Julius Bär probed by Swiss regulator over Signa risk lapses

No Julius Bär executives have yet resigned over the matter © Keystone / Ennio Leanza

Switzerland’s financial regulator is investigating Julius Bär Group over inadequate risk-control structures that contributed to the bank’s exposure to bankrupt property mogul Rene Benko.

The investigation, which began before Benko’s Signa real estate empire began to unravel, was prompted by concerns that Bär’s business and control functions aren’t sufficiently separate, according to people familiar with the matter.

FINMA is looking into the reporting lines of the bankers responsible for structuring loans for private clients such as Benko, which lead to the same person as the teams managing credit risk, the people said. Both units are ultimately overseen by Chief Financial Officer Evie Kostakis, while a typical setup would see the risk team report into the chief risk officer, they said.

Within the bank there’s recognition that no individuals will shoulder the blame for the situation given the loans to Benko passed through three separate risk committees, a person familiar with the matter said. No Julius Bär executives have yet resigned over the matter, and senior management are focused on recouping as much value as possible from the Signa assets, another person said.

The reporting line structure is a significant reason why Bär ran up a CHF606 million ($706 million) exposure to Signa, the people said, who asked not to be named discussing internal matters.

+ Julius Bär bank details shaky loan position

FINMA and Julius Bär declined to comment on the matter. Bär shares fell as much as 1.7% after the news, trading at CHF46.82 at 5:12pm in Zurich on Thursday.

Julius Bär’s shares have lost about 15% since November when it first signalled the need to book provisions against loans made to Benko’s firms. Moody’s Investors Service downgraded the debt of the banking unit on Wednesday, citing Bär’s “culture of higher risk tolerance” which weakened its “otherwise solid credit profile”.

Criticism

Separately, FINMA has been monitoring any Swiss bank with regard to exposures to the Signa group, and in some cases has already taken measures, a person familiar with the matter said.

Analysts expect that Bär will have to substantially increase the CHF70 million already put aside for potential losses on Benko loans. Chief Executive Officer Philipp Rickenbacher has signalled the bank is reviewing its private credit business, but that it also isn’t adjusting its risk appetite in the wake of the affair.

FINMA itself has faced criticism this year following the near-collapse of Credit Suisse. The regulator has notably fewer powers than international peers to corral banks under its supervision, lacking the ability to fine institutions.

+ Swiss financial regulator wants more power after Credit Suisse collapse

The European Central Bank has also been reviewing banks’ business with Signa in the euro area and asked lenders to write down their exposure, Bloomberg reported in August. The regulator’s move to single out exposure to Rene Benko’s company has faced criticism from banks and Signa itself, who have said that it made it hard for the conglomerate to secure additional financing.

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