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.

Calculation is made based on historical value-at-risk.

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

 

31.12.2015

31.12.2014

in CHF thousands

Value-at-risk

Sensitivity

Value-at-risk

Sensitivity

Currency risks

 

10'132

 

16'333

Interest rate risks

34'130

49'815

34'705

54'787

Equity price risks

 

36'603

 

36'755

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.

Mortgage loans stand at CHF 9’580 Mio. as at 31.12.2015. The interest rate risk on this portfolio are hedged through interest rate swaps at 14 % (Conversion fixed in variable interest rate).

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 2015

in CHF thousands

CHF

USD

EUR

Others

Total

Assets

 

 

 

 

 

Cash and balances with central banks

2'537'454

857

20'955

706

2'559'972

Due from banks

342'579

1'688'472

1'737'013

486'010

4'254'074

Due from customers

10'210'865

512'381

233'625

34'619

10'991'490

Trading portfolio assets

2'443

1

6

0

2'450

Derivative financial instruments

59'930

17

895

1'171

62'013

Financial investments at fair value

974'822

275'341

185'423

3'022

1'438'608

Investment in joint venture

47

0

0

0

47

Property and equipment

123'077

0

244

0

123'321

Investment property

16'240

0

0

0

16'240

Goodwill and other intangible assets

124'434

0

59

0

124'493

Deferred tax assets

23'669

0

0

0

23'669

Accrued income and prepaid expenses

33'024

7'518

5'155

230

45'927

Other assets

1'456

210

3'877

22'277

27'820

Total Assets reported in the balance sheet

14'450'040

2'484'797

2'187'252

548'035

19'670'122

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

2'701'115

2'458'905

2'108'035

743'473

8'011'528

Total Assets

17'151'155

4'943'702

4'295'287

1'291'508

27'681'651

 

 

 

 

 

 

Liabilities and equity

 

 

 

 

 

Due to banks

521'891

30'123

26'159

95'461

673'634

Due to customers

10'382'867

2'538'094

2'184'990

521'097

15'627'049

Liabilities from insurance contracts

0

0

0

0

0

Financial liabilities at fair value

0

0

0

0

0

Derivative financial instruments

149'513

17

892

1'171

151'593

Debt issued

1'199'568

0

13'676

0

1'213'244

Current tax liabilities

6'172

0

0

0

6'172

Deferred tax liabilities

21'617

0

0

0

21'617

Accrued expenses and deferred income

18'244

4'618

4'840

189

27'891

Provisions

25'354

0

0

0

25'354

Other liabilities

143'263

5'414

14'355

1'192

164'224

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

1'709'205

0

0

0

1'709'205

Other reserves

–63'849

0

0

0

–63'849

Non-controlling interests

102'787

0

0

0

102'787

Liabilities and equity reported in the balance sheet

14'227'833

2'578'266

2'244'912

619'110

19'670'122

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

3'021'099

2'339'449

1'982'353

665'089

8'007'990

Total liabilities and equities

17'248'932

4'917'715

4'227'265

1'284'199

27'678'111

 

 

 

 

 

 

Net positions per currency

–97'777

25'987

68'022

7'309

3'540

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

in CHF thousands

CHF

USD

EUR

Others

Total

*

The comparison period was adjusted on the basis of the restatement. See point 2.1 of the accounting principles.

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

470'272

5'773'872

Due from customers

10'102'062

291'960

291'205

33'263

10'718'492

Trading portfolio assets

554

0

7

0

561

Derivative financial instruments

84'650

1'191

1'800

140

87'781

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

25'722

0

0

0

25'722

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

15'087'370

2'735'103

2'386'182

546'300

20'754'957

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

17'436'992

5'297'443

4'061'896

1'189'091

27'985'422

 

 

 

 

 

 

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

165'809

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

179'905

6'669

6'141

466

193'180

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

1'671'273

0

0

0

1'671'273

Other reserves

–44'108

0

0

0

–44'108

Non-controlling interests

101'522

0

0

0

101'522

Liabilities and equity reported in the balance sheet

15'077'497

2'682'233

2'409'035

586'193

20'754'957

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

17'598'706

5'229'839

3'978'684

1'176'581

27'983'809

 

 

 

 

 

 

Net positions per currency

–161'714

67'605

83'212

12'510

1'613

1.7 Interest rate risks

Enlarge table(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

31.12.2015

 

 

 

 

 

 

CHF

–7

–2'505

7'542

4'497

–47'309

–37'782

EUR

–18

562

–3'352

–3'202

–396

–6'405

USD

–18

561

–3'372

–3'499

–1'083

–7'411

Other currencies

–3

82

–906

2'329

281

1'783

All currencies

–47

–1'299

–88

125

–48'507

–49'815

 

 

 

 

 

 

 

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

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.

Enlarge table(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

*

The comparison period was adjusted on the basis of the restatement. See point 2.1 of the accounting principles.

31.12.2015

 

 

 

 

 

 

Financial assets

 

 

 

 

 

 

Cash and balances with central banks

2'493'551

0

0

0

0

2'559'972

Due from banks

2'443'001

472'688

1'165'230

100'000

0

4'180'919

Due from customers

1'576'050

1'998'215

1'188'700

4'532'461

1'688'483

10'983'909

Trading portfolio assets

0

0

0

870

1'600

2'470

Financial investments

11'884

82'277

169'640

673'097

116'489

1'053'386

Total financial assets

6'524'485

2'553'181

2'523'570

5'306'428

1'806'572

18'714'236

Derivative financial instruments

140'000

401'000

863'482

40'000

0

1'444'482

Total

6'664'485

2'954'181

3'387'052

5'346'428

1'806'572

20'158'718

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

Due to banks

358'566

70'065

195'000

50'000

0

673'631

Due to customers

7'196'897

1'135'714

2'694'698

4'510'137

0

15'537'446

Debt issued

8'803

17'270

156'300

624'402

406'470

1'213'244

Total financial liabilities

7'564'266

1'223'049

3'045'998

5'184'538

406'470

17'424'321

Derivative financial instruments

20'000

5'000

153'482

556'000

710'000

1'444'482

Total

7'584'266

1'228'049

3'199'480

5'740'538

1'116'470

18'868'803

 

 

 

 

 

 

 

Interest rate repricing exposure

–919'780

1'726'132

187'572

–394'110

690'102

1'289'915

 

 

 

 

 

 

 

31.12.2014 (restated) *

 

 

 

 

 

 

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

4'005'226

1'798'319

10'596'390

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

4'685'611

1'924'468

18'502'267

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

4'734'658

1'924'468

19'800'361

 

 

 

 

 

 

 

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

–513'955

698'569

1'327'931