Bank Sarasin’s 1H 2008 results: Growth path maintained, profitability impaired by adverse market conditions

Strong acquisition performance reflected in net new money growth of CHF7.2billion

Net new money growth of CHF 7.2 billion builds on the acquisition success of last year (1H 2007:  CHF 6.0 billion; 2H 2007:  CHF 5.1 billion). Even excluding the additional client deposits of CHF 2.0 billion transferred by AIG Private Bank into Bank Zweiplus, Sarasin’s net new money growth on the operational side still came in above target. Assets under management reduced by 2% overall to CHF81.4 billion (31.12.2007: CHF83.0 billion) due to a negative market performance and currency translation effects.

Expansion plans consistently pursued – Bank Sarasin maintains its growth path

Despite the tricky market conditions, Sarasin continues to invest in new branches and the expansion of existing locations, as well as the recruitment of high-calibre client relationship managers (CRMs). 92 new CRMs signed up to the Bank by the end of June 2008. Most of them will not start working until the final quarter of 2008, and will therefore only make an impact on revenue flows from 2009 onwards.

Despite investments in growth, expenses reduced to CHF210.0million (1H 2007: CHF211.2million)

Despite all the investments in expansion projects, the Bank’s operating expenses eased 1% to CHF210.0million. General administrative expenses rose 14% due to intensified marketing initiatives and advance services rendered in the back-office domain for Bank Zweiplus. Despite a higher headcount, personnel costs fell 6% thanks to lower bonus accruals.

Net profit down to CHF75.3 million (1H2007 adjusted: CHF 97.3million)

Total income dropped 12% to CHF307.5million because of the adverse market environment. Net profit for the Sarasin Group fell 23% to CHF75.3million, and the cost income ratio moved from 60.7% up to 68.3%.

Challenging market conditions influence business performance and reduce earnings power

Market conditions remained volatile and inevitably affected the Bank’s business performance. Clients’ reluctance to invest their money resulted in lower transaction-based income and a further rise in the level of cash as a proportion of assets. Despite respectable net new money growth, total assets under management (AuM) finished lower than the end of 2007 as a result of negative performance and exchange rate movements, dropping CHF 1.6 billion to CHF81.4billion (31.12.2007: CHF 83.0 billion).

Operating income came to CHF 307.5 million during the reporting period, a fall of 12% (1H 2007 adjusted: CHF 348.0 million). Net interest income rose 31% to CHF 64.3 million, thanks to higher business volumes. The Bank’s two other main sources of revenue experienced a decline: income from commission and service fee activities suffered from lower transaction volumes and decreased 11% to CHF 202.3 million. The 27% reduction in income from trading operations (CHF 41.6 million) was due to lower client trading volumes and reduced values in our own trading positions. The loss of CHF 0.8 million in ordinary income also stems mainly from losses realised on the Bank’s own financial investments.

Net new money growth strengthens our market position

The strong net new money (NNM) growth of CHF 7.2 billion reflects the consistent performance of Sarasin's CRM teams. This figure includes client assets worth CHF2.0 billion transferred by AIG Private Bank into the new Bank Zweiplus. “Even without this contribution,” comments Joachim H. Straehle, “our acquisition performance of CHF 5.2 billion on the operating side is higher than our original expectations and the target we set ourselves. Thus, we are building on last year’s success.”

Excellent performance in terms of average NNM per client advisor

When averaged out across the entire Sarasin Group, each CRM in the private client segment is now responsible for managing client assets of around CHF205.9 million. The average acquisition performance came to CHF 19.5 million in 1H 2008 (+9%). In the Institutional Clients business, the average NNM growth per CRM came to CHF 45.6 million (1H 2007: CHF 46.8 million). The average assets under management in the Institutional Clients business came to CHF 599.6 million.

Expansion of CRM teams: consistently pursuing our growth strategy

The recruitment of 92 new high-calibre client advisors is part of Sarasin’s stated intention to intensify investment in its future growth. “Although these new advisors have already signed contracts with us,” explains Joachim H. Straehle, “most of them will only start work in the final quarter of 2008 and will not therefore make a positive impact on revenues until 2009 onwards.” The number of CRMs (incl. assistants) therefore only rose initially to 336 at the end of June. Recruitment levels were higher than last year, assisted by a favourable market environment for attracting highly qualified CRMs and by the competitive advantages enjoyed by Bank Sarasin as a highly focused private bank.

Costs well under control

Despite substantial investments in our growth initiatives, operating expenses were 1% lower than last year, at CHF 210.0 million (1H 2007 adjusted: CHF 211.2 million). Although the headcount (adjusted for part-time working) increased by 12% from 1176 (1H 2007) to 1312 (1H 2008), personnel expenses fell to CHF 148.7 million (1H 2007: CHF 157.5 million) thanks to lower bonus accruals as a result of the weaker business performance. The relationship between capacities in the front and back office also improved, providing the desired economies of scale. The 14% increase in general administrative expenses to CHF 61.3 million can be explained by the intensification of the Bank’s marketing initiatives and expansion projects. Investments have also been made in a standard IT platform across the entire Sarasin Group and in the repositioning of the Sarasin brand in a bid to optimise our marketing activities. As the future service provider for Bank Zweiplus, Sarasin also incurred advance one-off general administrative expenses in the areas of IT and logistics. In the second half of the year, these will produce cost savings thanks to lower unit costs in the back office.

Sustainable Swiss Private Banking since 1841

Bank Sarasin has also redefined its market position in the light of its growth strategy. The slogan “Sustainable Swiss Private Banking since 1841” succinctly sums up what we stand for, what we do and how we act. For 167 years, Bank Sarasin has been the most highly regarded and exclusive address for top-quality professional investment and asset management. Sustainability is a key element of our corporate philosophy and management. We have also been pioneering sustainable investment and asset management concepts for the past 20 years. The total assets managed by the Bank in accordance with sustainable principles were 16% higher than last year, at CHF7.8billion (1H 2007: CHF 6.7 billion).

Outlook 2008: Consistent implementation of growth initiatives boosts future earnings power

As far as acquisition performance and the expansion of locations are concerned, Bank Sarasin stands by the targets it has set itself for 2008. It is confident that is will be able to achieve its full-year target of NNM growth of CHF8.3billion and adding 100 highly qualified advisors to its sales force. “At the same time we need to take action to improve our profitability", says Joachim H. Straehle. “On the one hand the investments in initiatives to assure our long-term success will start to bear fruit in the next few years and have a positive impact on our results. On the other hand, we have taken measures to further improve our cost efficiency, such as the launch of Bank Zweiplus or improving the ratio between front and back office capacities. We are well equipped for the future.”