Julius Baer yesterday agreed to pay SFr5.6 billio(€3.63 billion) for a stable of independent private banks and a big fund manager owned by UBS in a deal likely to trigger further consolidation among Switzerland's fragmented private banks.

Baer is buying SBC Wealth Management, the UBS subsidiary comprising Ehinger & Armand von Ernst, Ferrier Lullin and Banco di Lugano, as well as GAM, a big fund manager run by UBS at arm's length.

UBS, the world's leading wealth manager, will make a pretax profit of "at least" SFr3.5 billion on the sale.

The bank will retain a 21.5 per cent stake in the new entity, but will probably sell the shares after the compulsory 18-month lock-up. Just under 2 percentage points of the holding can be sold after three months.

UBS had been considering an initial public offering of SBC Wealth Management, but used the favourable point in the private banking cycle for a trade sale. The deal is expected to close in the fourth quarter.

The transaction will make Baer Switzerland's biggest fund manager after UBS and Credit Suisse, catapulting it ahead of rivals such as Sarasin and Vontobel. Analysts expected the move to cause other medium-sized private banks to review their strategies and consider mergers or takeovers.

The deal will give Baer SFr270 billion in client assets under management, more than double its current total. The bulk of the increase will come through GAM, which manages about SFr119 billion.

The purchase will be funded by a SFr2.45 billion rights issue, being handled by Goldman Sachs and UBS. Up to a further SFr850 million will be raised through debt, while SFr500 million will come through the return of excess capital.

Bankers broadly welcomed the deal, the first big private banking consolidation since the merger in 2002 of Geneva's Lombard Odier and Darier Hentsch.

However, there was some concern that Baer had paid a high price, and there were doubts about its ability to integrate the new assets, as well as achieve the claimed SFr150 million annual savings and synergies.

Baer shares, which have risen sharply on speculation it might be a takeover candidate, fell almost 6 per cent to SFr83.55 yesterday afternoon. - (Financial Times Service)