EFG to pay $1.3b to buy Swiss private bank BSI, linked to 1MDB probe, from Brazil’s BTG Pactual

EFG International AG has agreed to pay 1.33 billion Swiss francs ($1.34 billion) for Grupo BTG Pactual SA‘s Swiss private-banking unit BSI Ltd in a deal that could catapult it into the nation’s top-five money managers for the wealthy.

The acquisition, which comes five months after Brazil-based BTG Pactual sealed a deal to buy BSI for 1.25 billion francs, will be paid for in cash and stock. Under terms of the deal, EFG will incorporate BSI, making BTG Pactual the No. 2 partner in the combined firm after Greece’s Latsis family.

Prior to the BSI deal, EFG had been the 12th-largest player in a market where consolidation has gained traction as smaller banks struggled with tougher oversight and an erosion of Switzerland’s secrecy laws. For BTG Pactual, the sale brings in much-needed cash after the November arrest of founder André Esteves triggered massive client money outflows.

Reuters reported last Friday, citing sources, that BSI could be valued at 1.6 billion francs, giving BTG Pactual up to 30 percent of the combined entity. BTG Pactual and EFG had been in exclusive negotiations over BSI for about a month.

Once the transaction is concluded, EFG will become Switzerland’s fifth-biggest private bank behind UBS AG , Credit Suisse Group AG, Julius Baer Gruppe AG and Banque Pictet & Cie SA, with operations spanning Europe, the Americas and Asia.

“It gives us the next plateau,” EFG Chief Executive Joachim Straehle told reporters in Zurich.

In a statement, BTG Pactual said the final price for the deal could range between 1.5 billion and 1.6 billion francs, when taking into account BSI’s profits until the deal is closed. The São Paulo-based bank will have a stake of 20 to 30 percent in the new company, only to trail the Latsis’ estimated 35 percent, when the deal closes.

EFG plans to fund the deal by raising 500 million francs in equity and 250 million in additional Tier 1 capital instruments. The prospect of a new share issue weighed on EFG, whose shares fell 9.1 percent to 6.09 francs.

In a statement, EFG said it would pay 975 million francs in cash, giving BTG Pactual a roughly 20 percent stake. The stake could rise to 30 percent if the share offering gets bogged down.

“Since EFG was almost condemned to buy for not having critical mass, and because possible acquisitions don’t grow on trees, the deal makes sense,” Zuercher Kantonalbank analysts wrote in a client note.

MALAYSIA FUND

Still, one of the main sticking points in negotiations was how to handle potential penalties from BSI’s ongoing legal issues, which include a money laundering scandal related to the 1Malaysia Development Bhd, a sovereign fund from the Asian country.

The deal includes setting up a “substantial” escrow account which EFG believes will protect it from any penalties, it said, without giving details.

BSI, which BTG Pactual bought from Italian insurer Assicurazioni Generali SpA, has declined to comment on the scandal but pledged to cooperate fully with authorities whenever necessary.

The price that EFG paid for BSI is around 1.5 percent of the 88 billion francs in BSI’s assets under management, with the typical price for such deals around 1.5 to 2 percent.

Fluctuations in the new money that BSI attracts or changes in tangible book value by the time the deal is closed, which is expected by the end of 2016, could affect the price, EFG said.

The BSI sale will also help BTG Pactual move on with a plan to sell assets, raise cash and restore investor confidence in the wake of Esteves’ arrest. Esteves was the architect of BTG Pactual’s purchase of BSI last year, which he said would help the independent investment bank grow beyond Latin America.

BTG PACTUAL

Without BSI, BTG Pactual’s income from wealth management may substantially decline. BSI represented about 69 percent of BTG Pactual’s 1.455 billion reais ($369 million) in proceeds from the unit last year.

BTG Pactual remains undecided on how to book proceeds from EFG‘s activities when the deal is cleared, said Pedro Lima, the bank’s global head of investors relations. He also noted thatEFG and BTG Pactual have yet to discuss a corporate governance framework for the merger, including the appointment of board members.

According to Bloomberg News, BTG Pactual plans to use proceeds form the BSI sale to repay an emergency credit lifeline it obtained in December, right after Esteves’ detention. The bank could even seek to buy out minority shareholders, the report said, citing two unnamed sources.

Speculation on a delisting spurred a 12.4 percent jump in BTG Pactual shares, their biggest gain in over two months. BTG Pactual did not comment on the Bloomberg report.

Also read:

Swiss private bank BSI, embroiled in 1MDB probe, close to being sold

ANZ’s CFO Elliott to take helm, says to press on with Asia strategy

Reuters

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.