Statement by the Chairman of the Board

Dear Shareholders,

Ladies and Gentlemen

For VP Bank Group, 2012 was a special year in every respect. Our operative progress in terms of profit and reduced costs stood in stark contrast to challenging personnel changes. And owing to the volatile business environment, appropriate strategic and structural adjustments also had to be made. 

For the 2012 financial year, VP Bank Group recorded consolidated net income of CHF 47.2 million compared to the prior-year result of CHF 5.3 million. Net operating income increased versus the previous year by CHF 17.9 million, from CHF 224.5 million to CHF 242.4 million. Although the commission business and trading activities developed unfavourably, income from the interest-differential business and financial investments had a favourable influence on the net result. Operating expense were reduced from CHF 178.8 million in the previous year to CHF 152.8 million. This was mainly attributable to a one-time reduction in personnel expenses as a result of the changeover from a defined-benefit to a defined-contribution employee pension scheme as well as to the early application of the revised IAS 19 standard. For the entire year, client assets under management developed as expected: a modest CHF 65 million outflow of client money was recorded. An additional burden was placed on the trend in net new money through the complete CHF 127 million redemption of the VP Bank bonds issued in July 2007. This is due to the fact that the Bank’s own bonds are included in the amount of client assets under management. At the end of December 2012, client assets under management at VP Bank Group amounted to CHF 28.5 billion. Assets held in custody decreased by CHF 2.7 billion to CHF 8.8 billion, so that total client assets on 31 December 2012 stood at CHF 37.3 billion. 

At the annual general meeting on 26 April 2013, the Board of Directors will propose a dividend of CHF 2.50 per bearer share (previous year: CHF 1.50) and CHF 0.25 per registered share (previous year: CHF 0.15). This dividend increase is in reflection of the significantly higher annual profit and the solid equity base of VP Bank Group. 

Economic and regulatory conditions have a strong influence on the activities of our Bank. The persistently low level of interest rates, as well as volatility in the financial markets, have had a negative influence on our earnings power. We are going on the assumption that interest rates will remain low for quite some time. In the area of regulation, the new rules governing cross-border private banking as well as the debate on the topic of taxation are indeed vexing. Moreover, regulations such as Basel III and MiFID II pose enormous challenges for financial institutions. However, in terms of equity capital and liquidity, VP Bank Group fulfils today’s requirements by far. 

The following addresses selected aspects of VP Bank Group’s strategic orientation. A comprehensive overview of all relevant strategic topics can be found in the separate “Strategy report” section of this annual report. 

Economic and regulatory conditions also have an influence on the business model of VP Bank Group. Consequently, last summer the Board of Directors decided to place the Bank’s strategic focus on the middle segment of the private banking industry as well as on the intermediaries business. We also clearly defined the target markets in Europe and Asia that are of decisive importance to VP Bank as well as the relevant client segments. By doing so, we have charted the course for the coming years. In VP Bank’s home market of Liechtenstein, additional need-oriented services will be offered to our regional private and commercial clients.

In the first half of 2013, the Principality of Liechtenstein will introduce the Alternative Investment Fund Managers Directive (AIFMD). This will open up an interesting niche thanks to Liechtenstein’s membership in the EEA and affiliation with the Swiss economic region. IFOS Internationale Fonds Service Aktiengesellschaft, a wholly owned subsidiary of VP Bank, will offer services to alternative investment fund managers. IFOS was reorganised for effect as of 1 January 2013 and in future will offer not only classical fund administration activities, but also investment management and risk management services, thereby anchoring itself even more firmly in the Liechtenstein market as one of the leading providers of fund-related services. 

Strategic partnerships and cooperative undertakings are also an important component of VP Bank Group’s business model as a means of addressing the general trend towards greater efficiency and less complexity, the heightened regulatory requirements and the relentless cost pressures. Also, in the second half of 2012, VP Bank examined the possibility of outsourcing its IT competence centre to an external partner company. However, it was determined that the conditions for realising such a project are not suitable at present.

The Board of Directors still stands by its medium-term goals, i.e. achieving on average 5 per cent annual growth in net new money on the basis of client assets under management, having a cost/income ratio of 65 per cent, and maintaining or exceeding a core capital ratio of 16 per cent.

The management organisation of VP Bank Group was adapted at the start of 2012. Rolf Jermann was added as a member of the Executive Board at VP Bank Vaduz in order to give corresponding weight to the Commercial Banking business unit at the Head Office.

At the annual general meeting in April 2012, Max E. Katz and Fredy Vogt were elected to the Board of Directors. Subsequently, Fredy Vogt was named Chairman of the Board, following Hans Brunhart. Hans Brunhart was a member of the Board of Directors for 18 years, 16 of which as its Chairman. With his years of experience as Head of Government, he was able to build bridges between politics and the real economy. Under his leadership, VP Bank managed to position itself as a solid, esteemed and globally active private bank. Hans Brunhart’s roots in the Principality of Liechtenstein and knowledge of its special characteristics, as well as his renown amongst the populace and beyond our borders, worked repeatedly to the advantage of VP Bank. His consistent leadership, down-to-earthness and calm, level-headed way were greatly appreciated by managers, employees and clients alike. The Board of Directors thanks him for his tremendous commitment to our Bank and wishes him good health in the future.

The Head of Group Finance & Risk, Siegbert Näscher, was named successor to Fredy Vogt as Chief Financial Officer and a member of Group Executive Management as of 1 April 2012. 

In mid-July 2012, Chief Executive Officer Roger H. Hartmann took leave of the Bank after roughly two years as its head. VP Bank is in a phase of transition that was introduced by Roger H. Hartmann. The Board of Directors would also like to thank Roger H. Hartmann for his contribution to paving the way for VP Bank’s reorientation in what is truly a changing world for the financial services industry.

Two members of Group Executive Management, Siegbert Näscher, Chief Financial Officer, and Juerg W. Sturzenegger, Chief Operating Officer, have been jointly at the helm of VP Bank Group on an ad interim basis since mid-July 2012. With the active support of all the Bank’s employees and managers, we arrived at a professional solution and thereby ensured continuity. The Board of Directors thanks Siegbert Näscher and Juerg W. Sturzenegger for their great dedication and efforts on behalf of VP Bank.

Georg Wohlwend, Head of Banking Liechtenstein & Regional Market and a member of Group Executive Management, decided to pursue a new profes- sional challenge as of the end of 2012. The Board of Directors thanks him for his years of service. Georg Wohlwend contributed significantly to the successful positioning of VP Bank in Liechtenstein and the surrounding region.

As of 1 January 2013, the Executive Board at the Head Office in Vaduz was reinforced by Martin Engler, Head of Private Banking Liechtenstein, and Günther Kaufmann, Head of Intermediaries & Transaction Banking. With the promotion of these two heads of client advisory units in Liechtenstein, the Board of Directors is underscoring the Bank’s redoubled focus on market and client needs. 

We are convinced that, with the findings of our strategic analyses, with adapted business models, as well as via investments in future sources of revenue and resolute, comprehensive cost management, we are laying a solid foundation for VP Bank Group’s future success. One that is reinforced by the Bank’s plenteous core capital and stable shareholder base. 

On 1 May 2013, Alfred W. Moeckli will take over the management of VP Bank as its new CEO. He brings to the Bank extensive experience in all areas of the banking business and has proven his management skills at various companies. The Board of Directors looks forward to collaborating with Alfred W. Moeckli and wishes him the greatest of success in his new post.

The cultivation of VP Bank’s target markets will take centre stage in 2013. Based on our need-oriented advisory process, we will adapt our existing range of products and services to accommodate the requirements of those markets and target groups to an even greater extent. By continuing our efficiency-enhancement efforts and cost-reduction measures, we will achieve a sustainably viable, future-oriented cost basis.

The previously mentioned regulatory requirements as well as the Liechtenstein government’s financial centre strategy will accompany VP Bank also in the new financial year. We are participating in numerous forums, as well as collaborating with all relevant partners in the Liechtenstein financial centre and all the markets in which VP Bank is active. 

Mastering all of today’s challenges in the best way possible is something we view as our central task – so that VP Bank Group can remain on its path of success and independence. We are rising to those challenges through redoubled efforts to serve even better our existing as well as new clients and by resolutely continuing our transformation process.

This report on our 2012 annual financial results shows that VP Bank Group still has a lot of work to do. We thank our employees for their dedicated service in all functions at all of VP Bank’s locations, and for the fact that we can also count on their determined commitment as, together, we rise to the challenges that lie ahead.

We should also like to express our sincere thanks to the clients of VP Bank for their abiding loyalty and trust. 

And special thanks go to you, our valued share- holders, for your support and confidence in our work. We shall continue to do our utmost to enhance the financial well-being of our clients and, hence, the value of your investment in VP Bank. 

Fredy Vogt

Chairman of the Board of Directors