LONDON, Feb 5 (IFR) - German equities specialist Berenberg is optimistic that the introduction of MiFID II, the European Union’s new rules on trading financial markets, will benefit its research-led business model.
The new regime requires fund managers and other users of research to pay an explicit fee for such services rather than bundle it together with the cost of executing a trade, which is historically how most investment banks and equities brokers have conducted business.
“The introduction of MiFID II will reshape our industry and at Berenberg we view this is an opportunity,” said managing partner Hendrik Riehmer.
“While some of our peers have stripped back resources in their research capability, we have continued to invest across our equities platform,” he said.
Over the past year the firm has increased the number of equity analysts in London by around a fifth to 122.
“MiFID II is leading our clients to really analyse who is adding value to their investment process. Given the breadth and quality of our research and sales teams, we welcome this increased scrutiny,” said David Mortlock, global head of investment banking and head of the UK.
The duo were speaking as Berenberg released results for 2017, showing a 38% decline in trading profit to €21m.
The firm is primarily an equities trading house but also does some equity capital markets underwriting in Europe and has €41.5bn of assets under management in its investment arm.
It is a private partnership and only releases selected details of its financial trading. Equities revenues rose 69% to €240m and commission income was up 35.3% to €343m.
Net profit was €90m, down from €161m in 2016 when the firm sold its stake in Universal Investment.
Riehmer said execution volumes were also up significantly since the start of the year. The firm did not disclose the take-up of research by buyside clients, since MiFID II started on January 3, and how much the latter had been charged.
Berenberg wants to expand its US activities in equities from the 50 people currently employed in New York. “We view the US as a big long-term opportunity and we have a very deliberate business plan,” said Mortlock.
On the ECM side, Berenberg said it had worked on 51 deals in 2017, raising a cumulative €8.6bn for clients such as Varta, Alpha Financial Markets Consulting, Gym Group, City Pub Company and Telit Communications.
Mortlock was bullish about the outlook. “We have an encouraging IPO pipeline for 2018 and our target is to more than double our number of UK corporate brokerships by the end of 2018 to 50.” (Reporting by Christopher Spink)