banking in luxembourg - pwc · banking in luxembourg - trends & figures 2016 11 19.6% 2014 •...

Banking in Luxembourg Trends & Figures 2016

Englishversion

All information used and presented in this publication relates to the data provided in the CSSF’s 2015 annual report and in the individual annual accounts of legally independent banking companies (S.A.s and S.C.A.s). As there is no publication requirement, it was not possible for us to carry out an analysis of the data in the annual reports of legally dependent branches that are not recognised separately. The values used and calculated have been rounded up or down as appropriate.

Annual accounts reported in a different currency (USD/CHF) were converted at the exchange rate on the relevant closing date.

To accommodate the differences between Lux GAAP and IFRS, we have depicted these banks’ balance-sheet and income-statement data in a schematic representation that we use with Lux GAAP, and have therefore presented a number of assumptions in a simplified manner. The main assumptions are the following:

• The unused risk provisioning presented pursuant to IFRS has been deducted on a pro rata basis from loans and advances to customers and credit institutions;

• Financial instruments valued at fair value through profit or loss (transferable securities and derivatives) have been assigned to the “bonds and other transferable securities or other assets/liabilities items” item in accordance with the notes to the accounts available to us;

• Derivative fair values from hedge accounting have been assigned to the “Other assets/liabilities” item;• The revaluation reserve has been added to “own funds”;• The profit or loss from financial instruments valued at fair value through profit or loss, as well as the profit or loss from hedge accounting, have been

assigned to “Net profit/(loss) on financial operations” by virtue of their financial character;• The profit or loss from financial fixed assets has been assigned to the Risk Provisioning item insofar as it relates to unrealised profit or loss

components. Realised components, where identifiable, have been assigned to “Net profit/(loss) on financial operations”. The figures presented have been established on the basis of internal calculation methods and may vary from the calculations shown in the individual annual accounts.

The choice and classification of companies and the determination of the total number of banks per country segment were made based on internal data and on statistics published by the CSSF.

w

Table of contents

▃ Foreword ................................................................................................................................................................................ 5

▃ Overview of the development of the overall market ............................................ 9

▃ Comparative analysis of the six country segments ................................................. 15

▃ Overview of developments in each segment .................................................................... 23

• German segment ......................................................................... 24 • French segment ............................................................................ 34• UK/US segment ........................................................................... 44• Luxembourg segment ................................................................... 54• Swiss segment .............................................................................. 64• Chinese segment .......................................................................... 74

▃ Contacts ................................................................................................................................................................................... 82

www.pwc.lu/banking

PwC Luxembourg 4

5Banking in Luxembourg - Trends & Figures 2016

Foreword

The Luxembourg financial centre has been undergoing constant development since it emerged in the 1960s and 1970s. From the founding of the Eurobond market to the development of services in private-wealth management, and now to its rise to becoming the world’s second-largest fund location thanks to the successful implementation of the UCITS Directive, Luxembourg has sought out financial-sector trends and developments early on and has developed them on the market. Like the local Luxembourg banks, the subsidiaries and branches of foreign banking groups have always played a key role in this development, and their activities have put Luxembourg on the map. Throughout the past few decades, they have been constantly developing their activities and business models and adapting them to meet the prevailing market requirements of the time. Likewise, the needs of the respective home markets of these institutions have had an effect

on the configuration of their business models, as have Luxembourg’s strengths and advantages. In this respect, it is not surprising that the institutions represented in the Luxembourg financial centre have varying business structures and models depending on the countries of origin in their respective country segments.

The first edition of our “Banking in Luxembourg – Trends and Figures 2016” publication provides an insight into this international structure seen in the financial centre, and highlights the developments of the individual country segments in comparison with the overall market. In defining and differentiating between these country segments, we have focused on those banks with different countries of origin, identifying a total of six country segments. Alongside Luxembourg banks as the “home segment”, our analysis – in which we will highlight changes compared to the previous year and discuss current trends – covers the country segments of German, French, Swiss, US/UK and Chinese banks.

While the Luxembourg banks exhibit a relatively diversified business model in their home market, with various focal points in private, retail and corporate banking as well as asset servicing, other country segments are strongly focused on one or two business areas, such as asset servicing for the UK and US banks. The group of Swiss banks in Luxembourg also has a major focus on asset servicing, as well as a tradition of private banking. Additionally, the advantage of the EU passport for the cross-border distribution of financial services is a key factor in making Luxembourg a location of choice for all non-EU banks.

The French and German banks are characterised by their universal banking model in their respective home

Foreword

Olivier CarréBanking [email protected]+352 49 48 48 4174

6 PwC Luxembourg

Foreword

countries. In Luxembourg, they have a highly diversified business model, which includes private banking and asset servicing, but above all the lending business and mortgage bonds.

The group of Chinese banks has shown the overall highest growth per bank and now already counts ten institutions, which are primarily active in corporate banking (trade and project financing and syndicated loans). Furthermore, they are exercising and currently expanding a European hub function for their respective parent companies.

The following analysis of the 2015 annual accounts allows for a deeper insight into developments in the individual country segments compared to the overall market, and reveals the strikingly high degree of diversity and internationality that Luxembourg displays. This diversity is a decisive factor for the financial centre’s competitiveness, and with inspiration from all sides, allowing the individual institutions’ business models to develop successfully into the future.


PwC Luxembourg 8


Overview of the development of the overall market

10 PwC Luxembourg

Key takeaways – 2015 overall market

Subsidiaries 105 102Branches 39 41

Total 144 143

2014 2015

Germany France Switzerland Italy China UK Sweden Belgium USA Brazil Japan Luxembourg Other

18.3%

10.6%

7.1%

7.1%4.9%

7.8%

4.9%3.5%

3.5%4.2%

4.2%

3.5%

20.4%

• With 143 authorised banks at 2015 year end, the number of banks year on year has decreased by one.

• 139 of the 143 authorised banks have a universal banking licence, while four have a mortgage-bond banking licence.

• With regard to legal status, there are 102 banks under Luxembourg law, 30 branches of banks from an EU Member State or a country considered on equal terms, and 11 branches of banks from a non-EU Member State.

• The staff count reduced very slightly, down 21 to 25,942.

• In terms of geographical representation in the Luxembourg financial centre, German banks make up 18.3%, followed by French banks at 10.6% and Swiss banks at 7.7%.

• The following banks ceased operations in the 2015 financial year:

- Argentabank Luxembourg S.A.

- Banque LBLux S.A.

- Dexia LdG Banque S.A.

- Frankfurter Volksbank International S.A.

- NORD/LB COVERED FINANCE BANK S.A., which merged with Nord LB Luxembourg S.A., leading to the creation of NORD/LB Luxembourg S.A. Covered Bond Bank.

• The following banks (all of which are of Chinese origin) commenced operations and are active in the corporate-banking sector:

- Bank of Communications (Luxembourg) S.A.

- China Merchants Bank Co., Ltd. Luxembourg Branch

- Agricultural Bank of China (Luxembourg) S.A. and

Agricultural Bank of China, Luxembourg Branch.

• The balance-sheet total increased by EUR 6.0 billion (or 0.8%) to EUR 743.2 billion.

• The increase was caused by loans and advances to customers growing by 11.5% due to the rise of loans granted to private and corporate customers (up 10.6% and 15.8% respectively). This led to loans and advances to customers becoming an increasingly important source of income for banks in the financial centre.

• The new liquidity coverage requirement (LCR) that has been in force since 1 October 2015 has led to loans granted to private and corporate customers institutions being reallocated – mainly within groups (EUR -50.2 billion) – to investments with central banks (EUR 45.4 billion).

• Bonds and other transferable securities fell by 3.2%, mainly due to the decrease in government and corporate bonds (down 12.3% and 29.1% respectively).

Balance-sheet total (in EUR million)

2015

743,197.0

2014

737,212.0

Countries of origin of banks established in Luxembourg

Number of banks


19.6%

2014

• The total equity ratio of 20.7% represents a high capitalisation rate, while at the same time Luxembourg-based banks increasingly use high-quality equity instruments.

• According to the CSSF annual report, 95 out of 103 subsidiaries have a total equity ratio of over 13.0%.

20.7%

2015

Total equity ratio (weighted)

• The 5.2% increase in net interest income to EUR 4,276.0 million is attributable to one-off factors caused by the limited number of banks and the slight asset growth.

• This development contradicts the current market conditions, which are still characterised by very low – or even negative – margins. This is also significant with regard to the ratio of net interest income to the balance-sheet total, which has not come close to the values recorded between 2010 and 2012.

• Net commission income has increased consistently over the last four years. At EUR 4,339.0 million (+5.8%), it is at a historic high.

• The growth in net commission income is characterised by positive year-on-year stock-market developments despite increased volatility, and by the increased demand for financial products in the field of asset management.

4,101.0

4,066.02014

4,339.0

4,276.02015

Net interest income Net commission income

Net interest and commission income (in EUR million)

• Annual net profit or loss has decreased by EUR 267.0 million (or 6.3%) to EUR 3,986.0 million. This is primarily due to three factors:

- the 4.9% increase in banking income, in which all three income pillars have played a part (interest income, commission income and other net income);

- a significant 8.5% increase in overheads, which is due to IT investment and the increased cost of implementing and complying with regulatory requirements; and

- the allocation for risk provisioning (EUR 665.0 million) has doubled year on year as a result of a limited number of banks.

Annual net profit and loss (in EUR million)

2015

3,986.0

2014

4,253.0

• Return on equity is slightly down year on year (by 0.52%) due to the lower annual net profit or loss.

• Equity has risen by 0.8% year on year.

• Return on assets is at a stable level.

• The 0.04% decline is primarily due to the decrease in annual net income in conjunction with the increased balance-sheet total.

2014

0.58% 0.54%

2015

Return on assets Return on equity

2015

7.45%

2014

6.93%

12 PwC Luxembourg

0 10 20 30 40 50 60

2015

2014

53.10

49.77

• The cost-income ratio has risen only slightly, due to increasing staff and administrative costs (up 8.5%) alongside only slightly increasing income (up 4.9%).

Cost-income ratio (in %)

0 20 40 60 80 100 120

2015

2014 101.1

104.6

0 20 40 60 80 100 120

2015

2014 91.7

104.8

0 50 100 150 200

2015

2014

153.7

163.82014

25,953

26,100

2015

• The staff count has remained steady.

• Staff costs per member of staff have risen moderately, by 3.5%.

• Annual net income per member of staff has dropped by 6.1% due to the lower overall annual net profit.

• Administrative costs per member of staff have risen due to IT investments and the increased cost of implementing and complying with regulatory requirements.

Annual net profit and loss per member of staff (in KEUR)

Average staff count

Administrative costs per member of staff (in KEUR)

Staff costs per member of staff (in KEUR)

PwC Luxembourg 14


Comparative analysis of the six country segments

16 PwC Luxembourg

Key takeaways – comparison of the sixcountry segments


Total 87 88

2014 2015

Private banking Lending Custody Treasury Retail Banking Mortgage bonds

Service centre Investment-fund servicing

22.3%

14.9%

18.9%7.4%

8.8%

2.7%

7.4%

17.6%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

Germansegment

Frenchsegment

Swisssegment

MarketLuxembourgsegment

Chinesesegment

US/UKsegment

-6.4%

2.8%4.6% 5.7%

-24.6%49.9% 0.8%

0

60

120

180

Germansegment

Frenchsegment

Swisssegment

Luxembourgsegment

Chinesesegment

US/UKsegment

2014 2015

176,

473.

0

165,

208.

7

140,

717.

3

144,

588.

6

78,4

13.5

82,0

52.1

31,2

43.5

33,0

30.5

40,9

89.1

30,9

22.9

7,25

5.6

10,8

89.1

• To varying extents, the banks in the country segments analysed are primarily active in the fields of depositary banking, investment-fund servicing and private, retail and corporate banking.

• The Swiss segment is characterised by private banking and in parts by fund services, while the UK/US segment (with the exception of PayPal (Europe) S.à r.l.) is distinguished by depositary banking and investment-fund servicing.

• Private and corporate banking is mainly carried out in the Luxembourg and Chinese segments, and to a certain extent in the French and German segments.

• The number of banks examined by PwC as part of the analysis of the six country segments has increased by one to 88 institutions.

• With 27 institutions, the German segment has the most representatives, followed by the French segment (15 institutions) and the Swiss segment (12 institutions).

• The strongest growth was seen in the Chinese segment, which grew from six to ten institutions as a result of Bank of Communications (Luxembourg) S.A., China Merchants (Luxembourg) and Agricultural Bank of China (Luxembourg) S.A. commencing operations.

• The French and Luxembourg segments grew their on-balance-sheet business primarily by increasing their loan disbursement, while the balance-sheet growth in the Swiss segment was characterised by an increase in deposits by investment funds and clients.

• The increase in the Chinese segment is primarily due to growth in loans and advances to customers and bonds and other transferable securities. The increasing loan volume is above all attributable to the sales success seen in branches of Chinese banks operating in Europe.

• The 24.6% decrease in the balance-sheet total in the UK/US segment is primarily due to the one-off effect of transferring the client business from State Street Bank Luxembourg S.C.A. to State Street Bank GmbH, Branch Luxembourg, which cost EUR 9.5 billion.

• The German segment recorded drops in the interbank business and a further fall in bonds and other transferable securities, especially at banks that issue mortgage bonds.

Number of banks

Business areas

Change in the aggregated balance-sheet total from 2014 to 2015

Aggregated balance-sheet total (in EUR million)


-100%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

Germansegment

Frenchsegment

Swisssegment Market

Luxembourgsegment

Chinesesegment

US/UKsegment

35.9%-22.0% -13.3%

88.2% 11.6%-87.7%

-6.3%

0

200

400

600

800

1000

Germansegment

Frenchsegment

Swisssegment

Luxembourgsegment

Chinesesegment

US/UKsegment

2014 2015

368,

4 500,

5

989,

4

771,

5

524,

5

454,

7

122,

5 230,

5

402,

9

449,

8

58,3

7,1

0%

5%

10%

15%

20%

25%

30%

35%

Swisssegment

Frenchsegment

Germansegment


Chinesesegment

US/UKsegment

26.8% 14.5% 6.4% 30.7% 9.0% 9.6% 14.1%0

450

900

1350

1800

Frenchsegment

Germansegment

Swisssegment

Luxembourgsegment

Chinesesegment

US/UKsegment

2014 2015

621.

8 788.

2

1,47

3.7 1,68

7.8

905.

6

963.

5

479.

5

522.

7

102.

4

112.

2

• The Swiss segment saw excellent annual net profit thanks to a 10.5% growth in net commission income, as well as one-off effects in three further banks (UBS (Luxembourg) S.A., Credit Suisse (Luxembourg) S.A. and Edmond de Rothschild (Europe) S.A., totalling an increase of EUR 103.3 million).

• The German segment’s 26.8% increase was largely thanks to net interest income. There was also a moderate increase in staff and administrative expenses costs, while allocation for risk provisioning fell.

• The UK/US segment benefitted from increases in both net interest and commission income (9.0% and 14.2% respectively) when allocation for risk provisioning was increased (EUR 226.0 million), primarily in relation to PayPal (Europe) S.à r.l. et Cie, S.C.A.

• The lower annual net profit and loss in the French and Luxembourg segments is characterised by the change in the net profit/(loss) on financial operations.

• The significant decrease in the Chinese segment is due on the one hand to recently established banking groups’ investments in staff, infrastructure and new branches, and on the other hand to the net loss on financial operations of one bank.

• The growth in the Swiss segment was characterised on the one hand by the improved net interest income at Pictet & Cie (Europe) S.A. thanks to higher interest income from its bonds and other transferable securities, and on the other hand by the contribution from Credit Suisse (Luxembourg) S.A.’s new French branch and increased export financing.

• The growth in the German segment is down to one-off effects caused by redemptions of securitised liabilities, prepayment penalties and higher dividend income from participating interests, which also falls under net interest income.

• The French segment has seen its net interest income increase due to net interest income and dividend income growing by 8.0% and 28.5% respectively.

Change in the annual net profit and loss from 2014 to 2015


Change in net interest income from 2014 to 2015

Net interest income (in EUR million)

87.7

114.

6

18 PwC Luxembourg

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

Germansegment

Frenchsegment

Swisssegment


Chinesesegment

US/UKsegment

-31.0% -2.6%

1.1% 10.5% 14.2% 8.1% 5.8%

0

200

400

600

800

1000

Luxembourgsegment

Germansegment

Frenchsegment

Swisssegment

Chinesesegment

US/UKsegment

2014 2015

256.

9

177.

3

660.

6

643.

6

361.

2

365.

1

589.

2

650.

8

790.

2 902.

7

34.5

37.3

• The net commission income in the UK/US segment is primarily attributable to the two largest depositary banks in the financial centre: J.P. Morgan Bank Luxembourg S.A. (EUR 270.6 million; assets in custody USD 793 billion) and State Street Bank Luxembourg S.C.A. (EUR 335.4 million; assets in custody EUR 698 billion).

• Significant increases in the Swiss segment are attributable to Pictet & Cie (Europe) S.A. and Credit Suisse (Luxembourg) S.A. (which has integrated its French private-banking activities). This is due to the favourable stock-market environment (despite high volatility) and increased demand for financial products in the field of wealth management.

• The fall in net commission income in the German segment is due to higher transfer-pricing payments and net losses from credit sales at Deutsche Bank Luxembourg S.A.

Change in net commission income from 2014 to 2015

Net commission income (in EUR million)


1.45%

US/UK segment

US/UK segment

US/UK segment

US/UK segment

0.70%

Swiss segment

Swiss segment

Swiss segment

Swiss segment

0.55%

Luxembourg segment

Luxembourg segment

Luxembourg segment

Luxembourg segment

0.53%

French segment

French segment

French segment

French segment

0.30%

German segment

German segment

German segment

German segment

0.07%

Chinese segment

Chinese segment

Chinese segment

Chinese segment

0.54%

Market

Market

Market

Market

0.98% 0.80%0.70% 0.67% 0.39%0.21% 0.58%

12.33% 7.55%6.71% 6.19%5.03% 0.66% 6.93%

8.84% 8.43% 7.96%7.19% 6.05%3.75% 7.45%

• The UK/US and Swiss segments rank highest for return on assets, since their business models are characterised by off-balance-sheet business (such as depositary banking and wealth management), and their balance-sheet totals are consequently lower than country segments that are primarily active in lending (on-balance-sheet business).

• The Swiss and UK/US segments experienced a significant year-on-year increase in return on equity and are therefore well above the market average. This is due to a business model that has low capital intensity, lower default risks (with the exception of PayPal (Europe) S.à r.l. et Cie, S.C.A.) and have seen strong income growth thanks to positive growth in the investment-fund sector.

• Country segments active in the lending business have to deal with a capital-intensive business model in a period of continuously low interest rates.

Return on equity 2015

Return on equity 2014

Return on assets 2015

Return on assets 2014

20 PwC Luxembourg

0%

10%

20%

30%

40%

50%

60%

70%

80%

Swisssegment

Frenchsegment

Germansegment


Chinesesegment

US/UKsegment

2014 2015

52.0

5%45

.23% 52

.69%

55.6

4%

57.9

4%61

.90%

78.4

9%68

.89%

54.6

7%

54.2

7%

48.7

4%

79.8

8%

49.7

7%

53.1

0%

• The rising cost-income ratio in the Chinese segment is primarily due to increasing current operating expenses (up 31.4%), which in turn is caused by initial investments by banks new to Luxembourg and by lower total income.

• Very high staff costs and further increased current operating expenses (up 11.5%) have led to the Swiss segment having a cost-income ratio above the market average.


0

50

100

150

200

250

Swisssegment

Frenchsegment

Germansegment


Chinesesegment

US/UKsegment

2014 2015

151.

5

208.

7

164.

712

7.2

106.

090

.5

49.7

95.5

192.

1 210.

3

142.

212

.8

163.

815

3.7

• A stable staff count and an improved income situation led to a 9.5% increase in the UK/US segment. Altogether, the segment is significantly above the market average. This is partially due to good margins for certain services and partially due to economies of scale.

• The increase in the German segment is a result of one-off effects at certain banks.

• In the Chinese segment, increasing staff numbers due to branches opening in Europe at a time of falling annual net profit led to a significant drop.



Average staff count

Segment 2014 2015

Germany 2,432 2,398

France 6,007 6,064

Luxembourg 4,947 5,025

Switzerland 2,463 2,415

US/UK 2,097 2,139

China 410 553

Market* 25,785 25,938

• The staff count in the Chinese segment grew considerably – by 34.9% – due to new banks being established and the expansion of the European branch network.

• The Swiss and German segments recorded slight drops in their staff count.

0

50

100

150

200

Swisssegment

Frenchsegment

Germansegment


Chinesesegment

US/UKsegment

2014 2015

107.

011

6.3

107.

810

0.9

65.0

69.5

91.2 10

8.9

166.

6 183.

3

66.8

71.6

91.7 10

4.8

• Administrative costs per member of staff in the UK/US segment are significantly above the market average due to high maintenance and investment costs in operational infrastructure, as well as the expenses of the purchased services of internal service centres.

• In the Luxembourg segment, the figure is significantly lower due to the high staff count in relation to the administrative costs, as well as the number of outsourced services being below the market average. The other market participants record outsourced services as administrative costs.


0

50

100

150

200

Swisssegment

Frenchsegment

Germansegment


Chinesesegment

US/UKsegment

2014 2015

103.

410

5.3

110.

110

1.3

108.

111

0.1

152.

9 168.

5

110.

1

108.

4 122.

411

5.0

101.

110

4.6

• The cost of the salary structure in the Swiss segment is significantly above the market average. Above all, costs increased at Mirabaud & Cie (Europe) S.A., Credit Suisse (Luxembourg) S.A. and Lombard Odier (Europe) S.A. due to the expansion of their branch networks and the integration of the business activities of other group entities, which required investment and staff transfers.


* As at 31/12.

PwC Luxembourg 22


Overview of developments in each segment

24 PwC Luxembourg

Key takeaways – German segment


Total 29 27

2014 2015

Private banking Lending Custody Treasury Mortgage bonds Service centre

Investment-fund servicing

23.1%

15.4%

19.2%7.7%

11.5%

7.7%

15.4%

• The business activities in the German segment are diverse. Developments in the last few years have involved business models being realigned and specialised.

• The historically dominant business activities of lending and mortgage bonds, which are strongly dependent on the interest-rate environment, make up 27% of the German segment’s business volume.

• The effects of low interest rates were mitigated by the expansion of depositary banking and investment-fund servicing. This led to a stable operating profit.

• The German segment experienced a delayed consolidation process in 2015. This was attributable in particular to the regional state banks (Landesbanken) completing their withdrawal from Luxembourg. The remaining banks made a sustained positive contribution within their banking groups.

2015

165,208.7

2014

176,473.0

• The balance-sheet total decreased by 6.4% (compared to a 0.8% increase for the market as a whole). This is primarily due to a drop in interbank business and the further reduction in bonds and other transferable securities, especially at banks that issue mortgage bonds.

• In order to adhere to the liquidity coverage ratio (60.0%) from 1 October 2015, cash assets were deposited as high-quality liquid assets (HQLAs) with the Central Bank of Luxembourg. Correspondingly, the “Cash and cash balances at central banks” item grew from EUR 0.7 billion to EUR 13.3 billion.

• An upsurge in deposits from the fund industry led to a EUR 2.8 billion increase at DZ PRIVATBANK S.A., while customer deposits at UniCredit Luxembourg S.A. grew by EUR 2.2 billion.


17.9%

2014

* Not including M.M. Warburg and Europäische Genossenschaftsbank S.A.

• Own funds once again increased year on year, up EUR 127.9 million (1.3%) to EUR 9,826.0 million.

• The total equity ratio of 17.9% shows that the German banks have very good capitalisation and high-quality equity instruments.

• The regulatory requirements of either 8.0% or 10.5% have been comfortably met. The leading banks are BHF-BANK International S.A. (63.0%), Commerzbank International S.A. (60.7%) and DEPFA Pfandbrief Bank International S.A. (32.3%).

17.5%

2015

Total equity ratio (weighted)*

Business areas

Number of banks


• Overall, 2015 yielded excellent annual net profit for the German segment (+35.9%, compared to a market average of -6.3%), thanks to a 9.9% increase in net interest and commission income (compared to a 5.5% increase for the market as a whole), as well as to a moderate increase in staff and administrative costs and a lower risk-provisioning level.

2015

500.5

2014

368.4


• Net interest income rose by 26.8% (compared to a market-average increase of 5.2%) due to redemptions of securitised liabilities, prepayment penalties and increased income from participating interests.

• The German segment’s reliance on net interest income is greater than that of the market as a whole (75.4% relative share for the German segment compared to 39% relative share for the market as a whole), since the lending business is a key component of its business models.

• The 31.0% drop in net commission income is due to higher transfer-pricing payments and net losses from credit sales at Deutsche Bank Luxembourg.

• Banks active in investment-fund servicing saw their net commission income either remain the same or increase (e.g. EUR 126.7 million for DZ PRIVATBANK S.A. and EUR 71.3 million for DekaBank Deutsche Girozentrale Luxembourg S.A.).

256.9

621.82014

177.3

788.22015



5.03%

20152014

3.75%

• Return on equity increased by 34.1% year on year to 5.03%.• The German banking sector’s return on equity is below the

market average due to its capital-intensive business model at a time of low interest rates.

• At 0.30%, the German segment’s return on assets is below average, since it's more strongly characterised by on-balance-sheet business (such as lending) than the market as a whole, which carries out a large amount of off-balance-sheet business (e.g. asset management, depositary banking and fund services).

2014

0.21% 0.30%

2015


26 PwC Luxembourg

0 20 40 60 80 100 120

2015

2014 103.4

105.3

Market

101.1

104.6

0 50 100 150 200 250

2015

2014

208.7

151.5

Market

163.8

153.7

0 20 40 60 80 100 120

2015

2014 106.9

116.3

Market

91.7

104.8

2,4322014

2,3982015

• The annual net profit or loss per member of staff increased due to the improved income situation in conjunction with an almost unchanged staff count.

• The German segment’s salary structure is consistent with the market trend.• The above-average administrative costs per member of staff are due (among other things) to the sometimes extensive use of

back-office services by the group and/or by Luxembourg branches that act as service hubs.

0 10 20 30 40 50 60

2015

2014

45.23

52.05

Market

49.77

53.1

• The cost-income ratio improved due to only slightly higher current operating expenses (+3.7% compared to a market average of +8.5%) and an improved income situation.



Average staff count




Ranking of balance-sheet totals

Bank Balance-sheet total (EUR million) Shift Change in rank

Deutsche Bank Luxembourg S.A. 80,023.0 -6.4% =

UniCredit Luxembourg S.A. 19,727.9 -13.3% +1

Commerzbank Finance & Covered Bond S.A. 19,675.6 -15.4% - 1

NORD/LB Luxembourg S.A. Covered Bond Bank 15,831.8 -5.1% =

DZ PRIVATBANK S.A. 15,749.9 21.6% =

DekaBank Deutsche Girozentrale Luxembourg S.A. 5,720.5 -1.2% =

DEPFA Pfandbrief Bank International S.A. 2,425.8 -19.2% =

Commerzbank International S.A. 2,384.0 -17.6% =

M.M.Warburg & CO Luxembourg S.A. 1,343.7 10.1% =

HSH Nordbank Securities S.A. 902.4 4.0% =

Sal. Oppenheim jr. & Cie. Luxembourg S.A. 827.4 2.5% =

BHF-BANK International S.A. 451.9 -15.9% =

Europäische Genossenschaftsbank S.A. 102.2 -13.1% =

Freie Internationale Sparkasse S.A. 42.6 -11.1% =

1

2

3

4

5

6

7

8

9

10

11

12

13

14

28 PwC Luxembourg

Assets

2015

82,913

2014

93,241

2015

82,912.5

2014

93,240.8

• Eight banks recorded a drop totalling EUR 13.7 billion, while six banks recorded an increase totalling EUR 3.4 billion.

• Significant decreases were experienced by Deutsche Bank Luxembourg S.A. (down EUR 7.5 billion) and UniCredit Luxembourg S.A. (down EUR 4.6 billion).

Loans and advances to credit institutions (in EUR million)

• Five banks saw their loans and advances to customers increase by a total of EUR 3.8 billion, while eight banks saw a decrease totalling EUR 1.0 billion.

• The main reason for the 6.3% rise (compared to a market-average rise of 11.5%) is the increase in the volume of amounts owed by corporate clients of UniCredit Luxembourg S.A. (EUR 1.8 billion), Deutsche Bank Luxembourg S.A. (EUR 1.5 billion) and NORD/LB Luxembourg S.A. Covered Bond Bank (EUR 0.6 billion).

2015

47,225.4

2014

44,425.7

Loans and advances to customers (in EUR million)

• The decline in bonds and other transferable securities is primarily a result of the sale of transferable securities, as well as due to maturities with no reinvestment being made in the transferable-securities portfolios at NORD/LB Luxembourg S.A. Covered Bond Bank and Commerzbank Finance & Covered Bond S.A. The figure for both banks is approximately EUR 1.4 billion.

2014

32,284.2

2015

29,737.5

Bonds and other transferable securities (in EUR million)

German segment

52.8%

18.0%

28.6%

2.5%0.7%

50.2%

25.2%

18.3%

3.0%0.7%20152014

• Interbank business is consistent with the market trend.

• Loans and advances to customers increased by 6.3% (compared to an increase of 11.5% for the market as a whole).

• Bonds and other transferable securities have been declining for years in the German segment. The influence of this revenue pillar is constantly decreasing.

Breakdown of assets 2014-2015 (% relative share of balance-sheet total)

1.3%1.9%

Market

21.0%

22.1%

1.6%1.9%

51.5%

25.4%

50.4%

22.9%

20152014

Loans and advances to credit institutions

Loans and advances to customers

Bonds and other transferable securities

Fixed assets Other assets


Liabilities

• UniCredit Luxembourg S.A. (EUR -4.4 billion), NORD/LB Luxembourg S.A. Covered Bond Bank (EUR -1.3 billion) and Deutsche Bank Luxembourg S.A. (EUR -1.0 billion) saw significant decreases.

• Increases in this balance-sheet item were mainly split between Commerzbank Finance & Covered Bond S.A.(EUR +0.8 billion), DekaBank Deutsche Girozentrale Luxembourg S.A. (EUR +0.4 billion) and Commerzbank International S.A. (EUR +0.2 billion).

2015

97,269.9

2014

103,524.8

Amounts owed to credit institutions (in EUR million)

2015

35,974.0

2014

35,867.8

• DZ PRIVATBANK S.A. recorded a significant increase (up 49.8% or EUR 2.8 billion) due to the expansion of its deposit business from the fund sector. UniCredit Luxembourg S.A. also recorded an increase of 142.5% or EUR 2.2 billion.

• Deutsche Bank Luxembourg S.A. recorded a sharp decrease (down 21.6% or EUR 3.3 billion) due to falling corporate-client deposits.

Amounts owed to customers (in EUR million)

• Securitised liabilities – which are a significant refinancing component for the three German banks that issue mortgage bonds – fell by 24.6%.

• Securitised liabilities make up 7.2% of the balance-sheet total, compared to 8.9% the previous year.

• The decrease is almost entirely due to redemptions and maturities at Commerzbank Finance & Covered Bond S.A., which are down 49.1% or EUR 4.0 billion.

2015

11,866.1

2014

15,733.7

Debt securities (in EUR million)

58.7%

7.2%

21.8%

5.4%

58.9%

20.3%

8.9%

5.0%20152014

0.7%

1.5%

6.0%

5.6%

German segment• Interbank borrowing remains

unchanged, representing by far the biggest source of refinancing in the German segment.

• In the German segment, deposits by companies, private and retail clients, as well as account balances of investment funds, are below the market average.

• Securitised liabilities have decreased further due to some mortgage-bond-issuing banks actively repurchasing mortgage bonds before they reach maturity.

Breakdown of liabilities 2014-2015 (% relative share of balance-sheet total)

Market

39.3%

7.3%

43.7%

3.5%

37.1%

40.6%

7.7%

3.7%20152014

0.7%

1.0%

7.7%

7.7%

Amounts owed to credit institutions Amounts owed to customers Debt securities Subordinated debts Own funds Other liabilities

30 PwC Luxembourg

Ranking of annual net profit or loss

Overview of change in aggregated income statements from 2014 to 2015 (in EUR million)

2014

2015

621.8

256.9

169.031.2

-99.1

-515.4

-96.0

788.2

177.3

78.9198.4

-139.7

-68.2

-534.4

Bank Annual net profit or loss (EUR million) Shift Change in rank

Deutsche Bank Luxembourg S.A. 288.9 55.8% =

Commerzbank Finance & Covered Bond S.A. 79.4 >100% +12

DekaBank Deutsche Girozentrale Luxembourg S.A. 67.9 -18.7% =

UniCredit Luxembourg S.A. 64.2 -24.4% -2

NORD/LB Luxembourg S.A. Covered Bond Bank 32.1 -14.6% =

DZ PRIVATBANK S.A. 11.4 -74.9% -2

HSH Nordbank Securities S.A. 7.7 -42.5% =

M.M.Warburg & CO Luxembourg S.A. 5.0 13.6% =

Freie Internationale Sparkasse S.A. 0.9 -40.0% =

Europäische Genossenschaftsbank S.A. 0.0 <-100% =

Commerzbank International S.A. -0.2 <-100% -5

BHF-BANK International S.A. -0.8 <-100% -1

DEPFA Pfandbrief Bank International S.A. -23.4 67.1% -1

Sal. Oppenheim jr. & Cie. Luxembourg S.A. -32.6 34.2% -1

1

2

3

4

5

6

7

8

9

10

11

12

13

14

368.

4 500.5

2014

2015

+26.8%

-31.0%

<-100%

Net interest income

Net commission income

Net profit/(loss) on financial operations

Other operating income and expenditures

Income taxes

Risk provisioning

Current operating expenses

Annual net profit and loss


• The net commission income’s relative share has decreased from 26.9% to 14.3% (compared to 40% for the market as a whole). This is because Deutsche Bank Luxembourg S.A. incurred higher commission costs due to transfer-pricing payments in the loans and capital-markets industry, as well as net losses from lending.

• Profit from NORD/LB Luxembourg S.A. Covered Bond Bank’s lending and guarantee business decreased by EUR 5.9 million due to falling flat-commission income.

2015

177.3

Bank EUR million Shift Change in rank

DZ PRIVATBANK S.A. 126.7 -1.8% =

DekaBank Deutsche Girozentrale Luxembourg S.A. 71.3 1.9% =

Commerzbank International S.A. 27.5 -7.4% =

UniCredit Luxembourg S.A. 21.8 -19.9% =

M.M.Warburg & CO Luxembourg S.A. 19.3 14.9% =

1

2

3

4

5

2014

256.9


• Net interest income (including dividend income from shares and participating interests) rose by 26.8%.

• This increase is partially due to one-off effects at Commerzbank Finance & Covered Bond S.A. (EUR 137.7 million profit from repurchased bearer instruments), Deutsche Bank Luxembourg S.A. (EUR 86.0 million in distributions of reserves from the sub-participations of the shareholding DB Finance International GmbH) and UniCredit Luxembourg S.A. (prepayment penalty due to the advance repayment of a customer loan in the F&A division).

2015

788.2


Deutsche Bank Luxembourg S.A. 220.3 38.2% =

Commerzbank Finance & Covered Bond S.A. 158.8 261.7% +4

UniCredit Luxembourg S.A. 131.9 18.5% -1

NORD/LB Luxembourg S.A. Covered Bond Bank 93.4 -15.2% -1

DZ PRIVATBANK S.A. 78.0 -4.2% =

1

2

3

4

5

2014

621.8


32 PwC Luxembourg

• Deutsche Bank Luxembourg S.A.’s CPSG fair-value portfolio recorded an income of EUR 154.0 million.

• Deutsche Bank Luxembourg S.A. wrote off special reserve items (EUR 93.0 million from surplus values transferred tax-free from the sale of the shareholding Cedel International S.A.).

• Commerzbank International S.A. was fined EUR 17.1 million by the tax authorities, while UniCredit Luxembourg S.A. made provisions for legal costs.

2015

198.4

2014

169.0

Staff costs Overheads

48.8%

52.8%

47.2%

51.2%

20152014

German segment

49.2%

55.5%

44.5%

50.8%

20152014

Market• Current operating expenses

increased by a total of 3.7% due to increased overheads (+7.2%, compared to a market average of +8.5%). Among other reasons, overheads increased as a result of the bank levy and the cost of implementing regulatory standards.

• Current operating expenses in the German segment also include the costs of using services from the respective groups. In the overall market, these costs are already partially included under staff costs.

Breakdown of current operating expenses 2014-2015 (in EUR million)

Other operating income and expenditures (in EUR million)


• The increase in risk provisioning is down to the following factors:

- Commerzbank Finance & Covered Bond S.A.: valuation adjustments for loan commitments in the amount of EUR 46.4 million;

- Sal. Oppenheim jr. & Cie. Luxembourg S.A.: depreciation of shares in Oppenheim Asset Management Service S.à r.l. in the amount of EUR 37.9 million; and

- DZ PRIVATBANK S.A.: depreciation of the book value of DZ PRIVATBANK (Schweiz) AG’s participation in the amount of EUR 37.6 million

• This is countered by income from the release of value adjustments on credit claims at Deutsche Bank Luxembourg S.A. amounting to EUR 60.5 million.

2015

-68.2

2014

31.2

2015

78.9

2014

-96.0

• The change from the previous year is due to trade and hedging profit or loss, as well as income from financial fixed assets. This led to six banks seeing their net income increase by a total of EUR 182.3 million.

• Most notably, the previous year, Commerzbank Finance & Covered Bond S.A. and DEPFA Pfandbrief Bank International S.A. recorded a loss totalling EUR 156.9 million. However, in 2015, they recorded a profit totalling EUR 15.7 million.

• DZ PRIVATBANK S.A.’s EUR 20.2 million income from financial transactions is thanks to foreign-exchange brokerage and profit realised from disposing of transferable securities.

• NORD/LB Luxembourg S.A. Covered Bond Bank recorded a net profit of EUR 17.7 million from financial operations, of which EUR 8.9 million was from the disposal of debt securities and other transferable securities.

Net profit/(loss) on financial operations (in EUR million)

Risk provisioning (in EUR million)

34 PwC Luxembourg

Key takeaways – French segment


Total 15 15

2014 2015

Private banking Lending Custody Treasury Retail banking Mortgage bonds

Service centre Investment-fund servicing

25.8%

16.1%

19.3%

6.5%

12.9%

3.2%

6.5%

9.7%

• The overall French segment has a balanced business model characterised by private banking, asset servicing (depositary banking and investment-fund servicing) and lending.

• The French segment is dominated by three banks – Société Générale Bank and Trust S.A., BGL BNP Paribas S.A. and CACEIS Bank Luxembourg S.A. – which together make up 79.8% of the balance-sheet total, 83.3% of the annual net profit and 76.2% of the staff count.

• The income situation reflects the diversified business model, which is made up of a mix of net interest income (50% relative share) and profit or loss from participating interests and commissions (each with a 25% relative share).

2015

144,588.7


Business areas

Number of banks

2014

140,716.6

• The balance-sheet total increased by 2.8% (compared to a 0.8% increase for the market as a whole), primarily due to an expansion in loans to clients, which was financed by interbank borrowing.

• In order to adhere to the liquidity coverage ratio (60%) from 1 October 2015, cash assets were deposited as high-quality liquid assets (HQLAs) with the Central Bank of Luxembourg. Correspondingly, the “Cash and cash balances at central banks” item increased from EUR 3.3 billion to EUR 10.9 billion.


• The lower figure for annual net profit or loss in the French segment (-22.0%, compared to a market average of -6.3%) is due to positive one-off effects in profit or loss from the previous year’s financial transactions in conjunction with a slight increase in net interest and commission income, lower staff and administrative costs and reduced risk provisioning.


• The 14.5% increase (compared to a market-average increase of 5.2%) in net interest income (including dividend income from shares and participating interests) is attributable to an 8.0% increase in net interest income to EUR 1,086.6 million and a 22.2% increase in dividend income to EUR 601.2 million.

• The growth in dividend income is mainly attributable to Société Générale Bank and Trust S.A. and Banque de Luxembourg S.A., which doubled their profits.

• Net commission income reveals a mixed picture. It fell by 2.6%, while the market as a whole saw a 5.8% increase. Six banks recorded stable or increased net commission income, while six saw theirs fall. The biggest increases were experienced by Banque de Luxembourg S.A. (16.3%), CA Indosuez Wealth (Europe) S.A. (14.8%) and CACEIS Bank Luxembourg S.A. (12.1%).

660.7

1,473.82014

643.6

1,687.82015



6.80%

20152014

0.70% 0.53%

2015

2014

989.4

2015

771.7

2014

8.84%

• Return on equity is in line with the market average. The decline is primarily down to the poorer income situation compared to the previous year (the positive one-off effects experienced by Société Générale Bank and Trust S.A. in 2014 were no longer felt).

• At 0.53%, the French segment’s return on assets is in line with the market trend. It represents a very good cross-section of the market while also showing a fairly equal measure of on- and off-balance-sheet transactions.


36 PwC Luxembourg

0 20 40 60 80 100 120

2015

2014 110.0

98.0

Market

101.1

104.6

0 20 40 60 80 100 120

2015

2014 107.7

97.6

Market

91.7

104.8

0 50 100 150 200

2015

2014

123.1

164.7

Market

163.8

153.7

6,2702014

6,0092015

• The decrease in the annual net income per member of staff was caused by the poorer income situation in conjunction with a slight increase in staff count.

• The salary structure in the French segment declined in relation to the market trend. This is due to lower staff costs at Société Générale Bank and Trust S.A. (down 23.9%), which in turn is due to the bank discontinuing its private-banking activities in Asia. Meanwhile, BGL BNP Paribas S.A. (down 112.7%) phased out special payments between 2014 and 2015. Conversely, the other French banks recorded higher staff costs.

• Administrative costs stayed at the same level as the previous year, with the exception of BGL BNP Paribas S.A. (down 14.0%), which enjoyed the positive effects of amended goodwill amortisation to the benefit of EUR 40.5 million.

0 10 20 30 40 50 60

2015

2014

55.64

52.69

Market

49.77

53.10

• The lower current operating expenses (down 6.2%, compared to an 8.5% increase for the market as a whole) could not compensate for the poorer income situation. This led to a deterioration in the cost-income ratio.



Average staff count






CACEIS Bank Luxembourg S.A. 46,082.0 6.7% =

Société Générale Bank and Trust S.A. 36,398.9 1.8% =

BGL BNP Paribas S.A. 32,968.9 4.8% =

Banque de Luxembourg S.A. 12,923.6 -5.6% =

Société Générale Capital Market Finance S.A. 5,896.4 19.0% =

CA Indosuez Wealth (Europe) S.A. 5,406.0 10.7% =

Natixis Bank S.A. 3,552.3 -24.9% =

Banque BCP S.A. 564.5 -17.0% +1

La Française Bank S.A. 353.5 76.5% +2

Banque Transatlantique Luxembourg S.A. 258.4 8.8% =

Société Générale LDG S.A. 155.7 -82.8% -3

Société Générale Financing and Distribution S.A. 29.1 24.9% =

1

2

3

4

5

6

7

8

9

10

11

12

38 PwC Luxembourg

Assets

2014

48,620.0

2015

93,24149,398.9

• Six banks recorded a drop totalling EUR 2.4 billion, while another six banks recorded an increase totalling EUR 3.2 billion.

• Société Générale Bank and Trust S.A. increased its balances at the Central Bank by EUR 2.4 billion in order to comply with the new liquidity requirements.


• With the exception of Société Générale Bank and Trust S.A., which recorded a EUR 1.1 billion drop, all banks increased their loans and advances to customers by a total of EUR 5.7 billion.

• The main contributors to this year-on-year increase are CACEIS Bank Luxembourg S.A. (up EUR 2.9 billion) and BGL BNP Paribas S.A. (up EUR 1.7 billion).

2015

44,508.6

2014

39,906.6


• The slight decrease of 2.7% is due to Banque de Luxembourg S.A.’s reductions, which amount to EUR 1.4 billion. These reductions arise primarily from the sale of transferable securities, as well as from maturities, with no reinvestment being made in the bonds and other transferable securities.

2014

46,595.8

2015

45,347.2


French segment

34.6%

31.4%

30.8%

1.4%2.2%

34.2%

28.3%

33.1%

1.6%2.4%20152014

• The assets are split roughly equally into three between loans and advances to credit institutions, loans and advances to customers and bonds and other transferable securities.

• Interbank business has a 34.2% share, significantly below the market average of 50.4%. Bonds and other transferable securities make up 31.4%, considerably above the market average of 21.0%. Both of these effects have led to net interest income remaining consistently high and its relative share being considerably higher than the market average.


1.3%1.9%

Market

21.0%

22.1%

1.6%1.9%

51.5%

25.4%

50.4%

22.9%

20152014






Liabilities

• The increase in amounts owed to credit institutions is primarily due to the EUR 4.7 billion expansion of CACEIS Bank Luxembourg S.A.’s European branch network.

• Call deposits and fixed-term deposits increased considerably at Société Générale Bank and Trust S.A. (EUR 2.0 billion), while deposits by banks (predominantly fixed-term ones) at Banque de Luxembourg S.A. reduced by EUR 1.1 billion.

2014

50,014.9

2014

11,189.9

2015

54,497.3

2015

11,346.0


2014

70,937.6

• Amounts owed to customers remain almost unchanged from the previous year.

• While CACEIS Bank Luxembourg S.A., Natixis Bank S.A. and Société Générale Bank and Trust S.A. recorded a decrease in customer deposits totalling EUR 3.8 billion, the remaining French banks saw theirs increase by a total of EUR 3.7 billion.


• All French banks increased their own funds. The total increase was 1.4%.

• BGL BNP Paribas S.A., Société Générale Bank and Trust S.A. and CACEIS Bank Luxembourg S.A. account for 80.4% of the own funds on the French segment.

• CACEIS Bank Luxembourg S.A.’s own funds grew by EUR 71 million (including a EUR 62 million increase in subscribed capital without issuing new shares), CA Indosuez Wealth (Europe) S.A.’s own funds grew by EUR 45 million and Société Générale Bank and Trust S.A.’s equity grew by EUR 25 million.

Own funds (in EUR million)

35.5%

2.0%

49.0%

2.9%

37.7%

50.4%

2.1%

3.4%20152014

0.5%

0.6%

7.9%

8.0%

French segment• Interbank transactions among the

French banks are consistent with the market trend.

• Borrowing by companies, private and retail clients, as well as account balances of investment funds, remains by far the biggest source of refinancing in the French segment.

• At 7.9%, own funds are slightly above the market average and shows a good capital base overall.


2015

70,847.9

Market

39.3%

7.3%

43.7%

3.5%

37.1%

40.6%

7.7%

3.7%20152014

0.7%

1.0%

7.7%

7.7%


40 PwC Luxembourg


Overview of change in aggregated income statements from 2014 to 2015 (in EUR million)

20142015

1,473.8

660.7

417.8

-188.7

-1,309.9

10.4 22.7

-79.6

1,687.8

643.6

-202.4

-1,229.3

-67.3-83.4

Bank Annual net profit or loss (EUR million) Shift

Change in

rank

Société Générale Bank and Trust S.A. 405.7 -33.5% =

BGL BNP Paribas S.A. 152.6 -13.4% =

CACEIS Bank Luxembourg S.A. 84.2 -1.3% =

Banque de Luxembourg S.A. 68.8 8.9% =

CA Indosuez Wealth (Europe) S.A. 44.8 24.8% =

Société Générale Financing and Distribution S.A. 8.3 >100% +2

Société Générale LDG S.A. 2.7 -6.9% =

Natixis Bank S.A. 1.8 -82.9% -2

Banque Transatlantique Luxembourg S.A. 1.3 -18.8% =

Banque BCP S.A. 0.8 60.0% =

La Française Bank S.A. 0.7 >100% =

Société Générale Capital Market Finance S.A. 0.0 <-100% =

1

2

3

4

5

6

7

8

9

10

11

12

989.

4 771.4

+14.5%

-2.6%

> -100%

Net interest income




Income taxes

Risk provisioning




• The highest increase in net commission income was recorded by Banque de Luxembourg S.A. at 16.3%. This is primarily attributable to increased commissions from securities trading, asset management and depositary banking.

• Société Générale Bank and Trust S.A.’s profit was down 19.1% year on year, mainly due to lower net commission income from transferable-securities transactions, foreign-exchange transactions, derivative transactions and loan commitments.

2015

643.6


Banque de Luxembourg S.A. 155.2 16.3% +2

Société Générale Bank and Trust S.A. 146.9 -19.1% -1

CACEIS Bank Luxembourg S.A. 135.5 12.1% +1

BGL BNP Paribas S.A. 129.1 -11.1% -2


1

2

3

4

5

2014

660.7

• Net interest income (including EUR 601.2 million in dividend income from shares and participating interests (previous year: EUR 467.8 million) increased by 14.5%.

• Seven banks saw their net interest income increase, while five saw theirs decrease.

• The increases experienced by Banque de Luxembourg S.A. (137.2%) and Société Générale Bank and Trust S.A. (95.6%) are primarily due to the significant growth in dividend income.

• On the other hand, BGL BNP Paribas S.A.’s net interest income fell by EUR 122.7 million (or 19.8%) due to low distribution payments from shares in affiliated undertakings.

2015

1,687.8


Société Générale Bank and Trust S.A. 632.0 72.7% +1

BGL BNP Paribas S.A. 552.1 -19.8% -1

Banque de Luxembourg S.A. 202.4 64.2% +1

CACEIS Bank Luxembourg S.A. 146.4 -4.1% -1


1

2

3

4

5

2014

1,473.8



42 PwC Luxembourg

• Other operating income and expenditures was up 15.5% to EUR -67.3 million.

• BGL BNP Paribas S.A. recorded a EUR 82.1 million increase, thanks to remuneration for lump-sum value adjustment falling by EUR 25.0 million year on year and the allocation to the fund for general banking risks being discontinued (EUR 60 million the previous year).

• Banque de Luxembourg S.A. paid EUR 98.0 million to the fund for general banking risks (compared to EUR 37.0 million the previous year). This led to overall other operating profit falling by EUR 62.0 million to EUR -98.6 million.


50.5%

50.0%

50.0%

49.5%

20152014

French segment

49.2%

55.5%

44.5%

50.8%

20152014

Market

• Current operating expenses fell by a total of 6.2% in 2015. This includes a 7.1% drop in staff costs and a 5.5% drop in administrative costs.

• The French segment retained its balanced proportion between staff and administrative costs, and does not follow the trend of the relative shift in the market.

• Staff costs fell at Société Générale Bank and Trust S.A. (down 23.9%) due to the bank discontinuing its private-banking activities in Asia. They also fell at BGL BNP Paribas S.A. (down 12.7%), due to it phasing out special payments between 2014 and 2015. The other French banks recorded higher staff costs.

• Administrative costs remain the same year on year, with the exception of BGL BNP Paribas S.A.



2015

-67.3

2014

-79.6


• Risk provisioning increased by 112.1% in 2015.

• This increase is primarily attributable to Banque de Luxembourg S.A., Société Générale Bank and Trust S.A., BGL BNP Paribas S.A. and CACEIS Bank Luxembourg S.A.:

- Banque de Luxembourg S.A. generated a profit of EUR 28.0 million (previous year: EUR -0.6 million) through income from the release of value adjustments on transferable securities (EUR 21.7 million), as well as the release of value adjustments on claims and provisions for contingent liabilities (EUR 13.5 million).

- Société Générale Bank and Trust S.A. released value adjustments on claims and provisions for contingent liabilities amounting to EUR 6.3 million.

- BGL BNP Paribas S.A. recorded an allocation of EUR 4.9 million to risk provisioning for its claims and transferable securities (the previous year, EUR 11.5 million was released).

- CACEIS Bank Luxembourg S.A. made a net risk provision in the amount of EUR 9.1 million for its claims and contingent liabilities.

2015

-83.4

2014

417.8

• Société Générale Bank and Trust S.A. is the main contributor to the net loss on financial operations in the French segment. The previous year saw a profit of EUR 355.4 million, while this year saw a loss of EUR 140.8 million:

- The previous year’s high net profit was primarily attributable to the one-off effect of the sale of the Singapore and Hong Kong branches’ private-banking activities (EUR 172.7 million) and the realised profit from financial instruments not valued at market price (EUR 93.2 million).

- Decisive factors in Société Générale Bank and Trust S.A.’s loss on financial operations in the current year are the value adjustments made to the 100% shareholdings Generas S.A. (EUR 130.2 million or 90.45%) and Société Générale Bank and Trust CI S.A. (EUR 12.2 million or 16.78%), as well as decreasing trade profit (down by EUR 56.7 million).



2014

10.7

2015

22.7

44 PwC Luxembourg

Key takeaways – UK/US segment

Number of banks


Total 15 15

2014 2015

Private banking Lending Custody Treasury Retail banking Service centre


Business areas

6.7%

13.3%

26.6%

6.7%13.3%

6.7%

26.7%

• The main business model of the UK/US segment is asset servicing for investment funds, i.e. rendering depositary-banking, fund-administration and transfer-agent services.

• The UK/US segment gained from the positive growth in the Luxembourg investment-fund industry (assets under management grew by 13.2% in 2015), which was reflected by a 14.2% increase in net commission income (compared to a market-average increase of 5.8%).

• The income situation in the UK/US segment is more dependent on net commission income (63% relative share) than the market average (39% relative share), since asset servicing is a key component of the business model. With the exception of PayPal (Europe) S.à r.l. et Cie, S.C.A., net interest income is negligible.

• Despite higher staff costs per member of staff than the market average due to economies of scale in asset servicing for investment funds, the UK/US segment’s business model is very high-yielding, as reflected in its 7.6% return on equity (compared to a market average of 6.9%).

• The balance-sheet total decreased by 24.6% (compared to a 0.8% increase for the market as a whole). This is primarily due to a one-off effect at State Street Bank Luxembourg S.C.A. that was caused by the client business being transferred to State Street Bank GmbH, Branch Luxembourg, which cost EUR 9.5 billion.

• In order to adhere to the liquidity coverage ratio (60%) from 1 October 2015, cash assets were deposited as high-quality liquid assets (HQLAs) with the Central Bank of Luxembourg. The “Cash and cash balances at central banks” item grew by EUR 3.3 billion to EUR 6.0 billion.


2015

30,922.9

2014

40,989.1


• The UK/US segment experienced a healthy annual net profit (11.6%, compared to a market-average 6.3% loss). This is due to an increase in net interest and net commission income (9.0% and 14.2% respectively). The decline in risk provisioning (down EUR 226.0 million) for the UK/US banks is attributable to the development at PayPal (Europe) S.à r.l. et Cie, S.C.A.

2015

449.8

2014

402.9


• The growth in net interest income is primarily due to the significant increase at PayPal (Europe) S.à r.l. et Cie, S.C.A. (up EUR 161.5 million or 72.7%). 17 million new accounts were opened at PayPal (Europe) S.à r.l. et Cie, S.C.A. in 2015.

• Contrasting effects were experienced when client portfolios were transferred to State Street Bank GmbH, Branch Luxembourg.

• Net commission income is primarily attributable to the two largest depositary banks in the financial centre: J.P. Morgan Bank Luxembourg S.A. (EUR 270.6 million; assets in custody USD 793 billion) and State Street Bank Luxembourg S.C.A. (EUR 335.4 million; assets in custody EUR 698 billion).

790.2

479.52014

902.7

522.72015



Return on equity

7.55%

20152014

6.05%

• The 7.55% return on equity is a 24.8% increase year on year. • The UK/US segment was higher-yielding than the market

average due to economies of scale in depositary banking and fund administration, as well as the fact that it is unaffected by the low interest rate thanks to the business model.

Return on assets

• The UK/US segment’s above-average return on assets of 1.45% is more strongly characterised by off-balance-sheet business (such as depositary banking) than the market as a whole.

2014

0.98% 1.45%

2015

46 PwC Luxembourg


0 10 20 30 40 50 60

2015

2014

54.27

54.67

Market

49.77

53.10

• The cost-income ratio is stable year on year and is above the market average.

• The business model is cost-intensive.• The 7.9% increase in current operating expenses is in line

with the market trend (8.5% increase on average).



0 20 40 60 80 100 120

2015

2014 110.1

108.4

Market

101.1

104,6

0 50 100 150 200 250

2015

2014

210.3

192.1

Market

163.8

153.7


0 50 100 150 200

2015

2014 166.6

183.3

Market

91.7

104.8

Average staff count

• The annual net profit and loss per member of staff increased due to the improved income situation in conjunction with an almost unchanged staff count.

• Salary costs are slightly above the market average.• State Street Bank Luxembourg S.C.A. , J.P. Morgan Bank Luxembourg S.A. and Brown Brothers Harriman (Luxembourg)

S.C.A. have the highest staff counts (754, 492 and 359 respectively).• Administrative costs per member of staff are significantly above the market average due to high maintenance and

investment costs in operational infrastructure, as well as the expenses of services purchased and internal service centres.

2,0972014

2,1392015




J.P. Morgan Bank Luxembourg S.A. 11,509.0 -4.3% =

PayPal (Europe) S.à r.l. et Cie, S.C.A. 7,372.5 41.2% +2

HSBC Private Bank (Luxembourg) S.A. 5,322.1 -16.8% =

The Bank of New York Mellon (Luxembourg) S.A. 4,117.3 5.0% +1

John Deere Bank S.A. 1,926.9 3.6% +1

State Street Bank Luxembourg S.C.A. 584.1 -94.9% -4

Brown Brothers Harriman (Luxembourg) S.C.A. 91.0 6.3% =

1

2

3

4

5

6

7

48 PwC Luxembourg

Assets

2015

20,696.3

2014

30,100.2

• The EUR 9.4 billion drop to EUR 20.7 billion is primarily attributable to State Street Bank Luxembourg S.C.A. (down EUR 8.0 billion) and HSBC Private Bank (Luxembourg) S.A. (down EUR 1.1 billion).


2014

5,957.0

• The figure remains almost unchanged year on year at all banks.

• Significant changes were seen at PayPal (Europe) S.à r.l. et Cie, S.C.A. (up EUR 1.5 billion thanks to 17 million accounts being opened) and State Street Bank Luxembourg S.C.A. (down EUR 1.5 billion).

2015

5,952.0


• 2015 saw a drop totalling EUR 429.3 million (or 11.7%) to EUR 3.2 billion.

• State Street Bank Luxembourg S.C.A. sold its entire portfolio to State Street Bank GmbH, Branch Luxembourg in 2015, which led to a negative change of EUR 1.2 billion in the statistics.

• Conversely, PayPal (Europe) S.à r.l. et Cie, S.C.A. increased its bonds and other transferable securities portfolio by EUR 687 million (or 82.5%) during the year to EUR 1.5 billion.

• Therefore, only PayPal (Europe) S.à r.l. et Cie, S.C.A. and HSBC Private Bank (Luxembourg) S.A. have bonds and other transferable securities as at 31 December 2015.

2014

3,654.1

2015

3,224.8






US/UK segment

73.4%

10.5%

19.2%

2.7%0.7%

66.9%14.5%

2.3%9.0%

0.8%20152014

• The UK/US banks’ assets are dominated by interbank business.

• PayPal (Europe) S.à r.l. and John Deere Bank S.A. have substantial loans and advances to customers.

• Bonds and other transferable securities are under-represented due to the UK/US banks’ business models.


1.3%1.9%

Market

21.0%

22.1%

1.6%1.9%

51.5%

25.4%

50.4%

22.9%

20152014


Liabilities

• Amounts owed to credit institutions have decreased by EUR 831 million (or 16.1%) year on year to EUR 4.3 billion.

• This drop is primarily attributable to HSBC Private Bank (Luxembourg) S.A. (down EUR 1.0 billion), which recorded a decrease in intra-group transactions of both assets and liabilities.

• The Bank of New York Mellon (Luxembourg) S.A. recorded the highest increase, up EUR 279.7 million to EUR 540.3 million. This was also mainly a result of intra-group transactions.

2015

4,329.2

2014

5,160.4


2015

19,760.1

2014

28,390.6

• The decrease in total amounts owed in 2015 is primarily due to State Street Bank Luxembourg S.C.A. ’s customer-deposit business being transferred to State Street Bank GmbH, Branch Luxembourg, which cost EUR 8.4 billion. In addition, customer deposits at J.P. Morgan Bank Luxembourg S.A. dropped by EUR 690 million to EUR 10.4 billion.

• As a result of new clients and business development in 2015, PayPal (Europe) S.à r.l. et Cie, S.C.A. recorded a substantial increase, up 20.7% (or about EUR 520 million) to EUR 3.0 billion.


• Own funds fell by EUR 0.7 billion (or 10.6%) year on year to EUR 6.0 billion. There were one-off effects at PayPal (Europe) S.à r.l. et Cie, S.C.A. (up EUR 1.5 billion due to an equity increase through new owner PayPal HOLDINGS S.A.) and State Street Bank Luxembourg S.C.A. (down EUR 2.4 billion due to its European legal-entity restructuring project).

2015

5,954.9

2014

6,661.0



12.6%

0.1%

14.0%

63.9%69.3%

0.1%

2015

2014

19.3%

16.2%

2.7%

1.8%

US/UK segment• Deposits by companies, private and

retail clients, as well as account balances of investment funds, are by far the biggest sources of refinancing in the UK/US segment.

• Interbank business is below the market average.


Market

39.3%

7.3%

43.7%

3.5%

37.1%

40.6%

7.7%

3.7%20152014

0.7%

1.0%

7.7%

7.7%

50 PwC Luxembourg


Bank Annual net profit or loss (in EUR million) Shift Change in

rank

PayPal (Europe) S.à r.l. et Cie, S.C.A. 158.5 57.7% +1

State Street Bank Luxembourg S.C.A. 131.4 -33.1% - 1

J.P. Morgan Bank Luxembourg S.A. 69.1 19.8% =

Brown Brothers Harriman (Luxembourg) S.C.A. 34.1 11.4% +1

John Deere Bank S.A. 32.1 -28.7% -1

The Bank of New York Mellon (Luxembourg) S.A. 22.7 <-100% +1

HSBC Private Bank (Luxembourg) S.A. 1.9 -47.2% -1

1

2

3

4

5

6

7

Overview of change in aggregated income statements from 2014 to 2015

Net interest income




Income taxes

Risk provisioning



20142015

402.

9

449.8

+9.0%

+14.2%

+34.7%

479.5

790.2

-590.4

-167.8

-15.4

-25.3

-67.9

522.7

902.7

29.0

-62.4

-637.2

-226.0

-79.0


• Net commission income’s relative share remains stable (62.2% in 2014; 63.3% in 2015).

• State Street Bank Luxembourg S.C.A.’s net commission income increased by EUR 89.1 million thanks to the successful implementation of new services, as well as due to net inflows, the organic growth of existing clients and the positive stock-market environment.

• PayPal (Europe) S.à r.l. et Cie, S.C.A. (up EUR 11.6 million) and Brown Brothers Harriman (Luxembourg) S.C.A. (up EUR 4.9 million) also contributed to the growth in net commission income.


State Street Bank Luxembourg S.C.A. 335.4 36.2% +1

J.P. Morgan Bank Luxembourg S.A. 270.6 1.8% -1

PayPal (Europe) S.à r.l. et Cie, S.C.A. 141.9 8.9% =

Brown Brothers Harriman (Luxembourg) S.C.A. 105.8 4.9% =

The Bank of New York Mellon (Luxembourg) S.A. 38.0 6.4% =

1

2

3

4

5

• PayPal (Europe) S.à r.l. et Cie, S.C.A.’s interest profit grew significantly (up EUR 161.5 million) thanks to the successful expansion of its client base together with a considerable increase in payment traffic.

• PayPal (Europe) S.à r.l. et Cie, S.C.A. accounts for 73.3% (or EUR 383.5 million) of all net interest income.

• State Street Bank Luxembourg S.C.A. ’s net interest income fell by 63.6% as a result of the transfer of the client and transferable-securities portfolios to State Street Bank GmbH, Branch Luxembourg.

• J.P. Morgan Bank Luxembourg S.A.’s net interest income fell by EUR 18.8 million due to decreasing customer deposits, the low-interest environment and a change in the currency composition.

2015

522.7

2015

902.7


PayPal (Europe) S.à r.l. et Cie, S.C.A. 383.5 72.7% =

John Deere Bank S.A. 64.2 -7.6% +1

State Street Bank Luxembourg S.C.A. 51.3 -63.6% -1

HSBC Private Bank (Luxembourg) S.A. 12.7 -17.0% +1

J.P. Morgan Bank Luxembourg S.A. 12.6 -59.9% -1

1

2

3

4

5

2014

479.5

2014

790.2



52 PwC Luxembourg

• The decline is primarily due to State Street Bank Luxembourg S.C.A. making a loss of EUR 123.7 million in its other operating income and expenditures (compared to a loss of EUR 49.1 million the previous year). This figure includes expenses from clearing intra-group services (transfer pricing), which amounted to EUR 126.2 million (compared to a cost of EUR 63.8 million the previous year).


-39.1%

-63.6%

-36.4%

-60.9%

20152014

US/UK segment

-49.2%

-55.5%

-44.5%

-50.8%

20152014

Market• Total current operating expenses are up 7.9% (compared to an 8.5% increase for the market as a whole). This is primarily due to J.P. Morgan Bank Luxembourg S.A. seeing an increase in the volume of depositary banking it administers and incurring technology re-platforming costs, as well as to State Street Bank Luxembourg S.C.A. seeing EUR 22.0 million in goodwill amortisation resulting from the transfer of its client portfolios to the branch.



2015

-79.0

2014

-15.4


• The increase in risk-provisioning costs is dominated by the EUR -263.5 million recorded by PayPal (Europe) S.à r.l. et Cie, S.C.A., a year-on-year increase of EUR 106.0 million. This is due to its increased loans and advances to customers and the resultant portfolio-value adjustment.

• In contrast, State Street Bank Luxembourg S.C.A. recorded EUR 28.4 million income from the release of value adjustments (of which EUR 8.4 million from the sale of transferable securities to State Street Bank GmbH, Branch Luxembourg and EUR 20.0 million from the release of general value adjustments), while J.P. Morgan Bank Luxembourg S.A. recorded EUR 10.0 million income.

2015

29.0

2014

-25.3

• The net profit/(loss) on financial operations is primarily attributable to The Bank of New York Mellon (Luxembourg) S.A. (EUR 23.6 million) and HSBC Private Bank (Luxembourg) S.A. (EUR 8.7 million).

• The Bank of New York Mellon (Luxembourg) S.A.’s profit is almost entirely a result of foreign-currency transactions. HSBC Private Bank (Luxembourg) S.A.’s profit consists of foreign-exchange income and interest income from financial instruments held for trading. Both components recorded year-on-year growth.

• Four banks recorded a loss on financial operations in 2015: Brown Brothers Harriman (Luxembourg) S.C.A. (EUR -2.2 million), J.P. Morgan Bank Luxembourg S.A. (EUR -1.2 million), John Deere Bank S.A. (EUR -0.9 million) and PayPal (Europe) S.à r.l. et Cie, S.C.A. (EUR -2.3 million).



2015

-226.0

2014

-167.8

54 PwC Luxembourg

Key takeaways – Luxembourg segment

Number of banks


Total 10 9

2014 2015

Private banking Lending Custody Treasury Mortgage bonds Service centre


Business areas

24.1%

13.8%

13.8%13.8%

13.8%

13.8%

6.9%

• The Luxembourg segment as a whole has a balanced business model characterised by private and retail banking, private and corporate loans and asset servicing (depositary banking and investment-fund servicing).

• The Luxembourg segment is dominated by three banks – Banque et Caisse d’Epargne de l’Etat, Luxembourg, Banque Internationale à Luxembourg S.A. and KBL European Private Bankers S.A. – which together make up 88.6% of the balance-sheet total, 88.0% of the annual net profit or loss and 86.8% of the staff count.

• The income situation reflects the business model, made up of a mix of net interest income (60% relative share), net commission income (30% relative share) and dividends from participating interests (10% relative share).

• Dexia LdG Banque S.A. ceased operations on 1 July 2015.

• The moderate 4.6% increase year on year is characterised in near-equal measure by loans and advances to credit institutions (5.1%), loans and advances to customers (5.9%) and the bonds and other transferable securities (5.1%).

• The key factors behind the balance-sheet growth are private and corporate banking – especially the demand for property loans, collateral loans and investment loans – the expansion of the deposit business due to the uncertain market environment and the resultant increase in clients’ demand for savings deposits and fixed-term deposits.

• Own funds increased by 0.7% year on year to EUR 7.3 billion.

• The total equity ratio of 17.1% shows that the Luxembourg banks have very good capitalisation and high-quality equity instruments.

• The regulatory requirements of either 8.0% or 10.5% have been comfortably met.

• The top three are KBL European Private Bankers S.A. (28.0%), Banque et Caisse d’Epargne de l’Etat, Luxembourg (18.5%) and Banque Internationale à Luxembourg S.A. (15.8%).


2014

78,413.9

2015

82,052.1

17.9%

* Five of the nine banks.

2014

17.1%

2015

Total equity ratio (weighted)*


Annual net profit and loss (in EUR million)• Despite a 4.9% increase in net interest and commission

income and a moderate 5.6% increase in staff and administrative costs, the annual net profit fell by 13.3%, or EUR 69.7 million. This is due to a significantly lower net profit on financial operations (down 42.5% or EUR 129.8 million).

• The 6.4% increase in net interest income (compared to a market-average increase of 5.2%) is primarily attributable to KBL European Private Bankers S.A. (EUR 31.7 million due to higher dividend income from shareholdings), Banque Internationale à Luxembourg S.A. (EUR 14.7 million) and Banque et Caisse d’Epargne de l’Etat, Luxembourg (EUR 10.5 million due to higher dividend income from subsidiaries).

• The income situation in the Luxembourg segment is more dependent on net interest income (72.5% relative share) than the market average (39% relative share), since private and corporate banking and public-sector financing are key components of the business model.

• Net commission income is stable (up 1.1%), with significant growth at Banque Havilland S.A. (up 72.7% or EUR 4.0 million) and Compagnie de Banque Privée Quilvest S.A. (up 19.2% or EUR 4.3 million), and a drop at KBL European Private Bankers S.A. (down 7.8% or EUR 5.8 million).

361.2

905.52014

365.1

963.5

2015



2015

454.7

2014

524.4

Return on equity

7.19%

2014 2015

6.19%

• Return on equity is slightly below the market average, falling 13.9% year on year due to lower annual net profit together with unchanged equity.

Return on assets

• Return on assets is slightly above the market average, as assets are characterised by diversification in loans and advances to customers (43.7% share) and bonds and other transferable securities portfolio (34.1% share), while the interbank business is under-represented, recording low or negative margins.

2014

0.67% 0.55%

2015

56 PwC Luxembourg


0 10 20 30 40 50 60 70 80

2015

2014

61.90

57.94

Market

49.77

53.10

• The cost-income ratio is significantly above the market average, as certain Luxembourg banks have highly staff-intensive business models (such as retail banking and having a large branch network). The Luxembourg banks employed 19.4% of the total staff count and represent 11.0% of the market’s balance-sheet total.



0 20 40 60 80 100 120

2015

2014 108.0

110.1

Market

101.1

104.6

0 50 100 150 200

2015

2014

90.5

106.0

Market

163.8

153.7


Average staff count

• Staff costs per member of staff (a 20.4% share of the market) are in line with the market trend.• The Luxembourg segment’s annual net income constitutes 11.4% of the market total for a staff count that makes up almost

20% of it.• Administrative costs make up a 13.0% share of the market.• Administrative costs per member of staff are significantly below the market average due to the staff count and the fact that

fewer of the services from the group are recorded as administrative costs in comparison with the overall market.

4,9472014

5,0252015

0 20 40 60 80 100 120

2015

2014 65.0

69.5

Market

91.7

104.8




Banque et Caisse d’Epargne de l’Etat, Luxembourg 42.797.5 6.7% =

Banque Internationale à Luxembourg S.A. 20,934.5 -3.8% =

KBL European Private Bankers S.A. 8,983.0 1.2% =

Banque Raiffeisen S.C. 4,473.0 19.8% =

Compagnie de Banque Privée Quilvest S.A. 1,902.4 4.4% =

Société Nationale de Crédit et d’Investissement 1,370.5 2.8% =

Banque Havilland S.A. 1,146.8 9.3% =

Fortuna Banque S.C. 249.0 6.7% =

BEMO Europe - Banque Privée S.A. 195.4 4.0% =

1

2

3

4

5

6

7

8

9

58 PwC Luxembourg

Assets

• Loans and advances to credit institutions increased moderately, by 5.1% (or EUR 0.7 billion) to EUR 14.7 billion.

• The strongest growth was recorded by Banque et Caisse d’Epargne de l’Etat, Luxembourg (up EUR 631.7 million) and KBL European Private Bankers S.A. (up EUR 492.0 million).

• Both of these increases are primarily due to deposits being placed with the Central Bank of Luxembourg.


• Eight of the nine banks saw this asset item increase, by a total of 5.9%.

• The highest absolute increases were seen at Banque et Caisse D’Epargne de l’Etat, Luxembourg (up EUR 913.6 million) and Banque Internationale à Luxembourg S.A. (up EUR 604.0 million). These were attributable to private banking (property loans), corporate banking (investment loans) and public-sector demand for loans.

• In percentage terms, Banque Havilland S.A. recorded the biggest increase (130.3%), thanks to its private-banking activities (property and collateral loans).


• Six of the nine banks invested a total of EUR 1.4 billion in bonds and other transferable securities – a 5.1% increase.

• This growth is primarily attributable to Banque Internationale à Luxembourg S.A. (up EUR 893.1 million), due to stronger investment in high-quality debenture loans that are approved for refinancing by the European Central Bank and that provide the bank with the opportunity to comply with the new liquidity coverage requirements (LCR).

• A significant 21.5% increase was seen at Banque Raiffeisen S.C., which invested part of its growing customer deposits in bonds and other transferable securities.


Luxembourg segment

17.8%34.1%

43.2%

1.8%2.6%

17.9%

43.6%

2.3%

33.9%

2.8%20152014

• The Luxembourg banks’ main focus is on providing loans to the Luxembourg market. Therefore, loans and advances to customers represent a substantially higher proportion of the balance-sheet total (43.6%) than the market average, due to the overall high amount of private and corporate banking, as well as the public-sector financing provided by the Luxembourg segment.

• Bonds and other transferable securities are significantly above the market average because income from bonds and other transferable securities represents an important source of the Luxembourg segment’s overall balanced mixture of earnings.

• Interbank business is below the market average, since more of the Luxembourg banks act as the headquarters for their respective banking groups than in any other segment, and consequently no deposits are placed at the parent company.

Breakdown of assets 2014-2015

2015

14,691.6

2015

27,952.0

2015

35,833.3

2014

13,981.3

2014

26,599.7

2014

33,839.3

1.3%1.9%

Market

21.0%

22.1%

1.6%1.9%

51.5%

25.4%

50.4%

22.9%

20152014






Liabilities

• Amounts owed to credit institutions increased moderately, by EUR 0.5 billion (or 5.3%) to EUR 10.9 billion.

• With the exception of Banque Raiffeisen S.C. (down 1.0% to EUR 1.0 billion), which reduced its deposits of less than three months, all banks increased their borrowing at credit institutions.

• Banque et Caisse d’Epargne de l’Etat, Luxembourg saw by far the biggest increase, at EUR 294.9 million. Part of this amount replaces the issued debt securities that were repurchased or allowed to expire in 2015 as a source of refinancing.


• Customer deposits remain the biggest source of refinancing (up 8.3%).• Two of the nine banks recorded a growth in customer deposits.• These were Banque et Caisse d’Epargne de l’Etat, Luxembourg and

Banque Internationale à Luxembourg S.A., which recorded strong increases of EUR 1.9 billion and EUR 1.1 billion respectively.

• In an uncertain market environment characterised by high volatility, private and corporate clients prefer to keep part of their assets as liquidity reserves available at short notice on current, savings and term accounts.


• Debt securities fell slightly, by 5.1%.

• Three of the nine banks (Banque et Caisse d’Epargne de l’Etat, Luxembourg, Banque Internationale à Luxembourg S.A. and KBL European Private Bankers S.A.) account for 98.3% of all securitised liabilities in the segment.

• Banque et Caisse d’Epargne de l’Etat, Luxembourg recorded the biggest absolute decrease by far (down EUR 484.8 million), due to maturities and redemptions.

2015

7,329.5

2014

7,726.0

Debt securities (in EUR million)

13.2%

8.9%

13.3%

62.6%60.4%

9.9%

2015

2014

8.9%0,7%

9.3%

0.6%

5.6%

6.6%

Luxembourg segment

• Client borrowing remains unchanged (62.6% relative share), representing by far the biggest source of refinancing in the Luxembourg segment. It is therefore significantly above the market average (43.7% relative share). This is due on the one hand to their local presence (for example, Banque et Caisse d’Epargne de l’Etat, Luxembourg has Luxembourg’s biggest branch and ATM network), and on the other hand to the fact that through their business model, they generate considerably more customer deposits in Luxembourg and no parent company is available for the purpose of refinancing, as can be seen in other segments.

• Refinancing through deposits by banks (13.3%) is correspondingly below the 37.1% market average.

• The Luxembourg segment’s securitised debt and remaining balance-sheet items are in line with the market trend.

Breakdown of liabilities 2014-2015

2015

10,921.0

2015

51,324.4

2014

10,372.0

2014

44,388.9

Market

39.3%

7.3%

43.7%

3.5%

37.1%

40.6%

7.7%

3.7%20152014

0.7%

1.0%

7.7%

7.7%


60 PwC Luxembourg


Banque et Caisse d’Epargne de l’Etat, Luxembourg 229.8 5.2% =

KBL European Private Bankers S.A. 86.9 22.4% +1

Banque Internationale à Luxembourg S.A. 83.6 -50.5% -1

Société Nationale de Crédit et d’Investissement 37.8 -19.1% =

Banque Raiffeisen S.C. 8.1 -9.0% =

Compagnie de Banque Privée Quilvest S.A. 5.4 31.7% +1

Banque Havilland S.A. 3.9 -42.6% -1

Fortuna Banque S.C. 0.0 <-100% =

BEMO Europe - Banque Privée S.A. -0.8 60.0% =

1

2

3

4

5

6

7

8

9



2014 2015

905.5 963.5

365.1

175.6

-98.1 -22.1

-905.5

-23.8

361.2

305.4

-95.3 -36.2

-857.8

-58.4

524.

4 454.7

+6.4%

+1.1%

-42.5%

Net interest income




Income taxes

Risk provisioning




• Six of the nine banks saw their net commission income increase, by a total of 1.1%.

• The strongest percentage increase was recorded by Banque Havilland S.A., at 72.7%, as a result of services for its subsidiaries and increased client activities. The second-highest increase (19.2%) was recorded by Compagnie de Banque Privée Quilvest S.A., thanks to increased commissions from asset management.

• KBL European Private Bankers S.A.’s net commission income fell by EUR 5.8 million (or 7.8%) due to lower transaction fees for transferable securities and trailer fees for funds.


Banque Internationale à Luxembourg S.A. 148.9 -1.7% =


KBL European Private Bankers S.A. 68.7 -7.8% =

Compagnie de Banque Privée Quilvest S.A. 26.7 19.2% =

Banque Raiffeisen S.C. 12.7 9.5% =

1

2

3

4

5

• Net interest income (including EUR 168.1 million in dividend income from shares and participating interests) increased by 6.4% (previous year: EUR 131.0 million).

• Banque Havilland S.A. recorded the highest percentage increase, at 66.0%, due to fixed-rate debenture loans with low coupons being reallocated to customer loans. KBL European Private Bankers S.A. saw a 32.4% growth thanks to a strong increase in dividend income from shareholdings Puilaetco Dewaay Private Bankers S.A. (EUR 23 million), KBL Immo S.A. (EUR 16 million) and Puilaetco Dewaay Luxembourg S.A. (EUR 3 million).

• Despite growth in its loan volume, Banque Raiffeisen S.C. recorded a drop of 5.9% (or EUR 2.8 million) due to the continuously low interest rate.

2015

963.5

2015

365.1



Banque Internationale à Luxembourg S.A. 278.2 5.6% =

KBL European Private Bankers S.A. 129.6 32.4% =

Banque Raiffeisen S.C. 45.0 -5.9% =

Société Nationale de Crédit et d’Investissement 41.9 -5.2% =

1

2

3

4

5

2014

905.5

2014

361.2



62 PwC Luxembourg

• The operating loss halved, ending the year at EUR -23.8 million.

• Key factors for this improved situation are Banque et Caisse d’Epargne de l’Etat, Luxembourg’s allocation for lump-sum value adjustments dropping by EUR 29 million, and Banque Internationale à Luxembourg S.A. releasing provisions and extraordinary income (EUR 15.1 million).

2015

-23.8

2014

-58.4


62.3%

38.9%

61.1%

37.7%

20152014

Luxembourg segment

49.2%

55.5%

44.5%

50.8%

20152014

Market • Current operating expenses increased by

a total of 5.6% due to increased overheads (up 8.9%, compared to a market-average increase of 14.2%).

• There are several reasons for this increase. Firstly, KBL European Private Bankers S.A. incurred costs and consultancy fees for the Utopia Project, which is expected to involve Lombard Odier as a strategic partner and external platform supplier. Secondly, Banque Internationale à Luxembourg S.A. incurred one-off expenses for the purchase of KBL (Switzerland), as well as restructuring costs for the termination of the Singapore branch’s activities. Thirdly, Banque et Caisse d’Epargne de l’Etat, Luxembourg incurred costs for implementing new regulatory requirements.

• The relative share of staff costs (61.1%) is significantly higher than the market average (44.5%). This is because, in contrast to other market participants, none of the services from the group are recorded as administrative costs.

Breakdown of current operating expenses 2014-2015



• Risk provisioning fell by EUR 14.1 million year on year. The following significant allocations to risk provisioning were made in 2015:

- KBL European Private Bankers S.A., in the amount of EUR 12.8 million (of which EUR 9.5 million to the shares in KBL Richelieu Banque Privée);

- EUR 17.6 million at Banque Internationale à Luxembourg S.A. (of which EUR 16.6 million to loans and advances to customers); and

- amortisation at Société Nationale de Crédit et d’Investissement (EUR -5.0 million) and Banque Raiffeisen S.C. (EUR 4.1 million).

• This is countered by income from the release of value adjustments at Banque et Caisse d’Epargne de l’Etat, Luxembourg amounting to EUR 20.8 million.

2015

-22.1

2014

-36.2


• Net profit fell significantly, by 42.5%.

• Banque Internationale à Luxembourg S.A.’s net profit from financial transactions fell by EUR 113.4 million year on year, due to the drop in profits from the sale of transferable securities assigned to the “available for sale” category.

• In addition, Banque et Caisse d’Epargne de l’Etat, Luxembourg’s profit from financial transactions fell by EUR 9.8 million and KBL European Private Bankers S.A.’s fell by EUR 6.8 million.


2015

175.6

2014

305.4

64 PwC Luxembourg

Key takeaways – Swiss segment

Number of banks


Total 12 12

2014 2015

Private banking Custody Treasury Service centre Investment-fund servicing

Austria Portugal Belgium Italy Spain France

England Other

Business areas

34.5%

6.9%

6.9%

10.3%

10.3%

27.6%

13.8%

6.9%

6.9%

31.1%

6.9%

13.8%

24.1%

• The key business areas for the Swiss segment are depositary banking, private banking and investment-fund servicing.

• The Swiss banks in Luxembourg make intensive use of the possibility given by the EU passport to distribute their services through branches in Europe. The banks currently have 29 branches in 17 different countries. 28 of the branches are in Europe and one is in Asia. Each bank has an average of between two and four branches.

• The income situation in the Swiss segment is considerably more dependent on net commission income (77% relative share) than the market average (40% relative share), since private banking, depositary banking and investment-fund servicing (asset servicing) are key components of the business model. Net interest income takes only a minor role.

• Swiss banks have a more expensive cost structure due to their business model (68.9% cost-income ratio compared to a market average of 49.9%). Salaries are significantly higher than the market average.

• The balance-sheet total increased by 5.7% (compared to a market average of +0.8%), primarily due to the expansion of the deposit business through customer deposits and investments by investment funds (+10.5%; market average: +8.5%).

• The balance-sheet structure in the Swiss segment is characterised by deposits by investment funds, institutional and private clients (82.3% of the balance-sheet total). These are then distributed within the group (58.4% of the balance-sheet total) or to clients (22.7% of the balance-sheet total). The three largest institutions (UBS (Luxembourg) S.A. at EUR 8.7 billion, Pictet & Cie (Europe) S.A. at EUR 7.2 billion, and Credit Suisse (Luxembourg) S.A. at EUR 6.8 billion)) account for 69% of the aggregated balance-sheet total.

• In order to adhere to the liquidity coverage ratio (60%) as from 1 October 2015, cash assets were deposited as high-quality liquid assets (HQLAs) at the Central Bank of Luxembourg and invested in bonds and other transferable securities. The “Cash and cash balances at central banks” item grew by EUR 0.8 billion to EUR 4.2 billion, while bonds and other transferable securities grew by 47.2% to EUR 5.7 billion.


Branches outside Luxembourg

2014

31,243.5

2015

33,030.5


• The Swiss segment enjoyed excellent net profit (+88.2%, compared to a market-average loss of 6.3%) due to commission profit growing by 10.5% (market average: 5.8%) and due to one-off effects at three banks (EUR +103.3 million).

• The one-off effects were at UBS (Luxembourg) S.A. (sale of activities in Belgium), Credit Suisse (Luxembourg) S.A. (French retail-banking business integrated) and Edmond de Rothschild (Europe) S.A. (central-administration function transferred to Edmond de Rothschild Asset Management (Luxembourg) S.A.).

• Due to the business model, risk provisioning plays a very minor role.

• 89% of the net profit is split between two banks: Pictet & Cie (Europe) S.A. (EUR 113.3 million) and UBS (Luxembourg) S.A. (EUR 91.3 million).


• Interest profit increased by a total of 30.7% to EUR 114.6 million. Pictet & Cie (Europe) S.A. has established a long-term bonds and other transferable securities portfolio over the past year, and in doing so was able to significantly improve its interest profit. Credit Suisse (Luxembourg) S.A.’s increased net interest income is due to the contribution from its new French branch and increased export financing.

• The growth in net commission profit is attributable on the one hand to positive stock-market developments despite increased volatility, and on the other hand to increased demand for financial products in the field of asset management. Pictet & Cie (Europe) S.A. and Credit Suisse (Luxembourg) S.A. (which integrated its French private-banking activities) recorded significant increases in their net commission income.

589.2

87.72014

650.8

114.6

2015



2014

122.5

2015

230.5

Return on equity

8.43%

2014 2015

12.33%

• Return on equity increased significantly year on year, to 12.33%. The Swiss banking sector is above the market average due to a business model that has low capital intensity, lower default risks and very good income growth thanks to the positive development of the investment-fund sector.

Return on assets

• The Swiss segment’s above-average return on assets of 0.70% is more strongly characterised by off-balance-sheet business (such as asset management and fund services) than the market as a whole.

2014 2015

0.70%0.39%

66 PwC Luxembourg


0 10 20 30 40 50 60 70 80

2015

2014

68.89

78.49

Market

49.77

53.10

• At 68.89%, the cost-income ratio is considerably higher than the market average of 53.10%. This is due to overall very high staff costs and further increased current operating expenses (+11.5%; market average: +8.5%).



0 50 100 150 200

2015

2014 152.9

168.4

Market

101.1

104.6

0 50 100 150 200

2015

2014

95.4

49.7

Market

163.8

153.7


Average staff count

• The annual net profit per member of staff doubled due to the improved income situation together with an almost unchanged staff count.

• The Swiss segment’s salary structure is considerably higher than the market average.• Administrative costs per member of staff compare favourably with the market as a whole.

2014

2,463

2,415

2015

0 20 40 60 80 100 120

2015

2014 91.1

108.9

Marché

91.7

104.8




UBS (Luxembourg) S.A. 8,716.5 -9.0% =

Pictet & Cie (Europe) S.A. 7,170.4 11.0% =

Credit Suisse (Luxembourg) S.A. 6,812.4 20.0% =

Edmond de Rothschild (Europe) S.A. 5,548.3 1.2% =

EFG Bank (Luxembourg) S.A. 1,491.0 54.5% +1

Union Bancaire Privée (Europe) S.A. 1,139.2 8.3% -1

Lombard Odier (Europe) S.A. 1,039.8 10.0% =

BSI Europe S.A. 732.3 30.6% =

Cornèr Banque (Luxembourg) S.A. 206.9 -54.9% =

Mirabaud & Cie (Europe) S.A. 173.7 >100.0% =

1

2

3

4

5

6

7

8

9

10

68 PwC Luxembourg

Assets

• Loans and advances to credit institutions remained the main component in 2015, accounting for 58.4% of assets.

• The decrease is primarily attributable to reallocation at Pictet & Cie (Europe) S.A. (EUR -1.0 billion, bonds and other transferable securities EUR +1.2 billion) and a decline at UBS (Luxembourg) S.A. (EUR -871.8 million).


• The 18.9% increase is attributable to Credit Suisse (Luxembourg) S.A. (EUR 926.9 million, primarily due to increased demand for collateral loans from private-banking clients) and Pictet & Cie (Europe) S.A. (EUR 535.9 million), and is partially lessened by the decline at UBS (Luxembourg) S.A. (EUR -386.1 million).


• Bonds and other transferable securities increased by 47.2% year on year. This is primarily attributable to Pictet & Cie (Europe) S.A., whose transferable securities account for 78.3% of the total. Since 2013, Pictet & Cie (Europe) S.A. has gradually been expanding its long-term bond and other transferable securities portfolio (in 2015, it grew by EUR 1.2 billion or 37.9%).


Swiss segment

65.5%17.2%

20.2%

1.4%0.3%

58.4%1.6%12.3%

0.4%20152014

22.7%

• Interbank business is slightly above the market average.

• Loans and advances to credit institutions increased by 18.9% (compared to an increase of 11.5% for the market as a whole).

• Bonds and other transferable securities grew by 47.2%, as Pictet & Cie (Europe) S.A. has been gradually expanding its “held to maturity” bonds and other transferable securities portfolios since 2013 (up EUR 1.2 billion in 2015).


2015

19,273.7

2015

5,675.6

2015

7,511.6

2014

20,463.2

2014

3,856.4

2014

6,318.5

1.3%1.9%

Market

21.0%

22.1%

1.6%1.9%

51.5%

25.4%

50.4%

22.9%

20152014






Liabilities

• The 21.3% decrease is primarily attributable to Pictet & Cie (Europe) S.A. (down EUR 759.3 million) and Cornèr Banque Luxembourg S.A. (down EUR 120.7 million; returned its banking licence as at 31 March 2016).


2015

3,026.2

2014

3,843.5

• Amounts owed to customers are by far the biggest component of the liabilities item (making up 82.3% of the balance-sheet total), due to the Swiss banks’ dominance in retail banking, as well as due to asset servicing for the investment-fund sector.

• The top four contributors are UBS (Luxembourg) S.A. (EUR 7.3 billion), Pictet & Cie (Europe) S.A. (EUR 5.9 billion), Credit Suisse (Luxembourg) S.A. (EUR 5.3 billion) and Edmond de Rothschild (Europe) S.A. (EUR 5.1 billion).

• All banks registered strong growth, with the exception of UBS (Luxembourg) S.A. (down 8.5% or EUR 675.9 million) and Cornèr Banque (Luxembourg) S.A. (down 84.9% or EUR 126.5 million).


• The significant increases in equity seen at Pictet & Cie (Europe) S.A., UBS (Luxembourg) S.A. and Union Bancaire Privée (Europe) S.A. are due to healthy annual net profit. Credit Suisse (Luxembourg) S.A.’s equity grew thanks to two capital increases (CHF 50.9 million in February 2015 (merger with Credit Suisse (France) S.A.) and CHF 30.0 million in October 2015).

• Edmond de Rothschild (Europe) S.A. saw a decrease due to higher dividends in relation to its net profit or loss.


12.3%

0.7% 9.2%

82.3%78.7%

1.6%

2015

2014

5.7%

0.1%

4.7%0.2%

2.0%

2.5%

Swiss segment • Client borrowing remains unchanged, representing by far the biggest source of refinancing in the Swiss segment.

• Deposits by investment funds, institutional and private clients in the Swiss segment are significantly higher than the market average.

Breakdown of liabilities 2014-2015

2015

27,168.1

2015

1,869.8

2014

24,589.5

2014

1,453.6

Market

39.3%

7.3%

43.7%

3.5%

37.1%

40.6%

7.7%

3.7%20152014

0.7%

1.0%

7.7%

7.7%


70 PwC Luxembourg


Pictet & Cie (Europe) S.A. 113.3 90.1% =

UBS (Luxembourg) S.A. 91.3 >100% =

Union Bancaire Privée (Europe) S.A. 19.0 38.7% +1

Edmond de Rothschild (Europe) S.A. 16.3 -31.8% -1

Credit Suisse (Luxembourg) S.A. 12.0 >100% +1

EFG Bank (Luxembourg) 1.6 -64.4% -1

Cornèr Banque (Luxembourg) S.A. -1.7 <-100% =

BSI Europe S.A. -4.4 63.0% =

Mirabaud & Cie (Europe) S.A. -6.5 62.5% =

Lombard Odier (Europe) S.A. -10.4 -17.5% =

1

2

3

4

5

6

7

8

9

10



2014 2015

87.7

114.6

650.8

78,7

133.6

-69.2

-675.1

589.2

65.2 22.7-43.1

-605.4

116.

3

233.4

+30.7%

+10.5%

+488.5%

Net interest income




Income taxes

Risk provisioning




• Five of the ten banks saw their net interest income increase. Net interest income grew by a total of 30.7%.

• Pictet & Cie (Europe) S.A. reaped the benefits of its bonds and other transferable securities portfolio (up 68.2% or EUR 16.1 million), which it has been gradually expanding since 2013.

• There were two important reasons for Credit Suisse (Luxembourg) S.A.’s growth (up 59.9% or EUR 11.8 million): increased export financing and the added contribution that the newly integrated French branch brings to its interest profit.

2015

114.6



Credit Suisse (Luxembourg) S.A. 31.5 59.9% =

UBS (Luxembourg) S.A. 21.4 17.6% =

Edmond de Rothschild (Europe) S.A. 9.7 -27.6% =

EFG Bank (Luxembourg) S.A. 4.3 -12.2% =

1

2

3

4

5

2014

87.8


• Seven of the ten banks saw their net commission income increase. Overall, this figure grew by 10.5%.

• Pictet & Cie (Europe) S.A.’s commission profit grew by 28.6% to EUR 216.5 million thanks to the increase in assets under management (calculated with due regard to the CHF/EUR exchange-rate effect).

• The main reason for Credit Suisse (Luxembourg) S.A.’s considerable increase in net commission income (up EUR 31.2 million or 46.8%) was the integration of its French private-banking activities.

• Edmond de Rothschild (Europe) S.A. recorded a significant drop (down EUR 46.4 million or 34.0%) due to its central-administration function being transferred to management company Edmond de Rothschild Asset Management (Luxembourg) S.A..



UBS (Luxembourg) S.A. 122.5 0.3% +1

Credit Suisse (Luxembourg) S.A. 97.9 46.8% +1

Edmond de Rothschild (Europe) S.A. 89.9 -34.0% -2

Lombard Odier (Europe) S.A. 41.2 47.1% +1

1

2

3

4

5

2015

650.8

2014

589.2


72 PwC Luxembourg

• UBS (Luxembourg) S.A. increased its other operating income and expenditures by EUR 53.8 million through the sale of its activities in Belgium.

• Credit Suisse (Luxembourg) S.A.’s increase is due to negative goodwill being written off in connection with its merger with Credit Suisse (France) S.A., as well as increased additional charges from the provision of services to the group.

• Edmond de Rothschild (Europe) S.A.’s other operating profit grew by EUR 27.3 million. This is due to the transfer of the central-administration function to management company Edmond de Rothschild Asset Management (Suisse) S.A., which on the one hand led to the fees being allocated to other operating income and expenditures instead of net commission income; and on the other hand gave rise to EUR 6.3 million in provisions being reversed in connection with the central-administration function.

2015

133.6

2014

22.7


62.2%

39.7%

60.3%

37.8%

20152014

Swiss segment

-49.2%

-55.5%

-44.5%

-50.8%

20152014

Market • Staff costs increased the most at Mirabaud & Cie (Europe) S.A., Credit Suisse (Luxembourg) S.A. and Lombard Odier (Europe) S.A. due to their branch networks being expanded and due to the business activities of other group entities being integrated, which required investment and staff transfers.

• Credit Suisse (Luxembourg) S.A.’s overheads increased by EUR 30.3 million (or 89.4%) due to one-off project costs incurred in integrating its French branch.

Breakdown of current operating expenses 2014-2015



• Due to the Swiss banks’ business model, risk provisioning remains low in comparison with the market as a whole.

• Net income from financial transactions increased slightly, from EUR 65.2 million to EUR 78.7 million. This increase is primarily attributable to Pictet & Cie (Europe) S.A. (up EUR 8.4 million), Edmond de Rothschild (Europe) S.A. (up EUR 4.3 million) and UBS (Luxembourg) S.A. (up EUR 2.8 million).

• Three banks recorded a slight decrease of less than EUR 1.0 million each.



2015

-5.3

2014

0.9

2015

78.7

2014

65.2

74 PwC Luxembourg

Key takeaways – Chinese segment

Number of banks


Total 6 10

2014 2015

Private banking Lending Treasury Retail banking Service centre

Business areas

7.7%

21.5%

38.5%

14.3%

7.1%

15.4%

7.7%

30.7%

• The Chinese segment is currently experiencing the strongest growth in Luxembourg in terms of balance-sheet totals, the number of subsidiaries and branches and the staff count.

• On 7 May 1991, the Bank of China became the first Chinese bank to open a subsidiary in Luxembourg. It has had a branch office here since 1979.

• The Industrial and Commercial Bank of China (Europe) S.A. followed in 2006. It has had a branch office here since 1999.

• More banks have arrived since 2013 (China Construction Bank, Bank of Communications, China Merchants Bank), meaning that there are now six Chinese banking groups operating, five subsidiaries and five branches operating in Luxembourg. This makes China the fourth-largest segment in terms of the number of legal entities.

• The Chinese banks operate predominantly in corporate banking (trade and project financing and syndicated loans). The clientele are Chinese companies investing in Europe, as well as European companies with business interests in China. Furthermore, the subsidiaries act as service hubs for the European branches or for branches of their parent companies in Luxembourg.

• Industrial and Commercial Bank of China (Europe) S.A. and Bank of China (Luxembourg) S.A. currently account for 93.5% of the aggregated balance-sheet total.

• The balance-sheet total grew strongly, up 49.9% (compared to a market-average growth of 0.8%). This is primarily due to loans and advances to customers doubling and bonds and other transferable securities increasing significantly.

• Asset growth was primarily refinanced by inter-group bank deposits.

• Cash balances at central banks grew by EUR 498.3 million, while bonds and other transferable securities grew by EUR 1.3 billion, in order to comply with the 60% liquidity coverage ratio required since 1 October 2015.

• The increasing volumes are largely attributable to lending at the European branches.


2015

10,889.1

2014

7,265.6

• Chinese banking groups in Luxembourg typically open both a subsidiary and a branch. The subsidiaries use the EU passport to distribute financial services through additional branches in other European countries. The branches are subject to reduced local regulatory requirements, since these are enforced at parent-company level (e.g. total equity ratio), and therefore it is possible to execute capital-intensive transactions (such as lending) using the parent company’s equity.

• Three of the six Chinese banks operate a total of 14 branches in nine different countries. At least three further branches have already been authorised by the regulatory authorities for 2016.

Branches outside Luxembourg

Netherlands Belgium Poland Sweden Portugal Spain

France Italy

7.1%14.3%

14.3%

14.3%

7.1%


• Annual net profit in the Chinese segment fell by 87.8% (compared to a 6.3% drop for the market as a whole).

• On the one hand this significant decrease is due to investments in staff, infrastructure and new branches by newly established banking groups since 2013; and on the other hand due to Industrial and Commercial Bank of China (Europe) S.A. incurring a net loss from financial transactions (down EUR 35.9 million year on year).

• Only Bank of China (Luxembourg) S.A. saw its annual net profit increase, by EUR 0.2 million or 5.4%.

• In addition, it is important to note that net total net profit or loss in the Chinese segment is particularly distorted because the Luxembourg branches cannot be included in the calculation due to their annual accounts not being published.


34.5

102.42014 • The Chinese segment’s income situation is characterised by

corporate banking, which makes up 75.1% of the share of net interest income.

• Net interest income grew by 9.6% (compared to a 5.2% increase for the market as a whole). This is primarily due to interest income remaining stable in conjunction with interest expenditure decreasing as a result of a change in the refinancing structure.

• Bank of China (Luxembourg) S.A. recorded the biggest increase in interest profit, at 18.2%.

• Commission income increased slightly, also as a result of advisory activities for Chinese corporate clients with respect to their foreign M&A activities.

• Only two of the five banks made an overall profit on commissions. Industrial and Commercial Bank of China (Europe) S.A. recorded an 11.8% increase.

37.3

112.2

2015



Return on equity

0.66%

20152014

7.96%

• Due to the low annual net profit, return on equity is significantly under the market average of 6.93%. In addition, the overall market’s equity increased due to the newly established banks, which have not yet brought about a positive effect for the annual net profit or loss.

Return on assets

• The substantial decrease in return on assets – down to 0.07% – is due on the one hand to the big increase in balance-sheet totals and on the other hand to the significantly worse income situation caused by initial investments from new market players, as well as Industrial and Commercial Bank of China (Europe) S.A.’s annual net profit falling by 69.1%.

0.07%

20152014

0.80%

2014

58.3

2015

7.1

76 PwC Luxembourg


0 10 20 30 40 50 60 70 80

2015

2014

79.88

48.74

Market

49.77

53.10

• The growing cost-income ratio is primarily due to increasing current operating expenses (up 31.4%, compared to an 8.5% increase for the market as a whole), which in turn are caused by initial investments by banks new to Luxembourg and by decreasing total income.

115.0

Market

101.1

104.6

0 50 100 150 200

2015

2014

12.8

142.2

Market

163.8

153.7

0 20 40 60 80 100 120

2015

2014 66.8

71.6

Market

91.7

104.8

410

553

2014

2015

• The lower annual net income per member of staff is on the one hand due to the increasing staff count, especially at China Construction Bank (Europe) S.A. (up 75) as a result of opening four European branch offices; and on the other hand due to the falling aggregated annual net income.

• The lower staff costs per member of staff are due to new hires in Q3/Q4 of 2015. Therefore, the meaningfulness of this figure is limited. It remains to be seen how it will develop in 2016.

• Administrative costs per member of staff increased by 7.2% (market average: +8.5%), primarily due to China Construction Bank (Europe) S.A. opening several branches in Europe. Notwithstanding, the figure still lies considerably below the market average.




Average staff count

122.4

0 30 60 90 120 150

2015

2014



Industrial and Commercial Bank of China (Europe) S.A. 7,497.7 40.9% =

Bank of China (Luxembourg) S.A. 2,689.2 59.5% =

Bank of Communications (Luxembourg) S.A. 348.9 n/a +1

China Construction Bank (Europe) S.A. 330.7 28.0% -1

Agricultural Bank of China (Luxembourg) S.A. 23.6 n/a -1

1

2

3

4

5


78 PwC Luxembourg

Chinese segment

55.4%

13.3%

52.3%

0.4%0.5%

33.5%40.9%

0.7%2.4%

0.6%

20152014

• Loans and advances to credit institutions in the Chinese segment fell by 9.4%, meaning that this category’s share in the total assets dropped to 33.5%. The main reasons were Industrial and Commercial Bank of China (Europe) S.A. diversifying its risk assets, which reduced its deposits at banks by EUR 687.8 million (especially at affiliated undertakings). This was counteracted by loans and advances to customers increasing by EUR 1.7 billion and the bonds and other transferable securities increasing by EUR 1.1 billion.

• Alongside Industrial and Commercial Bank of China (Europe) S.A.’s increasing volume of corporate banking, Bank of China (Luxembourg) S.A. recorded an increase of EUR 731.6 million. The Bank of China’s increase is primarily due to higher transaction volumes in its Stockholm and Brussels branches (up EUR 365.3 million and EUR 187.5 million respectively). This has led to loans and advances to customers in the Chinese segment growing considerably (by 91.6%), making their total share 52.3%. Consequently, loans and advances to credit institutions are no longer the biggest asset item.

• The three most recently established Chinese banks in Luxembourg are also showing early success in corporate banking, seeing a total increase in volume of EUR 258.2 million or 219.2%.


1.3%1.9%

Market

21.0%

22.1%

1.6%1.9%

51.5%

25.4%

50.4%

22.9%

20152014

Assets






Chinese segment

• The sources of refinancing for the Chinese banks have shifted towards amounts owed to credit institutions (up 178.0% year on year), which now make up 54.9% of all liabilities. This development is primarily attributable to Industrial and Commercial Bank of China (Luxembourg) S.A., whose refinancing funds through transactions with affiliated companies grew by EUR 2,209.9 million.

• In contrast, Bank of China (Luxembourg) S.A. experienced a growth in customer deposits, which increased by EUR 847.4 million. Branch business also grew considerably, especially thanks to customer deposits in the Stockholm and Brussels branches.

• The remaining three banks received almost all of their refinancing through bank deposits (EUR 362.1 million), of which EUR 348.8 million was with affiliated companies alone. This shows that the banks are currently still in the development phase.

1.8%

34.2%

0.9%

54.9%

29.6%

58.4%

2015

2014

0.1%

0.1%

9.9%

10.1%

Breakdown of liabilities 2014-2015Market

39.3%

7.3%

43.7%

3.5%

37.1%

40.6%

7.7%

3.7%20152014

0.7%

1.0%

7.7%

7.7%

Liabilities


80 PwC Luxembourg

2014 2015

102.4

34.5

16.8 6.5

-1.0

-78.6

-22.3

112.2

37.3

8.2

-18.8

-17.3

-11.2

-103.3

Bank Annual net profit/loss (EUR million) Shift Change in

rank

Industrial and Commercial Bank of China (Europe) S.A.

16.3 -69.1% =

Bank of China (Luxembourg) S.A. 3.9 5.4% =

Agricultural Bank of China (Luxembourg) S.A. -1.2 n/a n/a

Bank of Communications (Luxembourg) S.A. -4.3 n/a n/a

China Construction Bank (Europe) S.A. -7.6 <-100% - 2

1

2

3

4

5

• The Chinese segment’s annual profit and loss fell by 87.8% (or EUR 51.2 million) year on year. Only two banks recorded a positive annual profit and loss, totalling EUR 20.2 million, while three banks recorded an annual loss totalling EUR 13.1 million.

• This is primarily due to the significantly reduced annual profit and loss at Industrial and Commercial Bank of China (Europe) S.A., which fell by EUR 36.5 million, as well as start-up losses at the three newly established Chinese banks.

• Total net interest and commission income grew by 9.2% or EUR 12.6 million, due to increased net interest income at Industrial and Commercial Bank of China (Europe) S.A. (up EUR 7.3 million) and Bank of China (Luxembourg) S.A. (up EUR 3.7 million), as well as increased net commission income at Industrial and Commercial Bank of China (Europe) S.A. (up EUR 3.3 million).

• At the same time, current operating expenses increased by 31.4%, or EUR 24.7 million. This is due to staff and administrative costs increasing at all banks.

• As well as the effect of rising current operating expenses, the biggest strain on profit or loss was caused by the net profit/(loss) on financial operations (down EUR 34.1 million year on year) and risk provisioning (down EUR 10.2 million year on year). This is primarily caused by significant effects at Industrial and Commercial Bank of China (Europe) S.A..

• Industrial and Commercial Bank of China (Europe) S.A. recorded a EUR 17.2 million on financial operations, primarily due to losses from currency-based derivatives and a currency loss from amounts received for a capital increase in renminbi in 2015. Furthermore, value adjustments in the amount of EUR 9.1 million were made to debt securities and other transferable securities.

58.3

7.1

+9.6%

+8.1%

>100%



Net interest income




Income taxes

Risk provisioning



82 PwC Luxembourg

Olivier CarréBanking [email protected]+352 49 48 48 4174

Contacts

Philippe Sergiel

Banking Audit+352 49 48 48 [email protected]

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Banking Consulting +352 49 48 48 [email protected]

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Banking Tax+352 49 48 48 [email protected]

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Banking Corporate Finance+352 49 48 48 [email protected]

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Professionals of the Financial Sector+352 49 48 48 [email protected]

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Financial Services Consulting +352 49 48 48 [email protected]

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Banking Regulatory+352 49 48 48 [email protected]

Rima Adas

Financial Services Leader+352 49 48 48 [email protected]

Michael Frigo

Banking Tax+352 49 48 48 [email protected]

Holger von Keutz

Securitisation and German Banks+352 49 48 48 [email protected]

Jean-Philippe Maes

Banking Risk+352 49 48 48 [email protected]


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PwC Luxembourg (www.pwc.lu) is the largest professional services firm in Luxembourg with 2,600 people employed from 58 different countries. PwC Luxembourg provides audit, tax and advisory services including management consulting, transaction, financing and regulatory advice. The firm provides advice to a wide variety of clients from local and middle market entrepreneurs to large multinational companies operating from Luxembourg and the Greater Region. The firm helps its clients create the value they are looking for by contributing to the smooth operation of the capital markets and providing advice through an industry-focused approach.

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