FINANCIAL CENTRE OF FRANKFURT: MAKING FURTHER HEADWAY ANNIVERSARY EDITION Research June 2016 FINANCIAL CENTRE OF FRANKFURT: MAKING FU RTHER HEADWAY Publisher: Helaba Landesbank Hessen-Thüringen Research Dr. Gertrud R. Traud, Chief Economist/Head of Research Editor: Dr. Stefan Mitropoulos MAIN TOWER Neue Mainzer Straße 52-58, 60311 Frankfurt am Main phone: +49 69/91 32-20 24, fax: +49 69/91 32-22 44 This publication was very carefully researched and prepared. However, it contains anal- yses and forecasts regarding current and future market conditions that are for informa- tional purposes only. The data is based on sources that we consider reliable, though we cannot assume any responsibility for the sources being accurate, complete, and up-to- date. All statements in this publication are for informational purposes. They must not be taken as an offer or recommendation for investment decisions. HELABA RESEARCH JUNE 2016 © HELABA 2 FINANCIAL CENTRE OF FRANKFURT: MAKING FU RTHER HEADWAY Editorial Dear readers, The financial sector is undergoing profound change in the midst of a transition phase and faces numerous challenges. The new reality of the banking industry is characterised by a shifting envi- ronment that is leading to enormous pressure for institutions to adapt: persistently low or negative interest rates, a growing tide of regulation and increasing competition as a result of the on-going process of digitalisation. This is not only forcing players in the financial sector to review and modify their business activities but is also a challenging time for a financial centre. For a long time now, it has been a key objective for Helaba Landesbank Hessen-Thüringen, as a universal bank with a strong regional focus anchored in Frankfurt, to actively support the continued development of Germany’s financial centre. We have been conducting detailed research for the last ten years on the financial centre of Frankfurt with alternating focal issues and we are involved in the Frankfurt Main Finance initiative. In our initial study in 2006 we took stock of the locations of the three largest financial centres in Europe. Since then, the financial centre of Frankfurt has made considerable headway. This study presents answers to the key question of where Frankfurt stands today in comparison to London and Paris. Overall, Germany’s financial centre has successfully held its own in these difficult times and has managed to position itself more effectively, especially in relation to its French counterpart. This is shown by the detailed analysis based on our core criteria. Thus, the relative importance of the three big financial sector locations is now clear: London before Frankfurt and Frankfurt before Paris. It is important for Frankfurt, in a context of the on-going tough competition between locations, to concentrate on its strengths and long-term factors for success. In the new reality of the banking sector, particular importance will be attached to expanding Frankfurt’s position as a fintech hub as well as reinforcing its intellectual infrastructure with regard to the financial centre’s capacity for innovation. HELABA RESEARCH JUNE 2016 © HELABA 3 FINANCIAL CENTRE OF FRANKFURT: MAKING FU RTHER HEADWAY Helaba will continue to provide vigorous support to the local financial centre and to conduct finan- cial centre research on issues relevant to the market in the future. Just as today, with the publica- tion of our anniversary edition, it will no doubt also be fascinating in 2026 to analyse and evaluate the development of the financial centre of Frankfurt in comparison to its competitors. Today’s cru- cial questions, such as the United Kingdom’s relationship to the EU or the future development of the euro, are likely to have been answered by then. The financial sector will have long since moved on from a transition period into a new phase of growth. Yours, Herbert Hans Grüntker Chief Executive Officer of Helaba HELABA RESEARCH JUNE 2016 © HELABA 4 FINANCIAL CENTRE OF FRANKFURT: MAKING FU RTHER HEADWAY Contents Editorial………………………………………………………………………………………….……...……3 Summary…………………………………………………………………………….………………............6 1 Ten years of Helaba financial centre research ....................................................................... 8 2 Financial Centre of Frankfurt versus London and Paris ...................................................... 10 2.1 Banks ................................................................................................................................ 10 2.1.1 Status quo and number of financial institutions ...................................................... 10 2.1.2 Employment forecast .............................................................................................. 13 2.2 Stock exchanges ............................................................................................................... 16 2.3 Financial sector teaching and research ............................................................................. 19 2.3.1 Highly regarded institutions .................................................................................... 19 2.3.2 International rankings ............................................................................................. 22 2.4 Trends in the financial sector ............................................................................................. 25 2.5 Location-specific qualities .................................................................................................. 30 2.5.1 Transport infrastructure .......................................................................................... 31 2.5.2 Cost of office space and living ................................................................................ 31 3 Conclusion of location assessment 2006/2016 .................................................................... 33 Editorial deadline: 23 May 2016 HELABA RESEARCH JUNE 2016 © HELABA 5 FINANCIAL CENTRE OF FRANKFURT: MAKING FU RTHER HEADWAY Summary Since our initial study on the financial centre of Frankfurt in 2006, a lot has happened in the world of finance. Therefore, our rating of the three largest financial centres in Europe has changed in some respects. In our assessment of Frankfurt versus London and Paris, we once again applied the five core criteria that we consider indispensable for an international financial centre to position itself successfully in the long term: Assessment of the three largest European financial centres in a 10-year comparison Frankfurt Paris London 2006 2016 2006 2016 2006 2016 Author: Banks Ulrike Bischoff Stock exchanges Phone: +49 69/91 32-52 56 Fin. sector teaching & research [email protected] Trends in the financial sector Location-specific qualities indicates that the financial centre is well positioned in terms of its international competitiveness; points to deficits; represents a midrange position. Source: Helaba Research London remains the undisputed leading financial centre in Europe. This time, we awarded the British financial centre top marks in three of our core criteria and placed it in the midrange for the two remaining yardsticks. Despite all the efforts made, the situation in the banking sector is gen- erally worse now than it was then, a fact that is also reflected in the ratings of the biggest financial institutions. Accordingly, we assigned a midrange assessment to all three locations for the finan- cial centre criterion of banks. In this way, Frankfurt’s position is better in relative terms than it was ten years ago, since local banks are now ranked equally overall to those in London and Paris. Location-specific qualities in London are still in need of improvement, especially in view of the high office rents and cost of living. In this respect, Frankfurt is the clear frontrunner. After all, it boasts an excellent transport infrastructure combined with short distances and the prices of office space as well as the cost of living are comparatively low. “Brexit”, should it materialise, would have a negative impact on London, which would nevertheless remain the foremost financial loca- tion in Europe. However, this is not our baseline scenario and, therefore, does not form a compo- nent of our current smiley assessment. In Continental Europe, there continues to be intense competition between the German and French financial centres. While Frankfurt improved between 2006 and 2016 in one of our core criteria and fell back in another, Paris was downgraded in three factors for success. Consequent- ly, both locations currently have equal assessments in three aspects and Frankfurt scores better in two. As regards banks, Frankfurt and Paris are now ranked equally. There is continued pressure for consolidation and adjustments in the sector are having a stabilising effect. Although the increased regulatory and supervisory requirements are generating higher costs for banks, they have also led to improved capitalisation and a reduction in balance sheet risks. In comparison to other bank- ing locations, the employment trend in Frankfurt has been fairly robust. For the end of 2017, we forecast a total of around 62,000 employees in the city’s banks, which would represent a fall of only 1 % from the most recently available level in autumn 2015. In this respect, the ECB is turning out to be a guarantee for employment and safeguards the long-term attractiveness of Frankfurt as a banking location. HELABA RESEARCH JUNE 2016 © HELABA 6 FINANCIAL CENTRE OF FRANKFURT: