Zurich, 21 July 2014 Presentation of the 2014 half-year results1 for the Julius Baer Group
IWM transaction benefits materialising - Assets under management up 8% to a record CHF 274 billion - Net new money 6% - Adjusted net profit improved by 10% to CHF 288 million
•Assets under management (AuM) grew to CHF 274 billion, an increase of CHF 20 billion, or 8%, since the end of 2013. The increase was led significantly by net new money of CHF 7.5 billion (6% annualised), in essence as much as in all of 2013, and CHF 6 billion from the first-time consolidation of Brazilian wealth management business GPS. Total client assets (including assets under custody) grew by 7% to CHF 372 billion.•?Operating income rose by 15% from the year-ago period to CHF 1,236 million, resulting in a gross margin of 95 basis points (bps). Adjusted operating expenses went up by 16% to CHF 882 million, resulting in an adjusted cost/income ratio2 of 70.8%.•?Adjusted net profit, which reflects the underlying operating performance, improved by 10% to CHF 288 million and adjusted earnings per share (EPS) by 8% to CHF 1.32.•?IFRS net profit increased by 56% to CHF 179 million and IFRS EPS by 53% to CHF 0.82.•?With a BIS total capital ratio of 23.9% and a BIS tier 1 capital ratio of 22.4%, the capital position remained significantly in excess of the Group's targeted floors of 15% and 12% respectively.•?The integration of Merrill Lynch's International Wealth Management (IWM) business entered its final phase. At 30 June 2014, Group AuM included CHF 56 billion (at current market values) from IWM, of which CHF 48 billion was booked on the Julius Baer platforms.•?In July, a further CHF 2 billion of IWM AuM from various locations was transferred to the Julius Baer platforms, taking AuM booked to CHF 50 billion (at current market values).•?The productivity of the IWM AuM is very close to the 2015 target and the former IWM advisers contributed significantly to net inflows earlier than expected. The IWM integration-related restructuring and rightsizing is well on track, with more than half of the required redundancies effected or communicated at the end of June 2014.•?Today, Julius Baer and Bank Leumi (Leumi) announced that they have entered into a strategic cooperation and referral agreement. Leumi will transfer its Swiss-based private banking business (with AuM of CHF 6 billion) to Julius Baer, and Julius Baer intends to acquire Leumi's private banking subsidiary in Luxembourg (with AuM of CHF 1 billion).
Boris F.J. Collardi, Chief Executive Officer of Julius Baer Group Ltd., said: "We are very pleased with the strong financial performance in the first half of 2014. The substantial further asset growth of the Group and the excellent net new money result led to an all-time high in assets under management. Together with the initial and accelerating materialisation of the IWM-related efficiency gains this helped deliver a substantial increase in profit. The IWM integration has entered the final phase, and it was impressive to see how the combined businesses contributed to the strength of the Group's performance."
At the end of June 2014, total client assets amounted to CHF 372 billion, a rise of 7% since the end of 2013. Assets under management grew by 8%, or CHF 20 billion, to CHF 274 billion. Based on asset values at the applicable transfer dates, this included CHF 54 billion of AuM reported from IWM (end 2013: CHF 53 billion), of which CHF 45 billion were booked on the Julius Baer platforms and paid for (end 2013: CHF 40 billion). The growth in total AuM in the first six months was mainly the result of net new money of CHF 7.5 billion (6% annualised), the inclusion of CHF 6 billion from the first-time consolidation of Brazilian subsidiary GPS (following the increase in ownership from 30% to 80% in March 2014), as well as positive market performance of CHF 5.7 billion, partly offset by a small negative currency impact of CHF 0.4 billion. Net new money was driven by continued net inflows from the growth markets and from the local businesses in Switzerland and Germany, while the inflows in the cross-border European business were more than offset by continued tax regularisations of legacy assets. Former IWM relationship managers (RMs) contributed CHF 2 billion to net new money. Assets under custody came to CHF 98 billion, up by 5% from the CHF 93 billion at the end of 2013.
Operating income rose to CHF 1,236 million, an increase of 15% compared to the first half of 2013, below the 24% growth rate in monthly average AuM (to CHF 261 billion). As a result, the gross margin for the Group was 95 bps (H1 2013: 102 bps; H2 2013: 91 bps). The decline in the gross margin compared to the first half of 2013 is largely attributable to the significantly higher weight of the AuM from the (former) IWM business in the overall gross margin calculation. At the same time, the increase in gross margin compared to the second half of 2013 is explained by the fact that the operating income of the IWM business was impacted by the intensity of the asset transfer process during that period. This transfer effect dissipated significantly during the first half of 2014.
Net commission and fee income contributed CHF 746 million, up by 25%, slightly above the increase in average AuM. Net interest and dividend income rose by 26% to CHF 347 million. Net trading income declined by 38% to CHF 115 million. Other ordinary results increased by 51% to CHF 28 million.
Adjustedoperating expenses went up by 16% to CHF 882 million. The increase in expenses was substantially attributable to the further transfer of the IWM businesses since the first half of 2013. The total number of employees grew by 1,052 full-time equivalents (FTEs), or 23%, to 5,557 FTEs, including a net 1,081 formerly from IWM (up from 553 a year ago) and 111 following the first-time consolidation of GPS. The number of RMs grew by 250 to 1,216, of which 353 formerly from IWM (up from 157 a year ago). As a result, adjusted personnel expenses went up by 21% to CHF 592 million. Adjusted general expenses rose by 11% to CHF 251 million. This included a net charge of CHF 8 million for valuation allowances, provisions and losses (H1 2013: CHF 12 million), whereas the costs related to the US tax situation were insignificant in the first six months of 2014 (H1 2013: CHF 16 million).
As a result, the adjusted cost/income ratio2 was 70.8% (H1 2013: 69.3%; H2 2013: 73.3%).
Adjusted profit before taxes improved by 11% to CHF 354 million. The related income taxes increased to CHF 66 million, representing a tax rate of 18.7%. Adjustednet profit - reflecting the underlying operating performance which allows a meaningful comparison of underlying results over time - improved by 10% to CHF 288 million, and adjusted earnings per share by 8% to CHF 1.32.
IFRS net profit improved by 56% to CHF 179 million, as the improvement in operating results and the reduction in the IWM-related integration and restructuring expenses more than offset the increase (as expected) in the amortisation of acquisition-related intangible assets. On the same basis, EPS grew to CHF 0.82, an increase of 53% from the CHF 0.53 achieved in the same period a year ago.
Balance sheet and capital developments
Since the end of 2013, total assets increased by CHF 1.3 billion, or 2%, to CHF 73.8 billion. Client deposits went up to CHF 54.7 billion, an increase of CHF 3.2 billion, or 6%, below the increase in AuM as there was a relative shift in client assets from cash into investment funds. The total loan book grew by CHF 3.1 billion, or 11%, to CHF 30.6 billion (comprising CHF 22.9 billion of collateralised Lombard loans and CHF 7.7 billion of mortgages), resulting in a loan-deposit ratio of 0.56, compared with 0.53 at the end of 2013. Over the same period, total equity rose by CHF 0.2 billion to CHF 5.2 billion.
At 30 June 2014, total capital amounted to CHF 3.9 billion, of which tier 1 capital CHF 3.6 billion. With risk-weighted assets at CHF 16.2 billion, this resulted in a BIS total capital ratio of 23.9% and a BIS tier 1 capital ratio of 22.4%, well above the Group's target ratios of 15% and 12% respectively.
IWM integration entered final phase - Rightsizing well on track
In the first half of 2014, the IWM integration continued successfully, with the IWM business in Ireland transferring in April and the IWM business in the Netherlands transferring in May. Since the start of the IWM integration process on 1 February 2013, a total of 17 IWM locations have now entered the transfer process. In relation to the transfer of the business in France, a request for regulatory approval has been submitted to the French authorities. The transfer of the business in India is expected to take place in the first half of 2015, after which the IWM integration process will be completed.
At the end of June 2014, based on asset values at the applicable transfer dates, AuM reported from IWM stood at CHF 54 billion (end 2013: CHF 53 billion), of which CHF 45 billion were booked on the Julius Baer platforms and paid for (end 2013: CHF 40 billion). At current market values, IWM AuM reported stood at CHF 56 billion and AuM booked at CHF 48 billion at the end of June. After the end of June, a further CHF 2 billion of IWM AuM from various locations were transferred to the Julius Baer platforms taking total IWM AuM booked and paid for to CHF 47 billion by mid-July (AuM booked CHF 50 billion at current market values).
The first six months brought significant progress in the productivity of the IWM business. The former IWM relationship managers already started to contribute substantially to net new money, and the extrapolated gross margin on the IWM AuM advanced close to the 2015 target of 85 bps.
The previously communicated restructuring following the completion of the majority of the IWM asset transfers proceeded as planned. During the first six months of 2014, while a further 100 employees transferred from IWM to Julius Baer, the integration-related rightsizing resulted in 260 employees leaving the Group, with a further 103 redundancies already communicated. The 363 realised redundancies compare to a previously announced 2014 full-year gross reduction target of 550-560 FTEs, while the realised net reduction of 263 FTSs represent sizeable progress towards attaining the 2014 net transaction-related synergy target of approximately 400 FTEs. In relation to IWM, a further CHF 60 million of transaction, restructuring and integration costs were incurred in the first half of 2014, taking the total booked since the start of the transaction to CHF 304 million. The previous estimate of approximately CHF 455 million for total transaction, restructuring and integration costs has been revised down to approximately CHF 435 million.
The significant progress on productivity and restructuring means that the Group is well on track to reach the IWM transaction-related targets in 2015.
Julius Baer announces strategic cooperation with Bank Leumi
Julius Baer and Leumi today announced that they have entered into a strategic cooperation agreement. Under the agreement, Leumi will refer clients with international private banking needs to Julius Baer, while Julius Baer will refer clients to Leumi's domestic banking services in Israel.
In addition, Leumi has also decided it will exit their Swiss- and Luxembourg-based private banking businesses and will transfer its respective international private banking clients to Julius Baer. In Switzerland this will be in the form of a business transfer from Leumi Private Bank AG (LPB), while in Luxembourg the intention of the parties is that Julius Baer will purchase Leumi's local subsidiary, Bank Leumi (Luxembourg) S.A. (Leumi Lux). At the end of June 2014, LPB had approximately CHF 5.9 billion assets under management (AuM) and Leumi Lux approximately CHF 1.3 billion AuM.
LPB and Julius Baer will cooperate closely to ensure a seamless transfer of the majority of the client relationships in Switzerland, including the transfer of associated RMs and staff required to ensure the continuity of the client business. LPB currently employs 158 staff including 32 RMs in its offices in Zurich and Geneva. The transfer of the client assets is expected to be concluded by the end of 2015, with the majority to be transferred by the end of 2014 / early 2015.
The targeted acquisition of Leumi Lux by Julius Baer - which presently employs 31 staff of which eight are relationship managers - is expected to be completed by the end of the first quarter of 2015, subject to regulatory approvals. Following the closing, the entity is expected to be combined with the local investment advisory business of Julius Baer.
The service offering to clients of both Julius Baer and Leumi is expected to benefit from the strategic cooperation and the resulting transactions.
The total transaction goodwill payable is CHF 10 million in cash. The capital impact from the transfer of the Swiss-based business is expected to amount to between CHF 60 million and CHF 70 million (incl. goodwill payable, required capital and transaction, integration and restructuring costs), assuming that 75% of the client assets will transfer. The transaction in Switzerland is expected to be EPS neutral in 2015 and should result in a low single-digit percentage accretion from 2016.
1 The adjusted results as presented and commented in this Media Release and in the Business Review are derived by excluding from the audited IFRS financial statements the integration and restructuring expenses, the amortisation of intangible assets related to acquisitions or divestments and in 2013 the charge in relation to the withholding tax treaty between Switzerland and the UK.
2 Calculated using adjusted operating expenses, excluding valuation allowances, provisions and losses.
Please refer to the Business Review page 4 for the full description of the results.
The results conference will be webcast at 9:30 a.m. (CEST). All documents (presentation, Business Review First Half 2014, Half-Year Report 2014 and this media release) will be available as of 7:00 a.m. (CEST) at www.juliusbaer.com.
Media Relations, tel. +41 (0) 58 888 8888
Investor Relations, tel. +41 (0) 58 888 5256
14 November 2014: Publication of 10-month Interim Management Statement
2 February 2015: Publication and presentation of 2014 full-year results, Zurich
15 April 2015: Annual General Meeting 2015, Zurich
About Julius Baer
Julius Baer is the leading Swiss private banking group with a focus on servicing and advising sophisticated private clients and a premium brand in global wealth management. Julius Baer's total client assets amounted to CHF 372 billion at the end of June 2014, including CHF 274 billion of assets under management. Bank Julius Baer & Co. Ltd., the renowned Swiss private bank with origins dating back to 1890, is the principal operating company of Julius Baer Group Ltd., whose shares are listed on the SIX Swiss Exchange (ticker symbol: BAER) and form part of the Swiss Market Index (SMI), comprising the 20 largest and most liquid Swiss stocks.
Julius Baer is currently in the final phase of integrating Merrill Lynch's International Wealth Management business outside the US. This will increase the Group's presence to more than 25 countries and 50 locations. Headquartered in Zurich, we have offices in key locations including Dubai, Frankfurt, Geneva, Hong Kong, London, Lugano, Monaco, Montevideo, Moscow, Singapore and Tokyo.
For more information visit our website at www.juliusbaer.com
Disclaimer regarding forward-looking statements
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Media Release & Key Figures
Business Review (pre-print)
Half-year Report (pre-print)