«For many years we have stood for safety and stability»
Interview with Dr. Hans-Werner Gassner and Roland Matt
In 2011, the financial markets were rocked by turbulence. The systemic risks in the euro area and the structural problems in the US economy caused the world to hold its breath. From the viewpoint of the LLB Group, how do you assess this difficult year?
Hans-Werner Gassner: We were able to send out a signal of stability from Liechtenstein. With over 1'000 employees we celebrated the 150th anniversary of our company. On 5 December 1861, the Liechtensteinische Landesbank was founded as the «Zins- und Credit-Landesanstalt im souverainen Fürstenthume Liechtenstein», which was an important milestone in the development of the Principality at that time. Our anniversary celebrations in 2011, such as the Family Day, to which the entire population was invited, will certainly remain as warm memories. And the same applies to our projects with Liechtenstein's eleven municipalities. For the next generations we have set up the Future Foundation. Its aim is to foster social interaction and support the realization of environmental projects.
Roland Matt: Even though we were celebrating a proud anniversary, we also had to deal with economic turbulence and its impact on our business activities. Interest rates remained at historically low levels and volatility persisted on the stock markets. The debate about the euro's future and the marked economic downturn caused uncertainty among investors. At the same time cost pressures intensified. All of this had an adverse impact on our financial statement. We are not satisfied with our business result. For us it was particularly painful that we had to announce a large value adjustment to a Lombard loan in September.
What conclusions have you drawn from this case and what will be the consequences?
Hans-Werner Gassner: On the one hand, on behalf of the Board of Directors, our external auditors, PricewaterhouseCoopers, have investigated the granting and the monitoring of this Lombard loan. On the other, they also analyzed the current organisation of our lending business to identify potential improvement possibilities. The corresponding recommendations are being implemented. As a first important measure, the role of the Chief Financial Officer has been enhanced. In taking this step, the Board of Directors of the LLB Group has substantially brought forward the realization of already planned changes. The new processes will enable us to even better fulfil the requirements made by our growth and the increasingly international nature of our clients. We must ensure that such an incident cannot happen again.
How do you assess the LLB Group's performance in 2011?
Roland Matt: Our 2011 business result was unsatisfactory. Low interest rates, the strong Swiss franc and the uncertainty among investors weighed heavily on interest differential and commission business, as well as earnings from financial investments. On the other hand, ever increasing regulatory demands and adjustments cause higher costs. Our margins are under pressure – and will remain so. For us this means that we must retain our growth targets in order to come close to earlier profitability levels by attaining larger volumes.
You are proposing to reduce the dividend from CHF 3.40 last year to CHF 0.30 this year. How are you going to explain this step to shareholders?
Hans-Werner Gassner: We have stood for safety and stability for many years; our clients place their trust in us for this reason. We want to underline these values by further increasing our equity capital resources. It is therefore also in the interest of our shareholders that we retain earnings for this purpose. A solid equity capital base represents a cornerstone of entrepreneurial practice and acts as a guarantee for the independence of a company. To enable us to invest in the future development of the LLB Group, we are utilizing disposable earnings to specifically strengthen our equity capital.
In 2010, you announced investment programmes totalling over CHF 100 million, spread over five years. How is this progressing?
Roland Matt: According to plan. We want to ensure that in 150 years' time we are still a leading universal bank with Liechtenstein roots. For this reason – and precisely because of the ongoing structural changes – we are sticking to our growth strategy and its focus on our target markets. We regard this strategy as a guarantee that in the 21st century we have the optimum operational size and the necessary expertise to provide our clients with first-class services. Consequently, we made major investments in 2011 in our infrastructure, our IT systems and our staff. The projects are going forward according to plan. With the operative start-up of the Avaloq banking software, we have put in place the foundation for our business development over the coming years. The new construction of our bank branch in Eschen with its «green» processing centre is on schedule. Furthermore, we are investing in our growth markets. We have expanded our bank in Vienna and our representative office in Dubai. In Geneva, we have set up a new branch, which we will use as a base to service our international clients. Within the scope of its «Crescendo» growth initiative, our Bank Linth subsidiary opened new branches in Erlenbach and Winterthur in 2011. Through this subsidiary, we are well on the way to becoming one of the leading regional banks in the east of Switzerland.
The banking industry is undergoing fundamental change. Where do you see the opportunities and the risks?
Hans-Werner Gassner: A first prerequisite is to accept the rapid pace of these structural changes. The greatest risk for us would be to do nothing and hope that the golden age of the 1990s and the early 2000s will return. The critical operational size which banks need, if they want to remain competitive, will increase in comparison with today. In the near future, we will see various new forms of cooperation and there will be an increasing number of bank mergers. In a word, banking services are becoming «industrialized». Opportunities will arise for whoever has the foresight to take the necessary steps promptly.
Roland Matt: The LLB Group has already initiated appropriate measures. On the one hand, we are cooperating with the VP Bank in the area of document printing and dispatch as well as the purchasing of information services. In 2012, we are bringing together our network of ATMs with that of the Liechtenstein Post. In another move, we have set up Shared Service Centers to enhance quality and efficiency in the areas of payment services, trading and securities administration. Other synergy potentials have also been identified and we aim to take advantage of them in a programme with the designation «move!» in order to cut costs further.
Private banking, a core competence of the LLB Group, is to be realigned. What prospects do you see for it?
Roland Matt: We have a solid basis in private and corporate client business, which we want to further consolidate and expand. We see great potential in private banking and in institutional business. This means that we shall target our strategy on our home markets of Liechtenstein and Switzerland as well as on the growth markets of Russia, Eastern Europe and the Near and Middle East. To exploit these markets, we are enhancing our specialist knowledge as regards their specific taxation systems and practices, and we are developing specific products for these countries.
Hans-Werner Gassner: Our international clients are very interested in our traditional values and professional service. Our subsidiaries that focus on international wealth management are developing well. We are very positive about our business prospects, even if this is not yet reflected in the net new money inflows and client assets under management. It should be said here that we have commenced a streamlining process. In view of the many new regulatory standards and the pressure on margins, we are systematically reviewing our client portfolios. These analyses could induce us to terminate certain client relationships if they no longer conform to our criteria. This streamlining process will be a priority for us in 2012.
What targets have you set for 2012?
Roland Matt: There is a large degree of uncertainty. We must expect low interest rates and volatile stock markets to continue. Consequently, it is extremely difficult to make forecasts. We are concentrating on those factors which we can influence. We believe that with our initiatives to improve efficiency we shall already have a sustained impact on costs in 2012. Furthermore, we plan to align the organizational structure of the LLB Group even more closely with our clients and markets. However, we will not yet attain our cost and capital efficiency targets in the coming year.