Swiss Bank Julius Baer Reports Hefty Net Credit Losses and CEO Departure Amidst Struggling Real Estate Group Exposure

Swiss wealth manager Julius Baer, a leading player in the financial industry, reported significant net credit losses on Thursday, February 1, 2024, as it announced the departure of its CEO, Philipp Rickenbacher. The bank’s exposure to the troubled Austrian real estate group, Signa Holding, resulted in a net credit loss of 606 million Swiss francs ($701 million), exceeding consensus expectations.

The net credit losses, which include a loan loss allowance of 586 million francs, led to a 16% slide in operating income to 3.3 billion francs. Julius Baer had previously announced its exposure to Signa Holding in November 2023 and intended to write off the exposure in January 2024. The bank further announced its exit from its private debt businesses, winding down its remaining private debt book of 800 million million Swiss francs, which represents 2% of its total loan book.

The bank will refocus its credit business on mortgage lending and a specialized form of personal lending loans. Shares of Julius Baer popped some 10% on the news. The bank also announced it would cut 250 jobs this year, impacting around 3% of its 7,425 employees as part of an ongoing cost-cutting drive.

Julius Baer reported net profit attributable to shareholders of 454 million Swiss francs for the full-year 2023, down 52%, with earnings per share of 2.21 francs. Underlying operating income was slightly lower even excluding the Signa impact, with the benefit the bank saw from higher rates offset by a stronger Swiss franc and reduced client trading activity. Assets under management grew 1%.

Rickenbacher, who became CEO of the Zurich-based bank in 2019, will be replaced on an interim basis by Nic Dreckmann, previously deputy CEO. Rickenbacher and the board jointly agreed it was in the “best interest of the company” for him to step down.

“The other measures Julius Baer announced today regarding our private debt business draw a clear line and pave the way to move forward and regain the full confidence of our stakeholders,” Rickenbacher said in a statement. “The change in leadership is my contribution to the Group’s commitment of taking ownership.”

Investors appeared unrattled, with shares opening 2.8% higher. RBC analyst Anke Reigen noted that the full markdown of the exposure and management changes at the CEO level go a long way to get closure on this particular case. However, more visibility is likely to be needed that franchise implications are limited, no regulatory actions follow, and that this is a one-off event.

Swiss bank Julius Baer’s net credit losses and CEO departure mark a significant turning point for the bank as it navigates the challenges of its exposure to the struggling real estate group, Signa Holding, and the exit from its private debt businesses. The bank’s commitment to taking ownership and refocusing its credit business on mortgage lending and personal lending loans is a clear indication of its determination to move forward and regain the confidence of its stakeholders.

The departure of CEO Rickenbacher, who led the bank through a money laundering scandal, marks the end of an era for Julius Baer. His replacement by Nic Dreckmann, previously deputy CEO, signals a new chapter for the bank as it continues to weather the storm and focus on its core business.

In conclusion, Swiss bank Julius Baer’s net credit losses and CEO departure are a significant development in the financial industry. The bank’s exposure to the struggling real estate group, Signa Holding, and the exit from its private debt businesses have resulted in hefty net credit losses and a change in leadership. The bank’s commitment to taking ownership and refocusing its credit business on mortgage lending and personal lending loans is a clear indication of its determination to move forward and regain the confidence of its stakeholders. The departure of CEO Rickenbacher marks the end of an era for Julius Baer and the beginning of a new chapter as it continues to navigate the challenges of the financial industry.