Julius Baer Group Ltd. (JBAXY.PK, JBARF.PK) Monday said it agreed to buy Merrill Lynch's international wealth management business outside the United States from Bank of America Corp.(BAC). With the deal, the Swiss private-banking group aims to strengthen its private banking position in growth markets of Asia, Latin America and the Middle East as well as in Europe. The total acquisition cost is expected to be around 1.47 billion Swiss francs.
The agreed transaction price is 1.2 percent of assets under management or AuM transferred, the upper limit being about 860 million francs. The amount of regulatory capital required to support the incremental risk-weighted assets would be about 300 million francs. Total restructuring, integration and retention costs would be 312 million francs, while Bank of America will assume up to an additional $125 million of defined pre-completion restructuring and integration costs.
Julius Baer expects the acquisition to add to its earnings from the third full-year following completion of the deal. The earnings per share accretion target in 2015 is approximately 15 percent. It expects to fund the deal with existing excess capital, the issuance of new hybrid instruments, and new share capital. The company plans to raise 750 million francs in total in proposed rights offering, including 250 million francs in new share capital for future strategic flexibility.
The principal closing of the deal is expected towards the end of 2012 or in early 2013, the company said.
The deal combines legal entity acquisitions and business transfers, and is currently estimated to result in additional AuM of up to 72 billion francs by the end of the expected two-year integration period. On this, approximately two thirds will be from growth markets.
Merrill Lynch's overseas wealth management business, with strong focus on growth markets, handles $84 billion or 81 billion francs of AuM as of June 30. The wealth management unit, which was expanded significantly after the purchase of Merrill Lynch & Co. in 2009, has over 2,000 employees. In July, Baer had confirmed talks with Bank of America to buy the overseas wealth-management unit.
Assuming the transfer of AuM in the upper limit, Julius Baer's existing AuM as of June 30 would increase by about 40 percent to 251 billion francs and its total client assets to 341 billion francs, both on a pro forma basis.
Following the deal closure, Julius Baer projects net new money of up to 6 percent, a cost-income ratio of between 65 percent and 70 percent, and a pretax profit margin of up to 35 basis points in 2015 and beyond.
The company will also cancel the previously announced share buyback program.
Julius Baer's CFO Dieter Enkelmann said the resulting geographic diversification in the deal is expected to significantly reduce Julius Baer's net currency exposure to the Swiss franc.
Bank of America Bank has been cutting thousands of jobs and selling non-core business units as part of its efforts to reduce costs and bolster capital.
In Zurich, Julius Baer shares are currently trading at 34.90 francs, down 0.53francs or 1.50 percent.
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