Competition among the cities of Europe has been intense to attract jobs from the ‘City’ (financial district) of London after Britain leaves the EU. But London’s economy is on track to outpace Frankfurt, Paris and the others despite the European battle to claw at the City’s supremacy. The UK capital’s GDP is forecast to grow at a rate of 2.3 per cent annually between 2017 and 2021, ahead of Paris’ 1.6 per cent and Frankfurt’s 1.5 per cent, according to an Oxford Economics report.
The study has emerged at a time when both Paris and Frankfurt are battling hard to soak up some of London’s financial sector dominance with the two cities, as well as Dublin and Luxembourg, hoping to lure thousands of jobs as a result of Brexit. More than 20 financial services firms have committed to expanding their operations in those cities.
Paris Europlace, the body which promotes the city’s financial services offering, claims to have nailed down more than 2,300 job commitments so far, and is aiming for 20,000 in the longer-term. However, its current tally has been disputed by EU city rivals. Frankfurt has emerged as the biggest financial services winner from Brexit so far, and is expecting to claim up to 10,000 jobs in the longer term. Morgan Stanley, Citigroup and four Japanese banks have said in recent weeks they will be setting up operations in the German city.
Nine banks have now chosen Frankfurt as the main beneficiary of Brexit-enforced movements, according to Frankfurt Main Finance (FMF), a lobby group which promotes the city as a financial hub. FMF Managing Director Hubertus Vath counts Standard Chartered, JP Morgan and Goldman Sachs as victories for Frankfurt. “We -have seen now numerous decisions and we expect even more decisions towards Frankfurt,” he said.
StanChart said in May that it was looking to set up an EU subsidiary in Frankfurt, while statements from executives at JP Morgan and Goldman suggest Frankfurt is likely to be their new hub of choice. Japanese banks Nomura, Daiwa and Sumitomo Mitsui are also planning on increasing their presence in Frankfurt as a result of Brexit.
In addition, Lloyds Bank is considering bulking up its broker-dealer business in Frankfurt so that it can continue to service EU clients. This expansion would be in addition to a new EU base in Berlin and would create a small number of jobs, likely to be in double figures. Dublin and Luxembourg are currently seen as the next biggest winners from Brexit in financial services. The Irish capital, which is forecast by Oxford Economics to grow at a faster pace than London in the coming years, at 2.7 per cent, has won commitments from 15 companies, ahead of Luxembourg’s 11.
Decisions to move jobs and operations have, in general, been made so that firms can continue to service EU-based clients when the UK leaves the EU in March 2019. Last week another threat to the City emerged when it was revealed that EU officials are considering imposing strict new rules on banks at the heart of EU government borrowing. These would require banks to move significant operations to within the bloc, similar to rules in the US which require primary dealers in US Treasuries to base their operations domestically.
The proposed move was slammed in London’s financial district (City). Anthony Belchambers, chairman of the advisory council of the Legatum Financial Services Forum, said: “However we address the systemic risk concerns of the EU institutions over a post-Brexit UK, the nationalistic drivers of those same institutions will continue unabated — and they have the power to deliver. The EU wants to scalp the City and lose the dependency — and we should not underestimate their determination to achieve this.”
London Member of European Parliament (MEP), Syed Kamall said: “Some banks exiting the primary dealing business will result in higher borrowing costs for some EU governments. Fewer primary dealers could also lead to a concentration of risk, something we’ve all been trying to avoid since the last financial crisis.”
A City of London Corporation spokeswoman stressed the district’s “unparalleled” expertise in this field and warned against the measures. She said: “Any locational policies could have significant cost implications for the customer, and so it is important that politics doesn’t overshadow the business argument for remaining in London.”