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 Shares in the Zurich-based lender shot up 7 percent on the news,
recovering much of the ground lost since larger rival Credit Suisse
settled its U.S. tax case in May for $2.5 billion, more than double
what the bank had set aside for the purpose.
This sparked some concerns Julius Baer could be caught out by a
larger-than-expected fine, leading some in the market to short the
stock. Dealers said Baer's half-year results published on Monday,
which were above analyst expectations in many areas, eased market
fears and led to profit-taking from many short sellers.
Baer has not made a provision for any potential fine, saying it
cannot adequately estimate the ultimate amount. In its 2013 results,
Baer budgeted 15 million Swiss francs ($16.70 million) for legal
fees relating to the U.S. tax evasion case.
The bank's chief executive did not address the possible size of a
fine, but did say he thought the Credit Suisse deal could help speed
up its own negotiations for it and a host of other Swiss banks,
including Geneva-based Pictet & Cie, which are also in the
crosshairs of U.S. investigators.
"I continue to believe that in the end we will find a fair and
equitable solution for the group. I think we can reasonably say that
this is now a topic of a matter of a few more months and not years
as in the past," Julius Baer CEO Boris Collardi said on a call after
first-half earnings.
Shares in Julius Baer had fallen by around 9 percent since the
Credit Suisse settlement, lagging an index of European banks <.SX7P>
which was down by 2.6 percent since then. By 1002 GMT the stock was
up 6.1 percent at 38.79 francs.
One of the factors weighing on the company's valuation has been the
uncertainty from the U.S. tax case and J. Safra Sarasin analyst
Rainer Skierka said the bank would be boosted by a resolution in the
probe.
"On the back of the recent Credit Suisse settlement... expectations
for a Julius Baer penalty have substantially risen from $300-$500
million to $1 billion-plus, which would wipe out Julius Baer's
estimated excess capital," Skierka wrote in a note in which he
reaffirmed a "buy" rating on the stock.
"This seems to explain Julius Baer's recent share price weakness
and, in our view, illustrates well that reaching a settlement could
be taken with relief."
U.S. PROBE
Julius Baer also said that it will buy the private banking
activities of Israel's Bank Leumi in Luxembourg and Switzerland, for
up to 70 million Swiss francs ($78 million).
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Israel's second largest bank is caught up in its own U.S. tax probe
and the bank said last month it was close to a deal to pay nearly 1
billion Israeli shekels ($292.45 million) to the U.S. Justice
Department in relation to its investigation.
Collardi said the Leumi acquisition would not leave Julius Baer
liable for any fine resulting from the U.S. probe. A spokesman for
Leumi said the sale does not include its American clients.
In Switzerland, where Leumi has roughly 5.9 billion francs in assets
under management, Leumi will transfer its respective international
clients to Julius Baer. Baer will buy Leumi's business in
Luxembourg, which has around 1.3 billion francs in assets.
The deal will add a low single-digit percentage to earnings per
share from 2016, Baer said, if three quarters of Leumi's clients
transfer their funds, the majority of which are to be transferred by
early 2015 at the latest.
Baer also posted a 10 percent rise in adjusted net profit to 288
million francs for the first six months of the year, beating an
estimate of 265 million francs in a poll of analysts surveyed by
Reuters.
Julius Baer's cost-income ratio, a measure of a bank's efficiency,
was 70.8 percent, higher than its target range of 65-70 percent from
2015. ($1 = 0.8973 Swiss Francs)
($1 = 3.4194 Israeli Shekels)
(Additional reporting by Katharina Bart and Rupert Pretterklieber in
Zurich and Tova Cohen in Tel Aviv; Editing by Kenneth Maxwell and
Louise; Heavens)
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