UBS UBS Group AG

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: January 27, 2017

UBS Group AG

Commission File Number: 1-36764

UBS AG

Commission File Number: 1-15060

(Registrants' Name)

Bahnhofstrasse 45, Zurich, Switzerland

(Address of principal executive office)

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

This Form 6-K consists of the Fourth Quarter 2016 Report of UBS Group AG and UBS AG, which appears immediately following this page.

Our financial results

Fourth quarter 2016  report 

Publication of the Annual Report 2016:                               Friday, 10 March 2017

* Refer to the corporate calendar at www.ubs.com/investors for more information

Switchboards

For all general inquiries.

www.ubs.com/contact

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London +44-20-7567 8000
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Investor Relations

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

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

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UBS’s Media Relations team supports
global media and journalists from
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and Hong Kong.

www.ubs.com/media

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mediarelations@ubs.com

London +44-20-7567 4714
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New York +1-212-882 5857
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Hong Kong +852-2971 8200
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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

sh-company-secretary@ubs.com

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 the
global registered shares.

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

sh-shareholder-services@ubs.com

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

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For global registered share-related
inquiries in the US.

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College Station
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Shareholder website:
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UBS Group key figures

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”                                             

Recent developments

Key financial reporting changes

Change in equity attribution framework

In the first quarter of 2017, we have revised our equity attribution framework to reflect the revision in 2016 of the too big to fail provisions applicable to Swiss systematically 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 risk-weighted assets (RWA), average fully applied leverage ratio denominator (LRD) and average 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.

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

Also, we attribute all Basel III capital deduction items within Group items. These deduction items include deferred tax assets, unrealized gains from cash flow hedges, and compensation- and own share-related components. Previously, Group items only included an amount of attributed equity for certain capital deduction items. In addition, the total amount of attributed equity equals average shareholders’ equity with any residual difference reported within Group items, whereas such difference was previously reported separately.

Corporate Center – Group Asset and Liability Management (Group ALM) attributes to the business divisions and other Corporate Center units ‎  equity pertaining to LRD and RWA directly associated with activity that Group ALM manages centrally on their behalf . This attribution is primarily based on
the level of high-quality liquid assets that is required to meet the Group’s minimum liquidity coverage ratio requirement of 110%. 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.

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

Regulatory and legal developments

Changes to our legal structure

During the fourth quarter, we merged UBS Deutschland AG and our Wealth Management subsidiaries in Germany, Italy, Luxembourg (including its branches in Austria, Denmark and Sweden), the Netherlands and Spain into our new European legal entity, UBS Europe SE, which is headquartered in Frankfurt, Germany, and regulated by BaFin, the German Federal Financial Supervisory Authority.

As of 1 January 2017, we completed the transfer of remaining shared services employees in the US to our US service company, UBS Business Solutions US LLC. During 2017, we expect to transfer shared services functions in Switzerland and in the UK from UBS AG to UBS Business Solutions AG.

®    Refer to “Disclosure for legal entities” at www.ubs.com/investors  for an overview on our legal structure

We continue to consider further changes to the Group's legal structure in response to capital and other regulatory requirements.

Switzerland begins automatic exchange of information

Automatic exchange of information in tax matters (AEI) between Switzerland and all EU member states and a number of other countries took effect on 1 January 2017. The first exchange of information between Switzerland and tax authorities in these countries will begin in 2018 based on 2017 data. The Swiss Federal Department of Finance has initiated consultations to extend the standard to additional countries.

We have experienced outflows of cross-border client assets as a result of changes in local tax regimes or their enforcement.

EC proposes implementation rules for MREL and Basel III reforms

The European Commission (EC) published proposals to implement the Financial Stability Board (FSB) total loss-absorbing capacity (TLAC) standard into the EU Minimum Requirement for own funds and Eligible Liabilities (MREL) regime, as well as the remaining elements of the Basel III reforms into EU law. The proposals envisage that global systemically important institutions (G-SIIs) would be subject to MREL requirements calculated at 16% of risk-weighted assets and 6% of the leverage exposure measure as of 1 January 2019, increasing to 18% and 6.75%, respectively, as of 1 January 2022. Additionally, banks would be subject to a 3% tier 1 leverage ratio requirement as part of the aforementioned 6% leverage exposure requirement, with the possibility of a G-SII add-on, and a minimum net stable funding ratio of 100%. The proposed rules would also (i) introduce an internal MREL requirement for material EU subsidiaries of non-EU G-SIIs; (ii) require non-EU G-SIIs with two or more EU entities to establish an EU-domiciled holding company; and (iii) create a new asset class of non-preferred senior debt, which would rank below other senior debt in insolvency. Internal MREL is the loss-absorbing capacity that a G-SII commits to material subsidiaries. These proposals would apply to UBS's legal entities in all EU member states, including UBS Limited and UBS Europe SE, and their precise impact on UBS will depend on the final rules and their implementation at a national level.

Further developments on TLAC and MREL requirements

The FSB issued a consultative document on guiding principles on the internal TLAC of global systemically important banks (G-SIBs) to support authorities and crisis management groups (CMGs) in the implementation of TLAC requirements in their jurisdictions. The principles define, among other things, (i) the roles and responsibilities of host and home regulators and that of the CMGs in the identification of material sub-groups that would be subject to TLAC requirements; (ii) the way in which the size and location of internal TLAC within a material sub-group of a G-SIB is determined; and (iii) the FSB’s expectations with regard to the cooperation and coordination between home and host authorities when internal TLAC is triggered. The core features of internal TLAC in relation to size, triggers and eligibility of instruments remain unchanged compared with the requirements detailed in the FSB's TLAC Principles and Term Sheet published in November 2015.

The US Federal Reserve Board issued a final rule that will apply TLAC requirements, minimum long-term debt requirements, and clean holding company requirements to all US G-SIBs and to foreign G-SIBs' US intermediate holding companies (covered IHCs) such as UBS Americas Holding LLC. The final rule reflects only minor changes from the initial proposal and will require covered IHCs to maintain debt to the parent G-SIB qualifying as TLAC (internal TLAC) of at least the greatest of 16% of risk-weighted assets, plus any capital conservation buffer, 6% of leverage exposure, if the leverage ratio applies, or 8% of average total consolidated assets, including eligible long-term debt of at least the greatest of 6% of risk-weighted assets, 2.5% of leverage exposure or 3.5% of average total consolidated assets. The clean holding company requirement prohibits covered IHCs from having liabilities to unrelated third parties that exceed 5% of its total TLAC unless all of its TLAC is contractually subordinated to third-party liabilities. It further prohibits a covered IHC from incurring short-term debt, entering into derivatives with unaffiliated parties and issuing certain guarantees. The rule becomes effective as of 1 January 2019.

The Bank of England published the final UK MREL rules, including minimum standards for domestic systemically important banks (D-SIBs) in the UK, such as UBS Limited. Starting from 1 January 2020, D-SIBs will have to meet MREL requirements amounting to the greater of (i) a multiple, initially less than two and increasing to two as of 1 January 2022, of the Pillar 1 requirement of 8% and an institution-specific add-on, or (ii) if subject to a leverage ratio requirement, two times the applicable requirement of currently 3%.

Results: 2016

We recorded net profit attributable to shareholders of CHF 3,306 million in 2016, which included a net tax expense of CHF 805 million. In 2015, net profit attributable to shareholders was CHF 6,203 million, which included a net tax benefit of CHF 898 million.

Profit before tax was CHF 4,192 million in 2016 compared with CHF 5,489 million in 2015 and adjusted profit before tax was CHF 5,443 million compared with CHF 5,635 million.

As of 31 December 2016, the Group achieved CHF 1.6 billion of annualized net cost savings, an improvement from CHF 1.1 billion at year-end 2015, and is on track to achieve its CHF 2.1 billion target by the end of 2017.

UBS’s Board of Directors intends to propose a dividend of CHF 0.60 per share to shareholders for the financial year 2016. Subject to shareholder approval, the dividend will be paid out of capital contribution reserves on 10 May 2017 to shareholders of record as of 9 May 2017. The ex-dividend date will be 8 May 2017.

Results: 4Q16 vs 4Q15

We recorded a profit before tax of CHF 848 million compared with CHF 234 million. Operating income increased by CHF 280 million or 4%, mainly reflecting a CHF 250 million increase in other income and CHF 51 million higher combined net interest and trading income. Operating expenses decreased by CHF 335 million or 5% due to CHF 350 million lower general and administrative expenses, primarily reflecting CHF 203 million lower net expenses for provisions for litigation, regulatory and similar matters. This was partly offset by CHF 25 million higher 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 SEC regulations. For the purpose of determining adjusted results for the fourth quarter of 2016, we excluded gains of CHF 88 million on sale of financial assets available for sale, net foreign currency translation gains of CHF 27 million and net restructuring expenses of CHF 372 million. For the fourth quarter of 2015, we excluded net foreign currency translation gains of CHF 115 million, an own credit gain of CHF 35 million, net gains of CHF 28 million on the sale of subsidiaries and businesses, as well as net losses of CHF 257 million related to the buyback of debt in a tender offer and net restructuring expenses of CHF 441 million.

On this adjusted basis, profit before tax was CHF 1,105 million compared with CHF 754 million, reflecting CHF 266 million lower operating expenses and CHF 86 million higher operating income.

Operating income: 4Q16 vs 4Q15

Total operating income was CHF 7,055 million compared with CHF 6,775 million. On an adjusted basis, total operating income increased by CHF 86 million or 1% to CHF 6,940 million.

Net interest and trading income

Total combined net interest and trading income increased by CHF 51 million to CHF 2,708 million. Excluding the own credit gain of CHF 35 million in the fourth quarter of 2015, adjusted net interest and trading income increased by CHF 86 million, primarily reflecting increases in the Investment Bank and Wealth Management Americas, partly offset by a decrease in Corporate Center – Group ALM.

Net fee and commission income

Net fee and commission income was CHF 4,161 million compared with CHF 4,218 million, primarily reflecting declines in investment fund and equity underwriting fees and lower net brokerage fees, partly offset by higher portfolio management and advisory fees.

Credit loss expense / recovery

Total net credit loss expenses were CHF 24 million compared with CHF 59 million, mainly reflecting lower expenses related to the energy sector in the Investment Bank.

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

Other income

Other income was positive CHF 209 million compared with negative CHF 41 million. The fourth quarter of 2016 included gains of CHF 88 million on sale of financial assets available for sale and net foreign currency translation gains of CHF 27 million, while the same quarter a year earlier included net foreign currency translation gains of CHF 115 million, net gains of CHF 28 million on the sale of subsidiaries and businesses as well as net losses of CHF 257 million related to the buyback of debt in a tender offer. Excluding these items, adjusted other income increased by CHF 21 million to CHF 94 million.

Operating expenses: 4Q16 vs 4Q15

Total operating expenses decreased by CHF 335 million or 5% to CHF 6,206 million. Net restructuring expenses decreased to CHF 372 million from CHF 441 million, mainly related to lower expenses for outsourcing of IT and other services.

Excluding net restructuring expenses, adjusted total operating expenses decreased by CHF 266 million or 4% to CHF 5,834 million, primarily reflecting CHF 203 million lower net expenses for provisions for litigation, regulatory and similar matters.

Personnel expenses

Personnel expenses increased by CHF 25 million to CHF 3,868 million. On an adjusted basis, personnel expenses increased by CHF 15 million to CHF 3,694 million, mainly reflecting higher expenses for variable compensation, primarily as expenses for accruals for variable compensation in the Investment Bank were more evenly spread across the year in 2016 compared with 2015. This was largely offset by lower salary expenses resulting from our cost reduction programs and lower pension costs for our Swiss pension plan, reflecting the effect of changes to demographic and financial assumptions.

General and administrative expenses

General and administrative expenses decreased by CHF 350 million to CHF 2,063 million and by CHF 261 million to CHF 1,876 million on an adjusted basis, mainly reflecting CHF 203 million lower net expenses for provisions for litigation, regulatory and similar matters, as well as a decrease in professional fees and travel and entertainment expenses. In addition, the expense for the annual UK bank levy decreased to CHF 132 million from CHF 166 million, primarily due to currency effects.

At this point in time, 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 “Provisions and contingent liabilities” in the “Consolidated financial information” 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 2015 for more information on litigation, regulatory and similar matters

Depreciation, impairment and amortization

Depreciation and impairment of property, equipment and software was CHF 255 million compared with CHF 260 million. In the fourth quarter of 2016 and after performing an analysis to assess the average lifespan of software placed into service as part of our recent transformation efforts, we extended the estimated useful life for certain software from five to seven years, resulting in CHF 26 million lower depreciation expenses. The decrease in depreciation expenses was partly offset by higher impairment expenses, primarily related to property.

Tax: 4Q16 vs 4Q15

We recognized a net income tax expense of CHF 109 million compared with a net income tax benefit of CHF 715 million.

The fourth quarter 2016 net income tax expense included a tax benefit in respect of a net upward revaluation of deferred tax assets of CHF 166 million, following the completion of our business planning process. This net benefit reflected an increase in US deferred tax assets of CHF 136 million, an increase in Swiss deferred tax assets of CHF 82 million as well as other increases of CHF 19 million, partly offset by a decrease of CHF 71 million in respect of UK deferred tax assets. The net income tax expense in the quarter also included tax expenses of CHF 275 million in respect of taxable profits arising in 2016. This reflected current tax expenses of CHF 203 million and deferred tax expenses of CHF 72 million, with the latter primarily representing amortization of prior-year Swiss temporary difference deferred tax assets.

The tax benefit for the fourth quarter of 2015 included an upward revaluation of US deferred tax assets in relation to the extension of the forecast period for US taxable profits to seven years from six. In 2016, there was no extension of the forecast period.

For 2017, we forecast a full-year tax rate of approximately 25%, excluding the effects on the tax rate of any change in the level of deferred tax assets resulting from their reassessment or any statutory tax rate changes.

Total comprehensive income attributable to shareholders: 4Q16 vs 4Q15

Total comprehensive income attributable to shareholders was CHF 185 million compared with CHF 1,126 million. Net profit attributable to shareholders was CHF 738 million compared with CHF 949 million and other comprehensive income (OCI) attributable to shareholders was negative CHF 553 million compared with positive CHF 177 million.

In the fourth quarter of 2016, OCI related to cash flow hedges was negative CHF 1,033 million, mainly reflecting a decrease in unrealized gains on hedging derivatives that resulted from increases in long-term interest rates. In the fourth quarter of 2015, OCI related to cash flow hedges was negative CHF 419 million.

Defined benefit plan OCI was negative CHF 234 million compared with positive CHF 202 million. We recorded net pre-tax OCI losses of CHF 390 million related to our Swiss pension plan, reflecting OCI gains of CHF 1,134 million from a decrease in the defined benefit obligation (DBO) and CHF 222 million from an increase in the fair value of the underlying plan assets, more than offset by OCI losses of CHF 1,746 million related to the excess of the pension surplus over the estimated future economic benefit. The OCI gains of CHF 1,134 million from the decrease in DBO primarily reflected gains of CHF 1,125 million due to a significant increase in the applicable discount rate from 0.4% as of 30 September 2016 to 0.7% as of
31 December 2016. This increase in discount rate included the effect of changes in yield curve construction, which had a negative effect on OCI of CHF 408 million. In addition, changes in estimate related to the life expectancy assumption resulted in OCI gains of CHF 701 million. The aforementioned OCI gains were partly offset by an OCI experience loss of CHF 438 million, reflecting the effects of differences between the previous actuarial assumptions and what actually occurred, and OCI losses of CHF 255 million following an increase in the assumed rate of interest credit on retirement savings.

Net pre-tax OCI related to the non-Swiss pension plans was positive CHF 89 million, primarily in the UK, mainly due to net reductions in defined benefit obligations resulting from increases in applicable discount rates, partly offset by losses resulting from decreases in the fair value of underlying plan assets.

OCI associated with financial assets available for sale was negative CHF 145 million compared with negative CHF 59 million and mainly reflected net unrealized losses following increases in long-term interest rates as well as the reclassification of net gains from OCI to the income statement upon sale of certain investments, predominantly a further partial sale of our investment in Markit.

Foreign currency translation OCI was CHF 845 million, which primarily resulted from the strengthening of the US dollar against the Swiss franc. OCI related to foreign currency translation in the same quarter last year was CHF 452 million.

OCI related to own credit on financial liabilities designated at fair value was CHF 15 million in the fourth quarter of 2016.

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

®    Refer to “Note 28 Pension and other post-employment benefit plans” in the “Consolidated financial statements” section of our Annual Report 2015 for more information on other comprehensive income related to defined benefit plans

Sensitivity to interest rate movements

As of 31 December 2016, 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 0.4 billion would result from changes in US dollar interest rates. Including the estimated impact related to pension fund assets and liabilities, the immediate effect of such a shift on shareholders’ equity would be a decrease of approximately CHF 1.6 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 negative OCI impact on shareholders’ equity is related to cash flow hedges, which is not recognized for the purposes of calculating regulatory capital, the immediate impact on regulatory capital would be an increase of approximately CHF 0.3 billion. 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 available-for-sale portfolios.

We estimate that if interest rates implied by forward rates at the end of 2016 were to materialize over the next three years, our net interest income in Wealth Management, Wealth Management Americas and Personal & Corporate Banking would increase compared with current levels by around CHF 0.2 billion in 2017 and by around CHF 1.1 billion cumulatively over the next three years. This increase would primarily be driven by Wealth Management and Wealth Management Americas, which would benefit most from an increase in US dollar interest rates, and would more than offset a decline in Personal & Corporate Banking, whose net interest income is mostly generated in Swiss francs and where forward rates imply continued negative interest rates.

Should interest rates remain constant at the levels prevailing at the end of 2016, the corresponding cumulative increase in net interest income over the next three years compared with current levels would be around CHF 0.2 billion.

The above estimates further assume no change to balance sheet size and structure, constant foreign exchange rates and no management action.

Net profit attributable to non-controlling interests:
4Q16 vs 4Q15

Net profit attributable to non-controlling interests was unchanged at CHF 1 million.

For 2017, we currently expect to attribute approximately CHF 70 million of net profit to non-controlling interests, of which CHF 45 million in the first quarter and CHF 25 million in the fourth quarter. From 2018, we expect to attribute less than CHF 10 million per year.

Key figures and personnel

Cost / income ratio: 4Q16 vs 4Q15

The cost / income ratio was 87.7% compared with 95.7%. On an adjusted basis, the cost / income ratio was 83.8% compared with 88.2%.

Return on tangible equity: 4Q16 vs 4Q15

The annualized return on tangible equity (RoTE) was 6.5% compared with 8.1%. On an adjusted basis, the annualized RoTE was 8.2% compared with 11.4%.

Common equity tier 1 capital ratio: 4Q16 vs 3Q16

Our fully applied CET1 capital ratio decreased 0.2 percentage points to 13.8%, mainly resulting from a CHF 6 billion increase in risk-weighted assets (RWA).

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

Risk-weighted assets: 4Q16 vs 3Q16

RWA increased by CHF 6 billion to CHF 223 billion on a fully applied basis. This increase was mainly due to CHF 7 billion higher market risk RWA, primarily due to higher average stressed and regulatory value-at-risk (VaR) levels during the quarter, primarily driven by various factors across our Equities and Foreign Exchange, Rates and Credit businesses, including option expiries and stronger client flows.

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

Leverage ratio denominator: 4Q16 vs 3Q16

The Swiss SRB leverage ratio denominator (LRD) decreased by CHF 7 billion to CHF 870 billion on a fully applied basis, mainly reflecting effective resource management.

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

Net new money and invested assets

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

Personnel: 4Q16 vs 3Q16

We employed 59,387 personnel as of 31 December 2016, a net decrease of 559 compared with 30 September 2016, mainly reflecting reductions of 197, 183 and 107 in Wealth Management, the Investment Bank and Corporate Center –Services, respectively. These reductions related primarily to our cost reduction programs.

Outlook

Although macroeconomic uncertainty, geopolitical tensions and divisive politics continue to affect client sentiment and transaction volumes, we have begun to observe improved investor confidence, primarily in the US, which may benefit  our wealth management businesses. Lower than expected and negative interest rates, particularly in Switzerland and the eurozone, continue to present headwinds to net interest margins, which may be offset by the effect of higher US dollar interest rates. Implementing Switzerland's new bank capital standards and the proposed further changes to the international regulatory framework for banks will result in increasing capital requirements and costs. UBS will continue to execute its strategy with discipline, positioning it to mitigate these challenges and to benefit from any further improvement in market conditions.