Julius Baer on track to meet key 2022 profitability targets, despite challenging market conditions – Sustained intra-year recovery in net new money – Gross margin improvement by capitalising on higher interest rates
Zurich, 21 November 2022 – In the ten-month reporting period, Julius Baer was effective in counteracting the market-driven decline in assets under management with a meaningful improvement in its gross margin. Supported further by the diligent execution of the revenue and cost measures in the first two years of the current strategic cycle, the cost/income ratio, pre-tax margin and return on CET1 capital (RoCET1) targets set for 2022 remain well within reach. The clear improvement in net new money inflows, which began towards the end of the first half of 2022, continued throughout the July–October 2022 period. Julius Baer continues to be solidly capitalised and currently expects to complete the ongoing share buyback programme, as planned, by the end of February 2023.
Rising interest rates support gross margin improvement
Thanks to a strong improvement in the July–October period to close to 91 basis points (bp), the gross margin for the first ten months of 2022 rose to 85 bp, an increase of 3 bp from the 82 bp reported for the full year 2021. The gross margin contribution from net interest income and net income from financial instruments measured at FVTPL** rose significantly on the back of higher interest rates. This development more than offset the gross margin impact from client activity which, while continuing to normalise from the lows seen in May–June 2022, did not reach the volumes reported for full-year 2021.
Sustained recovery in net new money ‒ Assets under management CHF 429 billion
The improvement in net inflows, which started towards the end of the first half of the year, strengthened in the subsequent four months, despite some further client deleveraging. Net new money of CHF 4.1 billion since the end of June 2022 (3% annualised) more than compensated for the CHF 1.1 billion of net outflows recorded in the first half of 2022, taking the year-to-date net new money inflow result to CHF 3 billion.
Compared to year-end 2021, assets under management (AuM) decreased by CHF 52 billion, or 11%, to CHF 429 billion on 31 October 2022, largely driven by the declines in global stock and bond markets (CHF 67 billion impact) and, to a small extent (CHF 7 billion), by the minor corporate divestments executed in the year to date. This development was partly compensated by a positive currency impact (CHF 19 billion), mainly from the year-to-date strengthening of the US dollar relative to the Swiss franc, and by the aforementioned recovery in net new money inflows (CHF 3 billion).
In the first ten months of 2022, CHF 1 billion of AuM were reclassified to assets under custody following the asset freezes resulting from sanctions imposed on clients in connection with Russia’s invasion of Ukraine.
2022 cost/income ratio and pre-tax margin targets well within reach
In the first ten months of 2022, the adjusted cost/income ratio was just above 66% (full-year 2021: 64%) and the adjusted pre-tax margin was marginally below 26 bp (full-year 2021: 28 bp). This compares to targets of <67% and 25-28 bp for the end of the current 2020–2022 strategic cycle. With the year-to-date gross margin improvement, as well as the benefits materialising from the revenue, productivity and efficiency measures implemented in the first two years of the strategic cycle, achieving these targets remains well within reach ‒ despite the year-to-date decline in client assets.
Solidly capitalised ‒ RoCET1 well ahead of 2022 target
In March 2022, Julius Baer launched a new 12-month programme to buy back up to CHF 400 million purchase value of Julius Baer Group Ltd. shares. By the end of October, a total of 5,175,072 shares had been repurchased at an aggregate cost of CHF 247 million. Julius Baer currently expects to complete the buyback programme by the end of February 2023 as planned.
Since the end of 2021, CET1 capital decreased, as continued strong profit generation was more than offset by the combined effect of the dividend accrual (in line with the dividend policy that was updated at the start of the year), the ongoing share buyback programme, and the temporary impact of year-to-date changes in the value of financial assets measured at FVOCI*** (treasury portfolio). The latter impact was largely driven by the year-to-date fall in global bond markets and will reverse over time as the bonds mature. At the same time, risk-weighted assets rose modestly. As a result, at the end of October 2022, the Group’s BIS CET1 capital ratio declined to 13.9% (end 2021: 16.4%). The BIS total capital ratio of 22.2% (end 2021: 24.0%) reflects the developments in CET1 capital as well as the redemption and successful new issuance of AT1 bonds earlier this year. At these levels, the Group’s BIS CET1 and BIS total capital ratios remain well above the Group’s own floors of 11% and 15% respectively, and significantly in excess of the regulatory requirements of 8.1% and 12.3% respectively.
Earlier this year, Julius Baer’s capital return policy was updated with the introduction of a buyback threshold: Going forward, all CET1 capital meaningfully exceeding a BIS CET1 ratio of 14% at the end of a financial year will be distributed via a new share buyback programme to be launched in the subsequent year, unless there are opportunities for M&A transactions that are strategically consistent and financially attractive.
The adjusted RoCET1 for the first ten months of 2022 remained well ahead of the 2022 target of >30%.
* Based on unaudited management accounts. This media release contains certain financial measures that are not defined or specified by IFRS, the definitions of which are provided in the Alternative Performance Measures document available at www.juliusbaer.com/APM
** Fair value through profit or loss
*** Fair value through other comprehensive income
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