Consolidated semi-annual report of VP Bank Group

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.

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.