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“The Julius Baer Group has managed to strike the right balance between stepping up its investment in the future, given the extraordinarily favourable circumstances for growing Bank Julius Baer’s global franchise, and protecting the Group’s profitability. Whilst the weak equity and debt markets as well as the strong Swiss franc have reduced our asset base, with an impact on our profits, Bank Julius Baer has benefited from our pure-play wealth management strategy, as evidenced by the significant net new
money inflows the Bank has achieved,” sums up Johannes A. de Gier, Group CEO.
Balancing growth and profitability in a challenging market environment
Assets under management of the Julius Baer Group amounted to CHF 364 billion on 30 June 2008, down 10% from CHF 405 billion at the end of 2007. Net new money totalling CHF 10 billion was more than offset by the negative market performance of CHF 32 billion and a negative currency impact of CHF 19 billion. In addition, assets under custody increased by 9% to CHF 75 billion.
Operating income was 2% lower at CHF 1,602 million compared to the first half of 2007. As a result of the decreased asset levels and subdued client activity, net fee and commission income declined by 9% to CHF 1,195 million. Net interest income rose by CHF 53 million or 32% to CHF 221 million following the increased lending to private clients, higher deposits as well as higher margins. Net trading income increased by 28% to CHF 178 million, primarily driven by foreign exchange trading.
Operating expenses at CHF 949 million were slightly lower than last year (CHF 960 million), aided by a positive currency impact and despite continued investments in growth. Personnel expenses were down 2% at CHF 673 million as the impact of the 10% year-on-year staff increase, from 3,869 to 4,272, was offset by lower performance-related compensation accruals and a positive currency impact. General expenses, including valuation adjustments, provisions and losses, remained unchanged at CHF 254 million, even with the continued business expansion of Bank Julius Baer. All in all, the cost/income ratio increased slightly to 58.5% after 57.5% in the first half of 2007.
Profit before taxes declined by 3% to CHF 653 million. After deduction of taxes amounting to CHF 143 million, representing a tax rate of 22%, net profit reached CHF 510 million*, just 2% down from H1 2007. Following share buyback programmes, EPS increased by 5% to CHF 2.45. As part of the current share
buyback programme (2008-2010) of up to CHF 2 billion, 1,565,000 shares in the total amount of CHF 112.4 million had been repurchased as of 22 July 2008. Total assets were down by CHF 3.3 billion at CHF 43.6 billion at the end of June 2008, mainly driven by the lower level of client deposits and structured products volume as compared to the end of 2007. Total equity rose by CHF 160 million to CHF 6.6 billion, and the BIS Tier 1 capital by CHF 313 million to CHF 2.3 billion. With a BIS Tier 1 ratio of 13.8% under Basel II (year-end 2007: 12.9% under Basel I), the Julius Baer Group continues to enjoy a very solid financial base. Return on equity was at 28.8% compared to 27.9% in the first half of 2007.
Bank Julius Baer continues to attract significant net new money
Assets under management in the segment Bank Julius Baer (Private Banking and Investment Products) declined by CHF 12 billion or 5% to CHF 222 billion in the first half of 2008. Net new money contributed a healthy CHF 12 billion, representing an annualised growth rate of 10%, while market and currency performance had a negative impact of CHF 24 billion. Operating income increased by 3% to CHF 977 million year on year, and operating expenses rose by 9% to CHF 587 million as a result of continued investments in front-related areas. As a consequence, profit before taxes for Bank Julius Baer declined by 4% to CHF 390 million. Assets under management of the Private Banking division were 5% lower at CHF 148 billion despite significant net new money of CHF 8 billion to which all regions contributed, again with a major share from growth markets, Asia in particular. Assets under management in the Investment Products division fell by 5% to CHF 74 billion, with net new money amounting to CHF 3 billion.
Assets under management in the segment Asset Management (GAM and Artio Global) declined by CHF 29 billion or 17% to CHF 142 billion in the first half of 2008, mainly as a result of negative market performance and the currency impact on assets under management as reported in Swiss francs, which had a combined negative impact of CHF 28 billion. At the end of June 2008, GAM had CHF 68 billion of assets under management, and Artio Global, the US asset management business to be IPO-ed when market conditions allow, CHF 74 billion, with the latter continuing to attract substantial net new money. During this highly challenging period for leveraged hedge fund style investments, GAM experienced net outflows but was able to improve its margins from H1 2007 levels. The segment’s operating income fell by 8% to CHF 594 million, and operating expenses dropped by 13% to CHF 316 million. As a consequence, profit before taxes was down 3% to CHF 278 million.
The periodic Interim Management Statement will be released on 11 November 2008, and the 2008 annual results of the Julius Baer Group on 6 February 2009.
*Excluding integration and restructuring expenses as well as amortisation of intangible assets. Including these positions,
the net profit for the first half of 2008 amounted to CHF 412 million, after CHF 424 million for the first half of 2007.