Julius Baer Says Greek Default Risk on IMF Repayment Near 100%

Julius Baer Group Ltd., Switzerland’s third-largest wealth manager, said the probability of Greece defaulting on a repayment to the International Monetary Fund is almost 100 percent.

The failure of Greece to repay 1.5 billion euros ($1.7 billion) to the IMF on Tuesday wouldn’t surprise investors or “cause a meltdown” across financial markets, Burkhard Varnholt, chief investment officer of the Zurich-based company, said in an e-mailed note to private bankers and their clients on Monday.

Greece sent shock waves through credit markets after the government shut its banks and imposed capital controls in an overnight announcement aimed to prevent the collapse of its financial system.

Greek debt is largely owned by public institutions and the economy doesn’t produce more than 2 percent of Europe’s gross domestic product, reducing risks of contagion, Varnholt said.

The likelihood of Greece exiting the euro is “extremely low,” Varnholt said. Still, Julius Baer is advising clients wary of that eventuality to buy long-duration debt issued by Switzerland and major economies. Varnholt helped manage about 289 billion Swiss francs ($309 billion) of assets at Julius Baer at the end of April, mainly on behalf of wealthy individuals and families.

“We would point to 30-year Swiss, German or U.S. Treasury bonds as a natural safe haven in such a scenario,” he said.

Varnholt’s view on a “Grexit” differed from Mohamed El-Erian, chief economic adviser at Allianz SE, who said in a Bloomberg TV interview that the chances of Greece leaving the euro area in the next few weeks are about 85 percent.