A former Julius Baer Group Ltd. (BAER) employee’s effort to discredit the 121-year-old bank by handing stolen client data to WikiLeaks has put Swiss banking secrecy back in the spotlight.
Rudolf Elmer, who worked for Zurich-based Baer’s Cayman Islands unit until December 2002, says he wants to expose tax evasion through the use of offshore accounts. He was detained by Swiss prosecutors after handing over data on about 2,000 cross-border accounts to WikiLeaks’ founder Julian Assange on Jan. 17.
“WikiLeaks is changing the dynamic because it’s a platform with a worldwide audience,” said Teodoro Cocca, professor of wealth management at Johannes Kepler University in Linz, Austria. “The reputational damage for Swiss banking could be much broader than someone selling data to a tax authority.”
The questions surrounding Baer follow attacks on secrecy in Swiss banking by U.S., French and German officials. As clients reassess the benefits of cross-border accounts, Baer must decide whether to build branch networks in Europe and Asia to compete with larger rivals such as UBS AG (UBSN) and Credit Suisse Group AG.
“We have no reason to believe that Elmer has anything new,” according to Baer spokesman Jan Vonder Muehll. Boris Collardi, who became chief executive officer in May 2009, told Handelszeitung in September that since his arrival, “our motto is that we only accept taxed money.”
Elmer, who is in a Zurich prison while the city’s prosecutors investigate whether he broke banking secrecy laws, can’t comment, according to his lawyer Ganden Tethong Blattner.
Baer is scheduled to report results on Feb. 7. Full-year net income probably rose to 454 million Swiss francs ($479 million) from 389 million francs in 2009, according to the mean estimate of nine analysts surveyed by Bloomberg.
The company’s plan to double the number of employees in Asia within five years is costly and raises questions about the profitability of such an expansion, said Peter Thorne, a London-based analyst at Helvea.
The involvement of WikiLeaks, after informants helped authorities pursue tax-evasion cases involving UBS, HSBC Holdings Plc’s Geneva private bank and Liechtenstein’s LGT Group, is an escalation of the stolen data issue, according to Konrad Hummler, managing partner of Wegelin & Co., Switzerland’s oldest private bank.
Bernhard Bauhofer, founder of Sparring Partners GmbH, which advises financial companies on managing their reputations, said Baer has contained the threat posed by Elmer.
“The industry is starting to get used to this problem” of data theft, said Bauhofer. “Any damage from WikiLeaks seems to be under control as they managed it properly.”
Elmer, who worked for Baer for 15 years, was found guilty in a separate case on Jan. 19 of making a death threat against a bank employee and of breaking Switzerland’s client-secrecy laws.
Elmer “is a whistleblower and he has important things to say,” Assange told reporters in London on Jan. 17. He said the data will take at least two weeks to check and disseminate.
WikiLeaks was not immediately available for comment after being e-mailed by Bloomberg News.
WikiLeaks drew condemnation from the U.S. government for posting thousands of classified diplomatic communications and military documents on its website, including a video of a July 2007 helicopter attack in Iraq that killed a Reuters television cameraman and his driver.
Analysts at Goldman Sachs Group Inc. expect client inflows to reach the top of Baer’s 4 percent to 6 percent target range. The New York-based firm has increased its price target for Baer shares to 54 francs. The stock gained 25 percent in the past 12 months, closing yesterday at 43.15 francs.
“We no longer factor in an adverse scenario related to taxation issues” as negotiations between Switzerland and governments in the U.K. and Germany will provide greater clarity, the Goldman Sachs analysts, including Jean-Francois Neuez, Monica Kalia and Jacqueline Cheung, wrote in a Feb. 2 note to clients.
With excess capital equating to about 16 percent of Baer’s 8.9 billion-franc market value, Goldman Sachs expects Baer to return money to shareholders. Dividends and share buybacks from Baer, which has about 4,500 works of contemporary Swiss art adorning the walls of its branches worldwide, may exceed 1 billion francs in the next two years, Morgan Stanley estimates.
Baer, the fifth-biggest Swiss wealth manager, may struggle to compete with larger rivals for customers who no longer see an advantage from depositing their money in cross-border accounts, said Mathias Bueeler, an analyst at Kepler Capital Markets SA in Zurich, who has a “reduce” rating on the stock.
“The strategy isn’t to go onshore because it’s not something they can afford, especially as the two big banks scale up in those markets,” Bueeler said.
UBS client assets are more than nine times bigger than Baer’s end-of-October total of 175 billion francs. The franc’s strength may have reduced Baer’s assets under management to 169.5 billion francs at the end of December, according to the median estimate of four analysts surveyed by Bloomberg.
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