EFG and BSI: A Happy Marriage?

Joachim Straehle, CEO of EFG International

Joachim Straehle, CEO of EFG International

Reports that EFG International is about to buy BSI from BTG Pactual begs the questions whether the two would be a good fit. 

In a «normal» banking takeover, the buyer is the bigger player, the takeover target the smaller. Should the acquisition of BSI private bank by EFG International take place as a report in the «Financial Times» (by subscription only) suggested today, it would be rather a deal among equals.

Measured by assets under management, EFG weighs in at 85 billion francs, fractionally lower than the 90 billion of BSI. Both seem to have too little to thrive on internationally, and too much to die – little surprise that EFG was mentioned as a takeover candidate before. A year ago, EFG was in talks with Julius Baer, the Zurich-based private bank.

According to the Plan

Instead, the bank, which is also based at Switzerland's biggest financial hub, now wants to do the swallowing itself. Joachim Straehle, the chief executive of EFG, hinted at his intentions when he presented the half-year result 2015. In a reaction to the figures, which disappointed the financial community, he presented a plan to make his institute fitter.

Straehle made it his priority to increase assets under management to at least 100 billion francs as quickly as possible. Taking over BSI from BTG Pactual would create a bank with a combined total of 175 billion, discounting the possibility of customers opting for another bank instead.

Efficiency Drive

Taking over a bank of the size of BSI would improve the degree to which the platforms used by EFG are utilized. And that's crucial for Straehle, who expressed his aim to reduce the cost-profitability-ratio below 75 percent. In the first half of 2015, the ratio still stood at 83 percent.

EFG also wants to improve in Asia, where BSI has about $15 billion under management, compared with EFG's $18 billion.The Zurich-based institute entertains two booking centers in the region, one in Hong Kong, one in Singapore.

The bank in a first step acquired assets under management worth $800 million of Falcon Private Bank in Hong Kong.

Need to Raise Capital

If EFG wants to follow up on its plan to take over EFG, it will have to raise about ten times as much capital as it currently holds, according to Michael Kunz, an analyst at Zuercher Kantonalbank (ZKB). Kunz estimates that EFG has 120 million to spare, yet the offer for BSI amounted to 1.2 billion according to the newspaper report. However, with the Latsis family as important owner, EFG has a powerful

stakeholder able to finance the takeover.

The different cultures at the two institutes may yet prove to be the biggest hurdle to a successful merging of operations. ZKB's Kunz says that EFG bankers take home a fifth of the profit the bank earns with its customers, a powerful incentive. On the other side, the bank also tends to chuck out those who underperform, a tendency that might scare off some bankers at BSI.

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