Consolidated semi-annual report of VP Bank Group
VP Bank Group generated a group net income of CHF 14.4 million in the first half of 2020 (–59.3 per cent) compared with CHF 35.3 million in same period last year. This is attributable to a one-off valuation adjustment announced in March in connection with a credit case. Earnings before tax minus valuation adjustments for credit risks in the first half of 2020 totalled CHF 41.5 million compared with CHF 36.5 million in the previous-year period (up 13.6 per cent). The cost/income ratio for the first half of 2020 was 66.1 per cent (compared with 68.6 per cent in the previous-year period).
VP Bank Group has a strong capital base. As of 30 June 2020, the tier 1 ratio was 20.1 per cent (compared with 20.2 per cent at the end of 2019). This strong capital base is testament to VP Bank’s resilient and successful business model and offers an ideal starting point for the ongoing development of VP Bank Group.
As of 30 June 2020, VP Bank Group’s client assets under management amounted to CHF 45.6 billion. This represents a decrease of CHF 4.2 per cent (CHF –2.0 billion) on the CHF 47.6 billion recorded as of 31 December 2019. Of this, around CHF 1.0 billion was attributable to net new money inflow and CHF –2.9 billion to negative changes in the market valuation (performance) of client assets. The decline in client assets under management is largely down to stock market turbulence triggered by COVID-19. Intensive market development and the recruitment of new client advisors helped to generate client asset inflow despite the challenges.
As of 30 June 2020, custody assets amounted to CHF 6.4 billion, this represented a drop of CHF 0.5 billion from the level of 31 December 2019. As of 30 June 2020, client assets including custody assets totalled CHF 52.0 billion (31 December 2019: CHF 54.5 billion).
In the six months of 2020 under review, VP Bank’s operating income rose by CHF 4.1 million or 2.5 per cent to CHF 166.8 million (previous-year period: CHF 162.7 million). This increase is attributable to growth in income from commission business and services, trading activities, and interest income.
Year-on-year, net interest income increased from CHF 54.6 million to CHF 57.4 million in the period under review. Interest income fell by CHF 12.0 million (–15.5 per cent). This reduction is predominantly due to lower client loans and weaker USD interest rates. Furthermore, expiring bonds are having to be reinvested in lower-yielding investments due to the low interest environment. Other interest income increased by CHF 1.8 million to CHF 9.0 million primarily due to valuation successes with FX swaps. Interest expenses fell by CHF 12.9 million (–43 per cent).
Income from commission business and services rose by 6.7 per cent to CHF 71.5 million in the first half of 2020 (previous-year period: CHF 67.0 million). Owing to avid client activity in the first quarter, brokerage fees increased significantly from CHF 15.5 million in the same period of the previous year to CHF 20.6 million in the reporting period (up 32.8 per cent). Recurring income from asset management also rose by 5.0 per cent to CHF 27.4 million (previous year: CHF 26.2 million).
Income from trading activities amounted to CHF 32.5 million, which constitutes an increase of CHF 3.2 million (11.1 per cent) in comparison to the first half of 2019. Income from trading on behalf of clients increased by a welcome 9.5 per cent (up CHF 3.0 million) to CHF 34.2 million.
Financial investments ended the first half of 2020 with a net income of CHF 4.9 million (net income in the previous-year period: CHF 11.4 million). The CHF 6.5 million reduction in income from financial investments came primarily as a result of lower valuations, which accounted for a CHF 0.3 million drop in the first half of the year after a positive result of CHF 4.9 million in the same period of the previous year.
Operating expenses in the first six months of the current financial year rose by CHF 23.6 million, from CHF 122.7 million to CHF 146.2 million in the previous-year period (19.2 per cent). This increase is primarily associated with the CHF 20 million valuation adjustment on an individual credit position announced in March. Without factoring in valuation adjustments, operating expenses in the period under review would have been CHF 0.9 million lower than in the previous-year period (–0.7 per cent).
Personnel expenses fell by CHF 1.1 million or –1.3 per cent compared with the first half of the previous year to CHF 81.3 million. As of the end of June 2020, VP Bank Group employed roughly 908 members of staff in full-time equivalents, representing an increase in headcount of 32 employees compared with 30 June 2019 (3.7 per cent).
General and administrative expenses fell slightly by 1.0 per cent to CHF 29.0 million (previous-year period: CHF 29.3 million). Depreciation and amortisation remained stable at CHF 14.2 million in the reporting period compared with the previous year (CHF 14.3 million). Valuation adjustments, provisions and losses amounted to CHF 21.7 million in the first half of 2020 compared with a net reversal of CHF 3.3 million the previous year. This change is mainly due to the valuation adjustment on a credit position announced in March 2020.
The aim of IFRS 9 is to map the expected credit loss (ECL) over an economic cycle. The individual parameters of the ECL model are monitored on an ongoing basis and may be adapted where potential changes in economic circumstances require it. With the exception of a valuation adjustment on a credit position, the impact of COVID-19 on IFRS 9 and the semi-annual financial statements has not led to any significant expenses in the income statement.
Tax on income
Tax on income amounted to CHF 6.2 million in the first half of 2020, CHF 1.4 million more than in the previous-year period. This increase is primarily attributable to deferred taxes on valuation differences.
Group net income
Group net income for the first half of 2020 amounted to CHF 14.4 million (previous-year period: CHF 35.3 million). Group net income per registered share A was CHF 2.39 (first half of 2019: CHF 5.89).
Comprehensive income refers to all income and expenses recognised in the income statement and in equity capital. The primary items recognised directly in equity capital include actuarial adjustments for pension funds and changes in the value of FVTOCI (at fair value through other comprehensive income) financial instruments. VP Bank Group generated comprehensive income of CHF –12.3 million in the first half of 2020 compared with CHF 42.1 million in the preceding year.
The first half of 2020 saw total assets increase by CHF 0.2 billion to CHF 13.6 billion compared with 31 December 2019. This increase in total assets is primarily attributable to a CHF 0.5 billion increase in “Other liabilities due to clients” and a CHF 1.1 billion increase in receivables from banks alongside a simultaneous CHF 0.7 billion reduction in receivables from clients. The value of financial instruments measured at amortised cost remained stable in comparison to the start of the year at CHF 2.3 billion. This was attributable to the reinvestment of expiring financial instruments.
VP Bank Group has a very comfortable liquidity structure with liquid assets of roughly 20 per cent of total assets worth CHF 2.8 billion (CHF 2.9 billion as of 31 December 2019). This is reflected in an optimum liquidity coverage ratio (LCR) of 176.7 per cent.
As of 30 June 2020, VP Bank Ltd holds, directly or indirectly, 536,956 registered shares A and 328,019 registered shares B (8.6 per cent of the share capital and 7.2 per cent of the voting rights). As the shares have not been cancelled, both capital structure and voting rights will remain the same.
The registered shares A in the portfolio are to be used for future acquisitions or for treasury management purposes.
As of the end of June 2020, equity capital stood at CHF 989.5 million (31 December 2019: CHF 1,032 million).
The tier 1 ratio calculated under Basel III was 20.1 per cent as of 30 June 2020 (as of 31 December 2019: 20.2 per cent), reflecting a strong capital base and an ideal strategic starting point for the ongoing development of VP Bank Group.
The coronavirus pandemic had the world on tenterhooks in the first half of the year. The recovery of the financial markets from May onwards was miraculous. Governments and central banks propped up the economy and financial markets with record spending and financial policy easing. Nonetheless, real economic growth and the situation on the financial markets remain challenging.
VP Bank cannot escape the challenging environment and potential consequences of COVID-19. Having said that, it is well-equipped for the challenges and all set to press ahead with its sustainable growth strategy. With a strong capital base and optimum liquidity, VP Bank Group has everything it needs to build a successful future. The outstanding “A” rating confirmed by Standard & Poor’s in July 2020 underlines the resilience and effectiveness of VP Bank Group’s business model.