Julius Baer Sets Tone for Swiss Banks With Beat on New Money

  • 2016 was ‘vintage year’ for relationship managers, CEO says
  • Bank seeking ‘transformational opportunities’ in Asia

Julius Baer's CEO on Earnings, Asia Strategy, Brexit

Julius Baer Group Ltd. exceeded its target for net new money, setting the bar for Swiss rivals Credit Suisse Group AG and UBS Group AG, which also report this week. The stock rose the most in more than two years.

Switzerland’s third-biggest private bank said net new money rose 6.1 percent -- about 10 billion francs ($10.6 billion) -- on an annualized basis in the first half. That compares with 4 percent at the end of 2016 and was a touch above its target of between 4 percent and 6 percent per year. Asia, the Middle East and Latin America all contributed to the beat, the bank said in a statement Monday.

Boris Collardi speaks during an interview on July 24.

Photographer: Michele Limina/Bloomberg

“It was our best half-year ever,” Chief Executive Office Boris Collardi said in a Bloomberg TV interview. “Net new money exceeded expectations, on the back of very good momentum on hiring.”

Julius Baer has turned to recruitment to expand its asset base amid subdued client activity, hiring 166 relationship managers worldwide last year. That set the stage for a surge in cash inflows - an indicator of future revenue -- that has continued in the second half, boosting assets under management 6 percent to 355 billion francs, the Zurich-based company said.

‘Vintage Year’

Collardi likened client advisers to good bottles in the wine cellar. “I have to say 2016 is turning out to be an outstanding vintage,” he told analysts in a conference call.

Relationship managers who have been in the role for five years should oversee on average 250 million francs to 270 million of francs of client money, he said. New relationship managers usually start delivering to the bottom line after two years, Chief Financial Officer Dieter Enkelmann said.

Julius Baer will continue to recruit in Asia and may add more hubs there, Collardi said. The bank is also looking at “inorganic opportunities” in the region, where a growing number of millionaires has whetted competition among wealth managers. Any acquisition would have to be “something that really adds on to the group, that is more transformational."

Stock Surges

Julius Baer is the fifth-largest private bank in Asia with $82 biillion in assets under management, according to a 2016 ranking by Asian Private Banker. UBS is more than three times larger in Asia, while Credit Suisse has twice as many assets there as Julius Baer, according to the ranking. Unlike Julius Baer, a pure-play private bank, UBS and Credit Suisse also have sizable investment banks, which will affect their earnings.

The stock rose more than 8 percent - the most since February 2015 -- to trade 6 percent higher at 52.85 francs in Zurich as of 11:31 a.m., giving the bank a market value of about 12 billion francs. Credit Suisse and UBS, which report Friday, were up 1.5 percent and 1.6 percent respectively.

The results are “above expectations across the board,” Andreas Venditti, an analyst at Bank Vontobel AG, said in a note. “The biggest surprise is the strong improvement in gross margin. May and June must have been great revenue months.”

The gross margin, a measure of profitability that compares revenue with client assets, improved to 92 basis points from 91 at the end of 2016. It was close to 90 basis points at the end of April, the bank said in a trading update in May.

Sentiment Improving

Operating income increased to 1.59 billion francs from 1.42 billion francs a year earlier. That was in line with an average estimate of 1.56 billion francs by six analysts surveyed by Bloomberg. Adjusted net income amounted to 404 million francs, up 28 percent after excluding onetime gains a year earlier.

Income from commissions and fees rose 25 percent to 922 million francs, driven by strong commissions from client transactions, the bank said. Interest and dividend income rose 11 percent to 566 million francs, reflecting an increase in loan volumes and higher credit spreads. Trading income, boosted last year by the U.K. vote to leave the European Union, fell 23 percent to 90 million francs.

Collardi said he was encouraged by International Monetary Fund forecasts for an expansion in global economic growth this year and by comments from central banks indicating a shift to higher rates. Market sentiment is improving, and stocks are the main attraction, Collardi said.


— With assistance by Mara Bernath, Manus Cranny, and Chris Malpass

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