Setbacks hit Swiss private bank Julius Bär hard as it unexpectedly reports losses due to high credit provisions for the troubled Signa Group of controversial real estate billionaire René Benko. The bank has set aside 82 million Swiss francs for bad loans, with 70 million added just since the end of October.
The already significantly fallen stock then experienced another drop of eleven percent on Monday. The reserves are also expected to negatively impact the annual result, and the bank admits that the group's profit for 2023 is unlikely to reach the level of 2022.
Reports on risky credit transactions with the Signa Group are fueled as the amount of provisions turns out to be moderate compared to the reported several hundred million Swiss francs. The bank continues to refuse any comments on the media reports concerning a business relationship with Benko. And despite the surprising loss, the bank insists that the overall quality of the loan portfolio and the balance sheet is not affected. With a strong core capital ratio of 16 percent, the bank is well above the requirements of the Swiss financial regulator (Finma).
However, the doubts of the investors are growing whether Julius Baer has managed their risks associated with Benko appropriately. Analysis by Jeffries shows that investors are wondering how a single client led to such a high provision for credit losses and whether there could be further significant credit exposure. Additionally, the bank also disappointed operationally by being able to attract less client assets than expected between July and October, and with a lower margin on managed assets than planned.
For Andreas Venditti, analyst at Vontobel, the recent setback represents a bitter blow. The bank had hoped to attract former customers of the failed Credit Suisse by hiring new client advisors. However, if it turns out that Julius Bär has also engaged in excessive speculation with a single client, it will be more difficult to convince potential customers of the benefits of the institution.
The stock performance compared to other banks on an annual basis is considered weak by Venditti, making Julius Baer's recruitment efforts even more difficult. Venditti suggests that their estimates for the full year 2023 may have been too optimistic and need to be adjusted downward. The planned cost ratio of less than 64 percent by 2025 also seems increasingly unattainable. Venditti's conclusion is therefore: "The current stock price decline seems justified."
