Page 1

Annual Report 2010 LGT Group


Contents Corporate bodies

4

Financial highlights

5

Chairman’s report

6

Corporate governance

8

Consolidated financial statements

9

LGT Group Foundation

77

International presence and imprint

92

Contents

3


Corporate bodies as of April 2011 Board of Trustees

H.S.H. Prince Philipp von und zu Liechtenstein, Chairman Dr. Rodolfo Bogni 1 K B Chandrasekar 2 Dr. Phillip Colebatch 1 Sir Ronald Grierson 2 Dr. Dominik Koechlin 1, 2 Prof. Dr. Conrad Meyer 2

Senior Management Board

H.S.H. Prince Max von und zu Liechtenstein, Group CEO Dr. AndrĂŠ Lagger, CEO LGT Financial Services Dr. Roberto Paganoni, CEO LGT Capital Partners Olivier de Perregaux, Group CFO Thomas Piske, CEO LGT Wealth Management Torsten de Santos , CEO LGT Capital Management

Internal Audit

Daniel Hauser *

External Audit

PricewaterhouseCoopers Ltd., Zurich

* since 1 January 2011

4

Corporate bodies as of April 2011

1

Member of the Management Development and Compensation Committee

2

Member of the Audit Committee


Financial highlights 2010

2009

2008

2007

2006

CHF m

86 079

89 023

78 030

102 750

88 028

of which client assets under administration

CHF m

83 547

86 604

75 912

99 868

85 370

of which LGT’s Princely Portfolio

CHF m

2 532

2 419

2 118

2 882

2 658

CHF m

3 102

4 550

-1 265

11 000

7 466

of which net new money

CHF m

3 102

-3 651

-1 265

11 000

7 466

of which through acquisition

CHF m

0

8 201

0

0

0

Total operating income

CHF m

883

779

788

879

727

Group profit

CHF m

148

106

163

255

181

Appropriation of Foundation earnings and dividends

CHF m

-751

-75

-75

-150

-100

Group equity capital

CHF m

3 084

2 958

2 561

3 395

3 023

Total assets

CHF m

24 388

24 793

22 795

21 369

17 886

Assets under administration

Net asset inflow

Ratios Tier 1

%

19.3

18.5

16.5

17.8

18.6

Cost/income

%

70

74

68

66

70

Performance of LGT’s Princely Portfolio

%

13.3

15.7

-24.1

15.5

17.6

1 889

1 985

1 870

1 689

1 484

Aa3

Aa3

Aa3

Aa3

Aa3

A+

A+

A+

AA-

AA-

Headcount at 31 December

Rating 2 Moody’s Standard & Poor’s 1

Proposed

2

LGT Bank in Liechtenstein Ltd., Vaduz

Financial highlights

5


Chairman’s report In 2010 total operating expenses came to CHF 683 million, an increase of 18 percent; net of the EUR 50 million payment to the German authorities (in conjunction with the data theft case), the increase was 7 percent. Personnel expenses were up 6 percent, and business and operating expenses increased 11 percent, primarily due to the integration of Dresdner Bank (Switzerland) with LGT, and ongoing investment in implementing the group’s international expansion strategy. The cost/income ratio improved, declining from 74 percent to 70 percent. H.S.H. Prince Philipp von und zu Liechtenstein, Chairman of the Board of Trustees (left) and H.S.H. Prince Max von und zu Liechtenstein, Group CEO (right)

In 2010 LGT released part of the tax provisions made in 2009 in connection with the acquisition of Dresdner Bank (Switzerland) and tax changes in Liechtenstein. The result was a reduction in the tax charge in the

Results for 2010 and outlook

year under review. LGT Group posted a group profit

In 2010 the financial markets were significantly affected

of CHF 148 million for the 2010 financial year after

by the consequences of the financial and economic

CHF 106 million in 2009 (an increase of 40 percent).

crisis. While the economy has recovered more or less across the globe, the political and economic challenges

Group equity grew 4 percent to CHF 3.1 billion. At

faced by individual countries and regions still vary

19.3 percent on 31 December 2010 (versus 18.5 per-

widely. LGT believes it is well positioned in this

cent at the end of 2009), the Tier 1 capital ratio is well

environment, and intends to continue investing in

above the lower limit of 8 percent laid down by the

expanding its international business.

legislator, and means that the company has a good liquidity profile and is extremely well capitalized. Fur-

Group profits up; balance sheet and

ther factors underline the financial solidity of the group

capitalization robust

and its subsidiaries: LGT Bank in Liechtenstein Ltd.,

Total operating income increased 13 percent overall

Vaduz, is one of the few international private banks

to CHF 883 million. Earnings were held back by low

to have its creditworthiness rated by well-known inde-

interest rates and the strength of the Swiss franc

pendent agencies. Since 1996, when the first ratings

against the euro and US dollar. Offsetting these devel-

were produced, LGT Bank, has consistently received

opments was a general pick-up in client stock market

very high ratings (Moody’s Aa3; Standard & Poor’s A+).

activity over the course of the second six months. In

6

this environment, LGT’s net interest income declined

Net new money develops positively

42 percent, while income from services increased 17

Net asset inflows came to CHF 3.1 billion in 2010. At

percent. Income from trading activities and other oper-

year end, client assets under administration stood at

ating income was up 58 percent, thanks in particular

CHF 86.1 billion. Substantial inflows in the Asian markets

to realized gains on securities and currency hedges.

and onshore private banking operations contributed

Chairman’s report


significantly to this result. Inflows in our institutional

As a truly private bank and family operation, we can

asset management and fund businesses were mainly

afford to manage our business with a long-term per-

driven by good long-term investment performance.

spective. We are convinced that our strong corporate culture and commitment to quality will remain key

Well positioned for further growth

success factors in the future, both for us and for our

For many years LGT has been investing in the inter-

clients.

national diversification and expansion of its business, focusing on both the emerging markets and some of the more appealing European markets. We have built up our private banking business in Asia over the past 25 years, and with over 200 employees now have a substantial presence and strong roots in the region. Our banks in Switzerland, Austria and Germany have all increased their assets over the last few years, with the biggest growth in Switzerland, where we have almost doubled assets under management thanks to the successful acquisition and integration of Dresdner Bank (Switzerland) into LGT Bank. Alongside the international growth of its private banking operations, LGT’s main investment was geared to expanding its asset management units. Today we employ over 270 people in New York, London, Pfäffikon, Singapore, Hong Kong and Tokyo. Our global reach and local presence in the main financial and economic areas is a decisive advantage in our efforts to identify and work with the world’s leading investment experts across various regions and asset classes. Another key to success in investment management is our strategic and tactical asset allocation expertise, which we will further develop this year in collaboration with leading universities. The strong returns of our LGT investment products indicate that we are on the right track. In 2011, LGT plans to move further forward with its growth and diversification strategy. On the traditional asset management side we intend to expand our institutional distribution set-up, and in alternative asset management we are planning targeted measures to grow our private equity and fund-of-funds businesses.

Chairman’s report

7


Corporate governance LGT Group and its holding company, LGT Group

Internal Audit reports directly to the Group’s Board of

Foundation, are 100 percent controlled by the Prince

Trustees. In accordance with a general principle, the

of Liechtenstein Foundation (POLF). H.S.H. Reigning

external auditors are re-evaluated on a regular basis.

Prince Hans-Adam II. von und zu Liechtenstein is the main beneficiary of the POLF. The POLF names the

The consolidated LGT Group is supervised by the

Board of Trustees of LGT Group Foundation. The

Liechtenstein Financial Market Authority (FMA). Local

Group’s Board of Trustees meets at least four times

companies are supervised by their local authorities.

a year and has constituted two separate committees (Audit Committee; Management Development and

Although it is a privately held company, LGT aims to

Compensation Committee). The Chairman of the

follow the standard practices of public companies;

Group’s Board of Trustees is H.S.H. Prince Philipp von

therefore LGT applies a transparent and proactive

und zu Liechtenstein. The Group’s Board of Trustees

communication policy. LGT Bank in Liechtenstein Ltd.

has appointed the Group CEO, H.S.H. Prince Max

is rated by Moody’s and Standard & Poor’s. The LGT

von und zu Liechtenstein, who is responsible for the

Group has applied International Financial Reporting

strategic and operational management of the Group.

Standards (IFRS) since 1996.

The compensation system is supervised by the Management Development and Compensation Committee, and consists of a fixed salary component, a yearly bonus and a long-term incentive scheme (LTIS). As a privately held company, LGT has developed an internal LTIS based on an option scheme. Senior management and other key people are entitled to participate in the LTIS. The LTIS is calculated according to a predefined formula which includes, in particular, the result of operating activities, the investment performance of the Princely Portfolio and the Group’s cost of capital. LTIS options are granted yearly and can be exercised between three to seven years after grant. In addition to direct compensation, the management has the possibility to co-invest directly in client products. These co-investments are at the full risk/benefit of the subscribing employee.

8

Corporate governance


Consolidated financial statements

9


Report of the group auditors

10

Report of the group auditors


Consolidated income statement Consolidated income statement (TCHF)

Note

2010

2009

Change % absolute

Net interest and similar income

1

95 773

166 385

-70 612

-42

Income from services

2

514 327

439 604

74 723

17

Income from trading activities

3

198 845

171 355

27 490

16

Other operating income

4

73 920

1 689

882 865

779 033

103 832

13

Total operating income

72 231 4 277

Personnel expenses

5

-438 184

-413 571

-24 613

6

Business and office expenses

6

-245 083

-164 091

-80 992

49

Other operating expenses

7

Total operating expenses

Operating profit before tax

Tax expense

8

Net profit before minority interests Minority interests

Net profit of LGT Group

-54 660

-45 671

-8 989

20

-737 927

-623 333

-114 594

18

144 938

155 700

-10 762

-7

8 262

-45 192

53 454

-118

153 200

110 508

42 692

39

-5 544

-4 974

-570

11

147 656

105 534

42 122

40

The accompanying notes form an integral part of the consolidated financial statements.

Consolidated income statement

11


Consolidated statement of comprehensive income Consolidated statement of comprehensive income (TCHF)

Note

Net profit before minority interests

2010

2009

153 200

110 508

Change % absolute 42 692

39

Other comprehensive income Changes in cumulative translation adjustments Net change in revaluation reserves, net of tax

25

thereof investments in associates thereof available-for-sale securities thereof cash flow hedge Total other comprehensive income

Total comprehensive income before minority interests Minority interests Total comprehensive income of LGT Group The accompanying notes form an integral part of the consolidated financial statements.

12

Consolidated statement of comprehensive income

-33 415

819

86 385

367 816

-281 431

-34 234 -4 180 -77

81 995

301 595

-219 600

-73

5 372

66 026

-60 654

-92

-982

195

-1 177

-604

52 970

368 635

-315 665

-86

206 170

479 143

-272 973

-57

-5 541

-4 974

-567

11

200 629

474 169

-273 540

-58


Consolidated balance sheet Consolidated balance sheet (TCHF)

Note

2010

2009

Change % absolute

9

291 495

746 774

-455 279

-61

Assets Cash in hand, balances with central banks Loans and advances to banks

10

5 316 583

8 216 711

-2 900 128

-35

Loans and advances to customers

11

5 383 600

5 690 962

-307 362

-5

Securities held for trading purposes

12

15 344

73 618

-58 274

-79

Derivative financial instruments

30

1 690 852

829 375

861 477

104

Financial assets designated at fair value

13

3 228 137

3 005 441

222 696

7

Other investment securities

14

4 917 781

2 788 574

2 129 207

76

Investments in associates

15

2 531 615

2 419 334

112 281

5

Property and equipment

16

187 792

199 476

-11 684

-6

Intangible assets

17

302 743

330 903

-28 160

-9

80 683

93 197

-12 514

-13

36 143

37 707

-1 564

-4

Prepayments and accrued income Deferred tax assets

8

405 636

361 399

44 237

12

24 388 404

24 793 471

-405 067

-2

19

1 871 916

1 454 580

417 336

29

Amounts due to customers

20

14 239 473

16 210 051

-1 970 578

-12

Derivative financial instruments

30

1 937 856

803 618

1 134 238

141

Financial liabilities designated at fair value

21

805 791

1 120 200

-314 409

-28

Certificated debt

22

Other assets

18

Total assets

Liabilities Amounts due to banks

1 570 416

1 672 317

-101 901

-6

Accruals and deferred income

68 971

96 344

-27 373

-28

Current tax liabilities

19 097

18 001

1 096

6

8

79 139

107 986

-28 847

-27

Other liabilities

23

630 233

243 725

386 508

159

Provisions

24

Deferred tax liabilities

81 799

108 272

-26 473

-24

21 304 691

21 835 094

-530 403

-2

Foundation capital

339 044

339 044

0

0

Retained earnings

1 855 596

1 782 940

72 656

4

Total liabilities

Group equity capital

Cumulative translation adjustments Other reserves

25

Total Group equity capital and reserves attributable to LGT’s equity holder

Minority interests

Total Group equity capital

Total liabilities and Group equity capital

-66 648

-33 236

-33 412

101

949 372

862 987

86 385

10

3 077 364

2 951 735

125 629

4

6 349

6 642

-293

-4

3 083 713

2 958 377

125 336

4

24 388 404

24 793 471

-405 067

-2

The accompanying notes form an integral part of the consolidated financial statements.

Consolidated balance sheet

13


Consolidated statement of changes in equity Consolidated statement of changes in equity (TCHF)

Foundation capital

Retained earnings

Cumulative translation adjustments

Other reserves

Total attributable to LGT’s equity

Minority interests

Total

339 044

1 782 940

-33 236

862 987

2 951 735

6 642

2 958 377

Appropriation of Foundation earnings and dividends

0

-75 000

0

0

-75 000

-5 239

-80 239

Net profit

0

147 656

0

0

147 656

5 544

153 200

Changes in cumulative translation adjustments

0

0

-33 412

0

-33 412

-3

-33 415

Net change in revaluation reserves, net of tax

0

0

0

86 385

86 385

0

86 385

0

0

0

81 995

81 995

0

81 995

1 January 2010

thereof investments in associates thereof available-for-sale securities

0

0

0

5 372

5 372

0

5 372

thereof cash flow hedge

0

0

0

-982

-982

0

-982

Other changes 31 December 2010

0

0

0

0

-595

-595

1 855 596

-66 648

949 372

3 077 364

6 349

3 083 713

Foundation capital

Retained earnings

Cumulative translation adjustments

Other reserves

Total attributable to LGT’s equity

Minority interests

Total

339 044

1 752 406

-34 055

495 171

2 552 566

8 111

2 560 677

Appropriation of Foundation earnings and dividends

0

-75 000

0

0

-75 000

-7 005

-82 005

Net profit

0

105 534

0

0

105 534

4 974

110 508

Changes in cumulative translation adjustments

0

0

819

0

819

0

819

Net change in revaluation reserves, net of tax

0

0

0

367 816

367 816

0

367 816

thereof investments in associates

0

0

0

301 595

301 595

0

301 595

thereof available-for-sale securities

0

0

0

66 026

66 026

0

66 026

1 January 2009

thereof cash flow hedge

0

0

0

195

195

0

195

Changes through acquisitions

0

0

0

0

0

562

562

339 044

1 782 940

-33 236

862 987

2 951 735

6 642

2 958 377

31 December 2009

14

0 339 044

Consolidated statement of changes in equity


Consolidated cash flow statement Consolidated cash flow statement (TCHF)

Note

2010

2009

153 200

110 508

13 767

39 592

Cash flow from operating activities Profit after tax Impairment, depreciation, provisions Impairment on available-for-sale securities

4

-830

7

Tax expense

8

-8 262

45 192

Changes in accrued income and expenses

-27 493

-116 924

Interest and similar income received

170 614

321 957

Interest paid

-87 178

-83 898

Income tax paid Cash flow from operating activities before changes in operating assets and liabilities Loans and advances to banks Loans and advances to customers Trading securities and financial instruments designated at fair value Amounts due to banks Amounts due to customers Other assets and other liabilities

18 810

-19 131

232 628

297 303

2 899 087

-1 573 095

307 362

-260 262

-476 832

66 188

417 336

736 296

-1 970 578

388 885

580 443

35 048

Cash flow from changes in operating assets and liabilities

1 756 818

-606 940

Net cash flow from operating activities

1 989 446

-309 637

74

3 701 -32 426

Cash flow from investing activities Proceeds from sales of property and equipment Purchase of property and equipment

16

-11 452

Purchase of other intangible assets

17

-4 932

-32 906

-237

-138 428

Cash outflow on acquisition/foundation of subsidiaries

1 287

19 090

Additions of share of investments in associates

15

-110 405

0

Disposals of share of investments in associates

15

143 907

0

Proceeds from sales of investment securities

14

22 373 555

5 725 910

Purchase of investment securities

14

-24 654 374

-5 356 505

-2 262 577

188 436

Cash inflow from sale of subsidiaries

Net cash flow from investing activities

Cash flow from financing activities Issue of certificated debt Repayment of certificated debt Dividends paid to minority interests Dividends paid to beneficiary Net cash flow from financing activities

Effects of exchange rate changes on cash Change in cash in hand, balances with central banks

223 312

627 330

-325 213

-218 939

-5 239

-6 443

-75 000

-75 000

-182 140

326 948

-8

133

-455 279

205 880

At the beginning of the period

9

746 774

540 894

At the end of the period

9

291 495

746 774

-455 279

205 880

Change in cash in hand, balances with central banks The accompanying notes form an integral part of the consolidated financial statements.

Consolidated cash flow statement

15


Notes to the consolidated financial statements Group accounting principles Introduction

Basis of consolidation

LGT Group Foundation, Herrengasse 12, Vaduz,

Subsidiaries are fully consolidated from the date on

Principality of Liechtenstein, is the holding company

which control is transferred to the Group. Inter-company

of LGT Group, a global financial services institution.

transactions, balances and unrealized gains on trans-

The beneficiary of LGT Group Foundation is the Prince

actions between Group companies are eliminated.

of Liechtenstein Foundation. The main economic

Subsidiaries are deconsolidated from the date that

beneficiary of the Prince of Liechtenstein Foundation

control ceases. The purchase method of accounting is

is the reigning prince of Liechtenstein, H.S.H. Prince

used to account for the acquisition of subsidiaries by

Hans-Adam II. of Liechtenstein.

the Group. The cost of an acquisition is measured at the fair value of the assets given, equity instruments

The terms “LGT Group”, “LGT” or “Group” mean

issued and liabilities incurred or assumed at the date

LGT Group Foundation together with its subsidiary

of exchange, plus costs directly attributable to the

undertakings and the term “Company” refers to

acquisition. Identifiable assets acquired and liabilities

LGT Group Foundation.

and contingent liabilities assumed in a business combination are measured initially at their fair values at

Presentation of amounts

the acquisition date, irrespective of the extent of any

The Group publishes its financial statements in thou-

minority interest. The excess of the cost of acquisition

sand Swiss Francs (TCHF) unless otherwise stated.

over the fair value of the Group’s share of the identi-

Accounting principles

the cost of acquisition is less than the fair value of the

The consolidated financial statements for the financial

net assets of the subsidiary acquired, the difference is

fiable net assets acquired is recorded as goodwill. If

year 2010 are prepared in accordance with Interna-

recognized directly in the income statement.

tional Financial Reporting Standards (IFRS). LGT has

A list of the Group’s principal subsidiary undertakings

applied IFRS rules since 1996. The consolidated finan-

is provided in note 32.

cial statements are prepared on the historical cost convention, as modified by revaluation of available-

Investments in associates

for-sale financial assets, financial assets and liabilities

Investments in associates are investments in companies

held at fair value through profit or loss and all

over which the Group has significant influence but

derivative instruments. A summary of the principal

not control, generally accompanying a shareholding

Group accounting policies is set out below.

of between 20 percent and 50 percent of the economical rights. LGT associates are accounted for by

The Group CEO and the Group CFO considered the

the equity method of accounting and are initially

consolidated financial statements on 5 April 2011. They

recognized at cost. Unrealized gains on transactions

were approved for issue by the Audit Committee of the

between the Group and its associates are eliminated

LGT Group Foundation Board on 27 April 2011. The

unless the transaction provides evidence of an impair-

Foundation Board approved the consolidated financial

ment of the asset transferred. Accounting policies have

statements for issue on 28 April 2011. The accounts

been changed where necessary to ensure consistency

were presented for approval at the Foundation Meeting

with the policies adopted by the Group. The invest-

to the Supervisory Board on 28 April 2011. The Foun-

ments in associates are reported in note 15.

dation Board proposed to the Foundation Meeting of

16

28 April 2011 the payment of CHF 75 000 000 to the

The Group’s share of its associates’ post-acquisition

Prince of Liechtenstein Foundation. The accounts on

profit or loss is recognized in the income statement,

pages 11 to 71 were approved by the Foundation

or in other reserves. Its share of post-acquisition

Board on 28 April 2011 and are signed on its behalf

movements in reserves is recognized in reserves. The

by H.S.H. Prince Philipp of Liechtenstein, Chairman,

cumulative post-acquisition movements are adjusted

and Olivier de Perregaux, Group CFO.

against the carrying amount of the investment.

Notes to the consolidated financial statements


Foreign currencies

Goodwill and fair value adjustments arising on the

Functional and presentation currency

acquisition of a foreign entity are treated as assets

Items included in the financial statements of each of

and liabilities of the foreign entity and translated at

the Group’s entities are measured using the currency

the closing rate.

of the primary economic environment in which the entity operates (“the functional currency”).

Foreign exchange rates

The consolidated financial statements are presented in

The foreign exchange rates for the major currencies

Swiss Francs, which is the Group’s presentation currency.

which have been applied are as follows:

Average rate

2010 Year-end rate

CHF per 1 USD

1.0367

0.9367

CHF per 1 EUR

1.3782

1.2564

CHF per 1 GBP

1.6044

1.4629

Average rate

2009 Year-end rate

CHF per 1 USD

1.0814

1.0296

CHF per 1 EUR

1.5059

1.4832

CHF per 1 GBP

1.6856

1.6712

Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing on the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges. Translation differences on non-monetary items, such as equities held at fair value through profit or loss, are

Interest income and expense

reported as part of the fair value gain or loss. Trans-

Interest income and expense are recognized in the

lation differences on non-monetary items, such as

income statement for all instruments measured at

equities classified as available-for-sale financial assets,

amortized cost using the effective interest method.

are included in the fair value reserve in equity. The effective interest method is a method of calculating Group companies

the amortized cost of a financial asset or a financial

The results and financial position of all the Group

liability and of allocating the interest income or interest

entities that have a functional currency different from

expense over the relevant period. The effective interest

the presentation currency are translated into the

rate is the rate that exactly discounts estimated future

presentation currency as follows:

cash payments or receipts through the expected life of

assets and liabilities for each balance sheet presented

the financial instrument or, when appropriate, a shorter

are translated at the closing rate on the date of

period to the net carrying amount of the financial asset

that balance sheet;

or financial liability. When calculating the effective inter-

income and expenses for each account of the income

est rate, the Group estimates cash flows considering

statement are translated at average exchange rates;

all contractual terms of the financial instrument (for

all resulting exchange differences are recognized as

example, prepayment options) but does not consider

a separate component of equity.

future credit losses. The calculation includes all fees and interest points paid or received between parties to

On consolidation, exchange differences arising from

the contract that are an integral part of the effective

the translation of the net investment in foreign entities,

interest rate, transaction costs and all other premiums

and of borrowings and other currency instruments

or discounts. Once a financial asset or a group of similar

designated as hedges of such investments, are taken

financial assets has been written down as a result of an

to shareholders’ equity. When a foreign operation is

impairment loss, interest income is recognized using the

sold, such exchange differences are recognized in the

rate of interest used to discount the future cash flows

income statement as part of the gain or loss on sale.

for the purpose of measuring the impairment loss.

Notes to the consolidated financial statements

17


Commission income

Intangible assets

Commission income and any associated expense arising

Goodwill

from the provision of private banking and investment

Goodwill represents the excess of the cost of a business

management services, credit commissions and interest

combination over the fair value of the Group’s share of

are all accounted for using the accrual method. Fixed

the net identifiable assets of the acquired subsidiary/

commissions receivable and payable are accounted for

associate at the date of acquisition. Goodwill on a

evenly over the life of the relevant contract.

business combination of subsidiaries is included in

Performance fees are defined as management fees

business combination of investments in associates is

payable for the provision of investment management

included in “investments in associates”. Goodwill is

“goodwill and other intangible assets”. Goodwill on a

services, but which are conditional on the performance

tested annually for impairment and carried at cost less

of the fund or account under contract, compared to

accumulated impairment losses. Gains and losses on

the performance of a specified benchmark. They are

the disposal of an entity include the carrying amount

accrued according to the contract terms for the meas-

of goodwill relating to the entity sold.

urement period when they can be reliably measured, and are invoiced only after confirmation of the per-

Software

formance fee calculation.

Software acquired by the Group is stated at cost less accumulated amortization and accumulated impairment

Property and equipment

losses. Subsequent expenditure on software assets is

Property and equipment and their subsequent costs

capitalized only when it increases the future economic

are stated at cost less accumulated depreciation and

benefits embodied in the specific asset to which it

accumulated impairment losses. All other repairs and

relates. All other expenditure is expensed as incurred.

maintenance are charged to the income statement

Amortization is recognized in the income statement on

during the financial period in which they are incurred.

a straight-line basis over the estimated useful life of the

Property and equipment are periodically reviewed for

software, from the date that it is available for use. The

impairment. An asset’s carrying amount is written

estimated useful life of software is three to ten years.

down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated

Other intangible assets

recoverable amount. The recoverable amount is the

Other intangible assets are recognized on the balance

higher of the asset’s fair value less costs to sell and

sheet at cost determined at the date of acquisition

value in use. Depreciation on it is provided, on a

and are amortized using the straight-line method over

straight-line basis, from the date of purchase, over

their estimated useful economic life, not exceeding

the estimated useful life of the asset. The assets’

20 years. The amortization is recognized in other oper-

residual values and useful lives are reviewed, and

ating expenses in the income statement.

adjusted if appropriate, at each balance sheet date. Estimated asset lives vary in line with the following:

At each balance sheet date other intangible assets are reviewed for indications of impairment or changes in

18

Freehold buildings

50 years

estimated future benefits. If such indication exists, an

Leasehold improvements

period of lease

analysis is performed to assess whether the carrying

IT equipment

3–5 years

amount of other intangible assets is fully recoverable.

Office equipment

5 years

An impairment is charged if the carrying amount

Motor vehicles

4 years

exceeds the recoverable amount.

Notes to the consolidated financial statements


Financial instruments

Financial assets at fair value through profit or loss

Financial assets

This category has two sub-categories: financial assets

Purchases and sales of financial assets at fair value

held for trading, and those designated at fair value

through profit or loss, held to maturity and available

through profit or loss at inception. A financial asset is

for sale are recognized on the trade-date – the date

classified in this category if acquired principally for the

on which the Group commits to purchase or sell the

purpose of selling in the short term or if so designated

asset. Loans are recognized when cash is advanced to

by management. Derivatives are also categorized as

the borrowers. Financial assets are initially recognized

held for trading unless they are designated as hedges.

at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss.

The Group designates financial assets and liabilities at

Financial assets are derecognized when the rights to

fair value through profit or loss when either

receive cash flows from the financial assets have ex-

the assets or liabilities are managed, evaluated

pired or where the Group has transferred substantially

and reported internally on a fair value basis;

all risks and rewards of ownership.

the designation eliminates or significantly reduces an accounting mismatch which would otherwise arise;

Loans and advances

the asset or liability contains an embedded derivative

Loans and receivables are non-derivative financial

that significantly modifies the cash flows that would

assets with fixed or determinable payments that are

otherwise be required under the contract.

not quoted in an active market. They arise when the Group provides money, goods or services directly to

Held-to-maturity securities

a debtor with no intention of trading the receivable.

Held-to-maturity securities are financial assets with fixed

Loans and advances to customers and to banks are

or determinable payments and fixed maturity that LGT

reported at their amortized cost less allowances for

has the positive intention and ability to hold to maturity.

any impairment or losses.

Held-to-maturity securities are carried at amortized cost subject to a test for impairment. The difference between

Investment securities

initial recognition and nominal value is amortized over

Investment securities are classified as financial assets

the period to maturity. This amount and interest income

at fair value through profit or loss, available-for-sale

are stated as net interest income.

and held-to-maturity securities. They are recognized on the balance sheet and initially measured at fair

Available-for-sale securities

value, which is the cost on the consideration given

Available-for-sale securities are those securities that do

or received to acquire them. Subsequent to initial

not properly belong in trading securities or held-to-

recognition, securities are remeasured to fair value,

maturity securities. They are initially recognized at

except held-to-maturity securities which are carried at

fair value (plus transaction costs). Available-for-sale

amortized cost subject to a test for impairment. To

securities are subsequently remeasured at fair value or

the extent that quoted prices are not readily available,

amounts derived from cash flow models. Fair values for

fair value is based on either internal valuation models

unlisted equity securities are estimated using applicable

or management’s estimate of amounts that could be

price/earnings or price/cash flow ratios refined to reflect

realized, based on observable market data, assuming

the specific circumstances of the issuer. Unrealized

an orderly liquidation over a reasonable period of time.

gains and losses arising from changes in the fair value of securities classified as available-for-sale are recognized in equity. Equity securities for which fair values cannot be measured reliably are recognized at cost less impairment. When the securities are disposed of or impaired, the related accumulated fair value adjustments are included in the income statement as income from investment securities.

Notes to the consolidated financial statements

19


Borrowings

A hedge is regarded as highly effective if actual results

Borrowings are recognized initially at fair value, being

are within a range of 80 percent to 125 percent.

their issue proceeds (fair value of consideration received) net of transaction cost incurred. Borrowings

Changes in the fair value of derivatives that are

are subsequently stated at amortized cost, any differ-

designated and qualify as fair value hedges and that

ence between proceeds net of transaction costs and

prove to be highly effective in relation to hedged risk

the redemption value is recognized in the income

are recorded in the income statement, along with the

statement over the period of the borrowing using the

corresponding change in the fair value of the hedged

effective interest method.

asset or liability that is attributable to that specific hedged risk.

Other liabilities Other liabilities are reported at amortized cost.

If the hedge no longer meets the criteria for hedge

Interest and discounts are taken to net interest and

accounting, in the case of interest-bearing financial

similar income on an accrual basis.

instruments the difference between the carrying amount of the hedged position at that time and the

Derivative financial instruments and hedging

value that this position would have exhibited without

Derivatives are initially recognized at fair value on the

hedging is amortized to net profit or loss over the

date on which a derivative contract is entered into

remaining period to maturity of the original hedge. In

and are subsequently remeasured at their fair value.

the case of non-interest-bearing financial instruments,

Fair values are obtained from quoted market prices in

on the other hand, this difference is immediately

active markets and valuation techniques, including

recorded in the income statement.

discounted cash flow models and option pricing models, as appropriate. All derivatives are carried as

Changes in the fair value of derivatives that have been

assets when fair value is positive and as liabilities

recorded as a cash flow hedge, that fulfill the criteria

when fair value is negative.

mentioned above and that prove to be effective in hedging risk are reported under other reserves in Group

In the case of hedging transactions involving derivative

equity capital. If a future financial transaction or an

financial instruments, on the inception of transaction it

obligation results in a balance sheet item, the gains or

is determined whether the specific transaction is

losses previously recorded in shareholders’ equity are

a hedge of the value of a balance sheet item

derecognized and set off against the cost of this

(a fair value hedge), or

balance sheet item. If the hedged cash flow or the

a hedge of a future cash flow or obligation

obligation leads to direct recognition in the income

(a cash flow hedge).

statement, the hedging instrument’s cumulative gains or losses from previous periods in Group equity capital

Derivatives categorized in this manner are treated

are included in the income statement in the same

as hedging instruments in the financial statements if

period as the hedged transaction.

they fulfill the following criteria:

20

existence of documentation that specifies the

Certain derivative transactions represent financial

underlying transaction (balance sheet item

hedging transactions and are in line with the risk

or cashflow), the hedging instrument as well as

management principles of the Group. However, in

the hedging strategy/relationship,

view of the strict and specific guidelines of IFRS, they

effective elimination of the hedged risks through

do not fulfill the criteria to be treated as hedging

the hedging transaction during the entire reporting

transactions for accounting purposes. They are there-

period (high correlation),

fore reported as trading positions. Changes in value

sustained high effectiveness of the hedging

are recorded in the income statement in the corres-

transaction.

ponding period.

Notes to the consolidated financial statements


Determination of fair values

Group holds. Price data and parameters used in the

For financial instruments traded in active markets, the

measurement procedures applied are generally

determination of fair values of financial assets and

reviewed carefully and adjusted, if necessary – particu-

financial liabilities is based on quoted market prices or

larly in view of the current market developments.

dealer price quotations. This includes listed equity securities and quoted debt instruments on major

The fair value of over-the-counter (OTC) derivatives is

exchanges as well as exchange traded derivatives.

determined using valuation methods that are commonly accepted in the financial markets, such as present

A financial instrument is regarded as quoted on an

value techniques and option pricing models. The fair

active market if quoted prices are readily and regularly

value of foreign exchange forwards is generally based

available from an exchange, dealer, broker, industry

on current forward exchange rates.

group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market

Private equity investments for which market quotations

transactions on an arm’s length basis. If the above crite-

are not readily available are valued at their fair values

ria are not met, the market is regarded as being inactive.

as determined in good faith by the respective Board of

For all other financial instruments, fair value is deter-

In this respect, investments in other investment com-

mined using valuation techniques. In these techniques,

panies (fund investments) which are not publicly traded

Directors in consultation with the investment manager.

fair values are estimated from observable data in

are normally valued at the underlying net asset value

respect of similar financial instruments, using models

as advised by the managers or administrators of these

to estimate the present value of expected future cash

investment companies, unless the respective Board of

flows or other valuation techniques, using inputs (for

Directors are aware of good reasons why such a valu-

example, LIBOR yield curve or FX rates) existing at the

ation would not be the most appropriate indicator of

consolidated balance sheet dates.

fair value.

The Group uses widely recognised valuation models for

In estimating the fair value of private equity fund in-

determining fair values of non-standardized financial

vestments, the respective Board of Directors considers

instruments of lower complexity, such as options or

all appropriate and applicable factors (including a sen-

interest rate and currency swaps. For these financial

sitivity to non-observable market factors) relevant to

instruments, inputs into models are generally market-

their value, including but not limited to the following:

observable.

reference to the fund investment’s reporting informa-

For more complex instruments, the Group uses internally

the date of the latest available reporting and the

developed models, which are usually based on valuation

balance sheet date of the respective Group entity in

methods and techniques generally recognised as stand-

those situations where no December valuation of the

ard within the industry. Valuation models are used pri-

underlying fund is available. This includes a detailed

marily to value derivatives transacted in the over-the-

analysis of exits (trade sales, initial public offerings,

tion including consideration of any time lags between

counter market. Some of the inputs to these models

etc.) which the fund investments have gone through

may not be market observable and are therefore estima-

in the period between the latest available reporting

ted based on assumptions. The impact on net profit of

and the balance sheet date of the respective Group

financial instrument valuations reflecting non-market ob-

entity, as well as other relevant valuation information.

servable inputs (level 3 valuations) is disclosed in note 29.

This information is a result of continuous contact

The output of a model is always an estimate or approxi-

monitoring calls made to the investment managers,

mation of a value that cannot be determined with

distribution notices received from the investment

certainty, and valuation techniques employed may not

managers in the period between the latest available

fully reflect all factors relevant to the positions the

report and the balance sheet date of the respective

with the investment managers and, specifically, by

Notes to the consolidated financial statements

21


Group entity, as well as the monitoring of other finan-

events that occurred after the initial recognition of the

cial information sources and the assessment thereof;

asset (a “loss event”) and that loss event (or events)

reference to transaction prices;

has an impact on the estimated future cash flows of

result of operational and environmental assessments:

the financial asset or group of financial assets that can

periodic valuation reviews are made of the valuations

be reliably estimated. Objective evidence that a finan-

of the underlying investments as reported by the

cial asset or group of assets is impaired includes

investment managers to determine if the values are

observable data that comes to the attention of the

reasonable, accurate and reliable. These reviews in-

Group about the following loss events:

clude a fair value estimation using widely recognised

significant financial difficulty of the issuer or obligor;

valuation methods such as multiple analysis and

a breach of contract, such as a default or delin-

discounted cash flow analysis;

quency in interest or principal payments;

review of management information provided by the

the Group granting to the borrower, for economic

managers/administrators of the fund investments

or legal reasons relating to the borrower’s financial

on a regular basis; and

difficulty, a concession that the lender would not

mark-to-market valuations for quoted investments held

otherwise consider;

by the managers/administrators of the fund investments

it becoming probable that the borrower will enter

which make up a significant portion of the relevant

bankruptcy or other financial reorganization;

Group entity’s net asset value.

the disappearance of an active market for that

If the respective Board of Directors comes to the con-

observable data indicating that there is a measurable

clusion upon recommendation of the investment man-

decrease in the estimated future cash flows from a

ager after applying the above-mentioned valuation

group of financial assets since the initial recognition

methods, that the most recent valuation reported by

of those assets, although the decrease cannot yet be

financial asset because of financial difficulties;

the manager/administrator of a fund investment is

identified with the individual financial assets in the

materially misstated, it will make the necessary adjust-

group, including:

ments using the results of its own review and analysis.

– adverse changes in the payment status of

Typically, the fair value of such investments are remeasured based on the receipt of periodic (usually quarterly) reporting provided to the investors in such vehicles by

borrowers in the group; or – national or local economic conditions that correlate with defaults on the assets in the group.

the managers or administrators. For new investments in such vehicles, prior to the receipt of fund reporting,

The Group first assesses whether objective evidence of

the investments are usually valued at the amount con-

impairment exists individually for financial assets that are

tributed, which is considered to be the best indicator

individually significant, and individually or collectively

of fair value.

for financial assets that are not individually significant.

In cases when the fair value of unlisted equity instru-

impairment exists for an individually assessed financial

ments cannot be determined reliably, the instruments

asset, whether significant or not, it includes the asset

are carried at cost less impairment.

in a group of financial assets with similar credit risk

If the Group determines that no objective evidence of

characteristics and collectively assesses them for Impairment of financial assets

impairment. Assets that are individually assessed for

Assets carried at amortized cost

impairment and for which an impairment loss is or

The Group assesses at each balance sheet date whether

continues to be recognized are not included in a

there is objective evidence that a financial asset or a

collective assessment of impairment.

group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment

22

If there is objective evidence that an impairment loss on

losses are incurred if, and only if, there is objective

loans and receivables or held-to-maturity investments

evidence of impairment as a result of one or more

carried at amortized cost has been incurred, the amount

Notes to the consolidated financial statements


of the loss is measured as the difference between the

period (for example, changes in unemployment rates,

asset’s carrying amount and the present value of esti-

property prices, payment status, or other factors indica-

mated future cash flows (excluding future credit losses

tive of changes in the probability of losses in the group

that have not been incurred) discounted at the finan-

and their magnitude). The methodology and assump-

cial asset’s original effective interest rate. The carrying

tions used for estimating future cash flows are reviewed

amount of the asset is reduced through the use of an

regularly by the Group to reduce any differences

allowance account and the amount of the loss is rec-

between loss estimates and actual loss experience.

ognized in the income statement. If a loan or held-tomaturity investment has a variable interest rate, the

When a loan is uncollectible, it is written off against

discount rate for measuring any impairment loss is

the related provision for loan impairment. Such loans

the current effective interest rate determined under

are written off after all the necessary procedures have

the contract. As a practical expedient, the Group may

been completed and the amount of the loss has been

measure impairment on the basis of an instrument’s

determined. Subsequent recoveries of amounts pre-

fair value using an observable market price.

viously written off decrease the amount of the provision for loan impairment in the income statement.

The calculation of the present value of the estimated future cash flows of a collateralized financial asset

If, in a subsequent period, the amount of the impair-

reflects the cash flows that may result from foreclosure

ment loss decreases and the decrease can be related

less costs for obtaining and selling the collateral,

objectively to an event occurring after the impairment

whether or not foreclosure is probable.

was recognized (such as an improvement in the debtor’s credit rating), the previously recognized impairment

For the purposes of a collective evaluation of impair-

loss is reversed by adjusting the allowance account.

ment, financial assets are grouped on the basis of

The amount of the reversal is recognized in the income

similar credit risk characteristics (i.e. on the basis of

statement.

the Group’s grading process that considers asset type, industry, geographical location, collateral type, past-due

Assets carried at fair value

status and other relevant factors). Those characteristics

The Group assesses at each balance sheet date whether

are relevant to the estimation of future cash flows

there is objective evidence that a financial asset or a

for groups of such assets by being indicative of the

group of financial assets is impaired. In the case of

debtors’ ability to pay all amounts due according to

equity investments classified as available-for-sale, a

the contractual terms of the assets being evaluated.

significant or prolonged decline in the fair value of the

Future cash flows in a group of financial assets that are

whether the assets are impaired. If any such evidence

collectively evaluated for impairment are estimated on

exists for available-for-sale financial assets, the cumu-

security below its cost is considered in determining

the basis of the contractual cash flows of the assets in

lative loss – measured as the difference between the

the group and historical loss experience for assets with

acquisition cost and the current fair value, less any

credit risk characteristics similar to those in the group.

impairment loss on that financial asset previously rec-

Historical loss experience is adjusted on the basis of

ognized in profit or loss – is removed from equity and

current observable data to reflect the effects of current

recognized in the income statement. Impairment losses

conditions that did not affect the period on which the

recognized in profit or loss on equity instruments are

historical loss experience is based and to remove the

not reversed through the income statement, they are

effects of conditions in the historical period that do

reversed through equity. If, in a subsequent period, the

not exist currently.

fair value of a debt instrument classified as availablefor-sale increases and the increase can be objectively

Estimates of changes in future cash flows for groups

related to an event occurring after the impairment

of assets should reflect and be directionally consistent

loss was recognized in profit or loss, the impairment

with changes in related observable data from period to

loss is reversed through the income statement.

Notes to the consolidated financial statements

23


Renegotiated loans

Leasing

Loans that are either subject to collective impairment

The leases entered into by the Group are operating

assessment or individually significant and whose terms

leases. The expenses from operating leases (the rights

have been renegotiated are no longer considered to be

and responsibilities of ownership remain with the lessor)

past due but are treated as new loans. In subsequent

are disclosed in business and office expenses.

years, the asset is considered to be past due and disclosed only if renegotiated.

Cash in hand

Provisions

ment, cash in hand comprises liquid assets including

Provisions for restructuring costs, legal claims and other

cash and balances with central banks and post offices.

For the purpose of the consolidated cash flow state-

operational risk are recognized, when the Group has a present legal or constructive obligation as a result of

Taxation

past events, when it is more likely than not that an out-

Corporate tax payable is provided on the taxable profits

flow of resources will be required to settle the obliga-

of LGT Group companies at the applicable current rates.

tion and when the amount has been reliably estimated.

Deferred income tax is provided in full, using the liabil-

Fiduciary transactions

the tax bases of assets and liabilities and their carrying

The Group commonly acts as trustees and in other

amounts in the consolidated financial statements.

fiduciary capacities that result in the holding or placing

Deferred income tax is determined using tax rates (and

of assets on behalf of individuals, trusts, retirement

laws) that have been enacted or substantially enacted

benefit plans and other institutions. These assets and

by the balance sheet date and are expected to apply

income arising thereon are excluded from these finan-

when the related deferred income tax asset is realized

cial statements, as they are not assets of the Group.

or the deferred income tax liability is settled. Deferred

Repurchase and reverse repurchase transactions

future taxable profit will be available against which

(repo transactions)

the temporary differences can be utilized.

ity method, on temporary differences arising between

tax assets are recognized where it is probable that

Repo transactions are used to refinance and fund money market transactions. They are entered in the balance

Employee benefits

sheet as advances against collateral and cash contribu-

Short-term benefits

tions or with pledging of securities held in the Group’s

Salaries are recognized in the income statement upon

own account. Securities provided to serve as collateral

payment. The amount for bonuses is accrued and will

thus continue to be posted in the corresponding balance

be paid at the beginning of the following year.

sheet positions – securities received to serve as collateral are not reported in the balance sheet. Interest resulting from the transactions is posted as net interest income.

Medium-term benefits Senior management and other key people of the Group are entitled to participate in a long-term incentive

Contingent liabilities

24

scheme. The incentive scheme gives the holder the possi-

A contingent liability is a possible obligation that arises

bility to participate in the development of the economic

from past events and whose existence will be confirmed

value added of the Group. In principle, the economic

only by the occurrence or non-occurrence of one or

value added represents the operating profit of the

more uncertain future events not wholly within the con-

Group and the return on LGT’s Princely Portfolio after

trol of the entity. Or a contingent liability is a present

adjustments for capital and refinancing costs. Options

obligation that arises from past events but is not rec-

granted under the scheme will, in normal circumstances,

ognized because it is not probable that an outflow of

only be exercisable within 3 to 7 years from the date

resources embodying economic benefits will be required

of grant of option. The annual costs of the scheme are

to settle the obligation or the amount of the obligation

charged to the profit and loss account. The accruals

cannot be measured with sufficient reliability.

are shown as other liabilities until their realization.

Notes to the consolidated financial statements


Pension obligations

expense when they are due. Prepaid contributions are

Group companies operate various pension schemes.

recognized as an asset to the extent that a cash refund

The schemes are generally funded through payments

or a reduction in the future payments is available.

to insurance companies or trustee-administered funds, determined by periodic actuarial calculations. The

Client assets under administration

Group has both defined benefit and defined contribu-

Client assets under administration are stated according

tion plans. A defined benefit plan is a pension plan

to the provisions of the Liechtenstein banking law.

that defines an amount of pension benefit that an employee will receive on retirement, usually dependent

Events after the reporting period

on one or more factors such as age, years of service

There are no events to report that had an influence

and compensation. A defined contribution plan is a

on the balance sheet and income statement for 2010.

pension plan under which the Group pays fixed contributions into a separate entity.

Management’s judgements The Group makes estimates and assumptions that affect

The liability recognized in the balance sheet in respect

the reported amounts of assets and liabilities within the

of defined benefit pension plans is the present value

next financial year. Estimates and judgements are con-

of the defined benefit obligation at the balance sheet

tinually evaluated and are based on historical experi-

date less the fair value of plan assets, together with

ence and other factors, including expectations that are

adjustments for unrecognized actuarial gains or losses

believed to be reasonable under the circumstances.

and past service costs. The defined benefit obligation is calculated annually by independent actuaries using

Impairment losses on loans and advances

the projected unit credit method. The present value

The Group reviews its loan portfolios to assess impair-

of the defined benefit obligation is determined by

ment at least on a quarterly basis. In determining

discounting the estimated future cash outflows using

whether an impairment loss should be recorded in the

interest rates of high-quality corporate bonds that are

income statement, the Group makes judgements as to

denominated in the currency in which the benefits will

whether there is any observable data indicating that

be paid, and that have terms to maturity approximating

there is a measurable decrease in the estimated future

to the terms of the related pension liability.

cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that port-

Based on the corridor approach, actuarial gains and loss-

folio. This evidence may include observable data indi-

es arising from experience adjustments and changes in

cating that there has been an adverse change in the

actuarial assumptions are charged or credited to income

payment status of borrowers in a group, or national or

over the employees expected remaining average work-

local economic conditions that correlate with defaults

ing lives if the net cumulative unrecognized actuarial

on assets in the group.

gains and losses exceed the greater of 10 percent of the defined benefit obligation and 10 percent of the fair

Management uses estimates based on historical loss

value of any pension plan assets. Past-service costs are

experience for assets with credit risk characteristics and

recognized immediately in income, unless the changes

objective evidence of impairment similar to those in the

to the pension plan are conditional on the employees

portfolio when scheduling its future cash flows. The

remaining in service for a specified period of time (the

methodology and assumptions used for estimating both

vesting period). In this case, the past-service costs are

the amount and timing of future cash flows are reviewed

amortized on a straight-line basis over the vesting period.

regularly to reduce any differences between loss estimates and actual loss experience. To the extent that the net

For defined contribution plans, the Group pays contri-

present value of estimated cash flows differs by +5 per-

butions to privately administered pension insurance

cent, the provision would be estimated 271 (2009: 351)

plans on a mandatory, contractual or voluntary basis.

lower. If the net present value differs by –5 percent, the

The contributions are recognized as employee benefit

provision would be estimated 271 (2009: 351) higher.

Notes to the consolidated financial statements

25


Impairment of goodwill

Income taxes

The fair value of goodwill is reviewed annually and

The Group is subject to income taxes in numerous

management assesses whether an impairment charge

jurisdictions. Significant estimates are required in de-

needs to be recognized.

termining the worldwide provision for income taxes. There are many transactions and calculations for which

Fair value of derivatives

the ultimate tax determination is uncertain during the

The fair value of financial instruments that are not

ordinary course of business. The Group recognizes

quoted in active markets are determined by using valu-

liabilities for anticipated tax audit issues based on

ation techniques. Where valuation techniques (for

estimates of whether additional taxes will be due.

example, models) are used to determine fair values,

Where the final tax outcome of these matters is differ-

they are validated and periodically reviewed by qualified

ent from the amounts that were initially recorded, such

personnel independent of the area that created them.

differences will impact the income tax and deferred tax

Changes in assumptions could affect reported fair value

provisions in the period in which such determination

of financial instruments. For example, to the extent

is made.

that management used a tightening of 20 basis points in the credit spread, the fair value of derivative finan-

Based on the final outcome of the above-mentioned

cial instruments would be estimated at -250 776

judgement areas, the Group would need to decrease

(2009: 25 952) as compared to their reported fair value

income tax by 1 619 (2009: 1 095), in case of favor-

of -247 004 (2009: 25 757) at the balance sheet date.

able market conditions, and decrease income tax by 1 673 (2009: 1 158), in case of unfavorable market

Impairment of available-for-sale equity

conditions.

investments The Group determines that available-for-sale equity

Changes in accounting principles and presentation

investments are impaired when there has been a

Standards and interpretations that have been

significant or prolonged decline in the fair value below

adopted

their cost (cost is defined as historical cost). This deter-

The Group applied the following new and revised

mination of what is significant or prolonged requires

standards and interpretations for the first time in the

judgement. In making this judgement the Group

financial year beginning on 1 January 2010:

evaluates the following factors: (i) extent of the decline

IFRS 2 Share-based Payment – Amendment relating to

is substantial (in excess of 20 percent of cost) or, (ii) the

group cash-settled share-based payment transaction

fair value is three balance sheet dates in succession

(effective 1 January 2010)

(on a semi-annual basis) or more below cost. In addi-

IFRS 3 Business Combinations, and IAS 27 Consoli-

tion, impairment may be appropriate when there is

dated and Separate Financial Statements (effective

evidence of a deterioration in the financial health of the

1 July 2009)

investee, industry and sector performance, changes in

The changes to the two revised standards relate to

technology, and operational and financing cash flows.

the treatment of specific issues in the case of business combinations (e.g. the valuation of minority interests,

26

Had all the declines in fair value below cost been

the treatment of business combinations achieved in

considered significant or prolonged, the Group would

stages, the recording of conditional consideration and

suffer an additional 12 686 (2009: 12 763) loss in its

the determination of acquisition costs) as well as

financial statements, being the transfer of the total

subsequent changes in ownership interests with or

fair value reserve to the income statement.

without a loss of control.

Notes to the consolidated financial statements


IFRS 5 Non-current Assets Held for Sale and Discon-

equity instruments are measured at fair value.

tinued Operations – Amendments resulting from

Management has an option to present in other

May 2008 Annual Improvements to IFRSs (effective

comprehensive income (OCI) unrealised and realised

1 July 2009)

fair value gains and losses on equity investments

IAS 28 Investments in Associates – Consequential

that are not held for trading. A debt instrument is

amendments arising from amendments to IFRS 3

at amortised cost only if it is the entity’s business

(effective 1 July 2009)

model to hold the financial asset to collect con-

IAS 31 Investments in Joint Ventures – Consequen-

tractual cash flows and the cash flows represent

tial amendments arising from amendments to IFRS 3

principal and interest. It will otherwise need to be

(effective 1 July 2009)

considered at fair value through profit or loss.

IAS 39 Financial Instruments: Recognition and Meas-

Amendments to IFRS 9 Financial Instruments – Clas-

urement – Amendments for eligible hedged items

sification and Measurement (effective 1 January 2013)

(effective 1 July 2009)

The amendment includes guidance on financial liabil-

IFRIC 17 Distributions of Non-cash Assets to Owners

ities and derecognition of financial instruments. The

(effective 1 July 2009)

accounting and presentation for financial liabilities

IFRIC 18 Transfers of Assets from Customers (to be

and for derecognising financial instruments has been

applied prospectively to transfers of assets from

relocated from IAS 39 without change, except for

customers received on or after 1 July 2009)

financial liabilities that are designated at fair value

Improvements to International Financial Reporting

through profit or loss. Entities with financial liabilities

Standards 2009 (issue date: April 2009; effective

designated at FVTPL recognise changes in the fair

date: dealt with on a standard by standard basis,

value due to changes in the liability’s credit risk di-

generally 1 January 2010)

rectly in OCI. There is no subsequent recycling of the

The adoption has not led to any changes in the Group

amounts in OCI to profit or loss, but accumulated

Accounting Principles. The standards and interpreta-

gains or losses may be transferred within equity.

tions are not expected to have any impact on the

IFRIC 19 Extinguishing Financial Liabilities with Equity

reported results or financial position of the Group.

Instruments (effective 1 July 2010)

Standards and interpretations that have not yet

Standards 2010 (issue date: May 2010; effective

been adopted

date: dealt with on a standard by standard basis,

Numerous new and revised standards and interpreta-

generally 1 January 2011)

Improvements to International Financial Reporting

tions were published that must be applied for financial years beginning on or after 1 January 2011. The Group

Other new and revised standards and interpretations:

has chosen not to adopt these in advance.

Based on initial analyses, the following new and revised

The new and revised standards and interpretations that

standards and interpretations which have to be applied

will be relevant to the Group are as follows:

for financial years beginning on or after 1 January 2011

IFRS 7 Financial Instruments: Disclosures –

are not expected to have any significant impact on the

Amendments enhancing disclosures about transfers

reported results or financial position of the Group:

of financial assets (effective 1 July 2011)

IAS 24 Related Party Disclosures – Revised definition

IFRS 9 Financial Instruments – Classification and

of related parties (effective 1 January 2011)

Measurement (effective 1 January 2013)

IFRIC 14: IAS 19 The Limit on a Defined Asset, Mini-

IFRS 9 comprises two measurement categories for

mum Funding Requirements and their Interaction

financial assets: amortised cost and fair value. All

(effective 1 January 2011)

Notes to the consolidated financial statements

27


Details on the consolidated income statement 1

Net interest and similar income (TCHF)

2010

2009

46 483

90 087

102 506

111 193

37 781

86 701

835

124

187 605

288 105

-10 427

-7 995

Interest earned and similar income Banks Customers Interest income from investment securities Dividend income from investment securities Total interest earned and similar income Interest expense Banks Interest on certificated debt

-41 994

-27 229

Customers

-39 411

-86 496

-91 832

-121 720

95 773

166 385

2010

2009

Investment management fees

311 679

272 209

Brokerage fees

105 237

88 452

Total interest expense Net interest and similar income

2

Income from services (TCHF) Commission income from securities and investment business

Honoraria and consulting Administration fees and other income from investment business Total commission income from securities and investment business

1 693

1 487

93 664

75 829

512 273

437 977

3 953

2 975

Commission income from other services Lending business

3

Accounts and clearing business

11 130

11 138

Total commission income from other services

15 083

14 113

Commission expenses

-13 029

-12 486

Total income from services

514 327

439 604

2010

2009

Translation gain/(loss)

84 885

9 226

Transaction gain/(loss)

76 821

31 085

Income from trading activities (TCHF) Foreign exchange, notes

Interest and dividend income Profit/(loss) on securities trading Profit/(loss) on financial instruments designated at fair value Other trading activities Total income from trading activities

28

Notes to the consolidated financial statements

45 410

52 454

6 722

-10 094

-9 133

88 924

-5 860

-240

198 845

171 355


4

Other operating income (TCHF)

2010

2009

Realized net result on available-for-sale securities

4 878

2 685

Impairment losses on available-for-sale securities

0

-7

Income from investment securities

830

0

Total income from investment securities

5 708

2 678

Realized net result on disposals of subsidiaries

2 298

-15 346

Release of impairment losses on available-for-sale securities

5

Realized net result on investments in associates

53 219

0

Other

12 695

14 357

Total other operating income

73 920

1 689

2010

2009

Personnel expenses (TCHF) Personnel expenses, including Directors’ emoluments, consisting of salaries

236 583

214 772

bonuses

109 754

103 161

pension costs

27 667

36 716

social security costs

24 781

24 422

other personnel expenses

24 326

21 757

423 111

400 828

15 073

12 743

Total personnel expenses

438 184

413 571

Headcount at 31 December

1 889

1 985

Business and office expenses (TCHF)

2010

2009

rents and office expenses

38 089

33 439

IT expenses

34 200

34 930

Total personnel expenses before long-term incentive scheme Long-term incentive scheme

6

Business and office expenses, consisting of

information and communication expenses

21 801

20 113

travel and entertainment expenses

13 785

11 458

legal and professional expenses 1

95 567

30 223

advertising expenses

23 045

18 037

general expenses

18 596

15 891

245 083

164 091

Total business and office expenses 1

In 2010 legal and professional expenses include EUR 50 million payment under agreement with the Bochum public prosecuter following the data theft case.

Notes to the consolidated financial statements

29


7

Other operating expenses (TCHF)

Note

2009

Depreciation on property and equipment

16

22 366

20 847

Amortisation of intangible assets

17

19 479

14 854

771

0

Other depreciation

42 616

35 701

Credit losses

11

4 462

8 320

Recovery of credit losses

11

-2 074

-12 606

Total depreciation and amortisation

0

596

Total credit losses/(recoveries)

2 388

-3 690

Provision for operational risks

8 958

-623

698

14 283

9 656

13 660

54 660

45 671

2010

2009

Current income tax expense

20 227

20 509

Deferred income tax expense

-34 590

19 581

Total income tax expense

Other

Other provisions Total changes in provisions and other losses Total other operating expenses

8

2010

Taxation (TCHF) Tax expense

-14 363

40 090

Capital tax expense

6 101

5 102

Total tax expense

-8 262

45 192

144 938

155 700

14 494

14 013

-26 278

25 822

-4 071

4 660

1 492

-4 405

-14 363

40 090

Reconciliation of the expected to the effective income tax expense Profit before tax

Income tax expense calculated at a tax rate of 10% (2009: 9%) 1 Tax rate difference from local differences in domestic tax rates Tax rate difference on income components subject to foreign taxes Income not subject to tax Total income tax expense 1

30

The rate used is the average income tax rate of the Group.

Notes to the consolidated financial statements


2010

2009

-4 932

-8 715

-379

-936

-29 856

28 054

-856

-528

1 433

1 706

-34 590

19 581

Accelerated depreciation for tax purposes

-1 704

2 662

Provisions

69 850

102 111

-23

1 046

Other temporary differences

11 016

2 167

Total deferred income tax liabilities

79 139

107 986

35 002

38 535

807

-1

0

2

Deferred income tax expense comprises the following temporary differences Losses available for offset against future taxable income Accelerated depreciation for tax purposes Provisions Financial instruments Other temporary differences Total deferred income tax expense

Deferred income tax assets and liabilities relate to the following items Deferred income tax liabilities

Financial instruments

Deferred income tax assets Losses available for offset against future taxable income Accelerated depreciation for tax purposes Provisions Other temporary differences Total deferred income tax assets

334

-829

36 143

37 707

70 279

36 757

Movement on the deferred income tax assets and liabilities is as follows At 1 January

-34 590

19 581

Available-for-sale securities: fair value measurement

409

-1 103

Other changes

922

15 044

Income statement charge

Cumulative translation adjustments At 31 December

Income tax on other comprehensive income Change in revaluation reserves Cumulative translation adjustments Other comprehensive income

5 976

0

42 996

70 279

2010 Net of tax

Before tax

Tax (expense) /Tax benefit

-409

86 385

366 713

1 103

367 816

-33 412

0

-33 412

819

0

819

53 382

-409

52 973

367 532

1 103

368 635

Before tax

Tax (expense) /Tax benefit

86 794

2009 Net of tax

Notes to the consolidated financial statements

31


Details on the consolidated balance sheet 9

Cash in hand, balances with central banks (TCHF)

2010

Cash in hand Balances with central banks Balances with post offices Total cash in hand, balances with central banks

10

Loans and advances to banks (TCHF) Loans and advances to OECD banks Loans and advances to non-OECD banks Total loans and advances to banks

11

Loans and advances to customers (TCHF)

Impairment allowance

2010 Carrying amount

Gross amount

37 049

36 331

245 633

593 764

8 813

116 679

291 495

746 774

2010

2009

5 188 951

8 114 930

127 632

101 781

5 316 583

8 216 711

Impairment allowance

2009 Carrying amount

Mortgage-backed

2 467 252

-4 932

2 462 320

2 306 746

-4 808

2 301 938

Other collateral

2 742 544

-2 830

2 739 714

2 998 368

-3 794

2 994 574

191 779

-10 213

181 566

406 694

-12 244

394 450

5 401 575

-17 975

5 383 600

5 711 808

-20 846

5 690 962

Without collateral Total loans and advances to customers

32

Gross amount

2009

Notes to the consolidated financial statements


Specific allowance for impairment

Mortgagebacked

Other collateral

Without collateral

At 1 January

4 808

3 794

6 624

Charges to allowance

1 458

126

2 878

2010 Total

2009 Total

Mortgagebacked

Other collateral

Without collateral

15 226

4 061

12 790

4 039

20 890

4 462

270

1 779

6 271

8 320

0

0

0

0

1 133

0

0

1 133

-642

-3

-909

-1 554

-1 249

-9 881

-1 011

-12 141

-1 826

0

-2 878

-4 704

25

-246

-2 706

-2 927

965

-965

0

0

568

-624

56

0

-703

-124

272

-555

0

-24

-25

-49

4 060

2 828

5 987

12 875

4 808

3 794

6 624

15 226

At 1 January

0

0

5 620

5 620

0

0

6 085

6 085

Charges to allowance

0

0

0

0

0

0

0

0

Release of allowance

0

0

-520

-520

0

0

-465

-465

Currency translation

0

0

0

0

0

0

0

0

At 31 December

0

0

5 100

5 100

0

0

5 620

5 620

Addition through acquisition Release of allowance Allowance utilized Reclassifications Currency translation At 31 December

Portfolio allowance for impairment

Total allowance for impairment

17 975

20 846

2010

2009

46 515

54 316

Additional information on credit risks Non-performing customers’ loans Additional information about loans and advances is shown separately in the risk management notes.

Notes to the consolidated financial statements

33


12

Securities held for trading purposes (TCHF)

2010

Total securities held for trading purposes thereof listed

13

Financial assets designated at fair value (TCHF) Securities designated at fair value to match financial liabilities through profit or loss Loans and advances to customers designated at fair value to match financial liabilities through profit or loss Other securities designated at fair value through profit or loss

1,2

Total financial assets designated at fair value 1

Thereof listed 1 977 935 (2009: 1 691 136)

2

Thereof subordinated securities 15 147 (2009: 58 799)

2009

15 344

73 618

15 327

21 266

2010

2009

779 307

1 080 473

43 973

51 913

2 404 857

1 873 055

3 228 137

3 005 441

At 31 December 2010 the maximum exposure to credit risk on loans and advances at fair value through profit or loss was 43 973 (2009: 51 913).

14

2010

2009

At 1 January

1 998

6 982

Redemption

-2 000

-5 000

Investment securities (TCHF) Held-to-maturity securities

Revaluations

2

16

At 31 December

0

1 998

2 786 576

3 040 846

Available-for-sale securities At 1 January Currency translation Additions Disposals and redemption Revaluations Less allowance for impairment Release of impairment At 31 December

-147 880

-320

24 654 374

5 356 505

-22 373 555

-5 725 910

-2 564

115 462

0

-7

830

0

4 917 781

2 786 576

4 917 781

2 788 574

thereof fixed-income securities maturing within one year

3 796 465

1 623 748

thereof listed

1 144 692

1 176 641

4 920

4 913

Charges to allowance

0

7

Release of impairment

-830

0

Total investment securities

Specific allowance for impairment on available-for-sale securities At 1 January

Other changes At 31 December

34

Notes to the consolidated financial statements

-50

0

4 040

4 920


15

Investments in associates (TCHF)

2010

2009

2 419 334

2 117 739

Additions

110 405

0

Disposals

-143 907

0

At 1 January

Revaluation through equity At 31 December

145 783

301 595

2 531 615

2 419 334

725 934

611 480

Details of investments in associates as open-end investment companies Fixed-income

50 214

39 925

Equities

608 065

643 980

Hedge fund investments

539 067

546 939

Private equity investments

575 465

580 856

32 870

-3 846

Total investments in associates

2 531 615

2 419 334

LGT’s investments in associates at 31 December 2010

Real estate investment trusts

Cash

Name LGT Capital Invest Limited, Grand Cayman

Principal activity

Ownership interest in % of ordinary/participation shares held

Open-end investment company

41.32

Principal activity

Ownership interest in % of ordinary/participation shares held

Geschäftshaus Spitalgasse Waisenhausplatz AG, Berne was sold in 2010.

LGT’s investments in associates at 31 December 2009 Name LGT Capital Invest Limited, Grand Cayman Geschäftshaus Spitalgasse Waisenhausplatz AG, Berne

Open-end investment company

30.35 36.84

Notes to the consolidated financial statements

35


16

Property and equipment (TCHF)

Freehold bank premises

Other freehold property

Leasehold improvements

Office equipment

Motor vehicles

Total

271 213

2 051

13 825

69 211

1 209

357 509

Cost At 1 January 2010 Currency translation Additions Reclassifications Disposals At 31 December 2010

0

1

-476

-1 349

0

-1 824

1 828

0

45

9 579

0

11 452

-10 937

-152

19 177

-939

-149

7 000

-923

0

-1 265

-7 420

-365

-9 973

261 181

1 900

31 306

69 082

695

364 164

102 958

875

7 416

45 976

808

158 033

Accumulated depreciation At 1 January 2010 Currency translation

0

0

-224

-913

0

-1 137

Charge for the year

6 558

38

3 106

12 509

155

22 366

-163

-103

8 066

-651

-149

7 000

Reclassifications

-1 065

1

-3 383

-5 134

-309

-9 890

108 288

811

14 981

51 787

505

176 372

152 893

1 089

16 325

17 295

190

187 792

Freehold bank premises

Other freehold property

Leasehold improvements

Office equipment

Motor vehicles

Total

170 262

2 447

32 816

69 070

1 725

276 320

Disposals At 31 December 2010 Net book value At 31 December 2010

Property and equipment (TCHF) Cost At 1 January 2009

0

-21

-72

-108

-4

-205

Additions

21 790

21

45

10 570

0

32 426

Additions through acquisitions

65 680

0

0

2 853

0

68 533

Reclassifications

13 582

0

-13 582

0

0

0

-101

-396

-5 382

-13 174

-512

-19 565

271 213

2 051

13 825

69 211

1 209

357 509

90 175

812

15 123

45 171

832

152 113

Currency translation

Disposals At 31 December 2009 Accumulated depreciation At 1 January 2009 Currency translation

-5

-4

-37

-130

-1

-177

Charge for the year

7 687

74

1 088

11 796

202

20 847

Additions through acquisitions Reclassifications Disposals At 31 December 2009

0

0

0

1 114

0

1 114

5 101

0

-5 101

0

0

0

0

-7

-3 657

-11 975

-225

-15 864

102 958

875

7 416

45 976

808

158 033

168 255

1 176

6 409

23 235

401

199 476

2010

2009

418 911

338 356

Net book value At 31 December 2009 Insurance value of tangible assets Insurance value

36

Notes to the consolidated financial statements


17

Intangible assets (TCHF)

Goodwill

Software

Other intangible assets

Total

148 002

150 284

47 926

346 212

Cost At 1 January 2010 Currency translation

-26

-170

-1 443

-1 639

Additions

237

4 932

0

5 169

Disposals

-6 585

0

-5 658

-12 243

141 628

155 046

40 825

337 499

At 31 December 2010 Accumulated amortization and impairment

0

13 274

2 035

15 309

Currency translation

-26

-10

4

-32

Charge for the year

237

15 395

3 847

19 479

At 1 January 2010

Disposals At 31 December 2010 Net book value at 31 December 2010

Intangible assets (TCHF)

0

0

0

0

211

28 659

5 886

34 756

141 417

126 387

34 939

302 743

Goodwill

Software

Other intangible assets

Total

112 955

117 378

23 354

253 687

Cost At 1 January 2009

0

0

-164

-164

Additions

35 047

32 906

24 736

92 689

Disposals

0

0

0

0

148 002

150 284

47 926

346 212

At 1 January 2009

0

0

458

458

Currency translation

0

0

-3

-3

Charge for the year

0

13 274

1 580

14 854

Disposals

0

0

0

0

At 31 December 2009

0

13 274

2 035

15 309

148 002

137 010

45 891

330 903

Currency translation

At 31 December 2009 Accumulated amortization and impairment

Net book value at 31 December 2009

Goodwill Goodwill is allocated to the following organizational units (cash-generating units; CGUs) based on the anticipated synergies:

LGT Bank (Schweiz) AG, Basel LGT Capital Partners AG, Pfäffikon Total

2010

2009

134 154

135 517

7 263

12 485

141 417

148 002

The two organizational units represent the level at which the goodwill is monitored for internal management purposes. The calculation of the realizable amount of the units was based on the respective fair value less costs to sell. The level of the premium for client assets was determined on the market prices of companies with similar business activities, for 2010 in the range of 2– 4%. The realizable amount exceeded the book value of all units, so that an impairment was considered unnecessary. An additional calculation of the realizable amount of the two organizational units based on their value in use was therefore not determined.

Notes to the consolidated financial statements

37


18

Other assets (TCHF) Precious metals Client settlement accounts Pensions Other Total other assets

19

335 246

287 152

0

294

31 311

19 255

39 079

54 698

405 636

361 399

2010

2009

879 801

548 330

Time deposits

992 115

906 250

1 871 916

1 454 580

2010

2009

Amounts due to customers (TCHF) Deposits on demand

5 700 445

6 156 868

Time deposits

7 402 712

9 013 718

Savings deposits

1 136 316

1 039 465

14 239 473

16 210 051

2010

2009

761 818

1 068 287

43 973

51 913

805 791

1 120 200

Total amounts due to customers

21

2009

Deposits on demand

Amounts due to banks (TCHF)

Total amounts due to banks

20

2010

Financial liabilities designated at fair value (TCHF) Bond issues designated at fair value Other liabilities designated at fair value Total financial liabilities designated at fair value

There were no gains or losses attributable to changes in the credit risk for those financial liabilities designated at fair value in 2010 (2009: 0).

38

Notes to the consolidated financial statements


Bond issues designated at fair value at 31 December (TCHF) Date of issue

Product

Nominal value ‘000

Interest rate %

Maturity

Fair value 2009

Fair value 2010

LGT GIM Index Certificates 1

up to 2004

EUR

62 099

28.02.2012

78 020

99 237

LGT GIM Index Certificates II 2

up to 2006

EUR

180 893

30.06.2014

227 270

320 073

2006

EUR

49 320

31.03.2016

61 964

79 532

LGT GIM Index Certificates II/2 3 LGT GIM Index Certificates III

4

LGT GIM Index Certificates IV

5

Castle Private Equity Performance Linked Notes 6

up to 2008

EUR

122 350

31.07.2016

153 718

210 086

continuously

EUR

786

31.03.2018

988

1 045

02.06.2003

USD

0

02.06.2010

0

9 650

Crown Absolute Return Index Certificates I 7

continuously

EUR

4 569

30.11.2013

5 741

6 564

Crown Absolute Return Index Certificates II 8

continuously

EUR

1 387

31.07.2014

1 742

1 998

Crown Alternative SV Index Certificates

continuously

EUR

30 799

30.06.2017

38 695

44 701

Crown Alternative Bond Index Certificates 10

continuously

EUR

114

30.11.2017

143

230

LGT GATS Index Certificates

9

continuously

EUR

56 150

30.09.2014

70 546

94 309

LGT M-Smart Allocator Index Certificates 12

continuously

EUR

36 374

31.08.2017

45 699

48 298

LGT ex Equities Emerging Markets Leaders Certificates 13

continuously

USD

7 452

31.12.2027

6 980

10 244

LGT ex Equities GEM Index Certificates 14

continuously

USD

7 049

31.12.2027

6 602

12 342

LGT ex Fixed Income Emerging Markets Index Certificates 15

continuously

USD

15 286

31.12.2027

14 318

29 260

LGT ex Hedge Funds GIM Index Certificates 16

continuously

USD

30 905

31.12.2027

28 947

62 779

LGT ex Hedge Funds GATS Index Certificates 17

continuously

USD

21 828

31.12.2027

20 445

32 826

LGT ex Private Equity IV Index Certificates

continuously

USD

0

31.12.2027

0

5 113

761 818

1 068 287

11

18

Total bond issues designated at fair value at 31 December 1

Linked to the performance of LGT Premium Strategy GIM (EUR) index administered by LGT Capital Management Ltd. with a duration from 2002 to 2012 incl. two 5-year extension options.

2

Linked to the performance of LGT Premium Strategy GIM II (EUR) index administered by LGT Capital Management Ltd. with a duration from 2004 to 2014

3

Linked to the performance of LGT Premium Strategy GIM II (EUR) index administered by LGT Capital Management Ltd. with a duration from 2006 to 2016

4

Linked to the performance of LGT Premium Strategy GIM III (EUR) index administered by LGT Capital Management Ltd. with a duration from 2006 to 2016

incl. two 5-year extension options. incl. two 5-year extension options. incl. two 5-year extension options. 5

Linked to the performance of LGT Premium Strategy GIM IV (EUR) index administered by LGT Capital Management Ltd. with a duration from 2008 to 2018 incl. two 5-year extension options.

6

Linked to the Castle Note issued by Castle HoldCo Ltd. based on the performance of listed Castle Private Equity shares.

7

Linked to the Crown Absolute Return I (EUR) index administered by LGT Capital Partners Ltd. with a duration from 2003 to 2013 incl. two 5-year extension options.

8

Linked to the Crown Absolute Return II (EUR) index administered by LGT Capital Partners Ltd. with a duration from 2004 to 2014 incl. two 5-year extension options.

9

Linked to the Crown Alternative SV (EUR) index administered by LGT Capital Partners Ltd. with a duration from 2007 to 2017 incl. two 5-year extension options.

10

Linked to the Crown Alternative Bond (EUR) index administered by LGT Capital Partners Ltd. with a duration from 2007 to 2017 incl. two 5-year extension options.

11

Linked to the performance of LGT Premium Strategy GATS (EUR) index administered by LGT Capital Management Ltd. with a duration from 2004 to 2014

12

Linked to the LGT M-Smart Allocator (EUR) index administered by LGT Capital Management Ltd. with a duration from 2007 to 2017 incl. two 5-year extension options.

13

Linked to the LGT ex Equity Emerging Markets II (USD) index administered by LGT Capital Management Ltd. with a duration from 2007 to 2027

14

Linked to the LGT ex Equity Emerging Markets III (USD) index administered by LGT Capital Management Ltd. with a duration from 2007 to 2027

15

Linked to the LGT ex Fixed Income Emerging Markets II (USD) index administered by LGT Capital Management Ltd. with a duration from 2007 to 2027

16

Linked to the LGT ex Hedge Funds GIM IU (USD) index administered by LGT Capital Partners Ltd. with a duration from 2007 to 2027 incl. two 5-year extension options.

17

Linked to the LGT ex Hedge Funds GATS IU (USD) index administered by LGT Capital Partners Ltd. with a duration from 2007 to 2027 incl. two 5-year extension options.

18

Linked to the LGT ex Private Equity IV (USD) index administered by LGT Capital Partners Ltd. with a duration from 2007 to 2027 incl. two 5-year extension options.

incl. two 5-year extension options.

incl. two 5-year extension options. incl. two 5-year extension options. incl. two 5-year extension options.

Notes to the consolidated financial statements

39


22

2010

2009

1 455 837

1 482 525

1 145

3 170

113 434

186 622

1 570 416

1 672 317

Certificated debt (TCHF) Bond issues (net book value)

1

Subordinated cash bonds (fixed-rate medium term notes) 2 Other cash bonds (fixed-rate medium term notes) Total certificated debt 1 2

Net book value of bond issues is calculated using the effective interest method. Bonds held by LGT Group companies are eliminated. Interest 2010 is payable on the subordinated cash bonds at various rates ranging from 2.0625% to 3.6%. The interest charge for the year on these bonds was 112 (2009: 115).

Bond issues at 31 December (TCHF) Issuer

Date of issue

Net book value 2010

Net book value 2009

CHF

250 000

2.625

09.06.2010

0

249 516

LGT Finance Limited

11.02.2004

CHF

200 000

2.50

11.02.2011

199 561

199 847

LGT Finance Limited

18.05.2005

CHF

250 000

2.00

18.05.2012

249 046

248 974

LGT Finance Limited

08.10.2009

CHF

250 000

2.125

08.07.2013

243 334

249 113

LGT Finance Limited

10.02.2006

CHF

250 000

2.25

10.02.2014

226 123

244 149

LGT Finance Limited

08.12.2009

CHF

300 000

2.75

08.12.2016

293 544

290 926

LGT Finance Limited

12.05.2010

CHF

250 000

2.50

12.05.2017

244 229

0

1 455 837

1 482 525

Other liabilities (TCHF)

2010

2009

Capital tax

5 680

6 099

28 931

17 785

Amounts due to bonuses

108 957

120 672

Other

486 665

99 169

Total other liabilities

630 233

243 725

2010

2009

108 272

61 364

Provisions (TCHF) At 1 January Current year expense

11 029

29 544

Provisions released

-1 354

-21 366

Provisions utilized

-35 572

-4 959

-2 163

-114

1 587

0

Currency translation Reclassification Other changes due to acquisition At 31 December

40

Maturity

09.06.2006

Amounts due to long-term incentive scheme

24

Interest rate %

LGT Finance Limited

Total bond issues at 31 December

23

Nominal value

Notes to the consolidated financial statements

0

43 803

81 799

108 272


25

2010

2009

928 682

846 687

11 604

6 232

9 086

10 068

949 372

862 987

At 1 January

846 687

545 092

Disposals

-52 589

0

Net gain/(loss) from change in fair value

145 783

301 595

Reclassification

-11 199

0

At 31 December

928 682

846 687

At 1 January

6 232

-59 794

Net gain/(loss) from change in fair value

5 781

64 923

-409

1 103

11 604

6 232

10 068

9 873

-982

195

9 086

10 068

Other reserves (TCHF) Revaluation reserves – investments in associates Revaluation reserves – available-for-sale securities Revaluation reserves – cash flow hedge Total other reserves

Revaluation reserves – investments in associates

Revaluation reserves – available-for-sale securities

Deferred income tax At 31 December

Revaluation reserves – cash flow hedge At 1 January Net gain/(loss) from change in fair value At 31 December

Notes to the consolidated financial statements

41


26

Contingent assets, contingent liabilities, commitments and fiduciary transactions (TCHF)

2010

2009

0

4 333

Contingent liabilities

319 662

412 752

Committed credit lines and other commitments

351 814

218 817

245 700

218 817

3 187 512

5 475 219

8 301

4 900

3 195 813

5 480 119

2010

2009

Contingent assets

of which irrevocable commitments

Fiduciary transactions Fiduciary investments Fiduciary loans and other financial transactions in a fiduciary capacity Total fiduciary transactions Information about derivative financial instruments is shown separately in note 30.

27

Pledged and assigned assets/assets subject to reservation of ownership, which are used to secure own liabilities (TCHF) 1

550 320

480 031

of which investment securities

216 515

263 489

of which financial assets designated at fair value

333 805

216 542

253 253

299 566

Book value of pledged and assigned assets (as collateral)

Actual commitments There are no assets subject to reservation of ownership.

The assets are pledged for commitments in respect of Lombard limits at central banks, for securities deposits relating to X-Clear/Swiss Stock Exchange and limits for cash settlement of securities transactions with EUROCLEAR BANK SA.

28

2010

2009

Claims from cash deposits in connection with securities borrowing and reverse repurchase transactions

0

0

Liabilities from cash deposits in connection with securities lending and repurchase transactions

Lending transactions and pension transactions with securities (TCHF)1

0

0

Own securities lent or provided as collateral within the scope of securities lending or borrowing transactions, as well as own securities transferred from repurchase transactions

175 719

921 545

of which capable of being resold or further pledged without restrictions

175 719

371 573

Securities borrowed or accepted as collateral within the scope of securities lending or borrowing transactions, as well as securities received from reverse repurchase transactions, which are capable of being resold or further pledged without restrictions

633 424

5 180 165

165 752

424 680

of which resold or further pledged 1

These transactions are conducted under terms that are usual and customary to standard lending, and securities borrowing and lending activities, as well as requirements determined by exchanges where the bank acts as an intermediary.

42

Notes to the consolidated financial statements


29

Financial instruments measured at fair value (TCHF) Fair value hierarchy IFRS 7 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources; unobservable inputs reflect the Group’s market assumptions. These two types of inputs have created the following fair value hierarchy: Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities. This level includes listed equity securities and debt instruments on exchanges and exchange traded derivatives. Level 2 Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices). This level includes investments in hedge funds, mutual funds, the majority of OTC derivative contracts and structured debt. Level 3 Inputs for the asset or liability that are not based on observable market data (unobservable inputs). This level includes mainly private equity investments, issued structured debt as well as equity investments with significant unobservable components. This hierarchy requires the use of observable market data when available. The Group considers relevant and observable market prices in its valuations where possible.

Fair value measurement at the end of the period

Level 1

Level 2

Level 3

2010 Total

Assets Securities held for trading purposes Derivative financial instruments

15 327

17

0

15 344

0

1 690 852

0

1 690 852

Financial assets designated at fair value

2 133 753

1 084 652

9 732

3 228 137

Available-for-sale securities

1 144 692

3 766 704

6 385

4 917 781

Total assets measured at fair value

3 293 772

6 542 225

16 117

9 852 114

0

1 935 921

1 935

1 937 856

Liabilities Derivative financial instruments Financial liabilities designated at fair value

0

805 791

0

805 791

Total liabilities measured at fair value

0

2 741 712

1 935

2 743 647

Level 1

Level 2

Level 3

2009 Total

21 266

52 102

250

73 618

There have been no transfers from Level 2 to Level 1 and vice versa. Fair value measurement at the end of the period Assets Securities held for trading purposes Derivative financial instruments

53

829 322

0

829 375

Financial assets designated at fair value

1 700 786

1 294 940

9 715

3 005 441

Available-for-sale securities

1 174 643

1 607 803

4 130

2 786 576

Total assets measured at fair value

2 896 748

3 784 167

14 095

6 695 010

Liabilities 11

801 937

1 670

803 618

Financial liabilities designated at fair value

0

1 120 200

0

1 120 200

Total liabilities measured at fair value

11

1 922 137

1 670

1 923 818

Derivative financial instruments

There have been no transfers from Level 2 to Level 1 and vice versa. Notes to the consolidated financial statements

43


Reconciliation of Level 3 items Securities held for trading purposes

Financial assets/ liabilities designated at fair value

Available-forsale securities

2010 Total

At 1 January

250

9 715

4 130

14 095

Total gains or losses

-26

-29

232

177

-26

-29

829

774

0

0

-597

-597

0

1 868

0

1 868

Assets

thereof in profit or loss thereof in other comprehensive income Purchases Issues

0

0

3 522

3 522

Sales

0

0

-477

-477

-224

-1 822

-1 022

-3 068

Redemptions Transfers in/out of Level 3

0

0

0

0

At 31 December

0

9 732

6 385

16 117

0

1 670

0

1 670

Liabilities At 1 January Total gains or losses

0

265

0

265

thereof in profit or loss

0

265

0

265

thereof in other comprehensive income

0

0

0

0

Purchases

0

0

0

0

Issues

0

0

0

0

Sales

0

0

0

0

Redemptions

0

0

0

0

Transfers in/out of Level 3

0

0

0

0

At 31 December

0

1 935

0

1 935

There have been no transfers either in or out of Level 3 in 2010.

44

Notes to the consolidated financial statements


Reconciliation of Level 3 items Securities held for trading purposes

Financial assets/ liabilities designated at fair value

Available-forsale securities

2009 Total

Assets At 1 January Total gains or losses thereof in profit or loss

0

6 732

39 570

46 302

10

938

-3 431

-2 483

10

938

-2 363

-1 415

0

0

-1 068

-1 068

240

3 368

13 555

17 163

thereof in other comprehensive income Purchases Issues

0

0

-44 066

-44 066

Sales

0

-1 323

-1 498

-2 821

Redemptions

0

0

0

0

250

9 715

4 130

14 095

0

1 106

0

1 106

Transfers in/out of Level 3 At 31 December Liabilities At 1 January Total gains or losses

0

564

0

564

thereof in profit or loss

0

564

0

564

thereof in other comprehensive income

0

0

0

0

Purchases

0

0

0

0

Issues

0

0

0

0

Sales

0

0

0

0

Redemptions

0

0

0

0

Transfers in/out of Level 3

0

0

0

0

At 31 December

0

1 670

0

1 670

2010

2009

Total gains or losses included in profit or loss for the period

509

-1 979

Total gains or losses for the period included in profit or loss for assets/liabilities held at the end of the reporting period

-322

793

There have been no transfers either in or out of Level 3 in 2010.

Gains or losses included in profit or loss for financial instruments measured at fair value based on Level 3

Notes to the consolidated financial statements

45


30

Derivative financial instruments In the normal course of business, LGT Group and its subsidiaries use various derivative financial instruments to meet the financial needs of their customers, to generate revenues through trading and market-making activities, and to manage their exposure to fluctuations in interest and foreign exchange rates. Derivatives used for trading purposes include foreign exchange forwards, stock options and warrants as well as forward rate agreements (FRAs). Within the context of asset and liability management, interest rate swaps are primarily employed. Foreign exchange and precious metal OTC options are entered into for customer transactions only. LGT Group controls the credit risk from derivative financial instruments through its credit approval process and the use of control limits and monitoring procedures. LGT Group uses the same credit procedures when entering into derivatives as it does for traditional lending products. The following table summarizes the total outstanding volumes in derivative financial instruments. Positive and negative replacement values are stated at gross values, without taking into consideration the effect of master netting agreements.

Types of derivative financial instruments held for trading (TCHF)

2009 Notional Positive Negative amount replacement replacement value value

Notional amount

Positive replacement value

2010 Negative replacement value

1 157 621

6 541

19 079

736 071

7 385

13 319

0

0

0

0

0

0

85 096 808

1 654 760

1 895 874

69 652 755

781 235

762 159

0

0

0

0

0

0

1 539 819

6 746

6 748

645 933

3 284

3 309

492 050

10 458

11 764

345 764

21 815

1 064

0

0

0

295 790

3 045

19 592

388 798

2 362

2 363

112 508

1 455

1 459

0

0

0

48 156

53

11

Interest rate products Interest rate swaps Interest rate OTC options

Foreign exchange products Foreign exchange forwards Foreign exchange swaps Foreign exchange OTC options

Precious metal products Precious metal forwards Precious metal swaps Precious metal OTC options

Derivatives on shares and indices Futures

Other products

18 386

404

2 028

6 078

1 035

2 705

Total contracts

88 693 482

1 681 271

1 937 856

71 843 055

819 307

803 618

Notional amount

Positive replacement value

2010 Negative replacement value

400 000

9 581

0

Types of derivative financial instruments held for hedging (TCHF)

2009 Notional Positive Negative amount replacement replacement value value

Interest rate products Interest rate swaps

46

Notes to the consolidated financial statements

320 000

10 068

0


31

Capital resources Capital adequacy and the use of capital are monitored by the Group and by individual operating units, employing techniques based on the guidelines developed by the Basel Committee on Banking Supervision and implemented by the Liechtenstein Government for supervisory purposes. The Basel Committee guidelines require minimum risk ratios for all international banks of 8%. These ratios measure capital adequacy by comparing the Group’s eligible capital with balance sheet assets, off-balance sheet commitments and market positions at weighted amounts to reflect their relative risk. Assets are weighted according to broad categories of notional risk, first being multiplied by a conversion factor and then being assigned a risk weighting according to the amount of capital deemed to be necessary for them. Off-balance sheet commitments and default risk positions are also multiplied and risk-weighted. Market risk is calculated with the standard approach. The Group and its individually regulated operations have complied with all externally imposed capital requirements throughout the period. The following table analyzes the Group’s capital resources as defined for regulatory purposes.

Capital resources (TCHF) Capital resources thereof minority interest thereof “innovative” instruments Other deductions

2010

2009

3 083 713

2 958 377

6 349

6 642

0

0

-350 540

-286 095

2 733 173

2 672 282

upper tier 2 capital

0

0

lower tier 2 capital

559

756

0

0

-302 743

-330 903

2 430 989

2 342 135

Net core capital before adjustments

tier 3 capital Other deductions Net capital resources

Risk-weighted assets (TCHF)

Approach

Credit risk

Standard

On-balance sheet Non-counterpart risks Market risk

Standard

thereof interest rate risks

823 097

791 775

808 035

775 778

15 062

15 997

65 755

104 437

38 640

39 951

1 723

8 083

thereof foreign exchange risks

10 931

35 473

thereof commodities risks

14 461

16 991

thereof equity position risks

thereof option risks Operational risk Total

Capital adequacy ratio

Net capital resources

Basic indicator

0

3 939

119 575

116 960

1 008 427

1 013 172

19.3%

18.5%

2 430 989

2 342 135

Notes to the consolidated financial statements

47


32

Subsidiaries The Group’s principal subsidiary undertakings at 31 December 2010 were:

Name

Principal activity

Registered office

LGT Bank in Liechtenstein Ltd.

Banking and investment management

Vaduz – Liechtenstein

100.0

LGT Swiss Life Non Traditional Advisers Ltd.

Investment advisers

Vaduz – Liechtenstein

57.9

LGT Private Equity Advisers Ltd.

Investment advisers

Vaduz – Liechtenstein

60.0

LGT Capital Management Ltd.

Investment management

Vaduz – Liechtenstein

100.0

LGT Funds Ltd.

Investment advisers

Vaduz – Liechtenstein

100.0 2

LGT Funds II Ltd.

Investment advisers

Vaduz – Liechtenstein

100.0 2

LGT Investments Ltd.

Investment advisers

Vaduz – Liechtenstein

100.0 2

LGT Premium Strategy Ltd.

Investment advisers

Vaduz – Liechtenstein

100.0 2

LGT Fondsleitung Ltd.

Investment advisers

Vaduz – Liechtenstein

100.0

LGT Capital Partners Advisers Ltd.

Investment advisers

Vaduz – Liechtenstein

100.0

LGT Financial Services Ltd.

Services company

Vaduz – Liechtenstein

100.0

LGT Audit Revisions AG

Audit services

Vaduz – Liechtenstein

100.0

LGT Bank (Switzerland) Ltd. 3

Banking and investment management

Basel and branches – Switzerland

100.0

Artinba Ltd.

Fine art services

Basel – Switzerland

100.0

Global Fine Art Services Ltd.4

Fine art services

Basel – Switzerland

100.0

LGT Capital Management Ltd.

Investment advisers

Pfäffikon SZ – Switzerland

100.0

LGT Capital Partners Ltd.

Investment advisers

Pfäffikon SZ – Switzerland

100.0

Investment advisers

Pfäffikon SZ – Switzerland

100.0

LGT Investment Partners Ltd.

48

Ownership interest in % of ordinary shares held 1

5

LGT Holding International Ltd.

Holding company

Pfäffikon SZ – Switzerland

100.0

Fitrust, Fiduciaire et Trustee SA

Trust services

Zurich – Switzerland

100.0

LGT Bank Deutschland & Co. OHG

Banking and investment management

Frankfurt and branches – Germany

100.0

LGT Financial Consulting GmbH

Consulting

Frankfurt – Germany

100.0

Crown Verwaltungsgesellschaft mbH

Investment advisers

Munich – Germany

LGT Bank (Österreich) AG

Banking and investment management

Vienna – Austria

100.0

LGT Capital Partners (U.K.) Ltd.

Fund distribution

London – United Kingdom

100.0

LGT Bank (Ireland) Ltd.

Banking

Dublin – Ireland

100.0

LGT Capital Partners (Ireland) Ltd.

Investment advisers

Dublin – Ireland

100.0

LGT Fund Managers (Ireland) Ltd.

Fund services

Dublin – Ireland

100.0

Notes to the consolidated financial statements

50.0


Name

Principal activity

Registered office

Ownership interest in % of ordinary shares held 1

LGT Holding Denmark ApS

Holding company

Copenhagen – Denmark

100.0

LGT Bank (Singapore) Ltd.

Banking and investment management

Singapore

100.0

LGT Investment Management (Asia) Ltd.

Consulting and advisers

Hong Kong – China

100.0

LGT Capital Partners (Asia-Pacific) Ltd.

Investment management

Hong Kong – China

100.0

LGT Investment Management (Japan) KK

Consulting and advisers

Tokyo – Japan

100.0

LGT Holding (Malaysia) Ltd.

Holding company

Labuan – Malaysia

100.0

LGT Capital Partners (USA) Inc.

Research services

New York – USA

100.0

LGT Bank in Liechtenstein (Cayman) Ltd.

Banking and investment management

Grand Cayman – Cayman Islands

100.0

LGT Finance Ltd.

Financing

Grand Cayman – Cayman Islands

100.0

LGT Investments Ltd.

Investment management

Grand Cayman – Cayman Islands

100.0

LGT Global Invest Ltd.

Investment management

Grand Cayman – Cayman Islands

100.0

LGT Participations Ltd.

Investment management

Grand Cayman – Cayman Islands

100.0

LGT Certificates Ltd.

Investment management

Grand Cayman – Cayman Islands

100.0

LGT (Uruguay) S.A. 6

Bank representation

Montevideo – Uruguay

100.0

1

Ownership interest equals voting interest.

2

Companies with variable share capital structure, only part of fund manager fully consolidated.

3

Merger of LGT Bank (Switzerland) Ltd. and Dresdner Bank (Switzerland) Ltd. as per 5 February 2010.

4

Founded as per 18 February 2010.

5

Founded as per 10 December 2010.

6

Acquired as per 13 August 2010.

KGR Capital Management Ltd. was liquidated as per 23 July 2010. LGT Trust (Singapore) Ltd., LGT Management Services (Singapore) Pte. Ltd. and LGT Management Services (HK) Ltd. were sold in 2010. Castle HoldCo Ltd. was liquidated as per 16 December 2010.

Notes to the consolidated financial statements

49


33

Operating segments Headquartered in Vaduz, Principality of Liechtenstein, LGT

Operating segments at 31 December 2010 (TCHF)

Group is the Wealth & Asset Management Group of the

Total external operating income

Princely House of Liechtenstein. The Group’s segmental re-

Total internal operating income 1

porting comprises the four operating business units Wealth

Total segment operating income (total revenue)

Management, Traditional Asset Management, Alternative

Operating expenses

Asset Management and Operations & Technology. The remaining not directly connected revenue and expenses including consolidation adjustments are shown under Corporate Center.

Segment result before tax Tax expense 2 Minority interests Net profit of LGT Group

LGT’s reportable segments are strategic business units that

Net interest and similar income 3

offer different products and services to external and internal

Income from services

customers. They are managed separately because each business

Income from trading activities

unit requires different technology and marketing strategies.

Depreciation Credit (losses) recoveries

The segment reporting reflects the internal management

Change in provisions and other losses

structure. The segments are based upon the products and

Profit/(loss) of associates

services provided or the type of customer served, and they

Headcount

reflect the manner in which financial information is currently evaluated by management. Results of these lines of business are presented on a managed basis. Both the external and the internal reports are prepared in accordance with International Financial Reporting Standards (IFRS).

Assets under administration in CHFm 4 Segment assets Segment liabilities Investments in associates Goodwill and other intangible assets

Wealth Management offers private clients comprehensive

Capital expenditure

wealth management services around the world. Traditional in the allocation of assets and selection of investment man-

Operating segments at 31 December 2009 (TCHF)

agers, and manages and monitors a wide range of investment

Total external operating income

funds. Alternative Asset Management (LGT Capital Partners)

Total internal operating income 1

is a specialist in the alternative asset classes of hedge funds

Total segment operating income (total revenue)

and private equity. Operations & Technology (LGT Financial

Operating expenses

Asset Managment (LGT Capital Management) is a specialist

Services) is the IT and business service provider. The accounting policies of the operating segments are the same as those described in the summary of the Group accounting principles. Income and expenses are assigned to the individual business lines in accordance with current market

Segment result before tax Tax expense 2 Minority interests Net profit of LGT Group Net interest and similar income 3

prices and based on the client relationships. Indirect costs

Income from services

resulting from services provided internally are accounted for

Income from trading activities

according to the principle of causation and are recorded as

Depreciation

a revenue increase for the service provider and as a cost

Credit (losses) recoveries

increase for the service beneficiary. Depreciation and pro-

Change in provisions and other losses

visions are stated at effective costs.

Profit/(loss) of associates Headcount

Information about the revenues from external customers for each product and service, or group of similar products and services, is not available and the cost to develop it would be excessive.

Assets under administration in CHFm 4 Segment assets Segment liabilities Investments in associates Goodwill and other intangible assets Capital expenditure

50

1

Revenue from transactions with other segments at market prices.

2

The Group does not allocate tax expense (tax income) to reportable segments.

3

Management primarily relies on net interest income, not the gross income and expense, in managing the segments.

4

Assets under administration include double-counted assets and LGT’s Princely Portfolio.

5

Corporate Center includes the net result of the Princely Portfolio, net Group financing cost, the cost of all Group functions and consolidation adjustments.

Notes to the consolidated financial statements


Wealth Management

Traditional Asset Management

Alternative Asset Management

Operations & Technology

Corporate Center 5

Group

693 749

15 193

92 484

5 499

75 940

882 865

13 705

42 522

21 634

126 025

-203 886

0

707 454

57 715

114 118

131 524

-127 946

882 865

-502 581

-58 543

-79 698

-125 965

28 860

-737 927

204 873

-828

34 420

5 559

-99 086

144 938 8 262 -5 544 147 656

217 259

-126

-44

2 771

-124 087

95 773

353 683

55 399

110 272

128 414

-133 441

514 327

132 440

1 970

1 599

449

62 387

198 845

-14 178

-37

-2 147

-22 437

-3 817

-42 616

-2 760

0

0

372

0

-2 388

-7 152

0

0

0

-2 504

-9 656

0

0

0

0

81 995

81 995

1 156

131

159

282

161

1 889

57 396

13 660

13 453

0

1 570

86 079

23 252 276

70 575

85 421

330 404

649 728

24 388 404

19 934 708

47 484

53 490

234 913

1 034 096

21 304 691

0

0

0

0

2 531 615

2 531 615

159 795

0

9 456

133 492

0

302 743

4 968

0

467

6 017

0

11 452

Wealth Management

Traditional Asset Management

Alternative Asset Management

Operations & Technology

Corporate Center 5

Group

688 229

15 112

73 576

9 347

-7 231

779 033

17 352

40 075

20 690

120 912

-199 029

0

705 581

55 187

94 266

130 259

-206 260

779 033

-506 275

-57 652

-74 619

-121 391

136 604

-623 333

199 306

-2 465

19 647

8 868

-69 656

155 700 -45 192 -4 974 105 534

182 323

-60

-24

3 905

-19 759

166 385

362 732

55 724

92 301

122 526

-193 679

439 604

151 103

-666

-160

1 281

19 797

171 355

-6 572

-24

-2 212

-18 564

-8 329

-35 701

-2 776

0

0

0

6 466

3 690

-11 925

0

0

0

-1 735

-13 660 301 595

0

0

0

0

301 595

1 277

125

152

280

151

1 985

60 526

13 424

13 214

0

1 859

89 023

30 479 248

72 431

108 284

395 854

-6 262 346

24 793 471

26 599 727

45 611

77 338

292 374

-5 179 956

21 835 094

0

0

0

0

2 419 334

2 419 334

164 125

0

21 360

145 418

0

330 903

24 750

0

562

7 114

0

32 426

Notes to the consolidated financial statements

51


Geographical information at 31 December 2010 (TCHF)

Revenues 1

Capital expenditure

Liechtenstein

384 144

7 264

Switzerland

291 597

3 573

19 639

318

Other Europe Americas

2

Asia Group

120 487

70

66 998

227

882 865

11 452

Geographical information at 31 December 2009 (TCHF) 373 672

23 460

Switzerland

67 250

6 316

Other Europe

36 095

917

Liechtenstein

Americas

2

Asia Group

52

1

Revenues are attributed to countries/regions on the basis of the LGT Group companies domicile.

2

Revenues: mainly fee income from Class Funds.

Notes to the consolidated financial statements

286 094

30

15 922

1 703

779 033

32 426


34

Client assets under administration (CHF m) Client assets under administration (excluding Princely Portfolio) which are stated according to the provisions of the Liechtenstein banking law are as follows:

Client assets in own-managed funds

2010

2009

19 925

20 332

Client assets under management

21 316

22 161

Other client assets under administration

42 306

44 111

Total client assets under administration (including double counting)

83 547

86 604

13 011

13 563

thereof double counting

Net asset inflow thereof net new money thereof through acquisition

3 102

4 550

3 102

-3 651

0

8 201

Client assets in own-managed funds This item covers the assets of all the actively marketed investment funds of LGT Group. Client assets under management The calculation of assets with management mandate takes into account client deposits as well as the market value of securities, loan-stock rights, precious metals and fiduciary investments placed with third-party institutions. The information covers both assets deposited with Group companies and assets deposited at third-party institutions for which Group companies hold a discretionary mandate. Other client assets under administration The calculation of other client assets under administration takes into account client deposits as well as the market value of securities, loan-stock rights, precious metals and fiduciary investments placed with third-party institutions. The information covers assets for which an administrative or advisory mandate is exercised. Double counting This item covers investment fund units from own-managed funds as well as certain assets that are included in client assets under management. Custodian assets Custodian assets are excluded.

Notes to the consolidated financial statements

53


35

Pensions

2010

2009

Discount rate

3.00%

3.50%

Expected net return on plan assets

5.00%

5.00%

Principal actuarial assumptions

Average future salary increases

1.00%

1.00%

Future pension increases

0.50%

0.50%

BVG 2000

BVG 2000

Mortality tables used Average retirement age

60/60

60/60

Employees covered by the major plans 1

1 509

1 528

399

372

Retirees covered by the major plans

The average life expectancy in years of a pensioner retiring at age 60 is as follows: Male

21.8

21.8

Female

25.5

25.5

811 631

719 063

Defined benefit obligation

-917 694

-813 508

Funded status

-106 063

-94 445

0

0

Balance sheet (end of year) Fair value of plan assets

Unrecognized asset due to IAS 19.58 Unrecognized past service cost Unrecognized actuarial (gain)/loss Net asset/(liability)

0

13 402

137 374

100 298

31 311

19 255

-41 714

-37 318

0

-113

-28 819

-25 796

Income statement Service cost Past service cost Interest cost Expected return on plan assets

35 610

26 348

Net actuarial gain/(loss) recognized in year

-7 803

-11 842

3 344

-1 274

Curtailment Employees’ contributions

16 495

15 990

Net pension expenses

-22 887

-34 005

53 498

105 250

19 255

28 091

0

-1 744

-22 887

-34 005

34 943

26 913

At 31 December

31 311

19 255

Prepaid/(accrued) pension cost 2

12 056

-7 092

Actual return on plan assets

Movement in the asset/(liability) recognized in the balance sheet At 1 January Change in consolidation scope Net pension expenses Employer’s contributions

54

1

Apprentices, trainees and certain part-time employees are not covered by the plans.

2

i.e. the net of employer’s contributions and net pension expenses.

Notes to the consolidated financial statements


2010

2009

-813 508

-736 398

0

-68 970

-41 714

-37 318

16 746

0

-28 819

-25 796

Movement in the defined benefit obligation At 1 January Change in consolidation scope Current service cost Past service cost Interest cost Curtailment Actuarial gains/(losses) Benefits paid At 31 December

0

-1 274

-62 767

16 009

12 368

40 239

-917 694

-813 508

719 063

557 438

0

53 711

Movement in the fair value of plan assets At 1 January Change in consolidation scope Expected return on plan assets

35 610

26 348

Actuarial gains/(losses)

17 888

78 902

Employer’s contributions

34 943

26 913

Employees’ contributions

16 495

15 990

Benefits paid

-12 368

-40 239

At 31 December

811 631

719 063

Major categories of plan assets as a percentage of the fair value of total plan assets Equity instruments

29%

29%

Debt instruments

33%

29%

Property

18%

19%

Alternative investments

18%

19%

Cash

1%

2%

Other

1%

1%

The plan assets include property occupied by the Group with a fair value of 16 822 (2009: 16 822). The expected return on plan assets is determined by considering the expected returns available on the assets underlying the current investment policy. Expected yields on fixed interest investments are based on gross redemption yields as at the balance sheet date. Expected returns on equity and property investments reflect long-term real rates of return experienced in the respective markets.

The history of the plans for the current and prior periods is as follows:

2010

2009

2008

2007

2006

Present value of defined benefit obligation

-917 694

-813 508

-736 398

-650 498

-559 896

811 631

719 063

557 438

652 336

567 662

-106 063

-94 445

-178 960

1 838

7 766

6 754

16 009

-20 201

-43 355

-7 507

17 888

78 902

-181 951

17 029

10 765

Fair value of plan assets Surplus/(deficit) in the plan Experience adjustments on plan liabilities Experience adjustments on plan assets

The Group expects to contribute 26 135 to its defined benefit pension plans in 2011 (2010: 26 786).

The measurement date for the Group’s defined benefit plans is 31 December.

Notes to the consolidated financial statements

55


36

Long-term incentive scheme Movements in the number of options outstanding

Number of series Year of issue Duration from Duration to

5 2003 1.4.03 1.4.10

6 2004 1.4.04 1.4.11

7 2005 1.4.05 1.4.12

8 2006 1.4.06 1.4.13

9 2007 1.4.07 1.4.14

10 2008 1.4.08 1.4.15

11 2009 1.4.09 1.4.16

12 2010 1.4.10 1.4.17

Total

At 1 January 2010

14

26

96

670

2 906

2 942

3 033

0

9 687

Granted Exercised

0

0

0

0

0

0

0

3 244

3 244

-14

-18

-55

-302

-404

0

0

0

-793

Lapsed

0

0

0

-3

-40

-94

-89

-68

-294

At 31 December 2010

0

8

41

365

2 462

2 848

2 944

3 176

11 844

Number of series Year of issue Duration from Duration to

5 2003 1.4.03 1.4.10

6 2004 1.4.04 1.4.11

7 2005 1.4.05 1.4.12

8 2006 1.4.06 1.4.13

9 2007 1.4.07 1.4.14

10 2008 1.4.08 1.4.15

11 2009 1.4.09 1.4.16

Total

At 1 January 2009

298

680

1 332

2 876

3 049

3 103

0

11 338

0

0

0

0

0

0

3 070

3 070

-284

-654

-1 236

-2 196

0

0

0

-4 370

0

0

0

-10

-143

-161

-37

-351

14

26

96

670

2 906

2 942

3 033

9 687

Granted Exercised Lapsed At 31 December 2009

Options outstanding at the end of the year were as follows: Number of series

Year of issue

Expiry date

Exercise price (CHF)

5

2003

1.4.2010

22 779

0

14

6

2004

1.4.2011

22 541

8

26

7

2005

1.4.2012

25 769

41

96

8

2006

1.4.2013

28 194

365

670

9

2007

1.4.2014

32 634

2 462

2 906

10

2008

1.4.2015

37 061

2 848

2 942

11

2009

1.4.2016

32 859

2 944

3 033

12

2010

1.4.2017

34 760

3 176

0

11 844

9 687

2010

2009

In 2010, the fair value changes of the options of 15 073 were charged to personnel expenses (2009: 12 743). Significant inputs to determine the fair value of the options are the economic value added as described in the Group accounting principles under employee medium-term benefits and the exercise price shown above.

56

Notes to the consolidated financial statements


37

Related-party transactions (TCHF)

2010

2009

3 045

2 997

13 083

15 128

985

6 471

14 068

21 599

Advances

4 517

6 749

Mortgages and other loans

3 050

2 040

Total

7 567

8 789

The following emoluments were made by the Group to the members of the Foundation Board and to Group and business unit executives during the year. Total emoluments of Foundation Board members

Salaries and bonuses Long-term incentive scheme Total emoluments of Group and business unit executives

The following loans, advances and commitments made by the Group to and on behalf of the above-mentioned related parties were outstanding at year-end

Hedge fund and private equity coinvestment plan of senior LGT managers Each year the employees of LGT Capital Partners Ltd., which acts as investment manager for LGT’s alternative assets investment vehicles, and members of LGT Group’s management are invited to invest in the same private equity and hedge fund investments as LGT’s customers. At 31 December 2010, LGT’s employees had committed a total of USD 47.4 million (2009: USD 38.4 million) to the alternative investment coinvestment plans. Transactions with the Prince of Liechtenstein Foundation A number of Group transactions were concluded with the Prince of Liechtenstein Foundation (POLF), the beneficiary of the LGT Group Foundation, in the normal course of business, including loans, deposits and other transactions. The transactions were carried out at commercial terms and market rates and were reported as follows:

Deposits

2010

2009

1 438

3 173

Transactions with post-employment benefit plans A number of Group transactions were concluded with post-employment benefit plans in the normal course of business, including loans, deposits and other transactions. The transactions were carried out at commercial terms and market rates and were reported as follows:

Deposits

2010

2009

14 250

11 774

Advances to and due to investments in associates A number of Group transactions were concluded with investments in associates in the normal course of business, including loans, deposits and other transactions. The transactions were carried out at commercial terms and market rates and were reported as follows: 2010 Loans Financial assets at fair value and investment securities Deposits

2009

21 296

155 758

2 531 615

2 419 334

259 601

222 486

Notes to the consolidated financial statements

57


Risk management Risk management framework and process Risk is defined by the adverse impact on profitability of several distinct sources of uncertainty. Taking risk is inherent to the financial business and an inevitable consequence of being in business. This note presents information about the Group’s risk exposure and the objectives, policies and processes for measuring and managing the different risk categories. The risk policy of LGT Group comprises two key elements. The risk strategy, which details the overall approach to risk-taking desired by the Board, and risk principles, which translate the risk strategy into operating standards for both the risk organization and required risk processes. The Group is exposed to various risks. Risk control/containment Operational risk

Market risk/ financing

Credit risk

Corporate structure risk

Investment product risk

Wealth Mgt. risk client policies

Fraud Business practices Physical damage Execution, processes Employment practices Workplace safety Business disruption

Equity Interest rates Foreign exchange ALM Dividends Equity capital Liquidity Refinancing Financing structure

Counterparty Concentration Collateral Credit structures

Legal structure Performance Client acceptance Tax Structures policy Formal requirements Commitments Asset management Compliance Product concentration Liquidity

Personnel risk Key people retention Incentives Education Succession Contracts

Strategy/reputation/regulatory risk

The aim is to achieve an appropriate balance between risk and return and minimize potentially adverse effects on the financial performance of the Group. Based on this general guideline several risk management policies are designed to identify and analyze the different risk categories, to set appropriate risk limits and controls, and to monitor the risks and adherence to limits by means of reliable and up-to-date information systems. The Foundation Board is responsible for the Group’s risk policy and its regular review. On a daily basis risk management is conducted by the line management. The overall responsibility lies within the executive management teams of each business unit. The risk controlling unit oversees the risk-taking activities of the Group. The five equivalent key elements of the LGT Group risk process are:

Risk identification

Risk guidelines

Risk management

Risk control

Risk review

The control of risk is conducted outside of and independently of line management. LGT Group has one risk controlling team which is responsible for risk supervising and risk reporting for the whole Group. The most important types of risk LGT Group is exposed to are market risk, liquidity risk, credit risk and operational risk. Market risk includes currency risk, interest rate and other price risk. Additional information in the context of Basel II is shown under www.lgt.com.

58

Notes to the consolidated financial statements


Market risk Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risks arise from open positions in interest rate, currency and equity products, all of which are exposed to general and specific market movements and changes in the level of volatility of market rates or prices such as interest rates, credit spreads, foreign exchange rates and equity prices. The Group separates exposures to market risk into either trading or non-trading portfolios. The market risk arising from trading and non-trading activities is monitored by Group Risk Controlling and for the trading portfolios by the Risk Management of the Trading Department. Regular reports are submitted to Group Management and the heads of the business units. Trading portfolios also include those positions arising from market-making transactions where the Group acts as principal in the market. Non-trading portfolios primarily arise from the interest rate management of the Group’s banking assets and liabilities. Non-trading portfolios also consist of foreign exchange and equity risks arising from the Group’s held-to-maturity and available-for-sale investments. Market risk measurement As part of the management of market risk, the most important measurement category for the Group is the sensitivity analysis of its trading and non-trading portfolios, to estimate the market risk of positions held, based on assumptions for changes in interest rates, foreign exchange rates, equity prices and volatility. The Board sets limits on the total market value change that may be accepted for the Group, trading and non-trading separately. These limits are monitored by Group Risk Controlling for the trading portfolios on a daily basis, and for the non-trading portfolios on a monthly basis. On the basis of the sensitivity analysis the Group undertakes various hedging strategies and also enters into interest rate swaps to match the interest rate risk associated with the fixed-rate debt securities and loans to which the fair value option has been applied. In addition, market risks on the trading portfolios are managed by limiting the volume and maximum loss accepted overall and by position. LGT Group performs stress tests to get an indication of the potential size of losses that could arise in extreme conditions. The stress testing applies stress movements of each risk category and ad hoc stress testing, which includes applying possible stress events to specific positions or regions. The stress testing is tailored to the business and typically uses scenario analysis. Market risk organization and reporting Responsibility for risk control lies with the AL Committee which defines basic principles for the refinancing activity of the LGT Group (focussing on medium to long-term money) and advises the Group CEO on capital market transactions. The control of the ALM risks is primarily applied by way of an active management of the repricing gaps in the different time bands. Transactions carried out in the ALM area must be notified to the AL Committee by a representative of Group Risk Controlling at the next meeting.

Notes to the consolidated financial statements

59


Summary sensitivity analysis Negative fair value change at 31 December 2010 (TCHF)

Interest rate +100 bp

Foreign exchange –20%

Equity price –10%

9 433

268 279

1 574

Trading portfolio/designated at fair value Non-trading portfolios

27 301

280 164

19 612

Total

36 734

548 443

21 186

Interest rate +100 bp

Foreign exchange –20%

Equity price –10%

4 133

186 785

4 815

Negative fair value change at 31 December 2009 (TCHF) Trading portfolio/designated at fair value Non-trading portfolios

31 326

334 921

22 443

Total

35 459

521 706

27 258

Foreign exchange risk The Group takes on exposure to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. The Board sets limits on the level of exposure by currency and in aggregate for both overnight and intraday positions, which are monitored daily. Foreign exchange risk strategy and measurement Exchange rate risk control is implemented within the framework of LGT Group’s overall appetite for risk. The aim of an appropriate AL risk management system is to manage the exchange rate risk of LGT Group and the Group companies to optimum effect. The limits must be applied using appropriate limit types to reflect the risk. In this context gap limits for limiting matching maturities within specific maturity segments are used. The following table summarizes the Group’s exposure to foreign currency exchange rate risk at 31 December. Included in the table are the Group’s financial instruments at carrying amounts, categorized by currency.

60

Notes to the consolidated financial statements


Foreign exchange exposure at 31 December 2010 (TCHF)

Swiss Francs

Euros

US Dollars

Other

Total

257 665

30 507

1 702

1 621

291 495

Loans and advances to banks

1 775 777

1 458 006

1 218 781

864 019

5 316 583

Loans and advances to customers

3 278 956

647 343

814 738

642 563

5 383 600

Cash in hand, balances with central banks

12 122

17

3 205

0

15 344

Financial assets designated at fair value

1 066 682

1 063 380

304 072

794 003

3 228 137

Available-for-sale securities

3 516 962

200 995

360 734

839 090

4 917 781

Held-to-maturity securities

0

0

0

0

0

2 531 615

0

0

0

2 531 615

Securities held for trading purposes

Investments in associates Remaining assets Total assets Amounts due to banks Amounts due to customers Financial liabilities designated at fair value

2 305 398

45 858

16 318

336 275

2 703 849

14 745 177

3 446 106

2 719 550

3 477 571

24 388 404

317 360

453 416

909 407

191 733

1 871 916

3 827 409

3 892 711

4 478 301

2 041 052

14 239 473

0

728 500

77 291

0

805 791

Certificated debt

1 570 416

0

0

0

1 570 416

Remaining liabilities

2 784 302

17 621

9 241

5 931

2 817 095

Total liabilities

8 499 487

5 092 248

5 474 240

2 238 716

21 304 691

Net foreign exchange exposure of balance sheet

6 245 690

-1 646 142

-2 754 690

1 238 855

3 083 713

-3 460 220

1 762 959

2 678 309

-1 217 068

-236 020

2 785 470

116 817

-76 381

21 787

2 847 693

Swiss Francs

Euros

US Dollars

Other

Total

Derivative financial instruments Total net foreign exchange exposure

Foreign exchange exposure at 31 December 2009 (TCHF)

704 608

38 033

2 026

2 107

746 774

Loans and advances to banks

1 188 063

3 720 449

2 461 514

846 685

8 216 711

Loans and advances to customers

3 205 367

582 743

1 400 964

501 888

5 690 962

Cash in hand, balances with central banks

16 542

29

57 047

0

73 618

995 755

1 259 493

340 806

409 387

3 005 441

Available-for-sale securities

1 113 670

486 375

448 192

738 339

2 786 576

Held-to-maturity securities

1 998

0

0

0

1 998

2 419 334

0

0

0

2 419 334

Securities held for trading purposes Financial assets designated at fair value

Investments in associates Remaining assets Total assets Amounts due to banks Amounts due to customers Financial liabilities designated at fair value

1 428 413

64 687

79 372

279 585

1 852 057

11 073 750

6 151 809

4 789 921

2 777 991

24 793 471

695 081

428 115

103 388

227 996

1 454 580

4 134 320

5 227 997

5 038 828

1 808 906

16 210 051

0

957 986

162 214

0

1 120 200

Certificated debt

1 672 317

0

0

0

1 672 317

Remaining liabilities

1 338 850

24 826

11 332

2 938

1 377 946

Total liabilities

7 840 568

6 638 924

5 315 762

2 039 840

21 835 094

Net foreign exchange exposure of balance sheet

3 233 182

-487 115

-525 841

738 151

2 958 377

-551 440

789 455

502 097

-716 595

23 517

2 681 742

302 340

-23 744

21 556

2 981 894

Derivative financial instruments Total net foreign exchange exposure

Notes to the consolidated financial statements

61


Interest rate risk Interest rate risk associated with non-trading financial instruments (loans and advances, fixed-income securities, term deposits, certificated debt, and derivative financial instruments) is part of the Group's asset and liability management process. Interest rate risk is measured by the use of gap analysis and interest rate sensitivities. The Asset and Liability Committee decides on any appropriate use of derivative financial instruments. The principal interest-related derivatives used are interest rate swaps and forward rate agreements. Interest rate risk strategy and measurement Interest rate risk control is implemented within the framework of LGT Group’s overall appetite for risk. The aim of an appropriate AL risk management system is to manage the interest rate risk of LGT Group and the Group companies to optimum effect. The limits must be applied using appropriate limit types to reflect the risk. The following limit types are used in this context: Gap limits for limiting matching maturities within specific maturity segments. Interest rate sensitivity limits for limiting the maximum potential loss on the market value of shareholders’ equity resulting from detrimental market movements in interest rates. The analysis shows the absolute changes in market values given a change of the respective key rate by +100 basis points. Within 6 months

Interest rate sensitivity analysis (CHF m)

All currencies 2010

More than 6 and less than 12 months

More than 1 and less than 5 years

More than 5 years

Total

-5,8

-0,9

-15,8

22,3

-0,2

All currencies 2009

2,4

-6,9

-23,6

16,4

-11,7

CHF 2010

1,8

7,5

-11,8

22,3

19,8

CHF 2009

2,6

-3,5

-21,1

16,6

-5,4

USD 2010

-5,0

-3,6

-0,6

-0,1

-9,3

USD 2009

1,8

-1,7

-0,4

0,0

-0,3

EUR 2010

-1,9

-1,3

-3,1

0,0

-6,3

EUR 2009

-0,2

-0,1

-1,4

-0,1

-1,8

The table below summarizes the average interest rate by major currencies for monetary financial instruments not carried at fair value through profit or loss: CHF in %

31 December 2010 EUR in % USD in %

CHF in %

31 December 2009 EUR in % USD in %

Assets Loans and advances to banks

0.16

0.67

0.60

0.29

0.50

0.33

Loans and advances to customers

1.81

1.97

1.65

2.07

2.11

1.87

Available-for-sale securities

0.76

1.26

1.77

2.76

0.56

1.04

Held-to-maturity securities

4.50

Amounts due to banks

0.35

0.70

0.12

0.39

0.27

0.91

Amounts due to customers

0.26

0.23

0.11

0.25

0.23

0.12

Certificated debt

2.47

2.50

Liabilities

62

Notes to the consolidated financial statements


Liquidity risk Liquidity risk is the risk that an entity will be unable to meet a financial commitment to a customer, creditor or investor in whatever location or currency. The management of liquidity is primarily directed toward ensuring that local funding requirements can be met. The distribution of sources and maturities of deposits is managed actively in order to ensure access to funds and to avoid a concentration of funding demand at any one time or from any one source. Sources of liquidity are regularly reviewed by a separate team in Group Treasury to maintain a wide diversification by currency, geography, provider, product and term. Liquidity management is subject to the overall monitoring and control of Group Treasury, which also manages excess liquidity for individual entities. LGT Bank in Liechtenstein Ltd., Vaduz, which attracts the majority of customers’ cash deposits within the Group, also performs the Group Treasury function. The Group’s liquidity management process includes: day-to-day funding, managed by monitoring future cash flows to ensure that requirements can be met. The Group maintains an active presence in global money markets to enable this to happen; maintaining a portfolio of highly marketable assets that can easily be liquidated as protection against any unforeseen interruption to cash flow; monitoring balance sheet liquidity ratios against internal and regulatory requirements; and managing the concentration and profile of debt maturities. Group Treasury also monitors unmatched medium-term assets, the level and type of undrawn lending commitments, the usage of overdraft facilities and the impact of contingent liabilities such as standby letters of credit and guarantees. The assumptions regarding gross loan commitments are based on expert opinions and also differentiated by the type of limit and the client type. In the following table, assets and liabilities are structured according to contractual terms. It summarizes the overall funding and investment structure of the Group.

Notes to the consolidated financial statements

63


Cash flow of assets and liabilities at 31 December 2010 (TCHF)

Within 1 month

More than 1 and less than 3 months

More than 3 and less than 12 months

More than 1 and less than 5 years

More than 5 years

Total

291 495

0

0

0

0

291 495

Loans and advances to banks

2 904 283

1 796 596

625 080

0

0

5 325 959

Loans and advances to customers

2 287 103

773 627

831 762

1 402 281

242 285

5 537 058

0

10 544

0

2 171

2 674

15 389

33 788 052

38 579 340

13 186 241

99 001

6 276

85 658 910

37 121

1 070 745

522 402

1 702 000

22 903

3 355 171

Available-for-sale securities

1 671 114

1 501 021

961 096

826 941

13 125

4 973 297

Held-to-maturity securities

0

0

0

0

0

0

Investments in associates

0

2 531 615

0

0

0

2 531 615

Cash in hand, balances with central banks

Securities held for trading purposes Derivative financial instruments Financial assets designated at fair value

Remaining assets Total assets Amounts due to banks

416 816

0

0

0

416 816

46 680 304

16 126 581

4 032 394

287 263

108 105 710

1 313 272

235 483

326 078

0

0

1 874 833

Amounts due to customers

12 814 883

464 412

640 158

332 811

0

14 252 264

Derivative financial instruments

33 817 660

38 618 915

13 352 034

102 080

6 575

85 897 264

Financial liabilities designated at fair value Certificated debt Remaining liabilities Total liabilities Commited credit lines

Cash flow of assets and liabilities at 31 December 2009 (TCHF)

0

805 791

0

0

0

805 791

4 146

227 287

50 524

874 388

566 912

1 723 257

0

150 770

0

0

0

150 770

47 949 961

40 502 658

14 368 794

1 309 279

573 487

104 704 179

54 504

92 738

65 307

136 963

2 302

351 814

Within 1 month

More than 1 and less than 3 months

More than 3 and less than 12 months

More than 1 and less than 5 years

More than 5 years

Total

746 774

0

0

0

0

746 774

Loans and advances to banks

6 119 447

1 314 681

449 999

0

0

7 884 127

Loans and advances to customers

2 471 510

787 840

925 064

1 480 173

171 368

5 835 955

Cash in hand, balances with central banks

Securities held for trading purposes Derivative financial instruments

0

73 630

0

0

0

73 630

52 194 982

9 549 385

8 378 703

253 942

6 345

70 383 357

Financial assets designated at fair value

155 058

1 534 076

542 738

807 563

43 073

3 082 508

Available-for-sale securities

365 417

1 021 618

571 338

836 141

32 175

2 826 689

Held-to-maturity securities

0

0

2 088

0

0

2 088

Investments in associates Total assets Amounts due to banks

0

2 419 334

0

0

0

2 419 334

62 053 188

16 700 564

10 869 930

3 377 819

252 961

93 254 462

1 019 086

239 115

170 747

0

0

1 428 948

Amounts due to customers

13 928 038

546 752

908 175

297 161

0

15 680 126

Derivative financial instruments

52 176 387

9 515 267

8 402 608

238 097

6 212

70 338 571

Financial liabilities designated at fair value Certificated debt Total liabilities Commited credit lines

64

0 40 979 168

Notes to the consolidated financial statements

0

1 120 200

0

0

0

1 120 200

11 453

25 941

353 972

1 117 790

313 563

1 822 719

67 134 964

11 447 275

9 835 502

1 653 048

319 775

90 390 564

17 058

19 528

30 092

140 861

11 278

218 817


Within 1 month

More than 1 and less than 3 months

More than 3 and less than 12 months

More than 1 and less than 5 years

More than 5 years

Total

Outflow

33 816 899

38 616 547

13 339 844

61 337

0

85 834 627

Inflow

33 787 992

38 575 959

13 173 344

61 313

0

85 598 608

761

2 368

12 189

40 743

6 576

62 637

59

3 381

12 897

37 688

6 277

60 302

0

0

0

0

0

0

Derivative cash flows at 31 December 2010 (TCHF)

Derivatives held for trading/hedging Foreign exchange derivatives

Interest rate derivatives Outflow Inflow Other derivatives Outflow

0

0

0

0

0

0

Total outflow

33 817 660

38 618 915

13 352 033

102 080

6 576

85 897 264

Total inflow

33 788 051

38 579 340

13 186 241

99 001

6 277

85 658 910

Within 1 month

More than 1 and less than 3 months

More than 3 and less than 12 months

More than 1 and less than 5 years

More than 5 years

Total

Outflow

52 176 219

9 512 328

8 388 500

184 748

0

70 261 795

Inflow

52 194 563

9 543 500

8 359 726

187 522

0

70 285 311

Outflow

168

2 939

14 108

53 349

6 212

76 776

Inflow

420

5 885

18 977

66 420

6 345

98 047

Outflow

0

0

0

0

0

0

Inflow

0

0

0

0

0

0

Total outflow

52 176 387

9 515 267

8 402 608

238 097

6 212

70 338 571

Total inflow

52 194 983

9 549 385

8 378 703

253 942

6 345

70 383 358

Inflow

Derivative cash flows at 31 December 2009 (TCHF)

Derivatives held for trading/hedging Foreign exchange derivatives

Interest rate derivatives

Other derivatives

Notes to the consolidated financial statements

65


Credit risk Credit risk is the risk that a counterparty of a financial instrument fails to meet its contractual obligation and causes LGT Group to incur a financial loss. Credit risk exposures arise principally in lending activities that lead to loans and advances, and investment activities that bring debt securities and other bills into the Group’s asset portfolio. Further there is also credit risk in derivative financial instruments and off-balance sheet financial instruments, such as loan commitments and financial guarantee contracts. Within LGT Group credit risk is primarily incurred by LGT Bank in Liechtenstein Ltd., Vaduz. Therefore the credit risk management and control are centralized in this unit. The conservative lending policy is established by internal directives, guidelines and written policy papers. These guidelines include: (i) limits on total commercial, mortgage and syndicated loan volume, (ii) limits on unsecured lending exposures to any one customer or customer group, (iii) percentage limits on borrower concentration within the Group’s credit portfolio and (iv) strict credit handling procedures and internal controls. Credit risk strategy Lending is an integrated part of the business philosophy of LGT Group and thus complementary to the wealth management services offered. Any transaction must be viewed in the context of the whole client relationship. It is not the policy of LGT Group to extend credit facilities on a stand alone basis, but only in conjunction with assets deposited or to be deposited with LGT Group. The risk appetite of LGT is low to moderate. The center for lending business within LGT Group is the credit function at LGT Bank Vaduz. As part of its comprehensive system for monitoring lending exposures, regular reports are provided at a Group level to the Foundation Board on (i) credit risk ratings, (ii) allowances, (iii) country exposures and (iv) bank limits. Stress Testing on securities and property collateral is executed regularly and on an ad hoc basis if requested by management. In addition, ad hoc reports of special events, as well as daily reports of global exposures to specific customers, are also provided on request. Credit risk measurement Loans and advances In measuring credit risk of loans and advances to customers and to banks at a counterparty level, the Group assesses the probability of default of individual counterparties using internal rating tools. They have been developed internally and combine statistical analysis with credit officer judgement and are validated, where appropriate, by comparison with externally available rating data. The Group regularly validates the performance of the rating tools and their predictive power with regard to default events. Debt securities and other bills For debt securities and other bills, external ratings such as Standard & Poor’s or Moody’s are used for managing the credit risk exposures. The credit function at LGT Bank Vaduz is responsible for extending counterparty limits, while Treasury is managing the individual positions within these limits. The investments in those securities and bills are viewed as a way to gain a better credit quality mapping and maintain a readily available source to meet the funding requirement at the same time. Assets by countries In addition to the limitation of credit exposures of customers or customer groups, LGT Group has restricted the group of countries in which credit risks may be incurred. Limits are established for these countries which are reviewed by the Foundation Board at least annually. The table below shows the allocation of assets by countries:

Assets by countries/country groups (TCHF) 1

2010

in %

2009

in %

Liechtenstein and Switzerland

9 616 816

39.4

6 217 621

25.1

Europe

7 432 771

30.5

10 227 070

41.2

Americas

2

4 381 021

18.0

5 646 702

22.8

Asia

1 316 979

5.4

1 202 053

4.8

Other countries

1 640 817

6.7

1 500 025

6.1

24 388 404

100.0

24 793 471

100.0

Total

66

1

Based on risk domicile of the assets.

2

Mainly Class Funds

Notes to the consolidated financial statements


Derivative financial instruments The Group maintains strict control limits on net open derivative positions. At any one time, the amount subject to credit risk is limited to the current fair value of instruments that are favorable to the Group, which in relation to derivatives is only a small fraction of the contract, or notional values used to express the volume of instruments outstanding. This credit risk exposure is managed as part of the overall lending limits with customers, together with potential exposures from market movements (an add-on factor is calculated depending on underlying risks and time to maturity of the contract). Settlement risk arises in any situation where a payment in cash, securities or equities is made in the expectation of a corresponding receipt in cash, securities or equities. Daily settlement limits are established for each counterparty to cover the aggregate of all settlement risk arising from the Group’s market transactions on any single day. As member of the CLS (Continuous Linked Settlement) network LGT is able to mitigate major parts of its daily settlement risk via forex netting. Off-balance sheet financial instruments The primary purpose of off-balance sheet financial instruments is to ensure that funds are available to a customer as required. LGT Group has credit commitments in the form of guarantees and standby letters. These credit commitments carry the same credit risk as loans, and therefore the same lending criteria and identical limitation processes are applied. Risk limit control and mitigation policies LGT Group systematically manages, limits and controls concentrations of credit risk. As part of the credit risk management policy, exposures are structured by placing limits on the amount of risk accepted in relation to one borrower, or groups of borrowers, and to geographical segments. The risks and their changes are closely monitored on a revolving basis and subject to an annual or more frequent review, when considered necessary. Centralized loan approval procedures ensure a consistent lending process. In line with the conservative credit policy a major part of the Group’s credit exposure is mitigated. The principal collaterals used within LGT Group are mortgages over residential properties and charges over financial instruments such as debt securities, equities and funds. Upon initial recognition of loans and advances, the fair value of collateral is based on valuation techniques commonly used for the corresponding assets. In subsequent periods, the fair value is updated by reference to market prices or indexes of similar assets. Because of the fact that mortgages are granted primarily within Liechtenstein and Switzerland, LGT Group is exposed to the market trends of the real estate sector in these countries.

Collateral accepted as security for assets (TCHF) Fair value of financial assets accepted as collateral that the Group is permitted to sell or repledge in the absence of default

2010

2009

293 777

4 061 446

Notes to the consolidated financial statements

67


Impairment and provisioning policies The Group’s policy requires the review of individual financial assets that are above materiality thresholds at least annually or more regularly when individual circumstances require it. Impairment allowances on individually assessed accounts are determined by an evaluation of the incurred loss at balance-sheet date on a case-by-case basis, and are applied to all individually significant accounts. The assessment normally encompasses collateral held (including reconfirmation of its enforceability) and the anticipated receipts for that individual account. Assets are summarized separately if contractual interest or principal payments are past due but the Group believes that impairment is not appropriate yet.

Distribution of loans and advances by credit quality (TCHF)

Neither past due nor impaired Past due but not impaired Impaired Total loans and advances (gross) Less allowance for impairment Total loans and advances (net)

Distribution of loans and advances which where past due but not impaired (TCHF) Past due up to 30 days

Loans and advances to customers

2010 Loans and advances to banks

Loans and advances to customers

2009 Loans and advances to banks

4 979 627

5 316 583

5 424 181

8 216 711

381 059

0

245 324

0

40 889

0

42 303

0

5 401 575

5 316 583

5 711 808

8 216 711

17 975

0

20 846

0

5 383 600

5 316 583

5 690 962

8 216 711

Loans and advances to customers

2010 Loans and advances to banks

Loans and advances to customers

2009 Loans and advances to banks

312 980

0

180 642

0

Past due 31–60 days

20 150

0

9 372

0

Past due more than 60 days

47 929

0

55 310

0

381 059

0

245 324

0

Total

Collectively assessed impairment allowances are provided for: (i) portfolios of homogenous assets that are individually below materiality thresholds; and (ii) losses that have been incurred but have not yet been identified, by using the available historical experience, experienced judgement and statistical techniques.

Loans and advances to customers

2010 Loans and advances to banks

Loans and advances to customers

2009 Loans and advances to banks

Specific allowance for impairment

12 875

0

15 226

0

Portfolio allowance for impairment

5 100

0

5 620

0

17 975

0

20 846

0

Impaired loans and advances (TCHF)

Total

LGT Group obtained assets by taking possession of collateral held as security. Repossessed properties are sold as soon as practicable, with the proceeds used to reduce the outstanding indebtedness.

Carrying amount of collateral and other credit enhancements obtained (TCHF) Residential, commercial and industrial property

68

Notes to the consolidated financial statements

2010

2009

481

481


Operational risk Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. By their nature, operational risks are difficult to identify, measure and manage. They can be caused deliberately or accidentally or be of natural origin and encompass all elements of the organization. Operational risks are inherent in all types of products, activities, processes and systems. LGT Group has established a group-wide Operational Risk Committee which provides the Group CEO with support in the early identification of these risks and in implementing appropriate measures. These tasks are based on the principles stipulated in the ‘Sound Practices for the Management and Supervision of Operational Risk’ issued by the Basel Committee on Banking Supervision. The set guidelines ensure that risk management takes care of all defined risk categories: Internal and external fraud Employment practices and workplace safety Customers, products and business practices Damage to physical assets Business disruption and system failures Execution, delivery and process management. Operational risk measurement The operational risk measurement approach is based on the one hand on appropriate measures adapted for business units, such as an internal monitoring system and on the other hand on three dimensions in which the above risk categories are assessed. Risk self-assessment The risk self-assessment represents a qualitative judgement of the risk situation. On a regular basis the group functions identify and measure operational risk through estimates based on the consensus opinion of members of the management and/or the staff. The main objective of this process is the identification, assessment and mitigation of operational risk. Key risk indicators Key risk indicators evaluated on a quantitative basis give insight into the extent of stress of an activity. These indicators are used to monitor and foresee trends and serve as an early warning system. For monitoring operational efficiency and demonstrating the effectiveness of controls, every business unit has built up a selection of business data considered useful for the purpose of risk tracking. Error event data base Every business unit captures and accumulates individual error events across risk types. Such a data base is a tool to measure, quantify and provide financial operational risk data. Exception procedure The business units and group functions immediately inform Group Risk Controlling about essential operational risk events (e.g. essential error events, essential near-losses).

Notes to the consolidated financial statements

69


Operational risk organization and reporting The preparation, processing and analysis of relevant data are centralized, as in other risk categories, in Group Risk Controlling. Definition of the roles within the operational risk organization The Foundation Board has the overall responsibility for the management of operational risks and the constitution of the operational risk policy. The Group CEO/Senior Management Board are responsible for the establishment and maintenance of an appropriate risk organization to manage operational risks for LGT Group. The Operational Risk Committee identifies and evaluates the operational risks and submits recommendations to Group Risk Controlling. Line management is responsible for the identification and assessment of operational risk in their business unit. This includes (i) management of operational risk according to the operational risk principles, (ii) definition of appropriate standards for the management of operational risks, (iii) ensuring operational risk processes are efficiently documented, followed and reviewed, (iv) measuring and reporting operational risks on a timely basis to Risk Controlling, (v) determining and updating process and system requirements to maintain adequate risk management tools, (vi) identification and review of risk profiles, (vii) definition and implementation of actions. Group Risk Controlling is responsible for operational risk control. This includes (i) group-wide coordination of operational risk management issues and efforts, (ii) ensuring compliance of risk management with the operational risk principles, (iii) collecting and analyzing error events, assessments and risk indicators, (iv) regular reporting to the Audit Committee, the Group CEO and the Senior Management Board and (v) monitoring of actions taken.

70

Notes to the consolidated financial statements


Fair value of financial instruments not carried at fair value Fair value information is used for business purposes in determining an enterprise’s overall financial position. Fair value information permits comparisons of financial instruments having substantially the same economic characteristics.

Carrying amount

2010 Fair value

Carrying amount

2009 Fair value

Loans and advances to banks

5 316 583

5 321 963

8 216 711

8 228 223

Loans and advances to customers

5 383 600

5 465 646

5 690 962

5 818 991

0

0

1 998

2 078

1 871 916

1 873 412

1 454 580

1 455 619

14 239 473

14 240 735

16 210 051

16 210 872

1 570 416

1 652 739

1 672 317

1 740 881

Financial assets (TCHF)

Held-to-maturity securities

Financial liabilities (TCHF) Amounts due to banks Amounts due to customers Certificated debt Loans and advances to banks The estimated fair value of loans and advances to banks is based on discounted cash flows using prevailing market interest rates for debts with similar credit risk and remaining maturity. Loans and advances to customers Loans and advances are stated net of impairments. The estimated fair value of loans and advances to customers represents the discounted amount of estimated future cash flows expected to be received. Held-to-maturity securities Held-to-maturity securities include fixed-income securities. Their fair value is estimated on the basis of the discounted cash flows. Amounts due to banks or to customers The calculation of the fair values of the amounts due to banks or customers is based on the discounted cash flow method using interest rates for new debts with similar remaining maturity. Certificated debt The aggregated fair values are calculated under the discounted cash flow method. The model is based on a current yield curve appropriate for the remaining term to maturity.

Notes to the consolidated financial statements

71


Pillar III disclosures according to Basel II This section contains our Basel II Pillar III disclosures as of 31 December 2010 and consists only of quantitative disclosures. Qualitative disclosures related to our risk management and control can be found in section risk management of this report. Geographical credit risk at 31 December 2010 (TCHF)

Switzerland

Oceania

North America

Liechtenstein

Latin America

Loans and advances Liquid assets Loans and advances to banks

257 603

53

1 750

61

0

1 334 506

26 107

88 154

107 040

91

269 971

68 822

119 678

541 718

37 477

Mortgages

1 147 534

4 501

0

1 213 387

0

Securities

2 414 400

457 581

711 701

222 868

29 094

28 877

3 078

5 412

58 501

342

Loans and advances to customers

Other assets Replacement value after netting

1 091 802

1 216

79 473

35 763

2 291

Total

6 544 693

561 358

1 006 168

2 179 338

69 295

Contingent liabilities

25 175

1 532

9 094

71 998

3 349

Commitments

16 039

0

50

7 074

0

0

0

0

6 178

0

277 716

981

13 210

18 040

3 376

0

0

0

0

0

Off-balance sheet

Deposit and reserve liabilities Add-ons Securities

-1 311

0

0

-5 954

0

Total reporting period

6 862 312

563 871

1 028 522

2 276 674

76 020

Total 2009

3 588 618

319 145

1 376 137

2 082 778

29 666

10 069

11

151

23 069

6

2 587

0

258

1 073

0

Europe

Caribbean

Asia

Africa

Total

General allowance

Impaired loans Impaired loans Specific allowance

Loans and advances Liquid assets Loans and advances to banks Loans and advances to customers Mortgages Securities Other assets Replacement value after netting Total

31 964

0

57

7

291 495

3 606 950

329

148 215

5 190

5 316 582

825 092

782 274

303 080

61 930

3 010 042

43 618

0

26 466

0

2 435 506

2 610 062

2 470 317

752 731

0

9 668 754

77 388

6 670

6 231

16

186 515

444 450

31 241

3 669

947

1 690 852

7 639 524

3 290 831

1 240 449

68 090

22 599 746

116 950

31 583

10 638

3 547

273 866

Off-balance sheet Contingent liabilities Commitments Deposit and reserve liabilities Add-ons Securities General allowance Total reporting period Total 2009

39 572

0

0

0

62 735

0

22 612

0

0

28 790

132 810

15 938

958

206

463 235

0

16

672

41

729

-4 955

-96

-2

0

-12 318

7 923 901

3 360 884

1 252 715

71 884

23 416 783

10 806 794

4 037 112

1 109 486

82 430

23 432 166

11 456

984

1 163

8

46 917

6 093

0

0

0

10 011

Impaired loans Impaired loans Specific allowance 72

Notes to the consolidated financial statements


Segmentation of credit risk at 31 December 2010 (TCHF)

0%

10%

20%

35%

50%

291 495

0

0

0

0

0

0

3 945 316

0

1 364 231

1 774 965

0

141 544

10 144

32 081

87 973

0

0

1 694 844

124 289

3 179 289

0

1 562 331

0

2 077 359

92

0

16 605

0

2 610

Loans and advances Liquid assets Loans and advances to banks Loans and advances to customers Mortgages Securities Other assets Replacement value after netting Total

11 648

0

895 340

0

706 766

5 345 462

0

6 561 136

1 704 988

4 307 336

210 155

0

11 539

409

110

638

0

1 739

2 355

78

0

0

0

0

0

8 432

0

238 230

0

178 643

0

0

0

0

0

Off-balance sheet Contingent liabilities Commitments Deposit and reserve liabilities Add-ons Securities General allowance

-12 318

0

0

0

0

Total reporting period

5 552 369

0

6 812 644

1 707 752

4 486 167

Total 2009

4 297 709

0

10 715 461

1 588 345

1 507 836

5 970

0

3

937

0

615

0

3

1 112

0

75%

100%

150%

≼ 200%

Total

Impaired loans Impaired loans Specific allowance

Loans and advances Liquid assets

0

0

0

0

291 495

Loans and advances to banks

0

7 030

5

0

5 316 582

Loans and advances to customers

110 852

921 035

19 421

0

3 010 042

Mortgages

0

521 175

7 225

0

2 435 506

Securities

0

720 862

2 128 913

0

9 668 754

Other assets

0

167 206

2

0

186 515

Replacement value after netting Total

0

77 093

5

0

1 690 852

110 852

2 414 401

2 155 571

0

22 599 746

0

48 913

2 740

0

273 866

Off-balance sheet Contingent liabilities Commitments

0

57 925

0

0

62 735

Deposit and reserve liabilities

0

28 790

0

0

28 790

Add-ons

0

37 924

6

0

463 235

Securities

0

0

729

0

729

General allowance

0

0

0

0

-12 318

Total reporting period

110 852

2 587 953

2 159 046

0

23 416 783

Total 2009

110 519

3 275 182

1 937 114

0

23 432 166

Impaired loans

63

28 127

11 817

0

46 917

Specific allowance

77

8 132

72

0

10 011

Impaired loans

Notes to the consolidated financial statements

73


Credit risk/credit risk reduction at 31 December 2010 (TCHF)

Covered by Covered by financial guarantees and collateral credit derivatives

Mortgagebacked

Other collateral

Total

0

0

0

Loans and advances Liquid assets Loans and advances to banks Loans and advances to customers Mortgages Securities Other assets Replacement value after netting Total

0

0

291 833

0

0

0

291 833

1 704 000

136 583

32 474

70 908

1 943 965

8 239

0

2 393 589

19 561

2 421 389

0

0

0

0

0

91

0

0

1

92

11 562

41

0

85

11 688

2 015 725

136 624

2 426 063

90 555

4 668 967

207 153

1 052

841

2 876

211 922

437

0

18 799

0

19 236

Off-balance sheet Contingent liabilities Commitments Deposit and reserve liabilities Add-ons Securities

0

0

0

0

0

8 356

28

0

76

8 460

0

0

0

0

0

0

0

0

0

0

Total reporting period

2 231 671

137 704

2 445 703

93 507

4 908 585

Total 2009

7 169 668

77 489

2 240 097

48 187

9 535 441

5 462

0

24 214

509

30 185

514

0

2 542

101

3 157

General allowance

Impaired loans Impaired loans Specific allowance

74

Notes to the consolidated financial statements


Credit risk/distribution according counterparty or sector at 31 December 2010 (TCHF)

States and central banks

Public authorities

Administrative facilities

Multilateral development banks

291 495

0

0

0

Loans and advances Liquid assets Loans and advances to banks Loans and advances to customers Mortgages Securities Other assets Replacement value after netting Total

0

0

0

0

50 915

3 566

10 939

13 072

3 635

0

0

0

3 209 044

10 916

158 694

47 865

317

0

207

1

1 794

0

636

2 187

3 557 200

14 482

170 476

63 125

12 413

325

805

1 523

136

19

1 739

2

0

0

0

0

Off-balance sheet Contingent liabilities Commitments Deposit and reserve liabilities

3 063

0

762

367

Securities

0

0

0

0

General allowance

0

0

0

0

Add-ons

Total reporting period

3 572 812

14 826

173 782

65 017

Total 2009

1 962 203

85 847

112 754

40 734

0

0

3

0

134

0

3

0

International organizations

Banks

Corporates

Retail

Liquid assets

0

0

0

0

Loans and advances to banks

0

3 571 292

1

0

Loans and advances to customers

0

423 725

1 547 352

902 204

Mortgages

0

243

14 229

21 497

Securities

0

2 556 409

1 509 922

14 781

Other assets

0

12 667

10 739

162 551

Replacement value after netting

0

1 012 844

66 549

15 526

Total

0

7 577 180

3 148 792

1 116 559

0

60 852

117 921

78 778

Commitments

0

125

19 187

22 728

Deposit and reserve liabilities

0

0

28 790

0

Add-ons

0

253 248

34 780

7 207

Securities

0

0

0

0

General allowance

0

-2

-1 298

-11 018

Impaired loans Impaired loans Specific allowance

Loans and advances

Off-balance sheet Contingent liabilities

Total reporting period

0

7 891 403

3 348 172

1 214 254

Total 2009

0

11 124 854

4 049 570

1 116 267

Impaired loans Impaired loans

0

0

30

6 796

Specific allowance

0

0

5

5 491

Notes to the consolidated financial statements

75


Credit risk/distribution according counterparty or sector at 31 December 2010 (TCHF)

Mortgagebacked

Overdue

Investment in associates

Covered notes

Liquid assets

0

0

0

0

Loans and advances to banks

0

0

0

0

Loans and advances

Loans and advances to customers Mortgages

30 705

27 564

0

0

2 365 109

30 793

0

0

Securities

0

0

220

0

Other assets

0

0

0

0

Replacement value after netting Total

0

0

0

0

2 395 814

58 357

220

0

841

0

0

0

Off-balance sheet Contingent liabilities

18 799

0

0

0

Deposit and reserve liabilities

0

0

0

0

Add-ons

0

0

0

0

Securities

0

0

729

0

Commitments

0

0

0

0

Total reporting period

2 415 454

58 357

949

0

Total 2009

2 186 805

80 951

2 548

3 002

Impaired loans

1 805

38 283

0

0

Specific allowance

1 547

2 831

0

0

Short-term

Investment fund shares

Other

Total

0

0

0

291 495

General allowance

Impaired loans

Loans and advances Liquid assets

1 745 289

0

0

5 316 582

Loans and advances to customers

0

0

0

3 010 042

Mortgages

0

0

0

2 435 506

Securities

0

2 160 903

0

9 668 754

Loans and advances to banks

Other assets Replacement value after netting Total

33

0

0

186 515

591 316

0

0

1 690 852

2 336 638

2 160 903

0

22 599 746

408

0

0

273 866

0

0

0

62 735

Off-balance sheet Contingent liabilities Commitments

0

0

0

28 790

163 808

0

0

463 235

Securities

0

0

0

729

General allowance

0

0

0

-12 318

Deposit and reserve liabilities Add-ons

Total reporting period

2 500 854

2 160 903

0

23 416 783

645 075

2 021 590

-35

23 432 166

Impaired loans

0

0

0

46 917

Specific allowance

0

0

0

10 011

Total 2009 Impaired loans

In certain cases, our Pillar III disclosures can differ from the way we manage our risks and how these risks are disclosed in other sections of this annual report.

76

Notes to the consolidated financial statements


LGT Group Foundation

77


Report of the statutory auditors

78

LGT Group Foundation – report of the statutory auditors


Income statement Income statement (TCHF)

Note

2010

2009

6

2 228

-4 351

-8 456

Interest and dividend income Interest earned Interest paid and similar charges

-4 345

-6 228

Current income from participations

160 230

160 161

Total interest and dividend income

155 885

153 933

Net interest

Income from commission and service fee activities Commission expenses Income from financial transactions (all from trading activities) Other operating income

1

Total operating income

-211

-6

2 080

2 780

49 281

64 073

207 035

220 780

Administrative expenses Personnel expenses

2

-10 452

-13 046

Business and office expenses

3

-80 182

-15 027

-90 634

-28 073

-1

-10 827

Allowances for impaired loans and increase of provisions for contingent liabilities and credit risk

0

-5 955

Release of allowances for impaired loans and for provisions for contingent liabilities and credit risk

0

19 425

-3 352

-8 243

113 048

187 107

Total administrative expenses

Other operating expenses

Depreciation, allowances and provision on subsidiary undertakings, affiliated companies and securities treated as current assets Profit for the period

Appropriation of available Foundation earnings Balance at the beginning of the period

245 207

133 100

Profit for the period

113 048

187 107

358 255

320 207

Payment to the Prince of Liechtenstein Foundation

-75 000

-75 000

Balance to be carried forward

283 255

245 207

The Foundation Board proposes to the Foundation Meeting of 28 April 2011:

The accounting principles and the notes on pages 81 to 90 form part of these accounts. The accounts on pages 81 to 90 were approved by the Foundation Board on 28 April 2011 and are signed on its behalf by H.S.H. Prince Philipp von und zu Liechtenstein, Chairman, and Olivier de Perregaux, CFO.

LGT Group Foundation – income statement

79


Balance sheet Balance sheet (TCHF)

Note

2010

2009

4

672

792

672

792

Assets Loans and advances to banks (subsidiary undertakings) of which on demand Other loans and advances to customers (subsidiary undertakings)

5

554 508

521 508

Participations (shares in associated companies)

6

1 067 862

1 067 895

Other assets

7

148 578

142 114

Prepayments and accrued income Total assets

0

339

1 771 620

1 732 648

1 022 000

1 017 500

Liabilities Amounts due to banks

8

0

0

1 022 000

1 017 500

9

8 504

8 691

2 146

3 879

10

41 671

43 327

of which due daily of which other loans Other liabilities Accrued expenses and deferred income Provisions Foundation capital

339 044

339 044

Profit/loss to be carried forward

245 207

133 100

113 048

187 107

1 771 620

1 732 648

Profit for the period Total liabilities

11

Off-balance sheet items (TCHF) 5 139

6 067

Guarantees and similar instruments

1 487 422

1 765 176

of which for affiliated companies

1 487 422

1 765 176

14 481

16 334

Collateralization guarantees and similar instruments

Put options 1 Contract volume

The guarantees and similar instruments are valued with the carrying amount except 3 (2009: except 3) guarantees without specified amount, which are valued with their pro memoria value. 1

Put option in favor of a Group company.

The accounting principles and the notes on pages 81 to 90 form part of these accounts.

80

LGT Group Foundation – balance sheet


Notes to the financial statements Accounting principles Introduction

Loans and advances

The accounting principles are in accordance with the

These items are calculated at nominal values. Value

Liechtenstein Law on Persons and Companies (PGR)

adjustments for identifiable individual risks are set off

and the Liechtenstein Banking Law and its directives.

against the corresponding asset positions.

A summary of the most important accounting principles, which have been applied consistently, is set

Financial liabilities and provisions

out below.

These items are shown at nominal values. Provisions have been created for operational and other risks.

Basis of accounting The accounts are prepared using the historical cost

Derivative financial instruments

convention. All transactions are recorded on a trade

Derivative financial instruments that are held for trad-

date basis.

ing purposes are valued at their fair market value with changes in fair market value recognized in income from

Foreign currencies

trading activities. The related positive and negative

Revenue items denominated in foreign currencies are

replacement values are stated at gross values. Income

translated at the exchange rates ruling on the dates of

and expense arising on derivatives used in the context

the transactions. Assets and liabilities denominated in

of asset and liability management, primarily interest

foreign currencies are translated at the exchange rates

rate swaps and forward rate agreements, are recog-

ruling on the balance sheet date, except financial fixed

nized on an accrual basis, as this reflects the Group’s

assets, which are translated at historical rates. Exchange

risk management.

differences are entered in the income statement. Risk management Participations

Risks are defined by the adverse impact on profitability

Participations represent investments in subsidiary

of several distinct sources of uncertainty. LGT Group

undertakings and are stated at cost, less any provision

Foundation is exposed to market risks, credit risks,

for permanent diminution in value.

liquidity risks, operational and business event risks.

Debt instruments and shares

and its regular review. The risk policy comprises two

The Foundation Board is responsible for the risk policy Realized gains or losses arising from the disposal of

key elements:

securities are entered in the income statement.

Securities held as current assets (short-term assets) are shown at market value. Other securities are stated at the lower of cost or market value.

risk strategy, which details the overall approach to risk-taking desired by the Board; and

risk principles, which translate the risk strategy into operating standards for both the risk organization and required risk processes.

Dividends Proposed dividends from subsidiary undertakings are

Risk management on a daily basis is conducted by the

accrued as receivables in the accounts.

line management. The overall responsibility lies within the executive management teams of each business unit. The risk controlling unit oversees the risk-taking activities of LGT Group Foundation and reports directly to the Board.

LGT Group Foundation – notes to the financial statements

81


Details on the income statement and balance sheet Overview LGT Group Foundation was established on 20 July 2001 and is the top holding company of LGT Group. Its purpose is the holding of the majority of the subsidiaries of LGT Group. For a complete list of subsidiary undertakings see note 6 below. The profit for the business year 2010 amounts to 113 048. The balance sheet total increased by 38 972 or 2.25% to 1 771 620.

1

Other operating income (TCHF) Income from subsidiary undertakings (licence fees, income from service level agreements and service charge for comfort letters) Realized net result from investment securities Others Total other operating income

2

Personnel expenses (TCHF)

2010

2009

45 061

45 725

-178

10 778

4 398

7 570

49 281

64 073

2010

2009

Personnel expenses, including Foundation Board members, consisting of salaries

3 883

3 192

bonuses

3 771

5 272

420

627

pension costs social security costs

486

745

other personnel expenses

723

1 579

9 283

11 415

Personnel expenses before long-term incentive scheme

3

Long-term incentive scheme

1 169

1 631

Total personnel expenses

10 452

13 046

2010

2009

42

46

Business and office expenses (TCHF) Business and office expenses, consisting of information and communication expenses travel and entertainment expenses legal and professional expenses 1 advertising expenses other expenses Total business and office expenses 1

82

775

607

74 513

11 383

4 729

2 991

123

0

80 182

15 027

In 2010 legal and professional expenses include EUR 50 million payment under agreement with the Bochum public prosecuter following the data theft case.

LGT Group Foundation – notes to the financial statements


4

Loans and advances to banks (subsidiary undertakings) on demand The loans and advances to banks are bank accounts with LGT Bank in Liechtenstein Ltd., Vaduz.

5

Other loans and advances to customers The loans and advances are due from subsidiaries and are not secured by collateral.

6

Participations (TCHF) Acquisition cost

2010

2009

1 177 727

1 136 926

-109 832

-107 311

1 067 895

1 029 615

Investments

559

51 937

Depreciation

-352

-8 243

Disposals

-200

-5 414

Accumulated depreciation Opening balance

Liquidation Closing balance

-40

0

1 067 862

1 067 895

All participations of LGT Group Foundation are unlisted.

LGT Group Foundation – notes to the financial statements

83


The subsidiary undertakings of LGT Group Foundation at 31 December 2010 were:

Name

Principal activity

LGT Bank in Liechtenstein Ltd.

Banking and investment management

LGT Swiss Life Non Traditional Advisers Ltd.

Investment advisers

LGT Private Equity Advisers Ltd.

Investment advisers

LGT Capital Management Ltd.

Investment management

LGT Funds Ltd.

Investment advisers

1

LGT Funds II Ltd.1

Investment advisers

LGT Investments Ltd.

Investment advisers

1

LGT Premium Strategy Ltd.

1

Investment advisers

LGT Fondsleitung Ltd.

Investment advisers

LGT Capital Partners Advisers Ltd.

Investment advisers

LGT Financial Services Ltd.

Services company

LGT Audit Revisions AG

Audit services

LGT Bank (Singapore) Ltd.

Banking and investment management

LGT Investment Management (Asia) Ltd.

Consulting and advisers

LGT Holding (Malaysia) Ltd.

Holding company

LGT Bank in Liechtenstein (Cayman) Ltd.

Banking and investment management

LGT Finance Ltd.

Financing

LGT Global Invest Ltd.

Investment management

LGT Participations Ltd.

Investment management

LGT Certificates Ltd.5

Investment management

LGT (Uruguay) S.A.

Bank representation

6

1

Companies with variable share capital structure, only part of fund manager held by LGT Group Foundation.

2

Partly held via LGT Global Invest Ltd., Grand Cayman.

3

Voting rights held via LGT Bank in Liechtenstein Ltd., Vaduz.

4

Partly held via LGT Bank in Liechtenstein Ltd., Vaduz.

5

Company with variable share capital structure, only founder’s shares held by LGT Group Foundation.

6

Acquired as per 13 August 2010.

LGT Trust (Singapore) Ltd., LGT Management Services (Singapore) Pte. Ltd. and LGT Management Services (HK) Ltd. were sold in 2010. Castle Holdco Ltd. was liquidated as per 16 December 2010.

84

LGT Group Foundation – notes to the financial statements


Registered office

% of voting rights held

% of capital held

Share capital (paid in)

Net profit of the subsidiary in business year 2010 (‘000)

Vaduz – Liechtenstein

100.0

100.0

CHF

291 200 800

CHF

257 283

Vaduz – Liechtenstein

57.9

57.9

CHF

1 000 000

CHF

4 329

Vaduz – Liechtenstein

60.0

60.0

CHF

1 000 000

CHF

8 682

Vaduz – Liechtenstein

100.0

100.0

CHF

1 000 000

CHF

5 260

Vaduz – Liechtenstein

100.0

100.0

CHF

50 000

CHF

0

Vaduz – Liechtenstein

100.0

100.0

CHF

50 000

CHF

0

Vaduz – Liechtenstein

100.0

100.0

CHF

50 000

CHF

14

Vaduz – Liechtenstein

100.0

100.0

CHF

50 000

CHF

0

Vaduz – Liechtenstein

100.0

100.0

CHF

1 000 000

CHF

0

Vaduz – Liechtenstein

100.0

100.0

CHF

250 000

CHF

5 173

Vaduz – Liechtenstein

100.0

100.0

CHF

1 000 000

CHF

2 713

Vaduz – Liechtenstein

100.0

100.0

CHF

100 000

CHF

-4

Singapore

100.0

100.0

SGD

370 000 000

CHF

2 812

Hong Kong – China

100.0 2

100.0 2

HKD

24 000 000

HKD

9 294

Labuan – Malaysia

100.0

100.0

CHF

100 000

CHF

-832

Grand Cayman – Cayman Islands

100.0

100.0

USD

600 000

CHF

16 154

Grand Cayman – Cayman Islands

100.0

100.0

USD

50 001

CHF

1 051

Grand Cayman – Cayman Islands

100.0

100.0

CHF

4

CHF

54 725

3

4

Grand Cayman – Cayman Islands

100.0

100.0

CHF

7

CHF

-640

Grand Cayman – Cayman Islands

100.0

100.0

CHF

1

CHF

0

Montevideo – Uruguay

100.0

100.0

UYU

2 823 500

USD

2

The book value of the participations in banks and finance companies is CHF 808 351 526.

LGT Group Foundation – notes to the financial statements

85


7

Other assets (TCHF) Dividend proposed from LGT Bank in Liechtenstein Ltd., Vaduz Receivables from subsidiary undertakings Receivables from others Total

8

9

Amounts due to banks (TCHF)

6 632

15 120

16 090

148 578

142 114

2010

2009

1 022 000

1 017 500 1 017 500

Other liabilities (TCHF)

2010

2009

Bonuses

4 296

5 246

987

540

2 698

2 186

14

621

509

98

Total

8 504

8 691

Provisions (TCHF)

2010

2009

Opening balance

43 327

56 925

0

10 827

Provisions released

-1 656

-24 425

Closing balance

41 671

43 327

2010

2009

Equity at the beginning of the business year

659 251

547 144

Payment to the Prince of Liechtenstein Foundation

-75 000

-75 000

Profit for the period

113 048

187 107

Total equity at the end of the business year

697 299

659 251

2010

2009

7

7

Others

Current year expenses

Statement of changes in equity (TCHF)

Headcount Headcount at 31 December

86

119 392

5 330

1 022 000

Social security costs

12

128 128

Total

Long-term incentive scheme

11

2009

Amounts due to LGT Bank in Liechtenstein Ltd., Vaduz

Salaries

10

2010

LGT Group Foundation – notes to the financial statements


13

Analysis of balance sheet by origin at 31 December 2010 (TCHF)

Foreign

%

Domestic

%

Total

%

0

0.00

672

100.00

672

100.00

Other loans and advances

554 508

100.00

0

0.00

554 508

100.00

Participations

545 925

51.12

521 937

48.88

1 067 862

100.00

2 312

1.56

146 266

98.44

148 578

100.00

Assets Loans and advances to banks

Other assets Prepayments and accrued income Total assets

0

0.00

0

0.00

0

0.00

1 102 745

62.25

668 875

37.75

1 771 620

100.00

0

0.00

1 022 000

100.00

1 022 000

100.00

Liabilities Amounts due to banks Other liabilities Accrued expenses and deferred income Provisions

52

0.61

8 452

99.39

8 504

100.00

1 243

57.92

903

42.08

2 146

100.00

0

0.00

41 671

100.00

41 671

100.00

0

0.00

697 299

100.00

697 299

100.00

1 295

0.07

1 770 325

99.93

1 771 620

100.00

Foreign

%

Domestic

%

Total

%

0

0.00

792

100.00

792

100.00

Other loans and advances

521 508

100.00

0

0.00

521 508

100.00

Participations

545 926

51.12

521 969

48.88

1 067 895

100.00

0

0.00

142 114

100.00

142 114

100.00

Foundation capital Total liabilities

Analysis of balance sheet by origin at 31 December 2009 (TCHF) Assets Loans and advances to banks

Other assets Prepayments and accrued income Total assets

339

100.00

0

0.00

339

100.00

1 067 773

61.63

664 875

38.37

1 732 648

100.00

0

0.00

1 017 500

100.00

1 017 500

100.00

Liabilities Amounts due to banks Other liabilities Accrued expenses and deferred income Provisions Foundation capital Total liabilities

0

0.00

8 691

100.00

8 691

100.00

2 834

73.06

1 045

26.94

3 879

100.00

0

0.00

43 327

100.00

43 327

100.00

0

0.00

659 251

100.00

659 251

100.00

2 834

0.16

1 729 814

99.84

1 732 648

100.00

LGT Group Foundation – notes to the financial statements

87


14

Breakdown of assets according to country/country group (TCHF) Liechtenstein Europe excl. Liechtenstein

%

2009

%

668 875

37.75

664 875

38.37

2 165

0.12

339

0.02

Americas

255 224

14.41

255 224

14.73

Asia

845 356

47.72

812 210

46.88

1 771 620

100.00

1 732 648

100.00

Total assets

88

2010

LGT Group Foundation – notes to the financial statements


15

Foreign exchange exposure at 31 December 2010 (TCHF)

Swiss Francs

US Dollars

Euros

Other

Total

672

0

0

0

672

Assets Loans and advances to banks Other loans and advances

554 508

0

0

0

554 508

Participations

777 036

224

0

290 602

1 067 862

Other assets

148 578

0

0

0

148 578

0

0

0

0

0

1 480 794

224

0

290 602

1 771 620

1 022 000

0

0

0

1 022 000

Other liabilities

8 504

0

0

0

8 504

Accrued expenses and deferred income

2 146

0

0

0

2 146

41 671

0

0

0

41 671

Prepayments and accrued income Total assets

Liabilities Amounts due to banks

Provisions Foundation capital Total liabilities

Foreign exchange exposure at 31 December 2009 (TCHF)

697 299

0

0

0

697 299

1 771 620

0

0

0

1 771 620

Swiss Francs

US Dollars

Euros

Other

Total

792

0

0

0

792

Assets Loans and advances to banks Other loans and advances

521 508

0

0

0

521 508

Participations

777 069

224

0

290 602

1 067 895

Other assets

142 114

0

0

0

142 114

339

0

0

0

339

1 441 822

224

0

290 602

1 732 648

1 017 500

0

0

0

1 017 500

Other liabilities

8 691

0

0

0

8 691

Accrued expenses and deferred income

3 879

0

0

0

3 879

43 327

0

0

0

43 327

659 251

0

0

0

659 251

1 732 648

0

0

0

1 732 648

Prepayments and accrued income Total assets

Liabilities Amounts due to banks

Provisions Foundation capital Total liabilities

LGT Group Foundation – notes to the financial statements

89


16

Analysis of current assets and liabilities by maturity at 31 December 2010 (TCHF)

On demand

Within 3 months

More than 3 and less than 12 months

More than 12 months

Total

672

0

0

0

672

Current assets Loans and advances to banks Other loans and advances

554 508

0

0

0

554 508

0

10 450

128 128

10 000

148 578

Other assets

0

0

0

0

0

555 180

10 450

128 128

10 000

703 758

Amounts due to banks

0

720 000

302 000

0

1 022 000

Other liabilities

0

523

7 981

0

8 504

Prepayments and accrued income Total current assets

Current liabilities

Accrued expenses and deferred income

0

2 044

102

0

2 146

Total current liabilities

0

722 567

310 083

0

1 032 650

On demand

Within 3 months

More than 3 and less than 12 months

More than 12 months

Total

Analysis of current assets and liabilities by maturity at 31 December 2009 (TCHF) Current assets Loans and advances to banks Other loans and advances

792

0

0

0

792

521 508

0

0

0

521 508

0

7 722

119 392

15 000

142 114

Other assets Prepayments and accrued income Total current assets

0

339

0

0

339

522 300

8 061

119 392

15 000

664 753

0

1 017 500

0

0

1 017 500

Current liabilities Amounts due to banks Other liabilities Accrued expenses and deferred income Total current liabilities

17

719

7 972

0

0

8 691

0

3 879

0

0

3 879

719

1 029 351

0

0

1 030 070

Emoluments to members of the management The emoluments to the members of the Foundation Board and to the Group and business unit executives employed by the Foundation are disclosed under note 37 in the consolidated financial statements of LGT Group Foundation.

90

LGT Group Foundation – notes to the financial statements


91


International presence and imprint Media relations

Christof Buri

Austria

Vienna

Bahrain

Manama

Phone +423 235 23 03

Germany

Berlin

christof.buri@lgt.com

Cologne Frankfurt am Main

Phone +423 235 20 51

Mannheim

iris.dreier@lgt.com

Stuttgart Hong Kong

Ireland

Dublin

Japan

Tokyo

Liechtenstein

Vaduz

Singapore

Singapore

Spain

Madrid

Switzerland

Basel Berne Chur Davos Geneva Lausanne Lucerne Lugano Pf채ffikon Zurich

United Kingdom

92

London

United States of America

New York

Uruguay

Montevideo

International presence and imprint

Iris Dreier

Hamburg Munich Hong Kong

Dispatch


Portrait of Prince Johann Nepomuk Karl of Liechtenstein Johann Nepomuk Karl (born 1724, died 1748), who was only eight years old when his father died, grew up under the guardianship of his uncle, Prince Josef Wenzel. In accordance with the noble rank of his family, his uncle prepared him for the assumption of government duties by means of a thorough education. Probably as part of this preparation, Johann Nepomuk Karl accompanied his uncle on his mission to Paris. In 1745, Johann Nepomuk then assumed the regency. He proved himself to be eccentric, however, and lacked economic talent. Three years later, shortly after his appointment as royal Hungarian and royal Bohemian treasurer, the Prince died at the age of only 24.

© Collections of the Prince of Liechtenstein, Vaduz–Vienna LIECHTENSTEIN MUSEUM, Vienna. www.liechtensteinmuseum.at The illustrations in this brochure are details from Etienne Chevalier, “Portrait of Prince Johann Nepomuk Karl of Liechtenstein (1724–1748)”


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