Statement of the Chairman of the Board of Directors and the Chief Executive Officer
Dear Shareholders, Ladies and Gentlemen
The first half of 2020 saw social and economic life turned upside down by the coronavirus pandemic. Far-reaching measures taken by governments in an attempt to contain the spread of coronavirus saw social lives largely ground to a halt and the economy slump to a historic low. But rapid and extensive support measures initiated by governments and central banks kept hopes alive that the financial markets might emerge relatively unscathed. After a one-off collapse in prices on stock markets at the start of the pandemic, the second quarter saw a noticeable recovery. Geopolitical uncertainties continued to grow too – driven partially by coronavirus. VP Bank proved its crisis resilience in this extremely difficult market environment and generated a satisfactory result for the first half of the year in spite of all odds.
VP Bank asserts itself in a difficult market environment
VP Bank reacted quickly and consistently to the coronavirus-marred business environment, benefiting from its resilience and its strong position in the field of digital technologies in the process. Thanks to flexibility on the part of its employees, VP Bank was able to maintain professional care for its clients on an ongoing basis and support them in all their financial affairs, specifically investment decisions.
VP Bank’s strong position was further reflected in its key financial indicators for the first half of 2020. Group net income fell significantly to CHF 14.4 million (previous year: CHF 35.3 million) as a result of the announced one-time valuation adjustment of approximately CHF 20 million. Earnings before tax minus valuation adjustments rose by 13.6 per cent to CHF 41.5 million.
This solid performance is also reflected in a strong net new money inflow, which rose by roughly CHF 1 billion (previous-year period: CHF 1.2 billion) in the first half of 2020 thanks to intensive market development and the recruitment of new client advisors. Client assets under management on the other hand fell by 4.2 per cent to CHF 45.6 billion (as of 31 December 2019: CHF 47.6 billion) as of 30 June 2020 due to stock market turbulence and the negative market valuation.
With a tier 1 ratio of 20.1 per cent as of 30 June 2020, VP Bank has maintained a solid equity base and a very strong position given the difficult market environment. Without taking into account the one-off effect of the valuation adjustment on a credit position announced previously, this result shows that VP Bank has at its disposal a solid and sustainable business model that can assert itself even when times are tough.
Medium-term goals 2020
VP Bank’s aim is to generate sustainable and profitable growth. As part of our Strategy 2020, we have set ourselves the goal of achieving the following financial performance indicators by the end of 2020:
Client assets under management of CHF 50 billion
Group net income of CHF 80 million
Cost/income ratio below 70 per cent
We are well on track with regard to the cost/income ratio – even in this difficult environment. But our client assets goal is likely to pose a challenge. However, the effects of the coronavirus crisis will make it impossible to achieve our Group net income target.
2025/26 strategy cycle
We presented our Strategy 2025, the theme of which is “Seize opportunities”, back in the 2019 annual report. Part of this is growing together with our clients and seizing the opportunities offered by a fast-changing society and economy. Our established business areas Wealthy Individuals, Intermediaries, Client Solutions, and Retail & Commercial Banking in the domestic market will form the basis for this.
As part of the new strategy, we have defined three strategic focal points which we intend to employ in the pursuit of our goals. These include developing our existing business and locations (Evolve), optimising our business model by improving effectiveness, scaling and cost discipline (Scale), and developing new business opportunities to generate additional earnings (Move). This will see us increasingly move our focus towards digitisation and the topic of sustainability.
We aim to have achieved a Group net income of CHF 100 million by the end of the new strategy cycle. Following the coronavirus crisis we remain committed to our targets, but have extended the timeline to 2026.
We have defined our financial strategy goals on the basis of the following medium-term objectives:
Growth: at least 4 per cent net new money p.a. as a percentage of client assets under management over the entire strategy cycle
Profitability: profit margin greater than 15 basis points (bp) (0.15 per cent) and cost/income ratio of 70 per cent
Stability: tier 1 ratio greater than 20 per cent
2020 has been somewhat of a transitional year with regard to the new strategy cycle, one which saw us press ahead with important preparations for the implementation. Work is progressing swiftly and by the end of the year we will have laid the organisational and structural groundwork to ensure we are optimally positioned for the 2025/26 strategy cycle.
Preparation for the new strategy cycle
The first half of 2020 saw our business shaped by the coronavirus crisis. In March, we launched a comprehensive crisis concept to protect our clients and our employees, and implemented this across all of our locations. Measures have specifically included new digital solutions for customer engagement, protective measures for clients and employees, working from home, and regulations regarding business trips. Under the direction of the CEO, our crisis team reviews the implementation of and the need for these measures on an ongoing basis and makes changes where necessary.
Disciplined risk-taking is a fundamental prerequisite for the sustained success of VP Bank. Strong risk management, a distinct understanding of processes and close cooperation between all parties are key components of our growth strategy. In connection with the valuation adjustment on a single position that was announced this spring, the first half of 2020 saw responsibilities in the credit division reorganised and restructured. The measures implemented have allowed us to position VP Bank even more strongly for the future and to lay important groundwork for its long-term business success.
Another key factor in the new strategy is our sustainable investment philosophy “Investing for change”, the aim of which is to reposition our product range and provide access to new solutions through impact investing. The past few months have seen us start to consistently incorporate sustainability criteria in our investment processes while also factoring these into the investment and advisory process. Sustainability is something that we plan to incorporate more heavily in our business activities in future too. In order to achieve this, we organised a stakeholder engagement process with a materiality analysis. The aim of this was to identify focus issues of particular importance to our business and our stakeholders. The results provided us with important indicators for planning and implementing sustainable value creation in our company.
Another cornerstone of Strategy 2025/26 is the future IT infrastructure. This will form the basis for the ongoing digitisation of our services and offerings as well as for the scaling of our operational business processes. This is also expected to serve as a means of facilitating the future integration of fintech solutions and additional collaborations. We are also planning to offer customised, data-assisted consulting as well as tailored financial solutions for intermediaries and private clients, which will allow us to tap into new sources of revenue.
We are also set to expand our operational distribution processes with the launch of new online solutions, with a focus on digital technologies that promote dialogue with our clients. We launched some of the first solutions back in the first half of 2020, for instance introducing video consultation as an additional channel of communication. Likewise, the introduction of new client communication tools like the VP Bank Crisis Barometer, the new investment magazine Telescope and digital online client events saw us continue to expand information provision to our clients. This enables us to ensure that our clients always receive first-hand information and that we can maintain a direct and personal dialogue with them.
Another key component of our Strategy 2025/26 is the targeted development of our locations. The plan is to help these to align their offerings more consistently to clients in their target markets, thereby enabling them to take advantage of market opportunities in a more targeted manner. We started to refine the various location strategies in the first half of the year. We took one important step in this direction in July 2020 with the acquisition of the private banking division of Öhman Bank S.A. in Luxembourg. This acquisition highlights our international growth ambitions and will contribute significantly to the expansion of our activities in the Luxembourg and Scandinavian markets.
In the second half of the year, we will continue to intensify our collaboration with Hywin Wealth in Shanghai. Our collaboration with this prominent Chinese financial service provider offers us the opportunity to further promote our business activities in this attractive region with a strong partner.
We are confident that these measures will help us to lay the fundamental groundwork for the long-term business success of VP Bank Group and the successful implementation of Strategy 2025/26.
Significant events in the first half of the year
In February, our team in Singapore won the Wealth Briefing Asia Award for Best External Asset Manager Service Provider and Best Private Banking Regional Partnership, before going on to win the Citywire Asia EAM Desk Award 2020 for Best Service in June. These awards highlight the prominent position of the Bank and our targeted focus on intermediary business in Asia. They are testament to the successful implementation of our Asia strategy and the measurable added value we generate for our clients.
In the first half of 2020, we celebrated the 25-year anniversary of our branch on the British Virgin Islands. It has played an integral part in our international success and offers credit financing and mortgages in addition to the classic banking services.
In March 2020, Bisnode D&B Switzerland Ltd awarded VP Bank Group the maximum score of 1 in the D&B Risk Indicator for the seventh time. VP Bank Group’s outstanding financial stability was instrumental in achieving this great rating.
Rating agency Standard & Poor’s (S&P) confirmed the outstanding “A” rating for VP Bank again in July 2020. However, following the valuation adjustment of March 2020, the outlook has been adjusted from “stable” to “negative”. We are confident that the improvement measures initiated with regard to processes, duties, competencies and responsibilities will bolster VP Bank’s risk governance considerably and help it to fulfil the necessary conditions to quickly return the outlook to “stable”.
Staff and organisational changes
At the 2020 annual general meeting, VP Bank shareholders re-elected Dr Beat Graf and Michael Riesen to the VP Bank Board of Directors for another three years each. Professor Teodoro D. Cocca departed the Board of Directors due to the restriction of tenure. Katja Rosenplänter-Marxer was newly elected to the Board of Directors for a term of three years. Fredy Vogt gave up his role as Chairman of the Board of Directors, but will remain a member of the Board of Directors. Dr Thomas R. Meier, former Vice Chairman, was elected as the new Chairman of the VP Bank Board of Directors.
There were significant changes for the Group’s executive body too. The reorganisation of Group Executive Management took place as part of a joint process carried out by the Board of Directors and the CEO and focused on three key areas. Christoph Mauchle, who is set to take early retirement at the end of September 2020 at his own request, will be succeeded by Tobias Wehrli on 1 July 2020. He will take over the management of the Intermediaries & Private Banking division. On 1 September 2020, Thomas von Hohenhau will take up the position of Head of the Group Executive Management division Client Solutions newly created as part of Strategy 2025/26. Following a valuation adjustment on an individual position, responsibilities in the credit division have been reorganised and restructured. In the wake of these measures, CFO Siegbert Näscher and General Counsel & Chief Risk Officer Monika Vicandi have decided to leave the company. Patrick Bont has been engaged to take on the position of new Chief Risk Officer as of 1 November 2020.
VP Bank shares and capital market
Given the ban on gatherings due to coronavirus, the 57th annual general meeting of VP Bank on 24 April 2020 took place solely with electronic and postal votes and via live stream. All proposals were accepted. Based on the 2019 net annual profit, a dividend of CHF 5.50 per registered share A was paid out on 30 April 2020, corresponding to a dividend yield of roughly 4.3 per cent and in line with our policy of consistent dividend performance.
Despite a persistently difficult environment for banks, VP Bank shares performed relatively robustly during the difficult first half of the year.
VP Bank has weathered the past few months of the coronavirus storm relatively well. But the effects of the pandemic are likely to be felt by society and the economy in the second half of the year too. As well as the ongoing uncertainties surrounding the further development of the coronavirus pandemic, there are a variety of geopolitical challenges facing the economy. Despite the anticipated decline of the economy, VP Bank is looking to the future with confidence. We plan to actively pursue opportunities as these arise and to invest in the further sustainable, profitable and independent development of the Bank.
The rest of 2020 will see us work consistently towards successfully completing the current strategy period and achieving our targets. Having said that, our earnings target of CHF 80 million is now unattainable. Thanks to its healthy equity base and high level of liquidity, we are confident that VP Bank is in a good position to cope with the current crisis on the global financial markets.
We remain committed to our targets for the new 2025/26 strategy cycle, especially our Group net income target of CHF 100 million, but have extended the cycle by one year to 2026.
The coronavirus situation is making clear to us how important it is to be creative and open to change. We are proud of our employees and our organisation – over the past few months, they have proven that VP Bank is capable of acting in a flexible and targeted manner. This is allowing us to successfully operate our business for our clients and the Bank at the accustomed level of quality despite the changed framework conditions.
We would like to thank everyone who has dedicated their efforts to helping us to “Seize opportunities” and emerge stronger from these socially and economically challenging times.
We would like to thank our clients and shareholders for the confidence they have demonstrated towards VP Bank.