No New London

"Banker Stampede on Frankfurt"

Following Britain's EU exit referendum, hopes were nourished in Berlin and the German financial sector that this could lead to a major stampede of bank relocations from London to Frankfurt. "Frankfurt is expecting a banker stampede out of London," it was reported. "Large movement" will "take place beginning in the second half of 2017."[1] "Stormy times" lie ahead for the city of London. For example, it was alleged that the US Goldman Sachs investment bank will cut the size of its London staff in half, down to 3,000. Switzerland's UBS was preparing to move at least 1,000 employees to the continent.[2] It was alleged that the Deutsche Bank would probably pull out 4,000 employees from Great Britain. Estimates were propagated claiming that a five-digit number of bankers were preparing to move from the Thames to the Main. According to reports, London could conceivably lose up to 70,000, of its approximately 358,000 financial employees (2014 figures), to other countries, in the intermediate term. Commentators discussed the question of whether Frankfurt "would become the new London."[3] The question shows what ambitious hopes were publicly being associated with Britain's EU exit. London alternates with New York for first and second place as global financial centers. Though Frankfurt has been able to advance to tenth place, it still lags insurmountably far behind the British metropolis.[4]

No Exodus

Until now, those ambitious hopes have not nearly materialized. The Deutsche Bank, for example, has now made its plans more concrete: "we will not relocate a large number of employees from London to continental Europe," declared Deutsche Bank board member, Sylvie Matherat.[5] Though it is "evident that the sales teams must have their headquarters in the European Union," that will be "not only in Frankfurt." For example, the Italian sales team will move to Milan, the Spanish, to Madrid. The main booking center will move to Frankfurt. However, this decision had been taken "independently of the Brexit" - under pressure of the European Central Bank (ECB). Only several hundred of the approximately 7.000 employees - rather than the 4,000, temporarily in speculation - will be relocated to the continent. UBS has reacted similarly: the world's largest asset manager will make Frankfurt "the hub of its EU business," however, "only a three-digit number of employees will be resettled from London to the European mainland," it was reported.[6] Also in this case, the exodus of bankers will not materialize.

Fewer than Expected

This impression has been confirmed by a survey carried out by the Reuters News Agency in August and September. Reuters polled 134 of the largest and internationally most significant banks, insurance companies, asset managers and other financial institutions. According to the survey, unlike the thousands predicted, only 630 financial jobs, so far, have left Great Britain for the continent. The HSBC, for example, which has publicly announced its intention to relocate up to 1,000 employees to Paris, has not resettled a single employee from the British to the French capital. The same applies to the Royal Bank of Scotland, which had made known its intention of relocating 150 jobs from London to Amsterdam. Goldman Sachs, in fact, has opened a subsidiary in Frankfurt, but it has only engaged 100 employees. JPMorgan has restricted to "a few dozen," the number of employees asked to relocate, rather than the previously announced 4,000.[7] It is quite likely that the number of relocated bank jobs may appreciably rise in the near future, according to Reuters. Experts, however, now expect a relocation of only around 5,800 bank jobs to the continent, even if there is a "hard" Brexit - considered in the financial sector to be the worst possible scenario. If, on the other hand, the outcome proves favorable to the banks, there will be even fewer relocations to the continent than expected.

Finance Center Frankfurt

Berlin now seeks to give momentum to the anticipated - but absent - bank relocations. At the beginning of September, Chancellor Angela Merkel reiterated that she would support Frankfurt and the state of Hesse "in creating an attractive framework within the financial center Germany."[8] To woo credit institutions, a relaxation of employment protection for top earners in the banking sector should be included in the measures. However, Berlin has suffered serious setbacks. For example, the European Banking Authority (EBA) will move to Paris, which gives the French capital an advantage for courting the resettlement of credit institutions. Yet financial circles in Frankfurt remain optimistic. According to a study carried out in September by Helaba, 25 of the "Brexit banks," that would have to relocate from London to the continent, had chosen Frankfurt - significantly more than Paris, Luxembourg, Dublin or Amsterdam. It is expected that over the next few years, 8,000 new jobs could be created in Frankfurt's financial sector. This would raise the number of jobs in the financial sector from the current 63,200, to only 65,000 - however with numerous lay-offs currently facing German banks.[9] The Helaba predictions differ greatly from those of Reuters.

Risky Game

Insiders believe the efforts to deprive London's financial center of as much business as possible, is due to an EU failure. As was reported by the Bank of England on Tuesday, Brussels has hardly taken precautions to protect cross-border financial transactions in the case of a "hard" Brexit. London has already achieved "significant progress" in this question, however cannot exclude significant risks, if the EU does not also become active. For example, this threatens derivatives worth £41 trillion (approx. €46 trillion) announced the Bank of England. The City of London accuses the EU of endangering "financial stability." Financial circles are pointing out that this risk could compel financial institutions to resettle the business sectors in question from London to the continent. A prominent example is the London Clearing House (LCH) Clearnet, which is currently doing much of the euro clearance transactions, but which may be forced to have its EU-based members to shift their contracts to the EU-27 bloc.[10] Frankfurt on the Main avowedly has a very keen interest in taking over as much of the euro clearing as possible.

[1] Frankfurt rechnet mit einem Banker-Ansturm aus London. spiegel.de 17.10.2016.

[2] Katharina Slodczyk: Stürmische Zeiten für die Londoner City. handelsblatt.com 19.01.2017.

[3] Nach dem Brexit-Votum: Wird Frankfurt das neue London? merkur.de 27.06.2016.

[4] Finanzplatz Frankfurt steigt auf. Frankfurter Allgemeine Zeitung 13.09.2018.

[5] Deutsche relativiert "Brexit"-Folgen. Frankfurter Allgemeine Zeitung 10.09.2018.

[6] Banken stellen sich auf harten Brexit ein. Frankfurter Allgemeine Zeitung 18.09.2018.

[7] Andrew MacAskill, Simon Jessop, Carolyn Cohn: With six months to go before Brexit, 630 finance jobs have left - Reuters survey. uk.reuters.com 26.09.2018.

[8] "Tun alles für einen attraktiven Finanzplatz". faz.net 04.09.2018.

[9] Helaba Research: Financial Centre of Frankfurt. Brexit Banks are Packing their Bags. Frankfurt, September 2018.

[10] Huw Jones, William Schomberg: Bank of England tells EU to move now to avoid hard Brexit hit to markets. uk.reuters.com 09.10.2018.