“The experience of the global financial crisis from 2007 shows us that even in the present crisis we are well-positioned as a result of our prudent business philosophy and core segments. Our strategic focus is supported by high risk-awareness. We have a very comfortable capital base, extensive taxed hidden reserves, which are not included in our regulatory equity, and an excellent liquidity situation,” stresses Emmerich Müller, personally liable partner at B. Metzler seel. Sohn & Co. KGaA, Frankfurt/Main, Germany, in his presentation of the bank’s performance in 2019. “The basic tenets of Metzler’s business model with its four core segments – Asset Management, Capital Markets, Corporate Finance and Private Banking – naturally remain unchanged and will be sharpened further,” explains Müller.
Müller reports that 2019 was a successful year for the Frankfurt-based private bank. As usual, the bank’s net profit was EUR 2.3 m. Commission income fell from EUR 196 m to EUR 191 m but net interest income was EUR 7 m in the reporting period, above the previous year’s level of EUR 5 m. General administrative expenses, which include depreciation of property, plant and equipment, were EUR 190 m, about 1% above the previous year’s level of EUR 187 m. Personnel expense increased by approximately EUR 5 m due to a rise of 3% in the average headcount. By contrast, the other administrative expenses and depreciation of property, plant and equipment decreased by EUR 2 m. Overall, expenses to meet regulatory requirements and the cost of market and index data and external research remained the main factors in this. Metzler had 850 employees at year-end 2019 but the headcount dropped to around 830 in the first months of this year.
The group’s balance sheet total was EUR 3.7 bn, only slightly lower than in the previous year. However, given Metzler’s specialised business model, this is not a very meaningful performance indicator. The regulatory equity of the bank and the Metzler financial holding group remains well above the minimum requirements and is comprised entirely of tier one core capital. With a core capital ratio of over 20%, Metzler considers that it is still in a good position to meet present and future regulatory requirements. As has been customary at Metzler for many years, in 2019 the bank made further allocations to reserves established under § 340f of the German Commercial Code (HGB). The bank will continue to refrain from including the reserves established under § 340f of the German Commercial Code (HGB) and further hidden reserves in its regulatory capital base. Thanks to its business model, Metzler’s liquidity position was very comfortable at all times. The Metzler financial holding group’s liquidity coverage ratio (LCR) was 194% as of December 31, 2019.
In the Asset Management segment, total assets increased by around 16%, from EUR 74 bn to EUR 86 bn at year-end 2019. This was mainly due to the very positive general trend on the equity markets and the pleasing net inflow of funds. Metzler Asset Management GmbH took further steps in the systematic expansion of its ESG competencies. Successive sustainability criteria have now been incorporated into the investment process and the discretionary management of equity, bond and multi-asset mandates, resulting in full ESG integration. This has established Metzler Asset Management as a leading provider in this market. Thanks to its far-reaching capital preservation expertise, Metzler has been able to build on its past successes in this field as well. This protects investors’ capital from both falling prices and real devaluation as a result of
inflation. Many investors have therefore used these strategies to invest corporate liquidity or as alternative portfolio investments in the face of low interest rates and high uncertainty. Thanks to option replication and the associated risk management, the minimum value thresholds were never at risk, even in challenging phases.
Metzler Pension Management GmbH is the group’s central solution provider for occupational pensions. For over 20 years, it has been developing custom-tailored solutions for occupational pension provision, lifetime work accounts and credit account plans. As of the reporting date, Metzler Pensionsfonds AG and the Metzler Trust e.V. and Metzler Treuhand e.V. contract trust arrangements (CTAs) served more than 200 companies with over 60,000 beneficiaries. The resulting capital investments for the account of and at the risk of employees and employers amount to EUR 5 bn (2018: EUR 4 bn).
In the Metzler Capital Markets segment, Metzler supports its clients in all aspects of equity, bond, money market and FX transactions. The conventional equity brokerage business for institutional clients in Germany and abroad is suffering from persistent pressure on margins, so commission income from this business was once again slightly lower than in the previous year. Metzler’s research did well in this environment and generated higher income. In addition, the research offering was broadened and new clients acquired. Together, these factors led to respectable year-on-year growth. In addition, several analysts in the equity research team have repeatedly received top positions in the analyst rankings by the US company Starmine. According to Müller, the performance of Equity and Debt Capital Markets was less satisfactory. Nevertheless, his comments were optimistic: clients have enormous confidence in Metzler, which is vital for services relating to new issues, capital increases, placements and borrowing. The excellent network in the German corporate landscape is a further reason for optimism. “No surprises in fixed income operations in 2019: low interest rates wherever you looked,” outlines Müller. Despite the unfavourable conditions, Metzler managed to exceed the previous year’s earnings in the business with institutional fixed-income clients and acquired further mandates. Metzler’s currency management once again did well, with assets under management increasing to EUR 4.3 bn (2018: EUR 2.8 bn). Services in this business area are both extensive and flexible, ranging from passive overlay with entirely quantitative and actively managed hedging ratios to the FX Protected Carry derivative smart beta strategy, which has proven very successful in terms of both performance and the inflow of funds.
Müller reports that 2019 had been a very successful year for Metzler Corporate Finance. This segment principally acts on behalf of family businesses, but also serves German and international corporations and financial investors. Metzler provided advice on the successful conclusion of important transactions both in international bidding processes and in custom-tailored transactions with selected buyers. It advised family-run companies on reorganising their ownership structures, supported private equity investors in successful buy-outs, assisted Asian clients in the purchase of stakes in companies, and provided extensive support to the owners of companies in challenging situations.
The Private Banking segment is dedicated to portfolio management, and to structuring and controlling substantial assets for enterprises, entrepreneurial families, foundations and private individuals. Metzler’s independence in private banking is shown by the fact that it refrains from product placements in order to concentrate entirely on clients’ interests. Investment decisions are based solely on a structured and systematic investment process that is both transparent and readily understandable. Priority is given to long-term preservation of assets and appropriate handling of the elementary risks involved in the investment of assets. This long-term approach is
also reflected in exceptionally high staff continuity, which is greatly valued by Metzler’s clients. Müller reports a positive inflow of funds in Private Banking in 2019. Total assets under management on the reporting date were therefore higher than in the previous year, especially as prices had risen substantially on almost all equity markets.
In his outlook, Müller points out that a considerable proportion of Metzler’s revenues comes from business relating to the capital markets, so there is naturally some exposure to volatility, depending on financial market trends. The future development of the coronavirus pandemic is almost impossible to predict. The bank therefore faces multiple challenges. This will also affect its business performance. To what extent and for how long cannot be estimated reliably at present.
Müller stresses that Metzler’s fundamentally risk-averse business strategy, very long-term focus and comfortable equity and liquidity situation provide a good basis for a continued positive development in the long term. In addition, the bank’s independence, clear business model and established structures enable it to respond flexibly to change and fine-tune its business at all times. “Therefore, we are confident that our business will continue to develop successfully,” concludes Emmerich Müller at the end of his report on Metzler’s performance in 2019.