Exclusive-regulatory concerns stopped Julius Baer, talks about taking over EFG, sources say

by Oliver Hirt

ZURICH (Reuters) – Concern from Swiss regulators has derailed talks between private banks Julius Baer and EFG International on a potential merger worth about 15 billion Swiss francs ($17 billion), two sources with knowledge of the matter told Reuters.

The two banks held talks in early 2024 and reached an agreement in principle, the sources said on Tuesday, speaking on condition of anonymity due to the sensitivity of the matter.

However, sources say that financial regulator FINMA has signaled that it has doubts about the potential deal. It is still reviewing Julius Baer’s risk controls after the bank suffered losses related to loans to failing real estate company Signa, one added.

Both sources say that talks between Julius Baer and EFG were subsequently suspended and have not been resumed.

FINMA, EFG and Julius Baer declined to comment.

The number of Swiss private banks is shrinking as smaller players look for scale, and Julius Baer and EFG have also been in merger talks in previous years.

The collapse of Signy at the end of 2023 shocked Julius Baer after he made significant loans to a company run by Austrian tycoon Rene Benko.

Julius Baer dismissed its chief executive in February after he was forced to write off 586 million Swiss francs in losses on loans to Signa, and announced an exit from its private debt business.

EFG’s market value is 3.9 billion francs compared with Julius Baer’s 10.6 billion francs. Last month, Reuters reported that banks were eyeing EFG CEO Giorgio Pradelli as a potential head of the combined entity

Julius Baer is still looking for a permanent CEO.

Analysts say today’s acquisition may make financial sense, but strategically it is a tough sell, pointing to risks related to integration, asset depletion and cultural differences.

Keefe, Bruyette & Woods analysts said in May that the timing of the talks was “questionable” given the regulatory scrutiny over Signa.

FINMA’s review of Julius Baer comes at a critical time for the regulator, which has been sharply criticized for its handling of the Credit Suisse collapse. The regulator wants more powers to improve supervision and protect Swiss financial stability.

Stefan Walter, a former ECB official, has led FINMA since April, after the previous head left in September.

($1 = 0.8834 Swiss francs)

(Reporting by Oliver Hirt; Additional reporting by Mathieu Rosemain in Paris and Jesús Aguado in Madrid; Editing by Tommy Reggiori Wilkes and Alexander Smith)