Julius Baer has presented it half-yearly for the year 2019 and announced that net profit recovered considerably from the challenging second half of 2018, driven by a strong sequential increase in asset valuations and gross margin.
Assets under management ended the first six months of 2019 at CHF 412bn, an increase of CHF 30bn, or 8%, since the end of 2018. The growth in AuM was helped by a strong recovery in global stock markets, as well as net new money of CHF 6.2bn and the first-time consolidation of NSC Asesores in Mexico, which added CHF 3bn. The strengthening Swiss franc had a slightly negative impact on AuM.
While the annualised net new money growth rate of 3.2% was below the Group's medium-term target range (4-6%), it moved closer to the target in the last quarter. Excluding Kairos, net inflows developed at a satisfactory level inside the targeted range, driven by solid inflows from clients domiciled in Asia, Europe, and the Middle East. However, these net inflows were partly offset by net outflows from Kairos funds (following a decline in fund performance in 2018; in H1 2019 the performance improved again).
The Group's net new money was also negatively impacted to some extent by a limited number of client exits in the context of the ongoing client risk review project (which is nearing completion), as well as by modest outflows following a wider application of negative interest rates to large cash holdings in affected currencies, mainly Swiss francs and euros.
Operating income was CHF 1,699m, a decrease of 5% versus H1 2018. Compared to the second half of 2018, operating income grew by 8%. As monthly average AuM increased to CHF 408bn (up 4% year-on-year and 3% versus H2 2018), the gross margin came to 83.2 bp, a decline versus H1 2018 (91.5 bp), but an improvement from H2 2018 (79.6 bp).
Cost-reduction programme on track
As announced last February, while continuing its strategic growth investments, Julius Baer has put in place a CHF 100m gross cost-reduction programme which encompasses a number of structural measures, including a decrease in the Group's headcount by a net 2% between the end of 2018 and the end of 2019. The execution of this programme is on track, and the results from these structural cost reductions are expected to start materialising partly in the second half of 2019 and fully in the 2020 financial results, with the reconfirmed aim to reduce the adjusted cost/income ratio below 68% in 2020 ‒ assuming no meaningful deterioration relative to the 2018 average market conditions.
Bernhard Hodler, chief executive officer of Julius Baer Group Ltd., said: "Profitability has markedly improved compared to the second half of 2018, as we saw client activity and asset valuations recover substantially. The cost-reduction programme we initiated earlier this year is on track, and we will see its effects materialise in the coming months and throughout 2020, as targeted. At the same time, we have made targeted investments in the future of our business. Julius Baer is in excellent shape, thanks to the dedication and relentless work of our staff. And I am convinced that, with Philipp Rickenbacher being appointed as my successor, I am leaving the Group in very good hands."