SCHWEIZ - Banco Mercantil

Annual Report 2 0 0 8 

Mercantil Bank Schweiz 

a Subsidiary of Mercantil Servicios Financieros

Annual Report 2 0 0 8 

Contents 

Board of Directors and Management 

Board of Directors’ Report 

Report of the Group Auditors and Consolidated 

Financial Statements as of December 31, 2008 

Report of the Statutory Auditors and Parent Company 

Financial Statements as of December 31, 2008

Board of Directors 

Management 

Board of Directors and Management 

1) 2) 

Dr. Thomas E. Krayenbühl 

Chairman 

Dr. Kurt Sieger 1) 

Vice-Chairman 

Peter Huwyler 1) 

Director 

Gustavo A. Marturet 

Director 

J. Guillermo Villar 

Director 

Joaquín Fischer 

General Manager 

Brigitte Manns 

Vice-President Private Banking 

Sandra Righetti 

Vice-President Operations and IT 

Thomas Ita 

Vice-President Finance 

Internal Audit Internal Audit Department 

Mercantil Servicios Financieros 

External Auditors PricewaterhouseCoopers Ltd, Zurich 

Adress Talacker 42, P.O.Box 9758, CH-8036 Zurich 

Tel: + 41 - 433 444 555; Fax: + 41 - 433 444 550 

Swift: BAMR CH ZZ 

Website: www.mercantilsuiza.com 

1) These members of the Board fulfil the independence criteria stipulated in margins nos. 20-24 of FINMA circular 08/24. 

2) The Chairman of the Board is also member of the Audit Committee due to the limited number of independent members of the Board with 

accounting background.

Board of Directors’ Report 

During 2008, the global economy experienced a rapid downturn and financial 

institutions around the world felt its considerable impact. Although 

conditions were challenging, Mercantil Bank (Schweiz) AG faced this market 

situation proactively. Key initiatives were aimed at offsetting reduced 

interest margins and underwriting risks. While the financial results were 

somewhat affected, these assertive practices allowed the Bank to maintain 

a good asset quality in its credit and investment portfolio and continue to 

serve the credit needs of its customers. 

Private Banking business showed a positive trend due to increased volume 

in foreign exchange transactions and higher fee income. The Bank implemented 

a long-term strategy to increase the share of wallet of existing customers, 

to broaden the client base and to take advantage of opportunities 

that will emerge in an uncertain and changing market. 

Corporate Banking and Treasury activities were managed in response to 

the credit risk quality concerns by an unfavorable trend in interest margins. 

Loan loss reserves are adequate to cover potential deterioration of assets 

in an unpredictable market. The Bank increased the number of corporate 

and commercial clients, mainly for clearing services. 

Total consolidated assets decreased by CHF 26 million or approximately 7 

percent to CHF 356 million, in comparison with CHF 382 million in 2007. 

Capital at the Bank’s consolidated level is CHF 56.6 million or a leverage 

ratio of 15.9%, while for the parent company only, the ratio is 38%. The conservative 

financing approach of the Bank is the foundation that supports 

its solid reputation in the industry and its capacity to respond quickly to 

business opportunities.

The year 2009 will continue to be challenging for the world economy at 

large. Our prudent risk management practices will enable us to maintain 

a strong balance sheet and continue increasing our customer base. We remain 

confident that our human resources and operational infrastructure 

will allow us to continue serving the needs of our customers and show our 

appreciation for their trust in our financial institution. 

Zurich, March 12, 2009 

Dr. Thomas Krayenbühl, Chairman 

Dr. Kurt Sieger, Vice Chairman 

Peter Huwyler 

Gustavo A. Marturet 

J. Guillermo Villar

MERCANTIL BANK (SCHWEIZ) AG 

ZURICH 

Report of the Group Auditors 

to the General Meeting of Shareholders 

Consolidated Financial Statements 2008 

14 April 2009/00593800001/15/SMN/HEX 

With offices in Aarau, Basel, Berne, Chur, Geneva, Lausanne, Lugano, Lucerne, Neuchâtel, Sitten, St. Gallen, Thun, Winterthur, Zug and 

Zurich, PricewaterhouseCoopers AG is a provider of auditing services and tax, legal and business consultancy services. 

PricewaterhouseCoopers AG is a member of a global network of companies that are legally independent of one another; the network is 

represented in some 150 countries throughout the world.

Report of the group auditors 

to the general meeting of 


ZURICH 

Report of the statutory auditor on the consolidated financial statements 

PricewaterhouseCoopers AG 

Birchstrasse 160 

8050 Zürich 

Phone +41 58 792 44 00 

Fax +41 58 792 44 10 

www.pwc.ch 

As statutory auditor, we have audited the consolidated financial statements of MERCANTIL BANK 

(SCHWEIZ) AG, which comprise the balance sheet, income statement, statement of cash flows 

and notes, for the year ended 31 December 2008. 

Board of Directors’ Responsibility 

The Board of Directors is responsible for the preparation and fair presentation of the consolidated 

financial statements in accordance with accounting rules for banks and the requirements of Swiss 

law. This responsibility includes designing, implementing and maintaining an internal control 

system relevant to the preparation and fair presentation of consolidated financial statements that 

are free from material misstatement, whether due to fraud or error. The Board of Directors is further 

responsible for selecting and applying appropriate accounting policies and making accounting 

estimates that are reasonable in the circumstances. 

Auditor’s Responsibility 

Our responsibility is to express an opinion on these consolidated financial statements based on our 

audit. We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Those 

standards require that we plan and perform the audit to obtain reasonable assurance whether the 

consolidated financial statements are free from material misstatement. 

An audit involves performing procedures to obtain audit evidence about the amounts and 

disclosures in the consolidated financial statements. The procedures selected depend on the 

auditor’s judgment, including the assessment of the risks of material misstatement of the financial 

statements, whether due to fraud or error. In making those risk assessments, the auditor considers 

the internal control system relevant to the entity’s preparation and fair presentation of the 

consolidated financial statements 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 entity’s 

internal control system. An audit also includes evaluating the appropriateness of the accounting 

policies used and the reasonableness of accounting estimates made, as well as evaluating the 

overall presentation of the consolidated financial statements. We believe that the audit evidence we 

have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion 

In our opinion, the consolidated financial statements for the year ended 31 December 2008 give a 

true and fair view of the financial position, the results of operations and the cash flows in 

accordance with accounting rules for banks and comply with Swiss law. 

Report on other legal requirements 

We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act 

(AOA) and independence (article 728 CO and article 11 AOA) and that there are no circumstances 

incompatible with our independence. 

In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we 

confirm that an internal control system exists which has been designed for the preparation of 

consolidated financial statements according to the instructions of the Board of Directors. 

We recommend that the consolidated financial statements submitted to you be approved. 


Martin Schmidt Alex Henzi 

Audit expert 

Auditor in charge 

Zürich, 14 April 2009 

Enclosure: 

- Consolidated financial statements (balance sheet, income statement, cash flow statement and 

notes)

Financial Statement 

Consolidated Balance Sheet 

in CHF 31.12.2008 31.12.2007 Change 

Assets 

Liquid funds 224'893 379'212 

Money market instruments - 60'997'440 

Due from banks 220'810'539 222'373'187 

Due from customers 106'250'033 81'927'627 

Financial investments 13'620'067 3'776'106 

Fixed assets 1'777'082 2'067'545 

Accrued income and prepaid expenses 3'243'996 2'989'304 

Other assets 9'708'279 7'574'440 

Total assets 355'634'889 382'084'861 

Total due from non-consolidated holdings and shareholder 9'371'634 7'002'392 

Liabilities and shareholder's equity 

Due to banks 4'068'768 11'207'249 

Due to customers, other 289'802'997 307'478'353 

Accrued expenses and deferred income 2'005'041 3'103'977 

Other liabilities 920'653 864'160 

Valuation adjustments and provisions 2'270'294 2'961'167 

Share capital 45'500'000 45'500'000 

Legal reserves 230'000 200'000 

Retained earnings 10'169'026 8'970'698 

Consolidated net profit for the year 668'110 1'799'257 

Total liabilities and shareholder's equity 355'634'889 382'084'861 

-154'319 

-60'997'440 

-1'562'648 

24'322'406 

9'843'961 

-290'463 

254'692 

2'133'839 

-26'449'972 

2'369'242 

-7'138'481 

-17'675'356 

-1'098'936 

56'493 

-690'873 

- 

30'000 

1'198'328 

-1'131'147 

-26'449'972 

Total due to non-consolidated holdings and shareholder - - - 

Off-Balance Sheet Transactions 

Contingent liabilities 4'530'391 12'190'517 -7'660'126 

Irrevocable commitments 590'000 418'000 172'000 

Derivative instruments 

- contract value 64'646'580 73'978'266 -9'331'686 

- positive replacement value 9'706'578 7'574'162 2'132'416 

- negative replacement value 741'133 611'754 129'379 

Fiduciary transactions 85'912'858 55'834'480 30'078'378

Consolidated Income Statement 

in CHF 2008 2007 Change 

Ordinary operating income and expense 

Interest income 

Interest and discount income 15'551'462 19'618'436 -4'066'974 

Interest and dividend income on financial investments 589'718 466'475 123'243 

Interest expense -9'488'710 -12'473'674 2'984'964 

Net interest income 6'652'470 7'611'237 -958'767 

Income from commission and services 

Commission income on lending activities 246'192 331'564 -85'372 

Commission income on asset management 3'111'828 2'627'040 484'788 

Commission income on other services 427'689 229'811 197'878 

Commission expense -1'391'608 -1'221'697 -169'911 

Net commission income 2'394'101 1'966'718 427'383 

Income from trading operations 940'851 186'704 754'147 

Other ordinary income 

Results from sale of financial investments - - - 

Other ordinary income 2'120 3'248 -1'128 

Other ordinary expense -453'068 -371'767 -81'301 

Total other ordinary income -450'948 -368'519 -82'429 

Total operating income 9'536'474 9'396'140 140'334 

Operating expenses 

Personnel expenses -4'591'269 -4'154'724 -436'545 

Other operating expenses -3'419'727 -3'126'602 -293'125 

Total operating expenses -8'010'996 -7'281'326 -729'670 

Gross profit 1'525'478 2'114'814 -589'336 

Consolidated net income for the year 

Gross profit 1'525'478 2'114'814 -589'336 

Depreciation and write-offs of non-current assets -807'164 -535'856 -271'308 

Valuation adjustments, provisions and losses -618'794 -315'232 -303'562 

Subtotal 99'520 1'263'726 -1'164'206 

Extraordinary income 649'745 617'800 31'945 

Extraordinary expenses - - - 

Taxes -81'155 -82'269 1'114 

Consolidated net income for the year 668'110 1'799'257 -1'131'147

Consolidated statement of cash flows 

in CHF 2008 2007 

Source Application Balance Source Application Balance 

of funds of funds of funds of funds 

Consolidated net profit for the year 668'110 - 1'799'257 - 

Depreciation and write-offs of non-current assets 807'164 - 535'856 - 

Valuation adjustments and provisions - 542'050 - 448'172 

Consolidated translation adjustments - 570'929 - 808'619 

Accrued income and prepaid expenses - 254'692 70'618 - 

Accrued expenses and deferred income - 1'098'936 283'318 - 

Other assets - 2'133'839 - 3'959'322 

Other liabilities 56'493 - 682'891 - 

Net cash flows from operating results 1'531'767 4'749'269 3'217'502 3'371'940 5'216'113 1'844'173 

Share capital - - 12'000'000 - 

Capital increase costs - - - - 

Net cash flows from equity transactions - - - 12'000'000 - 12'000'000 

Fixed assets - 516'701 - 296'859 

Software - - - 814'895 

Net cash flows from investment activities - 516'701 516'701 - 1'111'754 1'111'754 

Due to customers, other - 1'151'610 - 3'302'382 

Money market instruments - - 1'418'750 - 

Due from banks 4'611'680 - - 4'611'680 

Due from customers 15'817'111 - 14'849'395 - 

Financial investments - 4'981'065 1'855'985 - 

Medium and long term operations (>1 year) 20'428'791 6'132'675 14'296'116 18'124'130 7'914'062 10'210'068 

Due to banks - 7'138'481 3'483'638 - 

Due to customers, other - 16'523'746 22'728'234 - 

Money market instruments 60'997'440 - 2'593'807 - 

Due from banks - 3'049'032 - 65'302'679 

Due from customers - 40'139'517 14'941'943 - 

Financial investments - 4'862'896 2'362'570 - 

Short term operations 60'997'440 71'713'672 10'716'232 46'110'192 65'302'679 19'192'487 

Net cash flows from banking operations 81'426'231 77'846'347 3'579'884 64'234'322 73'216'741 8'982'419 

Decrease / Increase in cash position 154'319 - - 61'654 

Change in liquid funds 154'319 - 154'319 - 61'654 61'654 

Total source of funds / application of funds 83'112'317 83'112'317 - 79'606'262 79'606'262 -

Notes to the consolidated financial statement 

1. Information on business activities and number of employees 

General information 

Mercantil Bank (Schweiz) AG, until January 27, 2000, 

operating under the name BMS Finanz AG, was 

incorporated in May 1988 in Zurich. Its activities in the 

areas of trade finance, private banking and fiduciary 

transactions are focused on Latin America and 

complemented by the banking activities of its wholly 

owned subsidiaries Mercantil Bank & Trust Ltd., Grand 

Cayman and MBS Advisory Services Ltd., British 

Virgin Island. 

It is intended to continue intensifying the expansion of 

the private banking activities for the clientele of the 

Grupo Mercantil Servicios Financieros (MSF). For this, 

the group continues to invest in its banking software 

and electronic banking facilities to support and 

enhance the range of services offered to its customers. 

It is also intended to continue developing the traditional 

trade finance activities between Europe, Asia and Latin 

America. 

Balance Sheet transactions 

Short-term financial investments with European banks 

and trade financing for Latin American banks as well 

as short-term lending to Latin American and US 

corporate borrowers, largely related to preliminary and 

supplementary trade financing, represent the major 

assets of the group. Investments in securities of Latin 

American and European borrowers complement the 

group’s balance sheet business. Exposures with 

maturities of over one year are entered but limited to 

the group’s net equity. 

Funding is obtained through customer deposits and 

also through credit lines from major European banks. 

Income from commissions and services 

Income from commissions and services results mainly 

from letter of credit transactions as well as from the 

issuance of guarantees, from custody fees, brokerage 

and other service fees related to fiduciary investments 

of private customers. 

Other activities 

For investment and also for liquidity purposes, the 

group maintains an investment portfolio consisting 

mainly of fixed income securities of Latin American and 

European borrowers. 

Risk Control 

The Board of Directors discussed during its meeting as 

of February 3, 2009 the relevant risks the Group is 

facing. Relevant risks are market, liquidity, credit, 

operational and other risks. The basis for the 

assessment of the risks was the business rationale 

and strategy of the business generating the risks, the 

risk appetite of the group and the nature of the risk, its 

magnitude of a potential misstatement and the 

likelihood of the risk occurring. Additionally, the 

predefined risk reducing measures and the internal 

controls (including financial reporting) were included in 

the evaluation. 

The Board of Directors took also into consideration the 

monitoring of internal controls, the correct treatment of 

the risk recognition and the valuation effects of 

relevant risks on the financial reporting. 

For detailed information regarding risk management 

we refer to the explanations below. 

Risk Management 

The analysis and control of risks is performed in close 

cooperation with the Risk Management Group of our 

parent company (MSF) in Caracas. 

Credit approval is based on requirements as to quality, 

collaterals, limits and credit authority as laid down in 

the internal risk policy. All credit risk positions, 

including those from derivative instruments, are limited 

and monitored continuously by a credit line system 

based on counterparty and country risk. 

Foreign exposures are entered into and monitored in 

compliance with the internal risk policy. The 

assessment procedure, except for exposures in 

industrialized countries (Category 1), where country 

risk is negligible, is based on the rating of the 

Interagency Country Exposure Committee (ICERC) 

and on the Group’s own internal rating system. The 

internal evaluation is based on economic trends and 

political and social developments and derived from 

various group-internal and external sources 

(Categories 2 – 6).

The risk provisioning requirements for country risk and 

counterparty risk are calculated independently on the 

basis of an internal rating process. 

Liquidity and interest rate risks are monitored and 

managed on a consolidated basis. 

Foreign exchange risks are to a large extent restricted 

by internal limits for open currency positions. 

Derivative financial instruments are used exclusively to 

hedge open foreign exchange positions and interest 

rate risks. 

When trading securities for customers, the group does 

not engage in open positions from which market risks 

could arise. 

All other operating risks, especially those related to the 

internal organization and information systems, are 

monitored through internal policies and directives. 

The Board of Directors and Senior Management are 

regularly informed of the risks related to asset value, 

financial position, liquidity, earnings and operations 

through a management information system. 

Outsourcing 

Mercantil Bank (Schweiz) AG has outsourced the 

operation of its banking system to PriBaSys AG in 

Zurich and the operation of SWIFT and SIC to Biveroni 

Batschelet Partners AG in Baden. These outsourcing 

arrangements were set up under detailed Service 

Level Agreements according to the regulations of the 

Swiss Financial Market Supervisory Authority (FINMA). 

All personnel of the service providers are placed under 

the group secrecy act, which safeguards the 

requirements of confidentiality. 

Personnel 

The group employed 31 persons including part-time 

employees. It also receives support from the head 

office and affiliates in areas such as internal audit, loan 

review, IT, and credit and country risk analysis.

2. Accounting and valuation principles 

General principles 

The Group’s accounting and valuation principles 

comply with the Swiss Code of Obligations, the Bank 

Law, and guidelines of the Swiss Financial Market 

Supervisory Authority (FINMA). 

Consolidation principles 

Besides the figures of Mercantil Bank (Schweiz) AG, 

the consolidated financial statements include the 

financial statements of Mercantil Bank and Trust Ltd, 

Grand Cayman and MBS Advisory Services Ltd., 

British Virgin Islands which are fully consolidated. 

The capital is consolidated using the purchase method, 

i.e. at the time of acquisition. 

Upon elimination of intercompany transactions, the 

assets, liabilities, income and expenses of the 

subsidiaries are included in the relevant line items in 

the consolidated financial statements. 

Translation differences resulting from the consolidation 

are included in the line item “currency translation 

differences”, which is part of the capital resources. 

The consolidated financial statements reflect a true 

and fair view of the net assets as well as of profitability 

and the financial situation. 

Accounting and booking of transactions 

All transactions are recorded in the Group’s balance 

sheet on a trade date basis, except for forward 

transactions, which are reported from the trade date as 

off-balance sheet items and from the settlement date in 

the balance sheet. All transactions are valued from the 

trade date onward. 

Foreign currency translation 

Transactions in foreign currencies are translated at 

daily exchange rates. Foreign currency positions, with 

the exception of participations, are converted at the 

exchange rates prevailing at the year-end closing date. 

Resulting conversion profits and losses are included in 

the income statement. Participations are valued at the 

exchange rates prevailing at the time of the purchase. 

In the event of a decline in the value of such an 

investment, giving due account also to the fluctuation 

of exchange rates, a valuation adjustment is made. 

Assets and liabilities of group companies are 

translated using the exchange rate as at the balance 

sheet date, and income and expenses at the average 

exchange rate of the year. The difference arising from 

the use of different exchange rates is directly 

recognized in capital resources and disclosed as 

currency translation difference. 

The following exchange rates were used as at the 

balance sheet date (major currencies): 

2008 2007 

USD 1.0597 1.1248 

EUR 1.4880 1.6573 

The balance sheet of the subsidiaries carrying its 

books in USD was translated using the above 

mentioned exchange rate as at the balance sheet date, 

and the income statement was translated using the 

average rate for the year of 1.0822/USD (2007: 1.20). 

General valuation principles 

Each item reflected in the balance sheet is valued 

individually. 

Cash, Due from Money Market Instruments, Due 

from banks, Deposits 

They are stated at their nominal value, or at historical 

cost, less specific valuation adjustments for doubtful 

receivables. Money market instruments are adjusted 

for discounts. Unearned discounts on money market 

instruments are accrued over their life within the 

corresponding balance sheet item. 

Due from customers 

Doubtful receivables, i.e. loans for which it is unlikely 

that the customer will be able to comply with its future 

obligations, are valued individually and the impairment 

of value is covered by a specific provision. Off-balance 

sheet transactions, such as firm commitments, 

guarantees and derivative financial instruments are 

also included in this valuation. Loans are classified as 

impaired at the latest when a borrower is in arrears 

with payments of capital and/or interest for a period of 

over 90 days. Interests in arrears for a period of over 

90 days are considered overdue. Overdue interest and 

interest of which collection is considered at risk are not 

reflected as income but directly allocated to valuation 

adjustments and provisions. Loans are placed on a 

non-accrual status when the collectibility of their 

interest is considered doubtful to the extent that an 

accrual would be imprudent.

The amount of the impairment is measured by the 

difference between the book value of the loan and the 

estimated collectible amount, considering the 

counterparty risk and the net value from the execution 

of any collateral. If the process of execution is 

expected to take longer than a year, then a present 

value calculation is made of the expected cash flows to 

be generated from the execution process. Specific 

provisions are deducted directly from the 

corresponding asset item. 

Loans that are believed to be entirely or partially 

uncollectible or for which the group consents to their 

remission, are charged off against the provision for 

loan losses. Recoveries of previously charged-off 

amounts are directly credited to the provision for loan 

losses. 

A general provision for loan losses is made, based on 

set rates per credit rating category, to cover for not yet 

recognizable loan loss risks inherent in the credit 

portfolio. 

Doubtful receivables are classified again at full value if 

payments of outstanding capital and interest are 

resumed according to the contractual terms and also 

credit standing criteria are fulfilled. 

Financial investments 

Fixed income securities held as available for sale are 

valued at the lower of cost or market. The net balances 

of value adjustments are made through “Other 

Ordinary Income” or “Other Ordinary Expense”, 

respectively. Write-ups are recognized up to the 

acquisition costs, provided the market value which had 

fallen below the acquisition cost recovers again. Such 

value adjustment is recognized as described above. 

Debt securities acquired with the intention to hold them 

to maturity are recorded using the accrual method, i.e. 

premiums or discounts are accrued over their 

remaining life. Interest-related gains or losses from 

sale before maturity or prepayment are deferred and 

accrued over the remaining life, i.e., until the original 

maturity. Value reductions or subsequent increases, 

resulting from credit rating are treated as “available for 

sale” in the income statement. 

Buildings and participations acquired from the credit 

business earmarked for disposal are registered as 

financial investments and valued at the lower of cost or 

market, i.e. at the lower of acquisition cost or 

liquidation value. 

Other fixed assets / Software 

Other fixed assets and Software are stated at cost plus 

value-creating investments less depreciation computed 

on a straight line basis over their expected useful life – 

of 3 years for software, IT and communication 

systems, 5 years for furniture, and installations in new 

premises over the duration of the lease contract. 

Valuation adjustments and provisions 

Specific valuation adjustments and provisions are 

created for all recognizable risks both on and offbalance 

sheet. Valuation adjustments and provisions 

which are no longer required in the reporting period are 

reversed affecting income. 


directly deducted from the corresponding asset item. 

General provisions for default risks as well as other 

risks are recorded under this balance sheet position. 

Employee benefit obligation 

The group maintains two defined contribution pension 

plans for its employees in Switzerland. The group 

bears the expenses of the pension plans of all its employees 

as well as their survivors in accordance with 

the Swiss social security law. The benefit obligations 

as well as the coverage capital are disincorporated into 

legally independent pension funds or foundations of 

insurance companies. The organization, management 

and financing of the pension plans conform to the legal 

regulations, to the articles of the funds as well as to 

current pension regulations. 

For each pension plan the group has to assess, according 

to Swiss GAAP FER 16, if a possible credit or 

debit balance of a plan can result in economical gains 

or losses. The financial statement of the pension fund 

provides the basis for the annual assessment. 

The group records its contributions as employer in 

“personnel expenses” in the same period in which the 

contributions are paid. 

Taxes 

Tax expenditure is calculated on basis of the actual 

profit of the individual group companies. 

Contingent liabilities, irrevocable commitments 

Contingent liabilities and irrevocable commitments are 

stated at their nominal value. Provisions for recognizeable 

risks are created and recorded under “valuation 

adjustments and provisions” on the liability side. 

Derivative financial instruments 

Derivative financial instruments are recorded at 

nominal value in the off-balance sheet. 

Gains or losses arising from hedge instruments are 

reflected in the same income item as that of the 

hedged underlying transaction.

3. Information on the Balance sheet 

3.1 Listing of collateral of loans and off-balance sheet transactions 

in CHF 1000 Type of collateral 

Total 

Loans 

Mortgage collateral 

Other 

collateral 

Without 

collateral 

Due from customers - 43'109 63'141 106'250 

Total loans 31.12.2008 - 43'109 63'141 106'250 

Previous year 20'240 

Off-balance sheet transactions 

29'940 31'748 81'928 

Contingent liabilities - 3'872 658 4'530 

Irrevocable commitments - - 590 590 

Total off-balance sheet transactions 31.12.2008 - 3'872 1'248 5'120 

Previous year - 11'830 779 12'609 

in CHF 1000 Gross 

outstanding 

Doubtful loans as per 31.12.2008 6'464 

Previous year 148 

3.2 Financial investments 

in CHF 1000 

Estimated 

recovery amount 

of collaterals 

Net 

outstanding 

Specific 

provision 

4'769 1'695 588 

- 148 148 

Book value Fair value 

31.12.2008 31.12.2007 31.12.2008 31.12.2007 

Debt securities 12'873 2'942 12'253 2'942 

- of which valued at accrual method 12'873 2'942 12'253 2'942 

- of which valued at lower of cost or market - - - - 

Shares 747 834 747 835 

Total financial investments 13'620 3'776 13'000 3'777 

3.3 Fixed assets 

in CHF 1000 Historical Accumula- Book value 

Fixed assets 

Other fixed assets 2'176 1'037 

Software 2'613 1'684 

Total fixed assets 4'789 2'721 

Cost ted depre- previous Invest- Disinvest- Depreciation/ Book Value 

ciation year ments ment Write-offs 31.12.2008 

1'139 50 

929 466 

2'068 516 

- 261 928 

- 546 849 

- 807 1'777 

Fire insurance value of other fixed assets 970 

2008

3.4 Other Assets and Other Liabilities 

in CHF 1000 

Other 

Assets 

Replacement value from derivative financial 

instruments 

Contracts as own trader 

- Trading position 335 

- Balance sheet structure management 9'372 

Total derivative financial instruments 9'707 

Other 

Liabilities 

Other 

Assets 

741 

572 

- 7'002 

741 

7'574 

Other 

Liabilities 

Indirect Taxes 1 

7 

- 45 

Sundry accounts - - - - 

Other assets and liabilities - 173 

- 207 

Total other assets and other liabilities 9'708 

3.5 Disclosure of liabilities to own pension plans 

31.12.2008 31.12.2007 

The group’s employees are entitled to a legally independent personnel pension fund with two different plans. One plan covers 

the obligatory benefits according to the Swiss pension fund law, while the second plan covers all the non-obligatory benefits. 

Both plans are defined contribution plans. As in the previous year, the group had no further obligations towards these pension 

plans and there were no reserves from employer’s contributions. 

The group’s employees are insured at a collective foundation for pension services in the scope of an affiliation agreement. The 

contracts cover all retirement, invalidity and death benefits. A possible shortage of the pension fund, causing a future liability for 

the group, is covered by existing reserves. 

3.6 Valuation adjustments and provisions, reserves for general banking risks 

in CHF 1000 Balance 

previous year 

Valuation adjustments and 

provisions for credit and 

country risks 3'109 

Specific 

usage 

-148 

Recoveries, 

doubtful interest, 

currency 

differences 

-103 

921 

New creation 

charged to 

income 

statement 

601 

7'574 

Reversals 

credited to 

income 

-601 

612 

- 

612 

864 

Balance 

current year 


provisions for investments - - - - - - 

Other Provisions (operating loss) - - - - - - 

Total valuation adjustments and 

provisions 3'109 

less: set-offs with investments 


-148 

provisions as of balance sheet 2'961 

-148 

148 

-103 

10 

601 

-599 

-601 

2'858 

2'858 

-588 

2'270

3.7 Schedule of share capital and disclosure of shareholders 

in CHF 1000 

Capital structure 

Nominal 

amount 

Shareholder's equity 45'500 

Number of 

shares 

45'500 

Capital with 

dividend rights 

45'500 

Nominal 

amount 

45'500 

Number of 

shares 

45'500 

Capital with 


Significant shareholders and shareholder groups 

with voting rights 

31.12.2008 31.12.2007 

Nominal Share in % Nominal Share in % 

Holding Mercantil Internacional, C.A., Caracas, Venezuela 45'500 

100% 45'500 

100% 

Shareholder of Holding Mercantil Internacional, C.A.: 

Mercantil Servicios Financieros, C.A., Caracas, Venezuela 45'500 

31.12.2008 31.12.2007 

100% 45'500 

Mercantil Servicios Financieros (MSF) is a financial holding registered on the Caracas Stock Exchange. The capital structure of MSF 

is comprised of A (58%) and B (42%) shares, with B shares having limited voting rights. Its shares are held primarily by Venezuelan 

investors. Approximately 39% of the B shares are owned through an American Depositary Receipt (ADR) program, therefore MSF does 

not have information who the holders of the ADR's are. Shareholders with ownership of over 5%, as known to MSF are: 

- Vadesa Group (4.1% A shares; 15.7% B shares); 9.0% participation 

- Gustavo J. Vollmer Group (11.1% A shares; 4.6% B shares); 8.4% participation 

- Travieso Sanchez Group (7.6% A shares; 3.4% B shares); 5.8% participation 

- Altamis B.V. (9.4% A shares; 0.3% B shares); 5.6% participation 

- Gustavo A. Marturet Group (8.3% A shares; 1.1% B shares); 5.2% participation 

45'500 

100%

3.8 Statement of changes in shareholder's equity 

in CHF 1000 31.12.2008 31.12.2007 

Shareholder's equity at beginning of current year 

Share capital 45'500 33'500 

Capital Reserves 200 169 

Retained earnings (incl. Currency translation differences) 8'971 7'374 

Consolidated net profit 1'799 2'437 

Total shareholder's equity at beginning of current year (before profit distribution) 56'470 43'480 

+ Capital increase - 12'000 

- Capital increase costs - - 

+ Consolidated net profit for the year 668 1'799 

+ Currency translation adjustments -571 -809 

Total shareholder's equity at end of current year (before profit distribution) 56'567 56'470 

Thereof: 

Share capital 45'500 45'500 

Capital Reserves 230 200 

Retained earnings (incl. currency translation differences) 10'169 8'971 

Consolidated net profit 668 1'799 

On the basis of the legal provision the capital reserves may not be distributed.

3.9 Maturity structure of current assets, financial investments and liabilities 

in CHF 1000 

Current assets and financial investments 

at sight redeemable 

by 

notice 

within 

3 months 

within 

3-12 

months 

within 

1-5 years 

after 

5 years 

Liquid funds 225 - - - - - 225 

Money market instruments - - - - - - - 

Due from Banks 46'994 42'854 89'953 41'010 - - 220'811 

Due from Customers 6'974 - 58'326 38'316 2'634 - 106'250 


Total current assets and 

3 - 3'726 2'955 1'804 5'132 13'620 

financial investments 31.12.2008 

54'196 42'854 152'005 82'281 4'438 5'132 340'906 

Previous year 24'327 640 

Current liabilities 

209'118 110'351 21'845 3'172 

Total 

369'453 

Due to banks 168 - 3'901 - - - 4'069 

Due to customers, other 62'675 10'682 

Total current liabilities 31.12.2008 62'843 10'682 

Previous year 45'075 6'609 

Maturity 

152'834 63'504 108 - 289'803 

156'735 63'504 108 - 293'872 

205'684 60'057 1'260 - 318'685 

3.10 Disclosure of amounts due from and due to affiliated companies as well as 

loans and exposures to directors and senior executives 

in CHF 1000 31.12.2008 31.12.2007 

Due from affiliated companies 32'321 

Due to affiliated companies 175 

Loans to directors and senior executives 19 

Transactions with related parties 

Transactions with related parties such as securities transactions, international payments, placement of funds and deposits 

are made under conditions as they would apply with third parties. 

18'689 

127 

70

3.11 Balance sheet by domestic and foreign origin (by domicile) 

in CHF 1000 

Assets 

Domestic Foreign Domestic Foreign 

Liquid Funds 225 - 379 - 

Money market instruments - - 4'621 56'376 

Due from banks 23'406 197'405 12'875 209'498 

Due from customers 1'454 104'796 1'789 80'139 

Financial investments 1 

13'619 1 3'775 

Fixed assets 1'777 - 2'068 - 

Accrued income and prepaid expenses 929 2'315 696 2'294 

Other assets 250 9'458 571 7'003 

Total assets 28'042 327'593 23'000 359'085 

Liabilities 

31.12.2008 31.12.2007 

Due to banks - 4'069 4'851 6'356 

Due to customers, other 550 289'253 317 307'161 

Accrued expenses and deferred income 449 1'556 570 2'535 

Other liabilities 736 185 864 - 

Valuation adjustments and provisions 1'154 1'116 1'214 1'747 

Share capital 45'500 - 45'500 - 

Legal reserves 230 - 200 - 

Retained earnings (losses) 1'384 8'785 847 8'124 

Consolidated net profit (loss) for the year 42 626 573 1'226 

Total liabilities 50'045 305'590 54'936 327'149

3.12.1 Geographical analysis of assets (by domicile) 

in CHF 1000 

31.12.2008 31.12.2007 

Amount in % Amount in % 

Europe 102'940 28.9% 117'577 30.8% 

Switzerland 28'042 7.9% 23'002 6.0% 

Other west European countries 74'898 21.1% 94'575 24.8% 

North-America 41'328 11.6% 77'474 20.2% 

Latin-America 211'220 59.5% 181'411 47.5% 

Argentina 8'928 2.5% - 0.0% 

Bahamas - 0.0% 5'401 1.4% 

Brazil 44'961 12.6% 33'407 8.7% 

Cayman Islands 2'334 0.7% 2'409 0.6% 

Chile 7'736 2.2% 15'747 4.1% 

Colombia 5'284 1.5% 19'001 5.0% 

Costa Rica 20'611 5.8% 9'730 2.5% 

Dominican Republic 5'373 1.5% 5'624 1.5% 

Ecuador 1'060 0.3% 1'146 0.3% 

El Salvador 10'809 3.0% 7'255 1.9% 

Guatemala 14'806 4.2% 17'685 4.6% 

Mexico 19'903 5.6% 19'294 5.0% 

Panama 6'171 1.7% 8'184 2.1% 

Peru 31'719 8.9% 14'378 3.8% 

St. Lucia 22 0.0% - 0.0% 

Trinidad and Tobago 2'967 0.8% - 0.0% 

Venezuela 26'323 7.6% 16'940 4.6% 

Virgin Islands (British) 2'213 0.6% 1'470 0.4% 

Virgin Islands (USA) - 0.0% 3'740 1.0% 

Other 147 0.0% 5'623 1.5% 

Total assets 355'635 100.0% 382'085 100.0%

3.12.2 Breakdown of exposure by country of risk and by rating categories 

in CHF 1000 

31.12.2008 31.12.2007 


Category 1 168'186 46.6% 210'301 53.3% 

Austria - - 8'784 2.2% 

Belgium 2 - 3 - 

Canada - - 6'186 1.6% 

France - - 13'802 3.5% 

Germany 49'063 13.6% 33'406 8.5% 

Great Britain 4'811 1.3% 768 0.2% 

Italy 5'033 1.4% 9'198 2.3% 

Luxembourg 950 0.3% 13'099 3.3% 

Netherlands 4'769 1.3% - - 

Norway - - 5'622 1.4% 

Spain 26'873 7.4% 12'553 3.2% 

Sweden 1'491 0.4% 5'612 1.4% 

Switzerland 29'496 8.2% 33'189 8.4% 

USA 42'051 11.7% 58'988 15.0% 

Virgin Islands (British) 3'647 1.0% 9'091 2.3% 

Category 2 34'314 9.5% 42'919 10.9% 

Chile 7'736 2.1% 15'747 4.0% 

Mexico 23'611 6.6% 21'951 5.6% 

Russia - - 5'221 1.3% 

Trinidad and Tobago 2'967 0.8% - - 

Category 3 89'871 24.9% 82'053 20.7% 

Brazil 40'192 11.1% 47'356 12.0% 

Costa Rica 10'756 3.0% 9'730 2.5% 

Panama 6'992 1.9% 10'027 2.5% 

Peru 31'719 8.8% 14'369 3.6% 

South Africa 212 0.1% 571 0.1% 

Category 4 19'091 5.3% 26'256 6.7% 

Colombia 5'845 1.6% 19'001 4.9% 

El Salvador 13'246 3.7% 7'255 1.8% 

Category 5 and 6 49'293 13.7% 33'165 8.4% 

Cayman Islands 6'189 1.7% 112 - 

Dominican Republic 5'373 1.5% - - 

Guatemala 14'806 4.1% 17'675 4.5% 

Venezuela 22'925 6.4% 15'132 3.8% 

Others - - 246 0.1% 

Total 360'755 100.0% 394'694 100.0%

3.13 Balance sheet by currencies 

in CHF 1000 

Assets 

CHF EUR USD other 

Liquid Funds 167 32 26 - 

Money market instruments - - - - 

Due from banks 217 90'347 127'943 2'304 

Due from customers - 2'357 103'891 2 

Financial investments 1 

12'559 1'060 - 

Fixed assets 1'777 - - - 

Accrued income and prepaid expenses 262 624 2'358 - 

Other assets 15 253 9'440 - 

Total balance sheet effective assets 2'439 106'172 244'718 2'306 

Claims from transactions related to forex spot, 

forward and option transactions 48'935 16'071 11'268 262 

Total assets 51'374 122'243 255'986 2'568 

Liabilities 

Currencies 

Due to banks - 11 4'058 - 

Due to customers, other 875 111'764 174'923 2'241 

Accrued expenses and deferred income 384 833 788 - 

Other liabilities 180 315 426 - 

Valuation adjustments and provisions 1'154 - 1'116 - 

Share capital 45'500 - - - 

Legal reserves 230 - - - 

Retained earnings (losses) 1'384 1 8'784 - 

Consolidated net profit for the year 42 - 626 - 

Total balance sheet effective liabilities 49'749 112'924 190'721 2'241 

Claims from transactions related to forex spot, 

forward and option transactions 2'661 9'626 63'986 263 

Total liabilities 52'410 122'550 254'707 2'504 

Net position per currency -1'036 -307 1'279 64

4. Information on Off-Balance Sheet Transactions 

4.1 Analysis of contingent liabilities 

in CHF 1000 31.12.2008 31.12.2007 Change 

Guarantees to secure credits and similar 4'530 

12'191 

Guarantees for warranty and similar - - - 

Irrevocable commitments 590 

Total contingent liabilities 5'120 

4.2 Outstanding derivative instruments 

in CHF 1000 positive 

replacement value 

Foreign exchange 

Forward contracts with maturity under 1 year 9'707 

- thereof trading instruments 335 

- thereof hedging instruments 9'372 

Total 31.12.2008 9'707 




4.3 Analysis of fiduciary transactions 

418 

12'609 

negative 


-7'661 

172 

-7'489 

Contract 

Volume 

741 

64'647 

741 

16'709 

- 47'938 

741 

64'647 

612 

73'978 

612 

26'040 

- 47'938 

in CHF 1000 31.12.2008 31.12.2007 Change 

Fiduciary placements with third party banks 21'886 

Fiduciary placements with affiliated banks 64'027 

Total fiduciary transactions 85'913 

14'483 

41'351 

55'834 

7'403 

22'676 

30'079

5. Information on the Income Statement 

5.1 Income from trading activities 

in CHF 1000 31.12.2008 31.12.2007 Change 

Foreign exchange 941 187 754 

Total trading income 941 187 754 

5.2 Personnel expenses 

in CHF 1000 31.12.2008 31.12.2007 Change 

Salaries and allowances 3'869 3'457 412 

Contributions to pension funds 278 263 15 

Social security contributions 327 307 20 

Other personnel expenses 117 128 -11 

Total personnel expenses 4'591 4'155 436 

5.3 Other operating expenses 

in CHF 1000 31.12.2008 31.12.2007 Change 

Expenses for premises 299 273 26 

Expenses for IT, machinery, furniture 

vehicles and other equipment 1'561 1'213 348 

Other operating expenses 1'560 1'641 -81 

Total other operating expenses 3'420 3'127 293 

5.4 Tax expenses 

Tax expenditure includes current income and annual capital tax and is calculated on the actual income 

(after offsetting potential tax losses) as well as on the actual taxable capital. 

5.5 Comments to extraordinary income and expenses, to significant reversals 

of general banking risks and of freed valuation adjustments and reserves 

The extraordinary income of TCHF 650 resulted from the following: 

- Reversal of general banking risk provision of TCHF 599. 

- Recovery of a written off position of TCHF 51.

6. Disclosure according to capital adequacy ordinance 

6.1 Information on eligible capital and capital requirements 

in CHF 1000 31.12.2008 

Eligible capital 56'567 

Total amount of eligible capital 56'567 

Credit risk 14'807 

Non-Counterparty risks 889 

Market risks 1'138 

Operational risks 1'311 

Value adjustments and provisions recognised as liabilities -136 

Total amount of capital requirements 18'009


ZURICH 

Report of the Statutory Auditors 

to the General Meeting of 

Shareholders for the year 2008 

14 April 2009/00593800001/12/SMN/HEX 

With offices in Aarau, Basel, Berne, Chur, Geneva, Lausanne, Lugano, Lucerne, Neuchâtel, Sitten, St. Gallen, Thun, Winterthur, Zug and 

Zurich, PricewaterhouseCoopers AG is a provider of auditing services and tax, legal and business consultancy services. 

PricewaterhouseCoopers AG is a member of a global network of companies that are legally independent of one another; the network is 

represented in some 150 countries throughout the world.

Report of the statutory auditors 

to the general meeting of 


ZURICH 

Report of the statutory auditor on the financial statements 


Birchstrasse 160 

8050 Zürich 

Phone +41 58 792 44 00 

Fax +41 58 792 44 10 

www.pwc.ch 

As statutory auditor, we have audited the financial statements of MERCANTIL BANK (SCHWEIZ) 

AG, which comprise the balance sheet, income statement and notes, for the year ended 

31 December 2008. 

Board of Directors’ Responsibility 

The Board of Directors is responsible for the preparation of the financial statements in accordance 

with the requirements of Swiss law and the company’s articles of incorporation. This responsibility 

includes designing, implementing and maintaining an internal control system relevant to the 

preparation of financial statements that are free from material misstatement, whether due to fraud 

or error. The Board of Directors is further responsible for selecting and applying appropriate 

accounting policies and making accounting estimates that are reasonable in the circumstances. 

Auditor’s Responsibility 

Our responsibility is to express an opinion on these financial statements based on our audit. We 

conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Those standards 

require that we plan and perform the audit to obtain reasonable assurance whether the financial 

statements are free from material misstatement. 

An audit involves performing procedures to obtain audit evidence about the amounts and 

disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, 

including the assessment of the risks of material misstatement of the financial statements, whether 

due to fraud or error. In making those risk assessments, the auditor considers the internal control 

system relevant to the entity’s preparation of the financial statements 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 entity’s internal control system. An audit also includes 

evaluating the appropriateness of the accounting policies used and the reasonableness of 

accounting estimates made, as well as evaluating the overall presentation of the financial 

statements. We believe that the audit evidence we have obtained is sufficient and appropriate to 

provide a basis for our audit opinion. 

Opinion 

In our opinion, the financial statements for the year ended 31 December 2008 comply with Swiss 

law and the company’s articles of incorporation.

Report on other legal requirements 

We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act 

(AOA) and independence (article 728 CO and article 11 AOA) and that there are no circumstances 

incompatible with our independence. 

In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we 

confirm that an internal control system exists which has been designed for the preparation of 

financial statements according to the instructions of the Board of Directors. 

We further confirm that the proposed appropriation of available earnings complies with Swiss law 

and the company’s articles of incorporation. We recommend that the financial statements 

submitted to you be approved. 


Martin Schmidt Alex Henzi 

Audit expert 

Auditor in charge 

Zürich, 14 April 2009 

Enclosures: 

- Financial statements (balance sheet, income statement and notes) 

- Proposed appropriation of the available earnings

Financial Statement 

Balance Sheet 

in CHF 31.12.2008 31.12.2007 Change 

Assets 

Liquid funds 224'893 379'212 -154'319 

Money market instruments - 4'809'323 -4'809'323 

Due from banks 51'171'933 25'457'295 25'714'638 

Due from customers 36'138'161 50'056'593 -13'918'432 

Financial investments 2'855'161 833'531 2'021'630 

Participations 19'433'002 19'433'002 - 

Fixed assets 1'777'082 2'067'545 -290'463 

Accrued income and prepaid expenses 1'116'458 847'599 268'859 

Other assets 9'937'312 7'574'440 2'362'872 

Total assets 122'654'002 111'458'540 11'195'462 

Total due from non-consolidated holdings and shareholder 9'622'345 7'210'236 2'412'109 

Liabilities and shareholder's equity 

Due to banks 4'214'056 12'135'652 -7'921'596 

Due to customers, other 64'225'470 45'923'025 18'302'445 

Accrued expenses and deferred income 431'405 569'739 -138'334 

Other liabilities 5'472'323 4'501'634 970'689 

Valuation adjustments and provisions 1'154'335 1'214'252 -59'917 

Share capital 45'500'000 45'500'000 - 

Legal reserves 230'000 200'000 30'000 

Retained earnings 1'384'238 841'175 543'063 

Net profit 42'175 573'063 -530'888 

Total liabilities and shareholder's equity 122'654'002 111'458'540 11'195'462 

Total due to non-consolidated holdings and shareholder 145'290 928'406 -783'116 

Off-Balance Sheet Transactions 

Contingent liabilities 4'530'391 12'190'517 -7'660'126 

Irrevocable commitments 590'000 418'000 172'000 

Derivative instruments 

- contract value 69'925'349 73'978'266 -4'052'917 

- positive replacement value 9'935'611 7'574'162 2'361'449 

- negative replacement value 5'292'804 4'249'228 1'043'576 

Fiduciary transactions 374'841'733 355'682'698 19'159'035

Income Statement 

in CHF 2008 2007 Change 

Ordinary operating income and expense 

Interest income 

Interest and discount income 4'136'134 5'118'312 -982'178 

Interest and dividend income on financial investments 250'967 149'515 101'452 

Interest expense -686'832 -873'031 186'199 

Net interest income 3'700'269 4'394'796 -694'527 

Income from commission and services 

Commission income on lending activities 246'192 331'564 -85'372 

Commission income on asset management 2'024'473 1'686'688 337'785 

Commission income on other services 999'075 756'860 242'215 

Commission expense -132'273 -96'351 -35'922 

Net commission income 3'137'467 2'678'761 458'706 

Income from trading operations 843'759 197'625 646'134 

Other ordinary income 

Participation income 633'960 568'400 65'560 

Other ordinary income 2'120 1'818 302 

Other ordinary expense -195'578 - -195'578 

Total other ordinary income 440'502 570'218 -129'716 

Total operating income 8'121'997 7'841'400 280'597 

Operating expenses 

Personnel expenses -4'591'269 -4'154'724 -436'545 

Other operating expenses -2'631'187 -2'503'898 -127'289 

Total operating expenses -7'222'456 -6'658'622 -563'834 

Gross profit 899'541 1'182'778 -283'237 

Net income for the year 

Gross profit 899'541 1'182'778 -283'237 

Depreciation and write-offs of non-current assets -807'164 -535'856 -271'308 

Valuation adjustments, provisions and losses -77'692 -9'390 -68'302 

Subtotal 14'685 637'532 -622'847 

Extraordinary income 108'645 17'800 90'845 

Extraordinary expenses - - - 

Taxes -81'155 -82'269 1'114 

Net income for the year 42'175 573'063 -530'888 

Distribution of profit 

Net profit for the year 42'175 573'063 -530'888 

Retained profit brought forward 1'384'238 841'175 543'063 

Balance sheet profit 1'426'413 1'414'238 12'175 

Allocation of profit 

Allocation to legal reserves -3'000 -30'000 27'000 

Retained profit brought forward 1'423'413 1'384'238 39'175

Notes to the parent financial statement 

1. Information on business activities and number of employees 

General information 

Mercantil Bank (Schweiz) AG, until January 27, 2000, 

operating under the name BMS Finanz AG, was 

incorporated in May 1988 in Zurich. Its activities in 

the areas of trade finance, private banking and 

fiduciary transactions are focused on Latin America 

and complemented by the banking activities of its 

wholly owned subsidiaries Mercantil Bank & Trust 

Ltd., Grand Cayman and MBS Advisory Services 

Ltd., British Virgin Island. 

It is intended to continue intensifying the expansion 

of the private banking activities for the clientele of the 

Grupo Mercantil Servicios Financieros (MSF). For 

this, the bank continues to invest in its banking 

software and electronic banking facilities to support 

and enhance the range of services offered to its 

customers. It is also intended to continue developing 

the traditional trade finance activities between 

Europe, Asia and Latin America. 

Balance Sheet transactions 

Short-term financial investments with European 

banks and trade financing for Latin American banks 

as well as short-term lending to Latin American and 

US corporate borrowers, largely related to 

preliminary and supplementary trade financing, 

represent the major assets of the bank. Investments 

in securities of Latin American and European 

borrowers complement the bank’s balance sheet 

business. Exposures with maturities of over one year 

are entered but limited to the bank’s net equity. 

Funding is obtained through customer deposits and 

also through credit lines from major European banks. 

Income from commissions and services 

Income from commissions and services results 

mainly from letter of credit transactions as well as 

from the issuance of guarantees, from custody fees, 

brokerage and other service fees related to fiduciary 

investments of private customers. 

Other activities 

For investment and also for liquidity purposes, 

Mercantil Bank (Schweiz) AG maintains an investment 

portfolio consisting mainly of fixed income 

securities of Latin American and European 

borrowers. 

Risk Assessment 

The Board of Directors discussed during its meeting 

as of February 3, 2009 the relevant risks the bank is 

facing. Relevant risks are market, liquidity, credit, 

operational and other risks. The basis for the 

assessment of the risks was the business rational 

and strategy of the business generating the risks, the 

risk appetite of the bank and the nature of the risk, its 

magnitude of a potential misstatement and the 

likelihood of the risk occurring. Additionally, the 

predefined risk reducing measures and the internal 

controls (including financial reporting) were included 

in the evaluation. 

The Board of Directors took also into consideration 

the monitoring of internal controls, the correct 

treatment of the risk recognition and the valuation 

effects of relevant risks on the financial reporting. 

For detailed information regarding risk management 

we refer to the explanations below. 

Risk Management 

The analysis and control of risks is performed in 

close cooperation with the Risk Management Group 

of our parent company (MSF) in Caracas. 

Credit approval is based on requirements as to 

quality, collaterals, limits and credit authority as laid 

down in the internal risk policy. All credit risk positions, 

including those from derivative instruments, 

are limited and monitored continuously by a credit 

line system based on counterparty and country risk. 

Foreign exposures are entered into and monitored in 

compliance with the internal risk policy. The assessment 

procedure, except for exposures in industrialized 

countries (Category 1), where country risk is 

negligible, is based on the rating of the Interagency 

Country Exposure Committee (ICERC) and on the 

Group’s own internal rating system. The internal evaluation 

is based on economic trends and political and 

social developments and derived from various groupinternal 

and external sources (Categories 2 – 6).

The risk provisioning requirements for country risk 

and counterparty risk are calculated independently 

on the basis of an internal rating process. 

Liquidity and interest rate risks are monitored and 

managed on a consolidated basis. 

Foreign exchange risks are to a large extent restricted 

by internal limits for open currency positions. 

Derivative financial instruments are used exclusively 

to hedge open foreign exchange positions and 

interest rate risks. 

When trading securities for customers, Mercantil 

Bank (Schweiz) AG does not engage in open 

positions from which market risks could arise. 

All other operating risks, especially those related to 

the internal organization and information systems, 

are monitored through internal policies and 

directives. 

The Board of Directors and Senior Management are 

regularly informed of the risks related to asset value, 

financial position, liquidity, earnings and operations 

through a management information system. 

Outsourcing 

Mercantil Bank (Schweiz) AG has outsourced the 

operation of its banking system to PriBaSys AG in 

Zurich and the operation of SWIFT and SIC to 

Biveroni Batschelet Partners AG in Baden. These 

outsourcing arrangements were set up under detailed 

Service Level Agreements according to the 

regulations of the Swiss Financial Market 

Supervisory Authority (FINMA). All personnel of the 

service providers are placed under the bank secrecy 

act, which safeguards the requirements of 

confidentiality. 

Personnel 

Mercantil Bank (Schweiz) AG employed 31 persons 

including part-time employees. It also receives 

support from the head office and affiliates in areas 

such as internal audit, loan review, IT, and credit and 

country risk analysis.

2. Accounting and valuation principles 

General principles 

The Bank’s accounting and valuation principles 

comply with the Swiss Code of Obligations, the Bank 

Law, and guidelines of the Swiss Financial Market 

Supervisory Authority (FINMA). 

Accounting and booking of transactions 

All transactions are recorded in the balance sheet on 

a trade date basis, except for forward transactions, 

which are reported from the trade date as off-balance 

sheet items and from the settlement date in the 

balance sheet. All transactions are valued from the 

trade date onward. 

Foreign currency translation 

Transactions in foreign currencies are translated at 

daily exchange rates. Foreign currency positions, 

with the exception of participations, are converted at 

the exchange rates prevailing at the year-end closing 

date. Resulting conversion profits and losses are 

included in the income statement. Participations are 

valued at the exchange rates prevailing at the time of 

the purchase. In the event of a decline in the value of 

such an investment, giving due account also to the 

fluctuation of exchange rates, a valuation adjustment 

is made. 

The following exchange rates were used as at the 

balance sheet date (major currencies): 

2008 2007 

USD 1.0597 1.1248 

EUR 1.4880 1.6573 

General valuation principles 

Each item reflected in the balance sheet is valued 

individually. 

Cash, Due from Money Market Instruments, Due 

from banks, Deposits 

They are stated at their nominal value, or at historical 

cost, less specific valuation adjustments for doubtful 

receivables. Money market instruments are adjusted 

for discounts. Unearned discounts on money market 

instruments are accrued over their life within the 

corresponding balance sheet item. 

Due from customers 

Doubtful receivables, i.e. loans for which it is unlikely 

that the customer will be able to comply with its future 

obligations, are valued individually and the impairment 

of value is covered by a specific provision. 

Off-balance sheet transactions, such as firm 

commitments, guaranties and derivative financial 

instruments are also included in this valuation. Loans 

are classified as impaired at the latest when a 

borrower is in arrears with payments of capital and/or 

interest for a period of over 90 days. Interests in 

arrears for a period of over 90 days are considered 

overdue. Overdue interest and interest of which 

collection is considered at risk are not reflected as 

income but directly allocated to valuation adjustments 

and provisions. Loans are placed on a non-accrual 

status when the collectibility of their interest is 

considered doubtful to the extent that an accrual 

would be imprudent. 

The amount of the impairment is measured by the 

difference between the book value of the loan and 

the estimated collectible amount, considering the 

counterparty risk and the net value from the 

execution of any collateral. If the process of 

execution is expected to take longer than a year, 

then a present value calculation is made of the 

expected cash flows to be generated from the 

execution process. Specific provisions are deducted 

directly from the corresponding asset item. 

Loans that are believed to be entirely or partially 

uncollectible or for which the bank consents to their 

remission, are charged off against the provision for 

loan losses. Recoveries of previously charged-off 

amounts are directly credited to the provision for loan 

losses. 

A general provision for loan losses is made, based 

on set rates per credit rating category, to cover for 

not yet recognizable loan loss risks inherent in the 

credit portfolio. 

Doubtful receivables are classified again at full value 

if payments of outstanding capital and interest are 

resumed according to the contractual terms and also 

credit standing criteria are fulfilled.


Fixed income securities held as available for sale are 

valued at the lower of cost or market. The net 

balances of value adjustments are made through 

“Other Ordinary Income” or “Other Ordinary 

Expense”, respectively. Write-ups are recognized up 

to the acquisition costs, provided the market value 

which had fallen below the acquisition cost recovers 

again. Such value adjustment is recognized as 

described above. 

Debt securities acquired with the intention to hold 

them to maturity are recorded using the accrual 

method, i.e. premiums or discounts are accrued over 

their remaining life. Interest-related gains or losses 

from sale before maturity or prepayment are deferred 

and accrued over the remaining life, i.e., until the 

original maturity. Value reductions or subsequent 

increases, resulting from credit rating are treated as 

“available for sale” in the income statement . 

Buildings and participations acquired from the credit 

business earmarked for disposal are registered as 

financial investments and valued at the lower of cost 

or market, i.e. at the lower of acquisition cost or 

liquidation value. 

Investments in subsidiaries 

The investments in subsidiaries are reflected at 

historical cost in Swiss Francs. 

Other fixed assets / Software 

Other fixed assets and Software are stated at cost 

plus value-creating investments less depreciation 

computed on a straight line basis over their expected 

useful life – of 3 years for software, IT and 

communication systems, 5 years for furniture, and 

installations in new premises over the duration of the 

lease contract. 

Valuation adjustments and provisions 


created for all recognizable risks both on and offbalance 

sheet. Valuation adjustments and provisions 

which are no longer required in the reporting period 

are reversed affecting income. 


directly deducted from the corresponding asset item. 

General provisions for default risks as well as other 

risks are recorded under this balance sheet position. 

Employee benefit obligation 

Mercantil Bank (Schweiz) AG maintains two defined 

contribution pension plans for its employees in 

Switzerland. The bank bears the expenses of the 

pension plans of all its employees as well as their 

survivors in accordance with the Swiss social security 

law. The benefit obligations as well as the coverage 

capital are disincorporated into legally independent 

pension funds or foundations of insurance 

companies. The organization, management and 

financing of the pension plans conform to the legal 

regulations, to the articles of the funds as well as to 

current pension regulations. 

For each pension plan the bank has to assess, 

according to Swiss GAAP FER 16, if a possible credit 

or debit balance of a plan can result in economical 

gains or losses. The financial statement of the 

pension fund provides the basis for the annual 

assessment. 

The bank records its contributions as employer in 

“personnel expenses” in the same period in which the 

contributions are paid. 

Taxes 

Tax expenditure is calculated on basis of the actual 

profit of the individual group companies. 

Contingent liabilities, irrevocable commitments 

Contingent liabilities and irrevocable commitments 

are stated at their nominal value. Provisions for 

recognizable risks are created and recorded under 

“valuation adjustments and provisions” on the liability 

side. 

Derivative financial instruments 

Derivative financial instruments are recorded at 

nominal value in the off-balance sheet. 

Gains or losses arising from hedge instruments are 

reflected in the same income item as that of the 

hedged underlying transaction.

3. Information on the Balance sheet 

3.1 Disclosure of liabilities to own pension plans 

The bank’s employees are entitled to a legally independent personnel pension fund with two different plans. One plan covers 

the obligatory benefits according to the Swiss pension fund law, while the second plan covers all the non-obligatory benefits. 

Both plans are defined contribution plans. As in the previous year, the bank had no further obligations towards these pension 

plans and there were no reserves from employer’s contributions. 

The bank’s employees are insured at a collective foundation for pension services in the scope of an affiliation agreement. The 

contracts cover all retirement, invalidity and death benefits. A possible shortage of the pension fund, causing a future liability for 

the bank, is covered by existing reserves. 

3.2 Valuation adjustments and provisions, reserves for general banking risks 

in CHF 1000 Balance 

previous year 


provisions for credit and 

country risks 1'362 

Specific 

usage 

-148 

Change in 

definition of 

purpose, reclassification 

Recoveries, 

doubtful interest, 

currency 

differences 

- -2 

New creation 

charged to 

income 

statement 

60 

Reversals 

credited to 

income 

-60 

Balance 

current year 


provisions for investments - - - - - - - 

Other Provisions (operating loss) - - - - - - - 


provisions 1'362 

less: set-offs with investments 


-148 

provisions as of balance sheet 1'214 

-148 

Doubtful loans of CHF 1'166M are specifically provisioned with CHF 58M. 

148 

- -2 

-58 

60 

-60 

1'212 

1'212 

-58 

1'154

3.3 Schedule of share capital and disclosure of shareholders 

in CHF 1000 

Capital structure 

Nominal 

amount 

Shareholder's equity 45'500 

Number of 

shares 

45'500 

Capital with 


45'500 

Nominal 

amount 

45'500 

Number of 

shares 

45'500 

Capital with 


Significant shareholders and shareholder groups 

with voting rights 

31.12.2008 31.12.2007 

Nominal Share in % Nominal Share in % 

Holding Mercantil Internacional, C.A., Caracas, Venezuela 45'500 

100% 45'500 

100% 

Shareholder of Holding Mercantil Internacional, C.A.: 

Mercantil Servicios Financieros, C.A., Caracas, Venezuela 45'500 

31.12.2008 31.12.2007 

100% 45'500 

Mercantil Servicios Financieros (MSF) is a financial holding registered on the Caracas Stock Exchange. The capital structure of MSF 

is comprised of A (58%) and B (42%) shares, with B shares having limited voting rights. Its shares are held primarily by Venezuelan 

investors. Approximately 39% of the B shares are owned through an American Depositary Receipt (ADR) program, therefore MSF does 

not have information who the holders of the ADR's are. Shareholders with ownership of over 5%, as known to MSF are: 

- Vadesa Group (4.1% A shares; 15.7% B shares); 9.0% participation 

- Gustavo J. Vollmer Group (11.1% A shares; 4.6% B shares); 8.4% participation 

- Travieso Sanchez Group (7.6% A shares; 3.4% B shares); 5.8% participation 

- Altamis B.V. (9.4% A shares; 0.3% B shares); 5.6% participation 

- Gustavo A. Marturet Group (8.3% A shares; 1.1% B shares); 5.2% participation 

3.4 Statement of changes in shareholder's equity 

in CHF 1000 31.12.2008 31.12.2007 

Shareholder's equity at beginning of current year 

Share capital 45'500 

Legal reserve 200 

Retained earnings 1'414 

Total shareholder's equity at beginning of current year (before profit distribution) 47'114 

45'500 

100% 

33'500 

169 

872 

34'541 

+ Capital increase - 12'000 

+ Net profit for the year 42 

573 

Total shareholder's equity at end of current year (before profit distribution) 47'156 

Thereof: 

Share capital 45'500 

Legal reserve 230 

Retained earnings 1'426 

47'114 

45'500 

200 

1'414

3.5 Disclosure of amounts due from and due to affiliated companies as well as 

loans and exposures to directors and senior executives 

in CHF 1000 31.12.2008 31.12.2007 

Due from affiliated companies 10'886 

Due to affiliated companies 168 

Loans to directors and senior executives 19 

Transactions with related parties 

Transactions with related parties such as securities transactions, international payments, placement of funds and deposits 

are made under conditions as they would apply with third parties. 

5'035 

120 

70

3.6 Breakdown of exposure by country of risk and by rating categories 

in CHF 1000 

31.12.2008 31.12.2007 


Category 1 49'325 

38.7% 69'979 

Austria - - 2'486 

Belgium 2 

- 3 

France - - 2'139 

Germany 2'163 

1.7% 7'218 

Great Britain 1'103 

0.9% 768 

Italy 271 

0.2% 2'900 

Luxembourg 950 

0.7% 1'198 

Spain 69 

0.1% 123 

Switzerland 21'565 

16.9% 15'818 

Virgin Islands (British) 3'647 

2.9% 9'155 

USA 19'555 

15.3% 28'171 


Chile 1'166 

Mexico 3'480 

Trinidad and Tobago 2'437 


Brazil 5'404 

Costa Rica 1'166 

Panama 2'647 

Peru 5'558 

South Africa 212 


Colombia 562 

El Salvador 2'437 

56.4% 

2.0% 

- 

1.7% 

5.8% 

0.6% 

2.3% 

1.0% 

0.1% 

12.7% 

7.4% 

22.8% 

5.5% 9'982 

8.0% 

0.9% - - 

2.7% 9'982 

8.0% 

1.9% - - 

11.7% 7'674 

6.2% 

4.2% 2'812 

2.3% 

0.9% 1'125 

0.9% 

2.1% 3'166 

2.5% 

4.3% - - 

0.2% 571 

0.5% 

2.3% - 0.0% 

0.4% - - 

1.9% - - 

Category 5 and 6 53'380 

41.8% 36'433 

29.4% 

Cayman Islands 26'157 

20.5% 19'605 

15.9% 

Dominican Republic 2'936 

2.3% - - 

Guatemala 2'861 

2.2% 2'715 

2.2% 

Venezuela 21'426 

16.8% 13'867 

11.1% 

Others - - 246 

0.2% 

Total 127'774 

100.0% 124'068 

100.0%

4. Information on Off-Balance Sheet Transactions 

4.1 Outstanding derivative instruments 

in CHF 1000 positive 


Foreign exchange 

Forward contracts with maturity under 1 year 9'936 



Total 31.12.2008 9'936 




4.2 Analysis of fiduciary transactions 

negative 


5'293 

741 

4'552 

5'293 

4'249 

612 

3'637 

Contract 

Volume 

69'925 

21'987 

47'938 

69'925 

73'978 

26'040 

47'938 

in CHF 1000 31.12.2008 31.12.2007 Change 

Fiduciary placements with third party banks 149'451 

Fiduciary placements with affiliated banks 225'391 

Total fiduciary transactions 374'842 

94'367 

261'316 

355'683 

55'084 

-35'925 

19'159

5. Information on the Income Statement 

5.1 Income from trading activities 

in CHF 1000 31.12.2008 31.12.2007 Change 

Foreign exchange 844 

Total income from trading operations 844 

5.2 Tax expenses 

Tax expenditure includes current income and annual capital tax and is calculated on the actual income 

(after offsetting potential tax losses) as well as on the actual taxable capital. 

5.3 Comments to extraordinary income and expenses, to significant reversals 

of general banking risks and of freed valuation adjustments and reserves 

The extraordinary income of TCHF 109 resulted from the following: 

- Reversal of general banking risk provision of TCHF 58. 

- Recovery of a written off position of TCHF 51. 

198 

198 

646 

646

Mercantil Bank (Schweiz) AG 

Talacker 42, 

CH-8001 Zurich, Switzerland 

P.O. Box 9758 

CH-8036 Zurich, Switzerland 

Phone: 41 - 433 444 555 Master 

Fax: 41 - 433 444 550 

www.mercantilsuiza.com

SCHWEIZ - Banco Mercantil

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