Julius Baer Margins Shrink Amid Slowdown in Client Inflow

Julius Baer Group Ltd., Switzerland’s third-largest wealth manager, declined in Zurich trading after reporting that its gross margin has narrowed since June and net new asset gathering slowed.

Shares fell as much as 4.5 percent and were down 3.6 percent at 42.37 Swiss francs by 1:23 p.m. in Zurich, the worst performance in the 49-member STOXX 600 Banks Index.

“The margin keeps on falling,” Dirk Becker, a Frankfurt-based analyst with Kepler Cheuvreux, said in a telephone interview. “They had a sharp slowdown in net new money during the summer.”

Becker is one of five analysts who recommend selling the stock, compared with eight who advise buying shares and 16 who rate the company hold, according to data compiled by Bloomberg. Before today’s losses, the stock had increased 12 percent since this year’s low on July 11.

Julius Baer’s gross margin, which reflects how much the bank makes in revenue on managed assets, slipped to 94 basis points at the end of October, from 95 basis points in the first six months of the year, the company said in an e-mailed statement today. A basis point is a hundredth of a percentage point.

Some Julius Baer cross-border clients made withdrawals to settle unpaid taxes in their home countries, restraining year-to-date net inflows to the middle of the firm’s 4 to 6 percent annualized target growth range, the company said. Julius Baer previously reported “excellent” net new money that grew at an annualized rate of 6 percent during the first half, according to a July 21 statement.

Litigation ’Elephant’

Julius Baer is seeking new acquisitions even as the absorption of about 58 billion Swiss francs ($60 billion) of non-U.S. Merrill Lynch client assets from Charlotte, North Carolina-based Bank of America Corp. weighs on profitability. Julius Baer agreed in July to buy the European operations of Bank Leumi Le-Israel BM, including about 7 billion francs of client assets.

Managed assets were 285 billion francs on Oct. 31, Julius Baer said today, compared with 274 billion francs on June 30. Julius Baer has received regulatory approval to take control of the Merrill Lynch wealth unit in France and expects to have completed 17 of 18 local transaction closings by the end of this year, with the transfer of the business in India to follow in the first half of 2015.

Julius Baer is among about a dozen Swiss banks embroiled in a U.S. Department of Justice criminal probe of wealth managers that helped Americans hide money offshore. The company has said it can’t reliably estimate the size of a potential fine to resolve the U.S. probe.

“The elephant in the room is this U.S. litigation,” Becker said. “They don’t say a single word about this.”

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