St Galler Kantonalbank : Year end results 2014: Group net profit up by 35%

The 2014 financial year was marked by the strategic-realignment introduced in 2013 to focus on its key markets Eastern Switzerland as well as the rest of German speaking Switzerland and Germany as complementary. The implementation of this strategy made significant progress over the past year with emphasis on the home market.

The purchase of the regionally based Vadian Bank fits well into the strategy of St.Galler Kantonalbank, to strengthen its market position in Eastern Switzerland. The Vadian Bank AG will continue as an independent subsidiary until mid-2015 and will then be integrated into the St.Galler Kantonalbank. The preparatory work is progressing as planned.

The first and most substantial step in the implementation of the tax compliance for clients domiciled in foreign countries has been completed successfully. All client relationships in the EU countries were adjusted last year. The implementation in the other countries will follow in the current financial year 2015.

As a further consequence of the strategic realignment, the sale of the former subsidiary Hyposwiss Geneva was completed as planned and the remaining business of the former Hyposwiss Zurich was integrated into the new branch of the St.Galler Kantonalbank in Zurich. It is serving primarily asset management clients in German-speaking Switzerland and Germany, thus bringing the high quality standard of Eastern Switzerland to the Swiss financial capital.

Net new money of 336.8 million francs was above expectations, considering the outflow of economic business associated with the implementation of tax compliance. Managed assets increased compared to the previous year to 36.9 billion francs (+2.2%). It takes into account the outflow due to the sale of subsidiaries and the inflow by buying the Vadian Bank AG.

Loans to clients grew by 4.1% to 24.0 billion francs including the volumes of Vadian Bank (410.6 million francs). Net new loans without Vadian Bank amounted to 615.7 million francs (+2.7%). Overall, growth slowed in the mortgage loans as a result of general market slowdown. The loan portfolio of St.Galler Kantonalbank is in a very good condition.

As a result of the strategic realignment with the sale of various business parts of the former subsidiary banks, last year's figures are not fully comparable. Net interest income fell by 11.5 million francs (-3.7%) to 294.5 million francs. This decrease is mainly due to lower interest rates, especially in medium and long term loans. The client conditions in savings and deposits could not be reduced to the same extent.

Net fee and commission income amounted to 118.5 million francs, which represents a decrease of 19.6 million francs or 14.2%. This reduction can be explained primarily by the sale of the crossborder business of the former subsidiaries as well as the implementation of tax compliance. Also reflected in this result are the still ongoing reluctance of investors and the maintaining of high liquidity. Net trading income decreased by 5.9 million francs or 15.3% to 32.8 million francs. The decrease is primarily based on foreign exchange transactions and the elimination of the business of the former subsidiaries.

Cost savings through the sale of the former Hyposwiss subsidiaries and related cost synergies contributed significantly to a reduction in administrative expenses. Personnel expenses were 157.4 million francs or approximately 8.2% (-14.1 million francs) lower than in the year 2014. Other operating expenses were 97.2 million francs (+0.9%) at the level of the previous year, mainly due to additional costs incurred in particular in connection with the US program and project costs from the acquisition of Vadian Bank. Overall, this resulted in total administrative expenses of 254.6 million francs (-13.3 million, -5.0%).

The provisions incurred in 2013 by special factors (US program and compensation for UK taxation agreement) fell off during the fiscal year. For these reasons, new provisions significantly decreased (-41.7 million francs, -87.7%). Due to the continued high quality of the loan portfolio of St.Galler Kantonalbank new provisions for credit losses amounted to only 0.3 million francs.

The strategic realignment with the related structural adjustments meant a profound transformation process. For this reason, the figures in the income statement as mentioned are not fully comparable with those of the previous year. With a group net profit of 146.3 million francs after tax (+ 37.6 million francs, +34.6%) the St.Galler Kantonalbank refers as predicted to the profit level of 2012.

Given the solid financial results in 2014, the board of directors proposes to the shareholders at the Annual General Meeting on 29 April 2015 an unchanged dividend of 15 francs per share. This represents a payout ratio of 57.1% based on the group net income and a dividend yield of 4.2% - based on the year-end price of 361 francs.

With the proposed dividend, the compensation for the state guarantee and cantonal taxes, the Canton of St. Gallen will be receiving 71.0 million francs from St.Galler Kantonalbank this year.

With a shareholders' equity of 2.0 billion francs, St.Galler Kantonalbank has a high level of a own means surplus of 94.5% and is well capitalized.

With the unexpected step of the Swiss National Bank on 15 January 2015 to drop the minimum exchange rate of the Euro and to reduce interest rates in the negative range, the starting point for the recent financial year just has changed significantly. The new conditions pose a particular challenge for large parts of the Swiss economy. St.Galler Kantonalbank is expecting a lower group net profit compared to the previous year. The specific consequences of the decision of the Swiss National Bank can't be estimated reliably yet.