When EFG announced the acquisition of Banca della Svizzera Italiana in February 2016, it had conducted thorough due diligence, according to EFG Bank’s Asia CEO, Albert Chiu.
Chief among the risks was the much-publicised 1Malaysia Development Berhad case. The Monetary Authority of Singapore accused BSI Bank of breaching anti-money laundering regulations in the city-state and ordered a shutdown of its local unit just three months after BSI announced a merger of equals with EFG Bank.
'We announced the acquisition in February with full due diligence. So we walked in with our eyes open. We were also well protected by a well-constructed indemnity from the seller,’ Chiu told Citywire Asia.
Brazil’s BTG Pactual, which had acquired the Swiss bank just five months before selling it to EFG, settled on a discounted price for the sale, dropping it from CHF 1.33 billion to CHF 971 million following the 1MDB investigations.
'Obviously, it was a rather unexpected decision by the regulator,’ he said.
The closure of merchant bank Jardine Fleming has been the only precedent to similar MAS action. It was ordered to close over lapses in its advisory work in 1984.
In addition to the closure notice, BSI Bank was fined SGD 13.3 million for 41 AML breaches and prohibition orders were issued against senior private bankers Yak Yew Chee and Yvonne Seah as well as wealth planner Yeo Jiawei.
In May 2016, Swiss regulator Finma ordered BSI to disgorge illegally generated profits of CHF 95 million and launched investigations into two former top managers at BSI.
However, it fully approved the EFG takeover under the condition that BSI was completely integrated and dissolved within 12 months. It also disallowed any BSI top management responsible for the misconduct from taking up leadership positions at EFG. ‘This takeover is a positive development providing clients and employees with a perspective for the future,’ Finma said in a release.
'It has not changed the fundamentals of the BSI business globally. It still has a good client base apart from a few cases of which we were aware and the quality of bankers are also good,’ said Chiu, who added that rigorous due diligence and Know-Your-Customer checks were applied following the regulator’s actions.
'We have integrated the business according to EFG standards and most of the key management were former EFG employees,’ said Kong Eng Huat, Singapore and Southeast Asia CEO.
According to the executives, all undesirable accounts were exited prior to the migration. BSI integrated the Singapore operations in November 2016 and the Hong Kong operations in March 2017.
‘So we screened all the accounts that we took over in Singapore, made sure the accounts were desirable and according to EFG standards,’ said Chiu.
Eyes on the future
With the acquisition of BSI safely behind them, EFG is mapping the road ahead. While it is open to other acquisitions in the region, it wants to focus on regaining lost clients and the integration of the BSI operations in Singapore and Hong Kong for the next two years.
‘Several clients, due to what happened in May 2016, said, “Transfer my assets to other banks but don’t worry, when things settle down, I will come back”. These are clients that we are focusing on, going back and saying, “We are a much better bank and we are solid"' said Chiu.
In its half-yearly results released in July, EFG announced that it was still suffering from AUM attrition due to the BSI deal, leading to CHF 5.5 billion in outflows globally, though the rate of attrition has been declining. Breaking the trend, the Asia business attracted the highest amount of inflows from the Swiss private bank, winning CHF 1.2 billion in inflows, taking total AUM to CHF 21.3 billion.
Chiu and Kong are also working to support the bank’s targeted global cost synergies of approximately CHF 240 million by 2019, which has resulted in a reduction of the number of front office employees in Asia by 97 to 212, according to the half-year results. However, it has hired more than 10 relationship managers in 2017 and plans to continue targeted hires.
‘So for these two years, our focus is to further stabilise the acquired business, achieve synergies and growth,’ said Chiu.