* Sees settlement of tax evasion case in months not years
* Does not give size of a potential settlement
* Buys Swiss and Luxembourg assets of Israel's Bank Leumi
* First-half adj. net profit up 10 pct
* Shares up 6.1 pct, earlier up 7 pct
(Recasts with U.S. tax update)
By Joshua Franklin
ZURICH, July 21 Julius Baer expects to
strike a deal with U.S. authorities in a matter of months to
settle a criminal investigation into the Swiss bank's role in
helping wealthy Americans evade their taxes, its chief executive
said on Monday.
Shares in the Zurich-based lender shot up 7 percent on the
news, recovering much of the ground lost since larger rival
Credit Suisse settled its U.S. tax case in May for
$2.5 billion, more than double what the bank had set aside for
This sparked some concerns Julius Baer could be caught out
by a larger-than-expected fine, leading some in the market to
short the stock. Dealers said Baer's half-year results published
on Monday, which were above analyst expectations in many areas,
eased market fears and led to profit-taking from many short
Baer has not made a provision for any potential fine, saying
it cannot adequately estimate the ultimate amount. In its 2013
results, Baer budgeted 15 million Swiss francs ($16.70 million)
for legal fees relating to the U.S. tax evasion case.
The bank's chief executive did not address the possible size
of a fine, but did say he thought the Credit Suisse deal could
help speed up its own negotiations for it and a host of other
Swiss banks, including Geneva-based Pictet & Cie, which are also
in the crosshairs of U.S. investigators.
"I continue to believe that in the end we will find a fair
and equitable solution for the group. I think we can reasonably
say that this is now a topic of a matter of a few more months
and not years as in the past," Julius Baer CEO Boris Collardi
said on a call after first-half earnings.
Shares in Julius Baer had fallen by around 9 percent since
the Credit Suisse settlement, lagging an index of European banks
which was down by 2.6 percent since then. By 1002 GMT
the stock was up 6.1 percent at 38.79 francs.
One of the factors weighing on the company's valuation has
been the uncertainty from the U.S. tax case and J. Safra Sarasin
analyst Rainer Skierka said the bank would be boosted by a
resolution in the probe.
"On the back of the recent Credit Suisse settlement...
expectations for a Julius Baer penalty have substantially risen
from $300-$500 million to $1 billion-plus, which would wipe out
Julius Baer's estimated excess capital," Skierka wrote in a note
in which he reaffirmed a "buy" rating on the stock.
"This seems to explain Julius Baer's recent share price
weakness and, in our view, illustrates well that reaching a
settlement could be taken with relief."
Julius Baer also said that it will buy the private banking
activities of Israel's Bank Leumi in Luxembourg and
Switzerland, for up to 70 million Swiss francs ($78 million).
Israel's second largest bank is caught up in its own U.S.
tax probe and the bank said last month it was close to a deal to
pay nearly 1 billion Israeli shekels ($292.45 million) to the
U.S. Justice Department in relation to its investigation.
Collardi said the Leumi acquisition would not leave Julius
Baer liable for any fine resulting from the U.S. probe. A
spokesman for Leumi said the sale does not include its American
In Switzerland, where Leumi has roughly 5.9 billion francs
in assets under management, Leumi will transfer its respective
international clients to Julius Baer. Baer will buy Leumi's
business in Luxembourg, which has around 1.3 billion francs in
The deal will add a low single-digit percentage to earnings
per share from 2016, Baer said, if three quarters of Leumi's
clients transfer their funds, the majority of which are to be
transferred by early 2015 at the latest.
Baer also posted a 10 percent rise in adjusted net profit to
288 million francs for the first six months of the year, beating
an estimate of 265 million francs in a poll of analysts surveyed
Julius Baer's cost-income ratio, a measure of a bank's
efficiency, was 70.8 percent, higher than its target range of
65-70 percent from 2015.
($1 = 0.8973 Swiss Francs)
($1 = 3.4194 Israeli Shekels)
(Additional reporting by Katharina Bart and Rupert
Pretterklieber in Zurich and Tova Cohen in Tel Aviv; Editing by
Kenneth Maxwell and Louise; Heavens)