(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
By Dominic Elliott
LONDON, Sept 1 (Reuters Breakingviews) - The idea that Credit Suisse should buy Julius Baer looks like it originated in a Zurich beer hall. The city’s latest parlour game is to imagine a tie-up between Switzerland’s second-biggest bank by assets and the country’s largest standalone wealth manager. The financial and strategic logic of such a move seems weak.
Shares in Julius Baer climbed 2.3 percent on Aug. 29 after industry website Inside Paradeplatz said Credit Suisse was tentatively considering buying the group. One reported justification was to aid succession planning by providing Chief Executive Boris Collardi as a possible replacement for Brady Dougan, who has spent seven years in the same role at Credit Suisse.
Paying, say, a 30 percent premium to Baer’s 9.1 billion Swiss francs ($10 billion) market value would be an odd and expensive way to acquire a new CEO. Collardi has no experience in investment banking, a sizeable part of Credit Suisse, which is capitalised at over 41 billion Swiss francs.
The strategic grounds for a deal are tenuous. Buying Julius Baer would help Credit Suisse regain some share in European onshore private banking, where it has ceded ground to rival UBS in recent years. Still, this is a business with weak margins. The priority should be growth in emerging markets.
Moreover, integrating financial services systems is always a nightmare. Baer is still struggling to incorporate Merrill Lynch’s overseas wealth business. Credit Suisse took five years to merge fully with Clariden Leu. Cultural differences could complicate the process. Credit Suisse’s identity is still part Wall Street. That could grate with Baer wealth advisers. Indeed, a tie-up would also deprive Julius Baer of part of its allure for some clients - its own lack of an investment bank.
If that wasn’t enough, Baer is yet to settle with U.S. authorities over allegations it abetted American citizens evade taxes. Regulators back home are set to review too-big-to-fail legislation at the start of next year, and Swiss supervisors remain leery of big banks. Both firms have plenty to do: Credit Suisse in succession planning, Julius Baer in dealing with the United States. They don’t need the distraction of a merger.
- Shares in Julius Baer rose 2.3 percent to 41.73 Swiss francs on Aug. 29 after Swiss website Inside Paradeplatz reported that Credit Suisse might eventually buy the private bank.
- The website said that a takeover of Julius Baer was “a simulation game” being played at Credit Suisse, and one of several strategic options for the group.
- Credit Suisse and Julius Baer declined to comment.
- In early trading on Sept. 1, Julius Baer shares were 41.27 Swiss francs.
- Inside Paradeplatz articles (German) bit.ly/1pissWG
- Reuters: Julius Baer up after report of Credit Suisse takeover interest
- For previous columns by the author, Reuters customers can click on
(Editing by Chris Hughes and Sarah Bailey)
On Twitter twitter.com/DominicElliott