Julius Baer: Difficult markets are more important than high prices

Old school saxophonists spread sharp elbows to avoid stains on stage that muted their playing. It’s unfortunate that Julius Baer, ​​co-patron of the Montreux Jazz Festival, is stuck in his vocal dead zone. The Swiss private bank, which just posted poor half-year results, is stumbling on changes like other long-term fund managers.

Fallen markets reduce fee income from clients’ portfolios. Clever improvisation can mitigate the effect, but it cannot negate it.

One difference in tone, which will reverberate in the bank’s suite of results this week, is a greater focus on lending. Higher interest rates make this more profitable. Julius Baer, ​​for example, estimates that a one percentage point increase in US rates alone would add about 3.5 basis points to its gross margin. This rose to 81 basis points for the half year.

But Julius Baer is more an asset manager than a bank. More than half of the gross profit margin is derived from fees and commissions. These eased as assets under management fell 11 per cent to 428 billion Swiss francs.

CEO Philipp Rickenbacher believes Julius Baer is going through his worst. Clients are pumping net new money back in. A freeze on hiring new employees – apart from the relationship managers who bring the assets with them – should reduce costs.

This pioneer of the Swiss private banking sector ended the second half with decent tier 1 capitalization at 15 per cent. This equates to 820 million Swiss francs of reserve capital, which is enough to cover immediate repurchase obligations.

Julius Baer says it has the world’s most valuable wealth management brand. Lex is skeptical of such accounts. But the perks are important. The business has a strong showing in an industry undergoing secular expansion.

In the short term, cyclical challenges create dissonance. The shares, which are down a quarter so far this year, are relatively up 2.4 times their tangible book value. They will remain under pressure. Central bank rate increases appear to be too small to tame inflation. Markets are still fragile. Wealth management companies are looking for a beautiful niche that does not exist at the moment.

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