Consolidated semi-annual report of VP Bank Group

In accordance with International Financial Reporting Standards (IFRS), VP Bank Group realised a consolidated net income of CHF 31.5 million for the first half of 2017, this in comparison to the CHF 24.4 million profit recorded in the comparable prior-year period – a year-on-year gain of CHF 7.0 million or 28.8 per cent. Also very gratifying was the net inflow of new client money in the amount of CHF 1.1 billion.

The Board of Directors of VP Bank Group has defined the following target values for 2020:

• total assets under management of CHF 50 billion
• consolidated net income of CHF 80 million
• a cost/income ratio less than 70 per cent

The net new money inflow of CHF 1.1 billion alone in the first half is indeed an impressive performance. In an effort to forge ahead with organic growth, a recruiting offensive has been launched with the aim of hiring each year at least 25 new senior client advisors who will have their managed client assets transferred to VP Bank. This offensive has already shown results, with a number of senior advisors having joined the Group in the first semester of the year. By the end of 2017, the goal of 25 will likely be achieved.

At 30 June 2017, client assets under management amounted to CHF 37.4. billion (30 June 2016: CHF 34.0 billion). The cost/income ratio as of 30 June 2017 stood at 64.6 per cent (versus 68.9 per cent in H1 2016).

The Management of VP Bank is convinced of achieving the defined goals in 2020 through the targeted exploitation of its organic and acquisition-related growth potential whilst maintaining strict management of costs at the same time.

This quest will be underpinned by VP Bank Group’s solid equity capital base. As of 30 June 2017, VP Bank had a tier 1 ratio of 25.9 per cent (previous year: 25.7 per cent) and an admirable A–/Positive rating from Standard & Poor’s. These key readings attest to VP Bank’s robust, successful business model and constitute an outstanding point of departure for playing an active role in the consolidation process under way in the banking industry.

Client assets under management at VP Bank Group on 30 June 2017 amounted to 37.4 billion. This compares to the CHF 35.8 billion recorded on 31 December 2016 and represents an increase of 4.6 per cent (CHF 1.6 billion). Performance-related factors accounted for CHF 0.5 billion of that growth.

In the first semester of 2017, VP Bank Group booked a CHF 1.1 billion net new money inflow (prior-year period: a net outflow of CHF 0.2 billion). All of the Bank’s locations contributed to this positive result. The inflows were attribut­able to intensified market cultivation, the recruiting of new client advisors, as well as new deposits by existing clients especially in the fund area and at the individual international subsidiaries.

As of 30 June 2017, client assets held in custody amounted to CHF 5.5 billion, a slight decline of CHF 0.3 billion versus the total recorded on 31 December 2016. Total client assets (i.e. including custody assets) on 30 June 2017 stood at CHF 42.9 billion (31 December 2016: CHF 41.5 billion).

In the first half of 2017, VP Bank’s total operating income rose by CHF 21.3 million or 16.4 per cent to CHF 151.1 million (prior-year period: CHF 129.8 million). This increase was observed in all line items on the income statement.

Income from the interest differential business showed a year-on-year increase of CHF 4.2 million or 8.8 per cent to CHF 51.4 million. This rise is mainly attributable to the active management of the Bank’s liquidity as well as to margin adjustment, volume increases and higher yields on USD dollar holdings.

Interest income from the client business (incl. negative interest) amounted to CHF 37.9 million, roughly in line with the prior-year level.

Interest income from treasury operations during the first half rose versus the first half-year of 2016 by CHF 1.3 million to a total of CHF 14.0 million. Included in that amount are negative interest charges of CHF 7.0 million (first half-year of 2016: 6.4 million) imposed by the Swiss National Bank (SNB). Out of risk/reward considerations, we did not use the interbank market to invest monies due to customers in foreign currencies, preferring instead to make increased use of foreign currency swaps into Swiss francs that were then deposited with the SNB. This resulted in a higher CHF giro account balance at the SNB, which in turn was charged 0.75 negative interest on the amount in excess of the exemption threshold. This SNB negative interest charge is reflected under “Interest expense from financial assets” and was more than compensated by the value increase of the forex swaps as recorded under “Income from trading activities” in the amount of CHF 11.4 million (previous year: CHF 9.7 million).

The loss on interest rate hedges was reduced to a negative CHF 0.4 compared to the CHF 3.4 million loss in the first half-year of 2016. Whilst the hedge accounting position hardly changed, the negative performance of interest rate derivatives (CHF –0.6 million) was considerably less than the CHF 3.5 million loss recorded for the prior-year period.

The interest income from financial instruments valued at amortised cost of acquisition increased by 4.3 per cent to CHF 9.6 million due to the increased magnitude of the cor­responding balance sheet item.

Income from commissions and services rose in the first half of 2017 by 0.7 per cent to CHF 61.1 million (prior-year period: CHF 60.7 million). The favourable stock market environment during the first six months of the year had a positive impact on commission income. This was primarily attributable to higher transaction-related revenues from client activities as compared to the previous year’s first half. Brokerage fees increased by CHF 2.0 million or 12.9 per cent from CHF 15.6 million to 17.6 million versus the first half-year of 2016. At the same time, the inflow of new money as well as the positive performance of existing positions resulted in higher account value-dependent revenues. On the whole, income from the commission and services business in the first half of 2017 rose by 5.7 per cent to 89.6 million (previous year: CHF 84.8 million). Commission and services expenses on the other hand also increased by CHF 4.4 million from CHF 24.1 million to CHF 28.5 million.

Income from trading activities amounted to CHF 25.2 million, an increase of CHF 5.3 million (26.4 per cent) versus the prior-year period. Income from foreign exchange trading of behalf of clients rose by 10.4 per cent to CHF 25.7 million. As to securities trading, the realised and unrealised valuation differences are booked to hedging transactions on financial investments. Due to unfavourable market conditions, a loss of CHF 0.5 million was recorded (previous year: CHF 3.4 million loss).

In the first six months of 2017, financial investments generated a profit of CHF 12.0 million (prior-year period: CHF 1.2 million). This CHF 10.7 million relative outperformance was mainly attributable to unrealised valuation gains on financial instruments recorded at fair value of CHF 7.7 million (H1 2016: 3.6 CHF million loss). The increase in other income reflects a one-time effect of CHF 0.7 million from the sale of an associated company at the outset of the year.

Operating expenses rose in the first semester of 2017 by CHF 15.7 million from CHF 101.5 million (first half-year of 2016) to CHF 117.2 million, or 15.5 per cent. Included in that total is a provision for the settlement of a legal dispute with the authorities of North Rhine-Westphalia relating to the untaxed assets of German clients. This is a comprehensive settlement and applies to all German federal states.

Compared to the previous year’s first half, personnel expenses rose by CHF 4.9 million or 7.5 per cent to CHF 69.9 million. One of the reasons for this increase was the added expense of the effort to recruit new senior client advisors. At the end of June 2017, VP Bank Group employed 757.4 individuals (expressed in fulltime equivalents), 22.4 more FTEs than in the comparable prior-year period. In keeping with IAS 38, CHF 0.4 million worth of self-developed software was capitalised and hence deducted from personnel expenses.

General and administrative expenses rose by 13.8 per cent to CHF 27.8 million (prior-year period: CHF 24.4 million) primarily due to the costs of external consultants who have been assisting VP Bank in a variety of projects (e.g. regulatory, growth initiatives, digitalisation, etc.). Depreciation and amortisation was CHF 1.0 million (8.5 per cent) lower than the prior-year total and on 30 June 2017 came to a total of CHF 10.4 million.

Valuation allowances, provisions and losses in the first half-year of 2017 amounted to CHF 9.2 million (prior-year period: CHF 0.7 million). This increase is mainly attributable to the aforementioned settlement with the authorities of North Rhine-Westphalia and the related CHF 10.9 million provision that was established. Provisions for credit risks in the net amount of CHF 2.2 million were released and recognised on the income statement.

Taxes on income for the first half of 2017 totalled CHF 2.5 million, CHF 1.4 million less than in the first half-year of 2016. This lower tax burden despite the Bank’s higher profit for the period is explained by the tax-free income earned on certain financial investments.

VP Bank’s consolidated net income for the first half of 2017 stood at CHF 31.5 million (prior-year period: CHF 24.4 million). Consolidated net income per registered share A was CHF 5.22 (30 June 2016: CHF 4.04).

Comprehensive income embraces all income and expenses recognised on the income statement and in shareholders’ equity. Directly booked to the latter are actuarial adjustments to pension schemes as well as changes in the fair value of financial instruments (FVTOCI). VP Bank Group in the first semester of 2017 recorded total comprehensive income of CHF 31.2 million compared to the CHF 0.6 million achieved in the prior-year period.

Total assets increased over the amount on 31 December 2016 by CHF 0.2 billion to CHF 12.0 billion as of 30 June 2017, primarily due to the larger volumes of client credits and financial instruments valued at amortised cost of acquisition.

With cash and cash equivalents totalling CHF 3.2 billion, VP Bank Group has a very comfortable cushion of liquidity.

Client loans increased in the first half of 2017 by CHF 286.9 million (5.5 per cent) to CHF 5.5 billion as of 30 June 2017. VP Bank remains true to the principle of maintaining strict discipline and control in its lending practices.

On the liabilities side, client deposits and medium-term cash bonds declined in the first half-year of 2017 by CHF 131.3 million (1.3 per cent) to CHF 9.9 billion as of 30 June 2017.

On 6 June 2016, VP Bank Ltd announced a share buyback programme for a maximum of 120,000 of its own registered shares A, each with a par value of CHF 10. In total, 88,835 of those shares were purchased in the period between 7 June 2016 and 31 May 2017, representing 1.34 per cent of equity capital reflected in the Commercial Register or, as it were, 0.74 per cent of the voting rights. These repurchased shares are earmarked to future acquisitions or otherwise for treasury management purposes.

At the end of June 2017, shareholders’ equity amounted to CHF 942.3 million (31 December 2016: CHF 937.0 million).

The tier 1 ratio on 30 June 2017 as calculated in accordance with Basel III stood at 25.9 per cent (on 31 December 2016: 27.1 per cent), far superior to that of other banks. This very solid equity capital base enables VP Bank to continue its active role in the consolidation process within the banking industry.

The general market environment and interest rate developments will have an influence on the business performance and results of VP Bank Group also in the second half of the current year. The prevailing trends in terms of tax transparency and the automatic exchange of information will persist and have a direct impact on the clients and business fields of VP Bank Group as well as the Liechtenstein financial centre.

With the advent of digitalisation, the financial industry is faced with tremendous challenges, but also promising opportunities. VP Bank is well equipped to tackle these challenges. We have initiated the appropriate projects and are resolutely pursuing our sustainable growth strategy. VP Bank Group’s solid equity base represents the launch pad for a successful future.