Berenberg Bank uses 2009 for further growth and achieves record results
Germany's oldest private bank boosts its net profit for the year by 38 % to 65.1 million Euro
Core capital ratio in the Group of 13.1 % reflects conservative business policy
Assets under management rise 1.6 billion to 21.9 billion Euro
Hamburg. The Hamburg-based Berenberg Bank continued growing successfully in 2009, obtaining a net profit of 65.1 million Euro (2008: 47.1 million), the best result in its 420-year history. The focus continues to be on giving independent advice, and it is this that forms the basis for further organic growth.
"We see very good growth opportunities for us as an owner-managed private bank. We are able to concentrate on the business areas where we can contribute the strengths of an independent adviser and provider. This enables us to offer our clients very real added value," adds Dr. Hans-Walter Peters, the spokesman of the personally liable partners. Berenberg Bank has come through the financial crisis well with a sound business model.
"There is no doubt that we have profited from that model" says Peters. "We have won 1,000 new clients, and the net inflow of money in private banking alone has reached 1.4 billion euro, a record. Private clients in particular appreciate the steadiness that characterises most private bankers." This was a reason for continuing to rule out any acquisitions: "Berenberg lives very much from its corporate culture, that has grown over centuries. It is our task to preserve and cultivate that culture."
Peters describes the decline in the balance sheet total (from 4.3 to 3.4 billion Euro to the same level as in 2007) as deliberate and desirable. "During the financial crisis many clients withdrew from equities and financial products and "parked" their money on their current account." This led to an artificial rise in the balance sheet total in 2008, that has now returned to its normal level. In general, the balance sheet total is not very meaningful for our business."
In 2009 the Bank's liable equity was boosted from 177 to 212 million Euro. Subscribed capital rose 5 million Euro, 10 million Euro was allocated to retained earnings, and 20 million subordinated capital taken up. The conservative strategy of the Berenberg Group and its focus on services are reflected in the core capital ratio of 13.1 % (2008: 12,0 %) and in the solvency ratio of 16.5 % (2008: 13.8 %), both well above the requirements of the German Banking Supervisory Authority. "This makes us superbly equipped for any future capital requirements that may be imposed by the statutory authorities," says Peters. The conservative, safety-first investment policy of the Berenberg Bank is also reflected in the fact that the long-term risk strategy did not need adjusting during the financial crisis and that at no time did Berenberg hold illiquid papers or structured products in its portfolio.
Gross income (net commission, net interest, income from subsidiaries and financial transactions) was increased from 202.8 to 229.4 million Euro (+ 13.1 %). The ratio of current net interest to net commissions is 24:76 (25:75), reflecting the outstanding importance of the service business. Administrative expenses increased due to investments in further growth of the Bank (recruitment of new employees, investment in IT, marketing, expansion of the branches) by 4.8 % to 141.3 million Euro (134.8 million Euro). The Cost Income Ratio improved from 66.9 to 61.9 %. "These figures show that our record result is the outcome of a sharp increase in client business, far exceeding the additional investments in the Bank's further growth," says Peters.
In connection with the higher volume of business, the Group's headcount was raised by 57 to 894 (prior year 837; + 6.8%). Of note are the low fluctuation and the long average length of service. Unintended fluctuation in the private banking area, for example, is lower than 1 %. Extended aggregate lendings were reduced, as budgeted, from 833.4 to 736.4 million Euro. We have concentrated on the development of innovative financing forms, linking the corporate loans business with further services. "Unadorned loans business is not an intelligent approach for a private bank," comments Peters.
In 2009 Berenberg Bank recorded a record inflow of assets from new clients, including from wealthy families. "As we know from numerous discussions with old and new clients, the traditional values of a private bank are much sought after, namely personalised and face-to-face advice, continuity and independance," reports the personally liable partner Andreas Brodtmann. More and more clients are acknowledging the rule that capital preservation must take precedence over yields.
Outstanding results in the various rankings were particularly welcome. In the global private banking survey conducted by the British magazine "Euromoney" Berenberg replaced Deutsche Bank as number one in the overall rating for Germany. The survey "The Elite Among Asset Managers" awarded Berenberg the highest number of points for the first time after five years in which it had awarded the Bank the highest distinction "summa cum laude".
The number of private banking branches was increased in 2009 from eight (Hamburg, Bielefeld, Bremen, Düsseldorf, Frankfurt, Munich, Stuttgart, Wiesbaden) to ten – with the addition of Braunschweig and Salzburg. "The regional expansion and in particular the expansion into Austria offers us good prospects of being selected here, too, as an attractive provider and being able to generate new client relationships." In addition, international private banking is pursued at Berenberg Bank (Schweiz) AG in Zürich.
Notwithstanding a significant expansion in business, income from private banking in 2009 remained at the prior year level. "During the financial crisis, private investors – and indeed our advisors on private banking – were of course somewhat reticent in their deployment of financial products." That has had its effect on income – here we are no different to other financial institutions."
In Investment Banking the Berenberg Bank focuses on the service and client business in the areas Capital Markets and Corporate Finance. Gross income was boosted by 35.1% to 104.2 million Euro (77.1 million) notwithstanding the difficult market. "Our Investment Banking is broadly based. We include here equity, bond and currency trading and special transactions as well as the Strategic Advisory area that was created at the end of 2009. All four established areas contributed in 2009 significantly to business success, so our Investment Banking is well diversified and is not dependent on the results of individual sub-areas," says personally liable partner Hendrik Riehmer.
On the strength of an existing broad client basis, the business was expanded notably by a greater product offering, for example in bonds or currency trading, but also through the recruitment of new clients. Berenberg's excellent reputation as Germany's oldest bank also played a contributory factor, reflected for instance in assessments by the biggest market contributors in the Thom¬son Extel Survey. Here we were chosen as the best bank for German equities analysts and the best German broker.
Despite the difficult environment, Berenberg was very active in capital market transactions. Since the summer of 2009 alone a number of transactions have been reached a successful conclusion: ten-percent capital increases for KUKA AG, SMARTRAC N.V. and Pfleiderer AG, participatory acquisitions for Grenzebach in KUKA and for Carlyle in P&I AG, plus placements of Freenet and Drillisch shares for United Internet.
The long-term advisory approach for companies was consolidated in 2009 with the setting up of the Strategic Advisory area. Here we have combined our expertise in the Corporate Broking and Mergers & Acquisitions areas, and we shall expand these services in 2010 with substantial reinforcements of human resources. "All in all, in view of our intensive and long established associations with a large number of institutional clients, our good reputation in different specialised segments and our broad-based product spectrum we see good prospects for further growth in investment banking," says Riehmer.
Our asset management is specialised in quantitative investment strategies in selected niches that are processed in asset management portfolios, retail investment funds and special funds. Clients include institutional investors such as insurance companies, pension funds, banks and foundations. For these market participants, 2009 was a difficult year, with low interest rates, low risk budgets and tighter supervisory requirements. Consequently the assets in this area also declined slightly. With our tailored investment concepts that also encompass individual risk control and optimum use of risk budgets, we can support our investors in re-entering profitable markets. Moreover, we draw up solutions for corporate clients and private investors.
The commercial banking area is active in back-office handling of operational shipping business (such as the management of ships accounts, payments transactions) and in the processing and financing of trade. Of special note here is the business with China, where we have a representative office.
"Berenberg Bank has a sound business model and is well prepared for the future. We intend to continue to grow in the current year," summarises Peters the goals for 2010.
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