Julius Baer Group Ltd., Switzerland’s third-biggest publicly traded bank, may cut more than 1,000 jobs after its purchase of Bank of America Corp. (BAC:US)’s Merrill Lynch wealth management units outside the U.S.
Julius Baer is targeting a reduction of 15 percent to 18 percent in the combined workforce of about 5,700, the Zurich- based company said today in a statement. The Merrill business that Julius Baer agreed to buy in August posted a first-half loss of $30.4 million, the bank said.
The bank is acquiring client assets to compete with larger rivals UBS AG and Credit Suisse Group AG as a crackdown on tax evasion pushes customers to repatriate funds from Swiss offshore accounts. The firm expects the acquisition to increase profit from 2015, boosting earnings per share by 15 percent that year after stripping out integration and restructuring costs.
“Before I recommend the stock, I’d like to see evidence that the cost-cutting will improve the bottom line,” said Dirk Becker, an analyst at Kepler Capital Markets in Frankfurt, who has a hold rating on the shares. “It’s way too early to judge this.”
Julius Baer declined as much as 0.7 percent and was little changed at 32.35 Swiss francs at 2:37 p.m. in Zurich trading. That brings this year’s decline to 12 percent and values the company at 6.4 billion francs ($6.8 billion).
Julius Baer previously said it expected to pay as much as 860 million francs for between 57 billion francs and 72 billion francs of assets managed for Merrill clients from Europe, Asia, Latin America and the Middle East. The total cost of the transaction, including integration costs and incentives to retain relationship managers, will be about 1.47 billion francs, the bank said in August.
Julius Baer (BAER) is partly financing the acquisition by raising 492 million francs through a rights offering taking place between Oct. 10 and Oct. 17. The new shares, priced at 24.20 francs each, will start trading on Oct. 18, the firm said yesterday.
Merrill’s wealth units employed 2,100 people in almost 30 countries outside the U.S. and Japan at the end of June, according to a presentation published today on Julius Baer’s website. The firm said it will complete the purchase of Merrill’s Geneva-based private bank in the first quarter of 2013, while the acquisition of other units by the end of the following year will add new offices in eight countries, including India and Spain.
The deal is Chief Executive Officer Boris Collardi’s biggest since he was promoted to run Julius Baer in 2009.
“There is no other transaction of this size out there in wealth management with such a high tilt toward growth markets,” Collardi told investors in London today. “It’s a business with a strong momentum, at least until a few years ago. I think the business just needs momentum again.”
Julius Baer, which bought ING Groep NV’s Geneva-based wealth business in 2009, acquired a 30 percent stake in Brazilian wealth manager GPS Investimentos Financeiros e Participacoes SA and purchased Macquarie Group Ltd.’s Asian private-client business in 2011.
Julius Baer lost out to Safra Group last November in its bid to buy a controlling stake in Basel, Switzerland-based Bank Sarasin.
The Merrill business reported a loss last year and had a cost-to-income ratio of 114 percent, according to Julius Baer. That measure improved to 110 percent in the first half of this year, the bank said.
“When you’re cutting costs, you’re also cutting revenue,” said Becker. “I think it will be a tough job. There’s a reason why Bank of America (BAC:US) didn’t want this business anymore and why it was loss-making for them.”
Bank of America CEO Brian T. Moynihan has unloaded foreign businesses to focus on selling more services to existing customers. He has sold more than $50 billion in assets and businesses since taking over in 2010 to bolster capital before stricter international rules take effect.
Assets under management at Julius Baer increased 8 percent to 184 billion francs in the first eight months of the year, after net inflows that were close to the top of the firm’s 4 percent to 6 percent target range, the company said. Client assets have climbed 20 percent since the end of 2009.
The firm spent about 20 million francs on U.S. legal matters in the first eight months of the year, Chief Financial Officer Dieter Enkelmann told investors in London. The firm said Feb. 6 it expects to pay a fine and hand over client data to U.S. authorities as part of a probe of 11 banks that allegedly helped Americans hide money from the Internal Revenue Service.
Gross margin, a measure of profitability, was “slightly lower” in the first eight months of this year than the 98 basis points reported for the first half, Julius Baer said. A basis point is one hundredth of a percentage point.
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