Berenberg’s leading banker has cautioned that investment banking may face additional cost cuts in 2023 due to a difficult environment, after the bank’s dealmaking unit’s revenue declined by 38% in 2022.
According to a company statement, the 433-year-old German bank generated €290 million from investment banking activities in 2022, a near 40% decrease from the previous year’s record of €470 million. Group-wide net income was €55 million, a 65% decrease from 2021.
David Mortlock, managing partner at Berenberg, was quoted by Financial News as saying that 2023 would likely continue to be challenging in terms of risk appetite and equity issuance, but that companies with strong business models and well-regarded management teams would still be able to secure deals.
It was noted that the bank had made two rounds of job cuts in its City office, with 55 roles eliminated in December following 30 redundancies earlier in the year. The second round of cuts impacted 12.5% of employees at the bank’s London office on Threadneedle Street. The bank’s headcount dropped from 1,703 in 2021 to 1,579 in 2022.
According to Mortlock, some competitors have not reduced costs adequately. He expressed his belief that the industry as a whole has not effectively addressed costs and resource levels and predicted 2023 to be another year of transformation.
Mortlock also stated that, despite the difficulty in reducing costs, it was the correct decision and being proactive has placed the bank in a strong position for 2023 and beyond. He mentioned the bank’s aim to hire excellent talent this year, particularly in banking and corporate broking teams.
Goldman Sachs’ decision to eliminate 3,200 jobs in January is the most severe pullback from any major investment bank. Morgan Stanley has cut 1,600 roles, while banks including Barclays, Citigroup, Deutsche Bank and Nomura have all trimmed their ranks of dealmakers. Bankers and headhunters have warned that more job cuts are needed across the sector.
Berenberg’s investment bank focuses largely on equity capital markets activity. Fundraising on stock markets slumped by 74% in Europe last year, according to data provider Dealogic, while initial public offerings in the region tumbled by 84%.
Berenberg’s corporate broking has expanded, serving 70 clients. Its investment banking revenue hit a high of €470m in 2021, with €290m in 2022 comparable to 2019.