Statement by the Chairman of the Board
Ladies and gentlemen
2018 was a very eventful year. Economic growth was initially solid, but concerns over rising US interest rates, trade wars, Brexit discussions and problems surrounding the Italian budget deficit all weighed on financial markets.
In this demanding economic and political environment, VP Bank was able to record solid results in 2018. The continued gains in net new money exceeded expectations and again confirm the relevance of our growth strategy.
Solid annual results
VP Bank Group recorded consolidated net income of CHF 54.7 million in 2018, compared with CHF 65.8 million the previous year. The 16.8 per cent decline was due to the persistent low interest rate environment along with fixed income and equity market trends.
Operating income contracted by 3.1 per cent from CHF 300.1 million in 2017 to CHF 290.8 million last year.
Operating expense rose by 1.1 per cent to CHF 232.3 million.
Client assets under management increased by 2.8 per cent from CHF 40.4 billion to CHF 41.5 billion. In 2018, VP Bank Group recorded net new money inflows of CHF 3,197 million, the highest organic increase in client assets in more than 10 years. We achieved this very satisfactory increase last year through intensive market development efforts, inflows from existing clients and the recruitment of new client advisors.
At 31 December 2018, the Tier 1 Ratio was 20.9 per cent (compared with 25.7 per cent one year earlier). The cost/income ratio was 75.8 per cent, compared with 64.2 per cent.
As we implement our strategic goals, we invested heavily in growth in 2018. These long-term investments come at the expense of profitability in the near term. VP Bank nevertheless demonstrated that organic growth can be achieved even in challenging market environments.
The Board of Directors proposes to the Annual General Meeting of 26 April 2019 to leave the dividend unchanged at CHF 5.50 per registered share A and CHF 0.55 per registered share B. The earnings basis shapes the dividend policy defined by the Board of Directors. VP Bank strives to maintain a constant dividend approach, with a goal of paying out 40 per cent to 60 per cent of consolidated net income to shareholders. The proposed dividend is based on consolidated net income of CHF 54.7 million.
Strategic orientation and positioning
VP Bank’s business model is based on the two strategic pillars of the intermediaries business and private banking. We position ourselves as a trusted partner for a sophisticated private client base and we are a well-established partner for financial intermediaries. In addition, we offer an international fund competency centre. VP Bank’s primary strategic goal is to achieve profitable and qualitative growth in the identified target markets and thereby secure its independence.
In 2015 the board of Directors and Group Executive Management developed the “Strategy 2020” plan. This strategy encompasses the key long-term priorities of growth, focus and culture. It combines a growth strategy, efficiency enhancements and the continued development of our sales and performance culture.
As part of “Strategy 2020” we defined the following medium-term goals:
CHF 50 billion in client assets under management
CHF 80 million in consolidated net income
Cost/income ratio of less than 70 per cent
At end-2018, assets under management totalled CHF 41.5 billion, up from CHF 40.4 billion one year earlier. Net income for 2018 was CHF 54.7 million, compared with CHF 65.8 million the previous year. At 31 December 2018 the cost/income ratio was 75.8 per cent (2017: 64.2 per cent).
Achieving our goals will be a challenge for VP Bank in the light of the still demanding market environment. Our performance as regards client assets under management as well as our strong equity position nevertheless show that we are still on the right track.
VP Bank shares
2018 was a positive year for VP Bank’s shareholders. Including the dividend of CHF 5.50 per share, VP Bank’s shares delivered a nearly 10 per cent return in 2018, thereby significantly outperforming the shares of most other Swiss banks. Share price volatility was relatively high, particularly in the summer months. In 2018, the shares traded at an average price of CHF 161.91 and closed the year at CHF 141.40. More details on our share performance can be found in the section “VP Bank in capital markets”.
On 27 April 2018, the Annual General Meeting authorised the payment of an increased dividend of CHF 5.50 per registered share A and CHF 0.55 per registered share B. The dividend payment date was 4 May 2018.
Under the authorisation granted by the Annual General Meeting of 24 April 2015, VP Bank decided to increase the number of treasury shares through another share buy-back of up to 10 per cent of the share capital. We are thus carrying on the successful programmes from the years 2015 and 2016. The repurchased registered shares are to be used for acquisitions or treasury management purposes.
As from 31 December 2018, VP Bank AG directly and indirectly holds 599,442 registered treasury shares A and 324,929 registered treasury shares B (9.55 per cent of the share capital and 7.70 per cent of the voting rights). Since no shares were cancelled, share capital and voting rights ratios remain unchanged.
Significant events at our sites
2018 was a major anniversary year for VP Bank Group. In the Grand Duchy of Luxembourg, we celebrated 30 years of doing business through VP Bank (Luxembourg) SA and 20 years for the fund competency centre VP Fund Solutions (Luxembourg) SA. VP Bank has also been represented by a subsidiary in Zurich since 1988, and our Singapore site celebrated its 10-year anniversary.
As mentioned already in our 2018 interim report, we marked these anniversaries through local events and other activities for employees, clients and the media.
Meanwhile, in 2018 we also made substantial investments in our future. Along with the continued development of the advisory process, we moved to larger new and prestigious office buildings in Zurich and Luxembourg while doubling the amount of office space in Singapore. At our main headquarters building in Liechtenstein, we completed a renovation project that creates a work environment offering the latest technical standards and flexibility.
Our growth objectives in Singapore required changes to the existing organisational structures. As from September 2018, VP Bank in Singapore therefore began operating as a branch instead of a subsidiary. The banking license was also upgraded from a merchant bank to a wholesale bank. The transfer process was completed on 1 September 2018.
In connection with a review of market development efforts in Russia going forward, we decided to close the representative office in Moscow. VP Bank is thereby focusing its activities in the Russian market by consolidating them mainly at its Zurich office as the competency centre for Central and Eastern European markets. The Moscow office was closed for financial and logistical reasons. This decision was based on our Strategy 2020, which revolves around a “Focus” theme aimed at productivity gains and reductions in the complexity and costs of internal processes. Russia nevertheless remains a core target market of VP Bank Group. The Moscow representative office was closed in November 2018.
Other significant events
In late 2016 we launched our “Relationship Manager Hiring” project in order to achieve our growth objectives. In 2018 we hired 24 new client advisors for VP Bank as part of this project – and were rewarded with satisfactory net new money inflows.
In May 2018, the Standard & Poor´s rating agency upgraded VP Bank’s already strong “A–“ rating to “A” with a stable outlook. VP Bank therefore now enjoys an “A/A–1” rating. This outstanding rating and stable outlook were confirmed on 9 August 2018 and again demonstrate our Group’s solid and successful business model.
In May 2018, we launched a new e-banking service with advanced portal technology for our clients. Close attention was paid to creating a user-friendly design and satisfying the strictest security requirements. The launch was supported with extensive communications initiatives and represents a major milestone in the digitalisation of VP Bank Group.
We further expanded our service offerings for clients in autumn 2018 by launching the VP Bank newsroom on our website, which contains publications and news related to VP Bank, and by offering longer trading hours to cover the leading financial markets worldwide.
We are proud of the recognition we received from the Berlin-based Fuchsbriefe publishing firm, which ranked VP Bank “VERY GOOD” for transparency and “GOOD” in the overall assessment category. This distinguished award shows that our advisory teams perform at the highest levels in international comparisons.
In order to advance the growth strategy at the Luxembourg site and further develop the funds business, in October 2018 we successfully penetrated the Scandinavian market. At 1 October 2018, VP Fund Solutions (Luxembourg) SA acquired the management company activities of Carnegie Fund Services S.A., and VP Bank (Luxembourg) SA now acts as the custodian. Also in October 2018, we announced that VP Bank (Luxembourg) SA was acquiring the Luxembourg private banking activities of Catella Bank based in Sweden.
At the 55th Annual General Meeting, elections were held to renew the terms of office of VP Bank directors. Fredy Vogt and Dr Florian Marxer, whose terms had expired, were reappointed to the Board of Directors for additional three-year terms. At the Board of Directors meeting immediately following the Annual General Meeting, Fredy Vogt was appointed Chairman of the Board.
Dr Thomas R. Meier was appointed to a new three-year term on the Board. He has more than three decades of international experience in the banking industry, with an emphasis on Asia. This appointment strengthens the Board’s competencies, ensures long-term succession planning and makes a significant contribution to the successful strategic development of our Asian business.
As part of “Strategy 2020”, we adapted the organisational and management structure in 2018 by redefining the tasks within Group Executive Management. Dr Felix Brill assumed the position of Chief Investment Officer as from 1 March 2018 and Dr Urs Monstein became Chief Operating Officer as from 1 May 2018, such that VP Bank’s Group Executive Management is now well staffed with six members.
Significant changes were implemented at our international sites. As from 19 March 2018, Dr. Oliver Möhl assumed the position of Chief Operating Officer at VP Bank (Switzerland) Ltd. Claus Jørgensen strengthened the management ranks of VP Bank (Luxembourg) SA when he was named “Head of Client Business” as from 1 October 2018.
At the start of 2019, the Board of Directors of VP Bank Group and CEO Alfred W. Moeckli mutually agreed not to continue their collaboration. Alfred W. Moeckli resigned from all his functions as from end-January 2019 and left the Bank in order to pursue new challenges. Dr Urs Monstein assumed the position of CEO on an interim basis. Alfred W. Moeckli served as Chief Executive Officer of VP Bank Group since 2013 and substantially expanded the Bank over his nearly six-year tenure. Most notably, in the period following the financial crisis he made significant contributions that enabled the Bank to get back on its growth track.
Several important topics are on the agenda for 2019.
Growth will remain a core theme for VP Bank Group. The “Relationship Manager Hiring” project, which has been very successful to date, will run through the end of the year. We set a goal of hiring 75 client advisors in the intermediaries and private banking segments by end-2019, with half of these new hires in Asia.
We will also take advantage of market opportunities that arise in order to invest in growth through acquisitions. VP Bank continues to enjoy a very strong equity position, which allows us to participate in financial industry consolidation.
Under the heading of “Future of Banking”, we launched a strategic initiative to define the next steps for VP Bank Group following the completion of Strategy 2020. Numerous strategic planning workshops will be held.
In early February 2019, the aforementioned acquisition of the Luxembourg private banking activities of Catella Bank was completed. This acquisition opens up new business opportunities in the Scandinavian market.
2019 is an anniversary year for VP Fund Solutions (Liechtenstein) AG, as our subsidiary marks its 20th year in business. The acquisition of Luxembourg-based Carnegie investment fund supports the continued success of our fund business.
At our Singapore site, we laid the groundwork for continued dynamic growth in Asia. We would like to accomplish this goal in 2019 through an expanded private banking team and new products for our Asian clients.
Through new initiatives undertaken by the Investment Solutions and Chief Operating Officer management units, we will make further investments in our products and services, notably as part of our digitalisation strategy and to develop new asset management solutions.
Our business continues to be marked tendentially by rising costs and shrinking margins. In recent years we laid the groundwork for the planned growth of VP Bank Group. With an increasingly centralised organisation, we are now positioned to be highly efficient and take advantage of synergies throughout the Group.
For 2019 and the years ahead, we are confident in our ability to generate further income gains through the numerous investments we have made. The additions to our management team leave us very well positioned, both organisationally and as regards competencies, to overcome the challenges in our industry.
A word of thanks
In connection with the energetic performance that our committed employees contribute on a daily basis to the success of our company, I would like to emphasize in particular the substantial growth in new client business. In 2018 we took a major step toward achieving our strategic goals, for which I offer my heartfelt thanks.
We see this success as an incentive to continue down our path of growth, focus and culture.
I would also like to thank our clients and shareholders for their continued trust in VP Bank.