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Article Excerpt
Original Source: FD (FAIR DISCLOSURE) WIRE
JOHANNES DE GIER, GROUP CEO, JULIUS BAER HOLDING AG: Good morning ladies and gentlemen and thank you very much for taking the time to listen to our half year results presentation. These are not times, I suppose, to be self-congratulatory or smug, but nevertheless I would like to sum up our results or our financial position at the moment as solid results, very strong capital base, a sound balance sheet and significant net new money growth.
We have achieved more or less the same result as last year as you've seen, in spite of very weak markets and highly volatile markets and a very strong Swiss franc against both the US dollar and pound sterling.
BIS capital ratio -- Tier 1 capital ratio is almost 14% which I think is more than double of what in today's market would be considered a very conservative capital ratio. We've promised you in the past that capital in excess of 12% will be used as share buybacks, so we will stick to that. Unless of course, there would be opportunities to make acquisitions, attractive acquisitions. And in spite of all the turbulence we have seen in the market we have not come across anything that has really interested us. But that doesn't exclude at all that this might occur in the next 12 to 18 months or so.
Our balance sheet is a liability driven balance sheet. We lend only to private clients; we invest our excess liquidity in the market but in high grade assets. Our counterparty and our concentration risk limits are very conservative and whenever it's possible we try and collateralize our exposure, and I would say that we have gone even more conservative over the last 12 months in terms of risk management.
The net new money in Bank Julius Baer is well ahead of our -- the internal expectations. Our -- we're very optimistic that we can increase our market share, not only in the growth markets but very much in the core markets as well as a result of the turbulence that occurs at the moment.
We've managed to hire some very high quality people. Not all of them are technically employed by the Bank here but we have a very promising pipeline and I know that Alex will talk to you about that as well. And we're in the middle of the process that we announced last February in terms of upgrading our investment processes and also our product suite in the investment area.
Nothing has changed as it happened in the past regarding our focus, we are a pure play wealth management business, we'll continue to be that. The Bank -- as you know Julius Baer Holding has been created with three entities underneath, strong entities underneath, Bank Julius Baer, GAM and Artio Global. Each of those three have their own independent strong franchise. Each of those three have established leadership, not only at the top but also at the lower levels and they've been there for quite a long time. They all operate on their own separate operating platforms.
Artio Global as you know is ready for an IPO and we're waiting for more favorable market conditions to push the button on that one. Perhaps David can answer your questions on where we stand.
The -- assuming that the IPO would go ahead, we have two remaining businesses which have both a strong focus on high net worth individuals. The management continuity and the stability of our business, both at the holding level but also at the business unit level, is well established and our strategy, as I said at the beginning, is well established. And our shareholder value based culture hopefully is fully intact and will be intact in the years to come.
So with one more slide which I bore you with every time, to show the assets under management by brands and businesses and by client segment, I would like to hand over to Dieter Enkelmann who will take you through the numbers. Thank you very much.
DIETER ENKELMANN, GROUP CFO, JULIUS BAER HOLDING AG: Thank you Johannes and good morning ladies and gentlemen. Julius Baer has maintained in the first six months of 2008 its earnings power and with an adjusted net profit of CHF510 million, but used a solid financial result in a challenging environment. I will guide you now through the details of this result.
Assets under management of the Julius Baer Group declined by 10% versus year end 2007 and amounted to CHF364 billion at the end of June 2008. Net new money inflows amounted to CHF10 billion were more than offset by the impact from the weak equity and debt market, having a negative impact of CHF32 billion on the assets under management. And from the strengthening Swiss francs our reporting currency against mainly the US dollar, British pound and euro having a negative impact of CHF19 billion on our assets under management base.
The Group's operating income was CHF1.6 billion, which is 2% lower compared to the first half of 2007. As a result of the decreased asset levels due to the factors described before, with the average assets of the first six months being down by 1.5% compared to the first six months of 2007. And year-on-year the level of the private client activity lower net fee and commission income declined by 9% to CHF1.2 billion.
On the positive side, net interest income rose by CHF53 million or 32% to over CHF220 million on the back of higher deposits, increased lending to private clients and a higher net interest margin. Net trading income was also up by 32% to CHF178 million. This is mainly driven by the higher foreign exchange volume trading in the private banking.
Operating expenses were CHF949 million, CHF11 million or 1% lower than last year, where they were CHF960 million, positively impacted by the strong Swiss franc, mainly in asset management offsetting the impact from continued investments in growth.
The personnel expenses were lower by 2%. The impact of the 10% increase year-on-year in staff level to 4,272 people was offset by lower performance-related compensation accruals and by the mentioned positive impact from the currency side.
General expenses including valuation adjustments, provisions and losses remained unchanged with CHF254 million. Even with the continued expansion of the global footprint resulting in higher platform costs of Bank Julius Baer. On the whole, the Group's cost income ratio increased to 58.5%, about 1 percentage point from 57.5% in the previous year period.
All-in-all, profit before taxes declined 3% to CHF653 million with Bank Julius Baer contributing CHF390 million, down 4% from last year's period. And Asset Management down 3%, contributing CHF278 million to the pre-tax profit line. After deducting taxes of CHF143 million which represents a tax rate of 22% flat to the full year 2007 tax rate, we achieved the adjusted net profit of CHF510 million.
As a consequence of our share buyback programs executed in 2007 and started again in 2008, EPS increased for the period by 5% to CHF2.45 in 2008 compared to CHF2.34 in the first six months of 2007. All expenses -- that's the footnote here on this slide. All expenses in the profit figures in this presentation, as well as in the business review which you received as well, are excluding the integration and restructuring expenses as well as the amortization of the intangibles related to the 2005 transaction. If you include these expense positions then the [IAS] net profit went down by CHF12 million to CHF412 million from CHF424 million in the prior year period. All the details, the reconciliation is given in this presentation in the appendix on slide 51.
Maintaining adequate capital and solvency levels at all times will remain one of our priorities especially in these market circumstances. Whereas total equity rose by 2.5% to CHF6.6 billion, our BIS Tier 1 capital went up by CHF330 million to CHF2.3 billion by the end of June 2008. With the resulting BIS Tier 1 ratio of 13.8% under Basel ll and this compares to a 12.9% Tier I ratio under Basel l by the end of 2007, the Julius Baer Group continues to enjoy a very solid financial basis and at the same time maintaining a low and controlled risk profile.
Our Tier 1 ratio is one of the highest amongst larger European banks. Even more, in times when many banks had to ask their shareholders for fresh capital we were able to start another round of share buyback by starting our share buyback program 2008 to 2010 of up to CHF2 billion. We have so far repurchased 1,565,000 shares at the total cost of CHF112 million.
As a consequence of our focused and consequently implemented business model our balance sheet is liability driven with the main position being client deposits. Here on the right-hand side line item due to customers. This makes the Group cash rich by default. Looking at the asset side, the Group did not experience any losses related to the credit and liquidity crisis neither in its portfolio of loans to clients, nor in its financial investments. The IRS line here on the asset side is available for sale investments. This reflects the financial investments we do. With regard to these financial investments we continued to reduce the counterparty risk as much as practicable.
The total assets amounted to CHF43.6 billion, which is down versus end of December by CHF3.3 billion. And I would like to make a comment on a particular accounting rule for the line items due to customers, here on the second line, and loans. These two positions include, according to IAS, the daily fluctuating open for export transactions of our clients. On June 30 of this year this led to a lower amount of loans; you can see back to CHF11 billion from CHF12.2 billion by the end of December on the asset side. Whereas the actual lending to clients which is in this line, and which is the bulk of this line item increased in the same six months period by CHF500 million and Alex Widmer will come back to this point later on in more detail.
We are still committed to our capital management policy stated here before. We will therefore continue to return excess capital to our shareholders, above the stated BIS Tier 1 ratio target of 12% in the way of stable dividend and share repurchases. With this I hand over to David Solo for the review of the asset management business.
DAVID SOLO, CEO ASSET MANAGEMENT, JULIUS BAER HOLDING AG: Good morning. Well this was clearly one of those periods where asset management businesses demonstrate the sensitivity of short term client flows to recent market performance. The major drag overall on asset levels was obviously the drop in global equity markets given the heavy equity concentration of our portfolios, particularly in our US asset management business, renamed Artio Global. But also equities form a very significant component of GAM's portfolios across the board.
This, combined with the jump in the value of Swiss franc against the dollar, sterling and the euro, means that our asset levels as reported in Swiss francs, which is Julius Baer's reporting currency, has dropped significantly. I would note that if you were reporting our asset levels in dollars, which is the largest component of our funds, the currency impact would obviously be positive.
Major point is that the client flows were clearly impacted by the difficult absolute market performance, particularly at GAM where you have to understand that the clients are mainly seeking absolute returns, not relative returns and where our client base is predominantly private individuals that tend to be more affected by short terms market noise, comments in the press and market uncertainty.
So the strong institutional client base that historically was about 50% of the clients within US asset management business called Artio, helped us because the institutional client takes a relative return bias and also has a longer term investment horizon. And this was demonstrated by the continued strong flows from institutional clients into our US business Artio Global.
I would comment though, that though this was a tough period for asset levels, keep in mind that in these types of businesses periods of very high growth intermingled with sporadic periods of stagnant or declining assets are still very consistent with the business that retains a very strong term -- long-term growth dynamic.
On the next slide, I didn't move my slide here. So that was the asset slide.
Profitability, I think is a slide that gives us some good news. The revenues are down by 8% and that's entirely driven by lower average asset levels which you can see on the bottom line are down 7%. We did implement controlled expense reduction measures while at the same time we maintained our investments in key revenue growth areas which is mainly sales, marketing and new fund development. And we did this at the expense of support functions and technology projects.
There was also a very significant reduction in expenses as reported in Swiss francs because of the fact that the large piece of our expenses are in London and in the US and therefore this dollar and sterling cost base provides a natural hedge to the fact that a large share of our fees, because of our assets, are denominated...
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