Statement by the Chairman of the Board and the Chief Executive Officer
Dear Shareholders, Ladies and gentlemen
An eventful year lies behind us, one that was clearly dominated by the coronavirus pandemic. Since its eruption in the spring of 2020, the effects of the pandemic have been felt in all areas of everyday life, with profound social and economic consequences. The public health measures imposed by governments worldwide to contain the pandemic led to far-reaching restrictions on every kind of social interaction, with grave consequences for the economy.
In response, governments and central banks have taken exceptional steps to cushion the pandemic’s economic impact. After stock markets plummeted at the beginning of the pandemic in March 2020, the situation on financial markets calmed considerably in the second half of the year, as an impressive recovery got underway. However, this should not obscure the fact that the economic damage from the pandemic, in combination with the many earlier interventions made by the central banks, will preoccupy our economies for years to come, and that uncertainty about the economic and geopolitical outlook will remain omnipresent.
As a result of their sweeping support programmes, the debt levels of governments and companies continue to rise, as do the risks of financial market turmoil and loan defaults. And interest rates are also likely to remain very low for a long time to come.
VP Bank Group with solid results in a difficult market environment
In this extraordinary market environment, VP Bank was able to close out the financial year 2020 within expectations and bring it to a stable end. Our robust and broad-based business model is clearly a strength, proving its resilience in these extraordinary times. The Group's international footprint was part of this success, making a significant contribution to our solid operational results. VP Bank thus is well positioned for the future and enjoys an excellent financial foundation. VP Bank’s healthy financial position is also largely reflected in the key figures.
For the financial year 2020, VP Bank generated a Group net income of CHF 41.6 million, down from CHF 73.5 million in 2019, largely due to a one-time value adjustment in connection with a loan case. Compared to the previous year, 2020’s total operating income declined 2.7 per cent, to CHF 319.0 million. Operating expenses excluding write-downs declined by CHF 1.4 million, compared to the previous year, to CHF 250.1 million.
Client assets under management increased to CHF 47.4 billion at the end of 2020, despite the difficult market environment. Compared to the previous year, this represents an increase of 1.4 per cent. It is particularly gratifying to note that despite the difficulties imposed by the pandemic, the loan repayments and some necessary reallocations, we achieved a net new money growth of CHF 1.4 billion, and we were again able to win significant new asset management mandates.
As of 31 December 2020, VP Bank had a very healthy capitalisation, with a tier 1 ratio of 20.8 per cent and a high level of liquidity. The cost/income ratio increased to 69.3 per cent.
Thus, in the difficult market environment of 2020, VP Bank achieved a result that underlines the Bank’s solidity. It is also satisfying to note that, excluding the impairment charge, all locations contributed to 2020’s positive operating results. In addition, the costs of the entire Bank could be kept well under control.
Strategy 2020 ends and Strategy 2026 is launched
In 2020, the five-year “Strategy 2020” cycle came to an end. It was focussed on the themes of growth, efficiency and the development of our sales and performance culture. It aimed for CHF 50 billion in client assets under management, CHF 80 million in net profits and a cost/income ratio of less than 70 per cent. Due to the difficult market environment and the above-mentioned write-down, we were only able to reach the cost/income ratio target.
That said, there are various developments that currently speak for the financial services industry generally, and for VP Bank’s prospects in particular. The business of serving wealthy clients is growing worldwide, and the past year has shown that advising these clients with a high degree of professionalism is vital for success, as is institutional stability. Especially when it comes to investing, there was a strong need to minimise risks, incorporate the theme of sustainability and develop investment solutions that can profit from the new opportunities that arise. Proximity to the client is key today, and this represents a great chance for VP Bank, since we often have close, long-standing relationships with our clients.
Today, we are seeing an unprecedented surge in the digitalisation of financial services that the pandemic has only accelerated. Such transformative moments open up many new business opportunities and exploiting these is the focus of our Strategy 2026 initiative.
As part of Strategy 2026, VP Bank Group will become a truly comprehensive wealth management services provider, both for professional intermediaries and wealthy private clients. Based on our strong Liechtenstein roots, we are strengthening our solid existing business areas, our international footprint and excellent networks, and our strong focus on sustainability.
We will strengthen our consistent customer focus through ecosystems and networks with an open wealth management approach, using our own and third-party offerings that are bundled together into innovative, tailor-made financial solutions. These attractive offerings are made accessible to clients through their personal advisors and through new digital customer interfaces. Thanks to our strong focus on financial intermediaries, VP Bank is realising a significant multiplier effect with this group and is expanding its addressable market through the targeted expansion of its intermediary ecosystem. As intermediaries, we define professional financial service providers such as trustees, external asset managers and family offices.
Based on this, we have defined a portfolio of core measures which have been grouped into three strategic areas of focus. In the course of the past year we evolved our organisation in a targeted manner to reinforce its strength and resilience and its capacity to successfully respond to change. The robustness of our processes and procedures, combined with the high level of professionalism of our employees, are important basic requirements for the future development of VP Bank. This can also be said for the stability of our shareholders, which enables us not only to pursue our development strategy independently, but also to implement goals over the course of a strategic cycle.
Under the term “Evolve”, we set measures aimed at further developing and optimising the existing business models at the individual locations. The focus is on the needs of our clients and how we can serve them even more effectively. This also involves the consistent promotion of the theme of sustainability across the Group.
Under “Scale”, we pursue the goal of further increasing the efficiency and cost discipline of our operations. To do this, we devise and implement simplified core processes consistently. The focus is on process optimisation, which is achieved through standardisation and automation of the operational platform as key part of the IT strategy we have developed.
“Move” refers to activities that aim to open up new business opportunities. The focus here is on topics such as private market solutions, digital assets and the development of networked platforms. We want to open up a range of new investment opportunities for our clients, some of which were previously difficult for them to access or were relatively illiquid.
We have also set ourselves clear quantitative goals for Strategy 2026, which we want to achieve by the end of the strategy cycle. Overall, we are aiming for a Group net income of CHF 100 million by the end of 2026. In addition, by the end of 2026, we want to realise:
New money growth of 4 per cent per year,
Increased profitability, with a profit margin of more than 15 basis points and a cost-to-income ratio of maximum 70 per cent,
A tier 1 ratio of more than 20 per cent.
Business year 2020
In addition to dealing with the challenges of the pandemic, the focus of the past year was on the preparatory work for the new strategy cycle. We have worked intensively and carefully on the definition and preparation of the core projects for the coming years. The work has progressed well and we are now well equipped to face the future with confidence. We have already started important key initiatives and, in a few cases, have already successfully completed them.
In 2020, we laid the foundations for repositioning our product offering and enhancing access to innovative investment solutions. What’s more, we have consistently integrated sustainability criteria into our investment processes. And we launched risk-optimised ESG equity funds and made this future-oriented topic accessible to our clients with our “Green City” basket stock universe. In addition, we have more closely aligned our locations with their target markets and regional market opportunities, and developed new strategies for them accordingly. In this regard, the further development of our Asian business is a particularly important focus.
The future of our IT infrastructure also is a central focus of Strategy 2026. It underpins our work on the next generation of our financial services platform while also facilitating the integration of external wealth management services, collaborations, data-supported advice and individualised financial solutions. Important strategic decisions about the form and structure of the future IT platform were made at the end of 2020. In 2020, we also introduced new services to make interactions with our clients even more user-friendly and digital. In addition to video consultations, QR bills, Multiscan and Multipay, we also launched the new client communication tool “Avaloq CCM”, the VP Bank Crisis Barometer, our new investment magazine “Telescope”, and we held a variety of online customer events.
Last year, we already began to assemble our new Client Solutions unit. Building on our DNA in the intermediary business, with this new unit, we aim to expand our position as an international wealth management services provider. We offer systematic access to the private markets asset class and corresponding structuring solutions, such as Private Label Funds (PLFs), Special Purpose Vehicles (SPVs) and tokenisation. The strategy for the Client Solutions unit has been defined and work has begun on articulating its central principles. We were also able to make the first deals in the Private Investment Partners area. More detailed information on Strategy 2026 and the individual measures it entails can be found in the “Strategic Orientation” section of this annual report.
2020 was, as we have inevitably mentioned several times here, dominated by the corona-virus pandemic. Shortly after its onset in the spring of 2020, we implemented a comprehensive crisis response concept throughout all our locations worldwide. Protecting our clients and our employees was always the top priority. Implementing our response was made easier by our already widespread use of digital technologies and by the exemplary flexibility and commitment of our staff. Thanks to our earlier investments in digitalisation, we were able to shift quickly to online services. Thus, we always were able to provide our customarily high levels of service and support to our clients for their investment decisions and banking needs.
With regard to Strategy 2026, in a joint undertaking by the Board of Directors and the Chief Executive Officer, the Group Executive Management (GEM) team was also strengthened in 2020 with important management and technical expertise. Tobias Wehrli took over the management of the Intermediaries & Private Banking department from Christoph Mauchle, who opted for early retirement. In addition to overseeing private banking, Tobias Wehrli will also continue to develop the intermediary business, which is an important component of our growth strategy. And Thomas von Hohenhau, a proven financial expert with extensive expertise in the area of open banking, has also joined VP Bank and the GEM in the newly created role of Head of Client Solutions.
We responded with far-reaching measures to the write-down of a single position in the first half of 2020. The credit department and various responsibilities within it were reorganised. At the same time, governance in the areas of risk and compliance were also strengthened, as were other central processes. Altogether, we believe these measures create important preconditions for VP Bank’s sustainable success. In this regard, Patrick Bont has been named the new Chief Risk Officer. He comes to us from the Financial Market Authority Liechtenstein (FMA), and he will further strengthen the security of our operations. He will also actively participate in the further strategic development of the Bank. Finally, Roger Barmettler, a well-established internal manager, has been named VP Bank’s new Chief Financial Officer.
At the 57th Annual General Meeting of VP Bank on 24 April 2020, Dr Beat Graf and Michael Riesen were re-elected to the Board of Directors for further three-year terms. Prof. Dr Teodoro D. Cocca did not stand for re-election and has stepped down from the Board. Katja Rosenplänter-Marxer was newly elected to the Board for a three-year term. She represents the anchor shareholder the “Marxer Stiftung für Bank- und Vermögenswerte” foundation. Fredy Vogt, Chairman of the Board of Directors since 2012, has relinquished his position in line with the succession plan, but remains a member of the Board. Following the Annual General Meeting, Board member Dr Thomas R. Meier was elected the new Chairman of the Board of VP Bank.
In 2020, we celebrated the twenty-fifth anniversary of our branch office in the British Virgin Islands, which, in addition to traditional banking services, also offers credit financing and mortgages. And we once again received various industry awards for our banking and financial services. Our team in Singapore was given the WealthBriefingAsia Award for “Best External Asset Manager Service Provider” and “Best Private Banking Regional Partnership”. In addition, we were honoured with the “Citywire Asia EAM Desk Award 2020 for Best Service” and we were named the best private bank for intermediaries at the Asian Private Banker Awards for Distinction 2020 at the end of the year in Singapore. These awards recognise our strong position as a bank and, in particular, our focus on the intermediary business in Asia, confirming our focus on our Asian strategy.
In Europe, Bisnode D&B Switzerland awarded VP Bank Group the top grade in the D&B Risk Indicator for the seventh time. The award recognises the solid financial stability of VP Bank Group. In the annual Fuchsbriefe tests, VP Bank again received an award for the quality of its advice in German-speaking countries. Finally, the rating agency Standard & Poor’s (S&P) also confirmed the “A” rating for VP Bank in July 2020.
Dividend proposal 2020
At the Annual General Meeting of VP Bank on 30 April 2021, the Board of Directors will propose a dividend of CHF 4.00 per registered share A and CHF 0.40 per registered share B. These amounts are based on the Board of Directors’ constant dividend policy, with the aim of distributing 40 to 60 per cent of the Group’s profits to shareholders. The proposed dividends are based on the Group’s 2020 net income of CHF 41.6 million.
Outlook for 2021
In 2021, VP Bank Group celebrates two important anniversaries. In 2006, we opened our Hong Kong office where, for the past 15 years, we have successfully offered asset management services and maintained a representative office. Hong Kong plays an important and growing role in our Asia strategy. Twenty-five years ago, the VP Bank Art Foundation was founded to collect and promote contemporary visual art. We have planned some attractive anniversary activities for both occasions.
The widespread distribution of effective vaccines to combat the coronavirus promises a gradual return to normal social and economic activity in the second half of 2021. Until then, however, the virus will continue to shape economic development. Given the strong economic correction in 2020 and the resulting low starting point for growth calculations, respectable macroeconomic growth rates are expected in 2021.
With our new Strategy 2026, an unchanged solid core capital ratio of 20.8 per cent and ample liquidity, VP Bank Group is well equipped even for difficult times, and we look to the future with confidence.
The coronavirus pandemic has shown how important it is, as individuals and as an organisation, to react to change with creativity and agility.
We are proud of how our organisation responded to the challenges of 2020. As a team, we have proved time and again in recent months that VP Bank is able to respond effectively new challenges in a targeted manner. Competent and committed employees were behind the success VP Bank had in meeting the challenges of 2020. They were responsible for ensuring that we could maintain close relationships with our satisfied clients. Thanks to the efforts, commitment and flexibility of our employees in all locations, we are able to operate our business successfully, with our customarily high level of quality, even under difficult conditions, and to emerge stronger from this demanding time. We would also like to express our special thanks to our outstanding crisis team, who guided our response to the challenges we all have faced.
Finally, we warmly thank our clients and shareholders for the ongoing trust they have placed in VP Bank.