Statement by the Chairman of the Board and ­Chief Executive Officer

Dear shareholders,
Ladies and gentlemen,

2016 began with considerable equity market volatility, which reflected concerns over future economic growth. The US Federal Reserve postponed further interest rate increases while the European Central Bank implemented extensive monetary stimulus measures, including lower­ing its benchmark rate to 0 per cent. In June, the UK referendum in favour of Brexit created additional turbulence for financial markets. In this environment VP Bank Group had to prove its mettle during the first half of 2016. 

VP Bank Group recorded net consolidated income of CHF 24.4 million for the first half of 2016, as compared with CHF 40.9 million for the first half of 2015. After adjusting for the non-recurring impact arising in 2015 from the merger with Centrum Bank (CHF 25 million), however, net income for the first half year was actually up by CHF 8.5 million, or 53.2 per cent, from that of the previous half year. 

Total operating income fell by CHF 42.7 million from CHF 172.5 million to CHF 129.8 million. After eliminating the one-off effect of the prior year’s merger with Centrum Bank, however, total operating income increased by CHF 7.3 million. 

In the first half of 2016, we reduced operating expenses by CHF 7.3 million, or 7.6 per cent, from CHF 96.8 million to CHF 89.4 million.

VP Bank’s net new money improved in the first half of 2016 over that of the comparable prior-year period. Intensive market development efforts, notably in Asia and in the funds’ business, enabled us to generate significant inflows of net new money. 

VP Bank celebrated its 60-year anniversary in April 2016. Founded in Liechtenstein in 1956 by Guido Feger, a successful entrepreneur and trustee, the bank has since grown into a global player with seven sites in financial centres. 

This anniversary was featured in several events during the spring. The history of VP Bank, complete with illustrations and retrospectives, was the theme of the 2015 annual report published in March 2016. In April we also published the anniversary book “A journey through time – 60 years of VP Bank”. The book pays tribute to the many people who contributed to the successful development of our company in so many different ways and at so many levels. 

In addition to the anniversary book, interested readers can also view a comprehensive online retrospective at “60years.vpbank.com”.

In July, VP Bank employees also had an opportunity to celebrate VP Bank’s milestone anniversary at a lively summer party, where they and management could look forward to their common future. 

We completed the full integration of Centrum Bank within VP Bank at the start of 2016. This successful merger demonstrated that we can generate profitable growth while maintaining our strong capital position. 

In the first half, we invested in the quality of our services and products and implemented further efficiency improvements and cost reduction measures. We are particularly pleased to have generated further growth in Asia. 

The intermediaries business continues to grow in importance thanks to the expansion of VP Bank Group’s international sites and the merger with Centrum Bank. In the light of these circumstances, we decided to restructure the “Intermediaries” business unit and selectively expand the range of services for this key client segment. The new organisation strengthens our market and client- oriented positioning in the highly competitive market. 

VP Bank’s company culture, which is firmly embedded in the “Strategy 2020” business plan, is highly valued. Meanwhile, the results of the employee survey conducted in late 2015 are in. All business segments were notified of the results in February 2016, both in writing and through personal discussions, and they were encouraged to define concrete measures and implement them during the current year. 

Developing management talent will be a key focal point in 2016. The information gleaned from the company-wide feedback led to comprehensive measures in the leadership development area. We are planning various training sessions and workshops for management talent in all segments and at all sites. Strengthening the sales culture is another high priority area along with developing management talent. 

Other measures aimed at promoting a performance culture include bolstering the bank’s advisory skills. In the first half of 2016, our client advisor teams completed cross-border advisory training programmes and expanded their know-how through certifications. 

At the VP Bank 53rd annual general meeting, shareholders were asked to renew the terms of existing directors and appoint new ones. Dr Guido Meier – representing the largest shareholder, the “Stiftung Fürstl. Kommerzienrat Guido Feger” foundation – announced that he would not stand for re-election and stepped down from the VP Bank Board of Directors. In his 27-year tenure on the Board, including 15 years as Vice Chairman, Dr Guido Meier always acted to promote the well-being of the bank in accordance with the will of the founder Guido Feger. 

Lic. oec. Markus T. Hilti was re-elected to a three-year term on VP Bank’s Board of Directors. At the special Board meeting held immediately after the annual general meeting, he was appointed Vice Chairman of the Board. Dr Christian Camenzind, Ursula Lang and Dr Gabriela Maria Payer were elected to the Board for the first time. The Board has thereby strengthened its specific skill set and ensured long-term succession planning in the bank’s highest governance body. 

Key changes were also made at the management team level. As from 1 January 2016, Martin C. Beinhoff was appointed Chief Operating Officer as well as an Executive Board member for the Group Information Technology, Group Operations, Group Treasury & Execution and Group Credit business segments. Concurrent with that appointment, Chief Financial Officer Siegbert Näscher took on the added position of Chief Risk Officer of VP Bank Group in accordance with the requirements set forth in the Basel III regulations. After Group Finance & Risk was split into two business segments, Dr Marcel Beutler became the Head of Group Risk as from 1 January 2016. Claus Hug was named Head of Group Treasury & Execution as from 1 March 2016. At end-April 2016, Antoine Baronnet stepped down from the Executive Board of VP Bank (Luxembourg) SA. As from 1 May 2016, Stefan Schwitter took up the position as Head of Group Investment, Product & Market Management. In June 2016, Antony Lassanianos was appointed CEO of VP Bank (Switzerland) AG while Stefan Wernli was appointed to the Executive Board of VP Bank (Switzerland) AG.

At the beginning of the year, reporting lines for the front office and middle and back office functions of the commercial banking segment were divided up. The credit processing functions are now managed by the Group Credit division of the Chief Operating Officer segment, while the client advisory functions are managed by the client business unit in the Domestic Commercial Banking division. 

As part of our efforts to enhance the service offerings of our valuable intermediaries business and provide comprehensive advisory services under one roof, this division was integrated into the Intermediaries business unit during the second quarter. This move further supports our services on behalf of regional credit clients and in particular helps to expand our presence in the Strategic Clients segment. This segment includes medium-sized and large asset managers as well as inter­nationally oriented trust companies, both of which offer substantial growth potential. We intend to enter into strategic partnerships in this segment in order to ensure a highly personalised and customised client relationship model based on our key account management advisory approach. 

The trend in corporate governance at the international level now calls for greater transparency as regards ownership relationships among legal persons. In that regard, shareholders voted to approve the resolution proposed by the Board of Directors to convert VP Bank’s listed bearer shares with a par value of CHF 10.00 into new registered shares A with an identical par value. The existing unlisted registered shares with a par value of CHF 1.00 will remain unchanged as class B registered shares and continue to be unlisted. The first trading day for the registered shares A was 6 May 2016. 

In June 2016, VP Bank AG launched a public share buyback programme involving up to 120,000 listed registered shares A, which may be repurchased for one year on the regular trading line on the SIX Swiss Exchange. The repurchased registered shares A are to be used for future acquisitions or treasury management purposes. By 30 June 2016, a total of 12,132 registered shares A had been repurchased through this buyback programme. A daily overview of all share repurchase transactions is available on our website under “Investors & Media / Shareholder information / Share buyback”.

The annual general meeting approved a higher dividend pay-out of CHF 4.00 per registered shares A and CHF 0.40 per registered shares B. The payment date was 6 May 2016. 

VP Bank shares trended favourably in the first half of 2016. They began the year at CHF 80.70 and reached a closing price of CHF 89.30 at 30 June 2016. Since 1 January 2016, bank shares in the European Stoxx 600 equity index are down about one third. With a nearly 9 per cent gain, VP Bank shares once again stood out as a solid investment compared with those of other banks in the first six months of the year. 

Our strategic initiatives include making targeted progress in the areas of client-oriented digitalisation and fully automated processing. Our digitalisation strategy addresses a key future development challenge. The Board of Directors has therefore established the “Strategy & Digitalisation Committee”, which supports and advises the Board on strategic topics and projects. It ensures a continuous strategic planning process, oversees its implementation and addresses overarching issues involving the bank’s positioning. Digitalisation thus represents a critical area of interest. 

To implement the digitalisation programme, a “Digitalisation Project Team” was created with the goal of improving our service quality, competitiveness and new business opportunities. The team is supported by external specialists. We have already initiated numerous projects. In the area of human resources management, for example, we launched the “e-recruiting” (automated job application process) and “employee self service” (electronic management of employees’ personal data) projects. 

VP Bank Group is committed to the principle of sustainable action. The focus on sustainable company management and social responsibility is a key factor in VP Bank’s successful entrepreneurial activity. This commitment is evident in several areas.

“Volunteering Day” is one such activity. VP Bank enables its employees in Liechtenstein and Switzerland to spend a day doing volunteer work at non-profit social services organisations, training programmes or environmental organisations. In late April, for example, management members and employees spent a day working vigorously outdoors while helping the foresters of the Vaduz Municipal Forestry Service. Other employees volunteered to support projects involving the Special Olympics and “Housing and Care for the Elderly”. 

Since May of this year, VP Bank has made e-bicycles available at no cost to its employees at the Vaduz and Triesen sites. This measure not only enables employees to stay active but also offers an environmentally friendly alternative to motorised transport. 

In January 2016, VP Bank announced that it would adhere to the United Nations Global Compact, a worldwide agreement between companies and the United Nations to make globalisation more socially and environmentally responsible. The UN Global Compact is the world’s largest sustainability initiative, with more than 12,000 signatories in 170 countries, including 8,000 companies. By adhering to the Compact, VP Bank is committed to upholding certain social and environmental standards in the future. The 2016 annual report will include an account of compliance with these standards for the first time. 

A CSR working group will strengthen the issue of sustainability at VP Bank through internal awareness training, memberships with relevant organisations and enhanced networking.

This year, VP Bank has demonstrated once again that it is well positioned. At end-July 2016, the rating agency Standard & Poor’s confirmed VP Bank’s excellent “A–” rating and raised its outlook for the bank from “negative” to “stable”. This good rating and improved outlook take into account VP Bank’s operational gains and prudent risk management as well as the strong capitalisation and successful integration of Centrum Bank. Since mid-2014, VP Bank has had at least an “A–/Stable/ A–2” rating. 

A study of European banks by the German consulting firm ZEB in early July 2016 focused on the profitability of the 50 leading banks. According to the study, the return on equity for the largest banks in the euro zone was 4.5 per cent in 2015. By comparison, VP Bank’s return on equity was higher (7.3 per cent at year-end 2015 and 5.5 per cent at 30 June 2016), again demonstrating the soundness of its business model. With a 25.7 per cent Tier 1 ratio, we also have one of the strongest capitalisations of any bank, which enables us to exploit the ongoing transformation of the financial industry.

Growth will remain a key concern in the years ahead. Accordingly, we will continue to strengthen the quality of our client relationships. We will also take advantage of market opportunities by selectively investing in growth through acquisitions while at the same time promoting organic growth. Our plan calls for recruiting around 25 additional front office employees annually over the next three years, with these new hires spread amongst our various bank sites.

This year, VP Bank is focusing in particular on the continued development of its fund business, strengthening its positioning in the Intermediaries business and developing new digital services in the payments, trading and client relations areas. 

As regards the expansion of our international business, we will increase the number of client advisors and advisory teams at our international sites in order to promote organic growth. Our medium-term goal is to raise the earnings contribution from our foreign target markets from the current 28 per cent to 50 per cent. 

Acknowledgements

We have successfully completed an eventful first half in a challenging environment marked by extensive organisational and strategic changes. We would therefore like to give special thanks to our employees for their energetic support and we look forward to a successful second half working together in 2016.

We would also like to thank our clients and shareholders for their trust in VP Bank.