Berenberg Bank reports highest inflow of new funds in its history
Despite considerable investment in growth Germany’s oldest private bank generated a net profit for the year of EUR 61.5 million, the second highest figure
Assets under management climb by EUR 3.6 billion to EUR 25.5 billion
Core capital ratio in the Group of 15.1% is well above future Basel III requirements
Hamburg. Berenberg Bank continued to expand its business in 2010, particularly in the Private Banking, Investment Banking and Asset Management divisions. Despite substantial investment in the Bank’s future growth, net profit for the year was the second highest in the 421-year history of the Company at EUR 61.5 million (2009: EUR 65.1 million). Following this considerable increase in business, 80 new employees ensure the same level of personal service is maintained.
“We have taken advantage of recent growth opportunities and followed through consistently,” comments Dr Hans-Walter Peters, spokesman for the managing partners. The Bank has sharpened its profile as a specialist for private and institutional investors focusing on the entire German-speaking area and for capital market participants throughout Europe. “We concentrate our activities on business areas in which we can offer our clients real added value. This is particularly the case in Private Banking, but also for our independent research, which analyses over 300 stocks in Europe, for our Strategic Advisory based in Frankfurt and London, which works with corporate clients, and for our quantitative approaches serving institutional investors.”
Private Banking services, previously available at nine locations in Germany alongside Salzburg and Zurich, have also been offered at the London Branch since the beginning of 2011. “We see strong demand in the UK for the extensive services that our Private Banking division provides,” explains Peters. Private Banking’s expansion to the UK is facilitated by the fact that Berenberg has had a branch in London since 2003 and employs a staff of 100 in Europe’s premier financial centre, conducting research and sales activities.
The alignment with clients’ interests and focus on individually tailored services and independent advisory has resulted in great interest from private and institutional clients as well as from corporate clients. “Our business model works and will enable us to generate organic growth in future too,” adds Peters. Berenberg intends to refrain from acquisitions of other banks in future as well, at the very least in order to avoid diluting its own heritage and corporate philosophy.
“We reinforced our status as an independent private bank in 2010 by repurchasing the shares in our Company held for many years by Nord/LB,” said Peters. The managing partners now hold over 25% of the shares and the family also holds over 25%. Jan Philipp Reemtsma and Christian Erbprinz zu Fürstenberg each have a stake of 15% and Compagnie du Bois Sauvage holds 12%.
In 2010 Berenberg was again able to acquire around 1,000 new clients. The amount of net new funds reached the highest figure in the Bank’s history. Assets under management rose by EUR 3.6 billion to EUR 25.5 billion (+ 16.4%). A number of different surveys consider Germany’s oldest private bank to be the quality leader in Germany. In 2010 Berenberg was ranked best private banking provider in Germany by EUROMONEY and was also awarded highest marks in the “Elite Asset Managers” report, as in the previous year. In the Thomson Reuters Extel Survey, Berenberg took first place for sales, research and corporate access for German small and mid caps, and we were overall winner in the TELOS Asset Management Satisfaction Survey.
Total assets declined slightly from EUR 3.389 billion to EUR 3.242 billion, largely due to shifts of customer deposits into securities.
The Bank’s liable equity increased slightly from EUR 212 million to EUR 213.3 million. It comprises core capital of EUR 163.3 million and supplementary capital of EUR 50.0 million. The conservative strategy of the Berenberg Group and its focus on services are reflected in the core capital ratio of 15.1% (13.1%) and the solvency ratio of 18.8% (16.5%). “This already puts us well ahead of the stricter new capital adequacy requirements in Basel III,” explains Peters.
Gross income went up from EUR 233.9 million to EUR 237.3 million. Net interest income fell from EUR 42.2 million to EUR 32.9 million, whereas net commission income improved from EUR 130.9 million to EUR 150.0 million. Net trading income sank from EUR 42.3 million to EUR 29.6 million. The change in the ratio of net interest income to net commission income from 24:76 in the previous year to 18:82 in 2010 evidences the strong focus on the service business.
As economic prospects are good and earnings performance is strong, substantial investments were made in the Bank’s future growth, know-how and service quality in 2010. In the service areas of Investment Banking in particular we used the narrow window of opportunity offered by the current market environment to stock up significantly on high-calibre, expert staff. General administrative expenses went up due to this investment in the future (in addition to recruiting new staff, investments were also made in IT, marketing and expanding branch offices) by 20.8% to EUR 170.7 million (EUR 141.3 million). The cost-income ratio rose from 61.9% to 74.2%. Despite these substantial investments in the future of the Bank we were able to report excellent performance figures, including a return on equity of 45.3% (53.0%).
The number of employees in the Group went up by 83 to 977 (894) as a result of the greater business volume. Of particular note are the low fluctuation rate and, given the new recruitment, the high average length of service. In the Private Banking division for instance, undesired fluctuation is less than 1%.
The expanded credit volume was reduced from EUR 736 million to EUR 674 million. “We always link corporate lending to other services, such as advisory on alternative sources of financing. Pure lending is not a viable business model for a private bank,” notes Peters.
“In the German-speaking area we have a strong presence with eleven Private Banking offices, and we are continuing to expand our existing branches,” says managing partner Andreas Brodtmann. Even today, around half the private client assets are managed from offices outside Hamburg, the majority of which were opened in the last ten years.
“Continuous personal service from trusted advisers and the high-quality of our holistic advisory approach are very popular with clients – regardless of whether they are entrepreneurs, people of independent means or foundations,” explains Brodtmann. “As well as structuring assets for the long term, it is important to act swiftly too and manage a portfolio actively. We expect interest rates to go up over the course of the year and therefore see the need to act on interest rates. We recommend a substantial increase in tangible assets such as shares, property and precious metals. Our clients are also open to special topics such as investments in car parks or infrastructure.”
“The private banking market is back in the sights of many banks who are seeking to gain market share. For us, asset management is a traditional core business area. People identify us with it and recognise that we provide a good service. We relish this competition and are convinced that our approach and our individual service will enable us to keep gaining clients in the years ahead,” adds Peters.
In the Investment Banking division Berenberg Bank concentrates on service and the client business in the Capital Markets and Corporate Finance units. “We have made use of the market environment to position our Investment Banking division more broadly, but still with a sharp focus,” says managing partner Hendrik Riehmer. In addition to established trading in equities and currencies, which only takes place in Hamburg, trading in bonds has been set up and expanded in Hamburg, Düsseldorf and Vienna in the last 18 months.
In the summer an office is to be opened in Boston (where Berenberg previously had a subsidiary in 1833). Research is to be marketed from here directly to the big fund managers in the USA.
Alongside its ongoing advisory business, our Strategic Advisory unit (corporate broking, equity capital markets, transaction advisory) was involved with great success in transactions for Colonia Real Estate, Smartrac, ElringKlinger, Pfleiderer, Hamborner REIT, ECT1 and Tipp24.com. With a total transaction volume of EUR 4.6 billion we are highly satisfied with the result for 2010.
The Asset Management division provides services to pension funds and insurance companies, industrial companies, family offices, financial services providers and foundations, focusing on quantitative investment strategies. The division registered its highest-ever growth in assets in 2010. In addition to acquiring mandates for special funds and overlay solutions, ten retail funds were launched successfully. This is a field where Berenberg plays a prominent role in selected areas. Berenberg Currency Alpha UI has, for example, grown to become the largest foreign exchange fund registered in Germany (EUR 374 million). For institutional asset managers Berenberg offers the fund-of-funds Berenberg Strategy Allocation, which invests in a portfolio of funds managed by Berenberg. Institutional investors benefit from a free fund-of-funds vehicle and transparent reporting at the level of individual holdings. Berenberg’s new all-in fee model accommodates the increased demands placed on cost-efficiency and transparency.
For shipping clients in Germany and abroad we provide back-office banking services for operating activities (cash management for ship accounts, payment transactions, currency trading, short-term investment of excess liquidity, working capital financing). In the second half of 2010 we did brisk new business in medium-term ship mortgages. We offer individual financing solutions for purchases of second-hand tonnage. Furthermore, we offer hedging and optimisation strategies as part of interest rate and exchange rate management. Business with China, where we also have an office, is particularly important.
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