Clad in sleek limestone, Deutsche Bank’s 10-story corporate edifice on Great Winchester Street is only a stroll from the Bank of England and the London Stock Exchange, the two powerhouses of Europe’s main financial center. Nearby, some 250 other banks have their global, European or local headquarters. Inside the German bank’s building: a cavernous lobby, three vast trading floors and desk space for hundreds of bankers and staff.
Deutsche’s edifice is a symbol of power, perhaps, but not of permanence. One year after Britain voted to leave the European Union, a question mark hangs over Deutsche Bank’s future in London. The prospect of doing business in a UK outside the EU’s single market has forced a rethink of its location strategy. In a message to staff in June, CEO John Cryan declared that in a post-Brexit world, the “vast majority” of its assets would be booked out of its home base in Frankfurt. Almost half of the bank’s 7,000 London workforce could be lost to the City.
Is this the vanguard of a Frankfurt-bound “Brexodus”? Quite possibly. With the terms of Britain’s departure from the EU mired in uncertainty, many of London’s biggest players are looking to set up new hubs elsewhere in Europe. This summer, a flurry of announcements saw the home of the European Central Bank (ECB) emerge as the favored destination, trumping Paris, Amsterdam and Dublin. Morgan Stanley says it’s seeking a banking license from the German authorities. Citigroup, too, announced plans to beef up its Frankfurt operations. In a single week in June, three Japanese banks — Sumitomo Mitsui, Daiwa Securities and Nomura — said they would open new offices in Frankfurt. Goldman Sachs, too, is looking for space in the German city amid reports that it could move 1,000 jobs out of London.
For now, the numbers are still small. Most banks say they are only making contingency plans, and that much of their business will stay in London, with perhaps just a few hundred posts moving elsewhere. But what starts as a trickle could end as a flood. The London Stock Exchange warns of 230,000 lost jobs in a worst-case scenario. And prudent bankers say they must prepare for all possible outcomes. Says Cryan: “The worst is always likely to be worse than people imagine.”
What worries the bankers most is the fast-approaching Brexit deadline. Britain must leave the EU in March 2019, but substantive talks on the country’s future trading relationship with the bloc have yet to begin. A host of questions are nowhere near an answer. Will all those Britain-based banks be allowed to keep the “passporting” arrangements that currently allow them to do business in any EU country with only a UK banking license? If not, will the government be able to strike a deal that avoids the need to seek a new license from each of the 27 EU countries? And how will leaving the single market, with its insistence on the free movement of people, affect the banks’ ability to hire the best talent from across the bloc?
Even greater fears center on the political wiles of the EU and the ECB. What if regulators choose, for example, to exclude London from the massively valuable business of clearing Euro-denominated transactions? Already, there are signs that London’s huge asset-management sector — worth more than that of France, Germany and Italy combined — could be at risk, with new guidance from regulators that could limit the handling of the business outside the EU after Brexit.
With so much at stake, establishing an alternative base in Frankfurt looks like common sense. It’s home not only to the ECB, but also to the BaFin, one of the few national regulators outside the UK that is seen as capable of handling the banks’ complex derivatives business.
What’s more, France and Germany are keen to see Frankfurt as the new home of the European Banking Authority, now based in London, and as the financial capital of an ever-closer eurozone. Frankfurt’s own city marketing agency, Frankfurt Main Finance, reckons that the number of new banking jobs created as a result of Brexit could reach 10,000 within five years.
That said, it’s easy enough to find British skeptics who claim the banks are exaggerating their fears to put pressure on the government. The skeptics remember the late 1990s, when the bankers warned they’d quit Britain if the country didn’t join the euro, a threat repeated when government tightened the regulatory screws after the financial crisis of 2007–08. In both instances, no such flight ensued.
In the end, say London’s champions, the capital’s old strengths will keep the banks in Britain. What other European city, after all, can offer such a deep pool of English-speaking talent? And what sensible bank would trade the UK’s relaxed labor laws for the stricter regimes of Germany or France? As for the idea that Europe is more banker-friendly, remember how Brussels championed the idea of a bonus cap for bankers.
British boosters also scoff at Frankfurt’s pretensions to the status of a global hub. The British consultancy Z/Yen, which ranks the world’s financial centers according to size and attractiveness, put London at the top of its 2017 list. Frankfurt ranked a distant 23rd, just after Shenzhen, China. Besides, Frankfurt is German-speaking and short on metropolitan pizzazz; these are serious drawbacks when it comes to attracting international highfliers.
But the brave talk can’t disguise real anxieties. Financial recruitment agencies report a downturn in London hirings as the mood turns jumpy and the big deadline nears. In a gesture of confidence in the city, Deutsche Bank this summer committed itself to a new London headquarters after the lease on its present building expires in 2023. But with so much still in doubt, it’s hard to say how many desks it will end up needing.
This article first appeared in the Fall 2017 issue of Handelsblatt Global Magazine. To contact the author: email@example.com Follow this link to order your print or digital issue of Handelsblatt Global Magazine.