Frankfurt home to US investment bank Brexit assets
(6 November 2018 - Europe) US investment banks are preparing to transfer up to US$283 billion in balance sheet assets to Frankfurt as a direct result of Brexit.
Goldman Sachs, Citi, JPMorgan and Morgan Stanley have published plans to increase the assets held through their Frankfurt subsidiaries after the UK’s exit from the EU to comply with requirements. Citi has renamed its Frankfurt office to “Citigroup Global Markets Europe” (replacing its previous “Deutschland” designation) and expects to create 150 new FTE across the EU however the bank stressed that “in all cases London would remain both its HQ for European, Middle East and Asia operations and an important global hub for Citi”. Bank of America Merrill Lynch (BAML) has settled on Paris as its EU hub. Other global banks have selected Frankfurt as their EU hub including Standard Chartered and UBS. Nomura is touted as shifting its balance sheet assets to Frankfurt while Deutsche Bank is also shifting assets from London to Frankfurt after Britain’s planned exit from the EU next year in line with demands from British and EU regulators.
Banks had assumed regulators would allow them to continue to book EU trades entirely in the UK (known as a back-to-back trade) for a grace period following Brexit however the ECB published guidance that it expects to see at least some booking taking place in the EU as soon as Brexit occurs. Banks must then decrease the level of back-to-back trades over the following years in a method that must be deemed as credible by the ECB. The final size of the assets may change depending on the outcome of Brexit talks, including the bulk of derivatives contracts with EU clients noting that a reprieve of up to a year has been applied in the event of a ‘hard Brexit’ that does not include a political arrangement. Any shift will likely be sizable unless banks can keep their EU passporting rights. Banks are finalising Brexit planning at a relatively late stage with Britain’s planned departure from the EU set to take place in late March 2019 coupled with uncertainty about key aspects of the final agreement roiling financial markets. US investment banks are required to receives approval for their plans from regulators who have recently indicated they want to see more risk management functions based in the EU following Brexit.
Royal Bank of Canada (RBC) Capital Markets confirmed it will base its EU HQ in Frankfurt where it expects to boost its local team by up to 40 staff. Frankfurt Main Finance MD Hubertus Vath said “RBC Capital Markets is the first Canadian institution to announce in favour of Frankfurt but we should expect similar decisions to follow in the coming months”
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