Julius Baer warns of more provisions on US$687 million exposure

JULIUS Baer Group is reviewing its private debt business after running up an exposure of 606 million Swiss francs (S$920.5 million) to a single client, identified by people familiar with the matter as Austrian tycoon Rene Benko’s Signa group of companies.

Baer on Monday (Nov 27) said 70 million francs in loan-loss provisions it booked in early November were primarily related to that exposure, and said it will make further provisions if needed. The wealth manager did not name the client but said the debt, which is now subject to a longer-term restructuring, consists of loans to three different entities within a European conglomerate. 

Bloomberg reported earlier that the client is Benko’s Signa and that Swiss regulator Finma was monitoring the exposure. News of the provisions Baer set aside sent its shares tumbling by the most since the early days of the Covid-19 pandemic three years ago. A unit of Signa filed for insolvency in a Berlin court on Friday, indicating efforts to save the group are faltering.

“We regret that a single exposure has led to the recent uncertainty for our stakeholders,” chief executive officer Philipp Rickenbacher said in a statement. “Together with the Board of Directors, we will review our private debt business and the framework in which it is conducted.”

The loans are the single largest exposure within Baer’s 1.5 billion-franc private-debt loan book, which consists of structured finance solutions it offers to its wealthiest clients. Baer’s total loan book has a volume of 41 billion francs.

“The aggregate exposure towards this client group is secured by multiple collateral packages related to commercial real estate and luxury retail and is now subject to a longer-term restructuring,” Baer said Monday. The company “has taken measures to protect its interest and to preserve the value of its collateral”.

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Even in a “hypothetical total loss scenario”, Baer said it would have remained profitable and its CET1 ratio, a key measure of capital strength, would have exceeded 14 per cent as of the end of October.