JULIUS Baer Group faces a further weakening of its risk profile if it doesn’t address the governance failings that led to large exposures to Rene Benko’s real estate empire, Moody’s Investors Service said.

The ratings company affirmed the issuer rating of the Baer holding company at Baa1 while cutting the outlook to negative from positive, Moody’s said in a statement on Wednesday (Dec 21). Bank Julius Baer‘s senior unsecured debt and long-term issuer ratings were cut.

Moody’s warned of a further deterioration “if the group fails to effectively address its governance, risk culture, and risk appetite.” The ratings company cited a “culture of higher risk tolerance compared to its closest private banking peers, which weakens the group’s otherwise solid credit profile given its good capital and strong liquidity.”

Switzerland’s second-largest bank saw its shares slump by about 20 per cent in November after the revelation of some 606 million Swiss francs (S$934.6 million) in loans to Benko’s Signa real estate group.

Baer appears on a list of creditors of Signa Holding, the umbrella organisation that filed for insolvency on Nov 29. The lender announced 70 million francs in loan-loss provisions related to the credits, though chief executive officer Philipp Rickenbacher has said the bank isn’t fundamentally changing its risk appetite.

Baer shares were down 1.7 per cent after the open in Zurich on Thursday, trading at 46.81 Swiss francs at 9:07 am.

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Moody’s said that the issuance of more junior loss-absorbing debt had helped maintain the holding company’s issuer rating, offsetting the downgrades to the bank unit. BLOOMBERG