* Talks at early stage, outcome open
* Business seen worth $1.5 bln to $2 bln
* Royal Bank of Canada, Credit Suisse also interested
* Biggest deal since 2010 as private banking in upheaval
* Baer shares up 1.7 pct, outperform sector
By Emma Thomasson
ZURICH, June 19 Julius Baer is in
talks with Bank of America about buying Merrill Lynch's
non-U.S. wealth management unit, valued at up to $2 billion, in
what would be a transformative deal for the acquisition-hungry
Swiss private bank.
Consolidation in the wealth management industry has been a
major theme since the 2008 financial crisis, as an increase in
costs and regulation force some players to sell off units and
others - like Baer - to seek to improve margins through scale.
"Given the early stage of these discussions, the outcome is
entirely open," Baer said on Tuesday.
A spokesman declined to say whether Baer was interested in
buying the whole business or parts of it. Sources told Reuters
last month it was keen on units in Europe, the Middle East,
Latin America and Asia excluding Japan.
A deal would be the biggest in the sector since Dutch group
ING sold its private banking assets in 2010 to Julius
Baer and Singaporean group Oversea-Chinese Banking Corp
for a total of about $1.9 billion.
"For Julius Baer this would be a truly transitional deal,
similar to the acquisition of the UBS private bank entities back
in 2005," said Sarasin analyst Rainer Skierka.
The purchase of UBS-owned assets in 2005 marked
the start of a major expansion and the end of majority control
for the Baer family which established the bank in 1890.
If Baer were to buy the business outright, it would increase
assets under management by about 50 percent from the 178 billion
Swiss francs ($186 billion) the bank reported at end-April.
Skierka said a deal could boost Baer's Asian assets under
management to 25 percent from 15 percent of the total now, in
line with the bank's strategy to expand in the region where the
number of millionaires is booming.
Vontobel analyst Teresa Nielsen said the deal could also
increase the scale of Baer's European onshore business.
Like many Swiss banks, Julius Baer is keen to grow its
presence onshore in Europe and offshore in Asia as the business
of serving Western foreigners with secret accounts has come
under pressure from a global clampdown on tax evasion.
Julius Baer has been on the prowl since it missed out in
November on a majority stake in Swiss group Sarasin, which went
to Brazilian-Swiss private bank Safra for $1.1 billion.
CNBC had reported on Monday that Julius Baer was close to a
deal to buy the BofA unit.
Reuters reported in April that BofA had put its wealth
management unit outside the United States up for sale as the
business, which manages $90 billion for rich clients, was not
large enough to generate sufficient income.
Credit Suisse and Royal Bank of Canada
were among those who put in initial bids to buy the business,
sources told Reuters last month.
Nielsen and Skierka both estimated Baer had about 1 billion
francs excess capital, so would probably have to issue new
shares to fund at least part of the deal.
"Given its excess capital of 1 billion francs and expected
cost synergies, financing of a reasonable purchase price via
capital increase should become accretive," said Skierka.
Baer shares were up 1.7 percent at 33.08 francs at 1027 GMT,
beating a 0.6 percent firmer European banking sector.
"Questions still remain around the quality of the AUM for
sale, its cost income ratio and profitability. We believe the
acquisition could lead to high execution risk due to differences
between Swiss and American cultures," Vontobel's Nielsen said.
The BoA business targets so-called "mass affluent" clients
with hundreds of thousands of dollars, rather than super-rich
private banking clients worth tens of millions, but it has
failed to match the scale and profitability of its home market.
Bank of America has been selling off non-core business units
to build capital. The second-largest U.S. bank by assets has
trailed rivals in recovering from the financial crisis, largely
because of huge losses and lawsuits tied to its 2008 acquisition
of subprime mortgage lender Countrywide Financial.