* 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 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
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
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
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
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.