As the UK careens towards Brexit, a growing list of European cities are battling it out to usurp The City of London as the continent’s next financial hub. Tempered by the uncertainty a potential ‘no deal’ brings, financial institutions are already charting their departure from the English capital.
What cities could replace London?
Potential suitors lining up to succeed London include Frankfurt, Paris, Dublin, Madrid, Amsterdam and Luxembourg. Amidst the scrum of cities jostling for their slice of the industry, governments are preparing themselves for the increased stress the influx of financial institutions will place on public infrastructure, from housing to schools.
Frankfurt is often identified as the primary beneficiary of Brexit - the city’s proximity to the European Central Bank, just one of the reasons for this train of thought. Home to over 150 international banks and a collection of national banks such as German Bundesbank, Frankfurt is already one of the world’s most influential financial centres, ranked 8th in the International Financial Centers Development Index.
According to a report by The Sheffield Political Economy Research Institute (SPERI) – in a discussion with industry experts, many believe ‘when you start pooling organisations in one place, you can realise different synergies and be more efficient…having the ECB and its regulatory functions in Frankfurt is advantageous because you can have a good relationship with your regulator because they’re close by. The ECB also attracts a talent pool and this adds to the weight of the financial centre’.
Major banks move large sums to Frankfurt
American firms Goldman Sachs and Morgan Stanley are being joined by Swiss bank UBS in collectively moving $280 billion worth in assets to Frankfurt from London. Credit Suisse is following the lead of UBS as it moves the smaller sum of $200 million dollars from its market division in London to Frankfurt. According to a survey compiled by commercial bank Helaba, these banks are among 25 financial institutions moving to the German city.
Michael Wutzke, editor at Skyline Atlas, a website that tracks Frankfurt’s real estate development, says his city’s location in the centre of Germany, at the crossroads of “all the major transportation routes,” makes it an automatic choice for foreign firms. 29 tower blocks are currently under construction, as premium architects look to plan luxury work and living spaces in the German city.
Paris is also proving to be an attractive proposition as French firms BNP Paribas, Crédit Agricole and Société Générale are collectively moving around 500 employees back to Paris from London. The aforementioned survey by Helaba’s indicates nine firms are set to move to the French capital.
London’s neighbour Dublin will also benefit from Brexit as more than 100 Britain based asset managers and funds have applied to the Irish Central Bank to authorise a move to the Irish capital. Barclays is one example as they look set to move $280 billion worth of assets to Dublin.
Madrid may prove popular for banks with ties to the Latin American market, and has seen Credit Suisse and Citi Bank move 50 and 150 jobs respectively, to the Span ish city.
London will keep its crown for now
In truth, there will be no singular winner in the pursuit to dethrone London as the centre of finance in Europe. Different financial centres are equipped to take on different business lines better than others. Luxembourg and Dublin will see an increase in asset managers, with the latter taking on a lot of back-office jobs. Trading platforms will continue to gather in Amsterdam, with Paris and Frankfurt sharing the front-office and trading jobs. The markets do not like uncertainty so banks will continue to go where they have operations built up already, availing of a pre-existing talent pool.
Despite the uncertainties associated with Brexit, London will remain the centre of finance in Europe for now, with Frankfurt the city most likely to benefit from the UK’s exit from the EU. Dublin should be the strongest competitor for Frankfurt, as many Brits are more comfortable with the language and the similar banking rules in Ireland.
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