Brexit Frankfurt Finance Summit

After Brexit, financial centres confronted with a new reality

Just six weeks before the Brexit Referendum, in his keynote at the 2016 Frankfurt Finance Summit, Dr. Wolfgang Schäuble, German Federal Finance Minister, described this as possibly the biggest political decision in a generation. Schäuble stated that “I think both the EU and the UK are better served with Britain remaining,” and later posited that “Great Britain’s relationship with Europe should not be defined by splendid isolation, but by splendid integration.” Last year’s nightmare became this year’s reality. Article was triggered on March 29, 2017, and official negotiations are underway and on the clock. This year’s Summit, titled Europe Reloaded – Challenges for the Financial Sector, will seek to encourage productive dialogue on how Europe can move forward after Brexit.

With the formal declaration by the United Kingdom’s government to withdraw from the European Union, Brexit has now entered a new and decisive phase. Hubertus Väth, Managing Director of Frankfurt Main Finance e.V. states, “The beginning of the exit negotiations between the United Kingdom and the European Union are imminent. The negotiating parties are entering uncharted territory. Of the utmost importance, will be standing fast to the maxim that maintaining stability in the financial system must take precedence over individual interests. Both parties must strike the delicate balance between averting a cliff-edge scenario while still maintaining the recognizable appeal of membership in the EU.”

The United Kingdom’s withdraw from the EU is regrettable. The anticipated loss of rights, including passporting, will create a dramatic shift of banking and financial services out of London. While bad for London, and Europe in general, European financial centres are poised to profit from this exodus. “The Financial Centre Frankfurt is exceptionally situated to assume a position functioning as a bridge for London into the EU,” explains Väth, “As the home of the European Central Bank, the Europe’s insurance supervisory mechanism, Europe’s largest stock exchange and the largest internet hub for data traffic, Frankfurt offers best infrastructure for credit institutions and financial services providers active across Europe. Frankfurt’s TechQuartier and dynamic, growing FinTech ecosystem have been distinguished by the Federal Government with the Financial Centre Frankfurt’s appointment as Germany’s Digital Hub for the finance industry. Therefore, we still estimate that around 10,000 jobs will be relocated to Frankfurt in the coming years.”

These estimates of jobs moving to Frankfurt are not empty estimations. Just last week, Väth reported in the Financial Times that Frankfurt already has more than an indication from three of the five largest US banks, as well as a Swiss, Japanese, Korean and Indian bank that they have either decided to relocate operations to Frankfurt or are in the process of doing so. Clearly, Frankfurt is in the pole position to benefit from Brexit, but certainly not alone amongst European financial centres. Each financial centre is uniquely equipped to accept certain functions and business units. For example, Luxembourg and Dublin are ahead with asset managers. Warsaw’s affordable and well trained talent pool should result in an influx of back office functions. It seems certain that operations will move out of the City of London, but will be fragmented across European financial centres.

However, major questions still linger. What will the new financial centre landscape look like? Will Euro Clearing be forced under ECB jurisdiction? If so, who will win this 500 billion EUR market? Will the European Banking Authority join the other European regulatory functions in Frankfurt? The future of Europe and its financial centres will be the topic of the 2017 Frankfurt Finance Summit’s first keynote and panel discussion.

Minimising Brexit risks and strengthening European capital markets

In its position paper “Exit negotiations between the European Union and the United Kingdom: Minimise Brexit Risks and Strengthen the European Capital Market”, Deutsches Aktieninstitut has identified the essential issues with relevance for capital markets and which deserve particular attention due to their significance for business and society in connection with the Brexit negotiations. Furthermore, it makes proposals how the negative impact of Brexit on the affected national economies can be minimised.

In particular, Deutsches Aktieninstitut makes an appeal to the negotiation leaders to enter into objective and constructive talks. The strong economic relationship between the United Kingdom and the European Union should be maintained despite the new framework conditions. It is absolutely essential not to damage the core of the European idea, which is manifested in the four fundamental freedoms of the single market.

“It is up to the negotiators to shape the future relationship between the European Union and the United Kingdom in such a way as to minimize the negative impacts of Brexit for both sides,” emphasizes Dr. Christine Bortenlänger, Executive Director of the Deutsches Aktieninstitut. “With our position paper and its recommendations, we are doing our part so that the start of negotiations can begin on a sound footing from a capital markets standpoint and ultimately to lead to favourable results.”

Luka Mucic, Chief Financial Officer of SAP SE and member of the Executive Board of the Deutsches Aktieninstitut, highlights the importance of the position paper for the forthcoming negotiations. “The paper clearly articulates the stance of the Deutsches Aktieninstitut and its member companies. Negotiators must do everything they can to prevent distortions of competition through tax dumping and a deregulation race between British and EU markets,” explains Mucic.

The central demands of the Deutsches Aktieninstitut are:

  • To minimize disadvantages for all stakeholders and to ensure the attractiveness of European markets;
  • To secure time through transitional arrangements and to ensure the continuity of economic relations between the European Union and the United Kingdom;
  • To expand, harmonize and more efficiently shape third country regulations concerning capital and financial market legislation;
  • Ensure continuity of established and necessary legal institutions concerning basic corporate structures.

These results were developed within the framework of the Brexit project of the Deutsches Aktieninstitut. The project identified topics relevant to the comprehensive economic relations between the European Union and the United Kingdom that will play a role in the coming Brexit negotiations. The interdisciplinary project group, consisting of representatives from member companies of the Deutsches Aktieninstitut, will closely follow the content of the negotiations and as necessary, share its position on each respective negotiating stance.

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.

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.

Frankfurt Main Finance

Brexit Fever – FMF on FINANCE-TV

The votes have been counted and the UK has decided to leave the EU. But how will this decision affect the Financial Centre Frankfurt? Frankfurt Main Finance’s Hubertus Väth sat down with FINANCE-TV to discuss how Brexit will affect European financial centres and what Frankfurt has been doing capitalize on this opportunity. With some experts predicting that 100,000 jobs could leave London’s financial district, there is a lot at stake and Frankfurt Main Finance had all hands on deck in the hours rigth after the announcement. In cooperation with their partners, Frankfurt Economic Development and FrankfurtRheinMain GmbH, Frankfurt Main Finance launched a website, welcometofrm.com, an information hotline and a social media campaign on LinkedIn and Twitter targeted at decision makers in London’s financial sector. Watch Hubertus Väth’s full interview in the video below (German).

Source: www.finance-magazin.de/finance-tv

Montagsgesellschaft – What does Brexit mean for Frankfurt?

Days before the EU referendum in the UK, Frankfurt’s Montagsgesellschaft (Monday Society) met to discuss the possible consequences of Brexit for Europe and the Financial Centre Frankfurt. Expert panellists, including Frankfurt Main Finance’s Managing Director Hubertus Väth, weighed in on possible outcomes. The overall mood at the Montagsgesellschaft was certainly that Brexit would be negative for the European Union and Europe, but could have certain positives for the Financial Centre Frankfurt.  Hubertus Väth explained after the event that, “We aren’t expecting nor do we want a Brexit to occur. Nevertheless, we will not waste a good crisis and are prepared to positively position the Financial Centre Frankfurt in the case it does.” Just four days later, all of Europe was shocked by the decision of UK citizens to leave the EU and trying to come to terms with the uncertainty that lay ahead.

On Monday, July 4, 2016, the Montagsgesellschaft convened again with the same panellists to further discuss the Brexit and its now more concrete consequences. During the last meeting, most were almost certain that a Brexit would not happen. However, the tone was quite different this week as most were only certain that Europe will face months if not years of uncertainty. The UK’s departure from the EU does, however, certainly mean that some financial institutions will need to reevaluate their London operations and very possibly relocate to another financial centre on the Continent. One example is the European Banking Authority, currently housed in London’s Canary Wharf. Hubertus Väth elaborated on this during the discussion, “Frankfurt is the natural choice for EBA’s relocation as the ECB and other bricks of the regulatory pillar are already here. EBA is one of the last missing pieces.” While this may only bring a few hundred jobs, it would also augment Frankfurt’s reputation as a regulatory hub, already being home to EIOPA, ESRB and BaFin.

Experts estimate that some 20,000 jobs could leave the Thames in for the Main. Quoting a recent study from the Boston Consulting Group, Väth explained that the Financial Centre Frankfurt actually ranks very highly amongst bank executives as an alternative to London. Amongst others, Frankfurt scores highly for economic and political stability, real estate costs, transportation infrastructure and the availability of a highly qualified workforce.

Brexit Frankfurt Finance Summit

Frankfurt Main Finance regrets the decision of the United Kingdom

Frankfurt Main Finance regrets the decision of the citizens of the United Kingdom to leave the European Union. This decision affects all of Europe and extends the period of economic uncertainty, especially for the UK. Now drawn-out negotiations will have to clarify the relationship with the European Union (EU). By leaving, the UK will forfeit the benefits of membership in the EU. The consequences are still difficult to predict.

Frankfurt is well-equipped as a stable financial centre to embrace those looking for a new base of operations within the Eurozone. Frankfurt stands ready with a high-capacity real estate market as well as an excellent range of service providers, particularly in the areas of accounting, legal, communications and IT. For example, in Frankfurt you will find the DE-CIX internet exchange hub, over which more than 40% of the European internet traffic flows. Home to the European Central Bank and the German Central Bank, Frankfurt is also the centre of currency and monetary policy in Europe. The proximity to central banks is already a decisive factor for international banks in selecting a location. Additionally, as the home of the European Insurance and Occupational Pensions Authority, or EIOPA, Frankfurt is the centre for stability in the European insurance market. Compared to the lasting instability in Great Britain, Frankfurt represents openness, stability, capable infrastructure and favourable conditions.