By JAMES R. KRAUS
For the better part of a decade, Switzerland's Bank Julius Baer & Co. relied mainly on trading to earn income in the United States.
But in a move to diversify its business base, the bank is increasing institutional and private fund management and spreading its wings beyond New York.
"Trading used to be our single biggest source of earnings," remarks David E. Bodner, executive vice president and general manager of the New York branch.
"The goal is not to be dependent on trading. We want to build up the rest of our income."
Worldwide, the Zurich-based bank runs a total of 40 funds, with $3.8 billion in assets under management, up 77% over the previous year. Around 84%, or $3.2 billion, is in investment funds registered outside Switzerland.
Two Funds in U.S.
Two of these funds are in the United States. One, BJB Global Income Fund, is a conservative, low-risk, diversified, global bond fund that invests in medium-term government and high grade corporate debt.
The other, BJB International Equity Fund, invests in non-U.S. equities, including stocks from major markets as well as emerging markets in Latin America and Southeast Asia.
U.S. private portfolio management is done on behalf of the approximately 1,300 private banking customers of Bank Julius Baer's New York branch.
About 30% of the bank's customers are U.S. citizens, while the rest are from Europe, Latin America, and the Middle East.
"Europeans have traditionally wanted to spread their money into different investments," Mr. Bodner explains.
Other non-U.S. customers, he adds, have businesses and residences in the United States and "dollar-based liabilities which they want to balance with dollar-based assets."
Baer typically aims for individuals with at least $1 million in funds to invest.
The bank's strong point for U.S. customers is international investments. To expand its international fund management, Baer is setting up a system in New York for executing trades in Latin bond and equity markets.
It is also looking for a U.S. distributor for its mutual funds, which are still mainly sold to clients of the bank.
"We're building up our Latin expertise like everybody else," says Mr. Bodner. He adds that the buildup will continue despite a recent downturn in prices for Latin securities.
Latin America's just starting, but it's not going to to be a oneway street," he says. "There are still substantial dealing problems with Latin America in terms of clearing and settlement. You have to be careful which markets and instruments you go into."
Baer's growth in the United States is part of a fast expansion by the bank in Europe and elsewhere. It increased assets under management 36% last year, to $32 billion from $23 billion in 1992.
The bank, which has representative offices in Los Angeles, San Francisco, and Palm Beach, Fla., also set up a Montreal joint venture, BJB Global Investment Management Ltd., with the Canadian lawyer and investment manager Harry Bloomfield.
"Our ambition is to continue building up private banking, particuarly on the domestic side," Mr. Bodner says.
The Palm Beach office was set up as part of a deliberate program to market the company's services beyond New York, while the Montreal subsidiary, a licensed advisory firm, is geared to generate business from Canadian investors.
"It's very evident that people in Canada want to diversify their assets but are only just starting to," said Patrick J. Moriarity, senior vice president and chief investment officer for private banking at Julius Baer in New York.
In a second move that will also help diversify the business, Julius Baer is building up its U.S. relationships with about 100 small Swiss, German, Austrian, French, and Luxembourgian banks - serving as sort of an American branch for them.
Business done on behalf of those banks is closely related to the Swiss bank's still heavy securities and foreign exchange trading.
Typically, Baer executes between 200 and 400 foreign trades overnight on behalf of correspondent banks. The bank also supplies correspondents with research and handles whatever they need in the U.S., including futures and equities related transactions.
Trading still constitutes a hefty portion of Baer's U.S. business. Nearly one fifth of the bank's New York staff of approximately 200 is involved in trading. The bank handles around $4 billion in daily foreign exchange trading volume.
Much of that trading is in Swiss francs against other currencies, like the German mark. The bank also trades options, precious metals, and money market funds and other longer-term securities.
Like Switzerland's big three banks - Union Bank of Switzerland, Credit Suisse, and Swiss Bank Corp. - Baer arrived in the United States on the eve of World War II to handle banking business in the event Europe became cut off.
The bank has been highly profitable in recent years and last year increased net consolidated profits by 117%, to $100 million.
The bank predicts earnings will be about the same this year, as income from services increased to compensate for a possible decline in securities trading profits.
Break with the Past
Meanwhile, consolidated assets rose 23% to $5.4 billion, while the number of employees worldwide rose 4% to 1,438.
Mr. Bodner's appointment to the bank's holding company management committee in January marks a significant break with the past, when all top executives and members of the board were Swiss.
The 59-year old executive joined Julius Baer in 1982 as president of Baer American Banking Corp. He was also a director of Julius Baer Securities, the bank's securities unit.
He previously served as senior vice president and manager of international treasury and foreign exchange operations for Chemical Bank. Mr. Bodner's other experience includes a stint as vice president in the foreign function of the Federal Reserve Bank of New York, where he was responsible for management of foreign central bank accounts and for operations of the foreign exchange trading desk.
Julius Baer is an oddity in the banking world because it is one of the few, large international banks that remains family controlled and managed. This alone has made a considerable difference in the way the bank is run.
"For me, the biggest change coming here wasn't the size, but the idea that I could be playing with the family's name and reputation," says Mr. Bodner.
That, he says, "means you're very careful about who you do business with and what sort of business you do."