The acquisition of a stake in Swiss private bank Julius Baer by Singapore’s state fund is yet another sign that the strategy of Switzerland’s two big banks is flawed.
In Asia, UBS has the biggest share of assets under management, as the survey by «Asian Private Banker» shows year after year. Currently, Switzerland’s No. 1 has $357 billion under management in the growth region. Julius Baer by contrast has $112 billion, less than a third.
Despite UBS’ strong showing in Asia, GIC, the Government of Singapore Investment Corporation, slashed its investment in the bank two years ago, taking a loss of $4 billion on the investment it took during the financial crisis. Yesterday however, it was announced that GIC had increased its stake in Julius Baer to 3.09 percent.
They Know Exactly What They Are Doing
The share price of Julius Baer showed what it means when GIC decides to increase a stake – the private bank’s share price added 3.5 percent. Investors clearly assume that the bank has won a new long-term anchor shareholder and that its fund managers know what they are doing.
The investment says a lot about how the state fund sees the strategy and direction of Switzerland’s blue-chip banks. Singapore’s investors opted for the stock of Julius Baer even though Tidjane Thiam apparently has succeeded in turning around the fortunes of Credit Suisse and shares trade at 65 percent of the book value. The shares of Julius Baer are not cheap – if one compares the price of a share measured by the book value, Julius Baer is worth the double of Credit Suisse.
Long-Term Perspective
The investment also shows what the difficulties are at UBS. The company offers all different kinds of banking services, while Julius Baer is focusing on wealth management alone – a pure player in private banking. The focus helps to steady returns.
GIC didn’t comment yesterday on its motives for increasing its stake in Julius Baer, it hardly ever does. But it is obvious that it expects to receive a higher return on investment with Julius Baer than it would with another bank. After all, the fund aims to hold investments that have a good long-term potential at reasonable prices.
The long-term perspective seems what distinguished Julius Baer from other banks. Chief Executive Bernhard Holder may still be paying a price for the growth strategy pursued by predecessor Boris Collardi. But he isn’t asked to answer questions about the bank’s strategy as such – quite in contrast to his peers at the bigger rivals in Zurich.
