Consolidated semi-annual report of VP Bank Group
For the first half of 2019, VP Bank Group earned, in accordance with International Financial Reporting Standards (IFRS), a consolidated net income of CHF 35.3 million (plus 20.5 per cent) which is markedly higher than that of the comparative prior-year period during which a net income of CHF 29.3 million was achieved. The positive growth of net new client money achieved in 2018 continued into the first six months of 2019 at the encouraging level of CHF 1.2 billion (prior-year period: CHF 0.6 billion).
Medium-term goals 2020
The Board of Directors of VP Bank Group has defined the following target values for 2020:
CHF 50 billion of assets under management
Group net income of CHF 80 million
a cost/income ratio of under 70 per cent.
VP Bank intends to make further acquisitions of banks or whole teams in its target markets. The acquisitions should ideally complement VP Bank Group on the basis of their business model with comparable core competencies, target markets and client structures.
In order to promote organic growth, 24 new senior client advisors were hired in both 2017 and 2018 as part of a recruitment offensive. This recruitment offensive will continue through to the end of 2019, as planned.
In addition, as part of the digitalisation strategy, new innovative services are being developed with urgency and targeted investments made in digital tools in order to render internal processes more efficient and to further optimise the benefit for the client.
Assets under management at 30 June 2019 aggregated CHF 45.6 billion (31.12.2018: CHF 41.5 billion). The cost/income ratio for the first six months of 2019 was 68.6 per cent (prior-year period: 70.3 per cent), thus fulfilling the 2020 goal of under 70 per cent.
The achievement of targets is facilitated by the robust equity resources of VP Bank Group. As of 30 June 2019, VP Bank Group possessed a tier 1 ratio of 19.7 per cent (end of 2018: 20.9 per cent). This strong equity-capital base confirms the robust and successful business model of VP Bank and constitutes an outstanding point of departure from which to be able to play an active role the future process of consolidation of the banking industry.
In May 2018, the rating agency Standard & Poor’s raised its already very good rating of «A–» for VP Bank to «A» and graded the outlook as stable. This increase in the rating takes account particularly of the substantial new net client money inflows since 2017, the operational progress as well as the continuing very strong equity basis. In addition, Standard & Poor’s emphasises the financial leeway enjoyed by VP Bank in order to invest in its operating business and to be able to assume an active role the future process of consolidation in the banking sector. VP Bank is one of the few private banks in Liechtenstein and Switzerland to receive such a good rating by an international rating agency.
Client assets under management
As of 30 June 2019, the client assets under management of VP Bank Group aggregated CHF 45.6 billion. Compared to the equivalent amount as of 31 December 2018 of CHF 41.5 billion, this represents an increase of 9.9 per cent (CHF 4.1 billion). This amount is made up of net new client money inflows of CHF 1.2 billion and CHF 1.0 billion resulting from the acquisition of the private-banking activities of Catella Bank as well as CHF 1.9 billion from positive movements arising from the revaluation of assets under management at market rates (performance).
During the first six months of 2019, VP Bank Group was able to report a high level of organic new client money, as in the three preceding semesters, of CHF 1.2 billion (prior-year period: CHF 0.6 billion). These inflows were achieved as a result of intensive market-development activities, the recruitment of new client advisors and new money from existing clients.
As of 30 June 2019, custody assets aggregated CHF 6.1 billion representing an increase of CHF 0.9 billion over 31 December 2018. As of 30 June 2019, client assets under management including custody assets aggregated CHF 51.7 billion (31 December 2018: CHF 46.7 billion).
In the first half year of 2019, the operating income of VP Bank increased by CHF 14.9 million, or 10.1 per cent, to CHF 162.7 million (prior-year period: CHF 147.9 million). This growth results principally from the sharply increased income from financial investments (plus CHF 10.5 Mio.) as a result of the encouraging state of equity markets in the first six months of 2019.
Despite the continuing negative interest-rate environment, interest income fell only by CHF 0.4 million, or 0.7 per cent, to CHF 54.6 million which can be ascribed to continuing active balance-sheet management, margin adjustments and volume increases. As regards interest income from client activities, the result could be marginally increased on a net basis whilst net income from treasury transactions reflected slight losses.
The increase in interest income from receivables from clients exceeding 22 per cent can be explained by volume increases and higher US-dollar interest rates. Based upon risk/return considerations, the Treasury of VP Bank, as in prior years, no longer placed foreign-currency denominated client deposits on the interbank market but swapped them into Swiss francs using currency swaps and deposited them with the Swiss National Bank (SNB). The CHF-denominated SNB clearing account which is in excess of the exemption threshold bears negative interest at a rate of minus 0.75 per cent. In addition, investments continued to be made in financial instruments in the amount of CHF 126.7 million (plus 4.9 per cent since 30.6.2018). In this process, lower income from treasury operations resulted as follows: this SNB negative interest is reported under “interest expense from financial assets” in the amount of CHF 4.3 million (prior-year period: CHF 9.0 million). The related revaluation gains/losses are disclosed in the interest income component “derivatives (forward components)” in the amount of CHF 7.9 million (prior-year period: CHF 17.0 million). The planned additional investments in financial instruments, principally in the form of bonds valued at amortised cost, increased the corresponding interest income by CHF 3.3 million (plus 27.1 per cent) to CHF 15.6 million in the first six months of 2019.
The negative performance from interest-rate hedging transactions under interest-rate derivatives and hedge accounting came in at the same level as in the prior-year period with minus CHF 0.7 million.
In the first six months of 2019, commission and service income grew by 4.3 per cent to CHF 67.0 million (prior- year period: CHF 64.3 million). Portfolio-based income grew as a result of net new money and of the Catella acquisition as well as performance-related growth of assets under management. Particularly in the case of commissions from asset management and the investment business, an increase of 7.7 per cent to CHF 26.2 million could be achieved in the first six months of 2019.
The volatile state of equity markets in the first half of 2019 negatively impacted trade-based client income in that client-related activities declined over the comparative prior-year period. Brokerage income in the reporting period fell as a result by CHF 1.0 million, or 6.2 per cent, from CHF 16.5 million to CHF 15.5 million. Income from trading activities aggregated CHF 29.3 million, thus constituting an increase of CHF 3.1 million (11.8 per cent) over the first six months of 2018. Trading income on behalf of clients could be increased by a welcome 21 per cent (plus CHF 5.4 million) to CHF 31.2 million. Realised and unrealised revaluation differences arising from hedging transactions for financial investments are recognised in securities trading. As a result of market conditions, a negative result of CHF 1.9 million (prior-year period: positive result of plus CHF 0.4 million) ensued.
In the first six months of 2019, financial investments gave rise to an income of CHF 11.4 million (prior-period gain: CHF 0.9 million). This sharp increase of CHF 10.5 million in income from financial investments derives principally from revaluation gains on financial investments with plus CHF 4.9 million in the first six months of 2019 (prior-year period: minus CHF 3.2 million). These revaluation gains are already realised for the most part.
Operating expenses in the first half-year of 2019 rose period-on-period by CHF 7.2 million from CHF 115.5 million to CHF 122.7 million (plus 6.2 per cent).
Compared to the first six months of 2018, personnel expenses increased by CHF 8.3 million, or 11.2 per cent, to CHF 82.4 million. The increase is primarily the result of the recruitment offensive for new senior client advisors and growth initiatives. At the end of June 2019, VP Bank Group employed some 876 employees, expressed as full-time equivalents, which constitutes an increase in the employee headcount of 48 employees (plus 5.8 per cent) compared to 30 June 2018.
General and administrative expenses could be reduced by 2.1 per cent to CHF 29.3 million (prior-year period: CHF 29.9 million). This reduction relates principally to a CHF 2.8 million lower level of occupancy expense at CHF 1.4 million (prior-year period: CHF 4.3 million) as a result of the implementation of IFRS 16 Leases as of 1 January 2019. With the adoption of IFRS 16, rental expense in the income statement is now substituted by depreciation and amortisation and interest expense starting in 2019 (cf. Financial-Statement Reporting Standards). Other general and administrative expense in the first half of 2019 also reported an increase of CHF 1.4 million to CHF 6.5 million primarily in connection with higher regulatory levies.
The 22.1 per cent increase in depreciation and amortisation of CHF 11.7 million to CHF 14.3 million arises in connection with the adoption of IFRS 16 Leases resulting in a corresponding reduction in occupancy expense (cf. above for further details).
The first six months of 2019 resulted in a net release of CHF 3.3 million (prior-year period: CHF 0.2 million) of valuation allowances, provisions and losses. This relates to individual valuation allowances as well as credits from stage 2 in accordance with IFRS 9 Expected Credit Loss.
Taxes on income
Taxes on income for the first half of 2019 amounted to CHF 4.8 million which is CHF 1.7 million higher than in the comparative prior-year period. The increase is the result of higher taxable income within VP Bank Group.
Consolidated net income
Consolidated net income for the first six months of 2019 totalled CHF 35.3 million (prior-year period: CHF 29.3 million). Group net earnings per registered share A were CHF 5.89 (first six months of 2018: CHF 4.82).
Comprehensive income comprises all revenues and expenses recognised in both the income statement and in shareholders’ equity. Items recorded directly in equity principally concern actuarial adjustments relating to pension funds and changes in the value of FVTOCI financial instruments. VP Bank Group generated comprehensive income in the first half of 2019 of CHF 42.1 million as against CHF 19.2 million in the prior-year period.
In the first half of 2019, total assets increased by CHF 0.7 billion to CHF 13.1 billion in comparison to 31 December 2018. This increase in total assets is to be explained primarily by the increase under the liabilities caption “other amounts due to clients” of CHF 0.6 billion and an increase, under assets, of amounts due from clients of CHF 0.5 billion.
VP Bank Group continues to possess a very comfortable liquidity situation with cash and cash equivalents of CHF 2.6 billion (CHF 2.5 billion as of 31.12.2018) representing some 20 per cent of total assets.
As regards loans to clients, to be noted is an increase of CHF 0.5 billion (7.5 per cent) since the beginning of the year to CHF 6.7 billion as at 30 June 2019. In this respect, VP Bank continues an unchanged high level of discipline and control in its credit-granting activities.
Within the scope of its ALM strategy (Asset and Liability Management), the volume of financial instruments, valued at amortised cost, continued to expand since the beginning of the year, as planned, by CHF 80.8 million to CHF 2.5 billion.
On the liabilities’ side, client deposits in the caption “other amounts due to clients” as of 30 June 2019 rose by CHF 0.6 billion (6.6 per cent) since the beginning of the year to CHF 10.3 billion.
On 28 June 2019, VP Bank concluded its public share buyback programme initiated on 27 June 2018 over the regular trading line.
At 30 June 2019, VP Bank holds, directly or indirectly, a total of 600,847 registered shares A and 325,929 registered shares B (9.58 per cent of the share capital and 7.71 per cent of the voting rights) in the treasury. As no cancellation of the repurchased shares takes place, the structure of capital and voting rights remains unchanged. The registered shares A held in the treasury are designed to be used for future corporate acquisitions or for treasury-management purposes.
As at the end of June 2019, the shareholders’ equity amounted to CHF 985.1 million (31 December 2018: CHF 981.6 million).
The tier 1 ratio at 30 June 2019, computed in accordance with Basel III, amounted to 19.7 per cent (31 December 2018: 20.9 per cent) which represents a strong equity base and constitutes an outstanding strategic baseline from which to continue to play an active role in the process of consolidation of banks.
The economic outlook for Europe has deteriorated noticeably in recent months. Trade disputes are now displaying their negative effects and recessionary risks have risen accordingly. Also, the most significant Central banks have become aware of the dangers for the future development of the economy. The reins of monetary policy are thus being eased. Economic woes, on the one hand, and interest-rate cuts, on the other, will repeatedly lead to phases of heightened volatility on financial markets. VP Bank Group is preparing itself for an imminent more demanding market environment.
With digitalisation, the financial sector is confronted with major challenges but also very promising opportunities. VP Bank is optimally equipped to meet these future challenges and continues to pursue its sustained growth strategy. Its high level of equity resources constitutes a healthy basis for a successful future for VP Bank Group. The outstanding A rating and the stable outlook confirm the robust and successful business model of VP Bank Group.