Julius Baer May Be Takeover Bait

The Swiss private bank has changed its share structure, and investors smell a deal

Is Bank Julius Baer, the legendary Swiss private bank, for sale? That's what analysts across Europe are asking in the wake of the bank's decision to abolish its dual share structure, which will effectively end the founding Baer family's control on Apr. 12. Parent Julius Baer Group denies the move is the precursor to a sale, insisting that Baer itself is interested in acquiring a small asset-management firm to bulk up. But investors have clearly concluded the bank is on the block. Shares of Baer, which are traded on the Zurich and London exchanges, have surged 21% so far this year on speculation a buyer such as Deutsche Bank or Citigroup might launch a takeover.

Analysts say Julius Baer is bowing to the inevitable by opening up its share structure and inviting outside investment. A sale might even mean the disappearance of Baer -- a fixture in the Swiss banking firmament since 1901 -- in all but its storied name. Family infighting and a muddled strategy put Baer in a position to be acquired, but its problems are indicative of a much broader trend. The niche that small Swiss private banks carved out as discreet purveyors of wealth management to the ultrarich has been chipped away by bigger banks, who can offer a wider array of services.

The estimated $3.3 trillion in assets at Switzerland's noncommercial banks, which cater to the wealthy and institutional investors, continues to rise but at a pace slower than other banking centers. Indeed, Julius Baer's troubled private banking arm suffered $689 million in net withdrawals last year. Both of the bank's main competitors, Bank Vontobel and Bank Sarasin & Co., have latched on to partners to ensure survival. Vontobel has a strategic alliance with the Swiss-based Raiffeissen Group, which took a 12.5% stake in December, while the Netherlands' Rabobank Group owns a 28% share in Sarasin. Many analysts expect Baer to follow suit. "The bank will no longer exist in its current form," says Christoph Ritschard, a banking analyst at Zuercher Kantonalbank.


Under Julius Baer's dual shareholding structure, the Baer family and management hold registered stock that translates into 52% of voting shares. Once the dual structure ends, the family and management will have just 18% of common stock. That will give the biggest nonfamily shareholder, Davis Selected Advisors, an investment-management firm based in New York, some measure of control over Baer's fate. Davis, which owns a 16.7% stake, declined to comment on the takeover speculation. Baer is worth some $3.9 billion, or 3.6 times its book value, estimates Javier Lodeiro, a banking analyst at Bank Sarasin in Zurich.

The decision to change the share structure came after a falling-out between the bank's board, led by Chairman Raymond J. Baer, 45, and his cousin Michael P. Baer, 42, the head of its poorly performing private banking arm. The bank announced that Michael will leave in April because of disagreements over strategy. For his part, Raymond, who insiders say only reluctantly backed the change in structure, denies the bank is inviting a takeover. "A hostile bid is not welcomed in a private bank, neither by the clients nor the employees," he says. "Baer has a strong and independent future."

In fact, Julius Baer is far from being in a precarious position financially. It reported on Mar. 9 that net profit last year nearly tripled, to $192 million, on a 2% rise in revenue, to $896 million. But the earnings recovery may only make it more attractive to buyers. And to cope with the inroads made by bigger banks, Baer must find better ways to attract more of the world's wealthiest clients -- even if the Baer family isn't calling the shots.

By Alison Langley in Frankfurt

Before it's here, it's on the Bloomberg Terminal. LEARN MORE