November 20, 2018 / 6:45 AM / 10 months ago

UPDATE 1-Bank Baer warns on cost-income target as client activity drops

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By Brenna Hughes Neghaiwi

ZURICH, Nov 20 (Reuters) - Swiss wealth manager Julius Baer on Tuesday said it was cutting spending under what it described as adverse market conditions, warning it may not achieve its cost-income target this year.

“As highlighted in July, clients adopted a more cautious stance on the back of a challenging market environment,” the Zurich-based bank said in a statement. “Throughout the third quarter, this led to lower levels of client activity, before volatility and volumes picked up again in October.”

Baer, Switzerland’s third-largest listed bank, said this led to a drop in its gross margins to 0.87 percent through October, down from 0.91 percent in the first half-year, and a rise in its cost-income ratio to 69 percent, above its 64-68 percent target rate.

Baer in July warned that its customers were becoming more cautious, but on Tuesday said the drop in third-quarter client activity had been more pronounced than previously anticipated. ]

To help offset the impact, the bank said it had begun making further cuts to discretionary spending, and was accelerating efforts to reduce complexity and exposure in non-core markets. These include the planned closure of offices in Panama and Peru, as well as discontinuing services to clients from certain countries.

“While the achievement of the cost-income ratio target in 2018 will depend largely on market conditions in November and December, Julius Baer is taking additional steps to improve its efficiency, with the aim to reach the target in 2019,” it said.

The bank recorded a net new money growth rate close to 5 percent, in line with its 4-6 percent medium-term target range, despite further client deleveraging. Its assets under management (AuM) rose 2 percent in the first ten months of 2018 to 395 billion Swiss francs ($397.86 billion). ($1 = 0.9928 Swiss francs) (Reporting by Brenna Hughes Neghaiwi, editing by Tassilo Hummel and Sunil Nair)

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