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Credit Loss Hit Julius Baer's 2023 Profits; CEO Departs

Editorial Staff

30 March 2024

yesterday announced a hit to its full-year 2023 financial results from credit losses of SFr606 million ($701 million). The losses stem from loans to a European conglomerate, as previously disclosed in late November 2023. 

Its chief executive, Philipp Rickenbacher, is stepping down by mutual agreement with the board. Nic Dreckmann, deputy CEO and chief operating officer, will become interim CEO.

The Zurich-listed private bank said adjusted net profit (excluding M&A-related costs) was SFr472 million, sliding by 55 per cent. 

The net credit loss figure includes a full specific loss allowance of SFr586 million for a private debt exposure that the bank disclosed on 27 November last year.

When the credit loss is excluded, underlying income fell slightly year-on-year, Julius Baer said. Underlying pre-tax profit was SFr1.12 billion, down 6 per cent. 

The positive effect of higher interest rates was offset by the appreciation of the Swiss franc, as well as lower volatility and reduced client trading activity.

Julius Baer said it booked net new money of SFr12.5 billion last year.

At the end of 2023, Julius Baer’s Common Equity Tier 1 ratio – a common measure of capital buffer – was 14.6 per cent, up from 14 per cent at the end of 2022.

The liquidity coverage ratio was 291 per cent. 

The bank proposed an unchanged ordinary dividend of SFr2.6 per share for the 2023 financial year.

In other points, the bank said it was undertaking an “orderly wind-down” of its remaining private debt book of SFr800 million, and refocusing its credit business on areas such as mortgage and Lombard lending. It is also making “substantial reductions” in board and executive compensation.

Moves
David Nicol, chair of the governance and risk committee of the board of directors, will not stand for re-election at the 2024 annual general meeting.

“Speaking on behalf of the entire board of directors, I deeply regret that the full loss allowance for the largest exposure in our private debt business has significantly impacted our net profit for 2023,” Romeo Lacher, chairman of Julius Baer, said. “Our 2023 results reflect our determination to end any uncertainty regarding our private debt business through this full loss allowance.”

“The results also reflect the continued financial strength of Julius Baer, as expressed by our capitalisation, the solidity of our balance sheet, and our robust underlying profitability. We are refocusing our lending activity on more traditional areas, which are an important part of our wealth management offering,” Lacher said.

Assets
Assets under management rose by SFr3 billion (+1 per cent on a year ago) to SFr427 billion. Excluding the SFr11 billion combined impact from divestments and a policy-related net reclassification of AuM to assets under custody (AuC), the growth in AuM was SFr14 billion (+3 per cent).

The AuM rise was driven by net new money inflows and strong market performance (especially from the rise in equity markets, as well as a recovery in bond markets), which more than offset the significant negative currency impact from the stronger Swiss franc, especially against the dollar.