Five years ago, few would have guessed that EFG International might be one of the main banks to benefit from an emergency rescue of the second-biggest Swiss bank, Credit Suisse. But since 2019, the Greek-backed firm has gone a long way in rebuilding its reputation and catching up with listed Swiss peers – and finally moving on from an extended period of restructuring following the 2008 global financial crisis.
EFG is the youngest of the mid-sized Swiss private banks that are now seeking to challenge UBS’s wealth-management dominance after the acquisition of Credit Suisse.
Its story began in 1980, when Greek oil and shipping billionaire John Latsis bought Geneva-based Banque de Dépôts from the Onassis family, later naming it EFG and moving to Zurich.
While today the Latsis family retains a controlling 45% stake, the bank listed in Switzerland in 2005, during an earlier period of rapid international growth.
In 2010, EFG had to write down SFr859 million ($949 million) associated with hedge-fund and structured-finance firms acquired in the run-up to the collapse of Lehman Brothers in 2008, including an ill-fated late-2007 purchase of Marble Bar Asset Management.
Because of scars from the great financial crisis, and the acquisition of BSI, five years ago the perception of the bank was not as good as it is now
By 2012, the bank had fully divested from Marble Bar, spun off a structured-products business, and exited 10 marginal or unprofitable private-banking locations. Yet this was the height of the eurozone crisis, and that year also saw a split in the EFG group – which had previously included Eurobank, one of Greece’s biggest commercial banks – after a request from the European financial authorities, eventually leading to Eurobank leaving Latsis family control.
Having refocused on private banking, EFG then beat other bidders to buy Ticino-based Swiss private bank BSI for cash and shares in 2016 after a liquidity crisis at its previous owner, Brazilian bank BTG Pactual. That deal roughly doubled EFG’s assets under management (AuM) to SFr170 billion.
But BSI was a complex integration, as EFG’s chief executive Giorgio Pradelli tells Euromoney.
The problem at BTG, which today retains a 20% stake in EFG, stemmed from the 2015 arrest of its founder and CEO André Esteves on corruption charges in Brazil, of which he was later cleared. Yet BSI had problems of its own, too. Only a few weeks after EFG announced the acquisition, Swiss financial supervisor Finma found BSI to have breached anti-money-laundering rules in transactions and business relationships related to the Malaysian sovereign wealth fund, 1MDB.
“Because of scars from the great financial crisis, and the acquisition of BSI, five years ago the perception of the bank was not as good as it is now,” Pradelli admits. “There had been a merger of two mid-sized banks, but there was a question of what the bank stood for and what it wanted to achieve.”
New plan
In early 2019 – a year after Pradelli became chief executive – EFG reported the last of its BSI integration costs and unveiled a new strategic plan for what it hoped would be a new era of sustainable growth. Still, investors remained cautious, not least because of the recent history of EFG and BSI. In late 2019, the bank and the Latsis family’s investment vehicle had to publicly refute news reports of a takeover by Julius Baer, which at the time was trading at a far higher share-price multiple.
As Pradelli recalls: “The market initially reacted positively to the 2019 plan. Investors saw that the growth strategy had merit and that there was more we could do, but as investors usually do, they wanted to see evidence. Every quarter the message was: ‘Good progress, but let’s see the next one’.”
Pradelli, who joined EFG in the run-up to the listing and became CFO after the group split with Eurobank, says he has since shown investors the evidence they wanted.
As Covid-19 passed without painful hiccups, the end of 2023 marked 10 consecutive half-year terms of net inflows, leading to total AuM of SFr142 billion at the end of 2023. The bank has also cut costs by reconfiguring its geographic footprint again, including selling or closing booking centres and branches in Chile, Guernsey and Milan, and selling assets including French wealth management company Oudart and a 40.5% stake in Spanish wealth manager A&G.
Investors in the bank, at last, appear to be coming round. The share price almost doubled in 2022 and 2023, far outperforming the wider European sector and especially listed Swiss private-banking peers Julius Baer and Vontobel, whose share prices fell during that period by 23% and 32%, respectively.
According to research from Citi, EFG’s valuation of around twice book value in late March was still a discount to Julius Baer’s 2.6 times. Its market capitalization is still only a third of that of Julius Baer. Yet the valuation gap is far narrower than it was two years ago. EFG’s price-to-book value has also moved in line with Vontobel, allowing it to surpass the latter’s market cap.
This is not just because these peers have experienced difficulties.
“There has been a major change in the stock-market perception of EFG,” Pradelli says. “When investors saw that the strategy worked and the growth was coming, and translating into profitability, and that the quality was improving – then there was a rerating of the share price.”
The arrival at EFG of Boris Collardi has added to the buzz about the bank. Collardi stepped down as Julius Baer’s long-standing chief executive in 2017 to become a partner at Pictet, a move that surprised many in the industry given the cultural differences between Julius Baer and its unlisted Geneva-based peer Pictet.
Collardi left Pictet in 2021 and joined EFG’s board in late 2022, after buying a 3.6% stake from Spiros Latsis, whose son John (a British academic) is today the only Latsis family member on the board.
EFG’s share price, above all, has highlighted its attractions as an employer – allowing it to benefit from the Credit Suisse failure more than others.
“There’s a polarization in the private-banking and wealth-management market globally,” says Pradelli. “Some players are doing well, and they have a clear strategy in this business. They can continue to attract bankers and grow. For others – smaller banks, or divisions of bigger banks where the weight of private banking is limited and there is not a clear strategy – it’s more difficult to hire and retain bankers.”
Pradelli makes clear that, in general, the private-banking sector in Switzerland is still strong. But Credit Suisse’s fall – coming amid the volatility in the US banking market in March 2023 – meant there were more opportunities to hire than expected at the beginning of last year.
In total, EFG recruited 141 relationship managers in 2023. About a third came from Credit Suisse. Although the net increase in EFG’s RMs is smaller, at 39, it normally only expects to hire between 50 and 80 relationship managers a year, depending on who is available.
“We have positive momentum in terms of our growth, so we were well-placed to benefit from the increased mobility of talent we saw last year at Credit Suisse and other institutions,” Pradelli says.
According to Pradelli, 2023 was an unusually good year for hiring for reasons other than just Credit Suisse’s failure. There was a pent-up demand because the bank hired far fewer people during the Covid years and the market dislocation that followed. Even without the Credit Suisse joiners, it would still have hired almost 100 new RMs.
“Both clients and bankers were more inclined to move last year,” Pradelli says, referring to 2023.
In 2019, in fact, EFG saw even higher numbers of new joiners (181) after it announced its new growth strategy that year, and because 2019 was a healthy year for markets and the economy – bringing an unusual amount of hiring across the industry. EFG opened in Portugal that year and reopened in Dubai. In 2019, however, far fewer bankers came from Credit Suisse.
As EFG is not the sort of bank to grow from what Pradelli refers to as walk-in clients, he expects inflows to accelerate thanks to the 2023 hires.
“Our strategy is about organic growth, which means for us hiring teams of seasoned bankers,” he says.
The right target
At the same time – as at some of its peers in Switzerland – M&A still has a role to play.
EFG’s 2019 acquisition of Australian wealth-management company Shaw and Partners was small compared with UBS’s acquisition of Credit Suisse. Nevertheless, it was the second-biggest acquisition by a Swiss private bank over the past three years in terms of AuM, at almost SFr20 billion, according to data compiled by KPMG.
The firm is still open to acquisitions – if it finds the right target.
“We focus on organic growth, but we like M&A,” says Pradelli. “We have excess capital, we have the know-how, and we have proved that we can acquire and integrate, but we have learned that you need to be very patient in M&A.”
Pradelli’s M&A criteria are that the target needs to be in locations where the bank is already present to gain economies of scale; the culture must be close to that of EFG in terms of the responsibility of RMs for the client experience; and it needs to bring a 10% return on investment within three years.
The bank’s common equity tier-1 ratio at the end of 2023 was 17%. That is much lower than Pictet or Lombard Odier (both around 30%) but it is 240 basis points higher than that of Julius Baer, and far higher than the management’s 12% minimum.
Fewer targets were for sale than Pradelli expected after Covid-19. Will there be more over the coming three years?
“Everyone has been talking about market consolidation for 10 or 15 years,” he says. “It comes in waves. In theory, yes, there should be more activity in the next few years than over the past few years, but we will have to see.”
Especially after the BSI deal, Pradelli obviously understands that M&A often leads to complexity and not always to additional value for shareholders.
“BSI was a very good acquisition, but it was very complex,” he says. “If we could do something less complex, that would be preferable – instead of spanning six or seven booking centres, one or two would be preferable.”
Most recently, Julius Baer – which has also grown from acquisitions over the past decade, above all Merrill Lynch’s International Wealth Management business outside the US and Japan – has again raised questions about risk management at Swiss banks, less than a year after the Credit Suisse failure.
In February 2024, Julius Baer wrote off some SFr606 million in private debt exposure to bankrupt Austrian real-estate group Signa, backed by commercial real estate and luxury retail. The event prompted Julius Baer’s chief executive Philipp Rickenbacher to step down.
We have excess capital, we have the know-how, and we have proved that we can acquire and integrate, but we have learned that you need to be very patient in M&A
At EFG, Pradelli says credit is an integral part of its offering, but it is focused on Lombard lending and residential mortgages, rather than on the sort of private debt that hurt Julius Baer. Out of EFG’s SFr16 billion loan book, SFr10 billion is Lombard lending (backed by liquid assets).
The rest is real estate-backed lending, mostly in Switzerland and London, mostly residential, and with what, according to Pradelli, are conservative loan-to-value ratios.
“Typically in real estate, we would provide a 50% financing, for example, if a wealthy individual who wants to buy residential real estate in central London or a chalet in the Swiss Alps,” he says. “It’s nothing to do with what has happened in European commercial real estate.”
While half of EFG’s AuM relate to ultra-high net-worth individuals, the CEO denies that the greater role of credit in its business model compared with some private banks makes it more of a fit for bankers from Credit Suisse, which was more known than UBS for attracting wealth-management clients by offering them leverage.
Credit Suisse, of course, was also better known than UBS in places where EFG has also traditionally been strong, such as Latin America and the Middle East.
Pradelli believes that in any event the problem at Credit Suisse was much less to do with wealth management than it was to do with investment banking. He further asserts that EFG’s resilience throughout the Covid-19 volatility showed that it has a high-quality loan book.
“The overall strategy of Swiss private banks is relatively similar,” he says. “Individual banks emphasise different flavours, such as investment management or sustainability, but most of the key ingredients are the same. We try to grow organically by hiring bankers, and we offer a luxury service, with a high-touch client relationship.”
On the other hand, in Pradelli’s telling, EFG’s claim to have “entrepreneurial thinking” – helping it support entrepreneurs as clients – is more credible than the similar claims of other banks, which also scatter their marketing material with the word.
“We like to use this adjective also, because our main shareholder is an entrepreneurial family which is invested not only in banking but in many other activities and is now in the third generation,” he says.
Wealth creation
In Pradelli’s view, this entrepreneurial culture is tied to the bank’s slant to new wealth being created in places like the Middle East and Latin America – and increasingly to new wealth in Asia, where he thinks the bank has not captured its fair share versus Swiss peers up to now. Indeed, much of the Latsis family’s wealth was made in Saudi Arabia and elsewhere in the Arab world.
“Most of our clients are entrepreneurs, in all the geographies where we operate,” Pradelli says. “We are less a bank for old money, to be frank.”
Pradelli recounts how the bank first grew outside Switzerland in Luxembourg, Monaco and London in the late 1980s, before expanding in Latin America with a presence in Miami in 1996, followed by Hong Kong and Singapore in 2000.
“The vision in the 1990s was that the world would become globalized and wealth creation would not necessarily be in the G7 or G10 countries but in developing economies,” he says. “That’s why although we have Swiss roots, we’ve been extremely international from the beginning. That’s something this bank did very well.”
Most of our clients are entrepreneurs, in all the geographies where we operate. We are less a bank for old money, to be frank
Today, around SFr40 billion of EFG’s AuM is booked in Switzerland and a further SFr20 billion is booked in London, both including a lot of offshore clients. Asia and Australia account for SFr30 billion and Latin America for SFr18 billion. Some SFr25 billion is booked in continental Europe and the Middle East, where Pradelli says the new Dubai office is growing rapidly.
“We see that, at the moment, the most dynamic part of the world is the belt running from Dubai and the Middle East, running through the Indian subcontinent to Singapore and southeast Asia. This is where we see a lot of growth.”
He caveats: “Our focus remains to be a global private bank. We are aiming to grow in all our regions.”
In 2023, however, Switzerland and the UK experienced slower growth than EFG’s other markets as the rapid increase in developed-market interest rates, especially in dollars and euros, made leveraged investments less attractive, especially considering the risky economic and geopolitical backdrop.
And if emerging economies are growing more rapidly, Pradelli does not agree that they are riskier – as the collapse of Signa may have showed. He does not even like the term 'emerging markets', preferring instead to call them simply international markets.
“I don’t think you can say that Singapore is an emerging market,” he says. “Maybe in the 1990s you could speak about emerging markets. They have emerged.”
The firm’s lack of headaches in areas such as anti-money laundering over the past decade has shown that EFG has a conservative approach to acquiring clients, according to Pradelli.
“We consider the bank as a club, and we are careful about who we take on board,” he says. “The risk is not a function of countries. The risk is a function of your know-your-customer and anti-money-laundering processes, and how you onboard clients.
“What matters is the quality of the clients and the process you have to review them.”
