The Institute for the Works of Religion’s 2013 financial statement shows a massive drop in profits from 86, 6 million to 2,9 million Euros as a result of a clean-up process that rid the “bank” of some shady investments. New consultation fees bumped up operating costs by 35% (+8, 3 million). 54 million Euros have been contributed to the Holy See’s budget
ANDREA TORNIELLI Taken from Vatican Insider
The Istituto per le Opere di Religione (IOR) today released its 2013 financial statements and gave a detailed update on the results of Phase I of the Institute’s reform. The second phase, namely the integration of the IOR into the new economic-administrative landscape of the Vatican, will be entrusted to a new board and executive team, operating under a new governance structure. The costs necessary for the completion of Phase I, and costs related to legacy investments, are reflected in the results for 2013,” the first paragraph of the IOR’s official press release reads. The text also officially confirms and announces – for the first time – a complete change in the Institute’s leadership. Its head, Ernst von Freyberg, and the board of directors are therefore to go.
“As set out in May 2013, we have focused on making the IOR compliant with financial regulation, safer and more transparent, so as to create options for the Holy Father to decide on the future of the Institute. Through this work we have laid the ground for a new team to make the IOR a truly outstanding service provider in Catholic finance,” the outgoing president, von Freyberg, states. “Through this work we have laid the ground for a new team to make the IOR a truly outstanding service provider in Catholic finance,” he added. Von Freyberg was keen to stress that “notwithstanding this housekeeping effort, the IOR has delivered a creditable performance for its customers.”
The first significant piece of data is the huge drop in net profit, from 86, 6 million Euros in 2012 to 2, 9 million Euros in 2013. “The Net Profit was affected by a number of factors: extraordinary expenses; losses related to proprietary investments in externally managed investment funds committed to in 2012 and early 2013; and the fluctuation in the value of the IOR’s gold reserves. Without these factors, Net Profit would have been around EUR 70m and thus both broadly in line with the long-term average and comparable to the Net Profit for 2012.” The Institute’s current leadership puts the consistent drop in net profit down to errors made by the previous management.
The statement lists some positive data: a 3% increase in the net Interest Result, which equates to EUR 53.8m and refers to the spread between the yield received on assets and the interest paid to customers on deposits; a 16% increase in Net Fees and Commissions, mainly on asset management, equivalent to EUR 14.1m; a significant increase in in Dividends from securities (+108%), equivalent to EUR 3, 8m.
The negative statistics refer to the Net Trading Result (EUR -16.5m) which refers to “the realized gain or loss on the value of securities sold during the year as well as the unrealized profit and loss in the total value of securities and precious metals held on 31 December 2013. This position includes write-down of proprietary investments in external funds committed to between 2012 and early 2013 (EUR -28.5m) as well as the fluctuation in the market value of IOR’s gold reserves (EUR -11.5m).” The latter piece of information is key because it shows that the proprietary investments written down had been decided by the previous management and were agreed before von Freyberg took over. The financial investment in question is the so-called “Ad Maiora” operation, the name of one of the investment funds approved in April 2012, which required the Institute to make deposits in foreign investment funds in Luxembourg and Malta.
Then there is the “gift” Cardinal Tarcisio Bertone made to television production company Lux Vide which cost the Institute 15 million Euros. This payment appears in the statement as:“Other Net Income” equal to EUR -14.4m, “including a donation of securities with a book value of EUR 15.1m to a foundation of the Holy See.”
The statement mentions -5, 7 million Euros in impairment losses compared to -2, 1 million in 2012 “including a depreciation of EUR 3.2m on financial support provided to the Diocese of Terni.” The Holy See made an interest-free loan worth 11 million Euros to the Umbrian diocese to help with its financial restructuring.
Finally, there has been an increase in internal operating costs. “Operating Expenses totaled EUR 32.2m (2012: EUR 23.9m) and included staff expenses, pension contributions, general maintenance and professional fees. The increase of EUR 8.3m (+35%) was mainly due to expenses incurred in 2013 for professional services required for the Institute’s reorganization and reform.” This refers to the consultancy fees the Holy See has had to pay, notably to Promontory – the American financial group that is reviewing the IOR’s accounts –, the Institute’s new press office and fees for other legal consultations.
“In 2013, the IOR contributed EUR 54m to the budget of the Holy See,” the IOR’s press release reads. At the end of the financial year 2013,” the IOR’s Equity was recorded at EUR 720m (2012: EUR 769m), giving the Institute a solid Total Capital Ratio of 17.2%.” The IOR’s press release goes on to state that the “results for the period from 1 January to 30 June 2014 are based on the IOR’s internal management reporting and are preliminary. They are highly satisfactory, showing a Net Profit of EUR 57.4m.”
The “Vatican bank” informs that the accounts of 1.329 individual clients and 762 institutional clients have now been blocked “until completion of the required data templates.” Meanwhile, “subsequent to the screening process and as per 30 June 2014, the IOR has terminated around 3,000 customer relationships in an orderly process.” “These consisted of around 2,600 customer relationships recording a small balance and no activity for a long period (“dormant accounts”). In addition, 396 customer relations were ended due to the decision of the Board of Superintendence from 4 July 2013 to restrict the customer categories of the Institute.” The termination of these accounts “led to an outflow of funds amounting to about EUR 44m.”
“As of 31 December 2013 the IOR had 17,419 customers (2012: approximately 18,900), of which 5,043 were Catholic institutions, accounting for more than 80% of Assets under Management, and 12,376 were individuals, accounting for less than 20%. The recorded decrease in customers corresponds with a decrease in overall Assets under Management of 5.9%. On 30 June 2014, the IOR served 15,495 customers and recorded overall customer assets of EUR 6bn.”
“It is fair to say,” von Freyberg emphasizes, “that over the past months this often painful but very necessary process has opened the door for a new, unburdened future of the IOR – as a financial service provider that is fully and solely dedicated to serving the mission of the Catholic Church.”
In the press release, the Vatican “finance minister” Cardinal George Pell extends his gratitude to the IOR’s president and board: “I would like to thank Ernst von Freyberg and the entire Board, Ronaldo Schmitz, Carl Anderson, Antonio Maria Marrocco, Manuel Soto Serrano as well as Director General Rolando Marranci and his team for their great dedication to the cause of delivering a safe and professional financial service to the Church and in bringing about the required improvements for the continuation of that service. After all their hard work, we are now in a position to move the IOR to a second phase of reform under new leadership.”
Finally, the IOR confirms the rumours that have been going round in recent days regarding the replacement of the Institute’s heads: “Following the confirmation of the IOR’s mission by the Holy Father on 7 April 2014 and under the guidance of the Secretariat for the Economy and its Council, a plan on the future of the Institute has been developed. The Secretariat for the Economy and the IOR Supervisory Commission of Cardinals have jointly and unanimously agreed that this plan shall be carried out under a new governance structure and by a new board and executive team. The current management team has agreed to remain on board to ensure an orderly transition.” The identity of the new president will be revealed tomorrow.