Julius Baer successfully concluded its 2020-2022 strategic cycle, surpassing financial targets set three years ago, and now possesses the means to fuel growth investments for the next three years, according to Philipp Rickenbacher. He also highlights that there is no prevailing systemic crisis in the Swiss banking sector.
The CEO recalls the market’s reaction when Julius Baer initially discussed its ambitions for 2020-2022 in terms of cost-income ratio and profit growth. The notion of “it’s possible” was a valuable lesson for him.
“I remember the reaction of the markets back in 2020. It was seen as something not achievable, and it took one or two years to convince the market that yes, it was feasible,” Rickenbacher said in an interview with Asian Private Banker. “So I think that the idea of ‘it’s possible’ is a very important element.”
During 2020-2022, the Swiss pure play met its targets with a 65.9% adjusted cost/income ratio (target: <67%), 27 bp adjusted pre-tax margin (target: 25-28 bp), 34% adjusted return on CET1 capital (target: >30%), and 10.3% average annual growth rate in adjusted profit before taxes (target: >10%).
Humble and nimble
Now is the beginning of the 2023-2025 cycle, and the top executive feels the last cycle has also taught Julius Baer to be “humble and nimble” in the face of uncertain circumstances. The bank initiated the previous cycle and formulated the strategy upon entering the pandemic.
“Of course, that (the pandemic) was not in the books,” Rickenbacher shared. “Then came the conflict in Ukraine, which was a huge geopolitical change. Then came the US banking crisis and the wobbles of this year, so I believe we’ve been very agile in manoeuvring through difficult circumstances.”
“And we are taking the same humility into that next cycle as we never know what comes next, but we will progress,” he said
After recording a 12% drop in assets under management (AUM) in 2022 due to market corrections, Julius Baer’s AUM inched up 1% year-to-date to CHF 429 billion (US$480 billion) by the end of April 2023. Net new money amounted to CHF 3.5 billion from clients in Asia, Europe, the Middle East and Israel.
“Swiss banking is over 100 years old […] Switzerland has one of the lowest inflation rates in the world, one of the most stable currencies in the world, and the political system has an incredible stability.”
Target expansion
Rickenbacher plans to spend roughly 80% of the bank’s resources in its nine focus markets including Singapore, Hong Kong, India, the Middle East, Switzerland, Germany, the UK, the Iberian Peninsula and Brazil.
The decision to accelerate or apply the brakes will depend on the prevailing local cycles, he said, adding that the remaining 20% of the resources will be used for specific broad markets where the bank sees opportunities, for example, the Israeli market.
Despite seeing a 15% AUM drop in Asia in 2022 due to markets – amounting to US$135 billion – the CEO emphasised that the region maintained “outstanding profitability” and “strong cost control” and has remained a core contributor to Julius Baer.
He expects strong contributions from Greater China and Southeast Asia in 2023 and extending to 2024. He also anticipates significant business growth in the Middle East through Julius Baer’s presence in Bahrain, Dubai and Doha.
“We will continue to invest [in the Middle East]… and will always invest in China. That’s going to be critical. We will continue to invest in Southeast Asia as well. In our joint venture with SCB in Thailand, for example.”
Propelling growth
Julius Baer’s relationship manager compensation model, implemented in 2020, has also been crucial in propelling the business during the last cycle, Rickenbacher pointed out. It is an entrepreneurial model that has integrated both quantitative and qualitative factors as well as quality with risk.
“This is to make sure that whatever we do, we remunerate quality and risk consciousness. We recalibrate that this formulae part to the profitability of the firm because this includes all elements of asset growth,” he said.
“It also includes a cost element which means relationship managers have to be true entrepreneurs and think about the cost and how to best deploy the resources of the firm,” he explained. So far, Julius Baer has trained more than 1000 relationship managers on sustainability.
“And I accept that… Some of our peers would like to be the number one financial player in cross border wealth management, and some might want to play in the moments of weakness like this. That’s just natural.”
No systemic crisis in Swiss banking
When questioned about his perspective on the Swiss banking landscape, Rickenbacher stated that “there’s absolutely no systemic crisis” affecting the overall system.
While acknowledging that “yes, one bank out of 230 had a very specific issue”, he emphasised that “Switzerland was able to resolve the issue for a global, systemically relevant bank over a weekend without a blip of disruption in global financial markets.”
“Let’s not forget that Swiss banking is over 100 years old,” he said. “It was founded by many different players. Switzerland has one of the lowest inflation rates in the world, one of the most stable currencies in the world, and the political system has an incredible stability.”
Some of the issues, he feels, are of global relevance. For example, the questions around how big is too big to fail? And how workable are these provisions? This is not just a question for Switzerland but one that the whole domain of key banking hubs has to ask themselves.
“Ultimately, all different parties and domain markets will need to get together and they need to agree on a standard set of interpretation, also for the AT1 during an insolvency event. But this does not invalidate at all for me the strength of the Swiss financial centre.”
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Misconceptions and competitors
Rickenbacher emphasised that the markets tend to overestimate the speed of movements in large wealth management relationships between banks, especially in the short term. Why? Because in reality, both top talents and clients take time to contemplate their next career move or banking options.
“Yes, they might make short-term movements on their cash position, but there is no need to move a securities position from a counterparty perspective in an ultra-high-net-worth space,” he said. “I think the question is, what will happen in the long term, and how we will all compete with our strengths?”
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He also admitted that when crises do occur, such as the downfall of Credit Suisse, it is often used as an element of competition across global financial players.
“And I accept that… Some of our peers would like to be the number one financial player in cross-border wealth management, and some might want to play in moments of weakness like this. That’s just natural.”
