Wednesday, October 7, 2009

Swiss Bank Julius Baer To Buy ING Swiss Unit For CHF520 Million

. Wednesday, October 7, 2009

By stockOzone team

Swiss bank Julius Baer Holding AG (BAER.VX) said Wednesday it will buy Dutch ING Groep NV's (ING) private bank in Switzerland to strengthen its position at home and in growth markets, adding $14.56 billion in client assets.

Zurich-based Julius Baer said it will pay CHF520 million ($505 million, EUR344 million) in cash for the assets, including CHF170 million in surplus capital. The bank said it expects the acquisition to begin adding "strongly" to earnings-per-share from 2011 onwards.

The Swiss bank flagged CHF65 million in integration costs - two-thirds of which are to be booked against 2010 earnings - and expects CHF35 million yearly in synergies before taxes from combining information technology and back-office activities, as well as cutting some staff.

The deal represents what some experts say could become a raft of similar ones in Switzerland and elsewhere made by financially sound private banks that are poised to benefit from restructuring efforts hobbling larger rivals.

"We are pleased to add significant scale to our domestic and European platforms while strengthening our business in Central and Eastern Europe, Russia and other growth markets," Julius Baer Chief Executive Boris Collardi said in a statement.

Julius Baer, which manages money for wealthy individuals, has repeatedly voiced its willingness and financial firepower to do acquisitions, most recently when it split from GAM, a hedge fund boutique with asset management activities, two weeks ago.

The bank, which will add roughly 10% to its client assets with the ING purchase, said the deal costs 2.3% of assets, a common measure for such acquisitions, when adjusted for surplus capital. Julius Baer's Tier 1 ratio - a measure of capital adequacy - will be roughly 16% pro forma after the deal, which is being financed though existing excess capital.

For Julius Baer, which has weathered the financial crisis better and with a far more comfortable capital cushion than larger, more-diversified rivals such as UBS AG (UBS), the purchase represents successfully striking in what people familiar with the matter said was a far more hotly contested bidding process than expected.

A spokesman for Julius Baer said the bank won't lift net new money targets - 4% to 6% yearly, which were criticized by analysts as too modest - as a result of the deal. However, the bank isn't ruling out considering further, similar deals, the spokesman said.

For ING, the deal is a further step toward freeing up capital in order to cut government ties after a financial lifeline last October.

Two weeks ago, ING sold a 51% stake in a joint venture for wealth management and life insurance in Australia and New Zealand for EUR1.1 billion.

ING CEO Jan Hommen said at the company's second-quarter earnings that ING intends to sell EUR6 billion to EUR8 billion in assets to help pay down EUR10 billion it received from the Dutch government last October to underpin its core capital.

Specifically, ING has also put its Asian private banking assets up for sale, and HSBC Holdings PLC (HBC) is the frontrunner in the bidding for those, people familiar with the matter have said.

The Dutch banking and insurance company is set to raise US$1.5 billion from the Asian sale, in a deal that should be finalized "within the next few weeks," a person familiar with the situation told Dow Jones Newswires.

ING has picked a buyer for the Asian assets - which are three times bigger in terms of assets managed than the Swiss ones - but final agreement has been held back pending approval by Singapore's monetary authority, the source said.

Julius Baer said it sees the ING deal closing in the first quarter.

Disclosure: Author does not own any of the stocks discussed here.

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