Morgan Stanley Upgrades Julius Baer to 'Equal-Weight' as FINMA Ends AML Probe

Morgan Stanley has upgraded Swiss private bank Julius Baer to "equal-weight" from "underweight," citing the conclusion of an enforcement action by Switzerland's financial regulator, FINMA. The investment bank also raised its price target on the stock, reflecting reduced uncertainty for investors following the regulatory decision.

Upgrade Driven by Regulatory Relief

In a note to clients, Morgan Stanley lifted its price target for Julius Baer to CHF 81 from a previous CHF 67. The primary driver for the re-rating was the Swiss Financial Market Supervisory Authority's (FINMA) decision to end its proceedings against the bank related to historical anti-money laundering (AML) breaches.

The resolution of the FINMA action allowed the investment bank to lower its cost of equity assumption for Julius Baer to 10.5% from 11%. Morgan Stanley also shifted its valuation basis to 12 times the bank's estimated 2028 earnings, a framework it said previously reflected uncertainty around the regulatory probe.

FINMA Lifts Restrictions but Maintains Oversight

According to the broker, FINMA has relaxed key measures, including restrictions on Julius Baer's business with politically exposed persons from high-risk countries, and has lifted certain capital and liquidity requirements.

However, some oversight will remain in place. The bank will still require FINMA approval for any dividend payments or share buybacks. Furthermore, Julius Baer must continue reporting on its risk and compliance culture through 2032, indicating continued regulatory scrutiny.

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Cautious Outlook Tempers Rating

Despite the positive development, Morgan Stanley stopped short of an "overweight" rating. Analysts cited expectations that client flows will not improve in the second half of 2026 and noted that 2027 will be an investment year as the bank transitions to a new core banking system.

Reflecting this caution, Morgan Stanley trimmed its earnings forecasts for Julius Baer by about 1%, placing its estimates 2% to 4% below market consensus. The broker lowered its net interest income and transaction-fee estimates, though this was partly offset by a stronger U.S. dollar.

Key Figures and Capital Returns

• New EPS Forecasts: CHF 6.05 for 2026, CHF 6.20 for 2027, and CHF 6.78 for 2028.
• Share Buybacks: Julius Baer has sought approval for a share buyback, though its timing and size are uncertain. Morgan Stanley's model assumes CHF 100 million in buybacks for the remainder of 2026 and CHF 600 million annually in 2027 and 2028.
• Valuation: The bank's stock trades at approximately 11.4 times earnings, a discount to the 12.4 times multiple for its faster-growing peers, according to Morgan Stanley.