ZURICH — Julius Baer on Monday reported a slump in profitability as clients slashed trading in foreign currencies, highlighting the challenges facing wealth managers as they seek growth beyond home markets.
The Swiss private bank, which is being investigated by US authorities cracking down on tax evasion, also blamed the shortfall on its expansion into overseas markets, such as Asia, where the profit margin is lower than for offshore Swiss banking.
The falling margin at Switzerland’s third-biggest listed bank underscores the problems facing Swiss wealth managers as international pressure on banking secrecy — the engine of a $2-trillion finance industry — squeezes their traditional markets in the US and Europe.
Growth often comes at the price of lower profitability. Julius Baer is pulling in fresh assets at a healthy clip, but it is not making as much money off the newer assets.
The Zurich-based firm lifted assets managed for clients to Sf189bn ($209bn) from Sf170bn and increased its full-year profit by 15% by cutting costs to offset sliding revenue. It kept its dividend steady at Sf0.60 per share.
"The big disappointment in these results was the sharp margin drop," Kepler Capital Markets analyst Dirk Becker said on Monday, adding that he is reviewing his hold rating with a view to downgrading.
Julius Baer shares fell 3.4%, underperforming a slightly lower Stoxx 600 European bank index.
The bank’s CEO Boris Collardi countered that the mood among clients "seems to have turned" this year. Financial head Dieter Enkelmann said margins were "clearly higher" last month.
Julius Baer has been a copious acquirer of rival private banks as part of its expansion drive and on Friday said it had closed the Sf860m acquisition of Bank of America Merrill Lynch’s overseas wealth management unit. It is cutting 1,000 jobs to reduce costs and swing the loss-making business into the black.
Julius Baer confirmed its targets for the deal, including a cost-income ratio of 70% at most and 4% -6% growth in net new money. It also said it expects a neutral to slightly negative contribution to this year’s profit from that acquisition.
Mr Collardi was upbeat about the US investigation into how Julius Baer helped wealthy Americans hide money from tax officials with Swiss offshore accounts.
Although Julius Baer has not put aside reserves against a settlement fine yet, momentum is picking up and the bank is back at the negotiating table with US officials, Mr Collardi said.