Julius Baer to Buy Merrill Lynch Private Bank, Bank of America Receives 3.2% Stake
Swiss private bank Julius Baer Group is set to acquire Merrill Lynch's International Wealth Management business for $860 million Swiss francs, or $882 million dollars, according to Reuters. Baer claims it will increase assets currently under management by 40 percent. Bank of America (NYSE: BAC), which bought Merrill Lynch back in 2008, will receive a 3.2 percent stake in Baer.
Typically a large acquisition like this would unnerve investors, with this new merger being no exception. Baer was trading down 5.4 percent in Zurich early Monday morning, cutting its market cap by 6.57 billion francs. The cost of the deal includes new capital requirements under Basel III regulatory standards.
Frankfurt-based analyst Dirk Becker of Kepler Capital Markets did not offer much fanfare in light of the deal.
“I can't see anyone getting too excited about this,” said Becker, who currently has a hold rating on Baer. “It is big business, but not a profitable one, and they've lowered their financial targets," he told Bloomberg.
Baer said it was committing 530 million Swiss francs ($544 million dollars) in cash to fund the acquisition and needed to raise an additional 750 million francs through a rights issue. Baer also plans to raise 200 million francs through hybrid bond sales. Bank of America will be granted 240 million francs worth of stock.
Reuters reported this acquisition as part of Baer's growth strategy to strengthen its position as a global private bank. The deal gives Baer increased scale and international office presence in growth regions it previously did not have.
Merrill Lynch will cut some of Baer's exposure to the Swiss franc. It is estimated that two thirds of Merrill's business is in emerging markets: Latin America, Asia and the Middle East.
The sale needs to pass regulatory hurdles that could delay the close of the deal until early 2013.
The Merrill Lynch deal has been the largest acquisition since it bought Ehinger Armand von Ernst, Ferrier Lullin & Cie, BDL Banco di Lugano and asset manager GAM for 5.6 billion francs from UBS in 2005. Baer also bought ING's Swiss banking arm back in 2009 for 520 million francs, Reuters reports.
Given the political and economic forum in Europe and the United States, Baer might be biting off more than it can chew, especially since Merrill Lynch's International Wealth division had a pre-tax loss last year and a cost-to-income ratio of 114 percent.
Baer also realizes that changes in U.S. tax law concerning Swiss accounts as a tax haven will cut into the bank's profit margins. According to Chief Executive Officer Boris Collardi, the bank is targeting a 15 percent increase in the price of shares from prior 2015 projections. The Merril Lynch acquisition is part of the growth strategy to boost Baer's international presence.
“This acquisition brings us a major step forward in our growth strategy and will considerably strengthen Baer's leading position in global private banking,” Collardi said, adding that there will be some job consolidation.
Bank of America traded up about 0.25 percent in pre-market trading.
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