Bloomberg News

Julius Baer Slides as Bank Expects U.S. Tax Fine: Zurich Mover

February 07, 2012

Feb. 6 (Bloomberg) -- Julius Baer Group Ltd., the Swiss wealth manager founded in 1890, fell the most in three months in Zurich trading after saying it expects to pay a fine to resolve tax matters with the U.S. and as profit declined 27 percent.

Full-year net income dropped to 258 million Swiss francs ($280 million), missing the 312 million-franc average estimate of nine analysts surveyed by Bloomberg. Profit fell after the Zurich-based bank paid Germany 50 million euros ($65 million) to end an investigation over undeclared client assets.

Baer Chief Executive Officer Boris Collardi is looking for acquisitions as Swiss banks seek ways to gain assets after a crackdown on tax evasion in the U.S. and Europe forced some clients to withdraw funds. The bank said it has “resources to satisfy a resolution” to tax matters with the U.S.

“Investors would like to see more clarity on the U.S. matter,” said Arno Endres, an analyst at Luzerner Kantonalbank AG in Lucerne, Switzerland. “I don’t see Julius Baer making a major acquisition while this situation is still being discussed.”

Baer fell as much as 5.4 percent and closed 3.8 percent lower at 36.40 francs, the biggest drop since Oct. 31, at the close in Zurich. The stock has declined 17 percent in the past 12 months compared with a 28 percent decline in the 43-company Bloomberg Europe Banks and Financial Services Index.

Final Settlement

Baer expects to hand over client data to U.S. authorities as part of a final settlement, said Collardi, adding that the firm accepted customers from “larger banks,” including UBS AG, in 2008. That didn’t involve “active targeting” and Baer no longer takes that type of client, Collardi said in a Bloomberg Television interview with Linzie Janis.

“We expect probably that we will have to pay a fine,” Collardi told reporters today on a conference call. “I’m confident we will find a resolution that will be satisfactory.”

Baer doesn’t have to make a provision for the U.S. tax matter under accounting rules, Collardi said. Credit Suisse Group AG, Switzerland’s second-largest bank, booked provisions of 295 million francs in the third quarter related to tax matters in the U.S.

The U.S. is probing 11 Swiss financial institutions suspected of helping Americans hide money from the Internal Revenue Service. Switzerland and the U.S. may reach an agreement on the treatment of undeclared bank accounts within months, Swiss Finance Minister Eveline Widmer-Schlumpf said in an interview on Jan. 28.

Wegelin Charged

Wegelin & Co., the 270-year-old private bank, became the first Swiss lender to face criminal charges in the latest U.S. crackdown on offshore firms suspected of helping Americans evade taxes. Wegelin helped Americans hide more than $1.2 billion in assets and evade U.S. taxes, according to an indictment filed last week in federal court in New York.

The indictment of Wegelin hasn’t “changed anything in our ongoing constructive dialogue,” said Collardi, adding that there is “no indication” his bank will be indicted.

Julius Baer has provided support for two employees charged in October with helping more than 180 U.S. clients to hide at least $600 million in assets from the Internal Revenue Service, Collardi told investors in Zurich. He gave no further details.

Client inflows at Baer totaled 10 billion francs last year, at the top end of the firm’s 4 percent to 6 percent annualized growth target. Assets under management were unchanged at 170 billion francs.

“We were able to maintain our group’s business momentum in most dimensions in 2011 despite a challenging market and business environment,” Collardi said in a statement. “This again resulted in very healthy net new money inflows from all regions.”

Targets Lowered

Baer plans to pay a special dividend of 40 centimes a share in addition to an ordinary dividend of 60 centimes a share.

The bank lowered its medium-term target for pretax profit to an adjusted margin of 35 basis points from 40 basis points previously, citing a “changed market environment” and franc strength. Baer also amended its cost-to-income ratio target to 62 percent to 66 percent, from 60 percent to 64 percent.

Julius Baer plans to buy back as much as 500 million francs of shares over two years after the current stock repurchase program expires on April 11, the firm said.

--With assistance from Linzie Janis in London. Editors: Dylan Griffiths, Randall Hackley

To contact the reporter on this story: Giles Broom in Geneva at gbroom@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net


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