Financial Results

Julius Baer Flags SFr606 Million Nominal Debt Exposure; Shares Slip

Tom Burroughes Group Editor 28 November 2023

Julius Baer Flags SFr606 Million Nominal Debt Exposure; Shares Slip

In its latest interim statement, the Zurich-headquartered bank said it booked SFr70 million of provisions linked to the exposure to the conglomerate, which it hasn't identified by name. Further valuation changes may take place if necessary.

Shares in Zurich-listed Julius Baer were down yesterday after the bank said it has nominal exposure totalling SFr606 million ($684.36 million) to a European conglomerate.

A report by Reuters (27 November) identified the conglomerate as “troubled property group” Sigma. The banks said it may make further valuation adjustments if necessary.

The Swiss lender said in its management statement for the first 10 months of 2023 that it had booked SFr70 million of provisions against its credit portfolio after 31 October.

Shares in Julius Baer ended at SFr45.68 per share yesterday, down about 2.26 per cent. 

“The group confirms that this amount was primarily related to the single largest exposure in its private debt loan book. This nominal exposure amounts to SFr606 million, comprising three loans to different entities within a European conglomerate,” Julius Baer said in its statement.

“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,” the bank continued.

“Julius Baer has taken measures to protect its interest and to preserve the value of its collateral and, if and when appropriate, the group will remain prudent in booking further valuation adjustments as required,” it said.

Julius Baer said its capital position is “strong,” citing its Common Equity Tier 1 capital ratio – a bank’s capital “shock absorber” – of 16.1 per cent as of 31 October, above its own 11 per cent floor and the regulatory requirement of 8.2 per cent. 

The bank said that “even under a hypothetical total loss scenario,” its pro-forma CET1 capital ratio at 31 October 2023 would have been in excess of 14 per cent and Julius Baer would have remained “significantly profitable.”

The bank noted that it offers private debt as a structured finance solution exclusively within its wealth management value proposition for UHNW clients. As of 31 October 2023, the private debt loan book amounted to SFr1.5 billion as part of a total loan book of SFr41 billion. 

The above-mentioned exposure is the largest in the private debt loan book, the bank said. 

The remaining portfolio comprises loans to unrelated counterparties and various sectors with strong asset quality. The second largest private debt exposure amounts to SFr216 million and the third largest to SFr140 million, neither of which is related to the real estate sector. The rest of the portfolio consists of exposures of a considerably smaller size to 19 unrelated counterparties, it said.

“Julius Baer is very well capitalised and has been consistently profitable under all circumstances. We regret that a single exposure has led to the recent uncertainty for our stakeholders,” Philipp Rickenbacher, the bank’s CEO, said.

“Together with investing and multi-generational wealth planning, financing is an inherent part of the wealth management proposition to our clients. On this basis, together with the board of directors, we will review our private debt business and the framework in which it is conducted,” he added.

Julius Baer reconfirmed its capital distribution policy, under which it targets a dividend payout ratio of about half of adjusted net profit attributable to shareholders of Julius Baer Group Ltd, with the dividend per share at least equal to the previous year’s dividend per share. 

Earlier in November the bank announced that it and Kairos’ co-shareholders have agreed to sell 100 per cent of Kairos (by way of Kairos SGR) to Anima Holding SpA (Anima) – an Italy-based firm – for about €20 to €25 million ($21.7 to $27.1 million).

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