Lloyd Blankfein is not alone in his affection to Frankfurt

The German financial hub it tiny relative to London and lacks the city’s cultural buzz. Yet mounting evidence suggests that it will still turn into one of the biggest beneficiaries of Brexit. Much to the chagrin of its ordinary citizens, and of some anglo-saxon bankers already enjoying Frankfurt’s high quality of living.

Believe it or not, but there are anglo-saxon bankers who are deeply in love with Frankfurt. I met one a few days ago, and he was raving about my the town I have been living in since early September.

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In London I only heard mockery and scorn. Frankfurt was tarred as too boring, sleepy, completely unglamorous. Nowhere could match London’s unique financial centre, many argued. Why would you want to leave London and live there, they asked? Since the city is more than ten times smaller than London, doesn’t it feel like being sent off to a desert outpost?

The other day, I came across a British banker making a slightly different point. “Frankfurt is like a small jewel,” he told me. “I never want to work anywhere else.”

No, it was not Lloyd Blankfein, the Goldman Sachs CEO. “Just left Frankfurt,” Blankfein tweeted recently. “Great meetings, great weather, really enjoyed it. Good, because I’ll be spending a lot more time there. #Brexit”.

The message between the lines is pretty obvious: Blankfein puts more pressure on Britain’s prime minister Theresa May as she kicked off the next round of Brexit talks at the recent European summit. Goldman Sachs and other banks want the British government to secure a commitment from the EU for a transition period after the UK leaves the bloc in spring 2019.

Never mind his intention, Blankfein praises Frankfurt in one of his rare tweets. And he is not alone. The British banker who thinks Frankfurt is like a small jewel moved from London a few years ago. And yes, he was not looking forward to the move, he admits. But bit by bit he learned to appreciate the German financial centre because of its size, the surrounding area with great hiking trails, lots of nature, and the quality of housing. “What made me change my mind about Frankfurt were colleagues from London visiting and being completely astonished about the size of the flat I could afford here.” Frankfurt is probably one of the cheaper Brexit option for bankers who have to flee from London. According to property broker Savills the annual cost of renting an apartment and the expense for office space per-employee adds up to just under 30,000 Euros in the German city. That’s less than half that of Paris. And Paris is already cheaper than London.

The German city has emerged as one of the big winners in the fight for job that will be relocated inside the EU because of Britain’s exit from the trading bloc. Goldman Sachs plans to move a substantial number of positions according to sources familiar with the subject – as well as Deutsche Bank, US competitors such as Citi and Morgan Stanley and Japanese lenders like Daiwa and Nomura.

London could lose up to 75,000 financial services jobs according the financial consultancy Oliver Wyman. As many as 10,000 of those might relocate to Germany’s banking capital, according to lobby group Frankfurt Main Finance – a number people in London doubt very much. Even Frankfurt’s mayor Peter Feldmann did not seem convinced when he gave an interview to the German newspaper “Bild” a few weeks ago. There are only vague pledges from the banking sector to move people to Frankfurt, he said, it’s nothing to get excited about.

From somebody who is the mayor of a city which is likely to benefit from a big economic boost you expect a bit more enthusiasm. But when talking about the number of expected bankers he deliberately framed it like this and played the numbers down, people close to him told me. Otherwise he would risk provoking a huge anti bank campaign from ordinary people. Many not-so-well off citizens are already having a hard time finding affordable housing in Frankfurt.

So far there are more than 60 000 banking jobs in Frankfurt, adding 10 000 over a number of years will not turn Frankfurt into the new London. It will only become “little London”. Ordinary Frankfurters still fear this kind of development. And London bankers play down the issue and stress whenever they get the opportunity: “London will stay a significant financial centre and can easily cope with small losses.”

There is still a huge psychological hurdle to move to Frankfurt, that’s for sure – a hurdle only time will be able to overcome. And at the end the number of banking jobs Brexit added to Frankfurt might well be higher than anticipated.

Banks will move jobs very slowly and of course they will only resettle people who are willing to do this. Many will hire locally for vacant positions as far as possible. But if regulators play it intelligently and the banks will fill the CEO posts of their new entities with clever and ambitious people, the units will grow automatically.

According to regulatory guidelines, lenders serving EU clients will need to have a substantial business on the continent post Brexit. This means the entity has to be independent of London and has to be able to manage its own risks without the support of other parts of the banks. Only in the first couple of years a certain amount of outsourcing might be allowed.

That’s pretty clever from a regulator’s point of view. It lowers the hurdle for the bank to set up a new entity in the EU. But over time it will be necessary to relocate more and more functions. The CEO of the new unit will not want to be the CEO of just a small appendix. He will want his business to shine. Automatically more jobs are going to be moves to the new EU hub. Banks will still remain big in London compared to Germany. But reality is biting and the EU offices will soon be getting an influx of staff since the UK does not make any progress on Brexit negotiations.

The banker who fell in love with Frankfurt is not really thrilled about this outlook: “The roads will be more crowded, there will be more traffic, more delays, more similarity to London.” Therefore he rather keeps his mouth shut when talking to colleagues in London about his new home. “It’s better for Frankfurt when it does not look too attractive.”

 

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