For over a decade, Julius Baer had an enormously difficult time with a money-losing Italian venture. It's now trying to close that chapter.
Zurich-based bank Julius Baer is in negotiations with Italy's Banca Patrimoni Sella & C. Banca Patrimoni Sella & C. about the sale of its 70 percent stake in Milan-based asset manager Kairos, as first reported this week by Italy's «Milano Finanza» (in Italian, behind paywall).
The Piedmont-based financial institution has begun due diligence on Kairos' accounts, with the work expected to take several weeks with completion slated for September, according to sources close to the matter. A spokesman for Julius Baer said the bank doesn't comment on rumors and speculation.
Zurich and Anima Outbid
Banca Patrimoni Sella outbid both Zurich Insurance Group and independent Italian asset manager Anima.
Around 30 percent of the capital is currently in the hands of several Kairos managers, some of whom are also among the company's founders, and include current CEO Alberto Castelli, Guido Brera, Rocco Bove, Massimo Trabattoni, and Caterina Giuggioli.
A Sorry Chapter
Kairos in Milan (Image: PD)
It's unclear in the event of an offer, whether Banca Patrimoni Sella would extend it to the minority stake held by the Kairos managers. Anyone familiar with the strategy of the Sella family would probably bet that in the event of an offer, all Kairos shareholders would be bought out.
Kairos currently manages just over 5 billion euros ($5.5 billion) which would put Banca Patrimoni Sella custody assets at around 25 billion euros.
Rumors of a Kairos sale by Julius Baer have been circulating for years. The Italian asset manager is a troublesome chapter in the history of the Zurich bank, even though the «Italian romance» started so wonderfully.
Italian Private Bank Planned
Julius Baer's purchase plans first came to light in July 2012. Then CEO Boris Collardi, who was simultaneously pushing the purchase of Merrill Lynch, agreed with the founders of Kairos on a gradual takeover which had 4.5 billion euros in assets under management and over 115 employees at the time.
In November 2012, the first transaction took place with Julius Baer acquiring 20 percent at an undisclosed price. The plan was for an Italian private bank called Kairos Julius Baer SIM to obtain a banking license while CEO and founder Paolo Basilico would stay on board.
Missing the Moment
Kairos performed well. By November 2015, customer assets had risen to more than 8 billion euros, with Collardi wanting to acquire a further 60 percent to later take the company public. In April 2016, the purchase took place with Julius Baer paying 276 million euros for the 60 percent. An IPO for an undetermined date was still on the agenda.
In the fall of 2016, Collardi admitted some of the sparkle was gone as customers became more passive. Still, Kairos continued to perform well with 2017 a top year with senior employees receiving significantly higher bonuses. But Collardi missed the optimal window for the IPO - perhaps because he was considering his abrupt departure to Pictet.
Hot Potato
Entrance door to Kairos in Milan (Image: PD)
Responsibility for the Kairos hot potato passed to Collardi's successor Bernhard Hodler, who kept the IPO option simmering, but soon realized there weren't enough buyers for the Kairos securities, leaving Julius Baer's plan to capture a premium via an IPO unrealized. By that time, it had invested around half a billion francs in the Italian adventure.
After he and some of his associates cashed in, Basilico stepped down as CEO and was succeeded by Fabio Bariletti in April 2018. At the end of that year, Kairos had a market value of no more than 350 million euros, too little for the Zurich-based bank, which had some 320 million francs of goodwill of its Italian subsidiary on its books.
Negotiations for a sale were frequent between 2018 and 2019, with interested parties including Mediobanca, Lombard Odier, Hellman & Friedman, JC Flowers, Apax Partners, Centerbridge, and more. They all came to nothing.
High Write-Offs
In September 2019, responsibility for the Kairos stake fell into the lap of Hodler's successor, Philipp Rickenbacher, who decided shortly after taking over as CEO that the Italian financial institution would be more closely tied to the group. As a result, several capable managers left the company including, in October 2019, an entire hedge fund team. At the end of 2019, Julius Baer wrote down 100 million euros.
During the Corona crisis of 2020, Kairos went through a difficult period. Several key investment managers took a total of around 30 percent of the capital, while Julius Baer held the remaining 70 percent, which is now being renegotiated. In October 2020, a further 170 million euros was written down.
End of the Affair
The market has taken the latest sales negotiations positively as Julius Baer has never been able to sustainably expand its offering or even make money with this investment. The bank's relationship managers, who had been asked to sell Kairos products, hardly complied.
In the fall it will be seen if Bank Julius Baer can end this Italian romance in a market being heavily courted by other Swiss private banks.
