Consolidated annual report of VP Bank Group
In 2019, the Group net income significantly increased compared to the previous year due to further operational progress and the positive financial markets, and a high level of net new client money was recorded. The macro economic situation continued to be characterised by persistently low and negative interest rates. The most important stock market indices rose significantly in the past year.
The 2019 consolidated financial statements of VP Bank Group prepared in accordance with International Financial Reporting Standards (IFRS) reported a Group net profit of CHF 73.5 million. In the prior year, a net profit of CHF 54.7 million had been recorded. Group net income in 2019 increased by CHF 18.8 million, or 34.4 per cent. The positive trend in net new money inflows continued into the 2019 financial year. With CHF 2.3 billion (2018: CHF 3.2 billion), VP Bank Group achieved very good net new money inflows and demonstrates that the Bank is on track with its growth strategy. This strong growth in new client money resulted from intensive marketing efforts and growth initiatives that were implemented as well as the recruitment of client advisors.
With 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 24 April 2020, a dividend of CHF 5.50 (prior year CHF 5.50) per registered share A and CHF 0.55 (prior year CHF 0.55) per registered share B.
As part of the 2015-2020 strategy cycle, the Board of Directors of VP Bank Group has defined the following target values for 2020:
- CHF 50 billion of client assets under management
- Group net income of CHF 80 million
- Cost/Income ratio below 70 per cent
VP Bank Group continued to pursue its growth strategy in the financial year 2019. As a result of intensified market development activities, assets under management could be increased which created the basis for future growth in profitability. During the last financial year, 14 new client advisors were hired (2018: 24) as part of our client-advisor hiring initiative.
Assets under management at 31 December 2019 amounted to CHF 47.6 billion (prior year: CHF 41.5 billion). Group net income for the financial year 2019 amounted to CHF 73.5 million (prior year: CHF 54.7 million) and the cost/income ratio was 67.6 per cent (prior year: 75.8 per cent).
On 27 August 2019, the rating agency Standard & Poor’s confirmed its very good «A» rating for VP Bank and indicated its outlook as "stable". This rating reflects the good net new client money inflows of recent years, the progress made in operations as well as the very strong equity base.
Client assets under management
As of the end of 2019, client assets under management of VP Bank Group aggregated CHF 47.6 billion. Compared to the prior year’s amount of CHF 41.5 billion, this represents an increase of CHF 6.1 billion (plus 14.7 per cent).
Contributing to this growth was net new client money with CHF 2.3 billion, the acquisition of Catella with CHF 1.0 billion and market performance with CHF 2.9 billion. The inflows of client money were achieved as a result of intensive market-development activities, net new money inflows from existing clients and the recruitment of new client advisers.
Custody assets rose by CHF 5.2 billion to CHF 6.9 billion. As of 31 December 2019, client assets under management including custody assets amounted to CHF54.5billion (prior year: CHF 46.7 billion).
Year-on-year, operating income rose in 2019 by CHF 36.9 million, or 12.7 per cent from CHF 290.8 million to CHF 327.8 million.
Through active balance-sheet management and the growth in credit-granting activities, interest income, year-on-year, increased by CHF 4.1 million, or 3.7 per cent, to CHF 115.1 million.
With the expansion of the lending business, client-related interest income grew significantly. Customer deposits also increased, resulting in higher interest expense from client business. Net interest income from client business in- creased by CHF 4.6 million to CHF 73.8 million (prior year: CHF 69.2 million).
The net contribution from treasury operations declined marginally. Net interest income from treasury operations declined by CHF 0.5 million to CHF 41.3 million (prior year: CHF 41.8 million). Compared to the previous year, the individual income components developed differently as a result of the investment activities. Interest income from foreign-currency swaps decreased remarkably, with a corresponding reduction in expenses for SNB negative interest. Interest income from financial instruments measured at amortised cost increased.
Commission and fee income rose in the year under review by CHF 12.9 million, or 10.4 per cent, to CHF 137.2 million (prior year: CHF 124.3 million). Recurring income rose as a result of the net inflow of new client money, the acquisition of Catella Private Banking activities and the performance- related increase of client assets. Fees from asset management and investment activities (plus CHF 5.2 million, or 10.5 per cent) and from investment-fund management (plus CHF 7.5 million, or 14.7 per cent) increased in 2019. Due to the positive development of client activities in the second half of 2019, transaction-based revenues rose year-on-year. Brokerage income increased by 9.0 per cent to CHF 32.1 million (prior year CHF 29.5 million).
Net income from trading activities aggregated CHF 61.0 million, thus recording an increase of CHF 6.0 million, or 10.9 per cent, year on year. Income from trading increased significantly by 16.4 percent to CHF 63.9 million. Realised and unrealised revaluation differences arising from hedging transactions for financial investments are recognised in securities trading. In 2019, minus CHF 2.9 million was recorded, compared with CHF 0.1 million in the prior year.
Financial investments incurred income of CHF 14.3 million in the financial year (prior year: minus CHF 1.6 million). This sharp increase of CHF 15.9 million in income from financial investments mainly relates to revaluation gains of CHF 14.6 million on financial investments.
Operating expenses in 2019 rose year-on-year by CHF 12.5 million from CHF 232.3 million to CHF 244.8 million (in- crease of 5.4 per cent).
Personnel expenses rose by CHF 7.7 million, or 4.9 per cent, to CHF 165.4 million. The increase in personnel expense is in line with our growth strategy reflecting primarily the recruitment of new client advisors and growth initiatives. At the end of December 2019, VP Bank Group employed, expressed in terms of full-time equivalents, 874 individuals as opposed to 868 in the prior year.
General and administrative expenses were reduced by 10.5 per cent to CHF 56.3 million (prior year: CHF 62.9 million). This reduction is to be ascribed primarily to a decline in occupancy expenses of CHF 6.1 million. As a result of the adoption of IFRS 16 (leases), the income statement, from 2019 onwards, is now charged with depreciation and amortisation and interest expenses instead of rental expenses (see financial statement reporting policies). Information procurement expenses rose as a result of increased prices. The growth in other general and administrative expenses relates to increased regulatory levies. The largest reductions were seen in advisory fees and marketing expenses.
The 16.8 per cent increase in depreciation and amortisation from CHF 25.1 million to CHF 29.3 million relates to the adoption of IFRS 16 (Leases) resulting in a corresponding reduction in occupancy expenses (see above for further details).
In 2019, a net amount of CHF 6.2 million was released to Group net income over the caption “valuation allowance, provisions and losses” (prior-year: release of CHF 13.4 million) resulting from the reduction in valuation allowances established in the wake of hurricane Irma, as well as a reduction of individual credit provisions.
Taxes on income
Taxes on income in 2019 amounted to CHF 9.4 million which is CHF 5.6 million more than in the prior year. The increase is the result of higher taxable income within VP Bank Group.
Group net income
Group net income in 2019 amounted to CHF 73.5 million which constitutes a 34.4 per cent increase year on year (prior year: CHF 54.7 million). Group net earnings per registered share A were CHF 12.28 (prior year: CHF 9.04).
Comprehensive income comprises all revenues and expenses recognised in the income statement and in equity. Items recorded directly in equity concern actuarial valuation changes relating to pension funds and changes in the value of financial instruments (FVTOCI).
VP Bank Group generated comprehensive income in 2019 of CHF 87.3 million compared to CHF 38.7 million in the prior year.
As per December 2019, total assets increased by CHF 1.0 billion to CHF 13.4 billion in comparison with 31 December 2018.
This increase is primarily driven by other liabilities to clients of CHF 0.8 billion (thereof Catella CHF 0.2 billion). On the assets’ side, amounts due from clients rose by CHF 0.6 billion (thereof Catella CHF 0.1 billion).
VP Bank Group has a very comfortable liquidity situation with cash and cash equivalents totalling CHF 2.9 billion (CHF 2.5 billion as of 31 December 2018), which represents approximately 22 per cent of total assets.
On 28 June 2019, VP Bank completed the share buyback program launched on 27 June 2018, via the ordinary trading line. As of 31 December 2019, VP Bank Ltd held in aggregate, directly or indirectly, 598,065 registered shares A and 327,419 registered shares B (9.54 per cent of the share capital and 7.70 per cent of the voting rights). As none of the repurchased shares were cancelled, the structure of capital and voting rights remains unchanged. The purchased registered shares A in the treasury may be used for future corporate acquisitions or for treasury-management purposes.
Consolidated equity at the end of December 2019 totalled CHF 1,032 million (end of 2018: CHF 981.6 million). Risk-weighted assets grew by CHF 0.3 billion (plus 7.4 per cent) to CHF 4.8 billion. The tier 1 ratio at 31 December 2019 amounted to 20.2 per cent (31 December 2018: 20.9 per cent) thus constituting a robust equity capital base.
During the current financial year, numerous regulatory requirements come into effect which will keep the management of VP Bank very busy. For VP Bank Group, qualitative, profitable growth remains a core focus.
With the new “Strategy 2025 – Seizing Opportunities”, VP Bank is well positioned to respond to market developments and the macroeconomic environment and to actively shape the future development of VP Bank Group.