Customers withdraw money from Bethmann because of negative interest rates

I.In the Bethmann Bank annual report published at the beginning of August, a loss of between zero and 5 million euros was announced for 2020. But just one month later, Bethmann boss Hans Hanegraaf is much more optimistic: “As the share prices are currently developing on the stock exchange, I expect a positive result for Bethmann in 2020,” said Hanegraaf. In conversation with the F.A.Z. The CEO, who has been in office since July 2017, has strategically different accents than his long-term predecessor Horst Schmidt.

Measured by total client assets under management of 34.6 billion euros as of mid-2020, Bethmann is the leader in business with wealthy private clients (“private banking”) behind Deutsche Bank and Commerzbank. Like its predecessor, Hanegraaf also wants to grow further through acquisitions, better utilize the IT systems and collect fees on higher managed customer assets. Bethmann recently suffered from cash outflows of around 700 million euros because the bank charged its customers negative interest rates and some then ran away. This is one of the reasons why the total managed customer assets at mid-2020 are below the final value for 2019 of 38.4 billion euros.

In the conversation, Hanegraaf leaves little doubt that Bethmann was also interested in Bankhaus Lampe, which Hauck & Aufhäuser recently bought. Unlike its predecessor, Hanegraaf is obviously less interested in increasing total customer assets through acquisitions. He is particularly interested in those who are under lucrative asset management, for whom Bethmann charges relatively high fees. This is currently 9.1 billion euros. “Of course we want to continue to increase the assets and, above all, the right ones,” says Hanegraaf, a line that competitors such as UBS, Oddo-BHF and Julius Baer have been following for a long time. After all, assets that are managed for other fund companies, for example, only generate low margins.

Hanegraaf is also addressing the issue of “excess liquidity”. In the past, Bethmann received high interest rates from the Dutch parent company ABN Amro. But in times of negative interest rates that commercial banks have to pay for their deposits with the European Central Bank, liquidity becomes a burden. Bethmann’s net interest income will roughly halve in 2020 due to falling interest payments from ABN. Hanegraaf wants to take countermeasures here: “We want to use our liquidity to expand the lending business. We would also buy a loan portfolio for this. ”Currently, around three quarters of the loan portfolio of around 1.5 billion euros is used by customers for securities purchases (Lombard). In the future, Bethmann wants to be more available for real estate financing in private banking.

Deposit fee for cash holdings

Bethmann has already introduced a custody fee that private customers with large amounts of money have to pay. The interest rate is minus 0.25 percent for all Bethmann customers, half of the negative rate of the ECB. “We share the burden with our customers,” says Hanegraaf. Many customers were encouraged to invest their liquidity in securities and switch to asset management, so that customer assets there increased by 5 percent in the first half of the year. The bank addressed the customers with the largest cash positions first. These are not easy conversations, says Hanegraaf. He mentions 700 million euros in outflow of liquidity, but not the number of customers who, to his regret, have decided to leave Bethmann. “Many banks have announced custody fees, but many have not yet implemented them or have solved them in some other way,” says Hanegraaf.

In this respect, customers elsewhere have even better cards. However, the head of Deutsche Bank, Christian Sewing, has just announced that the institute expects custody fees in the future to amount to hundreds of millions annually.

For Bethmann, the custody fees are another source of income in addition to the fees on the managed client assets. In 2019, after previously tough years of restructuring, the bank achieved a result of 15 million euros from normal business activities – the highest profit in a good five years. However, at a good 90, the cost-income ratio remained well above the long-term goal of not spending more than 70 cents on one euro of income.

The return on equity of 10 to 13 percent, which ABN Amro Bethmann specified, was again missed. “We will not achieve these goals in 2020 either due to continued digital investments and the persistent low interest rate environment. But if we finish the year of the Corona crisis above breakeven point, we will be satisfied, ”says Hanegraaf.

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