Citigroup Becomes Latest US Bank to Choose Frankfurt for EU Base

Citigroup has moved forward with its plans to relocate its EU base of operations post-Brexit Brexit Brexit stands for British Exit, or in reference to the United Kingdom’s decision to formally leave the European Union (EU) as declared in a June 23, 2016 referendum. In a more immediate sense, a tight vote and unexpected result helped drive British pound (GBP) to lows that had not been seen in decades. The day following the referendum, former Prime Minister David Cameron resigned from office where he was replaced by Theresa May, who later resigned from office on June 7th, 2019. Active Prime Minister Boris Johnson was elected Prime Minister the following month, who was well-known as a headstrong Brexit supporter.  While the United Kingdom was predicted to leave exit the EU by October 31st, 2019, the U.K. Parliament sought out a deadline extension that delayed voting on the new deal.  Following Boris Johnson’s reelection, Brexit occurred on January 31st, 2020 at 11 pm Greenwich Mean Time.  Brexit Creating Ongoing Issues in with Europe While the United Kingdom is in a transition period following its departure from the EU, the U.K. is negotiating its complete trade relationship with the EU, which is the United Kingdom’s largest trade partner. Terms of this trade agreement must be met by January 1st, 2021. Should terms of this trade agreement take longer than the projected resolution date of January 1st, 2021 then the U.K. must acquire an extension no later than June 1st, 2020. Failure to do so will result in the U.K. is subject to tariff and host rule changes exercised by the E.U. This situation is referred to as the “no-deal” Brexit and should this occur the consequences could result in a significant fallout of the U.K. economy.  For the past few years, many banks and lenders operating previously in the UK had been given passporting rights to the European continent. The lingering uncertainty caused by Brexit resulted in many of these lenders relocating their European headquarters within continental Europe. Brexit stands for British Exit, or in reference to the United Kingdom’s decision to formally leave the European Union (EU) as declared in a June 23, 2016 referendum. In a more immediate sense, a tight vote and unexpected result helped drive British pound (GBP) to lows that had not been seen in decades. The day following the referendum, former Prime Minister David Cameron resigned from office where he was replaced by Theresa May, who later resigned from office on June 7th, 2019. Active Prime Minister Boris Johnson was elected Prime Minister the following month, who was well-known as a headstrong Brexit supporter.  While the United Kingdom was predicted to leave exit the EU by October 31st, 2019, the U.K. Parliament sought out a deadline extension that delayed voting on the new deal.  Following Boris Johnson’s reelection, Brexit occurred on January 31st, 2020 at 11 pm Greenwich Mean Time.  Brexit Creating Ongoing Issues in with Europe While the United Kingdom is in a transition period following its departure from the EU, the U.K. is negotiating its complete trade relationship with the EU, which is the United Kingdom’s largest trade partner. Terms of this trade agreement must be met by January 1st, 2021. Should terms of this trade agreement take longer than the projected resolution date of January 1st, 2021 then the U.K. must acquire an extension no later than June 1st, 2020. Failure to do so will result in the U.K. is subject to tariff and host rule changes exercised by the E.U. This situation is referred to as the “no-deal” Brexit and should this occur the consequences could result in a significant fallout of the U.K. economy.  For the past few years, many banks and lenders operating previously in the UK had been given passporting rights to the European continent. The lingering uncertainty caused by Brexit resulted in many of these lenders relocating their European headquarters within continental Europe. Read this Term, honing in on Frankfurt as its newest Hub Hub A hub as its name suggests describes the center of activity or a focal point. In terms of finance, the term hub can refer to Hub and Spoke Trading or a liquidity hub. However, the terms are not interchangeable, but they do overlap. Hub and Spoke trading refer to a network that posts bids and offers for an asset and therefore creates a real market. For example, Hub and Spoke trading allow traders to see the other submissions and offers from other traders on the platform. This is a popular method used by cryptocurrency exchanges. This method provides transparency and allows traders to see the depth of the market. It also allows for more competitive pricing because there is no trading desk and no price manipulation. The disadvantage of this type of platform is that sudden market volatility can shift all traders to one side of the market or the other. There can be all buys and no seller or all sellers and no buyers. Liquidity Hubs ExplainedThis leads us to a liquidity hub, which platforms and brokers use to process each trade on their platform. When many liquidity providers join together to form a liquidity hub, they can also process trades whether they are more buys then sellers or vice versa. Deals can be processed faster for lower costs. Liquidity hubs allow brokers to deliver tight spreads into their traders and execute client orders at the best available prices from multiple liquidity providers. Liquidity hubs are traditionally hosted in premier data centers with a high concentration of trading participants such as Hong Kong, Chicago, or New York. These hub services provide full redundancies on the equipment and network supporting them, including the international pipe to primary and secondary data centers. A hub as its name suggests describes the center of activity or a focal point. In terms of finance, the term hub can refer to Hub and Spoke Trading or a liquidity hub. However, the terms are not interchangeable, but they do overlap. Hub and Spoke trading refer to a network that posts bids and offers for an asset and therefore creates a real market. For example, Hub and Spoke trading allow traders to see the other submissions and offers from other traders on the platform. This is a popular method used by cryptocurrency exchanges. This method provides transparency and allows traders to see the depth of the market. It also allows for more competitive pricing because there is no trading desk and no price manipulation. The disadvantage of this type of platform is that sudden market volatility can shift all traders to one side of the market or the other. There can be all buys and no seller or all sellers and no buyers. Liquidity Hubs ExplainedThis leads us to a liquidity hub, which platforms and brokers use to process each trade on their platform. When many liquidity providers join together to form a liquidity hub, they can also process trades whether they are more buys then sellers or vice versa. Deals can be processed faster for lower costs. Liquidity hubs allow brokers to deliver tight spreads into their traders and execute client orders at the best available prices from multiple liquidity providers. Liquidity hubs are traditionally hosted in premier data centers with a high concentration of trading participants such as Hong Kong, Chicago, or New York. These hub services provide full redundancies on the equipment and network supporting them, including the international pipe to primary and secondary data centers. Read this Term. The decision was preceded by months of contemplation for the US lender. Most other banks operating in the UK are also considering such a move as they wait for cues from the Brexit negotiations.

The London Summit 2017 is coming, get involved!

Citigroup joins Morgan Stanley, which last month became the first US bank to decide on Frankfurt as its future EU trading nexus following Brexit. The timing was ultimately dictated by the Bank of England calling for a mid-July deadline for UK-based banks to provide the regulator with detailed plans about their Brexit strategy. This coincided with a string of recent announcements from a plethora of lenders all publicizing their plans after months of chatter.

Targeted move

Unlike other lenders that are planning a more substantial overhaul or relocation of personnel, Citigroup plans to create only between 150 and 250 new roles in the German city, according to a Bloomberg report. It is presently unclear if these roles will be filled by existing personnel in the UK or will be hired in Frankfurt.

Frankfurt itself does boast many inherent advantages, namely its geo-strategic location in the bloc and talented labor pool. Frankfurt has also opened up its arms to prospective lenders, offering to relax rigid labor laws and give banks more flexibility to make people redundant.

Interestingly, the decision was initially caused by the likely cessation of passporting rights to the UK. However, while UK PM Theresa May has insisted that passporting would be curtailed for lenders, her recent electoral setbacks have led to signs of a softened Brexit, leading to a potential bid to retain these rights.

A two-horse race has now emerged from the original selection of EU cities that threatened London’s status as Europe’s financial capital. Frankfurt and Dublin are now the front runners, securing the biggest names to date. Moving forward, it will be interesting to see if Frankfurt’s dearth of office space, seen as a potential Achilles' heel for broader relocation efforts, will be a factor for other lenders not yet decided on their relocation plans.