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Julius Baer first half profit rises, Merrill deal costs rise

CNBC.com with Reuters
Monday, 22 Jul 2013 | 3:24 AM ET
Dennis Hallinan | Archive Photos | Getty Images

Julius Baer will make a provision for possible settlements with the U.S. authorities over a tax dispute as soon as it knows more about how it is being investigated, Boris Collardi, the chief executive told CNBC.

His comments come after the Swiss banking group reported adjusted net profit rose more than 25 percent in the first half, beating analyst estimates as increased client activity lifted operating income and gross margins.

The company said on Monday adjusted net profit stood at 261 million Swiss francs ($277.48 million), ahead of estimates for 238 million francs in a poll of analysts surveyed by Reuters.

The Swiss private bank, which is being investigated by U.S. authorities cracking down on tax evasion, described as "helpful" measures announced by the Swiss government earlier this month to help Swiss banks including Baer to cooperate with U.S. authorities.

Strict bank secrecy, which helped Switzerland build a $2 trillion offshore industry, is under fierce attack as cash-strapped governments get tough on tax evaders, with Swiss banks under investigation in Germany, France and the United States.

Collardi said the investigative process was taking longer than the group would like it to, but was "confident that in the next few weeks the group would hear back from both the U.S. and Swiss governments on this issue.

He added that the Swiss government's announcement only added to an existing line of cooperation and communication between Julius Baer and the U.S. authorities in place since last year.

He said the group would set aside provisions as soon as more details emerged. "After that we'll enter into the negotiations and the moment that we know on what basis we are being assessed, we will be making a provision immediately," he said.

He denied that the group was keeping investors in the dark about possible settlement costs.

Julius Baer is one of the more prominent Swiss banks being looked at by prosecutors for helping wealthy Americans evade their tax obligations by offering them hidden Swiss offshore accounts. It did not elaborate on the status of negotiations with U.S. officials.

Stripping out acquisition and other costs, net profit for the first six months dropped to 152.1 million francs, from 212.8 million francs year-ago.

Despite the drop, Collardi told CNBC that the group's earnings were "going in the right direction. "We'll see throughout the summer months whether that carries on into the second half of the year."

Julius Baer said it would spend more than initially budgeted to integrate last year's acquisition of Bank of America Merrill Lynch's overseas private bank.

The bank raised its target for deal, restructuring and integration costs to roughly 455 million francs, from 400 million francs previously.

"This is mainly the result of higher estimated costs related to the client onboarding process," Julius Baer said in a statement.

The pace of private banking hiring - and with it fresh funds won from clients - slowed as Julius Baer integrated last year's 860 million Swiss franc ($914.31 million) acquisition of Bank of America Merrill Lynch's overseas private bank.

Net new money - a key bellwether of future revenue - stood at 3.4 billion francs, which translates to a rate of 3.6 percent growth, undershooting its target.

Julius Baer had warned in May that net new client money could skim the lower end o fits 2013 target of 4 to 6 percent growth, as various crackdowns on undeclared funds held in Switzerland spur withdrawals.

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