A conversation withChristian Ricken, LBBW

"London remains attractive post-Brexit"

Despite the UK's departure from the European Union, London remains a promising financial center. According to LBBW board member Christian Ricken, the extra effort for maintaining a presence in the City is considered manageable.

"London remains attractive post-Brexit"

The financial center of London, according to Christian Ricken, a member of the LBBW executive board, has several strong arguments in its favor, which persist even after the departure of the UK from the European Union. Ricken includes in these the "large number of banks and a significant pool of talent, especially in the field of financial innovation." This is one reason why the regional bank is expanding its environmental products business in London even post-Brexit. Talking with Börsen-Zeitung Ricken emphasizes that "London remains attractive even after Brexit."

World's largest syndication market

Ricken points out that the English language is the "language of the market," and English legislation is the "market standard." Additionally, London is the world's largest syndication market for almost all asset classes. Lastly, London is a global city and is geographically close to Germany: "If I leave home at 6 am, I am in London at 7:30 am local time, considering the one-hour time difference."

Christian Ricken is a member of the executive board of LBBW

Ricken underscores that the business in London has not become noticeably more challenging due to Brexit. LBBW has had a presence in London since 1978, making it the oldest of the bank's 16 international locations. Functioning as a "third country branch," it falls under British supervision while simultaneously being obligated to meet the regulatory standards set by the European Central Bank (ECB). As per Ricken, the Brexit has resulted in minimal additional effort. And where it exists, it is manageable.

Legacy of Margaret Thatcher

The deregulation of the 1980s under Margaret Thatcher played a crucial role in increasing London's attractiveness as a financial hub.

Euro-clearing holds a special role when considering London. Given LBBW's significant derivatives business, Ricken highlights the importance of the Euro-swap issue for them. LBBW has placed a strong emphasis on a partnership with Eurex from an early stage. Firstly, it believes it is appropriate for system-critical transactions in Euro derivatives to be conducted in Europe by banks regulated by the ECB. Secondly, LBBW anticipated regulatory pressure in this direction. "Based on this conviction, we were able to position ourselves successfully early on," emphasizes Ricken.

Eurex has gained market share in Euro-swap-clearing. However, a significant portion of the business continues to take place in London. "It is now becoming evident that EU legislators are working towards clarity on which parts of the mandatory clearing business must be settled through an active account in the EU", notes Ricken. This is expected to "certainly strengthen the trend towards Eurex." He believes that, in the medium term, there will be several significant liquidity pools emerging. London will continue to play a dominant role in clearing non-Euro-denominated assets.

Understanding for the regulator

Ricken demonstrates an understanding that one of the primary tasks of regulators is to ensure the functioning of the capital market, even in crisis situations. "And in the case of Euro-swap-clearing, we are talking about a multi-billion-dollar business that must be reliably managed even in times of crisis." Therefore, he finds it absolutely understandable that EU regulators are pursuing efforts to have the active accounts through which the Euro is cleared located in the Eurozone.

Largest trading hub in Stuttgart

Ricken emphasizes that the heart of the bank is in Stuttgart: "Our largest trading hub is and remains at the headquarters in Stuttgart. The capital market business is centrally controlled from the headquarters." In this case, LBBW has centralized most business sectors in Stuttgart, including equity and equity derivatives trading, primary market activities, as well as bond and currency trading.

Frankfurt plays a secondary role

A significant business area based in London is credit markets. This includes the trading of bonds and structured products related to credit default swaps and credit linked notes. Meanwhile, Frankfurt is of secondary importance for capital market activities. LBBW has some trading desks, product, and sales experts in Frankfurt, but the majority is centered in Stuttgart, along with a crucial business field in London. Beyond capital market operations, the bank in London engages in activities related to real estate and project financing for the UK and Ireland, as well as export financing. "Across all activities, we have approximately 80 employees in London."

Fragmented financial landscape

The question remains as to what shifts have occurred overall towards Germany due to Brexit. According to Ricken, not all opportunities have been seized in this regard. While assets have been relocated to Germany post-Brexit, not as many employees have followed suit. During this time, banks have fragmented their personnel to various locations – "some went to Amsterdam, others to Luxembourg, Dublin, and yet others to Paris."

Ricken urges a more consistent approach in advocating for the financial hub's interests and understanding the motives of those being courted: "I believe more could have been done to noticeably enhance attractiveness, especially on the tax side." He notes that others have been quicker and more pragmatic on that front. In the long term, he considers the connection between the financial hub and academic institutions to be significant. Some institutions still exhibit reservations about collaborating with banks. "We should be much more open in this regard."