Sale Price for Swiss Bank Tied to 1MDB Likely to be Cut

ZURICH—The likely sale price for BSI SA, a Swiss bank embroiled in the controversy surrounding Malaysian state investment fund 1Malaysia Development Bhd., or 1MDB, has been sharply reduced after the wealth manager saw billions of dollars in client assets disappear during the first half of the year.

Zurich-based bank EFG International, which announced earlier this year that it plans to buy BSI, said in a statement on Wednesday that the price it will pay for the bank may be slashed by 140 million Swiss francs ($143 million). EFG International had said in February it planned to pay roughly 1.33 billion francs for Lugano-based BSI, in a deal expected to close later in the year.

EFG International said Wednesday that the sale price is subject to adjustments based on financial factors such as gains in new assets to manage. BSI said in its own statement on Wednesday that its total client assets fell by 10.6 billion francs during the first half of 2016, to 73.7 billion francs.

The decline, BSI said, was mainly related to regulatory actions taken against the bank earlier this year in Switzerland and Singapore.

In May, Switzerland's financial regulator, Finma, said BSI had breached money-laundering regulations tied to its business with 1MDB, and ordered the bank to pay 95 million francs in related profit to Switzerland's public coffers. At the same time, Singapore regulators ordered BSI's local branch to shut down operations, after also finding that BSI had breached money-laundering regulations.

The Wall Street Journal has previously reported that investigators in several countries are gathering evidence about 1MDB, and believe that as much as $6 billion was siphoned from the public fund—with much of that funneled through BSI in Singapore, according to court records, documents viewed by the Journal, and people familiar with the probes, the Journal has reported.

1MDB was established several years ago by Malaysian Prime Minister Najib Razak to spur economic development. Mr. Najib has denied wrongdoing or taking money for personal gain. 1MDB has denied wrongdoing and said it is cooperating with investigations in Malaysia and abroad.

Switzerland's Finma said in May that BSI failed to adequately monitor its relationships with clients who had ties to 1MDB and maintained about 100 accounts at the bank. BSI has said previously that all of its client relationships related to 1MDB were closed early last year. BSI has also appealed Finma's May ruling, which the bank said harmed its reputation.

EFG International said Wednesday it expects its purchase of BSI to close in the fourth quarter. BSI is currently owned by Brazilian bank BTG Pactual.

Write to John Letzing at [e-mail]

(END) Dow Jones Newswires

August 10, 2016 13:45 ET (17:45 GMT)

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