Citigroup in innovation centre boost to City of London

Citigroup is to set up an innovation centre in London, representing the first major investment by a big US bank since the Brexit vote, according to the Financial Times.

James Cowles, chief executive officer for Europe, the Middle East and Africa (EMEA) said the new centre would hire 60 technologists for its initial opening.

The centre will be the home of the EMEA unit of Citi ventures and will also host employees from across the range of the firm’s businesses. The move will boost the UK’s financial sector amid uncertainty over its future.

The City of London’s proposals for a post-Brexit free-trade deal on financial services have so far been rejected by officials from the European Commission.

The UK is currently the base for the world’s largest number of banks and home to the largest commercial insurance market. Around €6tn or 37% of Europe’s financial assets are managed in London, almost twice the amount of the closest rival, Paris.

JP Morgan Chase & Co has said it could move 4,000 jobs out of Britain if Brexit negotiations produce a divergence of regulations between the EU and UK. In the short term, up to 1,000 jobs will be moved out of Britain by the bank prior to the UK’s exit from the EU in March 2019.

In September 2017, a Reuters survey found that 10,000 finance jobs would move out of Britain or be created overseas if the UK loses access to the EU single market.

SFO levels charges at Barclays Bank

Barclays Bank PLC has been charged by the Serious Fraud Office (SFO) over ‘unlawful financial assistance’ said to have been given to Qatar in 2008, according to BBC News.

In June 2017 the same charges were levelled against Barclays PLC. The focus is now also on Barclays Bank, a move which is significant as it could impact on the banking licence for the company’s operations in different countries. A guilty verdict against the bank could see it lose this essential licence.

In 2008, Barclays accepted a £12bn loan from Qatar Holdings in a bid to avoid asking for a government bailout. Qatar Holdings is owned by the state of Qatar. The deal included an arrangement for £2.3bn to be loaned back to Qatar Holdings.

The SFO claims that the loan was used either directly or indirectly to buy shares in Barclays, which the SFO says is ‘unlawful financial assistance.’

Barclays said in response: “Barclays PLC and Barclays Bank PLC intend to defend the respective charges brought against them.

Barclays does not expect there to be an impact on its ability to serve its customers and clients as a consequence of the charge having been brought.”

JP Morgan issues warning over Brexit job losses

The chief executive of JP Morgan has said the bank may cut its UK workforce by more than 25% if different financial rules are adopted following Brexit, according to BBC News.

Boss Jamie Dimon said drastic staff cuts were not needed immediately after the referendum but in the longer term there may be cuts if Brexit talks failed to ensure a smooth transition and an outcome which is similar to current arrangements. Dimon said failure to achieve this would harm London’s status as a global financial hub.

In the run-up to the referendum, Dimon said that around 4,000 jobs would be lost if the UK voted to leave the European Union. Critics said this was part of ‘Project Fear’. The job losses were subsequently revised down to around 500 – 1,000 posts.

Dimon said: “If we can’t find reciprocal recognition of rules – and there are a lot of people who are mad with the Brits for leaving and want their pound of flesh – then it could be bad. It could be more than 4,000.”

A government spokesperson said that the country’s competitiveness would be preserved following Brexit, and that a partnership with the EU “based on our rules and regulations being the same at the start and on our shared belief in free trade and a commitment to regulatory standards” would be established.

JP Morgan and fellow leading bank Goldman Sachs have indicated they will move substantial parts of their EU operations to Frankfurt if the resulting arrangements are not satisfactory.

ECB orders Deutsche Bank to increase common equity holdings

The European Central Bank (ECB) has increased the capital holding requirements for Deutsche Bank in 2018 to a little above the average for European lenders, according to City AM.

The German bank is now required to maintain a common equity tier one (CET1) ratio of 10.65% throughout 2018, up from the 9.52% requirement which applied in 2017. The change has been announced on Deutsche Bank’s website.

The change does not necessarily mean that the bank will have to raise additional funds, as it held a CET1 ratio of 14.58% in September.

The ECB decision was announced following an annual review and evaluation process which enables the central bank to judge the level of exposure to risk of individual banks.

All banks are required to hold a minimum of 4.5% of risk-adjusted assets as common equity within BAsel III banking regulations, but the ECB sometimes applies higher requirements for banks judged to be so important that their collapse could trigger a broader financial crisis.

The raise in the bank’s capital requirements shows that the capital conservation buffer is being implemented as well as a separate buffer which applies to globally important banks.

Bitcoin proves volatile on the markets

It’s been a busy week for bitcoin – even by bitcoin’s standards. On Wednesday, it reached its highest level at $11,434, before nosediving a huge 21% to $9,009 just six hours later. The last time the bull market saw such extremes was in 2008 after the Lehman Brothers collapse. Back then US stocks took 24 days to slide the 20% they needed to cross back into bear market terrain.

This week, investors looked on in amazement as the cryptocurrency moved from bull to bear to bull again in record-breaking time. According to the Financial Times, there were reports of outages and slow trading at some of the major exchanges as the price vacillated so violently.

When at its highest point, bitcoin had risen more than 12-fold for the year – the equivalent of more than 1,100%. At the start of 2017, the cost of buying one bitcoin had been around $1,000.

Bitcoin’s recent volatility has led to parallels being made with previous booms – everything from the 17th century passion for tulips to the dotcom bubble (and crash) in the late nineties.

Rich Ross, Evercore’s head of technical analysis explained: “We’re watching history. It is a classic bubble, and bubbles go up a lot. It is a mania and the best thing about it is you can’t value it, like trading technology stocks in the nineties.”

Many predict that bitcoin will soon move from the side-lines to become a mainstream currency. This week’s whipsaw trading hasn’t deterred traders looking to make a quick profit.

According to David Drake, chairman at LDJ Capital, a multi-family office, bitcoin will keep going up. He estimates the cryptocurrency could be as much s $20,000 by the end of next year.

Post-Brexit hubs for Goldman Sachs in Frankfurt and Paris

Goldman Sachs is planning to have two hubs on the European continent following Brexit, according to Reuters. The banking giant will establish bases in Frankfurt and Paris, with London staff free to decide where they wish to relocate

Speaking to French newspaper Le Figaro, chief executive Lloyd Blankfein said: “We will have more employees on the continent [post-Brexit]. Some, if they want to, would come from London, we will hire others.

“But we won’t have a single hub, but two – Frankfurt and Paris… Brexit pushes us to decentralise our activities. In the end, it is the people who will largely decide where they prefer to live.”

At present, most of Goldman Sachs’ European activities are carried out from London, where 6,000 employees are based. Once Britain leaves the EU, the bank will need to ensure stability of services for clients remaining in the EU’s single market.

The chief executive said it was almost time for the bank to make key decisions and he hoped negotiators in the Brexit talks would reach agreement soon on rules for a transition period ahead of the final exit in 2019.

To attract banks, France has been relaxing regulations including employment laws under the leadership of President Emmanuel Macron.

HSBC agrees to settle French tax evasion case for €300m

HSBC is to pay €300m (£266m) to French authorities in order to settle a long-running investigation into tax evasion by French customers of the bank, according to BBC News.

The allegation from the French financial prosecutor was that HSBC’s Swiss private banking unit assisted clients who wished to evade tax. The bank has acknowledged to ‘control weaknesses’ and said it was taking steps to address them.

Payment of the fine will conclude action against HSBC but it is still possible that two former legal directors could face further legal claims.

The investigation started in 2014 following the leak of data by a former IT employee. The records detailed transactions involving thousands of French customers. The French prosecutor claimed that €1.6tn of assets were involved in tax evasion schemes.

The settlement is the first deal to be struck under French rules introduced in 2016 which allow banks to settle claims without any finding of guilt. HSBC said it was glad to resolve “this legacy investigation which relates to conduct that took place many years ago.”

Big banks lease Frankfurt offices as Brexit contingency

Speculation that London could lose out on its status as a global financial hub post-Brexit has taken a tangible turn as several major banks have agreed leases in the city’s competitor hub, Frankfurt.

According to Reuters, Goldman Sachs has entered a rental agreement for 10,000 square metres of offices in the new Marienturm building in Frankfurt. Goldman Sachs will occupy top eight floors of the new 37-story skyscraper, providing space for 1,000 staff.

At present, Goldman Sachs has around 200 staff in the German city. It is expected to increase activities such as trading, investment banking and asset management in what a spokesman called a “Brexit contingency plan.”

Another financial giant, Morgan Stanley has also signed a lease for offices in a tower currently under construction. The Omniturm is expected to lease enough space for Morgan Stanley to double its current Frankfurt staff count of 200.

JP Morgan’s Frankfurt presence looks likely to be increased by a further two floors of the tower it currently occupies with a staff of 450. Citi has also said it will add 150 to its Frankfurt roster.

The British government has proposed a transition deal to smooth the way to leaving the European Union, but progress in negotiations has been slow. A Bank of England official recently said that unless an agreement was in place by Christmas, many firms would begin to transfer jobs abroad.

Legal & General invests £40m into employee loan fintech startup

Legal & General has invested £40m into a fintech startup that partners with employers to offer loans to workers, according to Business Insider UK.

SalaryFinance was started by Dan Cobley, former MD of Google in the UK. The startup enables staff to apply for loans of up to 20% of their annual salary with interest rates from 3.9% APR. The mechanism can also be used to set up automatic savings accounts.

The startup calls itself a ‘financial wellbeing’ business, offering tools to manage money and educational opportunities as well as loans. It is used by employers including Metro Bank, Hays recruitment and Hackney Council.

Bernie Hickman, CEO of Legal & General Insurance, said the investment was part of a new fintech arm of the business that “brings together the many benefits and strategic advantages that Legal & General enjoys with the fast pace, technology first, customer-centric approaches of successful startups, such as SalaryFinance.”

The £40m investment will enable the startup to fund expansion into the US market. Legal & General is following in the footsteps of other financial services companies experimenting with fintech, including Aviva.

The move comes after an announcement in September 2017 that Goldman Sachs would invest £100m into SalaryFinance’s rival Neyber, which also describes itself as a financial wellbeing business and offers loans secured against pay cheques.

Accountants to be edged out by robots, says DB CEO

Deutsche Bank chief executive John Cryan says work now done by qualified accountants could soon be carried out by robots.

Cryan told a Frankfurt gathering: “In our bank we have people doing work like robots. Tomorrow we will have robots behaving like people. It doesn’t matter if we as a bank will participate in these changes or not, it is going to happen.”

Deutsche Bank is currently undergoing a restructuring programme led by Cryan, who joined the bank in 2015. Deutsche Bank employs 100,000 people around the world.

Cryan joins other senior banking figures to predict the impact of automation on the profession. Andy Haldane, chief economist at the Bank of England, has said up to 15m jobs are at risk in Britain from the rise of the robot. The former chief executive of Barclays Antony Jenkins has described technology as “an unstoppable force” giving banking an “Uber moment” of disruption.

Automation could lead to better productivity, as accountants are freed from number-crunching to focus on more analytical roles that contribute to strategic direction. However, critics say that automation undermines the market by increasing unemployment, so there are fewer consumers able to buy the products made by robots.

Cryan also said that Frankfurt is set to receive a banking boost from Brexit. The banker said the German city has the regulatory capacity, law firms, consultants and airport capacity to take business from the City of London. Around 4,000 of Deutsche Bank’s 9,000 London-based staff are said to be preparing to move to the city after Brexit.