Julius Baer Assets Climb 16% as Merrill Businesses Absorbed

Julius Baer Group Ltd., the third-largest Swiss wealth manager, said client assets rose 16 percent in the first four months of the year after integrating Merrill Lynch businesses acquired from Bank of America Corp. last year.

Assets under management increased to 220 billion Swiss francs ($228 billion) from 189.3 billion francs at the end of December, the Zurich-based bank said in a statement today. That included 11 billion francs from Merrill Lynch’s Swiss wealth unit and 13 billion francs from businesses in Uruguay, Chile, Monaco and Luxembourg.

Julius Baer expects to absorb Merrill’s Singapore, Hong Kong and U.K. operations later this year as part of a deal that may boost assets by as much as 72 billion francs by 2015. While gross margins, which reflect how much the bank makes in revenue on managed assets, rebounded with increased client activity, the formerly unprofitable Merrill business crimped that improvement.

“The trends are positive,” said Andrew Stimpson, an analyst at Keefe, Bruyette & Woods in London, who rates the shares market perform. “Still, the growth in managed assets and the recovery in gross margin aren’t as strong as we were expecting given what we saw at other Swiss banks in the first quarter. It’s a slightly disappointing statement.”

On Track

Julius Baer rose 0.1 percent to 38.78 francs as of 9:55 a.m. in Zurich, extending the stock’s gain to 20 percent this year. That gave the firm a market value of 8.7 billion francs.

The gross margin was 98 basis points during the first four months of the year, or 99 basis points stripping out the Merrill business, Julius Baer said. That compares with 94 basis points in the second half of last year. A basis point is one hundredth of a percentage point.

We believe the “acquisition is on track but assume margins will be under pressure going forward as well as net new money,” Teresa Nielsen, an analyst at Vontobel Holding AG in Zurich who recommends selling the stock, wrote in a note to clients today.

Net new money for 2013 will be close to the lower end of the bank’s 4 percent to 6 percent target range, as European cross-border clients make self-declarations to tax authorities in their resident countries and as the firm implements withholding-tax agreements negotiated by Switzerland with the U.K. and Austria, Julius Baer said.

Julius Baer’s cost-income ratio improved to below 70 percent in the first four months of the year, from 71.6 percent in the second half of 2012. Merrill Lynch’s non-U.S. international wealth management units recorded a pretax loss in 2011 with a cost-to-income ratio of 114 percent.

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