Financial Results

AuM Rises At Julius Baer; Integration Of Merrill Business Dents Gross Margins

Tom Burroughes, Group Editor, 15 November 2013

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Julius Baer reported that its assets under management stood at SFr249 billion ($271.5 billion) at the end of October this year, a 31 per cent rise from the level at the end of 2012, including SFr48 billion from Merrill Lynch’s International Wealth Management business outside the US, which the Swiss bank is in the process of buying.

Julius Baer reported that its assets under management stood
at SFr249 billion ($271.5 billion) at the end of October this year, a 31 per
cent rise from the level at the end of 2012, including SFr48 billion from
Merrill Lynch’s International Wealth Management business outside the US, which the
Swiss bank is in the process of buying.

Following the local closing of the IWM transaction in Panama
and on the back of further client asset transfers from various locations
totaling more than SFr5 billion, IWM assets under management rose to around
SFr54 billion, of which SFr34 billion are booked on the Julius Baer platforms
and paid for.

“The IWM integration continues to be on track, with the next
local closings in Bahrain, Lebanon and the
UAE expected to occur before the end of 2013,” Julius Baer said in a statement
today.

Excluding the impact of the IWM acquisition, the rise in AuM
in the first ten months of 2013 was driven by net new money and a positive
market performance, partly offset by a negative currency impact due to the
strengthening of the Swiss franc against most leading currencies, not including
the euro, Julius Baer said.

Since the end of June 2013 the net new money rate improved
modestly from the level reached in the first half of 2013, taking the
annualized pace of net inflows in the first ten months 2013 up to the lower end
of the 4-6 per cent medium-term target range.

Net new money continued to be driven by net inflows from the
growth markets and from the local business in Germany, while the inflows from the
cross-border European business were balanced by outflows from tax regularizations
of legacy assets, it said.

Moderated

Julius Baer said that since the end of June 2013, client
activity moderated significantly, especially in foreign exchange trading.

As expected, following the strong increase in IWM reported
assets in this period, the weight in the overall gross margin calculation of
the lower-yielding IWM business increased considerably.

“Compared to the rest of the Group, the revenues from the
IWM business are at present more sensitive to changes in client activity and
furthermore were to some extent impacted by temporary disruptions given the
intensity of the asset transfer process over the last four months. As a result
of these factors, the Group’s gross margin in the first ten months of 2013
declined to 97 basis points (bps), compared to 102 bps in the first half year
of 2013. Excluding IWM, the gross margin in the first ten months of 2013 was
100 bps, while the gross margin on the reported IWM AuM was 76 bps,” it said.

Ratios

Partly as a consequence of the lower gross margin, the
transferred IWM businesses currently operate at a higher cost/income ratio than
the group average, whereas the targeted cost synergies are on schedule to be
realized at a later stage in the process, starting in 2014, in line with the
integration and restructuring plans, it said.

The IWM integration process increased the number of IWM
staff transferred to well over 1,000, almost double the 553 at the end of June
2013, including 317 relationship managers, up from 157 at the end of June. For
the entire group, total staff levels amounted to 5,178 FTEs (including 1,135
RMs) at the end of October 2013, up from 4,505 (including 966 RMs) at the end
of June 2013.

Due to the increased cost base and the gross margin
developments, the group’s cost/income ratio for the first ten months of 2013
was just above the 71.7 per cent achieved for the full year 2012, up from 69.3
per cent in the first half of 2013.

Profit impact

Based on the timing of the various on-boarding, integration
and restructuring steps, the contribution from the IWM business to adjusted net
profit is expected to be slightly negative in the second half of 2013, the bank
said.

At the end of October 2013, the Group’s BIS total capital
ratio stood at 22.7 per cent and the BIS tier 1 ratio at 21.2 per cent, well above
the targeted floors of 15 per cent and 12 per cent, respectively.

Julius Baer Group’s detailed financial results for the full
year 2013 will be published on February 3, 2014.

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