After nearly 20 years as a blue-chip stock, Julius Baer was booted from Switzerland's big board index. The demotion is a painful going-away present for outgoing chairman Daniel Sauter.

The Swiss private bank will leave Switzerland's blue-chip index next week, a hugely symbolic move that coincides with the retreat of long-time Chairman Daniel Sauter in favor of ex-Credit Suisse trading executive Romeo Lacher.

The handover is perfectly timed to cap an era of heady growth at Julius Baer – and one that has spelled regulatory trouble regulatory trouble for the wealth manager. Lacher's job is to figure out how the bank can grow sustainably in the next 10 years without another oil spill, and to kickstart succession plans for accidental CEO Bernhard Hodler.

Invisible Chaperone of Decline

The 62-year-old Sauter has scarcely been more visible following the exit of his star CEO, Boris Collardi, 16 months ago. The major difference in the pre- and post-Collardi era is that Julius Baer's prospects have drooped, as it has devoted much of its time to a wide-ranging clean-up since Hodler took over.

The blue-chip relegation is the latest in a series of setbacks for the once-proud Swiss private bank, now weakened, vulnerable, and humbled by competitors. The index move can affect a stock's trading volume and share price: Julius Baer is likely to be thrown out of countless index and exchange-traded funds that track the main index.

Legacy of Relegation

That can lead to higher volatility, though Julius Baer is somewhat insulated as the only investable «pure play» private bank. The bank is likely to continue to enjoy the attention of the roughly 20 sellside analysts who cover the stock.

Nonetheless, Sauter's legacy is inextricably linked with Julius Baer's one-third drop in market capitalization since Collardi defected for a partnership at rival Pictet in 2017. The share price slide is part of the price for the heady growth under Collardi, as well as current management's haplessness in dealing with the subsequent fallout.

No Antidote

Specifically, Julius Baer doesn't have an antidote to raiding by Pictet: under Collardi, the Genevan wealth manager picked off 18 bankers in the Middle East in December, followed by poaching a Latin America team last week.  

The bank is also still mired in an $87 million client review following the Sauter-Collardi era. Swiss finance regulator Finma has reportedly launched a probe into whether the bank had ample safeguards against money laundering by criminal clients. A former star banker notched up 10 years' jail time for his part in a $1.2-billion graft scheme linked to Venezuela's oil firm.

Beating a Retreat

Since then, the bank has not only retreated from Venezuela, Panama, and Peru, but also the Netherlands, where its domestic business will be sold to a Dutch wealth manager this quarter. Julius Baer also reportedly asked Goldman Sachs to try to sell finance boutique Kairos, which Collardi bought for nearly $500 million over three years ago. It has instead poured resources into Germany and the U.K., where the bank expects to flourish despite Brexit.

Julius Baer's technology represents another wound: after considerable dithering, Collardi finally plunked down the cash for a new core banking system from software provider Temenos. In Europe, that plan was superseded by the bank's acquisitive ways: in 2015, Julius Baer bought Commerzbank in Luxembourg, which was already operating on Temenos.

Requital for Missing Vision

Julius Baer migrated its Monaco and Bahamas activities to the platform as a result. But in Switzerland, the bank opted to stay with a decades-old platform called «host». After years of listening to industry observers criticize its IT as prehistoric, Julius Baer's reluctance to upgrade in Switzerland telegraphed that the bank is happy to maintain the status quo.

Whether this can be translated as limited ambitions to grow in its home market or lack of an overarching vision for the future is unclear. To be sure, Sauter never stood out by designing this type of vision. Julius Baer's relegation from the big leagues is the requital for it.