Julius Baer joins banking big league

ZURICH - Julius Baer, Switzerland's largest publicly traded bank for the wealthy, agreed to buy three private banks and a fund management unit from UBS for 5.6 billion Swiss francs ($6.5 billion).

The price includes 3.8 billion francs in cash and a 21.5 per cent stake in the enlarged Julius Baer, with a value of 1.8 billion francs, the Zurich-based companies said. Julius Baer will carry out a 2.5 billion-franc share sale to help finance the purchase.

The purchase of Ehinger & Armand von Ernst, Ferrier Lullin and Banco di Lugano, as well as the GAM fund business, brings managed assets at Baer to about 270 billion francs. Chief executive Walter Knabenhans, 54, has been looking to expand Julius Baer to help it compete against larger rivals, including UBS and Credit Suisse Group.

"With UBS backing, Baer wouldn't be a takeover target any more," Christoph Ritschard, an analyst at Zuercher Kantonalbank, said in a telephone interview before the announcement was made. Baer "would profit from the franchise of UBS and its information technology".

Baer's wealthy clients withdrew money in the first half while those at UBS and Credit Suisse added money to their businesses, which typically accept customers with at least US$1 million to invest.

UBS in 2003 decided to drop some of its best-known brands to operate under a single name and placed the three banks it's selling and the GAM hedge-fund unit into a holding company to be treated as a "financial investment".

The Baer family gave up its voting majority when it created a unified share structure in April, after controlling the bank since it was founded in 1890. The change makes it easier to buy a competitor.

Baer chairman Raymond Baer, 46, a great-grandson of the bank's founder, said on August 30 that Swiss banks need to expand globally to capture growth in emerging markets. Speaking at a conference on private banking, he said "size becomes a critical factor if you want to go international".

Baer's private clients withdrew 540 million francs in the first six months of the year, leaving private banking assets at 61 billion francs. Assets under management in the period rose 11 per cent to 150.7 billion francs from the end of 2004 on increased funds from institutional investors and rising markets.

UBS, the world's largest manager of private wealth, increased net new money by 39 per cent, or 33.8 billion francs, in the first half and Credit Suisse customers added 19.8 billion francs.

As of the end of June, UBS's private bank managed 890 billion francs in assets, compared with 602 billion francs at Credit Suisse Group. Swiss private banks manage about one-third of the world's private wealth deposited in foreign accounts.

Smaller Swiss private banks have been combining, amid higher regulatory costs and an erosion in investments from wealthy clients.

- BLOOMBERG