Julius Bär Gruppe AG (BAER) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Julius Bär Q&A on interim management statement for the first 4 months of 2025. I am Sandra, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Alexander van Leeuwen, Head of Investor Relations. Please go ahead, sir.

Good morning and welcome to this Q&A call with CEO Stefan Bollinger and CFO Evie Kostakis. The reference documents for this call is the interim management statement or IMS for the first 4 months of 2025 which was published as a media release last night. As stated in the media release, the IMS is, as usual, based on unaudited management accounts. And the numerical information provided in the IMS is based on non-IFRS alternative performance measures. For that, I also refer to the alternative performance measures section at the end of the release. Before we start the Q&A session, we would like to point you to the usual cautionary statement at the end of the IMS. That cautionary statement also applies to the information provided verbally in this Q&A session. We aim to end the call at 8:45 Swiss time, 7:45 London time. [Operator Instructions] So now it's my pleasure to hand over to Stefan Bollinger, CEO of Julius Bär.

Good morning. Thank you all for making yourself available on such short notice. We brought this call forward by 1 trading day, given the circumstances of some news flow yesterday evening, in order to be fully transparent and address any market concerns. Just to be clear, even though the IMS was published earlier, it is absolutely the same that we want to publish tomorrow, without any change in content. Before we go into Q&A with Evie and myself, I have just 3 remarks. First, in terms of legacy issues, our team and I are totally committed to address and resolve them. You, of course, want to know where we are in the review process of our credit book. Fact is we are still in the process of reviewing. We started the review after Ivan Ivanic arrived in February. Ivan has a strong record in -- track record in risk management during his close to 3 decades across London, Singapore, Zurich and other locations, in various risk functions, including CRO of UBS Asia. While the review is ongoing, based on our findings to date, we do not expect to uncover additional material idiosyncratic risks that could lead to significant credit losses. I'm personally fully committed to be transparent and to update you accordingly. Second, let me make some comments about the changes in the setup and leadership of the risk functions. This is the result of a review we have conducted since January and aimed at simplifying governance and increased accountability; and at the same time, create a clear distinction between risk, compliance and legal functions. We're looking forward to welcoming Ivan at the Executive Board as our new Chief Risk Officer. Third, let me reiterate that I'm highly confident in the potential of our business model, our client franchise and our financial health. With this, let me hand over to Evie for her take on the IMS. And we then move to Q&A. Thank you.

Thank you, Stefan. And good morning, everyone. I will keep my comments brief. Further to what Stefan said, I would like to highlight the strong improvement in gross margin to 87 basis points on an underlying basis, which in turn drove our cost-to-income ratio on an underlying basis down to 66% and the underlying pretax margin to 29 basis points. Despite the impact of the credit provisions, our CET1 capital ratio improved to 15.2%. And please bear in mind that, at the end of the year, CHF 1.7 billion of risk-weighted assets will roll off, so on a look-through basis, our CET1 capital would now be at 16.3%. I'm sure you're keen to ask some questions, so with that, let's open it up for Q&A.

[Operator Instructions] Our first question comes from Anke Reingen from RBC.

Just on the net new money running below the 3%. Can you highlight any trends in there? And previously you guided to the 3% net new money growth this year because you would also be at -- run through another risk review. With this still ongoing, should the net new money run, continue to run below the 3%?

Thanks a lot, Anke. As you know, net new money can be quite volatile month to month. We think from today's standpoint that the 3% continues to be the appropriate guidance for 2025. The derisking that we referenced in the February call is progressing more or less on a linear basis throughout the year, so it's not front loaded. However, please note that derisking was just one of the reasons for the 3% net new money growth guidance for the year. Other topics that we mentioned were the intensification of low performer management and the lack of preconditions to see releveraging kick in, in earnest. In fact, if you look at the yield curve shape and you look at the 1-month and 5-year spread, it was positive 10 basis points at the beginning of the year, and now it's inverted negatively to 33 basis points. So I think that explains a little bit why we're cautious on calling a start to releveraging. The net new money print for the first 4 months of the year is annualizing at 2.5%. We had about 0.4 billion of deleveraging in the first 4 months, so if you exclude that deleveraging, we're annualizing at 2.7%, so I think we're edging up to the 3% guidance we gave at the beginning of the year.

The next question comes from Amit Ranjan from JPMorgan.

If you can indicate where you are in the process of this credit portfolio review. Is it nearly complete, halfway there? Any indication would be helpful. And if I can get a breakdown of the CHF 130 million, any split you can provide between the provisioning for private debt exposure and the mortgages. Was it a concentrated portfolio of mortgages, please?

Thank you, Amit. So we've been conducting a screening and a deep-dive review of our largest exposures, specifically focusing on nonowner-occupied property loans in the double-digit millions. The analysis is nearing completion, with a significant majority already having been finalized. And based on the findings to date, we -- as Stefan said in his opening remarks, we do not expect to uncover any additional material idiosyncratic risks that could lead to significant credit losses. I would say that the analysis that we've done, so far, provides us with confidence in the quality of the total mortgage book. In terms of the breakdown, we don't disclose this in the IMS, but you will see the changes in the loan loss allowances in our H1 report, when it is published, in Note 9, which discloses credit quality. And finally, in terms of the exposure, I can confirm that these provisions were spread across several clients in the mortgage book and the private -- and the remainder of the private debt book, which we've wound down significantly and ahead of schedule.

The next question comes from Ben Caven-Roberts from Goldman Sachs.

So I'd just like to ask about costs. So they seem to be tracking actually pretty healthily with the 66% underlying cost-to-income ratio. Is there anything on the cost side that shouldn't be run rated from here?

Thanks, Ben. So yes, the underlying cost-to-income ratio is 66%, which is obviously a good print. However, I mean, this is primarily driven by the gross margin, which was elevated on an underlying basis, 87 basis points, driven by activity-driven income. On the costs side, we are executing at pace on the CHF 110 million cost takeout that we announced in February, on the occasion of the full year results. At that point in time, we had mentioned that we would do CHF 55 million of costs to achieve the CHF 110 million. So far, we've done CHF 19 million, so there's more to come, so I would expect the cost-to-income ratio to trend upwards by year-end.

The next question comes from Jeremy Sigee from BNP Paribas.

Just a quick one just following up on the client derisking. I just wondered where we are in that process. Are we done with that, or is that a continuing thing?

As I said, I think derisking is progressing on a linear basis. And so you will see some more of it during the year, but we expect the inflows to compensate for that.

And it's just this year. It's a 1-year thing.

Yes.

The next question comes from Giulia Aurora Miotto from Morgan Stanley.

I wanted to ask a question on gross margins, please. So 87 basis points is quite an improvement driven by activity and -- but April was quite exceptional in terms of liberation day, et cetera, so how sustainable is that? Have you seen that continuing in May or you have seen a step down?

Thank you, Giulia. So yes, 87 basis points is a good underlying print, 37 basis points of that recurring. That's pretty stable. The interest-driven income at 21, just a little bit of -- over 21, 21.5, in fact is, I think, within our guidance that we said, we gave at the full year results. And activity-driven, which is really what's powering up the underlying gross margin, at 28 basis points, broken down by 10 basis points from brokerage and commissions and 17 basis points from trading income. Now indeed, post liberation day, we benefited from increased client activity. The average daily [ VIX ] was at 32 during April. And in May, it's come down to the 20s, so we have seen a bit of a slowdown. And then if you think about brokerage and the underlying driver of that, it's loosely correlated with the stock exchange volumes. And if you look at April versus what we've seen in May, it's down double digits, so yes, we do expect that to come down.

The next question comes from Hubert Lam from Bank of America.

Just a question around the loan losses that you reported, just wondering if you have any conversations with FINMA. Just wondering, does this, do you think -- would this hurt your case with FINMA, that more losses are coming through? And would they look at you maybe a little bit more prudently in terms of the current investigation and potential for capital returns and what the right capital level is?

Thanks, Hubert. The credit -- these sales we've reported are primarily related to the undertaking of the -- or the extension, if you will, of the review of the non-Lombard credit portfolio. As you know, last year, we did an extensive review of the private debt book, which we've unwound at pace, followed by a review of the structured Lombard portfolio. I think the FINMA report is a separate matter. We obviously continue to cooperate fully with our regulator on a continuous basis. I don't want to comment more on -- with respect to our regulator. As we have said in the past, we believe that it's prudent to await the completion of the FINMA review and focus in 2025 on completing all the remediation measures that we've announced, before embedding any share buyback assumptions into our capital planning. And this is also aligned with our regulator.

The next question comes from Máté Nemes from UBS.

Just one on net new money, just relating to the 3% guidance. Can you update us how the low performer management is progressing? And can you comment on CRO churn? What have you seen in the first 4 month? And what to expect for the remainder of the year.

Thanks, Máté. So I would say that, in terms of the mix of the contribution between RMs on business case and seasoned RMs, we're actually pretty pleased with the development. We have about 26% of our population of RMs on business case. And they brought in about 2.4 billion, with the remainder coming from the seasoned RM population, including from our intermediaries business. And in terms of RMs, we have continued hiring at pace. On a gross basis, we hired 35 relationship managers year-to-date. As you know, with the sale of Brazil, we've [ deconsolidated ] about 20 RMs. They've left the platform. And additionally, due to the low performer management, we've lost [ some RMs ]. So the net decrease is 29. However, what I want to say is that our hiring pipeline looks pretty good. We're quite pleased with it. I can't tell you where we'll land at year-end, but we're definitely bringing on high-quality talent to the platform.

[Operator Instructions] The next question comes from Stefan Stalmann from Autonomous Research.

I wanted to ask, please. You mentioned in the release that the review of the loan book and the decision to take credit risk provisions were somehow linked to the nature of the wealth management relationship. And I don't quite get how the two are linked. And related to that, does it mean that you're potentially changing your risk appetite going forward and maybe run-off certain additional parts of your loan book as a result of this review?

Stefan, thank you for the questions. As we've said in the past, we are refocusing our lending activities in our core wealth management business, sticking to our knitting, so Lombard lending and mortgages. We want to refocus our lending efforts on clients that have a significant portion of their wealth managed already by us. And that's what we mean by saying we want to focus on core wealth management business. In terms of the risk appetite, I don't believe this will have an impact on our credit penetration going forward. As you know, we have taken a step back to reassess and refine our approach in the last 18 months. We've changed the composition of the credit committee of the Executive Board to ensure a clear separation from credit origination. We've revised our credit policies and approval processes. We've introduced a much more granular limit framework, including enhanced total counterparty exposure limits and single obligor limits. And as Stefan noted in his opening remarks, to strengthen further the credit governance, we have appointed a highly qualified new Chief Credit Officer and Head of Financial Risk Control who has extensive experience in credit management. And I think all of this as a package will bring a fresh perspective to our lending activities.

The last question comes from Michael Klien from ZKB.

I just had a question on the change to the structure of the management, i.e., that you're consolidating the legal functions. You're creating a separate compliance function. What's the motivation behind it? And will this be -- should we be expecting further changes in terms of the structure?

Thanks for the question. Look, I -- from my point of view, it is the best practice to have risk, and the compliance and legal functions separate. As I said in my opening remark, it will create clear accountability. And in my view, the compliance and the credit functions have quite distinct separate skill sets. And I think we're going to create a more focused and more efficient risk management operation as a result of that. And if you look back in our history, it's really important to me personally that we have clear accountability around credit risk; and then on the other hand, AML, FCC and KYC type of risk. And I think this new structure will address this.

We have a follow-up question from Anke Reingen from RBC.

I just wanted to follow up on your comment on interest-related margins. I guess the sensitivity you provide would suggest sort of like flattish just -- or wouldn't change if rates move, so do you see other headwinds from like, I guess, lower-margin loan growth? And how should that trend in the course of the year given the rate cuts across different regions?

Thanks, Anke. Look, I think you'll recall, in the full year results, we said that we believe that the upper bound for interest-driven income is 22 basis points. We printed 21.5. Obviously NII was lower, but we have to look at it in totality because FX swap income was much higher, right? We haven't seen dramatic shifts in the balance sheet since then. Obviously, the ECB has delivered 3 rate cuts. SMB is down to 25. So you've seen some migration of Swiss franc deposits from call and term back into current account, but that doesn't impact NII so much. And on the dollar, rates have kept stubbornly steady. And we've seen just a tiny bit of shift from -- further shift from current accounts into call and term but a tiny amount. So I think we still feel reasonably comfortable with 22 being the upper bound for this year.

The next question comes from Dubey, Krishnendra from Barclays.

I just have a question on the private debt book actually. Like, what has precisely changed now, versus the last review that you've taken, which led to more provisioning? And an aligned question, I guess, on the Bloomberg, you were -- Bloomberg, CEO was highlighting there could be a recovery on the previous private debt loans. So is there any update on that?

Thanks a lot. So on the private debt book, like I said, we're quite pleased with the wind-down. It's happened faster than we anticipated and we're now less than CHF 200 million. And in fact, I think the gross exposure is less than CHF 170 million as we speak. We took some further provisions in the remainder of the private debt book as a result of, number one, a more uncertain macroeconomic backdrop and potentially market risk appetite; and number two, applying a more prudent criteria with respect to credit quality, including potentially changing individual borrower circumstances. And I think that accounts for basically the provisions we've taken on the remainder of the private debt book. Now with respect to the recovery efforts which are ongoing on the largest private debt case from 2023, I do not want to comment on timing or quantum magnitude, but I can say that we are making progress.

We have a follow-up question from Jeremy Sigee from BNP Paribas.

I just wanted to ask what else we need to be ready for in terms of other kind of one-off charges either in the half year results or in the strategy update. From what you've said, it sounds like the credit review probably won't cause more charges in the foreseeable future, but I just wondered. Are there other reviews underway that we need to keep in mind? I guess there's a possibility of restructuring or investment costs. I just wondered. So what should we be ready for looking forward?

Thanks, Jeremy. That's a tricky question.

Yes. I mean, I guess, one part of it is, is there anything else being reviewed? Is there any other kind of review underway that could cause something that we weren't expecting?

Look, Jeremy. I'm in this seat less than 5 months. We have a new Chairman in the seat not even 5 weeks. And so naturally, we're reviewing our governance, our structure, our portfolio, but I can tell you for now that our focus will be on our core wealth management franchise going forward. And that's in the context that we are reviewing all our activities.

Ladies and gentlemen, that was the last question. Back over to the management for any closing remarks.

Thank you. Before we conclude, let me just highlight again the strategy update. It will take place Tuesday, June 3, in Central London. And given how much I am in the seat; and our new Chairman, Noel Quinn, is with us, you should expect that, on one hand, we'll update on our activities since January and what we are doing to address some pressure points. And simultaneously, we initiated the strategic review process, and we'll update you on that. Just to highlight again, for those of you attending in person, you will have the opportunity to meet the entire Executive Board as well as the global wealth management committee team and ask them questions over an informal lunch that will be straight after the update. Thank you and see you on June 3. Have a good day.

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