Annual Report 2013
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Annual Report 2013 Ernst von Freyberg President of the Board of Superintendence Istituto per le Opere di Religione Cortile Sisto V 00120 Città del Vaticano Stato della Città del Vaticano [email protected] IOR - Annual Report 2013 TABLE OF CONTENTS CHAPTER 1 Introduction by the Cardinals’ Commission 04 CHAPTER 2 Introduction by the Prelate 05 CHAPTER 3 Introduction by the President 06 CHAPTER 4 Mission, Services, and Customers 10 CHAPTER 5 2013 – Financial Review 13 CHAPTER 6 Financial Outlook 2014 19 CHAPTER 7 Corporate Governance 21 CHAPTER 8 Regulatory Framework 24 CHAPTER 9 Report of the Cardinals’ Commission 25 CHAPTER 10 Report of the Board of Superintendence 26 CHAPTER 11 Report of the Board of Auditors 26 CHAPTER 12 Financial Statements 27 CHAPTER 13 Independent Auditor’s Report 105 IOR - Annual Report 2013 CHAPTER 1 Introduction by the Cardinals’ Commission 04 Cardinal Santos Abril y Cardinal Pietro Parolin Cardinal Thomas Castelló Christopher Collins Cardinal Christoph Cardinal Jean-Louis Tauran Schönborn The Cardinals’ Commission welcomes the publication of the 2013 Annual Report of the Istituto per le Opere di Religione. We would firstly like to wholeheartedly thank the President of the Board of Superintendence, Ernst von Freyberg, who was appointed in February 2013, and our General Director, Rolando Marranci. Their focus has been on identifying and dealing with the principal legacy issues, and reforming the Institute, in particular by improving compliance and transparency. They have done so with great success. We offer our sincere gratitude to the board, the management, and everyone who works at the IOR. Cardinal Santos Abril y Castelló President of the Cardinals’ Commission Istituto per le Opere di Religione IOR - Annual Report 2013 CHAPTER 2 Introduction by the Prelate 05 Msgr. Battista Mario Salvatore Ricca In times of great change, it is of vital importance to remember the IOR’s purpose – to support those who toil to bring to fruition the good works carried out by the Catholic Church, often without any thanks, day-in, day-out, all around the world. In 2013, the IOR worked hard to focus its work on them. They are building schools and hospitals, educating children, helping the poor, administering to the sick and desperate. And they are spreading the word of God. I would like to take this opportunity to thank the staff for their dedication, kindness, and professiona- lism. Msgr. Battista Mario Salvatore Ricca Prelate Istituto per le Opere di Religione IOR - Annual Report 2013 CHAPTER 3 Introduction by the President 06 Ernst von Freyberg Dear readers, It is a great pleasure for me to present to you the 2013 Annual Report of the Istituto per le Opere di Religione (IOR). It is part of a comprehensive undertaking initiated in 2013 to explain the IOR’s mission, activities and financial performance, and give regular account of progress on reform. Key developments in 2013 and the first six months of 2014 included: - Phase I 2013 – 2014 of IOR reform concluded: all accounts checked, principal legacy cases investigated, progress in transparency, procedures improved; - Satisfactory operating performance in 2013 but Net Profit and Assets under Management affected by write-downs and reform process; - Successful first half of 2014, with improving financial results; - Phase II 2014-2017: Going forward, the IOR will continue to serve with prudence and provide specialised financial services to the Catholic Church worldwide. The valuable services that can be offered by the Institute assist the Holy Father in his mission as universal pastor and also aid those institutions and individuals who collaborate with him in his ministry. As set out in May 2013, we have focused on making the IOR compliant with financial regulation, safer and more transparent, so as to create options for the Holy Father to decide on the future of the Institute. 2013 results reflect reform effort The costs necessary to that task, and a series of prudent decisions to de-risk the Institute’s balance sheet, are reflected in the results for 2013. Notwithstanding this housekeeping effort, the IOR has delivered a creditable performance for its customers, first and foremost the Holy See itself. IOR - Annual Report 2013 In the first half of 2014, we delivered a very positive performance that validates the efforts of all those working at the IOR. 07 The financials in this Annual Report were prepared according to International Financial Reporting Standards (IFRS) and were audited by Deloitte & Touche S.p.A. 2013 profitable despite extraordinary items In 2013, the Institute reported a Net Profit of EUR 2.9 m (2012: EUR 86.6 m). The decline from 2012 is due to three events which lie outside our ordinary course of business. The IOR donated securities with a book value of EUR 15.1 m to a papal foundation, we wrote down by EUR 28.5 m a proprietary invest- ment in external funds, and the value of our decades-old gold holdings declined by EUR 11.5 m, in line with the gold price. Meanwhile, while we benefited from a reduction of bond interest rates in the markets in 2012, which resulted in significant realised and unrealised gains, those interest rates did not fluctuate much in 2013, so the positive effect we saw in 2012 was not repeated in 2013. In addition, operating expenses rose by EUR 8.3 m as our reform process accelerated significantly. Looking at the IOR’s results before these effects, the 2013 Income Statement of the IOR is satisfactory: - Net Interest Result: EUR 53.8 m (+ 3 %); - Net Fees and Commissions: EUR 14.1 m (+ 16 %); - Dividends from securities: EUR 3.8 m (+ 108 %); - Net Trading Result: EUR - 16.5 m (2012: EUR 51.1 m). This position includes the above-mentioned write-down of the IOR’s own investments in external funds (EUR 28.5 m) as well as the decline in value of our gold holdings by EUR 11.5 m; - Other Net Income: EUR - 14.4 m (2012: EUR - 4.7 m). This position includes the above- mentioned donation of securities with a book value of EUR 15.1 m to a papal foundation; - Operating Expenses: EUR - 32.2 m (2012: EUR - 23.9 m). The increase of EUR 8.3 m (+ 35 %) was mainly due to expenses incurred in 2013 for professional services required for the Institute’s reorganisation and reform; - Impairment Losses: EUR - 5.7 m (2012: EUR - 2.1 m) The increase was mainly due to a depreciation on financial support provided to the Diocese of Terni. In 2013, the total value of assets entrusted by customers to the IOR (including cash, assets held in custody and assets held under portfolio management) fell by EUR 0.4 bn to EUR 5.9 bn (2012: EUR 6.3 bn). These assets consisted of EUR 1.9 bn (2012: EUR 2.3 bn) in deposits, EUR 3.3 bn (2012: EUR 3.2 bn) managed by the IOR under asset management agreements, and EUR 0.8 bn (2012: EUR 0.8 bn) in assets held for customers under custody agreements. At year-end 2013, the IOR’s Equity was EUR 720 m (2012: EUR 769 m), giving the Institute a solid Total Capital Ratio of 17.2 %. In 2013 , the IOR contributed EUR 54 m to the budget of the Holy See. IOR - Annual Report 2013 As of 31 December 2013, the IOR had 17,419 customers (2012: approximately 18,900), of which 5,043 were Catholic institutions accounting for more than 80 % of clients’ assets and 12,376 individuals accounting for less than 20 %. The recorded decrease in customers corresponds with a decrease in 08 overall clients’ assets of 5.9 %. Phase I of the reform process successfully completed Phase I of the reform process was built around three pillars: compliance, focus on church customers, and transparency. At the beginning of my mandate, I repeatedly said that I would proceed with zero tolerance for any suspicious activity. We have carried out our reforms in this spirit and have not only drastically improved procedures to make the Institute safer and more transparent, but have also put the Institute’s owner in a position to act on the basis of facts. It is fair to say that over the past months this often painful but very necessary process has opened the door to a new, unburdened future for the IOR – as a financial service provider that is fully and solely dedicated to serve the mission of the Catholic Church. Our efforts to get there were acknowledged by Moneyval when they evaluated the Holy See in December 2013. From May 2013 until June 2014, the IOR has systematically screened all existing customer records. That task has now been completed. As a result of this screening process, the IOR has ended a total of around 3,000 customer relationships. Of these, 396 customer relationships were ended due to the decision to restrict our customers to catholic institutions, clerics, employees or former employees of the Vatican with salary and pension accounts, as well as embassies and diplomats accredited to the Holy See only. In addition, around 2,600 dormant customer relationships were ended. A further 359 customer relationships are currently in the process of being closed. We have significantly increased the demands on information we require from our customers and we are thankful to our customers for bearing with us. Much work is ahead of us! A number of major regulatory changes affecting the IOR were introduced to the Vatican City State / Holy See in 2013. Specifically, Law XVIII of the Vatican City State on transparency, supervision and financial informa- tion, issued on 8 October 2013, carried a wide array of new provisions to which the IOR is continuing to adapt.