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Interim Management Statement for the first four months of 2022*

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Significant improvement in gross margin and adjusted cost/income ratio compared to second half of 2021 – Assets under management impacted by markets downturn and client deleveraging – Julius Baer well on track to deliver on 2022 targets

Zurich, 19 May 2022 – The first four months of 2022 were characterised by major changes in geopolitical realities and macroeconomic data and expectations – all of which impacted financial markets significantly. Julius Baer worked closely and proactively with its clients around the world to help them adjust to this changing environment in order to preserve value and avoid losses. While the financial markets downturn and client portfolio de-risking impacted reported assets under management, sustained high levels of client activity helped drive a considerable recovery in the Group’s gross margin compared to the second half of 2021. In combination with the structural step-up in efficiency achieved in the last two years, this led to substantial improvements in the adjusted cost/income ratio and the adjusted pre-tax margin compared to H2 2021, thereby positioning Julius Baer firmly on track to achieve its financial targets for the current 2020-2022 strategic cycle.

Gross margin close to 85 basis points

Since the beginning of 2022, overall client activity and its contribution to the gross margin ‒ via brokerage commissions and net income from financial instruments ‒ improved considerably compared to the second half of 2021, even though it did not reach the strong levels seen in the first four months of 2021. While the US Federal Reserve’s first 25 basis points (bp) rate increase in March 2022 came too late to impact the revenue generation in the reporting period meaningfully, Julius Baer remains excellently positioned to realise a potentially significant gross margin uplift from higher interest rates. Despite the significant market volatility, proactive risk management helped the Group to limit credit impairment losses by the end of April to less than CHF 1 million.

As a result, the Group’s gross margin in the first four months of 2022 was close to 85 bp. This represents a more than 7 bp improvement from the more than 77 bp achieved in H2 2021, and a decrease of 5 bp compared to the nearly 90 bp realised in the first four months of 2021.

Adjusted cost/income ratio 63% and adjusted pre-tax margin 30 bp well ahead of 2022 targets

For 2022, the final year of the current strategic cycle, Julius Baer is targeting an adjusted cost/income ratio of less than 67% and an adjusted pre-tax margin range of 25-28 bp. Due mainly to the changes in the gross margin, the adjusted cost/income ratio was 63% in the first four months of 2022 (an improvement from the nearly 67% in H2 2021; up from around 60% in the first four months of 2021) and the adjusted pre-tax margin 30 bp (just above 24 bp in H2 2021; 36 bp in the first four months of 2021).

Assets under management CHF 457 billion

At the end of April 2022, assets under management (AuM) amounted to CHF 457 billion, a year-to-date decrease of 5%. The decline was driven by negative market performance, corporate divestments and client deleveraging. It was partly offset by a positive currency impact, mainly from the strengthening of the US dollar relative to the Swiss franc.

The negative market performance was driven by substantial declines in equity and bond markets following concerns about the consequences of the start of the war in Ukraine, the additional Covid-related restrictions in China, and the significant realised and expected future increases in inflation and interest rates.

The CHF 5 billion impact from corporate divestments was the result of the completion of the sale of Wergen & Partner (announced in January 2022) and the deconsolidation of NSC Asesores following the reduction of Julius Baer’s participation from 70% to 19.9% (announced in February 2022).

In an environment of sharply increased uncertainty, a number of clients in Asia reacted by de-risking their investment portfolios and reducing leverage, thereby preserving wealth and firepower for reinvestment at a later point. This deleveraging effect exceeded continued net inflows from clients domiciled in Europe (especially Germany and the UK). As a result, the Group recorded CHF 2.7 billion net outflows in the first four months of 2022. The deleveraging impact, which was concentrated among a limited number of large clients primarily in Asia, was most pronounced in March, after which the deleveraging trend decelerated significantly. Based on the outlook at this time, it is currently expected that net new money will return towards a normalised pattern in the second half of the year.

AuM were further impacted by the reclassification of CHF 0.8 billion to assets under custody following the asset freezes resulting from sanctions imposed on clients in connection with Russia’s invasion of Ukraine.

Russia’s invasion of Ukraine

At the end of April 2022, approximately 1.6% of Julius Baer’s AuM were related to Russian persons neither entitled to residency in the European Economic Area nor in Switzerland. Under sanctions imposed by the European Union and Switzerland, the acceptance of deposits in excess of EUR 100,000 from such clients is prohibited.

Since Russia’s invasion of Ukraine Julius Baer has not on-boarded new clients with a Russian residence and applies all relevant national and international sanctions. The Group has credit exposure to a single-digit number of clients subject to these sanctions. The exposure is in the form of mortgage loans at conservative lending values against residential properties in prime locations in Western Europe, as well as a marginal Lombard credit exposure fully covered by pledged liquid assets collateral.

Julius Baer’s market risk exposure to Russia is not significant and is tightly managed. Julius Baer has initiated the wind-down of its advisory subsidiary in Moscow, in compliance with local regulations and contractual agreements. The net asset value of this entity on 31 December 2021 was CHF 0.4 million.

Strongly capitalised

On 2 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 April, a total of 987,000 shares had been repurchased at an aggregate cost of CHF 50 million.

Since the end of 2021, CET1 capital decreased somewhat, as the benefit of strong profit generation was more than balanced by the combined effect of the dividend accrual (in line with the recently updated dividend policy), the start of the new share buy-back programme, and the impact of year-to-date changes in the value of financial assets measured at fair value through other comprehensive income (treasury portfolio). At the same time, risk-weighted assets rose modestly. As a result, at the end of April 2022, the Group’s BIS CET1 capital ratio declined to 15.7% (end 2021: 16.4%).

On 20 April 2022, Julius Baer redeemed all of the outstanding perpetual Tier 1 bonds (AT1 bonds) issued in October 2016 at par value plus accrued interest. The bonds, with a coupon of 5.75% per annum, were issued by Julius Baer Group Ltd. in the aggregate nominal amount of SGD 325 million.

Following the aforementioned CET1 capital development and the redemption of the AT1 bonds, the BIS total capital ratio decreased to 22.2% (end 2021: 24.0%).

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 7.9% and 12.1% respectively.

*) 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.

Cautionary statement regarding forward-looking statements

This media release by Julius Baer Group Ltd. (‘the Company’) includes forward-looking statements that reflect the Company’s intentions, beliefs or current expectations and projections about the Company’s future results of operations, financial condition, liquidity, performance, prospects, strategies, opportunities and the industries in which it operates. Forward-looking statements involve all matters that are not historical facts. The Company has tried to identify those forward-looking statements by using the words ‘may’, ‘will’, ‘would’, ‘should’, ‘expect’, ‘intend’, ‘estimate’, ‘anticipate’, ‘project’, ‘believe’, ‘seek’, ‘plan’, ‘predict’, ‘continue’ and similar expressions. Such statements are made on the basis of assumptions and expectations which, although the Company believes them to be reasonable at this time, may prove to be erroneous.

These forward-looking statements are subject to risks, uncertainties and assumptions and other factors that could cause the Company’s actual results of operations, financial condition, liquidity, performance, prospects or opportunities, as well as those of the markets it serves or intends to serve, to differ materially from those expressed in, or suggested by, these forward-looking statements. Important factors that could cause those differences include, but are not limited to: changing business or other market conditions, legislative, fiscal and regulatory developments, general economic conditions in Switzerland, the European Union and elsewhere, and the Company’s ability to respond to trends in the financial services industry. Additional factors could cause actual results, performance or achievements to differ materially. In view of these uncertainties, readers are cautioned not to place undue reliance on these forward-looking statements. The Company and its subsidiaries, and their directors, officers, employees and advisors expressly disclaim any obligation or undertaking to release any update of or revisions to any forward-looking statements in this media release and any change in the Company’s expectations or any change in events, conditions or circumstances on which these forward-looking statements are based, except as required by applicable law or regulation.

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