Consolidated Annual Report of VP Bank Group
Consolidated results
The consolidated financial statements for 2012 of VP Bank Group, prepared in accordance with International Financial Reporting Standards (IFRS), dis-close Group net income of CHF 47.2 million. In the prior year, the Group realised a Group net income, after restatement in accordance with IAS 19 (revised), of CHF 5.3 million.
After a first half-year of 2012 marked by ongoing uncertainties in connection with the debt crisis, the situation gradually eased in the second half of the year. The ECB’s clear commitment to the Euro, as well as progress on the political front, led to a noticeable stabilisation on financial markets.
Following the introduction of a minimum Swiss-franc/Euro parity in the autumn of 2012, little movement in the Swiss-franc/Euro exchange rate was noticeable during the financial year. Only after a degree of easing of the debt crisis could be seen to emerge in the autumn was the Euro able to break away somewhat from the minimum parity. A similar momentum was observable with interest rates. In the meantime, yields again came under strong pressure so that even negative yields could be observed over the summer in the case of five-year Swiss government bonds. US and European central banks further extended their expansionary monetary and low-interest-rate policies, thus adding to the general stabilisation of markets.
These factors impacted both revenues and client activities.
During 2012, VP Bank Group succeeded, to a large measure, in offsetting outflows of client money resulting from political uncertainties thanks to intensive market-development activities. For the whole of 2012, only a marginal outflow of client money of CHF 65 million was recorded. In addition, the complete repurchase and redemption of the Group’s own debentures maturing in 2012 totalling CHF 127 million further took its toll on the development in inflows of net new money.
Having regard to the increased net income and the balanced dividend policy pursued by the Group, the Board of Directors will propose the payment of a dividend of CHF 2.50 per bearer share and of CHF 0.25 per registered share to the forthcoming annual general meeting of shareholders to be held on 26 April 2013.
Medium-term goals
In the medium term, VP Bank Group strives to achieve the following measures:
- a net new money inflow of an average of 5 per cent per annum
- a cost/income ratio of 65 per cent, and
- a tier 1 ratio of 16 per cent.
The positive net inflows of net client money of the two preceding years could not be carried over to the current financial year. During the past financial year, VP Bank Group suffered a net outflow of client money of CHF 65 million and a further outflow of CHF 127 million, or minus 0.7 per cent, resulting from the repayment of the Group’s own debentures. The net inflow for 2011 was CHF 1.0 billion or 3.5 per cent.
In 2012, the cost/income ratio could be reduced to 63.0 per cent (prior year: 79.7 per cent). In the process, income rose by 8.0 per cent and costs reduced by 14.5 per cent. With a tier 1 ratio of 21.5 per cent (prior year: 18.0 per cent), VP Bank Group possesses a very good starting point, compared with other financial institutions, for its growth strategy, both organically as well as through acquisitions. The medium-term goal of 16.0 per cent which is far in excess of the legally prescribed level was again significantly exceeded in 2012. The future regulatory framework Basel III will impose stricter capital-adequacy and liquidity requirements on banking institutions. Even after the introduction of Basel III, VP Bank Group will continue to possess a robust core capital (tier 1 ratio), thus reflecting a high measure of stability and security.
Client assets under management
At the end of 2012, client assets under management of VP Bank Group aggregated CHF 28.5 billion. Compared to the prior-year figure of CHF 27.4 billion, this equated to an increase of 3.9 per cent. The performance-related increase in assets resulting from the positive development in market values amounted to CHF 1.3 billion. Thanks to successful market- development activities, VP Bank Group was able to keep the outflow of client money within reasonable limits. In total, VP Bank Group recorded an outflow of money totalling CHF 192 million (prior year: inflow of new client money of CHF 995 million). Of this outflow, CHF 127 million relates to repayment of own debentures maturing in 2012.
Custody assets declined by 23.5 per cent to CHF 8.8 billion (prior year: CHF 11.5 billion).
As of 31 December 2012, client assets including custody assets totalled CHF 37.3 billion (prior year: CHF 39.0 billion).
Income statement
The year-on-year comparison of individual items is hampered by the restatement rendered necessary as a result of the early adoption of IAS 19 (revised). This concerns primarily the items personnel expense, Group net income and comprehensive income within shareholders’ equity.
Total operating income
Total operating income rose year-on-year by 8.0 per cent from CHF 224.5 million to CHF 242.4 million. Income from the interest-differential business grew by CHF 16.9 million to CHF 83.5 million. Because of the ongoing low level of interest rates, VP Bank implemented several measures designed to enhance net interest income. In comparison with the prior year, changes in the value of interest-rate swaps had a less strong impact on net interest income. These interest-rate swaps are deployed to hedge interest-rate risk primarily on long-term client loans. As VP Bank Group does not apply hedge accounting in accordance with IFRS, the underlying assets and the hedges are valued differently; only changes in the value of the hedges are recognised in the income statement.
As a result of the volatile market environment marked by uncertainties – stock-exchange turnover for Swiss equities on the SIX Swiss Exchange declined by some 30 per cent in 2012 and even by 67 per cent compared with 2007 – income from commissions and services declined by 5.6 per cent to CHF 115.1 million. Both trade-related net commissions as well as those unrelated to trades for the asset-management and investment business recorded a slight increase year-on- year, whilst commissions from the investment-fund business receded.
Trading income declined in 2012 by 28.0 per cent from CHF 29.4 million to CHF 21.1 million. Trading on behalf of clients fell slightly by 6.6 per cent to CHF 22.7 million. Trading for the Bank’s own account fell from CHF 5.0 million in 2011 to CHF –1.6 million in 2012 as a result of lower gains from currency hedges.
In 2012, financial investments yielded gains of CHF 19.5 million, the bulk of which result from the positive movement in interest-bearing securities in the conservative investment portfolio. In the prior year, an income of CHF 5.9 million had ensued.
Money market
Interest – 3 months | 31/12/2012 | 31/12/2011 | ∆ previous year |
Swiss-franc LIBOR | 0.01% | 0.05% | –4 BP |
Euribor | 0.13% | 1.29% | –116 BP |
Dollar LIBOR | 0.31% | 0.58% | –27 BP |
Yen LIBOR | 0.18% | 0.20% | –2 BP |
Capital market
Benchmark bonds – 10 years | 31/12/2012 | 31/12/2011 | ∆ previous year |
Switzerland | 0.46% | 0.67% | –21 BP |
Germany | 1.30% | 1.83% | –53 BP |
USA | 1.75% | 1.88% | –13 BP |
Japan | 0.79% | 0.99% | –20 BP |
Forex rates
Exchange rates | 31/12/2012 | 31/12/2011 | ∆ previous year |
EUR | 1.2068 | 1.2139 | –0.6% |
USD | 0.9154 | 0.9351 | –2.1% |
JPY | 1.0586 | 1.2154 | –12.9% |
GBP | 1.4879 | 1.4532 | 2.4% |
Operating expenses
As a result of strict cost discipline and non-recurring items, operating expenses fell by 14.5 per cent to CHF 152.8 year-on-year. At the end of 2012, VP Bank Group employed 707 employees, expressed as full-time equivalents, which corresponds to a reduction of 31 positions (–4.2 per cent).
Year-on-year, personnel expense declined by CHF 21.6 million, or 17.1 per cent to CHF 104.3 million. This relates principally to a non-recurring credit totalling CHF 19.6 million relating to the conversion of the Treuhand-Personalstiftung (Group pension fund) from a defined-benefit to defined-contribution scheme as well as the early adoption of the revised standard IAS 19, in particular a non-recurring credit of CHF 3.2 million arising on plan settlements.
General and administrative expenses could be reduced by 8.4 per cent to CHF 48.4 million. Cost savings were achieved in particular in the areas of IT systems and marketing.
Year-on-year, depreciation and amortisation fell by 12.5 per cent to CHF 29.4 million.
In 2012, valuation allowances, provisions and losses increased year-on-year by CHF 5.3 million reflecting principally increased credit risks. At the same time, unused valuation allowances of CHF 8.1 million could be released (prior year: CHF 7.2 million). In aggregate, the items valuation allowances, provisions and losses totalled CHF 11.1 million (prior year: CHF 5.8 million).
Group net income attributable to the shareholders of VP Bank
After deducting non-controlling interests, there remained a Group net income attributable to the shareholders of Verwaltungs- und Privat-Bank Aktiengesellschaft of CHF 47.1 million (prior year: CHF 3.2 million). Group net income per bearer share increased from CHF 0.56 to CHF 8.17.
Comprehensive income
Comprehensive income encompasses all income and expenses recognised in the income statement as well as in shareholders’ equity. VP Bank Group generated comprehensive income of CHF 73.6 million, in contrast to CHF –14.6 million in the prior year.
Balance sheet
Year-on-year, total assets of CHF 10.6 billion fell marginally by 1.0 per cent. On the assets side, cash and cash equivalents increased to CHF 927.0 million since 1 January 2012 (end of 2011: CHF 245.4 million), explained by the complete winding down of positions in money-market papers on the one hand, and the reduction in deposits with banks (CHF –354.9 million), on the other.
In view of the current situation on the real-estate market and the continuing period of low interest rates, VP Bank continues to pursue a policy of strict discipline and control in credit-granting activities. Client loans declined from the beginning of 2012 by CHF 137.8 million to CHF 3.7 billion, whereby mortgage loans recorded an increase of 11.3 per cent to CHF 2.6 billion.
On the liabilities side, client deposits and medium-term bonds increased marginally by 0.5 per cent to CHF 9.0 billion. With the repayment of the Group’s own debentures, the position debentures issued fell from CHF 324.7 million at 31 December 2011 to CHF 198.5 million at the end of 2012.
Group shareholders’ equity amounted to CHF 888.8 million at the end of 2012 (end of 2011: CHF 840.9 million). After deducting non-controlling interests, the shareholders’ equity attributable to the shareholders of Verwaltungs- und Privat-Bank Aktiengesellschaft was CHF 871.1 million (prior year: CHF 821.9 million). As of 31 December 2012, the tier 1 ratio amounted to 21.5 per cent (prior year: 18.0 per cent).
Outlook
With their liquidity measures, the major central banks have brought about a stabilisation of financial markets. The expansionary monetary policy of central banks and developments on the political front will continue to significantly impact markets in 2013. Positive developments on stock markets at the beginning of the year seem to be more broadly based than in 2012. Even if the debt crisis has lost some of its edge, economic problems remain.
The fragile composition of the real economy and financial markets means that any prognosis regarding future business developments is fraught with great uncertainty. VP Bank Group expects no significant increase in interest-rate levels in the first half of 2013. Furthermore, the Swiss National Bank will not modify its goal of achieving a minimum parity of the Swiss franc in relation to the Euro of CHF 1.20. These conditions and regulatory changes will impact the results of VP Bank Group.