Higher Fees, Cost Cuts Boost Berenberg's Profits

Tom Burroughes Group Editor London 18 February 2020

Higher Fees, Cost Cuts Boost Berenberg's Profits

Return on equity surged while the bank's cost/income ratio narrowed significantly last year. Cost cutting and improved revenue performance helped the bottom line. Berenberg has exited several business areas as part of a transition strategy.

German banking group Berenberg, the country’s oldest lender, said yesterday that its net profit came in at €61 million ($66.2 million) in 2019, up from €23 million, helped by record commissions and a large fall in costs, such as staffing, it said.

The bank’s senior figures said they wanted to expand wealth management services; it has cut back from “non-core” areas in recent years, such as spinning off a Swiss banking arm. Berenberg cut operations in some areas and reduced staff from 1,640 to 1,482 last year.

Net interest income rose to €63 million in 2019 from €53 million; administrative costs fell to €346 million from €372 million, the bank, which dates back to the late 16th century, said in a statement. 

The cost/income ratio narrowed to 79.9 per cent from 88.9 per cent, while return on equity before taxes surged to 28.6 per cent from 9.8 per cent. 

Assets under management at Berenberg Group rose to €40.7 billion at the end of 2019 from 36.7 billion a year earlier.

“The new record level of net commission income as well as the year-on-year drop in administrative expenses show that the measures taken in 2018 to enhance efficiency have had the desired effect”, Dr Hans-Walter Peters, spokesman for Berenberg’s managing partners, said.

“In the past financial year we continued to invest in reinforcing our business model”, added managing partner Hendrik Riehmer. “We want to expand our business further. The investment bank’s structure is firmly established, and our corporate banking has mastered the transition from a credit division to an advisory entity and a private debt provider. Now we will place special emphasis on expanding and growing our premium-quality wealth and asset management units.”

The bank has made a number of changes, such as withdrawing from certain functions. These included a Swiss banking subsidiary and provision of assistance to independent asset managers. Berenberg has also “substantially curtailed” its fixed income business, which it said was no longer viable after new European Union regulations, aka MiFID II, kicked in more than two years ago.

“As a result, we have reduced the complexity of our business model, giving us the opportunity to focus our management resources entirely on the four core business divisions. We intend to expand all four divisions further”, Peters said.

Berenberg adjusted its staff numbers in response to changing market conditions at the end of 2018. This led to a reduction in the group’s headcount from 1,640 to 1,482. “We will increase the headcount again in the client-facing areas in particular”, says Riehmer. Berenberg employed 381 people in London at the end of the year.

The bank said its wealth management arm chalked up “very satisfying investment results” last year and above market averages. This was the case for the multi-asset strategies, all of which outperformed the market, and for its in-house fund solutions. It added that its investment and corporate banking business segments had a strong financial year.

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