Current Issues

VP Bank Group 2009 Annual Results: Consolidated Net Income of CHF 59.8 Million

VP Bank Group recorded a group net income of CHF 59.8 million for 2009, a considerable proportion of which was attributable to its own financial investments. VP Bank's total comprehensive income of CHF 101.7 million reflects this favorable trend. Operating expenses declined significantly, and the development of client funds stabilized in the second half of the year.

The most important figures in brief:

Success in a challenging environment

Once again in 2009, banking business was faced with tremendous headwinds: business conditions were marked by declining equity prices during the first four months of the year, uncertainties regarding banking client secrecy and the world’s financial centers, as well as margin and cost pressures. All of this acted to restrain the Group’s transaction- and inventory-related revenue flows.

Gross income increased by 8.2 percent versus the comparable prior-year period to CHF 313.8 million. However, at the operating level (gross income excluding other ordinary income), VP Bank Group’s earnings were down CHF 68.6 million or 20.7 percent compared to the previous year. The interest-differential business contributed CHF 121.0 million (–18.5 percent) and the commission and services business CHF 123.5 million (–18.6 percent) to the Group’s total operating earnings.

Those results reflect the impact of the factors already alluded to in the Group’s semiannual report: the significantly lower level of interest rates, reduced trading activity on the part of clients, and the decreased volume of client assets under management in the first half of the year.

A sizeable contribution to the positive net result came from other income in the amount of CHF 51.7 million, which reflected the favorable effect of measures taken after VP Bank Group decided to transfer securities previously owned by the beleaguered VP Bank Cash & Money Market Funds to its own financial investments account.

As a result of the envisioned cost savings from the group-wide FOCUS project, operating expenses declined by 5.9 percent to CHF 185.1 million (2008: CHF 196.7 million) and the workforce, expressed in fulltime equivalents, contracted by 7.2 percent versus the previous year to a total of 720.2 (–55.5).

The cost/income ratio improved to 59.0 percent (2008: 67.8 percent) in reflection of the Group’s lower expenditures and higher revenues.

Client assets – augmented by financial market recovery

In 2009, client assets under management rose on balance by 3.6 percent from CHF 28.5 billion to CHF 29.5 billion. VP Bank Group recorded a total AUM outflow of CHF 1.1 billion, whereby a net CHF 1.0 billion was transferred already in the first half. This means a net outflow of only CHF 0.1 billion was recorded in the second semester, which tends to indicate that the trend is stabilizing.

As of the balance sheet date, CHF 0.7 billion of that outflow was attributable to the Private Banking Clients business unit and CHF 0.4 billion to Intermediaries. The price recovery in the equity markets – on average, close to 23 percent for the year – more than compensated for the loss of managed client assets by generating a CHF 2.1 billion performance.

The amount of assets held in custody practically doubled during the year under review, increasing by CHF 5.7 billion to CHF 12.3 billion. As a result, client assets (including those held in custody) stood at CHF 41.8 billion as of December 31, 2009. This is CHF 6.7 billion more than the previous year-end reading (CHF 35.1 billion).

Total assets in excess of CHF 11 billion

Total assets increased in 2009 by CHF 0.2 billion or 1.9 percent to CHF 11.6 billion. Shareholders’ equity recorded a year-on-year gain of CHF 86.4 million to CHF 931.9 million and currently reflects an equity ratio of 7.9 percent (2008: 7.3 percent). VP Bank Group’s total comprehensive income of CHF 101.7 million reflects this favorable trend.

Key figures of VP Bank Group on the upswing

VP Bank Group has established as its medium-term target a cost/income ratio of 50 percent, a return of equity of 12 to 15 percent and a tier 1 ratio, defined as core equity capital expressed as a percentage of risk-weighted assets, of over 16 percent, as well as a gross operating margin of 100 basis points (bp).

VP Bank Group ended the otherwise challenging 2009 financial year with the following key figures: cost/income ratio of 59.0 percent, return on equity of 6.6 percent and tier 1 ratio (after appropriation of available earnings) of 17.1 percent (December 31, 2008: 13.6 percent). With this underpinning, VP Bank will continue to have a strong equity base. Client assets under management at year-end were equal to CHF 29.5 billion (December 31, 2008: CHF 28.5 billion) with an operating gross margin of 90.4 bp (2008: 99.1 bp).

VP Bank’s own financial investments at the end of 2008 amounted to CHF 802.6 million (equity proportion of 22 percent) and by the end of 2009 had increased 10 percent to a total of CHF 886.2 million (with a clearly lower equity proportion of 10 percent).

Proposed dividend increase

At the annual general meeting to be held on April 30, 2010, the Board of Directors will propose that shareholders approve payment of a dividend of CHF 3.50 per bearer share and CHF 0.35 per registered share (previous year: CHF 2.50 per bearer share and CHF 0.25 per registered share). This proposal is founded on VP Bank Group’s long-standing policy of continuity in its dividend distributions as well as in reflection of its annual financial results.

Pressure on the world’s financial centers

The past year was marked by a multitude of challenging circumstances. Similar trends can be perceived in all of the global financial centers with regard to crossborder asset management. Hans Brunhart, Chairman of the Board of Directors: “International standards and agreements are progressively superseding domestic law, and the goal of certain countries to have access to all tax-related information on the individuals who are taxable in their sovereign territory has led to relentless pressure on client banking secrecy.

Today, there is a broad international consensus that crossborder access to tax data on the basis of the OECD standard should be enabled upon request.” Liechtenstein has reaffirmed its willingness to adopt this standard not only by issuing the Liechtenstein Declaration of March 12, 2009, but by also signing various agreements on the exchange of information in tax-related matters as well as a number of double taxation treaties.

As a result, Liechtenstein is no longer on the OECD’s gray list. The goal of negotiating bilateral agreements with individual nations, the terms of which are also applicable retroactively and – in conjunction with tax-amnesty arrangements – should ultimately lead to Liechtenstein banks’ managing only after-tax assets of individuals from those countries, has been achieved for the first time through the recently concluded treaty with Great Britain.

On the whole, it can be seen that government’s policy of cooperation with clear principles, adopted as early as 2008, has created more legal certainty for the Liechtenstein financial center. Going forward, this has also formed an important basis for client trust. Thanks to Liechtenstein’s clear positioning on a topic that is likely to remain the subject of heated debate in the years to come, the banks and financial intermediaries now enjoy new and promising prospects.

Good starting position for VP Bank Group

VP Bank Group is well positioned today in the markets it desires to address, i.e. Liechtenstein, Switzerland, Germany, Asia and Eastern Europe. Its core business is international private banking, the cultivation of which requires outstanding service, ongoing dialogue with clients, and the protection of personal privacy.

For that reason, VP Bank Group will continue with the expansion of its private banking activities in the currently defined markets. In parallel, it will pursue the further development of business relationships with highly demanding asset managers and fiduciaries on a groupwide level while simultaneously catering to the needs of commercial, credit and retail customers in Liechtenstein and the neighboring region of Eastern Switzerland. Safeguarding privacy will remain one of VP Bank’s key priorities.