Julius Baer CEO’s Turnaround Hampered by Fresh Loan Book Blow

(Bloomberg) — Five months into his job, Julius Baer Group Ltd. Chief Executive Officer Stefan Bollinger is struggling to stop the bank’s past troubles from spoiling his plans to boost profitability.

An ongoing review carried out by the Swiss wealth manager into its loan book found that bigger buffers against default were needed, resulting in a hit of 130 million Swiss franc ($158 million), it said in a statement late Tuesday, confirming an earlier Bloomberg report. The firm also replaced its chief risk officer and is seeking to hire a chief compliance officer, who will join the lender’s executive board, it said.

It’s an inauspicious beginning for first-time CEO Bollinger, who is being buffeted by bad news before he has had time to establish a track record of success. His initial vow to bring down costs at the wealth manager may be overshadowed by a struggle to control risks.

Bollinger was hired as permanent replacement for former CEO Philipp Rickenbacher who left over a year ago, after Julius Baer wrote off $700 million on loans to the collapsed Signa real estate conglomerate under disgraced Austrian tycoon Rene Benko.

Julius Baer’s shares dropped as much as 7.1% on Wednesday. The stock is now down about 6% this year to date, compared with an increase of more than 30% for the wider European banking industry. 

“We expect investors to question the quality of the rest of the loan book, not least given other mis-steps over the past 18 months,” Citi analysts said in a note.

Bollinger sought to project confidence on Wednesday that the worst is over, saying that he doesn’t expect the ongoing review of the credit portfolio to result in further write-downs. 

Still, Julius Baer also said that profit in the first six months of the year will likely be lower than in the previous year’s period and warned of an “uncertain” outlook on the back of “the dislocation currently evident in global markets.”

Last week it emerged that Julius Baer has been ordered to hand over 4.4 million Swiss francs because of alleged failings in money-laundering controls in relation to transactions that occurred between 2009 and 2019. The previously undisclosed “enforcement proceeding” is separate from an existing Finma probe into the Signa fallout.

The bank also said on Wednesday that its plan to wind down a unit known as Private Debt that was the previous source of massive loan write-downs is ahead of schedule. 

The announcement on Wednesday to add a new executive board member will partly reverse Bollinger’s decision to shrink the body shortly after joining earlier this year. The move was part of his cost-cutting drive.

Julius Baer appointed HSBC Holdings Plc’s former CEO, Noel Quinn, as chairman in February. Bloomberg has reported that Quinn’s role is expected to involve acting as a kind of CEO mentor for Bollinger, who had previously been co-head of private wealth management at Goldman Sachs Group Inc. for Europe, the Middle East and Africa.

Bollinger is set to give investors and analysts a strategy update on June 3.

“As we are swiftly addressing legacy issues, we are also paving the way forward to unleash the full potential” of Julius Baer, he said in the statement.

–With assistance from James Cone.

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