Segment reporting

VP Bank Group is divided into three business segments: Client Business Liechtenstein, Client Business International and the Corporate Center.

The business segment “Client Business Liechtenstein” encompasses international private banking and business with intermediaries located in Liechtenstein as well as the local universal banking and credit-granting businesses. It includes the units of VP Bank Ltd, Vaduz, which are in direct client contact. In addition, Group Investment, Product & Market Management and IFOS Internationale Fonds Service Aktiengesellschaft are allocated to this business segment.

The business segment Client Business International encompasses the private-banking business in international locations. VP Bank (Switzerland) Ltd, VP Bank (Luxembourg) SA, VP Bank (BVI) Ltd, VP Bank (Singapore) Ltd., VP Wealth Management (Hong Kong) Ltd. and VPB Finance S.A. are allocated to this business segment.

Corporate Center

The business segment “Corporate Center” is responsible for banking operations and the processing of business trans­actions. It encompasses the areas Group Operations, Group Information Technology, Group Finance & Risk, Group Treasury & Execution, Group Legal, Compliance & Tax, Group Human Resources Management, Group Communi­cations & Marketing and Group Business Development. In addition, those revenues and expenses having no direct relationship to the operating divisions, as well as consolidation adjustments are reported under the Corporate Center. Revenue-generating business activities of the segment Corporate Center are in connection with the Group Treasury function. The results of the Group’s own financial investments, the structural contribution and the changes in the value of interest rate hedges are reported in this segment.

Segment reporting follows the principle of branch accounting.

The organisational structure of VP Bank Group, which was amended as of 1 January 2014 in order to reinforce its focus on the requirements of the market, continued unchanged up to 31 December 2014. VP Bank Group consists of the three organisational units “Chief Executive Officer”, “Client Business” and “Chief Financial Officer & Banking Services”. 

As previously, the organisational unit “Client Business” is divided into the two business segments “Client Business Liechtenstein” and “Client Business International”. Both organisational units “Chief Executive Officer” and “Chief Financial Officer & Banking Services” are regrouped together under the business segment “Corporate Center”. 

The prior-year comparative figures for segment reporting were restated retroactively. 

The recharging of costs and revenues between the business units takes place on the basis of internal transfer prices, actual recharges or on prevailing market conditions. Recharged costs within the segments are subject to an annual review and are amended to reflect new economic conditions, where necessary. 

The recharging of costs and revenues between the business units takes place on the basis of internal transfer prices, actual recharges or on prevailing market conditions. Recharged costs within the segments are subject to an annual review and are amended to reflect new economic conditions, where necessary.

Discontinued operations were disclosed in the past under Client Business International (VP Bank and Trust Company (BVI) Limited) as well as under the Corporate Center (IGT Intergestions Trust reg.).

1. Annualised, average values.
2. Operating expenses / gross income minus other income and income from financial investments.

The 2014 pre-tax results increased year on year by CHF 0.7 million (1.6 per cent). In 2014, total operating income grew by CHF 6.3 million (5.4 per cent) over the comparable prior-year period. This growth is primarily the result of higher interest income from clients (10.4 per cent), but trading income (13.8 per cent) and income from commissions and services (1.7 per cent) also contributed to this positive result. Operating expenses could be reduced by CHF 2.0 million (2.9 per cent) to CHF 66.2 million resulting primarily from lower recharges from other segments as well as lower personnel expenses. In the business segment Client Business Liechtenstein, the intersegment recharges are based upon fixed internal transfer prices. Indirect costs for internal recharges are reported in the item “Services to/from other segments”. 

During 2014, the charge for valuation allowances, provisions and losses amounted to CHF 9.0 million (prior year: CHF 1.7 million). This was due to higher valuation allowances for credit risks. The gross margin improved to 64.4 basis points (prior year: 61.6 basis points). The cost/income ratio was 53.5 per cent and was thus lower than the prior-year com­parative value of 58.1 per cent. 

The segment encountered a minor outflow of client assets of CHF 0.2 billion. The inflows of new money arising from market-development activities could not be completely compensated for the outflows resulting from the regulatory environment as well as taxation-related issues. Client assets under management at 31 December 2014 totalled CHF 19.5 billion (31 December 2013: CHF 18.9 billion). The employee headcount of 147 positions at the end of 2014 was down by 9 positions over the prior year (156 positions). 

1. Annualised, average values.
2. Operating expenses / gross income minus other income and income from financial investments.

The pre-tax segment result in 2014 grew by CHF 9.0 million over the prior year 2013. Total operating income in 2014 could be increased year on year by 7.4 per cent to CHF 79.8 million (prior year: CHF 74.2 million). This increase also reflects the higher level of business volumes resulting from the acquisition of client assets in connection with the asset deal with HSBC Trinkaus & Burkhardt (International) SA, which positively impacted interest income from client-related activities (10.0 per cent) and income from commissions and services (5.8 per cent). Operating expenses grew marginally by CHF 0.3 million (0.5 per cent) to CHF 60.9 million (prior year: CHF 60.6 million). The increase results from general and administrative expenses relating primarily to the asset deal with HSBC Trinkaus & Burkhardt (International) SA. In spite of the asset deal with HSBC Trinkaus & Burkhardt (International) SA and the related assumption of employees, personnel expenses in 2014 could be reduced by CHF 0.4 million. 

In the business segment “Client Business International”, the recharging of services is based on actual invoices and recorded under general and administrative expenses. The increase in depreciation and amortisation results primarily from scheduled amortisation on the intangible assets acquired within the framework of the asset deal with HSBC Trinkaus & Burkhardt (International) SA. The charge for valuation allowances, provisions and losses could be significantly reduced to the extent of CHF 5.7 million. This amount includes, inter alia, the release of the provision set up in the prior year in connection with the US programme from which VP Bank (Switzerland) Ltd withdrew after exhaustive clarification. 

The gross margin declined to 69.6 basis points (prior year: 71.4 basis points). The cost/income ratio improved from 83.7 per cent to 79.3 per cent. 

The segment encountered a net outflow of client assets of CHF 0.6 billion during the reporting period. The inflows of new money arising from market-development activities could not compensate fully for the net outflows resulting from the regulatory environment as well as from a large outflow from a major client in the depositary-bank and investment-fund business. Client assets under management at 31 December 2014 amounted to CHF 11.4 billion (31 December 2013: CHF 11.5 billion). In spite of the assumption of employees in connection with the asset deal with HSBC Trinkaus & Burkhardt (International), the employee headcount of 257 positions (31 December 2013) was down by 10 positions to 247. 

In 2014, pre-tax results were CHF 42.0 million against CHF –14.8 million in the comparable prior-year period. Total operating income in 2014 declined by CHF 28.6 mil­- lion year on year mainly because of interest income which declined from CHF 35.7 million to CHF 9.1 million as a result in changes in the value of interest rate hedges. As VP Bank does not apply hedge accounting in accordance with IFRS, interest income also includes unrealised changes in value of interest rate hedges.

Income from commissions and services reflects a decline in income. This decline includes third-party bank commissions which are invoiced to front business units by the service units through internal recharging.

Trading income includes the receipts of Group Treasury & Execution, inter alia. This relates to income generated from the execution of client trades. This item also includes the results of derivatives employed to minimise risks as well as gains/losses from balance-sheet management activities.

The income from financial investments in 2014 amounted to CHF 10.6 million. The lion’s share thereof results from the income from FVTPL (fair value through profit and loss) secur­ities as well as interest and dividend income. In the 2013 prior-year period, this caption in the prior year had resulted in a gain of CHF 16.1 million.

Operating expenses of CHF 38.2 million remained under the prior-year level (2.6 per cent). As a result of the streamlining of the internal organisation in the Corporate Center, per­sonnel expenses in 2014 could be reduced year on year by CHF 2.8 million (5.2 per cent). Accordingly, in 2014 there was a lower level of internal recharges (CHF 37.1 million) than in 2013 (CHF 38.8 million).

Since the charge for depreciation and amortisation showed only a marginal change year on year, valuation allowances, provisions and losses ended the year with a net release of CHF 1.5 million. This release results from a decline in the item due from banks and in the corresponding associated credit risks. The personnel headcount increased marginally from 293 (31 December 2013) to 301 positions.