Julius Baer faces credit losses from insolvent Degag Group, report says

Swiss private bank Julius Baer is facing new credit losses, having filed claims for 48 million euros related to financing real estate projects for the now-insolvent German Degag Group, a sum exceeding its 2023 profit in Germany. This development follows 586 million Swiss francs in losses from the collapsed Signa property company last year, which led to a CEO change and a renewed focus on reducing the bank's risk profile. Julius Baer has already announced an increase in loan loss allowances of 130 million Swiss francs, signaling continued challenges within its real estate and private debt portfolios amidst broader distress in the German property market.

Analysis

Swiss private bank Julius Baer is confronting fresh credit losses, having filed claims for 48 million euros ($55.74 million) against the insolvent German Degag Group, a sum that surpasses its 2023 profit in Germany. This development underscores persistent challenges in its real estate financing portfolio, following 586 million Swiss francs in losses from the collapsed Signa property company last year. The bank was the primary lender to Degag, which is now indebted by up to 1.1 billion euros, indicating significant exposure to distressed German property assets.

The new losses emerge despite a leadership change last year, where CEO Philipp Rickenbacher was replaced by Stefan Bollinger, who committed to reducing the bank's overall risk profile and refocusing on wealth management. Julius Baer has already increased its loan loss allowances by 130 million Swiss francs ($161.87 million) on May 20, addressing exposures in Switzerland and other European countries. This proactive measure, alongside a stated significant reduction in its private debt loan book since 2024, reflects ongoing efforts to de-risk.

The recurring credit events, particularly in the German real estate sector, suggest a continued vulnerability for Julius Baer's loan book, contributing to a strongly negative sentiment. While management is actively addressing risk, the magnitude of these losses relative to German profits and the ongoing legal investigations into Degag executives highlight potential for further financial and reputational headwinds. The bank's strategic shift towards wealth management aims to mitigate future credit risks, but the transition period remains exposed to legacy issues.

Key Decisions for Investors

• Investors should closely monitor Julius Baer's ongoing efforts to de-risk its loan book and the effectiveness of its new CEO's strategy, particularly regarding further provisions or write-downs related to distressed real estate assets.
• Evaluate the bank's remaining exposure to the European real estate sector and private debt, as recurring losses suggest persistent vulnerabilities despite announced reductions.
• Consider the potential for continued earnings volatility and capital impact from legacy credit issues, especially given the strongly negative sentiment and ongoing legal investigations surrounding entities like Degag.