– Julius Baer had to report the Benko loan to Finma as a risk
The huge loan to real estate tycoon René Benko is officially considered a cluster risk. The bank’s management, board of directors and auditing company: everyone knew about it.
You don’t need clairvoyant abilities to know that something is completely out of control at Julius Baer. The Bär Group has been trying for years to achieve the image of a low-risk, predictable asset manager – and failing.
While ordinary customer advisors have to adhere to the documentation requirements meticulously – beware of missing the date of birth of the customer’s children or proof of the origin of his grandparents’ assets – Bär seems to be less sensitive when it comes to very large customers. Today a major customer, René Benkos Signa, filed for bankruptcy.
The fact that the bears issued CHF 606 million in loans to units of the conglomerate of the controversial Austrian real estate tycoon Benko – and were content with inferior collateral – seems adventurous. Questionable customer, huge loan and poor protection: you didn’t need specialized banking committees or complex risk models to see the warning signs.
The alarm bells had rung. The Ordinance on Capital and Risk Distribution of Banks and Securities Houses (ERV) states: “A cluster risk exists if the total position towards a counterparty or a group of related counterparties reaches or exceeds 10% of the bank’s eligible core capital.” The decisive factor is the bank’s Tier 1 capital, which at Julius Baer amounted to CHF 5.2 billion in mid-2023. The outstanding loan to the Benko conglomerate amounts to 11.6% of eligible core capital.
“Banks must identify and monitor cluster risks and other large credit risks vis-à-vis a single counterparty or a group of related counterparties and comply with relevant reporting obligations,” the ERV continues. The Benko loan was therefore in the intensive care unit from a regulatory perspective. Finma must be informed about cluster risks several times a year, and reporting to the auditing company is also mandatory. It is unthinkable that this happened without the knowledge of management and the board of directors. A spokeswoman for Julius Baer did not comment when contacted by FuW, but emphasized that the bank adheres to all reporting obligations.
Came from Credit Suisse
The bears obviously wanted to spin the big wheel. They took over the major customer Benko from Credit Suisse, as FuW knows according to rumors and as “Inside Paradeplatz” first reported. But Julius Baer is not Credit Suisse, and 606 million francs outstanding from a single customer is beyond the scope of the situation. Even though it is still completely unclear how much of the total loan will ultimately be lost, one can only shake one’s head at the bears. Is it possible that Benko, of all people, was customer number 1?
The risk distribution regulations are the basic basics of banking. It is doubtful whether the transaction took place within the risk tolerance defined by Bär. In any case, CEO Philipp Rickenbacher announced that the bank would “review the private debt business and the framework in which it is operated together with the board of directors.” If it turns out that all committees and upper levels of the hierarchy at Bär did everything right and no one is to blame, that would likely be detrimental to credibility.
What now? When hundreds of millions go down the drain, heads have to roll. CEO Rickenbacher and Chief Risk Officer Oliver Bartholet, who is considered an extremely capable lawyer, are primarily responsible. Chairman of the Board of Directors Romeo Lacher is also required. Six out of nine members of the Board of Directors consider risk management to be one of their core competencies.
Modern risk management
The bears’ risk management appears to be contemporary. The corporate governance rules postulate: “The risk categorization enables individual assignment of responsibility to the corresponding risk owners (“Risk Type Owners”), who ensure compliance with the risk management framework for each material risk type.” It also states: “A solid risk culture is central to effective risk management. It contributes to appropriate risk assumption and ensures that new risks or risks that go beyond the group’s risk tolerance are identified, assessed, escalated and addressed appropriately and in a timely manner.”
Julius Baer shares have lost over 20% within a month, far more than the maximum direct damage from the Benko affair would justify. The reputational damage the bank has suffered jeopardizes its chosen growth strategy. The newly hired customer advisors may have difficulty attracting customers to Bär. The FuW therefore advises investors to be cautious for the time being.
Julius Bär boss sticks to the business model
Although Julius Baer recently had to make large write-downs on its loan portfolio, the head of the asset manager does not want to make any significant corrections to the business model, according to the Reuters news agency.
“I believe that Julius Baer will be able to maintain its risk appetite and risk capacity as we have done on average in recent years,” said CEO Philipp Rickenbacher on Wednesday at the “FT Global Banking” event, according to Reuters. Conference. Financing is an integral part of every asset management business.
Julius Baer recently had to communicate a credit correction of 82 million francs, of which 70 million related to the outstanding debts of a single customer alone. Rickenbacher apparently once again refused to say whether this was the ailing Signa Group owned by real estate investor Rene Benko.
“I can’t comment on customers,” Rickenbacher said, according to the news agency. In addition, it is currently too early to say what concrete lessons could be learned from the large commitment in the private debt business. At the moment the focus is on maximizing the value of the collateral.
Monica Hegglin edits and comments primarily on current topics of the financial center and corporate governance for the FuW. The studied economist was formerly the US correspondent for the Tages-Anzeiger and editor of the Handelszeitung and the Berner Zeitung. More info