07 December 2012 Europe/Switzerland Equity Research Specialty Finance (Speciality Finance (Europe))

Julius Baer (BAER.VX) Rating OUTPERFORM* REINSTATEMENT

Price (05 Dec 12, SFr) 31.87 Target price (SFr) 38.00¹ Market cap. (SFr m) 6,906 Necessity for scale *Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector. ■ We reinstate coverage of Julius Baer with an Outperform rating and ¹Target price is for 12 months. target price of CHF38 offering 19% potential upside to the current share Research Analysts price. In the European Banks context, Julius Baer and UBS are among our Gurjit Kambo, CFA top picks. 44 20 7888 0263 [email protected] ■ ML IWM deal offers the necessary scale to succeed in Asia: The ML

Amit Goel, CFA IWM acquisition allows Julius Baer to accelerate its presence in growth 44 20 7883 7516 markets including Asia where the necessity for scale is vital to achieve [email protected] profitability (we consider $35bn in AuM as a minimum). Post the deal, Julius th th David Da Wei Wong Baer will become the 6 largest player with c$60bn AuM (from 13 ). The 44 20 7883 7515 deal is not without execution risk, given the long integration process, [email protected] although guidance for 80% of the acquired AuM to be transferred by the end of 2013 and successful cost execution seen in previous deals is encouraging. ■ We estimate 11% accretion vs. 15% company guidance: Our 11% accretion is based on a mid-range of AuM transfer of CHF65bn, FY15 ML IWM gross margin of 84bps (target 85bps) and FY15 CIR of 72% (target 70%). If company targets are achieved, FY15 EPS would be CHF3.6. ■ Concerns of capital depletion ignore value created from deal: Whilst the capital return story is reduced in the near term, we estimate the ROI (c12%) from the deal exceeds the CoE (c9%) and enhances FY15 ROTE post deal to c23% vs. c19% pre deal. We also see scope for capital return in the medium term as we forecast surplus capital to grow to cCHF720m in FY15 (c10% of current market capital) based on Basel 3 tier 1 in excess of 14%. ■ Shares remain below level pre deal: Since the deal announcement (13 August), Julius Baer shares have underperformed the sector by c20%. Shares are trading on FY14E P/E of c11x (c10% discount to historical average) with the P/E declining to c9x in FY15E. Our target price implies FY15 PE of c11x.

Share price performance Financial and valuation metrics

Year 12/11A 12/12E 12/13E 12/14E 42 Net Income Reported (SFr m) 351 422 523 630 37 Adjusted Net Income (SFr m) 452 422 523 630 32 EPS stated (SFr) 1.73 2.11 2.39 2.83 27 CS adj. EPS (SFr) 2.23 2.11 2.39 2.83 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Tangible Book Value (SFr m) 2,601 3,282 2,578 2,973 Price Price relative CS adj. ROTE 17.1 14.3 17.8 22.7 The price relative chart measures performance against the SMI P/E (adj., x) 14.28 15.09 13.36 11.26 PRICE which closed at 6852.04 on 05/12/12 Price/T. book per share (x) 2.5 1.9 2.7 2.4 On 05/12/12 the spot exchange rate was SFr1.21/Eu 1. - Eu .76/US$1 Dividend (12/12E, SFr) 0.60 Tier 1 ratio (12/12E, %) 20.7

Performance Over 1M 3M 12M Dividend yield (%) 1.9 Eqt Tier 1 Ratio (12/12E, %) 20.7 Free float (%) 100.0 Number of shares (m) 216.71 Absolute (%) -2.1 4.2 -6.1 Relative (%) -4.3 -0.7 -24.9

Source: FTI, Company data, Thomson Reuters, Credit Suisse Securities (EUROPE) LTD. Estimates. DISCLOSURE APPENDIX CONTAINS ANALYST CERTIFICATIONS AND THE STATUS OF NON-US ANALYSTS. U.S. Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATIONTM Client-Driven Solutions, Insights, and Access

07 December 2012 Key Charts

Figure 1: Julius Baer AuM split – Pro-forma June 12 Figure 2: New Julius Baer AuM (CHF bn) 2012-2015E

350

300 Other 73 68 5% 250 Switzerland 53 Growth 17% markets - 200 11 Other 23% 150 246 226 Growth Western 100 190 207 markets - Europe Asia 33% 50 22% 0 2012E 2013E 2014E 2015E

Julius Baer pre-deal ML IWM

Source: Company data Source: Credit Suisse estimates, NB: ML IWM includes NNM/inv perf

Figure 3: Gross margins 2010-2015E (bps) Figure 4: Net new money growth 2010-2015E (%)

120 7.0% 6.4% 110 6.0% 6.0% 5.7% Julius Baer 5.5% 100 (existing) 5.5% 5.3% 5.0% 5.2% 5.0% 90 Julius Baer 4.8% (New Group)

80 4.0%

70 3.0% 2010 2011 2012E 2013E 2014E 2015E 60 2010 2011 2012E 2013E 2014E 2015E Julius Baer (existing) Julius Baer (New Group)

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Figure 5: New Julius Baer 2015E EPS accretion Figure 6: Past 6M Julius Baer share price vs SX7P

25% 120 140 AUM CHF72bn FY15 GM 88bps FY15 CIR 65% 115 130

20% 110 120 Company 105 estimate 15% 15% 110 AUM CHF65bn 100 FY15 GM 84bps 100 FY15 CIR 72% 95 Deal announced 10 Aug 10% 2012 90 90 AUM CHF57bn

FY15 GM 81bps 85 80

Oct 2012 May May 2012 Aug 2012 Aug 2012 Aug 2012 Aug 2012 Sep 2012 Sep 2012 Sep 2012 Sep 2012 Oct 2012 Oct 2012 Oct 2012 Oct 2012 Nov 2012 Nov 2012 Nov 2012 Nov 2012

Jul 2012 Jun Jun 2012 Jun 2012 Jun 2012 Jul 2012 Jul 2012 Jul 2012 Jul 2012 5% Jun 2012 FY15 CIR 80%

0% Bear Base Bull Julius Baer SX7P

Source: Credit Suisse estimates Source: the BLOOMBERG PROFESSIONAL™ service

Julius Baer (BAER.VX) 2 07 December 2012

Julius Baer BAER.VX Price (05 Dec 12): SFr31.87, Rating: OUTPERFORM, Target Price: SFr38.00 Income statement (SFr m) 12/11A 12/12E 12/13E 12/14E Per share data 12/11A 12/12E 12/13E 12/14E Net interest income 533 656 725 791 Reported EPS (SFr) 1.73 2.11 2.39 2.83 Fee and commission income 942 949 1,332 1,638 CS adj. EPS (SFr) 2.23 2.11 2.39 2.83 Trading income 269 106 129 141 Prev. EPS (SFr) — 2.16 2.68 3.12 Other non interest income 9 36 39 43 % YOY change (8.44) (5.34) 12.93 18.71 Total revenue 1,753 1,747 2,226 2,612 Dividend (SFr) 0.70 0.60 0.65 0.70 Admin expense — — — — % YOY change 16.67 (14.29) 8.33 7.69 Other expenses — — — — Dividend payout ratio 31.37 28.41 27.25 24.72 Total expenses (1,214) (1,240) (1,600) (1,862) NAVPS (SFr) 12.84 16.44 11.76 13.36 Pre-provision profit 539 506 626 750 Shares outstanding (mn) 202.59 199.65 219.24 222.54 Loan loss provisions — — — — Other provisions — — — — Key ratios and 12/11A 12/12E 12/13E 12/14E Other non-recurring pre-tax (115) — — — valuation Pre-tax profit 424 506 626 750 P/E (adj., x) 14.28 15.09 13.36 11.26 Income taxes (73) (85) (103) (120) P/BVPS (x) 1.50 1.28 1.37 1.29 Minority interests & other — — — — P/NAVPS (x) 2.5 1.9 2.7 2.4 Net profit (reported) 351 422 523 630 Profitability (%) Net profit (adjusted) 452 422 523 630 ROE 8.2 8.5 10.2 11.4 RoNAV 13.3 14.3 17.8 22.7 Balance sheet (SFr m) 12/11A 12/12E 12/13E 12/14E ROA 0.85 0.73 0.82 0.88 Assets RoRWA 2.8 3.2 3.4 3.6 Net customer loans 16,408 18,870 21,700 24,955 NIM (NII/AIEA) 2.2 2.3 2.3 2.2 Loan loss reserves — — — — Total revenue /avg assets 3.3 3.0 3.5 3.7 Investments 7,034 7,140 7,251 7,367 Total revenue/RWAs 14.1 13.1 14.7 14.8 Other interest earning assets 14,290 15,648 17,591 21,084 NII/revenues 30.4 37.6 32.6 30.3 Avg interest earnings assets 23,807 27,938 31,363 35,513 F&C/revenues 53.7 54.3 59.8 62.7 Goodwill & intangibles 1,707 1,671 2,531 2,531 Trading/revenue 15.3 6.1 5.8 5.4 Other assets 13,490 14,164 14,872 15,616 Efficiency Total assets 52,929 57,493 63,945 71,554 Cost/assets 2.3 2.2 2.5 2.6 Liabilities Cost/income 69.2 71.0 71.9 71.3 Total deposits 34,841 40,067 46,077 52,989 Cost / RWAs 9.5 8.9 9.7 9.9 Long term funding — — — — Balance sheet gearing Interbank deposits 4,252 5,670 4,986 5,235 Loan/deposit(%) 47.1 47.1 47.1 47.1 Avg interest bearing liabilities 36,805 42,782 48,183 54,899 Investment/assets 9.3 8.6 7.7 6.9 Other liabilities 8,107 7,487 7,524 7,564 Loan/assets 31.0 32.8 33.9 34.9 Retirement benefit liabilities — — — — Customer 71.7 76.3 78.3 80.2 Shareholders' equity 4,308 4,953 5,109 5,504 deposits/fundingLT Debt/funding — — — — Minority interest — — — — Asset Quality Total liabilities and 52,927 57,493 63,945 71,554 NPLs — — — — shareholders' equity % YOY change nm nm nm nm % YOY change 12/11A 12/12E 12/13E 12/14E NPL/ gross loans — — — — Net interest income 17.04 23.10 10.57 8.97 Loan loss reserves/NPLs — — — — F&C income (3.92) 0.75 40.33 22.98 LLP/Loans — — — — Trading income (19.07) (60.59) 21.85 8.97 Capital adequacy Other non-interest income (65.78) 294.94 10.57 8.97 Core tier 1 capital Basel II 2,564 2,875 2,182 2,578 Total revenues (2.31) (0.36) 27.43 17.35 Common eq tier 1 capital 2,564 2,875 2,182 2,578 Admin expense (0.51) 4.74 41.10 20.37 (12/12E)Basel II RWA 12,811 13,915 16,415 18,868 Other expenses — — — — Basel II core tier 1 ratio 20.0 20.7 13.3 13.7 Total expenses 1.82 2.20 28.95 16.40 Pre-prov operating profit (10.49) (6.12) 23.69 19.77 Pre-tax profit (29.58) 19.33 23.69 19.77 Source: FTI, Company data, Thomson Reuters, Credit Suisse Securities Tax rate 16.43 17.20 16.72 16.50 (EUROPE) LTD. Estimates. Net customer loans 12.61 15.00 15.00 15.00 Other IE assets 85.39 9.51 12.42 19.86 Customer deposits 20.78 15.00 15.00 15.00

42 37 32 27 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Price Price relative

The price relative chart measures performance against the SMI PRICE which closed at 6852.04 on 05/12/12 On 05/12/12 the spot exchange rate was SFr1.21/Eu 1. - Eu .77/US$1

Julius Baer (BAER.VX) 3 07 December 2012 Executive summary

■ Strategic rationale seems sensible given top-line headwinds across the sector: Private banks in Asia need We see the strategic rationale in the acquisition of ML IWM, principally as it allows at least $35bn in AuM to be Julius Baer to accelerate its presence in growth markets including Asia as organic profitable through cycles growth is more difficult to achieve given the intense competition for talent. The necessity for scale in markets such as Asia is vital to achieve profitability given the lower gross margins there (we estimate Asia gross margins in the range of 80-90bps vs. margins elsewhere at c100bps). Insight from our discussions with industry leaders highlighted private banks in Asia need at least $35bn in AuM to be adequately profitable through cycles as fixed cost are raised particularly in areas such as regulation. In our view, private banks will either divest or consider consolidating in response to weak profitability (according to industry leaders c80% of private banks in Asia do not make money). According to the Private Banker International (as of 2011), only 10 of the top 20 private banks in Asia have AuM in excess of US$35bn. Post the ML IWM deal, we estimate Julius Baer will have around US$60bn (CHF55bn) of AuM in Asia representing around 23% of group AuM.

■ Julius Baer share price remains below pre deal level: Whilst we see the strategic rationale for the deal, the market appears to be more cautious with Julius Baer’s share price c10% lower in absolute terms and down c20% relative to the European banks sector since the announcement of the deal (13 August 2012). We believe the market is concerned over execution risk, which we agree is a genuine concern given the long integration process; however, management aims to transfer c80% of the acquired AuM by the end of 2013 which helps reduce risks around client on-boarding. Julius Baer has also executed successfully on previous deals including the acquisition of a number of private banks from UBS in 2005 and the acquisition of ING Bank Switzerland in 2009, achieving cost savings of 25-30% of the target’s cost base. We calculate, based on our FY15 base case, the cost income ratio of 72% (management target 70%) for ML IWM implies a c17% cost reduction vs. ML IWM annualised H112 costs, which we believe is achievable.

Figure 7: Past 12M Julius Baer vs. SX7P performance 125 125 120 120 Deal announced 13 Aug 115 115 2012 110 110 105 105 100 100 95 95 90 90 85 85

80 80

Nov 2011 Oct 2012 Dec Dec 2011 Apr 2012 Nov 2012

May May 2012 Aug 2012 Sep 2012

Jul 2012

Jan Jan 2012 Feb 2012 Mar 2012 Jun 2012

Julius Baer SX7P

Source: the BLOOMBERG PROFESSIONAL™ service. Note: The values have been rebased to 100 at the starting date.

■ Net new money for standalone Julius Baer to remain at upper end of range: Over the past few years, Julius Baer has consistently achieved annualised net new money growth towards the upper end of the 4-6% target. We forecast Julius Baer to continue

Julius Baer (BAER.VX) 4 07 December 2012

to achieve net new money towards the upper end of the range, FY13 and FY14 at 5.5%, as we expect the growth markets to continue to drive the flows. In terms of ML IWM, the target is for limited net flows in 2013 and 2014 but to reach around 4-6% in FY15. We forecast ML IWM FY15 net flows of around 4% which results in combined Julius net flows of c5.0%. We believe there is the possibility for ML IWM net flows to surprise on the upside given the skew towards growth markets such as Asia.

Figure 8: Julius Baer, IWM NNM progression for 2012-2015E 2012E 2013E 2014E 2015E Julius Baer (existing) 6.4% 5.5% 5.5% 5.3% ML IWM -- 0.0% 2.2% 4.1% Julius Baer (New Group) -- 5.2% 4.8% 5.0% Source: Credit Suisse estimates

■ Gross margins have troughed but we take a conservative view on recovery given mix impact: Whilst an improvement in transaction volumes and rising interest rates may provide a positive catalyst, the higher growth coming from lower margin regions such as Asia will hold back any significant rebound, in our view. Consequently we forecast gross margins in the existing Julius Baer business to remain stable at around 97bps; for ML IWM, we forecast a decline in gross margins in 2013 to 82bps from 87bps (H112) as financial advisors are focused on AuM transfer and client on- boarding with reduced focus on revenue generation. We subsequently expect the gross margin for ML IWM to modestly increase to around 84bps by FY15 (company target 85bps). Overall we believe our forecasts for gross margins are conservative given that, in the medium term, there is the potential for revenue synergies through enhanced product offering, cross selling and recovery in transaction volumes.

Figure 9: Julius Baer and IWM gross margin development 2010-2015E (bps)

120

110 111 104 100 97 97 97 97

95 94 94 90

85 84 80 82 83

70

60 2010 2011 2012E 2013E 2014E 2015E

Julius Baer (existing) Julius Baer (New Group) ML IWM

Source: Company data, Credit Suisse estimates

■ Excess capital lower in near term but recovers to c10% of current market cap by 2015: The investment thesis for Julius Baer which historically included the ability for enhanced capital return is admittedly weaker given the surplus capital used for the ML IWM deal. However, we forecast surplus capital by FY15 based on the Basel 3 tier 1 capital in excess of 14% (company target of 12%) of around CHF723m, c10% of the current market capitalisation. Based on the excess over 12%, this would result in surplus capital closer to CHF1.1bn (c16% of current market cap). Consequently, whilst the capital return story is less compelling in the near term, we still see potential scope for capital return in the medium term.

Julius Baer (BAER.VX) 5 07 December 2012

Figure 10: New Julius Baer surplus capital progression 2010-2015E

1,600 25%

1,400 20% 20% 1,200

1,000 15% 14% 800 10% 1402 10% 600 996 6% 400 5% 723 5% 200 347 399

0 0% 2011 2012E 2013E 2014E 2015E

Surplus capital Surplus capital/market cap

Source: Company data, Credit Suisse estimates

■ ROE still remains attractive vs. sector: Whilst the capital return story is weaker, we believe the ML IWM deal will be a good use of capital and we estimate ROI from the deal of c12% which is above the cost of equity (c9%). This leads to our forecast of FY15 ROTE of c23% post deal vs. c19% pre the deal. Julius Baer’s ROTE also continues to look favourable relative to the other European banks under Credit Suisse’s coverage.

Figure 11: Julius Baer vs. European banks ROTE 2008-2014E (%)

30.0

25.0 25.4 22.4 22.7 20.0 19.5 17.8 17.1 15.0 14.3

10.0 9.8 10.1 6.7 8.4 7.0 6.6 5.0 2.4 0.0 2008 2009 2010 2011 2012E 2013E 2014E

Julius Baer European banks average

Source: Company data, Credit Suisse estimates

■ Valuation: On our forecasts, Julius Baer is trading on FY14 PE of c11x which is broadly in line with the European asset management sector and c10% discount to historical average. If we look at FY15, which is the first full year post integration of ML IWM, Julius Baer is trading on FY15E PE of c9x which is similar to UBS by which time the UBS restructuring plan is expected to be largely completed. Our target price of CHF38 is based on a relative P/E multiples approach based on FY15E EPS discounted back to 2014. Credit Suisse HOLT® derives a warranted value per share of CHF41.

Julius Baer (BAER.VX) 6 07 December 2012 Deal rationale sensible The deal to acquire the Merrill Lynch International Wealth Management (ML IWM) business will be transformational for Julius Baer given the potential to increase existing AuM by up to 40% if the higher end of target range of AUM of CHF72bn is added, resulting in Julius Baer becoming the third largest Swiss private bank. We believe that the strategic rationale for the deal has merit, in that it will allow Julius Baer to increase its exposure to clients in growth markets including Asia (we estimate post deal AuM in growth markets to increase to around 45% from around one-third currently). We believe the deal provides economies of scale as there are 12 regions in which there will be an overlap providing opportunities for costs reductions. For example, we estimate that AuM from Asia will increase from around 15% to around 22% post the deal, a region in which scale is increasingly important to become profitable as gross margins tend to be lower and costs higher. We believe the organic approach to growth in Asia would have proved to be more challenging given the strong level of competition and limited availability of financial advisors/relationship managers across the region. Insight from our discussions with industry leaders highlighted private banks in Asia need at least $35bn in AuM to be profitable through the cycle as fixed costs are raised particularly in areas such as regulation. In response, private banks will either divest or consider consolidating in response to weak profitability (according to industry leaders c80% of private banks in Asia do not make money). According to the Private Banker International (as of 2011), only 10 of the top 20 private banks in Asia have AuM in excess of US$35bn. After the acquisition, Julius Baer will have c$60bn of AuM in Asia, lifting it to 6th in the Asia-Pacific region by AUM compared with 13th previously.

Figure 12: Julius Baer geographical expansion

Source: Company data

Julius Baer (BAER.VX) 7 07 December 2012

Figure 13: Asia-Pacific Private Banks ranked by AUM in $bn, unless otherwise stated Bank 2011 2010 1 Citi 193 179 2 UBS 179 182 3 HSBC 129 150 4 JP Morgan 105 111 5 Credit Suisse 89 84 1 6 New Julius Baer 60 -- 7 Bank of America/Merrill Lynch 46 51 8 Deutsche Bank 43 39 9 BNP 40 40 10 DBS 39 35 11 Standard Chartered PB 35 32 12 Bank of Singapore 32 32 13 Old Julius Baer 30 27 14 Barclays 25 25 15 Hang Seng Bank 21 20 16 Morgan Stanley 20 20 17 Coutts 15 17 18 Soc Gen PB 15 15 19 RBC WM 15 13 20 ABN AMRO 14 18 21 EFG International 14 15 Source: Private Banker International, Company data, Credit Suisse estimates, Note: 1. We have used the 1H12 figures for the new Julius Baer. In terms of competition from local universal banks, this should not be underestimated as they benefit from existing traditional banking relationships with a high number of entrepreneurs (which account for c60% of new wealth being created) and they have a first move advantage in the private banking business and perhaps are better positioned to offer continued balance sheet support. However, we believe that local banks will also face challenges such as a lack of global platform, lack of experience in private banking (platform, execution and customer experience) and branding (affecting both new customer and talent acquisition) which could play to the strengths of non-local banks. Consequently, we believe clients will be open to having private banking relationships with more than one institution. In summary, the deal rationale looks sensible but execution will be crucial and in the remainder of this report we look at the financial implications of the deal in more detail and the potential earnings accretion that can be delivered under various scenarios.

Julius Baer (BAER.VX) 8 07 December 2012 Financial implications of deal We review the deal’s financial aspects in more detail, and assess the potential EPS accretion. In summary, we forecast 4% EPS accretion in FY14 and 11% EPS accretion in FY15 based on mid-point AuM transfer of CHF65bn. We estimate 11% EPS accretion in 2015 Figure 14 below shows the financial impact on EPS and the dilution/accretion during 2013- 2015 based on our core assumption of CHF65bn (mid-point of CHF57-CHF72bn) of AuM transferred and the estimates described below. We have the deal modestly accretive by year-end 2014 and 11% accretive by 2015, the first full year after integration. This is lower than the guidance of c15% accretion indicated by the company but reflects our slightly more conservative assumptions.

Figure 14: EPS accretion based on CHF65bn AuM transferred 2013E 2014E 2015E 2015 Company target EPS (Combined) - CHF 2.39 2.83 3.42 Dilution/accretion -4% 4% 11% ~15%

Assumption summary IWM net new money annualised 0% 2% 4% 4-6% IWM gross margin (bps) 82 83 84 ~85 IWM cost income ratio 87% 80% 72% ~70% IWM pre tax margin (bps) 11 17 24 ~25 Source: Credit Suisse estimates, Company data FY15 EPS sensitivity Clearly, there is execution risk inherent in the deal which could see the level of AuM transfer varying, with guidance for a range between CHF57-72bn and uncertainty over the outcome of gross margins and ability to reduce costs impacting the cost income ratio. Our bear case shows that the deal in FY15 would still be modestly accretive at 3% whilst the bull case provides EPS accretion close to 20%.

Figure 15: FY15E EPS accretion - sensitivity Bear Base Bull EPS (Combined) - CHF 3.18 3.42 3.69 Dilution/accretion 3% 11% 20%

Assumption summary AuM transfer (CHF bn) 57 65 72 IWM gross margin (2015)- bps 81 84 88 IWM cost income ratio (2015) 80% 72% 65% Source: Credit Suisse estimates Detailed look at key metrics and assumptions Development in Group AuM split by region We estimate that Julius Baer AuM exposure to growth markets will increase from around 36% pre-deal to around 45% post-deal based on pro-forma combined AuM at 30 June 12 of CHF251bn. Whilst not directly comparable, the 45% of AuM from growth markets for Julius Baer compares with UBS Wealth Management which reported 38% of AuM (June 2012) from Asia Pacific and emerging markets and Credit Suisse Private Bank which reported 13% AuM (June 2012) from Asia Pacific but does not separately break out EMEA which is likely to include exposure to certain growth markets.

Julius Baer (BAER.VX) 9 07 December 2012

Figure 16: Existing Julius Baer –Current AuM split – June Figure 17: New Julius Baer – Pro-forma of AuM split – 12 June 12

Other Other 5% 5% Growth markets - Switzerland Switzerland Growth Other 17% 23% markets - 21% Other 23% Growth markets - Asia Western 15% Western Growth Europe Europe markets - 33% 36% Asia 22%

Source: Credit Suisse estimate, Based on total AuM of CHF179bn (30 Source: Company data, Credit Suisse estimates, Based on total AuM June 12) of CHF251bn of which IWM represents CHF72bn (30 June 12)

Figure 18: 1H 12 AUM split for New Julius Baer vs. Credit Suisse and UBS in CHF billions, unless otherwise stated UBS WM Europe Asia Pacific Switzerland Emerging markets Total AUM 336 180 139 119 774 AUM (%) 43% 23% 18% 15% 100% Credit Suisse PB EMEA Asia Pacific Switzerland Americas Total AUM 271 98 251 154 774 AUM (%) 35% 13% 32% 20% 100% Julius Baer & IWM West Europe Growth markets Switzerland Other Total AUM 83 113 42 13 251 AUM (%) 33% 45% 17% 5% 100% Source: Company data Summary of key financial metrics Figure 19 below highlights the targets that Julius Baer has set for its existing business and the FY15 targets for ML IWM and the combined targets. We also show the targets set by UBS Wealth Management and Credit Suisse Private Banking for the same metrics where applicable.

Figure 19: Julius Baer targets vs. Credit Suisse and UBS targets Cost income ratio Net new money Gross margin PBT margin1 Julius Baer (current med-term targets) 62-66% 4-6% -- >35 bps ML IWM (1st year post integration) 70% 4-6% 85 bps ~25bps Julius Baer & ML IWM 65-70% 4-6% -- 30 to 35bps UBS WM 60-70% 3-5% 95-105 bps 28.5-42 bps2 Credit Suisse PB 65-70% 6% -- -- Source: Company data, Note: 1. Annualised adjusted PBT divided by period average AUM. 2. Calculated as Gross margin x (1-Cost Income Ratio). In summary, the targets set by Julius Baer management do not seem unrealistic relative to the targets set by UBS and Credit Suisse. We have in any case taken a slightly more conservative approach for our base case assumptions, which we highlight in Figure 20 below.

Julius Baer (BAER.VX) 10 07 December 2012

Figure 20: New Julius Baer operating metrics 2012-2015E (Credit Suisse estimates) in CHF bn, unless otherwise stated 2012E 2013E 2014E 2015E Gross margins (bps) Julius Baer existing 97 97 97 97 ML IWM 85 82 83 84 Julius Baer (new) 97 95 94 94 Cost income ratio (%) Julius Baer existing 71% 69% 69% 67% ML IWM 87% 87% 80% 72% Julius Baer (new) 71% 72% 71% 69% Period-end AuM (CHF bn) Julius Baer existing 190 207 226 246 ML IWM 11 53 68 73 Julius Baer (new) 201 260 294 319 Net new money (annualised rate) Julius Baer existing 6% 6% 6% 5% ML IWM 0% 0% 2% 4% Julius Baer (new) 6% 5% 5% 5% PBT margin (bps) Julius Baer existing 28 30 30 31 ML IWM 11 11 17 24 Julius Baer (new) 28 27 27 29 Source: Credit Suisse estimates AuM progression with 80% of AuM booked in 2013 We assume that the AuM on-board process begins during Q113 with the initial CHF11bn of AuM relating to ML IWM bank business in Switzerland. We forecast that 80% of the total AuM of CHF65bn that we assume will be transferred, is booked by the end of 2013, which together with 3% market performance results in ML IWM AuM of CHF53bn by December 2013. During 2014, we assume the additional 20% of remaining AuM is booked, plus further 3% market performance and 2% annualised net new money. The growth in ML IWM AuM in 2015 is driven by annualised net inflows of 4% and 3% positive market performance.

Figure 21: Julius AuM growth (CHF bn) 350

300 73 68 250 53 200

150 246 226 100 190 207

50

0 2012E 2013E 2014E 2015E

Julius Baer pre-deal ML IWM

Source: Credit Suisse estimates, ML IWM AuM includes transferred assets, additional NNM and impact of market performance

Julius Baer (BAER.VX) 11 07 December 2012

We forecast Julius Baer to achieve net new money growth of 5.5% in FY13 and FY14, which is towards the upper end of the range (4-6%), as we expect the growth markets to continue to drive the flows. In terms of ML IWM, the target is for limited net flows in 2013 and 2014, but to reach around 4-6% in FY15. We forecast ML IWM FY15 net flows are around 4% which results in combined Julius net flows of c5.0%. We believe there is the possibility for ML IWM net flows to surprise on the upside given the skew towards growth markets such as Asia but this is not reflected in our base case.

Figure 22: Julius Baer, IWM NNM progression for 2012-2015E 2012E 2013E 2014E 2015E Julius Baer (existing) 6.4% 5.5% 5.5% 5.3% ML IWM -- 0.0% 2.2% 4.1% Julius Baer (New Group) -- 5.2% 4.8% 5.0% Source: Credit Suisse estimates Gross margins have reached a trough but we take a conservative view on recovery given mix impact Gross margins for the existing Julius Baer have declined from 111bps in 2010 to around 97bps in 2012E. We believe gross margins have troughed due partly to the already high allocation to client deposits but we do not expect a rebound in the near term; we forecast gross margins to remain relatively flat at around 97bps. Whilst an improvement in transaction volumes and rising interest rates may provide a positive catalyst, the higher growth coming from lower margin regions such as Asia will hold back any significant rebound, in our view. For ML IWM, we forecast a decline in gross margins in 2013 to 82bps from 87bps (H112) as financial advisors are focused on AuM transfer and client on- boarding with reduced focus on revenue generation. We subsequently expect the gross margin for ML IWM to modestly increase to around 84bps in FY15 (company target 85bps). Overall, we believe our forecasts for gross margins are conservative as, in the medium term, there is the potential for revenue synergies through enhanced product offering, cross selling and recovery in transaction volumes.

Figure 23: Gross margin development 2010-2015E (bps Figure 24: Existing Julius Baer asset allocation

120 100% 2% 7% 7% 90% 24% 110 111 80% 26% 26% 104 70% 100 97 97 97 97 20% 60% 19% 19% 95 94 50% 90 94 40% 28% 23% 24% 85 84 30% 80 82 83 20% 26% 70 10% 25% 24% 0% 60 2010 2011 H112 2010 2011 2012E 2013E 2014E 2015E Julius Baer (existing) Julius Baer (New Group) Equities Bonds Investment funds Cash and equivalent Other ML IWM Source: Company data, Credit Suisse estimates Source: Company data

Julius Baer (BAER.VX) 12 07 December 2012

Delivery on costs will be key but have delivered in the past Given the limited uplift in gross margins that we are forecasting, the ability to reduce costs will be crucial in delivering EPS accretion. We accept there is execution risk given the long integration process; however, management has successfully executed on previous deals including the acquisition of a number of private banks from UBS in 2005 and the acquisition of ING Bank Switzerland in 2009, achieving cost savings of 25-30% of the target’s cost base. We calculate, based on our FY15 base case, a cost income ratio of 72% (management target 70%) for ML IWM implies a c17% cost reduction vs. ML IWM annualised H112 costs, which we believe is achievable.

Figure 25: Cost/AUM progression 2010-2015E (bps Figure 26: Cost income ratio 2012E-2015E (bps 75% 76 Company target: 65% -70% 74 74 73% 72 72 72%

70 71% 71% 71% 68 68 69 67 68 66 66 69% 69% 65 64

62 67%

60 2010 2011 2012E 2013E 2014E 2015E 65% Julius Baer (existing) Julius Baer (New Group) 2012E 2013E 2014E 2015E

Source: Company data, Credit Suisse estimates Source: Credit Suisse estimates An integral part of the cost reduction post the acquisition will relate to a reduction in employee headcount, with management targeting a reduction in the pro forma combined headcount of c5,700 by 15-18% equating to around 860-1,035 employees. The company has not provided any specific details of the split of headcount reductions between old Julius Baer and ML IWM employees, but given the lower productivity of financial advisors and higher cost income ratio at ML IWM we expect that the majority of the cuts will come from IWM. The acquisition lowers the pro-forma AUM per advisor by about 15%, before we adjust for any impact from restructuring, headcount reductions or IWM financial advisors choosing not to go over. The company has indicated there could be scope for reductions of 100 to 150 advisors, which would offset this partially (see Figure 27 below). So whilst there is still some dilution, the AuM per advisors remains above the levels for Credit Suisse Private Bank and UBS Wealth Management.

Figure 27: AUM per advisor for Julius Baer, Credit Suisse and UBS (June 12) in CHF millions, unless otherwise stated AUM Number of AUM per advisor RMs/advisors Julius Baer 179,000 801 223 IWM 81,000 528 153 Julius Baer and ML IWM (June 12) 252,000 1,329 190 New Julius Baer with headcount reduction of 100 243,500* 1,229 198 New Julius Baer with headcount reduction of 150 243,500* 1,179 207 Credit Suisse PB 774,100 3,960 195 UBS WM 783,000 4,175 188 Source: Company data, *Credit Suisse estimates

Julius Baer (BAER.VX) 13 07 December 2012 Capital and distribution Capital reduced by deal enhances ROTE The investment thesis for Julius Baer, which historically included the potential for enhanced capital return to shareholders given the excess capital, is admittedly weaker but we see the deal as value enhancing with the return on initial investment of c12% exceeding the cost of equity (which we assume to be around 9%). We have adjusted the total capital required for the deal from the headline CHF1,470m which is based on CHF72bn of AuM, our earnings forecasts are based on CHF65bn, hence we have adjusted the consideration and the capital required. It is possible that restructuring and integration costs could also be lower due to lower AuM but we have not adjusted for this as it is unlikely to be a linear relationship. In terms of assessing the ROIC, we have used our FY15 forecasts earnings for ML IWM as this is the first full year post integration and we have adjusted the earnings for the additional tax benefit to the standalone Julius Baer business from lower tax rate.

Figure 28: Implied return on invested capital (ROIC) from ML IWM acquisition CHF million Total capital required at CHF72bn 1,470 Reduced consideration - based on CHF65bn AuM (90) Reduced capital - based on CHF65bn AuM (31) Adjusted total capital required at CHF65bn 1,349

FY15E PAT (ML IWM) 142 Tax benefit on standalone JB 20 FY15E PAT adj. for tax benefit 162

Return on invested capital 12% Assumed cost of equity 9% Source: Credit Suisse estimates We estimate that for the new Julius Baer business including ML IWM, the ROTE in FY14E ROTE post deal will be around 23% vs. c18% pre the deal. The ROTE also continues to look favourable relative to the wider European banking sector.

Figure 29: Julius Baer vs. European banks ROTE 2008-2014E (%)

30.0

25.0 25.4 22.4 22.7 20.0 19.5 17.8 17.1 15.0 14.3

10.0 9.8 10.1 6.7 8.4 7.0 6.6 5.0 2.4 0.0 2008 2009 2010 2011 2012E 2013E 2014E

Julius Baer European banks average

Source: Company data, Credit Suisse estimates

Julius Baer (BAER.VX) 14 07 December 2012

Near-term capital return unlikely but scope in medium term We forecast an initial increase in the BIS tier 1 capital (Basel 3) at the end of December 2012 predominately due to the additional capital from the right issue (CHF492m) and additional hybrid (CHF250m) whilst the goodwill is deducted in Q113 when we expect the deal to close. In addition to the CHF860m of goodwill deduction during FY13 we also deduct CHF200m for IAS 19, pre-tax charge of CHF150m relating to the US tax settlement and additional post tax restructuring charges of CHF140m offset by CHF240m of shares issued to Merrill Lynch.

Figure 30: BIS Tier 1 capital development FY12E* FY13E FY14E FY15E Period beginning BIS Tier 1 capital 2,599 3,350 2,645 3,040 Rights issue 492 Hybrid 250 Shares to Merrill Lynch 240 Retained earnings 71 379 473 584 Goodwill -860 Restructuring charges (post tax) (62) (140) (78) (32) US tax settlement (CHF150m pre-tax) (123) IAS 19 – pension charge (200) Period end BIS Tier 1 capital 3,350 2,645 3,040 3,592 Source: Company data, Credit Suisse estimates, * relates to six-month period ending 31 Dec 12 Consequently, we forecast the capital surplus (based on BIS tier 1 ratio in excess of 14%) for Julius Baer in FY13 to be around CHF350mn but expect it to strengthen to around CHF720m (c10% of the current market capitalisation) by 2015. If we base the surplus capital on the BIS tier 1 company target of 12%, the surplus in FY15 is closer to CHF1.1bn of c16% of the current market cap. In summary whilst the capital return story is less compelling in the near term, we still see potential scope for capital return in the medium term.

Figure 31: Capital Analysis for Julius Baer 2012-2015E in CHF millions, unless otherwise stated 2012E 2013E 2014E 2015E BIS Tier 1 capital 3,350 2,645 3,040 3,592 RWA 13,915 16,415 18,868 20,494 Required regulatory capital @ 12% 1,670 1,970 2,264 2,459 Required regulatory capital @ 14% 1,948 2,298 2,642 2,869 Surplus capital @ 12% 1,680 675 776 1,133 Surplus capital @ 14% 1402 347 399 723 Source: Credit Suisse estimates We forecast a pay-out ratio in FY13 and FY14 of 25% and 27%, respectively vs. 25% and 31% in 2010 and 2011; ie, we forecast the group to pay a not dissimilar pay-out vs historical levels, and still build-up surplus capital of CHF723mn by 2015E.

Figure 32: Dividend payout ratios for Credit Suisse, UBS and Julius Baer 2012E 2013E 2014E Payout ratio Credit Suisse 39% 35% 33% UBS 22% 27% 35% New Julius Baer 28% 27% 25% Source: Credit Suisse estimates, the BLOOMBERG PROFESSIONAL™ service

Julius Baer (BAER.VX) 15 07 December 2012 Sensitivity analysis Given the uncertainties surrounding the ML IWM deal, we have conducted a number of sensitivity analyses to gross margins, cost income ratio and AUM transfer which we highlight below. Gross margins and CIR sensitivity

Figure 33: FY15 New Julius Baer EPS sensitivity to IWM cost income ratio and gross margin (CHF) Gross margin (bps) 81 82 83 84 85 86 87 88 68% 3.48 3.49 3.50 3.51 3.51 3.52 3.53 3.54 70% 3.44 3.44 3.45 3.46 3.47 3.48 3.48 3.49 CIR 72% 3.39 3.40 3.41 3.42 3.42 3.43 3.44 3.45 74% 3.35 3.36 3.36 3.37 3.38 3.38 3.39 3.40 76% 3.31 3.31 3.32 3.33 3.33 3.34 3.35 3.35 Source: Credit Suisse estimates

Figure 34: FY15 New Julius Baer EPS accretion sensitivity to IWM cost income ratio and gross margin Gross margin (bps) 81 82 83 84 85 86 87 88 68% 13.2% 13.5% 13.8% 14.1% 14.4% 14.6% 14.9% 15.2% 70% 11.8% 12.1% 12.4% 12.6% 12.9% 13.1% 13.4% 13.7% CIR 72% 10.4% 10.7% 10.9% 11.2% 11.4% 11.6% 11.9% 12.1% 74% 9.0% 9.2% 9.5% 9.7% 9.9% 10.1% 10.4% 10.6% 76% 7.6% 7.8% 8.0% 8.2% 8.4% 8.6% 8.9% 9.1% Source: Credit Suisse estimate We get a range of CHF3.31 to CHF3.54 for the 2015E EPS (7.6% to 15.2% accretion). AUM and gross margin sensitivity

Figure 35: EPS price sensitivity to IWM AUM (CHFbn) transfer and gross margin

Gross margin (bps) 81 82 83 84 85 86 87 88 57 3.33 3.34 3.35 3.35 3.36 3.37 3.37 3.38 61 3.36 3.37 3.38 3.38 3.39 3.40 3.41 3.41 AUM 65 3.39 3.40 3.41 3.42 3.42 3.43 3.44 3.45 68 3.42 3.43 3.44 3.45 3.45 3.46 3.47 3.48 72 3.45 3.46 3.47 3.48 3.49 3.49 3.50 3.51 Source: Credit Suisse estimate We get a 2015E EPS range of CHF3.33 to CHF3.51. The “bull” and “bear” cases we presented earlier incorporate the most/least optimistic of the AUM, gross margin and CIR assumptions.

Julius Baer (BAER.VX) 16 07 December 2012 Valuation – Target price CHF38 Multiples based valuation We have valued Julius Baer using a P/E multiples based approach relative to the European asset management sector average which derives a target price of CHF38, offering c19% potential upside to the current share price. We have used our FY15 EPS forecast discounted back to 2014 at a cost of equity of 9% and applied a FY14 sector (European Asset Managers) P/E of c11x. We add surplus capital per share of CHF1.8 based on FY14 tier 1 capital forecast in excess of 14%.

Figure 36: Julius Baer – Target price based on P/E multiples approach Value per share EPS (CHF) - FY15 discounted to FY14 3.16 PE multiple (FY14) 11 Value per share (CHF) 36 FY14E Surplus capital per share (CHF) 1.8 Value per share (CHF) 38 Source: Credit Suisse estimates Credit Suisse HOLT

Credit Suisse HOLT CFROI® methodology using our forecasts derives a warranted price of CHF41. We have used a real cost of equity of 6.5%, which is higher than the average market implied discount rate for the Swiss private banks over the past 20 years of around 5.5%.

Figure 37: Market implied discount rates for Swiss private banks and European financials 1992-2012 (%) 12

10

8

6

4

2

0

1992 2011 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2012

Swiss Private Banks Europe - Financials

Source: Credit Suisse HOLT

Julius Baer (BAER.VX) 17 07 December 2012

Figure 38: Credit Suisse HOLT – Warranted price CHF41.21

JULIUS BAER GROUP LTD.

Current Price: 31.71 CHF Valuation date: 04/12/12 CFROE (parallel % point change to forecasts) Dec-10A Dec-11A Dec-12E Dec-13E Dec-14E -4.0% -2.0% 0.0% 2.0% 4.0% Asset Growth, % 8.6 14.7 8.8 11.4 12.1 -10.0% -15% -1% 13% 26% 40% RoA, % 1.1 0.8 0.7 0.8 0.8 Leverage, x 12.2 14.5 14.2 15.2 15.5 -5.0% -11% 5% 20% 36% 51%

(parallel %point CFROE®, % 13.5 12.1 9.7 11.6 11.9 0.0% -5% 12% 30% 47% 65% Disc Rate, % 9.0 10.3 9.7 9.7 9.7 Equity Growth, % 9.2 -5.0 11.4 3.5 7.5

changeto forecasts) 5.0% 2% 22% 42% 62% 82%

Dividend Yield (%) 0.9 1.6 1.9 Equity Growth 10.0% 12% 35% 58% 81% 104%

Asset Growth More than More than 40.0% 10% Within 10% 10% upside 35.0% downside 30.0% 25.0% 20.0% CFROE & Discount Rate 15.0% 16.0% 10.0% 14.0% 5.0% 0.0% 12.0% -5.0% 2007 2009 2011 2013 2015 10.0%

8.0% Return on Assets 6.0% 1.2% Historical 4.0% CFROE 1.0%

2.0% Forecast CFROE 0.8% 0.0% 2007 2009 2011 2013 2015 Discount Rate 0.6%

0.4%

25.0% Equity Growth 0.2% HOLT - Credit Suisse Analyst Scenario Data Scenario Analyst Suisse Credit - HOLT 20.0% 0.0% 2007 2009 2011 2013 2015 15.0% Leverage 10.0% 18x 5.0% 16x Historical 14x 0.0% Equity Growth Rate 12x Forecast Equity 10x -5.0% Growth 8x -10.0% Normalised 6x 2007 2009 2011 2013 2015 Growth Rate 4x 2x 0x 2007 2009 2011 2013 2015

CFROI, CFROE, HOLT, and ValueSearch are trademarks or registered trademarks of Credit Suisse Group AG or its affiliates in the United States and other countries.

Source: Company data, Credit Suisse estimates, Credit Suisse HOLT

Julius Baer (BAER.VX) 18 07 December 2012 Risks

■ Integration risk of ML IWM: We believe the main risk to the investment case is around the ability of Julius Baer to execute the integration of ML IWM, with respect to on-boarding of clients and assets, and to execute on the cost reduction and achieve the target cost income ratio for ML IWM of 70%. Given the long integration phase, the outcome on the success will remain unknown in the short term, although we are encouraged by the expectation of 80% of assets to be booked by end 2013 and also Julius Baer’s track record in previous deals resulting in cost savings of 25-30%.

■ Regulatory risk: We see regulatory risk mainly relating to tax treatment of offshore assets and tax treaties that encourage the shift of assets onshore. We estimate that this risk is manageable given our view that the Western European assets most at risk account for no more than 8% of AuM.

■ Market volatility: Market volatility may impact investor appetite to allocate to higher margin products and transactional fees are likely to remain subdued as clients trade less and impact margins. We have not assumed any pick up in gross margins over the next few years in our base case forecasts.

■ Cost pressure in growth markets: Growth in assets from newer markets will likely require continued investment, and demand for talent in many of these regions remains high which will put pressure on the cost income ratio.

■ Loss-making European onshore business: Failure to turn the European onshore business profitable as we estimate it is currently loss making by around CHF10m. We calculate that assets would have to at least double for the onshore European business to be profitable, which we believe is achievable.

Julius Baer (BAER.VX) 19 07 December 2012 Financials We summarise our 2012E to 2015E financial estimates for the new Julius Baer below.

Figure 39: AUM summary 2012-2015E in millions, unless otherwise stated 2012E 2013E 2014E 2015E Julius Baer (existing) AuM (period end) 190.2 207.3 225.9 245.6 AuM (average) 179.8 198.8 216.6 235.7 Net new money 10.9 10.5 11.4 11.9 Net new money annualised % 6% 6% 6% 5% Market performance 8.5 6.6 7.2 7.8 FX 0.5 0.0 0.0 0.0

ML IWM AuM (period end) 52.5 68.4 73.3 AuM (average) 35.4 60.4 70.8 Net new money 0.0 1.2 2.8 Net new money annualised % 0.0% 2.2% 4.1% Market performance 0.9 1.8 2.1 FX

Julius Baer (New Group) AuM (period end) 190.2 259.8 294.2 318.8 AuM (average) 179.8 234.2 277.0 306.5 Net new money 10.9 10.5 12.6 14.7 Net new money annualised % 6% 5% 5% 5% Market performance 8.5 7.5 8.9 9.9 FX 0.5 0.0 0.0 0.0 Source: Credit Suisse estimates

Julius Baer (BAER.VX) 20 07 December 2012

Figure 40: P&L summary for Julius Baer, ML IWM 2012-2015E in CHF millions, unless otherwise stated 2012E 2013E 2014E 2015E Julius Baer (existing) Total Income 1,747 1,933 2,107 2,293 Operating expenses 1,240 1,345 1,458 1,557 Operating profit 506 588 649 736

ML IWM Total Income 290 501 595 Operating expenses 253 401 428 Operating profit 38 100 166

Julius Baer (New Group) Total Income 1,747 2,224 2,608 2,888 Operating expenses 1,240 1,598 1,859 1,985 Operating profit 506 626 749 902 Taxes 85 103 120 140 Tax rate (%) 16.7 16.5 16.0 15.5 Adjusted net profit 422 523 629 763

EPS (CHF) 2.11 2.38 2.83 3.42 DPS (CHF) 0.60 0.65 0.70 0.80 Source: Credit Suisse estimates

Figure 41: Key metrics summary for Julius Baer, ML IWM 2012-2015E in CHF millions, unless otherwise stated 2012E 2013E 2014E 2015E Julius Baer (existing) Gross margins (bps) 97.2 97.3 97.3 97.3 CIR (%) 71.0% 69.6% 69.2% 67.9% Pre tax margin (bps) 28.2 29.6 30.0 31.2

ML IWM Gross margins (bps) 85 82 83 84 CIR (%) 87.0% 87.0% 80.0% 72.0% Pre tax margin (bps) 11 11 17 24

Julius Baer (New Group) Gross margins (bps) 97.2 95.0 94.2 94.2 CIR (%) 71.0% 71.9% 71.3% 68.7% Pre tax margin (bps) 28.2 26.7 27.1 29.4 ROTE 14% 18% 23% 23% BIS Tier 1 ratio 24.1 16.1 16.1 17.5 BIS Total Capital ratio 26.1 17.8 17.6 18.9 RWA 13,915 16,415 18,868 21,526 Source: Credit Suisse estimates

Julius Baer (BAER.VX) 21 07 December 2012

Figure 42: Group P&L 2010-2015E in CHF millions, unless otherwise stated 2010 2011 2012E 2013E 2014E 2015E Net interest income 455 533 656 725 791 860 Commissions 980 942 949 1,040 1,133 1,233 Trading income 332 269 106 129 141 153 Other income 26 9 36 39 43 47 Total income 1,795 1,753 1,747 2,224 2,608 2,888 Personnel expenses 791 787 824 909 996 1,068 Adm. Costs 345 360 347 365 387 411 Depreciation 56 66 69 72 75 78 Total costs 1,192 1,214 1,240 1,598 1,859 1,985 Net operating result 603 539 506 626 749 902 Extraord. Income 0 (115) 0 0 0 0 Pre-tax profit 603 424 506 626 749 902 Taxes 99 73 85 103 120 140 Tax rate (%) 18.0 15.4 16.7 16.5 16.0 15.5 Minorities 0 0 0 0 0 0 Net profit 504 351 422 523 629 763 Adj net profit 504 452 422 523 629 763

Avg number of shares 207 203 200 219 222 223 Adjusted EPS (CHF) 2.44 2.23 2.11 2.38 2.83 3.42 Reported EPS (CHF) 2.44 1.98 2.11 2.38 2.83 3.42 Dividend per share 0.60 0.70 0.60 0.65 0.70 0.80

Key ratios (%) Gross margin (bp) 105.1 104.3 97.2 95.0 94.2 94.2 Pre tax margin/AuM 35.3 32.1 28.2 26.7 27.1 29.4 (bps) Cost income ratio (%) 66.4 69.2 71.0 71.9 71.3 68.7 Source: Company data, Credit Suisse estimates

Figure 43: Group Balance Sheet and Capital 2010-2015E in CHF millions, unless otherwise stated 2010 2011 2012E 2013E 2014E 2015E Total assets 46,287 52,929 57,493 63,945 71,553 77,720 Total liabilities 41,803 48,618 52,540 58,837 66,049 71,664 Total shareholders' equity 4,482 4,308 4,953 5,108 5,504 6,056 Total liabilities and equity 46,287 52,929 57,493 63,945 71,553 77,720

Risk weighted assets 12,061 12,811 13,915 16,415 18,868 20,494 Core Tier 1 capital 2,648 2,564 2,875 2,170 2,565 3,117 BIS Tier 1 capital 2,873 2,789 3,350 2,645 3,040 3,592 BIS total tier 1 + 2 capital 2,933 3,067 3,633 2,928 3,323 3,875

Key Ratios ROE (%) - core tier 1 19.0 17.3 15.5 20.7 26.6 26.8 BIS Core Tier I ratio (%) 22.0 20.0 20.7 13.2 13.6 15.2 BIS Tier 1 ratio (%) 23.8 21.8 24.1 16.1 16.1 17.5 BS total 1+2 ratio (%) 24.3 23.9 26.1 17.8 17.6 18.9 Source: Company data, Credit Suisse estimates

Julius Baer (BAER.VX) 22 07 December 2012

Companies Mentioned (Price as of 29 Nov 12) Barclays (BARC.L, 251 p, NEUTRAL [V], TP 220.00 p) BNP Paribas (BNPP.PA, Eu43.94, OUTPERFORM [V], TP Eu44.40) DBS Group (DBSM.SI, S$14.61, RESTRICTED) Deutsche Bank (DBKGn.F, Eu35.20, UNDERPERFORM [V], TP Eu27.00) EFG International (EFGN.S, SFr8.55) Hang Seng Bank (0011.HK, HK$119.00, NEUTRAL, TP HK$99.00) HSBC Holdings (HSBA.L, 644 p, OUTPERFORM, TP 700.00 p) JPMorgan Chase & Co. (JPM, $41.20, OUTPERFORM, TP $50.00) Julius Baer (BAER.VX, SFr31.65, OUTPERFORM, TP SFr38.00) Royal Bank of Canada (RY.TO, C$58.80, OUTPERFORM, TP C$64.00) Societe Generale (SOGN.PA, Eu28.63, NEUTRAL [V], TP Eu29.70) Standard Chartered (STAN.L, 1501 p, UNDERPERFORM, TP 1,340.00 p) UBS (UBSN.VX, SFr14.96, OUTPERFORM, TP SFr15.60)

Disclosure Appendix Important Global Disclosures The analysts identified in this report each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. See the Companies Mentioned section for full company names. 3-Year Price, Target Price and Rating Change History Chart for BAER.VX BAER.VX Closing Target Price Price Initiation/ 45 44 Date (SFr) (SFr) Rating Assumption 43 N 14-Jul-10 33.55 44 41 14-Jan-11 43.31 N 40 39 39 16-Jun-11 33.73 39 X 37 17-Nov-11 31.83 NC 21-Nov-11 31 O X 35 13-Feb-12 37.57 40 33 R NC 13-Aug-12 32.8 R 31 O

29 SFr27 16-Jun-11 21-Nov-11

Closing Price Target Price Initiation/Assumption Rating

O=Outperform; N=Neutral; U=Underperform; R=Restricted; NR=Not Rated; NC=Not Covered

The analyst(s) responsible for preparing this research report received compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities. As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O): The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months. Neutral (N): The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U): The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; Australia, New Zealand are, and prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12-month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark.

Julius Baer (BAER.VX) 23 07 December 2012

Restricted (R): In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Volatility Indicator [V]: A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight: The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight: The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight: The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors. Credit Suisse’s distribution of stock ratings (and banking clients) is: Global Ratings Distribution Outperform/Buy* 43% (53% banking clients) Neutral/Hold* 40% (47% banking clients) Underperform/Sell* 15% (42% banking clients) Restricted 3% *For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors. Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-and-analytics/disclaimer/managing_conflicts_disclaimer.html Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties. See the Companies Mentioned section for full company names. Price Target: (12 months) for (BAER.VX) Method: We have based our target price on a PE multiples approach based on our earnings for FY15 discounted to FY14 and applying a sector multiple (European Asset Managers) of c11x. We add surplus capital per share of CHF1.8 based on FY14 tier 1 capital in excess of 14% Risks: The main risk to our target price relates to lower earnings in existing Julius Baer business suffered from lower gross margins, higher costs and slower growth in AuM. There is also execution risk relating to the acquisition of ML IWM which could result in lower on-boarding of assets, weaker gross margins and inability to execute sufficiently on the cost reduction plan. Lower comparable sector multiples would also impact our target price Please refer to the firm's disclosure website at www.credit-suisse.com/researchdisclosures for the definitions of abbreviations typically used in the target price method and risk sections.

See the Companies Mentioned section for full company names. Credit Suisse has managed or co-managed a public offering of securities for the subject company (BAER.VX) within the past 12 months. Credit Suisse has received investment banking related compensation from the subject company (BAER.VX) within the past 12 months. Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (BAER.VX) within the next 3 months. Credit Suisse has a material conflict of interest with the subject company (BAER.VX). Credit Suisse has managed or co-managed a public offering of securities for the subject company (BAER.VX) within the last 12 months.

Credit Suisse has received investment banking related compensation from the subject company (BAER.VX) within the last 12 months.

Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (BAER.VX) within the last 12 months.

Credit Suisse is acting as joint global co-ordinator / bookrunner to Julius Baer Group AG in the company's planned financing with respect to its expected acquisition of Merrill Lynch's International Wealth Management business outside the USA from Bank of America. Important Regional Disclosures Singapore recipients should contact a Singapore financial adviser for any matters arising from this research report. The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (BAER.VX) within the past 12 months. Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares.

Julius Baer (BAER.VX) 24 07 December 2012

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Julius Baer (BAER.VX) 25 07 December 2012

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