Julius Baer Group Ltd. (BAER) said client assets rose 4 percent in the first four months of the year as the third-largest Swiss wealth manager integrated Merrill Lynch units acquired from Bank of America Corp.
Assets under management were 264 billion Swiss francs ($297 billion), compared with 254 billion francs previously reported for the end of December, Zurich-based Julius Baer said in a statement today. That included 53 billion francs absorbed from Merrill Lynch businesses outside the U.S. since the start of 2013, of which 42 billion francs was booked and paid for, the company said.
While the Merrill Lynch deal is helping to boost client assets, Julius Baer has said integrating the businesses, which recorded a pretax loss in 2011, will initially weigh on profitability. The company has cut 400 jobs amid the integration and plans a further net reduction of 300 positions this year to help boost earnings from the transaction by 2015.
“The integration seems largely on track,” said Tim Dawson, a Geneva-based analyst at Helvea SA. “The higher cost-to-income ratio was a little disappointing.”
The company said that while its costs as a portion of revenue were higher than the 73.3 percent reported in the second half, the measure is expected to improve toward its 65 percent to 70 percent target range in the second half of 2014.
Julius Baer was little changed at 41.76 francs as of 9:40 a.m. in Zurich trading. The stock is down 2.5 percent in 2014.
Julius Baer transferred about 80 percent of Merrill Lynch’s client assets in Hong Kong and Singapore at the beginning of the year and absorbed a Merrill Lynch unit in the Netherlands in May. Merrill Lynch bankers contributed to net new money in the first four months, which grew within the firm’s 4 percent to 6 percent annualized target range, Julius Baer said.
Gross margin, a measure of operating income divided by managed assets, widened to 95 basis points from 91 basis points in the second half of 2013 after client transaction activity improved. For the Merrill Lynch assets being absorbed, the figure was 83 basis points. A basis point is one hundredth of a percentage point.
“Despite the positive tone of the statement I am cautious on the stated gross margin improvement of the Merrill Lynch units,” said Eleni Papoula, a London-based analyst at Berenberg. “It may be difficult to achieve the Merrill Lynch gross margin target of 85 basis points in 2014 as the first half of the year is usually seasonally stronger.”
The inclusion of 6 billion francs from Brazilian subsidiary GPS Investimentos Financeiros & Participacoes SA also contributed to the increase in managed assets in the first four months. Julius Baer increased its stake in the Sao Paulo-based wealth manager to 80 percent from 30 percent and incorporated 100 new employees in March.
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