Julius Baer (BAER.S) has revised its profit expectations downward, citing valuation adjustments of 82 million Swiss francs ($92.6 million).
The Swiss bank disclosed that out of the 82 million francs, 70 million were attributed to the group’s credit portfolio adjustments made after October 31, 2023.
Despite these adjustments, Julius Baer emphasized that the overall quality of its loan book and balance sheet remains stable.
The bank maintains strong capitalization and high liquidity, which provides ample capacity to absorb any potential risks stemming from its business activities.
However, due to increased credit provisions and a higher effective tax rate, the bank anticipates that its full-year 2023 net profit will likely fall short of the 2022 figures.
In response to this news, Julius Baer’s shares experienced an 8.6% decline in early morning trading.
The situation drew attention as it was revealed that the bank had lent hundreds of millions of francs to the struggling Signa Group, founded by property tycoon Rene Benko.
The bank declined to comment on this specific matter, leading some to question the risk management practices in place.
Jefferies analysts expressed concern about the substantial credit provision related to a single client and suggested that investors might seek further information about the possibility of other outsized single client exposures.
Meanwhile, Vontobel analyst Andreas Venditti indicated that full-year estimates would need to be revised downward due to the unexpectedly poor results.
Despite the challenges, Julius Baer reported net new money inflows of 10.3 billion francs for the first ten months of the year, although this fell short of analysts’ expectations at Zuercher Kantonalbank, who had anticipated inflows of 15 billion francs.
In the first half of 2023, the bank had already reported inflows of 7 billion francs.
Additionally, assets under management increased by 3% to 435 billion francs during this period, primarily driven by inflows and the strength of the global equity market.
In summary, Julius Baer’s lower profit expectations due to credit portfolio adjustments and other factors have raised concerns among investors and analysts about the bank’s risk management practices and exposure to single clients.
Nonetheless, the bank continues to attract new money and grow its assets under management, albeit at a pace below market expectations.