Swiss private bank Julius Baer has decided that being "big enough to matter, but small enough to care" looks "a pretty expensive way" to do business, says Jonathan Ford on Breakingviews.com.
Smaller Swiss banks have "struggled" to pick up business from the "new rich of Asia and Russia." Their traditional European customer base is "highly mature, and even declining." Keeping up with investment in information technology is also sending costs soaring.
Julius Baer has "at least grasped the nettle". The group is to buy SBC Wealth Management from investment bank UBS for $4.5bn in cash. SBC is made up of three private banks Banco di Lugano, Ehringer & Armand von Ernst, and Ferrier Lullin and hedge fund-of-funds manager Global Asset Management (GAM).
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The deal will be funded by a rights issue worth $1.9bn, and a $1.1bn return of capital from the combined group. The remainder will be paid for by giving UBS a 21.5% stake in the enlarged group, with a value of about $1.4bn.
The move means Julius Baer now sits at third place in the Swiss banking industry in terms of funds under management.
It may be "an audacious deal," says Lex in the FT, but it's also "a good one." GAM is a "global leader" in its field, "adding a lucrative product range". The new businesses are "almost twice as profitable" as Baer, and their "more disciplined management" will be running the majority of the enlarged group. The bigger, more profitable Baer should be "able to escape the hunters for now" while its smaller rivals are "picked off".
But the "really striking" thing about the deal, says Ford, is "the cultural price Baer has paid." The Baer family has already given up the special stock that gave it voting control. "Now it has essentially surrendered the keys of management to outsiders." The fact that the company has been prepared to do this, "suggests real change is on the way in Swiss banking.
John is the executive editor of MoneyWeek and writes our daily investment email, Money Morning. John graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.
He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news. John joined MoneyWeek in 2005.
His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.
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