BÄR´S LEAP / THE ECONOMIST ( VERY HIGHLY RECOMMENDED READING )

Swiss private banks
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Bär’s leap
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A Swiss bank bets on emerging markets
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Aug 25th 2012
BERLIN
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WHO would want to be a Swiss private banker right now? This summer many of them were advised to holiday within Swiss borders rather than risk arrest or other forms of harassment by American and European tax authorities. In some cases their own bosses have been pressed into sending employee details to America’s Department of Justice, which is investigating 11 Swiss banks for encouraging tax evasion by American residents.



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Although consolidation is needed, few banks are interested in buying each other at the moment, mainly for fear of inheriting some horrible lawsuit in America. There is trouble closer to home, too: German politicians are threatening to tear up a treaty designed to head off attacks on Swiss banking secrecy.
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But at least one Swiss private banker is willing to stick his head above the parapet. Earlier this month Boris Collardi (pictured), the boss of Julius Bär, cemented the bank’s position as the country’s third-biggest wealth manager, still some way behind UBS and Credit Suisse (see chart), in a deal that should also double the bank’s presence in growing markets such as Asia and South America. Julius Bär is buying the non-American business of Merrill Lynch’s International Wealth Management (IWM) division, which manages $84 billion of clients’ money. The seller is Bank of America, which picked up Merrill during the worst of the 2008 financial crisis and will take a SFr240m ($249m) stake in Julius Bär as part of the deal.
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Mr Collardi, still only 38, has been changing the face of the once rather staid, family-dominated Bär since he took over in 2009. Last year he bought into GPS, a Brazilian wealth-management firm, and beefed up Bär’s workforce in Germany. More recently he has struck co-operation agreements with Macquarie, an Australian investment bank, and Bank of China. (In the interim, an attempt to buy Sarasin, a private Swiss bank owned by Rabobank of the Netherlands, came to nothing.) The aim is to have 50% of his business in emerging markets by 2015. The IWM deal may help him achieve that goal sooner than planned. Bär already has foreign offices in 29 cities, including Moscow, Cairo and Jakarta. IWM overlaps with some of those but will add eight others, and around 300 extra people in London.




Stock analysts fear Mr Collardi may have bitten off more than he can chew. Bär’s share price plummeted once the IWM deal became public; to alleviate shareholder concerns about dilution, on August 20th Bär reduced the size of a planned rights issue. IWM is overstaffed and loss-making, according to analysts’ calculations. Bär will have to cut staff, reconcile two clunky IT systems and force a new culture on the Merrill bankers: they are rewarded deal by deal, whereas Bär’s bonuses depend on the bank’s overall performance. Bär is putting aside SFr400m for “restructuring” costs, including payments to retain staff; Bank of America is also chucking in $125m to keep people in place. Bär will pay only for the assets that are successfully transferred—it anticipates that at least SFr10 billion will be withdrawn by IWM clients.




It will take time to judge whether Bär’s leap has been successful. Critics wonder whether Mr Collardi’s youthful ambition is leading him to risk a solid franchise for an uncertain future.



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But his boldness has logic. UBS and Credit Suisse, the two giants of Swiss banking, still have to convince wealth-management clients that their investment-banking arms will not cause them more trouble; the IWM deal consolidates Bär’s status as the biggest “pure play” wealth manager in Switzerland.





And the industry can no longer rely on Swiss banking secrecy to attract assets. The Department of Justice will not be placated; tax treaties with Britain, Germany and Austria that preserve bank secrecy may well be torpedoed by Swiss citizens in a referendum planned for November. Even some Swiss bankers are now calling for Switzerland to fall into line with the European Union’s savings directive, which requires cross-border exchange of information.
 


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Hans Bär, who ran the bank from 1975 to 1993, shocked the Swiss when he wrote in 2004 that banking secrecy “makes us fat, but impotent”. His latest successor is right to seek out new sources of growth.