International bank Julius Baer, a dedicated wealth manager in Switzerland with operations in the UAE, concentrates exclusively on private banking and asset management for the most affluent clients.
Following the sub-prime crisis in the United States, private wealth managers are facing a tough time but Julius Baer appears to be on top of the crisis. Dr Thomas R Meier, CEO Middle East, Asia and Eastern Europe, Julius Baer, tells Emirates Business about his group’s strategy in the Middle East.
Julius Baer has provided banking services to rich families from the Middle East for decades through travelling salesmen – known as “suitcase banking”. You have now opened branches in Dubai and Abu Dhabi – what made you refocus your business strategy in the region?
—The Middle East has long been a key market for Julius Baer. It was natural that we would wish to play a leading role as the market grows. However, only with the acquisition of three Swiss private banks and asset manager GAM in 2005 did we gain the size, know-how and network to be successful and achieve a meaningful position in the region. We have become established here very quickly and the business is developing well. The Middle East will continue to be a key growth market and we are fully committed to it.
Are you seeing more private wealth management business in the region?
—We are very positive about the development of this sector. The UAE, for example, is one of the wealthiest countries in the region with a GDP of $189 billion (Dh694bn) expected for 2007 and has one of the fastest expanding economies in the world with 7.7 per cent growth estimated for 2007. The progressive legal and regulatory environment of the UAE and the fact that the region breaches the geographical gap between financial centres in Asia and Europe further contributes to the strengthening of its position as a highly competitive market with attractive wealth generation opportunities.
Julius Baer has $400bn of assets under management globally. Can you give an approximate figure for the wealth in this region assigned to your bank and the number of millionaire/billionaire clients?
—We do not divulge the number of clients or data on a regional basis but the Middle East is one of our key growth markets and we are very pleased with the progress of our business. Julius Baer is investing significantly in people and infrastructure in the region.
Are international clients losing their trust in asset and wealth managers following the US sub-prime credit crisis and the excessive leverage of assets by banks and portfolio managers?
—Clients of integrated banks are looking more closely at the financial institutions they use. However, Julius Baer is a pure-play wealth manager and does not offer investment banking services, therefore, we do not have direct exposure to sub-prime positions. However, since the sub-prime crisis indirectly affects the markets we are advising clients on their investments and the opportunities that arise in the current market environment. These factors have further strengthened the trust that clients already put in Julius Baer.
What is your advice to international clients at this difficult time?
—In an environment where uncertainty driven by weak credit markets and worries over the US economy are likely to persist we are advising clients to remain cautious. We recommend that equity investors remain focused on defensive sectors such as telecoms and healthcare. Outside emerging markets, company earnings forecasts are being revised down, reflecting the increased challenges that 2008 will bring. That said, at some stage there will be interesting investment opportunities – even in segments of the credit market that appear the most vulnerable today.
What lessons can investors in emerging markets learn from the crisis?
—Part of the current credit crisis can be ascribed to overly lax lending on the part of US mortgage companies and banks. Prudent controls seem to have been ignored in some cases, exacerbating the cyclical slowdown now taking place.
What is your advice to investors regarding the real estate and construction sectors? Is the current growth just a bubble?
—The Middle East has some of the strongest economic fundamentals found in the emerging markets today. These economies are supported by high energy exports, but the ongoing diversification into other sectors – be it tourism, financial services or others – is a very promising development.
Large real estate and infrastructure investment forms an important part of this diversification process. The real estate sector should continue to see considerable growth in the coming years but investments should be handled with care.
Swiss banks, known for their confidentiality, are facing new challenges from international moves to combat money laundering and the funding of terrorism. How do you deal with this situation?
—Switzerland has one of the strictest and most effective sets of regulations to prevent money laundering in the world. Julius Baer attaches great importance to the prevention of money laundering and the financing of terrorism and, therefore, has implemented the highest know-your-client and anti-money laundering procedures.
What are your plans in the UAE following the opening of the Dubai and Abu Dhabi representative offices?
—The basis of our success is to be close to our clients and we are very pleased with the way our business is developing in the UAE. We plan to further grow our business and continually evaluate new opportunities. But we have not applied for a fully fledged banking licence from the Central Bank here and have no long-term plans to be listed on the Abu Dhabi Financial Market or the Dubai International Financial Exchange.
Are you expecting any liquidity injection into your bank from the region?
—We run a very healthy balance sheet. Julius Baer is a net lender and, therefore, does not need any additional capital.
How do you see the oil price boom?
—In the longer term we see a scenario developing where demand continues to outstrip supply. New technologies and alternative energies are unlikely to fill the demand gap, which could push the oil price in excess of $100 a barrel. In the short term, however, there is a possibility of additional crude coming onto the market, thereby reducing prices to around $75 per barrel. We think it is highly unlikely that oil prices will drop below $50 a barrel over the next five years.
Have you carried out any studies on the amount of wealth the boom is generating and where the money will flow – to local exchanges or the international markets?
—We have looked at the growth in sovereign wealth funds and the impact they could have on equity markets. The trend appears to be that, over time, assets will move away from low-risk investments and migrate towards riskier assets in search of higher returns. In terms of the region’s equities, international interest has increased. In part this is due to strong local economic fundamentals. In addition, international investors see the impact of slowing US and European growth as being very limited in the Middle East.
Are you seeing this wealth being used for development – property, tourism, industry and overseas acquisitions?
—Clearly there have been some high-profile investments in recent months. These acquisitions are beneficial in that they help diversify future income streams. Overall these should be expected to continue.
What do you think of the dollar peg?
—The arrangement vis-à-vis the GCC currencies and the US dollar in general has served these economies very well in the past. The authorities in the region will determine when and how to adjust this arrangement to best serve longer term economic objectives. It is certainly true that many market participants have been speculating on a revaluation.
What is your view of the current dirham-euro exchange rate?
—Depreciation of the dirham against the euro because of the weakness of the dollar has made imports from Europe more expensive. Given the underlying strength of the UAE economy, beyond inflationary impacts, the effects appear contained.
Construction and real estate are major businesses in the region. Do you have any plans for a real estate fund or other funds devoted to the UAE or the region?
—At present we do not have any specific investment vehicles that focus on UAE or Middle East real estate. That said, as we continuously monitor markets for interesting investment opportunities future investments in this area cannot be ruled out.
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