Julius Baer’s pure play pays off

Private banking 2008: When the ultra-wealthy bump into the sub-prime

"Our clients’ trust and confidence is increasing because they know we are doing just one thing and doing it very well" Boris Collardi, Julius Baer

If you had indexed both banks’ stocks to 100 at the start of 2007, by the end of the year UBS had fallen to just over 70 and Julius Baer had risen to 140. Perhaps even more galling, Julius Baer, whose stand-alone wealth management model stands in reproachful contrast to the UBS model of running a large investment bank with volatile results together with a more stable wealth management business, has been rejuvenated since 2005 in large part as a result of an influx of UBS talent and assets.

At the end of that year, Julius Baer acquired from UBS the GAM fund of hedge funds business run by David Solo, who was long renowned as one of the very brightest risk managers at UBS, plus three small Swiss private banks along with Johannes de Gier, who took over as group chief executive of Julius Baer.

Joining de Gier and Solo at the start of 2006 were Alex Widmer, a former global head of private banking at Credit Suisse, and his protégé, Boris Collardi, now chief operating officer of Julius Baer.

"Oh, you’ll find 70% to 80% of the people here have worked at one time or another at UBS or Credit Suisse", says one cheerful soul at Julius Baer.

The attraction is obvious. Julius Baer is far smaller and less bureaucratic than the two biggest Swiss banks and affords people more freedom and a greater sense that their own contribution makes a difference. The source tells how holding company chairman Raymond Baer recently called to say he was dining with an important contact and what questions might the banker like him to ask. Later he reported back what he had learnt. The banker gets the occasional document passed on from Baer, with his initials scribbled on to it and an FYI.

It’s not the kind of contact junior colleagues tend to get from Marcel Ospel.

But Julius Baer is no longer a minnow. Julius Baer is rising up Euromoney’s private banking rankings, climbing to 13th in the overall global ranking this year, up from 21st just 12 months ago. Assets under management have risen from just over SFr 300 billion at the start of 2006 to well over SFr400 billion ($347 billion).

Widmer now heads the newly enlarged and combined private banking and investment products group at Julius Baer. He and Collardi have overseen a rapid and successful integration of the three private banks and the old Julius Baer private bank into a rejuvenated business that is attracting new money inflows, improving profits, enhancing efficiency and investing in future growth all at the same time.

No exposure

Now, as the storm engulfing financial institutions rages, with the Swiss National Bank drawn into concerted central bank action to offer extraordinary dollar liquidity facilities, Julius Baer looks on from what appears to be a safe remove. "This has all happened outside the sphere of Julius Baer," says Collardi. "We have absolutely no direct exposure to the affected markets." And while it shares some fundamental potential vulnerabilities, such as to collapsing financial markets and any disruption or cessation of activity by investing clients that might hit revenues, the bank’s capital looks safe. It has been extremely cautious over its exposures to other banks beyond counterparty exposure in day-to-day trading operations.

Collardi continues: "I believe many of our clients are valuing the fact that Julius Baer is a pure-play wealth manager, that we are not in all these markets. Our clients’ trust and confidence is increasing because they know we are doing just one thing and doing it very well."

It has been an effort built on small details – getting the little things right. Collardi is as likely to point to an artful redecoration of the client reception area at Julius Baer’s head office, and improvements in the layout of portfolio statements, as to any startling outperformance in any particular investment discipline. But it is paying off. The bank suffered net new money outflows in 2002, 2004 and 2005. These turned positive in 2006 with a modest SFr1.3 billion inflow in the first half, rising to SFr5.9 billion for the whole of 2006. It attracted SFr5.3 billion in the first half of 2007 alone and has continued to attract new clients in the second half through a series of hires and office openings in growth markets, particularly in Asia and also Latin America.

The bank looks well positioned to benefit from any further erosion of trust in the big global banks operating wealth management divisions as one among several. Collardi says: "We are seeing signs that some clients are starting to shop around, but I don’t think it’s the beginning of a big trend. In any case, we have just completed our planning for 2008 and we are not preparing the year’s budget on the basis of other peoples’ failures... but of our own strengths."

For two years, as well as pursuing an operational integration of the component banks, Julius Baer has been in investment mode. In 2007, it opened offices or announced forthcoming openings in Montevideo, Bogotá and Mexico City in the Americas, Moscow and Istanbul in emerging Europe, Cairo and Abu Dhabi in North Africa and the Middle East, as well as hiring extensively in Singapore. "We’ve been scanning the markets and we’re in about 80% of the areas where we want to be," says Collardi, implying that the investment phase still has a way to run. Asia, where Widmer and Collardi had both spent part of their careers, has promised the biggest growth opportunity and received the most investment but all the emerging markets have made their contribution and the bank continues to build. Venezuela is one new country that it will be considering this year.