Julius Baer Group Ltd., the Swiss wealth manager established in 1890, agreed to buy Bank of America Corp.’s Merrill Lynch wealth management units outside the U.S. for about 860 million Swiss francs ($880 million).
The cost of the transaction totals 1.47 billion francs, including 312 million francs of after-tax integration costs and incentives to retain Merrill bankers and 300 million francs to maintain regulatory capital, Zurich-based Julius Baer said today. Julius Baer shares fell the most in almost three years.
Julius Baer, which is building its business as a crackdown on tax evasion pushes customers to repatriate funds from Swiss offshore accounts, said purchasing the Merrill businesses will boost assets by about 40 percent. While Julius Baer expects the acquisition to add to earnings from 2015, it said profit may be “somewhat volatile” over the next two years.
“I can’t see anyone getting very excited about this,” said Dirk Becker, a Frankfurt-based analyst at Kepler Capital Markets, who has a hold rating on the stock. “It’s a big business, but not a profitable one, and they’ve lowered their financial targets.”
Julius Baer fell 7.4 percent to 32.80 francs at the close of Zurich trading, the biggest drop since October 2009, when the company split from its asset management arm now known as GAM Holding AG. The stock has declined 11 percent this year, cutting the bank’s market value to 6.44 billion francs.
The transaction price equates to 1.2 percent of assets under management and assumes the transfer of 72 billion francs of client funds over a two-year integration period, Julius Baer said. That’s almost 89 percent of the 81 billion francs of assets managed by the Merrill units as of June 30.
Julius Baer, which canceled a proposed share buyback, plans a 750 million-franc rights offer to help fund the purchase of the Merrill business. The capital increase is subject to shareholder approval at an extraordinary meeting on Sept. 19, the bank said.
It “looks rather expensive especially when taking into account the integration costs, implementation risks and need for an additional capital increase,” said Teresa Nielsen, a Zurich-based analyst at Vontobel Holding AG.
The Merrill business had a pretax loss last year and a cost-to-income ratio of 114 percent. Julius Baer said the ratio of the merged entity will be 65 percent to 70 percent compared with the bank’s current mid-term target of 62 percent to 66 percent.
Chief Executive Officer Boris Collardi is targeting a 15 percent boost to earnings per share from 2015 and said the acquisition will cut Julius Baer’s exposure to the Swiss franc. The Merrill business has more than 2,000 employees and about two-thirds of the assets are from growth markets, including Asia, Latin America and the Middle East.
“This acquisition brings us a major step forward in our growth strategy and will considerably strengthen Julius Baer’s leading position in global private banking,” said Collardi, adding that some job cuts are expected.
The cash and share deal will leave Bank of America with a stake of about 3 percent in the Swiss wealth manager, Julius Baer Chief Financial Officer Dieter Enkelmann said on a conference call. The two companies also entered a cooperation agreement under which Bank of America will provide global equity research and structured and advisory products to Julius Baer.
Julius Baer, which bought ING Groep NV’s Geneva-based wealth business in 2009, acquired a 30 percent stake in Brazilian wealth manager GPS Investimentos Financeiros e Participacoes SA and purchased Macquarie Group Ltd.’s Asian private-client business last year. Baer lost out to Safra Group last November to buy a controlling stake in Basel, Switzerland-based Bank Sarasin & Cie. AG.
Julius Baer, which said June 19 it was in talks to buy the Merrill Lynch units, will have 250 million francs left over from its capital raising for further acquisitions, said Collardi, adding that opportunities may arise over the next two years.
Bank of America CEO Brian T. Moynihan, whose firm is the second-biggest U.S. lender by assets, has unloaded foreign businesses to focus on selling more services to existing customers. He has sold more than $50 billion in assets and businesses since taking over in 2010, including Canadian and European credit-card units, to bolster capital before stricter international rules take effect.
Perella Weinberg Partners LP advised Julius Baer on the transaction, according to today’s statement.