February 6, 2012 / 12:42 PM / in 7 years

Julius Baer ready to pay fine to avert U.S. probe

ZURICH (Reuters) - Julius Baer BAER.VX is prepared to pay a fine to escape an escalating U.S. crackdown on offshore bank accounts after last week’s indictment of smaller rival Wegelin raised tension among Swiss private bankers.

“We expect we will probably have to pay a fine, but have the resources to satisfy a solution,” Baer Chief Executive Boris Collardi told a news conference as the bank announced 2011 results and a share buyback on Monday.

“We’ve taken an early, proactive approach with the U.S., taken measures including the U.S. exit in 2009 at our own decision, and have an ongoing constructive dialogue,” Collardi said, adding he did not expect the bank to be indicted.

He did not say when a resolution was expected, nor how much Baer might have to pay.

U.S. officials have in recent months been piling pressure on Swiss private banks like Baer whose clients include wealthy Americans with hidden offshore accounts. That culminated in the indictment on Thursday of Wegelin, Switzerland’s oldest private bank, which had broken itself up the week before in anticipation in order to protect other parts of the business.

Shares in Julius Baer fell 4.8 percent to 37.05 Swiss francs at 1100 GMT, underperforming a 1.2 percent slide on the European banking sector index .SX7P.

Dirk Becker, analyst at Kepler Capital Markets, noted that Baer traded at a significant premium to other banks at 1.7 times book value compared to a sector average of 0.6 times.

“Julius Baer is one of the most defensive in our coverage of European banks, but also not free of problems,” he said. “The resolution of the U.S. tax matter could potentially be very expensive.”

Larger rival Credit Suisse, which reports 2011 numbers on Thursday, is also caught up in the U.S. investigation. The bank said in November it had taken a 295 million Swiss franc charge against third-quarter earnings in connection with the probe, but noted that the final settlement could exceed that.

Baer financial head Enkelmann said after paying 2011 dividends and buying back shares the bank still has roughly 900 million Swiss francs in excess capital, from which Collardi said any fine would be paid.


Baer said 2011 net profit fell 27 percent on the year to 258 million Swiss francs ($280.72 million), hurt by lackluster client trading, restructuring costs and other expenses including a one-off payment to resolve a tax dispute with Germany.

Baer cut its profit margin target and raised its cost income ratio forecast as a soaring Swiss franc kept the bank’s mainly franc-based costs high but capped foreign-currency revenues.

“Two-thirds of costs are in Swiss francs, while two-thirds of revenues are in non-Swiss franc currencies,” Enkelmann said in a earnings call.

“We can still work on costs, to move out some costs from Switzerland and to better match costs and revenues, but this is not short term and will take some time.”

Vontobel analyst Teresa Nielsen said the revised targets suggested that restructuring expenses would come in “higher than previously expected.”

In what Nomura analyst Jon Peace called “a show of capital strength,” the bank also launched a new share buyback of up to 500 million Swiss francs and announced a special dividend of 0.40 francs per share to its ordinary 0.60 franc dividend, returning a further 200 million francs in total to shareholders.

After losing out to Swiss-Brazilian Bank Safra in an attempt to buy Bank Sarasin BSAN.S late last year, the bank said it continued to hunt for acquisitions in Switzerland as well as in its growth markets.

“The board clearly wants to give priority to the mergers-and-acquisitions market ... The second priority is to return additional capital to shareholders via repurchasing shares,” Enkelmann told the news conference.

Clients added 10 billion francs in net new money in 2011, ahead of expectations, balanced by falling investment values and the negative effect of the Swiss franc which kept total assets steady at 170 billion francs. Growth markets like Asia and South America yielded strong inflows, as did Switzerland and Germany.

($1 = 0.9191 Swiss francs)

Additional reporting by Caroline Copley; Editing by Emma Thomasson, Hans-Juergen Peters and Sophie Walker

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