Statement by the Chairman of the Board and the Chief Executive Officer
Dear shareholders, Ladies and gentlemen
2019 emphatically and positively demonstrated that financial markets do not always trend in line with the economy. All major equity indices recorded strong gains. The economic environment was mixed, as the services sector posted robust growth while the manufacturing industry had to contend with pressure from trade disputes. The on-going expansive monetary policy by international central banks left interest rates at extremely low levels.
These conditions worked to the advantage of VP Bank. We recorded strong growth and earnings gains.
Particularly satisfactory annual result
In 2019, VP Bank Group’s consolidated net income jumped by 34.4 per cent to CHF 73.5 million (2018: CHF 54.7 million).
Operating income increased by 12.7 per cent, or CHF 36.9 million, to CHF 327.8 million.
Operating expense rose by 5.4 per cent, or CHF 12.5 million, to CHF 244.8 million.
VP Bank Group’s client assets under management increased by 14.7 per cent, or CHF 6.1 billion, to CHF 47.6 billion.
At 31 December 2019, the Tier 1 ratio was 20.2 per cent, reflecting our solid capitalisation. The cost/income ratio was 67.6 per cent.
In 2019, VP Bank continued to record further operational progress and a satisfactory result. The strong growth in net new money totalling CHF 2.3 billion was achieved through intensive market development efforts, the implementation of growth initiatives and the client advisors recruitment campaign.
The Board of Directors proposes to the Annual General Meeting of 24 April 2020 to pay an unchanged dividend of CHF 5.50 per registered share A and CHF 0.55 per registered share B. The earnings basis predicates the dividend defined by the Board of Directors. VP Bank strives to maintain steady dividend growth, with a goal of distributing 40 per cent to 60 per cent of consolidated net income to shareholders. The proposed dividend is based on consolidated net income of CHF 73.5 million.
In 2015, the Board of Directors and Group Executive Management developed “Strategy 2020”. This strategy encompasses the long-term initiatives of growth, focus and culture. In that regard, it revolves around a combined strategy of growth, productivity gains and the continued development of our sales and performance culture.
As part of “Strategy 2020” we identified the following medium-term goals:
- CHF 50 billion in client assets under management
- CHF 80 million in consolidated net income
- Cost/income ratio below 70 per cent
At end-2019, assets under management were CHF 47.6 billion (2018: CHF 41.5 billion), consolidated net income was CHF 73.5 million (2018: CHF 54.7 million) and the cost/income ratio was 67.6 per cent (2018: 75.8 per cent).
The current five-year period of “Strategy 2020” comes to an end at the conclusion of 2020, and we remain confident that we will reach our targets to the greatest extent. The consolidated net income target remains the biggest challenge, given a still challenging market environment and highly unpredictable financial market trends.
During the past year, the Board of Directors and Group Executive Management devoted considerable attention to the bank’s orientation over the next strategic cycle through 2025. Through a series of workshops, we laid the foundations of our new “Strategy 2025”.
Building on the successful strategy implemented to date, we devised the general motto “Seize opportunities” and from there identified three main strategic focal points:
- Profitable growth (“evolve”): strategic growth of the operating business at all sites
- Efficiency and cost discipline (“scale”): optimisation and scaling of the operating platform
- New sources of income (“move”): opening up new business opportunities
For our positioning, we invoke our proven expertise as an intermediary bank. This expertise offers access to customised financial solutions and excellent networking for both financial service providers and our private clients. Building on our existing vision statement, we formulated a new claim (Seize opportunities).
In that regard, we focus on four strategic business areas:
- Retail & Commercial Banking in Liechtenstein
- Wealthy individuals in Europe and Asia
- Intermediaries in Europe and Asia
Client solutions in Europe
To implement the main points of Strategy 2025, we have developed a comprehensive package of measures, the success of which is evaluated by three publicly disclosed key performance indicators (KPI):
- Growth: > 4 per cent in net new money per year over the 2021–2015 cycle (in per cent of assets under management)
- Profitability: > 15 bp earnings margin (income after tax) in bp of assets under management and cost/income ratio 70 per cent
- Stability: Tier 1 ratio: > 20 per cent
All measures of “Strategy 2025 – Seize opportunities” are intended to enable VP Bank Group to achieve net income of CHF 100 million by end-2025. More information on our “Strategy 2025” can be found in the “Strategic orientation” section, ➔ page 26 ff.
VP Bank shares and capital markets
2019 was a good year for VP Bank shareholders. Including the dividend payout of CHF 5.50 per share, VP Bank shares delivered a return of nearly 14 per cent in 2019. This result is roughly in line with the Swiss banking index. Volatility over the course of 2019 was clearly lower than that of the overall index. The shares started with an initial price of CHF 141.40 and ended the year at CHF 155.00, resulting in a 6.37 per cent gain for 2019. More information on our shares is presented in the section “VP Bank in capital markets.”
At 27 April 2019, the Annual General Meeting approved a dividend of CHF 5.50 per registered share A and CHF 0.55 per registered share B. The dividend was pay- able on 5 May 2019.
The share buy-back programme announced on 27 June 2018 was completed as planned on 28 June 2019 using the regular trading line. VP Bank’s treasury shares now represent 9.58% of total share capital. Since no shares were cancelled, share capital and voting rights ratios remained unchanged. The repurchased registered shares are to be used for future acquisitions or treasury management purposes.
On 27 August 2019 the rating agency Standard & Poor’s again confirmed VP Bank’s “A/Stable/A–1” rating and underscored the bank’s strong funding, very strong capitalisation, stable shareholder base, ample liquidity and stable client deposits. This most recent confirmation of the rating and outlook attests to our solid and success- ful business model.
At 5 November 2019, VP Bank Ltd successfully issued its first senior non-preferred 10-year bond in the amount of CHF 155 million. This bond was enthusiastically received by investors and reflects VP Bank Ltd’s excellent reputa- tion in Swiss capital markets. This bond allows us to optimise our refinancing structure and creates eligible liabilities as regards future regulatory requirements for debt (MREL – Minimum Requirement for Own Funds and Eligible Liabilities).
In 2019, our fund subsidiary VP Fund Solutions (Liechtenstein) AG celebrated its 20th anniversary. At 1 July 2019, the fund competency centre VP Fund Solutions expanded its management team at both sites in Liechtenstein and Luxembourg. The extended management will help us grow our international funds business further.
At 1 February 2019 we closed on the transaction announced in October 2018 in which VP Bank (Luxembourg) SA acquired the Luxembourg private banking activities of Catella Bank S.A. This transaction with Catella Bank, whose registered office is in Sweden, supports our efforts to grow in the Scandinavian market. In 2019 we defined the “Nordics” i.e. Denmark, Sweden and Norway as a new target market.
At our Singapore site, we also added to our management team, recruited new client advisors and expanded the line of products and services. Our growth objectives in Asia were bolstered through our signing of a memorandum of understanding for strategic cooperation between VP Bank AG (Liechtenstein) and Hywin Wealth Management Co. (China) on 11 July 2019. Thanks to this planned cooperation, we expect to expand our business activities in the Chinese market.
At 4 September 2019, VP Bank (Switzerland) AG received the “simplified exemption procedure” from the German financial markets supervisory authority (BaFin), making it one of the few Swiss private banks to have received it to date. This authorisation provides us with much easier access and better conditions for developing the German market, which is part of our core business.
In 2019 we further developed our client portal with “VP Bank Connect”. We also introduced a secure and independent login procedure for VP Bank’s e-banking platform, which satisfies all future regulatory require- ments as regards quality and security.
Client surveys help us to optimise our services. They are a vital component of our resolutely client-focused company culture. In June and July 2019, we conducted a client survey at our Liechtenstein and Swiss sites. The feedback from the more than 600 surveys returned shows that our clients value the initiative by VP Bank. Working with client advisors, we use the survey responses to identify measures and proceed to implement them.
As in 2015 and 2017, we conducted an employee survey last year. In this most recent survey in September 2019, VP Bank measured the satisfaction and commitment of VP Bank employees and reviewed the measures defined in previous years. Thanks to the outstanding 91 per cent survey response rate, the results are representative and provide a generally encouraging snapshot in time. For those areas where action is needed, we have defined corresponding measures. The results were presented as part of a Group-wide roadshow in November 2019.
In 2019, we successfully completed the two-year basic certification process of our client advisors in accordance with SAQ standards in Liechtenstein and Switzerland, thereby guaranteeing outstanding advisory competencies based on a single quality standard. In order to retain their certification, client advisors must get recertified within three years.
At end-2019 we completed our international “Relationship Manager Hiring” programme to recruit new client advisors and bring in new money, which has been in effect since 2017. As part of our Strategy 2025 plan, we will also continue the search going forward under the “Hiring for Growth” campaign and take advantage of targeted opportunities.
So-called “VP Bank Journeys” have been held for the past three years. They promote innovation, and in 2019 our employees visited Vienna and Liechtenstein. These journeys provided valuable insights on how to approach and implement personal development and motivated the employees to approach and implement change together.
The business with financial intermediaries remains one of our strategic business areas. Last year, we reorganised this activity and now offer, together with a well-known service provider, modular training that will be of central importance for future licensing of financial intermediaries.
At the 56th Annual General Meeting of VP Bank on 26 April 2019, Markus Thomas Hilti, Ursula Lang and Dr Gabriela Maria Payer were re-elected to three-year terms on the Board of Directors, while Dr Christian Camenzind chose not to seek re-election and left the Board.
In 2018, Dr Thomas R. Meier was elected for the first time to a three-year term on the Board of Directors. In February 2019, he was appointed second Vice Chairman of the Board. As a proven Asia specialist, Thomas Meier makes a substantial contribution to the continued successful strategic development of our Asian activities.
Dr Florian Marxer stepped down from the Board of Directors for personal reasons on 20 August 2019.
In early 2019, the Board of Directors of VP Bank Group and CEO Alfred W. Moeckli mutually agreed not to continue their collaboration. Alfred W. Moeckli relinquished all his functions at end-January 2019 and left the bank. The Board of Directors subsequently appointed Paul H. Arni as the new CEO of VP Bank Group. Paul Arni assumed his duties on 1 October 2019.
Before Paul Arni assumed the position, Dr Urs Monstein served as interim CEO and then returned to focus on his role as Chief Operating Officer. The Board of Directors extends its sincerest thanks to Dr Urs Monstein for his prudent leadership of the bank during this challenging transition phase.
Over the past decade, the topic of sustainability has become a generally recognised company goal. Regulators, clients and investors all demand transparent sustainability. VP Bank has long been committed to the principle of sustainable business practices and considers it an essential part of its corporate culture, which was shaped by company founder Guido Feger. In 2019, we further developed our sustainable initiatives and measures and substantially strengthened our CSR Competency Centre with the establishment of a new function “Head of Group Sustainability”. VP Bank is a member of the “Swiss Climate Foundation” and strives to minimise CO2 emissions through on-going implementation of various measures in such areas as mobility and facility management.
Sustainability issues are also increasingly relevant for investors and affect investment decisions. VP Bank has therefore included sustainability as a major pillar in its “Strategy 2025 – Seize opportunities”. Through their responses to an internal survey on the theme of sustainability in November 2019, our employees also made a valuable contribution. Meanwhile, we are developing concrete solutions to embed sustainability criteria in our investment and advisory process and to further develop our product line in a targeted manner. We firmly believe that integrating environmental and social criteria into the investment and advisory process significantly supports the goal of long-term value creation for our clients and the bank.
The Code of Conduct reflects up-to-date corporate responsibility goals. It establishes VP Bank’s binding ethical principles and serves as a guide for proper business conduct. At 23 May 2019, an amended Code of Conduct was approved by the Board of Directors and subsequently communicated to all employees. In autumn 2019, an e-training programme was offered to instruct employees on the contents of the amended code.
Additional information on the subject of sustainability can be found in the section “Sustainability management”, ➔ page 38 f.
In 1995, we founded VP Bank (BVI), our branch in the British Virgin Islands, which has now been a major part of our success over the past 25 years. An anniversary celebration is being held in the first quarter of 2020 to mark the occasion.
The current year will also see various new regulations such as Basel IV, the Libor transition and the EU Action Plan on Sustainable Finance which will keep VP Bank particularly busy. In the section above we already indicated the growing importance of the sustainability theme.
The focus of the 2020 financial year will involve the successful completion of the current strategy cycle that comes to an end this year as well as preparations for the implementation of new medium-term goals through 2025. In that regard we are building on proven concepts and resorting to organisational measures in targeted fashion for a successful launch of the new cycle. These measures include developing and securing new business opportunities as well as the targeted development of our sites in our strategic goal-setting. We continue to emphasize the importance of developing future talent and employees. Meanwhile, we need to further optimise the operating platform as regards efficiency and scaling, thereby keeping cost increases in line.
With the continuous development of our products and services, we stay current with the times and invest in the future of VP Bank. Digitisation is a topic that drives many activities and offers exciting opportunities for the coming years. Qualitative and profitable growth will thereby remain a core issue for VP Bank Group. We laid the foundation with our “Strategy 2020”. With the new “Strategy 2025 – Seize opportunities” we are well equipped to respond to market developments and the macroeconomic environment on the one hand and to actively shape VP Bank Group’s own development on the other.
Thanks to our joint efforts, we achieved a very satisfactory result in 2019, for which we would like to expressly thank our employees. The employee survey showed the strong commitment and desire to continue down the successful path together, seize opportunities and successfully position VP Bank Group for the coming decade.
We would like to thank our clients and shareholders for their continued trust in VP Bank.