The collapse of the Austrian real estate conglomerat Signa Group, led by the controversial real estate magnate Rene Benko, is having a significant impact on its banking partners, notably the Julius Baer Group. The Swiss wealth management firm is grappling with a substantial exposure of 606 million Swiss francs ($687 million) linked to Benko’s collapsing real estate scheme. The Signa drama continues to unfold with more bank feeling the impact.
Julius Baer’s Exposure
The Swiss Julius Baer has announced that CHF 70 million in provisions for loan losses related to the exposure to Benko and Signa have been set aside. Further provisions will be made if necessary. Benko reportedly has 600 million francs outstanding with Julius Baer, Reuters reports. This would give him more than a third of the total volume of structured finance solutions that Baer has outstanding with its wealthiest clients. According to Bloomberg, Baer’s private debt loan book is said to have a volume of CHF 1.5 billion. Baer’s entire loan book has a volume of CHF 41 billion.
The Impact of Signa’s Insolvency
The situation took a turn when a German entity of the Signa Group filed for insolvency in a Berlin court, signaling deepening troubles for Benko’s group. This development not only reflects the challenges in salvaging Signa but also has had a ripple effect on Baer’s financial stability. The news led to a significant drop in Julius Baer’s share prices, marking the sharpest decline since the onset of the Covid-19 pandemic three years ago.
Acknowledging the situation, Julius Baer’s CEO, Philipp Rickenbacher, expressed regret over the uncertainty caused by this single exposure. He emphasized that, together with the Board of Directors, there will be a comprehensive review of the private debt business to mitigate such risks in the future.
Financial Resilience and Measures
Despite the potential risks, Julius Baer remains confident in its financial resilience. The firm stated that even in a worst-case scenario of total loss, it would have remained profitable. Its CET1 ratio, a critical indicator of capital strength, would have exceeded 14% at the end of October, underscoring the firm’s robust financial foundation.
The Signa Drama Continues
The unfolding situation with Signa Group serves as a poignant reminder of the interconnectedness of real estate and financial sectors. For Julius Baer Group, this incident highlights the need for stringent risk assessment and management, especially in dealing with large, complex exposures. The scenario also sheds light on the broader implications of corporate insolvencies on financial institutions and the importance of diversifying risk.
