Half-yearly results Bank Frick – Increased revenues and investments
23. Aug. 2018
The first six months of the 2018 financial year yielded very positive results for Liechtenstein based Bank Frick. Net profit was CHF 2.6 million, a similar level to the same period in the previous year (CHF 2.7 million), while revenues significantly increased in all areas compared to the previous year. At the same time, Bank Frick invested more than it had budgeted for, in order to push forward with client-relevant strategic projects.
Bank Frick set itself ambitious targets for 2018 to consolidate and expand its position. The positive results from the first six months of the year show that it is on the right track in terms of strategy: to work closely with financial intermediaries, offer products for alternative asset classes and fund services and become an internationally leading partner in the blockchain sector.
The demand for blockchain banking services has hugely exceeded Bank Frick’s expectations, and several additions to the Bank’s team of experts in this area were made more quickly than expected. Bank Frick has also expanded its compliance team to ensure the Bank is able to meet the challenging requirements of the new business models from a legal and regulatory point of view.
Sources of income
Interest earned increased by 24% to CHF 11.2 million, and refinancing costs (interest expenses) were reduced by 27% to CHF 1.5 million (previous year: CHF 2.0 million).
Commission income grew to CHF 10.8 million (previous year: CHF 7.8 million), an increase of 39%. Commission expenses rose to CHF 5.1 million (previous year: CHF 3.8 million).
The notable increase in commission income can be attributed in particular to expected income from other service transactions (CHF 5.7 million or +69%) and includes services for the blockchain sector.
Income from securities transactions contributed CHF 4.8 million (+17%) to the commission income. The high fund volume was an important factor in this growth figure.
In order to account for business risk, the Bank made valuation allowances and allocations to provisions amounting to CHF 3.5 million (previous year: CHF 0.3 million).
Other operating income for the first six months of 2018 stood at CHF 3.0 million (previous year: CHF 0.7 million). This included part of a strategic premium paid by Net 1 UEPS Technologies, Inc. (Net1). In February 2018, Net1 acquired a further 5% stake in Bank Frick, and has since then held 35% of our capital stock.
With growth continuing apace, the Bank had to accept that personnel expenses (CHF 6.7 million, +22%) and operating expenses (CHF 4.8 million, +37%) were higher than budgeted for the first half of 2018. Since the beginning of the year, the Bank has hired an additional 30 members of staff. As of 30 June 2018, the employee headcount stood at 111. This corresponds to a full-time equivalent of 95 employees.
The balance sheet total amounted to CHF 1,389 million as at 30 June 2018, almost unchanged (+2%) compared to the end of the 2017 financial year on 31 December 2017.
Client assets under management
Client assets under management increased by CHF 88 million in the first six months of the 2018 financial year to CHF 3,898 million as at 30 June 2018. Net new money inflows remained far below expected levels at CHF 8.6 million.
Strategic expansion of bonds and our Funds and Issues department
In terms of strategy, Bank Frick has placed considerable focus on expanding blockchain banking business over the past 18 months. The second half of 2018 will see it make targeted additions to business in the area of fund services and issues. During the first six months of 2018, Bank Frick was made custodian of a major UCITS fund with a volume of CHF 115 million as at 30 June 2018. The total volume of European funds increased to CHF 720 million as a result. Considering the projects already underway in the Funds and Issues department, there is confidence that the trend will continue into the second half of 2018.
Bank Frick is establishing prudent connections between different areas to facilitate the development of new products, in line with its crossover approach. This has already seen the Bank’s issues experts join forces with the blockchain team to introduce Europe’s first alternative investment fund (AIF) for crypto assets, and Bank Frick acts as a custodian for the assets under management in this and other crypto funds.
Range of tradable cryptocurrencies expanded
Since February 2018, institutional clients have been able to trade five of the top cryptocurrencies with Bank Frick: Bitcoin (BTC), Bitcoin Cash (BCH), Litecoin (LTC), Ripple (XRP) and Ether (ETH). Clients can also deposit the assets they acquire securely with the Bank. Trading and safekeeping are two of a bank’s core competencies, and Bank Frick has now successfully transferred both to the world of cryptocurrencies.
As of 21 August 2018, Bank Frick’s range of tradable cryptocurrencies was expanded to include Ethereum Classic (ETC), NEM (XEM), Qtum (QTUM) and Stellar (XLM).
Outlook for the second half of 2018
Bank Frick will make further investments in the third and fourth quarters of 2018 to ensure strategic projects continue to progress. The Bank also plans to hire additional members of staff, and has targeted an employee headcount of 145 by the end of the year.
The challenge the Bank faces now is to compensate for the increases in expenditure by ensuring income continues to grow, so it is able to reach its expected net income of CHF 5.2 million for the year. Bank Frick is confident as it heads into the second half of 2018: it has opened accounts for a large number of companies in the blockchain banking sector, who have also taken advantage of the advisory services, and Bank Frick expects these companies to make a significant contribution to the commissions income in the second half of 2018.
The Bank’s position as one of the few banks in Europe to offer blockchain banking services will not last forever, and this is something it welcomes, as it believes this technology harbours enormous potential for the banking world. Bank Frick sets great store by carefully examining every request to ensure it is serious, and is working hard to consolidate and build on the great advances which it has made in terms of its expertise in the last few years. Margins for certain services in the blockchain banking sector are also set to come under pressure as new competitors enter the market.
Blockchain Act expected to support growth
Bank Frick assumes that blockchain banking will continue to grow as a source of income. It expects to see a surge in growth as soon as the previously announced draft of Liechtenstein’s Blockchain Act comes into force. The basics of the Blockchain Act were outlined in June, and it will offer market participants and clients greater legal protection and represent a clear unique selling point for Liechtenstein on the world stage. Based on the Bank’s assessments, the Blockchain Act will constitute the first real point of reference in Europe, and could even serve as the foundation for similar regulations in different countries. It is likely to come into force in the third quarter of 2019.
The Blockchain Act will offer innovative market participants new opportunities to differentiate themselves from their competitors. One example would be intermediaries offering issuer, custodian or validation services. Thanks to Bank Frick’s years of experience in the blockchain business, it can help intermediaries make significant reductions in the time to market for new blockchain and crypto business models. This is one area which Bank Frick believes holds considerable growth potential.
The Bank Frick Half-yearly report is published in German and English. The German version is authoritative.
About Bank Frick
Bank Frick is a family-run Liechtenstein bank with headquarters in Balzers. It was founded in 1998 by Kuno Frick Sr (1938–2017), with the majority now controlled by the Kuno Frick Family Foundation. Minority shareholder Net 1 UEPS Technologies, Inc. (Net1), holds 35 per cent of Bank Frick’s share capital. Net1 is a financial technology company listed on the Nasdaq stock exchange in New York.
Bank Frick focuses on providing products and services for financial intermediaries such as fiduciaries, asset managers, payment service providers and fintechs.
One of Bank Frick’s unique selling points is its high level of expertise in the regulated blockchain banking sector. The Bank supports Initial Coin Offerings (ICOs), provides custody of crypto assets and dealing services in leading cryptocurrencies for Bank Frick clients, and makes crypto assets bankable.
Bank Frick develops tailor-made funds for intermediaries and acts as a custodian bank.
It is the only bank in Liechtenstein with acquiring licences from Visa and MasterCard.
Bank Frick employs around 120 members of staff and operates a branch in London, UK.