Berenberg is increasing its bet on a research-heavy investment banking model, after a dizzying rise in Europe’s equity markets and despite the threat posed by the new Markets in Financial Instruments Directive (Mifid II).
Liable partner Hendrik Riehmer tells Euromoney the German firm will sustain the recent rapid growth of its analyst and sales teams – particularly in the US – and will double its global stocks under coverage in the next five years.
“We want to be one of the top 10 investment banks in Europe, and eventually globally, in equities,” Riehmer tells Euromoney. “We are still ramping up. I don’t think that is happening anywhere else.”
The number of stocks Berenberg covers has already risen above 800 this year. In the next five years, Riehmer envisages expanding coverage to about 500 stocks each in the UK and US mid and small-cap markets, as well as 300 in Germany, Austria, and Switzerland, and between 300 and 400 large caps. To get there it will need to grow the number of analysts to between 150 and 160, with most of that growth in the US.
The ambition In the US is to emulate mid-cap brokers like Raymond James and Baird – implying a US franchise of about 50 analysts, covering several hundred stocks – just as it has sought to emulate and surpass Numis in the UK. The combined business will be much larger than any of these. It will also be much larger than pan-European brokers such as Kepler Chevreux and Exane BNP Paribas.
Riehmer says Berenberg’s lead in terms of stock coverage in Europe will only widen under Mifid II, which forces firms to split charges for research from trading. Because of the new rules, in force since January, Reihmer says even the big US investment banks will cut research teams on the continent. “We need to grow to sustain the business,” he says.
The strategy, in part, is to gain investment banking deals through the sheer force of its research and sales capabilities.
Over the past year, Berenberg has come from nowhere to achieve a top-five position in London’s IPO market, higher than bulge bracket firms Barclays and JPMorgan, according to Dealogic. Riehmer says firm has about 30 corporate broker mandates in the UK, all won in the past two years, and targets 50 by the end of this year, eventually rising to 200. It won its first FTSE 100 corporate broking mandate, gaming and sports betting firm GVC Holdings, in July.
Berenberg has also risen in small and mid-cap sections of the Extel European brokers survey, particularly in the UK, where it reached the top 10 this year.
The bank is not purely an equity markets firm, it also has a asset and wealth management business with around €40 billion assets under management. And as protectionism and potentially higher rates threaten the health of the equities market, Hans-Walter Peters – the other liable partner – says Berenberg’s asset management arm must be big enough to stabilize its earnings as the cycle turns. It is a business which that will for now remain almost entirely German, but it is also developing a stronger equities focus thanks to hires from the asset management arms of Deutsche Bank and Allianz.
“In the future we will earn more again from asset management. It’s a wave,” says Peters. “We are investing more and more in asset management in Frankfurt. If you want stable profits and returns, you have to be strong in asset management… Investment banking is for the party; the rest is for the normal days.”