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Abu Dhabi, UAEWednesday 19 September 2018

Frankfurt winning race for post-Brexit banking spoils

A number of major banks have revealed plans to relocate a chunk of their operations from Britain to the German city due to Brexit-related uncertainty

Frankfurt has already attracted Goldman Sachs and Morgan Stanley in Brexit's wake. Kai Pfaffenbach / Reuters
Frankfurt has already attracted Goldman Sachs and Morgan Stanley in Brexit's wake. Kai Pfaffenbach / Reuters

Frankfurt is emerging as the frontrunner in the battle for the post-Brexit spoils, as the German city lures banks and jobs out of London amid uncertainty over divorce talks.

After months of stalled negotiations in Brussels between Britain and the EU left London’s future shakier than ever, a growing number of banks are stepping up their contingency plans by leasing office space in other European cities.

While rival hubs have jostled to attract London’s bankers, Frankfurt – the city known by locals as Mainhattan, indicating its dreams of financial stardom – has established a clear edge over competitors such as Paris, Dublin and Amsterdam.

In one of the biggest wins for the German city, Goldman Sachs revealed last week that it is leasing 10,000 square metres of office space in a new Frankfurt skyscraper to boost its preparations for Brexit.

The Wall Street giant is taking the top eight floors of the Marienturm tower, a 37-story block which is currently under construction in the heart of the financial centre.

The new offices will have space for 1,000 staff, allowing Goldman Sachs to increase its number of employees in Germany fivefold. A spokesman said the expansion will provide the company “the space to execute on our Brexit contingency plan”.

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Rival US investment bank, Morgan Stanley, has also picked Frankfurt as its new trading headquarters inside the EU after Brexit. According to the Frankfurter Allgemeine Zeitung, it has secured 8,000 square metres of office space in the city’s new, 45-storey building, the Omniturm, which is also currently under development.

The move is expected to double the bank’s workforce in Frankfurt, which currently stands at 200. It is applying for a licence with the local German regulator that will allow it to continue trading across the EU after Britain leaves the bloc.

Citigroup is also set to bolster its Frankfurt operations as part of its Brexit contingency plans, in a move announced to employees by internal memo in July. Around 150 to 200 roles will be added in its Frankfurt office, which currently houses 350 staff.

“Frankfurt is our first choice for headquartering our EU broker-dealer based on the existing infrastructure, and the people and expertise we already have on the ground,” Jim Cowles, Citi’s Europe, Middle East and Africa chief, told his staff. According to Reuters, Citi will expand inside its current building, known as Welle, near Frankfurt’s opera house.

Banks including Standard Chartered, Japan's Daiwa and Sumitomo Mitsui Financial Group, as well as Woori Bank – one of South Korea’s largest lenders - have all confirmed plans for subsidiaries in Frankfurt.

Others, such as JP Morgan, will anchor their EU operations in a range of cities after Brexit, with staff spread across offices in Dublin, Frankfurt and Luxembourg.

It comes as banks become increasingly nervous about the prospect of a hard Brexit, which will see the UK lose access to the single market for financial services.

The fifth round of negotiations between Britain and the EU gets under way in Brussels this week. So far, the two sides have failed to see eye-to-eye on many of the key issues at stake – including the rights of EU citizens, and the so-called ‘divorce bill’ payable by the UK to Brussels – which increases the risk of the UK crashing out of the union without a deal.

It is this concern that has prompted many to seek a foothold in other EU member states such as Germany.

Top officials, from Germany's finance minister, Wolfgang Schaeuble to chancellor Angela Merkel, have courted banks since the Brexit vote. Ms Merkel claimed Frankfurt was “predestined” to host the European banking supervisor, which must move away from London after Brexit, because “we already have a proper centre”.

On the river Main, construction workers and cranes are busy adding floors to existing skyscrapers and building new office blocks in the heart of Frankfurt’s business district.

Estimates differ for the number of bankers set to flood into Frankfurt after Britain leaves the EU. A study by lobby group Frankfurt Main Finance in August suggested the region could gain as many as 100,000 jobs from Brexit over the next four years.

The report said the city could gain 10,000 new banking jobs and an extra 88,000 jobs in other sectors in Frankfurt and the surrounding Rhine-Main region.

Banks including Goldman Sachs have urged the UK government to negotiate a transitional deal with the EU as soon as possible, to reassure financial services firms and stop an exodus of jobs from London.

Britain's prime minister Theresa May has pledged to secure a two-year transition period after the UK leaves the bloc in March 2019. But a top Bank of England official last week said such a deal would probably need to be agreed by the end of the year to prevent banks moving abroad.

“If we get to Christmas and the negotiations have not reached any agreement on this topic, diminishing marginal returns will kick in,” said Sam Woods, the chief executive of the Prudential Regulation Authority. “Firms would start discounting the likelihood of a transition in the central case of their planning.”

Miles Celic, chairman of financial lobby group TheCityUK, echoed these concerns.

Speaking to The National, Mr Celic said: “While negotiators on both side have been talking about the importance of transitional arrangements, little progress has been made.

“We need the UK and the EU27 to agree a time-limited and legally-binding transition period that resembles the status quo as closely as possible and applies across all sectors of the economy.”

He added: “Many firms are already moving parts of their operations out of the UK and Europe. When they’ve gone, it's hard to see them coming back. Even if the UK and EU agree the best possible Brexit deal by 2019, without urgent clarity on transitional arrangements, business will assume the worst and act accordingly.

“Ultimately, this will be bad for customers, bad for businesses and bad for the British and European economies.”

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