London and the UK will remain Europe’s top financial centre over the next decade, according to Deutsche Bank’s chief executive John Cryan, despite fears in the City that the vote to leave the EU could be ruinous for the industry.
That represents a turnaround from his previous view that London’s position as a financial hub would be put at risk by the vote, on the basis that much EU bond trading would flee the City.
Mr Cryan does, however, maintain that Britain’s financial district will “be very different” as its relationship with the rest of Europe changes.
Brexit will not ruin the City of London's position as Europe's top financial centre, Mr Cryan said Credit: Alamy
“It is important for the bank to respect the fact that we really need to follow our customers. In some areas London is our biggest trading hub,” he said at a Handelsblatt finance conference in Frankfurt.
“We trade a lot of paper and derivatives which are eurozone or EU paper, and although we are passported into the UK and the UK authorities are very keen for us to continue to passport in, our clients might take us back into the EU because they may demand we transact with them through an EU entity.”
Much of the impact of the referendum would also be felt across the rest of the EU, Mr Cryan said, which should “re-engage with the people of Europe and consider what the institutions of the EU should be to serve the people of Europe in the 21st century. Maybe some reform is required to make it more relevant to today.”
The British chief executive also increased his criticism of the European Central Bank’s negative interest rate policy.
Rather than cutting the cost of loans, Mr Cryan said that negative rates are an extra cost to banks, encouraging them to hike interest rates charged to borrowers – particularly for smaller banks which stick to traditional products such as savings accounts and home loans.
Deutsche Bank made a €6.8bn loss last year and said negative rates cost it hundreds of millions of euros Credit: Krisztian Bocsi/Bloomberg
“If you take a large bank [such as Deutsche bank], we have the ability to withstand negative rates for much longer. We have a much more diversified business, with asset management fees, a big trading business, and they are less affected, or not affected,” the chief executive said.
“But our core banking business is affected, and at the margin deposits make losses because the money is put with the central bank. For a simpler more mono-line bank taking deposits and lending to customers, it is more difficult – they have to charge more on the asset side for lending, because you can’t really charge customers for deposits.”
He said that Deutsche Bank is losing “hundreds of millions of euros per year” in negative interest rates paid to the ECB, and that Postbank – the retail arm it is selling off – is introducing an account fee for some customers.
“For pure deposit accounts it is hard to charge retail customers. They will not deposit, they will try to hold the cash,” he said.
“We do need the money because it is an important source of liquidity for the sector. Banks will have to absorb that cost and try to make up for some of that by charging a little more for lending, which is why I think the transmission mechanism for negative rates isn’t working.”
Last week Mr Cryan warned against the policy’s “fatal consequences”, arguing negative rates were “working against the goals of strengthening the economy and making the European banking system safer”.
The chief executive also ruled out a merger with German rival Commerzbank, insisting that he wants to shrink the bank and does not envisage any mergers or takeovers for several years to come.