-- Transaction worth up to CHF860 million based on 1.2% of CHF72
billion in acquired assets under management
-- Julius Baer sets CHF750 million rights issue
-- Deal bolsters Swiss private bank's presence in growth
markets
-- Deal is big for Julius Baer, but small for Bank of
America
(Adds background and detail throughout.)
By Anita Greil and Neil MacLucas
ZURICH-Julius Baer Holding AG (BAER.VX) on Monday said it will
acquire Merrill Lynch's wealth-management business based outside
the U.S. and Japan from Bank of America Corp. (BAC) and raise fresh
equity to finance the deal, as the Swiss private-banking specialist
seeks to widen its global footprint and reduce its reliance on
Switzerland.
Julius Baer said it will pay up to 860 million Swiss francs
($880 million) in cash and shares to Bank of America. It may end up
paying less, if fewer Merrill Lynch clients than expected transfer
their assets to the Swiss bank. The American bank's businesses will
be transferred over the next two years, during which times its
clients will be invited to move their assets to the Swiss Bank.
This process should be completed by early 2015, Julius Baer
said.
It is a huge deal for Julius Baer, but a minor one for the
seller, which has been shedding non-core assets over the past year
in an effort to make the banking smaller and better manageable.
Julius Baer, based in Zurich, is Switzerland's biggest pure
private bank, but with assets under management of close to CHF180
billion it is still a mignon compared with UBS AG (UBS) and Credit
Suisse (CS), which also have big investment banking businesses, and
manage assets worth more than four times as much for rich
clients.
But the smaller rival has been smart at adapting to a rapidly
changing environment for banks that cater to the rich. It expanded
aggressively in Asia at a time when European clients--worried about
the region's economic problems--were growing ever more reluctant to
hold anything but cash, a trend that has reduced revenue from
trading and commissions for all banks. Julius Baer already derives
around a third of income from growing markets in Asia and the
Middle East, and will increase this share to 50% through the
deal.
"This acquisition brings us a major step forward in our growth
strategy and will considerably strengthen our leading position in
global private banking by adding a new dimension not only to growth
markets but also to Europe," Julius Baer Chief Executive Boris
Collardi said.
Julius Baer will take on 2,000 Merrill Lynch staff, including
500 financial advisers, as it expands its private-banking network
to include Bahrain, India, Luxembourg, Panama and Spain, among
others. Merrill Lynch has agreed to provide some products and
services to Julius Baer as part of the deal.
Mr. Collardi has been hunting for international assets for some
time to broaden Julius Baer's client base beyond Switzerland and
Europe. The Merrill Lynch deal follows last month's commercial
agreement with Bank of China Ltd., in which Julius Baer and the
Chinese bank agreed to refer clients to each other and jointly
market some investment products.
Late last year, the Swiss bank lost out to Brazilian-Swiss
private bank Safra Group for a controlling stake in Bank Sarasin
& Cie. Safra paid CHF1.04 billion to buy the stake in
Basel-based Sarasin from Dutch banking cooperative Rabobank last
November.
Julius Baer said it will use existing funds and raise new equity
over and above that needed to finance the Merrill Lynch transaction
to bolster its finances. The bank will sell stock worth CHF740
million, of which CHF240 million will be issued to BofA. Some of
the equity raised will give Julius Baer the flexibility to make
more deals without having first to ask shareholders for cash to
finance an acquisition, said Chief Financial Officer Dieter A.
Enkelmann.
Julius Baer considers itself a consolidator in the industry, as
Mr. Collardi pushes gaining scale as the best way to deal with the
pressure it is facing on margins. In June, the bank warned that
profitability and private-banking margins were declining because of
falling risk appetite among investors and reduced client
activity.
Swiss private banks also have been looking for ways to protect
earnings as a result of the U.S. crackdown on tax havens that is
bringing an end to the traditionally secretive Swiss banking model.
Julius Baer is one of 11 Swiss banks under investigation by U.S.
authorities looking into allegations the banks helped Americans
evade taxes.
Clients want good returns rather than just have their assets
protected from taxes, which means banks have to focus much more on
investment advice. This is likely to lead to more mergers and
acquisitions between banks as the new service requires heavy
spending on information technology and personnel. Larger banks are
expected to snap up the smaller, unlisted banks as part of the
industry consolidation.
Perella Weinberg Partners acted as exclusive financial advisor
to Julius Baer Group on the transaction.
Julius Baer shares fell sharply on the deal, which analysts
considered expensive and fraught with risk as fewer clients than
expected may decide to transfer their assets.
At 1240 GMT, shares were down CHF2.18, or 6.2%, at CHF33.25,
making them the worst performer on a largely unchanged Swiss
market.
-Write to anita.greil@dowjones.com