The Swiss bank reported a broadly strong set of figures for 2015. As expected, however, provision to settle its legacy cross-border business in the US has hit profits.

Julius Baer saw its assets under management rise 3 per cent last year, to SFr300 billion ($293.9 billion) at year-end. They were boosted by net new money, while the bank's operating income rose and its cost/income ratio contracted. The Switzerland-listed firm reset its medium-term target for its cost/income ratio to a lower figure.

The bank has, as signalled in January, set aside money to pay for a settlement of charges by the US over holding secret bank accounts for Americans. Julius Baer's adjusted net profit was affected by the provision of $547.25 million (SFr521 million) for the eventual settlement with the US Department of Justice regarding the legacy US cross-border business (the US provision), falling by 52 per cent year-on-year in 2015 to SFr279 million.

The bank's AuM figure for 2015 included SFr60 billion that came with the clients and relationship managers of the former Merrill Lynch International Wealth Management business outside the US, which Julius Baer bought. This equates to net new money of SFr12 billion (4.2 per cent) and a net positive acquisition impact of SFr8 billion, partly offset by a negative currency impact of SFr10 billion and negative market performance of SFr1 billion.

Net new money was driven by net inflows from all regions, with strong contributions from Asia, the Middle East, Israel, and the domestic businesses in Monaco, Germany and Switzerland. There was also a “clear improvement” in the contribution from the cross-border European business (particularly from the UK) despite the impact of the tax regularisations of legacy assets from clients domiciled in France and Italy, the bank said.

Operating income rose 6 per cent year-on-year to SFr2.694 billion, up 6 per cent, in line with the growth in monthly average AuM (to SFr288 billion). As a result, the gross margin for the group remained at 94 basis points. Net commission and fee income contributed SFr1.522 billion, an increase of SFr4 million on the previous year, partly due to a 2 per cent decline in brokerage commissions as a consequence of lower client risk appetite in the second half of the year.

Net interest and dividend income rose by 10 per cent to SFr711 million, driven by dividend income on trading portfolios, up from SFr72 million to SFr139 million.

Adjusted operating expenses rose 30 per cent year-on-year to SFr2.385 billion, mainly caused by the impending settlement with US authorities, of SFr521 million. If this factor is excluded, underlying operating expenses increased by 1 per cent.

At 5,364 full-time equivalents, of which 1,217 are relationship managers, total employees rose 2 per cent, or 117 FTEs (179 of which joined from Leumi Private Bank, IWM India and Fransad Gestion).

Cost/income
As a result, the adjusted cost/income ratio improved from 70 per cent to 67 per cent, inside the 65-70 per cent range that the group set as a target to be reached from 2015 onwards.

Excluding the US settlement, Julius Baer's underlying profit before taxes grew by 17 per cent to SFr830 million. The underlying pre-tax margin went from 26 basis points to 29 basis points, close to the 30-35 basis points medium-term target range.

To view a recent story of a new CEO appointment for the UK-based business at the bank, see here.