Julius Baer Group Ltd. is reviewing a business that extends loans to some of its wealthiest clients after running up an exposure of 606 million Swiss francs ($687 million) to a single counterparty, Austrian tycoon Rene Benko’s Signa group of companies.
While Baer didn’t name the client, it said in a statement Monday that 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.
Baer confirmed that 70 million francs it set aside in early November for troubled loans were primarily related to that exposure, and said it will make further adjustments if needed. News of the surprise jump in provisions a week ago sent shares of the wealth manager tumbling by the most in more than three years. 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 in what Baer calls its private debt business, a 1.5 billion-franc book of structured credits offered to its wealthiest clients. The idea is to provide liquidity against private assets, for customers who may have wealth tied up in equity of their own companies or other investments. Baer’s total loan book has a volume of 41 billion francs.
The exposure to Signa “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.”
Baer fell as much as 2.9% before reversing losses and rising 0.5% at 9:26 a.m. in Zurich. The stock has lost about 16% over the past week.
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% as of the end of October.
(Updates with shares in seventh paragraph. A previous version of this story corrected the currency of Baer’s exposure.)
