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Annual Report 2012 - Bank Sarasin

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follows the criteria laid down in IAS 39.<br />

Financial instruments include not only<br />

trading portfolios and financial<br />

investments but also traditional financial<br />

assets and liabilities as well as<br />

instruments relating to the shareholders’<br />

capital.<br />

Financial instruments can be classified as<br />

follows:<br />

> financial instruments that must be<br />

recorded in the income statement<br />

(fair value through profit or loss) –<br />

financial investments at fair value and<br />

financial liabilities at fair value<br />

> financial instruments that are held for<br />

trading as a subcategory of fair value<br />

through profit or loss – trading<br />

portfolios, liabilities arising from<br />

trading portfolios and all derivative<br />

financial instruments<br />

> financial assets that are available for<br />

sale<br />

> investments held to maturity<br />

> loans and receivables originated by<br />

the enterprise that are not held for<br />

trading purposes and that do not<br />

constitute financial assets available<br />

for sale. This category includes in<br />

particular amounts that are due from<br />

and to banks and customers.<br />

Instruments held for trading<br />

Financial assets or liabilities held for<br />

trading purposes are reported at fair value<br />

under the headings “trading portfolio<br />

assets” and “trading portfolio liabilities”.<br />

Fair value is based on quoted market<br />

prices wherever an active market exists.<br />

Where no such market exists, the <strong>Sarasin</strong><br />

Group relies on prices noted by dealers or<br />

on price models. Realised and unrealised<br />

gains and losses are reported under “net<br />

income from trading operations”.<br />

Interest and dividend income deriving from<br />

trading positions is reported under “net<br />

income from trading operations”.<br />

Financial assets at fair value<br />

Based on the management and<br />

performance measurement according to a<br />

documented risk management and<br />

investment strategy, the <strong>Sarasin</strong> Group<br />

applies the Fair Value Option defined in<br />

IAS 39 for some of its financial assets.<br />

These items are recorded in the balance<br />

sheet at fair value and the realised and<br />

unrealised gains and losses relating to<br />

these items are always reported in the<br />

income statement under “other ordinary<br />

income”.<br />

Interest and dividend income relating to<br />

financial investments recorded at fair<br />

value and interest expenses relating to<br />

financial liabilities recorded at fair value<br />

are calculated for the year under review<br />

and reported under “net interest income”.<br />

Financial liabilities at fair value<br />

In the context of the issuance business,<br />

the <strong>Sarasin</strong> Group reports the structured<br />

products it issues, which comprise an<br />

underlying debt instrument and an<br />

embedded derivative in each case, under<br />

the balance sheet item “financial<br />

liabilities at fair value”. Under the Fair<br />

Value Option defined in IAS 39, there is<br />

therefore no requirement to break down<br />

the structured products into the underlying<br />

contract and the embedded derivative and<br />

to record them separately on the balance<br />

sheet. All changes in the fair value are<br />

reported in the income statement. The<br />

valuation of structured products is based<br />

on an internal valuation model.<br />

Financial assets that are available for sale<br />

Financial assets available for sale are<br />

stated at fair value. Changes in fair value<br />

minus related deferred taxes are reported<br />

under shareholders’ equity until the<br />

financial assets are sold or deemed to be<br />

impaired. A financial asset is deemed to<br />

be impaired if a fall in its fair value below<br />

its acquisition cost becomes so great that<br />

the recovery of its acquisition cost cannot<br />

reasonably be expected within a<br />

foreseeable period of time. In the event of<br />

lasting impairment, the cumulative<br />

unrealised loss previously reported under<br />

shareholders’ equity is transferred to the<br />

income statement. On the disposal of a<br />

<strong>Bank</strong> <strong>Sarasin</strong> & Co. Ltd, <strong>Annual</strong> <strong>Report</strong> <strong>2012</strong> | 17

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