Julius Baer Slumps as Bad Loans Revive Concerns About Signa Risk

(Bloomberg) -- Julius Baer Group Ltd. slumped the most in more than three years as a sudden jump in bad loan provisions revived concerns about the Swiss bank’s exposure to the crumbling property empire of Austrian tycoon Rene Benko.

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The Zurich-based lender warned on Monday that full-year profit will probably decline after it set aside 82 million francs ($93 million) for bad loans. Of that amount, 70 million francs were provisioned since the end of October, prompting at least two analysts to suggest that the unexpected increase reflects loans the bank made to Benko’s Signa.

“This is clearly disappointing,” with the provisions “probably due to the collapse of Signa,” analyst Michael Klien at Zuercher Kantonalbank wrote in a note.

Julius Baer fell as much as 14% in Zurich trading, the most since the Covid-19 pandemic rattled markets in early 2020, with analysts also citing disappointing inflows and weaker client activity. Customers added just over 10 billion francs in new money this year through October, even as Switzerland’s second-largest wealth manager added a net 75 private bankers and continued to benefit from the demise of Credit Suisse.

Julius Baer didn’t say what caused the increase in souring loans. The firm along with numerous other banks in Switzerland, Germany and Austria was a lender to Signa, people familiar with the matter said previously. A spokesperson for Julius Baer declined to comment on the reason for the increase in provisions.

“Investors may well question how — if indeed it is confirmed to be the case — a single client has resulted in such a substantial credit provision being taken and whether there could be other outsized single client exposures,” analysts at Jefferies led by Tom Mills and Flora Bocahut wrote.

The hires helped lift the cost-to-income ratio close to 68% for the first 10 months of the year, compared with 66% last year. Julius Baer, which is led by Chief Executive Officer Philipp Rickenbacher, last month reshuffled the executive board with a series of internal promotions and new hires from UBS, changes that position Chief Operating Officer Nic Dreckmann as potential successor to the CEO.

--With assistance from Allegra Catelli.