Swiss wealth M&A may kill two birds with one stone
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Lisa Jucca
MILAN, May 28 (Reuters Breakingviews) -A tie-up between Julius Baer BAER.S and EFG International EFGN.S is a marriage just waiting to happen. The two Swiss private banks held talks about a potential merger, Bloomberg reported last week citing people familiar with the matter, although discussions stopped after an initial approach earlier this year, Reuters said. Combining two B-league wealth managers would not threaten UBS’s UBSG.S dominance. But it would make financial sense and solve a leadership question for Julius Baer.
UBS’s shotgun marriage with Credit Suisse grabbed global attention in 2023. But consolidation in the lower echelons of Swiss private banking has been going on for years. The number of Swiss banks almost halved to 89 between 2010 and the start of 2023, KPMG data shows. Whispers about a possible engagement between 11 billion Swiss franc Julius Baer and 4 billion Swiss franc EFG, the country’s second and third biggest listed wealth players, is a recurrent theme in Zurich.
Putting the two together would add scale. But it would only create a distant second to the Swiss behemoth led by Sergio Ermotti. At some $640 billion, Julius Baer and EFG’s combined assets under management would be less than 20% of invested assets at UBS’s global wealth management division.
Yet a deal could please both sets of investors. Assuming Julius Baer paid 30% over EFG’s share price before the merger reports, a bid would be worth almost 4.8 billion Swiss francs and the premium would be about 1.1 billion Swiss francs. Cutting just 15% of EFG’s 1 billion Swiss francs of annual operating expenses, just half what RBC analysts believe is possible, would generate total savings worth 1.3 billion Swiss francs, once taxed at 19% and capitalised, according to Breakingviews calculations. In other words, the value of the synergies exceeds the possible premium. Adding the savings to EFG’s forecast pre-tax profit of 450 million Swiss francs in 2025, using LSEG estimates, would generate a 10% after-tax return on the investment.
A deal would also solve a vexing Julius Baer issue. The bank is looking for a permanent CEO after it ousted former boss Philipp Rickenbacher in February because of risky bets on now bankrupt Austrian property firm Signa. And any deal with EFG would need to please the Latsis family, which controls 45% of the voting rights. This makes current EFG chief Giorgio Pradelli, at the helm since 2018, an ideal candidate to lead the joint group.
A marriage of Julius Baer and EFG would not create a new wealth giant. But it could achieve two wins at once for the potential newlyweds.
Follow @LJucca on X
CONTEXT NEWS
Swiss private bank Julius Baer held talks with EFG International about a potential takeover in recent months but the discussions have stopped, Reuters reported on May 24 citing people with knowledge of the matter.
The discussions took place around the time former Julius Baer CEO Philipp Rickenbacher was ousted following big losses on loans to failed property group Signa, Reuters also reported.
EFG, in which the Greek Latsis family controls 45% of the voting rights, on May 28 reported earnings of 110 million Swiss francs for the first four months of 2024, while net new assets totalled 3.6 billion Swiss francs.
Graphic: The number of Swiss private banks has been shrinking https://reut.rs/3V6J4cW
Editing by Liam Proud and Oliver Taslic
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