Seg­ment re­port­ing

External segment reporting reflects the organisational structure of VP Bank Group and the internal reporting to Management. The latter form the basis for assessing 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 expenditures as well as assets and liabilities are allocated to the business segments based on the responsibilities for the clients and the principle of origination. Insofar as a direct allocation is not possible, the positions in question are reported under the Corporate Center. Furthermore, the Corporate Center includes adjustments made on consolidation.

1. 1
   As of 1 January 2019, the new funds transfer pricing was introduced within the Group. With funds transfer pricing, the internal bank recharges between the Treasury department and Client Business segments are determined and computed. Funds transfer pricing is a central instrument to manage market-price and liquidity risks. With funds transfer pricing, refinancing and liquidity costs between Client Business segments and Treasury are recharged at market-oriented prices. This recharging is applied for new business and resubmissions as from 1 January 2019. The result of this change for the first six months of 2019 amounts to CHF -4.6 million for Client Business Liechtenstein, CHF -0.1 million for Client Business International and CHF 4.7 million for the Corporate Center. The prior-year comparatives were not restated as the change for prior periods was impracticable because of the passage of time as well as the lack of an appropriate data base and the cost of assembling this data retrospectively on an individual-transaction basis would be so high that it would bear no relationship to the benefit to be derived therefrom. The introduction of funds transfer pricing has no impact on the consolidated results of VP Bank Group. 
2. 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 takes place on the basis of internal transfer prices, actual recharges or prevailing market conditions. Recharged costs within the segments are subject to an annual review and are amended to reflect new economic conditions, where necessary.

1. 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 takes place on the basis of internal transfer prices, actual recharges or prevailing market conditions. Recharged costs within the segments are subject to an annual review and are amended to reflect new economic conditions, where necessary.

1. 1
   As of 1 January 2019, the new funds transfer pricing was introduced within the Group. The impact of this change for the segment Client Business Liechtenstein amounted to CHF -4.6 million. The prior-year comparatives were not restated as the change for prior periods was impracticable because of the passage of time as well as the lack of an appropriate data base and the cost of assembling this data retrospectively on an individual-transaction basis would be so high that it would bear no relationship to the benefit to be derived therefrom.
2. 2
   Annualised, average values.
3. 3
   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 conducted 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, the CIO Office, the Group Investment Management, Group Investment Advisory, Group Product Center and VP Fund Solutions (Liechtenstein) AG are allocated to this business segment.

The pre-tax segment result fell from CHF 54.5 million to CHF 42.1 million (CHF -12.4 million). In the first half of 2019, operating income declined by CHF 11.0 million (11.5 per cent) over that of the comparable prior-year period. This decline results, on the one hand, from interest income from clients (-15.1 per cent) as well as commission and service income (-7.6 per cent). This negative movement in interest income was a result primarily of the introduction of funds transfer pricing as of 1 January 2019 which negatively impacted the result, period-on-period, by CHF 4.6 million. The lower asset basis and the related lower portfolio-based income, on the one hand, and declining stock-exchange trading volumes, on the other, negatively impacted commission and trading income. Operating expenses rose by CHF 1.5 million (3.5 per cent) to CHF 42.6 million (comparative prior-year period: CHF 41.1 million). This increase results primarily from the caption valuation allowances, provisions and losses. In the first half of 2019, charges for valuation allowances, provisions and losses, period-on-period, declined by CHF 1.9 million to CHF minus 0.6 million (prior-year period: plus CHF 1.4 million) due to the release of valuation allowances no longer required in the prior-year period. Intersegmental recharges in the business segment Client Business Liechtenstein are based upon fixed internal transfer prices. Indirect costs for internal services are reported in the business segment in the caption “services to/from other segment(s)”. The gross margin amounted to 66.3 basis points (prior year: 71.2 basis points). The cost/income ratio rose from 42.0 per cent to 46.8 per cent.

During the period, the segment reported a net outflow of client monies of CHF 0.2 billion, principally resulting from the loss of one large client. Assets under management at 30 June 2019 totalled CHF 26.0 billion (31 December 2018: CHF 27.0 billion). The employee headcount declined slightly from 184 (30 June 2018) to 183 employees.

1. 1
   As of 1 January 2019, the new funds transfer pricing was introduced within the Group. The impact of this change for the segment Client Business International amounted to CHF -0.1 million. The prior-year comparatives were not restated as the change for prior periods was impracticable because of the passage of time as well as the lack of an appropriate data base and the cost of assembling this data retrospectively on an individual-transaction basis would be so high that it would bear no relationship to the benefit to be derived therefrom.
2. 2
   Annualised, average values.
3. 3
   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 in international locations. VP Bank (Switzerland) Ltd, VP Bank (Luxembourg) SA, VP Bank (BVI) Ltd, VP Bank Ltd Singapore Branch, VP Wealth Management (Hong Kong) Ltd and VP Fund Solutions (Luxembourg) SA are allocated to this business segment.

The pre-tax segment result for the first half of 2019 rose, period-on-period, by CHF 12.5 million. Operating income could be increased by CHF 16.7 million (37.4 per cent) over the comparable prior-year period. This increase is attributable mainly to higher interest income from clients (49.3 per cent), as well as higher commission and service income (27.1 per cent) as well as trading income (44.7 per cent). The recruitment offensive continued to positively impact commission and service income. Operating expenses rose by CHF 4.2 million, or 10.5 per cent, to CHF 44.1 million. This increase results from personnel and general and administrative expense reflecting principally the recruitment offensive for new senior client advisors as well as the acquisition of the private-banking activities of Catella Bank. In the business segment “Client Business International”, the recharging of services is based on actual invoices and recorded under general and administrative expenses. Charges for valuation allowances, provisions and losses were minus CHF 3.8 million (prior-year comparable period: minus CHF 0.7 million).

The gross margin rose to 67.9 basis points (prior-year period: 64.6 basis points). The cost/income ratio declined from 90.2 per cent to 74.0 per cent. 

Net new money from clients developed positively in the first half of 2019 with CHF 1.4 billion. The recruitment offensive continued to produce net new money inflows in the first half of 2019 in the locations. Net new money from clients could again be achieved in the investment-fund business as well as on European markets as a result of intensive market-development activities. New client monies aggregating CHF 1.0 billion could be acquired through the acquisition of the private banking activities of Catella Bank. Assets under management at 30 June 2019 aggregated CHF 19.6 billion (31 December 2018: CHF 14.0 billion). The employee headcount rose from 278 individuals (30 June 2018) to 325, primarily as a result of the recruitment offensive for new senior client advisors and the transfer of employees from the Catella acquisition.

1. 1
   As of 1 January 2019, the new funds transfer pricing was introduced within the Group. The impact of this change for the segment Corporate Center amounted to CHF 4.7 million. The prior-year comparatives were not restated as the change for prior periods was impracticable because of the passage of time as well as the lack of an appropriate data base and the cost of assembling this data retrospectively on an individual-transaction basis would be so high that it would bear no relationship to the benefit to be derived therefrom

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 Services, Corporate Services, Group Credit, Group Treasury & Execution, Group Finance, Group Risk, Group Legal Services, Group Compliance, Group Tax Services, 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 in the first half of 2019 amounted to minus CHF 19.1 million as opposed to minus CHF 26.8 million in the comparable prior-year period.

In the first half of 2019, operating income grew, period-on-period, by CHF 9.2 million. Responsible for this increase is income from financial investments, for the most part. 

Interest income fell by CHF 3.1 million over the comparable prior-year period. 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). In addition, income from SNB swaps turned negative in comparison to the prior-year period (CHF –9.1 million). The introduction of funds transfer pricing as of 1 January 2019 and the movement in financial instruments contributed positively to interest income. Commission and service income reports a decline in income. This caption 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 half of 2019 amounted to CHF 11.3 million. In the comparative prior-year period, this position had reported an income of CHF 0.9 million, the increase of which arose primarily from revaluation gains on financial instruments. 

Operating expenses in the period rose by CHF 1.6 million from CHF 34.4 million to CHF 36.0 million. Charges for valuation allowances, provisions and losses in the period reported a decrease of CHF 1.9 million. Personnel and general and administrative expense rose by CHF 1.8 million and CHF 1.1 million, respectively. Depreciation and amortisation increased marginally from CHF 7.7 million to CHF 8.0 million.

The employee headcount rose slightly from 366 (30 June 2018) to 367 positions.