BTG’s BSI Wealth Clients Pull $6.4 Billion in Three Months

  • Client assets dropped 29 percent in first half of 2016
  • Swiss bank is embroiled in probes of Malaysia fund 1MDB

Clients of BSI, the Swiss private bank being acquired by EFG International AG, withdrew 6.3 billion Swiss francs ($6.4 billion) in the second quarter, according to current owner BTG Pactual Group.

Wealth under management at Lugano-based BSI dropped to 243 billion reais ($77 billion) from 295 billion reais at the end of March, Brazil’s BTG Pactual said in an earnings statement dated Aug. 9. The assets have dropped 29 percent since the end of 2015, the statement shows. A spokeswoman for BSI declined to comment when contacted on Wednesday.

“We had a negative outflow that has been completely stabilized,” BTG Co-Chief Executive Officer Marcelo Kalim said on a conference call with analysts Wednesday. “For the month of July, I would say the asset flow is pretty much stable.”

BSI was reprimanded by regulators in Switzerland and Singapore in May in connection with inquiries into alleged corruption at Malaysian sovereign fund 1MDB. The Monetary Authority of Singapore fined BSI and stripped the bank of its license in the city-state.

BSI responded by challenging Switzerland’s seizure of some of its profits and said statements by the nation’s regulator “severely harmed” its reputation.

The regulators’ “action over 1MDB is the most likely cause of the outflows at BSI,” said James Anderson, founder of London- and Geneva-based research firm PAM Insight. “In an era where brand and reputation are increasingly fragile, many legitimate, tax-compliant clients don’t like to be associated with the whiff of impropriety."

Prosecutors in at least four countries are conducting global money laundering and embezzlement investigations surrounding 1Malaysia Development BhD. A Malaysian parliamentary committee identified at least $4.2 billion of irregular transactions by the state fund, and recommended the advisory board headed by Prime Minister Najib Razak be disbanded. Both 1MDB and Najib have consistently denied wrongdoing.

QuickTake Q&A: Malaysia’s 1MDB Fund Spawns Worldwide Probes

More than $3.5 billion was funneled along a trail of fraud from Malaysia through a web of shell companies, and some of the money was handled by several international banks, U.S. prosecutors said in filings last month.

Zurich-based EFG has said it secured indemnities and arranged an escrow account with BTG Pactual in relation to BSI’s Malaysia legal matters. The price to purchase BSI is subject to adjustments including changes in its book value and client-money flows, EFG said last month.

EFG said the first-half figures mean the estimated purchase price should be expected to fall by about 140 million Swiss francs, in addition to previously announced reductions.

BTG and BSI’s previous owner, Assicurazioni Generali SpA, have been at odds over indemnities for potential losses tied to BSI’s dealings with the Malaysian fund.

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