Julius Baer to buy Merrill Lynch private bank outside US
ZURICH, Aug 13 – Swiss private bank Julius Baer is to buy Bank of America’s Merrill Lynch private bank outside the United States, paying 860 million Swiss francs (RM2.75 billion) to boost its assets under management by 40 per cent and backing the deal with plans to raise 1.19 billion francs in new capital.
The acquisition, the latest in a string of purchases for deal-hungry Baer, is the bank’s most assertive move since it bought Ehinger Armand von Ernst, Ferrier Lullin & Cie, BDL Banco di Lugano and asset manager GAM for 5.6 billion francs from UBS in 2005.
But the cost of the deal including the new capital requirements, was taken badly by investors, who sent the shares sharply lower in early trading. At 0726 GMT the stock was down 3.4 per cent, bucking a 0.3 per cent rise in the Stoxx Europe 600 banking sector index.
Baer said that while it has 530 million francs in cash to help fund the deal it also intends to raise 750 million francs in a rights issue and in addition will grant Bank of America of 240 million francs worth of shares, making the Charlotte, N.C.-based bank a 3 per cent shareholder.
It also plans to raise another 200 million francs in hybrid bonds.
The acquisition will also cost around 400 million francs in restructuring, integration and retention costs, the bank said, but will boost its assets under management by 40 per cent to 251 billion Swiss francs and add to earnings from the third full year after closing.
From 2015, Julius Baer targets net new money inflows of up to 6 per cent, a cost-income ratio of between 65 per cent and 70 per cent, and a pretax profit margin of up to 35 basis points.
Merrill Lynch’s international private bank’s cost-income ratio was 105 per cent and it pulled in only a 1 per cent rise in net new money in 2011, Baer said.
“To us, this looks like a defensive and value-destructive transaction,” said Dirk Becker of Kepler Capital Markets who rates the stock as a ‘hold’. Becker criticised dilution which he calculates to be 15 per cent more shares and questioned how an unprofitable business can add to Baer’s earnings.
The deal dwarfs the 520 million franc buy of ING’s Swiss private banking arm in 2009, when Baer paid some 2.3 per cent of assets acquired, whereas it said it is paying 1.2 per cent for the Merrill Lynch funds.
Julius Baer has also voiced interest in BSI, a private bank owned by Generali, but failed in efforts to buy Bank Sarasin last year.
Meanwhile Baer has already been making efforts to ensure that Merrill’s most productive advisers stick around after a deal. The Swiss bank’s executives in recent weeks conducted a “road show” in Panama and other Latin American markets, touting the advantages of the combination, one broker recruiter said late last week.
Baer is expected to continue paying Merrill’s brokers using the “grid” compensation system common in the United States. European wealth managers pay advisers a salary plus bonus. Brokers in the US receive no salary, but can earn more money than their European counterparts, because they keep 35 per cent to 40 per cent of their commissions and fees. – Reuters