Segment reporting

1. Calculation in accordance with Table P of the Guidelines to the Liechtenstein Banking Ordinance issued by the Government of Liechtenstein (FL-BankO).

The recharging of costs and revenues between the business units is undertaken on the basis of internally set transfer prices, actual services provided or on the basis of market-customary conditions. Costs recharged between the segments are reviewed annually and, whenever necessary, adjusted to reflect changed economic circumstances. 

External segment reporting reflects the organisational structure of VP Bank Group and internal reporting to Management. These form the basis for assessing the financial performance of the segments and the allocation of resources to the segments. 

VP Bank Group consists of the six organisational units “Chief Executive Officer”, “Client Business”, “Investment Solutions”, “General Counsel & Chief Risk Officer”, “Chief Financial Officer” and “Chief Operating Officer”. 

For segment-reporting purposes, the organisational unit “Client Business” is divided into two business segments “Client Business Liechtenstein” and “Client Business International”. The unit “Investment Solutions” is managed, for segment-­reporting purposes, in “Client Business Liechtenstein” and “Client Business International”. The four organisational units “Chief Executive Officer”, “Chief Financial Officer”, “Chief Operating Officer” and “General Counsel & Chief Risk Officer” are regrouped together, for segment reporting, under the business segment “Corporate Center”. Revenues and expenses as well as assets and liabilities are allocated to the business segments on the basis of client responsibility or the principle of origination. Whenever no direct allocation is possible, the related positions are reported under the Corporate Center. In addition, consolidation adjustments are included in the Corporate Center.

1. The provision for a single payment which is to be made to the German authorities as part of an agreement is shown in Corporate Center.
2. Calculation in accordance with Table P of the Guidelines to the Liechtenstein Banking Ordinance issued by the Government of Liechtenstein (FL-BankO).

The recharging of costs and revenues between the business units is undertaken on the basis of internally set transfer prices, actual services provided or on the basis of market-customary conditions. Costs recharged between the segments are reviewed annually and, whenever necessary, adjusted to reflect changed economic circumstances.

1. Annualised, average values.
2. Operating expenses excluding depreciation and amortisation, valuation allowances, provisions and losses / gross income less other income and income from financial instruments.

The business segment “Client Business Liechtenstein” encompasses the international private banking business and the business with intermediaries located in Liechtenstein as well as the local universal banking and credit-­granting businesses. It includes the units of VP Bank Ltd, Vaduz which are in direct client contact. In addition, Group Investment, Product & Market Management and VP Fund Solutions (Liechtenstein) AG are allocated to this business segment. 

With CHF 54.5 million, the pre-tax segment result in the first six months of 2018 could be held at a constant level (CHF –0.3 million) in comparison to the prior-year period (CHF 54.7 million). Period-on-period, operating income could be increased by CHF 3.7 million (4.1 per cent) in the first six months of 2018. This growth results from interest income from clients (8.9 per cent) as well as commission and service income (2.0 per cent). Primarily developments in USD interest rates as well as margin increases in credit-­granting activities contributed to this positive result. Operating expenses rose by CHF 4.0 million (10.8 per cent) to CHF 41.1 million (comparative prior-year period: CHF 37.1 million). This increase is primarily attributable to the caption credit loss allowances, provisions and losses as well as a higher level of inter-segmental recharges. In the first six months of 2018, the charges for credit loss allowances, provisions and loss increased, period-on-period, by CHF 1.4 million to minus CHF 1.4 million (comparative prior-year period: minus CHF 2.8 million) due to the release of credit loss allowances no longer required. Cost and revenue recharges in the business segment Client Business Liechtenstein are based upon fixed internal transfer prices. Indirect costs for internal services are reported in the caption “services to/from other segment(s)”. The gross margin amounted to 71.2 basis points (prior-period: 74.0 basis points). The cost/income ratio improved marginally from 41.6 per cent to 42.0 per cent. 

In the reporting period, the segment reported net new money inflows from clients of CHF 0.3 billion. The welcome new money inflows resulting from market-development activities thereby offset money outflows resulting from the regulatory environment and taxation-related issues. Assets under management at 30 June 2018 totalled CHF 27.0 billion (31 December 2017: CHF 26.7 billion). The employee head­count rose from 179 (30 June 2017) to 184 individuals.

1. Annualised, average values.
2. Operating expenses excluding depreciation and amortisation, valuation allowances, provisions and losses / gross income less other income and income from financial instruments.

The business segment “Client Business International” encompasses the business conducted at international locations. VP Bank (Switzerland) Ltd, VP Bank (Luxembourg) SA, VP Bank (BVI) Ltd, VP Bank (Singapore) Ltd, VP Wealth Management (Hong Kong) Ltd and VP Fund Solutions (Luxembourg) SA are allocated to this business segment.

In the first six months of 2018, the pre-tax segment result declined by CHF 0.7 million in comparison to the prior-year period of 2017. Operating income could be increased, period-on-period, by CHF 6.7 million (17.6 per cent). This increase is attributable principally to higher interest income from clients (20.0 per cent) as well as commission and service income (24.7 per cent). The recruitment offensive already contributes positively to commission and service income. Operating expenses rose by CHF 7.3 million, or 22.5 per cent, to CHF 39.9 million. This increase results, on the one hand, from personnel and general and administrative expense reflecting principally the recruitment offensive for new senior client advisors. In the business segment “Client Business International”, the recharging of services is based on actual invoices and recorded under general and administrative expenses. In 2018, these recharges increased by CHF 2.5 million. The charges for credit loss allowances, provisions and losses amounted to minus CHF 0.7 million.

The gross margin could be increased to 64.6 basis points (prior comparative period: 64.5 basis points). The cost/income ratio improved from 81.7 per cent to 90.2 per cent. 

Net new money developed positively in the first six months of 2018 with CHF 0.3 billion. The recruitment offensive at these locations continues to show new client money inflows in the first six months of 2018. Net new money inflows could again be achieved in the investment-fund business and in European markets thanks to reinforced market-development activities. Assets under management at 30 June 2018 totalled CHF 14.0 billion (31 December 2017: CHF 12.4 billion). The employee headcount rose from 241 individuals (30 June 2017) to 278 primarily because of the recruitment offensive for new senior client advisors.

The business segment “Corporate Center” is of great importance for banking operations and the processing of business transactions. It encompasses the areas Group Operations, Group Information Technology, Group Projects & Processes, Group Credit, Group Treasury & Execution, Group Finance, Group Risk, Group Legal, Compliance & Tax, Group Human Resources Management, Group Communications & Marketing and Group Strategy. In addition, those revenues and expenses of VP Bank Ltd having no direct relationship to client-oriented business segments, as well as consolidation adjustments are reported under the Corporate Center. Revenue-generating business activities of the segment Corporate Center arise in connection with the Group Treasury function. The results of the Group’s own financial investments, the structural contribution and the changes in the value of hedges are reported in this segment. 

The pre-tax segment result for the first six months of 2018 amounted to minus CHF 26.8 million as opposed to minus CHF 26.1 million in the comparative prior-year period.

Period-on-period, operating income declined by CHF 13.7 million in the first six months of 2018. Responsible for this decrease is largely the income from financial investments. 

Interest income declined, period-on-period, by CHF 2.6 million. This is attributable, in part, to the on-going negative interest level and, consequently, to the decline in interest revenues from maturity transformation (SNB negative interest). 

Commission and service income reports a fall in revenues. This comprises third-party bank commissions which were invoiced to front business units by the service units through internal recharging.

Income received by Group Treasury & Execution is report­ed under trading income. This relates to income generated from the execution of foreign-exchange trades. The caption also includes the results of derivatives employed to minimize risks as well as gains/losses from balance-sheet management activities. 

Income from financial investments in the first six months of 2018 totalled CHF 0.9 million. In the comparative prior-­year period, an income of CHF 11.9 million was reported under this caption, primarily resulting from unrealised revaluation gains on financial instruments. 

Operating expenses in the reporting period fell by CHF 13.1 million from CHF 47.5 million to CHF 34.4 million. This drop is largely to be explained by the provision raised in the comparative prior-year period for a payment relating to a settlement with the German authorities. Consequently, charges for credit loss allowances, provisions and losses in the reporting period fell by CHF 8.8 million. Personnel and general and administrative expenses could be reduced by CHF 0.9 million and CHF 2.3 million, respectively. Depreciation and amortisation rose from CHF 7.0 million to CHF 7.7 million. 

The employee headcount rose from 338 (30 June 2017) to 366 positions.