(Bloomberg) -- As Stefan Bollinger moves into the chief executive’s office at Julius Baer Group Ltd on Thursday, the lender’s investors want answers to two big questions: how much can he boost profitability and how quickly will he resume paying them out money?
The 50-year-old former Goldman Sachs Group Inc. partner is the first permanent boss in almost a year, following the resignation of Philipp Rickenbacher in February 2024 after losses linked to real estate tycoon Rene Benko halved annual profit. Nic Dreckmann has run the bank in the interim.
Shareholders and clients are once again showing some confidence in the 135-year-old institution, with new assets picking up and the market valuation having largely recovered the hit from the Benko affair. Yet Bollinger still has much to do, ranging from pushing down costs to finalizing the exit from the business that ran up a $700 million exposure to Benko’s Signa companies.
“It will be all about restoring growth,” said Nicolas Payen, an analyst at Kepler Cheuvreux in London. “Julius Baer also currently lags behind all its financial targets for the end of the year. He will have to come up with convincing and realistic new targets.”
Bollinger takes over the Zurich-based lender’s reins at a time when the worst of the Benko debacle seems to be behind it. Baer has already said that it expects 2024 profit to be “significantly” above 2023 levels, and was able to report an acceleration in client inflows in November. Investors are keen for Baer to resume buybacks, though the company has said it can only do so once a regulatory probe has been resolved.
COST STRUGGLE
The cost of running the bank has been a persistent worry. Baer’s cost-to-income ratio has deteriorated steadily since 2021, as expenses grew faster than revenue.
“The need for action for the new CEO is clear,” said Andreas Venditti, an analyst at Vontobel in Zurich.
Personnel costs at Baer are 60-70% of total expenses, and the bank’s headcount has grown substantially in recent years. Julius Baer also hired extensively in the wake of Credit Suisse’s collapse, though it hasn’t yet seen the full payoff from wealth-managers brought on board.
“There was a lot of hiring without corresponding net new money growth,” said Anke Reingen, an analyst at RBC Capital Markets. While there has been some improvement, “I could imagine that there will be an increased focus on the productivity of relationship managers,” she said.
The bank’s executive board, which grew to 14 members under former CEO Rickenbacher, may also come into Bollinger’s sights.
M&A
Julius Baer hasn’t shied away from M&A in the past, significantly boosting its revenue in the 2010s following a string of acquisitions including Merrill Lynch’s international wealth business in 2012.
In recent years the number of closures or sales of businesses have outpaced the number of acquisitions. This week Baer said that it would sell its domestic Brazilian business to Banco BTG Pactual SA, the biggest independent investment bank in Latin America, for 615 million reais ($101 million).
Although it appears to be off the table for now, there is one deal that could again re-emerge under Bollinger’s tenure. Last year Bloomberg reported that Baer had been exploring an acquisition of rival Swiss private bank EFG International AG as part of tie-up that would have created a wealth manager with over 500 billion Swiss francs in assets under management.
FINMA INVESTIGATION
The challenges faced by Bollinger are compounded by the fact that his power to implement his plans is constrained by an ongoing investigation by the Swiss financial regulator Finma into the deficiencies in Baer’s controls that allowed the lender to build a massive debt exposure to Benko and his companies.
In a call with analysts in November, Chief Financial Officer Evie Kostakis said the bank’s base case was to resume payouts to investors in 2025, though the board of directors would wait until Finma’s investigation was complete. Kostakis didn’t give an estimate of when that would be and neither has Finma.
“From a shareholder perspective, a very important thing is that Bollinger restarts the share buyback programs,” Reingen said.
That keeps the pressure up on the new CEO. Bollinger has never run a major bank nor served on the executive board of one, meaning the management of some of Baer’s most important stakeholders - its investors and regulators - will be new to him.
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