Julius Baer has been one of the most talked about private banks in Switzerland for years—and not much of this talk has been favourable. Can ...

Julius Baer has been one of the most talked about private banks in Switzerland for years—and not much of this talk has been favourable. Can the bank re-establish its image as one of the most successful banks in Switzerland now that the Baer family have relinquished control? Wealthbriefing investigates.

The last five years has not been easy for Julius Baer. Controversy has followed the bank around like a bad smell. Back in the tech boom years of the late 1990s and beyond, the Zurich bank spent heavily on internet banking technology and its then chief investment officer followed this commitment up with a heavy technology bent towards its investment strategy.

But in 2001 and the following year Julius Baer, along with a number of other middle sized Swiss private banks, was hit hard by its enthusiasm towards the technology sector. In 2002 the bank’s profits went into reverse, which led to a number of strategic and management changes designed to put the bank right.

Profitability returned in 2003, but the private banking operations still looked weak as net new money flows were not keeping up with client defections.

Then, just as things began to look a little bit calmer for the bank, Hans Baer, the bank’s honorary chairman and father to the current chairman Raymond Baer, published a controversial book of his memoirs. Hans Baer said in the book that “Swiss banking secrecy had made us (Switzerland) fat and impotent.”

His comments were considered almost sacrilegious in the very conservative world of Swiss banking and led to an out cry, not least from senior management in Julius Baer. Raymond Baer was forced to issue a statement distancing the bank from the remarks, but for the bank, the damage had already been done.

If this wasn’t enough for the bank to deal with, Julius Baer’s US operations were plagued by a number of problems associated with its Palm Beach operations and client dissatisfaction with its New York office. This led to the sale of the bank’s North American business, which managed about $4 billion in assets for rich Americans, in late 2004 to UBS.

Now Switzerland’s biggest independently owned private bank has changed its shareholder voting structure to effectively end the family ownership of the bank. Could it be that the Baer family want to exit from running the bank altogether given the obvious strains of running a mid-sized private bank in a very competitive market?

Many analysts have been drawing this conclusion for some time for a whole host of medium-sized private banks in Switzerland. Banks like Vontobel, Sarasin, Lombard Odier, Darier Hentsch, and even the venerable Pictet, have all been mentioned as possible takeover targets since the beginning of the new millennium. But so far none of them have been acquired by a larger competitor.

Nevertheless, with the exception of Pictet, all the others have changed their structures to improve performance. Lombard Odier has merged with Darier Hentsch, Bank Sarasin sold a minority stake to Rabobank, a Dutch cooperative bank, and Vontobel has also sold a minority stake to the Raiffeisen Group, a Swiss regional bank.

The trend towards selling minority stakes or merging among Swiss medium-sized private banks is probably one which has occurred to Julius Baer’s shareholders. And either one of these steps would be a much more palatable option for the Baer family and those wanting to keep the bank independent.

So, despite the talk of a possible acquisition of Julius Baer, the recent history of medium-sized private banks in Switzerland suggests a full-scale acquisition of the bank is unlikely. Much more likely is a new minority shareholder, which would give the bank a fresh injection of money and possibly management.