At the end of October 2013, Julius Baer Group’s assets under management (AuM) amounted to CHF 249 billion, an increase of 31% from the CHF 189 billion at the end of 2012. This includes approximately CHF 48 billion from Merrill Lynch’s International Wealth Management (IWM) business outside the US, which Julius Baer is in the process of acquiring, of which CHF 29 billion were booked on the Julius Baer platforms and paid for. Total client assets grew by 23% to CHF 341 billion.
After the end of October 2013, following the local closing of the IWM transaction in Panama and on the back of further client asset transfers from various locations totalling more than CHF 5 billion, IWM AuM reported increased to approximately CHF 54 billion, of which CHF 34 billion are booked on the Julius Baer platforms and paid for. The IWM integration continues to be on track, with the next local closings in Bahrain, Lebanon and the UAE expected to occur before the end of 2013.
Outside the acquisition impact, the increase in AuM in the first ten months of 2013 was driven by net new money and a positive market performance, partly offset by a negative currency impact due to the strengthening of the Swiss franc against most leading currencies, not including the euro. Since the end of June 2013 the net new money rate improved modestly from the level reached in the first half of 2013, taking the annualised pace of net inflows in the first ten months 2013 up to the lower end of the 4-6% medium-term target range. Net new money continued to be driven by net inflows from the growth markets and from the local business in Germany, while the inflows from the cross-border European business were balanced by outflows from tax regularisations of legacy assets.
Since the end of June 2013, client activity moderated significantly, especially in foreign exchange trading. Moreover, as expected, following the strong increase in IWM reported assets in this period, the weight in the overall gross margin calculation of the lower-yielding IWM business increased considerably. Compared to the rest of the Group, the revenues from the IWM business are at present more sensitive to changes in client activity and furthermore were to some extent impacted by temporary disruptions given the intensity of the asset transfer process over the last four months. As a result of these factors, the Group’s gross margin in the first ten months of 2013 declined to 97 basis points (bps), compared to 102 bps in the first half year of 2013. Excluding IWM, the gross margin in the first ten months of 2013 was 100 bps, while the gross margin on the reported IWM AuM was 76 bps.
Partly as a consequence of the lower gross margin, the transferred IWM businesses currently operate at a higher cost/income ratio than the Group average, whereas the targeted cost synergies are on schedule to be realised at a later stage in the process, starting in 2014, in line with the integration and restructuring plans. The successful continuation of the IWM integration process increased the number of IWM staff transferred to well over 1,000, almost double the 553 at the end of June 2013, including 317 relationship managers (RMs), up from 157 at the end of June. For the entire Group, total staff levels amounted to 5,178 FTEs (including 1,135 RMs) at the end of October 2013, up from 4,505 (including 966 RMs) at the end of June 2013. As a consequence of the resulting increased cost base and the aforementioned gross margin developments, the Group’s cost/income ratio for the first ten months of 2013 was just above the 71.7% achieved for the full year 2012, up from 69.3% in the first half of 2013. Based on the timing of the various onboarding, integration and restructuring steps, the contribution from the IWM business to adjusted net profit (1) is expected to be slightly negative in the second half of 2013. Before the end of 2013, the Group will start the sequential implementation of the required restructuring and rightsizing measures with an objective to reach the earlier communicated profitability improvement targets in 2014 and 2015.
Julius Baer remains very well capitalised. At the end of October 2013, the Group’s BIS total capital ratio stood at 22.7% and the BIS tier 1 ratio at 21.2%, well above the targeted floors of 15% and 12%, respectively.
Julius Baer Group’s detailed financial results for the full year 2013 will be published on 3 February 2014.
3 February 2014: Publication and presentation of 2013 full-year results, Zurich
9 April 2014: Annual General Meeting 2014, Zurich
(1) Excluding integration and restructuring expenses and the amortisation of intangible assets related to acquisitions or divestments
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