Morningstar DBRS Confirms UBS AG's Long-Term Issuer Rating at AA (low) and UBS Group AG's Long-Term Issuer Rating at A (high), Changes Trends to Stable From Negative

DBRS Ratings Limited (Morningstar DBRS) confirmed the Long-Term Issuer Rating on UBS Group AG (UBS or the Group), the top-level holding company, at A (high) and the Long-Term Issuer Rating on UBS AG (the Bank) at AA (low). Morningstar DBRS also changed the trends on the long-term credit ratings to Stable from Negative. The Bank's Intrinsic Assessment (IA) is AA (low) and the Support Assessment is SA1. The Group's Support Assessment is SA3, meaning that timely systemic support is not expected. See the full list of credit ratings in the table at the end of this press release.

KEY CREDIT RATING CONSIDERATIONS
The trend change to Stable from Negative considers the good progress UBS has made in integrating Credit Suisse Group AG (Credit Suisse) in a difficult operating environment. Morningstar DBRS also takes into account that the Group demonstrated recurring and improving earnings in its core franchise while absorbing restructuring costs and offloading Non-Core and Legacy (NCL) assets. Morningstar DBRS considers that the main operational execution risks associated with Credit Suisse's significant size have now receded, although some risks could still materialise. The Group's improving earnings generation and solid capitalisation should nonetheless provide a significant cushion to absorb any potential operational risks that arise.

The credit rating confirmation reflects the strength of UBS' leading and diversified franchise. Morningstar DBRS expects that the Group's capacity to generate solid earnings will continue thanks to solid and recurring revenues in Global Wealth Management (GWM), reflecting UBS' leading positions, and a steady stream of revenues from Personal and Corporate Banking (P&C) supported by the well-entrenched Swiss business. The growth of the Investment Bank (IB) is capped, but remains a key contributor to earnings, particularly in times of volatility. In addition, Morningstar DBRS expects the Group to maintain a conservative risk profile despite the headwinds from increased macroeconomic uncertainty, especially the changes to trade tariffs. Lastly, the credit rating confirmation reflects strong liquidity levels in accordance with the revised Swiss too big to fail (TBTF) regime and robust capital levels that will strengthen further if current proposals by the Swiss Federal Council are adopted.

The Company's IA of AA (low) is at the midpoint of the IA Range. Morningstar DBRS view UBS' credit fundamentals and performance as commensurate with those of similarly rated peers.

CREDIT RATING DRIVERS
An upgrade of long-term credit ratings would require the Group to demonstrate stronger profitability levels in line with similarly rated global peers while maintaining a sound risk profile and robust capitalisation levels.

A downgrade of the long-term credit ratings could occur if the Group experiences sustained weakening in profitability, capital levels, and/or risk profile.

CREDIT RATING RATIONALE
Franchise Combined Building Block Assessment: Very Strong
UBS is a leading Swiss-based global wealth manager with $6.2 trillion in invested assets at the end of Q1 2025. UBS is also the leading universal bank in Switzerland with a major retail and commercial banking franchise. Outside Switzerland, UBS is present in the Americas; Europe, the Middle East and Africa; and the Asia-Pacific region, and is particularly focused on the ultra-high-net worth and high-net worth segments. The IB, which operates the Global Banking (Advisory and Capital Markets) and Global Markets (Execution Services, Derivatives and Solutions, and Financing) segments, accounted for approximately 23% of Group risk-weighted assets (RWA) at the end of Q1 2025 versus approximately 21% at the end of Q1 2024, which compares with the Group's ambition of capping the IB at 25% of RWA.

The Group continues to make progress with the integration of Credit Suisse, with a plan to complete the integration by the end of 2026. UBS is now proceeding with client account migrations and infrastructure decommissioning. UBS merged its Swiss branch network in Q1 2025 and business migrations started in Q2 2025. UBS aims to complete the Swiss booking centre migrations by the end of Q1 2026.

Earnings Combined Building Block Assessment: Good
The Group has maintained solid business momentum since its acquisition of Credit Suisse. In 2024, UBS' profit before tax (PBT) was $6.8 billion and net profit attributable to shareholders was $5.1 billion.

In Q1 2025, UBS reported a PBT of $2.1 billion, a net profit attributable to shareholders of $1.7 billion, and a return on tangible equity of 8.5% in Q1 2025. PBT was down from $2.4 billion in Q1 2024, but above $1.0 billion in Q4 2024. Q1 2025 was marked by a jump in IB, which benefitted from market volatility and a strong performance in GWM. Meanwhile P&C, has been slowing down since mid-2024 mostly because of lower net interest income (NII), down 16% year over year, due to lower interest rates and higher liquidity and funding costs. Looking ahead, the Group expects a low-single-digit decline in GWM's NII and in P&C's NII (on CHF basis) in Q2 2025.

By the end of 2026, the Group is targeting a 15% underlying rate of return on CET1 capital, compared with 11.3% at the end of Q1 2025, and approximately $13 billion in gross cost savings compared with the 2022 cost base, compared with cumulative gross cost savings of $8.4 billion at the end of Q1 2025. UBS also targets a cost-to-income ratio of below 70% by the end of 2026, which Morningstar DBRS continues to see as ambitious given that the Group's cost-to-income ratio has historically been higher than 70%. UBS is nonetheless making progress on this front, as its cost-to-income ratio reduced to 82.2% in Q1 2025 from 89.0% in 2024 compared with 72.1% in 2022 prior to the Credit Suisse acquisition. On an underlying basis, the Group's cost-to-income ratio reduced to 77.4% in Q1 2025, down from 81.9% in 2024, compared with 74.2% in 2022.

Risk Combined Building Block Assessment: Strong/Good
UBS has a generally conservative risk profile reflecting the credit and market risk characteristics of its primary businesses, especially in wealth and asset management, with sound asset quality. Morningstar DBRS considers that the main operational execution risks associated with the substantial size of the Credit Suisse integration have receded. Morningstar DBRS will nonetheless continue to monitor the Group's operational execution risks, particularly in information technology and client transfers.

Exposures in the NCL business line, which are marked as nonstrategic, will continue to decrease as maturities reduce and positions are actively unwound. The NCL division reduced by half to $34 billion of RWA at the end of Q1 2025 since the end of 2023, representing about 7% of total RWA of $483.3 billion, including $24 billion in operational risks and $10 billion in credit and market risk. This compares with $74 billion in RWA at the end of 2023, representing about 13% of total RWA. The Group now aims for NCL credit and market risk to be less than $8 billion by the end of 2025.

Funding and Liquidity Combined Building Block Assessment: Strong
Morningstar DBRS considers UBS' funding and liquidity to be solid, supported by a large and stable deposit base that benefits from the GWM business and UBS' strong banking franchise in Switzerland. The Group's customer deposits decreased to $745 billion at the end of Q1 2025 from $764 billion at the end of Q1 2024 and $746 billion at the end of Q4 2024, mainly reflecting net-new deposit outflows in Corporate and Institutional Clients driven by the roll-off of preferential fixed-term deposits.

The Group has maintained well-diversified funding sources across various markets, currencies, and products including issuances of additional tier 1 (AT1) instruments, with $3 billion AT1 issuance in Q1 2025. Long-term debt is a significant source of funding for the Group, representing approximately 22% of overall funding, while short-term wholesale funding (i.e., securities lending, prime brokerage payables, and short-term debt) represented about 2% of total funding at the end of Q1 2025. Funding sources are diversified by currency, with about 73% generated outside the domestic market.

UBS reported solid liquidity metrics with a loan coverage ratio of 181.0% at the end of Q1 2025 on a quarterly average basis, compared with 220.2% at the end of Q1 2024, higher than pre-acquisition levels driven by TBTF and a conservative approach during early integration as well as the wind-down of NCL and reduced funding requirements from the business divisions. High-quality liquid assets represented $319 billion at the end of Q1 2025, down from $423 billion at the end of Q1 2024. UBS' net stable funding ratio was 124.2% at the end of Q1 2025 compared with 126.4% at the end of Q1 2024 and 125.5% at the end of Q4 2024.

Capitalisation Combined Building Block Assessment: Strong
The Group's capital position is supported by its solid capacity to generate earnings as well as its sound access to capital markets. Meanwhile, UBS will be subject to much stricter capital requirements starting in 2027 at the earliest, if current proposals are adopted. The Group's CET1 ratio decreased to 14.3% at the end of Q1 2025 from 14.8% at the end of Q1 2024, down 50 basis points quarter over quarter (QOQ), compared with CET1 ratio requirements of 10.6%. The decrease reflected the Group's lower CET1 capital (which represented $69.2 billion at the end of Q1 2025), partly offset by a decrease in RWA. The Group's RWAs decreased to $483.3 billion at the end of Q1 2025 (below UBS' initial target of $510.0 billion) compared with $526.4 billion at the end of Q1 2024 and $546.5 billion at the end of 2023. The reduction of $15.3 billion QOQ mainly reflected a decrease in asset size and a $8.6 billion reduction from the implementation of the final Basel III standards.

The Basel CET1 leverage ratio was 4.4% at the end of Q1 2025, which compares well with its minimum requirement of 3.5%.

Further details on the Scorecard Indicators and Building Block Assessments can be found at https://dbrs.morningstar.com/research/456553.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
ESG Considerations had a relevant effect on the credit analysis.

Governance (G) Factors
The following Governance factor had a relevant effect on the credit analysis:

Morningstar DBRS views the Business Ethics factor as relevant, but it does not affect the credit ratings or trend on the Group. Although largely reflecting legacy issues, UBS remains subject to various disputes and legal proceedings. UBS reported total provisions for litigation, regulatory, and similar matters of approximately $3.9 billion at the end of Q1 2025 (up from $3.6 billion at the end of 2024), of which $1.3 billion was in GWM and $1.9 billion was in NCL. In addition, acquisition-related contingent liabilities relating to litigation, regulatory, and similar matters accounted for $2.0 billion at the end of Q1 2025. Together, provisions and contingent liabilities related to litigation totalled $5.9 billion at the end of Q1 2025.

There were no Environmental or Social factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (16 May 2025), https://dbrs.morningstar.com/research/454196

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (23 May 2025), https://dbrs.morningstar.com/research/454637. In addition, Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (16 May 2025), https://dbrs.morningstar.com/research/454196 in its consideration of ESG factors.

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

The sources of information used for these credit ratings include Morningstar, Inc. and company documents. Other sources include UBS Group AG Annual Report 2024, UBS Group AG Full Year and First Quarter 2025 Financial Results Documents, Swiss National Bank, and FINMA. Morningstar DBRS considers the information available to it for the purposes of providing these credit ratings to be of satisfactory quality.

With respect to FCA and ESMA regulations in the United Kingdom and European Union, respectively, these are unsolicited credit ratings. These credit ratings were not initiated at the request of the issuer.

With Rated Entity or Related Third Party Participation: YES
With Access to Internal Documents: NO
With Access to Management: NO

Morningstar DBRS does not audit the information it receives in connection with the credit rating process, and it does not and cannot independently verify that information in every instance.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS's trends and credit ratings are under regular surveillance.

For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

The sensitivity analysis of the relevant key credit rating assumptions can be found at: https://dbrs.morningstar.com/research/456552.

These credit ratings are endorsed by DBRS Ratings GmbH for use in the European Union.

Lead Analyst: Vitaline Yeterian, Senior Vice President, Sector Lead
Rating Committee Chair: Elisabeth Rudman, Managing Director
Initial Rating Date: 17 May 2010
Last Rating Date: 20 June 2024

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