In recent years, Julius Baer broadened its reach in Germany substantially – to no avail yet as growth hasn’t yet translated into a profit.
Heiko Schlag, Julius Baer’s man in charge in Germany, didn’t live up to the expectations he raised: in the summer of 2014, bolstered by the acquisition of Merrill Lynch’ assets under management, Schlag announced a series of milestones he intended to reach – client asset growth, an expansion of Julius Baer’s advisory, breakeven goals.
When he said that he wanted to return first profits on a monthly basis as early as 2014, he met surprise. Most Swiss competitors had failed so far to succeed in the German private banking business – with a few notable exceptions. UBS for instance was forced to scale down, Credit Suisse withdrew from the offshore business and equally so J. Safra Sarasin.
Another Loss
Schlag (pictured below), who today is in charge of Julius Baer Europe, may have succeeded in boosting the bank’s standing in Europe’s largest market, but the figures haven’t been as he’d hoped for.
Julius Baer Europe, the Frankfurt-based unit responsible for the German business and the booking of European clients, published a 2016 loss of 8.7 million euros.
The loss was lower than in the previous year (13.8 million euros). But the outlook isn’t rosy: the business in 2017 likely returned another loss.
Tough German Market
The bank said that internal and regulatory projects as well as the loss-making EU-custody-business had led to the losses. Still, the bank had profited from transferring the EU assets to its booking platform in Luxembourg, making up for the operative loss at least partially.
Still, the outlook remains bleak: German private banking is a tough business. The annual report 2016 shows that the bank in that market hadn’t been on the same full-speed strategy as Boris Collardi otherwise liked to pursue. Collardi since has left the bank to join Pictet.
Julius Baer in 2016 had 172 members of staff in Germany, a figure that hadn’t budged. Wages had even declined slightly and the management succeeded in cutting overall costs by a tenth by applying strict controls. Having finally completed the introduction of the Avaloq IT system, there had also been no extraordinary expenses.
Eight Branches
And still it wasn’t enough to turn the ship around. In early 2016, the market had wobbled, and customers kept their cash instead of investing. Transaction volumes dropped 8 percent. Negative interest rates prompted a loss of 2.3 million euros in the loans and money-market business.
Julius Baer didn’t specify assets under management in Germany. Presumably, they clearly exceed 10 billion euros. But the bank will struggle to return a profit on these assets given the country unit maintains a network of eight branches.
The bank has had a nice increase in assets under management of 8 percent, but the costs of implementing regulatory requirements – such as Mifid II – weighed on the company’s revenues.
Expensive IT Migration
Before leaving for Pictet, Collardi told his German unit to boost the number of relationship and portfolio managers in a bid to attract more assets.
And yet, the bank seems not to have managed to turn the corner in Germany. The expensive migration to the Avaloq platform was symptomatic. Julius Baer currently is migrating EU assets to the rival Temenos platform in Luxembourg. In Asia, the bank also works with that system and the Swiss headquarters are preparing such a move too. All Julius Baer booking centers will work on Temenos by 2020, the company says.
If this comes true for Germany, the unit faces yet another set of extraordinary costs which in turn will weigh on profit.
