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Frankfurt on 'probation' as Europe's new banking hub, city booster says

December 16th 2018

By Financial Post

Frankfurt has been on the receiving end of business that banks have been shifting from London to other European cities because of Brexit. Now, a group touting the German city as a financial hub is trying to ensure it hangs on to those gains.

“I look at it as a probation,” said Hubertus Vath, managing director of Frankfurt Main Finance, a public-private partnership between business and government.

“They gave us the benefit of the doubt, but they want to see whether it works out, so we better make it work out.”

Väth spoke to the Financial Post in the midst of British Prime Minister Theresa May’s decision to pull a scheduled Brexit-related vote on the separation agreement with the European Union. The uncertainty around Britain’s relationship with the EU has led banks and other financial institutions to try to prepare themselves for whatever results.

But they are not necessarily looking to leave London entirely — the city is expected to remain a major financial centre. Rather, they are trying to maintain a presence in the EU.

“Institutions must be prepared for March 2019 (the Brexit date) and, in addition to London, must at least have the legal capacity in place to conduct business at another location in the EU,” noted a September report by Frankfurt-based lender Helaba.

Frankfurt is one of the cities that firms have turned to to ensure their bases are covered.

Already, of the 37 or so banks and financial firms that have reportedly been working to ensure they have a presence in the EU post-Brexit, 30 have tapped Frankfurt for their EU headquarters, according to Vath’s group. Frankfurt Main Finance has also estimated that more than $1 trillion in financial assets could shift from London to the German city by next year.

Vath said he began honing Frankfurt’s pitch to employers even before the final Brexit vote had taken place, after seeing an ominous newspaper headline.

“I pushed us to to prepare,” said Vath, who was in Toronto for the recent Global Forum.

“Which meant we had a call centre up, we had a website up, we had a LinkedIn campaign, we had a Twitter campaign, and we had a very simple slogan, which said ‘Welcome to Frankfurt.’” 

The city’s case for itself, according to Vath, includes its infrastructure, the size of the German economy and competitive costs. The European Central Bank is headquartered in Frankfurt as well.

Frankfurt is now trying to make sure newcomers feel at home, with Vath noting that tax filings and regulatory discussions can be conducted in English. Some of the region’s new bankers were even invited to a soccer match last month between Eintracht Frankfurt and Marseille.

Other European cities have seen interest ahead of Brexit as well. Helaba’s report showed Frankfurt as the destination of choice for Swiss lender UBS Group AG, among others, but that those preferring Paris included HSBC Holdings plc, and those leaning toward Amsterdam included Royal Bank of Scotland.

“I don’t think it’s a good time to be in denial,” Vath said. “I think it’s a good time to face up to what’s going to happen.”

Canadian banks have had to make post-Brexit preparations, too. Toronto-Dominion Bank’s TD Securities announced it would expand operations in Ireland, saying it would help “respond to the changing business environment as a result of Brexit.”

A spokesperson for Royal Bank of Canada said they are in the process of setting up new regulated entities in France and Germany. However, RBC stressed it still has an “established” investment banking business based in London that it has been growing, “and we have no plans to dramatically change our approach.”

Even with a so-called “hard” Brexit, the number of employees that would likely need to be relocated would be small, RBC said, numbering in the “tens of employees, not hundreds or thousands.”