EFG IPO creates top private banking play

EFG Bank, the Zurich-based private bank, is restructuring in preparation for an initial public offering (IPO) of 35 per cent of its share capital, said to be planned for October 2005. The bank is 67 per cent owned by EFG Group, the financial engine room of the billionaire Latsis family shipping empire. The remainder of the shares are owned by the highly entrepreneurial management of the bank.

While details are scarce, it is believed that a new holding company has been established to hold 100 per cent of the bank, together with other assets which are thought to include some of the group’s investment fund activities.

This structure would create one of the purest private banking plays available to public investors anywhere.

Spending spree

The fundraising paves the way for further expansion of EFG Bank, which has indicated that the proceeds from the IPO will be earmarked for possible private banking acquisitions in the UK, Europe and the Americas. The bank has already been on a shopping spree, as the following table shows.

EFG Bank has already dipped a toe into the public markets, selling R400m of non-voting preference shares in tranches of R325m in November 2004 and R75m in January this year.

The bank has not yet indicated how much it expects to raise in the IPO and it will be interesting to see what value investors place upon a direct entrée into Swiss private banking.

There has been a rumoured valuation of 15-20 times the estimated profit per share for 2006, which has not been revealed. However, based on 2004 gross operating profit, this would imply a total market capitalisation of up to SFr1.6bn (R1bn).

By way of comparison, that is about 47 per cent of Julius Baer’s SFr3.5bn market capitalisation at year-end 2004, and roughly in line with the two banks’ relative private banking assets under management, prior to the recently-announced deal with UBS. Those at EFG Bank are some SFr24bn, or some 40 per cent of Julius Baer’s year-end figure of SFr61bn.

Considering the troubled state of Julius Baer’s private banking business, it would therefore not be surprising if EFG Bank attains a higher than anticipated valuation when it comes to market.

One thing is certain, however, the flotation of EFG Bank will provide a much-needed benchmark for the valuation of other pure private banking assets in the busy wealth management mergers and acquisitions arena.

Ted Wilson is a consultant at wealth management strategy think-tank Scorpio Partnership

‘The proceeds from EFG’s flotation will be earmarked for possible private banking acquisitions in the UK, Europe and the Americas’