Financial Results

Julius Baer's Assets Dented By Impact Of Swiss Franc Surge; Profit Margin Improves

Tom Burroughes Group Editor 20 May 2015

Julius Baer's Assets Dented By Impact Of Swiss Franc Surge; Profit Margin Improves

The bank had mixed fortunes in the first four months of 2015. The surge in the Swiss franc has hit AuM figures but profit margins have improved.

Julius Baer, the Swiss private bank, said its assets under management in the first four months of 2015 have fallen by SFr2 billion ($2.15 billion) to stand at SFr289 billion, a 1 per cent fall that the firm said was modest considering the adverse impact of the surge in the Swiss franc earlier this year.

When the Swiss National Bank stunned financial markets in January by removing its cap on the franc/euro exchange rate of 1.20, the currency surged by as much as 40 per cent in one day, prompting a number of banks such as Julius Baer to warn that it may hit earnings. As many Swiss firms earn significant revenues outside the country, so a rise in the currency will hit reported figures.

The bank said net new inflows, rising markets and a transfer to the group in March of SFr4.3 billion from Leumi Private Bank were offset by a SFr19 billion negative currency effect.

“Partly impacted by the currency translation effect and the ongoing regularisation of legacy assets in France and Italy, net inflows were, on an annualised basis, at the low end of the 4-6 per cent medium-term target range,” the bank said in a statement updating markets on its results.

The Zurich-listed lender said its gross margin benefitted from robust client activity in the first four months and advanced to a level moderately above 100 basis points.

The boost in client engagement was driven by higher market volatility and was evident in many areas, including increased volumes in structured products, an upturn in equity and fixed income transactions, a rise in foreign exchange activity, as well as a repositioning by Asian investors in March and April 2015. The bank often states that Asia is its second "home market".

The increases in volatility and volumes were more pronounced in the period immediately following the SNB’s decision to remove the euro exchange rate cap, which the bank said led to “an exceptionally high gross margin in January 2015. In the period February-April 2015, the gross margin was moderately below 100 bps."

The cost/income ratio reached a level just below the 65-70 per cent medium-term target range, the bank continued.

This fall in the ratio happened because of the increase in the gross margin as well as the benefits coming through from the cost synergy realisation in 2014 in relation to the integration of Merrill Lynch’s International Wealth Management business outside the US.

The pre-tax profit margin rose to close to the top end of the 30-35 bps medium-term target range. In the period February-April 2015, the pre-tax-profit margin was in the middle of this range, Julius Baer said.

Julius Baer Group’s detailed financial results for the first half of 2015 will be published on 20 July 2015.


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