UBS cuts Julius Baer to ’neutral’ on EPS downgrade, FX, and NII pressure

Investing.com -- UBS Global Research has downgraded Julius Baer Group’s (OTC:JBAXY) rating to “neutral” from “buy,” citing substantial cuts to the bank’s EPS forecasts and limited near-term re-rating potential, in a note dated Friday.

The downgrade follows steep revisions to Julius Baer’s EPS estimates, down 17% for 2025, 23% for 2026, and 25% for 2027, primarily driven by foreign exchange pressures, especially the strong appreciation of the Swiss franc against the U.S. dollar. 

UBS analysts also pointed to declining net interest income (NII) projections for 2025 and 2026. As a result, UBS lowered the bank’s price target by 15%, from CHF 64.50 to CHF 55.00.

Despite Julius Baer’s significant assets under management (AuM) in emerging and high-growth markets, which position it to benefit from long-term wealth creation trends, UBS believes several structural and regulatory challenges may delay a market re-rating. 

These include the need to resolve legacy issues, implement revised relationship manager (RM) incentives, and absorb restructuring costs tied to its strategic overhaul.

Further complicating investor sentiment is an ongoing enforcement proceeding by the Swiss Financial Market Supervisory Authority (Finma), which places conditions on a potential capital distribution in 2026. UBS does not expect share buybacks to resume until this issue is resolved.

Julius Baer’s June 3 strategy update introduced new 2028 financial targets, focusing on operational efficiency, performance-aligned incentives, an expanded product offering, stronger risk and compliance frameworks, and disciplined growth. However, UBS sees these measures as long-term positives, not immediate catalysts.

Financially, the bank remains solid. Its common equity tier 1 capital ratio improved to 15.2% as of April 2025, helped by the sale of its Brazilian unit. 

Julius Baer (SIX:BAER) continues to be highly capital generative, with returns on tangible equity (ROTE) above 20% and limited capital needs for new business.

Still, UBS expects the bank’s gross margin to stay in the low 80s, as lower NII offsets elevated trading and fair value income in 2025. 

Without recovery in stable interest income, the bank’s earnings may remain more sensitive to market conditions.

Currently, Julius Baer trades at 11.0x estimated 2026 earnings, more than 20% below its 10-year average, though slightly above 1–5 year norms. UBS suggests this valuation reflects investor caution amid execution risks and macro headwinds.