Consolidated Annual Report of VP Bank Group

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 at least 16 per cent 

In 2013, VP Bank Group achieved a pos­i­tive in­flow of new money. New client money in­flows of CHF 965 mil­lion (3.4 per cent of client as­sets un­der man­age­ment) were gen­er­ated. 

The cost/​in­come ra­tio in 2013 in­creased to 70.2 per cent (prior year: 62.8 per cent). Af­ter ad­just­ing for the non-re­cur­ring items in 2012, this equates to an im­prove­ment in the cost/​in­come ra­tio from 72.5 per cent to 70.2 per cent. At the same time, to­tal op­er­at­ing in­come grew by 1.8 per cent and ad­justed op­er­at­ing ex­penses fell by 1.5 per cent.

In 2013, the tier 1 ra­tio de­clined from 21.5 per cent to 20.4 per cent due to the in­crease in to­tal as­sets. VP Bank Group pos­sesses a very good start­ing point, com­pared with other fi­nan­cial in­sti­tu­tions, for its growth strat­egy, both or­gan­i­cally as well as by way of ac­qui­si­tions. The medium-term goal of at least 16 per cent which is far in ex­cess of the legally pre­scribed level, was again far ex­ceeded in 2013. 

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.

At the end of 2013, client as­sets un­der man­age­ment of VP Bank Group ag­gre­gated CHF 30.6 bil­lion. Com­pared with the prior year’s com­par­a­tive of CHF 28.5 bil­lion, this rep­re­sents an in­crease of 7.4 per cent. The per­for­mance- re­lated in­crease in client as­sets amounted to CHF 1.1 bil­lion, as a re­sult of the pos­i­tive de­vel­op­ment in mar­kets.

In to­tal, VP Bank Group recorded a net in­flow of new money of CHF 965 mil­lion (prior year: out­flow of client money of CHF 192 mil­lion). This pos­i­tive de­vel­op­ment is based in parti­cu­lar on the ac­qui­si­tion of client as­sets ag­gre­gat­ing CHF 2.0 bil­lion in con­nec­tion with the HSBC as­set deal. Through suc­cess­ful mar­ket-de­vel­op­ment ac­tiv­i­ties, VP Bank Group was able to counter the net out­flow in client money within the ex­ist­ing busi­ness. As a re­sult of reg­u­la­tory changes, in parti­cu­lar tax-re­lated is­sues as well as a large out­flow from a third-party in­vest­ment fund, these in­flows gen­er­ated from the ex­ist­ing busi­ness were not able to fully com­pen­sate for the out­flows.

Cus­tody as­sets in­creased by 2.0 per cent to CHF 9.0 bil­lion (prior year: CHF 8.8 bil­lion). 

As of 31 De­cem­ber 2013, client as­sets in­clud­ing cus­tody as­sets to­talled CHF 39.6 bil­lion (prior year: CHF 37.3 bil­lion). 

The year-on-year com­par­i­son of cer­tain items is ham­pered by the one-off ef­fects to­talling CHF 22.8 mil­lion in 2012, aris­ing from the con­ver­sion of the pen­sion fund from a ben­e­fit-de­fined to a con­tri­bu­tion-de­fined scheme in the po­si­tions of per­son­nel ex­pense and Group net in­come. In ad­di­tion, the prior-year com­par­a­tive fig­ures were re­stated as a re­sult of the spin-off of the trust and fidu­ciary com­pa­nies com­pleted in 2013 and do not agree with those re­ported in the 2012 fi­nan­cial state­ments. 

Year-on-year, to­tal op­er­at­ing in­come in­creased by 1.8 per cent from CHF 235.2 mil­lion to CHF 239.4 mil­lion. In­ter­est in­come rose year-on-year by CHF 3.4 mil­lion to CHF 86.9 mil­lion. Net in­ter­est in­come from banks and cus­tomers recorded a de­cline of CHF 11.6 mil­lion in com­par­i­son to the prior year, which could be par­tially off­set by in­ter­est-rate swaps. These in­ter­est-rate swaps are de­ployed to hedge in­ter­est-rate risk pri­mar­ily on long-term client loans. As a re­sult of an in­creas­in­gly pos­i­tive mar­ket sen­ti­ment and higher stock-ex­change turnover, in­come from com­mis­sions and ser­vices in­creased by 5.6 per cent to CHF 114.1 mil­lion. Both net bro­ker­age in­come with a growth of 12.4 per cent and as­set-man­age­ment and in­vest­ment com­mis­sions with a growth of 4.7 per cent are a wel­come in­crease over the prior year. In ad­di­tion, com­mis­sions from the in­vest­ment-fund busi­ness show an in­crease of CHF 3.2 mil­lion to CHF 56.1 mil­lion over the com­par­a­tive prior-year fig­ures (CHF 52.9 mil­lion).

In­come from trad­ing ac­tiv­i­ties in 2013 de­clined by 7.7 per cent from CHF 22.1 mil­lion to CHF 19.5 mil­lion. Trad­ing on be­half of clients in­creased by 9.3 per cent to CHF 24.9 mil­lion (prior year: CHF 22.7 mil­lion). In­come from trad­ing ac­tiv­i­ties fell par­tic­u­larly as a re­sult of reval­u­a­tion losses on hedges for eq­uity se­cu­ri­ties from CHF –1.6 mil­lion in the prior year to CHF –5.4 mil­lion in 2013. These changes in val­ues aris­ing from hedges are off­set by reval­u­a­tion gains/​losses in the hedged un­der­ly­ing po­si­tions.

Gains from fi­nan­cial in­vest­ments of CHF 16.3 mil­lion (prior year: CHF 19.5 mil­lion) were gen­er­ated in 2013. The ma­jor part thereof re­sults from reval­u­a­tion gains on eq­uity se­cu­ri­ties, on the one hand, and in­ter­est, on the other. 

Money mar­ket

Cap­i­tal mar­ket 

Forex rates

Thanks to con­sis­tent cost dis­ci­pline, op­er­at­ing ex­penses fell by 1.5 per cent to CHF 168.0 mil­lion in the prior year, af­ter ad­just­ing for one-off items. 

At the end of 2013, VP Bank Group had 706 (prior year: 707) em­ploy­ees, ex­pressed as full-time equiv­a­lents. With the strate­gic re­fo­cus­ing on the mid­dle pri­vate-bank­ing seg­ment, 32 em­ploy­ees were trans­ferred from HSBC as part of the as­set deal or were ad­di­tion­ally re­cruited. On the other hand, 28 em­ploy­ees were trans­ferred out to the trust and fidu­ciary com­pa­nies sold as part of the strate­gic spin-off of the Group’s own trust and fidu­ciary en­ti­ties.

Year-on-year, per­son­nel ex­pense rose by CHF 20.9 mil­lion, or 20.7 per cent to CHF 122.0 mil­lion. Af­ter ad­just­ing in 2012 for the non-re­cur­ring im­pact of the con­ver­sion of the pen­sion fund from a de­fined-ben­e­fit to a de­fined-con­tri­bu­tion scheme as well as the early adop­tion of the re­vised stan­dard IAS 19, per­son­nel ex­pense fell year-on-year by CHF 1.9 mil­lion, or 1.5 per cent. Gen­eral and ad­min­is­tra­tive ex­penses could be re­duced in 2013 by 1.5 per cent from CHF 46.7 mil­lion to CHF 46.0 mil­lion. As a re­sult of the HSBC as­set deal and of ex­penses in­curred in con­nec­tion with the par­tic­i­pa­tion of VP Bank (Switzer­land) Ltd. in the US tax pro­gramme, pro­fes­sional fees paid dur­ing the year rose from CHF 6.1 mil­lion to CHF 8.0 mil­lion.

The charge for val­u­a­tion al­lowances, pro­vi­sions and losses amounted to CHF 6.4 mil­lion (prior year: CHF 7.2 mil­lion). The re­duc­tion re­lates in par­tic­u­lar to the de­cline in credit risks. In ad­di­tion, no longer re­quired val­u­a­tion al­lowances of CHF 4.0 mil­lion (prior year: CHF 8.1 mil­lion) could be re­leased to in­come. On the other hand, pro­vi­sions for le­gal and lit­i­ga­tion risks in­creased by CHF 2.3 mil­lion to CHF 3.3 mil­lion. CHF 3.0 mil­lion was ac­crued for a pos­si­ble fine in con­nec­tion with the par­tic­i­pa­tion of VP Bank (Switzer­land) Ltd. in the US tax pro­gramme. 

Group net in­come, in­clud­ing in­come from dis­con­tin­ued op­er­a­tions, amounts to CHF 38.7 mil­lion (prior year: CHF 47.2 mil­lion). As a re­sult of the sim­pli­fi­ca­tion of the struc­ture for VP Bank and Trust Com­pany (BVI) Lim­ited in Tor­tola, there are no longer any non-con­trol­ling in­ter­ests in the Group as of 31/​12/​2013. The undi­luted Group net in­come per bearer share fell from CHF 8.37 to CHF 6.58 dur­ing the 2013 re­port­ing pe­riod. Af­ter ad­just­ing for non-re­cur­ring items in 2012, an in­crease from CHF 4.42 to CHF 6.58 could be achieved. 

To­tal as­sets of CHF 11.2 bil­lion in­creased by 5.3 per cent year-on-year. On the as­sets’ side, cash and cash equiv­a­lents in­creased markedly to CHF 1,377.4 mil­lion (31/​12/​2012: CHF 927.0 mil­lion), which con­sti­tutes a very com­fort­able liq­uid­ity level of VP Bank. This is to be as­cribed, in­ter alia, to the re­duc­tion of amounts due from banks (mi­nus CHF 287.0 mil­lion) and ad­di­tional amounts due to clients on the li­a­bil­i­ties’ side amount­ing to CHF 9.6 bil­lion (prior year: CHF 9.0 bil­lion). 

As a re­sult of the cur­rent sit­u­a­tion on the real-es­tate mar­ket and on­go­ing low in­ter­est rate pe­riod, VP Bank con­tin­ues to fo­cus on qual­i­ta­tive growth in cus­tomer loans and on a high level of dis­ci­pline and con­trol over credit grant­ing. Since the be­gin­ning of 2013, loans to cus­tomers have risen by CHF 213.4 mil­lion to CHF 3.9 bil­lion, whereby mort­gage loans recorded an in­crease of 5.7 per cent to CHF 2.8 bil­lion. 

Fi­nan­cial in­stru­ments val­ued at amor­tised cost in­creased by CHF 273.6 mil­lion from CHF 502.6 mil­lion in the prior year to CHF 776.2 mil­lion in 2013 (plus 54.5 per cent).

Con­sol­i­dated share­hold­ers‘ eq­uity at the end of 2013 amoun­t­ed to CHF 888.7 mil­lion (end of 2012: CHF 888.8 mil­lion). As VP Bank no longer has any non-con­trol­ling in­ter­ests, this amount cor­re­sponds to the eq­uity re­sources of Ver­wal­tungs- und Pri­vat-Bank Ak­tienge­sellschaft. In the prior year, share­hold­ers’ eq­uity, af­ter de­duct­ing non-con­trol­ling in­ter­ests, stood at CHF 871.1 mil­lion. As of 31 De­cem­ber 2013, the tier 1 ra­tio was 20.4 per cent (prior year: 21.5 per cent).

The cap­i­tal mar­ket en­vi­ron­ment re­mains chal­leng­ing. Af­ter con­sid­er­able gains in al­most all as­set classes dur­ing re­cent years, in­di­vid­ual in­vest­ment cat­e­gories should de­velop in dif­fer­ing di­rec­tions. In­ter­est in­come on deben­tures will be in­flu­enced by the in­crease in yields. Eq­uity val­ues are no longer cheap and fur­ther gains will be achieved at the price of in­creased volatil­ity. The con­tin­u­ing scarcity of in­vest­ment op­por­tu­ni­ties as well as mon­e­tary poli­cies will also greatly in­flu­ence mar­ket de­vel­op­ments in fu­ture. 

The process of trans­for­ma­tion in the ar­eas of tax trans­parency as well as the au­to­matic ex­change of tax in­for­ma­tion are de­vel­op­ments which will be of great con­cern to VP Bank in the com­ing years. The pres­sure from reg­u­la­tors in the fi­nance sec­tor will con­tinue un­abated at a high level. VP Bank Group is well equipped for in­ten­sive com­pe­ti­tion. It re­sponds to the de­mands with con­crete mea­sures and is con­tin­u­ing on the path to a suc­cess­ful fu­ture with­out de­vi­a­tion. 

Money mar­ket

Cap­i­tal mar­ket 

Forex rates