Julius Baer's new boss sees clouds on the horizon for rapid growth in Asia's wealth sector. He expects a wave of mergers and acquisitions to wash over the region.
Wealth managers looking to grow in Switzerland have to pick off clients from their rivals – Swiss players are crowding each other out because the market is barely growing. In Asia, competition is fierce for the best talent, but clients are aplenty, as the region's rampant growth of millionaires and billionaires shows.
But growth in Asia isn't quite as heated as it once was, Julius Baer CEO Bernhard Hodler is convinced. He sees a consolidation in the coming three years in Asia, he told the «Business Times» (behind paywall). Some players will leave Asia, because they are unwilling or unable to shoulder the costs, Hodler said.
Deal Opportunities
The Swiss banker is referring to the rising expense for stricter regulation, which has put a damper on profits and raised the bar for new entrants to the market. The war for talent in Asia is also a major spending factor he noted.
The shift opens up opportunities for cash-rich companies to grow through acquisition, as Julius Baer has done with a series of deals culminating in the purchase of Merrill Lynch's private bank outside the U.S.
Private banks looking to acquire will get their chance, Holder said – and a sensible purchase price. With $115 billion in managed assets, Julius Baer ranks as the fifth largest wealth manager in Asia, after UBS, Citigroup, Credit Suisse, and HSBC.
Costs Under Control
Julius Baer paid 1.2 percent of Merrill's managed assets in 2012, or $720 million. To compare, Singapore's DBS and OCBC paid 1.75 percent of assets for their acquisitions of Société Générale's Asian private bank and the Hong Kong and Singapore business of Barclays Wealth, respectively.
Holder, currently grappling with a Venezuelan corruption probe and an errant private banker turned state's witness, said Julius Baer won't grow at any price. The private bank's cost-income ratio is currently 65 percent. Anything above 90 percent is out of his comfort zone, Hodler said. His goal is to raise assets by as much as 6 percent annually.
Tie-Ups Eyed
Besides potential acquisitions, Julius Baer will pursue partnerships to expand in the region. The Swiss bank recently inked a pact with Nomura for the Japanese wealth market.
The move gives Julius Baer access to Nomura’s wealthy clientele, in particular for discretionary mandates. This type of investment, where the bank enjoys wide authority over investment decision-making, is increasingly in demand with Asian clients, Hodler said.
