98° Pictures: Ritom hydroelectric plant, above Piotta ISSN 1664-297X The original text written in Italian constitutes the controlling form of this Report. Table of Contents Message from the Chairman of the Board of Directors 5 BancaStato’s Centennial – A Brief History 7 Corporate Governance 9 Ticino’s Economy in 2015 and Outlook for 2016 26 Report of the Board of Directors 28 of Banca dello Stato del Cantone Ticino Group Financial Statements 35 Auditors’ Report 68 Individual Financial Statements 71 Auditors’ Report 86 Board of Directors 88 Public Mandate Control Commission 88 External Auditors as defined by the Swiss Federal Law 89 on Banks and Savings Banks Internal Auditors 89 Executive Board 90 Members of the Management 90 Head Office and branches 91 Agencies 92 3 Fulvio Pelli, attorney at law Chairman of the Board of Directors “ The important objectives achieved in 2015 came as a result of the substantial reorganisation and optimisation program which was launched several years ago. After this major and intense endeavour the Bank will be able to focus on consolidating its achievements in the coming years. „ 4 Annual Report 2015 Message from the Chairman of the Board of Directors Dear Madam, Dear Sir, In its 100th year of business, Banca dello Stato del Cantone The Bank nevertheless succeeded in increasing its income by Ticino has achieved excellent results. Mortgage loans increased 6.5% to CHF 182.7 million thanks to a growth in business by CHF 424 million to over CHF 7.7 billion. In spite of volumes, stable margins and specific operations regarding the the voluntary disclosure procedure launched by the Italian management of the balance sheet structure. government, the inflow of new money totalled CHF 135 million. The ongoing progress in mortgage loans granted, and the The Bank’s operating activities were also excellent: gross doubling, from 1% to 2%, of the countercyclical capital buffer profit stood at CHF 82.5 million and net income increased on these loans (pursuant to a decision of the Swiss Federal by 12.4%, reaching approximately CHF 43.8 million. Based Council in 2014), have forced the Bank to further enhance on these remarkable results, the Board of Directors decided its equity. Over and above the CHF 22 million allocated to to allocate CHF 22 million to the reserve for general banking reserves, the Board of Directors and the State Council have risks in order to bolster the Bank’s own capital resources. It has agreed to an additional CHF 80 million subordinated loan also earmarked CHF 6 million for the “BancaStato Centennial eligible as capital. This capital increase is significant in order Foundation”, a non-profit foundation instituted to finance to avoid the slowing down of lending, particularly during trying innovative projects and businesses favouring the economic times for the Canton’s economy. As a result of these measures development of the Canton. and the ordinary payment to the legal reserves, the Bank’s The cost/income ratio improved considerably, from 59.1% to capital adequacy, measured as the ratio of required capital to 54.8%, proving that the substantial investments made in 2014 available funds, has improved, standing at 211.9%, exceeding to upgrade the informatics system and work processes are now the minimum ratio of 140% set by FINMA. bearing fruit. The dividend to the Canton was increased from With regard to the anticipated performance in 2016, given the CHF 29.3 million in 2014 to CHF 33.2 million. Adding the prevailing uncertainty of the economic situation and the difficult interest on the CHF 60 million subordinated loan granted by context in which banks are operating, it is even more arduous the Canton to BancaStato at the end of 2014, the total amount today to make reliable predictions. paid out to the Canton stood at CHF 35 million. In 2015, the new BSM (B-Source Master) IT solution and In a difficult year for asset management banks, Axion SWISS renewed work processes were fully operational for the first Bank SA achieved satisfactory results. The Axion SWISS Bank time. Except for a few “growing pains” these extensive changes SA, which is entirely owned by BancaStato, registered an were positive for the Bank. The Institutte was able to work more inflow of new assets totalling CHF 1.4 million. Its net income efficiently while clients benefited from better service. decreased by CHF 0.5 million to CHF 1.4 million. The Bank also resolved the fiscal controversy with the United The Bank’s good operating results were achieved within a States (US Program) and concluded the activities pertaining difficult economic context. Low interest rates, uncertainties with to the voluntary disclosure procedure introduced by the Italian regard to the economic situation and financial markets and, to government which allowed Italian taxpayers who have assets a large extent, the operating framework of asset administration abroad to regularise their position. In this regard, it is important activities, have all impacted negatively on income. to note that 80% of Italian clients have so far remained with our Bank. 5 This is encouraging even though the Bank, as well as the Ticino The Board of Directors wanted celebrations worthy of the 100 financial marketplace, will have to demonstrate their ability years spent in service to clients and Canton. These events were to provide products and services which are competitive at an met with public appreciation, a tangible sign of the Ticinese international level. people’s attachment to their Bank, something I feel particularly proud of. In 2015, BancaStato worked towards the acquisition of a share of Société Générale Private Banking (Lugano-Svizzera) SA by its affiliated Axion SWISS Bank SA in order to enable it Fulvio Pelli, attorney at law to manage asset volumes which can better meet the challenges Chairman of the Board of Directors of asset management activities. Moreover, the Bank was active in the creation of a “home-base” for external Ticinese asset managers who face increasingly complex regulatory and market conditions. The important objectives achieved in 2015 came as a result of the substantial reorganisation and optimisation program which was launched several years ago. After this major and intense endeavour the Bank will be able to focus on consolidating its achievements in the coming years. The year 2015 was pivotal for BancaStato not only for the results it achieved, but also because it celebrated 100 years of existence and dedicated a substantial budget to the organisation of events throughout 2015, involving the entire Canton. 6 Annual Report 2015 BancaStato’s Centennial – A Brief History (Excerpts from the speech held by the Chairman of the Board of Directors, Fulvio Pelli, attorney at law, on the official ceremony to celebrate the 100th anniversary of Banca dello Stato del Cantone Ticino on the 4th of September 2015 at the Teatro Sociale in Bellinzona.) Banca dello Stato del Cantone Ticino was founded in 1915 in This was both a sound and wise move: the all-prudent policy what were then difficult times for Canton Ticino. It was wartime, adopted in 1915 was maintained and kept strictly unchanged by the so-called “absurd Great War”. That same year, Italy was also political authorities over several decades. involved in the conflict. Ulrich Wille, who was elected general in In the words spoken by Ferruccio Pelli, then Chairman of the the previous year, had repeatedly expressed his concern regarding Board of Directors during the celebrations for the Bank’s 50th the position of Italy, fearing a military intervention against Swiss anniversary, the long-term consequence of the policy pursued since territories. But worries in Ticino in 1915 were not only of a military 1915 was that “money flowed in with savings booklets and cash nature as the economy of our impoverished Canton was far from bonds, and flowed out as absolutely secure mortgages; all other booming. In the year prior to the Bank’s founding, three other banking operations were minor if not excluded”. Such a banking banks had filed for bankruptcy: the “Credito Ticinese”, the “Banca policy was not devoid of drawbacks: fifty years after its founding, Popolare Ticinese”, and first and foremost, the “Banca Cantonale during the economic revival in the wake of World War II, the Ticinese” in which the State held a modest stake. The latter bank then Chairman stated that “the impossibility of operating beyond was founded sixty years earlier, taking over from another institution. imposed restrictions progressively put the Bank in a disadvantageous In that year, the people of Ticino lost 40 million francs in savings, position with respect to competing institutions which were free from almost half of the total savings deposited in those days in all restrictions and poised to conquer the market”. Ticino banks. It was a real catastrophe. The Swiss Confederation called for a meeting of representatives of the national and Ticino An initial reaction to this obvious disadvantage came about banking industry, as well as the Cantonal government. This initiative with the legislative reform of 1961. The strict founding law was later gave birth to “Banca del Ticino SA”, a transitional institution somewhat relaxed. The Bank was now able to develop in the field largely financed by the German-speaking part of Switzerland and of commercial transactions. However, this would not be sufficient. whose investment policy was geared to utmost security. However, In relative passivity, the Bank had to watch as the Ticino economy this could not be considered as a definitive solution. The Ticino developed, consistent foreign capital flowed in and the banking government, along with the Grand Council of Ticino, showed industry boomed. The Institute also lagged behind when it came to considerable spirit of initiative and courage, and succeeded in creating the management structures for what would later be termed creating a new autonomous public banking institution by turning “private banking”, a segment which was not considered sufficiently “Banca del Ticino SA” into “Banca dello Stato del Cantone Ticino”, “public” in those days and which was thought of as entailing an all within a few months.