Bloomberg News

Sarasin Second-Half Profit Drops 60% as Clients Withdraw Money

February 24, 2012

Feb. 23 (Bloomberg) -- Bank Sarasin & Cie. AG, the Swiss wealth manager being acquired by Safra Group, said second-half profit slumped 60 percent as clients withdrew money.

Net income fell to 22.6 million Swiss francs ($24.6 million) from 56.6 million francs a year earlier, according to Bloomberg calculations. Customers pulled 2.4 billion francs in the second half, the Basel, Switzerland-based bank said today.

Safra, founded in the Syrian city of Aleppo in the 19th century, agreed in November to pay more than 1 billion francs for Rabobank Groep’s controlling stake in Sarasin. Under Swiss takeover rules, Safra can’t offer minority shareholders less than 75 percent of the 36 francs a share it’s paying Rabobank.

“There was clearly some disruption to the business in the second half of the year and outflows were worse than expected,” said Christian Stark, a Zurich-based analyst at Credit Agricole Cheuvreux SA. “I don’t think investors will panic as Safra will have to offer at least 27 francs to minority shareholders after the acquisition process concludes and that’s protecting the stock price at the moment.”

Sarasin fell 0.4 percent to 28.05 francs as of 4:09 p.m. in Zurich trading, paring this year’s gain to 2.2 percent and giving the company a market value of 1.8 billion francs.

Safra may pay minorities more than 27 francs a share based on a 60-day volume-weighted average price, which depends on when and how the company makes its offer. The acquisition, due to be completed by the middle of this year, will help Safra expand its private banking network in Europe, the Middle East and Asia.

Exceptional Payment

“Despite an environment characterized by ongoing uncertainty, we do not plan any fundamental change of direction,” Chief Executive Officer Joachim H. Straehle said today in a statement. “Our focus on sustainability and tax- compliant assets will pay off in the long run.”

Sarasin didn’t propose a dividend and plans to make an “exceptional payment” to shareholders that will be in line with the company’s payout policy, Chief Financial Officer Thomas A. Mueller said at a presentation in Basel today. The firm usually returns about 50 percent of earnings to investors.

Full-year net income fell to 83.9 million francs from 107.8 million francs a year earlier, Sarasin said. That missed the 123.6 million-franc average estimate of seven analysts surveyed by Bloomberg. Bloomberg calculated second-half profit by subtracting first-half earnings released on July 28 from full- year figures published today.

Sarasin reported 1.5 billion francs of net new money in 2011, missing the company’s target of 8 percent annualized growth. Customers withdrew money in the second half of the year amid an “adverse market situation” and as the company focused on tax-compliant assets.

Hildebrand Theft

The withdrawals weren’t connected to the theft of data on accounts belonging to the family of former Swiss central bank head Philipp Hildebrand, Straehle said at the presentation. Hildebrand resigned last month after a currency transaction by his wife dented his credibility.

Switzerland and the U.S. are holding talks to resolve an offshore tax evasion probe involving 11 Swiss financial firms and after the Department of Justice indicted Wegelin & Co. on Feb. 2 for allegedly helping customers hide money from the Internal Revenue Service.

“We are not afraid of the U.S., nor do we have anything to hide,” Straehle said, adding that the bank decided in 2008 to exit the American market.

Sarasin, which forbids employees from travelling to the U.S. for business, sold its stake in Neue Zuercher Bank, one of the 11 firms on the DoJ’s list, in December, the company said today.

Profit Margins

Sarasin is adding more branches in Germany and building networks in Asia to attract clients as the erosion of Swiss banking secrecy crimps profit margins.

Gross margin, a measure of profitability, fell to 68 basis points from 70 basis points a year earlier. A basis point is one hundredth of a percentage point.

The firm’s cost-to-income ratio worsened to 83.5 percent from 77.6 percent amid higher staffing expenses and restructuring charges and as the company incurred costs connected to the sale of the Rabobank stake.

Sarasin, which aims to ensure all customers are tax compliant by the end of 2012, had assets under management of 96.4 billion francs on Dec. 31, compared with 101.6 billion francs six months earlier. The company aims to reach 150 billion francs in managed assets by 2015.

The purchase of Rabobank’s stake will give Safra 68.6 percent of the voting rights and a 46 percent equity interest in Sarasin. Straehle said he expects to keep his job following the deal.

--Editors: Dylan Griffiths, Jon Menon.

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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