Julius Baer Group Ltd.’s exposure to the crumbling empire of Rene Benko is being monitored by Swiss regulator Finma, according to two people familiar with the matter.
The wealth manager has about €600 million ($656 million) in outstanding loans to the Austrian real estate tycoon, the people said, asking for anonymity to discuss the confidential details. The exposure was the main reason why the Swiss firm set aside 70 million francs ($79 million) for souring debt in the first weeks of November.
Finma is the latest European regulator known to be monitoring banks with exposure to Benko and his Signa Holding GmbH. The European Central Bank previously told several lenders to Benko’s companies to write down the value of their loans or make further provisions for potential losses.
Officials for Finma, Baer and Signa declined to comment. Benko didn’t respond to a request for comment.
The surprise jump in provisions prompted Baer to warn investors on Monday that profit will probably decline this year. That sent shares of the wealth manager tumbling by the most since the early days of the Covid-19 pandemic three years ago, with Baer declining to give details on the reason for the sudden increase in souring loans.
“This significant credit provision raises questions about Baer’s underwriting credit policy” including whether the amounts set aside now are enough, Nicolas Payen, an analyst at Kepler Cheuvreux, wrote in a note. Baer’s provisions are now the highest since 2011, according to Payen.
At least some of Baer’s loans are secured by stakes in Signa Holding, the company where Benko’s various businesses are bundled, said two of the people.
Signa is seeking to avert a liquidity crunch and is approaching investors for about €500 million in cash to meet obligations this year, with another €1.5 billion needed in the first half of 2024, Bloomberg News has reported. Slumping valuations in commercial real estate have put an end to more than two decades of aggressive expansion during which Benko acquired prime properties including major retail stores in top European locations.
Baer previously helped Signa with a bridge loan to buy a 50% stake in Switzerland’s Globus luxury department store chain in 2020. That debt was refinanced by Credit Suisse the following year. Baer also provided a £300 million ($376 million) loan to help with the acquisition of UK department store Selfridges, which Signa bought together with Thailand’s Central Group in 2022. That debt was refinanced this year.
Baer has internal rules to limit “the overall concentration towards large client groups,” wrote Payen at Kepler Cheuvreux. “Our understanding is that Baer’s exposure is quite far away from any single counterparty thresholds.”
--With assistance from Libby Cherry, Marton Eder and Allegra Catelli.
Author: Marion Halftermeyer, Myriam Balezou and Steven Arons