Julius Baer's latest Italian deal is a sign of how a Swiss private bank is determined to build an international onshore presence at a time when Switzerland's own banking sector has been under the hammer.

Boris Collardi, the chief executive of Julius Baer, certainly has a lot on his plate even without all the pressures that come with being in charge of a Swiss bank at a time when the Alpine state is every tax collectors' target.

His firm has just announced a deal to develop onshore wealth management in Italy; it has recently bought the non-US wealth business of Bank of America and has collaborative partnerships in Asia, which it sees as its second “home” market. 

With a total of SFr274 billion ($289.4 billion) of client money and assets under management of SFr 187 billion (as of end-October, according to interim figures published today), the Zurich-listed bank is the largest “stand-alone” wealth manager that operates from the Alpine state.

This firm, like Swiss cousins such as UBS and Credit Suisse, for example, is adjusting to an environment that is more hostile towards the traditionally secretive, offshore Swiss banking model, although Julius Baer insists that its bigger push into the Italian market is “strategic” rather than driven by short-term issues such as Italian tax amnesties. (The firm has had an onshore presence in Italy for six years.)

Julius Baer and Milan-based Kairos Investment Management said this week they wish to create “a leading onshore wealth management player in Italy”. Under the terms of this deal – subject to regulatory approval - Julius Baer’s Italian SIM business will be integrated into Kairos and, simultaneously, Julius Baer will acquire 19.9 per cent of Kairos.

Footprint

“They are clearly trying to expand their footprint and the Italian market is very important to Julius Baer,” Christopher Wheeler, analyst at Italian firm Mediobanca, told this publication. He said the pressures on Italians using offshore accounts via Swiss banks must have played some part in the bank’s thinking.

Asked about the deal in detail, a spokesperson for the Swiss firm said: “Julius Baer wants to strengthen its long-term position in the Italian market. Julius Baer SIM as it is today did only have limited growth potential in the current market environment. A standalone project to build a private bank [for Italy] has been evaluated; the result of our analysis showed that the best case would be to proceed with a partner.”

“Kairos represents a very attractive opportunity to enter the Italian wealth management market with a critical scale and to further grow and develop our business. Kairos is a leading independent wealth manager, with approximately €4.5 billion in assets under management and with an excellent reputation,” the spokesperson said, continuing that Kairos is one of the few profitable wealth managers in Italy with a proven management and track record.

Asked what the firm predicts about growth prospects for such an onshore wealth management market in Italy, the bank replied that it was an “interesting wealth management market” and “relevant” for Julius Baer in terms of size.

“We see potential for a strong capitalised private banking group with international investment expertise and fully dedicated to offer best-in-class investment solutions and advice,” the spokesperson continued.

Italian pressure?

To what extent was the onshore business venture driven by the Italian government's series of crackdowns on offshore banking among Italian clients in recent years? Is this venture a sign of how Swiss banks have to adapt their business models? Can we expect more such developments in the future?

“Our onshore presence in Italy is strategic and with a long term perspective – not in response to recent developments,” the spokesperson said, pointing out that Julius Baer has had an onshore presence in the country since 2006 with its Julius Baer SIM business.

More recently, in 2010, Julius Baer acquired Alpha SIM, already present and known in the market for some years. The merged company has been renamed Julius Baer SIM, the spokesperson continued.

Asian partnerships

Julius Baer’s ambitions to be a vigorous player in the international financial centres of Asia has been known for some time, and its momentum does not appear to have faltered, notwithstanding any concerns about the possibility of a slowdown to China’s economy, one of the drivers of a new, rising middle class in the region.

In July this year, the bank and Bank of China entered into a strategic agreement whereby they will mutually cross-refer clients and collaborate on marketing activities. In October 2011, Julius Baer and Australia’s Macquarie entered into a strategic collaboration deal: the Swiss firm refers clients’ investment banking transactions to Macquarie and the Australian firm refers clients who require private banking services to Julius Baer. Macquarie’s Asian Private Wealth business has also been transferred to Julius Baer.

And the biggest deal of the lot – with implications for Asia and other regions – was Julius Baer’s purchase of the non-US wealth business of Bank of America Merrill Lynch. The deal, the bank said at the time, will boost assets under management by up to 40 per cent to SFr251 billion for a price of around SFr860 million.

Much still depends, in terms of the price paid, on how many assets remain in the acquired business; the amount of net new business that enters this expanded business is therefore what will drive the sum that Julius Baer pays BoA, pointed out Mediobanca’s Wheeler.

Julius Baer is certainly upbeat about what it has bought. In a 9 October presentation to clients, it pointed out that, among its qualities, the BoA Merrill international wealth management business had a “strong brand name in multiple locations” such as Singapore, Hong Kong and India, and considerable size, with SFr81 billion (as of end-June). In practice, the presentation pointed out that Julius Baer expects to acquire between SFr57 and SFr72 billion of that AuM, at a purchase price of around 1.2 times AuM.

One of the reasons why the assets under management acquired might be less than the SFr81 billion figure is due to some expected attrition. For as Mediobanca’s Wheeler said, “Clients want to decide where to bank. Wealth management mergers and acquisitions are highly risky in terms of taking clients across and in terms of clients liking the new brand.”

These are useful reminders at a time when merger and acquisition activity in wealth management appears to be pretty brisk at the moment. But as far as Julius Baer is concerned, it clearly feels it has the wind in its sails in its chosen regions. Collardi and colleagues will be busy next year.