The head of Julius Baer Group's private banking division says the Swiss firm decided to sell its North American wealth management operation to UBS AG because it could not collect enough assets to make the business unit profitable.
"I think if you look at our business, we needed to have larger scale," said Michael P. Baer, the head of global private banking at Julius Baer. "We had to look for someone with more domestic products and a global reach, and we just saw that UBS was the ideal partner to offer those investments to our clients."
Mr. Baer pointed out that many Swiss banks have left the North American market in the past 10 years. UBS is the last Swiss bank still offering full-service, "Swiss-style" private banking in the United States, he said.
"Our business model is to service clients as we do in Switzerland with a fully functioning custody, multilingual, multiproduct platform," he said. "We want to offer full-scale private banking. If I would have to guess what it would take to be successful, I would guess you need $8 billion to $10 billion in assets under management."
UBS announced Monday that it had an agreement to buy Julius Baer's $4 billion-asset wealth management business in North America. Terms of the deal, which is expected to close in the first quarter, were not disclosed.
Julius Baer's North American wealth management business is based in New York and has offices in Los Angeles, Palm Beach, Fla.., and Montreal. UBS' wealth management operations in North America and Latin America had $74 billion of assets under management at last Dec. 31.
Martin Liechti, the head of UBS' Wealth Management International Americas, said large private banks try to accumulate at least $10 billion of assets under management in order to compete in any specific region. When companies, even the largest ones, cannot reach that level, they are selling, and UBS is gobbling them up.
UBS has made six deals since 2003 to develop scale in Germany, France, the United Kingdom, and Luxembourg. In October 2003 it bought Merrill Lynch & Co.'s German private banking operations, and last month it bought American Express Bank's wealth management operations in Luxembourg.
"Most wealth managers today are focusing on their core business or on regions where they see better opportunities," Mr. Liechti said. "People are concentrating on two or three regions rather than a global private bank. We saw this coming in early 2000. People want to focus on certain core markets."
Mr. Baer said the sale would let Julius Baer, which manages $115 billion of private and institutional assets globally, focus its resources on opportunities in Eastern Europe, Germany, and the Middle East. This year, the company got a banking license in a Persian Gulf state, Dubai, and had its banking license reactivated in Germany.
The company announced plans Monday to establish an onshore private banking presence in Germany next year. The unit will be based in Frankfurt. "We are really reallocating resources where we have a natural edge and where there is growth potential," Mr. Baer said.
Mr. Liechti said scale is essential because it gives a private bank access to a broader range of clients and potential employees.
"What is clear to most of us is that clients today need a great brand, product breadth of a certain size, and state-of-the-art IT support, and combining all three is a pretty big investment," he said. "It is hard to have new global private banking firms for that reason."
UBS plans to continue expanding its global private banking footprint through strategic organic growth, Mr. Liechti said, and will look to acquire when opportunities arise.
"We want to grow with our work force and our clients," he said. "If we see opportunities in a market where we are present to beef up our onshore operation, we will consider it. We are looking at specific markets and at fill-in acquisitions."
Mr. Baer said leaving North America after having done private banking on the continent for 64 years is another step in his company's evolution.
"I think we have come to a point where there is basically one Swiss private bank left in the United States," he said. "There are not many relationship managers that understand how a Swiss bank wants to conduct their business. It has to always be full-service."
