MONEY MATTERS

Advice from a Banker Who Should Know

Dr. Hans-Walter Peters, persoenlich haftender Gesellschafter der Berenberg-Bank
Hans-Walter Peters, head of Berenberg bank.
  • Why it matters

    Why it matters

    No one knows where negative interest rates will lead, Mr. Peters said. If rates rise rapidly, for instance, 10-year German government bonds could lose over 12 percent.

  • Facts

    Facts

    Berenberg Bank was established in 1590 and is Germany’s oldest private bank.

    The bank’s co-head Hans-Walter Peters, 61, earned his degree in economics, with an emphasis on capital market theory and stock market analysis.

    Berenberg Bank was named in the recent Panama Papers document leak, which revealed the clients of the Fonseca law firm, which specialized in setting up offshore businesses and shell corporations for avoiding taxes or sanctions.

  • Audio

    Audio

  • Pdf

As co-head of Berenberg Bank, Hans-Walter Peters is one of Germany best known bankers. He joined the nation’s oldest private bank in 1994 and has been a personally liable partner since 2000. Today the 61-year-old is also president of the Association of German Banks, or BdB (Bundesverband deutscher Banken).

In an interview which took place the week of the United Kingdom’s Brexit referendum, despite market turmoil, Mr. Peters insisted on traveling from company headquarters in Hamburg to talk to journalists at Handelsblatt’s Frankfurt editorial offices. Like many from his region, he prefers talking to people face-to-face and sealing a deal with a handshake.

 

Handelsblatt: Mr. Peters, the world is a very uncertain place today — with the threat of terrorism increasing, populist candidates like U.S. Republican nominee Donald Trump winning support, and negative interest rates hurting investments. Do millionaires fear for their assets and wealth in these times?

Hans-Walter Peters: That’s taking it a bit too far. But one thing is clear: The number of people seeking advice is increasing significantly. But it’s not a question of “Is my money still safe with banks.” That’s not an issue.

That sounds like the president of the German bankers’ association talking. We want to know what customers of Berenberg Bank are saying.

The negative interest rate worries customers. Particularly when they have parked a major part of their assets in liquid funds, meaning they want to stay fluid and agile to be able to react quickly. We tell them, quite honestly, that with larger amounts it results in losses and not earnings. As a bank, we pay a penalty interest of 0.4 percent for deposits at the European Central Bank. We have to pass that on somehow — and that is happening these days.

So Berenberg is charging its customers negative interest?

Not private customers at the moment. But we have no other option for institutional customers, with very large sums of money on deposit.

Your bank turned up in the Panama Papers leak and was accused of using tax havens to help the rich avoid taxes. Did you lose customers because of that?

That had no impact on our regular customers.

Let’s talk money. What was your worse investment idea so far?

We set up a Ukraine fund in 2007, when eastern Europe was developing well. I even invested in the fund myself, which went badly in the end. That did hurt.

And where did you get it exactly right?

That wasn’t all that long ago. When the Swiss Franc was revalued, I was extremely confident, bullish for the entire equity market. It was possible to make a tidy profit there.

When you look at yourself and other private investors, what mistakes do you most often see?

German investors tend to be very pro-cyclical. When the market is performing well, they jump on too late and buy securities. They like to sell when they bottom out. So, of course, the losses add up. Wealthy families do it differently.  They weather drops in share prices on the market, even when it is sometimes difficult.

Buy stocks and put them under your mattress – 10 years later you’ll be rich. Does that rule still apply?

No, you have to continually look to see if something has fundamentally changed for a stock. For example, German energy providers RWE and E.ON were long considered to be absolutely safe stocks for “widows and orphans.” But that’s a thing of the past, because of changing energy policy. Nevertheless, you always find company shares in the portfolios of wealthy families. Stocks form the bedrock of their assets and are kept up over the long term.

Should private investors buy individual stocks or only invest in exchange-traded funds, or ETFs?

You can also buy individual shares; the relevant information can be found on the Internet. So it is possible for small investors to get fundamental data and assessments.

As a trained mathematician, do you have a more structured approach to investments than we do?

My doctoral thesis was on the risk of financial investment. Today I am risk-averse. In this respect, I’m a conservative investor. The Ukraine fund I mentioned was an exception. But, just to make it clear, I wouldn’t buy bonds at negative interest.

Ten-year German government bonds are profitable now. But many say the bond bubble is growing too fast. When will it blow up in our faces?

People who study economics can sometimes forget all the wisdom they learned from textbooks. The only question is how do we get back out of negative interest rates. Even the U.S. Federal Reserve is stuck again after only one interest rate increase. No one knows where it will end. No one knows what will happen if interest rates rise rapidly. Let’s assume the rate rises to 1.5 percent: Then you would have a big depreciation of over 12 percent with 10-year German government bonds. That worries me.

Investment guru George Soros has warned for months about a “big bang” and recommends buying gold. Is that the right strategy?

Gold always belongs as part of a widely-diversified asset base. But gold doesn’t pay interest and loses its appeal when confidence in the market returns.

A market crash sometimes comes every seven or eight years. Is one due now?

I don’t expect a crash. Why should there be one? The economy is growing 1.5 percent and companies are making money. I see the danger elsewhere. When you connect a currency with a negative interest rate, that naturally means the currency is also worth nothing. This perception should not be allowed to spread. We need a savings rate again and, above all, high regard for the euro.

Because of the interest rate dilemma, many investors are seeking refuge in real estate, private equity and hedge funds. So-called real assets like infrastructure are now extremely expensive. Are we looking at more bubbles coming up?

Yes, the risks are building. Just take the price of farm land. It has doubled over the last 10 to 12 years. Up to €30,000, or about $34,000, is being paid per hectare.

Ship prices, on the other hand, are rock-bottom. Are there good deals there?  Someone from Hamburg must know that.

(Laughs) Our bank has had its share of shipping crises. That’s why we’re cautious. At the moment, I wouldn’t invest.

Before the collapse of Lehman Brothers investment bank, rich investors often demanded mega returns. Has a new sense of restraint set in today?

Definitively. Now more than ever, in large asset portfolios it’s a matter of asset preservation plus a yield — in that order, not the reverse.

What is a realistic yield over five to 10 years?

One can expect 3 to 4 percent in a well-balanced portfolio, with the performance almost exclusively coming from the equity market. You shouldn’t strive for double-digit yields; the risk is too great.

You talk of stocks and shares, but small investors aren’t tempted by equities. How can that be changed?

That would be very difficult. You can only continue to encourage small investors to invest in companies through stocks and shares. But this aversion to stocks has hardened over generations; that’s difficult to break down.

Listed exchange-traded funds, or ETFs, are booming. Are they risk-free? And what accounts for their success?

It’s pretty good – the investor is widely diversified with the purchase of a stock exchange index and can sell at any time. That is a kind of care-free version.

What would you recommend to a 40-year-old family man with €100,000 saved? How should he invest?

First we would fill out a consultation protocol. If the money is meant to serve for long-term retirement, then something like 50 percent stocks, 40 percent annuities – primarily investment grade corporate bonds – and 10 percent alternative investments.

How much time do you take for your own personal finances?

My work for Berenberg, and now also at the banking association, demands all my time. In that, I’m a lot like many businessmen. To be honest, I ought to be taking better care of my money.

Then you’re not a good example to follow.

No, not really (laughing). But we do have an SME fund I’m investing in and it’s performing very well. When the price drops again, I’ll buy some more.

 

Robert Landgraf is Handelsblatt’s chief correspondent for the financial markets. Peter Köhler has been working at Handelsblatt since 1996, covering finance and banking from Frankfurt. To contact the author: landgraf@handelsblatt.comkoehler@handelsblatt

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