Swiss regulator concludes action against Julius Baer, shares surge

By John Revill and Ariane Luthi

ZURICH, Sept 29 (Reuters) - Swiss financial regulator FINMA said on Tuesday it had concluded enforcement proceedings against Julius Baer, lifting or relaxing restrictive measures against the bank and triggering a sharp rise in the Zurich-based private bank's shares.

The bank said a request regarding its share buyback program, which had been halted due to the enforcement, has been submitted to FINMA, pending final approval.

"After a long wait, investors can now truly 'turn the tide,'" analysts at Zurcher Kantonalbank said, adding they expected first limited share repurchases before the end of the year.

Shares in Julius Baer rose as much as 8.8% to their highest level on record.

FINMA said it had found the private bank had committed serious violations of risk management and anti-money laundering obligations before the current management team was appointed.

Capital and liquidity restrictions against the bank have now been lifted in part or in full, and a ban on entering into new business relationships with politically exposed clients from high-risk countries will be phased out, FINMA said.

FIFTH ENFORCEMENT PROCEEDINGS IN LESS THAN 10 YEARS 

The inquiry related to private debt loans to a European group, and client relationships tied to two Russians who were described as politically exposed.

It was the fifth enforcement proceeding carried out by FINMA against Julius Baer in less than 10 years, the authority said.

"There were significant breaches which revealed a deficient internal risk and compliance culture within the bank," added the authority, which ordered Julius Baer to hold additional capital of 250 million Swiss francs ($300 million) until it completes a divestment of incompatible clients.

Profits of around 10 million francs that Julius Baer generated in violation of supervisory provisions are also being confiscated, FINMA added.

The bank, which has overhauled its top management since the start of last year, said "comprehensive remedial measures" had now been put in place. 

Julius Baer was caught up in the fall-out from the collapse of Austrian property tycoon Rene Benko's Signa group, leading the bank to post loan losses of 586 million Swiss francs in early 2024.

The bank ignored numerous warning signs, breached its own risk limits and facilitated opaque transactions that meant the exposure ultimately had to be written down in full, FINMA said.

Separately, the bank failed to adequately scrutinize the origin of assets for high-risk clients linked to two Russian politically exposed persons over several years, breaching anti-money laundering reporting obligations, the watchdog added.

COMPLIANCE REPORTS

As part of the enforcement measures, the bank must submit compliance reports until 2032, while dividends and other payments to shareholders must be approved in advance. 

FINMA has also opened proceedings against three former employees over potential violations.

Julius Baer said it has wound down its private debt business, and also revised its risk and compliance framework.

"These significant changes have made Julius Baer the simpler and stronger organisation it is today, with a solid foundation and a clear strategic direction," said CEO Stefan Bollinger.

The requirement to hold additional capital of 250 million francs was a reduction from 500 million francs previously, while the new capital ratio requirement of 9.4% was well within the bank's current level of 18.5%.

($1 = 0.8336 Swiss francs)

(Reporting by John Revill and Ariane Luthi, Additional reporting by Marleen Kasebier and Oliver Hirt, Editing by Miranda Murray and Jan Harvey)