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 report ing of market risks.

Trading book

In line with the application of the de minimis concept, the trading book is classified as no longer being of significance. Furthermore, 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

Within the context of a sensitivity analysis, a risk factor is altered. This enables the impact of the change in the risk factor on the relevant portfolio to be 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

The individual Group companies distribute their interest rate risks within the specified limits at their own discretion. Interest rate risks are mainly managed by employing interest rate swaps. The scope of risk is restricted by means of value-at-risk and 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 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 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.

(XLS:)

Sensitivities

 

 

(XLS:)

 

 

 

 

 

 

31.12.2012

31.12.2011

in CHF thousands

Value-
at-risk

Sensitivity

Value-
at-risk

Sensitivity

Currency risks

 

15'316

 

12'037

Interest rate risks

51'583

78'995

45'152

69'133

Equity price risks

 

37'077

 

39'043

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 2012

(XLS:)

 

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

Loans

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 and joint ventures

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

1'284'493

0

0

0

1'284'493

Other assets

6'302

51

1'582

21'040

28'975

Total assets reported in the balance sheet

15'589'517

2'378'440

2'613'039

755'477

21'336'473

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

18'038'469

4'728'972

4'114'038

1'450'048

28'331'527

 

 

 

 

 

 

Liabilities and equity

 

 

 

 

 

Due to banks

568'659

44'520

69'207

31'304

713'690

Due to customers

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

1'258'484

0

0

0

1'258'484

Provisions

21'939

0

107

0

22'046

Other liabilities

116'496

7'732

4'013

475

128'716

Share capital

154'000

0

0

0

154'000

Share premium

49'458

0

0

0

49'458

Treasury shares

–205'048

0

0

0

–205'048

Retained earnings

1'648'077

0

0

0

1'648'077

Other reserves

–49'421

0

0

0

–49'421

Non-controlling interests

100'402

0

0

0

100'402

Liabilities and equity reported in the balance sheet

15'797'303

2'313'672

2'536'283

689'215

21'336'473

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 equity

18'189'522

4'668'190

4'031'141

1'440'569

28'329'422

 

 

 

 

 

 

Net position per currency

–151'053

60'782

82'897

9'479

2'105

Balance sheet by currency per 31 December 2011

(XLS:)

 

31.12.2011

in CHF thousands

CHF

USD

EUR

Others

Total

Assets

 

 

 

 

 

Cash and balances with central banks

865'392

809

30'100

448

896'749

Due from banks

1'725'556

1'949'969

2'522'825

621'621

6'819'971

Loans

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 and joint ventures

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

22'715

84

3'075

8'912

34'786

Total assets reported in the balance sheet

15'125'861

2'372'849

2'898'048

699'216

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

17'321'201

4'460'963

4'328'215

1'237'782

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

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 income and prepaid expenses

30'344

855

1'461

1'334

33'994

Liabilities classified as held for sale

1'438'236

0

0

0

1'438'236

Provisions

5'871

0

0

0

5'871

Other liabilities

153'996

1'241

3'426

98

158'761

Share capital

154'000

0

0

0

154'000

Share premium

49'458

0

0

0

49'458

Treasury shares

–206'179

0

0

0

–206'179

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

–106'942

45'161

71'741

–8'548

1'412

1.7 Interest rate risks

Interest rate fluctuation risk by currencies

(XLS:)

in CHF thousands
Increase per 100 basis points

Within
1 month

1 to 3
months

3 to 12
months

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

(XLS:)

in CHF thousands
Increase per 100 basis points

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

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)

(XLS:)

in CHF thousands

Within
1 month

1 to 3
months

3 to 12
months

1 to 5
years

Over 5
years

Total

31.12.2012

 

 

 

 

 

 

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

Loans

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

(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

Loans

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

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