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Never waste a good crisis

EU and UK are still in negotiation mode. In absence of an extension of the transition period, a no-deal Brexit has once again become a plausible scenario. The advice “hope for the best and prepare for the worst” is as valid as ever in this saga.

We advise financial institution to not plan based on equivalence. Even in the best of cases, equivalence doesn’t cover all relevant areas. What’s more, neither the very rational of the Brexit – taking back control – nor the way negotiations are going, point to equivalence as a solution.

Market participants acted accordingly. The loss of passporting rights will lead to a shift of roughly 50 percent of EU business on UK based bank balance sheets to the continent. We have seen bookings move into Frankfurt of about €300 billion so far. We expect another €100 billion before the end of the year and we know of another €400 billion ready to move.

Will all that lead to more inefficiencies? Not necessarily. Fragmentation may, but does not necessarily, lead to higher costs. Notto forget that costs occur not only on banks profit and loss accounts, but eventually also in state-budgets. Given the impact on financial stability, standing on your own two feet is better than standing on one, especially if that one is beyond your control.

It was a key project of the G20 under the stewardship of Japan fighting global fragmentation of financial markets and rightly so. At the very same time Japan continued on its endeavour in bringing the Yen clearing back to Tokyo, at least to a sufficient degree.

Take Eurex as an example: We are nearing 20 percent of Euro denominated interest rates swaps, were clearing moved from London to Frankfurt, and growing. This was achieved with costs and spreads on par for market participants. Social risks could be reduced and at the same time costs for market participants been avoided. If it sounds like the holy grail, it probably is. Let’s remember the scaremongering numbers of up to €100 billion additional costs European banks would have to bear once clearing would have to move. So clearly there can be a good fragmentation, leading to a healthy competition and more financial stability – at no additional costs for the industry. Fragmentation can, but doesn’t have to be bad and may even be good.

The train of shifting business is in motion. In a world ever more polarized and global powers increasingly self serving, Europe can ill afford to loose control of it’s financial ecosystem, given the geopolitically relevance of the industry. Naturally the UK will always be invited to be the EU’s preferred partner.

The corona virus created a push towards digitalization and solidarity in Europe, at a spead, that was surprising even for optimists.

The corona virus created a push towards digitalization and solidarity in Europe, at a spead, that was surprising even for optimists. As a result, we need to ask ourselves: Do we witness the early days of a new European safe asset class?

And if so, could it accelerate the creation of the common EU capital market. Europe’s ability to move under stress has repeatedly been underestimated. I’m bullish on Europe living up to its challenges, not wasting this crisis.

 

Source: Hubertus Väth, Managing Director of Frankfurt Main Finance in Views – The EUROFI Magazine (Berlin, September 2020)

Image: Pete Linforth/Pixabay

Survey: Arab Banks should make decisions now to handle Brexit

The vast majority of banks from Middle East countries have not yet decided whether business units will be relocated from Great Britain to the European Union after Brexit or whether representative offices will be established in the EU in parallel. This is the result of a survey conducted by the Union of Arab Banks (UAB) among its members, in cooperation with Frankfurt Main Finance.

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Cut-off date 31 December – The end of the Brexit transition period is approaching

Since the Brexit referendum in June 2016, many Britons are leaving the United Kingdom, emigrating to mainland Europe and applying for citizenship in an EU country. This is shown by figures from the European Statistics Office Eurostat and the Organisation for Economic Cooperation and Development (OECD).

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AFME calls for further progress on the future EU-UK relationship for financial services

With less than six months remaining before the end of the transition period, the Association for Financial Markets in Europe (AFME) urges the EU and UK to make progress on the negotiations and put in place equivalence decisions and  the necessary arrangements to ensure a stable long-term relationship for financial services and minimise potential disruption.

In a paper setting out priorities for the future EU-UK relationship, AFME highlights that continuing uncertainty on Brexit, combined with the adverse macroeconomic situation arising from COVID-19, has the potential to aggravate existing risks at the end of the transition period and significantly increase disruption to clients and markets.

AFME is calling on the EU and UK to:

  • ensure that equivalence determinations are in place well in advance of the end of the transition period;
  • establish arrangements for close supervisory cooperation to ensure effective and efficient oversight of firms and cross-border activities; and
  • establish a formalised framework for regulatory cooperation to build trust and ensure as much transparency and certainty as possible over the processes for the assessment and withdrawal of equivalence.

Find the full paper at: AFME paper: The future EU-UK relationship


The Association for Financial Markets in Europe (AFME) is the voice of all Europe’s wholesale financial markets, providing expertise across a broad range of regulatory and capital markets issues.

 

Photo: TheDigitalArtist/Pixabay

Four years after the Brexit referendum – Frankfurt is biggest winner

Tomorrow marks the fourth anniversary of the Brexit referendum. The United Kingdom is no longer a member of the European Union, and the dispute over the conditions of withdrawal still drags on and could even be extended. Read more

German-British Chamber of Industry & Commerce Webinars

The German-British Chamber of Industry and Commerce invites you to a webinar series and online discussions.

It starts with the topic “UK – The Corona-crisis and the impacts on Brexit” on friday, May 15th 2020, 8.00am UK time. Read more

Asahi Shimbun interviewed Hubertus Väth

Kazuo Teranishi, correspondent for Asahi Shimbun, one of the oldest and largest national daily newspaper in Japan, interviewed Hubertus Väth during his visit in Tokyo in March 2020, which took part in the FinCity Global Forum (hosted by FinCity.Tokyo).

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Germany after Brexit: Now there is a need for doers – Guest contribution by Hubertus Väth in “die bank”

The countdown was projected on to the side of Prime Minister Boris Johnson’s office and residence at 10 Downing Street until Brexit’s completion on 31 January 2020, midnight Brussels time. Negotiations on future relations are underway. However, regulatory questions for the financial sector remain largely unresolved. London will – also in the well-understood interests of the EU – remain the leading financial centre in Europe for a long time to come. This does not mean, however, that the UK’s withdrawal will be without consequences. The cake will be newly cut, and Germany should use this opportunity to establish Frankfurt as the leading financial centre in the EU, all the while striving for constructive cooperation with London and Paris.

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CFS survey: German financial industry now clearly expecting a “no-deal” Brexit

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.”

 

 

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].