Julius Baer Investors To Focus On Tax Battle, Not Numbers
01 Febbraio 2012 - 3:34PM
Dow Jones News
When Swiss private bank Julius Baer Group (BAER.VX) reports
full-year earnings Monday, the numbers are likely to take a
backseat as investors look for evidence of how the private bank is
coping with mounting pressure from the U.S. in its campaign to
track down Americans who cheated on taxes.
Anxious to end the pressure from Washington, the Swiss
government has for months been negotiating a sweeping settlement
covering all the Swiss banks that may have helped Americans evade
taxes. Bern and Washington have been wrangling over details such as
the size of any fine and an agreement to hand over thousands of
names of secret account holders.
In the absence of an agreement, U.S. authorities have started to
target individual banks, such as Credit Suisse (CS) and Wegelin,
one of Switzerland's best-known and oldest private banks. Analysts
fear that Julius Baer Group (BAER.VX) could be next.
"The situation has turned more severe," said Daniel Senn, head
of financial services at advisory and audit firm KPMG. The problem
for Swiss banks is that they find themselves between a rock and a
hard place, he said. The banks would prefer just to hand over the
names and get it over with, but under Swiss law they are required
to preserve client confidentiality.
Early last year, the U.S. indicted two current and three former
Credit Suisse bankers; they have denied wrongdoing. In July, the
U.S. Justice Department notified Credit Suisse that the bank itself
was a formal target of a criminal investigation into allegations
that it helped U.S. citizens avoid paying U.S. taxes. Responding to
pressure from Washington, Credit Suisse said in November it would
hand over account information to Swiss authorities to be passed on
to the Internal Revenue Service after its own examination of the
data.
Washington's campaign intensified in January, when three of
Wegelin's private bankers were indicted by the U.S. authorities.
Bending to the mounting pressure, Wegelin last Friday sold all its
non-U.S. assets to Switzerland's Raiffeisen cooperative retail
banking group.
Wegelin's problems arose from the revelation that it and 10
other banks had allegedly welcomed former U.S. offshore customers
from UBS AG (UBS), which had been the first bank to become
embroiled in a lengthy battle over taxes.
The IRS probe focuses on 11 banks, including Credit Suisse,
Julius Baer, Wegelin and several partly state-owned cantonal
banks.
A settlement with UBS in 2009 resulted in the handover of
account details of more than 4,500 Americans to U.S. tax
authorities. The IRS since then has been sifting through those UBS
names and came up with enough evidence to target 11 more Swiss
banks.
Analysts fear that Zurich-based Julius Baer is particularly
vulnerable. The Swiss private bank doesn't have a large U.S.
presence like Credit Suisse, nor is it partly government-owned like
some of the cantonal banks.
Vontobel and Zuercher Kantonalbank cut their ratings for Julius
Baer this week, citing the lingering tax battle among other
reasons.
"Following the Wegelin sale of its non-U.S. assets to Raiffeisen
to separate this business from the continued negotiations of the
bank with the U.S. Department of Justice, the potential risks of
the U.S. tax matter have become increasingly clear," said Teresa
Nielsen, analyst at Swiss private bank Vontobel.
As the tax issue comes into focus, Julius Baer is unlikely to
use its excess cash for takeovers or a share-buyback, preserving it
instead as a hedge against a potential fine, she added.
Julius Baer is due to report earnings Feb. 6. Analysts will be
focusing on management's comments about the U.S. tax probe rather
than on its profit figures, watching for any signs that clients may
already have started to respond to the uncertainty by taking their
assets elsewhere.
Net profit will probably have fallen, in part due to the strong
Swiss franc, which pressures the value of dollar and euro assets,
and corresponding revenue. Julius Baer derives around two-thirds of
its revenue from assets in foreign currencies, but incurs around
two-thirds of costs in Swiss francs.
The average estimate of 15 brokers polled by FactSet calls for a
22% decline in net profit to 392 million Swiss francs ($429
million) from CHF504 million for the year ending Dec. 31.
-By Anita Greil, Dow Jones Newswires; +41 43 443 8044 ;
anita.greil@dowjones.com
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