Julius Baer says the worst is over after wild markets erode profits

This content was published on July 25, 2022 – 09:09

25 July 2022 – 09:09

(Bloomberg) – Julius Baer Group Ltd. said the worst of the market selloff may be over for the Swiss wealth manager after a first half that was one of the toughest in decades.

Customers have started to return and will likely look for ways to make money again in the second half, chief executive Philipp Rickenbacher said in an interview Monday. First-half earnings fell 26% as wild market swings spooked wealthy investors and eroded the assets the company oversees for the wealthy.

“I think the worst is over, at least for what we’ve seen,” Rickenbacher said on Bloomberg TV. “While it’s still a bit too early to see full releveraging, I think clients will be looking very closely at opportunities in the second half.”

The results are the first indication of how big Swiss wealth managers have navigated volatile markets and runaway inflation that are weighing on clients’ risk appetite and threatening to drive up bad debt. Julius Baer said in May it was stepping up efforts to control costs as customers stayed away, including by streamlining the markets it operates in and using technology.

Julius Baer shares reversed their losses to rise 2.1% at 10:44 a.m. in Zurich. They had fallen as much as 5% earlier as operating profit fell short of analysts’ estimates, costs rose and a hiring freeze suggested the company remains cautious for now.

Operating expenses increased by 5.8% in the first half, driven by provisions and losses related to a dispute inherited from the past. But payroll spending fell around 1% as the company reduced the bonus pool to reflect weaker business performance.

Assets under management have fallen by 11% since the end of last year, mainly due to market fluctuations. While customers withdrew 1.1 billion francs over the six months, Julius Baer said inflows had started to return recently.

Rate increase

Net income decreased due to lower trading and trading income. However, net interest income rose as banks across Europe benefited from the end of negative interest rates that imposed costs on them and their customers to hold excess deposits. Julius Baer said last week that he would no longer charge negative interest rates on customer deposits in euros, Swiss francs and Danish kroner from August 1.

Russia’s invasion of Ukraine and the resulting sanctions for some of the country’s wealthiest people are also upending Zurich’s New York wealth management and private banking plans. For Julius Baer, ​​the regulatory risks are particularly acute after the bank came under regulatory criticism following a money laundering scandal in Latin America.

The company said it initiated the liquidation of its consulting subsidiary in Moscow, in accordance with local regulations and contractual agreements. The net asset value of this entity as of June 30, 2022 was CHF 1.2 million.

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