FinTechGermany Award

CFS Survey – three-pillar model of the German credit industry has proven effective

The financial industry is in broad overall agreement (62%) that the three-pillar model of the German credit industry (commercial banks, savings banks, cooperative banks) has proven effective. This was revealed in a recent study by the Center for Financial Studies of financial institutions and service providers from the Financial Centre Germany. On the other hand, 29% are undecided and regard the three-pillar system as questionable; 8% take the view that the model has not proven effective.

Savings banks and cooperative banks are key to the financing of German SMEs

Onthe question of the respective importance of each of the pillars, over 40% of the survey respondents from the financial industry agree that savings banks and cooperative banks equally make the crucial contribution or at least an important one. Only 20% of the respondents regard the commercial banks as crucial, but 57% believe they are important to the system. On the other hand, 17% believe they are not so important.

“The savings banks and cooperative banks are essential for the financing of German SMEs,” Professor Volker Brühl, Managing Director of the Center for Financial Studies, interprets the results.

Assessments of the German banking sector’s international competitiveness vary – Further consolidation processes expected

The financial industry is sceptical in its assessment of the German banking sector’s international competitiveness. Fewer than 25% of respondents regard the German banking sector as well positioned in an international comparison. “The banking sector is under high pressure to consolidate due to sustained low interest rates, increased regulatory requirements and digitalization. The German banks need to raise the tempo of their restructuring efforts to avoid losing further ground on their international competitors,” Professor Brühl believes. In light of this, the financial industry is in agreement (95%) that further consolidation processes are to come in the banking sector.

An additional factor is that foreign banks are increasingly edging into the German market. There is broad agreement among the respondents (60%) that these actors will continue to gain in importance.

“The survey makes clear how attractive the financial center of Germany is to foreign banks. This is above all a motivation for us in the long term” comments Hubertus Väth, Managing Director of Frankfurt Main Finance e.V.

CFS Index rises significantly

CFS Index: Revenues and earnings of services providers increase substantially / Investments by financial institutions reach a historic high since the survey began in 2007

The CFS Index, which measures the business climate of the German financial sector on a quarterly basis, rises significantly in the final quarter of 2016. It climbs 3.7 points to 114.3 points, reaching its highest level for almost two years. The rise can primarily be attributed to a very positive trend in the revenues and earnings of the service providers in the Financial Centre Germany. The only time these levels have been surpassed is when the surveys were first conducted in 2007. The financial institutions are also reporting a solid rise in revenues alongside steady earnings. Investments by the financial industry are noticeably higher too, reaching exceptionally high levels rarely seen in past surveys. Despite this positive development, the financial institutions are sticking to their plans to cut jobs, though these have been moderated slightly. The service providers, on the other hand, continue to increase their employee numbers, again at a slightly slower rate.

“Numerous banks currently find themselves in a phase of transformation, which is leading to considerable investment requirements, especially in the area of IT. The service providers, in particular, are benefitting from this development,” Professor Jan Pieter Krahnen, Director of the Center for Financial Studies, interprets the results.

Financial industry rates the future international importance of the Financial Centre Germany extremely positively

Following the Brexit vote last year, the rating of the future international importance of the Financial Centre Germany reached a historic high of 136.8 points, then declined slightly in the third quarter, and now rises again by 2.7 points to 131.0 points.

Dr. Lutz Raettig, President of Frankfurt Main Finance e.V. emphasized, “The efforts for the Frankfurt financial center are bearing fruit. Especially the positive results with regard to the international importance of the financial center show that Frankfurt is well positioned and has all the opportunities to gain further importance in this field as well.”

Financial industry revenues, earnings and investments are on the rise

The surveyed financial institutions and service providers rapidly increase their revenues/business volume in the final quarter of 2016. The corresponding sub-index for the financial institutions rises by 3.4 points to 113.0 points. However, the service providers record the sharpest increase of 11.3 points to 130.6 points. The only time this level has been exceeded was when the CFS Index surveys were first conducted in 2007. Expectations for the current quarter are positive among both groups, though slightly more modest than the current levels.

Earnings among the service providers develop particularly positively in the fourth quarter of 2016 and clearly surpass expectations from the previous quarter. The corresponding sub-index for the service providers climbs 8.1 points to reach 123.4 points. By contrast, the financial institutions record a small increase of 0.5 points to remain at the low level of 104.5 points, with no change anticipated in the current quarter. The service providers expect their hugely positive earnings trend from the end of 2016 to level off slightly in the current quarter.

The sub-index for investment volume in product and process innovations rises considerably for both groups, contrary to their expectations in the previous quarter. For the financial institutions this sub-index rises by 6.0 points to 116.1 points, thus reaching a historic high since the surveys began in 2007. For the service providers this value climbs 5.8 points to 117.9 points. Similarly, this level has only been exceeded in the years 2007 and 2014. Both groups are expecting the growth rate to level off just slightly in the current quarter.

Fewer job cuts at financial institutions – Slightly slower job growth among service providers

The huge job cuts recorded by the financial institutions in the third quarter have levelled off somewhat, though employee numbers continue to fall in the fourth quarter. The corresponding sub-index for the financial institutions rises by 4.4 points to 90.4 points. The financial institutions are expecting to make further job cuts in the current quarter. By contrast, the jobs situation among the service providers remains positive, though the rate of job creation is slightly lower. The corresponding sub-index edges down 3.3 points to 113.6 points. The service providers are even more optimistic for the current quarter.

 

Christmas Greetings from Frankfurt Main Finance

Dear Friends and Members,

As 2016 draws to a close, it is prudent to reflect on the past year, our accomplishments, and the challenges we have met. In doing so, one can be quite content with the strides that Frankfurt Main Finance has made in promoting our Financial Centre within Germany and across the globe. We continued to grow and nurture our international partnerships, sending several delegations to financial centres in Asia and Eastern Europe. At our Financial Centre Breakfasts we enjoyed discussions with Arundhati Bhattacharya, CEO of the State Bank of India, and François Villeroy de Galhau, Gouverneur of the Banque de France. Both of these leaders gave us great insight into some of the challenges facing financial institutions in their countries, in particular digitalization.

This year’s Frankfurt Finance Summit focused on this current trend of digitalization in the financial sector and how major actors address the challenges it presents. We were honored to have Günther Oettinger, European Commissioner for Digital Economy and Society, deliver a keynote on the European unified strategy for digitalization. In his keynote, Germany’s Minister of Finance, Dr. Wolfgang Schäuble, expressed his views on where the financial industry is heading, challenging businesses to find new, innovative models that fit into our new world.

At the time of the Summit, the results of the United Kingdom’s referendum on EU membership seemed almost unthinkable. Six months later, we can surely say this was just the first of many surprises in 2016. However, Brexit has presented the Financial Centre Frankfurt with an opportunity to become a facilitator, to grow and welcome more institutions into our city. For Frankfurt Main Finance, Brexit thrust our initiative into the international spotlight. Between hundreds of interviews with international press outlets, speeches and panel discussions, and delegation trips, Frankfurt Main Finance has been hard at work spreading the word about our Financial Centre and our cooperative approach to building a new “London Bridge.”

Winning large institutions for Frankfurt is certainly important, but many of our efforts over the past year have been dedicated to the smallest actors. In the beginning of 2016, Frankfurt Main Finance was hard at work with the Dialogue Forum FinTech Frankfurt Rhine-Main to promote our region as a top destination for Financial Technology start-ups. The past year brought with it an explosion in activity in the FinTech ecosystem and culminated in the opening of Frankfurt’s FinTech Hub, Tech Quartier.

As we enter the quiet days around Christmas and the New Year, we can rest satisfied in our diligent work in 2016 advancing our Financial Centre. We are optimistic in our trajectory and look forward to the opportunities and challenges that 2017 will bring. But until they are here, we wish you and your families a very Merry Christmas and a happy New Year. May your holidays be rejuvenating, inspiring and filled with joy!

 

Warmest Regards,

Your Frankfurt Main Finance Team

Financial Centre Focus: “Brexit – Let’s go Frankfurt”

Financial Centre Frankfurt the preferred destination for Brexit-induced job relocation

In a comparison of European financial centres, Frankfurt clearly ranks in second place behind London. With numerous qualities in its favour, the German banking centre is an attractive location for domestic and international players in the financial sector and has the potential of becoming the preferred destination for Brexit-related job relocations. The following assets that Frankfurt possesses are of particular benefit: The stability and strength of the German economy, the headquarters of the ECB in its dual function, a transportation hub with a good level of infrastructure, relatively low office rents as well as a high quality of life. This is the conclusion that Helaba’s economists arrived at in their Financial Centre Study “Brexit – Let’s go Frankfurt”. But it has serious competition in the shape of Paris, Dublin, Luxemburg or even Amsterdam.

Dr. Gertrud Traud, Helaba’s Chief Economist and Head of Research, stresses: “If Frankfurt really is to become the principal winner of Brexit, it will require a concerted effort on regional, national and European levels as well as a more self-confident approach.”

Forecast for banking sector employment 2018: Stable at around 62,000 jobs

In addition, a further improvement in the conditions offered by the city is essential to ensure its success. In view of Frankfurt’s excellent position in the framework of European financial centres, demonstrated by various studies, Helaba’s economists believe that it has good chances of picking up at least half the jobs in the financial sector that will be shifted from London to Frankfurt in a restructuring process lasting many years. Thus, Frankfurt now faces the task of putting the necessary prerequisites in place, e.g. in the housing market. Based on very cautious assumptions, a total of at least 8,000 employees would come to Frankfurt over a multi-year period. Since companies cannot wait for the outcome of negotiations, more than 2,000 jobs are expected to be relocated by as early as the end of 2018 already.

“This Brexit-induced effect on the labour market will act as a counterbalance to consolidation in local banks”, says the author of the study, Ulrike Bischoff. Both effects should, more or less, cancel each other out within the forecasting window. By the end of 2018, the study anticipates a total of just over 62,000 bank employees in the German financial centre.

The complete Helaba study is available for download here.

Digital Hub Initiative

German Government Appoints Financial Centre Frankfurt Digital Hub for FinTech

At the German National IT Summit on November 17, 2016, Germany’s Federal Minister for Economic Affairs and Energy Sigmar Gabriel and Bitkom President Thorsten Dirks introduced Germany’s first five Digital Hubs. The Financial Centre Frankfurt has been appointed as the Digital Hub for Financial Services and FinTech. Hessian Economics Minister and Frankfurt Main Finance Executive Committee member Tarek Al-Wazir praised the initiative at the opening of Frankfurt’s new FinTech Hub, Tech Quartier. Explaining the importance of FinTech for the region, he stated, “the continent’s leading Financial Centre must also take the lead in the highly innovative FinTech sector.” The opening of Tech Quartier marks the culmination of nearly a year’s work from the Hessen Ministry for Economics and the FinTech Dialogue Forum, which was initiated by Frankfurt Main Finance.

The Digital Hubs Initiative, dubbed de:hub and set forth by the Federal Ministry for Economic Affairs and Energy, aims to promote Germany’s strengths as a leading industrial nation and position it as an attractive destination for entrepreneurs, investors, and highly specialised workers from around the world. Bitkom President Thorsten Dirks explained about the hubs, “In the future, executives from established companies will be able to learn from start-ups in these hubs instead of needing to fly to California.” Other Digital Hubs are Dortmund and Hamburg for logistics, Munich for mobility and Berlin with a focus on the Internet of Things.

Even in the digital age, cooperation between start-ups and established businesses and academics functions better in close proximity and promotes innovation. Using Silicon Valley as a touchstone, the Federal Ministry for Economic Affairs and Energy seeks to create digital hubs in Germany where people from all over the world can meet to develop innovative ideas and products. Crucial for a Digital Hub is its existing infrastructure, namely global relevance in the appropriate sector branch, leading academic and research institutions, and a network of supporters ranging from mentors to VC investors.

The Frankfurt FinTech ecosystem has continued to grow over the past years. In 2016, the number of FinTech companies in the Frankfurt region has grown by 45% to 81. Frankfurt is now a close second to Berlin which is home to 87 FinTech companies. Investment in German FinTech is also on the rise. In 2015, German FinTechs drew 524 million euros in funding. Despite a global decrease in FinTech funding, Germany still saw an increase in the second quarter attracting $186 million in funding, placing Germany ahead of the UK. While the Frankfurt FinTech ecosystem is still very much becoming established, a broad base of institutional support and incubators have surfaced in the past years. In addition to the newly opened Tech Quartier, Frankfurt is also home to several other incubators and accelerators, including Deutsche Börse’s FinTech Hub, Goethe University’s Unibator, Accelerator Frankfurt, Main Incubator, FinTech Headquarter and Deutsche Bank’s Digital Factory. Frankfurt Main Finance continues to actively support and promote the Frankfurt FinTech ecosystem and applauds the Federal Ministry for Economic Affairs and Energy for naming Frankfurt the Digital Hub for FinTech as part of the Digital Hubs initiative. Finally, Frankfurt Main Finance’s newly created FinTech membership should help to further promote local FinTechs and help connect them with established players in the Financial Centre.

Crumbs or Pie? How much will Frankfurt’s property market benefit from Brexit?

A recent study from Deutsche Bank Research has just been released which outlines the potential effects of Brexit on Frankfurt’s property market. The study examines the Financial Centre Frankfurt’s office and residential markets, current and future pricing trends, as well as trends in demand and availability. Furthermore, the analysis from Deutsche Bank compares several European financial centres, showing that Frankfurt is in several ways an obvious and affordable choice for financial services relocated from the United Kingdom.

Executive Summary

“In view of the high level of political uncertainty surrounding the United Kingdom’s decision to leave the European Union, it will be some years until the size of the Brexit pie, i.e. the relocation of companies and employees, can be determined fully. Regardless of the final outcome of the negotiations between the UK and the EU, the city of Frankfurt is likely to benefit.

Frankfurt is already continental Europe’s main financial hub, and compared to other European cities, it can boast a range of additional advantages such as low rents and residential property prices, good infrastructure and a highly dynamic economy. However, considering the strengths of its European and also non-European competitors, Frankfurt will end up with only a piece of the Brexit pie.

Frankfurt’s property market would gain considerable momentum even if only a relatively small number of British companies and employees moved here. Growth in employment in the wake of Brexit should stimulate demand for office space, thus contributing to a reduction in vacancies and rising rents in the office market close to the city centre. Following the referendum on Brexit, we have raised our average rent increase expectations in the top segment to over 2% per year by 2020 (double what had previously been anticipated for the 2018-2020 period).

Bottlenecks have existed in the housing market for some years. A large demand overhang – the shortage of housing runs to several tens of thousands of homes – and a lack of undeveloped land are the main reasons why prices have risen by around 25% since 2009. An additional Brexit effect could drive prices up significantly. The rule of thumb in this context is the price per square metre increases by EUR 25 for every 1,000 missing homes. Assuming additional demand for 5,000 homes, residential property prices will increase by EUR 125 or around 4% compared to current levels.”

The complete study from Deutsche Bank Research can be downloaded here.

New edition of Banking Business in Germany

The financial crisis, extensive regulatory requirements and the impending Brexit confront the international and national banking sector with daunting challenges. Yet, uncertain as the environment may be, the German market still offers opportunities to international banks and investors keen on setting up a branch or subsidiary in Germany.

The updated 5th edition of the guide to the Banking Business in Germany is a mine of information for international decision-makers and industry observers as well as bankers from abroad, already located in Germany and their headquarters in their country of origin. In the current edition of the guide, which is written in English and runs to more than 400 pages, financial services experts from PwC and the Association of Foreign Banks in Germany elucidate the manifold amendments and specifics of the German regulatory framework. They also furnish an overview of ongoing developments in the German banking system as well as deposit guarantees, labour law and taxation.

Equally beneficial for English-speaking banking representatives is a glossary, explaining common abbreviations in German banking usage, such as “GroMiKV”, short for “Großkredit- und Millionenkreditverordnung” or “Large Exposure Regulation”. No less helpful is a comprehensive index for easy guidance through the new publication.

At the book presentation on 14 October, Dr Andreas Dombret, member of the Executive Board of the Deutsche Bundesbank, addressed a large gathering of members of the Foreign Banks Association on the impact of Brexit on banking and banking supervision. His remarks highlight the relevance of these and other issues for international business leaders, who regard Germany as an important financial location now and especially in the future.

The 5th edition of Banking Business in Germany can be purchased here.

CFS Index

CFS Index rates future international importance of the Financial Centre Frankfurt very positively

Significant job cuts at financial institutions – Significant job growth at service providers

The CFS Index, which measures the business climate of the German financial sector on a quarterly basis, rises by 0.3 points to 110.6 points in the third quarter of 2016. Though the value remains almost unchanged, it comes as a result of sharply contrasting developments of employee numbers at the financial institutions and the service providers. While the measure of employee numbers at the financial institutions is at a historic low since the Index surveys began in 2007, the service providers are stepping up hiring. Aside from this, the financial industry as a whole is recording growth in revenues and earnings. The financial institutions in particular, after considerable declines in earnings in the first half of the year, now report a clear increase that surpasses expectations. The growth in investment volume declines slightly, but remains at a solid level.

“The figures reflect structural changes in the banking industry’s mode of production, particularly with regard to rising capital intensity and falling employee numbers. Conversely, employee numbers at the external service providers are on the rise, partly due to the trend toward digitalization,” Professor Jan Pieter Krahnen, Director of the Center for Financial Studies, interprets the results.

Financial industry rates the future international importance of the Financial Centre Germany very positively

Following the Brexit vote, the rating of the future international importance of the Financial Centre Germany had reached a historic high of 136.8 points in the second quarter. This value remains at an above-average level of 128.3 points in the third quarter, despite falling by 8.5 points. Dr. Lutz Raettig, President of Frankfurt Main Finance e.V. emphasized, “The results of the study show that there is still great trust in Frankfurt’s capabilities as a leading Financial Centre. Our function as a bridge between London and the EU and our constructive handling of Brexit will strengthen Frankfurt as the most important Financial Centre in the Eurozone.”

Job cuts hit financial institutions more strongly than expected, and further cutbacks in personnel are anticipated

The extent of job cuts at the surveyed financial institutions turned out to be even larger than expected in the last quarter. Previously the number of employees had remained stable at a neutral level. Now the employee numbers sub-index for the financial institutions falls by -13.7 points to a historic low – since the start of the survey in 2007 – of 86.0 points, and the financial institutions are expecting the situation to degrade further still in the current quarter. By contrast, employee numbers at the service providers are developing even more positively than expected. The corresponding sub-index improves significantly on the previous quarter, rising 11.8 points to 116.9 points. The service providers are even more optimistic regarding the fourth quarter.

Revenue growth for the financial institutions

The growth in revenues/business volume among the surveyed financial institutions turns out to be slightly higher in the third quarter of 2016 than was expected in the previous quarter. The corresponding sub-index rises by 2.5 points to 109.6 points. As expected, the service providers also maintain their high level of revenues, slipping just -1.0 points to 119.7 points, and they are anticipating increased revenue growth in the current quarter.

Financial institutions stop decline in earnings – Financial industry takes a positive view of the current quarter

In terms of earnings, both groups report growth in the third quarter. The financial institutions in particular, after considerable declines in earnings in the first half of the year, now report a clear increase that surpasses expectations. The corresponding sub-index for the financial institutions rises by 7.0 points to 103.9 points; the service providers’ sub-index climbs 2.2 points to 115.3 points. Both groups have a positive outlook for the current quarter.

The growth in investment volume in product and process innovations declines slightly, but remains at a solid level. For the financial institutions, this sub-index falls by -2.2 points to 110.1 points, contrary to expectations. The service providers’ sub-index remains stable, slipping just -0.4 points to 112.2 points. As a result, the two groups are still at an almost equal level, with neither anticipating any major change in the current quarter.

Financial Centre Breakfast with François Villeroy de Galhau: Sustainable Monetary Policy ensures Economic Stability

On August 31, 2016, the Association of Foreign Banks in Germany and Frankfurt Main Finance hosted the seventh edition of their successful Finanzplatz Frühstück (Financial Centre Breakfast) event series. More than eighty entrepreneurs and representatives of the financial sector, were in attendance to hear François Villeroy de Galhau, Gouverneur of the Banque de France, speak on the topic “European Growth – Challenges in uncertain Times.” Welcoming the audience, Dr. Oliver Wagner, Managing Director of the Association of Foreign Banks in Germany, stressed the importance of foreign banks as a critical economic factor for Frankfurt. “Foreign banks assume responsibility for the local economy and recognize the German Financial Centre as the core market in Europe.”

Villeroy de Galhau wasted no time delving into the current state of monetary policy within the EU and how to ensure sustainable growth. Stressing the importance of investment for growth, especially amongst SMEs, he expressed the need for the Capital Markets Union and the movement of risk and capital across borders. He also weighed in on the ECB’s current strategy of negative interest rates, which has been openly criticized by several German bankers. He described the strategy as a crucial instrument in fighting deflation, which he explained would be more damaging than the negative rates. Villeroy de Galhau continued, stating “Negative interest rates are useful but they are just one among many instruments and have their limits. This is why we have to stick to the current monetary policy. And yes, we’re doing so sustainably.” He did, however, reject the notion of the ECB providing helicopter money directly to consumers.

France and Germany are the major drivers of growth in the Union and, according to the Villeroy de Galhau, still have untapped opportunities to ensure sustainable growth for the future. One proposal highlighted in his address would be a so-to-say Erasmus Pro programme which would offer young people the opportunity to gain vocational training outside of their home country as well as provide them the European experience. Such a programme could be particularly useful for France and Germany. France has a demographic advantage in that they have many more young people than Germany, who boasts one of the best training and educational infrastructures in the world. Alleviating this deficit in skilled labour in both countries, and across the EU, would help to ensure sustainable growth for years to come.

Cooperation between France and Germany in the EU is critical for future growth and the success of the European Project. How does this look, however, in a Europe without the United Kingdom? Speculation is still the name of the game when it comes to Brexit, but Villeroy de Galhau did make it clear that they still want London to be at the centre of European Finance, but as Villeroy de Galhau stated, there will be “no free ride, and no cherry picking.” In other words, the UK must accept and abide by EU rules and regulations in order to gain access to European markets post-Brexit.

Frankfurt Main Finance’s Managing Director, Hubertus Väth, summarized the event, “Mr. Villeroy de Galhau encouraged German entrepreneurs to prepare to invest and take on risk. Only France and Germany can set European growth on an adequate track for growth.” Väth continued, stating, “Monetary policy can only be successful if the economy embraces monetary stimulus by accepting and making investments. In this case, trust plays a central role. Mr. Villeroy de Galhau’s contribution today in further developing this trust is not to be underestimated.”

Frankfurt Main Finance Cup 2016: Eintracht bests Celta De Vigo 3:1

For the third year, the football season opened in the Financial Centre with the Frankfurt Main Finance Cup. This year’s Cup pitted the Spanish RC Celta de Vigo against hometown heroes Eintracht Frankfurt in a friendly match on Sunday, August 14, 2016. The event has become a favorite for families and football fans across the region, who look forward to the events surrounding the game. This year fans enjoyed autograph and photo sessions with their favorite players as well as a presentation of this season’s team and their new home jersey.

Finance meets Football at the Alte Oper

The previous evening, Saturday, August 13, representatives of the Financial Centre and the city celebrated the Frankfurt Main Finance Cup at a reception in the Alte Oper. They were joined by the players and coaches from Eintracht Frankfurt as well as Celta de Vigo. In short podium discussion with Fredi Bobic, Eintracht trainer Nico Kovač expressed his optimism for the upcoming season. Representing Frankfurt Main Finance, Managing Director Hubertus Väth emphasized the importance of football for the Financial Centre and the finance industry for football. “Again the Frankfurt Main Finance Cup is sending the message from the Financial Centre that both the financial sector and Eintracht are playing in the international spotlight. Football always dominates Monday morning discussions throughout Frankfurt’s banks. Tomorrow, we will experience that close relationship between the finance industry in the game against Celta de Vigo.”

 

Frankfurt Main Finance Cup – Schwarz weiß, wie scheeee!

On match day, Eintracht came out as strong as their 40,000 fans in attendance. In the eleventh minute, Branimir Hrgota scored off an assist from Alex Meier and then scored again in the 49th minute. Celta de Vigo found the goal in the 58th minute, closing the gap with a score of 2:1. But Eintracht sealed the deal in the 80th minute and with a two-score lead, the Frankfurt Main Finance Cup was as good as theirs. With a final score of 3:1, Eintracht Frankfurt remained on the pitch to accept the Frankfurt Main Finance Cup. Frankfurt Main Finance’s Dr. Jochen Biedermann presented the Cup to Eintracht Captain Alex Meier. The Cup will join the trophies from the 2014 and 2015 Frankfurt Main Finance Cup in the Eintracht Museum.