Unbowed by Brexit, Swiss Bank Seeks Clients in ‘Red Hot’ North
The offices of Julius Baer Group Ltd. in Leeds are just down the hall from a travel agency, overlooking train platforms. It’s a noisy, cluttered corner of this northern English city, with buses disgorging passengers at the station entrance and pubs serving up burger-and-a-pint specials. This isn’t exactly the place where you’d expect to find a 128-year-old Swiss bank that caters to the ultra-rich.
Yet Julius Baer, unfazed by Britain’s looming divorce from the European Union, is pitching camp far from the gilded mansions of London. Baer wants to increase its assets under management in the U.K. and Ireland by 43 percent to about 20 billion pounds ($26 billion) by 2020. The bank’s digs in Leeds offer a clue to where it sees the future: a mid-century building redone WeWork-style, with espresso machines, sofas and tech startups.
This year the bank opened offices and hired 30 private bankers and support personnel in Manchester, Leeds and over the border in Edinburgh, and it’s just about to cut the ribbon on a location across the Irish Sea in Belfast. (By contrast, Baer has only hired roughly 10 staff in Germany, another market targeted for growth.) The new recruits are especially interested in luring away clients unhappy with the private-banking units of Britain’s big lenders. Baer is also tapping young, new, entrepreneurial money, and its U.K. chief says about half its British clients are women.
“For years the universal banks would dabble in the regional cities by flying people in and out -- we called them ‘briefcase bankers,’” said Calum Brewster, the head of Julius Baer’s push into Yorkshire’s biggest city, over coffee in the no-frills, two-room suite. “Here you need personal service, you need to understand the client, the feel of the community, and even talk in the local accent.”
For Zurich-based Julius Baer, whose 400 billion francs ($412 billion) in assets under management make it the third-biggest Swiss wealth manager, the U.K. campaign caps a decade-long campaign to become a global force. Under former Chief Executive Officer Boris Collardi, the bank made a series of acquisitions, including the purchase of Merrill Lynch’s international wealth management business from Bank of America Corp. in 2012.
Like other Swiss banks caught up in crackdowns on tax evasion, Julius Baer’s drive has been marked by some scandals. In 2016 the bank admitted helping American clients hide billions of dollars in assets from the taxman and paid $547 million in penalties. This month, the bank opened an inquiry into a former employee who pleaded guilty to taking part in a scheme to launder $1.2 billion embezzled from Petroleos de Venezuela SA.
Yet investors have bought into Julius Baer’s growth plan. Over the past five years, Julius Baer’s shares have climbed about 25 percent, trouncing larger rivals UBS Group AG and Credit Suisse Group AG. Now Collardi’s successor, Bernhard Hodler, is under pressure to keep the growth coming. In the first half of the year, the bank attracted almost 10 billion Swiss francs in new money, a 3 percent drop from the same period in a very strong 2017.
Julius Baer’s rivals in the North of England say they’ll face tough competition.
“Baer will have to demonstrate to potential clients that it’s going to be there for the long term and see you through your retirement,” said Guy Healey, the head of private banking at Brown Shipley, a 208-year-old institution with Northern roots. “There’s a long history of foreign banks coming in and then leaving after five years.”
Staffing regional offices doesn’t come cheap. Julius Baer’s personnel expenses across the firm jumped 11 percent in the first half of the year, reaching 846 million francs, and recent hiring sprees have put the bank’s cost-to-income ratio at 67 percent. That’s well below the 84 percent median in the Swiss private banking industry, according to KPMG.
The bigger worry is the possibility that Brexit, which could come in March with no transition deal, may trigger a crisis that whipsaws the portfolios of Julius Baer’s clients. (Bucking the trend in much of northern England, Leeds narrowly voted Remain.) The bank is betting its clients need advice more than ever in such volatile times -- and argues that the cheap pound since the Brexit vote has been a boon for some business owners in northern England, who often complained EU membership skewed the national interest toward London.
"There are businesses that are succeeding at a rate they would have never expected before Brexit," said David Durlacher, CEO of Baer’s U.K. division and himself the scion of an old British banking family, in an interview. “With the weakness of sterling, the export market in the U.K. has surged. That benefits our clients because of the entrepreneurial focus.”
Tracey Reddings, head of the bank’s front office in the U.K. and Ireland, concurs. “We’re not seeing a slowdown in wealth creation here at all,” she said. And Baer’s rivals in the region agree, too. “Manchester is red hot right now,” said Brown Shipley’s Healey of a city that rivals Leeds as the north’s business hub.
Brewster contends the time is ripe to find clients outside of England’s affluent southeast. For younger people, digitalization has helped foster entrepreneurship and negate the need for an expensive London base. Two-thirds of the professionals in finance and related fields such as law, accounting, and management consulting are based outside of London, according to TheCityUK, an industry trade group.
Even as the changing economy is also sowing inequality and anxiety in the north, Leeds has emerged as a major hub for services. In April, Reed Smith, the international law firm, chose Leeds as the base for its $1 billion digital legal and business services startup. Martin Cuthbert, a 20-year Yorkshire resident who heads Baer’s Leeds office, says a wellspring of newly minted wealth has emerged in an area that long rested on a bedrock of old manufacturing money.
The bank hasn’t been shy about bringing in top brass from Switzerland to cultivate clients and get a taste of the local flavor. Over a recent dinner with clients in Leeds, Yves Robert-Charrue, the head of Julius Baer’s European operations and a member of the executive board, was regaled with tales of the mighty cod and pollock to be fished in waters off Yorkshire’s coast.
Making that kind of connection is what the bank is seeking with its long-term plan for the U.K., Brewster said.
”When you’re a pure-play wealth manager, you can’t just parachute in -- you have to work harder and longer to build these relationships,” Brewster said. “But once you do, you not only get the family. You also get the children, and eventually the grandchildren, and that’s how you build your reputation.”
©2018 Bloomberg L.P.