ZURICH (Sept 29): Swiss financial regulator Finma said on Tuesday that it had concluded enforcement proceedings against Julius Baer, clearing the way for potential buybacks and triggering a sharp rise in the Zurich-based private bank's shares.

Finma said it had found the private bank had committed serious violations of risk management and anti-money laundering obligations following an investigation into actions starting in 2019.

However shares were up 7.5% in early trading, as news the proceedings that had long been hanging over Julius Baer had ended cheered investors.

The bank said a request regarding its share buy-back programme, which had been halted due to the enforcement, has now been submitted to Finma, pending final approval.

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 (US$300 million) until it completes a divestment of incompatible clients.

Julius Baer said the cases predated its current management, while "comprehensive remedial measures" had now been put in place.

From September 2019, the Zurich-based bank granted loans in its new private debt business to a European group and its founder, with the exposure eventually exceeding one billion Swiss francs.

The bank ignored numerous warning signs, breached its own risk limits and facilitated opaque transactions that meant the exposure of 586 million francs outstanding at the end of 2023 ultimately had to be written down in full, Finma said.

Baer ditched its CEO Philipp Rickenbacher in February 2024 after it reported the massive losses on loans to collapsed property firm Signa, controlled by Austrian property magnate Rene Benko.

Separately, the bank failed to adequately scrutinise the origin of assets for high-risk clients linked to two Russian politically exposed persons (PEPs) over several years, breaching anti-money laundering reporting obligations, Finma said.

As part of the settlement, 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%.

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