* Gross margin 96 basis points from 105 bps
* Dividend unchanged at 0.60 francs per share
* Shares down 3.4 pct, lagging bank sector
* Hikes full-year profit 15 pct
* CEO says in talks to settle US tax investigation
ZURICH, Feb 4 Julius Baer reported a
slump in profitability as clients slashed trading in foreign
currencies, highlighting the challenges facing wealth managers
as they seek growth beyond their home markets.
The Swiss private bank, which is being investigated by U.S.
authorities cracking down on tax evasion, also blamed the
shortfall on its expansion into overseas markets, such as Asia,
where the profit margin is lower than for offshore Swiss
The falling margin at Switzerland's third-biggest listed
bank underscores the problems facing Swiss wealth managers as
international pressure on banking secrecy - the engine of a $2
trillion finance industry - squeezes their traditional markets
in the United States and Europe.
But growth comes at the price of lower profitability. Julius
Baer is pulling in fresh assets at a healthy clip, but not
making as much money off the newer assets.
The Zurich-based firm lifted assets managed for clients to
189 billion Swiss francs ($209 billion) from 170 billion francs
and increased its full-year profit by 15 percent by cutting
costs to offset sliding revenue. It kept its dividend steady at
0.60 Swiss francs a share.
Gross margin fell to 96 basis points from 105 basis points.
"The big disappointment in these results was the sharp
margin drop," Kepler Capital Markets analyst Dirk Becker said,
adding he is reviewing his hold rating with a view to
Julius Baer shares fell 3.4 percent, underperforming a
slightly lower Stoxx 600 European bank index.
The bank's chief executive countered that the mood among
clients "seems to have turned" this year. Financial head Dieter
Enkelmann said margins were "clearly higher" in January.
"On the back of changing sentiment, and more positive media
headlines, clients are going back into equities," Baer CEO Boris
Collardi told a press conference.
Baer has been a copious acquirer of rival private banks as
part of its expansion drive and on Friday said it had closed the
860 million franc acquisition of Bank of America Merrill Lynch's
overseas wealth management unit. It is cutting 1,000
jobs to reduce costs and swing the loss-making business into the
Julius Baer confirmed its targets for the deal, including a
cost-income ratio of 70 percent at most and 4 percent to 6
percent growth in net new money. It also said it expects a
neutral to slightly negative contribution to this year's profit
from that acquisition.
CEO Collardi was upbeat about the U.S. investigation into
how Baer helped wealthy Americans hide money from tax officials
with Swiss offshore accounts.
Though Baer has not put aside reserves against a settlement
fine yet, momentum is picking up and the bank is back at the
negotiating table with U.S. officials, Collardi said.
A landmark 2009 settlement by Switzerland's largest bank UBS
in 2009 has entangled a host of other banks, including
Baer and Credit Suisse.