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].

Brexit

Deutsches Aktieninstitut – Brexit: it is five to twelve!

Deutsches Aktieninstitut calls upon the European and British negotiating parties to finally place their trade relations on a new sustainable basis. In its third position paper on the Brexit negotiations Deutsches Aktieninstitut shows using as examples tariffs and product approval as well as derivatives and data protection that companies cannot solve all the problems arising due to Brexit on their own.

The position paper can be downloaded here.

Brexit

The risk of a hard Brexit puts businesses in a tight spot – stormy autumn is approaching

Companies on both sides of the channel are hoping for clarity on the impact of Brexit on their businesses by the EU summit in October, and no later than the possible EU special summit in November. To what extent the autumn will bring a transition agreement setting the status quo until the end of December 2020, remains unclear. Although this transitional period is foreseen in principle, it is highly dependent on conditions that remain unfulfilled which pose considerable obstacles. This is especially true for the Irish border issue.

Whether there will soon be clarity is still uncertain. From September onwards, the management of Frankfurt Main Finance expects a stormy autumn. Banks will have to make important decisions about their set-up over the next few weeks, as the time to prepare for Brexit at the end of March 2019 will otherwise be too tight. Just a few months before the UK’s exit from the European Union, the risk of a relatively hard Brexit has not been averted. This brings trade, industry and financial services alike under time pressure and pressure to move.

In the coming weeks, financial institutions expect not only increased inquiries from their customers, but also to decide for themselves which of the scenarios they are preparing for. “Time is running out,” says Hubertus Väth, Managing Director of Frankfurt Main Finance. “We’re expecting a stormy autumn: industrial and trade companies, as well as the asset management industry, must now seek to make the necessary arrangements with their financial services providers. It is important to Brexit-proof their financing and investments. That does not work at the touch of a button. We’re heading for a mass start which will lead to a bottleneck for those late to the line.”

Therefore, Frankfurt Main Finance advises companies from trade and industry as well as asset managers to actively pursue dialogue with their financial services providers to Brexit-proof their financing. This applies in particular to the clearing for euro-denominated interest rate derivatives. “Companies must take initiative themselves and approach the banks,” says Väth. “It is in their own interest, for example, to hedge their financing and hedge their interest rate risks even for a hard Brexit. Unfortunately, this case can still not be ruled out. The sooner they talk to their banks, the better the preparation will be, because companies will be the main victims in any case of doubt.”

Frankfurt Main Finance sees the Financial Centre Frankfurt as the logical first choice in the reorganization and orientation of the financial sector after Brexit. However, to make use of these opportunities under increasingly intense international competition requires further substantial effort.

Green and Sustainable Finance Cluster

Green and Sustainable Finance Cluster Germany releases baseline report

Mobilising the finance sector for climate protection and sustainable investment

On Friday, in Frankfurt, the Green and Sustainable Finance Cluster Germany issued its baseline report presenting an inventory of sustainability activities at the financial centre of Frankfurt/Main. The report is the first publication from this cluster, created in spring 2018 in a merger between the Green Finance Cluster Frankfurt of the Hessian Ministry of Economics and the Accelerating Sustainable Finance Initiative of Deutsche Börse. The cluster’s objective is to further mobilise the finance sector for climate protection and sustainable investment.

One encouraging result is that sustainability is now a hot topic in the boards of financial institutions, resulting in more and more innovative products and services, notes Hessian Minister for Economics Tarek Al-Wazir. “Now it’s about coordinating these activities to make Frankfurt a leader in this area that can articulate the German voice in international discussions.”

The report analyses the current state of sustainable activities in Frankfurt and other European financial centres. The baseline report draws from extensive field research. The results show that 86 per cent of respondents discuss sustainability topics at management board level. 100 per cent of participating companies report on their sustainability activities. The increasing importance of this topic is also evident in current figures from a survey by the Forum Nachhaltige Geldanlagen (Sustainable Investment Forum), which found that sustainable investment in Germany was already at €1.4 trillion in 2017. Since 2005, annual growth has hovered at 27 per cent.

Al-Wazir made reference to European Commission estimates that €180 billion per year in additional investments are needed to meet Europe’s 2030 climate targets.

“The required sustainability investments are far too great for the public sector to bear alone. This means we must mobilise large volumes of private capital. For investors, this is about creating high demand. Practically every financial centre in the world now recognises the importance of green and sustainable finance. Frankfurt must play a leading role in this, concludes Karsten Löffler, Co-Head of the Frankfurt School/UNEP Collaborating Centre for Climate & Sustainable Energy Finance, and one of the two cluster directors.

Analysis of the baseline report finds that sustainable finance should become a much more prominent topic in the finance sector, not only for reputation, but also for its strategic business potential. It is becoming increasingly vital to identify risks to investments and financing arising from factors such as climate change. On the other hand, this also offers a variety of new business opportunities, stemming directly from the financing of sustainable infrastructure needs. In light of the high financing volume required for the transformation to a more sustainable economic system, financial institutions are increasingly compelled to take a forward-looking tack and develop corresponding strategies.

Aside from many encouraging trends, the baseline report still finds insufficient data on sustainable investments, due to factors such as a lack of standards and definitions, explains Kristina Jeromin, Head of Group Sustainability at Deutsche Börse and second cluster director.

“This is a key issue,” agrees Al-Wazir. “Uncertainty is poison to investment. Investors must have confidence that they are not getting scammed.”

The cluster wants to take on this and other challenges in four defined areas of activity:

  • Inventory and innovation: e.g. taking stock of activities thus far, identifying potential for development
  • Metrics and standards: e.g. developing definitions and measurement methods for sustainable investment
  • Data and digitalisation: e.g. expansion of the traditional key business figures to include environmental and social indicators
  • Dialogue and knowledge building: e.g. employee training, creation of permanent platforms for dialogue

The cluster is an association. The current sponsors are BNP Paribas Germany, Commerzbank AG, DekaBank Deutsche Girozentrale, Deutsche Bank AG, Deutsche Börse AG, DZ BANK AG, Deutsche Zentral-Genossenschaftsbank, Helaba, KfW Bankengruppe and Metzler Asset Management GmbH. The cluster is headquartered at the Frankfurt School of Finance & Management. The signatories to the Frankfurt Declaration also support the cluster.

For the full baseline report and further details on the Green and Sustainable Finance Cluster Germany, please visit the new website at http://www.gsfc-germany.com

 

CFS survey: German financial industry takes a critical view of ICOs, calls for stronger regulation

ICOs (initial coin offerings) are especially popular with start-up companies as a means of corporate financing by issuing cryptocurrencies, also known as tokens. These may be acquired in exchange for fiat currencies or virtual currencies such as Bitcoin and Ether. In contrast to IPOs, tokens issued in ICOs are not subject to strict capital market regulations, even though they serve the purpose of corporate financing. The German financial regulator BaFin is currently biding its time before taking a clear stance on cryptocurrencies and ICOs, although it does rate ICOs as highly speculative financial assets.

In light of the enormous risks, the German financial industry is clearly in favour of stricter ICO regulation (70%) and would like BaFin to play a more active role in this sector (60%). This was revealed in a recent study by the Center for Financial Studies.

“We are seeing a veritable flood of ICOs on the market at the moment. This development is only in its initial stages in Germany, but soon we will also be hit with a wave of new tokens. The survey makes it clear that action is urgently required in the ICO sector. It is time for a clear regulatory framework with an appropriate mandate for the financial regulator,” Professor Volker Brühl, Managing Director of the Center for Financial Studies, interprets the survey results.

Mindful of the risks of fraud when ICOs are conducted on unregulated online exchanges, 50% of the survey respondents believe established exchanges should develop their own cryptocurrency trading platforms as a secure alternative.

“ICO platforms on reputable exchanges could help build trust among investors by establishing transparent and standardised processes, which could in turn benefit the issuing companies,” Brühl explains.

Just 12% of the respondents see opportunities for the Financial Centre Germany in this as yet largely unregulated sector.

As Hubertus Väth, Managing Director of Frankfurt Main Finance e.V., emphasises: “ICOs undoubtedly are an innovation baring remarkable potential for the financial industry. The industry’s request for stronger regulation is an understandable and welcomed approach to making use of the potential while managing the risks.”

 

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.