Baer case

13 August 2012 By Quentin Webb

The Swiss bank is paying a skinny 1.2 pct of assets for Bank of America’s non-U.S. private banking operations. Throw in restructuring costs and extra capital, though, and the $1.5 bln tag looks richer – especially for a business that’s unprofitable and hardly growing.

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On Aug. 13 Julius Baer, Switzerland’s biggest dedicated private bank, said it agreed to buy Bank of America Merrill Lynch’s private banking operations outside the United States. About two-thirds of the assets come from clients in “growth markets”, chiefly in Asia but also in Latin America and the Middle East. After the deal, about half of all Baer’s business will come from emerging markets.
The deal will add between 57 and 72 billion Swiss francs to Julius Baer’s assets under management. At the top end, that equates to a 40 percent increase in the bank’s AuM, to 251 billion francs. The buyer expects the deal to yield a 15 percent increase in 2015 earnings per share.
At the top end, the deal will require about 1.47 billion Swiss francs ($1.5 billion) of capital. Julius Baer will pay the seller 860 million francs, or 1.2 percent of AuM. It will also need 300 million of regulatory capital to support the extra risk-weighted assets, and will incur about 312 million francs of restructuring, integration and retention costs after tax.
Julius Baer is part-funding the deal through 530 million francs of existing excess capital. It will also sell 200 million francs of hybrid instruments and issue 240 million francs of shares to BofA. Finally, it will raise 500 million francs through a rights issue, which will total 750 million francs in all, with another 250 million francs raised to give the group “future strategic flexibility”.
Shares in Julius Baer were down 5 percent by 0754 GMT at 33.67 Swiss francs.

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