137 th Annual Report – 2009

Six centuries of art Palazzo Riva has always been the head office and symbol of BSI. Against a backdrop of great change, the ideal was to open up to the public the place where it all started and where even now the Bank’s most important decisions are taken. The sense of history and the past that still pervade the atmosphere formed the subject of a recent publication entitled “Six centuries of art”, which recounts the major milestones alongside six centuries of the history of art through an outstanding collection of ancient masterpieces that adorn the building.

Adelaide Pandiani Maraini Saffo (detail), marble 1882 – 1884

137th Annual Report – 2009

__

3

The essence of BSI BSI is a bank that attends to client needs with competence, reliability, discretion and confidentiality. The passion we devote to managing the wealth of clients and their future every day has enabled us to build relationships that are passed down from generation to generation. By providing the assistance of the best professionals and personalised asset management solutions, BSI offers peace of mind where you need it most. We wish to share our passions and successes with our most precious assets – our clients. Over the years, BSI has developed its presence in Switzerland and abroad. Since 1873 our passion, enthusiasm, know-how and innovation, intertwined with the continuity of history, have served as the driving force behind our Bank. Our journey has been historic and professional, involving many different locations, branches opened around the world, and significant periods distinguished by mergers and acquisitions. In 1998, BSI became part of the Generali Group, one of the world’s biggest insurance companies. With a strong international presence via offices in 40 countries, the Generali Group offers financial solidity, global vision and privileged access to specialist competencies. All this is BSI: dedication and competence in everything we do.

__

5

Contents Annual Report as submitted to the ordinary General Meeting of 7 April 2010

6 __ Introduction 1 1 __ Corporate bodies 2009 15 __ Management report 2009

17 __ Highlights 2009

39 __ Group accounts

Consolidated balance sheet as of 31 December 2009 Consolidated profit and loss statement 2009 Consolidated cash flow statement 2009 Notes to the 2009 Group accounts Report of the Group auditor 2009

18 __ Service excellence 77 __ BSI AG accounts 19 __ Products and services 23 __ Corporate governance

28 __ Control and risk management



Parent Bank balance sheet as of 31 December 2009 Parent Bank profit and loss statement 2009 Notes to the Parent Bank accounts 2009 Report of the statutory auditors 2009

32 __ Human Resources 8 8 __ BSI AG – Organisation chart 34 __ BSI moments 89 __ Organisation



91 __ B-Source and Thalìa

Member of the Assicurazioni Generali Group

6 __ BSI Annual Report 2009

Introduction

The international economic and financial outlook brightened considerably in 2009 following the deep financial crisis of 2008. The financial markets saw a strong and unexpected rebound, with indices advancing sharply. But the crisis continued in terms of higher unemployment rates and greater instability in already fragile economies. The only region with strong enough growth to offset the weak global economy was Asia, and China in particular. In Switzerland, gross domestic product did not contract as much as it did in the other major western economies, nor did the Swiss unemployment rate rise as much. The economic uncertainty had an impact on currencies, as the dollar and the euro both weakened against a stronger Swiss franc. In addition, interest rates remained very low in the major economies. The Swiss National Bank’s medium-term objective is to keep the fluctuation range for the three-month Swiss franc LIBOR rate very low. It would take a confirmation that the risk of inflation was rising to induce any change in the currently expansive monetary policies.

__

7

Although some economic indicators have been moving higher, suggesting a rebound is near, the state of the global economy remains fragile and uncertain. It is hoped that the international economy will be able to move towards a solid overall rebound in 2010. The Swiss banking sector has been affected by the financial and economic situation, with both commissions and interest income falling. A number of banks posted positive inflows of net new money, which were due in part to the difficulties that one large Swiss bank experienced following serious professional misconduct in the United States. This crisis was caused by this one bank alone, but the reputation of the entire Swiss financial centre was tarnished as a result. The action taken by the Swiss government and supervisory authorities resolved the matter, but not without some difficulty and some external effects. The Swiss banking sector also came under strong international political pressure in 2009. The pressure arose due to major budgetary problems in various large economies. Despite the decision by Switzerland in March 2009 to adopt, as other international financial centres have done, art. 26 of the OECD Model Tax Convention with regard to administrative assistance in tax matters, and despite the swift renegotiation of numerous double taxation agreements, the international pressure on Switzerland did not abate. In fact, just the opposite happened, as tensions with Germany, France and Italy continued. Italy implemented its third tax amnesty in recent years, although the impact of the amnesty on the Swiss banking sector overall was limited. In response to this international political situation, the Association of Foreign Banks and the Swiss Bankers’ Association launched and promoted a proposal to implement a withholding tax on assets held in Switzerland by European citizens, while also requesting improved access for Swiss banks to the European financial markets. If this proposal is adopted, it would be to the advantage of Switzerland’s neighbouring countries in that it would increase tax revenues. It would also be beneficial to the Swiss banking sector, and ultimately to the entire country as well, as it would help stabilise the political relationships with our main trading partners. The BSI Group, which now has 2,590 employees, closed the 2009 financial year with a sharp increase of 54% in gross profit to CHF 273.2 million. Net profit was CHF 103.2 million, an increase of 2% over the prior year. The integration costs for Banca del Gottardo continued to have an impact on net profit. Recurring net operating result also posted a gain, increasing to CHF 936.6 million or 4%. Ordinary operating expenses, which benefited from the integration synergies with Banca del Gottardo, fell to CHF 666.5 million, a decrease of 8%. Assets under management, which were negatively influenced by the third Italian tax amnesty and positively influenced by significant net inflows, remained unchanged at CHF 78.1 billion. Total balance sheet assets amounted to CHF 21.4 billion. Mortgage and other loans to clients equalled CHF 5.9 billion, a 3.4% increase on 2008. These figures emphasise BSI’s attention to the economy of Ticino and of Switzerland in general. Moreover, with shareholders’ equity of CHF 2.57 billion and a Tier 1 ratio of 13.5%, BSI is a solid financial institution. As in the past, this firm foundation will continue to allow clients to face the future with confidence.

Giorgio Ghiringhelli

Alfredo Gysi

Chairman of the Board of Directors

Chief Executive Officer

Palazzo Riva had been the residence of the historical Riva family since 1747, the year in which its construction was completed. Acquired by BSI in 1876 to serve as its headquarters, the Palazzo was recorded in the cantonal historical monuments register in 1911. Behind the façade, safeguarded by the Swiss cultural heritage organisation and recognisable by its antique sign “Banque de la Suisse Italienne”, Palazzo Riva now houses a treasure trove of prestige works of art.

Giovanni Andrea Carlone Naval Battle, 1670 ca.

__

11

Corporate bodies 2009 Members of the Board of Directors (as of 31 December 2009)



Mandate expires

Audit Committee

Remuneration Committee

Giorgio Ghiringhelli Chairman Giovanni Perissinotto Vice Chairman Antoine Bernheim Member Luigi Butti Member Tiziano Moccetti Member Nicola Mordasini Member Renzo Respini Member

2012

Chairman

Member Chairman

Board of Directors

2010 * 2010 * 2010 *

Member

2010 * 2011

Member

2011

* The ordinary General Meeting of 7 April 2010 renewed the mandate for three years. It will thus end in 2013.

12 __ BSI Annual Report 2009

Giorgio Ghiringhelli was born in Piazzogna, Switzerland, on 27 August 1934. He earned a degree in business and economics at the University of St. Gallen and then a doctorate in economics at the University of Vienna. After several years of work experience in banking in Germany, Switzerland and the US, he joined BSI AG (then Banca della Svizzera Italiana) in 1963. In 1974, he was appointed Senior Executive Vice-President, and in 1983 he became Chairman of the Executive Board until 1994, when he joined BSI AG’s Board of Directors, first as Vice-Chairman and subsequently, in 2004, as Chairman. He is Chairman of the Board of Funicolare Lugano-Paradiso Monte San Salvatore SA, Lugano, and the San Salvatore Foundation, Lugano. From 1996 to 2008, he was the Chairman of the Ticino Banking Association. Giovanni Perissinotto was born in Conselice near Ravenna, Italy, on 6 December 1953. He earned a degree in business economics at the University of Trieste, and joined Assicurazioni Generali in 1980, developing his career at Group companies outside Italy and returning to Trieste in 1988. He was appointed Managing Director in 2001, and currently serves as Chairman of Generali Properties and Banca Generali SpA and Chairman of the Supervisory Committee at Generali Investments SpA. He also serves as a member of the Board of Directors of other Generali Group companies (Alleanza Toro Assicurazioni, INA Assitalia, Participatie Maatschappij Graafschap Holland, Generali France Holding, Generali España Holding Entidades de Seguros, Transocean Holding Corporation) and of Pirelli & C. SpA. He is a member of the Management Committee at Intesa San Paolo, member of the Executive Committee at ANIA, and member of the Advisory Board of SDA Bocconi School of Management and member of the Governing Council of the Assonime Council. He has held a seat on the Board of Directors of BSI AG since 1998, and took on the role of Vice-Chairman in 2004. Antoine Bernheim was born in Paris, France, on 4 September 1924. He earned degrees in law and in science, and has spent his entire professional career at Maison Lazard. Serving as Chairman and Senior Executive Vice President of insurance companies of the La France Group for over 25 years, he has been a member of the Board of Directors of Assicurazioni Generali since 1973, serving as Chairman between 1995 and 1999 and then from 2002 to the present. He is also the Vice-Chairman of Alleanza Toro Assicurazioni, member of the Supervisory Board of Intesa San Paolo and Vice-Chairman of LVMH and Bolloré. He is a member of the Board of Directors of Mediobanca, Generali Deutschland Holding AG, Generali España Holding, Generali Holding Vienna, Generali France, Havas, Ciments Français and Christian Dior. He is also a member of the Supervisory Committee of Eurazeo. In France he was awarded the prestigious Grand-Croix of the Legion of Honour, and he was given the title of Grand Officer of the Order of Merit of the Republic of Italy. He has held a seat on the Board of Directors of BSI AG since 1998. Luigi Butti was born in Vacallo, Switzerland, on 25 November 1940. After graduating from the Business College of Maria-Hilf (Schwyz), he honed his professional skills at various credit institutions and brokers, such as Credit Suisse in Zurich, Rued, Blass & Cie in Zurich, and Hirsch & Co. in New York. He began his career at BSI AG in 1969 as a manager, and then took over responsibility for the financial division and private clients department. In 1990, he was appointed Senior Executive Vice-President, and in 1998 he became Deputy CEO of BSI AG, a position he held until 2004, when he became a member of the Board of Directors of BSI AG. He is also a member of the Cardiocentro Ticino Foundation, Lugano, and a member of the San Salvatore Foundation, Lugano.

__

13

Tiziano Moccetti was born in Caslano, Switzerland on 4 December 1938. After earning a degree in medicine from the University of Zurich, he specialised in internal medicine and cardiology. He deepened his knowledge of various sectors at university and specialist hospitals in Zurich, returning to Ticino in 1972 to the Ospedale Civico in Lugano as chief cardiologist and medical director. As a Professor at the Faculty of Medicine of the University of Zurich since 1981, he has written more than 300 international scientific publications in the field of cardiology. He is a member and Director of the Cardiocentro Ticino Foundation, Lugano, which he founded in 1995. In addition, he is Chairman and member of various associations and committees for health, in particular cardiology, in Switzerland and abroad. He has held a seat on the Board of Directors of BSI AG since 1985. Nicola Mordasini was born in Bellinzona, Switzerland on 7 July 1950. After graduating from the University of Geneva with a degree in economics, he started his professional career in 1974 at Banca del Gottardo. He held numerous positions in various sectors of this bank. In October 1991, he was appointed member of the Executive Board with responsibility for the activities of Private & Commercial Banking. In 1998, he took on the position of Vice-Chairman of the Executive Board, again with responsibilities related to clients and affiliates. He held this position until the beginning of 2008, when he was appointed to the Board of Directors of BSI AG. In addition, he is Chairman of the Board of BSI Healthcapital SA in Lugano and Vice-Chairman of the Foundation Board of the Swiss Institute in Rome. Renzo Respini was born in Sorengo, Switzerland on 2 July 1944. After earning a degree in law he worked as a lawyer and notary. He was Public Prosecutor and, from 1983 to 1995 State Councillor for the Canton of Ticino in charge of the departments of Law, Economics and the Military, and subsequently for the Department of Home Affairs. Until 1999, he was a member of the Council of States in Berne. He is currently joint principal of a law firm and notary’s office in Lugano and Locarno. He holds positions on the Board of Directors of Alp Transit Gottardo SA, Lucerne, and on the boards of other small and medium-sized companies. He is also a member of various cultural and humanitarian foundations. He was a member of Banca del Gottardo’s Board of Directors until early 2008, when he was appointed to the Board of Directors of BSI AG.

14 __ BSI Annual Report 2009

Composition of the Executive Board (as of 31 December 2009)

Chief Executive Officer Corporate Center



Alfredo Gysi Gianni Aprile Deputy Chief Executive Officer Beat Ammann Senior Executive Vice President, Legal & Compliance Rajiv Pradhan Senior Executive Vice President, Finance & Risk Management Marketing & Product Management Stefano Coduri Senior Executive Vice President Private Banking Switzerland François Noverraz Senior Executive Vice President Roberto Botta Senior Executive Vice President Eugenio Brianti Senior Executive Vice President Agostino Ferrazzini Senior Executive Vice President Private Banking International Stefano Loffredi Senior Executive Vice President Vincenzo Piantedosi Senior Executive Vice President Gérald Robert Senior Executive Vice President (appointed 27.7.2009) Investment Product & Markets Christian Ferry Senior Executive Vice President Wealth Management Services Franco Polloni Senior Executive Vice President

__

15

Management report 2009

Against the backdrop of an unexpected but strong rebound on the markets and a tighter international regulatory environment, the BSI Group posted positive results in 2009 and reaffirmed its growth strategy. After the sharp recession of 2008, the major global economies, though still weak and facing uncertainties, showed signs of recovery in 2009. The financial markets also stabilised, especially in the second half of the year. Massive government aid packages for major banks, along with low interest rates and economic stimulus plans, helped to break the negative cycle and restore some confidence in the financial markets. Switzerland and the Swiss financial centre came under strong international political pressure which culminated on 31 March 2009 with the decision by the Swiss Federal Council to accept article 26 of the OECD Model Tax Convention. Italy, meanwhile, launched its third tax amnesty to encourage the repatriation of assets held abroad. Against this uncertain and rapidly changing environment, the BSI Group successfully brought to a close the integration of Banca del Gottardo, which had merged with BSI on 1 July 2008. The Group continues to capture significant synergies from the merger, in line with what was outlined at the time of the transaction. The acquisition of Banca del Gottardo is a confirmation of the strategic and operating visions that the Bank spelled out when the merger was announced, even in light of the changes in the general conditions in the asset management industry. In 2009, the Group continued to expand and refine its range of products and services, with the objective of providing clients with solutions that can satisfy both their investment and financial planning needs. Last September, the BSI Group launched a joint project with Generali Schweiz called Genera. The aim of the project is to offer interesting investment solutions to Swiss insurance clients whose policies are expiring. BSI has designed solutions specific for this client segment. This joint effort is an additional opportunity for the BSI Group to boost its presence on the Swiss market, which offers interesting possibilities for development, beyond its branch network. On the international scene, the Group continued the expansion plan it put in place several years ago, especially in high-growth markets such as Asia, Eastern Europe, the Middle East and Latin America. This policy is based on a combination of specialist expertise in asset management, a consolidated service model for private wealth management and the deployment of skilled professionals capable of interpreting clients’ needs and the cultural connotations of demand. The strategy has helped the Group boost its presence in the Asian markets, and in Singapore in particular, where the Group has significantly expanded its local structure through the recruitment of new personnel. In addition, a consultancy firm was opened in Montevideo, Uruguay. The development of the trust business also continued with the opening of a trust company in Singapore and the closing of the Guernsey trust company. Operations in Paris are now centered on Oudart SA, while BSI Ifabanque SA was placed in liquidation. In addition, BSI Generali UK Ltd. was sold to another Generali Group company. The BSI Group also consolidated its presence in its traditional markets, such as in Italy, where the structure of EOS Servizi Fiduciari, the Group’s fiduciary company in Milan, was strengthened. In addition, the Group acquired the financial intermediary firm BSI Wealth & Family SIM SpA, also located in Milan. The BSI Group showed once again in 2009 that it can attract new staff, especially in the area of client advisory services, which will give a boost to the Group’s presence in Switzerland and in particular abroad. As at 31 December 2009, assets under management were CHF 78.1 billion, virtually unchanged from the prior year despite the effects of the Italian tax amnesty. Over half of the asset repatriated under the tax amnesty remained within the structures of the Group, which is sign of the confidence that clients have in the Group as a solid player in international asset management. Throughout the uncertain economic climate of 2009, the BSI Group maintained its lending policy. This reaffirms the Group’s commitment to the economic development of Switzerland and Ticino, with the aim of providing clients with the best possible service. The growth strategy that the BSI Group put in place several years ago, together with its solid reputation and expertise in the private wealth management sector, contributed to the good results in 2009. The Group is well positioned to face the challenges of the private banking sector going forward, against the backdrop of ongoing changes in the international environment.

16 __ BSI Annual Report 2009

Profit and loss statement Gross profit was CHF 273.2 million, which represents an increase of 54% over the prior year. Operating income was CHF 939.6 million, an increase of 4% over 2008. Net interest income was CHF 241.9 million, showing resilience in the face of lower interest rates. Commission and service fee income generated a result of CHF 478 million, a decrease of 12% versus 2008. The result from trading operations was CHF 157.5 million, which represents a substantial increase over the past few years due to the strong performance of the financial markets. Other ordinary result was CHF 62.2 million. Operating expenses stood at CHF 666.5 million, down 8% versus 2008. The benefits from the integration with Banca del Gottardo can be seen in particular in the item other operating expenses, which fell 26.3% compared with 2008. Personnel expenses were up slightly by 2.9% due chiefly to the expansion strategy in Asia. The depreciation of fixed assets was CHF 104.8 million in 2009, including amortisation of goodwill relating to the integration of the Banca del Gottardo Group. Additionally, value adjustments, provisions and losses were made totalling CHF 44 million. Extraordinary income amounted to CHF 70.1 million, generated primarily from the proceeds of the sale of participations, the sale of real estate, the release of provisions that are no longer financially necessary and other asset gains. Extraordinary expenses of CHF 41.2 million were booked, of which CHF 37 million went to reserves for general banking risks. Net profit was CHF 103.2 million, which represents an increase of 2% over the prior year. Balance sheet BSI’s balance sheet strategy in 2009 aimed at further reducing counterparty risk by increasing investments in fixed-income securities with a state guarantee. Total assets were CHF 21.4 billion as at 31 December 2009, a decrease of 6% compared with 31 December 2008. The balance sheet strategy led to a reduction of 19% in due from banks and an increase of 64% in money market papers. Due from customers remained virtually unchanged at CHF 3.2 billion compared with CHF 3.1 billion in 2008. Mortgage loans increased by 6% to CHF 2.7 billion. The items other assets and other liabilities were much lower as at 31 December 2009 compared with 31 December 2008 (minus 46% and minus 44% respectively) due to the reduction in replacement values for derivatives. Due to customers amounted to CHF 16.2 billion, a reduction of 4%. On 31 December 2009, the Group had shareholders’ equity before appropriation of profit of CHF 2,565 million, up by 2.7% compared with CHF 2,497 million as at 31 December 2008. The Tier 1 ratio thus equalled 13.5%.

Lugano, 26 March 2010

The Executive Board:

or the Board of Directors F Giorgio Ghiringhelli, Chairman

Alfredo Gysi, Chief Executive Officer ianni Aprile G Beat Ammann Roberto Botta Eugenio Brianti Stefano Coduri Agostino Ferrazzini Christian Ferry Stefano Loffredi François Noverraz Vincenzo Piantedosi Franco Polloni Rajiv Pradhan Gérald Robert

__

17

Highlights 2009

BSI Group

2009

2008

CHF 1’000

CHF 1’000

Profit and loss statement 939’617 Net operating result - 666’465 Operating expenses 273’152 Gross profit - 104’772 Depreciation of fixed assets - 44’004 Value adjustments, provisions, and losses 28’901 Extraordinary income / expenses - 50’100 Taxes 103’177 Net Group profit Balance sheet 21’364’224 Total assets 2’565’232 Shareholders’ equity, including net Group profit Client assets 78’060’839 Total Number Headcount (in FTEs) 2’513 Total 2’035 of which: in Switzerland 478 abroad % Capital ratios (Basel II) Total capital (Tier 1 and 2) 13.49 13.49 Tier 1 capital BSI AG







Profit and loss statement Net operating result Operating expenses Gross profit Net profit Balance sheet Total assets Shareholders’ equity after appropriation of profit Dividend (proposal of the Board of Directors) in CHF 1’000 in %

904’326 - 726’641 177’685 - 141’664 - 81’446 184’889 - 38’099 101’365

22’634’818 2’496’990

78’237’584 Number

2’353 2’001 352 %

12.45 11.82

2009

2008

CHF 1’000

CHF 1’000

747’996

686’828

- 516’998

- 576’677

230’998

110’151

103’936

31’565



16’667’132

17’940’218

2’173’556

2’132’060

98’440

30’360

5.35

1.65

18 __ BSI Annual Report 2009

Service excellence

Boosting our presence in Switzerland and international growth Since its founding in 1873, BSI has accompanied the Canton of Ticino’s growth along numerous stages of economic and social developments. The Bank has served as a point of contact in Ticino for numerous initiatives promoted by the Swiss central government. For example, BSI was part of the consortium of Swiss banks authorised to issue banknotes, and it also contributed to the building of major road, railway and waterway transport projects between Lugano and northern Switzerland and between Ticino and the Italian border regions. Over the years, all this meant progressive growth for BSI, enabling it to offer new and varied solutions to keep up with the changing needs of its clients. Thanks to this long tradition, BSI is perceived today as a familiar presence in the community, a bank whose own development takes root in the local economy and society. This local presence creates strong personal ties between our clients and their relationship managers. This attention to the needs of investors has helped BSI become today’s leading Swiss asset manager based in Ticino, with a major presence in the world’s key financial centres. BSI combines its roots in local development with a desire to widen its horizons and to serve clients throughout the world with the same high-quality, personalised approach. With this in mind, BSI continued to move forward in the international markets in 2009 on the basis of an articulate strategic plan for progressive growth in key markets such as Latin America, Eastern Europe, the Middle East and Asia in particular. The Bank focuses on service excellence to build long-term relationships that will endure even in difficult times “Serving clients” means attempting to deliver, day in and day out, quality services that respond as closely as possible to what clients are looking for when they turn to a bank such as BSI. The experience BSI has gained through its long history, along with the recent years of financial crisis and the many important changes it has brought, have given the Bank a deep-rooted, client-facing culture. This is a business philosophy that places the client at the centre of the company, with the daily objective to find customised solutions based on the changing needs and desires of clients. This approach creates a partnership between clients and relationship managers. It builds a close relationship of trust based on the ability to forge close ties through affinity and loyalty. This trust helps to reduce the uncertainty created by markets that have grown increasingly complex and subject to sudden changes. And this trust is the reason why, even during the strong pressure that Switzerland came under in 2009, BSI was able to react promptly by carefully listening to what clients were saying.

__

19

BSI Products and services

The BSI offering underwent further consolidation and streamlining in 2009 in the wake of the merger of BSI with Banca del Gottardo. The financial crisis hit strongly in the first part of the year, resulting in growing investor interest in liquid investment products. A large part of the Bank’s innovative efforts went in this direction, as BSI launched new products and services aimed at offering BSI clients investments with even greater security, which would minimise volatility and maximise credit quality. The second part of the year featured a project whose goal was to restructure and revamp the offering of investment products, and in particular investment funds and portfolio management. The project defined a number of measures that will be implemented in 2010 and which will further improve the product offering. Asset management mandates This product range is for clients who prefer to delegate their investment decisions to the Bank, with the confidence and peace of mind of knowing that they have entrusted the management of their assets to proven professionals. The current BSI range consists of the family of relative performance mandates (BSI Classica and BSI Selecta), the family of absolute performance mandates (BSI Absoluta, BSI Absoluta Daily and BSI Absoluta Flex) and the family of customised management mandates (BSI Exclusiva and BSI Classica Personal). The client can choose from a variety of solutions. The product range extends from management styles based on relative performance (related to a benchmark) to absolute return management, from investment proposals based on predefined risk-return profiles to completely or partially personalised solutions, from traditional investment instruments to alternative investment vehicles, from “à la carte” to all-inclusive pricing, and to service-based commissions. The illustration below summarises the portfolio management range.

Changes in BSI mandates offered The selection of absolute performance mandates was enhanced in 2009 with the introduction of the BSI Absoluta Flex mandate. This new mandate has a dynamic management that attempts to spot global investment opportunities (asset class / markets / currencies) through the use of a wide range of liquid and transparent investment instruments.

20 __ BSI Annual Report 2009

Investment funds BSI offers a complete range of investment funds able to satisfy all the requirements of the modern investor. BSI investment funds focus on the main money, bond and equity markets and opt for structures governed by Luxembourg or Swiss law. The range of traditional investment funds is complemented and enhanced by an attractive selection of asset allocation funds, which are managed via dynamic allocation to various asset classes based on the Bank’s investment policy, and absolute return funds, which aim to optimise the risk-return ratio. Alternative products based on hedge funds complete the range of BSI investment funds. BSI offers clients single-strategy and multi-strategy funds of hedge funds. These funds are for sophisticated clients who are aware of the special nature of this type of investment. The total assets in BSI funds at the end of 2009 was around CHF 4.9 billion, down 12% year-on-year (see chart). Assets in BSI investment funds



31.12.2009

31.12.2008





CHF Million

CHF Million

in %

948

1’263

- 25%

2’105

2’468

- 15%

793

674

18%

331

397

- 17%

Money market funds Bond funds Equity funds Asset allocation funds Funds of funds Total



Change

814

842

- 3%

4’991

5’644

- 12%

Awards • BSI-Multinvest Swiss Stocks was named the best fund in category by Lipper Fund Awards 2009 Taiwan. • BSI-Multinippon was designated the best Japan equity investment fund by FERI EuroRating Awards 2010. • The fund managers of the funds BSI-Multinippon and Ostvalor received the ratings A and AA from Citywire. • In December 2009, the following BSI funds were named Lipper Leaders in at least one of the four Lipper categories (Capital Preservation, Expense, Total Return, Consistent Return): Multi Opp-BSI Short Term CHF, BSI-Multibond CHF, BSI-Multibond USD A, BSI-Multibond Global Dynamic A, BSI-Multinvest – CHF Bonds, BSI-Multinvest – EUR Bonds, BSI-Multinvest – USD Bonds A, BSI Multibond Global Convertible, BSI-Multihelvetia A, BSI-Multinippon A, BSI-Multinvest – Swiss Stocks, Multi Opp-BSI Selecta Moderate (CHF), BSI-Multinvest - Strategy Income (CHF) A. Developments in BSI funds offer The main changes applied to the BSI range of investment funds were as follows: • with the financial crisis underway for most of 2008 and into early 2009, BSI launched two cash funds, Multi Opportunity BSI Cash EUR and USD. The two funds feature a very short average portfolio maturity and high-quality, liquid underlyings. The two funds are an effective way to deposit cash, even for a short period, and they guarantee a high level of risk diversification; • the new equity fund BSI-Multinvest Greater China Stocks Opportunities was launched at the begin ning of 2009. This fund is managed locally in order to best exploit the opportunities of the Greater China market, which includes China, Hong Kong and Taiwan;

__

• •

21

the process of integrating the offerings of BSI and Banca del Gottardo has been concluded in early 2009, with six Gottardo funds merged into BSI funds. Efforts to optimise the product range continued throughout the year, with a view to concentrating the offering on the areas of greatest interest. The Luxembourg-based investment fund BSI-Multinvest Japan Stocks Dynamic was liquidated, as were seven institutional classes of Luxembourg and Swiss funds; during the first six months of 2009, Convertible Arbitrage fund of the Luxembourg SICAV Generali Hedge Fund was merged into Multi Arbitrage fund; Multi Arbitrage was then renamed Arbitrage Opportunities due to a change in the investment policy put in place to more efficiently handle the changed conditions in the global financial markets in the hedge fund industry.

Structured products Structured products offer clients a valid alternative to direct investments in the financial markets. The key to success of these instruments lies chiefly in their flexibility. Thanks to the combination of traditional instruments with complex derivatives, it is possible to build strategies aimed at exploiting the most varied of market scenarios. BSI takes an open architecture approach, offering a wide range of BSI and third-party products, depending on the type of structure and the underlying. BSI structured products are under continuous development, cover all four families of the classification of the Swiss Association of Structured Products (Leverage Products, Participation Products, Yield Enhancement Products and Capital Protection Products), and have a wide range of underlyings that extends from traditional asset classes such as stocks and bonds to investments in commodities and alternative funds. Advisory services BSI offers two very different services to meet private clients’ needs for investment advice. BSI Activa provides daily monitoring of risks related to the client’s portfolio and an automatic cash reinvestment service. BSI Activa is primarily aimed at clients who do not actively follow their own portfolios, but who want to remain in charge of managing them. On the other hand, BSI Advisor is designed for clients who wish to actively manage their own portfolios. The Bank’s financial specialists continually support such clients by providing a selection of investment proposals based on the clients’ predefined portfolio structure. BSI is also a recognised name in the art world in view of its Art Advisory service. Thanks to its collaboration with a major company active in the sector, it is able to offer its clients a 360-degree customised advisory service that includes everything from the initial appraisal of artworks to their sale or acquisition.

22 __ BSI Annual Report 2009

Credit services Lending is an important part of the products and services that BSI offers. It has an essentially complementary role in the development of Private Banking relationships. Our highly skilled and experienced credit advisors are able to provide private and corporate clients with a complete service. The range of BSI credit products includes: • Lombard loans: financing secured by marketable securities that clients hold in custody with the Bank; • residential mortgage loans: real estate financing primarily for property in Switzerland; • corporate financing: the Bank offers corporate loans and commercial mortgages to companies (legal entities, partnerships, independent professionals and public entities); • trade finance and guarantees: a specialised unit that supports the financing of operations for inter national trade. Financial Planning services Through its Financial Planning department and the trust companies of the Group, BSI offers products and services for investors with requirements that are complementary to those of Private Banking. An in-depth knowledge of succession planning and asset protection tools allows our clients to benefit from additional support in planning for the future In light of the special nature of these products and its long-standing expertise, Financial Planning is a highly professional, customised service whose aim is to react rapidly to changes in clients’ advisory needs, whether in their professional or their family life. Credit cards BSI expanded its credit offering during 2009 for clients and staff. In addition to its traditional partner Viseca, BSI has now included Cornercard, which issues Visa and Mastercard credit cards and Visa prepaid cards. This cooperation with the new provider will help BSI boost its presence in the local market as part of its service enhancement for its own clients. Genera Project An important collaborative effort between Generali Switzerland and BSI was launched in 2009 under the name of the Genera Project. The project started in September, and its objective is to develop and implement an efficient operational platform for basic banking products as a valid investment alternative for financial flows deriving from maturing insurance policies. Currently, there are three products available, with a fourth one to come out soon. • Genera Contoflex: a custody and investment account with an attractive interest rate. • Genera Terminvest: a custody and investment account with a fixed term of one to four years and an interest rate based on the duration. • Genera Fondsportfolio: an investment fund account with an investment mandate and four various risk profiles based on the equity weighting (from 5% to 75%).

__

23

CORPORATE GOVERNANCE

The corporate governance principles of BSI AG, which comply with FINMA Circular 2008/24 “Supervision and internal control in the banking sector”, are described in the Articles of Incorporation of 25 February 2008 and the General Management Regulations of 1 April 2009. Ordinary General Meeting The duties and responsibilities of the Ordinary General Meeting, which is to be held within four months of the end of the financial year (art. 6 of the Articles of Incorporation), include: the approval and amendment of the Articles of Incorporation, the appointment of members of the Board of Directors and the external auditor, the approval of the Group’s annual report and accounts, the appropriation of profit, the discharge of the Board members and other decisions attributed to it by law (art. 9 of the Articles of Incorporation). The Ordinary General Meeting, for which minutes are taken, is generally presided over by the Chairman of the Board of Directors (art. 7 of the Articles of Incorporation). The share capital of BSI is equal to CHF 1.84 billion and is divided into 18.4 million registered shares (nominal value of CHF 100). The capital is fully paid up and is held by a sole shareholder: Participatie Maatschappij Graafschap Holland N. V. of Diemen, which is in turn wholly owned directly and indirectly by Assicurazioni Generali SpA of Trieste. The employees of BSI AG do not own any of the Bank’s share capital. Board of Directors The duties, responsibilities, composition and function of the Board of Directors is regulated by federal law, in particular by FINMA Circular 2008/24 “Supervision and internal control in the banking sector”, and are also defined in the Articles of Incorporation (art. 10-14) and in the General Management Regulations of the Bank (art. 1-9). The Board of Directors is responsible for the ultimate supervision, monitoring and control of the Bank’s management. At the end of 2009, the Board of Directors comprised seven members, elected by the Ordinary General Meeting for a term of three years, with the possibility of re-election. The composition of the Board of Directors must comply with the independence requirements set by the FINMA Circular 2008/24. From within its ranks, the Board of Directors appoints a Chairman and Vice-Chairman; in addition, it appoints the secretary of the Board, who doesn’t need to be a Board member. Meetings of the Board of Directors are called by the Chairman or, if he is unavailable, by the ViceChairman. The Board must meet at least four times each year. Any Board member may request a meeting, giving reasons for the request. For decisions to be valid, a majority of the Directors, including the Chairman or the Vice-Chairman, must be present. Decisions are taken based on an absolute majority vote by those present. In the case of a tied vote, the Chairman has the casting vote. In special cases, decisions may also be taken by correspondence, a procedure that was used in 2009 as in previous years. The Chairman chairs the Board meetings and sets the agenda, following consultation with the Executive Board. The Chairman must be kept informed regularly and promptly of business trends by the Executive Board. The Board of Directors must satisfy, as a committee, the requirements necessary to execute its tasks in terms of professional competence, experience and availability. For this purpose, the Board evaluates and documents in writing the achievement of objectives and its working methodology. This self-evaluation was done, as in previous years, with the support of an external consultant. As part of the Board’s duties and responsibilities, it issues regulations and general directives for the organisation and monitoring of the Bank’s management, decides on the medium-term plan for the Bank’s policies, defines the risk management principles, approves the annual budget, approves the general or-

24 __ BSI Annual Report 2009

ganisation chart, appoints members of management, and monitors the employee remuneration system. As part of its monitoring and control duties, the Board of Directors examines the reports of the external Auditor and Internal Audit, the quarterly Global Risk Report, the trend in major risks, the financial result, the financial positions, the Bank’s liquidity and shareholders’ equity. Committees of the Board of Directors The Board of Directors has formed an Audit Committee and a Remuneration Committee (art. 6 and 7 of the General Management Regulations). The members of both Committees are appointed annually by the Board of Directors in compliance with the requirements of the FINMA Circular 2008/24. The duties and responsibilities of the Audit Committee are defined in the Audit Committee Regulations, which form appendix II to the General Management Regulations. The Audit Committee meets at least four times each year. Together with the Executive Board, Internal Audit and the external Auditor, it examines the annual accounts. The Audit Committee assists the Board of Directors in supervising and assessing the integrity of the annual accounts, compliance with legal requirements and regulations, the effectiveness of the internal and external audits, and the adequacy and effectiveness of the control system. The responsibility for the tasks assigned to the Audit Committee remains with the Board of Directors, as a whole. In keeping with the request of the shareholder, the Chairman of the Board of Directors is also Chairman of the Audit Committee in order to ensure operational control of the Bank by a person who has an indepth knowledge of how the Group’s business operates. The duties and responsibilities of the Remuneration Committee are defined in the Remuneration Committee Regulations, which form appendix III to the General Management Regulations. This Committee sets the compensations for the members of the Board of Directors. It also approves the employment contracts and sets the remuneration of the Executive Board and the Head of Internal Audit. Executive Board The Executive Board is appointed by the Board of Directors. In carrying out its management function for the Bank, it has the following duties and responsibilities in particular: it decides the short- and mediumterm objectives within the general framework set by the Board of Directors, takes all measures needed to achieve these objectives, presents proposals in support of decisions taken by the Board of Directors, and proposes to the Board the general policies and strategies of the Bank. The tasks, responsibilities and reporting duties of the Executive Board are defined in the General Management Regulations (art. 10-13) and in the Regulations for Approval Authorities, which are appendix I to the General Management Regulations. The Executive Board acts as a collegial body in carrying out its functions. In carrying out its functions, the Executive Board represents the Bank, 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, monitors the trend for and prepares the quarterly report on liquidity and shareholders’ equity, appoints the Assistant Vice Presidents and Assistant Treasurers, signs agreements with professional associations, establishes the human resources policy, and issues provisions required for the execution of the General Management Regulations. The Executive Board is required to keep the Board of Directors informed of the business trends and the Bank’s situation by presenting to the Board and commenting upon respective reports and documents.

__

25

External Auditor Following a proposal from the Board of Directors, the Ordinary General Meeting of 26 March 2008 appointed Ernst & Young, Geneva/Lancy, as the external Auditor of BSI AG for the three-year term 2008-2010, pursuant to the Swiss Code of Obligations. The external Auditor is responsible for ensuring that the Group accounts and the Bank’s accounts are prepared in accordance with Swiss legal and regulatory requirements. The head external auditor is Didier Müller. Internal Audit Internal Audit is the department that, at group level, performs independent evaluations and reviews of the internal control system, thereby contributing to the ongoing adjustment of the control system as needed. It coordinates its activities with those of the external Auditor. Internal Audit reports directly to the Board of Directors and thus to the Audit Committee. Internal Audit reports periodically to the Audit Committee on the actions it has carried out, and it also reports to the Board of Directors once a year. Written reports on the results of audits conducted by Internal Audit are filed and sent to the Chairman of the Board of Directors, and the Audit Committee. A copy is also sent to the members of the Executive Board and to the external Auditor. The scope, authorities and responsibilities of Internal Audit are defined in the General Management Regulations and in the Group Internal Audit Regulations. The head of Internal Audit is Pius Bächli, who was appointed by the Board of Directors.

Starting in the middle of the 20th century, BSI decided to continue its quest for art initially embarked upon in the 18th century by Giovan Battista Riva, who commissioned the Locarno painter Giuseppe Felice Orelli to create the frescoes inspired by the arts and the figure of Apollo. The decision to start a real collection of art represents a strategic longterm investment aimed at further cultivating and enhancing the role the bank plays in the region.

Orazio De Ferrari The Charity of St. Charles Borromeo, 1640 ca.

28 __ BSI Annual Report 2009

Control and risk management

Principles Risk management forms an integral part of the corporate policy of the BSI Group. In compliance with Swiss and international laws and regulations, the Bank has established a structure for monitoring and managing risks for the BSI Group. Structure and responsibilities The Bank’s internal control and risk management structure adequately reflects the size and complexity of the business the Bank conducts. This structure includes processes and controls that ensure the delegation of authorities and the segregation of critical functions. The Board of Directors monitors whether the Bank has a clear global risk management process. It approves risk policies and limits and is informed quarterly in writing on the situation with respect to risks for the BSI Group. The Executive Board is responsible for implementing the risk management process for the entire banking organisation on the basis of the principles, risk policies, global limits and authorities to be proposed to the Board of Directors for approval. To ensure that risk is managed effectively, the Executive Board has set up various committees with specific responsibilities relating to the management of balance sheet risks, market risks, credit risks, counterparty risks and operational risks. The various committees are chaired by members of the Executive Board and are made up of experts in management of the respective risks inherent in the Bank’s various areas of activity. Risk Management, in cooperation with the control units of the Bank’s various business areas, conducts a series of controls independent of the line. The control units intervene directly in cases of non-compliance with limits, and they periodically inform Risk Management on the current status of risks over which they have authority. Risk Management analyses and consolidates the risk data and information at Group level and produces a quarterly Audit Report on Risks for the attention of the Executive Board and the Board of Directors. Balance sheet guidelines In 2009, the Bank implemented a reference model for managing the consolidated balance sheet, and it defined guidelines for the trend for principal asset and liability items on the basis of solvency, liquidity risk and profitability. In particular, and within the framework of these balance sheet guidelines, the Bank defined measures which have allowed it to improve the level of solvency by increasing the amount of available shareholders’ equity and reducing the balance sheet’s credit risk profile. Risks The risks to which the Bank is exposed are subdivided primarily into credit, market and operating risks as well as strategic and reputational risks. Credit risks Credit risk is the risk that a counterparty’s creditworthiness deteriorates and the counterparty becomes insolvent or does not pay back its liabilities. Credit risk also includes other risk categories such as counterparty risk, delivery risk, concentration risk and country risk. Credit risks are present in interbank portfolios and in the Bank’s own portfolios as well as in client loan portfolios. The Bank has set out specific policies on client credit risk and counterparty risk. These policies define principles for managing risk, the means of calculating and limiting risk, the responsibilities for authorising credit lines and overdrafts, and the reports to be submitted to the managing bodies and the Board of Directors.

__

29

More specifically, the Credit Office ensures centralised administration at Group level, coordinating all consolidated positions and managing control and decision-making processes via two executive committees: the Credit Committee, which is responsible for client loans, and the Banks and Brokers Committee, which is responsible for counterparty risk (for states, banks, brokers, custodian and correspondent banks). The Bank measures and monitors credit risk every day. Using a limits system, it defines the maximum levels of risk acceptable with respect to groups of counterparties and checks that the regulatory requirements on large exposures are observed. The independent control is carried out by the Credit Office. With respect to the credit risk in the interbank portfolio, the Bank has adopted various measures to reduce credit risk during the crisis that has hit the international financial markets. To lower counterparty risk, the Bank has used short-term debt securities issued by governments or guaranteed by governments or that bear similar risk. The Bank has reduced the number of bank counterparties with treasury limits and the amount of limits extended to banks. Operationally, maturities have been shortened and preference has been given to products guaranteed by financial collateral. In its lending to clients, the Bank aims to diversify risks and maximise the risk-return ratio. To this end, the Bank has introduced the use of internal models to assess credit risk using a classification of borrowers according to their default probability (rating) and an estimation of the expected losses. The client loans portfolio is primarily made up of mortgages, especially for residential property in Switzerland, and loans against pledged assets or securities. With respect to these categories of loans, the Bank rigorously applies the internal policies that govern the lending values of collaterals, in accordance with the principles of prudence. Commercial loans, trade finance loans and financing for Ticino-based public entities also constitute an important component of the loan portfolio. Market risk Market risk is the risk of losses arising from unexpected changes in interest rates, exchange rates, share prices or the prices of precious metals and commodities, as well as the corresponding expected volatility. Market risk can have an impact on the Bank’s profit and loss statement and the value of its assets. Risks related to the balance sheet structure (interest rate and exchange rate) are managed by the ALCO Committee and monitored by Risk Management, in accordance with the principles 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, for hedging purposes only. Positions without fixed maturities are replicated on the basis of historical analyses. As at 31.12.2009 for BSI Group, the sensitivity for a 1% shift in interest rates is 2.1% compared with a maximum limit of 5% of regulatory capital, whereas the impact on the interest margin for a -1% interest rate shift is CHF -28.1 million. The ALCO committee is also responsible for managing and allocating capital for the Bank’s various balance sheet activities. The Bank carries out trading operations for its clients and on its own account using all financial products and their derivatives. The trading portfolio is governed by a “Market risk policy – trading”, which defines the organisational structure, responsibilities, limit systems and maximum acceptable risk. The Proprietary Trading Committee is responsible for monitoring and managing market risk related to trading activities.

30 __ BSI Annual Report 2009

In addition to its trading portfolio, the Bank has an investment portfolio to diversify balance sheet assets and to optimise any excess liquidity. The investment portfolio is subdivided into various portfolios based on product type and strategy. The risks related to the investment portfolio are managed by the Proprietary Investment Committee, which operates on the basis of restrictions set by the “Market risk policy – Investments” and the ALCO Committee. Operational risk Operational risk is the risk of losses resulting from inadequate or failed internal processes, people and systems or from external events. Operational risks also include compliance and legal risks. The management of operational risks at BSI is based primarily on the collection and central analysis of operational losses, the identification and analysis of risks inherent in processes, and the management of corrective measures. The Bank creates provisions for events that could generate a financial loss. The heads of the different areas of the Bank have selected risk indicators, which are used and monitored in order to identify any increase in the level of risk within the Bank with a certain amount of advance. Within the Corporate Center the Operational Risk Committee governs the management of operational risks and coordinates the implementation of strategies for managing and mitigating operational risk. The Internal Control function is part of the Corporate Center. It is tasked with carrying out active monitoring of the controls and assessing the impact of internal and external changes on the controls, so as to guarantee the efficiency and effectiveness of the related processes. To this end, it may define corrective measures. The Legal & Compliance unit is responsible for managing legal and reputational risks and for ensuring that the BSI Group complies with regulatory and legal requirements. To safeguard as much as possible the integrity of people, property and data (for example, in a crisis situation in which the main IT systems are not functioning), the BSI Group has approved a business continuity management policy. It has also implemented a strategy designed to ensure the continuity of the bank’s critical functions or their resumption in the shortest possible time should an extraordinary internal or external event occur. Basel II In 2009, the BSI Group and the Bank respected at all times the limits specified by the Ordinance on Capital Adequacy (CAO) with respect to minimum capital and risk concentration. Quantitative data on capital and credit risk are provided in the attached tables. Additional information about the calculation method used by the Bank is provided below. Credit risk The Bank has adopted the credit risk approach defined as AS-CH (Swiss Standard Approach). This approach is based on ratings provided by external agencies recognised by FINMA. In particular, the Bank uses the ratings provided by Standard & Poor’s, Moody’s and Fitch to assess the quality of counterparties and the ratings provided by Standard & Poor’s and Moody’s for debt securities.

__

31

Off-balance-sheet positions in derivatives are calculated as credit equivalent using the market value method (art. 43 CAO). The Bank also applies the complete approach to transactions with financial collateral (art. 48 CAO). Regulatory capital requirements originating from credit risk amount to 61% approx. of required eligible capital. Market risk The Bank applies the standard approach to the calculation of capital requirements for market risk. These requirements amount to around 5.5% of eligible capital, respectively 9.3% of required eligible capital. Operating risk To calculate the regulatory requirements for operating risks, the Bank uses the base method, weighting gross revenues at 15%, as defined in the FINMA Circular 2008/21. As at 31 December 2009, the regulatory capital for the BSI Group’s operating risks amounted to around CHF 140 million.

32 __ BSI Annual Report 2009

Human Resources

The Human Resources department focused on five main themes in 2009: • the continuation of the process of organisational integration and harmonisation following the acquisition of Banca del Gottardo; • the recruitment of staff to bolster our client advisory structures; • the raising of the Bank’s profile in Asia; • the merger of pension funds (please see below); • training, organisational development and corporate culture. Headcount In 2009, the number of employees in the BSI Group grew from 2,428 as at 31 December 2008 to 2,590 as at 31 December 2009. This upturn is primarily due to growth at B-Source, which is the non-banking sector of the Group, and to the growing presence abroad – in particular in Asia – of our banking activities. A closer look at the growth in the number of employees at BSI shows that there was actually, on the one hand, an optimisation of human resources at the head office, and in particular in the staff functions, through a careful policy of incentivation, which led to 50 employees taking early retirement. On the other hand, we focused our efforts on boosting the number of positions that have direct contact with our clients. In fact, for the third year running, and at a growing rate of success, the Bank reaffirmed and further enhanced its ability to attract new relationship managers. The Bank was able to fulfil the challenging task of developing the client advisory sector, expanding considerably in Switzerland and in particular outside Switzerland. BSI added 84 new advisors, including 31 in Switzerland and 53 abroad. There were 1,963 employees engaged in banking activities in Switzerland and abroad, while 627 staff were employed at B-Source. The number of employees in Switzerland was 2,108. The pension foundations With effect from 1 January 2009, BSI merged the pension funds of BSI and Banca del Gottardo. The merger took place in the form of a transfer agreement of the assets between the pension foundations. The basic pension fund is maintaining its defined-benefits system. Additionally, the ordinary pension age was fixed at 63 for all employees, and the pension contribution from the variable salary component was optimised. The supplementary fund is a defined-contribution fund. Remuneration policy Thanks to its clear, consolidated remuneration policy, BSI was able to conclude in a very short time and with success the harmonisation process that it had started in 2008 of the different salary structures of the two banks. BSI maintained its policy of remunerating the responsibilities attached to an employee’s position and role, as well as the medium- and long-term performance both collectively in terms of the company’s overall success and with respect to the team and finally to the individual. The long-term success of a company depends to a large extent on the quality of its human resources. For this reason, the philosophy behind BSI’s remuneration policy is to continue to make salaries attractive, competitive, motivating and fair. BSI has therefore followed very carefully the debate initiated by the FINMA circular 10/1 of 21 October 2009 to regulate remuneration schemes. Although BSI is not strictly speaking within the perimeter of banks that are subject to the circular, BSI has decided to adopt the guidelines within the scope of the Remuneration Committee, which reports directly to the Board of Directors.

__

33

Training and development The activities of the Training & Development department are aimed at building a common identity, as well as at conducting numerous activities for team-building, behavioural training and change management. Along with the usual offering of internal training for banking and finance, the department is also developing courses that deal with changing conditions outside the bank, particularly in terms of legal and tax issues. The department is also offering new managerial and behavioural training programmes. The Bank’s apprenticeship programmes have continued as well, with 22 apprentices and 14 recent graduates on the staff. BSI also responds rapidly to requests from university students to do their internships with the Bank. A single corporate culture The work of consolidating and enhancing corporate culture continued with a series of events and activities promoted by the Executive Board and coordinated by Human Resources. These events and activities were in addition to the initiatives launched in 2008. One particularly important activity was the design, draft and launch of the new compensation model. The three pillars of this new model state clearly the philosophy behind employee development: Energy, People and Processes. These three words encompass a variety of skills that fall under the categories of a dynamic attitude, leadership and the ability to plan and control. Staff association The year also featured, as usual, close cooperation and collaboration between the company and the Staff Representatives Committee. The committee and the employer demonstrated their shared interest in maintaining and fostering optimal working conditions.

34 __ BSI Annual Report 2009

BSI Moments

Art, music, culture. BSI promotes exclusive events to share the world of passion that extends beyond banking. These events are the BSI Moments, projects such as the BSI Art Collection, the BSI Fondazione del Centenario prize, the BSI Gamma Foundation conferences and the BSI Swiss Architectural Award. Because in addition to taking care of its clients, BSI has another big passion: culture. And it wants to cultivate culture together with its clients – exploring new languages, including the language of finance, valuing works of art, rewarding those who merit it the most, and supporting the world in which the Bank operates. BSI Gamma Foundation Founded in 1998 on the occasion of the bank’s 125th anniversary, the BSI Gamma Foundation promotes theoretical and empirical research in the realm of wealth management and the financial markets. It aims to bridge the past the with future, translating studies and theories into practical use. It promotes conferences and shares the results of internal research conducted through competitions that involve researchers from around the globe. At the annual BSI GAMMA Foundation conference, held in Lugano, participants discussed and debated the issues currently facing international banks. The topics addressed at the conference included the regulation of derivatives, the size of banks, the burden of compensation and governance policies in periods of crisis, the role of hedge funds and improvement in risk management systems. BSI Art Foundation and BSI Art Collection The BSI Art Foundation promotes the arts and culture in all of their forms. It organises events, exhibitions and displays in collaboration with other institutions, associations of individual artists and world-class national museums. It publishes brochures, books and catalogues about art and artistic endeavours. The Foundation grants scholarships to talented young artists. For established artists, it sets up funds and contributes to developing the artists’ potential. In 2009, the BSI Art Foundation was involved in the Robert Rauschenberg exhibition “Gluts” at the Peggy Guggenheim Collection in Venice, where BSI is an Institutional Patron. BSI continues to enhance the BSI Art Collection with new and prestigious works of art. The BSI Art Collection was launched in 2000 as a collection of the works of contemporary artists in order to share passions and values that go beyond the hustle and bustle of daily life. As another sign of its support for art and culture, BSI is proud to continue the partnership that it has had for several years with the Peggy Guggenheim Collection in Venice and the Swiss Institute in Rome. BSI Architectural Foundation Since December 2006 the BSI Architectural Foundation has fostered the dissemination of values in the field of architecture. The BSI Swiss Architectural Award brings to the attention of the public and the media architects who have made a significant contribution to contemporary architecture through their work. There are two basic conditions: the work must demonstrate an awareness of environmental responsibility and the participants may not be older than 50 years of age. In the autumn of 2009, the BSI Architectural Foundation presented in Rome and in foreign branches of BSI the exhibition based on the 2008 award. Fondazione del Centenario Founded in 1973 to commemorate the first one hundred years of BSI, the Fondazione del Centenario della Banca della Svizzera Italiana aims to promote Italo-Swiss relations by recognising people or organisations whose activities and dedication have contributed to improving cooperation between these two peoples. The Foundation rewards works and publications that enhance understanding, the sharing of experiences and important cooperation between Italy and Switzerland. The Fondazione del Centenario presented the 2009 award to Cecilia Bartoli on 5 November in recognition of her outstanding performance as an opera singer, innovative interpreter and promoter of music.

__

35

BSI’s commitment to music Martha Argerich Project The eight edition of Martha Argerich Project took place in June of last year. In addition to the great pianist Martha Argerich, a wide array of artists, some of them now regulars at the event, created a harmonious spirit that left behind indelible memories. The event has become a type of laboratory in which the musicians are encouraged to play rarely heard works along with the masterpieces of music. Last year’s edition focused in particular on Felix Mendelssohn-Bartholdy on the occasion of the bicentenary of his birth, and on Ernest Bloch, who died 50 years ago. BSI Engadin Festival BSI was the main sponsor of the Engadin Festival for the first time last year as the festival marked its 69th anniversary. The title and theme of the festival was Von fremden Ländern und Menschen, which drew its inspiration from the famous Kinderszenen by Robert Schumann. The objective of the festival in 2009 was to take the spectator on a trip through the musical cultures of the entire world, from Asia to Latin America by way of Europe. In supporting the Engadin Festival, BSI wants to strengthen its ties with the Swiss canton of Graubünden, where BSI has had a branch office for 25 years in St. Moritz. BSI Concours de Piano and the Monaco Music Master BSI worked together last year with the Festival Les Sommets du Classique in Crans-Montana to set up the BSI Concours de piano – Les virtuoses du Futur. The object of this competition is to encourage young people to study music by exposing them to the beauty of it. BSI also continued its close cooperation with the Académie de Musique Fondation Prince Rainier III. This foundation provides grants to young talents so they can benefit from working with Renaud Capuçon for two training sessions. The young musicians can be from the Principality of Monaco, or they can also be musicians who have received a study grant from a major foreign music conservatory. Study grants BSI has been providing financial support for the training and development of young music talents since 2004. These young musicians have the possibility to participate in events organised by BSI. The young players granted a scholarship in 2009 were Khatia Buniatishvili, Jonian Ilias Kadesha, Denis Kojoukhine, Lia Petrova, Laura Zarina, David Bec and David Guerchovitch. The sponsorship of BSI in the field of music also includes support for the Orchestra della Svizzera Italiana, cooperation with the Stresa Festival and the Montebello Festival (chamber music festival held in the summer in the splendid environment of the castles of Bellinzona), as well as the sponsoring of a concert during the Settimane Musicali in Ascona and support for the Singapore Symphony Orchestra for its 30th anniversary.

As in the times of the venerable Tuscan bankers of the 15th century, who exchanged paintings in their dealings with the Orient, to acquaint themselves with those faraway lands with which they did business and to introduce themselves to their new clients, in the post-war, period of great development, BSI began to acquire old paintings, and dedicated Palazzo Riva to being a place of shared passions and knowledge.

Domenico Piola Allegory of Geometry and Astronomy, unknown date

Group accounts 40 __ Consolidated balance sheet as of 31 December 2009

41 __ Consolidated profit and loss statement 2009 42 __ Consolidated cash flow statement 2009

43 __ Notes to the 2009 Group accounts 72 __ Report of the Group Auditor 2009

40 __ BSI Group accounts

Consolidated balance sheet as of 31 December 2009

Notes Assets Cash and other liquid assets Money market papers Due from banks of which due from reverse repo transactions Due from customers 3.1 Mortgage loans 3.1 Securities and precious metals held for trading 3.2 Financial investments 3.3, 3.8 Non-consolidated participations 3.4, 3.6, 3.7 Fixed assets 3.7 Intangible assets 3.7 Accrued income and prepaid expenses Other assets 3.18 Total assets Total subordinated assets Total amounts receivable from non-consolidated participations and qualified shareholders Liabilities Due to banks of which due from repo transactions Due to customers in savings and investment accounts Due to customers, other of which due from the trading portfolio Medium-term notes Unredeemed bonds Accrued expenses and deferred income Other liabilities Value adjustments and provisions Reserves for general banking risks Share capital Capital reserve Reserve and retained earnings of which minority interests Net Group profit of which minority interests Total liabilities Total subordinated liabilities Total liabilities to non-consolidated participations and qualified shareholders Off-balance sheet business Contingent liabilities Irrevocable commitments Contingent liabilities for calls and margin liabilities Confirmed credits Derivative financial instruments Positive replacement value Negative replacement value Contract volumes Fiduciary transactions

31.12.2009

31.12.2008

Change

CHF 1’000

CHF 1’000

in %

- 67.8

546’595

1’697’803

3’099’657

1’888’846

64.1

6’489’288

7’964’422

- 18.5

1’264’307

1’229’222

2.9

3’171’723

3’121’737

1.6

2’717’284

2’572’414

5.6

1’074’957

981’690

9.5

1’561’121

575’397

171.3 16.8

50’445

43’177

357’786

336’897

6.2

963’121

1’013’888

- 5.0

81’992

104’813

- 21.8

1’250’255

2’333’734

- 46.4

21’364’224

22’634’818

- 5.6

22’913

38’3991

- 40.3

31’840

38’9731

- 18.3

989’574

411’560

140.4 - 10.9

441’581



3.17

387’096

434’633

15’786’911

16’498’858

- 4.3

434’720

583’149

- 25.5

7’926

13’097

- 39.5

75’000

- 100.0

3.17

165’103

218’654

- 24.5

3.18

1’312’950

2’347’884

- 44.1

3.10

149’433

138’142

8.2

3.10, 3.11

170’142

147’941

15.0

3.11

1’840’000

1’840’000

3.11

145’200

145’2002

3.11

306’712

262’4842

16.8

5’993

24’331

- 75.4

103’177

101’365

1.8

3’189

3’046

4.7

21’364’224

22’634’818

- 5.6

630

75’682

- 99.2

8’698

137’3241

- 93.7

3.1, 4.1

986’936

783’679

25.9

3.1, 4.5

121’838

170’623

- 28.6

3.1

7’930

3’822

107.5

199

- 100.0

3.1, 4.6



3.18, 4.2

1’208’980

2’236’081

- 45.9

3.18, 4.2

1’094’459

2’184’859

- 49.9

4.2

36’670’213

46’333’718

- 20.9

4.3

5’472’744

8’092’341

- 32.4

Amounts due to and from non-consolidated participations and qualified shareholders as at 31 December 2008 were corrected due to an error. 2 CHF 15.5 million reclassified from "Capital reserve" to "Reserve and retained earnings". This sum was erroneously reported at the time of the merger with BUC on 31 December 2006. 1

__

41

Consolidated profit and loss statement 2009

Notes Income and expenses from ordinary banking operations Interest and discount income 5.1 Interest and dividend income from financial investments Interest expenses Result from interest activities Commission income from lending activities Commission income from securities and investment transactions Commission income from other services Commission expenses Result from commission and service fee activities Result from trading operations





2009

2008

Change

CHF 1’000

CHF 1’000

in %

278’049

738’047

- 62.3

42’196

36’239

16.4

- 78’325

- 527’793

- 85.2

241’920

246’493

- 1.9

7’373

6’831

7.9

457’270

539’000

- 15.2

44’920

46’190

- 2.7

- 31’575

- 50’683

- 37.7

477’988

541’338

- 11.7

157’538

40’119

292.7

1’005

- 1’809

155.6

5’564

7’457

- 25.4

1’425

2’990

- 52.3

4’139

4’468

- 7.4

559

579

- 3.5

63’040

76’150

- 17.2

- 7’997

- 6’001

33.3

62’171

76’376

- 18.6

939’617

904’326

3.9

5.3

- 461’801

- 448’952

2.9

5.4

- 204’664

- 277’689

- 26.3

- 666’465

- 726’641

- 8.3

5.5

273’152

177’685

53.7

273’152

177’685

53.7

3.7

- 104’772

- 141’664

- 26.0

- 44’004

- 81’446

- 46.0

124’376

- 45’425

- 373.8





5.2

Result from the sales of financial investments Income from participations of which from participations consolidated using the equity method of which from non-consolidated participations Net income from real estate Other ordinary income Other ordinary expenses Other ordinary result Net operating result





Personnel expenses Other operating expenses Operating expenses



Gross profit









Profit Gross profit Depreciation of fixed assets Value adjustments, provisions and losses Result before extraordinary items and taxes

3.10

Extraordinary income Extraordinary expenses Taxes Net Group profit of which minority interests



5.6

70’103

201’924

- 65.3

5.6

- 41’202

- 17’035

141.9

5.7

- 50’100

- 38’099

31.5

103’177

101’365

1.8

3’189

3’046

4.7

42 __ BSI Group accounts

Consolidated cash flow statement 2009

2009



Cash flow provided by operating activities (internal financing) Net Group profit Depreciation of fixed assets Value adjustments and provisions Accrued income and prepaid expenses Accrued expenses and deferred income Other items Dividend Subtotal



Cash flow provided by changes in fixed assets and in participations Participations Real estate Other fixed assets Intangible assets Subtotal Total

Sources of cash

Uses of cash

CHF 1’000

CHF 1’000

CHF 1’000

CHF 1’000

101’365 141’664 91’603

103’177 104’772 11’291 22’821

21’242 53’551

57’336 92’400 138’600 139’726

48’645 31’610 205’545

1’400’000 28’001 6’494 12’074 1’353’431

22’494





14’323 11’496

3’325

7’368

5’156 118’185 42’987 991’925

5’160 61’726 18’329 1’147’941

82’263

345’216

119’957

Cash flow provided by banking activities Medium- and long-term activities ( > 1 year) Due to banks Savings and investment accounts Due to customers Medium-term notes Due from banks Due from customers Mortgage loans Financial investments Short-term activities Due to banks Savings and investment accounts Due to customers Medium-term notes Unredeemed bonds Money market papers Due from banks Due from customers Mortgage loans Financial investments Securities and precious metals held for trading Cash and other liquid assets Total

Uses of cash



Cash flow provided by equity transactions Share capital Reserves for general banking risks Reserve and retained earnings Translation differences arising from profit consolidation Subtotal

2008

Sources of cash



18’709 7’375 5’001

21’888 262’931 7’630 6’376 66’241 261’232 1’372’075 5’031

60’170 61’581 200’386 860’689

4’349

596’723 47’537 704’572 170 75’000 1’210’811



6’832’006 4’571 1’097’897 1’048’833 1’135’831 577’521 53’130

1’414’964 111’567 345’256 125’035



233’739 1’609’479

93’267 1’151’208 119’957

345’216

__

43

Notes to the 2009 Group accounts



1 Commentaries regarding the Group’s business activities The following notes refer to the position at 31 December 2009. General information The Group’s parent bank, BSI AG, is based in Lugano and operates through a network of seven branches in Switzerland (Chiasso, Bellinzona, Geneva, Locarno, St. Moritz, Zurich and Lausanne) and abroad via five representative offices (Hong Kong, Montevideo, Panama, Shanghai and Bahrain) and four banks (Bahamas, Luxembourg, Monaco and Singapore) and affiliated companies. For the scope of consolidation and the major non-consolidated holdings, please see tables 3.5 and 3.6. BSI AG is wholly owned by Assicurazioni Generali SpA, Trieste, through its direct participation Participatie Maatschappij Graafschap Holland N.V., Diemen (NL). The principal activity of the BSI Group The principal activity of the BSI Group is the asset management for private and institutional customers and the activities closely related to it such as investment funds, the placing of fiduciary deposits and trading in securities, precious metals and foreign exchange. The Group also offers credit services. BSI AG carries out trading in currencies and securities (shares, bonds and derivatives), including own account trading with pre-defined limits. BSI AG also performs issuing activities and acts as a market maker. Balance sheet transactions Balance sheet transactions have a complementary role. They account for about 25.8% of the Group’s net operating result (2008: 27.3%). Lending activities mainly involve the granting of Lombard loans and of loans largely covered by guarantees and mortgages, and unsecured loans. Overall, secured loans account for 84.2% of total loans (2008: 85.4%). Bank deposits are made only at leading Swiss or OECD country institutions. BSI AG holds a bond portfolio, booked as “Financial investments”, as a medium- to long-term investment. Headcount At the end of 2009, the Group had 2’513.40 full-time equivalent (FTE) employees (2008: 2,352.54), of whom 477.80 were employed abroad. The parent company had 1’472.15 full-time equivalent employees (2008: 1,493.25), of whom 43.80 were employed abroad. Risk management See the notes under the section “Control and risk management”. Outsourcing BSI outsources the management, development and maintenance of its information technology environment and back-office activities to B-Source SA, a service provider in which BSI holds a direct 100% stake. BSI AG outsources the management of hedge fund products to Thalìa SA, in which BSI has a 51% stake. BSI AG has also outsourced to Finaclear AG a part of the administrative and IT services tasks for some specific products (Genera products). The Bank complies with the legal provisions on outsourcing contained in FINMA Circular 08/7.

44 __ BSI Group accounts

Value added tax (VAT) The Bank belongs to the VAT group of Generali Personenversicherungen AG and is thus jointly and severally liable for commitments arising from this tax.



2 Accounting and valuation principles General principles The accounting, balance sheet entry and valuation criteria conform to the provisions of the Swiss Code of Obligations, the Swiss Banking Law and the directives of the Swiss Financial Market Supervisory Authority FINMA. The Group accounts show a true and fair view of the Bank’s asset, financial and economic situation. Recording of transactions All transactions are recorded in the books of the Group companies. Transactions with future execution dates are booked off-balance sheet until their date of execution and then transferred to the balance sheet, while transactions involving securities belonging to the Bank and spot transactions are recorded directly in the balance sheet. The financial result is nevertheless reported immediately in the profit and loss statement. Scope of consolidation The Bank fully consolidates all the companies operating in the banking and finance sector in which it directly or indirectly holds most of the votes or the capital (50%). Special purpose entities (SPE) in which the Bank does not hold the majority of votes or capital are fully consolidated if circumstances indicate a business relationship in which the Bank controls the majority of the profit of the entity or the risks connected to the entity’s activities. A list of fully consolidated holdings, holdings entered in the balance sheet in accordance with the equity principle, relevant holdings entered in the balance sheet at the purchase value minus the necessary amortisation and depreciation, and changes to the consolidation area are shown in tables 3.5 and 3.6. Consolidation method The capital of the companies involved in banking and finance in which BSI AG has a direct or indirect majority of the voting rights or capital are fully consolidated in accordance with the purchase method. The purchase price is offset against the market value of the assets at the time of incorporation or acquisition. The resulting difference from the first consolidation is entered in the balance sheet under “Intangible assets” and amortised over a maximum of ten years. An amortisation period of 20 years applies for the integration of the ex Banca del Gottardo Group. Participations between 20% and 50% are consolidated at equity and are shown in the balance sheet with the net asset value for the Bank’s share. Minor companies and companies held with a view to a subsequent sale are entered in the balance sheet at their purchase price after deduction of the necessary depreciation. Group-internal transactions and related internal profits are eliminated.

__

45

Conversion of foreign currency Foreign currency transactions are recorded at the exchange rate of the trade date. Profits or losses arising from revaluations are recorded into the profit and loss account. Foreign currency denominated balance sheet items are converted into Swiss francs at the rate of the balance sheet closing date. Foreign currency denominated profit and loss items of Group companies are converted into Swiss francs at the average exchange rate for the year. Conversion differences are booked directly within the consolidated shareholders’ equity. Exchange rates used for the main foreign currencies: Closing rate 31.12.2009 31.12.2008

Annual average rate 31.12.2009 31.12.2008

USD

1.030050

1.060800

1.083408

1.074958

EUR

1.483684

1.491538

1.509214

1.579259

JPY

1.115000

1.175700

1.157317

1.051883

GBP

1.662140

1.540600

1.694823

1.973021

Denomination Currency

1 1 100 1

Cash and other liquid assets, money market papers, due from banks and liabilities These items are recorded in the balance sheet at the nominal value or purchase cost less any adjustments for doubtful debts. Any discounts are recorded in the appropriate liabilities items. Due from customers and mortgage loans Loans to clients are recorded in the balance sheet at their nominal value. Loans for which the debtors or guarantors are unlikely to meet their future obligations are considered by the Bank to be non-performing loans. Non-performing loans are valued individually, and specific value adjustments are made to cover the identified value losses. A loan is deemed to be non-performing if certain indicators show that the capital and/or interest due in accordance with the contract will probably not be paid. The Bank creates provisions for the interest on the credit positions for which clients have not respected the contractual terms for more than 90 days. Off-balance sheet liabilities such as guarantees and derivatives are also considered in this valuation. The Bank determines the provisions’ amounts based on the liquidation value of the collaterals. Provisions are created for non-performing interest in accordance with the rule described above and directly deducted from the corresponding items under “Assets”. Loans are no longer considered non-performing if the due amount (interest and principal) is fully settled, the debit service is re-established and the solvency criteria are fulfilled. Loans are amortised by debiting the corresponding individual provisions if the loans are considered entirely or partially impaired or if the decision is taken not to recover them. Securities lending and borrowing Securities lending operations for which the Bank acts as principal are shown in the notes to the annual accounts. The commissions collected and paid for these transactions are booked in the relevant item of the profit and loss statement. Repo and reverse repo transactions These transactions are booked as loans collateralised with securities or secured with pledged securities accounts. They are entered under “Due from / to banks” and valued at their nominal value. Interest amounts collected or paid are recorded in the relevant item of the profit and loss account.

46 __ BSI Group accounts

Securities and precious metals held for trading Securities and metals held by the Bank for trading are revalued at market price on the balance sheet date. The result of the revaluation is entered in the profit and loss account. Any relevant accrued interest and dividends are reported as “Results from trading operations”, minus any financing costs, which are recorded as “Result from interest activities”. Financial investments The balance sheet value of securities purchased as long-term investments is calculated according to the following principles: • Debt securities intended to be held to maturity are valued at the purchase price. If the purchase was made at a price other than 100%, the premium or discount is spread over the residual term to matu rity and debited or credited to “Interest and dividend income from financial investments”. • Debt securities which are not intended to be held until maturity and shares are booked at the lower of purchase price and market value. Any value adjustments are recorded as “Sundry ordinary expen ses”. In the event of a recovery in market value, shares are revalued to the extent that their revalued amount does not exceed the purchase price. Such revalued amounts are posted to “Sundry ordinary income”. Properties that have been acquired as a result of lending transactions and are intended to be sold are booked under this item and valued at the lower of purchase price and sale price. The result deriving from the securities related to this asset item are entered under “Interest and dividend income from financial investments”. Accruals and deferrals Interest income, interest expenses and all other income and expenses not settled during the accounting period are accrued or prepaid in order to match the correct profit and loss period. Accrued expenses and deferred income also include accrued taxation. Fixed assets Fixed asset acquisitions are capitalised and valued at their purchase price, if their intended use is for more than one accounting period and their purchase price exceeds a minimum of CHF 5,000. Any new investment in already existing fixed assets is capitalised if it leads to permanent increases in the market value or significant lengthening in the useful life of such assets. Thereafter, fixed assets are recorded at their purchase cost less accumulated depreciation. Depreciation is calculated on the basis of assets’ expected useful lives. Fixed assets are reviewed annually for any impairments in value: if such analysis shows the need to shorten the depreciable period or a decrease in value, the rates of depreciation are adjusted or an extraordinary depreciation charge is made to the item on the profit and loss statement. Profits realised on the sale of fixed assets are booked as “Extraordinary income” and losses as “Extraordinary expenses”.

__

Asset

Bank premises Structural renovation of premises Internal restructuring or improvements (own property) Internal restructuring or improvements (third-party property) Furnishings Miscellaneous non-IT installations and vehicles Hardware and software Special projects

47

Duration of use

50 years 10 years

5 years 5 years * 10 years 5 years In accordance with expected useful life In accordance with expected useful life

* duration of the rental contract.

Intangible assets Goodwill is amortised linearly in accordance with its expected useful life over a maximum of ten years. An amortisation period of 20 years has been applied for the integration of the ex Banca del Gottardo Group. Other intangible assets are booked at the purchase price and amortised linearly over five years. The current value is revised every year. If this valuation identifies a change in useful life or a fall in value, the residual accounting value is amortised in accordance with a plan corresponding to the new useful life or an impairment charge is recorded. Pension plans The accounting treatment complies with Swiss GAAP ARR 16 relating to the presentation of accounts. Further details are provided in point 3.9 in the notes to the Group accounts. Taxes Taxes relating to the current accounting period are estimated in accordance with local tax legislation and recorded as costs for the period to which they relate. Direct taxes on current year profits payable, but not yet paid, are recorded as “Accrued expenses”. Provisions for deferred taxation relating to any future release of amounts from the reserve for general banking risks are reported as “Value adjustments and provisions”. The accounting treatment is in compliance with ARR 11 relating to the presentation of accounts. Contingent liabilities, irrevocable commitments, contingent liabilities for calls and margin liabilities Off-balance sheet items are stated at nominal value. Any provisions for identified risks are included under “Value adjustments and provisions”. A guarantee is in place to the government of Singapore for the business operations conducted by the subsidiary BSI Bank Ltd., Singapore. The guarantee is currently not being used. Following the application of the banking agreement on deposit guarantees, the Bank has an irrevocable commitment in respect of privileged deposits. Value adjustments and provisions Specific provisions and value adjustments are made with respect to all identified risks in accordance with the principle of prudence. The value of such items is deducted from the balance sheet assets to which they relate. Value adjustments and provisions proving to be financially unnecessary during the financial year are released and credited to the profit and loss statement. Provisions for latent risk or other risks are booked as liabilities in the balance sheet under “Value adjustments and provisions”.

48 __ BSI Group accounts

Reserves for general banking risks This item was created in accordance with Swiss Federal Banking Commission directives on the presentation of accounts. Movements in the reserves for general banking risks are posted to “Extraordinary income” or “Extraordinary expenses”. Derivative financial instruments Derivative financial instruments are normally treated as trading operations with the exception of the transactions described in the following paragraph. 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 pricing 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 transactions. The Bank enters into global hedge transactions with respect to interest rate risk. Profits on these transactions are accrued as interest income. Accrued interest payable and receivable is recorded in the balance sheet under “Other liabilities” and “Other assets”. Positive and negative 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. Whenever the value of a hedge exceeds the value of the hedged item, the excess is treated as a normal trading position. Replacement values For over the counter transactions, replacement values are recorded in the balance sheet as “Other assets” if positive and as “Other liabilities” if negative. In either case, gains or losses are recorded in the Bank’s profit and loss statement as “Results from trading operations”. Client assets The value of client assets under management is calculated with reference to the total value of all client positions at year end. Fund units held by the Bank’s clients are double counted: once as units held by clients and again as funds under management. Any funds held by correspondent banks and brokers are excluded as are securities belonging to the Group. Funds managed by the Group but deposited at third party banks are also included.

__



49

3 Information on the balance sheet

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

Type of collateral



Loans Due from customers Mortgage loans Residential properties Commercial and industrial properties Other Total at 31.12.2009 31.12.2008

Secured by mortgage

Other collateral

Unsecured collateral

Total

CHF 1’000

CHF 1’000

CHF 1’000

CHF 1’000

246’600

1’995’427

929’696

3’171’723

2’717’284 522’524 493’232 2’963’884

1’995’427

929’696

5’889’007

2’751’415

2’113’688

829’048

5’694’151

368’610

607’050

986’936

79’912

41’926

121’838

7’930

7’930

Off-balance sheet business Contingent liabilities Irrevocable commitments Contingent liabilities for calls and margin liabilities Confirmed credits Total at 31.12.2009 31.12.2008 Impaired loans Total at 31.12.2009 31.12.2008

2’717’284

1’701’528



11’276

11’276

448’522

656’906

1’116’704

23’964

493’972

440’387

958’323

Gross amount

Estimated realisable value of guarantees received

Net amount

Individual specific provisions

273’594

84’206

189’388

157’128

222’846

59’158

163’688

145’770

31.12.2009

31.12.2008

CHF 1’000

CHF 1’000

3.2 Securities and precious metals held for trading Securities and precious metals held for trading Debt securities listed unlisted Equities Precious metals Total of which eligible as repurchase transactions in compliance with the liquidity regulations



795’277

550’176

795’146

531’434

131

18’742

169’988

413’311

109’692

18’203

1’074’957

981’690

144’671

252’559

50 __ BSI Group accounts

3.3 Financial investments

Financial investments of which valued on a pro rate basis of which valued according to the lower value principle Equities of which qualified participations* Real estate Precious metals Total of which eligible as repurchase transactions in compliance with the liquidity regulations

Book value

Market value

31.12.2009

31.12.2008

31.12.2009

31.12.2008

CHF 1’000

CHF 1’000

CHF 1’000

CHF 1’000

1’456’528

531’723

1’472’047

531’273

1’450’373

344’250

1’465’876

342’100

6’155

187’473

6’171

189’173

94’983

32’774

106’564

35’287

16’109

366

16’109

366

9’610

10’900

9’610

10’900

1’561’121

575’397

1’588’221

577’460

891’072

240’075

31.12.2009

31.12.2008

CHF 1’000

CHF 1’000

* at least 10% of capital or votes.

3.4 Non-consolidated participations

With market value Without market value Total

6’675

6’710

43’770

36’467

50’445

43’177

__

51

3.5 Information on relevant participations 3.5.1 Scope of consolidation 31.12.2009 31.12.2008 Change participation in % participation in % in % A. Fully consolidated participations BSI Bank Ltd., Singapore, share capital USD 74’000’000, bank 100.0 100.0 BSI Generali Asia Ltd., Hong Kong, share capital HKD 10’000’000, investment company 50.0 50.0 BSI Investment Advisors (Panama) Inc., Panama share capital USD 410’000, investment company 51.0 51.0 BSI Luxembourg SA, Luxembourg, share capital EUR 23’465’711, bank 100.0 100.0 BSI Monaco SAM, Monte Carlo, share capital EUR 10’000’000, bank 100.0 100.0 Including: Citco Finance (Monaco) SAM, Monte Carlo share capital EUR 1’000’000, asset management company 99.96 99.96 BSI Overseas (Bahamas) Ltd., Nassau, share capital USD 10’000’000, bank 100.0 100.0 BSI Spain Wealth and Asset Management SA, Madrid share capital EUR 2’068’701, investment company 100.0 100.0 Including: BSI Spain Asset Management S.G.I.I.C. SA, Madrid share capital EUR 1’091’250, asset management company 100.0 100.0 BSI Spain Wealth Management A.V. SA, Madrid share capital EUR 812’250, asset management company 100.0 100.0 BSI Trust Corporation (Bahamas) Ltd., Nassau share capital USD 1’000’000, trust company 100.0 100.0 Including: Alpine Services Ltd., Nassau, share capital USD 10’000, investment company 100.0 100.0 BSI Trust Corporation (Malta) Ltd., La Valletta share capital EUR 50’000, trust company 100.0 100.0 BSI Trust Corporation (Singapore) Ltd., Singapore share capital SGD 500’000, trust company 100.0 100.0 B-Source SA, Lugano share capital CHF 2’400’000, systems development and business operations 100.0 100.0 Including: B-Source Outline AG, Lucerne 80.0 share capital CHF 100’000, output management company 80.0 100.0 100.0 EOS Servizi Fiduciari SpA, Milan, share capital EUR 750’000, fiduciary company Gotam Fund Management Company (LUX) SA, Luxembourg 100.0 100.0 share capital EUR 125’000, fund management company 100.0 100.0 Gotam SGR SpA, Milan, share capital EUR 2’050’000, asset management company Oudart SA, Paris, share capital EUR 5’500’000, asset management company 100.0 100.0 Including: Oudart Gestion SA, Paris, share capital EUR 1’000’000, asset management company 100.0 100.0 Oudart Patrimoine SARL, Paris, share capital EUR 38’125, asset management company 100.0 100.0 Solidia Finance et Patrimoines SA, Versailles share capital EUR 305’580, asset management company 50.02 50.02 Thalìa SA, Lugano, share capital CHF 1’000’000, investment company 51.0 51.0

52 __ BSI Group accounts

3.5.1 Scope of consolidation 31.12.2009 participation in % B. Participations valued at equity Atacama Investments Ltd, Tortola, British Virgin Islands share capital USD 40’050’000, investment company 39.61 Cross Factor SpA, Milan, share capital EUR 1’032’000, investment company 20.0 Livolsi e Associati Private SA, Lugano share capital CHF 1’000’000, asset management company 40.0 Podium SAM, Monte Carlo (MC), share capital EUR 150’000, services company 30.0 Second Pillar SA, Athens, share capital EUR 60’000, asset management company 25.0

31.12.2008

Change

participation in %

in %

39.61 20.0 40.0 30.0 25.0

3.5.2 Changes to the scope of consolidation 2009

Participations no longer in the scope of consolidation BSI Generali (UK) Ltd., London: sold BSI-Ifabanque SA, Paris: in liquidation BSI Investment Advisory London Ltd., London: liquidated BSI Trust Corporation (Channel Islands) Ltd., St. Peter Port: in liquidation Dreieck Fiduciaria SA, Lugano: sold Fafid SpA, Milan: integrated in EOS Servizi Fiduciari SpA, Milan, from 01.01.2009 Generali Thalìa Investments France, Paris: in liquidation Gotam Umbrella Fund (LUX) Advisory Company SA, Luxembourg: liquidated Gottardo Equity Fund (LUX) Management Company SA, Luxembourg: liquidated Gottardo Strategy Fund Management Company SA, Luxembourg: liquidated Luganova SA, Lugano: liquidated Participations new to the scope of consolidation BSI Trust Corporation (Singapore) Ltd., Singapore B-Source Outline AG, Lucerne Citco Finance (Monaco) SAM, Monte Carlo Solidia Finance et Patrimoines SA, Versailles Capital increases BSI Bank Ltd., Singapore: capital increase from USD 24.0 million to USD 74.0 million BSI Luxembourg SA, Luxembourg: capital increase from EUR 9.4 million to EUR 23.5 million BSI Spain Wealth and Asset Management SA, Madrid: capital increase from EUR 2.0 million to EUR 2.1 million BSI Spain Wealth Management A.V. SA, Madrid: capital increase from EUR 0.7 million to EUR 0.8 million EOS Servizi Fiduciari SpA, Milan: capital increase from EUR 0.6 million to EUR 0.8 million

__

53

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



31.12.2009

31.12.2008

Change

participation in %

participation in %

in %

Banca Patrimoni Sella & C. SpA, Turin share capital EUR 28’000’000, bank BSI Laran SA, Lugano share capital CHF 100’000, investment company Dynamic Securities SA, Athens share capital EUR 7’726’000, securities broker Generali Thalìa Investments Italy SpA, Milan share capital EUR 5’200’000, investment company Reali & Associati SIM SpA, Milan share capital EUR 5’000’000, brokerage firm Tamburi Investment Partners SpA, Milan share capital EUR 57’678’443, mergers and acquisitions company

5.68

5.68

100.0

100.00

15.74

15.74

20.0

20.00 100.0

100.0 2.70

2.70

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



BSI-Ifabanque SA, Paris1 share capital EUR 15’785’200, bank BSI Trust Corporation (Channel Islands) Ltd,. St. Peter Port1 share capital USD 200’000, trust company Generali Thalìa Investments France, Paris1 share capital EUR 2’000’000, investment company 1 In liquidation.

31.12.2009

31.12.2008

Change

participation in %

participation in %

in %

51.0

51.0

100.0

100.00

30.1

30.1

54 __ BSI Group accounts

3.7 Analysis of investments in CHF 1’000

2009 Acquisition price



Participations valued at equity Other non-consolidated participations Total non-consolidated participations

Bank premises Other real estate Total real estate







21’345

Depreciation to date



Book value 31.12.2008

Investments1

Disinvestments1

21’345

2’2512

- 889

Depreciation

Book value 31.12.2009

22’707

24’987

- 3’155

21’832

6’750

- 744

- 100

27’738

46’332

- 3’155

43’177

9’001

- 1’633

- 100

50’445

295’750

- 85’063

210’687

- 1’998

- 6’537

202’152

60’431

- 22’703

37’728

- 3’161

- 1’517

33’050

356’181

- 107’766

248’415

- 5’159

- 8’054

235’202



Other tangible fixed assets

305’443

- 216’961

88’482

63’0103

- 1’285

- 27’623

122’584



Total tangible assets

661’624

- 324’727

336’897

63’010

- 6’444

- 35’677

357’786

1’053’607 Goodwill 40’979 Other intangible assets Total intangible assets 1’094’586

- 65’173

988’434

10’684

- 62’323

936’795

- 15’525

25’454

7’6443

- 6’772

26’326

- 80’698

1’013’888

18’328

- 69’095

963’121



Fire insurance value of the real estate Fire insurance value of the other fixed intangible assets Leasing contracts not on balance sheet: liabilities arising from future leasing payments

311’500

237’272

137’728

161’125

17’636

11’518

1 Including changes in value due to change in the scope of consolidation. 2 Including value increases. 3 Including CHF 9.7 million in total costs related to the integration of Banca del Gottardo.

__

55

3.8 Assets pledged and securities repurchase and reverse repurchase agreements a) Assets pledged as security for own liabilities Including assets subject to retention of title and excluding securities repurchase and reverse repurchase agreements

31.12.2009

31.12.2008

CHF 1’000

CHF 1’000

Book value

Pledged amount

Book value

240’054

56’926

661’059

Change in % Book value

Pledged amount

- 63.7

- 79.2

31.12.2008 b) Securities repurchase and reverse repurchase agreements1 31.12.2009 CHF 1’000 CHF 1’000 Market value of own account securities lent or transferred as collateral for securities lending operations or for repurchase and reverse repurchase transactions 1’877’096 1’026’933 of which securities with no restrictions on rights of sale or subsequent pledging 1’877’096 1’026’933 Market 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 4’213’501 3’342’119 of which securities sold or pledged as collateral 1’430’483 1’879’945

Change

Pledged amount

273’741

in %

82.8 82.8

26.1 - 23.9

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 Commitments to Group pension institutions

31.12.2009

31.12.2008

CHF 1’000

CHF 1’000

106’223

27’279

A. Staff at the Bank and the Swiss subsidiaries Following the merger of BSI AG and Banca del Gottardo, the institutions’ respective pension foundations are set to be merged with retroactive effect to 01.01.2009. On 22.02.2010, the Supervisory Body for foundations and pension foundations of the Department of Justice of the Republic and Canton of Ticino approved the transfer of the assets, liabilities and net assets (as at 31 December 2008) of the Pension Fund for Employees of Banca del Gottardo and its affiliates to the Pension Foundation of BSI AG and BSI AG’s Social Insurance Fund. This decision may be appealed to the Federal Administrative Court within 30 days of notification. Pension insurance is provided to all employees of BSI AG and its Swiss subsidiaries by the Pension Foundation of BSI AG, which guarantees occupational pension contributions in compliance with the LOB (Swiss Federal Law on Occupational Retirement, Survivors’ and Disability Pension Plans) and its ordinances. The Foundation applies a single fixed-benefit plan. The retirement benefits in the event of incapacity or death are thus based on the employee’s last salary prior to the occurrence of the insured event. Retirement age is set at 63. BSI AG’s Social Insurance Fund is designed to provide subsidies or payments to members of the Pension Foundation of BSI AG and those companies economically or financially related to it, as well as their spouses, in case of retirement, illness, accident, disability, or in other cases of need. This aim was originally pursued through three distinct plans of supplementary insurance (Quadri, Incentive and Risparmio). Beginning 1 January 2009, the three plans were replaced with one single complementary plan. The Fund structures this complementary plan according to a defined contribution system. Retirement age is 63.

56 __ BSI Group accounts

B-Source SA employees are insured by the Staff Pension Fund of B-Source SA. Its aim is to protect personnel from the financial consequences of retirement, disability and death. Benefits are distributed according to a defined distribution system. Benefits in case of disability or death are based on the individual’s insured salary at the time the benefits are invoked, while retirement benefits are calculated on the basis of conversion of retirement capital available at the time of retirement. The pension plan provides for early retirement, which can be financed by the insured individuals through additional savings contributions in order to guarantee full benefits from age 60. Employer’s contribution reserve in CHF 1’000



Nominal value

Waiver of use

Other value adjustments

Lending value

Balance sheet

31.12.2009 31.12.2009 31.12.2009 31.12.2009 31.12.2009 31.12.2008

Pension fund / Pension institution BSI AG Pension Foundation (ex Banca del Gottardo) (booked in “Other assets”) Total



13’000

13’000

13’000

13’000

13’000

13’000

Financial assets / liabilities and pension insurance costs



Cover surplus/ deficit4

31.12.2009 CHF 1’000 Pension funds / Pension institutions BSI AG Pension Foundation with cover surplus 33’727 BSI AG’s Social Insurance Fund with cover surplus 11’026 ex Banca del Gottardo with cover surplus B-Source SA with cover surplus 7’546 Total 52’299

Financial share paid by the organisation

Financial share paid by the organisation

31.12.2009

31.12.2008

CHF 1’000

CHF 1’000

Change from prePension Pension vious finaninsurance insurance cial year/ with impact Contributions costs includ- costs includon financial adjusted for ed in the costs ed in the costs result of staff3 of staff1/2 the period

CHF 1’000

31.12.2009

31.12.2008

CHF 1’000

CHF 1’000

CHF 1’000

17’661

17’661

11’840

6’263

6’263 11’098

5’556

5’556

5’352

29’480

29’480

28’290

Data for 2008 have been reclassified following the insertion of the Staff Pension Fund of B-Source SA in the table. In 2008 pension insurance costs included in the cost of staff also include social insurance contributions paid into the Fund by BSI AG. Data for 2009 include costs and contributions of the former employees of Banca del Gottardo. 4 Control office reports as at 31 December 2009 have not yet been issued. 1 2 3

B. Employees of foreign branches and affiliates Employees of foreign branches and affiliates have occupational pension insurance in their respective countries according to local laws. The relevant costs are entered under “Personnel expenses”. Pension insurance costs included in the cost of staff

31.12.2009

31.12.2008

CHF 1’000

CHF 1’000

1’374

2’606

__

57

3.10 Value adjustments and provisions / reserves for general banking risks in CHF 1’000

2009 Situation 31.12.2008

Provisions for deferred taxes Value adjustments and provisions Value adjustments and provisions for default risks (credit and country risks) Value adjustments and provisions for other business risks Value adjustments for financial investments Value adjustments for pension liabilities Provisions for restructuring Other provisions Total value adjustments and provisions Value adjustments set off directly against assets Total value adjustments and provisions as per balance sheet

Reserves for general banking risks

Reclas- Recoveries, doubtful sifications interest currency differences

New provisions charged to P/L

170

19’157

- 748

36’119

268’008

- 69’590

7’713

72’114

- 10’674

267’571

179’974

- 26’625

802

5’333

27’137

- 7’406

179’215

21’5331

- 1’549

- 16’955

- 18

1’297

- 1’453

2’855

17’540

5’554



Situation Release credited 31.12.2009 to P/L

Use according to purpose

5’426

- 128

1’003

- 1’002

380

- 106

59’5641

- 40’308

285’548

- 69’590

1’784

1’783 3 16’153

- 203

74

2’523

41’897

- 1’612

78’217

7’883

91’271

- 11’422

303’690

- 147’406

- 154’257

138’142

149’433

147’941

- 255



- 37

36’994

- 14’500

1 Beginning 1 January 2009 provisions for legal risk are entered under “Other provisions” and no longer under “Other business risks”. The 2008 data have been reclassified.

170’142

58 __ BSI Group accounts

3.11 Statement of shareholders’ equity 2009 CHF 1’000 Shareholders’ equity at 1 January 2009 Share capital 1’840’000 Capital reserve1 145’200 Reserve and retained earnings1 262’484 Reserves for general banking risks 147’941 Net Group profit 101’365 Total shareholders’ equity 2’496’990 Increased reserves for general banking risks charged to the profit and loss statement 22’494 - 14’323 Change in the scope of the consolidation - 31’610 Distribution of the dividend of the previous year’s profits 103’177 Net Group profit for the reporting year Translation differences arising on profit consolidation - 11’496 2’565’232 Total shareholders’ equity at 31 December 2009 of which: 1’840’000 Share capital 145’200 Capital reserve 306’712 Reserve and retained earnings 170’142 Reserves for general banking risks 103’177 Net Group profit 1 CHF 15.5 million reclassified from “Capital reserve” to “Reserve and retained earnings”. This sum was erroneously reported at the time of the merger with BUC on 31 December 2006.

__

59

3.12 Maturity structure of current assets and third-party liabilities in CHF 1’000

Current assets Cash and other liquid assets Money market papers Due from banks Due from customers Mortgage loans Securities and precious metals held for trading Financial investments Total 31.12.2009 31.12.2008

Residual maturity on demand

subject to notice

due within 3 months

due within 3-12 months





546’595

–





–

–

–

–

– 2’380’256

719’401

1’044’346



due within 1 to 5 years

due after 5 years

fixed

Total

–

–

546’595

– 3’099’657

4’455’361

983’492

5’786

285

– 6’489’288

– 1’650’731

767’015

489’845

228’791

35’341

– 3’171’723

–

227’034

712’993

461’084

925’353

390’820

– 2’717’284

1’074’957

–

–

–

–

–

– 1’074’957

94’761

–

49’328

98’075 1’257’536

51’811

9’610 1’561’121

2’760’677 1’877’765 8’364’953 2’751’897 2’417’466

478’257

9’610 18’660’625

6’050’640

511’859

10’900 18’802’309

Third-party liabilities 321’570 Due to banks Due to customers in savings – and investment accounts 13’719’054 Due to customers, other – Medium-term notes 14’040’624 Total 31.12.2009 31.12.2008 9’212’329

322 8’464’125 1’920’441 1’844’022

1’030

656’636

5’703

–

387’096

–

–

–

–

31’384 1’585’850

430’829

19’509

285

4’635

2’206 2’795 2’925 –

–

989’574 387’096 15’786’911

–

7’926

419’510 2’244’692

439’327

27’069

285

17’171’507

479’556 6’931’524

764’313

43’859

1’567

17’433’148

3.13 Due from and to the Group’s bodies, due from and to affiliated companies 31.12.2009 CHF 1’000 Due from the bank’s bodies 30’718 Due from affiliated companies 61’425 1’822 Due to affiliated companies

31.12.2008

Change

CHF 1’000

in %

25’315

21.3

63’765

- 3.7

99’8941

- 98.2

• The conditions applied to loans to the Bank’s senior management are the same as those applied to staff loans. Due to their lower credit risk, employees generally receive a 1% or 1.5% interest rate reduction depending on the type of loan. • All transactions with affiliated companies were effected at market rates. Revenues of CHF 3.5 million (2008: CHF 2.9 million) received by companies linked to the Generali Group are included under the item “Results from trading operations”. • BSI had a subordinated loan from Participatie Maatschappij Graafschap Holland N.V., Diemen (NL) of CHF 75 million granted at market rates. The loan was fully repaid in 2009 (2008: CHF 75 million).



1 Data for sums due to affiliated companies as at 31 December 2008 have been corrected due to an error.

60 __ BSI Group accounts

3.14 Analysis of Swiss and foreign assets and liabilities Assets Cash and other liquid assets Money market papers Due from banks Due from customers Mortgage loans Securities and precious metals held for trading Financial investments Non-consolidated participations Fixed assets Intangible assets Accrued income and prepaid expenses Other assets Total assets

31.12.2009

31.12.2008

Switzerland

Abroad

Switzerland

Abroad

CHF 1’000

CHF 1’000

CHF 1’000

CHF 1’000

517’936

28’659

232’930

1’464’873

978’331

2’121’326

12’284

1’876’562

621’111

5’868’177

518’836

7’445’586

1’113’148

2’058’575

1’222’692

1’899’045

2’517’906

199’378

2’341’480

230’934

123’209

951’748

252’178

729’512

60’779

1’500’342

26’645

548’752

6’992

43’453

5’805

37’372

345’593

12’193

323’353

13’544

954’382

8’739

1’013’597

291

56’152

25’840

38’112

66’701

138’703

1’111’552

327’666

2’006’068

7’434’242

13’929’982

6’315’578

16’319’240

Liabilities 482’728 506’846 233’792 177’768 Due to banks Due to customers in savings 298’722 88’374 314’129 120’504 and investment accounts 3’151’510 12’635’401 4’833’078 11’665’780 Due to customers, other 7’926 13’097 Medium-term notes 75’000 Unredeemed bonds 121’073 44’030 163’070 55’584 Accrued expenses and deferred income 181’625 1’131’325 336’001 2’011’883 Other liabilities 141’748 7’685 121’536 16’606 Value adjustments and provisions 170’142 147’941 Reserves for general banking risks 1’840’000 1’840’000 Share capital 145’200 145’2001 Capital reserve 306’712 262’484 Reserve and retained earnings 5’993 24’331 of which minority interests 103’177 101’365 Net Group profit 14’413’661 14’123’125 8’511’693 Total liabilities 6’950’563 1 CHF 15.5 million reclassified from “Capital reserve” to “Reserve and retained earnings”. This sum was erroneously reported at the time of

the merger with BUC on 31 December 2006.

3.15 Assets by country/groups of countries

Switzerland Other OECD countries Other European countries Caribbean + Latin America Other Total

31.12.2009



31.12.2008

CHF 1’000

Participation in %

CHF 1’000

Participation in %

7’434’242

34.8

6’315’577

27.9

11’238’435

52.6

11’827’525

52.3

75’334

0.4

484’757

2.1

2’285’359

10.7

3’645’721

16.1

330’854

1.5

361’238

1.6

21’364’224

100.0

22’634’818

100.0

__

61

3.16 Assets and liabilities by currency CHF

Equivalent in CHF 1’000

Assets Cash and other liquid assets Money market papers Due from banks Due from customers Mortgage loans Securities and precious metals held for trading Financial investments Non-consolidated participations Fixed assets Intangible assets Accrued income and prepaid expenses Other assets Total balance sheet assets 31.12.2009 31.12.2008 Spot, forward and option contracts not yet delivered Total assets

Spot, forward and option contracts not yet delivered Total liabilities Net position per currency





EUR

JPY

347

435’365

9’275

96’097

5

1’607’584

1’458’823

Other

Total

5’511

546’595

33’245

3’099’657

382’169

1’960’956

3’412’051

23’890

710’222

6’489’288

1’026’390

871’640

959’883

90’456

223’354

3’171’723

2’535’491

61’576

111’550

325

8’342

2’717’284

21’013

239’826

684’156

129’962

1’074’957

29’764

609’386

921’917

17

1’561’121

7’947

19’533

22’836

129

50’445

345’120

7’841

4’372

453

357’786

37

954’382

7’427

1’312

1’515

12’835

48’790

689

18’163

81’992

346’354

41’486

820’700

6’833

34’882

1’250’255

963’121

6’085’515

5’449’365

8’542’487

122’577

1’164’280 21’364’224

7’052’408

4’588’043

9’661’893

145’489

1’186’985 22’634’818

7’176’865 11’222’296

4’665’317

638’910

2’333’666 26’037’054

13’262’380 16’671’661 13’207’804

761’487

3’497’946 47’401’278

Liabilities 304’468 Due to banks Due to customers in savings 366’694 and investment accounts 2’637’563 Due to customers, other 7’926 Medium-term notes Debenture loans 96’663 Accrued expenses and deferred income 400’373 Other liabilities 100’453 Value adjustments and provisions 170’142 Reserves for general banking risks 1’840’000 Share capital 145’200 Capital reserve 306’712 Reserve and retained earnings 5’993 of which minority interests 103’177 Net Group profit Total balance sheet liabilities 31.12.2009 6’479’371 7’207’066 31.12.2008

USD

69’968

418’922

4’607’497

7’303’846

4’222

191’994

20’402

989’574 387’096

76’400

1’161’605 15’786’911 7’926

10’457

21’371

551

36’061

165’103

40’920

832’249

7’092

32’316

1’312’950

2’440

45’260

1’280

149’433 170’142 1’840’000 145’200 306’712 5’993 103’177

4’731’282

8’642’050

88’265

1’423’256 21’364’224

4’935’831

9’144’973

107’694

1’239’254 22’634’818

7’100’477 11’694’759

4’587’285

688’425

2’010’439 26’081’385

13’579’848 16’426’041 13’229’335

776’690

3’433’695 47’445’609

- 317’468

245’620

- 21’531

- 15’203

64’251

- 44’331

62 __ BSI Group accounts

3.17 Unredeemed bonds, medium-term notes and structured products A. Unredeemed bonds The subordinated loan of CHF 75 million granted by Participatie Maatschappij Graafschap Holland N.V., Diemen (NL) was fully repaid in 2009.

B. Medium-term notes



CHF 1’000 CHF 1’000 CHF 1’000 Yield % Maturity



2010 2011 2012 2013 2014 or later

5’001 1’375 521

1.000 - 1.875 2.000 - 2.875 3.000 - 3.875

900

7’926

Average residual maturity (months)

Average yield %

5

2.5



6’536 490

229 800 7’926



C. Structured products Average weighted yield

Maturity

Issuer 12.650% BSI Overseas (Bahamas) Ltd, Nassau (CHF)

Amounts in CHF 1’000

2010-2011

20’117

1.360% BSI Overseas (Bahamas) Ltd, Nassau (EUR)

2010-2014

436’769

3.600% BSI Overseas (Bahamas) Ltd, Nassau (GBP)

2010

1’682

2.620% BSI Overseas (Bahamas) Ltd, Nassau (USD)

2010-2014

105’217

Total Maturity schedule of structured products Issuer BSI Overseas (Bahamas) Ltd, Nassau

Unsubordinated, structured products Unsubordinated, structured products Unsubordinated, structured products Unsubordinated, structured products

563’785

Maturity due within 1 year

from 1 to 2 years

from 2 to 3 years

from 3 to 4 years

from 4 to 5 years

Total

CHF 1’000

CHF 1’000

CHF 1’000

CHF 1’000

CHF 1’000

CHF 1’000

171’540

151’690

179’468

36’680

24’407

563’785

These amounts are included in “Due to customers, other” in the Group balance sheet.

__

63

3.18 Other assets and other liabilities Other assets Contribution reserve with the Pension Fund for the staff of the ex Banca del Gottardo and its affiliates Replacement values for derivatives from trading activities Replacement values for derivatives from hedging activities Other assets Total other assets

Other liabilities Replacement values for financial instruments deriving from trading activities Replacement values for financial instruments deriving from hedging activities Netting account Other liabilities Total other liabilities

31.12.2009

31.12.2008

Change

CHF 1’000

CHF 1’000

in %

13’000

13’000

1’130’574

2’159’413

78’406

76’668

2.3

28’275

84’653

- 66.6

1’250’255

2’333’734

- 46.4

1’041’373

2’156’464

- 51.7

53’086

28’395

87.0

114’909

33’270

245.4

103’582

129’755

- 20.2

1’312’950

2’347’884

- 44.1

- 47.6

64 __ BSI Group accounts



4 Information on off-balance sheet business

4.1 Breakdown of contingent liabilities Irrevocable commitments Performance guarantees Other contingent liabilities Total

31.12.2009

31.12.2008

CHF 1’000

CHF 1’000

Change in %

79’923

64’374

24.2

870’266

705’466

23.4

36’747

13’839

165.5

986’936

783’679

25.9

4.2 Derivative financial instruments outstanding Trading instruments Replacement value Contract positive1 negative1 volumes2 CHF 1’000 CHF 1’000 CHF 1’000 Interest rate instruments Forward contracts including FRA 4’039 85’752 Swaps 3’844 Futures 44 44 3’000 Options (OTC)

Currencies and precious metals Forward contracts Futures Options (OTC)







Equities / indices Forward contracts Swaps Futures Options (OTC) Traded options



Credit derivatives Credit default swaps Other Options (OTC) Total at 31.12.2009 31.12.2008





290’041 59’378

3’211 772’029 1’972





55







Replacement value positive1 negative1

60’220

Contract volumes2

CHF 1’000

CHF 1’000

CHF 1’000

75’256

43’029

3’198’316

7’069

314’232

2’988

1’283’288





279’902 22’570’258





Hedging instruments

3’031

4’129’212

23’195 696’484

4’917’960

481

72’174

203

29’941

119

42’885

1’130’574

1’041’373 31’831’492

78’406

53’086

4’838’721

2’159’413

2’156’464 42’615’696

76’668

28’395

3’718’022

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 Fiduciary deposits with other banks Fiduciary credits and other fiduciary transactions Total



31.12.2009

31.12.2008

CHF 1’000

CHF 1’000

Change in %

5’394’305

7’996’604

- 32.5

78’439

95’737

- 18.1

5’472’744

8’092’341

- 32.4

__

65

4.4 Client assets Held by funds Assets under management of which deposited with third parties Other assets Total client assets of which double counting Net inflow / outflow1 Impact on assets from change in the scope of consolidation 2

31.12.2009

31.12.2008

CHF Mio.

CHF Mio.

in %

7’967

8’778

- 9.2

12’757

12’805

- 0.4

602

1’042

- 42.2

57’337

56’655

1.2

78’061

78’238

- 0.2

Change

6’180

6’462

- 4.4

- 2’197

6’624

- 133.2

- 952

- 3’656

1 Net new money was calculated by deducting the outflow from the new capital (cash or securities from outside the BSI Group). Internal move ments within the Group were excluded. Net new money thus does not include interest or dividends received by clients as part of assets under management. Moreover, it does not include the performance effect or other changes during the year with respect to portfolios. 2 This refers to the structural loss of assets relating to entities that no longer report to the BSI Group with effect from financial year 2009: BSI Generali (UK) Ltd. and BSI Ifabanque SA (2008: Banca del Gottardo Italia SpA and Swiss Life Selection AG). As at 31.12.2009 BSI Group had assets under management deposited at other banks for a total CHF 602 million (2008: CHF 1’042 mil lion). Said other banks act only as custodians. BSI AG and BSI Overseas (Bahamas) Ltd. hold CHF 3’092 million (2008: CHF 3’173 million) and CHF 944 million (2008: CHF 892 million) of these assets, respectively, for clients for whom BSI acts as a custodian. The term Custody Only is used to describe clients for whom the Bank acts solely as custodian or financial intermediary without any influence on the manage ment of the assets.

4.5 Irrevocable commitments Deposit guarantees Other irrevocable commitments Total

31.12.2009

31.12.2008

CHF 1’000

CHF 1’000

Change in %

41’132

35’822

14.8

80’706

134’801

- 40.1

121’838

170’623

- 28.6

31.12.2009

31.12.2008

Change

CHF 1’000

CHF 1’000

in %

199

- 100.0

199

- 100.0

Change

4.6 Confirmed credits Deferred payment liabilities Total





5 Information on the profit and loss statement

5.1 Income from refinancing included in “Interest and discount income Total

2009

2008

CHF 1’000

CHF 1’000

in %

1’334

33’144

- 96.0

66 __ BSI Group accounts

5.2 Results from trading operations Foreign exchange and banknote transactions Precious metal transactions Securities transactions Other trading income Total

2009

2008

Change

CHF 1’000

CHF 1’000

in %

96’721

96’441

0.3

7’340

4’337

69.2 192.9

55’162

- 59’350

- 1’685

- 1’309

28.7

157’538

40’119

292.7

5.3 Personnel expenses Salaries Social security contributions Contributions to pension funds in favour of the staff Other personnel expenses Total



1

2009

2008

Change

CHF 1’000

CHF 1’000

in %

372’272

366’620

1.5

32’380

31’5951

2.5

30’854

30’896

- 0.1

26’295

19’8411

32.5

461’801

448’952

2.9

From 2009, other personnel expenses are entered separately and are no longer under “Social security contributions”. The 2008 data have been reclassified.



5.4 Other operating expenses Premises, machinery and furnishing1 IT expenses1 Other office expenses1 Total 1 Item descriptions have been changed to reflect the content more precisely.



2009

2008

CHF 1’000

CHF 1’000

in %

43’164

56’684

- 23.9 - 55.5

Change

38’984

87’555

122’516

133’450

- 8.2

204’664

277’689

- 26.3





5.5 Domestic and foreign gross profit of the Group Result from interest activities Result from commission and service fee activities Result from trading operations Other ordinary result Net operating result

2009





2008

Switzerland

Abroad

Switzerland

Abroad

CHF 1’000

CHF 1’000

CHF 1’000

CHF 1’000

203’294

38’626

233’608

12’885

390’300

87’688

452’302

89’036

145’821

11’717

29’359

10’760

57’291

4’880

79’071

- 2’695

796’706

142’911

794’340

109’986 - 69’375

Personnel expenses Other operating expenses Operating expenses

- 389’235

- 72’566

- 379’577



- 169’416

- 35’248

- 238’886

- 38’803

- 558’651

- 107’814

- 618’463

- 108’178





238’055

35’097

175’877

1’808

Gross profit



__

67

5.6 Extraordinary income and expenses 2009

2008

CHF 1’000

CHF 1’000











Extraordinary income Release of value adjustments and provisions Release of reserves for general banking risks Gains on the sale of participations Recovered losses Profit from sale of fixed assets Other extraordinary income





Extraordinary expenses Creation of reserves for general banking risks Losses on sale of participations Other extraordinary expenses Total

70’103

201’924

10’674

36’510

14’500

53’838

4’313

32’152

167

2’518

29’646

32’695

10’803

44’211

- 41’202

- 17’035

- 36’994

- 13’900

- 2’062

- 75

- 2’146

- 3’060

28’901

184’889

5.7 Taxes 2009

2008

CHF 1’000

CHF 1’000







New provisions for deferred taxes Release of provisions for deferred taxes Current year tax liability Release of provisions for current year tax liability Total









19’157

5’120

- 748

- 4’320

40’531

37’299

- 8’840 50’100

38’099

68 __ BSI Group accounts



6 Information required in accordance with the FINMA Circular 08/22 on Capital Adequacy Disclosure







6.1 Presentation of available shareholders’ equity Basic shareholders’ equity of which minority shareholdings of which innovative instruments – Regulatory reductions – Other items deducted from basic shareholders’ equity – Goodwill Total basic shareholders’ equity available + Additional shareholders’ equity – Other amounts arising from additional shareholders’ equity and from all shareholders’ equity Total available shareholders’ equity

2009

2008

CHF 1’000

CHF 1’000

2’466’791

2’466’630

9’181

27’377

963’121

1’013’888

1’503’670

1’452’742 75’000

50’445

43’177

1’453’225

1’484’565

6.2 Presentation of required shareholders’ equity Credit risks (in accordance with AS-CH approach) of which equities and shares in collective investment schemes Risks not linked to counterparties Market risk of which relating to bonds (general and specific market risk) of which relating to equities of which relating to currencies and precious metals of which relating to commodities Operating risks in accordance with base indicator approach Total required shareholders’ equity Ratio of available shareholders’ equity to required shareholders’ equity

2009

2008

CHF 1’000

CHF 1’000

525’706

590’379

40’883

39’885

115’484

107’168

79’971

108’639

13’241

36’036

9’948

30’701

28’733

37’992

10’336

3’910

140’472

147’647

861’633

953’833

168.66%

155.64%

__

69

6.3 Credit risk by type of counterparty in CHF 1’000 Governments and central banks

Banks and securities traders

Corpora- Companies Individuals, Equities tions small and and under medium- shares in public law sized collective companies investment schemes (retail)

Confirmed credits Balance sheet / loans Liquidity Due from banks 51 16’720 6’472’437 80 Due from customers 58’546 236’458 201’244 901’329 1’691’052 Mortgage loans 6’867 1’885 291’640 2’414’338 Financial investments* 2’143’486 1’875’779 156’702 349’799 Other assets /positive replacement values 429 771’259 84’823 387’998 20 2’226’048 9’357’818 358’017 1’627’671 4’493’388 Total at 31.12.2009 31.12.2008 2’293’665 10’824’754 335’685 2’361’160 4’143’859 Off-balance sheet 24’118 189’678 2’851 144’253 272’075 Contingent liabilities 69 121’769 Irrevocable commitments Contingent liabilities for 7’930 calls and margin liabilities Confirmed credits 124’620 24’118 144’253 272’075 197’677 Total at 31.12.2009 12’714 7’646 195’217 304’965 230’244 31.12.2008 * Including paper money and reclassification of hedge fund portfolios.

Other

546’595

Total

546’595 6’489’288

83’094 3’171’723 2’554 2’717’284 205’231

694 4’731’691

205’231

638’663 18’906’836

20’541

174’689 20’154’353

5’726 1’250’255

25’487

658’462 121’838 7’930

25’487

788’230

207’537

958’323

6.4 Credit risk mitigation in CHF 1’000

Covered by recognised

financial guarantees Confirmed credits/ Counterparty risk on balance sheet closing Balance sheet / loans Due from banks 1’259’141 Due from customers 1’870’953 Mortgage loans 120’442 Financial investments* Other assets / positive replacement values 36’110 3’286’646 Total at 31.12.2009 3’210’904 31.12.2008 Off-balance sheet 296’133 Contingent liabilities Irrevocable commitments Contingent liabilities for calls and margin liabilities Confirmed credits 296’133 Total at 31.12.2009 31.12.2008 383’221 * Including paper money.

Total

Covered by guarantees and derivatives

Covered by other guarantees

47’531

219’154

2’137’638

2’554’193

2’674’635

1’259’141



13

36’123

47’531

2’773’360

6’107’537

244’054

2’349’369

5’804’327

22’750

18’399

337’282

22’750

18’399

337’282

9’630

23’374

416’225

70 __ BSI Group accounts

6.5 Breakdown of credit risk in CHF 1’000

Weighting of regulated risk 0%

20 25%

35%

Confirmed credits/Counterparty risk on balance sheet closing Balance sheet/loans Liquidity 546’595 1’275’862 5’140’222 Due from banks 1’884’504 14’268 42’810 Due from customers 236’879 1’673’453 Mortgage loans 2’150’280 2’029’686 Financial investments* Other assets/positive 36’110 788’181 11 replacement values 6’130’230 7’972’357 1’716’274 Total at 31.12.2009 5’615’779 8’772’433 1’663’424 31.12.2008 Off-balance sheet 296’429 56’744 Contingent liabilities 147 121’838 Irrevocable commitments Contingent liabilities for 7’930 calls and margin liabilities Confirmed credits 296’429 186’512 147 Total at 31.12.2009 276’534 31.12.2008 186’098 21’808 * Including paper money and reclassification of hedge fund portfolios.

125%

150% > = 250%

Deductions

Total

50%

75%

100%

69’574

418

2’418

794

6’489’288

52’328 924’659

20’851

3’171’723

3’647 587’158 192’984

23’163

546’595 232’303 212’820

1’706 109’671

14’593

4’505 445’678

57’528 2

532’937 646’115 1’675’410

57’528

800’942 1’010’185 2’217’504

8’802

65’443

19’995 219’600

2’717’284 170’000

4’731’691

2’164 - 40’989 1’250’255

44’810 172’164 - 40’989 18’906’836 23’953 104

41’331

20’154’353 658’462 121’838 7’930

65’443

19’995 219’600

104

788’230

9’671

46’932 415’841

1’439

958’323

__

71

6.6 Geographical credit risk in CHF 1’000 Switzer- Oceania Latin North land America America

Confirmed credits Balance sheet / loans Due from banks 618’082 3’103 232’035 1’195’335 4’380 208’368 Due from customers 2’517’906 Mortgage loans 67’420 1’029’927 Financial investments* 173’508 Other assets/positive 110’667 278 14’624 replacement values 5’471’917 7’761 695’955 Total at 31.12.2009 4’449’602 38’867 729’954 31.12.2008 Off-balance sheet 274’928 2’128 13’025 Contingent liabilities 30’532 Irrevocable commitments Contingent liabilities for 7’930 calls and margin liabilities Confirmed credits 313’390 2’128 Total at 31.12.2009 13’025 320’694 2’264 95’206 31.12.2008 * Including paper money and reclassification of hedge fund portfolios.

Europe

Caribbean

Asia

Africa

Other

Total

773 5’589’115

2’972

41’654

1’554

6’489’288

762’638

610’490

208’407

20’746

3’171’722

161’358

130’970 3’004’605

322’710

748’368

988

2’717’284

200’940

4’731’690

365’572

7’528

1’125

1’250’255

164’224 10’235’696 1’301’744

459’517

23’425

18’360’239

143’393 10’944’388 1’781’988

349’884

18’474

18’456’550

6’955

5’506

658’463

2’093

31’666

163’975

160’280

121’838

91’306

7’930 31’666

255’281

160’280

6’955

5’506

788’231

38’926

333’686

155’410

6’759

5’378

958’323

Latin Switzer- Oceania North land America America

Europe

Caribbean

Asia

Africa

6.7 Impaired client loans by geographical region in CHF 1’000

Impaired loans (gross amount) Total at 31.12.2009 31.12.2008 Individual value adjustments Total at 31.12.2009 31.12.2008

136’031

6’158

2’623 113’326 15’231

226

136’031

6’158

2’623 113’326 15’231

226

61’072

1’318 15’726 92’066 13’976 8’121 3’130 73’204 11’300

61’072

8’121

99’581

56’183

3’130

Total

273’594 273’594 222’846

179

157’128

300

73’204 11’300

420 12’294 50’303 26’397

Other

157’128

300

145’770

173

6.8 Contract volumes for credit derivatives in the Bank portfolio 2009

Derivatives Credit default swaps of which from the trading portfolio of which from the investment portfolio Credit linked notes Total return swaps First-to-default swaps Other derivatives

2008

Seller

Buyer

Seller

Buyer

CHF 1’000

CHF 1’000

CHF 1’000

CHF 1’000

29’941

42’856

41’763

123’923

41’763

80’334

29’941 42’856

43’589

72 __ BSI Group accounts

Report of the Group auditor 2009

__

73

The decision to preserve the artworks and to turn the historic palazzo into a place to safeguard these pieces, was an important step for the bank. The decision was reaffirmed over time thanks to the foresight of its directors who never lost sight of the importance of knowledge and the value of disseminating art throughout the world.

Antonio Joli Capriccio with figures and cathedral, 1740 – 1749

BSI AG accounts 78 __ Parent Bank balance sheet as of 31 December 2009

80 __ Notes to the 2009 Parent Bank accounts

79 __ Parent Bank profit and loss statement 2009

84 __ Report of the statutory Auditors 2009

78 __ BSI Annual accounts

PARENT BANK BALANCE SHEET As of 31 DECEMBER 2009 (before approval by the General Shareholders Meeting)

31.12.2009 Notes CHF 1’000 Assets 517’759 Cash and other liquid assets 2’072’214 Money market papers 3’926’430 Due from banks of which due from reverse repo transactions 1’259’141 2’497’894 Due from customers 2’651’360 Mortgage loans 683’413 Securities and precious metals held for trading 1’399’450 Financial investments 282’010 Shareholdings 1’186’407 Fixed assets 55’012 Accrued income and prepaid expenses 1’395’183 Other assets 16’667’132 Total assets 71’916 Total subordinated assets Total amounts receivable from Group companies 1’080’688 and qualified shareholders1

Liabilities Due to banks of which due from repo transactions Due to customers in savings and investment accounts Due to customers, other of which due from the trading portfolio Medium-term notes Unredeemed bonds Accrued expenses and deferred income Other liabilities 2 Value adjustments and provisions 2, 4 Reserves for general banking risks 3, 4 Share capital 4 General legal reserve 4 Balance brought forward Net profit Total liabilities Total subordinated liabilities Total liabilities to Group companies and qualified shareholders1 Off-balance sheet business Contingent liabilities Irrevocable commitments Contingent liabilities for calls and margin liabilities Confirmed credits Derivative financial instruments Positive replacement value Negative replacement value Contract volumes Fiduciary transactions



1

2’902’011

31.12.2008

Change

CHF 1’000

in %

1’665’088

- 68.9

552’022

275.4

6’240’697

- 37.1

1’226’606

2.7

2’615’125

- 4.5

2’518’678

5.3

725’856

- 5.8

371’409

276.8

248’100

13.7

1’206’579

- 1.7

61’807

- 11.0

1’734’857

- 19.6

17’940’218

- 7.1

88’420

- 18.7

437’361

147.1

3’608’972

- 19.6

441’581

100.0

366’694

395’919

9’442’509

9’694’576

- 2.6

211’939

305’853

- 30.7

7’926

13’097

- 39.5

75’000

- 100.0

123’930

153’610

- 19.3

1’430’993

1’717’665

- 16.7

121’073

118’959

1.8

71’622

35’622

101.1

1’840’000

1’840’000

255’903

254’325

0.6

535

908

- 41.1 229.3

103’936

31’565

16’667’132

17’940’218

- 7.1

630

75’682

- 99.2

2’424’875

3’460’238

- 29.9

930’171

780’829

19.1

41’407

55’560

- 25.5

4’930

3’822

29.0

199

- 100.0

1’373’863

1’645’848

- 16.5

1’259’892

1’594’903

- 21.0

40’677’223

46’296’871

- 12.1

7’180’277

9’282’021

- 22.6

Amounts due to and from Group companies and qualified shareholders as at 31 December 2008 were corrected due to an error.

1



- 7.4

__

79

Parent Bank profit and loss statement 2009

Notes Income and expenses from ordinary banking operations Interest and discount income1 Interest and dividend income from financial investments Interest expenses1 Result from interest activities ommission income from lending activities C Commission income from securities and investment transactions Commission income from other services Commission expenses Result from commission and service fee activities Result from trading operations



7

esult from the sale of financial investments R Income from participations Net income from real estate Other ordinary income Other ordinary expenses Other ordinary result

2009

2008

Change

CHF 1’000

CHF 1’000

in %

204’027

524’976

- 61.1

32’121

22’387

43.5

- 40’933

- 358’088

- 88.6

195’215

189’275

3.1

7’131

6’561

8.7

345’611

436’455

- 20.8

35’032

31’894

9.8

- 11’553

- 31’766

- 63.6

376’221

443’144

- 15.1

145’492

30’049

384.2

- 1’264

552

- 329.0

36’097

25’556

41.2

1’860

2’225

- 16.4

3’891

1’801

116.0

- 9’516

- 5’774

64.8

31’068

24’360

27.5



747’996

686’828

8.9

Personnel expenses ther operating expenses O Operating expenses Gross profit

- 307’180

- 308’949

- 0.6

- 209’818

- 267’728

- 21.6

- 516’998

- 576’677

- 10.3

230’998

110’151

109.7

Net operating result



Profit Gross profit Depreciation of fixed assets Value adjustments, provisions and losses Result before extraordinary items and taxes 8 Extraordinary income 8 Extraordinary expenses Taxes of which release of provisions not required for current year tax liabilities Net profit ppropriation of profit A Net profit Balance brought forward Balance sheet profit



roposal of the Board of Directors: P Ordinary dividend on share capital Allocation to the general legal reserve Balance to be carried forward Total

230’998

110’151

109.7

- 75’242

- 117’830

- 36.1

- 41’856

- 60’772

- 31.1

113’900

- 68’451

- 266.4

64’009

135’547

- 52.8

- 41’642

- 11’231

270.8

- 32’331

- 24’300

33.0

103’936

31’565

229.3

31.12.2009

31.12.2008

Change

CHF 1’000

CHF 1’000

in %

103’936

31’565

229.3

8’840

535

908

- 41.1

104’471

32’473

221.7

98’440

30’360

224.2

5’841

1’578

270.2

190

535

- 64.5

104’471

32’473

221.7

Beginning 1 January 2009 the result from interest hedging activities is offset in “Interest and discount income” with no impact on the profit and loss statement. The 2008 data have been reclassified. 1

80 __ BSI Annual accounts

Notes to the 2009 Parent Bank accounts



Accounting and valuation criteria The accounting, recording and valuation criteria conform to the provisions of the Swiss Code of Obligations, Swiss Banking Law and related ordinances as well as the directives of the Federal Financial Markets Supervisory Authority (FINMA). Please refer to the “Accounting and valuation principles” attached to the Group’s accounts, which are also valid for the accounts of the Parent Bank. The only exception is made for the amortisation of goodwill following the acquisition of BUC. For the Parent Bank, this was completely amortised in 2007.



1 Fiduciary transactions

Fiduciary deposits with other banks Fiduciary deposits with Group banks and associated banks Fiduciary credits and other fiduciary transactions Total



31.12.2009

31.12.2008

CHF 1’000

CHF 1’000

in %

5’290’477

7’851’468

- 32.6

1’860’930

1’392’659

33.6

28’870

37’894

- 23.8

7’180’277

9’282’021

- 22.6

2 Value adjustments and provisions / reserves for general banking risks

in CHF 1’000

2009 Situation 31.12.2008

Provisions for deferred taxes Value adjustments and provisions for default risks and other business risks Value adjustments and provisions for default risks (credit and country risks) Value adjustments and provisions for other business risks1 Value adjustments for financial investments Value adjustments for pension liabilities Provisions for restructuring Other provisions 1 Total value adjustments and provisions Value adjustments set off directly against assets Total value adjustments and provisions as per balance sheet

Change

Reserves for general banking risks2



Use Reclassifi- Recoveries, cations according doubtful to purpose interest currency differences

8’633

17’633

9’000

240’686

- 45’342

174’123

- 23’509

21’532

- 276

2’766

73’338

- 10’943

260’505

802

3’511

26’125

- 6’133

174’919

- 16’956

- 119

4’673

- 1’452

7’402

5’554 1’002

Situation New Release provisions credited to 31.12.2009 charged P/L to P/L

5’426

- 128 - 1’002

1’783

1’783

380

- 380

38’095

- 20’555

249’319

- 45’342

16’154

- 118

40’757

- 3’358

70’975

2’766

82’338

- 10’943

278’138

- 130’360

- 157’065

118’959

121’073

35’622





36’000

1 Beginning 1 January 2009 provisions for legal risk are entered under “Other provisions” and no longer under “Other business risks”. The 2008 data have been reclassified. 2 The reserves for general banking risks are not charged because there is a fund for deferred provisions.

71’622

__



81

3 Share capital



31.12.2009 Total nominal value

Number of shares

CHF 1’000

Total share capital

31.12.2008 Capital with dividend rights

Total nominal value

Number of shares

Capital with dividend rights CHF 1’000

CHF 1’000 CHF 1’000

1’840’000 18’400’000 1’840’000 1’840’000 18’400’000 1’840’000 2009

2008

Nominal Participation CHF 1’000 percentage

Nominal Participation CHF 1’000 percentage

Shareholders Shareholders with voting rights Participatie Maatschappij Graafschap Holland N.V., Diemen (NL) * 1’840’000 * Company directly and wholly owned by the Assicurazioni Generali Group, Trieste.

100

1’840’000

100

82 __ BSI Annual accounts



4 Statement of shareholders’ equity

Shareholders’ equity at 1 January 2009 Share capital released General legal reserve Reserves for general banking risks Net profit Balance brought forward Total shareholders’ equity (before appropriation of profit)

2009 CHF 1’000

1’840’000 254’325 35’622 31’565 908



2’162’420

Distribution of previous year’s dividend Creation of reserves for general banking risks Net profit for the current year Shareholders’ equity at 31 December 2009 (before appropriation of profit) of which: Share capital released General legal reserve Reserves for general banking risks Balance brought forward Net profit



- 30’360 36’000 103’936 2’271’996 1’840’000 255’903 71’622 535 103’936

5 Pension liabilities

Total

31.12.2009

31.12.2008

CHF 1’000

CHF 1’000

Change in %

105’845

27’279

288.0

All employees of the Parent Bank are covered by the pension plan except for apprentices, trainees and unpaid staff. As at 31 December 2009 there were 1,483 employees covered by the pension scheme and 756 drawing pension benefits (as at 31 December 2008 there were 1’477 employees covered and 451 drawing benefits). Costs incurred by the Bank for pension plans are included in “Personnel expenses”.

__



83

6 Other balance sheet information

Assets pledged as security for own liabilities Due from the Bank’s bodies Due from affiliated companies Due to affiliated companies1

31.12.2009

31.12.2008

CHF 1’000

CHF 1’000

Change in %

240’054

661’059

- 63.7

30’718

25’315

21.3

59’985

59’403

1.0

1’795

99’894

- 98.2

• All transactions with affiliated companies were effected at arm’s length. • BSI had a subordinated loan from Participatie Maatschappij Graafschap Holland N.V., Diemen (NL) of CHF 75 million granted at market rates. The loan was fully repaid in 2009 (2008: CHF 75.0 million). • BSI has outsourced systems operations, development and maintenance as well as back-office activities to B-Source SA, a services company fully owned by BSI AG (consolidated using the equity method). These services are remunerated at market rates and are performed in com pliance with FINMA-Circular 08/7. • The conditions applied to loans to the Bank’s senior management are the same as those applied to staff loans. Due to their lower credit risk, employees receive an interest rate reduction of 1%-1.5% depending on the type of loan.







1

Data for sums due to affiliated companies as at 31 December 2008 have been corrected due to an error.

7 Results from trading operations

Foreign exchange and banknote transactions Precious metal transactions Securities transactions Other trading income Total





2009

2008

CHF 1’000

CHF 1’000

Change in %

88’060

89’730

- 1.9

7’340

4’311

70.3

51’777

- 62’684

182.6

- 1’685

- 1’308

28.8

145’492

30’049

384.2

8 Extraordinary income and expenses

Extraordinary income Release of value adjustments and provisions Gains on the sale of participations Net release of reserves for credit risks Release of reserves for general banking risks Recovered losses Profit from sale of fixed assets Other extraordinary income Extraordinary expenses Losses on the disposal of participations Creation of reserves for general banking risks Other extraordinary expenses Total

2009

2008

CHF 1’000

CHF 1’000

64’009

135’547

4’810

15’207

14’093

41’264

6’133

13’564 11’703

167

2’518

29’647

17’991

9’159

33’300

- 41’642

- 11’231

- 4’622 - 36’000

- 8’308

- 1’020

- 2’923

22’367

124’316

84 __ BSI Annual accounts

Report of the STATUTORY AUDITORS 2009

__

85

Today the BSI art collection boasts an important section of Contemporary Art, started in 2000, with pieces exhibited around the world at BSI branch offices and affiliates. Unlike the way in which other collections develop, under the guidance of a curator, BSI’s set of Old Masters attests to the wealth of relationships between collectors, antiquarians and academics, who have created a heterogeneous, complex and unique whole. Over time, the acquisitions began following specific themes and in the future, Palazzo Riva could well become a gallery of international prominence.

Anton Goubau Market, 1660 ca.

88 __ BSI Annual Report 2009

BSI AG – Organisation chart (situation as of 31 December 2009)

Board of Directors

Internal Audit Pius Bächli

Executive Board

General Secretariat Daniele Boni

Chief Executive Officer Alfredo Gysi Human Resources Vincenzo Martino

Marketing & Product Management Stefano Coduri

Corporate Center Gianni Aprile Beat Amman Rajiv Pradhan

Private Banking Switzerland François Noverraz Roberto Botta Eugenio Brianti Agostino Ferrazzini

Private Banking International Stefano Loffredi Vincenzo Piantedosi Gérald Robert

Investment Products and Markets Christian Ferry

Wealth Management Services Franco Polloni

__

89

Organisation

Corporate governance The system of corporate governance is based on the following corporate bodies – the Ordinary General Meeting, Board of Directors, Executive Board, Internal Audit and the statutory Auditors. More details are provided starting on page 23. As at 31 December 2009, there were seven members on the Board of Directors and 14 on the Executive Board. Internal Audit consisted of a staff of 21. Private Banking Switzerland and Private Banking International The Private Banking Switzerland unit consists primarily of client advisors who work throughout Switzerland from the Head Office in Lugano and the seven BSI branches located in Bellinzona, Chiasso, Geneva, Lausanne, Locarno, St. Moritz and Zurich. This division also provides quality advisory services for external managers. As at 31 December 2009, Private Banking Switzerland had 625 employees. The strategic focus of Private Banking International is on four market areas: Asia, Latin America, Eastern Europe and the Middle East. Latin American clients are served in Geneva in collaboration with the investment advisory companies in Panama and Buenos Aires and the representative offices in Buenos Aires and Montevideo. Middle Eastern clients are assisted by a specialised team in Geneva and Bahrain, whereas BSI services are provided by a representative office. Activities in the Asian market are carried out via the banking office in Singapore as well as a representative office and a company specialised in investment advice and asset management in Hong Kong. The Bank’s local presence also includes a representative office in Shanghai. Eastern European clients are primarily served by our specialists in Zurich. Private Banking International has banking offices in Nassau (Bahamas), Singapore, Monaco and Luxembourg, a company specialised in finance and asset management in Paris. As at 31 December 2009, Private Banking International had a staff of more than 500 employees, around 85% of whom were based abroad. These wealth management specialists are organised into seven principal market areas. Their main objective is to develop solutions that meet client needs with respect to investment strategy, wealth management and the protection of personal and family assets, while keeping to the highest standards of professionalism and discretion for which the Swiss banking system is known. Marketing and Product Management Marketing plays a fundamental role in the creation of value for our clients. This division monitors and interprets the needs of clients. In addition, it manages the offering of products and services as well as the service model in use and pricing. Its remit also includes reporting as well as the Bank’s internal, external and institutional communication and relations with the media. Advertising as well as the sponsoring and organising events, including also promotional activities to support research and culture in all its various forms, are also part of the activities of the Marketing and Product Management division. As at 31 December 2009, Marketing and Product Management employed 46 people. Investment Products & Markets The Investment Products & Markets division guarantees a coordinated investment strategy at Group level for the management of private and institutional assets. It also manages products with the BSI brand, and in particular investment funds and asset management mandates. At Group level it provides competent and qualified management for institutional clients and for the Bank’s proprietary portfolios. In addition, it operates a trading room for currencies and securities that is open for an uninterrupted time window of 15 hours a day. As at 31 December 2009, Investment Products & Markets had 150 employees.

90 __ BSI Annual Report 2009

Corporate Center The Corporate Center is a support and service unit for the entire BSI Group. Its responsibilities include defining the process for setting and monitoring the Bank’s risk level, economic control and know your customer risk (establishing criteria and implementing procedures to enable Private Banking to manage client acceptance and money laundering risks). The Corporate Center is also responsible for regulations and legal services, process management, logistics, the management of external providers and IT security. It also acts as an interface and liaison with B-Source SA. These activities are handled by the IT department and the department for banking operations. The Corporate Finance unit is also under the Corporate Center. It includes a team of professionals specialised in complex financings both for the Bank and its clients. As at 31 December 2009, the Corporate Center employed 340 people. Wealth Management Services The Wealth Management Services division encompasses the Credit Advisory and Financial Planning departments, a Mass Affluent Services platform and a Performance & Risk Control unit. The year under review saw an increased focus on new residential mortgage business for private banking clients. In commercial banking the existing strategic positioning was maintained, whilst enhancing the Commodity Trade Finance offering. In Financial Planning, BSI strengthened its capabilities in the field of estate planning and asset protection by establishing two new trust companies: BSI Trust Singapore and BSI Trust New Zealand, thus responding to Asian clients’ more specific needs. This strategic rebalancing also brought about the closure of BSI Trust Corporation (Channel Islands) as well as a management buy-out of the equity stake in Dreieck Fiduciaria SA. Through its Adliswil-based Mass Affluent Services unit, the division is responsible for Project “Genera”, as well as the two Pension Foundations through which the Bank is to offer “third pillar” and “vested benefits” pensions solutions in Switzerland. The Performance & Risk Control unit ensures qualitative and quantitative second level monitoring of credit activities, and – through a dedicated unit – of client foreign exchange and derivatives transactions. On 31.12.2009 111 employees were attached to the Wealth Management Services division. Human Resources Human Resources is responsible at the Group level for managing and developing the employees and staff at BSI. It is the central point for developing and proposing long-term strategies that enable the Bank to employ highly qualified and motivated professionals. It provides high-quality administrative services for remuneration, incentives and pension plans. Particular care is given to its assessment, selection and employee development procedures. Employees are offered numerous educational and career opportunities as well as the possibility to gain international experience. As at 31 December 2009, the Human Resources department, which reports directly to the Chief Executive Officer, employed 31 people. General Secretariat The General Secretariat is a staff function that reports directly to the Chief Executive Officer. This unit provides secretarial services for the Board of Directors and the Executive Board. It also handles relations with shareholders, professional associations and chambers of commerce. As at 31 December 2009, the General Secretariat employed nine people.

__

91

B-Source and Thalìa

Top-quality performance requires a high level of specialisation. To ensure excellent results, BSI maintains control over two key elements for leveraging market efficiency: technology for the financial services industry and expertise in the hedge fund sector. BSI is the sole shareholder of B-Source, the number one Swiss provider of information technology and administrative services for banks and finance companies operating in the Private Banking and Wealth Management sectors. In addition, BSI holds a 51.0% stake in Thalìa, a company specialising in the hedge fund sector and in structured financing. It has operations in Switzerland, France, Italy and Germany. B-Source SA, Lugano 2009 was a successful year for B-Source. A lot of groundbreaking work for the future of the company was accomplished. After the two acquisitions in the summer the integration of the service offerings of Fin-Log and Outline into the existing service portfolio was completed. The acquisitions strengthened B-Source’s go-to-market offering in the strategic fields of securities business as well as in the print and mail services. As a consequence of the growth in terms of services and the number of employees B-Source adapted its business plan and streamlined its organisation effective 1 December 2009. Last year was also characterised by the finalisation of the B-Source Master model bank with Avaloq inside. The B-Source Master is the solution nucleus for all client solutions integrating all back office processes, mid-office and front-office application functionalities including the relevant interfaces. The solution design followed an end-to-end process approach with a functionality customisation according to clients’ requirements and was delivered on schedule. On 4 January 2010 NBAD Private Bank (Suisse) SA and NZB Neue Zürcher Bank, went live with the B-Source’s new Business Process Outsourcing solution. In 2009 B-Source launched the Customer Care Concept. Born from that concept was the new Banking Operation Service Desk which obtained important results in terms of customer and internal impact. Finally, B-Source was awarded the continuation of ISO 9001:2008 and ISO/IEC 27001:2005 certifications. In the last year the workload was very intense. To satisfy increasing clients’ needs B-Source recruited approximately 80 new employees in order to further enhance the quality of its services. Despite the impact of the financial crisis B-Source managed to close the year on budget. B-Source posted revenues of CHF 192.9 million, operating EBIT of CHF 16.6 million and net income of CHF 10.8 million. Thalìa SA, Lugano The year 2009 will be remembered as a very positive one for all asset classes, and in particular for hedge funds, which managed to make up most of the ground lost in 2008. All the products managed by Thalìa SA ended the year with very positive performances and with volatility lower than that of the market. The funds GHF Sicav L/S Asia-Pacific, Emerging Markets Multi-Strategy and Arbitrage Opportunities gained 18.48%, 22.46% and 28.83% respectively (class A in USD), while the two funds BSI Multi-Strategy Directional and BSI Yield Enhancement advanced 20.24% and 17.26% respectively (class A in USD). Under these favourable market conditions, Thalìa SA posted revenue of CHF 22.8 million in 2009, up 45% over 2008. Expenses were CHF 12.5 million, an increase of 4.5% over the prior year. Gross income was CHF 10.3 million, which represents an increase of 170% over 2008, clearly demonstrating the solidity of the business model. Net profit was CHF 8.1 million, up 175% versus 2008. The company continued to invest in human resources in 2009 as it hired two new employees in sales and operations. In addition, thanks to the transfer of a senior manager from Generali Thalìa Investment France, Thalìa was able to strengthen its Due Diligence Operations unit. The company focused on revamping its product range in 2009, launching the new fund GHF Sicav Arbitrage Opportunities and restructuring the BSI Multi-Manager Yield Enhancement fund.

BSI AG via Magatti 2 - 6900 Lugano - Switzerland tel. +41 (0)58 809 31 11 - fax +41 (0)58 809 36 78 www.bsibank.com