notenstein annual report 2013

2013

Annual Report

Translation notice: this document is a translation of the German original which can be obtained from Notenstein Private Bank Ltd (“Notenstein”) at any time. While Notenstein makes every effort to ensure

translation accuracy, the German version prevails in the event of discrepancies in content or interpretation.

Contents

Introduction

Key figures

Organigram

Review of business results

Auditor’s report

Balance sheet

Income statement

Notes to the financial statements – explanatory notes on business activities

Notes to the financial statements – accounting and valuation principles

1. Information on the balance sheet

2. Information on off-balance-sheet transactions

3. Information on the income statement

Contact

Page 2

Page 4

Page 6

Page 8

Page 10

Page 12

Page 14

Page 17

Page 22

Page 28

Page 40

Page 43

Page 44

1

t o o u r c l i e n t S

t o o u r r e a d e r S

In the year under review we implemented numerous measures that will set the future course for our bank and

launched extensive growth initiatives. These include the strategic expansion of our two core businesses, Private

Banking Switzerland and Institutional Clients, and the targeting of selected markets in our Private Banking In-

ternational activities. We are assigning a greater strategic weighting to the asset management business, and have

established a new asset management division that is focused on sustainable investment solutions. Moreover, in

2013 we commenced issuing structured fi nancial products in cooperation with Raiffeisen Switzerland as guar-

antor and Leonteq AG as service provider. In this regard, we also entered a strategic partnership with Leonteq

which involves a substantial participation.

Notenstein Private Bank saw pleasing developments in assets under management last year. On balance, cli-

ent assets under management rose slightly to CHF 20 billion. Although there was a slight decline in assets from

clients with a foreign domicile, this was offset by solid growth in assets from clients domiciled in Switzerland. Our

new subsidiary, TCMG Asset Management Ltd, brought in CHF 6 billion in assets under management while our

other subsidiary, 1741 Asset Management, raised its contribution to well over CHF 2 billion thanks to benign

market developments and an increase in net new money.

Notenstein’s income from commissions and services, its core business, is in a solid trend and improved in the

second half of the year. This positive development should persist throughout 2014. On the other hand, the ongo -

ing challenges in market conditions weighed on interest operations and trading. Notenstein reported total net

profi t of CHF 17 million for 2013.

Market conditions in the private banking business remain highly challenging: the trend of steadily increasing

regulatory requirements and ongoing restructuring continues unbroken. Nonetheless, with the measures taken

last year, we are in the best position to emerge strongly from the structural change under way in the Swiss

banking industry.

d r p i e r i n v i n c e n Z

Chairman of the Board

Notenstein Private Bank Ltd

Introduction

d r p i e r i n v i n c e n Z

Chairman of the Board

d r a d r i a n k Ü n Z i

CEO

Notenstein Private Bank Ltd

2

Dr Pierin Vincenz (Chair of the Board of Directors) and Dr Adrian Künzi (CEO) in the cloister of the former St. Katharinen monastery, home to today’s Notenstein Academy.

3

Key figures

Amounts in CHF millions

NoteNsteiN at a glaNce

1.1. – 31.12.2013 1.1. – 30.6.2013 1.1. – 31.12.2012

Income statement

Gross revenue 148 73 183

Operating expenses 135 67 137

Gross profit 14 6 46

Cost income ratio in % 90.8 91.2 74.9

Balance sheet

Balance sheet total 4,324 4,037 3,872

Equity capital 395 341 357

Core capital ratio (tier I ratio) in % 13.8 12.5 19.6

Client assets

Assets under management (excluding subsidiaries) 19,782 19,196 19,638

Assets under management (including subsidiaries) 28,339 20,527 20,516

Resources

Number of staff 698 645 663

Number of full-time positions 628 572 588

Number of branches 12 12 13

All stated amounts are rounded, which may lead to minor discrepancies in the total amounts.

4

Organigram

Board of directors

executive Board

Audit Committee

Corporate Development

Legal & Compliance

Risk Controlling

Communication

Auditors

Internal Audit

Private Banking

Switzerland

Eastern

Switzerland

Zurich/Central

Switzerland

North-Western

Switzerland

Western

Switzerland

Southern

Switzerland

Portfolio

Management

Macro & Invest-

ment Strategies

Institutional

Clients

Eastern

Switzerland

Zurich/Business

Development

Basel/Berne

Western

Switzerland

International

Consultant

Relations

Operating

Office

Asset

Management

PM Institutional

Clients

Sustainability

Research

Financial

Research

AM Risk and

Operations

Services

Operations

Products &

Trading

Business

Development

IT

IT Operations

Business

Systems

Finance

Finance and

Accounting

Credit

Reporting &

Controlling

Human

Resources

Private Banking

International

CIS

Germany

Latin America

South Africa

Other Markets

Ext. Asset

Managers

6

Board of directors

Dr Pierin Vincenz

Chair of the Board of Directors

Dr Patrik Gisel

Deputy-Chair of the Board of Directors, Member of the Audit Committee

Günter Haag *

President of the Audit Committee Heinz Karrer *

Maya Salzmann *

Member of the Audit Committee Thomas C. Weissmann *

* Independent members of the Board of Directors as defined by the provisions of the Swiss Financial Market Supervisory Authority (FINMA).

executive Board

Dr Adrian Künzi

Chief Executive Officer

Dr Ivan Adamovich

Head of Private Banking International

Dr Basil Heeb

Chief Financial Officer

Dr Silvio Hutterli

General Counsel

Tihomir Katulic

Chief Risk Officer

Andreas Knörzer

Head of Asset Management

Aris Prepoudis

Head of Institutional Clients

Patrick Revey

Head of Corporate Development

Martin Schenk

Head of Private Banking Switzerland

Christoph Schwalm

Chief Information Officer

Dr Hanspeter Wohlwend

Chief Operating Officer

7

S t r at e g i c r e p o S i t i o n i n g w e l l u n d e r way

In the year under review, Notenstein Private Bank

successfully completed an important phase of its stra-

tegic repositioning. The key areas of strategic focus

in 2013 were the expansion of the Institutional Clients

division, and the addition of a highly qualified Asset

Management division with an in-house research team

dedicated to sustainability. With this team, the bank

has already launched ten sustainable investment funds

and a certificate on stocks. Notenstein’s objective is to

number among Europe’s leading providers in sustain-

able investing. We think and act responsibly; for us, this

means considering not just economic and financial

factors, but also the social and environmental aspects

of asset management.

Notenstein has also invested in the Private Banking

division: while strengthening our branches in Switzer-

land, we also implemented a clear focus on selected tar-

get markets in Private Banking International.

Finally, in 2013 we began issuing our own structured

products with Raiffeisen Switzerland as guarantor and

Leonteq AG as service provider. This was a driving force

behind our decision to substantially increase our hold-

ing in Leonteq AG, Switzerland’s leading provider of

services related to structured financial products, to

22.75 percent.

g r o w t h i n i t i at i v e S ta k e o f f

These strategic steps were welcomed by the market.

We are off to a promising start as an issuer of our own

structured financial products, with well over 500 prod-

ucts already launched. The new funds are also attract-

ing investors. Finally, the TCMG Asset Management

holding was successfully integrated and initial acquisi-

tions concluded.

The investments and growth initiatives expanded

Notenstein’s balance sheet to CHF 4.3 billion. The

tier 1 ratio stands at 14 percent. Even after financing

these investments, Notenstein still enjoys a comfort-

able capital base.

Moreover, despite the numerous growth initia-

tives, the cost structure has not changed year-on-year;

a fact that highlights Notenstein’s discipline. Costs

amounted to CHF 135 million in 2013 in comparison

to CHF 137 million in 2012. We consider the optimi-

sation of processes and infrastructure as an ongoing

duty that we will continue to perform as required.

a S S e t S u n d e r m a n a g e m e n t S l i g h t ly h i g h e r

Client assets under management at Notenstein Private

Bank rose slightly compared to the previous year to

CHF 20 billion. Although the streamlining of our Eu-

ropean clients resulted in a mild decline in assets un-

der management for this segment, this was offset by

steady growth in other client segments, which is par-

ticularly pleasing considering the challenging market

environment. We see this as confirmation of Noten-

stein’s ongoing appeal as the “most Swiss” of Switzer-

land’s private banks.

Assets under management by Notenstein’s subsid-

iaries also rose, thanks to acquisitions, new money in-

flows and market performance. Integrating asset man-

agement boutiques into TCMG Asset Management

AG brought CHF 6 billion onto Notenstein’s balance

sheet. Moreover, assets under management by subsid-

iary 1741 Asset Management Ltd rose to CHF 2.5 bil-

lion, which represents a 30 percent increase compared

to 2012. Together with its asset management subsidiar-

ies, Notenstein thus reports CHF 28 billion in total as-

sets under management.

Review of business results

8

i m p r o v e d i n c o m e i n c o r e b u S i n e S S

Notenstein’s income position is solid; income im-

proved in its core business in the second half of 2013

and should continue to increase in the year to come

as the growth initiatives develop. In the second half

of the year, besides increasing assets under manage-

ment, we also raised the profit margin; as a result, com-

mission income rose to CHF 101 million, a modest

year-on-year improvement.

On the other hand, interest operations and trading

activities both suffered from persistently low interest

rates and uncertainties in the bond markets. As a con-

sequence, the result from interest operations declined

to CHF 28 million while the result from trading ac-

tivities decreased to CHF 13 million. Despite a 2 per-

cent reduction in operating expenses, the cost-income

ratio amounts to 91 percent and is likely to remain

high for the next two to three years, given the bank’s

long-term-oriented investments. However, with these

strategic investments in its core business, Notenstein

is well equipped to meet the challenges ahead.

9

Auditor’s report

1

Report of the statutory auditor to the General Meeting of Notenstein Private Bank Ltd St. Gallen

Report of the statutory auditor on the financial statements

As statutory auditor, we have audited the financial statements of Notenstein Private Bank Ltd, which comprise the balance sheet, income statement and notes (pages 12 to 43) for the year ended 31 De-cember 2013.

Board of Directors’ Responsibility

The Board of Directors is responsible for the preparation of the financial statements in accordance with the requirements of Swiss law and the company’s articles of incorporation. This responsibility includes designing, implementing and maintaining an internal control system relevant to the prepara-tion of financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting poli-cies and making accounting estimates that are reasonable in the circumstances.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We con-ducted our audit in accordance with Swiss law and Swiss Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity’s preparation of the financial statements in order to design audit procedures that are appro-priate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control system. An audit also includes evaluating the appropriateness of the account-ing policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

PricewaterhouseCoopers AG, Birchstrasse 160, Postfach, 8050 Zürich Telephone: +41 58 792 44 00, facsimile: +41 58 792 44 10, www.pwc.ch PricewaterhouseCoopers AG is a member of the global PricewaterhouseCoopers network of firms, each of which is a separate and independent legal entity.

Bericht der Revisionsstelle an die Generalversammlung der Notenstein Privatbank AG St. Gallen

Bericht der Revisionsstelle zur Jahresrechnung

Als Revisionsstelle haben wir die Jahresrechnung der Notenstein Privatbank AG, bestehend aus Bi-lanz, Erfolgsrechnung und Anhang (Seiten 12 bis 43), für das am 31. Dezember 2013 abgeschlossene Geschäftsjahr geprüft.

Verantwortung des Verwaltungsrats

Der Verwaltungsrat ist für die Aufstellung der Jahresrechnung in Übereinstimmung mit den gesetzli-chen Vorschriften und den Statuten verantwortlich. Diese Verantwortung beinhaltet die Ausgestal-tung, Implementierung und Aufrechterhaltung eines internen Kontrollsystems mit Bezug auf die Aufstellung einer Jahresrechnung, die frei von wesentlichen falschen Angaben als Folge von Verstös-sen oder Irrtümern ist. Darüber hinaus ist der Verwaltungsrat für die Auswahl und die Anwendung sachgemässer Rechnungslegungsmethoden sowie die Vornahme angemessener Schätzungen verant-wortlich.

Verantwortung der Revisionsstelle

Unsere Verantwortung ist es, aufgrund unserer Prüfung ein Prüfungsurteil über die Jahresrechnung abzugeben. Wir haben unsere Prüfung in Übereinstimmung mit dem schweizerischen Gesetz und den Schweizer Prüfungsstandards vorgenommen. Nach diesen Standards haben wir die Prüfung so zu planen und durchzuführen, dass wir hinreichende Sicherheit gewinnen, ob die Jahresrechnung frei von wesentlichen falschen Angaben ist.

Eine Prüfung beinhaltet die Durchführung von Prüfungshandlungen zur Erlangung von Prüfungs-nachweisen für die in der Jahresrechnung enthaltenen Wertansätze und sonstigen Angaben. Die Auswahl der Prüfungshandlungen liegt im pflichtgemässen Ermessen des Prüfers. Dies schliesst eine Beurteilung der Risiken wesentlicher falscher Angaben in der Jahresrechnung als Folge von Verstös-sen oder Irrtümern ein. Bei der Beurteilung dieser Risiken berücksichtigt der Prüfer das interne Kon-trollsystem, soweit es für die Aufstellung der Jahresrechnung von Bedeutung ist, um die den Umstän-den entsprechenden Prüfungshandlungen festzulegen, nicht aber um ein Prüfungsurteil über die Wirksamkeit des internen Kontrollsystems abzugeben. Die Prüfung umfasst zudem die Beurteilung der Angemessenheit der angewandten Rechnungslegungsmethoden, der Plausibilität der vorgenom-

PricewaterhouseCoopers AG, Birchstrasse 160, Postfach, 8050 Zürich Telefon: +41 58 792 44 00, Telefax: +41 58 792 44 10, www.pwc.ch PricewaterhouseCoopers AG ist Mitglied eines globalen Netzwerks von rechtlich selbständigen und voneinander unabhängigen Gesellschaften.

1










10

2

Opinion

In our opinion, the financial statements for the year ended 31 December 2013 comply with Swiss law and the company’s articles of incorporation.

Report on other legal requirements

We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence (art. 728 CO and art. 11 AOA) and that there are no circumstances incompat-ible with our independence.

In accordance with art. 728a para. 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists which has been designed for the preparation of financial statements according to the instructions of the Board of Directors.

We further confirm that the proposed appropriation of available earnings complies with Swiss law and the company’s articles of incorporation. We recommend that the financial statements submitted to you be approved.

PricewaterhouseCoopers AG Roman Berlinger Armin Müller Audit expert Audit expert Auditor in charge Zurich, 25 February 2014

Bericht der Revisionsstelle an die Generalversammlung der Notenstein Privatbank AG St. Gallen

Bericht der Revisionsstelle zur Jahresrechnung

Als Revisionsstelle haben wir die Jahresrechnung der Notenstein Privatbank AG, bestehend aus Bi-lanz, Erfolgsrechnung und Anhang (Seiten 12 bis 43), für das am 31. Dezember 2013 abgeschlossene Geschäftsjahr geprüft.

Verantwortung des Verwaltungsrats

Der Verwaltungsrat ist für die Aufstellung der Jahresrechnung in Übereinstimmung mit den gesetzli-chen Vorschriften und den Statuten verantwortlich. Diese Verantwortung beinhaltet die Ausgestal-tung, Implementierung und Aufrechterhaltung eines internen Kontrollsystems mit Bezug auf die Aufstellung einer Jahresrechnung, die frei von wesentlichen falschen Angaben als Folge von Verstös-sen oder Irrtümern ist. Darüber hinaus ist der Verwaltungsrat für die Auswahl und die Anwendung sachgemässer Rechnungslegungsmethoden sowie die Vornahme angemessener Schätzungen verant-wortlich.

Verantwortung der Revisionsstelle

Unsere Verantwortung ist es, aufgrund unserer Prüfung ein Prüfungsurteil über die Jahresrechnung abzugeben. Wir haben unsere Prüfung in Übereinstimmung mit dem schweizerischen Gesetz und den Schweizer Prüfungsstandards vorgenommen. Nach diesen Standards haben wir die Prüfung so zu planen und durchzuführen, dass wir hinreichende Sicherheit gewinnen, ob die Jahresrechnung frei von wesentlichen falschen Angaben ist.

Eine Prüfung beinhaltet die Durchführung von Prüfungshandlungen zur Erlangung von Prüfungs-nachweisen für die in der Jahresrechnung enthaltenen Wertansätze und sonstigen Angaben. Die Auswahl der Prüfungshandlungen liegt im pflichtgemässen Ermessen des Prüfers. Dies schliesst eine Beurteilung der Risiken wesentlicher falscher Angaben in der Jahresrechnung als Folge von Verstös-sen oder Irrtümern ein. Bei der Beurteilung dieser Risiken berücksichtigt der Prüfer das interne Kon-trollsystem, soweit es für die Aufstellung der Jahresrechnung von Bedeutung ist, um die den Umstän-den entsprechenden Prüfungshandlungen festzulegen, nicht aber um ein Prüfungsurteil über die Wirksamkeit des internen Kontrollsystems abzugeben. Die Prüfung umfasst zudem die Beurteilung der Angemessenheit der angewandten Rechnungslegungsmethoden, der Plausibilität der vorgenom-

PricewaterhouseCoopers AG, Birchstrasse 160, Postfach, 8050 Zürich Telefon: +41 58 792 44 00, Telefax: +41 58 792 44 10, www.pwc.ch PricewaterhouseCoopers AG ist Mitglied eines globalen Netzwerks von rechtlich selbständigen und voneinander unabhängigen Gesellschaften.

Roman Berlinger Armin Müller Roman Berlinger Armin Müller

1










11

assets

Before appropriation of profit

31.12.2013 Previous year

Liquid assets 359,015,898 408,341,152

Amounts due from money-market instruments 318,931,990 68,300,000

Amounts due from banks 2,049,688,900 2,039,452,465

Amounts due from customers 129,444,316 148,023,049

Mortgage loans 387,965,000 343,598,000

Trading portfolios of securities and precious metals 197,480,697 184,548,778

Financial investments 629,286,113 543,107,913

Participating interests 104,930,061 20,547,885

Tangible fixed assets 48,245,566 47,593,259

Accrued income and prepaid expenses 22,009,975 11,727,522

Other assets 76,790,405 56,942,060

Total assets 4,323,788,919 3,872,182,083

Total amounts due from group companies and holders of qualified participations 912,637,321 401,122,067

liaBilities



Liabilities from money-market instruments 83,662,247 –

Amounts due to banks 202,476,391 148,008,101

Amounts due to customers in savings or deposit accounts 2,490,768,026 2,417,198,188

Other amounts due to customers 713,297,405 891,770,603

Bond issues and central mortgage institution loans 338,554,163 –

Accrued expenses and deferred income 16,078,072 18,391,532

Other liabilities 58,664,568 19,152,593

Value adjustments and provisions 25,154,219 20,600,000

Reserves for general banking risks 176,000,000 176,000,000

Bank’s capital 22,200,000 20,000,000

Share capital 20,000,000 20,000,000

participation capital 2,200,000 –

General legal reserves 57,198,166 137,300,000

capital contribution reserves 18,260,000 137,300,000

capital contribution reserves (participation capital) 38,938,166 –

Other reserves 119,040,000 –

continued on page 13

Balance sheet

Amounts in CHF

Amounts in CHF


12


off-BalaNce-sheet traNsactioNs



Contingent liabilities 14,740,159 90,036,396

Irrevocable commitments 21,077,440 20,867,260

Liabilities for calls on shares and other equities n. a. n. a.

Commitment credits n. a. n. a.

Derivative financial instruments

Positive replacement values 50,867,170 8,975,386

Negative replacement values 50,476,329 9,155,765

Contract volumes 1,686,236,610 961,579,582

Fiduciary transactions 301,988,855 280,714,963


Profit/loss carried forward 3,761,066 –6,077,889

Profit/loss for the year 16,934,598 29,838,955

Total liabilities 4,323,788,919 3,872,182,083

Total amounts due to group companies and holders of qualified participations 12,210,805 37,827,948

Amounts in CHF


13

iNcome aNd expeNses from ordiNary BaNkiNg operatioNs


2013 Previous year

Result from interest operations

Interest and discount income 17,484,910 23,148,332

Interest and dividend income from trading positions 4,740,072 5,529,372

Interest and dividend income from financial investments 7,583,188 10,419,360

Interest expense –1,898,463 –2,370,656

Subtotal for interest operations 27,909,707 36,726,408

Result from commission business and services

Commission income from lending activities 67,061 100,739

Commission income from securities trading and investment activities 112,505,818 115,001,123

Commission income from other services 539,765 604,979

Commission expense –11,795,351 –15,792,021

Subtotal for commission business and services 101,317,294 99,914,820

Result from trading activities 12,781,001 35,567,952

Other result from ordinary activities

Result from the disposal of financial investments 476,305 5,124,259

Income from participating interests 3,195,524 69,151

Result from real estate 55,838 2,360

Other ordinary income 4,745,551 6,796,853

Other ordinary expenses –2,328,852 –929,570

Subtotal other result from ordinary activities 6,144,365 11,063,053

Operating expenses

Personnel expenses –92,033,827 –93,840,343

General and administrative expenses –42,501,867 –43,453,891

Subtotal operating expenses –134,535,694 –137,294,233

Gross profit 13,616,673 45,978,000

Income statement

Amounts in CHF


14

proposed appropriatioN of profit

2013 Previous year

Profit for the year 16,934,598 29,838,955

Profit carried forward 3,761,066 –6,077,889

Distributable profit 20,695,664 23,761,066

Appropriation of profit

Distributions to the bank’s capital –16,000,000 –20,000,000

Profit carried forward 4,695,664 3,761,066

profit for the year


2013 Previous year

Profit for the year

Gross profit 13,616,673 45,978,000

Depreciation and amortisation of fixed assets –2,131,608 –985,645

Value adjustments, provisions and losses –7,104,448 –13,252,596

Result before extraordinary items and taxes 4,380,616 31,739,758

Extraordinary income 12,460,804 58,000

Extraordinary expenses – –

Taxes 93,178 –1,958,804

Profit for the year 16,934,598 29,838,955

Amounts in CHF

Amounts in CHF


15

g e n e r a l

Notenstein Private Bank Ltd, a 100% subsidiary of

Raiffeisen Switzerland, specialises in wealth manage-

ment for private and institutional clients. It is head-

quartered in St. Gallen and has 12 branches through-

out Switzerland. Notenstein focuses primarily on its

two core businesses, Swiss private clients and institu-

tional clients, and aims to achieve significant growth

in these units in the coming years. The bank thus made

target investments in these core areas in 2013, and

also established a new Asset Management division

whose investment funds are based on the principles

of sustainability. Through its subsidiaries TCMG Asset

Management AG and 1741 Asset Management Ltd,

Notenstein can offer its clients access to a high level

of competence in the area of quantitative investment

strategies.

Since March 2013, Notenstein Private Bank has

been issuing a broad range of structured investment

products in cooperation with Raiffeisen Switzerland

as guarantor and Leonteq AG as service provider.

Notenstein also strengthened its strategic partnership

with Leonteq by taking on a participation in the firm

of 22.75 percent.

b u S i n e S S d i v i S i o n S

The bank’s main activities fall into the following

categories:

– Wealth management for private and institutional

clients

– Investment advisory services for private and

institutional clients

– Securities and currency trading

– Support services for external asset managers

– Issuing structured products

– Lending activities associated with private

banking

More than two-thirds of the bank’s clients are dom-

iciled in Switzerland. Services to foreign clients are

concentrated in selected target markets.

c o m m i S S i o n a n d S e r v i c e S b u S i n e S S

Our core activities in the commission and services

business fall under wealth management and advisory

services. Other components of our services business

include revenues from issuing structured products,

support for external asset managers and insourcing

provided to other banks.

t r a d i n g

Notenstein offers its clients execution and settlement

of all standard bank trading transactions. Moreover,

Notenstein trades on its own account with the usual fi-

nancial instruments. Proprietary debt trading mainly in-

volves bonds from first-class issuers, while equity trad-

ing principally involves Swiss and European shares.

The bank trades in foreign currencies on its own ac-

count mainly to ensure the smooth functioning of its

business activities. Such trading is limited to currencies

for which there is a liquid market.

l e n d i n g a c t i v i t i e S

Notenstein adheres to a restrictive credit policy, pro-

viding lombard loans against collateral of liquid securi-

ties in diversified portfolios. Accordingly, loan-to-value

ratios are conservative so as to minimise default risk.

Notenstein does not conduct its own mortgage busi-

ness, but does provide mortgage financing to major cli-

ents in the wealth management and investment advi-

sory services segment and Notenstein staff members.

Notes to the financial statementsExplanatory notes on business activities

17

The reported mortgage loans are secured exclusively

by Swiss real estate.

r i S k a S S e S S m e n t

A considered and careful approach to risk is key to

Notenstein’s long-term success. Notenstein aims for

comprehensive risk management both for the bank

and its clients. Risk management is based on a risk

policy determined and periodically reviewed by the

Board of Directors. During the review, the board

also defines the bank’s risk capacity and defines over-

all limits.

The board monitors both the risk situation and

changes in risk-bearing capital on a quarterly basis,

based on a comprehensive risk report. This report

provides information on the risk situation, capitalisa-

tion, adherence to overall limits and any measures

necessary.

The Risk Controlling department provides in-

dependent oversight of the bank’s risk exposure. It

establishes and implements appropriate risk control

systems and provides the necessary information to

set risk policy and risk limits. The risk assessment pro-

cess focuses on operational risk, market and credit

risk in bank and trading operations, as well as liquid-

ity risk.

r i S k m a n a g e m e n t

The Board of Directors bears ultimate responsibility

for risk in its capacity of executive management, over-

sight and control. The board defines the bank’s risk ca-

pacity and, based on this assessment, sets the bank’s

risk policy. This specifies the overall limits per risk cat-

egory and business activity and sets standards for risk

management and risk control processes.

The Board of Directors is responsible for establishing,

monitoring and regularly reviewing suitable internal

controls based on documented, systematic risk analy-

sis that is adapted to the size, complexity, structure and

risk profile of the bank. The board ensures that all sig-

nificant risks within the bank are identified, limited

and monitored.

The Executive Board is responsible for implement-

ing the risk policy set by the Board of Directors, setting

standards for risk management and risk control pro-

cesses and applying the board’s recommendations to

each risk category and business activity.

Risk management entails a systematic process with

several steps: identification, measurement and assess-

ment, management and monitoring. Risk management

guidelines and fundamentals are periodically reviewed

for their suitability and effectiveness, and adjusted as

necessary.

m a r k e t r i S k

Market risk is the risk that losses may be incurred due

to changes in the market price of positions held.

Market risk is assessed using methodologies such as

value at risk models, nominal exposure and sensitivity,

as well as stress tests and interest-rate sensitivity under

normal and stress scenarios. The bank manages its own

market risk within limits defined by the Board of Direc-

tors, and the executive board then draws up investment

guidelines within these limits. The Risk Controlling de-

partment monitors market risk.

For the purposes of managing its own holdings,

Notenstein has positions in derivative instruments on

its own account, but undertakes no trading in markets

with limited liquidity.

Notes to the financial statements – explanatory notes on business activities18

c r e d i t r i S k

Credit risk is the risk that losses may be incurred when

clients or other counterparties cannot fulfil their con-

tractually agreed payment obligations.

Notenstein limits its credit risk by requiring ap-

proval of counterparties in the interbank market and

of indirect counterparties (brokers, clearing agents and

depositories). Credit risk is measured and evaluated ac-

cording to appropriate and established procedures. The

risk measurement process and the applicable parame-

ters are binding. Credit risks are measured according to

value at risk. The Board of Directors sets counterparty

risk limits for the bank as a whole and for individual

business units, while the Executive Board formulates

individual limits and investment guidelines. Risk man-

agement involves careful selection and detailed finan-

cial evaluation of counterparties as well as prudence in

structuring business transactions and close monitoring.

The Risk Controlling department is responsible for the

monitoring of credit risks.

Credit is extended in cases where top quality col-

lateral is available and easily realisable, or against do-

mestic real estate. Unsecured loans or loans secured

by collateral that is not readily realisable are approved

in exceptional cases, if justified.

l i Q u i d i t y r i S k

Liquidity risk is the risk that the bank will not be able

to fulfil its payment obligations.

Liquidity risk is measured, managed and monitored

by observing generally accepted ratios. The treasury de-

partment manages the bank’s liquidity. The Board of

Directors sets the appropriate overall limits and Noten-

stein continuously monitors its exposure to liquidity

risk.

Notenstein maintains high levels of liquidity that con-

siderably exceed the minimum requirements as de-

fined by the Swiss Financial Market Supervisory Au-

thority (FINMA).

o p e r at i o n a l r i S k

Operational risk is the risk of financial losses, non-

compliance or damage to reputation stemming from

inappropriate or faulty internal processes, staff mem-

bers, IT systems, buildings and facilities, or as a result

of external incidents or the actions of third parties.

Risks are assessed according to the existing meas-

ures to reduce risk and the criteria defined by the Exec-

utive Board. Avoidance or reduction of operational risk

is primarily the responsibility of the unit where such

risks originate. Risk management also entails defining

and implementing controls, with an appropriate bal-

ance between the anticipated risk-reducing effects of

a measure and its cost. The most critical processes are

identified and their continuation ensured with emer-

gency and contingency plans.

Notenstein has an internal regulatory framework

as well as an extensive system of controls to limit and

monitor operational risk.

o u t S o u r c i n g

In connection with its activities as an issuer of struc-

tured products, Notenstein Private Bank Ltd entered

an outsourcing agreement with Leonteq Securities AG.

To facilitate the issue of Notenstein financial products,

Leonteq Securities AG undertakes tasks related to the

structuring, execution, documentation and distribution

of the instruments. In addition, Leonteq Securities AG

takes on the management of derivative risks and at-

tends to the life cycle management of the products.

19

e m p lo y e e S

At the end of 2013, Notenstein employed 698 staff

(previous year: 663). Adjusted for part-time employ-

ees, the figure corresponds to 628 full-time employ-

ees (previous year: 588).

Notes to the financial statements – explanatory notes on business activities20

g e n e r a l p r i n c i p l e S

The book-keeping, accounting and valuation princi-

ples are based on the provisions stipulated by the Swiss

Code of Obligations (CO) and banking legislation, and

on other statutory provisions together with the Guide-

lines issued by FINMA (the Swiss Financial Market Su-

pervisory Authority).

Raiffeisen Switzerland, Notenstein’s parent com-

pany, publishes the consolidated annual financial state-

ment of the Raiffeisen Group in a separate annual re-

port. Unlike statements prepared in accordance with

the “true and fair view” principle, the individual finan-

cial statement may be influenced by hidden reserves.

c o n S o l i d at i o n

Notenstein is fully consolidated with its subsidiary

companies, 1741 Asset Management Ltd and TCMG

AG, within the Raiffeisen Group.

r e c o r d i n g o f b u S i n e S S t r a n S a c t i o n S

All transactions concluded as of the balance sheet

date are recorded on a day-end basis and are valued

on the balance sheet and the income statement in ac-

cordance with the defined valuation principles. Spot

transactions entered into but not yet settled are rec-

ognised according to the trade date accounting prin-

ciple.

f o r e i g n c u r r e n c i e S

Receivables and liabilities as well as cash and cash

equivalents in foreign currencies are translated at the

rate prevailing on the balance sheet date. Price gains

and losses resulting from such valuations are recog-

nised in the “results from trading activities” position.

Transactions in foreign currencies during the year are

translated using the rate prevailing at the time of such

transactions.

The main foreign currencies for balance sheet pur-

poses were translated at the following rates on the bal-

ance sheet date:

Currency 31.12.13 31.12.12

EUR 1.226 1.206

GBP 1.475 1.488

USD 0.891 0.915

l i Q u i d a S S e t S , a m o u n t S d u e a r i S i n g f r o m

m o n e y - m a r k e t i n S t r u m e n t S , d e p o S i t S

These items are recognised on the balance sheet at

nominal or acquisition value. As yet unearned discounts

on money-market instruments, and premiums and dis-

counts on own borrowings, are allocated over the term

of the instrument.

a m o u n t S d u e f r o m b a n k S a n d c u S t o m e r S ,

m o r t g a g e lo a n S

These items are recognised on the balance sheet at

nominal value. Proper accrual is applied in respect of

interest income. Receivables in cases where the bank

considers it unlikely that the debtor will be able to

meet its contractual obligations in full are deemed to

be impaired. Impaired receivables and collateral (if

any) are valued at liquidation value.

Individual value adjustments are applied for im-

paired receivables. Such adjustments are based on

regular analyses of the individual credit exposures,

taking account of the debtor’s creditworthiness and/

or the counterparty risk, as well as the estimated net

liquidation value of the collateral. Where the recov-

ery of the receivable is dependent exclusively on the

Notes to the financial statementsAccounting and valuation principles

22

liquidation proceeds value of the collateral, an allow-

ance must be established to cover the unsecured por-

tion in full.

Interest and relevant commissions due for more

than 90 days are deemed to be overdue. In the case

of overdrafts, interest and commissions are consid-

ered overdue where the assigned overdraft limit has

been exceeded for more than 90 days. Receivables

are derecognised at the point when a legal title con-

firms the conclusion of the liquidation process, if not

before.

Impaired claims are again rated as fully recover-

able (i.e. the value adjustment is released) when the

outstanding capital sums and interest are again paid

promptly as per contractual agreements, and other

creditworthiness criteria are met.

All value adjustments are reported in the “value

adjustments and provisions” position.

S e c u r i t i e S l e n d i n g a n d b o r r o w i n g

t r a n S a c t i o n S

Securities lending and borrowing transactions are re-

ported at the value of the cash collateral received or

given, including accumulated interest.

Borrowed securities or securities obtained as collat-

eral are recognised on the balance sheet only if Noten-

stein gains control over the contractual rights which

these securities contain. Securities lent or provided as

collateral are taken off the balance sheet only if Noten-

stein loses the contractual rights associated with these

securities. The market values of the securities borrowed

and lent are monitored on a daily basis so that addi-

tional collateral may be provided or requested as nec-

essary.

Fees received or paid in respect of securities

borrowing and lending transactions are recorded as

commission income or commission expense in the

corresponding periods. Notenstein does not engage

in securities lending with instruments held in clients’

safekeeping accounts.

r e p u r c h a S e a n d r e v e r S e r e p u r c h a S e

t r a n S a c t i o n S

Purchases of securities subject to an obligation to resell

(reverse repurchase transactions) and sales of securi-

ties subject to an obligation to repurchase (repurchase

transactions) are treated as collateralised financing

transactions and are recognised at the value of the cash

collateral received or given, including accumulated in-

terest.

Securities received and delivered are not recog-

nised or derecognised on the balance sheet unless con-

trol of the contractual rights contained in such securi-

ties is relinquished. The market values of the securities

received or delivered are monitored on a daily basis so

that additional collateral may be provided or requested

as necessary.

Interest income from reverse repurchase trans-

actions and interest expense arising from repurchase

transactions is accrued in the corresponding periods

over the terms of the underlying transactions.

t r a d i n g p o r t f o l i o S o f S e c u r i t i e S a n d

p r e c i o u S m e ta l S

Trading portfolios are valued at fair value. Positions for

which there is no representative market are valued ac-

cording to the lower of cost or market principle. Gains

and losses resulting from this valuation, and gains and

losses realised during the period, are recognised as “re-

sult from trading activities”. Interest on and dividends

23

from trading positions are booked as “interest and divi-

dend income from trading positions”, under the “result

from interest operations” position.

Precious metal positions are valued at the market

values prevailing on the balance sheet date. If, in ex-

ceptional cases, no fair value is available, they are val-

ued according to the lower of cost or market principle.

f i n a n c i a l i n v e S t m e n t S

Investments outside of the trading portfolio are valued

according to the lower of cost or market principle. A

monthly market valuation is carried out, and the gains

or losses in value are booked as appropriate on the in-

come statement, in the “other ordinary expenses” or

“other ordinary income” positions.

Real estate and participating interests assumed

from lending activities and designated for resale are

recognised under financial investments and are val-

ued according to the lower of cost or market princi-

ple. The lower value is deemed to be the lower of ac-

quisition cost and liquidation value.

pa r t i c i pat i n g i n t e r e S t S

All equities and other securities in companies held with

the intention of long-term investment, regardless of

the proportion of voting shares, are recognised as par-

ticipating interests. All participating interests in com-

munal facilities and institutions are also recognised on

the balance sheet in this position. The valuation is ef-

fected in accordance with the acquisition value prin-

ciple, i.e. at purchase cost minus any writedowns re-

quired for operational purposes. Participating interests

may include hidden reserves.

ta n g i b l e f i X e d a S S e t S

Tangible fixed assets are recognised at acquisition cost

plus any investment that increases the value of the as-

set, and are depreciated using the straight-line method

over their estimated useful life as follows:

Real estate Maximum: 66 years

Conversions of and installations in rented

premises Maximum: 15 years

Software, IT hardware Maximum: 3 years

Furnishings and fittings Maximum: 8 years

Other tangible fixed assets Maximum: 5 years

Minor investments are booked directly through busi-

ness expenditure. Comprehensive renovations which

increase the value of the property are capitalised,

whereas maintenance and repairs are reported as ex-

penses.

Tangible fixed assets may include hidden reserves.

Properties and assets under construction are depreciated

only as from the date when they are brought into use.

Tangible fixed assets are reviewed for impairment

losses whenever events or changes in circumstances

suggest that the carrying amount may not be recover-

able. Any impairment losses are recognised in the in-

come statement, under the “depreciation and amortisa-

tion of fixed assets” position. If the impairment review

of a tangible fixed asset reveals a change in useful life,

the residual book value is then depreciated as planned

over the revised useful life of the asset.

p e n S i o n b e n e f i t o b l i g at i o n S

The pension fund for Notenstein employees is accom-

modated within a specific foundation for this purpose –

“Katharinen Pensionskasse I”. The bank pays the costs

Notes to the financial statements – Accounting and valuation principles24

of occupational pension provision for all employees

and their survivors in accordance with statutory provi-

sions. The defined contribution system is in place. The

organisation, management and financing of the pension

plans is based on the statutory provisions, the founda-

tion deed and the pension rules that are in force. The

employer’s contributions are booked to personnel ex-

penses.

The “Katharinen Pensionskasse II”, a supplemen-

tary, partially autonomous extra-mandatory pension

fund, was set up in 2009. This enables individual in-

vestment of that portion of the annual salary which

is to be insured on an extra-mandatory basis, with no

need to take account of a minimum interest rate. As

well as generating new options for purchase of ben-

efits, this gives insured persons the choice of a lump-

sum payment or an annuity on retirement.

Determination of the actual economic effects of

pension benefit obligations is based on the annual fi-

nancial statements of the employee benefit institutions,

which are drawn up in compliance with Swiss GAAP

FER 26. An assessment is made as to whether any un-

derfunding or overfunding of the pension funds could

entail economic risks or benefits from the bank’s view-

point.

Any economic benefit, or any employer’s contri-

bution reserves in existence, are not capitalised; how-

ever, provisions for economic risks are included on

the balance sheet.

va lu e a d J u S t m e n t S a n d p r o v i S i o n S

For all identifiable risks existing at the balance sheet

date, individual value adjustments and provisions are

established on a prudent basis. The other provisions

may include hidden reserves.

r e S e r v e S f o r g e n e r a l b a n k i n g r i S k S

Reserves may be formed for general banking risks.

These are prudent reserves formed in accordance with

the accounting rules, which are established to cover

latent risks in the operating activities of the bank. Pur-

suant to article 18, letter b of the Swiss Capital Ade-

quacy Ordinance (CAO), such reserves are counted

as capital and are not taxed (see the appended table:

“value adjustments and provisions”).

c o n t i n g e n t l i a b i l i t i e S , i r r e v o c a b l e

c o m m i t m e n t S , l i a b i l i t i e S f o r c a l l S o n

S h a r e S a n d o t h e r e Q u i t i e S

These items are recognised as off-balance-sheet trans-

actions at nominal value. Provisions are formed for

foreseeable risks.

d e r i vat i v e f i n a n c i a l i n S t r u m e n t S

All derivative financial instruments are valued at fair

value (except for derivatives used in connection with

hedging transactions). Such instruments are recognised

under “other assets” or “other liabilities” with positive

or negative replacement values. The fair value is based

on market prices, price quotations from brokers, and on

discounted cashflow and option price models. For trans-

actions involving derivative financial instruments en-

tered into for trading purposes, the income realised is

booked under “result from trading activities”.

The bank also uses derivative financial instru-

ments in connection with asset and liability manage-

ment in order to control interest rate change risks.

S t r u c t u r e d p r o d u c t S i S S u e d b y n o t e n S t e i n

Where structured products issued by Notenstein com-

prise a debt instrument, the derivative component is

25

separated from the basic contract, and valued and rec-

ognised separately. Debt instruments (basic contracts)

with an original term to maturity of less than 1 year are

recognised under “liabilities from money-market in-

struments” and those exceeding 1 year under “bond is-

sues and central mortgage institution loans” at nominal

value. Premiums and discounts are posted under the

positions “accrued expenses and deferred income” and

“accrued income and prepaid expenses” and realised

over the remaining maturity against interest income.

Notenstein structured products without a debt

instrument and derivative components of structured

products are recognised as positive or negative re-

placement values in the positions “other assets” and

“other liabilities” at fair value.

Income from the structuring of proprietary struc-

tured products is posted under “commission income

from securities trading and investment activities”.

Redemption of the structured products is guaranteed

by Raiffeisen Switzerland Cooperative, St. Gallen.

S t r u c t u r e d p r o d u c t S o f t h i r d - pa r t y

i S S u e r S

Income from the issuance of structured products on a

commission basis is recognised in the “commission in-

come from securities trading and investment activities”

position.

ta X e S

Taxes are calculated and booked on the basis of the

result for the reporting year.

y e a r - o n - y e a r c h a n g e S

In the current year, the accounting and valuation prin-

ciples were supplemented by information on the ac-

counting recognition of proprietary structured prod-

ucts. The result from structured products of other

issuers is newly recognised under the position “com-

mission income from securities trading and investment

activities” and no longer under “result from trading

activities”. This change resulted in a movement of ap-

prox. CHF 4 million from “result from trading activ-

ities” to “commission income from securities trading

and investment activities”.

e v e n t S a f t e r t h e b a l a n c e S h e e t d at e

Up to the date when the annual financial statements

were drawn up, no material events occurred which

would require mandatory disclosure on the balance

sheet or in the notes as at 31 December 2013.

Notes to the financial statements – Accounting and valuation principles26


1.1 overview of collateral for loaNs aNd off-BalaNce-sheet traNsactioNs

1 . 1 . 1 o v e r v i e w b y c o l l at e r a l t y p e – lo a n S a n d a d va n c e S

Secured by

mortgage

Other

collateral Unsecured Total

Amounts due from customers 4,507 119,682 5,255 129,444

Mortgage loans

Residential property 358,683 – 65 358,748

Office and business premises 6,520 – – 6,520

Trade and industry 22,697 – – 22,697

Other – – – –

Total loans and advances in current year 392,407 119,682 5,320 517,409

Total loans and advances in previous year 342,398 112,601 36,622 491,621

1 . 1 . 2 o v e r v i e w b y c o l l at e r a l t y p e – o f f - b a l a n c e - S h e e t

Secured by

mortgage

Other

collateral Unsecured Total

Contingent liabilities 86 12,790 1,865 14,740

Irrevocable commitments 6,433 3,107 11,538 21,077

Liabilities for calls on shares and other equities – – – –

Commitment credits – – – –

Total off-balance-sheet in current year 6,519 15,897 13,402 35,818

Total off-balance-sheet in previous year – 99,348 11,556 110,904

1 . 1 . 3 d e ta i l S o f i m pa i r e d lo a n S / r e c e i va b l e S

Gross debt

amount

Estimated

liquidation

proceeds of

collateral

Net debt

amount

Individual

value

adjustments

Impaired loans/receivables in current year 1,585 308 1,277 1,277

Impaired loans/receivables in previous year 2,456 1,256 1,200 1,200

Amounts in CHF thousands


28


1.2 BreakdowN of tradiNg portfolios of securities aNd precious metals, fiNaNcial iNvestmeNts aNd

participatiNg iNterests

1 . 2 . 1 t r a d i n g p o r t f o l i o S o f S e c u r i t i e S a n d p r e c i o u S m e ta l S

Current year Previous year

Debt securities 163,928 142,183

listed * 162,244 133,188

unlisted 1,685 8,995

Equity securities 20,384 32,201

of which own equities shares – –

Precious metals 13,168 10,164

Total trading portfolios of securities and precious metals 197,481 184,548

of which securities eligible for repo transactions in accordance with liquidity regulations 43,552 23,810

* Of which own products issued by Notenstein Private Bank Ltd to the amount of CHF 1.25 million (none in previous year).

1 . 2 . 2 f i n a n c i a l i n v e S t m e n t S

Book value Fair value

Current year Previous year Current year Previous year

Debt securities 573,734 529,745 575,735 535,768

of which held until maturity – – – –

of which recognised in accordance with the lower of cost or market principle 573,734 529,745 575,735 535,768

Equity securities 55,143 10,779 55,144 10,780

of which qualified participations – – – –

Precious metals 409 584 409 609

Real estate – 2,000 – 2,000

Total financial investments 629,286 543,108 631,288 549,157

of which securities eligible for repo transactions in accordance with liquidity regulations 395,777 434,994 397,037 439,717

1 . 2 . 3 pa r t i c i pat i n g i n t e r e S t S


With listed value 77,700 –

Without listed value 27,230 20,548

Total participating interests 104,930 20,548


29

1.3 disclosures of sigNificaNt participatiNg iNterests


Company name, registered office Business activities Capital Share in % Capital Share in %

Recognised under participating interests:

1741 Asset Management Ltd, St. Gallen Asset management/fund business 5,000 100 5,000 100

Notenstein Financial Services GmbH,

Munich (Germany)

Investment advisory services and

brokerage of financial investments 123 100 – –

TCMG Asset Management AG, Zurich Holding and service unit 23,202 93 – –

Leonteq AG, Zurich Structured investment service provider 13,333 23 – –




1.4 statemeNt of fixed assets

Acquisition cost

Accumulated

depreciation

Book value

at previous

year end

Current year

Additions Disposals Depreciation

Book value at

current year end

Majority participations 20,000 – 20,000 21,706 –15,000 –4 26,702

Minority participations 686 –138 548 77,700 – –20 78,228

Total participating interests 20,686 –138 20,548 99,406 –15,000 –24 104,930

Tangible fixed assets

Real estate

Bank buildings 46,000 –173 45,828 300 – –702 45,426

Other real estate – – – – – – –

Other tangible fixed assets 2,114 –593 1,522 2,331 – –1,288 2,565

Finance lease assets – – – – – – –

Other 610 –366 244 32 – –21 255

Total tangible fixed assets 48,724 –1,131 47,593 2,663 – –2,011 48,246


1 . 4 . 1 f i r e i n S u r a n c e va lu e S

Current year

Fire insurance value of real estate 47,022

Fire insurance value of other fixed assets 56,496

30




1.5 total other assets aNd other liaBilities


Other assets Other liabilities Other assets Other liabilities

Replacement value of derivative financial instruments 50,867 50,476 8,975 9,156

Indirect taxes 3,842 7,410 748 9,400

Clearing accounts 21,106 594 32,162 550

Other 975 184 15,057 47

Total 76,790 58,665 56,942 19,153

1.6 pledged or assigNed assets to secure owN commitmeNts aNd of assets suBject to reservatioN of title

1 . 6 . 1 p l e d g e d o r a S S i g n e d a S S e t S a n d a S S e t S S u b J e c t t o r e t e n t i o n o f t i t l e , e X c lu d i n g l e n d i n g

t r a n S a c t i o n S a n d S e c u r i t i e S r e p u r c h a S e a g r e e m e n t S


Amount due/

book value

Of which

claimed

Amount due/

book value

Of which

claimed

Pledged assets

Amounts due from banks 389,472 474 – –

Amounts due from money-market instruments – – 10,000 –

Trading portfolios 34,101 – – –

Financial investments 266,755 – 275,949 3,573

Tangible fixed assets/other assets (guarantees) 883 – 416 –

Total pledged assets 691,212 474 286,365 3,573

31

1 . 6 . 2 d i S c lo S u r e o f S e c u r i t i e S l e n d i n g a n d r e p u r c h a S e t r a n S a c t i o n S


Book value of receivables from cash collateral in securities borrowing and reverse repurchase agreements 294,030 515,100

Book value of obligations from cash collateral in securities lending and reverse repurchase agreements 136,780 30,360

Book value of securities lent in securities lending or delivered as collateral in securities borrowing as well as securities in own

portfolio transferred in repurchase agreements 18,109 30,383

of which with unrestricted right to resell or pledge 18,109 30,383

Fair value of securities received and serving as collateral in securities lending or securities borrowed in securities borrowing as

well as securities received in reverse repurchase agreements with an unrestricted right to resell or repledge 302,841 515,330

fair value of associated resold or repledged securities 127,880 30,383





1.7 liaBilities relatiNg to owN peNsioN aNd welfare fuNds

1 . 7 . 1 g e n e r a l

The personnel of Notenstein Private Bank Ltd are insured in the “Katharinen Pensionenskasse I” and “Katharinen Pensionenskasse II” pension funds. The benefits paid are

calculated on the basis of contributions made (defined contribution plan). All employees are insured from the minimum annual wage defined in the Occupational Pen-

sions Act and therefore entitled to benefits. More than half of the occupational pension premiums are covered by the employer. The employer has no further obligations

to provide benefits. The “Katharinen Pensionskasse II” fund provides for extra-mandatory pensions in which a personal investment strategy can be implemented.

1 . 7 . 2 l i a b i l i t i e S r e l at i n g t o o w n p e n S i o n a n d w e l fa r e f u n d S


Other amounts due to customers 19,499 4,390

32


1 . 7 . 3 e c o n o m i c b e n e f i t / e c o n o m i c o b l i g at i o n a n d p e n S i o n e X p e n S e S

According to the most recent audited annual financial statement (pursuant to Swiss GAAP FER 26) of the “Katharinen Pensionskasse”, the funding ratio (no recognition of

overfunding; relevant underfunding is to be recognised in the balance sheet) is:

31.12.2013

(provisional) 31.12.2012

Pension fund “Katharinen Pensionskasse I” in % 110.5 107.5

Pension fund “Katharinen Pensionskasse II” in % 118.8 115.2

1 . 7 . 4 e m p lo y e r c o n t r i b u t i o n r e S e r v e S o f t h e “ k at h a r i n e n p e n S i o n S k a S S e ”

As at 31.12.2013, Notenstein Private Bank Ltd holds no employer contribution reserves.

1.8 BoNds outstaNdiNg

Maturity

Total2014 2015 2016 2017 2018 After 2018

Weighted average interest rate

(volume weighted) in % 0.22 1.03 0.48 0.00 0.35 0.07 0.36

Liabilities from money-market

instruments * 83,662,247 – – – – – 83,662,247

Bond issues 75,423,622 98,176,491 90,231,882 15,325,613 41,725,020 17,671,535 338,554,163

The derivative component of issued structured products containing a debt instrument is separated from the basic contract, valued and recognised separately. The un-

derlying instruments are recognised under “liabilities from money-market instruments” (maturity < 1 year) and in “bond issues” (maturity > 1 year). The derivative compo-

nents of the products are recognised at their market value in “other assets” and “other liabilities” (replacement values).

* Non-subordinated


33


1.9 value adjustmeNts aNd provisioNs, fluctuatioN reserve for credit risks aNd reserves for geNeral

BaNkiNg risks

Balance at

previous year

end

Use in

conformity

with designat-

ed purpose

Redesignation

of purpose

(reclassifica-

tions)

Recoveries, past

due interest,

currency transla-

tion differences

New provisions

charged to

income

statement

Releases to

income

statement

Balance at

current year

end

Value adjustments and

provisions for default and

other risks:


provisions for default risks

1,200 – – 77 – – 1,277


provisions for other business

risks 19,400 –1,755 – – 6,232 – 23,877

Other provisions – – – – – – –

Total value adjustments

and provisions 20,600 –1,755 – 77 6,232 – 25,154

Reserves for general

banking risks (untaxed) 176,000 – – – – – 176,000

For the current year, provisions to the amount of CHF 6.2 million for possible obligations arising from UK final withholding tax have been charged to the income statement.



1.10 BaNk’s capital aNd shareholders of iNterests exceediNg 5% of all votiNg rights


Total par value

No. of shares/

interests

Capital eligible

for dividend Total par value

No. of shares/

interests

Capital eligible

for dividend

Bank’s capital

Share capital 20,000 20,000,000 20,000 20,000 20,000,000 20,000

Participation capital 2,200 22,000,000 2,200 – – –

Total bank’s capital 22,200 42,000,000 22,200 20,000 20,000,000 20,000


34

1 . 1 0 . 1 S i g n i f i c a n t S h a r e h o l d e r S a n d g r o u p S o f S h a r e h o l d e r S w i t h p o o l e d v o t i n g r i g h t S


Nominal Share in % Nominal Share in %

Raiffeisen Switzerland Cooperative 22,200 100 20,000 100


1.11 statemeNt of shareholders’ equity

Equity at beginning of current year

Paid-up capital 20,000

Distributable profit/accumulated loss 23,761

General legal reserves 137,300

Reserves for general banking risks 176,000

Total equity at beginning of current year (before appropriation of profit) 357,061

– Dividends 2012 –20,000

– General legal reserves –119,040

+ Other reserves 119,040

+ Increase in participation capital 2,200

+ Capital contribution reserves (participation capital) 38,938

+ Profit for the current year 16,935

Total equity at end of current year (before appropriation of profit) 395,134

Of which:

paid-up capital 22,200

general legal reserves 57,198

other reserves 119,040

reserves for general banking risks 176,000

distributable profit 20,696


35





1.12 maturity aNalysis of curreNt assets aNd third-party liaBilities

Due

At sight

Can -

cellableWithin

3 months

Within 3 to

12 months

Within

12 months

to 5 years

After

5 years

No

maturity Total

Current assets

Liquid assets 359,016 – – – – – – 359,016

Amounts due from money-market instruments – – 209,044 109,888 – – – 318,932

Amounts due from banks 87,387 190,181 715,286 705,952 345,883 5,000 – 2,049,689

Amounts due from customers – 6,132 54,324 58,476 10,513 – – 129,444

Mortgage loans – 5,409 135,266 67,688 147,622 31,980 – 387,965

Trading portfolios of securities and precious metals 197,481 – – – – – – 197,481

Financial investments 51,445 – 71,244 195,265 274,590 36,741 – 629,286

Total current assets in current year 695,329 201,722 1,185,164 1,137,269 778,608 73,721 – 4,071,813

Total current assets in previous year 660,722 246,432 1,519,275 682,385 595,759 28,799 2,000 3,735,372

Third-party capital

Liabilities from money-market instruments – – 5,102 78,560 – – – 83,662

Amounts due to banks 57,343 8,354 136,780 – – – – 202,476

Amounts due to customers in savings or deposit

accounts –

2,490,768 – – – – –

2,490,768

Other amounts due to customers 139,622 552,862 19,359 1,455 – – – 713,297

Bond issues and central mortgage institution loans – – 178 75,245 245,459 17,672 – 338,554

Total third-party capital in current year 196,965 3,051,983 161,419 155,260 245,459 17,672 – 3,828,758

Total third-party capital in previous year 186,115 3,139,052 127,508 4,301 – – – 3,456,976

1.13 amouNts due from / to related compaNies as well as loaNs to memBers of goverNiNg Bodies


Amounts due from related companies – –

Amounts due to related companies – –

Loans to members of governing bodies 4,731 2,855

36

1 . 1 3 . 1 t r a n S a c t i o n S w i t h r e l at e d pa r t i e S

The extension of loans to members of governing bodies is subject to the usual banking assessment criteria that apply to third parties. Fee-based transactions (payment

services, stock transactions), loans and interest on bank accounts are provided to related parties at personnel rates.



1.14 aNalysis of assets aNd liaBilities By domestic aNd foreigN origiN


Domestic Foreign Domestic Foreign

Assets

Liquid assets 358,018 998 408,341 –

Amounts due from money-market instruments – 318,932 – 68,300

Amounts due from banks 1,026,702 1,022,987 1,024,659 1,014,794


Mortgage loans 387,965 – 343,598 –

Trading portfolios of securities and precious metals 74,834 122,647 74,513 110,036

Financial investments 180,562 448,724 155,575 387,533

Participating interests 104,799 131 20,539 8

Tangible fixed assets 48,246 – 47,593 –

Accrued income and prepaid expenses 21,050 960 11,113 615

Other assets 74,500 2,290 56,887 55

Unpaid-up capital – – – –

Total assets 2,348,384 1,975,405 2,235,364 1,636,818

Liabilities

Liabilities from money-market instruments 83,662 – – –

Amounts due to banks 200,867 1,609 138,485 9,523

Amounts due to customers in savings or deposit accounts 1,484,469 1,006,299 1,391,993 1,025,205

Other amounts due to customers 241,575 471,722 297,897 593,874

Bond issues and central mortgage institution loans 338,554 – – –

Accrued expenses and deferred income 16,077 1 17,517 875

Other liabilities 56,916 1,748 18,978 174

Value adjustments and provisions 25,154 – 20,600 –

Reserves for general banking risks 176,000 – 176,000 –

Bank’s capital 22,200 – 20000 –

General legal reserve 57,198 – 137,300 –


37




1.15 aNalysis of assets By couNtry/ group of couNtries


Share in % Share in %

Assets

Switzerland 2,348,384 54 2,303,301 59

Europe 1,614,864 37 1,438,531 37

Asia 168,179 4 32,883 1

North America 34,431 1 19,296 0

Caribbean 33,522 1 18,864 0

Other 124,409 3 59,307 2

Total assets 4,323,789 100 3,872,182 100



Domestic Foreign Domestic Foreign

Other reserves 119,040 – – –

Profit/loss carried forward 3,761 – –6,078 –

Profit/loss for the year 16,935 – 29,839 –

Total liabilities 2,842,410 1,481,379 2,242,531 1,629,651

38


1.16 aNalysis of assets aNd liaBilities accordiNg to curreNcy

CHF EUR USD Other

Assets

Liquid assets 351,908 5,914 680 514

Amounts due from money-market instruments 49,881 175,665 84,557 8,828

Amounts due from banks 992,605 270,045 623,748 163,291


Mortgage loans 387,965 – – –

Trading portfolios of securities and precious metals 113,444 17,111 29,232 37,694

Financial investments 416,522 169,774 26,725 16,265

Participating interests 104,799 131 – –

Tangible fixed assets 48,246 – – –

Accrued income and prepaid expenses 16,924 1,816 2,823 447

Other assets 74,301 865 67 1,557

Total assets shown in balance sheet 2,622,384 682,450 785,620 233,335

Delivery entitlements from spot exchange, forward forex and forex options transactions 233,010 93,656 273,487 77,512

Total assets 2,855,394 776,106 1,059,107 310,847

Liabilities

Liabilities from money-market instruments 61,277 4,856 2,784 14,745

Amounts due to banks 147,681 47,143 4,921 2,730

Amounts due to customers in savings or deposit accounts 1,462,563 450,562 441,904 135,739

Other amounts due to customers 217,977 144,581 294,679 56,060

Bond issues and central mortgage institution loans 230,737 46,295 52,221 9,301

Accrued expenses and deferred income 15,624 230 189 35

Other liabilities 57,772 722 127 44

Value adjustments and provisions 25,154 – – –

Reserves for general banking risks 176,000 – – –

Bank’s capital 22,200 – – –

General legal reserves 57,198 – – –

Other reserves 119,040 – – –

Profit/loss carried forward 3,761 – – –

Profit/loss for the year 16,935 – – –

Total liabilities shown in balance sheet 2,613,919 694,389 796,826 218,655

Delivery obligations from spot exchange, forward forex and forex options transactions 232,374 93,636 273,956 77,504

Total liabilities 2,846,293 788,025 1,070,782 296,159

Net position per currency 9,101 –11,919 –11,674 14,688


39


2.1 coNtiNgeNt liaBilities


Guarantees to secure credits 1’350 3,210

Other contingent liabilities 13,390 86,826

Total contingent liabilities 14,740 90,036



2.2 outstaNdiNg derivative fiNaNcial iNstrumeNts

Trading instruments Hedging instruments

Positive

replacement

values

Negative

replacement

values

Contract

volumes

Positive

replacement

values

Negative

replacement

values

Contract

volumes

Interest-rate-related instruments

Forward contracts (including FRAs) – – – – – –

Swaps – – – – – –

Futures – – – – – –

Options (OTC) 250 4,110 14,401 4,110 250 14,401

Options (exchange-traded) – – – – – –

Total 250 4,110 14,401 4,110 250 14,401

Foreign exchange/precious metals

Forward contracts 8,236 9,519 547,301 – – –

Combined interest/currency swaps 2,423 943 133,699 – – –

Futures – – – – – –

Options (OTC) 677 470 18,221 2 209 2,580


Total 11,336 10,932 699,221 2 209 2,580

Equity securities/indices

Forward contracts – – – – – –

Swaps – – – – – –

Futures – – 27,346 – – –

Options (OTC) 11,369 22,254 424,107 22,254 11,175 439,009


Total 11,369 22,254 451,454 22,254 11,175 439,009



40

Trading instruments Hedging instruments

Positive

replacement

values

Negative

replacement

values

Contract

volumes

Positive

replacement

values

Negative

replacement

values

Contract

volumes

Other

Forward contracts – – – – – –

Credit default swaps – 1,538 30,796 1,538 – 30,796

Futures – – – – – –

Options (OTC) 8 – 1,799 – 8 1,779

Total 8 1,538 32,595 1,538 8 32,575

Total before netting contracts in current year 22,963 38,834 1,197,671 27,904 11,642 488,566

Total before netting contracts in previous year 8,975 9,156 961,580 – – –


2 . 2 . 1 t o ta l a f t e r n e t t i n g c o n t r a c t S

Positive

replacement

values

(cumulative)

Negative

replacement

values

(cumulative)

Total in current year 39,225 38,834

Total in previous year 8,975 9,156

2.3 fiduciary traNsactioNs


Fiduciary deposits at third-party banks 301,989 250,888

Fiduciary lending – 29,827

Total fiduciary transactions 301,989 280,715


41

2.4 clieNt assets


Type of client assets

Assets in funds managed by the bank 120,589 –

Assets under discretionary asset management agreements 7,437,143 7,830,310

Other client assets 12,224,132 11,808,081

Total client assets (including double-counting) * 19,781,864 19,638,391

of which double-counted items 323,384 228,305

Net new money inflow/outflow –311,961 –1,874,234

Client assets includes all assets managed or held for investment purposes of private, business and institutional clients as well as assets in funds managed by the bank.

Essentially, it includes all amounts due to customers, time deposits and fiduciary investments as well as all valued assets including net values from outstanding derivative

financial instruments. Client assets as well as assets in investment funds deposited with third parties are also included on the condition that they are managed by the

bank. Assets of other banks that are deposited at Notenstein (custody only) are not included in the client assets. Fund units of funds managed by the bank that are held in

client safe-keeping accounts, and client safe-keeping accounts managed by the bank but held at third-party banks are reported under double-counting.

* Excluding subsidiaries




42

3. Information on the income statement

3.1 result from tradiNg activities


Foreign exchange trading and trading in foreign notes and coins 13,936 17,951

Precious metals trading –1,003 3,635

Securities trading –152 13,982

Total result from trading activities 12,781 35,568



3.2 persoNNel expeNses


Bank authorities, meeting attendance fees and other retainers 510 191

Salaries and benefits 72,842 77,925

AHV, IV, ALV (old age, survivors, invalidity and unemployment insurance) and other statutory contributions 7,222 7,175

Contributions to employee benefit schemes 4,535 4,284

Ancillary personnel expenses 6,924 4,265

Total personnel expenses 92,034 93,840

3.3 geNeral aNd admiNistrative expeNses


Office space expenses 9,332 10,229

IT expenses, machinery, furniture, motor vehicles, and other equipment and fixtures 8,708 9,481

Other business expenses 24,462 23,744

Total general and administrative expenses 42,502 43,454



3.4 explaNatory Notes oN extraordiNary iNcome aNd expeNses, sigNificaNt releases of hiddeN reserves,

reserves for geNeral BaNkiNg risks, aNd value adjustmeNts aNd provisioNs No loNger required

A guarantee payment from the former Wegelin & Co. to the amount of CHF 12.4 million was posted to extraordinary income.

43

b a S e l , 4 0 5 1

Freie Strasse 90

Telephone +41 (0)61 201 17 17

[email protected]

b e r n e , 3 0 1 1

Spitalgasse 3

Telephone +41 (0)31 321 14 14

[email protected]

c h u r , 7 0 0 2

Aquasanastrasse 8

Telephone +41 (0)81 287 15 15

[email protected]

g e n e va , 1 2 1 1

Bd. Georges-Favon 5

Telephone +41 (0)22 307 21 21

[email protected]

l a u S a n n e , 1 0 0 1

Av. du Théâtre 1

Telephone +41 (0)21 313 26 26

[email protected]

lo c a r n o, 6 6 0 0

Lungolago Motta 2

Telephone +41 (0)91 756 12 12

[email protected]

n o t e n S t e i n p r i vat e b a n k lt d

Bohl 17, 9004 St.Gallen, telephone +41 (0)71 242 50 00, fax +41 (0)71 242 50 50

[email protected], www.notenstein.ch

lu g a n o, 6 9 0 0

Via Canova 12

Telephone +41 (0)91 912 11 11

[email protected]

lu c e r n e , 6 0 0 4

Mühlenplatz 9

Telephone +41 (0)41 227 16 16

[email protected]

S c h a f f h a u S e n , 8 2 0 1

Fronwagplatz 22

Telephone +41 (0)52 630 18 18

[email protected]

w i n t e r t h u r , 8 4 0 1

Turnerstrasse 1

Telephone +41 (0)52 742 24 24

[email protected]

Z u r i c h , 8 0 2 2

Rennweg 57/Fraumünsterstrasse 27

Telephone +41 (0)44 218 13 13

[email protected]

Contact

44

N O T E N S T E I N P R I VAT E B A N K LT D

S T. G A L L E N B A S E L B E R N E C H U R G E N E VA L A U S A N N E L O C A R N O

L U C E R N E L U G A N O S C H A F F H A U S E N W I N T E R T H U R Z U R I C H

notenstein annual report 2013

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