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DZ Privatbank halves clients while doubling assets under management

New York

LESS is sometimes more.

The private banking arm of Germany's cooperative lenders has almost halved the number of customers while also nearly doubling assets under management within a few years. DZ Privatbank now takes care of more than 18 billion euros (S$28.7 billion) for the first time ever, CEO Stefan Schwab told Bloomberg.

"We had 650 million euros in net inflows this year," he said. The lender currently counts around 30,000 customers, compared with 50,000 clients and 10 billion euros in assets under management at the beginning of 2011. "We shifted our focus to larger mandates, which make asset management more efficient."

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On average, assets under management per client trebled from 200,000 euros to 600,000 euros over the past eight years. And it could climb even further, as the bank seeks to hit 20 billion euros in assets under management within two years.

"Our inflows in new business have risen sharply," according to Mr Schwab, who had previously worked at BHF Bank and Dresdner Bank. "When a customer came to us in 2011, he used to invest 200,000 euros or 300,000 euros. Today, it's 1.6 million euros on average." Most of the money comes from wealthy business owners, he added.

Mr Schwab sees the opening of branches and offices throughout Germany as positive for DZ Privatbank.

"Until 2011, we only had two central locations in Luxembourg and Zurich. Without a broad geographic expansion, we would certainly have lost significance and funds in Germany," he said.

Today, the lender operates a total of eight branches, including in Frankfurt, Hamburg, Dusseldorf and Munich. "Private banking has been and will remain a people's business."

The company gets the majority of its customers through the local cooperative banks. They approach wealthy clients and arrange contacts to the group's private bank.

"The local cooperative banks receive up to 50 per cent of the revenues from asset management, with the exact amount depending on how much they engage."

Invested money can be booked at the local cooperative bank, at a branch or directly at DZ Privatbank in Luxembourg or Switzerland.

Germany's savings banks, the other big group of lenders in that country, also has its own private banking arm called Frankfurter Bankgesellschaft, a subsidiary of Landesbank Hessen-ThĂĽringen Giro-zentrale (Helaba). Recently, the company opened a new branch in Dusseldorf. Assets managed for clients currently stand at more than 10 billion Swiss francs (S$13.9 billion), with the target being about 12 billion francs by the end of 2019, a spokeswoman said. The roots of the private bank are in Zurich.

DZ Privatbank, which went through a couple of mergers and takeovers over the years, is 91 per cent owned by DZ Bank AG, which is acting as the central bank for cooperative lenders. The remaining shares are held by around 320 institutions of the cooperative banking sector in Germany.

In 2017, earnings before taxes totalled 20 million euros. A year earlier, the figure had only been three million euros burdened by special factors, compared to around 38 million euros in 2015. In August of this year, parent DZ Bank described the operating performance in its private banking segment as stable, but below target.

DZ Privatbank still has some trouble with its Swiss unit. It has recently shrunk as part of a restructuring programme and must work on improving its profitability, the lender said. Among other things, Mr Schwab pointed to the abolition of the minimum exchange rate of 1.20 francs per euro in early 2015.

"If the costs are in francs and the revenues in euros, then you get a problem overnight," he said.

Against this background, a cooperation with Swiss private bank Notenstein La Roche had been considered at that time. "Since we could not reach an agreement, we decided to continue on our own in Switzerland," Mr Schwab said. Today, 110 of previously 174 employees are still with the company. Many key functions have been shifted to the main location in Luxembourg.

"Our target is to be back in the black in Switzerland, aiming to hit that target in 2020." BLOOMBERG