The Julius Baer debacle in Benko: is there a small Credit Suisse company hiding in every bank?

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The case of Julius Baer shows that even private banks with supposedly conservative business models can take on high risks and accumulate potential losses that are detrimental to their substance. The total loss of 606 million francs on Benko’s loans would wipe out eleven percent of the common capital. For a private bank, the very thought of this is a disaster.

The stock market does not value this high-risk mentality. Over the past two weeks, the market value of the Zurich banking institution has fallen by two billion francs, or almost 20 percent. Thus, investors taught the bank’s management a big lesson. It would be surprising if CEO Philip Rickenbacher and President Romeo Lascher emerged unscathed.

The parallels with Credit Suisse are obvious. The Greensill and Archegos scandals showed that serious risks always appear out of nowhere. Banks are able to “weigh” the risks on their balance sheets and thus minimize them. But they cannot be eliminated by magic. In the event of a crisis, they explode like an unexploded bomb – unexpectedly, but always with devastating consequences.

The case of Julius Baer is a reminder of the “too big to fail” rule. Following the CS collapse, policymakers set about revising the rules under which systemically important banks could be liquidated without taxpayer money. Demands for greater justice or compensation for a government guarantee were heard loudly from left and right. We don’t hear much about it anymore. The case of Julius Baer will reignite the debate.

* Business journalist Beat Schmid has worked for several major media companies during his career. He writes on financial topics at SonntagsBlick.

Source: Blick