Julius Baer, which has been building its private banking business in Asia over the past few years, got a black eye from the markets on Friday even though it announced a profit for 2008 - a rare report these days when banks' earnings statements are drenched in red.
Switzerland's third-largest bank said its 2008 net profit was down 25% to SFr852.3 million ($733.5 million) thanks to the impact of the global economic crisis on its asset management business.
"We achieved a good result even in a difficult financial environment," said Dieter Enkelmann, the group CFO, at an earnings press conference that was also available via webcast.
Even so, the bank's share price dropped 39% in morning trading Friday, before managing to end the day down just 9.7% at SFr30. The decline was in part because the bank's earnings were lower than many analysts had forecast, and in part thanks to a rumour about a trading incident back in October (more on that later). The bank does not break out its Asia earnings in its report.
Julius Baer reported that its private banking business had record inflows of SFr17 billion, but that was offset by the asset management side of the business, where outflows amounted to SFr27 billion, due to the fall in the value of most asset classes last year and a strong Swiss franc, "in the last few days of the year in particular". As a result, group operating income fell 15% to SFr2.94 billion.
The bank said that the fourth quarter was particularly hard for its hedge fund arm, GAM, as investors lost confidence in hedge funds in December with news of the alleged confession by US businessman Bernard Madoff to running a $50 billion Ponzi scheme - even though GAM was not involved. The bank reiterated that it isn't planning to sell GAM even though it forecasts redemptions to continue into 2009.
"GAM faced a perfect storm of negative conditions in 2008," David Solo, head of asset management, told analysts and reporters in Zurich.
The success of its growing private banking business was its selling point.
"Clearly the markets haven't worked our way, but the net new money is incredibly satisfying, I have to say. One is reluctant to use that expression in this market. We were very, very pleased with the fact that we have created 17 billion of net new money in the private bank," said Johannes de Gier, the CEO of Bank Julius Baer in the same webcast of the press conference. He added that the bank is attracting about 1,000 new clients each month and is gaining market share across the board.
The firm said given its results, and its "strong capital base", it proposes an unchanged dividend of SFr0.50 per share.
And then came discussions about the rumour.
At the press conference, de Gier was asked to comment on market speculation that there was an anonymous whistleblower letter sent to the financial market regulator. De Gier dismissed the term whistleblower and said the anonymous letter to the Swiss authorities was related to a "minor incident" that was resolved in October.
"There was a minor trading incident in October... it was financially completely irrelevant," said de Gier, 64, who has led the private bank since the death of Alex Widmer in December. "The matter was dealt with quite some time ago and it was an absolutely minor issue which is completely under control."
He added: "Anybody can make an anonymous letter and make all sorts of allegations...these people will eventually end up in jail. But it's a police job".
In an internal memo to Julius Baer staff that FinanceAsia saw, the bank said: "An anonymous defamatory letter which was sent to the Swiss financial regulator (FINMA) on December 23, 2008 was disseminated in the market at the time of the announcement of Julius Baer Holding Ltd.'s annual results this morning. Julius Baer has previously responded to the FINMA in detail concerning the allegations contained within this letter. Julius Baer takes this matter very seriously and has been in contact with the SIX [the Swiss exchange] with respect to a possible investigation into market manipulation. Julius Baer can confirm that a former employee of the markets division failed to manage certain nostro bond positions in accordance with instructions provided to him. These positions were transferred to the treasury bond portfolio in October 2008. This transfer which is in line with International Financial Reporting Standards (IFRS) accounting, is disclosed in note 11b of the 2008 Annual Report showing an unrealized loss of SFr 5 million through to the end of 2008."
But, by the end of the day, no doubt in part thanks to de Gier openly commenting on the letter, the stock had regained ground.
