Julius Baer Buys BoA Merrill Lynch's Non-US Wealth Unit

Tom Burroughes

13 August 2012

In a move making it one of the biggest, if not biggest, standalone wealth managers, Switzerland’s Julius Baer announced today it has agreed to buy the non-US wealth business of Bank of America Merrill Lynch. The deal boosts assets under management by up to 40 per cent to SFr251 billion (around $256 billion) for a price of around SFr860 million.

Julius Baer had announced back in June that it was in talks with the US banking and wealth management firm to buy the unit; other banks that had been speculated upon as potential suitors included Royal Bank of Canada.

The deal, if approved by regulators and shareholders, means Julius Baer acquires SFr81 billion of assets under management (based on 30 June figures) and more than 2,000 employees, including over 500 financial advisors.

Such an acquisition is one of the biggest such transactions in recent years. Although industry surveys frequently state that the sector will see more consolidation as a result of rising costs and pressures on margins, big M&A deals in the wealth sector have, in fact, been relatively infrequent. Some analysts, such as Christopher Wheeler at Italy's Mediobanca, had noted that BoA Merrill Lynch had not managed to achieve critical mass in wealth management outside its important domestic US market.

Mediobanca, in a note today, said the deal was an “excellent move” at an attractive price. The agreement, if completed, will push Julius Baer up the wealth management rankings and help it to bolster its Asia business presence, having forged a strategic partnership with Macquarie.

Explaining the transaction, Julius Baer said: “The transaction is a combination of legal entity acquisitions and business transfers, that by the end of the expected two-year integration period, is currently estimated to result in additional AuM of between SFr57 billion and SFr72 billion, of which approximately two thirds from growth markets.”

“Assuming SFr72 billion AuM transferred, Julius Baer’s existing AuM as of 30 June 2012 would increase by approximately 40 per cent to SFr251 billion and its total client assets to SFr341 billion, both on a pro forma basis,” it continued.

“As part of the transaction, Julius Baer and Bank of America Merrill Lynch have agreed to enter into a cooperation agreement whereby BofAML will provide certain products and services to Julius Baer, including global equity research. In addition there will be cross-referral of clients between both organisations,” it said.

The Swiss bank said the acquisition is expected to be earnings accretive from the third full-year following principal closing; in other words, the first full steady-state year following integration. The earnings per share accretion target in 2015 is around 15 per cent.

Purchase price

The agreed transaction price is 1.2 per cent of AuM transferred. At SFr72 billion AuM transferred, Julius Baer would pay about SFr860 million.

Julius Baer said its board of directors intends to put funding in place at a level that is sufficient to support the acquisition of up to SFr72 billion AuM. At that level, the transaction is expected to be funded by a combination of up to SFr530 million from existing excess capital, SFr200 million from the issuance of new hybrid instruments, and SR740 million billion of new share capital.

The proposed capital increase is subject to approval by an Extraordinary General Meeting expected to be scheduled for 19 September this year.

For the first full years after the integration (2015 and beyond), Julius Baer said it expects to set the following targets for the new enlarged group: Net new money 4-6 per cent, cost/income ratio 65-70 per cent and pre-tax profit margin 30-35 basis points.

Also, due to the convergence of the BIS and Swiss approaches to calculating capital ratios next year, the minimum required BIS total capital ratio will be reduced from 14 per cent to 12 per cent.

Julius Baer has been expanding its business in recent months. For example, in July, the bank and Bank of China entered into a strategic agreement whereby they will mutually cross-refer clients and collaborate on marketing activities. Further back, it also forged a similar deal with Australia’s Macquarie.