Julius Baer Group’s financial performance was again impacted by the continued strengthening of the Swiss franc against key currencies.
Operating income decreased by 2%, while average assets under management (AuM) were essentially unchanged, translating into a gross margin of 105 basis points (bps), 2 bps lower than in the first half of 2010, but a 2 bps improvement from the level achieved in the second half of 2010.
Operating expenses, including the one-off Germany payment (2) of EUR 50 million (CHF 65 million), increased by 12%; however, excluding this payment the underlying operating expenses went up by just 1%. The cost/income ratio increased to 67.6% and adjusted net profit declined to CHF 196 million. Excluding the CHF 51 million net of tax impact of the one-off Germany payment, the underlying net profit declined by 5% to CHF 248 million.
Total client assets amounted to CHF 260 billion, a decrease of 3% since the end of 2010. AuM decreased by 2%, or CHF 4 billion, to CHF 166 billion, as continued net inflows of CHF 5 billion or 6% annualised were again offset by a significant negative currency impact, of CHF 8 billion, due to the further strengthening of the Swiss franc, as well as a marginally negative market performance. Assets under custody were CHF 94 billion, down by 3%.
The Julius Baer Group continued to manage its balance sheet conservatively and maintains a very solid capital base. The BIS tier 1 ratio stood at 21.7% as at 30 June 2011. For the medium term, the Julius Baer Group will target a BIS total capital ratio of at least 16% and a BIS tier 1 ratio of at least 12%. Julius Baer has no direct treasury exposure to peripheral euro zone sovereign credit.
The previously announced share buyback programme was launched on 23 May 2011, and at the end of June 1’872’500 own shares had been repurchased for a total amount of CHF 66 million.
Boris F.J. Collardi, Chief Executive Officer of Julius Baer Group Ltd., said: “In the first half of 2011, our Group again showed robust business momentum while underlying profitability was largely maintained despite the significant headwind of the strong Swiss franc. Across the Group, we continued with the resolute execution of our two-pronged growth strategy, which is concentrated on capturing the strong wealth creation dynamics of the growth markets and on further adapting our business model and service offering to the changes occurring in the European markets. At the same time, we intensified our drive to preserve future profitability by stepping up our unrelenting focus on improving revenues and enhancing the cost efficiency of our organisation and business processes.”
Total client assets amounted to CHF 260 billion at the end of June 2011. Assets under management decreased by 2%, or CHF 4 billion, to CHF 166 billion compared with CHF 170 billion at the end of 2010. The slight decrease in AuM was the result of net new money of CHF 5 billion being offset by a significant negative currency impact of CHF 8 billion due to the further decline in the value of the euro and especially the US dollar against the Swiss franc as well as a marginally negative market performance of CHF 1 billion. All regions delivered positive net new money, with again a significant contribution from the growth markets. The onshore German business was very successful in attracting new clients, helped by the additional team that came on board in January. Assets under custody amounted to CHF 94 billion, after CHF 98 billion at the end of 2010, a decrease of 3%.
Operating income fell by 2% year on year to CHF 898 million, on the back of essentially unchanged average AuM and a decline in the gross margin to 105 bps. While this was 2 bps lower than in the first half of 2010, the gross margin did improve slightly from the second half 2010 level of 103 bps. Net fee and commission income grew by 1% to CHF 496 million. Net interest income increased by 29% to CHF 316 million, mainly on higher dividend income on trading portfolios, which for accounting reasons is booked under interest income. Excluding the trading portfolios-related dividend income, which increased from CHF 59 million in the first half of 2010 to CHF 97 million in the first half of 2011, underlying net interest income increased by 18% to CHF 220 million, driven mainly by an increase in loan volumes. Net trading income decreased by 47% to CHF 86 million, mainly due to the aforementioned dividend reporting impact. When readjusted on the same basis as for net interest income above, the underlying net trading income fell by 18% to CHF 183 million, mainly as a result of lower client-related foreign exchange trading volumes. Other ordinary results totalled a negative CHF 1 million, compared to a positive CHF 16 million in the first half of 2010.
Operating expenses went up by 12% year on year to CHF 667 million, mainly as a consequence of the one-off Germany payment. Excluding the impact of this payment, the underlying operating expenses increased by 1% to CHF 602 million. The total number of employees climbed by 4% year on year to 3,684, which includes 794 relationship managers, a net increase of 62 from a year ago and of 42 since the end of 2010. As a result of the expanded staff base, personnel expenses grew by 3% to CHF 411 million. General expenses, including valuation adjustments, provisions and losses, rose by 35% to CHF 226 million, mainly due to the one-off Germany payment. Excluding this latter item, the underlying general expenses fell by 4% to CHF 160 million.
The large majority of expenses are in Swiss francs, whereas operating income – similar to AuM – has a strong foreign currency exposure, especially to the euro and the US dollar. Mainly as a result of the strong Swiss franc, and to a lesser extent due to the decline in the gross margin, the cost/income ratio increased to 67.6%, compared to 63.4% in the first half of 2010.
Accordingly, including the one-off Germany payment, profit before taxes declined by 28% year on year to CHF 231 million. Income taxes decreased to CHF 35 million, representing a tax rate of 15%. As a result, adjusted net profit declined to CHF 196 million, and earnings per share to CHF 0.96.
Excluding the impact of the one-off Germany payment, the underlying profit before taxes fell by 8% to CHF 296 million; income taxes decreased to CHF 49 million, representing a tax rate of 16.4%; the underlying net profit declined by CHF 13 million, or 5%, to CHF 248 million; and the underlying earnings per share decreased to CHF 1.21.
As in previous years, in the analysis and discussion of the results in the Media Release and the Business Review, operating expenses exclude integration and restructuring expenses as well as the amortisation of intangible assets related to acquisitions. Including these items, as presented in the unadjusted IFRS results in the Half-year Report, net profit was CHF 147 million in the first half of 2011, after CHF 185 million in the first half of 2010. This decrease is mainly due to the CHF 51 million net impact of the one-off Germany payment and the adverse currency movements, partly offset by the much lower integration and restructuring costs in relation to the ING Bank (Switzerland) Ltd transaction which closed in January 2010. Excluding the one-off Germany payment the unadjusted IFRS net profit would have been CHF 199 million.
New capital targets set – No exposure to peripheral euro zone sovereign credit
The Group continued to manage its balance sheet conservatively and maintained a very solid capital base. From the end of 2010, total assets increased by 3% to CHF 47.5 billion. Over the same period, client deposits rose by CHF 1.2 billion to CHF 30.0 billion, and lombard lending and mortgages increased by CHF 1.7 billion to CHF 16.3 billion, thus resulting in a loan-to-deposit ratio of 0.54. Total equity decreased by 2% to CHF 4.4 billion, and BIS tier 1 capital increased by CHF 23 million to CHF 2.9 billion. This limited increase in BIS tier 1 capital reflects the impacts of the recently launched share buyback programme and the May 2011 acquisition of a 30% strategic participation in Brazilian wealth manager GPS. With a strong BIS tier 1 ratio of 21.7% the Julius Baer Group continues to enjoy a very solid capital base. For the medium term, the Julius Baer Group will target a BIS total capital ratio of at least 16% and a BIS tier 1 ratio of at least 12%.
Julius Baer has no direct treasury exposure to Greek, Italian, Spanish, Portuguese or Irish sovereign credit. Furthermore, there is also no direct treasury exposure to credit from Greek, Portuguese and Irish banks, and only very limited exposure to credit of strong Spanish and Italian banks, mostly short-term commercial paper.
Share buyback programme in progress
The previously announced share buyback programme of up to 5% of shares outstanding on 31 December 2010, for a maximum of CHF 500 million and scheduled to run until the 2012 Ordinary Annual General Meeting of shareholders, was launched on 23 May 2011. At the end of June, 1,872,500 own shares had been bought back at a total value of CHF 66 million.
The results conference will be webcast at 9:30 a.m. (CET). All documents (presentation, Business Review First Half 2011, Half-year Report 2011, and media release) will be available as of 7:00 a.m. (CET) at www.juliusbaer.com.
Please note the disclaimer regarding forward-looking statements in the media release PDF attached on the right-hand side.
14 November 2011:
Interim Management Statement
6 February 2012:
Release of 2011 annual results
11 April 2012:
Ordinary Annual General Meeting
(1) The adjusted results presentation as usual excludes integration and restructuring expenses (in the first half of 2011 CHF 5 million) as well as the amortisation of intangible assets (in the first half of 2011 CHF 45 million). Unadjusted for these items, the net profit attributable to shareholders went from CHF 185 million in the first half of 2010 to CHF 147 million in the first half of 2011, mainly due to the CHF 51 million net impact of the one-off Germany payment.
(2) On 14 April 2011, it was announced that German authorities and Julius Baer had agreed on a one-off payment by the latter of EUR 50 million. This payment ended the investigations against Julius Baer and unknown employees regarding tax matters in Germany.