EFG International Jumps Most in Four Years on Cost-Cutting Boost

Updated on
  • First-half profit no worse than expected, UBS analyst says
  • EFG says preparations to integrate BSI are ahead of plan

EFG International AG, the Swiss private bank that’s buying competitor BSI, jumped the most in four years after saying it will beat full-year cost savings targets and reporting a first half profit that was in line with expectations.

The stock climbed 22 percent in Zurich trading to 4.56 Swiss francs as of 1:19 p.m. EFG is still down about 25 percent since it announced the BSI deal in February. The shares hit an all-time low of 3.31 francs earlier this month.

EFG has raised capital to fund the purchase of similar-sized BSI from Brazil’s Grupo BTG Pactual as it seeks to compete with larger Swiss wealth managers Julius Baer Group Ltd. and Credit Suisse Group AG. BSI is embroiled in an international investigation into banks linked to allegations of corruption at the Malaysian Development Fund known as 1MDB.

Net income dropped to 22.3 million Swiss francs ($23 million) from 48 million francs a year earlier, the Zurich-based company said in a statement on Wednesday. EFG saved 19 million francs in the first half and said it would exceed a target of 30 million francs by the end of the year, according to the statement.

Preparations to integrate Lugano, Switzerland-based BSI are ahead of schedule and the transaction is still expected to close by the end of the year, EFG said in the statement. The seizure of 95 million francs by Switzerland’s financial regulator, and a 10 million-franc fine by Singapore’s regulator announced in May will reduce the purchase price, but won’t impact agreed indemnities in the deal, according to the statement.

“The company has significant distractions with the BSI deal, the life-insurance portfolio and client adviser numbers declining strongly,” said Andreas Venditti, a Zurich-based analyst with Vontobel Holding AG. “Investors would like to know more about how BSI performed in the first half.”

EFG’s approximately 1.33 billion-franc purchase price is subject to adjustments including changes in BSI’s book value and client money flows, the company said in a presentation published Wednesday. BTG’s liability to indemnify EFG is limited to the Swiss and Singaporean regulators’ actions, “special” matters relating to Malaysia and the U.S. Department of Justice’s interest in 1MDB and as much as 400 million francs for other claims, according to the presentation.

A first-half net outflow in the Americas region was attributed to “difficult market conditions,” while client withdrawals in Asia were due to clients borrowing less and a run-off in an investment product, according to the statement Wednesday.

Earnings from private banking were “resilient,” despite “strong headwinds and uncertainties in the markets worldwide,” Chief Executive Officer Joachim Straehle said in the statement.

EFG may face significant impairments to the value of its life-insurance holdings after premiums were increased, it said in May. The company reported a loss of 800,000 francs for the first six months from life insurance portfolios, compared with a gain of 6.9 million francs a year earlier, according to the statement.