Julius Baer: Benko hangover leaves bank in an Austrian bind

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Austrian property mogul Rene Benko is known for throwing lavish parties. Now the music has stopped, the dancing is over and the hangover is kicking in. An empire, including stakes in luxury buildings like Selfridges in London, is in freefall as commercial property prices crater.

The board of Benko’s company Signa has ousted him. The focus has shifted to lenders. Julius Baer is one of them. A trading update included large provisions and a hit to profits on Monday.

Investors marked shares down sharply, wiping SFr1.4bn ($1.5bn) from the Swiss bank’s market value. That is many times the multiple of the SFr70mn of new provisions the bank expects in November. But this year’s banking turmoil and the demise of Credit Suisse are fresh in the memory. The benefit of the doubt is therefore in short supply. Julius Baer will now have to walk a fine line between the dictates of client privacy and shareholder transparency to shore up confidence.

Baer says it cannot disclose which clients writedowns relate to. But we do know that things with Benko’s ventures are coming unstuck fast. Signa minorities are calling for him to relinquish his voting rights for a recapitalisation to go ahead. Media reports claim losses totalled more than €500mn last year.

Baer’s full exposure in unknown. The bank had SFr43bn of loans outstanding at the half-year mark, including SFr8bn in mortgages that are largely on Swiss residential property. The remainder are Lombard loans secured on client assets. These are the likely source of current pain.

To put those figures in perspective Credit Suisse, had SFr530bn of exposure at the end of 2022. It was engaged in risky investment banking and had a reckless attitude to risk.

Baer is a different animal. But the provisions only add to a sense that the bank has failed to capitalise on Credit Suisse’s collapse. Inflows continue to disappoint.

Baer should quantify its single client exposures. That would be one way to settle the market’s nerves.