There are lot of things you need to create a successful economic centre. Skilled workers are crucial. Stable government helps. So does a reliable fair system, low and predictable taxes, a vibrant cultural life, and a network of businesses that feed off one another. But there is one other factor that shouldn’t be over-looked. As with so much else in life, a bit of luck helps as well.
Right now, it looks like the City just got a break. The crisis at Deutsche Bank could not have come at a better time. In the wake of Brexit, London’s financial centre faced what was certainly its greatest challenge in the last four decades. Both Paris and, more importantly, Frankfurt were determined to steal much of its lucrative business.
But you can’t really create a global finance centre, or any other kind of business hub, without some home-grown champions of your own. With Deutsche Bank in retreat, Frankfurt doesn’t have any. Neither does Paris. Without one, they can poach some back office work – but they can’t replace the City.
The deepening troubles at Germany’s most significant bank have been evident for a long time. It has made losses for the last three years, and those widened in the latest quarter . Little progress has been made on cutting its 100,000 staff. It has struggled in the global capital markets, and its core German business has not been performing well enough to paper over the cracks.
Its share price has been catastrophic, dropping from more than €30 in 2014 to just over €11 now. Its market value is down to a mere €24bn (£21bn), which hardly makes it a major bank any more – BNP Paribas, for example, is worth three times as much and HSBC six times. It has been a very rough ride, with rumours along the way that it might even need a bail-out.
This week, the board finally took action, replacing its British-born chief executive John Cryan with Christian Sewing, a lifelong staffer who was heading up its retail banking unit. It remains to be seen what the new man plans for Deutsche. But it already looks as if he will scale back its global ambitions, downgrade its investment banking operations, and concentrate on domestic German banking.