Julius Baer's AuM Rise, Boosted By Transfer Of Merrill Lynch IWM Money

Tom Burroughes

15 May 2013

Julius Baer said assets under management rose 16 per cent between the end of last year and the end of April 2013, standing at SFr220 billion ($227.9 billion), boosted by the SFr24 billion in assets acquired when the Swiss bank purchased the non-US wealth arm of Merrill Lynch International Wealth Management.

Total client assets grew by 12 per cent to SFr309 billion, the Zurich-listed bank said in a statement today.

The bank said it has a target to acquire between SFr57 billion and SFr72 billion of assets under management from international wealth management over the next two years. The approximately SFr24 billion AuM from IWM reported at the end of April 2013 comprise SFr11 billion AuM of Merrill Lynch Bank (Suisse) in Geneva, which was acquired on February 1, 2013, as well as approximately SFr13 billion from the IWM businesses in Uruguay, Chile, Luxembourg and Monaco, which were transferred to Julius Baer on April 1, 2013.

As far as the latter four locations are concerned, the client custody relationships are at this point still on the platform of Bank of America Merrill Lynch, Julius Baer said.

“In line with the transfer mechanism communicated last year, the revenues related to these client assets are allocated to Julius Baer, and Julius Baer is charged platform allocation costs by BAML,” Julius Baer said.

“Starting in July 2013, the client custody relationships of these legal entities will also be transferred (in stages) to Julius Baer and booked on the Julius Baer platforms. At those points in time Julius Baer will pay BAML the agreed acquisition value (1.2 per cent of transferred AuM), and the BAML platform allocation charges will cease,” it said.

Outside the acquisition impact, the increase in AuM in the first four months of 2013 was driven by positive market performance, a positive currency impact, as well as net new money, the firm said.

“Net inflows in the first four months 2013 were volatile and, on an annualized basis, somewhat below the group’s medium-term target range. Julius Baer continues to have a positive view on the potential for inflows from the growth markets,” it said.

Julius Baer warned that total group net new money in 2013 will be affected by the implementation of Switzerland’s final withholding tax agreements with the UK and Austria as well as the ongoing self-declarations by clients in other European countries (as continued to be recommended by Julius Baer); as a consequence, net new money for the full year 2013 could be close to the lower end of the 4-6 per cent medium-term target, it said.

Including the IWM businesses transferred in February and April 2013, the gross margin in the first four months of 2013 was 98 basis points (bps) and the cost/income ratio improved to below 70 per cent, compared with 71.6 per cent achieved by Julius Baer in the second half of 2012 (when no IWM businesses had been transferred yet).

“The improvement in the cost/income ratio resulted despite the fact that the transferred IWM businesses currently operate at a higher cost/income ratio than the group average and despite the fact that cost synergies are only expected to be realized at a later stage in the integration process,” it said.

Between the principal closing of the IWM transaction on February 1, 2013 and the end of April 2013, on a net basis more than a hundred IWM financial advisors have been transferred to Julius Baer, it said.

At the end of March 2013, the Group’s BIS total capital ratio (under Basel III) stood at 27.5 per cent and the BIS tier 1 ratio at 25.6 per cent, above the targeted floors of 15 per cent and 12 per cent, respectively.

The bank issues detailed financial results on the first six months of 2013 on July 22.