• A significant 25 % year-on-year expansion of net inflows into debt funds for institutional investors
• Third-highest net commission income ever, despite the slump on the capital markets
• A 165% jump in net interest income to EUR99.5m
Hamburg. Despite an unprecedented slump in capital market transactions, Berenberg achieved EUR 55.1m in net profit for the year. After two excellent years in its capital market business, Berenberg’s diversified business model has proved that it can generate healthy returns even in a challenging environment. Its 28.7% return on equity compares very well to its sector peers.
Corporate Banking with its debt funds in the strategies Corporate Direct Lending, Secured Shipping Debt, Renewable Energies, Digital Infrastructure and Real Estate Debt was able to increase the invested volumes to over EUR 4.3bn in a difficult year for most asset classes, thus showing the strongest year in history. “At a bank that is geared more towards commissions, income made a timely return in both debt funds and deposits,” said Hendrik Riehmer, Managing Partner at Berenberg. “This did not increase our risk exposure, however.”
The capital market environment was made challenging by uncertainties and rising interest rates. This led to a sharp downturn in IPOs and capital increases. “We expect things to begin picking up in the course of this year and want to take advantage of this rough spell to win more market share through our good positioning,” Riehmer said.
“Despite multi-decade lows in equity capital markets activity, which meant that our deal count fell from 114 to 39 yoy and volumes from EUR 32.2bn to EUR 4.7bn, we were able to consolidate our strong position in European Investment Banking. In equity trading, our volumes were stable, with turnover in excess of EUR 150bn and we added new clients in our research & sales business,” said David Mortlock, Managing Partner. With its 90 analysts, Berenberg covers 950 companies across Europe and the US in addition to its highly ranked Economics, Strategy and ESG teams. Almost all of its 30-plus investor conferences were once again held in person, providing a forum for in-depth discussions between companies and investors.
During the year, Berenberg further established itself as an international bank, conducting ECM deals in Australia, Belgium, Germany, Switzerland, France, UK, Italy, Canada, the Netherlands, Sweden, Spain and the US. “In particular, we see great interest in accompanying European companies to the US,” said Mortlock.
In the United Kingdom, Berenberg now serves 67 companies (up from 52) with an average market cap of GBP 800m, as a corporate broker. Mortlock: “The momentum we have in the UK right now is particularly exciting. Our differentiated platform and offering resonates strongly with listed UK mid-market companies.”
Berenberg’s Wealth Management arm takes on complex tasks for ultra-high-networth private investors, family businesses, decision-makers, foundations and other non-profit organisations. Its core service is discretionary asset management, in which clients can choose from a variety of strategies that reflect various risk-reward profiles. In addition to discretionary asset management, which is increasingly in demand, Berenberg continues to offer investment advisory, which is more complex in terms of regulation. In investment advisory, the client makes the investment decisions after discussing them with an advisor. “We continue to see a pressing need for personal advisory in complex assets and want to expand our quality leadership position in the German market, which has been recognised by numerous awards, such as “Best Private Bank in Germany” by PWM, a Financial Times publication,” said Riehmer. Entrepreneurs in particular benefit from one-stop-shop services, such as corporate and investment banking.
Many growth managers had a disappointing year in 2022, but in spite of the challenging market environment, Berenberg’s equity platform continued to expand. “Our clients have been won over by our long-term approach, and the asset base remained largely stable. Fundamental equity research, a long-term investment horizon and focused portfolios remain the hallmark of our philosophy. In 2022, for example, we were awarded the Golden Bull as “fund manager of the year” and were named best small fund manager by Refinitiv Lipper,” said Riehmer.
Multi-asset management includes discretionary multi-asset and fixed-income strategies, as well as risk-focused multi-asset solutions for institutional investors. Balanced, income-orientated, and sustainable multi-asset strategies were a particular focus of investors.
During the year, three new funds were added to the range. Nine funds were awarded the FNG seal for sustainability. For 2023, Berenberg sees growth opportunities particularly in small and mid-caps.
Berenberg’s Corporate Banking arm serves mid-sized companies and, in addition
to traditional corporate banking, encompasses shipping and real estate, infrastructure and energy, as well as the special field structured finance. There is a particular focus on issuance of private debt funds. In infrastructure, our funds range from renewable energy plants to fibre-optic networks. Mid-sized companies are supported in transaction finance, and shipping is financed through senior secured ship mortgages. In addition, the long-established asset class of real estate is now served by a real estate debt fund, which should benefit from the change in paradigm on the property market.
Our portfolio makes Berenberg one of Europe’s most active providers. It was named “Best Asset Manager Private Debt, 2022” by Scope, a ratings agency.
“2022 was a very successful year for corporate banking. Because of the unique selling propositions on the financing market, we expect an increase in investor demand in the coming year”, Riehmer said.
Net commission income fell during the year by 37.1%, from its historical high-water mark of EUR 572.5m in 2021 to EUR 359.9m. It is thus Berenberg’s third-best net commission income in history. After central banks hiked their key rates to do battle with inflation, net interest income rose significantly, by 165.2%, from EUR 37.5m to EUR 99.5m, driven mainly by growth in deposits. The trading profit rose by 41.3%, from EUR 8.7m to EUR 12.4m.
To address the weak market environment, Berenberg reduced costs at an early stage and adjusted its employee headcount to business volumes, particularly in investment banking and at its US subsidiary. This shrank the number of employees by 7.3%, from 1,703 to 1,579. Personnel costs were reduced by 13.3%, from EUR 274.4m to EUR 237.9m. Material costs rose less than budgeted, by 9.6%, from EUR129.4m to EUR141.8m. “We also made targeted investments in 2022 in IT and in digitalising our business processes. Digital solutions complement the bespoke advice we give to our clients and make our processes more efficient,” said Christian Kühn, Managing Partner.
Return on equity fell from 82.7% to 28.7% but is still well above the industry average. The cost-income ratio worsened from 65.8% to 79.0%. The current net interest income to net commission income rose from 6:94 to 22:78, due to rising interest rates and declining commission income and shows how important commission income still is. The bank’s total capital was almost unchanged at EUR 341.6m (versus EUR 341.2m the previous year). The T1-ratio came to 13.9% (down from 15.4%), and the total capital ratio came to 15.7% (down from 17.4%). Both are comfortably above the regulatory requirements.
Assets under management slipped adjusted from EUR 41.3bn to EUR 38.5 bn (-6.8%).
Total assets expanded considerably during the year, from EUR 6.4bn to EUR 7.7bn (+21.0%), due to a steep increase in on-demand client liabilities. Most of these are deposited with central banks on a daily basis. These are still not being actively acquired by us but arise from the growth in normal operations and temporary individual mandates.
“As a medium-sized bank with a lean management structure, we are nimbler than many large banks. This gives us an edge in challenging market situations. Conversely, our diversified business model gives us an advantage over smaller peers who often have just one business line”, said Kühn. “We expect our current year’s results to be higher than in 2022.”