Faisal Finance (Switzerland) S.A. Financial & Business Analysis: 1998 "Growth in funds under management, but net income reduced by translation losses and pension fund adjustments"

Foriegn Exchange Rate 1 USD = 1.5405 CHF Financial Trends

Ownership and Legal Status

Faisal Finance (Switzerland) S.A. (FFS) was established in Geneva in 1980 under the name Sharia Services S.A. and restructured in 1980 into a bank-like finance company. FFS now offers financial services and Islamic products to institutions and individuals. The ultimate parent of FFS is Dar Al-Maal Al-Islami Trust, an Islamic institution founded in 1981.

The Year in Brief

FFS operating profit decreased by 4% or CHF 0.2 million to CHF 4.4 million (1997: CHF 4.6 million), while net income decreased by 59% or CHF 2.6 million to CHF 1.8 million (1997: CHF 4.4 million). The result was materially impacted by the strength of the Swiss Franc during the period, leading to a currency translation related FX loss of CHF 2.2 million (1997: profit of CHF 1.5 million).

Income from commission and service activities grew by 14% or CHF 1.2 million to CHF 9.2 million (1997: CHF 8.0 million), reflecting an expanding volume of investment banking operations. Profit on PPSC&C transactions (investments) increased by CHF 0.8 million, while profit on financings dropped by CHF 2.6 million as third-party financing levels were reduced. Operating expenses increased by 22% to CHF 9.4 million (1997: CHF 7.7 million). Of this amount, other operating expenses were flat, while personnel expense was sharply higher by 31% or CHF 1.7 million at CHF 7.2 million (1997:5.5 million), the main component being one-off pension fund adjustments. Ratio of expense to revenue was 68% (1997: 62%).

Total assets declined by 32% to CHF 52 million (1997: CHF 77 million), while shareholders' equity rose marginally to CHF 48 million (1997: CHF 46 million). The major portion of client funds under management is managed on a fiduciary
basis, and does not appear on the balance sheet. Total funds under management rose sharply by 32% to CHF 992 million (1997: CHF 750 million).

Business Highlights

• Main activities consisted of (i) trading operations relating to portfolio management, fiduciary placements andsecurity and foreign exchange trading;(ii) financing activity, granted on a creditbasis (Morabaha), collateralised with fixedand current assets and (iii) risk management.

• An application to be recognised as a Security Dealer was submitted and is currently being considered by the Federal Banking Commission. Issue of the license is partly dependent upon the existence of carefully defined controls and cross-checks. Accordingly, a major project was completed during the year to review the existing controls relating to all the Company's operations.

• Real Estate investments continued to grow in both size and importance. At year-end, US$ 149 million of client funds were invested in this sector, comprising 20% of total funds under management. The majority of these investments are located in the United States. During the year, much of the detailed analytical process relating to the acquisition of real estate was automated, and new approval processes were introduced.

• Stated in US$ terms, private high net worth client funds under management increased by US$8 million to US$331 million, while institutional funds under management increased by 32% to US$396 million.

• Further investments were made in technology, with a program of enhancements to the Islamic Business Investment System. The system, which is central to processing transactions and the provision of management information, is being developed in-house to provide the specialised applications supporting Islamic products.