The new UK government under Prime Minister Boris Johnson is preparing to leave the EU on 31 October, with no agreement in place. Now the majority of the German financial industry is also expecting a “no-deal” Brexit. This was shown in a recent survey by the Center for Financial Studies. Of those surveyed, 55% consider a disorderly Brexit to be probable, and 31% even see it as very probable. Only 11% are more optimistic in this regard.
The majority of respondents (63%) believe the German financial sector is sufficiently prepared for a “no-deal” Brexit, while 36% see a need for further measures.
“Considering how likely a ‘no deal’ Brexit has become, the survey results are rather worrying, as there is little time left for market participants to make adjustments,” Professor Volker Brühl, Managing Director of the Center for Financial Studies, interprets the survey results.
The EU has ruled out any renegotiation of the Brexit deal and should not offer any further compromises in the hope of avoiding a “no-deal” Brexit. This opinion is held by the majority (70%) of the German financial sector. Nonetheless, the respondents also agree (61%) that the financial markets have not yet fully anticipated a “no-deal” Brexit scenario and that market distortions may therefore occur.
“The survey indicates that the financial industry is prepared to accept the potential drawbacks of a ‘no deal’ Brexit if it means finally obtaining clarity about future framework conditions,” Professor Brühl adds.
There is also a broad consensus among respondents (88%) that if the UK leaves the EU in a disorderly fashion, more business activities and employees will be relocated to continental Europe.
Hubertus Väth, Managing Director of Frankfurt Main Finance e.V., highlights: “Should there be a Hard Brexit, which the majority of respondents assumes is the most likely scenario, it will be important for the Financial Centres in continental Europe to demonstrate their efficiency. If we succeed in cooperating across borders, Europe could emerge from the crisis even stronger.”
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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.
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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.
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