Sunday, November 11, 2012

Germany's Berenberg Bank – A Report on the 422nd Financial Year




Germany's Berenberg Bank has received good press over the last months. For example, the FT wrote about Berenberg's involvement in Talanx' recent IPO:


Apart from being Germany’s oldest bank, Berenberg is also a rapidly growing force in equity capital markets, thanks in large part to the relations it has fostered over the years between its traditional client base of wealthy Germans and the world’s biggest fund managers. That success, in turn, stems from its manageable size and its partnership structure – a natural brake on risk and a natural motivator for focusing on clients.”

The bank has been founded in 1590 and is headquartered in Hamburg. Today, Berenberg's staff amounts to 1,100; the bank has 9 offices in Germany and 9 offices abroad. However, in terms of revenues, it is still very much focused on Germany: 80 % of its revenue is generated in Germany, whereas only 20 % is generated abroad.


Heritage

After a glimpse at the cover of its 2011 annual report, you will immediately understand what this bank is proud of:




The “report on the 422nd financial year” describes it more specifically:

  • Today, we are simultaneously the second oldest bank in the world, and one of the most dynamic in Europe.”
  • Our bank is characterized by a high level of continuity. We are proud of our corporate culture, which has matured over centuries, and proud of our many long-standing client relationships and the average length of service of our staff.”
  • [The core capital ratio of 14.1 %] is an expression and evidence of our conservative business policy.”

The bank is privately held by the Berenberg family (> 25 %), Managing Partners (> 25 %), Christian Erbprinz zu Fürstenberg (15 %), Jan-Philipp Reemtsma (15 %), and Compagnie du Bois Sauvage S.A. (12 %). According to the bank, this ownership structure guarantees a special kind of independence of its employees who are free of corporate interests.


Financial Performance

Looking at the financial information, we can see that Berenberg has not only performed strongly during the financial crisis but also has a very solid business performance:


 








Business Divisions

Private Banking

Private Banking serves wealthy private investors and families in protecting and multiplying their wealth. Asset structuring is carried out on a quantitative and qualitative basis. Berenberg puts a special emphasis on art: In 2011, it has set up a subsidiary called Berenberg Art Advice, which answers questions about art as an investment class and advises clients namely on transactions and collection management.

Investment Banking

This business division is organized in three segments, e.g. equities, financial markets, and strategic advisory. The equities segment does equity research (400 European companies in 24 sectors), equity sales and execution, and advisory on equity issues and IPOs. The financial markets segment does fixed income research as well as fixed income and currency trading. Finally, strategic advisory focuses on transaction advisory and corporate broking services.

Asset Management

This business division concentrates on quantitative investment strategies. Clients are of institutional nature and include insurers, pension funds, banks, and foundations.

Corporate Banking

Corporate Banking advises small and middle sized companies on the selection and implementation of optimum funding structures, with a special focus on the shipping industry.

A general principle that applies to the whole bank, is particularly true for the corporate banking division: As a matter of fact, Berenberg does not want to offer every single service possible. To the contrary, it targets niche markets and tries to develop specialist know-how in those areas. Examples include the shipping and real estate sectors.


Comment

Compared to annual reports of universal banks, it is almost a pleasure to read Berenberg's annual report. The bank's business model and big picture are easily understandable. In my view, this straightforwardness is a good concept in today's banking world, where banks are often blamed for being over-complicated and carrying systemic importance.

However, while reading about Berenberg, you get sometimes the impression that it is not really a “bank” as most ordinary persons would understand the expression. For example, Berenberg's corporate banking division only seems to have a “support function” in order to generate business opportunities for the other divisions of the bank. Consequently, Berenberg is more an advisory firm that provides comprehensive financial consulting and corporate services than a traditional bank. From this perspective, it is right that Berenberg is at the same time a very traditional and progressive financial institution.


Resources:

  • Berenberg Bank Annual Report 2011
  • “Talanx offers lesson on big bank failings” - Financial Times October 22, 2012