Frankfurt’s Uncertain Future-Brexit Winner, Brexit Loser


By Tim Bartz and Martin Hesse

Frankfurt is booming and thousands of investment bankers are heading for the German financial capital as a result of Brexit. But can the city handle the influx? Its already fragile social structures are being stretched to the breaking point.

The man who has been tasked with turning Frankfurt into a top-ranking international metropolis loves his “living room.” That is what locals call the Römerberg, the square in Frankfurt that is the seat of the city’s government, lovingly rebuilt with the half-timbered structures that graced the site prior to its World War II destruction. Frankfurt Mayor Peter Feldmann enjoys being photographed here, in front of his official residence. But on this pre-Christmas day, the mayor has to stay inside. The square is jammed with thousands of tourists from Asia, America and other parts of Germany shopping at the city’s Christmas market.

It is a fitting backdrop for Feldmann as he holds forth, eyes ablaze, about the opportunities and challenges facing his city. The mayor has discarded his suitcoat and leans across the table. “Frankfurt is the most international, the most global city in Germany,” he says. He adds that it could soon become the first large city in Germany to completely rid itself of unemployment.

Feldmann insists that none of what is currently coming into Frankfurt from London as a result of Brexit, or what may be coming in the future – the executives, the money, the growing apartment shortages and the foreign influences – is new for the old trading city. Its 730,000 residents, the mayor boasts, didn’t even have trouble integrating the more than 5,000 refugees who arrived in the city.

Not everybody in the city, though, is completely taken with Feldmann’s ostentatious equanimity. Ever since the British voted to leave the European Union in the June 23, 2016 referendum, Frankfurt has been buzzing. The business elite want to see the mayor take advantage of Brexit and finally transform the city into the Continent’s most important financial center. Speculators are excited about the possibilities – and particularly enthusiastic about the potential arrival of thousands of wealthy bankers with the salaries to rent expensive apartments and the expense accounts to fill up restaurants.

But Brexit has raised concerns among average earners. They are already suffering from the rising cost of living in the city as salaries have stagnated. For the past several years, up to 15,000 new residents have been moving to Frankfurt each year. Apartments are increasingly difficult to come by and formerly left wing-alternative districts like Bockenheim and Nordend have become too expensive for average earners. Schools and kindergartens are overflowing while in the area surrounding the central train station, once notorious for drugs and its red-light scene, hipster bars are multiplying. Speculators are buying up properties and fear of gentrification is spreading.

Many German cities are facing similar problems, but the situation in Frankfurt has been augmented by Brexit, making it unique. And right in the middle is Feldmann, a 59-year-old Social Democrat who has been at the helm in Frankfurt since 2012. More than anything, he wants peace in his living room, something that has led people to accuse him of being a political lightweight dreaming of an egalitarian utopia. “It’s about finding the right balance,” says Feldmann. “Of course, Frankfurt will benefit from Brexit, but the population cannot be made to suffer as a result.”

Finding that balance won’t be easy. The competing interests in the city are too divergent. The chasm between bankers and critics of capitalism, between the rich and the poor, between the up-and-comers and the down-and-outers is growing deeper. And the influx from London means the arrival of a scapegoat on whom all the changes can be blamed: investment bankers.

The feeling of upheaval is palpable – but so too is the sense that the mood in the city could quickly turn sour.

The Lobbyist

The offices of the lobbying group Frankfurt Main Finance are located less than two kilometers away from city hall on the other side of the Main River, which cuts through the city. The group has conveniently chosen a spot directly across from the European Central Bank (ECB), which expanded its powers and boosted Frankfurt just as the banking crisis was threatening to weaken the city.

For years, the 57-year-old head of Main Finance, Hubertus Väth, slaved away in his effort to improve Frankfurt’s image – with middling success, until Brexit presented him with the opportunity of a lifetime.

On the night of the referendum, he was sitting in the Main Nizza restaurant until 2 a.m. watching the results come in on television. When he went to bed, the results were still 52:48 in favor of remaining. But shortly after 6 a.m., a journalist called him, asking for his comments on Britain’s decision to leave the EU. “Fifteen minutes later, I was in my office,” Väth says. “We launched prearranged campaigns on social medial platforms and went live with our call center. Our message: Welcome to Frankfurt.” Since then, he has given some 800 interviews while Frankfurt Main Finance has been mentioned in 5,700 articles by 2,000 media outlets in 94 different countries.

Väth is fond of throwing out numbers. Shortly after Brexit, he released two numbers that have since been widely shared: In the next five years, 25,000 financial industry workers would be leaving London, with 10,000 of them settling in Frankfurt. He claims to know which jobs will have to be moved to the EU if banks, funds and insurance companies want to remain active in the European Union. And he wants to attract as many of them as possible to Frankfurt.

The lobbyist tries to convince people with economic arguments: productivity, proximity to the ECB, IT infrastructure, international connections and Frankfurt’s manageable size. “The smallest world city,” as Väth calls it.

But he doesn’t have enough political support. Whereas other cities sent heads of government and cabinet ministers to the UK, Hubertus Väth was largely left alone to represent Germany. “We do it differently in Germany,” he said in London. In the end, he called for reinforcements and contacted the Hesse state capital in Wiesbaden. Governor Volker Bouffier then flew to New York for a meeting with senior executives from the five largest banks in the United States, bringing along the best wishes of German Chancellor Angela Merkel: “We want you to come and we will welcome you with open arms.”

But even the financial sector has been reserved about promoting Väth’s message. “For a long time, only very few people really identified with Frankfurt as a financial hub,” he complains. There was a time when the head of Deutsche Bank was the international face of Frankfurt. But he and his successor Josef Ackermann transformed Deutsche Bank into an Anglo-Saxon institution whose brain led the company from London while its heart shriveled back home in Frankfurt.

In the days following the Brexit vote, key figures in the Frankfurt banking sector spoke disparagingly of the city as a place of business, Väth says. And yet, he continues, Brexit could give the entire city a boost, bringing in purchasing power, innovation and, more than anything, more relevance in the banking world.

“It is an opportunity for Frankfurt,” Väth insists. For too long, the German financial metropolis lost talented people, having “become an afterthought to London internationally.”

That could now change, Väth believes, in part because of Frankfurt’s history of resurrecting itself after being destroyed in World War II. People in the city, he says, don’t live in the past, but in the here and now. “I’m not afraid of investment bankers coming here with their know-how.”

The Skeptic

Lothar Reininger isn’t afraid of investment bankers either. But the head of Club Voltaire also doesn’t think that Frankfurt needs any more of them than it already has. The bar and event space is one of the last remnants of the left-wing protest culture in the city. Recently, a former comrade of Che Guevara’s made an appearance here and the club was packed full of people convinced they were fighting to make the world a better place.

But Reininger – a veteran of the 1968 movement with a full beard and hoodie – would like to engage in more political dialogue with those who would like to do more than just have their worldview affirmed by a visit to Voltaire.

Left-wing protests, after all, have become a rarity in Frankfurt. It is hard to imagine that the high-end district of Nordend used to be a stronghold of the student movement and the Außerparlamentarische Opposition, or “extra-parliamentary opposition,” a leftist political protest movement. It is easily forgotten that buildings here were occupied and street battles were fought – and members of the left-wing terrorist group Red Army Faction even used to seek refuge here.

Today, political protest is limited to local initiatives, like peaceful marches intended to draw attention to the shortage of affordable housing. Old 1968 activists like Joschka Fischer, Daniel Cohn-Bendit and Johnny Klinke have long since become part of the establishment.

It was the financial crisis in 2008 that brought people back out onto the streets. But the hullabaloo surrounding Blockupy, an anti-authority protest movement, vanished almost as quickly as financial industry executives’ remorse. In the aftermath of the crisis, Reininger says, bankers also began coming into Voltaire – looking for the meaning of it all, the club manager adds in amusement. But most of them, he said, soon returned to the outdoor tables in the nearby shopping promenade, sipping champagne.

Reininger hasn’t forgotten the financial crisis, which is why he has a hard time understanding people like Väth. “It would be crazy to turn back time and want to transform Frankfurt into the financial capital of Europe.”

Banks in Frankfurt lost some of their economic importance as a result of the crisis, with 40 percent of corporate tax now coming from industry. But the Brexit boom, Reininger worries, could once again push banking to the top of the economic food chain – at a time when many experts have already begun warning of the next crash. “And how far will the city fall the next time the bottom falls out?”

In the 1990s, Frankfurt went through a period of deindustrialization. The chemical giant Hoechst was taken over and many jobs were eliminated. Smaller companies like VDO, Telenorma, Hartmann & Braun and office-supplies producer Triumph-Adler cut jobs, moved away or closed their doors. At the time, Reininger was council chairman at a Triumph-Adler factory and organized the effort to resist the job cuts, the consequences of which remain visible today.

Many Frankfurt residents have paid for the transition to a service economy with a decrease in income. Reininger calculates that 30 to 40 percent of residents haven’t seen any real wage increases in the past 25 years, and that half of them earn no more than 2,000 euros per month, after taxes. At the same time, high earners are streaming into the city and its surroundings. Particularly since the ECB came to the city, thousands of monetary policy experts, economists, bank controllers and other highly qualified and well-paid white-collar workers have moved to Frankfurt.

Furthermore, rents have been rising rapidly for years, says Reininger, and more and more Frankfurt residents have the feeling of being left out of the city’s prosperity. “Even just the prospect of a stream of people coming in the wake of Brexit has led rents and prices to go up again. A gold-rush mentality has arrived,” he says.

Mayor Feldmann also recognizes the danger that the real estate boom could divide the city. But he suggests that they have everything under control. “The Brexit hype is primarily taking place in the minds of the real-estate speculators,” he says. “We now need to open the valves to let the steam out of the real-estate bubble.”

Feldmann points to the fact that there is a rent freeze in effect for the 52,000 apartments of the city’s housing firm, ABG, and that new projects are required to include 40 percent affordable housing. He adds that the city is building thousands of new apartments and that there is finally also a requirement for private investors to make about one third of new buildings available to subsidized housing. “Despite our requirements, people are diligently investing,” says Feldmann.

But the city’s development isn’t proceeding as seamlessly as he presents it. “There used to be 40,000 rent-controlled apartments in Frankfurt, but now there are only 20,000 to 23,000,” says Reininger. He claims the city failed to build new housing rapidly enough.

Some of the communities bordering on Frankfurt have also proved to be stubborn. Feldmann would like to build a residential area near the village of Steinbach, for example, but the community doesn’t want its fields covered and its clear view of Frankfurt blocked.

Feldmann claims that cooperation with communities like Offenbach, a nearby city of 123,000, has been more successful. But is that enough?

No, believes Reininger, who argues that Brexit is causing the city lose its equilibrium. “Another 10,000 bankers would be the end of Frankfurt from a socio-political perspective,” he says.

Profiteers and Commuters

Ulrich Höller has a completely different view. The wiry manager is head of the German Real Estate Group (GEP), one of the biggest real-estate developers in Frankfurt. His newest project, and perhaps his most spectacular one to date, is called the Riverpark Tower. It was once an office building, perhaps the ugliest in the city, but it has an unbeatable view of the Main River and the city’s Sachsenhausen quarter.

He is currently turning the 95-meter (300-foot) tower into a residential building at a cost of 220 million euros. The “landmark building,” as Höller calls it, was designed by the architect Ole Scheeren, who has completed several high-profile projects in Asia, and will be characterized by its asymmetrically staggered stories covered in glass. The design makes it look a bit like a Jenga tower shortly before collapse – and like a project for those with deep pockets, of which there will soon be a few more in the city.

Höller admits that there have been hardly any inquiries from Brexit refugees. “But that will come.” Across the city, at least 10 residential high-rises will be completed in the next few years and thousands of luxury apartments will come on the market, costing between 5,000 and 18,000 euros per square meter – too expensive for average earners but a steal in comparison to London.

Investors like Höller aren’t just trying to attract bankers displaced by Brexit. The city is booming already, even without a British influx, and as is the case everywhere, people in the German financial industry are paid vastly higher salaries than average.

“People make lots of money here, businesspeople from around the world. They want to live according to their standards,” says Höller. He is also aware that tens of thousands of average wage-earners are on the look-out for affordable housing. But he says that providing for them is primarily the task of policymakers. Frankfurt and the surrounding communities need to coordinate more closely, he says, adding that there is enough space for construction and plenty of land available.

In the Riverpark Suites, which he is building at the foot of the tower, Höller has reserved 30 percent of the living space for subsidized housing. “That, of course, lowers my return on investment,” says Höller – but the next project is sure to come along and a good relationship with the city certainly can’t hurt.

Höller also makes money from the shortage of residential space in a private capacity. Höller is one of the owners of a complex of furnished apartments in the chic Westend, and he himself lives in one of the units. The property’s primary proprietor is Michael Schramm, former head of the private bank Hauck & Aufhäuser. In 2016, Schramm left banking and moved into real estate. Now he owns 15 corporate housing complexes with about 550 furnished apartments for temporary lease, as well as three hotels, primarily in Frankfurt. His business partner is Hasan Salihamidzic, the former professional football star and current sports director of FC Bayern.

From the sale of his shares of Hauck & Anhäuser, Schramm bought his first four buildings in 2012 and hired his driver as caretaker. His breakthrough came in 2014 when he won the ECB’s call for tender. The central bank needed to house hundreds of new employees in Frankfurt that year when its new supervisory mandate (known as the Single Supervisory Mechanism) went into effect. Now, Schramm and Salihamidzic have rented 150 apartments to the ECB alone. “That is about 250,000 euros per month from Europe’s most creditworthy renter,” he says.

And soon, he will be expanding his inventory by 100 apartments. He says a Chinese investor has already asked if he could come on board. “They ran an analysis to determine how they could best profit from Brexit in Frankfurt. They concluded that the answer was corporate housing.”

Although Schramm has yet to notice a significant uptick in demand for living space among Brexit refugees, he believes it’s only a matter of time. “Many are soon going to be moved temporarily to Frankfurt. They won’t immediately bring their entire families with them, but will commute back home on the weekends.”

The example of Deutsche Bank provides a look at how the situation is likely to develop. At a conference last spring, management board member Sylvie Matherat, Deutsche’s chief regulatory officer, outlined what Brexit would mean for the bank.

Around 4,000 employees would have to be moved from London to Frankfurt, she said, including account managers, IT experts and risk managers. The moves are predicated on rules issued by the ECB’s Single Supervisory Mechanism, led by Matherat’s fellow Frenchwoman Danièle Nouy, which require banks that conduct their Europe-related business from London to move key functions like risk management into the eurozone. Matherat’s compliance department, one of the few areas where Deutsche Bank is still growing, might also need more people in Frankfurt.

But will all these bankers simply uproot and move with their families to Frankfurt after so many years in London? That’s unlikely. Countless Deutsche Bank managers prefer to commute and even some board members no longer have their primary residence in Frankfurt. Matherat, who has been with Deutsche Bank since 2014, says she generally only spends two days a week in Frankfurt, with much of the rest of her time spent travelling the world for work or in her hometown of Paris. She is considered a fashion aficionado and is deeply enmeshed in the French elite – hardly the kind of person happy to settle down in the rather unglamorous western German metropolis.

Many lower-ranking executives are also likely to set up provisional homes in Frankfurt rather than moving there permanently. And Deutsche Bank is said to have contractually obligated itself to provide furnished apartments to its employees.

The Banker

One of those who has already made the move from London to Frankfurt is Sven Baumann. In 2015, after 12 years in London, the 48-year-old switched employers, leaving Merrill Lynch for its rival Citigroup, where he is now co-head of investment banking for Germany. In a sense, he is a kind of scout for the myriad investment bankers still in Britain, though Baumann himself isn’t directly contributing to the city’s apartment shortage. Rather, he has chosen to live in Kronberg, a gilded bedroom community with more “income millionaires” than in Frankfurt.

Does he think others from the City will be interested in moving to Frankfurt?

“Those who can will avoid it. And those who need to will become shift workers,” says Baumann. “There are definitely more open positions than there are candidates.” This is partly because there are still countless excellently paid alternative jobs in London.

Baumann says he is often asked by coworkers and friends if Frankfurt isn’t a rather dreary place to live. He can’t dispute it. “Gastronomically, and in terms of the cultural offerings, the city is behind, and it isn’t as multicultural as London. There, I felt like a citizen of the world, here I feel German.” Still, he says, even if Frankfurt is rather provincial, it is more pleasant for families, with a higher quality of life and less pressure on children than in London’s private schools. “Frankfurt feels like a compromise.”

It is a dilemma.

Mayor Feldmann is the one responsible for bringing all of the opposing interests together and showing the way forward. He is burdened with the hopes of those looking for affordable housing, as well as those of the financial lobby, which wants to use Brexit to its advantage.

Feldmann’s problem isn’t just that he is up for reelection on February 25. His bigger hurdle is that, even if he wanted to, the mayor cannot rule by decree. The municipal constitution states that the mayor, who is elected directly, must nevertheless work closely with the city council – two-thirds of which is currently made up of political opponents.

He also lacks control in the greater region: “There is no regional parliament, no key person for the overall region of Frankfurt/Rhine-Main,” says Feldmann. And the state of Hesse, in which Frankfurt is located, would hardly allow such a thing anyway.

He also can’t place any hope in the federal government: Nobody wins votes by fighting on behalf of investment bankers. Last November, when the relocation of the European Banking Authority (EBA) came up for discussion, Feldmann was left to fight for the agency largely on his own. Politicians in Berlin, busy trying to negotiate a coalition following last September’s general election, did nothing at all to help. And the EBA was given to Paris.

Still, his city is in a historically unique situation and it is facing a crucial test. But Peter Feldmann, the man who must make everyone happy, is a king without a country.




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