- Money slowdown from European, Latin American, Asian clients
- Private bank introduces new $51 million cost-saving program
Julius Baer Group Ltd., Switzerland’s third-largest wealth manager, said net new money from clients amounted to less than 3 percent of managed assets in the first four months of the year, missing its target.
Clients in eastern Europe and Latin American showed “slow momentum,” while customers in Asia reduced borrowings and wealthy French and Italians repatriated money for tax purposes, the Zurich-based company said in a statement on Thursday.
While Julius Baer reiterated its full-year target to generate a 4 percent to 6 percent increase in client assets through net new money, that goal is in jeopardy, according to Jonas Floriani, a London-based analyst at Keefe, Bruyette & Woods.
“The net new money slowdown is a negative sign, especially since we saw more positive flows from UBS and Credit Suisse in the first quarter,” Floriani said in a telephone call. “It confirms that Julius Baer will struggle to achieve its target this year.”
Julius Baer is making acquisitions to compensate for lackluster organic development, as it chases the growth of wealth managers several times its size such as UBS Group AG and Credit Suisse Group AG. The company paid $547 million to resolve a U.S. tax probe in February, erasing most of last year’s profit, and has said it needs to invest several hundred million dollars to upgrade its information-technology platform.
Julius Baer dropped as much as 2.2 percent and was down 1.2 percent to 40.14 Swiss francs as of 9:06 a.m. In Zurich. The shares have fallen about 17 percent this year, compared with a 21 percent decline in the Bloomberg Europe 500 Banks and Financial Services Index.
Net new money totaled 4.2 percent of assets last year and 3.9 percent in the second half of 2015. Client assets under management increased to 305 billion Swiss francs ($309 billion) in the first four months of the year, from 300 billion francs at the end of December, according to the statement. The increase includes about 9 billion francs at Kairos Investment Management SpA after Julius Baer increased its stake in the Italian asset manager to 80 percent in April.
Julius Baer said it has partly implemented measures to save 50 million francs to help bring the company close to its medium-term cost-to-income ratio target of 64 percent to 68 percent. The ratio exceeded 68 percent in the first four months, while Julius Baer hired 30 new client advisers in regions including Asia.
The gross margin, or revenue divided by assets under management, improved to 91 basis points by the end of April, excluding a positive fair value adjustment from the Kairos stake, compared with 88 basis points previously reported for the second half of last year.
“Although the gross margin was broadly in line, we expect investors to react negatively to the weaker net new money and higher costs,” Andrew Coombs and Nicholas Herman, analysts at Citigroup Inc., wrote in a note to clients. “We expect modest consensus downgrades on these results.”