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Peter Fanconi and Giorgio Pradelli: “We remain on course to realise our ambitious goals”
EFG delivered a strong operational performance in the first half of 2021 and continued to execute on its 2022 strategic plan. Against this backdrop, EFG International’s Chairman Peter Fanconi and CEO Giorgio Pradelli discussed the progress achieved in the first six months of this year and considered the challenges and opportunities that lie ahead. In particular, they agreed that this is the right time to reaffirm the bank’s future course in order to unlock EFG’s full potential.
Marketing & Communications
After the step change in profitability in the second half of 2020, EFG recorded a further improvement in profits in the first six months of 2021 and continued to attract strong net new asset inflows totalling CHF 4.2 billion. What were the highlights during this reporting period?
Giorgio Pradelli: What pleased me the most is that we maintained our strong growth momentum. We now have recorded net new asset inflows for nine consecutive quarters and Assets under Management have reached a record CHF 172 billion. With the doubling of our underlying net profit for the period, we have taken our profitability to a new level. Our efforts to deliver our entire investment expertise and full range of products and services to our clients are proving increasingly successful and we are seeing the positive impact of our growth initiatives and the increased client take-up of our higher-margin products and services on revenues. In particular, net commission income increased significantly compared to last year. At the same time, we have kept costs under control thanks to our disciplined cost management.
After achieving strong growth and increased profitability last year, how difficult is it to maintain this momentum in 2021?
Peter Fanconi: We are fully focused on generating profitable and sustainable growth. We have attracted continued strong net new asset inflows, corresponding to an annualised growth rate of 5.3%. That is well within our target range of 4% to 6% and shows that we have managed to maintain our strong growth momentum. I would like to thank our employees and management teams for achieving this great result. It is only with their dedication and determination that we have been able to drive our business forward in this way. After the extraordinary challenges we faced last year due to the pandemic, this type of performance can’t be taken for granted. Personally, I believe that the challenges we experienced in 2020 during the pandemic have made us even stronger as a company and even closer as a team. We are all pulling together and working hard to achieve our ambitious goals for 2021 and beyond.
The continued low interest rate environment has created major headwinds in recent years, putting gross margins and especially net interest income under pressure. Is there any indication that interest rate pressures will ease in the near future?
Giorgio Pradelli: No, I don’t expect us to see a material change in interest rates globally during the current year and possibly for most of next year. Inflation and employment trends will determine the level of interest rates going forward and we will follow those developments closely.
What measures are you taking to counter the decline in net interest margins?
Giorgio Pradelli: We have implemented a clear set of revenue management actions to focus on high-value premium products and services with attractive margins. As a result, we have significantly improved our commission income, which now accounts for approximately two-thirds of overall revenues. We aim to further grow recurring revenues through our efforts to increase the client take-up of our high-value solutions and by further leveraging our investment content, which is increasingly recognised in the market and by clients. This is underscored by successful product launches in the first half of the year. For example, our new Healthcare Disruptors Fund. In addition, our ongoing efforts to deliver our full range of private banking solutions to our clients will continue to have a positive impact.
The other side of the coin is costs. The second half of 2020 seems to have been a turning point in terms of efficiency and this positive trend continued into the first half of 2021. How do you plan to close the gap to the 72% to 75% cost/income target range?
Giorgio Pradelli: We have already made big strides on the cost side and our cost reduction measures are bearing fruit. Going forward, we will continue to take a disciplined approach to cost management. To optimise efficiency, we will further streamline our target operating model and centralise processes and support functions. We will also accelerate automation and digitalisation, as well as streamlining our footprint and simplifying our global set-up. As part of these efforts, we completed the sale of our Oudart business in France and our Ticino-based retail business. We have also agreed the sale of our Luxembourg fund management company and the sale of our stake in Spanish private bank A&G.
The progress EFG has made is also increasingly recognised by the market. What are the expectations of the investors?
Giorgio Pradelli: Over the past two years, we have established a positive track record that supports our equity story. Our strong operational performance and higher profitability in the first half of the year are evidence that our business is gaining traction and that we remain on course to realise our ambitious goals and to deliver the full potential of EFG.
EFG has undergone a fundamental transformation over the past few years. What are you particularly proud of?
Peter Fanconi: EFG is a very different bank now compared to a few years ago. In the last two years, we have shown that we can sustainably grow our business and increase profitability, delivering higher quality revenues while staying true to our prudent approach to risk. Today, we are in a very competitive market position and rank among the top-ten private banks in Switzerland. EFG has a distinctive business model, strong and recognised investment expertise, and a clear client focus. Despite our fast growth and fundamental transformation, our entrepreneurial spirit and hands-on approach are still the hallmarks of EFG. This is what I am particularly proud of.
Giorgio Pradelli: I am really proud of all our employees and management teams who made this successful transformation possible. Despite all the challenges we faced, we are executing our plan and are now seeing the tangible result of these efforts.
What sets EFG aside from its competitors?
Peter Fanconi: I believe our entrepreneurial spirit, which is deeply rooted within EFG, really sets us apart from our peers. From our Client Relationship Officers and other employees to our main shareholders – we all have a strong focus on our clients. This client proximity will be key to our future success. This is an area where our global network and local knowhow help us to understand what our clients really need and want. Being able to meet with clients and colleagues in person once again resulted in many inspiring discussions in the last few months – you can’t compare that with virtual meetings. I really enjoyed that.
Digitalisation is becoming more and more important in wealth management, like in other areas of banking. What will the private banking model of tomorrow look like?
Peter Fanconi: Our model is built around our Client Relationship Officers and centres on our relationship with our clients. That will not change. While digital solutions are of increasing importance when interacting with our clients and meeting their needs, the human touch will remain key for our success as a private bank. Our Client Relationship Officers have more digital tools available to support them with routine tasks, freeing up time that they can then dedicate to advising and supporting our clients. Of course, the next generation of clients will have different needs, expectations and priorities and we are continuously evolving our approach to meet those requirements. Technology has a big part to play in this.
Giorgio Pradelli: Absolutely, clients are at the heart of everything we do – and that will always remain the case. Digitalisation will allow us to customise our products and services even more effectively – but also at lower costs. Of course, technology will play an important role in how we deliver our products, services and expertise to our clients and also in increasing our efficiency. The automation of processes will allow us to reduce complexity, simplify and enhance our operating model and risk management platforms and bring down costs.
What other trends appear to be shaping the industry?
Peter Fanconi: One major long-term trend is clearly sustainability. I am convinced that to ensure the health, wellbeing and prosperity of future generations, we must embrace sustainable principles not only in our investment processes but also on the corporate side. As an industry, we must work hard to create awareness and deliver continuous improvements around sustainability. Private banks and wealth managers play a crucial role in allocating capital to companies that innovate in order to achieve sustainability goals.
1 This interview contains certain financial measures of historical and future performance and financial position that are not defined or specified by IFRS, such as "net new assets", "Assets under Management", "operating profit", "underlying results", "cost/income ratio", "revenue margin", "Liquidity Coverage Ratio" and "Loan/Deposit Ratio". These Alternative performance measures (APM) should be regarded as complementary information to, and not as a substitute for the IFRS performance measures. For definitions of APM, together with reconciliations to the most directly reconcilable IFRS line items, please refer to the section headed "Alternative performance measures" of the Half-Year 2021 Report.
2 Underlying results, such as “underlying net profit” or “underlying operating profit”, are not defined or specified by IFRS and should be regarded as complementary information to, and not as a substitute for the IFRS performance measures. For a definition of these non-IFRS performance measures, together with reconciliations to the most directly reconcilable IFRS line items, please refer to the section headed "Alternative performance measures" of the Half-Year 2021 Report.
3 Forward looking statements on page 58 of the Half-Year 2021 Report.