Posts

CFS Index on the rise

Financial industry reports: Strong growth in revenue and earnings / Fewer jobs cut at financial institutions

The CFS Index, which measures the business climate of the German financial sector on a quarterly basis, rises by 4.3 points to 114.2 points. This positive development can primarily be attributed to high revenue and earnings growth in the financial industry in the fourth quarter of 2019. The investment volume among the financial institutions has also risen, while job cuts are lower than in the previous quarter. This positive news is offset by slightly slower growth in the investment volume and employee numbers among the service providers.

“Despite all gloomy prophecies the quarterly financial results of sector firms, both banks and financial service firms, are pointing northwards. This is even more true for numbers expected in the subsequent quarter” Professor Jan Pieter Krahnen, Director of the Center for Financial Studies, interprets the results.

The future international importance of the Financial Centre Germany continues to consolidate, as in previous quarters. With a change of -1.7 points, this indicator is now at a moderate level of 117.0 points. The financial institutions and service providers are unanimous in this assessment.

Dr. Lutz Raettig, President of Frankfurt Main Finance e.V., explains: “The Financial Centre Frankfurt will gain in importance due to the Brexit. This development is not self-fulfilling, but rather requires the continuous effort of all parties involved. The further consolidation of the index should be a clear signal and incentive for all responsible persons to continue and intensify their commitment to the financial centre.”

Financial industry revenues and earnings rise

The surveyed financial institutions and service providers surpassed their expected growth in revenues/business volume in the final quarter of 2019. The corresponding sub-index for the financial institutions rises by 5.9 points to 120.6 points, which is 7.9 points higher than one year ago. For the service providers, the sub-index climbs as much as 9.7 points. It is now 1.5 points higher than one year ago, at 122.4 points. The financial institutions are anticipating a decline in the current quarter, whereas the service providers expect to see a slight further increase.

The earnings of both groups also developed very positively in the fourth quarter of 2019. The corresponding sub-index for the financial institutions gains 7.9 points to reach a level of 111.4 points. The huge growth recorded by the service providers substantially exceeds even their positive outlook from the prior quarter. The sub-index for this group rises by 14.4 points to 122.8 points. The financial institutions and service providers are expecting the growth to weaken again in the current quarter.

Growth in investment volume is positive among financial institutions / Slight decline among service providers

The growth in investment volume in product and process innovations among the financial institutions climbs 2.9 points to 108.6 points in the fourth quarter of 2019, yet still remains 3.4 points below the level of one year ago. By contrast, the sub-index for the service providers sees a slight decline of -1.5 points to 112.6 points, which is the same level as one year ago. The financial industry has an optimistic outlook for investment in the first quarter of 2020.

Fewer job cuts at financial institutions

Job cuts at the financial institutions, which have been ongoing for some time, were less severe than expected in the prior quarter. The employee numbers sub-index rises accordingly by 4.1 points to 94.5 points, which is 6 points higher than one year ago. The financial institutions expect to further curtail their job cuts in the current quarter. The service providers are hiring fewer new employees than in the previous quarters, though the numbers remain positive. The corresponding sub-index falls by -2.6 points to 106.1 points. Compared to last year, this is 5.4 points lower, meaning fewer people are being hired. The service providers are anticipating a clearly more positive development in the current quarter.

 

 

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: “Outlook for the year 2020”

German financial industry expects more widespread adoption of negative interest rates for savers – Calls for stronger incentives for share ownership

Low interest rates and share ownership 

A CFS survey of financial industry executives shows that over 90% of respondents do not expect the ECB to change its monetary policy this year. Therefore, most financial experts (again over 90%) assume that the trend of banks introducing negative interest rates or deposit fees for savers will continue. Given the profound consequences for private pensions, a clear majority of those surveyed (approx. 87%) advocate stronger incentives for share ownership for the purpose of retirement planning.

“The proportion of people who own stocks or stock funds has increased in recent years. Nevertheless, only around one in six people currently invest in stocks,” says Professor Volker Brühl, Managing Director of the Center for Financial Studies. “The financial transaction tax proposed by Finance Minister Olaf Scholz would therefore be counterproductive.”

The respondents are split on the question of whether the government should adopt measures to protect retail savers against negative interest rates. This course of action is supported by 51% of the financial industry executives.

Hubertus Väth, Managing Director of Frankfurt Main Finance e.V., emphasizes that “the lack of an investment culture in Germany has been criticized for decades. If there is anything positive to be gained from negative interest rates from the investors’ point of view, it is that equity investment must now become the pillar of private pension provisions in order to avoid capital losses.”

Growth prospects and balancing the budget

Furthermore, the CFS survey makes it clear that the majority of the financial industry is not expecting a slump in economic growth this year, despite continuing uncertainties over trade disputes and geopolitical risks. Approximately 51% of those surveyed regard the federal government’s forecast of approximately 0.6% GDP growth in Germany as realistic.

The issue of balancing the federal budget is also provoking considerable debate in the financial industry. A majority of 54% are in favour of temporarily running a deficit to boost public investment or provide tax relief. 44% of respondents are opposed to this.

“The survey results show that there is no clear consensus in the financial sector regarding either the economic outlook or the need to shore up the economy with fiscal policy measures,” explains Professor Brühl.

Hubertus Väth, Managing Director of Frankfurt Main Finance e.V., adds that “the opinion reflects the delicate situation of the very open German economy. On one hand, a record foreign trade surplus, on the other a pandemic, whose course endangers value chains, which are already stressed by Brexit and the yet to be completely resolved trade conflict between the United States of America and China.”

 

 

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 Index shows a slight overall decline

The CFS Index, which measures the business climate of the German financial sector on a quarterly basis, falls by 0.4 points to 112.4 points. This slight overall decline must be examined in its individual components. The revenue growth of financial institutions developed positively in the first quarter. By contrast, the service providers report a sharp decline here, although their expectations for the second quarter remain positive. The earnings growth of the financial sector declined in the first quarter, but here too there is continued optimism for the current quarter. Growth in the investment volume of financial institutions remains constant, with service providers reporting an increase. As expected, the financial institutions cut jobs in the first quarter and expect to make further reductions in the second quarter. The service providers, on the other hand, report a slight increase in employee growth.

“The combination of stable investments and employee numbers with rising revenues and earnings reveals a slight overall positive trend in productivity in the financial sector,” Professor Jan Pieter Krahnen, Director of the Center for Financial Studies, interprets the results.

The future international importance of the Financial Centre Germany is consolidating at a high level. The corresponding value falls by 3.6 points to 123.4 points. This decline is attributable to the assessment of the financial institutions. The relevant sub-index for this group is 14.8 points down on the previous quarter, at 113.2 points. Conversely, the assessment of the service providers is very positive. Their sub-index value rises by 7.7 points to 133.6 points.

Dr. Lutz Raettig, President of Frankfurt Main Finance e.V. emphasizes: “The prevailing opinion is that the Financial Centre Frankfurt will continue to grow in international importance. The slight decline of the index is just a logical reaction to the delay of Brexit.”

Revenue growth of financial institutions positive / Strong decline in revenue growth of service providers, although expectations remain positive

There are contrasting trends in the growth of revenues/business volume between the financial institutions and the service providers in the first quarter. The corresponding sub-index for the financial institutions rises by 2.3 points to 115.0 points, with further moderate growth anticipated. The revenues of the service providers are down 9.7 points on the previous quarter, at 111.2 points, although their expectations for the current quarter remain very positive.

Revenue growth declines, although optimism persists for the current quarter

Contrary to forecasts from the previous quarter, earnings growth declined in the first quarter. The financial institutions in particular find themselves in a weaker phase of growth, with the subindex falling by 7.5 points to 101.0 points, yet they expect the trend to turn positive in the current quarter. At 107.2 points, the sub-index of the service providers is 4.3 points below its level in the first quarter. As with their revenues, the service providers remain optimistic about their earnings performance in the current quarter.

Investment volume of financial institutions stable / Service providers report increase

The growth in investment volume in product and process innovations among the financial institutions is almost unchanged in the first quarter, at a moderate level of 112.0 points (-0.1 points). A slight decline in growth is expected in the second quarter. By contrast, the service providers report an increase in their investment volume in the first quarter. The sub-index rises by 2.6 points to 114.8 points. This level is expected to be maintained in the current quarter.

Increased job cuts at financial institutions / Slight upturn in employee growth among service providers

In line with expectations in previous quarters, the financial institutions are now cutting jobs. The employee numbers sub-index for the financial institutions fell accordingly by 4.3 points to 96.2 points. Further job cuts are expected in the second quarter. Growth in employee numbers among the service providers improved slightly. The corresponding sub-index rose by 0.9 points and is now at a healthy level of 112.4 points. The service providers anticipate further growth in the current quarter.

 

CFS survey on Green Finance

In light of the growing debate over climate change and its consequences, sustainability considerations are also taking on greater importance in the financial sector. Under the headings “Sustainable Finance” or “Green Finance”, numerous initiatives have been launched to address the financial sector’s contribution to attaining climate goals. A recent survey by the Center for Financial Studies showed that the majority of the German financial industry (64%) believes that the financial sector could play a supporting role in achieving climate goals. Indeed, 17% of respondents would even attribute a major role to the financial sector. By contrast, 18% of those surveyed do not regard the financial sector as relevant to the climate goals.

“I see great opportunities for the Financial Centre Frankfurt to profit from the growing trend towards sustainable financial products as well as from trading in emission rights,” Professor Volker Brühl, Managing Director of the Center for Financial Studies, interprets the survey results.

Demand for sustainable investment products (e.g. green bonds) is on the rise. The majority of the financial industry (70%) believes that sustainability will be an important factor in how investors decide to allocate capital in the future. By contrast, 26% of respondents believe that sustainability considerations will not influence investment decisions.

On the issue of how much government influence should be exerted, the German financial industry is fairly unanimous (70%) that no government incentives such as tax relief should be offered for green bonds, nor should regulatory advantages such as lower capital requirements be granted to banks that do little or no business with companies harming the environment.

“Banking regulation should not be overloaded with climate policy goals. Firstly, the financial sector is already subject to a dense network of regulations. Secondly, looser capital requirements for environmentally friendly financing could lead to false incentives that jeopardize financial stability,” Professor Brühl adds.

Regarding the question of whether a company’s environmental impacts should be factored into banks’ corporate lending decisions (e.g. through ratings), opinions in the financial industry are rather divided. While 52% of respondents support this approach, 45% are opposed to it.

Hubertus Väth, Managing Director of Frankfurt Main Finance e.V., emphasizes: “The results clearly show that the time is ripe and sustainable products are in demand. In addition, they show that further government incentives are not necessary. This is an encouraging sign that today, sustainable products are already competitive.”

CFS Index Standardfragen

CFS Index falls slightly

The CFS Index, which measures the business climate of the German financial sector on a quarterly basis, falls by 1.2 points to 112.8 points in the fourth quarter of 2018. The slight downturn can be attributed to weaker growth in earnings along with relatively constant revenue growth in the financial industry as a whole. In addition, the service providers report significantly weaker growth in investment volume, in excess of the decline predicted in the previous quarter, and a lower number of employees are being hired. At the financial institutions, the investment volume rises slightly and, contrary to their expectations, employee numbers remain constant. However, job cuts are still expected in the current quarter.

“Are service providers more adaptable than banks? A year-on-year comparison points to this conclusion. Capital expenditure is rising among service providers and the number of employees is falling, whereas the situation is reversed at the banks: investments are on the decline, while the number of employees is stable. In light of the deteriorating earnings outlook, this raises the urgent question for banks as to how they will manage the necessary adjustment of capacities,” 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 positively

Notwithstanding the uncertainties surrounding the Brexit agreement, the financial industry continues to rate the future international importance of the Financial Centre Germany very positively. The corresponding sub-index shows a slight increase of 1.0 points to 127 points.

Dr. Lutz Raettig, President of Frankfurt Main Finance e.V., emphasizes: “For quite some time, the prevailing and well-founded conviction in the finance sector is that the Financial Centre Frankfurt will increase in international importance. The Index’s recent, slight increase most likely reflects the UK’s withdrawal from the EU, which draws nearer and becomes increasingly tangible with each passing day.”

Revenue growth in the financial sector largely unchanged / Earnings growth declines

Growth in revenues/business volume among the financial institutions is almost unchanged in the fourth quarter of 2018. The corresponding sub-index rises by 0.1 points to 112.7 points. A slight increase is forecast for the current quarter. The revenues of the service providers, at 120.9 points, are 2.8 points lower than in the previous quarter. The current level is expected to be maintained.

Earnings growth is on the decline among both groups. The sub-index for the financial institutions falls by 3.1 points to 108.5 points, yet still remains at a solid level. As previously anticipated, the service providers record a more significant decline of 4.8 points to 111.5 points. Both groups expect to see a slight increase in the current quarter.

Investment volume of financial institutions remains constant / Sharper decline than expected among service providers

The growth in investment volume in product and process innovations at the financial institutions reveals a slight increase of 1.3 points and remains at a moderate level of 112.1 points. No significant change is expected in the first quarter of 2019. By contrast, the service providers report a considerable decline in the fourth quarter, in excess of the decline predicted in the previous quarter. The sub-index falls accordingly by 6.7 points to 112.2 points. The service providers expect to correct this decline again in the current quarter.

Despite expected job cuts, financial institutions keep number of employees constant / Service providers hire fewer employees

The employee numbers sub-index for the financial institutions rises by 0.4 points and, as in the prior quarter, signals a neutral sentiment with 100.5 points. As previously expected, the growth in personnel among the service providers continues to slow. Despite falling by 6.4 points, the corresponding sub-index remains at a good level of 111.5 points. For the current quarter, the service providers expect to be able to maintain this level of employee growth. The financial institutions, on the other hand, continue to forecast 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 Index Sonderfragen

CFS survey: Majority of German financial sector expecting “no-deal Brexit”

The United Kingdom’s legally binding withdrawal from the EU is due to take place on 29 March 2019. Due to disagreements over the nature of a withdrawal agreement, there is the potential for a disorderly “no-deal” Brexit.

Aside from the potential consequences of a no-deal Brexit, a recent survey by the Center for Financial Studies revealed that the majority of the German financial industry (66% of respondents) feels that the EU should not make any further concessions, even though almost half of respondents (46%) are expecting a no-deal Brexit. 52%, on the other hand, expect the outcome of the dispute to be less severe.

While 51% of respondents do not believe that financial institutions in Germany are prepared for all scenarios, including a no-deal Brexit, 46% consider the German financial industry to be adequately prepared.

“Certain parts of the financial sector have placed too much confidence in an orderly Brexit. This could lead to market turbulence if indeed no deal is reached,” Professor Volker Brühl, Managing Director of the Center for Financial Studies, interprets the survey results.

Since the British rejected the EU’s proposal for a withdrawal agreement in January, concerns over the implications of a no-deal Brexit have grown considerably. With the consequences of Brexit being so difficult to predict, the German financial sector is in firm agreement (83%) that the Financial Centre Germany would derive less benefit from a no-deal Brexit than from an orderly Brexit.

“It is not only the financial sector that requires reliable frameworks. A disorderly Brexit will lead to great uncertainty on the markets, hinder investment decisions and cost many jobs,” Professor Brühl adds.

In case of a no-deal Brexit, London will most likely be unable to maintain its position as the most important European financial centre in the medium to long term. 57% of respondents agree on this point.

Hubertus Väth, Managing Director of Frankfurt Main Finance e.V., emphasizes: “The importance of the Financial Centre Frankfurt has increased due to Brexit. The distribution of business units will be realigned throughout Europe’s financial centres, competition will be tough, but without London it will also not work in the future either.”

 

 

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-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 Index rises slightly

  • Financial institutions report strong decline in earnings growth, despite continued positive revenue growth
  • Service provider investment volume reaches second-highest level since survey began in 2007

The CFS Index, which measures the business climate of the German financial sector on a quarterly basis, rises by 1.8 points to a strong level of 118.5 points in the second quarter of 2018. The slight increase can be attributed to an all-round positive development in revenues, earnings, investment and employee numbers among the service providers. The financial institutions, on the other hand, report a clear decline in earnings growth, despite continued positive revenue growth. A further decline is expected in the current quarter, and this also applies to revenue growth. In addition, the financial institutions scaled back jobs temporarily in the second quarter. However, they are more optimistic in this regard for the current quarter. The investment volume of the financial industry remains stable at a high level.

“In the banking sector the increased competitive pressure, especially with regard to innovation, is evident from the survey results: earnings are on the decline, while investments have increased and many new employees have been hired,” Professor Jan Pieter Krahnen, Director of the Center for Financial Studies, interprets the results.

The future international importance of the Financial Centre Germany continues to be rated very positively

With a slight decrease of 0.5 points to 131.3 points, the business location sub-index, which measures the future international importance of the Financial Centre Germany, remains almost unchanged at a very high level, which has been maintained since the Brexit vote in 2016.

“The importance of the Financial Centre Frankfurt will continue to grow – a progress the financial industry has no doubt about as is shown by the indicator. The degree to which Frankfurt’s importance will grow depends on how those responsible will make use of the opportunities arising for the Financial Centre,” comments Hubertus Väth, Managing Director of Frankfurt Main Finance e.V. on the survey’s results.

Financial industry revenues at a high level / Earnings growth declines slightly among financial institutions but remains positive among service providers

Revenue growth among the surveyed financial institutions remains almost unchanged, edging up 0.2 points to a strong level of 118.8 points, which represents a year-on-year increase of 12.4 points. The corresponding sub-index for the service providers sees a significant rise of 7.6 points to 128.9 points, which is 4.4 points higher than one year ago. A further increase is anticipated. The financial institutions, by contrast, are expecting a fairly considerable decline in revenue growth in the current quarter.

The earnings growth of the two groups reveals contrasting trends. The financial institutions record a 9.3 point decrease to 101.8 points, which is the lowest level of this sub-index for two years. They are expecting a similarly substantial decline in the current quarter. The service providers, on the other hand, record a 5.4 point increase to 127.6 points, reaching the second-highest level since 2007. They remain optimistic regarding the current quarter.

Service provider investment volume reaches second-highest level since survey began in 2007

The growth in investment volume in product and process innovations among the service providers rises by 9.8 points to 122.4 points, reaching its second-highest level since the survey began in 2007. However, it is expected to decrease again in the current quarter. The corresponding sub-index for the financial institutions also reveals a slight increase of 1.3 points to 116.1 points. This group expects the positive trend to continue in the current quarter.

New brief period of job cuts at financial institutions

Following the prolonged period of job cuts in recent quarters, the financial institutions reported that their employee numbers rose again for the first time in the first quarter of 2018. This trend is now temporarily interrupted, as the employee numbers sub-index falls by 6.2 points to 96.4 points. However, the financial institutions are more optimistic regarding the current quarter. The trend among the service providers is positive; their level of recruitment is on the rise. The sub-index rises by 3.3 points to 126.3 points. Slightly lower growth in employee numbers is expected in the current quarter.

 

 

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 Index_April 2018_Centre for Financial Studies

CFS Index unable to maintain record level from the previous quarter

Growth in revenues and earnings falls, though levels remain high / Financial institutions hiring again after sustained period of job cuts / Investment volume stable

The CFS Index, which measures the business climate of the German financial sector on a quarterly basis, falls by 3.4 points in the first quarter of 2018, though it remains at a healthy level of 116.7 points. The decline can be attributed to weaker performance in revenues/business volume and to lower profitability, among the service providers more than the financial institutions. This development therefore confirms the service providers’ expectation from the previous quarter that the record growth from the fourth quarter of 2017 could not be maintained. On the other hand, employee numbers in the financial industry are on an upward trend. The financial institutions are hiring again for the first time after a prolonged period of job cuts. The investment volume of the financial industry remains stable at a high level.

„The overall index is closely mirroring the downward macroeconomic trend in Germany. The employee numbers reveal a contrasting positive trend. For the first time in a considerable period the optimists are in the majority at the banks. This has already been the case among the service providers for some time. Taken together, the survey participants indicate positive long-term expectations for the financial industry“, Professor Jan Pieter Krahnen, Director of the Center for Financial Studies, interprets the results.

The future international importance of the Financial Centre Germany continues to be rated very positively, though no longer at its peak level.

With a decline of 4.1 points to 131.8 points, the business location sub-index, which measures the future international importance of the Financial Centre Germany, is now just under the extremely high level of previous quarters.

„The importance of the financial centre will grow, which is understood by market players, albeit to a lesser extent. The competition has intensified after the Brexit referendum. Defending our leading position requires greater efforts“, Hubertus Väth, Managing Director of Frankfurt Main Finance e.V., interprets the survey results.

After an extremely strong previous quarter, revenues and earnings take a downturn, yet remain at a high level

Following a particularly strong fourth quarter of 2017, the surveyed financial institutions and service providers are unable to maintain their huge growth in revenues/business volume. The corresponding sub-index for the financial institutions falls by 4.1 points to 118.6 points; the service providers show a larger decline of 16.2 points to 121.3 points. As for the current quarter, the financial institutions are expecting another slight decrease, while the service providers are anticipating a small rise in revenue growth.

The earnings growth of both groups is declining, yet it also remains at a high level. The corresponding sub-index for the financial institutions falls by 2.8 points to 111.1 points, though an increase is forecast for the current quarter. The service providers record a stronger decline of 11.4 points to 122.2 points, and they are expecting the downward trend to continue in the current quarter.

Investment volume remains almost unchanged at a high level

The growth in investment volume in product and process innovations among the financial institutions shows a slight rise of 1.0 points to 114.8 points, and a further increase is expected this quarter. The corresponding sub-index for the service providers takes a slight downturn of 1.3 points to 112.6 points. However, the service providers are anticipating a slight increase in the current quarter.

Employee numbers on the rise in the financial sector / Financial institutions hiring again after a sustained period of job cuts

After the prolonged period of job cuts in recent quarters, the financial institutes report that employee numbers are now rising again for the first time. The employee numbers sub-index climbs by 4.0 points to 102.6 points. However, the expectation is that this level will not quite be maintained in the current quarter. The trend is also positive among the service providers, where more new employees are being hired. The sub-index rises by 6.2 points to 123.0 points. Slightly weaker growth in employee numbers is forecast for this quarter.

CFS survey: German financial industry expects trade dispute between the US and China to escalate further

The US has decided to impose punitive tariffs on steel and aluminium imports, principally from China. For its part, China is showing little willingness to give in and make concessions. According to a recent survey by the Center for Financial Studies, the majority of the German financial industry expects the trade dispute between the two countries to escalate further. 75% of the respondents agree on this point.

The EU and other countries are not directly affected by the trade dispute for the time being. However, US punitive tariffs on steel and aluminium imports from China could lead to Chinese surpluses in these products, which would then be pushed onto other markets, including the EU. The financial sector is divided on the question of whether the EU will also have to increase its tariffs on imports from China sooner or later. While 46% consider this development quite probable, 45% consider it unlikely and 5% consider it very unlikely.
Interpreting the results, Professor Volker Brühl, Managing Director of the Center for Financial Studies, comments: “The survey highlights the high level of uncertainty among market participants about the future development of the trade dispute and its possible consequences for Europe. I therefore assume that the volatility on the European stock markets will increase.”

The EU is also preparing for difficult negotiations with the US, where the current tariff structure of the EU as a whole is expected to be on the agenda. The German financial industry is largely in agreement (83%) that the EU must make concessions in future negotiations with the US (e.g. by reducing import tariffs on other US products) in order to rule out punitive US tariffs on steel and aluminium imports from the EU.

“I believe that the trade policy of the Trump administration has the potential to significantly change the architecture of the European customs union, since Europe will have to make considerable concessions to the US,” Brühl continued. “Ultimately, it is inevitable that transatlantic trade relations between the US and the EU will have to be redesigned.”

In light of current developments, 55% of respondents believe that negotiations on a Transatlantic Trade and Investment Partnership (TTIP) should be resumed in order to form a new basis for trade between the US and the EU. 39%, on the other hand, are against a resumption of TTIP negotiations.

Dr. Lutz Raettig, President of Frankfurt Main Finance e.V., emphasises: “Trade wars are poison for the economy. The uncertainties and heightened risks lead to reluctance.”