With the acquisition of BSI, Switzerland's EFG International thought it would be able to take the giant leap and capture a share of the Asian private-banking market. These hopes seem to have been dashed.
Renato Cohn is the third manager within a year to take charge of BSI's Asia business. Hanspeter Brunner in March and his temporary replacement, Raj Sriram, this week have already given up. Their reasons: Brunner wants to retire, Sriram is taking a break.
These justifications seem less than convincing given the massive problems that the Ticino-based bank has in the region. The private bank, which still belongs to BTG Pactual of Brazil, has been enmeshed in the corruption and money-laundering scandal involving the state fund of Malaysia, 1MDB. Authorities in Singapore are investigating two employees of the bank.
Switzerland's attorney general has also become active. It estimates that more than $4 billion may have been moved through the fund into the coffers of people not entitled to the money.
Too Little to Go It Alone
The management of BSI probably knew well enough that 1MDB was a customer to be treated with care, according to documents. But the bosses didn't wield the knife presumably because the client proved lucrative for the private bank. And thus the Asian business turned into a cash cow for BSI.
Which in turn was the reason why EFG International was eager to launch a bid to buy the bank when BTG Pactual put it on the market for sale at the end of last year. So far, EFG had not expanded greatly into the Asian market, which is seen as a crucial growth market for private banks struggling with a sluggish domestic business. The bank, controlled by Greece's Latsis family, has $10 billion under management in Asia, far too little to make the business viable.
A combined EFG/BSI would boost that figure to $25 billion – but this figure now has to be mentioned with great care.
The Damage Has Been Done
The scandal involving 1MDB has become hugely damaging for BSI. Chief operating officer Gary Tucker has followed Brunner's and Sriram's example and further staff in compliance and customer relations have also departed.
BSI is losing client assets on a daily basis and it is prohibited from acquiring new customers – this may be unconfirmed, but the sheer figures are clear. When EFG International announced its plan to buy the rival private bank, it estimated that BSI had assets under management worth 88 billion francs. A little later, in its annual report, BSI said it had 84.3 billion francs in assets under management. Only a year ago, the same figure was 94 billion. The bank lost almost 10 billion francs in managed assets within 12 months.
The Price May Yet Drop
EFG International declined to comment about BSI's situation in Asia. The spokeswoman however specified that the contract between EFG International and BTG Pactual included a clause whereby the agreed price for the takeover of 1.3 billion francs can be adjusted depending on the level of assets under management at BSI. EFG is further protected against liabilities.
BTG Pactual is said to have installed an account to cover for BSI's legacies. But BTG is also fighting it out with BSI's previous owner, Generali of Italy.
Shareholder Approval Sought
EFG International will ask shareholders to approve the acquisition of BSI on April 29. The financing looked a done deal ever since the Latsis family agreed to participate in the capital increase in equal part to the size of its 54 percent stake.
BTG Pactual is also adamant that the sale is proceeding according to the plan. But the regulatory authorities still have to approve the acquisition and Singapore's MAS will play a key role in the process. It is investigating the flow of money and transactions involving 1MDB.
BSI Asia's staff seem not overly optimistic about the transition. The fact that a former BTG manager is now taking care of the business seems ironic. After all, BTG had to get rid of BSI only months after the completion of the acquisition because of the corruption scandal surrounding Petrobras. BSI is now involved in a similar scandal and threatens to put a spanner in the wheel for its sale to EFG.