Julius Baer: Navigating Near-Term Headwinds to Unlock Long-Term Value

Amid volatile markets and macroeconomic uncertainties, Julius Baer's recent strategic moves underscore a disciplined approach to positioning itself as a wealth management leader for the next decade. While near-term challenges—including credit charges and currency headwinds—have pressured short-term results, the Swiss private bank's aggressive restructuring, geographic expansion, and fortress-like balance sheet create a compelling case for investors to capitalize on its undervalued equity. Let's dissect why Julius Baer (SIX: JBGN) is primed to outperform in recovery cycles.

Cost Discipline: The $159M Savings Engine

Julius Baer's aggressive cost-cutting program, which targets CHF 110 million in gross savings by 2025, is already bearing fruit. The bank has slashed its cost-to-income ratio to 66% (excluding one-time charges), nearing its <64% 2025 target. Pair this with a CHF 99 million uplift from the sale of its Brazilian subsidiary, and the combined impact of these actions delivers ~CHF 209 million in financial flexibility—more than the $159 million cost-cutting goal often cited in market commentary.

This focus on operational efficiency is critical. With net profit for H1 2025 expected to lag 2024 results due to the Brazil sale's impact and tax normalization, Julius Baer is using this transitional period to reinforce its cost structure for sustained growth. The upcoming June 3 Strategy Update will further clarify how these savings fuel its medium-term financial targets, including a ROCE >30% goal.

Risk Management: Proactive, Not Reactive

The bank's CHF 130 million credit charge in early 2025—a write-down tied to stricter mortgage and private debt underwriting—highlights its commitment to prudent risk management. While this one-time hit dented short-term earnings, it reflects Julius Baer's proactive stance: reducing its private debt loan book to below CHF 200 million (0.4% of total loans) and adopting a “defensive” credit strategy.

This contrasts sharply with peers still grappling with legacy exposures. Julius Baer's CET1 ratio rose to 15.2% post-Basel III reforms, far exceeding its 11% internal target, while its total capital ratio of 23.2% creates a buffer to weather market volatility.

Geographic Expansion: Italy as the Next Growth Lever

Julius Baer's expansion into Italy—a market with €2.3 trillion in private wealth—marks a bold step. Its Milan branch, launched in Q1 2025, targets ultra-high-net-worth individuals and family offices, leveraging Julius Baer Europe's Luxembourg-based platform. This move diversifies its client base beyond traditional hubs like Hong Kong and Singapore, where CHF 4.2 billion in net new money inflows (2.5% annualized) have already demonstrated client stickiness.

Italy's regulatory hurdles are now behind it, and the bank's client-centric model—with tailored wealth solutions and discretionary mandates—positions it to capture market share in a fragmented landscape.

Valuation: A P/B Ratio Below 0.7x and Rising ROCE

While explicit Q1 2025 P/B data isn't disclosed, Julius Baer's historical P/B of 0.7x (vs. a 5-year average of 0.9x) reflects market skepticism about its near-term earnings. This discount ignores its structural improvements:
- ROCE >30%: The medium-term target aligns with Julius Baer's cost discipline and asset-light model, which minimizes capital-intensive risks.
- AuM Resilience: Despite a 6% drop to CHF 467 billion (Q1 2025), net new money inflows remain strong, and Asia-Pacific/Western Europe client activity bodes well for recovery.

Risks to Monitor

• Currency Exposure: A strong Swiss franc continues to depress AuM valuations. However, Julius Baer's diversified client base (60% non-CHF-denominated assets) mitigates this risk.
• Credit Cycle Sensitivity: While the private debt book is now minimized, broader economic slowdowns could impact discretionary spending.

Investment Thesis: Buy the Dip, Harvest the Upside

Julius Baer's current valuation leaves little room for error in the short term, but its fortress balance sheet, geographic diversification, and cost-driven ROCE improvements set it up to outperform in recovery cycles. The June 3 Strategy Update could unlock upside if management reaffirms its CHF 300 million cost savings runway and provides clarity on new medium-term targets.

For investors seeking a wealth management play with structural tailwinds—low valuation, disciplined execution, and a high-margin model—Julius Baer offers a rare combination of risk mitigation and growth potential. The time to act is now: capitalize on the near-term noise and position for the next phase of value creation.