Full.Report.cor.

Transcrição

Full.Report.cor.

ARAB BANK (SWITZERLAND) LTD.
47 TH ANNUAL REPORT 2008
Adjusted Statements as of April 17, 2009
ARAB BANK (SWITZERLAND) LTD.
47 TH ANNUAL REPORT 2008
Arab Bank (Switzerland) Ltd. is an independent
company, founded in 1962 according to Swiss law,
specialized in asset management and investment
counselling for a sophisticated clientele, both
private and institutional.
Arab Bank (Switzerland) Ltd. is a sister company of
Arab Bank plc., Amman/Jordan, a leading financial
institution, which has a wide network in the Arab
world and the major financial centers.
Head Office
Branch
Arab Bank (Switzerland) Ltd. Annual Report 2008
CH-8022 Zurich
Phone: +41 (0)44 265 71 11
Claridenstrasse 26
Fax: +41 (0)44 265 73 30
P.O. Box 2023
[email protected]
www.arabbank.ch
Swift: ARBSCHZZ
CH-1211 Geneva 3
Phone +41 (0)22 715 12 11
10-12 Place de Longemalle
Fax +41 (0)22 715 13 11
P.O. Box 3575
[email protected]
www.arabbank.ch
Swift: ARBSCHZZGVA
1
TABLE OF CONTENTS
Financial Statements
Notes to the Financial Statements
2
Board of Directors / Management / Auditors
3
Directors’ Report
4
Balance Sheet
8
Profit and Loss Statement
9
Allocation of Earnings
10
Statement of Cash Flows
11
1. Business Activities and Personnel
12
2. Accounting Policies and
Valuation Principles
12
3. Information on the Balance Sheet
15
4. Information on Off-Balance
Sheet Transactions
24
5. Information on the Income Statement
26
Report of the Auditors
27
BOARD OF DIRECTORS / MANAGEMENT / AUDITORS
Board of Directors
Management
Abdel Hamid Shoman Chairman
Dr. Alfred Schwarzenbach Vice-Chairman *
Dr. Farouk El-Kharouf Member (until October 14, 2008)
Jawdat Al-Halabi (until September 9, 2008)
Sabih T. Masri Member
Alois V. Meyer Member *
Wahbé A. Tamari Member
Management Committee
Mario Di Marco CEO / General Manager
(until December 31,2008)
Nasri V. Malhamé CEO / General Manager
(since January 1, 2009)
Matthias Oettli COO / Deputy General Manager
Khalil Shehadeh Managing Director, Geneva Branch
David Ch. Tunbridge Managing Director,
Head Private Banking
Zurich Office
Jean-François Binnendijk Executive Director
Marianne Anderegg Executive Director
Wulf Haasner Executive Director
Urs Morgenthaler Executive Director
Heinz Sandmeier Executive Director
Peter Seemann Executive Director
Erich Vettiger Executive Director
Heinrich Vettiger Executive Director
Dr. Frank Wettstein Executive Director
Roland Wietlisbach Executive Director
Christian Conzett Director
Mark Eggler Director
Pascal Fischer Director
Manuela Grünenfelder Director
Robert Holzreiter Director
Thomas Joho Director
Stefania Kitzmüller Director
Karl Kunz Director
Klaas Wiedemeijer Director
Markus Winzenried Director
Geneva Branch
Antoine Du Pasquier Executive Director
Riad El-Arab Executive Director
Hassen El-May Executive Director
Walid Gomaa Executive Director
Christophe Lavanchy Director
Mohamed Mokhtar Director
Internal Audit
Auditors
Marcel Ming, Guido Jäger Treuhand AG, Bubikon
Deloitte Ltd, Zurich
* Independent Board Member according to FINMA Circular 2008/24,
margin number 19
3
DIRECTORS’ REPORT
For many equity markets, 2008 brought the most
severe losses since the thirties of the last century.
Governments and central banks around the world
were forced to take extraordinary measures to stem
the worst excesses of the financial crises. On the back
of a dramatic worsening of the economic environment, investors’ risk tolerance remained low. Safe
government bonds registered robust gains, whereas
commodities suffered significant declines. The US
Dollar strengthened somewhat.
Financial markets and economic environment
The global financial crisis finally came head to head
with the real economy in 2008. For the first time since
many decades, the USA, Europe and Japan were in
a simultaneous recession by year-end. Worldwide demand slumped dramatically. The US consumer market, which has often served as a pillar for the world
economy in the past, was especially hard hit.
American households were swiftly curbing their outlays in response to large losses in stock market and
housing wealth and rapidly deteriorating labour market conditions. The consumer sector, which accounts
for more than two thirds of the GDP, shrunk by nearly four percent in the third quarter of 2008. This was
the first contraction since 1991 and the most severe
one since 1980. But some important European and
Japanese economic indicators also stood at their lowest level since at least a quarter of a century. Toyota,
the world’s largest car maker, said that it would post
the first operational loss for this financial year since
1940. The Swiss economy entered the recession in the
fourth quarter, but should have expanded close to two
percent in all 2008.
The deterioration of the economic
caused equity markets worldwide to
drop significantly. Since its all-time
high registered in October 2007
until the low in November 2008,
the S&P 500 Index, the global bellwether, declined some 50%. The
corrections in Europe and in Japan
were even deeper and larger, as
these markets tumbled to well over
half of their original value and
reached their highs already in June
and March 2007 respectively. For all
of 2008, the most important US
stock market gauge declined by 38%,
the European Stoxx Composite Index dropped by 46%, whereas the
Nikkei 225 Index gave up 42%. In
addition to worsening economic
developments, investors were worried that the financial crisis could
4
environment
not be curtailed definitively. The crisis counted
numerous victims, above all in the US. No stone
remained unturned in the American financial landscape: The government had to rescue the two largest
mortgage providers Fannie Mae and Freddie Mac as
well as the big insurer AIG. Citigroup, once the largest
USA commercial bank, only managed to survive
thanks to a bridge loan from the US Fed. All investment banks disappeared and numerous financial institutions had to be merged or taken over by the competition in order to prevent bankruptcy. The large US car
manufacturers have become completely dependent on
public help. But also single countries such as Island,
Hungary, Ukraine or Ecuador were hit very hard by
the financial crisis.
Governments and monetary authorities around the
globe did everything they could to soothe the negative impacts of the financial crisis on to the real economy. The world’s most powerful central banks lowered key interest rates vigorously. Inflation markedly
eased in the second half of the year thanks to declining commodity prices. The US Fed was particularly
active and cut its short-term interest rates to quasi
zero percent. Since standard rate cutting simply did
not seem to work as a way of reviving the economy,
the US Central Bank moved to a new policy called
quantitative easing. The Fed bought all sorts of securities in order to supply the banking system with the
necessary liquidity. Several governments of the industrialized world became active, too, spanning a protection shield in the amount of several hundred billions
Dollars or Euros over their national financial market.
In addition, fiscal stimulus programs were introduced
in many countries.
The elevated economic and financial risks caused
investors to shift more assets into safe-heaven investments. The demand for government bonds with high
Financial Highlights
Balance Sheet
Balance sheet total
Due from customers
Securities and financial investments
Shareholders’ equity (before profit distribution)
2008
2007
Variance
(CHF million)
%
1'844.1
600.8
208.1
501.8
2'092.1
548.3
308.9
500.8
- 248.0
52.5
- 100.8
1.0
- 11.9
9.6
- 32.6
0.2
Net interest income
Results from commission and service fee activities
Results from trading operations
Operating expenses
22.0
21.7
2.4
- 26.6
21.7
25.0
5.0
- 23.6
0.3
- 3.3
- 2.6
- 3.0
1.4
- 13.2
- 52.0
- 12.7
Gross Profit
Depreciation, valuation adjustments/provisions
13.8
- 18.5
28.6
- 1.2
- 14.8
- 51.7
- 17.3 -1’541.6
Profit before Extraordinary Items and Taxes
Extraordinary income, net
Taxes
- 4.7
14.7
- 1.1
27.4
1.9
- 7.0
- 32.1
12.8
5.9
n/a
673.7
84.3
8.9
2'598.7
22.3
2'835.6
- 13.4
- 236.9
- 60.1
- 8.4
Net Income
Fiduciary transactions
ratings remained very robust during all 2008. As a
result, yields continued to decline significantly once
again. The yield of the 10-year US Treasury declined
from 4.06% at the beginning of the year to 2.21% as
of December 31, 2008. The excellent performance of
government bonds came as a surprise as these papers
had already performed very well in 2007. In sharp
contrast to government bonds, corporate paper – with
the exception of companies with the highest ratings –
performed poorly. Investors feared that the global
economic uncertainties would cause default rates to
increase sharply.
Commodities were another victim of the financial crisis, which caused economic activities to slow dramatically. The oil price surged from USD 90 at the beginning of the year to its high of USD 147 per barrel in
the middle of July and back to USD 46 by the end of
the year, which was equivalent to a decline of nearly
seventy percent. Prices of metals and agricultural
goods fell significantly, too. The US Dollar was very
volatile: After the US currency strengthened markedly
against the Euro during most of the second half of
2008, it came under severe pressure once again in
December. All in all, the US Dollar firmed somewhat
during the last 12 months. But high yielding currencies were hard hit by the financial crisis and eased
considerably. In sharp contrast, traditional safe heaven currencies such as the Japanese yen and the Swiss
franc strengthened markedly.
Comments on Profit and Loss Statement
and Balance Sheet
As a result of the economical difficulties illustrated
above, the Bank’s net income decreased from CHF
22.3 million to CHF 8.9 million (-60%).
Net interest income further grew by 1.4% to CHF 22.0
million, whereby the interest margin on credit and
private banking business (CHF 16.0 million) more
than compensated the decline on the income from
Financial Investments.
2007’s increase of commission income (+7.8%) to CHF
25.0 million was more than offset by a decrease of
CHF 3.3 million in 2008. The further improved lending commissions (CHF +0.4 million) could only partially compensate the lower commission income in
the private banking area (CHF -3.7 million or 16%).
Overall commission income diminished to CHF 21.7
million (-13.2%).
Due to losses on our own securities (CHF -2.6 million
– trading as well as market valuation) the trading
department’s contribution to the overall net income
decreased to CHF 2.4 million (2007: CHF 5.0 million).
Sales and revaluations of our Financial Investments
led to a negative result of CHF 5.7 millon in the caption “Other Ordinary Results”.
Personnel and operating expenses (CHF 26.6 million)
slightly exceeded our budgeted figures 2008 and
demonstrate the strong belief of the Board of
Directors in a successful future (investments into private banking personnel as well as infrastructure and
systems) - CHF +3 million or +12.7%.
Balance Sheet
The Balance Sheet declined by CHF 248.0 million
mainly due to a shrinking interbank market with
lower deposit volumes.
Loans to customers increased by 9.6% (CHF +52.5
million).
Fiduciary deposits also declined by CHF 236.9 million
to an amount of CHF 2’598.7 million, whereby the
lower USD rate (1.07 compared to 1.135 as of January
1, 2008) accounted for a material portion of the
decrease.
Outlook 2009
2009 will be another difficult year. After negative
growth in the fourth quarter of 2008, major industrialized countries are expected to continue shrinking in
the first and second quarter of this year. An economic turnaround can be expected in the second half of
2009 at the earliest, but visibility is very low at this
point in time. In addition, recessions, which are triggered by a financial crisis such as the current one, usually last longer than the average downturn and the
subsequent recovery is likely to be less dynamic.
Historically, however, there has never been a recession where governments and central banks around
the world have reacted so aggressively to the economic weakness. The measures undertaken to support the
financial sector, the coordinated interest rate cuts as
well as fiscal stimulus packages that are under way in
many countries, are likely to bear fruit at some point.
The GDP contraction, slumping demand, rising unemployment, frozen credit and the massive destruction of wealth (housing, equities) have caused some
investors to fear a deflation or even an outright
depression. The sharp decline of US inflation in
5
November by 1.7%, the steepest monthly decline
ever, added to those fears. During the US Depression
in the thirties of the last century, equities went down
by nearly 90%, corporate earnings fell by 75%, GDP
shrank by a third and the consumer price index
declined by 25%. But we do not think that such a
gloomy scenario is realistic today. The things that
went wrong in the Crash of 1929 and in Japan in the
nineties are supposed to be handled more judiciously
today. The US Fed under Ben Bernanke reacted swiftly and vigorously to the financial crises and Europe
followed suit.
As a rule of thumb, stocks anticipate economic developments by six to nine months. The downtrend of the
international equity markets, which has been in place
since about the middle of 2007, correctly discounted
the worsening economic environment. There is no
doubt that they will anticipate an economic recovery,
too. In other words, stocks usually start rising already
in the middle of a recession. At this point, still very
few – if any – signs of an economic improvement can
be spotted. Against this background, the mediumterm perspectives for stocks are not unfavourable. But
uncertainty and volatility will remain high for some
time even though the worst excesses of the financial
crisis seem to have run their course; up until now,
credit-related losses of global financial institutions are
approaching USD 1 trillion. Credit and money markets are not functioning normally yet, what is reflected by still elevated credit spreads. The banks have
increased their lending standards markedly as they
continue to deleverage and have not passed on the
lower cost of money to their clients yet. The national
interbank markets continue to lack liquidity, as commercial banks prefer to park excess funds with the
central bank. Investor’s psychology is hurt and risk
aversion is high. Confidence of market participants
needs to be restored. This process will take time.
Allocation of Profit
The Board of Directors proposes to the Ordinary
Annual Meeting of Shareholders that both the current
balance sheet and profit and loss statement for the
business year 2008 be approved. After approval of the
allocation of profit and the distribution of a dividend
of 30%, as proposed on page 10 of this report, shareholders’ equity will total CHF 493.8 million.
Board of Directors, Auditors and Management
At the Ordinary General Meeting of Shareholders on
April 9, 2008 Dr. Alfred Schwarzenbach, whose tenure
had expired, was re-elected as member of the Board of
Directors for a term of office of four years, i.e. until
the Ordinary General Meeting of Shareholders 2012.
6
Mr. Jawdat Al-Halabi was elected as new member of
the Board of Directors for a term of office of four
years, i.e. until the Ordinary General Meeting of
Shareholders 2012.
Deloitte Ltd was re-appointed as the Bank’s auditors.
Mr. Jawdat Al-Halabi and Dr. Farouk El-Kharouf withdrew as members of the Board of Directors as at
September 9, 2008 and October 14, 2008, respectively.
The tenure of Mr. Alois Meyer will expire in 2009. It
is proposed to the Ordinary General Meeting of
Shareholders that his appointment be renewed for
another four-year term, i.e. until the Ordinary
General Meeting of Shareholders 2013.
It is proposed that Deloitte Ltd be re-appointed as the
Bank’s auditors for a period of one year.
At the end of December 2008 Mr. Mario Di Marco,
CEO/General Manager left Arab Bank (Switzerland)
Ltd. to pursue other areas of interest. We would like to
wish Mr. Mario Di Marco continued success in his
future endeavors.
Mr. Nasri Victor Malhamé has taken over the responsibility as new CEO/General Manager as of January 1,
2009. We hope his knowledge and expertise will help
to assure the continued success of Arab Bank
(Switzerland) Ltd. The Board of Directors wishes him
an exciting and prosperous career.
In the past business year, the Board of Directors
appointed Mrs. Marianne Anderegg, Mr. Heinz
Sandmeier and Dr. Frank A. Wettstein as Executive
Directors as well as Mr. Marc Eggler and Mr. Pascal
Fischer as Directors at our Zurich office.
Further, the Board of Directors appointed Mr.
Christophe Lavanchy and Mr. Mohamed Mokhtar as
Directors at our Geneva branch.
We would like to thank our shareholders and clients
for their trust and loyalty. They are the motivation
that keeps the Board of Directors committed to providing them with the same high quality of bespoke
banking services in the future as they do today. We
also owe a depth of thanks to our staff for the unwavering commitment in a very difficult year.
Subsequent events
The Bank decided in March 2009 to evaluate ways to
reimburse investors in Auriga International Fund Ltd.
their respective investments - without any legal obligation.
The Board of Directors
Arabic material sample with birds of paradise.
Woollen tapestry from Switzerland with good luck motif.
7
BALANCE SHEET
AT DECEMBER 31, 2008
CHF
2008
2007
Variance
6 718 038
1 012 509
845 773 500
600 780 363
103 297 700
10 651 446
197 405 558
1
50 950 000
13 040 423
14 433 997
6 205 281
6 067 677
1 045 528 232
548 281 264
105 945 700
16 121 742
292 745 639
1
49 250 000
17 994 641
3 932 599
512 757
- 5 055 168
- 199 754 732
52 499 099
- 2 648 000
- 5 470 296
- 95 340 081
1 844 063 535
2 092 072 776
- 248 009 241
20 615 765
20 615 765
980 610 989
289 103 828
7 961 949
14 500 025
50 114 432
82 703 997
26 700 000
21 667 500
358 350 000
3 402 811
8 948 004
1 424 465 810
94 976 900
17 203 775
6 151 795
48 440 188
82 703 997
26 700 000
21 000 000
344 350 000
3 818 908
22 261 403
- 443 854 821
194 126 928
- 9 241 826
8 348 230
1 674 244
1 844 063 535
2 092 072 776
- 248 009 241
71 144 181
123 315 121
5 222 393
61 143 538
59 913 500
10 278 380
10 000 643
63 401 621
- 5 055 987
423 940 356
13 262 061
8 897 705
2 598 744 564
396 955 384
3 690 460
2 527 773
2 835 576 287
26 984 972
9 571 601
6 369 932
- 236 831 723
Assets
Cash
Money market instruments
Due from banks
Due from customers
Mortgages
Securities and precious metal trading portfolios
Financial investments
Participations
Fixed assets
Accrued income and prepaid expenses
Other assets
Total assets
Total subordinated claims
1 700 000
- 4 954 218
10 501 398
Liabilities and shareholders’ equity
Due to banks
Due to customers
Accrued expenses and deferred income
Other liabilities
Valuation adjustments and provisions
Reserves for general banking risks
Share capital
General legal reserve
Other reserves
Retained earnings brought forward
Net income
Total liabilities and shareholders' equity
667 500
14 000 000
- 416 097
- 13 313 399
Off-balance sheet transactions
Contingent liabilities
Irrevocable commitments
Confirmed credits
Derivative instruments:
Contract volume
Positive replacement value
Negative replacement value
Fiduciary transactions
8
PROFIT AND LOSS STATEMENT
CHF
2008
2007
Variance
71 004 552
326 137
5 639 172
- 55 003 753
110 847 123
523 911
7 353 296
- 96 994 169
- 39 842 571
- 197 774
- 1 714 124
41 990 416
21 966 108
21 730 161
235 947
Commission income on lending activities
Commission income on securities and investment transactions
Commission income on other services
Commission expense
2 289 238
19 333 660
1 601 990
- 1 565 772
1 893 114
22 710 509
1 703 391
- 1 319 265
396 124
- 3 376 849
- 101 401
- 246 507
Total result from commission and service fee activities
21 659 116
24 987 749
- 3 328 633
2 379 321
5 018 286
- 2 638 965
- 5 656 690
381 187
- 6 037 877
Personnel expenses
Other operating expenses
- 18 499 729
- 8 091 248
- 16 566 484
- 6 996 295
- 1 933 245
- 1 094 953
Total operating expenses
- 26 590 977
- 23 562 779
- 3 028 198
Gross profit
Depreciation and write-offs on non-current assets
Valuation adjustments, provisions and losses
13 756 878
- 1 279 263
- 17 170 888
28 554 604
- 1 193 867
- 14 797 726
- 85 396
- 17 170 888
- 4 693 273
15 000 000
- 240 685
- 1 118 038
27 360 737
29 296 876
- 27 399 000
- 6 997 210
- 32 054 010
- 14 296 876
27 158 315
5 879 172
8 948 004
22 261 403
- 13 313 399
Results from interest activities:
Interest and discount income
Interest and dividend income on trading portfolio
Interest and dividend income on financial investments
Interest expense
Total net interest income
Results from commission and service fee activities:
Result from trading operations
Total other ordinary results
Operating expenses:
Profit before extraordinary items and taxes
Extraordinary income
Extraordinary expense
Taxes
Net income
9
ALLOCATION OF EARNINGS
CHF
Net income
Retained earnings at the end of period
2008
2007
Variance
8 948 004
3 402 811
22 261 403
3 818 908
- 13 313 399
- 416 097
12 350 815
26 080 311
- 13 729 496
8 010 000
667 500
1 500 000
2 173 315
8 010 000
667 500
14 000 000
3 402 811
- 12 500 000
- 1 229 496
12 350 815
26 080 311
- 13 729 496
0.22500
-0.07875
0.22500
-0.07875
0.14625
0.14625
The Board of Directors proposes:
Distribution of a dividend of 30 % on the share capital
Allocation to legal reserve
Allocation to other reserves
Surplus to be carried forward to new account
As stated above
Upon acceptance of this proposal, the
dividend will be paid as follows:
To shareholders registered in the share book
at March 10, 2009, per share of CHF 0.75 par value
less 35% Swiss withholding tax
Net per share
10
STATEMENT OF CASH FLOWS
CHF 1000
2008
Source
of funds
Application
of funds
2007
Source
of funds
Application
of funds
Cash flow from operating results
Net income
Depreciation and write-offs on non-current assets
Dividend of preceding year
8 948
1 279
1 675
4 954
22 261
2 006
1 626
2 728
9 242
8 010
2 509
396
11 735
Real estate
Fixed assets
2 501
478
37 500
Balance
2 979
Balance
6 675
Cash flow from investment activities
74 256
1 188
37 944
Cash flow from banking operations
Cash flow from interbank operations
Due to banks
Due from banks
Cash flow from customers operations
Due to customers
Due from customers
Mortgages
Other balance sheet items
Other assets
Other liabilities
443 855
199 755
5 055
588 511
900 156
2 647
194 127
146 615
161 720
52 499
2 648
3 517
95 340
10 501
15 545
685
8 348
47
Liquidity
Cash
5 470
7 471
Balance
3 375
26 209
Total source of funds
3 375
37 944
Total application of funds
513
3 375
1 625
37 944
11
NOTES TO THE FINANCIAL STATEMENTS
1. Business Activities and Personnel
Arab Bank (Switzerland) Ltd. is constituted according
to Swiss law as an independent company. It started
operations in 1962 in Zurich and opened a branch in
Geneva in June 1964.
The Bank is a public company whose shareholders,
presently some 22’000, are identical to those of Arab
Bank plc, Amman/Jordan. As an independent sister
company we draw upon a wide network of branches in
the Arab world and the major world’s financial centers.
The focus of the services of Arab Bank (Switzerland)
Ltd. is on providing asset management and investment
advisory as well as financial planning services for private and institutional clients.
Arab Bank (Switzerland) Ltd. employed 85 people (fulltime positions) at the end of 2008 (previous year: 69).
Private Banking
The benefits of enhanced resources, systems and products put in place in 2007 were fully expected to translate into an improved positive performance in 2008.
Unfortunately the stronger impact of the global financial crisis undermined these efforts with a consequent
adverse effect on the bank’s Balance Sheet and Profit
and Loss account. Without question 2009 will be a further challenging year, but a revised business strategy
and several other new initiatives are confidently
expected to counter these adverse market forces and
outturn a positive performance.
Representing the Arabic spirit in a Swiss Bank, Arab
Bank (Switzerland) Ltd, with offices in Geneva and
Zurich, remains ideally positioned to cater for and
respond to the wealth management and private banking needs of its clientele. Working closely with its
Group counterparts, the bank is well placed to build
and sustain upon its solid reputation in a stable and
secure manner.
Investment Management
During 2008 the Investment Management Team was
confronted with very tough market circumstances. But
due to the solid research process, which was further
perfected during the year, the number of clients that
are holding discretionary portfolios with the bank
remained relatively stable and the performance of their
portfolios could uphold on a decent level. The team
also invented a new product to encounter the volatile
markets and increased efficiency and productivity
within the Department.
Credit Activities
The vast majority of the lending business consists of
loans to private banking clients against marketable
securities, deposits or other first class collateral. The
Bank has continued to selectively expand the trade
finance business.
Operations
During 2008 Arab Bank (Switzerland) Ltd. successfully
introduced a new e-banking service, called “ePortfolio”. This platform makes it possible for selected
clients to gain a detailed overview of their holdings,
including safekeeping deposits and execute various
performance analyses.
As a result of the relocation of the premises in Geneva
and Zurich at the end of 2007, it was imperative that
time be spent during the past business year optimizing
the various infrastructures. This includes IT hardware
systems, for example enhanced mobile communication, as well as applications like automated reportings,
among others the requirements to fulfill minimal own
funds according to Basel II.
2. Accounting Policies and Valuation Principles
General Principles
Accounting and valuation principles are governed by
the Swiss Code of Obligations, the Swiss Banking Law,
the Articles of Association and the guidelines issued by
the Federal Banking Commission. Accountable events
are entered in the balance sheet on a trade date basis.
Risk Assessment by Board of Directors
The Board of Directors regularly reviews the bank’s key
risk and, where necessary, takes appropriate measures.
The most important valuation principles can be summarized as follows:
Foreign Currency Translations
Claims and commitments in foreign currencies are
converted at the exchange rates prevailing on the balance sheet closing date (CHF vs USD: 1.07015, CHF vs
EUR: 1.48985).
Cash, Money Market Instruments
These items are capitalized at nominal value. The
unearned discount income on money market instruments is accrued over the term of such instruments.
Claims and Liabilities in respect of Banks and
Customers, Mortgage Loans
These amounts are valued at their nominal value.
12
Valuation adjustments are made for identifiable risks.
General provisions exist for contingent risks. Lending
against collateral is made within the generally accepted lending principles. These are stipulated in the internal rules and regulations. The valuation of real estate
is based on market value, which is determined according to generally accepted valuation methods. Interest
and commission income, which is overdue for more
than 90 days, will only be booked after payment.
Trading Positions in Securities and Precious Metals
Trading positions are valued at market prices on the
balance sheet date.
Interest and dividend income from trading balances
are credited to trading income. Refinancing costs are
charged to trading income and credited to interest and
discount income.
Financial Investments
Securities, acquired with the intent to hold them over
the long term are carried in the balance sheet under
“financial investments”. The investments are valued
at the lower of cost or market. Any amounts above
or below par resulting from the purchase of fixedincome securities are distributed over the residual
maturity and recognized in “interest and dividend
income from financial investments”.
Participations
The Bank’s participation was fully depreciated in the
preceding years. There is no need to draw up a consolidated financial statement, as its participation may be
classified as insignificant.
Fixed Assets
Fixed assets are depreciated completely either in the
year of purchase or in accordance to generally accepted economic principles over their estimated useful life.
Property is carried at cost including value-adding
investments but excluding necessary or tax deductable depreciations.
Valuation Adjustments and Provisions
According to the principle of prudence, valuation
adjustments and specific provisions are made for all
identifiable risks. Amounts due at risk, that means
amounts due where there is a probability that the cus-
tomer cannot cover its outstanding liabilities, will be
valued on an individual basis. The decrease in value
will be covered by an individual value adjustment.
General provisions are made for all other risks. They
are based on a rating system. The position “Other provisions” is based on professional experience and may
contain hidden reserves.
Reserves for general banking risks are net of tax.
Taxes
Taxes are calculated in accordance with current tax
laws and are either paid or provisioned for.
Derivative Instruments
The derivative financial instruments of the trading
portfolio are carried at fair value. Hedging transactions
are valued according to the underlying position and in
accordance with the rules and regulations applicable
Definition Client Assets & Net Increase/(Decrease)
of Client Assets
Client assets are asset values of clients, for which Arab
Bank (Switzerland) Ltd. renders investment and consulting services. Custody portfolios and asset values,
which are held exclusively for transaction and custodian purposes, are not included in the client assets.
The same applies for loans. The net increase/
(decrease) of client assets consists of the sum of all
individual money deposits and payments as well as
security incoming and outgoing deliveries, whereby
new loans and loan repayments are accounted for.
Interest and dividends credited to clients as well as
debit interest, commissions and charges debited for
Bank services, are excluded from the calculation of the
net increase/(decrease) of client assets, as they form
part of the client performance – the same is valid for
variations in client assets due to market currency and
security prices.
Principles of Risk Management
Whenever risks are taken, they are identified, measured, monitored and limited accordingly.
Risk of Interest Rate Changes and Default
As a rule, risks of interest rate changes are minimized
by funding loans with matching maturities.
Conservative lending limits have been specified for
solvency, currency, country and market risks. A system for monitoring and managing these risks has been
set up to ensure reliable and effective internal control.
Pension Plans
Arab Bank (Switzerland) Ltd. maintains own welfare
schemes for its 88 staff members (including parttime employees) as well as pensioners (23 persons),
disabled (3) and dependants (3). The pension plans are
based on the Swiss defined contribution system
(defined contribution plans in accordance with “Swiss
GAAP FER 26”). The Bank carries approximately two
thirds of the cost of the professional welfare schemes
for all staff members. The cost carried by the bank is
shown under item 5.2: Social benefits.
The pension fund liabilities as well as the assets needed to cover the liabilities are separated from the Bank
in legally independent foundations. Organization,
management and financing of the pension plans are
subject to Swiss Federal regulations and to the constitutions of the foundations as well as the currently
valid rules and regulations of the pension plans.
As of January 1, 2009 the “Pension Fund II” for management committee members will be integrated in the
pension fund for all staff members. As a result of this
the “Pension Fund II” will be converted into a welfare
foundation. The purpose of this welfare foundation is
the financial precaution for all staff members as well
as their survivors against economical consequences of
age, disability and death. Further the foundation
intends to support staff members as well as their survivors in cases of financial needs due to illness, accident or unemployment.
Changes in Accounting Policies and Valuation
Principles
No material change occurred in accounting policies
and valuation principles.
Basel II
In line with the respective FINMA circular, information regarding Basel II can be obtained in the annual
report 2008 of Arab Bank Group, www.arabbank.com.
Correction of the previous Annual Accounts
These financial statements replace the previous version of the financial statements for the year ended
December 31, 2008 (with prior year's figures). In
essence the provision for client investments in
Auriga International Fund Ltd. was increased by CHF
11 000 000. Accordingly, tax expense was reduced by
CHF 2 000 000.
13
Arabic ornamental decoration with weaved copper silk.
Carpet sample "Satin faconné" from Switzerland around 1908
14
3.
Information on the Balance Sheet
AT DECEMBER 31, 2008
CHF 1000
Total
Mortgage
collateral
Other
collateral
Without
collateral
518 141
82 639
3.1 Schedule of collateral for loans
and off-balance sheet transactions
Loans
Due from customers
Mortgages
Residential real estate
600 780
103 298
Total current year
103 298
518 141
82 639
704 078
Total preceding year
105 946
488 679
59 602
654 227
Contingent liabilities
Confirmed credits
49 381
20 000
304
21 763
103 315
4 918
71 144
123 315
5 222
Total current year
69 685
129 780
199 465
65 474
65 862
131 336
Total Debt
Estimated
Liq. Value
Net Debt
Individual
Value Adjustm.
Reporting Period
19 831
580
19 251
20 411
Previous Period
20 295
581
19 714
20 877
103 298
Off-balance sheet transactions
CHF 1000
Impaired loans / Receivables
15
CHF 1000
2008
2007
2 895
7 756
738
15 384
10 651
16 122
3.2 Securities and precious metal trading portfolios and
financial investments and participations
Interest bearing securities and rights
Unlisted
Shares and similar securities and rights
Total
Book value
CHF 1000
Fair value
2008
2007
2008
2007
Interest bearing securities and rights
valued according to "Accrual Method"
Shares and similar securities and rights
192 354
5 051
286 689
6 057
188 285
5 051
278 928
6 816
Total
197 405
292 746
193 336
285 744
of which securities acceptable to central banks
141 204
218 746
137 696
212 323
Domicile
Activity
Share Capital
Interest held
in %
Panama
Finance
USD 10 000
100
3.3 Details of participations
ABS Corporate Services Inc.
16
CHF 1000
2007
2008
Real estate (bank building)
Other fixed assets
Total
Book value end of 2008
Write-offs/Depreciation
Divestiture
Investments
Book value end of 2007
Write-offs/Accumulated depreciation
Historical cost
3.4 Schedule of fixed assets
88 862
29 264
41 062
27 814
47 800
1 450
2 501
478
51
1 228
50 250
700
118 126
68 876
49 250
2 979
1 279
50 950
Fire insurance value of real estate
Fire insurance value of other fixed assets
52 429
5 900
CHF 1000
2008
2007
Other
assets
Other
liabilities
Other
assets
Other
liabilities
Total derivatives instruments
Adjustment account
Dividends
Settlement accounts
Rest of other assets and liabilities
13 262
885
8 898
4 136
1 375
91
3 691
2 528
1 091
1 492
1 041
Total
14 434
14 500
3 933
3.5 Other assets and liabilities
CHF 1000
256
31
2008
215
27
6 152
2007
3.6 Disclosure of assets pledged
or ceded to secure own liabilities
and assets subject to ownership
reservation
No securities are pledged.
17
CHF 1000
2008
2007
1 974
2 127
172
1 940
3.7 Disclosure of liabilities to own pension plans
Book value of liabilities and own employee benefit schemes
Pension expense
Arab Bank (Switzerland) Ltd. offers a pension plan for its staff members and a supplementary
pension plan for the members of the management committee. Both are based on the
Swiss defined contribution system (“Swiss GAAP FER 26”).
The degree of coverage as at 31.12.2007 for the “staff members pension plan” amounted
to 143.3% (144.6% in 2006) and those for the members of the management committee
to 152.6% (168.7% in 2006).
3.8 Schedule of outstanding bond issues and mortgage bonds
The bank did not have any transactions relating to such bonds in the current or previous year.
CHF 1000
Total valuation adjustments and provisions
48 440
- 466
82 704
Valuation adjustment for client investments in Auriga Investment Fund Ltd.
Balance end 2008
- 466
Reversals credited to income
28 340
4 100
16 000
New creation charged to income
Recoveries and currency difference
Change in definition of purpose
Specific usage
Valuation adjustments and provisions for:
Loan loss (credit and country risks)
Other business risks
Other provisions
1)
18
Balance end 2007
3.9 Valuation adjustments and provisions/
-15 0001)
28 014
21 100
1 000
140
17 0001)
17 140
- 15 000
50 114
82 704
CHF 1000
2008
2007
Total share capital
Dividend bearing capital
Number of units nom. CHF 0.75
Total nominal value
Dividend bearing capital
Total nominal value
Number of units nom. CHF 0.75
3.10 Capital structure
26 700 35 600 000
26 700
26 700 35 600 000
26 700
5 341 241
3 201 766
2 552 232
1 488 847
15.0%
9.0%
7.2%
4.2%
5 293 129
3 201 766
2 498 230
1 496 180
14.9%
9.0%
7.0%
4.2%
Significant shareholders
Social Security Corporation, Amman (Jordan)
Saudi Oger Ltd., Riyadh (Kingdom of Saudi Arabia)
Oger Middle East Holding SAL, Beirut (Lebanon)
Family Shoman, Amman (Jordan)
CHF 1000
3.11 Statement of changes in shareholders’ equity
Shareholders’ equity at beginning of current year
Share capital
Other reserves
Disposable profit
26 700
21 000
344 350
82 704
26 080
Total shareholders’ equity at beginning of current year (before profit distribution)
500 834
– Dividend 2007
+ Net income current year
- 8 010
8 948
Total shareholders’ equity at end of current year (before profit distribution)
501 772
Thereof:
Share capital
Other reserves
Disposable profit
26 700
21 668
358 350
82 704
12 350
19
CHF 1000
Total
Due after 5 years
Due within 1 to 5 years
Due within 3 to 12 months
Due within 3 months
Redeemable by notice
At sight
3.12 Maturity structure of current
assets and borrowed funds
Current assets
Cash
Due from banks
Due from customers
Mortgages
6 718
6 718
1 013
845 774
600 780
103 298
10 651
197 406
1 013
712 635
376 255
67 981
17 342
137 626
1 617
3 399
11 980
24 102
9 598
10 651
5 051
9 922
45 470
131 976
4 987
Total current year
134 818
74 919 1 167 806
202 055
171 457
14 585 1 765 640
73 920
68 686 1 444 940
159 638
259 124
14 588 2 020 896
112 398
74 919
Borrowed funds
Due to banks
Due to customers
53 345
252 397
908 632
36 402
18 634
305
980 611
289 104
Total current year
305 742
305
945 034
18 634
1 269 715
120 868
180 1 368 572
29 823
1 519 443
CHF 1000
2008
2007
268 887
864 718
31 869
151 847
1 350 470
23 129
3.13 Disclosure of amounts due from and due to associated companies as well as loans and exposures
to the members of the bank’s governing bodies
Due from associated companies
Due to associated companies
Due from members of the bank´s governing bodies
Amounts “due from and due to associated companies” represent the interbank business concluded with the Arab Bank Group. The position
“members of the bank’s governing bodies” includes mortgages and contingent liabilities granted at usual banking conditions.
20
CHF 1000
2008
Domestic
Foreign
2007
Domestic
Foreign
3.14 Assets and liabilities by
domestic and foreign origin
Assets
Cash
Due from banks
Due from customers
Mortgages
Fixed assets
Other assets
6 718
87 084
264 988
103 298
7 734
38 629
50 950
13 040
14 434
Total assets
6 205
1 013
758 689
335 793
6 068
997 183
358 740
2 917
158 777
48 346
189 541
105 946
10 912
49 364
49 250
17 995
3 933
586 875
1 257 189
481 492
1 610 581
Due to banks
Due to customers
Other liabilities
Share capital
Other reserves
Net income
12 655
23 280
7 962
14 500
30 283
82 704
26 700
21 668
358 350
3 403
8 948
967 956
265 824
58 659
18 637
17 204
6 152
28 145
82 704
26 700
21 000
344 350
3 819
22 261
1 365 807
76 340
Total liabilities and shareholders' equity
590 453
1 253 611
629 631
1 462 442
5 209
243 381
19 831
20 295
21
CHF 1000
2008
2007
Amount
%
Amount
%
586 875
382 387
147 784
61 555
28 031
25 360
19 961
15 138
10 177
10 038
5 302
4 948
1 515
11 691
31.8
20.8
8.0
3.3
1.5
1.4
1.1
0.8
0.6
0.5
0.3
0.3
0.1
0.7
481 492
582 560
255 185
111 733
33 198
30 405
20 296
42 908
10 041
10 072
5 366
61 295
1 578
16 747
23.0
27.8
12.2
5.3
1.6
1.5
1.0
2.1
0.5
0.5
0.3
2.9
0.1
0.8
Jordan
Bahrain
Lebanon
Kingdom of Saudi Arabia
United Arab Emirates
Egypt
Other
42 782
134 774
120 403
19 504
13 676
3 869
4 255
2.3
7.3
6.5
1.1
0.7
0.2
0.2
30 214
1 510
138 193
18 846
17 354
2 910
14 333
1.4
0.1
6.6
0.9
0.8
0.1
0.7
USA / Canada
122 857
6.7
98 504
4.7
68 739
3.7
99 803
4.8
4 065
0.2
3.15 Assets by countries /
country groups
Europe
Switzerland
Germany
United Kingdom
France
Austria
Netherlands
Greece
Luxembourg
Ireland
Norway
Belgium
Sweden
Italy
Other
Middle East
Other American countries
Far East
Other countries
Total assets
22
239
2 204
0.1
3 465
0.1
1 844 064
100.0
2 092 073
100.0
CHF 1000
CHF
USD
EUR
OTHER
5 833
167
1 013
674 555
295 331
545
173
72 081
80 852
49 839
83 359
8 161
2 914
2 477
13
2 391
983
84
3.16 Balance sheet by currencies
Assets
Cash
Due from banks
Due from customers
Mortgages
Fixed assets
Other assets
49 298
141 238
103 298
194 492
50 950
9 583
14 434
Total balance sheet assets
569 126
984 532
156 938
133 468
Delivery claims from spot exchange deals, forward exchange deals
and currency option transactions
139 750
127 889
30 719
37 995
Total assets
708 876
1 112 421
187 657
171 463
Due to banks
Due to customers
Other liabilities
Share capital
Other reserves
Net income
59 219
19 945
3 298
14 500
30 254
82 704
26 700
21 668
358 350
3 403
8 948
775 082
202 857
3 367
69 038
26 009
1 196
77 272
40 293
101
Total liabilities and shareholders’ equity
628 989
1 001 166
96 243
117 666
78 593
111 863
90 483
53 894
707 582
1 113 029
186 726
171 560
1 294
- 608
931
- 97
Delivery obligations for spot exchange deals, forward exchange deals
and currency option transactions
Total liabilities
Net positions in currencies
19 860
23
4.
Information on Off-Balance Sheet Transactions
CHF 1000
2008
2007
Variance
Credit guarantees
Back-up guarantees
36 642
9 801
24 701
21 237
9 169
30 738
15 405
632
- 6 037
Total contingent liabilities
71 144
61 144
10 000
Liabilities under deferred payments
5 222
10 278
- 5 056
Total credit commitments
5 222
10 278
- 5 056
positive
replacement value
negative
replacement value
Contract
volume
10 245
160
8 725
160
336 353
5 137
Shares/Indices
Options (traded)
13
13
2 451
Total current year
10 418
8 898
343 941
2 359
2 252
270 226
4.1 Analysis of contingent liabilities
4.2 Analysis of credit commitments
CHF 1000
4.3 Analysis of outstanding
derivative instruments
Trading instruments
Foreign exchange
Forward contracts
Options (OTC)
Hedging instruments
24
Interest rate instruments
Swaps, Options (OTC)
2 844
80 000
Total current year
2 844
80 000
1 331
276
126 730
CHF 1000
2008
2007
Variance
Fiduciary placements with third party banks
Fiduciary placements with banks of the group and affiliated banks
2 190 057
408 688
2 770 534
65 042
- 580 477
343 646
Total fiduciary transactions
2 598 745
2 835 576
- 236 831
Assets in own administrated funds
Assets with administration mandate
Other client assets
16 146
521 317
3 379 180
29 701
762 002
3 949 279
- 13 555
- 240 685
- 570 099
Total client assets (incl. double counts)1)
3 916 643
4 740 982
- 824 339
12 866
24 282
- 11 416
- 169 057
- 259 693
90 636
4.4 Analysis of fiduciary transactions
4.5 Client assets
Thereof double counts
Net change of client assets 2)
Client Assets
1) Client Assets are asset values of clients, for which Arab Bank (Switzerland) Ltd. renders investment and consulting services, but without loans.
2) Sum of all individual money deposits and payments as well as security incoming and outgoing deliveries, whereby new loans and loan repayments are accounted for.
25
5.
Information on the Profit and Loss Statement
CHF 1000
2008
2007
Variance
5 012
- 2 633
4 107
911
905
- 3 544
2 379
5 018
- 2 639
Salaries
Social benefits
Other
14 297
3 463
740
12 830
3 236
501
1 467
227
239
Total personnel expenses
18 500
16 567
1 933
Premises expenses
IT, machinery, furniture and other equipment
Other operating expenses
794
3 626
3 671
1 681
2 981
2 334
- 887
645
1 337
Total other operating expenses
8 091
6 996
1 095
Extraordinary income
Extraordinary expense
15 000 3)
- 241
29 297 1)
- 27 399 2)
Total extraordinary income
14 759
1 898
5.1 Analysis of results from trading
operations by business segments
Foreign exchange, precious metal and banknote trading
Securities trading
Total income from trading
5.2 Analysis of personnel expenses
5.3 Analysis of other operating
expenses
5.4 Analysis of extraordinary income
1) Hereof CHF 28.6 million realization of accumulated reserves on the sale of Zurich premises at Limmatquai 92.
2) Initial one-off depreciation on the new Zurich premises at Claridenstrasse 26.
3) Release of hidden reserves (client investments in Auriga International Fund Ltd.)
26
- 14 297
- 27 158
12 861
REPORT OF THE STATUTORY AUDITOR
To the Ordinary Annual Shareholders’ Meeting
of Arab Bank (Switzerland) Ltd., Zurich
Report on the financial statements
As statutory auditor, we have audited the accompanying financial statements of Arab Bank
(Switzerland) Ltd., Zurich which comprise the balance sheet, profit and loss statement, statement of
cash flows and notes for the year ended December
31, 2008.
Board of Directors’ Responsibility
The Board of Directors is responsible for the preparation of the financial statements in accordance
with the requirements of Swiss law and the company’s articles of incorporation. This responsibili-
ty includes designing, implementing and maintaining an internal control system relevant to the
preparation of financial statements that are free
from material misstatement, whether due to fraud
or error. The Board of Directors is further responsible for selecting and applying appropriate
accounting policies and making accounting estimates that are reasonable in the circumstances.
Auditor’s Responsibility
Our responsibility is to express an opinion on
these financial statements based on our audit. We
conducted our audit in accordance with Swiss law
and Swiss Auditing Standards. Those standards
require that we plan and perform the audit to
obtain reasonable assurance whether the financial
statements are free from material misstatement.
An audit involves performing procedures to obtain
audit evidence about the amounts and disclosures
in the financial statements. The procedures selected depend on the auditor’s judgment, including
the assessment of the risks of material misstatement of the financial statements, whether due to
fraud or error. In making those risk assessments,
the auditor considers the internal control system
relevant to the entity’s preparation of the financial
statements in order to design audit procedures that
are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the entity’s internal control system. An
audit also includes evaluating the appropriateness
of the accounting policies used and the reasonableness of accounting estimates made, as well as
evaluating the overall presentation of the financial
statements. We believe that the audit evidence we
have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements for the
year ended December 31, 2008 comply with Swiss
law and the company’s articles of incorporation.
Report on Other Legal Requirements
We confirm that we meet the legal requirements
on licensing according to the Auditor Oversight
Act (AOA) and independence (article 728 CO and
article 11 AOA) and that there are no circumstances incompatible with our independence.
In accordance with article 728a paragraph 1 item 3
CO and Swiss Auditing Standard 890, we confirm
that an internal control system exists, which has
been designed for the preparation of financial
statements according to the instructions of the
Board of Directors.
We further confirm that the proposed appropriation of available earnings complies with Swiss law
and the company's articles of incorporation. We
recommend that the financial statements submitted to you be approved.
These financial statements replace the previous
version of the financial statements for the year
ended December 31, 2008. The significant differences are an increase of provisions for client
investments in Auriga International Fund Ltd. by
CHF 11 000 000 and accordingly, a reduction of
the tax expense by CHF 2 000 000.
Deloitte Ltd
Pavel Nemecek
Licensed Audit Expert
Auditor in charge
Andreas Reis
Licensed Audit Expert
Zurich, April 17, 2009
27
Arabic material sample with symbol of eternity.
Old silk sample "Ecossais" from a weaving mill in Basel around 1890.
28

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