Brexit Spoils

Racing up the Rankings

Here’s how one London-based bank executive feels about Frankfurt am Main, Germany’s financial capital. “If I were about to be sent to Frankfurt, it would feel a bit like being shifted to an outpost in the desert,” he said with a pained smile, speaking on the sidelines of a recent banking conference.

But that desert outpost, which though bristling with skyscrapers still feels sleepy and provincial by comparison with the bustling British capital, is growing in importance by the day.

Britain’s exit from the European Union in 2019 poses a risk to London, still the world’s biggest financial center, because it will put banks under pressure to relocate to the continent to ensure they can keep on doing business in Europe.

Frankfurt has advanced to 11th place in a twice-yearly ranking of global financial centers compiled by British consultancy Z/Yen and released Monday. That’s up from 23rd place just six months ago.

Frankfurt still feels sleepy and provincial compared to London

The list measures the competitiveness of some 90 financial centers worldwide and is based on a survey of financial managers. They’re asked to assess criteria such as the availability of skilled employees, the quality of the infrastructure, the tax system and the access to international markets.

To be sure, London was able to widen its lead over runners-up New York and Hong Kong despite last year’s Brexit referendum. For now, London remains the world’s financial gateway to Europe because Britain is still a full member of the EU with unrestricted access to the single market. That’s one of London’s main selling points.

But the terms of Britain’s goodbye remain a source of growing uncertainty. If the divorce ends up as radical as many fear, British banks will lose their access to the single market and will no longer be able to sell financial products to customers on the Continent.

Corporate consultancy Oliver Wyman estimated that a so-called “hard Brexit” could cost Britain up to 75,000 jobs. The country’s financial industry employs more than 2 million people and together with related services accounts for some 12 percent of national GDP.

A hard Brexit could cost Britain up to 75,000 jobs, consultants say

Frankfurt and Dublin are being tipped as the two main favorites in the race for the spoils of Brexit. Financial sources said banks including Goldman Sachs, Morgan Stanley and Citigroup are planning to move operations from London to Frankfurt.

The Irish capital has advanced from 33rd to 30th place in the Z/Yen ranking. Barclays is said to be planning to expand its operations in Dublin, so that it can cater for EU clients from there.

“Overall assessments for the European centers continued to fluctuate as people speculate about which centers might benefit from London leaving the EU,” Mark Yeandle, associate director of London-based think tank Z/Yen and author of the FCI, said in the study. “Protectionism and barriers to international trade concern many – especially in the USA.”

President Donald Trump’s “America First” policy is seen as the main reason why New York has lost 24 points in the study, the biggest drop by a top financial center since the company launched the ranking 10 years ago.

“The most urgent and immediate priority ... is clarity on time-limited and legally-binding transitional arrangements.”

Miles Celic, boss of financial lobby group TheCityUK

The survey on which the most recent study is based was conducted in June. Since then, the tone of talks between British and EU Brexit negotiators has hardened. There’s no sign yet of progress on big sticking points, such as the amount of money Britain will have to transfer to the EU when it leaves. And issues such as the impact of Brexit on banks remain unresolved.

Miles Celic, chief executive of financial lobby group TheCityUK, said London needed to keep innovating to avoid complacency, and that banks must have clarity on the transitional arrangements for the period after March 2019, when Britain leaves the EU – presumably without completing negotiations on a new trade deal.

“The most urgent and immediate priority for the industry from the negotiations is clarity on time-limited and legally-binding transitional arrangements,” Mr. Celic said. He added that many firms have started to activate their contingency plans, and in the absence of progress, others will undoubtedly follow suit by the end of 2017.

 

Katharina Slodczyk is Handelsblatt’s London correspondent. David Crossland adapted this article for Handelsblatt Global. To contact the author: slodczyk@handelsblatt.com

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