Presentation of the 2013 half-year results for the Julius Baer Group
Assets under management up 15% to CHF 218 billion – Adjusted net profit up 26% to CHF 261 million – IWM integration advancing rapidly across multiple locations
Assets under management (AuM) grew to CHF 218 billion, up by 15% since the end of 2012. This included approximately CHF 24 billion from Merrill Lynch’s International Wealth Management (IWM) business outside the US, which Julius Baer is in the process of acquiring. Net new money was CHF 3.4 billion (3.6% annualised). Total client assets (including assets under custody) grew by 10% to CHF 304 billion.
Operating income rose by 25% year on year to CHF 1,077 million, and the gross margin improved to 102 basis points (bps) (H1 2012: 98bps) on an improvement in client activity.
Adjusted operating expenses went up by 23% to CHF 758 million. (2)
As a result, the adjusted cost/income ratio improved to 69%.
Adjusted net profit grew by 26% to CHF 261 million (H1 2012 restated (2): CHF 208 million) and adjusted earnings per share (EPS) by 17% to CHF 1.23 (H1 2012 restated (2): CHF 1.04).
IFRS net profit declined by 30% to CHF 114 million (H1 2012 restated (2): CHF 162 million), as the strong operational improvement was more than offset by the impact of the CHF 99 million IWM-related integration and restructuring expenses as well as a CHF 28 million (net of taxes: CHF 22 million) charge in relation to the withholding tax treaty between Switzerland and the UK.
The Group’s BIS total capital ratio stood at 24.5% and its BIS tier 1 capital ratio at 22.9%, supported by the pre-funding in 2012 of the acquisition of IWM.
The IWM integration is advancing rapidly across multiple locations. After the end of June 2013, a further CHF 22 billion of IWM AuM were transferred to Julius Baer, taking total IWM AuM reported to CHF 47 billion.
Boris F.J. Collardi, Chief Executive Officer of Julius Baer Group Ltd., said: “On the back of a recovery in client activity and better cost efficiency, our Group markedly improved its operational performance in the first half of 2013. At the same time, we made tremendous progress in the integration of IWM, which makes us confident that we will achieve our goal of having 80% of targeted IWM client assets reported at Julius Baer by the end of this year.”
Total client assets amounted to CHF 304 billion, an increase of 10% since the end of 2012. Assets under management grew by 15%, or CHF 28 billion, to CHF 218 billion. This included approximately CHF 24 billion of AuM reported from IWM, of which CHF 12 billion were booked on the Julius Baer platforms and paid for. A further update on IWM, including on AuM transferred after the end of June, is located towards the end of this media release. Outside the contribution from IWM, the increase in AuM was the result of net new money of CHF 3.4 billion, a positive currency impact of CHF 2 billion as well as CHF 0.2 billion from the acquisition of a 60% equity participation in TFM Asset Management Ltd., partly offset by the disposal on 31 May 2013 of our former Italian onshore subsidiary Julius Baer SIM SpA, with CHF 1 billion in AuM, as well as by a marginally negative market performance of CHF 1 billion. The market performance was impacted by several clients’ exposure to underperforming asset classes such as emerging market securities and gold as well as by the global market corrections in June 2013, and occurred despite the fact that Julius Baer again achieved a clearly positive performance across practically all discretionary mandates it manages. Due to the Group’s strong focus on the successful transfer and integration of the IWM businesses, the pace of stand-alone net hirings of RMs decelerated somewhat, which was one of the factors behind the year-on-year slowdown in the net new money rate to 3.6% (annualised). Net new money was driven by continued net inflows from the growth markets and from the local business in Germany, while the inflows in the cross-border European business were offset by tax-driven outflows. Assets under custody came to CHF 86 billion, compared to CHF 88 billion at the end of 2012.
Operating income rose to CHF 1,077 million, a year-on-year increase of 25%, above the 20% year-on-year increase in average AuM (to CHF 212 billion). The gross margin (including the IWM businesses transferred in February, April and at the end of May 2013) improved to 102 bps (H1 2012: 98 bps, H2 2012: 94 bps). Excluding IWM, the gross margin was 103 bps, while the gross margin on the reported IWM AuM was 93 bps. In the second half of 2013, the weight of the IWM businesses in the overall gross margin calculation will increase significantly. Net commission and fee income went up by 27% to CHF 599 million, driven by the increase in average AuM and a recovery in client transaction volumes. Net interest and dividend income declined by 15% to CHF 275 million as the benefit of the increase in loan volumes was more than offset by a year-on-year decrease in dividend income on trading portfolios from CHF 90 million to CHF 33 million. Excluding the latter, underlying net interest and dividend income increased by 4% to CHF 242 million. Including the aforementioned trading portfolios-related dividend income, underlying net trading income improved by 53% to CHF 218 million mainly as a result of an upturn in client-driven foreign exchange trading following higher volatility in the currency markets. Unadjusted net trading income more than tripled to CHF 184 million. Other ordinary results went up by 6% to CHF 19 million.
Revised accounting standards related to the Group’s pension plan (IAS 19 – Employee Benefits) that became effective on 1 January 2013 and are described in the Group’s Half-year Report 2013 resulted in a restatement of certain expense and balance sheet items for the 2012 reporting period. The restatement increases reported operating expenses for the full year 2012 by CHF 12 million (H1 2012: increase of CHF 17 million, H2 2012: decrease of CHF 5 million) and reduces 2012 adjusted net profit by CHF 10 million (H1 2012: decrease of CHF 13 million, H2 2012: increase of CHF 3 million). In the first half of 2013, adjusted operating expenses increased by 23% to CHF 758 million from a restated level of CHF 614 million in the first half of 2012. The increase in expenses was partly attributable to the transfer of the IWM businesses in February, April and at the end of May 2013. The total number of employees increased by 23% year on year to 4,505 full-time equivalents (FTEs), including a net 553 from IWM. Out of the total staff, 138 FTEs are fully assigned to the IWM integration, and the expenses related to this group are therefore included in the IWM-related restructuring and integration expenses and consequently excluded from the adjusted results. The number of relationship managers grew by 165 to 966 FTEs, of which 157 from IWM. Mainly as a result of the increased headcount, the adjusted personnel expenses went up by 16% to CHF 488 million from a restated level of CHF 421 million a year ago. Adjusted general expenses went up by 41% to CHF 226 million, impacted by a shift from a CHF 11 million release to a CHF 12 million charge for valuation allowances, provisions and losses. Excluding valuation allowances, provisions and losses, adjusted general expenses increased by 25% to CHF 214 million following the transfer of the IWM businesses and in line with the increase in operating income. Adjusted general expenses included CHF 16 million of costs related to the US tax situation, up from CHF 14 million a year ago.
As a result, the adjusted cost/income ratio (3) improved to 69% (H1 2012 restated: 72%; H2 2012 restated: 71%). Excluding the expenses related to the US tax situation, the adjusted cost/income ratio was 68%.
Adjusted profit before taxes went up by 28% to CHF 319 million from a restated level of CHF 249 million a year ago. The related income taxes increased from a restated level of CHF 41 million to CHF 57 million, representing a tax rate of 18%, up from a restated rate of 16.6%. Adjusted net profit consequently increased by 26% to CHF 261 million from a restated level of CHF 208 million, and, following the higher share count after the capital increases in October 2012 and January 2013, adjusted earnings per share came to CHF 1.23, up by 17% from a restated level of CHF 1.04.
As in previous years, in the analysis and discussion of the results in the Media Release and the Business Review, adjusted operating expenses exclude integration and restructuring expenses (CHF 99 million, almost entirely related to IWM, up from CHF 1 million in the prior-year period) as well as the amortisation of intangible assets related to acquisitions (CHF 48 million, up from CHF 45 million a year ago). Additionally, concerning the guarantee payments that Swiss banks were obliged to provide under Swiss law as part of the withholding tax agreement between Switzerland and the UK, the Swiss Bankers Association stated on 5 July 2013 that it cannot be ruled out that none or only a small part will be recovered. A provision of CHF 28 million (net of taxes: CHF 22 million) has been taken to cover the expected payment in relation to this. This amount has also been excluded from the adjusted operating expenses. Including the above items, as presented in the IFRS results in the Group’s Half-year Report 2013, net profit was CHF 114 million in the first half of 2013, down 30% from a restated CHF 162 million in the first half of 2012, as the strong improvement in operational performance was more than offset by the IWM-related integration and restructuring expenses and the UK withholding tax-related provision. On the same basis, and following the higher share count after the capital increases in October 2012 and January 2013, EPS decreased by 34% to CHF 0.53, from the restated CHF 0.81 a year ago.
Balance sheet and capital developments
From a restated level of CHF 54.8 billion at the end of 2012, total assets increased by 23% to CHF 67.2 billion. Over the same period, client deposits went up by CHF 6.6 billion to CHF 45.7 billion, and the total loan book by CHF 3.1 billion to CHF 22.9 billion (comprising CHF 16.7 billion of collateralised Lombard loans and CHF 6.2 billion of mortgages), resulting in a continued conservative loan-to-deposit ratio of 0.50. The strong increase in loans and deposits was partly the result of the acquisition last February 2013 of Geneva-based Merrill Lynch Bank (Suisse) S.A. At the end of June 2013, total equity was unchanged from a restated level of CHF 4.7 billion at the end of 2012, while BIS total capital amounted to CHF 3.7 billion and BIS tier 1 capital to CHF 3.5 billion. With risk-weighted assets at CHF 15.2 billion, this resulted in a BIS total capital ratio (under the new Basel III framework) of 24.5% and a BIS tier 1 capital ratio of 22.9%. The capital position and ratios were supported by the pre-funding in the second half of 2012 of the acquisition and integration of IWM. Over the next 12 to 18 months, as further IWM client assets are transferred and paid for in stages and as the remaining projected IWM-related transaction, integration and restructuring costs are expensed, the Group’s total and tier 1 capital ratios are expected to decrease closer to the medium-term targeted levels.
After the end of June 2013, a further CHF 22 billion of IWM AuM were transferred to Julius Baer, taking total IWM AuM reported to CHF 47 billion, of which CHF 19 billion were booked on the Julius Baer platforms and paid for. Since the start of the IWM integration process on 1 February 2013, and including the additional transfer milestones reached in July 2013, a total of twelve IWM locations have now entered the transfer process. This encompasses the largest IWM locations in Switzerland, Uruguay, Singapore, Hong Kong and the UK, as well as two locations that are new to the Group, namely Luxembourg and Spain. Including the July transfers, the total number of IWM staff at Julius Baer has increased to 1,005 FTEs, of which 272 are relationship managers. As a result of the strong progress made to date, the Group reaffirms its target to acquire between CHF 57 billion and CHF 72 billion of IWM AuM by January 2015. Of this targeted range, 80% are expected to be reported and 70% to be booked on the Julius Baer platforms and paid for by the end of 2013. The estimate for the total IWM-related transaction, restructuring and integration costs to be borne by Julius Baer has been increased from approximately CHF 400 million to approximately CHF 455 million. This is mainly the result of higher estimated costs related to the client onboarding process. All other IWM-related targets are reaffirmed.
The results conference will be webcast at 9:30 a.m. (CEST). All documents (presentation, Business Review First Half 2013, Half-year Report 2013 and this media release) will be available as of 7:00 a.m. (CEST) at www.juliusbaer.com.
15 November 2013:
Publication of 10-month Interim Management Statement
3 February 2014:
Publication and presentation of 2013 full-year results, Zurich
9 April 2014:
Ordinary Annual General Meeting 2014, Zurich
Please note the disclaimer regarding forward-looking statements in the media release PDF attached on the right-hand side.
(1) The adjusted results as presented and commented in this Media Release and in the Business Review are derived by excluding from the reviewed IFRS financial statements the integration and restructuring expenses, the amortisation of intangible assets related to acquisitions or divestments and in 2013 a CHF 28 million (net of taxes: CHF 22 million) charge in relation to the withholding tax treaty between Switzerland and the UK.
(2) Revised accounting standards related to the Group’s pension plan that became effective on 1 January 2013 and are described in the Group’s Half-year Report 2013 resulted in a restatement of certain expense and balance sheet items for the 2012 reporting period.
(3) Calculated using adjusted operating expenses, excluding valuation allowances, provisions and losses.