UPDATE 1-Swiss private bank EFG buy Falcon's Hong Kong business

Mon Jan 6, 2014 8:21am EST

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ZURICH Jan 6 (Reuters) - Switzerland's EFG International has struck a deal to take over the Hong Kong business of Abu Dhabi-owned Falcon Private Bank, another sign of how rising costs are forcing small players to beef up or get out of the region.

According to two sources with knowledge of the agreement, EFG will pay Falcon - which manages 800 million Swiss francs ($884.81 million) in Hong Kong - according to how many clients it can convince to transfer to the Swiss bank. This has become a common structure for deals between private banks, where holding on to rich clients is key to deal success.

Neither EFG nor Falcon gave financial details of the deal.

Falcon, which manages 16 billion francs in assets, said on Monday it was leaving Hong Kong in order to concentrate on the Middle East, Africa and Eastern Europe, and that its Singapore branch would serve as its private banking hub in Asia.

For EFG, which aims to begin managing the lion's share of Falcon's assets in Hong Kong by the end of June, the deal is its first in two years, after a lengthy restructuring in which it sold and shut down large parts of a business that had become too big and unprofitable after a rush of acquisitions.

"We are looking forward to welcoming new clients and growing our business in Asia, alongside our new colleagues who share the same level of dedication and expertise," said Albert Chiu, EFG's head of Asia.

Falcon is owned by Abu Dhabi fund Aabar Investments, which in turn is majority-owned by International Petroleum Investment Company, a quasi-sovereign entity controlled by the Abu Dhabi government. Falcon was the private banking unit of American International Group (AIG) before Aabar bought it in April 2009.

While Asia's economic growth has led to a surge in millionaires and billionaires, profit margins are thin for the those in the industry managing less than $20 billion - asset bases that according to experts don't generate enough revenue to support expensive bankers and cope with rising regulatory costs and technology spending.

($1 = 0.9042 Swiss francs) (Reporting By Katharina Bart and Oliver Hirt Additional reporting by Saeed Azhar in Singapore Editing by Sophie Walker)

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