Handelsblatt Banking Summit

Hard Brexit won't be so soft for Germany

Finance Minister Olaf Scholz empty-handed, like the UK after March 29. Source: Handelsblatt/Thomas Hauss

Although Brexit offers obvious benefits for Frankfurt specifically and Germany generally, German financial executives warned at Handelsblatt’s banking summit this week that a hard Brexit on March 29 could offer more risk than reward.

“The federal government is doing all it can to get an agreement, but we can’t say that the outcome is clear,” Finance Minister Olaf Scholz said during the event. “Some people will just have to adjust their thinking to the possibility of a hard Brexit.”

Mr. Scholz also complained that previous administrations hadn’t done enough to cement Germany’s financial position in the EU – the European Banking Authority, for example, is moving to Paris – and pledged to do better.

Preparing for the UK’s exit without treaties similar to the country’s current position within the EU requires extensive planning and adjustment, much of which is already underway, attendees said. As many as 2,000 jobs have already been created in Frankfurt by Brexit. By the end of 2021, that number should increase by 8,000 more jobs, said Hubertus Väth of the Frankfurt Main Finance location initiative.

More time, please

Although they’ve had years to prepare, the unreliability of political moves has left major financial institutions clamoring for more time to prepare for a hard Brexit. “One could then prepare more meticulously,” said Wolfgang Fink, head of Goldman’s German business. The lender has already relocated 500 employees to Frankfurt from London.

He says it’s small companies who will suffer the most. “Obviously, as a major organization, you can provide resources. For smaller organizations, however, what is taking place is already extreme.”

All in all, Mr. Fink believes people are thinking too small while preparing for a Brexit. “We should play an active role and develop Frankfurt as the financial center in the euro zone,” he said.

Felix Hufeld, head of German securities regulator BaFin, agrees that planning, rather than complaining, is the key to minimizing the damage from the UK’s exit. “Brexit is not a zero-sum game and will increase overall costs for everyone – and that is bad for Europe,” he said. “We shouldn’t waste time on the question of who benefits from it.”

New York, not Frankfurt

A hard Brexit, he said, would force regulators into a crisis scenario as they try to gauge which businesses have the right to operate within the EU or outside it in the newly separated UK. “We must not, cannot and do not want to be a repair shop for a failure to implement public policy,” he said. Still, he is confident the financial sector is steeling itself for the worst – more than 25 institutions have already applied to BaFin for a banking license.

“The biggest beneficiary of Brexit will be New York, not Frankfurt,” said Jörg Asmussen, who previously held a high position in Germany’s finance ministry. He is now head of Europe at the investment bank Lazard. “We will have a fragmented financial market. That’s not positive.”

Still, Mr. Asmussen isn’t without potential solutions, such as relocating clearing to Frankfurt. “We know that the provision of financial market infrastructure is becoming increasingly important in geopolitical issues. That is why I am always in favor of providing European infrastructure in all core areas,” he said. Deutsche Bank, Germany’s biggest bank, has already begun moving half of its euro-denominated clearing business to the city from London.

It’s a move supported by Theodor Weimer, the head of Deutsche Börse, which operates the Frankfurt stock exchange. “Politicians have realized how important it is for euro-clearing to move to Europe and they are supporting us very well,” he said, though, as Deutsche Börse operates its own clearing business, he may have ulterior motives.

Swiss banking giant UBS said Brexit as a whole will require it to transfer activities to Frankfurt and other European locations. “During this phase banks will have to adjust to a new reality. For UBS, this clearly means that there will be shifts – London was the center from which we operated a lot of EU business, especially investment banking,” UBS Chairman Axel Weber said.

Yasmin Osman is a financial editor with Handelsblatt’s banking team in Frankfurt. Andreas Kröner covers financial services for Handelsblatt in Frankfurt. Andrew Bulkeley is an editor in Berlin for Handelsblatt Global. To contact the authors: kroener@handelsblatt.comosman@handelsblatt.com, a.bulkeley@handelsblattgroup.com

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