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Julius Baer primes for second M&A wave in private banking

Singapore

JULIUS Baer, ranked the fifth-largest private bank in Asia, expects consolidation in the private-banking market in the next three years, as competing players buckle under the strain of costs and call it quits, said its top executive.

Speaking to The Business Times in Singapore, Bernhard Hodler, the bank's chief executive, said what sets the incoming second wave of mergers apart from the first wave - when Julius Baer scooped up Bank of America-Merrill Lynch's (BofAML) non-US wealth-management business in 2012 - is the better odds of compelling prices.

He pointed out that the prices and quality on some deals in the first wave appeared to defy shareholder value; Julius Baer itself was willing to fork out for 1.2 per cent of the final assets under management (AUM) transferred under the BofAML deal. Based on the final transfer of about 60 billion Swiss francs (S$83.6 billion) in AUM, the transaction price was about 720 million Swiss francs.

Mr Hodler did not reveal the other deals Julius Baer had evaluated.

Looking at completed deals in the last few years, DBS paid 1.75 per cent of the AUMs of Societe Generale's private banking business in Asia. Likewise, OCBC's Bank of Singapore paid 1.75 per cent of the asset base of Barclays' wealth management business in Singapore and Hong Kong.

Meanwhile, the heightened regulations have raised the barriers of entry for new players, making private banking a tighter market.

"It's still interesting to look at M&As," said Mr Hodler. "There will be opportunities for the right price and quality."

More recently, Julius Baer has again showed an appetite for acquisitions, having closed its purchase of 95 per cent of Brazil's Reliance Group. As one of the largest independent Brazilian wealth-management firms managing some five billion Swiss francs, Reliance was bought by Julius Baer this year for an undisclosed sum.

The bank is steady on the cost front, running a cost-to-income ratio of just over 65 per cent, which gives it more leeway amid any pressure on the topline due to market fluctuations. But there are private banks that run at close to 90 per cent, especially given the shortage of private bankers in Asia.

"Ninety per cent is not a comfortable area to be," said Mr Hodler, adding that it's still possible to find talent for "an okay price" but concedes these are competitive times. Julius Baer had aimed to hire 80 relationship managers for the year, and has already hit that target, in part due to the Reliance deal.

Data from Asia Private Banker showed that Julius Baer ranked fifth among Asian private banks - excluding China onshore banks - last year, with a 39.6 per cent jump in AUM to US$115 billion. Mr Hodler said overall, the bank wants to grow AUMs at a steady clip of 4 to 6 per cent.

To bulk up growth organically, Julius Baer works through five core markets in Asia - mainland China, Hong Kong, Indonesia, India and Singapore - and touts itself as being able to offer suitable products at better prices to clients through its open-platform model. "Our front-end people don't have to sell bananas today and apples tomorrow," said Mr Hodler.

And as Asian clients now warm up to discretionary portfolio management - a more advisory-driven model already well followed in parts of Europe - Julius Baer sees the bank as able to ride the trend in this region.

Amid broader industry trends of greater tax transparency demanded from clients as well as ongoing investments in technology, the bank will be selective on the markets where it has an onshore presence, preferring to get local boots on the ground in large markets such as China, Indonesia and India. It can then sell its services to other markets in the region through partnerships with local banks.

This happened in September, when Nomura Holdings announced it would buy 40 per cent in Julius Baer's unit specialising in discretionary investment services for Japan-based clients. With this partnership, Julius Baer will offer tailored discretionary mandate services to Nomura's high-net-worth clients in Japan.

This partnership strategy follows from Julius Baer's move earlier this year to partner with Siam Commercial Bank to tap the onshore wealth market in Thailand.