Berenberg Bank has plenty of experience in helping wealthy expatriates - some 421 years, to be exact. Germany’s oldest independent bank did not start with expatriate Germans, however.
Berenberg Bank has plenty of experience in helping wealthy expatriates – some 421 years, to be exact. Germany’s oldest independent bank did not start with expatriate Germans, however.
Berenberg Bank has had quite some experience helping wealthy expatriates – some 421 years, to be exact. Germany’s oldest independent bank did not start with expatriate Germans, however.
Hans and Paul Berenberg were financiers to some 1,000 of their Dutch countrymen who had moved to Hamburg, a booming harbour city in 1590, when the firm began.
They lent money to customers and made advance payments on deliveries of their suppliers. Hamburg’s role as a major centre for global trade also made currency exchange important.
More than four centuries later, Berenberg Bank plans to help German compatriots living in London by opening operations there. Berenberg’s private bank is opening in the ‘heart’ of the City, Threadneedle Street. This is also where the Bank of England sits, affectionately called the Old Lady of Threadneedle Street.
Berenberg is not yet as widely known in the UK as in Germany, despite its balance sheet of €3.4bn and managing assets of more than €25bn. It may have a lower profile in the UK, but it is also about 100 years older than UK rival Coutts, and 80 years older than C Hoare & Co. It has conducted investment banking in London since 2003, and already has 100 investment banking employees, including 60 equity analysts there. It has had private banking since 1988 in Switzerland and also in Austria, since 2010.
The UK expansion is not instead of further expansion in Germany, where most private banks have only up to 5% of market share. Ross Elder and Fred Hervey have joined in London from Barclays Wealth as managing directors to spearhead the offering.
Andreas Brodtmann, managing partner at Berenberg responsible for private banking, said: “The UK offers a dynamic entrepreneurial market for us, with good long-term prospects for wealth creation, within which we can add significant value to our clients.”
Berenberg’s services will encompass discretionary and advisory management, and tax aware solutions for clients. They will have investable assets of at least £1m, though Berenberg’s typical client is expected to have £3m or more.
“Berenberg will appeal to the newly wealthy, but also to dissatisfied clients from other businesses and entrepreneurs selling businesses. By our nature we, too, are entrepreneurial, so the business will resonate with those types of businesspeople as well,” says Hervey.
Elder says Berenberg aims to grow in the UK organically. The private bank’s staff are not beholden to shareholders to hit asset levels, commission targets, or to ditch longer-term strategies in the interests of quarterly targets.
He says: “Being a business with a very defined management gives a strategy a longer time to play out, which gives a continuity to employees and stakeholders in the business.”
One example might be moving clients from cash into equities, in their interest rather than in the bank’s.
“Sitting down with a client after six months to explain why you are not continuing with a strategy after all can be very frustrating for them. Clients know if we go down a route we take them on, we will continue down that path.”
The private bank’s staff seem to appreciate the long-term approach, as only 1% leave each year, far less than the average turnover of staff in the wider industry.
Hervey says: “Being privately owned, Berenberg’s independence allows its staff to be entirely focused upon its clients. The bank’s culture focuses on personal commitment, trust and responsibility, which enable us to be relationship-led as opposed to sales-led with clients. We believe that if you do the right thing by your clients, in the long-run that is profitable in any case.”
As a multi-national private bank, however, Berenberg faces the challenge of serving clients in countries at quite different stages of recovery from the crunch, and potentially therefore in very different frames of mind.
Few differences are as stark as Germany and the United Kingdom. German customers, 80% of the firm’s total private client base, are in an economy where consumer and business confidence is at 20-year highs and industrial exports are creating great affluence.
“The crisis is very fresh in UK residents’ minds and, while it is also fresh in Continental Europeans’ minds, in Germany there was no huge debt or personal indebtedness, so it was much less affected than Britain,” says Brodtmann.
Wealthy Britons, by contrast, might still feel pain recalling the crisis and the subsequent falls in the value of property, which represents much of their wealth.
Elsewhere, wealthy people in Switzerland might shun certain investments, especially if they were invested in the strategies of Bernard Madoff. Berenberg clients avoided both Madoff, and significant sub-prime exposure.
Elder says: “Risk profiles are a perennial problem for a wealth manager – sometimes you talk about risk to one client, and realize that what is right for one client in terms of bringing risk into a portfolio would be totally wrong for another.”
The clue to the answer is to be found not on Threadneedle Street, but in Savile Row, where London’s best tailors work – bespoke banking.
It is much easier said than done, says Elder: “It is an easy thing for wealth managers to drop into conversation, but not so easy in practice. It is not just about being open-architecture, or being able to take an independent view on investments. You cannot talk to a client about a ‘bespoke solution’ then offer them an off-the-peg suit. You see a lot of private bank clients dissatisfied with the ‘solutions’ out there at the moment.”
He says the fact every client has their own portfolio, comprising a different, appropriate mixture of active and passive funds, direct equities and bonds, cash and maybe also alternative investments shows the tailored nature of offerings from Berenberg’s UK office. Banking deposits will be held in Hamburg.
Hervey says: “Being bespoke is a complicated matter, because you need to conduct education, there is more information gathering, and you need good systems to monitor each client’s portfolio from a risk perspective.”
In part for this reason 120 of Berenberg’s roughly 1,000 employees focus on building and maintaining the firm’s IT.
“Nearly all the firm’s IT is proprietary. It is a large cost, without a doubt, and at a large bank they would be far more likely to bolt on a solution from a provider according to the budget, but it offers real benefits.”
Berenberg has also taken concrete steps to secure the ‘independence’ of its staff. The private banking unit is ring fenced from the asset management area, and allocations by discretionary private clients to Berenberg’s in-house funds are capped at 10%.
“We could lean on Berenberg’s own products, but one of our key tenets is about being truly open architecture,” says Elder.
Berenberg will also allow clients to have all trail fees from third party funds rebated to them. This is not common in London, but Berenberg has offered it for a long time to clients in Germany.
“That is important from a client’s perspective, but it is important for us, too. You need to be able to look at investments in an unconflicted way, and it is wonderful to be able to do so.”
Managers will also have more time to pay attention to discretionary accounts, as Berenberg advisers are responsible for 50 at most, compared to hundreds at some rivals.
The managers have a broad palette of investments to select from.
The bank’s fund selection team in Hamburg conducts quantitative and qualitative due diligence on traditional funds, property-focused products and funds of hedge funds. A second research team provides recommendations for stocks and bonds. ETFs or direct equities and bonds can be bought, for example for clients who do not hold with active fund management.
Active management is more likely to be used in less efficient areas such as small caps, special situations strategies or Asian markets. Local managers are preferred for emerging markets, “because you cannot get local knowledge from a balance sheet in London”.
The private bank’s fund selectors meet portfolio managers in person, not least because “understanding the people behind the fund, knowing what the history of the house is and the behavioural element of the people behind it are also important to us”.
Elder says the bank can also source illiquid investments, such as US farmland, infrastructure, or closed-ended commercial property investments, if needed.
The bank’s staff are aware of non-performance risks such as illiquidity and operational issues at fund managers. “You must remember you cannot get returns without taking risks, but it is a matter of taking risks very much with your eyes open,” Elder says.