EFG International has been ordered to pay back a $200 million loan in Taiwan from an ill-fated insurance deal. The Swiss bank is contesting the verdict vehemently, but investors expect the worst.
An arbitration court in Taiwan said the Zurich-based bank has to repay a $194 million loan, plus interest, to a Taiwanese insurer, EFG said on Tuesday.
The bank isn't willing to accept the verdict, which marks the first real test for Giorgio Pradelli, who replaced Joachim «Joe» Straehle as chief executive last month. The ruling affects a $193.8 loan granted by the bank four years ago to the subsidiary of an undisclosed Taiwanese insurance firm. The loan was collateralized with assets held by another subsidiary in Singapore, and the insurer's chairman also vouched to cover the loan.
Criminal Wrong-Doing
Since then, the chairman has been convicted in Taiwan for misappropriating company money – including the bank loan. This figured in the court decision: it rendered the loan invalid because the insurer violated compliance regulations. This in turn means the bank has to cough up the collateral it holds against the loan, plus interest.
EFG said it «fundamentally disagrees» with the arbitrator's decision and «will vigorously challenge in court the validity of the award and any attempt to enforce it.» The bank griped that Taiwan failed to consider law on loan collateral in Singapore, where EFG is pursuing legal action to verify the value of the security it holds. The bank is also trying to recover assets from the erstwhile chairman through his personal indemnity backing the original loan.
Shares Drop
It isn't clear how the million-dollar litigation will affect EFG in Asia, but the bank's public warning on Tuesday isn't a particularly good sign. EFG said it will keep assessing the case as it prepares full-year results, which are due on February 28.
The news was received badly by investors, who worry that EFG will have to swallow the nearly $200 million hit. The stock shed more than 5 percent on Tuesday to trade at less than 11 Swiss francs. The shares had almost doubled in value after EFG concluded the integration of Banca della Svizzera Italiana, a Ticino-based bank which was ensnared in the 1MDB scandal, to roughly 12 francs.
