«Strategy, client focus and improved efficiency will pay off.»
A discussion with Hans-Werner Gassner and Roland Matt
The international banking sector is undergoing fundamental structural change. Where do you see the positioning of the LLB Group in the future banking landscape?
Hans-Werner Gassner: In our target markets we can observe a robust demand for high-quality services. Interest is focused especially on banks, such as the LLB Group which are solid and have a strong capital base. The financial services industry is moving into an increasingly volatile environment; security and reliability are more important than ever. Our majority shareholder, the Principality of Liechtenstein, is one of only sixteen countries worldwide that has an AAA rating. This ownership structure means that we are well positioned. As a universal bank, we are market leaders in deposit and lending business in Liechtenstein and Switzerland. And this is combined with a strong international asset management business and our position as a reliable partner for institutional clients. We can build on this.
The 2012 business year was distinguished by many changes. Mr Matt, that can't have an easy time for a new CEO?
Roland Matt: 2012 was indeed a very intensive year. A lot has changed, although it has to be said that we see change as an opportunity for the LLB Group. We pushed ahead with the implementation of our cost-saving and efficiency-improvement programme. At the same time, we also introduced a new organizational structure on a divisional basis and carried out an in-depth review of our strategy. In Liechtenstein, since October 2012, the LLB Group has also taken on a trailblazing role by demanding a declaration, under certain circumstances, from new foreign clients that they have taxed the assets they wish to deposit. However, the client’s personal responsibility remains undiminished.
To what extent have you adjusted the LLB Group’s strategy?
Hans-Werner Gassner: The LLB Group’s key business fields are subject to far-reaching changes. Historically low interest rates and the debt crisis in the Euro-countries have led to uncertainty among investors. Cross-border private banking clients have changing requirements. In addition, the regulatory framework is becoming constantly more restrictive. At the same time, the future of the Liechtenstein financial centre, and therefore of the LLB Group, lies in the management of taxed assets. This opens up opportunities for all those parties, who embrace the transformation process in a rapid and sustained manner.
Accordingly, we have subjected our long standing three pillar strategy to a fundamental analysis and reached the conclusion that we shall rebalance our business in accordance with a new strategy designated «Focus 2015». In future, we shall gain a competitive edge by specifically focusing our financial and human resources on clearly defined client segments and markets. We shall increase profitability by implementing initiatives to reduce costs and increase both front and back office margins. Furthermore, in future our Group structure shall be less complex. To achieve this we may, for example, reduce the number of business areas and close business locations. We have redefined our strategic goals for the next three years.
Where do you see the key points?
Roland Matt, Group CEO
Roland Matt: Even more than previously, our focus will be squarely on selected markets and business areas. We can still expand our position in our home markets of Liechtenstein and Switzerland. We are also in a good situation as a provider of a whole array of investment fund services from one source. Through our bank in Vienna, we intend to intensify our onshore private banking business in Austria. The perspectives in the growth markets of Central and Eastern Europe as well as the Near and Middle East are promising. Nevertheless, here too, the regulatory conditions and pressure on margins necessitates that we weigh up opportunities and risks very carefully. Thanks to the reduction of complexity in our company, the concentration on our core competences gains new weight.
Another decisive factor will be whether we succeed in continually surprising our clients with sophisticated, innovative products. We are planning a mobile phone banking app for the so-called next generation, who like to take care of most of their banking transactions online. Market-specific products are also the key to growth in the Private Banking Division. Product management is an integral part of our new organizational structure. This function will filter the specific features of our growth markets into the development of products. For the Institutional Clients Division, we see growth potential in the market for our own investment funds and in providing private label services.
In 2012 improving efficiency was at the centre of your organizational changes. How is the implementation phase going?
Hans-Werner Gassner: We have successfully completed the first phase. The new organizational structure is in operation and is proving its worth. The streamlined processes in credit risk management are already delivering positive results. We achieved more than was originally planned with our cost saving and efficiency improvement programme, but the project is not yet complete. Due to the fact that we also incurred extraordinary costs, the success of the programme is not completely reflected in the 2012 business result. However, we are convinced that this will change in 2013 if we continue to improve our cost structure.
How can you ensure that your employees identify with the cost saving and efficiency improvement programme?
Roland Matt: Most of our staff experience the advantages of a more efficient structure in their daily work. We are aware of the fact that we made great demands on our staff last year. Our goal is to show, through a culture of encouragement and incentive, that good performance pays off. It is vital, that our executives act as role models by living up to our standards and values every day.
Do you think more measures will be necessary?
Dr. Hans-Werner Gassner,
Chairman of the Board of Directors
Hans-Werner Gassner: We are continually monitoring our earnings situation and cost structure. Low interest rates, uncertain and hesitant clients, the debt crisis in the Euro-zone, as well as lower margins because of new regulatory measures and higher legal and compliance costs are forcing us to reduce expenditure even more. Consequently, we are simplifying our structure, limiting risks and pushing ahead with our endeavours to enhance efficiency. By the end of the year, we had succeeded in making sustained savings of about CHF 9 million. By the end of 2014, we shall achieve our savings target of CHF 30 million. By implementing additional structural measures, we want to further reduce operating expenses to a level of CHF 240 million.
Our business result in 2012 is higher than in 2011, but is still well below the results achieved in the record years. What is the LLB Group doing to regain the earnings levels of earlier years?
Roland Matt: We are working very hard to be in a good position for the future. Taking into consideration the measures that have already been implemented and those still planned, I am confident that our strategy, client focus and improved efficiency will pay off. Since our positioning in the target markets will depend on a high level of flexibility and constant client orientation, in 2012 we consistently invested in the professional training of our client advisors. They not only have to identify and fulfil ever changing client requirements, but also keep abreast of the increasingly complex international regulatory provisions. The intensified focus on markets and target client groups will result in even more customized care and service for our clients. Furthermore, we now have our own product management function. Specialists intensively monitor our target markets and react flexibly to risks and opportunities. They develop made-to-measure products and services to fulfil the needs of our private banking clients exactly.
At the moment, our targets with respect to growth and efficiency are aimed at the medium term because, on account of the current market situation, our earnings remain under pressure. Therefore to achieve a sustained increase in profitability we must pay particular attention to our Cost-Income-Ratio.
Hans-Werner Gassner: We are concentrating on those factors that we can positively influence and we are on the correct course. Over the last 150 years, the LLB has proven that it has always met and mastered the challenges of the time, even in stormy phases. Politically, both Liechtenstein and Switzerland are extremely stable countries, and the Swiss Franc is a strong currency. Our employees are very well educated and trained. The fact that our majority shareholder is the Principality of Liechtenstein is appreciated by existing and new clients who value security and stability.
How are you safeguarding the interests of your shareholders?
Hans-Werner Gassner: We always try to maintain a balance between the interests of management and shareholders. Thus, for example, the variable compensation structure for management is also tied to the creation of corporate value. At the same time, the LLB pursues a long-term and attractive dividend policy in favour of its shareholders. In line with this commitment, we are proposing to the General Meeting of Shareholders on 3 May 2013, that the dividend for 2012 be increased substantially to CHF 1.50 per share. In comparison with the year-end closing price, this corresponds to a dividend yield of 5.2 percent.
What do you expect in 2013?
Roland Matt: For the LLB Group, 2012 was a year of transition, change and transformation. We have set out on a completely new course in order to successfully master the challenges that confront us. Our «Focus 2015» strategy will bear fruit and sharpen our competitiveness.