* EFG first-half net profit down 54 pct to 22.3 mln Sfr
* Consensus forecast was 19 mln Sfr in Rtrs poll
* Shares up more than 20 pct (Recasts, adds comments from CEO, analyst, shares)
By Joshua Franklin
ZURICH, July 27 (Reuters) - Swiss private bank EFG International is on track to complete its takeover of embattled wealth manager BSI in the fourth quarter, after reporting a smaller than expected drop in first-half profit, sending its shares up more than 20 percent.
BSI’s links to a scandal-hit Malaysian government fund had led to uncertainty about EFG’s plans to buy the wealth manager from Grupo BTG Pactual SA, originally announced in February.
“We had the feeling that the market thought there are culture and financing (issues),” Chief Executive Joachim Straehle told Reuters on Wednesday. “After today’s presentation, you clearly can see that we want to remove these worries,” he said, referring to the bank’s results and comments on the BSI deal.
EFG’s BSI purchase aims to put it among Switzerland’s five biggest wealth managers and help it to compete with much larger rivals UBS and Credit Suisse.
EFG shares were up 22.5 percent by 1141 GMT to put the stock on track for its best day in four years.
They had fallen more than 40 percent since the BSI deal was announced in February. This was partly in response to issues BSI faced over its relationships with the Malaysian fund, plus uncertainty over whether EFG might have to take an impairment on a life insurance portfolio.
BSI is appealing a decision in May by Swiss financial watchdog FINMA that BSI breached money laundering rules through its business relationships and transactions linked to the Malaysian government fund.
FINMA also ordered BSI to hand over profits amounting to 95 million Swiss francs and to shut down once it has been integrated into EFG. BSI said FINMA’s decision was “incorrect.”
Finance chief and deputy CEO Giorgio Pradelli told a news conference there was no need for an impairment on the life insurance portfolio it owns despite insurers behind the policies raising premiums.
EFG has said it considers the increases unjustified and plans to challenge their implementation in U.S. courts.
“The market has priced in the worst-case scenario for EFG so any positive surprises will be a big help,” said Zuercher Kantonalbank analyst Michael Kunz, who has a “market weight” rating on the stock.
EFG’s first-half net profit of 22.3 million Swiss francs ($22.5 million) was down from 48 million francs a year earlier but ahead of the average estimate of 19 million francs in a Reuters poll.
Earnings were under pressure from costs related to the BSI deal and expenses from a cost-cutting programme, exacerbating what has been a rocky start to the year for the banking industry, which is contending with record low interest rates and more restrained client activity.
EFG also said it now expects to achieve 57 million francs in savings by the end of year, almost double its original target.
“Our hope clearly is that we maintain the same level of revenues (in H2 as in H1), which I believe we should be able to,” Straehle said. “And the cost side should also come down.”
($1 = 0.9909 Swiss francs)
Editing by David Goodman and Jane Merriman