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INTERVIEW: Julius Baer Confident Its Merrill Lynch Marriage Will Prove A Success

Tom Burroughes

10 July 2013

Last week’s announcement that Julius Baer is starting to bring over the UK assets acquired last year from Bank of America Merrill Lynch’s non-US wealth arm - coming soon after Asian assets were also brought over - gave a chance for executives to reflect on how well their corporate marriage is going.

And just as some marriages can turn sour, Julius Baer and the Merrill Lynch counterparts know it takes hard work and mutual understanding to make the connection flourish - and, ultimately, benefit shareholders and clients alike. In May, Julius Baer said assets under management stood at SFr220 billion ($227.9 billion), boosted by the SFr24 billion in assets acquired from Merrill Lynch’s non-US wealth management arm. Total client assets stand at SFr309 billion.

A key issue will be how much of this Merrill money stays put.

“The move of assets across to Julius Baer has been described as a 'transfer of conviction'. Many of the Merrill Lynch clients are not automatically compelled to make the transfer; we have worked with our advisors to ensure they have the tools to fully communicate the value proposition and what we are seeing is that once clients understand it, the conviction is there,” Adam Horowitz, head of Julius Baer UK, told this publication in an interview this week.

“People have to want to be here…that is the complex part. We have spent a lot of time explaining what the Julius Baer strategy is, and where it makes a difference, which is why clients are being supportive,” he continued.

Horowitz spoke alongside Gian Rossi, who heads Northern, Central and Eastern Europe at Julius Baer. Rossi, a longstanding Julius Baer employee, pointed out that the cultural “fit” between the two organisations was relatively easy because the Merrill Lynch IWM business is so international as to not be particularly “American”.

There is a broad spread of nationalities among the clients who have been Merrill customers, Rossi said.

M&A

The Julius Baer/Merrill Lynch tie-up, agreed last year, comes at a time when there has been a flurry of merger and acquisition activity involving Swiss and US firms. From Julius Baer’s point of view, this standalone private bank, which has also stated its desire to make Asia its second “home market”, is looking to also widen an onshore market presence as well as increase its size at a time when regulatory costs mean economies of scale are important. For example, Falcon Private Bank, the Swiss-based firm, recently announced that it agreed to buy the Central and Eastern Europe private banking business of Hyposwiss Private Bank Zurich. Meanwhile, Credit Suisse recently agreed to buy some of the non-domestic wealth business of Morgan Stanley. EFG International, another Swiss-headquartered firm, has been offloading non-core businesses as part of a move back into profitability.

The M&A activity is also a sign of an industry where firms have to choose more clearly what sort of business they want to be, Horowitz said.

Rossi explained that when the prospect of buying the Merrill Lynch IWM business came up, Julius Baer jumped at the chance as a great opportunity to build scale.

“Because of the regulatory situation, many banks will not have the critical mass to serve clients well. You need to have a high AuM to offer the necessary investments which you need to provide. When we saw the Merrill Lynch sale coming along, we were very excited,” Rossi said.

“Banks will decide what they do well and there will be more separation of purpose. The costs in this business are very high,” he said.

Standalone

Horowitz said one big attraction for the deal was that the Merrill Lynch business would be hooking up with a pure-play private bank that is also a publicly-quoted firm - giving a level of transparency that is unusual for such standalone wealth houses.

“The fact that it is publicly traded means that clients can see how well it is performing every day. The transparency to us is exciting,” he said.

And although the glare of publicity and endless analysts’ reports can sometimes make executives uncomfortable in this business, Julius Baer can boast some decent numbers. Horowitz noted that the Zurich-listed firm has a Tier 1 capital adequacy ratio of 25.6 per cent (as at the end of March this year), although that figure will probably drop as the whole acquisition is completed, although the figure is still far above international norms.

The transfer of assets to Julius Baer in the UK is part of a process that has already seen assets switches occur in Asia.

The assets in the Merrill Lynch International Wealth Management arm transferred in the UK amount to more than a quarter of IWM’s entire business that is being passed over. So far the businesses located in Switzerland, Uruguay, Chile, Luxembourg, Monaco, Hong Kong, Singapore, UK, Spain and Israel have started the transfer process and are moving ahead as planned, the bank says. The next businesses to transfer, expected to occur in September and October, are in Bahrain, Lebanon and the UAE.

All that remains is for this marriage to prove a happy one. With Julius Baer very much a public firm, how well this relationship proves will be easy to judge in time.