WHU Master in Finance Students on the Future of Finance

Top masters students from the region’s business schools were invited to the Frankfurt Finance Summit. John Offermann and Xavier Hilderbrand, both Master in Finance students at the WHU – Otto Beisheim School of Management, reflect here on their impressions from the event.

The world of financial studies is full of theories and ideas. Rational economic actors, econometric methods and various pricing models form a standard diet for would be financial aficionados. The question echoing in business schools is how these ideas actually affect the world of finance, and then in turn, the real economy. Thus as students of the Master in Finance program at the WHU – Otto Beisheim School of Management, we greatly appreciated the opportunity to participate in the Frankfurt Finance Summit 2016 and see how financial theory affects practice.

Over the last six years, the Frankfurt Finance Summit has brought together leading stakeholders of the European financial industry to discuss contemporary issues in different parts of the industry. This year’s theme was On the Move and to a large extent revolved around the megatrend digitalization and its continued role in reshaping the financial sector. The summit is organized annually by Frankfurt Main Finance, an initiative that was established to actively promote Frankfurt am Main as one of Europe’s leading financial centers. Members of the organization include the State of Hesse, the City of Frankfurt and other prominent financial institutions in Europe. Lively and engaging speeches and dialogues, with exceptional speakers such as Wolfgang Schäuble, the German Minister of Finance, Carsten Kengeter, the CEO of Deutsche Börse, and Günther Oettinger, the European Commissioner of Digital Economy and Society, illuminated a select audience.

And what an audience: an inspiring blend of roughly 200 personalities from government, regulatory authorities, leading financial institutions and FinTech startups. Throughout the entire event, the atmosphere was pleasant and there were plenty of opportunities for networking and exchanging opinions. We very much enjoyed the chance to speak to different representatives of banks, insurance companies and foreign embassies and to hear their views on current issues facing the financial markets.

The summit began with an introduction by Dr. Lutz Raettig, Chairman of Frankfurt Main Finance, Wolfgang Marzin, CEO of Messe Frankfurt, and Tarek Al-Wazir, Hessian Minister of Economics, Energy, Transport, Urban and Regional Development. Drawing on Frankfurt’s history as a trading hub, each speaker accentuated the qualities that made Frankfurt one of the world’s most influential financial centers, whether that be the presence of institutions like the European Central Bank, or the State of Hesse’s strategic investments in the Messe and various FinTech incubators.

Notwithstanding the warm welcome, Tarek Al-Wazir made a stark warning to the audience: the financial sector is currently failing to support growth in the real economy. He called for financial institutions to better refine their services to support businesses all over Europe. The minister also underscored that a Brexit is not in the strategic interests of Frankfurt and Hesse, despite what would be an inevitable shift of financial clout from London to Frankfurt. This would be a recurring view from various speakers throughout the day.

Following the introduction, Carsten Kengeter took the stage. Having presided over his first Annual General Meeting the day before and on the cusp of a meeting with Wolfgang Schäuble the day after, Kengeter gave extensive insight into the ongoing merger between Deutsche Börse and the London Stock Exchange. In something of a concession to his critics, Kengeter appealed to the audience’s emotions through sound business logic. His case rests on the benefits that the deal would bring to the Deutsche Börse, the German financial community and European economy as a whole. For the Deutsche Börse, the deal will put an end to stagnant revenue and a sliding share of capital vis-à-vis muscular competitors outside the continent. For the financial markets, a united stock exchange company will better facilitate capital flows between London and Frankfurt, respectively the world’s largest financial center and the premier business gateway to Europe’s single largest economy, Germany. Ultimately, the real economy in Europe would benefit from more efficient capital allocation in consolidated rather than fragmented stock exchanges; a natural development of the European Union’s Capital Markets Union drive.

The summit then continued with the first panel discussion – a debate on financial regulation and its future in Europe. The panelists represented states, regulators and leading financial institutions. There was agreement on most overarching points. The panelists largely agreed that overregulation could threaten the industry and that the industry as a whole is better prepared for any future shocks than in 2008. This consensus broke down somewhat when discussing details; there was a considerable mix of views on further developments to the Basel regulations and the effects of new regulations on important retail financial products like mortgages. The panel agreed that future supervisory efforts should focus on enforcing proper conduct of financial professionals rather than dwelling on problems of the past. Towards the end of the discussion, Mr. Hufeld, President of the Federal Financial Supervisory Authority (BaFin) depicted the “three gorillas” facing the industry: low interest rates, FinTech and regulation.

The second part of the Summit 2016 resumed after participants had the chance to discuss the first speeches and debates over a delicious lunch. The second half revolved around FinTech opportunities. Günther Oettinger was the first to speak. He pointed out that digitalization is tremendously impacting the way people and businesses communicate today. He made clear that the European Commission is trying to foster “common standards in a coherent market” to enable technology companies to operate seamlessly in Europe.

The following interview with Gottfried Leibbrandt, CEO of SWIFT, and the second panel discussion were both moderated by Caroline Hyde, Correspondent at Bloomberg Television for European Business. The discussions dealt with FinTech and the question of to what extent entrepreneurial businesses in the financial technology space are disrupting established banks and insurance companies. The general consensus was that FinTechs are increasingly forcing more traditional players to rethink their business models but are not making them obsolete. Most said that FinTechs oftentimes are helping their bigger counterparties to incorporate innovations more quickly into their businesses.

The next keynote speaker was the Finance Minister of Germany, Dr. Wolfgang Schäuble. In a direct, pointed speech, the Minister focused on the implications of the United Kingdom’s Brexit referendum. Similar to Mr. Al-Wazir, Dr. Schäuble emphatically argued that any upside benefit for Frankfurt would be at the expense of the broader European financial industry and economy. Dr. Schäuble pointed out that access to the single European market comes at a cost and the more access a country has, the more it will have to take responsibility for it. Other topics in the speech and question and answer session included the ECB’s current policies, the relative achievements of financial regulators since the GFC and the merits of the Deutsche Börse LSE merger.

At the end of the summit, Mr. Diwakar Gupta from the Asian Development Bank spoke about how FinTech is helping underprivileged people in Kenya and India take advantage of banking services. By using biometric identification technology and inexpensive cellphones, more and more people are being enfranchised by the financial system. It is now possible for people in rural areas of developing countries to open up bank accounts and make mobile banking payments at reasonable prices.

Finally, we want to thank Frankfurt Main Finance for the great opportunity to be part of the Frankfurt Finance Summit 2016. The discussions were tremendously inspiring and we enjoyed the chance to listen and speak to so many brilliant presenters and participants. We highly recommend the Frankfurt Finance Summit to anybody who has the opportunity to be part of it. You won’t be disappointed!