Julius Baer to Exit Private Debt After Benko Saga Claims CEO

(Bloomberg) — Julius Baer Group Ltd. said it would exit its private debt business after writing down all of its loans to the bankrupt Signa companies, and confirmed that Chief Executive Officer Philipp Rickenbacher is stepping down as a result. 

The shares surged, trading up 7.3% at 50.76 Swiss francs ($58.823) at 1:13 p.m. 

The Zurich-based lender said it is taking a full loan loss allowance of 586 million Swiss francs related to the exposure, in a statement with full-year earnings on Thursday. Net income at the wealth manager for 2023 slumped 52% from a year earlier.

Read More: Julius Baer’s Rickenbacher to Exit, Dreckmann to Be Interim CEO

The decisions may help alleviate weeks of uncertainty around Julius Baer following the disclosure in November that the bank had extended about $700 million in loans to property magnate Rene Benko’s companies. Rickenbacher, in the top job since 2019, had attempted to push the wealth manager into new business areas including private credit. 

The bank said that deputy CEO Nic Dreckmann would take over the top job until a permanent appointment can be made. The chief operating officer has been at the lender for two decades, including working in Asia and leading the integration of Merrill Lynch’s international wealth management business.

David Nicol, Chair of the Governance and Risk Committee of the Board of Directors, will not stand for re-election at 2024 Annual General Meeting, Julius Baer said.

The bank also said that the CEO and the five members of the executive board responsible for credit decisions won’t receive any variable pay for 2023. 

Rickenbacher received a bonus of about 4 million Swiss francs for 2022, according to Julius Baer’s remuneration report, which noted his “sound risk judgment” and promotion of a “risk-aligned culture.”

“I deeply regret that the full loss allowance for the largest exposure in our private debt business has significantly impacted our net profit for 2023,” Chairman Romeo Lacher said in the statement. “We are refocusing our lending activity on more traditional areas, which are an important part of our wealth management offering.”

Private Credit

Rickenbacher took over as CEO in part to restore stability amid a money-laundering probe that saw previous chief executive Boris Collardi issued with a reprimand. His time as CEO has however also been marked by forays into non-traditional businesses for the Swiss wealth manager, including an investment in a crypto bank and moves to offer clients services in digital assets. 

In December, rating agency Moody’s downgraded Baer, cutting its outlook to negative from positive. It cited a culture of higher risk tolerance compared to its closest private banking peers. 

The Swiss financial regulator Finma had opened an investigation in the lender’s risk-control procedures. The investigation began before the Signa scandal unfolded and was prompted by concerns that Baer’s business and control functions were not sufficiently separate. Chairman Lacher declined to comment on whether the decisions to exit the private credit business and the CEO’s departures have been suggested by Finma.

Read More: Julius Baer Probed by Regulator Finma Over Signa Risk Lapses (1)

Julius Baer will now wind down the remaining 800 million francs in private credit assets, and refocus its credit business on “areas of historical strength – Lombard and mortgage lending.”

The change in leadership add to a turbulent period for Swiss finance, after the collapse and emergency takeover of Credit Suisse by UBS Group AG last year. The government has signaled that it plans to overhaul financial oversight and is set to make further proposals in the spring. 

Julius Baer may have benefitted from the turmoil in its own neighborhood last year. Net new money inflows totalled CHF 12.5 billion (2.9% growth rate), a year-on-year increase of 43%.

“A full mark down of the exposure and taking accountability with management changes at the CEO level goes a long way to get closure on this particular case,” RBC Europe Ltd. analyst Anke Reingen wrote in a note.

 

–With assistance from Leonard Kehnscherper and Allegra Catelli.

(Updates with shares in second paragraph)

©2024 Bloomberg L.P.