All being well, this June will see Frankfurt’s Deutsche Bank Park host World Club Dome, one of Europe’s largest electronic dance music festivals.
Organisers promise to deliver ‘four days of full madness’ to revellers heading to the city, which is more fully known as Frankfurt am Main and nicknamed ‘Bankfurt’ in a nod to its status as Germany’s financial capital and ‘Mainhattan’ because of its skyscrapers.
The festival is one of the more surprising parts of the marketing arsenal for Frankfurt, which has been trying to win financial services jobs from London in the wake of the UK’s 2016 vote to leave the European Union (EU).
The city was out the blocks the very morning that the referendum result was announced with ‘Welcome to Frankfurt’ messaging. There duly followed a host of coverage about the city ‘wooing’ London bankers and colourful reportage highlighting what the city could offer new arrivals:
“We identified three key things that would happen in a hard or hard-ish Brexit,” says Hubertus Väth, managing director of promotional body Frankfurt Main Finance, during a videocall with #DisruptionBanking to reflect on the past four-and-a-half years.
“The European Banking Authority would have to relocate from London [Frankfurt lost out to Paris]; ‘passporting’ rights would fall away – ‘equivalence’ is only a poor substitute, covering significantly fewer areas; and we believe interest-rate derivative clearing, when it’s euro-denominated, will move away from London.”
Frankfurt saw the potential for 10,000 jobs moving to the city. So, where are we now?
By mid-2020, Väth says that Frankfurt had seen about 3,000 jobs created because of Brexit (as distinct from jobs relocating from London because of Brexit), with about 1,000 more in the pipeline that have largely yet to materialise due to Covid (“relocation in these times is not easy but those 1,000 further jobs will happen for sure”).
Cornelius Welp, a journalist for business news title WirtschaftsWoche in Frankfurt, observes that a lot of the city’s new jobs have been filled by Germans or Germans relocating from London, rather than Brits relocating. Like Väth, he points out that assessing the situation has been complicated by the fact most people are working from home due to Covid and the related trend towards permanent hybrid working.
“Regulatory affairs, legal affairs – they were the first functions we saw setting up [in Frankfurt], mainly recruited locally,” says Väth, looking back to the earlier part of the 2016-2020 period. “Now the risk-takers, traders and so on are more impacted – the rainmaking bankers. Of the 3,000, most were bankers. Of the 1,000 in transition, basically all would be bankers.”
It is, of course, way too early to judge where the Brexit dust (jobs) will finally settle – a point made earlier this month by Andrew Bailey. The Bank of England governor said that the UK had lost between 5,000 and 7,000 financial services jobs in total so far as a result of Brexit (fewer than many predicted), but “it doesn’t tell us what it might be eventually”.
Coronavirus continues to cast a cloak of uncertainty over everything (one London-based corporate financier quipped to #DisruptionBanking last week that the overall financial impact of Covid-19 already makes many Brexit-related sums look like a ‘rounding error’).
But despite Frankfurt’s job-creation numbers being – so far – fewer than half the amount foreseen, Väth believes his city will ultimately come out on top when judged against other Brexit-buoyed European financial capitals such as Paris, Dublin and Amsterdam (FMF already self-declared Frankfurt the ‘biggest winner’ last June.)
“First, we have had more than 60 financial institutions that applied to expand or set up in Frankfurt,” he says. “More than 30 of these decided to make Frankfurt their new EU hub. Even more significant is that four out of six biggest USA banks and four of six biggest Japanese banks made those decisions.”
Global banking giants showing Frankfurt some love have included Goldman Sachs and JPMorgan. This tweet from the former’s Lloyd Blankfein was an absolute pearler:
As far as Germany’s homegrown banking heroes are concerned, Deutsche Bank (DB) had envisaged about 4,000 jobs moving from London to Frankfurt and other EU locations back in 2017. #DisruptionBanking understands that – so far, at least – only around 300 of DB’s London roles have moved to Frankfurt, home to its global HQ.
But what about capital? More so than people, it has mainly been financial assets that have been re-assigned to Frankfurt, WirtschaftsWoche’s Welp points out. As the Brexit negotiations ebbed and flowed, banks faced the challenge of working out how – structurally – they would need to change. Inevitably, DB was among those whose plans hit the headlines
In November, the Bundesbank tallied things up: overall, banks have shifted ‘balance sheet items’ of €278bn to Germany and wanted to increase this amount to €675bn by the start of this year, Handelsblatt reported. Finance title Börsen-Zeitung cites ‘supervisors’ as estimating that capital flight could total up to €1 trillion.
Brexit may (finally) be a ‘done deal’ in headline terms but for the financial world – largely absent from the agreement – there is still plenty to sort out. The issue of equivalence will continue to keep the Brexit show very much on the road, with Mairead McGuinness, the EU’s financial services commissioner, saying only last week that the EU doesn’t have a fixed timeline for reaching a decision on financial services.
With the Deutsche Börse located in Frankfurt, the clearing market is one to watch. “20 per cent of euro-denominated interest-rate clearing has moved from London to Frankfurt – that’s a big chunk but it could, and is likely to be, significantly more,” says Väth.
Beyond the EU-UK discussions on equivalence, banks continue to contend with a moving feast of non-explicitly-Brexit-related regulatory activity. As always, there are new laws being devised in Germany (“I expect major [German] legislation on tokenisation of securities trading – Germany will be at the forefront of that,” predicts Väth); by the European institutions, for example Capital Markets Union (“If we’re not getting our act together on this now, when will we?”); and indeed in the UK, which is – of course – unwilling to let high-multiplier international banking jobs go without a fight.
At the UK end – but clearly relevant – is a consultation launched this month by the Bank of England’s Prudential Regulation Authority on ‘branch and subsidiary supervision’ for international banks (a follow-up to a 2018 document).
London was back on the front-foot last week, trumpeting research showing the EU’s erstwhile financial capital has still ‘got it’:
“London had huge economies of scale in finance, helping it pull jobs from the Continent. Now the momentum has gone, at least in some part, in reverse,” says Väth. “The EU-27 is going to seek and find a few new centres: there’s not a clear single candidate that will succeed London, not even Frankfurt. It will very likely be a small number, but more than one. And they will come out significantly more specialised: Dublin, Luxembourg, Amsterdam, Paris and Frankfurt.”
WirtschaftsWoche’s Welp considers Frankfurt’s ability to attract Brexit jobs through a broader lens. “I think a question of growing importance is less where more jobs will move away from London to, but in which cities and countries new jobs in the evolving banking world will be created,” he says. “For example, if Google wanted to move into banking, four years ago London would have been their natural main location. Is that less so now? Where will ‘green finance’ jobs be created? Finance is a shifting industry.”
By Ian Hall
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