EFG International is acquiring BSI in a deal that, if completed, highlights further consolidation in Swiss private banking.

Switzerland-based EFG International and BSI are linking up to create a private bank with about SFr170 billion ($171.3) of assets under management and 860 relationship managers, the former bank announced today as it issued its 2015 results.

Shares in EFG International were down around 3.2 per cent around 09:20 GMT today, at SFr6.48 per share.

The announcement comes after EFG International last Friday confirmed media reports it was in exclusive talks to buy BSI from BTG Pactual. There has been speculation that Brazil-based BTG Pactual was to sell BSI barely a few weeks after having bought it. BTG Pactual has been engulfed in a corruption scandal and has been looking to raise capital. (To see last week's story, click here.)  BTG Pactual, in its own statement, stressed what it aims to get out of the deal, by saying it "expects the final price, which will be determined at closing and which includes BSI’s expected profits up to closing, to be between SFr1.5 - 1.6 billion".

"At closing, BTG Pactual will have between 20-30 per cent of the combined entity and will receive a cash payment of around SFr1 billion," EFG International said.

EFG International said its brand, and that of BSI, will be retained under the M&A deal. It is intended a combined brand will be implemented “in most geographies in the future” and that Zurich, Geneva and Lugano will all remain important locations for the governance and operation of the combined bank.  

The statement said “significant cost synergies" of about SFr185 million before tax are targeted by 2019 and that EFG expects the transaction to be earnings-per-share accretive from 2018 onwards.

EFG International will pay in cash and EFG shares for the deal, worth around SFr1.328 billion (based on EFG’s closing price on 19 February). That compares with an estimated IFRS tangible book value for BSI of around SFr1.428 billion as at year-end 2015.

To finance the deal, EFG International will raise capital through a SFr500 million volume underwritten rights offering and SFr250 million additional tier one instruments. BTG Pactual will become an EFG International shareholder with approximately 20 per cent, while EFG Group will remain the largest shareholder with over 35 per cent.

Subject to shareholder and regulatory approvals, completion of the transaction is expected in the fourth quarter of this year.

EFG International logged an underlying recurring net profit of SFr91.1 million, a fall of 30 per cent on a year earlier, and an IFRS net profit of SFr57.1 million, down by 7 per cent on a year ago. The cost-income ratio was 86.1 per cent, up from 79.8 per cent; revenue-generating assets under management were SFr83.3 billion, down from SFr84.2 billion. There were net inflows of SFr2.4 billion, down from SFr4.4 billion.

"Performance in 2015 was constrained by a range of external factors, including economic and market uncertainty, negative currency effects and the continued low interest rate environment. Client activity levels were subdued, notably in emerging markets including Asia and Latin America, and lending volumes were impacted by the decision to exit certain non-strategic lending business," EFG International said.   

"Operating income and the revenue margin therefore remained below expectations, as indicated in the business update of 23 November 2015. During 2015, operating income was SFr696.7 million, compared to SFr16.6 million a year earlier. External factors had a significant impact on revenues derived from the life insurance portfolio, with a year-on-year net reduction of SFr22.7 million," it said.