EFG International is buying BSI from Brazil’s Grupo BTG Pactual in a 1.33bn Swiss-franc ($1.34bn) deal that will create Switzerland’s fifth- largest private bank.
The combined firm will manage about 170bn francs in revenue-generating assets, Zurich-based EFG said in a statement on Monday. The lender plans to raise about 750mn francs of capital to finance the purchase, which will include about 975mn francs in cash and the rest in stock. Shares of the Swiss bank fell as much as 3.7%.
“By combining the complementary strengths of BSI and EFG, we are forming a leading global private bank with strong roots in all language regions of Switzerland,” EFG chief executive officer Joachim Straehle said in the statement.“We are offering our shareholders attractive prospects.”
BTG Pactual, which has owned BSI for less than a year, is selling assets after former chief executive officer Andre Esteves was arrested in November amid a widespread corporate corruption scandal. Esteves, who has since been released from jail and is under house arrest, has denied any wrongdoing through his lawyers. The combined bank will be among the top five Swiss private-wealth managers, Bloomberg calculated based on company filings.
After the combination EFG will be the biggest Swiss private bank after UBS Group, Credit Suisse Group, Julius Baer Group and Pictet & Cie. Group SCA, according to a presentation by EFG on Monday.
The deal will create cost savings of about 185mn francs before tax by 2019 and contribute to EFG’s earnings per share from 2018, the company said. BTG Pactual will own about 20% of EFG as a result of the transaction and have representation on its board.
“The cost savings target doesn’t seem very ambitious to me,” Andreas Venditti, an analyst with Vontobel with a hold rating on EFG, said by phone. “What surprises me is that EFG is paying more for BSI than BTG did. The situation for banks has deteriorated, so one might have expected a lower valuation.”
EFG was down 3.7% at 6.45 francs as of 9:41am. The stock has dropped 39% in the last 12 months, giving the company a market value of 980mn francs.
EFG Group will be the largest shareholder in the combined company with more than 35%, according to the statement. Talks between EFG, the investment company of Greek billionaire Spiro Latsis, and BTG Pactual were reported in January.
“We see a high execution risk and note the short-term prospects look very challenging,” Mainfirst analyst Tomasz Grzelak wrote in a note, citing the “large” rights issue, high restructuring costs and an uncertain macro environment. He has a neutral rating on the stock.
EFG’s full-year net income fell to 57.1mn francs from 61.4mn francs a year earlier, the bank said in a separate statement. Operating income declined about 3% to 697mn francs.