Accounting principles

1 Basic information

The LLB Group offers a broad spectrum of financial services. Of particular importance are asset management and investment counselling for private and institutional clients, as well as retail and corporate client business.

The Liechtensteinische Landesbank Aktiengesellschaft, founded and with its registered office located in Vaduz, is the parent company of the LLB Group. It is listed on the SIX Swiss Exchange.

The Board of Directors reviewed this consolidated annual statement at its meeting on 27 February 2014 and approved it for publication.

In addition, the consolidated financial statement must be approved by the General Meeting on 9 May 2014.

2 Summary of significant accounting policies

The significant accounting and valuation methods employed in the preparation of this consolidated financial statement are described in the following. The described methods have been consistently employed for the reporting periods shown provided no statement to the contrary is specified.

2.1 Basis for financial accounting

The consolidated financial statement has been prepared in accordance with International Financial Reporting Standards (IFRS).

The Group financial statements were compiled on the basis of historical deemed costs with the exception of revaluation of some financial assets and liabilities.

The discussions regarding the sale of swisspartners Investment Network AG have been suspended for the time being. Within the scope of its new strategy which focuses on the core business, the LLB Group still intends to sell swisspartners Investment Network AG. Since the pre-conditions for the classification of the company’s assets and liabilities as non-current assets held for sale in accordance with IFRS 5 as per 30 June 2013 were no longer fully satisfied, swisspartners Group has again been fully consolidated from 30 June 2013. The assets and liabilities of the company are again reported in the individual balance sheet positions of the LLB Group. The comparison period is not to be adjusted.

Within the scope of the Focus2015 strategic initiative, the subsidiary Jura Trust AG was sold. Accordingly, the company was removed from the scope of consolidation of the LLB Group per 1 October 2013. The deconsolidation of the Jura Trust Group resulted in a charge of CHF 8.1 million to the 2013 business result of the LLB Group. In the consolidated interim financial reporting 2013 the assets and liabilities of the Jura Trust Group were reported in the consolidated balance sheet and notes to the balance sheet at 30 June 2013 as non-current assets held for sale in accordance with IFRS 5. As a result of the sale, the balance sheet of the LLB Group as per 31 December 2013 contained no assets or liabilities of the Jura Trust Group. The comparison period is not to be adjusted.

Numerous new IFRS standards, amendments and interpretations of existing IFRS standards were published which were to become effective for financial years starting on 1 January 2013 or later. The following new or revised IFRS standards or interpretations are of importance to the LLB Group:

  • IAS 19 (revised) «Employee Benefits»; the amendments to IAS 19 announced in June 2011 by ISAB were implemented by the LLB on 1 January 2013. The amendments improve the accounting requirements for pensions and other forms of post-employment benefits. The revised standard replaces the interest cost on defined benefit and the expected return on plan assets with a net interest cost based on the net defined benefit asset or liability and the discount rate. IAS 19 (revised) eliminates the corridor method, according to which actuarial gains and losses could be amortised gradually. The revised IAS now stipulates the recognition of the complete cash value of the pension obligation after deduction of the plan assets. In the past, the LLB has never utilised the corridor method, but always reported the actuarial gains and losses directly in equity or other comprehensive income. The opening balance sheet per 1 January 2012 and the comparison figures are presented as if IAS 19 (revised) had already been applied in the past. The introduction of IAS 19 (revised) reduces the benefit plan obligation per 1 January 2012 by net CHF 9.8 million and increases equity by CHF 9.8 million. This is largely attributable to transition costs unrecognised in the past and the risk sharing to be considered under IAS 19 (revised). Personnel expenses for the first half of the 2012 business year were adjusted according to IAS 19 (revised). This resulted in a CHF 2.8 million higher level of personnel expenses per 31 December 2012 than published in the 2012 consolidated financial statement.
  • IFRS 10 «Consolidated Financial Statements»; this IFRS standard presented in May 2011 introduced a new definition of control. It was implemented by the LLB from 1 January 2013. It is to be determined according to the new control definition when one entity should consolidate another. An investor controls a company (investee) when the investor is exposed or has rights to variable returns from its involvement with the investee and has the ability to affect those returns through its power of the investee. The standard also contains guidance in cases where it is difficult to determine control. In October 2012, the IASB published an amendment to IFRS 10, which contains an exception to consolidation in the case of certain investment companies. The LLB does not conform to the definition of an investment company, therefore these changes have no effect on the LLB’s consolidated financial statement. Based on the control concept defined in IFRS 10, the LLB does not have to consolidate any of its participations in any way differently than previously. Merely certain claims and obligations arising from insurance contracts, so-called deferred variable annuities (DVAs) are no longer to be consolidated according to IFRS 10. DVAs are flexible insurance contracts, which defer payments up to a specified time point, and the premium holder at the start makes one or more premium payments to the insurance company. The implementation of IFRS 10 necessitates a retroactive adjustment according to IAS 8. On the basis of this standard, the balance sheet values of two previous periods are to be adjusted and published. The balance sheet items «non-current assets held for sale» and «liabilities from non-current assets held for sale» were reduced as per 31.12.2011 or 1.1.2012 by CHF 244.7 million and as per 31.12.2012 by CHF 184.3 million. On account of the publishing of the opening balance sheet per 1 January 2012 according to IAS 19 (revised), it was decided not to publish the adjusted balance sheet as per 31 January 2011. The opening balance sheet per 1 January 2012 was adjusted accordingly. The adjustments have no effect on the income statement, the statement of cash flows, or the earnings per share. Otherwise, IFRS 10 has no effect on the LLB’s consolidated financial statement.
  • IFRS 11 «Joint Arrangements»; the IASB published this standard in May 2011 and it was implemented by the LLB on 1 January 2013, the first effective date. The new standard has no effect on the LLB’s consolidated financial statement.
  • IFRS 13 «Fair Value Measurement»; the IFRS was published in May 2011 by the IASB and was implemented by the LLB on 1 January 2013. IFRS 13 defines a single source of guidance for all fair value measurements under IFRS. The fair value measurement 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 on the measurement date. The standard explicitly states that the fair value measurement represents a market-based and not a specific company value. In addition, IFRS 13 specifies new disclosure obligations and extends existing disclosure requirements, which are described in note 36 «Fair value measurement» in this consolidated financial statement. The implementation of IFRS 13 did not cause any change in equity and had no effect on the LLB’s income statement or balance sheet per 31 December 2013.
  • IFRS 7 «Financial Instruments: Disclosures»; this standard was published in December 2011 by the IASB and it came into effect on 1 January 2013. The IFRS standard specifies additional disclosures regarding applied and executable netting agreements. The adjustments made by IFRS 7 should enable balance sheet readers to identify the actual or potential effects of netting agreements in the annual financial statement. The IFRS standard specifies the disclosure of gross and net amounts of reported financial assets and liabilities in connection with netting agreements or similar agreements, irrespective of whether the items are presented as netted or unnetted in the balance sheet. Basically, the LLB concludes standardised agreements with counterparties which, among other things, contain netting possibilities. However, the LLB did not utilise such netting agreements neither per 31 December 2013 nor in the previous year, so that all accepted risks are disclosed and the financial assets and liabilities are presented gross in the consolidated financial statements. The disclosure of the offsetting of financial assets and liabilities is reported in risk management under point 8.
  • IFRS 9, «Financial Instruments» (the date of effect has not yet been defined); the updated IFRS 9, which sets out revised rules for the recognition and measurement of financial instruments, contains application guidelines for financial liabilities and for the accounting of financial instruments. The standard specifies two measurement classifications for financial assets: amortised cost and fair value. IFRS 9 requires that all financial assets are classified according to the business model of the company for the management of financial assets and the contractual cash flow characteristics of the financial assets. The rules set out in IAS 39 regarding the classification and measurement of financial liabilities are retained, including the individual guidelines for application and implementation. On account of the changed credit risk of a company, gains and losses on financial liabilities designated as at fair value through profit and loss are recognised directly in comprehensive income instead of in the income statement. The effects of these changes on the LLB’s financial reporting are currently being analyzed.
  • IAS 1, «Presentation of Financial Statements»; the IASB published this revised standard in June 2011 and it was implemented by the LLB on 1 January 2013, the first effective date. In essence, the revised standard specifies that the items in other comprehensive income must be divided into two groups. Items that could be reclassified (or «recycled») to profit and loss at a future date and items that could not be reclassified to profit and loss at a future date. The presentation of other comprehensive income was adjusted accordingly. The amendment merely affected the presentation of other comprehensive income, but had no financial influence on the LLB Group’s financial statement.
  • IAS 36, «Impairment of assets»; the IASB amended this standard in May 2013 to clarify the definition of the recoverable amount for non-financial assets. Additional fair value details are required for non-financial assets or cash generating units of the recoverable amount minus the costs of sale for which a value impairment was made or or reversed, provided these were determined on the basis of fair value minus the costs of sale. The LLB implemented the revised standard on 1 January 2014 and assumes that it will have no major influence on the Group financial statement.
  • IFRIC Interpretation 21 «Levies; the IASB issued the IFRIC Interpretation 21 in 2013 and it came into effect on 1 January 2014. The IFRIC provides criteria for the recognition of a liability when it is the result of a levy imposed by governments. The interpretation applies both to levies for which the date and the amount are known as well as for those which are not known, and is an integral component of IAS 12 Income Taxes. The LLB assumes that it will have no major influence on the Group financial statement.

With the scope of its annual improvement measures, in May 2012, the IASB issued six amendments to five IFRS standards. The LLB implemented all these amendments on 1 January 2013. They had no major influence on the consolidated financial statement. In December 2013, the IASB issued further improvements to nine IFRS standards, which all come into effect on 1 January 2015. The LLB is currently investigating their influence on the Group financial statement.

2.2 Consolidation policies

The consolidated financial statement follows a banking format. The consolidation period corresponds to the calendar year. The financial year is identical to the calendar year for all consolidated companies. The Swiss Franc (CHF), the currency of the country in which LLB AG has its registered office, serves as the reporting currency of the LLB Group.

Subsidiaries

The consolidated financial statement incorporates the financial accounts of Liechtensteinische Landesbank AG and its subsidiaries. LLB Group companies, in which Liechtensteinische Landesbank AG holds, directly or indirectly, the majority of the voting rights or otherwise exercises control, are fully consolidated. Subsidiaries acquired are consolidated from the date control is transferred to Liechtensteinische Landesbank AG, and are no longer consolidated from the date this control ends.

The consolidation is carried out according to the purchase method. The effects of intra-group transactions and balances are eliminated in preparing the financial statements. Transactions with minorities are booked to equity.

Equity attributable to minority interests is presented in the consolidated balance sheet in equity, separately from equity attributable to LLB shareholders. Net profit attributable to minority interests is shown separately in the income statement.

Investments in associates and joint ventures

Investments in associates in which the LLB Group can have a significant influence, but in which it does not have control (normally evidenced when the LLB owns between 20 and 50% of the voting rights) are recognised using the equity method. Joint ventures, companies in which the LLB has a stake of 50%, are recognised according to the equity method.

Changes to the scope of consolidation

LLB AG has sold Jura Trust AG in Vaduz, Liechtenstein. Jura Trust AG and all its subsidiaries (Jura Trust Group) were removed from the scope of consolidation with effect from 1 October 2013. The deconsolidation of the Jura Trust Group led to a charge of CHF 8.1 million. LLB Treuhand Aktiengesellschaft with registered office in Vaduz, Liechtenstein was liquidated in 2013, and consequently is no longer included in the scope of consolidation of the LLB Group with effect from 31 December 2013. The Future Foundation of Liechtensteinische Landesbank AG with registered office in Vaduz, Liechtenstein, was fully consolidated in the LLB Group for the first time with effect from 1 January 2013. No consolidation was carried out up to 31 December 2012 on account of the negligibleness from the perspective of the LLB Group. Consulting Partners Ltd. with registered office in Tortola, BVI and Quodatis AG with registered office in Triesen, Liechtenstein, both wholly-owned subsidiaries of the fully consolidated swisspartners Investment Network AG with registered office in Zurich, Switzerland, were liquidated and were removed from the scope of consolidation with effect from 30 June 2013.

2.3 General principles

Recording of business

Sales and purchases from trading assets, derivative financial instruments and financial investments are booked on the transaction date. Loans, including those to clients, are recorded in that period of time in which the funds flow to the borrower.

Income accrual

Income from services is recorded at the time the service was rendered. Asset management fees, safe custody fees and similar types of income are recorded on a pro rata basis over the period the specific service is provided. Interest income is recorded using the effective interest method. Dividends are recorded at the time point a legal claim comes into existence.

Inland versus abroad

Switzerland is included under the designation «FL / CH».

Use of estimates in the preparation of financial statements

In preparing the financial statements in conformity with IFRS, management is required to make estimates and assumptions that affect reported income, expenses, assets, liabilities and disclosure of contingent assets and liabilities. Use of information available to the LLB on the balance sheet date and application of judgement are inherent in the formation of estimates. Actual results in the future could differ from such estimates, and the differences could be material to the financial statements.

The IFRS contain guidelines, which require the LLB Group to make estimates and assumptions when preparing the consolidated financial statement. Goodwill, intangible assets, pension plans, and fair value measurements for financial instruments are all areas which leave large scope for estimate judgments. Assumptions and estimates made with them could be material to the financial statement. Explanations regarding this point are shown under note 19, note 36 and note 42.

2.4 Foreign currency translation

Functional currency and reporting currency

The items contained in the financial accounts of each Group company are valued in the currency which is used in the primary business environment in which the company operates (functional currency).

The LLB Group’s financial statement is reported in Swiss Francs, which represents the LLB Group’s reporting currency.

Group companies

Group companies, which report their financial accounts in a functional currency other than the Group’s accounting currency are translated as follows: all assets and liabilities are converted at the relevant exchange rate valid on the balance sheet date. All individual items in the income statement and statement of cash flows are converted at the average exchange rate for the accounting period. All resulting exchange differences are booked individually to equity or other comprehensive income.

Transactions and balances

Foreign currency transactions are converted into the functional currency at the exchange rates prevailing at the time of the transaction Foreign currency assets and liabilities are translated at the exchange rates prevailing on the balance sheet date. Exchange gains and losses arising from the valuation are booked to the income statement. The following exchange rates were employed for foreign currency conversion:

Reporting date rate

31.12.2013

31.12.2012

 

Average rate

2013

2012

1 USD

0.8908

0.9131

 

1 USD

0.9237

0.9335

1 EUR

1.2270

1.2071

 

1 EUR

1.2273

1.2048

1 GBP

1.4738

1.4837

 

1 GBP

1.4499

1.4832

2.5 Cash and balances with central banks

Cash and balances with central banks consist of cash in hand, postal cheque balances, giro and sight deposits at the Swiss National Bank and foreign central banks, as well as clearing credit balances at recognised central savings and clearing banks, claims from money market instruments with an original maturity period of less than three months as well as loans due from banks (due daily).

2.6 Balances due from banks and from customers

Balances due from banks and from customers are initially recorded at actual cost, corresponding to the fair value of the specific loan at the time it was granted. Subsequent valuation reflects the amortised cost under application of the effective interest rate method.

Interest on balances due from banks and from customers is recognised on an accrual basis and is reported according to the effective interest method included under the item interest income.

Allowances and provisions for credit risks

Basically, the LLB Group extends loans only on a collateralised basis, and only to counter parties having very high credit worthiness.

Loans are regarded as being impaired if it is likely that the entire amount owed according to the loan agreement is not recoverable. Loan impairments are caused by country or counterparty specific criteria. Indications for the impairment of financial assets are:

  • the financial difficulty of the borrower;
  • a breach of contract, such as a default or delinquency in interest or principal payments;
  • the increased probability that the borrower will enter bankruptcy or financial reorganization;
  • national or local economic conditions that correlate with defaults on the assets of the Group.

The amount of the impairment is measured as the difference between the carrying value of the claim and the estimated future cash flow, discounted by the loan’s original effective interest rate. Allowances for credit risks is reported as a reduction of the carrying value of a claim on the balance sheet, whereas for an off-balance-sheet item such as a commitment a provision for credit loss is reported under provisions. Impairments are recognised in the income statement.

2.7 Claims and liabilities from insurance contracts

Swisspartners Group offers fund-linked life insurance products. These insurance products consist largely of fund-linked life insurance policies with mortality cover against one-time investments and fund-linked annuities. The insurance products contain no discretionary participation features. To determine the provisions for insurance benefits from segregated portfolio contracts, a mortality risk amounting to the net sum at risk is applied. The net sum at risk is the difference between the insurance benefit in the event of death and the fair value of the cover for the segregated portfolio. The provision for mortality is calculated on the basis of the mortality risk as well as the criteria of the external actuary after consideration of the net amount for all life insurance policies. The provisions are reviewed on every balance sheet date. New provisions to be allocated are immediately recognised in the financial accounts.

The claims and liabilities from insurance contracts are recognised at fair value. The claims are assigned to the corresponding items on the asset side of the balance sheet. The liabilities are recognised in the positions «Liabilities from insurance contracts» and «Financial liabilities» on the liabilities side of the balance sheet. Changes to fair values and premium revenues as well as actuarial provisions are reported under «Net fee and commission income» in the position «Insurance-related fees and commissions».

Financial liabilities are recognised at fair value because the corresponding assets are also valued at fair value, and thus an accounting mismatch is avoided.

2.8 Trading portfolio assets

Trading portfolio assets comprise equities, bonds and structured financial products. Financial assets held for trading purposes are recorded at fair value. Short positions in securities are reported as trading portfolio liabilities at fair value. Realised and unrealised gains and losses as well as interest and dividends are recorded in net trading income.

Fair value is based on current market prices in the case of an active market. In the absence of an active market, fair value is calculated on the basis of valuation models (see 2.10 «Financial investments»).

2.9 Derivative financial instruments

All derivative financial instruments are valued as positive or negative replacement values corresponding to fair value and are reported in the balance sheet. Fair value is calculated on the basis of exchange listings; in the absence of these, valuation models are employed. Realised and unrealised gains and losses are recorded in net trading income.

Hedging transactions

The LLB Group may utilise hedge accounting if the conditions in accordance with IAS 39 for the permitted booking as criteria for treatment as a hedging transaction are fulfilled.

Certain derivative transactions do indeed represent hedging transactions, and they do correspond to the risk management principles of the LLB Group. However, due to the strict, specific nature of IFRS guidelines, they do not meet the criteria to be treated as hedging transactions in the financial accounts. Changes in value are recorded for the corresponding period in net trading income.

2.10 Financial investments

According to IFRS, financial investments may be subdivided into various categories depending upon the purpose for which the financial investments were made. The management of the LLB Group specifies the category of financial investments when they are first made. In 2013, as was the case in the 2012 financial year, all financial investments were valued at fair value through profit and loss.

This designation is in line with the LLB’s investment strategy. The securities are managed on a fair value basis and their performance is evaluated accordingly. Members of the Group Executive Management receive the corresponding information.

Financial investments at fair value through profit and loss

Financial assets are recorded on the balance sheet at fair value. Non-realised gains and losses are reflected in the income statement at fair value under income from financial instruments. The fair value of listed shares is based on current market prices. If an active market is not available for financial assets, or if the assets are not listed, the fair value is determined by way of suitable valuation models. These encompass references to recent transactions between independent business partners, the application of the current market prices of other assets which are essentially similar to the assets being valued, discounted cash flows and external pricing models which take into account the special circumstances of the issuer. See also note 36.

Interest and dividend income from financial investments is recorded at fair value as income from financial instruments. Interest income is recognised on an accrual basis.

2.11 Property, investment property and other equipment

Property is reported in the balance sheet at acquisition cost less any depreciation necessary for operational reasons. Bank buildings are buildings held by the LLB Group for use in the delivery of services or for administration purposes, whereas investment property is held to earn rentals and / or for capital appreciation. If a property is partially used as investment property, the classification is based on whether or not the two portions can be sold separately. Investment property is periodically valued by external experts. Changes in fair value are recognised in the income statement as other income in the current period. If the portions of the property can be sold separately, each portion is booked separately. If the portions cannot be sold separately, the whole property is classified as a bank building unless the portion used by the bank is minor.

Equipment includes fixtures, furnishings, machinery and IT equipment. These items are entered in the financial accounts and depreciated over the estimated useful life of the asset.

Depreciation is conducted on a straight-line basis over the estimated useful life as follows:

Real property

33 years

Investment property

no depreciation

Undeveloped land

no depreciation

Building supplementary costs

10 years

Fixtures, furnishings, machinery

5 years

IT equipment

3 years

Small value purchases are charged directly to general and administrative expense. In general, maintenance and renovation expenditures are booked to general and administrative expense. If the related cost is substantial and results in a significant increase in value, such expenditures are capitalized and depreciated over their useful life. Profits from the sale of fixed assets are reported as other income. Losses result in additional write-downs on fixed assets.

Property and equipment is regularly reviewed for impairment, but always when, on account of occurrences or changed circumstances, an over-valuation of the carrying value appears to be possible. If, as a result of the review, a reduction in value or modified useful life is determined, the residual carrying value is depreciated over the adjusted useful life, or an unplanned write-down is made.

2.12 Non-current assets held for sale

Long-term assets (or a disposal group) are classified as held for sale, if their carrying amount will be recovered primarily through a sale transaction rather than through continuing use. For this to be the case, the asset (or the disposal group) must be available for immediate sale in its present condition subject only to the terms that are usual and customary for sales of such assets (or disposal groups) and such a sale must be highly probable. Long-term assets held for sale and disposal groups are measured at the lower of carrying amount and fair value less costs to sell, unless the items shown in the disposal group are not classified in the valuation rules of IFRS 5 «Non-current assets held for sale and discontinued operations».

Since as per 31 December 2013, no company of the LLB Group fulfils the conditions for the classification of assets and liabilities as non-current assets held for sale in accordance with IFRS 5, no company is reported under this balance sheet item. In the previous year, the swisspartners Group was recognised according to IFRS 5. See also point 2.1.

2.13 Goodwill and other intangible assets

Goodwill is defined as the difference between the purchase price paid for and the determined fair value at date of acquisition of identified net assets in a company purchased by the LLB Group. Other intangible assets contain separately, identifiable intangible values resulting from acquisitions and certain purchased brands / trademarks and similar items. Goodwill and other intangible assets are recognised on the balance sheet at cost determined on the date of acquisition, and are amortised using the straight-line method over the useful life of ten to fifteen years. On each balance sheet date, goodwill and other intangible assets are reviewed for indications of impairment or changes in future benefits. If such indications exist, an analysis is performed to assess whether the carrying value of goodwill or other intangible assets is fully recoverable. An amortisation is made if the carrying amount exceeds the recoverable amount. For impairment testing purposes, goodwill is distributed into cash generating units. A cash generating unit is the smallest group of assets that independently generates cash flow and whose cash flow is largely independent of the cash flows generated by other assets. Cash flows generated from independent groups of assets are largely determined on the basis of how management steers and manages business activity. The management of the LLB Group manages and steers business activity in divisions so that the divisions and segments are designated as the cash generating units of the Group. Software development costs are capitalized when they meet certain criteria relating to identifiability, it is possible that economic benefits will flow to the company, and the cost can be measured reliably. Internally developed software meeting these criteria and purchased software are capitalized and subsequently amortised over three to ten years. See also note 19.

2.14 Current and deferred taxes

Current income tax is calculated on the basis of the tax law applicable in the individual country and recorded as expense for the accounting period in which the related income was earned. The relevant amounts are recorded on the balance sheet as provisions for taxes. The tax impact from time differentials due to different valuations arising from the values of assets and liabilities reported according to IFRS shown on the Group balance sheet and their taxable value are recorded on the balance sheet as accrued tax assets or, as the case may be, deferred tax liabilities. Accrued tax assets attributable to time differentials or accountable loss carry-forwards are capitalized if there is the probability that sufficient taxable profits will become available to offset such differentials or loss carry-forwards. Accrued / deferred tax assets / liabilities are calculated at the tax rates that are likely to be applicable for the accounting period in which the tax assets are realised or the tax liabilities paid.

Current and deferred taxes are credited or charged directly to equity or other comprehensive income if the related tax pertains to items that have been credited or charged directly to equity in the same or some other accounting period.

2.15 Debt issued

Medium-term notes are recorded at issuance value and subsequently valued at ongoing cost of acquisition. Debt instruments, which contain an embedded option for conversion of the debt into shares of the LLB AG, are separated into a liability and an equity component. The difference between the proceeds of the issue price and the fair value of the instrument on the issue date is booked directly to equity. The fair value of the liability component on the issue date is determined on the basis of the market interest rate for comparable instruments without conversion rights. Thereafter, it is recognised at ongoing cost according to the effective interest method. Differences between the proceeds and the repayment amount are reported in profit and loss over the term of the debt instrument concerned. The LLB Group does not report changes in the value of the equity component in the following reporting periods.

2.16 Employee benefits

Retirement benefit plans

The LLB Group has pension plans for its employees in Liechtenstein and abroad, which are defined according to IFRS as defined benefit plans. In addition there are long-term service awards which qualify as other long-term employee benefits.

For benefit-oriented plans, the period costs are determined by opinions obtained from external experts. The benefits provided by these plans are generally based on the number of insured years, the employee’s age, covered salary and partly on the amount of capital saved.

For benefit-oriented plans with segregated assets, the relevant funded status (surplus or deficit of the cash value of the claims in comparison to the related assets valued at current market value) is recorded on the balance sheet as an asset or liability in accordance with the «Projected Unit Credit Method». An asset position is calculated according to the criteria of IFRIC 14.

For plans without segregated assets, the relevant funded status recorded on the balance sheet corresponds to the cash value of the claims plus or minus subsequent amounts to be offset from plan changes.

The cash value of the claims is calculated using the «Projected Unit Credit Method», whereby the number of insured years accrued up to the valuation date are taken into consideration.

Retroactive improvements in benefits due to changes in benefit plans are booked as expense. If entitlements are non-forfeitable immediately, the corresponding expense is immediately recognised in the accounts.

Profit participation, bonus plans and share-based payment

Regulations exist governing bonus payments and profit participation schemes. The valuation method employed in the bonus regulations is based on the individual attainment of objectives. The valuation of profit participation regulations is based on the profit attained. Senior executives receive a portion of their profit participation in the form of LLB bearer shares. No exercising conditions are attached to this.

The LLB Group enters a provision as a liability in those cases where a contractual obligation exists or a de facto obligation arises as a result of past business practice. The expense is recognised under personnel expenses. Obligations to be paid in cash are entered under other liabilities. The portion to be compensated with LLB bearer shares is entered in equity. The number of shares for the share-based compensation corresponds to the average share price of the last quarter of the year under report.

2.17 Provisions and contingent liabilities

The current business environment in which the LLB Group operates exposes it to significant legal and regulatory risks. As a result, the LLB is involved in various legal proceedings whose financial influence on the LLB Group – depending on the stage of the proceeding - is difficult to assess and which are subject to many uncertainties. The LLB Group makes provisions for ongoing and threatened proceedings when, in the opinion of management after taking legal advice, it is probable that a liability exists, and the amount of the liability or payment can be reasonably estimated.

However, the LLB Group is not in a position to estimate reliably the approximate financial implications for certain proceedings in cases where the facts are not specifically known, the claimant has not quantified the alleged damages, the proceedings are at an early stage, or where sound and substantial information is lacking. In many legal cases a combination of these facts makes it impossible to estimate the financial effect of contingent liabilities for the LLB Group. Indeed, making and disclosing such estimates or assumptions could seriously prejudice the position of the LLB Group in such legal cases.

For certain proceedings in cases where the facts are not specifically known, the claimant has not quantified the alledged damages, the proceedings are at an early stage, or where sound and substantial information is lacking, the LLB Group is not in a position to estimate reliably the approximate financial implication. In many legal cases a combination of these facts makes it impossible to estimate the financial effect of contingent liabilities for the LLB Group. If, indeed, such assumptions or estimates were made or disclosed, this could seriously prejudice the position of the LLB Goup in such legal cases.

In cases where only a possible liability is involved, but management does not believe there is a probability of an outflow of resources, this leads to a contingent liability for the LLB Group, but not to the formation of a provision. The amount of the contingent liability is based on the best possible estimate.

2.18 Allowances for credit risks

Allowances for credit risks is made at the LLB provided there are objective criteria indicating that the entire amount owed according to the loan agreement may not be recoverable. At the LLB, a credit amount is understood to be loan, a claim or a fixed commitment such as a documentary credit, a guarantee, or a similar credit product. Objective criteria are serious financial difficulties experienced by the borrower, default of delinquency in interest or capital payments, or the probability that the borrower cannot repay the loan. Allowances for credit risks is reported as a reduction of the carrying value of a claim on the balance sheet. Allowances are reported in the income statement under credit loss (expense) / recovery. For further information, see Risk management, 3. Credit risk.

2.19 Treasury shares

Shares of Liechtensteinische Landesbank AG held by the LLB Group are valued at cost of acquisition and reported as a reduction in equity. The difference between the sale proceeds and the corresponding cost of acquisition of treasury shares is recorded under capital reserves.

2.20 Securities lending and borrowing transactions

Securities lending and borrowing transactions are generally enteredinto on a collateralised basis, with securities mainly being advanced or received as collateral.

Treasury shares lent out remain in the trading portfolio or in the financial investments portfolio as long as the risks and rewards of ownership of the shares are not transferred. Securities that are borrowed are not recognised in the balance sheet as long as the risks and rewards of ownership of the securities remain with the lender.

Fees and interest received or paid are recognised on an accrual basis and recorded under net fee and commission income.

 

3 Events after the balance sheet date

There have been no material effects after the balance sheet date, which would require an adjustment of the consolidated financial statement for 2013.

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