Julius Baer (BAER.S) has soothed agitated investors’ fears – but only up to a point. The $11 billion Swiss wealth manager said on Monday that 70 million Swiss francs of recently revealed losses stemmed from 606 million Swiss francs of loans to a single corporate client – which Reuters identified as troubled property group Signa. That’s 40% of the bank’s 1.5 billion Swiss francs riskiest credits, an uncomfortably high concentration.
In one sense there’s good news. Julius Baer, which will now review its private debt business, had a healthy 16.1% common equity Tier 1 ratio at the end of October, or 3.45 billion Swiss francs assuming the same risk-weighted assets of end-June. That implies a buffer of 450 million Swiss francs over the 14% threshold at which boss Philipp Rickenbacher gets comfortable doing share buybacks. The lender says that even in the case of a total loss on Signa’s remaining tricky loans, its capital would still remain just above the 14% buyback floor.
But if other chunky loans in its portfolio turn out to be problematic, that headroom may quickly evaporate. And a 2% share drop on Monday, coming on the heels of last week’s 16% fall, suggests investors are anxious about both Julius Baer’s risk management ethos and prospective returns. (By Lisa Jucca)
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