Julius Baer profit plunges in ‘worst’ market in decades

Julius Baer has reported a big drop in first-half profit, which the Swiss wealth manager blamed on “one of the worst six-month periods for capital markets in decades”.

The bank reported a 26 per cent fall in net income to SFr450mn ($468mn), missing estimates, as nervous customers deleveraged their portfolios and retreated from risky stock market trades. Its assets under management also declined by SFr54bn to SFr428bn.

“This decrease was driven by the significant corrections in global equity and bond markets,” chief executive Philipp Rickenbacher said. “In Asia and the Middle East we saw [from clients] a very pronounced deleveraging up to March, we had substantial elimination of credit positions.

“However, the interesting thing for me is how fast these things happen, but also how fast they reverse,” he added, pointing to net new money inflows of SFr1.5bn since the end of April as a reason for optimism.

The performance so far this year stands in stark contrast to 2021, when Julius Baer reported record annual profit as wealthy investors took on more risk and pumped money into surging stock markets.

But many investors are now staying on the sidelines because of a potential global recession, accelerating inflation, rising interest rates and the war in Ukraine.

Its earnings are also an indication of what to expect from its larger rivals UBS and Credit Suisse, which report results on Tuesday and Wednesday respectively.

Shares in Julius Baer initially fell more than 5 per cent, but recovered to trade 2.1 per cent higher by mid-morning. It remains one of the best-valued global wealth managers despite falling roughly a quarter this year.

“This environment will clearly separate the wheat from the chaff,” Rickenbacher said in an interview. “There are plenty of M&A opportunities in the market, but the question is when they will materialise. I think midsized players are now in challenging territory, many need to make investments . . . we are well positioned to take advantage of this.”

The decline in first-half income from client trading activity was partially offset by an 11 per cent increase in net interest income, driven largely by higher earnings from rising US rates.

Operating costs also rose as the bank took a SFr55mn provision to settle a historic Lithuanian embezzlement case, but staff expenses fell as it cut the amount set aside to pay bonuses and imposed a hiring freeze on all but front-line wealth relationship managers.

The results were “clearly below estimates on lower than expected revenues and higher expenses”, said Vontobel analyst Andreas Venditti. “A hiring freeze for non-relationship manager positions suggests no quick recovery expected.”

As with many international companies and because of Russia’s invasion of Ukraine, Julius Baer has “initiated the wind-down of its advisory subsidiary in Moscow”, which has a net asset value of SFr1.2mn.

Rickenbacher said “direct sanction impact” has been “low”. The bank has identified about SFr900mn of customer money that is affected.