Assets under management, income and profits rose at Switzerland's Julius Baer in its half-year results, boosted by continued transfer of acquired business. It announced a new co-operation deal to expand business.

Julius Baer said today total client assets stood at SFr372 billion ($414 billion) at the end of June, a 7 per cent gain since the end of last year, while assets under management, at SFr274 billion, rose 8 per cent.

The latest AuM figure included SFr54 billion of money from Bank of America’s non-US international wealth management (IWM) business that has been acquired and booked onto the Julius Baer platform.

The growth in total AuM in the first six months was driven by the following factors: net new money of SFr7.5 billion (6 per cent annualised); the inclusion of SFr6 billion from the first-time consolidation of Brazilian subsidiary GPS, and positive market performance of SFr5.7 billion, partly offset by a small negative currency impact of SFr0.4 billion.

Net new money was driven by continued net inflows from the growth markets and from the local businesses in Switzerland and Germany, while the inflows in the cross-border European business were more than offset by continued tax regularisations of legacy assets.

Operating income rose to SFr1.236 billion, up 15 per cent from the first half of 2013, below the 24 per cent growth rate in monthly average AuM (to SFr261 billion). As a result, the gross margin for the group was 95 bps (H1 2013: 102 bps; H2 2013: 91 bps).

The increase in gross margin compared to the second half of 2013 was due to how operating income of the IWM business was impacted by the intensity of the asset transfer process during that period.

“This transfer effect dissipated significantly during the first half of 2014,” Julius Baer said.

Adjusted operating costs rose 16 per cent, to SFr882 million, mainly as a result of the cost of transferring acquired IWM businesses, Julius Baer said.

The total number of employees grew by 1,052 full-time equivalents, or 23 per cent, to 5,557 FTEs, including a net 1,081 formerly from IWM (up from 553 a year ago) and 111 following the first-time consolidation of GPS. The number of RMs grew by 250 to 1,216, of which 353 formerly from IWM (up from 157 a year ago).

As a result, the adjusted cost/income ratio was 70.8 per cent (H1 2013: 69.3 per cent; H2 2013: 73.3 per cent).

Adjusted profit before taxes rose by 11 per cent to SFr354 million. The related income taxes increased to CHF 66 million, representing a tax rate of 18.7 per cent.

Integration

Julius Baer said it has continued to switch over the assets acquired from the BoA Merrill Lynch international wealth management unit. In the first half of 2014, the IWM integration continued, with the IWM business in Ireland transferring in April and the IWM business in the Netherlands transferring in May. Since the start of the IWM integration process on 1 February 2013, a total of 17 IWM locations have now entered the transfer process. In relation to the transfer of the business in France, a request for regulatory approval has been submitted to the French authorities. The transfer of the business in India is expected to take place in the first half of 2015, after which the IWM integration process will be completed.

At the end of June 2014, based on asset values at the applicable transfer dates, AuM reported from IWM stood at SFr54 billion (end 2013: SFr53 billion), of which SFr45 billion were booked on the Julius Baer platforms and paid for.

During the first six months of 2014, while a further 100 employees transferred from IWM to Julius Baer, the integration-related rightsizing resulted in 260 employees leaving the group, with a further 103 redundancies already communicated. The 363 realised redundancies compare to a previously announced 2014 full-year gross reduction target of 550-560 FTEs, while the realised net reduction of 263 FTSs “represent sizeable progress towards attaining the 2014 net transaction-related synergy target of approximately 400 FTEs”, it said.

Bank Leumi co-operation

Julius Baer said today it has entered a strategic co-operation agreement with Leumi, a bank headquartered in Israel with operations in Switzerland, among other locations. Under the agreement, Leumi will refer clients with international private banking needs to Julius Baer, while the Swiss bank will refer clients to Leumi’s domestic banking services in Israel.

In addition, Leumi has also decided it will exit its Swiss- and Luxembourg-based private banking businesses and transfer its respective international private banking clients to Julius Baer. In Switzerland this will be in the form of a business transfer from Leumi Private Bank AG (LPB), while in Luxembourg the intention of the parties is that Julius Baer will purchase Leumi’s local subsidiary, Bank Leumi (Luxembourg) (Leumi Lux).

At the end of June 2014, LPB had approximately SFr5.9 billion assets under management and Leumi Lux approximately SFr1.3 billion AuM.

“LPB and Julius Baer will cooperate closely to ensure a seamless transfer of the majority of the client relationships in Switzerland, including the transfer of associated relationship managers and staff required to ensure the continuity of the client business,” it said.

“LPB currently employs 158 staff including 32 RMs in its offices in Zurich and Geneva. The transfer of the client assets is expected to be concluded by the end of 2015, with the majority to be transferred by the end of 2014 / early 2015,” the bank said.

“The targeted acquisition of Leumi Lux by Julius Baer – which presently employs 31 staff of which eight are relationship managers – is expected to be completed by the end of the first quarter of 2015, subject to regulatory approvals. Following the closing, the entity is expected to be combined with the local investment advisory business of Julius Baer,” it added.

The total transaction goodwill payable is SFr10 million in cash. The capital impact from the transfer of the Swiss-based business is expected to amount to between SFr60 million and SFr70 million (incl. goodwill payable, required capital and transaction, integration and restructuring costs), assuming that 75 per cent of the client assets will transfer. The transaction in Switzerland is expected to be earnings-per-share neutral in 2015 and should result in a low single-digit percentage accretion from 2016.