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 control loop 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

The LLB Group enters into no significant risks in its trading book.

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

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

The individual Group companies distribute their interest rate risks within the specified limits at their own discretion. Interest rate swaps are employed to distribute the risks associated with changes in interest rates. The scope of risk is restricted by means of sensitivity limits. In client business, currency risks are basically invested or refinanced in matching currencies. The remaining currency risk is limited using sensitivity limits. Equity investments are limited by means of nominal limits.

1.4 Risk monitoring

Group 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 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.

Sensitivities

 

 

(XLS:)

 

 

 

 

 

in CHF thousands

31.12.2011

31.12.2010

 

Value-at-risk

Sensitivity

Value-at-risk

Sensitivity

Currency risks

 

12'037

 

17'974

Interest rate risks

45'152

69'133

51'251

78'049

Equity price risks

 

39'043

 

32'452

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 (cash flow hedges), 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 2011

(XLS:)

in CHF thousands

31.12.2011

 

CHF

USD

EUR

Others

Total

Assets

 

 

 

 

 

Cash and balances with central banks

865'392

809

30'100

448

896'749

Money market instruments

0

0

0

0

0

Due from banks

1'725'556

1'949'969

2'522'825

621'621

6'819'971

Due from customers

9'612'535

371'328

279'878

63'704

10'327'445

Trading portfolio assets

2'915

–162

1'277

349

4'379

Derivative financial instruments

122'088

159

2'592

1'149

125'988

Financial investments at fair value through profit and loss

843'948

46'220

47'704

82

937'954

Investments in associates

30

0

0

0

30

Property and equipment

177'958

0

566

0

178'524

Investment property

23'090

0

0

0

23'090

Goodwill and other intangible assets

199'622

0

0

0

199'622

Deferred tax assets

27'597

0

0

0

27'597

Accrued income and prepaid expenses

29'114

4'442

10'031

2'951

46'538

Non-current assets held for sale

1'473'301

0

0

0

1'473'301

Other assets

10'703

44

1'562

22'477

34'786

Total assets reported in the balance sheet

15'113'849

2'372'809

2'896'535

712'781

21'095'974

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

2'195'340

2'088'114

1'430'167

538'566

6'252'187

Total assets

17'309'189

4'460'923

4'326'702

1'251'347

27'348'161

 

 

 

 

 

 

Liabilities and equity

 

 

 

 

 

Due to banks

384'541

19'930

98'427

92'207

595'105

Due to customers

10'162'244

2'306'173

2'688'180

613'161

15'769'758

Liabilities from insurance contracts

0

0

0

0

0

Financial liabilities at fair value through profit and loss

0

0

0

0

0

Derivative financial instruments

162'502

159

2'577

1'149

166'387

Debt issued

1'218'605

0

30'751

0

1'249'356

Current tax liabilities

5'875

0

157

0

6'032

Deferred tax liabilities

30'810

0

0

0

30'810

Accrued expenses and deferred income

30'344

855

1'461

1'334

33'994

Liabilities classified as held for sale

1'438'236

0

0

0

1'438'236

Other liabilities

153'996

1'241

3'426

98

158'761

Provisions

5'871

0

0

0

5'871

Share capital

154'000

0

0

0

154'000

Less treasury shares

–206'179

0

0

0

–206'179

Capital reserve

49'458

0

0

0

49'458

Retained earnings

1'594'895

0

0

0

1'594'895

Other reserves

–51'666

0

0

0

–51'666

Non-controlling interests

101'156

0

0

0

101'156

Liabilities and equity reported in the balance sheet

15'234'688

2'328'358

2'824'979

707'949

21'095'974

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

2'193'455

2'087'444

1'431'495

538'381

6'250'775

Total liabilities and equity

17'428'143

4'415'802

4'256'474

1'246'330

27'346'749

 

 

 

 

 

 

Net position per currency

–118'954

45'121

70'228

5'017

1'412

Balance sheet by currency per 31 December 2010

(XLS:)

in CHF thousands

31.12.2010

 

CHF

USD

EUR

Others

Total

Assets

 

 

 

 

 

Cash and balances with central banks

556'773

516

14'923

494

572'706

Money market instruments

286'931

0

0

0

286'931

Due from banks

2'007'648

1'735'121

2'676'138

433'715

6'852'622

Due from customers

9'103'354

372'507

345'009

53'714

9'874'584

Trading portfolio assets

7'043

15

744

0

7'802

Derivative financial instruments

162'463

279

3'683

2'371

168'796

Financial investments at fair value through profit and loss

804'741

2'119'862

791'748

11'598

3'727'949

Investments in associates

5'115

0

0

0

5'115

Property and equipment

169'896

0

822

0

170'718

Investment property

22'200

0

0

0

22'200

Goodwill and other intangible assets

306'326

0

0

0

306'326

Deferred tax assets

24'137

0

0

0

24'137

Accrued income and prepaid expenses

28'873

2'587

7'344

1'139

39'943

Other assets

92'509

156

757

12'727

106'149

Total assets reported in the balance sheet

13'578'009

4'231'043

3'841'168

515'758

22'165'978

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

1'916'967

1'765'748

839'709

408'018

4'930'442

Total assets

15'494'976

5'996'791

4'680'877

923'776

27'096'420

 

 

 

 

 

 

Liabilities and equity

 

 

 

 

 

Due to banks

145'979

19'473

203'894

20'118

389'464

Due to customers

9'710'451

2'008'706

2'758'145

448'847

14'926'149

Liabilities from insurance contracts

2'869

71'861

24'567

227

99'524

Financial liabilities at fair value through profit and loss

82'358

2'062'999

705'269

6'520

2'857'146

Derivative financial instruments

156'045

279

3'666

2'371

162'361

Debt issued

1'577'667

0

39'629

0

1'617'296

Current tax liabilities

32'582

0

0

0

32'582

Deferred tax liabilities

38'314

0

0

0

38'314

Accrued expenses and deferred income

38'279

590

2'526

507

41'902

Other liabilities

221'099

1'969

3'034

192

226'294

Provisions

1'887

0

0

0

1'887

Share capital

154'000

0

0

0

154'000

Less treasury shares

–198'387

0

0

0

–198'387

Capital reserve

49'479

0

0

0

49'479

Retained earnings

1'686'949

0

0

0

1'686'949

Other reserves

–18'672

0

0

0

–18'672

Non-controlling interests

99'690

0

0

0

99'690

Liabilities and equity reported in the balance sheet

13'780'589

4'165'877

3'740'730

478'782

22'165'978

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

1'893'886

1'763'736

839'722

432'859

4'930'203

Total liabilities and equity

15'674'475

5'929'613

4'580'452

911'641

27'096'181

 

 

 

 

 

 

Net position per currency

–179'499

67'178

100'425

12'135

239

1.7 Interest rate risks

Interest rate fluctuation risk by currencies

(XLS:)

Increase per 100 basis points in CHF thousands

Within
1 month

1 to 3
months

3 to 12
months

1 to 5
years

Over 5
years

Total

31.12.2011

 

 

 

 

 

 

CHF

–15

51

–9'459

–37'734

–16'516

–63'673

EUR

24

–881

–3'637

280

–214

–4'428

USD

–11

109

–1'360

258

–55

–1'059

Other currencies

–1

–7

–100

180

–44

27

All currencies

–3

–728

–14'556

–37'016

–16'829

–69'133

(XLS:)

Increase per 100 basis points in CHF thousands

Within
1 month

1 to 3
months

3 to 12
months

1 to 5
years

Over 5
years

Total

31.12.2010

 

 

 

 

 

 

CHF

3

478

–5'455

–57'654

–11'093

–73'721

EUR

17

–1'050

–1'919

569

–26

–2'409

USD

13

–671

–1'306

154

–82

–1'892

Other currencies

0

–15

–87

99

–24

–27

All currencies

33

–1'258

–8'767

–56'832

–11'225

–78'049

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 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)

(XLS:)

in CHF thousands

Within
1 month

1 to 3
months

3 to 12
months

1 to 5
years

Over 5
years

Total

31.12.2011

 

 

 

 

 

 

Financial assets

 

 

 

 

 

 

Cash and balances with central banks

896'749

0

0

0

0

896'749

Due from banks

3'355'137

1'297'061

1'828'549

140'150

0

6'620'898

Due from customers

1'565'138

1'057'899

2'071'904

4'555'498

1'060'877

10'311'316

Trading portfolio assets

50

150

24

1'816

2'028

4'068

Financial investments

132'266

60'372

109'754

206'321

84'655

593'368

Total financial assets

5'949'341

2'415'482

4'010'232

4'903'785

1'147'559

18'426'399

Derivative financial instruments

90'000

171'000

763'315

249'315

0

1'273'630

Total

6'039'341

2'586'482

4'773'547

5'153'100

1'147'559

19'700'029

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

Due to banks

362'623

31'411

175'938

0

0

569'972

Due to customers

9'715'333

912'683

1'915'649

2'979'736

0

15'523'401

Debt issued

28'659

66'791

174'790

631'274

347'843

1'249'356

Total financial liabilities

10'106'614

1'010'884

2'266'377

3'611'010

347'843

17'342'729

Derivative financial instruments

150'000

85'000

394'315

203'315

441'000

1'273'630

Total

10'256'614

1'095'884

2'660'692

3'814'325

788'843

18'616'359

 

 

 

 

 

 

 

Interest rate repricing exposure

–4'217'274

1'490'598

2'112'855

1'338'775

358'716

1'083'670

(XLS:)

in CHF thousands

Within
1 month

1 to 3
months

3 to 12
months

1 to 5
years

Over 5
years

Total

31.12.2010

 

 

 

 

 

 

Financial assets

 

 

 

 

 

 

Cash and balances with central banks

572'706

0

0

0

0

572'706

Money market instruments

200'000

87'000

0

0

0

287'000

Due from banks

3'699'401

1'307'957

1'430'850

150'650

940

6'589'798

Due from customers

1'875'107

1'351'935

1'435'141

4'253'524

880'052

9'795'759

Trading portfolio assets

0

0

1'000

2'254

4'595

7'849

Financial investments

16'997

55'617

178'899

289'812

96'057

637'382

Total financial assets

6'364'211

2'802'509

3'045'890

4'696'240

981'644

17'890'494

Derivative financial instruments

138'962

71'716

879'728

597'247

47'087

1'734'740

Total

6'503'173

2'874'225

3'925'618

5'293'487

1'028'731

19'625'234

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

Due to banks

182'652

71'310

99'610

30'000

0

383'572

Due to customers

9'466'296

1'069'128

1'660'132

2'595'248

10'000

14'800'804

Debt issued

64'387

81'811

590'072

574'898

306'128

1'617'296

Total financial liabilities

9'713'335

1'222'249

2'349'814

3'200'146

316'128

16'801'672

Derivative financial instruments

220'000

75'000

864'870

129'000

445'870

1'734'740

Total

9'933'335

1'297'249

3'214'684

3'329'146

761'998

18'536'412

 

 

 

 

 

 

 

Interest rate repricing exposure

–3'430'162

1'576'976

710'934

1'964'341

266'733

1'088'822

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