EFG has revealed the impact of the BSI investigations by Swiss and Singapore regulators for illicit fund flows related to the embattled 1Malaysia Development Berhad.
‘Larger negative net new assets of CHF (4.9) billion arose from the BSI businesses acquired.
‘These BSI businesses had experienced significant AUM decreases over the course of 2016, due in no small part to the publicly known Malaysian case, which led to the decision and announcements of the Swiss and Singapore regulators in May 2016 to levy a penalty and disgorge the profits BSI generated from this business prior to our acquisition of BSI,’ Piergiorgio Pradelli, deputy CEO and CFO of EFG International said in its annual report, released on Wednesday.
‘This news had a large negative impact on clients, with numerous departures continuing throughout 2016.
‘This attrition continued in the first few months of our ownership and is reflected in the negative net new assets experienced in November/December of CHF (4.9) billion. The disposal of businesses and net positive market and currency effects had an overall offsetting impact on AUM of CHF (0.3) billion.’
At the end of 2016, BSI’s revenue-generating assets under management stood at CHF 62.3 billion, bringing the combined EFG-BSI AUM for the year to CHF 144.5 billion.
‘The outflow of AUM from the BSI franchise has continued after closing, with a decreasing trend,’ added John A. Williamson, chairman of the board and CEO Joachim H. Straehle.
'Besides the unsolicited client attrition which continued, albeit at a slower pace, following the events which affected BSI in the first half of 2016, additional AUM outflows were due to the exit strategy decided for Panama and partially for the Bahamas, as well as due to the CRO team departures in Asia.'
EFG acquired BSI in February 2016, completing the integration of the Asia businesses first. The integration of the Hong Kong unit was completed in March 2017, while BSI Singapore was integrated in November 2016 after review.
The acquisition and integration costs are expected to total CHF 250 million upon completion of the integration in 2018, while cost synergies are estimated to exceed CHF 240 million per annum.
EFG submitted a formal valuation to BTG on 2 February 2017, upon which it expects a downward price adjustment of CHF 277.5 million against the
estimated purchase price of CHF 1,060 million announced on 1 November 2016.
As a result of ongoing performance management and cost control measures, the number of EFG standalone CROs declined from 462 at end-2015 to 389 at end-2016.
Average assets under management per EFG standalone CRO was at CHF 224 million (excluding CROs newly hired during 2016).
Including BSI, the number of CROs totalled 697 at 31 December 2016.
The underlying profits of EFG-BSI were at CHF 82.3 million for 2016, of which CHF 91.1 million arose from the existing EFG businesses (stable year on year), whilst the inclusion of the BSI business for the final two months of 2016 resulted in underlying losses of CHF 8.8 million.
With regards to the brand strategy, the entity have developed a new brand positioning and design for the combined business since the closing of the transaction.
‘We plan to roll it out in the course of the integration of BSI’s Swiss business in the second quarter of 2017,’ said Williamson and Straehle.
The EFG International Group is organised in eight business segments: Americas, Asia, United Kingdom, Continental Europe, Switzerland, Investment Solutions, Wealth Solutions and Corporate, as well as BSI.