Berenberg battles for bigger slice of global private banking business

Can a German privately-owned bank, with a traditional domestic clientele and a limited global presence, win the hearts and pockets of international private banking clients?

That is the challenge facing Peter Raskin as he powers up an office in London for Berenberg Bank and pitches in with the largest Swiss banks for a piece of the international action. Mr Raskin took over international banking a year and a half ago and global banking in April 2014.

Berenberg’s international private banking arm in the UK was established only three years ago with a team of 10 and a brief to grow to 15. Mr Raskin says he is bidding to get a chunk of international private banking, as it grows much faster than private banking in the bank’s home German base. While the international sector is growing as much as 40 per cent annually, the German market is growing at just 7 to 8 per cent, yet Germany continues to occupy the largest share of its private client business. “In five years’ time, international banking will be similar in scale to German private banking market,” he says, “and in the future there will be more international private banking.” 

The bank regards Switzerland as a key venue for private banking for clients who value Swiss secrecy. But London provides tax advantages formerly offered by Switzerland, but lost in the wake of the UBS private banking scandal. Mr Raskin says his bank has had its problems in relation to the US. “We have no reason to believe we have committed a criminal offence… we had some cases, but without any criminal offences; they are now solved. Therefore we are very comfortable. You never know [if the US is pursuing you]. We are small and we are not on their radar right now. We have never done anything with a criminal offence.”

Cultural factors challenge his move to internationalise the traditional private bank. German private banking clients have difficulty grasping the importance of the bank’s expansion in London.

He explains: “The traditional German clients are often complaining: ‘What is our old fashioned Hamburg-based bank doing in London?’ Since I have taken over responsibility for private banking in London, I try to convince the Germans that it is good for you to do this. Because you are a Hamburg-based family business guy, and you should start thinking about getting analysis about your competitors from us. If you want to grow, maybe speak to sector analysts who is doing nothing else but checking the balance sheet of your competitors. That is great! But you have to convince your client that this is a service for him.”

The same is true if you are growing your business, he says. “Consider a merger! So we could link you to our M&A guy in Frankfurt. Or we could do it through London.”

Internationally-oriented clients appreciate the benefits of the UK’s attractive domiciled resident status (a tax concession where UK residents not domiciled in the UK are allowed to pay tax on foreign income on a remittance basis), says Mr Raskin. He also says they gravitate to London’s art market.

Mr Raskin regards London as the tax haven of Europe and believes clients appreciate the good quality of life. “Clients like to live here as they have the Frieze art exhibition and other cultural opportunities. Most of our clients already have a link to London as they own apartments or villas here.”

The UK’s wider pro-banking, pro-competition environment is another bonus for London over the climate found in mainland Europe. “In London we have the feeling that they do something to support the competitors, the small and big banks, to get bigger competition in the market. London is the hub for international private banking for the future. And for European business, because you have the European passporting system. Outside Europe, it is Switzerland. The same laws apply to the London-based banks as for the Swiss banks.” Mr Raskin is highly critical of European attitudes to banking, arguing that it is hostile to competition.

The push to boost international private banking comes as Berenberg’s profits stagnate. Last year’s profits of €66m have barely risen from those made in 2009, while the amount of assets under management have risen by almost a third, from €22bn to €30bn. Net commission has leapt over the four-year period from €131m to €234m.

Mr Raskin, who learnt his trade at Berliner Handels and Frankfurter Bank (now part of Deutsche Bank),  sees challenges ahead for private banking. They are focused on margins. “Private banking is not very profitable, but it is profitable. The margins are coming down because the clients are not doing much anymore. They say keep the money in cash or buy some bonds and wait. Therefore we don’t earn interest anymore. It is not as profitable as in the past. So we have to increase the volume a little. We are profitable, but there were much higher margins in the past. In the past it was easy to earn profits because the client had tens of billions, €20 billion in cash, say, which you could invest overnight – but you don’t get that anymore.”  Private banking accounts for some 25 per cent of the Berenberg mix.

Berenberg is fighting to win investors with as little as €1m to invest, through to families that have just enjoyed a windfall from the sale of a business, to business entrepreneurs, and finally to very wealthy families and successful sportsmen. Mr Raskin says he employs a ‘holistic approach’ to investing, by not differentiating clients by the scale of their wealth but rather by their goals and their expectations.

“Most big Swiss banks differentiate between high net worth individuals, super high net worth, and the billionaires’ club. That is strange to me. The family entrepreneur has the same issues and family problems as all the other entrepreneurs. These issues do not depend on his size but on the business he is in. So we don’t any longer segment according to whether he has a portfolio that exceeds a fixed number of million. We have one centre of competence for key clients; another for family entrepreneurs; another for clients behind the cash event.”  The cash event occurs when an entrepreneur and his family come into a large amount of cash when selling a business. That cash needs to be managed, he says.

Adding value is the key battleground for today’s private client business.  “Because of the lower margins, you have to add value to the clients and offer many more services – for free. Most services are free. I don’t charge our clients for sessions. But then he has the option of a discretionary portfolio management session, maybe for two hours, and there is an ‘all-in’ fee of 1 per cent or something like this. And to get this 1 per cent of his overall wealth, with us, I have to do many things around him. The only fee income I generate is with this portfolio.”

Fee-based services are being pushed as transaction profits contract. These include giving investment advice on alternative investment assets such as fine art and even motor cars. To avoid conflicts of interest, the bank does not trade in pictures on a proprietary basis, preferring instead to earn a fee when a client makes a transaction, says Thomas Kellein, its art expert.

“The art consultancy is not a profit centre– it is a service centre, he says. “We need it for our clients and we invest in this service to get the clients. Investing in art has so much to do with emotions. And that is our business.” Berenberg is equally capable on advising a client on where to find a particular sports car.

Three groups of Berenberg’s private bankers operate out of London, one focused on the Mediterranean, one on the French-speaking world and one on the UK. Mr Raskin gives no firm indication about investment plans, but indicates that more funds will be directed at the London operations. One member of the Berenberg family (the bank’s founding family) works in London. John von Berenberg-Consbruch  is an executive in equity sales in the investment banking division while Fabian von Berenberg-Consbruch works in Switzerland covering private banking for Latin American clients.

While Berenberg fights to race on the international track , its long-standing claim to offer personal service to private clients is likely to come under pressure from the demand to increase volume. In the meantime, global players will push to win Berenberg’s traditional private clients using their large balance sheet firepower. The battle for international banking business is already looking bruising.    

An amicable separation

Berenberg’s former UK head of private banking Ross Elder, who launched the UK business in 2011, left in October 2013 to set up a rival bank aimed at UK private clients. Mr Elder says he has now taken with him some of his Berenberg clients and other clients with whom he had relationships to found a separate company called Lincoln Private Investment Office. 

Clients have funded Lincoln Private Investment Office, he claims. “We’ve been asked by some of our clients to build this as a genuinely independent wealth management business. We are the UK management team out of Berenberg and they’ve come to do this and let Berenberg continue with their international client focus. There has been no deal made as regards clients, our business has been funded by a number of our very significant clients.”

Mr Elder is joined by Fred Hervey, a former Berenberg colleague, as his chief investment officer. Both men had previously worked at Barclays Wealth. Mr Elder says that some clients backed his new business but that the separation “was amicable, although we are definitely in competition in some areas”.