The German city of Frankfurt is pitching itself as the most attractive destination for financial institutions following the UK’s vote to leave the European Union, as fears about the role of the City of London as Europe’s financial hub continue to grow.
According to a report on financial news site This is Money, Hubertus Vaeth, the managing director of Frankfurt Main Finance — a group that promotes the German city as a financial centre — has been trying to drum up attention for Frankfurt and pitch it as the obvious location for any banks or financial firms looking to move jobs out of London following Britain’s Brexit vote.
“We want to send the message loud and clear: ‘Welcome to Frankfurt. How can we help you?'” Vaeth said, adding that “The welcome banner is hung and Frankfurt’s doors are wide open.”
Now that Britain is leaving the European Union, or at least will be in the next few years, it is expected that many big financial institutions and banks will move thousands of jobs, and — in the case of American banks — possibly their European headquarters away from London and onto continental Europe. It seems to be a straight tussle between Paris and Frankfurt, with Frankfurt pitching hard to be the winner.
JP Morgan has already said several times it will consider shifting jobs out of the UK following the Brexit vote, with CEO Jamie Dimon saying that “The worst-case scenario is we would have to move some thousands of employees to other branches in the euro zone.” Goldman Sachs has also warned on job losses in the UK, with Richard Gnodde, the co-head of the Investment Banking Division of Goldman Sachs saying at a conference last week that “every outcome is possible,” when it comes to moving staff out of Britain.
The big issue around London’s continued role as Europe’s biggest financial centre is the so-called “passporting” system. Banks based in the UK can sell services freely across the EU under a “passporting” system, considered the most significant feature of the EU single market for financial firms. But that is now in doubt after Britons voted to leave the bloc.
“German, Swiss and US banks are most likely to move and it is relatively clear that trading activities will shift to Frankfurt,” Vaeth said
The city is already home to the German stock exchange, the European Central Bank, Germany’s central bank, the Bundesbank, and the headquarters of both Deutsche Bank and Commerzbank, the country’s two biggest lenders, so the pitch to attract other big firms makes sense.
Fears about the forex markets
One of the biggest fears surrounding the UK’s financial sector right now is that London could lose its place as the global hub of foreign exchange trading if and when the UK eventually leaves the EU. Part of this fear centres around London’s ability to be a centre for euro clearing.
London is at the heart of the global foreign exchange markets with more than $1 trillion (£747 billion) of trades taking place in the city every day, but that volume could be about to substantially drop now that Britain has voted to leave the EU.
Speaking in Brussels last week, French president Francois Hollande argued that following the Brexit vote, the City will no longer be able to clear euro-denominated trades, a key role of the Square Mile in the European currency markets.
“The City, which thanks to the EU was able to handle clearing operations for the eurozone, will not be able to do them,” he said, according to a Financial Times report. “It can serve as an example for those who seek the end of Europe . . . It can serve as a lesson.”
Hollande’s view is one backed up by Germany’s financial regulator, which has also said that London will no longer be the center of euro-denominated trading. The European Central Bank has wanted to stop British operations from clearing euros for many years, leading to a fierce court battle over the issue in 2015. However now that Britain is preparing to leave the EU, all bets are off.
Moving euro clearing to Frankfurt is one option on the table, with Deutsche Boerse’s chief executive pitching the exchange’s merger with the London Stock Exchange as a way of achieving that goal, according to a report from Bloomberg.
Frankfurt isn’t the only German city to try and attract businesses currently based in the UK to the country. Earlier this week, the Free Democratic Party, a German political party, drove a billboard covered van around London trying to tempt startups based in the capital to move to Germany’s tech centre, Berlin. “Dear start-ups, Keep calm and move to Berlin,” the van’s hoardings read.
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