Business

German entrepreneur builds investment business with family office backing

European banks are struggling. Asset management is challenged. Insurance sector is competitive. The pandemic is feeding uncertainty as interest rates fall to zero.

Veteran investment banker Patrick Bettscheider is undaunted. He is out to carve out European banking, asset management and insurance deals through his investment company Interritus, which happens to translate into “fearless” in Latin. 

He started out with four people, the day before 9/11. But Bettscheider decided to tough it out. MainFirst went on to employ 250 people

Interritus is backed by several family offices, drawing on relationships established by Bettscheider since his days at Deutsche Bank, where he became head of European equities in 1998.

Kevin Parker was Deutsche’s global head of equities at the time – he now runs US-based Sustainable Insight Capital Management. He describes Bettscheider as: “Driven and clever. A brilliant orthogonal thinker with a successful track record.”  

For the record, orthogonal thinkers use a variety of seemingly unrelated perspectives to achieve new insights. It comes in handy in investment banking. 

Interritus partner Matthias Glas, a former managing director at Allianz Global Investors reckons Bettscheider is a born entrepreneur. His skin is undeniably in the game: “Capital preservation comes before everything.”  

For Interritus, deals need to be priced from a realistic assessment of today’s harsh reality. The competition to buy financial assets is limited. Share prices for banks like Deutsche are on the floor. It’s a buyer’s market, for the brave.

But governments know Europe needs to develop its finance sector, particularly after Brexit. There is a great deal of discussion about separating good banks from bad loans to make them viable after the pandemic. Interritus may not be the biggest agent for change compared to private equity firm Apollo Global Management. But it sets out to move at speed. And corporate restructuring is its speciality.

Glas believes transactions are capable of producing a 15% return on equity, plus dividends. It’s harder to foresee a revival for share prices but Glas is confident that ratings will revert to the mean in the current cycle.

After leaving Deutsche, Bettscheider served on the board of Julius Baer in Germany. Next, he set up MainFirst Bank, the first investment bank established in the country since the second world war.

He started out with four people, the day before 9/11. But Bettscheider decided to tough it out. MainFirst went on to employ 250 people. “It was a success story,” says a former Deutsche executive, pointing to its success in asset management, as well as banking. 

Its brokerage business was split from asset management and sold to Stifel Financial Corporation for an undisclosed sum in 2019. 

Interritus has become best known for buying Kommunalkredit from the Austrian government in 2015.  The state had rescued the bank, previously owned by Dexia, during the financial crisis, which led to a hopeless mismatch between assets and liabilities.

Interritus bought 55% of the business without its bad debts. The rest of the shares were bought by Trinity Investments, advised by private equity firm Attestor Capital, a financial specialist. Trinity is reportedly backed by US investors, including family offices.

In its new guise, Kommunalkredit has developed a niche infrastructure finance business under Bernd Fislage, Deutsche’s former global head of asset finance. New business in 2019 totalled more than a billion euros.

Former executives from Deutsche, and other large banks, have joined Kommunalkredit which has produced a wide range of infrastructure projects in sectors like data transmission and clean energy. 

It recently developed an asset management business called Fidelio which manages €260 million. With a strengthening balance sheet, the business achieved a return on equity of 10.8% in 2019. 

Over the years, Interritus has attempted restructuring deals in Germany and Switzerland. It has bought a stake in an Italian bank and provided short-term finance for a European toll road. In 2017 it considered buying the UK-based Co-operative Bank, with Qatar-based Al Faisal Holding, when its parent was considering a sale. Another deal could now be pending.

Glas concedes Interritus could have developed faster: “We only do things when we are confident. And you need to move at your own speed. This is why we like to work with family offices, as well as pension funds. They take a long term view of life.”

Fintech is likely to play its part in expansion. According to Glas: “We are looking into the use of machine learning to prevent loan fraud.” 

He also sees potential in their use in low-risk asset management. Big data and machine learning may also have a role to play in managing the books of insurance, and reinsurance companies, which could interest Bettscheider in the longer term.

Glas is less impressed by the first generation of fintech which has produced challenger banks and robo-advice, saying they have not been too successful in improving revenue models and terms on offer to clients.

But he agrees AI could play a role in developing the financial network Bettscheider is determined to build, with a little help from his friends.

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