CFS survey: One year on from the Brexit referendum

Financial industry still sees Frankfurt as the major winner / London to remain one of the top 3 financial centres / CFS warns against euphoria

According to a recent survey by the Center for Financial Studies, one year on from the Brexit referendum, a clearmajority of the German financial industry (86%) still believe that Frankfurt is the EU location that stands to benefit the most from Brexit. In addition, over two thirds of the companies surveyed (69%) expect London to remain one of the top 3 financial centres worldwide, even 10 years after Brexit. Only 14% of respondents believe one of the rival financial centres will emerge as the major winner. In this respect, the survey participants have more confidence in Paris and Dublin, whereas Luxemburg and Amsterdam are hardly expected to gain any significant location advantage.

“The survey underlines the particularly high expectations placed on Frankfurt to take advantage of Brexit. However, I would warn against getting carried away with the euphoria. Competition is very intense, especially with Paris. Substantial efforts are required on the part of the German and Hessian state governments, not forgetting the city of Frankfurt, to actually realise this potential,” Professor Volker Brühl, Managing Director of the Center for Financial Studies, interprets the results.

The German financial industry is also united in its optimistic view on the specific question of how many extra financial sector jobs are likely to result from Brexit over the next five years in the Financial Centre Frankfurt. Of the survey respondents, 21% expect more than ten thousand additional positions to be created. Frankfurt Main Finance has viewed this as a realistic figure ever since the day of the referendum in the UK and expects a thousand new jobs to already be announced by the end of the current year. However, a larger proportion ofrespondents (45%) anticipate a figure in the range of five to ten thousand extra jobs. A further 33% predict between one to five thousand new jobs. Just 1% anticipate fewer than one thousand additional positions.

“Even if the Financial Centre Frankfurt hastaken the pole position, there are still around one hundred banks in London which are looking for a new home in the Eurozone. Only around twenty have made decisions. There is still a great deal to be done,” comments Hubertus Väth, Managing Director of Frankfurt Main Finance e.V..

Financial institutions in London are preparing to shift partsof their business from London to Continental Europe. When asked which region those institutions likely to shift the most jobs come from, 37% of respondents pointed to North America; 30% believe European firms will relocate the most jobs; 19% named the UK and 14% the Asia-Pacific region (APAC).

On the same topic, the majority of the financial industry (71%) anticipates a substantial relocation of jobsin the area of securities trading and settlement, followed by corporate finance and corporate banking (49%). In addition, 40% of respondents named the area of risk management and compliance. As for the asset management segment, 30% of respondents believe a substantial shift of jobs is realistic.

“In many quarters the potential relocation of the European Banking Authority (EBA) to Frankfurt is regarded as an important signal. Aside from proximity to the European Central Bank (ECB) being a pull factor in such location choices, the importance of the future home of the EBA is overplayed when it comes to location decisions of financial institutions. Issues of market access and infrastructure play a far more important role here,” said Professor Volker Brühl, Managing Director of the Center for Financial Studies, analysing the survey results.

CFS Index falls by 2.0 points

Revenue and earnings growth of financial institutions declines – Service providers expect the same for the current quarter / Financial industry continues to increase investment volume

The CFS Index, which measures the business climate of the German financial sector on a quarterly basis, falls by 2.0 points to 111.6 points. The declining rate of growth is primarily a result of smaller increases in revenues and earnings among the financial institutions. The service providers are expecting a similar development in the current quarter. On the contrary, the service providers inparticular report positive growth in investment. In addition, the financial institutions are continuing to reduce their job cuts and now, after implementing major personnel measures in the previous quarters, indicate an almost neutral business sentiment of 99 points.

“It is perhaps still too early to speak of a trend, but there is a growing impression that the financial institutions are making a comeback. Over several quarters now we can observe a constant pattern: increasingly positive expectations among the financial institutions coupled with decreasing values among the service providers – and this goes for all four components of the index: revenues, earnings, investment and employees,” 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 even more positively than just after the Brexit vote one year ago

The future international importance of the Financial Centre Germany, which has been rated very positively since the Brexit vote, rises by another 3.7 points in the third quarter of 2017 and now stands at 138.7 points, exceeding the previous high (136.8 points) reached shortly after the Brexit vote.

Dr. Lutz Raettig, President of Frankfurt Main Finance e.V. emphasizes: “We have already achieved quite a bit through our combined efforts. The Hessian government’s coordinated approach made a significant contribution towards our shared successes.”

Financial institutions record sharper decline in revenue growth, service providers are expecting the same for the current quarter

Growth in revenues/business volume in the financial industry is declining, but remains at a positive level. Among the financial institutions, in particular, this sub-index drops by 7.5 points to 106.4 points. The service providers record a smaller decline of 2.1 points and remain at a very good level of 124.5 points. For the current quarter, however, they are anticipating a sharper decline in growth, whereas the financial institutions expect revenue growth to begin to rise again.

Earnings growth of financial institutions falls back to first quarter level

The surveyed financial institutions are not able to maintain their strong earnings performance of the second quarter. The corresponding sub-index falls by 7.1 points to 105.4 points. However, they are expecting a rise in earnings growth in the current quarter. Among the service providers, earnings growth remains almost unchanged. The sub-index rises by 0.7 points to 118.6 points. However, a relatively sharp decline is predicted for the current quarter.

Investment volume among service providers reaches highest level since the survey began in 2007

The growth in investment volume in product and process innovations among the service providers rises by 11.7 points to a historic high of 123.5 points, though this is expected to decline significantly in the current quarter. The corresponding sub-index for the financial institutions also rises by 3.1 points to 116.7 points, and another sharper increase is expected for the current quarter. Both groups are therefore maintaining a very good level of investment.

Financial institutions continue to curtail job cuts

As observed since the start of the year, the trend among financial institutions to curtail job cuts continues. The corresponding employee numbers sub-index rises by 1.5 points to 99.0 points, which means it has almost reached the neutral level of 100 points. Regarding the current quarter, the financial institutions are expecting job cuts to increase slightly once more. By contrast, the service providers continue with a strong level of recruitment. The corresponding sub-index rises by 5.0 points to 118.6 points. However, the service providers are more pessimistic about the current quarter and expect weaker growth in recruitment.

the Financial Centre Frankfurt

Citigroup Leads Wave of American Banks Choosing the Financial Centre Frankfurt

American investment bank Citigroup is set to expand their operations in the Financial Centre Frankfurt as a result of the UK’s withdrawal from the EU. Initial reports indicate the investment bank will relocate several hundred sales and trading jobs to Frankfurt.

Frankfurt Main Finance (FMF) welcomes the news and is proud that Citigroup, one of the so called big five, has chosen to expand operations in the Financial Centre Frankfurt. Commenting on the news, FMF Managing Director Hubertus Väth said, “It is great news for the Financial Centre Frankfurt and we look forward to welcoming our new colleagues. Citi’s decision supports our estimates of an additional 1,000 jobs moving to the Financial Centre Frankfurt this year and 10,000 jobs coming in the next five years. The reported decision by Citi also reaffirms our confidence that at least twelve banks and perhaps as many as twenty will decide for Frankfurt this year.”

For the past year, the Financial Centre Frankfurt has been in concrete discussions with nearly twenty banks interested in moving operations to Frankfurt. “Last week, Jamie Dimon announced in Paris that JP Morgan will use Frankfurt as their legal base. This was a strong, first signal from the US banks. Following last week’s submissions to the Bank of England, we expect to see the next wave of announcements coming very soon,” Väth explains.

The Financial Centre Frankfurt is in the pole position to win banking business from London following the results of the UK’s referendum. Noted for its strong economic and political stability, Frankfurt and the region offer a top infrastructure, competitively priced and plentiful modern office space, a deep talent pool and an extremely high quality of life. Financial services moving to Frankfurt will find a competent, helpful and welcoming regulator in BaFin, who will accept large portions of applications in English. The Financial Centre is already home to more than 150 foreign banks and 75,000 people employed in financial services.

Euro Clearing

Joint Declaration of Frankfurt Main Finance and Paris EUROPLACE on Euro Clearing

The United Kingdom is leaving the European Union and will in all likelihood lose access to the common market. In light of this, Frankfurt Main Finance and Paris EUROPLACE jointly request the concerned European authorities to consider some fundamental principles regarding future oversight of Euro Clearing:

  1. Central counterparties are key to managing risk for investors. These robust structures are essential drivers of trust in the financial ecosystem.
  2. As a concentrator of risk, CCPs are systemic. In times of crisis, a diverse ecosystem of CCPs plus a clear, manageable resolution process are key prerequisites to preserving stability.
  3. In the case of resolution, the EU Supervisors and the resolution authority must be able to expeditiously reach the appropriate decisions necessary to fully protect European financial security, including its monetary policy constraints in a way that shields European tax payers from potential losses.
  4. In that context, day to day risk monitoring is crucial. It necessitates easy access to information by European supervisors, as well as efficient conditions for access to central bank liquidity based on a one-step decision making process.
  5. The legal framework in which the CCP operates must be EMIR equivalent and the CCP should fall under the jurisdiction of the European Court of Justice.

Frankfurt Main Finance and Paris EUROPLACE urge the responsible European authorities to clarify their position without delay and by doing so, bolster certainty in this systemically relevant pillar of the European financial system.

Download the Press Release

Financial Centre Frankfurt

Japanese Sumitomo Mitsui Financial Group to open two subsidiaries in the Financial Centre Frankfurt

Sumitomo Mitsui Financial Group, Inc. (SFMG), Japan’s third largest bank, will establish two new subsidiaries in the Financial Centre Frankfurt. The decision was announced Monday, July 03, 2017, by SMFG President and CEO, Takeshi Kunibe. According to the group’s press release, the move will allow them to continue to service EU clients after the United Kingdom’s withdrawal from the EU.

Pending regulatory approval, the Japanese financial group intends to establish a new banking subsidiary as well as a securities subsidiary in Frankfurt. The new subsidiaries should allow SMFG to avoid disruption of services to their European clients and provide flexibility given the current political and economic uncertainty.

Frankfurt Main Finance (FMF) welcomes SMFG’s decision and looks forward to welcoming them to the Financial Centre Frankfurt. “Yoku irasshaimashita, Welcome Sumitomo! Brexit starts to bite,” says Hubertus Väth, Managing Director of FMF. “Japanese banks warned early on about the consequences of Brexit and accordingly have taken the lead. With Sumitomo Mitsui, the third Japanese banking group has chosen the Financial Centre Frankfurt. Frankfurt Main Finance expects a total of at least twelve banks to announce their decision for Frankfurt this year.”

In the last two weeks, Japanese banks Daiwa and Nomura also publicly announced their decisions to establish or expand operations in the Financial Centre Frankfurt. Since the results of the UK referendum, FMF has worked to assist financial services to find a new home in the Eurozone. The Financial Centre Frankfurt has emerged as an early front runner amongst European financial centres, noted for its political and economic stability, highly available and competitively priced real estate, deep talent pool, outstanding infrastructure, and high quality of life.

Link to the press release from Sumitomo Mitsui Financial Group, Inc.: http://www.smbc.co.jp/news_e/e600418_01.html

One year after the UK referendum – a Brexit balance

The surprise came overnight, and there was a rude awakening. At 2 A.M., when the first forecasts were published, it still looked like Britain would remain in the European Union. But a next look at the news reports at 6:20 A.M. made it clear: the population of the UK decided to leave, even if the majority was only 52:48. A year has passed since TV cameras from all over the world stood in front of the ECB and journalists wanted to know what was now going to happen and what Frankfurt thinks about it all. London, Brussels and Berlin immersed themselves in consultations. Nigel Farage, the head of the UKIP party that had made Brexit its goal, stepped down. Shortly after, the British Prime Minister David Cameron followed suit.

Our message: Brexit is bad for the UK, it is bad for Europe, and it is bad for Germany. Frankfurt Main Finance (FMF), the voice of Germany’s financial centre, hoped for a different outcome to the referendum, but was also prepared for the results. When these came in, that was the moment to flick the switch. The campaign to promote and advertise our location on the River Main was ready and waiting: as soon as the official referendum result was announced, an information website about Frankfurt went online, a telephone hotline for questions about Brexit was activated, a statement was published on the FMF website, and a campaign started at the same time on Twitter and LinkedIn to spread the word about the merits and advantages of the Financial Centre Frankfurt. The message was clear and relevant: “Welcome to Frankfurt”.

 

Once-in-a-century chance for Frankfurt

On June 24th, interview requests came in from all over the world. The media struggled to understand what had happened and how it would be changing the world we live in. FMF gave interviews in 15-minute intervals: on the phone, in the microphone, on camera, and yet again on the phone… The Brexit vote dominated the news all around the globe. Being in a position to talk while others were still treading their way through channels of coordination and approval gave Frankfurt a key advantage right from the start.

Despite the obvious negative repercussions, Brexit brought the opportunity of a century for the city of Frankfurt and the region. The financial architecture of the European Union was, and up to now, is focused on London. The UK’s withdrawal from the EU – and that was clear straight away – would lead to a relocation of responsibilities and business in the direction of the EU, resulting in a more multipolar financial world. London will undoubtedly remain a major financial centre, but financial centres in the EU will gain enhanced influence – Frankfurt above all. We at Frankfurt Main Finance have never tired of pointing out that it’s not a question of weakening London as a financial centre through our efforts; rather, it’s primarily about installing a stable financial sector within the EU, about building a bridge between London and the EU that starts in Frankfurt.

EBA and Euro clearing are in focus

On day one after the referendum, FMF ventured to make the well-founded estimate of 10,000 jobs that Frankfurt could gain within five years as a result of Brexit – with two essential preconditions: the European Banking Authority (EBA) moves to Frankfurt, as does the lucrative euro clearing market. While the seat of the EBA quickly became a general topic of discussion, it took months before the exceptional importance of euro clearing became clear to the wider public – a rather unwieldy topic at first glance.

The processing of derivative transactions via central guarantee entities, so-called Central Counterparties, and their supervision by the regulator is one of the main ramifications of the financial crisis. When the financial world plunged into crisis, there was in part complete uncertainty as to where the risks were, i.e. who held the actual risks festering in their books at the time. This insecurity led to fear, and the resulting loss in confidence threatened a collapse of the entire system.

Euro clearing: Frankfurt is currently the only real alternative to London

The decision as to where euro clearing operations should be carried out has been recognised as one of the key decisions for shaping the future financial architecture of the EU and Europe, and the issue has been discussed in this vein. And once again, Frankfurt is justifiably confident that it can win the day as the location of choice. Today, in addition to London, only Frankfurt – with the EUREX Clearing subsidiary of Deutsche Börse AG – has a valid licence within the EU and possesses the technical prerequisites, tried and tested in daily operation, to take over euro clearing operations from the City of London. Currently, Frankfurt is already the market leader in the clearing of exchange-traded derivatives. On the other hand, London leads by far in the clearing of euro-denominated OTC derivatives.

This lucrative business will not be able to remain in London as it has. That’s something we stressed at the time and have stressed ever since. After all, the European Central Bank, directly after its founding, wanted the supervisory of such a critical key function for the stability of European financial markets and the euro in its sphere of influence and control. Already now, there are first signs of business moving to Frankfurt, and companies are increasingly testing the clearing opportunities in the Financial Centre Frankfurt.

More uncertainty in the wake of the UK elections

A lot has happened since June 23rd last year. To mention just a few milestones: the British Prime Minister at the time, David Cameron, resigned. He was succeeded by Theresa May. She, who for all intents and purposes counted among those in the remain camp, surprised everyone in her first policy address, with the wording used ever since to illustrate the British posture towards future negotiations with Brussels: “No deal is better than a bad deal.”

The so-called cliff-edge Brexit – the running out of the negotiations on withdrawal scheduled for two years without an agreement being reached – came into view and became the most probable outcome. On March 29th, 2017, the United Kingdom formally requested withdrawal pursuant to Article 50 of the Treaty on European Union. As a result, Theresa May set the countdown in motion for the two-year negotiation period. A few weeks later, she again shocked the world by calling new elections to the House of Commons for early June. The professed goal was to receive a strong mandate for negotiations with Brussels. The calculation didn’t pay off. May and her party are now weakened, with incalculable repercussions for the Brexit process, for financial market participants, and for financial centres.

Frankfurt and Germany offer stability

If, from a European point of view, the result of the UK parliamentary election is interpreted as “a glass half-full”, then a lot of things come into the range of possibility again: even a new referendum with an open end. And even the UK remaining in the EU is no longer completely out of the question, albeit hardly likely.

If we interpret the “glass as half empty”, we are then dealing with a weak government that is only capable of making a few compromises in the upcoming negotiations because it lacks a broad mandate and a robust majority in the UK Parliament. A breakdown of negotiations and even a new election within the two-year period are conceivable. The negotiation programme, which is already ambitious to say the least, seems simply impossible to complete. Extensions, interim solutions and deadlines will probably be the result.

One thing remains certain: the decisions made by companies and by the financial and the real economy, on both sides of the Channel, must now be made under an even greater cloud of uncertainty. This speaks for Frankfurt, and it underlines the strength of Germany and Frankfurt as a refuge of stability and predictability.

Frankfurt exploits its pole position

In a host of banks and across the financial sector, Frankfurt is frequently discussed as a potential candidate for the relocation of companies or divisions. Above all, the Financial Centre Frankfurt boasts a stable economy and stable pro-European political conditions, with an excellent infrastructure, a large number of well-trained workers – especially from the financial sector –, a relatively cheap rental index and cost of living, and a high quality of life.

Metaphorically speaking, all this has brought Frankfurt onto the pole position in the race for the chances in the wake of Brexit. And the Hessian metropolis has been doing full justice to its prominent role up to now. This is shown by the successes achieved so far. Already, a Chinese, Japanese, Indian, Korean and Swiss bank have decided in favour of Frankfurt as their main location in the EU. Goldman Sachs is planning to double its workforce in Frankfurt and Standard Chartered has recently announced its intention of expanding its office in Frankfurt due to Brexit. Around 20 banks are currently in the later stages of talks about either locating or expanding their operations in Frankfurt.

The metaphor of a race also makes another thing clear: the clear winner is uncertain until the finish line is crossed. Frankfurt must continue to promote its merits and advantages and continue to address its weaknesses, rising to the occasion to capitalize on the once-in-a-century chance before it. Ultimately, a number of financial centres will certainly profit from Brexit, but the Financial Centre Frankfurt has every opportunity to become the financial metropolis of the European Union.

Japanese investment bank Nomura opts for new location in Financial Centre Frankfurt

Another Japanese bank has applied for a banking license in Germany and chosen to base the new business unit in the Financial Centre Frankfurt. Frankfurt Main Finance (FMF) is delighted that with Nomura another Japanese bank has officially decided to come to Frankfurt. “The Japanese banks were precisely the ones, who warned early on about the consequences of Brexit, and now are among the first to decide,” says Hubertus Väth, Managing Director of the Financial Centre initiative Frankfurt Main Finance.

“We would like to thank Nomura for their trust in the Financial Centre Frankfurt and look forward to welcoming our new colleagues. Nomura is already a member of Frankfurt Main Finance. We expect their announcement to act as a signal, and that further decisions by other prominent institutes will follow in the coming weeks.”

Just a few days ago, the Japanese Daiwa Securities Group announced their decision for the Financial Centre Frankfurt.

Press Release from Nomura Bank.

“Better prepared” – a discussion with actors with Brexit responsibility in the Rhine-Main region

The starting signal was sounded a year ago: the British people decided in a referendum on June 23, 2016 in favour of the United Kingdom leaving the European Union and therefore set a process in motion that can already be described as historic. The consequences are so far-reaching that even accomplished experts can hardly gauge effectively how the interaction between the UK and the countries in the EU will change. Only one thing is certain: much of what has been considered certain up to now will be put to the test.

That also applies to the question as to where the financial centre of the European Union will in future be located. The place to be has been London up to now. The race for a successor has already started some time ago and the competition is tough: Amsterdam, Brussels, Dublin, Frankfurt, Luxembourg, Paris and Warsaw are all doing their best – each city in its own way – to become the hotspot of the international finance industry.

Long before the UK made its decision, Frankfurt made initial preparations: to have a voice and be articulate, to provide interested parties with considered answers, to seek dialogue – that is a fair description of what representatives from the Hesse state government and the Hessen Agentur /Hessen Trade & Invest as well as from Frankfurt Rhein Main and Frankfurt Main Finance have wanted to achieve from the outset. With success, as the round table discussion with their representatives shows: those taking part comprised Wolf-Dieter Adlhoch, Head of the Brexit Office in the Wiesbaden State Chancellery, Dr. Rainer Waldschmidt, Managing Director of Hessen Agentur/Hessen Trade & Invest, Eric Menges, Managing Director of Frankfurt Rhein Main GmbH, and Hubertus Väth, Managing Director of Frankfurt Main Finance.

After a year of intensive discussions about the Brexit: how has Frankfurt positioned itself to score points in the competition among European financial centres?

Dr. Rainer Waldschmidt: Communication was the key from the very beginning. As early as during the discussions about the referendum, we already started to bring together important representatives from city and state institutions around the table for talks so as to agree at a very early stage about the concerted action we should take. One important point, for example, was that we don’t focus on Frankfurt as a city, but talk about the Rhine-Main region, because many aspects relating to the issues of talent, infrastructure and quality of life gain their relevance from the circumstances and realities within this larger region.

Eric Menges: It helped us considerably that we had already programmed a complete website before the Brexit decision, which we were able to set up live on the morning the results were announced. That involved a certain risk: the effort might well have been in vain. But it meant we had betted on the right horse, even though we would have preferred the vote to go a different way. There was a massive interest in receiving up-to-date information from this point onwards, as you can imagine. Our swift action received a great deal of positive feedback, especially in the social media. The nicest comment was to the effect that here’s a region that seems better prepared than the rest of England. We allowed ourselves a wry smile on reading that.

Hubertus Väth: Alongside the website, there was also a Twitter and a LinkedIn campaign with a simple, clear-cut message: welcome. As early as 6.20 in the morning, the media were already on the phone and wanted to know whether, and in what way, Frankfurt was prepared. Since then, there have been around 500 inquiries from journalists from over 40 countries. Even now, no week goes by without two to three inquiries coming in.

What are the central messages? What do Frankfurt and the region have to offer?

Wolf-Dieter Adlhoch: There are undoubtedly a lot of hard facts that speak in favour of the Rhine-Main region. Already today we are one of the most important financial centres worldwide. All the major German banks and over 150 foreign banks are present in and around Frankfurt. The most important regulatory authorities, and first and foremost the ECB, are resident here. Another merit is that the German economy is strong and robust, and – more important than ever in times like these – we enjoy a high degree of political stability. The taxes in Germany are not as high as sometimes assumed; 30 percent on average for companies, that makes us competitive. Our labour law is flexible, fair and above all efficient. As far as infrastructure is concerned, our Frankfurt Airport makes us unbeatable …

Menges: I always like to point out that it’s as close as London’s City Airport and as efficient as Heathrow.

Adlhoch: It’s important to us, however, that we don’t just beat our own drum, but that we present objective arguments.

Väth: Three messages have been clearly heard: Europe still needs the international standing of the financial centre of London, which is why we don’t want to harm London as a financial location. We want to build bridges and not tear them down. And we want to work together effectively in future as well.

Menges: Yes, that’s true: we aren’t conducting any superficial advertising campaign, as other financial centres are indeed doing. We are talking with decision-makers in the companies. And many, very concrete questions have emerged that we didn’t at first have in such clear focus. One example: international schools. You can imagine that’s an important issue for employees who are to come to Frankfurt in future with their families. So we brought all the international schools in the region – more than 30 altogether in and around Frankfurt – together around a table and discussed with them whether they are ready in their structure or in their capacity planning to accommodate a large influx of new pupils. The answer is yes. The diversity of schooling options available is also impressive. Armed with such information, we then go back to our discussion partners and can usually answer their questions in all the necessary detail.

Waldschmidt: Available office space is also a topic that comes up again and again in discussions. That’s why we have surveyed the availability and quality of sites together with the local real estate brokers. Specifically: we have 750,000 square metres of vacant office space at the necessary quality level in the preferred inner-city area. Moreover, project development plans are showing a further increase in these A-grade premises. Consequently, we can take up all the people that serious forecasts suggest for the first wave of immigration caused by the Brexit. When we talk about such changes, things don’t happen overnight. Instead, we assume that three waves will take place, each with different regional effects. The first wave will directly impact the financial centre, and therefore Frankfurt and its immediate surroundings, at the very core. The second wave will involve the relocation of European headquarters, i.e. distribution and back office as well. The radius of impact will expand to take in the belt around Frankfurt. It’s only during the third wave that industry will be affected, and that’s where the whole of Hesse is of interest.

After a year, what are the most significant findings and what should be the focus of attention in future?

Väth: Although we have pole position, the race isn’t over yet. It’s too early to take a breather. Exogenous factors, such as a possible US tax reform, can still change crucial parameters to our disadvantage. We must also point out that the competitors are doing a good job and are achieving some success – for instance in the domain of insurance companies and asset managers. The question of the future of euro clearing will certainly be of great importance – and area where exciting days and weeks lie ahead of us. Here, too, we’ve already done a lot of educational work. But, having said all that, it’s also time to say thank you. Whether BaFin or the Bundesbank, the state government or national government – outstanding work is has been and is being carried out when it matters, and this doesn’t go unnoticed. It has also been remarkable just how many of our members have unselfishly contacted us and asked whether they can do anything for us. Needless to say, we didn’t say no and were able to get a number of things moving. Also noticeable was how actively new members approached us and said that they now understood why we are important and why it makes good sense to participate.

Adlhoch: We take the feedback we receive from the many individual discussions we hold as representatives of state government, of Hessen Agentur, Frankfurt Rhein Main and Frankfurt Main Finance very seriously. What is well received is the confidential dialogue, and that’s why our focus will remain in this area in future. What we will do more intensively is to organise a direct exchange with experts. This region is home not only to the banks and regulators, but also to all those lawyers and consulting companies that are so necessary for the financial industry. We clarify detailed questions about labour law, tax issues and regulatory aspects by mediating contacts and networking experts. One thing we won’t be doing is to promote the location with the help of short-sighted gifts – i.e. allowances, benefits or privileges. We are firmly convinced that as a region we have what we need to make our case effectively to companies and to help them make the right decision in their strategic location. Last but not least, this also applies to the quality of life. We’ve not spoken a lot about that today, but everyone familiar with the Rhine-Main region knows all too well that the spectrum of leisure and cultural activities on offer is really quite impressive.

Hessian delegation on Brexit tour in London – a travel report

Representatives of the Ministry of Economics, Energy, Transport and Regional Development in the Federal State of Hesse have been in Brexit mode for a number of months. Communication across all channels and preferably in a personal dialogue – when it comes to promoting the benefits of Frankfurt as the EU’s financial centre, every opportunity is exploited. As was the case during the trip made by Hessian Economics Minister Tarek Al-Wazir and his delegation to London. The journey, which was originally initiated for companies in the cultural and creative sector, was the ideal framework for a small-scale financial delegation from the ministry. Armin Winterhoff, Head of the Financial Centre Frankfurt Division at the ministry, was part of this team and knows the details and background of the three-day London tour.

Ten banks, two associations, three days. The programme in store for the financial delegation headed by Economics Minister Tarek Al-Wazir was packed to the full when they set off for London for three days from May 9th to 11th. So it goes without saying that it had already been determined in advance and in detail who would be taking part at which appointment during the busy schedule and with which priority. “We are seeking a personal dialogue with those responsible at the banks and within the organisations. We want to promote the merits of Frankfurt by providing information and offering a constructive exchange with specialists. The Financial Centre Frankfurt is to become the ‘Gateway to the EU’,” as Armin Winterhoff describes the fundamental objective. The facts speak for the advantages of the Main metropolis, he maintains, and so he never grows tired of underlining how important it is to convey well-founded information to the right places – i.e. especially to the large, internationally operating banks that are likely to be losing their access to the EU financial market in the wake of the Brexit.

The days are jam-packed with appointments and precisely scheduled – working lunches and the Hesse Evening included. All the more important that the small core team functions together effectively – up to 10 specialists from the Ministry of Economics, the Brexit Office at the Hessian State Chancellery, the Hessian Ministry of Finance, the Bundesbank, and institutions like the Verband der Auslandsbanken in Deutschland e. V. (Association of Foreign Banks in Germany), Frankfurt Rhein Main GmbH and Frankfurt Main Finance e. V. “We were already in close contact with most of the addresses before the trip,” Winterhoff explains. But it’s essential, he adds, to point out in situ and in personal conversation what makes the Financial Centre Frankfurt particularly special.

There were also reservations to be eliminated and misconceptions to be straightened out: “Those who look at Frankfurt from a global perspective are often already apprehensive when they hear the population figure of 700,000. The fact that no less than 5.6 million people live in the catchment area of the Frankfurt Rhine-Main Metropolitan Region, many of them highly qualified and with an international background, has to be elucidated.” Winterhoff can specify many such examples – because ultimately everyone is concerned about the same questions. That’s why the “Welcome to the Financial Centre Frankfurt” brochure is always part of the hand luggage on such trips. The leaflet puts “10 Points for Frankfurt” in a nutshell.

Winterhoff found it striking how openly and constructively the delegation from Frankfurt was welcomed wherever it showed up: “For us, that’s an indication that all international institutions have the greatest possible interest during this phase in carrying out a far-reaching and substantive discussion with the different financial centres in the EU.” Needless to say, he adds, every bank has its own analyses, but to underpin them with first-hand information is evidently highly rated. “In this respect, we’re certainly sought-after dialogue partners in our capacity as the official federal state representatives,” the Head of Division points out.

Even if providing information about the location and promoting its merits is at the top of the list –such a trip is time and again just as fertile and rich in insight for the representatives from Hesse themselves. “We are able to gain a vivid impression of what is being discussed in London and what the sticking points are for the companies,” Winterhoff explains. He points out that such crunch issues aren’t merely the hard location factors, the hard facts, especially with regard to existing regulation. There is also great interest in the soft factors, such as the presence of resources in the region as well as the leisure activities and cultural programmes on offer. After all, anyone considering moving with his or her company and family from the Thames to the Main would like to know what can be expected. “We attach great importance to such factors and realities because it’s ultimately not just taxes and labour law that decide where people feel comfortable,” Winterhoff is convinced. It’s much easier in a face-to-face conversation to tell people what it’s like to live in and around Frankfurt, he adds. That’s why the Hessian representatives will continue to seek every opportunity they can to present the merits of the Main metropolis.

 

Who says what to which security?

Fintech 2.0: The young financial services company Catana Capital GmbH relies on innovative investment on the basis of Big Data and Artificial Intelligence.

For the first time, a company has taken the risk of, and also succeeded in, mapping the entire value-added chain of a truly automated asset management – from the collection of data and evaluation to the automated order execution – and then creating a robust, risk-optimised asset management approach. For this promising business model, Catana Capital GmbH received the FintechGermany Award in the category Seed/Early Stage conferred by Business Angels Frankfurt/Rhine-Main, Frankfurt Main Finance and the WM Group in April 2017. “There are indeed competitors who also offer or use parts of the value-added chain of an automated asset management, but not the entire process,” says Bastian Lechner, Managing Director and founder of Catana. “We are therefore delighted that the jury at the FintechGermany Awards has recognised this potential and its innovative character.”

Optimal processing of information

The start-up is a licensed financial services institution under Section 32 of the German Banking Act (KWG), was founded in August 2015, and is the world’s first asset manager that relies entirely on Big Data and Artificial Intelligence. “This kind of data usage is the basis for the fact that, in comparison with the competitors, information can be much more effectively identified, or that information can be incorporated in the investment process that may possibly be completely hidden to other providers,” as Bastian Lechner explains the young company’s approach. He goes on to draw a preliminary conclusion: “Catana’s trading strategy is superior to traditional forms of investment through the combination and real-time evaluation of millions of opinions and news items and through its being embedded in an integrated, holistic process.”

The system keeps learning

According to Lechner, information derived from the Internet from six different countries is automatically collected, filtered, weighted and compared with historical price patterns as the basis for every investment decision. Via voice and text recognition, several hundred thousand pieces of capital market-relevant news are evaluated in real-time per day – that corresponds to around two terabytes of data per month or seven information messages per second – and nearly 30,000 securities are covered, including currencies and commodities. The key question to categorise the signal in terms of direction and strength is: who says what to which security? The system assigns to every security a preliminary positive or negative signal based on the collected information. However, before a final trading signal is generated, the Artificial Intelligence system analyses how a security has performed in the past after a similar assessment, i.e. after such a positive or negative signal. “The system therefore checks what the signal has meant for the security. The decisions taken and their results inform the future investment recommendations – so the system keeps learning,” Lechner explains. “In this manner, buy and sell recommendations for German large-cap stocks and index futures are generated in a purely data-based process.”

Exploiting growth opportunities

As Lechner points out, the origins of the Fintech 2.0 company Catana Capital hail from two directions: technology and the need for change in what is still a very traditional asset management climate. “Many asset managers assume that the use of Big Data could help improve investment decisions and returns. But although Big Data and Artificial Intelligence are a huge market with very big growth prospects, there are still practically no investment strategies at the moment that are implemented on the basis of an evaluation of Big Data information and the findings derived from Artificial Intelligence,” the expert notes. Catana Capital GmbH took this as an inducement to develop a new kind of asset management concept based on such analyses in combination with a rigorous risk management. “Two founders of Catana Capital have been working for almost ten years now on financial market forecasting using large quantities of data. We are collaborating in these activities with Stockpulse GmbH in Bonn, which acts as a research and development partner for Catana,” informs Lechner.

Frankfurt offers attractive conditions

Catana Capital GmbH has chosen Frankfurt am Main as its headquarters. “The Frankfurt financial centre offers attractive working and living conditions. At the same time, it also boasts an excellent infrastructure and enables a close integration with traditional suppliers,” as Lechner explains the reasons behind the decision. He is also convinced that the current developments in the wake of the Brexit will further enhance the status of the financial centre. In his view, additional advantages are provided by the various funding programmes at the city or state level as well as the existence of an active and constantly evolving FinTech community with ideal networking opportunities.

According to Lechner, young start-ups have particular potential when their product or service is really completely new or when it is better and/or cheaper than similar products. A large market and customer demand should exist at the same time, he adds. “It’s also decisive that the team has a complementary line-up. Apart from team strength in entrepreneurial aspects, a certain mental toughness is additionally important so as not to lose sight of one’s positive belief in the success of the company during any temporary phases of defeat or failure and to further pursue one’s goals with courage and spirit,” is the final piece of advice Lechner would like to share.