Julius Baer Chairman Sees ‘Painful Adjustments’ Over TaxesGiles Broom
Julius Baer Group Ltd., Switzerland’s third-largest wealth manager, says it backs the country’s move toward tax-compliant private banking, as foreign governments address the abuse of offshore accounts.
“The ongoing refocusing of the Swiss financial center on henceforth managing only taxed assets is a logical consequence, which is fully supported by Julius Baer and has already been implemented in our business,” Chairman Daniel Sauter told the firm’s annual shareholder meeting in Zurich today. “It will undoubtedly lead to a few painful adjustments.”
Switzerland, the world’s largest center for offshore wealth, is trying to shed its image as a haven for undeclared funds amid scrutiny from U.S. and European governments. Banks are also under pressure to crack down on tax dodgers as the Swiss government pursues a domestic “white-money” strategy.
Julius Baer, one of at least 11 Swiss financial firms under investigation by the Department of Justice, is in talks with the U.S. to try to resolve a probe of its American cross-border client business closed between 2009 and 2011. While the size of a potential fine remains unclear, legal and accounting costs related to the U.S. matter totaled 38 million Swiss francs ($41 million) in 2012, the firm said on Feb. 4.
The bank may also shut undeclared German accounts if customers don’t address their fiscal duties, Jan Vonder Muehll, a spokesman for Julius Baer, said on April 8. Germany’s Parliament last year rejected a bilateral solution over undeclared accounts in Switzerland after opposition parties said the agreement contained too many loopholes for tax evaders.
“Swiss banks with European clients are going strongly for a white-money strategy,” said Andreas Lenzhofer, a consultant at Booz & Co. in Zurich. “As declared money is less profitable, they need to continue to reform their operating models and target new markets.”
Julius Baer, established in 1890, exceeded 200 billion francs in client managed assets this year as it began integrating Merrill Lynch’s non-U.S. wealth-management units acquired from Bank of America Corp. The firm has said it expects to absorb as much as 72 billion francs of new customer assets.
Gains in bond and equity prices this year also boosted client funds, Sauter said in his speech. At the same time, regulatory changes are increasing costs, he said.
Swiss wealth managers are building onshore networks in Europe as a crackdown on tax evasion pushes rich Europeans to repatriate money. Julius Baer has said it recorded “healthy” inflows at its German branches last year and forecast them to be profitable by the end of 2014. The firm is jointly applying for a banking license with Kairos Investment Management SpA to sell onshore wealth-management services to Italians.
Swiss private banks are also investing in emerging markets such as Asia and Latin America, where growth in private wealth is outstripping that of western Europe.
The Merrill Lynch integration “represents a rare opportunity to markedly increase our position in key growth markets,” Chief Executive Officer Boris Collardi told investors today.
The acquisition will double Julius Baer’s activities in Asia, add five locations in India and the largest wealth manager in Uruguay, said Collardi. The CEO received a so-called integration award of 800,000 francs as part of his compensation of 6.7 million francs for 2012. Shareholders rejected Julius Baer’s remuneration report in a non-binding vote today.
Julius Baer rose 1 percent to 36.05 francs at 3:22 p.m. in Zurich, extending this year’s gain to 12 percent, compared with a 1.6 percent advance in the Bloomberg Europe Banks and Financial Services Index.