Real Estate

Julius Baer warns on profits weeks after Signa crisis

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Julius Baer has warned on profits after taking SFr82mn ($93mn) in provisions against the value of its loan book, weeks after a financial crisis at the Austrian property group Signa triggered a panic for lenders to the company.

The Swiss bank said SFr70mn of the “valuation adjustments” had been booked since the end of October. It added that “mainly as a consequence of the rise in provisions” and a higher tax rate, it now expected full-year profits to be lower than a year ago.

Earlier this month, Signa, one of Europe’s highest-profile luxury developers, announced that it had appointed a new chair to restructure the group and that its founder and main shareholder, René Benko, would be taking a step back from the company.

Julius Baer is an important lender to Signa, according to three people familiar with the Austrian company. The bank declined to comment, saying it was legally prevented from discussing its clients.

“The overall quality of the loan book and the balance sheet remains unaffected, with a consistently strong capitalisation and high liquidity providing ample capacity to absorb any risks resulting from the Group’s business,” Julius Baer said on Monday.

Julius Baer shares fell 10.5 per cent, hitting their lowest level in just over a year.

Concerns over Signa’s indebtedness, and potential losses for systematically important lenders in Europe, have been mounting over recent months.

Signa owes approximately €13bn to banks and investors, according to an analysis by JPMorgan. But the group’s highly complicated structure and opacity mean it has been hard for lenders to assess how much risk there is to their capital.

The European Central Bank has already ordered banks to report exposures to it and to take more conservative risk provisions against Signa.

Last week, the Thai Central Group moved to seize control of Selfridges, the London department store, by foreclosing on a loan it had made to Signa, with which it was previously the equal owner of the property.

Signa also holds stakes in KaDeWe — Germany’s most famous department store — and the Chrysler building in New York. Other properties it is developing include Lamarr, a central Vienna luxury store, and the Elbtower, Germany’s third-tallest skyscraper.

Its lightning expansion across Europe in recent years was fuelled by cheap debt and rising commercial real estate valuations. By the end of last year, Signa valued its properties at more than €30bn.

Signa, which is now being led by restructuring expert Arndt Geiwitz, has said it will present a restructuring plan to lenders by the end of the month.

“Investors may well question how — if indeed it is confirmed to be the case — a single client has resulted in such a substantial credit provision being taken and whether there could be other outsized single client exposures,” analysts at Jefferies wrote in a note on Julius Baer.


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