With roughly 400 million Swiss francs in excess capital, Swiss private bank EFG International wants to be a participant in the consolidation of the wealth management industry. CEO Giorgio Pradelli also has clear ideas about what he likes.

Despite the difficult market environment, shares of Swiss private bank EFG International are worth 18 percent more than they were a year ago, while competitor Vontobel saw its stock price drop by 26.5 percent, while Julius Baer shares are up around ten percent. Is EFG's stock benefiting from the Boris Collardi effect?

The former Julius Baer CEO and Pictet partner joined EFG last year with a substantial stake and has since been actively involved as an active board member. Today it was announced he will take on an additional advisory role in the bank's Asian business.

A New Era

Many investors assume EFG will enter into a major transaction such as a takeover or merger sooner or later and why the stock is holding well even in a challenging market environment. The private bank confirmed such intentions Wednesday with the presentation of its annual figures in Zurich by CEO Giorgio Pradelli who said in regards to a deal that «we are open to it».

With the successful completion of its three-year plan in December, a new era has begun for EFG. As CFO Dimitris Politis noted at Wednesday's presentation, the bank was able to meet all of its targets despite the Corona pandemic, the interest rate turnaround, and the war in Ukraine. 

In laying out the new strategy, Politis said it is «not a revolution, but rather an evolution of the completed three-year plan» Politis stressed. The next three-year plan set the following targets from 2023 through 2025:

  • Average annual net new money growth rate between 4 to 6 percent
  • An income margin of 85 basis points
  • Lower Cost/income ratio to 69 percent from 75.4 percent
  • Return on tangible equity of 15 to 18 percent.
  • Excess capital for acquisitions

Acquisition Criteria

Given EFG International's strong operating earnings outlook, it plans to reduce its tier 1 capital ratio to 12 percent from around 14 percent to generate more excess capital to make an acquisition, with a target of around 400 million francs ($430 million), Pradelli said. He laid out the three main criteria for making an acquisition.

Such a deal must help EFG gain further market share in strategic regions, while it also has to be a cultural fit. The return on investment of any transaction has to be greater than ten percent after three years.

The bank operates a business model in which client advisors enjoy a comparatively high degree of independence but at the same time bear a higher level of risk. The model has grown, particularly in Continental Europe and the Middle East. After a difficult year in 2021, business in Asia has picked up again, where clients keen to trade have moved away from equities and bonds to increasingly invest in currency and commodity financial products.

Considering Entire Teams

EFG International is likely to be on the lookout for transactions in these market regions, although Pradelli did not provide any specific details, except to say entire teams of relationship managers were on the radar.