Consolidated interim management report

Group financial statement

The consolidated interim financial statements are prepared in accordance with International Financial Reporting Standards (IFRS).

In the first half of 2016, the LLB Group earned a net profit of CHF 43.0 million (first half 2015: CHF 40.8 million). In comparison with the equivalent period in the previous year, the interim result increased by 5.5 percent or CHF 2.2 million.

In comparison with the first half of 2015, operating income rose by 5.6 percent and operating expenses by 7.3 percent. The profit attributable to the shareholders of LLB amounted to CHF 42.3 million (first half 2015: CHF 37.7 million). Earnings per share stood at CHF 1.47 (first half 2015: CHF 1.31).

Assets under management

As at 30 June 2016, assets under management stood at CHF 45.3 billion (31.12.2015: CHF 45.6 billion). Assets in own-managed funds remained constant at CHF 4.4 billion (31.12.2015: CHF 4.4 billion) as did assets with discretionary mandates at CHF 6.4 billion (31.12.2015: CHF 6.4 billion). On account of exchange-related factors, other client assets under management fell by 0.9 percent to CHF 34.5 billion (31.12.2015: CHF 34.8 billion.).

Assets under management (in CHF billions)

The LLB Group posted net new money outflows of CHF 42 million (first half 2015: minus CHF 166 million). In the last few years outflows have slowed consistently. The Retail & Corporate Banking Segment continued to generate gratifying inflows amounting to CHF 256 million. Private and corporate clients in the domestic markets of Switzerland and Liechtenstein were largely responsible for entrusting the LLB Group with new money in this segment. The Private Banking Segment registered an outflow of CHF 16 million. Outflows from the traditional, cross-border markets in this segment were almost completely offset by inflows in the growth and domestic markets. As a result of isolated large outflows with custodian bank funds and in the traditional, cross-border business, net new money in the Institutional Clients Segment stood at minus CHF 277 million.

Income statement

Operating income increased in comparison with the first half of 2015 by 5.6 percent to CHF 155.1 million (first half 2015: CHF 146.8 million).

Interest income before credit loss expense increased in the first half of 2016 by 5.2 percent to CHF 68.3 million (first half 2015: CHF 64.9 million). Compared with the previous year, interest business with clients climbed by 7.7 percent. The negative effects in interest income, caused by the extension of fixed interest loans at lower conditions, were compensated for by lower refinancing costs, targeted growth and an improved margin in mortgage lending business. In the current interest rate environment, the LLB Group in some cases pays negative interest on interest rate hedging instruments and money which is invested in the interbank market. In the first half of 2016, this amounted to CHF 4.5 million. Consequently, interest business with banks decreased by 53.5 percent or CHF 1.9 million. During the first half of 2016, net credit risk recovery of CHF 0.1 million (first half 2015: CHF 4.3 million) was recognised in the income statement.

Net fee and commission income was down by 5.5 percent to CHF 71.3 million (first half 2015: CHF 75.5 million). Persisting uncertainty on the financial markets due to the United Kingdom’s decision to leave the EU, as well as the stock market turbulence in the first quarter of 2016, further induced clients to exercise restraint in stock market transactions, which in turn resulted in a net reduction of brokerage income of 17.1 percent compared with the previous year.

Net trading income stood at minus CHF 0.7 million (first half 2015: plus CHF 10.9 million). Client trading in foreign exchange, foreign notes and precious metals fell by 18.0 percent to CHF 17.7 million compared with previous year. This was attributable to a high volume of foreign exchange trading in the first six months of 2015 on account of the lifting of support for the Euro minimum exchange rate by the SNB in January 2015. In the first half of 2016, the valuation loss on interest rate hedging transactions amounted to CHF 18.6 million on the reporting date (first half 2015: CHF 10.8 million).

Net income from financial investments at fair value through profit and loss totalled CHF 10.0 million (first half 2015: minus CHF 2.1 million). Income from interest and dividend payments at CHF 7.6 million decreased by 12.1 percent compared with the previous year.

Other income amounted to CHF 6.3 million compared with CHF 1.9 million in the previous year. The increase compared with the equivalent period in the previous year was due to income from the sale of properties.

Operating income (in CHF millions)

Operating expenses amounted to CHF 108.5 million and were therefore 7.3 percent or CHF 7.4 million above the previous year’s figure of CHF 101.1 million.

At CHF 65.3 million, personnel expenses were 15.8 percent or CHF 8.9 million higher than in the previous year (first half 2015: CHF 56.3 million). The increase is attributable to a strategic expansion of human resources to 842 full-time positions (31.12.2015: 816). Additionally, the increase takes into consideration higher variable salary remuneration on account of the share-price-based compensation model. Personnel expenses also include a one-time reduction of CHF 10.2 million resulting from the valuation of pension obligations (first half 2015: CHF 11.3 million).

General and administrative expenses at the LLB Group stood at CHF 30.3 million for the first half of 2016 and were therefore practically the same as in the previous year (first half 2015: CHF 30.5 million).

Depreciation and amortisation decreased by CHF 1.3 million to CHF 13.0 million (first half 2015: CHF 14.3 million). In the first half of 2016, the Cost-Income-Ratio stood at 69.8 percent (first half 2015: 66.6 %). Without the market effects, i.e. without income from interest rate swaps and from financial investments, the Cost-Income-Ratio would have been 63.2 percent (first half 2015: 58.2 %).

Balance sheet

In comparison with 31 December 2015, the consolidated balance sheet total remained practically unchanged at CHF 19.6 billion (31.12. 2015: CHF 19.7 billion). Loans to customers granted by the LLB Group posted an increase of 0.3 percent compared with 31 December 2015. Mortgage loans rose by 1.8 percent to CHF 9.8 billion.

Equity attributable to the shareholders of LLB stood at CHF 1.6 billion per 30 June 2016. The tier 1 ratio amounted to 20.3 percent (31.12.2015: 20.6 %). The return on equity attributable to the shareholders of LLB stood at 5.2 percent (first half 2015: 4.6 %).

Outlook

The LLB Group believes that the economic environment will continue to be challenging in the second half of 2016. Uncertainties generated by the Brexit decision in the United Kingdom, the strength of the Swiss Franc, negative market interest rates, volatile financial markets and increasing regulation will continue to challenge the banks. In realizing its StepUp2020 strategy, the LLB Group is pursuing sustainable, profitable growth. Thanks to its stable foundation, focused business model and clear strategy, the LLB Group is confident it can continue to achieve operative progress and attain a solid net profit.