Strategic orientation of VP Bank

VP Bank stands by its medium-term goals. The aim is to achieve an annual 5 per cent increase in net new money on the basis of client assets under management, a cost/income ratio of at most 65 per cent, and a core capital ratio of at least 16 per cent.

The organisation of VP Bank is focused on segments and specialised fields, the ultimate responsibility for which is appropriately allocated to the various members of Group Executive Management (GEM). As a concrete response to the changed regulatory and market conditions, the Board of Directors has reinforced the client orientation of the entire organisation. At the outset of 2014, the units that deal directly with clients were combined to create a new organisational unit, “Client Business”. Going forward, this reorganised structure will consist of three – instead of the previous four – organisational units. 

With this streamlined set-up, the relevant processes and responsibilities will be simplified and better co­ordinated, and the reaction times will be reduced. The elimination of redundancies is another significant dimension of this new organisational structure. Client focus will be intensified even more through greater Group-wide collaboration and the bundling of com­petencies, which in turn increases efficiency and contributes to enhanced enterprise value.

Management structures must be flexible enough to enable a rapid response and adaptation to changing market conditions as well as to ensure effective implementation of the strategy. As a result of the recent organisational adjustments, VP Bank Group now has a lean, client- and marketing-oriented management structure that is aligned with the needs of the market. A broadly based second-level management team of 19 individuals is ready to support the streamlined GEM in its activities. 

As of 1 January 2014, the function of Executive Management at the head office in Vaduz has been accorded to the GEM in the form of a personnel union. The former Executive Management members will now devote their efforts fully to growing their areas of responsibility – Private Banking Liechtenstein, Intermediaries and Commercial Banking.

Liechtenstein is VP Bank’s home and shapes its cor­porate culture. Through clearly defined local respon­sibilities and a regionally tailored structure, the Vaduz locality is of central significance to the identity and business approach of the entire Group. At the same time, a further internationalisation of VP Bank’s culture is being pursued.

VP Bank’s primary strategic goal is to achieve profit­able growth as a Group from its activities in the defined target markets and target segments, and thereby preserve the Bank’s independence. Cost consciousness remains an important topic. Through revenue and hence earnings growth, combined with a lower than average increase in costs, a sustainable increase in profits is being strived for. A significant role will be played in this regard by the satellite locations of VP Bank, which in future are expected to contribute more than ever before to the growth of the Group. All Group companies are firmly established and no longer in the build-up phase. For instance, the Bank’s youngest office – Singapore, which was opened just more than five years ago – also managed to reach the breakeven level in 2013.

In the financial services industry, a consolidation phase is underway and taking advantage of promising, well-suited opportunities is a central element in VP Bank’s quest to achieve its growth objectives. Thus various projects were examined in 2013, but they need to fit ideally with the strategy of VP Bank Group. With the takeover of the private banking activities and private banking-related fund business of HSBC Trinkaus & Burkhardt (International) SA in Luxembourg, VP Bank exploited one of these attractive market opportunities in an effort to generate growth. In the future, VP Bank will continue to consider suitable acquisition projects.

The Bank’s medium-term planning envisages both organic growth and growth via acquisitions. The aim here is to achieve an average annual 5 per cent increase in net new money on the basis of client assets under management. VP Bank Group was unable to reach that target in 2013. Acquisitions met expectations, but the outflows in 2013, especially from European clients, remained at a relatively high level. This was attribut­able in particular to the many issues surrounding the tax transparency process which VP Bank Group is resolutely implementing.

For VP Bank, growth means winning new clients in its target markets and pressing further ahead with the qualitative growth of client assets under management. To that end, markets, client segments, as well as products and services are being subjected to close analysis at all of the Bank’s locations.

In this regard, a prudent approach to dealing with risk is a core principle of VP Bank. The Bank’s internal control system (ICS) is continuously broadened and helps to steer operational risks efficiently. Further information can be found in the “Risk management at VP Bank Group” section of this annual report.

In the private banking sector, VP Bank focuses on the mid-range wealth segment. As a part of this, the offerings are being expanded for existing clients, for example via innovative forms of communication such as e-Channelling. Greater emphasis is also being placed on VP Bank’s decades of investment competence.

The intermediaries business offers interesting growth opportunities. VP Bank wants to increase the number of partnerships it has with this target group and make new models available for their use – for example expanded platforms that provide banking services, training courses, research, crossborder and compliance know-how, as well as investment controlling, all of which are already available in-house and are to be offered to a broader circle of clients.

VP Bank continues to see great chances for winning new clients in the Asia-Pacific region. Accordingly, the Hong Kong and Singapore offices are charged with developing the local Asian business. In terms of Asia, VP Bank attaches great importance to the organic growth to be achieved in the intermediaries business.

Another region where growth can be generated is Central and Eastern Europe. Here, VP Bank is con­centrating mainly on Eastern Europe, where, via its representative office in Moscow, the Group offers the competencies of specialist teams based at its Zurich and Vaduz locations.

Luxembourg is a financial centre for international investors. The Grand Duchy has been specialised for years in the pan-European fund distribution business and is the world’s second-largest fund centre behind the USA. VP Bank is the only Liechtenstein-based bank to be present in both the Luxembourg and Liechtenstein fund centres. It will further exploit that advantage through the aforementioned acquisition of HSBC Trinkaus & Burkhardt, broadening its fund competence parallel to the expansion of its private banking activities. 

The new legal requirements for alternative investment fund managers (AIFMs) are something that VP Bank views as a chance to win new clients. In 2013, the IFOS fund management company, a subsidiary of VP Bank Group, was the second financial institution in Liechtenstein to receive a full AIFM licence. It thereby has reinforced its role as one of the leading providers of fund-related services.

The Swiss financial centre is also of central importance to VP Bank. In 2013, an array of personnel and organis­ational changes were made at the Zurich subsidiary in order to increase the efficiency of its market cultivation efforts. 

Germany remains an important target market for VP Bank. Of primary interest are long-term relationships with clients who attach the greatest value to capital preservation. For 2014, a significant expansion of the advisory teams for German clients is planned.

After extensive internal clarifications, VP Bank (Schweiz) AG decided to participate in Category 2 of the US programme for settling the tax dispute between Swiss banks and the United States. This decision does not preclude a subsequent change to Category 3. VP Bank (Schweiz) AG focuses mainly on the Swiss and Eastern European markets and has neither conducted activities in the USA nor systema­t­ically acquired US clients. By taking this route, the Bank seeks to arrive at a rapid, sustainable and calcul­able solution that offers the greatest degree of legal certainty and the ability to assess risks. A corresponding provision was made in the 2013 financial statements for any potential claims that could arise from this matter.

The financial services industry has been confronted for years with the problem of higher cost structures and narrower margins. VP Bank is therefore highly cost-conscious.

Over the past two years, the process of identifying potential areas for cost savings was successfully completed. The measures associated with this programme, which had the goal of reducing the cost base to CHF 160 million by the end of 2013, were largely implemented. The related findings have flowed into what is now a disciplined, ongoing cost-management process.

By recording total operating expenses of CHF 168.0 million for the 2013 financial year, VP Bank Group failed to fully achieve this target. Exceeding the limit that VP Bank set for itself was attributable to a number of cost-intensive one-time effects (acquisition costs, Group-wide reorganisation and restructuring costs relating to managers, internal and external outlays in connection with the tax transparency process, as well as further successfully realised growth initiatives).

By divesting its various fiduciary companies in 2013, VP Bank pressed ahead with the organisational concentration on the Bank’s core business. That has not affected the Bank’s collaboration with fiduciaries, for whom a wide range of services is still offered.

VP Bank will think, appear and act as a group even more so than before. Potential areas for efficiency gains within VP Bank Group are being constantly investigated in order to ensure that the company as a whole remains successful.

In recent years, a focal point for the efficiency-enhancement measures has been IT and Group Oper­ations. With the “Avaloq” core banking software system, the Group has the latest IT infrastructure at all of its booking locations. It covers the entire spectrum of client needs. These targeted measures have led to considerable savings in IT and Group Operations processes. The task is now to gain the greatest possible efficiency for the entire Group from these investments and generate more volume for the existing platforms. 

Intercompany efficiency gains are also being sought by means of partnerships. Especially in the Liechtenstein financial centre, cooperative ventures afford a way of countering increasing costs. They enable the design of business models that are based on alliances. To that purpose, VP Bank maintains a policy of best-practice sharing with other banks in order to jointly utilise and optimise available resources. In the age of globalisation, a reciprocal transfer of know-how is advantageous for all parties involved.

Strategic partnerships are an important element of the Bank’s business model. VP Bank cooperates with the Liechtensteinische Landesbank (LLB) in the area of printing and shipment, as well as via a joint procurement company. VP Bank also leases one floor of the new LLB data processing centre, where it took up occupancy in the first half of 2013. The building was conceived and constructed specifically as an energy-efficient data processing centre. In this collaboration, the latest IT solutions and efficient data management are the main motivation for both partners. 

In the years ahead, VP Bank will also continue to examine the viability of partnerships and joint ventures.

Efficiency gains have created a further positive effect for VP Bank: the centralisation of routine work and the automation of certain procedures have led to heightened quality and enable a more precise analysis of all of the company’s processes. 

The planning, steering and controlling of enterprise-wide value chains is therefore gaining significance also for VP Bank. The coordination, integration and harmonisation of procedures place the emphasis on cross-functional business processes in an effort to achieve added value throughout the supply chain. 

To meet the goal of cost transparency and optimised cost structures, VP Bank has commissioned an external consulting firm to generate a benchmarking mechanism.

The rendering of private banking and financial advice is different today than it was just several years ago. Clients are better informed, more mobile and more demanding. And with those demands, the requirements profile for client advisors has also changed. Excellent, comprehensive client care is indispensable, yet it must also include specialist insight into tax law and finance, to name just one area. Asset management know-how alone is no longer sufficient. 

In this challenging environment, VP Bank wants to expand its client base. More and more, the tax transparency issue is taking centre stage. In order to advise clients even more competently, the Bank is redoubling its efforts in the area of professional training and continues to seek highly qualified advisors and advisory teams. Consequently, the focus is on acquiring new talents and broadening the spectrum of competencies. 

To achieve its strategic goals and increase its enterprise value, VP Bank use key performance indicators as a management instrument. Economic profit is the single most important benchmark for the success of value-oriented leadership. It expresses the total net income of VP Bank Group after deduction of the cost of capital. 

The Bank’s executives are supported by a management information system which, in addition to quantitative value drivers, also takes into account qualitative aspects. By combining strategic controlling with operative controlling, it can be ensured that the Group’s medium-term goals are being properly pursued via corresponding measures at the operating level. Broadly based, resolutely conducted corporate governance also represents a reliable guideline for all of the Bank’s management personnel. 

With its “Long Term Incentive Plan” (LTI), VP Bank has an element of the compensation system that bonds managers with the Bank and is tied to its sustained success over the long run. As a result, managers can enjoy the fruits of the company’s development as well as benefit from the appreciation of its stock price. The degree of their participation varies according to the actual success of VP Bank Group (see the “Corporate governance” section, and the “Compensation report” of this annual report).

A change to the compensation system is planned for 2014. 

The major emphasis in 2014 will be placed on intensified Group-wide collaboration, increased exploitation of synergies, a uniform manner of proceeding for VP Bank in its target markets, as well as a significantly more resolute bottom-line mindset. The effects of focusing on target markets and client segments in a tax-transparent environment, as well as a presentation on the trends, challenges and opportunities in the wealth management industry, also represented the kick-off for the “Apollo” project. This will involve a review of the strategy for client care at the head office in Vaduz and has the following objectives:

• Clear positioning in the private banking and inter­mediaries business fields
• Optimising the array of products and services for the various client segments 
• Identifying and exploiting the potential for additional efficiency gains