Financial Results

AuM Dips At Julius Baer As Forex Bites; Adjusted H1 Profits Rise; Names New Swiss Head

Tom Burroughes Group Editor London 20 July 2015

AuM Dips At Julius Baer As Forex Bites; Adjusted H1 Profits Rise; Names New Swiss Head

The Swiss franc surge earlier this year blunted the effect of asset growth while underlying profits rose in the first half of the year. The bank also announced change at the top for its Swiss business.

Zurich-listed Julius Baer today reported that the surge in the value of the Swiss franc at the start of this year offset some of the impact of inflows and rising market values, with total assets under management standing at SFr284 billion ($295 billion) at the end of June, a 2 per cent dip from end-2014.

There had been a positive contribution from net new money of SFr6 billion from the effect of market gains and client inflows, as well as transfer of assets from Leumi Private Bank.

Separately today, the bank said it has agreed to acquire a 40 per cent participation in the Mexican independent financial advisory firm NSC Asesores for an undisclosed amount. The transaction would mark Julius Baer’s entry into the second largest wealth management market in Latin America, it said.

As a number of Swiss banks had warned, the surge in the Swiss franc exchange rate in January against the euro and other currencies meant that for firms with substantial overseas earnings – such as banks – there was a negative impact when converted back into Swiss francs.

Net new money was driven by continued net inflows from growth markets and local businesses in Switzerland and Germany, while the inflows in the cross-border European business were partly offset by continued tax regularisation of legacy assets, the bank said in a statement.

Julius Baer said operating income grew to SFr1.408 billion, an increase of 14 per cent, above the 9 per cent growth in monthly average AuM, so the gross margin for the group expanded to 99 basis points from 95 basis points in the same half-year a year earlier.

Net commission and fee income contributed SFr792 million, up by 6 per cent year-on-year. The increase was driven mainly by higher discretionary and advisory mandate income as well as a rise in brokerage commissions. This was partly offset by the fact that in the comparable period last year this line item still included all revenues on international wealth management AuM that were reported but not yet booked on Julius Baer’s platforms – these revenues have now all been allocated to the applicable different income line items.

Net interest and dividend income rose by 11 per cent to SFr384 million, which included dividend income on trading portfolios, up from SFr63 million to SFr122 million. Excluding this item, underlying net interest and dividend income declined by 8 per cent to SFr262 million, due to the impact of lower interest rates on trading portfolio holdings.

Adjusted operating expenses went up to SFr1.280 billion, an increase of 45 per cent, mainly as a consequence of the US provision of SFr326 million (this relates to money the bank has set aside to clear up a dispute with the US authorities about tax).

Excluding the US provision, underlying operating expenses increased by 8 per cent to CHF 954 million, significantly below the 14 per cent increase in operating income.

At 5,378 full-time equivalents (FTEs), of which 1,179 are relationship managers and 34 are employees who joined from Leumi, the total number of employees at the end of June 2015 dropped 3 per cent, or 179 FTEs, from the end of June 2014, whereas the average number of employees was down 2 per cent to 5,399.

The adjusted cost/income ratio narrowed to 64.7 per cent (H1 2014: 70.8 per cent; H2 2014: 69.1 per cent), just below the 65-70 per cent range that the group had set as a target to be reached from 2015 onwards.

When the US provision is included in the figures, adjusted profit before taxes fell by 64 per cent to SFr128 million. If that figure is removed, underlying profit before taxes grew by 28 per cent to SFr454 million and the underlying pre-tax margin to 32 basis points.

With a BIS total capital ratio of 20.3 per cent and a BIS tier one capital ratio of 19.1 per cent, the capital position remained significantly in excess of the group’s targeted floors.

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