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

As a result of the de minimis approach, the trading book is classified as not significant. Accordingly, the market risks in the trading book are no longer explained in detail.

Banking book

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 Risk monitoring

Group Financial Risk Controlling 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.

In the 2014 business year, adjustments were made to the model used for calculating value-at-risk. Starting with the 2014 business year, the historic value-at-risk is determined, and in the previous years the parametric value-at-risk. Furthermore, in the 2014 business year, a new replication was used as a basis for the model to calculate value-at-risk. The reduction of value-at-risk as per 31 December 2014 relative to the previous year is largely attributable to the model adjustments.

Sensitivities

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

In contrast, currency fluctuation 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.

(XLS:) Download
Sensitivities

 

31.12.2014

31.12.2013

in CHF thousands

Value at Risk *

Sensitivity

Value at Risk

Sensitivity

*

In the 2014 business year, adjustments were made to the models for calculating value-at-risk.

Currency risks

 

16'333

 

16'731

Interest rate risks

34'705

54'787

46'689

71'582

Equity price risks

 

36'755

 

35'609

Effects on Group net profit and equity

Currency risk

The price gains resulting from the valuation are booked to profit and loss.

Interest rate risk

The financial investments are assigned to the category “Financial investments at fair value through profit and loss”. Changes in the value of interest rate instruments contained in financial investments are reported in the income statement. In the case of derivative hedging transactions, changes in the fair value of the effective component of the hedging transaction are recorded directly in equity. In the year under report, no such hedges were recorded.

Equity price risk

The valuation is carried out at current market prices. The equity price risk is fully reflected in the income statement.

1.6 Currency risks

(XLS:) Download
Balance sheet by currency per 31 December 2014

in CHF thousands

CHF

USD

EUR

Others

Total

Assets

 

 

 

 

 

Cash and balances with central banks

1'340'062

646

21'290

757

1'362'755

Due from banks

1'008'653

2'301'789

1'993'157

470'273

5'773'872

Due from customers

10'106'926

291'960

291'205

33'263

10'723'355

Trading portfolio assets

553

0

7

0

560

Derivative financial instruments

84'651

1'191

1'800

140

87'782

Financial investments at fair value

2'187'901

136'171

72'916

88

2'397'076

Investment in joint venture

61

0

0

0

61

Property and equipment

131'400

0

150

0

131'550

Investment property

16'385

0

0

0

16'385

Goodwill and other intangible assets

153'626

0

98

0

153'724

Deferred tax assets

23'565

0

0

0

23'565

Accrued income and prepaid expenses

26'738

2'885

3'398

483

33'505

Other assets

9'555

460

2'161

41'296

53'472

Total Assets reported in the balance sheet

15'090'077

2'735'103

2'386'182

546'300

20'757'663

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

2'349'622

2'562'340

1'675'714

642'790

7'230'466

Total Assets

17'439'699

5'297'443

4'061'896

1'189'090

27'988'129

 

 

 

 

 

 

Liabilities and equity

 

 

 

 

 

Due to banks

328'601

76'650

68'709

10'638

484'599

Due to customers

10'183'822

2'596'976

2'302'404

574'633

15'657'835

Liabilities from insurance contracts

75'650

0

0

0

75'650

Financial liabilities at fair value

1'193'397

0

0

0

1'193'397

Derivative financial instruments

162'661

1'191

1'794

164

165'810

Debt issued

1'123'978

0

28'982

0

1'152'960

Current tax liabilities

9'828

0

0

0

9'828

Deferred tax liabilities

25'029

0

0

0

25'029

Accrued expenses and deferred income

21'410

746

1'005

292

23'452

Provisions

33'330

0

0

0

33'330

Other liabilities

168'077

6'669

6'141

466

181'352

Share capital

154'000

0

0

0

154'000

Capital reserve

25'785

0

0

0

25'785

Less treasury shares

−168'584

0

0

0

−168'584

Retained earnings

1'672'539

0

0

0

1'672'539

Other reserves

−31'665

0

0

0

−31'665

Non-controlling interests

102'346

0

0

0

102'346

Liabilities and equity reported in the balance sheet

15'080'203

2'682'233

2'409'035

586'193

20'757'663

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

2'521'209

2'547'606

1'569'649

590'388

7'228'852

Total liabilities and equities

17'601'412

5'229'839

3'978'684

1'176'581

27'986'515

 

 

 

 

 

 

Net positions per currency

−161'713

67'605

83'212

12'510

1'614

(XLS:) Download
Balance sheet by currency per 31 December 2013

in CHF thousands

CHF

USD

EUR

Others

Total

Assets

 

 

 

 

 

Cash and balances with central banks

2'015'970

789

58'313

488

2'075'560

Due from banks

1'325'055

2'101'747

2'358'223

296'978

6'082'003

Due from customers

9'645'574

308'864

180'594

105'057

10'240'089

Trading portfolio assets

4'455

1

605

0

5'061

Derivative financial instruments

83'198

1'180

2'343

229

86'950

Financial investments at fair value

1'870'056

51'742

47'440

0

1'969'238

Investment in joint venture

42

0

0

0

42

Property and equipment

150'178

0

261

0

150'439

Investment property

21'383

0

0

0

21'383

Goodwill and other intangible assets

167'402

0

0

0

167'402

Deferred tax assets

22'456

0

0

0

22'456

Accrued income and prepaid expenses

27'365

2'425

2'719

461

32'970

Other assets

7'558

28

4'185

35'561

47'332

Total Assets reported in the balance sheet

15'340'691

2'466'776

2'654'683

438'773

20'900'923

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

2'384'331

2'469'868

1'706'862

756'677

7'317'738

Total Assets

17'725'022

4'936'644

4'361'545

1'195'450

28'218'661

 

 

 

 

 

 

Liabilities and equity

 

 

 

 

 

Due to banks

624'292

147'501

185'245

24'027

981'065

Due to customers

10'319'877

2'255'901

2'484'397

539'820

15'599'995

Liabilities from insurance contracts

266'151

0

0

0

266'151

Financial liabilities at fair value

811'778

0

0

0

811'778

Derivative financial instruments

105'069

1'180

2'334

346

108'929

Debt issued

1'107'612

0

19'985

0

1'127'597

Current tax liabilities

6'491

0

0

0

6'491

Deferred tax liabilities

41'519

0

0

0

41'519

Accrued expenses and deferred income

18'842

18'842

18'842

18'842

26'039

Provisions

37'950

0

0

0

37'950

Other liabilities

114'560

4'824

6'674

150

126'208

Share capital

154'000

0

0

0

154'000

Capital reserve

26'298

0

0

0

26'298

Less treasury shares

−167'816

0

0

0

−167'816

Retained earnings

1'649'358

0

0

0

1'649'358

Other reserves

1'083

0

0

0

1'083

Non-controlling interests

104'278

0

0

0

104'278

Liabilities and equity reported in the balance sheet

15'221'342

2'409'875

2'705'087

564'619

20'900'923

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

2'667'669

2'454'265

1'570'039

622'440

7'314'413

Total liabilities and equities

17'889'011

4'864'140

4'275'126

1'187'059

28'215'336

 

 

 

 

 

 

Net positions per currency

−163'989

72'504

86'419

8'391

3'325

1.7 Interest rate risks

(XLS:) Download
Interest rate fluctuation risk by currencies

Increase per 100 basis points in CHF thousands

Within 1 month

1 to 3 month

3 to 12 month

1 to 5 years

Over 5 Years

Total

31.12.2014

 

 

 

 

 

 

CHF

−3

−639

−4'263

11

−46'683

−51'576

EUR

−20

509

−2'122

1'140

−292

−786

USD

−22

499

−1'951

−869

−181

−2'524

Other currencies

−2

47

−79

201

−68

99

All currencies

−47

416

−8'415

483

−47'224

−54'787

 

 

 

 

 

 

 

31.12.2013

 

 

 

 

 

 

CHF

−7

−42

−7'013

−29'290

−34'709

−71'061

EUR

−23

788

−1'711

1'569

−289

334

USD

−18

225

−1'519

385

−49

−976

Other currencies

−3

73

−94

176

−31

121

All currencies

−51

1'044

−10'337

−27'160

−35'078

−71'582

Interest rate repricing balance sheet

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.

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

Increase per 100 basis points in CHF thousands

Within 1 month

1 to 3 month

3 to 12 month

1 to 5 years

Over 5 Years

Total

31.12.2014

 

 

 

 

 

 

Financial assets

 

 

 

 

 

 

Cash and balances with central banks

1'362'755

0

0

0

0

1'362'755

Due from banks

3'753'203

714'128

1'013'392

130'000

0

5'610'723

Due from customers

902'538

1'216'226

2'674'082

4'010'089

1'798'319

10'601'253

Trading portfolio assets

0

50

0

500

0

550

Financial investments

48'433

74'401

132'980

549'885

126'149

931'849

Total financial assets

6'066'929

2'004'805

3'820'454

4'690'474

1'924'468

18'507'129

Derivative financial instruments

140'000

311'000

798'047

49'047

0

1'298'095

Total

6'206'929

2'315'805

4'618'502

4'739'521

1'924'468

19'805'224

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

Due to banks

195'484

70'000

219'000

0

0

484'484

Due to customers

7'510'869

1'222'552

2'539'501

4'263'969

0

15'536'891

Debt issued

7'682

29'378

120'404

579'597

415'899

1'152'960

Total financial liabilities

7'714'036

1'321'930

2'878'905

4'843'566

415'899

17'174'335

Derivative financial instruments

20'000

25'000

38'047

405'047

810'000

1'298'095

Total

7'734'036

1'346'930

2'916'952

5'248'613

1'225'899

18'472'430

 

 

 

 

 

 

 

Interest rate repricing exposure

−1'527'107

968'875

1'701'549

−509'092

698'569

1'332'794

 

 

 

 

 

 

 

31.12.2013

 

 

 

 

 

 

Financial assets

 

 

 

 

 

 

Cash and balances with central banks

2'075'560

0

0

0

0

2'075'560

Due from banks

4'483'981

389'168

968'962

0

0

5'842'111

Due from customers

1'270'216

916'832

2'281'499

4'106'924

1'621'186

10'196'657

Trading portfolio assets

0

0

1

860

4'371

5'232

Financial investments

71'906

102'770

59'342

346'598

107'974

688'590

Total financial assets

7'901'663

1'408'770

3'309'804

4'454'382

1'733'531

18'808'150

Derivative financial instruments

20'000

0

50'000

419'080

720'000

1'209'080

Total

7'921'663

1'408'770

3'359'804

4'873'462

2'453'531

20'017'230

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

Due to banks

659'595

70'000

250'000

0

0

979'595

Due to customers

9'769'802

657'787

1'768'581

3'274'678

0

15'470'849

Debt issued

15'232

43'489

109'190

519'905

439'782

1'127'597

Total financial liabilities

10'444'629

771'276

2'127'771

3'794'583

439'782

17'578'041

Derivative financial instruments

20'000

0

50'000

419'080

720'000

1'209'080

Total

10'464'629

771'276

2'177'771

4'213'663

1'159'782

18'787'121

 

 

 

 

 

 

 

Interest rate repricing exposure

−2'542'966

637'494

1'182'033

659'799

1'293'749

1'230'109

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