This article is part of a series on the Future of the City of London

For months after the Brexit referendum, Japanese bankers were invited on tours of Frankfurt. Some took in a football match and met one of the local club’s star players: Makoto Hasebe, former captain of Japan’s national team.

Impressed by the German city’s clean air, green spaces and family-friendly atmosphere, most of the Japanese bankers switched their plans for establishing a post-Brexit EU base in Amsterdam, opting for Frankfurt instead.

“One of the biggest issues we have with people is to get them here to see it and then they are pleasantly surprised by what they find,” said Hubertus Väth, head of the Frankfurt Main Finance lobby group.

Mr Väth admits, however, that his headline-grabbing prediction on the day after the Brexit referendum in June 2016 — that 10,000 jobs would shift from London to Frankfurt — has failed to materialise. Instead, he now believes Brexit created about 3,000 extra jobs in the German financial capital by June, including related consultants and IT services providers.

“We expect another 1,000 jobs to come in the following months, which may extend into early next year as 500 jobs are still being negotiated with regulators because of the Covid-19 situation,” said Mr Väth. “The traders have been the big holdouts so far.”

When Britain voted to leave the EU — a process culminating in the end of the transition period on December 31 — it prompted a scramble by rival financial centres across Europe. They were competing to attract the many jobs and assets expected to leave London as Brexit threatened the UK’s access to the bloc’s single market.

La Défense business district west of Paris © Christophe Archambault/AFP/Getty

France, Italy, the Netherlands and Spain introduced special tax breaks for wealthy financiers relocating to their countries. Germany changed its rigid labour law to make it easier for companies to fire highly paid “risk-takers” including traders in investment banks.

Emmanuel Macron, France’s president, even welcomed 140 global industry and banking bosses to dinner at the Palace of Versailles in 2018, urging them in English to “Choose France”.

Despite all this courting, the expected flood of bankers leaving London has so far proved to be more of a trickle. And the spoils are spread between many different cities. Most investment bankers and traders headed to Frankfurt and Paris, while asset managers favoured Luxembourg, and back-office operations have gone to Dublin and Warsaw.

France's President Emmanuel Macron (centre right) and Bill McDermott, chief executive of SAP (centre left), during the “Choose France” summit at the Palace of Versailles © Thibault Camus/AFP/Getty

Christian Noyer, a former French central bank governor, said Brexit would herald a return to a time before “Big Bang” — the deregulation of the City of London in the 1980s — when finance was much less concentrated in one place.

“If we go back 30, 40 years, there was a time when the financial centre was much less concentrated in London . . . when banks had more staff in Paris than in London,” he said. “The moves might have been slowed down by Covid-19, but we are going to have lots more of these traders moving at the end of this year and all through next year.”

Future of the City

French bank Société Générale has moved about 300 jobs out of London. “All banks had to rebalance,” said Frédéric Oudéa, its chief executive. “The ones that had all their trading operations in London had to repatriate people to deal with eurozone-related activities. There was a certain shift, but the magnitude has been relatively moderate.”

Doomsday predictions in a London Stock Exchange survey in 2016 estimated that 232,000 financial services jobs could leave the UK as a result of Brexit.

Not only have far fewer jobs left the country, but many footloose financiers continue to operate at least partially in London — commuting back and forth each week between the city and the continent, at least before the pandemic complicated travel.

David Benamou, chief investment officer at French asset manager Axiom Alternative Investments, set up a UK offshoot of the company in 2013. He has lived in London ever since, while also spending one night a week in a hotel next to its Paris headquarters.

About 3,500 financiers have moved to the French capital since the Brexit vote, according to the Paris Europlace lobby group, including senior executives from Bank of America, JPMorgan and BlackRock. But Mr Benamou is among those betting that the City will remain a big enough market with enough talent to make sticking around worthwhile.

“It took 20 years to build up London as the centre of world finance. So, tearing it down . . . I find it hard to believe that can take place in less than 10 years,” he said.

Yet Mr Benamou believes that instead of setting up in London and expanding into Europe, the opposite is happening. “Now if I had to start a business from zero, of course I would start from the continent, because there wouldn’t be any point starting from the UK,” he said.

The fountain in Piazza Gae Aulenti square in Milan © Emanuele Cremaschi/Getty

Davide Serra, founder of asset manager Algebris Investments and a big donor to the Remain campaign, remembers his son’s disappointment shortly after Brexit. This is partly why he relocated from London to Milan with his family in 2018.

“He told me he was sad and felt lost because we are Europeans. Through that feeling of being ripped apart I understood I wanted my British kids to have an international experience,” Mr Serra said. While Algebris has offices in Milan, Rome, Luxembourg and Dublin, he still flies back and forth to its London base for a few days each month, “Covid permitting”.

People moving to Frankfurt often start off by commuting back to the UK at the weekends, according to Daniel Ritter, executive partner at Von Poll, a German estate agent. “A lot of buildings here were refurbished as serviced apartments, as many of the bankers moving here leave their family in London and fly back there on Fridays,” he said.

After the Brexit vote, there were fears that other European cities would lack capacity in housing and schools to cope with the new arrivals. But Paul Fochtman, headmaster of Frankfurt International School, has only seen a steady trickle of Brexit-related admissions, which he estimated at just under 100 in total.

The Frankfurt skyline as seen from the 15th floor of the European Central Bank headquarters © Alex Kraus/Bloomberg

“We’ve always had people moving from London but there is a bit more urgency now,” he said.

Brexit also boosted applications from London for places at the bilingual École Jeannine Manuel in Paris, from 50-60 a year before Brexit to a peak of 264 last year. There was a dip in 2020, but Bernard Manuel, chairman of the school’s board of trustees, said: “We see a substantial increase next year and many, many phone calls from major banks . . . one bank just told us they have 70 kids that need places.”

Jean Pierre Mustier, chief executive of Italian bank UniCredit, said it suited lenders to relocate some staff out of London after Brexit because of the UK capital’s high costs. “There will be an adjustment — it's gravity at work,” he said. “Probably a lot of banks will look to relocate French staff to France, Italian teams to Italy and German teams to Germany.”

Deutsche Bank's twin tower headquarters, beside the Frankfurter Sparkasse Tower in Frankfurt's financial district © Alex Kraus/Bloomberg

More than 7,000 wealthy Italian expats chose to come back between 2017 and 2019, and benefited from a 50 per cent tax exemption on their Italian income, according to data from the tax administration. The exemption was increased to 70 per cent from this year. 

Another benefit, under which individuals pay a flat yearly €100k on their foreign income, has attracted footballers like Cristiano Ronaldo and private equity executives earning large sums of “carried interest” from buyout funds.

Luigi de Vecchi, Citigroup’s corporate and investment banking chairman for continental Europe, relocated from Milan to Paris three years ago. However, he has spent most of 2020 in his home country of Italy because of the pandemic. From here he watched a flurry of new arrivals. 

“I feel like a real estate agency lately, I’ve had around 30 acquaintances ask me for advice on where to live in Italy,” he said. “People are willing to pay rentals that might be peanuts for the London market but are very high for Italy.”

With many banks allowing most staff to work remotely during the Covid-19 pandemic, some question whether they still need to move for Brexit. Yet supervisors at the European Central Bank suspect that lenders are dragging their heels on relocating staff and using coronavirus as an excuse. The ECB warned last month: “Remote working arrangements do not change the fundamental need to relocate staff to the EU.”

Even Deutsche Bank, which initially identified 4,000 jobs at risk of moving, has only shifted about 100 positions out of London to Frankfurt, with another 200 to 300 to follow. The timing and exact number of the extra moves hinges on regulatory and political decisions.

Frankfurt-based public lender Helaba estimates that about 1,500 positions have been moved to the city, and expects 2,000 to follow over the next two years. But that will not offset the jobs Frankfurt-based lenders are axing: overall banking jobs in the city are expected to fall 3 per cent to below 63,000.

“This is very regrettable,” said Helaba’s chief economist Gertrud Traud. “Banks that have to move jobs scrutinise very closely if they really do need those positions at all in the future.”

Additional reporting by Laura Noonan in New York, Owen Walker in London and Olaf Storbeck in Frankfurt

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