-- Transaction worth CHF860 million based on 1.2% of CHF72
billion in acquired assets under management
-- Julius Baer announces CHF750 million rights issue
-- Deal bolsters Swiss private bank's presence in growth
markets
(Updates with analyst comment, detail and background
throughout)
By Neil MacLucas
ZURICH--Julius Baer Holding AG (BAER.VX) Monday said it will
acquire Merrill Lynch's wealth management business based outside
the U.S. and Japan from Bank of America Corp. (BAC) and raise fresh
equity to bolster its finances as the Swiss private-banking
specialist seeks to widen its global footprint and reduce its
reliance on Switzerland.
The Zurich-based bank said it will pay 860 million Swiss francs
($880 million), or 1.2% of the CHF72 billion in assets under
management transferred as part of the cash and share deal which
will boost total assets under management by 40%. Julius Baer
currently has assets under management worth CHF179 billion.
Julius Baer said it will take on 2,000 Merrill Lynch staff
including 500 financial advisers as it expands its private-banking
network to include Bahrain, the Netherlands, India, Ireland,
Lebanon, Luxembourg, Panama and Spain. Merrill Lynch has agreed to
provide some products and services to Julius Baer as part of the
deal which will take two years to be fully implemented.
"This acquisition brings us a major step forward in our growth
strategy and will considerably strengthen our leading position in
global private banking by adding a new dimension not only to growth
markets but also to Europe," said Julius Baer Chief Executive Boris
Collardi.
Mr. Collardi has been in hunt for international assets from some
time to broaden Julius Baer's client base beyond Switzerland and
Europe as the lingering impact of the financial crisis weighs on
its bigger, more diversified Swiss private-banking rivals Credit
Suisse (CS) and UBS (UBS).
The Merrill Lynch deal follows last month's commercial agreement
with Bank of China Ltd. (BACHY) in which Julius Baer and the
Chinese bank agreed to refer clients to each other and jointly
market some investment products.
Late last year, the Swiss bank lost out to Brazilian-Swiss
private bank Safra Group for a controlling stake in Bank Sarasin
& Cie. Safra paid CHF1.04 billion to buy the stake in
Basel-based Sarasin from Dutch banking cooperative Rabobank last
November.
"I don't see any immediate benefit to Julius Baer from this
deal, and there are too many risks in the integration process,
which is scheduled to run until 2015," said Teresa Nielsen, an
analyst at Vontobel.
"The Merrill Lynch business is not that profitable, and the
price looks expensive given the integration costs, implementation
risks and the need for additional capital increase," Ms. Nielsen
said.
Julius Baer said it will use existing funds and raise new equity
over and above that needed to finance the Merrill Lynch transaction
to bolster its finances. The bank will sell stock worth CHF750
million, of which CHF240 million will be issued to BofA. The bank
will use CHF530 million of existing funds and issuing CHF200
million in hybrid securities to finance the deal itself.
The extra equity raised will give Julius Baer "future strategic
flexibility," the bank said.
"At that level of [assets under management] transferred, the
capital required to support the incremental risk-weighted assets is
expected to amount to about CHF300 million, and the total
restructuring, integration and retention costs will amount to about
CHF400 million," Julius Baer said.
Julius Baer has long said it wants to expand and act as a
consolidator in the industry, because gaining scale is the best way
to deal with the pressure its is facing on margins. In June, the
bank warned that profitability and private-banking margins were
declining because of falling risk appetite among investors and
reduced client activity.
Swiss private banks also have been looking for ways to protect
earnings as a result of the U.S. crackdown on tax havens that
likely will bring an end to the traditionally secretive Swiss
banking model. Julius Baer is one of 11 Swiss banks under
investigation by U.S. authorities looking into allegations the
banks helped Americans evade taxes.
Clients want good returns rather than just have their assets
protected from taxes, which means banks have to focus much more on
investment advice. This is likely to lead to more mergers and
acquisitions between banks as the new service requires heavy
spending on information technology and personnel. Larger banks are
expected to snap up the smaller, unlisted banks as part of the
industry consolidation.
Perella Weinberg Partners acted as exclusive financial advisor
to Julius Baer Group on the transaction.
Julius Baer stock closed at 35.43 Swiss francs on Friday, for a
year-to-date decline of 3.6%.
Write to Neil MacLucas at neil.maclucas@dowjones.com
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