Julius Baer to Buy Merrill Lynch Bank Outside US

Swiss private bank Julius Baer is to buy Bank of America's Merrill Lynch private bank outside the United States, paying 860 million Swiss francs ($882 million) to boost its assets under management by 40 percent and backing the deal with plans to raise 1.19 billion francs in new capital.

The acquisition, the latest in a string of purchases for deal-hungry Baer, is the bank's most assertive move since it bought Ehinger Armand von Ernst, Ferrier Lullin & Cie, BDL Banco di Lugano and asset manager GAM for 5.6 billion francs from UBS in 2005.

But the cost of the deal including the new capital requirements, was taken badly by investors, who sent the shares sharply lower in early trading.

Baer said that while it has 530 million francs in cash to help fund the deal it also intends to raise 750 million francs in a rights issue and in addition will grant Bank of America of 240 million francs worth of shares, making the Charlotte, N.C.-based bank a 3 percent shareholder.

It also plans to raise another 200 million francs in hybrid bonds.

The acquisition will also cost around 400 million francs in restructuring, integration and retention costs, the bank said, but will boost its assets under management by 40 percent to 251 billion Swiss francs and add to earnings from the third full year after closing.

From 2015, Julius Baer targets net new money inflows of up to 6 percent, a cost-income ratio of between 65 percent and 70 percent, and a pretax profit margin of up to 35 basis points.

Merrill Lynch's international private bank's cost-income ratio was 105 percent and it pulled in only a 1 percent rise in net new money in 2011, Baer said.

($1 = 0.9752 Swiss francs)