and another ECAI for the other tranches unless this is the result of the application of the specific rules for multiple assessments. If any two of the abovementioned rating

agencies have issued a rating for a particular position, we would apply the lower credit rating of the two. If all three rating agencies have issued a rating for a particular position, we would apply the middle credit rating of the three. Under the ratings-based approach, the amount of capital required for securitization and re-securitization exposures in the banking book is capped at the level of the capital requirement that would have been assessed against the underlying assets had they not been securitized. This treatment has been applied in particular to the US and European reference-linked note programs. For the purposes of determining regulatory capital and the Pillar 3 disclosure for these positions, the underlying exposures are reported under the standardized approach, the advanced internal ratings-based approach or the securitization approach, depending on the category of the underlying security. If the underlying security is reported under the standardized approach or the advanced internal ratings-based approach, the related positions are excluded from the tables on the following pages.

The supervisory formula approach is applied to synthetic securitizations of portfolios of counterparty credit risk inherent in over-the-counter derivatives and loan exposures for which an external rating was not sought. The supervisory formula approach is also applied to leveraged super senior tranches.

In the trading book, the comprehensive risk measure is used for the correlation portfolio as defined by Basel III requirements. This measure broadly covers securitizations of liquid corporate underlying assets as well as associated hedges that are not necessarily securitizations, for example, single-name credit default swaps and credit default swaps on indices.

We do not apply the concentration ratio approach or the internal assessment approach to securitization positions.

The counterparty risk of interest rate or foreign currency derivatives with securitization vehicles is treated under the advanced internal ratings-based approach and is therefore not part of this disclosure.

Accounting policies

Refer to “Note 1 Summary of significant accounting policies” in the “Financial information” section of our Annual Report 2013 for information on accounting policies that relate to securitization activities, primarily “Note 1a) 3) Subsidiaries and structured entities” and “Note 1a) 12) Securitization structures set up by UBS.”

We disclose our intention to securitize exposures as an originator if assets are designated for securitization and a tentative pricing date for a transaction is known as of the balance sheet date or if a pricing of a transaction has been fixed. Exposures intended to be securitized continue to be valued in the same way until such time as the securitization transaction takes place.

Presentation principles

It is our policy to present Pillar 3 disclosures for securitization transactions and balances in line with the capital adequacy treatments which were applied under Pillar 1 in the respective period presented.

We do not amend comparative prior period numbers for presentational changes triggered by new and revised information from third-party data providers, as long as the updated information does not impact the Pillar 1 treatments of prior periods.

Good practice guidelines

On 18 December 2008, the European Banking Federation, the Association for Financial Markets in Europe, the European Savings Banks Group and the European Association of Public Banks and Funding Agencies published the “Industry good practice guidelines on Pillar 3 disclosure requirement for securitization.” These guidelines were slightly revised in 2009 and 2010, and this report complies with that publication in all material respects.

Securitization exposures in the banking and trading book

Tables 21 and 22 outline the exposures measured as the transaction size we securitized at inception in the banking and trading book in the first half of 2014 and in full year 2013. The activity is further broken down by our role (originator / sponsor) and by type (traditional / synthetic).

Amounts disclosed under the Traditional column of these tables reflect the total outstanding notes at par value issued by the securitization vehicle at issuance. For synthetic securitization transactions, the amounts disclosed generally reflect the balance sheet carrying values of the securitized exposures at issuance.

For securitization transactions where we acted as originator, exposures are split into two parts, those in which we have retained securitization positions and / or continue to be involved on an ongoing basis (for example credit enhancement or implicit support), and those in which we have no retained securitization positions and / or have no further involvement.

Where we acted as both originator and sponsor to a securitization, originated assets are reported under Originator and the total amount of the underlying assets securitized is reported under Sponsor. As a result, as of 30 June 2014 and 31 December 2013, amounts of CHF 0.6 billion and CHF 2.5 billion, respectively, were included in “Table 21: Securitization activity for the period in the banking book” under both Originator and Sponsor and “Table 23: Outstanding securitized exposures.”

Table 21: Securitization activity for the period in the banking book

Originator

Sponsor

Traditional

Synthetic

Realized
gains / (losses)
on traditional
securitizations

Traditional

Synthetic

CHF million

Securitization
positions retained

No securitization
positions retained

Securitization
positions retained

No securitization
positions retained

Residential mortgages

Commercial mortgages

636

2,032

Credit card receivables

Leasing

Loans to
corporates or
small and
medium-sized
enterprises

Consumer loans

Student loans

Trade receivables

Re-securitizations

Other

Total 30.6.14

636

2,032

Residential mortgages

Commercial mortgages

1,331

1,199

7,580

Credit card receivables

Leasing

Loans to
corporates or
small and
medium-sized
enterprises

Consumer loans

Student loans

Trade receivables

Re-securitizations

Other

876

Total 31.12.13

1,331

1,199

876

7,580

Table 22: Securitization activity for the period in the trading book

Originator

Sponsor¹

Traditional

Synthetic

Realized
gains / (losses)
on traditional
securitizations

Traditional

Synthetic

CHF million

Securitization
positions retained

No securitization
positions retained

Securitization
positions retained

No securitization
positions retained

Residential mortgages

Commercial mortgages

Credit card receivables

Leasing

Loans to
corporates or
small and
medium-sized
enterprises

Consumer loans

Student loans

Trade receivables

Re-securitizations

Other

Total 30.6.14

Residential mortgages

Commercial mortgages

Credit card receivables

Leasing

Loans to
corporates or
small and
medium-sized
enterprises

Consumer loans

Student loans

Trade receivables

Re-securitizations

Other

Total 31.12.13

¹ This disclosure excludes sponsor-only activity where we do not retain a position. In such cases, we advised the originator or placed securities in the market for a fee, without any impact to our risk-weighted assets or capital. On this basis, we did not conduct any securitization activity in both 2013 and 2014.

Table 23: Outstanding securitized exposures

This table outlines exposures measured as the outstanding transaction size in which we have originated / sponsored and retained securitization positions at the balance sheet date in the banking or trading book and / or are otherwise involved on an ongoing basis, for example through the provision of credit enhancement or implicit support.

Amounts disclosed under the Traditional column in this table reflect the total outstanding notes at par value issued by the securitization vehicle. For synthetic securitization transactions, we generally disclose the balance sheet carrying values of the exposures securitized or, for hybrid structures, the

outstanding notes at par value issued by the securitization vehicle.

The table also includes securitization activities conducted in the first half of 2014 and in full year 2013 in which we retained / purchased positions. These can also be found in “Table 21: Securitization activity for the period in the banking book” and “Table 22: Securitization activity for the period in the trading book.” Where no positions were retained, the outstanding transaction size is only disclosed in the year of inception for originator transactions.

All values in this table are as of the balance sheet date.



	Banking book								Trading book^1,2
	Originator				Sponsor				Originator				Sponsor
CHF million	Traditional		Synthetic		Traditional		Synthetic		Traditional		Synthetic		Traditional³		Synthetic
Residential mortgages		488				39				1,218				6,958

Commercial mortgages		636				16,060								10,805

Credit card receivables

Leasing						996

Loans to corporates or small and medium-sized enterprises						736

Consumer loans

Student loans						6,368								1,469

Trade receivables

Re-securitizations				305		2,595				180		947

Other				7,036		417

Total 30.6.14		1,124		7,341		27,210		0		1,397		947		19,233		0


Residential mortgages		658				158				1,324				4,871

Commercial mortgages		2,529				18,592								15,323

Credit card receivables

Leasing						553

Loans to corporates or small and medium-sized enterprises						741

Consumer loans

Student loans						6,788								770

Trade receivables

Re-securitizations		585		390		3,426				181		951

Other				8,659		754

Total 31.12.13		3,772		9,049		31,011		0		1,505		951		20,963		0

Table 24: Impaired or past due securitized exposures and losses related to securitized exposures in the banking book

This table provides a breakdown of the outstanding impaired or past due exposures at the balance sheet date as well as losses recognized in our income statement for transactions in which we acted as originator or sponsor in the banking book. Losses are reported after taking into account the offsetting effects of any credit protection from eligible risk mitigation instruments under the Basel III framework for the retained or purchased positions.

Where we did not retain positions, impaired or past due information is only reported in the year of inception of a transaction. Where available, past due information is derived from investor reports. Past due is generally defined as delinquency above 60 days. Where investor reports do not provide this information, alternative methods have been applied, which may include an assessment of the fair value of the retained position or reference assets, or identification of any credit events.



	30.6.14								31.12.13
	Originator				Sponsor				Originator				Sponsor
CHF million	Impaired or past due in securitized exposures		Recognized losses in income statement		Impaired or past due in securitized exposures		Recognized losses in income statement		Impaired or past due in securitized exposures		Recognized losses in income statement		Impaired or past due in securitized exposures		Recognized losses in income statement
Residential mortgages		246				7				323				21

Commercial mortgages						249		1				0		793		11

Credit card receivables

Leasing

Loans to corporates or small and medium-sized enterprises

Consumer loans

Student loans						272								321		3

Trade receivables

Re-securitizations										307						0

Other				3						50		115				0

Total		246		3		528		1		680		115		1,134		15

Table 25: Exposures intended to be securitized in the banking and trading book

This table provides the amount of exposures by exposure type we intend to securitize in the banking and trading book. We disclose our intention to securitize exposures as an originator if assets are designated for securitization and a tentative pricing date for a transaction is known at the balance sheet date or if a pricing of a transaction has been fixed.

30.6.14

31.12.13

CHF million

Banking book

Trading book

Banking book

Trading book

Residential mortgages

Commercial mortgages

459

Credit card receivables

Leasing

Loans to corporates or small and
medium-sized enterprises

Consumer loans

Student loans

Trade receivables

Re-securitizations

Other

Total

459

Table 26: Securitization positions retained or purchased in the banking book

This table provides a breakdown of securitization positions we retained or purchased in the banking book, irrespective of our role in the

securitization transaction. The value disclosed is the net exposure amount at default subject to risk-weighting at the balance sheet date.



	30.6.14							31.12.13
CHF million	On balance sheet			Off balance sheet³		Total		On balance sheet			Off balance sheet³		Total
Residential mortgages		466					466		541					541

Commercial mortgages		333					333		351					351

Credit card receivables

Leasing		31					31		43					43

Loans to corporates or small and medium-sized enterprises		426					426		349					349

Consumer loans		2					2		1					1

Student loans		1,028					1,028		1,060					1,060

Trade receivables

Re-securitizations		755			71		826		948			161		1,109

Other		7,279	²		33		7,313		8,403	²		71		8,474

Total¹		10,320			104		10,424		11,696			232		11,928

¹ The total exposure of CHF 10.4 billion as of 30 June 2014 (CHF 11.9 billion as of 31 December 2013) is also disclosed in “Table 2: Detailed segmentation of Basel III exposures and risk-weighted assets” in line “Securitization / re-securitization in the banking book.” ² “Other” primarily includes securitization of portfolios of counterparty credit risk in over-the-counter (OTC) derivatives and loan exposures. ³ Synthetic long exposures through sold CDS positions are classified as off balance sheet exposures.

Table 27: Securitization positions retained or purchased in the trading book

This table provides a breakdown of securitization positions we purchased or retained in the trading book subject to the securitization framework for specific market risk, irrespective of our role in the securitization transaction. Gross long and gross short amounts reflect the positions prior to the eligible offsetting of cash and derivative positions. Net long and net short amounts

are the result of offsetting cash and derivative positions to the extent eligible under Basel III. The amounts disclosed are either the fair value or, in the case of derivative positions, the aggregate of the notional amount and the associated replacement value at the balance sheet date.



	Cash positions				Derivative positions
CHF million	Gross long		Gross short		Gross long		Gross short		Net long		Net short		Net Total^1,2
Residential mortgages		60		2		576		724		58		44		103

Commercial mortgages		417		1		1,148		1,499		587		34		621

Credit card receivables

Leasing

Loans to corporates or small and medium-sized enterprises

Consumer loans

Student loans		0		0

Trade receivables

Re-securitizations		40		1		53		71		19		3		23

Other		10		0		270		270		10		0		10

Total 30.6.14		527		4		2,046		2,564		675		82		757


Residential mortgages		86		2		1,036		1,196		109		199		308

Commercial mortgages		462		0		847		1,341		477		508		985

Credit card receivables

Leasing

Loans to corporates or small and medium-sized enterprises

Consumer loans

Student loans		0		0

Trade receivables

Re-securitizations		37		1		45		72		9		8		17

Other		16		0		269		269		16

Total 31.12.13		601		3		2,197		2,878		611		715		1,325

¹ As of 1 January 2014, both net long and net short positions are underpinned in the trading book and EAD capped at maximum possible loss. ² As of 30 June 2014, does not include CHF 1,496 million related to leveraged super senior tranches treated under the supervisory formula approach which are reported in “Table 33c: Securitization / re-securitization exposures treated under the supervisory formula approach by rating clusters – trading book.” Including these exposures, net total exposures were CHF 2,253 million, which equals the gross and net exposure of securitization / re-securitization in the trading book presented in “Table 2: Detailed segmentation of Basel III exposures and risk-weighted assets.”

Table 28a: Capital requirement for securitization / re-securitization positions retained or purchased in the banking book

The table below provides the capital requirements for securitization and re-securitization positions we purchased or retained in the banking book, irrespective of our role in the securitization transaction, split by risk weight bands and regulatory capital approach. We use three FINMA-recognized ECAI for this

purpose: Standard & Poor’s Ratings Group, Moody’s Investors Service and Fitch Ratings. The mapping of external ratings to the standardized approach risk weights is determined by FINMA and published on its website.



	30.6.14										31.12.13
	Ratings-based approach				Supervisory formula approach						Ratings-based approach				Supervisory formula approach
CHF million	Securitiza- tion		Re- securitiza- tion		Securitiza- tion		Re- securitiza- tion		Total		Securitiza- tion		Re- securitiza- tion		Securitiza- tion		Re- securitiza- tion		Total
over 0–20%		30				61				91		25				72				97

over 20–35%		9		0						9		8		0						9

over 35–50%		4		29						33		3		29						32

over 50–75%		20		1						22		17		0						17

over 75–100%		30		2						32		14		2						17

over 100–250%		17		5						22		21		8						29

over 250–1,249%		116		42						158		99		65						163

1,250% rated		194		26						220		279		26						306

1,250% unrated		10				41				51		27		2		17				46

Total¹		430		106		102		0		638		494		132		89		0		715

¹ Refer to “Table 2: Detailed segmentation of Basel III exposures and risk-weighted assets.” On 30 June 2014, CHF 5.6 billion banking book securitization RWA translated to an overall capital requirement of CHF 0.6 billion.

Table 28b: Securitization / re-securitization exposures treated under the ratings-based approach by rating clusters – banking book


	30.6.14
CHF million		Exposure amount	Capital charge
AAA		743	11

AA		1,038	37

A+		110	3

A		367	10

A–		249	12

BBB+		83	8

BBB		241	21

BBB–		257	38

BB+		86	35

BB		158	83

BB–		61	48

Below BB– / Unrated		160	230

Total		3,553	536

Table 28c: Securitization / re-securitization exposures treated under the supervisory formula approach by rating clusters – banking book

30.6.14

CHF million

Implied rating

Exposure amount

Capital charge

over 0–20%

AAA

6,843

1,250%

Below BB

Total

6,871

102

¹ These exposures are not rated by the FINMA-recognized ECAI such as Standard & Poor’s Ratings Group, Moody’s Investors Service and Fitch Ratings. The implied rating has been derived based on the risk weights linked to the Basel III securitization framework.

Securitization exposures to be deducted from Basel III tier 1 capital

In the first half of 2014 and in full year 2013, we have not retained any significant exposures relating to securitization for which we have recorded gains on sale.

Securitization exposures subject to early amortization in the banking and trading book

In the first half of 2014 and in full year 2013, we had no securitization structures in the banking and trading book that are subject to early amortization treatment.

Table 29: Re-securitization positions retained or purchased in the banking book

The table below shows the total of re-securitization positions (cash as well as synthetic) held in the banking book, broken down into positions for which credit risk mitigation has been recognized and those for which no credit risk mitigation has been recognized. Credit risk mitigation includes protection bought by entering into credit derivatives with third-party protection sellers, as well as financial collateral received. Both

bought credit protection and financial collateral must be eligible under Basel III regulations. In the first half of 2014 and in full year 2013, no credit risk mitigation has been recognized for re-securitization positions (cash as well as synthetic) held in the banking book. As of 30 June 2014, none of the retained or purchased banking book re-securitization positions had an integrated insurance wrapper.



CHF million	With credit risk mitigation	Without credit risk mitigation		Total
Total 30.6.14			826		826

Total 31.12.13			1,109		1,109

Table 30: Re-securitization positions retained or purchased in the trading book

The table below outlines re-securitization positions retained or purchased subject to the securitization framework for specific market risk held in the trading book on a gross long and gross short basis, including synthetic long and short positions resulting from derivative transactions. It also includes positions on a

net long and net short basis, that is, gross long and short positions after offsetting to the extent it is eligible under Basel III. As of 30 June 2014, none of the retained or purchased trading book re-securitization positions had an integrated insurance wrapper.



CHF million	Gross long		Gross short		Net long		Net short
Total 30.6.14		92		72		19		3

Total 31.12.13		82		73		9		8

Table 31: Aggregated amount of securitized exposures subject to the market risk approach

This table provides a split of the total outstanding exposures we have securitized in the trading book in the role of originator and / or sponsor. The table does not include positions from current year securitizations (where UBS was originator) unless they were retained as of 30 June 2014 or at year-end 2013.

Disclosure is made only where we have retained positions in the trading book. The amount disclosed is the notional amount of the outstanding notes issued by the securitization vehicle at the balance sheet date.

Originator

Sponsor

CHF million

Traditional

Synthetic

Traditional

Synthetic

Residential mortgages

1,218

6,958

Commercial mortgages

10,805

Credit card receivables

Leasing

Loans to corporates or small and medium-sized enterprises

Consumer loans

Student loans

1,469

Trade receivables

Re-securitizations

180

947

Other

Total 30.6.14^1,2

1,398

947

19,233

Residential mortgages

1,324

4,871

Commercial mortgages

15,323

Credit card receivables

Leasing

Loans to corporates or small and medium-sized enterprises

Consumer loans

Student loans

770

Trade receivables

Re-securitizations

181

951

Other

Total 31.12.13^1,2

1,505

951

20,963

Table 32: Correlation products subject to the comprehensive risk measure or the securitization framework for specific risk

This table outlines products in the correlation portfolio that we retained or purchased in the trading book, irrespective of our role in the securitization transaction. They are subject to either the comprehensive risk measure or the securitization framework for specific risk. Correlation products subject to the securitization framework are leveraged super senior positions. The values disclosed are market values for cash positions, replacement values and notional values for derivative positions. Derivatives are split by positive replacement value and negative replacement value. The increase in notional values related to negative replacement values was mainly a result of the execution

of a series of risk transfers to exit the majority of the correlation trading portfolio market risk, which involved entering into a large number of back-to-back trades. This was partly offset by the de-recognition of a significant portion of these trades from our balance sheet through subsequent novations to third parties. Notional values related to positive replacement values fell as the temporary increase from the exit of the majority of the correlation trading portfolio was more than offset by the positive impact from related novations, as well as earlier trade unwinds and trade compressions.

Cash positions

Derivative positions

Assets

Liabilities

Assets

Liabilities

CHF million

Market value

Positive
replacement
value

Positive
replacement
value notionals

Negative
replacement
value

Negative
replacement
value notionals

30.6.14

Positions subject to comprehensive risk measure

177

641

741

28,466

1,275

23,571

Positions subject to securitization framework¹

3,049

31.12.13

Positions subject to comprehensive risk measure

615

998

30,645

1,298

20,532

Positions subject to securitization framework¹

5,970

1,465

¹ Includes leveraged super senior tranches.

Table 33a: Securitization positions and capital requirement for trading book positions subject to the securitization framework

This table outlines securitization positions we purchased or retained and the capital charge in the trading book subject to the securitization framework for specific market risk, irrespective of our role in the securitization transaction, broken down by risk

weight bands and regulatory capital approach. The amounts disclosed for securitization positions are market values at the balance sheet date after eligible netting under Basel III.



	30.6.14								31.12.13

	Ratings-based approach								Ratings-based approach
CHF million	Net long		Net short		Net Total		Capital requirement		Net long		Net short		Net Total			Capital requirement
over 0–20%		488		12		500		7		367		715		1,082	¹		4

over 20–35%		25				25		1		16				16			0

over 35–50%		24		1		25		1		37				37			2

over 50–75%		33		1		34		3		32				32			2

over 75–100%		38		9		47		5		38				38			3

over 100–250%		8				8		2		10				10			2

over 250–1,249%		9				9		4		1				1

1,250% rated		30		49		80		114		91				91			97

1,250% unrated		20		9		29		41		18				18			20

Total²		675		81		756		180³		611		715		1,325			132

¹ As per FINMA Circular “Market Risk – Banks,” only the higher of the net long or the net short securitization positions in the trading book were to be underpinned for regulatory capital purposes until 31 December 2013. As of 1 January 2014, both net long and net short positions require capital underpinning. The amount disclosed under net short is for information only, i.e., a 0% risk-weight was applied. ² Leveraged super senior tranches (subject to the securitization framework) are not included in this table, but disclosed in “Table 32: Correlation products subject to the comprehensive risk measure or the securitization framework for specific risk”. ³ The capital requirement of CHF 214 million as of 30 June 2014 disclosed in “Table 2: Detailed segmentation of Basel III exposures and risk-weighted assets” in line “Securitization / re-securitization in the trading book” is comprised of the total ratings-based approach charge of CHF 180 million and a CHF 34 million capital requirement of leveraged super senior tranches as disclosed in “Table 34: Capital requirement for securitization positions related to correlation products.”

Table 33b: Securitization / re-securitization exposures treated under the ratings-based approach by rating clusters – trading book



	30.6.14
CHF million	Exposure amount		Capital charge
AAA		473		7

AA		14		0

A+		4		0

A		24		1

A–		17		1

BBB+		25		1

BBB		26		2

BBB–		47		5

BB+		8		2

BB		9		4

BB–		0		0

Below BB– / Unrated		108		155

Total		756		180

Table 33c: Securitization / re-securitization exposures treated under the supervisory formula approach by rating clusters – trading book

30.6.14

CHF million

Implied rating¹

Exposure amount

Capital charge

over 0–20%

1,496

Total

1,496

Table 34: Capital requirement for securitization positions related to correlation products

This table outlines the capital requirement for securitization positions in the trading book for correlation products, including positions subject to comprehensive risk measure and positions related to leveraged super senior positions and certain re-securitized corporate credit exposures positions subject to the securitization framework. Our model does not distinguish

between “default risk,” “migration risk” and “correlation risk.” The capital requirement for positions subject to the comprehensive risk measure declined due to the execution of a series of risk transfers to exit the majority of the correlation trading portfolio market risk.



	30.6.14		31.12.13
CHF million	Capital requirement		Capital requirement
Positions subject to comprehensive risk measure		187		358

Positions subject to securitization framework¹		34		23

Total		221		381

¹ Leveraged super senior tranches.

Composition of capital

BIS and FINMA require banks to publish their capital positions according to common templates with the objective of mitigating the risk of inconsistent disclosure formats undermining market participants’ ability to compare capital adequacy of banks across jurisdictions. The following tables provide the required information. In addition to these disclosures, an overview of the main features of our regulatory capital instruments,

as well as the full terms and conditions, are published in the “Bondholder information” section of our Investor Relations website.

Refer to “Bondholder information” at www.ubs.com/investors for more information on the capital instruments of UBS Group and UBS AG (Parent Bank)

Table 35: Reconciliation of accounting balance sheet to balance sheet under the regulatory scope of consolidation

The table below provides a reconciliation of the IFRS balance sheet to the balance sheet according to the regulatory scope of consolidation. Lines in the balance sheet under the regulatory scope of consolidation

are expanded and referenced where relevant to display all components that are used in “Table 36: Composition of capital.”



	Balance sheet in accordance with IFRS scope of consolidation		Effect of deconsolidated entities for regulatory consolidation			Effect of additional consolidated entities for regulatory consolidation		Balance sheet in accordance with regulatory scope of consolidation		References¹
CHF million	30.6.14
Assets

Cash and balances with central banks		77,615		0			0		77,615

Due from banks		27,721		(430	)				27,292

Cash collateral on securities borrowed		30,695							30,695

Reverse repurchase agreements		76,571							76,571

Trading portfolio assets		132,490		(17,397	)				115,093

Positive replacement values		204,698		20					204,718

Cash collateral receivables on derivative instruments		27,411							27,411

Financial assets designated at fair value		5,495							5,495

Loans		300,571		105			0		300,676

Financial investments available-for-sale		52,189		(69	)				52,120

Consolidated participations		0		205					205

Investments in associates		848							848

of which: goodwill		*334*							334		4

Property and equipment		6,338		(82	)				6,256

Goodwill and intangible assets		6,229		0			0		6,229

of which: goodwill		*5,818*							5,818		4

of which: intangible assets		*411*							411		5

Deferred tax assets		8,083		(1	)				8,083

of which: deferred tax assets recognized for tax loss carry-forwards		*5,326*		0					5,325		9

of which: deferred tax assets on temporary differences		*2,758*		0					2,757

Other assets		25,650		(222	)		2		25,431

of which: net defined benefit pension and post-employment assets		*1,672*							1,672		10

Total assets		982,605		(17,870	)		3		964,738

¹ References link respective lines of this table to the respective reference numbers provided in the column “References” in “Table 36: Composition of capital.”

Table 35: Reconciliation of accounting balance sheet to balance sheet under the regulatory scope of consolidation (continued)



	Balance sheet in accordance with IFRS scope of consolidation			Effect of deconsolidated entities for regulatory consolidation			Effect of additional consolidated entities for regulatory consolidation			Balance sheet in accordance with regulatory scope of consolidation			References¹
CHF million	30.6.14
Liabilities

Due to banks		13,260			(49	)		1			13,212

Cash collateral on securities lent		12,298									12,298

Repurchase agreements		18,718									18,718

Trading portfolio liabilities		29,904			(45	)					29,859

Negative replacement values		203,368			139						203,507

Cash collateral payables on derivative instruments		43,746			0						43,747

Financial liabilities designated at fair value		68,877			57						68,934

Due to customers		388,500			(76	)		1			388,425

Debt issued		80,984			(32	)					80,951

of which: amount eligible for low-trigger loss-absorbing tier 2 capital²		*9,453*									9,453			7

of which: amount eligible for capital instruments subject to phase-out from additional tier 1 capital²		*1,208*									1,208			6

of which: amount eligible for capital instruments subject to phase-out from tier 2 capital³		*2,734*									2,734			8

Provisions		3,334			(4	)					3,329

Other liabilities		68,166			(17,791	)		1			50,376

of which: amount eligible for high-trigger loss-absorbing capital (Deferred Contingent Capital Plan (DCCP))⁴		*480*									480			7

Total liabilities		931,155			(17,802	)		2			913,356

Share capital		384			(2	)		2			384			1

Share premium		33,216			1			(1	)		33,216			1

Treasury shares		(1,448	)								(1,448	)		3

Equity classified as obligation to purchase own shares		(11	)								(11	)		3

Retained earnings		26,322			(197	)		0			26,125			2

Cumulative net income recognized directly in equity, net of tax		(8,932	)		129			(1	)		(8,804	)		3

of which: unrealized gains / (losses) from cash flow hedges, net of tax		*1,935*									1,935			11

Equity attributable to UBS shareholders		49,532			(70	)		1			49,463

Equity attributable to preferred noteholders		1,879			0			(1,879	)		0

Equity attributable to non-controlling interests		39			1			1,879			1,919			6

Total equity		51,450			(68	)		1			51,382

Total liabilities and equity		982,605			(17,870	)		3			964,738

¹ References link respective lines of this table to the respective reference numbers provided in the column “References” in “Table 36: Composition of capital.” ² Represent IFRS book value. ³ IFRS book value is CHF 4,693 million. ⁴ IFRS book value is CHF 576 million. Refer to the “Compensation” section of our Annual Report 2013 for more information on the DCCP.

Table 36: Composition of capital

The table below provides the “Composition of capital” as defined by BIS and FINMA. Reference is made to items reconciling to the balance sheet under the regulatory scope of

consolidation as disclosed in “Table 35: Reconciliation of accounting balance sheet to balance sheet under the regulatory scope of consolidation.” Where relevant, the effect of phase-in arrangements is disclosed as well.

Refer to “Swiss SRB Basel III capital framework” in the “Capital management” section of our second quarter 2014 report for more information on phase-in arrangements



		Numbers phase-in			Effect of the transition phase			References¹
CHF million, except where indicated		30.6.14			30.6.14
1	Directly issued qualifying common share (and equivalent for non-joint stock companies) capital plus related stock surplus		33,601						1

2	Retained earnings		26,125						2

3	Accumulated other comprehensive income (and other reserves)		(10,262	)					3

4	Directly issued capital subject to phase-out from common equity tier 1 capital (only applicable to non-joint stock companies)

5	Common share capital issued by subsidiaries and held by third parties (amount allowed in group common equity tier 1 capital)

6	Common equity tier 1 capital before regulatory adjustments		49,463

7	Prudential valuation adjustments		(105	)

8	Goodwill, net of tax, less hybrid capital²		(3,037	)		(3,087	)		4,6

9	Intangible assets, net of tax²		(400	)					5

10	Deferred tax assets recognized for tax loss carry-forwards³		(1,173	)		(4,688	)		9

11	Unrealized (gains) / losses from cash flow hedges, net of tax		(1,935	)					11

12	Expected losses on advanced internal ratings-based portfolio less general provisions		(338	)

13	Securitization gain on sale

14	Own credit related to financial liabilities designated at fair value and replacement values, net of tax		221

15	Defined benefit plans		1,821			(3,492	)		10

16	Compensation and own shares-related capital components (not recognized in net profit)		(1,038	)

17	Reciprocal crossholdings in common equity

17a	Qualifying interest where a controlling influence is exercised together with other owners (CET instruments)

17b	Consolidated investments (CET1 instruments)

18	Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of the issued share capital (amount above 10% threshold)

19	Significant investments in the common stock of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions (amount above 10% threshold)

20	Mortgage servicing rights (amount above 10% threshold)

21	Deferred tax assets arising from temporary differences (amount above 10% threshold, net of related tax liability)

22	Amount exceeding the 15% threshold

23	of which: significant investments in the common stock of financials

24	of which: mortgage servicing rights

25	of which: deferred tax assets arising from temporary differences

26	Expected losses on equity investments treated according to the PD / LGD approach

26a	Other adjustments relating to the application of an internationally accepted accounting standard		(293	)

26b	Other deductions		(1,329	)					7

27	Regulatory adjustments applied to common equity tier 1 due to insufficient additional tier 1 and tier 2 to cover deductions

28	Total regulatory adjustments to common equity tier 1		(7,605	)		(11,267	)

29	Common equity tier 1 capital (CET1)		41,858			(11,267	)

30	Directly issued qualifying additional tier 1 instruments plus related stock surplus

31	of which: classified as equity under applicable accounting standards

32	of which: classified as liabilities under applicable accounting standards

33	Directly issued capital instruments subject to phase-out from additional tier 1

34	Additional tier 1 instruments (and CET1 instruments not included in row 5) issued by subsidiaries and held by third parties (amount allowed in group additional tier 1)		3,087			(3,087	)		6

35	of which: instruments issued by subsidiaries subject to phase-out		3,087			(3,087	)		6

36	Additional tier 1 capital before regulatory adjustments		3,087			(3,087	)

¹ References link respective lines of this table to the respective reference numbers provided in the column “References” in “Table 35: Reconciliation of accounting balance sheet to balance sheet under the regulatory scope of consolidation.” ² The CHF 6,124 million (CHF 3,037 million and CHF 3,087 million) reported in line 8 includes DTL on goodwill of CHF 28 million. The CHF 400 million reported in line 9 includes DTL on intangibles of CHF 11 million. ³ The CHF 5,860 million (CHF 1,173 million and CHF 4,688 million) deferred tax assets recognized for tax loss carry-forwards reported in line 10 differ from the CHF 5,325 million deferred tax assets shown in the line “Deferred tax assets” in Table 35 because the latter figure is shown after the offset of deferred tax liabilities for cash flow hedge gains (CHF 495 million) and other temporary differences, which are adjusted out in line 11 and other lines of this table.

Table 36: Composition of capital (continued)



		Numbers phase-in			Effect of the transition phase			References¹
CHF million, except where indicated		30.6.14			30.6.14
37	Investments in own additional tier 1 instruments

38	Reciprocal crossholdings in additional tier 1 instruments

38a	Qualifying interest where a controlling influence is exercised together with other owners (AT1 instruments)

38b	Holdings in companies which are to be consolidated (additional tier 1 instruments)

39	Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of the issued common share capital of the entity (amount above 10% threshold)

40	Significant investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation (net of eligible short positions)

41	National specific regulatory adjustments		(3,087	)		3,087			6

42	Regulatory adjustments applied to additional tier 1 due to insufficient tier 2 to cover deductions

	Tier 1 adjustments on impact of transitional arrangements		(3,087	)		3,087

	of which: prudential valuation adjustment

	of which: own CET1 instruments

	of which: goodwill net of tax, offset against hybrid capital		(3,087	)		3,087

	of which: intangible assets (net of related tax liabilities)

	of which: gains from the calculation of cash flow hedges

	of which: IRB shortfall of provisions to expected losses

	of which: gains on sales related to securitization transactions

	of which: gains/losses in connection with own credit risk

	of which: investments

	of which: expected loss amount for equity exposures under the PD / LGD approach

	of which: mortgage servicing rights

42a	Excess of the adjustments which are allocated to the common equity tier 1 capital

43	Total regulatory adjustments to additional tier 1 capital		(3,087	)		3,087

44	Additional tier 1 capital (AT1)		0			0

45	Tier 1 capital (T1 = CET1 + AT1)		41,858			(11,267	)

46	Directly issued qualifying tier 2 instruments plus related stock surplus²		10,415						7

47	Directly issued capital instruments subject to phase-out from tier 2		2,755			(2,755	)		8

48	Tier 2 instruments (and CET1 and additional tier 1 instruments not included in rows 5 or 34) issued by subsidiaries and held by third parties (amount allowed in group tier 2)

49	of which: instruments issued by subsidiaries subject to phase-out

50	Provisions

51	Tier 2 capital before regulatory adjustments		13,170			(2,755	)

52	Investments in own tier 2 instruments		(41	)		22

53	Reciprocal crossholdings in tier 2 instruments

53a	Qualifying interest where a controlling influence is exercised together with other owners (tier 2 instruments)

53b	Investments to be consolidated (tier 2 instruments)

54	Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of the issued common share capital of the entity (amount above the 10% threshold)

55	Significant investments in the capital banking, financial and insurance entities that are outside the scope of regulatory consolidation (net of eligible short positions)

56	National specific regulatory adjustments

56a	Excess of the adjustments which are allocated to the additional tier 1 capital

57	Total regulatory adjustments to tier 2 capital		(41	)		22

58	Tier 2 capital (T2)		13,130			(2,734	)

	of which: high-trigger loss-absorbing capital		943						7

	of which: low-trigger loss-absorbing capital		9,453						7

59	Total capital (TC = T1 + T2)		54,987			(14,001	)

¹ References link respective lines of this table to the respective reference numbers provided in the column “References” in “Table 35: Reconciliation of accounting balance sheet to balance sheet under the regulatory scope of consolidation.” ² The CHF 10,415 million reported in line 46 includes the following positions: CHF 9,472 million low-trigger loss-absorbing tier 2 capital (line “Debt issued” in table 35), which is shown net of CHF 19 million investments in own tier 2 instruments reported in line 52 of this table, CHF 480 million DCCP recognized in the line “Other liabilities” in table 35, CHF 463 million recognized in DCCP-related charge for regulatory capital purpose in line 26b “Other deductions.”

Table 36: Composition of capital (continued)



		Numbers phase-in		Effect of the transition phase			References¹
CHF million, except where indicated		30.6.14		30.6.14
	Amount with risk-weight pursuant the transitional arrangement (phase-in)				(3,172	)

	of which: defined benefit plans				(3,231	)

	of which: deferred tax assets on temporary differences for IAS 19R				59

60	Total risk-weighted assets		229,908		(3,172	)

	Capital ratios and buffers

61	Common equity tier 1 (as a percentage of risk-weighted assets)		18.2

62	Tier 1 (position 45 as a percentage of risk-weighted assets)		18.2

63	Total capital (position 59 as a percentage of risk-weighted assets)		23.9

64	Institution-specific buffer requirement (minimum CET1 requirement plus capital conservation and countercyclical buffer requirements plus G-SIB buffer requirement, expressed as a percentage of risk-weighted assets)		8.6

65	of which: capital conservation buffer		4.5

66	of which: bank-specific countercyclical buffer requirement		0.1

67	of which: G-SIB buffer requirement

68	Common equity tier 1 available to meet buffers (as a percentage of risk-weighted assets)		18.2

68a	Common equity tier 1 requirement including countercyclical buffer according to FINMA RS 11/2		8.6

68b	Available common equity tier 1 (in percentage of risk-weighted assets)		18.2

68c	Tier 1 requirement including countercyclical buffer according to FINMA RS 11/2		8.6

68d	Available tier 1 (in percentage of risk-weighted assets)		18.2

68e	Total capital requirement including countercyclical buffer according to FINMA RS 11/2		11.5

68f	Available total capital (in percentage of risk-weighted assets)		23.9

72	Non significant investments in the capital of other financials		1,551

73	Significant investments in the common stock of financials		714

74	Mortgage servicing rights (net of related tax liability)

75	Deferred tax assets arising from temporary differences (net of related tax liability)		2,747

	Applicable caps on the inclusion of provisions in tier 2

76	Provisions eligible for inclusion in tier 2 in respect of exposures subject to standardized approach (prior to application of cap)

77	Cap on inclusion of provisions in tier 2 under standardized approach

78	Provisions eligible for inclusion in tier 2 in respect of exposures subject to internal ratings-based approach (prior to application of cap)

79	Cap for inclusion of provisions in tier 2 under internal ratings-based approach

Rounding | Numbers presented throughout this report may not add up precisely to the totals provided in the tables and text. Percentages, percent changes and absolute variances are calculated based on rounded figures displayed in the tables and text and may not precisely reflect the percentages, percent changes and absolute variances that would be derived based on figures that are not rounded.

Tables | Within tables, blank fields generally indicate that the field is not applicable or not meaningful, or that information is not available as of the relevant date or for the relevant period. Zero values generally indicate that the respective figure is zero on an actual or rounded basis.

This Form 6-K is hereby incorporated by reference into (1) each of the registration statements of UBS AG on Form F-3 (Registration Number 333-178960) and Form S-8 (Registration Numbers 333-49210; 333-49212; 333-127183; 333-127184; 333-162798; 333-162799; 333-162800; 333-178539; 333-178540; 333-178541; and 333-178543) and into each prospectus outstanding under any of the foregoing registration statements, (2) any outstanding offering circular or similar document issued or authorized by UBS AG that incorporates by reference any Form 6-K’s of UBS AG that are incorporated into its registration statements filed with the SEC, and (3) the base prospectus of Corporate Asset Backed Corporation (“CABCO”) dated June 23, 2004 (Registration Number 333-111572), the Form 8-K of CABCO filed and dated June 23, 2004 (SEC File Number 001-13444), and the Prospectus Supplements relating to the CABCO Series 2004-101 Trust dated May 10, 2004 and May 17, 2004 (Registration Number 033-91744 and 033-91744-05).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


UBS AG

By:		/s/ David Kelly
		Name: David Kelly
		Title Managing Director



By:		/s/ Sarah M. Starkweather
		Name: Sarah M. Starkweather
		Title Executive Director

Date: August 27, 2014