RPT-UPDATE 2-Julius Baer to cut 1,000 jobs after Merrill deal

Tue Oct 9, 2012 5:05am EDT

* To shed 15-18 pct of combined staff of some 5,700

* Targets combined cost-income ratio of about 70 pct

* Baer AuM rise to 184 bln at end August

* Sees deal closing by first quarter 2013

By Emma Thomasson

ZURICH, Oct 9 (Reuters) - Swiss private bank Julius Baer will cut up to around 1,000 jobs as it seeks to rein in costs following its purchase of Bank of America Merrill Lynch's international wealth management business.

Baer said it planned a "significant reduction" of Bank of America positions not required after the merger as well as cuts to middle and back office functions of the melded group, reducing the combined staff of about 5,700 by 15-18 percent.

A Julius Baer spokesman said the job cuts would largely hit the Bank of America unit, which has 2,100 staff now, and they would be spread geographically and take place gradually after the deal closes, currently expected for the first quarter of 2013.

Baer said in August it was acquiring Merrill Lynch's wealth management business outside of the United States and Japan to expand in fast-growing emerging markets. It is presenting details of the deal to analysts and investors in London later on Tuesday.

Ahead of that meeting, Baer reported that its assets under management (AuM) rose to 184 billion Swiss francs ($197.11 billion) at the end of August from 179 billion at end June.

The bank said the increase resulted from net new money inflows close to the top end of its medium term target range, a positive market performance and a positive currency impact, mainly due to the strengthening of the dollar.

The gross margin was slightly lower than the 98 basis points reported for the first six months and the cost income ratio slightly higher due to a small contraction in client activity over the summer.

Baer said the business it is acquiring made a loss of $30.4 million in the first half but would have been profitable when adjusted for cost reductions expected to result from the merger.

"Julius Baer will have to work hard to quickly change the (takeover) target so it can generate these profits," said Kepler analyst Dirk Becker, reiterating his 'hold' on the stock.

Bank of America's private banking business outside the United States has been scattered over many countries, making it difficult to build up the scale, and profitability, of its home market.

Baer shares were down 0.4 1 percent at 32.25 francs at 0833 GMT, compared to a 0.3 percent weaker European banking sector index.

EXECUTION RISK

Baer launched a rights issue on Monday to help pay for the deal, seeking to raise 492 million francs. Shareholder opposition forced it to cut the size of the rights issue from an initially planned 750 million francs..

Sarasin analyst David Kaegi reiterated his support for the deal, noting the Merrill Lynch business targeted the same clients as Baer and had significant exposure to growth markets.

"We therefore reiterate our 'buy' rating but still expect some volatility due to execution risk going forward," he said.

Baer has said it needs a total of 1.47 billion francs for the deal, including some 312 million for transaction, restructuring and integration costs. It said Bank of America would also contribute $125 million towards redundancy payments.

It has said the deal should add 57-72 billion francs in assets, although the actual amount transferred could vary due to client attrition and market performance during the integration.

Baer said the planned cost cuts should lead to a implied cost-income ratio of about 70 percent and a pre-tax profit margin of about 25 basis points for the acquired business on Julius Baer's platform in 2015.

It expects the transaction will be at least earnings per share neutral in 2014 and contribute 15 percent to EPS in 2015.

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.