Julius Baer to review private debt business

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Julius Baer chief executive Philipp Rickenbacher said Switzerland’s second-biggest wealth manager would review its private debt business in the wake of the crisis engulfing Austrian property group Signa.

According to people familiar with the matter, Julius Baer is one of the biggest lenders to Signa, a European luxury developer whose assets include a stake in KaDeWe, Germany’s most famous department store, and the Chrysler Building in New York.

Shares in Julius Baer have dropped 16 per cent since it revealed last week that it was taking a SFr70mn ($80mn) provision against losses in its credit portfolio.

Shares dropped another 2 per cent when the market opened on Monday after the Swiss lender said the provision stemmed from its single largest exposure in its private debt loan book, which amounted to SFr606mn. The shares later reversed some of the fall in morning trading to be down 0.3 per cent.

“We regret that a single exposure has led to the recent uncertainty for our stakeholders,” Rickenbacher said. As a result, “we will review our private debt business and the framework in which it is conducted”.

Founded by René Benko, Signa has amassed a €27bn property portfolio but has been hit hard by rising interest rates. This month, Signa said it had appointed a new chair to restructure the group and Benko would be stepping back from the company.

Signa owes approximately €13bn to banks and investors, according to an analysis by JPMorgan. However, the group’s complicated structure and opacity mean it has been hard for lenders to assess how much risk there is to their capital.

The Financial Times has previously reported on a €364mn loan Julius Baer had extended to the Selfridges Group, the company behind the upmarket London department store, which is part-owned by Signa.

Julius Baer, which did not explicitly state the counterparty was Signa due to client confidentiality requirements, said its SFr606mn exposure consisted of three loans to different entities within a “European conglomerate” related to “commercial real estate and luxury property”, which was now subject to restructuring.

The lender said its total private debt loan book amounted to SFr1.5bn, including 21 other counterparties.

Julius Baer said it would book further provisions if required, though it added that even under a “hypothetical loss scenario”, its common equity tier one capital ratio — a measure of its financial strength — would drop from 16.1 per cent to 14 per cent, well above its regulatory requirement of 8.2 per cent.

Vontobel analyst Andreas Venditti said while the bank’s capital position was strong, there were still questions about its Signa exposure.

“The key question remains highly uncertain,” he said. “What collateral does Julius Baer hold and how much is it still worth?”