Julius Baer says worst is over after wild markets erode profit

JULIUS Baer Group Ltd said the worst of the market sell-off may be over for the Swiss wealth manager after a first half, which was one of the most difficult in decades.

Clients have started to come back and will probably look for ways to make money again in the second half, chief executive officer Philipp Rickenbacher said in an interview Monday (Jul 25). First-half profit slumped 26 per cent as wild market swings spooked wealthy investors and eroded assets the firm oversees for the rich.

“I think the worst is through, at least for what we have seen,” he said on Bloomberg TV. “While it’s a bit too early to see a full swing re-leverage yet, I think clients will look very closely at opportunities in the second half.”

The results are the first indication that Switzerland’s large wealth managers have navigated volatile markets and surging inflation that are weighing on clients’ risk appetite and threatening to drive up bad loans. Julius Baer said in May that it is stepping up efforts to rein in costs as clients remain on the sidelines, including by streamlining the markets where it operates and using technology. 

Julius Baer shares reversed losses to rise 2.1 per cent at in the mid-morning in Zurich. They had declined as much as 5 per cent earlier, as operating profit missed analysts’ estimates, costs rose and a hiring freeze suggested the firm remains cautious for now.

Operating costs rose 5.8 per cent in the first half, driven by provisions and losses from a legacy litigation case. But personnel expenses decreased by about 1 per cent as the firm reduced the bonus pool to reflect a weaker business performance.

Assets under management slumped 11 per cent from the end of last year, mainly driven by market swings. While clients pulled 1.1 billion francs over the six months, Julius Baer said inflows have started to come back recently.

Net income fell because of lower transaction- and trading-driven income. However, net interest income rose as banks across Europe stand to benefit from the end of negative interest rates that have saddled them and their clients with costs to hold excess deposits. Julius Baer said last week it will no longer charge negative interest rates on client deposits in euro, Swiss franc, and Danish krone from Aug 1.

Russia’s invasion of Ukraine and the ensuing sanction on some of the country’s wealthiest people is also upending wealth management and private banking plans from Zurich to New York. For Julius Baer, the regulatory risks are particularly acute after the bank came under regulatory fire over a money laundering scandal in Latin America.  

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