VP Bank Group Consolidated semi-annual report
Consolidated net income
In the first half of 2018, VP Bank Group recorded consolidated net income in accordance with International Financial Reporting Standards (IFRS) of CHF 29.3 million, compared with CHF 31.5 million in the same period of the previous year. Net inflows of client deposits totalling CHF 0.6 billion were very satisfactory (2017: CHF 1.1 billion).
2020 medium-term goals
VP Bank Group’s Board of Directors identified the following goals for 2020:
CHF 50 billion in client assets under management
CHF 80 million in consolidated net income
Cost/income ratio below 70 per cent.
VP Bank plans to carry out additional acquisitions of banks or entire teams in its target markets. These acquisitions should ideally complement VP Bank Group through business models based on comparable core competencies, target markets and client bases. In order to drive organic growth, VP Bank plans to implement a recruiting campaign to hire at least 25 new senior client advisors annually along with transferring the corresponding client assets to VP Bank. This year, the Group already hired seven client advisors as part of this campaign.
As part of the digitalisation strategy, substantial efforts are also being made to develop new innovative services for our clients and to make targeted investments in digital tools in order to enhance the efficiency of internal processes and further optimise benefits to clients.
At 30 June 2018, client assets under management totalled CHF 40.9 billion (31.12.2017: CHF 40.4 billion). The first-half cost/income ratio was 70.3 per cent, compared with 64.6 per cent the previous year.
VP Bank’s management is convinced that it can achieve its defined goals for 2020 by taking advantage of organic and acquisition-related growth opportunities while implementing strict cost management. VP Bank Group’s solid capital ratios further support the achievement of this goal. At 30 June 2018, VP Bank Group’s tier 1 ratio was 22.6 per cent (compared with 25.7 per cent at end-2017). This strong capitalisation confirms VP Bank’s sound and successful business model and represents an outstanding basis from which to take advantage of industry consolidation in the banking sector going forward.
In May 2018, the Standard & Poor’s rating agency upgraded VP Bank’s already strong “A–” rating to “A” and listed the outlook as “stable”. This ratings upgrade reflects in particular the considerable net new money inflows in 2017, operational gains and the continued strong capital ratios. Standard & Poor’s also highlighted the financial leeway enjoyed by VP Bank to invest in its operating business and play an active role in the consolidation process for the European banking sector. VP Bank is one of the few private banks in Liechtenstein and Switzerland to be so highly rated by a rating agency. The rating and outlook were confirmed on 9 August 2018.
At 30 June 2018, VP Bank Group’s client assets under management totalled CHF 40.9 billion, up 1.3 per cent (CHF 0.5 million) from CHF 40.4 billion at 31 December 2017. The increase resulted from the combined effects of CHF 0.6 billion in net new money and a CHF 0.1 billion drop in the market valuation (performance) of client assets.
In the first half of 2018 as in the three that preceded it, VP Bank Group recorded substantial net new money inflows, with CHF 0.6 billion in the first half of this year (compared with CHF 1.1 billion in the first half of 2017). Another positive development was that these inflows were recorded in both business segments: “Client Business Liechtenstein” and “Client Business International”. They were made possible by sustained market development efforts, the recruitment of new client advisors and new money from existing clients.
Assets held in custody totalled CHF 5.9 billion at 30 June 2018, down CHF 0.2 billion from 31 December 2017. Client assets including custody assets totalled CHF 46.8 billion at 30 June 2018 (CHF 46.4 billion at 31 December 2017).
In the first half of 2018, VP Bank’s operating income contracted by CHF 3.3 million, or 2.2 per cent, to CHF 147.9 million (first half of 2017: CHF 151.1 million). This decrease resulted mainly from the significant contraction in income from financial instruments (down CHF 11.1 million) due to equity market volatility in the first half of the year.
Interest income increased by CHF 3.5 million, or 6.9 per cent, to CHF 55.0 million. This increase was achieved through active asset-liability management, margin adjustments and volume increases.
Net interest income from customers contracted by CHF 2.8 million to CHF 34.9 million in the first half of 2018 (compared with CHF 37.6 million the previous year). The more than 10 per cent increase in interest income from customers was due to volume increases and higher US dollar interest rates. Given risk/return considerations, VP Bank’s treasury increasingly decided not to invest client foreign currency deposits through the interbank market and instead reallocate them to Swiss francs using currency swaps and deposit them with the SNB. That led to an increase in the CHF giro account balance at the SNB, which incurs a negative interest charge of 0.75 per cent on deposits exceeding the exemption threshold. Additional investments were also made in financial instruments in the amount of CHF 378.3 million (up 19.2 per cent as from 30 June 2017).
The loss from interest hedges, which is shown in the interest rate instruments and hedge accounting items, increased only slightly from CHF 0.4 million the previous year to CHF 0.7 million in the first half of 2018.
Income from commission business and services increased by 5.2 per cent to CHF 64.3 million in the first half of 2018 (2017: CHF 61.1 million). Portfolio-based income rose in particular thanks to net new money. Commission income from the asset management and investment business rose by 12.8 per cent to CHF 24.3 million in the first half of 2018. Equity market volatility during this period had a positive impact on income from customer trading, as customer trading picked up slightly relative to the comparable period of the previous year.
Income from trading activities totalled CHF 26.2 million, representing an increase of CHF 1.0 million (4.0 per cent) in the first half of 2018. Income from trading on behalf of clients rose slightly to CHF 25.8 million. Realised and unrealised revaluation differences arising from hedging transactions for financial investments are recognised in securities trading. Thanks to the market environment, positive income of CHF 0.4 million was recorded in the first half of 2018 (compared with a loss of CHF 0.5 million the previous year).
Financial investments generated income of CHF 0.9 million in the first half of 2018 (2017: CHF 12.0 million). This CHF 11.1 million drop in financial investment income was mainly due to revaluation losses on financial investments measured at fair value totalling CHF 3.2 Mio. in the first half of 2018, compared with revaluation gains of CHF 7.7 million the previous year.
In the first half of 2018, operating expenses fell by CHF 1.7 million, or 1.5 per cent, from CHF 117.2 million to CHF 115.5 million.
Personnel expenses increased by CHF 4.2 million, or 6.0 per cent, to CHF 74.0 million. The increase in personnel expenses was mainly due to efforts to recruit senior client advisors as well as growth initiatives. At 30 June 2018, VP Bank Group had approximately 828 full-time-equivalent employees, representing a 9.3 per cent increase of 70 employees.
General and administrative expenses increased by 7.6 per cent to CHF 29.9 million (2017: CHF 27.8 million). This increase was mainly due to an increase in other general and administrative expenses, which rose from CHF 3.5 million to CHF 5.1 million in connection with an accrued expense for the investor protection foundation. The 13.4 per cent increase in depreciation and amortisation from CHF 10.4 million to CHF 11.7 million resulted from investments in regulatory projects and growth initiatives, which upon completion are amortised over several years.
A net reversal of valuation allowances, provisions and losses totalling CHF 0.2 million was recorded in the first half of 2018, compared with a charge of CHF 9.2 million the previous year, which was mainly due to the agreement with the authorities in North Rhine-Westphalia and establishment of a corresponding provision.
Taxes on income
Taxes on income totalled CHF 3.1 million in the first half of 2018, up CHF 0.6 million relative to the previous year. The increased tax expense despite the lower income was due to the CHF 1.7 million increase in deferred tax expense to CHF 0.3 million in the first half.
Consolidated net income
Consolidated net income was CHF 29.3 million in the first half of 2018 (2017: CHF 31.5 million). Consolidated net earnings per registered share A was CHF 4.82 (first-half of 2017: CHF 5.22).
Comprehensive income comprises all revenues and expenses recognised in the income statement and in equity. Items recorded directly in equity principally concern actuarial adjustments relating to pension funds and FVTOCI financial instruments. In the first half of 2018, VP Bank Group generated comprehensive income of CHF 19.2 million as against CHF 31.2 million in the preceding year.
Total assets were CHF 12.6 billion at 30 June 2018, down a slight CHF 0.2 billion from 31 December 2017. This decrease was due to the decline in cash and cash equivalents, amounts due from banks and amounts due to banks.
VP Bank Group continues to enjoy ample liquidity with cash and cash equivalents totalling CHF 3.3 billion representing approximately 26 per cent of total assets at 30 June 2018.
Client loans increased by CHF 79.6 million (1.4 per cent) to CHF 5.7 billion at 30 June 2018. VP Bank’s lending activities remain characterised by strict discipline and controls.
As part of its ALM strategy, the volume of financial instruments measured at amortised cost increased as planned by CHF 180.2 million to CHF 2.4 billion.
On the liabilities side, client deposits recognised under “Amounts due to clients – other liabilities” increased by CHF 162 million (1.6 per cent) to CHF 10.1 billion at 30 June 2018.
On 26 June 2018, under the authorisation granted to it by the 24 April 2015 Annual General Meeting, VP Bank announced that it would increase its treasury share position through another share buy-back programme of up to 10 per cent of the share capital. VP Bank is thus building on the three successful share buy-back programmes in 2015 and 2016. The repurchased registered shares are to be used for future acquisitions or treasury management purposes.
As part of the public share buy-back programme, VP Bank is prepared to purchase up to 180,000 registered shares A. The repurchase period for registered shares A runs from 27 June 2018 to no later than 28 June 2019 and will be carried out using ordinary trading lines on the SIX Swiss exchange. At no time will VP Bank own more registered shares A than it is authorised to own under the aforementioned authorisation by the Annual General Meeting (a maximum of 601,500 shares, which corresponds to 10 per cent of all registered shares A).
VP Bank also decided to repurchase up to 456,554 of its own unlisted registered shares B at a price of CHF 21.30. The repurchase of registered shares B will be carried out by VP Bank, and the corresponding shareholders will be notified directly in writing.
Since none of the shares are being cancelled, the share capital and voting rights ratios remain unchanged. For the tier 1 ratio calculation, the entire buy-back programme, i.e. 10 per cent of share capital, must be deducted.
At 30 June 2018, shareholders’ equity was CHF 957.4 million (CHF 994.2 million at 31 December 2017). The tier 1 ratio calculated in accordance with the Basel III rules was 22.6 per cent at 30 June 2018 (25.7 per cent at 31 December 2017), an outstanding result compared with other banks. This result reflects the bank’s strong capital adequacy and provides it with an excellent strategic position in order to play an active role in the banking industry consolidation process.
The danger of an escalating trade war has gripped financial markets. Sentiment fluctuates between hope and anxiety, and trends on major financial exchanges are accordingly volatile. This situation is not likely to change measurably in the months ahead. VP Bank Group’s business activity will be marked by this challenging market environment.
For the financial industry, digitalisation poses a major challenge but also presents very promising opportunities. VP Bank is well equipped to meet these challenges, has launched projects in this area and continues to implement its growth strategy. VP Bank’s strong capital position provides it with a sound basis for a successful future. The excellent new “A” rating and stable outlook confirm VP Bank Group’s solid and successful business model.