Julius Baer’s Singular Model Gets One Up On UBS

Julius Baer’s pure play approach to private banking is showing up its biggest competitor. Switzerland’s third-largest wealth manager pulled in more net new money in percentage terms than industry leader UBS in the second half of the year. Baer’s simpler proposition is a big attraction.

The bank run by Chief Executive Boris Collardi has some similarities with UBS. If anything, Julius Baer is probably more exposed to the U.S. dollar: almost half its assets are in that currency, with less than a tenth of expenses in Swiss francs. That could be a boon: a 10 percent rise in the greenback’s value against the Swissie could lift Baer’s annual underlying pre-tax profit by 16 percent, Deutsche Bank analysts estimate. But it cuts both ways. UBS has said its 2017 underlying pre-tax profit could rise or fall by 9 percent for a given 10 percent shift in this exchange rate.

Changing attitudes to private banking secrecy are bad news for both. So far, UBS seems to be feeling more pain, with outflows of 4.1 billion Swiss francs outside of the Americas in the three months to December. As the world’s largest private bank, it is a natural target for countries eyeing new international information-sharing agreements that will allow them to scrutinise citizens’ tax affairs. But Baer could suffer, too. Its focus on so-called high net worth individuals (HNWI) – those with between $1 million and $30 million in investable assets – has been paying off. But that segment of the world’s wealthy could well have been less rigorous about tax management than richer peers.

For now, Collardi’s star is rising. Without an investment banking arm, Baer’s earnings are less volatile. Collardi is also wringing more out of his business. UBS is still pulling in net new money from the ultra rich, so Baer’s net inflows probably reflect a growing HNWI market share. Baer kept its second-half revenue margin steady year-on-year even as UBS’s declined. And Collardi managed to get Baer’s second-half net margin close that of UBS, even though that measure typically gets more of a lift from ultra-rich clients. Valuations reflect this divergence: Baer trades at more than 13 times its estimated earnings over the next 12 months, whereas UBS is under 12 times. Baer’s singular appeal comes at a full price.

Request a free trial of Breakingviews here.