Letter to shareholders

Dear Shareholders
Dear Ladies and Gentlemen


For the LLB Group, 2012 was a year of transition. The economic environment and regulatory framework in which the LLB Group operates are subject to rapid and dynamic changes. We have realigned our company to be fit for an even more challenging business environment and even fiercer competition.

Focus on clients and markets

The far-reaching changes have affected the LLB Group’s key business areas: the historically low level of interest rates and the debt crisis in the Euro-countries have caused uncertainty among investors. At the same time, the future belongs to the management of tax-paid assets. Against this background, we carried out an in-depth review of our long-standing three-pillar strategy and, with our new «Focus 2015» strategy, we set the basis for our long-term, successful corporate development. During the next three years, we shall concentrate our resources on selected client segments and markets with potential, in which the LLB Group has already established a solid position. At the same time, we shall reduce the complexity of the LLB Group, cut costs further and increase productivity.

The LLB Group has a new organizational structure since 1 July 2012, which is more strongly aligned on the requirements of our clients and markets. It is based on the three markt divisions: Retail & Corporate Banking, Private Banking and Institutional Clients. Furthermore, the Finance & Risk as well as Operations Business Areas were assigned a stronger position. This will enable us to ensure the efficient coordination of operative management processes throughout the entire LLB Group. Moreover, in 2012, we also revised our Group credit management procedures. This step underlines the importance of financial and risk management in our company.

Tax compliance

Liechtenstein is pursuing a strategy for its financial centre, which is based on tax compliance. 24 tax information agreements, double taxation treaties and withholding tax agreements have already come into force and six more have been initialled. Since October 2012, the LLB Group has acted as a trailblazer in Liechtenstein by adopting a risk-based approach and making it standard procedure for new foreign clients to declare that they are tax compliant. We are working intensively on finding a solution to the US tax situation. We are certain that in relation to this complex issue a satisfactory solution for all parties can be achieved through negotiations. We have allocated provisions for this situation in the 2012 financial statement of the LLB Group.

Increased profit

In the 2012 business year, the LLB Group attained a significantly higher net profit of CHF 97.9 million (+ 535.5 %). Operating income rose year on year by 20.5 percent to CHF 408.9 million. Net interest income fell by 4.5 percent to CHF 181.2 million. Income from business with clients climbed by 8.9 percent, whereas interbank business posted a fall of 34.2 percent. Net fee and commission income decreased by 2.6 percent to CHF 203.5 million. Net trading income stood at CHF 18.6 million. Net income from financial investments – calculated at fair value through profit and loss – amounted to CHF 44.1 million. Operating expenses were reduced by CHF 23.4 million to CHF 298.1 million.

Essentially, the business result was positively influenced by the favourable development of financial investments amounting to CHF 44.1 million (2011: CHF 0.4 million), by a profit from trading business of CHF 18.6 million (2011: a loss of CHF 6.2 million), by the one-time reduction of personnel expenses by CHF 19.8 million due to the change over to a defined contribution plan by the Personnel Pension Fund Foundation of LLB AG, as well as lower credit loss expenses for credit risks of CHF 19.2 million.

The cost savings and efficiency improvement programme that was launched at the end of March is progressing according to plan. By the end of the year, we had succeeded in making sustained savings of around CHF 9 million, which however were not yet visible in the 2012 financial statement due to one-time expenditure. The Cost-Income-Ratio declined in 2012 to 61.7 percent (2011: 75.9 %).

New business recorded a mixed development in the year under report. Loans to customers increased year on year by 2.8 percent to CHF 10.6 billion. Largely due to market factors, client assets under administration rose by CHF 1.8 billion to CHF 49.9 billion. Net new money outflow amounted to CHF 392 million. In our core markets asset outflows were registered, whereas in the growth markets we were able to book strong inflows. Once again, our investment funds business posted very pleasing results.

Solid capital base

In recent years, a company’s ability to bear risk and therefore its financial equity has gained in importance. At CHF 1.7 billion in 2012, the LLB Group was supported by a solid capital base. In the year under report, the tier 1 ratio amounted to 15.6 percent (31 December 2011: 13.9 %). The LLB Group’s equity consists solely of hard core capital. With its solid equity capital base, the LLB Group is already above the future level specified by Basel III, the international capital adequacy standard. Nevertheless, our goal is to further strengthen our equity capital base. We want to attain a tier 1 ratio of above 16 percent by 2015.

Long-term dividend policy

In order to meet and master the challenges posed by the economic environment and the structural changes in the banking industry, we are actively configuring the future of our company. Thanks to our «Focus 2015» strategy, our new organizational structure, a consistent cost cutting and efficiency improvement programme, high-quality products, a modern infrastructure, an international network and qualified, dedicated employees, we are well positioned. In accordance with our long-term dividend policy for the benefit of our shareholders, the Board of Directors will propose to the General Meeting of Shareholders on 3 May 2013 that the dividend per LLB bearer share be increased to CHF 1.50 (2011: CHF 0.30). Furthermore, the Board of Directors will nominate Dr. Patrizia Holenstein and Peter Fanconi for election as new members of the board.

The business environment is set to remain challenging. The LLB Group is a financial services company with a rich tradition whose future development is supported by a solid capital base. We are convinced that the measures we have implemented will provide a sustained strengthening of our profitability.

We would like to express our sincere thanks to you, our shareholders, for the trust you place in us. What the LLB has achieved was made possible by the loyalty of our shareholders and clients, as well as our staff, who give their best every day.

Signature Roland Matt – Group Chief Executive Officer (signature)

Roland Matt
Group CEO

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

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

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