Julius Baer CEO’s First Strategy Moves Marred by Benko Hangover

(Bloomberg) — Julius Baer Group Ltd. last month brought in Stefan Bollinger to draw a line under painful losses caused by loans to a collapsed real estate conglomerate. But it was that past that ruined the new chief executive officer’s presentation of his first strategic moves. 

Shares dropped as much 14.6% on Monday after the country’s financial watchdog Finma said it had opened an enforcement procedure against the lender. The action is linked to control failures exposed by the unraveling of Rene Benko’s Signa real estate empire in late 2023, which saddled the bank with 586 million Swiss francs ($640 million) in defaulted loans that year. 

Bollinger sought to put on a brave face during his first ever earnings call with journalists as CEO, dismissing the share price reaction as “a short-term market move that will not affect our strategic thinking.” Instead, he drew attention to a set of measures he unveiled earlier in the morning, designed to turn Julius Baer into “the most admired international wealth manager.”

The steps include slashing the executive board to five members from 15 and seeking to shave 110 million Swiss francs in additional annual costs from the lender. That will translate to as many as 400 job cuts in Switzerland, equivalent to about 5% of the workforce.

But investors focused on the possibility that Julius Baer will not be able to carry out share buybacks this year. 

“It’s prudent to await the completion of the Finma review” before deciding on any buybacks, Chief Operating Officer Nic Dreckmann said on the call with journalists. The bank’s “focus” this year will be on completing the measures initiated after the Signa hit such as winding down the unit that made the loans, he said.

“Share buybacks may be off the table in 2025,” analysts at KBW wrote in a note earlier Monday. There’s the possibility of a much larger program next year “regardless of the outcome of the Finma review,” they said.

Julius Baer said during an earnings call in November it’s “base case assumption” was that it would “resume normal capital distribution policy again next year.” That was in response to a question about buybacks. 

The firm put buybacks on hold when reporting the full extent of the Signa hit in February last year. It said at the time it would “consider” resuming those payouts later in 2024.

An enforcement procedure is a formal step that can lead to measures including a reprimand, confiscation of profits or a removal of banking licenses. Finma doesn’t have the power to fine banks.

A Finma spokesman said by email that it had taken the decision after “lengthy and rigorous investigations.”

Finma’s investigation, which began before Benko’s real estate firms began to unravel in 2023, was prompted by concerns that Baer’s business and control functions weren’t sufficiently separate. Following steep losses on loans to Signa firms, the bank said it was shutting the private debt business responsible, and has since fired the then-CEO Philipp Rickenbacher. 

Julius Baer said it would give a strategy update before the summer as well as updated financial targets. 

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