SAO PAULO (Reuters) - Grupo BTG Pactual SA BBTG11.SA is seeking indemnity from Swiss private bank BSI SA’s prior owner after losses tied to a Malaysian fund led EFG International AG to cut the price it paid for a controlling stake in BSI, a source familiar with the matter said on Tuesday.
Singapore closed BSI’s local branch on Tuesday as part of a probe into 1Malaysia Development Bhd, a Malaysian fund that was a client of the bank. As a result, EFG (EFGN.S) got permission from Swiss regulators to take over BSI from BTG Pactual at a price below the original 1.33 billion Swiss francs (£916 million) announced in February.
According to the source, who requested anonymity due to the sensitivity of the issue, BTG Pactual will receive less cash from the BSI sale. The Brazilian bank paid insurer Assicurazioni Generali SpA (GASI.MI) 1.5 billion francs for BSI five months before selling up to 80 percent of BSI to EFG.
São Paulo-based BTG Pactual now wants compensation from Generali in an equal amount to the difference between the new price and the price announced in February, the source added. Problems between BTG Pactual and Generali mounted since BSI’s ties with 1MDB, which is thought to have carried out $4 billion in irregular deals in recent years, were unveiled.
Generali “has not received any communication that qualifies as an indemnifiable claim under the agreement,” the Trieste, Italy-based insurer said in a statement. “Moreover, as already stated, Generali is protected by several contractual provisions and BTG Pactual has a duty to mitigate any damage.”
Investigators in several countries are trying to determine whether related transactions between 1MDB, banks and clients were funnelled into the accounts of influential powerbrokers and politicians.
The Monetary Authority of Singapore on Tuesday withdrew BSI’s local status as a merchant bank for serious breaches of anti-money laundering rules, the first time in 32 years it has taken such action against a bank.
In a statement, watchdog MAS highlighted an "unacceptable risk culture," regulatory lapses and gross misconduct of BSI's staff. (bit.ly/1TtsyAw)
On Tuesday, BSI reiterated a pledge to fully cooperate with the investigations into 1MDB by Singaporean and Swiss authorities.
The situation adds to woes surrounding BTG Pactual, whose founder André Esteves was arrested last November in connection with a corruption probe in Brazil.
The arrest led Esteves, the architect of BTG Pactual’s acquisition of BSI, to surrender his executive duties and control of the bank, which suffered massive client withdrawals and sold assets to mitigate the scandal’s impact.
One of those assets was BSI, which Esteves saw as a stepping stone towards BTG Pactual’s transformation into a global money management powerhouse with more than half its revenues outside Brazil. Since founding the firm in 2008, Esteves wanted to turn BTG Pactual into the largest independent investment bank in emerging markets.
When BSI’s merger with EFG was concluded, BTG Pactual would own 20 percent to 30 percent of the new company, behind only the 35 percent stake held by Greece’s Latsis family, which controls EFG.
Units in BTG Pactual, a blend of common and preferred shares in BTG Pactual’s investment-banking and buyout divisions, gained 2 percent to 18.79 reais (£4) in mid-afternoon trading in São Paulo.
EFG fell 0.2 percent to 5.59 euros, while Generali added 5.7 percent to 12.84 euros (£10) on Tuesday.
BSI, based in Lugano, Switzerland, was founded in 1873 under the name of Banca della Svizzera Italiana. Since the start of the decade, BSI tried to grow wealth management activities in Asia, a region buoyed by China’s strong economic growth and a boom in commodities prices.
Additional reporting by Silvio Cascione in Brasilia and Silvia Aloisi in Milan; Editing by Alan Crosby and Andrew Hay