Tuesday 21 November 2017

Frankfurt emerging as the big winner from Brexit fallout

'Mainhattan', as the locals call their city, is attracting some banks preparing to leave London, write Steven Arons and Gavin Finch

Sunset in Frankfurt
Sunset in Frankfurt

And the Brexit winner is … Frankfurt? Could it really be? The city on the banks of the river Main had ambitions for decades to establish itself on a global map. It wanted to become West Germany's capital after World War Two, only to lose out to Bonn. After the introduction of the euro, it tried to rival London as Europe's financial centre but never made it into the same league.

With Britain turning its back on the continent and banks scrambling to ensure continued access to the single market, this town of about 700,000 is getting another shot at climbing the ranks. In recent weeks, more banks have said they're leaning toward "Mainhattan" - as the locals call their banking district - for their new EU hub. Standard Chartered, Nomura Holdings, Sumitomo Mitsui Financial Group and Daiwa Securities Group have picked the city. Citigroup, Goldman Sachs Group and Morgan Stanley are weighing a similar move.

"Frankfurt has become the leading candidate for bank operations leaving London," said Hubertus Vaeth, managing director of Frankfurt Main Finance, a lobby organisation.

"Frankfurt and the whole region are reaping clear benefits."

While the excitement is understandable, even backers of Frankfurt admit that the real impact will be limited. The Brexit relocation will probably turn out to be a trickle, not a torrent, with each bank moving a few hundred jobs at the most.

The moves won't happen at once but over time, said Oliver Wagner, managing director of the Association of Foreign Banks in Germany, which has been promoting Frankfurt. "Only a few hundred people will actually relocate from London to Frankfurt over the next couple of years," he said. In total, Frankfurt could add as much as 5,000 jobs because of Brexit, Wagner estimates.

That is barely enough to move the needle on the Global Financial Centres Index, a frequently cited list ranking the world's financial hubs. Frankfurt is a distant 23rd, behind Shenzhen, and barely edging out Seoul. London is first, before New York. Dublin is 33rd.

"Frankfurt doesn't have breadth in a whole variety of areas, such as insurance, reinsurance, asset management, legal services, trade finance and so on," said Michael Mainelli, co-founder of Z/Yen Group, the think tank that compiles the index.

"Frankfurt has always been basically just a finance centre for two large investment banks, neither of which are particularly healthy."

The city is home to Deutsche Bank, once an ambitious global player that has been stymied by embarrassing losses and a series of costly legal disputes. Commerzbank AG, the other large bank in the city, is cutting thousands of jobs and refocusing on retail and corporate clients after being forced to seek a bailout in the financial crisis.

The main advantage for the city is that it is the headquarters of the European Central Bank, the euro region's central bank and, increasingly, the regulator for much of its financial system. In June, the ECB sought the legal power to oversee clearing of euro-denominated financial instruments, a play for power that could herald the relocation of more jobs from London's lucrative clearing industry to the EU and possibly Frankfurt.

On Monday, Sumitomo Mitsui Financial, Japan's second-biggest lender by market value, said it had decided to set up banking and securities units in Frankfurt to maintain business in the EU after Brexit. That's less than a week after Nomura, Japan's biggest securities firms, said it applied for a licence to operate a new entity out of Frankfurt. On Wall Street, Goldman Sachs plans to more than double its staff in Frankfurt to 400 as it begins withdrawing personnel from London. CEO Lloyd Blankfein has publicly said the bank has shelved plans to move more key operations to the UK. Morgan Stanley is close to picking Frankfurt for its enlarged EU hub, people with knowledge of the matter have said.

Many bankers acknowledge that the spectre of moving to a city that is more than 10 times smaller than London feels a bit like being sent off to a desert outpost. One bank executive, speaking in private, said he expected that many jobs being relocated to Frankfurt would be filled with new hires and won't necessarily involve people moving from London.

"When was the last time you took your partner off for a weekend in Frankfurt?" Valerie Pecresse, president of the Paris region, scoffed at a press conference earlier this year. "If you want to live somewhere, you look at all the qualities of the cultural life, of cooking, of healthcare, children's care, and in this aspect Paris rates first in continental Europe."

Like Dublin, Paris is among the cities competing with Frankfurt for bankers. The French capital ranks 29th on the list of financial centres.

While Frankfurt's nightlife isn't a match for cities like Paris or London, it does have a cultural scene that is bigger and livelier than you would expect for its size, with well-known museums and theatres. It has a quaint old town. It has the Taunus, a mid-sized mountain range half-an-hour north that's popular with hikers and mountain bikers. And then, of course, there's the airport, from where you can get to London, Paris, Berlin, Rome or Madrid in just a few hours.

"Frankfurt isn't a bad place to live," said Mainelli at Z/Yen Group. "It's a bit boring, a bit dull. But so are many bankers." (Bloomberg)

Irish Independent

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