The bank has set out new performance goals, suggesting that the competitive environment for private banks, particularly at a time of economic turbulence and accelerating technology, remains tough.

Julius Baer is aiming for gross cost savings of SFr120 million ($122.9 million) by 2025 by “streamlining” its geographic footprint and market coverage as well as by using technology and “agile” working methods, it said yesterday.  

The Zurich-listed bank said in a statement that it wants to focus more on discretionary mandate penetration to win more recurring income – a sign of how such firms aim for stickier sources of earnings, particularly in volatile economic conditions. 

Over 2023 to 2025, Julius Baer predicts added investment into technology of about SFr400 million in total. The cost increase this involves will partly offset the targeted cost savings of SFr120 million previously mentioned.

“In an acceleration of its core market strategy, Julius Baer will place particular emphasis on scaling its business where the opportunities to drive critical mass and exponential profit growth are highest,” the bank said.

The announcement did not appear to reassure investors. Shares in the bank were down 6.4 per cent around 14:00 Swiss time, at SFr45.52 per share. The wider Swiss index fell by about 2.5 per cent.

In Europe, Julius Baer will make use of its onshore presence in Germany, the UK and Iberia, as well as its position in the Swiss home market. It will continue to serve the Asia-Pacific market from Singapore and Hong Kong, and will add to its presence in Brazil, the Middle East and India.

Besides recruitment and development of home-grown talent, Julius Baer said mergers and acquisitions – in a “disciplined approach” – will be drivers of growth.

The firm will pursue growth in these markets through three routes. Firstly, by recruiting the best talent, returning to a net positive hiring number for client-facing staff (relationship managers and their assistants, investment advisors and wealth planners). Secondly, Julius Baer will push the development of its in-house talent front to back. And thirdly, it will seek to grow through a disciplined approach to M&A, building on its proven track record of forging value-creating transactions and their successful integration.
 

New target approach
Starting from 2023, Julius Baer said it will introduce ambitious new three-year targets, assuming that there is no meaningful deterioration in markets or foreign exchange rates: A cost/income ratio of below 64 per cent by 2025 (current target 67 per cent or lower); an adjusted pre-tax margin of 28 to 31 basis points by 2025 (current target 25 to 28 basis points); more than 10 per cent annual growth in adjusted pre-tax profit over the 2023 to 2025 cycle, (unchanged); and an adjusted return on BIS Common Equity Tier 1 capital of at least 30 per cent over the 2023 to 2025 cycle (unchanged).

The bank said that half (50 per cent) of its adjusted net profit will be distributed via ordinary dividend, as stated at the presentation of the full-year results in February 2022. 

“We are initiating a new phase of profitable growth, building on the transformation we pursued successfully since 2020. Our unique client-centric business model and our dedicated focus on high and ultra-high net worth clients puts us in a strong competitive position to shape our future,” Philipp Rickenbacher, CEO of Julius Baer, said.

Results update
Since the beginning of 2022, overall client activity and its contribution to the gross margin via brokerage commissions and net income from financial instruments improved “considerably” compared with the second half of 2021, even though it did not reach the strong levels seen in the first four months of 2021, the bank said in a performance update.

Julius Baer’s gross margin in the first four months of 2022 was close to 85 basis points. This represents a more than 7 bps rise from the more than 77 bps achieved in H2 2021, and a fall of 5 bps compared with the nearly 90 bps realised in the first four months of 2021.

The bank posted an adjusted cost/income ratio of 63 per cent and adjusted pre-tax margin 30 bps well ahead of 2022 targets, it said. 

The bank had SFr457 billion in assets under management, falling 5 per from the start of the year as global markets fell, and from corporate divestments and client deleveraging. The fall was partly offset by a positive currency impact, mainly from the strengthening of the dollar against the Swiss franc.

There was a negative impact of SFr5 billion from corporate divestments caused by the bank’s completion of the sale of Wergen & Partner (announced in January 2022) and the deconsolidation of NSC Asesores following the cut of Julius Baer’s participation from 70 per cent to 19.9 per cent (announced in February 2022).