Julius Baer New Money Jumps as Cost Cuts Help Boost Margins

(Bloomberg) -- Julius Baer Group Ltd. reported a better-than-expected increase in new money and improving profitability in the third quarter, as markets recovered and cost cuts began to pay off.

Inflows accelerated “considerably” in the three months through September as global markets recovered from the coronavirus pandemic, Switzerland’s third-biggest wealth manager said on Monday without being more specific. Falling expenses helped cushion the blow of a slowdown in trading income and a writedown at its Italian asset management business.

The bank’s performance may provide a glimpse into how other big wealth managers performed in the third quarter, with UBS Group AG and Credit Suisse Group AG set to report results in the coming days. Investment activity by wealthy customers dipped to “more sustainable levels” in the third quarter from an exceptional level earlier this year, Julius Baer said.

Analysts at Morgan Stanley said Julius Baer’s new money probably grew at around 7% in the quarter, representing a “considerable pick up in inflows, illustrating the resilience of Baer’s model, even during times of market volatility.” The profit margin, new money and cost control were all better than expected, analysts at Citigroup said separately.

Julius Baer rose as much as 5.6% in Zurich trading and was up 5.2% as of 11:16 a.m. The stock has declined about 12% this year, giving the company a market value of 9.6 billion Swiss francs.

Third Quarter Key Numbers

• Assets under management rose 3% to 413 billion francs at the end of September
• Gross margin in the first nine months was just over 89 basis points, compared to 82 basis points for the full year 2019
• Adjusted cost/income ratio for the first nine months of 2020 improved to 66.1% compared to 71.1% for the full year 2019
• Adjusted cost/income ratio year-to-date ahead of medium-term target 67% or lower
• Bank dropped a target for net new money earlier this year and introduced a new objective of 10% annual growth in pre-tax profit

Julius Baer said it will propose distributing the second part of its 2019 dividend on Nov. 6 at a special meeting early next month, marking a return to payouts after a de-facto ban across Europe. Swiss banks decided to split their 2019 dividends in two after regulators encouraged them to preserve capital to confront the economic fallout from the virus. Several banks across Europe have said they will review their policies toward payments around the end of this year.

The Swiss bank is revamping the ownership structure of its Italian money manager Kairos after outflows and uncertain prospects triggered a second writedown in as many years. The private bank said it will book a 177 million-euro ($207 million) impairment on its investment in Kairos this year, adding to a 90 million-euro charge in 2019.

Kairos will soon appoint a new chief executive officer while a number of investment managers at the Milan-based company will become minority shareholders, reducing Julius Baer’s stake to 70% from 100%.

The writedowns amount to more than half of what Julius Baer paid for the Italian manager in a period of breakneck growth under former Chief Executive Officer Boris Collardi. Since the Swiss bank gained full ownership of Kairos in 2018, the Italian company’s assets under management fell to about 5 billion euros from 11 billion euros.

CEO Philipp Rickenbacher is accelerating a push to cut costs and digitize the bank’s wealth management business as he fights rising competition and tighter margins. In February, he embarked on global reductions that amount to almost 5% of the workforce, or 300 jobs, as well as setting out a strategy that envisions boosting profit under slower asset growth.

Citigroup said the bank posted “surprisingly low costs” in the third quarter.

Rickenbacher has been quick to put his stamp on Julius Baer after taking over in September 2018, reorganizing divisions and shaking up management. The latest retrenchment tilts the lender toward better profitability at the expense of all-out growth and goes deeper than his predecessor Bernhard Hodler who reined in the firm’s wealth advisers after a decade of expansion.

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