Movement in the banking world – the Brexit and its repercussions

Negotiations have started on the withdrawal of the United Kingdom from the European Union. One important issue is whether the processing of euro-denominated securities transactions (“euro clearing”) will remain in London or take place on the continent in future. Many banks are getting ready to relocate their business to other cities.

 

Deutsche Bundesbank: first applications from banks affected by the Brexit

In June, Michel Barnier, the European Commission’s Chief Negotiator, and David Davis, the UK’s Secretary of State for Exiting the European Union, met for the first time in Brussels to negotiate the withdrawal of the UK from the EU. At the same time, deliberations are well underway within the banks about relocating to other European financial centres. According to the Deutsche Bundesbank, the first financial institutions affected by the UK’s withdrawal from the EU have applied for German bank licences. Andreas Dombret, Executive Board member of the Deutsche Bundesbank with responsibility, inter alia, for banking and financial supervision, spoke in an interview about “first applications”. Dombret also said that he has conducted “two dozen talks” with banks considering relocating to the European continent, but he doesn’t assume that every one of these discussions will end up in a move to Germany. “I expect most banks to make their relocation decisions by the middle of the year. But that doesn’t mean the banks will be publicising them,” he added.

 

Standard Chartered sets up the necessary infrastructure for bank licence in Germany

One of the first institutions to expand its business location in Frankfurt following the UK vote in favour of Brexit is the major British bank Standard Chartered. “We will now be establishing the necessary infrastructure on the basis of which we can apply for a bank licence in Germany,” the bank’s German head Heinz Hilger told the news agencies dpa and dpa-AFX. “Our plan is to have the operational issues settled by the end of 2018 at the latest.” Hilger explained that the decision for Frankfurt was taken because the bank in Germany, with its current level of around 100 employees, already has the largest presence in Europe after the London headquarters. “This is bound up with the fact that we operate the so-called euro clearing from Germany. This makes the location larger and more complex, and therefore more suitable for additional tasks and activities.” In addition, the proximity to the regulatory authorities, the city’s internationality and its airport are also among the key merits and advantages of the Main metropolis. Just how many employees will join the Frankfurt location depends on how hard the Brexit will turn out to be, he points out. “As a first step, we’re talking about a very limited number of employees coming to Frankfurt, maybe 20. Nobody can reliably predict at the moment how many people will ultimately be affected.”

Goldman Sachs: “We are starting to transfer resources to Frankfurt and other European cities”

Among the big banks that already have a German banking licence is the Goldman Sachs Group. Around 200 people currently work for the company in Frankfurt’s Trade Fair Tower compared to around 6,000 employees in the City of London. Since the Brexit is now considered a certainty, Goldman Sachs will at least be doubling the number of its employees working in Frankfurt, according to Richard Gnodde, Vice-Chairman of The Goldman Sachs Group, Inc. and CEO of Goldman Sachs International. “We are starting to transfer resources to Frankfurt and other European cities. Employees with customer contact are moving closer to their clients, whether in Milan, Madrid or a different city,” said Gnodde in an interview with the Sunday paper Frankfurter Allgemeine Sonntagszeitung (FAS). Since the entire Brexit process is unpredictable, he considers it important to have “appropriate emergency plans” up one’s sleeve. He also hopes and trusts that a transitional period will follow at the end of the negotiations so that the financial sector can adapt to the new situation. “In the interest of the stability of the financial system, it’s important that the banks don’t have to move parts of their business back and forth very quickly. They need the time to build up resources; the financial supervision also needs to adapt.” In the competition to be Europe’s future financial centre, Gnodde sees a number of European cities in the running, including Paris and Dublin. But Frankfurt has the edge at the moment.

Invesco: attractiveness is falling for Great Britain and rising for Germany from the sovereign fund standpoint

Sovereign wealth funds assess the UK withdrawal from the European Union as negative, which is why the nation is now considered less attractive for investments in the long run – that’s the result of the “Global Sovereign Asset Management Study 2017” from the investment company Invesco. In view of the uncertainty about the taxation of imports or access to the EU Single Market, those surveyed also questioned “the future of Great Britain as an ‘investment hub’ for Europe”. On the other hand, according to the study, the attractiveness of Germany as an investment destination for sovereigns has continuously grown since 2015. The findings are based on face-to-face interviews with 97 leading sovereign funds, state pension funds and central bank managers, with the assets of those sampled totalling around 12 trillion US Dollars.