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Revealed: Germany’s Berenberg targets UK expansion amid M&A boom

Germany-based investment bank Berenberg is one City firm taking Brexit in its stride.

The Hamburg firm, the world’s oldest merchant bank having been founded in 1590, has grown its Square Mile office from 70 to 350 people in the last eight years.

It expects to add up to 100 more London staff over the next 18 months as it targets work on an expected UK boom in corporate takeovers and an anticipated spike in demand for equities analysis after a recent EU regulatory overhaul.

“The partners back at our headquarters in Hamburg have been relaxed both pre- and post-referendum about Brexit,” said Dave Mortlock, head of Berenberg’s London office.

“We have our plan [to grow in the UK] and will look to deliver on that.”

Mr Mortlock said the firm’s existing operations in Germany, from which it can continue to trade across the EU bloc regardless of the outcome of Brexit trade negotiations, meant there was “no obvious reason for us to reshape at all”.

“If other firms leave, we have the opportunity to attract their best talent,” he added.

His comments strike a contrast with other overseas banks in the City, many of which – including Goldman Sachs, JP Morgan and UBS – have said they will downsize due to Brexit.

Mr Mortlock said Berenberg’s London office would look to more than double the amount of corporate deals it advises on from 17 last year to 50 this year.

Global dealmaking has enjoyed its strongest start to a year in almost two decades, with the value of targeted deals in the UK jumping a third on last year to $21bn (£14.9bn), latest statistics from Dealogic revealed this weekend.

The lion’s share of Berenberg’s work in London is in equities analysis. Mr Mortlock said a recent move by the EU to tighten regulation in this market, called Mifid II, had so far increased demand for its analysis.

Under the changes analysts must explicitly charge customers for their advice, rather than bundling it up with other services.

Mr Mortlock said: “This is a fundamental change for the industry. It’s a challenge and it will take capacity out of the market. But I’m satisfied those that commit like us will get out of it in good shape.”

In full-year results for 2017 Berenberg posted a 69pc rise in equities revenue to €240m (£212m), while its overall staff numbers increased by 70 to 1,576.

Net profits were down 44pc to €90m, although the bank said the previous year’s results were skewed by a one-off gain on the sale of its share in Frankfurt-based investment company Universal Investment.

General Electric slashes quarterly dividend ahead of restructuring

General Electric will radically shrink to focus on aviation, power and healthcare, betting on sectors it thinks it can make profits in, as the most famous US conglomerate tries to revive its share price after a decade and a half of stagnation.

The 125-year-old company cut its dividend and profit outlook in half as it begins the transition, in a widely expected plan unveiled on Monday by new chief executive John Flannery in New York.

GE shares fell 6 per cent to $19.22, its lowest in more than five years, valuing the entire company at about $168bn, as investors worried how the slimmed-down company would generate cash to justify its stock valuation.

“By the numbers, we see a core operating performance that is below plan, and, currently, a consensus expectations curve that we think remains too high,” said JPMorgan analyst Stephen Tusa.

GE is the worst-performing Dow component this year, down 35 per cent by Friday’s close. GE stock has effectively been dead money since September 2001, when recently retired chief executive Jeff Immelt took over, posting a negative total return even after reinvesting its juicy dividends.

Mr Flannery, who took over as CEO on 1 August, said he was “looking for the soul of the company again” and would focus on “restoring the oxygen of cash and earnings to the company.”

The transition likely means the sale of $20bn of assets. GE will jettison businesses with “a very dispassionate eye,” Flannery said, keeping only units that offer growth, a leading market position and a large installed base.

That could mean exiting businesses like lighting, transportation and oil and gas, closing factories around the globe, analysts said.

GE also plans to cut 25 per cent of corporate staff at its Boston headquarters. It has already started shedding jobs at its software business.

The dividend cut, only the third in the company’s 125-year history and the first not in a broader financial crisis, is expected to save about $4bn in cash annually.

“This dividend cut will be a major disappointment to GE’s (roughly 40 per cent) retail shareholder base,” said RBC Capital Markets analyst Deane Dray.

The cut will save GE $4.16bn in payouts, the eighth biggest dividend cut in history among S&P 500 companies, according to Howard Silverblatt, senior index analyst of S&P Dow Jones Indices. GE also had the biggest cut when it slashed its dividend by $8.87bn in 2009, Silverblatt said.

GE forecast adjusted 2018 industrial free cash flow of $6bn to $7bn, up from an estimated $3bn in 2017.

The move to make GE smaller and nimbler is a turnaround from the previous multi-business approach taken by former chief executives Jack Welch and Jeff Immelt.

Flannery’s changes repudiate much of Immelt’s vision of a “digital industrial” company that builds software to manage and optimize GE’s jet engines, power plants, locomotives and other products.

Conglomerates have long been out of favor on Wall Street, where investors prefer to bet on specific industries rather than a mixed portfolio.

GE forecast 2018 adjusted earnings per share of $1 to $1.07 per share, compared with its earlier estimate of $2 per share. Wall Street was expecting $1.16, according to Thomson Reuters.

The company on Monday cut its quarterly dividend to 12 cents per share, from 24 cents, starting in December.

GE’s dividend cut – a bid to save cash when the company’s cash flow is deteriorating – is the third in its history. The other two cuts came during the Great Depression and the global financial crisis of 2007-2009.

Flannery’s strategy is a turning point for the company, which over several decades built itself into a sprawling conglomerate with interests across media, energy, banking, aviation, railroads, marine engines and chemicals.

GE executives have said that analysts have undervalued the company’s digital business. They argue the digital units should be valued more like Amazon, Google and other fast-growing tech companies.

GE will also cut its board to 12 from 18 members.