Press
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Hamburg
May 16, 2017

Warburg Group merges banking subsidiaries and strengthens position

  • Support for merger of subsidiaries from clients and staff
  • Encouraging rise in assets under management to EUR 54.1 billion
  • Capital increase of EUR 53.0 million
  • Healthy income structure and strong net fee and commission income
  • Unsatisfactory trend in net interest income and costs, in line with business environment

 

In October 2016, the Warburg Group (the companies held by M.M.Warburg & CO Gruppe GmbH) merged its subsidiaries Bankhaus Hallbaum, Bankhaus Löbbecke, Bankhaus Plump and Schwäbische Bank with Warburg Bank (M.M.Warburg & CO (AG & Co.) KGaA). The traditional institutions—some of which have been in existence for centuries—have kept their names and, as branches of M.M.Warburg & CO, are preserving their identities as independent private banks with a local presence. The response of clients and staff alike to the mergers has been extremely positive. The high level of trust could be seen from the increase in assets under management, which rose from EUR 51.1 billion in the previous year to EUR 54.1 billion. The headcount was up by 2.58% to 1,232 (previous year 1,201). Income before taxes amounted to EUR 29.7 million (previous year: EUR 16.0 million).

 

With the mergers, Warburg Bank is continuing its focus on ensuring easy regional accessibility in Germany while reacting to the increasing regulatory requirements, which make it almost impossible for credit institutions to do business independently as small organizational units. The branches can support clients in their regions by offering the full range of all Warburg Group services without restriction.

 

The second key measure taken in fiscal year 2016 was the resolution by the partner base—which continues to be independent and is unchanged in terms of its composition—to perform a capital increase by way of a cash contribution in the amount of EUR 53.0 million. As a result, the Warburg Group’s Common Equity Tier 1 capital rose from EUR 272.8 million to EUR 325.5 million, while its own funds including Tier 2 capital totaled EUR 423.7 million. Following the approval of the consolidated financial statements, the Common Equity Tier 1 capital ratio amounted to 9.7%, while the own funds ratio was 12.5%. As a result, the Warburg Group meets all supervisory capital requirements.

 

The high quality of the income structure could be seen from the net fee and commission income, which at EUR 161.0 million was almost at the strong prior-year level of EUR 163.9 million. The ratio of fee and commission income to interest income is now almost two-thirds to one-third. In past years, the Bank generated more than half of its income from the interest rate business.

 

Joachim Olearius, Spokesman for the Partners: “2016 has shown that our clients put their trust in us and are looking for long-term partnerships with us. Particularly in these eventful times, there is strong demand for an independent, reliable banking partner. Our end-to-end range of services means we have a lot to offer discerning private clients, business owners, and institutional clients. The capital increase underlines our determination to put traditional banking at the heart of our business activities.”

 

Net interest income and costs performed less satisfactorily. In the case of the interest rate business, this is due to the dysfunctional interest rate environment with its zero and negative interest rates that has been produced by state intervention, and to the fierce pressure on margins from competitors who are pitching for business with unprofitable bids. Although the increase in the cost ratio is partly due to one-off factors, it also reflects a higher IT spend, which is largely attributable to repeated new regulatory requirements. Loan loss provisions recognized in the area of shipping finance had a negative effect; the Group used its own resources here, with income from the sale of a real estate portfolio being one contributory factor here.

 

The Warburg Group’s total assets rose by EUR 892.6 million to EUR 8.4 billion. Growth was mainly due to the takeover in a fiduciary capacity of a real estate fund that Warburg Bank, as the Depositary, is liquidating in accordance with the “Kapitalanlagegesetzbuch” (German Investment Code).

 

Last year in particular, a large number of banks were publicly accused of unlawfully obtaining tax benefits by performing share transactions around the dividend record date. Such accusations were also leveled against Warburg Bank as from the beginning of 2016. Following an in-depth examination, which also drew on the assistance of external auditors, Warburg Bank’s partners and Supervisory Board are able to reiterate the statements they made at the beginning of the investigations: Warburg Bank and its banking subsidiaries were not party to transactions involving multiple or unlawful investment income tax credits or refunds. Consequently, the accusations are unfounded.

 

The Bank saw a good start to the current year. Business in most units is brisk on the back of the continuing improvement in the economic data. The only factors having a dampening effect at present are political uncertainty and state intervention in the markets. A stabilization of the political situation following the key elections in Europe, at national level in Germany, and in a number of federal states could help to overcome this, as could a return to tried-and-tested regulatory principles that would then hopefully occur. However, if the interest rate environment remains unchanged, banks will have to charge institutional clients a margin on the Central Bank’s negative deposit rate. This means that net interest income will stabilize.

 

The Warburg Group will start to benefit from the effects of the mergers in 2017. Additional savings will be made in the back office areas of its former banking subsidiaries in the course of the year. The associated human resources measures are limited in nature and will be implemented in a socially responsible manner in the period up to 2018. The Warburg Group’s front office areas are performing extremely well. Organic growth and increased staffing levels in the Fixed Income, International Shipping, and Private Banking units are having an increasingly noticeable effect this year. Investments in client-facing technological solutions will further enhance and extend the Group’s broad range of services.

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