BULLETIN DES ANNONCES LEGALES OBLIGATOIRES PUBLICATION S PERIODIQUES SOCIETES COMMERCIALES ET INDUSTRIELLES (COMPTES ANNUELS) PICTET ET CIE (EUROPE) S.A. Pictet & Cie (Europe) S.A. Audited annual accounts for the year ended 31 December 2 019 15A, Avenue John F. Kennedy L-1855 Luxembourg R.C.S. Luxernbourg: B 32 060 Pictet & Cie (Europe) S.A. Audit report To the Board of Directors of Pictet & Cie (Europe) S.A. Report on the audit of the annual accounts Our opinion In our opinion, the accompanying annual accounts give a true and fair view of the financial position of Pictet & Cie (Europe) S.A. (the “Bank”) as at 31 December 201 9 , and of the results of its operations for the year then ended in accordance with Luxembourg legal and regulatory requirements relating to the preparation and presentation of the annual accounts. What we have audited The Bank’s annual accounts comprise: • The balance sheet as at 31 December 201 9 ; • The profit and loss account for the year then ended; and • The notes to the annual accounts, which include a summary of significant accounting policies. Basis for opinion We conducted our audit in accordance with the EU Regulation No 537/2014, the Law of 23 July 2016 on the audit profession (Law of 23 July 2016) and with International Standards on Auditing (ISAs) as adopted for Luxembourg by the “Commission de Surveillance du Secteur Financier” (CSSF). Our responsibilities under the EU Regulation No 537/2014, the Law of 23 July 2016 and ISAs as adopted for Luxembourg by the CSSF are further described in the “Responsibilities of the “Réviseur d’entreprises agréé” for the audit of the annual accounts” section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. We are independent of the Bank in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) as adopted for Luxembourg by the CSSF together with the ethical requirements that are relevant to our audit of the annual accounts. We have fulfilled our other ethical responsibilities under those ethical requirements. To the best of our knowledge and belief, we declare that we have not provided non-audit services that are prohibited under Article 5(1) of Regulation (EU) No 537/2014. The non-audit services that we have provided to the Bank and its controlled undertakings, if applicable, for the year then ended, are disclosed in Note 19 to the annual accounts. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the annual accounts of the current period, and include the most significant assessed risks of material misstatement (whether or not due to fraud). These matters were addressed in the context of our audit of the annual accounts as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matter : Recognition of commission revenue The commission revenues of the Bank amounted to CHF 410,100,72 6 for the year ended 31 December 201 9 , as detailed in Note 16.2. We focused on recognition of the commission revenues for the following reasons: • These commission revenues are generated by a high volume of individual operations and represent a significant part of the total revenue of the Bank; • The nature of these commissions can be complex due to the various fee arrangements and the non-standardisation of the pricing conditions for some clients. Thus, the set-up of the fee conditions in the system involves manual intervention that could give rise to a risk of error or fraud (i.e.: input error, unauthorised change to approved fee schedules). How our audit addressed the Key audit matter : We performed tests on the internal control of the Bank (including IT controls) over the commission revenues as well as substantive testing. Our test of c ontrols included the following: • Observation on the system (application where the commissions are set-up) that one user cannot validate his/her own pricing entry and that the system requires a second user for validation; • Inspection of a sample of reports produced by the Bank in relation with operational incidents on commission revenues; • Inspection of the controls report (ISAE 3402 - type II report) prepared and issued by an independent external auditor on the relevant controls in relation to the asset custody, safekeeping and fund administration services. These controls are related to the information that serves as a basis for the commissions calculation; • Test of relevant IT generated controls such as the review of program changes and the access to the program and data. Our substantive procedures included the following: • Analysis of the variation of the main commission revenues; • Verification of the appropriate set-up of the commission fee parameters in the system by comparing those fees to the ones that were agreed with the client and approved by the Bank for a sample of clients; • Re-performance of commission calculation for a sample of transactions; • Test of commission fees paid by the Bank and then charged back to the clients based on support documents (i.e: trade tickets, invoices) for a sample of transactions; • Reconciliation of intercompany commissions. Other information The Board of Directors is responsible for the other information. The other information comprises the information stated in the directors'report but does not include the annual accounts and our audit report thereon. Our opinion on the annual accounts does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the annual accounts, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the annual accounts or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Board of Directors for the annual accounts The Board of Directors is responsible for the preparation and fair presentation of the annual accounts in accordance with Luxembourg legal and regulatory requirements relating to the preparation and presentation of the annual accounts, and for such internal control as the Board of Directors determines is necessary to enable the preparation of annual accounts that are free from material misstatement, whether due to fraud or error. In preparing the annual accounts, the Board of Directors is responsible for assessing the Bank’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors either intends to liquidate the Bank or to cease operations, or has no realistic alternative but to do so. Responsibilities of the “Réviseur d’entreprises agréé” for the audit of the annual accounts The objectives of our audit are to obtain reasonable assurance about whether the annual accounts as a whole are free from material misstatement, whether due to fraud or error, and to issue an audit report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the EU Regulation No 537/2014, the Law of 23 July 2016 and with ISAs as adopted for Luxembourg by the CSSF will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these annual accounts. As part of an audit in accordance with the EU Regulation No 537/2014, the Law of 23 July 2016 and with ISAs as adopted for Luxembourg by the CSSF, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: • identify and assess the risks of material misstatement of the annual accounts, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control; • obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank’s internal control; • evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Board of Directors; • conclude on the appropriateness of the Board of Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our audit report to the related disclosures in the annual accounts or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our audit report. However, future events or conditions may cause the Bank to cease to continue as a going concern; • evaluate the overall presentation, structure and content of the annual accounts, including the disclosures, and whether the annual accounts represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the annual accounts of the current period and are therefore the key audit matters. We describe these matters in our audit report unless law or regulation precludes public disclosure about the matter. Report on other legal and regulatory requirements : The directors ’ report is consistent with the annual accounts and has been prepared in accordance with applicable legal requirements. We have been appointed as “ R é viseur d ’ Entreprises Agr éé” of the Bank by the Board of Directors on 6 May 2019 and the duration of our uninterrupted engagement, including previous renewals and reappointments, is 20 years. PricewaterhouseCoopers, Soci é t é Coop é rative Luxembourg, 20 April 2020 Represented by Olivier Delbrouck Pictet & Cie (Europe) S.A. Balance sheet as at 31 December 201 9 (expressed in Swiss francs) Note(s) ASSETS 201 9 CHF 201 8 CHF Cash in hand, balances with central banks and post office banks 3.2.1, 4 1 212 75 6 741 901 755 033 Loans and advances to credit institutions 3.2.1, 5.2 - repayable on demand 411 957 747 564 569 529 - other loans and advances 3 145 548 166 2 841 972 765 3 557 5 05 913 3 406 542 294 Loans and advances to customers 3.2.1, 5.2 2 550 754 069 3 410 414 074 Bonds and other fixed-income transferable securities 3.2.1, 6, 7.1 - issued by public bodies 1 328 787 163 1 552 791 777 - issued by other borrowers 1 457 480 62 1 1 518 569 231 2 786 267 784 3 071 361 008 Shares and other variable-yield transferable securities 3.2.1, 6 42 392 589 29 644 785 Shares in affiliated undertakings 3.2.1, 5.1, 6, 7.1 921 917 618 589 Tangible assets 7.2 14 024 313 8 385 370 Other assets 1 35 894 102 507 Prepayments and accrued income 6.2, 6.3 1 38 029 160 153 111 239 Total assets 14 10 302 788 380 10 981 934 899 The accompanying notes form an integral part of these annual accounts. Note(s) 201 9 201 8 CHF CHF LIABILITIES Amounts owed to credit institutions 3.2.1, 5.2 - repayable on demand 503 270 188 407 016 159 - with agreed maturity dates or periods of notice 400 542 281 711 054 806 903 812 469 1 118 070 965 Amounts owed to customers other debts . repayable on demand 3.2.1, 5.2 8 658 249 651 9 087 008 832 . with agreed maturity dates or periods of notice 2 047 568 30 397 288 Debt evidenced by certificates 8 660 297 219 9 117 406 120 - others 3.2.1, 8 57 352 717 47 326 897 Other liabilities 9 8 715 439 11 332 264 Accruals and deferred income 6.2, 6.3 86 923 627 105 515 132 Provisions - provisions for taxation 16.5 15 925 723 40 094 469 - other provisions 10 76 127 960 48 309 886 Fund for general banking risks 2.6 1 100 000 1 100 000 Subscribed capital 11, 13 70 000 000 70 000 000 Share premium account 13 30 000 000 30 000 000 Reserves 12, 13 75 570 338 68 070 338 Profit brought forward 12.3, 13 2 57 679 091 205 008 738 Profit for the financial year 13 59 283 797 119 700 090 Total liabilities 14 10 302 788 380 10 981 934 899 The accompanying notes form an integral part of these annual accounts. Pictet & Cie (Europe) S.A. Off balance sheet items as at 31 December 201 9 ( expressed in Swiss francs) Note(s) 201 9 CHF 201 8 CHF Contingent liabilities of which: - guarantees and assets pledged as collateral security 15.1 536 304 901 536 304 901 320 839 123 320 839 123 Commitments 15.2 2 500 000 2 500 000 Fiduciary transactions 5 249 313 495 4 247 821 664 The accompanying notes form an integral part of these annual accounts. Profit and loss account for the year ended 31 December 201 9 Note(s) 201 9 CHF 201 8 CHF Interest receivable and similar income 120 215 996 133 146 953 Interest payable and similar charges ( 47 537 748 ) (59 269 167) Income from transferable securities: income from shares in affiliated companies - 1 511 229 Commissions receivable 16.2 410 100 726 431 978 486 Commissions payable ( 181 793 391 ) ( 199 273 707 ) Net profit on financial operations 30 892 876 38 872 563 Other operating income 16.3 14 936 555 16 867 536 General and administrative expenses: - staff costs 18 (1 60 370 786 ) ( 143 574 764 ) of which: . wages and salaries ( 133 333 902 ) ( 117 411 639 ) . social security costs (20 951 372 ) ( 20 250 269 ) of which: pension costs ( 9 428 349 ) ( 8 935 324 ) - other administrative expenses ( 69 448 673 ) ( 60 184 806 ) Value adjustments in respect of tangible and intangible assets 7.2 ( 5 497 676 ) ( 4 528 792 ) Value re-adjustments in respect of transferable securities held as financial fixed assets, participating interests and shares in affiliated undertakings 7.1 23 992 43 957 Other operating charges 16.4 ( 25 628 739 ) ( 4 184 428 ) Tax on profit on ordinary activities 16.5 ( 23 898 775 ) ( 29 390 536 ) Profit on ordinary activities after tax 61 994 357 122 014 524 Other taxes not shown in the preceding items 17 ( 2 710 560 ) ( 2 314 434 ) Profit for the financial year 59 283 797 119 700 090 The accompanying notes form an integral part of these annual accounts. Notes to the annual accounts as at 31 December 20 19 Note 1 - General Banque Pictet Luxembourg S.A. (the “Bank”) was incorporated in the Grand-Duchy of Luxembourg on 3 November 1989 as a société anonyme governed by Luxembourg Law. Banque Pictet Luxembourg S.A. changed its business name on 30 September 2002 to Pictet & Cie (Europe) S.A.. The Bank is registered with the register of commerce and companies of Luxembourg under No. B 32 060 and its registered office is located at 15A, Avenue J.-F. Kennedy, L-1855 Luxembourg. Under Luxembourg Law, the Bank is authorised to conduct all banking operations. The Bank is a fully owned subsidiary of Pictet Group. Since December 2018, the Bank is 100% owned by Pictet & Cie Group SCA, Geneva, whose registered office is at 60, Route des Acacias, CH-1211 Geneva, Switzerland. The Bank is included in the consolidated accounts of Pictet Group forming the smallest and the largest body of undertakings of which the Bank forms a part of indirect subsidiary undertaking. The consoliated accounts are available at Pictet Group head office at 60, Route des Acacias, CH-1211 Geneva. Note 2 - Principal accounting methods 2.1 Basis of presentation The annual accounts have been prepared in conformity with the accounting principles generally accepted in the banking sector in the Grand Duchy of Luxembourg. The accounting policies and the valuation principles are determined and applied by the Board of Directors, except those which are defined by the amended law of 17 June 1992 relating to the accounts of credit institutions and by the “Commission de Surveillance du Secteur Financier”. As at 31 December 201 9 , the Bank has six branches, which are established in Frankfurt, Madrid, Paris, Turin, Hong Kong and London. These were opened on the following dates: • on 17 October 2000 for Frankfurt; • on 5 December 2002 for Madrid; • on 16 December 2003 for Paris; • on 1 January 2007 for Turin; • on 17 September 2012 for Hong Kong; • on 24 April 2014 for London. As a result, the balance sheet, the off balance sheet and the profit and loss account have been prepared by combining the items from the balance sheets, off balance sheets and profit and loss accounts of the Luxembourg-registered office and the six branches. Note 2 - Principal accounting methods (cont.) Basis of presentation (cont.) Based on the criteria defined by Luxembourg law, the Bank is not required to prepare consolidated annual accounts and a consolidated Directors’ report for the year ended 31 December 201 9 . Therefore, in accordance with the amended law of 17 June 1992, these annual accounts were presented on an unconsolidated basis for approval by the Annual General Meeting of shareholders. Foreign currencies The Bank prepares its annual accounts in Swiss francs (CHF), the currency in which its capital is expressed. The Bank has adopted the multi-currency accounting system whereby all transactions other than those expressed in the currency of its capital are recorded in the currencies of these transactions. Income and expenses are translated into CHF at the exchange rate prevailing on the date of the transaction. Spot transactions Assets and liabilities denominated in foreign currencies are translated into CHF at the average spot exchange rate effective on the balance sheet date. However, shares in affiliated undertakings held as financial fixed assets are translated at the lower of the value converted at the historical exchange rate or the spot rate on the balance sheet date. Tangible assets which are not hedged on the spot or forward market are translated into the local reporting currency at the exchange rates prevailing on their acquisition date. Unsettled spot foreign exchange transactions are translated into CHF at the spot rate prevailing on the balance sheet date. Forward transactions Unsettled forward foreign exchange transactions are translated into CHF at the forward rate prevailing on the balance sheet date for the remaining maturity. For hedged exchange transactions, foreign exchange losses arising on revaluation of the hedged contract are set against profits arising on revaluation of the hedging contract (and vice versa). Provision is made to hedge any net loss position arising. 2.2.3 Foreign exchange gains and losses Foreign exchange gains and losses resulting from spot transactions hedged by forward transactions or resulting from forward transactions hedged by spot transactions are neutralised through prepayments and accrued income and accruals and deferred income accounts. Foreign exchange gains and losses resulting from spot transactions not hedged by forward transactions are recorded in the profit and loss account for the financial year. Differences arising due to the gap between spot and forward exchange rates are amortised in the profit and loss accounts on a prorata basis. Foreign exchange losses on unhedged forward transactions are recorded in the profit and loss account. Foreign exchange gains arising out of these transactions are disregarded. Loans and advances Loans and advances are stated at their acquisition price less any repayments. Accrued interests not yet due are recorded as prepayments and accrued income in the balance sheet. It is the policy of the Bank to establish specific provisions in respect of doubtful and irrecoverable claims according to the circumstances and for amounts determined by the governing bodies in charge. These provisions are deducted from the appropriate asset account balances and are not maintained if the reasons for which they were recorded no longer exist. Valuation of fixed-income and variable-yield transferable securities For valuation purposes, the Bank has divided its transferable securities into three categories of portfolios: Investment portfolio of financial assets This portfolio comprises: • variable-yield securities composed of shares in affiliated undertakings having the characteristics of financial fixed assets. These securities, which are intended to support the Bank’s activities over the long term, are valued at the lower of their acquisition cost or their market value; • fixed-income securities intended to be held on a continuing basis until maturity in the normal course of the Bank’s activities. The fixed-income transferable securities are recorded at historical acquisition cost in their original currency. The acquisition cost includes the costs to purchase the asset. A value adjustment is made where the market value at the balance sheet date is lower than the acquisition cost. This adjustment is made when the Board of Directors considers the depreciation as durable or when the repayment of these debt securities is uncertain. The positive difference (premium) resulting from the purchase of fixed-income transferable securities held as fixed assets at a higher price than the amount repayable at maturity, is included in the profit and loss account on an amortised basis. The negative difference (discount) resulting from the acquisition of fixed-income transferable securities held as fixed assets at a lower price than the amount repayable at maturity, is released to income in instalments over the period remaining until repayment. Trading portfolio This item comprises fixed-income and variable-yield securities purchased with the intention of selling them in the short term. These securities are traded on a market whose liquidity can be assumed to be certain, and their market price is at all times available to third parties. The securities in the trading portfolio are stated in the balance sheet at the lower of acquisition cost or market value. As at 31 December 2019 , the Bank does not have any trading portfolio. 2.4.3 Structural portfolio This item comprises securities purchased for their investment return or yield, or for the purpose of establishing some liquidity in the secondary market. It also includes securities not contained in the other two categories. The securities are valued at the lower of their acquisition cost or their market value. Exceptional value adjustments may be made in respect of certain securities, either in accordance with the principle of prudence or under the provisions of Luxembourg tax legislation. They also benefit from the provisions of the “Beibehaltungsprinzip” (under Luxembourg legislation, assets may be stated at a lower value throughout the holding period of the assets concerned). The Bank also issues structured finance instruments products on behalf of clients. Some of those products consist on issuing basket certificates based on equities. The risk on those position is covered by the acquisition by the Bank of the underlying securities with the aim to reduce volatility. The Bank applies the waiver allowed by the CSSF Circular 08/340 which permits to partially apply IFRS 9 standard. In the framework of its activities, the Bank is booking these products at fair value through profit and loss account. 2.5 Tangible assets Tangible assets are stated in the balance sheet at their acquisition cost reduced by cumulated value adjustments. Tangible assets are amortised on a straight-line basis over their estimated useful economic lives: Rate of amortisation Transformation of the building 20% p.a. Hardware 33.33% p.a. Software 33.33% p.a. Other fixtures and fittings, tools and equipment 20% p.a. Fund for general banking risks The Bank created a fund for general banking risks intended to cover particular risks associated with banking operations. Increases or decreases to this fund are determined based on the profit after tax, but before determining the profit for the financial year, and are not subject to any quantitative limitations. Lump-sum provision In accordance with Luxembourg legislation, the Bank has established a lump-sum provision for potential risk exposures. The lump-sum provision calculated on balance sheet items is deducted from the corresponding asset items. As at 31 December 201 9 , the lump-sum provision amounts to CHF 19 800 000 (201 8 : CHF 19 800 0 00). Amounts payable Amounts payable are recorded under the liabilities at the amount of reimbursement. Some of the debts evidenced by certificates are composed of basket certificates based on equities whose purpose is to replicate the performance of an underlying reference securities basket. According to the waiver allowed by the CSSF circular 08/340 which permits to partially apply IFRS 9 standard with the aim to reduce volatility, these basket certificates are valuated at fair-value through profit and loss just like the representative underlying assets. Valuation of derivative financial instruments Margin calls on financial futures traded on a regulated market are recorded on a daily basis. Gains and losses on trading positions are directly recorded in the profit and loss account. Gains and losses on hedging positions are amortised over the same period as the results from the hedged item. The derivatives on interest rates traded over the counter and unallocated to given assets or liabilities, are market-to-market. The unrealised losses are booked in the profit and loss account whereas unrealised gain are ignored. The derivatives on interest rates traded over the counter for hedging purposes of the Bank’s interest rate positions are not marked-to-market unless they are hedging fixed-income transferable securities included in the investment portfolio valued at the “lower of cost or market”. The Bank issues structured finance instruments products on behalf of clients. The risk on those positions is covered by the acquisition by the Bank of financial instruments with the aim to hedge the position and reduce volatility. The Bank applies the waiver allowed by the CSSF Circular 08/340 which permits to partially apply IFRS 9 standard. In the framework of its activities, the Bank is booking these products at fair value through profit and loss account. The Bank uses interest rate swaps to hedge its exposure to changes in the fair values of its investment portfolio for prudential reporting purposes. Hedging income is recognised in the income statement symmetrically with the method used to recognise income and expenses on the hedged item; thus, the interest flows of the hedging instrument are spread at the same time as the hedged interest is recognised. With regard to unrealised gains and losses, changes in value are recognised in the income statement in a symmetrical way with the method of recognising income and expenses on this item. Hence, unrealised losses recognised on the hedging instrument do not therefore give rise to the recognition of a provision. Note 3 - Analysis of financial instruments 3.1 Risk management objectives and strategy The Bank’s strategy is to focus on those activities where it can bring added value, which generate higher returns and whose risks are understood and managed. 3.1.1. Credit and counterparty risk Credit risk is the risk that a third party may not fulfil its obligations within the terms prescribed. Consequently, the risk not only encompasses loans and securities but also guarantees, commitments, inter-bank deposits, forward foreign exchange contracts and other financial instruments. Credit risk management is governed by an internal guideline which defines the terms under which loans may be granted, the limits and requirements for loans and advances on account as well as the competencies to approve commitments. It should be noted that the Bank does not grant any commercial loans and that customer loans consists mainly of Lombard credits and loans guaranteed by cash deposits or life insurance policies. The Bank’s policy regarding country risks is not to maintain any active relationships with creditors in high-risk countries. Finally, all the counterparties with which the Bank works are well established first-rate banks, including Group companies. Further, the Bank’s Management has set concentration limits per banking counterparty. Compliance with these limits is controlled on a daily basis. The result of this control is sent on a weekly basis to the Bank’s Management. 3.1.2. Market and financial instrument risks Market risks are defined as risks relating to interest rate, foreign exchange or price fluctuations and to illiquidity which may lead to refinancing issues. Since 2013, the Bank invests in a held-to-maturity bonds portfolio. This initiative is part of the cash management of the Pictet Group and the willingness of the Bank to respond to the Bank’s expectations with regards to treasury and liquidity management. The portfolio is composed of highly qualitative liquid assets. The Bank carries out currency swap transactions for its own account in order to cover future cash flow of some bonds hold in portfolio and to manage cash position in foreign currencies. Transactions conducted on behalf of customers are systematically returned with the sister company (Banque Pictet & Cie SA) and mainly consist in transactions relating to “standard” derivative financial instruments. Liquidity risk Liquidity risk may be defined as the risk that a bank may not be able to meet its obligations on maturity due to the mismatches between the cash flows arising from its assets and its liabilities. The Bank’s liquidity risk policy can be compared to its interest rate policy to the extent that the Bank tries to avoid any mismatch between the uses and sources of cash in terms of maturity so as to avoid any major risk. The Bank invested in a held-to-maturity bonds portfolio with maturities up to 116 months. Each investment is highly liquid and qualitative. Interest rate and foreign exchange risks With regard to investments/deposits, the Bank’s policy is to seek a perfect match in terms of maturity dates. The Bank does not take any position on the rates or on the maturities but limits itself to reflecting its customers’ deposits by ensuring the best possible rates. The interest rate margin generated by the Bank is monitored monthly by the Finance department. The Bank’s policy is to avoid any significant foreign exchange risks. The Bank has set overall limits and currency limits. Compliance with cash and forward positions and the result on these positions are controlled on a daily basis by the Finance department and are reported regularly to the Bank’s Management. 3.1.5 Operational risks The Bank’s business focuses on private banking and custodian bank activities. In order to reduce its risks, the Bank follows a policy of spreading responsibilities, which are split between the various persons in charge of the activities. In addition, the Bank has a procedure manual which governs the Bank’s activities and which defines the control levels required for the relevant duties. The activities are also reviewed by the Internal Audit department which reports to the Bank’s Management. Finally, the risk manager has implemented a loss reporting system and an operational loss database subject to a specific follow-up. The risk manager and his team, are also in charge of the oversight of the custodian bank activities. 3.1.6 Legal Risk Legal risk is defined as the risk that an error in the drafting or in the interpretation of a contact binding the Bank will result in financial losses or an unwanted increase in the Bank’s commitments. This risk is not necessarily directly quantifiable but may indirectly result in financial losses or lost profits. This risk is inherent to the nature and complexity of banking activities. As a consequence, the preparation of the annual accounts requires the use of certain critical accounting estimates. It also requires the Board of Directors to exercise its judgment in the process of applying the accounting policies. Analysis of financial instruments Information on primary financial instruments The table hereafter analyses the Bank’s activity level regarding primary financial instruments. The data are broken down by type of financial instrument and by residual maturity. “Fair value” means the value at which an asset may be exchanged or a liability settled under a standard transaction conducted at arm’s length between unrelated qualified parties acting freely, with the exception of forced sales and sales conducted as part of a liquidation . Analysis of primary non-trading financial instruments (book value) Primary non-trading instruments as at 31 December 201 9 (book value in CHF) Total CHF Less than 3 months > 3 months to 1 year > 1 year to 5 years More than 5 years No maturity Instrument class (financial assets) Cash in hand, balances with central banks and post office banks 1 212 756 7 41 - - - - 1 212 756 754 Loans and advances to credit institutions 3 557 505 913 - - - - 3 557 505 913 Loans and advances to customers 2 446 622 801 73 329 549 30 801 719 - - 2 550 754 069 Bonds and other fixed-income transferable securities* 128 687 989 317 442 926 1 680 312 731 659 824 237 - 2 786 267 783 Shares and other variable-yield transferable securities - - - - 42 392 589 42 392 589 Shares in affiliated undertakings - - - - 921 917 921 917 Total financial assets 7 346 368 213 389 977 606 1 847 397 441 523 541 246 43 314 506 10 150 599 012 Non-financial assets 152 189 368 Total assets 10 302 788 380 * Considering their market value, these securities do not require any impairment as at 31 December 201 9 (see note 6.2). Instrument class (financial liabilities) Amounts owed to credit institutions 837 107 64 2 66 704 827 - - 903 812 469 Amounts owed to customers 8 660 297 218 - - - 8 660 297 218 Debts evidenced by certificates - 14 648 483 - - 42 704 234 57 352 717 Total financial liabilities 9 497 404 860 81 535 310 - 42 704 234 9 621 462 404 Non-financial liabilities 681 325 976 Total liabilities 10 302 788 380 Primary non-trading instruments as at 31 December 201 8 (book value in CHF) Total CHF Less than 3 months > 3 months to 1 year > 1 year to 5 years More than 5 years No maturity Instrument class (financial assets) Cash in hand, balances with central banks and post office banks 901 755 033 - - - - 901 755 033 Loans and advances to credit institutions 3 406 542 294 - - - - 3 406 542 297 Loans and advances to customers 3 187 525 560 188 131 418 34 757 096 - - 3 410 414 074 Bonds and other fixed-income transferable securities* 448 369 958 756 445 470 1 154 089 178 712 456 402 - 3 071 361 008 Shares and other variable-yield transferable securities - - - - 29 644 785 29 644 785 Shares in affiliated undertakings - - - - 618 589 618 589 Total financial assets 7 944 192 845 944 576 888 1 188 846 274 712 456 402 30 263 374 10 820 335 783 Non-financial assets 161 599 116 Total assets 10 981 934 899 * Considering their market value, these securities do not require any impairment as at 31 December 201 8 . Instrument class (financial liabilities) Amounts owed to credit institutions 919 954 741 85 424 499 112 691 725 - 1 118 070 965 Amounts owed to customers 9 117 258 250 147 870 - - - 9 117 406 120 Debts evidenced by certificates - 18 018 371 - - 29 308 526 47 326 897 Total financial liabilities 10 037 212 991 103 590 740 112 691 725 29 308 526 10 282 803 982 Non-financial liabilities 699 130 917 Total liabilities 10 981 934 899 Information on derivative financial instruments used 3.2.2.1 Description of derivative financial instruments As at 31 December 201 9 , the Bank conducts currency swaps for its own account and forward foreign exchange transactions on behalf of customers which are automatically hedged with the sister company (Banque Pictet & Cie SA). The tables below provide information on non-trading derivative financial instruments according to the notional amount, the fair value, the residual maturity and the market type. It is to be noted that in 2018, the Bank only conducted currency swaps for its own account and forward foreign exchange transactions on behalf of customers which are automatically mirrored with the sister company (Banque Pictet & Cie SA) Analysis of derivatives financial instruments used As at 31 December 201 9 , the Bank held the following derivative financial instruments: (CHF) Less than 3 months 3 to 12 months 1 to 5 years Total OTC Forward exchange contracts (notional amount) 52 59 6 468 279 3 009 238 448 89 866 457 55 695 573 184 Currency Swaps (notional amount) 3 004 130 222 371 786 287 92 987 154 3 468 903 663 Equity derivatives (notional amount) 4 635 968 998 463 500 635 143 043 228 5 242 512 871 Credit default Swaps (notional amount) 2 173 946 2 173 946 Metal Option (notional amount) 1 040 728 352 1 040 728 352 As at 31 December 201 8 , the Bank held the following derivative financial instruments: (CHF) Less than 3 months 3 to 12 months 1 to 5 years Total OTC Forward exchange contracts (notional amount) 49 256 966 394 1 916 027 813 66 762 862 51 239 757 069 Currency Swaps (notional amount) 2 674 350 135 342 808 683 290 393 129 3 307 551 947 3 .2.2.3 Evaluation of derivative financial instruments As at 31 December 2019 , the fair value of derivative financial instruments held by the Bank amount to: (CHF) (CHF) Less than 3 months 3 to 12 months 1 to 5 years Total OTC Forward exchange contracts Positive replacement values 271 548 618 20 455 076 4 259 865 296 263 559 Negative replacement values 267 857 434 19 672 879 4 164 259 291 694 572 Net fair value of contracts 3 691 184 782 197 95 606 4 568 987 (CHF) (CHF) Less than 3 months 3 to 12 months 1 to 5 years Total OTC Currency Swap Positive replacement values 10 766 460 28 372 583 4 919 824 44 058 867 Negative replacement values 9 548 292 1 059 358 49 944 067 60 551 717 Net fair value of contracts 1 218 168 27 313 225 (45 024 243) (16 492 851) (CHF) (CHF) Less than 3 months 3 to 12 months 1 to 5 years Total OTC Equity derivatives Positive replacement values 14 283 654 23 755 150 1 659 863 39 698 667 Negative replacement values 13 712 354 23 755 150 1 659 863 39 127 367 Net fair value of contracts 571 300 571 300 Note 3 - Analysis of financial instruments 3.2 Analysis of financial instruments used 3.2 .2 Information on derivative financial instruments used. 3.2 .2.Evaluation of derivative financial instruments (CHF) (CHF) Less than 3 months 3 to 12 months 1 to 5 years Total OTC Credit Default Swap Positive replacement values 34 250 34 250 Negative replacement values 34 250 34 250 Net fair value of contracts (CHF) (CHF) Less than 3 months 3 to 12 months 1 to 5 years Total OTC Metal option Positive replacement values 366 036 366 036 Negative replacement values 366 036 366 036 Net fair value of contracts As at 31 December 201 8 , the fair value of derivative financial instruments held by the Bank on behalf of customers amounts to: (CHF) Less than 3 months 3 to 12 months 1 to 5 years Total OTC Forward exchange contracts Positive replacement values 171 482 986 13 540 704 2 624 265 187 647 955 Negative replacement values 169 694 938 12 958 154 2 538 746 185 191 838 Net fair value of contracts 1 788 048 582 550 85 519 2 456 117 (CHF) Less than 3 months 3 to 12 months 1 to 5 years Total OTC Currency Swap Positive replacement values 15 114 856 589 324 17 680 972 33 385 152 Negative replacement values 10 932 057 3 442 835 - 14 374 892 Net fair value of contracts 4 182 799 (2 853 511) 17 680 972 19 010 260 Credit risk 3.3.1 Description of credit risk Credit risk is the risk that a third party may not fulfil its obligations within the terms prescribed. Credit risk concentration Geographical analysis (in %) Geographic zone (by country or zone) Loans and other balance sheet items Commitments OTC derivative financial instruments 31 December 201 9 31 December 201 9 31 December 201 9 Switzerland 54 % 5 % 52 % European Union 27 % 42 % 40 % Others 19 % 53 % 8 % Total 100% 100% 100% Geographic zone (by country or zone) Loans and other balance sheet items Commitments OTC derivative financial instruments 31 December 201 8 31 December 201 8 31 December 201 8 Switzerland 46% 7% 50% European Union 24% 49% 48% Others 30% 44% 2% Total 100% 100% 100% Economic sector analysis (in %) Economic sector Loans and other balance sheet items Commitments OTC derivative financial instruments 31 December 201 9 31 December 201 9 31 December 201 9 Financial sector 6 8 % 38 % 54 % Private clients 20% 27% 4 % Others 12 % 35 % 4 2 % Total 100% 100% 100% Economic sector Loans and other balance sheet items Commitments OTC derivative financial instruments 31 December 20 18 31 December 201 8 31 December 201 8 Financial sector 65% 49% 55% Private clients 20% 27% 1% Others 15% 24% 44% Total 100% 100% 100% The Bank has decided not to include the bond portfolio and the currency swaps in the geographical and economic sector breakdowns presented above as the credit risk on these instruments is very limited. Indeed the Bank's bond portfolio includes solely high-quality securities rated, at least, AA by Moody’s. Also, the majority of currency swaps are contracted with the sister company (Banque Pictet & Cie SA) which is a financial institution located in Switzerland (see table in note 3.3.3). 3.3.3 Measurement of credit risk exposure related to financial derivative instruments For financial derivative instruments not traded on a stock exchange, the book value, i.e. the notional value, does not reflect the highest rate of exposure to risk. The Bank calculates the credit risk relating to derivative financial instruments on the basis of the standardised approach in accordance with the provisions of CSSF circulars. The table below provides information on the Bank’s exposure to credit risk according to notional amounts, to the credit risk-equivalent amount and to the net risk exposure. Credit risk relating to OTC financial derivative instruments (initial ris k method) as at 31 December 2019 Notional amounts CHF (1 ) Credit risk- equivalent amounts CHF (2) Guarantees CHF (3) Net weighted risk exposure CHF (4) = (2) - (3) Forward exchange contracts 55 695 573 184 761 595 276 - 761 595 276 Currency Swaps 3 468 903 663 35 755 922 - 35 755 922 Equity derivatives 5 242 512 871 190 737 702 190 737 702 Credit Default Swaps 2 173 946 251 976 251 976 Metal option 1 040 728 352 72 850 985 72 850 985 Credit risk relating to OTC financial derivative instruments (initial ris k method) as at 31 December 2018 Notional amounts CHF (1 ) Credit risk- equivalent amounts CHF (2) Guarantees CHF (3) Net weighted risk exposure CHF (4) = (2) - (3) Forward exchange contracts 51 239 757 069 715 903 495 - 715 903 495 Currency Swaps 3 307 551 947 79 149 241 - 79 149 241 The Management has decided to deal on forward foreign exchange contracts exclusively with the sister company (Banque Pictet & Cie SA). The Bank also conducts currency swaps for its own account in order to hedge future cash flows related to its investment portfolio and its open positions in foreign currencies by using currency swaps. 31 December 2019 31 December 2018 Instrument OECD Group OECD Group Forward exchange contracts 9 5 % 50% 98% 50% Currency Swaps 100% 88% 100% 88 % Equity derivatives 59% 51% Credit Default Swaps 100% 50% Metal option 50% 50% Market risk Market risk represents the risk that financial assets in which the Bank invests or in respect of which it conducts short transactions may be subject to market price fluctuations. The Bank’s portfolio includes participating interests in other Group companies and a held-to-maturity bonds portfolio. Since 2016, it also includes securities acquired by the Bank in the frame of its strategy of economic hedging of the basket certificates based on equities issued by the Bank. The forward foreign exchange contracts agreed with the clients are hedged with the sister company (Banque Pictet & Cie SA). The Bank conducts currency swaps in order to cover market risk related to some bonds hold in portfolio. Note 4 - Cash in hand, balances with central banks and post office banks Effective 1 January 1999, the Luxembourg Central Bank implemented a system of mandatory minimum reserves for all Luxembourg credit institutions. As at 31 December 201 9 , the amount maintained by the Bank at the Luxembourg Central Bank was CHF 1 212 201 460 (201 8 : CHF 882 644 636 ). Note 5 - Shares in affiliated undertakings 5.1 Summary of shares in affiliated undertakings As at 31 December 2019 the Bank holds shares in affiliated undertakings (exceeding 20%) in the following company: Name Head Office Carrying value Proportion of capital held (%) Shareholders’ equity 31/12/1 9 (*) Profit and loss for the year ended 31/12/1 9 (*) CHF CHF CHF PICTET LIFE INSURANCE ADVISORS (FRANCE) SAS PICTET & CIE (MONACO) Paris Monaco 597 835 326 090 100 100 100 100 100 2 704 222 (271 293) 701 896 (597 385) Less lump-sum provision ( 2008 ) 921 917 (*) Non-audited figures. Pictet Life Insurance Advisors (France) SAS is not listed on a stock exchange. On 19 February 2020, the bank has decided to dissolve Pictet & Cie (Monaco) SAM The Bank is not required to prepare consolidated accounts. This subsidiary is not consolidated as it represents a minor interest within the meaning of articles 83 (1) and 85 (3) of the amended law of 17 June 1992. A table summarising the movements of the year is detailed in note 7.1. 5.2 Operations with affiliated undertakings Loan and advance to affiliated undertakings 201 9 CHF 201 8 CHF Loans and advances to credit institutions 2 631 398 505 3 112 587 273 Loans and advances to customers 3 272 126 2 109 985 Amounts owed to affiliated undertakings Amounts owed to credit institutions 789 414 282 995 622 071 Amounts owed to customers 229 376 953 183 431 796 Note 6 - Transferable securities 6.1 Quoted and unquoted transferable securities 6.1.1 Quoted transferable securities 2 0 19 CHF 201 8 CHF Bonds and other fixed-income transferable securities: - issued by public bodies 1 328 787 163 1 552 791 777 - issued by other borrowers 1 457 480 621 1 518 569 231 Shares and other variable-yield transferable securities 42 392 589 29 644 785 2 828 660 373 3 101 005 793 6.1.2 Unquoted transferable securities 201 9 CHF 201 8 CHF Shares in affiliated undertaking 921 917 618 589 6.2 Categories of bonds and other fixed-income transferable securities The bonds and other fixed-income transferable securities are classified as follows: 201 9 CHF 201 8 CHF Bonds and other fixed-income securities 2 786 267 784 3 071 361 008 Premiums (booked as accruals and deferred income) ( 37 120 060 ) (53 293 908) Discounts (booked as prepayments and accrued income) 1 679 793 3 165 929 Adjusted book value of bonds and other fixed-income securities 2 750 827 517 3 021 233 029 As at 31 December 201 9 , the market value of these financial assets amounts to CHF 2 815 376 279 including CHF 12 356 552 of accrued interests booked under 'Prepayments and accrued income'on the asset side of the balance sheet. Bonds and other fixed-income transferable securities reaching maturity in 20 20 amount to CHF 447 102 582. Amortisation of premiums and discounts on bonds and other fixed-income transferable securities held as financial fixed assets As at 31 December 201 9 , the amortised value of premiums and discounts since acquisition date for t he financial assets amounts to: 201 9 CHF 201 8 CHF Premiums 37 120 060 53 293 908 Discounts (1 679 793 ) (3 165 929) Note 7 - Fixed assets Financial assets The movements in financial assets during the year may be summarised as follows: Shares in Bonds and other affiliated undertakings fixed-income transferable securities 201 9 CHF 201 9 CHF Gross value as at 1 January 619 804 3 077 393 931 Additions 326 090 1 053 745 447 Disposals - (1 265 954 995 ) Foreign exchange difference (2 1 969 ) (72 847 522) Gross value as at 31 December 923 925 2 792 336 861 Less lump-sum provision ( 2 008 ) ( 6 069 077 ) Net book value as at 31 December 921 917 2 786 267 784 Shares in affiliated undertakings relates to the participating interest of the Bank in Pictet Life Insurance Advisors (France) SAS, an insurance brokerage company located in Paris and the creation in 2019 if Pictet & Cie (Monaco) SAM, a management company located in Monaco. Disposals of bonds and other fixed-income transferable securities held as fixed assets consist of securities that reached maturity during the year 201 9 and the sale of securities which did not comply anymore with eligibility criteria defined by the Bank for its investment portfolio (CHF 11 241 594 ). Tangible assets The movements in tangible assets during the year may be summarised as follows: Technical fixtures & fittings and machinery Other fixtures & fittings, tools & equipment Total tangible assets 201 9 Total tangible assets 201 8 CHF CHF CHF CHF Gross value as at 1 January 31 840 224 30 442 713 62 282 937 62 472 747 Additions 5 605 241 7 388 994 12 994 235 3 811 366 Disposals/transfers ( 4 818 878 ) (1 872 904) (6 691 782) (3 389 827) Foreign exchange difference (220 048 ) (347 796 ) ( 567 844 ) (611 349) Gross book value as at 31 December 32 406 539 35 611 007 6 8 017 546 62 282 937 Cumulated value adjustments as at 31 December (including foreign exchange difference) ( 28 324 552 ) ( 25 638 132 ) ( 53 962 684 ) ( 53 881 096 ) Less lump-sum provision ( 14 554 ) (15 995 ) ( 30 549 ) ( 16 471 ) Net book value as at 31 December 4 067 433 9 956 880 14 024 313 8 385 370 Note 8 - Debt Securities During 2016, the Bank started to issue structured finance instruments, including basket certificates based on equities. As at 31 December 201 9 , total issuance of these instruments amounts to CHF 57 352 717 booked on the liability side of the Bank’s balance sheet. In the frame of its strategy of economic hedging of the equity basket certificates, the Bank has acquired the securities composing the underlying portfolio of these certificates. As at 31 December 2019 , the total value of these securities amounts to CHF 42 392 589 booked on the asset side of the Bank’s balance sheet. Note 9 - Other liabilities As at 31 December 2019 , “Other liabilities” consist of the following: 201 9 201 8 CHF CHF Preferential creditors 7 747 915 10 410 704 Pension plan 967 524 921 560 8 715 439 11 332 264 Others The amounts owed to preferential creditors mainly relate to taxes to be paid to the Tax Agency of the Italian branch. The pension plan concerns employees of the Italian branch. Note 10 - Other provisions As at 31 December 2019 , the other provisions are composed of: 201 9 201 8 CHF CHF Bonuses and staff costs 57 601 245 46 882 928 Provision for litigation 543 486 778 984 Others 17 983 229 647 974 Others 76 127 960 48 309 886 As at 31 December 201 9 , the lump-sum provision amounts to CHF 19 800 000. The lump-sum provision is fully calculated on balance sheet items and is deducted from the corresponding assets. Note 11 - Subscribed capital As at 31 December 201 9 , the Bank’s CHF 70 000 000 and is represented by: su bscribed and fully paid capital amounts to No. Nominal value CHF Total CHF Registered shares 56 000 1 000 56 000 000 Preferred shares 14 000 1 000 14 000 000 Total 7 0 000 70 000 000 Preferred shares are entitled to a preferential and cumulative yearly dividend set at 10% of their nominal value, or CHF 100 per share. They are also entitled to a preferred right to the repayment of the contributed capital. Note 12 - Reserves Legal reserve In accordance with Luxembourg law, the Bank must transfer at least 5% of its annual profit to the legal reserve until this reserve equals 10% of the subscribed capital. The legal reserve is not distributable. Special reserve In accordance with the tax law in force since 1 January 2002, the Bank reduced its Net Wealth Tax (“NWT”) burden by crediting it on the amount of the Corporate Income Tax (“CIT”) before deduction of tax credits. To comply with the law, the Bank decided to allocate under non-distributable reserves (a “special reserve” item) an amount that corresponds to five times the amount of the reduced Net Wealth Tax. This reserve is not distributable for a period of five years from the year following the one during which the Net Wealth Tax was credited. Retained earnings The retained earnings represent the earnings from previous years that were affected by the General Meetings of shareholders to this account over the previous years. The retained earnings are distributable and the distribution can take place after approval of shareholders at a General Meeting. Note 13 - Changes in shareholders’ equity The movements in the Bank’s shareholders’ equity may be analysed as follows: Subscribed capital CHF Share premium CHF Legal reserve CHF Other reserves CHF Profit or loss brought forward CHF Profit or loss for the financial year CHF Total CHF Situation as at 31 December 201 8 70 000 000 30 000 000 7 000 000 61 070 338 205 008 738 119 700 090 492 779 166 Allocation to the 201 9 Net Wealth Tax reserve - - - 14 946 465 ( 14 946 465 ) - - Allocation to the 2018 Net Wealth Tax reserve - - - 533 535 ( 533 535 ) - - Dissolution of the 201 3 Net Wealth Tax reserve - - - ( 8 000 000 ) 8 000 000 - - Transfer of profit and losses carried forward by the branches in 201 8 - - - - ( 9 610 386 ) - 9 610 386 Supported profit and losses carried forward by Luxembourg in 201 8 - - - - ( 9 610 386 ) - (9 610 386) Distribution of dividends - - - - (59 500 000 ) - ( 59 500 000 ) Profit or loss brought forward - - - - 119 700 090 (119 700 090) - Profit or loss as at 31 December 201 9 - - - - - 59 283 797 59 283 797 Foreign exchange difference 20 18 - - - - ( 70 623 ) - ( 70 623 ) Foreign exchange difference 2019 - - - - 40 886 - 40 886 Situation as at 31 December 201 9 70 000 000 30 000 000 7 000 000 68 570 338 257 679 097 59 283 797 492 533 226 The Annual General Meeting of the shareholders held on 6 May 201 9 approved the allocation of the profit for the financial year ended 31 December 2018 . The meeting resolved to distribute a dividend for an amount of CHF 59 500 000 . The transfer of branches’ profits and losses carried forward for 201 8 amounts to CHF 9 610 386 after adjustements for intercompany transactions. The branches’ profits and losses for 201 8 before adjustements for intercompany transactions can be broken down as follows: Frankfurt The 201 8 loss amounts to EUR 930 834 . The exchange value of that amount at the average rate for the year concerned is CHF 1 071 045 . Paris The 201 8 profit amounts to EUR 5 716 099 . The exchange value of that amount at the average rate for the year concerned is CHF 6 577 115 . Madrid The 2018 profit amounts to EUR 1 410 306 . The exchange value of that amount at the average rate for the year concerned is CHF 1 622 740 . Hong Kong The 201 8 loss amounts to HKD 40 810 973 . The exchange value of that amount at the average rate for the year concerned is CHF 5 087 047 . Turin The 201 8 profit amounts to EUR 5 067 989 . The exchange value of that amount at the average rate for the years concerned is CHF 5 831 380 . London The 201 8 loss amounts to GBP 6 491 868 . The exchange value of that amount at the average rate for the year concerned is CHF 8 436 851 . Note 14 - Positions in foreign currencies 201 9 CHF 201 8 CHF Total assets denominated in foreign currencies 8 877 760 128 10 168 307 635 Total liabilities denominated in foreign currencies 8 677 555 230 9 512 503 223 Note 15 - Contingent liabilities and commitments 15.1 Contingent liabilities As at 31 December , the contingent liabilities reported in the off balance sheet accounts consist of the following: 201 9 CHF 201 8 CHF Guarantees and other direct substitutes for credit 536 304 901 320 839 123 As at 31 December 201 9 , contingent liabilities with affiliated undertakings amount to CHF 369 418 010 (201 8 : CHF 144 384 272 ). Other commitments As at 31 December 201 9 , the Bank incurred the following commitment which is not recorded either on the balance sheet or on the off balance sheet: • The building where the Bank operates is rented. The Bank is committed to pay an amount of CHF 9 369 641 until August 2021 in relation to the rented building (201 8 : CHF 15 293 246 ). As at 31 December 2019 , the Bank incurred the following commitment which is recorded off balance sheet: • The Paris branch of Pictet & Cie (Europe) S.A. received two balancing subsidies from Banque Pictet & Cie SA for a total amount of CHF 2 500 000. These subsidies will be repaid as the branch has realised a net profit and the fiscal losses carried forward have been fully offset. Luxembourg Resolution Fund (“LRF”) and Luxembourg deposit Guarantee scheme (“LGDS”) 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 18 December 2015. The deposit guarantee and investor compensation scheme previously 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 (Luxembourg Deposit Guarantee Scheme) and investments up to an amount of EUR 20 000 (Luxembourg Investors Compensation Scheme). 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 “Luxembourg Resolution Fund” (LRF) and “Luxembourg Deposit Guarantee Scheme” (LDGS). This expense has been booked versus the use of the former AGDL provision. The funded amount of the LRF 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 from all participating Member States. This amount will be collected from the credit institutions through annual contributions during the years 2015 to 2024 using the previously constituted AGDL provision. 201 9 contribution to LRF is EUR 3 300 063 (CHF 3 587 080 ). This expense has been fully booked as other operating charges in the profit and loss account. The target level of funding of the LDGS is set at 0.8% of covered deposits, as defined in article 163 number 8 of the Law, of the relevant credit institutions and is to be reached by the end of 2018 through annual contributions using the previously constituted AGDL provision. 201 9 contribution to LDGS is EUR 499 355 (CHF 542 785 ). This expense has been fully booked as other operating charges in the profit and loss account. 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. Management and fiduciary services During the year under review, the Bank provided the following management and fiduciary services to third parties: • investment management or advice; • safekeeping and administration of transferable securities; • custodian bank; • fiduciary representation. Note 16 - Profit and loss account Breakdown of income by geographic markets The Bank mainly conducts its operations with Switzerland and European Union Member States. With regard to the Bank’s organisation, there is no difference between these two markets. Therefore, the Bank sees those markets as one single market and does not present the breakdown of the income by geographic market. Commissions receivable As at 31 December 201 9 , the commissions receivable are composed of: 201 9 CHF 201 8 CHF Securities transactions fees 128 065 860 152 995 333 Custodian bank fees 93 976 374 95 599 203 Central administration fees & pricing fees 66 808 934 64 381 970 Asset management fees 52 696 491 53 527 997 Distribution fees 16 061 359 20 118 303 Other commissions receivable 52 491 708 45 355 680 Commissions receivable 410 100 726 431 978 486 Commissions Payable As at 31 December 2019 , the commissions payable are composed of: 201 9 CHF 201 8 CHF Securities transactions fees 111 184 957 134 126 901 Retrocession fees 19 856 456 16 527 111 Custodian bank fees 12 625 449 13 339 994 Other commissions payable 38 086 529 35 279 701 Commissions receivable 181 793 391 199 273 707 Other operating Income This caption mainly relates to services charged to other companies of the Group (CHF 12 578 162). Other operating charges This caption mainly relates to the constitution of a provision for dispute (CHF 17 352 058), to the payments made in relation with the “Luxemnbourg Resolution Fund” and the “Luxembourg Deposit Guarantees Scheme” (CHF 4 206 666) and in relation with operational errors (CHF 1 567 852) Tax liability The Bank is liable for certain taxes on income and capital. The Luxembourg head office is fully taxable in Luxembourg with respect to corporate income tax, municipal business tax and net wealth tax. Each branch is fully taxable in its respective country of residence. Tax provision are stated out under the balance sheet item “Provisions for taxation”. Note 17 - Other taxes As at 31 December 201 9 , other taxes relate mainly to withholding tax on Swiss bonds held in the investment portfolio of financial fixed assets, miscellaneous taxes on turnover of the French branch and local taxes of the UK branch. Note 18 - Information relating to staff employed and management Personnel employed Average number of employees during the financial year is detailed as follows: 201 9 201 8 Management 7 5 Executives 39 22 Employees 581 548 627 575 Members of the administration, managerial and supervisory bodies During the financial year, amounts paid to the Bank’s Management, including deputy directors and assistant directors amounted to CHF 28 198 805 (201 8 : CHF 17 177 176 ). The pension commitments incurred with regard to the Bank’s Management, including deputy directors and assistant directors amounted to CHF 224 801 (201 8 : CHF 201 422 ). The Bank has not granted any loan, guarantee or advanc e to members of the Management. Note 19 - Independent Auditor’s fees The fees of the Bank’s independent auditor consist of the following: 201 9 201 8 CHF CHF Audit fees 657 965 615 266 Audit-related fees 109 539 79 657 Tax related fees 357 989 128 226 Other fees 611 5 385 Total 1 126 104 828 534 Note 20 - Return on assets The return on assets of the Bank for the year ended 31 December 201 9 stands to 0.58 % (201 8 : 1.09 %). The return on assets is calculated as being the net profit divided by the total balance sheet. Note 21 - Subsequent events On 19 March 2015, the Italian Branch of Pictet & Cie (Europe) S.A. and the Italian Branch of Pictet Asset Management (Europe) S.A. have signed a business lease agreement with conveyance of ownership at termination date on 31 March 2020. By this contract, the Italian Branch of Pictet & Cie (Europe) S.A. grants under lease to the Italian Branch of Pictet Asset Management (Europe) S.A., a “going concern” related to the marketing of shares in collective investment funds and fund management on behalf of third parties. The “going concern”, as per contract, consists of the combination of persons, assets, systems, business relationships and existing contracts organized for the marketing of shares in collective investment funds and fund management on behalf of third parties. On reading the above, the deed of the transfer has been signed in front of the Notary on 24 March 2020. The booking and payment of the conveyance has been settled on 13 March 2020, and the contractual transfer of ownership will be done on 31 March 2020 at a price definitively determined of EUR 13 000 000. During the beginning of year 2020, the Bank has opened a new branch in Monaco. Since the year end we have seen the development of the coronavirus covid-19 outbreak initially in China and now reaching most continents. At present, it is not possible to assess the detailed impact of this emerging risk but there is growing concern about the impact on the world economy. There has been significant correction in the financial markets in the last few weeks, the Bank continues to watch the efforts of governments to contain the spread of the virus and monitor the economic impact. The business continuity of the Bank is however not affected . The Board of Directors has decided to propose to the General Assembly the distribution of a dividend of CHF 44.45 million. This proposal was authorized by the CSSF, as the activity of the bank does not fall in the scope of its recommendation dated 1st April on banks’ distribution policies, and as the solvency ratio of the bank post-dividend would remain significantly above the minimum legal requirement.