14 Provisions and contingent liabilities

(XLS:)

in CHF thousands

30.06.2013

31.12.2012

+/– %

Provisions for legal and litigation risks

54'629

20'546

165.9

Provisions for restructuring

3'285

1'500

119.0

Total provisions and contingent liabilities

57'914

22'046

162.7

The provisions for restructuring relate to the «Focus2015» strategy of the LLB Group announced in March 2013. Among other measures, this strategy envisages the closure of business branches in Liechtenstein and Switzerland, as well as the clossure of LLB (Switzerland) Ltd. As per 30 June 2013, provisions amounting to CHF 3.3 million for restructuring, covering estimated rebuilding and restoration costs and expenses for social plans, were allocated. In the coming months, no further significant provisions are to be expected in relation to the «Focus2015» strategy.

Within the scope of its normal business operations the LLB Group is involved in various legal proceedings. It makes provisions for ongoing and threatened proceedings when, in the opinion of the competent specialists, payments or losses on the part of Group companies are likely, and when the amounts for them can be estimated.

As per 30 June 2013, the LLB Group was involved in various litigation and proceedings, which could have an impact on or be a threat to its financial reporting. These are described in the following, whereby the LLB Group shall endeavour to disclose the claims for damages, the scope of the legal proceedings and other relevant information in order for the reader to be able to estimate the possible risk for the LLB Group.

On 1 May 2012, the revised law on administrative assistance in tax matters with the US came into force in Liechtenstein. On the basis of this law, in the middle of May 2012, the US authorities submitted an official request for administrative assistance to the Liechtenstein tax authority. The latter then requested LLB AG to hand over its US client data. LLB AG delivered the requested data to the Liechtenstein tax authority, which in turn passed on these data to the US authorities. The data of other banks in the LLB Group were not affected by this action.

In connection with the risks related to the US taxation issue, a provision had been set aside on the balance sheet date per 30 June 2013 for a possible outflow of resources in relation to payments to the US authorities. As the US authorities and LLB AG, Vaduz, announced on 30 July 2013, a «Non-Prosecution Agreement» had been signed between LLB AG and the US Department of Justice. The agreement obligated LLB AG to make a payment of USD 23.8 million. The payment is composed of the gross profit of USD 16.3 million earned from 2001 to 2012 on transactions with undeclared assets held by US clients, as well a payment of USD 7.5 million for lost tax revenue during the same period. LLB AG has made the payment and released the provisions allocated in sufficient magnitude per 30 June 2013 for the US risks. The 2013 income statement will not be burdened by any further charges for provisions.

In 2011, LLB (Switzerland) Ltd. was informed by the Swiss authorities that an investigation was being conducted against it by the US authorities in connection with cross-border private banking services for US clients. LLB (Switzerland) Ltd. is cooperating closely with the US authorities and is working with them to achieve an efficient settlement of the issue while complying with the prevailing legal provisions. By 31 December 2012, it was not possible to reliably assess or estimate the probability and scope of any agreement, as well as any possible resulting financial liabilities or outflow of resources, or impact on the course of business. Consequently, in cooperation with our lawyers, on the basis of talks with the US authorities and taking into consideration differing probabilities, various scenarios were discussed in relation to a possible outflow of resources. On the basis of these discussions, management reached the conclusion that it is not unlikely that an outflow of resources will occur. Based on the simulated scenarios and a legal analysis as per 31 December 2012, a provision was to be activated for a possible outflow of resources in connection with the investigation being carried out by the US authorities and the resulting possible payment or settlement to the latter.

Up to 30 June 2013, the conclusion of the investigations being carried out by the US authorities was largely influenced by the efforts made by the Swiss authorities during the last few months to resolve the US taxation issue. After the Swiss Council of States had agreed to the «Lex USA» draft bill, the Swiss National Council rejected it on 19 June 2013. The Swiss authorities continue to regard the resolution of the US taxation issue as a matter of urgency. Following the rejection of the bill by the National Council other possibilities are being discussed at the political level to enable the banks to cooperate with the US judicial authorities within the scope of the programme. Authorisations to permit cooperation on an individual basis are also conceivable. At the present time, LLB (Switzerland) Ltd. believes that a possible conclusion of the investigations is unlikely before a basic agreement has been reached at the political level between Switzerland and the US. Nevertheless, as per 30 June 2013, in the opinion of management the legal risk of an outflow of resources in connection with the possibility that LLB (Switzerland) Ltd. may not have complied with US law, especially US tax law and securities regulations, is still not unlikely. Based on the discussions held between LLB AG and the US authorities during the last few months and the work on a framework agreement to settle the issue, management has decided to increase the provision for LLB (Switzerland) Ltd. as per 30 June 2013.

As a consequence of its business activity, the subsidiary swisspartners Investment Network AG had or still has US clients. On account of its membership of the LLB Group, the management of swisspartners Investments Network AG decided to proactively contact the US authorities in order to ascertain any possible violations of US law, especially US tax law and securities regulations. The US authorities welcomed the proactive stance of swisspartners Investment Network AG. Several discussions have already been held between the lawyers and the US authorities. Further discussions are underway and others will be held during 2013 in order to find a fast and amicable solution. Up to 30 June 2013, the US authorities had not given swisspartners Investment Network AG any concrete indications regarding the further course or settlement of the case. This is largely due to the ongoing discussions between the Swiss and US authorities to resolve the taxation dispute. Nevertheless, in the opinion of management the legal risk of a possible payment being made by swisspartners Investment Network AG to the US authorities is not unlikely. Accordingly, management decided to set aside a provision including an amount to cover lawyers‘ fees, which swisspartners Investment Network AG may incur for this case through the provision of legal advice and support.

Provisions for the LLB Group were increased to CHF 47.4 million in relation to a possible outflow of resources in connection with payments to the US authorities, as well as for lawyers fees, which may be incurred in this case for the provision of legal advice and support.

As per 30 June 2013, the LLB Group had no contingent liabilities.

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