14 Provisions

Provisions for legal and litigation risks

The LLB Group is involved in various legal proceedings within the scope of normal banking business. It allocates provisions for ongoing and threatened legal proceedings if, in the opinion of LLB, payments or losses are likely and the amounts can be estimated.

As at 30 June 2019, the LLB Group was involved in various litigation and proceedings, which could have an impact on its financial reporting. The LLB Group endeavours to disclose the claims for damages, the scope of legal proceedings and other relevant information in order for the reader to be able to estimate the possible risk for the LLB Group.

LLB Verwaltung (Switzerland) AG, formerly Liechtensteinische Landesbank (Switzerland) Ltd., is among the category 1 banks which must achieve an individual solution with the US authorities to resolve the US taxation dispute. LLB (Switzerland) Ltd. ceased its banking operations at the end of 2013 and since October 2014 is no longer subject to supervision by the Swiss Financial Market Authority (FINMA). LLB Verwaltung (Switzerland) AG is responsible for the proceedings. LLB Verwaltung (Switzerland) AG is cooperating closely with the US authorities and is working with them to achieve a final settlement of the issue, while complying with the prevailing legal regulations. In the opinion of the management, the legal risk of an outflow of resources in connection with the possibility that LLB Verwaltung (Switzerland) AG may not have complied with US law, especially US tax law, was likely as at 30 June 2019. On the basis of the calculation criteria of the non-prosecution agreement concluded between LLB AG, Vaduz, and the US authorities, as well as payments made by other banks, and knowledge gained during the negotiations, the provision was reduced as at 30 June 2019 by a total of CHF 5.5 million.

At the start of 2015, LLB Verwaltung (Switzerland) AG, formerly Liechtensteinische Landesbank (Switzerland) Ltd., received two legal claims in connection with an investment project. Several persons, who have no connection with LLB Verwaltung (Switzerland) AG, had endeavoured to persuade an investor to invest a sum in an investment project. The investment project did not exist and the persons acting fraudulently were able to embezzle a part of the investment sum. The claimants have lodged claims against LLB Verwaltung (Switzerland) AG for the payment of damages in respect of a part of the embezzled amount plus interest. LLB Verwaltung (Switzerland) AG denies that the actions of a former employee of LLB Verwaltung (Switzerland) AG led to the loss. At the beginning of October 2017, the High Court of Justice in London ruled at first instance that there had been misconduct on the part of a former employee and that LLB Verwaltung (Switzerland) AG was jointly liable for his misconduct and for the damage caused by him. LLB Verwaltung (Switzerland) AG was not liable for misconduct itself. LLB Verwaltung (Switzerland) AG has lodged an appeal against this first instance ruling. On the basis of the first instance ruling and the non-suspensive effect of the appeal, LLB Verwaltung (Switzerland) AG has deposited an amount of CHF 15.1 million with the court for damages, interest charges and third-party attorneys’ fees in 2017.

In March 2019, the Court of Appeal in London reached a verdict concerning the appeal of LLB Verwaltung (Switzerland) AG. The Court of Appeal rejected the appeal of LLB Verwaltung (Switzerland) AG in regard to its own liability. A provision of CHF 4.3 million was set aside per 30 June 2019 for additional costs with the proceedings so far. LLB Verwaltung (Switzerland) AG has decided not to initiate any further legal steps.

LLB Verwaltung (Switzerland) AG will make a claim for compensation of damages to the insurance company.

Provisions for other business risks and restructuring

LLB (Österreich) AG will introduce the Avaloq banking software package as at 1 January 2020. The service agreement for the use of the existing software can only be terminated by either party from the end of 2021 at the earliest. A provision amounting to CHF 3.9 million was allocated as at 31 December 2018 for the service fees to be paid for the years 2020 and 2021 even though the software will not be used. Management continues to regard these as adequate.

The provisions for restructuring relate to the LLB Group’s StepUp2020 strategy announced in October 2015. Restructuring provisions amounting to CHF 1.6 million were recognised per 30 June 2019 for costs relating to the strategy in connection with refurbishment and restoration work, as well as expenses for social plans for employees of LLB (Österreich) AG.