corporate banking

Polo News

31. January 2022

• Net profit for the year increases by 57% to €170.1 million
• Return on equity reaches 82.7%
• Investment bank revenue rises up by 35% to €471.6 million
• 113 capital market transactions provide companies with €31.6 billion in capital

Hamburg. In 2021, Berenberg achieved the best result in its 432-year his-tory. The net profit of €170.1 million achieved operationally in 2021 ex-ceeded the already very good previous year’s result of €108.2 million by 57%. This resulted in a return on equity of 82.7% (PY 52.0%).

“Across all business areas, we were hugely successful in growing our business in 2021,” says Hendrik Riehmer, Managing Partner. “With our business model – aligned to providing independent advice – as well as impressive performance, we were able to win many new clients and assets in our core markets of Germany, the UK, Europe and the US.”

“Our Investment Bank has achieved a record year: Capital market transactions up 114%, Equity Trading up 50%, expansion of covered companies and market share gains in research”, David Mortlock, Managing Partner, explains the main drivers for this outstanding result. “Strong new business in Wealth Management and high inflows of funds from our high-performing investment funds in Asset Management and the credit fund range in Corporate Banking also led to the highest net commission income ever achieved,” Riehmer states.

Net commission income rose from €415.6 to €572.5 million (+37.8 %) in the reporting year. Revenues in the Investment Bank alone rose from €350.5 to €471.6 million (+34.6 %). Net interest income, a metric less relevant for the result and our business model, fell as expected from €55.8 million to €37.5 mil-lion (-32.8 %) due to perpetually ultra-low interest rate levels. Trading profit increased from €6.8 to 8.7 million (+29.3 %), while other operating result, which in the previous year was shaped substantially by major non-operating effects, normalised from €17.7 million to €9.7 million (-45.2 %).

Berenberg has invested further in strengthening its high-performance business model. Thus, the number of employees in the group increased from 1,573 to 1,703 (+8.3%). Both personnel expenses (from €226.5 to €274.4 million; +21.1%) and material costs (from €115.5 to €129.4 million; +12%) increased significantly. “In 2021, we were once again able to attract excellent employees to continue our growth. Personnel expenses increased due to strong staff growth, as well as variable salary components attributable to the outstanding financial year. We were also able to use our earnings situation to make targeted investments in our IT and drive forward the digitalisation of our business processes. In doing so, we guarantee our customers a first-class service and also increase the efficiency of our processes in the medium term,” explains Christian Kühn, Managing Partner.

The return on equity rose significantly from 52.0% to 82.7%. The cost-income ratio improved from 70.9% to an excellent 65.8%. The ratio of current net interest income to net commission income shifted further in the direction of net commission income and, at 6:94 (PY: 12:88) underscores the out-standing importance of commission business. The Tier 1 capital ratio stood at 13.3 % (PY: 13.5 %), thereby being comfortably above the regulatory requirements. 2021, we not only strengthened our Tier 1 capital through a capital in-crease, but also further built up the core capital on balance by issuing AT1 funds. The bank’s total capital was significantly increased from €295.5 million to €341.7 million. As a result, the T1- ratio is a strong 15.4 % (PY: 13.5%). The total capital ratio rose from 15.7% to 17.4%.

Net new assets in Wealth and Asset Management amounted to €4.2 billion, total assets under management rose from €41.3 billion to €44.8 billion (+ 8.5%). It should be considered here that assets under management of €5.6 billion were lost in the reporting year due to the discontinuation of Overlay Management and the transfer of business to a cooperation partner.

Total assets increased significantly from €4.7 billion to €6.4 billion (+37.0%), in particular, due to a strong increase in liabilities to customers due on demand, which were predominantly invested as credit balances at central banks on a daily basis. The increase resulted from an expansion of business in Wealth and Asset Management, as well as in Equity Capital Markets. Here, the companies advised on IPOs and issues temporarily invest part of the cash inflows generated with Berenberg.

The bank has taken advantage of what was once more a strong earnings situation, and has already formed all of the provisions to be made until 2022 in accordance with the new regulations for general loan loss provisions (BFA7). “We did not need to record any specific valuation allowances in our credit business in the reporting year. When considered alongside the high amount added to the general valuation allowances at an early stage, this reflects our prudent and conservative governance approach,” says Kühn.

Wealth Management

Berenberg Wealth Management focuses on providing a range of investment services for very wealthy private investors, family entrepreneurs and decision-makers, as well as foundations and other non-profit organisations. The core service is asset management, where clients can choose from a variety of strategies that consider different risk-return profiles. “In 2021, almost all of our asset management strategies outperformed their benchmarks, as did almost all in-vestment funds,” Riehmer says. Therefore, an increasing number of clients are turning to portfolio management. Berenberg, however, also continues to offer tailored investment advice from a regulatory perspective, in which the client makes the investment decisions in dialogue with the advisor.

“The need for personal advice on complex assets remains steadfast. This re-quires competent and experienced advisers who understand the circumstances of their customers. Digital solutions, such as the Berenberg Wealth Management Portal, round off the range of services on offer.”

Asset Management

Berenberg Asset Management is active in two key areas: It stands for fundamental expertise in equities, in a way rarely found in Germany (“Equity Funds”) and for globally active investment strategies and funds with a European focus (“Multi-Asset”). Of the 21 Berenberg funds with the necessary track record of three years, 18 currently have a 4- or 5-star rating from Morningstar due to their strong performance. “The success and performance of our investment funds are reflected, on the one hand, in the strong increase in assets under management, but also in the numerous awards we received in 2021,” says Riehmer. Another item worthy of mention here is the Scope Award as “Best Asset Manager” in the category Specialised Providers and the Refinitiv-Lipper Award as “Best Equity Fund Manager Europe” in the category Small Asset Managers.

“The cornerstones of our strategy are fundamental equity analysis, a long-term investment horizon and focused portfolios,” Riehmer explains. In equities, the bank now has first-class products in Germany, Europe, Global, Small Caps and ESG. In multi-asset products, investors focused on offensive and sustainable investment strategies.

Investment Bank

“The Investment Bank continued to grow its business scale significantly and gain market share in 2021,” Mortlock said. The number of companies covered by Equity Research was increased from 1,100 to 1,250. To this end, the number of analysts working in London, New York and Frankfurt was increased from 116 to 129. The 76-strong sales team serves 950 institutional clients in all major financial centres in Europe and the USA. Despite the pandemic-related restrictions, the Bank hosted 30 virtual investor conferences and organised more than 30,000 meetings between investors and the management teams of the companies we analysed.

In Equity Trading, the previous record turnover of €100 billion was exceeded by 50% and now stands at €150 billion. “We were able to further expand electronic trading and are well on the way to becoming the platform with the third largest market share in Europe. A 50 % increase in turnover from corporate acquisitions in the European risk arbitrage business secured us additional market share and fifth place in the overall European risk arbitrage business,” Mortlock explains.

We had another record year in Equity Capital Markets. Here, the bank was once again able to defend its market leadership in the German-speaking region with 21 lead-managed transactions. Activities included the largest German IPO (Van-tage Towers with €2.3 billion) and the capital increase of Siemens Healthineers (€2.3 billion).

In the UK, 32 transactions, including the IPO and three secondary placements (total value £ 586m) of Darktrace were completed. Berenberg now serves 52 companies (PY: 40) in Corporate Broking. We were also able to significantly expand our market share in Benelux. Therefore, the Bank opened a branch office in Brussels in the reporting year. But we are also increasingly being mandated in capital market transactions in both the Nordic countries and Southern Europe.

US business has also developed rapidly. The number of transactions increased from 12 to 18. The IPO of the German electric car company Sono Motors (USD 173 million) on NASDAQ, which we conducted as sole bookrunner, recorded the second-best first-day performance of a US IPO in 2021.

In total, Berenberg completed 113 transactions (PY: 67), with the volume more than doubling from €14.8 to €31.6 billion.

Corporate Banking

Corporate Banking serves capital market-related and medium-sized companies and, in addition to traditional Corporate Banking, includes the sector topics of Shipping and Real Estate, Infrastructure & Energy, as well as the specialised field of Structured Finance. A special focus is on the issuance of credit funds (Private Debt). With 20 credit funds, Berenberg now offers entities such as institutional investors and large single-family offices the opportunity to invest in loans and generate decent returns in a low-interest environment. The focus here is on structured finance, ship loans and projects from the energy and infrastructure sectors. “In the Private Debt asset class, we are one of the fastest growing asset managers in Europe and were recently named “Best Asset Manager Private Debt” by the Scope rating agency,” explains Riehmer. In the discipline of Structured Finance, more than 30 transactions were lead-managed in 2021 and €1.5 billion were invested. Due to strong demand in the energy and infrastructure sectors, two credit funds are to be added to the fund range this year. In the shipping sector, 160 ships with a volume of more than €1 billion are currently financed – due to the prevailing conservative alignment of investment activities and many years of know-how without any performance problems. We place particular emphasis on our conservative and largely constant loan portfolio.

• Net profit for the year increases by 57% to €170.1 million • Return on equity reaches 82.7% • Investment bank revenue rises up by 35% to €471.6 million • 113…

Polo News

Berenberg records best operating result in Bank’s history

27. January 2021

• Net profit for the year up 78.7% to €108.2 million
• Return on equity reaches 52.0%
• Impressive outperformance by wealth and asset management strategies and mutual funds
• 67 capital market transactions, providing companies with €14.8 billion in capital
• Equity trading exceeds volume of €100 billion

Hamburg. Even in 2020, a year dominated by the coronavirus crisis, Berenberg has shown that the Bank is well equipped for all market phases thanks to its high-performing business model. Net profit for the year rose by 78.7% to €108.2 million (previous year: €60.5 million). Berenberg had already grown earnings by 160% in the previous year. Adjusted for extraordinary effects, the Bank’s operating profit is now also the highest it has ever recorded.

“Even in this difficult environment caused by the coronavirus pandemic, we have demonstrated the robustness of our business model”, says Managing Partner Hendrik Riehmer. “I’m proud of the way our business responded to the huge change in working practices. In some of our offices we’ve had up to 95% of our staff working from home. Our investor conferences and roadshows moved online, and everything worked well.”

“Our Investment Bank division is in an excellent position. In addition to a record number of 67 capital market transactions (IPOs and capital increases), which provided companies with a total of €14.8 billion in capital, the Bank also had a record year in terms of trading volumes and we continue to grow market share in research”. This is how Managing Partner David Mortlock explains the main driver behind the outstanding result. “I’m particularly excited about progress we’re making in the UK and US”, Mortlock added. “There were also other factors that led to our recording the highest ever commission income. These included the expansion of our range of funds and our portfolio management in Wealth and Asset Management, which are more than impressive in terms of both performance and increasing volumes, and our extensive range of credit funds”, says Hendrik Riehmer.

Net commission income rose from €355.5 million to €415.6 million in the reporting year (up 16.9%). Net interest income, which is less relevant for earnings, dropped from €63.4 million to €55.8 million (down 12.0%). This was due in the main to the general level of interest rates and the cut in interest rates in the US. Net income from trading activities decreased by 56.8% to €6.8 million (€15.7 million), reflecting the Bank’s prudent approach to uncertain market environments. The other operating result rose from -€2.2 million to €17.7 million and primarily contains the scheduled sale of shares in the former Berenberg Bank (Schweiz) AG, the sale of the business with external asset managers, as well as pension provisions.

Berenberg continued to invest in enhancing the business model. The Group’s headcount rose from 1,474 to 1,573 as a result (up 6.7%). “There were especially significant investments in IT, while costs for travel and marketing naturally dropped off considerably”, says Managing Partner Christian Kühn. While personnel expenses increased from €212.9 million to €226.5 million (up 6.4%), non-personnel costs decreased from €124.3 million to €115.5 million (down 7.1%). “We invest in people, know-how and digitalisation. On the cost side, we are benefiting from narrowing the focus of our business model in recent years”, adds Kühn.

Return on equity rose from 28.5% to 52.0%, while the cost-income ratio also improved from 79.9% to 70.9%. The ratio of current net interest income to net commission income is 12:88 (15:85), which underlines the significance of commission-earning operations. At an excellent figure of 13.5% (12.4%), the tier 1 capital ratio is the second-best in the Bank’s history and testifies to its solid position. The total capital ratio climbed from 14.4% to 15.7%. The Bank’s equity amounted to €295.5 million after the annual financial statements were approved (€287.5 million).

Net new assets in Wealth and asset management amounted to 3.4 billion Euro. Assets under management in the Berenberg Group edged up from €40.7 billion to €41.3 billion (up 1.5%) despite the assets lost through the sale of parts of the business. Total assets declined from €5.1 billion to €4.7 billion.

The Bank took advantage of the repeatedly strong financial performance and has already recognised all of the provisions required by 2022 under the new rules for general valuation allowances (BFA 7). “We did not need to record any specific valuation allowances in our credit business in the reporting year. When considered alongside the high amount added to the general valuation allowances at an early stage, this reflects our prudent and conservative governance approach,” says Christian Kühn.

Wealth Management

Berenberg’s Wealth Management is focused on complex tasks for high net worth individuals, family entrepreneurs, decision-makers as well as foundations and other charitable organisations. Its core service is portfolio management, where clients can choose from a large number of strategies that cater for the different risk/return profiles. “In 2020, all of our wealth management strategies outperformed the market,” says Hendrik Riehmer. “In investment advisory, where clients take decisions in tandem with an advisor, we established an Investment Consulting function in order to offer our clients a unique service in terms of service level, investment quality and long-term results”. In Private Equity (PE), a fully digital offering was created where investments can be made in selected PE funds from a figure of just €200,000. “We see individualised and personal advice as absolutely essential for complex assets. However, this advice is increasingly being complemented by modern digital solutions such as the Berenberg Wealth Management Portal. Clients can use this app any time not only to get an overview of how their assets are developing, but also to look at various evaluations.”

Asset Management

The success of the realignment of Asset Management initiated three years ago is demonstrated impressively by the performance of the mutual funds. Of the 21 Berenberg funds, 17 currently have a 4 or 5-star rating from Morningstar thanks to their strong performance. “In 2020, the funds in our equities platform far outperformed their respective benchmarks once again, and each ranked amongst the top spots compared to competitors. We have been winning over clients and market observers alike with our fundamental stockpicking approach”, explains Hendrik Riehmer. In Equities, the Bank now has first-in-class products in the areas Germany, Europe, Global, Small and Medium Cap and ESG. Average performance in 2020 was 23.8%, which constitutes an outperformance of 18.5%. Multi-Asset Investors were focused on aggressive and sustainable strategies. The Bank is one of the first currency managers worldwide to use alternative data to generate excess returns in Currency Overlay. It is innovations like these that have allowed Berenberg to copperfasten its position as one of the world’s largest active currency managers.

Investment Bank

“The expansion of our Investment Bank division is continuing with great success”, says David Mortlock. A number of milestones were achieved in 2020, which saw the number of covered companies rise from 890 to 1,100. The hiring of additional Senior Analysts contributed to this development. As of the end of the year, there were 89 analysts in London covering 842 companies, with 27 analysts in New York looking at 258 companies. A Research Team comprising around 15 members will be established in Frankfurt this year and will be specially dedicated to German Small and Mid Caps. The Sales Team is one of the best-performing in Europe. It is made up of 53 generalists and eleven specialists who provide assistance to the 950 institutional clients in Europe and the US. “Communication between the stakeholders is particularly important in times of uncertainty”, explains David Mortlock. “This is why we organised more than 30,000 virtual meetings in 2020 between investors and the management of the companies we analyse. There was also major interest in our 30 investor conferences, all of which took place online because of the pandemic.”

Clients produced a new record in equity trading. The numerous activities in March/April and November in particular led to record sales, which exceeded the €100 billion mark for the first time.

There was also a significant jump in Equity Capital Markets. The Bank accompanied a total of 67 transactions (38) with an issue volume of €14.8 billion (€4.4 billion), helping companies to borrow amounts of capital never seen before. A total of eleven IPOs, 44 accelerated bookbuilds and six new convertible bonds were organised. Berenberg reinforced its leading market position in the German-speaking countries. It expanded its presence in France and the Benelux countries as well as entering the Scandinavian and southern European markets. In the UK, Berenberg is now the corporate broker for a total of 40 companies. The Bank’s performance in the US is particularly pleasing. It assisted twelve transactions there, including the IPO for CureVac as well as the issue of subscription rights for BioNTech. Both of those companies are pioneers in the research to find a COVID-19 vaccine.

Corporate Banking

Corporate Banking assists SMEs as well as companies geared to the capital market. Alongside the traditional corporate client business, it encompasses the areas of Shipping and Real Estate, Infrastructure & Energy as well as the special area of Structured Finance. There is a special focus on issuing credit funds. This allows Berenberg to offer third-party investors such as institutional investors and large single-family offices the opportunity to invest in credit together with the Bank. The focus here is on structured finance, ship loans and projects from the fields of energy and infrastructure. “In the Private Debt asset class, we are one of the fastest-growing asset managers in Europe. We can offer our clients strong returns in an environment characterised by low interest rates”, explains Hendrik Riehmer. The volume of illiquid alternative assets grew to €4 billion. No fewer than three of those funds offer possibilities to fund projects in the field of renewable energies. Alongside the core markets like Germany, Japan and Australia, 2020 marked our entry into two additional markets – namely the US and Finland. In the Infrastructure segment, fibre-optic projects are also financed for private investors as fund subscribers. In Structured Finance, Berenberg has established a leading role in the financing of corporate acquisitions with its credit funds. Clients are benefiting from many years of expertise in international shipping through the shipping loan fund, which has been in place for four years now. The fund provides financing for 130 ships and has not suffered any disruption thanks to its conservative approach.