Barclays downgrades Julius Baer to “equal weight” on valuation, risks

Barclays downgraded Julius Baer to 'equal weight' from 'overweight,' cutting its price target to CHF 56.70, citing concerns over valuation, uncertain capital deployment due to regulatory uncertainty trapping excess capital, and execution risks from ongoing probes and recent relationship manager departures. Despite strong H1-2025 net new money and capital ratios, Barclays projects a gross margin decline and maintains a cautious stance on full-year net new money, indicating limited upside given the current share price and the absence of a compelling discount relative to the identified risks.

Analysis

Barclays has downgraded Julius Baer to “equal weight” from “overweight,” reducing its price target to CHF 56.70, which suggests limited upside from the current share price. The downgrade is underpinned by three core concerns: valuation, capital deployment, and execution risk. Despite positive operational metrics in H1-2025, including a strong underlying gross margin of 83bps and accelerated net new money inflows reaching a 4.5% annualized rate in May/June, Barclays projects a more cautious outlook. It anticipates the gross margin will decline to 80bps in the second half of the year as market volatility subsides and forecasts a full-year net new money rate of just 3%, citing limited visibility and recent relationship manager departures. Furthermore, while the bank's CET1 ratio is robust at 15.6%, well above the 14% buyback threshold, excess capital is viewed as "trapped" by regulatory uncertainty, including an ongoing FINMA probe. Consequently, Barclays does not expect share buybacks to resume before the full-year 2025 results. With the stock trading at a 2025 P/E of 13.3x, near its historical median, Barclays concludes it does not offer a compelling discount to compensate for these prevailing risks.

Key Decisions for Investors

• Given the stock's valuation is near historical averages and the new price target implies minimal upside, investors may consider holding existing positions rather than initiating new ones until there is a clearer resolution of regulatory issues.
• Moderate expectations for near-term capital returns, as share buybacks are unlikely before the FY25 results due to regulatory uncertainty trapping excess capital, despite the strong CET1 ratio.
• Closely monitor net new money flows and any further relationship manager departures, as these are key indicators of execution risk and can significantly influence future assets under management.
• Watch for developments regarding the ongoing FINMA probe and the credit review under the new Chief Risk Officer, as any negative outcomes could further pressure the stock.