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 report ing 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 Risik 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.

Sensitivities

Interest rate sensitivity measures the market change on interestrate-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.

 

31.12.2013

31.12.2012

in CHF thousands

Value at Risk

Sensitivity

Value at Risk

Sensitivity

Currency risks

 

16'731

 

15'316

Interest rate risks

46'689

71'582

51'583

78'995

Equity price risks

 

35'609

 

37'077

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

Balance sheet by currency per 31 December 2013

 

31.12.2013

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 through profit and loss

1'870'056

51'742

47'440

0

1'969'238

Investments in associates

41

0

0

0

41

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

Non-current assets held for sale

0

0

0

0

0

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 custumers

10'319'877

2'255'901

2'484'397

539'820

15'599'995

Liabilites from insurance contracts

266'151

0

0

0

266'151

Financial liabilities at fair value through profit and loss

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

469

6'452

276

26'039

Liabilities classified as held for sale

0

0

0

0

0

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

Balance sheet by currency per 31 December 2012

 

31.12.2012

in CHF thousands

CHF

USD

EUR

Others

Total

Assets

 

 

 

 

 

Cash and balances with central banks

2'142'264

798

20'973

612

2'164'647

Due from banks

908'095

1'903'571

2'286'778

634'481

5'732'925

Due from customers

9'858'333

416'751

245'774

94'132

10'614'990

Trading portfolio assets

1'349

457

1'955

485

4'246

Derivative financial instruments

69'148

87

3'235

539

73'009

Financial investments at fair value through profit and loss

873'088

53'125

46'325

3'606

976'144

Investments in associates

37

0

0

0

37

Property and equipment

190'422

0

397

0

190'819

Investment property

19'775

0

0

0

19'775

Goodwill and other intangible assets

183'940

0

0

0

183'940

Deferred tax assets

25'802

0

0

0

25'802

Accrued income and prepaid expenses

26'469

3'600

6'020

582

36'671

Non-current assets held for sale

1'100'227

0

0

0

1'100'227

Other assets

6'302

51

1'582

21'040

28'975

Total Assets reported in the balance sheet

15'405'251

2'378'440

2'613'039

755'477

21'152'207

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

2'448'952

2'350'532

1'500'999

694'571

6'995'054

Total Assets

17'854'203

4'728'972

4'114'038

1'450'048

28'147'261

 

 

 

 

 

 

Liabilities and equity

 

 

 

 

 

Due to banks

568'659

44'520

69'207

31'304

713'690

Due to custumers

10'718'501

2'259'822

2'437'779

656'290

16'072'392

Derivative financial instruments

120'182

87

3'218

539

124'026

Debt issued

1'226'181

0

20'501

0

1'246'682

current tax liabilities

5'070

0

0

0

5'070

Deferred tax liabilities

37'794

0

0

–0

37'794

Accrued expenses and deferred income

26'529

1'511

1'458

607

30'105

Liabilities classified as held for sale

1'062'058

0

0

0

1'062'058

Provisions

21'939

0

107

0

22'046

Other liabilities

116'813

7'732

4'013

475

129'033

Share capital

154'000

0

0

0

154'000

Capital reserve

49'458

0

0

0

49'458

Less treasury shares

–205'048

0

0

0

–205'048

Retained earnings

1'645'229

0

0

0

1'645'229

Other reserves

–35'145

0

0

0

–35'145

Non-controlling interests

100'817

0

0

0

100'817

Liabilities and equity reported in the balance sheet

15'613'037

2'313'672

2'536'283

689'215

21'152'207

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

2'392'219

2'354'518

1'494'858

751'354

6'992'949

Total liabilities and equities

18'005'256

4'668'190

4'031'141

1'440'569

28'145'156

 

 

 

 

 

 

Net positions per currency

–151'053

60'782

82'897

9'479

2'105

1.7 Interest rate risks

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

31.12.2013

 

 

 

 

 

 

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

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

31.12.2012

 

 

 

 

 

 

CHF

–16

–89

–5'201

–29'297

–42'221

–76'824

EUR

–18

559

–2'191

1'031

–624

–1'243

USD

–14

315

–1'557

297

–40

–999

Other currencies

–0

–17

–87

209

–34

71

All currencies

–48

768

–9'036

–27'760

–42'919

–78'995

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.

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

31.12.2013

 

 

 

 

 

 

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

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

31.12.2012

 

 

 

 

 

 

Financial assets

 

 

 

 

 

 

Cash and balances with central banks

2'164'647

0

0

0

0

2'164'647

Due from banks

3'492'502

569'891

1'388'252

70'150

0

5'520'795

Due from customers

1'781'769

1'192'016

2'067'775

4'128'335

1'436'093

10'605'988

Trading portfolio assets

0

0

1

1'958

1'951

3'910

Financial investments

116'628

129'003

103'317

179'401

110'072

638'421

Total financial assets

7'555'546

1'890'910

3'559'345

4'379'844

1'548'116

18'933'761

Derivative financial instruments

140'000

141'000

753'142

69'142

0

1'103'284

Total

7'695'546

2'031'910

4'312'487

4'448'986

1'548'116

20'037'045

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

Due to banks

460'954

71'356

170'755

0

0

703'065

Due to customers

9'835'653

784'772

2'051'134

3'181'317

0

15'852'876

Debt issued

67'673

26'917

188'171

503'864

460'057

1'246'682

Total financial liabilities

10'364'280

883'045

2'410'060

3'685'181

460'057

17'802'623

Derivative financial instruments

80'000

25'000

189'142

288'142

521'000

1'103'284

Total

10'444'280

908'045

2'599'202

3'973'323

981'057

18'905'907

 

 

 

 

 

 

 

Interest rate repricing exposure

–2'748'734

1'123'865

1'713'285

475'663

567'059

1'131'138

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