Cash-flush Julius Baer on the acquisitions trail
LAUSANNE — Julius Baer Group should have cash to purchase rivals even as it prepares to settle a four-year probe into tax evasion by the US justice department.
Switzerland’s third-largest wealth manager said last month it set aside $350m to fund a financial agreement over the bank’s role in helping americans hide money offshore. that would leave it with almost $1bn of excess capital that could be tapped for deals.
“I want to see them going out and making acquisitions,” says Rob Taylor, fund manager at Harris Associates, one of the bank’s biggest shareholders with a 7.9% stake. “Julius Baer’s management has an excellent track record of getting very good prices and integrating assets efficiently.”
The Zurich-based firm is seeking acquisitions to improve profitability at home and tap new wealth in emerging markets. Key hunting grounds are Switzerland, where smaller rivals are struggling under a crackdown on undeclared offshore accounts and narrowing margins, Asia, where new capital is flowing to Singapore and Hong Kong, and London, the second-largest wealth management centre after New York. Julius Baer said on Monday it agreed to acquire a 40% stake in NSC Asesores, the largest independent financial advisory firm in Mexico, for an undisclosed amount.
NSC Asesores managed about $3bn in Latin America’s second-biggest wealth market, the bank said, as it reported a 78% drop in first-half profit to 39-million Swiss francs ($40.5m), spurred by the tax provision.
CEO Boris Collardi told investors at a presentation in Zurich that he was seeking “transformational M&A” after the US settlement was complete.
“We would love another big elephant to cross our path,” such as the Merrill Lynch international wealth units acquired from Bank of America in 2012, he said.
Julius Baer was also interested in Swiss firms with 5-billion to 15-billion Swiss francs under management, Mr Collardi said.
New targets could include the Swiss subsidiaries of foreign lenders such as Barclays and the Asian private bank of ABN Amro Group, which oversees about $20bn, should they come up for sale, according to Andreas Venditti, head of banking research at Vontobel Holding in Zurich.
Julius Baer oversaw 369-billion Swiss francs for clients at the end of last month. The company’s shares rose 15% this year, lagging behind gains of 19% for the Bloomberg Europe 500 Banks and Financial Services index and valuing the company at 11.8-billion Swiss francs.
Julius Baer has completed about nine deals over the past decade, spanning Swiss private banking, assets of banks exiting offshore locations and stakes in financial services companies in Latin America. For the past three years, it has been integrating about 17 Merrill Lynch businesses.
“I’m sure they have already been looking around for more deal opportunities,” says Jonas Floriani, a London-based analyst with Keefe, Bruyette & Woods, who estimates the bank has about 1.2-billion Swiss francs of excess capital above minimum regulatory requirements ahead of the justice department settlement.
London is also a target market. Last year, the lure of the city’s super-rich prompted Mr Collardi to take an interest in the UK business of Coutts, the private bank of Queen Elizabeth II. His decision to appoint Hector Sants, the former head of the UK financial regulator, as chairman of Julius Baer International from July 1 may indicate a desire to schmooze local authorities into backing any future purchases.
Julius Baer is itself the subject of takeover speculation. Mr Collardi has repeatedly said he is a buyer, not a seller, saying the company would be too expensive a purchase for many of its rivals.
The bank’s market capitalisation is more than 4% of assets under management. That is almost double the average private banking deal multiple of 2.1% this year, says London-based consultancy Scorpio Partnership.
Last week, Royal Bank of Canada was the latest to announce an exit from Switzerland, agreeing to sell its private banking unit to Geneva’s Banque Syz. Royal Bank of Scotland Group and Morgan Stanley have also retreated.