EFG International is to shrink headcount, cut its booking centres and reduce certain activities to boost profits and margins.

EFG International will cut staff numbers by up to 15 per cent and reduce its booking centres to take its cost-income ratio below 75 per cent over the next three years, while aiming to book net new assets of between 5 to 10 per cent per year, the Swiss firm said following a major strategic business review.

The bank employs around 2,500 employees around the world.

EFG International told this publication that it is not yet able to spell out in which geographic regions the jobs axe will fall, or how it will decide which bank jobs to disappear. 

The strengths of its private bank have been “obscured in recent years by various missteps, including investments in non-private banking activities, overly ambitious targets; and sub-optimal cost management”, EFG International said in a statement today.

As a result of these shortcomings, EFG International said its profits “have not adequately reflected its scale, revenue base and natural growth potential”.

Like other Swiss banks, EFG has also had to contend with the negative impact on revenues from the strength of the Swiss franc against currencies such as the euro and dollar. Swiss banks have also had to reshape business models as the traditional offshore style of Swiss banking has come under international assault from foreign governments.

Its commitment to reduce its cost-income ratio to below 75 per cent comes after Scorpio Partnership, the consultancy, said earlier this year that the average ratio for private banks around the world had risen to a record of almost 80 per cent, as rising costs - partly due to regulation - and sluggish revenues had taken their toll.

Profit guidance

Previous guidance (core net profit for 2011 in range between SFr140 million (around $155.9 million) to 160 million/IFRS net profit: SFr110-130 million) has been superseded by the business review, although, based on performance to end-September, the underlying business is performing broadly as anticipated at the time of EFG International’s half-year results, it said.  EFG International has the potential to deliver an annual IFRS net profit of  SFr200 million within the next three years.

The bank, which announced its review at the time it issued half-year results earlier in 2011, said its restructuring will deliver a net financial gain of about SFr35 per year, which will be partly realised in 2012 and in full from 2013.

The changes mean that the one-off restructuring charges, as well as associated goodwill and intangibles impairment, will be incurred this year, leading to an IFRS loss. However, the underlying business is performing broadly as anticipated at the time of EFG International’s half-year results, and there will still be a positive contribution to capital in 2011, EFG International said in a statement.

“The business is well placed to remain in the front rank of private banks and believes that controlled profitable growth should deliver an annual IFRS net profit of SFr200 million within three years,” EFG International said.

EFG International has developed over the past 16 years to become a bank with SFr80 billion of assets under management at the end of June 2011. In its statement, the firm said private banking will remain its key focus, while EFG Asset Management will be an integral part of this role, serving client relationship managers and clients.

Initial public offering

EFG Financial Products has been earmarked for an initial public offering, with EFG International reducing its stake from 57 per cent to below 20 per cent). The timing of the IPO will depend on the state of the market, the statement said.

The firm said it enjoyed the benefit of “high quality and loyal CROs, pointing out that during the past five years, of more than 300 private banking CROs with AuM of at least SFr100 million (representing more than 50 per cent of the total), only eight of them left for other organisations.

Among other details in its restructure plan, EFG International said its executive committee will continue to “perform its holding company role, with a strong focus on supervision and risk management”. It said that a global business committee, comprising the executive committee plus business heads, will contribute to shaping and validating the strategy.

As business heads, Alain Diriberry (CEO of continental Europe) and Jim Lee (CEO of EFG Asset Management) will step down from the executive committee, but continue as members of the GBC.

Capital structure

As at 30 June 2011, EFG International had a BIS Tier 1 ratio of 14.4 per cent, including both its ordinary shares and non-voting rights shares.

The bank said its international exposure to debt issued by the embattled eurozone countries of Portugal, Italy, Ireland, Greece and Spain is limited to around 1.7 per cent of its total balance sheet size (Spain 1.1 per cent; Greece 0.4 per cent; Italy and Portugal 0.1 per cent each; no exposure to Ireland).

In relation to Greece, Eurobank EFG’s merger with Alpha Bank should remove a source of confusion between EFG International and Eurobank EFG (once completed, the acronym “EFG” will no longer be used by Eurobank), the statement said. EFG International is entirely separate from Eurobank EFG, and is a Swiss private banking group, headquartered, listed and regulated in Switzerland.

Closures

EFG Bank in Sweden, along with its Helsinki operation, is to be closed. Asset management and non-banking business will be transferred to Quesada, EFG International’s profitable Stockholm-based wealth management boutique.

Offices in Dubai and Abu Dhabi are set to close, subject to regulatory approval, although EFG International will continue to target offshore/Non-Resident Indian business in the region.

A number of offices in Canada have been closed. EFG International has earmarked EFG Financial Products for an IPO. A number of other loss-making/marginal offices will be exited, subject to negotiation and market timing.

Four core regions

EFG International will focus on its four core regions - Continental Europe (including Switzerland); UK; Americas; and Asia – and a number of key business drivers, it said.