What one Swiss bank's troubles can tell us about market vulnerabilities — and social media
The share price of Julius Baer plummeted after the Swiss private bank disclosed 606 million Swiss francs ($692.7 million) of loan exposure to a single conglomerate client.
The disclosure and swirling concerns about concentration of risk in the lender's private debt business came against a backdrop of emerging news that troubled Austrian real estate group Signa was teetering. It filed for insolvency on Wednesday.
The 606 million Swiss franc exposure to one client — via three loans to different entities within a European conglomerate — is collateralized by commercial real estate and luxury retail, the company revealed. It represents around 18% of Julius Baer's CET1 capital as of the end of June 2023, according to analysts at DBRS Morningstar.
The bank last week booked provisions of 70 million Swiss francs to cover the risk of a single borrower in its private loan book.
Despite the speculation, Julius Baer has not confirmed that the client is Signa, and a spokesperson told CNBC on Thursday that the bank «cannot comment on alleged or existing client relationships.»
DBRS Morningstar Senior Vice President Vitaline Yeterian and Managing Director Elisabeth Rudman on Wednesday said that such a large concentration of funds to a troubled real estate borrower raises concerns about risk management and highlights the broader risks for the banking sector, as highly leveraged companies grapple with higher debt financing costs in a perilous economic environment.
The European Central Bank recently examined the commercial real estate sector and the provisioning methods and capital buffers of European banks.
DBRS Morningstar says the capital levels of Julius Baer are adequate to absorb further losses, with a hypothetical 606 million Swiss
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