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FINANCIAL CENTRE REPORT 2017

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1585 2017 FOCUS ON FRANKFURT STOCK EXCHANGE FOUNDED

EUROPE

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Dear Readers,

Just a few months ago, the federal state of Hessen celebrated its 70th anniversary. In the course of these seven decades, Frankfurt am Main has gradually become the most important financial centre in continental Europe. Frankfurt is where the European Central Bank (ECB), the European Insurance and Occupational Pensions Authority (EIOPA), the Deutsche Bundesbank, the Federal Financial Supervisory Authority (BaFin) and the Federal Agency for Financial Market Stabilisation (FMSA) are all based, making it a centre of supervision and regulation for the whole of the EU. Even during the financial crisis, Frankfurt fared better than other financial hubs and perhaps even grew stronger compared to its rivals. Nonetheless, like the financial industry as a whole, Frankfurt now faces a plethora of challenges. I would like to take this opportunity to home in on two of these, the first being digitisation. The rapid advancement of digitisation is forcing not only the financial sector to redesign its processes at ever-decreasing intervals and to fundamentally overhaul its business processes or indeed business models. Frankfurt as a financial centre has to seize this challenge as an opportunity, and the creation of TechQuartier sent out a strong signal that it is doing precisely that. The aim of TechQuartier is to serve as the central platform for the development of a fintech ecosystem, with the financial community, related technology fields and local academic institutions coming together to put Frankfurt on the global map in this emergent sector. The fact that the federal government has named Frankfurt one of five digital hubs can be marked up as the initiative’s first success and is a valuable boost for us. The second key issue is, of course, the UK’s decision to exit the EU, which will undoubtedly lead to a reshuffle in Europe’s financial structure. This was not a decision that the Hessen state government wanted, but as it has now been made, what matters now is that here, too, we focus on the opportunities this offers Frankfurt as a financial hub. Many international financial service companies that had until now been handling their European business out of London will now have to look for bases within the EU. The European Banking Authority (EBA) will likewise need to relocate. Frankfurt is competing with other financial hubs in this respect, and the key to this competition is Frankfurt having a clearly audible voice as a financial centre. Frankfurt Main Finance is this voice, and this yearbook demonstrates that it is backed up by sufficient substance to confidently rise to the challenges and changes. I hope you find reading this yearbook interesting and informative.

Best regards,

Tarek Al-Wazir Hessian Minister of Economics, Energy, Transport and Regional Development

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Dear Readers,

The UK’s decision to leave the EU shocked more than just the world of finance. It was also a sign that Europe and the world are facing some challenging times. Not least the political developments seen elsewhere since the Brexit decision demonstrate just how serious the situation is. And we don’t even have to look across the Atlantic – a look at France or the Netherlands or consideration of Poland or Hungary is more than enough for us to see that the idea of Europe hasn’t been in such a precarious state for a long time. It would therefore be totally inappropriate to indulge in short-sighted excitement about what opportunities Brexit and the possible resultant relocation of financial activities to the continent might offer Frankfurt and other cities. It is far more important that Europe be rethought and given new meaning in the light of these developments. And as a main financial centre in Europe’s biggest economy, Frankfurt has a special role to play here. This Financial Centre Report, which continues the series of Frankfurt Main Finance Yearbooks, intends to shine a light on this role: how will Europe stay strong in the face of global competition? What role will Frankfurt assume in this network? What strengths do Frankfurt and Germany as a whole bring to the table? How can a financial bridge be built to London post-Brexit (and, of course, to other cities in Europe)? Our authors consider these and other questions from various perspectives. In the first part of the publication, they endeavour to capture as many as possible of the facets of (financial) life in “Mainhattan”, while in the second part, representatives of our members get to the bottom of this topic in their own detailed articles. I hope you enjoy reading this report and the insights it gives.

Yours,

Dr Lutz Raettig Chairman of the Executive Committee, Frankfurt Main Finance

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CONTENT

Preface

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Frankfurt after Brexit Building Bridges

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Fintech Tough Business, not Party

The German Banking Industry Strong Economies Need Strong Banks

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Higher Education Promoting Hessen as a Place of Academia and Business

Property Markets Frankfurt Will Benefit From Brexit – But How Much?

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Fintech in the Rhine-Main-Neckar Region Partnership Replaces Rivalry

The German Economy and Brexit Still Strong, Despite All Challenges

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Asset Management Longevity Brings Opportunity

Infographic Focus on European Financial Centres

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Regulation and Supervision The Proximity Principle

History The Spirit of the Free City

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Interview with Dr Gertrud Traud “Frankfurt needs to be more confident”

Science and Education International, Interdisciplinary, Attractive

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An Expat's View “We love the Mentality here”

Editorial

Harmonisation of Covered Bonds An Important Step Towards Long-Term Preferential Treatment

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Imprint

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You could sense the uncertainty – nobody knew what would happen next.

Gisela Paul

Gisela Paul sells Frankfurt’s green sauce. She doesn’t question the Brits’ love of the Frankfurt national dish.

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FRANKFURT AFTER BREXIT

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The UK’s “no” to the European Union came as a shock to Europe. Brexit threatens to be a heavy blow for the EU concept – and for London’s finance sector too. With no passport to the EU, financial institutions there will have to look around for alternatives. Hessen is getting ready for its new role as London’s partner in the EU. Let’s take a stroll around Rhine-Main.

Thursday, 11.30 a.m.: Architects and lawyers, graphic designers and PR people, bankers and investment managers mingle at the “Kaisermarkt” market in the heart of Frankfurt. A long queue has formed in front of Gisela Paul’s stall. Together with her business partner Tina Bergmann, Paul, a native of Frankfurt, sets up shop here twice a week to sell a local speciality: “Frankfurter Grüne Soße” or green sauce. The original recipe consists of precisely seven herbs. Her clientele is diverse, multifaceted and international, says Paul: “Few of them are true Frankfurters – I can tell straight away.” And occasionally she sees a bank director, she says; the banking towers that soar into the sky in the background are just a couple of hundred metres from here.

MY FAVOURITE PLACE – SPOTS TO FALL IN LOVE WITH “Love is a place” is the title of a poem by E.E. Cummings. But which places do people love in Frankfurt and the Rhine-Main region? We asked bankers, politicians and other experts. And we got interesting answers which are presented on the next few pages.

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MY FAVOURITE PLACE: OPERNPLATZ

Robert Restani, CEO, Frankfurter Sparkasse “Bustling city life, nature and, of course, the high culture on offer at the important Alte Oper opera house just a stone’s throw from the key financial institutions. Opernplatz brings all the most endearing Frankfurt attributes together in a very small space.” High quality of life thanks to multiple green spaces. Grüneburgpark is just one of a total of 40 parks in the greater Frankfurt area.

There are now groups of people around the poseur tables dotted among the numerous food stalls, all engaged in animated conversation. “The market is life,” says Paul. “This is where people communicate and exchange ideas.” Last June’s Brexit decision was a major topic at the market, with many discussions being held in the queues and at the tables in the days following the referendum, Paul relates. “People can be more frank here,” the market woman says. “Including about business. That’s something they can’t do in the company canteen.” But the mood and situation weren’t clear, Paul says, thinking back, “You could sense the uncertainty – nobody knew what would happen next”. Nonetheless, there is an air of confidence in Frankfurt that the city can still benefit from this situation as a centre of finance. Because were it to come to a hard Brexit, the UK would be excluded from the European single market. London-based financial institutions would then forfeit their “EU passports”. The set-up known as passporting currently allows institutions in the UK to manage their EU business activities from there without the need for an office in each of the EU member states. It is therefore quite probable that companies and financial institutions will now be looking for alternatives in order not to lose their access to continental Europe. Frankfurt could be that alternative, serving as a bridge from London to the eurozone.

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MY FAVOURITE PLACE: SCHAUSPIEL THEATER

Dr Johannes Reich, personally liable partner of B. Metzler seel. Sohn & Co. KGaA “Theatre condenses, visualises, interprets and abstracts social processes and issues. The audience is called upon to rethink the issues, to question them and to expand their own vantage point to include new views and perspectives. Theatre helps us tear down existing internal barriers – a process that is becoming ever more important in the current political and social environment.”

MY FAVOURITE PLACE: LOHRBERG

It therefore comes as no surprise that the city is heavily plugging itself as a place of refuge for those looking to flee London. Just a day after the UK’s “no” to the EU, a website had been set up together with a hotline for frustrated British bankers. And Hessen’s Minister of Economics Tarek Al-Wazir travelled to London with a delegation in order to forge ties and showcase Frankfurt as a continental European partner. According to Al-Wazir, the Rhine-Main region’s winning arguments include its good digital infrastructure, its ease of accessibility, its closeness to the European Central Bank (ECB) and a high quality of life. Uwe Becker, mayor and city treasurer, Frankfurt am Main “The city skyline is so near when you’re at Lohrberg, and yet there is still a great deal of greenery. Up there, you can show people how Frankfurt is really just a village, on the one hand, but city-like and inter­ national, on the other.”

This quality of life is palpable in the Grüneburgpark in the Westend-Nord part of town. People looking to escape the hustle and bustle of the city can come here to enjoy the trees and small lakes, and unwind over a cappuccino at one of the park’s cafes. One such person is Karin Schambach, founder and managing director of Indigo Headhunters, whose office is just two streets from here. The recruitment consultant specialises in asset and wealth management, and is always on the lookout for new talent. She knows that quality of life in the city has a major bearing on people’s career decisions. “Work-life balance has a hugely important role to play,” explains Schambach. “It’s no longer just a question of higher, further, faster.” Frankfurt wins people round with its spirit – albeit perhaps not immediately. “Many people come here with few expectations. But once

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MY FAVOURITE PLACE: CAFÉ WACKER AM UHRTÜRMCHEN they are here, they are taken by surprise and are delighted.” According to Schambach, what makes Frankfurt so special is the fact that it is highly international on the one hand, but personal, pedestrian-friendly and manageable on the other. It takes just 20 minutes to cycle all the way across the city. It is also very green, the recruitment consultant adds. “You can still get hay fever here,” she says, grinning, “unlike in London or Paris.” More than half of Frankfurt is made up of green space or water, with more than 40 parks dotted around the city. According to a recent ranking put together by the management consultancy Mercer, Frankfurt is a country mile ahead of its European rivals in terms of quality of life: Germany’s centre of finance is ranked seventh – far above Dublin (34th), Paris (38th) and London (40th). And while quality of life may be something of a soft factor, Landesbank Hessen-Thüringen (Helaba) nevertheless expects to see the number of people working in Frankfurt’s finance sector rise by approximately 2,000 by 2018. Deutsche Bank is anticipating a rise of 5,000 office workers up to 2020, while others are forecasting as many as 10,000 new jobs over the next five years. Karin Schambach is more cautious: “I obviously can’t gaze into a crystal ball. Frankfurt does have opportunities that other places in Europe don’t, but it also faces stiff competition.” When it comes to languages, cities such as Dublin and Amsterdam are more appealing to English speakers, she says. But the headhunter believes there are

Stephan Ortolf, Head of Corporate Client Business, Central Germany, DZ BANK AG “Inside it smells like tradition, while outside the sun shines almost all day and you can soak up the hustle and bustle – with a nice, strong espresso in front of you on the table.”

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MY FAVOURITE PLACE: BIEBERER BERG STADIUM

opportunities to be exploited too: Frankfurt is the centre of international attention thanks to the presence of the ECB. Deutsche Börse and the server farms based in the surrounding area are other major advantages, Schambach says. “Thanks to the IT infrastructure, the technical conditions here are really very good.” Schambach doesn’t expect to see London pale into insignificance post-Brexit, but believes that the UK’s decision certainly can’t hurt Europe’s other centres of finance: “London will always be there. But the institutions based there will no doubt strengthen their representation here in Europe.” Karin Schambach is already seeing expats in London increasingly turning their attentions to Germany. “This is mainly due to the uncertainties about future business,” says Schambach. “In particular in sales positions, people are suffering from existential fears. We are also seeing a decline in spending on headcounts in London.” The recruitment expert believes that this development will intensify as soon as the parameters for Brexit have been established. “The significance of Brexit and also its repercussions are increasingly dawning on people and organisations.” There would be more than enough room for exiled Brits in Frankfurt – and Jan Linsin, Head of Research at the real estate company CBRE, agrees. He knows that interest is being shown in Frankfurt from abroad, and Frankfurt is well prepared: “We have good supply reserves.” The city already has close to 1.3 million square metres of unoccupied office space – that’s around eleven percent of the city’s office space. In comparison, seven percent of Paris’s office space is unoccupied. Dublin has a vacancy rate of approximately eight percent, while in Luxembourg the vacancy rate is only a little over four percent. These are the findings of a short report published by the Cologne Institute for Economic Research (IW). Frankfurt’s office rents are likely to make London bankers prick up their ears too. It has an average prime rent for the year of EUR 474 per square metre – the equivalents in Paris (EUR 810m²/year), London City (GBP 700m²/year) and Dublin (EUR 673m²/year) are between 40 and a good 70 percent higher.

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Many people come here with few expectations. But once they are here, they are taken by surprise and are delighted.

Karin Schambach

Tarek Al-Wazir, Hessian Minister of Economics, Energy, Transport and Regional Development “A place for the important lessons in life: that the journey itself is the reward, and that even defeat has a meaning – even if it’s simply that you get back up when knocked down. And that team spirit and motivation are more important in the long run than individual players – something I learned over many weekends here.”

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There’s a good view of Frankfurt’s growing skyline from the banks of the Main. There are lots of new office towers here, including the WINX.

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Foreign banks will now have to weigh up how to get their hands on an EU pass­ port. A letter box alone won’t cut it.

Jan Linsin

MY FAVOURITE PLACE: MAIN RIVERSIDE

“Companies and institutions won’t wait until prices have soared,” Linsin suggests. “Relocating is a lengthy process lasting several years.” It is in particular the foreign financial institutions looking for a new European base that might opt for Frankfurt over London. For example, the Swiss bank UBS announced in December that it had chosen Frankfurt as the location of its European bank UBS Europe SE. Russia’s VTB Bank likewise intends to manage its European business from Frankfurt in the future. And if media speculation is to be believed, Goldman Sachs plans to relocate up to 1,000 jobs from London to Frankfurt. “Foreign banks will now have to weigh up how to get their hands on an EU passport. A letter box alone won’t cut it,” says Jan Linsin. In view of this, there are many new projects currently under development, to add to the existing office space. “More than 400,000 square metres of office space are planned in Frankfurt over the next three years,” says Linsin. Take the MainTor district, for example: the WINX building being developed between Untermainkai and Neue Mainzer Straße will result in an additional 35,000 square metres of office space by 2018. When completed, the 110-metre-tall tower will fit into the Frankfurt skyline perfectly. Those who then work there will have a panoramic view of the city and of the winding River Main. There is also the Omniturm tower, which is getting taller and taller nearby. Its almost 54,000 square metres of space will house not only offices, but also residential units – something which is desperately needed, according to Linsin. “The housing market is very tight and the city continues to grow. If there is now an influx of people, things could get cosy.” The intercommunal procurement of residential space, in other words beyond the city limits too, is therefore all the more important, says Linsin.

Roland Boekhout, CEO of ING-DiBa AG “For me, the riverside of the Main is one of the best places to be in Frankfurt. It offers a very special and beautiful view over Frankfurt, showing both the historical as well as the international character of this city. At weekends and on warm summer evenings in particular, it is a perfect place to meet people and have a relaxed walk along the riverside.”

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City developer Dong-Mi Park-Shin is convinced that Eschborn wins double points: the city entices with its international firms and proximity to the Taunus mountains.

MY FAVOURITE PLACE: ALTE SCHIFFSMELDESTELLE IN HÖCHST

The town of Eschborn is just around the corner, approximately 14 kilometres north-west of Frankfurt. Its approximately 21,000 inhabitants can travel to Frankfurt’s central station by train in a quarter of an hour, and they also have the Taunus mountain range with its recreational areas on their doorstep. The town is well prepared to receive people getting out of London. “Companies were initially confused by the Brexit result, but this was soon followed by a sense of confidence,” explains Dong-Mi ParkShin, head of Eschborn’s economic development department. “Every change also represents an opportunity.” Directly after the Brexit referendum, real estate developers bought up space in Eschborn. Plans have been drawn up for some 130,000 square metres of tailor-made office space. And according to Park-Shin, this could be ready within just twelve months. “Our project developers are ready and waiting to assist new companies,” she says. The surrounding area is very attractive, with more than 4,200 companies based in the five local business parks. “We’re small, but smart,” says Dong-Mi Park-Shin of her town. Eschborn’s southerly business park is a prime example of this, boasting Deutsche Börse AG’s glass cube, Deutsche Bank’s high-rise building and the head office of EY, all side by side. And at the beginning of the year, they were joined by the South Korean company LG, which closed its offices in London and Ratingen in order to open its European headquarters in the Taunus region. While it wasn’t a decision prompted by Brexit, it still means something to Park-Shin: “We see this as a compliment, because they can see that the future lies here and in the region.”

Hauke Stars, member of the Executive Board, Deutsche Börse AG “There are all sorts of great places and oases of green along the banks of the River Main in Frankfurt. The site of the former ship reporting office in Höchst came as a great surprise to me. The garden, which is open in the warmer months, invites you to relax by the water – far from the skyscrapers and the hustle and bustle of the big city.”

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to promote the Rhine-Main “regionWeasneeda whole. Dong-Mi Park-Shin

However, she doesn’t see Eschborn as competition for Frankfurt. The economic developer thinks there is only one way in which to appeal to foreign companies: “We need to promote the Rhine-Main region as a whole.” Back in Frankfurt, Gisela Paul is shutting up her stall. Tomorrow, she will reopen her “green sauce-mobile” on Schillermarkt, where she will sell the local speciality right by Frankfurt’s Bull and Bear. Demand for her speciality is high there. “It can get really busy,” Paul says. Does she think she can perhaps win over the odd new arrival from the UK with her green sauce in the future, we ask? For Gisela Paul, there’s no doubt about it: “You bet!” 

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SCIENCE AND EDUCATION

INTERNATIONAL, INTERDISCIPLINARY, ATTRACTIVE The Rhine-Main region leads the way in Europe in research and in vocational and further training. The representatives of five educational institutions in the region explain what sets it apart in this respect and how it positions itself in the international competitive arena.

Prof Dr Lutz Johanning Chair of Empirical Capital Market Research, WHU – Otto Beisheim School of Management, Vallendar

The Rhine-Main region competes internationally not only as a place of business and finance but also with its teaching and research on finance topics. In your opinion, how does the region fare in comparison to London or Paris? Prof Dr Lutz Johanning: The figures speak for themselves: there are six state-run universities alone within a radius of approximately 100 kilometres or within an hour’s drive in the Rhine-Main region, of which at least two – the Goethe University Frankfurt and the University of Mannheim – are top-class institutions that also compete internationally with their excellent education in finance. TU Darmstadt stands for teaching in computer science and engineering, which is becoming increasingly important in finance education. There are also three business schools in the area, including the specialist Frankfurt School of Finance & Management. We at WHU likewise offer specialised finance education with an international focus, with our master’s degree in finance. Prof Dr Wolfgang König: We have one of the biggest research clusters for finance topics in continental Europe here in Frankfurt. This makes our study and education programmes in this sector all the more attractive and diverse – including in conjunction with what our neighbouring universities and research institutions offer – and makes our competitive position that much stronger. Prof Dr Peter Buxmann: In addition to the very good education on offer at the universities, there are the opportunities to pursue dual or combined studies at many of the banks in the region – the combination of theory and practice, so to speak, right at the source. As the technical university, we have been international trailblazers in the areas of IT security and

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A campus full of atmosphere, with lecture halls bursting at the seams: the Frankfurt School of Finance & Management.

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digital innovation for some years, for example. With digitisation in the finance sector advancing, these are areas of expertise which are in great demand. Prof Dr Christoph Schalast: I think that as a financial hub, the Rhine-Main region has a very good set-up in the area of research and education; especially in comparison to our continental European rivals such as Paris or Amsterdam. More than anywhere else, Frankfurt stands for dialogue between the field of teaching and high-end practice. Ralf Frank: I don’t want to philosophise about whether the Rhine-Main region is ahead of, behind or on a par with London, Paris or Amsterdam. But one thing’s for certain: Frankfurt is very important internationally as a place of finance sector education too. In addition to the region’s strengths, where do you see room for improvement? Buxmann: We have excellent universities and education institutions in the Rhine-Main region. I think there is room for improvement in terms of how the universities work together. Schalast: Overall, we rank very highly, as demonstrated by the international accreditations earned by, for example, the Frankfurt School. But Paris and London are certainly in front in the MBA market. We are catching up quickly, though, as demonstrated by the success achieved in recent years.

Frankfurt stands for dialogue between teaching and “high-end practice. Prof Dr Christoph Schalast

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Johanning: We at WHU Otto Beisheim School of Management offer not only a Master in Finance but also very internationally oriented finance education in all our programmes – Full-Time MBA, Part-Time MBA, Executive MBA and Executive Education. Above all, I see room for improvement in the fact that Rhine-Main does not yet have the inter­ national renown as a place of education that it deserves with regard to its size and the learning opportunities offered here. Prof Dr Wolfgang König Executive Director, House of Finance, Goethe University Frankfurt

König: In addition to the established stability of the financial systems and the high degree of social protection afforded to people compared with elsewhere around the world, we benefit here from the close correlation between the banking and finance sector and the production of real goods. A good position can and must be improved upon, of course. For example, there are strong arguments for expanding and focusing more on the topics of asset and wealth management and also digitisation. The new

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Rhine-Main does not yet have the international renown it deserves.

Prof Dr Lutz Johanning Digital Transformation Management master’s programme offered by the Goethe Business School together with the universities in Darmstadt and Kassel, which is starting in October 2017, is an example of how this can work. The Rhine-Main financial hub hopes to play an even more impor­ tant role in Europe post-Brexit and to serve as a bridge to postBrexit London. Will this also boost the region’s standing as a place of education? König: As it is not yet clear what shape Brexit will take, we can’t make any concrete forecasts about the consequences right now. Speaking generally, it can be said that a strong financial hub needs to have strong research and education by its side. So if the financial hub Frankfurt plays a more important role in Europe in the future, this will also boost the importance of research and education here. Schalast: Further development of the financial hub is generally a positive thing for the region as a place of education. It gives us more potential cooperative partners and means there are more opportunities for internships and career starts for our students. Frank: I concur with Prof König in that it is still too early to make any detailed forecasts. But I do think Frankfurt’s status will be boosted by Brexit, and that will certainly benefit it as a place of education too. Johanning: Even without Brexit, the Rhine-Main region will become more and more attractive to the finance sector because it is the top European location for risk management and monetary policy – or is at least on its

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The PhD students at our graduate school come from more than 40 different countries.

Prof Dr Wolfgang König

way to becoming this. Education in these financial market areas is therefore developing strongly. Buxmann: The increased significance and visibility of the Rhine-Main financial hub will also boost the profile of the region’s educational institutions. This represents an opportunity. Are the education options offered in the Rhine-Main region in particular diverse enough and are they structured in a way that can attract international students? Buxmann: Yes, they definitely are. The proportion of international students at TU Darmstadt is already 18 per cent, and it is a similar story at the other universities in the region. We offer a wide array of disciplines that will appeal to any international student, be it medicine, natural sciences, humanities, social sciences, engineering or computer science. Schalast: Making the student base and faculty more international has been an important issue at the Frankfurt School for some time. In particular in our MBA and master’s programmes, the majority of our students are now from all around the world and less so from Germany. Most of our courses run entirely in English, which makes things easier for our international students. And to help our international students whose German is not very good start their careers, we offer them targeted German language courses and special support from our Career Services department. Johanning: The content of the courses we offer at WHU is very international. All our courses are offered in English, and all of our study programmes include mandatory semesters abroad or international modules.

Tradition meets innovation: the state-of-the-art lecture theatre in the Altes Maschinenhaus (old machine hall) at TU Darmstadt, the Piloty Building on the campus and the university’s administration centre (from top to bottom).

König: I agree with everyone else. We already have very high numbers of applicants at the Goethe University Frankfurt. We receive ten applications for each place on our bachelor’s programmes, for example. This allows us to choose the best candidates. We offer multiple English language master’s programmes in the area of economics and business administration – with no fees involved, which is virtually unique around the world. The PhD students at our graduate school come from more than 40 different countries, and only about half of them are German. The fee-based master’s and LLM programmes at the Goethe Business School and the Institute for Law and Finance are likewise selected by a large proportion of international students. The finance sector is undergoing structural change and is facing the challenge of digitisation. How do university courses need to respond to this? Buxmann: When I was working at the Goethe University in a post-doctoral programme in the mid-1990s, we were already warning the worlds of business and finance about the various impacts that digitisation would have. At the time, we weren’t taken seriously. We have been scientifically studying the topic of digitisation and its economic impact for years, and we prepare our students for it. Many industries, including the world of finance, have taken a long time to accept the new reality of the digital world.

Prof Dr Peter Buxmann Professor of information systems and head of the HIGHEST centre for innovation and business creation, Technische Universität Darmstadt

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The Rhine-Main region boasts a great deal of highly qualified professionals.

Prof Dr Peter Buxmann

König: I, too, think that university teaching is way ahead of the primary users in this area. When it comes to digitisation, it is definitely the universities that are driving this development. We can undoubtedly offer even more academic courses in this area – but demand in the practical field needs to keep pace with us.

Prof Dr Christoph Schalast Professor of Mergers & Acquisitions, Legal Studies & Ethics Department, Frankfurt School of Finance & Management

Johanning: Fields such as risk management and regulation are already increasingly being incorporated into teaching programmes. We see room for improvement in terms of the integration of interdisciplinary topics such as psychology, because these disciplines can offer important insights into how the masses behave and therefore into how to win over markets. We have embraced these topics too at WHU. Schalast: Structural change first and foremost means those working in the finance sector and elsewhere need to engage in continuing professional development. And knowing how to deal with digital technologies has an important part to play here. We have just initiated our Frankfurt School Blockchain Center, one of the aims of which is to integrate this new technology into our curricula. In addition, regulatory requirements and the topics of compliance and sustainability are becoming increasingly important in education. Frank: From my perspective, that first and foremost being the field of in-service qualification, vocational training needs to be more tailored to the training participants’ needs. The participants need to be able to select what they learn themselves and need to have the freedom to decide when and how they learn. In a nutshell, this can really only mean that the future of education likewise lies in its digitisation. E-learning and greater use of educational games are two facets of this – even though the idea of games perhaps goes against the grain for those of us who are more advanced in age. How well prepared are the graduates/employees for meeting future career requirements, for example, in relation to digitisation? Schalast: The Frankfurt School came 67th in the world in Times Higher Education and Trendence’s Employability Ranking published last November and ranked first in Germany. The ranking is based on the opinions of HR managers and managing directors of global and German businesses regarding which universities produce the best graduates – not only in terms of their expertise but also their soft skills. So we feel we are currently in a very strong position. Buxmann: The Rhine-Main region boasts a great deal of highly qualified professionals. TU Darmstadt graduates are likewise regularly ranked near the top in comparisons of universities based on HR managers’ opinions. For example, information systems at TU Darmstadt came first in the wellknown ranking conducted by the WirtschaftsWoche publication.

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Frank: In terms of conventional knowledge, those who work here are undoubtedly good or very good. But employees can and should further their training in the area of digitisation. König: As a rule, we give our students a theory-based education in order to avoid just reflecting the latest trends. Nonetheless, we put a great deal of emphasis on the application of theoretical implications to regular work practices. The more general this kind of theory-based academic education is kept, the more able the graduates will be in their later careers and managerial capacities to find the right answers themselves to the new challenges they face, drawing on these lasting foundations. The fact that the Faculty of Economics and Business Administration

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The future of education lies in its digitisation.

Ralf Frank

at the Goethe University regularly performs well in the various surveys conducted among HR managers indicates that we have adopted the right approach. Johanning: We at WHU address the challenges of digitisation not only with innovative teaching but also, among other things, with our dedicated Center for Digitization. Finally, what should your students definitely have learned in their time at your respective institutions? Johanning: International, practical business administration and entrepreneurship. And especially considering the financial crisis, we set great store by imparting social values and corporate social responsibility. Schalast: More than anything else, we want to provide our students with problem-solving skills. Sound expertise is important too, of course – but if you can’t apply that expertise to different situations, you won’t get very far. We also take our students’ responsibility for ethical and sustainable behaviour very seriously, integrate this as a topic into our curricula and are developing the faculty accordingly. Frank: There are two skill areas involved in investment expertise and methodology: technical skills – what you invest in – and ethical skills – how you invest ethically and well. Both of these have a key role to play in the education we offer. Buxmann: A university’s education remit obviously comprises the impart­ ing of expertise and methodologies on the one hand but also a practical focus on the other. We take this and interdisciplinary education very seriously at TU Darmstadt. Internationally focused educational environment: at the WHU Otto Beisheim School of Management (above), all of the courses are offered in English. The University of Frankfurt (below) is notable for its free, English-language Master’s courses.

König: Learning targets are formulated for all our courses, which each and every student should have achieved upon graduation, as far as as they are able to. In particular, it is sound economic expertise and also analytical, quantitative, empirical and normative skills that enable our graduates to master the diverse and ever-changing challenges they will face in practice.  

Ralf Frank Managing director and secretary general, DVFA e.V.

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FINTECH

TOUGH BUSINESS, NOT A PARTY Frankfurt is to become a new European fintech centre. This is something that the city, the state of Hessen and the major banks there all want. The parameters for this being achieved are ideal, and a great deal of effort is being made. The banking city is working hard to improve its start-up image. February 2017: The new TechQuartier in Frankfurt’s Pollux high-rise building next to the trade fair grounds is clean and spacious. The first fintech companies moved in on the second floor just a few weeks ago. Frankfurt’s new business centre for fledgling financial technology companies was opened by Hessen’s Minister of Finance Tarek Al-Wazir in November 2016 with the words “Frankfurt’s fintech dream is coming true”. This dream is backed by the state of Hessen and by sponsors in the banking sector, with the Goethe University Frankfurt, TU Darmstadt and the WIBank Hessen acting as shareholders. TechQuartier currently has 1,800 square metres of space which it lets out to young start-ups in the finance sector in the form of workspaces, conference rooms and event space. According to the managing director of the operating company, Sebastian Schäfer, it has its sights set on two target groups: fledgling fintechs that can’t yet afford their own office space on the one hand and international start-ups looking to gain a foothold in the German market on the other, that need a straightforward office space solution with short tenancies. But TechQuartier has a lot more to offer than just office space. “With the help of partners, we promote and bring together the fintech community in the Rhine-Main region with events and programmes,” says Schäfer, who headed Unibator, the new business centre at the Goethe University Frankfurt, for many years. Demand was high right from the start, and the centre is therefore to expand into another floor in May. There were 63 fintechs in Frankfurt in March 2017, and in Rhine-Main as a whole there were 90. Ten of these were newly founded in 2016. Among other things, this growth can be accredited to the increased efforts in the past two to three years on the part of commercial enterprises to create a positive climate for fintechs in Frankfurt. Other hubs have cropped up, in addition to TechQuartier. The real estate company Aurelis recently opened shared office space called VABN (which sounds like the German word for “honeycombs” or “cubicles”) in the Bockenheim part of town for eight early start-ups,

Fintech workshop: Frankfurt is competing for young entrepreneurs. Many are drawn to its competitors, Berlin and Hamburg.

i.e. enterprises that are still developing their initial business idea. They are provided with desks and a complete office infrastructure free of charge for a period of nine months. “We’re confident that most of them will subsequently be able to pay rent,” says Elmar Schütz, who heads Aurelis’s project development in the central German region. A law firm assists the start-ups with any legal issues, and other partners are on board too. Commerzbank kicked things off in 2014 with their “main incubator”, a fintech accelerator that assists carefully selected fintech sector start-ups all the way from their establishment to market maturity. The wholly owned Commerzbank subsidiary provides start-ups with capital, expertise and office space. The entrepreneurs, representatives from the worlds of business and academia, and investors can all exchange ideas in a regular event series called Between the Towers. Deutsche Börse followed suit, opening its FinTech Hub in a former drug factory in the Bornheim district of Frankfurt in April 2016. It offers fintech companies a total of 60 workspaces rent-free, arranges meetings with experienced financing and market experts, assists with the preparation of investor meetings and gives the companies feedback on their sales and marketing strategies. The Deutsche Börse Venture Network is also based there, which brings investors into contact with growth companies. Deutsche Börse hopes that this project will lead to a larger number of companies going public on the stock exchange in Germany. But more than anything else, it hopes to promote the entire fintech ecosystem. Just a few months later, Deutsche Bank opened its Digital Factory, a development centre for digital banking products. Some 400 employees from 14 different countries draft and programme products here using cutting-edge methods. There are also 50 workspaces there for fintechs. In short, Germany’s city of finance has entered the arena to compete for young financial technology companies, with numerous incubators, accelerators and networking initiatives doing their bit. It should also not be forgotten that Frankfurt boasts a number of advantages, such as its proximity to the major banks, the European Central Bank, Germany’s Federal Financial Supervisory Authority (BaFin), and the regulators and rating agencies. Nonetheless, young people are still primarily drawn to the meccas of creativity, Hamburg and Berlin. “Berlin has something of a coolness factor,” explains Oliver Naegele, founder of FinTech Headquarter,

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In early 2017, the real estate company Aurelis opened up an office suite for entrepreneurs who are just getting started. Students at the University of Applied Sciences, Mainz, designed the space.

a Frankfurt-based community network for the fintech and banking scenes in Germany and further afield. Frankfurt has a reputation for being a cold city of banking, so it still has to work on its image. Naegele, who currently has a start-up called Blockchain HELIX in addition to running FinTech Headquarter, is pragmatic about this: “Fintechs aren’t about partying – they’re a tough business.” Tough business – yes, that certainly sounds like Frankfurt. There have been some initial successes here in recent years with fintechs such as Genome, vaamo, creditshelf and Fintura. “We feel very much at home in Frankfurt,” says Tim Thabe, who founded creditshelf together with Christoph Maichel and Daniel Bartsch in 2014 as an online marketplace for SME loans. The fintech helps SMEs finance their current assets affordably without having to provide collateral. The company took second place in the 2016 Frankfurt Startup Award. Thabe is a seasoned expert with a great deal of experience in the field of credit risk management. He has had six-year stints working at both Goldman Sachs in London and UBS in Zurich. When he and his partners had to choose a base, they opted for Frankfurt. “We work closely with banks and investors,” explains Thabe. “And Frankfurt offers the best parameters in the area of B2B finance.” Other factors that won Thabe over were Frankfurt’s good logistics connections within Germany and the large number of universities here. “We have recruited a lot of employees from the universities in Frankfurt and Mannheim, but also receive speculative applications from bankers looking to strike out in a new direction.” Fintura, which operates a comparison platform for corporate finance, has its office at Deutsche Börse’s FinTech Hub. Although the company’s founder and Chief Executive Officer Gernot Overbeck lives with his family in Basel, he and his business partners chose the city on the Main as the location for their new business in 2014. He too sees proximity to the banks as a strong argument in favour of Frankfurt as the location of the company headquarters. “We can meet our bank contacts over lunch

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3 QUESTIONS 3 ANSWERS

“MAKE INCENTIVES A PRIORITY” Mr Lukic, you have been on the Board of Business Angels FrankfurtRheinMain for eleven years. How do you rate Frankfurt as a location for start-ups? Frankfurt and the Rhine-Main region essentially have a great deal of potential. There are a number of industry clusters that have evolved here, such as in the areas of banking, the pharmaceutical and chemical industries, and media/publishing, which means there are perfect cooperative or even exit partners. Frankfurt is also heavily international, with numerous international events being held here, and it also boasts a strong infrastructure and good universities and educational institutions. Even so, in comparison to other places, it still lacks incentives to attract entrepreneurs and investors to engage in business here.

Main region do still need to make this a priority. If they don’t, it will continue to be only mediocre as a financial hub. So what could be more important than developing new growth companies and entire new industries? The State Premier should form a committee of experienced investors, business representatives, entrepreneurs and consultants. This committee then needs a sizeable budget and resources that are tied to stipulated targets, such as the organisation of regular, top-calibre events attended by investors and entrepreneurs from all over Europe, and regular private financing of prom­ ising start-ups. Because entrepreneurs and investors are highly mobile, you know – they go wherever there is momentum, where they think they will find expertise and, in particular, where they will be financed.

What incentives need to be created? There have already been a great many positive developments in recent years, but the state of Hessen and the Rhine-

Business Angels, Frankfurt Main Finance and the WM Group (Börsen-Zeitung) have been bestowing the FinTechGermany Award here

Andreas Lukic, Honorary Chairman of Business Angels Frankfurt RheinMain e.V. and Managing Director of ValueNet Capital Partners GmbH, Frankfurt

in Frankfurt since 2015. To what extent does this set an example? The award jury comprises real investors and entrepreneurs who have all been responsible for investments and value enhancement in the past and therefore know what they are judging. We examine a three-figure number of fintechs highly critically in terms of how well they are financed, whether their business is scalable and what the prospects of an IPO or sale are. To do this, you need experience in this line of business.

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The Deutsche Börse fintech hub supports four founding companies with networking and rent-free office space.

here to discuss how to proceed with our joint projects. I have the mobile number of the director of WIBank, so I can even call him at the weekend if need be.” The universities are becoming increasingly active too and are committed to the start-up scene, says Overbeck. “If Frankfurt maintains its current pace, it will soon overtake Berlin and London,” he says very optimistically. Both around the age of 40, Thabe and Overbeck are good examples of Frankfurt’s start-up scene – no longer quite as young and hip, but, on the flip side of the coin, with years of industry experience and clear ideas about business. But according to Schäfer of TechQuartier, a proper, functioning fintech ecosystem still needs to be developed in Frankfurt. “Frankfurt has a talent problem,” he says, adding that there were still far too few young and smart individuals who were interested in setting up their own companies. There is also a lack of investors, as these are primarily focused on London and Berlin, says Schäfer. “Frankfurt and the state of Hessen need to rethink their position if we are to attract these kind of people to the region.” Schäfer just recently travelled to Israel with a delegation in order to promote Rhine-Main as a fintech location. “A great deal of interest was shown.” The ball is now rolling, and Frankfurt and the region are making good ground. The diverse activities of the finance centre’s initiative Frankfurt Main Finance also contribute to this upward trend. For example, the initiative has started and supervised several international collaborations – with South Korea, Hong Kong, the Netherlands, Norway and Israel. There is a vibrant community that takes part in all the various network events regularly organised by the hubs. According to a study conducted by Ernst & Young, the representatives of fintech initiatives give development of the Frankfurt/Rhine-Main region as a fintech hub a rating of 3.7 on a scale of 1 to 5. And there are, of course, young, talented individuals here, too, and that indicates that Frankfurt has a promising future. For example, 25-year-old Jannik Olusoga began to develop an app with friends, while sitting round the kitchen table, that gives people with absolutely no investment experience easy access to the capital market. The app allows card payments to automatically be rounded up to the nearest euro. The aggregate rounding differences are then invested in portfolios consisting of ETFs. The first round of financing is in the planning stages, and the company called Berries, which has since been given office space at VABN, hopes to enter the market before the year is out. 

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HISTORY

THE SPIRIT OF THE FREE CITY

It all began with getting across the Main River. “Were we to take a stroll through the history of this financial hub, we would start there,” says historian Berenike Seib, pointing out of the window and upstream. What she is pointing at is the Alte Brücke bridge a kilometre from where she works at the head office of Metzler Bank on the banks of the Lower Main (Untermainkai). First officially recorded at the beginning of the 13th century, the bridge has been destroyed and then rebuilt at least 18 times. It rapidly became a source of income for the city on the one hand and a testament to its character as an important hub of European trade on the other. Several major roads intersected here. “There was already the ‘Frankfurter Kreuz’ junction back then,” says Seib.

Where it all began: the Alte Brücke bridge over the Main. The 1889 painting by landscapist Peter Becker depicts the bridge in the 17th century.

The city’s name itself explains how this all came about: hundreds of years before the bridge was first mentioned, at the time of Charlemagne, Franconofurd was already an important place. The Frankish king chose this spot as a rallying point for his troops in his campaigns against the Saxons because the ford (Furt) in the city’s name meant the Main was shallow enough here for it to be crossed in a cart. And the fact that there were good opportunities for hunting in the local forests may well have swayed Charlemagne’s decision too. This is, at least, the theory posited by the historian Carl-Ludwig Holtfrerich in the standard reference work Frankfurt as a Financial Centre published in 1999 on the initiative of and with the support of Metzler Bank on the occasion of the private bank’s 325th anniversary.

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3 4 5

2

1

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Favoured by nature – and kings Unsurprisingly, Frankfurt benefited not only from its advantageous geographical conditions over the subsequent decades and centuries but also from the patronage of those in power. In 820, Charlemagne’s son Louis the Pious turned Frankfurt into the seat of his palatinate, and, according to Holtfrerich, the German monarchs stayed in the city 75 times between 794 and 912. The German king was elected here no less than six times between 1140 and 1250 – compared with eight times in total in all the other cities within the kingdom. It was only logical that Frankfurt also be officially named the residence of the German kings in the famous Golden Bull decree of 1356. The city’s political significance brought with it economic privileges: the German kings fostered Frankfurt’s development by waiving customs for merchants from outside of town, thus boosting trade with the city by making the city a venue of fairs and by eventually also granting it the right to mint its own coins. This was a not entirely unselfish move, as they hoped the city’s economic upswing and the resultant influx of more and more wealthy individuals would help fill the state coffers. In particular, the Frankfurt fair served as a cornerstone of the region’s economic development. Taking place up to twice a year, the fair is first recorded in writing in the mid-twelfth century. “Frankfurt had a population of no more than 10,000 in 1400 but had up to 5,000 visitors when the fair was on,” explains the historian Seib. “The royal coronations were a grand affair too, and you can imagine the kind of money something like that brought to the region.” The name of one of the city’s landmarks – the Römer (Roman) building – tells us that trade made Frankfurt a highly international city very early on: it is said that Roman traders stored their wares in this building, which is part of Frankfurt’s historical city hall ensemble. “This fits in neatly with the history of the city as a financial hub,” explains Seib. “People could buy pretty much anything here, be it horses, books, wine or fabric. In keeping with its international nature, the city is reported to have seen its first elephant and ostrich as early as in the 15th century.”

A symbol of the town’s political importance: this 18th century copperplate engraving depicts the citizens of Frankfurt paying homage to Franz I. on the occasion of his election as Roman Emperor.

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This brisk trade brought not only exotic goods and animals to Frankfurt – it also introduced another and perhaps more important asset in terms of the city’s future development, namely knowledge. “Just 300 years ago, you only had to travel a few kilometres to find yourself in a place with a different currency and entirely different units of measure,” explains Seib. “This was a huge obstacle to trade – but it did mean long-distance traders had a great deal of expert knowledge.” And, like the considerable wealth accumulated by these traders, this expertise could be put to use not only for trading in material goods but also for financial transactions. Seib’s employer, Metzler Bank, started out as a business in the cloth trade, but, like other families, the Metzlers soon saw that banking was an attractive profession. Beneficiary of political openness While Frankfurt certainly enjoyed some favourable conditions in its early days, its rise to become a financial centre of European import was anything but linear and uninterrupted. In the course of the centuries, it found itself in the shadows of other cities on the continent again and again – and time and again, it benefited from its characteristic political openness when it came to stepping out from the shadows. “A few exceptions aside, Frankfurt always went its own way as a free imperial city,” says Seib. “There were never any religious or secular leaders here who meddled heavily in Frankfurt’s development. This also means the citizens of Frankfurt have always had to fend for themselves – if they wanted to achieve or obtain anything, they had to go for it themselves.” Both of these circumstances would prove to be a blessing for Frankfurt on more than one occasion in its history. For example, fairs in the Champagne region of France were far more important as trade centres than Frankfurt in the late Middle Ages – in particular for wool items, which was the primary commodity traded in Europe at that time. But according to Carl-Ludwig Holtfrerich, these fairs rapidly forfeited their significance starting in the second half of the 13th century, all because the rulers in France adopted a protectionist policy to protect French manufacturers of wool items from increasing competition in Italy. This triggered the affluent Italian cities to begin sourcing their wool from England instead – and trade between these two countries was primarily conducted via Germany. That’s how Frankfurt then became the successor to the Champagne fairs. Holtfrerich suggests that this development was further facilitated by the fact that, while France was pursuing its protectionist policy, internal customs duties were being abolished on the Rhine River.

The start of something big: the Alte Börse (Old Stock Exchange) – depicted here in an 1845 lithograph – became too small after only a few decades.

Frankfurt’s openness and the fact that it was somewhat detached from world affairs very much worked in the city’s favour on another occasion a little later in its history. In the 16th century, Antwerp, which was a key European trading point and stock exchange at the time, became embroiled in politics – firstly with the Netherlands’ struggle for independence from the Spanish crown and secondly with the Counter-Reformation. Rioting Spanish soldiers looted the city in 1576, and many of its inhabitants, in particular its merchants, fled. When the Spanish governor Alessandro Farnese retook Antwerp in 1585, all of the city’s Protestant inhabitants were banished. Known for its – certainly for the times – tolerant and open attitude, Frankfurt welcomed the Protestants who had left Antwerp, together with refugees from other regions in Europe.

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Frankfurt’s stock exchange was founded that same year, with immigrants from Antwerp playing a not insignificant part in its establishment. Its creation was triggered by a petition lodged by 82 merchants. According to Holtfrerich, only 13 of these were Frankfurt merchants – and twelve of these 13 had previously immigrated from the Netherlands. Of the 48 stockbrokers in Frankfurt in 1589, only six were locals – although this figure did go on to swell considerably over the following decades. For Berenike Seib, this striking moment in Frankfurt’s history is a prime example of what characterises the city to this day: “Even back in those days, the people of Frankfurt welcomed strangers with open arms – and that’s essentially true to this day. Anyone wishing to settle here will readily be integrated,” she says. “These immigrants always brought a great many ideas with them, lots of new things, insights and a good network. And the city benefits from this openness to this day.” Decades marked by change It is apt that one of the most important symbols of German democracy – St Paul’s Church, which still features in Frankfurt’s skyline – and what was possibly the most traditional symbol of Frankfurt’s financial world – the Alte Börse (Old Stock Exchange), which no longer exists – stood just metres from one another as the two most important buildings on Paulsplatz in the heart of the city. The church, which was completed in 1833, and the Old Stock Exchange – and subsequently its larger successor built on Börsenplatz in 1879 – lived through decades of historic change side by side: industrialisation; the city’s annexation by Prussia, the resultant loss of importance of Frankfurt as a centre of finance and the loss of its diverse private bank scene; the First World War; the period of National Socialism and the destruction of St Paul’s Church in a fire following an air raid in 1944. The darkest chapter in the history of Germany also marked a serious rupture for Frankfurt’s banking industry, which had been heavily influenced by the Jewish community right from the start. “There were a lot of private bankers who were Jewish in Frankfurt,” relates Berenike Seib. “Albert von Metzler, who ran our company from 1923 until 1977, counted Jewish bankers among his friends and regularly discussed the political developments with them. He realised early on that there was no future for Jews in Germany, and he later helped two of his Jewish friends emigrate.”

A symbol of freedom and tolerance: today Frankfurt still inspires those who see the Paulskirche (St Paul’s Church) as the birth place of the National Assembly in 1848. The watercolour by Jean Nicolas Ventadour depicts the church in this year of democratic reform.

Von Metzler himself became a prisoner of war under the Soviets in 1945, but returned to Frankfurt in 1950 and gradually rebuilt Metzler Bank together with his cousin Dr Gustav von Metzler. He was fortunate enough to see the city flourish again in the decades up to his death in 1989, experiencing it as a centre of finance after the Allies decided to found the Bank of the German States there and also as an open-minded city in the heart of Europe. “I hope we Frankfurters can hold on to this openness,” says Berenike Seib. “After all, it’s what the city thrives on. Which is why I would like to wrap up our walk through Frankfurt’s financial history with the euro symbol outside the ECB – it absolutely stands for this openness.”  

“

You could say we were a prime example of successful integration.

Christopher Porter

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AN EXPAT’S VIEW

“WE LOVE THE MENTALITY HERE” The US banker Christopher Porter has been living in Germany for 17 years. In the interview, he in particular praises Frankfurt’s international flair and openness. It’s 4 p.m. on a Wednesday afternoon, and we’re in the traditional Frankfurt pub “Das gemalte Haus” (the painted house) in the Sachsenhausen part of town. The first rays of springtime sun are shining through brightly coloured frescoes; antlers mounted on the walls stand as a testament to past hunting successes, and Hessen’s regional drink, apple wine, which is still made right here, effervesces in stone jugs. Christopher Porter has suggested a very traditional place as the venue for this interview. As soon as the American enters the establishment, which is gradually getting busier, it becomes clear that it’s not by chance that he chose this place. “Hey, Chris, how are things? How’s the family?” asks the owner, Andreas Rupf, while shaking his hand and patting him on the shoulder. The two of them are soon engaged in a conversation about his nearest and dearest. But Porter doesn’t leave the interviewer and photographer waiting for too long. After all, he still has to fly to London himself this evening. As head of the Frankfurt branch of the US bank BNY Mellon, he has been invited to attend a consultation there on the topic of Brexit. Mr Porter, going by the welcome you just received, we can save ourselves the question as to whether you feel at home in Frankfurt… Definitely! My wife, my three kids and I absolutely love it here – in fact, I’ve now been here for 17 years. We love the mentality here and the city’s cosmopolitanism and international flair. I know Andreas from our rugby club, SC Frankfurt 1880, for example. Our kids play there, together with other children from all over the world. You could say we were a prime example of successful integration. Rugby isn’t exactly a traditional German sport… … nor is it a typically American national sport. Rugby certainly has a long tradition in Frankfurt. SC Frankfurt 1880 was originally founded as

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a rugby club, which means they have been playing rugby here since 1880. What's more, an international sport such as rugby is typical for Frankfurt. The fact that so many people come together and interact here is really what makes this city stand out. Perhaps it’s the fact that the airport is just around the corner. Or it’s ultimately a question of the mentality of the people here, even though very few of them were actually born and raised here. Thinking back to your early days here in Germany, how did the process of transition go for you? It was very easy. I come from Pennsylvania, which was heavily influenced by German immigration. So perhaps I had already been socialised in the USA. I like the German mentality, and by that I mean the typical virtues of reliability and punctuality. This gives you a sense of security – something that is especially important in the finance sector. I had already learned German at school and also studied in Marburg for a year. So I didn’t hesitate when I was given the opportunity to move to Germany to work for BNY Mellon in 2000. For me, it was a case of love at first sight. Was your wife equally enthusiastic? There was a degree of persuasion involved initially because she felt very at home in New York. But now it would be very difficult to get her to leave again. What matters is that we have made Frankfurt our home in every way: we belong to Frankfurt’s Jewish community. With 7,000 members, it’s a very vibrant community, and we have just got our second chief rabbi. Our elementary school and high school are well attended. And we very much appreciate the support that the city gives us in general. Frankfurt is a very open city. What arguments do you use to convince foreign co-workers to come to Frankfurt? I always tell them they’ll be pleasantly surprised. Frankfurt is more accessible, is easier to get to and has greenery closer by than most other financial hubs. And it is nevertheless a big city, with all the benefits that brings with it. With Frankfurt, more than anything else it’s an image thing – Frankfurt doesn’t initially seem as shiny as other big cities, but the region offers very good work conditions and quality of life.

Brightly coloured frescoes and typical dishes in the traditional Frankfurt pub "Das gemalte Haus"

Let’s turn to Germany as a place of finance. In your opinion, what effect will Brexit have on Frankfurt and the region? A Brexit not based on cooperation would be a lose-lose situation – both the UK and the rest of Europe would be weaker as single players than if they played together. It’s therefore important that Frankfurt serves as a bridge. The financial centres can only be successful together. Many experts expect to see Frankfurt’s position strengthened. Some of the major banks will obviously relocate functions and entities to Frankfurt. I firmly believe that Frankfurt will increase in importance. But it certainly won’t oust London as the main financial hub, at least initially – London simply has too much of the critical mass, including infrastructure and liquidity. Also, the regulatory bodies would have to be built up to the same magnitude in Frankfurt in some cases, for example, in the area of derivatives. But Frankfurt will most definitely benefit from the constructive outreach of the politicians, associations and regulators. How important is Germany to you as a place of finance? Germany is an extremely important market for us. So it absolutely makes sense that we have representation here. We have 400 employees here from 30 different countries. Incidentally, we use German as our corporate

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that Frankfurt “servesIt’s asimportant a bridge. The financial centres can only be successful together.

Christopher Porter

Christopher F. Porter (45) is Managing Director, Global Client Management, at BNY Mellon. Born in the USA, he has been living in Frankfurt since 2000. Prior to this, he studied in Marburg for a year. He is married and has three children, all of whom were born in Germany.

language here. Frankfurt really is very important, among other things as a regional hub for central Europe and Israel. What would you say were the most convincing factors in favour of Frankfurt as a location? The transportation infrastructure, the labour market and higher education – it’s all really excellent. Being able to attract new talent is very important to us. Innovation is another key topic for us. The finance sector is going through a period of immense technological change. As a company, we therefore actively seek out an innovative environment that enhances our creativity. We want to develop our digital transformation strategy further, while exploring new technology opportunities, for example, in the area of blockchain. There are highly creative ecosystems for this in London, in Silicon Valley and in Israel. A similar ecosystem is currently also emerging in Frankfurt, but it still has some way to go. Mr Porter, thank you for talking to us. 



#1 QUALITY OF LIFE

POSITION IN MERCER’S QUALITY OF LIVING RANKING

#2 INTERNATIONALITY NON-NATIONALS POPULATION / IN %

#3 TRAIN JOURNEY FROM AIRPORT TO FINANCIAL HUB / IN MIN

#4 EMPLOYEES

IN THE FINANCIAL SECTOR

#5 STOCK EXCHANGE TURNOVER

S TE R DA M

RA

.

AM

F

FOCUS ON EUROPEAN FINANCIAL CENTRES

36

N K F U RT a.

M

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7

11.7

21.2

20

20

44.000

75.000

475

1.096

390

474

SHARES / IN BILLIONS OF EUROS

#6 PRIME RENTS

OFFICE SPACE M2 / YEAR IN EUROS

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D U BLIN

LU

37

XE M BURG

PA R I S

34

21

38

18.4

63.8

14.8

37

20

60

23.000

45.000

147.000

89

‹ 1

1.026

673

552

810

Sources: Deutsche Börse, CBRE, Euronext, Eurostat, Google Maps, Irish Stock Exchange, Luxembourg Stock Exchange, Mercer. Luxembourg’s stock exchange turnover is an editorial team estimate based on the published monthly turnovers of the exchange’s highest-grossing shares. Data dates: 2009–2017, online sources accessed in March 2017.

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INSIGHTS

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GERMANY AS A FINANCIAL CENTRE: FACTS, FIGURES AND ANALYSIS

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OUTLOOK

“FRANKFURT NEEDS TO BE MORE CONFIDENT” INTERVIEW WITH Dr Gertrud Traud, chief economist and head of research at Landesbank Hessen-Thüringen (Helaba)

It is fair to say that no other bank conducts quite as much research into the financial hub Frankfurt as Helaba Landesbank Hessen-Thüringen. Helaba’s chief economist Dr Gertrud Traud provides an independent analytical view of the city like no other. In an interview with Frankfurt Main Finance, she talks about where Frankfurt currently ranks in Europe – and about the areas in which the city still has some work to do.

Dr Traud, Helaba has been conducting in-depth analyses of the financial centre that is Frankfurt for years. Why do you think this is so important? Comparative analyses of this German hub of finance have always been important in order to highlight and also boost its position in the international competitive arena. The global financial crisis and the changes it triggered further increased the significance of financial hub studies. For some time now, playing an active part in developing Germany’s centre of finance and reinforcing this with regular publications has been a key concern of Landesbank Hessen-Thüringen as a universal bank based in Frankfurt with a strong regional focus. How long have you been focusing on the financial hub Frankfurt and what are the key areas you are looking at? We at Helaba have been engaged in research on the financial hub Frankfurt for eleven years, focusing on a variety of issues. It all began in 2006 with a study entitled “Frankfurt: The Financial Centre – A City on the Move”. Since then, there have been a number of publications on Frankfurt’s foreign banks (including surveys) and publications that provide forecasts for employment at the banks here. We also produced a new ranking of the major banks in Frankfurt based on employee numbers. The issues of taxation and regulation, which are important to Frankfurt as a location, have likewise been analysed. Last year, we published an anniversary study, exactly ten years after our first major publication. Things really then began to get interesting for the Frankfurt financial hub when the UK voted to leave the European Union in June 2016. We have performed extensive analyses of this issue too. What kind of approach do you take in your studies? In our first study eleven years ago, we benchmarked the three biggest financial centres in Europe. The fundamental question posed in this com-

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Overview of Helaba financial hub studies Publications: Financial Centre of Frankfurt 2006

2009

2010

2011

2012

2013

2016

, dy stu tor ry c it sa se ex er ial Br nniv anc A -fin ) y S r ve (su ina Ch nt n & me ing sio o y nk r vi pl ra pe em t& Su nk en ba ym plo em

s( su r ve

t

y)

210

2015

nk

on

en

220

2014

Ba

a ti

ym

nk

plo

ba

em

ign

nk

re

x Ta

Fo

Ba

an n pe so ro ari Eu omp c y) r ve (su pe ia of ro As ts Eu en in sm ns se tio As aca lo

230

2008

Headquarters in Frankfurt

200 190

Foreign banks in Frankfurt*

180 170 2006

2007

2008

2009

2010

2011

2012

2013** 2014

2015

2016

* Head and representative offices, ** Statistical break Sources: Deutsche Bundesbank, Helaba Economics/Research

parative analysis of the financial hubs Frankfurt, London and Paris was this: what are the characteristic features of a financial hub? We identified five characteristics which are crucial to a place positioning itself successfully in the international competitive arena. These key criteria are as follows: banks, stock exchanges, finance-related education and research, financial sector trends, and location-specific qualities. Frankfurt, London and Paris were then evaluated on the basis of numerous indicators. We came to the conclusion that London enjoyed an undisputed position as Europe’s leading financial hub, while Frankfurt and Paris both vied for the leadership position in Continental Europe. Has it not all changed since the financial crisis? The banking scene has undergone some drastic changes over the last ten years or so. The steady decline in the number of banks in Europe is indicative of the process of consolidation within the industry, which is facing some major challenges. Very low interest rates and the high costs incurred due to tighter regulatory and supervision requirements continue to weigh heavily on financial performance. These costs include not only direct costs in relation to establishing and modifying processes, detailed reporting and higher levies, but also indirect costs, in particular the reduced profitability of business activities as a result of the increased util­isation of equity. And to top it all, the banks’ business models are really being put to the test by the rapid pace of digitisation. And how is Frankfurt faring internationally as a financial hub? Overall, the financial hub Frankfurt has stayed strong in these difficult times for the financial sector. We were predicting as early as 2006 that it had a good chance of assuming the leadership position in Continental Europe in the medium term. Germany’s centre of finance has developed in many ways since then and has gained ground on Paris in particular. The significance of Europe’s three largest financial hubs in relation to one another is therefore now a clear-cut thing: London first, then Frankfurt and then Paris. Frankfurt is clearly Germany’s leading centre of finance. But is it firmly positioned in the international arena too? Germany’s centre of finance is highly attractive to international industry players. A great many banks from all over the world are based in Frankfurt. At the end of 2016, close to 160 foreign banks were operating out of

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the city on the Main – that’s 80 percent of all the banks with headquarters here. There are also many representative offices. A vast number of other finance-related service providers from Germany and elsewhere breathe life into Germany’s financial centre community too, making Frankfurt a vibrant hub of activity. What makes Frankfurt especially attractive, including in view of the impending Brexit? Frankfurt’s outstanding position within Europe’s network of financial hubs makes it highly attractive to industry players from Germany and abroad. The city on the Main boasts the following assets that will play a role in the current debate concerning businesses leaving the City of London: the stability and strength of the German economy, the ECB being based here in its dual capacity as a central bank and regulatory authority, a globally competitive stock exchange, Frankfurt being a transport hub with a good infrastructure, relatively affordable office rental prices and good quality of life with plenty of leisure opportunities in the city and in the surrounding countryside. Unparalleled high quality of life in Frankfurt Ranking of liveable cities 0

6 10

10 7

13

12

EIU: Europe 20

20

17 26

21 30

Mercer: global

34

40

38

40

50 Frankfurt

Amsterdam

Luxembourg

Dublin

Paris

London

Sources: Mercer, EIU, Helaba Economics/Research

Are there data that reflect the individual cities’ quality of life? It is common knowledge that office space is more affordable and also easier to find in Frankfurt than it is in London or Paris, and this is an undisputed fact among London-based bankers. And in terms of quality of life, Germany’s centre of finance is actually far better than its reputation – something that anyone who is open to living here will discover for themselves. In rankings of liveable cities, Frankfurt is comfortably ahead of its financial hub rivals, according to both the global recruitment consultancy Mercer and the UK’s Economist Intelligence Unit (EIU). London ranks below Frankfurt in these quality of life appraisals – by quite a margin. Frankfurt is a relatively small city, and it therefore has a different character to the centres of finance based in much larger cities. Is that more of an advantage or a disadvantage? Frankfurt is seen as more settled and simply has a different flair to the happening City of London. This means Frankfurt tends to appeal to a different target group of bankers. While London pulls in large numbers of young professionals thanks to its vibrant night life, Frankfurt has more to offer experienced bankers who are looking to get out of the fast

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lane to settle down into family life and who want to apply all their expertise. This is a factor which is not to be underestimated in the wake of the financial crisis. And Frankfurt has more than enough bars, restaurants and night clubs, not to mention a diverse cultural scene. What’s more, Frankfurt has changed immensely over the years and now boasts its own array of “in” locations. Its broad spectrum of cultural venues includes the renowned English Theatre Frankfurt located in the heart of the banking district, which is the largest theatre of its kind in Continental Europe. After all, English is now widely spoken throughout the city. Incidentally, another factor in favour of Frankfurt which should not be overlooked is its relatively inexpensive childcare and education in comparison to London. More and more playgroups and schools with an international focus are popping up throughout the region. And last, but not least, living expenses in Frankfurt are low on the whole. Is Frankfurt perhaps a “hidden champion” among the financial hubs? There is something that outsiders often deride as provincialism, but that proves to be a clear advantage for the Frankfurt community: it’s a city with short distances and an excellent transport infrastructure, so the journey to work is manageable, including for the many people who commute in from elsewhere in the region. A great many lunch meetings are held simply and quickly in or around the Fressgass pedestrian zone, with the proximity of the various financial hub players to one another contributing greatly to their business success. Both state and national politicians have called for the European Banking Authority (EBA) to be relocated to Frankfurt as a result of Brexit. Do you think this would be wise? In its capacity as a city of regulatory bodies, Frankfurt is predestined as the location of the EBA, which will be unable to remain in London post-Brexit. Increasing the concentration of Europe’s regulators in a single place such as Frankfurt could result in considerable improvements in efficiency. This would strengthen the status of Germany’s centre of finance, which is already home to a number of regulatory bodies, as the capital of European regulation. Do you expect to see Frankfurt benefiting from the UK’s decision to leave the EU? There are a lot of factors that point to Frankfurt being the main beneficiary of Brexit. But even with the many advantages of Frankfurt as a location, it cannot be taken for granted that this will be the case. After all, Frankfurt has a number of serious contenders who would equally like to see an influx of workers relocating from London, these being in particular Paris, Dublin, Luxembourg or Amsterdam. Low-wage cities in eastern Europe such as Warsaw or lesser ranked European financial hubs like Madrid or Milan could equally claim a piece of the pie – albeit a much smaller one. And then there may be institutions that relocate even further afield as part of their corporate strategy, moving to global financial hubs such as New York or Hong Kong. So the list of potential Brexit winners seemingly goes on and on. What is the appeal of Frankfurt’s biggest rivals? Paris is Europe’s third most important financial hub after London and Frankfurt. It is also a global city with plenty of cultural attractions. The other three cities being looked at are considerably smaller, but they each have their own advantages. For example, Dublin has a similar culture to that of London, and scores points with its linguistic advantage and low taxes. Luxembourg positions itself as a city of funds and various EU institutions, while Amsterdam is a traditional but cosmopolitan trading

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