Baer to buy Merrill Lynch’s international arm

Bank of America is shedding a stalled business line Keystone

Swiss private bank Julius Baer has agreed to buy Bank of America Merrill Lynch’s International Wealth Management business based outside the US and Japan for up to SFr860 million ($879 million).

Baer said in a statement on its website that the purchase of the business was to boost its assets under management in growing markets.

The transaction is expected to result in additional assets of between SFr57 and SFr72 billion, the Swiss private banking group said. The difference in the values reflects Baer’s worst and best case estimates assuming that not all clients will want to transfer assets.

In the best case scenario the transfer in assets would increase Baer’s assets under management by around 40 per cent to SFr251 billion and its total client assets to SFr341 billion as of June 30, 2012.

The bank also said that the acquisition would add substantial scale to Baer’s business in Europe and in key growth markets in Asia, Latin America and the Middle East. About two-thirds of the acquired assets are from businesses in growth markets. 

Costs mount

“Due to its strong presence in strategic growth markets and its business characteristics, Merrill Lynch’s International Wealth Management business is an excellent strategic, cultural and geographic fit for Julius Baer,” chairman Daniel Sauter said in a statement.

Baer expects the acquisition of the business with 2,000 employees, including more than 500 financial advisers, to add to earnings three years after the transaction is complete.

However, not all analysts are convinced that the partial acquisition Bank of America’s ailing wealth management unit represents good value, even though Baer will pay just 1.2 per cent of the total amount of assets it takes over.

Bank Vontobel analyst Teresa Nielsen said the deal looks “rather expensive” considering the total outlay for the Swiss bank. Baer estimates it will wind up having to shell out SFr1.47 billion on the initial purchase, integration costs and boosting its capital buffer to cushion against increased risks.

The bank plans to fund the acquisition with existing capital, the issue of new hybrid instruments, new share capital and a rights offer. In addition, the board of directors also plans to raise a further SFr250 million by selling new shares. A previously announced share buyback programme will be cancelled, the Swiss bank said.

Baer believes it will have to build up its liquid capital base by around SFr300 million to meet new regulatory requirements on covering risks that could turn sour. 

Buying spree

The acquisition represents a significant landmark on the bank’s stated route of building up its global presence as the world’s largest “pure play” private bank.

In 2005, it bought Banco di Lugano, and two years ago Baer bought the Swiss wealth management business of Dutch bank ING. Baer failed last year in its attempt to buy the Dutch-controlled Swiss bank Sarasin, which eventually went to Brazilian owners.

Baer has also set up a number of strategic partnerships with other global banks, announcing such a deal with Bank of China last month.

However, the market reacted defensively to Monday’s Bank of America deal particularly as the buyout involves a complicated staggered process of handing over control, and the amount of assets that will eventually get transferred is unknown.

Baer shares fell amid uncertainty about whether the Swiss bank could breathe life into the business that has stalled under the stewardship of Bank of America.

“To us, this looks like a defensive and value-destructive transaction,” said Kepler capital markets analyst Dirk Becker in a note. However, other analysts took a more neutral line, withholding judgement until Baer has a chance to reach its initial targets in two to three years’ time.

Julis Baer history

1890

Establishment of Hirschhorn & Grob partnership.

1896

Julius Bär becomes member of Hirschhorn & Grob. Bank changes name to Hirschhorn, Uhl & Bär.

1901

Julius Bär & Co established after death of Ludwig Hirschhorn.

1924

Bank purchases former premises of Swiss National Bank on Bahnhofstrasse in Zurich, which become its headquarters.

1940

First Julius Bär company established abroad with founding of Bär Custodian Corporation on Wall Street, New York.

1947

Hans J Bär joins the bank, becoming a partner in 1960, president of the executive board from 1975 until 1993 and then chairman until his retirement in 1996.

1974

Establishes business in the Cayman Islands.

1980

Bär Holding Ltd goes public with share issue.

1990-2011

Continues expansion through acquisitions and establishing banks in Russia, the Middle East and Asia.