Goldman Sachs may exit London for Frankfurt

American bank Goldman Sachs - which has London as its European base - relies on the EU's "passporting" system that allows it to sell across the euro zone without setting up shop in each member state, a right it expects to lose after Brexit.
American bank Goldman Sachs - which has London as its European base - relies on the EU's "passporting" system that allows it to sell across the euro zone without setting up shop in each member state, a right it expects to lose after Brexit.PHOTO: REUTERS

US bank may move some assets, operations to Germany following uncertainty of Brexit

FRANKFURT/NEW YORK • Goldman Sachs is considering shifting some of its assets and operations from London to Frankfurt, three people familiar with the matter said, as it tries to secure access to the European Union market when Britain leaves the bloc.

The United States investment bank is examining the step as a way to qualify for supervision by the European Central Bank (ECB), putting some of its operations under the watch of the euro zone's main banking supervisor.

Coming under the ECB's jurisdiction should allow it to continue selling its services to clients across the euro zone and wider EU post-Brexit, according to one person with knowledge of the matter.

However, this is uncharted legal territory and the sources said Goldman had not yet taken any decision on the matter. "Moving under ECB supervision in Frankfurt is one of the options the bank is considering," one source said. Another said Goldman had held talks about such a step with ECB officials in Frankfurt.

The plans being examined would shift Goldman's European presence towards the centre of the euro zone, representing a blow to London's status as a global financial centre - and a coup for Frankfurt, a small city that is Germany's finance capital.

A spokesman for Goldman Sachs said there were "numerous uncertainties" about the outcome of Brexit negotiations.

"We continue to work through all possible implications of the Brexit vote," he said. "We have not taken any decisions as to what our eventual response will be." An ECB spokesman declined to comment.

Goldman, whose services include broking and market-making in securities, foreign-exchange trading and corporate finance, currently relies on the EU's "passporting" system. This allows it to sell across the region without setting up shop in each member state, while under the supervision of the UK authorities. But banks' UK operations are expected to lose their "passporting" rights after Brexit.

Currently, US banks concentrate the bulk of their European operations in Britain, with 88 per cent of their regional employees based there, according to 2014 data from think-tank Bruegel. Goldman Sachs in Germany had assets of €551 million (S$842.6 million) last year, according to filings. The bank's overall assets, however, in other entities in Germany and the rest of the euro zone are higher, according to the bank.

Goldman is keeping a floor vacant at its high-rise offices in Frankfurt which could accommodate any additional staff, one of the sources said. The bank had initially intended to return this to the owner of the tower, where Goldman Sachs has occupied the top floors for more than a decade, but changed its mind after the Brexit vote.

REUTERS

A version of this article appeared in the print edition of The Straits Times on November 11, 2016, with the headline 'Goldman Sachs may exit London for Frankfurt'. Print Edition | Subscribe