Consolidated annual report of VP Bank Group

In 2017, the Group net income could be increased markedly over that of the preceding year and a very high level of net new money inflows was recorded. The interest-rate environment was characterised by on-going low to negative interest rates. A positive sentiment prevailed on stock markets and as a result, the most important stock-market indices gained appreciably during the past year. At the same time, the introduction of new regulatory provisions at home and abroad weighed on resources in the banking segment. VP Bank held its ground very well in this demanding environment.

The 2017 consolidated financial statements of VP Bank Group prepared in accordance with International Financial Reporting Standards (IFRS) reported a Group net income of CHF 65.8 million. In the prior year, an income of CHF 58.0 million had been achieved. The 2017 Group net income could thus be clearly increased by CHF 7.8 million or 13.4 per cent over that of the prior year. This result in 2017 was impacted in particular by two non-recurring items: in the first half year of 2017, a provision amounting to CHF 10.9 million was recognised for the settlement with the authorities of North Rhine-Westphalia. In the second half of the year, the earnings benefited from the lowering of the rate of conversion of the pension fund leading to a reduction of personnel expense of CHF 10.1 million. Ignoring these two non-recurring items, the 2017 Group net income was CHF 66.6 million and thus CHF 8.6 million clearly more than the prior year’s Group net income (plus 14.8 per cent). 

A very high level of net new client money totalling CHF 1.9 billion (prior year: CHF 0.0 billion) could be achieved for 2017, and the heartening trend of the first half year could be continued in the second half of the year. This resulted from reinforced market-development activities and implemented growth initiatives as well as the recruitment offensive of new senior client advisors. 

Having regard to the annual results and the balanced long-term dividend policy, the Board of Directors will propose to the Annual General Meeting to be held on 27 April 2018, an increase of the dividend to CHF 5.50 (prior year CHF 4.50) per registered share A and to CHF 0.55 (prior year CHF 0.45) per registered share B.

Year-on-year, operating income rose by CHF 26.9 million (plus 9.8 per cent) from CHF 273.2 million to CHF 300.1 million in 2017. 

In spite of the negative interest-rate environment, interest income could be increased by CHF 2.1 million or 2.0 per cent to CHF 104.4 million through the active balance-sheet management, margin adjustments, increase in volumes and higher US dollar interest rates in comparison to the previous year. Based upon risk/return considerations, client deposits denominated in foreign currencies were, in part, no longer placed on the interbank market but were swapped into Swiss francs using currency swaps and deposited with the Swiss National Bank (SNB). The income from the interest component of these foreign-currency swaps (CHF 26.9 million) exceeded the expense for the SNB negative interest (CHF 15.3 million) and the reduced earnings from banks. The increase in interest income from client activities by CHF 8.7 million to CHF 87.2 million is the result of margin adjustments and volume increases; by contrast, interest expense during the year from client-related activities rose by CHF 10.4 million to CHF 14.4 million as a result of the higher USD interest rates. Interest income on financial instruments valued at amortised cost rose by CHF 1.8 million to CHF 20.4 million principally because of higher balance-sheet positions. Interest income includes also changes in the value of interest-rate hedging transactions (interest-rate derivatives) in the amount of minus CHF 1.1 million (prior year: minus CHF 2.0 million).

The income from commissions and services in the year grew by CHF 5.1 million to CHF 123.9 million (plus 4.3 per cent). The good sentiment on equity markets during the year impacted commission income positively. Brokerage fees rose in 2017 over the comparable prior-year period by CHF 1.1 million, or 3.3 per cent from CHF 32.3 million to CHF 33.3 million.

Both the positive performance of existing client assets as well as the gratifying inflow of new client money also positively impacted portfolio-based income: as a result, commission income from portfolio management and the investment business reported a rise of plus 6.6 per cent from CHF 41.2 million in 2016 to CHF 43.9 million in 2017. Custodian fees also increased in 2017 from CHF 19.7 million to CHF 20.8 million.

Fund-management fees could be increased from CHF 59.4 million to CHF 64.1 million (plus 7.9 per cent). 

Trading income grew by 12.9 per cent from CHF 44.5 million in 2016 to CHF 50.2 million in 2017. The income from (foreign-currency) trading on behalf of clients could be increased by a welcome 8.2 per cent to CHF 51.6 million. Realised and unrealised revaluation differences arising from hedging transactions for financial investments are recognised in securities trading. A loss of minus CHF 1.4 million (prior year: minus CHF 3.2 million) had to be recorded as a result of the market environment. 

Financial investments ended the year with an income of CHF 19.2 million (prior year: CHF 7.6 million). This increase in income from financial investments of CHF 11.6 million can be ascribed principally to realised and unrealised revaluation gains on financial investments, valued at fair value (FVTPL), of CHF 11.8 million (prior year: minus CHF 0.7 million). 

The increase in other income/expense is to be explained by the non-recurring impact of CHF 0.7 million arising on the disposal of an associated company in the first half of 2017. 

Operating expenses in the current financial year rose year-on-year by CHF 17.6 million from CHF 212.2 million to CHF 229.8 million (increase of 8.3 per cent).

As a result of the settlement reached with the authorities of North Rhine-Westphalia in connection with the untaxed assets of German clients, a non-recurring provision of CHF 10.9 million was recognised and communicated in the first half year of 2017. This settlement is a comprehensive solution and is valid for all German Federal states. A further non-recurring item led to a reduction in personnel expense of CHF 10.1 million resulting from the adjustment to the rate of conversion of the pension fund which positively impacted the 2017 annual results. 

Personnel expense year-on-year declined marginally by CHF 0.5 million or 0.4 per cent to CHF 134.8 million. Excluding the one-off item of CHF 10.1 million in the second half of year, the adjusted personnel expense in the current financial year increased by CHF 9.6 million (plus 7.1 per cent). In line with the strategic growth initiatives, this adjusted increase in personnel expense resulted, inter alia, from the recruitment offensive of new senior client advisors. At the end of December 2017, VP Bank Group had 800 employees, expressed as full-time equivalents, representing an increase in employee headcount of 61 employees over the level at the end of 2016 (plus 8.3 per cent). 

General and administrative expense in 2017 rose by CHF 6.1 million (plus 11.8 per cent) from CHF 51.7 million to CHF 57.8 million. This increase was recorded primarily under professional fees (plus CHF 4.3 million) due primarily to external advisory costs incurred in order to support VP Bank Group in various projects (particularly regulatory requirements, growth initiatives, digitalisation etc.). 

Depreciation and amortisation as of 31.12.2017 was CHF 1.2 million or 5.1 per cent higher, year-on-year, amounting to CHF 23.6 million. This increase principally reflects the amortisation charged on investments in intangible assets (software). 

Charges for valuation allowance, provisions and losses in 2017 totalled CHF 13.6 million (prior year: CHF 2.8 million). The increase is to be explained by the aforementioned settlement with the North Rhine-Westphalia authorities and the related provision of CHF 10.9 million.

Taxes on income in 2017 amounted to CHF 4.6 million which is CHF 1.5 million more than in the prior year. In spite of higher pre-tax income, total current taxes, year-on-year, were lower, as higher tax-exempt income on financial investments was realised in the financial year.

Comprehensive income comprises all revenues and expenses recognised in the income statement and in equity. Items recorded directly in equity principally concern actuarial adjustments relating to pension funds and changes in the value of financial instruments (FVTOCI). VP Bank Group generated comprehensive income in 2017 of CHF 79.5 million as against CHF 46.1 million in the preceding year.

Financial markets started the year 2018 in a very friendly and confident manner, but subsequently fell sharply. The good investor sentiment should be put to the test on several occasions during the course of the year. The market environment, the development of interest rates as well as the global political landscape will also impact business operations and the results of VP Bank Group in 2018.

With digitalisation, the financial segment faces major challenges but also very promising opportunities. VP Bank is optimally equipped to meet the challenges of the future and has launched related projects, thus continuing to pursue its sustained growth strategy. The high level of equity resources and stable shareholder base form an excellent basis for a successful future in order to be able to assume an active role in future in the process of consolidation of the finance industry.