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UBS to issue additional tier 1 capital instrument for employee compensation
- Deferred Contingent Capital Plan enhanced to qualify as additional tier 1 capital
- Supplementary capital return of CHF 0.25 per share following completion of squeeze-out, fully accrued in the fourth quarter 2014
Zurich/Basel, 23 January 2015 – UBS has enhanced certain features of its employee compensation framework in anticipation of increased focus on tier 1 capital instruments. Starting with compensation for 2014, Deferred Contingent Capital Plan (DCCP) awards will qualify as fully applied additional tier 1 (AT1) capital under Basel III regulations. This will optimize the capital efficiency of these plans under Basel III.
DCCP was introduced in 2012 as a key component of UBS's compensation framework. UBS was the first bank to introduce this innovative instrument, which is designed to better align the interests of shareholders, bondholders and employees and to align compensation incentives with the capital strength of the firm. The key features of DCCP awarded for the 2013 performance year will be closely replicated in the AT1 DCCP awards for 2014, which will be issued by UBS Group AG.
Outstanding DCCP awards granted for the performance years 2012 and 2013 are unaffected by these changes, and continue to qualify as Basel III tier 2 loss-absorbing capital.
In line with the capital treatment applied to DCCP awards in prior years, at year-end UBS recognized approximately CHF 500 million in AT1 capital, and deducted approximately CHF 500 million from fully applied Basel III common equity tier 1 (CET1) capital through the end of the fourth quarter of 2014. UBS intends to build approximately CHF 2.5 billion in AT1 DCCP over the next five years and continues to target a fully applied Basel III CET1 ratio of 13% and at least 10% post stress.
Reflecting progress in the establishment of its Group holding company, including the successful completion of its share-for-share exchange offer, UBS fully accrued a supplementary capital return of CHF 0.25 per share in the fourth quarter of 2014. The accrual reduced UBS's fully applied Basel III CET1 capital by approximately CHF 1 billion as of 31 December 2014. Subject to shareholder approval, UBS Group AG intends to pay the supplementary capital return upon successful completion of the squeeze-out procedure. The supplementary capital return is expected to be a distribution of capital contribution reserves. It is separate and in addition to our targeted capital return of at least 50% of net profit attributable to UBS shareholders.
On 15 January 2015, the Swiss National Bank discontinued the minimum exchange rate for the Swiss franc versus the euro. This resulted in considerable foreign exchange volatility. In aggregate, UBS did not experience negative revenues in its trading businesses in connection with the announcement. UBS will provide further information on its outlook for the current quarter with its fourth-quarter results on 10 February 2015.
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