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Berenberg's Record Year

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The flags are flying high at Berenberg at the moment.
  • Why it matters

    Why it matters

    At a challenging time for many banks, Berenberg Bank almost tripled its net profit in 2015 and reported an impressive return on equity of 67.3 percent.

  • Facts

    Facts

    • Berenberg Bank, based in Hamburg, is one of Germany’s oldest private banks.
    • The bank is the top player in German-speaking countries when it comes to stock issues, based on the number of transactions.
    • Hans-Walter Peters took over as head of the bank in 2009.
  • Audio

    Audio

  • Pdf

Hans-Walter Peters just returned from a trip to snow-covered Berlin. The soon-to-be president of the Association of German Banks will be spending much time in the German capital in the future. But he was in the city this time on behalf of his employer Berenberg Bank, sounding out a new investment banking mandate.

Mr. Peters began his career in 1987 at Dresdner Bank. After a stint at DG Bank, he moved to Berenberg in 1994. In 2009, he was named spokesman of the bank’s personally liable partners, in effect its chief. The 60-year-old will assume his new role at the Association of German Banks in April.

Berenberg, based in Hamburg, is a private bank that has established itself as an international consulting firm. In 2015, it increased its net profit from €40 million ($43.5 million) to €104 million. This corresponds to a return on equity of 67.3 percent, compared to 28.8 percent in the previous year. The bank specializes in investment banking and asset management.

Mr. Peters is a firm believer that there are always opportunities in business, even if the markets are currently taking a nosedive.

 

Handelsblatt: You almost tripled net profit in 2015 and achieved a whopping 67.3 percent return on equity. How does that work? Other banks target returns of 10 percent and fail.

Hans-Walter Peters: To be honest, we weren’t quite sure at first whether to publish that figure.

Why?

Because, of course, it attracts attention and requires an explanation. But the number is simply derived from our business model. In 2015, we managed a total 10 initial public offerings, including Deutsche Pfandbriefbank, Hapag-Lloyd and Sixt Leasing, and we hardly needed any equity capital for that. In other words, we were able to achieve high profits with a modest capital investment. It’s a completely different story with banks that do a lot of lending, which they need to support with capital.

How sustainable are returns like these? Can this sort of result be repeated?

It’s certainly challenging in a year that begins as this one has. But it stems from our business model. We have strongly positioned ourselves in stock issues. Based on the number of transactions, we are now the top player in German-speaking countries. Based on volume, we are a little further behind, and yet we can still hold our own next to big players like Goldman Sachs, JP Morgan and Deutsche Bank. We have the same profit margins as the big players, but we work with a much more favorable cost basis. In this respect, these kinds of returns are also possible in the future.

The asset management division has been somewhat overshadowed by investment banking recently. You reported €4 billion in new managed assets in 2015. What’s next for the division?

People may have gained this impression, but the division has always been important to us. It provides us with a steady flow of income. We can assume that we will work on five IPOs this year, but we don’t know how many more investment banking deals will come in. Asset management is much more predictable. We now plan to expand our institutional asset management with our new office in Chicago, and in private banking we aim to grow in Germany, as well as in London and through our Swiss subsidiary.

The chairman of your board, Joachim von Berenberg, recently gave up his office. His son John had already left the investment banking division. Germany’s Manager Magazin reported on a dispute between the personally liable partners and the Berenberg family. What’s behind the story?

There are no differences between the partners when it comes to the bank’s strategic direction. Joachim von Berenberg-Consbruch is leaving the board of directors now that he has reached the upper age limit of 75. This limit has been specified in the partnership agreement for decades. A son left the bank at the end of last year.

 

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Hans-Walter Peters has been head of Berenberg Bank since 2009. Source: Bernd Roselieb for Handelsblatt

 

Many experts expect that the European Central Bank will not only supervise large banks that are considered too big to fail, but also smaller banks. Would that make sense?

It’s an issue that is very much on my mind. ECB supervision would mean that smaller banks would also be required to translate all data into English in the future. This isn’t a problem for us at Berenberg, as an international bank. But it would represent an enormous cost for other regional institutions and smaller lenders.

Which you believe is unnecessary?

BaFin (the German Federal Financial Supervisory Authority) and the Bundesbank (Germany’s central bank) are competent regulators. But banks that are not considered too big to fail for the euro zone shouldn’t be prevented from growing by forcing them to restructure and hire new employees, merely so that they can then be supervised by the ECB.

In addition to regulation, there are also the challenges of the current low interest rate policy and attacks by fintechs. Will the industry continue to shrink?

We will see more pressure on business models that are very sensitive to interest rates and are based on large lending portfolios. Because of declining interest revenue, these models can no longer be sustained. And if we assume that there will be a recession, there could be painful write-offs in the lending sector. The banking industry will remain under pressure to restructure in the long term. This is partly the result of tough regulation in Europe. This benefits U.S. banks, which are now gaining market share.

Is that really so dangerous?

Politicians must realize what the consequences can be when the entire banking industry is under pressure and able to lend less money, because the equity capital requirements are so high. We will need intact banks when we slide into another recession one day, otherwise the downturn will be much worse. You can’t fix everything with KfW, the state-owned development bank.

 

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Do politicians find such arguments convincing?

It’s my impression that German politicians do understand this. But these are problems that can only be resolved at the E.U. level.

Fears of recession are currently causing chaos in the markets. For how much longer will the stock market slide continue?

We need to make sure that the market doesn’t talk itself into a recession, merely because we have a low oil price and China is growing more slowly. The new Chinese president wanted to curb growth, but now he’s under so much pressure that he has to step on the gas again. The markets will pick up again if they recognize this and develop confidence.

So you believe that investors’ fears are exaggerated?

The pressure to conform is rising for many countries that produce oil. But others are also experiencing some relief as a result of the declining price of oil. We shouldn’t always talk about crisis, even if that’s the way the markets are reacting at the moment. I don’t see a truly threatening crisis at the moment.

Aren’t you a little too relaxed in this regard?

Political risks are the only thing that really worries me. An example is the possibility of a Brexit – that is, the United Kingdom withdrawing from the European Union, or if the refugee crisis strengthens the political right in upcoming elections. Both would have lasting effects on markets.

You invited Robbie Williams to a concert last year. Given the bank’s strong annual result, who will you invite next year?

We invited Robbie Williams as a special gift for our employees, to mark the bank’s 425th anniversary. After all, they play an important role in the bank’s success. The concert was supposed to be a special event, and it won’t be repeated anytime soon.

 

Laura De La Motte is an editor on the Handelsblatt finance desk and a specialist banking correspondent. Michael Maisch is the deputy chief of Handelsblatt’s finance desk in Frankfurt. To contact the authors: delamotte@handelsblatt.com, maisch@handelsblatt.com

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