Julius Baer Probed by Regulator Finma Over Signa Risk Lapses
(Bloomberg) — Switzerland’s financial regulator is investigating Julius Baer Group Ltd over inadequate risk-control structures that contributed to the bank’s exposure to bankrupt property mogul Rene Benko.
The investigation, which began before Benko’s Signa real estate empire began to unravel, was prompted by concerns that Baer’s business and control functions aren’t sufficiently separate, according to people familiar with the matter.
Finma is looking into the reporting lines of the bankers responsible for structuring loans for private clients such as Benko, which lead to the same person as the teams managing credit risk, the people said. Both units are ultimately overseen by Chief Financial Officer Evie Kostakis, while a typical setup would see the risk team report into the chief risk officer, they said.
Within the bank there’s recognition that no individuals will shoulder the blame for the situation given the loans to Benko passed through three separate risk committees, a person familiar with the matter said. No Julius Baer executives have yet resigned over the matter, and senior management are focused on recouping as much value as possible from the Signa assets, another person said.
The reporting line structure is a significant reason why Baer ran up a 606 million Swiss francs ($706 million) exposure to Signa, the people said, who asked not to be named discussing internal matters.
Finma and Julius Baer declined to comment on the matter. Baer shares fell as much as 1.7% after the news, trading at 46.82 Swiss francs at 5:12 p.m. in Zurich.
Julius Baer’s shares have lost about 15% since November when it first signaled the need to book provisions against loans made to Benko’s firms. Moody’s Investors Service downgraded the debt of the banking unit on Wednesday, citing Baer’s “culture of higher risk tolerance” which weakened its “otherwise solid credit profile.”
Read More: Julius Baer Outlook Cut by Moody’s After Benko Hit
Separately, Finma has been monitoring any Swiss bank with regard to exposures to the Signa group, and in some cases has already taken measures, a person familiar with the matter said.
Analysts expect that Baer will have to substantially increase the 70 million francs already put aside for potential losses on Benko loans. Chief Executive Officer Philipp Rickenbacher has signaled the bank is reviewing its private credit business, but that it also isn’t adjusting its risk appetite in the wake of the affair.
Finma itself has faced criticism this year following the near-collapse of Credit Suisse. The regulator has notably fewer powers than international peers to corral banks under its supervision, lacking the ability to fine institutions.
The European Central Bank has also been reviewing banks’ business with Signa in the euro area and asked lenders to write down their exposure, Bloomberg reported in August. The regulator’s move to single out exposure to Rene Benko’s company has faced criticism from banks and Signa itself, who have said that it made it hard for the conglomerate to secure additional financing.
–With assistance from Alessandro Speciale.
(Updates with share price move)
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