No rest for Collardi as Julius Baer grapples with Merrill
ZURICH Aug 15 (Reuters) - Chief Executive Boris Collardi had wanted Julius Baer to look East since his Ferrari first roared into the bank's car park in 2006, but the means to that end - the integration of the Merrill Lynch overseas wealth arm - is proving a bumpier ride.
With Europe in the doldrums and a crackdown on tax evasion hitting Swiss private banking, the appeal of a deal that gave the bank far greater access to fast-growing markets in Asia and South America was obvious. But the 860 million Swiss franc ($928 million) acquisition, announced a year ago this week, is costing the company more than it bargained for.
In July, five months after the integration began, Collardi raised the estimated integration costs to 455 million francs from 400 million, and retaining Merrill Lynch bankers is also costing money and slowing efforts to hire advisors in other areas, hampering the bank's target for net new money growth.
To avoid losing Merrill's assets, the 39-year old Collardi has been travelling frequently to Singapore and Hong Kong to reassure customers and keep staff on board.
"This integration is not done on a spreadsheet. It's done with people in the trenches, talking to them, explaining what Julius Baer is, how we function," he told Reuters.
Last year Collardi said the deal would reinforce Julius Baer as the private banking "employer of choice", but its pay model, based on a salary and annual bonus, has proved controversial with Merrill Lynch staff used to monthly commissions.
To ensure they stay, top Merrill Lynch bankers in Asia have been given retention awards, while some key Julius Baer bankers have also been offered top-ups to ensure they don't feel left out, according to a Singapore-based private banking headhunter.
Despite the money Julius Baer has shelled out, some Merrill Lynch bankers are expected to leave because they fear the Swiss will cull staff once the integration has been fully bedded down and clients comfortable with the new set-up.
"I am in the process of taking a decent number of people out from Merrill over the next couple of months," said the headhunter, who declined to be named.
Baer wants to get the combined group's cost-income ratio down to 65-70 percent from the 114 percent clocked up by the Merrill Lynch business in 2011. To do that, Collardi will cut up to 1,000 jobs after the unit is integrated.
Collardi, who rose to the top job at Julius Baer in 2009, aims to ramp up the integration in the second half of this year and have 80 percent of Merrill's assets transferred and paid for by year-end.
PERCHANCE TO DREAM
One of the bank's biggest 15 investors said it would be two to three years before Collardi would know whether the deal was a success.
It hasn't produced much of a bounce for the company's share price. Since announcing the Merrill deal, Baer stock has gained 28 percent, lagging the broader European index, which has risen nearly 35 percent. UBS, the world's largest private bank, has surged 82 percent in the same period, aided by a company restructuring.
"Investors are paying up for continued delivery, while significant risks and uncertainties remain," said Barclays analyst Jeremy Sigee.
There is a clear risk the company might not meet the targets Collardi has set, including ensuring the loss-making Merrill Lynch business adds 15 percent to group earnings in 2015.
"It's very ambitious for Baer to bring it to the level they are forecasting by 2015," said Andreas Brun, analyst at Zuercher Kantonalbank.
If all goes to plan, the consequences for Collardi will be both personally and professionally rewarding.
"I will sleep much better at night knowing 50 percent of our clients come from diversified growth markets and 50 percent from Europe and Switzerland," he said.
Perchance to dream, as some investors speculate, that he could then be in line for a top job at either UBS or Credit Suisse.
"I think he's a good communicator, and in that sense, I can see him suited for an even higher job," said Thomas Braun, Zurich-based fund manager at Braun von Wyss.
In that event, having toned down the conspicuous consumption since he joined Julius Baer, his reputation will speak louder than the car he arrives in.
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