However, it has lowered its price target for the firm, in line with earnings, to CHF 57 (£52.73).
Julius Baer to review private debt arm following ‘European conglomerate’ bankruptcy
Jefferies analysts Tom Mills, Fangfei Li and Laura Gris Trillo have cut their estimates for 2023-2025 earnings per share by 7-18%, reflecting a weak second half of 2023 and a “lower outlook for rates”, they said.
They argued Julius Baer’s ten-month update released in November “disappointed at virtually every level”, which followed the news of a CHF 600m private debt loan exposure to an unnamed European conglomerate, against which the company took a CHF 70m provision.
This, the analysts explained, helped size the company’s extent of private credit exposures, but also raised questions over risk management practices, an area Swiss regulator FINMA is also investigating.
However, since the credit loss is limited to a single counterparty, the Jefferies analysts said they do not assume any material additional credit losses, although it remains possible. As a result, they forecast a year-end Common Equity Tier 1 (CET1) ratio of around 15.5%.
Jefferies upgrades Ashmore Group to ‘Buy’ on returning EM investor appetite
They explained: “Whilst under normal circumstances we think this would be characterised as being ‘meaningfully’ above 14% – thereby allowing for the excess to be returned via a buyback under Julius Baer’s policy – we think its board will demur, mindful of the risk of further impairments and elevated regulatory scrutiny.”
They added that, should no further impairments be necessary, this could pave the way for a larger buyback in 2025, which they estimated could be around CHF 800m.
