Interim Management Statement for the first ten months of 2016
Assets under management at record CHF 327 billion – Net inflows close to target range – Regional realignment completed – Continued hiring of relationship managers – Subdued trading volumes affect gross margin – Cost/income ratio guidance reconfirmed (1)
Zurich, 17 November 2016 – In the ten months to the end of October 2016, Julius Baer Group’s assets under management (AuM) grew to a record CHF 327 billion, an increase since the end of 2015 of CHF 27 billion, or 9%. The year-to-date AuM development benefited from continued net new money, positive market performance, the first-time consolidation – as at 1 April 2016 – of Kairos Investment Management SpA (Kairos) with close to CHF 9 billion AuM, and the acquisition – on 4 July 2016 – of Commerzbank International S.A. Luxembourg (CISAL) with close to CHF 3 billion AuM. These positive contributions were partly offset by a negative currency impact, mainly due to the weakening of the British pound and the US dollar relative to the Swiss franc.
Net inflows close to target range
Net new money in the year to date was, on an annualised basis, close to 4%. With the exception of Latin America, all regions realised net inflows so far this year. Based on the relationship manager (RM) hirings and the current net inflows outlook, net new money is expected to improve well into the 4-6% target range in 2017.
Well positioned for further growth following regional realignment and RM hirings
The regional realignment of the front organisation, announced in the summer, was implemented efficiently over the past three months. All top management changes were staffed from within the organisation, underlining the strong talent pool of the Group. At the same time the Group continued to bring on board a significant number of senior private bankers, attracted by Julius Baer’s pure private banking business model. At the end of October, the number of RMs had grown to 1,376 RMs, a year-to-date net increase of 159 RMs, of which 115 RMs via recruitment and 44 RMs through the acquisitions of Kairos and CISAL. In combination with the improved regional set-up and the ongoing investments in advisory services, investment management expertise and the Group’s technology transformation, this year’s accelerated RM recruitment is expected to provide firm support for Julius Baer’s further growth in the medium and long term.
Gross margin affected by subdued trading volumes since the end of June
Despite a slight improvement in Asia, overall client trading volumes declined markedly in the four months since the end of June. As a consequence, the gross margin for the first ten months declined to just over 91 basis points (bps). This compares to just below 95 bps in the first half of the year.
Cost/income ratio (2) just below 68% – Guidance reconfirmed
The year-to-date impact on the cost/income ratio (2) of both the recent gross margin development and this year’s accelerated investments in growth was largely balanced by the implementation of a number of cost saving measures throughout the Group and the positive effect of the pension fund plan amendment in Switzerland in the first half of the year. As a result, the cost/income ratio (2) for the first ten months of 2016 was just below the top end of the 64-68% range that the Group is targeting to reach in the medium term. Notwithstanding the decline in gross margin since the end of June, the Group is confident that its continued balanced cost management will help achieve a cost/income ratio (2) for the current financial year inside the 68-69% guidance range provided earlier this year. This would assume no significant deterioration in market conditions in the last two months of 2016.
As this year’s investments in growth start delivering the envisaged improvements in productivity, the cost/income ratio (2) is expected to normalise towards and into the 64-68% target range over the next two years.
Solid capital position
At the end of October 2016, and subsequent to last month’s successful placement of the Group’s second SGD-denominated perpetual tier 1 subordinated bond in the Singapore market in the amount of SGD 325 million, the phase-in BIS total capital ratio stood at 18.2% and the phase-in BIS CET1 capital ratio at 16.2%, up from 17.3% and 15.9% respectively at the end of June 2016. At these levels, which are well above the Group’s own floors of 15% and 11% respectively and significantly above the minimum regulatory requirements of 12.2% and 8% respectively, the Group remains solidly capitalised.
Julius Baer will redeem all of the outstanding lower tier 2 subordinated bonds due 23 December 2021 at par value on the reset date of 23 December 2016, in accordance with the terms of the bond. The bonds were issued by Julius Baer Group Ltd. in December 2011 in the amount of CHF 250 million. The redemption of the lower tier 2 bonds, which are not Basel III-compliant, has been pre-financed by the aforementioned Additional Tier 1 bond issue, which are fully Basel III-compliant.
2016 full-year results
Julius Baer Group’s detailed financial results for 2016 will be published on 1 February 2017.
(1) Based on unaudited management accounts
(2) Excluding integration and restructuring expenses, the amortisation of intangible assets related to acquisitions or divestments, and valuation allowances, provisions and losses