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 Shares in the Zurich-based private bank, which had hit an all-time
peak late last month, were down some 5 percent after the results and
traded at 41.85 Swiss francs by 1210 GMT.
Baer posted a 19 percent rise in full-year earnings, missing
expectations after legal fees relating to the U.S. probe of banks
who allegedly helped rich Americans dodge taxes.
Underlying net profit, after stripping out integration,
restructuring and other costs, rose to 480 million francs against
forecasts of around 495 million, according to a Reuters poll of 12
banks and brokerages.
Baer also said it would hit the lower end of its target for the
transfer of assets invested by former clients of Merrill Lynch's
overseas wealth arm, which it bought in August 2012. Baer is
presiding over a three-year integration during which it hopes to
encourage as many ex-Merrill clients as possible to move their funds
to the Swiss bank.
Baer took a 15 million Swiss franc legal provision relating to the
U.S. tax investigation. It is one of 14 Swiss banks being targeted
by U.S. prosecutors for allegedly offering hidden offshore accounts
to help clients avoid taxes.
Baer, which hasn't put aside any funds towards a settlement in the
U.S. probe, said it would like to reach agreement with U.S.
prosecutors as soon as possible. "Whenever they call us, we're
ready," Chief Executive Boris Collardi told journalists.
While Baer, Credit Suisse <CSGN.VX> and unlisted rivals such as
Pictet are caught in the crosshairs of the U.S. probe, attention has
shifted to the wider Swiss banking industry.
The U.S. Justice Department said recently it had received 106
requests from Swiss entities to participate in a settlement program
aimed at resolving the matter.
According to executives at some of the 14 banks being targeted,
settlement talks have stalled until investigations into second-tier
banks under the program are completed.
Regarding the Merrill deal, Baer had a target to transfer between 57
billion francs and 72 billion of client funds following the purchase
of the U.S. bank's wealth management business outside of the United
States and Japan.
The bank said it is skimming the lower end of that range, mainly due
to a weaker dollar — in which most Merrill accounts were held — versus the Swiss franc. Other reasons include that some clients
prefer brokerage services to pricier and more sophisticated private
banking facilities.
DEAL APPEAL
The appeal of the deal was to gain greater access to fast-growing
markets in Asia and South America and lessen reliance on
Switzerland, but it has also eroded Baer's profitability because the
Merrill assets are less lucrative than Baer's.
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While its gross margin — a measure of the profitability of assets
invested — held steady despite a fall in the second half, the pretax
margin weakened to 25.5 basis points from 27 last year. From 2015,
Baer targets 30 to 35 basis points.
While Baer's profitability was expected to be undermined by the
Merrill deal, particularly after a trading update in October showed
profitability weakening and spending edging higher, analysts said
the sum of assets being acquired showed the purchase hadn't gone as
well as hoped.
However, given the new assets are less profitable than Baer's own,
this may be "a blessing of sorts," analysts at Deutsche Bank told
investors.
The deal, seen as a key test for CEO Collardi, has also cost Baer
more than it bargained for. Last year, Baer said it would spend 55
million francs more than originally planned on its integration.
However the numbers transferring will reduce the overall deal price.
The purchase prompted a growth spurt as assets surged by more than a
third to 254 billion, including 53 billion in funds from one-time
Merrill clients which moved to Baer.
The bank's net new money stood at 7.6 billion francs for the year,
which translates to 4 percent growth, at the low end of its target
for 4 to 6 percent growth of in client funds.
Including all costs to restructure and integrate, shareholders' net
profit for the year slipped to 187.5 million francs, from nearly 268
million last year.
Collardi also said Baer had been approached by Swiss financial
regulators as part of a probe into alleged rigging in the $5.3
trillion-a-day foreign exchange market.
The issue appeared to be linked to several individuals joining from
larger, undisclosed competitors, Collardi said. The bank said it was
in the process of clarifying its position internally. Baer is a
minnow in the forex market, which is dominated by the big Global
investment banks.
($1 = 0.9057 Swiss francs)
(Editing by John Stonestreet and David
Holmes)
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