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Hamburg Banks Defying Fast Money Mantra Seek Growth From Crisis

Hamburg Banks Defying Fast Money Seek Growth From Crisis
The offices of Joh. Berenberg Gossler & Co. KG are seen in Hamburg. Source: Joh. Berenberg Gossler & Co. KG via Bloomberg

Joh. Berenberg Gossler & Co. KG, Germany’s oldest private bank, said it has avoided the restructuring and closures afflicting European peers in the debt crisis with a manager liability model that limits risk.

Now the company is setting its sights on competitors’ clients and staff as private banks in the port city of Hamburg plot growth strategies to boost their market share.

Berenberg, whose family portraits greet visitors to headquarters overlooking Hamburg’s Alster lake, aims to increase its workforce by about 9 percent this year and is considering opening offices in New York and Amsterdam, Managing Partner Hendrik Riehmer said in a March 2 interview. Cross-town rival M.M. Warburg & Co. KGaA, founded in 1798, expects its 1,100-strong workforce to expand 3 percent to 5 percent this year, according to spokesman Martin Wehrle.

“We work with a strategic view of 10 to 15 years and don’t focus just on today’s profit,” said Riehmer, 43, who has spent 22 years at Berenberg and has been a partner for three. “I still want to have a place to work in 15 years. You cannot get wealthy very quickly and then simply dash off.”

Warburg, whose top executives also have full liability, coped better with the financial crisis that started in 2008 than many of its peers because the firm didn’t invest in structured products or become involved in leveraging, Wehrle said, referring to the use of financial instruments or borrowed capital to boost returns.

Market Share

Berenberg’s assets under management rose 2 percent to 26 billion euros ($34 billion) last year as profit fell 8.9 percent to 56.1 million euros. Its gross earnings jumped 11 percent to 263.8 million euros, driven by a 17 percent increase in net commission income. Total assets soared 22 percent to 3.95 billion euros as client deposits rose.

Berenberg’s revenue from cash-equities trading increased about 30 percent in January and February, while the general market for such business declined 15 percent, Riehmer said. The bank “gained massive market share in those two months due to the exit of competitors,” he added.

Warburg’s assets under management rose 12 percent to 36.1 billion euros in 2010, while pretax profit fell 16 percent to 55.2 million euros. It’s scheduled to report 2011 results later this month.

“We have principals that we stick to, such as knowing your customers and partners, and knowing who you lend money to and who you borrow from,” Wehrle said. “But with structured products nobody knew who the last lender was, hence we didn’t invest in these products because our questions couldn’t be answered. Our principles have been tested by history, throughout time.”

Job Cuts

Hamburg’s private banks are boosting market share as competitors restructure and close units in the wake of the global financial crisis, Europe’s debt crisis and amid stricter capital rules for lenders.

HSH Nordbank AG, the regional German lender based near Warburg’s headquarters, plans to eliminate more than 1,100, or one in three, positions by 2014. Nordea Bank AB, the Nordic region’s largest lender, plans to cut 2,000 workers by 2013 to trim costs and boost profit, while the U.K.’s HSBC Holdings Plc is cutting 30,000 jobs by the end of 2013. The number of employees at Commerzbank, Germany’s second-largest lender, dropped 1.6 percent in 2011 and fell 5.7 percent in 2010.

Client Focus

Italy’s UniCredit SpA on Nov. 14 quit its western European equities business, which covered some 400 companies from Munich, Vienna, Milan and London. It also plans 7,400 job reductions in Europe through 2015. Royal Bank of Scotland Group Plc said on Jan. 12 it will eliminate about 3,500 positions at its investment-banking unit as it sells or closes unprofitable cash equities, mergers advisory and equity capital markets divisions.

“When you don’t have any homework or restructuring to do, you can focus on your clients, which is a massive advantage for us,” Riehmer said. “If you have four depressed people and one fun person, who do you chose to go out with?”

Berenberg, which survived the Great Depression, two world wars and the global financial crisis, traces its roots to 1590 when brothers Hans and Paul Berenberg founded a Hamburg-based cloth-trading and import and export business. They fled to the city in the late 16th century after the Dutch government forced Protestants to convert to Catholicism or leave the country.

New York Plans

Warburg started out trading currencies and bills of exchange. Subsidiaries of the bank, whose headquarters have been in the same building since 1867, include Bankhaus Hallbaum in Hanover, Bankhaus Loebbecke in Berlin and Bankhaus Plump in Bremen, providing private-banking services. Family office bank Marcard, Stein & Co. and real-estate lender Warburg Hypothekenbank as well as operations in Luxembourg and Switzerland complete its portfolio.

Berenberg, which offers asset management and investment, private and corporate banking such as real-estate financing, equity research and transaction advice, has offices in German cities such as Frankfurt, Munich, and Dusseldorf as well as in Zurich, Geneva, London, Paris, Luxembourg and Shanghai.

The bank is considering opening a new office in New York, following the establishment of operations in Boston last year, as the firm expands its business in North America, Riehmer said. The company may hire “a few people” in New York, he said.

While the new office may be opened within the next six months if Berenberg finds appropriate people, it could also take as long as three years to set up operations in the city, he said.

Liability Approach

Berenberg may also open an office in Amsterdam in coming years to serve clients in Belgium, the Netherlands and Luxembourg, Riehmer said.

Large commercial banks could benefit from a similar approach to liability, Riehmer said.

“If all bank directors had been fully liable -- if the manager is the first loser -- they wouldn’t have entered all these risky businesses,” he said. “If I make no money if there is a loss, it aligns me not to make any operational mistakes.”

Hamburg and its banks owe much of their prosperity to the city’s 1,000-year history as a merchant hub.

The city, once a member of the Hanseatic League, is home to Europe’s second-largest container port as well as the Hapag-Lloyd AG and Hamburg Sued shipping lines. Luxury yachts are built at the Blohm & Voss shipyards while Airbus SAS, which employs 11,000 people in the city, assembles and builds airplanes in Hamburg.

Berenberg, which moved its equity research unit to London in 2010, employs 70 analysts at the division and aims to have 100 by the end of 2013, Riehmer said. On the client side, the division is benefiting from the closure of UniCredit’s western European and parts of RBS’s equity research units, Riehmer said.

Berenberg’s equity research division increased the number of companies it covers to 400 last year from 190 a year earlier, according to the bank.

“Our problem is that we can’t stop hiring,” said Riehmer. “We’re growing all our business areas and see a lot of momentum and business opportunities. People are knocking on our doors.”

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