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Julius Baer/UBS: a large but local buy

5th September 2005
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UBS has agreed to sell a number of private banks to Julius Baer for $4.6 billion.

Swiss private bank Julius Baer has agreed to buy a stable of private banks from UBS. The agreement will see it become the third-biggest private bank in Switzerland, and could mark the first step in the consolidation of the private banking market there. However, there is a downside for Julius Baer: it will surely put the brakes on its international expansion plans for the time being.

The agreement has marked an end to months of intense speculation regarding the future of Julius Baer. The rumors envisaged the bank making an acquisition in the expanding Asian market, as well as suggesting that it might itself emerge as a possible takeover target for UBS, a situation which has now been dramatically reversed.

As part of the deal, UBS will take a 21.5% stake in the enlarged Julius Baer group, a stake that UBS claims is financial rather than strategic. The acquisition will see Banco di Lugano, Ehinger & Armand von Ernst and Ferrier Lullin, as well as specialist asset manager GAM, become part of the Julius Baer group.

The acquisition marks the first big consolidation move among mid-sized wealth managers in the crowded Swiss wealth market. However, there have already been early criticisms that the deal looks expensive, with Julius Baer paying a fee of approximately 4.7% of the assets it is acquiring, compared to the more usual amount of 2-3%. Furthermore, it is unclear exactly how many synergies Julius Baer will be able to generate from the acquisition given that UBS has already started to merge the units' back office functions over the last few years.

However, the biggest question marks over the move concern Julius Baer's strategy. The bank had previously stated its interest in expanding into the Asian wealth management market, which is currently the fastest-growing in the world. Given the size of the current deal, Julius Baer is now unlikely to have either the financial resources or the corporate capacity to undertake such an expansion until the new units have been wholly integrated, which will be some time away.

This means that, while the acquisition will undoubtedly give Julius Baer the scale it desires, it leaves the company firmly planted in a struggling Swiss wealth management market that is increasingly seeing its assets flow to other offshore locations. Julius Baer and its investors can now only hope that the bank is proved right to focus on the domestic, rather than international, front.

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