Julius Bär optimistic on net new money recovery, focused on costs

Julius Bär Gruppe AG is upbeat after seeing a positive trajectory in net new money, which has "recovered meaningfully" since April and is expected to normalize further throughout the year, despite booking outflows in the six months ended June 30.

The Swiss wealth management group recorded CHF1.1 billion of net outflows in the first half, compared to net inflows of CHF10 billion in the same period a year ago. Net new money of CHF1.5 billion since the end of April partly compensated for the CHF2.7 billion net outflows recorded in the first four months of 2022, the group said.

"Many clients reacted to the environment of increased uncertainty by de-risking their investment portfolios, which was also in line with our advice and our house view on the markets," CFO Evie Kostakis said during a July 25 earnings presentation. "And in the case of a number of larger clients, especially in Asia, this also led to a reduction in leverage," the CFO said.

The impact on net new money from this deleveraging peaked in March, after which it diminished significantly. The group saw good inflows throughout the period from clients domiciled in Western Europe, particularly in Germany, the U.K. and Luxembourg. Meanwhile, net new money from those domiciled in the Middle East turned positive after April.

Although deleveraging had not come to a complete stop by the end of the second quarter, its pace had slowed down, according to Kostakis.

"It is still early days, of course, but so far we are encouraged by the improved momentum, which has continued into July, with so far positive net new money in the first couple of weeks of the third quarter," Kostakis said.

Based on the current outlook, the group expects net new money to normalize further in the second half.

Julius Bär posted a group net profit under International Financial Reporting Standards of CHF450.3 million in the first six months, falling 25.7% from the record-high CHF606.0 million a year ago. Excluding M&A-related items, the group's adjusted net profit was CHF476.3 billion. The results were impacted by a CHF55 million final charge related to the settlement of a legacy litigation case involving a Lithuanian corporation.

Cost discipline

Going into the second half, the group said it had already put measures in place amid the current challenging environment to deliver on its targets. Julius Bär's management team and the organization as a whole is focused on cost control, which it deems to be "very, very important," according to Kostakis.

The group aims to achieve an adjusted cost-to-income ratio of less than 67% for full-year 2022.

"[Given] the positive early signs so far in July and in combination with the cost control initiatives we have initiated, I believe our cost-to-income target is still in line of sight, unless, of course, we see a further massive market drawdown later in the second half," the CFO said.

Meanwhile, CEO Philipp Rickenbacher said the group has further slowed down on discretionary spending and instituted a hiring freeze, except for relationship manager roles, for the second half as part of the group's commitment to cost discipline.