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Scandal around BSI

  • 24 May 16

EFG announced this morning that Swiss banking regulator FINMA has approved the acquisition of BSI and is supporting the acquisition. However, EFG additional said “EFG International has further taken note of FINMA’s and MAS’ press releases in connection with the BSI-related 1MDB matter. The share purchase agreement with BTG Pactual has an indemnity in relation to these and certain other matters up to the overall purchase price. It was agreed in the share purchase agreement that the indemnity will be backed by a material Swiss escrow account which, at closing, will contain 51.0m EFG shares issued to BTG as consideration, with shares locked up for two years. The fine and the penalty will result in a reduction in the purchase price. The indemnities and escrow account remain unchanged.” FINMA announced this morning that BSI is in serious breach of money laundering regulations: “Through business relationships and transactions linked to the corruption scandals surrounding the Malaysian sovereign wealth fund 1MDB, BSI AG committed serious breaches of money laundering regulations and “fit and proper” requirements. This is the outcome of enforcement proceedings launched by the Swiss Financial Market Supervisory Authority, FINMA. In the case of 1MDB, the bank has executed numerous large transactions with an unclear purpose over a period of several years and, despite clearly suspicious indications, did not clarify the background to these transactions. Among other measures, FINMA has ordered the disgorgement of profits amounting to CHF95m. FINMA has also launched enforcement proceedings against two of the bank’s former top managers. At the same time, FINMA announced its approval of the takeover of BSI by EFG International with the condition that BSI will be integrated and thereafter dissolved. This takeover is a positive development providing clients and employees with a perspective for the future.”

BSI acquisition catapults EFG on a new level but poor execution track-record

  • 22 Feb 16

EFG International (EFG) and BSI announced today that they will join forces to form a leading Swiss private bank. EFG has agreed with the BSI owner BTG Pactual the purchase of BSI to be paid in cash for a total of CHF975m, and through the issuance of 52.6m EFG shares to BTG Pactual against a contribution in kind, subject to certain adjustments in case of dilution. As a result of the share issuance, BTG Pactual will have a stake of approx. 20% in EFG International and representation on its board of directors, subject to shareholder approval. Applying EFG’s closing price of CHF6.70 on 19 February 2016 to the 52.6 million shares, the total purchase price would amount to c.CHF1.33bn, including agreed adjustments currently estimated at CHF25m. Pending shareholder approval at EFG International’s Annual General Meeting scheduled for 29 April 2016, EFG intends to raise capital through a CHF500m rights offering, as well as in the form of CHF250m Additional Tier 1 instruments (CoCos). EFG's biggest shareholder, EFG Group, has committed to invest at least CHF125m in the intended rights offering. In addition, EFG has obtained commitments for a volume underwriting of CHF375m from international investment banks. If the intended rights offering is not fully subscribed, BTG Pactual and EFG Group have committed to subscribe additional shares or Additional Tier 1 instruments for the purpose of providing deal-financing certainty. On a combined basis as of 31 December 2015, BSI (unaudited results) and EFG had assets under management of c.CHF170bn, which would imply the position of the fifth largest private bank in Switzerland regarding EFG. Based on optimised infrastructure costs and efficiency gains, the EFG and BSI target pre-tax cost synergies of approx. CHF185m p.a., or around 15% of the current combined cost base, should come into full effect in 2019. More than half of the targeted cost synergies are intended to result from the migration to one common IT platform. Total one-off estimated implementation costs of c.CHF200m are expected to be recognised until year-end 2018. Even assuming a potential attrition rate of around 5-10% of combined assets under management (with an estimated impact on profit before tax of c.CHF60-105m), the transaction is expected to be accretive to earnings per share from 2018 onwards. Subject to shareholder and regulatory approvals, completion of transaction is expected in Q4 16.