Statement by the Chairman of the Board and the Chief Executive Officer

Dear Shareholders
Ladies and Gentlemen

The 2015 financial year was marked by a significant gain in Group net income to a total of CHF 64.1 million (previous year: CHF 20.0 million), thanks in large part to the merger with Centrum Bank AG.

However, the abandonment of the 1.20 “floor” for the euro/Swiss franc exchange rate presented banks with a tremendous challenge. Moreover, the Swiss National Bank’s (SNB) introduction of negative interest charges only exacerbated the problems caused by the strong Swiss franc.

Gratifying annual results

For the 2015 financial year, VP Bank Group recorded conso­li­dated net income of CHF 64.1 million after having earned a profit of CHF 20.0 million in the previous year. 

On an annualised basis, total net operating income rose by 37.7 per cent, from CHF 222.7 million to CHF 306.6 mil­lion. This CHF 83.9 million increase is largely attributable to VP Bank’s merger with Centrum Bank. Factoring out the effects of “purchase price allocation”, total net operating income amounted to CHF 256.6 million. Operating expenses increased versus the previous year by CHF 16.8 million, i.e. from CHF 165.3 million to CHF 182.1 million, entirely in line with the strategic orientation of VP Bank Group and the amalgamation of Centrum Bank.

Client assets under management grew by 12.4 per cent, from CHF 30.9 billion to CHF 34.8 billion. In 2015, VP Bank Group registered a net new money inflow of CHF 6.0 billion (previous year: net outflow of CHF 0.9 billion), of which a net CHF 6.3 billion is attributable to the merger with Centrum Bank (CHF 6.7 billion upon the takeover, less the anticipated CHF 0.4 billion outflows in 2015). In the operative business, net outflows of CHF 0.3 billion were recorded, whereas that amount needs to be viewed against the backdrop of a challenging regulatory environment and tax-related issues. Nonetheless, thanks to our intensive market-cultivation efforts especially in the Asia region, we were able to attract sizeable inflows of new money. 

At 31 December 2015, VP Bank’s tier 1 ratio calculated in accordance with the provisions of Basel III stood at a lofty 24.4 per cent (31 December 2014, in keeping with Basel II rules: 20.5 per cent).

Dividend increase to be proposed

At the annual general meeting on 29 April 2016, the Board of Directors will propose a dividend of CHF 4.00 per bearer share (previous year: CHF 3.00) and CHF 0.40 per registered share (previous year: CHF 0.30). This proposed dividend reflects the dividend policy adopted by the Board of Direct­ors: VP Bank strives to maintain a consistent approach to dividend distributions with the aim of paying out 40 to 60 per cent of its annual net income to shareholders. The newly proposed dividend is based on the Bank’s higher net income of CHF 64.1 million.

In the summer of 2015, the Board of Directors adjusted the strategic orientation of VP Bank Group. “Strategy 2020”, as it is referred to, defines three key areas of emphasis: growth, focus and culture.

The merger with Centrum Bank AG in Liechtenstein represents a significant growth driver; the amalgamation was successfully completed by the beginning of 2016. 

We also strengthened our strategically important intermedi­aries business by restructuring those operations and centra­l­ising Group-wide specialist responsibility for the related activities. As to our growth efforts, emphasis will be placed on internationalising VP Bank Group even further as well as pressing ahead with the client-oriented digitalisation and automation of internal processes.

The activities associated with a sharpened focus include farreaching measures aimed at reducing internal complexities as well as adapting and enhancing VP Bank’s range of services. During the course of the past year, the Luxembourg facilities were fully integrated into the existing, proven Group-wide processes. This now helps us to exploit even more synergies and avoid redundancies within VP Bank Group. Another measure for leveraging synergy effects was to be seen in the consolidation of the Group’s entire fund know-how under one roof: “VP Fund Solutions”.

Great importance was also attached to the strengthening of VP Bank’s advisory competence. In the second half of 2015, the client advisor teams augmented their skills by participating in a certification course.

On 31 August 2015, Standard & Poor’s reconfirmed its excellent “A–” rating (A–/Negative/A–2) for VP Bank Group, thereby attesting to the outstanding creditworthiness of our Bank. In their report, Standard & Poor’s underscored not only VP Bank’s superior capital base, but also its stable client deposits and shareholder structure. This strong and steady “A–” vouches for our solid, successful business model.

Further details on our strategic orientation and positioning can be found in the section “The organisational structure of VP Bank Group”.

Until mid-2015, our defined medium-term targets were a tier 1 ratio of at least 16 per cent, a cost/income ratio of 65 per cent, and an average annual 5 per cent increase in net new money. In connection with our “Strategy 2020”, we reassessed those targets.

This exercise resulted in several significant adjustments. At the end of 2014, the legally prescribed minimum core capital ratio was 8 per cent; VP Bank’s tier 1 ratio was more than twice that amount. Given that Liechtenstein’s Financial Market Authority now deems VP Bank to be “system relevant”, the corresponding equity capital requirement under Basel III (CRD IV – Capital Requirement Directive) increased as of February 2015 to 13 per cent. Hence a medium-term goal of at least 16 per cent no longer represents an added value for investors and clients; by the same token, an increase of the currently targeted ratio would unnecessarily limit the financial leeway for, say, acquisitions.

As already indicated in our semi-annual report 2015, the Board of Directors has set new medium-term targets for the period ending 31 December 2020, namely:

• CHF 50 billion in client assets under management; 
• CHF 80 million in consolidated net income; and
• a cost/income ratio of less than 70 per cent.

At the end of 2015, assets under management totalled CHF 34.8 billion (previous year: CHF 30.9 billion) and total net income amounted to CHF 64.1 million (2014: CHF 20.0 million). The cost/income ratio on 31 December 2015 was 59.4 per cent (previous year: 74.2 per cent). Our growth initiatives, disciplined use of available resources, exploitation of synergy opportunities and strict cost controls will help us to achieve the aforementioned goals for 2020.

In connection with the merger of Centrum Bank AG and VP Bank Ltd, the “Marxer Stiftung für Bank- und Unternehmenswerte” foundation – which prior to the merger was the sole shareholder of Centrum Bank AG – acquired a CHF 60 million financial interest in VP Bank. In total, 700,653 bearer shares with a par value of CHF 10.00 were newly created. To that purpose, the Board of Directors of VP Bank conducted on 10 April 2015 an extraordinary general meeting of shareholders, where approval was granted for a capital increase with no pre-emptive rights for existing shareholders. From its own treasury holdings, VP Bank contributed 55,302 bearer shares. 

As a consequence of this capital increase, the “Marxer Stif­tung für Bank- und Unternehmenswerte” foundation now holds 11.4 per cent of the equity capital and 6.3 per cent of the voting rights of VP Bank. By adding this foundation to its circle of stable anchor shareholders, VP Bank has yet another institutional mainstay that endorses the business model of VP Bank Group and backs its strategic goals.

At the ordinary annual general meeting on 24 April 2015, shareholders authorised the Board of Directors to acquire by 22 April 2020 VP Bank bearer and registered shares in a maximum amount of 10 per cent of the outstanding equity capital. The Board subsequently decided to make two fixed-price public tender offers during the course of the year, each for a maximum of 5 per cent of the Bank’s equity capital. The first buyback of bearer and registered shares was successfully completed on 3 July 2015; the second on 28 October 2015. In total, 599,192 bearer shares and 124,280 registered shares were repurchased in connection with these tender offers. The average price paid in both of the buyback programmes was CHF 83.00 per bearer share and CHF 8.38 per registered share.

Upon conclusion of the second tender offer, VP Bank held a total of 601,500 of its own bearer shares and 125,912 of its own registered shares. This is equivalent to a 9.28 per cent proportion of the Bank’s outstanding equity capital and 6.05 per cent of the voting rights. The repurchased shares are to be used for future acquisitions or treasury manage­ment purposes. As no shares were cancelled in this process, the equity capital and voting rights proportions remain unchanged. At the end of 2015, the treasury held 594,774 bearer shares and 125,912 registered shares of VP Bank. The slight reduction in the former figure is attributable to shares granted in connection with various management equity participation programmes. Details in this regard can be found in the “Compensation report”.

In March 2015, VP Bank conducted a public offering of bonds in the amount of CHF 200 million. This was accomplished in two tranches: one maturing in 6 years, and the other in 9.5 years. By having issued these bonds, VP Bank has at its disposal the means to refinance its long-term credit business. The bonds also serve as a precaution against a potential rise in interest rates.

Nurturing relationships with shareholders and interested parties is one of our primary missions. Again in 2015 we conducted numerous discussions with investors, shareholders and analysts. The 2nd annual VP Bank Investor Day was held in May 2015. The keynote speaker was Adrian Hasler, Head of Government of the Principality of Liechtenstein.

On the basis of our strategy and medium-term goals for 2020, VP Bank is adapting its organisational and leadership structures as well as apportioning the individual tasks within Group Executive Management in a more focused manner. At the same time, the altered organisational and structural requirements associated with the Centrum Bank merger, as well as the ever-changing economic and regulatory conditions, are being taken into account. For instance, the provisions of Basel III require amongst other things that an independent risk management body be in place and remain totally separate from the operative business areas in order to preclude the possibility that conflicts of interest arise in daily business activities.

On 15 January 2015, the Swiss National Bank announced that it would cease to defend the CHF 1.20 “floor” versus the euro; simultaneously, the central bank shifted its 3-month Libor target band and introduced a 0.75 per cent negative interest charge on deposits it holds for commercial banks. These measures caused an immediate upheaval in the money and forex markets. The Swiss franc appreciated dramatically within the space of minutes, and CHF interest rates in general are now at record lows – in many instances, even in negative territory.

The SNB’s decision has had a direct impact on business developments at VP Bank. A considerable portion of our client assets under management is allocated to investments deno­m­inated in foreign currencies. So when expressed in Swiss francs, the value of those assets declined in a heartbeat as a result of the moves on the part of the Swiss National Bank. If one takes a closer look at our cost and income structure, it becomes clear that the expenses in Swiss francs are higher than the revenues in Swiss francs. 

In order to cushion these adverse effects on VP Bank’s profit­ability, immediate measures were taken, including commen­surate interest-rate adjustments and increased margins on new and prolonged mortgage loans. On the expense side, further cost reductions were initiated and implemented during the course of 2015.

The increasing regulatory pressure continues to pose a challenge also for VP Bank Group, and it exerts a tremendous influence on banking activities in general. 2015 was marked by yet another series of significant changes to the rules and regulations.

The Basel III package of reforms is aimed at strengthening the resilience of financial institutions and the banking system as a whole against internal shocks as well as upheavals in the real economy. At the EU level, Basel III is being implemented via the CRD IV ordinances. The European rules have been adopted in Liechtenstein through a revision of the Banking Act and various other norms. The CRD IV package has been in force in the Principality since 1 February 2015. In close coordination with the Financial Market Authority (FMA) of Liechtenstein and the Liechtenstein Bankers Association (LBA), the local banks implemented these new requirements mainly in the 2015 financial year. 

In that VP Bank is considered by the FMA Liechtenstein to be domestically system-relevant, the Bank must also fulfil more extensive requirements. Apart from quantitative criteria such as a higher equity capital buffer, minimum liquidity standards and the introduction of a maximum debt-to-equity ratio, the reform package also includes an array of qualitative criteria. These apply mainly to the principle of good corporate governance and also cover aspects relating to internal organ­isation, special requirements for the Board of Directors and senior management, as well as the formation of Board committees. 

Again in 2015, Liechtenstein concluded a number of inter­national tax treaties. Of particular note is the comprehensive, OECD-consistent dual tax agreement between Switzerland and the Principality of Liechtenstein, which was signed on 10 July 2015. It is scheduled to take effect on 1 January 2017. However, the pact does not address the automatic exchange of information in tax matters (AEOI).

In November 2015, the Liechtenstein parliament adopted the Automatic Exchange of Information Implementation Act, thereby establishing the legal foundation for introducing the related OECD minimum standard. Accordingly, Liechtenstein and the EU member states will start to compile bank- account-related data as of January 2016 and exchange that information automatically as of 2017. In consequence, the EU savings tax agreement will be abrogated. The AEOI agreement represents an important milestone in the realisation of Liechtenstein’s tax and financial centre strategy.

Implementation of the EU Markets in Financial Instruments Directive (MiFID II) is scheduled to commence in Liechtenstein as of January 2017. Here, the primary aim is to boost investor protection. Amongst other things, MiFID II will entail a revamp of the investment advisory and asset management processes as well as increased requirements for documenting client discussions and providing more detailed information on financial instruments. At present, the enactment of the implementing provisions is being discussed intensely at the European institutional level. MiFID II is to take effect one year later than originally planned, i.e. now as of January 2018.

Further details on the regulatory environment can be found in the section “Legislation and supervisory authorities in Liechtenstein”.

At the 52nd annual general meeting of VP Bank on 24 April 2015, Fredy Vogt was re-elected to the Board of Directors for a further three-year term of office, and at the subsequent Board meeting was confirmed as Chairman of the Board of Directors.

Dr Florian Marxer was elected as a new member of the Board. Dr Florian Marxer is a trustee of our anchor shareholder, “Marxer Stiftung für Bank- und Unternehmenswerte” foundation, and from 2011 through 2014 was chairman of the board of Centrum Bank AG. He is a partner at Marxer & Partner Attorneys at Law, as well as a board member of Confida Holding AG in Vaduz and Belvédère Asset Management AG in Zurich. 

In light of VP Bank’s declared strategic goals and the ever-changing circumstances in the banking world, the Board of Directors has resolved to propose at the annual general meeting on 29 April 2016 that Dr Christian Camenzind, lic. iur. Ursula Lang and Dr Gabriela Maria Payer be elected to the Board of Directors. This is aimed at reinforcing the Board’s existing skillset, even as it lays the groundwork for far-sighted succession planning.

Dr Guido Meier, Vice Chairman of the Board of Directors since 2001, will not stand for re-election and intends to step down from the Board at the annual general meeting on 29 April 2016. He was first elected to the Board in 1989 as a representative of VP Bank’s largest anchor shareholder, Stiftung Fürstl. Kommerzienrat Guido Feger. Dr Guido Meier has been a member of the Committee of the Board of Directors and is currently a member of the Nomination & Compensation Committee. During his 27-year affiliation with VP Bank, he saw to the well-being of the Bank in keeping with the desire of the foundation’s benefactor, Guido Feger, was an active functionary on the Board of Directors and its committees, and in particular fostered the successful and sustainable deve­l­opment of VP Bank. He stood out especially for his resolute client orientation and profound knowledge of the interme­di­aries and private banking business. Of equal importance to him were the employee leadership and corporate culture at VP Bank. The Board of Directors thanks Dr Guido Meier sincerely for his tremendous commitment to VP Bank and wishes him all the best for the future.

VP Bank is a system-relevant bank in Liechtenstein and therefore, in compliance with the requirements under Basel III, is obliged by the Regulator to divide its previously combined Audit & Risk Management Committee into two discrete corporate bodies. As a result, the Board of Directors on 1 November 2015 established an Audit Committee presided over by Michael Riesen, as well as a Risk Committee presided over by Dr Daniel H. Sigg. 

For effect as of 1 January 2016, the “Chief Operating Officer” organisational unit was created to supplement the organi­sational units in existence prior to 31 December 2015. The Board of Directors of VP Bank Group designated Martin C. Beinhoff as a new member of Group Executive Management and appointed him Chief Operating Officer and head of the new unit. He has vast experience in the banking industry.

Developments at the international level make it necessary to provide more transparency on the ownership structure of legal entities. The Board of Directors of VP Bank shall therefore propose at the annual general meeting on 29 April 2016 that the Bank’s bearer shares be converted into registered shares. The listed bearer shares of VP Bank (par value CHF 10.00) would then be exchanged for “A”-class registered shares with the same par value. The existing unlisted registered shares (par value CHF 1.00) are to remain unchanged but be referred to as “B”-class shares. Also in future, the latter will not be listed on the stock exchange. Completion of the conversion is scheduled for early May 2016.

Apart from the integration of Centrum Bank AG into VP Bank Group, 2015 was a year devoted to the topics of efficiency enhancement and cost management. The related projects were all successfully completed by year’s end so that we now have a lean and efficient organisation. In 2016, the task is to exploit these new advantages and synergies in the most profitable way. 

Compliance with the due diligence requirements pertaining to the tax conformity of clients is something we view as a particularly important task also in the years ahead. VP Bank continues to help its existing clients achieve tax conformity. In addition, measures are gaining traction so that business relationships stay within the scope of application of the AEOI.

Growth of course remains a key topic at VP Bank: it will come from the continuing effort to enhance the quality of our client service and the augmentation of highly experi­enced teams, especially in Asia. We will also take advantage of market opportunities as they open up in order to invest in growth through acquisition. In this regard, we will keep a watchful eye mainly on our target markets of Liechtenstein, Switzerland and Luxembourg.

Our special focus in 2016 will be on the further development of VP Bank’s fund activities as well as on strengthening our position in the intermediaries business. In view of the increasingly sophisticated demands of clients and the markets, we want to press ahead with the expansion of our international business and the continued development of new digital banking services. Moreover, we have identified various areas where the complexities and hence the costs of rendering the related services can be reduced.

All of these measures will help to reinforce the already solid foundation of VP Bank Group.

A word of thanks

In April 2016, VP Bank will celebrate its 60th anniversary. What once was a familiar local bank nestled in the alpine Principality of Liechtenstein is today a dynamic, globally active provider of financial services. We can look back with pride on that heritage. The illustrations placed throughout this annual report will take you on a tour of the major milestones in the history of our VP Bank Group.

Our clients and employees are the people who have made us a successful international banking group. And they deserve our very special thanks for their ardent support of VP Bank over the decades. Closeness to the client, reliability and personalised, first-class service will remain our guide as we proceed together into the future.

We would also like to express our special thanks to VP Bank’s shareholders for the trust they have placed in us. We shall do everything in our power to sustain that trust in the years ahead.