14 Fair value measurement

(unaudited)

Measurement guidelines

The fair value represents a market-based measurement and not an entity-specific valuation. It is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date on the principal market or the most advantageous market.

As far as possible, the fair value is determined on the basis of the quoted market prices in active markets accessible to the company on the measurement date. An active, accessible market is one in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. The fair value is determined using significant and observable inputs. These are basically available in the case of quoted assets or liabilities. If a market for financial or non-financial assets or liabilities is inactive, or if no observable inputs, or insufficient observable inputs, are available, the LLB Group must employ techniques or processes (valuation methods or models) to determine the fair value. The valuation techniques contain assumptions, including estimates, to enable an exit price on the measurement date from the perspective of the market participant to be determined. However, such assumptions and estimates contain uncertainties, which at a later date can lead to substantial changes in the fair value of financial and non-financial assets and liabilities. In the case of financial and non-financial assets and liabilities for which a valuation technique involving non-observable market data is used to determine the fair value, these are measured at the transaction price. This fair value can differ from the fair value determined on the basis of valuation techniques.

All financial and non-financial assets and liabilities, which possess a fair value are classified in one of the three following fair value hierarchy levels:

Level 1

The fair value of listed debt and equity securities contained in the trading portfolio and financial investments is determined on the basis of market price quotes on an active market.

Level 2

If no market price quotes are available, the fair value is determined by means of valuation methods or models which are based on assumptions made on the basis of observable market prices and other market quotes.

Level 3

For the remaining financial instruments, neither market price quotes nor valuation methods or models based on market prices are available. Valuation models or methods having non-observable input factors are utilised for these instruments.

Valuation methods

Valuation methods and techniques are employed to determine the fair value of financial and non-financial assets and liabilities for which no observable market prices on an active market are available. These include, in particular, illiquid financial investments. If available, the LLB Group uses market-based assumptions and inputs as the basis for valuation techniques. If such information is not available, assumptions and inputs from comparable assets and liabilities are employed. In the case of complex and very illiquid financial and non-financial assets and liabilities, the fair value is determined using a combination of observable transaction prices and market information.

The LLB Group employs standardised and accepted valuation techniques, or uses the fair values of third parties, to determine the fair value of financial and non-financial assets and liabilities, which are not actively traded or listed. In general, the LLB Group uses the following valuation methods and techniques as well as the following input factors:

(XLSX:) Download

 

 

Valuation model

 

Inputs

 

Significant, non-observable inputs

Level 2

 

 

 

 

 

 

Derivative financial instruments

 

Option models

 

Underlying assets of future contracts

 

 

Own investment funds

 

Market to model

 

Market prices of underlying assets

 

 

Equities

 

Market to model

 

Market prices of underlying assets

 

 

Due from banks

 

Present value calculation

 

Market price of congruent LIBOR interest rates

 

 

Due to banks

 

Present value calculation

 

Market price of congruent LIBOR interest rates

 

 

Loans

 

Present value calculation

 

Market price of congruent LIBOR interest rates

 

 

Due to customers

 

Present value calculation

 

Market price of congruent LIBOR interest rates

 

 

Medium-term notes and shares in bond issues of the Swiss Regional or Cantonal Banks’ Central Bond Institutions

 

Present value calculation

 

Market price of congruent LIBOR interest rates

 

 

Non-current liabilities held for sale

 

Amortised cost

 

 

 

 

Accrued income and prepaid expenses / Accrued expenses and deferred income

 

Fair value corresponds to carrying value on account of the short-term maturity

 

Price conditions; deferred income corresponds to deferrals on commissions and fees

 

 

 

 

 

 

 

 

 

Level 3

 

 

 

 

 

 

Infrastructure title

 

Market to model

 

Audited financial statements

 

Illiquidity, special microeconomic conditions

Investment property

 

External expert opinions, relative values in market comparison

 

Prices of comparable properties

 

Assessment of special property factors, expected expenses and earnings for the property

Non-current assets held for sale

 

External expert opinions, relative values in market comparison

 

Prices of comparable properties

 

Assessment of special property factors, expected expenses and earnings for the property

Measurement of fair values by active markets or valuation techniques

The following table shows the classification of financial and non-financial assets and liabilities of the LLB Group within the fair value hierarchy. All assets and liabilities are measured at fair value on a recurring basis in the statement of financial position. As at 30 June 2020, the LLB Group had no assets or liabilities which were measured at fair value on a non-recurring basis in the balance sheet. In the first half of 2020, there were no significant transfers between Level 1, Level 2 and Level 3 financial instruments.

(XLSX:) Download

in CHF thousands

 

30.06.2020

 

31.12.2019

 

+/− %

*

Own investment funds and equities

**

Infrastructure title

Level 1

 

 

 

 

 

 

Financial investments at fair value through profit and loss

 

384'053

 

455'143

 

–15.6

Financial investments, recognised at fair value through other comprehensive income

 

1'824'031

 

1'641'780

 

11.1

Total financial instruments at fair value

 

2'208'084

 

2'096'923

 

5.3

 

 

 

 

 

 

 

Cash and balances with central banks

 

6'563'099

 

5'447'642

 

20.5

Total financial instruments not at fair value

 

6'563'099

 

5'447'642

 

20.5

 

 

 

 

 

 

 

Total Level 1

 

8'771'183

 

7'544'564

 

16.3

 

 

 

 

 

 

 

Level 2

 

 

 

 

 

 

Derivative financial instruments

 

114'620

 

112'798

 

1.6

of which for hedging purpose

 

3'183

 

4'034

 

–21.1

Financial investments at fair value through profit and loss *

 

29'737

 

43'276

 

–31.3

Total financial instruments at fair value

 

144'358

 

156'074

 

–7.5

 

 

 

 

 

 

 

Due from banks

 

1'518'020

 

1'353'974

 

12.1

Loans

 

13'558'408

 

13'506'813

 

0.4

Accrued income and prepaid expenses

 

51'050

 

61'800

 

–17.4

Total financial instruments not at fair value

 

15'127'478

 

14'922'587

 

1.4

 

 

 

 

 

 

 

Total Level 2

 

15'271'836

 

15'078'662

 

1.3

 

 

 

 

 

 

 

Level 3

 

 

 

 

 

 

Financial investments, recognised at fair value through other comprehensive income **

 

30'070

 

28'177

 

6.7

Total financial instruments at fair value

 

30'070

 

28'177

 

6.7

 

 

 

 

 

 

 

Investment property

 

15'000

 

15'000

 

0.0

Non-current assets held for sale

 

18'709

 

19'000

 

–1.5

Total other assets at fair value

 

33'709

 

34'000

 

–0.9

 

 

 

 

 

 

 

Total Level 3

 

63'779

 

62'177

 

2.6

 

 

 

 

 

 

 

Total assets

 

24'106'798

 

22'685'403

 

6.3

 

 

 

 

 

 

 

Level 1

 

 

 

 

 

 

Total financial instruments at fair value

 

0

 

0

 

 

 

 

 

 

 

 

 

Bonds

 

245'767

 

248'785

 

 

Total financial instruments not at fair value

 

245'767

 

248'785

 

 

 

 

 

 

 

 

 

Total Level 1

 

245'767

 

248'785

 

–1.2

 

 

 

 

 

 

 

Level 2

 

 

 

 

 

 

Derivative financial instruments

 

165'995

 

180'065

 

–7.8

of which for hedging purpose

 

22'614

 

18'350

 

23.2

Total financial instruments at fair value

 

165'995

 

180'065

 

–7.8

 

 

 

 

 

 

 

Due to banks

 

1'930'707

 

1'527'171

 

26.4

Due to customers

 

18'013'719

 

17'043'360

 

5.7

Medium-term notes and shares in bond issues of the Swiss Regional or Cantonal Banks’ Central Bond Institutions

 

1'429'075

 

1'386'495

 

3.1

Non-current liabilities held for sale

 

2'219

 

2'261

 

–1.9

Accrued expenses and deferred income

 

48'887

 

61'754

 

–20.8

Total financial instruments not at fair value

 

21'424'607

 

20'021'041

 

7.0

 

 

 

 

 

 

 

Total Level 2

 

21'590'601

 

20'201'106

 

6.9

 

 

 

 

 

 

 

Level 3

 

 

 

 

 

 

Total Level 3

 

0

 

0

 

 

 

 

 

 

 

 

 

Total liabilities

 

21'836'368

 

20'449'891

 

6.8

Valuation of assets and liabilities, classified as level 3

The financial investments measured at fair value through other comprehensive income rose by CHF 1.9 million in the first half of 2020. The increase was attributable to the purchase of further infrastructure securities amounting to CHF 2.3 million, as well as changes to the fair value.

There were no value changes with investment property. Accordingly, there was no impact on the income statement.

The change in value with non-current assets held for sale was caused by the classification of properties as available for sale their subsequent sale and exchange rate fluctuations.

The measurement process to determine the fair value of recurring Level 3 assets and liabilities, especially the significant non-observable inputs, as shown in the previous table, are explained in the following. The interrelationships between observable and non-observable inputs are not explained in the following, because such interrelationships have no significant influence on the measurement of fair value. All level 3 positions were immaterial, accordingly a full disclosure of level 3 positions was regarded as unnecessary.

Financial investments measured at fair value through other comprehensive income

These financial investments consist of non-listed shares in companies of an infrastructure nature which are required to operate a bank. Based on the current company data, these are periodically revalued by the companies themselves or by third parties utilising valuation models.

Investment property

Investment property is periodically valued by external experts or is valued on the basis of relative values in a market comparison. If no corresponding values for comparable properties are available, on which to base a reliable calculation of the fair value, assumptions are made. These assumptions contain assessments and considerations of such circumstances as the location and condition of the property, as well as the expected costs and revenues with it. Properties are always revalued whenever on the basis of events or changed circumstances the fair value no longer reflects the market price, so that changes in the calculation of the fair value can be promptly determined and recognised in the accounts.

Investment properties do not diverge to highest and best use.

Non-current assets held for sale

Non-current assets held for sale contain properties and a company that administers rental apartments (see Note 15 “Non-current assets and liabilities held for sale”). The process on which the valuation is based is the same one as for investment properties, i. e. the fair value assessment is made solely by third parties. The reported value of these assets corresponds to the fair value minus selling expenses.

Financial instruments not measured at fair value

The fair value hierarchy also includes details of financial assets and liabilities which are not measured on a fair value basis, but for which a fair value does exist.

In addition to their inclusion in the fair value hierarchy, basically a comparison between the fair value and the carrying value of the individual categories of financial assets and liabilities is to be disclosed.

The following table shows this comparison only for positions which are not measured at fair value, since for positions measured at fair value the carrying value corresponds to the fair value. On account of the maturity being more than one year, for specific positions a present value was calculated taking as a basis LIBOR interest rates appropriate for the duration of the term. In the case of all other positions, the carrying value represents a reasonable approximation of the fair value.

(XLSX:) Download

 

 

30.06.2020

 

31.12.2019

in CHF thousands

 

Book amount

 

Fair value

 

Book amount

 

Fair value

Assets

 

 

 

 

 

 

 

 

Cash and balances with central banks

 

6'563'099

 

6'563'099

 

5'447'642

 

5'447'642

Due from banks

 

1'519'543

 

1'518'020

 

1'352'338

 

1'353'974

Loans

 

12'985'256

 

13'558'408

 

12'960'524

 

13'506'813

Accrued income and prepaid expenses

 

51'050

 

51'050

 

61'800

 

61'800

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Due to banks

 

1'926'227

 

1'930'707

 

1'526'308

 

1'527'171

Due to customers

 

17'921'234

 

18'013'719

 

16'964'118

 

17'043'360

Medium-term notes and shares in bond issues of the Swiss Regional or Cantonal Banks’ Central Bond Institutions

 

1'371'697

 

1'429'075

 

1'331'391

 

1'386'495

Bonds

 

251'424

 

245'767

 

251'600

 

248'785

Non-current liabilities held for sale

 

2'219

 

2'219

 

2'261

 

2'261

Accrued expenses and deferred income

 

48'887

 

48'887

 

61'754

 

61'754