Julius Baer buys back shares after M&A draws blank

Julius Baer buys back shares after M&A draws blank

Zurich: Swiss private bank Julius Baer will buy back up to 500 million Swiss francs of shares and raise its dividend, returning excess capital to investors after an unsuccessful acquisition hunt.

Switzerland’s biggest listed pure play private bank said it increased net profit by 6% and attracted 9 billion Swiss francs of net new money in 2010, even as the franc’s strength against the euro ate into assets and profitability.

“We have regained momentum in the second half and we are hoping to continue this momentum into 2011," chief executive Boris Collardi said on Monday, adding that currency volatility remained one of major challenges facing Baer this year.

The scale of the impact of Swiss franc strength on profit and client asset levels will be the focus for results later this week from Swiss banking heavyweights UBS and Credit Suisse .

Shares in Julius Baer traded 3% higher at 02:00 pm, outperforming a 0.9% rise in the European banks sector.

New assets from the acquisition of ING and client money inflows at the top end of Baer’s target more than made up for a strong Swiss franc rally against the euro and the dollar wiping 14 billion francs ($14.7 billion) off assets under management.

But the rise of the Swiss currency to unprecedented levels last year also pressured margins. Most of Baer’s costs are booked in francs, while much of its operating income is in foreign currencies.

“Assets under management and net new money were good, profits were slightly disappointing and margins were a touch lower than we had deduced. The cost/income ratio in (the second half) was going in the wrong direction," said Helvea analyst Peter Thorne, adding that the return of capital would not impede Baer’s ability to make strategic acquisitions.

The bank confirmed its 2012 targets of 4% to 6% net new money and for hiring 40 to 50 client relation managers, who usually bring old clients with them from their former banks. It was also confident of boosting its profit margins and reducing its cost/income ratio after both came in below target.

Baer, which in May completed the integration of ING’s Swiss private banking assets it bought in 2009, has been holding large amounts of capital as it seeks a new acquisition target, so far without success.

Chief financial officer Dieter Enkelmann said there were still a few interesting targets around and that the return of capital to shareholders reflected the fact that Baer was well placed to meet new capital requirements even after the buyback.