More Shareholders in Germany – Overcoming Missunderstandings and Desinterest

Misunderstandings, bad feelings and a significant level of desinterest prevent Germans from investing money into shares. Even historically low interest rates have not increased their interest in equity investments. This is the core result of this study conducted by Deutsches Aktieninstitut and Börse Stuttgart. The study also develops ideas how the reservations could be overcome. The biggest push would result from the system of old age provision.

Download here (german).

CFS Index Standardfragen

CFS Index falls slightly

The CFS Index, which measures the business climate of the German financial sector on a quarterly basis, falls by 1.2 points to 112.8 points in the fourth quarter of 2018. The slight downturn can be attributed to weaker growth in earnings along with relatively constant revenue growth in the financial industry as a whole. In addition, the service providers report significantly weaker growth in investment volume, in excess of the decline predicted in the previous quarter, and a lower number of employees are being hired. At the financial institutions, the investment volume rises slightly and, contrary to their expectations, employee numbers remain constant. However, job cuts are still expected in the current quarter.

“Are service providers more adaptable than banks? A year-on-year comparison points to this conclusion. Capital expenditure is rising among service providers and the number of employees is falling, whereas the situation is reversed at the banks: investments are on the decline, while the number of employees is stable. In light of the deteriorating earnings outlook, this raises the urgent question for banks as to how they will manage the necessary adjustment of capacities,” Professor Jan Pieter Krahnen, Director of the Center for Financial Studies, interprets the results.

The future international importance of the Financial Centre Germany is rated positively

Notwithstanding the uncertainties surrounding the Brexit agreement, the financial industry continues to rate the future international importance of the Financial Centre Germany very positively. The corresponding sub-index shows a slight increase of 1.0 points to 127 points.

Dr. Lutz Raettig, President of Frankfurt Main Finance e.V., emphasizes: “For quite some time, the prevailing and well-founded conviction in the finance sector is that the Financial Centre Frankfurt will increase in international importance. The Index’s recent, slight increase most likely reflects the UK’s withdrawal from the EU, which draws nearer and becomes increasingly tangible with each passing day.”

Revenue growth in the financial sector largely unchanged / Earnings growth declines

Growth in revenues/business volume among the financial institutions is almost unchanged in the fourth quarter of 2018. The corresponding sub-index rises by 0.1 points to 112.7 points. A slight increase is forecast for the current quarter. The revenues of the service providers, at 120.9 points, are 2.8 points lower than in the previous quarter. The current level is expected to be maintained.

Earnings growth is on the decline among both groups. The sub-index for the financial institutions falls by 3.1 points to 108.5 points, yet still remains at a solid level. As previously anticipated, the service providers record a more significant decline of 4.8 points to 111.5 points. Both groups expect to see a slight increase in the current quarter.

Investment volume of financial institutions remains constant / Sharper decline than expected among service providers

The growth in investment volume in product and process innovations at the financial institutions reveals a slight increase of 1.3 points and remains at a moderate level of 112.1 points. No significant change is expected in the first quarter of 2019. By contrast, the service providers report a considerable decline in the fourth quarter, in excess of the decline predicted in the previous quarter. The sub-index falls accordingly by 6.7 points to 112.2 points. The service providers expect to correct this decline again in the current quarter.

Despite expected job cuts, financial institutions keep number of employees constant / Service providers hire fewer employees

The employee numbers sub-index for the financial institutions rises by 0.4 points and, as in the prior quarter, signals a neutral sentiment with 100.5 points. As previously expected, the growth in personnel among the service providers continues to slow. Despite falling by 6.4 points, the corresponding sub-index remains at a good level of 111.5 points. For the current quarter, the service providers expect to be able to maintain this level of employee growth. The financial institutions, on the other hand, continue to forecast job cuts.

 

The results are based on a quarterly management survey in the German financial sector.

The Center for Financial Studies (CFS) conducts independent and internationally-oriented research in important areas of Financial and Monetary Economics, ranging from Monetary Policy and Financial Stability, Household Finance and Retail Banking to Corporate Finance and Financial Markets. CFS is also a contributor to policy debates and policy analyses, building upon relevant findings in its research areas. In providing a platform for research and policy advice, CFS relies on its international network among academics, the financial industry and central banks in Europe and beyond.

CFS Index Sonderfragen

CFS survey: Majority of German financial sector expecting “no-deal Brexit”

The United Kingdom’s legally binding withdrawal from the EU is due to take place on 29 March 2019. Due to disagreements over the nature of a withdrawal agreement, there is the potential for a disorderly “no-deal” Brexit.

Aside from the potential consequences of a no-deal Brexit, a recent survey by the Center for Financial Studies revealed that the majority of the German financial industry (66% of respondents) feels that the EU should not make any further concessions, even though almost half of respondents (46%) are expecting a no-deal Brexit. 52%, on the other hand, expect the outcome of the dispute to be less severe.

While 51% of respondents do not believe that financial institutions in Germany are prepared for all scenarios, including a no-deal Brexit, 46% consider the German financial industry to be adequately prepared.

“Certain parts of the financial sector have placed too much confidence in an orderly Brexit. This could lead to market turbulence if indeed no deal is reached,” Professor Volker Brühl, Managing Director of the Center for Financial Studies, interprets the survey results.

Since the British rejected the EU’s proposal for a withdrawal agreement in January, concerns over the implications of a no-deal Brexit have grown considerably. With the consequences of Brexit being so difficult to predict, the German financial sector is in firm agreement (83%) that the Financial Centre Germany would derive less benefit from a no-deal Brexit than from an orderly Brexit.

“It is not only the financial sector that requires reliable frameworks. A disorderly Brexit will lead to great uncertainty on the markets, hinder investment decisions and cost many jobs,” Professor Brühl adds.

In case of a no-deal Brexit, London will most likely be unable to maintain its position as the most important European financial centre in the medium to long term. 57% of respondents agree on this point.

Hubertus Väth, Managing Director of Frankfurt Main Finance e.V., emphasizes: “The importance of the Financial Centre Frankfurt has increased due to Brexit. The distribution of business units will be realigned throughout Europe’s financial centres, competition will be tough, but without London it will also not work in the future either.”

 

 

The results are based on a quarterly management survey in the German financial sector.

The Center for Financial Studies (CFS) conducts independent and internationally-oriented research in important areas of Financial and Monetary Economics, ranging from Monetary Policy and Financial Stability, Household Finance and Retail Banking to Corporate Finance and Financial Markets. CFS is also a contributor to policy debates and policy analyses, building upon relevant findings in its research areas. In providing a platform for research and policy advice, CFS relies on its international network among academics, the financial industry and central banks in Europe and beyond.

PIC Galper, Josh Finadium_neu

“Collateral is an unusual asset class”

On February 21st, the Business of Collateral Trading conference will be held in Frankfurt. Frankfurt Main Finance talked to Josh Galper, Managing Principal of the organizing institution Finadium, a the global specialist consultancy on securities finance, collateral and derivatives, about the idea of the conference and why he decided to hold it in Frankfurt. Read more

Stock market breakfast

Stock market breakfast on the trading floor with Burkhard Balz, Board Member of the Deutsche Bundesbank

The stock market breakfast on the trading floor of the Frankfurt Stock Exchange has become a unique communication platform for financial market players. The event series aims at strengthening relations between all participants by facilitating an informal exchange. Keynote speaker Burkhard Balz, Board Member of the Deutsche Bundesbank, emphasised this in his speech Economic Education – Challenge and Tasks for Everyone in the Financial Centre at the stock exchange breakfast on Thursday morning. According to Balz, Financial actors at the Financial Centre regularly exchanging ideas is necessary to ensure the success of measures taken.

While December is usually filled with end-of-year-reviews, the recent stock market breakfast focused on the future: Keynote speaker Burkhard Balz highlighted the importance of increasing economic education. The Bundesbank has already provided numerous lectures and materials online. With having organised 400 lectures, the Museum of Money is an integral part of that educational work. The Bundesbank’s position paper “Sharing central bank knowledge” – the Deutsche Bundesbank’s economic education activities“ summarises the core ideas of ​​the Bundesbank’s educational program. The desired outcome of that program are economically aware citizens: people who have the knowledge, abilities, skills and attitudes, to manage everyday situations in which economics play a role and have answers to questions concerning economic issues. This applies to personal finances as well as to economic and financial matters at the corporate, national and international level. Additionally, the media bears the responsibility to report on economic issues, said Burkhard Balz in his speech.

The discussion of the stock market breakfast goes beyond the trading floor

By commenting on a Frankfurt Main Finance Tweet concerning the stock market breakfast, Marc Richter, Senior Trader Equities Frankfurt at Baader Bank AG, highlighted another aspect of the debate on economic education: “Likewise, economic education in schools should be of further focus.” A statement Sven Schumann, Director – Head of Section Community Relations & Initiatives of the Deutsche Börse, showed agreement to with a like – the stock exchange breakfast does not only guarantee for an exchange of ideas but also facilitates an (online) discussion.

Here you will find further follow-up reports to the event series:

Apr 2018: „Economic success is a necessary stage of transition if you want to be physically successful”: Axel Hellmann at the stock exchange breakfast on the Frankfurt Stock Exchange Parquet (german article)

24. May 2017: Stock market breakfast on the floor with Hauke Stars (german article)

CFS-Index takes a clear downturn

The CFS Index, which measures the business climate of the German financial sector on a quarterly basis, falls by 4.5 points to 113.9 points in the third quarter of 2018. The significant decline is primarily due to weaker growth in earnings and employee numbers among service providers as well as slower growth in revenues and investment volume throughout the financial sector. Among the financial institutions, however, the downturn in revenue growth is offset by an increase in earnings, while sentiment regarding employee numbers is neutral.

“Given the contrary trends in the earnings of banks and service providers – rising for the former, falling for the latter – the question arises as to why their investment behaviour is so similar. It appears that macroeconomic and political uncertainties (Brexit, Italy, USA, China) are the primary cause of the slowdown in investment,” Professor Jan Pieter Krahnen, Director of the Center for Financial Studies, interprets the results.

The future international importance of the Financial Centre Germany is still rated positively, albeit to a lesser degree.

Since the Brexit vote in 2016, the future international importance of the Financial Centre Germany had been rated at historically high levels. In the third quarter of 2018, the corresponding figure of 126 points remains at a good level, despite recording a significant decline of -5.3 points.

“The downward trend in the assessment of Germany’s future international significance as a financial centre is seeing the glass half empty. In recent months, other financial centres in the European Union have indeed also benefited from Brexit. In this context, the positive developments in Frankfurt could seem less significant,” comments Hubertus Väth, Managing Director of Frankfurt Main Finance e.V., on the survey results. “But when you look at it closely, the decisions by more than 30 financial institutions to move their European headquarters to Frankfurt speak for themselves. In 2019, the Financial Centre Frankfurt will gain considerably in international importance.”

Financial industry revenue growth declines / Positive earnings growth among financial institutions, negative among service providers

As forecast by the financial institutions in the previous quarter, growth in revenues/business volume declined in the third quarter. The corresponding sub-index for the financial institutions falls by 6.1 points to 112.7 points. Service provider revenues are 5.3 points down on the previous quarter at 123.7 points. Both groups are anticipating a further slight decline in the current quarter.

There is a stark contrast between the earnings growth of the two groups. After a weak second quarter, the financial institutions have returned to a good level. The corresponding sub-index rose by 9.8 points to 111.6 points. The service providers, on the other hand, recorded a sharp decline of 11.3 points to 116.3 points. For the current quarter, both groups expect a slight decline in their earnings growth.

Investment volume down

Contrary to expectations, the growth in investment volume in product and process innovations at the financial institutions fell by 5.3 points to 110.8 points. This low level is expected to persist in the current quarter. The sub-index for the service providers also fell by 3.4 points, though at 118.9 points it still remains at its third-highest level since the surveys began in 2007. However, a further downturn is expected in the current quarter.

Financial institutions show neutral sentiment on employee numbers

After the brief period of job cuts at the financial institutions in the second quarter, the employee numbers sub-index rises by 3.6 points and now signals a neutral sentiment at 100.1 points. As expected, the growth in employee numbers at the service providers has slowed. However, even after falling by 8.4 points, the corresponding sub-index remains at a good level of 117.9 points. As for the current quarter, the service providers expect employee growth to decline further, while the financial institutions are forecasting job cuts.

 

The results are based on a quarterly management survey in the German financial sector.

The Center for Financial Studies (CFS) conducts independent and internationally-oriented research in important areas of Financial and Monetary Economics, ranging from Monetary Policy and Financial Stability, Household Finance and Retail Banking to Corporate Finance and Financial Markets. CFS is also a contributor to policy debates and policy analyses, building upon relevant findings in its research areas. In providing a platform for research and policy advice, CFS relies on its international network among academics, the financial industry and central banks in Europe and beyond.

CFS survey: Artificial intelligence will be one of the core topics of the financial industry in the future

CFS survey: Artificial intelligence will be one of the core topics of the financial industry in the future – More initiatives to inform and educate the public would be beneficial

The German government has decided to invest three billion euros in the funding of artificial intelligence (AI) by 2025. There are also talks planned with the federal states and partners from industry to stimulate further investment. The main goals include making Germany and Europe a leading location for AI technologies and ensuring future competitiveness.

Despite the positive signals from the German government, a recent survey by the Center for Financial Studies found that the majority of the German financial industry (84% of respondents) doubts that most decision-makers in business and politics are precisely aware of the importance of artificial intelligence. Digitalisation in general and AI in particular are terms frequently employed in public discussions, although many people have only a vague idea of what these topics entail. Given the importance of these trends, a clear majority (86%) of the German financial sector is in favour of an initiative to inform and educate the public.

“We are living in a time of dramatic changes in the economy and the world of work. It is therefore essential to inform and educate people of all ages appropriately. I would like us to not only focus on schools, but to develop formats for adult education to address these key future topics,” said Professor Volker Brühl, Managing Director of the Center for Financial Studies, commenting on the survey results.

Artificial intelligence is very likely to revolutionise a whole range of industries over the next 10 years – 83% of respondents are convinced of this. Only 17% think that the importance of AI technologies is overestimated.

The financial sector is already heavily influenced by artificial intelligence, and the new technology has the potential to transform financial processes. Accordingly, 90% of German financial industry respondents said they expect AI technologies to be one of the core topics for their industry in the future.

“German banks must make substantial efforts if they are not to lose out in the field of artificial intelligence. Only a few banks are pursuing a genuine AI strategy today,” Professor Brühl adds.

When asked about the key future areas of application for AI in banking, 77% of respondents cited central functions (risk management, controlling etc.), closely followed by asset management (76%) and retail banking (73%). In addition, 53% mentioned the capital markets business. Only 36% of respondents regard corporate banking as a relevant area of application.

Hubertus Väth, Managing Director of Frankfurt Main Finance e.V., underlines: “When it comes to AI, in international comparison the gap is enormous. According to a survey by management consultants Asgard and Roland Berger, there are only 106 AI start-ups in Germany compared with 383 in China or around 1,400 in the USA. The German government’s program is late to the game, but not too late. In order to catch up, it is now necessary to cooperate intelligently with start-ups and join forces in the Financial Centre Frankfurt.”

 

The results are based on a quarterly management survey in the German financial sector.

The Center for Financial Studies (CFS) conducts independent and internationally-oriented research in important areas of Financial and Monetary Economics, ranging from Monetary Policy and Financial Stability, Household Finance and Retail Banking to Corporate Finance and Financial Markets. CFS is also a contributor to policy debates and policy analyses, building upon relevant findings in its research areas. In providing a platform for research and policy advice, CFS relies on its international network among academics, the financial industry and central banks in Europe and beyond.

Eurex Clearing to expand Partnership Program to Repo and Foreign Exchange

Eurex Clearing plans to expand its Partnership Program to cover the repo and OTC foreign exchange (OTC FX) segments. The design of the program extension is complementary to the OTC interest rate derivatives segment, which started in January 2018. As part of its partnership program Eurex Clearing shares governance and economics with the most active program participants.

For the repo segment, the aim of the program is to increase choice and efficiency for market participants in Special Repo and General Collateral instruments and to foster adoption and growth in the dealer-to-client repo business.

The new FX segment of the Partnership Program is designed to deliver the benefits of clearing to OTC FX markets, which are still largely uncleared today. Eurex Clearing is currently working with market participants to be the first major clearing house to offer a comprehensive cross currency swap clearing service.

Market participants can now register their interest to join the new program components for a planned start in Q1/2019. Commerzbank, Deutsche Bank, J.P. Morgan and Morgan Stanley have expressed an early interest to join both new segments – Repo and OTC FX. In addition, Citigroup, DekaBank and LBBW have indicated their interest to participate in the Repo program. Further details of the program extension will be made available to interested market participants in due course.

Erik Müller, CEO of Eurex Clearing: “The extension of the Partnership Program further enhances choice and innovation in the marketplace. Market participants now can tap the full benefits of Eurex Clearing’s integrated value proposition across fixed income derivatives, Repo and FX markets.”

Charles Bristow, Co-Head of Global Rates Trading, J.P. Morgan: “J.P. Morgan has been an early supporter and design partner for the OTC interest rate derivatives clearing segment of the Partnership Program. We welcome the planned extension of this successful program which is aimed at broadening market participants’ clearing options for the new asset classes and increasing resiliency.”

Webniar Moving to Frankfurt

Moving to Frankfurt – What Germany’s financial capital has to offer

If you or your company are thinking about moving to Frankfurt, you surely have a number of questions. Some, of course, concern legal questions, but some others will be of a more practical nature. Practitioners from Dentons in Frankfurt and Hubertus Väth, Managing Director of Frankfurt Main Finance, invite you for a webinar to answer some of your questions. You can register for the Moving to Frankfurt Webinar here.

The speakers of the Moving to Frankfurt Webinar will be:

  • Hubertus Väth, Managing Director, Frankfurt Main Finance
  • Amy Kläsener, Partner, Dentons
  • Bernhard Gemmel, Partner, Dentons
  • Frank Lenzen, Partner, Dentons (Frankfurt)
  • Michael Huertas, Partner, Dentons

Join the event for a fast-paced, one-hour webinar that will bust open some of the myths typically related to living in Frankfurt and doing business within and outside of Germany.

Topics to be addressed include:

  • What’s the lead time to setting up business and residency in Germany?
  • What are the top tips when negotiating a business or residential rental contract?
  • Are German/EU labor market checks required for certain employees and positions?
  • If employed in Germany, how mobile am I across the EU?
  • Why is German employment law geared towards going to court following dismissals?
  • How different is the German and EU financial services regulatory environment, and will I have to comply with double rules?

Date: Tuesday, November 06, 2018

Time: 04:00 PM Central European Time

Duration: 1 hour

Find more information and registration here.

Helaba Financial Centre Study: Brexit Banks are packing their Bags

Brexit is looming, and many banks are preparing to relocate their business activities from London to other financial centres. Frankfurt is the favourite in this regard and the list of newcomers to the German banking centre is getting longer and longer. “Brexit banks are gradually packing their bags and many of them will be heading for the Rhine-Main region in the future. To date, 25 Brexit banks have opted for the financial centre of Frankfurt, including many well-known institutions. Paris comes some way behind, followed by Luxembourg, Dublin and Amsterdam. This is the result of our current Brexit Map,” explained Dr. Gertrud Traud, Chief Economist and Head of Research at the presentation of the study in Frankfurt.

Some large corporations have designated Frankfurt as their most important EU hub in the future and, in so doing, have made a fundamental strategic decision in favour of the city, which will also be reflected in corresponding staffing levels. On the one hand, some jobs will be transferred to Frankfurt, which will be accompanied by the employees concerned either moving completely or commuting between the two financial centres. On the other hand, a certain number of new employees will be hired here or Germans who have worked with banks abroad will be recruited for the new jobs in Frankfurt. Since the beginning of the year, more and more Brexit banks have been making firm plans to relocate their activities. Additional institutions are still in talks with the local supervisory authorities. All in all, an accumulation of Brexit banks can be observed in Frankfurt that is unparalleled in Europe.

“In principle, our ranking of Europe’s major financial centres continues to apply: London before Frankfurt before Paris”, explains Helaba’s financial centre expert, Ulrike Bischoff. The only aspect that has meanwhile narrowed is the gap between the relative attractiveness of these locations. Frankfurt has been able to improve its competitive position to a greater extent than Paris.

In view of the sometimes very assertive marketing campaigns of other locations, it is vital that the German financial centre presents itself in a self-confident, concerted manner. Since the referendum, for example, the Hessian state government has accompanied the Brexit process with a variety of activities. There is also a network made up of the various players in the region. In addition, Frankfurt is increasingly receiving verbal backing from the federal government. Now, in view of the short time remaining until Brexit, it is important, for instance, to rapidly implement the planned easing of rules on protection against dismissal for top bankers.

The Frankfurt office market is in good shape shortly before the conclusion of the Brexit negotiations. Vacancy rates have fallen significantly, and rents are approaching their previous highs, although they are still well below the level of competing financial centres. Additional demand by Brexit newcomers and an increase in jobs in other sectors should not lead to bottlenecks thanks to a range of project developments. In contrast, the situation on the housing market remains under pressure despite higher construction activity. The shortage of housing can therefore only be overcome in the long term in collaboration with the surrounding area.

Frankfurt’s Brexit banks come from ten counties; most already have a branch office in Frankfurt or are represented via subsidiaries. In addition, many banks would like to establish a presence in Frankfurt for the first time. Together, Brexit banks of foreign origin in Frankfurt had an estimated 2,500 employees here at the end of 2017. In the scope of their Brexit-related adjustments, they are expected to almost double this number by the end of 2020.

Dr. Traud points out that Helaba has adhered to its Brexit forecast ever since the referendum: “At least 8,000 financial sector jobs will be created over the next few years”. Until the end of 2020, the Brexit effect should have a clearly positive impact on Frankfurt’s banking employment and, ultimately, more than offset on-going consolidation processes in the German banking industry. This suggests a total of 65,000 bank employees in Frankfurt, representing growth of around 3 % or an increase of almost 1,800 bankers.

You can find the complete study as a download here [in German].