Julius Baer Falls as Asset Growth Slows to Three-Year Low

(Bloomberg) -- Julius Baer Group Ltd. fell in Swiss trading as assets under management grew at the weakest pace in three years, rekindling concern that the wealth manager may not be able to sustain past growth rates.

The Zurich-based bank’s stock fell as much as 5.2 percent -- the biggest decline since February -- after reporting a 3 percent increase in assets from the end of 2017, to 400 billion francs ($403 billion). That was slightly below analyst estimates, according to UBS Group AG. Clients added new money at the slowest pace since the end of 2016.

The firm enjoyed stellar growth through high-profile acquisitions and a hiring spree under former Chief Executive Officer Boris Collardi, but analysts are questioning whether it can keep up that pace under new CEO Bernhard Hodler as markets become more volatile. The bank is grappling with cost and margin pressures and cautioned on market conditions because of trade tensions and the end of quantitative easing.

“The markets were not so easy,” Hodler said in an interview with Bloomberg TV. “Volatility has come back.”

New Money

Clients added 9.9 billion francs, compared with 11.9 billion francs in the prior six months. The purchase of Sao Paulo-based Reliance Group helped add 4.5 billion francs while market swing reduced assets by 3.9 billion francs. All told, assets under management increased by 11.5 billion francs, compared with 33.7 billion francs six months earlier.

All regions recorded net inflows, with strong contributions from clients in Europe, Switzerland and Asia. That was slightly offset by deleveraging by clients in Asia and the Middle East which used lombard loans to buy dollar-denominated debt. With rising rates in the U.S. these positions became less attractive and led to outflows.

Julius Baer “witnessed a slowdown in the net new asset growth pace,” Baader Helvea AG analyst Tomasz Grzelak wrote in a note to investors. “In our view, normalized growth makes the shares look fairly valued.”

Julius Baer fell 4.3 percent at 1:28 p.m. in Zurich, bringing losses this year to 8.7 percent.

‘Concern for Investors’

Net interest income fell 2.3 percent to 553.5 million francs while commission and fee income rose 10.2 percent. Trading income rose 129 percent due to a jump in volatility. Net interest income and commission and fee income are more stable sources of revenue and analysts consider them as higher quality opposed to trading income which depends on client activity.
Weak net interest income “and recurring fee income is likely to be a concern for investors as will the slowing net new money,” Citigroup Inc. analysts Nicholas Herman and Andrew Coombs said in a note to client.

There were positive notes, with the bank meeting a key cost target. Hodler also sounded a bullish tone on acquisitions -- saying the bank continues to look at opportunities in growth markets such as Asia and Latin America -- but also expects to see the potential for deals in Europe and Switzerland as asset prices decline. Hodler said he wouldn’t exclude the possibility of larger transactions, without being more specific.

‘Larger Acquisitions’

“Market entry transactions can be small and mid-sized as you have seen with Reliance and others -- we can finance that out of our capital cushion,” Hodler said at a news conference. “I don’t exclude larger acquisitions and of course there we would have to go to the market and explain the transaction."

The bank added about 79 relationship managers in the first half of the year, almost reaching its annual target of 80. Hodler said the bank will be a bit more cautious on hiring in the second half.

Some analysts expressed concern that Collardi will seek to recruit from his old firm, though Hodler said that hasn’t yet happened. Andreas Venditti, an analyst at Vontobel, said the poaching of key staff would probably only be seen at the end of the year as Collardi only recently started at Pictet.

In the absence of any large deals, Julius Baer would consider starting a share buy back or returning capital in some other fashion as soon as this year, Hodler said in the interview. Zurich rival UBS has said it will buy back as much as 2 billion francs of stock over the next three years, while Credit Suisse Group AG has also signaled its considering repurchases in the future.

--With assistance from Patrick Winters.

To contact the reporter on this story: Jan-Henrik Förster in Zurich at jforster20@bloomberg.net

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Christian Baumgaertel, Paul Armstrong

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