All eyes are focused on Julius Baer's annual news conference next Thursday because of the Signa debacle. finews.com answers the seven biggest questions.
1. Will the Signa collapse impact Julius Baer's annual net profit?
This is likely. In November, the private bank disclosed a nominal exposure of 606 million francs in three loans to a «European conglomerate». Reading between the lines, that is likely to be the Signa business empire founded by Austrian investor René Benko. According to current knowledge of the general situation and the related bankruptcies of several entities, observers believe that the bank will have to dramatically raise the provisions on the loans to far more than the 70 million francs it has already set aside.
Analysts at the Zurich Cantonal Bank expect the provisions to be raised to 400 million francs for 2023. That will have an impact together with other probable negative influences, such as the group's tax rate, leading to a clear possibility that net profit will be significantly less than 2022's 1.05 billion francs.
2. Will CEO Philipp Rickenbacher or Chairman Romeo Lacher Face any Consequences on February 1.?
No, there is nothing that would indicate that right now. According to industry experts, the bank's leadership managed to defuse the situation by being transparent about the Signa relationship and the provisions. Both those things have already been discounted into share prices, which have fallen by one-fifth since the announcement.
It is, however, almost certain that Rickenbacher and Baer CFO Evie Kostakis will have to face up to critical questions at the annual news conference.
3. Is management off the hook?
No. The question of who or what is responsible is the elephant in the room and that doesn't end on February 1. The board should have been in a position to review that kind of exposure purely from an organizational perspective. There are a few questions that still need to be answered. One is why the bank's leadership approved such a large exposure when compared with the other Signa creditors. Another is why Julius Baer accepted the now largely worthless Signa shares as collateral, which is something that has stunned the entire Swiss financial hub.
Heads could roll if there are any further secondary impacts resulting from the exposure and if the potential for further losses increases. That is a possible scenario given the number of moving parts and the lack of transparency in Signa's structures.
4. Is Signa the only shareholder worry?
No. The inflow of net new money was considered to be disappointing when the bank published the ad hoc announcement of its ten-month figures in November. That and the provisions put the bank's share price under pressure. If that trend continues, it could disappoint investors.
But things could turn out differently. The bank hired dozens of new client advisors in 2023 and profited from Credit Suisse's collapse. That, together with the improved sentiment in equity markets, could help raise the level of inflows.
5. Will the dividend increase?
It doesn't seem likely. Julius Baer will want to show a certain level of stability but higher payments to shareholders don't look all that probable given the expected sharp increase in credit provisions. Zurich Cantonal Bank analysts expect Julius Baer to keep its dividend at 2.60 francs a share.
Something that is in the balance is 2024's share buybacks. To keep them going, the bank will have to report a CET1 ratio that is significantly above 14 percent at the end of the financial year. The question is how the bank will interpret «significantly». At the end of 2022, the CET1 ratio was at 16.1 percent. Analysts from the Zurich Cantonal Bank expect to see a program of about 150 million francs, which is more of a symbolic gesture. That would be better than nothing.
6. Does Julius Baer have to cut costs - and jobs?
Yes, but we don't yet know how deep they will be. According to its three-year business plan, the bank targets 40 million in annual cost savings by 2025, or 120 million francs in total. Personnel expenses are included in that number. In May, chairman Lacher said the bank would have more room to maneuver on the cost side if it managed to generate more revenues from business growth. If growth comes in under expectations and the provisions pressure profits, that would have the opposite effect. The pressure to save would increase.
7. Can we expect anything from its second home market in Asia?
We can't count on that right now. At the start of 2023, Julius Baer occupied new premises in Hong Kong and it employs about 500 people there, beyond its hub in Singapore and locations in Mumbai, Shanghai, Bangkok, and Tokyo. In November, the bank disclosed that Asia had made a «solid contribution» to net new money performance, particularly in Hong Kong and Japan.
Asian markets are currently under pressure given the geopolitical situation, something that also impacts wealth and clients' inclination to take on risk. Industry observers say that the private banking business has been ticking along cautiously. At the moment, that does not sound like any kind of knight in shining armor riding in.
