Sustainable Finance, Frankfurt

What is Sustainable Finance and why is it reaching the mainstream of financial markets?

Increasing pressure on the environment, damages to ecosystems and environmental changes are presenting a global challenge. Integrating sustainability considerations into the financial system can play an important role in meeting the objectives agreed upon in the United Nations’ Sustainable Development Goals (SDGs) and the Paris Climate agreement. Therefore, the inclusion of sustainability criteria in the financial sector are essential to address the future challenges – this also includes the establishment of financial market structures that create incentives for large-scale shifts in investments and a more future-friendly capital allocation.

As part of the growing awareness that a shift in the financial industry is needed, sustainable finance is increasingly gaining attention from global financial and political actors as well as the broad public. But what does it mean?

Sustainable Finance aims at integrating environmental, social or governance (ESG) criteria into financial services. Decisions about investments and capital expenditures should take those criteria into account, while being beneficial to both the investor and society at large. Moreover, the sustainability risks that may impact the stability of the financial system should be made transparent. However, the future-oriented investment strategies should be based on valid data as well as medium to long term risks and returns. While this previously was a niche investment strategy, the approach increasingly reaches the mainstream of international financial markets.

An important component of Sustainable Finance is Green Finance, which refers to raising capital and financial investments into companies, services, products and projects that accelerate the development of an environment friendly and climate-resilient economy – an undertaking to which technological innovation and digital finance are essential to. By using big data, artificial intelligence and the internet of things Green FinTechs present innovative and efficient opportunities to further the greening of the financial system while mainstreaming the green finance approach by making sustainable financial services more accessible.

No signs of slowing – strong first half year for Frankfurt Office Market

Following 2017’s record results, the office market in the Financial Centre Frankfurt continues to boom with take-up in the first half of 2018 reaching third highest level of the past ten years and the best first quarter since 2000. According to experts at BNP Paribas Real Estate, CBRE, Savills Investment Management and Jones Lang LaSalle, the high level of activity in Frankfurt is leading towards the lowest vacancy rate in 15 years which will continue to fall in the latter half of 2018.

As a result of Brexit, 25 financial services firms have declared intentions to expand or move operations to the Financial Centre Frankfurt. Frankfurt Main Finance expects about 2,000 Brexit related positions will be relocated to Frankfurt by the end of 2018 and still holds its estimate of up to 10,000 potential positions in the medium-term, which have yet to impact demand on the real estate market to their full-extent.

Financial services firms affected by Brexit can still expect to find ample, modern office space in the city centre. Frankfurt remains affordable in international comparison, despite the waning vacancy rate now at 8.3% and Prime Rents increasing to 43 EUR/m2/month, according to data published by BNP Paribas Real Estate. In fact, the Financial Centre Frankfurt is just a fraction of the price of London or Paris. In the second quarter, prime rents in London and Paris topped 118 and 71 EUR/m2/month, respectively. Both cities have a vacancy rate below 6%.

These developments are discussed in detail by the Managing Director and branch head of BNP Paribas Real Estate, José Martínez, and Carsten Ape, Managing Director of CBRE, Andreas Trumpp of Savills Investment Management and Markus Kullmann of Jones Lang LaSalle (JLL), as well as Managing Director of Frankfurt Main Finance, Hubertus Väth.

The deviations in the data concerning vacancy rate, take-up or prime rents between the participating real estate firms result from the varying collection methodoligies or populations. Frankfurt Main Finance does not weight or value the individual methods, but instead presents them transparently.

José Martínez, Managing Director of BNP Paribas Real Estate GmbH and Frankfurt Branch Manager

“The upward trend in the Frankfurt office market continues. With a take-up of 273,000 m2 in the first half of 2018, the result is just under 14% above the ten-year average. Compared nationwide, take-up was higher only in Munich and Berlin.

In no other city are the results distributed so evenly across the various industry groups as in Frankfurt. First place is taken by banks/financial services with a share of 14.5%. Second place is taken by co-working providers, which contribute just over 12 % and are gaining increasingly in importance as a demand group in Frankfurt as well. The top three is completed by the group media and advertising, which is responsible for 12%. Places four to six are filled by three industry groups, which each have a share in take-up of just under 11%. These are public administration, ICT firms and consultancies. This even distribution of the result underlines impressively the very broad demand base and lively market activity. Among the most important deals were the leases of 24,000 m² by the FAZ newspaper in Europaviertel, 8,300 m² by the German Finance Agency in Heddernheim/Mertonviertel and 8,000 m² by the Bethmann Bank in the Banking District.

The reduction in the amount of vacant space has continued and currently stands at 1.28 million m². This is the lowest volume in the last 15 years. Of the total vacancy, however, just under 48% (611,000 m²) has the modern quality preferred by occupiers. The vacancy rate in the overall market has fallen to 8.3%. The biggest problem remains the shortage of space in the central, highly-sought-after locations. Due to the strong demand and inadequate supply of high-quality space, construction activity has increased. A total of 592,000 m² is under construction, but only about half of it is available to the market; the rest is already pre-let. It also needs to be taken into account that most of the supply is only concentrated on a few projects, which in some cases will not be available until 2023. As a result of the relationship between supply and demand outlined above, the top rent has increased compared to the previous year by 12% to 43 €/m². A similar dynamic upward trend has also been recorded for average rents, which have risen by just over 8% to currently 18.30 €/m².

The strong demand situation and the supportive economic environment for the occupier markets will stimulate take-up in the second half-year. This will be even more the case, because the share of major deals should increase. Against this background, an above-average take-up is again expected for the year as a whole, which should exceed the 600,000-m² mark. As the reduction in the amount of vacant space will continue, albeit at a slower rate, a further increase in rents is expected.”

Carsten Ape, Managing Director, CBRE

“Thanks to the strong economy, Frankfurt is in a dynamic state. We are observing an unwaveringly high demand in the office market. With an office space take-up of 253,700 m2 the first half of the year was 13 % above the strong previous years. That strong momentum at the beginning of the year persists throughout the first half of the year.

While the first quarter of the year was dominated by single large-scale projects such as the Frankfurter Allgemeine Zeitung leasing around 24,000 m², the current growth in Frankfurt can mainly be attributed to the traditionally strong financial sector: in addition to banks, consulting firms and law firms, companies from the real estate industry are looking for space.

Moreover, the focus increasingly lies on small-scale objects of up to 1,500 m² – a segment which made up 53% of the 106,800 m2 take-up of the second quarters. Co-working is contributing to that upsurge: within just a few years take-up increased from 1,100 m² in 2015 to 24,800 m² in the first half of this year. Especially start-ups are causing a demand in shared offices – an innovative segment giving the Frankfurt office market an opportunity to grow and ensuring its flexibility.

The high demand, the repurposing and demolition of existing office space as well as a rather modest number of completed real estate projects, caused the vacancy rate to drop to 8.5%. However, construction activity remains to be high. The pipeline is well filled. By the end of 2018, 114,000 m² of office space is to be completed in Frankfurt, of which only about 16% is still available. While the number of available office space is becoming increasingly limited, there is still room on the market.

It is likely that Brexit will have an impact in the medium term. Currently, the political developments in Great Britain are unpredictable and thus, many market participants are awaiting the outcome of the negotiations. However, it can be predicted that Frankfurt will be one of the Brexit winners.

The strong momentum of the Frankfurt office market is likely to continue throughout the second half of the year. The persistently high demand and shortage in office space located at the city centre could lead to an increase in prime rents. Nonetheless, national and international investors are interested in attractive investment opportunities in the Rhine-Main area. Frankfurt continues to be a focal point.”

Andreas Trumpp MRICS, Head of Research Deutschland, Savills Investment Management

“The outcome of the negotiation process for Great Britain’s departure from the European Union will determine the future of other Financial Centres such as Frankfurt. In 2017, the Frankfurt Office Market was marked by record results, even without Brexit-related relocations. An upward trend that persists in the first half of this year. The dynamic of Frankfurt and the Rhein-Main-Region is beneficial to real estate investors, which is amongst the reasons of why Frankfurt moved up 4 places to the 17th most dynamic city in Europe in the recently published Savills IM Dynamic Cities Index. The Main metropolis benefits from its excellent international train and airport infrastructure, above average public transport system and digital network on the local, national and international level. Real estate investors will find investment opportunities in every size category, real estate segment and risk profile. The Financial Centre Frankfurt offers unique investment opportunities that other German cities can hardly provide.”

Markus Kullmann, Team Leader Office Leasing Frankfurt am Main, JLL

“The Frankfurt Office Market reached a strong sales momentum midyear. With a take-up of 260,000 m² a comparison to the previous year (+ 9%), and both the 5- and 10-year average (+ 28% bzw. + 14%.) highlights the outstanding performance. Frankfurt has reached its third-best half-year take-up volume in the past ten years. While large scale rentals of over 10,000 m², such as the rental by the FAZ in the first quarter, do not occur every quarter, we are highly confident that the second half of the year will yield some top lettings – at prime rates. Companies seeking to hire or keep high-calibre personnel are willing to pay prime rents for excellent properties in top locations. Since the dynamic of demand continues to be high, I am confident that take-up will reach 575,000 m² in 2018.

An issue with which actors will be confronted on Frankfurt’s real estate market: vacancy does not necessarily mean vacancy. Available space does not meet the requirements in location, amenities, leasing period and rent. Meanwhile, the vacancy rate is at 7.3 %, with tendency to decrease to 6.8% by the end of the year. As quick reminder: The highest quote was at 17.9 % in 2006. From 2011 (15%) onwards, it gradually declined.

The urgently needed vacant office space did not become available on the market in the second quarter. This is unlikely to have changed by the end of the year. The supply in completed office space of around about 10,000 m² that will become available on the market in the next months is rather modest. I expect a notable relief to hit the market in 2020. By then, 485,000 m² could be constructed.”

Hubertus Väth, Geschäftsführer, Frankfurt Main Finance e.V.

“The high level of leasing activity in Frankfurt and the sinking vacancy rate show that the real estate market in the Financial Centre is booming. The extraordinary quality of life, excellent infrastructure, high concentration of innovative companies and the strong global commercial network make Frankfurt and the Rhein-Main Region one of the most popular destinations international firms. Frankfurt is able and ready to accommodate the numerous financial services firms relocating to Frankfurt from London due to Brexit.”

Frankfurt Finance Summit 2018 – Ready, Steady, Go!

On May 29, 2018, well-renowned international and national experts from the financial industry and decision makers gathered at the 8th Frankfurt Finance Summit titled Ready, Steady, Go! Who is ready to set the pace in challenging times? to debate the challenges and the strategic responses to current issues facing the European economy, regulators and financial markets. The decision-makers from central banks, stock exchanges, supervisory authorities, banks, insurance companies, politics, business and academia further discussed the future location and supervision of euro-denominated clearing transactions by central counterparties after Brexit and the advancement of artificial intelligence and the potential implications for financial institutions.

Dr. Lutz Raettig, President of Frankfurt Main Finance, opened the Frankfurt Finance Summit by welcoming the attendees and speakers, ranging from several countries and continents and a broad range of backgrounds in the financial services industry. Dr. Thomas Schäfer, Member of the Hessian Parliament and Hessian Minister of Finance, followed with a welcome address in which he discussed recent legislative proposals by the European Commission concerning EU financial markets, stating that he finds a EU single market to not be necessary. In his opening keynote Dr. Jörg Kukies, State Secretary at the Federal Ministry of Finance discussed the transitional period of Brexit as well as the consequences for EU27 and the Financial Centre Frankfurt. Kukies proudly stated, “If we look at Frankfurt, we see a city in a very good starting position. Frankfurt is one of the continent’s leading financial hubs and plays in the league of the world’s leading financial centres.” Kukies further enumerated a lengthy list of the Financial Centre Frankfurt’s advantages, including its deep talent pool, academic network, and outstanding quality of life. Thereafter, Jeroen Dijsselbloem, former President of the Eurogroup and former Minister of Finance of the Netherlands delivered the European keynote in which he gave an outlook on the potential consequences of Brexit and a political and legal way forward, saying that “For Frankfurt, it’s a good outlook. When I go to the UK, bankers will tell me – they won’t say this publicly of course – that the amount of business and the amount of people they’re going to shift, is larger than what is publicly being talked about and Frankfurt is at the top of the list.”

The impact of Brexit on British financial institutions

The Summit’s first panel addressed tomorrow’s strategic responses to the major questions in the financial industry. Chaired by Prof. Dr. Uwe Stegemann Senior Partner, McKinsey & Company, the panel featured Katharine Braddick, Director General of Financial Services at HM Treasury, Bernd Geilen, Vice-Chairman and Chief Risk Officer at ING-DiBa, Thomas Grosse, Industry Leader Banking and FinTech at Google Germany, Felix Hufeld, President of the Federal Financial Supervisory Authority (BaFin) and Dr. Cornelius Riese, Chief Financial Officer at DZ Bank AG. As part of the debate, Kathrine Braddick discussed the impact of Brexit on the financial services industry in London, saying that Brexit is not a concern for most domestic firms, as they are primarily concerned with UK markets. When discussing the relocation of financial institutions from London to Frankfurt Braddick stated, “I think that first phase of moves is relatively confined. Most firms affected I think they are expecting there will be a second phase and depending on the relationship that we achieve with the European Union and of course our aspiration is a very close relationship on financial services that will determine the scale of that second phase and to me that is currently unknown.” The panel further addressed the challenges of digitalisation from an implementation and regulatory standpoint. This discussion naturally progressed to encompass the demands of recent data protection regulations, like GDPR and PSD2.

The consequences of Brexit for Euro clearing

The Summit continued with a discussion on the future of Euro Clearing after Brexit, beginning with a keynote from Yves Mersch, Member of the Executive Board of the European Central Bank, in which he discussed the potential adaption of legal frameworks regulating Central Counterparties (CCPs) who are located outside of the European Union, stating that  “Ultimately, amending both the European Market Infrastructure Regulation (EMIR) and Article 22 will establish a comprehensive legal framework to address the risks CCPs pose to the Union – both its financial markets and its currency. It will ensure that the EU’s legislators, supervisors and central bank – acting in their respective roles – can adopt the wide range of measures needed to safeguard stability.”

The following panel, moderated by Annette Weisbach, further explored the future supervision of the clearing of euro denominated derivates by CCPs with financial industry experts such as Karin Dohm, Managing Director and Global Head of Government and Regulatory Affairs and Group Structuring at Deutsche Bank, Christoph Hock, Head of Multi-Asset Trading at Union Investment Privatefonds, Erik Tim Müller, Chief Executive Officer at Eurex Clearing AG, Patrick Pearson, Head of Financial Markets Infrastructure and Director General of Financial Stability, Financial Services and Capital Markets Union at the European Commission and Fabrizio Planta, Head of Markets Department at the European Securities and Markets Authority. Diving right into the topic, Eurex’s Erik Tim Müller explained, “Our objective is to talk to the clients and find out what their needs are and the needs that we hear is that today obviously all eggs are essentially all in one basket in London and that seems like a very risky set up given the circumstance. So, what we came up with at Deutsche Börse is a market lead alternative for these market participants to build up a second liquidity pool. […] We came from less than one percent market share 12 months ago to over six percent market share now and rising.”

Giving insights into what is important to asset managers, Union Investment’s Christoph Hock, , highlighted the importance of competition in order to lower transaction costs for the benefit of investors. “You’ve had monopoly structures, take LCH, they’ve had something like […] 95% of interest rate derivatives cleared on LCH and obviously monopoly structures are not beneficial for lowering cost of trading and also when we are looking at innovations, that is completely left aside. […] That’s why we highly appreciate the partnership program Deutsch Börse Eurex offered to the market which caused prices to come down, big offer spreads to tighten. Our assessment is that with this new offering we are able to lower also our cost of trading and in this context our cost of clearing. […] Would we prefer to have a strong second clearing hub here on the continent, i.e. with Eurex? The clear answer is yes,” said Hock.

Artificial Intelligence in the financial industry: a new frontier

The third panel on artificial intelligence in the financial industry began with an impulse speech by Carsten Murl, Head Enterprise Security Solutions Germany at Mastercard, in which he explained how Mastercard is very successfully using artificial intelligence for smart fraud protection throughout their entire stream of transactions addressing various needs. Thereafter, the panel featuring Charles Delingpole, CEO and Founder of ComplyAdvantage, Markus Nigg, COO of ti&m AG, JP Rangaswami, Group Chief Data Officer & Group Head of Innovation at Deutsche Bank AG, Francisco Webber, CEO and Co-Founder of Cortical.io, and Peter J. Wirnsperger, Partner Cyber Risk Services at Deloitte discussed various aspects of data protection and whether artificial intelligence can be understood as the problem or the solution to data security in the financial service industry. During the debate, Deutsche Bank’s JP Rangaswami explored the definition of data safety and the responsibility it brings to companies processing data while highlighting the importance of people feeling secure and empowered by the ability to consent to the usage of private data. Moreover, Deloitte’s Peter J. Wirnspergeremphasised the consequences of data misuse and thus, the importance data protection has, which is something that should be of concern not only to the economy and but society as a whole.

The eighth Frankfurt Finance summit came to an end with closing remarks by Professor Dr. rer. pol. Dr. h.c. Udo Steffens, Chairman of the Executive Board at the Frankfurt Institute for Risk Management and Regulation (FIRM).

Frankfurt Main Finance and the Frankfurt Institute for Risk Management and Regulation would like to thank this year’s sponsors for their generous support. Deutsche Bank was this year’s Gold Partner. Silver Partners included Deloitte, Deutsche Börse Group, DZ Bank, ING-Diba, Mastercard, and Wirtschaftsförderung Frankfurt.

Livestream of Frankfurt Finance Summit

The 8th Frankfurt Finance Summit titled “Ready, Steady, Go! Who is ready to set the pace in challenging times?” is taking place on 29 May 2018 at Kap Europa. Well-renowned international and national experts and decision-makers are meeting to discuss current issues faced by the European economy, regulators and financial markets.

This year’s summit evolves around the strategic responses to challenges faced by the financial industry in times of change and uncertainty. Moreover, the future location and supervision of euro-denominated clearing transactions by central counterparties after Brexit will be discussed by leading financial industry experts. Participants will also debate the advancement of artificial intelligence and the potential implications for banks and financial institutions.

You can watch the summit via livestream!

Euro-Clearing after Brexit – Hubertus Väth in BBC Radio 4 Interview

The Economic and Monetary Affairs Committee of the European Parliament just released a statement on the future regulation of Central Counter Parties (CCP). The euro clearing by CCPs is an important part of the financial architecture of the European Union following Brexit. At the moment, the majority of transactions is handled by a London-based company. Currently, it is up for debate whether this will continue to be the case. In an interview with Dominic O’Connell on BBC Radio 4 Hubertus Väth, Managing Director of Frankfurt Main Finance, discusses the recent ECON statement, which is an indicator for how the EU might eventually decide.

While it is not certain what the consequences of Brexit will be for the financial centre London, it can be assumed that euro denominated interest swaps will be under heightened supervision by the European Securities and Markets Authority (ESMA) and the European Central Bank. Second to London Frankfurt is the most important centre for euro clearing and generally, having more than one euro clearing institution is of importance as it allows for more stability in times of a crisis. While a relocation might have some economic impact, research conducted by asset managers found that a relocation promises to be beneficial to pensions.

Listen to the full interview!

Eschborn for Business 2018

Eschborn for Business 2018

The Trend Concept New York and how Start-Ups are Transforming Work Culture

The newest edition of the magazin Eschborn for Business is now available. The annual, English-German magazine puts a spotlight on Eschborn as an emerging modern business location, focuses on the city’s economic growth and uncovers interesting trends in sustainable city development.

The current issue of Eschborn for Business 2018 covers the trending concept “New York” – which allows employers to participate more and work more independently. Find out more about the innovation friendly concept and the key role of start-ups and agile FinTechs on page eight.

“Forget your shirt and tie, it’s time for beer and pizza!” Start-ups, especially FinTechs, known as pioneers of innovation, are shaping work culture at the FrankfurtRhineMine financial hub: “Despite digitalisation, the ‘human factor’ will be more important in business going forward than ever before”, says Helen Hain, CEO MarketDialog Eschborn. Read more about Frankfurts start-up scene and learn some fun facts. For example, did you know for example that 24 percent of the German start-ups have their own footie table in their offices?

Find more interesting reports, interviews and background stories relating to Networks, Business, Infrastructure and Eschborn Activities. Here are some highlights of this year’s edition:

  • “Small but smart. A quality location” – Eschborn has been growing steadily as a business hub over the past 40 years. Learn more about its small but smart profile.
  • “More space. More green. More at ease” – Gertler Estates intends to set new standards at Eschborn Süd.
  • “Eschborn 2030+ Ideas for the future” – Together with the mayor and local businesses, the city is currently working on an ambitious project: a Masterplan for the future of Eschborn.
  • “The Hessian Oscar” – the exemplary achievements of thirty volunteers were honoured by the communal movie theatre Kommunales Kino Eschborn K

Eschborn: top location with high standard of living

Thanks to a combination of relevant business factors, the city of Eschborn, with its population of 21,000, has developed into an international and modern business hub. Ninety-five percent of the over 4,000 local businesses are service providers, primarily in the finance, IT, consultancy, and telecommunication sectors. About 80 high-tech companies have also settled in Eschborn, establishing the city as an important innovation hub in the FrankfurtRhineMain area.

Download the 2018 edition of Eschborn for Business!

CFS Index_April 2018_Centre for Financial Studies

CFS Index unable to maintain record level from the previous quarter

Growth in revenues and earnings falls, though levels remain high / Financial institutions hiring again after sustained period of job cuts / Investment volume stable

The CFS Index, which measures the business climate of the German financial sector on a quarterly basis, falls by 3.4 points in the first quarter of 2018, though it remains at a healthy level of 116.7 points. The decline can be attributed to weaker performance in revenues/business volume and to lower profitability, among the service providers more than the financial institutions. This development therefore confirms the service providers’ expectation from the previous quarter that the record growth from the fourth quarter of 2017 could not be maintained. On the other hand, employee numbers in the financial industry are on an upward trend. The financial institutions are hiring again for the first time after a prolonged period of job cuts. The investment volume of the financial industry remains stable at a high level.

„The overall index is closely mirroring the downward macroeconomic trend in Germany. The employee numbers reveal a contrasting positive trend. For the first time in a considerable period the optimists are in the majority at the banks. This has already been the case among the service providers for some time. Taken together, the survey participants indicate positive long-term expectations for the financial industry“, Professor Jan Pieter Krahnen, Director of the Center for Financial Studies, interprets the results.

The future international importance of the Financial Centre Germany continues to be rated very positively, though no longer at its peak level.

With a decline of 4.1 points to 131.8 points, the business location sub-index, which measures the future international importance of the Financial Centre Germany, is now just under the extremely high level of previous quarters.

„The importance of the financial centre will grow, which is understood by market players, albeit to a lesser extent. The competition has intensified after the Brexit referendum. Defending our leading position requires greater efforts“, Hubertus Väth, Managing Director of Frankfurt Main Finance e.V., interprets the survey results.

After an extremely strong previous quarter, revenues and earnings take a downturn, yet remain at a high level

Following a particularly strong fourth quarter of 2017, the surveyed financial institutions and service providers are unable to maintain their huge growth in revenues/business volume. The corresponding sub-index for the financial institutions falls by 4.1 points to 118.6 points; the service providers show a larger decline of 16.2 points to 121.3 points. As for the current quarter, the financial institutions are expecting another slight decrease, while the service providers are anticipating a small rise in revenue growth.

The earnings growth of both groups is declining, yet it also remains at a high level. The corresponding sub-index for the financial institutions falls by 2.8 points to 111.1 points, though an increase is forecast for the current quarter. The service providers record a stronger decline of 11.4 points to 122.2 points, and they are expecting the downward trend to continue in the current quarter.

Investment volume remains almost unchanged at a high level

The growth in investment volume in product and process innovations among the financial institutions shows a slight rise of 1.0 points to 114.8 points, and a further increase is expected this quarter. The corresponding sub-index for the service providers takes a slight downturn of 1.3 points to 112.6 points. However, the service providers are anticipating a slight increase in the current quarter.

Employee numbers on the rise in the financial sector / Financial institutions hiring again after a sustained period of job cuts

After the prolonged period of job cuts in recent quarters, the financial institutes report that employee numbers are now rising again for the first time. The employee numbers sub-index climbs by 4.0 points to 102.6 points. However, the expectation is that this level will not quite be maintained in the current quarter. The trend is also positive among the service providers, where more new employees are being hired. The sub-index rises by 6.2 points to 123.0 points. Slightly weaker growth in employee numbers is forecast for this quarter.

CFS survey: German financial industry expects trade dispute between the US and China to escalate further

The US has decided to impose punitive tariffs on steel and aluminium imports, principally from China. For its part, China is showing little willingness to give in and make concessions. According to a recent survey by the Center for Financial Studies, the majority of the German financial industry expects the trade dispute between the two countries to escalate further. 75% of the respondents agree on this point.

The EU and other countries are not directly affected by the trade dispute for the time being. However, US punitive tariffs on steel and aluminium imports from China could lead to Chinese surpluses in these products, which would then be pushed onto other markets, including the EU. The financial sector is divided on the question of whether the EU will also have to increase its tariffs on imports from China sooner or later. While 46% consider this development quite probable, 45% consider it unlikely and 5% consider it very unlikely.
Interpreting the results, Professor Volker Brühl, Managing Director of the Center for Financial Studies, comments: “The survey highlights the high level of uncertainty among market participants about the future development of the trade dispute and its possible consequences for Europe. I therefore assume that the volatility on the European stock markets will increase.”

The EU is also preparing for difficult negotiations with the US, where the current tariff structure of the EU as a whole is expected to be on the agenda. The German financial industry is largely in agreement (83%) that the EU must make concessions in future negotiations with the US (e.g. by reducing import tariffs on other US products) in order to rule out punitive US tariffs on steel and aluminium imports from the EU.

“I believe that the trade policy of the Trump administration has the potential to significantly change the architecture of the European customs union, since Europe will have to make considerable concessions to the US,” Brühl continued. “Ultimately, it is inevitable that transatlantic trade relations between the US and the EU will have to be redesigned.”

In light of current developments, 55% of respondents believe that negotiations on a Transatlantic Trade and Investment Partnership (TTIP) should be resumed in order to form a new basis for trade between the US and the EU. 39%, on the other hand, are against a resumption of TTIP negotiations.

Dr. Lutz Raettig, President of Frankfurt Main Finance e.V., emphasises: “Trade wars are poison for the economy. The uncertainties and heightened risks lead to reluctance.”

2018 Europe – US Symposium: How will Brexit change the map of global finance?

Dr Andreas Dombret
Member of the Executive Board
of the Deutsche Bundesbank

Speech at the 2018 Europe – US Symposium
of the Harvard Law School Program on
International Financial Systems in Armonk, New York Wednesday, 11 April 2018

Read more

Hubertus Väth: Why I’m sticking with the “10,000”

As an economist, you calculate a lot of numbers in your life. As a communicator, you learn to value them as carriers of messages. But none of “my” earlier numbers have stirred minds and the media as much as my forecast for the “morning after”. 10,000 – calculated weeks previously for the worst-case scenario, published for all the world to see the day after the Brexit referendum, this number has been roaming around the media landscape ever since.

It could mean 10,000 jobs ending up in Frankfurt, if… (followed by a whole host of conditions). London’s City could lose as many as 20,000 to 25,000 jobs. Not a lot really, considering that the London financial centre employs 700,000 people, but a big deal for Frankfurt.

The number was a message: a great deal for Frankfurt, not so much for London. It was a broad definition, including as it did all support industries. And the number also had conditions attached: Brexit is coming, passporting is going, the EBA is coming and euro clearing won’t stay in London, the relocation will last for more than five years and – it’s gross, i.e. doesn’t make allowance for any job losses in Frankfurt.

So you can see: all of the key areas of discussion to date had already been highlighted on the “morning after”. But the spotlight was on it alone, the One. The Number. Such complex material, so nicely rounded.

Since then, it has appeared in around 90 countries. You hear it, see it, read it. Journalists from all over the world made the pilgrimage to this beautiful city on the river Main, full of self-doubt, but ready to be convinced. By now I’ve talked to more than 800 of them.

Frankfurt as the big Brexit winner? The doubters were not hard to find. There are no schools, no offices, no apartments. There was even carping about the food and beer, not to mention the quality of the locally available coffee, and a damning indictment of the cultural landscape. The image was frightful, according to harmonious souls in Munich, Dusseldorf, Cologne, Hamburg and Berlin, and the City and its competitors for London jobs in Paris, Dublin and elsewhere cited them with relish.

It will be 2,000 to 3,000 jobs at most, it was said, quietly and in confidence. A forecast that has since been increased several times in the same place. The Frankfurt School of Finance & Management saw 20,000 bankers on their way across the Channel. By contrast, supposedly sober-minded people held any forecast at all to be frivolous (the who’s who of the consultant scene however did exactly that in London: forecast. But in Frankfurt we were serious, oh yes!) But around 15 months later, the same source felt able to report about 5,000 jobs net. In other words, there were now forecasts of an influx from London and job losses in Frankfurt at the same time. Despite every effort to do so, we cannot figure out the two components of this number to this day.

Helaba leaped to our defence early. The always well-received, annual, and in contrast to us as a lobbying association (more disparaging would hardly be possible), always considered respectable study on the situation in the financial centre came up with 7,000 London jobs in 2016, before going on to see a lower limit of 8,000 a year later in 2017.

No sooner were the first names of the financial institutions coming out in favour of the location known, and scarcely had it been made public by the board that in the worst-case scenario up to 4,000 jobs are under scrutiny at Deutsche Bank in London, than the calls came for us to increase the number. The decision to relocate the EBA in favour of Paris had barely been reached, and many people already wrongly believed Frankfurt to be playing a losing game.

No, we stuck with and are sticking with the 10,000. Are we not capable of learning? Yes, we are, but if you think ahead, you don’t have to up the ante: to this day, we still don’t know exactly what Brexit will look like. Although many things are a lot clearer than a few months ago: Brexit will come. That can be considered very certain. A transitional period of 21 months has been agreed. The five-year period in which the 10,000 jobs we forecast would relocate to Frankfurt has proven to be far-sighted, as has the thesis that euro clearing would become an issue and will be decisive in terms of the outcome.

So yes, we are undeterred, because 21 months after the referendum, our scenario is still intact. The transitional period cannot be prolonged. The exit from Brexit that some believe they can see will turn out to be a mirage. Only the EBA didn’t come, giving us the perfect excuse if the number doesn’t quite reach 10,000.

And one more thing: you can take advantage of opportunities, or you can fail to do so. 10,000 is absolutely possible for the Financial Centre Frankfurt. If we don’t reach it, the question must be: why did they not come? We think it’s better to now ask the question: what else do we have to do to reach it? Plenty! The 10,000 is still feasible. Because many people have very quietly done a great deal of good. If you consider the use of the (modest) funds with which everything so far has been achieved, the result is sensational. Simply Frankfurt.

This guest contribution was first published in the daily newsletter at Finanz-Szene.de.