French bankers already fear Brexit; Frankfurt bankers don't
'Davide', a French derivatives banker based in Paris, is apprehensive. He's apprehensive about Brexit, and he's apprehensive about Macron. Davide works for Exane, the French brokerage and asset management firm, and he says there have been layoffs. "Three traders went last Wednesday, along with a structurer who only joined us in February. A few weeks ago Exane got rid of Stéphane Bettane, the managing partner of the derivatives business."
In London, such cuts would be nothing unusual: layoffs are a fact of banking life. In Paris, they have been more of a rarity. As an example, when SocGen wanted to make 500 cuts at its corporate and investment bank six years ago, it had to commit to lengthy negotiations with union representatives first. It ended up offering each of its bankers a minimum of €30k and a maximum of €300k just to be rid of them. The voluntary scheme was massively oversubscribed (2,200 people signed up to it), but SocGen repeated the process when it needed to let go of more people two years later.
Exane didn't respond to a request for comment on last week's cuts. They're sufficiently small in scale to avoid the worst complexities of France's traditional constraints, but Davide still fears they're indicative of a who new mood and way of doing things. For French banks looking to cut costs, he says Macron and Brexit are opening windows of opportunity that were historically shut. "A lot of French banks are very over-staffed, particularly in the back office: you have people here literally doing nothing. Macron will make it possible to get rid of them. At the same time, Brexit will mean better quality staff come from London, and French banks will be able to upgrade in areas like sales and trading."
President Macron unveiled his roster of new laws in August and fast-tracked them into reality in September. Intended to breathe life into France's stultified labour market, they make it easier to cut headcount - unions won't be able to appeal to the global profitability of an organization as a reason not to let people go; short term contracts can be renewed more than twice - allowing firms to hire people short term and avoid the protections of longer term contracts.
A senior quant at a french bank, speaking on condition of anonymity, agrees that the new rules look bad for the overstaffed back offices of France's big banks. Although SocGen has increased offshoring substantially in recent years, he says French banks are behind the rest when it comes to automation. "The French banks had advanced computing systems in the early 1990s and 2000s but they haven't kept up. They rely too much on low-waged 'small hand' staff to keep costs down. This will change as Macron and Brexit shake things up."
If some French bankers are looking askance at the future, this is not the case for bankers in Germany. Frank Lehmann, a former Goldman Sachs executive director who worked for the (infamous) AIG Financial Products in London until 2009 and who now runs a private equity investment firm in Berlin and was involved in restructuring the country's banking system, says German labour protections were weakened years ago. German banks are already putting their houses in order. Rising housing costs aside, therefore, Brexit will not shake-up the industry locally.
"We already had a weakening of the labour laws in Germany with Agenda 2010 in 2003," says Lehmann. "It's easy to let go of people in Germany now - banks still might have to pay half a base salary in compensation, but bankers won't get their bonus included. A lot of my friends complain about this." Following the recent German election, which appears set to return a coalition including the Green party, he says labour laws are unlikely to be weakened further. Lehmann also points to existing restructuring plans at the likes of Deutsche Bank and Commerzbank, which are cutting a combined 40,000 people. "In Germany there has already been huge automation and restructuring in the past two to three years. Brexit is not going to change that."
Although Goldman Sachs, UBS and Bank of America have already made firm commitments to build in Frankfurt because of Brexit, most German bankers are skeptical about the number of new jobs coming their way. "If you have 200 jobs in London and you move them, you'll send 30 or 40 Frankfurt. Some will be replaced by technology and the rest will end up in India or Warsaw or Dublin," says Lehmann. "Frankfurt is an expensive place to do business. Although not as expensive as London." A German based markets MD at Goldman Sachs agrees: fewer jobs will move to Frankfurt than people expect; Brexit will simply provide an excuse to restructure and automate.
While French bankers are like Davide are worried about a future of weaker employment protection and an inflow of people from London, the German bankers we spoke to were therefore blasé. They already live with the threat of being laid off (minus a bonus) and feel more than able to compete with any ex-City staff who do arrive on their turf. This applies as much to M&A as to markets. "The generalist nature of many teams in Frankfurt make them much more experienced in execution than their London peers," says an MD and head of an industry M&A team at a European bank in the city. "Work here is much more visible here to staffers and seniors alike. This will come as a shock to anyone who's only worked in a large anonymous analyst pool in London."
London bankers looking for an "out" might therefore want to try Paris rather than Frankfurt. English schools' historic focus on teaching pupils French rather than German lessons means this is already many young bankers' preference. "I speak a good standard of conversational French, which could be improved further," says a representative London equity researcher contemplating a move to Europe.
Not all French financiers are fearful of an influx of high school conversationalists from London, however. France's world-renowned quant community sees opportunities in Brexit. Citi and HSBC have already indicated that they'll shift some sales and trading jobs to Frankfurt. If other banks do the same, the senior quant we spoke to said local career options could drastically improve: "We've suffered here because there have only been a few banks chasing the large number of highly educated graduates from French schools. This has dragged salaries down and prompted anyone who can leave to go to London or Hong Kong. French quants are hoping an influx of new banks because of Brexit will improve the Paris job market and that we'll get to stay at home."
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