UBS Group AG - Interim / Quarterly Report 2017

6-K 1 6kubsgroupag2q17.htm 6kubsgorupag2q17

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 UNDER

THE SECURITIES EXCHANGE ACT OF 1934

Date: July 28, 2017

UBS Group AG

Commission File Number: 1-36764

UBS AG

Commission File Number: 1-15060

(Registrants' Name)

Bahnhofstrasse 45, Zurich, Switzerland and Aeschenvorstadt 1, Basel, Switzerland

(Address of principal executive offices)

Indicate by check mark whether the registrants file or will file annual reports under cover of Form 20‑F or Form 40-F.

Form 20-F x Form 40-F o

This Form 6-K consists of the Second Quarter 2017 Report of UBS Group AG, which appears immediately following this page.

Our financial results

Second quarter 2017 report

Corporate calendar UBS Group AG

1.	UBS Group
4	Recent developments
6	Group performance
2.	UBS business divisions and Corporate Center
18	Wealth Management
22	Wealth Management Americas
27	Personal & Corporate Banking
30	Asset Management
33	Investment Bank
37	Corporate Center
3.	Risk, treasury and capital management
47	Risk management and control
51	Balance sheet, liquidity and funding
management
55	Capital management
4.	Consolidated financial statements
69	UBS Group AG interim
consolidated financial statements (unaudited)
109	UBS AG interim consolidated
financial information (unaudited)
5.	Significant regulated subsidiary and sub-group information
114	Financial and regulatory key
figures for our significant regulated subsidiaries and sub-groups
	Appendix
116	Abbreviations frequently used in our financial reports
118	Information sources
119	Cautionary statement

Publication of the third quarter 2017 report: Friday, 27 October 2017 Publication of the fourth quarter 2017 report: Tuesday, 23 January 2018 Publication of the Annual Report 2017: Friday, 9 March 2018 Publication of the first quarter 2018 report: Tuesday, 24 April 2018

Corporate calendar UBS AG*

Publication of the second quarter 2017 report: Thursday, 3 August 2017

Publication dates of further quarterly and annual reports and results will be made available as part of the corporate calendar of UBS AG at www.ubs.com/investors

Contacts

Switchboards

For all general inquiries www.ubs.com/contact

Zurich +41-44-234 1111 London +44-20-7568 0000 New York +1-212-821 3000 Hong Kong +852-2971 8888

Investor Relations

UBS’s Investor Relations team supports institutional, professional and retail investors from our offices in Zurich, London and New York.

UBS Group AG, Investor Relations P.O. Box, CH-8098 Zurich, Switzerland

www.ubs.com/investors

Hotline Zurich +41-44-234 4100 Hotline New York +1-212-882 5734 Fax (Zurich) +41-44-234 3415

Media Relations

UBS’s Media Relations team supports global media and journalists from our offices in Zurich, London, New York and Hong Kong.

www.ubs.com/media

Zurich +41-44-234 8500 [email protected]

London +44-20-7567 4714 [email protected]

New York +1-212-882 5857 [email protected]

Hong Kong +852-2971 8200 [email protected]

Office of the Group Company Secretary

The Group Company Secretary receives inquiries on compensation and related issues addressed to members of the Board of Directors.

UBS Group AG, Office of the Group Company Secretary P.O. Box, CH-8098 Zurich, Switzerland

[email protected]

Hotline +41-44-235 6652 Fax +41-44-235 8220

Shareholder Services

UBS’s Shareholder Services team, a unit of the Group Company Secretary Office, is responsible for the registration of UBS Group AG registered shares.

UBS Group AG, Shareholder Services P.O. Box, CH-8098 Zurich, Switzerland

[email protected]

Hotline +41-44-235 6652 Fax +41-44-235 8220

US Transfer Agent

For global registered share-related inquiries in the US.

Computershare Trust Company NA P.O. Box 30170 College Station TX 77842-3170, USA

Shareholder online inquiries: https://www.us.computershare.com/ investor/Contact

Shareholder website: www.computershare.com/investor

Calls from the US +1-866-305-9566 Calls from outside the US +1-781-575-2623 TDD for hearing impaired +1-800-231-5469 TDD for foreign shareholders +1-201-680-6610

Imprint

Publisher: UBS Group AG, Zurich, Switzerland | www.ubs.com Language: English

Second quarter 2017 report

UBS Group key figures

| CHF million, except where
indicated | As of or for the quarter ended — 30.6.17 | 31.3.17 | 31.12.16 | 30.6.16 | As of or year-to-date — 30.6.17 | 30.6.16 |
| --- | --- | --- | --- | --- | --- | --- |
| Group results | | | | | | |
| Operating income | 7,269 | 7,532 | 7,055 | 7,404 | 14,801 | 14,237 |
| Operating expenses | 5,767 | 5,842 | 6,308 | 5,915 | 11,609 | 11,770 |
| Operating profit / (loss) before tax | 1,502 | 1,690 | 746 | 1,489 | 3,192 | 2,467 |
| Net profit / (loss) attributable to shareholders | 1,174 | 1,269 | 636 | 1,034 | 2,443 | 1,741 |
| Diluted earnings per share (CHF)¹ | 0.31 | 0.33 | 0.17 | 0.27 | 0.64 | 0.45 |
| Key performance indicators² | | | | | | |
| Profitability | | | | | | |
| Return on tangible equity (%) | 10.3 | 10.9 | 5.6 | 8.9 | 10.6 | 7.4 |
| Cost / income ratio (%) | 78.8 | 77.6 | 89.1 | 79.8 | 78.2 | 82.6 |
| Growth | | | | | | |
| Net profit growth (%) | 13.5 | 79.5 | (33.0) | (14.5) | 40.3 | (45.4) |
| Net new money growth for combined wealth management businesses
(%) | 1.4 | 3.9 | (1.1) | 1.7 | 2.7 | 3.8 |
| Resources | | | | | | |
| Common equity tier 1 capital ratio (fully applied, %)³ | 13.5 | 14.1 | 13.8 | 14.2 | 13.5 | 14.2 |
| Going concern leverage ratio (fully applied, %)⁴ | 4.7 | 4.6 | 4.6 | | 4.7 | |
| Additional information | | | | | | |
| Profitability | | | | | | |
| Return on equity (%) | 8.9 | 9.5 | 4.8 | 7.7 | 9.2 | 6.4 |
| Return on risk-weighted assets, gross (%)⁵ | 12.8 | 13.6 | 12.9 | 13.9 | 13.2 | 13.4 |
| Return on leverage ratio denominator, gross (%)⁵ | 3.4 | 3.4 | 3.2 | 3.3 | 3.4 | 3.2 |
| Resources | | | | | | |
| Total assets | 890,831 | 909,608 | 935,016 | 989,397 | 890,831 | 989,397 |
| Equity attributable to shareholders | 51,744 | 53,661 | 53,621 | 52,876 | 51,744 | 52,876 |
| Common equity tier 1 capital (fully applied)³ | 31,887 | 31,311 | 30,693 | 30,264 | 31,887 | 30,264 |
| Common equity tier 1 capital (phase-in)³ | 35,243 | 34,841 | 37,788 | 37,064 | 35,243 | 37,064 |
| Risk-weighted assets (fully applied)³ | 236,697 | 221,785 | 222,677 | 213,840 | 236,697 | 213,840 |
| Common equity tier 1 capital ratio (phase-in, %)³ | 14.8 | 15.6 | 16.8 | 17.1 | 14.8 | 17.1 |
| Going concern capital ratio (fully applied, %)⁴ | 17.2 | 18.2 | 17.9 | | 17.2 | |
| Going concern capital ratio (phase-in, %)⁴ | 21.7 | 23.2 | 24.7 | | 21.7 | |
| Gone concern loss-absorbing capacity ratio (fully applied,
%)⁴ | 14.0 | 15.0 | 13.2 | | 14.0 | |
| Leverage ratio denominator (fully applied)³ | 860,879 | 881,183 | 870,470 | 898,195 | 860,879 | 898,195 |
| Common equity tier 1 leverage ratio (fully applied, %)³ | 3.7 | 3.6 | 3.5 | 3.4 | 3.7 | 3.4 |
| Going concern leverage ratio (phase-in, %)⁴ | 6.0 | 5.8 | 6.4 | | 6.0 | |
| Gone concern leverage ratio (fully applied, %)⁴ | 3.9 | 3.8 | 3.4 | | 3.9 | |
| Liquidity coverage ratio (%)⁶ | 131 | 128 | 132 | 133 | 131 | 133 |
| Other | | | | | | |
| Invested assets (CHF billion)⁷ | 2,922 | 2,934 | 2,821 | 2,677 | 2,922 | 2,677 |
| Personnel (full-time equivalents) | 59,470 | 59,416 | 59,387 | 60,093 | 59,470 | 60,093 |
| Market capitalization⁸ | 62,553 | 61,736 | 61,420 | 48,398 | 62,553 | 48,398 |
| Total book value per share (CHF)⁸ | 13.92 | 14.45 | 14.44 | 14.27 | 13.92 | 14.27 |
| Tangible book value per share (CHF)⁸ | 12.25 | 12.71 | 12.68 | 12.54 | 12.25 | 12.54 |
| 1 Refer to “Note 8 Earnings per share (EPS) and shares
outstanding” in the “Consolidated financial statements” section of this
report for more information. 2 Refer to the “Measurement of performance”
section of our Annual Report 2016 for the definitions of our key performance
indicators. 3 Refer to the “Capital management” section of this report for
more information. 4 Based on the revised Swiss SRB framework that became
effective on 1 July 2016. Refer to the “Capital management” section of this
report for more information. 5 Based on fully applied risk-weighted assets
and leverage ratio denominator. 6 Refer to the “Balance sheet, liquidity
and funding management” section of this report for more information. 7
Includes invested assets for Personal & Corporate Banking. 8
Refer to “UBS shares” in the “Capital management” section of this report
for more information. | | | | | | |

UBS Group

Management report

Terms used in this report, unless the context requires otherwise

“UBS,” “UBS Group,” “UBS Group AG consolidated,” UBS Group AG and its consolidated subsidiaries “Group,” “the Group,” “we,” “us” and “our”

“UBS AG consolidated” UBS AG and its consolidated subsidiaries

“UBS Group AG” and “UBS Group AG standalone” UBS Group AG on a standalone basis

“UBS AG” and “UBS AG standalone” UBS AG on a standalone basis

“UBS Switzerland AG” and “UBS Switzerland AG standalone” UBS Switzerland AG on a standalone basis

“UBS Limited” and “UBS Limited standalone” UBS Limited on a standalone basis

“UBS Americas Holding LLC” and UBS Americas Holding LLC and its “UBS Americas Holding LLC consolidated” consolidated subsidiaries

Recent developments

Key accounting and financial reporting changes

Transfer of shared services functions to UBS Business Solutions AG

In the second quarter of 2017, we transferred shared services functions in Switzerland from UBS AG to UBS Business Solutions AG, our Group service company and a wholly owned subsidiary of UBS Group AG. The implementation of UBS Business Solutions AG, which is expected to enable us to maintain operational continuity of critical services if we become subject to recovery or resolution measures, represents an important step toward improved resolvability and is in line with global guidance defined by the Financial Stability Board.

Following the transfer, UBS Business Solutions AG charges other legal entities within the Group for services provided, including a markup on costs incurred. As with other transfers to our Group service company, this transfer to UBS Business Solutions AG has no effect on the reported results of our business divisions.

The transfer of shared services functions in Switzerland did not have a material effect on the UBS Group AG consolidated financial statements. However, this transfer of shared services within the Group resulted in a decrease in net profit for UBS AG consolidated of approximately CHF 50 million under International Financial Reporting Standards and a decrease in net profit for UBS AG standalone of approximately CHF 40 million under Swiss generally accepted accounting principles in the second quarter of 2017. The effect of the transfer on the risk-weighted assets and leverage ratio denominator of UBS AG consolidated and UBS AG standalone was not material.

We expect to complete the transfer of shared services functions in the UK in the fourth quarter of 2017.

Classification of financial assets containing prepayment features with negative compensation under IFRS 9, Financial Instruments

In April 2017, the International Accounting Standards Board (IASB) issued the Exposure Draft Prepayment Features with Negative Compensation, which proposed an amendment to IFRS 9, Financial Instruments that would allow amortized cost accounting for instruments that provide for two-way compensation if a prepayment occurs. These features are common in Swiss private mortgages and corporate loans.

In July 2017, the IASB approved the amendment, subject to some refinements, which allows UBS to continue measuring Swiss private mortgages and corporate loans at amortized cost upon adoption of IFRS 9 on 1 January 2018.

® Refer to “Note 1 Basis of accounting” in the “Consolidated financial statements” section of this report and to the “Significant accounting and financial reporting changes” section of our Annual Report 2016 for more information

Regulatory and legal developments

Consultation on tax law amendments related to loss-absorbing instruments

The Swiss Federal Department of Finance has commenced a consultation period with respect to proposed amendments to the participation relief provisions under current Swiss tax law that, if enacted, would reduce the additional tax burden on debt issuances by bank top holding companies. The proposed tax law changes would permit systemically important banking groups, such as UBS, to issue debt directly from their holding companies, as is required under the international capital framework and the Swiss Capital Adequacy Ordinance, without incurring significant corporate tax disadvantages, as is the case today under Swiss tax law. The consultation period ends on 29 September 2017.

® Refer to “The legal structure of UBS Group” section of our Annual Report 2016 for more information on future issuances of AT1 instruments and TLAC-eligible debt

Swiss corporate tax reform

Following the rejection of the Swiss corporate tax reform by popular referendum in February 2017, the Swiss Federal Council issued a revised proposal in June 2017. The new proposal has been modified in response to the referendum outcome, while maintaining the overall objective of the original reform proposals that seek to align the respective cantonal corporate tax regimes with international standards by, among other things, eliminating reduced holding company tax rates and other privileges. A consultation draft is expected to be issued by September 2017. The effect of the proposed reform on UBS will depend on the final form of the federal legislation and the cantonal implementation of the reforms.

Automatic exchange of information

In June 2017, the Swiss Federal Council adopted a proposal to extend the introduction of the automatic exchange of financial account information (AEI) to 41 additional states and territories, thereby covering most of the G20 and OECD member jurisdictions. Subject to approval by the Swiss Parliament, implementation is planned for 2018, with the first exchange of information expected in 2019 based on 2018 data. AEI between Switzerland and all EU member states and a number of other countries took effect on 1 January 2017, with the first exchange of information beginning in 2018 based on 2017 data. We have experienced outflows of cross-border client assets as a result of changes in local tax regimes or their enforcement.

Swiss Federal Council proposes introduction of gone concern requirements for domestically focused systemically important banks

In June 2017, the Swiss Federal Council concluded its biennial review of systemically important banks (SIBs) in Switzerland and indicated that the Swiss regulatory approach is suitable to reduce the risk of SIBs and is comparable to international standards. Nevertheless, the Federal Council proposed to introduce gone concern requirements for domestically focused systemically important banks. The gone concern requirements would be conceptually similar to those in effect since July 2016 for the two largest Swiss banks, including UBS. However, they would be limited to 40% of the going concern capital requirements, would be phased in over seven years and could be met by a cantonal guarantee or similar mechanism. The Federal Council instructed the Swiss Federal Department of Finance to prepare a consultation draft by the end of February 2018.

UK begins formal negotiations to withdraw from the EU

Formal negotiations between the UK and EU have commenced following the UK´s submission of its notice to leave the EU under Article 50 of the Treaty on European Union. The UK is expected to leave the EU in March 2019, subject to possible extension. Any future limitations on providing financial services from our UK operations into the EU that could arise following the UK´s exit from the EU may require us to implement potentially significant changes to our operations in the UK and to our legal entity structure.

European Market Infrastructure Regulation under review in the EU

The European Commission (EC) has presented two sets of targeted amendments to the European Market Infrastructure Regulation (EMIR), which regulates over-the-counter derivatives, central counterparties and trade repositories. In the first package, the proposed reforms aim to expand the definition of financial counterparty subject to clearing and margining obligations, revise the clearing threshold calculation, improve access to clearing services, simplify reporting obligations, improve the transparency and quality of trade repository data and harmonize risk mitigation techniques for non-cleared over-the-counter derivative contracts.

In the second package, the EC has proposed to tighten the supervision of central counterparties (CCPs) at the European level by granting enhanced powers to the European Securities and Markets Authority, the European Central Bank and the EC. Additionally, the EC proposes to classify non-EU CCPs according to their systemic importance and to calibrate rules accordingly. A limited number of non-EU CCPs may be deemed of such systemic importance that they would be required to establish themselves in the EU. The fragmentation of market liquidity that could result from potential relocations would likely increase clearing costs.

Both proposals are subject to change during the EU legislative procedure.

US Department of Labor fiduciary rule becomes effective

The US Department of Labor (DOL) fiduciary rule became effective on 9 June 2017. The rule remains under review by the DOL, and the effective dates of some requirements and conditions to exemptions have been deferred to January 2018. The rule significantly expands the circumstances that cause a person to become a fiduciary subject to the Employee Retirement Income Security Act of 1974 (ERISA) in relation to corporate and individual retirement plans. Wealth Management Americas has implemented changes to its compensation programs for financial advisors in relation to retirement plan accounts as well as to the product offerings for these plans. These changes are intended to comply with the rule while minimizing disruption to clients until all aspects of the rule become final. The effects of the DOL fiduciary rule on the financial performance of our business remain uncertain.

US regulatory reform

In the US, several initiatives have been launched with the aim to reduce the burden of some of the regulatory changes that were implemented following the financial crisis. These initiatives propose significant changes to a number of aspects of post-financial crisis regulation, including relaxation of prudential standards and enhanced capital requirements for small and medium-sized financial institutions, modification or repeal of resolution authority under Title II of the Dodd-Frank Act, modification or repeal of the Volcker Rule, consideration of or providing for an exclusion from enhanced prudential standards for firms that elect and meet a leverage ratio-based test, modification of the authorities of the Financial Stability Oversight Council and the Consumer Financial Protection Bureau, and changes to numerous other aspects of financial services regulation. There are significant differences among the various proposals. It is unclear which, if any, of these initiatives will be enacted and what effects any such changes would have on UBS or its competitive position.

Launch of the FX Global Code

In May 2017, the FX Global Code was officially launched. The Global Code was developed by a partnership between central banks and market participants from 16 jurisdictions. It is intended to provide a common set of guidelines to promote the integrity and effective functioning of the wholesale foreign exchange market. The Global Code does not impose legal or regulatory obligations, nor is it a substitute for existing regulation. UBS endorses the publication of the FX Global Code. We have strongly supported the initiative and have been actively involved in the development of the FX Global Code.

Group performance

Income statement
	For the quarter ended			% change from		Year-to-date
CHF million	30.6.17	31.3.17	30.6.16	1Q17	2Q16	30.6.17	30.6.16
Net interest income	1,417	1,696	1,164	(16)	22	3,113	2,876
Credit loss (expense) / recovery	(46)	0	(7)		557	(46)	(9)
Net interest income after credit loss expense	1,371	1,696	1,158	(19)	18	3,067	2,867
Net fee and commission income	4,295	4,353	4,087	(1)	5	8,648	8,180
Net trading income	1,456	1,440	1,891	1	(23)	2,896	2,904
Other income	147	43	269	242	(45)	190	286
Total operating income	7,269	7,532	7,404	(3)	(2)	14,801	14,237
of which: net interest and
trading income	2,873	3,136	3,055	(8)	(6)	6,009	5,780
Personnel expenses	4,014	4,060	3,985	(1)	1	8,074	7,910
General and administrative expenses	1,488	1,506	1,666	(1)	(11)	2,994	3,330
Depreciation and impairment of property, equipment and software	249	255	240	(2)	4	505	483
Amortization and impairment of intangible assets	16	21	24	(24)	(33)	37	47
Total operating expenses	5,767	5,842	5,915	(1)	(3)	11,609	11,770
Operating profit / (loss) before tax	1,502	1,690	1,489	(11)	1	3,192	2,467
Tax expense / (benefit)	327	375	376	(13)	(13)	701	646
Net profit / (loss)	1,175	1,315	1,113	(11)	6	2,490	1,820
Net profit / (loss) attributable to non-controlling interests	1	47	79	(98)	(99)	47	79
Net profit / (loss)
attributable to shareholders	1,174	1,269	1,034	(7)	14	2,443	1,741
Comprehensive income
Total comprehensive income	103	666	1,558	(85)	(93)	769	1,907
Total comprehensive income attributable to non-controlling
interests	14	47	407	(70)	(97)	61	357
Total comprehensive income
attributable to shareholders	89	620	1,151	(86)	(92)	708	1,550

| Performance by business division and Corporate Center unit –
reported and adjusted¹˒² | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | For the quarter ended 30.6.17 | | | | | | | | |
| CHF million | Wealth Manage- ment | Wealth Manage- ment Americas | Personal & Corporate Banking | Asset Manage- ment | Investment Bank | CC – Services³ | CC – Group ALM | CC – Non- core and Legacy Portfolio | UBS |
| Operating income as reported | 1,882 | 2,077 | 935 | 479 | 2,026 | (20) | (94) | (16) | 7,269 |
| of which: gain on sale of
financial assets available for sale⁴ | | | | | 107 | | | | 107 |
| of which: net foreign
currency translation losses⁵ | | | | | | | (22) | | (22) |
| Operating income (adjusted) | 1,882 | 2,077 | 935 | 479 | 1,919 | (20) | (72) | (16) | 7,184 |
| Operating expenses as reported | 1,300 | 1,780 | 579 | 369 | 1,575 | 117 | 10 | 37 | 5,767 |
| of which: personnel-related
restructuring expenses⁶ | 14 | 0 | 2 | 3 | 4 | 93 | 1 | 0 | 117 |
| of which: non-personnel-related
restructuring expenses⁶ | 16 | 0 | 0 | 6 | 3 | 115 | 0 | 0 | 141 |
| of which: restructuring
expenses allocated from CC Services⁶ | 79 | 25 | 21 | 15 | 67 | (209) | 0 | 2 | 0 |
| Operating expenses (adjusted) | 1,191 | 1,755 | 556 | 346 | 1,500 | 117 | 9 | 35 | 5,509 |
| of which: expenses for
provisions for litigation, regulatory and similar matters | 1 | 41 | 0 | 1 | 0 | 0 | 0 | (34) | 9 |
| Operating profit / (loss)
before tax as reported | 582 | 297 | 356 | 110 | 451 | (137) | (104) | (53) | 1,502 |
| Operating profit / (loss)
before tax (adjusted) | 691 | 322 | 379 | 133 | 419 | (137) | (81) | (51) | 1,675 |
| | For the quarter ended 31.3.17 | | | | | | | | |
| CHF million | Wealth Manage- ment | Wealth Manage- ment Americas | Personal & Corporate Banking | Asset Manage- ment | Investment Bank | CC – Services³ | CC – Group ALM | CC – Non- core and Legacy Portfolio | UBS |
| Operating income as reported | 1,929 | 2,051 | 958 | 450 | 2,098 | (18) | 65 | 0 | 7,532 |
| Operating income (adjusted) | 1,929 | 2,051 | 958 | 450 | 2,098 | (18) | 65 | 0 | 7,532 |
| Operating expenses as reported | 1,290 | 1,749 | 540 | 347 | 1,619 | 204 | 2 | 93 | 5,842 |
| of which: personnel-related
restructuring expenses⁶ | 1 | 0 | 2 | 2 | 18 | 92 | 0 | 0 | 116 |
| of which:
non-personnel-related restructuring expenses⁶ | 11 | 0 | 0 | 5 | 2 | 110 | (1) | 0 | 127 |
| of which: restructuring
expenses allocated from CC Services⁶ | 76 | 22 | 17 | 13 | 57 | (188) | 0 | 2 | 0 |
| Operating expenses (adjusted) | 1,202 | 1,727 | 521 | 327 | 1,541 | 189 | 2 | 91 | 5,598 |
| of which: expenses for
provisions for litigation, regulatory and similar matters | 3 | 33 | 0 | 0 | 0 | (4) | 0 | 1 | 33 |
| Operating profit / (loss)
before tax as reported | 639 | 301 | 418 | 103 | 480 | (222) | 63 | (93) | 1,690 |
| Operating profit / (loss)
before tax (adjusted) | 727 | 323 | 437 | 123 | 558 | (207) | 63 | (91) | 1,934 |

Group performance

| Performance by business division and Corporate Center unit –
reported and adjusted (continued)¹˒² | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | For the quarter ended 30.6.16 | | | | | | | | |
| CHF million | Wealth Manage- ment | Wealth Manage- ment Americas | Personal & Corporate Banking | Asset Manage- ment | Investment Bank | CC – Services³ | CC – Group ALM | CC – Non- core and Legacy Portfolio | UBS |
| Operating income as reported | 1,815 | 1,879 | 1,085 | 483 | 2,000 | 78 | 45 | 19 | 7,404 |
| of which: gain on sale of
financial assets available for sale⁴ | 21 | | 102 | | | | | | 123 |
| of which: gains on sales of
real estate | | | | | | 120 | | | 120 |
| of which: net foreign
currency translation losses⁵ | | | | | | | (26) | | (26) |
| of which: losses on sales of
subsidiaries and businesses | (23) | | | | | | | | (23) |
| Operating income (adjusted) | 1,817 | 1,879 | 983 | 483 | 2,000 | (42) | 71 | 19 | 7,210 |
| Operating expenses as reported | 1,297 | 1,643 | 551 | 369 | 1,716 | 190 | 2 | 148 | 5,915 |
| of which: personnel-related
restructuring expenses⁶ | 7 | 5 | 1 | 4 | 37 | 139 | 0 | 0 | 192 |
| of which:
non-personnel-related restructuring expenses⁶ | 6 | 0 | 0 | 6 | 4 | 168 | 0 | 0 | 185 |
| of which: restructuring
expenses allocated from CC Services⁶ | 73 | 33 | 30 | 24 | 122 | (287) | 0 | 5 | 0 |
| Operating expenses (adjusted) | 1,211 | 1,605 | 520 | 335 | 1,553 | 170 | 2 | 143 | 5,538 |
| of which: expenses for
provisions for litigation, regulatory and similar matters | 9 | 16 | 0 | (5) | 26 | 2 | 0 | 23 | 72 |
| Operating profit / (loss)
before tax as reported | 518 | 237 | 534 | 114 | 284 | (113) | 44 | (129) | 1,489 |
| Operating profit / (loss)
before tax (adjusted) | 606 | 275 | 463 | 148 | 447 | (213) | 70 | (124) | 1,672 |
| 1 Adjusted results are non-GAAP financial measures as defined by
SEC regulations. 2 Comparative figures in this table may differ from those
originally published in quarterly and annual reports due to adjustments
following organizational changes, restatements due to the retrospective
adoption of new accounting standards or changes in accounting policies, and
events after the reporting period. 3 Corporate Center Services operating
expenses presented in this table are after service allocations to business
divisions and other Corporate Center units. 4 Reflects a gain on sale of
our remaining investment in IHS Markit in the Investment Bank in the second
quarter of 2017 and a gain on sale of our investment in Visa Europe in Wealth
Management and Personal & Corporate Banking in the second quarter of
2016. 5 Related to the disposal of foreign subsidiaries and
branches. 6 Refer to “Note 16 Changes in organization and disposals” in
the “Consolidated financial statements” section of this report for more
information. | | | | | | | | | |

| Performance by business division and Corporate Center unit –
reported and adjusted¹˒² | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | Year-to-date 30.6.17 | | | | | | | | |
| CHF million | Wealth Manage- ment | Wealth Manage- ment Americas | Personal & Corporate Banking | Asset Manage- ment | Investment Bank | CC – Services³ | CC – Group ALM | CC – Non- core and Legacy Portfolio | UBS |
| Operating income as reported | 3,810 | 4,128 | 1,893 | 929 | 4,124 | (37) | (30) | (16) | 14,801 |
| of which: gain on sale of
financial assets available for sale⁴ | | | | | 107 | | | | 107 |
| of which: net foreign
currency translation losses⁵ | | | | | | | (22) | | (22) |
| Operating income (adjusted) | 3,810 | 4,128 | 1,893 | 929 | 4,017 | (37) | (8) | (16) | 14,716 |
| Operating expenses as reported | 2,590 | 3,529 | 1,119 | 716 | 3,194 | 321 | 12 | 129 | 11,609 |
| of which: personnel-related
restructuring expenses⁶ | 15 | 0 | 4 | 5 | 22 | 186 | 1 | 0 | 233 |
| of which: non-personnel-related
restructuring expenses⁶ | 27 | 0 | 0 | 11 | 6 | 225 | 0 | 0 | 269 |
| of which: restructuring
expenses allocated from CC Services⁶ | 155 | 47 | 38 | 28 | 124 | (396) | 1 | 4 | 0 |
| Operating expenses (adjusted) | 2,393 | 3,482 | 1,077 | 673 | 3,042 | 307 | 11 | 125 | 11,107 |
| of which: expenses for
provisions for litigation, regulatory and similar matters | 4 | 74 | 0 | 1 | 0 | (3) | 0 | (33) | 42 |
| Operating profit / (loss)
before tax as reported | 1,221 | 599 | 774 | 213 | 931 | (358) | (41) | (146) | 3,192 |
| Operating profit / (loss)
before tax (adjusted) | 1,418 | 646 | 816 | 256 | 976 | (344) | (18) | (142) | 3,609 |
| | Year-to-date 30.6.16 | | | | | | | | |
| CHF million | Wealth Manage- ment | Wealth Manage- ment Americas | Personal & Corporate Banking | Asset Manage- ment | Investment Bank | CC – Services³ | CC – Group ALM | CC – Non- core and Legacy Portfolio | UBS |
| Operating income as reported | 3,700 | 3,769 | 2,048 | 951 | 3,879 | 23 | (104) | (29) | 14,237 |
| of which: gain on sale of
financial assets available for sale⁴ | 21 | | 102 | | | | | | 123 |
| of which: gains on sales of
real estate | | | | | | 120 | | | 120 |
| of which: net foreign
currency translation losses⁵ | | | | | | | (149) | | (149) |
| of which: losses on sales of
subsidiaries and businesses | (23) | | | | | | | | (23) |
| Operating income (adjusted) | 3,702 | 3,769 | 1,946 | 951 | 3,879 | (97) | 45 | (29) | 14,166 |
| Operating expenses as reported | 2,624 | 3,320 | 1,115 | 747 | 3,342 | 338 | 0 | 283 | 11,770 |
| of which: personnel-related
restructuring expenses⁶ | 9 | 5 | 1 | 5 | 54 | 245 | 0 | 1 | 320 |
| of which:
non-personnel-related restructuring expenses⁶ | 20 | 0 | 0 | 8 | 6 | 287 | 0 | 0 | 322 |
| of which: restructuring
expenses allocated from CC Services⁶ | 135 | 66 | 54 | 41 | 220 | (520) | 0 | 6 | 0 |
| Operating expenses (adjusted) | 2,459 | 3,249 | 1,060 | 693 | 3,062 | 325 | 0 | 277 | 11,128 |
| of which: expenses for
provisions for litigation, regulatory and similar matters | 9 | 34 | (1) | (5) | 26 | 2 | 0 | 46 | 111 |
| Operating profit / (loss)
before tax as reported | 1,076 | 448 | 933 | 204 | 537 | (315) | (104) | (312) | 2,467 |
| Operating profit / (loss)
before tax (adjusted) | 1,243 | 519 | 886 | 258 | 817 | (422) | 45 | (306) | 3,038 |
| 1 Adjusted results are non-GAAP financial measures as defined by
SEC regulations. 2 Comparative figures in this table may differ from those
originally published in quarterly and annual reports due to adjustments
following organizational changes, restatements due to the retrospective
adoption of new accounting standards or changes in accounting policies, and
events after the reporting period. 3 Corporate Center Services operating
expenses presented in this table are after service allocations to business
divisions and other Corporate Center units. 4 Reflects a gain on sale of
our remaining investment in IHS Markit in the Investment Bank in the second
quarter of 2017 and a gain on sale of our investment in Visa Europe in Wealth
Management and Personal & Corporate Banking in the second quarter of
2016. 5 Related to the disposal of foreign subsidiaries and
branches. 6 Refer to “Note 16 Changes in organization and disposals” in
the “Consolidated financial statements” section of this report for more information. | | | | | | | | | |

Group performance

Results: 2Q17 vs 2Q16

Profit before tax increased by CHF 13 million or 1% to CHF 1,502 million, driven by a reduction in operating expenses, largely offset by lower operating income. Operating income decreased by CHF 135 million or 2%, mainly reflecting a CHF 182 million decrease in combined net interest and trading income and CHF 122 million lower other income, partly offset by CHF 208 million higher net fee and commission income. Operating expenses decreased by CHF 148 million or 3%, primarily driven by CHF 178 million lower general and administrative expenses, partly offset by a CHF 29 million increase in personnel expenses.

In addition to reporting our results in accordance with International Financial Reporting Standards (IFRS), we report adjusted results that exclude items that management believes are not representative of the underlying performance of our businesses. Such adjusted results are non-GAAP financial measures as defined by US Securities and Exchange Commission (SEC) regulations. For the purpose of determining adjusted results for the second quarter of 2017, we excluded a gain of CHF 107 million on sale of financial assets available for sale, net foreign currency translation losses of CHF 22 million and net restructuring expenses of CHF 258 million. For the second quarter of 2016, we excluded a gain of CHF 123 million on sale of financial assets available for sale, gains on sales of real estate of CHF 120 million, net foreign currency translation losses of CHF 26 million, losses on sales of subsidiaries and businesses of CHF 23 million and net restructuring expenses of CHF 377 million.

On this adjusted basis, profit before tax for the second quarter of 2017 was broadly unchanged at CHF 1,675 million.

Operating income: 2Q17 vs 2Q16

Total operating income was CHF 7,269 million compared with CHF 7,404 million. On an adjusted basis, total operating income decreased by CHF 26 million to CHF 7,184 million, mainly reflecting a decrease of CHF 182 million in combined net interest and trading income and CHF 39 million higher net credit loss expenses, largely offset by a CHF 208 million increase in net fee and commission income.

Net interest and trading income
	For the quarter ended			% change from		Year-to-date
CHF million	30.6.17	31.3.17	30.6.16	1Q17	2Q16	30.6.17	30.6.16
Net interest and trading
income
Net interest income	1,417	1,696	1,164	(16)	22	3,113	2,876
Net trading income	1,456	1,440	1,891	1	(23)	2,896	2,904
Total net interest and
trading income	2,873	3,136	3,055	(8)	(6)	6,009	5,780
Wealth Management	752	747	736	1	2	1,499	1,486
Wealth Management Americas	504	505	446	0	13	1,009	885
Personal & Corporate Banking	616	598	643	3	(4)	1,213	1,286
Asset Management	(5)	(6)	(1)	(17)	400	(11)	(9)
Investment Bank	1,071	1,214	1,171	(12)	(9)	2,284	2,192
of which: Corporate Client
Solutions	263	247	251	6	5	510	371
of which: Investor Client
Services	808	967	920	(16)	(12)	1,775	1,820
Corporate Center	(65)	79	61			15	(59)
of which: Services	0	1	(13)	(100)	(100)	0	(22)
of which: Group ALM	(56)	86	58			30	(10)
of which: Non-core and
Legacy Portfolio	(8)	(7)	16	14		(15)	(27)
Total net interest and
trading income	2,873	3,136	3,055	(8)	(6)	6,009	5,780

Net interest and trading income

Total combined net interest and trading income decreased by CHF 182 million to CHF 2,873 million, mainly due to lower net interest and trading income in the Investment Bank and in Corporate Center – Group Asset and Liability Management (Group ALM), partly offset by an increase in net interest income in Wealth Management Americas.

In Wealth Management, net interest income decreased by CHF 14 million to CHF 568 million, as higher deposit revenues, driven by higher short-term US dollar interest rates, were more than offset by a decrease in treasury-related income from Group ALM, reflecting higher funding costs for long-term debt that contributes to total loss-absorbing capacity (TLAC) and lower banking book interest income. Net trading income increased by CHF 31 million to CHF 184 million, mainly due to increased client activity, most notably in Asia Pacific.

In Wealth Management Americas, net interest income increased by CHF 70 million to CHF 418 million, driven by higher short-term US dollar interest rates and by growth in loan balances. This was partly offset by a CHF 12 million decrease in net trading income.

In Personal & Corporate Banking, net interest income decreased by CHF 33 million to CHF 525 million, mainly as a result of lower treasury-related income from Group ALM, reflecting higher funding costs for long-term debt that contributes to TLAC and lower banking book interest income. This was partly offset by a CHF 5 million increase in net trading income.

In the Investment Bank, net interest and trading income declined by CHF 100 million, largely due to a CHF 161 million decrease in Foreign Exchange, Rates and Credit, mainly reflecting lower client activity and low market volatility levels compared with a strong prior-year quarter. This was partly offset by an increase of CHF 50 million in Equities, primarily due to higher revenues in Derivatives.

In Corporate Center, net interest and trading income decreased by CHF 126 million, mainly in Group ALM, primarily reflecting a negative effect from accounting asymmetries related to economic hedges.

Net fee and commission income

Net fee and commission income was CHF 4,295 million compared with CHF 4,087 million.

Portfolio management and advisory fees increased by CHF 139 million to CHF 2,107 million, primarily in Wealth Management Americas, mainly due to increased invested assets in managed accounts.

Equity underwriting fees increased by CHF 87 million to CHF 224 million, mainly in the Investment Bank, reflecting higher revenues from private transactions as well as from public offerings.

® Refer to “Note 3 Net fee and commission income” in the “Consolidated financial statements” section of this report for more information

Group performance

Credit loss (expense) / recovery
	For the quarter ended			% change from		Year-to-date
CHF million	30.6.17	31.3.17	30.6.16	1Q17	2Q16	30.6.17	30.6.16
Wealth Management	0	(1)	(1)	(100)	(100)	(1)	(1)
Wealth Management Americas	0	(1)	(1)	(100)	(100)	(1)	(2)
Personal & Corporate Banking	(28)	7	2			(21)	2
Investment Bank	(6)	(6)	(6)	0	0	(12)	(5)
Corporate Center	(11)	0	0			(11)	(3)
of which: Non-core and
Legacy Portfolio	(11)	0	0			(11)	(3)
Total	(46)	0	(7)		557	(46)	(9)

Credit loss expense / recovery

Total net credit loss expenses were CHF 46 million compared with CHF 7 million, mainly reflecting higher expenses in Personal & Corporate Banking, driven by a small number of newly impaired corporate client positions across a range of sectors.

® Refer to the “Risk management and control” section of this report for more information on credit risk

Other income

Other income was CHF 147 million compared with CHF 269 million. The second quarter of 2017 included a gain of CHF 107 million on the sale of our remaining investment in IHS Markit and net foreign currency translation losses of CHF 22 million. The prior-year quarter included a gain of CHF 123 million on the sale of our investment in Visa Europe, gains on sales of real estate of CHF 120 million, net foreign currency translation losses of CHF 26 million and losses on sales of subsidiaries and businesses of CHF 23 million. Excluding these items, adjusted other income decreased by CHF 13 million.

® Refer to “Note 4 Other income” in the “Consolidated financial statements” section of this report for more information

Operating expenses
	For the quarter ended			% change from		Year-to-date
CHF million	30.6.17	31.3.17	30.6.16	1Q17	2Q16	30.6.17	30.6.16
Operating expenses as reported
Personnel expenses	4,014	4,060	3,985	(1)	1	8,074	7,910
General and administrative expenses	1,488	1,506	1,666	(1)	(11)	2,994	3,330
Depreciation and impairment of property, equipment and software	249	255	240	(2)	4	505	483
Amortization and impairment of intangible assets	16	21	24	(24)	(33)	37	47
Total operating expenses as
reported	5,767	5,842	5,915	(1)	(3)	11,609	11,770
Adjusting items¹
Personnel expenses	117	116	192			233	320
General and administrative expenses	141	124	185			264	322
Depreciation and impairment of property, equipment and software	0	4	0			4	0
Amortization and impairment of intangible assets	0	0	0			0	0
Total adjusting items	258	244	377			502	642
Operating expenses (adjusted)²
Personnel expenses	3,897	3,944	3,793	(1)	3	7,841	7,590
of which: salaries and
variable compensation	2,319	2,340	2,330	(1)	0	4,659	4,575
of which: Wealth Management
Americas Financial advisor compensation³	992	987	911	1	9	1,979	1,820
of which: other personnel
expenses⁴	586	617	552	(5)	6	1,203	1,194
General and administrative expenses	1,347	1,382	1,481	(3)	(9)	2,730	3,008
of which: expenses for
provisions for litigation, regulatory and similar matters	9	33	72	(73)	(88)	42	111
of which: other general and
administrative expenses	1,338	1,349	1,409	(1)	(5)	2,688	2,897
Depreciation and impairment of property, equipment and software	249	251	240	(1)	4	501	483
Amortization and impairment of intangible assets	16	21	24	(24)	(33)	37	47
Total operating expenses
(adjusted)	5,509	5,598	5,538	(2)	(1)	11,107	11,128
1 Consists of restructuring expenses. Refer to “Note 16 Changes
in organization and disposals” in the “Consolidated financial statements”
section of this report for more information. 2 Adjusted results are
non-GAAP financial measures as defined by SEC regulations. 3 Financial
advisor compensation consists of grid-based compensation based directly on
compensable revenues generated by financial advisors and supplemental
compensation calculated on the basis of financial advisor productivity, firm
tenure, assets and other variables. It also includes expenses related to
compensation commitments with financial advisors entered into at the time of
recruitment that are subject to vesting requirements. 4 Consists of expenses
related to contractors, social security, pension and other post-employment
benefit plans and other personnel expenses. Refer to “Note 5 Personnel
expenses” in the “Consolidated financial statements” section of this report
for more information.

Operating expenses: 2Q17 vs 2Q16

Total operating expenses decreased by CHF 148 million or 3% to CHF 5,767 million. Excluding net restructuring expenses of CHF 258 million compared with CHF 377 million, adjusted total operating expenses decreased by CHF 29 million or 1% to CHF 5,509 million.

® Refer to “Note 16 Changes in organization and disposals” in the “Consolidated financial statements” section of this report for more information on restructuring expenses

Personnel expenses

Personnel expenses increased by CHF 29 million to CHF 4,014 million on a reported basis and by CHF 104 million to CHF 3,897 million on an adjusted basis.

Financial advisor compensation in Wealth Management Americas increased by CHF 81 million, reflecting higher compensable revenue and changes to their grid-based compensation, partly offset by lower expenses for compensation commitments with recruited financial advisors.

Adjusted other personnel expenses increased by CHF 34 million, largely due to higher social security costs.

Adjusted expenses for salaries and variable compensation decreased by CHF 11 million, mainly reflecting lower salary expenses, partly offset by higher expenses for variable compensation.

® Refer to “Note 5 Personnel expenses” in the “Consolidated financial statements” section of this report for more information

General and administrative expenses

General and administrative expenses decreased by CHF 178 million to CHF 1,488 million on a reported basis and by CHF 134 million to CHF 1,347 million on an adjusted basis. The decrease in adjusted expenses was mainly driven by CHF 63 million lower net expenses for provisions for litigation, regulatory and similar matters and a CHF 53 million decrease in professional fees. In addition, the second quarter of 2017 included a UK bank levy credit of CHF 46 million related to prior years.

We believe that the industry continues to operate in an environment in which expenses associated with litigation, regulatory and similar matters will remain elevated for the foreseeable future and we continue to be exposed to a number of significant claims and regulatory matters. The outcome of many of these matters, the timing of a resolution and the potential effects of resolutions on our future business, financial results or financial condition are extremely difficult to predict.

® Refer to “Note 6 General and administrative expenses” in the “Consolidated financial statements” section of this report for more information

® Refer to “Note 14 Provisions and contingent liabilities” in the “Consolidated financial statements” section of this report and to “Material legal and regulatory risks arise in the conduct of our business” in the “Risk factors” section of our Annual Report 2016 for more information on litigation, regulatory and similar matters

Depreciation, impairment and amortization

Depreciation and impairment of property, equipment and software was CHF 249 million compared with CHF 240 million, mainly reflecting higher depreciation expenses related to leasehold improvements and internally generated capitalized software.

Tax: 2Q17 vs 2Q16

We recognized an income tax expense of CHF 327 million for the second quarter of 2017 compared with an income tax expense of CHF 376 million for the second quarter of 2016.

The current tax expense was CHF 194 million compared with CHF 227 million, approximately half of which was attributable to UBS Switzerland AG in both periods.

The deferred tax expense was CHF 133 million compared with CHF 149 million, both mainly relating to the amortization of deferred tax assets previously recognized in relation to Swiss tax losses carried forward and deductible temporary differences to reflect their offset against profits for the quarter.

We currently expect the full-year 2017 tax rate, excluding any effects from reassessment of deferred tax assets expected during the second half of the year as part of our annual business planning process, to be marginally higher than the year-to-date effective tax rate of 22%. This also excludes any impact of US corporate tax reform or other statutory tax rate changes that could be enacted during the year.

® Refer to “Note 7 Income taxes” in the “Consolidated financial statements” section of this report for more information

Group performance

Total comprehensive income attributable to shareholders: 2Q17 vs 2Q16

Total comprehensive income attributable to shareholders was CHF 89 million compared with CHF 1,151 million. Net profit attributable to shareholders was CHF 1,174 million compared with CHF 1,034 million, while other comprehensive income (OCI) attributable to shareholders was negative CHF 1,086 million compared with positive CHF 117 million.

In the second quarter of 2017, foreign currency translation OCI was negative CHF 971 million, primarily resulting from the 4% weakening of the US dollar against the Swiss franc. OCI related to foreign currency translation was positive CHF 334 million in the same quarter last year.

OCI associated with financial assets classified as available for sale was negative CHF 115 million compared with negative CHF 39 million and mainly reflected the reclassification of net gains from OCI to the income statement, predominantly due to the sale of our remaining investment in IHS Markit.

OCI related to own credit on financial liabilities designated at fair value was negative CHF 73 million compared with negative CHF 157 million and mainly reflected tightening credit spreads.

OCI related to cash flow hedges was negative CHF 35 million, mainly reflecting a decrease in unrealized gains on hedging derivatives resulting from increases in long-term interest rates. In the second quarter of 2016, OCI related to cash flow hedges was positive CHF 181 million.

Defined benefit plan OCI was positive CHF 108 million compared with negative CHF 202 million. We recorded net pre-tax OCI gains of CHF 130 million related to our non-Swiss pension plans and net pre-tax OCI losses related to the Swiss pension plan of CHF 23 million.

® Refer to the “Statement of comprehensive income” in the “Consolidated financial statements” section of this report for more information

® Refer to “Note 26 Pension and other post-employment benefit plans” in the “Consolidated financial statements” section of our Annual Report 2016 for more information on other comprehensive income related to defined benefit plans

Sensitivity to interest rate movements

As of 30 June 2017, we estimate that a parallel shift in yield curves by +100 basis points could lead to a combined increase in annual net interest income of approximately CHF 0.7 billion in Wealth Management, Wealth Management Americas and Personal & Corporate Banking. Of this increase, approximately CHF 0.3 billion would result from changes in US dollar interest rates.

The immediate effect on shareholders’ equity of such a shift in yield curves would be a decrease of approximately CHF 1.5 billion recognized in OCI, of which approximately CHF 1.3 billion would result from changes in US dollar interest rates. Since the majority of this effect on shareholders’ equity is related to cash flow hedge OCI, which is not recognized for the purposes of calculating regulatory capital, the immediate effect on regulatory capital would be an increase of approximately CHF 0.3 billion, primarily related to the estimated effect on pension fund assets and liabilities.

The aforementioned estimates are based on an immediate increase in interest rates, equal across all currencies and relative to implied forward rates applied to our banking book and financial assets available for sale. These estimates further assume no change to balance sheet size and structure, constant foreign exchange rates and no specific management action.

Net profit attributable to non-controlling interests: 2Q17 vs 2Q16

Net profit attributable to non-controlling interests was CHF 1 million compared with CHF 79 million. For the remainder of 2017, we currently expect to attribute approximately CHF 25 million to non-controlling interests, all in the fourth quarter. From 2018, we expect net profit attributable to non-controlling interests to be less than CHF 10 million per year.

Key figures and personnel

Return on tangible equity: 2Q17 vs 2Q16

The annualized return on tangible equity (RoTE) was 10.3% compared with 8.9%. On an adjusted basis, the annualized RoTE was 11.4% compared with 10.1%.

Cost / income ratio: 2Q17 vs 2Q16

The cost / income ratio was 78.8% compared with 79.8%. On an adjusted basis, the cost / income ratio was 76.2% compared with 76.7%.

Common equity tier 1 capital ratio: 2Q17 vs 1Q17

Our fully applied common equity tier 1 (CET1) capital ratio decreased 0.6 percentage points to 13.5% as of 30 June 2017, reflecting an increase in risk-weighted assets (RWA) of CHF 15 billion, partly offset by a CHF 0.6 billion increase in CET1 capital.

® Refer to the “Capital management” section of this report for more information

Risk-weighted assets: 2Q17 vs 1Q17

During the second quarter of 2017, our fully applied RWA increased by CHF 15 billion to CHF 237 billion. Credit risk RWA increased by CHF 10 billion, primarily due to methodology, policy changes and model updates of CHF 14 billion, partly offset by a reduction in regulatory add-ons of CHF 2 billion. Market risk RWA increased by CHF 4 billion, primarily reflecting asset size and other movements.

® Refer to the “Capital management” section of this report for more information

Going concern leverage ratio: 2Q17 vs 1Q17

Our fully applied going concern leverage ratio increased 0.1 percentage points to 4.7%, reflecting a decrease of CHF 20 billion in the leverage ratio denominator (LRD) and an increase of CHF 0.4 billion in going concern capital.

® Refer to the “Capital management” section of this report for more information

Leverage ratio denominator: 2Q17 vs 1Q17

During the second quarter of 2017, our fully applied LRD decreased by CHF 20 billion to CHF 861 billion, mainly reflecting currency effects of CHF 16 billion, asset size and other movements of CHF 3 billion and incremental netting and collateral mitigation of CHF 2 billion.

® Refer to the “Capital management” section of this report for more information

Net new money and invested assets

Management’s discussion and analysis of net new money and invested assets is provided in the “UBS business divisions and Corporate Center” section of this report.

Return on equity
	As of or for the quarter ended			As of or year-to-date
CHF million, except where
indicated	30.6.17	31.3.17	30.6.16	30.6.17	30.6.16
Net profit
Net profit attributable to shareholders	1,174	1,269	1,034	2,443	1,741
Amortization and impairment of intangible assets	16	21	24	37	47
Pre-tax adjusting items¹˒²	173	244	183	417	571
Tax effect on adjusting items³	(38)	(54)	(40)	(92)	(126)
Adjusted net profit attributable to shareholders	1,325	1,480	1,201	2,805	2,233
of which: deferred tax
(expense) / benefit	(133)	(131)	(149)	(264)	(242)
Adjusted net profit attributable to shareholders excluding
deferred tax expense / benefit	1,458	1,611	1,350	3,069	2,475
Equity
Equity attributable to shareholders	51,744	53,661	52,876	51,744	52,876
Less: goodwill and intangible assets	6,226	6,458	6,402	6,226	6,402
Tangible equity attributable to shareholders	45,518	47,203	46,474	45,518	46,474
Less: deferred tax assets not eligible as CET1 capital⁴	9,319	9,926	9,637	9,319	9,637
Tangible equity attributable to shareholders excluding deferred
tax assets	36,199	37,277	36,837	36,199	36,837
Return on equity
Return on equity (%)	8.9	9.5	7.7	9.2	6.4
Return on tangible equity (%)	10.3	10.9	8.9	10.6	7.4
Adjusted return on tangible equity (%)¹	11.4	12.6	10.1	12.0	9.3
Adjusted return on tangible equity excluding deferred tax assets
(%)¹	15.9	17.4	14.3	16.6	12.9
1 Adjusted results are non-GAAP financial measures as defined by
SEC regulations. 2 Refer to the “Performance by business division and
Corporate Center unit – reported and adjusted” table in this section for more
information. 3 Generally reflects an indicative tax rate of 22% on pre-tax
adjusting items. 4 Deferred tax assets that do not qualify as CET1
capital, reflecting deferred tax assets recognized for tax loss
carry-forwards of CHF 8,207 million as of 30 June 2017 (31 March 2017: CHF
8,417 million; 30 June 2016: CHF 7,699 million) as well as deferred tax
assets on temporary differences, excess over threshold of CHF 1,112 million
as of 30 June 2017 (31 March 2017: CHF 1,509 million; 30 June 2016: CHF 1,938
million), in accordance with fully applied Swiss SRB rules. Refer to the
“Capital management” section of this report for more information.

Group performance

Net new money¹
	For the quarter ended			Year-to-date
CHF billion	30.6.17	31.3.17	30.6.16	30.6.17	30.6.16
Wealth Management	13.7	18.6	6.0	32.3	21.5
Wealth Management Americas	(6.2)	1.9	2.3	(4.3)	15.9
Asset Management	10.7	22.9	(7.7)	33.6	(10.6)
of which: excluding money
market flows	10.2	19.7	(8.8)	29.9	(14.7)
of which: money market flows	0.5	3.2	1.1	3.7	4.1
1 Net new money excludes interest and dividend income.

Invested assets
	As of			% change from
CHF billion	30.6.17	31.3.17	30.6.16	31.3.17	30.6.16
Wealth Management	1,039	1,023	935	2	11
Wealth Management Americas	1,122	1,155	1,053	(3)	7
Asset Management	703	697	633	1	11
of which: excluding money
market funds	636	628	572	1	11
of which: money market funds	67	69	61	(3)	10

Personnel: 2Q17 vs 1Q17

We employed 59,470 personnel as of 30 June 2017, a net increase of 54 compared with 31 March 2017. Corporate Center – Services personnel increased by 363, primarily due to higher staffing levels for strategic and regulatory initiatives. Wealth Management personnel decreased by 108, primarily as a result of cost reduction programs. In addition, Investment Bank personnel and Personal & Corporate Banking personnel decreased by 103 and 60, respectively.

Results: 6M17 vs 6M16

Profit before tax increased by CHF 725 million or 29% to CHF 3,192 million. Operating income increased by CHF 564 million or 4%, mainly reflecting CHF 468 million higher net fee and commission income and a CHF 229 million increase in combined net interest and trading income. Operating expenses decreased by CHF 161 million or 1%, largely driven by CHF 336 million lower general and administrative expenses.

On an adjusted basis, profit before tax increased by CHF 571 million or 19%, driven by higher operating income.

Adjusted operating income increased by CHF 550 million or 4%, mainly reflecting CHF 468 million higher net fee and commission income, primarily due to CHF 213 million higher underwriting fees, largely in the Investment Bank, and a CHF 211 million increase in portfolio management and advisory fees, mainly in Wealth Management Americas. Furthermore, combined net interest and trading income increased by CHF 229 million, primarily in Wealth Management Americas and in the Investment Bank, partly offset by a decrease in Personal & Corporate Banking. This was partly offset by a CHF 110 million decrease in adjusted other income, mainly due to lower gains on sales of financial assets available for sale.

Adjusted operating expenses decreased by CHF 21 million, primarily as the first six months of 2017 included a CHF 71 million UK bank levy credit related to prior years, CHF 69 million lower net expenses for provisions for litigation, regulatory and similar matters and a CHF 67 million decrease in professional fees. This was largely offset by a CHF 159 million increase in financial advisor compensation in Wealth Management Americas and higher expenses for variable compensation.

Outlook

Improved investor sentiment and enhanced confidence have translated into improvements in wealth management client activity levels. However, the persistence of low volatility levels and seasonality factors may continue to affect overall client activity. In addition, while we expect the global economic recovery to strengthen, geopolitical tensions and macroeconomic uncertainty still pose risks to client sentiment. Low and negative interest rates, particularly in Switzerland and the eurozone, put pressure on net interest margins, which may be partially offset by the effect of a further normalization of US monetary policy. Implementing Switzerland’s new bank capital standards and further changes to national and international regulatory frameworks for banks will result in increased capital requirements, interest and operating costs. UBS is well positioned to mitigate these challenges and benefit from further improvements in market conditions.

UBS business divisions and Corporate Center

Management report

Wealth Management

Wealth Management¹
	As of or for the quarter ended			% change from		Year-to-date
CHF million, except where
indicated	30.6.17	31.3.17	30.6.16	1Q17	2Q16	30.6.17	30.6.16
Results
Net interest income	568	559	582	2	(2)	1,127	1,162
Recurring net fee income²	890	885	883	1	1	1,775	1,784
Transaction-based income³	416	479	347	(13)	20	895	749
Other income	7	6	4	17	75	13	7
Income	1,882	1,929	1,817	(2)	4	3,811	3,702
Credit loss (expense) / recovery	0	(1)	(1)	(100)	(100)	(1)	(1)
Total operating income	1,882	1,929	1,815	(2)	4	3,810	3,700
Personnel expenses	598	596	590	0	1	1,194	1,205
General and administrative expenses	126	131	140	(4)	(10)	257	268
Services (to) / from Corporate Center and other business
divisions	574	562	565	2	2	1,136	1,148
of which: services from CC –
Services	556	536	545	4	2	1,091	1,107
Depreciation and impairment of property, equipment and software	1	0	0			1	1
Amortization and impairment of intangible assets	1	1	1	0	0	2	2
Total operating expenses	1,300	1,290	1,297	1	0	2,590	2,624
Business division operating
profit / (loss) before tax	582	639	518	(9)	12	1,221	1,076
Adjusted results⁴
Total operating income as
reported	1,882	1,929	1,815	(2)	4	3,810	3,700
of which: gain / (loss) on
sales of subsidiaries and businesses			(23)				(23)
of which: gain on sale of
financial assets available for sale⁵			21				21
Total operating income
(adjusted)	1,882	1,929	1,817	(2)	4	3,810	3,702
Total operating expenses as
reported	1,300	1,290	1,297	1	0	2,590	2,624
of which: personnel-related
restructuring expenses	14	1	7			15	9
of which:
non-personnel-related restructuring expenses	16	11	6			27	20
of which: restructuring
expenses allocated from CC – Services	79	76	73			155	135
Total operating expenses (adjusted)	1,191	1,202	1,211	(1)	(2)	2,393	2,459
Business division operating
profit / (loss) before tax as reported	582	639	518	(9)	12	1,221	1,076
Business division operating
profit / (loss) before tax (adjusted)	691	727	606	(5)	14	1,418	1,243
Key performance
indicators⁶
Pre-tax profit growth (%)	12.4	14.7	(31.5)			13.5	(37.0)
Cost / income ratio (%)	69.1	66.9	71.4			68.0	70.9
Net new money growth (%)	5.4	7.6	2.6			6.6	4.5
Gross margin on invested assets (bps)	73	77	78	(5)	(6)	75	79
Net margin on invested assets (bps)	23	26	22	(12)	5	24	23
Adjusted key performance
indicators⁴˒⁶
Pre-tax profit growth (%)	14.0	14.3	(21.2)			14.1	(23.5)
Cost / income ratio (%)	63.3	62.3	66.6			62.8	66.4
Net new money growth (%)	5.4	7.6	2.6			6.6	4.5
Gross margin on invested assets (bps)	73	77	78	(5)	(6)	75	79
Net margin on invested assets (bps)	27	29	26	(7)	4	28	27

Wealth Management (continued)¹
	As of or for the quarter ended			% change from		Year-to-date
CHF million, except where
indicated	30.6.17	31.3.17	30.6.16	1Q17	2Q16	30.6.17	30.6.16
Additional information
Recurring income⁷	1,458	1,444	1,465	1	0	2,903	2,946
Recurring income as a percentage of income (%)	77.5	74.9	80.6			76.2	79.6
Average attributed equity (CHF billion)⁸	6.1	6.0	3.5	2	74	6.0	3.5
Return on attributed equity (%)⁸	38.2	42.8	59.2			40.4	61.5
Return on attributed tangible equity (%)⁸	48.8	55.2				51.9
Risk-weighted assets (CHF billion)⁸	29.9	28.7	26.0	4	15	29.9	26.0
of which: held by Wealth
Management (CHF billion)	28.5	27.4	26.0	4	10	28.5	26.0
of which: held by CC – Group
ALM on behalf of Wealth Management (CHF billion)⁹	1.4	1.3		8		1.4
Leverage ratio denominator (CHF billion)⁸	170.4	166.2	119.4	3	43	170.4	119.4
of which: held by Wealth
Management (CHF billion)	119.3	116.9	119.4	2	0	119.3	119.4
of which: held by CC – Group
ALM on behalf of Wealth Management (CHF billion)⁹	51.2	49.4		4		51.2
Goodwill and intangible assets (CHF billion)	1.3	1.3	1.3	0	0	1.3	1.3
Net new money (CHF billion)	13.7	18.6	6.0			32.3	21.5
Invested assets (CHF billion)	1,039	1,023	935	2	11	1,039	935
Client assets (CHF billion)	1,214	1,202	1,105	1	10	1,214	1,105
Loans, gross (CHF billion)	106.7	104.3	102.8	2	4	106.7	102.8
Due to customers (CHF billion)	191.6	193.6	187.0	(1)	2	191.6	187.0
Personnel (full-time equivalents)	9,552	9,660	10,135	(1)	(6)	9,552	10,135
Client advisors (full-time equivalents)	3,783	3,850	3,949	(2)	(4)	3,783	3,949
1 Comparative figures in this table may differ from those
originally published in quarterly and annual reports due to adjustments
following organizational changes, restatements due to the retrospective
adoption of new accounting standards or changes in accounting policies, and
events after the reporting period. 2 Recurring net fee income consists of
fees for services provided on an ongoing basis such as portfolio management
fees, asset-based investment fund fees, custody fees and account-keeping
fees, which are generated on client assets. 3 Transaction-based income
consists of the non-recurring portion of net fee and commission income,
mainly consisting of brokerage and transaction-based investment fund fees as
well as credit card fees and fees for payment transactions, together with net
trading income. 4 Adjusted results are non-GAAP financial measures as
defined by SEC regulations. 5 Reflects a gain on the sale of our
investment in Visa Europe. 6 Refer to the “Measurement of performance”
section of our Annual Report 2016 for the definitions of our key performance
indicators. 7 Recurring income consists of net interest income and
recurring net fee income. 8 Refer to the “Capital management” section of
this report for more information. 9 Represents risk-weighted assets and
leverage ratio denominator held by Corporate Center – Group ALM that are
directly associated with activity managed centrally on behalf of the business
divisions and other Corporate Center units. For the purpose of attributing
equity under the revised framework effective as of 1 January 2017, these
resources are allocated to the business divisions and other Corporate Center
units, primarily based on the level of high-quality liquid assets needed to
meet the Group’s minimum liquidity coverage ratio requirement of 110%. Refer
to “Equity attribution framework” in the “Capital management” section of our
Annual Report 2016 for more information.

| Regional breakdown of key
figures¹ — As of or for the quarter
ended 30.6.17 | Europe | Asia Pacific | Switzerland | Emerging markets | Total | of which: ultra high net worth | of which: Global Family Office² |
| --- | --- | --- | --- | --- | --- | --- | --- |
| Net new money (CHF billion) | 0.6 | 9.6 | 1.6 | 1.9 | 13.7 | 11.8 | 1.6 |
| Net new money growth (%) | 0.6 | 12.3 | 3.4 | 5.0 | 5.4 | 8.1 | 6.4 |
| Invested assets (CHF billion)³ | 372 | 319 | 192 | 154 | 1,037 | 599 | 103 |
| Client advisors (full-time equivalents)³ | 1,273 | 1,008 | 739 | 654 | 3,674 | 806⁴ | |
| 1 Refer to the “Measurement of performance” section of our
Annual Report 2016 for the definitions of our key performance indicators.
2 Joint venture between Wealth Management and the Investment Bank. Global
Family Office is reported as a sub-segment of ultra high net worth and is
included in the ultra high net worth figures. 3 Based on the Wealth
Management business area structure and excluding minor functions with 109
client advisors and CHF 2 billion of invested assets in the second quarter of
2017. 4 Represents client advisors who exclusively serve ultra high net
worth clients. In addition to these, other client advisors may also serve
certain ultra high net worth clients, but not exclusively. | | | | | | | |

Wealth Management

Results: 2Q17 vs 2Q16

Profit before tax increased by CHF 64 million or 12% to CHF 582 million and adjusted profit before tax increased by CHF 85 million or 14% to CHF 691 million, mainly reflecting higher operating income.

Operating income

Total operating income increased by CHF 67 million or 4% to CHF 1,882 million. The second quarter of 2016 included a loss on the sale of a subsidiary of CHF 23 million and a gain of CHF 21 million on the sale of our investment in Visa Europe. Excluding these items, adjusted operating income increased by CHF 65 million or 4%, mainly due to higher transaction-based income.

Net interest income decreased by CHF 14 million to CHF 568 million, primarily due to lower treasury-related income from Corporate Center – Group Asset and Liability Management (Group ALM), reflecting higher funding costs for long-term debt that contributes to total loss-absorbing capacity and lower banking book interest income. This was partly offset by higher deposit revenues, primarily reflecting higher short-term US dollar interest rates.

® Refer to the “Corporate Center – Group Asset and Liability Management” section of this report for more information

Recurring net fee income increased by CHF 7 million to CHF 890 million due to higher average invested assets, increases in discretionary and advisory mandate penetration and pricing measures. These factors were partly offset by the effects of cross-border outflows and shifts into retrocession-free products, as well as our exit from the Australian domestic business.

Transaction-based income increased by CHF 69 million to CHF 416 million, across most products, mainly due to increased client activity, most notably in Asia Pacific.

Operating expenses

Total operating expenses increased slightly to CHF 1,300 million, while adjusted operating expenses decreased by CHF 20 million or 2% to CHF 1,191 million. Personnel expenses increased by CHF 8 million to CHF 598 million, while adjusted personnel expenses were broadly unchanged at CHF 584 million. General and administrative expenses decreased by CHF 14 million to CHF 126 million and decreased by CHF 24 million to CHF 110 million on an adjusted basis, mainly due to lower professional fees and reduced net expenses for provisions for litigation, regulatory and similar matters. Net expenses for services from Corporate Center and other business divisions increased by CHF 9 million to CHF 574 million and increased by CHF 3 million to CHF 495 million on an adjusted basis.

Net new money: 2Q17 vs 2Q16

Net new money was CHF 13.7 billion compared with CHF 6.0 billion, resulting in an annualized net new money growth rate of 5.4% compared with 2.6%. Cross-border-related net outflows were CHF 1.9 billion and Europe, emerging markets and Switzerland experienced combined outflows of CHF 5.3 billion following the introduction of fees for large euro-denominated deposits. Net new money from ultra high net worth clients was CHF 11.8 billion compared with CHF 4.8 billion. Net new money in Asia Pacific was also notably strong in the quarter.

Invested assets: 2Q17 vs 1Q17

Invested assets increased by CHF 16 billion to CHF 1,039 billion, mainly due to positive market performance of CHF 20 billion and net new money of CHF 14 billion, partly offset by negative foreign currency translation effects of CHF 18 billion, mainly driven by the weakening of the US dollar against the Swiss franc. Discretionary and advisory mandate penetration increased to 28.5% from 27.8%.

Results: 6M17 vs 6M16

Profit before tax increased by CHF 145 million or 13% to CHF 1,221 million and adjusted profit before tax increased by CHF 175 million or 14% to CHF 1,418 million, mainly reflecting higher operating income.

Total operating income increased by CHF 110 million or 3% to CHF 3,810 million. Excluding the aforementioned loss on the sale of a subsidiary and the gain on the sale of our investment in Visa Europe, adjusted operating income increased by CHF 108 million or 3%, mainly due to higher transaction-based income.

Net interest income decreased by CHF 35 million to CHF 1,127 million, mainly due to lower treasury-related income from Corporate Center – Group ALM, partly offset by higher deposit revenues, primarily reflecting higher short-term US dollar interest rates.

® Refer to the “Corporate Center – Group Asset and Liability Management” section of this report for more information

Recurring net fee income decreased by CHF 9 million to CHF 1,775 million. Increases in average invested asset levels and discretionary and advisory mandate penetration were more than offset by the effects of cross-border outflows, shifts into retrocession-free products and our exit from the Australian domestic business.

Transaction-based income increased by CHF 146 million to CHF 895 million, across most products, mainly due to increased client activity, most notably in Asia Pacific.

Total operating expenses decreased by CHF 34 million or 1% to CHF 2,590 million and adjusted operating expenses decreased by CHF 66 million or 3% to CHF 2,393 million. Personnel expenses decreased by CHF 11 million to CHF 1,194 million and decreased by CHF 17 million to CHF 1,179 million on an adjusted basis, driven by a decrease in staff levels reflecting our cost reduction programs, partly offset by higher variable compensation expenses. General and administrative expenses decreased by CHF 11 million to CHF 257 million and decreased by CHF 18 million to CHF 230 million on an adjusted basis, mainly due to lower costs for travel and entertainment and IT outsourcing services. Net expenses for services from other business divisions and Corporate Center decreased by CHF 12 million to CHF 1,136 million and adjusted net expenses for services decreased by CHF 32 million to CHF 981 million. This decrease was driven by lower net expenses from Group Technology, Group Communications and Branding and Group Risk Control, partly offset by higher costs related to strategic and regulatory initiatives.

Wealth Management Americas

| Wealth Management Americas – in
US dollars¹ | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- |
| | As of or for the quarter ended | | | % change from | | Year-to-date | |
| USD million, except where
indicated | 30.6.17 | 31.3.17 | 30.6.16 | 1Q17 | 2Q16 | 30.6.17 | 30.6.16 |
| Results | | | | | | | |
| Net interest income | 429 | 410 | 357 | 5 | 20 | 838 | 708 |
| Recurring net fee income² | 1,308 | 1,244 | 1,191 | 5 | 10 | 2,552 | 2,372 |
| Transaction-based income³ | 390 | 396 | 369 | (2) | 6 | 786 | 730 |
| Other income | 7 | 5 | 8 | 40 | (13) | 11 | 14 |
| Income | 2,133 | 2,054 | 1,924 | 4 | 11 | 4,187 | 3,825 |
| Credit loss (expense) / recovery | 0 | (1) | (1) | (100) | (100) | (1) | (2) |
| Total operating income | 2,132 | 2,053 | 1,924 | 4 | 11 | 4,186 | 3,823 |
| Personnel expenses | 1,316 | 1,284 | 1,224 | 2 | 8 | 2,600 | 2,432 |
| Financial advisor compensation⁴ | 830 | 791 | 724 | 5 | 15 | 1,621 | 1,439 |
| Compensation commitments with recruited financial
advisors⁵ | 189 | 197 | 209 | (4) | (10) | 386 | 408 |
| Salaries and other personnel costs | 298 | 296 | 291 | 1 | 2 | 593 | 586 |
| General and administrative expenses | 183 | 144 | 137 | 27 | 34 | 327 | 282 |
| Services (to) / from Corporate Center and other business
divisions | 319 | 312 | 307 | 2 | 4 | 630 | 628 |
| of which: services from CC –
Services | 312 | 308 | 304 | 1 | 3 | 620 | 620 |
| Depreciation and impairment of property, equipment and software | 1 | 1 | 0 | 0 | | 1 | 1 |
| Amortization and impairment of intangible assets | 10 | 11 | 14 | (9) | (29) | 21 | 27 |
| Total operating expenses | 1,828 | 1,751 | 1,682 | 4 | 9 | 3,579 | 3,369 |
| Business division operating profit
/ (loss) before tax | 304 | 302 | 242 | 1 | 26 | 606 | 453 |
| Adjusted results⁶ | | | | | | | |
| Total operating income as
reported | 2,132 | 2,053 | 1,924 | 4 | 11 | 4,186 | 3,823 |
| Total operating income
(adjusted) | 2,132 | 2,053 | 1,924 | 4 | 11 | 4,186 | 3,823 |
| Total operating expenses as
reported | 1,828 | 1,751 | 1,682 | 4 | 9 | 3,579 | 3,369 |
| of which: personnel-related
restructuring expenses | 0 | 0 | 5 | | | 0 | 5 |
| of which:
non-personnel-related restructuring expenses | 0 | 0 | 0 | | | 0 | 0 |
| of which: restructuring
expenses allocated from CC – Services | 26 | 22 | 33 | | | 47 | 67 |
| Total operating expenses
(adjusted) | 1,802 | 1,729 | 1,643 | 4 | 10 | 3,531 | 3,297 |
| Business division operating
profit / (loss) before tax as reported | 304 | 302 | 242 | 1 | 26 | 606 | 453 |
| Business division operating
profit / (loss) before tax (adjusted) | 330 | 324 | 281 | 2 | 17 | 654 | 525 |
| Key performance
indicators⁷ | | | | | | | |
| Pre-tax profit growth (%) | 25.6 | 42.5 | 18.0 | | | 33.8 | (4.2) |
| Cost / income ratio (%) | 85.7 | 85.2 | 87.4 | | | 85.5 | 88.1 |
| Net new money growth (%) | (2.2) | 0.7 | 0.9 | | | (0.8) | 3.1 |
| Gross margin on invested assets (bps) | 73 | 73 | 72 | 0 | 1 | 73 | 73 |
| Net margin on invested assets (bps) | 10 | 11 | 9 | (9) | 11 | 11 | 9 |
| Adjusted key performance
indicators⁶˒⁷ | | | | | | | |
| Pre-tax profit growth (%) | 17.4 | 32.2 | 21.6 | | | 24.6 | 0.2 |
| Cost / income ratio (%) | 84.5 | 84.2 | 85.4 | | | 84.3 | 86.2 |
| Net new money growth (%) | (2.2) | 0.7 | 0.9 | | | (0.8) | 3.1 |
| Gross margin on invested assets (bps) | 73 | 73 | 72 | 0 | 1 | 73 | 73 |
| Net margin on invested assets (bps) | 11 | 11 | 11 | 0 | 0 | 11 | 10 |

Wealth Management Americas – in US dollars (continued)¹
	As of or for the quarter ended			% change from		Year-to-date
USD million, except where
indicated	30.6.17	31.3.17	30.6.16	1Q17	2Q16	30.6.17	30.6.16
Additional information
Recurring income⁸	1,737	1,654	1,547	5	12	3,390	3,080
Recurring income as a percentage of income (%)	81.4	80.5	80.4			81.0	80.5
Average attributed equity (USD billion)⁹	6.8	6.7	2.6	1	162	6.8	2.6
Return on attributed equity (%)⁹	18.0	17.9	37.2			18.0	35.5
Return on attributed tangible equity (%)⁹	40.5	40.8				40.6
Risk-weighted assets (USD billion)⁹	26.1	25.0	23.2	4	13	26.1	23.2
of which: held by Wealth
Management Americas (USD billion)	25.2	24.0	23.2	5	9	25.2	23.2
of which: held by CC – Group
ALM on behalf of Wealth Management Americas (USD billion)¹⁰	1.0	1.0		0		1.0
Leverage ratio denominator (USD billion)⁹	85.4	91.2	65.2	(6)	31	85.4	65.2
of which: held by Wealth
Management Americas (USD billion)	69.4	67.7	65.2	3	6	69.4	65.2
of which: held by CC – Group
ALM on behalf of Wealth Management Americas (USD billion)¹⁰	16.0	23.4		(32)		16.0
Goodwill and intangible assets (USD billion)	3.6	3.6	3.7	0	(3)	3.6	3.7
Net new money (USD billion)	(6.4)	1.9	2.4			(4.4)	15.9
Net new money including interest and dividend income (USD
billion)¹¹	0.5	7.8	8.4			8.2	27.5
Invested assets (USD billion)	1,169	1,153	1,077	1	9	1,169	1,077
Client assets (USD billion)	1,215	1,198	1,127	1	8	1,215	1,127
Loans, gross (USD billion)	53.0	51.5	50.1	3	6	53.0	50.1
Due to customers (USD billion)	74.9	85.4	84.9	(12)	(12)	74.9	84.9
Recruitment loans to financial advisors	2,754	2,946	3,234	(7)	(15)	2,754	3,234
Other loans to financial advisors	581	565	501	3	16	581	501
Personnel (full-time equivalents)	13,518	13,544	13,643	0	(1)	13,518	13,643
Financial advisors (full-time equivalents)	6,915	6,969	7,116	(1)	(3)	6,915	7,116
1 Comparative figures in this table may differ from those
originally published in quarterly and annual reports due to adjustments
following organizational changes, restatements due to the retrospective
adoption of new accounting standards or changes in accounting policies, and
events after the reporting period. 2 Recurring net fee income consists of
fees for services provided on an ongoing basis such as portfolio management
fees, asset-based investment fund fees, custody fees and account-keeping
fees, which are generated on client assets. 3 Transaction-based income
consists of the non-recurring portion of net fee and commission income,
mainly consisting of brokerage and transaction-based investment fund fees as
well as credit card fees and fees for payment transactions, together with net
trading income. 4 Financial advisor compensation consists of grid-based
compensation based directly on compensable revenues generated by financial
advisors and supplemental compensation calculated on the basis of financial
advisor productivity, firm tenure, assets and other variables. 5
Compensation commitments with recruited financial advisors represent expenses
related to compensation commitments granted to financial advisors at the time
of recruitment that are subject to vesting requirements. 6 Adjusted
results are non-GAAP financial measures as defined by SEC regulations. 7
Refer to the “Measurement of performance” section of our Annual Report 2016 for
the definitions of our key performance indicators. 8 Recurring income
consists of net interest income and recurring net fee income. 9 Refer to
the “Capital management” section of this report for more information. 10
Represents risk-weighted assets and leverage ratio denominator held by
Corporate Center – Group ALM that are directly associated with activity
managed centrally on behalf of the business divisions and other Corporate
Center units. For the purpose of attributing equity under the revised
framework effective as of 1 January 2017, these resources are allocated
to the business divisions and other Corporate Center units, primarily based
on the level of high-quality liquid assets needed to meet the Group’s minimum
liquidity coverage ratio requirement of 110%. Refer to “Equity attribution
framework” in the “Capital management” section of our Annual Report 2016 for
more information. 11 Presented in line with historical reporting practice
in the US market.

Wealth Management Americas

Results: 2Q17 vs 2Q16

Profit before tax increased by USD 62 million or 26% to USD 304 million and adjusted profit before tax increased by USD 49 million or 17% to USD 330 million, driven by higher operating income, partly offset by higher operating expenses.

Operating income

Total operating income increased by USD 208 million or 11% to USD 2,132 million, mainly reflecting higher recurring net fee income and net interest income.

Net interest income increased by USD 72 million to USD 429 million, mainly due to higher short-term US dollar interest rates as well as growth in loan balances. The average mortgage portfolio balance increased 19% and the average securities-backed lending portfolio balance increased 2%.

Recurring net fee income increased by USD 117 million to USD 1,308 million, mainly due to increased invested assets in managed accounts.

Transaction-based income increased by USD 21 million to USD 390 million due to higher client activity.

Operating expenses

Total operating expenses increased by USD 146 million or 9% to USD 1,828 million and adjusted operating expenses increased by USD 159 million or 10% to USD 1,802 million.

Personnel expenses increased by USD 92 million to USD 1,316 million and increased by USD 97 million on an adjusted basis, mainly due to USD 106 million higher financial advisor compensation, reflecting higher compensable revenues and changes to their grid-based compensation, partly offset by lower expenses for compensation commitments with recruited financial advisors.

General and administrative expenses increased by USD 46 million to USD 183 million, mainly due to USD 26 million higher net expenses for provisions for litigation, regulatory and similar matters, increased legal fees and higher expenses for travel and entertainment.

Net expenses for services from Corporate Center and other business divisions increased by USD 12 million to USD 319 million and increased by USD 19 million to USD 293 million on an adjusted basis, mainly reflecting higher costs related to strategic and regulatory initiatives and Group Technology.

Net new money: 2Q17 vs 2Q16

Net new money outflows were USD 6.4 billion in the second quarter of 2017, mainly reflecting net outflows related to financial advisor attrition and net outflows from financial advisors employed by UBS for more than one year. These outflows included seasonal income tax payments of approximately USD 3.3 billion compared with USD 3.1 billion in the second quarter of 2016. In the same quarter last year, net new money was USD 2.4 billion, predominantly related to inflows from net recruiting . The annualized net new money growth rate was negative 2.2% compared with positive 0.9%.

Invested assets: 2Q17 vs 1Q17

Invested assets increased by USD 16 billion to USD 1,169 billion, reflecting positive market performance of USD 22 billion, partly offset by net new money outflows of USD 6 billion. Discretionary and advisory mandate penetration increased to 35.8% from 35.2%.

Results: 6M17 vs 6M16

Profit before tax increased by USD 153 million or 34% to USD 606 million and adjusted profit before tax increased by USD 129 million or 25% to USD 654 million, driven by higher operating income, partly offset by higher operating expenses.

Total operating income increased by USD 363 million or 9% to USD 4,186 million. Net interest income increased by USD 130 million to USD 838 million, reflecting higher US short-term interest rates as well as growth in loan balances. Recurring net fee income increased by USD 180 million to USD 2,552 million, mainly due to higher managed account fees on increased invested assets. Transaction-based income increased by USD 56 million to USD 786 million, reflecting higher client activity.

Total operating expenses increased by USD 210 million or 6% to USD 3,579 million and adjusted operating expenses increased by USD 234 million or 7% to USD 3,531 million. Personnel expenses increased by USD 168 million to USD 2,600 million and increased by USD 173 million on an adjusted basis, mainly due to USD 182 million higher financial advisor compensation, reflecting higher compensable revenues and changes to their grid-based compensation, as well as higher salaries and other personnel costs, partly offset by lower expenses for compensation commitments. General and administrative expenses increased by USD 45 million to USD 327 million, mainly due to USD 41 million higher net expenses for provisions for litigation, regulatory and similar matters. Net expenses for services from Corporate Center and other business divisions increased by USD 2 million to USD 630 million and increased by USD 22 million to USD 583 million on an adjusted basis, mainly reflecting higher costs related to strategic and regulatory initiatives and Group Technology.

Wealth Management Americas – in Swiss francs¹
	As of or for the quarter ended			% change from		Year-to-date
CHF million, except where
indicated	30.6.17	31.3.17	30.6.16	1Q17	2Q16	30.6.17	30.6.16
Results
Net interest income	418	409	348	2	20	827	698
Recurring net fee income²	1,274	1,242	1,163	3	10	2,516	2,339
Transaction-based income³	379	396	360	(4)	5	775	720
Other income	6	5	8	20	(25)	11	14
Income	2,078	2,051	1,880	1	11	4,129	3,771
Credit loss (expense) / recovery	0	(1)	(1)	(100)	(100)	(1)	(2)
Total operating income	2,077	2,051	1,879	1	11	4,128	3,769
Personnel expenses	1,282	1,283	1,195	0	7	2,565	2,398
Financial advisor compensation⁴	808	790	707	2	14	1,599	1,418
Compensation commitments with recruited financial
advisors⁵	184	197	204	(7)	(10)	381	402
Salaries and other personnel costs	290	295	284	(2)	2	585	577
General and administrative expenses	178	144	134	24	33	321	277
Services (to) / from Corporate Center and other business
divisions	310	311	300	0	3	622	618
of which: services from CC –
Services	304	308	297	(1)	2	612	611
Depreciation and impairment of property, equipment and software	1	1	0	0		1	1
Amortization and impairment of intangible assets	10	11	13	(9)	(23)	20	26
Total operating expenses	1,780	1,749	1,643	2	8	3,529	3,320
Business division operating
profit / (loss) before tax	297	301	237	(1)	25	599	448
Adjusted results⁶
Total operating income as
reported	2,077	2,051	1,879	1	11	4,128	3,769
Total operating income
(adjusted)	2,077	2,051	1,879	1	11	4,128	3,769
Total operating expenses as
reported	1,780	1,749	1,643	2	8	3,529	3,320
of which: personnel-related restructuring
expenses	0	0	5			0	5
of which:
non-personnel-related restructuring expenses	0	0	0			0	0
of which: restructuring
expenses allocated from CC – Services	25	22	33			47	66
Total operating expenses
(adjusted)	1,755	1,727	1,605	2	9	3,482	3,249
Business division operating
profit / (loss) before tax as reported	297	301	237	(1)	25	599	448
Business division operating
profit / (loss) before tax (adjusted)	322	323	275	0	17	646	519
Key performance
indicators⁷
Pre-tax profit growth (%)	25.3	42.7	24.1			33.7	0.7
Cost / income ratio (%)	85.7	85.3	87.4			85.5	88.0
Net new money growth (%)	(2.1)	0.7	0.9			(0.8)	3.1
Gross margin on invested assets (bps)	73	72	73	1	0	72	73
Net margin on invested assets (bps)	10	11	9	(9)	11	11	9
Adjusted key performance
indicators⁶˒⁷
Pre-tax profit growth (%)	17.1	32.4	27.9			24.5	5.3
Cost / income ratio (%)	84.5	84.2	85.4			84.3	86.2
Net new money growth (%)	(2.1)	0.7	0.9			(0.8)	3.1
Gross margin on invested assets (bps)	73	72	73	1	0	72	73
Net margin on invested assets (bps)	11	11	11	0	0	11	10

Wealth Management Americas

Wealth Management Americas – in Swiss francs (continued)¹
	As of or for the quarter ended			% change from		Year-to-date
CHF million, except where
indicated	30.6.17	31.3.17	30.6.16	1Q17	2Q16	30.6.17	30.6.16
Additional information
Recurring income⁸	1,692	1,651	1,512	2	12	3,343	3,037
Recurring income as a percentage of income (%)	81.4	80.5	80.4			81.0	80.5
Average attributed equity (CHF billion)⁹	6.6	6.7	2.5	(1)	164	6.7	2.5
Return on attributed equity (%)⁹	18.0	17.9	37.9			18.0	35.8
Return on attributed tangible equity (%)⁹	40.5	40.7				40.6
Risk-weighted assets (CHF billion)⁹	25.1	25.1	22.6	0	11	25.1	22.6
of which: held by Wealth
Management Americas (CHF billion)	24.2	24.1	22.6	0	7	24.2	22.6
of which: held by CC – Group
ALM on behalf of Wealth Management Americas (CHF billion)¹⁰	0.9	1.0		(10)		0.9
Leverage ratio denominator (CHF billion)⁹	81.9	91.3	63.7	(10)	29	81.9	63.7
of which: held by Wealth
Management Americas (CHF billion)	66.6	67.9	63.7	(2)	5	66.6	63.7
of which: held by CC – Group
ALM on behalf of Wealth Management Americas (CHF billion)¹⁰	15.3	23.5		(35)		15.3
Goodwill and intangible assets (CHF billion)	3.5	3.7	3.6	(5)	(3)	3.5	3.6
Net new money (CHF billion)	(6.2)	1.9	2.3			(4.3)	15.9
Net new money including interest and dividend income (CHF
billion)¹¹	0.5	7.8	8.2			8.2	27.3
Invested assets (CHF billion)	1,122	1,155	1,053	(3)	7	1,122	1,053
Client assets (CHF billion)	1,166	1,201	1,101	(3)	6	1,166	1,101
Loans, gross (CHF billion)	50.9	51.6	48.9	(1)	4	50.9	48.9
Due to customers (CHF billion)	71.8	85.6	83.0	(16)	(13)	71.8	83.0
Recruitment loans to financial advisors	2,643	2,952	3,161	(10)	(16)	2,643	3,161
Other loans to financial advisors	557	566	490	(2)	14	557	490
Personnel (full-time equivalents)	13,518	13,544	13,643	0	(1)	13,518	13,643
Financial advisors (full-time equivalents)	6,915	6,969	7,116	(1)	(3)	6,915	7,116
1 Comparative figures in this table may differ from those
originally published in quarterly and annual reports due to adjustments
following organizational changes, restatements due to the retrospective
adoption of new accounting standards or changes in accounting policies, and
events after the reporting period. 2 Recurring net fee income consists of
fees for services provided on an ongoing basis such as portfolio management
fees, asset-based investment fund fees, custody fees and account-keeping
fees, which are generated on client assets. 3 Transaction-based income
consists of the non-recurring portion of net fee and commission income,
mainly consisting of brokerage and transaction-based investment fund fees as
well as credit card fees and fees for payment transactions, together with net
trading income. 4 Financial advisor compensation consists of grid-based
compensation based directly on compensable revenues generated by financial
advisors and supplemental compensation calculated on the basis of financial
advisor productivity, firm tenure, assets and other variables. 5
Compensation commitments with recruited financial advisors represent expenses
related to compensation commitments granted to financial advisors at the time
of recruitment that are subject to vesting requirements. 6 Adjusted
results are non-GAAP financial measures as defined by SEC regulations. 7
Refer to the “Measurement of performance” section of our Annual Report 2016
for the definitions of our key performance indicators. 8 Recurring income
consists of net interest income and recurring net fee income. 9 Refer to
the “Capital management” section of this report for more information. 10
Represents risk-weighted assets and leverage ratio denominator held by
Corporate Center − Group ALM that are directly associated with activity
managed centrally on behalf of the business divisions and other Corporate
Center units. For the purpose of attributing equity under the revised
framework effective as of 1 January 2017, these resources are allocated
to the business divisions and other Corporate Center units, primarily based
on the level of high-quality liquid assets needed to meet the Group’s minimum
liquidity coverage ratio requirement of 110%. Refer to “Equity attribution
framework” in the “Capital management” section of our Annual Report 2016 for
more information. 11 Presented in line with historical reporting practice
in the US market.

Personal & Corporate Banking

| Personal & Corporate
Banking¹ | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- |
| | As of or for the quarter ended | | | % change from | | Year-to-date | |
| CHF million, except where
indicated | 30.6.17 | 31.3.17 | 30.6.16 | 1Q17 | 2Q16 | 30.6.17 | 30.6.16 |
| Results | | | | | | | |
| Net interest income | 525 | 514 | 558 | 2 | (6) | 1,038 | 1,117 |
| Recurring net fee income² | 151 | 139 | 140 | 9 | 8 | 290 | 279 |
| Transaction-based income³ | 272 | 262 | 254 | 4 | 7 | 534 | 498 |
| Other income | 16 | 36 | 131 | (56) | (88) | 52 | 151 |
| Income | 963 | 951 | 1,083 | 1 | (11) | 1,914 | 2,046 |
| Credit loss (expense) / recovery | (28) | 7 | 2 | | | (21) | 2 |
| Total operating income | 935 | 958 | 1,085 | (2) | (14) | 1,893 | 2,048 |
| Personnel expenses | 225 | 213 | 212 | 6 | 6 | 437 | 425 |
| General and administrative expenses | 75 | 59 | 60 | 27 | 25 | 134 | 121 |
| Services (to) / from Corporate Center and other business
divisions | 277 | 265 | 274 | 5 | 1 | 542 | 561 |
| of which: services from CC –
Services | 294 | 292 | 298 | 1 | (1) | 587 | 609 |
| Depreciation and impairment of property, equipment and software | 3 | 3 | 4 | 0 | (25) | 6 | 8 |
| Amortization and impairment of intangible assets | 0 | 0 | 0 | | | 0 | 0 |
| Total operating expenses | 579 | 540 | 551 | 7 | 5 | 1,119 | 1,115 |
| Business division operating
profit / (loss) before tax | 356 | 418 | 534 | (15) | (33) | 774 | 933 |
| Adjusted results⁴ | | | | | | | |
| Total operating income as
reported | 935 | 958 | 1,085 | (2) | (14) | 1,893 | 2,048 |
| of which: gain on sale of
financial assets available for sale⁵ | | | 102 | | | | 102 |
| Total operating income
(adjusted) | 935 | 958 | 983 | (2) | (5) | 1,893 | 1,946 |
| Total operating expenses as reported | 579 | 540 | 551 | 7 | 5 | 1,119 | 1,115 |
| of which: personnel-related
restructuring expenses | 2 | 2 | 1 | | | 4 | 1 |
| of which:
non-personnel-related restructuring expenses | 0 | 0 | 0 | | | 0 | 0 |
| of which: restructuring
expenses allocated from CC – Services | 21 | 17 | 30 | | | 38 | 54 |
| Total operating expenses
(adjusted) | 556 | 521 | 520 | 7 | 7 | 1,077 | 1,060 |
| Business division operating
profit / (loss) before tax as reported | 356 | 418 | 534 | (15) | (33) | 774 | 933 |
| Business division operating
profit / (loss) before tax (adjusted) | 379 | 437 | 463 | (13) | (18) | 816 | 886 |
| Key performance
indicators⁶ | | | | | | | |
| Pre-tax profit growth (%) | (33.3) | 4.8 | 34.5 | | | (17.0) | 13.2 |
| Cost / income ratio (%) | 60.1 | 56.8 | 50.9 | | | 58.5 | 54.5 |
| Net interest margin (bps) | 157 | 154 | 165 | 2 | (5) | 155 | 165 |
| Net new business volume growth for personal banking (%) | 4.5 | 6.7 | 3.0 | | | 5.6 | 3.9 |
| Adjusted key performance
indicators⁴˒⁶ | | | | | | | |
| Pre-tax profit growth (%) | (18.1) | 3.6 | 11.8 | | | (7.9) | 3.4 |
| Cost / income ratio (%) | 57.7 | 54.8 | 53.0 | | | 56.3 | 54.5 |
| Net interest margin (bps) | 157 | 154 | 165 | 2 | (5) | 155 | 165 |
| Net new business volume growth for personal banking (%) | 4.5 | 6.7 | 3.0 | | | 5.6 | 3.9 |

Personal & Corporate Banking

Personal & Corporate Banking (continued)¹
	As of or for the quarter ended			% change from		Year-to-date
CHF million, except where
indicated	30.6.17	31.3.17	30.6.16	1Q17	2Q16	30.6.17	30.6.16
Additional information
Average attributed equity (CHF billion)⁷	6.1	6.0	4.0	2	53	6.1	4.1
Return on attributed equity (%)⁷	23.4	27.7	53.4			25.6	46.1
Return on attributed tangible equity (%)⁷	23.4	27.7				25.6
Risk-weighted assets (CHF billion)⁷	47.9	45.5	36.9	5	30	47.9	36.9
of which: held by Personal
& Corporate Banking (CHF billion)	46.9	44.4	36.9	6	27	46.9	36.9
of which: held by CC – Group
ALM on behalf of Personal & Corporate Banking (CHF billion)⁸	1.1	1.1		0		1.1
Leverage ratio denominator (CHF billion)⁷	188.7	192.1	152.8	(2)	23	188.7	152.8
of which: held by Personal
& Corporate Banking (CHF billion)	149.5	151.0	152.8	(1)	(2)	149.5	152.8
of which: held by CC – Group
ALM on behalf of Personal & Corporate Banking (CHF billion)⁸	39.2	41.1		(5)		39.2
Business volume for personal banking (CHF billion)	153	152	148	1	3	153	148
Net new business volume for personal banking (CHF billion)	1.7	2.5	1.1			4.2	2.9
Client assets (CHF billion)⁹	651	648	608	0	7	651	608
Due to customers (CHF billion)	135.0	136.9	132.7	(1)	2	135.0	132.7
Loans, gross (CHF billion)	132.8	133.9	134.8	(1)	(1)	132.8	134.8
Secured loan portfolio as a percentage of total loan portfolio,
gross (%)	92.6	92.5	93.1			92.6	93.1
Impaired loan portfolio as a percentage of total loan portfolio,
gross (%)¹⁰	0.5	0.5	0.6			0.5	0.6
Personnel (full-time equivalents)	5,072	5,132	5,035	(1)	1	5,072	5,035
1 Comparative figures in this table may differ from those
originally published in quarterly and annual reports due to adjustments
following organizational changes, restatements due to the retrospective
adoption of new accounting standards or changes in accounting policies, and
events after the reporting period. 2 Recurring net fee income consists of
fees for services provided on an ongoing basis such as portfolio management
fees, asset-based investment fund fees, custody fees and account-keeping
fees, which are generated on client assets. 3 Transaction-based income
consists of the non-recurring portion of net fee and commission income,
mainly consisting of brokerage and transaction-based investment fund fees as
well as credit card fees and fees for payment transactions, together with net
trading income. 4 Adjusted results are non-GAAP financial measures as
defined by SEC regulations. 5 Reflects a gain on the sale of our
investment in Visa Europe. 6 Refer to the “Measurement of performance”
section of our Annual Report 2016 for the definitions of our key performance
indicators. 7 Refer to the “Capital management” section of this report for
more information. 8 Represents risk-weighted assets and leverage ratio
denominator held by Corporate Center – Group ALM that are directly associated
with activity managed centrally on behalf of the business divisions and other
Corporate Center units. For the purpose of attributing equity under the
revised framework effective as of 1 January 2017, these resources are
allocated to the business divisions and other Corporate Center units,
primarily based on the level of high-quality liquid assets needed to meet the
Group’s minimum liquidity coverage ratio requirement of 110%. Refer to
“Equity attribution framework” in the “Capital management” section of our
Annual Report 2016 for more information. 9 In the second quarter of 2017,
Personal & Corporate Banking implemented changes in its organizational
structure for asset servicing of large institutional clients. As a result, we
have changed our presentation of client assets within Personal &
Corporate Banking to include custody assets of certain corporate clients
serviced by Personal & Corporate Banking. This resulted in an increase in
client assets of CHF 169 billion and CHF 166 billion as of 31 March 2017 and
30 June 2016, respectively. The change in presentation had no impact on
invested assets or net new money attributable to Personal & Corporate
Banking, the Group or any of its other business divisions. 10 Refer to the
“Risk management and control” section of this report for more information on
impaired loan exposures.

Results : 2Q17 vs 2Q16

Profit before tax decreased by CHF 178 million or 33% to CHF 356 million and adjusted profit before tax decreased by CHF 84 million or 18% to CHF 379 million, mainly driven by lower operating income.

Operating income

Total operating income decreased by CHF 150 million or 14% to CHF 935 million. Excluding a gain of CHF 102 million on the sale of our investment in Visa Europe in the second quarter of 2016, adjusted operating income decreased by CHF 48 million or 5%, mainly due to lower net interest income and a net credit loss expense in the second quarter of 2017 compared with a net recovery, partly offset by higher transaction-based income and recurring net fee income.

Net interest income decreased by CHF 33 million to CHF 525 million due to lower treasury-related income from Corporate Center – Group Asset and Liability Management (Group ALM), reflecting higher funding costs for long-term debt that contributes to total loss-absorbing capacity and lower banking book interest income .

® Refer to the “Corporate Center – Group Asset and Liability Management” section of this report for more information

Recurring net fee income increased by CHF 11 million to CHF 151 million, mainly reflecting higher custody fees.

Transaction-based income increased by CHF 18 million to CHF 272 million, mainly due to higher credit card fees as well as an increase in foreign exchange transactions.

Other income decreased by CHF 115 million to CHF 16 million, mainly due to the aforementioned gain on the sale of our investment in Visa Europe in the prior-year quarter. Excluding this gain, adjusted other income decreased by CHF 13 million, partly due to lower income from our investments in associates.

Net credit loss expense was CHF 28 million compared with a net recovery of CHF 2 million, driven by a small number of newly impaired corporate client positions across a range of sectors.

Operating expenses

Total operating expenses increased by CHF 28 million or 5% to CHF 579 million and adjusted operating expenses increased by CHF 36 million or 7% to CHF 556 million. Personnel expenses increased by CHF 13 million to CHF 225 million and increased by CHF 12 million to CHF 223 million on an adjusted basis, mainly due to higher variable compensation expenses. General and administrative expenses increased by CHF 15 million to CHF 75 million, mainly reflecting higher IT project-related costs. Net expenses for services from Corporate Center and other business divisions increased by CHF 3 million and increased by CHF 12 million on an adjusted basis, mainly reflecting higher costs for services received from Wealth Management and an increase related to strategic and regulatory initiatives.

Net new business volume growth for personal banking: 2Q17 vs 2Q16

The annualized net new business volume growth rate for our personal banking business was 4.5% compared with 3.0%. Net new client assets and, to a lesser extent, net new loans were positive.

Results: 6M17 vs 6M16

Profit before tax decreased by CHF 159 million or 17% to CHF 774 million and adjusted profit before tax decreased by CHF 70 million or 8% to CHF 816 million, mainly reflecting lower net interest income.

Total operating income decreased by CHF 155 million or 8% to CHF 1,893 million. Excluding the aforementioned gain on the sale of our investment in Visa Europe, adjusted operating income decreased by CHF 53 million or 3%. Net interest income decreased by CHF 79 million to CHF 1,038 million, driven by lower treasury-related income from Corporate Center – Group ALM.

® Refer to the “Corporate Center – Group Asset and Liability Management” section of this report for more information

Recurring net fee income increased by CHF 11 million to CHF 290 million, mainly reflecting higher custody fees. Transaction-based income increased by CHF 36 million to CHF 534 million, mainly due to higher corporate and trade finance fees as well as credit card fees. Excluding the aforementioned gain on the sale of our investment in Visa Europe, adjusted other income was broadly stable at CHF 52 million. Net credit loss expense was CHF 21 million compared with a net recovery of CHF 2 million. The net expense in the first half of 2017 was mainly related to allowances for newly impaired positions across a range of sectors. In the prior year, net recoveries related to previously impaired positions were almost entirely offset by expenses for allowances for newly impaired positions.

Total operating expenses increased by CHF 4 million to CHF 1,119 million and adjusted operating expenses increased by CHF 17 million or 2% to CHF 1,077 million. Personnel expenses increased by CHF 12 million to CHF 437 million and increased by CHF 9 million to CHF 433 million on an adjusted basis, mainly due to higher variable compensation expenses. General and administrative expenses increased by CHF 13 million to CHF 134 million, mainly reflecting higher IT project-related costs. Net expenses for services from Corporate Center and other business divisions decreased by CHF 19 million and decreased by CHF 3 million on an adjusted basis.

Asset Management

Asset Management¹
	As of or for the quarter ended			% change from		Year-to-date
CHF million, except where
indicated	30.6.17	31.3.17	30.6.16	1Q17	2Q16	30.6.17	30.6.16
Results
Net management fees²	443	423	458	5	(3)	866	904
Performance fees	36	26	24	38	50	62	47
Total operating income	479	450	483	6	(1)	929	951
Personnel expenses	196	162	184	21	7	357	367
General and administrative expenses	52	57	58	(9)	(10)	109	115
Services (to) / from Corporate Center and other business
divisions	120	127	125	(6)	(4)	247	262
of which: services from CC –
Services	131	135	132	(3)	(1)	266	275
Depreciation and impairment of property, equipment and software	0	0	0			1	1
Amortization and impairment of intangible assets	1	1	1	0	0	2	2
Total operating expenses	369	347	369	6	0	716	747
Business division operating
profit / (loss) before tax	110	103	114	7	(4)	213	204
Adjusted results³
Total operating income as
reported	479	450	483	6	(1)	929	951
Total operating income
(adjusted)	479	450	483	6	(1)	929	951
Total operating expenses as
reported	369	347	369	6	0	716	747
of which: personnel-related
restructuring expenses	3	2	4			5	5
of which:
non-personnel-related restructuring expenses	6	5	6			11	8
of which: restructuring expenses
allocated from CC – Services	15	13	24			28	41
Total operating expenses
(adjusted)	346	327	335	6	3	673	693
Business division operating
profit / (loss) before tax as reported	110	103	114	7	(4)	213	204
Business division operating
profit / (loss) before tax (adjusted)	133	123	148	8	(10)	256	258
Key performance
indicators⁴
Pre-tax profit growth (%)	(3.5)	14.4	(12.3)			4.4	(31.8)
Cost / income ratio (%)	77.0	77.1	76.4			77.1	78.5
Net new money growth excluding money market flows (%)	6.5	13.3	(6.2)			10.1	(5.0)
Gross margin on invested assets (bps)	27	27	31	0	(13)	27	30
Net margin on invested assets (bps)	6	6	7	0	(14)	6	6
Adjusted key performance
indicators³˒⁴
Pre-tax profit growth (%)	(10.1)	11.8	10.4			(0.8)	(19.6)
Cost / income ratio (%)	72.2	72.7	69.4			72.4	72.9
Net new money growth excluding money market flows (%)	6.5	13.3	(6.2)			10.1	(5.0)
Gross margin on invested assets (bps)	27	27	31	0	(13)	27	30
Net margin on invested assets (bps)	8	7	9	14	(11)	7	8
Information by business line
/ asset class
Net new money (CHF billion)
Equities	4.0	10.0	(0.8)			14.0	(1.9)
Fixed Income	2.6	9.6	(4.4)			12.3	(8.1)
of which: money market	0.5	3.2	1.1			3.7	4.1
Multi Assets & Solutions	2.5	1.5	(3.3)			4.1	(2.2)
Hedge Fund Businesses	0.8	0.7	0.3			1.5	0.8
Real Estate & Private Markets	0.7	1.1	0.4			1.8	0.8
Total net new money	10.7	22.9	(7.7)			33.6	(10.6)

Asset Management (continued)¹
	As of or for the quarter ended			% change from		Year-to-date
CHF million, except where
indicated	30.6.17	31.3.17	30.6.16	1Q17	2Q16	30.6.17	30.6.16
Invested assets (CHF
billion)
Equities	255	242	209	5	22	255	209
Fixed Income	217	221	204	(2)	6	217	204
of which: money market	67	69	61	(3)	10	67	61
Multi Assets & Solutions	124	127	118	(2)	5	124	118
Hedge Fund Businesses	39	40	38	(3)	3	39	38
Real Estate & Private Markets	68	68	63	0	8	68	63
Total invested assets	703	697	633	1	11	703	633
of which: passive strategies	247	236	190	5	30	247	190
Information by region
Invested assets (CHF
billion)
Americas	164	164	152	0	8	164	152
Asia Pacific	144	149	128	(3)	13	144	128
Europe, Middle East and Africa	156	147	133	6	17	156	133
Switzerland	239	238	220	0	9	239	220
Total invested assets	703	697	633	1	11	703	633
Information by channel
Invested assets (CHF
billion)
Third-party institutional	436	431	379	1	15	436	379
Third-party wholesale	75	74	69	1	9	75	69
UBS’s wealth management businesses	192	192	185	0	4	192	185
Total invested assets	703	697	633	1	11	703	633
Assets under administration
Assets under administration (CHF billion)⁵	441	439	417	0	6	441	417
Net new assets under administration (CHF billion)⁶	(0.8)	8.4	2.5			7.6	10.3
Gross margin on assets under administration (bps)	3	3	3	0	0	3	3
Additional information
Average attributed equity (CHF billion)⁷	1.7	1.7	1.4	0	21	1.7	1.4
Return on attributed equity (%)⁷	26.1	24.1	32.6			25.0	29.1
Return on attributed tangible equity (%)⁷	144.3	133.3				135.8
Risk-weighted assets (CHF billion)⁷	4.1	4.1	2.4	0	71	4.1	2.4
of which: held by Asset
Management (CHF billion)	4.0	4.1	2.4	(2)	67	4.0	2.4
of which: held by CC – Group
ALM on behalf of Asset Management (CHF billion)⁸	0.1	0.1		0		0.1
Leverage ratio denominator (CHF billion)⁷	4.4	4.8	2.6	(8)	69	4.4	2.6
of which: held by Asset
Management (CHF billion)	2.5	2.7	2.6	(7)	(4)	2.5	2.6
of which: held by CC – Group
ALM on behalf of Asset Management (CHF billion)⁸	1.9	2.1		(10)		1.9
Goodwill and intangible assets (CHF billion)	1.4	1.4	1.4	0	0	1.4	1.4
Personnel (full-time equivalents)	2,300	2,306	2,340	0	(2)	2,300	2,340
1 Comparative figures in this table may differ from those
originally published in quarterly and annual reports due to adjustments
following organizational changes, restatements due to the retrospective
adoption of new accounting standards or changes in accounting policies, and
events after the reporting period. 2 Net management fees include
transaction fees, fund administration revenues (including net interest and
trading income from lending activities and foreign exchange hedging as part
of the fund services offering), gains or losses from seed money and
co-investments, funding costs, gains and losses on the sale of subsidiaries
and businesses and other items that are not performance fees. 3 Adjusted
results are non-GAAP financial measures as defined by SEC regulations. 4
Refer to the “Measurement of performance” section of our Annual Report 2016
for the definitions of our key performance indicators. 5 Includes UBS and
third-party fund assets, for which the fund services unit provides
professional services, including fund setup, accounting and reporting for
traditional investment funds and alternative funds. 6 Inflows of assets
under administration from new and existing funds less outflows from existing
funds or fund exits. 7 Refer to the “Capital management” section of
this report for more information. 8 Represents risk-weighted assets and
leverage ratio denominator held by Corporate Center – Group ALM that are directly
associated with activity managed centrally on behalf of the business
divisions and other Corporate Center units. For the purpose of attributing
equity under the revised framework effective as of 1 January 2017, these
resources are allocated to the business divisions and other Corporate Center
units, primarily based on the level of high-quality liquid assets needed to
meet the Group’s minimum liquidity coverage ratio requirement of 110%. Refer
to “Equity attribution framework” in the “Capital management” section of our
Annual Report 2016 for more information.

Asset Management

Results: 2Q17 vs 2Q16

Profit before tax decreased by CHF 4 million or 4% to CHF 110 million and adjusted profit before tax decreased by CHF 15 million or 10% to CHF 133 million, mainly reflecting higher operating expenses.

Operating income

Total operating income decreased by CHF 4 million or 1% to CHF 479 million. Net management fees declined by CHF 15 million despite a higher asset base, reflecting ongoing margin compression due to client shifts to passive investment allocation strategies, lower transaction fees and increased custody fees recognized as contra-revenues. This decrease was partly offset by higher performance fees, which increased by CHF 12 million to CHF 36 million across our hedge fund businesses and Equities.

As of 30 June 2017, approximately 79% of performance fee-eligible assets within our hedge fund businesses exceeded high-water marks compared with 1%, reflecting improved performance in our multi- and single-manager hedge funds.

Operating expenses

Total operating expenses were unchanged at CHF 369 million. Adjusted operating expenses increased by CHF 11 million or 3% to CHF 346 million, mainly as adjusted personnel expenses increased by CHF 13 million, driven by higher variable compensation expenses, partly offset by lower salary expenses. Adjusted general and administrative expenses decreased by CHF 6 million due to lower professional fees and marketing expenses. Adjusted net expenses for services from Corporate Center and other business divisions increased by CHF 4 million to CHF 105 million.

Net new money: 2Q17 vs 2Q16

Excluding money market flows, net new money was CHF 10.2 billion compared with net outflows of CHF 8.8 billion, which resulted in an annualized net new money growth rate of positive 6.5% compared with negative 6.2%. Net new money in the second quarter of 2017 was fairly well diversified in terms of clients and regions. Lower-margin passive mandates represented the majority of net new money in the second quarter of 2017. This trend has had, and is expected to continue to have, a dampening effect on gross margins.

Invested assets: 2Q17 vs 1Q17

Invested assets increased to CHF 703 billion from CHF 697 billion, reflecting net new money of CHF 11 billion, including money market flows, and positive market performance of CHF 11 billion, largely offset by negative foreign currency translation effects of CHF 16 billion, mainly driven by the weakening of the US dollar against the Swiss franc.

Assets under administration: 2Q17 vs 1Q17

Total assets under administration increased to CHF 441 billion from CHF 439 billion, reflecting positive market performance of CHF 5 billion, partly offset by negative foreign currency translation effects of CHF 3 billion and net new assets under administration outflows of CHF 1 billion.

The announced sale of Asset Management’s fund administration servicing units to Northern Trust is expected to close in the second half of 2017, subject to relevant approvals and other customary conditions.

Results: 6M17 vs 6M16

Profit before tax increased by CHF 9 million or 4% to CHF 213 million, while adjusted profit before tax was broadly unchanged at CHF 256 million as lower operating income was offset by lower adjusted operating expenses.

Total operating income decreased by CHF 22 million or 2% to CHF 929 million, mainly due to CHF 38 million lower net management fees, reflecting margin compression due to client shifts to passive investment allocation strategies and lower transaction fees, an impairment loss of CHF 12 million on a co-investment in an infrastructure fund and increased custody fees recognized as contra-revenues. Performance fees increased by CHF 15 million across our hedge fund businesses .

Total operating expenses decreased by CHF 31 million or 4% to CHF 716 million and adjusted operating expenses decreased by CHF 20 million or 3% to CHF 673 million. Adjusted personnel expenses decreased by CHF 10 million, driven by lower salary expenses, partly offset by higher variable compensation expenses. Adjusted general and administrative expenses decreased by CHF 9 million, primarily due to lower professional fees. Adjusted net expenses for services from Corporate Center and other business divisions decreased by CHF 2 million to CHF 219 million.

Investment Bank

Investment Bank¹
	As of or for the quarter ended			% change from		Year-to-date
CHF million, except where
indicated	30.6.17	31.3.17	30.6.16	1Q17	2Q16	30.6.17	30.6.16
Results
Corporate Client Solutions	732	718	668	2	10	1,450	1,142
Advisory	164	166	166	(1)	(1)	330	298
Equity Capital Markets	289	252	195	15	48	542	348
Debt Capital Markets	179	210	237	(15)	(24)	389	382
Financing Solutions	90	93	98	(3)	(8)	183	159
Risk Management	10	(3)	(27)			7	(45)
Investor Client Services	1,300	1,387	1,339	(6)	(3)	2,687	2,742
Equities	928	934	878	(1)	6	1,862	1,798
Foreign Exchange, Rates and Credit	373	452	461	(17)	(19)	825	943
Income	2,032	2,104	2,006	(3)	1	4,137	3,883
Credit loss (expense) / recovery	(6)	(6)	(6)	0	0	(12)	(5)
Total operating income	2,026	2,098	2,000	(3)	1	4,124	3,879
Personnel expenses	773	818	828	(6)	(7)	1,591	1,555
General and administrative expenses	127	130	192	(2)	(34)	256	362
Services (to) / from Corporate Center and other business
divisions	671	665	687	1	(2)	1,335	1,405
of which: services from CC –
Services	647	641	661	1	(2)	1,287	1,352
Depreciation and impairment of property, equipment and software	2	3	6	(33)	(67)	5	13
Amortization and impairment of intangible assets	3	3	3	0	0	6	6
Total operating expenses	1,575	1,619	1,716	(3)	(8)	3,194	3,342
Business division operating
profit / (loss) before tax	451	480	284	(6)	59	931	537
Adjusted results²
Total operating income as
reported	2,026	2,098	2,000	(3)	1	4,124	3,879
of which: gain on sale of
financial assets available for sale³	107					107
Total operating income
(adjusted)	1,919	2,098	2,000	(9)	(4)	4,017	3,879
Total operating expenses as
reported	1,575	1,619	1,716	(3)	(8)	3,194	3,342
of which: personnel-related
restructuring expenses	4	18	37			22	54
of which:
non-personnel-related restructuring expenses	3	2	4			6	6
of which: restructuring
expenses allocated from CC – Services	67	57	122			124	220
Total operating expenses
(adjusted)	1,500	1,541	1,553	(3)	(3)	3,042	3,062
Business division operating
profit / (loss) before tax as reported	451	480	284	(6)	59	931	537
Business division operating
profit / (loss) before tax (adjusted)	419	558	447	(25)	(6)	976	817
Key performance
indicators⁴
Pre-tax profit growth (%)	58.8	89.7	(48.5)			73.4	(59.2)
Cost / income ratio (%)	77.5	76.9	85.5			77.2	86.1
Return on attributed equity (%)⁵	19.7	21.0	14.8			20.4	13.9
Adjusted key performance
indicators²˒⁴
Pre-tax profit growth (%)	(6.3)	50.8	(27.6)			19.5	(43.8)
Cost / income ratio (%)	77.9	73.2	77.4			75.5	78.9
Return on attributed equity (%)⁵	18.3	24.4	23.2			21.4	21.2

Investment Bank

Investment Bank (continued)¹
	As of or for the quarter ended			% change from		Year-to-date
CHF million, except where
indicated	30.6.17	31.3.17	30.6.16	1Q17	2Q16	30.6.17	30.6.16
Additional information
Total assets (CHF billion)⁶	232.9	228.6	282.2	2	(17)	232.9	282.2
Average attributed equity (CHF billion)⁵	9.1	9.1	7.7	0	18	9.1	7.7
Return on attributed tangible equity (%)⁵	20.0	21.4				20.7
Risk-weighted assets (CHF billion)⁵	75.7	66.2	63.8	14	19	75.7	63.8
of which: held by the
Investment Bank (CHF billion)	74.9	65.4	63.8	15	17	74.9	63.8
of which: held by CC – Group
ALM on behalf of the Investment Bank (CHF billion)⁷	0.7	0.8		(13)		0.7
Return on risk-weighted assets, gross (%)⁸	11.5	12.3	12.6			11.9	12.3
Leverage ratio denominator (CHF billion)⁵	267.4	277.5	267.2	(4)	0	267.4	267.2
of which: held by the
Investment Bank (CHF billion)	239.7	245.1	267.2	(2)	(10)	239.7	267.2
of which: held by CC – Group
ALM on behalf of the Investment Bank (CHF billion)⁷	27.6	32.4		(15)		27.6
Return on leverage ratio denominator, gross (%)⁸	3.0	3.3	3.0			3.1	2.9
Goodwill and intangible assets (CHF billion)	0.1	0.1	0.1	0	0	0.1	0.1
Compensation ratio (%)	38.0	38.9	41.3			38.5	40.0
Average VaR (1-day, 95% confidence, 5 years of historical data)	10	8	9	25	11	9	10
Impaired loan portfolio as a percentage of total loan portfolio,
gross (%)⁹	1.0	0.9	1.4			1.0	1.4
Personnel (full-time equivalents)	4,748	4,851	5,014	(2)	(5)	4,748	5,014
1 Comparative figures in this table may differ from those
originally published in quarterly and annual reports due to adjustments
following organizational changes, restatements due to retrospective adoption
of new accounting standards or changes in accounting policies, and events
after the reporting period. 2 Adjusted results are non-GAAP financial
measures as defined by SEC regulations. 3 Reflects a gain on the sale of
our remaining investment in IHS Markit. 4 Refer to the “Measurement of
performance” section of our Annual Report 2016 for the definitions of our key
performance indicators. 5 Refer to the “Capital management” section of
this report for more information. 6 Based on third-party view, i.e.,
without intercompany balances. 7 Represents risk-weighted assets (RWA) and
leverage ratio denominator (LRD) held by Corporate Center – Group ALM that
are directly associated with activity managed centrally on behalf of the
business divisions and other Corporate Center units. For the purpose of
attributing equity under the revised framework effective as of 1 January
2017, these resources are allocated to the business divisions and other
Corporate Center units, primarily based on the level of high-quality liquid
assets needed to meet the Group’s minimum liquidity coverage ratio
requirement of 110%. Refer to “Equity attribution framework” in the “Capital
management” section of our Annual Report 2016 for more information. 8
Based on total RWA and LRD. Figures for periods prior to 31 March 2017 are
based on RWA and LRD held by the Investment Bank and are therefore not fully
comparable. 9 Refer to the “Risk management and control” section of this
report for more information on impaired loan exposures.

Results: 2Q17 vs 2Q16

Profit before tax increased by CHF 167 million or 59% to CHF 451 million, while adjusted profit before tax decreased by CHF 28 million or 6% to CHF 419 million, primarily as a result of lower revenues in Foreign Exchange, Rates and Credit.

Operating income

Total operating income increased by CHF 26 million or 1% to CHF 2,026 million. Excluding a gain of CHF 107 million on the sale of our remaining investment in IHS Markit, adjusted operating income decreased by CHF 81 million or 4% to CHF 1,919 million, mainly as a result of lower revenues in Foreign Exchange, Rates and Credit and, to a lesser extent, in Debt Capital Markets, partly offset by higher Equity Capital Markets and Equities revenues. In US dollar terms, adjusted operating income also decreased 4%.

Operating income by business unit:

Corporate Client Solutions

Corporate Client Solutions revenues increased by CHF 64 million or 10% to CHF 732 million, reflecting higher revenues in Equity Capital Markets and Risk Management, partly offset by lower revenues in Debt Capital Markets. In US dollar terms, revenues also increased 10%.

Advisory revenues were broadly unchanged at CHF 164 million, with lower revenues from merger and acquisition transactions, in line with a global fee pool decrease of 5%, largely offset by higher revenues from private transactions.

Equity Capital Markets revenues increased to CHF 289 million from CHF 195 million, due to higher revenues from private transactions as well as from public offerings, where the global fee pool increased 18%.

Debt Capital Markets revenues decreased to CHF 179 million from CHF 237 million. This decrease was primarily driven by lower leveraged finance revenues compared with a strong prior-year quarter, and a global fee pool decrease of 6%.

Financing Solutions revenues decreased by CHF 8 million to CHF 90 million.

Risk Management revenues were positive CHF 10 million compared with negative CHF 27 million, mainly due to lower losses on portfolio hedges.

Investor Client Services

Investor Client Services revenues decreased by CHF 39 million or 3% to CHF 1,300 million. Excluding the aforementioned gain on sale of CHF 107 million, Investor Client Services revenues decreased by CHF 146 million or 11% to CHF 1,193 million, due to a decrease in Foreign Exchange, Rates and Credit revenues, partly offset by higher Equities revenues. In US dollar terms, adjusted revenues also decreased 11%.

Equities

Equities revenues increased to CHF 928 million from CHF 878 million. Excluding a gain of CHF 27 million on the aforementioned sale, adjusted revenues increased by CHF 23 million to CHF 901 million, driven by higher revenues in Derivatives.

Adjusted Cash revenues decreased to CHF 293 million from CHF 308 million, mainly due to lower client activity and weaker client trading revenues.

Derivatives revenues increased to CHF 219 million from CHF 144 million, reflecting increased client activity and improved trading performance.

Financing Services revenues decreased to CHF 395 million from CHF 424 million, driven by lower client activity.

Foreign Exchange, Rates and Credit

Foreign Exchange, Rates and Credit revenues decreased to CHF 373 million from CHF 461 million. Excluding a gain of CHF 80 million on the aforementioned sale, adjusted revenues decreased to CHF 293 million from CHF 461 million, with decreases across the majority of products. This decrease was mainly due to lower client activity and low market volatility levels compared with a strong prior-year quarter that benefited from increased trading volumes related to the UK referendum on EU membership.

Operating expenses

Total operating expenses decreased by CHF 141 million or 8% to CHF 1,575 million and adjusted operating expenses decreased by CHF 53 million or 3% to CHF 1,500 million.

Personnel expenses decreased to CHF 773 million from CHF 828 million and adjusted personnel expenses decreased to CHF 769 million from CHF 791 million, mainly due to lower salary expenses, primarily as a result of our cost reduction programs, partly offset by an increase in variable compensation expenses.

General and administrative expenses decreased by CHF 65 million to CHF 127 million and decreased by CHF 64 million to CHF 124 million on an adjusted basis, as the second quarter of 2017 included a UK bank levy credit of CHF 28 million related to prior years and CHF 26 million lower net expenses for provisions for litigation, regulatory and similar matters.

Net expenses for services from Corporate Center and other business divisions decreased to CHF 671 million from CHF 687 million, while adjusted net expenses increased to CHF 604 million from CHF 565 million, mainly due to higher net expenses from Group Technology.

Risk-weighted assets and leverage ratio denominator: 2Q17 vs 1Q17

Risk-weighted assets

Total risk-weighted assets (RWA), including RWA held by Corporate Center – Group Asset and Liability Management (Group ALM) on behalf of the Investment Bank, increased by CHF 10 billion to CHF 76 billion as of 30 June 2017, mainly due to an increase in credit risk and market risk RWA. Total RWA remained below our short- to medium-term expectation of around CHF 85 billion.

® Refer to the “Capital management” section of this report for more information

Leverage ratio denominator

The leverage ratio denominator (LRD), including LRD held by Corporate Center – Group ALM on behalf of the Investment Bank, decreased by CHF 10 billion to CHF 267 billion as of 30 June 2017 and remained below our short- to medium-term expectation of around CHF 325 billion .

® Refer to the “Capital management” and “Balance sheet, liquidity and funding management” sections of this report for more information

Investment Bank

Results: 6M17 vs 6M16

Profit before tax increased by CHF 394 million or 73% to CHF 931 million and adjusted profit before tax increased by CHF 159 million or 19% to CHF 976 million, mainly as a result of higher revenues in Corporate Client Solutions, partly offset by lower Investor Client Services revenues.

Revenues in Corporate Client Solutions increased 27% to CHF 1,450 million from CHF 1,142 million. Advisory revenues increased by CHF 32 million to CHF 330 million, reflecting higher revenues from merger and acquisition transactions. Equity Capital Markets revenues increased to CHF 542 million from CHF 348 million, due to increases in revenues from public offerings, as the fee pool increased 43%, as well as higher revenues from private transactions. Debt Capital Markets revenues increased slightly to CHF 389 million. Financing Solutions revenues increased to CHF 183 million from CHF 159 million, reflecting revenue growth across our structured and real estate finance businesses. Risk Management revenues were positive CHF 7 million compared with negative CHF 45 million, reflecting lower losses on portfolio hedges . In US dollar terms, Corporate Client Solutions revenues also increased 27%.

Investor Client Services revenues decreased 2% to CHF 2,687 million from CHF 2,742 million. Excluding the aforementioned gain on sale of CHF 107 million, adjusted revenues decreased 6% or CHF 162 million to CHF 2,580 million, mainly as revenues in Foreign Exchange, Rates and Credit declined. Adjusted Equities revenues increased by CHF 37 million to CHF 1,835 million. Adjusted Cash revenues decreased to CHF 611 million from CHF 633 million, mainly due to lower client activity. Derivatives revenues increased to CHF 460 million from CHF 383 million, reflecting improved client activity. Financing Services revenues increased marginally to CHF 774 million. Adjusted Foreign Exchange, Rates and Credit revenues decreased to CHF 745 million from CHF 943 million, mainly reflecting lower volatility and client activity levels in the first six months of 2017. In US dollar terms, adjusted Investor Client Services revenues also decreased 6%.

Total operating expenses decreased by CHF 148 million or 4% to CHF 3,194 million and adjusted operating expenses decreased by CHF 20 million or 1% to CHF 3,042 million.

Corporate Center

Corporate Center¹
	As of or for the quarter ended			% change from		Year-to-date
CHF million, except where
indicated	30.6.17	31.3.17	30.6.16	1Q17	2Q16	30.6.17	30.6.16
Results
Total operating income	(130)	47	142			(83)	(110)
Personnel expenses	941	989	975	(5)	(3)	1,930	1,959
General and administrative expenses	931	985	1,083	(5)	(14)	1,916	2,187
Services (to) / from business divisions	(1,952)	(1,930)	(1,952)	1	0	(3,881)	(3,995)
Depreciation and impairment of property, equipment and software	243	249	228	(2)	7	491	460
Amortization and impairment of intangible assets	1	5	5	(80)	(80)	6	11
Total operating expenses	164	298	340	(45)	(52)	462	621
Operating profit / (loss)
before tax	(294)	(251)	(198)	17	48	(545)	(731)
Adjusted results²
Total operating income as
reported	(130)	47	142			(83)	(110)
of which: gains on sales of
real estate			120				120
of which: net foreign
currency translation gains / (losses)³	(22)		(26)			(22)	(149)
Total operating income
(adjusted)	(108)	47	48			(61)	(81)
Total operating expenses as
reported	164	298	340	(45)	(52)	462	621
of which: personnel-related
restructuring expenses	94	93	139			187	246
of which:
non-personnel-related restructuring expenses	116	110	168			225	287
of which: restructuring
expenses allocated from CC – Services	(207)	(185)	(282)			(392)	(514)
Total operating expenses
(adjusted)	161	281	315	(43)	(49)	442	602
Operating profit / (loss)
before tax as reported	(294)	(251)	(198)	17	48	(545)	(731)
Operating profit / (loss)
before tax (adjusted)	(269)	(234)	(267)	15	1	(503)	(683)
Additional information
Average attributed equity (CHF billion)⁴	23.1	24.1	29.6	(4)	(22)	23.6	29.2
Total assets (CHF billion)⁵	330.3	348.8	374.4	(5)	(12)	330.3	374.4
Risk-weighted assets (fully applied, CHF
billion)⁴˒⁶	58.2	56.5	62.1	3	(6)	58.2	62.1
Leverage ratio denominator (fully applied, CHF
billion)⁴˒⁶	283.2	297.6	292.6	(5)	(3)	283.2	292.6
Personnel (full-time equivalents)	24,280	23,922	23,925	1	1	24,280	23,925
1 Comparative figures in this table may differ from those
originally published in quarterly and annual reports due to adjustments
following organizational changes, restatements due to the retrospective
adoption of new accounting standards or changes in accounting policies, and
events after the reporting period. 2 Adjusted results are non-GAAP
financial measures as defined by SEC regulations. 3 Related to the
disposal of foreign subsidiaries and branches. 4 Refer to the “Capital
management” section of this report for more information. 5 Based on
third-party view, i.e., without intercompany balances. 6 Prior to
attributions to business divisions and other Corporate Center units for the
purpose of attributing equity.

Corporate Center

Corporate Center – Services

Corporate Center – Services¹
	As of or for the quarter ended			% change from		Year-to-date
CHF million, except where
indicated	30.6.17	31.3.17	30.6.16	1Q17	2Q16	30.6.17	30.6.16
Results
Total operating income	(20)	(18)	78	11		(37)	23
Personnel expenses	921	966	947	(5)	(3)	1,888	1,916
General and administrative expenses	956	965	1,016	(1)	(6)	1,920	2,058
Depreciation and impairment of property, equipment and software	243	249	228	(2)	7	491	460
Amortization and impairment of intangible assets	1	5	5	(80)	(80)	6	11
Total operating expenses
before allocations to BDs and other CC units	2,121	2,185	2,197	(3)	(3)	4,305	4,444
Services (to) / from business divisions and other CC units	(2,004)	(1,981)	(2,007)	1	0	(3,984)	(4,106)
of which: services to Wealth
Management	(556)	(536)	(545)	4	2	(1,091)	(1,107)
of which: services to Wealth
Management Americas	(304)	(308)	(297)	(1)	2	(612)	(611)
of which: services to
Personal & Corporate Banking	(294)	(292)	(298)	1	(1)	(587)	(609)
of which: services to Asset
Management	(131)	(135)	(132)	(3)	(1)	(266)	(275)
of which: services to
Investment Bank	(647)	(641)	(661)	1	(2)	(1,287)	(1,352)
of which: services to CC –
Group ALM	(36)	(29)	(26)	24	38	(65)	(55)
of which: services to CC –
Non-core and Legacy Portfolio	(46)	(51)	(55)	(10)	(16)	(97)	(110)
Total operating expenses	117	204	190	(43)	(38)	321	338
Operating profit / (loss)
before tax	(137)	(222)	(113)	(38)	21	(358)	(315)
Adjusted results²
Total operating income as
reported	(20)	(18)	78	11		(37)	23
of which: gains on sales of
real estate			120				120
Total operating income
(adjusted)	(20)	(18)	(42)	11	(52)	(37)	(97)
Total operating expenses as reported
before allocations	2,121	2,185	2,197	(3)	(3)	4,305	4,444
of which: personnel-related
restructuring expenses	93	92	139			186	245
of which:
non-personnel-related restructuring expenses	115	110	168			225	287
Total operating expenses (adjusted)
before allocations	1,912	1,983	1,890	(4)	1	3,894	3,912
Services (to) / from BDs and other CC units	(2,004)	(1,981)	(2,007)	1	0	(3,984)	(4,106)
of which: restructuring
expenses allocated to BDs and other CC units	(209)	(188)	(287)			(396)	(520)
Total operating expenses as
reported after allocations	117	204	190	(43)	(38)	321	338
Total operating expenses
(adjusted) after allocations	117	189	170	(38)	(31)	307	325
Operating profit / (loss)
before tax as reported	(137)	(222)	(113)	(38)	21	(358)	(315)
Operating profit / (loss)
before tax (adjusted)	(137)	(207)	(213)	(34)	(36)	(344)	(422)
Additional information
Average attributed equity (CHF billion)³	19.1	20.3	23.2	(6)	(18)	19.7	22.7
Total assets (CHF billion)⁴	23.2	23.4	22.3	(1)	4	23.2	22.3
Risk-weighted assets (fully applied, CHF billion)³	28.7	28.9	23.9	(1)	20	28.7	23.9
of which: held by CC –
Services (fully applied, CHF billion)	28.7	28.9	23.9	(1)	20	28.7	23.9
of which: held by CC – Group
ALM on behalf of CC – Services (fully applied, CHF billion)⁵	0.0	0.0				0.0
Leverage ratio denominator (fully applied, CHF billion)³	6.7	6.5	5.1	3	31	6.7	5.1
of which: held by CC –
Services (fully applied, CHF billion)	6.6	6.1	5.1	8	29	6.6	5.1
of which: held by CC – Group
ALM on behalf of CC – Services (fully applied, CHF billion)⁵	0.0	0.4		(100)		0.0
Personnel (full-time equivalents)	24,083	23,720	23,721	2	2	24,083	23,721
1 Comparative figures in this table may differ from those
originally published in quarterly and annual reports due to adjustments
following organizational changes, restatements due to retrospective adoption
of new accounting standards or changes in accounting policies, and events
after the reporting period. 2 Adjusted results are non-GAAP financial
measures as defined by SEC regulations. 3 Refer to the “Capital
management” section of this report for more information. 4 Based on
third-party view, i.e., without intercompany balances. 5 Represents
risk-weighted assets and leverage ratio denominator held by Corporate Center
– Group ALM that are directly associated with activity managed centrally on
behalf of the business divisions and other Corporate Center units. For the
purpose of attributing equity under the revised framework effective as of 1
January 2017, these resources are allocated to the business divisions and
other Corporate Center units, primarily based on the level of high-quality
liquid assets needed to meet the Group’s minimum liquidity coverage ratio
requirement of 110%. Refer to “Equity attribution framework” in the “Capital
management” section of our Annual Report 2016 for more information.

Results: 2Q17 vs 2Q16

Corporate Center – Services recorded a loss before tax of CHF 137 million compared with a loss of CHF 113 million, and an adjusted loss of CHF 137 million compared with a loss of CHF 213 million.

Operating income

Operating income was negative CHF 20 million compared with positive CHF 78 million. Excluding gains on sales of real estate of CHF 120 million in the second quarter of 2016, adjusted income was negative CHF 20 million compared with negative CHF 42 million, mainly due to a lower allocation from Corporate Center − Group Asset and Liability Management (Group ALM) for funding costs in relation to long-term debt that contributes to total loss-absorbing capacity, partly offset by a decrease in income from the investment of the Group’s equity allocated from Group ALM. This reflects a change made in the first quarter of 2017 to the methodology used to allocate certain Group ALM revenues.

® Refer to the “Corporate Center – Group Asset and Liability Management” section of this report for more information

Operating expenses

Operating expenses before service allocations to business divisions and other Corporate Center units

Before allocations to business divisions and other Corporate Center units, total operating expenses decreased by CHF 76 million or 3% to CHF 2,121 million and increased by CHF 22 million or 1% to CHF 1,912 million on an adjusted basis.

Personnel expenses decreased by CHF 26 million to CHF 921 million and increased by CHF 19 million to CHF 828 million on an adjusted basis, driven by higher staffing levels for strategic and regulatory initiatives. General and administrative expenses decreased by CHF 60 million to CHF 956 million and decreased slightly to CHF 841 million on an adjusted basis, reflecting a decrease in marketing costs and lower professional fees, largely offset by higher occupancy and infrastructure costs. Depreciation expenses increased to CHF 243 million from CHF 228 million, primarily reflecting increased expenses related to internally generated capitalized software and leasehold improvements.

Services to / from business divisions and other Corporate Center units

Corporate Center – Services allocated expenses of CHF 2,004 million to the business divisions and other Corporate Center units compared with CHF 2,007 million. Adjusted net allocated expenses for services to business divisions and other Corporate Center units were CHF 1,795 million compared with CHF 1,720 million, mainly as the costs allocated to business divisions and other Corporate Center units in 2016 were lower than the actual costs incurred by Corporate Center – Services on their behalf. From January 2017, costs are allocated to the business divisions and other Corporate Center units based on actual costs incurred by Corporate Center – Services.

® Refer to “Corporate Center” in the “Operating environment and strategy” section of our Annual Report 2016 for more information

Operating expenses after service allocations to / from business divisions and other Corporate Center units

Corporate Center – Services retains costs related to Group governance functions and other corporate activities, certain strategic and regulatory projects and certain restructuring expenses. Total operating expenses remaining in Corporate Center – Services after allocations decreased to CHF 117 million from CHF 190 million and to CHF 117 million from CHF 170 million on an adjusted basis, mainly as the costs allocated to business divisions and other Corporate Center units in 2016 were lower than the actual costs incurred by Corporate Center – Services on their behalf.

Results: 6M17 vs 6M16

Corporate Center – Services recorded a loss before tax of CHF 358 million compared with CHF 315 million and an adjusted loss before tax of CHF 344 million compared with CHF 422 million.

Total operating income was negative CHF 37 million compared with positive CHF 23 million. Excluding the aforementioned gains of CHF 120 million in the first half of 2016, adjusted income was negative CHF 37 million compared with negative CHF 97 million, mainly due to the aforementioned change to the methodology used to allocate certain Group ALM revenues.

Before allocations, total operating expenses decreased by CHF 139 million or 3% to CHF 4,305 million. Adjusted operating expenses before allocations decreased slightly to CHF 3,894 million, mainly reflecting lower marketing costs and professional fees, partly offset by higher personnel expenses and higher depreciation expenses related to internally generated capitalized software and leasehold improvements.

Corporate Center – Services allocated expenses of CHF 3,984 million to the business divisions and other Corporate Center units compared with CHF 4,106 million, while adjusted net allocated expenses were broadly unchanged at CHF 3,588 million. Total operating expenses remaining in Corporate Center – Services after allocations decreased to CHF 321 million from CHF 338 million. On an adjusted basis, retained expenses decreased to CHF 307 million from CHF 325 million, mainly as the costs allocated to business divisions and other Corporate Center units in 2016 were lower than the actual costs incurred by Corporate Center – Services on their behalf.

Corporate Center

Corporate Center – Group Asset and Liability Management

Corporate Center – Group ALM¹
	As of or for the quarter ended			% change from		Year-to-date
CHF million, except where
indicated	30.6.17	31.3.17	30.6.16	1Q17	2Q16	30.6.17	30.6.16
Results
Business division-aligned risk management net income	166	209	222	(21)	(25)	375	435
Capital investment and issuance net income	(27)	(35)	24	(23)		(62)	57
Group structural risk management net income	(121)	(43)	(143)	181	(15)	(164)	(243)
Total risk management net
income before allocations	18	130	102	(86)	(82)	148	249
Allocations to business divisions and other CC units	(51)	(88)	(155)	(42)	(67)	(139)	(319)
of which: Wealth Management	(58)	(71)	(101)	(18)	(43)	(129)	(207)
of which: Wealth Management
Americas	(29)	(32)	(23)	(9)	26	(61)	(44)
of which: Personal &
Corporate Banking	(44)	(59)	(85)	(25)	(48)	(103)	(180)
of which: Asset Management	(5)	(5)	(2)	0	150	(9)	(5)
of which: Investment Bank	88	86	57	2	54	174	116
of which: CC – Services	(30)	(30)	(16)	0	88	(60)	(36)
of which: CC – Non-core and
Legacy Portfolio	27	23	15	17	80	50	37
Total risk management net
income after allocations	(33)	42	(53)		(38)	10	(70)
Accounting asymmetries related to economic hedges	(47)	22	61			(25)	(28)
Hedge accounting ineffectiveness²	14	(7)	11		27	7	50
Net foreign currency translation gains / (losses)³	(22)		(26)		(15)	(22)	(149)
Other	(7)	8	52			1	93
Total operating income as
reported	(94)	65	45			(30)	(104)
Total operating income
(adjusted)⁴˒⁵	(72)	65	71			(8)	45
Personnel expenses	9	8	8	13	13	17	15
General and administrative expenses	4	4	5	0	(20)	7	8
Depreciation and impairment of property, equipment and software	0	0	0			0	0
Amortization and impairment of intangible assets	0	0	0			0	0
Services (to) / from business divisions and other CC units	(2)	(10)	(11)	(80)	(82)	(13)	(24)
Total operating expenses as
reported	10	2	2	400	400	12	0
of which: personnel-related
restructuring expenses	1	0	0			1	0
of which:
non-personnel-related restructuring expenses	0	(1)	0			0	0
of which: restructuring
expenses allocated from CC – Services	0	0	0			1	0
Total operating expenses
(adjusted)	9	2	2	350	350	11	0
Operating profit / (loss)
before tax as reported	(104)	63	44			(41)	(104)
Operating profit / (loss)
before tax (adjusted)⁴	(81)	63	70			(18)	45
Additional information
Average attributed equity (CHF billion)⁶	2.6	2.3	4.1	13	(37)	2.5	4.2
Total assets (CHF billion)⁷	253.1	265.1	251.5	(5)	1	253.1	251.5
Risk-weighted assets (CHF billion)⁶	12.0	10.5	6.9	14	74	12.0	6.9
of which: held by CC – Group
ALM on behalf of BDs and other CC units (CHF billion)⁸	4.2	4.3		(2)		4.2
Leverage ratio denominator (CHF billion)⁶	258.7	271.8	259.4	(5)	0	258.7	259.4
of which: held by CC – Group
ALM on behalf of BDs and other CC units (CHF billion)⁸	136.9	153.6		(11)		136.9
Personnel (full-time equivalents)	141	139	134	1	5	141	134
1 Comparative figures in this table may differ from those
originally published in quarterly and annual reports due to adjustments
following organizational changes, restatements due to retrospective adoption
of new accounting standards or changes in accounting policies, and events
after the reporting period. 2 Excludes ineffectiveness of hedges of net
investments in foreign operations. 3 Related to the disposal of foreign
subsidiaries and branches. 4 Adjusted results are non-GAAP financial
measures as defined by SEC regulations. 5 Adjusted total operating income
excludes foreign currency translation gains or losses. 6 Refer to the
“Capital management” section of this report for more information. 7 Based
on third-party view, i.e., without intercompany balances. 8 Represents
risk-weighted assets and leverage ratio denominator held by Corporate Center
– Group ALM that are directly associated with activity managed centrally on
behalf of the business divisions and other Corporate Center units. For the
purpose of attributing equity under the revised framework effective as of 1
January 2017, these resources are allocated to the business divisions and
other Corporate Center units, primarily based on the level of high-quality
liquid assets needed to meet the Group’s minimum liquidity coverage ratio
requirement of 110%. Refer to “Equity attribution framework” in the “Capital
management” section of our Annual Report 2016 for more information.

Results: 2Q17 vs 2Q16

Corporate Center – Group Asset and Liability Management (Group ALM) recorded a loss before tax of CHF 104 million compared with a profit of CHF 44 million and on an adjusted basis recorded a loss before tax of CHF 81 million compared with a profit of CHF 70 million.

Operating income

Total operating income after allocations to business divisions and other Corporate Center units was negative CHF 94 million compared with positive CHF 45 million. Excluding net foreign currency translation losses of CHF 22 million compared with CHF 26 million, adjusted operating income was negative CHF 72 million compared with positive CHF 71 million, mainly due to a negative effect from accounting asymmetries related to economic hedges.

Total risk management net income before allocations

Total risk management net income before allocations to business divisions and other Corporate Center units was CHF 18 million compared with CHF 102 million, reflecting lower net income from business division-aligned risk management and capital investment and issuance activities.

Business division-aligned risk management net income

Net income from business division-aligned risk management activities before allocations was CHF 166 million compared with CHF 222 million, mainly due to a decrease in interest rate risk management revenues in the banking book for Wealth Management and Personal & Corporate Banking and lower net income in Risk Exposure Management. These decreases were partly offset by higher revenues from a portfolio of high-quality liquid assets (HQLA) that Group ALM manages on behalf of Wealth Management Americas, driven by higher US dollar interest rates.

Capital investment and issuance net income

Net income from capital investment and issuance activities before allocations was negative CHF 27 million compared with positive CHF 24 million. This change was largely due to higher interest expenses as a result of an increase in total outstanding long-term debt issued that contributes to total loss-absorbing capacity (TLAC). Furthermore, interest income from the investment of the Group’s equity decreased due to lower interest rates on reinvestments.

Group structural risk management net income

Net income from Group structural risk management activities before allocations was negative CHF 121 million compared with negative CHF 143 million. An increase in income of CHF 53 million from the management of the Group’s HQLA, mainly due to wider spreads between certain HQLA and internal funding liabilities, was partly offset by an increase in net interest expense of CHF 31 million due to issuances of long-term debt.

Allocations to business divisions and other Corporate Center units

Combined net income allocations from risk management activities to business divisions and other Corporate Center units were CHF 51 million compared with CHF 155 million, mainly reflecting the aforementioned lower net income from business division-aligned risk management and capital investment and issuance activities, which are both fully allocated to business divisions.

Total risk management net income after allocations

Group ALM retained negative income of CHF 33 million from its risk management activities after allocations compared with negative CHF 53 million, mainly driven by the aforementioned improvement in revenues from the management of the Group’s HQLA.

Retained income from risk management activities is entirely related to Group structural risk management and is mainly the net result of costs from buffers that are maintained by Group ALM at levels above the total consumption of the business divisions and the revenues generated by Group ALM from the management of the Group’s HQLA portfolio relative to the benchmark rates used to allocate the costs. Retained income from risk management activities can vary significantly quarter on quarter. However, under current market conditions, we expect it to average around negative CHF 50 million per quarter.

Accounting asymmetries related to economic hedges

Net income retained by Group ALM due to accounting asymmetries related to economic hedges was negative CHF 47 million compared with positive CHF 61 million, predominantly due to a fair value loss of CHF 18 million on certain internal funding transactions due to the widening of funding spreads compared with a gain of CHF 95 million.

Hedge accounting ineffectiveness

Net income related to hedge accounting ineffectiveness was CHF 14 million compared with CHF 11 million. This ineffectiveness primarily arises from changes in the spread between LIBOR and the overnight index swap rate due to differences in the way these affect the valuation of the hedged items and hedging instruments through either the benchmark rate determining cash flows or the discount rate.

Other

Other net income was negative CHF 7 million compared with positive CHF 52 million, reflecting negative fair value hedge movements on the portion of derivatives used to hedge debt issuances that does not qualify for hedge accounting, lower interest income retained by Group ALM related to non-controlling interests and negative income related to own-bond market-making activity in the Investment Bank.

Corporate Center

Operating expenses

Total operating expenses increased by CHF 8 million to CHF 10 million. From June 2017, Group ALM retains costs related to Group structural risk management income to the extent that such income is not allocated to the business divisions and other Corporate Center units. Previously, Group ALM allocated all costs to business divisions and other Corporate Center units.

Balance sheet, risk-weighted assets, leverage ratio denominator: 2Q17 vs 1Q17

Balance sheet assets

Balance sheet assets decreased by CHF 12 billion to CHF 253 billion, reflecting higher funding utilization by the business divisions, partly offset by net debt issuances.

® Refer to the “Balance sheet, liquidity and funding management” section of this report for more information

Risk-weighted assets

Risk-weighted assets (RWA) increased by CHF 1 billion to CHF 12 billion as of 30 June 2017, due to an increase in credit risk RWA.

® Refer to the “Capital management” section of this report for more information

Leverage ratio denominator

The Swiss SRB leverage ratio denominator (LRD) decreased by CHF 13 billion to CHF 259 billion, consistent with the decrease in balance sheet assets.

® Refer to the “Capital management” section of this report for more information

Equity attribution framework

For the purpose of attributing equity under the revised framework effective from 1 January 2017, LRD and RWA held by Group ALM directly associated with activity that Group ALM manages centrally on behalf of the business divisions and other Corporate Center units are allocated to those business divisions and other Corporate Center units. These balances mainly relate to HQLA that Group ALM holds to meet the Group’s minimum liquidity coverage ratio requirement of 110%.

Average equity attributed directly to Group ALM, which excludes the aforementioned LRD and RWA balances, was CHF 2.6 billion in the second quarter of 2017 and mainly relates to buffers that are maintained by Group ALM at levels above the total consumption of the business divisions and for its own flow management activity.

® Refer to “Equity attribution and return on attributed equity” in the “Capital management” section of this report for more information

Results: 6M17 vs 6M16

Group ALM recorded a loss before tax of CHF 41 million compared with a loss of CHF 104 million and on an adjusted basis recorded a loss before tax of CHF 18 million compared with a profit of CHF 45 million.

Total operating income was negative CHF 30 million compared with negative CHF 104 million. Excluding net foreign currency translation losses of CHF 22 million compared with CHF 149 million, adjusted total operating income was negative CHF 8 million compared with positive CHF 45 million.

Net income from risk management activities before allocations decreased by CHF 101 million to CHF 148 million. This was mainly due to a CHF 119 million decrease in net income from capital investment and issuance activities, driven by higher net interest expenses as a result of an increase in total outstanding long-term debt issued that contributes to TLAC, and by lower revenues from the investment of the Group’s equity.

Revenues related to business division-aligned risk management decreased by CHF 60 million to CHF 375 million, mainly due to a decrease in interest rate risk management revenues in the banking book for Wealth Management and Personal & Corporate Banking.

Net income from Group structural risk management activities improved by CHF 79 million to negative CHF 164 million, driven by higher income from the management of the Group’s HQLA, partly offset by an increase in interest expense due to issuances of long-term debt.

Net income allocations to business divisions and other Corporate Center units decreased by CHF 180 million to CHF 139 million, mainly due to the aforementioned reductions in capital investment and issuance net income.

Retained income from risk management activities improved by CHF 80 million to CHF 10 million, reflecting an increase in revenues from the Group’s HQLA portfolio due to wider spreads between certain HQLA and internal funding liabilities.

Net income retained by Group ALM due to accounting asymmetries related to economic hedges was broadly unchanged at negative CHF 25 million.

Net income related to hedge accounting ineffectiveness on hedge-accounted derivatives was CHF 7 million compared with CHF 50 million.

Other net income was CHF 1 million compared with CHF 93 million, reflecting negative fair value hedge movements on the portion of derivatives used to hedge debt issuances that does not qualify for hedge accounting, lower interest income retained by Group ALM related to non-controlling interests and negative income related to own-bond market-making activity in the Investment Bank.

Corporate Center – Non-core and Legacy Portfolio

| Corporate Center – Non-core and
Legacy Portfolio¹ | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- |
| | As of or for the quarter ended | | | % change from | | Year-to-date | |
| CHF million, except where
indicated | 30.6.17 | 31.3.17 | 30.6.16 | 1Q17 | 2Q16 | 30.6.17 | 30.6.16 |
| Results | | | | | | | |
| Income | (5) | 0 | 19 | | | (6) | (26) |
| Credit loss (expense) / recovery | (11) | 0 | 0 | | | (11) | (3) |
| Total operating income | (16) | 0 | 19 | | | (16) | (29) |
| Personnel expenses | 11 | 15 | 20 | (27) | (45) | 25 | 28 |
| General and administrative expenses | (28) | 17 | 62 | | | (12) | 121 |
| Services (to) / from business divisions and other CC units | 54 | 61 | 65 | (11) | (17) | 116 | 134 |
| of which: services from CC –
Services | 46 | 51 | 55 | (10) | (16) | 97 | 110 |
| Depreciation and impairment of property, equipment and software | 0 | 0 | 0 | | | 0 | 0 |
| Amortization and impairment of intangible assets | 0 | 0 | 0 | | | 0 | 0 |
| Total operating expenses | 37 | 93 | 148 | (60) | (75) | 129 | 283 |
| Operating profit / (loss)
before tax | (53) | (93) | (129) | (43) | (59) | (146) | (312) |
| Adjusted results² | | | | | | | |
| Total operating income as
reported | (16) | 0 | 19 | | | (16) | (29) |
| Total operating income
(adjusted) | (16) | 0 | 19 | | | (16) | (29) |
| Total operating expenses as
reported | 37 | 93 | 148 | (60) | (75) | 129 | 283 |
| of which: personnel-related
restructuring expenses | 0 | 0 | 0 | | | 0 | 1 |
| of which:
non-personnel-related restructuring expenses | 0 | 0 | 0 | | | 0 | 0 |
| of which: restructuring
expenses allocated from CC – Services | 2 | 2 | 5 | | | 4 | 6 |
| Total operating expenses
(adjusted) | 35 | 91 | 143 | (62) | (76) | 125 | 277 |
| Operating profit / (loss)
before tax as reported | (53) | (93) | (129) | (43) | (59) | (146) | (312) |
| Operating profit / (loss)
before tax (adjusted) | (51) | (91) | (124) | (44) | (59) | (142) | (306) |
| Additional information | | | | | | | |
| Average attributed equity (CHF billion)³ | 1.4 | 1.5 | 2.3 | (7) | (39) | 1.4 | 2.3 |
| Total assets (CHF billion)⁴ | 54.0 | 60.2 | 100.5 | (10) | (46) | 54.0 | 100.5 |
| Risk-weighted assets (CHF billion)³ | 17.5 | 17.2 | 31.3 | 2 | (44) | 17.5 | 31.3 |
| of which: held by CC –
Non-core and Legacy Portfolio (CHF billion) | 17.5 | 17.1 | 31.3 | 2 | (44) | 17.5 | 31.3 |
| of which: held by CC – Group
ALM on behalf of CC – Non-core and Legacy Portfolio (CHF billion)⁵ | 0.0 | 0.0 | | | | 0.0 | |
| Leverage ratio denominator (CHF billion)³ | 19.5 | 24.5 | 28.1 | (20) | (31) | 19.5 | 28.1 |
| of which: held by CC –
Non-core and Legacy Portfolio (CHF billion) | 17.9 | 19.8 | 28.1 | (10) | (36) | 17.9 | 28.1 |
| of which: held by CC – Group
ALM on behalf of CC – Non-core and Legacy Portfolio (CHF billion)⁵ | 1.7 | 4.8 | | (65) | | 1.7 | |
| Personnel (full-time equivalents) | 57 | 63 | 70 | (10) | (19) | 57 | 70 |
| 1 Comparative figures in this table may differ from those
originally published in quarterly and annual reports due to adjustments
following organizational changes, restatements due to retrospective adoption
of new accounting standards or changes in accounting policies, and events
after the reporting period. 2 Adjusted results are non-GAAP financial
measures as defined by SEC regulations. 3 Refer to the “Capital
management” section of this report for more information. 4 Based on
third-party view, i.e., without intercompany balances. 5 Represents
risk-weighted assets and leverage ratio denominator held by Corporate Center
– Group ALM that are directly associated with activity managed centrally on
behalf of the business divisions and other Corporate Center units. For the
purpose of attributing equity under the revised framework effective as of 1
January 2017, these resources are allocated to the business divisions and
other Corporate Center units, primarily based on the level of high-quality
liquid assets needed to meet the Group’s minimum liquidity coverage ratio requirement
of 110%. Refer to “Equity attribution framework” in the “Capital management”
section of our Annual Report 2016 for more information. | | | | | | | |

| Composition of Non-core and
Legacy Portfolio¹ — CHF billion | RWA | | Total assets² | | LRD³ | |
| --- | --- | --- | --- | --- | --- | --- |
| Category | 30.6.17 | 31.3.17 | 30.6.17 | 31.3.17 | 30.6.17 | 31.3.17 |
| Linear rates | 1.8 | 1.9 | 33.2 | 36.7 | 7.5 | 7.9 |
| Non-linear rates | 0.5 | 0.5 | 10.7 | 12.7 | 1.2 | 1.6 |
| Credit | 0.4 | 0.4 | 0.7 | 0.8 | 1.3 | 2.1 |
| Securitizations | 2.1 | 2.1 | 1.1 | 1.3 | 1.1 | 1.4 |
| Auction preferred stock and auction rate securities | 0.7 | 0.7 | 2.3 | 2.4 | 2.3 | 2.4 |
| Municipal swaps and options | 0.5 | 0.3 | 2.2 | 2.3 | 1.6 | 1.5 |
| Other | 1.2 | 0.9 | 3.8 | 4.0 | 2.6 | 2.9 |
| Operational risk | 10.3 | 10.3 | | | | |
| Total | 17.5 | 17.1 | 54.0 | 60.2 | 17.6 | 19.8 |
| 1 The groupings of positions by category and the order in which
these are listed are not necessarily representative of the magnitude of the
risks associated with them, nor do the metrics shown in the tables
necessarily represent the risk measures used to manage and control these
positions. 2 Total assets of CHF 54.0 billion as of 30 June 2017 (CHF 60.2
billion as of 31 March 2017) include positive replacement values (gross
exposure excluding the impact of any counterparty netting) of CHF 44.7
billion (CHF 49.7 billion as of 31 March 2017). 3 Swiss SRB leverage ratio
denominator. | | | | | | |

Corporate Center

Results: 2Q17 vs 2Q16

Corporate Center – Non-core and Legacy Portfolio recorded a loss before tax of CHF 53 million compared with a loss of CHF 129 million.

Operating income

Total operating income was negative CHF 16 million compared with positive CHF 19 million, mainly due to valuation gains in the prior-year quarter. Credit loss expense was CHF 11 million, relating to impairments on certain collateralized loans.

Operating expenses

Total operating expenses decreased by CHF 111 million or 75% to CHF 37 million, mainly reflecting a net release of CHF 34 million of provisions for litigation, regulatory and similar matters compared with a net expense of CHF 23 million. Additionally, the second quarter of 2017 included lower professional fees, a UK bank levy credit of CHF 14 million related to prior years and lower net expenses for services from other Corporate Center units and business divisions.

Balance sheet, risk-weighted assets and leverage ratio denominator: 2Q17 vs 1Q17

Balance sheet assets

Balance sheet assets decreased by CHF 6 billion to CHF 54 billion. Positive replacement values decreased by CHF 5 billion, mainly in interest rate contracts, reflecting trade terminations, maturities and fair value changes.

Risk-weighted assets

Risk-weighted assets (RWA) held by Corporate Center – Non-core and Legacy Portfolio remained stable at CHF 17 billion.

® Refer to the “Capital management” section of this report for more information

Leverage ratio denominator

The Swiss SRB leverage ratio denominator held by Corporate Center – Non-core and Legacy Portfolio decreased to CHF 18 billion from CHF 20 billion, consistent with the decrease in balance sheet assets.

® Refer to the “Capital management” section of this report for more information

Results: 6M17 vs 6M16

Corporate Center – Non-core and Legacy Portfolio recorded a loss before tax of CHF 146 million compared with a loss of CHF 312 million. Operating income was negative CHF 16 million compared with negative CHF 29 million. Operating expenses decreased by CHF 154 million to CHF 129 million, mainly due to a net release of CHF 33 million of provisions for litigation, regulatory and similar matters compared with a net expense of CHF 46 million. Additionally, professional fees and net expenses for services from other Corporate Center units and business divisions decreased by CHF 35 million and CHF 18 million, respectively, and the first half of 2017 included a UK bank levy credit of CHF 19 million related to prior years.

Risk, treasury and capital management

Management report

Table of contents

47	Risk management and control
47	Credit risk
47	Market risk
48	Country risk
48	Operational risk
49	Key risk metrics
51	Balance sheet, liquidity and funding management
51	Strategy, objectives and governance
51	Assets and liquidity management
53	Liabilities and funding management
55	Capital management
55	Requirements and capital adequacy
information
56	Loss-absorbing capacity
60	Risk-weighted assets
62	Leverage ratio denominator
64	Equity attribution and return on
attributed equity
66	UBS shares

Risk management and control

This section provides information on key developments during the reporting period and should be read in conjunction with the “Risk management and control” section of our Annual Report 2016.

Credit risk

Overall credit risk exposures were broadly unchanged during the second quarter of 2017. Net credit loss expenses in the second quarter of 2017 were CHF 46 million, mainly reflecting expenses of CHF 28 million in Personal & Corporate Banking, driven by a small number of newly impaired corporate client positions across a range of sectors.

We continue to manage our Swiss lending portfolios prudently, and we remain watchful for any signs of deterioration in the Swiss economy that could impact some of our counterparties.

While many energy segments appear to have adapted to operating in a lower oil price environment, the recent decline in oil prices has led to renewed market concerns regarding the energy sector. There has been no material impact on our portfolios from the recent oil price decline. Nevertheless, we continue to actively monitor these portfolios, including through scenario analysis.

Within the Investment Bank, leveraged loan underwriting activity increased during the quarter and distribution remained sound. The large investment grade merger and acquisition financing commitment highlighted in previous quarters as it had exceeded its targeted distribution date, expired unused during the second quarter of 2017. Loan underwriting exposures are classified as held for trading, with fair values reflecting the market conditions at the end of the quarter.

Market risk

We continued to manage market risks at generally low levels. Relative to the first quarter of 2017, average 1-day, 95% confidence level, management value-at-risk (VaR) increased from CHF 10 million to CHF 12 million. Regulatory VaR and stressed VaR also increased during the second quarter of 2017, leading to a commensurate increase in market risk-related risk-weighted assets (RWA).

There were no Group VaR negative backtesting exceptions in the second quarter of 2017 and the total number of negative backtesting exceptions within a 250-business-day window decreased from three to two. The FINMA VaR multiplier for market risk RWA remained unchanged at 3.

® Refer to “Market risk” in the “Risk, treasury and capital management” section of our Annual Report 2016 for more information on our backtesting exceptions

As of 30 June 2017, the interest rate sensitivity of our banking book to a +1 basis point parallel shift in yield curves decreased to negative CHF 2.9 million from negative CHF 3.6 million as of 31 March 2017. Part of these fair value changes would impact other comprehensive income (OCI). The interest rate sensitivity to a +1 basis point parallel shift in yield curves of financial assets and derivatives in the banking book valued through OCI was negative CHF 22 million as of 30 June 2017. This OCI sensitivity was predominantly attributable to cash flow hedges denominated in US dollars and, to a lesser extent, in euros and Swiss francs. These cash flow hedges are not recognized for the purposes of calculating regulatory capital.

® Refer to “Sensitivity to interest rate movements” in the “Group performance” section of this report for more information on the impact of rising interest rates on equity, capital and net interest income

Risk management and control

Country risk

We remain watchful of developments in Europe. Our direct exposure to peripheral European countries remained limited, with the exception of Spain, where net exposures increased to CHF 4.9 billion due to a temporary exposure relating to a rights offering. In addition, we continue to have significant country risk exposure to major EU economies, including the UK, Germany and France.

Our binding stress scenario within our combined stress test framework has a eurozone crisis at its core, so that potential effects are captured in the calculation of our post-stress fully applied common equity tier 1 capital ratio.

® Refer to the “Risk management and control” section of our Annual Report 2016 for more information

Operational risk

The pervasive consequential risk themes that continue to challenge UBS and the financial industry are operational resilience, conduct and culture, and financial crime. Cyber security is at the forefront of operational resilience and we continue to invest into preemptive and detective measures to defend against evolving and highly sophisticated attacks.

K ey risk metrics

| Banking and traded products
exposure by business division and Corporate Center unit | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | 30.6.17 | | | | | | | | |
| CHF million | Wealth Management | Wealth Management Americas | Personal & Corporate Banking | Asset Management | Investment Bank | CC – Services | CC – Group ALM | CC – Non-core and Legacy Portfolio | Group |
| Banking products | | | | | | | | | |
| Gross exposure¹˒²˒³˒⁴ | 111,497 | 54,742 | 152,178 | 455 | 55,744 | 914 | 108,980 | 609 | 485,120 |
| of which: loans (on-balance
sheet) | 106,656 | 50,857 | 132,792 | 1 | 12,516 | 68 | 6,219 | 121 | 309,229 |
| of which: guarantees and
loan commitments (off-balance sheet) | 3,509 | 1,037 | 17,515 | 0 | 32,982 | 104 | 4 | 489 | 55,639 |
| Total impaired exposure, gross | 60 | 23 | 928 | 0 | 113 | 0 | 0 | 42 | 1,166 |
| of which: impaired loan
exposure, gross | 60 | 23 | 718 | 0 | 97 | | | 42 | 940 |
| Total allowances and provisions for credit losses | 32 | 25 | 495 | 0 | 52 | 0 | 0 | 26 | 630 |
| Traded
products¹˒⁵ | | | | | | | | | |
| Gross exposure | 6,477 | 1,997 | 1,462 | 0 | 37,377 | | | | 47,313 |
| of which: over-the-counter
derivatives | 5,370 | 38 | 1,347 | 0 | 14,988 | | | | 21,743 |
| of which: securities
financing transactions | 0 | 241 | 0 | 0 | 16,635 | | | | 16,876 |
| of which: exchange-traded
derivatives | 1,107 | 1,718 | 115 | 0 | 5,753 | | | | 8,694 |
| | 31.3.17 | | | | | | | | |
| CHF million | Wealth Management | Wealth Management Americas | Personal & Corporate Banking | Asset Management | Investment Bank | CC – Services | CC – Group ALM | CC – Non-core and Legacy Portfolio | Group |
| Banking products | | | | | | | | | |
| Gross exposure¹˒²˒³˒⁴ | 109,553 | 55,008 | 153,408 | 533 | 58,026 | 707 | 117,782 | 608 | 495,624 |
| of which: loans (on-balance
sheet) | 104,302 | 51,632 | 133,914 | 0 | 12,991 | 49 | 6,350 | 124 | 309,363 |
| of which: guarantees and
loan commitments (off-balance sheet) | 3,946 | 1,006 | 17,706 | 0 | 34,572 | 110 | 3 | 484 | 57,827 |
| Total impaired exposure, gross | 71 | 27 | 949 | 0 | 118 | 0 | 0 | 18 | 1,183 |
| of which: impaired loan
exposure, gross | 71 | 27 | 734 | 0 | 94 | | | 18 | 944 |
| Total allowances and provisions for credit losses | 42 | 29 | 485 | 0 | 64 | 0 | 0 | 15 | 635 |
| Traded
products¹˒⁵ | | | | | | | | | |
| Gross exposure | 6,250 | 1,992 | 1,480 | 0 | 36,759 | | | | 46,482 |
| of which: over-the-counter
derivatives | 5,228 | 44 | 1,391 | 0 | 11,977 | | | | 18,639 |
| of which: securities
financing transactions | 0 | 241 | 0 | 0 | 18,392 | | | | 18,633 |
| of which: exchange-traded
derivatives | 1,022 | 1,708 | 89 | 0 | 6,390 | | | | 9,209 |
| 1 Internal management view of credit risk, which differs in
certain respects from IFRS. 2 Excludes reclassified securities and similar
acquired securities held by Corporate Center – Non-core and Legacy
Portfolio. 3 Excludes loans designated at fair value. 4 As of 30 June
2017, IFRS loans exposure for the Investment Bank and Corporate Center –
Non-core and Legacy Portfolio was CHF 9,861 million (31 March 2017: CHF
10,905 million) and CHF 2,401 million (31 March 2017: CHF 2,544 million),
respectively. For all other business divisions and Corporate Center units,
IFRS loans exposure was the same as the internal management view. 5 As
counterparty risk for traded products is managed at counterparty level, no
further split between exposures in the Investment Bank, Corporate Center –
Non-core and Legacy Portfolio and Corporate Center – Group ALM is
provided. | | | | | | | | | |

| Wealth Management, Wealth
Management Americas and Personal & Corporate Banking loan portfolios,
gross | Wealth Management | | Wealth Management Americas | | Personal & Corporate Banking | |
| --- | --- | --- | --- | --- | --- | --- |
| CHF million | 30.6.17 | 31.3.17 | 30.6.17 | 31.3.17 | 30.6.17 | 31.3.17 |
| Secured by residential property | 33,323 | 32,547 | 10,334 | 10,354 | 95,679 | 95,587 |
| Secured by commercial / industrial property | 2,004 | 2,029 | 0 | 0 | 17,413 | 17,678 |
| Secured by cash¹ | 13,141 | 13,978 | 4,499 | 995 | 1,775 | 1,839 |
| Secured by securities¹ | 50,928 | 48,258 | 34,978 | 39,408 | 2,035 | 2,082 |
| Secured by guarantees and other collateral | 6,772 | 7,144 | 694 | 603 | 6,115 | 6,743 |
| Unsecured loans | 488 | 346 | 352 | 271 | 9,774 | 9,985 |
| Total loans, gross | 106,656 | 104,302 | 50,857 | 51,632 | 132,792 | 133,914 |
| Total loans, net of
allowances | 106,625 | 104,260 | 50,831 | 51,603 | 132,345 | 133,467 |
| 1 Collateral arrangements generally incorporate a range of
collateral, including cash, securities, property and other collateral. In the
second quarter of 2017, we further aligned our collateral allocation
processes within Wealth Management Americas to prioritize collateral mainly
according to its liquidity profile. This resulted in an increase in loans
secured by cash and a decrease in loans secured by securities of CHF 4.1
billion. | | | | | | |

Risk management and control

| Management value-at-risk (1-day, 95% confidence, 5 years of
historical data) by business division and Corporate Center unit and
general market risk type¹ | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | | | | Average by risk type | | | | |
| CHF million | Min. | Max. | Period end | Average | Equity | Interest rates | Credit spreads | Foreign exchange | Commodities |
| Wealth Management | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Wealth Management Americas | 0 | 1 | 1 | 1 | 0 | 1 | 1 | 0 | 0 |
| Personal & Corporate Banking | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Asset Management | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Investment Bank | 6 | 14 | 12 | 10 | 6 | 7 | 5 | 2 | 2 |
| CC – Services | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| CC – Group ALM | 3 | 8 | 3 | 6 | 0 | 6 | 2 | 1 | 0 |
| CC – Non-core and Legacy Portfolio | 3 | 4 | 3 | 3 | 1 | 2 | 2 | 0 | 0 |
| Diversification effect²˒³ | | | (8) | (9) | (1) | (7) | (4) | (1) | 0 |
| Total 30.6.17 | 8 | 15 | 12 | 12 | 6 | 10 | 6 | 2 | 2 |
| Total 31.3.17 | 8 | 15 | 9 | 10 | 4 | 11 | 6 | 3 | 1 |
| 1 Statistics at individual levels may not be summed to deduce
the corresponding aggregate figures. The minima and maxima for each level may
occur on different days, and likewise, the VaR for each business line or risk
type, being driven by the extreme loss tail of the corresponding distribution
of simulated profits and losses for that business line or risk type, may well
be driven by different days in the historical time series, rendering invalid
the simple summation of figures to arrive at the aggregate total. 2
Difference between the sum of the standalone VaR for the business divisions
and Corporate Center units and the VaR for the Group as a whole. 3 As the
minimum and maximum occur on different days for different business divisions
and Corporate Center units, it is not meaningful to calculate a portfolio
diversification effect. | | | | | | | | | |

| Interest rate sensitivity –
banking book¹ — CHF million | –200 bps | –100 bps | +1 bp | +100 bps | +200 bps |
| --- | --- | --- | --- | --- | --- |
| CHF | (12.0) | (12.0) | 0.6 | 55.2 | 109.2 |
| EUR | (105.2) | (78.4) | 0.3 | 26.8 | 54.5 |
| GBP | (187.5) | (88.1) | 0.0 | (7.8) | (22.8) |
| USD | 606.2 | 282.8 | (3.8) | (384.4) | (780.6) |
| Other | 4.1 | 1.0 | 0.1 | 7.4 | 14.9 |
| Total effect on fair value
of interest rate-sensitive banking book positions 30.6.17 | 305.6 | 105.3 | (2.9) | (302.8) | (624.8) |
| Total effect on fair value of interest rate-sensitive banking
book positions 31.3.17 | 424.2 | 137.3 | (3.6) | (367.5) | (745.6) |
| 1 In the prevailing negative interest rate environment for the
Swiss franc in particular, and to a lesser extent for the euro, interest
rates for Wealth Management and Personal & Corporate Banking client
transactions are generally floored at non-negative levels. Accordingly, for
the purposes of this disclosure table, downward moves of 100 / 200 basis
points are floored to ensure that the resulting shocked interest rates do not
turn negative. The flooring results in non-linear sensitivity behavior. | | | | | |

| Exposures to eurozone countries
rated lower than AAA / Aaa by at least one major rating agency | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| CHF million | 30.6.17 | | | | | | | 31.3.17 | |
| | Banking products | | Traded products | | Trading inventory | Total | | Total | |
| | Before hedges | Net of hedges¹ | Before hedges | Net of hedges | Net long per issuer | | Net of hedges¹ | | Net of hedges¹ |
| Austria | 36 | 36 | 178 | 51 | 1,893 | 2,107 | 1,980 | 1,956 | 1,853 |
| Belgium | 102 | 102 | 87 | 87 | 316 | 504 | 504 | 348 | 348 |
| Finland | 73 | 40 | 25 | 25 | 573 | 671 | 638 | 786 | 754 |
| France | 1,007 | 872 | 1,372 | 1,286 | 2,277 | 4,656 | 4,435 | 5,887 | 5,632 |
| Greece | 3 | 3 | 0 | 0 | 2 | 4 | 4 | 3 | 3 |
| Ireland² | 183 | 183 | 1,020 | 1,020 | 179 | 1,382 | 1,382 | 1,148 | 1,148 |
| Italy | 1,400 | 1,070 | 297 | 297 | 274 | 1,971 | 1,641 | 1,670 | 1,258 |
| Portugal | 53 | 53 | 8 | 8 | 15 | 76 | 76 | 33 | 33 |
| Spain | 584 | 458 | 57 | 57 | 4,368 | 5,009 | 4,883 | 960 | 763 |
| Other³ | 413 | 413 | 6 | 6 | 26 | 445 | 445 | 455 | 455 |
| 1 Not deducted from the “Net of hedges” exposures are total
allowances and provisions for credit losses of CHF 47 million (of which:
Malta CHF 35 million, Ireland CHF 6 million and France CHF 5 million). 2
The majority of the Ireland exposure relates to funds and foreign bank
subsidiaries. 3 Represents aggregate exposures to Andorra, Cyprus,
Estonia, Latvia, Lithuania, Malta, Monaco, Montenegro, San Marino, Slovakia
and Slovenia. | | | | | | | | | |

Balance sheet, liquidity and funding management

Strategy, objectives and governance

This section provides balance sheet, liquidity and funding management information and should be read in conjunction with the “Treasury management” section of our Annual Report 2016, which provides more information about the Group’s strategy, objectives and governance for liquidity and funding management.

Balances disclosed in this section represent quarter-end positions, unless indicated otherwise. Intra-quarter balances fluctuate in the ordinary course of business and may differ from quarter-end positions.

Assets and liquidity management

Balance sheet assets

As of 30 June 2017, balance sheet assets totaled CHF 891 billion, a decrease of CHF 19 billion from 31 March 2017. Total assets excluding positive replacement values (PRVs) also decreased by CHF 19 billion to CHF 769 billion, mainly resulting from the weakening of the US dollar against the Swiss franc. Excluding currency effects, total assets excluding PRVs decreased by CHF 6 billion, mainly due to the completion of the sale of a life insurance subsidiary within Wealth Management.

Cash and balances with central banks decreased by CHF 9 billion, primarily reflecting higher funding utilization by the business divisions, partly offset by various debt issuances and rebalancing within our high-quality liquid assets (HQLA) portfolio. Other assets decreased by CHF 5 billion, mainly resulting from the aforementioned completion of the sale of a life insurance subsidiary. Receivables from securities financing transactions decreased by CHF 5 billion, primarily due to a client-driven reduction in our Foreign Exchange, Rates and Credit business within the Investment Bank. Lending assets decreased by CHF 1 billion as an increase in Lombard lending in Wealth Management was more than offset by currency effects.

PRVs were broadly unchanged as a CHF 6 billion increase in Foreign Exchange, Rates and Credit, mainly related to foreign exchange contracts and primarily reflecting currency market movements, was mostly offset by a CHF 5 billion reduction in our Non-core and Legacy Portfolio, reflecting trade terminations, maturities and fair value changes, mainly related to interest rate contracts. Trading portfolio assets, as well as financial assets designated at fair value, available for sale and held to maturity, were also broadly unchanged as client-driven increases, primarily in the Investment Bank, were offset by currency effects.

® Refer to the “Consolidated financial statements” section of this report for more information

IFRS balance sheet assets
	As of			% change from
CHF billion	30.6.17	31.3.17	31.12.16	31.3.17	31.12.16
Cash and balances with central banks	100.1	108.9	107.8	(8)	(7)
Lending¹	322.7	323.3	319.5	0	1
Securities financing transactions²	90.4	95.5	81.4	(5)	11
Trading portfolio	107.7	107.2	96.6	0	11
Positive replacement values	121.9	121.5	158.4	0	(23)
Financial assets at FV / AFS / HTM³	74.6	74.3	90.3	0	(17)
Other assets⁴	73.5	78.8	81.1	(7)	(9)
Total IFRS assets	890.8	909.6	935.0	(2)	(5)
1 Consists of amounts due from banks and loans. 2 Consists of
reverse repurchase agreements and cash collateral on securities borrowed.
3 Consists of financial assets designated at fair value, financial assets
available for sale and financial assets held to maturity. 4 Includes cash
collateral receivables on derivative instruments and prime brokerage
receivables.

Balance sheet, liquidity and funding management

Liquidity coverage ratio

In the second quarter of 2017, our liquidity coverage ratio (LCR) increased 3 percentage points to 131%, remaining above the 110% Group LCR minimum communicated by FINMA. The increase in LCR primarily resulted from a decrease in net cash outflows, mainly related to secured lending, financial liabilities designated at fair value and customer deposits. This decrease was partly offset by a reduction in eligible HQLA, resulting from increased liquidity requirements applicable to our US operations.

® Refer to the “Treasury management” section of our Annual Report 2016 for more information on liquidity management and the liquidity coverage ratio

| Liquidity coverage ratio — CHF billion, except where
indicated | Average 2Q17 | Average 1Q17 |
| --- | --- | --- |
| High-quality liquid assets¹ | | |
| Cash balances² | 114 | 107 |
| Securities | 80 | 90 |
| of which: on-balance sheet³ | 64 | 76 |
| of which: off-balance sheet | 16 | 14 |
| Total high-quality liquid
assets⁴ | 194 | 197 |
| Cash outflows⁵ | | |
| Retail deposits and deposits from small business customers | 25 | 26 |
| Unsecured wholesale funding | 113 | 114 |
| Secured wholesale funding | 77 | 77 |
| Other cash outflows | 51 | 52 |
| Total cash outflows | 266 | 269 |
| Cash inflows⁵ | | |
| Secured lending | 77 | 74 |
| Inflows from fully performing exposures | 31 | 32 |
| Other cash inflows | 10 | 10 |
| Total cash inflows | 118 | 115 |
| Liquidity coverage ratio | | |
| High-quality liquid assets | 194 | 197 |
| Net cash outflows | 148 | 154 |
| Liquidity coverage ratio (%) | 131 | 128 |
| 1 Calculated after the application of haircuts. 2 Includes
cash and balances with central banks and other eligible balances as
prescribed by FINMA. 3 Includes financial assets designated at fair value,
available for sale and held to maturity and trading portfolio assets. 4
Calculated in accordance with FINMA requirements. 5 Calculated after the
application of inflow and outflow rates. | | |

Liabilities and funding management

Liabilities

Total liabilities decreased by CHF 17 billion to CHF 838 billion as of 30 June 2017. Customer deposits decreased by CHF 15 billion, primarily in Wealth Management Americas, resulting from the shift of customer sweep deposit balances in excess of insured limits to third-party banks and seasonal outflows. Other liabilities decreased by CHF 5 billion, mainly due to the aforementioned completion of the sale of a life insurance subsidiary, partly offset by an increase in cash collateral payables on derivative instruments. Long-term debt issued decreased by CHF 4 billion, mainly driven by a CHF 2 billion reduction in financial liabilities designated at fair value, primarily in our Foreign Exchange, Rates and Credit business, and currency effects. Long-term debt issued held at amortized cost was broadly unchanged as the maturity of CHF 5.2 billion equivalent of US dollar- and euro-denominated senior unsecured debt and the maturity of a USD 0.2 billion non-Basel III-compliant tier 2 capital instrument were mostly offset by the issuance of CHF 0.4 billion of Swiss franc-denominated senior unsecured debt that contributes to our total loss-absorbing capacity (TLAC) and CHF 4.8 billion equivalent of US dollar-denominated senior unsecured debt. Trading portfolio liabilities decreased by CHF 3 billion, primarily due to client-driven reductions in our Equities and Foreign Exchange, Rates and Credit businesses.

These decreases were partly offset by an CHF 11 billion increase in short-term borrowings, mainly reflecting net issuances of both commercial paper and certificates of deposit.

Negative replacement values were broadly unchanged, in line with PRVs.

The “Funding by product and currency” table and the “Asset funding” chart on the following page provide more information on our funding sources.

® Refer to “Bondholder information” at www.ubs.com/investors for more information on capital and senior debt instruments

® Refer to the “Consolidated financial statements” section of this report for more information

Equity

Equity attributable to shareholders decreased by CHF 1,917 million to CHF 51,744 million.

Total comprehensive income attributable to shareholders was CHF 89 million, reflecting net profit of CHF 1,174 million, largely offset by negative other comprehensive income (OCI) of CHF 1,086 million. OCI included negative foreign currency translation OCI of CHF 971 million, negative OCI related to financial assets available for sale of CHF 115 million, negative OCI related to own credit of CHF 73 million and negative cash flow hedge OCI of CHF 35 million, partly offset by defined benefit plan OCI of CHF 108 million.

Share premium decreased by CHF 2,037 million, mainly due to the payment of CHF 2,229 million to shareholders out of the capital contribution reserve of UBS Group AG, partly offset by employee share-based compensation, which increased share premium by CHF 184 million, mainly due to the amortization of deferred equity compensation awards.

Net treasury share activity increased equity attributable to shareholders by CHF 31 million.

® Refer to the “Consolidated financial statements” and “Group performance” sections of this report for more information

| IFRS balance sheet liabilities
and equity | | | | | |
| --- | --- | --- | --- | --- | --- |
| | As of | | | % change from | |
| CHF billion | 30.6.17 | 31.3.17 | 31.12.16 | 31.3.17 | 31.12.16 |
| Short-term borrowings¹ | 55.5 | 44.1 | 36.8 | 26 | 51 |
| Securities financing transactions² | 13.8 | 13.7 | 9.4 | 1 | 47 |
| Trading portfolio | 25.3 | 28.6 | 22.8 | (11) | 11 |
| Negative replacement values | 119.0 | 120.0 | 153.8 | (1) | (23) |
| Due to customers | 404.3 | 419.4 | 423.7 | (4) | (5) |
| Long-term debt issued³ | 132.1 | 136.0 | 132.5 | (3) | 0 |
| Other liabilities⁴ | 88.4 | 93.6 | 101.7 | (6) | (13) |
| Total IFRS liabilities | 838.4 | 855.3 | 880.7 | (2) | (5) |
| Share capital | 0.4 | 0.4 | 0.4 | 0 | 0 |
| Share premium | 25.6 | 27.6 | 28.3 | (7) | (9) |
| Treasury shares | (2.2) | (2.2) | (2.2) | (1) | (3) |
| Retained earnings | 34.1 | 32.9 | 31.7 | 4 | 7 |
| Other comprehensive income⁵ | (6.1) | (5.0) | (4.5) | 22 | 37 |
| Total IFRS equity
attributable to shareholders | 51.7 | 53.7 | 53.6 | (4) | (4) |
| IFRS equity attributable to non-controlling interests | 0.7 | 0.7 | 0.7 | 2 | 2 |
| Total IFRS equity | 52.4 | 54.3 | 54.3 | (4) | (3) |
| Total IFRS liabilities and
equity | 890.8 | 909.6 | 935.0 | (2) | (5) |
| 1 Consists of short-term debt issued and amounts due to
banks. 2 Consists of repurchase agreements and cash collateral on
securities lent. 3 Consists of long-term debt issued held at amortized
cost and financial liabilities designated at fair value. The classification
of debt issued into short-term and long-term does not consider any early
redemption features. 4 Includes cash collateral payables on derivative
instruments and prime brokerage payables. 5 Excludes defined benefit plans
and own credit that are recorded directly in Retained earnings. | | | | | |

Balance sheet, liquidity and funding management

Net stable funding ratio

As of 30 June 2017, our estimated pro forma net stable funding ratio (NSFR) was 110%, a decrease of 1 percentage point from 31 March 2017, primarily reflecting a decrease in available funding, mainly driven by deposit reductions, partly offset by a decrease in required funding.

The calculation of our pro forma NSFR includes estimates of the effect of the Basel Committee on Banking Supervision rules and interpretation and will be refined as FINMA NSFR rules are finalized, regulatory interpretations evolve and as new models and associated systems are enhanced. Our pro forma NSFR does not consider the proposed NSFR regulation in Switzerland, for which the consultation period recently closed. The proposed regulation contemplates an effective date of 1 January 2018; however, we expect the effective date to be postponed. If implemented as proposed, the new requirements are expected to have a moderate negative impact on our Group NSFR and could result in a significant increase in long-term funding requirements on a legal entity level.

® Refer to the “Recent developments” section of our first quarter 2017 report for more information on the implementation of the net stable funding ratio in Switzerland

® Refer to the “Treasury management” section of our Annual Report 2016 for more information on the net stable funding ratio

| Pro forma net stable funding
ratio — CHF billion, except where
indicated | 30.6.17 | 31.3.17 |
| --- | --- | --- |
| Available stable funding | 433 | 440 |
| Required stable funding | 393 | 395 |
| Pro forma net stable funding
ratio (%) | 110 | 111 |

Funding by product and currency
	CHF billion		As a percentage of total funding sources (%)
	All currencies		All currencies		CHF		EUR		USD		Other
	30.6.17	31.3.17	30.6.17	31.3.17	30.6.17	31.3.17	30.6.17	31.3.17	30.6.17	31.3.17	30.6.17	31.3.17
Short-term borrowings	55.5	44.1	8.3	6.5	0.5	0.5	2.0	1.2	4.2	3.7	1.7	1.1
of which: due to banks	11.6	8.7	1.7	1.3	0.4	0.4	0.3	0.2	0.8	0.5	0.3	0.2
of which: short-term debt
issued¹	43.9	35.4	6.6	5.2	0.1	0.1	1.7	1.0	3.4	3.2	1.4	0.9
Securities financing transactions	13.8	13.7	2.1	2.0	0.0	0.0	0.3	0.5	1.4	1.4	0.4	0.2
of which: securities lending	2.5	3.1	0.4	0.5	0.0	0.0	0.0	0.1	0.3	0.4	0.0	0.0
of which: repurchase
agreements	11.3	10.6	1.7	1.6	0.0	0.0	0.3	0.4	1.0	1.0	0.4	0.2
Cash collateral payables on derivative instruments	31.5	29.9	4.7	4.4	0.1	0.1	1.6	1.3	2.1	2.2	0.9	0.8
Due to customers	404.3	419.4	60.6	62.2	25.0	24.7	7.3	7.6	23.0	24.5	5.3	5.4
of which: demand deposits	189.8	193.6	28.4	28.7	9.0	9.1	6.4	6.5	9.0	9.2	3.9	3.9
of which: retail savings /
deposits	158.9	168.8	23.8	25.0	14.7	14.2	0.8	0.8	8.3	10.0	0.0	0.0
of which: time deposits	49.1	50.3	7.4	7.5	1.1	1.4	0.1	0.2	4.9	4.6	1.3	1.3
of which: fiduciary deposits	6.5	6.6	1.0	1.0	0.0	0.0	0.0	0.1	0.8	0.7	0.1	0.1
Long-term debt issued²	132.1	136.0	19.8	20.2	2.0	1.9	4.4	5.0	12.2	12.1	1.2	1.2
Prime brokerage payables	30.1	31.5	4.5	4.7	0.1	0.1	0.5	0.5	2.7	2.9	1.2	1.2
Total	667.3	674.5	100.0	100.0	27.6	27.3	16.1	16.1	45.6	46.7	10.7	9.9
1 Short-term debt issued is comprised of certificates of
deposit, commercial paper, acceptances and promissory notes, and other money
market paper. 2 Long-term debt issued also includes debt with a remaining
time to maturity of less than one year. The classification of debt issued
into short-term and long-term does not consider any early redemption
features.

Capital management

This section should be read in conjunction with the “Capital management” section of our Annual Report 2016, which provides more information about our strategy, objectives and governance for capital management.

Disclosures in this section are provided for UBS Group AG on a consolidated basis and focus on information in accordance with the Basel III framework as applicable to Swiss systemically relevant banks (SRBs).

Information in accordance with the Basel Committee on Banking Supervision framework for UBS Group AG consolidated is provided in our UBS Group AG and significant regulated subsidiaries and sub-groups second quarter 2017 Pillar 3 report under “Pillar 3 disclosures” at www.ubs.com/investors , and in our UBS Group AG 2017 semiannual Pillar 3 report, which will be available at the same location from 3 August 2017.

Capital and other regulatory information for UBS AG consolidated is provided in the UBS AG second quarter 2017 report, which will be available from 3 August 2017 under “Quarterly reporting” at www.ubs.com/investors.

Capital and other regulatory information for UBS AG standalone, UBS Switzerland AG standalone, UBS Limited standalone and UBS Americas Holding LLC consolidated is provided in the aforementioned UBS Group AG and significant regulated subsidiaries and sub-groups second quarter 2017 Pillar 3 report.

Requirements and capital adequacy information

Information on the Swiss SRB capital framework and on Swiss SRB going and gone concern requirements that are being phased in until the end of 2019 is provided in the “Capital management” section of our Annual Report 2016. These requirements are also applicable to UBS AG consolidated and UBS Switzerland AG standalone.

The table below provides the risk-weighted assets (RWA)- and leverage ratio denominator (LRD)-based requirements and information as of 30 June 2017.

| Swiss SRB going and gone
concern requirements and information¹ | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | Swiss SRB, including transitional arrangements (phase-in) | | | | | | | |
| As of 30.6.17 | RWA | | | | LRD | | | |
| CHF million, except where
indicated | Requirement (%) | Actual (%) | Requirement | Eligible | Requirement (%) | Actual (%) | Requirement | Eligible |
| Common equity tier 1 capital | 9.22 | 14.82 | 21,917 | 35,243 | 2.60 | 4.08 | 22,437 | 35,243 |
| Maximum high-trigger loss-absorbing additional tier 1 capital²˒³ | 3.00 | 6.92 | 7,135 | 16,456 | 0.90 | 1.91 | 7,767 | 16,456 |
| of which: high-trigger
loss-absorbing additional tier 1 capital | | 2.73 | | 6,485 | | 0.75 | | 6,485 |
| of which: low-trigger
loss-absorbing additional tier 1 capital | | 0.44 | | 1,035 | | 0.12 | | 1,035 |
| of which: high-trigger
loss-absorbing tier 2 capital | | 0.36 | | 856 | | 0.10 | | 856 |
| of which: low-trigger
loss-absorbing tier 2 capital | | 3.40 | | 8,080 | | 0.94 | | 8,080 |
| Total going concern capital | 12.22⁴ | 21.74 | 29,052 | 51,700 | 3.50⁵ | 5.99 | 30,204 | 51,700 |
| Base gone concern loss-absorbing capacity, including applicable
add-ons | 6.20⁶ | 10.45 | 14,745 | 24,847 | 2.00⁶ | 2.88 | 17,260 | 24,847 |
| Total gone concern
loss-absorbing capacity | 6.20 | 10.45 | 14,745 | 24,847 | 2.00 | 2.88 | 17,260 | 24,847 |
| Total loss-absorbing
capacity | 18.42 | 32.19 | 43,796 | 76,547 | 5.50 | 8.87 | 47,464 | 76,547 |
| | Swiss SRB as of 1.1.20 (fully applied) | | | | | | | |
| As of 30.6.17 | RWA | | | | LRD | | | |
| CHF million, except where
indicated | Requirement (%) | Actual (%) | Requirement | Eligible | Requirement (%) | Actual (%) | Requirement | Eligible |
| Common equity tier 1 capital | 10.22 | 13.47 | 24,181 | 31,887 | 3.50 | 3.70 | 30,131 | 31,887 |
| Maximum high-trigger loss-absorbing additional tier 1 capital² | 4.30 | 3.71 | 10,178 | 8,780 | 1.50 | 1.02 | 12,913 | 8,780 |
| of which: high-trigger
loss-absorbing additional tier 1 capital | | 2.74 | | 6,485 | | 0.75 | | 6,485 |
| of which: low-trigger
loss-absorbing additional tier 1 capital | | 0.97 | | 2,295 | | 0.27 | | 2,295 |
| Total going concern capital | 14.52⁷ | 17.18 | 34,359 | 40,668 | 5.00⁸ | 4.72 | 43,044 | 40,668 |
| Base gone concern loss-absorbing capacity, including applicable
add-ons | 14.30 | 14.01 | 33,848 | 33,151 | 5.00 | 3.85 | 43,044 | 33,151 |
| Total gone concern
loss-absorbing capacity | 14.30 | 14.01 | 33,848 | 33,151 | 5.00 | 3.85 | 43,044 | 33,151 |
| Total loss-absorbing
capacity | 28.82 | 31.19 | 68,206 | 73,819 | 10.00 | 8.57 | 86,088 | 73,819 |
| 1 This table does not include the effect of any gone concern
requirement rebate. 2 Includes outstanding low-trigger loss-absorbing
additional tier 1 (AT1) capital instruments, which under the transitional
rules of the Swiss SRB framework will remain available to meet the going
concern requirements until their first call date, even if the first call date
is after 31 December 2019. From their first call date, they may be used to
meet the gone concern requirements. Low-trigger loss-absorbing AT1 capital
was partly offset by required deductions for goodwill on a phase-in basis.
3 Includes outstanding high- and low-trigger loss-absorbing tier 2 capital
instruments, which under the transitional rules of the Swiss SRB framework
will remain available to meet the going concern requirements until the
earlier of (i) their maturity or first call date or (ii) 31 December 2019. As
of 1 January 2020, these instruments may be used to meet the gone concern
requirements until one year before maturity, with a haircut of 50% applied in
the last year of eligibility. 4 Consists of a minimum capital requirement
of 8% and a buffer capital requirement of 4.22%, including the effect of
countercyclical buffers of 0.22%. 5 Consists of a minimum leverage ratio
requirement of 3% and a buffer leverage ratio requirement of 0.5%. 6
Includes applicable add-ons of 0.36% for RWA and 0.13% for leverage ratio
denominator (LRD). 7 Consists of a minimum capital requirement of 8% and a
buffer capital requirement of 6.52%, including the effect of countercyclical
buffers of 0.22% and applicable add-ons of 1.44%. 8 Consists of a minimum
leverage ratio requirement of 3% and a buffer leverage ratio requirement of
2%, including applicable add-ons of 0.5%. | | | | | | | | |

Capital management

Loss-absorbing capacity

| Swiss SRB going and gone
concern information | | | | | | |
| --- | --- | --- | --- | --- | --- | --- |
| | Swiss SRB, including transitional arrangements (phase-in) | | | Swiss SRB as of 1.1.20 (fully applied) | | |
| CHF million, except where
indicated | 30.6.17 | 31.3.17 | 31.12.16 | 30.6.17 | 31.3.17 | 31.12.16 |
| Going concern capital | | | | | | |
| Common equity tier 1 capital | 35,243 | 34,841 | 37,788 | 31,887 | 31,311 | 30,693 |
| High-trigger loss-absorbing additional tier 1 capital | 6,485 | 6,692 | 6,512¹ | 6,485 | 6,692 | 6,809 |
| Low-trigger loss-absorbing additional tier 1 capital | 1,035² | 1,009² | 0¹ | 2,295 | 2,313 | 2,342 |
| Total loss-absorbing
additional tier 1 capital | 7,521 | 7,701 | 6,512 | 8,780 | 9,005 | 9,151 |
| Total tier 1 capital | 42,764 | 42,542 | 44,299 | 40,668 | 40,317 | 39,844 |
| High-trigger loss-absorbing tier 2 capital | 856 | 878 | 891 | | | |
| Low-trigger loss-absorbing tier 2 capital | 8,080 | 8,238 | 10,402 | | | |
| Total tier 2 capital | 8,936 | 9,116 | 11,293 | | | |
| Total going concern capital | 51,700 | 51,658 | 55,593 | 40,668 | 40,317 | 39,844 |
| Gone concern loss-absorbing capacity | | | | | | |
| Non-Basel III-compliant tier 1 capital³ | 657 | 641 | 642 | 657 | 641 | 642 |
| Total tier 1 capital | 657 | 641 | 642 | 657 | 641 | 642 |
| High-trigger loss-absorbing tier 2 capital | | | | 224 | 230 | 679 |
| Low-trigger loss-absorbing tier 2 capital | | | | 8,080 | 8,238 | 10,402 |
| Non-Basel III-compliant tier 2 capital³ | 669 | 688 | 698 | 669 | 688 | 698 |
| Total tier 2 capital | 669 | 688 | 698 | 8,973 | 9,156 | 11,779 |
| TLAC-eligible senior
unsecured debt | 23,521 | 23,531 | 16,890 | 23,521 | 23,531 | 16,890 |
| Total gone concern
loss-absorbing capacity | 24,847 | 24,860 | 18,229 | 33,151 | 33,328 | 29,311 |
| Total loss-absorbing capacity | | | | | | |
| Total loss-absorbing
capacity | 76,547 | 76,517 | 73,822 | 73,819 | 73,645 | 69,154 |
| Risk-weighted assets /
leverage ratio denominator | | | | | | |
| Risk-weighted assets | 237,818 | 223,137 | 225,412 | 236,697 | 221,785 | 222,677 |
| Leverage ratio denominator | 862,975 | 883,408 | 874,925 | 860,879 | 881,183 | 870,470 |
| Capital and loss-absorbing
capacity ratios (%) | | | | | | |
| Going concern capital ratio | 21.7 | 23.2 | 24.7 | 17.2 | 18.2 | 17.9 |
| of which: common equity tier
1 capital ratio | 14.8 | 15.6 | 16.8 | 13.5 | 14.1 | 13.8 |
| Gone concern loss-absorbing capacity ratio | 10.4 | 11.1 | 8.1 | 14.0 | 15.0 | 13.2 |
| Total loss-absorbing capacity ratio | 32.2 | 34.3 | 32.7 | 31.2 | 33.2 | 31.1 |
| Leverage ratios (%) | | | | | | |
| Going concern leverage ratio | 6.0 | 5.8 | 6.4 | 4.7 | 4.6 | 4.6 |
| of which: common equity tier
1 leverage ratio | 4.1 | 3.9 | 4.3 | 3.7 | 3.6 | 3.5 |
| Gone concern leverage ratio | 2.9 | 2.8 | 2.1 | 3.9 | 3.8 | 3.4 |
| Total loss-absorbing capacity leverage ratio | 8.9 | 8.7 | 8.4 | 8.6 | 8.4 | 7.9 |
| 1 High-trigger loss-absorbing additional tier 1 (AT1) capital of
CHF 6,809 million and low-trigger loss-absorbing AT1 capital of CHF 2,342
million were partly offset by required deductions for goodwill of CHF 2,639
million. 2 Low-trigger loss-absorbing AT1 capital (30 June 2017: CHF 2,295
million; 31 March 2017: CHF 2,313 million) was partly offset by required
deductions for goodwill (30 June 2017: CHF 1,260 million; 31 March 2017: CHF
1,304 million). 3 Non-Basel III-compliant tier 1 and tier 2 capital
instruments qualify as gone concern instruments. Under the Swiss SRB rules,
these instruments are no longer subject to phase-out. Instruments with a
maturity date are eligible to meet the gone concern requirements until one year
prior to maturity, with a haircut of 50% applied in the last year of
eligibility. | | | | | | |

Going concern capital

Our fully applied common equity tier 1 (CET1) capital increased by CHF 0.6 billion to CHF 31.9 billion as of 30 June 2017, mainly as a result of operating profit before tax, partly offset by accruals for capital returns to shareholders, tax effects, foreign currency translation effects and higher deductions for expected losses on the advanced IRB portfolio.

® Refer to “Risk-weighted assets” in this section for more information on the implementation of changes to the probability of default and loss given default parameters impacting expected losses

Gone concern loss-absorbing capacity

During the second quarter of 2017, our fully applied gone concern loss-absorbing capacity decreased by CHF 0.2 billion to CHF 33.2 billion. The issuance of CHF 0.4 billion senior unsecured debt instruments that contribute to total loss-absorbing capacity (TLAC) was more than offset by foreign currency translation and other effects.

® Refer to “Bondholder information” at www.ubs.com/investors for more information on the eligibility of capital and senior unsecured debt instruments and on key features and terms and conditions of capital instruments

Loss-absorbing capacity and leverage ratios

During the second quarter of 2017, our fully applied CET1 capital ratio decreased 0.6 percentage points to 13.5% as of 30 June 2017, reflecting an increase in RWA of CHF 14.9 billion, partly offset by an increase of CHF 0.6 billion in CET1 capital.

In the second quarter of 2017, our fully applied CET1 leverage ratio increased 0.1 percentage points to 3.7% as of 30 June 2017, due to a CHF 20 billion decrease in LRD and a CHF 0.6 billion increase in CET1 capital.

On a phase-in basis, our CET1 capital ratio decreased 0.8 percentage points to 14.8%, while our CET1 leverage ratio increased 0.2 percentage points to 4.1%.

On a fully applied basis, our gone concern loss-absorbing capacity ratio decreased 1.0 percentage point to 14.0% primarily driven by the aforementioned increase in RWA. Our gone concern leverage ratio increased 0.1 percentage points to 3.9%.

| Reconciliation IFRS equity to
Swiss SRB common equity tier 1 capital | | | | | | |
| --- | --- | --- | --- | --- | --- | --- |
| | Swiss SRB, including transitional arrangements (phase-in) | | | Swiss SRB as of 1.1.20 (fully applied) | | |
| CHF million | 30.6.17 | 31.3.17 | 31.12.16 | 30.6.17 | 31.3.17 | 31.12.16 |
| Total IFRS equity | 52,437 | 54,340 | 54,302 | 52,437 | 54,340 | 54,302 |
| Equity attributable to non-controlling interests | (693) | (679) | (682) | (693) | (679) | (682) |
| Deferred tax assets recognized for tax loss carry-forwards¹ | (6,566) | (6,733) | (5,042) | (8,207) | (8,417) | (8,403) |
| Deferred tax assets on temporary differences, excess over
threshold | (658) | (968) | (741) | (1,112) | (1,509) | (1,835) |
| Goodwill, net of tax¹˒² | (5,039) | (5,217) | (3,959) | (6,298) | (6,521) | (6,599) |
| Intangible assets, net of tax | (199) | (218) | (241) | (199) | (218) | (241) |
| Unrealized (gains) / losses from cash flow hedges, net of
tax | (739) | (774) | (972) | (739) | (774) | (972) |
| Compensation-related components (not recognized in net profit) | (1,401) | (1,236) | (1,589) | (1,401) | (1,236) | (1,589) |
| Unrealized own credit related to financial liabilities
designated at fair value, net of tax, and replacement values | 58 | (67) | (294) | 58 | (67) | (294) |
| Unrealized gains related to financial assets available for sale,
net of tax | (175) | (288) | (262) | (175) | (288) | (262) |
| Prudential valuation
adjustments | (69) | (72) | (68) | (69) | (72) | (68) |
| Consolidation scope | (53) | (131) | (129) | (53) | (131) | (129) |
| Accruals for dividends to shareholders for 2016 | 0 | (2,250) | (2,250) | 0 | (2,250) | (2,250) |
| Expected losses on advanced internal ratings-based portfolio
less general provisions | (511) | (399) | (356) | (511) | (399) | (356) |
| Other³ | (1,149) | (467) | 71 | (1,149) | (467) | 71 |
| Total common equity tier 1
capital | 35,243 | 34,841 | 37,788 | 31,887 | 31,311 | 30,693 |
| 1 As of 30 June 2017 and 31 March 2017, the phase-in deduction
applied was 80%; as of 31 December 2016, the phase-in deduction applied was
60%. 2 Includes goodwill related to significant investments in financial
institutions of CHF 331 million (31 March 2017: CHF 340 million; 31 December
2016: CHF 342 million). 3 Includes accruals for dividends to shareholders
for the current year and other items. | | | | | | |

Capital management

Post-stress CET1 capital ratio

We are committed to total capital returns to shareholders of at least 50% of net profit attributable to shareholders, provided that we maintain a fully applied CET1 capital ratio of at least 13% and consistent with our objective of maintaining a post-stress fully applied CET1 capital ratio of at least 10%. Our post-stress CET1 capital ratio exceeded the 10% objective as of 30 June 2017.

| Swiss SRB total loss-absorbing
capacity movement — CHF million | Swiss SRB, including transitional arrangements (phase-in) | Swiss SRB as of 1.1.20 (fully applied) |
| --- | --- | --- |
| Going concern capital | | |
| Common equity tier 1 capital
as of 31.3.17 | 34,841 | 31,311 |
| Operating profit before tax | 1,502 | 1,502 |
| Current tax (expense) / benefit | (194) | (194) |
| Foreign currency translation effects | (402) | (290) |
| Expected loss on advanced IRB portfolio less general provisions | (113) | (113) |
| Defined benefit plans | 91 | 91 |
| Compensation-related capital and share premium components | 23 | 23 |
| Other | (503) | (442) |
| Common equity tier 1 capital
as of 30.6.17 | 35,243 | 31,887 |
| Loss-absorbing additional
tier 1 capital as of 31.3.17 | 7,701 | 9,005 |
| Foreign currency translation and other effects | (180) | (225) |
| Loss-absorbing additional tier
1 capital as of 30.6.17 | 7,521 | 8,780 |
| Tier 2 capital as of 31.3.17 | 9,116 | |
| Foreign currency translation and other effects | (180) | |
| Tier 2 capital as of 30.6.17 | 8,936 | |
| Total going concern capital
as of 31.3.17 | 51,658 | 40,317 |
| Total going concern capital
as of 30.6.17 | 51,700 | 40,668 |
| Gone concern loss-absorbing
capacity | | |
| Tier 1 capital as of 31.3.17 | 641 | 641 |
| Foreign currency translation and other effects | 16 | 16 |
| Tier 1 capital as of 30.6.17 | 657 | 657 |
| Tier 2 capital as of 31.3.17 | 688 | 9,156 |
| Foreign currency translation and other effects | (18) | (183) |
| Tier 2 capital as of 30.6.17 | 669 | 8,973 |
| TLAC-eligible senior
unsecured debt as of 31.3.17 | 23,531 | 23,531 |
| Issuance of a TLAC-eligible senior unsecured debt instrument | 400 | 400 |
| Foreign currency translation and other effects | (410) | (410) |
| TLAC-eligible senior
unsecured debt as of 30.6.17 | 23,521 | 23,521 |
| Total gone concern
loss-absorbing capacity as of 31.3.17 | 24,860 | 33,328 |
| Total gone concern
loss-absorbing capacity as of 30.6.17 | 24,847 | 33,151 |
| Total loss-absorbing capacity | | |
| Total loss-absorbing
capacity as of 31.3.17 | 76,517 | 73,645 |
| Total loss-absorbing
capacity as of 30.6.17 | 76,547 | 73,819 |

Additional information

Sensitivity to currency movements

Risk-weighted assets

We estimate that a 10% depreciation of the Swiss franc against other currencies would have increased our fully applied RWA by CHF 11 billion and our fully applied CET1 capital by CHF 1.2 billion as of 30 June 2017 (31 March 2017: CHF 9 billion and CHF 1.2 billion, respectively) and reduced our fully applied CET1 capital ratio by 11 basis points (31 March 2017: 6 basis points). Conversely, we estimate that a 10% appreciation of the Swiss franc against other currencies would have reduced our fully applied RWA by CHF 10 billion and our fully applied CET1 capital by CHF 1.1 billion (31 March 2017: CHF 9 billion and CHF 1.1 billion, respectively) and increased our fully applied CET1 capital ratio by 11 basis points (31 March 2017: 6 basis points).

® Refer to “Active management of sensitivity to currency movements” in the “Capital management” section of our Annual Report 2016 for more information

Leverage ratio denominator

We estimate that a 10% depreciation of the Swiss franc against other currencies would have increased our fully applied LRD by CHF 64 billion (31 March 2017: CHF 66 billion) and reduced our fully applied Swiss SRB going concern leverage ratio by 11 basis points (31 March 2017: 10 basis points). Conversely, we estimate that a 10% appreciation of the Swiss franc against other currencies would have reduced our fully applied LRD by CHF 58 billion (31 March 2016: CHF 59 billion) and increased our fully applied Swiss SRB going concern leverage ratio by 11 basis points (31 March 2017: 10 basis points).

® Refer to “Active management of sensitivity to currency movements” in the “Capital management” section of our Annual Report 2016 for more information

The aforementioned sensitivities do not consider foreign currency translation effects related to defined benefit plans other than those related to the currency translation of the net equity of foreign operations.

Estimated effect on capital from litigation, regulatory and similar matters subject to provisions and contingent liabilities

We have estimated the loss in capital that we could incur as a result of the risks associated with the matters described in “Note 14 Provisions and contingent liabilities” to our consolidated financial statements. This is an estimated amount and is not related to and should not be considered in addition to these provisions and contingent liabilities. We have utilized for this purpose the advanced measurement approach (AMA) methodology that we use when determining the capital requirements associated with operational risks, based on a 99.9% confidence level over a 12-month horizon. The methodology takes into consideration UBS and industry experience for the AMA operational risk categories to which those matters correspond, as well as the external environment affecting risks of these types, in isolation from other areas. On this standalone basis, we estimate the loss in capital that we could incur over a 12-month period as a result of our risks associated with these operational risk categories at CHF 4.9 billion as of 30 June 2017. This estimate does not take into account any provisions recognized for any of these matters and does not constitute a subjective assessment of UBS’s actual exposure in any of these matters.

® Refer to “Note 14 Provisions and contingent liabilities” in the “Consolidated financial statements” section of this report for more information

Capital management

Risk-weighted assets

During the second quarter of 2017, fully applied risk-weighted assets (RWA) increased by CHF 14.9 billion to CHF 236.7 billion, driven by methodology, policy changes and model updates of CHF 14.0 billion and asset size and other movements of CHF 6.3 billion, partly offset by currency effects of CHF 2.9 billion and a reduction in regulatory add-ons of CHF 2.5 billion.

| Movement in fully applied
risk-weighted assets by key driver — CHF billion | RWA as of 31.3.17 | Currency effects | Methodology, policy changes and model updates | Regulatory add-ons | Asset size and other¹ | RWA as of 30.6.17 |
| --- | --- | --- | --- | --- | --- | --- |
| Credit risk | 116.4 | (2.5) | 13.7 | (2.1) | 1.3 | 126.8 |
| Non-counterparty-related risk | 16.7 | (0.3) | | | 0.5 | 16.8 |
| Market risk | 9.3 | | 0.3 | (0.4) | 4.5 | 13.7 |
| Operational risk | 79.4 | | 0.0 | | 0.0 | 79.4 |
| Total | 221.8 | (2.9) | 14.0 | (2.5) | 6.3 | 236.7 |
| 1 Includes the Pillar 3 categories “Asset size,” “Credit quality
of counterparties,” “Acquisitions and disposals” and “Other.” Refer to the
UBS Group AG and significant regulated subsidiaries and sub-groups second
quarter 2017 Pillar 3 report under “Pillar 3 disclosures” at
www.ubs.com/investors for more information. | | | | | | |

Credit risk

Credit risk RWA increased by CHF 10.4 billion to CHF 126.8 billion as of 30 June 2017.

RWA increased by CHF 13.7 billion due to methodology, policy changes and model updates. An increase of CHF 5.1 billion resulted from the implementation of changes to the probability of default (PD) and loss given default (LGD) parameters for income-producing real estate exposures (IPRE), of which CHF 4.3 billion was in Personal & Corporate Banking and CHF 0.8 billion in Wealth Management. A CHF 4.7 billion increase resulted from changes to LGD parameters for exposures to multinationals, sovereigns and financial institutions, of which CHF 3.6 billion was in the Investment Bank. An increase of CHF 2.5 billion was due to higher RWA for derivative exposures, driven by an update of the stress period used for the Basel III exposure-at-default calculation, mainly in the Investment Bank. Furthermore, a CHF 0.9 billion increase was driven by the implementation of changes to PD and LGD parameters for Lombard exposures in Wealth Management and of revised credit conversion factors (CCFs) for construction loans in Personal & Corporate Banking.

These increases were partly offset by a net CHF 2.1 billion reduction in FINMA regulatory add-ons, which were reduced by CHF 2.0 billion in Personal & Corporate Banking, CHF 0.4 billion in Wealth Management and CHF 0.5 billion in the Investment Bank, following FINMA approval of the aforementioned updates to PD and LGD parameters. Regulatory add-ons from internal ratings-based (IRB) multipliers increased by CHF 0.8 billion, primarily on Investment Bank exposures to corporates.

We anticipate that additional methodology changes and model updates, including the remainder of the adjustments to the PD and LGD factors, CCF and scheduled increases in the FINMA-required multiplier for Investment Bank exposures to corporates will increase credit risk RWA by around CHF 4 billion in the second half of 2017. The extent and timing of further RWA increases may vary as methodology changes and model updates are completed and receive regulatory approval, and regulatory-imposed multipliers are adjusted. In addition, changes in composition of the relevant portfolios and other factors will affect our RWA. Our estimates of future regulatory-driven RWA increases do not reflect mitigating actions that we may take or further proposed changes to the Basel framework.

® Refer to “Credit risk models” in the “Risk management and control” section of our Annual Report 2016 for more information on loss given default, probability of default, credit conversion factors and exposure at default

Market risk

Market risk RWA increased by CHF 4.5 billion due to asset size and other movements, mainly as a result of higher average stressed value-at-risk (SVaR) levels observed during the quarter, primarily in the Investment Bank’s Equities and Foreign Exchange, Rates and Credit businesses.

In the second half of 2017, we currently expect changes to the risks-not-in-VaR charge, which will be subject to FINMA approval. Based on our current estimates, this is expected to result in an RWA increase of approximately CHF 2 billion, with an additional similar effect in 2018.

® Refer to the “Risk management and control” section of this report and the UBS Group AG and significant regulated subsidiaries and sub-groups second quarter 2017 Pillar 3 report under “Pillar 3 disclosures” at www.ubs.com/investors for more information on market risk developments

Operational risk

Operational risk RWA were unchanged at CHF 79.4 billion.

® Refer to “Operational risk” in the “Risk management and control” section of our Annual Report 2016 for more information on the advanced measurement approach model

| Risk-weighted assets by business division and Corporate Center
unit — CHF billion | Wealth Management | Wealth Management Americas | Personal & Corporate Banking | Asset Manage- ment | Investment Bank | CC – Services | CC – Group ALM | CC – Non- core and Legacy Portfolio | Total RWA |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | 30.6.17 | | | | | | | | |
| Credit risk | 15.0 | 9.4 | 42.8 | 1.6 | 42.2 | 1.6 | 8.9 | 5.4 | 126.8 |
| Advanced IRB approach¹ | 11.3 | 4.4 | 41.1 | 1.1 | 38.9 | 0.3 | 6.9 | 3.9 | 107.8 |
| Standardized approach² | 3.6 | 5.0 | 1.8 | 0.6 | 3.3 | 1.3 | 2.0 | 1.5 | 19.0 |
| Non-counterparty-related
risk³ | 0.1 | 0.0 | 0.1 | 0.0 | 0.0 | 17.8 | 0.0 | 0.0 | 17.9 |
| Market risk | 0.0 | 1.3 | 0.0 | 0.0 | 12.9 | (2.9)⁴ | 0.5 | 1.8 | 13.7 |
| Operational risk | 13.5 | 13.5 | 4.0 | 2.4 | 19.8 | 13.3 | 2.5 | 10.3 | 79.4 |
| RWA, phase-in | 28.5 | 24.2 | 46.9 | 4.0 | 74.9 | 29.8 | 12.0 | 17.5 | 237.8 |
| Phase-out items⁵ | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | (1.1) | 0.0 | 0.0 | (1.1) |
| RWA, fully applied⁶ | 28.5 | 24.2 | 46.9 | 4.0 | 74.9 | 28.7 | 12.0 | 17.5 | 236.7 |
| RWA held by CC – Group ALM on behalf of business divisions and
other CC units⁷ | 1.4 | 0.9 | 1.1 | 0.1 | 0.7 | 0.0 | (4.2) | 0.0 | 0.0 |
| RWA after allocation from CC
– Group ALM to business divisions and other CC units | 29.9 | 25.1 | 47.9 | 4.1 | 75.7 | 28.7 | 7.8 | 17.5 | 236.7 |
| | 31.3.17 | | | | | | | | |
| Credit risk | 13.8 | 9.5 | 40.4 | 1.7 | 36.7 | 1.5 | 7.5 | 5.4 | 116.4 |
| Advanced IRB approach¹ | 10.0 | 4.5 | 38.5 | 1.0 | 33.2 | 0.3 | 5.8 | 4.1 | 97.5 |
| Standardized approach² | 3.8 | 5.0 | 1.9 | 0.6 | 3.6 | 1.2 | 1.6 | 1.3 | 18.9 |
| Non-counterparty-related
risk³ | 0.1 | 0.0 | 0.1 | 0.0 | 0.0 | 17.8 | 0.0 | 0.0 | 18.0 |
| Market risk | 0.0 | 1.0 | 0.0 | 0.0 | 8.8 | (2.4)⁴ | 0.5 | 1.4 | 9.3 |
| Operational risk | 13.5 | 13.5 | 4.0 | 2.4 | 19.8 | 13.3 | 2.5 | 10.3 | 79.4 |
| RWA, phase-in | 27.4 | 24.1 | 44.4 | 4.1 | 65.4 | 30.2 | 10.5 | 17.1 | 223.1 |
| Phase-out items⁵ | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | (1.4) | 0.0 | 0.0 | (1.4) |
| RWA, fully applied⁶ | 27.4 | 24.1 | 44.4 | 4.1 | 65.4 | 28.9 | 10.5 | 17.1 | 221.8 |
| RWA held by CC – Group ALM on behalf of business divisions and
other CC units⁷ | 1.3 | 1.0 | 1.1 | 0.1 | 0.8 | 0.0 | (4.3) | 0.0 | 0.0 |
| RWA after allocation from CC
– Group ALM to business divisions and other CC units | 28.7 | 25.1 | 45.5 | 4.1 | 66.2 | 28.9 | 6.2 | 17.2 | 221.8 |
| | 30.6.17 vs 31.3.17 | | | | | | | | |
| Credit risk | 1.2 | (0.1) | 2.4 | (0.1) | 5.5 | 0.1 | 1.4 | 0.0 | 10.4 |
| Advanced IRB approach¹ | 1.3 | (0.1) | 2.6 | 0.1 | 5.7 | 0.0 | 1.1 | (0.2) | 10.3 |
| Standardized approach² | (0.2) | 0.0 | (0.1) | 0.0 | (0.3) | 0.1 | 0.4 | 0.2 | 0.1 |
| Non-counterparty-related
risk³ | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | (0.1) |
| Market risk | 0.0 | 0.3 | 0.0 | 0.0 | 4.1 | (0.5) | 0.0 | 0.4 | 4.4 |
| Operational risk | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| RWA, phase-in | 1.1 | 0.1 | 2.5 | (0.1) | 9.5 | (0.4) | 1.5 | 0.4 | 14.7 |
| Phase-out items⁵ | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.3 | 0.0 | 0.0 | 0.3 |
| RWA, fully applied⁶ | 1.1 | 0.1 | 2.5 | (0.1) | 9.5 | (0.2) | 1.5 | 0.4 | 14.9 |
| RWA held by CC – Group ALM on behalf of business divisions and
other CC units⁷ | 0.1 | (0.1) | 0.0 | 0.0 | (0.1) | 0.0 | 0.1 | 0.0 | 0.0 |
| RWA after allocation from CC
– Group ALM to business divisions and other CC units | 1.2 | 0.0 | 2.4 | 0.0 | 9.5 | (0.2) | 1.6 | 0.3 | 14.9 |
| 1 Includes equity exposures in the banking book according to the
simple risk weight method. 2 Includes settlement risk and business transfers.
3 Non-counterparty-related risk includes deferred tax assets recognized for
temporary differences (30 June 2017: CHF 9.4 billion; 31 March 2017: CHF 9.6
billion), property, equipment and software (30 June 2017: CHF 8.4 billion; 31
March 2017: CHF 8.3 billion) and other items (30 June 2017: CHF 0.1 billion;
31 March 2017: CHF 0.2 billion). 4 Corporate Center – Services market risk
RWA were negative, as they included the effect of portfolio diversification
across businesses. 5 Phase-out items are entirely related to
non-counterparty-related risk RWA. 6 RWA held by business division and
Corporate Center unit. 7 Represents RWA held by Corporate Center – Group
ALM that are directly associated with activity managed centrally on behalf of
the business divisions and other Corporate Center units. For the purpose of
attributing equity under the revised framework effective as of 1 January
2017, these resources are allocated to the business divisions and other
Corporate Center units, primarily based on the level of high-quality liquid
assets needed to meet the Group’s minimum liquidity coverage ratio
requirement of 110%. Refer to “Equity attribution framework“ in the “Capital
management“ section of our Annual Report 2016 for more information. | | | | | | | | | |

Capital management

Leverage ratio denominator

During the second quarter of 2017, the fully applied leverage ratio denominator (LRD) decreased by CHF 20 billion to CHF 861 billion, driven by currency effects of CHF 16 billion, asset size and other movements of CHF 3 billion and incremental netting and collateral mitigation of CHF 2 billion.

| Movement in the fully applied
leverage ratio denominator by key driver — CHF billion | LRD as of 31.3.17 | Currency effects | Incremental netting and collateral mitigation | Asset size and other | LRD as of 30.6.17 |
| --- | --- | --- | --- | --- | --- |
| On-balance sheet exposures (excluding derivative exposures and
SFTs)¹ | 638.2 | (11.1) | | 1.3 | 628.5 |
| Derivative exposures | 102.7 | (1.8) | (1.3) | 0.0 | 99.7 |
| Securities financing transactions | 120.8 | (2.7) | (0.2) | (2.0) | 115.8 |
| Off-balance sheet items | 36.8 | (0.9) | | (2.5) | 33.4 |
| Deduction items | (17.4) | 0.6 | | 0.2 | (16.5) |
| Total | 881.2 | (15.8) | (1.5) | (3.0) | 860.9 |
| 1 Excludes positive replacement values, cash collateral
receivables on derivative instruments, cash collateral on securities
borrowed, reverse repurchase agreements, margin loans and prime brokerage
receivables related to securities financing transactions, which are presented
separately under Derivative exposures and Securities financing transactions
in this table. | | | | | |

Currency effects mainly reflect the weakening of the US dollar against the Swiss franc. The LRD movements described below exclude currency effects.

The decrease from asset size and other movements of CHF 3 billion was driven by a reduction of CHF 3 billion in off-balance sheet items and a decrease of CHF 2 billion in securities financing transactions (SFTs), partly offset by higher on-balance sheet exposures (excluding derivatives and SFTs) of CHF 1 billion.

Off-balance sheet items decreased by CHF 3 billion primarily due to client-driven reductions, mainly in the Investment Bank.

The decrease of CHF 2 billion in SFTs was primarily due to client-driven reductions in our Foreign Exchange, Rates and Credit business within the Investment Bank.

On-balance sheet exposures (excluding derivatives and SFTs) increased by CHF 1 billion due to client-driven increases of CHF 5 billion in trading portfolio assets and financial assets designated at fair value, available for sale and held to maturity, mainly in the Investment Bank, as well as due to higher lending assets of CHF 4 billion, primarily relating to Lombard lending in Wealth Management. These increases were largely offset by a decrease in cash and balances with central banks of CHF 8 billion, primarily reflecting higher funding utilization by the business divisions, partly offset by various debt issuances and rebalancing within our high-quality liquid assets portfolio.

® Refer to the “Balance sheet, liquidity and funding management” section of this report for more information on balance sheet movements

| Leverage ratio denominator by business division and Corporate
Center unit — CHF billion | Wealth Management | Wealth Management Americas | Personal & Corporate Banking | Asset Management | Investment Bank | CC – Services | CC – Group ALM | CC – Non- core and Legacy Portfolio | Total |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | 30.6.17 | | | | | | | | |
| Total IFRS assets | 114.1 | 63.5 | 137.4 | 12.7 | 232.9 | 23.2 | 253.1 | 54.0 | 890.8 |
| Difference in scope of consolidation¹ | 0.0 | (0.2) | 0.0 | (10.2) | (0.4) | (0.2) | 0.2 | 0.0 | (10.7) |
| Less: derivative exposures and SFTs² | (1.6) | (1.7) | (1.2) | 0.0 | (128.1) | 0.0 | (69.6) | (49.5) | (251.7) |
| On-balance sheet exposures | 112.5 | 61.6 | 136.2 | 2.5 | 104.4 | 23.0 | 183.6 | 4.6 | 628.5 |
| Derivative exposures | 3.1 | 3.3 | 1.8 | 0.0 | 73.5 | 0.0 | 6.3 | 11.6 | 99.7 |
| Securities financing transactions | 0.0 | 0.8 | 0.0 | 0.0 | 45.7 | 0.0 | 67.8 | 1.4 | 115.8 |
| Off-balance sheet items | 3.6 | 0.8 | 11.6 | 0.0 | 16.1 | 0.1 | 0.9 | 0.3 | 33.4 |
| Items deducted from Swiss SRB tier 1 capital | | | | | | (14.4) | | | (14.4) |
| LRD, phase-in | 119.3 | 66.6 | 149.5 | 2.5 | 239.7 | 8.7 | 258.7 | 17.9 | 863.0 |
| Additional items deducted from Swiss SRB tier 1 capital | | | | | | (2.1) | | | (2.1) |
| LRD, fully applied³ | 119.3 | 66.6 | 149.5 | 2.5 | 239.7 | 6.6 | 258.7 | 17.9 | 860.9 |
| LRD held by CC – Group ALM on behalf of business divisions and
other CC units⁴ | 51.2 | 15.3 | 39.2 | 1.9 | 27.6 | 0.0 | (136.9) | 1.7 | 0.0 |
| LRD after allocation from CC
– Group ALM to business divisions and other CC units | 170.4 | 81.9 | 188.7 | 4.4 | 267.4 | 6.7 | 121.8 | 19.5 | 860.9 |
| | 31.3.17 | | | | | | | | |
| Total IFRS assets | 116.7 | 64.5 | 138.7 | 12.4 | 228.6 | 23.4 | 265.1 | 60.2 | 909.6 |
| Difference in scope of consolidation¹ | (5.1) | (0.2) | 0.0 | (9.6) | (0.4) | (0.1) | 0.2 | 0.0 | (15.3) |
| Less: derivative exposures and SFTs² | (1.3) | (1.9) | (1.5) | 0.0 | (126.0) | 0.0 | (70.1) | (55.2) | (256.1) |
| On-balance sheet exposures | 110.3 | 62.4 | 137.2 | 2.7 | 102.2 | 23.3 | 195.2 | 5.0 | 638.2 |
| Derivative exposures | 2.9 | 3.2 | 2.3 | 0.0 | 75.6 | 0.0 | 6.2 | 12.5 | 102.7 |
| Securities financing transactions | 0.0 | 1.3 | 0.0 | 0.0 | 48.9 | 0.0 | 68.5 | 2.0 | 120.8 |
| Off-balance sheet items | 3.6 | 0.9 | 11.5 | 0.0 | 18.4 | 0.1 | 1.9 | 0.3 | 36.8 |
| Items deducted from Swiss SRB tier 1 capital | | | | | | (15.1) | | | (15.1) |
| LRD, phase-in | 116.9 | 67.9 | 151.0 | 2.7 | 245.1 | 8.3 | 271.8 | 19.8 | 883.4 |
| Additional items deducted from Swiss SRB tier 1 capital | | | | | | (2.2) | | | (2.2) |
| LRD, fully applied³ | 116.9 | 67.9 | 151.0 | 2.7 | 245.1 | 6.1 | 271.8 | 19.8 | 881.2 |
| LRD held by CC – Group ALM on behalf of business divisions and
other CC units⁴ | 49.4 | 23.5 | 41.1 | 2.1 | 32.4 | 0.4 | (153.6) | 4.8 | 0.0 |
| LRD after allocation from CC
– Group ALM to business divisions and other CC units | 166.2 | 91.3 | 192.1 | 4.8 | 277.5 | 6.5 | 118.2 | 24.5 | 881.2 |
| | 30.6.17 vs 31.3.17 | | | | | | | | |
| Total IFRS assets | (2.6) | (1.0) | (1.3) | 0.3 | 4.3 | (0.2) | (12.0) | (6.2) | (18.8) |
| Difference in scope of consolidation¹ | 5.1 | 0.0 | 0.0 | (0.6) | 0.0 | (0.1) | 0.0 | 0.0 | 4.6 |
| Less: derivative exposures and SFTs² | (0.3) | 0.2 | 0.3 | 0.0 | (2.1) | 0.0 | 0.5 | 5.7 | 4.4 |
| On-balance sheet exposures | 2.2 | (0.8) | (1.0) | (0.2) | 2.2 | (0.3) | (11.6) | (0.4) | (9.7) |
| Derivative exposures | 0.2 | 0.1 | (0.5) | 0.0 | (2.1) | 0.0 | 0.1 | (0.9) | (3.0) |
| Securities financing transactions | 0.0 | (0.5) | 0.0 | 0.0 | (3.2) | 0.0 | (0.7) | (0.6) | (5.0) |
| Off-balance sheet items | 0.0 | (0.1) | 0.1 | 0.0 | (2.3) | 0.0 | (1.0) | 0.0 | (3.4) |
| Items deducted from Swiss SRB tier 1 capital | | | | | | 0.7 | | | 0.7 |
| LRD, phase-in | 2.4 | (1.3) | (1.5) | (0.2) | (5.4) | 0.4 | (13.1) | (1.9) | (20.4) |
| Additional items deducted from Swiss SRB tier 1 capital | | | | | | 0.1 | | | 0.1 |
| LRD, fully applied³ | 2.4 | (1.3) | (1.5) | (0.2) | (5.4) | 0.5 | (13.1) | (1.9) | (20.3) |
| LRD held by CC – Group ALM on behalf of business divisions and
other CC units⁴ | 1.8 | (8.2) | (1.9) | (0.2) | (4.8) | (0.4) | 16.7 | (3.1) | 0.0 |
| LRD after allocation from CC
– Group ALM to business divisions and other CC units | 4.2 | (9.4) | (3.4) | (0.4) | (10.1) | 0.2 | 3.6 | (5.0) | (20.3) |
| 1 Represents the difference between the IFRS and the regulatory
scope of consolidation, which is the applicable scope for the LRD
calculation. 2 Consists of positive replacement values, cash collateral
receivables on derivative instruments, cash collateral on securities
borrowed, reverse repurchase agreements, margin loans and prime brokerage
receivables related to securities financing transactions in accordance with
the regulatory scope of consolidation, which are presented separately under
Derivative exposures and Securities financing transactions. 3 LRD held by
business division and Corporate Center unit. 4 Represents LRD held by
Corporate Center – Group ALM that is directly associated with activity
managed centrally on behalf of the business divisions and other Corporate
Center units. For the purpose of attributing equity under the revised
framework effective as of 1 January 2017, these resources are allocated to
the business divisions and other Corporate Center units, primarily based on
the level of high-quality liquid assets needed to meet the Group’s minimum
liquidity coverage ratio requirement of 110%. Refer to “Equity attribution
framework” in the ”Capital management” section of our Annual Report 2016 for
more information. | | | | | | | | | |

Capital management

Equity attribution and return on attributed equity

Average attributed equity to business divisions and Corporate Center decreased by CHF 0.9 billion to CHF 52.7 billion in the second quarter of 2017 compared with the first quarter. Average attributed tangible equity decreased by CHF 0.7 billion to CHF 46.4 billion. The decrease in average attributed equity as well as average tangible equity was driven by a decrease in Group items, mainly reflecting the dividend distribution to shareholders for 2016. Average equity for other business divisions and Corporate Center was broadly unchanged from the prior quarter.

Change in equity attribution framework in 2017

In the first quarter of 2017, we implemented an updated equity attribution framework that reflects the revision of the too big to fail provisions applicable to Swiss systemically relevant banks.

Effective 1 January 2017, the weighting used for the attribution of tangible equity has been changed from an equal driver weighting of one-third each for average fully applied RWA, average fully applied leverage ratio denominator (LRD) and risk-based capital (RBC) to 50% each for RWA and LRD. Average fully applied RWA and LRD continue to be converted to their common equity tier 1 (CET1) capital equivalents based on capital ratios of 11% and 3.75%, respectively, which are above future regulatory requirements. If the tangible attributed equity calculated under the weighted-driver approach is less than the CET1 capital equivalent of RBC for any business division, the CET1 capital equivalent of RBC will be used as a floor for that business division.

Under the revised framework, LRD and RWA held by Corporate Center – Group Asset and Liability Management (Group ALM) directly associated with activities that Corporate Center – Group ALM manages centrally on behalf of the business divisions and other Corporate Center units are allocated to those business divisions and other Corporate Center units for the purpose of equity attribution. This allocation is primarily based on the level of high-quality liquid assets that is needed to meet the Group’s minimum liquidity coverage ratio requirement of 110%. Corporate Center – Group ALM continues to retain attributed equity related to liquidity and funding surpluses, i.e., at levels above regulatory requirements, together with that related to its own activities.

In addition to tangible equity, we continue to allocate equity to our businesses to support goodwill and intangible assets. However, following the change in the first quarter of 2017, we now also attribute to the business divisions equity for goodwill and intangible assets resulting from the acquisition of PaineWebber that until 1 January 2017 was held centrally in Group items within Corporate Center – Services under the previous framework.

We now attribute all Basel III capital deduction items to Group items. These deduction items include deferred tax assets, which constitute the largest component of Group items, unrealized gains from cash flow hedges and compensation- and own-share-related components. Prior to 2017, Group items only included an amount of attributed equity for certain capital deduction items. The total amount of attributed equity now equals average shareholders’ equity.

® Refer to the “Capital management” section of our Annual Report 2016 for more information on the equity attribution framework

| Average attributed equity and
attributed tangible equity | | | | | | |
| --- | --- | --- | --- | --- | --- | --- |
| | Total attributed equity | | | Attributed tangible equity¹ | | |
| | For the quarter ended | | Year-to-date | For the quarter ended | | Year-to-date |
| CHF billion | 30.6.17 | 31.3.17 | 30.6.17 | 30.6.17 | 31.3.17 | 30.6.17 |
| Wealth Management | 6.1 | 6.0 | 6.0 | 4.8 | 4.6 | 4.7 |
| Wealth Management Americas | 6.6 | 6.7 | 6.7 | 3.0 | 3.1 | 3.0 |
| Personal & Corporate Banking | 6.1 | 6.0 | 6.1 | 6.1 | 6.0 | 6.1 |
| Asset Management | 1.7 | 1.7 | 1.7 | 0.3 | 0.3 | 0.3 |
| Investment Bank | 9.1 | 9.1 | 9.1 | 9.1 | 9.0 | 9.1 |
| Corporate Center | 23.1 | 24.1 | 23.6 | 23.1 | 24.1 | 23.6 |
| of which: CC – Services | 19.1 | 20.3 | 19.7 | 19.1 | 20.3 | 19.7 |
| of which: Group items | 17.4 | 18.7 | 18.0 | 17.4 | 18.7 | 18.0 |
| of which: CC – Group ALM | 2.6 | 2.3 | 2.5 | 2.6 | 2.3 | 2.5 |
| of which: CC – Non-core and
Legacy Portfolio | 1.4 | 1.5 | 1.4 | 1.4 | 1.5 | 1.4 |
| Average (tangible) equity
attributed to business divisions and Corporate Center | 52.7 | 53.6 | 53.2 | 46.4 | 47.1 | 46.7 |
| 1 Attributed tangible equity equals attributed equity less
goodwill and intangible assets. | | | | | | |

| Return on (attributed) equity and return on (attributed)
tangible equity¹ | | | | | | |
| --- | --- | --- | --- | --- | --- | --- |
| | Return on (attributed) equity | | | Return on (attributed) tangible equity | | |
| | For the quarter ended | | Year-to-date | For the quarter ended | | Year-to-date |
| In % | 30.6.17 | 31.3.17 | 30.6.17 | 30.6.17 | 31.3.17 | 30.6.17 |
| Reported | | | | | | |
| Wealth Management | 38.2 | 42.8 | 40.4 | 48.8 | 55.2 | 51.9 |
| Wealth Management Americas | 18.0 | 17.9 | 18.0 | 40.5 | 40.7 | 40.6 |
| Personal & Corporate Banking | 23.4 | 27.7 | 25.6 | 23.4 | 27.7 | 25.6 |
| Asset Management | 26.1 | 24.1 | 25.0 | 144.3 | 133.3 | 135.8 |
| Investment Bank | 19.7 | 21.0 | 20.4 | 20.0 | 21.4 | 20.7 |
| UBS Group | 8.9 | 9.5 | 9.2 | 10.3 | 10.9 | 10.6 |
| Adjusted² | | | | | | |
| Wealth Management | 45.3 | 48.7 | 47.0 | 57.8 | 62.8 | 60.3 |
| Wealth Management Americas | 19.5 | 19.2 | 19.4 | 43.8 | 43.6 | 43.7 |
| Personal & Corporate Banking | 24.9 | 29.0 | 27.0 | 24.9 | 29.0 | 27.0 |
| Asset Management | 31.7 | 28.8 | 30.1 | 174.9 | 158.9 | 163.2 |
| Investment Bank | 18.3 | 24.4 | 21.4 | 18.6 | 24.8 | 21.7 |
| UBS Group | 9.9 | 10.9 | 10.4 | 11.4 | 12.6 | 12.0 |
| 1 Return on attributed equity and return on attributed tangible
equity shown for the business divisions. Return on equity attributable to
shareholders and return on tangible equity shown for the UBS Group. Return on
attributed equity and return on attributed tangible equity for Corporate
Center is not shown, as it is not meaningful. 2 Adjusted results are
non-GAAP financial measures as defined by SEC regulations. | | | | | | |

Capital management

UBS shares

UBS Group AG shares are listed on the SIX Swiss Exchange (SIX). They are also listed on the New York Stock Exchange (NYSE) as global registered shares. Each share has a par value of CHF 0.10 per share.

Shares issued increased slightly in the second quarter of 2017 due to the issuance of shares out of conditional share capital upon exercise of employee share options.

Treasury shares, which are primarily held to hedge our share delivery obligations related to employee share-based compensation and participation plans, totaled 135 million shares as of 30 June 2017. Treasury shares decreased by 2 million shares during the second quarter of 2017 mainly due to the delivery of treasury shares under share-based compensation plans, partly offset by purchases.

UBS Group share information	As of or for the quarter ended			% change from
	30.6.17	31.3.17	30.6.16	31.3.17
Shares issued	3,851,805,058	3,851,255,128	3,850,263,351	0
Treasury shares	135,182,950	137,116,350	143,744,288	(1)
Shares outstanding	3,716,622,108	3,714,138,778	3,706,519,063	0
Basic earnings per share (CHF)¹	0.32	0.34	0.28	(6)
Diluted earnings per share (CHF)¹	0.31	0.33	0.27	(6)
Equity attributable to shareholders (CHF million)	51,744	53,661	52,876	(4)
Less: goodwill and intangible assets (CHF million)	6,226	6,458	6,402	(4)
Tangible equity attributable to shareholders (CHF million)	45,518	47,203	46,474	(4)
Total book value per share (CHF)	13.92	14.45	14.27	(4)
Tangible book value per share (CHF)	12.25	12.71	12.54	(4)
Share price (CHF)	16.24	16.03	12.57	1
Market capitalization (CHF million)²	62,553	61,736	48,398	1
1 Refer to “Note 8 Earnings per share (EPS) and shares
outstanding” in the “Consolidated financial statements” section of this
report for more information. 2 Market capitalization is calculated on the
basis of total shares issued multiplied by the share price at the end of the
period.

Ticker symbols UBS Group AG — Trading exchange	SIX / NYSE	Bloomberg	Reuters
SIX Swiss Exchange	UBSG	UBSG VX	UBSG.S
New York Stock Exchange	UBS	UBS UN	UBS.N
Security identification codes
ISIN		CH0244767585
Valoren		24 476 758
CUSIP		CINS H42097 10 7

Consolidated financial statements

Unaudited

Table of con tents

	UBS Group AG interim consolidated financial statements (unaudited)
69	Income statement
70	Statement of comprehensive income
72	Balance sheet
74	Statement of changes in equity
76	Statement of cash flows
78	1 Basis
of accounting
79	2 Segment
reporting
80	3 Net fee
and commission income
80	4 Other
income
81	5 Personnel
expenses
81	6 General
and administrative expenses
81	7 Income
taxes
82	8 Earnings
per share (EPS) and shares outstanding
82	9 Fair
value measurement
93	10 Derivative
instruments
94	11 Other
assets and liabilities
95	12 Financial
liabilities designated at fair value
95	13 Debt
issued held at amortized cost
96	14 Provisions and contingent liabilities
106	15 Guarantees,
commitments and forward starting transactions
107	16 Changes in organization and disposals
108	17 Currency
translation rates
	UBS AG interim consolidated financial information (unaudited)
109	Comparison UBS Group AG consolidated
versus UBS AG consolidated

UBS Group AG interim consolidated financial statements (unaudited)

Income statement
		For the quarter ended			% change from		Year-to-date
CHF million, except per
share data	Note	30.6.17	31.3.17	30.6.16	1Q17	2Q16	30.6.17	30.6.16
Interest income		3,627	3,352	3,552	8	2	6,979	6,959
Interest expense		(2,210)	(1,656)	(2,388)	33	(7)	(3,866)	(4,083)
Net interest income		1,417	1,696	1,164	(16)	22	3,113	2,876
Credit loss (expense) / recovery		(46)	0	(7)		557	(46)	(9)
Net interest income after credit loss expense		1,371	1,696	1,158	(19)	18	3,067	2,867
Net fee and commission income	3	4,295	4,353	4,087	(1)	5	8,648	8,180
Net trading income		1,456	1,440	1,891	1	(23)	2,896	2,904
Other income	4	147	43	269	242	(45)	190	286
Total operating income		7,269	7,532	7,404	(3)	(2)	14,801	14,237
Personnel expenses	5	4,014	4,060	3,985	(1)	1	8,074	7,910
General and administrative expenses	6	1,488	1,506	1,666	(1)	(11)	2,994	3,330
Depreciation and impairment of property, equipment and software		249	255	240	(2)	4	505	483
Amortization and impairment of intangible assets		16	21	24	(24)	(33)	37	47
Total operating expenses		5,767	5,842	5,915	(1)	(3)	11,609	11,770
Operating profit / (loss) before tax		1,502	1,690	1,489	(11)	1	3,192	2,467
Tax expense / (benefit)	7	327	375	376	(13)	(13)	701	646
Net profit / (loss)		1,175	1,315	1,113	(11)	6	2,490	1,820
Net profit / (loss) attributable to non-controlling interests		1	47	79	(98)	(99)	47	79
Net profit / (loss)
attributable to shareholders		1,174	1,269	1,034	(7)	14	2,443	1,741
Earnings per share (CHF)
Basic	8	0.32	0.34	0.28	(6)	14	0.66	0.47
Diluted	8	0.31	0.33	0.27	(6)	15	0.64	0.45

UBS Group AG interim consolidated financial statements (unaudited)

Statement of comprehensive income
	For the quarter ended			Year-to-date
CHF million	30.6.17	31.3.17	30.6.16	30.6.17	30.6.16
Comprehensive income
attributable to shareholders
Net profit / (loss)	1,174	1,269	1,034	2,443	1,741
Other comprehensive income
that may be reclassified to the income statement
Foreign currency translation
Foreign currency translation movements, before tax	(994)	(371)	310	(1,365)	(643)
Foreign exchange amounts reclassified to the income statement
from equity	21	4	26	25	149
Income tax relating to foreign currency translation movements	1	2	(2)	3	3
Subtotal foreign currency translation, net of tax	(971)	(365)	334	(1,337)	(492)
Financial assets available
for sale
Net unrealized gains / (losses) on financial assets available
for sale, before tax	10	44	116	53	369
Impairment charges reclassified to the income statement from
equity	(1)	14	3	13	3
Realized gains reclassified to the income statement from equity	(135)	(8)	(166)	(143)	(255)
Realized losses reclassified to the income statement from equity	5	2	5	7	19
Income tax relating to net unrealized gains / (losses) on
financial assets available for sale	6	(8)	3	(2)	(44)
Subtotal financial assets available for sale, net of tax	(115)	43	(39)	(72)	93
Cash flow hedges
Effective portion of changes in fair value of derivative
instruments designated as cash flow hedges, before tax	165	(30)	502	136	1,445
Net (gains) / losses reclassified to the income statement from
equity	(211)	(220)	(274)	(431)	(577)
Income tax relating to cash flow hedges	11	52	(47)	63	(174)
Subtotal cash flow hedges, net of tax	(35)	(198)	181	(233)	694
Total other comprehensive
income that may be reclassified to the income statement, net of tax	(1,121)	(520)	476	(1,641)	295
Other comprehensive income
that will not be reclassified to the income statement
Defined benefit plans
Gains / (losses) on defined benefit plans, before tax	107	49	(198)	156	(389)
Income tax relating to defined benefit plans	1	2	(4)	4	8
Subtotal defined benefit plans, net of tax	108	51	(202)	160	(381)
Own credit on financial
liabilities designated at fair value
Gains / (losses) from own credit on financial liabilities
designated at fair value, before tax	(72)	(181)	(173)	(252)	(105)
Income tax relating to own credit on financial liabilities
designated at fair value	(1)	0	16	(1)	0
Subtotal own credit on financial liabilities designated at fair
value, net of tax	(73)	(181)	(157)	(254)	(105)
Total other comprehensive
income that will not be reclassified to the income statement, net of tax	35	(129)	(359)	(94)	(486)
Total other comprehensive
income	(1,086)	(649)	117	(1,735)	(191)
Total comprehensive income
attributable to shareholders	89	620	1,151	708	1,550

Statement of comprehensive income (continued)
	For the quarter ended			Year-to-date
CHF million	30.6.17	31.3.17	30.6.16	30.6.17	30.6.16
Comprehensive income
attributable to non-controlling interests
Net profit / (loss)	1	47	79	47	79
Other comprehensive income
that will not be reclassified to the income statement
Foreign currency translation movements, before tax	14	0	329	14	278
Income tax relating to foreign currency translation movements	0	0	0	0	0
Subtotal foreign currency translation, net of tax	14	0	329	14	278
Total other comprehensive
income that will not be reclassified to the income statement, net of tax	14	0	329	14	278
Total comprehensive income
attributable to non-controlling interests	14	47	407	61	357
Total comprehensive income
Net profit / (loss)	1,175	1,315	1,113	2,490	1,820
Other comprehensive income	(1,072)	(649)	445	(1,721)	87
of which: other
comprehensive income that may be reclassified to the income statement	(1,121)	(520)	476	(1,641)	295
of which: other
comprehensive income that will not be reclassified to the income statement	49	(129)	(30)	(80)	(207)
Total comprehensive income	103	666	1,558	769	1,907

UBS Group AG interim consolidated financial statements (unaudited)

Balance sheet
					% change from
CHF million	Note	30.6.17	31.3.17	31.12.16	31.3.17	31.12.16
Assets
Cash and balances with central banks		100,071	108,931	107,767	(8)	(7)
Due from banks		14,420	14,222	13,156	1	10
Cash collateral on securities borrowed		15,081	18,512	15,111	(19)	0
Reverse repurchase agreements		75,324	77,004	66,246	(2)	14
Trading portfolio assets	9	107,659	107,211	96,575	0	11
of which: assets pledged as
collateral which may be sold or repledged by counterparties		32,679	30,346	30,260	8	8
Positive replacement values	9, 10	121,910	121,549	158,411	0	(23)
Cash collateral receivables on derivative instruments	10	22,687	22,522	26,664	1	(15)
Loans		308,280	309,115	306,325	0	1
Financial assets designated at fair value	9	51,787	49,114	65,353	5	(21)
Financial assets available for sale	9	14,114	16,235	15,676	(13)	(10)
Financial assets held to maturity		8,710	8,962	9,289	(3)	(6)
Investments in associates		972	977	963	(1)	1
Property, equipment and software		8,424	8,368	8,331	1	1
Goodwill and intangible assets		6,226	6,458	6,556	(4)	(5)
Deferred tax assets		12,372	12,927	13,155	(4)	(6)
Other assets	11	22,793	27,500	25,436	(17)	(10)
Total assets		890,831	909,608	935,016	(2)	(5)

Balance sheet (continued)
					% change from
CHF million	Note	30.6.17	31.3.17	31.12.16	31.3.17	31.12.16
Liabilities
Due to banks		11,598	8,747	10,645	33	9
Cash collateral on securities lent		2,538	3,067	2,818	(17)	(10)
Repurchase agreements		11,286	10,621	6,612	6	71
Trading portfolio liabilities	9	25,320	28,576	22,824	(11)	11
Negative replacement values	9, 10	119,027	119,964	153,810	(1)	(23)
Cash collateral payables on derivative instruments	10	31,520	29,875	35,472	6	(11)
Due to customers		404,303	419,356	423,672	(4)	(5)
Financial liabilities designated at fair value	9, 12	54,215	56,640	55,017	(4)	(1)
Debt issued	13	121,727	114,725	103,649	6	17
Provisions	14	3,207	3,757	4,174	(15)	(23)
Other liabilities	11	53,653	59,939	62,020	(10)	(13)
Total liabilities		838,394	855,268	880,714	(2)	(5)
Equity
Share capital		385	385	385	0	0
Share premium		25,600	27,637	28,254	(7)	(9)
Treasury shares		(2,180)	(2,211)	(2,249)	(1)	(3)
Retained earnings		34,074	32,864	31,725	4	7
Other comprehensive income recognized directly in equity, net of
tax		(6,135)	(5,014)	(4,494)	22	37
Equity attributable to
shareholders		51,744	53,661	53,621	(4)	(4)
Equity attributable to non-controlling interests		693	679	682	2	2
Total equity		52,437	54,340	54,302	(4)	(3)
Total liabilities and equity		890,831	909,608	935,016	(2)	(5)

UBS Group AG interim consolidated financial statements (unaudited)

Statement of changes in equity — CHF million	Share capital	Share premium	Treasury shares	Retained earnings
Balance as of 1 January 2016	385	31,164	(1,693)	29,504
Issuance of share capital	0
Acquisition of treasury shares			(1,350)
Delivery of treasury shares under share-based compensation plans		(617)	694
Other disposal of treasury shares		(2)	16
Premium on shares issued and warrants exercised		2
Share-based compensation expensed in the income statement		424
Tax (expense) / benefit		10
Dividends		(3,164)²
Preferred notes
New consolidations / (deconsolidations) and other increases /
(decreases)		43		(43)
Total comprehensive income for the period				1,255
of which: net profit /
(loss)				1,741
of which: other
comprehensive income (OCI) that may be reclassified to the income statement,
net of tax
of which: OCI that will not
be reclassified to the income statement, net of tax – defined benefit plans				(381)
of which: OCI that will not
be reclassified to the income statement, net of tax – own credit				(105)
of which: OCI that will not
be reclassified to the income statement, net of tax – foreign currency
translation
Balance as of 30 June 2016	385	27,860	(2,333)	30,716
Balance as of 1 January 2017	385	28,254	(2,249)	31,725
Issuance of share capital	0
Acquisition of treasury shares			(851)
Delivery of treasury shares under share-based compensation plans		(808)	883
Other disposal of treasury shares			38
Premium on shares issued and warrants exercised		8
Share-based compensation expensed in the income statement		361
Tax (expense) / benefit		14
Dividends		(2,229)²
New consolidations / (deconsolidations) and other increases /
(decreases)		(1)
Total comprehensive income for the period				2,349
of which: net profit /
(loss)				2,443
of which: other
comprehensive income (OCI) that may be reclassified to the income statement,
net of tax
of which: OCI that will not
be reclassified to the income statement, net of tax – defined benefit plans				160
of which: OCI that will not
be reclassified to the income statement, net of tax – own credit				(254)
of which: OCI that will not
be reclassified to the income statement, net of tax – foreign currency translation
Balance as of 30 June 2017	385	25,600	(2,180)	34,074
1 Excludes defined benefit plans and own credit that are
recorded directly in Retained earnings. 2 Reflects the payment of an
ordinary cash dividend of CHF 0.60 (2016: CHF 0.60 ordinary cash dividend and
CHF 0.25 special cash dividend) per dividend-bearing share out of the capital
contribution reserve.

Other comprehensive income recognized directly in equity, net of tax¹	of which: foreign currency translation	of which: financial assets available for sale	of which: cash flow hedges	Total equity attributable to shareholders	Non-controlling interests	Total equity
(4,047)	(5,857)	172	1,638	55,313	1,995	57,308
				0		0
				(1,350)		(1,350)
				77		77
				14		14
				2		2
				424		424
				10		10
				(3,164)	(83)	(3,246)
				0	(1,584)	(1,584)
				0	0	0
295	(492)	93	694	1,550	357	1,907
				1,741	79	1,820
295	(492)	93	694	295		295
				(381)		(381)
				(105)		(105)
				0	278	278
(3,752)	(6,348)	264	2,332	52,876	686	53,562
(4,494)	(5,564)	98	972	53,621	682	54,302
				0		0
				(851)		(851)
				76		76
				38		38
				8		8
				361		361
				14		14
				(2,229)	(50)	(2,280)
				(1)	1	0
(1,641)	(1,337)	(72)	(233)	708	61	769
				2,443	47	2,490
(1,641)	(1,337)	(72)	(233)	(1,641)		(1,641)
				160		160
				(254)		(254)
				0	14	14
(6,135)	(6,901)	26	739	51,744	693	52,437

UBS Group AG interim consolidated financial statements (unaudited)

Statement of cash flows
	Year-to-date
CHF million	30.6.17	30.6.16
Cash flow from / (used in) operating
activities
Net profit / (loss)	2,490	1,820
Non-cash items included in
net profit and other adjustments:
Depreciation and impairment of property, equipment and software	505	483
Amortization and impairment of intangible assets	37	47
Credit loss expense / (recovery)	46	9
Share of net profits of associates	(36)	(40)
Deferred tax expense / (benefit)	264	242
Net loss / (gain) from investing activities	246	(798)
Net loss / (gain) from financing activities	(307)	6,781
Other net adjustments	689	(544)
Net change in operating
assets and liabilities:
Due from / to banks	484	3,320
Cash collateral on securities borrowed and reverse repurchase
agreements	(11,218)	(13,109)
Cash collateral on securities lent and repurchase agreements	4,650	(1,832)
Trading portfolio and replacement values	(7,411)	14,850
Financial assets designated at fair value	13,112	(59,480)
Cash collateral on derivative instruments	15	(6,824)
Loans	(6,493)	1,360
Due to customers	(13,414)	21,506
Other assets, provisions and other liabilities	(5,678)	(6,085)
Income taxes paid, net of refunds	(689)	(209)
Net cash flow from / (used
in) operating activities	(22,708)	(38,503)
Cash flow from / (used in)
investing activities
Purchase of subsidiaries, associates and intangible assets	(5)	(23)
Disposal of subsidiaries, associates and intangible assets¹	95	72
Purchase of property, equipment and software	(720)	(952)
Disposal of property, equipment and software	23	193
Purchase of financial assets available for sale	(4,729)	(7,363)
Disposal and redemption of financial assets available for sale	6,150	51,112
Net (purchase) / redemption of financial assets held to maturity	168	(4,878)
Net cash flow from / (used
in) investing activities	982	38,159
Table continues on the next page.

Statement of cash flows (continued)
Table continued from previous page.
	Year-to-date
CHF million	30.6.17	30.6.16
Cash flow from / (used in)
financing activities
Net short-term debt issued / (repaid)	18,738	9,797
Net movements in treasury shares and own equity derivative
activity	(751)	(1,274)
Distributions paid on UBS shares	(2,229)	(3,164)
Issuance of long-term debt, including financial liabilities designated
at fair value	24,829	18,857
Repayment of long-term debt, including financial liabilities
designated at fair value	(23,407)	(17,365)
Net changes in non-controlling interests and preferred notes	(50)	(1,371)
Net cash flow from / (used
in) financing activities	17,130	5,480
Total cash flow
Cash and cash equivalents at
the beginning of the period	121,138	103,044
Net cash flow from / (used in) operating, investing and
financing activities	(4,596)	5,136
Effects of exchange rate differences on cash and cash
equivalents	(1,502)	(1,293)
Cash and cash equivalents at
the end of the period²	115,040	106,888
of which: cash and balances
with central banks	100,006	94,181
of which: due from banks	12,676	11,707
of which: money market
paper³	2,358	1,001
Additional information
Net cash flow from / (used in) operating activities includes:
Interest received in cash	6,009	5,992
Interest paid in cash	3,522	3,417
Dividends on equity investments, investment funds and associates
received in cash⁴	985	999
1 Includes dividends received from associates. 2 CHF 2,576
million and CHF 3,631 million of cash and cash equivalents (mainly reflected
in Due from banks) were restricted as of 30 June 2017 and 30 June 2016, respectively.
Refer to Note 23 in the Annual Report 2016 for more information. 3 Money
market paper is included in the balance sheet under Trading portfolio assets,
Financial assets available for sale and Financial assets designated at fair
value. 4 Includes dividends received from associates reported within cash
flow from / (used in) investing activities.

Notes to the UBS Group AG interim consolidated financial statements (unaudited)

Note 1 Basis of accounting

The consolidated financial statements (the Financial Statements) of UBS Group AG and its subsidiaries (together “UBS” or “the Group”) are prepared in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB), and are presented in Swiss francs (CHF), which is also the functional currency of UBS Group AG and of UBS AG's Head Office and its Swiss-based operations. These interim Financial Statements are prepared in accordance with IAS 34, Interim Financial Reporting .

In preparing these interim Financial Statements, the same accounting policies and methods of computation have been applied as in the UBS Group AG consolidated annual Financial Statements for the period ended 31 December 2016, except for the changes described below and in “Note 1 Basis of accounting” in the “Consolidated financial statements” section of the first quarter 2017 report. These interim Financial Statements are unaudited and should be read in conjunction with UBS Group AG’s audited consolidated Financial Statements included in the Annual Report 2016. In the opinion of management, all necessary adjustments were made for a fair presentation of UBS’s financial position, results of operations and cash flows.

Preparation of these interim Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income, expenses and disclosures of contingent assets and liabilities. These estimates and assumptions are based on the best available information. Actual results in the future could differ from such estimates, and such differences may be material to the Financial Statements. Revisions to estimates, based on regular reviews, are recognized in the period in which they occur. For more information on areas of estimation uncertainty considered to require critical judgment, refer to “Note 1a Significant accounting policies” in the “Consolidated financial statements” section of the Annual Report 2016.

Classification of financial assets containing prepayment features with negative compensation under IFRS 9, Financial Instruments

In July 2017, the IASB approved the amendment, subject to some refinements. UBS expects to early adopt the amendment and continue measuring Swiss private mortgages and corporate loans at amortized cost upon adoption of IFRS 9 on 1 January 2018.

IFRIC 23, Uncertainty over Income Tax Treatments

In June 2017, the IASB issued IFRIC Interpretation 23, Uncertainty over Income Tax Treatments (IFRIC 23), which addresses how uncertain tax positions should be accounted for under IFRS. Under this interpretation, IFRIC 23 requires that, where acceptance of the tax treatment by the relevant tax authority is considered probable, it should be assumed as an accounting recognition matter that treatment of the item will ultimately be accepted. Therefore, no tax provision would be required in such cases. However, if acceptance of the tax treatment is not considered probable, the entity is required to reflect that uncertainty using an expected value (i.e., a probability-weighted approach) or the single most likely amount.

IFRIC 23 is mandatorily effective for accounting periods beginning on or after 1 January 2019 and any resulting change to the tax provisions should be recognized in retained earnings. UBS is in the process of carrying out a detailed review on the impacts arising from this interpretation, although it is not expected to have a significant effect on the Group's financial statements.

Note 2 Segment reporting

UBS‘s businesses are organized globally into five business divisions: Wealth Management, Wealth Management Americas, Personal & Corporate Banking, Asset Management and the Investment Bank, all of which are supported by Corporate Center. The five business divisions qualify as reportable segments for the purpose of segment reporting and, together with Corporate Center and its units, reflect the management structure of the Group. Corporate Center – Non-core and Legacy Portfolio is managed and reported as a separate reportable segment within Corporate Center. Refer to “Note 1a item 2 Segment reporting” and “Note 2 Segment reporting” in the “Consolidated financial statements” section of the Annual Report 2016 for more information on the Group’s reporting segments.

	Wealth Management	Wealth Management Americas	Personal & Corporate Banking	Asset Management	Investment Bank	Corporate Center			UBS
CHF million						Services	Group ALM	Non-core and Legacy Portfolio
For the six months ended
30 June 2017
Net interest income	1,000	764	940	(15)	452	(153)	115	10	3,113
Non-interest income	2,682	3,304	870	935	3,859	55	(5)	34	11,734
Allocations from Group ALM	129	61	103	9	(174)	60	(139)	(50)	0
Income	3,811	4,129	1,914	929	4,137	(37)	(30)	(6)	14,847
Credit loss (expense) / recovery	(1)	(1)	(21)	0	(12)	0	0	(11)	(46)
Total operating income	3,810	4,128	1,893	929	4,124	(37)	(30)	(16)	14,801
Personnel expenses	1,194	2,565	437	357	1,591	1,888	17	25	8,074
General and administrative expenses	257	321	134	109	256	1,920	7	(12)	2,994
Services (to) / from CC and other BDs	1,136	622	542	247	1,335	(3,984)	(13)	116	0
of which: services from CC
Services	1,091	612	587	266	1,287	(4,006)	65	97	0
Depreciation and impairment of property, equipment and software	1	1	6	1	5	491	0	0	505
Amortization and impairment of intangible assets	2	20	0	2	6	6	0	0	37
Total operating expenses¹	2,590	3,529	1,119	716	3,194	321	12	129	11,609
Operating profit / (loss)
before tax	1,221	599	774	213	931	(358)	(41)	(146)	3,192
Tax expense / (benefit)									701
Net profit / (loss)									2,490
As of 30 June 2017
Total assets	114,087	63,491	137,353	12,700	232,861	23,202	253,103	54,035	890,831
For the six months ended 30
June 2016²
Net interest income	954	652	957	(17)	140	(161)	360	(8)	2,876
Non-interest income	2,541	3,074	908	963	3,860	147	(146)	20	11,370
Allocations from Group ALM	207	44	180	5	(116)	36	(319)	(37)	0
Income	3,702	3,771	2,046	951	3,883	23	(104)	(26)	14,246
Credit loss (expense) / recovery	(1)	(2)	2	0	(5)	0	0	(3)	(9)
Total operating income	3,700	3,769	2,048	951	3,879	23	(104)	(29)	14,237
Personnel expenses	1,205	2,398	425	367	1,555	1,916	15	28	7,910
General and administrative expenses	268	277	121	115	362	2,058	8	121	3,330
Services (to) / from CC and other BDs	1,148	618	561	262	1,405	(4,106)	(24)	134	0
of which: services from CC
Services	1,107	611	609	275	1,352	(4,119)	55	110	0
Depreciation and impairment of property, equipment and software	1	1	8	1	13	460	0	0	483
Amortization and impairment of intangible assets	2	26	0	2	6	11	0	0	47
Total operating expenses¹	2,624	3,320	1,115	747	3,342	338	0	283	11,770
Operating profit / (loss)
before tax	1,076	448	933	204	537	(315)	(104)	(312)	2,467
Tax expense / (benefit)									646
Net profit / (loss)									1,820
As of 31 December 2016
Total assets	115,539	65,882	139,912	12,028	242,302	23,669	267,200	68,485	935,016
1 Refer to Note 16 for information on restructuring expenses.
2 Figures in this table may differ from those originally published in quarterly
and annual reports due to adjustments following organizational changes,
restatements due to the retrospective adoption of new accounting standards or
changes in accounting policies, and events after the reporting period.

Notes to the UBS Group AG interim consolidated financial statements (unaudited)

Note 3 Net fee and commission income

CHF million	For the quarter ended — 30.6.17	31.3.17	30.6.16	% change from — 1Q17	2Q16	Year-to-date — 30.6.17	30.6.16
Underwriting fees	357	359	282	(1)	27	716	503
of which: equity
underwriting fees	224	238	137	(6)	64	462	250
of which: debt underwriting
fees	133	121	145	10	(8)	255	252
M&A and corporate finance fees	170	177	176	(4)	(3)	347	315
Brokerage fees	862	942	879	(8)	(2)	1,803	1,846
Investment fund fees	795	814	779	(2)	2	1,609	1,593
Portfolio management and advisory fees	2,107	2,038	1,968	3	7	4,145	3,934
Other	454	460	438	(1)	4	913	864
Total fee and commission
income	4,744	4,789	4,522	(1)	5	9,533	9,055
Brokerage fees paid	179	166	192	8	(7)	344	390
Other	270	271	243	0	11	541	486
Total fee and commission
expense	449	436	436	3	3	885	875
Net fee and commission
income	4,295	4,353	4,087	(1)	5	8,648	8,180
of which: net brokerage fees	683	776	687	(12)	(1)	1,459	1,456

Note 4 Other income

CHF million	For the quarter ended — 30.6.17	31.3.17	30.6.16	% change from — 1Q17	2Q16	Year-to-date — 30.6.17	30.6.16
Associates and subsidiaries
Net gains / (losses) from disposals of subsidiaries¹	(18)	(4)	(49)	350	(63)	(22)	(172)
Share of net profits of associates	17	19	22	(11)	(23)	36	40
Total	(2)	15	(27)		(93)	14	(132)
Financial assets available
for sale
Net gains / (losses) from disposals	129	6	161		(20)	136	237
Impairment charges	1	(14)	(3)			(13)	(3)
Total	131	(8)	158		(17)	123	233
Net income from properties (excluding net gains / (losses) from
disposals)²	6	6	7	0	(14)	12	14
Net gains / (losses) from disposals of properties held for sale	0	0	120		(100)	(1)	120
Net gains / (losses) from disposals of loans and receivables	(2)	17	0			16	(1)
Other	14	12	10	17	40	26	51
Total other income	147	43	269	242	(45)	190	286
1 Includes foreign exchange gains / (losses) reclassified from
other comprehensive income related to disposed foreign subsidiaries and branches.
2 Includes net rent received from third parties and net operating expenses.

Note 5 Personnel expenses

CHF million	For the quarter ended — 30.6.17	31.3.17	30.6.16	% change from — 1Q17	2Q16	Year-to-date — 30.6.17	30.6.16
Salaries and variable compensation	2,428	2,443	2,530	(1)	(4)	4,871	4,890
Wealth Management Americas: Financial advisor compensation¹	992	987	911	1	9	1,979	1,820
Contractors	107	93	117	15	(9)	200	218
Social security	187	202	158	(7)	18	389	342
Pension and other post-employment benefit plans	169	199	151	(15)	12	369	350
Other personnel expenses	130	136	117	(4)	11	266	289
Total personnel expenses²	4,014	4,060	3,985	(1)	1	8,074	7,910
1 Financial advisor compensation consists of grid-based
compensation based directly on compensable revenues generated by financial
advisors and supplemental compensation calculated on the basis of financial
advisor productivity, firm tenure, assets and other variables. It also
includes expenses related to compensation commitments with financial advisors
entered into at the time of recruitment that are subject to vesting
requirements. 2 Includes restructuring expenses. Refer to Note 16 for more
information.

Note 6 General and administrative expenses

CHF million	For the quarter ended — 30.6.17	31.3.17	30.6.16	% change from — 1Q17	2Q16	Year-to-date — 30.6.17	30.6.16
Occupancy	217	221	222	(2)	(2)	438	455
Rent and maintenance of IT and other equipment	135	144	125	(6)	8	279	266
Communication and market data services	148	155	158	(5)	(6)	304	324
Administration¹	102	99	121	3	(16)	201	258
Marketing and public relations	93	92	130	1	(28)	186	228
Travel and entertainment	110	88	115	25	(4)	197	233
Professional fees	276	256	324	8	(15)	532	601
Outsourcing of IT and other services	362	383	383	(5)	(5)	745	818
Provisions for litigation, regulatory and similar matters²	9	33	72	(73)	(88)	42	111
Other	35	34	18	3	94	69	35
Total general and
administrative expenses³	1,488	1,506	1,666	(1)	(11)	2,994	3,330
1 Includes credits related to the UK bank levy (second quarter
of 2017: CHF 46 million; first quarter of 2017: CHF 25 million). 2
Reflects the net increase in provisions for litigation, regulatory and
similar matters recognized in the income statement. Refer to Note 14 for more
information. Also includes recoveries from third parties (second quarter of
2017: CHF 1 million; first quarter of 2017: CHF 1 million; second quarter of
2016: CHF 0 million). 3 Includes restructuring expenses. Refer to Note 16
for more information.

Note 7 Income taxes

The Group recognized an income tax expense of CHF 327 million for the second quarter of 2017 compared with an income tax expense of CHF 376 million for the second quarter of 2016.

The current tax expense was CHF 194 million compared with CHF 227 million, approximately half of which was attributable to UBS Switzerland AG in both periods.

The deferred tax expense was CHF 133 million in the second quarter of 2017 compared with CHF 149 million in the second quarter of 2016, both mainly relating to the amortization of deferred tax assets previously recognized in relation to Swiss tax losses carried forward and deductible temporary differences to reflect their offset against profits for the quarter.

The interim Financial Statements have been prepared on the basis that UBS Limited is able to offset part of its taxable profits with prior-year tax losses transferred from UBS AG in 2014 and 2015. During 2016, the UK tax authorities indicated that they do not agree with this tax return filing position. If the authorities ultimately prevail on this point, UBS Limited would incur a reduction in recognized deferred tax assets of approximately CHF 60 million, as well as additional current tax expenses for periods from 2014 onward of approximately CHF 85 million.

Notes to the UBS Group AG interim consolidated financial statements (unaudited)

Note 8 Earnings per share (EPS) and shares outstanding

	As of or for the quarter ended — 30.6.17	31.3.17	30.6.16	% change from — 1Q17	2Q16	As of or year-to-date — 30.6.17	30.6.16
Basic earnings (CHF million)
Net profit / (loss) attributable to shareholders	1,174	1,269	1,034	(7)	14	2,443	1,741
Diluted earnings (CHF
million)
Net profit / (loss) attributable to shareholders	1,174	1,269	1,034	(7)	14	2,443	1,741
Less: (profit) / loss on own equity derivative contracts	0	0	(1)		(100)	0	(1)
Net profit / (loss) attributable to shareholders for diluted EPS	1,174	1,269	1,033	(7)	14	2,443	1,740
Weighted average shares
outstanding
Weighted average shares outstanding for basic EPS	3,715,138,875	3,712,946,691	3,718,850,408	0	0	3,714,042,783	3,730,151,299
Effect of dilutive potential shares resulting from notional
shares, in-the-money options and warrants outstanding	110,988,858	123,710,692	97,765,689	(10)	14	117,296,611	98,292,798
Weighted average shares outstanding for diluted EPS	3,826,127,733	3,836,657,383	3,816,616,097	0	0	3,831,339,394	3,828,444,097
Earnings per share (CHF)
Basic	0.32	0.34	0.28	(6)	14	0.66	0.47
Diluted	0.31	0.33	0.27	(6)	15	0.64	0.45
Shares outstanding
Shares issued	3,851,805,058	3,851,255,128	3,850,263,351	0	0
Treasury shares	135,182,950	137,116,350	143,744,288	(1)	(6)
Shares outstanding	3,716,622,108	3,714,138,778	3,706,519,063	0	0

The table below outlines the potential shares that could dilute basic earnings per share in the future, but were not dilutive for the periods presented.

Number of shares	30.6.17	31.3.17	30.6.16	% change from — 1Q17	2Q16	30.6.17	30.6.16
Potentially dilutive
instruments
Employee share-based compensation awards	30,018,635	31,976,718	55,681,518	(6)	(46)	30,018,635	55,681,518
Other equity derivative contracts	12,185,977	9,117,655	16,261,836	34	(25)	11,904,237	14,984,357
Total	42,204,612	41,094,373	71,943,354	3	(41)	41,922,872	70,665,875

Note 9 Fair value measurement

This Note provides fair value measurement information for both financial and non-financial instruments and should be read in conjunction with “Note 22 Fair value measurement” in the “Consolidated financial statements” section of the Annual Report 2016, which provides more information on valuation principles, valuation governance, valuation techniques, valuation adjustments, fair value hierarchy classification, valuation inputs, sensitivity of fair value measurements and methods applied to calculate fair values for financial instruments not measured at fair value.

Note 9 Fair value measurement (continued)

a) Fair value hierarchy

The fair value hierarchy classification of financial and non-financial assets and liabilities measured at fair value is summarized in the table below.

| Determination of fair values
from quoted market prices or valuation techniques¹ | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | 30.6.17 | | | | 31.3.17 | | | | 31.12.16 | | | |
| CHF million | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total |
| Assets measured at fair
value on a recurring basis | | | | | | | | | | | | |
| Financial assets held for trading² | 87,656 | 13,928 | 1,593 | 103,176 | 83,728 | 17,405 | 1,474 | 102,607 | 76,044 | 14,292 | 1,689 | 92,025 |
| of which: | | | | | | | | | | | | |
| Government bills / bonds | 14,244 | 992 | 0 | 15,236 | 11,977 | 1,584 | 0 | 13,561 | 10,500 | 1,319 | 0 | 11,820 |
| Corporate and municipal
bonds | 55 | 7,090 | 788 | 7,932 | 164 | 8,419 | 703 | 9,287 | 58 | 6,638 | 591 | 7,287 |
| Loans | 0 | 1,371 | 502 | 1,873 | 0 | 1,852 | 448 | 2,300 | 0 | 1,356 | 681 | 2,037 |
| Investment fund units | 5,242 | 2,946 | 25 | 8,213 | 4,441 | 3,783 | 20 | 8,244 | 6,114 | 3,521 | 63 | 9,698 |
| Asset-backed securities | 0 | 340 | 146 | 486 | 0 | 462 | 219 | 681 | 0 | 470 | 215 | 685 |
| Equity instruments | 58,975 | 517 | 62 | 59,554 | 58,398 | 684 | 9 | 59,092 | 50,913 | 397 | 65 | 51,375 |
| Financial assets for
unit-linked investment contracts | 9,140 | 672 | 69 | 9,881 | 8,747 | 621 | 74 | 9,441 | 8,459 | 591 | 74 | 9,123 |
| Positive replacement values | 699 | 119,292 | 1,919 | 121,910 | 598 | 118,669 | 2,282 | 121,549 | 434 | 155,428 | 2,549 | 158,411 |
| of which: | | | | | | | | | | | | |
| Interest rate contracts | 1 | 47,589 | 161 | 47,751 | 0 | 53,168 | 168 | 53,336 | 8 | 57,703 | 278 | 57,988 |
| Credit derivative contracts | 0 | 2,245 | 777 | 3,023 | 0 | 2,329 | 1,166 | 3,495 | 0 | 2,562 | 1,313 | 3,875 |
| Foreign exchange contracts | 278 | 51,601 | 182 | 52,062 | 313 | 45,036 | 202 | 45,551 | 263 | 75,607 | 222 | 76,092 |
| Equity / index contracts | 18 | 16,568 | 799 | 17,385 | 1 | 16,649 | 731 | 17,381 | 1 | 17,274 | 729 | 18,003 |
| Commodity contracts | 0 | 1,249 | 0 | 1,250 | 0 | 1,455 | 9 | 1,464 | 0 | 2,269 | 8 | 2,277 |
| Financial assets designated at fair value | 21,488 | 28,718 | 1,580 | 51,787 | 23,081 | 24,445 | 1,588 | 49,114 | 39,641 | 23,632 | 2,079 | 65,353 |
| of which: | | | | | | | | | | | | |
| Government bills / bonds | 20,579 | 3,916 | 0 | 24,494 | 22,093 | 3,460 | 0 | 25,552 | 39,439 | 4,361 | 0 | 43,799 |
| Corporate and municipal
bonds | 730 | 20,575 | 0 | 21,306 | 809 | 18,595 | 0 | 19,404 | 15 | 16,860 | 0 | 16,875 |
| Loans (including structured
loans) | 0 | 3,809 | 483 | 4,293 | 0 | 2,013 | 578 | 2,591 | 0 | 2,043 | 1,195 | 3,238 |
| Structured reverse
repurchase and securities borrowing agreements | 0 | 65 | 577 | 643 | 0 | 22 | 731 | 753 | 0 | 40 | 644 | 684 |
| Other | 179 | 352 | 520 | 1,052 | 179 | 355 | 280 | 814 | 187 | 329 | 240 | 756 |
| Financial assets available for sale | 7,675 | 5,969 | 470 | 14,114 | 7,782 | 7,908 | 546 | 16,235 | 6,299 | 8,891 | 486 | 15,676 |
| of which: | | | | | | | | | | | | |
| Government bills / bonds | 5,510 | 261 | 0 | 5,771 | 5,518 | 267 | 0 | 5,785 | 5,444 | 450 | 0 | 5,894 |
| Corporate and municipal
bonds | 2,000 | 2,097 | 12 | 4,109 | 2,089 | 3,953 | 12 | 6,053 | 646 | 4,939 | 12 | 5,596 |
| Investment fund units | 0 | 69 | 99 | 168 | 0 | 69 | 122 | 191 | 0 | 51 | 126 | 177 |
| Asset-backed securities | 0 | 3,527 | 0 | 3,527 | 0 | 3,539 | 0 | 3,539 | 0 | 3,381 | 0 | 3,381 |
| Equity instruments | 165 | 14 | 359 | 539 | 170 | 81 | 400 | 651 | 204 | 71 | 336 | 611 |
| Non-financial assets | | | | | | | | | | | | |
| Precious metals and other physical commodities | 4,508 | 0 | 0 | 4,508 | 4,628 | 0 | 0 | 4,628 | 4,583 | 0 | 0 | 4,583 |
| Assets measured at fair
value on a non-recurring basis | | | | | | | | | | | | |
| Other assets³ | 0 | 61 | 34 | 95 | 5,009 | 123 | 35 | 5,167 | 5,060 | 131 | 56 | 5,248 |
| Total assets measured at
fair value | 122,026 | 167,969 | 5,596 | 295,591 | 124,825 | 168,551 | 5,925 | 299,302 | 132,062 | 202,377 | 6,860 | 341,298 |

Notes to the UBS Group AG interim consolidated financial statements (unaudited)

Note 9 Fair value measurement (continued)

| Determination of fair values from
quoted market prices or valuation techniques (continued)¹ | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | 30.6.17 | | | | 31.3.17 | | | | 31.12.16 | | | |
| CHF million | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total |
| Liabilities measured at fair
value on a recurring basis | | | | | | | | | | | | |
| Trading portfolio liabilities | 20,538 | 4,695 | 87 | 25,320 | 23,422 | 5,027 | 128 | 28,576 | 18,807 | 3,898 | 119 | 22,824 |
| of which: | | | | | | | | | | | | |
| Government bills / bonds | 6,378 | 591 | 0 | 6,969 | 7,438 | 501 | 0 | 7,939 | 5,573 | 648 | 0 | 6,221 |
| Corporate and municipal
bonds | 39 | 3,799 | 6 | 3,844 | 97 | 4,194 | 38 | 4,329 | 12 | 2,927 | 37 | 2,976 |
| Investment fund units | 547 | 51 | 0 | 599 | 603 | 154 | 0 | 757 | 484 | 91 | 20 | 595 |
| Equity instruments | 13,574 | 254 | 80 | 13,907 | 15,284 | 176 | 89 | 15,549 | 12,738 | 227 | 62 | 13,026 |
| Negative replacement values | 650 | 115,528 | 2,849 | 119,027 | 608 | 115,784 | 3,572 | 119,964 | 539 | 149,255 | 4,016 | 153,810 |
| of which: | | | | | | | | | | | | |
| Interest rate contracts | 1 | 41,046 | 317 | 41,365 | 0 | 46,013 | 362 | 46,376 | 12 | 51,990 | 475 | 52,476 |
| Credit derivative contracts | 0 | 2,997 | 963 | 3,960 | 0 | 2,860 | 1,504 | 4,364 | 0 | 3,269 | 1,538 | 4,807 |
| Foreign exchange contracts | 287 | 50,996 | 138 | 51,421 | 341 | 45,354 | 149 | 45,844 | 274 | 71,668 | 148 | 72,089 |
| Equity / index contracts | 11 | 19,341 | 1,430 | 20,783 | 0 | 20,336 | 1,550 | 21,886 | 1 | 20,254 | 1,854 | 22,109 |
| Commodity contracts | 0 | 1,116 | 0 | 1,116 | 0 | 1,182 | 1 | 1,183 | 0 | 2,040 | 1 | 2,041 |
| Financial liabilities designated at fair value | 10 | 42,074 | 12,131 | 54,215 | 3 | 44,250 | 12,386 | 56,640 | 2 | 44,007 | 11,008 | 55,017 |
| of which: | | | | | | | | | | | | |
| Issued debt instruments | 9 | 37,693 | 10,228 | 47,930 | 2 | 40,406 | 10,232 | 50,640 | 0 | 40,242 | 9,688 | 49,930 |
| Over-the-counter debt
instruments | 2 | 3,994 | 1,850 | 5,846 | 2 | 3,709 | 1,861 | 5,572 | 2 | 3,611 | 1,050 | 4,663 |
| Structured repurchase
agreements | 0 | 381 | 48 | 429 | 0 | 122 | 288 | 410 | 0 | 130 | 266 | 395 |
| Loan commitments and
guarantees | 0 | 6 | 4 | 10 | 0 | 12 | 5 | 18 | 0 | 25 | 5 | 29 |
| Other liabilities – amounts due under unit-linked investment contracts | 0 | 10,099 | 0 | 10,099 | 0 | 9,579 | 0 | 9,579 | 0 | 9,286 | 0 | 9,286 |
| Liabilities measured at fair
value on a non-recurring basis | | | | | | | | | | | | |
| Other liabilities³ | 0 | 5 | 0 | 5 | 0 | 5,052 | 0 | 5,052 | 0 | 5,213 | 0 | 5,213 |
| Total liabilities measured
at fair value | 21,198 | 172,402 | 15,067 | 208,667 | 24,033 | 179,692 | 16,086 | 219,812 | 19,347 | 211,660 | 15,143 | 246,150 |
| 1 Bifurcated embedded derivatives are presented on the same
balance sheet lines as their host contracts and are excluded from this table.
As of 30 June 2017, net bifurcated embedded derivative assets held at fair
value totaling CHF 31 million (of which CHF 36 million were net Level 2
assets and CHF 5 million net Level 2 liabilities) were recognized on the
balance sheet within Due to customers and Debt issued. As of
31 March 2017, net bifurcated embedded derivative assets held at
fair value totaling CHF 45 million (of which CHF 55 million were net Level 2
assets and CHF 10 million net Level 2 liabilities) were recognized on the
balance sheet within Due to customers and Debt issued. As of 31 December
2016, net bifurcated embedded derivative assets held at fair value totaling
CHF 50 million (of which CHF 58 million were net Level 2 assets and CHF 8
million net Level 2 liabilities) were recognized on the balance sheet within
Due to customers and Debt issued. 2 Financial assets held for trading
exclude precious metals and other physical commodities. 3 Other assets and
other liabilities primarily consist of assets held for sale as well as assets
and liabilities of a disposal group held for sale, which are measured at the
lower of their net carrying amount or fair value less costs to sell. Refer to
Note 16 for more information. | | | | | | | | | | | | |

All financial and non-financial assets and liabilities measured or disclosed at fair value are categorized into one of three fair value hierarchy levels. In certain cases, the inputs used to measure fair value may fall within different levels of the fair value hierarchy. For disclosure purposes, the level in the hierarchy within which the instrument is classified in its entirety is based on the lowest level input that is significant to the position’s fair value measurement:

– Level 1 – quoted prices (unadjusted) in active markets for identical assets and liabilities;

– Level 2 – valuation techniques for which all significant inputs are, or are based on, observable market data or

– Level 3 – valuation techniques for which significant inputs are not based on observable market data.

Note 9 Fair value measurement (continued)

b) Valuation adjustments

Day-1 reserves

The table below summarizes the changes in deferred day-1 profit or loss reserves during the respective period.

Deferred day-1 profit or loss related to financial instruments other than financial assets available for sale is released into Net trading income when pricing of equivalent products or the underlying parameters become observable or when the transaction is closed out.

Deferred day-1 profit or loss related to financial assets available for sale is released into Other comprehensive income when pricing of equivalent products or the underlying parameters become observable and is released into Other income when the assets are sold.

Deferred day-1 profit or loss
	For the quarter ended			Year-to-date
CHF million	30.6.17	31.3.17	30.6.16	30.6.17	30.6.16
Balance at the beginning of
the period	365	371	474	371	421
Profit / (loss) deferred on new transactions	65	51	38	116	160
(Profit) / loss recognized in the income statement	(66)	(53)	(53)	(119)	(110)
(Profit) / loss recognized in other comprehensive income	0	0	(23)	0	(23)
Foreign currency translation	(15)	(3)	8	(18)	(5)
Balance at the end of the
period	349	365	444	349	444

c) Transfers between Level 1 and Level 2

The amounts disclosed reflect transfers between Level 1 and Level 2 for instruments that were held for the entire reporting period.

Assets totaling approximately CHF 0.7 billion, which were mainly comprised of financial assets designated at fair value, primarily corporate and municipal bonds, were transferred from Level 2 to Level 1 during the first six months of 2017, generally due to increased levels of trading activity observed within the market. Liabilities transferred from Level 2 to Level 1 during the first six months of 2017 were negligible.

Assets totaling approximately CHF 0.2 billion, which were mainly comprised of financial assets available for sale, largely government bills / bonds, were transferred from Level 1 to Level 2 during the first six months of 2017, generally due to diminished levels of trading activity observed in the market. Liabilities transferred from Level 1 to Level 2 during the first six months of 2017 were negligible.

Notes to the UBS Group AG interim consolidated financial statements (unaudited)

Note 9 Fair value measurement (continued)

d) Level 3 instruments: valuation techniques and inputs

The table below presents material Level 3 assets and liabilities together with the valuation techniques used to measure fair value, the significant inputs used in the valuation technique that are considered unobservable and a range of values for those unobservable inputs.

The range of values represents the highest and lowest level input used in the valuation techniques. Therefore, the range does not reflect the level of uncertainty regarding a particular input, but rather the different underlying characteristics of the relevant assets and liabilities. The ranges and weighted averages will vary from period to period and from parameter to parameter based on characteristics of the instruments held at each balance sheet date. Further, the ranges and weighted averages of unobservable inputs may differ across other financial institutions due to the diversity of the products in each firm’s inventory.

The significant unobservable inputs disclosed in the table below are generally consistent with those included in “Note 22 Fair value measurement” in the “Consolidated financial statements” section of the Annual Report 2016. A description of the potential effect that a change in each unobservable input in isolation may have on a fair value measurement, including information to facilitate an understanding of factors that give rise to the input ranges shown, is also provided in “Note 22 Fair value measurement” in the “Consolidated financial statements” section of the Annual Report 2016.

| Valuation techniques and inputs
used in the fair value measurement of Level 3 assets and liabilities | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | Fair value | | | | | Significant unobservable
input(s)¹ | Range of inputs | | | | | | |
| | Assets | | Liabilities | | Valuation technique(s) | | 30.6.17 | | | 31.12.16 | | | |
| CHF billion | 30.6.17 | 31.12.16 | 30.6.17 | 31.12.16 | | | low | high | weighted average² | low | high | weighted average² | unit¹ |
| Financial assets held for
trading / Trading portfolio liabilities, Financial assets / liabilities
designated at fair value and Financial assets available for sale | | | | | | | | | | | | | |
| Corporate and municipal
bonds | 0.8 | 0.6 | 0.0 | 0.0 | Relative value to market comparable | Bond price equivalent | 0 | 132 | 88 | 0 | 128 | 88 | points |
| Traded loans, loans
designated at fair value, loan commitments and guarantees | 1.4 | 2.0 | 0.0 | 0.0 | Relative value to market comparable | Loan price equivalent | 79 | 100 | 92 | 39 | 103 | 94 | points |
| | | | | | Discounted expected cash flows | Credit spread | 42 | 459 | | 71 | 554 | | basis points |
| | | | | | Market comparable and securitization model | Discount margin | 0 | 15 | 2 | 0 | 16 | 2 | % |
| Structured (reverse)
repurchase agreements | 0.6 | 0.6 | 0.0 | 0.3 | Discounted expected cash flows | Funding spread | 15 | 195 | | 15 | 195 | | basis points |
| Issued and over-the-counter
debt instruments³ | | | 12.1 | 10.7 | | | | | | | | | |

Note 9 Fair value measurement (continued)

| Valuation techniques and inputs
used in the fair value measurement of Level 3 assets and liabilities
(continued) | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | Fair value | | | | | Significant unobservable
input(s)¹ | Range of inputs | | | | | | |
| | Assets | | Liabilities | | Valuation technique(s) | | 30.6.17 | | | 31.12.16 | | | |
| CHF billion | 30.6.17 | 31.12.16 | 30.6.17 | 31.12.16 | | | low | high | weighted average² | low | high | weighted average² | unit¹ |
| Replacement values | | | | | | | | | | | | | |
| Interest rate contracts | 0.2 | 0.3 | 0.3 | 0.5 | Option model | Volatility of interest rates | 27 | 123 | | 26 | 176 | | % |
| | | | | | | Rate-to-rate correlation | 84 | 94 | | 84 | 94 | | % |
| | | | | | | Intra-curve correlation | 36 | 94 | | 36 | 94 | | % |
| Credit derivative contracts | 0.8 | 1.3 | 1.0 | 1.5 | Discounted expected cash flow based on modeled defaults and
recoveries | Credit spreads | 0 | 656 | | 0 | 791 | | basis points |
| | | | | | | Upfront price points | 4 | 72 | | 1 | 13 | | % |
| | | | | | | Recovery rates | 15 | 50 | | 0 | 50 | | % |
| | | | | | | Credit index correlation | 10 | 70 | | 10 | 85 | | % |
| | | | | | | Discount margin | 0 | 11 | | (1) | 68 | | % |
| | | | | | | Credit pair correlation | 59 | 83 | | 59 | 100 | | % |
| | | | | | Discounted cash flow projection on underlying bond | Constant prepayment rate | 4 | 15 | | 1 | 15 | | % |
| | | | | | | Constant default rate | 1 | 6 | | 1 | 8 | | % |
| | | | | | | Loss severity | 40 | 100 | | 40 | 100 | | % |
| | | | | | | Discount margin | 0 | 8 | | 0 | 11 | | % |
| | | | | | | Bond price equivalent | 3 | 187 | | 3 | 100 | | points |
| Equity / index contracts | 0.8 | 0.7 | 1.4 | 1.9 | Option model | Equity dividend yields | 0 | 15 | | 0 | 15 | | % |
| | | | | | | Volatility of equity stocks, equity and other indices | 0 | 220 | | 0 | 150 | | % |
| | | | | | | Equity-to-FX correlation | (45) | 82 | | (45) | 82 | | % |
| | | | | | | Equity-to-equity correlation | (50) | 97 | | 12 | 98 | | % |
| 1 The ranges of significant unobservable inputs are represented
in points, percentages and basis points. Points are a percentage of par
(e.g., 100 points would be 100% of par). 2 Weighted averages are provided
for non-derivative financial instruments and were calculated by weighting
inputs based on the fair values of the respective instruments. Weighted
averages are not provided for inputs related to derivative contracts as this
would not be meaningful. 3 Valuation techniques, significant unobservable
inputs and the respective input ranges for issued debt instruments and
over-the-counter debt instruments are the same as the equivalent derivative
or structured financing instruments presented elsewhere in this table. | | | | | | | | | | | | | |

Notes to the UBS Group AG interim consolidated financial statements (unaudited)

Note 9 Fair value measurement (continued)

e) Level 3 instruments: sensitivity to changes in unobservable input assumptions

The table below summarizes those financial assets and liabilities classified as Level 3 for which a change in one or more of the unobservable inputs to reflect reasonably possible alternative assumptions would change fair value significantly, and the estimated effect thereof.

The table shown presents the favorable and unfavorable effects for each class of financial assets and liabilities for which the potential change in fair value is considered significant. The sensitivity data presented represent an estimation of valuation uncertainty based on reasonably possible alternative values for Level 3 inputs at the balance sheet date and does not represent the estimated effect of stress scenarios. Typically, these financial assets and liabilities are sensitive to a combination of inputs from Levels 1 through 3. Although well-defined interdependencies may exist between Levels 1–2 and Level 3 parameters (e.g., between interest rates, which are generally Level 1 or Level 2, and prepayments, which are generally Level 3), these have not been incorporated in the table. Further, direct interrelationships between the Level 3 parameters are not a significant element of the valuation uncertainty.

| Sensitivity of fair value
measurements to changes in unobservable input assumptions | 30.6.17 | | 31.3.17 | | 31.12.16 | |
| --- | --- | --- | --- | --- | --- | --- |
| CHF million | Favorable changes¹ | Unfavorable changes¹ | Favorable changes¹ | Unfavorable changes¹ | Favorable changes¹ | Unfavorable changes¹ |
| Corporate and municipal bonds | 15 | (20) | 35 | (30) | 34 | (39) |
| Traded loans, loans designated at fair value, loan commitments
and guarantees | 80 | (8) | 78 | (7) | 82 | (10) |
| Equity instruments | 71 | (50) | 70 | (50) | 67 | (47) |
| Interest rate derivative contracts, net | 22 | (40) | 28 | (31) | 41 | (42) |
| Credit derivative contracts, net | 119 | (136) | 114 | (147) | 131 | (183) |
| Foreign exchange derivative contracts, net | 12 | (6) | 11 | (6) | 17 | (8) |
| Equity / index derivative contracts, net | 73 | (81) | 61 | (65) | 63 | (63) |
| Issued and over-the-counter debt instruments | 85 | (89) | 81 | (81) | 96 | (93) |
| Other | 23 | (23) | 21 | (26) | 29 | (31) |
| Total | 499 | (452) | 499 | (442) | 560 | (517) |
| 1 Of the total favorable changes, CHF 72 million as of 30 June
2017 (31 March 2017: CHF 76 million; 31 December 2016: CHF 75 million)
related to financial assets available for sale. Of the total unfavorable
changes, CHF 51 million as of 30 June 2017 (31 March 2017: CHF 55 million; 31
December 2016: CHF 55 million) related to financial assets available for
sale. | | | | | | |

Note 9 Fair value measurement (continued)

f) Level 3 instruments: movements during the period

Significant changes in Level 3 instruments

The table on the following pages presents additional information about material Level 3 assets and liabilities measured at fair value on a recurring basis. Level 3 assets and liabilities may be hedged with instruments classified as Level 1 or Level 2 in the fair value hierarchy and, as a result, realized and unrealized gains and losses included in the table may not include the effect of related hedging activity. Furthermore, the realized and unrealized gains and losses presented within the table are not limited solely to those arising from Level 3 inputs, as valuations are generally derived from both observable and unobservable parameters.

Assets and liabilities transferred into or out of Level 3 are presented as if those assets or liabilities had been transferred at the beginning of the year.

Assets transferred into and out of Level 3 totaled CHF 0.4 billion and CHF 0.8 billion, respectively. Transfers into Level 3 were primarily comprised of corporate and municipal bonds and equity / index contracts, and were mainly due to decreased observability of the respective market pricing inputs. Transfers out of Level 3 were primarily comprised of credit derivative and equity / index contracts, reflecting increased observability of the respective credit spread and equity volatility inputs.

Liabilities transferred into and out of Level 3 totaled CHF 0.4 billion and CHF 1.9 billion, respectively. Transfers into Level 3 were primarily comprised of equity-linked issued debt instruments and equity / index contracts, due to decreased observability of the respective equity volatility inputs used to determine the fair value of the options embedded in these structures. Transfers out of Level 3 were primarily comprised of equity-linked issued debt instruments, equity / index and credit derivative contracts resulting from changes in the availability of the observable equity volatility and credit spread inputs used to determine the fair value of the options embedded in these structures.

Notes to the UBS Group AG interim consolidated financial statements (unaudited)

Note 9 Fair value measurement (continued)

Movements of Level 3 instruments
		Total gains / losses included in comprehensive income
CHF billion	Balance as of 31 December 2015	Net interest income, net trading income and other income	of which: related to Level 3 instruments held at the end of the reporting period	Purchases	Sales	Issuances	Settlements	Transfers into Level 3	Transfers out of Level 3	Foreign currency translation	Balance as of 30 June 2016
Financial assets held for
trading	2.1	(0.1)	0.0	0.6	(3.0)	2.5	0.0	0.5	(0.4)	(0.1)	2.2
of which:
Corporate and municipal
bonds	0.7	0.1	0.1	0.5	(0.3)	0.0	0.0	0.0	(0.1)	(0.1)	0.8
Loans	0.8	0.0	0.1	0.0	(2.3)	2.5	0.0	0.1	(0.2)	0.0	0.9
Other	0.6	(0.2)	(0.2)	0.1	(0.4)	0.0	0.0	0.4	(0.1)	0.0	0.4
Financial assets designated
at fair value	3.3	(0.2)	(0.2)	0.0	0.0	0.2	(0.8)	0.4	(0.1)	(0.1)	2.8
of which:
Loans (including structured
loans)	1.7	(0.2)	(0.2)	0.0	0.0	0.2	(0.5)	0.4	(0.1)	(0.1)	1.5
Structured reverse
repurchase and securities borrowing agreements	1.5	0.0	0.0	0.0	0.0	0.0	(0.3)	0.0	0.0	0.0	1.2
Other	0.1	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.1
Financial assets available
for sale	0.7	0.0	0.0	0.1	(0.1)	0.0	0.0	0.0	(0.1)	0.0	0.6
Positive replacement values	2.9	0.0	0.0	0.0	0.0	0.5	(1.1)	0.5	(0.4)	(0.1)	2.3
of which:
Credit derivative contracts	1.3	0.1	0.1	0.0	0.0	0.1	(0.3)	0.1	(0.2)	0.0	0.9
Equity / index contracts	1.0	0.0	0.0	0.0	0.0	0.2	(0.3)	0.2	(0.1)	0.0	0.9
Other	0.6	(0.1)	(0.1)	0.0	0.0	0.3	(0.5)	0.2	0.0	0.0	0.5
Negative replacement values	3.3	0.8	0.8	0.0	0.0	0.5	(1.1)	0.6	(0.2)	0.0	4.0
of which:
Credit derivative contracts	1.3	0.7	0.6	0.0	0.0	0.1	(0.4)	0.0	0.0	0.0	1.6
Equity / index contracts	1.4	0.0	0.0	0.0	0.0	0.4	(0.2)	0.1	(0.1)	0.0	1.6
Other	0.6	0.2	0.2	0.0	0.0	0.0	(0.4)	0.5	0.0	0.0	0.8
Financial liabilities
designated at fair value	10.7	0.5	0.5	0.0	0.0	2.3	(1.4)	1.1	(1.3)	(0.2)	11.6
of which:
Issued debt instruments	9.3	0.6	0.5	0.0	0.0	1.6	(0.9)	1.0	(1.3)	(0.2)	10.1
Over-the-counter debt
instruments	0.8	0.0	0.0	0.0	0.0	0.6	(0.5)	0.0	0.0	0.0	0.9
Structured repurchase
agreements	0.6	0.0	0.0	0.0	0.0	0.1	(0.1)	0.0	0.0	0.0	0.6
1 Total Level 3 assets as of 30 June 2017 were CHF 5.6 billion
(31 March 2017: CHF 5.9 billion; 31 December 2016: CHF 6.9 billion). Total
Level 3 liabilities as of 30 June 2017 were CHF 15.1 billion (31 March 2017:
CHF 16.1 billion; 31 December 2016: CHF 15.1 billion).

Note 9 Fair value measurement (continued)

Balance as of 31 December 2016	Total gains / losses included in comprehensive income — Net interest income, net trading income and other income	of which: related to Level 3 instruments held at the end of the reporting period	Purchases	Sales	Issuances	Settlements	Transfers into Level 3	Transfers out of Level 3	Foreign currency translation	Balance as of 30 June 2017¹
1.7	0.0	0.0	0.7	(2.3)	1.6	0.0	0.2	(0.2)	0.0	1.6
0.6	0.0	0.0	0.3	(0.1)	0.0	0.0	0.1	0.0	0.0	0.8
0.7	0.1	0.0	0.3	(2.1)	1.6	0.0	0.0	(0.1)	0.0	0.5
0.4	(0.1)	(0.1)	0.1	(0.1)	0.0	0.0	0.1	0.0	0.0	0.3
2.1	0.0	0.0	0.0	0.0	0.3	(0.7)	0.0	(0.1)	0.0	1.6
1.2	0.1	0.1	0.0	0.0	0.0	(0.7)	0.0	(0.1)	0.0	0.5
0.6	0.0	0.0	0.0	0.0	0.0	(0.1)	0.0	0.0	0.0	0.6
0.2	0.0	0.0	0.0	0.0	0.3	0.0	0.0	0.0	0.0	0.5
0.5	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.5
2.5	(0.2)	(0.3)	0.0	0.0	0.4	(0.5)	0.1	(0.5)	0.0	1.9
1.3	(0.2)	(0.2)	0.0	0.0	0.0	(0.1)	0.0	(0.3)	0.0	0.8
0.7	0.0	0.0	0.0	0.0	0.4	(0.2)	0.1	(0.1)	0.0	0.8
0.5	0.0	(0.1)	0.0	0.0	0.0	(0.2)	0.0	(0.1)	0.0	0.3
4.0	(0.1)	(0.2)	0.0	0.0	0.5	(1.0)	0.1	(0.7)	0.0	2.8
1.5	(0.1)	(0.1)	0.0	0.0	0.0	(0.2)	0.0	(0.3)	0.0	1.0
1.9	0.0	0.0	0.0	0.0	0.5	(0.5)	0.1	(0.4)	0.0	1.4
0.6	0.0	0.0	0.0	0.0	0.0	(0.2)	0.0	(0.1)	0.0	0.5
11.0	1.1	0.8	0.0	0.0	3.9	(2.5)	0.2	(1.2)	(0.3)	12.1
9.7	1.0	0.8	0.0	0.0	2.5	(2.0)	0.2	(0.9)	(0.3)	10.2
1.1	0.0	0.0	0.0	0.0	1.3	(0.5)	0.0	0.0	0.0	1.9
0.3	0.0	0.0	0.0	0.0	0.0	0.0	0.0	(0.2)	0.0	0.0

Notes to the UBS Group AG interim consolidated financial statements (unaudited)

Note 9 Fair value measurement (continued)

g) Financial instruments not measured at fair value

The table below reflects the estimated fair values of financial instruments not measured at fair value.

| Financial instruments not
measured at fair value | 30.6.17 | | 31.3.17 | | 31.12.16 | |
| --- | --- | --- | --- | --- | --- | --- |
| CHF billion | Carrying value | Fair value | Carrying value | Fair value | Carrying value | Fair value |
| Assets | | | | | | |
| Cash and balances with central banks | 100.1 | 100.1 | 108.9 | 108.9 | 107.8 | 107.8 |
| Due from banks | 14.4 | 14.4 | 14.2 | 14.2 | 13.2 | 13.2 |
| Cash collateral on securities borrowed | 15.1 | 15.1 | 18.5 | 18.5 | 15.1 | 15.1 |
| Reverse repurchase agreements | 75.3 | 75.3 | 77.0 | 77.0 | 66.2 | 66.2 |
| Cash collateral receivables on derivative instruments | 22.7 | 22.7 | 22.5 | 22.5 | 26.7 | 26.7 |
| Loans | 308.3 | 310.4 | 309.1 | 311.9 | 306.3 | 309.7 |
| Financial assets held to maturity | 8.7 | 8.6 | 9.0 | 8.8 | 9.3 | 9.1 |
| Other assets | 21.1 | 21.1 | 20.8 | 20.8 | 18.5 | 18.5 |
| Liabilities | | | | | | |
| Due to banks | 11.6 | 11.6 | 8.7 | 8.7 | 10.6 | 10.6 |
| Cash collateral on securities lent | 2.5 | 2.5 | 3.1 | 3.1 | 2.8 | 2.8 |
| Repurchase agreements | 11.3 | 11.3 | 10.6 | 10.6 | 6.6 | 6.6 |
| Cash collateral payables on derivative instruments | 31.5 | 31.5 | 29.9 | 29.9 | 35.5 | 35.5 |
| Due to customers | 404.3 | 404.3 | 419.4 | 419.4 | 423.7 | 423.7 |
| Debt issued | 121.7 | 125.1 | 114.8 | 117.9 | 103.7 | 106.1 |
| Other liabilities | 35.9 | 35.9 | 37.7 | 37.7 | 38.3 | 38.4 |

The fair values included in the table above were calculated for disclosure purposes only. The fair value valuation techniques and assumptions relate only to the fair value of UBS’s financial instruments not measured at fair value. Other institutions may use different methods and assumptions for their fair value estimation, and therefore such fair value disclosures cannot necessarily be compared from one financial institution to another.

Note 10 Derivative instruments

a) Derivative instruments

As of 30.6.17, CHF billion	Positive replacement values	Notional values related to positive replacement values¹	Negative replacement values	Notional values related to negative replacement values¹	Other notional values²
Derivative instruments
Interest rate contracts	47.8	1,065	41.4	976	10,324
Credit derivative contracts	3.0	107	4.0	116	2
Foreign exchange contracts	52.1	2,292	51.4	2,144	8
Equity / index contracts	17.4	302	20.8	367	65
Commodity contracts	1.2	33	1.1	32	8
Unsettled purchases of non-derivative financial instruments³	0.2	24	0.2	29
Unsettled sales of non-derivative financial instruments³	0.2	36	0.2	15
Total derivative
instruments, based on IFRS netting⁴	121.9	3,859	119.0	3,678	10,408
Further netting potential not recognized on the balance
sheet⁵	(107.7)		(98.9)
of which: netting of
recognized financial liabilities / assets	(85.3)		(85.3)
of which: netting with
collateral received / pledged	(22.4)		(13.5)
Total derivative
instruments, after consideration of further netting potential	14.2		20.2
As of 31.3.17, CHF billion
Derivative instruments
Interest rate contracts	53.3	1,099	46.4	1,018	10,344
Credit derivative contracts	3.5	126	4.4	132	2
Foreign exchange contracts	45.6	2,645	45.8	2,579	12
Equity / index contracts	17.4	293	21.9	360	68
Commodity contracts	1.5	35	1.2	29	8
Unsettled purchases of non-derivative financial instruments³	0.2	34	0.2	20
Unsettled sales of non-derivative financial instruments³	0.2	26	0.2	24
Total derivative
instruments, based on IFRS netting⁴	121.5	4,259	120.0	4,162	10,435
Further netting potential not recognized on the balance sheet⁵	(107.9)		(100.9)
of which: netting of
recognized financial liabilities / assets	(86.4)		(86.4)
of which: netting with
collateral received / pledged	(21.6)		(14.5)
Total derivative
instruments, after consideration of further netting potential	13.6		19.1
As of 31.12.16, CHF billion
Derivative instruments
Interest rate contracts	58.0	1,152	52.5	1,060	9,730
Credit derivative contracts	3.9	123	4.8	140
Foreign exchange contracts	76.1	2,470	72.1	2,286	6
Equity / index contracts	18.0	269	22.1	318	55
Commodity contracts	2.3	39	2.0	36	9
Unsettled purchases of non-derivative financial instruments³	0.1	18	0.1	10
Unsettled sales of non-derivative financial instruments³	0.1	13	0.2	11
Total derivative instruments,
based on IFRS netting⁴	158.4	4,084	153.8	3,860	9,799
Further netting potential not recognized on the balance
sheet⁵	(139.8)		(129.6)
of which: netting of
recognized financial liabilities / assets	(113.1)		(113.1)
of which: netting with
collateral received / pledged	(26.7)		(16.6)
Total derivative
instruments, after consideration of further netting potential	18.6		24.2
1 In cases where replacement values are presented on a net basis
on the balance sheet, the respective notional values of the netted
replacement values are still presented on a gross basis. 2 Other notional
values relate to derivatives that are cleared through either a central
counterparty or an exchange. Many of these derivatives are either legally or
economically settled on a daily basis. The residual unsettled fair value of
these derivatives and the fair value of other derivatives that are presented
on the balance sheet net of the corresponding cash margin, both within Cash
collateral receivables on derivative instruments and Cash collateral payables
on derivative instruments, was not material for all periods presented. 3
Changes in the fair value of purchased and sold non-derivative financial
instruments between trade date and settlement date are recognized as
replacement values. 4 Financial assets and liabilities are presented net
on the balance sheet if UBS has the unconditional and legally enforceable
right to offset the recognized amounts, both in the normal course of business
and in the event of default, bankruptcy or insolvency of the entity and all
of the counterparties, and intends either to settle on a net basis or to
realize the asset and settle the liability simultaneously. 5 Reflects the
netting potential in accordance with enforceable master netting and similar
arrangements where not all criteria for a net presentation on the balance
sheet have been met. Refer to “Note 24 Offsetting financial assets and
financial liabilities” in the “Consolidated financial statements” section of
the Annual Report 2016 for more information.

Notes to the UBS Group AG interim consolidated financial statements (unaudited)

Note 10 Derivative instruments (continued)

b) Cash collateral on derivative instruments

CHF billion	Receivables 30.6.17	Payables 30.6.17	Receivables 31.3.17	Payables 31.3.17	Receivables 31.12.16	Payables 31.12.16
Cash collateral on derivative instruments, based on IFRS
netting¹	22.7	31.5	22.5	29.9	26.7	35.5
Further netting potential not recognized on the balance sheet²	(11.2)	(18.4)	(13.2)	(18.1)	(15.1)	(22.2)
of which: netting of
recognized financial liabilities / assets	(10.7)	(17.8)	(11.6)	(16.8)	(14.2)	(20.8)
of which: netting with
collateral received / pledged	(0.5)	(0.7)	(1.6)	(1.3)	(1.0)	(1.4)
Cash collateral on
derivative instruments, after consideration of further netting potential	11.5	13.1	9.3	11.8	11.5	13.3
1 Financial assets and liabilities are presented net on the
balance sheet if UBS has the unconditional and legally enforceable right to
offset the recognized amounts, both in the normal course of business and in
the event of default, bankruptcy or insolvency of the entity and all of the
counterparties, and intends either to settle on a net basis or to realize the
asset and settle the liability simultaneously. Effective 3 January 2017,
interest rate swaps and credit derivatives transacted with the Chicago
Mercantile Exchange (CME) were legally converted from the previous collateral
model to a settlement model resulting in a derecognition of the associated
assets and liabilities, with UBS no longer applying IAS 32 netting
principles. Refer to “Note 10 Derivative instruments” in the “Consolidated
financial statements” section of the first quarter 2017 report for more
information. 2 Reflects the netting potential in accordance with
enforceable master netting and similar arrangements where not all criteria
for a net presentation on the balance sheet have been met. Refer to “Note 24
Offsetting financial assets and financial liabilities” in the “Consolidated
financial statements” section of the Annual Report 2016 for more information.

Note 11 Other assets and liabilities

CHF million	30.6.17	31.3.17	31.12.16
Other assets
Prime brokerage receivables¹	12,388	11,372	9,828
Recruitment loans to financial advisors	2,643	2,952	3,087
Other loans to financial advisors	557	566	471
Bail deposit²	1,246	1,212	1,213
Accrued interest income	557	760	526
Accrued income – other	857	1,093	818
Prepaid expenses	1,031	1,073	1,010
Settlement and clearing accounts	385	499	516
VAT and other tax receivables	325	252	292
Properties and other non-current assets held for sale	95	92	111
Assets of disposal group held for sale³	0	5,074	5,137
Other	2,709	2,553	2,427
Total other assets	22,793	27,500	25,436
Other liabilities
Prime brokerage payables¹	30,068	31,496	31,973
Amounts due under unit-linked investment contracts	10,099	9,579	9,286
Compensation-related liabilities	6,303	5,756	7,421
of which: accrued expenses	1,641	1,031	2,423
of which: Deferred
Contingent Capital Plan	1,771	1,644	1,625
of which: other deferred
compensation plans	1,821	1,875	2,107
of which: net defined
benefit pension and post-employment liabilities	1,071	1,206	1,266
Third-party interest in consolidated investment funds	327	385	701
Settlement and clearing accounts	707	920	1,012
Current and deferred tax liabilities	702	1,135	949
VAT and other tax payables	492	499	503
Deferred income	192	202	168
Accrued interest expenses	1,162	1,370	1,553
Other accrued expenses	2,307	2,780	2,448
Liabilities of disposal group held for sale³	0	5,052	5,213
Other	1,294	764	793
Total other liabilities	53,653	59,939	62,020
1 Prime brokerage services include clearance, settlement,
custody, financing and portfolio reporting services for corporate clients
trading across multiple asset classes. Prime brokerage receivables are mainly
comprised of margin lending receivables. Prime brokerage payables are mainly
comprised of client securities financing and deposits. 2 Refer to item 1
in Note 14b for more information. 3 Refer to Note 16 for more information.

Note 12 Financial liabilities designated at fair value

CHF million	30.6.17	31.3.17	31.12.16
Issued debt instruments
Equity-linked¹	31,869	31,802	29,831
Rates-linked	6,801	9,379	10,150
Credit-linked	3,748	3,888	4,101
Fixed-rate	3,123	3,100	2,972
Other	2,389	2,471	2,875
Total issued debt
instruments	47,930	50,640	49,930
of which: issued by UBS AG
with original maturity greater than one year²˒³	35,095	35,601	36,347
Over-the-counter debt
instruments	5,846	5,572	4,663
of which: issued by UBS AG
with original maturity greater than one year²˒⁴	4,824	4,521	4,210
Other	439	428	425
Total	54,215	56,640	55,017
of which: life-to-date own
credit (gain) / loss	128	49	(141)
1 Includes investment fund unit-linked instruments issued. 2
Issued by the legal entity UBS AG. Based on original contractual maturity
without considering any early redemption features. 3 More than 99% of the
balance as of 30 June 2017 was unsecured (31 March 2017: more than 99% of the
balance was unsecured; 31 December 2016: more than 99% of the balance was
unsecured). 4 More than 20% of the balance as of 30 June 2017 was
unsecured (31 March 2017: more than 25% of the balance was unsecured; 31
December 2016: more than 35% of the balance was unsecured).

Note 13 Debt issued held at amortized cost

CHF million	30.6.17	31.3.17	31.12.16
Certificates of deposit	33,162	28,825	20,207
Commercial paper	6,530	1,355	1,653
Other short-term debt	4,199	5,186	4,318
Short-term debt¹	43,891	35,367	26,178
Senior fixed-rate bonds	25,527	26,580	27,008
of which: issued by UBS AG
with original maturity greater than one year²˒³	25,450	26,495	26,850
Senior unsecured debt that contributes to total loss-absorbing
capacity	23,521	23,531	16,890
Covered bonds	3,896	3,829	5,836
Subordinated debt	16,431	17,018	19,325
of which: high-trigger
loss-absorbing additional tier 1 capital instruments	5,153	5,330	5,429
of which: low-trigger
loss-absorbing additional tier 1 capital instruments	2,295	2,313	2,342
of which: low-trigger
loss-absorbing tier 2 capital instruments	8,110	8,265	10,429
of which: non-Basel
III-compliant tier 2 capital instruments	873	1,109	1,125
Debt issued through the central bond institutions of the Swiss
regional or cantonal banks	8,369	8,300	8,302
Other long-term debt	91	100	112
of which: issued by UBS AG
with original maturity greater than one year²˒⁴	68	87	94
Long-term debt⁵	77,836	79,359	77,472
Total debt issued held at
amortized cost⁶	121,727	114,725	103,649
1 Debt with an original maturity of less than one year. 2
Issued by the legal entity UBS AG. Based on original contractual maturity
without considering any early redemption features. 3 100% of the balance
as of 30 June 2017 was unsecured (31 March 2017: 100% of the
balance was unsecured; 31 December 2016: 100% of the balance was
unsecured). 4 More than 95% of the balance as of 30 June 2017
was unsecured (31 March 2017: 100% of the balance was unsecured; 31 December
2016: 100% of the balance was unsecured). 5 Debt with an original maturity
greater than or equal to one year. The classification of debt issued into
short-term and long-term does not consider any early redemption features.
6 Net of bifurcated embedded derivatives with a net positive fair value of
CHF 20 million as of 30 June 2017 (31 March 2017: net positive fair value of
CHF 34 million; 31 December 2016: net positive fair value of CHF 38 million).

Notes to the UBS Group AG interim consolidated financial statements (unaudited)

Note 14 Provisions and contingent liabilities

a) Provisions

CHF million	Operational risks¹	Litigation, regulatory and similar matters²	Restructuring	Loan commitments and guarantees	Real estate	Employee benefits⁵	Other	Total provisions
Balance as of 31 December
2016	50	3,261	498	54	142	77	91	4,174
Balance as of 31 March 2017	49	2,918	433	51	138	76	92	3,757
Increase in provisions recognized in the income statement	6	53	49	2	1	4	3	119
Release of provisions recognized in the income statement	(3)	(43)	(11)	(10)	0	(11)	0	(78)
Provisions used in conformity with designated purpose	(4)	(410)	(76)	0	(4)	0	(21)	(515)
Capitalized reinstatement costs	0	0	0	0	2	0	0	2
Reclassifications	0	0	0	10	0	0	0	10
Foreign currency translation / unwind of discount	0	(72)	(10)	0	(5)	(1)	(1)	(88)
Balance as of 30 June 2017	47	2,446	385³	53	132⁴	68	74	3,207
1 Comprises provisions for losses resulting from security risks
and transaction processing risks. 2 Comprises provisions for losses resulting
from legal, liability and compliance risks. 3 Consists of
personnel-related restructuring provisions of CHF 95 million as of 30 June
2017 (31 March 2017: CHF 109 million; 31 December 2016: CHF 150 million) and
provisions for onerous lease contracts of CHF 290 million as of 30 June 2017
(31 March 2017: CHF 324 million; 31 December 2016: CHF 348 million). 4
Consists of reinstatement costs for leasehold improvements of CHF 88 million
as of 30 June 2017 (31 March 2017: CHF 88 million; 31 December 2016: CHF 87
million) and provisions for onerous lease contracts of CHF 45 million as of
30 June 2017 (31 March 2017: CHF 50 million; 31 December 2016: CHF 55
million). 5 Includes provisions for sabbatical and anniversary awards as
well as provisions for severance that are not part of restructuring
provisions.

Restructuring provisions primarily relate to onerous lease contracts and severance payments. The use of onerous lease provisions is driven by the maturities of the underlying lease contracts. Severance-related provisions are used within a short time period, usually within six months, but potential changes in amount may be triggered when natural staff attrition reduces the number of people affected by a restructuring and therefore the estimated costs.

Information on provisions and contingent liabilities in respect of litigation, regulatory and similar matters, as a class, is included in Note 14b. There are no material contingent liabilities associated with the other classes of provisions.

b) Litigation, regulatory and similar matters

The Group operates in a legal and regulatory environment that exposes it to significant litigation and similar risks arising from disputes and regulatory proceedings. As a result, UBS (which for purposes of this Note may refer to UBS Group AG and / or one or more of its subsidiaries, as applicable) is involved in various disputes and legal proceedings, including litigation, arbitration, and regulatory and criminal investigations.

Such matters are subject to many uncertainties, and the outcome and the timing of resolution are often difficult to predict, particularly in the earlier stages of a case. There are also situations where the Group may enter into a settlement agreement. This may occur in order to avoid the expense, management distraction or reputational implications of continuing to contest liability, even for those matters for which the Group believes it should be exonerated. The uncertainties inherent in all such matters affect the amount and timing of any potential outflows for both matters with respect to which provisions have been established and other contingent liabilities. The Group makes provisions for such matters brought against it when, in the opinion of management after seeking legal advice, it is more likely than not that the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required, and the amount can be reliably estimated. Where these factors are otherwise satisfied, a provision may be established for claims that have not yet been asserted against the Group, but are nevertheless expected to be, based on the Group’s experience with similar asserted claims. If any of those conditions is not met, such matters result in contingent liabilities. If the amount of an obligation cannot be reliably estimated, a liability exists that is not recognized even if an outflow of resources is probable. Accordingly, no provision is established even if the potential outflow of resources with respect to select matters could be significant.

Specific litigation, regulatory and other matters are described below, including all such matters that management considers to be material and others that management believes to be of significance due to potential financial, reputational and other effects. The amount of damages claimed, the size of a transaction or other information is provided where available and appropriate in order to assist users in considering the magnitude of potential exposures.

Note 14 Provisions and contingent liabilities (continued)

In the case of certain matters below, we state that we have established a provision, and for the other matters, we make no such statement. When we make this statement and we expect disclosure of the amount of a provision to prejudice seriously our position with other parties in the matter because it would reveal what UBS believes to be the probable and reliably estimable outflow, we do not disclose that amount. In some cases we are subject to confidentiality obligations that preclude such disclosure. With respect to the matters for which we do not state whether we have established a provision, either (a) we have not established a provision, in which case the matter is treated as a contingent liability under the applicable accounting standard, or (b) we have established a provision but expect disclosure of that fact to prejudice seriously our position with other parties in the matter because it would reveal the fact that UBS believes an outflow of resources to be probable and reliably estimable.

With respect to certain litigation, regulatory and similar matters for which we have established provisions, we are able to estimate the expected timing of outflows. However, the aggregate amount of the expected outflows for those matters for which we are able to estimate expected timing is immaterial relative to our current and expected levels of liquidity over the relevant time periods.

The aggregate amount provisioned for litigation, regulatory and similar matters as a class is disclosed in Note 14 a above. It is not practicable to provide an aggregate estimate of liability for our litigation, regulatory and similar matters as a class of contingent liabilities. Doing so would require us to provide speculative legal assessments as to claims and proceedings that involve unique fact patterns or novel legal theories, that have not yet been initiated or are at early stages of adjudication, or as to which alleged damages have not been quantified by the claimants. Although we therefore cannot provide a numerical estimate of the future losses that could arise from litigation, regulatory and similar matters, we believe that the aggregate amount of possible future losses from this class that are more than remote substantially exceeds the level of current provisions. Litigation, regulatory and similar matters may also result in non-monetary penalties and consequences. For example, the Non-Prosecution Agreement (NPA) described in item 5 of this Note, which we entered into with the US Department of Justice (DOJ), Criminal Division, Fraud Section in connection with our submissions of benchmark interest rates, including, among others, the British Bankers’ Association London Interbank Offered Rate (LIBOR), was terminated by the DOJ based on its determination that we had committed a US crime in relation to foreign exchange matters. As a consequence, UBS AG pleaded guilty to one count of wire fraud for conduct in the LIBOR matter, paid a USD 203 million fine and is subject to a three-year term of probation. A guilty plea to, or conviction of, a crime (including as a result of termination of the NPA) could have material consequences for UBS. Resolution of regulatory proceedings may require us to obtain waivers of regulatory disqualifications to maintain certain operations, may entitle regulatory authorities to limit, suspend or terminate licenses and regulatory authorizations, and may permit financial market utilities to limit, suspend or terminate our participation in such utilities. Failure to obtain such waivers, or any limitation, suspension or termination of licenses, authorizations or participations, could have material consequences for UBS.

The risk of loss associated with litigation, regulatory and similar matters is a component of operational risk for purposes of determining our capital requirements. Information concerning our capital requirements and the calculation of operational risk for this purpose is included in the “Capital management” section of this report.

| Provisions for litigation,
regulatory and similar matters by business division and Corporate Center
unit¹ — CHF million | Wealth Manage- ment | Wealth Management Americas | Personal & Corporate Banking | Asset Manage- ment | Investment Bank | CC – Services | CC – Group ALM | CC – Non-core and Legacy Portfolio | UBS |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Balance as of 31 December
2016 | 292 | 425 | 78 | 5 | 616 | 259 | 0 | 1,585 | 3,261 |
| Balance as of 31 March 2017 | 244 | 385 | 77 | 4 | 404 | 255 | 0 | 1,550 | 2,918 |
| Increase in provisions recognized in the income statement | 1 | 44 | 0 | 5 | 0 | 0 | 0 | 2 | 53 |
| Release of provisions recognized in the income statement | 0 | (2) | 0 | (4) | 0 | 0 | 0 | (36) | (43) |
| Provisions used in conformity with designated purpose | (1) | (50) | 0 | 0 | 0 | (2) | 0 | (356) | (410) |
| Foreign currency translation / unwind of discount | 6 | (16) | 0 | 0 | (12) | 0 | 0 | (50) | (72) |
| Balance as of 30 June 2017 | 249 | 361 | 77 | 5 | 391 | 253 | 0 | 1,110 | 2,446 |
| 1 Provisions, if any, for the matters described in this Note are
recorded in Wealth Management (item 3), Wealth Management Americas (item 4),
the Investment Bank (item 8), Corporate Center – Services (item 7) and
Corporate Center – Non-core and Legacy Portfolio (item 2). Provisions, if
any, for the matters described in items 1 and 6 of this Note are allocated
between Wealth Management and Personal & Corporate Banking, and
provisions, if any, for the matters described in this Note in item 5 are
allocated between the Investment Bank, Corporate Center – Services and
Corporate Center – Non-core and Legacy Portfolio. | | | | | | | | | |

Notes to the UBS Group AG interim consolidated financial statements (unaudited)

Note 14 Provisions and contingent liabilities (continued)

Inquiries regarding cross-border wealth management businesses

Tax and regulatory authorities in a number of countries have made inquiries, served requests for information or examined employees located in their respective jurisdictions relating to the cross-border wealth management services provided by UBS and other financial institutions. It is possible that implementation of automatic tax information exchange and other measures relating to cross-border provision of financial services could give rise to further inquiries in the future. UBS has received disclosure orders from the Swiss Federal Tax Administration (FTA) to transfer information based on requests for international administrative assistance in tax matters. The requests concern a number of UBS account numbers pertaining to current and former clients and are based on data from 2006 and 2008. UBS has taken steps to inform affected clients about the administrative assistance proceedings and their procedural rights, including the right to appeal. The requests are based on data received from the German authorities, who seized certain data related to UBS clients booked in Switzerland during their investigations and have apparently shared this data with other European countries. UBS expects additional countries to file similar requests. In addition, the Swiss Federal Supreme Court ruled in 2016 that the double taxation agreement between the Netherlands and Switzerland provides a sufficient legal basis for an administrative assistance group request without specifying the names of the targeted taxpayers, which makes it more likely that similar requests for administrative assistance will be granted by the FTA.

The Swiss Federal Administrative Court ruled in 2016 that in the administrative assistance proceedings related to a French bulk request, UBS has the right to appeal all final FTA client data disclosure orders.

Since 2013, UBS (France) S.A. and UBS AG and certain former employees have been under investigation in France for alleged complicity in having illicitly solicited clients on French territory and regarding the laundering of proceeds of tax fraud and of banking and financial solicitation by unauthorized persons. In connection with this investigation, the investigating judges ordered UBS AG to provide bail (“ caution ”) of EUR 1.1 billion and UBS (France) S.A. to post bail of EUR 40 million, which was reduced on appeal to EUR 10 million.

In February 2016, the investigating judges notified UBS AG and UBS (France) S.A. that they have closed their investigation. In July 2016, UBS AG and UBS (France) S.A. received the National Financial Prosecutor’s recommendation (“ réquisitoire ”). In March 2017, the investigating judges issued the trial order (“ ordonnance de renvoi ”) that charges UBS AG and UBS (France) S.A., as well as various former employees, with illicit solicitation of clients on French territory and with participation in the laundering of the proceeds of tax fraud, and which transfers the case to court. The trial schedule has not yet been announced.

In February 2016, UBS was notified by the Belgian investigating judge that it is under formal investigation (“ inculpé ”) regarding the laundering of proceeds of tax fraud and of banking, financial solicitation by unauthorized persons and serious tax fraud.

In 2015, UBS received inquiries from the US Attorney’s Office for the Eastern District of New York and from the US Securities and Exchange Commission (SEC), which are investigating potential sales to US persons of bearer bonds and other unregistered securities in possible violation of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) and the registration requirements of the US securities laws. UBS is cooperating with the authorities in these investigations.

UBS has, and reportedly numerous other financial institutions have, received inquiries from authorities concerning accounts relating to the Fédération Internationale de Football Association (FIFA) and other constituent soccer associations and related persons and entities. UBS is cooperating with authorities in these inquiries.

Our balance sheet at 30 June 2017 reflected provisions with respect to matters described in this item 1 in an amount that UBS believes to be appropriate under the applicable accounting standard. As in the case of other matters for which we have established provisions, the future outflow of resources in respect of such matters cannot be determined with certainty based on currently available information and accordingly may ultimately prove to be substantially greater (or may be less) than the provision that we have recognized.

Claims related to sales of residential mortgage-backed securities and mortgages

From 2002 through 2007, prior to the crisis in the US residential loan market, UBS was a substantial issuer and underwriter of US residential mortgage-backed securities (RMBS) and was a purchaser and seller of US residential mortgages. A subsidiary of UBS, UBS Real Estate Securities Inc. (UBS RESI), acquired pools of residential mortgage loans from originators and (through an affiliate) deposited them into securitization trusts. In this manner, from 2004 through 2007, UBS RESI sponsored approximately USD 80 billion in RMBS, based on the original principal balances of the securities issued.

Note 14 Provisions and contingent liabilities (continued)

UBS RESI also sold pools of loans acquired from originators to third-party purchasers. These whole loan sales during the period 2004 through 2007 totaled approximately USD 19 billion in original principal balance.

We were not a significant originator of US residential loans. A branch of UBS originated approximately USD 1.5 billion in US residential mortgage loans during the period in which it was active from 2006 to 2008, and securitized less than half of these loans.

RMBS-related lawsuits concerning disclosures: UBS has been named as a defendant in lawsuits relating to its role as underwriter and issuer of RMBS.

In April 2017, UBS reached a final settlement in a lawsuit brought in the US District Court for the District of Kansas by the National Credit Union Administration (NCUA) as conservator for certain failed credit unions, asserting misstatements and omissions in the offering documents for USD 1.15 billion in original principal balance of RMBS purchased by the credit unions. UBS and the NCUA settled this matter for USD 445 million. A similar case brought by the NCUA in the US District Court for the Southern District of New York (SDNY) was settled in 2016.

UBS has indemnification rights against surviving third-party issuers or originators for losses or liabilities incurred by UBS in connection with certain of these matters.

Lawsuits related to contractual representations and warranties concerning mortgages and RMBS: When UBS acted as an RMBS sponsor or mortgage seller, we generally made certain representations relating to the characteristics of the underlying loans. In the event of a material breach of these representations, we were in certain circumstances contractually obligated to repurchase the loans to which the representations related or to indemnify certain parties against losses. UBS has received demands to repurchase US residential mortgage loans as to which UBS made certain representations at the time the loans were transferred to the securitization trust aggregating USD 4.1 billion in original principal balance. Of this amount, UBS considers claims relating to USD 2 billion in original principal balance to be resolved, including claims barred by the statute of limitations. Substantially all of the remaining claims are in litigation, including the matters described in the next paragraph. UBS believes that new demands to repurchase US residential mortgage loans are time-barred under a decision rendered by the New York Court of Appeals.

In 2012, certain RMBS trusts filed an action (Trustee Suit) in the SDNY seeking to enforce UBS RESI’s obligation to repurchase loans in the collateral pools for three RMBS securitizations with an original principal balance of approximately USD 2 billion, for which Assured Guaranty Municipal Corp., a financial guaranty insurance company, had previously demanded repurchase. Approximately 9,000 loans were at issue in a bench trial in the SDNY in 2016, following which the court issued an order ruling on numerous legal and factual issues and applying those rulings to 20 exemplar loans. The court further ordered that a lead master be appointed to apply the court’s rulings to the loans that remain at issue following the trial. With respect to the loans subject to the Trustee Suit that were originated by institutions still in existence, UBS intends to enforce its indemnity rights against those institutions.

Mortgage-related regulatory matters: In 2014, UBS received a subpoena from the US Attorney’s Office for the Eastern District of New York issued pursuant to the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), which seeks documents and information related to UBS’s RMBS business from 2005 through 2007. In 2015, the Eastern District of New York identified a number of transactions that are the focus of their inquiry, and has subsequently provided a revised list of transactions. We have provided and continue to provide information. UBS continues to respond to the FIRREA subpoena and to subpoenas from the New York State Attorney General and other state attorneys general relating to its RMBS business. In addition, UBS has also been responding to inquiries from both the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) (who is working in conjunction with the US Attorney’s Office for Connecticut and the DOJ) and the SEC relating to trading practices in connection with purchases and sales of mortgage-backed securities in the secondary market from 2009 through 2014. We are cooperating with the authorities in these matters.

Notes to the UBS Group AG interim consolidated financial statements (unaudited)

Note 14 Provisions and contingent liabilities (continued)

Our balance sheet at 30 June 2017 reflected a provision with respect to matters described in this item 2 in an amount that UBS believes to be appropriate under the applicable accounting standard. As in the case of other matters for which we have established provisions, the future outflow of resources in respect of this matter cannot be determined with certainty based on currently available information and accordingly may ultimately prove to be substantially greater (or may be less) than the provision that we have recognized.

Madoff

In relation to the Bernard L. Madoff Investment Securities LLC (BMIS) investment fraud, UBS AG, UBS (Luxembourg) S.A. (now UBS Europe SE, Luxembourg branch) and certain other UBS subsidiaries have been subject to inquiries by a number of regulators, including the Swiss Financial Market Supervisory Authority (FINMA) and the Luxembourg Commission de Surveillance du Secteur Financier (CSSF). Those inquiries concerned two third-party funds established under Luxembourg law, substantially all assets of which were with BMIS, as well as certain funds established in offshore jurisdictions with either direct or indirect exposure to BMIS. These funds now face severe losses, and the Luxembourg funds are in liquidation. The last reported net asset value of the two Luxembourg funds before revelation of the Madoff scheme was approximately USD 1.7 billion in the aggregate although that figure likely includes fictitious profit reported by BMIS. The documentation establishing both funds identifies UBS entities in various roles, including custodian, administrator, manager, distributor and promoter, and indicates that UBS employees serve as board members. UBS Europe SE, Luxembourg branch, and certain other UBS subsidiaries are responding to inquiries by Luxembourg investigating authorities, without, however, being named as parties in those investigations.

In 2009 and 2010, the liquidators of the two Luxembourg funds filed claims on behalf of the funds against UBS entities, non-UBS entities and certain individuals, including current and former UBS employees. The amounts claimed are approximately EUR 890 million and EUR 305 million, respectively. The liquidators have filed supplementary claims for amounts that the funds may possibly be held liable to pay the trustee for the liquidation of BMIS (BMIS Trustee). These amounts claimed by the liquidator are approximately EUR 564 million and EUR 370 million, respectively.

In addition, a large number of alleged beneficiaries have filed claims against UBS entities (and non-UBS entities) for purported losses relating to the Madoff scheme. The majority of these cases are pending in Luxembourg, where appeals were filed by the claimants against the 2010 decisions of the court in which the claims in a number of test cases were held to be inadmissible. The Luxembourg Court of Appeal has found in favor of UBS and dismissed all of these test case appeals, confirming that the claims are inadmissible. The Luxembourg Supreme Court has also dismissed a further appeal brought by the claimant in one of the test cases.

In the US, the BMIS Trustee filed claims in 2010 against UBS entities, among others, in relation to the two Luxembourg funds and one of the offshore funds. The total amount claimed against all defendants in these actions was not less than USD 2 billion. Following a motion by UBS, in 2011, the SDNY dismissed all of the BMIS Trustee’s claims other than claims for recovery of fraudulent conveyances and preference payments that were allegedly transferred to UBS on the ground that the BMIS Trustee lacks standing to bring such claims. In 2013, the Second Circuit affirmed the District Court’s decision and, in 2014, the US Supreme Court denied the BMIS Trustee’s petition seeking review of the Second Circuit ruling. In 2016, the bankruptcy court issued an opinion dismissing the remaining claims for recovery of subsequent transfers of fraudulent conveyances and preference payments on the ground that the US Bankruptcy Code does not apply to transfers that occurred outside the US, and judgment was entered in March 2017. The BMIS Trustee has appealed that ruling. In 2014, several claims, including a purported class action, were filed in the US by BMIS customers against UBS entities, asserting claims similar to the ones made by the BMIS Trustee, seeking unspecified damages. One claim was voluntarily withdrawn by the plaintiff. In 2015, following a motion by UBS, the SDNY dismissed the two remaining claims on the basis that the New York courts did not have jurisdiction to hear the claims against the UBS entities. The plaintiff in one of those claims has appealed the dismissal.

In Germany, certain clients of UBS are exposed to Madoff-managed positions through third-party funds and funds administered by UBS entities in Germany. A small number of claims have been filed with respect to such funds. In 2015, a court of appeal ordered UBS to pay EUR 49 million, plus interest of approximately EUR 15.3 million.

100

Note 14 Provisions and contingent liabilities (continued)

Puerto Rico

Declines since August 2013 in the market prices of Puerto Rico municipal bonds and of closed-end funds (funds) that are sole-managed and co-managed by UBS Trust Company of Puerto Rico and distributed by UBS Financial Services Incorporated of Puerto Rico (UBS PR) have led to multiple regulatory inquiries, as well as customer complaints and arbitrations with aggregate claimed damages of USD 2.1 billion, of which claims with aggregate claimed damages of USD 1.1 billion have been resolved through settlements, arbitration or withdrawal of the claim. The claims are filed by clients in Puerto Rico who own the funds or Puerto Rico municipal bonds and / or who used their UBS account assets as collateral for UBS non-purpose loans; customer complaint and arbitration allegations include fraud, misrepresentation and unsuitability of the funds and of the loans. A shareholder derivative action was filed in 2014 against various UBS entities and current and certain former directors of the funds, alleging hundreds of millions of US dollars in losses in the funds. In 2015, defendants’ motion to dismiss was denied. Defendants’ requests for permission to appeal that ruling were denied by the Puerto Rico Court of Appeals and the Puerto Rico Supreme Court. In 2014, a federal class action complaint also was filed against various UBS entities, certain members of UBS PR senior management and the co-manager of certain of the funds, seeking damages for investor losses in the funds during the period from May 2008 through May 2014. In 2016, defendants’ motion to dismiss was granted in part and denied in part. In 2015, a class action was filed in Puerto Rico state court against UBS PR seeking equitable relief in the form of a stay of any effort by UBS PR to collect on non-purpose loans it acquired from UBS Bank USA in December 2013 based on plaintiffs’ allegation that the loans are not valid. The trial court denied defendant’s motion to dismiss the action based on a forum selection clause in the loan agreements. The Puerto Rico Supreme Court reversed that decision and remanded the case back to the trial court for reconsideration.

In 2014, UBS reached a settlement with the Office of the Commissioner of Financial Institutions for the Commonwealth of Puerto Rico (OCFI) in connection with OCFI’s examination of UBS’s operations from January 2006 through September 2013, pursuant to which UBS is paying up to an aggregate of USD 7.7 million in investor education contributions and restitution.

In 2015, the SEC and the Financial Industry Regulatory Authority (FINRA) announced settlements with UBS PR of their separate investigations stemming from the 2013 market events. Without admitting or denying the findings in either matter, UBS PR agreed in the SEC settlement to pay USD 15 million and USD 18.5 million in the FINRA matter. We also understand that the DOJ is conducting a criminal inquiry into the impermissible reinvestment of non-purpose loan proceeds. We are cooperating with the authorities in this inquiry.

In 2011, a purported derivative action was filed on behalf of the Employee Retirement System of the Commonwealth of Puerto Rico (System) against over 40 defendants, including UBS PR, which was named in connection with its underwriting and consulting services. Plaintiffs alleged that defendants violated their purported fiduciary duties and contractual obligations in connection with the issuance and underwriting of USD 3 billion of bonds by the System in 2008 and sought damages of over USD 800 million. In December 2016, the court granted the System’s request to join the action as a plaintiff, but ordered that plaintiffs must file an amended complaint. In March 2017, the court denied defendants’ motion to dismiss the amended complaint.

Also, in 2013, an SEC Administrative Law Judge dismissed a case brought by the SEC against two UBS executives, finding no violations. The charges had stemmed from the SEC’s investigation of UBS’s sale of closed-end funds in 2008 and 2009, which UBS settled in 2012. Beginning in 2012, two federal class action complaints, which were subsequently consolidated, were filed against various UBS entities, certain of the funds and certain members of UBS PR senior management, seeking damages for investor losses in the funds during the period from January 2008 through May 2012 based on allegations similar to those in the SEC action. In 2016, the court denied plaintiffs’ motion for class certification. In March 2017, the US Court of Appeals for the First Circuit denied plaintiffs’ petition seeking permission to bring an interlocutory appeal challenging the denial of their motion for class certification.

101

Notes to the UBS Group AG interim consolidated financial statements (unaudited)

Note 14 Provisions and contingent liabilities (continued)

In 2015, certain agencies and public corporations of the Commonwealth of Puerto Rico (Commonwealth) defaulted on certain interest payments, in 2016, the Commonwealth defaulted on payments on its general obligation debt (GO Bonds), and in 2017 the Commonwealth defaulted on payments on its debt backed by the Commonwealth’s Sales and Use Tax (COFINA Bonds) as well as on bonds issued by the Commonwealth’s Employee Retirement System (ERS Bonds). The funds hold significant amounts of both COFINA and ERS Bonds and the defaults on interest payments are expected to adversely affect dividends from the funds. Executive orders of the Governor that have diverted funds to pay for essential services instead of debt payments and stayed any action to enforce creditors’ rights on the Puerto Rico bonds continue to be in effect. In 2016, US federal legislation created an oversight board with power to oversee Puerto Rico’s finances and to restructure its debt. The oversight board is authorized to impose, and has imposed, a stay on exercise of creditors’ rights. In May and June 2017, the oversight board placed the GO, COFINA and ERS Bonds, among others, into a bankruptcy-like proceeding under the supervision of a Federal District Judge as authorized by the oversight board’s enabling statute. These events, further defaults, any further legislative action to create a legal means of restructuring Commonwealth obligations or to impose additional oversight on the Commonwealth’s finances, or any restructuring of the Commonwealth’s obligations may increase the number of claims against UBS concerning Puerto Rico securities, as well as potential damages sought.

Our balance sheet at 30 June 2017 reflected provisions with respect to matters described in this item 4 in amounts that UBS believes to be appropriate under the applicable accounting standard. As in the case of other matters for which we have established provisions, the future outflow of resources in respect of such matters cannot be determined with certainty based on currently available information and accordingly may ultimately prove to be substantially greater (or may be less) than the provisions that we have recognized.

Foreign exchange, LIBOR, and benchmark rates, and other trading practices

Foreign exchange-related regulatory matters: Following an initial media report in 2013 of widespread irregularities in the foreign exchange markets, UBS immediately commenced an internal review of its foreign exchange business, which includes our precious metals and related structured products businesses. Since then, various authorities have commenced investigations concerning possible manipulation of foreign exchange markets, including FINMA, the Swiss Competition Commission (WEKO), the DOJ, the SEC, the US Commodity Futures Trading Commission (CFTC), the Board of Governors of the Federal Reserve System (Federal Reserve Board), the California State Attorney General, the UK Financial Conduct Authority (FCA) (to which certain responsibilities of the UK Financial Services Authority (FSA) have passed), the UK Serious Fraud Office (SFO), the Australian Securities and Investments Commission (ASIC), the Hong Kong Monetary Authority (HKMA), the Korea Fair Trade Commission (KFTC) and the Brazil Competition Authority (CADE). In addition, WEKO is, and a number of other authorities reportedly are, investigating potential manipulation of precious metals prices.

In 2014, UBS reached settlements with the FCA and the CFTC in connection with their foreign exchange investigations, and FINMA issued an order concluding its formal proceedings with respect to UBS relating to its foreign exchange and precious metals businesses. In 2015, the Federal Reserve Board and the Connecticut Department of Banking issued an Order to Cease and Desist and Order of Assessment of a Civil Monetary Penalty Issued upon Consent (Federal Reserve Order) to UBS AG.

In 2015, the DOJ’s Criminal Division (Criminal Division) terminated the December 2012 Non-Prosecution Agreement (NPA) with UBS AG related to UBS’s submissions of benchmark interest rates. As a result, UBS AG entered into a plea agreement with the Criminal Division pursuant to which UBS AG pleaded guilty to a one-count criminal information filed in the US District Court for the District of Connecticut charging UBS AG with one count of wire fraud in violation of 18 USC Sections 1343 and 2. Sentencing occurred in January 2017. Under the plea agreement, UBS AG has paid a USD 203 million fine and is subject to a three-year term of probation starting on the sentencing date. The criminal information charges that, between approximately 2001 and 2010, UBS AG engaged in a scheme to defraud counterparties to interest rate derivatives transactions by manipulating benchmark interest rates, including Yen LIBOR. The Criminal Division terminated the NPA based on its determination, in its sole discretion, that certain UBS AG employees committed criminal conduct that violated the NPA in certain foreign exchange market transactions.

We have ongoing obligations to cooperate with these authorities and to undertake certain remediation, including actions to improve UBS’s processes and controls.

102

Note 14 Provisions and contingent liabilities (continued)

UBS has been granted conditional leniency or conditional immunity by the Antitrust Division of the DOJ (Antitrust Division) from prosecution for EUR / USD collusion and entered into a non-prosecution agreement covering other currency pairs. As a result, UBS AG will not be subject to prosecutions, fines or other sanctions for antitrust law violations by the Antitrust Division, subject to UBS AG’s continuing cooperation. However, the conditional leniency and conditional immunity grant does not bar government agencies from asserting other claims and imposing sanctions against UBS AG. UBS has also been granted conditional immunity by authorities in certain jurisdictions, including WEKO, in connection with potential competition law violations relating to foreign exchange and precious metals businesses and, as a result, will not be subject to prosecutions, fines or other sanctions for antitrust or competition law violations in those jurisdictions, subject to UBS AG’s continuing cooperation as the leniency applicant.

Investigations relating to foreign exchange and precious metals matters by numerous authorities, including the CFTC, remain ongoing notwithstanding these resolutions.

Foreign exchange-related civil litigation: Putative class actions have been filed since November 2013 in US federal courts and in other jurisdictions against UBS and other banks on behalf of putative classes of persons who engaged in foreign currency transactions with any of the defendant banks. They allege collusion by the defendants and assert claims under the antitrust laws and for unjust enrichment. In 2015, additional putative class actions were filed in federal court in New York against UBS and other banks on behalf of a putative class of persons who entered into or held any foreign exchange futures contracts and options on foreign exchange futures contracts since 1 January 2003. The complaints assert claims under the Commodity Exchange Act (CEA) and the US antitrust laws. In 2015, a consolidated complaint was filed on behalf of both putative classes of persons covered by the US federal court class actions described above. UBS has entered into a settlement agreement that would resolve all of these US federal court class actions. The agreement, which has been preliminarily approved by the court and is subject to final court approval, requires, among other things, that UBS pay an aggregate of USD 141 million and provide cooperation to the settlement classes.

A putative class action has been filed in federal court in New York against UBS and other banks on behalf of participants, beneficiaries and named fiduciaries of plans qualified under the Employee Retirement Income Security Act of 1974 (ERISA) for whom a defendant bank provided foreign currency exchange transactional services, exercised discretionary authority or discretionary control over management of such ERISA plan, or authorized or permitted the execution of any foreign currency exchange transactional services involving such plan’s assets. The complaint asserts claims under ERISA. The parties filed a stipulation to dismiss the case with prejudice. The plaintiffs have appealed the dismissal. The appeals court heard oral argument in June 2017.

In 2015, a putative class action was filed in federal court against UBS and numerous other banks on behalf of a putative class of persons and businesses in the US who directly purchased foreign currency from the defendants and their co-conspirators for their own end use. That action has been transferred to federal court in New York. In March 2017, the court granted UBS’s (and the other banks’) motions to dismiss the complaint.

In 2016, a putative class action was filed in federal court in New York against UBS and numerous other banks on behalf of a putative class of persons and entities who had indirectly purchased FX instruments from a defendant or co-conspirator in the US. The complaint asserts claims under federal and state antitrust laws. In response to defendants’ motion to dismiss, plaintiffs agreed to dismiss their complaint. In April and June 2017, two new putative class actions were filed in federal court in New York against UBS and numerous other banks on behalf of different proposed classes of indirect purchasers of currency, and a consolidated complaint was filed on 30 June 2017.

In 2015, UBS was added to putative class actions pending against other banks in federal court in New York and other jurisdictions on behalf of putative classes of persons who had bought or sold physical precious metals and various precious metal products and derivatives. The complaints in these lawsuits assert claims under the antitrust laws and the CEA, and other claims. In October 2016, the court in New York granted UBS’s motions to dismiss the putative class actions relating to gold and silver. Plaintiffs in those cases sought to amend their complaints to add new allegations about UBS, which the court granted. In March 2017, the court in New York granted UBS’s motion to dismiss the platinum and palladium action. In May 2017, plaintiffs filed an amended complaint that did not allege claims against UBS.

LIBOR and other benchmark-related regulatory matters: Numerous government agencies, including the SEC, the CFTC, the DOJ, the FCA, the SFO, the Monetary Authority of Singapore (MAS), the HKMA, FINMA, the various state attorneys general in the US and competition authorities in various jurisdictions have conducted or are continuing to conduct investigations regarding submissions with respect to LIBOR and other benchmark rates. These investigations focus on whether there were improper attempts by UBS, among others, either acting on our own or together with others, to manipulate LIBOR and other benchmark rates at certain times.

103

Notes to the UBS Group AG interim consolidated financial statements (unaudited)

Note 14 Provisions and contingent liabilities (continued)

In 2012, UBS reached settlements with the FSA, the CFTC and the Criminal Division of the DOJ in connection with their investigations of benchmark interest rates. At the same time, FINMA issued an order concluding its formal proceedings with respect to UBS relating to benchmark interest rates. UBS has paid a total of CHF 1.4 billion in fines and disgorgement in connection with these resolutions. UBS Securities Japan Co. Ltd. (UBSSJ) entered into a plea agreement with the DOJ under which it entered a plea to one count of wire fraud relating to the manipulation of certain benchmark interest rates, including Yen LIBOR. UBS entered into an NPA with the DOJ, which (along with the plea agreement) covered conduct beyond the scope of the conditional leniency / immunity grants described below. Under the NPA, UBS agreed, among other things, that for two years from 18 December 2012 it would not commit any US crime and would advise the DOJ of any potentially criminal conduct by UBS or any of its employees relating to violations of US laws concerning fraud or securities and commodities markets. The term of the NPA was extended by one year to 18 December 2015. In 2015, the Criminal Division terminated the NPA based on its determination, in its sole discretion, that certain UBS AG employees committed criminal conduct that violated the NPA.

In 2014, UBS reached a settlement with the European Commission (EC) regarding its investigation of bid-ask spreads in connection with Swiss franc interest rate derivatives and paid a EUR 12.7 million fine, which was reduced to this level based in part on UBS’s cooperation with the EC. In 2016, UBS reached a settlement with WEKO regarding its investigation of bid-ask spreads in connection with Swiss franc interest rate derivatives and received full immunity from fines. The MAS, HKMA and the Japan Financial Services Agency have also resolved investigations of UBS (and in some cases, other banks). We have ongoing obligations to cooperate with the authorities with whom we have reached resolutions and to undertake certain remediation with respect to benchmark interest rate submissions.

Investigations by the CFTC, ASIC and other governmental authorities remain ongoing notwithstanding these resolutions.

UBS has been granted conditional leniency or conditional immunity from authorities in certain jurisdictions, including the Antitrust Division of the DOJ and WEKO, in connection with potential antitrust or competition law violations related to submissions for Yen LIBOR and Euroyen TIBOR. As a result of these conditional grants, UBS will not be subject to prosecutions, fines or other sanctions for antitrust or competition law violations in the jurisdictions where we have conditional immunity in connection with the matters covered by the conditional grants, subject to our continuing cooperation as leniency applicant. However, since the Secretariat of WEKO has asserted that UBS does not qualify for full immunity, UBS has been unable to reach a settlement with WEKO, and therefore the investigation will continue. Furthermore, the conditional leniency and conditional immunity grants we have received do not bar government agencies from asserting other claims and imposing sanctions against us. In addition, as a result of the conditional leniency agreement with the DOJ, we are eligible for a limit on liability to actual rather than treble damages were damages to be awarded in any civil antitrust action under US law based on conduct covered by the agreement and for relief from potential joint and several liability in connection with such civil antitrust action, subject to our satisfying the DOJ and the court presiding over the civil litigation of our cooperation. The conditional leniency and conditional immunity grants do not otherwise affect the ability of private parties to assert civil claims against us.

LIBOR and other benchmark-related civil litigation: A number of putative class actions and other actions are pending in the federal courts in New York against UBS and numerous other banks on behalf of parties who transacted in certain interest rate benchmark-based derivatives. Also pending in the US and in other jurisdictions are actions asserting losses related to various products whose interest rates were linked to LIBOR and other benchmarks, including adjustable rate mortgages, preferred and debt securities, bonds pledged as collateral, loans, depository accounts, investments and other interest-bearing instruments. All of the complaints allege manipulation, through various means, of various benchmark interest rates, including USD LIBOR, Euroyen TIBOR, Yen LIBOR, EURIBOR, CHF LIBOR, GBP LIBOR, USD and SGD SIBOR and SOR, Australian BBSW and USD ISDAFIX, and seek unspecified compensatory and other damages under varying legal theories.

In 2013, the US district court in the USD LIBOR action dismissed the federal antitrust and racketeering claims of certain USD LIBOR plaintiffs and a portion of their claims brought under the CEA and state common law. Certain plaintiffs appealed the decision to the Second Circuit, which, in 2016, vacated the district court’s ruling finding no antitrust injury and remanded the case back to the district court for a further determination on whether plaintiffs have antitrust standing. In December 2016, the district court again dismissed plaintiffs’ antitrust claims, this time for lack of personal jurisdiction over UBS and other foreign banks. In 2014, the court in one of the Euroyen TIBOR lawsuits dismissed certain of the plaintiff’s claims, including federal antitrust claims. In 2015, the same court dismissed plaintiff’s federal racketeering claims and affirmed its previous dismissal of plaintiff’s antitrust claims. In 2017, the court also dismissed the other Yen LIBOR / Euroyen TIBOR action in its entirety on standing grounds. Also in 2017, the courts in the EURIBOR and the SIBOR and SOR lawsuits dismissed the cases as to UBS and certain other foreign defendants for lack of personal jurisdiction. UBS and other defendants in other lawsuits including those related to CHF LIBOR, GBP LIBOR and Australian BBSW have filed motions to dismiss. In 2016, UBS entered into an agreement with representatives of a class of bondholders to settle their USD LIBOR class action. The agreement has received preliminary court approval and remains subject to final approval.

104

Note 14 Provisions and contingent liabilities (continued)

Since September 2014, putative class actions have been filed in federal court in New York and New Jersey against UBS and other financial institutions, among others, on behalf of parties who entered into interest rate derivative transactions linked to ISDAFIX. The complaints, which have since been consolidated into an amended complaint, allege that the defendants conspired to manipulate ISDAFIX rates from 1 January 2006 through June 2013, in violation of US antitrust laws and certain state laws, and seek unspecified compensatory damages, including treble damages. On 12 July 2017, the court overseeing the ISDAFIX class action preliminarily approved a settlement agreement between UBS AG and the plaintiffs, whereby UBS AG agreed to pay USD 14 million to settle the case in its entirety.

Government bonds: Putative class actions have been filed in US federal courts against UBS and other banks on behalf of persons who participated in markets for US Treasury securities since 2007. The complaints generally allege that the banks colluded with respect to, and manipulated prices of, US Treasury securities sold at auction. They assert claims under the antitrust laws and the CEA and for unjust enrichment. The cases have been consolidated in the SDNY. Following filing of these complaints, UBS and reportedly other banks are responding to investigations and requests for information from various authorities regarding US Treasury securities and other government bond trading practices. As a result of its review to date, UBS has taken appropriate action.

With respect to additional matters and jurisdictions not encompassed by the settlements and order referred to above, our balance sheet at 30 June 2017 reflected a provision in an amount that UBS believes to be appropriate under the applicable accounting standard. As in the case of other matters for which we have established provisions, the future outflow of resources in respect of such matters cannot be determined with certainty based on currently available information and accordingly may ultimately prove to be substantially greater (or may be less) than the provision that we have recognized.

Swiss retrocessions

The Federal Supreme Court of Switzerland ruled in 2012, in a test case against UBS, that distribution fees paid to a firm for distributing third-party and intra-group investment funds and structured products must be disclosed and surrendered to clients who have entered into a discretionary mandate agreement with the firm, absent a valid waiver.

FINMA has issued a supervisory note to all Swiss banks in response to the Supreme Court decision. UBS has met the FINMA requirements and has notified all potentially affected clients.

The Supreme Court decision has resulted, and may continue to result, in a number of client requests for UBS to disclose and potentially surrender retrocessions. Client requests are assessed on a case-by-case basis. Considerations taken into account when assessing these cases include, among others, the existence of a discretionary mandate and whether or not the client documentation contained a valid waiver with respect to distribution fees.

Our balance sheet at 30 June 2017 reflected a provision with respect to matters described in this item 6 in an amount that UBS believes to be appropriate under the applicable accounting standard. The ultimate exposure will depend on client requests and the resolution thereof, factors that are difficult to predict and assess. Hence, as in the case of other matters for which we have established provisions, the future outflow of resources in respect of such matters cannot be determined with certainty based on currently available information and accordingly may ultimately prove to be substantially greater (or may be less) than the provision that we have recognized.

Banco UBS Pactual tax indemnity

Pursuant to the 2009 sale of Banco UBS Pactual S.A. (Pactual) by UBS to BTG Investments, LP (BTG), BTG has submitted contractual indemnification claims that UBS estimates amount to BRL 2.7 billion, including interest and penalties, which is net of liabilities retained by BTG. The claims pertain principally to several tax assessments issued by the Brazilian tax authorities against Pactual relating to the period from December 2006 through March 2009, when UBS owned Pactual. These assessments are being challenged in administrative and judicial proceedings. The majority of these assessments relate to the deductibility of goodwill amortization in connection with UBS’s 2006 acquisition of Pactual and payments made to Pactual employees through various profit-sharing plans. In 2015, an intermediate administrative court issued a decision that was largely in favor of the tax authority with respect to the goodwill amortization assessment. In 2016, the highest level of the administrative court agreed to review this decision on a number of the significant issues.

Investigation of UBS’s role in initial public offerings in Hong Kong

The Hong Kong Securities and Futures Commission (SFC) has been conducting investigations into UBS’s role as a sponsor of certain initial public offerings listed on the Hong Kong Stock Exchange. In 2016, the SFC informed UBS that it intends to commence action against UBS and certain UBS employees with respect to sponsorship work in those offerings, which could result in financial ramifications for UBS, including fines and obligations to pay investor compensation, and suspension of UBS’s ability to provide corporate finance advisory services in Hong Kong for a period of time. In January 2017, a writ was filed by the SFC with Hong Kong’s High Court in which UBS is named as one of six defendants from whom the SFC is seeking compensation in an unspecified amount for losses incurred by certain shareholders of China Forestry Holdings Company Limited, for whom UBS acted as a sponsor in connection with their 2009 listing application.

105

Notes to the UBS Group AG interim consolidated financial statements (unaudited)

Note 15 Guarantees, commitments and forward starting transactions

The table below shows the maximum irrevocable amount of guarantees, commitments and forward starting transactions.

CHF million	30.6.17 — Gross	Sub- participations	Net	31.3.17 — Gross	Sub- participations	Net	31.12.16 — Gross	Sub- participations	Net
Guarantees
Credit guarantees and similar instruments	6,411	(390)	6,021	6,595	(427)	6,168	6,447	(424)	6,023
Performance guarantees and similar instruments	3,229	(654)	2,575	3,117	(674)	2,443	3,190	(696)	2,494
Documentary credits	6,198	(1,611)	4,587	7,130	(1,672)	5,458	7,074	(1,761)	5,313
Total guarantees	15,838	(2,656)	13,182	16,842	(2,773)	14,069	16,711	(2,881)	13,830
Loan commitments	42,222	(1,349)	40,874	46,063	(1,460)	44,603	54,430	(1,513)	52,917
Forward starting
transactions¹
Reverse repurchase agreements	25,218			25,136			10,178
Securities borrowing agreements	183			55			36
Repurchase agreements	20,890			18,124			5,984
1 Cash to be paid in the future by either UBS or the
counterparty.

106

Note 16 Changes in organization and disposals

Restructuring expenses

Restructuring expenses arise from programs that materially change either the scope of business that the Group engages in or the manner in which such business is conducted. Restructuring expenses are necessary to effect such programs and include items such as severance and other personnel-related expenses, duplicate headcount costs, impairment and accelerated depreciation of assets, contract termination costs, consulting fees, and related infrastructure and system costs. These costs are presented in the income statement according to the underlying nature of the expense.

| Net restructuring expenses by
business division and Corporate Center unit | | | | | |
| --- | --- | --- | --- | --- | --- |
| | For the quarter ended | | | Year-to-date | |
| CHF million | 30.6.17 | 31.3.17 | 30.6.16 | 30.6.17 | 30.6.16 |
| Wealth Management | 109 | 88 | 86 | 197 | 165 |
| Wealth Management Americas | 25 | 22 | 38 | 47 | 71 |
| Personal & Corporate Banking | 23 | 19 | 31 | 42 | 55 |
| Asset Management | 23 | 20 | 34 | 43 | 54 |
| Investment Bank | 75 | 78 | 163 | 152 | 280 |
| Corporate Center | 3 | 17 | 25 | 20 | 19 |
| of which: Services | 0 | 15 | 20 | 14 | 13 |
| of which: Group ALM | 1 | 0 | 0 | 1 | 0 |
| of which: Non-core and
Legacy Portfolio | 2 | 2 | 5 | 4 | 6 |
| Total net restructuring
expenses | 258 | 244 | 377 | 502 | 642 |
| of which: personnel expenses | 117 | 116 | 192 | 233 | 320 |
| of which: general and
administrative expenses | 141 | 124 | 185 | 264 | 322 |
| of which: depreciation and
impairment of property, equipment and software | 0 | 4 | 0 | 4 | 0 |
| of which: amortization and
impairment of intangible assets | 0 | 0 | 0 | 0 | 0 |

| Net restructuring expenses by
personnel expense category | | | | | |
| --- | --- | --- | --- | --- | --- |
| | For the quarter ended | | | Year-to-date | |
| CHF million | 30.6.17 | 31.3.17 | 30.6.16 | 30.6.17 | 30.6.16 |
| Salaries and variable compensation | 109 | 103 | 200 | 212 | 315 |
| Contractors | 13 | 13 | 16 | 26 | 28 |
| Social security | 2 | 2 | 1 | 4 | 3 |
| Pension and other post-employment benefit plans | (10) | (4) | (30) | (14) | (34) |
| Other personnel expenses | 2 | 2 | 4 | 5 | 8 |
| Total net restructuring
expenses: personnel expenses | 117 | 116 | 192 | 233 | 320 |

| Net restructuring expenses by
general and administrative expense category | | | | | |
| --- | --- | --- | --- | --- | --- |
| | For the quarter ended | | | Year-to-date | |
| CHF million | 30.6.17 | 31.3.17 | 30.6.16 | 30.6.17 | 30.6.16 |
| Occupancy | 22 | 19 | 41 | 40 | 70 |
| Rent and maintenance of IT and other equipment | 26 | 29 | 34 | 55 | 44 |
| Administration | 5 | 3 | 3 | 8 | 6 |
| Travel and entertainment | 3 | 2 | 5 | 6 | 8 |
| Professional fees | 41 | 26 | 36 | 68 | 70 |
| Outsourcing of IT and other services | 45 | 44 | 74 | 89 | 148 |
| Other¹ | (1) | 0 | (8) | (1) | (25) |
| Total net restructuring
expenses: general and administrative expenses | 141 | 124 | 185 | 264 | 322 |
| 1 Mainly comprised of onerous real estate lease contracts. | | | | | |

107

Notes to the UBS Group AG interim consolidated financial statements (unaudited)

Note 16 Changes in organization and disposals (continued)

Sale of subsidiaries and businesses

In the second quarter of 2017, UBS completed the sale of a life insurance subsidiary within Wealth Management. Prior to completion of the sale, the assets and liabilities of this business were presented as a disposal group held for sale within Other assets and Other liabilities (31 March 2017: CHF 5.1 billion and CHF 5.1 billion, respectively; 31 December 2016: CHF 5.1 billion and CHF 5.2 billion, respectively). The completion of the sale did not have a material effect on the results of Wealth Management in the second quarter of 2017.

Note 17 Currency translation rates

The following table shows the rates of the main currencies used to translate the financial information of UBS’s foreign operations into Swiss francs.

	Spot rate				Average rate¹
	As of				For the quarter ended			Year-to-date
	30.6.17	31.3.17	31.12.16	30.6.16	30.6.17	31.3.17	30.6.16	30.6.17	30.6.16
1 USD	0.96	1.00	1.02	0.98	0.97	1.00	0.98	0.99	0.99
1 EUR	1.10	1.07	1.07	1.08	1.09	1.07	1.10	1.08	1.10
1 GBP	1.25	1.25	1.26	1.30	1.26	1.25	1.37	1.26	1.39
100 JPY	0.85	0.90	0.87	0.95	0.87	0.89	0.92	0.88	0.89
1 Monthly income statement items of foreign operations with a
functional currency other than Swiss franc are translated with month-end
rates into Swiss francs. Disclosed average rates for a quarter represent an
average of three month-end rates, weighted according to the income and
expense volumes of all foreign operations of the Group with the same
functional currency for each month. Weighted average rates for individual
business divisions may deviate from the weighted average rates for the Group.

108

UBS AG interim consolidated financial information (unaudited)

This section contains a comparison of selected financial and capital information between UBS Group AG consolidated and UBS AG consolidated. Refer to “Quarterly reporting” at www.ubs.com/investors for the interim consolidated financial statements of UBS AG, which will be published on 3 August 2017.

Comparison UBS Group AG consolidated versus UBS AG consolidated

The accounting policies applied under International Financial Reporting Standards (IFRS) to both UBS Group AG and UBS AG consolidated financial statements are identical. However, there are certain scope and presentation differences as noted below:

– Assets, liabilities, operating income, operating expenses and operating profit before tax relating to UBS Group AG and its directly held subsidiaries, including UBS Business Solutions AG, are reflected in the consolidated financial statements of UBS Group AG but not of UBS AG. UBS AG’s assets, liabilities, operating income and operating expenses related to transactions with UBS Group AG and its directly held subsidiaries are not subject to elimination in the UBS AG consolidated financial statements, but are eliminated in the UBS Group AG consolidated financial statements.

– Preferred notes issued by UBS AG are presented in the consolidated UBS Group AG balance sheet as equity attributable to non-controlling interests, while in the consolidated UBS AG balance sheet, these preferred notes are required to be presented as equity attributable to preferred noteholders.

– Fully applied going concern capital of UBS AG consolidated was lower than fully applied going concern capital of UBS Group AG consolidated as of 30 June 2017, reflecting lower additional tier 1 (AT1) capital, partly offset by higher common equity tier 1 (CET1) capital. The difference in CET1 capital was primarily due to compensation-related regulatory capital accruals, liabilities and capital instruments that are reflected on the level of UBS Group AG. The difference in AT1 capital relates to the issuances of AT1 capital notes by UBS Group AG, as well as Deferred Contingent Capital Plan awards granted for the performance years 2014, 2015 and 2016.

® Refer to the “Recent developments” section of this report for information on the transfer of shared services functions from UBS AG to UBS Business Solutions AG in the second quarter of 2017

109

Notes to the UBS Group AG interim consolidated financial statements (unaudited)

| Comparison UBS Group AG (consolidated) versus UBS AG
(consolidated) | | | |
| --- | --- | --- | --- |
| | As of or for the quarter ended 30.6.17 | | |
| CHF million, except where
indicated | UBS Group AG (consolidated) | UBS AG (consolidated) | Difference (absolute) |
| Income statement | | | |
| Operating income | 7,269 | 7,398 | (129) |
| Operating expenses | 5,767 | 5,957 | (190) |
| Operating profit / (loss) before tax | 1,502 | 1,441 | 61 |
| of which: Wealth Management | 582 | 580 | 2 |
| of which: Wealth Management
Americas | 297 | 289 | 8 |
| of which: Personal &
Corporate Banking | 356 | 356 | 0 |
| of which: Asset Management | 110 | 110 | 0 |
| of which: Investment Bank | 451 | 441 | 10 |
| of which: Corporate Center | (294) | (334) | 40 |
| of which: Services | (137) | (182) | 45 |
| of which: Group ALM | (104) | (99) | (5) |
| of which: Non-core and
Legacy Portfolio | (53) | (53) | 0 |
| Net profit / (loss) | 1,175 | 1,124 | 51 |
| of which: net profit /
(loss) attributable to shareholders | 1,174 | 1,123 | 51 |
| of which: net profit /
(loss) attributable to preferred noteholders | | 0 | 0 |
| of which: net profit /
(loss) attributable to non-controlling interests | 1 | 1 | 0 |
| Statement of comprehensive
income | | | |
| Other comprehensive income | (1,072) | (1,064) | (8) |
| of which: attributable to
shareholders | (1,086) | (1,077) | (9) |
| of which: attributable to
preferred noteholders | | 16 | (16) |
| of which: attributable to
non-controlling interests | 14 | (2) | 16 |
| Total comprehensive income | 103 | 60 | 43 |
| of which: attributable to
shareholders | 89 | 46 | 43 |
| of which: attributable to preferred
noteholders | | 16 | (16) |
| of which: attributable to
non-controlling interests | 14 | (2) | 16 |
| Balance sheet | | | |
| Total assets | 890,831 | 891,763 | (932) |
| Total liabilities | 838,394 | 839,335 | (941) |
| Total equity | 52,437 | 52,428 | 9 |
| of which: equity attributable
to shareholders | 51,744 | 51,735 | 9 |
| of which: equity
attributable to preferred noteholders | | 657 | (657) |
| of which: equity
attributable to non-controlling interests | 693 | 37 | 656 |
| Capital information | | | |
| Common equity tier 1 capital (fully applied) | 31,887 | 32,558 | (671) |
| Common equity tier 1 capital (phase-in) | 35,243 | 35,887 | (644) |
| Going concern capital (fully applied) | 40,668 | 36,200 | 4,468 |
| Going concern capital (phase-in) | 51,700 | 46,350 | 5,350 |
| Risk-weighted assets (fully applied) | 236,697 | 236,552 | 145 |
| Common equity tier 1 capital ratio (fully applied, %) | 13.5 | 13.8 | (0.3) |
| Common equity tier 1 capital ratio (phase-in, %) | 14.8 | 15.1 | (0.3) |
| Going concern capital ratio (fully applied, %) | 17.2 | 15.3 | 1.9 |
| Going concern capital ratio (phase-in, %) | 21.7 | 19.5 | 2.2 |
| Gone concern loss-absorbing capacity ratio (fully applied, %) | 14.0 | 14.4 | (0.4) |
| Leverage ratio denominator (fully applied) | 860,879 | 861,919 | (1,040) |
| Common equity tier 1 leverage ratio (fully applied, %) | 3.7 | 3.8 | (0.1) |
| Going concern leverage ratio (fully applied, %) | 4.7 | 4.2 | 0.5 |
| Going concern leverage ratio (phase-in, %) | 6.0 | 5.4 | 0.6 |
| Gone concern leverage ratio (fully applied, %) | 3.9 | 3.9 | 0.0 |

110

| As of or for the quarter
ended 31.3.17 — UBS Group AG (consolidated) | UBS AG (consolidated) | Difference (absolute) | As of or for the quarter ended 31.12.16 — UBS Group AG (consolidated) | UBS AG (consolidated) | Difference (absolute) |
| --- | --- | --- | --- | --- | --- |
| 7,532 | 7,560 | (28) | 7,055 | 7,118 | (63) |
| 5,842 | 5,919 | (77) | 6,308 | 6,373 | (65) |
| 1,690 | 1,641 | 49 | 746 | 745 | 1 |
| 639 | 630 | 9 | 368 | 368 | 0 |
| 301 | 286 | 15 | 339 | 338 | 1 |
| 418 | 418 | 0 | 374 | 375 | (1) |
| 103 | 103 | 0 | 144 | 144 | 0 |
| 480 | 443 | 37 | 306 | 304 | 2 |
| (251) | (239) | (12) | (784) | (783) | (1) |
| (222) | (222) | 0 | (315) | (307) | (8) |
| 63 | 76 | (13) | (144) | (150) | 6 |
| (93) | (93) | 0 | (325) | (326) | 1 |
| 1,315 | 1,277 | 38 | 637 | 639 | (2) |
| 1,269 | 1,231 | 38 | 636 | 638 | (2) |
| | 46 | (46) | | 0 | 0 |
| 47 | 1 | 46 | 1 | 1 | 0 |
| (649) | (651) | 2 | (566) | (566) | 0 |
| (649) | (652) | 3 | (553) | (553) | 0 |
| | (2) | 2 | | (12) | 12 |
| 0 | 2 | (2) | (13) | (1) | (12) |
| 666 | 626 | 40 | 71 | 73 | (2) |
| 620 | 579 | 41 | 83 | 85 | (2) |
| | 44 | (44) | | (12) | 12 |
| 47 | 2 | 45 | (12) | 0 | (12) |
| 909,608 | 910,924 | (1,316) | 935,016 | 935,353 | (337) |
| 855,268 | 858,255 | (2,987) | 880,714 | 881,009 | (295) |
| 54,340 | 52,669 | 1,671 | 54,302 | 54,343 | (41) |
| 53,661 | 51,990 | 1,671 | 53,621 | 53,662 | (41) |
| | 641 | (641) | | 642 | (642) |
| 679 | 38 | 641 | 682 | 40 | 642 |
| 31,311 | 33,137 | (1,826) | 30,693 | 32,447 | (1,754) |
| 34,841 | 36,629 | (1,788) | 37,788 | 39,474 | (1,686) |
| 40,317 | 36,919 | 3,398 | 39,844 | 36,294 | 3,550 |
| 51,658 | 47,344 | 4,314 | 55,593 | 51,084 | 4,509 |
| 221,785 | 222,207 | (422) | 222,677 | 223,232 | (555) |
| 14.1 | 14.9 | (0.8) | 13.8 | 14.5 | (0.7) |
| 15.6 | 16.4 | (0.8) | 16.8 | 17.5 | (0.7) |
| 18.2 | 16.6 | 1.6 | 17.9 | 16.3 | 1.6 |
| 23.2 | 21.2 | 2.0 | 24.7 | 22.6 | 2.1 |
| 15.0 | 15.4 | (0.4) | 13.2 | 13.3 | (0.1) |
| 881,183 | 882,670 | (1,487) | 870,470 | 870,942 | (472) |
| 3.6 | 3.8 | (0.2) | 3.5 | 3.7 | (0.2) |
| 4.6 | 4.2 | 0.4 | 4.6 | 4.2 | 0.4 |
| 5.8 | 5.4 | 0.4 | 6.4 | 5.8 | 0.6 |
| 3.8 | 3.9 | (0.1) | 3.4 | 3.4 | 0.0 |

111

Significant regulated subsidiary and sub-group information

Financial and regulatory key figures for our significant regulated subsidiaries and sub-groups

	UBS AG (standalone)¹ — CHF million, except where indicated		UBS Switzerland AG (standalone) — CHF million, except where indicated		UBS Limited (standalone) — GBP million, except where indicated		UBS Americas Holding LLC (consolidated) — USD million, except where indicated
As of or for the quarter ended	30.6.17	31.3.17	30.6.17	31.3.17	30.6.17	31.3.17	30.6.17	31.3.17
Financial information²˒³˒⁴
Income statement
Total operating income	3,179	2,779	2,081	2,149	204	255	2,976	2,947
Total operating expenses	2,257	2,708	1,612	1,561	156	155	2,623	2,615
Operating profit / (loss) before tax	922	71	469	589	48	100	353	333
Net profit / (loss)	1,060	168	380	459	37	76	344	323
Balance sheet
Total assets	453,591	452,257	296,593	300,038	39,769	42,293	142,764	140,364
Total liabilities	403,325	402,800	282,483	286,117	36,788	39,346	117,528	115,508
Total equity	50,266	49,456	14,110	13,921	2,981	2,947	25,236	24,856
Capital⁵˒⁶
Common equity tier 1 capital	34,891	33,632	10,276	10,373	2,505	2,503	11,048	10,663
Additional tier 1 capital	0	0	2,000	2,000	235	235	782	883
Tier 1 capital	34,891	33,632	12,276	12,373	2,740	2,738	11,830	11,546
Total going concern capital			12,276	12,373
Tier 2 capital	0	0			687	682	713	720
Total gone concern capital			5,900	5,900
Total capital	34,891	33,632			3,427	3,420	12,543	12,266
Total loss-absorbing capacity			18,176	18,273
Risk-weighted assets and
leverage ratio denominator⁵˒⁶
Risk-weighted assets	233,737	228,483	94,525	94,123	12,195	11,821	52,792	54,620
Leverage ratio denominator	566,091	577,990	308,917	312,371	37,880	41,833	127,648	127,512
Capital and leverage ratios
(%)⁵˒⁶
Common equity tier 1 capital ratio	14.9	14.7	10.9	11.0	20.5	21.2	20.9	19.5
Tier 1 capital ratio	14.9	14.7			22.5	23.2	22.4	21.1
Going concern capital ratio			13.0	13.1
Total capital ratio	14.9	14.7			28.1	28.9	23.8	22.5
Total loss-absorbing capacity ratio			19.2	19.4
Leverage ratio⁷	6.2	5.8			7.2	6.5	9.3	9.1
Total loss-absorbing capacity leverage ratio			5.9	5.8
Liquidity⁶˒⁸
High-quality liquid assets (billion)	87	91	76	77
Net cash outflows (billion)	68	74	61	62
Liquidity coverage ratio (%)	128	123	125	124
Other
Joint and several liability between UBS AG and UBS Switzerland
AG (billion)⁹	0	1	77	87
1 Refer to the “Recent developments” section of this report for
information on the transfer of shared service functions in Switzerland from
UBS AG to UBS Business Solutions AG, effective 1 April 2017. This transfer
resulted in a decrease in net profit for UBS AG standalone of approximately
CHF 40 million under Swiss GAAP (FINMA Circular 2015/1 and the Banking
Ordinance) in the second quarter of 2017. In addition, the transfer resulted
in the derecognition of CHF 649 million of assets and CHF 259 million of
liabilities, the granting of a loan of CHF 140 million and a reduction in the
capital contribution reserve of CHF 250 million. 2 All information is
unaudited. UBS AG and UBS Switzerland AG financial information is prepared in
accordance with Swiss GAAP (FINMA Circular 2015/1 and the Banking Ordinance),
but does not represent interim financial statements under Swiss GAAP. 3
UBS Limited financial information is prepared in accordance with
International Financial Reporting Standards (IFRS), as endorsed by the EU,
but does not represent interim financial statements under IFRS. 4 UBS
Americas Holding LLC financial information is prepared in accordance with
accounting principles generally accepted in the US (US GAAP), but does not
represent interim financial statements under US GAAP. 5 For UBS AG and UBS
Switzerland AG, based on the applicable phase-in rules for Swiss systemically
relevant banks (SRBs). For UBS Limited, based on Directive 2013/36/EU and
Regulation 575/2013 (together known as CRD IV) and their related technical
standards, as implemented within the UK by the Prudential Regulation
Authority (PRA). For UBS Americas Holding LLC, based on applicable US Basel
III rules. 6 Refer to the UBS Group AG and significant regulated
subsidiaries and sub-groups second quarter 2017 Pillar 3 report under “Pillar
3 disclosures” at www.ubs.com/investors for more information. 7 On the
basis of total capital for UBS AG. On the basis of tier 1 capital for UBS
Limited and UBS Americas Holding LLC. 8 There was no local disclosure
requirement for liquidity coverage ratio for UBS Limited and UBS Americas
Holding LLC as of 30 June 2017 and 31 March 2017. 9 Refer to the “Capital
management” section of our Annual Report 2016 for more information on the joint
and several liability. Under certain circumstances, the Swiss Banking Act and
FINMA’s Banking Insolvency Ordinance authorize FINMA to modify, extinguish or
convert to common equity liabilities of a bank in connection with a
resolution or insolvency of such bank.

114

UBS Group AG is a holding company and conducts substantially all of its operations through UBS AG and its subsidiaries. UBS Group AG and UBS AG have contributed a significant portion of their respective capital and provide substantial liquidity to subsidiaries. Many of these subsidiaries are subject to regulations requiring compliance with minimum capital, liquidity and similar requirements. The tables in this section summarize the regulatory capital components and capital ratios of our significant regulated subsidiaries and sub-groups determined under the regulatory framework of each subsidiary’s or sub-group’s home jurisdiction.

Supervisory authorities generally have discretion to impose higher requirements or to otherwise limit the activities of subsidiaries. Supervisory authorities also may require entities to measure capital and leverage ratios on a stressed basis and may limit the ability of the entity to engage in new activities or take capital actions based on the results of those tests.

Standalone regulatory information for UBS AG, UBS Switzerland AG and UBS Limited as well as consolidated regulatory information for UBS Americas Holding LLC is provided in the UBS Group AG and significant regulated subsidiaries and sub-groups second quarter 2017 Pillar 3 report, which is available under “Pillar 3 disclosures” at www.ubs.com/investors . Standalone financial information for UBS Group AG, UBS Switzerland AG and UBS Group Funding (Switzerland) AG is available under “Complementary financial information for legal entities and sub-groups” at www.ubs.com/investors .

Selected financial and regulatory information for UBS AG consolidated is included in the key figures table below. Refer also to the UBS AG second quarter 2017 report, which will be available from 3 August 2017 under “Quarterly reporting” at www.ubs.com/investors .

UBS AG (consolidated) key figures¹
	As of or for the quarter ended				As of or year-to-date
CHF million, except where
indicated	30.6.17	31.3.17	31.12.16	30.6.16	30.6.17	30.6.16
Results
Operating income	7,398	7,560	7,118	7,399	14,958	14,254
Operating expenses	5,957	5,919	6,373	5,942	11,876	11,818
Operating profit / (loss) before tax	1,441	1,641	745	1,457	3,082	2,436
Net profit / (loss) attributable to shareholders	1,123	1,231	638	1,009	2,354	1,723
Key performance indicators²
Profitability
Return on tangible equity (%)	10.0	10.8	5.6	8.6	10.4	7.3
Cost / income ratio (%)	80.0	78.3	89.2	80.2	79.2	82.9
Growth
Net profit growth (%)	11.3	72.7	(32.8)	(14.3)	36.6	(46.2)
Net new money growth for combined wealth management businesses
(%)	1.4	3.9	(1.1)	1.7	2.7	3.8
Resources
Common equity tier 1 capital ratio (fully applied, %)³	13.8	14.9	14.5	15.0	13.8	15.0
Going concern leverage ratio (fully applied, %)⁴	4.2	4.2	4.2		4.2
Additional information
Profitability
Return on equity (%)	8.7	9.3	4.8	7.4	9.0	6.3
Return on risk-weighted assets, gross (%)⁵	13.0	13.6	13.0	13.8	13.3	13.4
Return on leverage ratio denominator, gross (%)⁵	3.4	3.4	3.3	3.3	3.4	3.2
Resources
Total assets	891,763	910,924	935,353	990,135	891,763	990,135
Equity attributable to shareholders	51,735	51,990	53,662	53,353	51,735	53,353
Common equity tier 1 capital (fully applied)³	32,558	33,137	32,447	32,184	32,558	32,184
Common equity tier 1 capital (phase-in)³	35,887	36,629	39,474	38,913	35,887	38,913
Risk-weighted assets (fully applied)³	236,552	222,207	223,232	214,210	236,552	214,210
Common equity tier 1 capital ratio (phase-in, %)³	15.1	16.4	17.5	17.9	15.1	17.9
Going concern capital ratio (fully applied, %)⁴	15.3	16.6	16.3		15.3
Going concern capital ratio (phase-in, %)⁴	19.5	21.2	22.6		19.5
Gone concern loss-absorbing capacity ratio (fully applied,
%)⁴	14.4	15.4	13.3		14.4
Leverage ratio denominator (fully applied)³	861,919	882,670	870,942	899,075	861,919	899,075
Common equity tier 1 leverage ratio (fully applied, %)³	3.8	3.8	3.7	3.6	3.8	3.6
Going concern leverage ratio (phase-in, %)⁴	5.4	5.4	5.8		5.4
Gone concern leverage ratio (fully applied, %)⁴	3.9	3.9	3.4		3.9
Other
Invested assets (CHF billion)⁶	2,922	2,934	2,821	2,677	2,922	2,677
Personnel (full-time equivalents)⁷	48,476	55,972	56,208	57,387	48,476	57,387
1 Refer to the “Recent developments” section of this report for
information on the transfer of shared service functions in Switzerland from
UBS AG to UBS Business Solutions AG, effective 1 April 2017. This transfer
resulted in a decrease in net profit for UBS AG consolidated of approximately
CHF 50 million. In addition, the transfer resulted in the derecognition of
CHF 706 million of assets and CHF 259 million of liabilities, the granting of
a loan of CHF 140 million and a reduction in share premium within equity
attributable to shareholders of CHF 307 million. 2 Refer to the
“Measurement of performance” section of our Annual Report 2016 for the
definitions of our key performance indicators. 3 Refer to the “Capital
management” section of this report for more information. 4 Based on the
revised Swiss SRB framework that became effective on 1 July 2016. Refer to
the “Capital management” section of this report for more information. 5
Based on fully applied risk-weighted assets and leverage ratio
denominator. 6 Includes invested assets for Personal & Corporate
Banking. 7 As of 30 June 2017, the breakdown of personnel by business
division and Corporate Center unit was: Wealth Management: 9,546; Wealth
Management Americas: 13,496; Personal & Corporate Banking: 5,013; Asset
Management: 2,290; Investment Bank: 4,596; Corporate Center – Services:
13,338; Corporate Center – Group ALM: 141; Corporate Center – Non-core and
Legacy Portfolio: 57.

115

Appendix

Abbreviations frequently used in our financial reports

ABS asset-backed security

AEI automatic exchange of

information

AGM annual general meeting of shareholders

A-IRB advanced internal ratings-based

AIV alternative investment vehicle

AMA advanced measurement approach

AT1 additional tier 1

BCBS Basel Committee on Banking Supervision

BD business division

BIS Bank for International Settlements

BoD Board of Directors

CC Corporate Center

CCAR Comprehensive Capital Analysis and Review

CCF credit conversion factor

CCP central counterparty

CCR counterparty credit risk

CDO collateralized debt obligation

CDR constant default rate

CDS credit default swap

CEA Commodity Exchange Act

loss

CEO Chief Executive Officer

CET1 common equity tier 1

CFO Chief Financial Officer

CHF Swiss franc

CLN credit-linked note

CLO collateralized loan obligation

CMBS commercial mortgage- backed security

CVA credit valuation adjustment

DBO defined benefit obligation

DCCP Deferred Contingent Capital Plan

DOJ Department of Justice

DOL Department of Labor

DTA deferred tax asset

DVA debit valuation adjustment

EAD exposure at default

EC European Commission

ECB European Central Bank

EIR effective interest rate

EMEA Europe, Middle East and Africa

EOP Equity Ownership Plan

EPS earnings per share

ETD exchange-traded derivatives

ETF exchange-traded fund

EU European Union

EUR euro

EURIBOR Euro Interbank Offered Rate

FCA UK Financial Conduct Authority

FCT foreign currency translation

FDIC Federal Deposit Insurance Corporation

FINMA Swiss Financial Market Supervisory Authority

FRA forward rate agreement

FSA UK Financial Services Authority

FSB Financial Stability Board

FTA Swiss Federal Tax

Administration

FTP funds transfer price

FVA funding valuation adjustment

FX foreign exchange

GAAP generally accepted accounting principles

GBP British pound

GEB Group Executive Board

GIIPS Greece, Italy, Ireland, Portugal and Spain

Group ALM Group Asset and Liability Management

G-SIB global systemically important bank

HQLA high-quality liquid assets

IAS International Accounting Standards

IASB International Accounting Standards Board

IFRS International Financial Reporting Standards

IRB internal ratings-based

IRC incremental risk charge

ISDA International Swaps and Derivatives Association

KPI key performance indicator

LCR liquidity coverage ratio

LGD loss given default

LIBOR London Interbank Offered Rate

LLC limited liability company

LRD leverage ratio denominator

LTV loan-to-value

116

Abbreviations frequently used in our financial reports (continued)

NAV net asset value

NPA non-prosecution agreement

NRV negative replacement value

NSFR net stable funding ratio

OCI other comprehensive income

OTC over-the-counter

PD probability of default

PFE potential future exposure

PRA UK Prudential Regulation Authority

PRV positive replacement value

RBC risk-based capital

RMBS residential mortgage-backed security

RoAE return on attributed equity

RoE return on equity

RoTE return on tangible equity

RWA risk-weighted assets

SE structured entity

SEC US Securities and Exchange Commission

SEEOP Senior Executive Equity Ownership Plan

SFT securities financing transaction

SNB Swiss National Bank

SRB systemically relevant bank

SRM Single Resolution Mechanism

SVaR stressed value-at-risk

TBTF too big to fail

TLAC total loss-absorbing capacity

USD US dollar

VaR value-at-risk

117

Appendix

Information sources

Reporting publications

Annual publications: Annual Report (SAP no. 80531): Published in both English and German, this single-volume report provides a description of our Group strategy and performance; the strategy and performance of the business divisions and Corporate Center; a description of risk, treasury, capital management, corporate governance, responsibility and senior management compensation, including compensation for the Board of Directors and the Group Executive Board members; and financial information, including the financial statements. Annual Review (SAP no. 80530): The booklet contains key information on our strategy and financials. It is published in English, German, French and Italian. Compensation Report (SAP no. 82307): The report discusses our compensation framework and provides information on compensation for the Board of Directors and the Group Executive Board members. It is available in English and German.

Quarterly publications: The quarterly financial report provides an update on our strategy and performance for the respective quarter. It is available in English.

How to order publications: The annual and quarterly publications are available in PDF at www.ubs.com/investors in the “UBS Group AG and UBS AG consolidated financial information” section and printed copies can be requested from UBS free of charge. For annual publications please refer to www.ubs.com/investors in the “Investor services” section, which can be accessed via the link on the left-hand side of the screen. Alternatively, they can be ordered by quoting the SAP number and the language preference, where applicable, from UBS AG, F4UK–AUL, P.O. Box, CH-8098 Zurich, Switzerland.

Other information

Website: The “Investor Relations” website at www.ubs.com/investors provides the following information on UBS: news releases, financial information, including results-related filings with the US Securities and Exchange Commission, information for shareholders, including UBS share price charts as well as data and dividend information, and for bondholders, the UBS corporate calendar and presentations by management for investors and financial analysts. Information on the internet is available in English, with some information also available in German.

Result presentations: Our quarterly results presentations are webcast live. A playback of most presentations is downloadable at www.ubs.com/presentations .

Messaging service: SMS or email alerts to news about UBS can be subscribed to under ”UBS news alert” at www.ubs.com/investors . Messages are sent in English, German, French or Italian, with an option to select theme preferences for such alerts.

Form 20-F and other submissions to the US Securities and Exchange Commission : We file periodic reports and submit other information about UBS to the US Securities and Exchange Commission (SEC). Principal among these filings is the annual report on Form 20-F, filed pursuant to the US Securities Exchange Act of 1934. The filing of Form 20-F is structured as a “wrap-around” document. Most sections of the filing can be satisfied by referring to parts of the annual report. However, there is a small amount of additional information in Form 20-F that is not presented elsewhere and is particularly targeted at readers in the US. Readers are encouraged to refer to this additional disclosure. Any document that we file with the SEC is available on the SEC’s website www.sec.gov, or at the SEC’s public reference room at 100 F Street, N.E., Room 1580, Washington, DC, 20549. Please call the SEC on +1‑800-SEC-0330 for further information on the operation of its public reference room. Refer to www.ubs.com/investors for more information.

118

Cautionary Statement Regarding Forward -Looking Statements | This report contains statements that constitute “forward-looking statements,” including but not limited to management’s outlook for UBS’s financial performance and statements relating to the anticipated effect of transactions and strategic initiatives on UBS’s business and future development. While these forward-looking statements represent UBS’s judgments and expectations concerning the matters described, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from UBS’s expectations. These factors include, but are not limited to: (i) the degree to which UBS is successful in the ongoing execution of its strategic plans, including its cost reduction and efficiency initiatives and its ability to manage its levels of risk-weighted assets (RWA), including to counteract regulatory-driven increases, and leverage ratio denominator, liquidity coverage ratio and other financial resources, and the degree to which UBS is successful in implementing changes to its wealth management businesses to meet changing market, regulatory and other conditions; (ii) continuing low or negative interest rate environment, developments in the macroeconomic climate and in the markets in which UBS operates or to which it is exposed, including movements in securities prices or liquidity, credit spreads, and currency exchange rates, and the effects of economic conditions, market developments, and geopolitical tensions on the financial position or creditworthiness of UBS’s clients and counterparties as well as on client sentiment and levels of activity; (iii) changes in the availability of capital and funding, including any changes in UBS’s credit spreads and ratings, as well as availability and cost of funding to meet requirements for debt eligible for total loss-absorbing capacity (TLAC); (iv) changes in or the implementation of financial legislation and regulation in Switzerland, the US, the UK and other financial centers that may impose, or result in, more stringent capital, TLAC, leverage ratio, liquidity and funding requirements, incremental tax requirements, additional levies, limitations on permitted activities, constraints on remuneration, constraints on transfers of capital and liquidity and sharing of operational costs across the Group or other measures, and the effect these would have on UBS’s business activities; (v) uncertainty as to the extent to which the Swiss Financial Market Supervisory Authority (FINMA) will confirm limited reductions of gone concern requirements due to measures to reduce resolvability risk; (vi) the degree to which UBS is successful in implementing further changes to its legal structure to improve its resolvability and meet related regulatory requirements, including changes in legal structure and reporting required to implement US enhanced prudential standards, completing the implementation of a service company model, and the potential need to make further changes to the legal structure or booking model of UBS Group in response to legal and regulatory requirements, to proposals in Switzerland and other jurisdictions for mandatory structural reform of banks or systemically important institutions or to other external developments, and the extent to which such changes will have the intended effects; (vii) the uncertainty arising from the timing and nature of the UK exit from the EU and the potential need to make changes in UBS’s legal structure and operations as a result of it; (viii) changes in UBS’s competitive position, including whether differences in regulatory capital and other requirements among the major financial centers will adversely affect UBS’s ability to compete in certain lines of business; (ix) changes in the standards of conduct applicable to our businesses that may result from new regulation or new enforcement of existing standards, including recently enacted and proposed measures to impose new and enhanced duties when interacting with customers and in the execution and handling of customer transactions; (x) the liability to which UBS may be exposed, or possible constraints or sanctions that regulatory authorities might impose on UBS, due to litigation, contractual claims and regulatory investigations, including the potential for disqualification from certain businesses or loss of licenses or privileges as a result of regulatory or other governmental sanctions, as well as the effect that litigation, regulatory and similar matters have on the operational risk component of our RWA; (xi) the effects on UBS’s cross-border banking business of tax or regulatory developments and of possible changes in UBS’s policies and practices relating to this business; (xii) UBS’s ability to retain and attract the employees necessary to generate revenues and to manage, support and control its businesses, which may be affected by competitive factors including differences in compensation practices; (xiii) changes in accounting or tax standards or policies, and determinations or interpretations affecting the recognition of gain or loss, the valuation of goodwill, the recognition of deferred tax assets and other matters; (xiv) UBS’s ability to implement new technologies and business methods, including digital services and technologies and ability to successfully compete with both existing and new financial service providers, some of which may not be regulated to the same extent; (xv) limitations on the effectiveness of UBS’s internal processes for risk management, risk control, measurement and modeling, and of financial models generally; (xvi) the occurrence of operational failures, such as fraud, misconduct, unauthorized trading, financial crime, cyberattacks, and systems failures; (xvii) restrictions on the ability of UBS Group AG to make payments or distributions, including due to restrictions on the ability of its subsidiaries to make loans or distributions, directly or indirectly, or, in the case of financial difficulties, due to the exercise by FINMA or the regulators of UBS’s operations in other countries of their broad statutory powers in relation to protective measures, restructuring and liquidation proceedings; (xviii) the degree to which changes in regulation, capital or legal structure, financial results or other factors, including methodology, assumptions and stress scenarios, may affect UBS’s ability to maintain its stated capital return objective; and (xix) the effect that these or other factors or unanticipated events may have on our reputation and the additional consequences that this may have on our business and performance. The sequence in which the factors above are presented is not indicative of their likelihood of occurrence or the potential magnitude of their consequences. Our business and financial performance could be affected by other factors identified in our past and future filings and reports, including those filed with the SEC. More detailed information about those factors is set forth in documents furnished by UBS and filings made by UBS with the SEC, including UBS’s Annual Report on Form 20-F for the year ended 31 December 2016. UBS is not under any obligation to (and expressly disclaims any obligation to) update or alter its forward-looking statements, whether as a result of new information, future events, or otherwise.

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 on the basis of rounded figures displayed in the tables and text and may not precisely reflect the percentages, percent changes and absolute variances that would be calculated on the basis of 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. Percentage changes are presented as a mathematical calculation of the change between periods.

119

UBS Group AG

P.O. Box

CH-8098 Zurich

www. ubs.com

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 333-204908) and of UBS Group AG on Form S-8 (Registration Numbers 333-200634; 333-200635; 333-200641; 333-200665; 333-215254; and 333-215255), 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 registrants have duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized.

UBS GROUP AG

By: /s/ Sergio Ermotti __

Name: Sergio Ermotti

Title: Group Chief Executive Officer

By: _/s/ Kirt Gardner______

Name: Kirt Gardner

Title: Group Chief Financial Officer

By: _/s/ Todd Tuckner_____

Name: Todd Tuckner

Title: Group Controller and

Chief Accounting Officer

UBS AG

By: /s/ Sergio Ermotti__

Name: Sergio Ermotti

Title: President of the Executive Board

By: _/s/ Kirt Gardner______

Name: Kirt Gardner

Title: Chief Financial Officer

By: _/s/ Todd Tuckner_____

Name: Todd Tuckner

Title: Group Controller and

Chief Accounting Officer

Date: July 28, 2017

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