Europe Preview: Buying Into a Baer Market?

Two billion dollars was pulled out of UBS's wealth management division in the first quarter. It's difficult to say how much of the loss stemmed from the subprime crisis, but from what I hear, smaller banks in Switzerland have been picking up business from the troubled market leader.

One of the beneficiaries could be Julius Baer (a.k.a. Julius Bär) which updates on its trading performance on Friday. Analysts expect the bank's statement to highlight how well the group has dealt with the credit crunch, as it has no investment banking operations and only a modest trading operation. Javier Loreido from Sal Oppenheim told that Baer may well have picked up business from UBS and its arch rival Credit Suisse, but he believes smaller non-listed players such as Clariden Leu and Pictet will have been even bigger winners.

Shares in Julius Baer jumped in Zurich on Thursday on speculation that London-listed Standard Chartered is considering a bid of over $21 billion for the firm. Standard Chartered CEO Peter Hands has made it clear that he wants to expand and is hiring aggressively at a time when many banks are cutting back on staff. Standard Chartered is focused on the Asian market and Julius Baer’s expertise in private banking would help attract wealthy clients across the region.

Peter Thorne from Helvea in London thinks Standard Chartered has the money to do a deal and is very interested in private banking. There's no major shareholder to block a deal, but it's unclear if Julius Baer management would be willing to give up its independence, despite the fact that Standard Chartered would offer access to a huge range of emerging market products. Neither company has commented on the story, but what is clear is that both these banks will come out of the credit crunch stronger than they went in.

A Dutch Bet on US Economy's Second Half

Retail giant Ahold updates on trade Friday, and it will be interesting to hear if CEO John Rishton remains confident that profits from his US operations will pick up in the second half of the year. A two-year overhaul of the supermarket chain has led to lower profitability, but with that revamp nearly complete, shareholders are hoping better times are around the corner.

You would have to be a brave investor to put money on the strength of the US consumer in the second half of 2008. Wal-Mart today said conditions remain tough, and shoppers are spending around their pay checks. Add in soaring food inflation, and you have to conclude that any jump in margins at Ahold stores like Stop and Shop will be offset by higher input costs and potentially a price war as the likes of Wal-Mart and Target go after market share.

Analysts at Theodoor Gillissen think Stop and Shop will have had a tough time in the first quarter, while Kepler Landesbanki in Amsterdam says any sales growth will be offset by the weak dollar. Both expect a far stronger performance from Ahold’s Dutch stores, but the good news looks priced in on that story.