142 nd Annual report

2014

“What sets BSI apart are the origins which shape our approach to private banking. To our clients we offer all the certainties derived from over 140 years of Swiss private banking experience, together with the characteristics born of our Latin roots: the passion and that human touch we bring to each professional relationship. Together these characteristics ensure the flexibility and responsiveness critical to serving clients in a changing world. BSI is excited about the future and committed to creating an even more dynamic and innovative international Bank to meet the evolving needs of our clients wherever they are in the world.”

Stefano Coduri Group CEO

BSI – Contents

Contents

Annual report as submitted to the Ordinary General Shareholders’ Meeting of 21 April 2015

Highlights 2014 5

Foreword 7

Corporate governance 10

Human resources 18

BSI and Corporate Responsibility 19

Our identity 27

Management report 2014 31

Group financial statements 37 Consolidated balance sheet as of 31 December 2014 Consolidated profit and loss statement 2014 Consolidated cash flow statement 2014 Notes to the 2014 Group financial statements Report of the statutory auditor on the consolidated financial statements

BSI Ltd. financial statements 77 Parent Bank balance sheet as of 31 December 2014 Parent Bank profit and loss statement 2014 Notes to the 2014 Parent Bank financial statements Report of the statutory auditor on the financial statements

Glossary of selected terms and abbreviations 88

Contacts 91

This is a translation into English of the Annual Report issued in the Italian language and is intended solely for the convenience of English-speaking readers. This report includes information specifically required by Swiss law. In the event of contradic- tions or inconsistencies between the Italian and the English version of the Annual Report, the Italian version shall prevail.

3 BSI – Highlights 2014

Highlights 2014

BSI Group 2014 2013 CHF 1’000 CHF 1’000

Profit and loss statement Net operating result 871’435 863’070 Operating expenses -698’657 -666’510 Gross profit 172’778 196’560 Depreciation of fixed assets -42’310 -796’301 Value adjustments, provisions, and losses -193’615 -144’658 Extraordinary income / expenses 78’574 39’755 Taxes -13’180 -17’311 Net result for the year 2’247 -721’955

Balance sheet Total assets 23’995’419 24’871’343 Shareholders’ equity, including net result for the year 1’672’978 1’720’895

CHF million CHF million

Client assets Total 92’330 89’376

Headcount (in FTEs) Unit Unit Total 1’928 1’989 of which: in Switzerland 1’280 1’335 abroad 648 654

Capital ratios (Basel III) % % Total Capital Ratio 17.08 18.17 CET1 Ratio 16.29 17.35

BSI Ltd. 2014 2013 CHF 1’000 CHF 1’000

Profit and loss statement Net operating result 692’069 625’883 Operating expenses -520’502 -471’703 Gross profit 171’567 154’180 Net result for the year -21’068 -737’121

Balance sheet Total assets 20’226’108 19’102’055 Shareholders’ equity after appropriation of net result for the year 1’493’495 1’538’163

5 “For us, the commitment to art represents an opportunity to share a passion with our clients and with the communities we work in.”

Stefano Coduri Group CEO BSI and Art

Since its establishment in 1873, BSI has been at the forefront in promoting and popularising moments of great interest in the field of art, a theme to which the supplements to this Annual Report are dedicated. A commitment that comes from the belief that the value of any asset, not just financial or real estate, is a valuable treasure to the communities in which the Bank conducts its business. Among the numerous artistic activities promoted by the Bank in 2014 is “Allegro Giusto”, an exhibition of BSI Art Collection works at Villa Maraini, prestigious seat of the Istituto Svizzero di Roma.

“Allegro Giusto” is an expression, on one hand, of the art BSI Art Collection collector’s spirit that distinguishes BSI and on the other, of The contemporary art collection of the Bank, the BSI Art Col- the willingness to cooperate by creating cultural synergies lection, was founded in 2000 with the aim to connect the fi- with important cultural institutions, such as the Istituto Svizze- nancial institution to the universe of art. It takes shape over ro di Roma. the years through a substantial series of acquisitions designed to locate some of the most influential post-war art personali- ties, such as Daniel Buren, John Chamberlain, Tony Cragg, Mario Merz and Giulio Paolini. These artists of recognised in- ternational importance form the starting core at the origin of the growth of a collection that develops between different generations and nationalities, drawing a time line that from the avant-gardes that matured in the mid-1960s reaches our present day. The expansion of the collection over the years is meant chiefly to decorate the branch offices of BSI around the world. Painting, sculpture, graphics, photography, video and site-specific projects, such as Palazzo BSI in Lugano, give life to a mixture of expressive languages, respecting the coher- ence with the project’s source. However, the collection also includes works that are severed from a precise target, by vir- tue of size or specific techniques that require more attention from the conservative and expository point of view. The com- mitment aimed at fostering creative avant-garde expressions of very young artists, still in the process of rising to fame, merges with the desire to reinterpret the personality of previ- ous generations. In line with this goal, the works of the BSI Art Collection often are lent out to temporary exhibitions at cul- tural institutions of recognised importance. Palazzo BSI, Lugano © Claudio Bader © Peggy Guggenheim Collection, Venice Palazzo Venier dei Leoni, Venice, view from the Grand Canal BSI institutional collaborations

The commitment that BSI has been carrying on for years in the art world today represents a vital element for the Bank and a unique opportunity to share this passion with our clients and with the communities in which the Bank operates. The support to primary cultural institutions like the Peggy Guggenheim Collection in Venice and the Istituto Svizzero di Roma, of which BSI is a partner and encourages the development of its artistic projects internationally, is in keeping with this philosophy.

Peggy Guggenheim Collection, Venice Since 2001, BSI, as Institutional Patron of the Peggy Guggenheim Collection in Venice, has the opportunity to actively participate in the contemporary dialogue between business and culture and support the growth of the museum and its schedule of events. One of the exhibition halls reserved to temporary art displays is dedicated to BSI. The Peggy Guggenheim Collection is a museum of modern art. It was found in the 20th century in Venice by the Swiss-born American Heiress, Peggy Guggenheim (1898-1979). Palazzo Venier dei Leoni, an unfinished 18th century building on the Grand Canal, bought by the collector in 1949 and her home for over thirty years, houses masterpieces of Cubist art, crossing over to Futurism, Metaphysical Painting, European Abstraction, Surre- alism and American Abstract Expressionism. The exhibition has come to include the most important European and American avant-garde artworks of the 20th century. The collection, the result of the advice of friends, artists and art critics such as Marcel Duchamp, Herbert Read, Nellie van Doesburg and Howard Put- zel, is one of the most important worldwide. The museum hosts temporary exhibitions every year and displays 26 paintings of the Gianni Mattioli Collection on permanent display, including some masterpieces of Italian Futurism. In the Garden of Sculptures Patsy R. and Raymond D. Nasher, as in the other outdoor spaces of the museum and on the terrace overlooking the Grand Canal, the works from the Peggy Guggenheim Collection and the Solomon R. Guggenheim Foundation mix with works on permanent display of the Nasher Sculpture Centre in Dallas and other foundations or galleries, further enriching the exhibition. Since October 2012, the collection also hosts eighty Italian, European and American artworks from after World War II, a legacy of American collector Hannelore B. Schulhof and her husband Rudolph B. Schulhof. The Peggy Guggenheim Collection, property of the Solomon R. Guggenheim Foundation, is part of the international circuit of Guggenheim museums (New York, Venice, Bilbao and soon to open in Abu Dhabi) and uniquely combines an internationally acclaimed, permanent collection and a rich programme of exhi- bitions and activities. Villa Maraini, Istituto Svizzero di Roma, Rome © Agostino Osio Istituto Svizzero di Roma, Rome-Milan The Istituto Svizzero di Roma (ISR), of which BSI has been a partner since 2005, is a foundation created by the Swiss Confederation in 1947 with the mission of promoting scientific and artistic ex- changes between Switzerland and Italy. The head office in Villa Maraini in Rome was donated by the Countess native of Lugano, Carolina Maraini-Sommaruga with the express mandate that the villa was “to be perpetually at the service of culture, in a sign of cooperation between Italy and Switzerland”. Since its founda- tion, the Institute has been attracting scholars and artists in Swit- zerland and has been the focal point of Swiss artistic and scientific activities in Italy. With its two offices in Rome and Milan, the Insti- tute is the main cultural centre of Switzerland in Italy and favours dialogue and exchange with cultural actors present on the terri- tory thanks to a varied participation that attracts an evergrowing and qualified audience. Its distinctive feature is the coexistence among people from different academic and artistic disciplines. A cultural outpost in the heart of the Mediterranean, today it embarks on a path to adapt its activities to contemporary reality, institutionally as much as from a historical and social point of view. Facing the challenges of the present and the transformation produced by the crisis, the Institute experiments with artistic and research formats that aspire to become repeatable models, new practices and cul- tural and institutional rules. The fruitful intersections that the Insti- tute has built with the Swiss system of artistic institutions, universi- ties, schools of specialization, self-managed youth spaces, artists and researchers, allow it to cross-over and become a landmark for Italian cultural production and, at the same time, to promote the productions of young artists and researchers, as well as the most interesting models of cultural organisation in Switzerland through- out Italy.

Villa Maraini The impressive Villa Maraini was designed by Swiss archi- tect from Ticino Otto Maraini (1863-1944), brother of Emilio Maraini (1853-1916), an industrialist from Lugano known for having introduced with extraordinary success in Italy the production of sugar made from beets. The Villa, donated in 1946 by the widow of Maraini, Carolina Maraini Somma- ruga (1869-1959), to the Swiss Confederation, is situated on an artificial hill and is surmounted by the Belvedere Tower, which offers a 360° view on Rome and its surroundings. The construction harks back to the tradition of Roman vil- las. The decoration of the building consists of originals and copies of Antique sculptures, as well as fragments of sculptures and other excavation findings.

Villa Maraini, Istituto Svizzero di Roma, Rome © Agostino Osio BSI – Foreword

Foreword

2014 was surely a challenging and eventful year for the BSI clients are concerned, and paid USD 211 million. That pay- Group. We kept our attention to client needs unchanged ment was recognised in 2014 and does not affect BSI so- and we still focussed on improving our performance. lidity. In 2014, the BSI Group’s Total Capital Ratio was 17.1%. From a macroeconomic perspective, in 2014 the United This agreement with U.S. authorities facilitates the com- States declared the end of the economic and financial cri- pletion of BSI acquisition by BTG Pactual SA, still awaiting sis announcing a return to normal monetary policy condi- the approval of some relevant authorities. In 2014, we also tions and an imminent rise in interest rates, the first since worked hard to transform BSI and launched a two-year op- 2006. At the same time, Europe adopted a strong mone- erational excellence programme to streamline and refocus tary stimulus policy to speed up economic recovery and on the business with the aim of increasing productivity and fight the risk of deflation. Last year was marked by the remaining competitive in the long term. That programme drop in oil prices and strong appreciation of the dollar as is already producing tangible results, even though the a direct result of the different monetary policies adopted positive impact will be fully effective as of 2016. Amongst by the United States and the other world’s economic pow- other things, implementing this programme has involved ers, especially those in the Eurozone. both a review of the markets and segments the Bank op- erates in and introduction of measures to reduce operational In this global scenario, the Swiss economy confirmed its and staff costs. On the latter front, in particular, there has solidity, even in a decidedly difficult context, with a mod- been a reduction in staff that, though painful, was neces- erately strong growth in 2014 with positive influence pri- sary after a number of other measures had been imple- marily of foreign trade, which gave income growth its high- mented. In agreement with the Staff Committee and social est boost since 2008. The Swiss financial sector remained partners, the Bank has implemented a Social Plan envisag- under strong external pressure centred mainly on tax mat- ing socially responsible and financially sustainable meas- ters and the introduction of new domestic and internation- ures to prevent social dumping and protect the staff af- al regulations. In early 2015, Switzerland reached an agree- fected by these measures. The plan has been considered ment with Italy about the Voluntary Disclosure in which acceptable by all internal and external counterparties in- Switzerland is not to be treated as part of the Italian fiscal volved in its implementation. black-list. Despite this extremely complex scenario, our attention for In the above-mentioned macroeconomic scenario, be- client needs remained unchanged. tween 2014 and the start of 2015, BSI lived through two really important events. First, the agreement signed by the As at 31 December 2014, we recorded a 3.3% increase in Generali Group and BTG Pactual, an important interna- Assets under Management, which exceeded CHF 92 bil- tional banking group based in Brazil, for the sale of the lion compared to CHF 89.4 billion at the end of 2013, es- Bank. This is very positive and puts an end to a period of pecially thanks to the good performance of Assets under shareholder structure uncertainty that had lasted for over Management. two years. During this period, our business kept on grow- ing thanks to loyal clients and staff. Once finalised, the Despite a still difficult general context with a continuing share transfer will enable us to continue growing and further low interest rate level, operational performance has im- strengthen our brand globally, supported by a strategic, proved, confirming BSI’s solidity and the effectiveness of long-standing, dedicated shareholder like BTG Pactual. the Bank’s strategic choices. Excluding legal and audit Over the past 16 years, BSI has become one of the main costs connected to the Bank taking part in the U.S. Tax Pro- players in the international wealth management sector gram, adjusted gross profit improved considerably, reach- thanks to the support and the investments made by the ing CHF 208.9 million, with a 6.3% increase year-on-year. Generali Group, to which we are grateful. The Bank’s in- Net profit was affected by the payment related to the tense activity linked to taking part in the U.S. Tax Program Non-Prosecution Agreement and reached CHF 2.2 million, (Program for Non-Prosecution Agreements or Non-Target but without compromising the Bank’s solidity. From a stra- Letters for Swiss Banks) also continued in 2014. This led to tegic point of view, in 2014 BSI continued to get stronger us being, on 30 March 2015, the first category-2 bank to on traditional markets where it further consolidated its his- reach a Non-Prosecution Agreement with the U.S. Depart- torical position, achieving significant results mainly in Italy ment of Justice. On reaching this NPA, BSI settled its and Switzerland, on high-growth markets in Latin America, pending matters with the DOJ as far as Private Banking Central-Eastern Europe and the Middle East. cross-border activities carried out in the past with U.S.

7 BSI – Foreword

2014 was still a challenging year but full of extremely im- portant, satisfactory events in terms of the results achieved. All this enables us to look to future challenges positively, with the aim of carrying on supporting our clients at such a delicate time and further fostering the business, includ- ing expanding the range of products and services of- fered. 2015 will see the change in shareholding thanks to which BSI will be the reference point of the BTG Pactual Group in international asset management for private cli- ents maintaining its brand, synonymous with quality and tradition. Even under a new shareholder, extreme focus on clients, based on a needs-centric service model, some- thing that has always characterised BSI, will be our Bank’s distinctive mark. An element that will enable us to be com- petitive in the future, too. We would like to seize this opportunity to thank our clients for the trust they put in our Bank, year after year, and our staff for the commitment, professionalism and dedication they show each day to ensure our clients’ and our Bank’s success.

Alfredo Gysi Stefano Coduri Chairman of the Group Chief Executive Officer Board of Directors

8 BSI – Foreword

9 BSI – Corporate governance

Corporate governance

In line with FINMA Circular 2008/24 “Supervision and in- At least one-third of the Board of Directors must comprise ternal control in the banking sector”, the corporate gov- members who satisfy the requirements for independence ernance principles of BSI Ltd. are described in the Articles stipulated in the FINMA provisions. The Board is formed of Association of 19 April 2012 as well as the General Man- every year at the meeting following the Ordinary General agement Regulations of 1 January 2012. Meeting. The members are elected for a period of three years and may be re-elected. Their term of office expires on the day of the third Ordinary General Meeting following Ordinary General Meeting their appointment. The Board of Directors makes the ap- pointments required in the Articles of Association. In par- The duties and responsibilities of the Ordinary General ticular, it appoints the Chairman and Vice-Chairman. It has Meeting, which is held within four months of the end of the authority to appoint up to two Vice-Chairmen. The Board the financial year, include the approval and amendment of Directors also appoints a secretary, who may also not of the Articles of Association; the appointment of members be a member of the Board. of the Board of Directors and the external auditor; the approval of the annual report, and the Group and BSI Ltd. The composition of the Board of Directors, which in 2014 financial statements including resolutions regarding the consisted of eight members until 18 April 2014 (when R. appropriation of profit, the discharge of the Board mem- Respini’s term ended), and then of seven, meets the in- bers and other decisions attributed to it by national law dependence requirements set out in FINMA Circular (art. 6 and 9 of the Articles of Association). The Ordinary 2008/24. Meetings of the Board of Directors are called by General Meeting, for which minutes are taken, is generally the Chairman or, if he is unavailable, by the Vice-Chairman. chaired by the Chairman of the Board of Directors or by The Board must meet at least four times each year. For de- the Vice-Chairman (art. 7 of the Articles of Association). cisions to be valid, a majority of the Board members, in- The share capital of BSI is equal to CHF 1.84 billion and is cluding the Chairman or the Vice-Chairman, must be pres- divided into 18.4 million registered shares (nominal value ent. The Board of Director’s decisions are made based on of CHF 100). The capital is fully paid up and is held by a an absolute majority among members present. In the case sole shareholder: Participatie Maatschappij Graafschap Hol- of a tied vote, the Chairman or the Vice-Chairman has the land N. V. of Diemen, which is in turn wholly owned directly casting vote. The Board of Directors may also make deci- and indirectly by Assicurazioni Generali SpA of Trieste. The sions by correspondence. employees of BSI Ltd. do not hold any of the Bank’s share The General Management Regulations provide for a deci- capital. sion-making procedure for extremely urgent cases: the Chairman, or if he is not available, the Vice-Chairman, with at least two other members of the Board, may make urgent Board of Directors decisions by unanimity under certain conditions. Minutes and the Board committees of decisions made under this procedure must be written down at the latest during the following meeting of the The duties, responsibilities, composition and function of Board of Directors, with an indication of the members who the Board of Directors and its committees are regulated took the decision. The Chairman or, if he is not available, by federal law, and in particular by FINMA circular 2008/24 the Vice-Chairman convenes the Board of Directors at “Supervision and internal control in the banking sector”, least ten days before the meeting date with a communica- and are defined in the Articles of Association (art. 10-14) tion indicating the agenda. The Chairman or, if he is not and in the General Management Regulations of the Bank available, the Vice-Chairman chairs the meeting, to which (art. 1-10). The Board of Directors is responsible for the members of the Group Executive Board may also be invit- ultimate supervision, monitoring and control of the Bank’s ed. Any member of the Board of Directors, the Group Ex- management in accordance with the Swiss Federal Law on ecutive Board, the Group CEO or, in his absence, the Deputy Banks and Savings Banks, as well as the applicable articles Group CEO may convene meetings of the Board, indicating of the Swiss Code of Obligations. Thus, the Board of Di- their reasons. rectors is responsible for instituting, regulating, maintain- ing, supervising and checking on a regular basis that there is a suitable internal control system for BSI Ltd. and the Group.

10 BSI – Corporate governance

The Board of Directors must, as a committee, satisfy the The Appointments & Remuneration Committee, appoint- requirements necessary to execute its tasks in terms of ed by the Board of Directors, comprises at least two mem- professional competences, experience and availability. bers. It is responsible for approving the principles govern- For this purpose, the Board of Directors evaluates and ing employees’ fixed and variable remuneration, and the documents in writing the achievement of objectives and global plan for promotions and development. In particular, its working methodology. This self-evaluation was done, this Committee sets salaries for the members of the Board as in the previous year, with the support of an external con- of Directors. It also approves the employment contracts sultant. and sets the remuneration of the Group Executive Board and the Chief Audit Executive. The duties and responsibil- The tasks and main powers of the Board of Directors in- ities of the Committee are defined in specific regulations. clude issuing and modifying the necessary regulations and general directives for organising, managing and supervis- ing the activities of BSI Ltd. and the Group, as well as set- ting the competencies for the Bank’s governing bodies, if these tasks have not been delegated to the Group Execu- tive Board. Furthermore, the Board of Directors decides the medium-term plan for the Bank’s corporate policy, man- agement principles and global risk control as well as ap- proving its risk management policy. It also approves the structure of the general organisational chart and desig- nates the persons authorised to represent the Bank. The Board of Directors prepares the annual report, the annual accounts and the Group accounts, which are presented to the Ordinary General Shareholders’ Meeting for approval, together with a proposal for the appropriation of profit. As part of its monitoring and control duties, the Board of Di- rectors, with the support of the Audit & Risk Committee, examines the reports of the External Auditor and Inter- nal Audit, the quarterly Global Risk Report, the trend in large exposures, the financial result, the trend in client as- sets under management, the Bank’s liquidity and the share- holders’ equity at Bank and Group level. Finally, the Board of Directors appoints the Chief Audit Executive, who is responsible for internal auditing at Group level.

The Board of Directors appoints an Audit & Risk Commit- tee, comprising at least three members. They supervise and assess the integrity of the annual financial statements, compliance with legal requirements and regulations, the effectiveness of the internal and external audits, and the adequacy and effectiveness of the control system of BSI Ltd. and the Group. The duties and responsibilities of the Audit & Risk Committee are defined in specific regulations. The Committee meets at least four times each year. To- gether with the Group Executive Board, Internal Audit and the External Auditor, the Audit & Risk Committee examines the annual financial statements. The responsibility for the tasks assigned to the Committee remains with the Board of Directors.

11 BSI – Corporate governance

As at 1 January 2015, the composition of the Board of Directors was as follows:

Board Mandate Audit & Risk Appointments of Directors expires Committee & Remuneration Committee Alfredo Gysi Chairman1 2017 Vice-Chairman Carsten Schildknecht Vice-Chairman1 2016 Chairman Eugenio Brianti Vice-Chairman1 2016 Member Luigi Butti Member1 2016 Vice-Chairman Fabio Corsico Member1 2016 Pierre Genecand Member1 2015 Nicola Mordasini Member1 2017 Chairman

1 Independent member in accordance with FINMA Circular 2008/24.

Alfredo Gysi has been Chariman of the Board of Directors Eugenio Brianti was born in Trieste (Italy) on 4 June 1953 of BSI Ltd. since 1 January 2012; he was born in Sorengo and is a Swiss citizen. After finishing high school in Lugano, (Switzerland) on 3 October 1948 and studied in Italy and he studied at the University of Parma, where he received a Switzerland. After earning an undergraduate degree, he doctorate in economics and business in 1979. He worked went on to obtain a doctorate in mathematics from Milan’s briefly at UBS before starting at BSI in 1980. Over the years Università Statale in 1973. From 1994 to 2011 he was Chief he has held various positions, including the coordination Executive Officer of BSI Ltd. He is Chairman of the Board of the development and control office for the Swiss branches. of Directors of B-Source SA Lugano, and, since March 2011, In 1989, he became manager of the St. Moritz branch, and he has been a member of the Bank Council of the Swiss a year later he was appointed manager of the Chiasso National Bank (SNB), holding the chair of its Risk Commit- branch. In 2003, he took on the position of head of Private tee. He is Chairman of the Foundation Board for the fac- Banking for Ticino and Graubünden. In 2005, he was ulties of Università della Svizzera Italiana in Lugano, a appointed Executive Vice President, and in 2008 Senior member of the Board of Directors of that university, and Executive Vice President. He is a member of the Board of a member of the Foundation Board of the Swiss Institute Directors of BSI since 1 January 2011 and he was appointed in Rome. An art and music lover, he sits on the Consulting Vice Chairman of the Board on 1 July 2013. Until the end Committee of Venice’s Peggy Guggenheim Collection as of June 2013, he sat on the Board of FINMA, the Swiss well as the Board of the Foundation “Milano per la Scala”. Financial Market Supervisory Authority. He is Chairman of the Board of Directors of Funicolare Lugano-Paradiso- Carsten Schildknecht was born in Karlsruhe (Germany) on Monte San Salvatore SA, Vice Chairman of the Board of 23 February 1968. After graduating in Mechanical Engi- Directors of Autolinee Regionali Luganesi, and sits on the neering and Business Administration, he obtained his PhD Board of Lugano-based Finnat Gestioni SA and Turin- from Darmstadt Technical University in Germany. In April based Banca Patrimoni Sella & C. SpA. 2013, he became Generali’s Group COO, taking on the following responsibilities: IT Infrastructure & Systems, Ope- Luigi Butti was born in Vacallo (Switzerland) on 25 Novem- rations & Business Services, Procurement, Premises & Fa- ber 1940. After graduating from the Business College of cilities Management, Operational Excellence Program & Maria-Hilf (canton of Schwyz), he honed his professional Cost Management, and Operational Governance & Con- skills at various credit institutions and brokers, such as Cred- trol. Before joining Generali, he spent twelve years at Deu- it Suisse in Zurich, Rued, Blass & Cie in Zurich, and Hirsch tsche Bank, including eight as Global COO of the Private & Co. in New York. He began his career at BSI Ltd. in 1969 Wealth Management unit. In this capacity, he managed the as a relationship manager, and then took over responsibil- integration and turnaround of Sal. Oppenheim, the private ity for the financial division and private clients department. bank Deutsche Bank acquired in 2009. He served as Chair- In 1990, he was appointed Senior Executive Vice-President, man of Sal. Oppenheim’s Supervisory Board and member and in 1998 he became Deputy CEO of BSI Ltd., a position of Deutsche Bank’s supervisory boards in Switzerland, Lux- he held until 2004, when he became a member of the embourg and Austria. He joined Deutsche Bank in 2000 Board of Directors of BSI Ltd. He is also a member of the after working for seven years at McKinsey & Company, whe- Cardiocentro Ticino Foundation, Lugano, and since 2011 re he focused on the Automotive & Assembly, Innovation he has been Chairman of the San Salvatore Foundation, & Technology Management, and Operations Effectiveness Lugano. practices.

12 BSI – Corporate governance

Fabio Corsico was born in Turin (Italy) on 20 October 1973. assists small- and medium-sized businesses in managing He holds a Classical High School Diploma (grade: 46/60) their employees’ pension funds. Until 2003, he was Vice and a degree in Political Science (grade: 110/110). Chairman of the Swiss Insurance Brokers Association (SIBA). In 1997, he served at Italy’s Defence Ministry in the Office From 2003 to 2011, he sat on the Board of HSBC Private of the Diplomatic Advisor to Minister Beniamino Andreatta, Bank Suisse and HSBC Guyerzeller Bank. From 2014, he preparing international dossiers and working at the Mili- has been the director of the Gstaad Palace hotel in Gstaad, tary Centre for Strategic Studies. From 1998 to 2001, he Switzerland. worked at Olivetti/Mannesmann, first in Ivrea and then in Rome. More specifically, at Infostrada, one of the group’s Nicola Mordasini was born in Bellinzona (Switzerland) on 7 companies, he served in the Communications and Human July 1950. After graduating from the University of Geneva Resources departments before becoming Head of Public with a degree in economics, he started his professional Affairs. In the same period, he represented the Company career in 1974 at Banca del Gottardo. He held numerous in Assinform (Italy’s association of information technology positions in various sectors of this bank. In October 1991, companies) and AIP (the Italian association for industrial he was appointed Senior Executive Vice President with re- policies). In 2001, he went to Italy’s Finance Ministry as the sponsibility for the activities of Private & Commercial Chief of Technical Staff under Minister Giulio Tremonti. Banking. In 1998, he took on the position of Vice-Chairman Meanwhile, he sat on the Committee for the introduction of the Executive Board, again with responsibilities related of the Euro. to clients and affiliates. He held this position until the be- In 2003, he joined Enel as Head of Institutional Affairs as ginning of 2008, when he was appointed to the Board of well as relations with the Local Community and Confin- Directors of BSI Ltd. He is a member and, since 2012, the dustria (the Italian industrial employers’ association). Chairman of the Audit & Risk Committee. Lastly, he has Since February 2005, he has been serving as Head of Ex- held and still holds various mandates with boards of com- ternal Relations, Institutional Affairs and Development of panies and foundations. the Caltagirone Group. He sits on the Board of Cementir Holding, Grandi Stazioni, “Il Gazzettino”, BSI Ltd., and Ter- na. Starting from 2009, he has been Credit Suisse AG’s Senior Advisor for Italy. In addition, since 2008 he has been a Director of Fondazione CRT (where he previously chaired the Appointments Committee and now the Investments Committee) as well as Vice Chairman of Fondazione Svi- luppo e Crescita. He was a member of the Board of Avio (2009-2010), Biver- banca and Consum.it (2008-2012), Alleanza Assicurazioni (2009-2011), Alleanza Toro Assicurazioni (2011-2013), Cue- im CRT (2010-2013), as well as Chairman of Orione Inves- timenti (2010-2012) and a Director of Turin’s Teatro Regio (2010-2013). He served also on the Board of Energia (2012- 2014) and Perseo (2013-2014). He was among the founding members of Aspen Junior Fellows as well as the Consiglio per le Relazioni Italia Stati Uniti Juniores (Italy-United States Relations Junior Committee), and sat on the Board of the “Zero” and “Formiche” magazines. Currently, he is the Managing Director of the Centre for American Studies and Fondazione Rosselli.

Pierre E. Genecand was born in Geneva (Switzerland) on 26 March 1950. He has many years of experience in the international banking and insurance sector, particularly in portfolio management for life insurance and pension funds. He spent most of its career at Gesrep SA, a Geneva-based manager of insurance portfolios for private and institutio- nal clients. He took the company’s reins in 1982 and chaired its Board of Directors from 1992 to 2005. Among his other roles, he was Chairman of Patrimonia Foundation, which

13 BSI – Corporate governance

Group Executive Board As at 1 January 2015, the composition of the Group Executive Board was as follows: The Group Executive Board (hereinafter: GEB) is respon- sible for the operational management of the Bank. Its Stefano Coduri, Group CEO members are appointed by the Board of Directors. It Rajiv Pradhan, Deputy Group CEO, Corporate Services manages the Bank, in particular, by carrying out the fol- Nicola Battalora, Senior Executive Vice President, lowing tasks. It decides the short- and medium-term ob- Group Investments Solutions & Capital Markets jectives within the general framework set by the Board of Hanspeter Brunner, Senior Executive Vice President, Directors, takes all measures needed to achieve these ob- BSI Asia jectives, presents proposals in support of decisions taken Gérald Robert, Senior Executive Vice President, by the Board of Directors, and proposes to the Board of BSI Latin America, Middle East & Eastern Mediterranean Directors the general policies and strategies of the Bank. Renato Santi, Senior Executive Vice President, In carrying out its functions, the GEB represents the Bank, BSI Switzerland drafts the medium-term plan and the annual budget (both of which are submitted to the Board of Directors for approval), implements the risk management policy, mon- Compensation 2014 (CHF gross amounts) of the mem- itors trends and prepares the quarterly report on liquidity bers of the Group Executive Board and shareholders’ equity, appoints Assistant Vice Presi- 2014 dents and Assistant Treasurers, signs agreements with CHF professional associations, establishes the human resources Annual base salary 3’643’000 policy, and issues provisions required for the execution of Short term incentive the General Management Regulations. The GEB is required (including deferred payments) 3’541’800 to keep the Board of Directors informed of business trends Others (allocation 2014, deferred payments) 515’374 and the Bank’s situation by presenting to the Board and Total 7’700’174 commenting upon respective reports and documents. The GEB acts as a collective body in carrying out its functions. The disclosed amounts refer to six members of the Group Its tasks, responsibilities and reporting duties are defined in Executive Board (GEB). All the amounts but the ones relat- the General Management Regulations (art. 11-16). ed to “Others” do not include the employer contributions to social securities as well as all other additional insurances The GEB is supported in its activities by several perma- and unemployment. The accrued “Others” amounts are nent committees with decision-making powers: the Fi- deferred and paid by installments according to the rules of nancial Risk & Capital Allocation Committee, the Opera- the plans. tional Risk & Compliance Committee, the Operational With respect to previous year there is one member of the Efficiency Committee, the Business Policy & Development GEB less, who retired as from April 2014 and who has not Committee, the Credit Committee and the Counterparty been replaced. & Broker Committee. The pension scheme changes from a defined benefit to a defined contribution plan as of 1 January 2015. This change Lastly, the GEB proposes the composition of the Group is applied to all employees in Switzerland (hence including Advisory Board, which is approved by the Board of Direc- the five GEB members with a Swiss contract) with a signifi- tors. The Group Advisory Board is a committee with ad- cant impact on cost reduction. visory powers chiefly in relation to strategic issues sur- rounding business development at BSI Ltd. and the Group.

14 BSI – Corporate governance

Stefano Coduri, born in Mendrisio (Switzerland) on 25 member of the British-Swiss Chamber of Commerce in May 1964, has been CEO of BSI since 1 January 2012. Af- Switzerland and President of the Swiss Business Council in ter obtaining a degree in Finance and accounting from Hong Kong. the University of St. Gallen, he joined BSI in 1989 and has spent his entire career at the Bank. He was appointed to Rajiv Pradhan, born in New Delhi (India) on 11 June 1955, the Executive Board in 2004. He successfully led the most has been Head of BSI Corporate Services, which com- important projects involving the Bank in recent years, in- prises the departments of Finance, Risk Management, Group cluding the integration of Banca Unione di Credito (BUC), Credit Officer, Legal & Compliance and Banking Platform, acquired in 2006, and Banca del Gottardo, acquired in since 2011. He was appointed Deputy Group CEO in April 2007, and the implementation of a new IT platform for the 2014. After obtaining a degree in Economics from the Lon- entire BSI Group. Before taking over his present position, don School of Economics, a professional qualification as a Stefano Coduri was Head of Banking Platform (group op- Chartered Accountant at Peat Marwick in London, and an erations), a position that enabled him to acquire a wealth MBA from INSEAD of Fontainebleau, he began his profes- of experience in various segments of the Bank, including sional career as an internal auditor of Olivetti Group sub- Private Banking, Product Management and Organisation. sidiaries worldwide. He then continued his professional development at Hermes Precisa International (Yverdon / Nicola Battalora, born in Lugano (Switzerland) on 10 Jan- Lausanne), a company then acquired by Olivetti Group. He uary 1962, has been CEO of BSI Group Investments So- has been at BSI since 1987, holding many important roles in lutions & Capital Markets since January 2014. After gradua- the Group Accounting, Budgeting, Planning, Operations and ting in Business Administration from the University of St. Logistics. In 2001 Rajiv Pradhan was appointed as member Gallen, he started his career in 1987 as Assistant to the of BSI Executive Board and Head of Operations & Logi- General Manager of the Ticino Tourism Office. Nicola Bat- stics, a position he held until 2004. In 2005 he became talora joined the BSI Group in 1989, working in the Offshore CEO of B-Source, a company providing Information Tech- Banking Operations unit at the headquarters in Lugano as nology Outsourcing (ITO) and Business Process Outsour- well as the Control of Overseas Subsidiaries unit, where cing (BPO) services, which during those years was wholly he served until 1992. Then, he took on various roles at the owned by the BSI Group. In 2008 he was appointed as offices in Guernsey, London (obtaining the Securities & Chief Financial & Risk Officer and in 2011 Head of BSI Cor- Financial Derivatives Representative Certification), and porate Services. Nassau, where he was Senior Vice President for several years. This way, he acquired an extensive experience in Gérald Robert, born in Rome (Italy) on 14 November 1957, the international banking industry. Before taking over his has been CEO of BSI Latin America, Middle East & East- present position, from 2005 to 2010 Nicola Battalora filled ern Mediterranean since July 2012. In this capacity, he the role of Managing Director of BSI Bank Ltd. Singapore; heads the development of the markets in Latin America, since 2010 he is CEO of BSI Luxembourg and, at the same Middle East, and the Eastern Mediterranean. After gradu- time, from July 2012 to January 2014, CEO of BSI Europe. ating in International Politics and Economics from George Washington University, he obtained a Master’s Degree Hanspeter Brunner, born in Steckborn (Switzerland) on 12 with major in economics and finance from Johns Hopkins April 1952, has been CEO of BSI Asia since 2010, oversee- University in Washington D.C. and worked as Research As- ing Singapore operations and heading up the strategic sociate at the U.S. Department of State in Washington, development of BSI in the Asian markets. He has thirty D.C. From 1983 to 1985 he worked for the Banker Trust years’ experience and an in-depth knowledge of the pri- Company of New York as a private banking relationship vate banking sector. Hanspeter Brunner worked directly manager for Europe and Latin America. In 1985 he joined in the Asian markets for over 25 years, first with Credit Su- the New York branch of BSI as Account Manager and was isse and then with RBS Coutts, holding positions such as responsible for maintaining and developing private bank- CEO of RBS Coutts International and Executive Chairman ing clients in Latin America and Europe. In 1987 he moved of RBS Coutts Asia. He thus acquired a deep knowledge to Venezuela, where he managed the local representative and understanding of the Asian private banking land- office until 1990, when he became Senior Representative scape. During his career, he was awarded several titles, of BSI in Argentina. From 1993 to 2001, he was BSI Monte- including “Outstanding Private Banker Asia Pacific” in 2008 carlo’s Director and then Head of Romandie. by Private Banker International and “Asian Private Banker of the Year 2010” by the Asian Private Banker publication in 2011. A Swiss citizen, Hanspeter Brunner became a Sin- gapore Permanent Resident in 2007 and held numerous extra-professional positions such as a Board member of the Association of Foreign Banks in Switzerland, Council

15 BSI – Corporate governance

Renato Santi, born in Mendrisio (Switzerland) on 27 Octo- Internal Audit ber 1969, has been CEO of BSI Switzerland since 1 January 2013. Renato Santi started working for BSI in 1994 and has Internal Audit is the department that, at Group level, per- spent his entire career with the Bank. In 2011 he joined the forms independent evaluations and reviews of the inter- Bank’s Executive Board as the head of the Personal Bank- nal control system, thereby contributing to the ongoing ing division. Renato Santi is a graduate in economics from adjustment of the control system as needed. It coordi- the University of St. Gallen. In the course of his career at nates its activities with those of the External Auditor. In- BSI he has successfully taken charge of various strategic ternal Audit reports directly to the Board of Directors and development projects. Since entering the management of thus to the Audit & Risk Committee. BSI Ltd.’s Private Banking division in 1996 and subsequently Internal Audit reports periodically to the Committee on becoming Head of the division in 2002, Renato Santi has the activities it has carried out, and it also reports to the been responsible for Product Management (Lugano), Cor- Board of Directors once a year. Written reports on the porate Services at BSI Ifabanque (Paris) and Strategic Mar- results of audits conducted by Internal Audit are pro- keting & Support Services (Lugano). duced and sent to the Chairman of the Board of Directors and the Audit & Risk Committee. A copy is also sent to the members of the Group Executive Board and to the External Auditor. The scope, authorities and responsibil- ities of Internal Audit are defined in the General Manage- ment Regulations and in the Group Internal Audit Regu- lations. The Chief Audit Executive, who is appointed by the Board of Directors, is Mr Nicola Guscetti. He has held this position since 1 January 2012.

External Auditor

The External Auditor checks the Group accounts and the annual reports of the Bank in accordance with legal provi- sions and regulations in force in Switzerland. Pursuant to the Code of Obligations, BSI appointed Geneva-based Ernst & Young SA as External Auditor. The Lead Auditor is Mr Mario Mosca.

16 BSI – BSI Ltd. Organizational chart

BSI Ltd. Organisational chart (situation as of 1.1.2015)

Board of Directors Internal Audit

Nicola Guscetti

Group Chief Executive Officer

Stefano Coduri 1

Merchant & Strategic Planning Investment Banking & Corporate Finance

Vincenzo Piantedosi Fabio Casati

Group HR, Organi- Group Executive sation & Internal Office Communication

Vincenzo Martino David Matter

Corporate Services Group Investments BSI Switzerland BSI Asia BSI Latin America, Solutions & Capital Middle East & Eastern Markets Mediterranean

Rajiv Pradhan 1 Nicola Battalora 1 Renato Santi 1 Hanspeter Brunner 1 Gérald Robert 1

1 Member of the Group Executive Board.

17 BSI – Human Resources

Human Resources

Headcount Before going ahead with this restructuring effort, we slashed costs by reducing pension benefits – adopting defined-con- In 2014 the number of people employed by the BSI Group tribution plans, in line with market standards – as well as re- decreased from 2,042 as at 31 December 2013 to 1,983 as viewing the variable pay plans. at the end of 2014. Reducing the headcount is part of a broader cost-cutting effort launched in early 2014, which aims to streamline com- Staff Committee plexity and reposition the Bank within the existing business model. The co-operation between the Staff Committee and the People employed in Switzerland are 1,332, whereas our Human Resources Department was characterised mainly presence in Asia slightly decreased to 310 employees. by the joint efforts towards curbing costs by cutting down Overall, the staff outside Switzerland amount to 651 employ- on complexity, reconsidering the Bank’s geographical pres- ees. ence, and reducing the headcount. This collaboration went through all the steps necessary to define a Social Plan and the related redundancy schemes Remuneration policy that accompanied the restructuring. Employees, represented by the Staff Committee, presen- BSI’s remuneration policy always aims at upholding com- ted the Bank with several topics for discussion and propo- petitiveness in the market and maintaining fairness within sals, which were addressed in the above document. the Bank, as well as a balance between short-term and long- Last but not least, BSI set up a Joint Supervisory Commit- term incentive plans. In the first few months of 2014, BSI tee, which is still active, to guarantee principles, measures revised this policy, emphasising the importance of merit and instruments are implemented consistently throughout in the award of variable pay. the various stages of the restructuring. Under the guidance of the Appointments and Remunera- tion Committee, we aligned our policy with modern mar- ket practices. Training & development of resources We introduced significant Key Performance Indicators and updated a number of compensation models, encouraging The “BSI and Corporate Responsibility” report illustrates employees to create value in order to provide clients with in detail, among other initiatives, the many initiatives an excellent service. started to develop human resources at BSI. From the train- ing viewpoint, activities were continued in 2014 espe- cially within the scope of the Private Banking Business The transformation of BSI Academy to follow evolving regulatory and tax contexts and business development projects. Besides the usual During 2014, we worked hard to transform BSI, reducing its training initiatives related to the company’s Competency complexity and refocusing operations to enhance the ser- Model and open to all the Group’s employees, we launched vice rendered to clients, improve profitability, and remain an additional Management Skill development programme competitive over the long term. that bolstered our offerings for employees with manage- We launched a radical and necessary transformation that ment responsibilities. will certainly allow us to take on new challenges in the pri- Training of young recruits continues to reflect BSI’s long vate banking industry. tradition, with the management of 15 apprentices and by As part of this process, we had to reduce our headcount, accurately and timely meeting the requests for training gradually cutting 160 positions across our global opera- placements for university students. tions. This effort started in autumn 2014 and is on track to be completed by the end of 2015. True to our tradition and culture, we did our best to mini- mise the number of layoffs and helped the people affected with job placement services and a Social Plan that met with the approval of the social partners and the employees con- cerned.

18 BSI – BSI and Corporate Responsibility

BSI and Corporate Responsibility

We are a bank first and foremost. But since our inception Business Dimension in 1873, we have always sought special relationships – not only with the clients who entrust us to protect and grow We Value Our Clients their assets, but also with our people – our greatest asset, At BSI, our priority is building sustainable long-term rela- and with enriching the broader communities in which we tionships with clients based on mutual trust and the cer- live. tainty the Bank is not just a reliable consultant that can offer integrated wealth management solutions and grasp Thanks to this sense of corporate responsibility, for over opportunities, but also a company that establishes robust 140 years now BSI has been achieving long-term sustaina- partnerships spanning generations. Through an approach bility while ensuring excellence and stability. Considering that is both multicultural and glocal, we strive to provide the current scenario, rife with challenges, this is nothing less world-class services to our clients, knowing that what dif- than a success. As a global organisation which cherishes the ferentiates us from the competition are custom-tailored symbiotic relationships with our stakeholders, we find it im- solutions. We are constantly looking to further develop perative to cultivate an environment which promotes trans- and improve the quality of our services, consistently with parency, accountability, and commitment to the highest the goal of providing the client with a positive and com- standards of governance and ethical behaviour – this is the prehensive experience. This is also why we decided to very reason we have chosen to voluntarily report on our align ourselves with the MiFID (Markets in Financial Instru- business activities through annual reports and financial ment Directive), an EU directive aimed at safeguarding statements. clients and fostering competition in investment services.

To BSI, Corporate Responsibility is far from simple dona- Sustainable and Responsible Investing (SRI) tions; it is holistically represented through integrating a Sustainable and Responsible Investing (SRI) is widespread responsible approach across three dimensions: Business, among those institutions and private investors that seek a Social and Environmental – precisely aligned with the ob- greater awareness of their long-term social and envi- jectives of our mission. ronmental impact on the world we live in. The goal, besi- des earning a financial return, is making a positive impact In the Business dimension, we speak about responsible on Society. For instance, other things being equal, it is client practices, the extra mile we take to build and main- more sensible to invest in companies looking to reduce tain mutually rewarding client relationships as well as the environmental risks, rather than those generating conside- long-term orientation that guides the overall management rable air and water emissions. Similarly, it is better to reward of the company since its inception. companies aware of the social impact of their operations, as they can create both social and financial value. Investing The Social domain relates to the responsibility we have in microlending is another option for obtaining a financial towards people and the community. Ensuring the well-be- and social return. ing of our staff through excellent working conditions and BSI is on the front line of SRI. In 2014, along with other employee friendly policies such as gender equality and Swiss banks, it founded the Swiss Sustainable Finance or- diversity inclusion programs all contribute to a happy and ganisation, which aims to make finance more sustainable motivated, hence, sustainable workforce. and responsible. Furthermore, BSI has acquired extensive For more than 140 years, we have forged meaningful re- experience in SRI practices, which allows it to create com- lationships with numerous communities by combining our prehensive portfolios of stocks, bonds and funds offering success with a variety of social contributions. Apart from Social and Environmental added value. The ultimate goal strategic sponsorships and partnerships, we develop and of these investments is making a positive impact on socie- support various corporate philanthropy and employee vol- ty while reducing portfolio risks. unteering projects.

Finally, the Environmental dimension refers to sustainable environmental practices such as energy conservation, pa- per optimisation and reduction of greenhouse gases – achieving a win-win situation of environmental preserva- tion and operational cost savings.

19 BSI – BSI and Corporate Responsibility

By conducting an Environmental, Social and Governance Young People’s Program (ESG) analysis, we can thoroughly assess nearly 4,000 The Young People’s Program assesses the leadership and companies, screening out those involved in controversial professional potential of young employees through a rig- activities and investing in select businesses representing orous pre-selection process. It aims to offer a customised models of “Corporate Citizenship”. Clients can use these training plan involving dedicated activities and opportuni- analyses right away to make well-informed and knowled- ties for professional growth within the BSI Group. geable decisions throughout the investment process. In advising our clients, we present them with investment op- Easier access to top management portunities that both deliver returns and raise awareness BSI continues to promote a constant dialogue between about social and environmental issues, providing solutions. the members of the Group Executive Board (GEB) and the staff. During meals and coffee breaks, employees can informally discuss important topics with members of the Social Dimension GEB at a more personal level.

We value our employees Training and development BSI greatly values the well-being of each employee. We At BSI, we are aware of the importance of training for con- have an unwavering commitment to promote and guaran- tinuous improvement as a key factor to promote highly tee an excellent work environment, allowing people to re- skilled professionals. This is why we have developed a wide alise their full potential. New hires are welcomed into the range of training and development activities aimed at pro- BSI family since the very first day, with introductory presen- viding our staff with the expertise required to work more tations and occasions to socialise – such as the Welcome competently and efficiently. Day – designed to foster a sense of belonging. Furthermore, BSI offers both internal training activities, managed by the the Bank frequently hosts cross-functional team-building Training & Development unit and reserved to employees, sessions to promote social bonding and robust interpersonal and external ones, tailored to the specific needs of each relationships. employee and organised by external training providers under the supervision of the Training & Develompment unit. Ideal conditions for a workforce capable of excellence Promoting the all-round growth of our staff is one of our We believe it is crucial for the workforce to be fit and happy priorities: our initiatives in this sense are designed to help in order to make a positive and sustainable contribution to employees develop their professional and management BSI’s business and corporate culture. Besides an attractive skills. and competitive compensation package, all employees in Switzerland are entitled to health insurance and coverage, Leadership Series free annual vaccinations, and paid annual leave. Further- Ensuring the growth of our leaders in their quest for excel- more, we strongly advocate for employee work-life balance, lence is high on the agenda of BSI. We expect our man- offering flexible work hours as well as sabbatical and unpaid agers to run the company in order to improve performance leave to meet the needs and demands of our staff. and serve as models, being understanding and flexible with At the canteen in Lugano’s office, employees can choose employees. As part of training activities for the Bank’s man- every day from a wide variety of servings of the highest agement, besides the long-running Leadership Program, standards. The Bank offers also considerable discounts on BSI introduced “Being an Effective Manager”, an initiative meals. If possible, ingredients are sourced from non-profit aimed at providing key instruments for those employees organisations employing disabled people. that are preparing to manage resources. In addition, through “Manager as Coach”, the company supports using coach- Diversity & Inclusion ing to help employees grow. BSI is a global organisation that promotes and supports diversity and inclusion. To this end, in 2013 it arranged for a series of initiatives spanning all levels of the organisation and focusing on gender, ethnic and generational diversity. In 2014, BSI set up a group of Ambassadors including rep- resentatives of the main areas of interest, which meet to discuss these topics and propose new initiatives.

20 BSI – BSI and Corporate Responsibility

360° Feedback Internal work opportunities and job rotations To further promote a culture of feedback, BSI repeated the We know that our employees need their work to stimulate “360° Feedback” initiative. The main purpose of this devel- them and offer opportunities for personal growth and sat- opment instrument is helping managers become more isfaction. Therefore, we proactively support the staff open efficient in their management. to new challenges within the Bank and implement rigorous It is based on the observation of some behaviours of BSI’s recruitment processes designed to ensure that employees Competency Model and emphasises the concept of “lea- are given preference in the filling of internal positions. Job ding by example”. rotations re-energise employees, helping them to better BSI first introduced “360° Feedback” in 2013 for all mem- understand the Bank’s functioning, involving them in its bers of the Group Advisory Board, and then extended it operations, and allowing them to acquire new skills. Fur- to a larger group of managers in Asia. Now it involves the thermore, BSI offers also international mobility opportuni- Bank’s Senior Management. ties for both professional and personal growth.

Career and education Workplace Health and Safety For decades now, BSI’s Apprenticeship Program has been The health, safety and well-being of our employees contin- part and parcel of the Bank’s history. It offers high-school ue to be of utmost importance and will never be compro- graduates the opportunity to attend a highly specialised mised. Providing a safe, secure and conducive environment and selective three-year training programme providing for our employees to work in allows them to thrive and pros- them with the competencies required to advance their ca- per – a key ingredient in ensuring the continued success reer. Furthermore, our Internship Program offers short-term and sustainability of our business. BSI practices a strong internships allowing university students to acquire specific security culture and disseminates vital information frequently professional skills that will represent a solid foundation to to raise awareness of main risks and highlight rules of con- start working in the financial industry. Staying true to our duct to be observed. Extensive policies and measures are responsibilities towards local communities, we give prece- put in place to protect both our employees’ and the Bank’s dence to Swiss nationals in admission to the above training interests in seven areas, namely: fire protection, intru- programmes. sion protection, access control, data protection, people protection, buildings protection and critical assets pro- Career opportunities tection. Comprehensive site audits are carried out in all BSI Annual assessments offices biennially to ensure compliance, identify potential Employees are BSI’s key resource and best investment. We risks and ensure the physical safety of all employees and promote a merit-based environment that properly rewards guests at our premises. Each year, our assessment evalua- achievements, without forgetting to provide robust support tions have shown excellent results. On top of carefully and coaching to who should need specific help. Besides an planned fire evacuation procedures which are practiced open and constant dialogue, BSI carries out semi-annual regularly, all BSI offices have a team of employees who and annual performance assessments. The assessment ses- serve as medical and red-aid representatives. These em- sion serves as a motivational tool, allowing for a construc- ployees have undergone training and are equipped with tive and transparent discussion about the balance between the proper skills and knowledge to react in an emergency. the expectations of the individual and those of the organi- They are also qualified to administer CPR and perform basic sation. It reveals the employee’s strengths as well as his or life-saving methods. her areas for improvement, allowing to define a custom Since 2013, BSI has been providing its employees, and es- development plan. pecially the Private Banking staff, with training on data pro- tection to shield the Bank and its clients from social engi- neering and IT security attacks.

21 BSI – BSI and Corporate Responsibility

Community Investment Peggy Guggenheim Collection BSI plays an important role in the cultural life of all the com- Interested in the evolution of artistic and cultural expres- munities it serves. We believe that the value of all assets, sions, since 2001 we have been supporting Venice’s Peggy besides financial and real estate ones, is key for our com- Guggenheim Collection, contributing to its activities, while munity. We support activities that contribute to the cultural, also promoting other international art projects. economic and scientific development of the community not just through sponsorship, but also as an enthusiastic BSI and Architecture and proactive participant in the conceptual, organisational Aware of how important it is to live in an environment char- and promotional aspects. Our ultimate aim is to promote acterised by beauty and sustainability, in 2007 BSI set up awareness of the importance of culture, art and science the BSI Architectural Foundation. Its goal is promoting ar- both for our day-to-day lives and the sustainable develop- chitectural expertise, training and research activities. ment of our society. It presents a biennial architectural award called the BSI Swiss Architectural Award to honour architects from around BSI and Music the world who share our vision for contemporary architec- Young Talent Scholarships ture which advances the use of sustainable materials. The As part of our commitment towards music support, we winner assumes the role of a ‘visiting professor’ for one se- have been providing scholarships for the development of mester in one of the top architectural universities, imparting exceptional young musicians since 2004, paving the way knowledge and sharing real world experiences with young for their international careers. Scholarship recipients are architectural undergraduates. also given the opportunity to participate in the musical events organised and sponsored by BSI. Our 2014 schol- Bilateral relations arship recipient was the Argentine pianist Tomás Alegre. Fondazione del Centenario della Banca della Svizzera Italiana Martha Argerich Project The Fondazione del Centenario della Banca della Svizzera Promoted by BSI and Swiss radio channel “Rete Due”, this Italiana was established to commemorate BSI’s 100th anni- event is part of the Lugano Festival, which, since 2002, re- versary, and bestows monetary recognition to persons or unites the great Argentine pianist with a host of excellent institutions which have furthered the development of Ital- performers and talented young musicians in Lugano. ian-Swiss relations and contributed to the betterment of understanding between the Swiss and Italians. BSI Engadin Festival Since 2009, we have been a firm supporter of the Engadin Istituto Svizzero di Roma Festival, an exclusive classical music festival and one of the Starting from 2005, we have been partnering with the Isti- key musical events in the wonderful Alpine region for 74 tuto Svizzero di Roma (ISR). Swiss academics and artists years. have been representing half of the ISR ever since its foun- dation, and in 2005 the institute became – together with OSI and OSR the branch in Milan – the reference for Switzerland’s art and In recognition of the cultural value and significance home- science in Italy. The ISR promotes the dialogue and ex- grown orchestras bring to a country, BSI is a long-term sup- change between the cultural institutions operating in Italy porter of the Orchestra della Svizzera Italiana (OSI). We also and actively participates in the network of the several in- provide support to the Orchestre de la Suisse Romande ternational institutes and academies in Rome. (OSR) by sponsoring their annual gala concert. Finance and Entrepreneurship BSI and Art The BSI GAMMA Foundation (Global Asset Management BSI Art Collection Methods and Applications) was established on the 125th The BSI Art Collection was created in 2000 with the vision anniversary of BSI and strives to promote the develop- of showing our commitment to the world of contemporary ment and empirical research in asset management, the art, and has grown over the years through a noteworthy functioning of capital markets, and the role and form of series of acquisitions that aims to identify some of the public regulation in fund management. Since its inception, most influential personalities in art from the period follow- the Gamma Foundation has organised more than thirty ing the Sixties. Throughout our journey, expansion of the conferences and supported more than fifty research pro- collection was conducted mainly to adorn and enrich BSI jects. offices around the world. Paintings, sculptures, drawings, photographs, videos and site-specific artworks breathe life into a blend of expressive languages.

22 BSI – BSI and Corporate Responsibility

BSI, in partnership with the Startup Promotion Centre and Cultural donations the Swiss Post, created an award for entrepreneurs in the BSI supports the Cologni Foundation for Artistic Craft Ticino region in 2009, and has been supporting it ever Professions, an organisation which promotes the training since. In 2014, the StartCup Ticino award went to Ecker of new generations of young artisans and strives to save Technologies, a start-up based in Ticino that has devel- existing, outstanding craft professions from the threat of oped GONDOLA®. This is a medical device for the treat- oblivion. ment of gait disorders in people suffering from neurolog- ical diseases, and especially Parkinson. Designed to be Another initiative supported by the bank is “Vacation at the used at home, it allows the patient to continue benefiting Museum” of the Museo Cantonale d’Arte (Lugano): a se- from the treatment over time. ries of creative workshops organised in the summertime in Lugano. These workshops are aimed at bringing children In addition, in 2014 BSI granted the long-running “BSI Pie- closer to the world of art. tro Balestra Award” – assigned every year to the best stu- dent in quantitative studies at USI’s department of econom- BSI is also a donor of the “Fondation de l’hermitage” in ics – to Matteo Pirovano. Lausanne, a 19th-century residence which hosts temporary fine arts exhibitions. Finally, once again in 2014 BSI supported Uni2grow. This NGO comprises a socially-oriented IT services provider Sport support whose earnings go to fund university scholarships in Cam- Thanks to our exclusive yachting sponsorship with skipper eroon. In 2014, BSI was a customer of Uni2grow’s IT com- Giovanni Soldini and his Maserati crew, they have been ex- pany and routinely made available its logistical infrastruc- tremely successful in their record-breaking bids round the ture to the association for its operations. world. Chief among the team’s countless achievements is the record Blood donations they set on a legendary route – the Gold Route from New Twice yearly, blood donation drives for The Red Cross Tici- York to San Francisco via Cape Horn, which large ships start- no are organised by Human Resources and open to all ed sailing halfway through the 19th century laden with gold Lugano-based employees. Each year, about 150-200 blood seekers. Such a feat requires outstanding technical skills, a donations are received. strong team spirit, and an unwavering determination to achieve excellence – all characteristics that perfectly reflect Economic growth the commitment and values we offer to our clients, as well as BSI has been actively contributing to the economic devel- the passion driving us all. opment of Lugano and the Ticino region since it was estab- lished. Noteworthy examples include the major role we The Bank also has a history of supporting young sporting played in founding USI (Università della Svizzera Italiana) – talents to aid in their talent development. For several years, Lugano’s main university, and the Swiss Finance Institute – a we have contributed to the Association for Talent in Life – world-leading research and training centre in banking and an organisation which nurtures young sports talents and finance. Both institutions have proved vital to the develop- provides funding for their sporting and professional devel- ment of the Ticino region. opment. Additionally, BSI is one of the founders of the Tecnopolo, often referred to as the “cradle of technological innovation Also in 2014, we supported an initiative by FTIA (Ticinese in Ticino”. Federation for disabled integration) which introduced sail- We have also been supporting the historical Mount San ing into their sports curriculum with the aim of participat- Salvatore funicular with the objective of preserving signif- ing in the Special Olympics 2014. icant landmarks and promoting tourism in Lugano. BSI has been supporting the Golf Tour for years now, proving it constantly pays attention to golf – a sport that perfectly matches its own values: a long history, a staunch sporting spirit, dynamism, professionalism, expertise, and the passion to take on challenges and accomplish ambitious goals.

23 BSI – BSI and Corporate Responsibility

Other donations Last but certainly not least, BSI Servicios S.A. in Montevideo BSI provides financial support to a large number of NGOs embraces a strong culture of charitable giving, and sup- operating in several areas, including Telethon, Associazi- ports a list of beneficiaries which centres on the elderly, one Triangolo (a volunteer association assisting cancer pa- disabled and underprivileged. One example to highlight is tients), and Magic Table (one of Switzerland’s leading food Asociación de Usuarios de Protesis Infantiles, a non-profit banks). state association which extends aid to children and aims to improve their quality of life by providing them with pros- Other initiatives thetic fittings. Financial aid focused on music support and Throughout 2014, BSI ASIA has contributed to and sup- environmental sustainability is also provided to selected ported a number of key events across the region that have associations such as Centro Cultural de Música, a non-prof- driven an agenda of change and empowerment. We reaf- it institution dedicated to supporting local Uruguayan mu- firmed our ongoing commitment to Habitat for Humanity sicians and providing opportunities for their talent develop- sponsoring their Gala fundraising dinner and pledging our ment and Repapel, an eco-friendly organisation which edu- financial and manpower support of 6 houses for needy cates the public on sustainable development and seeks to families in the Southeast Asia Region. raise awareness on how adaptations in personal consump- BSI Asia were the key sponsors for the Samarpana Festival tion habits can significantly minimise impacts on the envi- of South Asian Classical Music and Dance held in Singa- ronment. pore. Furthermore we supported two fundraising Galas that raised support and awareness for the rural poor in In- In 2014, Luxembourg-based BSI Europe focused its sup- dia (Mystic Eye Gala) and an organization driving aware- port to social, sporting and cultural activities on a number ness and change to various social causes in India (Act for of initiatives aimed, among other things, at emphasising Hope Gala) the company’s Swiss identity. Closer to home, in Singapore we made a donation to Food First, the Bank has supported the Luxembourg charity Fem- from the Heart, a local charity donating food to needy fam- mes Developpement, which supports the construction of ilies. We also supported the support charity Pharmacist children’s villages, schools and health centres, as well as with a financial contribution to aid their independent char- Rwanda’s rural population – especially widowed mothers ity work. who survived the genocide in the 1990s – through activities such as microlending. Our Latin America, Middle East and Eastern Mediterra- Another worthwhile initiative was the contribution to Les nean offices actively support various communities and char- Pimpampel, a charity based in the Grand Duchy that op- ity organizations through a bundle of initiatives. erates in the paediatric clinic at Luxembourg’s hospital. It organises several “smart” entertainment activities for hos- Since establishing itself as a branch in 2012, BSI Bahrain pitalised children and buys all kinds of material to make has supported various local charities, artistic events and the stay at the clinic more enjoyable for both children and welfare activities in Bahrain. This was done through stra- parents. tegic alliances with various organizations like the Shaikh Last year, BSI Europe contributed also to sporting activi- Ebrahim Center for Culture and Research, the Ministry of ties as a sponsor of Dudelange’s T71, a local basketball Culture and its affiliates. In the spirit of cultural exchange association. The association brings together several male and the appreciation of classical music, BSI Bahrain, in col- and female junior and youth teams. laboration with the Minister of Culture, has hosted the in- Finally, true to its tradition, BSI supported also cultural ac- ternationally renowned violinist, Renaud Capuçon at a local tivities. It donated to the charity Nei Stëmmen (New Voic- concert, which brought together all those who truly appre- es), contributing to the staging of a series of performanc- ciate musical talents. es of Mozart’s Don Giovanni in several theatres across Despite only commencing operations in 2013, our Turkey Luxembourg. Specifically, the donation went to pay for the office has embarked on meaningful sponsorships cen- lodging of the orchestra’s young members, who are all tred on the preservation of art, music and culture. It spon- students at the Conservatorio della Svizzera Italiana. On sored “Art Walk Istanbul”, an art project showcasing the the night of the first show, the Bank, together with the different faces of Istanbul’s vibrant art scene and organ- Swiss Embassy in the Grand Duchy, hosted a gala for its ised a cultural visit for staff to the historical island of Yas- clients and a number of Luxembourg and Swiss public of- siada which symbolises the start of democracy and mod- ficials and personalities. ern Turkish Republic history. It also supported a classical music concert performed by the Turkish National Youth Orchestra featuring Violinist Shlomo Mintz and conduc- tor Cem Mansur, bringing together the best young musi- cians in the country.

24 BSI – BSI and Corporate Responsibility

Finally, BSI supported the stand of the Swiss Confederation The following table shows the 2015 goals that BSI set for at the Fair of Nations, which is held annually in Luxembourg. itself in 2012. Most have already been achieved or excee- The stand is managed by the Grand Duchy’s Swiss Society. ded:

In Italy, BSI Europe’s local branch has been contributing to Area BSI 2015 Goal Results as of 30 June, 2014 compared causes that go beyond banks’ areas of expertise, participat- to 30 June 2013 ing in initiatives that help the young, support Italy’s artistic Electricity 5% reduction in energy Average reduction and economic heritage, and promote the growth of skills consumption per capita over the last 2 years typical of its industry. (2013-2014): 6% Maintaining the share of 100% Achieved in 2013 Besides the partnership between BSI and the Swiss Institute electricity from renewa- and 2014 in Rome, which dates back to 2005, and our sponsorship of ble sources Venice’s Peggy Guggenheim Collection, we work as spon- Paper 5% reduction in total Average reduction sors and partners with several institutions and associations: paper consumption over the last 2 years (2013-2014): 19% FAI, Fondo Ambiente Italiano (the Italian National Trust); IED, Exclusive use of recycled 100% Achieved in 2013 the European Institute of Design; Associazione Amici della paper and 2014 Scala di Milano; UNISG, the University of Gastronomic Water 5% reduction in water Average reduction Sciences in Pollenzo; LIDE Italia, a Group of Business Lead- consumption per capita over the last 2 years (2013-2014): 12% ers; AIPB, the Italian Private Banking Association. Waste Waste sorting over 65% Average separate waste Chief among the projects BSI supported in 2014 were “Post- collection for 2013-2014: card” – an event promoted by IED Milano and The Italian 48% Project aimed at supporting young emerging artists, helping them lay the foundations for their professional future as well as promoting the development of a sector that is key for Concerning energy consumption, the Bank introduced Italy – and “Fa.re Musica per tutti”, a concert organised by multiple improvements: it replaced halogen lighting with Conductor Mattia Rondelli to affirm that culture is at the LED in several offices (-50% energy consumption), instal- core of human dignity. led motion-activated lights (20% energy saving), and in some facilities, lighting and air-conditioning systems auto- matically turn off after a set period of time if left unatten- Environmental Dimension ded, both on business days and at weekends. Furthermo- re, the utilities that supply electricity to BSI in Switzerland Our Environmental Responsibility are committed to generate energy from renewable sources Protecting the environment as an essential good is crucial such as water, sun, wind, biomass, biogas and geothermal for BSI. This is why, as a dynamic and established financial power. institution, BSI is committed to making decisions that ba- lance economic and environmental interests. BSI is aware Another area showing huge potential is paper consumption. that certain actions taken to meet market demand and com- Since 2013, BSI has been using exclusively recycled paper, pete successfully have an irreversible impact on the planet. which has a limited and controlled impact on the envi- Therefore, it believes it is its duty to promote environmental ronment. Some practices aimed at reducing waste, such sustainability through well-grounded and sensible operating as electronic filing, using iPads, double-sided and mono- procedures. chrome printing, and recycling single-sided printouts will be implemented across the Group during 2015, also by Since 2009, BSI has been rigorously recording and disclosing implementing the “follow-me-printer” project. This involves data for the purposes of preparing the Corporate Social rationalising the number of both centralised and decen- Responsibility Report. The data exclusively concern Switzer- tralised printers in individual offices. Besides the above land, as this is where the majority of BSI’s offices and ope- actions, an internal initiative led to replace several subscrip- rations are located. tions to the print editions of newspapers and magazines with the corresponding digital ones starting from 1 January, 2015.

25 BSI – BSI and Corporate Responsibility

In addition, during 2014 the Bank rolled out various video Recycling is another environmentally-friendly practice spre- conferencing systems and desktop-sharing solutions to ad across the entire Group. PET and glass bottles, card- promote remote meetings and reduce travelling for both board and paper, toner cartridges, fluorescent tubes and business trips and commutes. A further step was installing batteries are collected and recycled, spent printer ink car- “Jabber”, an instant messaging and VoIP application that tridges and waste electronic equipment are handed back easily connects all employees and facilitates the exchange to suppliers to be regenerated and disposed of. Believing of information and documents, on all computers of the that education is key to promote environmentally sustai- staff in Switzerland. In early 2015, BSI will roll out another nable behaviours, BSI has structured its internal organisa- application, “Webex”, which will enable private and group tion to allow for the proper sorting and disposal of the discussions also with people outside the bank, allowing above material. to share the desktop and make conference calls securely and easily.

In March 2014, new restrictions on business trips became effective, causing a considerable decline in travelling and the associated environmental impact. In 2014, BSI also re- duced its vehicle fleet.

26 BSI – Our Identity

Our Identity

What distinguishes BSI today and throughout our history its name to BSI, has expanded again in recent years through is our unwavering belief in how we should conduct our- client acquisition and also thanks to the recovery of banks selves as a business, based on the principles of solidity, operating in the Ticino financial centre. At the same time, transparency and good governance. It is a commitment the Bank has undergone a major international expansion, reflected in the trust of our clients and the loyalty of our especially in Asia, the Middle East and Latin America, in staff. This is how it has always been at BSI. A commitment order to diversify its market presence. unchanged since 1873. We are “Swiss Bankers with Passion” and we believe that the reason for over 140 years of suc- cess and achievements is this unique marriage of cultures Key dates and traits: on the one hand, the rational thinking on which 1873 Founding of the Bank with the name Banca each decision is based and, on the other, the personal com- della Svizzera Italiana. mitment to each client. 1874 Opening of an agency in Locarno, transformed into a branch in 1914. 1879 Opening of an agency in Bellinzona, later sold to the Our History new company Banca Popolare Ticinese in 1884. 1881 The Bank begins issuing banknotes, a function it Our journey started in the second half of the 19th century maintains until the Swiss National Bank is founded and after over 140 years, our commitment to the princi- in 1907. Opening of an agency in Mendrisio, ples of private banking is as strong today as it was on the transformed into a branch in 1955 (closed midway very first day. Since the beginning we knew how a great through the 1990s). private bank should be. Since then we have consistently 1905 Opening of an agency in Chiasso, transformed into demonstrated an innate ability to adapt to changing cir- a branch in 1924. cumstances and contexts without ever compromising our 1908 Acts as an agency for the Swiss National Bank in core values. We’re proud of our long history – and are excit- the Sottoceneri region of Ticino. ed about the chapters still to be written. 1914 Opening of a branch in Bellinzona. 1935 Opening of a branch in Zurich. Banca della Svizzera Italiana, with its head office in Lugano, 1969 Swiss Italian Banking Corporation Ltd, Nassau, was founded in 1873 thanks to the financial support of is founded, marking the start of the Bank’s Kreditanstalt in Zurich, Basler Bankverein and Banca Gen- international expansion. erale di Roma, and with the participation of local backers 1971 Acquisition of Adler Bank Basel AG, Basel. in Ticino (Carlo Battaglini, Annibale Bollati, Luigi Enderlin, 1973 Opening of a branch in St. Moritz. Rodolfo Landerer, Pasquale Lucchini, Giuseppe Soldini, On the occasion of the Bank’s centenary, Pasquale Veladini, Giovan Battista Ferrazzini and Clem- Fondazione del Centenario della Banca della ente Maraini sen.). A few years after its founding, the Bank Svizzera Italiana is founded. moved to the 18th century home of the Marquis of Riva, 1975 Acquisition of a majority stake in Banque Romande which it still owns and uses as its head office. In the final in the French-speaking part of Switzerland. decades of the 19th century, the institution was active on 1976 Acquisition of a significant stake in Compagnie the domestic market. In particular, it supported initiatives Monegasque de Banque, Monaco. to develop regional transport and the hotel and catering Opening of a representative office in Caracas. sector. Nonetheless, the Bank was also active in Italy 1980 Acquisition of a participation in Domus Bank, Zurich. thanks to the personal relationships of its directors. The 1990 Opening of BSI Finanziaria SpA, Milan, which in Bank survived the banking crisis of 1914, although two can- 2002 becomes Banca BSI Italia SpA, Milan, tonal institutions – Banca Cantonale Ticinese in Bellinzona and which is later sold to Banca Generali, Milan. and Credito Ticinese in Locarno – did not. Banca Popolare 1993 Separation of assets and liabilities related to Ticinese in Bellinzona was also forced into liquidation. Fol- commercial activity, founding of the company lowing this crisis, Banca della Svizzera Italiana continued SBSI Holding SA, Lugano. to grow its presence in the Swiss market, and later, starting 1994 The asset management company in Monaco in the 1960s, it also expanded internationally. In the early is transformed into a bank (today’s BSI SAM Monaco). 1990s the Bank restructured its business and organisation, 1995 Founding of Boss Lab SA, an IT services specialising in wealth management for private Swiss and company for financial institutions and which later international clients. The Bank, which has meanwhile changed becomes B-Source.

27 BSI – Our Identity

1998 On the occasion of the 125th anniversary of BSI, Chairmen of the Board of Directors the BSI Gamma Foundation is created, a – Pasquale Veladini, 1873-1874 foundation that supports academic research – Pasquale Lucchini, 1874-1892 in the financial field. – Clemente Maraini, 1893-1905 The company’s name is changed to BSI Ltd. – Giacomo Blankart, 1905-1920 2000 Opening of offices in Lausanne, which are later – Adolfo Soldini, 1920-1927 transformed into a branch. – Otto Maraini, 1927-1944 2005 Opening of BSI Bank Ltd, Singapore. – Marco Antonini, 1944-1955 2006 Acquisition of Banca Unione di Credito, Lugano. – Antonio Lory, 1955-1966 2008 Acquisition of Banca del Gottardo, Lugano. – Carlo Pernsch jr., 1966-1974 Licence obtained for operating in the Kingdom – Ettore Tenchio, 1975-1983 of Bahrain. – Gianfranco Antognini, 1983-1991 2010 Opening of an agency in Crans-Montana. – Franco Masoni, 1991-1993 2011 Sale of 51% of B-Source and IT migration from the – Alberto Togni, 1993-1998 BOSS system to Avaloq. – Hugo von der Crone, 1998-2004 2012 BSI expands its Asian business and opens a – Giorgio Ghiringhelli, 2004-2011 branch in Hong Kong. – Alfredo Gysi, since 1 January 2012 Incorporation of Patrimony 1873, a wholly controlled wealth management company. The Middle East business continues to grow with Executive directors the representative office in the Kingdom of – Giacomo Blankart, Director 1873-1888 Bahrain being upgraded to a branch. – Innocente Gianinazzi, Director 1888-1918 2013 BSI celebrates 140 years of success and service in – Carlo Pernsch sen., Director 1918-1926 the private banking sector. – Guido Petrolini, Director 1926-1927 BSI opens a representative office in Istanbul. – Adolfo Hediger, 1928 The Italian branch of BSI Europe S.A. in Milan starts – Antonio Lory, Director 1928-1942 and operations. Managing Director 1943-1955 2014 Opening of BSI Bank (Panama) SA in Panama. – Carlo Pernsch jr., Director 1943-1955 and The agreement to sell 100% of BSI to the BTG Managing Director 1956-1966 Pactual Group is signed (transaction subject to – Gianfranco Antognini, Senior Executive Vice President approval by competent authorities). 1966-1968 and Managing Director 1969-1983 – Giorgio Ghiringhelli, Chief Executive Officer 1983-1994 – Alfredo Gysi, Senior Executive Vice President and Shareholders Chief Executive Officer 1994-2011 1910 Acquisition of a majority share package by – Stefano Coduri, Group CEO, since 1 January 2012 Banca Commerciale Italiana, Milan. 1983 Irving Trust Co., New York, takes over the share package from Banca Commerciale Italiana. Our Mission 1988 Unigestion SA, Geneva, obtains the share package from Irving Trust Co. and later sells BSI’s objective is to accompany its clients – year after year, a minority stake to Tayio Kobe Bank. generation after generation – in all the important decisions 1991 Swiss Bank Corporation, Basel, becomes the that concern the growth and protection of their wealth. majority shareholder. BSI’s objective is to provide a multicultural and international 1998 Assicurazioni Generali, Trieste, becomes the work environment, where people can grow and create, and sole shareholder. enjoy the respect, confidence and flexibility necessary to perform well. BSI’s objective is to contribute, through its own resources, to the economic, social and cultural growth of the main com- munities in which it conducts business. BSI is able to pursue these objectives being part of one of the world’s largest financial groups and thanks to its resources, always in accordance with financial stability standards.

28 BSI – Our Identity

Our Vision Integrity BSI’s relations with its clients and employees are based on We aspire to rank first in the hearts and minds of our clients complete transparency, trust, and compliance with appli- when it comes to outstanding private wealth management cable laws. We keep our promises, ensure our commit- advice and services. ment, and represent a partner our clients, employees and We serve clients in different parts of the world, building stakeholders can rely on. Integrity is a value that underpins personalised, trust-based, family-like relationships that last all our relationships, and through co-operation we promote from generation to generation, since 1873. trust and transparency – which are the starting point for a We are committed to providing expertise, discretion and long-term partnership. flexibility in banking also leveraging on our multicultural understanding and global networking. Care Caring for our clients, employees and stakeholders means Our Values always being aware of the crucial importance of our ac- tions and of how we take them. We listen empathetically Our values represent who we are, our DNA. They make us to make our clients understand that we are really commit- unique, different from our competitors. ted to helping them in achieving their personal wealth Our values are a beacon that guides our decisions in times management goals. We work with our colleagues for their of great changes that are transforming our bank on a con- benefit and that of the clients. We do our best to meet the stant basis. They always remind us of who and what we are, needs of our clients. We firmly believe in the importance and they motivate our actions as we pursue our objectives. of the sense of civic duty. Therefore, through our proactive Our ability to remain unique depends directly on the ex- commitment, we promote the economic and cultural growth tent to which our values are reflected in what we do. of the communities we serve.

Competence At BSI, we are constantly enhancing our competencies to Flexibility provide high-quality private wealth management products At BSI, we respect the different needs of our clients and and services to our clients. We leverage a wide range of acknowledge the importance of a tailor-made approach. specialist competencies to look for innovative solutions. Our flexibility allows us to deal with unforeseen circumstanc- Aspiring to be a learning organisation, we develop the ex- es as well as complex projects amid the uncertainty and pertise required to continuously improve our products and challenges that characterise our wealth management busi- processes. ness. We listen to others and proactively strive to under- stand different ideas and perspectives in order to achieve Partnership shared goals. We can change our minds and encourage At BSI, we value long-term relationships and strive to en- colleagues to consider other points of view – all for the sole gage in professional and personal relationships for our purpose of providing our client with an optimal solution. benefit and that of our partners. Our partnerships with cli- ents, colleagues, suppliers, stakeholders, and the entire community give us the energy necessary to create a shared Code of conduct future. As a bank that puts its clients at the centre, we listen carefully to find solutions that benefit all stakeholders. We Purpose appreciate feedback as an opportunity to learn and we This Code of conduct establishes the principles and prac- give it to others in a constructive way. tices that each employee is expected to comply with, in order to preserve BSI’s first-class reputation, maintaining the highest standards of ethics, integrity, responsibility and professionalism at all time. The Code of conduct is subordinated to the Ethical Code of the Generali Group and constitutes its implementation at individual employee level.

29 BSI – Our Identity

Principles Commitment Integrity Everyone contributes to the Bank’s success. All BSI employees are expected to conduct themselves Fairness. Each employee is granted equal treatment, fair with honesty, integrity and professional diligence, in ob- evaluation and recognition of individual efforts. servance of the ethical principles and standards of behav- Training. Continuing training represents a right and a duty iour required by this Code of conduct. for each employee. Reputation. Reputation is our main value and requires that Access to top management. Access to management is we continuously maintain the highest standards of ethics promoted through our “open door” policy. and professionalism. Responsible behaviour. An ethical behaviour entails acting Risk approach in good faith, responsibly and with due care and prompts We do recognise risk as an important feature of our busi- us to act with honesty and competence at all times. ness and actively manage it. Transparency. We are fully committed to communicating Awareness. All employees must retain a constant level of in a fair, accurate and timely manner, in order to maintain risk awareness, in order to ensure a controlled and con- the highest level of transparency. scious risk-taking. Loyalty. We strive to uphold a fair relationship with clients, Active risk management. All recognised risks have to be business partners, competitors, service providers as well managed in a rigorous and active way. as with each other. Conflicts of interest. We endeavour to identify and avoid Adherence to the Code of conduct or manage any potential conflicts of interest for the pro- All BSI employees adhere to and follow the spirit and pur- tection of our clients and employees. pose of this Code of conduct. The Code applies to all circumstances: no waivers or ex- Confidentiality ceptions will be granted. Discretion and confidentiality are fundamental hallmarks Line managers are expected to be diligent in the exercise of the relationship between BSI and our clients and stake- of their supervisory responsibilities. holders. Every employee is encouraged to report violations to the Data protection. We resort to the highest standards of in- relevant line manager, Legal & Compliance or Human Re- formation security for continuous data protection. sources department. Reports will always be treated with Discretion. Confidential and sensitive information can be utmost confidentiality. internally shared on a strictly “need to know” basis. Banking secrecy. We refrain from any communication to Disciplinary measures third parties without an explicit consent or the existence Violations of this Code will not be tolerated in any circum- of a legal obligation. stances. Appropriate disciplinary measures will apply in the case Compliance of violation, which may include reprimands, warnings, de- In our activity we always strive to comply with all laws, motion and dismissal. regulations and policies. Where a violation is perceived to amount to criminal be- External and internal regulations. Each employee is re- haviour, competent authorities will be informed. quired to know and comply with the external and internal laws, rules and regulations relevant to his / her specific area of expertise. Fighting financial crime. All employees are required to commit to the fight against corruption, money laundering and terrorism financing in their specific area of expertise. Cross-border business. When performing cross-border business, we are always aware of and act in compliance with the local regulations of the countries where we oper- ate. Taxation. Tax reporting must comply with applicable laws, regulations and treaties. No BSI employee will assist cli- ents in acts aimed at breaching their fiscal obligations.

30 BSI – Management Report 2014

Management Report 2014

2014 was surely a challenging and eventful year for the tional regulations. In early 2015, Switzerland reached an world economy and the BSI Group. agreement with Italy about the Voluntary Disclosure in which Switzerland is not to be treated as part of the Italian fiscal black-list. This is a crucial step in allowing Swiss The year of monetary divergence banks to freely access the Italian market. In the asset man- agement industry, margins contracted further, mainly be- In macroeconomic terms, 2014 was characterised, on the cause of the increase in costs due to regulatory changes one hand, by some events that were hard to predict at the and the participation of several banks in the Program for start of the year, and on the other, by the emergence of a Non-Prosecution Agreements or the Non-Target Letters divergence between the monetary policies of the United for Swiss Banks (U.S. Tax Program) entered into between States and the European Union caused by the differing Switzerland and the United States in August 2013, as well strength of economic growth in the two areas. The US as growing pressures on revenues. economy showed some upside with growth which contin- ued at solid levels and a rise in employment, leading the Looking ahead, these factors – especially the regulatory Federal Reserve to announce the end of monetary stimu- changes being introduced at the international level – will li and the return to normality in terms of interest rates. In continue characterising the competitive landscape also in the eurozone, on the other hand, the economy continued the near future. They will force the Swiss asset manage- to be a concern in terms of both growth and the risk of a ment industry to revise its strategy in order to maintain its deflationary spiral, which led the European Central Bank global leadership and improve profitability. to adopt Quantitative Easing measures in its turn. On top of this divergence between the monetary policies of the FED and the ECB, we saw muted global economic growth, A year that saw important changes for BSI a scenario of low or even negative interest rates, and the generalised slump in the prices of key raw materials, caus- 2014 was surely a challenging and eventful year for the BSI ing oil to plunge. Group. We kept our attention to customers’ needs un- changed and continued focusing on improving operating The divergence in monetary policies between the US and performance. This effort is proving effective and enabled the other major economies affected also foreign exchange us to increase Assets under Management and operating markets, with the dollar appreciating against all the main results, confirming the solidity of the business and the ef- currencies – and especially the euro. In this context, the fectiveness of our strategic choices even amid extremely Swiss economy achieved moderately sustained growth in challenging conditions. 2014 marked a historic moment for 2014 with a positive impact above all from foreign trade, BSI, with the announcement of the agreement between the which provided its highest contribution to income growth Generali Group and BTG Pactual, an important internation- since 2008. Private consumption grew moderately with al banking group based in Brazil, for the acquisition of the consumer inflation always close to zero. In 2014, Switzer- Bank in July. This is very good news for both our customers land’s financial industry confirmed its resilience also in the and our employees. After obtaining the authorisation from face of especially critical circumstances. It remained un- the relevant authorities, we started working together with der strong external pressures concerning mainly tax mat- Generali and BTG Pactual to finalise the transaction. Fur- ters and the introduction of new domestic and interna- thermore, the Bank continued participating actively in the Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks (U.S. Tax Program) which was jointly announced by the U.S. and Swiss Governments on 29 Au- gust, 2013. Thanks to proactive and productive dialogue

31 BSI – Management Report 2014

with the U.S. Department of Justice (DOJ), on 30 March 2015 As for traditional markets, during the year we saw growth BSI was the first “category 2” bank to reach a Non-Prose- in specific customer segments and markets, as well as our cution Agreement (NPA) with the DOJ under the U.S. Tax relations with customers focus on tax compliance – which Program. By entering into the NPA, BSI has resolved its li- is still key to BSI’s strategy. Our Italian operations grew ability with the DOJ arising from its legacy U.S. private bank- strongly in terms of both customers and presence. In early ing cross-border business. 2015, we opened our second Italian branch in Como. In Montecarlo, BSI centralised all operations into a single lo- cation. As a result, the local associate now has ample room “BSI’s 2014 results reflect a year in which to conduct and develop its business and is more visible. In the Group consolidated and strengthened Switzerland, we continued executing our domestic strat- egy and also optimised our presence by closing the its operations, increasing adjusted gross branch in St. Moritz, where the Bank deemed unnecessary profit1 by over 6%. to keep a permanent presence due to the highly seasonal Given our solid position, we are well base of its activities. We also registered remarkable growth equipped for future challenges.” in the external asset manager segment and further devel- oped the innovative Family Office model of our associate Patrimony 1873. In 2014 too we continued to invest in Rajiv Pradhan methods and technological support to offer an increas- CEO Corporate Services ingly dedicated, tailored, high-quality advisory process complying with local and international laws. In Luxem- bourg, with the aim of satisfying new customer needs, BSI Finally, during 2014 we continued working hard on exe- Europe reviewed its business model, enhancing the Pri- cuting our strategy, diversifying our customer base and vate Banking & Wealth Management structure while strength- launching a two-year operational excellence programme ening the custody and depositary bank services. In addition, aimed at further improving the Bank’s profitability. The again in Luxembourg, one of the biggest international cen- programme, which will take its full impact starting from tres in the sector of Fund Management, the Bank launched 2016, produced its first positive effects in the reporting BSI Fund Management Company, aimed at expanding its period. Fund offering through a dynamic structure updated with the latest ongoing regulatory changes.

Report on the business and implementation of strategy “2014 started in the best way possible, with the coming into full operation of the new In 2014 too BSI further consolidated its historic position by leveraging its excellent reputation in asset manage- affiliate in Panama, which now represents a ment and a value proposition tailored to specific markets fundamental element for BSI’s growth on and customer segments. In addition, it expanded further Latin American markets. During the year we in high growth markets in Latin America, Asia, Central and also strengthened our presence on Middle Eastern Europe, and the Middle East. Today, BSI has a widely diversified customer base: no market accounts for East markets with the establishment of a new more than 20% of total Assets under Management. team of senior managers, as well as recording a significant increase in business in Turkey.”

Gérald Robert CEO BSI Latin America, Middle East & Eastern Mediterranean

1 Adjusted gross profit does not include CHF 36.1 million in legal and audit costs related to the Bank’s participation in the U.S. tax program.

32 BSI – Management Report 2014

“2014 was the year of the creation of the new Operation Excellence Programme Group Investments Solutions & Capital Markets Region. Our asset management, With regards to the implementation of the operational excellence programme launched in 2014 aimed at increas- capital markets and product management ing profitability and remain competitive in the long term, services were centralised in order to optimise BSI started focussing its strategy on the markets and seg- our in-house know-how and to guarantee ments in which it can compete more effectively. To this concerted and innovative solutions for end, it sold BSI Trust Corp. Bahamas, as well as 65% of Thalia to Bi-Invest. However, the Bank still owns a signifi- increasingly demanding and challenging cant 35% interest in Thalia and is a strategic partner of the clients.” new buyer. The programme also entailed measures to re- duce operating and personnel costs. Focusing on the latter, Nicola Battalora the Bank started reducing its workforce with the goal to CEO BSI Group Investments Solutions & Capital Markets eliminate 160 positions globally by 2016 through lay-offs, early retirement offers, outplacements, and reductions in working hours. This decision was painful but necessary, as the Bank had already implemented a series of measures Important results were achieved also in high-growth mar- aimed at minimising the number of job cuts. During this kets. In Latin America, BSI Panama became fully opera- delicate process the Bank worked hand in hand with the tional after obtaining the necessary authorisations from Personnel Committee and the social partners in setting up a the Superintendencia de Bancos and Superintendencia de socially responsible work termination plan with appropri- Mercado de Valores – República de Panamá. During its ate financial and social measures for the personnel con- first year of operations, BSI Panama reported a strong in- cerned. Both the Personnel Committee and the social part- flow of new assets and operating results in line with ex- ners have considered the plan satisfactory. The operational pectations. Asia continued to contribute significantly to excellence programme will continue until the end of 2015. the Group’s growth in terms of both assets under manage- The economic effects will be seen in full from 2016. ment and revenues. In 2014, the Singapore branch almost doubled its net profit compared to 2013, while the Hong Kong branch continued its growth. The Asian market con- Non-Prosecution Agreement with the tinues to prove attractive for private banking, and BSI is American Department of Justice gradually establishing its presence in the region, further enhancing its position with local customers. During 2014, BSI worked hard to reach an agreement with the U.S. Department of Justice (DOJ) as part of its partic- From an operational viewpoint, 2014 saw the introduc- ipation in the Program for Non-Prosecution Agreements tion of a new pricing model, which is simpler, more effec- or Non-Target Letters for Swiss Banks (U.S. Tax Program). tive, transparent and focussed on customer needs. Fur- Since joining the Program, on 23 December 2013, BSI has thermore, the Group continued implementing measures provided ample cooperation to the DOJ pursuant to the to gradually conform to the new regulatory environment. U.S. Tax Program and in full compliance with Swiss laws. Chief among them are the laws on liquidity requirements Following a proactive and productive dialogue with the and operating risks, the FATCA law, the new directives on U.S. DOJ, on 30 March 2015, BSI was the first “category 2” derivatives and the implementation of the groundwork bank to reach a Non-Prosecution Agreement (NPA) with for Italy’s Voluntary Disclosure. The Bank also started pre- the DOJ. By entering into the NPA, BSI has resolved its paring to transpose the new Swiss accounting standards, liability with the DOJ arising from its legacy private bank- which will become effective in 2015. More generally, BSI ing cross-border business and paid USD 211 million. This continued accompanying customers towards a tax com- payment was recorded in the 2014 financial statement. In pliance model. 2013, the Bank had already made some preliminary provi- sions in view of this payment. Despite this, BSI remains a solid and well-capitalised bank, with a Total Capital Ratio of 17.1% and a Shareholder Equity of CHF 1.7 billion.

33 BSI – Management Report 2014

Change in Ownership Changes on the Board of Directors and on the Group Executive Board On 14 July 2014, after successfully concluding negotia- tions, the Generali Group and BTG Pactual entered into a 2014 saw the confirmation of Alfredo Gysi as chair of the final agreement under which BTG Pactual will acquire Board of Directors and of Nicola Mordasini as director, 100% of BSI. The completion of Banco BTG Pactual’s ac- while Renzo Respini left the Board. Renzo Respini, once a quisition of BSI remains subject to some approvals by the director at Banca del Gottardo, joined BSI’s Board after competent authorities and other closing conditions. The the Bank acquired its former employer in 2008. We want agreement with US authorities will certainly facilitate the to thank Renzo Respini for its outstanding contribution to approval process. The transaction is on track to close the Board and BSI during all these years. He participated within the first half of 2015. in all the board’s activities as well as Banca del Gottardo’s Although the sale of BSI took over two years, and in spite integration with BSI with the utmost dedication and pro- of challenging market conditions, the Bank’s activity re- fessionalism. Furthermore, he strived to strengthen the mained solid, thanks mainly to the loyalty of customers and bond between BSI and the community in the Ticino region. employees as well as the strategic choices made by the management. The change in ownership will open up fur- In 2014, BSI also tweaked the structure of the Group Ex- ther growth prospects for both BSI’s customers and em- ecutive Board (the Bank’s governing body) to align it with ployees. Once the acquisition is finalised, BSI will be able the Group’s new strategies in the face of new market con- to further strengthen its brand globally thanks to a dedi- ditions. In this sense, the BSI Europe Region was trans- cated long-term strategic shareholder such as BTG Pactual. formed into the new Region Group Investments Solutions BSI and BTG Pactual are in fact strongly complementary in & Capital Markets, and was placed under Nicola Battalo- terms of vision and strategy and are a perfect combination ra. The new structure will have the main task of reorgan- of strategic competences, geographical presence and ising the asset management business of the Group, of customer diversification. BSI will have the opportunity to coordinating the Capital Markets activities and managing continue growing and offering customers innovative and BSI products and services. This structure is also responsi- tailored investment solutions together with a solid interna- ble for BSI Europe (Luxembourg) and Oudart SA in Paris. tional network, always adopting a customer-focused ap- The management of market areas such as France, Germa- proach. BSI thanks the Generali Group for these 16 years ny, Montecarlo, Spain and Great Britain, have been real- during which, thanks to the constant support and invest- located to the BSI Switzerland Region, under the manage- ments made, the Bank has established itself as one of the ment of Renato Santi. main international players in wealth management.

Financial data “The wealth of relations with our clients is At 31 December 2014, assets under management were not just a legacy of the past; it represents also up 3.3%, standing at CHF 92.3 billion compared to 89.4 the commitment to accompanying the client billion at the end of 2013, thanks above all to the good today and tomorrow in a world of constant performance of managed assets. The figure also includes economic, financial, political and legal change. the lowering to CHF 1.9 billion in the scope of consolida- tion of deriving mainly from the sale of 65% of Thalia. In Making our services more focused in our a very challenging context, which was marked by growing quest towards excellence is a choice, but also competitive pressure, the net new money was negative a necessity imposed by the competitive for CHF 0.6 billion, primarily as a consequence of the landscape.” progressive migration of our customer base towards a tax compliance model. Despite the difficult situation, which was marked by the continuing low level of interest rates, Renato Santi modest volatility and significant pressure on margins, op- CEO BSI Switzerland erating performances improved, thus confirming busi- ness resilience as well as the effectiveness of BSI’s strategic choices.

34 BSI – Management Report 2014

Operating income slightly improved to CHF 871.4 million Looking to the future from 863.1 million. Interest income rose by 3.1% to CHF 197.0 million, while income from commission and service In perspective, BSI intends to continue satisfying its cus- fee rose by 1.7% to CHF 512.9 million and income from tomers’ needs, accompanying them in decisions relevant trading operations to CHF 149.3 million, compared to to their wealth management in line with what the Bank 148.1 million at 31 December 2013. Income from other kept doing over 140 years of history. BSI can confidently activities went down to CHF 12.3 million. Excluding the look forward to the challenges it will face in the next few impact of the legal and audit costs connected to the years with the objective of further increasing the assets Bank’s participation in the U.S. Tax Program, which to- under management and giving a further boost to the com- talled CHF 36.1 million, adjusted operating costs fell to mercial activity aimed at supporting the net acquisition of CHF 662.6 million, slightly down on the 666.5 million re- new assets, also by expanding the range of products and corded in 2013. The net reduction in costs in 2014, despite services offered to customers. the ongoing investments and the increase in costs for ad- BSI intends to focus on the areas and markets in which it justment to the new laws, shows the first tangible results has shown it can excel. Alongside Switzerland and Italy, of the two-year operational excellence programme. Ad- which are its historic markets, BSI purports to further bol- justed gross profit was CHF 208.9 million, up by 6.3% on ster its operations in fast-growing regions such as Asia, 196.6 million in the previous year. Net profit was signifi- Latin America, the Middle East, and Eastern Europe. In cantly affected by the payment connected to the Non-Pros- 2015, BSI will continue supporting its customers, accom- ecution Agreement and stood at CHF 2.2 million, but did panying them towards a tax compliance model. 2015 will not affect the solidity of BSI. The Total Capital Ratio of the also be the year that will see the conclusion of the imple- BSI Group stood at 17.1% at the end of 2014, with Share- mentation of the operational excellence programme and holder Equity of CHF 1.7 billion. the change in ownership. BSI will retain its brand and serve as the BTG Pactual Group’s reference for the international wealth management of its private client base. BSI’s historic attention to its customers under a service “In 2014 we moved from uncertainty (sales model centred on their needs remains the Bank’s hallmark process) to expectations (BTG Pactual). and will allow it to continue competing effectively in the future. Through the integration of working groups, BSI, in cooperation with BTG, is preparing for the closing of the sales transaction. Many contacts have already been established Lugano, 20 April 2015 with our new BTG colleagues globally. For the Board of Directors The Group Executive Board: In Asia itself we are eagerly looking forward Alfredo Gysi, Chairman Stefano Coduri, Group CEO to working closely with BTG as part of a new family. Again, my gratitude goes to my Nicola Battalora Hanspeter Brunner colleagues worldwide and our clients for their Rajiv Pradhan loyalty and support.” Gérald Robert Renato Santi Hanspeter Brunner CEO BSI Asia

35 Allegro Giusto is an allusion to the title of the renovation project of Villa Maraini. Thanks to a watermarked superficial ornamentation partly consisting of glazed tiles, the outer structure of the Villa reflects the colours of light and gives the whole building an aura of grandeur and magic. An Allegro Giusto, indeed.

Allegro Giusto – Works from BSI Art Collection Preparations for a new building – Design Bosshard Vaquer

The works of great international artists of the BSI Art Col- lection for the first time on display in Rome, visible to the public from 16 October 2014 until 20 June 2015 in the fasci- nating setting of Villa Maraini, seat of the Istituto Svizzero di Roma. The opportunity is given by the commencement in 2016 of major renovation works that will significantly trans- form the spaces of the building based on a project by the ar- chitectural studio Bosshard Vaquer of Zurich, winner of an in- ternational competition. Anticipating this important event, with Allegro Giusto. Works from BSI Art Collection. Prepa- rations for a new building, the same architects – not new to projects that depart from existing contexts to redefine and develop them, even within public commissions – have redesigned the shared spaces of the Istituto Svizzero di Roma. Their idea was to have them “converse” with a se- lection of contemporary artworks of the BSI Art Collection, through a system of libraries that host the artworks and part of the library of the Institute. Not a simple decorative design, but rather an exercise at reconfiguring and trans- forming the function of a place and of the artwork, where the works are in dialogue with the environments in the day-by-day. The exhibition has in fact aesthetic and func- tional solutions that anticipate the start of the works in 2016 drawing on certain key reflections: how is it possible and what does it mean to renovate an historic building with a contemporary language? How does contemporary art fit in this context? The relationship between visual and spatial language – art, design, architecture, building mate- rials, decoration – between the traces of past and present, has produced questions and solutions that have changed with the change of the way we perceive the world, social organisation and taste.

Putting on display works of contemporary art in a building of the early twentieth century, as Villa Maraini, means add- ing a unit of measure, determining differences that demon- strate the changing and negotiable nature of the architec- tural space. Furthermore, it means sparking the potential of art and of a collection, which can indicate the path pur- sued in transforming the Villa, not only in purpose but in the atmosphere, in energy, in the daily dialogue that an art- work is always capable of inspiring. For this reason, works from the BSI Art Collection have been chosen in keeping with the spaces available in the Istituto Svizzero and to rep- resent the two souls of the collection. The result is an unin- terrupted communication between past and present, while at the same time reflecting the intent of the new exhibition of Villa Maraini. On the one hand, there are the artists his- torically associated with BSI, as Armleder, Barry, Buren, Halley – who worked on site-specific projects for some branch offices of the Bank – or even Melotti, Paolini, Merz, Cragg, Boetti, Chamberlain, Carroll. On the other, young art- ists of international fame were chosen, such as Vo, Kuri and Epaminonda, and artists of the so-called post web genera- tion as Price and Domanovic.

BSI – Group financial statements

Group financial statements

Consolidated balance 38 sheet as of 31 December 2014

Consolidated profit and loss statement 2014 39

Consolidated cash flow statement 2014 40

Notes to the 2014 Group financial statements 41

Report of the statutory auditor 74 on the consolidated financial statements

37 BSI – Group financial statements

Consolidated balance sheet as of 31 December 2014

31.12.2014 31.12.2013 Change Notes CHF 1’000 CHF 1’000 in % Assets Cash and cash equivalents 2’978’959 5’851’944 -49.1 Money market paper 2’344’818 2’271’822 3.2 Due from banks 2’811’877 2’593’366 8.4 of which due from reverse repo transactions 173’314 155’776 11.3 Due from customers 3.1 7’333’146 6’301’043 16.4 Mortgage loans 3.1 4’334’721 4’019’905 7.8 Securities and precious metals held for trading 3.2 1’264’425 1’363’932 -7.3 Financial investments 3.3, 3.8 1’649’631 1’407’290 17.2 Non-consolidated participations 3.4, 3.6, 3.7 47’826 54’727 -12.6 Fixed assets 3.7 361’112 375’008 -3.7 Intangible assets 3.7 11’363 8’141 39.6 Accrued income and prepaid expenses 67’869 79’782 -14.9 Other assets 3.18 789’672 544’383 45.1 Total assets 23’995’419 24’871’343 -3.5 Total subordinated assets 67’888 62’371 8.8 Total amounts receivable from non-consolidated participations and qualified shareholders 22’452 20’492 9.6

Liabilities Money market paper liabilities 4’417 2’240 97.2 Due to banks 740’791 524’094 41.3 Due to customers in savings and investment accounts 633’983 554’873 14.3 Due to customers, other 3.17 19’450’257 21’068’976 -7.7 of which due from the trading portfolio 659’510 898’658 -26.6 Medium-term notes 3.17 800 -100.0 Loans with issuers of property bonds and other 3.17 99’036 89’015 11.3 Accrued expenses and deferred income 242’573 196’840 23.2 Other liabilities 3.18 863’300 559’682 54.2 Value adjustments and provisions 3.10 288’084 153’928 87.2 Reserves for general banking risks 3.10, 3.11 85’689 146’152 -41.4 Share capital 3.11 1’840’000 1’840’000 Capital reserve 3.11 145’200 -100.0 Reserve and retained earnings 3.11 -254’958 311’498 -181.8 of which minority interests 1 100.0 Net result for the year 2’247 -721’955 100.3 Total liabilities 23’995’419 24’871’343 -3.5 Total subordinated liabilities 116’984 118’527 -1.3 Total liabilities to non-consolidated participations and qualified shareholders 45’729 22’321 104.9

Off-balance sheet business Contingent liabilities 3.1, 4.1 2’134’081 2’140’989 -0.3 Irrevocable commitments 3.1, 4.5 161’048 128’844 25.0 Contingent liabilities for calls and margin liabilities 3.1 3’066 654 368.8 Loan commitments 3.1, 4.6 2’775 5’719 -51.5 Derivative financial instruments Positive replacement value 3.18, 4.2 691’718 434’720 59.1 Negative replacement value 3.18, 4.2 738’399 466’124 58.4 Contract volumes 4.2 46’686’890 43’023’066 8.5 Fiduciary transactions 4.3 1’945’743 1’728’535 12.6

38 BSI – Group financial statements

Consolidated profit and loss statement 2014

2014 2013 Change Notes CHF 1’000 CHF 1’000 in % Income and expenses from ordinary banking operations Interest and discount income 5.1 205’386 202’950 1.2 Interest and dividend income from financial investments 12’143 10’389 16.9 Interest expenses -20’554 -22’195 -7.4 Result from interest activities 196’975 191’144 3.1

Commission income from lending activities 8’697 8’915 -2.4 Commission income from securities and investment transactions 529’080 513’190 3.1 Commission income from other services 74’904 78’644 -4.8 Commission expenses -99’826 -96’661 3.3 Result from commission and service fee activities 512’855 504’088 1.7

Result from trading operations 5.2 149’316 148’103 0.8

Result from the sales of financial investments 204 465 -56.1 Income from participations 9’293 18’859 -50.7 of which from participations consolidated using the equity method 8’094 11’640 -30.5 of which from non-consolidated participations 1’199 7’219 -83.4 Net income from real estate 2’591 3’143 -17.6 Other ordinary income 2’875 3’738 -23.1 Other ordinary expenses -2’674 -6’470 -58.7 Other ordinary result 12’289 19’735 -37.7

Net operating result 871’435 863’070 1.0

Personnel expenses 5.3 -426’403 -424’808 0.4 Other operating expenses 5.4 -272’254 -241’702 12.6 Operating expenses -698’657 -666’510 4.8

Gross profit 5.5 172’778 196’560 -12.1

Net result for the year Gross profit 172’778 196’560 -12.1 Depreciation of fixed assets 3.7 -42’310 -796’301 -94.7 Value adjustments, provisions and losses 3.10 -193’615 -144’658 33.8 Result before extraordinary items and taxes -63’147 -744’399 -91.5

Extraordinary income 5.6 82’626 89’686 -7.9 Extraordinary expenses 5.6 -4’052 -49’931 -91.9 Taxes 5.7 -13’180 -17’311 -23.9 Net result for the year 2’247 -721’955 100.3

39 BSI – Group financial statements

Consolidated cash flow statement 2014

2014 2013 Sources Uses Sources Uses of cash of cash of cash of cash CHF 1’000 CHF 1’000 CHF 1’000 CHF 1’000 Cash flow provided by operating activities (internal financing) Net result for the year 2’247 721’955 Depreciation of fixed assets 42’310 796’301 Value adjustments and provisions 134’156 109’261 Accrued income and prepaid expenses 11’913 11’328 Accrued expenses and deferred income 45’733 8’345 Other items 58’329 35’134 Dividend 30’000 Subtotal 294’688 115’490

Cash flow provided by equity transactions Reserves for general banking risks 60’303 3’541 Translation differences arising from profit consolidation 10’139 6’806 Subtotal 50’164 3’265

Cash flow provided by changes in fixed assets and in participations Participations 5’829 98 Real estate 3’235 2’416 Other fixed assets 22’639 25’417 Intangible assets 4’690 1’484 Subtotal 24’735 29’415 Total 219’789 82’810

Cash flow provided by banking activities

Medium- and long-term activities ( > 1 year) Due to customers 18’391 109’804 Medium-term notes 800 Loans with issuers of property bonds and other 2’560 Due from banks 46’076 31’634 Due from customers 123’618 441’978 Mortgage loans 45’653 132’534 Financial investments 179’835 62’945

Short-term activities Money market paper liabilities 2’177 168 Due to banks 216’697 570’505 Savings and investment accounts 79’110 61’534 Due to customers 1’637’110 1’549’329 Medium-term notes 800 571 Loans with issuers of property bonds and other 10’021 Money market papers 72’996 681’222 Due from banks 172’435 1’053’720 Due from customers 908’485 314’063 Mortgage loans 269’163 397’047 Securities and precious metals held for trading 99’507 367’980 Financial investments 62’506 329’676 Cash and cash equivalents 2’872’985 1’961’856 Total 219’789 82’810

40 BSI – Group financial statements

Notes to the 2014 Group financial statements

1. Commentaries regarding the Control and risk management Group’s business activities Principles Risk management forms an integral part of the corporate The following notes refer to the situation as at 31 Decem- policy of the BSI Group. In compliance with Swiss and in- ber 2014. ternational laws and regulations, the Bank has established a structure for monitoring and managing risks for the BSI General information Group. The Group’s Parent Bank, BSI Ltd., is based in Lugano and operates in Switzerland and internationally through a net- Structure and responsibilities work of nine branches (Bellinzona, Chiasso, Geneva, Lo- The Bank’s internal control and risk management structure carno, Lausanne, Zurich, Bahrain, Hong Kong and Nassau), adequately reflects the size and complexity of the business one agency (Crans-Montana) three representative offices the Bank conducts. This structure includes processes and (Istanbul, Montevideo and Panama), five banks (Luxem- controls that ensure the delegation of authorities and the bourg, Monte Carlo, Nassau, Panama and Singapore) and segregation of critical functions. affiliated companies. For the scope of consolidation and the major non-consolidated holdings, please see tables The Board of Directors monitors whether the Bank has a 3.5 and 3.6. BSI Ltd. is wholly owned by Assicurazioni Gen- clear global risk management process. It approves risk pol- erali SpA, Trieste, through its direct associated company icies and limits and is informed quarterly in writing of the Participatie Maatschappij Graafschap Holland N.V., Die- situation with respect to risks for the BSI Group. men (NL). As part of its monitoring and control duties, the Board of The principal activity of the BSI Group Directors appoints an Audit & Risk Committee to assist in The BSI Group is active primarily in asset management for supervising and assessing the integrity of the annual ac- private and institutional clients and the operations closely counts, the compliance with legal and regulatory require- related to it such as investment funds, the placing of fidu- ments, the effectiveness of the internal and external au- ciary deposits and trading in securities, precious metals dits, and the adequacy and effectiveness of the control and foreign exchange. The Group also offers its clients system of BSI Ltd. and the Group. credit services. BSI Ltd. carries out trading in currencies and securities (shares, The Group Executive Board is responsible for implementing bonds and derivatives), including own account trading and the risk management process for the entire banking organ- third-party trading within pre-defined limits. BSI Ltd. also isation. It defines the principles, risk strategies and policies, performs issuing activities and acts as a market maker. global limits and performance of the powers assigned by the Board of Directors. Balance sheet transactions Balance sheet transactions have a complementary role. To ensure that risk is managed effectively, the Group Exec- They account for 22.6% of the Group’s net operating result utive Board has set up various Committees with specific (2013: 22.1%). Lending activities mainly involve the grant- responsibilities relating to the management of credit risks, ing of Lombard loans, loans largely covered by guarantees counterparty risks, market risks, liquidity risks, operational and mortgages, and unsecured loans. Overall, secured loans risks and compliance risks. The members of the Group Ex- account for 94.0% of total loans (2013: 93.8%). Bank depos- ecutive Board are generally members of the various Com- its are made only at leading Swiss or OECD country insti- mittees, which are made up of risk management experts for tutions. BSI Ltd. holds a bond portfolio, booked as “Finan- the Bank’s various areas of business. cial investments”, as a medium- to long- term investment. Risk Management, in cooperation with the control units of Headcount the Bank’s various business areas, conducts various controls At the end of 2014 the Group had 1,927.95 full-time equiva- independent of the line. The control units intervene direct- lent (FTE) employees (2013: 1,989.45), of whom 647.50 were ly in cases of non-compliance with limits, and they periodi- employed abroad (2013: 654.20). The Parent Bank had cally inform Risk Management of the current status of risks 1,340.15 full-time equivalent employees (2013: 1,378.75), over which they have authority. of whom 110 were employed abroad.

41 BSI – Group financial statements

Risk Management analyses the risk data and information at The Bank measures and checks credit risk every day. Using Group level, consolidates them and produces a quarterly a limit system, it defines the maximum levels of risk accept- Global Risk Report for the attention of the Group Executive able with respect to groups of counterparties and checks Board and the Board of Directors. that the regulatory requirements on high risks are observed. The independent control is carried out by the Credit Office The Legal & Compliance unit is responsible for managing unit, both at the consolidated level and at the Bank and legal and reputational risks and for ensuring that the BSI the main affiliates. Group complies with regulatory and legal requirements. In its lending to clients, the Bank aims to diversify risks and maximise the risk-return ratio. To this end, the Bank uses Balance sheet guidelines internal models to assess credit risk. The Bank has a reference model for managing the consol- The client loans portfolio is primarily made up of loans idated balance sheet, approved by the Board of Directors guaranteed by pledges on assets or securities as well as and Group Executive Board. The reference model explic- mortgage loans, especially for residential property in Swit- itly sets the risk appetite and the guidelines for the trend zerland, Singapore and London. The Bank applies internal in the principal asset and liability items on the basis of sol- policies that govern the lending values of guarantees to vency, liquidity, risk and profitability. In particular, within these loan categories, in accordance with the principles of the balance sheet guidelines the Bank has defined some prudence. Exceptions to the policies are submitted and measures which have allowed it to improve the level of sol- approved by the Board of Directors. vency and to mitigate and optimise the risk exposure. Trade credits are a secondary part of the loan portfolio, as are credits connected to trade finance operations and to Credit risks the financing of public bodies. Credit risk is the risk that a counterparty’s creditworthiness deteriorates and the counterparty becomes insolvent or The Bank has maintained a cautious approach to the credit does not pay back its liabilities. Credit risk also includes risk in the interbank portfolio, placing particular attention other risk categories such as counterparty risk, delivery on the selection and diversification of bank counterparties risk, concentration risk and country risk. Credit risks are and issuers, including government issuers, and keeping present in interbank portfolios and in the Bank’s own port- the duration of exposures lower than 12 months. folios as well as in client loan portfolios. The Bank has a “Country Risk Policy” (relating to the risk on The Bank has set out various internal policies that define balance sheet assets) and the country exposure is decided the principles for managing risk, the rules for calculating on the basis of the approach of the “final risk”: if there are and limiting risk, the responsibilities for authorising credit forms of cover (pledges, mortgages, guarantees) the dom- lines and overdrafts, and the reports to be submitted to icile of the cover is taken into consideration rather than the the managing bodies and the Board of Directors. debtor’s domicile. In particular, the Bank has a “Credit Policy” which defines The Bank maintained a close watch on country risk in 2014 the principles for regulating risk on the portfolio of credits and adopted various measures for limiting its exposures to due from private clients, the calculation rules and the risk high-risk countries. appetite for each type of credit. The Bank creates provi- sions for credits that could generate a financial loss. Market risk Market risk is the risk of losses arising from unexpected The Credit Office ensures centralised administration at Group changes in interest rates, exchange rates, share prices or level, monitoring all consolidated positions and managing the prices of precious metals and commodities, as well as control processes. Two specific committees exist on a higher the corresponding expected volatility. Market risk can have decision level: the Credit Committee, which is responsible an impact on the Bank’s profit and loss statement and the for loans to private and institutional clients, and the Banks value of its assets. and Brokers Committee, which is responsible for counter- party risk (for states, banks, brokers, custodian banks and Risks related to the balance sheet structure (interest rate correspondent banks). The analysis, control and manage- and exchange rate) are managed by the FinRisk and mon- ment of portfolio credit risks are the responsibility of the itored by Risk Management, in accordance with the prin- Financial Risks & Capital Allocation Committee (FinRisk). ciples and maximum limits stipulated in the “Market risk policy – balance sheet/ALM”. In the case of Asset & Liability Management (ALM), derivative products are also used. Po- sitions without known maturities are replicated on the basis of historical analyses. The FinRisk Committee is also re-

42 BSI – Group financial statements

sponsible for managing credit risks and allocating capital Operational risks and internal controls for the Bank’s various balance sheet activities. Operational risk is the risk of direct or indirect losses result- ing from inadequate or failed internal processes, people and The Bank carries out trading operations both for its clients systems or from external events. The operational risks in- and on its own account using all financial products and clude compliance and legal risks, but exclude strategic, their derivatives. The trading portfolio is governed by a business and reputational risks. “Market Risk Policy – Trading”, which defines the organi- sational structure, responsibilities, limit systems and max- The management of operational risks at BSI is the task of Risk imum acceptable risk. The Proprietary Trading Committee Management. It is based primarily on the collection and cen- is responsible for managing and monitoring market risk tral analysis of operational losses, the identification and related to trading activities, based on the restrictions set analysis of risks inherent in processes through Risk & Control by the FinRisk Committee. Self-Assessment, and the management of corrective measures. The Bank creates provisions for events that could generate a In addition to its trading portfolio, the Bank has an invest- financial loss. The heads of the different areas of the Bank have ment portfolio, which allows it to diversify balance sheet selected risk indicators, which are used and monitored in order assets and to optimise any excess liquidity. The investment to identify any increase in the level of risk within the Bank with portfolio is divided into a range of portfolios on the basis a certain amount of advance. of the type of product and strategy. The risks of the invest- ment portfolio are managed by the Investment Proprietary Some risk and compliance elements are also used for the Committee, which operates on the basis of restrictions set annual evaluation of staff in private banking areas, through by the FinRisk Committee and the “Market Risk Policy – Invest- an individual and team risk score card. ment s”. The Operational Risk and Compliance Committee governs Liquidity risks the management of operational and compliance risks and Liquidity risks arise when financing becomes difficult or coordinates the implementation of strategies for managing costly due to market liquidity crises or reputational prob- and mitigating operational and compliance risk. lems. Liquidity risks also arise when it is difficult to meet the Bank liabilities in a timely fashion due to the lack of very The Bank’s risk mitigation controls have a three-defence liquid assets. lines structure.

Liquidity risks are managed by the FinRisk Committee, which – The first line of defence consists of the direct checks assigns the operational management to Treasury and the which are intrinsic to undertaking operations, as well as control to Risk Management. the checks undertaken by independent units. The former aim to guarantee the correct undertaking of operations, The Bank has a “Liquidity Risk Policy” which defines the risk the later monitor and guarantee the correct undertaking governance principles, the calculation rules and the re- of operations by the operational units. spective limits which take account of the new qualitative and quantitative requirements of the Basel III regulatory – The second line of defence under Risk Management and context. In its balance sheet management guidelines, the Global Compliance consists of the targeted checks aimed Bank has also adopted the defined indicators of the new at verifying the correct implementation and effective- Basel III international framework for liquidity risk manage- ness of the checks of the first line of defence. The results ment. The indicators cover two separate but complemen- of the checks are reported to the Group Executive Board. tary objectives. The aim of the first indicator, the Liquidity Coverage Ratio, is to increase the short-term resilience of – The third line of defence is an independent check un- the liquidity risk profile, thereby ensuring that there are dertaken by the Group Internal Audit, which reports sufficient high-quality liquid assets to cover an acute stress directly to the Board of Directors. situation over one month. The second indicator, the Net Stable Funding Ratio, has a longer-term time horizon and The status and outcome of the main operational checks at aims to guarantee that assets and liabilities are composed BSI are reported each quarter in the Global Control Re- sustainably in terms of maturities. port, for the attention of the Group Executive Board, the Audit & Risk Committee and the Board of Directors.

43 BSI – Group financial statements

Processing of clients’ electronic data Main risks The processing of clients’ electronic data (Client Identify- During 2014, the Bank’s Board of Directors carried out an ing Data, CID) is defined as any type of information which internal assessment of the main risks, among which the is saved electronically and which, directly or in combina- following should be noted: tion with other information, can enable the identity of a client to be deduced. – Compliance risk: risks linked to the “regularisation” of The Bank has implemented a governance structure for the customers’ assets and cross-border activities; handling of CID at Group level, based on the “need-to-know” – Credit risk: risk of bankruptcy of a counterparty and risk principle, where access to information is guaranteed only for of default of an issuer; operational business reasons and is periodically reviewed. – Operational risk: risks linked to information technology, The governance structure defines rules, responsibilities and internal and external fraud and eligibility and conduct internal checks to maintain an adequate security level for risks; the CID. It includes procedures for the selection, monitor- – Balance sheet risk: market risks (interest rate and ex- ing and training of staff with access to the CID. The loca- change rate risks) and liquidity risks and their impact on tion used to store CID lists, the IT systems which use the the balance sheet and the profit and loss statement; CID and staff of the Bank or of third parties who have ac- – Strategic risk: risks of inadequate management of capital, cess to the CID are also an integral part of the governance with possible impact on the growth of assets; risk of in- structure. creased erosion of margins following changes in the busi- The Bank has defined a procedure for the management, ness model and changes in the regulatory framework. monitoring and mitigation of the additional risks caused by critical situations, including increasing security measures. Capital Adequacy As at the end of 2014, the BSI Group and the Bank re- Stress testing spected the limits specified by the Ordinance on Capital “Stress testing” indicates a series of qualitative and quan- Adequacy (CAO) with respect to minimum capital and titative techniques with which the Bank assesses its vulner- risk concentration. Quantitative data on capital and credit ability to exceptional but still plausible events. Stress test- risk are provided in the attached tables 6.1-6.6. On the ing techniques are an instrument which is complementary basis of FINMA Circular 2011/2 on capital buffers and capi- to other Risk Management approaches and measures. tal planning, and in consideration of the size and the risks to These techniques help better define the Bank’s risk profile, which the Bank and the BSI Group are respectively exposed, assess the adequacy of the limits, check the accuracy of the Bank is in category 3 and so the minimum target for own the risk evaluation models, the robustness of the hypoth- capital is set at 12.0%. eses on correlations and the effectiveness of the risk attenu- At the end of 2014, for the BSI Group the Total Capital ation and mitigation systems. Ratio was 17.1% (table 6.1) and the ratio of own funds avail- able to own funds required was 216.0% (table 6.2). Risk Management regularly carries out systematic stress Additional information about the calculation methods used tests on the main portfolios and activities of the Bank to by the Bank is provided below. assess the robustness of the risk limits, the adequacy of the capital, and the liquidity reserves overall. The stress Credit risk scenarios are regularly reviewed, updated or concluded by In order to calculate its requirements of own capital for Risk Management, on the basis of the trend in risk factors credit risk, the Bank applies the approach defined as AS- (prices, volatility, exchange rates, interest rates, etc.) and BRI (Standard International Approach). This approach is the macroeconomic situation. based on ratings provided by external agencies recognised by FINMA. In particular, the Bank uses the ratings provided by Standard & Poor’s and Moody’s to assess the quality of counterparties and the ratings provided by Standard & Poor’s and Moody’s for credit instruments. Off-balance sheet positions in derivatives are calculated as credit equivalents using the market value method (art. 57 CAO). The Bank also applies the “comprehensive” approach to transactions with financial collateral (art. 62 CAO). At 31 December 2014 these credit risk requirements totalled around 31% of the available eligible capital.

44 BSI – Group financial statements

Non-Counterparty risk In accordance with the Programme, the NPA requires the As at 31 December 2014, these requirements amount to Bank to continue cooperating with the DOJ throughout around 1.7% of the available eligible capital. the term of the agreement, which is four years, in compli- ance with the Programme and Swiss laws. Market risk The Bank applies the standard method to the calculation Outsourcing of capital requirements for market risk, as defined by the BSI outsources the management, development and main- FINMA Circular 2008/20 (art. 84 CAO). As at 31 December tenance of its information technology environment and 2014, these requirements amount to around 7.3% of the back-office activities to B-Source SA, a service provider in available eligible capital. which BSI holds a 49% stake. BSI Ltd. outsources the man- agement of hedge fund products to Thalìa SA, in which Operating risk BSI has a 35% stake. BSI Ltd. has also outsourced to Fina- To calculate the regulatory requirement for operating risks, clear AG part of the administrative and IT services tasks the Bank uses the standard method, weighting gross rev- for some specific products (Genera products). The Bank enues with factors varying from 12.0% to 18.0%, depending complies with the legal provisions on outsourcing con- on the business lines in question, as defined in the FINMA tained in FINMA Circular 2008/7. Circular 2008/21. As at 31 December 2014, the regulatory capital for the BSI Value added tax (VAT) Group’s operating risks amounted to around CHF 109 mil- The Bank belongs to the VAT group of Generali Personen- lion, which is about 6.3% of the available eligible capital. versicherungen AG and is thus jointly and severally liable for commitments arising from this tax. Legal and compliance risk The Legal & Compliance unit is responsible for managing legal risks and ensuring that the BSI Group complies with regulatory and legal requirements.

Legal risk can be divided into (a) the risk that the BSI Group, or someone acting on its behalf, fails to meet an obligation owed to a third party or fails to respect the rights of a third party, and (b) the risk of financial or other loss or injury result- ing from the BSI Group not being able to enforce its rights and claims against third parties.

Regulatory and compliance risk is defined as the risk of fi- nancial, reputational or other loss or injury resulting from a breach of applicable laws and regulations or the departure from internal or external codes of conduct or market prac- tice.

As part of the so-called “Programme for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks” (the “DOJ Programme”), on 30 March 2015, BSI entered into a Non-Prosecution Agreement (NPA) with the US Department of Justice (DOJ).

Through the NPA, BSI settled claims with the DOJ arising from its US legacy for private banking operations, paying 211 million dollars. For said amount, the Bank booked the necessary provisions.

45 BSI – Group financial statements

2. Accounting and valuation Consolidation method principles The capital of the companies involved in banking and fi- nance in which BSI Ltd. has a direct or indirect majority of General principles the voting rights or capital is fully consolidated in accord- The accounting, balance sheet entry and valuation criteria ance with the purchase method. The purchase price is off- conform to the provisions of the Swiss Code of Obliga- set against the market value of the assets at the time of tions, the Swiss Banking Law and the directives of the Swiss acquisition. The resulting difference from the first consoli- Financial Market Supervisory Authority FINMA. The Group dation is entered in the balance sheet under “Intangible accounts show a true and fair view of the Bank’s asset, fi- assets” and amortised in compliance with FINMA’s account- nancial and economic situation. ing provisions. Participations between 20% and 50% are consolidated at Recording of transactions equity and are shown in the balance sheet with the net as- All transactions are recorded in the books of Group com- set value for the Bank’s share. panies on the execution date. Transactions with future ex- Minor companies and companies held with a view to a sub- ecution date are recorded in the balance sheet, except for sequent sale are entered in the balance sheet at their pur- BSI Monaco SAM, for which they are booked in accordance chase price after deduction of the necessary depreciation. with the value date principle. Group-internal transactions and related internal profits are eliminated. Scope of consolidation The Bank fully consolidates all the companies operating in Conversion of currency the banking and finance sector in which it directly or indi- Foreign currency transactions are recorded at the ex- rectly holds most of the votes or the capital (50%). change rate of the trade date. Profits or losses arising from Special purpose entities (SPE) in which the Bank does not revaluations are recorded into the profit and loss account. hold the majority of votes or capital are fully consolidated Foreign currency denominated balance sheet items are if circumstances indicate a business relationship in which converted into Swiss francs at the rate of the balance sheet the Bank controls the majority of the profit of the entity or closing date. the risks connected to the entity’s activities. Foreign currency denominated profit and loss items of A list of fully consolidated participations, participations en- Group companies are converted into Swiss francs at the tered in the balance sheet in accordance with the equity average exchange rate for the year. Conversion differ- principle, relevant participations entered in the balance ences are booked directly within the consolidated share- sheet at the purchase value minus the necessary amor- holders’ equity. tisation and depreciation, and changes to the scope of consolidation are shown in tables 3.5 and 3.6.

Closing rate Annual average rate Denomination Currency 31.12.2014 31.12.2013 2014 2013 1 USD 0.990 0.890 0.920 0.923 1 EUR 1.202 1.228 1.213 1.229 100 JPY 0.828 0.848 0.864 0.946 1 GBP 1.544 1.472 1.511 1.446

46 BSI – Group financial statements

Cash and cash equivalents, money market Repo and reverse repo transactions papers, due from banks and liabilities These transactions are booked as loans collateralised with These items are recorded in the balance sheet at the nomi- securities or secured with pledged securities accounts. nal value or purchase cost less any adjustments for doubt- They are entered under “Due from / to banks” and valued ful debts. Any discounts are recorded in the appropriate at their nominal value. Interest amounts collected or paid liabilities items. are recorded in the corresponding items of the profit and loss account. Due from customers and mortgage loans Due from customers and mortgage loans are recorded in Securities and precious metals held for trading the balance sheet at their nominal value. Securities and metals held by the Bank for trading are re- Loans for which the debtors or guarantors are unlikely to valued at market price on the balance sheet date. The re- meet their future obligations are considered by the Bank sult of the revaluation is entered in the profit and loss ac- to be non-performing loans. A loan is therefore deemed count under “Results from trading operations”. Any rel- to be non-performing if certain indicators show that the evant accrued interest and dividends are reported as “Re- capital and/or interest due in accordance with the contract sults from trading operations”, minus any financing costs, will probably not be paid. Non-performing loans are val- which are recorded as “Result from interest activities”. ued individually, and specific value adjustments are booked to cover the identified value losses. The Bank creates pro- Financial investments visions for the interest on the credit positions for which The balance sheet value of securities purchased as long- clients have not respected the contractual terms for more term investments is calculated according to the following than 90 days. principles: Off-balance sheet liabilities such as guarantees and deriva- tives are also considered in this valuation. – Debt securities intended to be held to maturity are val- The Bank determines the provisions’ amounts based on ued at the purchase price. If the purchase was made at the liquidation value of the collaterals. a price other than at par, the premium or discount is Provisions are created for non-performing interest in ac- spread over the residual term to maturity and debited or cordance with the rule described above and directly de- credited to “Interests and dividend income from finan- ducted from the corresponding items under “Assets”. cial investments”; Loans are no longer considered non-performing if the amount due (interest and principal) is fully settled, the con- – Debt securities which are not intended to be held until tractual obligations are re-established and the solvency maturity and shares are booked at the lower of purchase criteria are fulfilled. price and market value. Any value adjustments are re- Loans are amortised by debiting the corresponding indi- corded as “Sundry ordinary expenses”. In the event of a vidual provisions if the loans are considered entirely or par- recovery in market value, shares are revalued to the ex- tially impaired or if the decision is taken not to recover tent that their revalued amount does not exceed the pur- them. chase price. Such revalued amounts are posted to “Sun- dry ordinary income”. Securities lending and borrowing Securities lending and borrowing operations for which the Properties that have been acquired as a result of lending Bank acts as principal are shown in the notes to the annu- transactions and are intended to be sold are booked under al accounts. The commissions collected and paid for these this item and valued at the lower of purchase price and sale transactions are booked in the corresponding items of the price. profit and loss statement. The result deriving from the securities related to this asset item are entered under “Interest and dividend income from financial investments”.

47 BSI – Group financial statements

Non-consolidated participations Intangible assets Minority participations between 20% and 50% in the bank- The BSI Group has been applying FINMA’s new accounting ing and finance sector are entered in the balance sheet in guidelines since 2013. The amortisation period was short- accordance with the equity method. ened to a maximum of 5 years. Companies in which the Bank has a participation of less The current value is revised every year. If this valuation than 20% or whose size or activities do not have a signifi- identifies a change in useful life or a fall in value, the re- cant influence on the Bank are valued at purchase price, sidual accounting value is amortised in accordance with a minus the required depreciation. plan corresponding to the new useful life.

Accruals and deferrals Pension plans Interest income, interest expenses and all other income The accounting treatment complies with Swiss GAAP ARR and expenses not settled during the accounting period are 16 relating to the presentation of accounts. accrued or prepaid in order to match the correct profit and Further details are provided in table 3.9 in the notes to the loss period. Group accounts.

Fixed assets Taxes Fixed asset acquisitions are capitalised and valued at their Taxes relating to the current accounting period are esti- purchase price, if their intended use is for more than one mated in accordance with local tax legislation and record- accounting period and their purchase price exceeds a min- ed as costs for the period to which they relate. Direct imum of CHF 5,000. Any new investment in already exist- taxes on current year profits payable, but not yet paid, are ing fixed assets is capitalised if it leads to permanent in- recorded as “Accrued expenses”. creases in the market value or significant lengthening in Provisions for deferred taxation relating to any future re- the useful life of such assets. lease of amounts from the reserve for general banking Thereafter, fixed assets are recorded at their purchase cost risks are reported as “Value adjustments and provisions”. less accumulated depreciation. Depreciation is calculated Tax credits on tax losses carried forward are entered in the on the basis of assets’ expected useful lives. Fixed assets balance sheet in the item “Other assets” up to an amount are reviewed annually for any impairments in value: if such calculated based on the profits forecast for a maximum analysis shows the need to shorten the depreciation peri- period of three years. od or to decrease the value, the rates of depreciation are The accounting treatment is in compliance with Swiss adjusted or an extraordinary depreciation charge is booked GAAP ARR 11 relating to the presentation of accounts. in the profit and loss statement. Profits realised on the sale of fixed assets are booked as Value adjustments and provisions “Extraordinary income” and losses as “Extraordinary ex- Specific provisions and value adjustments are made with penses”. respect to all identified risks in accordance with the prin- ciple of prudence. The value of such items is deducted Asset Duration of use from the balance sheet assets to which they relate. Value Bank premises 50 years adjustments and provisions proving to be financially un- Structural renovation necessary during the financial year are released and cred- of premises 10 years ited to the profit and loss statement. Provisions for latent Internal restructuring or improvements risk or other risks are booked as liabilities in the balance (own property) 5 years sheet under “Value adjustments and provisions”. Internal restructuring or improvements (third-party property) 5 years1 Furnishings 10 years Miscellaneous non-IT installations and vehicles 5 years In accordance with Hardware and software expected useful life In accordance with Special projects expected useful life

1 Duration of the rental contract.

48 BSI – Group financial statements

Reserves for general banking risks Replacement values This item was created in accordance with FINMA directives For over the counter transactions (OTC), replacement val- on the presentation of accounts. Movements in the re- ues are recorded in the balance sheet as “Other assets” if serves for general banking risks are posted to “Extraordi- positive and as “Other liabilities” if negative. In either case, nary income” or “Extraordinary expenses”. gains or losses are recorded in the Bank’s profit and loss statement as “Results from trading operations”. Contingent liabilities, irrevocable commitments, contingent liabilities for calls and margin liabilities Client assets Off-balance sheet items are stated at nominal value. Any The value of client assets under management is calculated provisions for identified risks are included under “Value with reference to the total value of all client positions at adjustments and provisions”. A guarantee is in place to the year end. Fund units held by the Bank’s clients are double government of Singapore for the business operations con- counted: once as units held by clients and again as funds ducted by the subsidiary BSI Bank Ltd., Singapore. Follow- under management. Any funds held by correspondent ing the application of the banking agreement on deposit banks and brokers are excluded as are securities belong- guarantees, the Bank has an irrevocable commitment in ing to the Group. Funds managed by the Group but de- respect of privileged deposits. posited at third party banks are also included.

Derivative financial instruments Events following the balance sheet date Derivative financial instruments are normally treated as After the balance sheet date, no event took place that trading operations with the exception of the transactions would lead to a correction of the financial statements. described in the following paragraphs.

Trading transactions They are periodically valued with reference to market or trading prices or, alternatively, are based on calculations entailing the discounted future cash flows or option pric- ing models.

Hedging transactions The Bank uses derivative financial products for asset and liability management (ALM) purposes. Hedges and their underlying positions are valued in the same way. Any net income earned on these transactions is credited to the same item as income arising from the hedged transac- tions. The Bank enters into global hedge transactions with respect to interest rate risk. Profits on these transactions are accrued as interest income. Accrued interests payable and receivable are recorded in the balance sheet under “Other liabilities” and “Other assets”. Positive and nega- tive replacement values in connection with hedges are also recorded under “Other assets” and “Other liabilities”. The use of derivatives for ALM purposes is documented together with the objectives and strategies employed and kept on file until such time as the transactions expire. The effectiveness of the hedge is periodically controlled. When- ever the value of a hedge exceeds the value of the hedged item, the excess is treated as a normal trading position.

49 BSI – Group financial statements

3. Information on the balance sheet

3.1 Breakdown of loan collateral and off-balance-sheet business

Type of collateral Secured by Other mortgage collateral Unsecured Total CHF 1’000 CHF 1’000 CHF 1’000 CHF 1’000 Loans Due from customers 493’323 6’145’485 694’338 7’333’146 Mortgage loans 4’250’138 75’303 9’280 4’334’721 Residential properties 3’540’349 11’341 713 3’552’403 Commercial and industrial properties 618’188 4’516 4’271 626’975 Other 91’600 59’447 4’296 155’343 Total at 31.12.2014 4’743’461 6’220’788 703’618 11’667’867 31.12.2013 4’173’926 5’505’762 641’260 10’320’948

Off-balance sheet business Contingent liabilities 21’151 424’037 1’688’893 2’134’081 Irrevocable commitments 125’693 1’367 33’988 161’048 Contingent liabilities for calls and margin liabilities 3’066 3’066 Loan commitments 2’775 2’775 Total at 31.12.2014 146’844 425’404 1’728’722 2’300’970 31.12.2013 4’729 423’849 1’847’628 2’276’206

Estimated realisable value Individual Gross of guarantees Net specific amount received amount provisions Impaired loans Total at 31.12.2014 168’513 67’492 101’021 100’482 31.12.2013 202’097 82’122 119’975 118’522

50 BSI – Group financial statements

3.2 Securities and precious metals held for trading

31.12.2014 31.12.2013 CHF 1’000 CHF 1’000 Securities and precious metals held for trading Debt securities 557’848 637’184 listed 545’569 627’193 unlisted 12’279 9’991 Equities 327’941 337’031 Precious metals 378’636 389’717 Total 1’264’425 1’363’932 of which eligible as repurchase transactions in compliance with the liquidity regulations 13’229 21’252

3.3 Financial investments

Book value Market value 31.12.2014 31.12.2013 31.12.2014 31.12.2013 CHF 1’000 CHF 1’000 CHF 1’000 CHF 1’000 Financial investments 1’403’583 1’200’924 1’431’116 1’225’010 of which valued on an accrual basis 1’402’344 1’199’716 1’429’875 1’223’802 of which valued according to the lower value principle 1’239 1’208 1’241 1’208 Equities 29’141 29’346 29’934 29’867 of which qualified participations1 17’967 16’907 17’967 16’907 Precious metals 204’689 166’016 204’689 166’016 Real estate 12’218 11’004 12’218 11’520 Total 1’649’631 1’407’290 1’677’957 1’432’413 of which eligible as repurchase transactions in compliance with the liquidity regulations 785’580 854’579 – –

1 At least 10% of capital or votes.

3.4 Non-consolidated participations

31.12.2014 31.12.2013 CHF 1’000 CHF 1’000 Without market value 47’826 54’727 Total 47’826 54’727

51 BSI – Group financial statements

3.5 Information on relevant participations

3.5.1 Scope of consolidation

Business Share capital 31.12.2014 31.12.2013 Change participation participation participation million in % in % in % A. Fully consolidated participations Anderfin SA, Lugano Asset management company CHF 0.10 1 100.00 -100.00 BSI Bank Ltd., Singapore Bank USD 214.00 100.00 100.00 BSI Bank (Panama) SA, Panama Bank USD 10.00 100.00 100.00 BSI Investment Advisors (Panama) Inc., Panama Investment company USD 0.41 100.00 100.00 BSI Europe SA, Luxembourg Bank EUR 35.40 100.00 100.00 BSI Fund Management SA, Luxembourg Fund management company EUR 2.50 100.00 100.00 BSI Monaco SAM, Monte Carlo Bank EUR 15.00 100.00 100.00 BSI Asset Managers SAM, Monte Carlo Asset management company EUR 2.00 99.98 99.98 BSI Overseas (Bahamas) Ltd., Nassau Bank USD 10.00 100.00 100.00 BSI Trust Corporation (Bahamas) Ltd., Nassau Trust company USD 1.00 1 100.00 -100.00 Alpine Services Ltd., Nassau Investment company USD 0.011 100.00 -100.00 BSI Trust Corporation (Malta) Ltd., La Valletta Trust company EUR 0.05 100.00 100.00 EOS Servizi Fiduciari SpA, Milan Fiduciary company EUR 4.25 100.00 100.00 Oudart SA, Paris Asset management company EUR 5.50 100.00 100.00 Oudart Gestion SA, Paris Asset management company EUR 1.00 100.00 100.00 Oudart Patrimoine SARL, Paris Asset management company EUR 0.06 100.00 100.00 Solidia Finance et Patrimoine SA, Paris Asset management company EUR 0.312 100.00 -100.00 Patrimony 1873 SA, Lugano Asset management company CHF 5.00 100.00 100.00 Thalìa SA, Lugano 3 Investment company CHF 2.00 1 100.00 -100.00

B. Participations valued at equity Atacama Investments Ltd., British Virgin Islands Investment company USD 0.09 44.16 44.16 B-Source SA, Bioggio Systems development and business operations CHF 2.40 49.00 49.00 Cross Factor SpA, Milan Investment company EUR 1.03 20.00 20.00 Thalìa SA, Lugano 3 Investment company CHF 2.00 35.00 35.00

1 Share capital at the time the sale or the demerger took place. 2 Share capital at the time of integration. 3 Valued at equity as of 01.06.2014.

52 BSI – Group financial statements

3.5.2 Changes to the scope of consolidation

Participations new to the scope of consolidation BSI Bank (Panama) SA, Panama BSI Fund Management SA, Luxembourg

Participations no longer in the scope of consolidation Anderfin SA, Lugano: in liquidation Alpine Services Ltd., Nassau: sold BSI Trust Corporation (Bahamas) Ltd., Nassau: sold Solidia Finance et Patrimoine SA, Paris: integrated in Oudart Patrimoine SARL, Paris, effective on 01.01.2014

Changes to participations percentage Thalìa SA, Lugano: participation reduction from 100% to 35%

Participation valued at equity for the first time Thalìa SA, Lugano

Capital increase BSI Bank (Panama) SA, Panama: capital increase from USD 6.5 mln to USD 10.0 mln BSI Europe SA, Luxembourg: capital increase from EUR 31.47 mln to EUR 35.40 mln EOS Servizi Fiduciari SpA, Milan: capital increase from EUR 0.75 mln to EUR 4.25 mln Oudart Patrimoine SARL, Paris: capital increase from EUR 0.04 mln to EUR 0.06 mln

Reduction of capital Thalìa SA, Lugano: reduction of capital from CHF 4.80 mln to CHF 2.00 mln

3.6 Significant non-consolidated participations

3.6.1 Significant non-consolidated participations and entered under “Non-consolidated participations”

Business Share capital 31.12.2014 31.12.2013 Change participation participation participation million in % in % in % Banca Patrimoni Sella & C. SpA, Turin Bank EUR 28.00 5.68 5.68 BSI Bank (Panama) SA, Panama 1 Bank USD 10.00 100.00 -100.00 BSI Laran SA, Lugano Investment company CHF 0.10 100.00 100.00 Dynamic Securities SA, Athens Securities broker EUR 6.99 19.95 19.95

1 Fully consolidated in 2014.

3.6.2 Significant non-consolidated participations and entered under “Financial investments” (at purchase price, minus the required depreciation)

Business Share capital 31.12.2014 31.12.2013 Change participation participation participation million in % in % in % IFA SA, Paris 1 Investment company EUR 15.79 51.00 51.00 BSI Investment Advisors (Hong Kong) Ltd., Hong Kong 1 Investment company USD 43.00 100.00 100.00

1 In liquidation.

53 BSI – Group financial statements

3.7 Analysis of investments in CHF 1’000 2014 Changes to the Book scope of Book Acquisition Depreciation value consolida- Invest- Depre- value price to date 31.12.2013 tion ments Disposal ciation 31.12.2014 Participations valued at equity 36’078 36’078 1’386 3321 -245 37’551 Other non-consolidated 19’779 -1’130 18’649 -5’786 271 -1’787 -1’072 10’275 Total non-consolidated participations 55’857 -1’130 54’727 -4’400 603 -2’032 -1’072 47’826

Bank premises 271’222 -80’836 190’386 3’477 -883 -5’564 187’416 Other real estate 58’336 -36’730 21’606 641 -1’018 21’229 Total real estate 329’558 -117’566 211’992 4’118 -883 -6’582 208’645

Other tangible fixed assets 395’307 -232’291 163’016 22’017 622 -33’188 152’467

Total tangible assets 724’865 -349’857 375’008 26’135 -261 -39’770 361’112

Goodwill 1’052’694 -1’048’854 3’840 -2’829 -7 -615 389 Total costs 22’259 -22’213 46 -46 Other intangible assets 6’536 -2’281 4’255 7’446 80 -807 10’974 Total intangible assets 1’081’489 -1’073’348 8’141 -2’829 7’446 73 -1’468 11’363

Fire insurance value of the real estate 294’393 292’710 Fire insurance value of other tangible fixed assets 137’256 139’793 Off-balance sheet lease agreements: commitments arising from future lease payments 96 127

1 Including value increases.

54 BSI – Group financial statements

3.8 Assets pledged and securities repurchase and reverse repurchase agreements

A. Assets pledged as security for own liabilities 31.12.2014 31.12.2013 Change CHF 1’000 CHF 1’000 in % Book Pledged Book Pledged Book Pledged value amount value amount value amount Including assets subject to retention of title and excluding securities repurchase and reverse repurchase agreements 300’216 102’647 235’860 52’761 27.3 94.6

B. Securities repurchase and reverse repurchase agreements 1 31.12.2014 31.12.2013 Change CHF 1’000 CHF 1’000 in % Book value of own account securities lent or transferred as collateral for securities lending operations or for repurchase and reverse repurchase transactions 1’862’608 1’585’713 17.5 of which securities with no restrictions on rights of sale or subsequent pledging 1’862’608 1’585’713 17.5 Book value of securities received as collateral in accordance with securities lending agreements and securities received in accordance with securities borrowing agreements and with reverse repurchase agreements with no restrictions on rights of sale or subsequent pledging 4’066’244 3’362’467 20.9 of which securities sold or pledged as collateral 2’007’276 1’662’683 20.7

1 Amounts paid or received in cash are booked under the balance sheet subheading in the item “Due from banks” or “Due to banks”.

3.9 Commitments to pension institutions and notes on pension plans

31.12.2014 31.12.2013 CHF 1’000 CHF 1’000 Commitments to Group pension institutions 60’509 82’591

A. Staff at the Bank and the Swiss subsidiaries The “Fondo per prestazioni a carattere sociale di BSI SA” Staff at BSI Ltd., as well as companies/entities incorporated (Fund) is represented by a complementary defined-con- under the Swiss law that are affiliates or associates of the tribution plan. The Fund insures all employees already Bank or in which the latter has interests to protect, except enrolled in the Foundation’s scheme whose annual fixed for apprentices, interns, volunteers and staff on fixed-term insured salary is over four times the maximum simple AVS contracts of more than three months or hired as consult- old-age pension or whose initial contribution to the Foun- ants, are insured by the “Fondazione di Previdenza BSI SA” dation resulted in a surplus. (Foundation). Staff on fixed-term contracts of more than three months or hired as consultants, either on a fixed- Both the Foundation and the Fund set the normal retire- term or open-ended basis, are enrolled in an occupational ment age at 64. pension scheme offered by a leading insurer. As at 31 December 2014, the responsible actuary deter- Until 31 December 2014, the Foundation, which ensures mined the vested benefits accounts and the actuarial employees are enrolled in the mandatory occupational provisions considering the regulatory changes concern- pension schemes in accordance with the Swiss Federal ing the Foundation and the Fund effective from 1 January Law on occupational old-age, survivors’ and disability in- 2015 as well as by applying the 2.75% technical rate and surance (LPP) and the relevant ordinances, applied a de- the LPP 2010 generational tables. Based on these actuar- fined-benefit plan, whereas the regulation introduced on ial estimates, as at 31 December 2014 the coverage ratio 1 January 2015 establishes a defined-contribution one. for the Foundation was 101.9% (31 December 2013: cover- Under the new plan, the old-age pension is calculated by age ratio 94.1%, technical rate 3%, LPP 2010 periodic ta- applying the conversion rate to the assets accumulated bles) and 108.1% for the Fund (31 December 2013: cover- by the insured person at the date of retirement. age ratio 101.3%, technical rate 3%, LPP 2010 periodic Under both the former and the new regulation, disability tables). and survivors’ benefits are determined based on the final salary before the insured event.

55 BSI – Group financial statements

In accordance with Article 57, paragraph 1 and 2 of the antee the liquidity the Foundation and the Fund hold with Ordinance concerning occupational old-age, survivors’ BSI Ltd. by establishing a collateral deposit. and disability insurance (OPP2), BSI Ltd. commits to guar-

Employer’s contribution reserve Other in CHF 1’000 Nominal Waiver value Lending value Use of use adjustments value Balance sheet 31.12.2014 31.12.2014 31.12.2014 31.12.2014 31.12.2014 31.12.2014 31.12.2013 Pension fund / Pension institution BSI Ltd. Pension Foundation (booked in “Other assets”) -11’000 11’000 BSI Ltd.’s Social Insurance Fund (booked in “Other assets”) 2’000 2’000 2’000 Total 2’000 -11’000 2’000 13’000

Financial assets / liabilities and pension insurance costs Change from pre- Pension Pension vious finan- insurance insurance Financial Financial cial year / costs costs Cover share paid share paid with impact Contributions included in included in surplus / by the by the on financial adjusted for the costs the costs deficit organisation organisation result the period of staff of staff 31.12.2014 31.12.2014 31.12.2013 2014 2013 CHF 1’000 CHF 1’000 CHF 1’000 CHF 1’000 CHF 1’000 CHF 1’000 CHF 1’000 Pension funds / Pension institutions BSI Ltd. Pension Foundation without cover surplus / deficit 19’394 19’394 22’450 BSI Ltd.’s Social Insurance Fund without cover surplus / deficit 5’803 5’803 8’434 Total 25’197 25’197 30’884

B. Employees of foreign branches and affiliates

Employees of foreign branches and affiliates have occu- pational pension insurance in their respective countries according to local laws. The relevant costs are entered under “Personnel expenses”.

31.12.2014 31.12.2013 CHF 1’000 CHF 1’000 Pension insurance costs included in the costs of staff 2’411 1’927

56 BSI – Group financial statements

3.10 Value adjustments and provisions and reserves for general banking risks in CHF 1’000 2014 Changes Recoveries, to the doubtful New scope of Use interest, provisions Release Situation consolida- according Reclassifica- currency charged credited Situation 31.12.2013 tion to purpose tions differences to P/L to P/L 31.12.2014 Provisions for deferred taxes 10’737 -40 6 -8’368 1 2’335 Value adjustments and provisions 264’811 -478 -53’528 12’797 171’485 -4’876 390’211 Value adjustments and provisions for default risks (credit and country risks) 125’135 -23’023 -300 2’813 5’693 -2’183 108’135 Value adjustments and provisions for other business risks 609 -2 -605 2 Value adjustments for financial investments 3’784 397 4’181 Provisions for restructuring 267 -138 20 9’000 9’149 Other provisions 135’016 -478 -30’367 300 9’569 156’792 -2’088 268’744 Total value adjustments and provisions 275’548 -478 -53’528 12’757 171’491 -13’244 392’546 Value adjustments set off directly against assets -121’620 – – – – – – -104’462 Total value adjustments and provisions as per balance sheet 153’928 – – – – – – 288’084

Reserves for general banking risks 146’152 -160 2’859 -63’162 85’689

1 The CHF 2.3 million release has been accounted for under “Extraordinary income”.

57 BSI – Group financial statements

3.11 Presentation of share capital and statement of shareholders’ equity

3.11.1 Presentation of share capital and shareholders with voting rights above 5%

31.12.2014 31.12.2013 Capital Capital Total with Total with nominal Number dividend nominal Number dividend value of shares rights value of shares rights CHF 1’000 CHF 1’000 CHF 1’000 CHF 1’000 A. Share capital Share capital 1’840’000 18’400’000 1’840’000 1’840’000 18’400’000 1’840’000

31.12.2014 31.12.2013 Nominal Participation Nominal Participation CHF 1’000 percentage CHF 1’000 percentage B. Shareholders Shareholders with voting rights Participatie Maatschappij Graafschap Holland N.V., Diemen (NL)1 1’840’000 100.00 1’840’000 100.00

1 Company directly and wholly owned by the Assicurazioni Generali Group, Trieste.

3.11.2 Statement of shareholders’ equity

CHF 1’000 Shareholders’ equity at 1 January 2014 Share capital 1’840’000 Capital reserve 145’200 Reserve and retained earnings 311’498 Reserves for general banking risks 146’152 Net result for the previous year -721’955 Total shareholders’ equity 1’720’895 Creation of reserves for general banking risks charged to P/L -60’303 Net result for the current year 2’247 Translation differences arising on profit consolidation 10’139 Total shareholders’ equity at 31 December 2014 1’672’978 of which: Share capital 1’840’000 Reserve and retained earnings -254’958 Reserves for general banking risks 85’689 Net result for the current year 2’247

58 BSI – Group financial statements

3.12 Maturity structure of current assets and third-party liabilities in CHF 1’000 Residual maturity subject due within due within due within due after on demand to notice 3 months 3-12 months 1 to 5 years 5 years fixed Total Current assets Cash and cash equivalents 2’978’959 – – – – – – 2’978’959 Money market papers – – 1’158’905 1’185’913 – 2’344’818 Due from banks 782’719 1’207’385 775’697 46’076 – 2’811’877 Due from customers 2’059’807 3’891’175 857’627 485’343 39’194 – 7’333’146 Mortgage loans – 373’507 1’609’542 486’289 1’129’628 735’755 – 4’334’721 Securities and precious metals held for trading 1’264’425 – – 1’264’425 Financial investments 233’586 – 165’904 131’608 764’018 342’297 12’218 1’649’631 Total 31.12.2014 5’259’689 2’433’314 8’032’911 3’437’134 2’425’065 1’117’246 12’218 22’717’577 31.12.2013 7'967'939 2’563’429 6’383’031 3'735’556 2'336’434 811’909 11’004 23’809’302

Third-party liabilities Money market paper liabilities – – 4’417 – 4’417 Due to banks 457’105 233’686 50’000 – 740’791 Due to customers in savings and investment accounts – 633’983 – – – – – 633’983 Due to customers, other 17’684’376 579’554 858’396 186’430 141’501 – 19’450’257 Loans with issuers of property bonds and other – – 99’036 – 99’036 Total 31.12.2014 18’141’481 1’213’537 1’096’499 236’430 141’501 99’036 – 20’928’484 31.12.2013 19’578’175 1'259’698 910’360 279’640 123’110 89’015 – 22’239’998

3.13 Due from and to the Group’s bodies, due from and to affiliated companies

31.12.2014 31.12.2013 Change CHF 1’000 CHF 1’000 in % Due from the bank’s bodies 17’005 16’912 0.5 Due from affiliated companies 100’782 113’312 -11.1 Due to affiliated companies 30’577 2’346’498 -98.7

– The conditions applied to loans to the Bank’s senior – All transactions with affiliated companies were carried management are the same as those applied to staff out at arm’s length. Revenues of CHF 1.5 million are in- loans. Due to their lower credit risk, employees receive cluded under the item “Result from interest activities” an interest rate reduction depending on the type of loan. (2013: CHF 1.0 million), while revenues of CHF 3.0 million received from companies linked to the Generali Group are recognised under “Result from commission and ser- vice fee activities” (2013: CHF 2.6 million).

59 BSI – Group financial statements

3.14 Analysis of Swiss and foreign assets and liabilities

31.12.2014 31.12.2013 Switzerland Abroad Switzerland Abroad CHF 1’000 CHF 1’000 CHF 1’000 CHF 1’000 Assets Cash and cash equivalents 2’914’230 64’729 3’803’831 2’048’113 Money market papers 2’715 2’342’103 1’451 2’270’371 Due from banks 362’721 2’449’156 100’541 2’492’825 Due from customers 1’085’801 6’247’345 1’178’950 5’122’093 Mortgage loans 3’136’508 1’198’213 3’085’011 934’894 Securities and precious metals held for trading 405’597 858’828 491’384 872’548 Financial investments 174’593 1’475’038 126’800 1’280’490 Non-consolidated participations 15’031 32’795 16’018 38’709 Fixed assets 352’212 8’900 367’541 7’467 Intangible assets 2’287 9’076 3’462 4’679 Accrued income and prepaid expenses 11’623 56’246 16’475 63’307 Other assets 207’003 582’669 171’931 372’452 Total assets 8’670’321 15’325’098 9’363’395 15’507’948

Liabilities Money market paper liabilities 4’417 2’240 Due to banks 191’290 549’501 163’708 360’386 Due to customers in savings and investment accounts 560’003 73’980 476’343 78’530 Due to customers, other 4’914’717 14’535’540 4’542’670 16’526’306 Medium-term notes 800 Loans with issuers of property bonds and other 99’036 89’015 Accrued expenses and deferred income 127’047 115’526 94’141 102’699 Other liabilities 233’758 629’542 209’080 350’602 Value adjustments and provisions 278’466 9’618 145’250 8’678 Reserves for general banking risks 85’689 146’152 Share capital 1’840’000 1’840’000 Capital reserve 145’200 Reserve and retained earnings -254’958 311’498 of which minority interests 1 Net result for the year 2’247 -721’955 Total liabilities 7’982’676 16’012’743 7’355’127 17’516’216

3.15 Assets by country / groups of countries

31.12.2014 31.12.2013 Participation Participation CHF 1’000 in % CHF 1’000 in % Switzerland 8’670’321 36.1 9’363’395 37.6 Other OECD countries 8’127’932 33.9 10’287’929 41.4 Other European countries 698’507 2.9 254’188 1.0 Caribbean and Latin America 3’055’801 12.7 2’335’635 9.4 Other 3’442’858 14.4 2’630’196 10.6 Total 23’995’419 100.0 24’871’343 100.0

60 BSI – Group financial statements

3.16 Assets and liabilities by currency

Equivalent in CHF 1’000 CHF USD EUR JPY Other Total Assets Cash and cash equivalents 2’841’618 7’551 125’035 294 4’461 2’978’959 Money market papers 39 1’370’049 814’885 159’845 2’344’818 Due from banks 36’045 1’357’373 920’422 9’741 488’296 2’811’877 Due from customers 996’619 4’295’901 1’254’342 91’725 694’559 7’333’146 Mortgage loans 3’128’147 199’229 219’810 3’218 784’317 4’334’721 Securities and precious metals held for trading 31’503 456’090 355’531 357 420’944 1’264’425 Financial investments 16’897 792’733 635’016 28 204’957 1’649’631 Non-consolidated participations 15’979 24’594 7’233 20 47’826 Fixed assets 352’961 1’216 6’935 361’112 Intangible assets 2’287 1’592 7’484 11’363 Accrued income and prepaid expenses 12’301 21’507 31’191 82 2’788 67’869 Other assets 553’557 142’757 53’657 5’706 33’995 789’672 Total balance sheet assets 31.12.2014 7’987’953 8’670’592 4’431’541 111’151 2’794’182 23’995’419 31.12.2013 8’801’774 6’871’720 6’728’951 142’415 2’326’483 24’871’343

Spot, forward and option contracts not yet delivered 8’780’998 12’426’514 7’462’873 458’702 1’987’081 31’116’168 Total assets 16’768’951 21’097’106 11’894’414 569’853 4’781’263 55’111’587

Liabilities Money market paper liabilities 558 1’629 2’084 3 143 4’417 Due to banks 114’910 277’026 126’843 835 221’177 740’791 Due to customers in savings and investment accounts 602’073 31’910 633’983 Due to customers, other 3’360’019 8’623’909 5’721’616 60’165 1’684’548 19’450’257 Loans with issuers of property bonds and other 99’036 99’036 Accrued expenses and deferred income 138’750 78’970 21’796 9 3’048 242’573 Other liabilities 564’225 163’318 94’858 9’535 31’364 863’300 Value adjustments and provisions 52’937 231’005 4’142 288’084 Reserves for general banking risks 85’689 85’689 Share capital 1’840’000 1’840’000 Reserve and retained earnings -254’958 -254’958 of which minority interests 1 1 Net result for the year 2’247 2’247 Total balance sheet liabilities 31.12.2014 6’506’450 9’474’893 6’003’249 70’547 1’940’280 23’995’419 31.12.2013 6’271’833 8’649’807 8’195’324 52’360 1’702’019 24’871’343

Spot, forward and option contracts not yet delivered 10’433’580 11’101’582 6’168’089 563’067 2’731’107 30’997’425 Total liabilities 16’940’030 20’576’475 12’171’338 633’614 4’671’387 54’992’844 Net position per currency -171’079 520’631 -276’924 -63’761 109’876 118’743

61 BSI – Group financial statements

3.17 Unredeemed bonds and structured products

A. Unredeemed bonds

Average Amounts in Issuer weighted yield Maturity CHF 1’000 BSI Ltd., Lugano 5.25% 23.12.2021 99’036 Subordinated loan Total 99’036

Maturity schedule of unredeemed bonds Maturity Total due within from from from from after Issuer 1 year 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years 5 years CHF 1’000 CHF 1’000 CHF 1’000 CHF 1’000 CHF 1’000 CHF 1’000 CHF 1’000 BSI Ltd., Lugano 99’036 99’036

B. Structured products

Average Amounts in Issuer weighted yield Maturity CHF 1’000 Unsubordinated, BSI Ltd., Lugano (CHF) 2015 2’606 structured products Unsubordinated, BSI Ltd., Lugano (CAD) 2016 2’172 structured products Unsubordinated, BSI Ltd., Lugano (EUR) 2015-2016 70’088 structured products Unsubordinated, BSI Ltd., Lugano (HKD) 2015 2’131 structured products Unsubordinated, BSI Ltd., Lugano (SGD) 2015 8’302 structured products Unsubordinated, BSI Ltd., Lugano (USD) 2015-2017 70’047 structured products Unsubordinated, BSI Overseas (Bahamas) Ltd., Nassau (CHF) 5.68% 2015-2016 36’213 structured products Unsubordinated, BSI Overseas (Bahamas) Ltd., Nassau (EUR) 2.94% 2015-2017 130’752 structured products Unsubordinated, BSI Overseas (Bahamas) Ltd., Nassau (EUR) 2015 27’496 structured products Unsubordinated, BSI Overseas (Bahamas) Ltd., Nassau (USD) 2.57% 2015-2017 53’503 structured products Unsubordinated, BSI Overseas (Bahamas) Ltd., Nassau (USD) 2015 17’420 structured products Total 420’730

Maturity schedule of structured products

Maturity due within from from from from after 1 year 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years 5 years Total Issuer CHF 1’000 CHF 1’000 CHF 1’000 CHF 1’000 CHF 1’000 CHF 1’000 CHF 1’000 BSI Ltd., Lugano 79’945 61’665 13’736 155’346 BSI Overseas (Bahamas) Ltd., Nassau 232’883 11’283 21’218 265’384 Total 312’828 72’948 34’954 420’730

These amounts are included in “Due to customers, other”.

62 BSI – Group financial statements

3.18 Other assets and other liabilities

31.12.2014 31.12.2013 Change CHF 1’000 CHF 1’000 in % Other assets Contribution reserve with BSI Ltd. Pension Foundation and BSI Ltd.’s Social Insurance Fund 2’000 13’000 -84.6 Replacement values for derivatives from trading activities 653’117 411’132 58.9 Replacement values for derivatives from hedging activities 38’601 23’588 63.6 Netting account 43’535 10’920 298.7 Other assets 52’419 85’743 -38.9 Total other assets 789’672 544’383 45.1

Other liabilities Replacement values for financial instruments deriving from trading activities 647’997 396’050 63.6 Replacement values for financial instruments deriving from hedging activities 90’402 70’074 29.0 Other liabilities 124’901 93’558 33.5 Total other liabilities 863’300 559’682 54.2

63 BSI – Group financial statements

4. Information on off-balance sheet business

4.1 Breakdown of contingent liabilities

31.12.2014 31.12.2013 Change CHF 1’000 CHF 1’000 in % Irrevocable commitments 271’084 214’677 26.3 Performance guarantees 1’770’646 1’831’279 -3.3 Other contingent liabilities 92’351 95’033 -2.8 Total 2’134’081 2’140’989 -0.3

4.2 Derivative financial instruments outstanding

Trading instruments Hedging instruments Replacement value Contract Replacement value Contract positive1 negative1 volumes2 positive1 negative1 volumes2 CHF 1’000 CHF 1’000 CHF 1’000 CHF 1’000 CHF 1’000 CHF 1’000 Interest rate instruments Swaps 3’193 3’198 122’181 4’148 55’862 1’681’125 Futures 10 11 59’220

Currencies and precious metals Forward contracts 484’440 476’601 26’231’497 33’387 34’403 4’557’867 Swaps 1’066 99’036 Options (OTC) 84’634 79’332 9’840’879

Equities / indices Futures 1’593 861 53’966 Options (OTC) 23’630 32’197 3’483’639

Credit derivatives Credit default swaps 55’617 55’797 442’528 137 114’952

Total at 31.12.2014 653’117 647’997 40’233’910 38’601 90’402 6’452’980 31.12.2013 411’132 396’050 37’522’023 23’588 70’074 5’501’043

1 No value is entered for products traded for the client’s account in a recognised stock market with daily margining. 2 Credit component of the underlyings or the nominal values of own transactions and transactions with clients.

4.3 Fiduciary transactions

31.12.2014 31.12.2013 Change CHF 1’000 CHF 1’000 in % Fiduciary deposits with other banks 1’945’743 1’728’535 12.6 Total 1’945’743 1’728’535 12.6

64 BSI – Group financial statements

4.4 Client assets

31.12.2014 31.12.2013 Change CHF million CHF million in % Held by funds 4’986 6’247 -20.2 Assets under management 19’003 18’135 4.8 of which deposited with third parties 868 507 71.2 Other assets 68’341 64’994 5.1 Total client assets 92’330 89’376 3.3 of which double counting 4’885 5’244 -6.8 Net inflow / outflow1 -627 2’181

1 2014 Net new money was calculated by deducting capital outflows from inflows (cash or securities from outside the BSI Group). Intra-group transactions were ex- cluded. Net new money thus does not include interest or dividends received from clients related to assets under management. Moreover, it does not include the performance impact or other changes in the portfolios occurred during the year.

As at 31 December 2014, the BSI Group had assets under act solely as custodians. Client assets do not include de- management deposited at other banks for a total of CHF posits for which BSI acts solely as custodian, totalling CHF 868 million (2013: CHF 507 million) for which other banks 1,692 million as at 31 December 2014.

4.5 Irrevocable commitments

31.12.2014 31.12.2013 Change CHF 1’000 CHF 1’000 in % Deposit guarantees 33’988 33’732 0.8 Other irrevocable commitments 127’060 95’112 33.6 Total 161’048 128’844 25.0

4.6 Loan commitments

31.12.2014 31.12.2013 Change CHF 1’000 CHF 1’000 in % Deferred payment liabilities 2’775 5’719 -51.5 Total 2’775 5’719 -51.5

65 BSI – Group financial statements

5. Information on the profit and loss statement

5.1 Income from refinancing included in Interest and discount income

2014 2013 Change CHF 1’000 CHF 1’000 in % Total 691 692 -0.1

5.2 Results from trading operations

2014 2013 Change CHF 1’000 CHF 1’000 in % Foreign exchange and banknote transactions 80’669 86’134 -6.3 Precious metal transactions 7’874 2’689 192.8 Securities transactions 59’496 54’591 9.0 Other trading income 1’277 4’689 -72.8 Total 149’316 148’103 0.8

5.3 Personnel expenses

2014 2013 Change CHF 1’000 CHF 1’000 in % Salaries 345’889 336'373 2.8 Social security contributions 31’866 29'085 9.6 Contributions to pension funds in favour of the staff 27’896 33'078 -15.7 Other personnel expenses 20’752 26'272 -21.0 Total 426’403 424’808 0.4

5.4 Other operating expenses

2014 2013 Change CHF 1’000 CHF 1’000 in % Premises, machinery and furnishing 32’854 32’174 2.1 IT expenses 102’134 103’861 -1.7 Other office expenses 137’266 105’667 29.9 Total 272’254 241’702 12.6

66 BSI – Group financial statements

5.5 Domestic and foreign consolidated gross profit of the Group

2014 2013 Switzerland Abroad Switzerland Abroad CHF 1’000 CHF 1’000 CHF 1’000 CHF 1’000 Result from interest activities 160’344 36’631 156’631 34’513 Result from commission and service fee activities 327’653 185’202 333’233 170’855 Result from trading operations 119’893 29’423 120’190 27’913 Other ordinary result 11’478 811 22’095 -2’360 Net operating result 619’368 252’067 632’149 230’921

Personnel expenses -282’071 -144’332 -281’120 -143’688 Other operating expenses -229’900 -42’354 -195’928 -45’774 Operating expenses -511’971 -186’686 -477’048 -189’462

Gross profit 107’397 65’381 155’101 41’459

5.6 Extraordinary income and expenses

2014 2013 CHF 1’000 CHF 1’000 Extraordinary income 82’626 89’686 Release of value adjustments and provisions 4’876 7'860 Release of reserves for general banking risks 63’162 43'512 Gain on the sale of participations 9’333 36'849 Recovered losses 761 535 Profit from sale of fixed assets 1’852 31 Other extraordinary income 2’642 1 899

Extraordinary expenses -4’052 -49’931 Creation of reserves for general banking risks -2’859 -47'053 Losses on sale of participations -1’099 -1'992 Losses on sale of fixed assets -57 -40 Other extraordinary expenses -37 -846

Total 78’574 39’755

1 Including CHF 2.3 million for deferred taxes.

5.7 Taxes

2014 2013 CHF 1’000 CHF 1’000 Creation of deferred tax assets -83 -29 Release of deferred tax assets 493 2’794 New provisions for deferred taxes 6 6’072 Release of provisions for deferred taxes -6’083 -5’108 Current year tax liability 15’295 12’959 Tax credits on tax losses carried forward in the balance sheet 3’552 623 Total 13’180 17’311 Tax credits on tax losses not on balance sheet 1’109 6’894

67 BSI – Group financial statements

6. Information required in accordance with FINMA Circular 2008/22 on Capital Adequacy Disclosure

6.1 Presentation of available shareholders’ equity

31.12.2014 31.12.2013 CHF 1’000 CHF 1’000 Available shareholders’ equity Share capital 1’840’000 1’840’000 Reserves for general banking risks 85’689 146’152 Capital reserve 145’200 Reserve and retained earnings 311’498 Group loss / profit brought forward -254’958 Net result for the year 2’247 -721’955 Subtotal of basic shareholders’ equity 1’672’978 1’720’895 - Goodwill -389 -3’840 - Other intangible assets -10’974 -4’301 - Other amounts arising from shareholders’ equity -2’300 Total basic shareholders’ equity (CET1) 1’659’315 1’712’753 + Additional shareholders’ equity (AT1) Total basic shareholders’ equity (T1) 1’659’315 1’712’753 Total additional shareholders’ equity (T2) 79’229 80’113 Total available shareholders’ equity 1’738’544 1’792’866 Total risk-weighted positions 10’068’463 9’824’725 CET1 Ratio 16.29% 17.35% Total Capital Ratio 17.08% 18.17%

6.2 Presentation of required shareholders’ equity

31.12.2014 31.12.2013 CHF 1’000 CHF 1’000 Credit risks (in accordance with the standard approach) 533’594 529’144 of which equities and shares in collective investment schemes 25’923 31’706 Risks not linked to counterparties 29’866 30’902 Market risk (in accordance with the standard approach) 126’650 111’681 of which relating to bonds (general and specific market risk) 30’069 37’796 of which relating to equities 17’253 36’504 of which relating to currencies and precious metals 61’451 13’998 of which relating to commodities 10’460 9’925 Operating risks (in accordance with the standard approach) 109’139 107’386 Items not deducted in accordance with 3 threshold 1 6’228 6’865 Total required shareholders’ equity 805’477 785’978 Ratio of available shareholders’ equity to required shareholders’ equity 215.84% 228.11%

1 Basilea III pursuant to art. 40 CAO.

68 BSI – Group financial statements

6.3 Credit risk by type of counterparty in CHF 1’000 Individuals, Equities small and and Govern- Banks Corpora- medi- shares in ments and tions um-sized collective and central securities under Corpora- companies investment banks traders public law tion (retail) schemes Other Total Loan commitments Balance sheet / loans Liquidity 2’978’959 2’978’959 Due from banks 1’287 2’585’507 122’085 102’998 2’811’877 Due from customers 507’522 990’713 158’766 3’242’548 2’431’616 1’981 7’333’146 Mortgage loans 103’398 45’450 790 1’016’796 3’168’287 4’334’721 Financial investments 1 1’596’354 1’859’557 236’465 54’603 185’919 218’088 4’150’986 Other assets / positive replacement values 5’468 594’202 646 160’263 29’093 789’672 Total at 31.12.2014 2’214’029 6’075’429 396’667 4’596’295 5’731’994 185’919 3’199’028 22’399’361 31.12.2013 1’278’640 5’750’344 506’301 4’072’783 5’322’863 163’481 6’029’230 23’123’642 Off-balance sheet Contingent liabilities 3’585 521’084 1’757 357’610 110’497 994’533 Irrevocable commitments 33’988 127’060 161’048 Contingent liabilities for calls and margin liabilities 3’066 3’066 Loan commitments 2’285 490 2’775 Total at 31.12.2014 3’585 526’435 35’745 358’100 237’557 1’161’422 31.12.2013 9’689 460’538 35’032 401’460 211’217 1’117’936

1 Including money market paper and reclassification of hedge fund portfolios.

69 BSI – Group financial statements

6.4 Credit risk mitigation in CHF 1’000 Covered by recognised Covered Covered financial by guarantees by other guarantees and derivatives guarantees Total Loan commitments / Counterparty risk on balance sheet closing Balance sheet / loans Due from banks 387’594 387’594 Due from customers 5’325’228 576’219 532’112 6’433’559 Mortgage loans 342’005 105’399 3’824’465 4’271’869 Financial investments 1 619’040 619’040 Other assets / positive replacement values 85’624 54 6’588 92’266 Total at 31.12.2014 6’140’451 1’300’712 4’363’165 11’804’328 31.12.2013 5’304’215 939’123 4’023’791 10’267’129 Off-balance sheet Contingent liabilities 438’732 4’106 3’009 445’847 Irrevocable commitments 1’358 1’358 Contingent liabilities for calls and margin liabilities Loan commitments Total at 31.12.2014 440’090 4’106 3’009 447’205 31.12.2013 396’691 11’125 3’786 411’602

1 Including money market paper.

6.5 Breakdown of credit risk in CHF 1’000 Weighting of regulated risk 0% 20% 35% 50% 75% 100% 150% > = 250% Total Loan commitments / Counterparty risk on balance sheet closing Balance sheet / loans Liquidity 2’978’959 2’978’959 Due from banks 349’744 1’141’392 1’314’831 5’897 13 2’811’877 Due from customers 5’961’732 26’478 302’814 193’600 59’019 788’065 1’438 7’333’146 Mortgage loans 550’840 3’136’447 4’379 59’415 572’626 11’014 4’334’721 Financial investments 1 1’749’102 125’292 2’074’696 20’538 181’358 4’150’986 Other assets / positive replacement values 141’949 142’391 6 397’432 5’672 102’222 789’672 Total at 31.12.2014 11’732’326 1’435’553 3’439’267 3’984’938 124’106 1’489’348 193’823 22’399’361 31.12.2013 12’963’833 1’615’015 3’071’657 3’596’528 146’242 1’540’485 189’882 23’123’642 Off-balance sheet Contingent liabilities 441’983 8’841 1’116 440’669 101’924 994’533 Irrevocable commitments 1’358 33’988 125’702 161’048 Contingent liabilities for calls and margin liabilities 3’066 3’066 Loan commitments 2’285 490 2’775 Total at 31.12.2014 443’341 45’114 1’116 440’669 231’182 1’161’422 31.12.2013 405’703 54’900 1’144 422’074 12 234’043 61 1’117’937

1 Including money market paper and reclassification of hedge fund portfolios.

70 BSI – Group financial statements

6.6 Geographical credit risk (domicile of the collateral) in CHF 1’000 North Latin Carib- Switzerland Oceania America America Europe bean Asia Africa Other Total Loan commitments Balance sheet / loans Due from banks 502’465 56’384 137’294 8’199 1’258’477 220’861 628’160 37 2’811’877 Due from customers 1’165’405 140’270 660’157 163’458 2’115’304 1’482’869 1’518’804 86’879 7’333’146 Mortgage loans 3’137’714 165’914 771’819 1’374 257’900 4’334’721 Financial investments 1 178’085 65’676 528’154 2’803’822 206’829 368’420 4’150’986 Other assets / positive replacement values 211’085 6’296 8’644 8’123 425’322 93’902 35’816 484 789’672 Total at 31.12.2014 5’194’754 268’626 1’500’163 179’780 7’374’744 2’005’835 2’809’100 87’400 19’420’402 31.12.2013 4’839’963 294’527 684’108 209’953 7’294’956 1’589’907 2’281’893 76’391 17’271’698 Off-balance sheet Contingent liabilities 494’713 1’204 20’443 24’068 225’676 85’102 130’797 12’530 994’533 Irrevocable commitments 161’048 161’048 Contingent liabilities for calls and margin liabilities 361 2’705 3’066 Loan commitments 57 490 2’228 2’775 Total at 31.12.2014 656’179 1’204 20’443 24’068 228’871 85’102 133’025 12’530 1’161’422 31.12.2013 601’749 10’840 13’354 19’662 206’575 190’075 69’446 6’236 1’117’937

1 Including money market paper and reclassification of hedge fund portfolios.

6.7 Impaired client loans by geographical region

North Latin Carib- in CHF 1’000 Switzerland Oceania America America Europe bean Asia Africa Other Total

Impaired loans (gross amount) 62’002 8’664 222 76’023 21’602 168’513 Total at 31.12.2014 62’002 8’664 222 76’023 21’602 168’513 31.12.2013 93’412 8’461 685 81’032 18’507 202’097 Individual value adjustments 12’471 1’502 222 64’686 21’601 100’482 Total at 31.12.2014 12’471 1’502 222 64’686 21’601 100’482 31.12.2013 29’955 1’299 699 68’062 18’507 118’522

6.8 Contract volumes for credit derivatives in the Bank portfolio

2014 2013 Seller Buyer Seller Buyer CHF 1’000 CHF 1’000 CHF 1’000 CHF 1’000 Derivatives Credit default swaps 207’294 241’246 249’081 294’199 of which from the trading portfolio 207’294 235’234 249’081 279’160 of which from the investment portfolio 6’012 15’039

71 BSI – Group financial statements

6.9 Presentation of the most important features of regulatory capital instruments

Subordinated loan Share capital Tier 2

1 Issuer BSI Ltd. BSI Ltd. 2 Identification (e.g. ISIN) n/a CH0145635766 3 Law applicable to the instrument Swiss Swiss

Prudent basis 4 Consideration during transitional Basel III regulations (CET1 / AT1 / T2) CET1 T2 5 Consideration after the Basel III transitional phase (CET1 / AT1 / T2) CET1 - 6 Calculated at the individual / consolidated / individual and consolidated level Individual and consolidated Individual and consolidated 7 Equities / debt securities / hybrid financial instruments / other instruments Equities Debt securities Amount calculated on regulatory treasury funds (based on the last treasury 8 fund statement) CHF 1’840 million CHF 79.2 million 9 Nominal value of the instrument CHF 1’840 million USD 100 million Loans with issuers of property bonds 10 Accounting item Share capital and other loans 11 Original issue date 1873 23.12.2011 12 Unlimited or with maturity n/a with maturity 13 Original maturity date n/a 23.12.2021 14 Rescindable by the issuer (with consent from the Supervisory Authority) n/a yes Period of notice of termination to be chosen / conditional period of notice of 23.11.2016 at 100% 15 termination / reimbursement amount of the notional value 16 Subsequent termination clauses, if applicable n/a every 6 months

Coupons / dividends 17 Fixed / variable / first fixed then variable / first variable then fixed dividend first fixed, then variable 5.25% until 23.12.2016, 18 Nominal coupon and reference index, if any n/a then Libor +4% Presence of a “dividend stopper” (waiver of dividends on an instrument 19 involves cancellation of dividends on ordinary shares) n/a no Payment of interests / dividends: completely discretionary / completely 20 Partially discretionary / mandatory discretionary mandatory 21 Presence of a set-up clause or another reimbursement incentive n/a no 22 Not cumulative or cumulative n/a n/a 23 Convertible or non-convertible n/a non-convertible 24 If convertible: conversion activation (including through PONV) n/a n/a 25 If convertible: total in any case / total or partial / partial in any case n/a n/a 26 If convertible: conversion rate n/a n/a 27 If convertible: mandatory / optional conversion n/a n/a 28 If convertible: type of instrument resulting from the conversion n/a n/a 29 If convertible: instrument issuer resulting from the conversion n/a n/a 30 Presence of depreciation clause n/a no 31 Depreciation activation n/a n/a 32 Total / partial n/a n/a 33 Lasting or temporary n/a n/a 34 In case of temporary depreciation: description of the depreciation mechanism n/a n/a Ranking in case of liquidation (specify the instrument with immediately 35 35 higher ranking) AT1 not subordinate 36 Presence of features that prevent full recognition pursuant to Basel III No No PONV 37 If present, description of these features n/a n/a

72 BSI – Group financial statements

6.10 Risk-weighted assets based on ratings provided by external agencies in CHF 1’000 Risk-weighted assets 1 Rating 2 0% 20% 50% 100% 150% Counterparties Central governments and central banks With rating 852’262 5 164’371 20 Without rating 38’550 2 23 7 Public entities With rating 87’489 2 Without rating 102’215 15’544 Financial sector With rating 3’501’553 3’538’963 3’566 2 Without rating 213’244 363’671 27’274 4’010 Businesses With rating 37 60’224 3’266 438 Without rating 4’744’899 32’236

1 Before the risk management measures (Art. 61 CAO). 2 Based on Moody’s and S&P’s ratings.

73 BSI – Group financial statements

Report of the statutory auditor on the consolidated financial statements

Ernst & Young Ltd Phone +41 58 286 56 56 Route de Chancy 59 Fax +41 58 286 56 57 P.O. Box www.ey.com/ch CH-1213 Geneva

74 BSI – Group financial statements

75 This exhibition, with selected works from the BSI Art Collection and with books of the Institute, offers a welcome opportunity to experience the new idea of habitability that develops in some key areas of the main building. Industrial shelves, used as scaffolding, are also a prelude to future architectural projects, and form the framework for the artwork and books, acquiring value from the daily use made of them by guests and visitors.

Bosshard Vaquer

“Allegro Giusto is the title of the project with which we won the competition for the renovation of Villa Maraini. It reflects the desire of the Istituto Svizzero di Roma to open to the public the magnificent Villa more than a century old and to fill all of its floors with life, thanks to the activities of the artists and scholars who stay there for their annual projects”, claim the architects Bosshard Vaquer.

Soon after their first meeting, Daniel Bosshard and Meritxell Vaquer understand that, despite their different experiences, their academic training at the ETH in Zurich and the UPC- ETS in Barcelona provides a common cultural framework that allows them to be understood and complement each other in the way they interpret architecture. Their profes- sional collaboration begins in 2001, after winning the com- petition for the new mortuary Dietlikon. In the following years, they work on several architectural projects for the restoration of protected and monumental buildings, such as the award-winning renovation of the Sihlfeld cemetery in Zürich and the Concert Hall of St. Gallen. The renovation works of Villa Maraini conducted on behalf of the Istituto Svizzero di Roma are part of this series of projects, which are conceived and developed from existing contexts. The same attitude applies to the most ambitious project that they have achieved so far: a residential building, with apartments, offices and shops in the nascent Europaallee in Zurich.

The exhibition features works from the BSI Art Collection by artists such as: John Armleder, Robert Barry, Alighiero Boetti, Andy Boot, Daniel Buren, Lawrence Carroll, John Chamberlain, Henri Chopin, Tony Cragg, Aleksandra Domanovic, Haris Epaminonda, Ceal Floyer, Ryan Gander, Peter Halley, Channa Horwitz, Gabriel Kuri, Fausto Melotti, Mario Merz, Giulio Paolini, Steven Parrino, Manfred Pernice, Diego Perrone, Riccardo Previdi, Seth Price, Patrick Tuttofuoco, Danh Vo.

In these supplements: (© Photo Agostino Osio) Informations

Daniel Buren Gabriel Kuri Giulio Paolini Allegro Giusto Works from BSI Art Collection Preparations for a new building Peinture aux formes Untitled (Hook Kiss), 2009 Orfeo, 1988 Design Bosshard Vaquer indéfinies, 1966 Two slabs of marble, Two casts and whole plaster Painting on cotton canvas ashed cigarette butts fragments and one in from 16 October 2014 with orange and white stripes 150 x 101 x 3 cm fragments, matt white base. 62 x 95,5 x 2 cm Base 100 x 70 x 70 cm, to 20 June 2015 Fausto Melotti overall measures John Chamberlain 156 x 70 x 70 cm Istituto Svizzero di Roma Villa Maraini Manfred Pernice Via Ludovisi 48 00187 Rome

Composizione, 1984 Open on Saturdays and Studio Lite XI, 1989 Brass, 84,5 x 25 x 24 cm during public events of Addapuss, 1989 the Istituto Svizzero di Happy Birthday II, 1989 Untitled, 2008 Studio Lite IX, 1989 Wood, lacquer, spray-painting, Roma. Open to the public Studio Lite IV, 1989 metal, 201 x 82 x 82 cm free of charge on all other Ordinary Wall, 1989 days (booking required Studio Lite III, 1989 Riccardo Previdi by phone: +39 06 420 421 Downtown, 1989 888 Light, 1990 Le guglie, 1970 or by email: Flores Awning, 1990 Brass, 100 x 32 x 29 cm [email protected] 888 Lite IV, 1990 Inka Dinka Dew, 1990 www.bsiartcollection.com Photographs printed on www.istitutosvizzero.it Ektacolor Professional paper 51 x 61 cm Broken Display, 2012 Tony Cragg Bamboo, steel, wire, Scultura n. 24, 1935 (1968) UV print, synthetic felt Iron and gypsum 130 x 150 x 20 cm 90 x 90 x 4,8 cm Seth Price Mario Merz

Minster, 1992 Used industrial objects. Base surface 250 x 250 cm ca. Highrise - SPR 10/005, 2009 H towers: 285, 275, 260, 215 cm Senza Titolo Vacuum cord in PETG, car paint (Luoghi senza strada), 1994 243,8 x 121,9 cm Peter Halley Metallic structure, clamps, slates, neon Patrick Tuttofuoco Ø 400 x 200 cm ca.

Untitled (BSI Painting 2), 2003 Acrylic, pearly, metallic acrylic and Roll-a-Tex on canvas 207 x 175 cm Map #2, 2006 Painted steel, wood, plastic, bamboo, Plexiglas H 260 cm BSI – BSI Ltd. financial statements

BSI Ltd. financial statements

Parent Bank balance sheet as of 31 December 2014 78

Parent Bank profit and loss statement 2014 79

Notes to the 2014 Parent Bank financial statements 80

Report of the statutory auditor 86 on the financial statements

77 BSI – BSI Ltd. financial statements

Parent Bank balance sheet as of 31 December 2014 (before approval by the General Shareholders Meeting)

31.12.2014 31.12.2013 Change Notes CHF 1’000 CHF 1’000 in % Assets Cash and cash equivalents 2’911’939 3’806’230 -23.5 Money market paper 1’061’164 1’307’937 -18.9 Due from banks 2’867’993 2’229’276 28.7 of which due from reverse repo transactions 173’314 155’776 11.3 Due from customers 5’100’729 4’242’719 20.2 Mortgage loans 3’905’707 3’639’541 7.3 Securities and precious metals held for trading 1’196’922 1’227’810 -2.5 Financial investments 1’628’262 1’378’739 18.1 Shareholdings 349’000 328’026 6.4 Fixed assets 370’348 386’539 -4.2 Accrued income and prepaid expenses 46’801 45’424 3.0 Other assets 7 787’243 509’814 54.4 Total assets 20’226’108 19’102’055 5.9 Total subordinated assets 67’888 62’371 8.8 Total amounts receivable from Group companies and qualified shareholders 753’962 604’832 24.7

Liabilities Money market paper liabilities 4’417 2’240 97.2 Due to banks 3’014’954 3’246’833 -7.1 Due to customers in savings and investment accounts 602’074 530’908 13.4 Due to customers, other 13’797’976 12’928’618 6.7 of which due from the trading portfolio 403’747 463’626 -12.9 Medium-term notes 800 -100.0 Loans with issuers of property bonds and other 99’036 89’015 11.3 Accrued expenses and deferred income 124’048 95’028 30.5 Other liabilities 7 811’898 533’970 52.0 Value adjustments and provisions 2 278’210 136’480 103.8 Reserves for general banking risks 2, 4 73’537 97’137 -24.3 Share capital 3, 4 1’840’000 1’840’000 General legal reserve 4 273’054 -100.0 Loss / Balance brought forward 4 -398’974 65’093 -712.9 Net result for the year -21’068 -737’121 -97.1 Total liabilities 20’226’108 19’102’055 5.9 Total subordinated liabilities 116’984 118’527 -1.3 Total liabilities to Group companies and qualified shareholders 2’489’754 2’860’983 -13.0

Off-balance sheet business Contingent liabilities 2’062’365 2’071’193 -0.4 Irrevocable commitments 35’318 34’630 2.0 Contingent liabilities for calls and margin liabilities 361 654 -44.8 Loan commitments 2’775 5’719 -51.5 Derivative financial instruments Positive replacement value 708’687 450’559 57.3 Negative replacement value 745’366 478’687 55.7 Contract volumes 47’191’525 44’075’512 7.1 Fiduciary transactions 1 2’410’416 2’222’660 8.4

78 BSI – BSI Ltd. financial statements

Parent Bank profit and loss statement 2014

2014 2013 Change Notes CHF 1’000 CHF 1’000 in % Income and expenses from ordinary banking operations Interest and discount income 164’306 164’419 -0.1 Interest and dividend income from financial investments 10’754 7’788 38.1 Interest expenses -23’622 -24’901 -5.1 Result from interest activities 151’438 147’306 2.8

Commission income from lending activities 8’569 8’614 -0.5 Commission income from securities and investment transactions 386’048 385’643 0.1 Commission income from other services 22’826 16’658 37.0 Commission expenses -108’834 -114’521 -5.0 Result from commission and service fee activities 308’609 296’394 4.1

Result from trading operations 8 121’240 120’330 0.8

Result from the sale of financial investments 207 511 -59.5 Income from participations 87’130 46’931 85.7 Net income from real estate 2’590 3’229 -19.8 Other ordinary income 23’821 17’425 36.7 Other ordinary expenses -2’966 -6’243 -52.5 Other ordinary result 110’782 61’853 79.1

Net operating result 692’069 625’883 10.6

Personnel expenses -287’982 -276’368 4.2 Other operating expenses -232’520 -195’335 19.0 Operating expenses -520’502 -471’703 10.3

Gross profit 171’567 154’180 11.3

Net result for the year Gross profit 171’567 154’180 11.3 Depreciation of fixed assets -41’151 -768’918 -94.6 Value adjustments, provisions and losses -179’610 -141’738 26.7 Result before extraordinary items and taxes -49’194 -756’476 -93.5

Extraordinary income 9 38’965 42’831 -9.0 Extraordinary expenses 9 -2’407 -17’544 -86.3 Taxes -8’432 -5’932 42.1 Net result for the year -21’068 -737’121 -97.1

Appropriation of profit 31.12.2014 31.12.2013 Variazione CHF 1’000 CHF 1’000 in % Net result for the year -21’068 -737’121 -97.1 Balance brought forward -398’974 65’093 -712.9 Balance sheet loss -420’042 -672’028 -37.5

Proposal of the Board of Directors General legal reserve compensation -273’054 -100.0 Loss to be carried forward -420’042 -398’974 5.3 Total -420’042 -672’028 -37.5

79 BSI – BSI Ltd. financial statements

Notes to the 2014 Parent Bank financial statements

Accounting and valuation criteria

The accounting, recognition and valuation criteria con- Supervisory Authority FINMA. Please refer to the “Ac- form to the provisions of the Swiss Code of Obligations, counting and valuation principles” attached to the Group’s the Swiss Federal Act on Banks and the relevant Ordi- accounts, which are also valid for the accounts of the Par- nance, and the Guidelines of the Swiss Financial Market ent Bank.

1. Fiduciary transactions

31.12.2014 31.12.2013 Change CHF 1’000 CHF 1’000 in % Fiduciary deposits with other banks 1’534’249 1’356’970 13.1 Fiduciary deposits with Group banks and associated banks 876’167 865’690 1.2 Total 2’410’416 2’222’660 8.4

2. Value adjustments, provisions and reserves for general banking risks in CHF 1’000 2014 Recoveries, doubtful New Use interest, provisions Release Situation according Reclassifica- currency charged credited to Situation 31.12.2013 to purpose tions differences to P/L P/L 31.12.2014

Value adjustments and provisions for default risks and other business risks 258’058 -52’858 12’313 169’754 -4’812 382’455 Value adjustments and provisions for default risks (credit and country risks) 120’481 -22’976 -300 2’358 4’856 -2’147 102’272 Value adjustments and provisions for other business risks 579 -2 -577 Value adjustments for financial investments 3’784 397 4’181 Provisions for restructuring 9’000 9’000 Other provisions 133’214 -29’882 300 9’560 155’898 -2’088 267’002 Total value adjustments and provisions 258’058 -52’858 12’313 169’754 -4’812 382’455 Value adjustments set off directly against assets -121’578 – – – – – -104’245 Total value adjustments and provisions as per balance sheet 136’480 – – – – – 278’210

Reserves for general banking risks 97’137 -23’600 73’537

80 BSI – BSI Ltd. financial statements

3. Presentation of share capital and shareholders with voting rights above 5%

31.12.2014 31.12.2013 Capital Capital Total with Total with nominal Number dividend nominal Number dividend value of shares rights value of shares rights CHF 1’000 CHF 1’000 CHF 1’000 CHF 1’000 A. Share capital Share capital 1’840’000 18’400’000 1’840’000 1’840’000 18’400’000 1’840’000

31.12.2014 31.12.2013 Nominal Participation Nominal Participation CHF 1’000 percentage CHF 1’000 percentage B. Shareholders Shareholders with voting rights Participatie Maatschappij Graafschap Holland N.V., Diemen (NL)1 1’840’000 100.00 1’840’000 100.00

1 Company directly and wholly owned by the Assicurazioni Generali Group, Trieste.

4. Statement of shareholders’ equity

CHF 1’000 Shareholders’ equity at 1 January 2014 Share capital 1’840’000 General legal reserve 273’054 Reserves for general banking risks 97’137 Balance brought forward 65’093 Net result for the previous year -737’121 Total shareholders’ equity (before appropriation of profit) 1’538’163 Release of reserves for general banking risks credited to P/L -23’600 Net result for the current year -21’068 Shareholders’ equity at 31 December 2014 (before appropriation of profit) 1’493’495 of which: Share capital 1’840’000 Reserves for general banking risks 73’537 Loss brought forward -398’974 Net result for the current year -21’068

81 BSI – BSI Ltd. financial statements

5. Pension liabilities

31.12.2014 31.12.2013 CHF 1’000 CHF 1’000 Commitments to Group pension institutions 59’307 82’591

All the Parent Bank’s staff, except for apprentices, interns, The “Fondo per prestazioni a carattere sociale di BSI SA” volunteers and staff on fixed-term contracts for more than (Fund) is represented by a complementary defined-con- three months or hired as consultants, are insured by the tribution plan. The Fund insures all employees already “Fondazione di Previdenza BSI SA” (Foundation). As at 31 enrolled in the Foundation’s scheme whose annual fixed December 2014, there were 1,266 employees covered by insured salary is over four times the maximum simple AVS the pension scheme and 937 drawing pension benefits (as old-age pension or whose initial contribution to the Foun- at 31 December 2013, there were 1,291 employees cov- dation resulted in a surplus. ered and 927 drawing benefits). Staff on fixed-term con- tracts of more than three months or hired as consultants, Both the Foundation and the Fund set the normal retire- either on a fixed-term or open-ended basis, are enrolled ment age at 64. in an occupational pension scheme offered by a leading insurer. As at 31 December 2014, the responsible actuary deter- mined the vested benefits accounts and the actuarial pro- Costs incurred by the Bank for pension plans are included visions considering the regulatory changes concerning the in “Personnel expenses”. Foundation and the Fund effective from 1 January 2015 as well as by applying the 2.75% technical rate and the LPP Until 31 December 2014, the Foundation, which ensures 2010 generational tables. Based on these actuarial esti- employees are enrolled in the mandatory occupational mates, as at 31 December 2014 the coverage ratio for the pension schemes in accordance with the Swiss Federal Foundation was 101.9% (31 December 2013: coverage ra- Law on occupational old-age, survivors’ and disability in- tio 94.1%, technical rate 3%, LPP 2010 periodic tables) surance (LPP) and the relevant ordinances, applied a de- and 108.1% for the Fund (31 December 2013: coverage fined-benefit plan, whereas the regulation introduced on ratio 101.3%, technical rate 3%, LPP 2010 periodic tables). 1 January 2015 establishes a defined-contribution one. Under the new plan, the old-age pension is calculated by In accordance with Article 57, paragraph 1 and 2 of the applying the conversion rate to the assets accumulated by Ordinance concerning occupational old-age, survivors’ and the insured person at the date of retirement. Under both disability insurance (OPP2), BSI SA commits to guarantee the former and the new regulation, disability and survivors’ the liquidity the Foundation and the Fund hold with BSI benefits are determined based on the final salary before Ltd. by establishing a collateral deposit. the insured event.

82 BSI – BSI Ltd. financial statements

6. Other balance sheet information

31.12.2014 31.12.2013 Change CHF 1’000 CHF 1’000 in % Assets pledged as security for own liabilities 300’216 235’860 27.3 Due from the Bank’s bodies 17’005 16’912 0.5 Due from affiliated companies 100’630 113’230 -11.1 Due to affiliated companies 30’546 34’073 -10.4 – The conditions applied to loans to the Bank’s senior – BSI delegates the operation, development and mainte- management are the same as those applied to staff nance of its IT systems as well as back-office activities to loans. Due to their lower credit risk, employees receive the service company B-Source SA, which is 49%-owned. an interest rate reduction depending on the type of loan. These services are purchased at arm’s length and carried – All transactions with affiliated companies were carried out in accordance with the provisions of FINMA Cir- out at arm’s length. Revenues of CHF 2.4 million re- cular 2008/7. ceived from companies linked to the Generali Group are recognised under “Result from commission and service fee activities” (2013: CHF 2.2 million).

7. Other assets and other liabilities

31.12.2014 31.12.2013 Change CHF 1’000 CHF 1’000 in % Other assets Replacement values for derivatives from trading activities 669’885 426’971 56.9 Replacement values for derivatives from hedging activities 38’802 23’588 64.5 Netting account 42’058 10’655 294.7 Other assets 36’498 48’600 -24.9 Total other assets 787’243 509’814 54.4

Other liabilities Replacement values for derivatives from trading activities 654’082 408’269 60.2 Replacement values for derivatives from hedging activities 91’284 70’418 29.6 Other liabilities 66’532 55’283 20.3 Total other liabilities 811’898 533’970 52.0

83 BSI – BSI Ltd. financial statements

8. Results from trading operations

2014 2013 Change CHF 1’000 CHF 1’000 in % Foreign exchange and banknote transactions 66’921 72’045 -7.1 Precious metal transactions 7’870 2’688 192.8 Securities transactions 45’423 40’908 11.0 Other trading operations 1’026 4’689 -78.1 Total 121’240 120’330 0.8

9. Extraordinary income and expenses

2014 2013 CHF 1’000 CHF 1’000

Extraordinary income 38’965 42’831 Release of value adjustments and provisions 2’665 2’570 Net release of reserves for credit risks 2’147 2’758 Release of reserves for general banking risks 23’600 Gain on the sale of participations 9’352 36’849 Recovered losses 761 535 Profit from sale of fixed assets 230 31 Other extraordinary income 210 88

Extraordinary expenses -2’407 -17’544 Creation of reserves for general banking risks -15’204 Losses on sale of participations -2’407 -2’340

Total 35’558 25’287

84 BSI – BSI Ltd. financial statements

Report of the statutory auditor on the financial statements

Ernst & Young Ltd Phone +41 58 286 56 56 Route de Chancy 59 Fax +41 58 286 56 57 P.O. Box www.ey.com/ch CH-1213 Geneva

86 BSI – BSI Ltd. financial statements

87 BSI – Glossary

Glossary of selected terms and abbreviations

ALM Clearing system Asset and liability management. Optimisation of assets Settlement system for payment transactions. The central- and liabilities in order to guarantee security, an appropri- ised system simplifies the settlement of accounts between ate risk level and liquidity. counterparties, allowing them to exchange and offset debit and credit claims against each other. In the securities Balance sheet sector, clearing systems help to streamline and speed up A document that shows the assets and liabilities of a com- the processing of stock market transactions. pany at a specific point in time. Commodities BA Commodities are goods that can be readily exchanged for Federal Act on banks and savings banks of 8 November units of other goods, e.g. metals, raw materials, plant 1934. products, animal products and energy related products. Commodities and future contracts on commodities (espe- BCBS cially futures) are traded on commodities exchanges (e.g. Basel Committee on Banking Supervision. Chicago Board of Trade www.cbot.com).

Bearish Consolidation Negative expectation regarding the performance of finan- The adjustment and combination of the financial state- cial products on a financial market (expectation of falling ments of different (subsidiary) companies in the form of prices). consolidated group financial statements.

Benchmarking Corporate bonds Benchmarking means the comparison of a company’s per- Corporate bonds are bonds issued by companies. They formance with that of competitors. The performance indi- are different from bonds issued by governments and sov- cator of competitors is called benchmark. The aim of this ereign entities. kind of comparison is to identify scope for improvement and competitive disadvantages, as well as to increase the Credit rating competitiveness of the company. A measurement of the ability and willingness of a debtor (e.g. bond issuer) to repay its debt. Specialised rating Breakeven point agencies (e.g. Standard & Poor’s, Moody’s, etc.) assess the The point at which income equals expenses and thus nei- creditworthiness of companies and publish their assess- ther a profit nor a loss is made. The profit zone (where in- ments in the form of ratings. Banks also have a rating sys- come exceeds expenses) is above the breakeven point and tem for borrowers. the loss zone (where expenses exceed income) is below it. Credit risk Buy-out The credit risk is the probability of a debtor being unable Purchase of a company or part of a company, where at least to meet its financial obligations, i.e. to pay interest and a majority of the share capital is purchased. principal at face value on time. If the debtor’s credit rating falls, the risk of default rises and this is reflected in a falling Cash flow statement bond price and a rising yield to maturity. Statement of all cash inflows and outflows during a busi- ness period. These are usually subdivided into cash flow Custody from (for) operating activities, from (for) investing activi- Custody refers to both the safekeeping and administration ties, and from (for) financing activities. The balance of the of securities on behalf of clients. Custody includes the ac- cash flow statement shows the change in liquidity during tual custody account management, while administration the period under consideration. focuses on tasks related to dividend and interest pay- ments, equity-related transactions and share voting rights. CDB 08 Agreement on the Swiss banks’ code of conduct. Depreciation / amortisation Reduction in value of assets which is charged to the profit and loss statement as an expense. A classic example is the

88 BSI – Glossary

depreciation in the value of an industrial machine. The val- acquired, such as client loyalty and employees’ expertise. ue of a machine is depreciated on the basis of its estimat- The term is also used to refer to the difference between ed useful life. the earning power of a company and its current value.

Derivative financial instruments Hedge Financial instruments whose price does not directly de- Operation aimed at eliminating a risk factor in a portfolio pend on the economic value, as is the case for stocks and (equities, currencies, interest rates, etc.). Derivatives (op- bonds, but is instead derived from the price of another tions, futures, etc.) are often used for this purpose, as they instrument, generally a financial instrument. Derivatives allow a hedge to be made with less capital due to the lev- exist on almost every type of financial instrument. There erage effect. are even derivatives on derivatives. Derivatives are (lever- aged) marginal instruments and can thus be used for spec- Hedge funds ulative purposes. They are very efficient for controlling a Hedge funds are investment funds that can use investment portfolio’s risk. strategies generally not permitted for investment funds that comply with investment fund regulations (such as Duration UCITS). The strategies commonly used are arbitrage, long / Measurement of sensitivity for the risk of a bond yield fluc- short positions, hedging and others. UCITS regulations are tuation. A negative correlation exists between interest gradually expanding so that investment funds can use rates and bond prices. Investors should choose a duration most of the strategies deployed by hedge funds. for their bonds in view of changes in interest rates. Dura- tion changes are a function of the amount of interest, ma- Initial public offering (Going public) turity and yield of the bond. Transformation of a privately held company into a public company. When an IPO is launched, shares are offered EBA publicly for the first time, usually via a stock exchange. As European Banking Authority. a result, both old and newly issued shares are made avail- able for public trading. ECB European Central Bank. Issue Issue of new securities (e.g. bonds, shares) to investors. An FED issue can take the form of a fixed-price placement or can Federal Reserve System, the central banking system of the be sold at auction. Securities are often issued with the help United States. of an investment bank.

FINMA Joint Venture Swiss Financial Market Supervisory Authority. A form of cooperation by several companies to achieve a common aim. This can take the form of contractual collab- Fixing oration or the creation of a company. Unlike mergers, joint It represents the procedure through which a reference or ventures do not require the participating companies to opening price is established. It is used for some assets, give up their independence. Joint ventures are often set above all where there is no market close price (such as cur- up for a defined period of time only. rencies and interest rates), and for structured products where the prices at which the product starts its life are set London Interbank Offered Rate (LIBOR) (Fixing Date). Money market interest rate resulting from the average in- terest rate quoted by different banks in London. Due to Future the considerable importance of London as a financial cen- Standardised contract that guarantees the delivery of an tre, the Libor is the most important money market rate and underlying at a fixed price on a given date in the future. the reference interest rate for the euro money market, or Unlike forward transactions, which are entered into by two for loans in euros and for many other financial products. specific parties, futures can be traded on stock exchanges. Long Position Goodwill Purchase of a position. This can involve securities of all Difference between the price paid for a company and the kinds, derivatives, commodities, etc. fair value of the acquired company. Goodwill thus repre- sents the intangible value of a company, which is not re- ported in the balance sheet as long as the company is not

89 BSI – Glossary

Mergers and acquisitions Short Position A general term created by investment banks to describe Sale of a position. This can involve securities of all kinds, all forms of business combinations between companies. A derivatives, commodities, etc. merger involves the actual merging of two companies to form a new entity, for example by means of merger of SNB equals or consolidation. On the other hand, an acquisition Swiss National Bank. refers to the purchase and sale of companies, business units or equity interests and their integration in the acquir- Spread ing company. Difference between the price or yield of one or more finan- cial instruments. For instance, it may reflect the difference Money market between the purchase and sale prices of two bonds or the Financial market for short-term liquidity and securities. short-term (2 years) and long-term (10 years) yields of two Maturities of less than a year are considered to be short- bonds. term. Structured products Mortgage Structured products are financial instruments composed Loan backed by property, through a lien on the property of derivative and non-derivative financial instruments. This itself or on a mortgage note. special composition makes it possible to follow a specific investment strategy. Outsourcing Operation to move a service hitherto carried out by a com- Swap pany in-house to a new or existing external company. This Financial contract governing an exchange of payments. As operation generally enables a company to convert fixed comparable obligations can be bought and sold, a swap is costs to variable costs and to improve efficiency. similar to an exchange of obligations. In an interest rate swap, fixed and variable interest-rate obligations are ex- Over-the-counter (OTC) changed, while in a currency swap, obligations in one cur- A transaction carried out directly between two parties rency can be exchanged for obligations in another currency. without the involvement of a stock exchange or other fi- nancial intermediary. OTC transactions are thus more indi- Underlying vidualised than exchange-traded products. It indicates the financial instrument that will be exchanged on the basis of a derivative instrument (options, futures, Pricing forwards, etc.). Definition of an equilibrium price both through models (CAPM, Black&Scholes, APT) and through matching sup- Volatility ply and demand. A measure of risk. It may be calculated on historical prices (historical volatility) or on the basis of expectations through Provisions the price of derivative instruments (implied volatility). As a Liabilities created in the balance sheet through charges to rule, high volatility reflects significant price fluctuations. the profit and loss statement to cover future commitments, the amount and timing of which are currently not absolute- Warrant ly certain. Unlike reserves, provisions are always related to Put and call options issued by financial institutions. Con- a specific transaction or event. trary to options traded on Eurex or other organised stock exchanges, warrants come in many maturities, sizes and SBA strike prices set by the issuer. Often, it takes many warrants Swiss Bankers Association. to exercise a right, which is why their price is very low.

Securities In general, a financial instrument that uses capital for fi- nancing debt (bonds) or equity (shares). This term is some- times applied more broadly to any type of financial instru- ment, from structured products to investment funds.

In cooperation with IBF (Institute of Banking & Finance) Wikifinance, University of Zurich.

90 BSI – Contacts

Contacts

Switzerland Phone Fax Lugano BSI Ltd. – Head Office +41(0)58 809 31 11 +41(0)58 809 36 78 Via Magatti 2, CH-6900 Lugano, www.bsibank.com Patrimony 1873 SA – Affiliated company +41(0)91 912 72 72 +41(0)91 912 72 70 Via Peri 21b, CH-6901 Lugano, www.patrimony1873.com Bellinzona BSI Ltd. – Branch +41(0)58 809 65 11 +41(0)58 809 65 85 Viale Stazione 9, CH-6500 Bellinzona, www.bsibank.com Chiasso BSI Ltd. – Branch +41(0)58 809 61 11 +41(0)58 809 62 39 Corso S. Gottardo 20, CH-6830 Chiasso, www.bsibank.com Crans-Montana BSI Ltd. – Agency +41(0)58 809 19 16 +41(0)58 809 02 82 Immeuble Le Scandia, 7, Rue Centrale, CH-3963 Crans-Montana, www.bsibank.com Geneva BSI Ltd. – Branch +41(0)58 809 12 12 +41(0)58 809 12 45 8, Boulevard du Théâtre, CH-1204 Geneva, www.bsibank.com Lausanne BSI Ltd. – Branch +41(0)58 809 41 41 +41(0)58 809 41 43 3, Avenue de Rumine, CH-1005 Lausanne, www.bsibank.com Locarno BSI Ltd. – Branch +41(0)58 809 63 54 +41(0)58 809 63 08 Piazza Grande 7, CH-6600 Locarno, www.bsibank.com Zurich BSI Ltd. – Branch +41(0)58 809 81 11 +41(0)58 809 83 68 Schützengasse 31, CH-8001 Zurich, www.bsibank.com

Europe Como BSI Europe S.A. – Italian branch secondary office +39 02 722 22 71 +39 02 869 29 41 Piazza Alessandro Volta 56, I-22100 Como, www.bsieruope.it Genoa EOS Servizi Fiduciari S.p.A. – Affiliate local unit +39 010 553 10 06 +39 010 566 16 6 Via XX settembre 33, I-16121 Genova, www.eosfiduciaria.it La Valletta BSI Trust Corporation (Malta) Ltd. – Trust company +356 212 25 817 +356 212 25 865 35, St. Zachary Street, VLT 1132 Malta, www.bsitrustma.bsibank.com Luxembourg BSI Europe S.A. – Bank +352 46 1566 1 +352 46 1566 227 122, rue Adolphe Fischer, L-1521 Luxembourg, www.bsieurope.com BSI Fund Management SA – Affiliated company +352 28 66 181 +352 26 45 96 24 44F, rue de la Vallée, L- 2661 Luxembourg, www.bsi-fundmanagement.com Milan BSI Europe S.A. – Italian branch +39 02 722 22 71 +39 02 869 29 41 Via Paleocapa 5, I-20121 Milan, www.bsieurope.it EOS Servizi Fiduciari S.p.A. – Affiliated company +39 02 636 96 21 +39 02 290 63 197 Via Paleocapa 5, I-20121 Milan, www.eosfiduciaria.it AEON Trust Società Italiana Trust Srl – Trust company +39 02 636 96 201 +39 02 290 63 045 Via Paleocapa 5, I-20121 Milan Monaco BSI Monaco SAM – Bank – Affiliated company +377 92 16 89 89 +377 97 97 11 30 35 Boulevard Princesse Charlotte, MC-98000 Monaco, www.mc.bsibank.com BSI Asset Managers SAM +377 97 97 39 79 +377 97 97 39 80 Europe Résidence, Place des Moulins, MC-98000 Monaco, www.mc.bsibank.com Paris Oudart S.A. – Affiliated company +33 1 4286 2500 +33 1 4286 2525 10A, rue de la Paix, 75002 Paris, France, www.oudart.com

Middle East Bahrain BSI Ltd. – Branch +973 17 155 155 +973 17 107 777 Bahrain Financial Harbour, West Tower, 14th Floor P.O. Box 11321, Manama, Kingdom of Bahrain, www.bsibank.com Istanbul BSI Representative Office Turkey – Representative office +90 (212) 244 90 42 +90 (212) 244 91 87 Suzer Plaza, Askerocagi cad. No: 6, Kat: 21, Daire: 2101, Elmadag / 34367 Sisli, Istanbul,Turkey, www.bsibank.com

Asia Hong Kong BSI Ltd. – Branch +852 3126 0088 +852 3126 0288 20th Floor, Two Exchange Square, Central, Hong Kong, www.bsibank.com Singapore BSI Bank (Singapore) Ltd. – Bank +65 6521 1888 +65 6521 1605 7 Temasek Boulevard, #32-01 Suntec Tower One 038987, Singapore, www.bsibank.com

91 BSI – Contacts

Contacts

Latin America & Caribbean Montevideo BSI Servicios SA – Representative office +598 2 628 93 22 +598 2 628 93 30 Antonio D. Costa 3571, Piso 2, 11300 Montevideo, Uruguay BSI Consultores SA – Affiliated company +598 2 628 53 00 +598 2 628 76 90 Antonio D. Costa 3571, Piso 1, 11300 Montevideo, Uruguay Nassau BSI Ltd. – Branch +1 242 502 22 17 +1 242 502 23 17 Goodman’s Bay Corporate Centre,West Bay Street and Sea View Drive, P.O. Box CB-10956, Nassau, Bahamas, www.bsibank.com BSI Overseas (Bahamas) Ltd. – Bank +1 242 502 22 00 +1 242 502 23 00 West Bay Street and Sea View Drive, P.O. Box N-7130, Nassau, Bahamas www.bs.bsibank.com Panama BSI Bank (Panama) SA – Bank +507 366 9800 / 01 +507 264 3588 Torre Generali, Piso 14, Ave. Samuel Lewis y Calle 54, Obarrio, Apartado 0832-1637, WTC-PA, Panama, www.pa.bsibank.com BSI (Panama) SA – Representative office +507 265 70 00 +507 264 35 88 Torre Generali, Piso 14, Ave. Samuel Lewis y Calle 54, Obarrio, Apartado 832-1637, WTC, Panama BSI Investment Advisors (Panama) Inc. – Affiliated company +507 366 9800 / 01 +33 1 4286 2525 Torre Generali, Piso 14, Ave. Samuel Lewis y Calle 54, Obarrio, Apartado 832-1637, WTC, Panama

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