Hailing its proposed
acquisition of the international wealth business of Merrill Lynch
for up to $880m from Bank of America, Julius Baer group said the
transforming deal would significantly strengthen its position in
global private banking.
If Baer succeeds in
converting across most of Merrill’s client assets of $84bn, its
global assets under management (AuM) total will rise 40% to
CHF263.5bn ($270bn).
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This will put it just
behind the $291bn of client AuM of JP Morgan and on the verge of
breaking into the top 10 of global private banking.
A ‘Big
Ask’?
Still, the transaction
could prove a gamble for Baer’s ambitious CEO, Boris Collardi, 38,
who has long sought a major leap forward to establish his bank
fully on the world stage, and particularly in growth markets like
Asia and the Middle East.
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By GlobalDataBankers and analysts
termed his Merrill strategy as a “Big Ask,” as Baer shares
themselves fell around 7.5% to CHF32.80 just after the deal was
announced mid-August.
Doubts were expressed
about the problems which will likely be involved in integrating the
Merrill business.
That includes some 2,000
staff, of which just over 500 are financial advisers and all used
to an US-style investment and brokerage client model.
‘Value-destructive transaction’
Chris Wheeler at Mediobanca Securities says he would be
surprised if Baer achieved the top of its targeted range of
CHF57-72bn ($58-74 billion) of AuM.
He added, “Baer is a great brand, but many clients will baulk
about being forced to make a change and (will) vote with their
feet.”
Teresa Nielsen, analyst
at Vontobel, asserts that “there are too many risks in the
integration process, which is scheduled to run until 2015.” Baer
itself concedes that the transaction will take time to work, and
will need up to three years fully to complete.
The harshest critic of
the deal was analyst Dirk Becker at Kepler Capital Markets in
Frankfurt, who wrote in a research note that it appeared a
“value-destructive transaction”.
Indeed, Baer is aware
that integration is the make-or-break issue for the deal. This
implanting of Merrill within Baer will cost CHF400m, 30% of which
will be in the form of incentives for Merrill advisers to stay on
board – and bring their clients with them.
One senior banker at a
rival institution cautions that while Baer is only paying 1.2% for
those client assets, assuming the top AuM figure of CHF72bn is
achieved, this is still an expensive acquisition.
“I see no point in paying
a shareholder (BofA) for the business and having to renegotiate to
buy it all over again to get the brokers to be loyal and stay with
the business,” this banker says, who requested anonymity.
Dealing with the
broker model
Baer, other critics say,
is not equipped to fulfil the full-service investment and brokerage
model Merrill operates.
“The desktop, product and
research capabilities Baer has are nowhere near competitive with
what people carrying the Merrill brand enjoyed previously. They
still have an uphill fight to make this deal work,” another banker
observes.
The Merrill transaction is Baer’s biggest merger since it bought
Ehinger Armand von Ernst, Ferrier Lullin & Cie, BDL Banco di
Lugano and asset manager GAM from UBS in 2005. It also dwarfs the
CHF520m acquisition of ING’s Swiss private banking unit in
2009.
