Letter to shareholders

Dear Shareholders
Dear Ladies and Gentlemen

«150 Years of Looking Forward» – in 2011, this slogan stood not only for the trust placed in us by our clients, shareholders and employees in the past, but it also expressed the responsibility that we bear for the future. In accordance with this principle, we proactively adapt our company to meet and master the challenges of an uncertain global business environment and the ongoing structural changes in the banking industry. 2011 made great demands on us. Some things turned out differently than we had expected, in other respects we moved forward.

Roland Matt, Chief Executive Officer (photo)

Roland Matt, Chief Executive Officer

For example, we implemented a range of initiatives to enable us to remain competitive over the long term. The operative start of our new Avaloq banking software on 1 January 2011 enabled us to enhance the quality and efficiency of our IT systems and also provided a firm foundation for future improvements in business processes. We have introduced Shared Service Centers to reduce costs by bringing together payment services, trading and securities administration operations at our headquarters in Vaduz and to concentrate our expertise in dedicated competence centres. Furthermore, we have analyzed synergy and savings potentials, which we intend to exploit effectively from 2012.

We are continuing to implement our growth strategy in a consistent and focused manner. At LLB Österreich and at our business base in Dubai, we have significantly expanded our capacities to accommodate future growth. Our banks in Switzerland have expanded their branch network. Bank Linth has taken another significant step towards becoming the leading regional bank in the east of Switzerland.

As you know, 2011 was a difficult year worldwide. The nuclear disaster in Fukushima confronted Japan with enormous challenges, the radical political developments in North Africa and the Middle East made great demands on the international community. During the second half of the year, the European debt crisis and the euro's uncertain future weighed heavily on the financial markets. Historically low interest rates, the volatile stock markets and the strong Swiss franc caused nervousness not only among investors. These factors once again had an adverse impact on our business result for the year, with which we cannot be satisfied.

In total, operating income declined year on year by 7.3 percent to CHF 404.9 million. Thanks to higher volumes, net interest income rose by 8.3 percent to CHF 189.8 million. Net fee and commission income dropped by 6.8 percent to CHF 208.9 million. Net trading income stood at minus CHF 6.2 million. Net income from financial investments – measured at fair value, i.e. market value – amounted to CHF 0.4 million.

Dr. Hans-Werner Gassner, Chairman of the Board of Directors (photo)

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

In September, we had to announce a specific value adjustment to a Lombard loan amounting to CHF 49 million. Net profit decreased disproportionately by 85.8 percent to CHF 15.4 million. The ratio of operating expenses to operating income rose in 2011 to 95.6 percent (2010: 72.7 %).

In 2011, we maintained a high performance level in the acquisition of new business. Loans to clients expanded by 4.6 percent to CHF 10.3 billion, slight increases were registered in the volume of corporate and private pension provisions, and net new money inflows again increased to CHF 0.6 billion (2010: CHF 2.7 billion). Client assets under management, however, decreased due to the disadvantageous market development by 3.4 percent to CHF 48.1 billion (31 December 2010: CHF 49.8 billion).

Seizing opportunities is one side of our business. But we are also well aware of the importance of equity as a cushion against risk. At CHF 1.6 billion, we have a solid capital base. In the year under report, the tier 1 ratio stood at 13.9 percent. Even though this ratio is well above the legal requirements, we shall strive to strengthen our equity even further. This is another reason – besides our unsatisfactory business result – why the Board of Directors will propose to the General Meeting of Shareholders on 4 May 2012 that the dividend per LLB bearer share be substantially reduced from CHF 3.40 in the previous years to CHF 0.30.

Nevertheless, we hope that after reading this annual report you will reach the same conclusion that we have, namely that the LLB Group possesses great potential success factors including our loyal clients, good products, ongoing innovations, a modern infrastructure and skilled, dedicated employees.

The LLB Group is firmly established in its markets. We are confident about business prospects in 2012 and we are carefully monitoring further developments in the financial services industry. In 2012, the markets will continue to be volatile and uncertainty will persist. We look back on a very eventful 150th anniversary year. The achievements of the Liechtensteinische Landesbank would not have been possible without our clients, who place their trust in us, without our shareholders, who stay loyal to us, and without our staff, who give their best every day. Our sincere thanks go to all of them.

Signature Roland Matt – Chief Executive Officer (handwriting)

Roland Matt
Chief Executive Officer

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

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

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