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UPDATE 2-Julius Baer warns of goodwill hit to FY as 9-month profitability rises

* Julius Baer posts Q3 recovery in managed assets

* Nine-month gross margin 89 bps vs 92 bps in H1

* Strong Q3 inflows help net new money rise nearly 4%

* Bank flags 177 mln euro goodwill impairment for FY (Adds market reaction)

ZURICH, Oct 19 (Reuters) - Swiss wealth manager Julius Baer on Monday warned that full year results will be hit by goodwill impairments related to its ailing Italian company Kairos as it reported an improvement in profitability for the first nine months.

The Zurich-based lender said it would book another 177-million euro ($207 million) goodwill charge from Kairos and would be making a number of investment managers minority shareholders in the asset and wealth management unit. Julius Baer will retain a 70% stake.

Its shares, however, rose 5% after the market opened, with analysts pointing to a beat across the board on metrics provided in its pared-back nine-month results and noting the positive effects of a strategy programme announced in February.

Fresh client inflows and a recovery in stock markets helped the Zurich-based lender stem a fall in managed assets unleashed by the COVID-19 pandemic, with assets under management rising 3% to 413 billion Swiss francs ($451.12 billion) since June.

“Supported by ongoing active client engagement, operating income was considerably higher in the first nine months of 2020 than in the same period a year ago,” Switzerland’s third-largest listed lender said in a statement.

The bank -- which does not report nine-month profit -- had previously seen a 43% jump in half-year net profit to 491 million Swiss francs, as a pick-up in client activity more than offset a drop in lending and a hit from falling U.S. interest rates.

“Baer’s nine-month statement demonstrates continued benefit from a constructive client activity backdrop whilst also (over)delivering on the promise of its 2020 strategic plan,” Jefferies analysts said in a note.

Julius Baer said gross margins in the third quarter had remained consistent with levels seen during May and June, helped by high levels of client activity despite slower loan growth.

Its adjusted cost-income ratio stood at 66.1% through September, an improvement from the 71.1% posted for full-year 2019 and ahead of the 67% it said in February it aimed to achieve by 2022.

($1 = 0.8542 euros)

$1 = 0.9155 Swiss francs Reporting by Brenna Hughes Neghaiwi, editing by John Miller and Emelia Sithole-Matarise