2014 annual results of VP Bank Group: Group net income of CHF 20.0 million and stable core capital ratio of 20.5 per cent
For the 2014 financial year, VP Bank Group recorded a Group net income of CHF 20.0 million. Net income in the previous year reached CHF 38.7 million. The continuing drop in capital market rates for Swiss francs resulted in unrealised valuation losses in interest rate hedges, which led to this decline. Leaving aside valuation losses on interest rate hedges, the Group net income for 2014 came to CHF 36.0 million (figure in the previous year adjusted for valuation gains on interest rate hedges: CHF 30.1 million).
Key figures at a glance
- Group net income: CHF 20.0 million
- Client assets: CHF 38.6 billion
- Net outflow of client assets: CHF 850 million
- Cost/income ratio: 74.2 per cent
- Tier 1 ratio (core capital ratio): 20.5 per cent
Increase in adjusted gross income
For the 2014 financial year, VP Bank Group recorded a Group net income of CHF 20.0 million. Gross income declined by 7.0 per cent in comparison with the previous year from CHF 239.4 million to a total of CHF 222.7 million. After adjustment for the effects of interest rate hedges (CHF 24.5 million), it was possible to increase gross income by 3.4 per cent. Interest income adjusted for interest rate hedges increased by 4.1 per cent to CHF 81.5 million as compared with the previous year. Income from commission business and services in 2014 increased by 3.8 per cent to CHF 118.4 million. Income from trading activities increased by 30.0 per cent to CHF 25.4 million, while income from financial investments amounted to CHF 12.5 million in 2014 (previous year: CHF 16.3 million).
Lower operating expenses thanks to consistent cost discipline
Operating expenses fell by 1.6 per cent to CHF 165.3 million as compared with the previous year. General and administrative expenses increased by 1.7 per cent to CHF 46.8 million. Personnel expense came to CHF 118.5 million in 2014 and dropped in comparison with the previous year by 2.9 per cent. Depreciation and amortisation was 8.6 per cent higher than in the previous year and amounted to CHF 29.3 million. Valuation adjustments, provisions and losses increased by CHF 1.1 million in comparison with the previous year.
The cost/income ratio increased to 74.2 per cent in 2014 (previous year: 70.2 per cent). With a tier 1 ratio of 20.5 per cent (previous year: 20.4 per cent), VP Bank Group has a solid capital base relative to the rest of the sector. The total assets remained unchanged in 2014 at CHF 11.2 billion.
Increase in client assets under management
As at the end of 2014, client assets under management at VP Bank Group amounted to CHF 30.9 billion. This corresponds to an increase of 1.8 per cent on the previous-year level of CHF 30.4 billion. The performance-related increase in assets resulting from positive market developments amounted to CHF 1.4 billion.
In the past financial year, VP Bank Group saw a net outflow of client assets amounting to CHF 850 million (previous year: net new money inflow of CHF 965 million, including an asset deal with HSBC Trinkaus & Burkhardt [International] SA in Luxembourg). Due to regulatory changes, especially with regard to tax issues, client assets were again subject to a high degree of pressure. In custodian and fund business, the loss of a major client had to be shouldered. On the other hand, thanks to successful market development activities, VP Bank Group was able to limit the net outflow of client assets. However, the generated income was not enough to compensate for the outflow of client assets under management. Client assets worth approximately CHF 7.1 billion flowed to VP Bank Group already by 7 January 2015 following the announcement of its merger with Centrum Bank.
Custody assets declined to CHF 7.6 billion (previous year: CHF 9.0 billion). As of 31 December 2014, client assets including custody assets totalled CHF 38.6 billion (previous year: CHF 39.4 billion).
“Independence and growth are the cornerstones of our strategic focus”, said Fredy Vogt, Chairman of the Board of Directors of VP Bank. A significant focus for growth is the merger with Centrum Bank, Vaduz. Following the purchase of all of its shares by VP Bank AG at the beginning of January 2015, Centrum Bank AG, which is currently the fourth-largest financial institution in Liechtenstein, became a wholly owned subsidiary of VP Bank AG. The conditions for successful integration of Centrum Bank are ideal, since its business model with core competencies, target markets and client structures are comparable to those of VP Bank Group, and these offer considerable potential for synergies.
Review of medium-term goals
The defined medium-term goals of a tier 1 ratio of at least 16 per cent, a cost/income ratio of 65 per cent and a net inflow of new money of an average of 5 per cent per annum remained unchanged until the end of 2014. A review of these goals showed that adjustments have to be made.
At the end of 2014, the core capital ratio defined by law was 8 per cent; the tier 1 ratio fixed by VP Bank was at least double this amount. Since VP Bank is classified as a bank of systemic importance, the requirements on own funds will increase in line with the capital adequacy requirements pursuant to Basel III (CRD IV) to 13 per cent from February 2015. Accordingly, a medium-term goal of at least 16 per cent will not represent added value for investors or clients; on the other hand, an increase in the current target figures would severely restrict the Bank’s financial room for manoeuvre – for example in relation to acquisitions.
Particularly in the light of the regulatory requirements, the Board of Directors has decided to review medium-term goals. The results of this review will be published together with VP Bank Group’s semi-annual results at the end of August 2015.
Annual general meeting of shareholders
At the annual general meeting on 24 April 2015, the Board of Directors will propose a dividend of CHF 3.00 per bearer share and CHF 0.30 per registered share (previous year: CHF 3.50 per bearer share and CHF 0.35 per registered share). The planned dividends are based on the Bank’s dividend policy laid down by the Board of Directors. Between 40 to 60 per cent of the consolidated net income generated by the Group will be distributed to the shareholders, as long as the medium-term tier 1 target ratio of 16 per cent is exceeded. The goal is constant development of dividends. The Board of Directors’ proposed dividends are based on income adjusted for valuation losses from interest rate hedges amounting to CHF 36.0 million.
At the annual general meeting on 24 April 2015, the Board of Directors will nominate Dr Florian Marxer for election to the board. Dr Florian Marxer is the former Chairman of the Board of Directors at Centrum Bank, Vaduz, and member of the Foundation Board of the Marxer Foundation for Bank Values.
VP Bank Group anticipates ongoing uncertainties in the 2015 financial year. The Swiss National Bank’s abandonment of the minimum exchange rate for the euro against the Swiss franc and its movement of the 3-month LIBOR target range in January 2015 have led to large disruptions in the markets. This difficult environment will present a strong challenge for VP Bank Group and significantly affect the course of its business. VP Bank Group is well positioned and can meet these challenges proactively. Specific measures have already been taken. Together with its employees and clients, it will continue along its established path to achieve future success.
The acquisition of Centrum Bank by VP Bank will be a central focus in 2015. The integration should be completed by the end of the year at the latest. The merger will further enhance Liechtenstein’s location as a financial centre and strengthen VP Bank’s position in its home market. As the country’s third-largest bank, VP Bank will benefit from the synergies and be able to further increase its client base.
The use of group synergies will also be intensified within VP Bank Group this year. VP Bank (Luxembourg) SA will be at the centre of this process. Plans call for the simplification and alignment of business processes, optimised deployment of resources coupled with the elimination of inefficiency caused by overlapping employee roles as well as the centralisation of undifferentiated back-office services at the Vaduz location.
In addition, VP Bank Group will focus particularly on continuing the bundling and unified coordination of fund expertise within the Group during 2015.
The developments in tax transparency and the automatic sharing of tax information will continue to keep VP Bank and Liechtenstein as a financial centre busy during the next few years. “We will concentrate chiefly on these areas, and look back on our success in mastering the challenges to date”, said Alfred W. Moeckli, Chief Executive Officer of VP Bank Group.