Julius Baer: mast do better

The bank recorded profits of almost CHF700 million last year. Keystone / Gian Ehrenzeller

Swiss private bank Julius Baer has benefitted from rising global markets over the past year, but can it keep it up the momentum?

This content was published on February 2, 2021 - 10:07
Lex newsletter, Financial Times

A rising tide of global markets lifts all asset managers navigating the high seas of finance these days. In this colourful flotilla, Swiss private bank Julius Baer has stylishly sailed with the swells of the past year. Its net profits rose by half to CHF698 million ($780 million) last year, the bank said on Monday. That will allow for increased returns for shareholders.

Chief executive Philipp Rickenbacher knows to train his sextant on the distant horizon, however. A trading boon flatters current revenues but it cannot be relied on as part of the sustainable business he hopes to build. As with most Swiss banks, low and negative interest rates drag Julius Baer back. An ambitious restructuring plan is well under way.

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Good thing, as the market has already priced in more growth. Julius Baer’s price to tangible book ratio – today at 3.4 times – has long held a premium to that of Swiss peers such as UBS and EFG. That gap had been steadily closing until April last year, since when Julius Baer’s valuation has again begun to reopen that premium. Its shares look pricey.

Net interest income of CHF622 million last year was almost two-fifths below what it was in 2017. A cost-cutting plan started a year ago shows initial signs of promise. The cost-to-income ratio fell to 66.4 percent in 2020, down almost 5 percentage points helped by extraordinary trading profits. Julius Baer aims to maintain a ratio below 67 percent. 

Tweaks to the pay incentives for the group’s relationship managers are the main lever. Pay, previously pegged as a function of the assets a manager brought in, will instead focus on manager profitability. Even with attempts to minimise risks to long-term client relationships, shareholders will watch for any signs of asset flight. 

With this, a prospect of lower trading earnings this year gives the market pause for thought. Together with the risk of upset among its client managers, Julius Baer will unlikely have smooth sailing this year.

Copyright The Financial Times Limited 2021

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