Sumitomo Mitsui Financial Group (SMFG) has become the latest lender to unveil plans to relocate out of London to Frankfurt. Japan’s third largest bank by assets has selected the German city as the center for its EU operations moving forward, becoming the third Japanese bank in the past month to choose Frankfurt.
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Last month, both Nomura and Daiwa Securities Group publicly revealed their intent to relocate to Frankfurt. The SMFG decision follows months of contemplation from many in the banking community, many of whom have now made more concrete plans. The past two weeks has seen a tidal wave of lenders announce their plans for life after Brexit , with nearly all of them choosing Frankfurt or Dublin.
No longer worth the wait
The decision by SMFG and others to relocate their EU headquarters was ultimately caused by the UK itself, given that passporting rights to the country are not guaranteed. Despite UK PM Theresa May’s insistence that this practice would be curtailed, her recent electoral setbacks have since cast doubt on the severity of Brexit, which had been showing signs of softening in recent months.
However, SMFG's move out of London reflected a precautionary mindset. The group cited potential future restrictions in its services, compared with the lack of such in Germany. The stance echoes that of many other lenders operating in London, many of which simply are opting for safer and more stable options to avoid any possibility in a lapse of services to EU clients.
SMFG presently maintains its London headquarters for its EU operations – per its move the lender will be transferring both its primary banking business segment and its investment banking division to Frankfurt as new subsidiaries. Consequently, SMFG will be joining Nomura and Daiwa Securities in applying for banking licenses with German regulatory authorities.
New incentives
Speaking of regulations, SMFG’s recent plans also mesh with a series of new incentives from Frankfurt itself to entice banks to its jurisdiction. Earlier this week, the city exempted specific components of its labor laws – in particular, labor laws in Germany mandate big payouts for redundancies and make it more difficult to fire personnel. These aspects had proven problematic to many banks, especially given the nature of the industry presently.
Initially, proposals were floated to exempt only high earning banks from these rules, a stance that has now been extended to entire banking personnel structures, or more aptly put, ‘risk takers’. Frankfurt also boasts a number of advantages for incoming and prospective banks, namely its geostrategic location in the heart of the bloc. In addition to a talented labor pool, the city is an economic powerhouse despite low rental costs, relative to its competition.
