Julius Baer U.S. Tax-Probe Finale May Spur Dealmaking

Updated on
Boris Collardi
Julius Baer Group Ltd. CEO Boris Collardi. Photographer: Matthew Lloyd/Bloomberg

Julius Baer Group Ltd. should have cash to purchase rivals even as it prepares to settle a four-year probe into tax evasion by the U.S. Justice Department.

Switzerland’s third-largest wealth manager said last month it set aside $350 million to fund a financial agreement over the bank’s role in helping Americans hide money offshore. That would leave it with almost $1 billion of excess capital that could be tapped for deals.

“I want to see them going out and making acquisitions,” said Rob Taylor, fund manager at Harris Associates LP, one of the bank’s biggest shareholders with a 7.9 percent stake. “Julius Baer’s management has an excellent track record of getting very good prices and integrating assets efficiently.”

The Zurich-based firm, which began as a bureau de change in the city’s luxury Bahnhofstrasse shopping street in the 1890s, is seeking acquisitions to improve profitability at home and tap new wealth in emerging markets. Key hunting grounds are Switzerland, where smaller rivals are struggling under a crackdown on undeclared offshore accounts and narrowing margins, Asia, where new capital is flowing to Singapore and Hong Kong, and London, the second-largest wealth management center after New York.

Julius Baer said on Monday it agreed to acquire a 40 percent stake in NSC Asesores, the largest independent financial advisory firm in Mexico, for an undisclosed amount. NSC Asesores manages about $3 billion in Latin America’s second-biggest wealth market, the bank said, as it reported a 78 percent drop in first-half profit to 39 million Swiss francs ($40.5 million), spurred by the tax provision.

‘Big Elephant’

Chief Executive Officer Boris Collardi told investors at a presentation in Zurich that he’s seeking “transformational M&A” after the U.S. settlement is complete.

“We would love another big elephant to cross our path,” such as the Merrill Lynch international wealth units acquired from Bank of America Corp. in 2012, Collardi said.

Julius Baer is also interested in Swiss firms with 5 billion to 15 billion francs under management, Collardi said.

New targets could include the Swiss subsidiaries of foreign lenders such as Barclays Plc and the Asian private bank of ABN Amro Group NV, which oversees about $20 billion, should they come up for sale, according to Andreas Venditti, head of banking research at Vontobel Holding AG in Zurich.

Julius Baer oversaw 369 billion francs for clients at the end of June. The company’s shares rose 15 percent this year, lagging behind gains of 19 percent for the Bloomberg Europe 500 Banks & Financial Services Index and valuing the firm at 11.8 billion francs.

Merrill Lynch

Julius Baer has completed about nine deals over the past decade, spanning Swiss private banking, assets of banks exiting offshore locations and stakes in financial services companies in Latin America. For the past three years, it has been integrating about 17 Merrill Lynch businesses.

“I’m sure they have already been looking around for more deal opportunities,” said Jonas Floriani, a London-based analyst with Keefe, Bruyette & Woods, who estimates the bank has about 1.2 billion francs of excess capital above minimum regulatory requirements ahead of the Justice Department settlement.

London is also a target market. Last year, the lure of the city’s super-rich prompted Collardi, 41, to take an interest in the U.K. business of Coutts, the private bank of Queen Elizabeth II. His decision to appoint Hector Sants, the former head of the U.K. financial regulator, as chairman of Julius Baer International Ltd. from July 1 in London, may indicate a desire to schmooze local authorities into backing any future purchases.

Target, Too

Julius Baer is itself the subject of takeover speculation. Collardi has said repeatedly since September he is a buyer, not a seller, saying the firm would be too expensive a purchase for many of its rivals.

The bank’s market capitalization is more than 4 percent of assets under management. That’s almost double the average private banking deal multiple of 2.1 percent in 2014, according to Scorpio Partnership, a London-based consultancy.

Julius Baer is “a predator, not prey,” said Michael Kunz, an analyst at Zuercher Kantonalbank in Zurich.

Last week, Royal Bank of Canada was the latest to announce an exit from Switzerland, agreeing to sell its private banking unit to Geneva’s Banque Syz SA. Royal Bank of Scotland Group Plc and Morgan Stanley have also retreated.

Rivals Disappear

Two potential rival bidders may be temporarily removed from the market. Union Bancaire Privee is tied up in a two-year merger of 32 billion francs of Coutts International client assets it bought from RBS in March, while Banque Syz is focused on absorbing RBC Suisse until the middle of next year. Julius Baer may be able to afford to buy businesses more than twice the size of Coutts International, according to Venditti.

The firm should focus on deals in case prices increase after banks settle with the U.S over their own tax disputes, said Taylor, who is co-manager of Harris Associates’s Oakmark Global Fund and the Oakmark International Fund.

“If Boris Collardi were to say ‘I just want to be the biggest private bank’, that wouldn’t appeal to me,” Taylor said. “But regularly doing acquisitions profitably? Yes.”

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