Julius Baer First-Half Profit Gains as Clients Add Funds

Julius Baer Group CEO Boris F.J. Collardi
Boris F.J. Collardi, chief executive officer of Julius Baer Group Ltd.Photographer: Munshi Ahmed/Bloomberg

Julius Baer Group Ltd., the Swiss wealth manager established in 1890, said first-half profit climbed 19 percent after earnings in the year-earlier period were cut by a payment to settle a German tax-evasion probe.

Net income rose to 175.5 million Swiss francs ($177 million), the Zurich-based bank said today, beating the 151.1 million-franc mean estimate of eight analysts surveyed by Bloomberg. While the bank attracted new client funds, revenue margins on assets under management declined.

Switzerland’s fourth-biggest money manager is targeting acquisitions and building branch networks in emerging markets and Europe as a crackdown on tax evasion pushes customers to repatriate funds from cross-border accounts. Baer is still seeking a settlement with U.S. tax authorities probing Swiss banks that allegedly helped Americans hide money.

“While they’re winning new business, these declining margins are acceptable,” said Arno Endres, an analyst at Luzerner Kantonalbank AG in Lucerne, Switzerland. “The bank still has other problems like being part of the list of banks under investigation by the U.S. This issue needs to be tackled and we don’t know what the cost will be.”

Baer gained 1.6 percent to 35.25 francs as of 1:41 p.m. in Zurich trading, paring this year’s decline to 4.1 percent. That compares with an 7.5 percent drop in the 38-company Bloomberg Banks and Financial Services Index over the same period.

Client Activity

Chief Executive Officer Boris Collardi said today that the outcome of talks with Bank of America Corp. about acquiring its Merrill Lynch wealth business outside the U.S. was “still open.” The bank is also screening acquisition opportunities in Switzerland, he said in a Bloomberg television interview.

BSI Group, owned by Italy’s Assicurazioni Generali SpA, is an “interesting asset,” which Baer hasn’t pursued so far, Collardi said at a presentation in Zurich.

Assets under management climbed to 178.8 billion francs by June 30, from 178 billion francs two months earlier, as clients increased deposits. Baer is trying to boost the amount of wealth it oversees to counter declining profitability, Collardi said.

Net inflows of 5.5 billion francs, mainly from customers in emerging markets, beat the bank’s target of 4 percent to 6 percent annualized growth. The firm’s Asia business is profitable and focused on winning Chinese clients, according to Collardi.

Baer reported earlier that it has started a joint venture with Bank of China Ltd., including taking over the Beijing-based firm’s Geneva unit, which oversees less than 1 billion francs of customer assets.

New Hires

Julius Baer also lured funds from Bank Sarasin & Cie. and Credit Suisse Group AG’s Clariden Leu unit, from which it hired a team of Middle East advisers, Collardi said.

Customers kept a “cautious investment stance” leading to “relatively restrained transaction and trading activity,” he said. That pushed the bank’s gross margin down to 98 basis points in the first half, from 104.9 basis points in the year-earlier period. A basis point is one-hundredth of a percentage point.

The second half of the year may remain “difficult” for clients if Europe doesn’t make progress on resolving its debt crisis, according to the CEO.

U.S. Costs

The cost-to-income ratio, another measure of profitability, worsened to 70.4 percent from 67.6 percent and was more than 4 percentage points higher than the top of the firm’s target range.

Julius Baer posted 14 million francs in legal and other costs related to the U.S. tax matter, adding to 8.4 million francs booked last year as general expenses.

The firm said Feb. 6 it expects to pay a fine and hand over client data to U.S. authorities as part of a probe of 11 banks that allegedly helped Americans hide money from the Internal Revenue Service. The bank, which exited its U.S. private-client business between 2009 and 2011, reiterated that the size of the fine isn’t possible to estimate and consequently no provision has yet been made.

Profit was crimped in the first half of 2011 after Baer agreed to pay German authorities 50 million euros ($60 million) to end an investigation over undeclared client assets.

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