Letter to shareholders

Dear shareholders

The first priority for us in 2013 was the implementation of the Focus2015 strategy. Our strategy has a clear goal: in an era of fundamental change, we shall create the essentials for the sustained success of the LLB Group up to and beyond 2015. As a universal bank with a strong private banking and institutional business, we are focusing on selected client segments and markets with potential.

Successful new strategic direction

In 2013, we successfully implemented all the announced strategic initiatives and braced ourselves to face a volatile business environment, sharper competition and additional regulatory requirements. Accordingly, we have optimised our distribution network, closed LLB (Switzerland) Ltd., sold the Lugano bank branch and Jura Trust AG, and thus reduced complexity. For the LLB Vaduz we have overcome the US taxation dispute and concluded a non-prosecution agreement with the US authorities.

Tax issues are of major importance for the competitiveness of the Liechtenstein financial center. Liechtenstein has decided on a strategy for its financial center which pursues tax compliance. The LLB Group supports this tax compliance strategy and is committed to managing the dynamic change, which the regulatory framework is undergoing. It therefore applies a risk-based approach to this situation and proactively pushes ahead with the transformation process.

Added value for our clients

The provision of knowledge as well as the exchange of views and information between employees, clients and external partners is becoming increasingly important. In order to be able to offer our clients structured, well-founded expertise and to intensify the cooperation with them, in November 2013, we launched the «LLB Xpert views» online platform. With its focus on the fields of investment, law and taxation, this unique information portal provides our intermediary and institutional clients with a comprehensive overview.

Furthermore, we are also offering our clients an attractive application for LLB Mobile Banking on smartphones and tablets. Our mobile banking app has a simple and intuitive operation while at the same time fulfilling the highest security standards.

In addition, in May 2013, we set up Customer Service Centers in Vaduz and Uznach and successfully created central service hubs for private and corporate clients. These services from one source ensure that client concerns are dealt with in a fast and uncomplicated manner. Bank Linth has been especially successful in convincing clients with innovative solutions for making banking transactions simple and convenient. In 2013, it introduced an attractive product bundle called «AccountBox MyInterest» on the Swiss market.

In our Private Banking business, we continued to invest in the sustained expansion of our international growth markets. We further supplemented our product offer for our clients in Central and Eastern Europe, whom we take care of from Vienna, Geneva and Zurich-Erlenbach. And we now provide our clients in the Middle East with access to the stock markets in Dubai and Abu Dhabi.

Good operative performance

The level of uncertainty among clients and capital market participants eased somewhat, and the financial markets in Europe were characterised by a fragile stability. The persisting low level of interest rates and the pressure on margins continued to weigh on business performance. Our 2013 business result was adversely affected by one-off effects amounting to CHF 58.6 million. These included provisions for the US taxation dispute and the restructuring of the LLB Group within the scope of the Focus2015 strategy.

The good trend of operative performance continued in 2013. The LLB Group attained a net profit in 2013 of CHF 53.8 million (2012: CHF 95.1 million), which was therefore 43.4 percent below the previous year’s level. Adjusted for the one-off effects, the LLB Group would have reported a net profit of CHF 112.4 million.

Operating income rose by 19.1 percent to CHF 487.0 million (2012: CHF 408.9 million), operating expenses by 41.6 percent to CHF 426.0 million (2012: CHF 300.9 million). Adjusted for the one-off effects, operating income would have remained at the previous year’s level, and operating expenses would have decreased by 10.2 percent. The Cost-Income-Ratio climbed to 67.7 percent (2012: 62.3 %).

As expected, the closure of LLB (Switzerland) Ltd. had an impact on loans, assets under management, and the development of net new money. At the end of 2013, loans to customers stood at CHF 10.2 billion (31.12.2012: CHF 10.6 billion). Assets under management declined by CHF 0.8 billion to CHF 49.1 billion (31.12.2012: CHF 49.9 billion), whereby the net new money outflow stood at CHF 2.2 billion. Adjusted for the outflows caused by the closure of LLB (Switzerland) Ltd., loans to customers would have increased by 3.0 percent and the net new money inflow would have amounted to CHF 1.1 billion.

Upward trend of LLB bearer share

On the back of the Focus2015 strategy, as well as the operative improvements and the progress achieved in resolving the US taxation dispute, the LLB share began to make significant gains. It closed the year at CHF 37.00. Its overall return amounted to 32.2 percent, meaning that it exceeded both the European banking sector and the Swiss equities market. In accordance with our long-term distribution policy, the Board of Directors will propose a dividend of CHF 1.50 (2012: CHF 1.50) to the General Meeting of Shareholders on 9 May 2014.

Strong capital base

It is a part of the standards that we apply to ourselves that we must have available sufficient high-quality capital. The LLB Group’s equity consists solely of hard core capital totalling CHF 1.8 billion (31.12.2012: CHF 1.7 billion), corresponding to a Tier 1 ratio of 18.8 percent (31.12.2012: 15.7 %). Accordingly, the LLB possesses a high level of financial stability and security.

Going forward with confidence

We achieved a great deal in 2013 and actively met the challenges that faced us. As a bank with a long tradition, we accept responsibility, impress with our good operative performance and create trust. At the same time, we are investing in the future and pushing ahead with innovations.

On the whole, we have made significant progress and are well on the way to achieving our ambitious financial objectives with our Focus2015 strategy by the end of 2015. These objectives are a Cost-Income-Ratio of under 60 percent, a Tier 1 ratio of over 16 percent and a cumulative Group profit of over CHF 300 million. The LLB Group has all the necessary qualities to strengthen and extend its competitive position: loyal clients, dedicated and competent employees and financial solidity.

We would like to express our sincere thanks to you, our shareholders, for the trust you place in us. What the LLB has achieved was made possible by the loyalty of our shareholders and clients, as well as our staff, who give their best every day.

Roland Matt – Group Chief Executive Officer (signature)

Roland Matt
Group CEO

Dr. Hans-Werner Gassner – Chairman of the Board of Directors (signature)

Dr. Hans-Werner Gassner
Chairman of the Board of Directors

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