Julius Baer Slowest Flows in Years Caps End of CEO’s Tenure

(Bloomberg) -- Julius Baer Group Ltd. reported the lowest inflows in at least seven years, leaving outgoing Chief Executive Officer Bernhard Hodler’s successor with plenty to fix.

Net new money grew by 3.2% in the first half, below a medium-term goal of 4% to 6% growth. The number of relationship managers, responsible for attracting cash, declined from the end of 2018. Gross margins improved, and the company said it expects to see positive results from its cost-cutting initiative in the second half.

This is Hodler’s last earnings report at the helm of Julius Baer. Promoted to CEO after the shock departure of Boris Collardi about one and a half years ago, the former compliance chief helped clean up Switzerland’s third-biggest private bank after a money laundering scandal cast a shadow over a rapid expansion under his predecessor.

“I think I did more than just care-taking,” Hodler said in a Bloomberg TV interview with Manus Cranny. “We stabilized the firm, we calmed down the market. We started to really work on the core markets quite heavily.”

Kairos Outflows

Julius Baer was hit by outflows from Kairos, an Italian subsidiary that it may sell. The group’s net new money was also hurt by the exits of some clients as it purges risky accounts, and by a wider application of negative interest rates to large cash holdings, mainly Swiss francs and euros.

Outflows at Kairos should stop as performance improved in the first half, Hodler said at a press conference in Zurich. The bank is looking at options including a sale, partnership or retaining the Italian unit, he said.

Julius Baer climbed as much as 3.5% in Zurich trading and traded was 3.4% higher as of 11:27 a.m. While the stock has increased about 26% this year, it still hasn’t made up all the ground it lost in 2018.

Rising stock values helped boost assets under management to 412 billion francs ($412 billion), and Hodler’s cost cuts and improvements to margins gave investors something to cheer. Inflows improved in May and June after a slow start to the year. Still, weaker overall growth, cautious clients, and a drop in client transaction revenues will set low expectations for earnings at rival UBS Group AG, the world’s biggest wealth manager, which reports Tuesday. Credit Suisse Group AG publishes earnings on July 31.

Philipp Rickenbacher, a little-known Julius Baer veteran, will take over as CEO in September in a move likely to be another step back from the breakneck expansion that took place under Collardi. Earlier this year, the company set less ambitious targets for its pretax margin and cost-to-income ratio and pledged to cut annual costs by 100 million francs.

During his time in charge, Hodler has led an effort to focus on core markets such as Spain and the U.K., opening offices in those countries while pulling out of weaker locations such as Amsterdam and Panama. He also oversaw a 2 1/2-year project to clean up the bank dubbed “Project Atlas.”

“We are very well on track to have reviewed all client files by the end of the year,” Hodler said at a press conference in Zurich. “I hand over a very clean book to my successor.”

--With assistance from Manus Cranny.

To contact the reporter on this story: Patrick Winters in Zurich at pwinters3@bloomberg.net

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Ross Larsen, Andrew Blackman

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