Annual Report Banque Carnegie Luxembourg S.A.

Transcription

1 Annual Report 2016 Banque Carnegie Luxembourg S.A.

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3 Contents Contents Board of Directors 2 Management 3 Report from the Managing Director 4 Balance Sheet 6 Off-Balance Sheet Items 8 Profit and Loss Account 9 Notes to the Accounts 10 Management Report 31 Auditor s Report 35 The Carnegie Group 37 Contacts 38 1

4 Board of Directors Board of Directors Mr Björn Jansson CEO of Carnegie Investment Bank AB (As from 22 January 2016) Regeringsgatan 56 S STOCKHOLM, Sweden Mr Henrik Rättzén Mr Frank Reisbøl Mr Bruno Frèrejean CFO of Carnegie Investment Bank AB Regeringsgatan 56 S STOCKHOLM, Sweden Managing Director of Banque Carnegie Luxembourg S.A. 15, rue Bender L-1229 LUXEMBOURG, G.D. of Luxembourg Co-managing Director of Banque Carnegie Luxembourg S.A. 15, rue Bender L-1229 LUXEMBOURG, G.D. of Luxembourg 2

5 Management Management Mr Frank Reisbøl Mr Bruno Frèrejean Mr Danilo Linosa Mr Nestor Verrier Management Private Banking, Asset Management, Capital Market and Foreign Exchange Co-Managing Director Accounting, Financial Control and General Administration General Manager Operations, Risk Management and Compliance Deputy General Manager IT Solvency and Liquidity Throughout the year 2016 the solvency (CAD) and Liquidity Cover (LCR) ratios remained substantially above the minimum requirements under Luxembourg law, the corresponding average ratios amounting to 30% and 434% respectively. At the end of the year 2016 the solvency (CAD) ratio of the Bank, after profit distribution, amounted to 26.46%. Profit and Loss Account The Bank s net profit on ordinary activities, after deduction of taxes, depreciations and provisions amounts to EUR 4.39 million. Capital and Reserves At the end of the financial year 2016, the Shareholders equity amounted to EUR 28.7 million. Approval of the Financial Statements and Profit Distribution The Annual General Shareholders Meeting of Banque Carnegie Luxembourg S.A. held as of March 15, 2017 has approved the attached annual accounts for the year ended on December 31, 2016 and agreed to the following profit distribution: EUR Profit brought forward from previous year 12,060,316 Current year profit 4,389,614 Total profit available for distribution 16,449,930 Transfer to special reserve (601,350) Distribution of dividend (7,385,000) Balance to be carried forward 8,463,580 3

6 Report from the Managing Director Report from the Managing Director 2016 was in many ways a rather unusual year for financial markets. Sharp falls in share prices during the first 1½ month meant that the year saw one of the worst starts ever recorded for equity markets. European share prices tumbled close to 20% from the beginning of the year, before bottoming out in mid-february. Only due to a rather exceptional ending during the month of December did the market manage to finish the year with a rather symbolic 0.7% rise. During the year, a number of rather unexpected (political) risks upset the peace and quiet as well: In June, the British electorate decided to vote in favour of leaving the European Union. Share prices around the world tumbled, and government bond yields collapsed, as investors were off-loading risky assets and sought protection in negatively yielding public debt. It took 6 weeks before the markets had regained their composure, only to be hit by the next shock : The election of Donald Trump as President of the United States. However, this time around, the losses in the markets were eliminated within a few days. By now, the markets had become close to immune to political event risk, so the defeat in the Italian referendum, which lead to the resignation of Prime Minister Renzi, were completely ignored. For investors in fixed income, the difficulties continued during Monetary policy rates were negative in EUR, JPY, CHF, SEK and DKK, and the implementation of the ECB bond buying programme drove government bond yields into negative territory, and put downward pressure on corporate bond spreads. We offer a personalised service based on a solid understanding of our clients individual risk profiles and financial objectives The improved outlook for growth in North America combined with the very accommodative ECB monetary policy as well as the occasional geopolitical upset as mentioned above, drove the USD stronger against the EUR. Generally speaking, the market dynamics led to a very difficult period for private investors: Risk premiums were very low (and in some cases negative), and market volatility was at times extremely elevated. 4

7 Report from the Managing Director Contrary to 2016, 2017 was off to a flying start with equity markets ignoring potential political event risk and rising policy rates (in the US). US equity markets set new all-time highs during the first two months of the year, and generally, investors are betting that non-inflationary growth will sustain financial markets performance. For Banque Carnegie Luxembourg S.A., the conditions in the money markets left its mark on the result for the year. Net interest income was under continued pressure, so it was no surprise that our income dropped by 3.5% compared to Given the circumstances, we were very pleased with the result for the year. At year end, our CAD ratio stood at a very solid 30%, so given the activity level as well as the very elevated level of own funds, it was decided to return capital to shareholders. After this, our CAD ratio and liquidity ratios still remain very high by industry standards. The activity in our Luxembourg fund administration subsidiary, Carnegie Fund Services S.A., continues the positive development, with an increasing number of third-party clients and strong underlying business volumes. We continue to see strong growth in this part of our business, as Luxembourg is increasingly popular as a hub for fund managers. On August 15th, we moved our offices, after more than 20 years at Place de la Gare. We are pleased to welcome our clients and partners to new surroundings at Rue Bender. Finally I would like to thank our dedicated and loyal staff for their commitment and efforts during 2016, and our clients for their continued loyalty, trust and support. Frank Reisbøl Managing Director Luxembourg, March

8 Balance Sheet Balance Sheet December 31, 2016 Assets Expressed in EUR Note(s) Cash in hand, balances with central banks and post office banks ,324, ,682,947 Loans and advances to credit institutions 9, ,561,526 22,010,6588 a) repayable on demand 101,561,526 22,010,658 Loans and advances to customers 3, 24, 26 91,991, ,691,304 Bonds and other fixed-income transferable securities 4, 26 63,553,886 77,777,089 a) issued by public bodies 4,782,723 4,666,749 b) issued by other borrowers 58,771,163 73,110,340 Shares and other variable-yield securities 5, ,117 Shares in affiliated undertakings 6, 7 500, ,000 Tangible assets 7 1,023, ,332 Other assets 8, , ,553 Prepayments and accrued income 9 3,651,139 1,225,872 TOTAL ASSETS ,896, ,162,872 See notes to the accounts 6

9 Balance Sheet Balance Sheet December 31, 2016 Liabilities Expressed in EUR Note(s) Amounts owed to credit institutions 16, 26 6,572, ,800 a) repayable on demand 6,572, ,800 Amounts owed to customers 11, 16, ,547, ,017,685 a) other debts 343,547, ,017,685 repayable on demand 340,788, ,391,549 with agreed maturity dates or periods of notice 2,758,303 16,626,136 Other liabilities , ,472 Accruals and deferred income 16 3,943,490 5,748,282 Provisions 2,712,585 2,855,567 a) provisions for taxation 8, ,600 b) other provisions 14, 25 2,712,585 2,516,967 Subscribed capital 15 9,000,000 9,000,000 Reserves 15 3,275,750 2,301,450 Profit brought forward 15 12,060,316 12,932,386 Profit for the financial year 4,389,614 4,692,230 TOTAL LIABILITIES ,896, ,162,872 See notes to the accounts 7

10 Off-Balance Sheet Items Off-Balance Sheet Items December 31, 2016 Expressed in EUR Note(s) Contingent liabilities 18, 24, 26 2,228,247 2,869,538 of which: guarantees and assets pledged as collateral security 2,228,247 2,869,538 Commitments 19, 26 46,507,871 28,070,404 of which: confirmed, not used credits 46,507,871 28,070,404 See notes to the accounts 8

11 Profit and Loss Account Profit and Loss Account Year ended December 31, 2016 Expressed in EUR Note(s) Interest receivable and similar income 26 5,067,366 3,994,217 of which: that arising from fixed-income transferable securities 0 26,863 Interest payable and similar charges 14, 26 (1,895,103) (911,847) Income from transferable securities 810, ,000 Income from shares in affiliated undertakings 6 810, ,000 Commission receivable 8,932,999 9,811,607 Commission payable (1,740,284) (1,773,752) Net profit on financial operations 26 3,947,656 4,124,294 Other operating income 22, , ,427 General administrative expenses (9,373,084) (9,417,760) a) staff costs 23, 24 (6,620,529) (6,889,962) of which wages and salaries (5,573,283) (6,045,083) social security costs (435,315) (466,703) of which: social security costs relating to pensions (264,302) (277,781) b) other administrative expenses 25, 29 (2,752,555) (2,527,798) Value adjustments in respect of tangible and intangible assets 7 (381,532) (361,273) Tax on profit on ordinary activities (1,492,100) (1,698,500) Profit on ordinary activities after tax 4,411,014 4,744,413 Other taxes not shown under the preceding items (21,400) (52,183) Profit for the financial year 4,389,614 4,692,230 See notes to the accounts 9

12 Notes to the accounts Notes to the accounts NOTE 1 GENERAL 1.1. Corporate Matters Banque Carnegie Luxembourg S.A. (the Bank ) was incorporated in Luxembourg on April 13, 1993, as a société anonyme, as the result of the scission of Nordbanken Luxembourg S.A., itself incorporated in Luxembourg under the name of PKbanken International (Luxembourg) S.A. on August 6, The Bank was, until December 31, 2004, a wholly owned subsidiary of Carnegie Bank A/S, a bank incorporated under the Laws of Denmark. From that date, the Bank became a wholly owned subsidiary of Carnegie Investment Bank AB, a bank incorporated under the Laws of Sweden. On November 10, 2008, the ownership of Carnegie Investment Bank AB was transferred from the listed holding company D. Carnegie & Co to the Swedish National Debt Office, the Swedish Central Government s financial manager. Further to this transfer of ownership to the Swedish Central Government, Carnegie s legal status and licences to operate banking and securities business remain unchanged. From an organisational point of view, the Bank is part of the Carnegie Group, which became listed at the Stockholm Stock Exchange as from June 1, 2001 until November 10, 2008, date at which the Group stopped to be listed following its ownership transfer to the Swedish Central Government. On February 11, 2009 the Swedish National Debt Office reached an agreement regarding the sale of the shares in Carnegie Investment Bank AB to Altor Fund III and Bure Equity AB. This agreement became effective on May 19, 2009, date at which the shares were transferred to Altor and Bure. In December 2009, the partnership structure was diversified in order to allow a broad group of Carnegie key employees to own up to 25% of Carnegie Investment Bank AB. In May 2012, Bure Equity AB sold all of its shares in Carnegie Holding AB to Altor Fund III, which, as a result, owns 68% of Carnegie Holding AB as per December 31, 2013, itself controlling 100% of Carnegie Investment Bank AB. Further to the last restructuring of the shareholding in 2015, Carnegie Holding AB is owned by Altor Holding companies (75.3%) and by Cibvesco AB (24.7%). The business policy and valuation principles, unless prescribed by Luxembourg rules and regulations, are determined and monitored by the Board of Directors. The Bank is logged at the Luxembourg trade register ( Registre de Commerce et des Sociétés ) under the number B During the year, the Bank changed its head office and it is currently located on 15, rue Bender, L-1229 Luxembourg (previously on 5, place de la gare, L-1616 Luxembourg) Nature of the Bank s business The object of the Bank is the undertaking, for its own account as well as for the account of third parties or on joint account with third parties, either within or outside the Grand- Duchy of Luxembourg, of any banking operations. The foregoing is to be construed in accordance with the widest interpretation. To a significant extent, the Bank co-operates with its parent bank and other entities of the Carnegie Group Annual accounts In accordance with article 82(1) of the amended law of June 17, 1992, the Bank is exempted from establishing annual consolidated accounts and a consolidated director s report for the corresponding financial year. In accordance with the amended law of June 17, 1992, the enclosed annual accounts are consequently presented on an unconsolidated basis for approval by the Annual General Meeting of Shareholders. 10

13 Notes to the accounts The Bank prepares its annual accounts in Euro (EUR), the currency in which the capital is expressed. The Bank s accounting year coincides with the calendar year Taxes The Bank is subject to normal taxation under Luxembourg tax regulations. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Bank prepares its annual accounts in accordance with the laws and regulations in force in the Grand-Duchy of Luxembourg and on the basis of accounting principles generally accepted in the banking sector in the Grand-Duchy of Luxembourg. The accounting policies and valuation principles are determined and applied by the Board of Directors, except for those that are defined by the amended law of June 17, 1992 and by the Commission de Surveillance du Secteur Financier as follows: 2.1. The date of recording of transactions in the balance sheet Assets and liabilities are stated in the balance sheet according to when the amounts concerned become cleared funds, that is, their date of effective transfer, except for securities transactions, for which the Trade date accounting principles apply. Assets and liabilities deriving from all securities transactions entered into for its own account or on behalf of its customers are stated in the balance sheet, and the related revenue and charges accounted for in the profit and loss account, at the corresponding trade dates Foreign currencies The annual accounts are expressed in the Bank s capital currency which is the Euro (EUR). The Bank maintains a multi-currency accounting system that records all transactions in the currency or currencies of the transaction on the day on which the contract is concluded. Revenues and expenses denominated in foreign currencies are translated into EUR daily at the prevailing exchange rates. Participating interests, shares in affiliated undertakings held as financial fixed assets, tangible and intangible assets in foreign currencies not covered in either the spot or forward markets are translated into EUR at the rate of exchange ruling at the date of their acquisition. All other assets and liabilities are converted into EUR at the closing spot rates applicable at the balance sheet date. Both realised and unrealised profits and losses arising on revaluation are accounted for in the profit and loss account for the year. At year-end, all unsettled forward transactions are translated into EUR at the forward rate applicable for the remaining term ruling on the balance sheet date. Results on unsettled forward transactions linked to spot transactions and on hedging swap transactions are accrued at the balance sheet date. The revaluation of these transactions does not affect the result of the financial year. Uncovered forward transactions are valued individually on the basis of forward exchange rates applicable at the balance sheet date. Unrealised revaluation profits are ignored, whereas a provision is set up in respect of any unrealised revaluation losses. This provision is included on the liabilities side of the balance sheet under Provisions: other provisions. Currency futures and options are re-valued at their market value at the balance sheet date. The re-valued amount is translated into EUR at the spot rate prevailing at the year-end. 11

14 Notes to the accounts 2.3. Financial instruments derivatives The Bank s commitments deriving from financial instruments derivatives such as interest rate swaps, forward rate agreements, financial futures and options are recorded on the transaction date as off balance sheet items. At the year end, where necessary, a provision is set up in respect of individual unrealised losses resulting from the revaluation of the Bank s commitments at market value. This provision is included on the liabilities side of the balance sheet under Provisions: other provisions. No provision is set up in those cases where a financial instrument clearly covers an asset or a liability and economic unity is established or where a financial instrument is hedged by a reverse transaction so that no open position exists Loans and advances Loans and advances are stated at their acquisition price. It is the Bank s policy to establish specific value adjustments in respect of doubtful and irrecoverable debts, as deemed appropriate by the Board of Directors. The value adjustments shall not be maintained should the reasons for which they were recorded no longer exist. Value adjustments, if any, are deducted from the asset items to which they relate Shares and other variable yield transferable securities Variable yield transferable securities are recorded initially at their purchase price. The average cost method is used for valuation purposes Bonds including other fixed-income transferable securities The Bank has divided its portfolio of fixed-income transferable securities into three categories, whose principal characteristics are the following: - an investment portfolio of financial fixed assets which are intended to be used on a continuing basis in the Bank s activities; - a trading portfolio of securities purchased with the intention of resale in the short term; and - a structural portfolio of securities which do not fall within either of the two other categories. Fixed-income transferable securities are valued as follows: Investment portfolio Fixed-income transferable securities included in the Bank s investment portfolio are stated at the lower of cost or market value. Where the purchase price of fixed-income transferable securities included in the Bank s investment portfolio exceeds the amount repayable at maturity, the difference is written off in instalments to the profit and loss account. Where the purchase price of fixed-income transferable securities included in the Bank s investment portfolio is less than the amount repayable at maturity, the difference is released to income in instalments over the period remaining until repayment. Trading portfolio Fixed-income securities included in the Bank s trading portfolio are stated at mark-tomarket value. 12

15 Notes to the accounts Structural portfolio Fixed-income transferable securities included in the Bank s structural portfolio are stated at the lower of cost or market value. Securities acquired above par value and repayable at par, included in the structural portfolio The Bank computes the amortised cost of fixed income securities of the structural portfolio acquired above par value, based on the effective interest rate principle, and recognises the amortisation of the premium resulting from the difference between the historical cost and the amount repayable at maturity in the profit and loss account as interest margin. The unrealised losses corresponding to the difference between the market value and the amortised cost of such fixed income securities are recognised in the profit and loss account under Net profit or net loss on financial operations. Securities issued on a discounted basis Securities issued on a discounted basis, in cases where the discount represents the sole source of income from these securities, are stated at cost as adjusted for the difference between the issue (or purchase) value and the par (or disposal) value. This difference is spread in a linear manner over the life of the security Shares in affiliated undertakings Shares in affiliated undertakings having the characteristic of financial fixed assets are recorded initially in the balance sheet at their acquisition price in historical currency. A value adjustment is made if the Board of Directors considers that there exists a durable reduction in their value at the balance sheet date Tangible fixed assets The value of tangible fixed assets with limited useful economic lives is reduced by value adjustments calculated to write off the value of such assets systematically over their useful economic lives. Tangible assets include furniture and equipment, vehicles, leasehold improvements and hardware equipment. Leasehold improvements are usually depreciated over six years. Furniture and equipment are usually depreciated over five years. Vehicles are usually depreciated over four years. Hardware equipment are usually depreciated over three years. 13

16 Notes to the accounts NOTE 3 LOANS AND ADVANCES TO CUSTOMERS Loans and advances to customers may be analysed as follows according to their remaining maturity and net book value as follows: EUR Not more than three months 90,204, ,727,133 More than three months but not more than one year 1,786, ,171 91,991, ,691,304 NOTE 4 BONDS AND OTHER FIXED-INCOME TRANSFERABLE SECURITIES Transferable securities shown under the various items debt securities and other fixedincome transferable securities consist of the following: EUR Listed OECD government fixed-income transferable securities 4,783,667 4,669,092 Other listed fixed-income transferable securities 59,141,466 73,356,350 Value adjustment (371,247) (248,353) 63,553,886 77,777,089 Of which: maturing within one year of the balance sheet date 60,281,127 39,299,064 The above fixed-income transferable securities are included under the structural portfolio. Profit and loss items resulting from the valuation at fair value (note 2.6.) of fixed-income transferable securities acquired above par value are as follows: EUR Amortised cost recognised as interest margin (1,457,769) (1,994,295) Net gain/loss on financial operation 20,888 (25,000) (1,436,881) (2,019,295) The cumulative amortisation, since the date of acquisition, of discounts on fixed-income transferable securities (note 2.6.) amounts to: EUR ,634 3,468 14

17 Notes to the accounts NOTE 5 SHARES AND OTHER VARIABLE-YIELD SECURITIES Transferable securities shown under the various items shares and other variable-yield securities consist of the following: EUR Shares of Luxembourg UCITS 0 649,117 As at December 31, 2015, the above holding relates exclusively to Carnegie Short Term Fund, a sub-fund of Carnegie Investment Fund. During 2016, the Bank sold these shares. NOTE 6 SHARES IN AFFILIATED UNDERTAKINGS Shares in affiliated undertakings can be summarized as follows: EUR Head Book value Book value Office Carnegie Fund Services S.A. Luxembourg (LU) 500, , , ,000 EUR Percentage of Shareholder s Profit Capital held Equity for the year as of (unaudited) (unaudited) December 31, Carnegie Fund Services S.A. 100 % 1,606, ,090 Carnegie Fund Services S.A. ( CFS ) was incorporated in Luxembourg on January 13, 2011 as a société anonyme with a corporate capital of EUR 500,000 consisting in 500 registered shares wholly owned by Banque Carnegie Luxembourg S.A.. The purpose of CFS is the collective management of Luxembourg and/or foreign UCITS that have been approved in accordance with Directive 2009/65/EC of July 13, 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS), as amended or replaced from time to time, and other Luxembourg and/or foreign collective investment undertakings or funds that are not covered by this directive. The object CFS is also to act as an external appointed alternative investment fund manager ( AIFM ) within the meaning of the Luxembourg law of July 12, 2013 on managers of alternative investment funds. 15

18 Notes to the accounts NOTE 7 MOVEMENTS IN FIXED ASSETS Acquisition Costs Balance Acquisitions Disposals Balance as of of the year of the year as of EUR Shares in Affiliated Undertakings 500, , Tangible Assets Of which: Office furniture, machines and fixtures 602, ,707 (271,453) 535,444 Furniture and fixtures (houses & flats) 19, ,144 Computer software 883,444 0 (43,084) 840,360 Computer hardware 594,913 68,125 (172,206) 490,832 Company cars 567, ,586 (242,553) 621,257 Leasehold improvements 230, ,779 (230,266) 343,779 Artworks 6, ,331 Total Tangible Assets 2,903, ,197 (959,562) 2,857,147 Total Fixed Assets During 2016, as a result of the move to a new location, the Bank disposed of part of its tangible assets. Further to that, there were acquisitions made in relation to the move. NOTE 8 OTHER ASSETS EUR Europay advance payments on Client MasterCard expenses 67, ,553 Tax asset (note 13) 222, , ,553 NOTE 9 RELATED PARTY BALANCES - ASSETS The following balances with related parties are included on the assets side of the balance sheet: Affiliated Affiliated Undertakings undertakings EUR Loans and advances to credit institutions 2,139,721 1,207,803 Prepayments and accrued income 4, ,048 2,144,643 1,312,851 16

19 Notes to the accounts Value Adjustments Balance Value Disposals Balance Net book as of adjustments of the year as of value as of of the year ,000 (522,036) (62,326) 271,453 (312,909) 222,535 (17,950) (315) 0 (18,265) 879 (769,469) (76,783) 43,084 (803,168) 37,192 (450,138) (94,773) 172,206 (372,705) 118,127 (392,321) (122,057) 213,106 (301,272) 319,985 (230,266) (25,278) 230,266 (25,278) 318, ,331 (2,382,180) (381,532) 930,115 (1,833,597) 1,023,550 1,523,550 NOTE 10 FOREIGN CURRENCY ASSETS The aggregate amount of the Bank s assets denominated in foreign currencies, translated into EUR, is as follows: EUR ,753, ,712,803 NOTE 11 AMOUNTS OWED TO CUSTOMERS OTHER DEBTS WITH AGREED MATURITY DATES OR PERIODS OF NOTICE Other debts with agreed maturity dates or periods of notice included under amounts owed to customers may be analysed according to their remaining maturity as follows: EUR Not more than three months 2,233,738 16,626,136 More than three months but not more than one year 524, ,758,303 16,626,136 17

20 Notes to the accounts NOTE 12 OTHER LIABILITIES EUR Preferential creditors 364, ,297 Sundry creditors Others 29,282 12,451 Client related withholding tax liabilities Luxembourg residents interest income 884 2, , ,472 NOTE 13 PROVISIONS FOR TAXATION Where positive, the difference between the estimated tax liabilities calculated and accounted for by the Bank and the advance payments made at the request of the tax administration, for the financial years for which no final tax assessment notices have been received yet, is reported under provisions for taxation. Should this difference be negative, meaning should the tax advance payments exceed the corresponding estimated tax liabilities, the corresponding tax asset is recorded under other assets (note 8). During 2015, the Bank has received final corporate tax, municipal business tax and net wealth tax assessments for the year ending December 31, During 2016, the Bank has received final corporate tax, municipal business tax and net wealth tax assessments for the year ending December 31, NOTE 14 OTHER PROVISIONS EUR Provision for unrealised revaluation losses on uncovered forward foreign exchange transactions 1,333,683 1,006,606 AGDL Provision (notes 22, 25) 1,378,902 1,510,361 2,712,585 2,516,967 NOTE 15 SUBSCRIBED CAPITAL, RESERVES, PROFIT BROUGHT FORWARD Subscribed Legal Special Profit EUR capital reserve reserve brought forward Balance as at January 1, ,000, ,000 1,401,450 12,932,386 Profit for the year ended December 31, ,692,230 Appropriation of profits Transfer to Special Reserve ,300 (974,300) Dividend (4,590,000) Balance as at December 31, ,000, ,000 2,375,750 12,060,316 As at December 31, 2016 the Bank s authorised, subscribed and paid-up capital amounts to EUR 9,000,000 represented by 350,000 shares without designation of a nominal value. 18

21 Notes to the accounts The allocation of the profit was approved during the annual general meeting of the shareholders of the Bank held in Luxembourg on March 15, Legal reserve Under Luxembourg Law, the Bank must appropriate to a legal reserve an amount equivalent to at least 5% of the annual net profit until such reserve is equal to 10% of the share capital. This appropriation is made in the following year. Distribution of the legal reserve is restricted Special reserve In accordance with the tax Law in force since January 1, 2002, the Bank reduced its Net Wealth Tax ( NWT ) burden by crediting it on the amount of the Corporate Income Tax ( CIT ). In order to comply with the Law, the Bank decided to allocate under nondistribuable reserves (item special reserve ) an amount that correspond to five times the amount of reduced Net Wealth Tax. This reserve is non-distribuable for a period of five years from the year following the one during which the Net Wealth Tax was credited. NOTE 16 RELATED PARTY BALANCES - LIABILITIES The following balances with related parties are included on the liabilities side of the balance sheet: Affiliated Affiliated undertakings undertakings EUR Amounts owed to credit institutions 39,942 91,724 Amounts owed to customers 1) 1,875,590 1,542,345 Accruals and deferred income 0 158,598 1,915,532 1,792,667 1) of which EUR 1,814,142 (2015: EUR 1,455,309) to the subsidiary. NOTE 17 FOREIGN CURRENCY LIABILITIES The aggregate amount of liabilities denominated in foreign currencies, translated into EUR, is as follows: EUR ,195, ,448,445 NOTE 18 CONTINGENT LIABILITIES As at the year end, the Bank s contingent liabilities consist exclusively in guarantees granted to customers. There are no related party balances at the year-end. 19

22 Notes to the accounts NOTE 19 COMMITMENTS Unused confirmed credits consist of undrawn loans or overdraft facilities granted to customers, none of which was irrevocable. EUR Confirmed credits, unused 46,507,871 28,070,404 The Bank has entered into certain other commitments that are not disclosed either in the balance sheet or in the off balance sheet items but which are significant for the purposes of assessing the financial situation of the Bank. Details of such other commitments are as follows: EUR Commitments in respect of fixed rental payments contracted on buildings or of assets leased under a fixed maturity leasing contract 4,091,028 4,143,462 NOTE 20 OPERATIONS LINKED TO CURRENCY EXCHANGE RATES, INTEREST RATES AND OTHER MARKET RATES Operations linked to currency exchange rates Forward exchange transactions (swaps, outrights). Operations linked to currency exchange rates are made both for the purpose of covering the effects of fluctuations in exchange rates and for dealing purposes (see notes and for additional information). Operations linked to other market rates Options on variable - yield securities - organised markets; Options on other rates - organised markets. Operations linked to other market rates are made for the purposes of covering the effects of fluctuations in market rates on customers assets. NOTE 21 INVESTMENT MANAGEMENT SERVICES AND UNDERWRITING FUNCTIONS Management and agency services comprise, mainly: - Portfolio management and advice; - Custody and administration of transferable securities; - Custody and administration of mutual funds; and - Fiduciary operations. 20

23 Notes to the accounts NOTE 22 OTHER OPERATING INCOME Other operating income is made up as follows: EUR Fee income related to administration, office accounting and EDP services provided to Carnegie Fund Services S.A. 270, ,000 Fee income related to office services provided to Carnegie Fund Management Company S.A. 36,000 36,000 Fee income related to EDP services provided to third party customers 0 5,000 Partial refunding of the advance payments claimed from the AGDL under the corresponding Guarantee Scheme (note 25) 21,791 18,266 Partial release of the provision set up in recognition of the Bank s liabilities under the AGDL guarantee scheme (note 25) 131,459 0 Sundry - other income 75,846 78, , ,427 NOTE 23 STAFF NUMBERS The average number of persons employed during the financial year by the Bank is as follows: Number General Management 4 4 Senior Management 8 8 Employees NOTE 24 MANAGEMENT REMUNERATION By reason of their responsibilities, the Bank has, in 2016, granted to the members of General Management emoluments that amount to EUR 1,178,138 in total (2015: EUR 1,183,347). The emoluments granted in 2016 include a variable part amounting to EUR 321,000 (2015: EUR 404,000), which was confirmed by a decision from the Board of Directors, dated January 31, In accordance with the Group and local remuneration policies, 60% of the corresponding payment has been deferred over a period of 3 years. The provision set up in 2016 with respect to the extra-legal pension scheme and health care insurance maintained in favour of the above managerial body amounts to EUR 51,542 (2015: EUR 48,342). As at December 31, 2016, the Bank has granted advances and credits to the members of its managerial body for a total amount of EUR 249,177 (2015: EUR 129,784). 21

24 Notes to the accounts NOTE 25 DEPOSIT GUARANTEE AND INVESTOR COMPENSATION SCHEMES The law related to the resolution, reorganisation and winding-up measures of credit institutions and certain investment firms and on deposit guarantee and investor compensation schemes ( the Law ), transposing into Luxembourgish law the directive 2014/59/EU establishing a framework for the recovery and resolution of credit institutions and investment firms and the directive 2014/49/EU related to deposit guarantee and investor compensation schemes, was passed on December 18, The deposit guarantee and investor compensation scheme currently in place through the Association pour la Garantie des Depots Luxembourg (AGDL) has been replaced by a new contribution based system of deposit guarantee and investor compensation scheme. This new system covers eligible deposits of each depositor up to an amount of EUR 100,000 and investments up to an amount of EUR 20,000. The Law also provides that deposits resulting from specific transactions or fulfilling a specific social or other purpose are covered for an amount above EUR 100,000 for a period of 12 months. Provisions which were booked in the annual accounts of the credit institutions throughout the years in order to respect the obligations of the AGDL are reversed in proportion to the contribution paid on the new Fonds de résolution Luxembourg (FRL) and Fonds de Garantie des Depots Luxembourg (FGDL). The funded amount of the FRL shall reach by the end of 2024 at least 1% of covered deposits, as defined in article 1 number 36 of the Law, of all authorized credit institutions all participating Member States. This amount will be collected from the credit institutions through annual contributions during the years 2015 to The target level of funding of the FGDL is set at 0.8% of covered deposits, as defined in article 163 number 8 of the Law, of the relevant credit institutions arid is to be reached by the end of 2018 through annual contributions using the AGDL provision previously constituted. When the level of 0.8% will be reached, the Luxembourgish credit institutions are to continue to contribute for 8 additional years in order to constitute an additional safety buffer of 0.8% of covered deposits as defined in article 163 number 8 of the Law. The contributions paid by the Bank in 2016 in relation to the above schemes amounted to EUR 131,459 and are recorded under other administrative expenses in its profit and loss account. There is a partial release of the same amount of the provision set up in previous years in recognition of the Bank s liabilities under the AGDL guarantee scheme which has been recorded under other operating income (note 22). 22

25 Notes to the accounts NOTE 26 FINANCIAL INSTRUMENT DISCLOSURES PRIMARY NON-TRADING FINANCIAL INSTRUMENTS a) As at December 31, 2016, the analysis of primary non-trading financial instruments by class and residual maturity is the following: 3 months > 3 months > 1 year > 5 years Total At carrying amount in EUR 1 year 5 years FINANCIAL ASSETS Instrument class Cash in hand 1, ,841 Balances with central banks 123,322, ,322,860 Loans and advances to credit institutions 101,561, ,561,526 Loans and advances to customers 90,204,919 1,786, ,991,169 Listed OECD government fixed-income transferable securities 1,000,436 3,782, ,782,723 Listed OECD credit institution fixed-income transferable securities 1,048,401 54,450,003 3,272, ,771,163 Total 317,139,983 60,018,540 3,272, ,431,282 FINANCIAL LIABILITIES Instrument class Amounts owed to credit institutions 6,572, ,572,349 Amounts owed to customers 343,022, , ,547,214 Off-balance sheet items disclosed as contingencies Guarantees and assets pledged as collateral security 307, ,107 1,298,125 48,423 2,228,247 Confirmed, not used credits 7,241,004 37,642,129 1,624, ,507,871 Total 357,143,594 38,740,801 2,922,863 48, ,855,681 23

26 Notes to the accounts NOTE 26 FINANCIAL INSTRUMENT DISCLOSURES (continued) b) As at December 31, 2015, the analysis of primary non-trading financial instruments by class and residual maturity is the following:: 3 months > 3 months > 1 year > 5 years Total At carrying amount in EUR 1 year 5 years FINANCIAL ASSETS Instrument class Cash in hand 1, ,002 Balances with central banks 142,681, ,681,945 Loans and advances to credit institutions 22,010, ,010,658 Loans and advances to customers 157,718, , ,691,304 Listed OECD government fixed-income transferable securities 0 4,666, ,666,749 Listed OECD credit institution fixed-income transferable securities 0 34,584,629 38,525, ,110,340 Unlisted shares held in a Luxembourg based Sicav 649, ,117 Total 323,061,528 40,223,876 38,525, ,811,115 FINANCIAL LIABILITIES Instrument class Amounts owed to credit institutions 260, ,800 Amounts owed to customers 366,017, ,017,685 Subordinated liabilities Off-balance sheet items disclosed as contingencies Guarantees and assets pledged as collateral security 311, ,604 1,535,664 51,078 2,869,538 Confirmed, not used credits 9,605,671 17,645, , ,070,404 Total 376,195,348 18,617,547 2,354,454 51, ,218,427 24

27 Notes to the accounts NOTE 26 FINANCIAL INSTRUMENT DISCLOSURES (continued) DERIVATIVE NON-TRADING FINANCIAL INSTRUMENTS a) As at December 31, 2016, the analysis of primary non-trading financial instruments by class and residual maturity is the following: 3 months > 3 months > 1 year > 5 years Total At notional amount in EUR 1 year 5 years FINANCIAL ASSETS Instrument class Foreign exchange transactions Forwards 184,283,249 31,144,035 3,099, ,526,969 Swaps 394,856,031 12,360, ,216,304 Total 579,139,280 43,504,308 3,099, ,743,273 FINANCIAL LIABILITIES Instrument class Foreign exchange transactions Forwards 184,373,521 31,368,549 3,097, ,839,267 Swaps 392,104,692 12,216, ,321,236 Total 576,478,213 43,585,093 3,097, ,160,503 These amounts include OTC derivative non-trading financial instruments with a trade date before December 31, 2016 and a value date after December 31, On December 31, 2016, the mark-to-market valuation of the uncovered forward transactions (note 2.2.) resulted in an aggregated net loss of EUR 418,346. A provision was set up in respect of unrealised revaluation losses amounting to EUR 1,333,683 in total (accounted for in the profit and loss account under net profit on financial operations ), whereas unrealised revaluation profits amounting to EUR 915,337 were ignored. On December 31, 2016, all outstanding Swap transactions had been entered into for hedging purposes only. The corresponding agios amounted to EUR 1,034,958 in total, of which EUR 459,800 was accrued for as per that date and accounted for in the profit & loss account under interest receivable and similar income. The corresponding disagios amounted to EUR 394,860 in total, of which EUR 201,611 was accrued for as per that date and accounted for in the profit & loss account under interest payable and similar charges. The aggregated positive fair value of the Swap transactions therefore amounted to EUR 640,098 as per December 31,

28 Notes to the accounts NOTE 26 FINANCIAL INSTRUMENT DISCLOSURES (continued) b) As at December 31, 2015, the analysis of primary non-trading financial instruments by class and residual maturity is the following: 3 months > 3 months > 1 year > 5 years Total At notional amount in EUR 1 year 5 years FINANCIAL ASSETS Instrument class Foreign exchange transactions Forwards 114,301,013 17,706, , ,758,501 Swaps 607,257,149 21,401, ,659,114 Total 721,558,162 39,108, , ,417,615 FINANCIAL LIABILITIES Instrument class Foreign exchange transactions Forwards 114,276,988 17,915, , ,942,895 Swaps 609,050,568 21,221, ,271,625 Total 723,327,556 39,136, , ,214,520 These amounts include OTC derivative non-trading financial instruments with a trade date before December 31, 2015 and a value date after December 31, On December 31, 2015, the mark-to-market valuation of the uncovered forward transactions (note 2.2.) resulted in an aggregated net loss of EUR 207,295. A provision was set up in respect of unrealised revaluation losses amounting to EUR 1,006,606 in total (accounted for in the profit and loss account under net profit on financial operations ), whereas unrealised revaluation profits amounting to EUR 799,311 were ignored. On December 31, 2015, all outstanding Swap transactions had been entered into for hedging purposes only. The corresponding agios amounted to EUR 531,595 in total, of which EUR 245,359 was accrued for as per that date and accounted for in the profit & loss account under interest receivable and similar income. The corresponding disagios amounted to EUR 171,910 in total, of which EUR 94,190 was accrued for as per that date and accounted for in the profit & loss account under interest payable and similar charges. The aggregated positive fair value of the Swap transactions therefore amounted to EUR 359,685 as per December 31,

29 Notes to the accounts NOTE 26 FINANCIAL INSTRUMENT DISCLOSURES (continued) INFORMATION ON CREDIT RISK ON PRIMARY NON-TRADING FINANCIAL INSTRUMENTS As at December 31, 2016 the Bank is exposed to the following credit risk on primary non-trading financial instruments: Carrying amount Carrying amount EUR FINANCIAL ASSETS By instrument class and geographic location Cash in hand, balances with central banks 123,324, ,682,947 EU member countries 123,324, ,682,947 Loans and advances to credit institutions 101,561,526 22,010,658 EU member countries 75,005,958 20,867,985 North America 278, ,392 Asia 21,909, ,974 Western Europe, non-eu member countries 4,362, ,413 Other countries 5,859 4,894 Loans and advances to customers 91,991, ,691,304 EU member countries 70,611, ,626,503 Western Europe, non-eu member countries 15,800,925 22,945,779 Central and South America 2,204,824 3,458,398 North America 146, ,858 Asia 2,860,779 1,199,642 Eastern Europe, non-eu member countries 240, ,406 Middle East 122, ,364 Other countries 4, Listed OECD government fixed-transferable income securities 4,782,723 4,666,749 EU member countries 1,000,436 1,001,097 North America 3,782,287 3,665,652 Listed OECD credit institution fixed-income transferable securities 58,771,163 73,110,340 EU member countries 58,771,163 73,110,340 Unlisted shares held in a Luxembourg based SICAV 0 649,117 EU member countries 0 649,117 Total 380,431, ,811,115 27

30 Notes to the accounts NOTE 26 FINANCIAL INSTRUMENT DISCLOSURES (continued) INFORMATION ON CREDIT RISK ON DERIVATIVE NON-TRADING FINANCIAL INSTRUMENTS a) As at December 31, 2016, the Bank is exposed to the following credit risk on OTC derivatives nontrading financial instruments: Notional Risk-equivalent Collateral Net risk Use of initial risk method, EUR amount amount coverage in % exposure COUNTERPARTY SOLVENCY AND GEOGRAPHIC LOCATION By degree of creditworthiness (external/internal ratings) Zone A credit institutions with Moody s P-1 rating 269,581, ,163 0% 539,163 EU member countries 253,694, ,389 Western Europe, non-eu member countries 15,887,091 31,774 Entities of the Carnegie Group / FSP 120,444, ,890 0% 240,890 EU member countries 80,513, ,027 Western Europe, non-eu member countries 39,931,448 79,863 Private customers 235,716, , % 0 EU member countries 168,123, ,247 Western Europe, non-eu member countries 59,902, ,804 Central and South America 405, North America 2,364,090 4,728 Asia 1,779,999 3,560 Other Countries 3,142,167 6,284 Total 625,743,273 1,251, ,053 28

31 Notes to the accounts NOTE 26 FINANCIAL INSTRUMENT DISCLOSURES (continued) b) As at December 31, 2015, the Bank is exposed to the following credit risk on OTC derivatives nontrading financial instruments: Notional Risk-equivalent Collateral Net risk Use of initial risk method, EUR amount amount coverage in % exposure COUNTERPARTY SOLVENCY AND GEOGRAPHIC LOCATION By degree of creditworthiness (external/internal ratings) Zone A credit institutions with Moody s P-1 rating 434,039, ,291 0% 886,291 EU member countries 396,869, ,949 Western Europe, non-eu member countries 37,170,900 74,342 Entities of the Carnegie Group / FSP 85,194, ,389 0% 170,389 EU member countries 67,548, ,097 Western Europe, non-eu member countries 17,645,803 35,292 Private customers 242,183, , % 0 EU member countries 167,635, ,208 Western Europe, non-eu member countries 58,752, ,985 Central and South America 1,064,015 2,128 North America 5,732,524 17,302 Asia 3,226,390 6,453 Other Countries 5,773,000 11,546 Total 761,417,614 1,561,302 1,056,680 29

32 Notes to the accounts NOTE 27 PARENT UNDERTAKING The Bank is a subsidiary of CARNEGIE INVESTMENT BANK AB, a bank incorporated under the laws of Sweden and whose registered office is in Stockholm. The annual consolidated accounts of CARNEGIE INVESTMENT BANK AB may be obtained from Regeringsgatan 56, S Stockholm. NOTE 28 SUBSEQUENT EVENTS No important event has occurred since the end of the 2016 financial year. NOTE 29 FEES PAYABLE TO THE AUDIT FIRM The fees of the independent auditor of the Bank for the year ending December 31, 2016 and 2015 are as follows: EUR Annual audit fees 105, ,000 Other services Total 105, ,550 NOTE 30 - RETURN ON ASSETS The return on assets of the Bank for the year ended December 31, 2016 stands to 1,14% (1,16% for the previous year). The return on assets is calculated as being the net profit divided by the total balance sheet. 30

33 Management Report Management Report Banque Carnegie Luxembourg S.A. is a sound and very qualified organisation, which has succeeded in combining a low risk profile with a high performance operation. The Bank is wholly specialised in providing asset management, private banking and investment fund services and is also, to a limited extent, engaged in money market and foreign exchange operations for its own account. The Bank has adopted the following objectives with respect to these operations: The Bank is an active participant in the foreign exchange and money markets, primarily with the function of executing client-driven transactions and with respect to its need to manage the treasury and the normal currency and interest rate positions generated as a result of its day-to-day operations. The Bank may take positions in the foreign exchange and interest rate markets. These positions are limited and are a function of the overall financial resources of the Bank. Limits are set and positions are taken after having duly considered the volatility of each instrument and the role of the investment within the Bank s own portfolio. The dealing activities are restricted to the traditional financial instruments. Innovative, untested or complex financial instruments are avoided. For the purposes of managing the risks associated with its activities, the Bank has implemented a Risk Management function, which is independent of both Front-office and Back-office functions and, while having an overall view of the Bank s activities, is responsible for the identification, measurement, control, and reporting of the Credit, Market, Liquidity and Operational risks. The objectives of the Risk Management function have been set as follows: Monitor compliance with limits and the risk policy framework on a daily basis. Ensure that risks are correctly measured and aggregated across the Bank s activities. Analyse new products to ensure that they are properly valued. Formulate recommendations as to how risks should be measured, and Keep abreast of any new developments in the field of risk management and measurement. Credit Risk Credit risk may be separated into settlement risk and counterparty risk. Settlement risk is limited by adhering to the following policy: Only high quality counterparties are given limits since it is considered less likely that these counterparties will fail without warning. Limits in any given currency are spread out amongst several banks, limiting exposure to any counterparty. Controls are in place to monitor positions leading to settlement risk. The Bank deals mainly with EU counterparties, which restricts the extra time zone risk to exceptional cases. 31