The 2009 business year has clearly shown that the LLB Group also cannot escape the effects of international crises. Against this backdrop, we intentionally made long-term investments – in expanding our position in the target markets and in our IT platform.
The Principality's economic and financial policies have mastered many challenges, and important steps have been taken for the future. For example, the discussions surrounding bank client confidentiality have in the meantime become less emotional and more factual, and the Liechtenstein and Swiss financial centres have shown that they are capable of adapting to new conditions. Now that they have each signed twelve double taxation agreements or tax information exchange agreements, both countries have been included on the white list of the Organisation for Economic Cooperation and Development (OECD). The Liechtenstein financial centre, in particular, has resolutely stood its ground in a very challenging market environment. The stability of the banks was never in question, and at no time did they require government support.
Rock solid and well capitalised
The LLB Group's business model is broadly diversified and geared towards our traditional strengths such as security, stability, continuity, and closeness to clients. Our business result confirms that this model again proved its validity in the year under report.
Earnings improved by 10.1 percent to CHF 529.3 million. The most important revenue components posted different results: interest income fell by 20.0 percent to CHF 194.4 million, fee and commission income declined by 12.0 percent to CHF 236.0 million. Thanks to the recovery on the financial markets, income from financial investments, at fair value through profit and loss, improved to CHF 33.2 million. The share of net income from investments in associates stood at CHF 30.9 million. In total, at CHF 181.0 million, the Group result was 20.2 percent higher than in the previous year. Net profit attributable to the shareholders of LLB AG amounted to CHF 174.2 million. This represents earnings of CHF 6.12 per share.
Operative results influenced by business conditions
As in previous years, the Domestic Market segment registered an expanding volume of mortgage loans. We succeeded in gaining market shares and attained record levels with advances to clients. In addition, private banking showed significant growth in both our domestic markets. Client assets were up by 13.2 percent to CHF 12.7 billion. Half of this increase was attributable to net new money inflows and half to performance-related growth in assets. The segment result before tax amounted to CHF 44.4 million (previous year: CHF 49.8 million).
The business result of our International Market segment was influenced by the financial and economic crises as well as the continuing international tax discussions. The ensuing uncertainty among investors led to lower interest and commission earnings. The net new money outflow amounted to CHF 939 million. Client assets decreased by 4.3 percent to CHF 15.0 billion. The segment result before tax stood at CHF 23.7 million (previous year: CHF 62.6 million).
We were particularly successful in the new markets. For instance, our representative office in Dubai, which was opened in 2008, recorded a positive development in spite of global economic uncertainty. With our bank in Vienna, which commenced business operations in November 2009, we are intensifying our onshore private banking activities in Austria. At the same time, this new business base is an ideal gateway for penetrating the Central and Eastern European markets.
Our Institutional Market segment achieved a good result. Although the restraint shown by investors and fund promoters led to lower brokerage income, custodian bank business brought record earnings. At 31 December 2009, we were entrusted with around 200 custodian bank mandates. This corresponds to an increase of 13 mandates. Thanks to net new money inflows of CHF 89 million and good performance, client assets expanded by 14.0 percent to CHF 17.2 billion. The segment result before tax totalled CHF 79.9 million and was therefore 25.8 percent below the previous year's figure.
Successful implementation of new banking software
Bank Linth has been operating the new version of the «Avaloq» software since January 2010. The LLB parent bank and Liechtensteinische Landesbank (Switzerland) Ltd. will change over to the new banking software at the beginning of 2011. It is planned for the central operating system for the three banks concerned to be located in Vaduz.
Sharpening our competitiveness
The Business Process Management Project enables us to eliminate unnecessary duplications, to quickly expand our product and service offer, and to put in place simpler and more cost-efficient organisational procedures.
In the Shared Services Project, we analyse processes and services to identify synergy potentials within our Group. The key objective of the project is to preserve the good cost structure and enhance the competitiveness of the LLB Group. We are pursuing the same goal within the context of our agreement to work together with the VP Bank in the fields of IT and logistics in order to exploit synergies and take advantage of economies of scale. Our first joint projects will concern issues relating to printing and dispatch as well as data processing centres.
Change in the Board of Directors
At the General Meeting on 8 May 2009, Dr. Michael Ritter, Helmuth Elkuch and Peter Harald Frommelt stood down from the Board of Directors of LLB AG after seven and eight year's service respectively. The Liechtensteinische Landtag (Parliament) appointed Markus Foser, Markus Büchel and Roland Oehri as their successors.
Confirmation of growth strategy
In 2009, the Board of Directors reviewed and refined our three-pillar strategy (consolidation of the Liechtenstein domestic market, expansion of activities in Switzerland, development of new markets). Our banking business is to be continually expanded. Consequently, we are pushing ahead with diversification measures, both in geographical terms and as regards client segments. At an international level, we are focusing on cross-border private banking. We shall take further advantage of Bank Linth as a platform for the expansion of our Swiss onshore banking activities.
The Board of Directors will propose an unchanged dividend to the previous year of CHF 3.40 per LLB share to the General Meeting. The dividend yield relative to the year-end price of CHF 68.95 would therefore amount to 4.9 percent.
In view of the uncertainties about the further economic trends and the challenging operating environment, it is difficult to provide a forecast about the development of business in 2010. We shall consistently pursue our growth strategy and implement its objectives on a step-by-step basis. In doing so, our primary focus will be on strengthening our presence in our home markets and expanding our international private banking activities.
As regards the LLB Group's growth perspectives, our medium-term goals remain unchanged. We want to achieve net new money inflows of at least 3 percent, a return on equity of over 15 percent, maintain a tier 1 ratio of 12 percent, and have a cost/income ratio that is one of the best in an international comparison of the banking industry.
A note of thanks
We want to thank our staff for their hard work and express our gratitude to our clients for their loyalty and cooperation. A special note of thanks goes to you, our esteemed shareholders, for your continuing support. The trust you place in us is a constant incentive for us to give our best.
Dr. Josef Fehr
Dr. Hans-Werner Gassner