1 Market risks

Market risk is the risk that arises from changes in interest rates, exchange rates and security prices in the financial and capital markets. A differentiation is made between market risks in the trading book and market risks in the banking book. The potential for losses exists primarily in the impairment of the value of an asset or the increase in the value of liabilities (market value perspective) as well as in secondary capacity in the diminution of current earnings or an increase in current expenditures (earnings perspective).

1.1 Market risk management

The LLB Group has in place a differentiated risk management and risk control system for market risks. The market risk control process comprises a sophisticated framework of rules involving the identification and the uniform valuation of market risk-relevant data as well as the control, monitoring and reporting of market risks.

Trading book

The trading book contains own positions in financial instruments which are held for short-term further sale or repurchase. These activities are closely associated with the needs of our clients for capital market products and are regarded as being supporting activities for our core business.

The LLB Group conducts relatively small scale trading book activities in accordance with Article 94 (1) CRR. A limits system is in operation to ensure compliance and is monitored by Group Risk Management. On account of the materiality, the trading book is no longer explained in detail.

Banking book

In general, the holdings in the banking book are employed to pursue long-term investment goals. These holdings include assets, liabilities, and off-balance sheet positions, which are the result, on the one hand, of classical banking business and, on the other, are held to earn revenue over their life.

Market risks with the banking book mainly involve interest rate fluctuation risk, exchange rate risk and equity price risk.

Interest rate fluctuation risk

This is regarded as the adverse effects of changes in market interest rates on capital resources or current earnings. The different interest maturity periods of claims and liabilities from balance sheet transactions and derivatives represent the most important basis.

Exchange rate risk

This relates to the risks arising in connection with the uncertainties regarding future exchange rate trends. The calculation of these risks takes into consideration all the positions entered into by the bank.

Equity price risk

This is understood to be the risk of losses due to adverse changes in the market prices of equities.

1.2 Valuation of market risks

Sensitivity analysis

In sensitivity analysis a risk factor is altered. Subsequently, the effects of the alteration of the risk factor on the portfolio concerned are estimated.

Value-at-risk

The value-at-risk concept measures the potential loss under normal market conditions over a given time interval.

Scenario analysis

While the value-at-risk concept supplies an indication of possible losses under normal market conditions, it cannot provide information about potential losses under extreme conditions. The aim of the scenario analyses of the LLB Group is to simulate the effects of normal and stress scenarios.

1.3 Distribution of market risks

Within the specified limit parameters, the individual group companies are at liberty to manage their interest rate risks as they wish. Interest rate swaps are employed mainly to control interest rate risks. Risks are restricted by means of value-at–risk models and sensitivity limits. In client business, currency risks are basically controlled by making investments or obtaining refinancing in matching currencies. The residual currency risk is restricted by means of sensitivity limits. Investments in equities are limited by the imposition of nominal limits.

1.4 Monitoring and reporting of market risks

Group Credit & Risk Management monitors the observance of market risk limits and is also responsible for reporting market risks.

1.5 Value-at-risk and sensitivities by risk categories

Value-at-risk

The value-at-risk is an estimate of the potential loss under normal market conditions and is calculated at the LLB Group on the basis of a confidence level of 99 percent and a holding period of twelve weeks.

Calculation is made based on historical value-at-risk.

Sensitivities

Interest rate sensitivity measures the market change on interest-rate-sensitive instruments for the LLB Group caused by a linear interest rate adjustment of + / – 100 basis points.

In contrast, currency sensitivity affects both interest rate sensitive and non-interest rate sensitive instruments. The sensitivity of instruments in foreign currencies is determined by multiplying the CHF market value by the assumed exchange rate fluctuation of + /–10 percent.

The equity price risks are measured assuming a price fluctuation of + /–10 percent on the equity market.

Effects on group net profit and equity

Exchange rate risk

The price gains resulting from the valuation of transactions and balances are booked to profit and loss. The price gains resulting from the transfer of the functional currency into the reporting currency are booked under other comprehensive income without affecting profit and loss.

Interest fluctuation risk

Within the scope of financial risk management, interest fluctuation risk in the balance sheet business of the LLB Group is primarily secured by means of interest rate swaps. The LLB Group recognises client loans in the balance sheet at amortised cost. This means that a change in the interest rate does not cause any change in the recognised amount and therefore to no significant recognition affecting profit and loss of the effects of interest rate fluctuation. To offset the value adjustments of interest rate hedging transactions, which are to be booked to profit and loss, the LLB Group introduced fair value hedge accounting at portfolio level for interest fluctuation risks from 1 October 2015 (see Accounting principles, point 2.8, Derivative financial instruments and hedge accounting).

At 31.12.2016, mortgage loans stood at CHF 9’986 million. The exchange rate risks applying to this portfolio are hedged at 13.6 percent through interest rate swaps

Equity price risk

The valuation is carried out at current market prices. The equity price risk resulting from the valuation at current market prices is reflected in the income statement and in other comprehensive income.

(XLS:) Download
Sensitivities

 

 

31.12.2016

 

31.12.2015

in CHF thousands

 

Value-at-risk

 

Sensitivity

 

Value-at-risk

 

Sensitivity

*

Corresponds to a 10 percent change in equity instruments.

Currency risk

 

 

 

10'581

 

 

 

10'132

of which affecting net income

 

 

 

6'505

 

 

 

56

of which not affecting net income

 

 

 

4'076

 

 

 

10'076

 

 

 

 

 

 

 

 

 

Interest rate risk

 

25'547

 

52'598

 

34'130

 

49'815

of which affecting net income

 

 

 

20'716

 

 

 

24'424

of which not affecting net income

 

 

 

31'882

 

 

 

25'391

 

 

 

 

 

 

 

 

 

Equity price risk *

 

 

 

38'556

 

 

 

36'603

of which affecting net income

 

 

 

29'315

 

 

 

36'603

of which not affecting net income

 

 

 

9'241

 

 

 

0

(XLS:) Download
Exchange rate risk by currency

 

 

31.12.2016

 

31.12.2015

in CHF thousands

 

Sensitivity

 

Sensitivity

Currency risk

 

10'581

 

10'132

of which USD

 

856

 

2'599

of which EUR

 

8'593

 

6'802

of which others

 

1'131

 

731

Enlarge table(XLS:) Download
Interest rate fluctuation risk by currencies

Increase per 100 basis points in CHF thousands

 

Within 1 month

 

1 to 3 months

 

3 to 12 months

 

1 to 5 years

 

Over 5 years

 

Total

31.12.2015

 

 

 

 

 

 

 

 

 

 

 

 

CHF

 

–7

 

–2'505

 

7'542

 

4'497

 

–47'309

 

–37'782

EUR

 

–18

 

562

 

–3'352

 

–3'202

 

–396

 

–6'405

USD

 

–18

 

561

 

–3'372

 

–3'499

 

–1'083

 

–7'411

Other currencies

 

–3

 

82

 

–906

 

2'329

 

281

 

1'783

All currencies

 

–47

 

–1'299

 

–88

 

125

 

–48'507

 

–49'815

 

 

 

 

 

 

 

 

 

 

 

 

 

31.12.2016

 

 

 

 

 

 

 

 

 

 

 

 

CHF

 

–3

 

–2'993

 

8'212

 

6'324

 

–53'036

 

–41'495

EUR

 

–8

 

240

 

–3'238

 

–1'063

 

–102

 

–4'171

USD

 

–8

 

312

 

–2'267

 

–4'940

 

–207

 

–7'109

Other currencies

 

–4

 

188

 

–70

 

63

 

0

 

176

All currencies

 

–23

 

–2'253

 

2'638

 

384

 

–53'344

 

–52'598

1.6 Currency risks

Enlarge table(XLS:) Download
Balance sheet by currency per 31 December 2015

in CHF thousands

 

CHF

 

USD

 

EUR

 

Others

 

Total

Assets

 

 

 

 

 

 

 

 

 

 

Cash and balances with central banks

 

2'537'454

 

857

 

20'955

 

706

 

2'559'972

Due from banks

 

342'579

 

1'688'472

 

1'737'013

 

486'010

 

4'254'074

Loans

 

10'210'865

 

512'381

 

233'625

 

34'619

 

10'991'490

Trading portfolio assets

 

2'443

 

1

 

6

 

0

 

2'450

Derivative financial instruments

 

59'930

 

17

 

895

 

1'171

 

62'013

Financial investments at fair value

 

974'822

 

275'341

 

185'423

 

3'022

 

1'438'608

Investment in joint venture

 

47

 

0

 

0

 

0

 

47

Property and equipment

 

123'077

 

0

 

244

 

0

 

123'321

Investment property

 

16'240

 

0

 

0

 

0

 

16'240

Goodwill and other intangible assets

 

124'434

 

0

 

59

 

0

 

124'493

Current tax assets

 

0

 

0

 

0

 

0

 

0

Deferred tax assets

 

23'669

 

0

 

0

 

0

 

23'669

Accrued income and prepaid expenses

 

33'024

 

7'518

 

5'155

 

230

 

45'927

Non-current assets held for sale

 

0

 

0

 

0

 

0

 

0

Other assets

 

1'456

 

210

 

3'877

 

22'277

 

27'820

Total assets reported in the balance sheet

 

14'450'040

 

2'484'797

 

2'187'252

 

548'035

 

19'670'122

Delivery claims from forex spot, forex futures and forex options transactions

 

2'701'115

 

2'458'905

 

2'108'035

 

743'473

 

8'011'528

Total assets

 

17'151'155

 

4'943'702

 

4'295'287

 

1'291'508

 

27'681'651

 

 

 

 

 

 

 

 

 

 

 

Liabilities and equity

 

 

 

 

 

 

 

 

 

 

Due to banks

 

521'891

 

30'123

 

26'159

 

95'461

 

673'634

Due to customers

 

10'382'867

 

2'538'094

 

2'184'990

 

521'097

 

15'627'049

Derivative financial instruments

 

149'513

 

17

 

892

 

1'171

 

151'593

Debt issued

 

1'199'568

 

0

 

13'676

 

0

 

1'213'244

Current tax liabilities

 

6'172

 

0

 

0

 

0

 

6'172

Deferred tax liabilities

 

21'617

 

0

 

0

 

0

 

21'617

Accrued expenses and deferred income

 

18'244

 

4'618

 

4'840

 

189

 

27'891

Provisions

 

25'354

 

0

 

0

 

0

 

25'354

Other liabilities

 

143'263

 

5'414

 

14'355

 

1'192

 

164'224

Share capital

 

154'000

 

0

 

0

 

0

 

154'000

Share premium

 

25'785

 

0

 

0

 

0

 

25'785

Treasury shares

 

–168'584

 

0

 

0

 

0

 

–168'584

Retained earnings

 

1'709'205

 

0

 

0

 

0

 

1'709'205

Other reserves

 

–63'849

 

0

 

0

 

0

 

–63'849

Non-controlling interests

 

102'787

 

0

 

0

 

0

 

102'787

Liabilities and equity reported in the balance sheet

 

14'227'833

 

2'578'266

 

2'244'912

 

619'110

 

19'670'122

Delivery liabilities from forex spot, forex futures and forex options transactions

 

3'021'099

 

2'339'449

 

1'982'353

 

665'089

 

8'007'990

Total liabilities and equity

 

17'248'932

 

4'917'715

 

4'227'265

 

1'284'199

 

27'678'111

 

 

 

 

 

 

 

 

 

 

 

Net position per currency

 

–97'777

 

25'987

 

68'022

 

7'309

 

3'540

Enlarge table(XLS:) Download
Balance sheet by currency per 31 December 2016

in CHF thousands

 

CHF

 

USD

 

EUR

 

Others

 

Total

Assets

 

 

 

 

 

 

 

 

 

 

Cash and balances with central banks

 

3'362'665

 

527

 

87'091

 

443

 

3'450'726

Due from banks

 

350'834

 

1'042'206

 

1'236'917

 

484'904

 

3'114'861

Loans

 

10'618'047

 

568'203

 

274'832

 

77'794

 

11'538'876

Trading portfolio assets

 

3'612

 

164

 

5

 

0

 

3'781

Derivative financial instruments

 

80'776

 

462

 

15

 

1'354

 

82'607

Financial investments at fair value

 

966'071

 

323'351

 

145'001

 

4'195

 

1'438'618

Investment in joint venture

 

47

 

0

 

0

 

0

 

47

Property and equipment

 

124'409

 

0

 

561

 

0

 

124'970

Investment property

 

16'018

 

0

 

0

 

0

 

16'018

Goodwill and other intangible assets

 

118'403

 

0

 

29

 

0

 

118'432

Current tax assets

 

1'205

 

0

 

0

 

0

 

1'205

Deferred tax assets

 

18'809

 

0

 

0

 

0

 

18'809

Accrued income and prepaid expenses

 

23'402

 

4'663

 

4'223

 

279

 

32'567

Non-current assets held for sale

 

845

 

0

 

0

 

0

 

845

Other assets

 

3'152

 

12

 

267

 

12'336

 

15'767

Total assets reported in the balance sheet

 

15'688'295

 

1'939'588

 

1'748'941

 

581'304

 

19'958'129

Delivery claims from forex spot, forex futures and forex options transactions

 

2'418'568

 

3'023'018

 

2'292'267

 

909'190

 

8'643'043

Total assets

 

18'106'863

 

4'962'606

 

4'041'208

 

1'490'494

 

28'601'172

 

 

 

 

 

 

 

 

 

 

 

Liabilities and equity

 

 

 

 

 

 

 

 

 

 

Due to banks

 

515'203

 

11'970

 

70'724

 

25'035

 

622'932

Due to customers

 

10'608'453

 

2'595'748

 

2'062'784

 

593'480

 

15'860'465

Derivative financial instruments

 

161'208

 

462

 

15

 

291

 

161'976

Debt issued

 

1'218'479

 

0

 

9'556

 

0

 

1'228'035

Current tax liabilities

 

10'398

 

0

 

0

 

0

 

10'398

Deferred tax liabilities

 

13'745

 

0

 

0

 

0

 

13'745

Accrued expenses and deferred income

 

18'127

 

5'360

 

2'548

 

192

 

26'227

Provisions

 

51'071

 

0

 

0

 

0

 

51'071

Other liabilities

 

164'105

 

2'816

 

8'937

 

1'047

 

176'905

Share capital

 

154'000

 

0

 

0

 

0

 

154'000

Share premium

 

24'968

 

0

 

0

 

0

 

24'968

Treasury shares

 

–167'045

 

0

 

0

 

0

 

–167'045

Retained earnings

 

1'758'816

 

0

 

0

 

0

 

1'758'816

Other reserves

 

–74'511

 

0

 

0

 

0

 

–74'511

Non-controlling interests

 

110'146

 

0

 

0

 

0

 

110'146

Liabilities and equity reported in the balance sheet

 

14'567'164

 

2'616'356

 

2'154'564

 

620'045

 

19'958'129

Delivery liabilities from forex spot, forex futures and forex options transactions

 

3'644'920

 

2'337'690

 

1'800'714

 

859'135

 

8'642'459

Total liabilities and equity

 

18'212'084

 

4'954'046

 

3'955'278

 

1'479'180

 

28'600'587

 

 

 

 

 

 

 

 

 

 

 

Net position per currency

 

–105'221

 

8'561

 

85'930

 

11'315

 

585

1.7 Interest rate repricing balance sheet

Enlarge table(XLS:) Download
Interest commitments of financial assets and liabilities (nominal)

in CHF thousands

 

Within 1 month

 

1 to 3 months

 

3 to 12 months

 

1 to 5 years

 

Over 5 years

 

Total

31.12.2015

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets

 

 

 

 

 

 

 

 

 

 

 

 

Cash and balances with central banks

 

2'559'972

 

0

 

0

 

0

 

0

 

2'559'972

Due from banks

 

2'443'001

 

472'688

 

1'165'230

 

100'000

 

0

 

4'180'919

Loans

 

1'576'050

 

1'998'215

 

1'188'700

 

4'532'461

 

1'688'483

 

10'983'909

Trading portfolio assets

 

0

 

0

 

0

 

870

 

1'600

 

2'470

Financial investments

 

11'884

 

82'277

 

169'640

 

673'097

 

116'489

 

1'053'386

Total financial assets

 

6'590'906

 

2'553'181

 

2'523'570

 

5'306'428

 

1'806'572

 

18'780'657

Derivative financial instruments

 

140'000

 

401'000

 

863'482

 

40'000

 

0

 

1'444'482

Total

 

6'730'906

 

2'954'181

 

3'387'052

 

5'346'428

 

1'806'572

 

20'225'139

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Due to banks

 

358'566

 

70'065

 

195'000

 

50'000

 

0

 

673'631

Due to customers

 

7'196'897

 

1'135'714

 

2'694'698

 

4'510'137

 

0

 

15'537'446

Debt issued

 

8'803

 

17'270

 

156'300

 

624'402

 

406'470

 

1'213'244

Total financial liabilities

 

7'564'266

 

1'223'049

 

3'045'998

 

5'184'538

 

406'470

 

17'424'321

Derivative financial instruments

 

20'000

 

5'000

 

153'482

 

556'000

 

710'000

 

1'444'482

Total

 

7'584'266

 

1'228'049

 

3'199'480

 

5'740'538

 

1'116'470

 

18'868'803

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate repricing exposure

 

–853'360

 

1'726'132

 

187'572

 

–394'110

 

690'102

 

1'356'336

 

 

 

 

 

 

 

 

 

 

 

 

 

31.12.2016

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets

 

 

 

 

 

 

 

 

 

 

 

 

Cash and balances with central banks

 

3'450'726

 

0

 

0

 

0

 

0

 

3'450'726

Due from banks

 

1'490'128

 

412'424

 

1'112'328

 

0

 

0

 

3'014'881

Loans

 

1'803'964

 

2'122'006

 

1'344'164

 

4'599'144

 

1'632'364

 

11'501'642

Trading portfolio assets

 

0

 

0

 

0

 

1'368

 

2'530

 

3'898

Financial investments

 

19'490

 

42'397

 

140'269

 

738'151

 

76'176

 

1'016'483

Total financial assets

 

6'764'308

 

2'576'827

 

2'596'762

 

5'338'662

 

1'711'070

 

18'987'630

Derivative financial instruments

 

120'000

 

416'000

 

810'000

 

15'000

 

0

 

1'361'000

Total

 

6'884'308

 

2'992'827

 

3'406'762

 

5'353'662

 

1'711'070

 

20'348'630

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Due to banks

 

267'217

 

35'000

 

240'000

 

80'000

 

0

 

622'217

Due to customers

 

7'126'131

 

1'325'260

 

2'854'055

 

4'417'172

 

30'029

 

15'752'647

Debt issued

 

6'980

 

16'478

 

198'571

 

606'041

 

395'890

 

1'223'960

Total financial liabilities

 

7'400'328

 

1'376'738

 

3'292'627

 

5'103'212

 

425'919

 

17'598'824

Derivative financial instruments

 

0

 

15'000

 

170'000

 

556'000

 

620'000

 

1'361'000

Total

 

7'400'328

 

1'391'738

 

3'462'627

 

5'659'212

 

1'045'919

 

18'959'824

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate repricing exposure

 

–516'020

 

1'601'089

 

–55'865

 

–305'550

 

665'151

 

1'388'806

In the interest rate repricing balance sheet excess assets, equity and liability are calculated using fixed-interest rate and derivative positions in the balance sheet and broken down interest commitments of financial assets and liabilities (nominal) into cycle times. The positions within an unspecified duration of interest rate repricing are allocated to the corresponding cycle times on the basis of a replication.