Its official: Bank of America is to sell its non-US wealth management business, complete with $84 billion of assets under management, to Julius Baer for $840 million. We hear from Boris Collardi, Julius Baer’s CEO.
It’s official: Bank of America is to sell its non-US wealth management business, complete with $84 billion of assets under management, to Julius Baer for $840 million.
‘The transaction,’ says Boris Collardi, CEO of the Swiss private bank, ‘represents a rare opportunity to acquire an international pure-play wealth management business of significant size and will add substantial scale to our business in Europe and in key growth markets in Asia, Latin America and the Middle East.
‘Due to its strong presence in strategic growth markets and its business characteristics,’ he continues, ‘Merrill Lynch’s International Wealth Management business is an excellent strategic, cultural and geographic fit for Julius Baer.’
As evidence, the 38 year old cites the similar asset allocations and average AuMs of clients. Moreover, he says that while the bulk of Merrill business is in locations where Julius Baer is already present such as Geneva, London, Hong Kong, Singapore, Dubai and Montevideo, the acquisition will add new and important locations such as Bahrain, the Netherlands, India, Ireland, Lebanon, Luxembourg, Panama and Spain. ‘It means that post integration, Julius Baer will be present in more than 25 countries and 50 locations globally.’
That’s important. Consolidation is coming as Collardi, the youngest chief executive in Julius Baer’s 122 year history, will know due to the fact that running a wealth management business has become increasingly challenging over the past five years, as proven by average cost-to-income ratios in the industry soaring from 63.7% in 2007 to 79.8% in 2010.
Boris Collardi, CEO of Julius Baer Private Bank
And it’s not an easy trend to reverse. Both sides of that equation have been hit as exemplified in the UK by staff and compliance costs rising due to FSA initiatives like the Retail Distribution Review at the same time as income has fallen due to volatility pushing investors into simple, low-cost products. Yet it’s even harder in Switzerland where the squeeze on secrecy has led to some clients migrating jurisdictions full stop.
Combined with rising competition and a popular backlash against the financial services industry, the conditions have made it very tricky for wealth management principals like Collardi to grow profits and have led to a focus on cost control and geographic diversification.
The move by Julius Baer to increase assets under management to $258 billion (up 40%) through an emerging markets strategy is thus a big bet with potentially big returns. And it could be very well timed given that Capgemini’s World Wealth Report recently declared that Asia-Pacific is now the world’s wealthiest region with a HNW population of 3.37 million compared to North America’s 3.35 million.
Happily, the IMD-educated CEO has a reputation that suggests he’s capable of pulling off the integration. When Collardi joined Julius Baer in 2006 as COO, his first achievement was to amalgamate the recent acquisitions from UBS of asset management company GAM and three private banks including Geneva-based Ferrier Lullin & Cie, Zurich-based Ehinger & Armand von Ernst and Lugano-based Banca di Lugano.
Yet taming the Merrill bull will require new skills on his behalf. Whereas previous deals such as the SBC Private Banks in 2005 and ING in 2009 were Swiss focussed, the 2012 acquisition of Merrill’s wealth management business outside of the US and Japan is very international with approximately two thirds of AuM domiciled in the growth markets of Asia, Latin America and the Middle East.
Collardi, based at Julius Baer’s headquarters in Zurich, will be assisted in the task by Gian A. Rossi. Responsible for ‘Region Northern and Eastern Europe’, he will be in charge of day-to-day operations in London.
As for Bank of America Merrill Lynch, it will focus on its banking and markets businesses going forward. Related to this, Julius Baer has agreed to provide certain Merrill products and services to its clients including global equity research and structured products; so there’s life in the old bull yet.
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