Business performance of Raiffeisen Switzerland
Raiffeisen Switzerland posted a net profit of CHF 46.8 million for the financial year under review. Total assets grew by CHF 1.7 billion to CHF 53.6 billion. There were again substantial shifts within the balance sheet, largely due to changes in liquidity.
More equity participations were sold during the current year in connection with the new cooperation strategy. This included the sale of all shares in Helvetia Holding Ltd. The sale did not, however, affect Helvetia and Raiffeisen's long-standing successful business relationship. They continue to cooperate in selling Helvetia insurance at the Raiffeisen banks.
Raiffeisen Switzerland and Avaloq have put their relationship on a new footing and turned their partnership into a pure customer-supplier relationship. As a corollary, Avaloq Group AG will acquire the remaining 51% of joint venture ARIZON Sourcing Ltd from Raiffeisen Switzerland as of 1 January 2019, prompting Raiffeisen Switzerland to sell its equity participation in Avaloq Group AG.
The sale of the participations generated CHF 104 million in profit all told.
On 27 February 2018, the Zurich III Public Prosecutor's Office notified Raiffeisen Switzerland that it had instituted criminal proceedings against Dr Pierin Vincenz, the former Chairman of the Executive Board of Raiffeisen Switzerland. He has been charged with acting in bad faith in connection with Aduno and Investnet. Raiffeisen Switzerland has joined the proceedings as a private complainant and has additionally filed a criminal complaint against Dr Pierin Vincenz and other potentially involved individuals. However, these actions have no effect on the current annual financial statements.
Income from ordinary banking activity
Gross results from interest operations increased CHF 2.5 million (+2.1%) to CHF 126.1 million. While net interest income in the corporate clients, leasing and retail business increased, the Treasury generated less net income from liquidity maintenance and hedging than in the previous year due to the very low interest rates. Changes in value adjustments for default risks and losses from interest operations decreased CHF 12.9 million to CHF 1.8 million (note 14). The net result from interest operations was CHF 124.3 million, or CHF 15.4 million more than the previous year.
The result from commission business and services (note 23) rose CHF 20.6 million year-on-year to CHF 102.5 million. All commission income items increased compared to the previous year. Much of the increase was attributable to improvements in income from securities trading and investment activities (+47.5%) and commission income from lending activities (+64.3%). The primary drivers were a higher transaction volume, as well as net new money in collective investments, particularly in Raiffeisen funds. Commission expense increased CHF 11 million to CHF 44.3 million.
The result from trading activities decreased CHF 4.7 million (-5.6%) to CHF 79.5 million (note 24). Trading activities continued to be dominated by low-interest policies at European central banks (ECB, BoE, SNB) in 2017 as interest rates remained largely stagnant. Capital market rates did not rise despite strong global growth and the healthy development of the global economy. Persistently low interest rates support the stock markets, which performed very well in 2017.
The other result from ordinary activities increased significantly once again, gaining CHF 45.5 million (+11.4%) to reach CHF 445.8 million. Other ordinary income went up 4% while other ordinary expenses declined 24.8%. Sales of financial investments increased income CHF 17.9 million to CHF 20.5 million. Income increased another CHF 21.4 million to CHF 72.7 million with ARIZON Sourcing Ltd in connection with the development of the new core banking system.
The collective and strategic services that Raiffeisen Switzerland provided to the Raiffeisen banks remained essentially unchanged from the previous year. These services are defined in accordance with internal regulations on the financing of services (financing concept). The Board of Directors provides a comprehensive report on this issue at the Delegate Meeting of Raiffeisen Switzerland.
Other ordinary expenses of CHF 34.2 million mainly include costs for producing printed material for the Raiffeisen banks, in addition to expenditure on purchasing IT infrastructure for the Raiffeisen banks.
Personnel expenses (note 26) rose CHF 26.4 million (+7.4%) to CHF 381.1 million. CHF 5 million were paid into the Raiffeisen Employer Foundation in the year under review (previous year: CHF 2.5 million). The number of people employed by Raiffeisen Switzerland stood at 2,112 full-time positions at the end of the current year. The increase of 83 full-time positions is primarily attributable to the expansion of the corporate client business.
General and administrative expenses (note 27) remained roughly unchanged compared to the previous year at CHF 254.7 million (-0.5%). IT costs fell CHF 6.4 million to CHF 87.3 million while advertising expenses went up CHF 2.4 million, as did legal costs and consulting fees. Advertising expenses for the current year totalled CHF 20.6 million while legal costs and consulting fees added up to CHF 51.7 million. The costs from these shared services are passed through to the Group companies (other ordinary income). Other operating expenses (legal costs and consultancy fees, advertising expenses, third-party services, transmission costs, out-of-pocket expenses etc.) came in 4% higher compared to the previous year at CHF 129.2 million.
Value adjustments on fixed assets
Depreciation of tangible fixed assets declined CHF 4.4 million to CHF 27.5 million. As a result of its healthy EBITDA in the current year, Raiffeisen Switzerland was able to recognise extraordinary write-downs of CHF 35.7 million on tangible fixed assets.
Changes to provisions and other value adjustments, and losses
Changes in provisions for off-balance-sheet transactions, other business risks and litigation expenses are shown in note 14.
Extraordinary income, changes in reserves for general banking risks and taxes
The extraordinary income of CHF 116.3 million (note 28) is partly the result of the sale of participations in Helvetia Holding Ltd and Avaloq Group AG. It also includes liquidation gains from the sale of tangible fixed assets amounting to EUR 11.2 million. An appreciation gain of CHF 1 million was recognised for the participation in Raiffeisen Unternehmerzentrum AG. CHF 101 million was allocated to the reserves for general banking risks. Tax expenses in the current year amounted to CHF 5 million.
The reported net profit is CHF 46.8 million.
The liquidity situation of the Raiffeisen banks, which is a function of the difference in the growth of customer deposits and the growth of loans, is directly reflected in Raiffeisen Switzerland's balance sheet and total assets. In the year under review, total assets increased CHF 1.7 billion to CHF 53.6 billion.
Receivables/liabilities to Raiffeisen banks
At the end of 2017, Raiffeisen Switzerland's net liabilities to Raiffeisen banks amounted to CHF 12.9 billion (previous year: CHF 11.1 billion). The Raiffeisen banks hold assets of CHF 12.6 billion at Raiffeisen Switzerland in order to comply with statutory liquidity requirements.
Receivables/liabilities vis-à-vis other banks
Receivables from banks decreased CHF 1.3 billion compared to the previous year to CHF 8.2 billion. Amounts due to other banks decreased CHF 0.4 billion to CHF 13.7 billion.
Amounts due/liabilities from securities financing transactions
Liabilities from securities financing transactions decreased CHF 0.8 billion to CHF 1.8 billion. These are exclusively repo transactions in which money is borrowed against collateral. The purpose of these transactions is to manage sight deposits held with the SNB. Only the paid interest is recognised in profit or loss. Changes in the value of the exchanged securities are not recognised in profit or loss. Amounts due from securities financing transactions were CHF 51.4 million.
Loans to clients
Loans to clients rose a total of CHF 916.2 million (+8.0%) to CHF 12.3 billion in the current year. Raiffeisen Switzerland's branches increased lending volume CHF 591.7 million (+6.1%) to CHF 10.3 billion. These loans also include short-term Central Bank loans to institutional clients, loans to larger corporate clients, as well as the capital goods leasing business.
Trading portfolio assets
Trading portfolio assets remained unchanged at CHF 1.3 billion (note 3).
Securities holdings in financial investments (note 5), mainly top-quality bonds, are managed in accordance with statutory liquidity requirements and internal liquidity targets. The book value fell CHF 288 million to CHF 6.3 billion.
The value of participations (note 6) decreased CHF 187.3 million to CHF 1.1 billion in the current year. The primary reason for this development was the sale of participations in Helvetia Holding Ltd and Avaloq Group AG. Raiffeisen Switzerland made a new CHF 5 million investment in Raiffeisen Immo AG, a wholly owned subsidiary. There were also changes in various smaller participations.
Tangible fixed assets
The changes in tangible fixed assets are shown in note 7.1. The book value declined CHF 53.8 million to CHF 195.3 million, mainly due to large extraordinary write-downs.
The changes in intangible assets are shown in note 8.
Client deposits rose CHF 330 million to CHF 11 billion. Branches reported an increase of CHF 348 million. At the same time, deposits from corporate clients declined CHF 123 million. The decrease is largely attributable to the negative interest rates, which began to be passed on to corporate clients.
Bond issues and central mortgage institution loans
Bond issues and central mortgage institution loans (note 13) increased another CHF 1.1 billion in the current year. Raiffeisen Switzerland bonds decreased CHF 528 million to CHF 3.3 billion due to the repayment of two bonds in 2017. Bond components of structured products issued by Raiffeisen Switzerland amount to CHF 1.6 billion. The stock of subordinated Raiffeisen Switzerland bonds remains virtually unchanged at CHF 1.7 billion.
Provisions (note 14) decreased CHF 0.2 million to CHF 16.7 million.
Reserves for general banking risks
CHF 101 million was allocated to reserves for general banking risks in the current year. CHF 188.5 million of the total amount of CHF 259.5 million is subject to tax (note 14).
Cooperative capital stood unchanged at CHF 1.7 billion at the end of December 2017. Equity capital increased to CHF 2.2 billion.
The migration of structured products from Notenstein La Roche Private Bank Ltd to Raiffeisen Switzerland B.V., the new subsidiary in Amsterdam, was completed in the course of the current year. Total contingent liabilities (note 20) declined CHF 561 million to CHF 3.2 billion in the current year. The contract volume for derivative financial instruments (note 4), in contrast, increased CHF 15.3 billion to CHF 148.3 billion. Hedging transactions for the banking book decreased CHF 4.6 billion to CHF 39.1 billion. The positive replacement values amounted to CHF 1.6 billion (previous year: CHF 1.6 billion), while the negative replacement values amounted to CHF 1.6 billion (previous year: CHF 1.8 billion).
The remuneration report is included in the annual report for the Raiffeisen Group.