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Banking

Julius Baer springs surprise

Chairman Raymond Baer describes Julius Baer's deal as truly transformational. A rising stock price suggests investors agree. Analysts identify the private bank, after the purchase of SBC Wealth Management, as the outstanding restructuring story in European banking. But this deal wasn't what the market expected.

THE MARKETS HAD been expecting a takeover of Julius Baer since January this year, when the Swiss private bank confirmed a new single-share structure. Based on one share, one vote, this cut the voting power of the shareholder block led by the Baer family to 18% from the 52% it had previously exercised.

Family disagreements became public at the time: head of private baranking Michael Baer left amid differences of opinion about strategy. In spite of the bank's reasonable performance, private-banking clients had been pulling their money out at a steady clip for the previous 18 months: analysts estimate SFr1.1 billion ($870 million) was withdrawn in 2004 and SFr500 million in the first half of this year.

The bank had been forced to give up on its efforts to expand private banking in the US, where it suffered from a perceived lack of products, selling out to UBS at the end of 2004. It found itself struggling with increasing compliance expenses, consequent margin pressures, and a lack of scale over which to spread the cost of its new IT system, Avaloq, and future investment in emerging markets offering better growth. Julius Baer looked overly dependent on its asset management division, particularly the small and very well-paid team in New York, running its highly successful international equity fund.

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