Clearing services, long a staple of the London financial industry, may be moving abroad. At least that’s the suggestion of a report from this Monday’s Financial Times. According to the report, Deutsche Bank has moved almost half of its euro clearing activities to Frankfurt from London.
What drove this behavior? Why? It’s the never-ending news story that is Brexit. The bank, which is the largest lender in Germany, appears to have moved its euro-clearing operations in order to shield itself from any potential fallout from the UK’s exit from the European Union.
On mainland Europe, regulators and firms have been falling over themselves, as they attempt to strip away as much of London’s financial services industry as they can. “To minimise risk for financial stability,” Said Olaf Scholz, Germany’s finance minister, last month, “it is indispensable that [the clearing of euro-derivatives] is subject to strong regulation and supervision in full conformity with EU standards.” The implication of this – move to Frankfurt and ensure you are on the right side of EU regulation.
Brexit job losses
London Clearing House, which stands to lose a substantial amount of business if companies do move their clearing activities out of the UK, claims London will lose 100,000 jobs if it ceases to be a hub for clearing services. How this figure was calculated is unclear in the Financial Times’ report.
For Deutsche Bank, the move to Frankfurt has not – at least for now – had any impact on its London office. The firm may have changed its clearing house, but the same London-based employees are responsible for clearing transactions.
How long this state of affairs will last is, like so many things surrounding Brexit, uncertain. In November of last year, Deutsche Börse, a subsidiary of clearing house operator Euronext, launched an incentive scheme for firms to move their clearing business from London to Frankfurt. Thus far, 29 banks, including Deutsche Bank, JPMorgan, and Commerzbank, have signed up.
Despite the hype surrounding Deutsche Bank’s actions over the past six months, euro clearing still only makes up a small part of clearing houses’ revenues. Euro-based interest swaps, for example, make up just 2.6 percent of Euronext’s revenues.
Will there be a move away from London for clearing services as a result of Brexit? It’s possible. Will the impact be as apocalyptic as the London Clearing House predicts? Probably not.