Switzerland’s central bank having decided to swiftly remove the 1.20 peg on the Swiss franc on January 15 this year may well be regarded as a step toward safeguarding Switzerland’s domestic economy and sovereign currency against widespread fiscal instability across the European Union nations, however the collateral damage to financial institutions as result of the decision has not been limited to those outside Switzerland.
Despite an increase in profits, and a strengthening share price, which is certainly a depiction of a stronger position that most banks within neighboring EU-member states, Zurich based Julius Baer Gruppe AG (VTX:BAER) is looking to cut its operating costs as a result of ensuring commercial stability during a time when the Swiss franc is strengthening substantially.
One measure that the bank is looking to take, according to a report by the Wall Street Journal, is via a reduction in staff which would potentially manifest itself in 200 redundancies from the company.
Additionally, the bank may look toward reducing its spend on marketing.
With regard to the potential redundancies, a reduction in headcount by 200 is relatively minor, as the bank employs 5,247 members of full time staff, 3,000 of which are based in Switzerland.
The reason for considering redundancies is an important consideration, as unlike British banks which have conducted several large scale redundancy programs since the collapse of many major banks in 2008, which resulted in majority-stake nationalization and insolvency, Julius Baer is considering this measure as a means of maintaining a status quo rather than as a result of inability to conduct its business a po pro the British banks.
During 2014, Barclays considered the redundancy of some 19,000 staff across its entire international operations following a prolonged period of poor corporate performance, lackluster trading activity and bad debt incurred by retail banking customers in the UK during the credit crunch.
Switzerland’s situation as a haven for traditional banking institutions is somewhat different and retains its vault-like fiscal stability and prudent business practice.
In an interview with the Wall Street Journal, Julius Baer’s CEO Boris Collardi explained that “Cost-cutting is like brushing teeth nowadays in financial services, it’s something we do on an ongoing basis,” he said, adding that most of the jobs losses will be within Switzerland.
With share prices continuing to rise, today’s price showing an 8.62% increase and adjusted net profit for 2014 healthy at 586 million francs, a 22% increase over the previous year, the firm is steadfast, especially when bearing in mind high net worth investor confidence, resulting in a 14% increase in assets under management to 291 billion francs in 2014.
Switzerland’s banking institutions are the entities of choice for global high net worth investors, therefore this figure is indicative of solidity.
In 2012, Julius Baer agreed to acquire Merrill Lynch’s International Wealth Management business (IWM) based outside the US with USD 84 billion (CHF 81 billion) of assets under management as of 30 June 2012 and over 2,000 employees, including more than 500 financial advisers. The transaction is a combination of legal entity acquisitions and business transfers, that by the end of the expected two-year integration period, is currently estimated to result in additional assets under management of between CHF 57 billion and CHF 72 billion, of which approximately two thirds from growth markets.
Assuming CHF 72 billion assets under management were transferred, Julius Baer’s existing assets under management as of 30 June 2012 would have increased by approximatey 40% to CHF 251 billion and its total client assets to CHF 341 billion, both on a pro forma basis. This acquisition assured Julius Baer with a major step forward in its growth strategy and considerably strengthened its position as a global private banking by adding substantial scale and additional offices primarily in growth markets, but also in Europe.
Reflecting on this, Mr. Collardi explained the benefit of acquiring a publicly reporting financial institution which does not report its commercial performance in francs, especially during this time of rising values.
Mr. Collardi had stated recently during a press briefing that he “would prefer to have a deal of the Merrill Lynch type,” meaning an acquisition of a bank that does not report its costs in Swiss francs.
Therefore, a mixed bag of virtues and casualties lies ahead, however despite the firm’s conservative approach to corporate expenses, the Swiss banking structure remains as solid as a cast-iron safe, and therein lies both the reason why global high net worth investors will continue their allegiance to Switzerland’s institutions and also why Switzerland remorselessly shored up its own interests by removing the peg on January 15.
Chart courtesy of Google Finance, Photograph: Boris Collardi, CEO, Julius Baer