Julius Baer Group Ltd. proposed to increase its dividend as the Swiss private bank approaches a $547 million settlement with the U.S. over American tax dodgers.
Julius Baer will increase its dividend to 1.10 Swiss francs ($1.08) a share from 1 franc a year earlier, the Zurich-based company said in a statement on Monday as it reported annual earnings that missed analysts’ expectations. Julius Baer plans to grow the ordinary dividend payout ratio to 40 percent of adjusted net income, the company said.
The bank’s shareholders have been waiting to hear how it will deploy capital once the U.S. settlement resolves a four- year probe into how the company helped Americans hide money from the Internal Revenue Service. The company has been supporting growth with acquisitions in recent years as the costs of a crackdown on undeclared accounts by governments, low interest income and subdued client activity crimped profitability.
“Investors will be looking carefully at the new capital structure to gauge how the company will manage its new payout goal and satisfy management’s hunger for deals,” said Jonas Floriani, a London-based analyst with Keefe, Bruyette & Woods Ltd. “The margins were weak, although managed assets and net new money figures were in line, or better than consensus.” Floriani has an outperform rating on the stock.
Julius Baer was down 1.9 percent at 42.42 francs at 10:28 a.m. in Zurich, valuing the company at about 9.49 billion francs. The shares have fallen 13 percent this year.
Narrower Margins
The integration of new businesses and a drop in client appetite for risk depressed margins in the second half. The gross margin narrowed to 88 basis points for July to December, compared with 93 basis points in the second half of 2014, according to a company presentation.
The 2016 dividend was expected to be 1 franc a share, according to a Bloomberg forecast.
“Julius Baer has decided to introduce a sustainable and more predictable dividend policy,” the company said in the statement. “Pending a court hearing on the resolution, which Julius Baer expects shortly, the bank and the DoJ will announce the final resolution.”
Client-managed assets increased to 300 billion francs at the end of December, the company said in the statement. That compares with 297 billion francs at the end of October.
Julius Baer said 2015 net income slumped 67 percent to 121 million francs, mainly due to the expected cost of the U.S. case. Operating income rose to 2.69 billion francs from 2.55 billion francs a year earlier, missing an average estimate of 2.73 billion francs by 20 analysts surveyed by Bloomberg.
‘Fair Resolution’
Julius Baer has reached a “fair resolution” with the Justice Department and doesn’t expect future cooperation with the U.S. government to be a drag on future earnings, Chief Executive Officer Boris Collardi said on a call with reporters. He declined to give details of the settlement that the Justice Department plans to publish. “We’re entering the year in a position of strength,” the CEO said.
Julius Baer has acquired a handful of smaller companies and financial stakes in firms since it purchased Bank of America Corp.’s non-U.S. wealth units in 2012, although it hasn’t found the next “big elephant” deal that Collardi has said he’s looking for.
In “a perfect world,” the CEO would buy a large company with clients in regions where it already operates such as Asia, the Middle East and Europe, he said in a Bloomberg television interview. A firm with 5 to 10 billion francs under management would be “more a rounding error,” Collardi said, implying that Julius Baer has the ability to absorb something larger.
